High energy, raw material and packaging costs caused a June quarter loss of LKR 120 million (USD 1.1 million) at Sri Lanka“s Ceylon Glass Company compared with an LKR 44 million profit a year ago.
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High energy, raw material and packaging costs caused a June quarter loss of LKR 120 million (USD 1.1 million) at Sri Lanka“s Ceylon Glass Company compared with an LKR 44 million profit a year ago. The company, a unit of India“s Gujarat Glass, said in a statement that sales rose 44% to LKR 679 million in the 1Q of the 2008/2009 financial year from LKR 469 million a year ago. The statement quoted Ceylon Glass chief executive Sanjay Tiwari as saying that management is confident that strong local and export sales growth as well as plans to raise prices to cover part of the increased costs should help the firm turnaround. “The major reasons contributing to the loss are energy cost, soda ash prices and other domestic raw material and packing material prices”, the statement said. The cost of energy, consisting of furnace oil, liquefied petroleum gas (LPG) and electricity, amounts to almost 40% of the cost of production. “Thus, the steep increase in the tariff of any of (these) sources of fuel directly impacts the performance of the company”, the statement said. Furnace oil prices jumped by 70%, LPG by 74% and electricity by over 30% in the 1Q of the current financial year compared to the year-ago quarter. Most of the raw materials are found locally in the central province but transport costs rose because of higher diesel prices. “The international price of soda ash, an imported raw material alone has gone up by 55% till the 1Q of the current financial year”, the statement said. The firm“s interest cost and depreciation has also risen substantially on the previous year with its investment of LKR 3.7 billion in its new factory at Horana, south of Colombo. But this investment should yield gains in future as it has more than doubled production capacity, giving the company sufficient capacity to meet local market demand as well as to pursue “lucrative” exports market, the statement said. In terms of exports, the company will be focusing on specialty food and beverage bottles i.e. short run food and beverage bottles with colouring or decoration for value addition. The company is in a unique position in the Asian market exporting boutique wine and specialty liquor bottles for leading brands in India. It is in the process of developing several such products for markets like the UK, Australia, South Africa and USA. Export sales grew 229% in the period under review. Exports also now make up 16% of the total turnover as against the 7% in the same period the previous year. Domestic sales grew 31% in the period. “The management is positive about the future of the company”, the statement said. “The initial loss situation is a temporary phenomena in the glass industry or industries with such a high capital expenditure as apart from the initial gestation period”. The statement also said the company is in the process of “unlocking the value / commercial exploitation” of the recently vacated 8.5 hectares of land at its former plant site in Ratmalana, a Colombo suburb.