Cadbury earnings falter on headwinds

Cadbury Nigeria plc, a company in the fast moving consumable goods (FMCG) sector, recorded a 75 percent decline in profit last year after headwinds continue to stunt growth, analysis of the financials shows.

For the year ended December 2014, the company’s net income fell by 75 percent to N1.51 billion from N6.02 billion the same period of the corresponding year (FY) 2013, while sales dropped by 15 percent to N30.51 billion.

Earnings per share (EPS) reduced by 61 percent to 75k in 2014 as against 192k in 2013.

The dwindling performance of Cadbury is peculiar to the tough Nigerian environment as insurgency in the North part of the country continues to hinder FMCG firms from pushing their products to the crisis zone and outside the borders.

Analysts say the squeeze in consumer spending as a result of the fuel hike in 2012 is also responsible for Cadbury’s faltering performance.

Inflation for the month of February was 8.4 percent, which is lower than the 8.2 percent recorded in the month of January, according to data from the NBS. The intense competitions from rival companies that produce similar goods cannibalised sales of Cadbury.

“We believe headwinds which have affected other consumer names such as increased competition in Southern Nigeria, insecurity in the North and relatively weaker consumer demand weighed on Cadbury’s topline,” said Kingston Nwosu, equity research analysts with FBN Capital in a March 30 note.

“We suspect that the decline in prices of Cadbury’s key raw materials, cocoa and sugar by 10 percent and 8.1 percent, respectively, during the quarter did not help as it appears that management might have restated cogs figures during Q4,” said Nwosu.

Cadbury was able to cut costs amid huge energy costs that drive production costs of firms in Africa largest economy Nigeria. The company’s cost of sales reduced by 8 percent while operating expenses fell by 8 percent.

The company was unable to control effectively direct costs attributable to projects as gross profit reduced by 39.46 percent to N7.93 billion in 2014, from N13.1 billion in 2013.

Total assets were down by 33.21 percent to N28.81 billion in 2014 from N43.17 billion in 2013, caused by a 53 percent fall in cash and cash equivalents.

The FMCG firms should expect a tougher operating environment 2015, as the devaluation of the naira will expose them to exchange rate risk as major raw material used in the manufacture of goods are imported.

“We imagine that most of these firms will struggle to survive daunting pressure on costs, occasioned by the naira volatility and the pass-through impact of naira depreciation,” said Saheed Bashir, an analyst at Meristem Securities Limited, in response to questions.

The naira has come under pressure since June 2014, and has lost about 4.5 percent of its value against the dollar this year, because of declining crude prices, which fell more than 50 percent of its value in 2014.

Cadbury’s return on equity fell to 13.08 percent in 2014 from 25 percent in 2013.

The slow returns means the company has been unable to use shareholders resources in generating higher profit. Cadbury’s share price closed at N38.50 on the floor of the exchange, while market capitalisation was N72.31 billion.

April 2, 2015; http://businessdayonline.com/2015/04/cadbury-earnings-falter-on-headwinds/#.VRzDBuHcy94

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