Ceylon Cold Stores September hit by slowing consumer demand, higher raw material prices

Moderating disposable incomes and a wobbling economy appear to have hit the performance of Ceylon Cold Stores PLC (CCS) as the retail juggernaut reported poor earnings for its July-September quarter (2Q18), extending decline in earnings for the second consecutive quarter.  

The maker of Elephant House ice cream and a range of carbonated drinks reported earnings of Rs.7.90 a share for the quarter under review, compared to the Rs.11.05 a share reported for the same quarter last year (2Q17).

The net profit declined by 28 percent year-on-year (YoY) to Rs.751 million. 

But the group revenue rose by 15 percent YoY to Rs.12.5 billion. Yet, a 22 percent YoY growth in cost of sales, presumably stemming from higher raw material prices, undermined the top line gains. 

For the six months ended in September 30, the CCS group, which runs 64 supermarkets in major cities under the ‘Keells Super’ brand, made a net profit of Rs.1.43 billion, down 25 percent YoY. 
The earnings per share deteriorated to Rs.15.01 a share from Rs.20.05.

The CCS earnings clearly displayed slowing consumer demand in a high interest rate and high inflation environment, where people have cut their discretionary income substantially. 

Policy uncertainties and inclement weather have clearly taken a toll on the island nation’s debt-ridden economy. The economy grew by 3.9 percent in the first half of this year and the Central Bank is forecasting a 4-4.5 percent growth for the full year.

Despite the depressed quarterly and half-year numbers, foreign investor interest has been seen on the CCS share of late. 

But CCS has been slow in transforming its fizzy drink portfolio to healthier alternatives to address the shifting consumer demand.

Meanwhile, the group’s manufacturing business saw its earnings sharply falling to Rs.480.1 million for the quarter from Rs.781.6 million during the same period last year.

The segment revenue was also slightly down to Rs.3.56 billion from Rs.3.78 billion.  

The group has announced Rs.3.8 billion investment into a new ice cream plant and another Rs.2.5 billion on a new bottling facility. 

The retail segment of the group made a net profit of Rs.263.9 million compared to Rs.292.4 million a year earlier on revenue of Rs.9.0 billion, up from Rs.7.2 billion.

CCS has a 23.54 percent stake in Waterfront Properties (Pvt.) Limited, the project company of the John Keells group’s integrated resort Cinnamon Life now coming up in Colombo. 

As of September 30, 2017, JKH held 70.61 percent of CCS followed by its subsidiary Whittall Boustead (Pvt.) Ltd holding a 10.7 percent stake.