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Retail VAT continuous to haunt Cargills performance

8 June 2015 03:01 am - 0     - {{hitsCtrl.values.hits}}

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The Value Added Tax (VAT) extended to wholesalers and retailers with effect from 2013, continues to hamper the country’s largest retail chain, Cargills (Ceylon) PLC, as the group saw its net profit for the March quarter as well for the financial year being negatively impacted, the interim results released to the Colombo Stock Exchange showed. 

For the quarter ended March 31, 2015 (4Q’15), the company’s net profits contracted by 7 percent year-on-year (yoy) to Rs.295.3 million. The Earnings Per Share (EPS) declined to Rs. 1.32 from Rs.1.42 a year ago. 

“The ad-hoc VAT policy has far-reaching implications on smallholder farmers and your company is continuously engaging with policy makers to reach consensus on applying the policy in a manner that would stimulate growth in local agricultural produce,” the company said in an earnings release. 

The turnover rose by 19 percent yoy to Rs. 14.8 billion while the cost of sales declined by 24 percent to Rs. 13.4 billion resulting a gross profit of Rs.1.4 billion, down 14 percent. 

Notably other incomes rose 34 percent yoy to Rs. 472.6 million. Further the distribution expenses declined by 89 percent yoy to Rs.594.3 million, but the administrative expenses rose by 16 percent yoy to Rs. 606.6 million. 

As a result, the operating profit contracted by 20 percent yoy to Rs. 368.2 million. 

As a part of the group restructuring process which began in FY 2013/14, the group disposed of its brewery, Millers Brewery Limited in October 2014 to Lion Brewery (Ceylon) PLC for a consideration of Rs. 5.15 billion. 

The disposal resulted in a one-off gain of Rs. Rs.352.7 million and a provision for impairment in value of goodwill and investments amounting to Rs. 180.9 million.

Meanwhile for the financial year ended March 31, 2015 (FY 2014/15) the Cargills group posted a net profit of Rs.574.2 million, down 11 percent. The EPS was Rs.2.56 as against the Rs.2.87 a year ago. 

“During the year, your company paid Rs 870 million as ‘deemed VAT’ on VAT exempted products compared to Rs. 130 million paid as ‘deemed VAT’ in the previous financial year,” the company said. 

However the group turnover grew by 10 percent to Rs. 61.6 billion while the cost of sales declined by 12 percent to Rs. 56 billion resulting in a gross profit of Rs. 5.6 billion, down 8 percent. 

Other incomes grew by 20 percent to Rs. 1.4 billion during the year. 

Meanwhile the distribution expenses declined by 25 percent to Rs.2 billion and the administrative expenses declined by 17 percent to Rs. 2.9 billion. 

The operating profit declined by 37 percent to Rs.1.6 billion. 

The net finance cost declined by 31 percent to Rs. 832.1 million as both the short and long term borrowings have come down. 

Meanwhile, the segmental results showed the retail and wholesale distribution segment narrowing its operating profit by over 52 percent to Rs. 918 million due to ‘deemed VAT’. However the revenue remained almost unchanged at Rs.51.4 billion. 

Fast Moving Consumer Goods (FMCG) segment which includes the confectionary business increased its operating profit by 51 percent to Rs. 763.4 million. The revenues increased from Rs. 10.8 billion to Rs.12.5 billion. 

The restaurant segment turned an operating loss of Rs. 69.3 million from a profit of Rs. 41.9 million last year. However the revenue increased to Rs. 2.3 billion from Rs.2.2 billion. 

“The Restaurants business stabilized during the quarter under review with the KFC franchise returning to profit during the last 4 months of the year while TGI Fridays

is yet to turnaround. The group restructuring process which is ongoing also sees the restaurants sub-sector operating independently under a focused management,” the company said. 

During the 4Q’15, the 8 percent equity investment in to the group’s retail sector by the World Bank’s private sector investment arm, The International Finance Corporation (IFC) was completed based on a pre-equity valuation of Rs.30 billion of the company. 

As of March 31, 2015 C T Holdings PLC held 70 percent of the group followed by V.R Page with another 6.45 percent stake. 

The government-controlled private sector pension fund, Employees Provident Fund had 3.38 percent stake being the third largest shareholder of Cargills group. 
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