Keells Food Products December profits down on higher costs

Keells Food Products PLC (KFP), the processed food maker of John Keells group, reported lower profits for the quarter ended December 31, 2018 (3Q19) amid weak consumer sentiment and difficult operating conditions.

KFP, the manufacturer of Keells branded sausages, meatballs and crumbed items reported earnings of Rs.3.23 a share on total profit of Rs.82.5 million during period under review.  This is in comparison to earnings of Rs.3.42 a share or Rs.87.2 million reported for the corresponding period last year.

The revenues rose 9 percent year-on-year (YoY) to Rs.940.2 million, but both direct costs and operating costs undermined the modest gains made at the top line level.

The cost of sales rose 10 percent YoY to Rs.658.5 million, while selling and distribution expenses and administrative expenses rose by 31 percent YoY and 10 percent YoY to Rs.105.5 million and Rs.43.1 million respectively. 

Globally, the processed food makers are facing multiple challenges from upcoming small-scale organic food producers as consumer preferences appear to be shifting towards healthier alternatives. 

Although KFP and other food manufacturers are seen trying to respond to the change in customer choices, their woes are amplified by weak consumer sentiment as higher interest rates and taxes dent people’s disposable incomes.

Sausages make up of nearly 50 percent of overall volumes of KFP.

KFP reaches the in-home consumer segment through modern and general trade channels while hotels restaurants and catering establishments (HORECA) constitute the firm’s largest customer segment. 

Meanwhile, for the nine months ended December 31, 2018, KFP reported earnings of Rs.8.02 a share or Rs.204.5 million, up 15 percent YoY on revenue of Rs.2.6 billion, up 11 percent YoY. 

The company appointed a new Chief Executive Officer in March last year. 

As at December 31, 2018, John Keells group had just under 90 percent stake in KFP.