Kremi secures low-cost raw materials, triples profit
Published:Tuesday | January 12, 2016 | 11:25 AMCamilo Thame
Kremi ice cream maker, Caribbean Cream Limited, has secured contracts for supply of key raw materials at reduced prices for the next six months.
The move secures substantial gains from low-cost inputs through to June, while the dessert manufacturer pushes for revenue growth.
Cost of goods fell by three per cent from year-earlier levels during the three months to November 30 and by eight per cent during the last nine months.
The company said that it continued to benefit from price reductions on its main ingredients and had locked in prices for raw materials as far forward as was possible in the soft market.
"Three inputs have reduced: sugar, milk, and the price of oil, which affects the light bill," Kremi CEO Christopher Clarke told Wednesday Business. "Because these prices are so good - below the prices that we use to do the budget - we have locked them in for long-term contracts.
"We are covered through to June."
The average price of LPG sold by Petrojam also fell by 30 per cent over the year, according to checks by Wednesday Business.
Sales of $260 million for review quarter were nine per cent higher than year-earlier levels, while revenue for the first nine months of the company's current financial year rose 10 per cent to $820 million.
Revenue growth was attributed to increased sales of high margin novelty items such as cakes, icicles and fudges, and expanded presence in the retail market - Kremi products were in 300, or 50 per cent more stores at the end of November than a year before.
Selling and distribution expenses increased by 21 per cent in the third quarter as a result of higher haulage cost arising from the needs to service additional out of town locations.
Consequently, net profit tripled from $13 million for the three months to November 30, 2014, to $39 million in the latest financial quarter, placing nine-month earnings at $124 million, compared with $31 million for the corresponding period the year before.
Earnings per share (for the last 12 months) climbed from 32 cents at the end of August to 40 cents at the end of November. Last week, the market appeared to take the profit report well, as Kremi's share price rose from $3.92 a share last Wednesday to $4.46 last Friday.
The company's share price was trading around $1.80 up to the beginning of October when the ice cream maker held its AGM at which another round of expansion costing $100 million was announced, and also when the company published its second quarter results.
Then, it was reported that net profit nearly quintupled to $85 million for the first half of the current financial year, while earnings per share jumped from 21 cents at the end of May to 32 cents. The share price rose sharply thereafter, reaching as high as $5 by mid-November before going back down to $3.27 a month later.
Kremi's latest financials showed that capital expenditure totalled $24 million during the nine months to November 30.
Clarke said that the company continues to install the projects outlined at the AGM.
The upgrade aims to double hourly throughput of the mixing plant as well as the rack storage space. It also includes a new hot-water system meant to capture heat from its blast freezer system and use this energy in the pasteurisation and sanitation processes, thus lowering the use of LPG and chemicals. A new wastewater system is also planned.
"We are still planning to do those capital investments to further increase efficiencies," the CEO told Wednesday Business.
In the meantime, the ice cream maker still has considerable capacity to be utilised. It currently is using about 70 per cent of capacity in a normal week.