Thu | Sep 20, 2018

Kremi profits falter under rising input costs

Published:Friday | June 22, 2018 | 12:00 AM
Christopher Clarke, CEO of Kremi/Caribbean Cream Limited.

Ice cream maker Caribbean Cream Limited, which trades as Kremi, faced rising input costs last year, but chose to absorb some of them, while tempering price increases on customers, according to CEO Christopher Clarke.

The upshot of that decision was that a $160-million growth in revenue at year ending February 2018 was overwhelmed by the additional $200 million tacked on to Kremi's production costs, leading to thinner margins.

It also cost the company more to administer the business and market its goods. The result was that Kremi's profits were cut in half, from $176 million in 2017 to less than $90 million in the current period. Revenue in the comparative periods rose from $1.21 billion to $1.37 billion.

"We were affected by increases in the overall costs of our ingredients. While the dollar itself did not move during the year, there were increases in our ingredients costs worldwide," Clarke told the Financial Gleaner.

Asked if this movement triggered price increases, Clarke said that out of concern for the effect on Kremi's market, the company held its prices early on and took a hit at the bottom line.

"We didn't really move prices early on. We did that later down in the year, so it did not have the effect that we would have liked. In an effort to maintain market share we tried to hold the prices," he said.

The increased in administrative costs was due to additional staff hired during the year to boost production through greater utilisation of equipment.

Production boost

"We added a shift so that we could boost production. This did not push our total output for the year, however, since we had a number of breakdowns; so while we increased our capacity per hour, we were not able to make our production targets," Clarke explained.

The ice cream maker, which largely trades in bulk ice cream but also distributes frozen treats, expects the business to generate better returns this year due to in part to more favourable input prices this year as well as less downtime for plant equipment.

"Worldwide costs in our inputs, namely, palm oil and milk powder, are trending down, and we've made substantial changes in our preventive maintenance programme, so we don't expect a repeat of last year," Clarke said.

neville.graham@gleanerjm.com