Keells Foods 2Q impacted by sluggish consumer spending

Keells Food Products PLC (KFP) revenues languished and profits fell during the three months ended June 30, 2019 (1Q20) as the processed meat producer fell victim to subdued consumer spending in a sluggish economy.

The company reported earnings of Rs.1.34 a share or Rs.34.1 million for April – June period down from the Rs.2.21 a share or Rs. 56.3 million reported for the corresponding period last year. 

The top line growth fell 4.0 percent year-on-year (YoY) as the sales were recorded at Rs.831.5 million. 

The company is the first Colombo Stock Exchange listed entity to kick start the June earnings season, which is largely expected to be subdued due to multiple headwinds from the prevailing weak consumer and business sentiment and the fallout from the Easter attacks.

The John Keells group entity reported Rs.267.1 million in net profits on revenue of Rs.3.4 billion for the year ended March 31, 2019. 

Although the firm’s interim report did not accompany a commentary on the results, the income statement showed that the producer and marketer of sausages, meatballs, slices and crumbed items had carried out an aggressive push strategy of its products as the company had increased its selling and distribution expenses by 29 percent from the same period last year. 

Sri Lanka’s per capita consumption of sausages, meatballs and crumbled products sold under the frozen meat category remains low compared to the regional markets. 
KFP sells its products under the brands Keells Krest, Krest and Elephant House.  

Meanwhile, the performance of hotels, restaurants and catering establishments (HORECA) sector, the firm’s largest customer segment, may have affected KFP’s performance to a larger extent, as the sector became an immediate casualty of the April 21 terrorist attack targeting churches and city hotels.

Apart from these challenges, processed food makers have been struggling to maintain their top line for some years due to shifting consumer preferences towards healthier organic foods. 
However, KFP maintains that its products adhere to the highest level of quality standards and adds no artificial preservation and colours. 

A large portion of the company’s livestock and spice requirements are supplied locally. 

But during the year ended in March 31, 2019, the company faced challenges in procuring pork due to a shortage in the local market, which affected the company’s cost and production volumes of pork related products. 

As at June 30, 2019 John Keells group held 90 percent stake in KFP.