Keells Foods beat challenging operating conditions to record profits in two years

Keells Foods Products PLC (KFP) reported a growth in third quarter earnings for the first time in two years as the giant in the processed meat industry appears to have weathered the market headwinds but the earnings still remain below 3Q16.

KFP, the market leader in processed meat, reported earnings of Rs.87.2 million or Rs.3.42 a share for the October-december quarter (3Q18) from Rs.3.02 a share in the same quarter a year ago but the earnings are still 12 percent below that of the December quarter earnings in 2016.

On a quarter-on-quarter basis, the earnings were up as much as 84 percent, as the seasonal demand may have accelerated the growth in revenues and profits.

The sales were up by a modest 9.0 percent over the 12 months to Rs.864.5 million for the quarter.

The prolonged slowdown in revenues and profits at KFP could be attributed to one of the most difficult operating conditions which substantially weakened the disposable incomes making processed meat an unlikely item on the grocery list.

Last year the government lifted controls on importation of maze, a key raw material used to feed the chicks, which would in return bring down the price of chicken. This should bring down the prices of processed meat making it more affordable.

During the last two years, the producer of Keells sausage and chicken meatballs rejiggered its product portfolio, introduced new varieties, re-branded the product label as ‘Keellskrest’ and committed to use natural ingredients as much as possible to become appealing to the health conscious consumer amid one of the most challenging operating conditions.

The Keells Holdings unit further positioned its Elephant House processed meat products as the premium range.

The company’s product portfolio consists of over 170 products sold through over 18,000 retail outlets.

Besides the domestic sales, KFP also exports to Maldives and India, the latter which the company re-started during 2016/17 financial year.

Perhaps due to plating sales growth in the domestic market, its Chairman, Susantha Ratnayake told the company looks to expand its overseas footprint.

Meanwhile, for the 9 months ended in December 31, 2017, the company reported revenues of Rs.2.35 billion, almost flat in comparison to the sales of the same period last year and the earnings declined by 22 percent to Rs.177.1 million from a year earlier. The company is the pioneer in processed foods manufacturing in Sri Lanka since 1982 but now faces challenges due to changing consumer tastes and the consumers increasingly becoming choosier on the healthier organic foods against the processed foods.

As of December 31, 2017, John Keells Holdings held 74.94 percent stake in KFP while John Keells PLC and Walker Tours Limited held 10.09 percent and 4.86 percent stakes respectively being the second and third largest shareholders.