Cadbury Nigeria on the Upswing


Goddy Egene reports that with the combined sales drive and cost reduction strategies, Cadbury Nigeria Plc returned to profitability and recommended a dividend for its shareholders for the 2017 financial year

When Cadbury Nigeria Plc, manufacturer of confectionery and food drinks, slipped into the red in 2016, many of its shareholders were highly disappointed. Their disappointment stemmed from the fact they would, again, be without dividend.

Cadbury, which used to be a leader, boasting of products that appeal to consumers years back, had a bad patch following account overstatements scandal. However, series of restructuring and management changes later restored the fortunes of the company and brought it to profitability.

After seven years without dividend, shareholders began to receive dividends on the investments in 2012. However, the joy of shareholders was cut short in 2016 as the company returned to a loss. The company had ended the year with a loss of N296 million. But while shareholders were probably expecting another long wait, Cadbury rebounded in 2017 and recommended a dividend of 16 kobo per share for the year.

2017 Financial performance
According to the results of the company for the year ended December 31, 2017, revenue increased from N29.979 billion in 2016 to N33.079 billion in 2017, representing a 10 per cent growth. Sales and distributed fell from N5.595 billion to N5.228 billion, while administrative expenses reduced from N2.073 billion to N1.594 billion in 2017. But net finance cost rose from N169 million to N361 million. However, Cadbury ended the year with profit before tax of N350 million, compared with a loss of N563 million in 2016. Similarly, profit after tax stood at N299.998 million, up from a loss of N296.403 million in 2016.

Its profit after tax also rose from N296 million loss in 2016, to a gain of N299.998 million in 2017, representing growth of 200 percent. In addition, the company reported a profit before tax of N350.317 million in 2017, compared to a loss of N296.403 million in 2016.
Based on its improved performance, the board of Cadbury Nigeria has proposed a dividend payment of 16 kobo per share to its shareholders for the year 2017.

Company Explains Results
Explaining the performance in a statement, the company’s Corporate and Government Affairs Director for West Africa, Mr. Bala Yesufu said: “We have been working assiduously over the years to turnaround our loss situation. We are happy to announce that we finally realised our vision to reposition Cadbury for improved performance, in 2017.

“We built our business on four key pillars, namely price competitiveness, aggressive route to market initiatives, sustained consumer-driven activations and exponential growth in our treat portfolio. Despite the difficult operating environment, the company recorded impressive growth in all these four areas, leading to its full return to profitability at the end of 2017.”
According to Yesufu, “As part of our repositioning drive, we have invested a lot in our human capital, pioneered some innovation in the industry, and acquired new world-class technology. We are confident that these investments will further strengthen our capabilities and enable us to deliver more value for our broad spectrum of stakeholders.”

Cadbury Nigeria unveiled its new fully automated $50million state-of-the-art Bournvita plant in Agidingbi, Lagos, in 2015. According to the company, the plant has increased its production capacity and efficiency and positioned the brand to become more competitive.

Impact of New MD
There was a high turnover of managing directors as the company had two MDs within two years. As part of efforts to sustain the company’s performance the parent company of Cadbury Nigeria, Mondelez International had appointed Mr. Roy Naaman in January 2015 and was replaced by Mr. Muhammad Shamsi in January 2017. It is believed that Shamsi’s strategies, based on his experience and supported by the board, management and staff made Cadbury to return to profitability in 2017.

Shamsi joined Mondelez International as a marketing director of its biscuit business in Pakistan in June 2009. From there, he moved up the ranks to become Head of New Categories, Gum & Candy at Kraft Foods, a Mondelez business in West Africa from 2012 to 2013. He became the Marketing Director of Kraft Foods in West Africa from October 2013 to March 2016. From April 2016 to January 2017, he was in charge of Mondelez Innovation kids Wholesome, Global Biscuits in East Hanover, United States before his appointment as MD of Cadbury.

Prior to joining Mondelez, Shamsi held different managerial and marketing positions at ICI Paints –Dulux Paints in Pakistan from October 2004 to May 2009.
He also worked as a Brand Manager for GlaxoSmithKline Consumer Healthcare from 2001 to 2004; Account Planner, Walls Ice Cream at Orient McCann Erickson from 2000 to 2001; and as Assistant Brand Manager, Biscuit Category at O.J Foods (licensee of Nabisco International).

Analysts’ Assessment
Looking at the results, analysts at Cordros Capital Limited, said revenue grew by 10.3 per cent while EBIT, PBT, and PAT of N711 million, N350 million, and N300 million were reported vs. losses in 2016.
“Net earnings was in loss (N64.5 million) as at nine months (9M) in 2017. So, the full year (FY) profit was on the back of the N364 million net profit reported in the final quarter (Q4-17). Compared to our estimate, revenue was ahead by two per cent while net profit beat the N146 million we estimated. Effective tax rate was 14.4 per cent vs. the 32 per cent we estimated,” they said.

Cordros Capital explained that Q4-17 revenue was equally ahead of their estimate by 10 per cent.
“The top-line grew by 0.7 per cent year-on-year(y/y) and 7.6 per cent quarter/quarter (q/q) during the period. Net revenue has now grown q/q consecutively for two years in Q4. We believe Cadbury’s revenue growth in Q4-17 was largely volume-driven, as opposed to Q4-16 which was majorly on prices. We were informed by distributors that there was an aggressive promotional activity in Q4, wherein customers were rewarded with discounts of as much as N800 for purchasing, say one carton of Bournvita,” they said.

Looking at the margins, the analysts said gross margin outturn was a negative surprise.
“Compared to Q4-17 and Q4-16, gross margin fell by 667 bps and 916 bps respectively. The cashback may have depressed gross margin,” they said.

On expenses, Cordros Capital said operations expenses (opex) was down 41 per cent y/y and 27 per cent q/q during the review period, while the ratio to net sales of 14.9 per cent was lower 1,049 bps y/y and 691 bps q/q.
“Cadbury’s Q4 opex is typically the lowest (although last year’s was an exception). While EBIT margin was higher relative to Q4-16, it fell by 210 bps compared to Q3-17, owing to the weaker gross margin,” they said.
Assessing the balance sheet, Cordros Capital noted that a short term loan of N1.7 billion was drawn in Q4, noting that “It would seem the borrowing was deployed towards settling trade payables which reduced by N3.1 billion from 9M-17.”