Dipped Products 2Q earnings decline on sharp rise in costs, moderation in sales

Dipped Products PLC’s profits declined in the three months to September, ending more than a year-long streak of robust top and bottom line performances set off at the initial stage of the pandemic, as the supply returned with the capacity expansion by its competitors and the soaring global commodities prices added to its costs, pinching its margins. 

According to the company’s interim financial accounts for its fiscal second quarter ending in September 2021, the rubber glove maker reported sales of Rs.13.23 billion, up 21 percent from the same period last year.

Although still robust, the September quarter sales reflected some easing from the previous quarter growth, in line with the moderate sales and profit expectations by the company for the ongoing financial year, albeit it could still be above the pre-pandemic levels.

Meanwhile, the global rubber glove prices halved by September from the levels seen at the beginning of 2021, as the demand is normalising from the peak it reached at the height of the pandemic, as pre-booking for medical glove supplies waned with the declining virus cases, due to increased vaccination.

Meanwhile, the suspension of the ban in place on Top Glove, the largest disposable rubber glove supplier in the world based in Malaysia, would have also normalised the supplies. 

“The outlook for the sector remains positive through 2021, although demand growth is expected to moderate in the medium term,” said Hayleys PLC Chairman and Chief Executive Officer Mohan Pandithage, in his annual review of operations. 

“Capacity expansion by manufacturers in the region will exert pressure on price while commodity price increases will exert pressure on margins,” he added. 

The company reported earnings of Rs.1.61 a share or Rs.961.6 million in the July-September quarter, compared to earnings of Rs.2.19 a share or Rs.1.31 billion in the same period last year, a 27 percent decline. 

The cost of sales rose by 29 percent, denting the gross profits by 3 percent while the distribution and administration costs also rose by 52 percent and 21 percent, respectively.

For the six months to September, the company reported earnings of Rs.3.69 a share or Rs.2.21 billion, up 15 percent, on revenues of Rs.30 billion, up 48 percent from the comparable period in 2020.    

Dipped Products PLC also has interests in the plantation sector through Kelani Valley Plantations PLC and Talawakelle Tea Estates PLC,  which are among the leading plantation companies in the country. 

For the six months, the company, which has operations in both Sri Lanka and Thailand, reported revenues of Rs.21.5 billion, up 66.7 percent while the plantation sector revenues rose by 18.7 percent to Rs.8.9 billion.

Billionaire businessman Dhammika Perera-controlled Hayleys PLC, together with other group entities held a 57.06 percent stake in Dipped Products by September 30, 2021, while the Employees’ Provident Fund had 4.6 percent in the company, being its second largest shareholder.