Cargills 3Q earnings get boost from strong consumer activity

Cargills (Ceylon) PLC’s sales and profits rebounded during the December quarter (3Q22) from a brief setback seen in the previous three months through September 2021 as virus-related restrictions ended enabling the retail juggernaut to brace a period of ebullient consumer activity towards the year-end festive season. Sri Lanka’s largest privately owned retailer reported sales of Rs.37.39 billion for the October -December period, up 21.9 percent from the same period in 2020, while the costs also rose slightly under that amount reflecting that the group had to contend with the rising cost inflation across its group wide supply chains. Cargills group operates with over 450-store retail chain, consumer food manufacturing unit and the restaurants, which hold the franchise licenses for two of the well-known brands in the world. The company’s operating profit rose by 18.1 percent to Rs.2.71 billion as other overheads pressured its operating margins with both distribution and administrative expenses recording 31.8 percent and 35.2 percent increases respectively. 

The group’s retail chain generated sales of Rs.28.06 billion with an operating profit of Rs.1.28 billion, rising 13.8 percent and 11.3 percent respectively over the similar period a year earlier. 
The double-digit growths reflect that retailing has reached its pre-pandemic performance in the quarter as millions of consumers spend on their daily staples and other consumer goods regardless of the inflationary pressures. 
Sri Lanka’s inflation measured by the Colombo Consumer Price Index rose by 14.2 percent in January 2022 from a year ago, accelerating from 12.1 percent in December 2021, reaching the highest levels in more than 13 years. 
Investors and analysts are watching the December quarter earnings reports to parse numbers to see the extent to which inflation and supply chain troubles have affected corporates’ top and bottom line performances and assessing how long they can endure the current price pressures without an impact on their profits. 
Meanwhile, Cargills group’s consumer foods manufacturing unit, which produces a range of dairy, frozen and other confectionery items reported revenues of Rs.7.45 billion and an operating profit of Rs.1.08 billion, rising 45.2 percent and 10.7 percent respectively. 
The restaurants segment, which has the KFC and TGI Fridays’ franchises reported revenues of Rs.1.89 billion, more than doubling from Rs,895.4 million a year ago.
This segment generated operating profits of Rs.358.3 million, up 234 percent from the year ago period.
At a consolidated level, the group reported earnings of Rs.5.50 a share or Rs.1.42 billion for the quarter under review compared to earnings of Rs.3.98 a share or Rs.1.02 billion in the corresponding period in 2020. 
For the nine months to December 2021, the group reported earnings of Rs.10.18 a share or Rs.2.62 billion compared to earnings of Rs.6.71 a share or Rs.1.73 billion a year earlier. 
During the period, Cargills group added more borrowings into the balance sheet. 
In a group restructuring excise, Cargills Ceylon and its ultimate parent, CT Holdings PLC decided to, “form a real estate subsidiary company by transferring all properties of the group designated for development and other unlisted real estate / property development subsidiaries of the group under the real estate subsidiary and participate in the equity of the said subsidiary in proportion to the value of the properties / equity holdings transferred plus stamp duty and direct taxes borne by,” the two entities. 
CT Holdings will also infuse Rs.550 million in equity to the said subsidiary.
As at December 31, 2021, C T Holdings PLC held 71.18 percent stake in Cargills Ceylon, besides the individual holdings by Page family members. The Employees’ Provident Fund held 3.26 percent stake being the third largest shareholder.