Kremi earnings chilled by ammonia shortage

Ice cream maker Caribbean Cream Limited, which trades as Kremi, recorded frosty results in the August quarter despite the record summer heat.

Its earnings were sliced in half for the second quarter, from $7.2 million to $3.6 million. However, the half-year outturn remained above water, rising from $8.5 million to $10.3 million.

The company faced ammonia shortages which led to production delays in the previous quarter. Kremi subsequently sourced sufficient supplies for the second quarter and beyond, according to director Wayne Wray in an interview with the Financial Gleaner on Tuesday.

Wray said that ammonia, like all imported commodities, is subject to supply and price movements based on international events. Kremi has tried to reduce its vulnerability to shocks but it “can’t eliminate them altogether”, he said.

Ammonia acts as a cooling agent in the production of ice cream. But challenges with the sourcing of supplies threatened to ebb the pace of production at the Kingston-based company. Sales flattened in the quarter to $646 million, just $1 million more than the prior year. Turnover was also flat at $1.25 billion over the longer six-month horizon spanning March to August.

Caribbean Cream responded to the production glitches by trimming fat. Its squeeze on expenses cut its cost of sales for the first half of the year to $860 million from $904 million, a decline of 5.0 per cent. With the company “strategically” scaling down its electricity usage in the production process, the second quarter bore witness to a decrease in costs by 3.0 per cent, amounting to a saving of $15 million.

The financials show that the core of the company remains solid with operations generating sweeter gross profit – both for the quarter which was up 8.0 per cent to $204.6 million from $189.1 million; and half year up 10 per cent to $390.4 million from $353.5 million. However, Kremi was negatively affected by higher costs to finance the business as administrative and operating expenses climbed by some 10 per cent for the half-year to $338 million.

Central to Caribbean Cream’s future strategy is its investment in its plant and equipment.

Aiming to enhance efficiency and profitability, the firm has ramped up its capital spending by 29 per cent, translating to a $382 million spike compared to the previous year. The overarching goal is to bolster production and meet market demand.

“We are aiming from our expansion capital initiatives to satisfy demand from inventory, [by adding] a larger cold room, and racking, so that if production is impacted for whatever reason we keep on selling from inventory,” said Wray, adding that the company is close to achieving that vision.

The company’s inventory grew to $248 million in August, up from $183 million a year earlier.

steven.jackson@gleanerjm.com