Cadbury knows no respite as losing streak leaves sores

Cadbury Nigeria plc’s 2017 half year result has shown there is no end in sight for the losing pathway it has pedalled since the end of the 2016 financial year, having posted a period loss of N766.39 million.

The loss represents more than 400 per cent drop from the N147.15 million profit recorded in the corresponding period of 2016, pummelled by fees accrued from trade mark, technical, and management agreements.

“In accordance with Rule 4 issued by the Financial Reporting Council of Nigeria, the total amount of N581,413,625 was accrued for in the financial statements and is included in the cost of sales,” said the unaudited interim financial statement for the half year ended 30 June 2017 released made available to The Nigerian Stock Exchange (NSE) on Wednesday.

Cadbury had succumbed to rising production costs in 2016 as it was hit by an after tax loss of N296.40 million in the year, compared to a profit position of N1.15 billion the in 2015.

A sharp drop in oil prices that began in the middle of 2014 triggered an acute dollar shortage that stifled manufacturers’ capacity to import raw materials and machinery to meet production demand.

Again, devaluation of the naira from the adoption of a flexible exchange rate system by Nigeria’s central bank in June last year pushed up raw material and packaging costs of firms that rely on imported raw materials to meet production schedules.              

Analysts who spoke to BusinessDay said that Cadbury’s poor performance fell short of their estimates as they had projected the consumer goods company to make a profit of close to N250 million in the period.

“Cadbury’s performance is disappointing,” said Christian Orajekwe, head of research and strategy at Lagos-based investment firm, Cordros Capital. “They had a relatively good operating environment as prices were good, demand improved, and foreign exchange pressures eased.”

We did not see the benefit of raw material prices going down; I think the company is having internal efficiency issues, Orajekwe said.

Cadbury’s cost of sales ratio (cost of sales as a proportion of revenue) rose by 6 percentage points from the previous year, wiping off the marginal improvement the company made in containing selling and distribution expenses, which had dropped by 4 percentage points from the previous period.

Analysis of the company’s unaudited financial result for the period also showed finance costs further ate into the company’s profit as the company relied on a costly funding source.

Bank overdraft soared by 1,440 per cent to N2.33 billion within the period compared to N151.37 million as at the first half of 2016.

Cadbury build up stock of unsold products within the period. Analysis of the cash flow statement of the company revealed that value unsold inventories jumped 81.27 per cent to N2.21 billion; unsold inventory was valued at N1.22 billion as at the first half of 2016.

The company used up cash amounting to N4.14 billion, part of which was used to pay dividend, acquire plant and equipment, make advance payments for materials.

Cash and cash equivalent as at the end of June 30 2017 was N927.49 million, 81.69 per cent drop from the corresponding period of 2016.

Cadbury’s share price stood at N12.40 when trading closed at the NSE on Tuesday, giving the company a valuation of N23.29 billion.

INNOCENT UNAH & Angel James