Ceylon Cold Stores second quarter in red as revenues slip while costs rise

• To acquire water bottling plant for Rs.150mn to blunt escalating production cost

Ceylon Cold Stores PLC (CCS) recorded a loss in the three months ended in September (2Q22) with revenues edging down as production costs remained stubbornly unchanged while other overheads climbed—a classic reflection of the combination of the top and bottom line pressures confronted by firms in the food and beverage sector in the most recent quarter.  CCS, the largest food and beverage company by market value, reported revenues of Rs.17.7 billion for the quarter review, down 4 percent from the same period in 2020 as the group felt the impacts of virus related restrictions on consumer demand and the higher inflation on its manufacturing and retail operations.  

The September quarter revenues were also down from the previous quarter revenues of Rs.18.15 billion recorded in the three months to June, which was also undermined for a certain degree by the lockdowns, but the sales were up from a year ago period due to the sales slump suffered during the onset of the pandemic last year.

The group’s manufacturing operations, which consist of Elephant House’ branded beverages and frozen confectionary reported revenues of Rs.3.77 billion in the September quarter, down 11.3 percent from a year ago. But the operating profit fell by 63.6 percent to Rs.251.69 million from Rs.691.75 million a year ago, reflecting the pressures stemming from rising costs.

Sri Lanka’s producer prices have been rising at nearly double-digit levels during most of this year, according to the official Producer Price Index compiled by the Census and Statistics Department, but there are many outliers.  
Most producers were passing the escalating costs down to the consumers seen through the sharp shelf price increases in the last couple months, but part of the rising cost was also absorbed by them, at the expense of their margin decline to prevent a significant impact on demand.  Meanwhile, CCS director board after the September reporting date had approved to purchase a water bottling plant for Rs.150 million, “and the acquisition is expected to increase the efficiency and reduction in cost of the current operation.” 

The group’s retail operations carried out by its nearly 130 Keells supermarkets reported sales of Rs.14.03 billion for the three months, slightly down from Rs.14.3 billion.

While the soft lockdown had a limited impact on foot traffic during the period, sales may have also affected due to the shortages of essentials and the resulting rationing on sales of certain items.

Despite the relatively strong sales, supermarket segment’s operating profits fell to just Rs.7.9 million from a year earlier period profit of Rs.489.8 million as costs base had stubbornly held up. 

Ceylon Cold Stores reported negative earnings of 81 cents a share or Rs.77.1 million for the quarter under review, compared to an earnings per share of Rs.8.62 or Rs.819.4 million a year ago. 

For the six months ended September 2021, the group reported earnings of 36 cents a share or Rs.34.2 million, down 93 percent from a year ago on revenues of Rs.35.9 billion, up 16 percent. 
John Keells Group controls over 80 percent stake in CCS.