Lankem Ceylon announces turnaround performance for 1H

• Aggressive pricing strategies which contributed towards improving the product margins together with the cost optimisation initiatives which were adopted across all segments are said to have enabled the Group to achieve this feat

Managing Director Suren Goonawardene

Diversified blue chip Lankem Ceylon PLC, has posted a noteworthy second quarter (Q2) results which resulted in a remarkable turnaround performance for the first half (1H) of the financial year 2022/23. 

In a statement Lankem said at a time when Sri Lanka as a country is facing economic downturn with businesses facing economic hardships within a highly volatile business environment, achieving these results is indeed progress towards sustainable growth. 

During the quarter ended 30 September 2022, the Lankem Ceylon as a Group recorded a profit of Rs. 958 million which was a 73% growth compared to the 1st quarter of 2022/23 and a total change over compared to the Rs. 19 million loss made in Q2 of the last financial year (2021/2022). Q2 revenue was Rs. 8.3 billion which was a 58% growth compared to the same period last year whilst Gross Profit (GP) for the said period was Rs. 2.7 billion, a 210% growth compared to the Rs. 882 million achieved during the same period last year. During the quarter under review, Profit Before Tax (PBT) was Rs. 1.15 billion, a 4046% growth compared to the corresponding quarter in the previous year.

From a level of breakeven during the financial year 2021/22 to profitability in six months, the Group recorded a net profit of Rs. 1.5 billion for the first half (H1) of 2022/23 when compared to the loss of Rs. 91 million incurred during the corresponding period last year. Group revenue in the first half stood at Rs. 15.9 billion, a 64% increase, when compared to the Rs. 9.7 billion, achieved during the same period last year. Further, the Group achieved a Gross Profit (GP) of Rs. 5.1 billion which was 198% compared to Rs. 1.7 billion achieved for the first half of the financial year 2022/2023. The Profit before Tax (PBT) for Lankem Ceylon as a Group, was Rs. 1.85 billion, a commendable achievement when compared to the loss of Rs. 4 million incurred during the H1 of the previous financial year 2021/22. Aggressive pricing strategies which contributed towards improving the product margins together with the cost optimisation initiatives which were adopted across all segments is said to have enabled the Group to achieve this feat.

From a Q2 perspective, Lankem Ceylon PLC as a company posted a revenue was at Rs. 1.7 billion, an increase of 83% in the comparative period of last year. The company’s PBT achieved was Rs. 880 million, an increase compared to the Rs. 132 million achieved, whilst net profit for the said period was Rs. 879 million for the quarter under review, which was an increase of 568% against the comparative period of last year.

A successful Q2, resulted in the company posting a cumulative revenue of Rs. 3 billion, an 81% growth for the H1 under review compared to Rs. 1.7 billion achieved last year for the same period. After a gap of nine years, the company made a significant contribution to the Group’s bottom line by achieving a net profit of Rs. 1 billion in H1 of the year, a 1,232% growth compared to Rs. 77 million achieved during the same period last year. PBT for the company was Rs. 1 billion for H1 of the year, an increase compared to Rs. 77 million in the corresponding periods in the last financial year. These notable achievements enabled the Group to turn around the business remarkably well. 

The commendable performance of the company which includes Paints, Agro Chemicals, Industrial Chemical and Pest Control, was a result of the continuous focus on restructuring the company’s cost base to reduce production costs and minimise operational inefficiencies which enabled the company to improve the gross profit margin when compared to 2021/22. While the increase in distribution and administrative expenses were kept less than par with the growth of revenue, the finance costs increased significantly by 68% due to the continuous increase in the lending rates and liquidity issues faced by the financial institutions which restricted the restructuring of some of the borrowings.

Despite facing severe working capital constraints through restricted credit lines, increased borrowing rates, shortage of foreign reserves, and extended collection periods, the leaner and efficient operations brought about through cost optimisation strategies, innovative marketing initiatives, and focus on core competencies enabled to negate the adverse impact to a great extent.

The packaging cluster, which includes JF Packaging Ltd., Acme Printing and Packaging PLC and recorded an outstanding performance during these six months to achieve an operating profit of Rs. 1 billion compared to the minor loss reported last year. The cluster, which underwent a complete transformation during the period of review, worked diligently towards reducing the production costs by 50% which brought in a significant improvement at the contribution level. 

The Consumer cluster of the Group which comprises C.W. Mackie PLC almost doubled their revenue during the first half of 2022/23 in comparison to the previous period to achieve Rs. 3.6 billion. The cluster further reported an operating profit of Rs. 702 million which was a commendable improvement from that of last year’s H1. During the quarter ended 30 September 2022, the cluster recorded Revenue of Rs. 1,812 million and operating profit of Rs. 361 million respectively, which was a 102% growth in revenue and a 106% growth in operating profit compared to the first quarter of 2022/23. Change of marketing strategies to give customers value for money during trying times in addition to the change of pricing structures is said to have worked well for the cluster which enabled it to contribute positively towards the Group’s achievements. 

Despite the downturn in the tourism industry over the past few months, the Leisure cluster also saw a revenue growth of 53% and 52% for H1 and Q2 ended 30 September 2022 respectively. However, the segment was not able to achieve profitability given the lower occupancy. The Group is optimistic and is confident that with the slow but certain turnaround of the industry, the leisure segment will also be able to reduce the operating losses and look towards profitability.

Lankem Ceylon PLC is a subsidiary of The Colombo Fort Land and Building PLC. The eminent members of the Board of Directors are Chairman S.D.R. Arudpragasam, Deputy Chairman A. Hettiarachchy, Managing Director Suren Goonewardene, A.C.S. Jayaranjan, R. Seevaratnam, P.M.A. Sirimane, Anushman Rajaratnam, G.K.B. Dasanayake and Dr. A.M. Mubarak.