The state of the Nigerian economy and the business environment in 2017 have remained challenging, although marginal improvement was witnessed over the previous year’s performance.
Last year, economic activities were weak as key micro-economic indicators remained unsteady. Key variables driving low performance includes low oil output production, rising inflation and unemployment, foreign exchange volatility and scarcity, among others.
The year was filled with tough economic challenges for the country and manufactures in general as higher energy cost, aggressive price competition, and foreign exchange losses have remained major pressure points on the economy.
Consequently, the subsisting harsh business environment has taken negative toll on all aspects of companies business. which hinged on number of issues that included, scarcity of forex to import raw materials, dearth of power supply and poor infrastructure
Also, challenges of erratic supply of public electricity, weak logistics, insecurity and other high costs of operations attributable to poor infrastructure have continued to make the business operating environment difficult – especially for the real sector of the economy.
Given headwinds such as weak demand on the back of a squeeze on disposable income, most manufacturing companies including Cadbury Nigeria have continued to get their fair share from the challenging environment.
Though the company’s first, second quarter results were weighed down by the harsh milieu resulting to loss in profits, the third and fourth quarter results showed a convincing signal that the company had gradually returned to profitability as its full year ended December 2017 came in with 200 per cent growth in profit after tax.
Financial analysts believe that the turnaround measures undertaken by the management of Cadbury and the new fully automated $50million state-of-the-art Bournvita plant in Lagos will help to consolidate the company’s profitability.
Following the current positive market sentiment, the share price, which closed at N9.89 per share at the end of trading activities in May, 2017, stood at N14.50 – a considerable increase of N4.61 or 46.61 per cent year-to-date at the close of business last Friday
Financials
Cadbury Nigeria Plc ended the year 2016 with a loss after tax of N296.402 million for the financial year ended December 31, 2016 as against a profit after tax of N1.153 billion a year earlier.
The food and confectionery maker also reported a loss before tax of N562.870 million during the period under review from a profit before tax of N1.577 billion in 2015.
However, gross earnings grew to N29.979 billion during the full year, against N27.825 billion a year ago, accounting for a growth of eight per cent.
Cadbury began the 2017 financial year with report of 86.18 per cent decline in profit after tax for the first quarter ended March 2017.
The company reported a profit after tax of N92.952 million in 2017 against N672.822 million posted in 2016, accounting for 86.18 per cent.
Profit before tax equally dropped by 86.18 per cent from N693.631 million in 2016, in contrast to N95.827 million reported in 2017.
However, the firm’s revenue grew by 13.34 per cent to N8.071 billion in 2017 from N7.121 billion in 2016.
Cadbury Nigeria also recorded a loss after tax of N766.389 million for the half year ended June 2017.
The loss was against a profit after tax of N147.147 million posted during the comparable period of 2016.
In a filing with the Nigerian Stock Exchange (NSE), the fast consumer moving goods (FMCG) also reported a loss before tax of N766.389 million in 2017 against pretax profit of N216.393 million posted in 2016.
However, revenue grew by 16.86 per cent to N16.264 billion in 2017 from N13.917 billion in 2016.
Cadbury Nigeria returned to profitability in the third quarter of the year as sales of N8.1 billion were up by 9.3 per cent y/y. Recording a zero tax expense, Q3 PBT and PAT of N702 million compare with pre-tax and post-tax losses of –N1.1 billion and –N989 million recorded in Q3 2016 respectively. In addition to the sales growth, the company recorded a gross margin expansion of 2,428bps y/y to 30 per cent and a -98 per cent y/y decline in net finance costs.
These positives more than offset an 18 per cent y/y rise in operating expenses, leading to the pre-tax profit vs the loss recorded in the corresponding quarter of last year. Sequentially, sales were flattish q/q. Gross margin expanded by 1,267bps q/q and operating expenses declined by -17 per cent q/q. These positives led to the profits recorded versus the losses of –N862million (pre tax) and –N859million (post tax) recorded in Q2 2017 respectively.
According to analysts at FBNQuest Research, on a 9M basis, sales grew by 14% y/y to N24.4billion. 9M pre-tax and post-tax losses narrowed by -92 per cent y/y to –N64billion. Although net finance charges grew to –N206million (versus net finance income of N185million in 9M 2016), this was not strong enough to offset the strong sales growth and a 206bp y/y gross margin expansion to 23 per cent, and led to the stronger bottom line. The company reported zero tax expense.
Cadbury Nigeria sustained its profitability with 200 per cent growth in profit after tax for the year ended December 2017.
The company’s revenue increased from N29.979 billion in 2016 to N33.079 billion in 2017, representing a 10 per cent growth. Its profit after tax improved from N296 million loss in 2016 to a gain of N299.998 million in 2017, representing 200 per cent leap. In addition, the company reported a profit before tax of N350.317 million in 2017, compared to the pretax loss of N562.871 million recorded in 2016. This shows an increase of 163 per cent. 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.
Rational for turnaround
In a statement, the company’s Corporate and Government Affairs Director for West Africa, Mr. Bala Yesufu, said the company’s current efforts aimed at repositioning the company for improved efficiency have yielded positive results.
He 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.”
Outlook/analysts’ view
Besides, he said, “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. The plant has increased its production capacity and efficiency and positioned the brand to become more competitive.
Analysts at Cordros Capital said: “Despite having a challenging 2017FY, contrary to the rest of our consumer goods universe, the company reported a net profit of N300 million, from a loss in 2016FY. We forecast net profit to grow by 38 per cent in 2018E, equating to DPS of N0.22/share. On our revised estimates, Cadbury is trading at 2018F P/E multiple of 65.6x, a significant premium to the 5-year historical average of 31.1x.
“We forecast revenue growth to moderate to 8 per cent in 2018E, from 10.3 per cent in 2017FY. As with the industry, we expect revenue growth this year to be largely volume-driven. And specifically, for Cadbury, we look for management backing sales with a lot of promotional activities, including price discounting, given intense competition, especially in the Food Beverage segment.
“On the other hand, we forecast EBIT margin to increase to a 2-year high of 3.4 per cent, but still below the 5-year historical average of 7 per cent. Opex has been well-contained in the last two years, including the ratio to revenue, which fell to record-low 20.6 per cent last year”.
Speaking on Balance sheet of the company, the analysts said: “Although we project finance costs will be higher relative to 2017FY (we estimate average interest rate on ST debt to be 22 per cent), borrowings will be lower by end-2018E, as the sizeable settlement of trade payables in Q4-17 frees new cash for debt repayment”.
Last line
Though high cost of operations have remarkably weighed down on the manufacturing sector, it is important for the company to continue to manage its cost base tightly to sustain growth and profitability.
Source: https://newtelegraphonline.com/2018/04/cadbury-nigeria-back-to-reckoning/