The John Keells Holdings subsidiary, Ceylon Cold Stores PLC group, Sri Lanka’s oldest manufacturer of carbonated soft drinks, increased its net profits by 56 percent to Rs.855.3 million for the quarter ended June 30, 2016 (1Q17), the interim financial accounts showed. This translates into earnings per share of Rs.9.00, up from Rs.5.79 a year ago.
Despite the tightening economic conditions having a bearing on consumption, the group saw its top-line rising by a strong 30 percent year-on-year (yoy) to Rs.10.3 billion, which is considered significant. The gross profit rose 38 percent yoy to Rs.1.8 billion.
The group also runs the Keells Supermarket chain through its fully owned subsidiary JayKay Marketing Services Private Limited.
As of end June, JayKay Marketing Services has been running 50 Keells supermarket outlets, and during the financial year ended March 31, 2016 the retail arm contributed 31. 5 percent to the group after-tax profit.
The company observes a rising shift in consumers towards modern retail i.e. supermarkets.
Interestingly, the group continued to charge the existing corporate income tax rate of 28 percent, which is higher than the proposed rate of 17.5 percent for this type of businesses by the budget.
The group said had they charged the lower rate the group’s total tax charge would have been reduced by Rs.289 million for the quarter. The current tax for the group is Rs.350.0 million.
The move appears to be an act of prudence, “as the proposed rate has still not been legally enacted as at the reporting date,” the company said in a note to the financials.
The accounting action also demonstrates that the group has no confidence over the tax policy of the government.
However the lower tax rate does not apply to JayKay Marketing Services.
Sri Lanka’s taxes in recent times have been a main form of uncertainty for businesses and instability for the economy.
Meanwhile, the group in May has established a wholly owned subsidiary, The Colombo Ice Company (Private) Limited (CICL) and entered into a Board of Investment agreement to lease a land with an extent of 9 acres for a period of 50 years to set up an ice cream factory.
The group Chairman Susantha Ratnayake in May told his shareholders that the estimated cost of the planned plant would be in excess of Rs.3.0 billion and would take two years for completion.
Further the group has also heightened its focus on research on reducing sugar and increasing natural flavouring in its products to appeal to the growing health conscious consumers.
“…the growth potential for carbonated soft drinks may be constrained to an extent in the medium to long term due to a growing segment of health conscious consumers,” Ratnayake said in his annual review, last year.
Ceylon Cold Stores is the market leader in both carbonated drinks and frozen confectionary market in Sri Lanka.
As of March 31, 2016 John Keells Holdings PLC held 70.61 percent of the group while the state-controlled private sector pension fund, the Employees’ Provident Fund held 0.33 percent stake being the eighth largest shareholder.