Kremi profits melts from inflation, supply disruptions

Ice cream maker Caribbean Cream Limited, which trades as Kremi, for the first time slipped into the red for its financial year ended February 2022, recording net losses of $9.2 million.

The company, which at the onset of the pandemic found itself chipping away sales from the competition from its ability to continue manufacturing during the COVID-related lockdown, while competitors grappled with scarce imports, saw profits melt over the course of the year due to rising costs and shipping uncertainties among other challenges.

“It’s a mix of things. We have been dealing with supply chain uncertainties, rapidly increasing commodity prices, and inflation. Inflation hit particularly hard in areas related to ice creams, such as the cost of milk powder, palm oil and sugar. Milk powder and palm oil went up significantly over the year in addition to energy costs,” CEO Christopher Clarke told the Financial Gleaner.

“But it was difficult for us to increase our prices at the same rate. We have since increased price, but we are yet to determine if we are out of the woods or when that will happen,” he said.

Kremi grew revenue by 11 per cent year on year to $2 billion, but spun from a healthy profit of $101 million for FY2021 to a loss of $9.2 million, driven by higher operating and administrative expenses. A large chunk of the increased spend related to storage of additional raw materials to prevent stock-outs.

The company’s cost of inventory for the year was $938 million, up from $755 million the year before.

The cash Kremi generated from operating activities also dwindled to $24 million from $188 million, while net cash amounted to $146 million, down 33 per cent year on year.

The company borrowed more heavily than the previous year, recording proceeds of banks loans of $357 million, compared to $258 million the previous year, amid a larger capital expenditure programme under which the ice-cream company invested net proceeds of $387 million in its growth, compared to $147 million in FY2021.

On Tuesday, the stock traded at $4.89, down 10 cents.

This financial year, Clarke is banking on increased sales numbers and savings that should kick in before the new financial year ends from investments Kremi is installing in a larger cold room with blast freezers at a South Camp Road property in Kingston and a combined heat and power plant at its head office, which is budgeted to cost US$2 million and is aimed at reducing its energy bill.

In addition to supply chain uncertainties and inflation, Kremi now has to monitor the ongoing Ukraine-Russia conflict which has been escalating over the past few days. Ukraine and Russia are two of the world’s top producers of commodities like grains, palm oil and crude oil, making the conflict a major consideration in the direction prices take.

Estimated savings from the power plan have still not been disclosed, but Clarke says that that project, in addition to greater efficiencies created from the larger cold room construction, still won’t be enough to make up for Kremi’s additional spend on keeping company supplies and operational expenses intact.

“We have broken ground on the cold room, but we’re not ready to give specific dates as to when it will be commissioned because shipping times are inconsistent. The CHP plant is further along and we expect it to start contributing around before the 2022 ends,” he said.

“But it doesn’t really change our readings. We expect to save money using the gas plant, but I can’t say that it will huge savings be fuel prices have gone up and so the cost to run the plant will go up,” he added.

Clarke added, however, that the ice cream company was still in a position to withstand the external economic shocks.

karena.bennett@gleanerjm.com