Cadbury Nigeria: Consumers’ down-trade to cheaper substitutes affects earnings growth

Cadbury Nigeria plc statement of comprehensive income for the period ended June 30, 2015 shows revenue declined by 8 percent to N14.137billion from N15.321billion in the corresponding half-year (H1) period of 2014.

Like other consumer companies, the earnings growth for Cadbury Nigeria plc was constrained in the first half of 2015 by weak discretionary spend as consumers down-trade to cheaper substitutes.  Cadbury Nigeria plc is involved in marketing and manufacturing of cocoa based beverages, confectionery and food products.

The company’s half-year pre-tax profit declined by 114 percent to N250.716million from N1.792million in H1’14. Also, half-year Profit After Tax of N250.716million against N1.263billion in H1’14, representing 120percent decline.

Cadbury Nigeria Plc is a publicly quoted company offering some of the most loved brands in Nigeria. A front-runner in confectionery and beverages, Cadbury Nigeria’s quality products– Cadbury Bournvita, TomTom, Cadbury Hot Chocolate and Cadbury Buttermint–are market leaders in their consumer segments, enjoyed throughout Nigeria and beyond.

Cadbury Nigeria plc share price dipped by 0.32 percent or 7kobo last Tuesday to N22.1. The company’s market capitalisation stood at N41.508billion and share outstanding of 1,878,202,040 units.

Cadbury Nigeria is a 74.99percent-owned subsidiary of Mondelz International, a global snacks powerhouse with an unrivalled portfolio of brands. The remaining 25.01percent of shares are held by a diverse group of indigenous, individual and institutional investors.

In H1 period of 2015 the working capital of Cadbury Nigeria plc –which is a measure of both the company’s efficiency and its short-term financial health –increased by 32percent to N2.245billion, from N1.705billion in the corresponding half-year period of 2014.

Cadbury Nigeria plc new state-of-the-art manufacturing plant will be commissioned tomorrow Friday October 16, 2015 as the company now embarks on a major new phase in its manufacturing capability which is expected to boost the company’s production capacity by nearly 37 percent to meet surging demand for Nigeria’s favourite food-drink, Bournvita, the company noted.

“The new plant which is fully automated will replace an older facility which could not support the necessary expansion plans, including the installation of new equipment. It would generate greater efficiencies, enhance the quality of our products and be more competitive in the market. As a mark of confidence in the Nigerian Economy, Mondelz International embarked on the construction of this plant within our site at Agidingbi Ikeja Lagos which resulted into Direct Foreign Investment of over N10billion” said Bala Yesufu, head corporate and government affairs in West Africa for Cadbury Nigeria.

He said: “This state-of-the-art plant which represents the single largest investment by Mondelz International in Africa in the last two years is in line with our desire to keep pace with the latest technology in our business space; the need to demonstrate our leadership position in our sub-sector of the Nigerian economy”.

Research analysts at FBN Capital said they are waiting for Cadbury Nigeria plc top-line growth to pick up particularly as “the company is a leader in the fast moving consumer goods space. Its main brands, Bournvita and TomTom, are household names and command a significant market share in the beverage and confectionery segments respectively.”

“Looking ahead, we do not anticipate a recovery in demand in 2015, given the difficult macro environment. Consumers are even more cautious with their spending and will opt to down-trade to value products in the near term. Management aims to increase market share in the beverage and confectionery segments and also introduce new products. These could count as a positive for Cadbury if implemented successfully. Price increases are unlikely due to the low switching costs in the sector. As such, like most other consumer names, we expect that Cadbury will be looking to efficiency in operations and increasing volumes to boost earnings.  After a weak 2015, we anticipate slightly better results in the coming years as a result of positive base effects,” according to FBN Capital in their initiation report on Cadbury Nigeria plc.

For more than 50 years of its existence, Cadbury Bournvita continues to remain the pride of the pack in the food drinks market, delivering great-tasting cocoa beverage, fortified with essential vitamins and minerals to consumers throughout Nigeria.

Recently, the Nutrition Society of Nigeria (NSN) re-endorsed Cadbury Bournvita, as a food drink rich in energy and essential micronutrients. It is the First Food Drink to be endorsed by the Society, which is Nigeria’s collection of experts on nutrition from the industry.

“Cadbury’s peers have also reported weak results. Unilever Nigeria, UAC of Nigeria Foods and Nestle Nigeria all recorded PBT declines in H1-2015. Although Cadbury has attempted to offset some of the headwinds with new product introductions/re-launch (Tang, Buttermint, Cadbury Hot Chocolate 3-in-1 drink and TomTom varieties), its full offering is still limited compared with peers.”, analysts at FBN Capital further said.

“Cadbury Nigeria’s share price performance has shown significant volatility since 2010, both in absolute terms and relative to the NSE All Share Index. On average, it outperformed the index by 65% between 2010 and 2013. In 2014, the stock shed – 59%, 43% worse than the -16% loss by the ASI. Ytd the shares are down -40% vs – 11% for the ASI and -17% for its main rival, Nestle Nigeria. The latter is more resilient because of its stronger historical track record, bolstered by a more diversified product offering,” the analysts further said.

Iheanyi Nwachukwu