Sri Lanka : Brandix Textile subsidiary sales decline

A continuation of the lean patch experienced by the customers of our subsidiary Brandix Textile, in the US and UK markets, has continued to adversely impact the performance of the company in 2nd quarter as well.
The revenue for the six months dropped by 11%, though in comparison to the 1st quarter the drop in revenue during the 2nd quarter has been a marginal 1%.
The main reason for this decline is due to the drop in prices and orders of key customers which resulted in a drop in average order sizes.
The adverse impact on revenue affected the gross profit and operating margins of the company which resulted in a decline in gross profit by 56% for the six month period, compared to the corresponding period of the previous year.
Although the company achieved a significant cost saving of over LKR 60mn through the coal power plant becoming operational, this could not be translated into higher profits due to the drop in turnover, which resulted in a drop in net profit for the year.
As pointed out in the last investor report, Company focused on capturing new customers, to off set the negative impact due to the lean patch experienced by our main customers.
This strategy resulted in a short term increase in Sales, marketing and sample costs during the year. The company recorded an operating loss of LKR 43.1mn for the past 6 months. The net loss recorded for the six months ended 30th September 2007 was Rs.75mn.
On the other hand the gearing has come down to 12.5% when compared to the last years 20% as a result of settling the term loans amounting to LKR 36mn during the 6 months period. This has also resulted in the finance costs declining by 36% causing less strain on the bottom line.

Company has not raised any term loans for the said period where it has operated mostly from the internally generated funds.
Although the company has seen a decline in inventories and trade receivables due to the decline in sales, it has been successful in paying back approximately over LKR 500mn in trade creditors.
The company reached two significant milestones during the year by being awarded fair trade as well as organic certification.
The contribution of these certifications to the company is immense resulting in added marketability. This would also enable us to use organic cotton in our production thereby capture market share of environmentally conscious customers as well.
In order to save on cost and to build relationship with the work force by gaining their confidence, the manufacturing plant has taken steps to implement the concept of Quality circles and to form internal process quality teams.
At the recently concluded Annual General Meeting, Company declared a final dividend of LKR 1 per share for the year ended 31st March 2007.
The company is confident in achieving better results during the next two quarters and reaching a positive bottom line for the year. Projected profits are LKR 100mn which would be supported by revenue of over LKR 5.5bn.