Richard Pieris and Co results affected by economic downturn

The Annual Report of Richard Pieris and Company PLC, for the year ended March 31, 2009, was released recently. The Group’s turnover increased marginally by 3 percent to Rs. 20.8 billion whilst the Group’s operating profits declined by 34 percent to Rs 1.35 billion when compared to the previous year.

Finance cost of Rs. 1.4 billion in the year under review resulted in a marginal loss before tax of Rs. 9 million from continuing operations compared to the profit of Rs. 324 million achieved during the last year.

The Group continued with its strategy of existing from businesses with low profitability and concentrating on its core business. The Group closed down a few businesses including the travel business and PVC pipe operation. Losses of Rs. 116 million from discontinued operations increased the Group’s loss to Rs. 305 million. The Chairman’s statement stated that, “the Company completed a difficult year, being affected adversely by the macro-economic environment. The increase in the price of raw materials and energy in the first half of the financial year affected the manufacturing sectors while the decrease in commodity prices and the global financial crisis in the second half of the year had a negative impact on the plantation sector and group as a whole. High interest rates and inflation continued to have an adverse impact on profitability.” The Report also stated that the arbitrary imposition of taxes including the Nation Building Tax and the Cess on imported raw material, along with the value of the Sri Lankan rupee, affected the industries catering to domestic and international markets.

The Retail Sector of the Richard Pieris Group completed another successful year, recording a good growth despite the economic downturn and drop in consumer spending during the second half of the year. Sales grew to Rs. 8.8 million, an increase of 8 percent from last year, with the main contributor being Fast Moving Consumer Goods, while the operating profits grew by 13 per cent to Rs. 473 million during the year. The Plantation Sector, comprising Maskeliya Plantation, Kegalle Plantation and Namunukula Plantation which is reputed for its diversified range of crops, achieved acceptable results, even though the low global prices of commodities, rising fertilizer prices, cost of energy and high inflation impacted adversely on the Sector. The sharp decline in commodity prices witnessed in September 2008 had a serious impact on profitability and the Sector’s operating profit showed a decrease of 53 percent from Rs. 1,182 million to Rs. 555 million.

The Tyre Sector had a successful year with a significant growth in both turnover and profitability. The turnover increased by 13 percent while operating profit increased by 50 percent despite the major fluctuations of the raw material prices. The Report states that the business maintained its competitiveness by frequent price revisions in response to changes in raw material prices.

The Plastic Sector faced a challenging year with high prices of petroleum-based raw material in the first half of the year and adverse economic conditions that prevailed in the second half of the year. Turnover increased marginally while profitability decreased by 27 per cent.

The Rubber Export Sector too witnessed a steep increase in the prices of raw materials during the first half of the year, due to increases in the price of natural rubber and petroleum-based raw materials. Sales orders were low, as markets, especially the USA, were affected by the global economic crisis. The Group’s export turnover amounted to Rs. 1.78 billion, which was 2 percent lower than last year and operating losses reduced to Rs. 133 million from Rs. 222 million in the previous year.

As stated by the Chairman, in the upcoming year, the Plantation Sector will continue to invest in replanting and upgrading manufacturing processes. The increased use of solid fuel should result in lower energy costs. The high cost of fertilizer and the wage structure, which is not tied to productivity, pose major challenges in this sector. However, the revival of prices in the first Quarter of 2009/10 and the expected consolidation of tea prices will favourably contribute to the performance of Plantations.

The outlook for the Retail Sector remains positive.