Keells Food Products cuts advertising as pandemic hurts sales

Keells Food Products PLC (KFP) on Monday kicked off the June quarter earnings season, providing a glimpse of the extent to which the coronavirus-related lockdowns have affected the financial performance of the listed entities, particularly in the consumer discretionary category. 

Market leader in the processed meat products in Sri Lanka reported 18 percent lower revenues for the April-June quarter (1Q21), compared to the corresponding quarter in 2019, as both modern trade and general trade remained shuttered for nearly half of the quarter while the pandemic decimated the hotel, restaurant and cafe (HoReCa) segment, which otherwise accounts for a significant share of the business. 

The company had revenues of Rs.678.9 million for the three months, compared to Rs.831.5 million in the year earlier period. The company’s share ended 90 cents or 0.89 percent lower, at Rs.100 yesterday.  Despite the weak top line, the John Keells group company managed to post higher earnings for the quarter, as it slashed advertising spending during the period. 
The company reported earnings of Rs.1.64 a share or Rs.41.7 million for the quarter, compared to earnings of Rs.1.34 a share or Rs.34.1 million reported in the year earlier period, registering a 22 percent increase. 

The company cut the advertising and distribution expenses by 35 percent to Rs.73.3 million over the same period last year.  The company may have halted its advertising and promotional expenditure earmarked for the festive season in April, which otherwise become a heavy month for sales. 

In the most recent financial year that ended, the company penetrated into the general trade sector effectively, where there is heavy price competition. The company expanded its wallet-friendly budget range with the launch of a 100g sausage pack for the general trade channel, at a price of Rs.100.   Kochchi bites and cheese balls were also released in smaller pack sizes to address the low volume and low-priced product strategy of competitors operating in the general trade market. The company sells its products under the brand names Keells Krest, Krest and Elephant House.

Further, the firm last year entered into dry-foods space by launching ‘Keells Krest Ezy Rice’, an instant, ready-to-eat rice, spending heavily on advertising and promotion, which weighed on its bottom line.

While the modern and general trade are gradually recovering after the easing of lockdowns, the HoReCa sector, which is yet to recover, could weigh on the company’s sales in the coming few quarters. The John Keells group holds nearly 90 percent of the issued shares of KFP.