Sri Lanka’s ACL Cables turns to households, calls for extended protectionism
ECONOMYNEXT – Sri Lanka’s ACL Cables is calling for extended protectionism to limit competition, amid a construction sector slowdown at home, fixed priced sales contracts, and competition in export markets.
ACL Cables said its export revenue grow 26.6 percent from a year earlier to 2.3 billion rupees in the year to end March 2018, while local sales grew at a slower 8.6 percent to 14 billion rupees.
Due to the slowdown in domestic sales, total revenue grew 11 percent during the year but cost of sales grew nearly twice as fast contracting gross profit by 18.8 percent to 2.6 billion rupees.
Net profit for the year to end March 2018 fell 39 percent from a year earlier to 763 million rupees, amounting to earnings per share of 5.82 rupees. The stock was trading 1.60 rupees lower at 39 rupees on Thursday.
Rising prices of raw materials, for instance copper increasing 43 percent to 7,000 US dollars a tonne, could not be passed on to consumers quickly.
"Another factor which contributed to the reduction of Gross margin was the locking of prices of cables with contractors in major projects and CEB," Managing Director Suren Madanayake told shareholders.
Higher interest costs were also hurting profits.
The company said it was reorganising its distribution network to reach a broader consumer market, or households, given the slowdown in the construction sector and large customers locking in prices.
There are signs market conditions will improve.
"Continued development of the Port city, creating interest among international investors is a good sign and we believe that there is a huge potential for construction Industry which in turn could lead to very high demand for cables in the coming years," Madanayake said.
However, dealing with the present challenge of falling profitability requires an export strategy.
"The export market is huge and competition is at its peak," ACL Cables Managing Director Suren Madanayake said.
"It is very important to penetrate the export market further in order to understand the international competitive environment and to improve our efficiencies.
"As we adapt to the external environment,we can increase our turnover and capacity utilisation."
The firm however continued to lobby for protection, limiting competition, and economic freedoms of a family that is trying to build a house, forcing them unfairly to pay higher-than-world-prices, giving bigger profits to producers.
Cable firms in Sri Lanka had already enjoyed protection for many years at the expense of families trying to put a roof over their heads.
"The FTAs with China and Singapore are threatening the healthy situation we are in," Madanayake said.
"However, we are lobbying the Government to maintain the Cables in the Negative list since the industry has potential for further expansion in to the export market.
"Such expansion needs a Local base protected from unfair trade practices and economies of scale of neighbouring countries," he claimed.
The firm did not specify what the ‘unfair trade practice’ was.
The firm also made a another standard argument, saying there were cheap imports which may be of low quality, which analysts say is a separate issue and is already addressed by Sri Lanka standards.
Import duties may in fact promote the import of the cheapest and lowest quality goods, by making the better brands too expensive, fair trade advocates say.
Sri Lanka’s massive import protection given to steel, tiles, sanitary ware, have pushed up construction costs. Many protected businesses are however cannot export as long term protection has made them inefficient.
ACL Cables however is in exports unlike many other so-called ‘geriatric’ businesses that have enjoyed fat profits from import duties for decades.
Protection was advocated in Western nations like Germany, for nationalist ‘infant industry’ so that poor consumers in particular will sacrifice the well-being of their families and children on behalf of big business in the hope that eventually they will get freedom after business ‘grew up’. (Colombo/July12/2018)