![[Corporate Action] Cadbury Nigeria Records 98% Drop In Profits In Q3′ 2015](https://nairametrics.com/wp-content/uploads/2015/10/Cadbury-Logo.jpg){kind=logo}
Nairametrics|Cadbury Nigeria Plc, released its audited Financial Statements for the year ended December 2016. An old rule of thumb on the Nigerian Stock Exchange (NSE), is that the longer a result is delayed, the more likely that the result is bad. For a company burdened with a past record of poor corporate governance, the least that is expected of them is a change of strategy. The results prove the hypotheses right. They are bad.
From a Profit after Tax (PAT) of N1.1 Billion in 2015, the company made a Loss before Tax of N296 Million in 2016. The key driver of the loss was the massive increase in cost of sales which went up from N18.8 billion in 2015 to N23.3 billion in 2016, mostly due to increases in the cost of raw materials, packaging materials and energy costs.
Raw materials and packaging went up from N8.1 billion in 2015 to N12.1 billion in 2016. Most likely reflecting effects of the devaluation of the Naira and spiraling inflation. Energy costs went up from N949 Million in 2015 to N2.1 billion in 2016. On face value, these are challenges that every manufacturer had to face in 2016.
As a multinational, Cadbury should have handled them better. The company should have made efforts to source materials from within the country and stocked inventory ahead, as soon as it observed the drastic fall in crude oil prices, which naturally would have been followed by a devaluation of the Naira. The company also needs to look at alternative sources of energy. Efforts should have been made to increase export sales, which would have provided much-needed foreign exchange inflows.
Cadbury’s key problem is that it has few products in the market, all facing keen competition. Bournvita, its flagship product, has several competitors in the market selling at similar prices. Bournvita 500 KG goes for N900. Nestle’s Milo goes for N950 for a 500Kg pack. Ovaltine also goes for N900 for its 500KG pack. Tom Tom, Trident and Clorets are few out of several products in a market with imported, cheaper substitutes. The company, needs new products and it needs them fast! Amazingly, Cadbury’s Strategy Director failed to see the perfect storm coming or perhaps under estimated its impact. Sometimes old dogs cannot just learn new tricks.
The new Managing Director, has his work cut out for him.
