Cost pressures persistently constrain profitability

Cadbury Nigeria Plc (“the Company”, “Cadbury”) grew its revenue by 30% YoY to N9.60bn in Q2 2021 from N7.36bn in Q2 2020 owing to an increase in volume sales induced by resumption of economic activities. We also posit that a moderate price adjustment took place during the quarter. Gross profit declined by 32% YoY to N688mn in Q2 2021 (Q2 2020: N1.02bn) resulting from a 40% YoY rise in cost of sales.

Operating expense rose by 37% YoY to N1.63bn in Q2 2021. As a result of the rise in operating expense, operating loss worsened to N933mn in Q2 2021 (Q2 2020: N168mn). Loss before tax printed at N861mn in Q2 2021 from a loss of N146mn in Q2 2020. There was no tax expense in Q2 2021, thus loss after tax remained N861mn (Q2 2020: N102mn loss).

Refreshment Beverages Drives Revenue Growth
In Q2 2021, the breakdown of Cadbury’s revenue, according to product segments, revealed an increase in refreshment beverages by 30% YoY to N6.53bn in Q2 2021. Also, confectionary sales rose by 85% YoY to N2.71bn in Q2 2021. However, intermediate cocoa sales declined by 59% to N358mn in Q2 2021. Overall, the increased sales of refreshment beverages which constituted 68% of total revenue underpinned the growth in revenue. We posit the sales decline of intermediate cocoa to the inability to export to foreign customers due to border restrictions, induced by a second wave of the coronavirus pandemic (the Delta variant).

Higher Cost Margin Erodes Revenue Gains
Cost margin rose by 700 basis points to 93% in Q2 2021, thus significantly eroding topline gains. We attribute the relatively high cost of sales to rising input costs – induced by higher commodity prices in the global market. In addition, we believe that difficulties in accessing FX to import raw materials impacted negatively on costs. As a result of the weak cost margin and Cadbury’s limited ability to raise prices amid intense industry competition, gross profit declined by 32% to N688mn in Q2 2021.
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