Laugfs Gas returns to profit in 3Q as company embarks on major exercise to cut debt

• Top line of Rs.7.8bn assisted by price hikes and restoration of supplies amid easing Fx conditions 

Sri Lanka’s only private cooking gas player Laugfs Gas PLC returned to profitability in the December 2022 quarter, as the group is currently undergoing a major restructuring programme to downsize the operations and deleverage the balance sheet after years of debt-fuelled growth.

The group reported a revenue of Rs.7.81 billion for the quarter under review, a 38 percent increase, after the domestic gas prices were raised exponentially and the supplies were restored after the months-long shortage, which had a brutal impact on the group cash flows. 

Laugfs Gas share gained 60 cents or 3.06 percent yesterday, to settle at Rs.20.20.

Laugfs Gas piled up massive debt for years to fund its rapid expansion with little to no real contribution from its new businesses, except for a few. 

Although the group relied on its core business for consistent cash flows to sustain the rest of its businesses, that gamble came to an abrupt halt in 2021, when the global gas prices soared while the group was hamstrung to pass on the higher cost to its consumers, due to price controls. 

Although the government lifted the price controls in 2021, the cash flows nearly stopped during most of 2022, when the country ran out of foreign currency to import fuel, gas and other essential commodities for months.

While the state-owned Litro managed to secure supplies and regularise their distribution, Laugfs took longer to normalise its gas operations.  

The normalisation of operations helped the group to report an operating profit of Rs.2.28 billion, compared to a loss of Rs.229.9 million in the year earlier period. 

The group also embarked an uneasy restructuring to shrink its operations and use the proceeds from its asset sales to settle the debt, which weighs heavily on its balance sheet. 

In November, the group sold its 100 percent stake in Laugfs Gas Bangladesh Limited for Rs.8.2 billion, resulting in a gain on disposal of Rs.4.2 billion, which further lifted its bottom line. 

Laugfs Gas reported earnings of Rs.4.58 billion for the quarter, compared to a loss of Rs.980.7 million in the year earlier period. The earnings were however undermined by the heavy finance cost of Rs.1.72 billion, as the banks raised the loan rates in tandem with the policy rates last year. 

The finance cost for the same period in 2021 was at Rs.564.2 million. 
The group settled about Rs.7.3 billion in short-term borrowings but long-term loans rose by Rs.4.0 billion in the nine months through December 2022. However, the group said the sharp depreciation of the rupee against the dollar inflated its debt portfolio by Rs.4.6 billion.  

“You will note that the significant reduction in the loan portfolio by the group during the period under review by way of settlement of bank debts from the sale proceeds received from Laugfs Gas (Bangladesh) Limited with its ownership disposal,” said Laugfs Gas CEO Piyadasa Kudabalage.

Founder owner and Chairman W.K.H. Wegapitiya-controlled Laugfs Holdings Limited owns a 74.02 percent stake in Laugfs Gas while the Employees’ Provident Fund has a 17.28 percent stake, being its second largest voting shareholder. 

Almas Holdings Private Limited holds a 3.63 percent stake, as the third largest voting shareholder of the company.