Cadbury Nigeria Plc financial condition is fast deteriorating as spiraling production costs compounded the woes of a company that has been recording recurring losses.
For the year ended December 2016, Cadbury posted a loss after tax of N296.40 million from a profit position of N1.15 billion the previous year. Sales increased by 8 percent to N29.97 billion.
As of last trade the company traded at 7.45, 0.54% above its 52-week low of 7.41, set on Mar 14, 2017.
The battered bottom line was due to a 22.23 percent drop in cost of sales to N6.86 billion, which resulted in a 22.84 percent reduction in gross profit.
Cadbury and other fast moving consumer firms have had rising inflation, a severe dollar scarcity and an economic downturn pressure margins.
Inflation rate for the month of February was 17.80 percent, the highest in 15 months. This means consumers will have less money in their pockets to buy goods since purchasing power has been eroded significantly by rising inflation.
A severe dollar shortage stoked by the sharp drop in oil price since mid-2014 made it practically difficult for manufacturers to import raw materials and machinery to meet production demand.
The devaluation of the naira as a result of the adoption of a flexible exchange rate system by the central bank in June last year ballooned raw material and packaging costs of firms that import raw materials from abroad to meet production.
Analysts say the disruption of gas pipe line by the Niger Delta militant group resulted in gas supply shortages to manufacturers. Therefore, the demand for a more expensive source of energy- diesel was on the rise.
“Gas supply has not improved our channel checks reveal that some manufacturers have an average 80% diesel (which is indexed to the USD and more expensive than gas) in their energy mix,” said analysts at Cordros Capital Limited.
Cadbury succumbed to the aforementioned challenges as cost of sales ratio increased to 77.11 percent in December 2016 from 67.82 percent as at December 2015.
This means the Nigerian consumer goods giant has spent more on input costs to produce each unit of product.
Analysts say the consumer good firm should embark on cost cut measures, launch market driven product into the market to fend off competition from small firms cannibalizing sales.
Manufacturing in the fourth Quarter of 2016 stood at 3.56% (year-on-year), 3.37% points lower than the 6.93% recorded in the corresponding period of 2015, according to a recent report by the National Bureau of Statistics (NBS).
Analysts are of the view that the rebound in oil price and the ability of state government to pay salary arrears could spur consumer spending hence lifting the revenues of manufacturers.
“Nigeria’s consumer goods sector is one of the hardest hit by the economic crisis that has been raging since 2015. At this stage, we see little reason for things to improve markedly in 2017,” said analysts at CSL Limited.
Analysts are of the view that the rebound in oil price and the ability of state government to pay salary arrears could spur consumer spending hence lifting the revenues of manufacturers.
“Nigeria’s consumer goods sector is one of the hardest hit by the economic crisis that has been raging since 2015. At this stage, we see little reason for things to improve markedly in 2017,” said analysts at CSL Limited.
BALA AUGIE
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