Rising petroleum prices dim BPPL’s 3Q profits

• A yarn extrusion plant and a filament extrusion plant to come into operation this year 

Leading brushware and synthetic fibre manufacturer BPPL Holdings PLC (BPPL) posted Rs.115.9 million net profit for the October-December quarter (3Q18), taking a 6 percent dip compared to the corresponding period last year, over the rising raw material and operating costs.

The earnings per share fell to 38 cents from 40 cents year-on-year (YoY). Revenue for the quarter increased 12 percent YoY to Rs.736.4 million.  
“Revenue growth was largely from new customer accounts the group had won from the North American and European regions for its traditional brushware products and from the Indian subcontinent for its newer synthetic filament ranges,” BPPL Managing Director/CEO Dr. Anush Amarasinghe said in an earnings release.

The group continued with its twin strategies of direct sales through buying offices to the professional and commercial market segments and branded sales to the household markets, according to him.

Although branded sales grew at a shorter pace than direct sales, the branded revenue generally has much longer gestation periods as it takes time to establish brand names in consumer minds, Dr. Amarasinghe said.

Meanwhile, the cost of sales increased by 18 percent YoY to Rs.466.7 million during the quarter. The group recovered from the impact of floods on the timber supply but the rising petroleum prices impacted the plastic prices, generating the increase in costs, according to Dr. Amarasinghe.
“As a solution to the rising petroleum prices, we will fast-track our development efforts for using more recycled plastic material in our products and thereby minimize its impact in subsequent quarters. Recycled plastics are generally less expensive than virgin,” he said.

Although there was a marginal YoY increase in gross profits to Rs.269.6 million, the gross profit margins fell to 37 percent from 40 percent YoY.
The profits before taxes fell by 14 percent YoY to Rs.125.5 million over the escalading operation costs, particularly relating to administration and distribution. “The distribution expenses rose by 26 percent for the reported three-month period compared to the corresponding period in the previous year due to the expenses incurred in establishing offices in Malaysia for the commencement of branded sales in that country,” Dr. Amarasinghe said.

The BPPL group balance sheet expanded with Rs.3.5 billion in total assets at end-December compared to Rs.2.6 billion at the start of the financial year. The fixed assets under property, plant and equipment increased to Rs.2.1 billion from Rs.1.4 billion due to the firm’s Rs.675 million expansion projects.

Dr. Amarasinghe said a yarn extrusion plant—the first spinning plant of its kind in Sri Lanka—will be completed on schedule by March 2018, while a filament extrusion plant will be commissioned by June 2018.

The company said it hopes to accept orders for polyester yarn from the subsequent quarter and is seeing strong demand for synthetic filaments from all their markets.

Financing the expansions saw BPPL’s non-current borrowings increase to Rs.594.4 million at end-December, compared to Rs.83 million at the start of the financial year, while the current borrowings increased to Rs.394.2 million from Rs.282.8 million over the nine-month period.
Meanwhile, for the first nine months of the 2018 financial year, BPPL posted Rs.295.3 million in net profits, down 2.1 percent YoY. Revenue was up 8.6 percent YoY to Rs.1.92 billion, while the cost of sales increased 14.2 percent YoY to Rs.1.2 billion. A rise in administrative and distribution costs was also seen in the nine-month period.

BPPL Holdings’ largest shareholder is Infinity Capital (Pvt.) Ltd, with a 50.31 percent stake. LOLC Investments Ltd holds a 26.25 percent stake while Hirdaramani Investment Holdings Private Limited owns a 13.44 percent stake in BPPL Holdings.