ECONOMYNEXT – Profits of Sri Lanka’s listed Ceylon Cold Stores fell 65 percent to 238.9 million rupees in the June 2018 quarter from a year earlier, with a sugar-tax hurting manufacturing sales and falling margins and soaring finance costs hitting profits at its Keells supermarket chain, interim results showed.
The company, which makes fizzy drinks, juices and ice creams under the popular Elephant House and other brands, and operates the Keells supermarket chain of about 80 outlets, reported earnings of 2.51 rupees a share in the quarter, a Colombo Stock Exchange filing showed.
The stock was trading 1 rupee lower at 925 rupees on Wednesday. Ceylon Cold Stores is a unit of listed John Keells Holdings.
In the June quarter, revenue grew 13 percent from a year earlier to 13.9 billion rupees, with cost of sales growing at faster 19 percent to 12.7 billion rupees, resulting in a 25 percent contraction of gross profits to 1.2 billion rupees.
Selling and distribution costs rose 16 percent to 549 million rupees, and administration expenses increased 17 percent to 426 million rupees.
Other operating expenses rose 30 percent to 227.9 million rupees.
Net finance costs rose 236 percent to 40.2 million rupees, as finance income fell 26 percent to 23.4 million rupees and finance costs soared to 63.6 million rupees in the June 2018 quarter, up from 2 million rupees a year earlier.
Outstanding bank overdrafts amounted to 4.97 billion rupees at end June 2018, up 61 percent from the previous March quarter.
Revenue from manufacturing fizzy drinks and ice creams fell 7.8 percent from a year earlier to 3.1 billion rupees. Net finance costs rose 104 percent from a year earlier 742 thousand rupees.
Profits of the manufacturing segment declined 38 percent to 434.3 million rupees.
The Keells supermarket chain saw revenue grow 21 percent from a year earlier to 10.9 billion rupees in the June 2018 quarter. Net Finance costs increased 412 percent from a year earlier to 39.5 million rupees.
Profits of the retail business declined 60 percent to 95.6 million rupees.
The company has been reducing the sugar content of most of its drinks and cold-confectionery goods to meet regulatory standards over the last two years.
However, falling sales due to a sugar tax has resulted in the company deferring investments on a new bottling plant, with the current facility operating under capacity, the company said.
The sugar tax resulted in an average 33 percent increase in prices of its portfolio in 2017/18.
Ceylon Cold Stores is going ahead with 4.2 billion ice cream manufacturing plant, hoping to achieve better margins from impulse buying by consumers.
The company is also rebranding its supermarkets to Keells and refurbishing all outlets. It’s investing in a 225,000 square foot centralized distribution centre. (COLOMBO, 25 July 2018)