Tokyo Cement performance recovers in 3Q; but records decline in volumes

• Expresses concerns about emergence of secondary cement market beyond sticker price 
• Authorities urged to resolve foreign exchange crunch soon to ensure unhindered supply

Tokyo Cement Company (Lanka) PLC reported higher top and bottom line performance for the three months ended December 31, 2021 on higher retail price, but cement volume declined due to the wet weather that prevailed for two months inhibiting construction work and the shortage in cement and other construction materials caused by the foreign exchange shortage. 
The company also saw a sharp increase in raw material costs as a result of both escalating global commodities prices and weaker rupee, and the company doesn’t expect the cost inflation to ease in the near term amid clogged up supply chains and the spread of Omicron which could further cause supply shortfalls. 
Sri Lanka’s largest locally owned cement manufacturer and the market leader in ready-mix concrete reported revenues of Rs. 13.77 billion for the October-December 2021 period, up 20 percent from the same period in 2020. 
The top-line growth entirely came from the upward revision in the maximum retail price of cement revised twice last year, before revising up further to Rs.1, 375 for a 50 kilogram bag effective from January 1, 2022, as the sales volume declined by 3 percent due to aforementioned reasons. 
Besides, the company’s production facility has had a minor setback due to a breakdown in its cement-grinding mill, which stopped production for two weeks. 
Cement makers and importers faced severe hardships due to the maximum retail price set for cement by the government which ultimately created severe shortages in the market as importers cut down on imports drastically. 

Importing also became a nightmare due to the foreign exchange crunch. These conditions created a secondary market for cement, similar to a black market where some traders resorted to sell cement beyond the labelled price, the company said. However, Tokyo Cement increased its imports to make up for the lost output by 20 percent. 
The company has a market share of 35 percent, which the company claimed to have maintained unchanged from last year.Considering these conditions, the company urged the government to resolve the prevailing foreign exchange troubles to ensure uninterrupted cement supplies. “In terms of the national economy, immediate measures must be implemented to attract dollar remittances and investments in the short term to increase the country’s foreign reserves, coupled with more focused approaches to reinstate investor confidence”, the company said in a statement. “Further depreciation of the currency would have a profitability impact on the recorded period as imported materials are exposed to credit of over 180 days,” it added. The company reported earnings of Rs.4.09 a share or Rs.1.65 billion for the three months under review compared to earnings of Rs.3.27 a share or Rs.1.30 billion in the same period in 2020. For the nine months ended December 31, 2021, the company reported earnings of Rs.5.15 a share or Rs.2.08 billion compared to earnings of Rs.10.25 a share or Rs.4.09 billion in the corresponding period in 2020. The nine months sales rose by 19 percent to Rs.36.32 billion. The company had to contend with cost inflation as a result of rising prices for global coal and oil, in addition to elevated freight costs. The company remains worried about the ongoing Omicron spread, which could further disrupt the supply chains and manufacturing, adding further pressure on costs. In the nine months, cost of sales rose by a staggering 36 percent to Rs.28.75 billion. 
Meanwhile, the company said the excess power generated from its biomass power plant is sold to the national grid, as the country’s power sector is currently running with low capacity due to prevailing dry weather and frequent breakdowns.As at December 31, 2021, St. Anthony’s Consolidated (Pvt) Ltd has 27.5 percent stake in Tokyo Cement and South Asian Investment (Pvt) Ltd held another 20.1 percent. Ube Singapore Holdings Pte. Ltd, the joint venture partner of the company had 10.0 percent stake by December end.