Expolanka records quarterly loss of Rs.138mn on margin pressure, higher costs

Expolanka Holdings PLC reported a loss of Rs.138.4 million for the three months ended in September (2Q’18) compared to a profit of Rs. 242.8 million recorded in the same period last year due to both external and internal factors weighing on its performance. 

The logistics behemoth with a sizeable freight operation in the portfolio saw its airline rates going up unexpectedly with a knock-on effect on the margins while the group-wide overheads also grew fatter.
The group which also has shipping, warehousing, leisure and a few other unrelated businesses recorded a top-line growth of 34 percent on year to Rs.21.8 billion. However the cost of sales rose by almost 40 percent on year to Rs.18.7 billion demonstrating how serious the margin squeeze during the period had been.

“A drop in the gross profit margin arising from an unanticipated industry wide increase in airline rates coupled with space constraints resulted in the company having challenges in its procurement process”, said Expolanka group Chief Executive Officer, Hanif Yusoof. 

The group which grew by way of ad-hoc acquisitions made in to unrelated businesses from food to education and a few more is now searching for its mojo in the logistics business, Expolanka’s bread-and-butter.  

After Japan’s SG Holdings Global Pte. Limited acquired a controlling stake in the Sri Lankan group controlled by a few individuals in 2014, it has been returning in to where it has the real core competence and shed many businesses unrelated to its core business. 

However the re-structuring efforts have not been a smooth sailing for the group as the earnings during this period have mostly been jittery both due to market surprises and internal challenges. 

“The main challenge faced by the company today is focused towards improving gross margins and operational efficiencies. The company is undertaking several corrective steps to address these two key issues and believe that some of the initiatives taken in this regard will bring in improvements in the medium term future”, Yusoof said of his main challenges during the journey towards consistent profits.  Both administration and selling and distribution expenses rose significantly - by 32 percent and 81 percent respectively to Rs.2.8 billion and Rs.274. 1 million. The company attributed this spike in expenditure to identified initiatives.  However the company remained hopeful of the increasing trade taking place within Asia to benefit the business. 

“One of the key objectives of the company is to accelerate growth from high potential origins in East Asia (China, Philippines, Vietnam and Indonesia) whilst simultaneously expanding the core South Asia opera on as well with the focus of continuing to grow the core trade lanes of USA and Europe. 
With increasing trade taking place across Asia, we believe this renewed effort will contribute strongly to our overall business. Asia continues to be a key sourcing hub for all our customers globally and our continued growth in volumes and Top line have been generated through these key markets”, Yusoof said of the future prospects for the company and the industry. 

Group logistics segment recorded a profit after tax of Rs.305.8 million for the six months ended in September, a 64 percent decline from the same period last year. The segment’s top-line grew by 34 percent on year to Rs. 35 billion during the same period. 

Meanwhile the group’s leisure segment reported a revenue of Rs. 664.1 million, down 78 percent from a year earlier. This may be due to the divestment of the group’s destination management company, Akquasun in an earlier period. The segment reported a net profit of Rs. 99.7 million, up 6 percent from a year ago. The segment is now fully focused on growing its core travel solutions business. By the end of September SG Holdings Global Pte. Limited held 67.48 percent stake while Barca Global Master Fund and Matthews Emerging Asia Fund have increased stakes in 2Q’18 to 8.9 percent (vs 7.1 percent) and 4.8 percent (vs 3.8 percent) respectively.