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Published On: Mon, Jan 28th, 2019

Resurgent Cadbury projects brighter future

…back from dead; posts profits

By OKEY ONYENWEAKU

Shareholders of Cadbury are once again beginning to see light at the end of the tunnel as their Company which in the last decade had disappointed them, appears to have gained traction and rebuilding its bottom line.

After a protracted setback which prompted the board and management of the company’s reversion to the drawing board to hack out new strategies to refocus Cadbury, it is navigating out from the red region to the positive.

A reflection of this delightful trend is seen in the beverage firm’s third quarter 2018 performance which is clearing the red paints in the books for a fresh breath and profitability. Most impressive is the company’s magical act of putting smiles on the faces of its investors having paid dividend in 2015 and 2017 after about a decade of dividend drought.

The confectionary company displayed strength especially in the nine months results as profit before tax grew by 492.21 per cent to N252.79 million, compared to a loss of N64.45 million in the corresponding period of 2017.

The company’s profit after tax showed a 366.78 per cent Year-on-Year (YoY) growth to N171.95 million, in Q3, 2018, while earnings per share also increased from negative earnings of three kobo in Q3, 2017 to positive earnings per share of nine kobo in 2018.

At the end of September 2018, Cadbury recorded revenue of N26.96 billion, showing a 10.65 percent growth from N24.37 billion in 2017; cost of sales grew by 14.34 per cent to N21.65 billion from N18.94 billion in Q3, 2017, leading to a gross profit of N5.31 billion.

Industry analysts are wont to believe the impressive third quarter performance is an indication that Cadbury Nigeria may achieve positive results at the end of year 2018.

What has given hope to stakeholders is the dividend of N301.51 million Cadbury paid to shareholders in 2017 when it recorded a profit after tax of N299.998 million as against loss after tax of N296.403 million posted during the comparable period of 2016, representing a growth of 200 per cent.

The conglomerate’s management’s effort hadalso shown in 10 per cent growth in revenue from N29.979 billion in 2016 to N33.079 billion for the financial year ended December 31, 2017.

A deeper appraisal of the company’s performance reveals that its losses have been easing from the negative position of -N766.3million in 2017 to -N423.7 million in 2018. However, while it is reasonably in control of inventories which dropped from N6.252 billion in 2017 to N4.673billion in 2018, Net finance cost rose from N205.72million to N426.4million in 2018 casting a discomforting shadow on its operations.

A critical look at its books shows that revenue has been dropping since 2012 except in 2013 when it achieved N35.7billion. Similarly, profit has also been on the plunge since 2012 except in 2013 when its profit stood at N6.081billion before the loss of N296. 4 billion in 2016. Analysts seem uncomfortable with the rising cost of sales which has been inching higher in the three successive quarters of 2018.

As the company holds its strategic meetings for the year, market observers suggest the board and management should draw up ways of controlling costs of sales and operational costs.

Chairman of the company, Mr. Atedo Peterside, said the company would sustain its focus on quality, drive improvement in productivity and reinforce operational efficiencies in order to maximize its competitive advantage.

“Also, the company intends to drive growth ahead of competition to increase market share within its product categories, developing an organisation of high potential talent and sustaining the company’s aggressive Route-to-Market initiatives,” he had said.

More comforting for its investors is that the company which has struggled to survive in the last 10 years is showing signs of better vision and management.

Challenges

The company suffered huge set-backs as a result of weak local currency (semi- floating of the naira by the CBN) that has made borrowing costs prohibitive and nudged up costs of goods sold by the firm. This happened before the new window, -‘ The Nigerian Autonomous Foreign Exchange Rate Fixing NAFEX’, which has improved forex liquidity ; ”continued difficulties with obtaining foreign exchange to buy needed raw materials, a weakened consumer purchasing power, and competition from rivals in the market are also have affected the company badly”, Market experts have said.

Whereas the company is seen recently as recognising the importance of adhering to the best governance principles and practices, its mis-steps about 13 years ago appear to still haunt the firm.

Experts have not stopped blaming the incident of 2005/2006 when the management of Cadbury Nigeria Plc under the leadership of Mr. Bunmi Oni mis-stated its accounts to make the company look good.  Cadbury Nigeria Plc, manipulated and overstated its financial statement to boost its image as well as push up its stock price.

As a result, the company inflated its Turnover, Profit and other performance indices; the manipulation, which was discovered in 2006 started in 2002. The major culprits were the former Managing Director, Mr. Bunmi Oni and former Finance Director of the company, Mr. Ayo Kadiri.

This deception compelled investors to bet on the company’s stock believing that it had good fundamentals. As a result, the Securities and Exchange Commission (SEC) waded into the matter and banned Mr. Bunmi Oni and Mr. Ayo Akadiri, from operating in the nation’s capital market or hold directorship of any quoted company in Nigeria.

SEC also fined Cadbury for filing financial statements that contained untrue/ misleading statements; and trading on its shares was suspended for about three months while it was being investigated. Some other directors of the Company and senior management staff were sacked.

Its External Auditor, Akintola Williams Delloite and Registrar, Union Registrar Limited were also sanctioned.

Apart from Oni and Akadiri’s ban, others recommended for investigation and prosecution include Dr. Uduimo Itsueli, Chairman of the company, Mr. J. S. Bogunjoko, Mr. Abiodun Jaji, Mr. Andrew Baker, Mr. Christopher Okeke, Mr. Olatunde Falase, Chief Raymond Ihyembe, Mr. Gabriel Onabote, Mr. Olusegun Oyewole, Mr. Matthew Shattock, Mr. Olusegun Aina, Mr. Akinbode Gbolahan and Mr. Tunde Egbeyemi.

Nevertheless, it had consistently paid dividend to shareholders from 1977 to 2006 while bonuses came occasionally 13 times.

Cadbury had been seen as a blue-chip company by virtue of its performance in the capital market over the years. Its 2004 and 2005, performance indicators gave credence to this. For instance, it recorded N2.8billion profit after tax in 2004 and N2.7 billion in 2005.

This was also when its mouth-watering dividend stood at N1.60 and N1.30 per share. Its investors smiled to the bank as it paid a dividend of N1.6billion in 2004 and N1.3 billion in 2005. It could not pay dividend in 2006, 2007 and 2008. The company only paid dividend again in 2015 and 2017.

But the company appears to be struggling to regain its blue-chip status. First, the company has only paid dividend twice, that is in 2015 and 2017 since 2006. Second, its performance has also been very weak and unimpressive. Thirdly, compared with Nestle Nigeria, Cadbury’s performance appears  abysmal.

Cadbury’s products were highly competitive and same had been market leaders. Observers believed that one of its flagship products ‘Tom Tom had achieved deep penetration in every nook and cranny of West Africa. While Bournvita was still the food drink for many, Buttermint, Eclairs, Bubba, Trebor mints among others, are still very strong and competitive.

That is also arguable now as many competitors may have over taken Cadbury’s products in the market.

Cadbury as an investment option

To invest in Cadbury now is dicey. The company has only made profit in 2015 and 2017 since 2006 todate. Investors were only paid 65 kobo per share as dividend in 2015 and 16 kobo in 2017. Investors believe the act could signify better times in future.

Broad street observers noted that the company’s stock is not only lagging behind in value because of its predicament but that the current weak market is also taking a toll on its shares. However, while its stock has lost 32 per cent year on year, it is trending with the weak market which lost 17 per cent at the close of business in 2018.

However, Cadbury Nigeria’s management had assured shareholders that the company would focus on four key strategic initiatives to realize its growth ambitions this year, after taking major hits in sales and profit in the previous years.

Its management had told investors that the company would concentrate efforts at increasing its market share in the powdered-drink and candy categories while investing in innovation and enhancement of its product portfolio.

“One of the major strengths of our company has been operational efficiency, as aligned with global best practices.

”Constant improvements in operational efficiency helped us to offset difficulties in the operating environment,” the management had said. But market observers are worried that the company has found it difficult to re-invent itself. And they have queried how a company that wants to remain competitive depend on very slim product lines.

Managing Director, Crane Securities limited, Mr. Mike Ezeh told BusinessHallmark that the incident of financial mis-statement of 2005/2006 is still haunting the company, in addition to its conservatism.

President Progressive shareholders’ Association of Nigeria, Mr. Boniface Okezie believes that Cadbury still has potential to turn its fortunes around but he advised its management to show aggression in marketing as well as increase its product lines

On February 1, 2017 Mr. Muhammad Amir Shamsi assumed office as Managing Director after taking over from Mr. Roy Naaman.

Mr. Shamsi joined Mondelez International, the parent company of Cadbury Nigeria Plc, as a Marketing Director of its biscuit business in Pakistan in June 2009. From there, he moved up the ranks to become Head of New Categories, Gum & Candy at Kraft Foods, a Mondelez business in West Africa from 2012 to 2013.

A few market analysts still believe that Cadbury may yet be able to fend off its challenges and return to vigour soon.

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