Gross profit margins sharply up at Textured Jersey

Textured Jersey Lanka Plc (TJL) said yesterday it has completed the third quarter ended on 31 December 2011 on a positive note notwithstanding the continuing uncertainty in global markets.

The Company said there was strong top line growth through a combination of strategic price and volume increases and the introduction of higher value products to its product portfolio.

Revenue grew by 35% YoY to Rs. 3.1 billion in the third quarter, taking the company’s nine month turnover to Rs. 9.1 billion, a growth of 36 per cent YoY. The key customers of TJL continued to maintain their long-standing relationships, and the company also succeeded in gradually widening its customer base in the period under review.

Although Gross Profit (GP) was broadly unchanged during the quarter at Rs. 367 million, TJL’s GP margins improved sharply to 11.9% in the third quarter, from 7.3% during the first half of the year (and just 5.9% in the preceding quarter). Consequently, Gross Profit for the nine months ended December 2011 totaled Rs. 816 million, reflecting a growth of 8% YoY.

“While continuing to focus on high capacity utilisation, the management is actively exploring options for both organic and inorganic growth, taking advantage of TJL’s strong balance sheet and competitive position,” TJL Chairman Ashroff Omar said in his review accompanying interim results.

“With a strong order book in place, Textured Jersey is confident of consolidating its topline during the final quarter of FY12, and a further improvement in GP margins is also expected. The management remains confident of delivering sustainable earnings growth that will translate to superior share price performance in the longer term,” he said.

“This is a noteworthy achievement in the context of the unprecedented volatility, particularly in the first two quarters of the year, in the prices of cotton, the company’s principal raw material,” Omar added.

According to the TJL Chief, cotton typically accounts for 60-65% of turnover. Cotton prices increased over 90% in 2010, and reached a record high of more than US$ 2.2 per lb in March 2011, before more than halving in the remainder of 2011, making cotton one of the worst performing commodities in 2011.

Throughout the past decade, cotton has never displayed such extreme volatility, and the unprecedented price swings posed challenges in both inventory management and price negotiation with savvy buyers. Cotton price volatility began easing in late 2011, enabling the company to partially recover its GP margins. We also benefited from productivity enhancements. As a result, GP margins in December 2011 were in fact better than those achieved in December 2010.

Continued adherence to tight cost control enabled TJL to contract SG&A overheads to 3.8% of sales during the nine months under review from 4.1% of sales during the same period of 2010/11. Operating profit, at Rs. 227 million in the third quarter, showed significant sequential improvement over the Rs. 81 million and Rs. 156 million reported in the two preceding quarters of the year. As a result of the strong third quarter performance, cumulative operating profit of Rs. 464 million for the nine months under review was only 3% lower YoY.

The finance cost of Rs. 40 million for the quarter was largely due to a one-off provision of Rs. 42.6 million in respect of an unexpected 3% currency devaluation in late 2011. Excluding this unrealised exchange loss, finance costs for the quarter were negligible, benefiting from the company’s strong balance sheet.

Net profit in the third quarter before provision for this exchange loss was Rs. 230 million, more than the cumulative net profit of Rs. 222mn recorded for the preceding six months. Cumulative net profit for the nine months, at Rs. 452 million before exchange losses, reflected a marginal drop of 2% over the corresponding period of the previous financial year, while cumulative net profit after exchange losses was down 11% YoY to Rs. 409 million for the nine months reviewed.

While continuing to focus on high capacity utilization, the management is actively exploring options for both organic and inorganic growth, taking advantage of TJL’s strong balance sheet and competitive position.

“With a strong order book in place, Textured Jersey is confident of consolidating its topline during the final quarter of FY12, and a further improvement in GP margins is also expected. The management remains confident of delivering sustainable earnings growth that will translate to superior share price performance in the longer term,” TJL Chairman Omar told shareholders.