Hayleys December profits stung by hefty finance costs, higher taxes

• Revenue grows by robust 26% to Rs.116bn, profit at operating level up 29% to Rs.13.6bn

Hayleys PLC’s profits capitulated in the December 2022 (3Q23) quarter on the back of rising working capital needs amid soaring interest rates to sustain operations as the corporate behemoth had to navigate multiple challenges in both demand and supply sides due to the economic crisis.
The group reported revenues of Rs.116.4 billion for the October to December period, its third fiscal quarter, up 26 percent from the same period a year ago. Sharp depreciation of the rupee added a fillip to the topline in rupee terms as much of the group’s revenue is generated through exports.

The topline was supported by almost all major export businesses the group has diversified into except for its consumer and retail segment represented through its consumer durables juggernaut, Singer Sri Lanka. 
Price revisions affected consumer demand negatively, the company said in its interim results released this week. The group’s export segments could also be feeling a slowdown in demand due to the cooling of demand in its key export markets. 

Hayleys is one of the few most diversified businesses in Sri Lanka which has interests in hand protection solutions, eco solutions & purification products, textiles, construction materials, agriculture, plantations, transportation & logistics, consumer & retail, industry inputs, power & energy and leisure.
The group reported operating profit of Rs.13.6 billion for the quarter under review, up 29 percent from a year ago.  
While the depreciated rupee helped the group’s export-oriented businesses to report higher top and bottomlines, it equally affected the cost of materials, which resulted in higher working capital requirements.

Further, the group also had to confront the curtailing of supplier credit by its foreign suppliers after the country was downgraded by rating agencies, posing further challenges to the management of working capital. 
Increased working capital needs meant higher finance costs to the group as interest rates rose sharply in the economy with the monetary policy tightening that took place in last April.
In the nine months, the group increased its inventory by Rs.16.4 billion and its short term borrowings by around Rs.5.8 billion. 

The group’s finance cost rose by 196 percent year-on-year (YoY) to Rs.8.7 billion during 3Q23 from Rs.2.9 billion in the year earlier period.
The group reported earnings of Rs.18.8 million or three cents a share compared to earnings of Rs.6.04 a share or Rs.4.5 billion in the corresponding period in the previous year.

The group recognised a tax expense of Rs.5.7 billion for the quarter, up from Rs.2.1 billion in the year earlier period as higher corporate income taxes hit the businesses from October onwards. 
Billionaire investor, Dhammika Perera has 51.01 percent stake in Hayleys.