Keells Food top line surges on higher prices but margins under pressure

Keells Food Products PLC (KFP) recorded strong performance in the three months through September (2Q23), as the company passed on the soaring production and other costs to customers via higher prices to blunt the impact on its margins coming from the cost inflation, which exceeded 100 percent nationally.     

Sri Lanka’s largest processed food maker reported a revenue of Rs.1.77 billion for July-September, up 66 percent from the same period last year, supported largely by higher prices, as the company in late July said it was raising the prices to the extent possible while being mindful of the price elasticity of demand for products in its portfolio. 
It isn’t immediately clear if the company, which manufactures food products under its Keells Krest and Elephant House brands, witnessed any growth in its volumes during the quarter against the same period last year, as people cut down significantly on their discretionary food purchases amid runaway inflation.

The three months saw the relentless increase in consumer inflation before peaking at just shy of 70 percent in September, the highest level seen by the Sri Lankans. 

While there was some easing in the prices in October towards 66 percent, it still remains at restrictive levels for households to loosen their purse strings to spend on things. Despite the higher revenues, the company saw its gross margins coming under pressure in the quarter, as it narrowed from 24.4 percent to 21.5 percent between the two periods amid the direct cost soaring 73 percent, outpacing the rise in the revenues.

In a bid to minimise the full effects on the company’s sales coming from the weaker consumer demand, KFP is increasing its product range through smaller package sizes offered at lower price points. 

At operating level, the company reported a profit of Rs.107.7 million, up 92 percent from a year ago. 
At bottom line level, the company reported earnings of Rs.2.39 a share or Rs.60.9 million for the quarter, compared to Rs.1.85 a share or Rs.47.1 million in the comparable period in 2021, an increase of 30 percent.

The finance cost rose sharply on the back of higher interest rates and fresh borrowings assumed during the six months through September while the corporate income tax expense also rose substantially from a year earlier.