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CIC 4Q in red as higher borrowing and distribution cost weigh


5 June 2017 09:58 am - 0     - {{hitsCtrl.values.hits}}


CIC Holdings PLC (CIC), Sri Lanka’s leading crop and agricultural solutions provider, has recorded a net loss of Rs.200 million or a loss of Rs.2.11 a share for the quarter ended March 31, 2017 (4Q17) against a net profit of Rs.229 million year-on-year (YoY) as higher distribution and finance costs erased top line gains.
According to the interim results filed with the stock exchange, the CIC’s revenue for the quarter under review rose by a little under 20 percent YoY to Rs.7.5 billion with a gross profit of Rs.1.65 billion, up 19 percent YoY. 
While the top line was largely driven by the group’s fertilizer and health & personal care segments, the growth in fertilizer segment is partly due to change in accounting treatment, said Bartleet Religare Securities (BRS), a Colombo-based equity brokerage, in a note on CIC’s financials. 

During the quarter, the crop solutions segment, which captures the fertilizer business earned a revenue of Rs.1.75 billion, an increase of 61 percent YoY, but BRS said, they forecasted the segment to generate a revenue of Rs. 2.0 billion with a 40 percent drop in volumes, taking into account the impact from drought to Maha cultivation. 
“With normal rainfall predicted for FY 2018E, we expect the fertilizer volumes to recover in next Yala Season with an estimated volume growth of 5 percent YoY”, BRS said.
CIC’s fertilizer subsidy receivable by the end of December 2016 was Rs.1.1 billion and it is expected that this would be paid down during the first half of 2017/18 financial year.   
The group maintained its gross margin at 22 percent, unchanged from last year but EBIT margin (earnings before interest and tax) fell sharply from 7.0 percent to 4.0 percent due to higher distribution and finance costs. 
Meanwhile, for the financial year ended in March 31, 2017 (FY17), CIC, which also has interests in to livestock and industrial solutions among others, saw its group earnings plunging to Rs.5.84 a share or Rs.553.5 million from Rs.1.34 billion, down 59 percent YoY.  
This is on the back of a Rs.34.9 billion revenue, which is up 31 percent YoY.
The disappointing results for the final quarter and the full financial year stemmed largely from the massive increase in finance costs on the back of higher short-term borrowings and, distribution costs.
The finance cost for the March quarter rose over 100 percent year-on-year (yoy) to Rs.390 million while the distribution cost rose by 92 percent yoy to Rs.973 million.  
The group had to resort to higher borrowings, “due to an unusual build up of working capital, where agri related business in particular saw a slowdown in working capital release”, BRS said. 
The BRS also believes that the higher distribution cost must have been due to company’s effort to increase the footprint in personal & healthcare segment.
According to the segmental results, the personal & healthcare segment increased its revenues by 25 percent to Rs.2.2 billion, being the largest contributor to the top line but ended with a EBIT of Rs.78 million, which is down from Rs.206 million during the corresponding quarter last year. 
“We expect the lower disposable income and high inflation to exert a pressure on the segment in FY 2018E”, BRS said. 
Meanwhile the group’s agri business made an operating loss of Rs.28 million as the new corn project continued to incur losses on supply shortages and bad weather conditions. 
“We expect this project to provide a vertical integration to the livestock segment and thus improve the margins going forward”, BRS opined.  
By March 31, 2017, Captain family-controlled Paints & General Industries Limited held 53.31 percent stake in CIC Holdings while state-run private sector pension fund, Employees’ Provident Fund, held 9.06 percent stake being the second largest shareholder.


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