Weak consumer demand hit the performance of Ceylon Cold Stores PLC (CCS) during the January – March quarter (4Q17) as higher inflation, interest rates and the impact of the increased value-added tax eroded the disposable income of the people, affecting the demand for the retail and beverage produce substantially.
According to the interim results filed with the Colombo Stock Exchange, the company, which manufactures and sells ice cream, carbonated drinks under the Elephant House brand and runs supermarkets under the Keells Super brand, reported earnings of Rs.823.6 million or Rs.8.67 a share, a decline of 15 percent from a year ago.
“The increase in inflation from 2.6 percent in March 2016 to 7.3 percent in March 2017, as well as the increases in the interest rates and value-added tax rate resulted in a moderation of the growth rate of consumer spending in the final quarter,” said CCS Chairman Susantha Ratnayake in his annual address to the shareholders.
Meanwhile, due to the weakening of the rupee against the US dollar and the value-added tax, the company’s input cost also rose faster than that of the rise in the top line.
The revenue for the quarter increased 15 percent year-on-year (YoY) to Rs.11.1 billion while the cost of sales rose by 21 percent to Rs.9.5 billion. As a result, the gross profit declined by 10 percent YoY to Rs.1.6 billion.
For the year ended March 31, 2017, CCS reported a net profit of Rs.3.6 billion or Rs.37.38 a share, recording an increase of 24 percent. The revenue for the full year rose 26 percent YoY to Rs.43.5 billion. The operating profit rose 22 percent YoY to Rs.4.8 billion.
The beverage manufacturing business accounted for 68 percent of the total operating profit of the group while the supermarket operations under the fully-owned subsidiary Jaykay Marketing Services (Pvt.) Ltd (JMSL), accounted for the balance 32 percent.
JMSL increased its stores from 50 to 64 during the year while the increase in footfall also supported the retail performance.
During the year, in response to the growing demand for healthy foods, CCS introduced non-carbonated, sugar-free products while JMSL increased the shelf space for fresh produce, enhancing the range of healthy options for consumers, Ratnayake said.
During the period, the company launched its own supermarket brand under ‘K-Choice’, which has been key to maintaining margins while the acceptance of the product has also remained high.
During the year, CCS committed Rs.3.8 billion investment for a new ice cream factory and another Rs.2.5 billion for a new bottling facility for beverages.
In addition, JMSL is also constructing a new distribution centre with an estimated investment of Rs.3.2 billion.
This facility is expected to consolidate both dry and fresh produce enabling the company to further improve its offering to the customers, achieve significant scale benefits as well as deliver operational excellence.