Higher borrowing costs erode Sri Lankaâ€™s Hayleys profits
ECONOMYNEXT – Net profit at Sri Lanka’s Hayleys group fell sharply in the March 2018 quarter and full year despite a big increase in sales after it bought consumer products retailer Singer, with borrowing costs doubling and tax expenses rising.
Hayleys group net profit fell 37% to Rs827 million in the March 2018 quarter from a year ago while sales rose 74% to almost Rs51 billion, interim accounts filed with the stock exchange showed.
Earnings per share for the quarter were Rs11.03, down from Rs17.59 the previous year. Hayleys share last traded at Rs215.
EPS for the year to 31 March 2018 fell to Rs13.65 from Rs37.12 the year before with net profit down 63% to Rs1 billion while annual sales rose 47% to Rs163 billion.
A company statement said the group posted strong operating profits which expanded by 18% to Rs11.4 billion during the year.
“However, increased borrowings, combined with the prevalence of higher interest rate conditions throughout the financial year resulted in net finance costs increasing to Rs5.93 billion, leading to a reduction in profit before tax (PBT) to Rs5.76 billion.”
Hayleys chairman and chief executive Mohan Pandithage said the group had borrowed heavily to support an aggressive growth strategy and would strive to reduce indebtedness and revive profit growth.
“The past year bore witness to several bold new investments across Hayleys that are designed to place the group on a stable but aggressive growth trajectory over the medium-long term,” he said.
“Nevertheless, we remain cognizant of the higher finance costs arising from increased investments over the past year.
“Moving forward the group will move to rapidly reduce gearing and re-align capital structures with a view to bolstering the bottom line.”
Hayleys group marks its 140th year of operations as the first listed Sri Lankan entity to surpass the US$1 billion turnover milestone, Pandithage said.
“This is truly a remarkable milestone that serves to highlight the scale of our operations and the vital contributions that Hayleys continues to make as an engine of growth and innovation in the Sri Lankan economy.”
Pandithage made special note of the “highly encouraging performance of the Hayleys group over the final quarter of FY18, during which time, turnover expanded by a significant 74% YoY up to Rs50.9 billion while operating profits surged 33% YoY to Rs4.7 billion,” the statement said.
The accounts showed tax costs rose 76% to Rs1 billion in the March 2018 quarter from the year before and 26% to Rs2.5 billion in the year.
The company statement said the group results were supported by addition of six months of operations from its recently acquired subsidiary, Singer (Sri Lanka) PLC.
“Leading segmental performance during the year was the group’s transportation and logistics business which posted substantially improved revenue and operating profits of Rs 35.7 billion, and Rs 2.95 billion respectively,” it said.
“Increased raw material costs hampered profitability within the group’s purification products and hand protection segments both of which posted improved turnover but weaker operating profits.
“Purification segment recorded a turnover of Rs15.5billion with an operating profit of Rs1.1 billion while hand protection segment revenue was Rs15.9billion while operating profits reduced to Rs464 million,” the statement said.
“Boosted by the introduction of new revenue from Singer, the group’s consumer products segment also posted impressive growth in turnover, closing the year with revenue of Rs35.9 billion while operating profits increased to Rs 2 billion during the period in review,” the company said.
“The group’s Agriculture and Plantations segments, though affected by weather conditions in the earlier part of the financial year, contributed substantially towards group revenue and profitability.”
(COLOMBO, May 21, 2018)