Cadbury Nigeria Plc released its 2015 Half year results showing a pre-tax loss of N252million compared to the N1.79 billion it posted the same period in 2014. In fact, profits fell 95% if we are to look at second quarter this year compared to second quarter in 2014.
The slide with Cadbury began in 2014 ironically a year after it posted its best results in recent years. In 2013, Cadbury posted a profit after tax of N6billion, representing an 80% jump from the year before. Cadbury followed up that impressive result with a capital reduction program that in retrospect should have been a sign of what was to come. The company was so cash rich it decided to return over N11 billion in cash to its shareholders.
The slide began when it released its 2014 Q1 results showing revenue had dropped 25% from the same period in 2013. Revenue will continue to drop every quarter since then and now averages just over N7billion per quarter compared to N8.6billion in its pivotal year of 2013.
For an FMCG, revenue is the major driver of profitability. Competition is rife and expenses are not letting off. To increase margins, the company will have to increase topline volume sales. It has failed to do this consistently since 2014.
A major reason for their revenue drop is in its Refreshment Beverage Section where most of its sales come from Bournvita {66% in 2013 and 55% in 2014). In 2014, sales from Bournvita was N17 billion representing a 26% (N6 billion)drop compared to the N23 billion reported same period 2013. The evergreen beverage drink is facing tough competition from the likes of Milo and other cheaper chocolate drink available to most Nigerians. Margins are taking a heat from premium and value brands in a fight that it appears to be losing really fast.
It also now lacks the same financial muscle it had a couple of years ago that it probably would have used to fight of competition. From about N16billion in 2013, cash in bank is now about N3.9billion. Though it is still a lot of cash when compared to its peers, the fast depleting profitability suggest that cash pile will likely face a decline than an increase. In fact, working capital is now in negative territories (-N2.2billion) suggesting it is fully funding operations with suppliers money.
For shareholders, they may as well hold on tight to the 65 kobo per share dividend paid on the 11th of June 2015. Dividend based on recent results, may be a luxury too much for the company to contend with going forward. The Share price is also down 16.5% in the last 6 months and 53% in the last one year.
For Cadbury it’s either Bournvita performs or nothing!