Keells Retail Recovers

The Consumer Food & Retail (CF&R) sector of the John Keells Holdings group returned to profit in the third quarter of the 2014 financial year after six straight quarterly losses. The business consists of the 80%-owned Ceylon Cold Stores (CCS), market leader in carbonated soft drinks and frozen confectionery products, whose Keells Super chain of supermarkets contributes well over half of sales, and the 90%-owned Keells Food Products (KFP). The retail business, along with hotels and the property sector has helped make up for the decline in earnings from JKH’s transportation business.

Stock brokers CT CLSA attributes bottom-line growth in consumer food and retail largely to a pickup in demand and margin improvement. The latter was led by a shift to higher margin products coupled with reduction in costs owing to lower commodity prices. Better sales after the completion of remerchandising and refurbishment which resulted in increased footfall in its stores helped the retail chain turnaround. The higher contribution from KFP came from improved efficiencies and synergies from its new meat processing plant.

The CF&R accounted for the second largest revenue share of JKH in the fourth quarter of the 2014 financial year while its contribution to group after tax profit doubled to 8.5% from 4.2%.

The brokers have raised by 35% the sector’s after tax profit forecast to Rs.1,234 million for FY2015, up 23% from the year before, and forecast a profit of Rs.1,526 million for FY16. A sum of the parts valuation gives a Fair Value of Rs27,177 million for the retail business as at May 2014, the second biggest after hotels.