Laugfs Gas 1Q loss wipes out equity as company denied of price increase

Laugfs Gas PLC plunged into a near billion rupee loss in the three months to June (1Q22), the second such quarter in a row, as the company was continuously denied of a price hike to reflect the rise in global LP gas prices, forcing it to absorb losses until its equity got wiped off.

One of the only two household gas importers and distributors in Sri Lanka, Laugfs Gas reported revenues of Rs.9.6 billion in the three months to June, up 68 percent from the same period last year. 

However, the company made a measly Rs.78.1 million gross profit, reflecting that it is incurring a loss for every gas cylinder it sells, even before accounting for its other operational costs. 

The company has been repeatedly denied of raising the retail price of LP gas to reflect the higher world market price for LP gas, due to price controls. When accounted for operating costs, the company reported an operating loss of Rs.514.7 million for the three months, compared to a profit of Rs.386.7 million in the corresponding period 
last year.

The company reported a net loss of Rs.903.7 million or Rs.2.34 a share for the April-June quarter, compared to a loss of Rs.182.1 million or 47 cents a share in the year earlier period. 

This is the second such loss of this magnitude after the company lost Rs.971.2 million or Rs.2.51 a share in the previous three months ended in March 2021, the company’s fiscal fourth quarter.  

The back-to-back losses created a hole in Laugfs Gas’ balance sheet, as its equity turned into a negative Rs.226.7 million after the accumulated losses mounted to Rs.4.1 billion, from Rs.3.2 billion on March 31, 2021, the increase tallying to the June quarter loss. 

By June 30, 2021, the company had total assets of Rs.40.1 billion and loans worth of Rs.31.9 billion,  payable worth of Rs.5.5 billion and a refundable deposit of Rs.2.6 billion.  

As the company’s equity turned negative on June 30 and the protracted negotiations with the government authorities failed to yield results, the company on July 22 halted importing LP gas.

The Consumer Affairs Authority last week however allowed a price hike below what the company sought, restoring the supply of Laugfs gas to the market. Maximum prices or controlled prices are often counter-productive, as they inconvenience the public due to product shortages and black markets and push businesses and entrepreneurs out of business, as controlled prices make it less viable or non-viable for them to engage in enterprises taking a risks.            
Laugfs Gas also engages in transportation and logistics, property and trading.  Laugfs Chairman W.K.H. Wegapitiya-controlled Laugfs Holdings Limited has a 74.02 percent stake in Laugfs Gas PLC while he separately holds another 0.46 percent stake in the company. 

The Employees’ Provident Fund holds a 17.28 percent stake in Laugfs Gas, being its second largest shareholder, while it has a 34.69 percent stake in non-voting shares of the company, being its top shareholder.