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Cadbury: The Long Wait for Returns is Over

21 Nov 2012

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Peterside Adeto

Trading now at its highest price, Cadbury Nigeria Plc has returned thrice more than the average return at the stock market. Eromosele Abiodun examines the variables driving the uptrend

Until recently, the years after the 2006 account overstatement scandal that rocked Cadbury Nigeria Plc, were so tough the company struggled to regain its feet and reckoning as a blue chip stock. In October 2006, the board of Cadbury Nigeria Plc notified the world, which would include its shareholders and regulatory bodies of the discovery of “overstatements” in her accounts, which according to it, has spanned many years. It quickly appointed PriceWaterHouseCoopers, an independent accounting firm to investigate the “overstatements” As a result, more than 300 shareholders sued the board of Cadbury Nigeria and its auditor for breach of duty.

The company is a part of the Cadbury Schweppes Group, a global giant in confectionaries. It was alleged that the shareholders suffered huge losses due to deliberate overstatement of Cadbury Nigeria’s financial position over a number of years to the tune of N15 billion ($122 million).

Cadbury Nigeria has since moved on, as a matter of fact, the company closed last week at its highest value per share this year. With consistent capital appreciation, Cadbury Nigeria has week-on-week set a new high for itself and riding on positive overall market outlook, the intrinsic value in the food and beverages company boosted its potential among the advancers. Cadbury Nigeria’s market consideration has particularly witnessed steeped increase in the days after the release of its audited report and accounts for the year ended December 2011. Against its lowest market consideration of N8.33, the performance of the stock becomes even more spectacular with a return of about 73 per cent. On the average, the pricing curve suggests a range of 40-60 per cent gains for more discerning mid-level investors.

The price trend so far this year underlined a major recovery for the food and beverages company, which had slumped by 55.5 per cent in 2011. Cadbury Nigeria’s share price has been volatile in recent years. From a low of N9.97 in 2010, the stock peaked at a high of N34.84 and later closed the year at N25.62. It however dropped from a high of N29.20 to a low of N10.17 and eventually closed 2011 at N11.40 per share. The rather turbulent pricing trend of Cadbury Nigeria in previous years, compared with the impressive stability and appreciation of its peer-Nestle Nigeria, was indicative of the hopes and concerns of investors over the recovery of the company.
Cadbury Put the Past behind it

Audited report and accounts of the confectionery company for the year ended December 31, 2006, which detailed the spillovers of the adjustments for several years of overstatements, indicated net current liabilities of N8.9 billion and accumulated losses of N11.2 billion. With 10 adjustments running into about N15 billion, the company had entered the red with a net loss of N4.7 billion while turnover dropped by 35 per cent. Cadbury Nigeria’s group shareholders’ funds also dwindled by 80 per cent from N10.87 billion in 2005 to N2.2 billion in 2006. Between 2006 and 2009, the company wallowed in losses. Net loss after tax rose from N721.3 million in 2007 to N2.7 billion in 2008 and reduced to N1.24 billion in 2009. But after a highly excruciating restructuring and successful fund raising in 2009, Cadbury showed a glimpse of rebirth in 2010.

With generally positive underlying profitability ratios, key actual profit and loss figures finally returned to green in 2010. Gross profit margin increased from 25 per cent in 2009 to about 32 per cent in 2010. Pre-tax profit margin reversed from -9.3 per cent in 2009 to 6.7 per cent in 2010, indicating that the company made an average profit of N6.70 per every N100 unit of sales in 2010 compared with average loss of N9.30 made on similar sales in 2009. Return on total assets stood at 6.9 per cent in 2010 as against -9.4 per cent in 2009. Actual return to shareholders turned positive with a return on equity of 9.0 per cent in 2010 in contrast with -9.8 per cent in 2009. Strong underlying profitability ratios also underpinned actual growths. Total sales rose by 14 per cent from N25.6 billion in 2009 to N29.2 billion in 2010. Cadbury Nigeria posted its first pre-tax profit in five years in 2010 with a pre-tax profit of N1.95 billion. Net profit closed 2010 at N1.2 billion as against net loss of N1.24 billion in 2009.

Renewed Hope
The year ended December 31, 2011, report showed a stronger and more resilient performance. Turnover rose by 17 per cent to N34.11 billion in 2011. Gross profit also rose by 20.7 per cent from N9.25 billion to N11.16 billion. Profit before and after tax leapt by 160.3 per cent and 216.8 per cent to N5.08 billion and N3.70 billion respectively. Its shareholders funds also grew by 18 per cent from N28.5 billion in 2010 to N33.71 billion in 2011.

The report generally showed strong underlying fundamentals with gross profit margin rising from 32 per cent to 33 per cent. Pre-tax profit margin doubled to 14.9 per cent. Although Cadbury Nigeria has not declared any dividend, the latest earnings represent significant improvement and strong prospect for future earnings. With earnings per share rising from 37 kobo in 2010 to N1.18 in 2011, current earnings yield stands at 8.2 per cent. Net assets per share closed 2011 at N10.77 as against N9.10 in 2010.

Interim report and accounts of the company for the first quarter ended March 31, 2012, released recently, showed impressive growth in profit in spite of marginal decline in sales. Turnover had declined from N7.59 billion in first quarter 2011 to N7.20 billion in 2012. Gross profit dropped marginally from N2.42 billion in 2011 to N2.27 billion in 2012. With better mid-line cost management, profit before tax grew by 86 per cent to N587.1 million in 2012 as against N314.7 million in 2011. Profit after tax also grew by 95 per cent from N205.6 million to N400.66 million.

With pre-tax profit margin of 8.15 per cent in first quarter 2012 as against 4.15 per cent in comparable period of 2011, the latest interim report represents a significant improvement. Given the full-year performance for 2011 however, the 2012 first quarter performance appears to be a slow start.

The company’s management said various strategic initiatives would continue to consolidate the performance of the company in the years ahead. With Cadbury Nigeria’s new focus on growth brands serving as impetus for growth, its membership of the Kraft Foods also opens immense opportunities, which could be catalytic to significant growths in the years ahead. Cadbury Nigeria is already working on leveraging on the affiliation to introduce many global super brands from Kraft Foods into the Nigerian market. These business prospect and emerging fundamentals are the key variables behind expectant investors’ aggressive positioning, which underlines the Cadbury Nigeria’s current share price trend.

Tags: Business, Nigeria, Featured, Cadbury

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