The market leader in processed foods, Keells Food Products PLC (KFP) saw its net profit for the quarter ended June 30, 2015 (1Q15) rising by  as much as 86 percent to Rs.70.5 million from a year ago on strong revenue growth, which increased its gross margins, the interim results released to the Colombo Stock Exchange showed. 

The basic earnings per share rose to Rs.2.76 from Rs.1.48 a year ago. 

KFP, a John Keells group subsidiary, saw its revenue increasing by 18 percent year-on-year (YoY) to Rs.681.9 million, resulting in a gross profit of Rs.195.4 million, up 15 percent YoY. 

The performance is likely to be a reflection of the increasing disposable income, changing lifestyles and higher tourist arrivals. 

The company expects these factors will bode well for further improved performance in the future as these will likely encourage demand for both convenience foods and out of home consumption. 

Costs, except for selling and distribution expenses, were contained close to last year’s levels due to slashing of electricity and energy prices and the reduction of the value-added tax rate by 1 percent from the budget presented last year.

Sri Lanka’s per capita consumption of sausages, meatballs and crumbed items are relatively low compared to regional markets and thus, the company is spending on building awareness and market development campaigns.  

The selling and distribution expenses thus rose by 21 percent YoY to Rs.66.3 million for the quarter. Operating profits rose by 52 percent YoY to Rs.84.4 million. 

It has also been observed that while the urban consumers have shown an increase in consumption, the gap between the Western Province’s contribution and other provinces for process food is reducing. 

This indicates that the consumption in other provinces is picking up due to improvement in income and lifestyle changes. 

While the company reaches the in-home consumers through modern and general trade channels, hotels restaurants and catering establishments (HORECA) constitutes the company’s largest customer segment. 

The main product category of the company—sausages— account for nearly 50 percent of the overall volumes.

KFP has operations in India through its subsidiary John Keells Food India (Private) Limited. However, during the FY 2014/15, exports to India were impacted by regulations imposed by the Indian authorities, who demanded a laborious registration process for imported products. Notably, the finance cost of the company fell by 46 percent YoY to Rs.3.5 million due to the fall in market interest rates. Meanwhile, the finance income increased 63 percent YoY to Rs.5.4 million. 

The segmental results shows the firm’s manufacturing business making a net profit of Rs.77.7 million, up 65 percent YoY. The trading business made a net profit of Rs.8.7 million, up 58 percent YoY. 

For the financial year ended March 31, 2015, KFP made a net profit of Rs.261.3 million from just Rs.467,000 earned for the preceding year as the company was affected by a one-off Rs.139 million for a voluntary retirement scheme accepted by 129 factory staff. 

As of June 30, 2015, John Keells Holdings PLC and John Keells PLC held 74.94 percent and 10.09 percent stakes in KFP, respectively. The public held only 8.38 percent, below the 20 percent requirement by the regulator’s minimum listing rules for a Main Board listed company.