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Thursday, September 28, 2023

Currency Shocks Hit Cadbury as Production Costs Shoot Through the Roof

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The foreign exchange shocks brought on by ceaseless devaluations of the currency by the regulator has dealt a great blow on Cadbury Nigeria Plc whose production costs have also shot through the roof, tipping the company into losses.

The unaudited half year 2021 results of Cadbury Nigeria showed it posted a net loss of N516.16 million, from a profit of N536.36 million the previous year.

The spiral in total cost was also driven by higher cocoa prices as the consumer goods firm is fully reliant on local sourcing of the commodity for production of beverages.

Interestingly, the company expends  copious amounts of money to produce each unit of product. Total cost as a percent of sales stood at 103.36 percent as at June 2021, the highest in four years.

That means the consumer goods giant spent N0.103  on input cost to produce N1 of each product, which is why it recorded an operating loss of N609.95 billion, according to MoneyCentral calculations.

Total cost ratio was at an all time high of 103.55 percent in 2016, a period that coincided with the precipitous drop in crude oil price of mid-2014 that tipped the country into its first recession in 25 years.

Despite inflationary pressures and rising utility bills eroding the purchasing power of consumers, Cadbury Nigeria’s revenue spiked by 16.40 percent to N18.55 billion.

Manufacturers are having difficulty in getting foreign currency to import raw materials and spares that aren’t available in Nigeria. Over 40 percent of dollar needs are unmet, constraining producers from operating at full capacity.

The devaluation of the currency by the central bank that seeks to protect the external reserve from the vagaries of crude oil price has been a torn in the flesh for companies because a lot of them import raw materials and equipment to meet production.

There are positive prognoses for the industry as a gradual opening of the economy is expected to lead to economic recovery, but the slow pace in administering the coronavirus vaccines could sour such outlook.

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