By OKEY ONYENWEAKU

The corrosive effect of the Coronavirus pandemic, popularly known as Covid-19 and crash in the price of crude oil has clearly left many firms and corporations gasping for air and Cadbury Nigeria Plc, one of the nation’s best known blue chip beverage companies is not left out.

Under the circumstances, many businesses have succumbed to the debilitating effect of this most unusual time in the life of not only Nigeria but also the rest of the world.

In the case of Cadbury, mounting inventories have presently dragged down both the top and bottom lines of the firm as can be seen in the just released half year results for the period ended June 30, 2020.

A cursory look at Cadbury Nigeria’s performance shows that its revenues dropped by as much as 18 per cent year on year; from N19.454billion in year 2019 to N15.917billion in 2020.

The firm’s half year results also revealed that while results from operating activities dropped by 20 per cent, profit before tax also declined 20 per cent from N957.055million in 2019 to N766.657million in 2020.

Similarly, profit after tax for the period followed the same trend and eased by 20 per cent from N669.938 million in 2019 to N536.660 million in 2020, while earnings per share also declined 20 per cent from 35.67 kobo to 28.57 kobo.

Poring through the unaudited report of the company reveals that within the same period under review, inventories rose 36 per cent from N6.062billion to N8.302 billion.

A weak performance was also noticed in the company’s Q2 (April to June) 2020 showing which showed that revenue declined 27.6 per cent with a loss before tax of –N146.108million. The results also revealed that loss after tax for the period also stood at –N102.276 million in 2020.

At the end of Q2, 2020 while cost of sales dropped 24 per cent, other income rose 64 per cent in 2020.

Analysts believe that this result was not particularly unexpected given the weak economy and the aforementioned challenges which include the drop in crude oil price, the damaging effect of the Covid-19 and the weak macro-economic environment in addition to heightening insecurity and a seeming lack of political direction of the incumbent federal government.

Fortunately before now, and precisely in the first quarter of 2020, the company’s profit before tax had grown by 26.08 percent while turnover dropped by 7.87 per cent. Profit after tax also nudged up by 26.08% to settle at N638.9 million from N506.75 million reported in the first quarter of 2019.

The earnings per share of the firm stood at 34 kobo, up by 26% when compared to the earnings per share of 27 kobo reported in the first quarter of 2019.

Significantly, the positive and strong performance which gave support to the firm’s first quarter 2020 showing started at the end of year 2019.

There was also an overall positive and strong performance in the company’s audited results for the year ended 2019 as its overall revenues rose by 9 per cent, up from N35.973 billion in 2018 to N39.326billion in 2019.

At the close of business in 2019, its profit after tax had similarly increased by 30 per cent from N823million to N1.070billion. Impressed by its sudden burst in good fortunes, the board of the giant confectionery had at the same time paid shareholders a dividend of N912.2 million, representing a 93 per cent increase above the N471.428 million dividend payout of 2018. In cash terms, the dividend payout amounted to 49 kobo per share.

Looking over our shoulders though, Cadbury’s current challenge is not exactly specific to it. These are actually not the best of times for companies in almost all the sectors of the economy. Not even the leader-player, Nestle Nigeria can beat its chest for strong performance presently.

For example, Nestle Nigeria’s profit took a dive by 13 per cent in the first quarter of 2020. Nestle’s weak performance came after it had posted a growth in profit by 6 per cent in the first quarter of the financial year 2020. However, as second quarter results continue to trickle in, it is becoming clearer that many firms are really struggling. For instance, Union Bank also posted 9.2 per cent in second quarter 2020.

Returning to the details of the Cadbury challenge, a reliable source, who has keenly followed the progress of Cadbury over the years told Business Hallmark that in addition to its being hobbled by its lean product line – with Bournvita, Tom-Tom and Butter mint, featuring as the core stars of the pack – the company has also been beset by the introduction of some failed products and management issues over the years.

Apart from these developments limiting its competitive edge, the source noted that Kraft International which acquired Cadbury in 2012 may not have also helped matters as its subsidiary, Mondelez, the snacks branch of the parent company, is not inclined to helping the company to reinvent itself with fresh investment and product development.

He also noted that the company’s cash-cow, Bournvita, which accounts for about 80% of its revenues, is facing very stiff competition in the market.

From being a quite strong confectionery whose products dominated the market through the years, and more especially Bournvita, which was served on the breakfast table of many-a-household, to a firm that appears over-whelmed by stiff competition, Cadbury seems to be fighting for survival as it is increasingly losing ground to competitors such as Nestle Nigeria with Milo, Promasidor with Cowbell, and Ovaltine, among a retinue of several other related products which come in very small micro packages.

On the flip side however, there are those who say Cadbury should first be commended for simply staying in there in the face of the extenuating circumstances at the moment.

‘’In the midst of all the macro-economic challenges and border closure, the company has remained creative which impacted its profit positively’’, an inside source told BH.

MARKET SHARE

It is not very easy to determine Cadbury’s market share.  Whatever the situation, its products are still market leaders in the market, a position it has occupied since the ’70s. Bournvita, Tom Tom and Butter mint are popular names that are known in many parts of Nigeria and Africa. The new rebranding exercise and the direct sales strategy it recently adopted may have helped shoot up the firm’s market share again. But these products seem to be facing stiff competition from Milo from Nestle Nigeria, Ovaltine from Ovaltine and Cowbell choco from Promasidor among others. Many customers who spoke to BH confessed that the rebranded Bournvita is now more qualitative and richer in choco content. It is also instructive that Cadbury has shrunk its product lines to concentrate on the three major products listed above for strategic reasons.

BH investigation also reveals that Bournvita now compares with Nestle’s Milo. Also, though some believe that the market for Cadbury’s products appears to have peaked, some product dealers and users have a different opinion saying that it is still dominant in the market. “If you want a good candy what comes to mind is Eclairs or Tom Tom,” a customer said.

Challenges

Market analysts have attributed the weak performance of manufacturing companies to the prevalent macroeconomic challenges in Nigeria. While some of them fingered the seeming lack of a proper pro-growth economic direction in the President Buhari administration as one of the strong underlying reasons for this, others have hinged it on tight regulation from both the fiscal and monetary authorities. Yet a third group has sadly pointed at the shrinking revenues of the nation, caused by the volatility in crude price, lack of productivity and increased funding for security, in addition to low disposable income in the hands of consumers. These, market observers believe have also been responsible for the near weak performance of other sectors of the economy.

But what have dealt greater blows to Cadbury and other firms are the devastating effects of the pandemic and the wobbly price of crude oil. In fact the lockdown which lasted for more than five weeks was quite challenging for businesses which could not even open their business premises or run operations. Productions lines were also affected badly.

These have dealt a heavy blow on business operations as many firms seem to be struggling to survive.

The leadership of the Manufacturers Association of Nigeria has always fingered lack of disposable income in the economy due to delayed budget and local production constraints as the cause of mounting inventories of unsold stock in the warehouses of manufacturers.

“Most of our members complained of their unsold stock inventories because people are not buying their goods, which can be attributed to the delay in the passage of the budget.

“A situation where you generate your power for production does not make you competitive, because whatever is produced in this country is produced at a higher cost when compared to other parts of the world.

“The same goes for the transportation system as we still move our good via roads, even the heavy-duty goods. Such good which should go by rail lack enough rail lines to carry them.

“There is a need to develop the transportation sector to the point where it can support the manufacturing sector and also support the economy,” they said.

Market observers have also noted that manufacturing capacity utilization has continued to slide since it hovered between 70 and 75 % from 1975 to 1980s. There is also stiff competition in the industry as Cadbury, Cowbell and many other small companies continue to push for higher market share in the F$B market.

Whereas the government has excluded importers of 43 items from accessing forex to boost their market performance, the recent closure of the border has also impeded the exportation of manufactured goods.

But these have not deterred some like Cadbury Nigeria who appears to have proved they can always run against the tide and still deliver fairly good margins to investors.

In Cadbury’s instance, the company has generally performed well over the years.

Cadbury as an investment option

To invest in Cadbury now is dicey. The company has only made profits in 2015 and 2017, 2018 and recently in 2019, counting from 2006 to date. Investors were only paid 65 kobo per share as a dividend in 2015, 16 kobo in 2017 and 30kobo, 25 kobo in 2018 and 49 kobo in 2019. Investors believe however that there could be better times in future. But we first have to get there.

Broad street observers noted that the company’s stock is not only lagging in value because of its predicament but that the current overall weak market condition is also taking a toll on its shares. However, while its stock has lost 37 per cent year to date, it is trending with the weak market which lost about -8 per cent at the close of business on Wednesday, July 29, 2020. Its share price stood at N6.60 per share on July 29, 2020.

On a comparative note however, the company’s current share price is a far cry from its competitor, Nestle Nigeria Plc whose share price closed at N1,175 per share on July 29, 2020.

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 the 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 depends on very slim product lines.

Managing Director, Crane Securities Limited, Mr. Mike Ezeh told Business Hallmark that the incident of financial misstatement of 2005/2006 is still haunting the company. This is in addition to what he calls its conservatism.

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

Cadbury Nigeria Plc had appointed Mrs. Oyeyimika Adeboye as Managing Director, in 2019. Mrs. Adeboye took over from Mr. Amir Shamsi, who moved on to a new role within Mondelēz International, the parent company of Cadbury Nigeria.

Mrs. Adeboye is the first woman to be appointed Managing Director since the establishment of Cadbury Nigeria over five decades ago.

A chartered accountant, she had joined the Board of the Company in November 2008 as Finance and Strategy Director, West Africa.

On the overall scale of things, a few market analysts still believe that Cadbury may yet be able to fend off its challenges and return to vigour soon.

And its history does not suggest otherwise. Beginning in the early 1960s as an initial operation, established to re-pack imported bulk products, this packing operation grew rapidly into a fully-fledged manufacturing concern and resulted in the incorporation of Cadbury Nigeria Limited in January 1965. In 1976, the firm became a publicly listed company with shares traded locally on the Nigerian Stock Exchange. If history remains our guide and the market still the determinant, we have very little to suggest anything different for Cadbury Nigeria Plc. But it must first get beyond the challenges of today.