Higher operating and finance costs hinder Ceylon Cold Stores third quarter profits

• Company was seen building large inventory looking to blunt supply chain impact 

Sales at Ceylon Cold Stores PLC (CCS) rose from a year-on-year basis but moderated in the December quarter (3Q23) from the previous three months reflecting the weakening consumer spending as soaring inflation cut into consumers’ pocketbooks. 

The consumer foods juggernaut with an expansive retail footprint under its Keells branded supermarkets reported revenues of Rs.31.74 billion in the October-December quarter, up 39 percent from a year ago period.
But, the group’s profits got hammered from the costs which outstripped the revenue growth while sharp rise in interest costs flipped earnings into a loss as it took on some large short-term borrowings amid soaring interest rates.

CCS reported a loss of Rs.315.62 million or 34 cents a share for the quarter compared to a profit of Rs.815.48 million or 85 cents a share reported in the corresponding period in 2021.  The company’s share gave up 10 cents or 0.27 percent to close at Rs.37.00 on Friday.    In the previous three months ended in September, the group’s revenues surged 80 percent, made possible by the sharp increases in the sticker prices to reflect the often changing prices in the economy and the post pandemic recovery in volumes to a certain degree. 

Based on the financial data, this post pandemic advantage for a larger extent leveled off in the December quarter because the corresponding quarter in 2021 had returned to near pre-pandemic sales volumes after the lockdowns ended. 

CCS saw its direct costs rising by 41 percent to Rs.28.51 billion during the quarter under review while other overheads such as selling and distribution expenses and administrative expenses surged by similar percentage.
As a result, the group reported operating profits of Rs.1.28 billion, down 15 percent from a year ago.

Meanwhile, CCS also saw its net financial cost surging by 126 percent to Rs.1.15 billion in the quarter as it took on loans, specially short-term ones at a time when the borrowings costs were soaring in line with Central Bank’s ultra tight monetary policy.  For instance, the company added Rs.3.92 billion in new loans in the nine months through December 2022, of which Rs.4.57 billion came in from short-term borrowings. Out of that too there was an increase of Rs.3.72 billion in overdraft, of which rates are typically higher than other facilities.
In addition, CCS was also seen using supplier credit for its working capital as trade and other payables had risen by Rs.4.91 billion in the nine months. 

Meanwhile, the group was seen building its inventories potentially as a risk mitigation exercise amid prolonged disruptions to the supplies and supply chains on the backdrop of lingering foreign exchange shortages.
The group’s inventories rose by Rs.6.44 billion to Rs.15.51 billion in the nine months.

Its manufacturing division which produces a range of processed foods, beverages and dairy products and frozen confectioneries reported revenues of Rs.6.19 billion, up 33.4 percent.  However, the segment swung to a net loss of Rs.513.17 million for the quarter from a profit of Rs.458.88 million a year ago. 
Meanwhile, the group’s supermarket business generated revenues of Rs.25.79 billion, up 40 percent. However, the earnings fell sharply to Rs.197.1 million or by 44.8 percent.
John Keells Holdings PLC has 70.66 percent stake in CCS.