Demand for cement hurt by weather & re-evaluation of national projects
Tokyo Cement plc has seen its profit drop for the first time since 2007/08 in the year ended March 31, 2015, posting a group profit after tax of Rs.1.69 billion, down from Rs 2.17 billion a year earlier while the company’s profit was down to Rs. 711 million from Rs 1.09 billion the previous year.
The company’s chairman, Dr. Harsha Cabral, attributed the decline in performance to "the massive influx of imported cement, coupled with a retail price reduction" which he said was extremely counter-productive causing a direct negative impact on the Tokyo’s revenues.
"The sharp drop in demand due to the cessation of large scale development projects, added to revenue losses," he said.
Tokyo’s Japanese partner, Yoshichika Noshio, President of the Nippon Coke and Engineering Company Ltd attributed the decline in performance to several reasons, "but the impact of price control was undoubtedly critical."
The company’s managing director, Mr.S.R Gnanam, said that the year under review had been fairly turbulent due to a combination of external factors that curtailed the demand for cement while also injecting a sense of instability to the industry. Nevertheless, the company’s strong fundamentals provided the strength and resilience to sustain growth albeit at a lower pace than in the previous year.
Last year’s extreme weather patterns with a combination of drought and excessive rain disrupted the demand for cement interrupting construction projects and curtailing agricultural incomes. The drought hurt their renewable energy projects due to shortages of biomass fuel such as paddy husk and glyricidia stems.
With imported rice flooding the market, the domestic rice milling industry curtailed operations causing a shortage of paddy husks. This resulted in a significant lower contribution from the biomass plant causing energy costs to increase during the year.
Demand for cement saw a marked reduction towards the tail-end of the year due to many national projects being suspended for re-evaluation following the change of government. As the State is the single large driver of construction activity in the country, suspension of national development projects had a ripple effect across the economy impacting the purchasing power of a sizeable share of the population.
Also, the supply contract for ready-mixed concrete for the Outer Circular Road has concluded during the financial year causing a sizeable gap in the cement sales. However, Gnanam was confident that there will be a renewed demand for ready-mixed concrete in the new financial year when development projects re-commence.
The price reduction of cement to Rs. 870 per 50 kg bag from Rs. 925 had increased downward pressure on top-line growth, he said. Despite these developments, the company recorded commendable top-line growth.
Tokyo Cement has a stated capital of Rs. 2.89 billion and carried group retained earnings of Rs.7.09 billion in its books while the company had Rs. 4.23 billon retained earnings. Total group assets were Rs. 19.74 billion (Rs 14.76 billion for the company) and total liabilities were Rs. 9.75 billion for the group and Rs. 3.74 billion for the company.
St. Anthony’s Consolidated (Pvt) Ltd with 27.5%, Nippon
Coke and Engineering with 23.3% and South Asian Investments connected to the St. Anthony’s Group with 20.1% are the main voting shareholders.
www.island.lk
The directors of the company are Dr. Harsha Cabral (Chairman), Messrs S.R. Gnanam (Managing Director) A.S.G. Gnanam, E.J Gnanam, R. Seevaratnam, Dr. Indrajith Coomaraswamy, Ravi Dias and non-executive nominee directors from Nippon Coke and Engineering. Mr. W.C. Fernando, Executive Director and Group General Manager, was appointed to the Board in October last year while Mr. S.V. Wanigasekera, non-executive nominee director of Nippon Coke and Engineering was replaced in September 2014.
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