Two years ago, a Nairametrics Blurb article posited that it was time for Cadbury Plc to delist from the NGX. At that time, Cadbury’s shares were trading for under N10, seemingly entrenched in a bearish rut.
Fast forward two years and Cadbury appears to have turned a corner. The company recently released its FY 2023 Unaudited results, revealing a staggering loss of N27 billion compared to a profit of N583.1 million in the previous year.
Despite these losses, this could be considered Cadbury’s best result in years from an operational standpoint. Revenue rose 46% from N55.2 billion in 2022 to N80.3 billion in 2023.
Gross profit more than doubled (130%), increasing from N7.7 billion to N17.7 billion in 2023. Operating profit—a key indicator of management performance—soared from N194 million a year earlier to N8.3 billion.
As expected, all margins are up, and even when dollarized, the performance shows impressive growth. Cadbury Nigeria’s executives must be breathing a sigh of relief with these results. The company’s largest shareholder and core investor, Mondelēz International, is known for its stringent oversight of its local entities.
From an operational perspective, Cadbury may have finally seen light at the end of the tunnel despite the challenges of forex headwinds.
The losses incurred were primarily due to the depreciation of the naira, which has impacted manufacturing companies nationwide. For Cadbury, forex losses amounted to a substantial N36 billion in finance costs.
Like many of its peers (foreign-owned), the company secured forex lines from their parent companies as a temporary solution to forex liquidity shortages. However, no one anticipated that Nigeria’s forex shortages would persist, nor did management foresee a 50% depreciation in the currency within a year.
Now that the company is seeing light at the end of the tunnel, it needs to navigate towards sustained profitability. Achieving this is largely beyond its control, given the ongoing forex challenges in Nigeria. Nonetheless, Cadbury can restructure its balance sheet by transitioning away from foreign-denominated debt.
This switch is not without its challenges. The company initially secured loans from its parent company to address forex liquidity issues. As is common among consumer goods firms, these loans were critical for importing raw materials.
Unfortunately, each devaluation of the naira results in significant finance costs, as evidenced in 2023. A permanent solution might involve converting the debts to equity, which could lead to considerable dilution for minority shareholders. Another option is to raise capital from existing shareholders through a rights issue.
The market seems to anticipate these options, as evidenced by an impressive 88% rise in Cadbury’s share price to N22.5 per share over the last year. However, as stock bulls continue their advance, Cadbury has a limited window to maintain its course toward profitability.
