Cargills June earnings sharply down as lockdowns hurt retail operations

Cargills Ceylon PLC witnessed the most challenging three months in its recent history as lockdowns prevented in-person visits to their stores while their restaurants remained closed weighing on the group financial performance.

The group revenue suffered 12 percent year-on-year (YoY) decline to Rs.22.8 billion in the three months to June 30, 2020, as the group’s retail operations were severely impacted by lockdown orders.

While the company carried out business via e-commerce channels that did not fully offset the lost sales from its brick-and-mortar network. 

The group turnover plunged 50 percent YoY in April alone at the height of the pandemic. 

The company launched what looked like a mobile supermarket, ‘Cargills 2 Home,’ the region’s first ever such initiative, to mitigate negative effects arising from the restrictions on people’s mobility, the company said. 

The pandemic and related lockdowns exposed a key deficiency in Sri Lanka’s retail industry—its extremely low e-commerce penetration levels.

The pandemic has evidently prompted retailers to invest heavily on their e-commerce platforms, which can operate alongside their in-store operations. 

Cargills group’s retail operation, which runs the country’s second largest modern trade chain, recorded revenues of Rs.17.4 billion for the quarter under review, compared to Rs.20.1 billion in the comparable period last year. 

However, the group’s fast moving consumer goods segment generated revenues of Rs.4.9 billion for the quarter, slightly up from Rs.4.8 billion in the corresponding period last year. 
The company’s strong dairy product range under Kotmale brand, frozen products under Cargills and Kotmale brands and other products, including confectionary range under Kist brand, command a leading position in the market.

“Even though manufacturing operations continued, though on a reduced scale, milk collection from dairy farmers carried on without interruption, maintaining our position as the largest private milk collector in the country. 

During the lockdown, consumer habits underwent a magnitude of changes with surging demand for categories of milk, cultured products, cheese and butter,” Cargills said in an earnings release. 

Meanwhile, Cargills had observed a shift in consumer trends towards more fresh and nutritious food products during the quarter, which could prompt the group to put more money into building supply chains in the fresh food category. 

The group’s restaurant business represented by franchise operations remained largely non-operational during the quarter with the exception of home deliveries. Restaurant business revenues halved to Rs.460.3 million from Rs.945.3 million in the year earlier period. 

The group reported earnings of 82 cents a share on total profit of Rs.209.7 million for the April – June 2020 quarter, significantly down from Rs.2.52 a share or 648.8 million in the year earlier period. 

Cargills Ceylon along with its parent CT Holdings last week announced plans to buy back up to 5 percent of the issued shares of companies in the next twelve months as promoters believe the current share prices do not reflect the underlying value of the business and growth prospects. 

CT Holdings PLC has 69.87 percent stake in Cargills Ceylon while the Employees’ Provident Fund has 3.27 percent stake, being its third largest shareholder.