Caribbean Cream looks to third party contracts for new business

Caribbean Cream Limited, which trades as Kremi, says its ongoing expansion project will increase production capacity by one-third.

The factory is currently operating near full capacity. The additional space will serve two purposes: allow the company to ramp up production in peak seasons, such as Christmas; and expand into white labelling, which would allow third party companies to sell its ice cream under their own label.

Caribbean Cream retails its ice cream under the Kremi brand, but also makes ice cream mix - which is an intermediary product for the manufacture of ice cream - for its largest shareholder Scoops Unlimited, which operates Devon House I'Scream. Scoops owns 78 per cent of Caribbean Cream. There are no additional white label clients at the moment, said CEO Christopher Clarke.

"Third party manufacturing is an area we always offered but now it is a potential growth area for us," said Tuesday following the company's annual general meeting in Kingston.

The expansion should be finalised in November and follows an investment of just over $100 million, but the volumes it would add to the operation was not immediately available.

"Production per hour will increase as a result of the expansion," said Clarke. "We are close to full production capacity now and it means we cannot take advantage of periods with robust opportunity."

The company expects to finalise its Hazard Analysis & Critical Control Point or HACCP certification this year, which would certify that Kremi adheres to global best practices in areas such as hygiene and health, and would facilitate market entry into the United States. Kremi also views the certification as a potential driver of white label business.

In the company's first quarter ending May, Kremi spent $101 million on plant and equipment, related mainly to refrigeration. Clarke said capital expenditure for the remaining quarters of the financial year should be minimal, and that total spend for the current fiscal year was expected to fall below $169 million of capex for the year ending February 2018.

In the May quarter, the ice cream maker made a profit of $55.4 million or 15 cents per share off sales of $412 million, a better outcome than the $35 million profit or 9 cents per share scored from sales of $319 million in the May 2017 period.

Jamaican business have been reporting mixed fortunes as a result of the depreciation of the local currency, with importers of raw materials being among the firms experiencing adverse effects.

CAME OUT AHEAD

However, Clarke said Kremi had already factored in price movements as part of its budget. He said that while the company felt the effects of the currency depreciation in the August second quarter, it came out ahead as movement in the exchange rate came amid a year-on-year dip in commodity prices for items such as palm oil, a key ingredient that the company imports. Consequently, investors should not necessarily expect a fall in gross profit, he said.

"The dollar has not depreciated beyond our budgeted foreign currency rate," he said. "Commodity prices are trending down, and in some cases faster than foreign exchange movements."

In other external developments, Kremi said the recent announcement of the ban on single use plastic bags and styrofoam would not negatively impact the company directly, but added that were the ban to be extended to plastic cups it could indirectly affect ice cream vendors. The solution would involve increased cone usage. As for the restrictions on sugar content, Clarke said he does not foresee a problem for ice-cream and would still be capable to offer sugar alternatives if the product faces sugar restrictions.

"There is sugar and then there are sugars," said Clarke, who noted that the consumer experience was key to how the company would respond to the healthy-eating market trend.

"You cannot put ice cream in the category of chicken and rice. I would not recommend eating ice cream every day, but it is something like going to the movies. We are always looking for the product to be better but we won't sacrifice the enjoyment," he told shareholders.

steven.jackson@gleanerjm.com