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June 06, 2013 (LBO) - Profits at Sri Lanka's Cargills (Ceylon) Plc, fell 58 percent to 123 million rupees partly due to a retail tax and higher interest costs on new investments but the group said it was taking counter measures.
Cargills reported earnings 55 cents per share for the quarter, in accounts filed with the Colombo Stock Exchange. In the year to March earnings were 2.58 rupees per share on total profits of 577 million rupees, which 46 percent.

The group which operates the island's largest retail chain said it was hit by new valued added tax where it was not allowed to reclaim taxes on stocks purchased earlier.

"Despite the inadequate time provided to adjust to the new policy, the Retail team partly mitigated the adverse one-off impact of the policy change by curtailing inventory," the group told shareholders.

"While the challenges in the external environment remain, ‘Cargills Food City’ is committed to maintaining its consistent 'low price' positioning across all categories and has not passed on the VAT to its customers.

In the March 2013 quarter group revenues rose 2.53 percent, cost of sales rose 1.71 percent and the firm grew gross profits at a faster 9.33 percent. Other direct income also rose 8.9 percent to 224 million rupees.

But distribution and administration costs were sharply higher cutting operating profits 28 percent to 463 million rupees.

The group said revenues from consumer brands and restaurants were steady.

"The Restaurant sector’s diversification into the entertainment-dining segment with the launch of TGI Friday’s in Sri Lanka is in pre-operation stage and the flagship Restaurant is set to open in the new financial year," the group said.

"Meanwhile the KFC chain experienced a significant increase in input costs and steps have been taken to modify its value-for-money range to offer a lower entry price for KFC customers."

Cargills said it had invested 12 billion rupees over the past three year by acquiring or expanding investments in dairy, agriculture, beer, confectionary, real estate and property.

"Through these investments the Group has created 2466 new jobs while positioning itself for its next phase of growth," the company said.

"However the fast-paced investment drive has resulted in increased Group debt and corresponding increase in finance cost."

In 2012 finance cost had risen to 1.2 billion rupees from 630 million a year earlier but group debt stood at 14.1 billion rupees.

The company said alcohol and biscuit segments were performing below potential.

"While the overall Group results for the year are below expectation, the management has already initiated measures towards turning around this performance," Cargills said.

"In the year ahead, Cargills would be increasingly focused on building the value-for-money advantage in its product portfolios while rationalizing inputs costs and enhancing efficiencies to sustain profitability.

"The Group remains confident of the long term potential of its businesses and continues to be steadfastly committed to its ethos of creating sustainable value for all its stakeholders."

Source