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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Ceylon Leather company profit up but group profit down

Ceylon Leather company profit up but group profit down

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Director - Equity Analytics
Director - Equity Analytics

Says reduced duty on imported shoes will hurt local industry

Ceylon Leather Products PLC (CLP), with a history going back to 1939 when the British colonial government set up a facility to manufacture footwear for the British forces, has boosted profit after-tax 33% to Rs.137.2 million on the back of 26% turnover growth to Rs.1.5 billion during the year ended March 31, 2012 but seen the group profit down 59% to Rs.43.8 million although turnover was up 278% to Rs.4.6 billion.

The company which is a member of the Environment Resources Investments (ERI) Group in addition to it well known DI brand owns 60% of Palla & Company, a ladies footwear manufacturing company located in the Katunayake Export Processing Zone acquired during the year under review and 51% of South Asia Textile Industries Lanka (Pvt) Ltd along with 8% of Dankotuwa Porcelain and 100% of Ceylon Leather Products Distributors (Pvt) Ltd.

CLP Chairman Lalith Heengama has told shareholders in the annual report that the reduction of duty on imported shoes through last year’s budget has had a detrimental effect on the local shoe industry particularly affecting local manufacturers of high-end shoes.

He had indicated in the previous year’s annual report that the company had turned around and increased profits by growing turnover, optimizing capacity utilization, reducing costs, modernizing the manufacturing process and maintaining industrial peace.

This trend continued during the year under review as well resulting in better after-tax profits at company level.

Their acquisition of control of the Katunayake EPZ company had enabled CLP to obtain the services of foreign consultants and designers working for Palla to upgrade DI products as well.

"In addition, Palla’s marketing network can be made use of to promote DI products internationally in the future," Heengama said.

He expected the government’s decision to introduce innovative designs through the National Design Centre to facilitate the shoe industry to cut down cost of production and use state-of-the-art technology in their production process.

"These will supplement the in-house design capabilities augmented by Palla expertise in the field which will enable us to grow successfully both at the local and international markets," he said expressing his Board’s confidence of future growth.

CLP MD/CEO, Sitendra Senaratne said that they had continued modernizing their tannery with new equipment and this process would continue enabling the production of high quality leather keeping to international standards.

The shoe factory had continued to grow turnover, up to Rs.1.39 billion from the previous year’s Rs.1.12 billion. A total of Rs.54.6 million had been invested in plant and machinery mostly on a new production line giving the factory the capability to produce light weight high quality domestic footwear in volume enabling a product that can compete with imports.

He said that they had invested Rs.453.7 million in acquiring 60% of Palla & Company whose profitability had been hampered due to the current adverse economic situation in Europe. However this company had posted a net profit of Rs.3.2 million during the period under review and they were looking at new regional markets as an alternative to the EU and the US.

South Asia Textile Industries has substantially reduced losses during the year under review posting a loss of Rs.118.4 million against the previous year’s loss of Rs.750.7 million.

Following the acquisition of this company, the marketing strategy has been changed giving preference to domestic export oriented industries instead of direct exports.

Dankotuwa Porcelain’s marketing activity had been hampered due to the crises in Europe and the USA and the management of this company, under ERI guidance, is adopting new strategies to find new markets and implement productivity improvements.

CLP has a stated capital of Rs.1.98 billion, a revaluation reserve of Rs.673.1 million and retained earnings (group) of Rs.288.2 million in its books. At company level the revaluation reserve was Rs.668 million and retained earnings Rs.342.6 million.

Total group assets ran at Rs.2.54 billion and liabilities at Rs.2.15 billion. The company’s total assets stood at Rs.3.27 billion and liabilities at Rs.281.8 million.

ERI with 86.09% is the dominant shareholder of the company followed by Dr. Kasim Nader (3.40%). All other individual shareholders own below one percent.

The company’s share with a net asset value of Rs.85.90, down from Rs.87.33 the previous year, traded at a high of Rs.114 and a low of Rs.85.80. This compared to a trading range of Rs.130 to Rs.88.50 the previous year.

The directors of the company are: Mr. Lalith Heengama (Chairman), Mr. Sitendra Seneratne (MD/CEO), Dr. Kosala Heengama, Mr. Gregory S. Newsome, Mr. Kapila Dodamgoda, Mr. H.B. Dissanayake and Mr. Gamini S. Munasinghe.

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