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Repositioning Cadbury Plc For Better Returns

  With deft cash management  experience  and strong brands as its weapons ,Cadbury maintains positive net income outlook despite  the cost conundrum 

 As humanity battles daunting intricacies of life, even the best  corporate organizations could  get caught up in the reality of changing business life-cycles or become a victim of a  deleterious environment . In the last financial year as it was the one before and indeed many more years back in time,  the competitive space of the  Foods  and Beverages industry was paved with heavy challenges .  But when the going gets tough, the tough get going

Cadbury Nigeria Plc, a corporate giant providing premium quality beverages across the nation and a big player in this industry , no doubt ,has continued to raise its head even in the stormy sea , battling those challenges in the last few years . Naturally , both the old and new generation competition are giving it  a run for  its  market share . But Cadbury is proving unassailable with strong brands as its weapons  .  With the three elements for a successful competitive strategy at its disposal , the battle is half won ; its products are known to be unique and not easily be  replicated. This is the difficult element in a competitive market. Its products are still relevant to the customer, indicating  the company maintains the customer focus required for success in today’s business environment

However , asides the heat of competition, deleterious financial environment  leading  to increase in the prices of raw materials ,disruptions in logistics  ,skyrocketing interest rates following increased charges paid on bank loans as well as significant increase in overall debt are the  other  obstacles that  set the entire industry for failure .

But Cadbury is still standing tall , turning  adversity to success as it maintained a steady growth; no doubt ,it is battling the vicissitudes of time  and doing so with strong commitment. Behind this is  Mrs Oyeyimika Adeboye, its current CEO  whose actions and initiatives signal the end of its  battle of survival and return of impressive returns . 

The above optimism is predicated on her strong pedigree for the job . Before being appointed as MD, in April 2019 ,she had  spent a total of 10 years and seven months with Cadbury . Moreover , she had  consciously built  a career in finance, strategy and business administration, both in Nigeria and the United Kingdom for over two decades, one can almost say that Oyeyimika had spent all the years preparing for the top. These are the credentials  working for her currently as she is strategically tackling those challenges  upfront .

She is not oblivious of the fact that the only way to survive the cost conundrum is to gain cost  leadership or achieve competitive cost advantage  to become the lowest cost producer in the industry.  Indeed the company is improving its facilities as it committed N726.32b in 2021 as net cash used in investing activities to investment. This was earmarked for acquisition of property, plant and equipment . This initiative will allow it to produce n large scale  and  enable it to attain economies of scale. No doubt , any company that finds itself in this situation is expected to possess high capacity utilization, good bargaining power, high technology implementation among others factors that are necessary to achieve cost leadership. The Cadbury’s initiative in this direction seems a move that investors should be interested in because investment signals improvement and better results on the floor of the Nigerian Stock Exchange. The move itself indicates that the company’s management is a subscriber to the never ending improvement principle.  

 Consequently , at the end of 2021 financial year  , with  deft cash management experience and strong brands at its disposal it maintains good growth in revenue and positive net income outlook despite  the cost conundrum, its liquidity position is also impressive in spite of the increase in its leverage position. To achieve this is not that easy ,it was a tug of war against the sprawling costs    

REVENUE

  Under her leadership  Cadbury has continued to display resilience and stand tall with the group results revealing increase in revenues year on year . However, the gains from this feat  are no doubt  being curtailed by higher than par increase in the cost of sales currently  hitting the roof top as well as  interest rates going way up    

 She could not be blamed for this , it was an inherited  conundrum . Before her assumption of office in April 2019 ,specifically in 2016 ,the company recorded a loss of  N296.40b. Although  a new Managing Director in  February ,2017  Mr Muhammad  Amir Shamsi, a Pakistani national returned Cadbury to profitability before he left in 2019 , this feat was achieved under high cost of sales and high interest rates   

 Despite this  , Cadbury Nigeria Plc under her leadership  is fighting hard to  turn adversity to success as it maintained a steady growth profile. In the last financial year, the foods and beverages giant helped more Nigerians to gain more nutrients as they imbibed more of the  branded fast moving consumer goods in Nigeria.

Financially speaking ,  it translated to an 19.7 percent rise in the amount of products consumed in the period. That is, its total revenue   swelled to N42.37billion in 2021 from N35.41billion in 2020       

This may not be farfetched . Cadbury brands are high profile any time,any day  built over years  through strong consumer perceptions, expectations, and experiences with all products or services under its  umbrella.   It operates through three segments: Refreshment Beverages, Confectionery, and Intermediate Cocoa Products. The Refreshment Beverages segment manufactures and sells refreshment beverages under the Cadbury Bournvita and Cadbury 3-in-1 Hot Chocolate brands.

 Moreover , much of the success can be pinned to the excellent promotions the company embarked upon in the period ; its advertising and sales promotion cost inched up by 10% to  N2.87b  from N2.61b ; this is 56.7 %  of the total selling distribution cost

 All of these had a significant impact on sale even if it hiked the cost of doing business. To sell these products  is not always easy as is the case for all manufacturers. The trend is that the cost for that as represented by the cost of sales on the profit and loss account never goes down. The only direction it travels is northwards. Cadbury could not able to contain that polar movement as  such as it trekked   21.6 percent to  N35.89b from  N29.51b.The dilemma is that it is difficult to continue to jerk up prices in a highly competitive environment  that many  customers could not afford

 Despite the high cost of sales the gross return of the Manufacturer of Bournvita  hit  9.8%  to  N6.48b from N5.90b  though this at variance with  the stronger momentum displayed at the revenue level

Furthermore, a 77.7 percent slump in other income     to  N24.08m  from N108.04m did not help the matter

  OPERATING EXPENSES

Doing business in this environment requires a hulk of expenditure whose destructive  impact    shatter an operator’s profits. Though, the company’s operations cost hiked marginally by 4.7%  to  N6.01b from N5.74b,it was very destructive to the operating income and ultimately to the  bottom line in an absolute term    .  Though its trading profit  percent increased  from N281.82 billion to N401.47billion.    ,the operating expenses or costs  of doing business, which was already heavy the previous year was damaging to the bottom line .This ,however ,  is an industry wide phenomenon  

 This is evident in its cost to income metric of 92% in 2021 a little better than it was in 2020 at 95.5% indicating a 92k expense  from every one Naira operating income ; this is an improvement from  approximately 96k from every one naira from its operating income . it cost the company almost  99k  to get one naira revenue when its total cost at N41.90b is compared to N42.37b revenue in 2021 while in the year 2020 99.6% of the total revenue when finance incomes are excluded

CASH MANAGEMENT

But the company saved the day by its deft experience in cash management.  .Between 2020 and 2021 , its cash and cash equivalents increased  by 60.4% from N11.12b to N17.82b .The adept skill displayed  delivered a huge net finance income that consequently saved the day for the company  as it could have recorded a loss in 2021 as its net income .  

This was helped by interest received from the company’s prudent investments in the financial market. Though its finance cost  skyrocketed above 20 000%  from N1.20m to N249.58m  its finance income that increased by 57 %  toN856.03b from N127.44b boosted its chances of better profitability in 2021 at a net finance income of N606.45B from the previous year amount of N126.24b  as its profit before tax hit N1.10b ,a 169% increase from N408.07Bin the year 2020

However, because the company  did not enjoy a tax credit as in  the previous year , paying N648.21b ,its net income backtracked and fell by 52% to N449.71b from N931.83b in 2020 ; in the previous year ,the company enjoyed a tax credit of N523.76b that boosted its profitability then     

The high and heavy cost of sales ,operating expenses and heavy tax paid as against the tax credit enjoyed in 2020 joined hands as spoilers to the  potentials for better profitability created by its revenue growth  in 2021  .Consequently , there was an 52 percent decline  to bottom line . Net profit fell  to N449.71billion from N931.83 billion. 

  The slow-moving pretax profit and net profit were  contagious ; they clobbered and pinned down both the pre-tax and net profit margins  

 Its  pretax margins  improved  to 2.6  %  from 1.2 %  in 2020   while at the net profit margins  level the reverse is the case as it declined from 2.6% to 1.1% .Analysts say though the margin is stagnant and negligible it could be situated on the  stifling cost of sales and hostile interest rates. However, the company is expected to be  turned around for better returns since this margin   represents a loss   in a year that inflation remained at double  digits.

 LIQUIDITY

Though its  debt profile in the process took an upswing  direction as the total loans rose sharply by 203%  to N10.48b from N3.45b, with the company’s improved   cash management ability, its liquidity status is still healthy in the period under review  

The improved cash cycle helped the company to maintained positive  liquidity though its  current ratio sank. This, ostensibly, is because of the  increase in its debt profile . Cadbury liquidity ratio is flat at 1.4  between 2020 and 2021 which means that it has 1.4  times its liabilities in assets and can currently meet its financial obligations Any current ratio over 2 is considered ‘good’ by most accounts.  While the current ratio is 1.4 ,its quick ratio is also flat at 1.0  . This is still considered to be a good ratio but tight .  This, no , could be linked to increase in its debt profile in 2021 . Any quick ratio over 1 means that the company holds enough in its accounts to pay off all liabilities within 90 days. If the quick ratio is under 1, this would instead indicate that the company would have difficulty paying its debts.

 LEVERAGE

However, the    overall financial leverage is higher than last year because the company  took additional  term loans. Its debt to assets ratio now stands at 25% compared 10.4% in the previous year while its debt to equity is 0.77x compared to 0.25% in 2020. This is below 1 ; a  ratio greater than 1 implies that the majority of the assets are funded through debt. A ratio less than 1 implies that the assets are financed mainly through equity. A lower debt to equity ratio means the company primarily relies on wholly-owned funds to leverage its finances.9 Dec 2020

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