Cargills 1Q growth slowed by sluggish demand, Easter attacks

„Earnings down to Rs.2.50 per

share or Rs.634.4mn „Supermarket revenue up by

modest 3% to Rs.20.1bn „Net finance cost spikes amid

adoption of SLFRS 16 Leases

Sri Lanka’s leading supermarket operator, Cargills (Ceylon) PLC, recorded subdued growth for the quarter ended June 30, 2019 (1Q20), amid tepid consumer demand and multiple challenges stemming from the April 21 Easter bombings that shook business confidence and delivered a lethal blow to the country’s tourism industry.the earnings of the group were also affected by the adoption of the SLFRS 16 standard on leases, which pushed the group net finance costs significantly up.

The group’s earnings for the quarter under review was Rs.2.50 per share or Rs.643.4 million, compared to the earnings of Rs.2.94 per share or Rs.755.9 million reported for the corresponding quarter, last year.

The group revenue for the period rose 6 percent year-onyear (YOY) to Rs.25.9 billion, while the gross profit rose 15.5 percent YOY to Rs.3.2 billion. The cost of sales rose 5 percent YOY to Rs.22.7 billion.the operating profit of the group for the quarter under review was Rs.1.7 billion, up 16 percent YOY.

The net finance cost rose over 100 percent YOY to Rs.638.9 million. “the sharp growth in the net finance cost (which includes a charge of Rs.291 million for the interest cost on lease liabilities) is due to the adoption of SLFRS 16 Leases in the preparation of the financial statements,” Cargills said in an earnings review. “the impact to the group profit after tax from the adoption of the new financial reporting standard is Rs.36 million for the quarter and the impact is mainly to the retail and restaurant segments,” it added.

The group’s namesake supermarket business saw a modest 3 percent YOY growth in revenue to Rs.20.1 billion during the quarter under review. The segment’s operating profit grew 13 percent YOY to Rs.714 million.the revenues of the group’s restaurant business also recorded a 3 percent YOY growth to Rs.945 million and an operating profit of Rs.60 million, down 44 percent Yoy. “both sectors were impacted by the market conditions that prevailed during the quarter,” the earnings review stated.the group’s FMCG cluster saw its revenue going up 19 percent YOY to Rs.4.8 billion, while the segment’s operating profit rose 29 percent YOY to Rs.856 million.

“The growing demand for our national dairy brands ‘Kotmale’ and ‘Magic’ has resulted in Cargills becoming the second largest milk collector in the country over the past year, while our national brand ‘Kist’ reported over 20 percent top line growth in the beverage sector,” the earnings review said. The group reported a loss of Rs.82 million under the losses made by its associate, Cargills Bank.

The group saw its interest-bearing borrowings under the current liabilities increasing to Rs.17.6 billion, from Rs.16.8 billion three months ago.cargills said it will continue to focus on FMCG growth, expanding its manufacturing operations while continuing to grow the retail footprint.

“The expansion of the cheese plant will be completed during this quarter, further strengthening the group’s presence in this category, which is currently dominated by imported brands,” Cargills said. CT Holdings PLC, controlled by the Page family, had 69.87 percent of Cargills as at June 30, 2019, down from 70.2 percent 12 months ago.state-run private sector pensions fund, the Employees’ Provident Fund, had 3.27 percent of the company, being the third largest shareholder.