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Beleaguered consumer goods firm Cadbury Nigeria Plc will return to the path of profitability this year, thanks to a scheme of debt-to-equity conversion, but the projected profit is insufficient to reinstate equity to positive state.
According to research firm Chapel Denham Limited in a note to clients, post a successful debt-to-equity conversion, they expect a 75 percent reduction in finance costs, resulting in a positive profit before tax and profit after tax of N1.87 billion and N1.31 billion respectively in full year (FY) 24.
Cadbury has announced its intention to issue an additional share capital of 402.08 million ordinary shares at 50 kobo each, thereby increasing its total share capital by 21.4 percent to N1.14 billion.
This decision arose from an outstanding debt of $7.72 million (N7.04 billion) owed to Cadbury Schweppes Overseas Limited.
Consequently, the N7.04 billion debt will be converted into extra shares in Cadbury, increasing Cadbury Schweppes Overseas’ total shareholding to around 1.81 billion shares, equating to 79.4 percent ownership. Additionally, the expected free float of 20.6 percent remains in compliance with NGX’s free float requirement.
The conversion of the total debt of N7.04 billion is anticipated to reduce the company’s total debt of N43.21 billion in FY-23 by 16.3 percent, according to analysts at Chapel Hill Denham.
It is important to note that Cadbury and its peers incurred huge debts or obligations due to exchange differences on intercompany loans and import finance facilities and they will be needing capital injections to strengthen their books and underpin investor confidence.
These exceptional losses are in addition to rising interest rates which has balloon finance costs and put more pressure on the bottom-line (profit), and the fear is that a protracted hike in the interest rate by the central bank may hurt firms as they will be paying more to service existing debt while at the same time being hamstrung from raising debt capital.
As a result of the foreign exchange loss, the company witnessed a significant depletion of its equity, plummeting by 213 percent to a negative position of N15.08 billion in full year (FY) 23.
“We anticipate that the equity will remain in a net deficit position in FY-24E, as the projected profit for FY-24E is insufficient to reverse the equity to a positive state,” said analysts at Chapel Hill Denham.
“Consequently, we believe that the company will need to raise at least N28.38 billion in capital to restore its equity to pre-erosion levels,” summed the analysts.
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