Cost Pressures Reduce Kremi’s Profitability

• Kremi reported a net profit of $8.52Mn for its six months ending August 31, 2022, which represents a $52.91Mn (or 86.2%) decrease relative to the prior period. This decline in profitability was mainly attributed to higher direct and operating costs.
• Despite a 21.5% or $222.46Mn increase in revenues owing to an increase in volumes sold and prices, its direct costs increased more rapidly (34.1% or $229.87Mn) putting downward pressure on the gross profit. Large increases in raw materials were a primary contributor to the rise in direct expenses and increase in product price adjustments.
• Additionally, a 13.6% increase in operating expenses also constrained profitability.  This increase was attributed to higher costs of utilities, security, cleaning, sanitation, and transportation. Also of note, the company’s loan financing cost increased leading to a 133.4% increase in its net financial costs.
• Due to the uncertainty, and still elevated price level for raw materials and utilities, Kremi could continue to see an erosion in its bottom line for the remainder of its financial year. 
• Kremi’s stock price has decreased by 23.4% since the start of the calendar year. The stock closed Friday’s trading session at $4.06.

(Sources: Company Financials and NCBCM Research)