Tokyo Cement Group (Tokyo Cement) reported its results for the second quarter ended September 30, 2021, with a turnover of Rs. 11,885 mn reflecting a year-on-year growth of 4%, compared to Rs. 11,413 mn during the same period last year. Overall, Tokyo Cement’s sales volumes have reduced by 3% compared to the second quarter last year, due to the shortages and delays in the supply chain of raw materials.
The Group recorded Rs. 173 mn profit before tax for the second quarter against Rs. 2,277 mn for the corresponding period last year, while recording a profit after tax of Rs. 132 mn as against Rs. 2,104 mn during the corresponding period last year.
This sharp decline in profitability was a result of increasing raw material price, currency depreciation and exploding freight costs that significantly increased the cost of production. All other overhead costs increased throughout the financial year further impacting the bottom line.
Even though Tokyo Cement was operating at maximum capacity, a shortage in cement supply was experienced in the market during this period. The Maximum Retail Price imposed on cement prevented free market forces from freely adjusting to keep up with the volatility of macroeconomic conditions. These matters and other outlining reasons were brought to the attention of the Consumer Affairs Authority. The cost of clinker continued to increase in line with coal prices, as demand outstripped supply. The value of the Sri Lankan rupee depreciated when compared to the same period last year, compounding upon sharp price hikes of imported raw materials including clinker and paper for bags. Due to heightened fiscal barriers,cement importers drastically cut down or completely halted importation thus resulting in a market shortage. To compensate for the market gap,Tokyo Cement increased efficiencies to maximise the installed local production capacity to fulfill the demand.
Continuous increases in global coal and oil prices, in addition to freight costs are expected to escalate the cost of raw materials further.Tokyo Cement expects the delays experienced in importing raw materials to ease out with the slow yet steady expansion of the local economy and is confident of maintaining local production levels at the highest possible capacities to ensure an uninterrupted supply.
To avoid a shortage in the market, Tokyo Cement plans to supplement local production with the import of finished cement until additional local production capacity comes online. On that note, encouraging local manufacturers to maximize existing installed production capacity, thereby reducing a dependency on imports, will contribute significantly to reduce unnecessary outflow of foreign exchange.
The company will be laying the foundation for factory expansion soon to increase manufacturing capacity by one million metric tons by early 2023. The expansion of the Tokyo Cement Colombo Terminal slated to be operational in the upcoming quarter, will increase the Company’s bulk importation, packaging, and distribution capacity to over one million metric tons.