BPPL Holdings PLC (BPPL) announced today its unaudited financial results for the six month period Apr '21 to September '21.
Net earnings for the six month period were Rs226 million or Rs0.74 per share, up by a steady 16% compared to the Rs195 million recorded in the previous year. Growth was largely driven by a robust 46% increase in revenue. It must be noted that revenue in the Apr'20-June'20 period was curtailed by COVID-19 related factory closures and order cancelations whereas the period currently under review was not affected by such closures.
BPPL's gross profit margins, however, fell during the period to 30% from 34% for the following reasons:
1. COVID-19 related "lock downs" had a significant impact on our core timber and PET bottle raw material supplies forcing the Group to import large volumes of both items at higher prices. Timber and recycled PET usually account for 35-40% of the Group's raw material costs. Therefore, imports to fulfill robust order volumes significantly impacted profit margins.
2. High freight costs continued to curtail profit growth as a drop in container availability and a reduction in shipping lines serving Sri Lanka impacted costs. This also caused delays to both imports (of raw materials) and exports (of customer orders).
3. The Group's cash flows were also affected by these delays. There was a significant increase in "raw materials in transit" for the period (included in inventory) due to import delays. In addition, export shipments on several occasions required 2-3x the regular delivery times, especially to our North American customers.
4. Recent increases in commodity prices such as for petroleum based polypropylene, steel wire, natural fibers such as Palmyra also affected profit margins.
In order to reduce the impact on margins, BPPL has taken the following steps:
1. Product prices had to be increased. The impact of this will be seen during the Oct to Dec '21 period on a staggered basis with a full impact from Jan'22 onwards.
2. Local sourcing of both timber and PET bottles has recommenced following the lifting of travel restrictions which should improve profit margins in subsequent quarters. These vital raw materials are cheaper in Sri Lanka.
Demand remains very strong for BPPL's products. All our brush production lines are running at 72% of full capacity whilst both our brush filament and polyester yarn production lines continue to run near full capacity. In the reported period, brushes and related revenue grew 38% over the corresponding period in the previous year and brush filaments and polyester yarn sales grew by 109%.
The implementation of the second phase of our recycled polyester yarn expansion program is continuing. This second plant, with a capacity that's 20% more than the current plant, is on track to be operational by April '22. We are also evaluating options to install a third polyester yarn plant with the same capacity along with another brush filament extrusion plant, a new fully automated bottle washing line and more bottle collection infrastructure including more collection centers over the next few years. We will be able to provide updates on these initiatives in subsequent quarterly releases.
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