Poor show by Hand protection & plantations weighs on Hayleys 3Q

Diversified conglomerate, Hayleys PLC contracted its December quarter net profits (3Q16) by 27 percent to Rs.534.1 million over the corresponding quarter last year, due to the poor performance from its hand protection and plantation businesses while the operating costs surge, the interim results showed. The earnings per share (EPS) for the quarter fell to Rs.7.12 from Rs.9.81 a year ago. The Hayleys share closed in red at Rs.285.40, down Rs.4.10 or 1.42 percent at Friday’s close.

The top line marginally increased by 2 percent yearon- year (yoy) to Rs.23.6 billion as the group’s plantation sector and the hand protection manufacturing subsidiary, Dipped Products PLC recorded negative performances. “The Plantation sector faced a number of challenges during the year including the global commodities crash which lowered tea and rubber prices and lacklustre demand from traditional markets, compounded by inclement weather in Sri Lanka.

The Hand Protection sector also faced significant mixed challenges from the global market as Sri Lanka faced relatively higher input prices compared to competing countries,” Hayleys said in an earnings statement. Group overheads rose 16.6 percent yoy or by Rs.541 million to Rs.3.8 billion. The operating profit declined 11 percent yoy to Rs.2.03 billion. Meanwhile, for the nine months ended December 31, 2015, the group posted a net profit of Rs.1.69 billion, largely unchanged from a year ago. The EPS edged down to Rs.22.48 from Rs.22.59. The top line dropped 1 percent yoy to Rs.67.6 billion while the cost of sales declined by 3 percent yoy to Rs.51.4 billion resulting in a gross profit of Rs.16.3 billion, up 6 percent yoy.

The overheads were up 13 percent yoy or Rs.1.3 billion to Rs.10.9 billion. Commenting on the poor performance of some of the business units which weighed on the group performance, Hayleys Chairman and Chief Executive, Mohan Pandithage said: “In recent years we have strategically initiated programs that would help us enhance competitiveness and the results of some of these actions would be visible over the next few quarters.” The segmental results showed the group’s hand protection business run by Dipped Products PLC contracting its operating profits by as much as 61.4 percent yoy to Rs.447.6 million. According to the published financial accounts of the company it posted a mere Rs.75.3 million net profit over the Rs.852.2 million net profit recorded during the corresponding nine months last year.

“The company has already initiated a number of projects to move into more value added hand protection products to overcome the price sensitivity in the mass produced glove segments,” the statement added. The plantation unit turned an operating loss of Rs.28.5 million from an operating profit of Rs.463.9 million during the corresponding nine months last year. Plantations revenue fell by Rs.3.5 billion to Rs.6.8 billion.

Power and energy business narrowed operating profit by 11.7 percent yoy to Rs.550.5 million on a revenue of Rs.820.9 million. Despite the poor performance of the above, other segments of the group—manufacturing of fibre, purification products, textiles, construction materials, agriculture (barring plantation), transportation and logistics, consumer products and leisure and aviation—did grow in their top and bottom lines contributing positively to the group. As of December 31, 2015, Dhammika Perera together with parties acting in concert held 50.27 percent of the company, up from 49.71 percent stake held as at