Cold Stores Dec. net down 32% as beverage segment slows

Ceylon Cold Stores PLC, a unit of the John Keells group, which has interests in soft drinks, ice creams and supermarkets, saw a significant fall in its December quarter earnings amid higher sales costs, the interim accounts released to the Colombo bourse showed.

The firm recorded a consolidated net profit of Rs.563.2 billion for the quarter, down 32 percent year-on-year (YoY) on a sales income of Rs.12.8 billion, up 14 percent YoY.

However, the higher top line was muted by a faster increase of sales costs, which rose 19 percent YoY to Rs.11.5 billion, denting the gross profit by 19 percent YoY to Rs.1.3 billion.

The sales costs are set to even go higher in the future quarters due to key regulatory changes. The 2018 budget last November introduced a 50 cent tax on every gram of sugar contained in beverages in a bid to discourage obesity, diabetes and a number of related illnesses.

As a result, Ceylon Cold Stores had to raise the prices of most of its soft drinks quite significantly, which may have affected the sales, specially during the December festive season.

Meanwhile, during the quarter under review, the firm saw increases in selling and distribution and administrative expenses, resulting in an operating profit of Rs.774.7 million, down 30 percent YoY, despite a similar percentage gain in the other operating income.

The earnings per share for the quarter deteriorated to Rs.5.93 from Rs.8.67.

The manufacturing operations of the firm, consisting of beverages and ice cream, saw the after-tax profit falling to Rs.261.8 million during the quarter under review, from Rs.478.8 million a year ago, on revenue of Rs.3.03 billion, down from Rs.3.2 billion.

The retail segment, which includes the Keells Super operations, saw its revenue increasing to Rs.9.8 billion from Rs.8.1 billion but the after-tax profit fell to Rs.302.4 million from Rs.344.6 million.

Meanwhile, for the nine months ended December 31, 2017, Ceylon Cold Stores made a net profit of almost Rs.2 billion, down 27 percent YoY. The earnings per share for the period also fell to Rs.20.94 from Rs.28.72.

As at same date, the John Keells group held over 80 percent of the issued shares of the company.

The company has announced Rs.3.8 billion investment on a new ice cream factory, which is currently underway and Rs.2.5 billion on a new bottling plant for beverages, which is yet to take off.