Lanka Securities (Pvt) Ltd COMPANY REPORT Date: 21/07/2008 Ceylon Cold Stores (CCS) Strategic – (Rs.112.00) The Elephant Brand Sri Lanka Equity Research Analyst -: Srimal Liyanage Sector Beverage, food and Tobacco Market data Food and Beverage leader, Ceylon Cold Stores (CCS) has maintained a ASI 2,424.7 MPI 2,828.7 leading position in Sri Lanka’s Carbonated Soft Drink (CSD) and Ice PE (x) 8.5 Cream markets with the strong backing from its conglomerate parent PBV (x) 1.3 John Keells Holdings (CCS is the 57.1% owned subsidiary of JKH) Company data and its long established brand “Elephant House”. The company also 12m High / low Price Rs.149.8 / 111.5 has a strong presence in the country’s growing super market industry Avg. daily volume through its “Keells Super” super market chain. CCS is estimated to 1 month 1,533 3 month 1,337 have a market share of 40-45% in CSD market, 65% in the Ice Cream 12 month 1,671 market. Market Cap. (mn) Rs.2,419.2/US$22.4 Shares in Issue (mn) 21.6mn BVPS – 30/06/2008 Rs.108.8 Although CCS is highly sensitive to the current economic down turns PBV 1.0X (especially high interests, inflation and unfavorable taxes), resulting in Major shareholders – 31 Mar. 2008 st (%) low performance at the bottom level margins, it has a significant long term potential when looking at several strategic aspects. This is mainly John Keells Holdings 46.3 due to its underutilized prime land and takeover potential. Ceylon Guardian Investment Trust 11.6 Whittal Boustead 10.7 Ceylon Investments 8.4 Corporate Structure Genesis Smaller 3.2 Price Volume Chart John Keells Holdings Carsons Group Qty. Rs. 10,000 160 9,000 140 46.3% 20.2% 8,000 120 7,000 6,000 100 Ceylon Cold Stores 5,000 80 4,000 60 3,000 40 2,000 1,000 20 0 0 Jaykay Marketing Elephant House Farms 16-Nov-07 28-Dec-07 9-Jun-08 11-Feb-08 18-Mar-08 9-Jul-08 22-Aug-07 29-Apr-08 7-Aug-08 Y/E 31st March 2004 2005 2006 2007 2008 2009E 2010E Revenue (Rs.mn) 2,571.4 4,756.5 6,662.0 8,507.9 10,121.8 12,886.5 16,206.3 YoY (%) 4.2 85.0 40.1 27.7 19.0 27.3 25.8 Net profit (Rs.mn) (399.4) (16.4) 201.1 277.0 175.9 73.1 85.2 YoY (%) na (95.9) 1,326.2 37.7 (36.5) (58.5) 16.5 EPS (Rs.) (18.5) (0.8) 9.3 12.8 8.1 3.4 3.9 PE (x) (6.1) (147.5) 12.0 8.7 13.8 33.1 28.4 PEG (x) na 1.5 0.0 0.2 na na na DPS (Rs.) 2.4 - 0.8 2.4 3.2 - - Div. yield (%) 2.1 - 0.7 2.1 2.9 - - BVPS (Rs.) 58.2 55.3 63.9 73.6 110.0 113.4 117.4 PBV (x) 1.9 2.0 1.8 1.5 1.0 1.0 1.0 LSL Research – CCS – August 2008 1 Sri Lanka Equity Research Company Report – Ceylon Cold Stores Industry Overview – Soft Drink market CCS is the leader in the CSD market Sri Lanka’s CSD market is going through the maturity phase of its business cycle and only few players operate in the industry under an oligopoly situation. CCS’s long established brand “Elephant House” is the leader with an estimated market share of between 40-45% while world’s $44bn worth leading brand “Coca Cola” believes to hold a share of 40% in the local CSD market. With other operators (Maharajah, Pet packaging, Sha Cola Beverages etc.) together enjoying a share of below 20%. We believe CCS is a “Cash Cow” in the industry, however we do not rule out the possibility of it becoming a “Dog” since Coke closely hangs behind. We examine a seasonality impact on CSD products, major factor being the weather condition and notable sales were reported during the first quarter of each year or the final quarter of the accounting period. During last three years the industry has recorded an average market growth of 4% per annum and we believe it has slightly dropped due to the low purchasing power of customers. Sugar is the most sensitive raw material cost on Soft Drink manufacturing Increasing cost base in a high interest rate and inflation environment adding up taxes are a major concern over CSD production. Sugar is the major cost component in CSD production and accounts for around 40-50% of the total production cost of soft drinks. World sugar prices that fluctuated substantially during last three years showed an increasing trend in 2008 with global food crisis affecting most of the commodities. Average free market sugar prices have increased 25.7% in 2008 to 13.7 cents /lb. Sugar fluctuates between US$ cents 10-14/lb US$ cents/lb 20 18 16 Free market 14 12 10 8 6 4 Jan-04 Feb-04 Mar-04 May-04 Jun-04 Jul-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 May-05 Jun-05 Jul-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 May-06 Jun-06 Jul-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 May-07 Jun-07 Jul-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 May-08 Jun-08 Sep-04 Sep-05 Sep-06 Sep-07 Apr-04 Aug-04 Apr-05 Aug-05 Apr-06 Aug-06 Apr-07 Aug-07 Apr-08 Sustained high world oil prices have encouraged the use of agriculture-based ethanol and bio- diesel in the transportation sector. Brazil, the largest sugar producer in the world has increased its usage of ethanol for motor vehicles. However, upward pressure on prices due to increased demand was lessened with increased supply from India and Pakistan. India expects a growth rate of 15% in sugar production of which approximately 4mn metric tones will be exported in 2008. It serves mainly to Middle East and Gulf countries whilst recently sales have commenced to Southeast Asia, initially with Indonesia. According to the World Sugar Organization Indian harvest will improve by 8.3% and peak at 33.1 metric tones in 2008. However in future sugar prices might increase due to increasing usage of ethanol fuel amidst increasing crude oil prices. LSL Research – CCS – August 2008 2 Sri Lanka Equity Research Company Report – Ceylon Cold Stores Increasing duties is a major concern The government introduced an excise duty for all CSD products except “Soda” (Soda is tax free) commencing from 23rd March 2002 and carried out several revisions year-to-date (current duty is at Rs.6.00 per litre). During initial stages CCS did not pass down the tax burden to the customers, however with increasing cost base company now transfers the excise duty to the end customer. In FY08 CCS is estimated to have paid around Rs.300mn-400mn as excise duties. It is important to note that the government might increase the duty further in their coming budgets. Excise duty change on CSD products Before 23rd March 2002 -Nil- From 23rd March 2002 Rs.4.00 per litre From January 2004 Rs.5.50 per litre From 18th November 2004 Rs.6.00 per litre CCS is to improve margins After experiencing reducing margins in FY08 due to increasing costs, CCS now considers to improve its margins to its previous levels. The company now transfers the entire duty burden to customers and expects to maintain NP margin of CSD business at 10-15%. CCS’s products are priced relatively at the same level to its main competitor’s (Coca Cola Beverages) products on a per litre basis (earlier CCS products were priced at a discount to Coke and Pepsi). However Coca Cola maintains the prices of its 300ml range at a slight premium to CCS’s 400ml product range. Not for price competition in the CSD market CCS Coca-Cola Beverages Product Volume (ml) Retail price (Rs.) cents/litre Product Volume (ml) Retail price (Rs.) cents/litre Ginger Beer 1500 145.0 9.7 Coke 1500 140.0 9.3 Lemonade 1500 140.0 9.3 Fanta 1500 140.0 9.3 Apple Soda 1500 140.0 9.3 Sprite 1500 140.0 9.3 Necto 1500 130.0 8.7 Portelo 1500 140.0 9.3 Soda 1500 115.0 7.7 Lion Soda 1500 115.0 7.7 Orange Barley 1500 140.0 9.3 Coke 500 65.0 13.0 Cream Soda 1500 140.0 9.3 Coke Light 500 75.0 15.0 Orange Crush 1500 140.0 9.3 Fanta 500 65.0 13.0 Cream Soda 500 65.0 13.0 Sprite 500 65.0 13.0 Soda 500 55.0 11.0 Lion Soda 500 55.0 11.0 Orange Crush 500 65.0 13.0 Coke ^ 330 80.0 24.2 Necto 500 65.0 13.0 Coke Light^ 330 85.0 25.8 Apple Soda 500 65.0 13.0 Sprite^ 330 80.0 24.2 Ginger Beer 500 60.0 12.0 Coke* 300 24.0 8.0 Lemonade 500 65.0 13.0 Sprite* 300 24.0 8.0 Soda* 400 26.0 6.5 Portelo* 300 24.0 8.0 Necto* 400 24.0 6.0 Minute Made* 200 30.0 15.0 Ginger Beer* 400 28.0 7.0 Coke* 175 19.0 10.9 Dry Ginger Ale* 400 28.0 7.0 Sprite* 175 19.0 10.9 Ginger Beer^ 325 80.0 24.6 Fanta* 175 19.0 10.9 Cream Soda^ 325 80.0 24.6 Unless otherwise stated it is Pet bottles * Glass bottles ^ Cans LSL Research – CCS – August 2008 3 Sri Lanka Equity Research Company Report – Ceylon Cold Stores Rising indirect competition Intense competition from energy drink, fruit drinks and flavored milk products with increasing concerns over healthy food and natural food products have shifted customers from the CSD market. Though CCS has already entered the flavoured milk market (pasteurized in packets and long life in bottles) and energy drink market (Wild Elephant), still it was unable to gain a notable position in both markets. Red Bull is the leader in energy drink market. Highland, Kotmale, Fonterra and Lanka Milk Foods command a leading position in the flavored milk industry while Cargills also has differentiated the market by introducing Milk Shake. Fruit drinks are the closest substitute to Soft drinks. Cargills and Smak have strong position in the fruit drink market and Lanka Milk Foods also have entered the business by introducing fruit drink packs, “Sun Top”. Emerging green taxes may have an impact CSD manufacturers including CCS are currently shifting from glass bottles to PET (plastic) bottles due to lower cost and easy handling. Most of the new CSD categories introduced recently were in PET bottles. Increasing concerns over environmental pollution and serious opposition from environmental organizations may result in additional compensations due to environmental damage caused by wasted plastic bottles were being neglected by companies. Furthermore emerging green taxes also will result in increased costs for companies (government recently introduced green taxes on telecommunication companies to reduce the pollution caused by towers). Therefore we believe CCS should take steps to curb pollution and implement strategies such as inducing customers to return bottles for recycling. This will also help the company to gain reputation as a good corporate citizen and avoid negative image from pressure groups and increasing regulations. What CCS should do to improve its CSD business? Should introduce a Cola drink CCS does not have any direct substitute to its major rival and world famous soft drink Coca Cola. Currently global brand Pepsi and local brands my Cola and Sha Cola are directly competing with Coca Cola. We believe my Cola was successful for some extent in penetrating Coke’s market. Local producer will be in a competitive position compared to Coca Cola or Pepsi since they do not have to pay any agency fees to a franchisor. We expect CCS to evaluate options to enter the Coke market. Due to the strong brand image and ability to enjoy higher margins or pricing at a discount to Coke, CCS’s “Elephant Cola” will add positive contributions to the group. Should expand its dairy (liquid milk) business CCS currently has a presence in the flavoured milk business while products are present in the form of milk packets (pasteurized) and bottles (long life). However availability of products in the market is minimal. At present Highland, Kotmale and Fonterra dominates the market, however we believe if CCS increase its production, it would be able to secure a dominant position in the market due to high customer loyalty. Furthermore it should diversify its dairy products and move in to new categories such as Milk Shake (Cargills has already introduced). We expect the company will consider strategies to improve its dairy business soon. Mineral water is an important business Mineral Water market is comparatively larger than other emerging drinks such as energy drink and fruit drinks. CCS is seriously considering ways to enter the market. The industry is believed to be relatively a high profitable business. We expect the company will take immediate steps to produce Mineral water where American water, Scan, Sha Cola Beverages and Aqua fresh has successfully positioned their products (they also supply 18.5 litre water bottles for dispensers used by companies). LSL Research – CCS – August 2008 4 Sri Lanka Equity Research Company Report – Ceylon Cold Stores Industry Overview – Ice Cream market Sri Lanka’s Ice Cream industry has reached the maturity stage of its life cycle and resulted in less attractive to new entrants to the industry. Industry maintained an annual average market growth of between 10-15% during last three years. CCS is the market leader with an estimated market share of 65% while main competitor Cargills “Magic” believes to have a share of around 30%. Even though product development strategies such as introducing new flavors were witnessed in the industry, most sales come from vanilla and chocolate. Rising cost of milk and sugar will cannibalize margins Rising whole milk powder prices and fluctuating sugar prices are deteriorating margins and also largely unavoidable. Cost of milk powder (i.e. skim milk powder) accounts for around 30% of the total production cost of Ice Cream while cost of sugar accounts for around 18-22%. World skim milk powder (SMP) prices dropped nearly 32% in 2008 after reaching record high in mid 2007. Of the main dairy products in trade, SMP prices had risen the most in 2007, which encouraged suppliers to reallocate milk to produce more SMP, boosting supply and triggering the sharp correction in prices during 2008. The major reasons for the escalation in milk powder prices in the world market were the rapid growth in demand for milk powder from China, South East Asia and oil exporting countries and short fall in supplies from Australia due to drought and expected short fall in supplies in the US market. Mad cow and Foot and Mouth deceases also affected the supply due to reduction in cattle. Skim milk powder trading below 2007 prices World milk powder appears to be facing considerable uncertainty due to unpredictable supply side constraints. On the one hand, dairy prices may remain firm, or head up again, under continued tight export supplies in 2008, due to drought in New Zealand, prohibitive export taxes in Argentina and a sluggish milk supply responses in Europe. On the other, many countries are responding to higher prices by stepping up milk production, especially where pasture based systems predominate, which may prompt several countries to cut imports, dampening the pressure for world prices to rise. Uncertainties are compounded by the fact that public stocks in the European Union and the United States, the presence of which used to be an important feature of dairy markets, are virtually depleted. Another major uncertainty relates to the high feed grain costs which may soon constrain growth of supply in feed intensive production systems, encourage conversion of pasture to crops, and/or induce higher cull of livestock. If world milk production growth slows or turns negative, dairy product prices may remain high and possibly rise further. LSL Research – CCS – August 2008 5 Sri Lanka Equity Research Company Report – Ceylon Cold Stores CCS is the undisputable leader in the Ice Cream market With a high customer loyalty for the “Elephant House” brand, CCS’s Ice Cream is still the undisputed leader in the industry. Even though Cargills was successful for some extent when competing with CCS it is limited to city areas mainly due to its strong retail super market chain (Elephant House products are not available in Cargills super markets). In rural areas Cargills has failed to gain reasonable customer acceptance (some retail boutiques have retuned Cargills freezers). Comparison of Elephant House Ice Cream with Cargills Magic CCS Cargills Flavour Qty. (ml) Price (Rs.) Flavour Qty. (ml) Price (Rs.) Vanilla 80 22 Vanilla 80 22 500 110 500 110 1,000 170 1,000 170 2,000 325 2,000 325 4,000 585 4,000 585 Chocolate 80 22 Chocolate 80 22 500 115 500 115 1,000 175 1,000 175 2,000 300 2,000 330 4,000 600 4,000 600 Keells Super retail market chain CCS owns an established super market chain “Keells Super” through its 100% owned subsidiary Jay Kay marketing. Keells Super has relative low coverage with 38 outlets in the country compared to the leading Cargills super markets with 124 outlets island-wide. Keells Super is to expand its outlets to 50 by end FY09 and expects to add further 10 outlets per annum thereafter. CCS should consider expanding its retail chain continuously in order to match Cargills’s island wide presence. We believe Keells super will gain a fast customer acceptance due to its high brand image. This is expected to have synergies on CCS’s F&B products with not only improved sales but with margin of scale. This will also help the company to regain its former consumers who shifted to Cargills products due to unavailability of products. Super market concept is gaining customer interest Players No. of Outlets(approx.) Cargills / “ Food City” *124 Ceylon Cold Stores / “ Keells Super “ 38 LAUGFS / “Sun up” 16 Kshashtriya / "Magna" 9 Richard Peiris & Co. / “Arpico” 7 * Inclusive of approx. ‘Express’ outlets mainly at Lanka IOC filling stations, one outlet of Cargills “Big City” CCS recorded a loss in 1Q09 CCS recorded a net loss of Rs.5.5mn in 1Q09 as opposed to a net profit of Rs.46.4mn in 1Q08. Even though revenue increased 21% YoY to Rs.2,923.3mn in 1Q09 in the back oh higher sales volumes, the escalating cost base has affected the group profitability margin. Significant price pressure on key raw materials (sugar and milk powder), wages, fuel combined with the high inflationary environment in the country has eroded the margins and resulted in a diminishing bottom line. GP margins of the group dropped to 11.3% in 1Q09 from 15.6% in 1Q08 while OP margins declined to 1.7% in 1Q09 from 4.8% in 1Q08. LSL Research – CCS – August 2008 6 Sri Lanka Equity Research Company Report – Ceylon Cold Stores CCS’s key manufacturing sector (i.e. CSD and Ice Cream) was the most affected reporting a 56% YoY decline in its 1Q09 net profit to Rs.25.2mn. Net revenue from the segment increased only by 4% YoY to Rs.1,173.0mn. On the other hand CCS’s retail (i.e Keells Super) business was also affected by high operating expenses and reported a net loss of Rs.30.7mn in 1Q09 as opposed to a net loss of just Rs.3.8mn in 1Q08. Administrative expenses increased 13% YoY to Rs.112.3mn while the rise in selling and distribution costs stood at 8% YoY to Rs.211mn during the quarter. Finance expenses jumped 27% YoY to Rs.49.3mn in 1Q09 due to increasing interest rate environment in the country. However the company managed to reduce its short term debt including bank OD and there by partly resulted in net debt to equity declining to 50.5% in 1Q09 from 65.3% in FY08. Furthermore improvement in gearing position can be largely attributed to the revaluation surplus of Rs.679.8mn in FY08. Despite the negative bottom line, cash generated from operations increased 19.6% YoY to Rs.510mn in 1Q09. Capex decreased 63% YoY to Rs.98.9mn due to more focus to reduce debt. Capex during the quarter was mainly on super market operations (i.e. Rs.82.6mn). 1-3Q08 Financials Group Soft Drinks & Ice Cream Super Markets Rs.mn 1Q09 1Q08 % 1Q09 1Q08 % 1Q09 1Q08 % Revenue 2,923.3 2,417.1 20.9 1,173.0 1,127.6 4.0 1,750.3 1,289.5 35.7 Cost of sales (2,593.6) (2,039.6) 27.2 (836.5) (757.8) 10.4 (1,757.1) (1,281.8) 37.1 Gross profit 329.7 377.5 (12.7) 336.5 369.8 (9.0) (6.8) 7.7 (188.3) Other op. income 57.0 40.4 41.1 15.1 9.5 58.9 41.9 30.9 35.6 Administrative exp. (112.3) (99.5) 12.9 (62.8) (62.0) 1.3 (49.5) (37.5) 32.0 Distribution exp. (211.0) (195.9) 7.7 (196.5) (183.4) 7.1 (14.5) (12.5) 16.0 Other op. exp. (12.8) (5.6) 128.6 (7.9) (2.7) 192.6 (4.9) (2.9) 69.0 Operating profit 50.6 116.9 (56.7) 84.4 131.2 (35.7) (33.8) (14.3) 136.4 Finance exp. (49.3) (38.9) 26.7 (37.3) (35.2) 6.0 (12.0) (3.7) 224.3 Profit before tax 1.3 78.0 (98.3) 47.1 96.0 (50.9) (45.8) (18.0) 154.4 Income tax (6.8) (31.6) (78.5) (21.9) (39.1) (44.0) 15.1 7.5 101.3 Net profit (5.5) 46.4 (111.9) 25.2 56.9 (55.7) (30.7) (10.5) 192.4 GP Margin (%) 11.3 15.6 28.7 32.8 (0.4) 0.6 OP Margin (%) 1.7 4.8 7.2 11.6 (1.9) (1.1) NP Margin (%) (0.2) 1.9 2.1 5.0 (1.8) (0.8) Effective tax (%) 523.1 40.5 46.5 40.7 33.0 41.7 Enhanced value in the underutilized land bank Following the transfer of CCS’s all production operations to a 26.15 acre site in Ranala it resulted in an 8 acre bare land in Colombo 02 (5 acres free hold and 3 acres leasehold) which is currently used as a non income generating car park for JKH staff. Details of the lease hold land in Slave Island is as follows – JKH A/R, FY07 Lease period Rental Property 1 Annual lease Rs. 26,365 per annum Property 2 97 years from 1-1-1927 Rs. 380 per annum Property 3 99 years from 1-2-1926 Rs. 2,400 per annum LSL Research – CCS – August 2008 7 Sri Lanka Equity Research Company Report – Ceylon Cold Stores Even though Sri Lanka’s land prices have increased drastically with limited underutilized properties in the heart of Colombo, it is valued at Rs.933.2mn (including 94,655 Sq. Ft. building) in the books (revalued in FY2008). We estimated the current market value of the property will be worth around Rs.1,268.6mn (Rs.1,192.8mn for free hold property - Rs.1.5mn per perch and we have given a zero value to the leasehold property since the lease period will end in less than 20yrs). Even though the plans are yet to be finalized, we expect JKH to either transfer the property to its property development arm, utilized it for the BPO business or sell the property and utilize the contributions to expand its core operations. In addition contributions can be also utilized for settling its gearing. CCS will record diminishing performance if it maintains the status score We expect CCS to record a net profit of Rs.73.1mn in FY09E (-58.5% YoY), however expected to increase 16.5% YoY to Rs.85.2mn in FY10E. Group revenue is expected to increase 27.3% YoY to Rs.12,886.5mn and 25.8% YoY to Rs.16,206.3mn in FY09E and FY10E respectively. Drop in performance can be directly attributable to reducing margins in the F&B business, which is expected to record a net profit of Rs.35.8mn (-70.7% YoY) in FY09E. The segment’s profitability will further get affected by increasing key raw material costs and expected to record a marginal net profit of Rs.9.8mn (-72.7% YoY) in FY10E. We believe revenue from soft drinks contributes around 60% to the total group revenue and balance 40% is from the Ice Cream business. CCS’s super market chain is expected to contribute positively to the bottom line with plans to improve its number of outlets from 38 to 50 by end FY09 and 10 outlets per annum thereafter. Capex is unlikely to be high despite retail expansions as the premises are expected to be rented out or leased out. We anticipate net profit of super markets to decrease 30.5% YoY to Rs.37.3mn in FY09E and however expected to increase 102.4% YoY to Rs.75.4mn due to scale advantages from 50 outlets operating during the whole period. Revenue is expected to increase 40.3% YoY to Rs.8,188.6mn in FY09E and 34.3% YoY to Rs.10,994.6mn in FY10E. CCS trades at a premium to earnings, however future appreciation is possible Even though CCS currently trades at a premium to current earnings, we believe JKH will take immediate actions to implement strategies to yield high returns on its investment. If JKH could not reach its targets they might evaluate possible options to divest CCS. Considering the strong brand value and its high land potential, a strategic deal could take place at a higher value than its current market price. Current book value per share of the company is Rs.108.8 and if real value of the Slave Island property is realized Net Asset value is expected to increase to Rs.124.3 per share. Calculation of Net Asset Value Value per Perch (Rs.mn) Land area (Perches) Total Value (Rs.mn) Free hold 1.5 795.2 1,192.8 Lease hold 0.2 505.6 75.8 Total value 1,268.6 Book value 933.2 Surplus 335.4 Surplus Per share (Rs.) 15.5 Current BVPS (Rs.) 108.8 Restated NAV (Rs.) 124.3 LSL Research – CCS – August 2008 8 Group Soft Drinks & Ice Cream Super markets Rs.mn FY08 FY09E % FY10E % FY08 FY09E % FY10E % FY08 FY09E % FY10E % Revenue 10121.7 12,886.5 27.3 16,206.3 25.8 4,286.4 4,697.9 9.6 5,211.7 10.9 5,835.3 8,188.6 40.3 10,994.6 34.3 Cost of sales -8697.3 (11,540.3) 32.7 (14,716.1) 27.5 (3,012.1) (3,528.7) 17.2 (3,959.1) 12.2 (5,685.2) (8,011.6) 40.9 (10,757.0) 34.3 Gross profit 1424.4 1,346.2 (5.5) 1,490.2 10.7 1,274.3 1,169.2 (8.2) 1,252.6 7.1 150.1 177.0 17.9 237.6 34.3 Other op. income 192.3 172.4 (10.3) 191.3 11.0 66.3 60.4 (8.9) 66.3 9.8 126.0 112.0 (11.1) 125.0 11.6 Administrative exp. -409.3 (483.0) 18.0 (550.6) 14.0 (255.2) (301.1) 18.0 (343.3) 14.0 (154.1) (181.8) 18.0 (207.3) 14.0 Distribution exp. -704.5 (808.3) 14.7 (888.4) 9.9 (667.8) (768.0) 15.0 (844.8) 10.0 (36.7) (40.4) 10.0 (43.6) 8.0 Other op. exp. -52 (61.4) 18.0 (70.0) 14.0 (37.2) (43.9) 18.0 (50.0) 14.0 (14.8) (17.5) 18.0 (19.9) 14.0 Operating profit 450.9 165.9 (63.2) 172.6 4.0 380.4 116.6 (69.3) 80.8 (30.7) 70.5 49.3 (30.1) 91.8 86.2 Finance exp. -181.6 (64.7) (64.4) (79.8) 23.4 (163.1) (52.7) (67.7) (63.4) 20.4 (18.5) (12.0) (34.9) (16.4) 36.4 Sri Lanka Equity Research Profit before tax 269.3 101.2 (62.4) 92.8 (8.3) 217.3 64.0 (70.6) 17.4 (72.7) 52.0 37.3 (28.4) 75.4 102.4 Income tax -93.4 (28.1) (69.9) (7.7) (72.7) (95.0) (28.1) (70.4) (7.7) (72.7) 1.6 - (100.0) - - Net profit 175.9 73.1 (58.5) 85.2 16.5 122.3 35.8 (70.7) 9.8 (72.7) 53.6 37.3 (30.5) 75.4 102.4 Forecasted Profit and Loss Account GP Margin (%) 14.1 10.4 9.2 29.7 24.9 24.0 2.6 2.2 2.2 OP Margin (%) 4.5 1.3 1.1 8.9 2.5 1.6 1.2 0.6 0.8 NP Margin (%) 1.7 0.6 0.5 2.9 0.8 0.2 0.9 0.5 0.7 Effective tax (%) 34.7 27.8 8.3 43.7 44.0 44.0 (3.1) - - LSL Research – CCS – August 2008 9 Company Report – Ceylon Cold Stores Sri Lanka Equity Research Company Report – Ceylon Cold Stores Appendix 1 – Assumptions for the forecast • Assumptions are made assuming that company will maintain the status score. Food & Beverages • CSD market is expected to grow by 4% P. A. during next two years. • Ice Cream market is expected to grow by 12% in FY09E and 8% in FY10E. • We expect the company to revise its product prices (CSD and Ice Cream) to maintain the GP margins. • Sugar prices are expected to increase by 30% YoY in FY09E and in FY10E it is expected to increase by 12% YoY. • World Skim Milk powder prices are expected to decline by 30% YoY in FY09E and will increase 12% YoY in FY10E. • Other production costs are expected to increase by 10% YoY in FY09E and 8% YoY in FY10E. Super Market • Keells Supermarket chain will enhance to 50 out lets by end FY09E and expand further to 60 units by end FY10E. • Average revenue per out let is expected to grow by 18.5% YoY in FY09E and in FY10E is expected to grow further by 14% YoY. LSL Research – CCS – August 2008 10 LANKA SECURITIES (PVT) LIMITED A joint venture between First Capital Securities Corp. Ltd (Pakistan), Bank of Ceylon & Merchant Bank of Sri Lanka. (Member of the Colombo Stock Exchange) 5th Floor, No.86, Galle Road, Colombo 03. Tel : +94 (0) 11 5576757, +94 (0) 11 2431138. Fax : +94 (0) 11 5576767. Website : www.lsl.lk SALES RESEARCH Kosala Gamage………………………5576774 Srimal Liyanage.....…………………..5576757 email@example.com firstname.lastname@example.org Eardly Kern.........................................5576757 Thakshila Francis...…………………..5576757 email@example.com Chinthana Hatangala………………...5576757 Buddhika Payoe……………………...5512240 firstname.lastname@example.org OPERATIONS Prabash Wanigatunge………………..5512282 Wasantha Hewavitharana..…………..5576757 email@example.com firstname.lastname@example.org Nishantha Joseph…………………….5512274 FINANCE email@example.com Chanaka Mendis……………………..5512249 A. Pathmasiri…………………….......5576757 firstname.lastname@example.org email@example.com IT Priyanga Perera..…………………......5576757 firstname.lastname@example.org BRANCHES Matara Ground Floor, DPM Building, Galle #59A, Anagarika Dharmapala Mawatha, 1st Floor, South Ceylon Hotel Building, Matara. Tel: 041 4928493. #06, Gamini Mawatha,Galle. Fax: 041 4390841. Tel: 091 4937124. Contact person: H. Crishantha Lal Fax: +091 4384279. Contact person: S.W.G. Chandika Negombo Colombo Stock Exchange Branch office Kandy 1st Floor Jude City Building, Colombo Stock Exchange Branch office #142, Green’s Road, Negombo. “Ceybank House” Tel: 031 4929671 / Fax: 031 4874736. #88, Dalada Veediya, Kandy. Contact person: U. Kumara. Tel: 081 4939206. Fax: 081 4481772. Ratnapura Contact person: M. Faizan 1st Floor, Leo Building, #173/2/1, Bandaranayaka Mawatha, Ratnapura. Kurunegala Tel: 045 4926940 / Fax: 045 4360726. Colombo Stock Exchange Branch office Contact person: Erandika Ranasinghe 1st Floor, Union Assurance Building, #06, Rajapihilla Mawatha, Kurunegala. Wellawatte Tel: 037 4934067. 1st Floor, B.O.C. Super Grade Branch, Fax: 037 4692105. #149, Galle Road,Wellawatte. Contact person: Lesley Randeniya Tel: 011 4323312 / Fax: 011 4443621. Contact person: S. Ranjan.
Pages to are hidden for
"COMPANY REPORT Ceylon Cold Stores (CCS)"Please download to view full document