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It is glaring that investment decisions without a sound corporate

strategy is like a ship without a rudder and a waste of time. No wonder

(winter, 1974:37) said that allocating resources to investment without a

sound concept of divisional and corporate strategy is a lot like throwing

darts in a darkroom. Investment decision which involves a firm’s decision to

invest its current fund most efficiently in the long term assets in anticipation

of an expected flow of benefit over a series of years include; expansion,

acquisition, modernization and replacement of the long term assets, sales of

a division or business (Divestment), change in the method of sales

distribution, advertisement campaign, research and development programme

etc. needs a well formulated strategy.

A well formulated strategy help to marshal and allocate an

organization resources into a unique and viable posture based on its relative

internal competencies and shortcomings, anticipated changes in the

environment and the contingent moves by intelligent opponent. Therefore

this study is aimed at focusing on the impact of overall corporate strategy on

investment decisions in Nigeria with a particular emphasis on CADBURY

NIGERIA PLC to highlight the effective and efficient attainment of

investment decisions of an organization particularly on expansion in

achieving a sustainable competitive advantage, capital efficiency and

profitable long term growth and wealth maximization of shareholders

Corporate strategy is the pattern of decisions in a company that

determines and reveals its objectives, purposes or goals, produces the

principal policies and plans for achieving this goals and defines the range of

business the company is to pursue, the kind of economic and human

organization it is or intends to be and the nature of the economic and non

economic contribution it intends to make to its shareholders, employees,

customers and communities. Effective corporate strategy plays a critical role

in defining the businesses in which a company will compete, preferably in a

way that focuses resources on how to convert distinctive competence into

competitive advantages. It also means an ineffective corporate strategy will

affect the overall performance of the organization particularly the firm’s

investment decision since it is the primary driven force (Imo, 2005:5).

Organizations must therefore formulate a strategic decision that will

determine the overall direction of the firm, major goals, policies and action

sequences into a cohesive whole.

From various business reviews, management and accounting

literatures read, organizations that do not ignore corporate strategy

(strategic) dimensions are not only a success but also confronted with series

of problems such as; what should we expand on or acquire within our core

competences and resources at hand? What are the approach to allocating

investment capital and resources within the context of the internal and

external environmental trends? How to capture cross – business strategic fit?

How do we measure success, returns to the firm and market share of our

investment? Opportunities and threats? What product / services do we offer

among others.

It becomes a matter of great concern to management because any

wrong step taken with a view of addressing any of the above problems will

adversely affect the smooth running of the organization for instance, the

huge amount of capital tied up in long – term assets in anticipation of the

expected cash flow over a series of years that is irreversible and even if

reversible at substantial loss could be committed to other profitable venture

within a short period that will yield quick return.

The internal and external environment trend that gives the firm its

identity, its power to mobilize its strength and its likelihood of success in the

market place may crystallize to formless reality of loss of sustainable

competitive advantage, superior skills, superior position and resources.

As Charles Darwin said that it is not the strongest of the species that

survive nor the most intelligent, but the one most responsive to change. In

the same way, if managers do not evaluate their resources in relative to

competitors’ strategy, there will be no superior return over the long-term on

investment (expansion), and shareholders values, growth and competitive

advantage will dissipate. That is why (Collins,1998:84) said competing in

the market place is war, you have injuries and casualties and the best

strategy wins, and (Hamel & Prahalad, 1994:69) said the essence of strategy

lives in creating tomorrows competitive advantage faster than competitor

mimic the ones you posses today.

Whether any of all of these problems identified above and not

mentioned are prevalent in “Cadbury Nigeria PLC”, the research is not

conversant with that. It is in an attempt to unveiling one this problems that

form the basis of this study.


The practice of corporate strategy in relation to investment decision

by business organization in Nigeria is a new phenomenon; however, it is self

evident that no individual firm is problem free. The problem to be addressed


What is the effect of strategy on the firms’ investment decision particularly

on the area of expansion?


The objective of the study in line with the stated problems is;

To investigate whether Cadbury Nigeria PLC strategic pattern affects the

company’s expansion investment decisions.


The significance of the study lies in its ability to unveil the benefit of

corporate strategies to managers and the need to adopt a more rational

approach to investment decisions in the complex and changing environment

which the firm exist rather that adhering to the traditional methods which is

more or less a rule of thumb before committing the scare resources of an

organization to a decision which once taken and committed is irreversible.

To the general public, the study will serve as an eye opener to them on

the importance of corporate strategy as they prepare to venture in any

investment decision.

To this researcher, the project provides her an understanding and

“broad insight” to appreciate corporate strategy. The research also equips her

with the art and science of carrying out a similar or more complex research

in the future.


The research work is designed to focus on the impact of corporate

strategy on investment decisions of organizations. With particular emphasis

on expansion decisions, other variables held constant. Cadbury Nigeria PLC

will be used as a case study, focusing on a five year financial summary of

the company from 2001 – 2005.

The researcher faces a number of challenges in her efforts to carry out a

sound survey among which includes:

1. Inability to obtain necessary information due to administrative

bottleneck, coupled with the fact that some information were

considered as confidential, these do not encourage sound research.

2. Time and Finance, among other constraints hindered the researcher

from doing a more thorough and rigorous work.


Strategy: It is the pattern or plan that integrates an organization’s major

goals, policies and action sequence into a cohesive whole.

Company Strategy: It is the game plan management is using to stake – out

a market position, conduct its operations, attract and please customers,

compute successfully and achieve organizational objectives. Strategy entails

managerial choices among alternatives and signals organizational

commitment to specific markets, competitive approaches and ways of

operating. (Thompson and Strickland, 2001: 3)

Investment Decision: Investment decisions are generally known as the

capital budgeting or capital expenditure decision. It may be defined as the

firms decision to invest its current funds most efficiently in the long term

assets in anticipation of an expected flow of benefits over a series of years.

The firm’s investment decisions could generally include expansion,

acquisition, modernization and replacement of the long term assets, sale of a

division or business (divestment) method of sales, advertisement campaign,

research and development etc.

Corporate Strategy: It is the pattern of decision in a company that

determines and reveals its objectives, purposes, goals, produces the principal

policies and plans for achieving these goals and defines the range of

business the company is to pursue, the kind of economic and human

organization it is, or intends to be, and to make to its shareholders,

employees, customers and communities.

1.6 Historical background of Cadbury Nigeria PLC.

The origin of the business stretch back to the 1950s first as an activity

to source cocoa beans while simultaneously prospecting for opportunities to

serve the local consumer markets with the famous Cadbury products. An

initial packing operation established in the early 1960s to pack imported

bulk product grew rapidly into a full-fledged manufacturing outfit. The

company was incorporated in January 1965 when the current 42-hectare

factory site was opened, and went public in 1976. The initial staff strength of

less than 200 has grown to more than 2000 colleagues who have chosen to

make a career in Cadbury. They are the embodiment of the talent, skills,

knowledge and other intellectual property behind the success of the business.

In turn the beginning of Cadbury Schweppes go back to the founding of

Schweppes, a mineral water business, by Jacob Schweppes in 1783 and the

opening of a shop that sold cocoa product by John Cadbury in 1824. The two

businesses were merged in 1969 to create Cadbury Schweppes plc, forging a

powerful alliance that has become a global player in confectionery and

beverage categories. With the acquisition of Adams confectionary in 2003,

Cadbury Schweppes is today the worlds’ #1 in confectionary and #3 in

beverages. Cadbury Nigeria has grown to become the leader in

confectionary and food drinks, with a Portfolio of branded offers that meet

real needs of consumers, our quality brand are enjoyed through out the entire

nation as well as in our export markets around the world.

The company has consistently maintained a highly focused portfolio

of well established brands within its core business areas each of them

providing functional benefit to our customers and hands reward for our

customers. Many of the key brands are long established, and reflect the

consistent philosophy of Functionality, affordability and nourishment. The

most notable among these are;

S/N Brand Year launched

1. Bournvita 1960

2. Local production commenced 1965

3. Goody Goody 1966

4. Tom Tom 1970

5. Trebor Butter mint 1976

6. Malta 1979

7. Éclairs 1989

8. Trebor Peppermint 1989 (acquisition)

9. Trebor luckies 1989 (acquisition)

10. Trebor Koffi sticks 1989

11. Richoco 1996

12. Trebor Koffi Drops 2000

13. Trebor Celebrations 2003

14. Halls Ahomka Ginger 2004

15. Bubba Bubble Gum 2004

16. Chocki 2004

17. Halls Take 5 2004

18. Pascall Crème Rollers 2005

While the premium brands cutting across West African are 5 key


I. Chocolate & Toffee

II. Sugar Bubble Gum

III. Medicated

IV. Food Drinks

V. Mints & Chewing Gum

Clarity and single minded pursuit of strategy has been the

underpinning strength of the business, and the board has revalidated their

long term growth target with milestones in the context of opportunities in the

growing Nigeria market and the West African sub- region.

The company’s strategy which is the primary drivers of growth over

the years includes;

1. Building a highly integrated business models to main a tight control of

the valve chain and considerable resilience to the wide swings in the external

environment over the year.

2. To create robust and sustainable positions in its core segments

through focused organic growth of its advantaged brands.

3. To create new consumer offers with distinct winning competitive

edge as well as establishing footholds in adjacent market and segment.

4. To use local raw materials as much as possible and source packaging

materials and other inputs from local companies even if we have to provide

technical support to ensure the quality standards that meet our stringent


5. To expand our brand offering new and profitable market and serve

new customers across the west African sub region.

6. To achieve strong profit performance in all investment decisions

taken, with 15% growth in net asset per share and 14% growth in

shareholder’s funds.



The business environment calls for the efficient allocation of

resources by the management of any organization. Lately, a lot of emphasis

has been placed on the view that a business firm facing a complex and

changing environment will benefit immensely in terms of improved quality

of decision making if investment decisions are taken in the context of its

overall corporate strategy. This approach provides the decision maker with a

central theme or a great picture of investment to keep in mind at all times as

a guideline for effectively allocating corporate resources in any investment

opportunities. Thus, in order to have a proper understanding of the concept,

different literatures on the topic are being reviewed.


There is no single universally accepted definition. Different authors

and managers use the term differently, For example, some include goals an

objectives as part of strategy while others make firm distinctions between


James 1980 in (Mintzberg and Quinn, 1971:5) defines a strategy as

the pattern or plan that integrates organizations’ major goals, policies and

action sequences into a cohesive whole. A goal states what is to be achieved

and when results are to be accomplished, but they do not state how the

results are to be achieved. Policies are rules or guidelines that express the

limits within which action should occur. Programs specify the step by step

sequence of actions necessary to achieve major objectives.

Pearce and Robinson, (1998:7) define strategy as a large-scale future

oriented plan for interacting with the competitive environment to optimize

achievement of organization objective. A game plan of how to compete,

against whom, when, where and for what. Kotler and Keller, (2006:54)

define strategy as a game plan for getting there.

According to Barney, (1997:3) the term strategy refers to a pattern of

resource allocation that enables firms to maintain or improve their

performance which neutralizes threats, exploit opportunities, capitalize on

strengths and or flexes weakness. He argued that strategy marshal and

allocates an organization’s resources into a unique and viable pasture based

on its relative internal competencies and shortcomings, anticipated changes

in the environment, and contingent moves by intelligent opponents.

Thompson and Strickland, (2001:3) define strategy as a managerial

choices among alternatives and signals organizational commitment to

specific markets, competitive approaches and ways of operating.

Morgenstern and Newman, (1944:79) said strategy is a complete plan:

a plan which specifies what choices (the player) will make in every possible

situation. Glueck, (1980:9) defined it from management point of view as a

unified, comprehensive and integrated plan designed to ensure that the basic

objectives of the enterprise are achieved.

According to Pandey, (2005:559), strategy is a central themes that

establishes an effective and efficient match between the firm’s resources,

competences and opportunities and risk created by environmental changes. It

is a link between the multiple goals and objectives pursued by the firm to

satisfy its various stakeholders and the plans and policies used by it to guide

its daily operations.

Hofer and Schendel in Pandey (2005:558) define strategy as a

fundamental pattern of present and planned resource developments and

environmental interactions and indicates how the organization will achieve

its objectives. The definition highlights distinctive competences (resources

deployments) as an important component of strategy and emphasizes that

competitive advantage can stem not only from product/ market positioning

but also from unique resource deployments. Thus, the ultimate success of the

firm may not simply depend on the scope but it can also be greatly

influenced by competitive advantage and resource deployments. The four

component of strategy can be seen as influences on the firm’s effectiveness

and efficiency. The firm’s effectiveness is determined by the combined

influence of scope, distinctive competences and competitive advantage,

while synergies among distinctive competences and product/ market

segments determine its efficiency.

Also, Mintzberg and Quinn (1991:19) gave an elaborate definition of

strategy from different perspective: Strategy as a Plan; deals with how

leaders try to establish direction for organizations, to set them on

predetermined courses of action. As Ploy; strategy takes us into the realm of

direct competition, where threats and feints and various other maneuvers are

employed to gain advantage. As Pattern; strategy focuses on action,

reminding us that the concept is an empty one if it does not take behaviours

into account. It also introduces the notion of convergence, the achievement

of consistency in organizations behaviour. As Position; strategy encourages

us to look at organizations in their competitive environments, how they find

their positions and protect them in order to meet competition, avoid it, or

subvert it. And finally, as Perspective; strategy raises intriguing questions

about intention behaviour in a collective context; it raises the issue of how

intentions diffuse through a group of people to become shared as norms and

values and how patterns of behaviour become deeply ingrained in the group.


Krajewski and Ritzman, (1998:28) opine that corporate strategy

defines the business (es) that the company will pursue, new opportunities

and threats in the environment, and the growth objectives that it should

achieve, which provides an overall direction that serves as the framework for

carrying out all the organizations functions.

According to Thompson and Strickland, (2001:50-53) Corporate

Strategy is the overall managerial plan for a diversified company (an

umbrella over all a diversified company’s businesses) that consists of the

moves made to establish business positions in different industries and the

approaches used to manage the company’s group of businesses which

involves four kinds of initiatives:

a. making the moves to establish positions in different businesses and

achieve diversification. Whether diversification is based narrowly in a

few industries or broadly in many industries and whether the different

businesses will be related or unrelated.

b. initiating actions to boast the combined performance of the businesses

the firm has diversified into.

c. pursuing ways to capture valuable cross-business strategic fits and

turn them into competitive advantage

d. establishing investment priorities and steering corporate resources into

the most attractive business units.

Gale, (2006:1,6-7) opines that Corporate Strategy is the big picture view

of the organization and includes deciding in which product or service

markets to compete and in which geographic regions to operate. For multi-

business firms, the resource allocation process (how cash, staffing,

equipment and other resources are distributed), for market definition is the

responsibility for diversification, or the addition of new products or services

to the existing product/service line up, whether to compete directly with

other firms or to selectively establish cooperative relationship (strategic

alliances) and plans for the entire organization, change as industry and

specific market conditions warrant. According to Gale, It have a tremendous

amount of both latitude and responsibility, in which one way to deal with the

complexity is through categorization; one categorization scheme is to

classify corporate strategy decisions into three different types, or grand

strategies. These grand strategies involve efforts to expand business

operations (growth strategies) decrease the scope of business operations

(retrenchment strategies), or maintain the status quo (stability strategies).

Growth strategies are designed to expand an organization’s

performance, usually as measured by sales, profits, product mix, market

coverage, market share, or other accounting and market based variables.

Typical growth strategies involve one or more of the following:

i. With a concentration strategy the firm attempts to achieve

greater market penetration by becoming highly efficient at

servicing its market with a limited product line.

ii. By using a vertical integration strategy, the firm attempt to

expand the scope of its current operations by undertaking

business activities formally performed by one of its

suppliers(backward integration) or by undertaking business

activities performed by a business in its channel of

distribution(forward integration)

iii. A diversification strategy entails moving into different markets

or adding different products to its mix. If the product or market

is related to existing product or service offerings, the strategy is

called concentric diversification. If expansion is into products

or services unrelated to the firm’s existing business, the

diversification is called conglomerate diversification.

Stability strategy is essentially a continuation of existing strategies. Such

strategies are typically found in industries having relatively stable

environments. The firms is often making a comfortable income operating

business that they know, and see no need to make the psychological and

financial investment that would be required to undertake a growth strategy.

Retrenchment strategies involve a reduction in the scope of a

corporation’s activities, which also generally necessitates a reduction in

number of employees, sales of assets associated with discounted product or

service lines, possible restructuring of debt through bankruptcy proceedings,

and in the most extreme cases, liquidation of the firm.

Hitt, Ireland and Hoskisson, (1996:181-182) Opine that Corporate

Strategy is action taken to gain a competitive advantage through the

selection and management of a mix of businesses competing in several

industries or product markets, also it is what makes the corporate whole add

up to more than the sum of its business unit parts which is concerned with

two key questions. What businesses the firm should be in and how the

corporate office should manage it group of businesses.

According to Pandey (2005:276) it is a systematic approach in properly

positioning companies in the complex environment by balancing multiple


Andrews (1989) in Mintzberg and Quinn, (1991:44) argue that Corporate

Strategy is the pattern of decisions in a company that determines and reveals

its objectives, purposes, or goals, produces the principal policies and plans

for achieving these goals, and defines the range of business the company is

to pursue, the kind of economic and non-economic contribution it intends to

make to its shareholders, employees, customers and communities. The

pattern is one that is effective over long periods of time affecting the

company in many different ways and focuses and commits a significant

portion of its resources to the expected outcomes.


Investment decisions of a firm are generally known as the capital

budgeting, or capital expenditure decision. It is defined as the firm decision

to invest its current funds most efficiently in the long-term assets in

anticipation of an expected flow of benefits over a series of years (the long-

term assets are those that affects the firms operations beyond the one-year

period) it includes expansion, acquisition, modernization and replacement of

the long-term assets, sale of a division or business(divestment), change in

the methods of sales distribution, an advertisement campaign, research and

development programme and employee training, shares (tangible and

intangible assets that create value). (Pandey 2005:141).

According to Pandey, (2005:151) investment decisions are decisions that

influence a firm’s growth in the long-term, affect the risk of the firm,

involve commitment of large amount of funds, are irreversible or reversible

at substantial loss, and among the most difficult decisions to make.

Horne, (2000:134) define investment decisions as the allocation of capital

to investment proposal whose benefits are to be realized in the future and

includes, new product or expansion of existing products, replacement of

equipment or buildings, research and development, exploration and others.


Pandey, (2005:142) define expansion investment decision as a

situation which company add capacity to its existing product lines to expand

existing operations which is an example of related diversification. Also a

firm may expand its activities in a new business which requires investment

in new products and a new kind of production activity with in the firm. If a

packaging manufacturing company invests in a new plant and machinery to

produce ball bearings, which the firm has not manufactured before, this

represent expansion of new business or unrelated diversification. Sometimes

a company acquires existing firms to expand its business. In either case, the

firm makes investment in the expectation of additional revenue investment

in existing or new product may also be called Revenue – expansion



Investment decisions require special attention because of the

following reasons:

1. They influence the firm’s growth in the long run,

2. They affect the risk of the firm,

3. They involve commitment of large amount of funds,

4. They are irreversible, or reversible at substantial loss,

5. They are among the most difficult decisions to make.

Growth: the effect of investment decisions extend into the future and

have to be endured for a longer period than the consequences of the current

operating expenditure. A firm’s decision to invest in long term asset has a

decisive influence on the rate and direction of growth. A wrong decision can

prove disastrous for the continued survival of the firm; unwanted or

unprofitable expansion of asset will result in heavy operating costs to the

firm. On the other hand, inadequate investment in asset would make it

difficult for the firm to compete successfully and maintain its market share.

Risk: a long-term commitment of fund may also change the risk

complexity of the firm. If the adoption of an investment increase average

gain but causes frequent fluctuations in its earnings, the firm will become

more risky. Thus, investment decisions shape the basic character of a firm.

Funding: investment decisions generally involve large amount of

funds, which make it imperative for the firm to plan its investment

programmes very carefully and make advance arrangement for procuring

finances internally and externally.

Irreversible: most investment decisions are irreversible. It is difficult

to find a market for such capital items once they have been acquired. The

firm will incur heavy losses if such assets are scrapped.

Complexity: investment decisions are among the firm’s most difficult

decisions. They are an assessment of future events, which are difficult to

predict. It is really a complex problem to correctly estimate the future cash

flows of an investment. Economic, political, social and technology forces

cause the uncertainty in cash flow estimation.


Corporate Strategy is what makes the corporate whole add up to more

than the sum of its business unit parts.

As Thompson and Strickland (2001:50) said it is the overall managerial

game plan for a diversified company which may be a related diversification

or unrelated diversification.

According to Hitt, Ireland and Hoskisson (1996:181-207), a Primary

approach to corporate strategy is diversification which requires corporate

executives to craft a multi-business strategy.

Firms implement a related or unrelated diversification strategy as their

corporate strategy for many reasons:

1 To help understand strategic allocations of resources among a

firms portfolio of business.

2 To enhance the strategic competitiveness of the entire company

strategic competitiveness is achieved when a firm successfully

formulates and implements a value creating strategy.

3 To gain market power relative to competitors

4 Other reasons of implementing diversification could have neutral

effects or actually increase costs or reduce a firm’s revenue. These

reasons include diversification:

a. to neutralize a competitors market power. e.g. to neutralize the

advantage of another firm by acquiring a distribution outlet

similar to those of the competitors or

b. to expand a firm’s portfolio in order to reduce managerial

employment risk.

5 Firms that have selected related diversification as their corporate

strategy seek to exploit economies of scope between business units

economics of scope are cost savings attributed to transferring the

capabilities and competences developed in one business to a new

business without significant additional cost, economics of scope

which creates value through two basic kinds of operational


a. sharing activities

b. transferring core competences sharing activities which brings

about reduce risk and positive returns on diversification efforts.

6. To gain market power; market power which exist when a firm is

able to sell its products above the existing competitive level or

reduce the costs of its primary and support activities below the

competitive level or both it can also be gained by vertical

integration which exists when a company is producing its own

inputs (backward integration) or owns its own source of

distribution of outputs (forward integration)

7. To help an unrelated diversification strategy to create value

through financial economics which are cost savings realized

through improved allocations of financial resources based on

investments inside or outside the firm. Through:

a. efficient internal capital market allocation that seeks to reduce

risks among the firm’s business units which can be achieved

through development of a portfolio of business with different

risk profiles, thereby reducing business risk for the total


b. Restructuring which deals with purchasing other corporations

and restructuring their asset, it allows firm to buy and sell

businesses in the external market with the intent of increasing

its total value.

8. To take advantage of incentives which comes from both the

external and firms internal environment. The term incentive

implies that managers have some choice whether to pursue the

incentives or not. Incentives external to the firm include antitrust

regulations and tax laws and internal firm incentives include low

performance, uncertain future cash flows and overall firm risk


These can be summarized in a table as motives, incentives and resources for


Table 2.1: Motives, Incentives and Resources for Diversification

Motives to enhance strategic competitiveness

 Economics of scope (related)
Sharing activities
Transferring core competences
 Market power (related)
Blocking competitors through multipoint competition
Vertical integration
 Financial economics (unrelated)
Efficient internal capital allocation

Incentives and resources with neutral effects on strategic

 Antitrust regulation
 Tax laws
 Low performance
 Uncertain future cash flows
 Firm risk reduction
 Tangible resources
Managerial motives (value reduction)
 Diversifying managerial employment risk
 Increasing managerial compensation

Hitt and Hoskisson (1996:181) Strategic Management, Competitiveness and


According to Thompson and Strickland (2001:286), most companies

favour related diversification strategies, attracted by the performance –

enhancing potential of cross-business synergies. However, some companies

have for one reason or another, pursued unrelated diversification. And a few

have diversified into both related and unrelated business. These reasons are

tabulated below:

Figure 2.1: Strategy Alternatives for a Company looking to Diversify.

Diversify into related businesses

 Build shareholders value by capturing cross
business strategic fits.
 Transferring skills and capabilities from
one business to another.
 Sharing facilities or resources to reduce
 Leveraging use of a common brand name.
 Combining resources to create new
competitive strengths and capabilities.

Strategy options Diversify into unrelated businesses

for a company  Spread risks across diverse
looking to businesses
diversify  Build shareholders value of doing
a superior job of choosing
businesses to diversify into and of
managing the whole collection of
businesses in the company’s

Diversify into related

and unrelated

Thompson and Strickland (2001:286): Strategic Management (concepts and cases).

Other reasons for strategy include:

1. An effectively formulated strategy marshals, integrates and allocated a

firms resources, capabilities and competence.

2. Without a strategy, managers have no prescription of doing business,

no roadmap to competitive advantage, no game plan for pleasing

customers or achieving good performance.

3. Lack of a consciously shaped strategy is a surface ticket for

organizational drift, competitive mediocrity, internal wheel-spinning

and lack luster results.

4. It provides better guidance to the entire organization on the crucial

point of what they are trying to do.

5. Making managers and organizational members more alert to new

opportunities and threatening developments.

6. Helping to unify the organization

7. Creating a more proactive management posture

8. Promoting the development of a constantly evolving business model

that will produce sustainable bottom line success for the enterprise.

9. It encourages participative decision making which measures

behaviour of members which is expected to improve the welfare of

the firm.

10. It emphasizes interaction by managers at all levels of the

organizational hierarchy in planning and implementation.


Recently, a lot of emphasis has been placed on the view that a

business firm facing a complex and changing environment will benefit

immensely in terms of improved quality of decision making if capital

budgeting decisions are taken in the context of its overall corporate strategy

(Derkindern in Pandey 2005:275)

This approach provides the decisions maker with a central theme or a

big picture to keep in mind at all times as a guideline for effectively

allocating corporate financial resource. As argued by a chief financial officer

(Hall 1944:34) Allocating resource to investment without a sound concept of

divisional and corporate strategy is a lot like throwing darts in a dark room.

Similarly, Hastie in Pandey (2005:275) argues that we have erred too long

exaggerating the improvement in decision making that might result from the

adoption of DCF(discounting cash flow) or other refined evaluation

techniques. What is needed are approximate answers to the precise problems

rather than precise answer to the approximate problems. There is little value

in refining an analysis that does not utilize sound assumptions. Management

should spend its time improving the quality of assumptions and assuring that

all the strategic questions have been asked, rather than implementing and

using more refined evaluation techniques.

A close linkage between capital expenditure, at least major ones, and

Strategies positioning exist which made some researchers to conclude that

the set of problems companies refer to as capital budgeting is a task of

general management rather than financial analysis (Bower 1972 in Pandey


It is therefore a myopic point of view to ignore strategic dimensions or to

assume that they are separable from the problem of efficient resource

allocations addressed by capital budgeting theory (Petty, Scott and Bird,


Most companies consider strategy as an important factor in investment

evaluation. What are the specific experiences of the companies in India and

USA in this regard? Example of six companies showing how they defined

their corporate strategy is given as follows

1. Our strategy is to grow, diversify and expand in related fields of

technology only. Any project which is within the strategy and

satisfied yardsticks is accepted. This company found a low profit

chemical production proposal acceptable since it can within its

technology capabilities.

2. To take up new projects for expansion in the fields, which have closer

to present projects or technology. This company rejected a profitable

project (of deep sea fishing and ship building while it accepted a

marginally profitable project (of plant system) since it was very close

to its current heat transfer technology.

3. To have moderate growth for saving taxes and to set up plants for

forward and backward integration.

4. To provide our shareholders with superior returns by achieving

double digit annual earnings per share growth, increasing dividends

consistent with earnings growth, repurchasing shares when the

opportunity is right, pursuing profitable international beer expansions

and quality earnings and cash flow returns. Anhuser Busch

(Thompson and Strickland, 2001:41).

5. To dispose of those parts of our business which do not or cannot

generate adequate returns or do not fit our business strategy.

McCormick and Company.

6. To achieve 100 percent total customer satisfaction every day in every

restaurant for every customer. McDonald’s.

Strategic Management has emerged as a systematic approach in properly

positioning companies in the complex environment by balancing multiple

objectives. In practice, therefore, a comprehensive capital expenditure

planning and control system will not simply focus on profitability, as

assured by modern finance theory, but also on growth, competition, balance

of products, total risk diversification, and managerial capability and

flexibility. One must appreciate the dynamics of complex forces influencing

resource allocation in practice it is not simply the use of the most refined

DCF techniques.

Certain other practical considerations are as follows:

1. Apart from the profitability of the project other features like its

(projects) critical utility in the production of the main product,

strategic importance of capturing the new product first, adapting to the

changing market environment have a definite bearing on investment


2. Technological developments play a critical role in guiding investment

decisions. Government policies and concessions also have a bearing

on these.

3. Investment in production equipment is given top priority among the

existing products and the new project capital investment for expansion

in existing lines where market potential is proved is given first

priority. Capital investment in new project is given the next priority.

Capital investment for buildings, furniture, cars, office equipments etc

is done on the basis of availability of funds and immediate needs.

These statements reinforce the need for a Strategic Framework for

problem solving under complexities planning. It also implies that resource

allocation is not simply a matter of choosing the most profitable new

projects as shown by the DCF analysis. What is being stressed is that the

strategic framework provides a higher level screening and an integrating

perspective to the whole system of capital expenditure planning and control.

Once strategic questions have been answered, investment proposals may be

subjected to the DCF evaluation.

External Internal


Top Mission Corporate Threat and Technology

Management Objectives Strategy Opportunities Competition
Govt’s Policies

Strategic Weakness
Planning Market Scope
Growth Image

Budgeting Origination
System Development
Nature of


Middle Administration

Lower Operating
Figure 2.2: Capital Investment Planning Control Model. Pandey (2005:281), Financial



A few studies have suggested some initial criteria for evaluating a

strategy (Filles, 1963: Christensen et al (1978) in Mintzberg and Quinn.

(1991:11-12). These include clarity, motivational impact, internal

consistency, compatibility with the environment, appropriateness in light of

resources, degree of risk, match to the personal values of key figures, time

horizon and workability. In addition, historical examples from both business

and military-diplomatic settings suggest that effective strategies should at a

minimum encompass certain other critical factors and structural elements.

1. Clear, decisive objectives: Are all efforts directed toward clearly

understood, decisive and attainable overall goals specific goals of

subordinate units may change in the heart of campaigns or

competition, but the overriding goals of the strategy for all units must

remain clear enough to provide continuity and cohesion for tactical

choices during the time horizon of the strategy.

2. Maintaining the initiative: Does the strategy preserve freedom of

action and enhance commitment? Does it set the pace and determine

the course of events rather than reaching to them.

3. Concentration: Does the strategy concentrate superior power at the

place and time likely to be decisive? Has the strategy defined

precisely what will make the enterprise superior in power?

4. Flexibility: Has the strategy purposely built in resource buffers and

dimensions for flexibility and maneuver, Reserved capabilities,

planned maneuver ability and repositioning allow one to use

minimum resources while keeping opponent at a relative


5. Coordinated and committed leadership: Does the strategy provide

responsible, committed leadership for each of its major goals? Leaders

must be so chosen and motivated that their own interests and values

match the needs of their roles successful strategies require

commitment, no just acceptance.

6. Surprise: Has the strategy made use of speed, secrecy, and

intelligence to attack exposed or unprepared opponents at unexpected

times with surprise and correct timing, success can be achieved out of

act proportion to the energy exerted and decisively change strategic


7. Security: Does the strategy secure resource based and act vital

operating points for the enterprise? Does it develop an effective

intelligence system sufficient to prevent surprises by opponents? Does it

develop the full logistics to support each of its major threats? Does it use

coalitions effectively to extent the resource base and zones of friendly

acceptance for the enterprise?

In addition to these, the following broad criteria were established:

1. Consistency: The strategy must not present mutually inconsistent

goals and policies.

2. Consonance: The strategy must represent an adaptive response to the

external environment and to the critical changes occurring within it.

3. Advantage: The strategy must provide for the creation and

maintenance of a competitive advantage in the selected area of

activity (superior resources, superior skills and superior positions.

4. Feasibility: The strategy must neither overtax available resources nor

create unsolvable sub problem.

According to (Thompson and Strickland, 2005:68-69) three tests can be

used to evaluate the merit of one strategy over another and determine

whether a strategy is a success or not.

1. The Goodness of fit test: A good strategy has to be well matched to

industry and competitive condemns market opportunities and threats

and other aspect of the enterprises external environment. Unless a

strategy exhibits tight fits with a company’s external situation and

internal circumstances, it is suspect and likely to produce a less than

the best possible business result.

2. The competitive advantage test: A good strategy leads sustainable

competitive advantage. The bigger the competitive edges that a

strategy helps build the more powerful and effective it is.

3. The performance test: A good strategy boasts company.

Performance. Two kinds of performance improvements are the most

telling of a strategy and caliber, gains in profitability gains in the

company competitive strength and long term market position.


Hussey (1998:15) gave the following reasons why corporate strategy


a. Failure to analyze a situation before strategic decisions is made.

b. Failure to implement strategic decisions, including the failure to think

through the implications of a new strategy.

c. Problems with the process of planning itself.

d. Incomplete understanding of many of the concept by those claiming to

apply them.

According to Wikipedia, the free encyclopedia on strategic management,

many reasons were given, especially:

1. Failures to understand the customer;

a. why do they buy

b. Is there a real need for the product

c. Inadequate or incorrect marketing research

2. Inability to predict environmental reaction;

a. What will competitors do

b. Fighting brands

c. Price wars

d. Will government intervene

3. Over- estimation of resource competences;

a. Can the staff, equipment, and processes handle the new


b. Failure to develop new employee and management skills

4. Failure to coordinate;

a. Reporting and control relationships not adequate

b. Organizational structure not flexible enough

5. Failure to obtain employee commitment;

a. New strategy not well explained to employees

b. No incentives given to workers to embrace the new strategy

6. Under-estimation of time requirement

a. No critical path analysis done

7. Failure to follow plan;

a. No follow through after initial planning

b. No tracking of progress against plan

c. No consequences for above

8. Failure to manage change;

a. Inadequate understanding of the internal resistance to


b. Lack of vision on the relationships between processes,

technology and organization

9. Poor communication;

a. Insufficient information sharing among stakeholders

b. Exclusion of stakeholders and delegates

10.Failure to focus;

a. Inability or unwillingness to make choices which are true to

the strategic mission (i.e. to do fewer things, better), leas to

mediocrity, inability to compete.


The principal appeal to any managerial approach is the expectation

that it will lead to increased profit for the firm. This is especially true of a

strategic management system with a major impact on both the formulation

and implementation of plans.

A series of studies of various business organizations actually

measured the impact of strategic management process on the bottom line.

One of the first major studies was conducted by Ansoff, Avner,

Brandenburg, Portner, and Radosevich in 1970 in a study of 93 U.S

manufacturing firms. The authors found that formal planners who took a

strategic management approach out performed non-planners in times of

financial criteria that measured sales, assets, sales price, earnings per share

and the earnings growth. The planners were also more accurate in predicting

the outcome of major strategic action.

A second pioneering research effort was published in 1970 by Thune

and House, who studied 36 firms in six different industries. They found that

formal planners in the petroleum, food, drug, steel, chemical and machinery

industries significantly out performed non-planners in the same field.

Additionally, planners improve their own performance significantly after the

formal process has been adopted and compared to their financial

performance during the non-planning years.

Herold later (1972) reported a replication of part of the Thune and

House research dealing with a drug and chemical companies. His findings

supported the earlier study and, in fact suggested that the disparity between

the financial performance of planning and non-planning firm was increasing


In 1974, Fulmer and Rue published a study of the strategic

management practices of 386 companies over a three year period. The

authors found that durable goods manufacturing firms with strategic

management are more successful than those without. Their findings did not

hold for non-durable and service companies-probably, the authors suspected,

because strategic planning among these firms was a recent phenomenon and

its effects were not fully realized.

Also in 1974, Schoeffler, Buzzell and Heany reported a study

designed to measure the profit impact of market studies (PIMS). This PIMS

project involved the effects of strategic planning on a firms’ return on

investment (ROI). The researcher concluded that ROI was most significantly

affected by market share, investment intensity and corporate diversity. The

overall PIMS model which incorporate 37 performances

profitability is achieved through changes in the company’s strategic


An addition study of wide spread impact was reported by Karger and

Malik in 1975. Their research involving 90 U.S companies in five industries

found that strategic long-range planner significantly outperformed non-

planners in terms of generally accepted financial measures.

Finally, while most studies have examined strategic management in

large firms, a 1982 report found that strategic planning had a favourable

impact on performance in small businesses. After studying 101 small retail,

service and manufacturing firms over a three year period. Robinson found a

significant improvement in sales, profitability and productivity among those

businesses engaging in strategic planning when compared to firms without

systematic planning activities.

The overall pattern of results reported in these seven studies clearly

indicates the value of strategic management as gauged by a variety of

financial measures. Based on the evidence now available, organizations that

adopt a strategic management approach do so with the strong and reasonable

expectation that the new system will lead to improved financial


2.11 The Corporate Strategy of Cadbury Nigeria Plc.

The group strategy is to create robust and sustainable positions in its

core segments through focused organic growth of its advantaged brands,

creating new customer offers with distinct winning competitive edge, as well

as establishing footholds in adjacent markets and segments.(in the last five

years, the group has added new products to broaden its range in the core

segment, reformulated and repositioned others and existed markets where it

believed it did not have , or could not build, sustainable business models or

significant advantage based on differentiated offerings. Also, the group has

successfully advanced its drive to serve export markets in the ECOWAS


A critical element of strategy is to use local raw materials as much as

possible and source packaging materials and other inputs from local

companies even if we have to provide technical support to ensure the quality

standards that meet our stringent specifications. In doing this we provided

support to the vital small and medium scale sector, and we have seen these

businesses prosper and grow with us.

As a key player in the food industry, we endeavour to provide

leadership in helping consumers make informed choices, especially in view

of emerging concerns over health and nutrition. Our commitment covers the

full span of product formulation, choices of ingredients, process and

technology, disclosure and labeling as well as advertising and

communication. The opportunity to serve consumers in this way makes each

day an exciting experience as we seek to create brands that people love. We

have taken on very ambitions growth targets over the next seven years, and

this growth will be driven by an unwavering commitment to five key goals


I. Deliver superior shareowner returns on the back of superior business


II. Profitably increase our shares of the markets in which we chose to

compete, including especially the confectionary, food drinks, and

adjacent categories.

III. Expand our brand offerings into new and profitable markets and serve

new consumer across the West African sub-region.

IV. Ensure that the Group’s capabilities and business processes are best in

class by deploying leading edge tools, and

V. Nurture the trust of colleagues and communities, through consistent

deepening of our talent pool, increasing diversity and inclusiveness,

and social responsibility through our actions and brands.

The primary strategic agenda of 2005 was to consolidate the investments

of the preceding three years in plant upgrade, route to market expansion,

and business process review, as well as to ‘rev up’ our innovation

capability, create the roadmap for the next generation ERP (environment

responsible policy) platform and progress the expansion into West

African. (Cadbury Nig Plc. Annual Reports and Accounts 2005)

2.13 Cadbury expansion investment decisions.

A. The investment programme commenced in 2002 with the

Modernization of the Food Drink Plant, the commissioning of a new

state- of – the art Bubble Gum Factory. This has been followed by the

commissioning of a Chocolate Plant and subsequent launch of the first

real chocolate offerings in Nigeria.

B. The development of Trebor Celebrations in 2003, Halls Ahomka

Ginger, Bubba Bubble Gum, Halls Take 5, and Chocki, with Chocki

as a truly breakthrough in Chocolate offering in 2004, and Paschal

Crème Rollers in 2005. Showing an expansion in product line

offerings to the market.

C. Continuous upgrade of their Confectionary Plant and Facilities to

automate more of their operations which adds direct benefits in

quality and efficiency.

D. The transformation of their Head Office Facilities. This has been

complemented with an Upgrade of their Learning Centre and the

creation of a Fitness Centre.

E. The installation of a new powder plant in Stanmark

However, it should be noted that 2005 was the second of their four-year

strategic plan in re-defining the path and pace of their future growth.



Man is a curious being and has always sought to understand himself

and the environment in which he lives (Hassan, 1995:11), which he does by

testing the truth for the existing knowledge and generating a new body of

knowledge for himself. In order to understand himself and his problem he

adopted a method of knowing, hence research.

Research according to (Bulus, 2005:1) is defined as an activity which is

deliberate, systematic and directed towards obtaining dependable solution to

pressing problems in an area of human endeavor.

Also (Ugwuanyim, 2005:1) defined research as the systematic and

objective recording and analysis of controlled observations that may lead to

the development of generalization, principles or theories resulting in

prediction and possibly ultimate control of events.

Research methodology is therefore a set of systematic techniques or

procedure adopted by a researcher to collect and analyze primary and

secondary data. This chapter is basically concerned with the strategies

employed in generating the relevant data for the study. Here, discussions

were made regarding the main source of data, the research hypothesis,

research design, data collection method, and the method of data analysis.


In line with the objective of the study, the researcher tested this


HO: Cadbury Nig. Plc strategic pattern does not affect the company’s

expansion investment decisions.

H1: Cadbury Nig. Plc strategic pattern affects the company’s expansion

investment decisions.


The Ex-post facto design is used by the researcher (facts – after –

facts).which stem from the fact that the events to be studied have already

taken place and the data are in existence. As such, the researcher does not in

any way attempt to control or manipulate variable, but only create a situation

that generates the required data for analysis.


Method of data collection provides information on how necessary

details have been obtained and on which the results and conclusions from

the study are based. The researcher used only secondary sources of data to

gather relevant information which were used for the purpose of the study.

Simply put, they are simple abstraction from existing record.

For the purpose of this research work, the secondary source of data

used was further delimited to the published financial statements of Cadbury

Nigeria Plc. That is, 2005 annual reports and accounts showing a five year

financial summary of the company from 2001-2005.

Financial statement is used for financial planning and decision making

to predict, compare and evaluate firm’s earning ability, which also aids

economic decisions. (a general overview of the performance of the firm). It

includes; Balance Sheet, Profit and Loss Account and Cash flow Statements.

A Balance sheet gives a summary of the firm’s resources (assets) and

obligations (liabilities and owners equity) at a point of time. The Profit and

Loss Account reflects the results of the business operations by summarizing

revenue and expenses during a period of time, and the Cash flow Statement

provides information on the source of cash inflows into the company and

the utilization of the cash by the company (Pandey, 2005:489-493).

The variables of interest are sales turnover, net profit after tax, net

asset, and number of ordinary shares outstanding. These data are obtained

from the Profit and Loss Account and Balance Sheet section of the financial

statement of company under study.

The variables mentioned above originate from the researchers stated

hypothesis: Cadbury Nig. Plc strategic pattern does not affect / affects

expansion investment decisions. Strategic pattern shows the growth and

profitability of a firm (increase in sales and market shares). In (Thompson

& Strickland, 2001:336), the most important considerations in judging

business unit strategic pattern performance are sales growth, profit growth,

contribution to company earnings and the return on capital invested in the

business. Growth strategies are designed to expand an organizations

performance, usually measured by sales, profit, product mix, market

coverage, market share or other accounting and market based variables. See

also (Michael & Robert, 1997:52, Pearce & Robinson, 1998:17-19, 279-


Thus, from the above requisite variables mentioned and the

explanations, the researcher measured the company’s strategic pattern with:

1. Net Asset Per Shares,

2. Net Profit Margin (Return on Sales),

3. Earnings Per Share,

base on its impact on the company’s expansion investment decisions

pursued within 2001-2005.

Net Asset Per Share (NAPS) is a ratio that indicates the amount of net

assets attributable to each ordinary share in issue. An increase in this ratio is

an indication that the company is growing. A decrease indicates the

opposite. It must be noted that increase in net assets could result from

revaluation of assets or acquisition of assets. The more desirable growth

from the investor’s perspective is the one resulting from asset acquisitions.

The formular for calculating NAPS is:

Net assets minus preference share capital

Number of issued ordinary shares outstanding

Net profit margin or Return on sales shows after tax profit per naira of

sales sub pars profit margins. It indicates that the firms sales are relatively

low or that costs are relatively higher, or both. It also indicates

management’s efficiency and effectiveness in manufacturing, administering

and selling product. This ratio measures the overall firm’s ability to turn

each naira sales into net profit. If the net profit is inadequate, the firm will

miss at achieving satisfactorily returns on shareholders’ fund. This ratio also

indicates the firms’ ability to withstand adverse economic conditions. A firm

with a high net profit margin would be in an advantageous position to

survive in the face of falling selling prices, rising costs. The formular for

calculating NPM is:

Net profit after taxes


Earnings Per Share shows the earnings available to the owners of each

share of common stock. It does indicate whether or not the firm’s earnings

power on per-share basis has changed over a period (it simply shows the

profitability of the firm on a per-share basis).

The formular is: Profit after tax

Number of outstanding shares of common stock out standing

Sources: Pearce& Robinson, 1998:226-239. Thompson& Strickland, 2001: C-6, Pandey,



Data analysis involves transforming a series of recorded information

and observations which have been obtained through primary and secondary

data into descriptive statements of inferences about relationships that exist in

the data. The analysis permits certain statistical manipulations and final

interpretations on the data generated to make sense.

The basic tool of analysis used is the Financial Profitability Ratios.

This technique measures the overall performance and effectiveness of the

firm in relations to sales and investment which indicates the firm’s

efficiency of operations, while equity holders and owners hope for value

added from investments through income from dividends and growth from

capital gains; recapitalized earnings. It is also used to measure management

performance as well as determine a company’s performance relative to its


Alongside, graphs, tables, pie-charts and percentages were employed

to make data presentation very logical.


In chapter three of this research, the sources of data were discussed,

and the analytical tools to be used in testing the hypothesis were stated. This

chapter presents in details the analyses of the data so generated as well as the

findings so arrived at.


The data presentation is based on a five year annual reports and

accounts of Cadbury Nigeria Plc (2001-2005). The year 2001 has been taken

as the base year in determining the trend in percentages.


The variable of interest for analyses have been extracted from the

profit and loss account, and the balance sheet section of the company’s

annual financial reports and accounts for the period under study: (2001-


These variables are:

a. Sales turnover,

b. Net profit after tax,

c. Numbers of ordinary shares outstanding,

d. Net asset.


In line with objective of study, the hypothesis earlier formulated and

stated in the previous chapter is restated.

Restatement of hypothesis:

HO: Cadbury Nig. Plc strategic pattern does not affect the company’s

expansion investment decisions.

H1: Cadbury Nig. Plc strategic pattern affects the company’s expansion

investment decisions.

Table 4.1: showing analysis of Cadbury’s Expansion Programmes:

2004 2005 Changes in %

#’000 #’000 Increase/(decrease)
(Base year)
Land 277,822 449,706 61.87%
Furniture 2,789,696 4,628,990 65.93%
Motor 46,056 47,689 3.55%
Project 3,117,243 2,838,310 (8.95%)
Source: (Annual financial statement of Cadbury Nig. Plc, 2005)

Table 4.1 above shows the expansion investment decisions of

Cadbury Nig. Plc as earlier stated in chapter two.

The analysis shows only two year (2004 and 2005) record because

year ‘2005 was the second of our four year strategic plan in redefining the

path and pace of our future growth’ ( Cadbury Nigeria Plc annual report,


The justification of these expansion programmes will be based on the

following indices:

1. Net Asset Per share

2. Net Profit Margin

3. Earnings Per Share

Table 4.2: Analysis of Net Asset Per Share (NAPS):

2001 2002 2003 2004 2005

Net Asset 414 915 1098 945 1086
Per Share
Trend in 100% 221% 265% 228% 262%
Source: (Annual financial statement of Cadbury Nig. Plc, 2005)

Net Asset Per Share

600 1098 1086
915 945
200 414
2001 2002 2003 2004 2005

Chart 4.1: Net Asset Per Share. (Annual financial statement of Cadbury Nig. Plc, 2005)

Table 4.2 and Chart 4.1 show the value and trends of the Net Asset

Per Share of the company. From the table, there was a tremendous rise from

414k to 915k in 2002, a further increase in 2003 from 915k to 1098k. In

2004, there was a drop to 945k. However, in 2005, it recorded an increase of


In 2004 the decrease in NAPS was due to disposal of asset to make

allowance for the upgrading of confectionaries plant.

Sequel to Cadbury strategic plan which is to:

a. Deliver superior shareowner returns on the back of superior business


b. Ensure that groups’ capabilities and business processes are best in

class by deploying leading edge tools.

Cadbury Nig. Plc have been able to accomplish many expansion

investment decision programmes such as the modernization of food drinks

plant, the commissioning of a chocolate plant, continuous upgrade of

confectionary plant, recent transformation of head office facilities and the

new installation of a new powder plant in stanmark, following their strategic


All these are imbibed in Table 4.1, showing that the company’s

expansion decision is worthwhile and increases shareowners returns based

on the strategic plans made.

Table 4.3: Analysis of Net Profit Margin:

2001 2002 2003 2004 2005

#’000 #’000 #’000 #’000 #’000
Net Profit After 1,647,836 2,249,078 2,684,927 2,812,623 2,710,921
Turnover 13,346,408 16,014,709 20,576,177 22,152,651 29,454,185
Net Profit Ratio 0.12 : 1 0.14 : 1 0.13 : 1 0.13 : 1 0.9 : 1
Trend In 100% 117% 108% 108% 75%
Source: (Annual financial statement of Cadbury Nig. Plc, 2005)

Net Profit Margin

120% 117%
108% 108%
80% 75%
60% NPS(Trend in
2001 2002 2003 2004 2005
Chart 4.2: Net Profit Margin. (Annual financial statement of Cadbury Nig. Plc, 2005)

From chart 4.2, it can be observed that Cadbury maintained a steady

rise in its Net Profit Margin. Recording 12k for every #1 sales in 2001, 14k

in 2002, while in 2003 and 2004, the NPM was constant at 13k for every #1

sales and in 2005, NPM reveals a drop from 12k in 2001 to 9k in 2005 for

every #1 sales showing an unfavourable Net Profit Return from Sales.

In line with Cadbury strategic plan which is:

a. To create robust and sustainable positions in its core segments

through focused organic growths of its advantaged brands,

creating new customer offer with distinct winning competitive

edge, as well as establishing footholds in adjacent markets and


b. Profitably increase our share of the market in which we choose

to compete, including especially the confectionery, food drinks

and adjacent categories,

c. Expand our brand offerings into new and profitable markets and

serve new consumers across the West African sub region.

The company have been able to add more to their product line due to

the fact the company followed their strategic decisions of expansion in

product line offerings to the market: Trebor Celebrations in 2003, Halls

Ahomka Ginger, Bubba Bubble Gum, Halls Take 5, and Chocki, with

Chocki as a truly breakthrough in Chocolate offering in 2004, and Pascall

Crème Rollers in 2005, has taken place, showing offerings to the market


However, the drop in NPM in 2005 was due primarily to two factors:

1. New Accounting Standard Board Regulation on provision for gratuity

for all serving employees. A total provision of #500 million has been

charged against profit in compliance with this regulation. This

provision will however impact the profits for another two years.

2. Material Cost Escalation

a. The soaring price of crude oil had a huge impact on all

commodity prices and freight costs. Those that affected the

profit most were;

i. Flexible Packaging Material: The international price of

the base resins rose 40% during the year, with

significant effect on local suppliers

ii. Sugar: The large scale use of sugarcanes for production

of ethanol in Brazil (one of the largest producers of the

commodity in the world) in their quest for alternative

fuel for motorcars caused the astronomical rise in the

world sugar price. The increase in import duty on

refined sugar to 50% did not help matter

iii. Tin Plate: The impact of high oil prices (tin plate

manufacture uses furnaces which consumes energy)

was compounded by high demand in China.

b. Traffic Structure: The classification of materials under the new

common external tariff structure obviously needs to be

reviewed to align with the principle that raw material attracts

5% duty, intermediate products 10% and finished products

20%, with the scope to raise duty on special items where local

industry needs protection.

Table 4.4: Analysis of Earnings Per Share

2001 2002 2003 2004 2005

EPS 206 300 357 281 270
Trend in 100% 146% 173% 136% 131%
Source: (Annual financial statement of Cadbury Nig. Plc, 2005)

Earnings Per Share

300 300 281 270
200 206

2001 2002 2003 2004 2005

Chart 4.3: Earnings Per Share. (Annual financial statement of Cadbury Nig. Plc, 2005).

Table 4.4 and Chart 4.3 show the value and trends of the Earnings Per

Share of the company. It should be noted that the EPS values have been

abstracted directly from the company’s financial annual report but, have

been subjected to arithmetic processes to confirm its validity.

From table 4.4, there was a steady rise from 206k in 2001 to 300k in

2002 and a further increase in 2003 to 357k, decreased in 2004 to 281k and a

further reduction to 270k in 2005 showing (3.9%) change (decrease) from


The EPS dilution in 2005 is on account of the increase in the number

of shares of the company in March 2005(administrative, professional and

legal fees charged also impacted).


From these analyses and findings, it can be concluded that Corporate

Strategy affects expansion investment decisions positively, as the clarity and

single minded pursuit of strategy has been the underpinning strength of the

business and the expansion investment decisions have been sustained,

yielding positive results as shown in the analysis of Net Asset Per Share, Net

Profit Margin and Earnings Per Share.




In this chapter, the entire work will be summarized, reasonable

conclusions will be deduced, useful recommendations made and possible

suggestions for further research will be made in the area under study.


In line with the objective of the study, the researcher formulates this


HO: Cadbury Nig. Plc strategic pattern does not affect the company’s

expansion investment decisions.

H1: Cadbury Nig. Plc strategic pattern affects the company’s expansion

investment decisions.

In analyzing the company’s strategic pattern, the analytical tools - Net asset

per share (NPS), Net profit margin (NPM) and Earnings per share (EPS),

were used to justify the expansion programme as captured in Table 4.1 of

this study. The findings of this research work are as follows:

1. The Net asset per share indicates the amount of net assets attributable

to each ordinary share in issue. An increase indicates that the company is

growing. From the analysis, it was discovered that there was an increase in

net asset per share, premising on the trends in percentage. See Table 4.2 and

chart 4.1. By implication, the company’s expansion investment decisions

were proficient following the strategic decisions made.

2. The Net profit margin, measures the overall firm’s ability to turn each

naira sales into net profit. Table 4.3 and chart 4.2 isolates the movement of

underlying trading profit return as a percentage of sales. The strong

profitability of the business, along with sustained capital expenditure

(expansion) profile, is in accord with the strategic intent in the long term.

The drop in operating profit return in 2005 was due primarily to the

provision for gratuity in accordance with new Accounting standard board

requirement (This provision effectively dipped profits in the short run and is

expected to be a three- year impact) and materials cost escalation. However,

the analysis revealed that Cadbury Plc was able to expand their product

offerings to the market.

3. The Earnings per share is the last key measure. Table 4.4 and chart 4.3

show the net growth over the last four years. The Earnings per share

however reveals a dilution, which is on account of the increase in the

number of shares.


The primary objective of this study was to investigate whether

corporate strategy affects expansion investment decisions of organizations.

Cadbury Nigeria Plc was used as a case study. The scope of the study was

for a period of five years (2001 – 2005). Literatures relevant to the study

were reviewed with a view to providing a theoretical basis for the purpose of

the study. Relevant data were collected from the annual reports and accounts

of Cadbury Plc. Profitability ratio was used in the analysis of data, alongside

charts and percentages showing trends logically.

The conclusion is based on the findings in chapter four of this

research work. Table 4.2 shows a tremendous rise with a 21% increase from

2001 to 2002, 20% in 2003 and 15% in 2005. In Table 4.3 there was a rise

by 16% from 2001 to 2002, a steady increase in 2003, 2004 and 30%

decrease in 2005. In Table 4.4 an increase of 46% from 2001 to 2002 was

recorded, 19% in 2003, and a decrease by 4% from 2004 to 2005. At this

juncture, the researcher can adequately put forward that corporate strategy

affects expansion investment decisions of organizations. That is, Cadbury

Nigeria Plc strategic pattern affects the company’s expansion investment



In line with the findings from the analysis the researcher makes the

following recommendations:

1. Management should reinforce the need for a strategic framework for

problem solving under complexities and the relevance of strategic

considerations in investment planning.

2. Management should not only focus on profit as assumed by modern

finance theory as the only indicator of company’s success, but also on

growth, competition, balance of products, total risk diversification, and

managerial capability and flexibility

3. Effective planning should be put in place, as planning is the first and

foremost management principle that emphasizes that a game plan and

business strategy should be well crafted before embarking on any venture

worthwhile. Factors such as visions, missions, action plans, capabilities,

effective communication, internal and external environment, equipment,

employee commitment, competitors, investment priorities, resource

allocation, financing, technology development, government policies and

concessions, outsourcing of more non -core activities, restructuring for

higher efficiencies, etc should be the major inputs to be made into the

planning process.


As corporate strategy is a new field of study in Nigeria, the researcher

recommends that scholars and researchers should see this as a challenge and

as such further probe into this area if necessary. Research and development

in this area should be greatly encouraged by the Government, Financial

research institutes, Tertiary institutions and the private organizations because

investment decisions without a sound corporate strategy is like a ship

without a rudder and a waste of time. Also allocating resources to

investment without a sound concept of divisional and corporate strategy is

like darts in a darkroom.


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