Ceylon Cold Stores June performance reflects normalising consumer habits

Ceylon Cold Stores PLC reported a modest growth in revenues in the three months to June but the increase in costs, which outstripped the revenue growth, weighed on the profits, as the group’s pricing power waned while the consumers pushed back on still elevated prices, despite the official pricing indices point to a sharp deceleration.  
Sri Lanka’s largest consumer foods company reported revenues of Rs.34.59 billion in the first fiscal quarter ended in June 2023, up 14 percent. 

The sharp increases in the top lines seen in the consumer food companies since the surge in inflation last year started to level off from the start of 2023, as much of such gains seen during the initial stages of the hyperinflationary cycle were largely driven by the higher prices than the increase in basket values. During that time, people significantly reduced their spending on non-essential items and were compelled to allocate more of their budget to essential goods because of the substantial increase in prices.  This resulted in a shift towards purchasing fewer items but at higher costs, impacting their overall expenses and consumption patterns.

As price increases began to show signs of slowing down from the beginning of 2023, consumer habits seem to be gradually returning to normal. However, it is evident that the consumers are still exercising caution when it comes to discretionary spending.  This caution can be attributed to the fact that their incomes have not kept pace with the rising household expenses, leading them to be more mindful of their purchases and prioritise the essential items over non-essential ones. Ceylon Cold Stores has an expansive line of processed foods, dairy and frozen confectioneries, mainly under its Elephant House brand and it also runs the country’s third largest supermarket chain, with over 130 outlets. During the last 12 months, Keells supermarkets were also seen aggressively expanding the private label product range, as the consumers hit hard by hyperinflation traded down their purchases to lower-priced products.

The group managed to maintain its gross margins between the two periods at around 11.2 percent, as it managed to contain the rise in direct costs to 14 percent, a similar level to that of the rise in revenues. 
However, the overheads rose quite sharply, putting pressure on the operating profits, which fell by 27 percent to Rs.1.38 billion from a year earlier period.  

The finance cost rose by 43 percent to Rs.990.26 million, as interest rates rose sharply in the economy. 
The group reported earnings of 34 cents a share or Rs.322.17 million in the April-June quarter, compared to earnings of 97 cents a share or Rs.919.28 million a year ago. The manufacturing arm of the group reported revenues of Rs.7.35 billion for the quarter, compared to Rs.6.62 billion in the year earlier period but reported earnings of Rs.296.53 million, sharply down from Rs.706.47 million in the year earlier period.

The supermarkets business generated a revenue of Rs.28.16 billion, compared to Rs.24.39 billion a year ago but the earnings fell to Rs.152.38 million, from Rs.398.15 million.  John Keells Group holds over 80 percent stake in the company.