Keells Super loss in best quarter

JKH’s supermarket chain is not doing too well with Keells Super making a loss in the December quarter, usually the best period, and the new VAT could squeeze margins further

By Echelon.

Published on April 08, 2013 with No Comments

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The 51 Keells Super supermarkets, including franchise outlets, contribute about 68% to the top line of John Keells Holdings group subsidiary Ceylon Cold Stores. But the supermarkets lost money even in what is usually the best quarter – the December quarter. The super market chain made a loss of Rs40 million in the third (December) quarter of the 2013 financial year, Bartleet Religare Securities said in a report.
The brokers said they were cautious about the prospects for the retail business given recurring losses and the new Value Added Tax which could squeeze profit margins further. VAT of 12.5% was imposed on supermarkets with sales of over Rs500 million for a quarter in the 2013 budget. Ceylon Cold Stores (CCS) sales grew 11% to Rs5.82 billion in the December quarter of the 2013 financial year from the previous year while recurring net profit fell 91% to Rs31.4 million. “We are concerned about the retail segment going forward as the 3Q performance has generally been the best,” Bartleet Religare Securities said.
“The Q3 FY 13 retail loss was a result of ‘re-merchandising’ and ‘re-laying’ costs which may spill over to the next quarter. We assume the capital allocation from the parent JKH would remain and higher management impetus will be on retail. While holding our views on manufacturing we remain cautious on the retail side as the imposition of the VAT registration could hurt margins further.” The brokers however noted that Keells management expects the re-merchandising and relaying costs to be one – time and non-recurring as a part of their strategic restructuring and related training expenses.keells1
Keells Super is continuing to expand its network, having opened three outlets in FY 2013 with the brokers factoring in four new units a year.
Bartleet Religare Securities said losses at the supermarkets eroded the company’s manufacturing unit profit contribution to Rs102.5 million for the December quarter.
Ceylon Cold Stores remains the market leader in both carbonated soft drinks and frozen confectionery categories, the report said.“We expect the manufacturing sector contributions to be stable and to maintain higher margins.”
The brokers said there was still no word on the group’s property development plans. John Keells Holdings owns 12.5 acres of land in Glennie Street, Colombo 02 (of which 4.6 acres belong to CCS) where the conglomerate plans a large project. JKH has added another 60 perches to the land bank at a cost of Rs300 million.
CCS’s options include selling the 4.6 acres to JKH, managing the property development project under CCS which would diversify its portfolio of activities or sharing the development activities together with JKH.

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