High costs, competition hurt Teejay Lanka 1Q performance

Knitted fabric maker Teejay Lanka PLC saw its performance in the most recent quarter being hit by a combination of factors, which included competition, higher raw material prices and overheads, finance costs and expiration of the tax holidays.  

But the company is hopeful of more business from GSP Plus.  
Teejay, a unit of Brandix Group, Sri Lanka’s largest apparel exporter, reported earnings of 31 cents a share or Rs.219.7 million for the April - June quarter (1Q18), down by as much as 45 percent year-on-year (YoY)

“The order book continues to be positive with GSP prospectus, and the group capitalized on the momentum in the market behaviour as they recorded a 13 percent YoY growth in revenue”, Teejay Group Chairman Bill Lam said in an earnings release. 

The group, which comprises of two units, Teejay India and Teejay Prints, posted a total revenue of Rs.5.4 billion for the quarter.  However, the gross profit declined by 17 percent YoY to Rs. 604.1 million, “primarily due to the impacts stemming from raw material price hikes compared to last year. 

Those impacts were first felt in 4Q last year and have largely prevailed since”, Lam said. 
Cotton Yarn remains the company’s main raw material and the global prices rose by about 20 percent during the 12 months to March 31, 2017 impacting the margins of those who depend on the raw material. 

However, Lam said the volatility in cotton prices are expected to ease off from October this year. 
Meanwhile, the higher demand for low cost products have also posed challenged, “which prevented us promoting any price hikes and the growth product mix”, he added. 

The overheads also rose during the period due to depreciation cost, which resulted from the ongoing expansion in India. 

“The impact of gross profit margin has extended to profit before tax and been negated to a certain extent with the stringent control in costs during the quarter, where the escalation was kept at just 3 percentyoy”, Lam added. 

The net profit margin halved to 4.06 percent from 8.35 percent during the 12-months to June 30, 2017. 

The income tax expense rose by 62 percent YoY to Rs. 71.5 million as Teejay Lanka ended its tax holiday from September 2016 onward and both Teejay India and Teejay Prints are now liable for tax.
With the restoration of GSP Plus, Lam expects a potential surge in business from the European Union. The group is also looking at new markets in the EU and United States and the Asian region for expansion and to minimize its dependency on one region.  As at June 30, 2017, Brandix Lanka Limited held 33.08 percent stake in Teejay Lanka while the other joint venture partner, Pacific Textured Jersey Holdings Limited held 27.91 percent stake.