TeeJay Lanka 3Q profits hurt by higher costs, income tax payments

Teejay Lanka PLC, a unit of leading apparel exporter, Brandix Lanka Limited saw its December quarter (3Q17) profits declining a sharp 30 percent to Rs.473. 4 million or 68 cents per share from a year ago due to steeper rise in costs, finance expenses and higher income tax payments, the interim results showed. 
The company said it accepted excess orders having to change its usual production mix, which included low margin products as well. In addition the impact from the change in raw material mix has also had a bearing on the margins. 

The company said, the excess orders were accepted in preparation for growth in the future. 
The revenues rose by 14 percent to Rs.6.35 billion but the direct costs jumped 20 percent higher to Rs.5.5 billion. 
The company also had to operate its coal power plant under capacity due to a temporary countrywide coal outage. The company set up the coal plant to bring in significant savings on energy costs.
The gross profit narrowed by 15 percent to Rs.831. 8 million from a year ago as a result of these cost pressures. 
However, the group’s nine months’ earnings grew by a moderate 9 percent to Rs.1.46 billion or Rs.2.10 a share on a revenue of Rs.16. 4 billion, up by 33 percent from a year ago. 
“As the group embarks on its final lap of the second half, setting the foundation for its long-term growth plans, the business is cautious of the future market challenges, mainly driven by price challenges in the market and increasing changes in product mix,” TeeJay Lanka Chairman, Bill Lam said in a statement. 
Meanwhile, TeeJay Lanka also saw the tax holiday it enjoyed thus far coming to an end in September 2016 making the company liable for corporate income tax. 
As a result, the company booked an income tax expense of Rs.78.8 million for the quarter, up from just Rs.22.4 million it booked during the same quarter last year. For the nine months the tax liability was Rs.150.3 million, up from Rs.39.4 million a year ago. 
The financials also showed that TeeJay Lanka had had short-term borrowings of Rs.2.2 billion against Rs.755.4 million borrowings by the end of March 31, 2016. 
This has also put pressure on the bottom line as the finance cost rose steeply. But higher finance income during the nine months somewhat negated the impact. 
The group however remains cash rich with cash balance of Rs.4.1 billion by the end of December 2016. 
Teejay Lanka in 2015 acquired two of its supply chain partners—Quenby Lanka Prints Private Limited (QPL) on June 1, 2015, and Ocean India Private Limited (OCI) on September 1, 2015.
OCL accounts for 50 percent of the capacity of TeeJay Lanka. They have been later re-branded as Teejay India and Teejay Prints.  TeeJay Lanka invested Rs. 1.61 billion for these acquisitions during the period.  The company is already enhancing capacity in India and strategic investments are being made in digital printing and synthetic production.
The company also pins its hopes on the likely resumption of GSP Plus facility from this year onwards. 
As at December 31, 2016 Brandix Lanka Limited held 33.24 percent stake in TeeJay followed by Pacific Textured Jersey Holdings Limited’s 28.05 percent stake. Norges Bank, the world’s biggest sovereign wealth fund has accumulated shares up to 2.99 percent stake in the company being the fourth largest shareholder.