Higher borrowing costs weigh on CIC Holdings December profit

CIC Holdings PLC (CIC), the diversified crop and agricultural solutions provider, reported earnings of Rs.3.58 a share for its October–December quarter (3Q17), down from Rs.5.93 a share reported during the same period a year ago, amid rising borrowing costs and the company’s newly commissioned corn project still making losses. The total net profit for the period was Rs.339.3 million, down 40 percent year-on-year (YoY). Revenue however rose by a strong 28 percent YoY to Rs.9.52 billion and the gross profit rose by 29 percent YoY to Rs.2.26 billion. 

For the nine months to December 31, 2016, the company reported earnings of Rs.7.95 a share or Rs.753.4 million, a decline of 33 percent from the same period last year. 
The borrowing cost soared by 174 percent for the quarter and by 131 percent for the nine months YoY to Rs.487.8 million and Rs.1.25 billion, respectively. This was due to the rising borrowing costs and fresh borrowings made to the tune of over Rs.2.0 billion during the nine months. 
“The high debt levels have been brought on partly as a result of a relatively increased capex spend on capacity enhancements and new projects. These projects are expected to begin generating profits within the next 12 months while improving the group’s risk return dynamics. 
Debt has also increased due to an unusually high build up of working capital partly by reason of adverse weather conditions which has slowed down the release of working capital from our agriculture-related businesses,” CIC Holdings CEO Samantha Ranatunga said in an earnings release. 
The nine months’ revenues however grew by little over 34 percent YoY to Rs.27.3 billion and the gross profit rose by 26 percent YoY to Rs.6.3 billion. 
CIC was persistently battered by the delayed settlements over the fertilizer subsidy under the last regime but is now making some financial headroom as the company is gradually receiving settlements.  
The company said the subsidy receivable had come down to Rs.1.1 billion by end-December 2016 from Rs.2.2 billion a year ago.
Meanwhile, the company’s corn project, which commissioned in early 2016, continues to weigh on the agri business of the group. This is because delays in setting up, supply shortages due to bad weather and unfavourable changes in buying and selling prices of corn. 
However, this project forms a key synergy maker to the group as it is a key supplier to the group’s livestock solutions segment and crop solutions segment. 
“The project is also important on a national level, as proper drying mechanisms are crucial in ensuring the quality of poultry feed,” Ranatunga added. 
Meanwhile, work on the US $ 6 million high-tech greenhouse is also nearing completion and is expected to be commissioned within this financial year, the company said. 
As of December 31, 2016, Captain family-controlled Paints & General Industries Limited held a 53.31 percent stake in CIC Holdings while the Employees’ Provident Fund (EPF), the state-controlled private sector pension fund, held a 9.06 percent stake being the second largest shareholder.  
The EPF also holds another 12.7 percent stake in non-voting shares.