Saturday, April 1, 2023

Tokyo Cement 3Q revenues, profit tumble on construction sector slump

Tokyo Cement Company (Lanka) PLC reported downbeat performance for the December 2022 quarter (3Q23), reflecting the sharp downshift in the market for construction and related activities, after the economy collapsed firing runaway prices.

The top cement maker reported revenues of Rs.12.08 billion in the October-December 2022 period, down 12 percent from the same period in 2021. The third quarter of FY23 was marred by foreign currency shortages, price caps on cement and rising commodities prices around the world. The group’s top line performance also mirrored the country’s real estate and construction sector, which fell by the sharpest level recorded for a single quarter. While there has been a slight improvement in activity levels since then, the sector is expected to continue to contract at least through the first half of 2023. 

The group had to contend with sharply higher costs, both at import and manufacturing levels and overheads, resulting in an earnings before interest and tax of Rs.1.77 billion, down 16 percent over the same period in 2021
Its direct costs rose by 24 percent, twice the rate of its income while the selling and distribution expenses and administrative expenses surged 86 percent and 121 percent, respectively. 

Tokyo Cement is Sri Lanka’s largest locally owned cement manufacturer and the market leader in ready-mix concrete. 

The group’s capacity enhancement project started in November 2021 was put on hold in the final quarter of last financial year, due to the economic upheaval. However, Tokyo Cement said it recommenced operations in the ongoing financial year and the management has decided to fund the remainder of the project via internally generated funds. 

This may perhaps be due to the fast rising interest rates, which make the debt financing of the project less financially meaningful.  For instance, the group saw its finance cost for the quarter under review soaring 400 percent to Rs.644.8 million. Rs.115 million of this came from the exchange losses. 

A closer analysis of the balance sheet showed the group had made total net borrowings of Rs.4.62 billion in the nine months to December 2022. The short-term borrowings were at Rs.4.88 billion.  The group settled Rs.12.29 billion of payables to its suppliers and its cash balance fell by Rs.5.92 billion to Rs.434.29 million.  The inventory was increased by Rs.1.84 billion to Rs.7.30 billion. 
The group reported earnings of Rs.556.37 million for the December 2022 quarter or Rs.1.39 a share, compared to earnings of Rs.4.09 a share or Rs.1.64 billion a year ago. 

As at December 31, 2022, St. Anthony’s Consolidated (Pvt.) Ltd had a 27.5 percent stake in Tokyo Cement and South Asian Investment (Pvt.) Ltd held another 20.1 percent. Ube Singapore Holdings Pte. Ltd, the joint venture partner of the company, had a 10.0 percent stake.

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