Troubled times at Cadbury as profits dip on economic headwinds

Cadbury Nigeria Plc, makers of Bournvita and other fast moving consumables saw a decline in its profit by 75 percent for the year ended December 2014.

The company’s income statement shows a drop in net income by 75 percent to N1.51bn from N6.02bn the same period of the prior year (FY 2013). Sales also slipped by 15 percent to N30.51bn.

Earnings per share (EPS) declined by 61 percent to 75k in 2014 fiscal period versus 192k in fiscal 2013 year end.

The dwindling fortunes of Cadbury is symptomatic to Fast moving Consumer Goods (FMCG) companies that are hindered by an insurgency in the North, where their goods cannot be sold.

Market analysts say intense competition from other firms that produce similar products is having an effect on their profit.

“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 Analyst at FB Capital, on March 30, 2015.

However, Cadbury was able to cut energy costs by 8 percent, a big factor in operating a business in Nigeria. The savings translated to an 8 percent reduction in the company’s operating expense.

On the other hand, the company was unable to effectively manage direct costs attributable to projects as it reflected in its gross profit, which fell by 39.46 percent to N7.93bn in 2014, from N13.1bn from the preceding year (FY 2013).

Total assets also fell by 33.21 percent to N28.81bn in 2014 from N43.17bn in 2013, caused by a 53 percent decline in cash and cash equivalents.

Fast moving consumer product companies should expect a difficult year in 2015 as devaluation of the naira will expose them to exchange rate risk costs as major raw materials used in manufacture of goods are imported.

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

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

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