Profits fall for Cargills group as VAT affects ‘Food City’ retail sales
View(s):The Cargills Group, operating the biggest supermarket chain in Sri Lanka, has reported below-par results for the 2012/13 financial year saying the retail sector peak sales period was heavily impacted by the Value Added Tax (VAT).
Post-tax profit fell by nearly half (45.6 per cent) from last year to Rs 594.8 million with the steep rise in finance costs and increased debt levels also contributing to this decline.
“While the overall group results for the year are below expectation, the management has already initiated measures towards turning around this performance. 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 its stakeholders,” the provisional annual report said.
The lack of transitional provisions to allow for the claiming of input VAT on the closing stock as at 31 December 2012 had a significant impact on the group’s retail business which enjoys peaks sales during the 3rd and 4th quarters. 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 report noted. While the challenges in the external environment remain, Cargills Food City says it is committed to maintaining its consistent ‘low price’ positioning across all categories and has not passed on the VAT to its customers.
Group revenue rose by 14.8 per cent to Rs 55.4 billion while operating profit for the period gained by 3.3 per cent to Rs 2.3 billion, despite the VAT impact and the soft alcohol and biscuits segments performing below potential.
Post-war (after May 2009) investments in dairy, agriculture, confectionaries, real estate, property and financial services topped Rs 12 billion creating 2466 new jobs.
A sum of over Rs 12 billion was also invested in organic and inorganic growth over the past three years. This includes acquisition and capacity enhancement in dairy, agriculture, soft alcohol, and confectionaries sectors as well as investments in real estate, property development and financial services. “However the fast-paced investment drive has resulted in increased group debt and corresponding increase in finance cost. Finance cost for the year concluded amounted to Rs 1.2 billion compared to Rs 630 million in the previous year while total group debt at the year-end stands at Rs 14.1 billion,” the report said.
Millers Brewery Ltd, a wholly owned subsidiary of the Cargills Group, issued a further Rs. 1 billion worth of ordinary shares on March 22, 2013, which was entirely subscribed by the company.
The company also invested Rs 660 million in the ordinary shares of Cargills Agriculture and Commercial Bank on March 19, 2013.
The largest shareholder of the group is CT Holdings (CTH) with 70 per cent followed by Deputy Chairman/CEO Ranjit Page with 6.43 per cent and Anthony Page (director) with 2.27 per cent as the biggest individual shareholders. CTH recently sold off its subsidiary, Lanka Ceramics to the Dhammika Perera-owned Royal Ceramics group. Anthony Page, who continues as chairman of Lanka Ceramics, is set to purchase 30 per cent of the stock during the mandatory share offer.
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