Teejay Lanka 2Q profits down 37% amidst tough market conditions

Teejay Lanka PLC (TJL) underwent a challenging second quarter (2Q18) with both the top and bottom lines coming under pressure, but the knit fabric maker continues to pin its hopes on the growing order books under GSP Plus and the second phase of expansion of its Indian operations.   TJL Lanka, along with its subsidiaries Teejay India and Teejay Prints, posted a net profit of Rs.370.08 million for 2Q18 or 53 cents earnings per share, a decline of 37 percent year-on-year (YoY).    

The profits were also impacted by the significantly higher tax charge for the period as the group ended its tax holiday in September 2016, making both of its units subject to corporate income tax.

TJL’s revenue recorded a growth of 16 percent YoY to Rs.6.09 billion in 2Q18 but this demand had been “soft”, according its Chairman Bill Lam.

Lam said the competitive sales pricing prevented them from increasing the prices and growth in product mix.

The higher prices of the company’s main raw material—cotton yarn—contributed to TJL’s cost of sales increasing 22 percent YoY to Rs.5.34 billion. 

Lam said that although the cotton prices were expected to ease during the third quarter, signs show the high prices continuing into the fourth quarter of this financial year.
This resulted in gross profits contracting 15 percent YoY to Rs.749.36 million.

Meanwhile, in the group balance sheet, the net assets per share fell to Rs.15.58 in 2Q18 compared to Rs.16 at the start of the financial year. During this period, the group asset base increased to Rs.17.95 billion from Rs.16.88 billion, mainly due to TJL stockpiling higher inventories to cater to higher production demands in the future.

Meanwhile, the long-term borrowings increased to Rs.1.16 billion from Rs.567.43 million in the ensuring period. During the six months ended September 30, 2017, TJL’s net profits fell 40 percent YoY to Rs.589.79 million. Most of the factors that contributed to the 2Q18 performance could be observed during this period. 

Revenue for the period increased 15 percent YoY to Rs.11.50 billion, although the cost of sales increased 20 percent YoY to Rs.10.15 billion.

The group is now gearing up for its peak quarters, with the GSP Plus benefit already bringing in surges in the European Union business and the US base making strong demands for higher volumes and for new innovations showcased by the company, Lam said.

“There has also been a strong demand for more prints, which is likely to further boost profitability and the company has begun exporting to Africa and other non-traditional markets as well,” Lam said.

The company concluded commissioning of the full-expanded capacity in India by end-September and the group expects to reach full capacity levels of sales towards the end of the third quarter. At the end of 2Q18, Brandix Lanka Limited held a 33.08 percent stake in Teejay Lanka while the other joint venture partner, Pacific Textured Jersey Holdings Limited, held a 27.91 percent stake.

Stewart Investors slightly increased its ownership during the quarter as the largest minority shareholder with a 7.24 percent holding while Norges Bank retains a 2.97 percent holding, each remaining the third and fourth largest shareholders of the company.