No Adverse Comments
17.1 Profitability and Performance
The company has seen an increase in sales by Rs.13Bn despite drop in the year 2007 by Rs.,4Bn. This increase has mainly been due to the contribution from the property sector, in particular The Monarch, a project which is now completed and also the level of hike in tourist's activities. The year 2008 had been an exceptional year to the company as a result of the ICCAP Conferrence, Commonwealth Games Assembly, The tourist Cricket Teams and the Borah and Iranian Groups visited resulted in huge increase in the sales/revenue. During this year the Cinnamon Grand Hotel recorded the highest market share of 33%, achieved Rs.838 Million as room revenue, the highest revenue per room of Rs.4,604 and the highest yield premium of 127%, with the highest market penetration in the city at 116%. But as per the management accounts pertaining to 09 months ended 31st December 2008 again shows a fall in sales by 1.0Bn (annuallised). This is basically due to the war situation prevailing in the country recent past caused a major decline in tourist activities.
The company had seen its gross profit margin falls to a level of 44.3% from a previous year level of 48.8% . There had been a slight fall in the level of net profit to sales as well which was recorded at an year end level of 26.5% and for 09months ended 31-12-2008 was recorded 19.2% (annual 25.5%).
However the amount of profits earned for the financial year which ended in 2008 had increased to Rs.801Mn from a level of Rs.737Mn in 2007. The primary reason for this again was the hike in the level of Sales, compared to very slight increase in operating, selling & distribution expenses, which had resulted during the year. Sri Lanka witnessed an increase in tourists arrivals by an average level during 2008 which had its direct impact upon this.
The return on Capital Employed Recorded a slight decline to reach 9% in 2008 over a previous year level of 10%. This was affected by both increase in the debt interest (short term & long term) and income tax expenses.
Over the period the primary concern for the company was the drop in the level of tourists attraction in 2007, which affected the primary business of the company which is the Hotel Sector. The property development sector was in progress during when the previous financials were recorded and now one project the Monarch has already been completed. The Emperor which was launched in 2006 is expected to be completed within next couple of years. Also 70% of the 164 luxury apartments of this project had been reserved already.
17.2 Liquidity & Financial Security
The working capital of the company has grown strongly compared to the previous year, this was a rise
From Rs.479Mn in 2007 to a level of Rs.997Mn in 2008. The improvement in working capital also had a positive impact upon the current ratio which increased to a 1.84 in 2008 from a previous year level of 1.27.
The quick assets ratio too saw an increase during the 07/08 period from the previous year level of 0.54 and was finally recorded at 1.16. The primary reason for this being the heavy deposits (Short term investments) on Treasury Bills and Fixed & Call Deposits made during the year and release of stocks together with the fast movement of them during the year.
The interest cover however saw a slight decline during the year despite a very huge fall in the previous year. This although strong at 3.34 times for the period 07/08 was a decline from a previous year level of 4.87 times. The main reason for this being the reduction in the overdraft interest along with level of short term borrowings which reduced to a level of 76Mn during the year from a previous year level of Rs.484 Mn. The settlement of facilities taken up for the building projects of the company was a major contributing factor to this reduction in short term facilities.
17.3 Capital Structure
Authorized Capital - Ordinary
4,500.0 Mn
4,500.0 Mn
4,500.0 Mn
- Preference
500.0 Mn
500.0 Mn
500.0 Mn
Paid up Capital
2,213.8 Mn
2,213.8 Mn
2,213.8 Mn
The debt equity ratio has declined during the year 07/08, the settlement in the short term loans has resulted in this figure to be brought to a level of 0.11 from a previous year level of 0.22.
The net worth of the business continued to rise during the year and now has reached a level of Rs.10.9Bn.
The fixed assets of the company also shows an increase due to the acquisitions of Buildings, Plant and machinery & furniture fittings along with the revaluation surplus of Rs.1.88Bn on the Freehold land.
The long-term liabilities in terms of net worth have come down primary as result of the rise in the net worth. The tot al liabilities in terms of net worth has come down to a level of 0.21 from a previous year level of 0.34 and further to 0.18 in the 09 months ended 31-12-2009.
Client 2 - Another quoted company
Financial Analysis of the Company (LKR '000)
(Rs. '000)
2006
2007
2008
2009
09 months
FY
31-Mar
31-Mar
31-Mar
31-Mar
31-Dec
Aud
Aud
Aud
Aud
Mgt
Sales
10,096,026
12,449,644
12,169,146
8,666,943
5,933,052
Gross profit
1,448,777
1,956,233
2,169,206
2,077,905
1,412,732
Operating profit
620,502
936,152
819,030
662,465
382,240
Profit before tax
344,316
475,634
327,978
107,879
141,789
Profit after tax
239,200
282,028
194,669
61,121
79,952
Non Current Assets
752,851
948,535
1,388,791
2,173,018
2,120,591
Current Assets
3,641,489
3,991,230
4,185,933
2,799,945
2,887,389
Total Assets
4,394,340
4,939,765
5,574,724
4,972,963
5,007,980
Current Liabilities
2,800,065
3,098,161
3,355,177
2,317,376
2,416,734
Non Current Liabilities
490,193
466,794
704,518
821,784
703,598
Total Equity
1,104,082
1,374,810
1,515,029
1,833,803
1,887,648
Total Equity plus Liabilities
4,394,340
4,939,765
5,574,724
4,972,963
5,007,980
Profitability
Sales Growth
44.2%
64.6%
15.8%
-28.8%
-8.7%
Gross profit/Sales
14.5%
15.9%
18.0%
24.2%
24.1%
Operating profit/ Sales
6.1%
7.5%
6.7%
7.6%
6.4%
PBT / Sales (%)
3.4%
3.9%
2.7%
1.3%
2.4%
Net profit / Sales (%)
2.4%
2.3%
1.6%
0.7%
1.4%
Leverage
Tot Liab: Net Worth
2.98
2.59
2.68
1.71
1.65
Tot Debt Finance: Net Worth
2.39
1.91
1.69
1.32
1.09
LT Liab:Net Worth
0.44
0.34
0.47
0.45
0.37
Liquidity
Current Ratio (Times)
1.30
1.29
1.25
1.21
1.19
Auditors
KPMG, Ford Rhodes, Thornton & Co
19.1 Profitability and Performance
The turnover dropped from LKR 12Bn in FY 2007/08 to LKR 8.5Bn in FY 2008/09. Vehicle segment is the main contributor of the Company's turnover which caused the decrease in sales, due to decline in demand as result of economic conditions that prevailed. Considering the cumulative sales for nine months up to 31-Dec-09, a further decrease of 8.7% was recorded (on the annualized sales figure).
DIMO has reportedly reviewed the business models in order to maximise the value addition components of the Company's offerings. Accordingly strong efforts have been made to improve profitability which is evidently reflected in the increase in Gross Profit margin from 18% in FY 2007/08 to 24.2% in FY 2008/09, despite the drop in turnover. Net profit margin has shown a drop from 1.6% in FY 2007/08 to 0.7% in FY 2008/09; however this has improved to 1.4% for the nine months up to 31-Dec-09.
Both Administration and Selling & distribution costs together have grown steadily over the periods. However the Selling & Distribution Cost has shown a slight drop, since the Company has managed to control by implementing new culture of cost consciousness.
2006 2007 2008 2009
Administration (LKR) 657M 801M 1,035M 1,143M
Selling & Distribution (LKR) 170M 219M 314M 272M
Total 827M 1,020M 1,349M 1,415M
The company has generated LKR 68M from other income, which were mainly from gains on disposal of property, plan & equipments and hiring income.
The net finance cost has increased from LKR 469M in FY 2007/08 to LKR 547M in FY 2008/09. The breakdown of the finance income and finance cost is given below:
2007/08 2008/09
Finance Income
Dividend Income 1,913 1,713
Interest income 354 1,017
Gain on translation of foreign currency - 1,372
Total 2,267 4,102
Finance Costs
Interest on long-term borrowings 67,915 124,182
Interest on short-term borrowings 392,938 424,424
Interest on finance lease 3,073 2,523
Loss on translation of foreign currency 8,240 -
Total 472,166 551,129
Net Finance Cost 469,899 547,027
High interest rates and increased utilization of the overdraft and short term loans have led to the increase in finance costs. The finance cost has affected the Net profit, hence the company profits before tax for the FY 2008/09 was LKR 107M compared to LKR 328M of the previous year. The interest cover has deteriorated from 1.86 times in FY 2007/08 to 1.36 times in FY 2008/09.
As a consequence of the drop in Net Profit, the return on equity has also decreased from 9% in FY 2008/09 to 3% in FY 2007/08. However the ratio has stabilized at 3% for the nine months' period up to 31-Dec-2009. Despite the drop in Net profit, the Directors have approved dividend of LKR 30M which had been paid during the FY 2008/09. The client has paid an interim dividend of LKR26M for the nine months up to 31-Dec-09 and is reportedly planning to propose a final dividend, for which the Company possesses the necessary funds.
19.2 Liquidity and Cash Flows
At the close of the financial year as at 31.12.09, total current assets amounted to LKR 2,887M, of which 78% and 41% respectively is represented by Trade debtors (LKR 1,445M) and Inventory (LKR 1,185M).
The total current liabilities as at 31.12.09 was LKR2,417M, of which 63% and 28% respectively are represented through Short-term Loans (LKR 1,522M) and Trade payables (LKR686M).
Given the high interest rates in the market, group companies manage their own funding requirements as such the related party transactions are minimal.
19.3 Working Capital Management
The working capital has shown a drop from LKR 830.7M as at 31.03.08 to LKR 482.7M as at 31.03.09, and to LKR 470.6M as at 31.12.09. The key area of focus had been decrease in inventory by 41% from 31-Mar-08 to 31-Mar-09 and maintained at LKR 1.185Mn as at 31.12.09. The current and quick asset ratios as at 31.12.09 were 1.19 and 0.69 respectively, which are similar levels compared to the past record.
The company follows the practice of holding approx 2 - 3 months stock with them. Sales proceeds are collected from dealers within maximum of 30 days; however considering some of the high-end customers the credit period is extended upto 60 days. The standard Creditors' period for some of the products are at 60 days.
19.4 Capital structure
The Company operates with Fixed Asset base of LKR 2Bn, of which 89% are Land & Building and the balance consists of Plant & Machinery, Motor Vehicles, Fixtures, Fittings and Computer Hardware & software. The stated capital remains at LKR 182.5Bn as at 31.12.09. The net-worth has improved with continuous growth indicating LKR 2.406Bn as at 31.03.2009 and LKR 2.46Bn as at 31.12.2009. This favourable position is due to increase in revaluation reserve and accumulated profits, which are recorded at LKR 1.135Bn and LKR 1.142Bn as at 31.12.09 respectively.
The company financials as at 31.12.09 indicates long term borrowings of LKR 532Mn. Of this LKR 350Mn is the remaining amount of Long-Term Loan taken to purchase the shares formerly held by Hayleys PLC. However the Company is low geared with gearing ratio being below 0.5 times.
