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Sri Lanka Cargills Ceylon taking stock after budget
20 Nov, 2012 08:01:24
Nov 20, 2012 (LBO) - Cargills (Ceylon) Plc Sri Lanka's a consumer goods group which runs the island's largest retail network said its taking stock of future expansion following a budget for 2013 and a slowdown in consumer spend.
Inflation picked up sharply in 2012 and the rupee fell after authorities took large volumes of credit to manipulate energy prices and resisted interest rate rises with printed money.

"Transaction growth in the Retail sector was below expectation while a decline in the consumption of branded FMCG goods continues," Cargills told shareholders in a stock exchange filing.

"The trend was more evident in the urban markets where the increase of fuel and utility prices has had a greater impact than in the regions."

A budget for 2013 proposed extending value added tax to the retail trade, targeting larger operators.

"This together with the macro-economic implications of the 2013 budget on our retail segment requires the Group to take stock of its future investment and expansion plans," the group said.

"While the growth of our core businesses would remain on course the Group would certainly review its risk appetite to ensure optimum and sustained value creation for our shareholders and the communities we serve."

Cargills runs Sri Lanka's fast expanding 'Food City' stores which have also provided formal, service sector retail jobs in an air conditioned environment to hundreds of young girls without any state intervention.

Sri Lanka has to find news sources to tax to keep the budget deficit down as the state expands. Shortly before the budget the administration said more than 50,000 unemployable graduates will be given tax payer funded jobs.

At around the same time the inland revenue department said it was looking for 50,000 new income tax payers through a 'tax week'.

In the September 2012 quarter, profits at Cargills fell 63 percent to 81 million rupees.

Group revenues rose 15 percent to 13.7 billion rupees, cost of sales rose 14.5 percent to 12.3 billion rupees and gross profit rose 24.5 percent to 1.4 billion rupees.

Finance costs rose 157 percent to 333 million rupees, hurting the bottom line.

Cargills said debt rose with new acquisitions, two of which were still making losses.

But its dairy business was doing well. Dairy is heavily protected in Sri Lanka with import duties.

"Our investments in capacity expansion and new production lines see an unrivalled product portfolio and supply strength towards long term market leadership in the dairy segment," the group said.

"Investments have been made into state-of-the-art UHT milk production which would substantially increase production volumes while the added capacity of the yoghurt line and a diversified cheese category positions our dairy segment towards long term growth."

Capacity at is brewery business had been doubled.

"The continued growth of the soft alcohol market is reflected in the performance of the brewery business," the firm said.

"Brewing capacity has been doubled since acquisition in early 2011 and the expansion drive is on schedule to reach 400,000 hectolitres capacity in the near term to meet the rising demand."

Taxes on beer were also raised during the year.

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READER COMMENT(S)
3. Munnaverali Nov 21
Cargills I belive has expanded too fast they now how to rethink there strategies for in the urban area there are some who do not like to walk inside a super market and do there shopping due to the stigma that prices are high also you must remember that in the village/urban area there are some things embedded in the minds of the villagers for example when they say Barley ekak bomuda it can mean any aerated drink also when buying a pair of shoe/slipper they refer it to as Bata ekak gamu same way when they want to classify a item as expensive they say eka Cargills/Millers ganan
2. Jenny Rockwood Nov 21
Cargills has become a cheap shed selling groceries and is managed by low quality staff and labour. It lacks the basic supermarket concept, many outlets have no proper parking, staff lack experience and basic behavioural aspects.
1. Shakeel Nov 20
The Cargills story is nothing new. Just creating positive investments but the food city outlets are overstaffed with lack of English proficiency. Most of them do not know where the items are shelved. Price is good but others are lacking. Overstaffed with products not clearly displayed and packed with limited walk ways. Further, the locations do not stand out with Red and a lot of places the painting is peeling off.

Expansion is good for reach but external presentation lacks.