COVID-19 : Lanka Aluminium expects 40% market drop – Adaderana Biz English

Sri Lanka’s market for aluminium extrusions is expected to reduce by approximately 40%, owing to the hit on the property sector from the COVID-19 pandemic, Lanka Aluminium Industries Plc said.

“We estimate the market size for aluminium extrusions to reduce by approximately 40% and remain so until a permanent solution for the coronavirus is found,†Dinal Peiris, Managing Director of the Lanka Aluminium Group said in a disclosure to the Colombo stock Exchange.

“We are expecting this drastic reduction in demand after discussions with our customers, especially house and apartment builders who will demand for housing products to reduce with the downturn in the economy,†he added.

Lanka Aluminium closed its factory after curfews were imposed on March 19, and since then the sales slowed down. The company reported that there were, in fact, no sales in April and May.

“As you are aware, the company's main product line is the manufacture of aluminium extrusions which are used primarily by the construction industry which too was closed with little or no activity in most of the construction/building sites in the country. Majority of the larger construction sites which are located within the Western Province were allowed to start operations from the 11th of May 2020, with restrictions, but has yet not fully returned to normalcy. Some of our dealers located island wide has opened for business, but reports a reduction in demand and sales,†he stressed.

In March 2020 quarter, the firm had posted revenues of Rs.397 million (unaudited), down from Rs. 463 million  a year earlier.

“The 11 days production and sales lost during March 2020, will no doubt, have a negative impact on the company's profits for the year ended 31 March 2020. Impact of the coronavirus and the subsequent steps taken to contain the spread of the virus, such as the curfew, social distancing, etc., has totally shut down the construction industry in the country. This, in turn, will reduce the demand and sales for our products quite substantially during the 1st quarter of 2020/2021 resulting a significant reduction in profitability compared to the previous year,” he said

“This will also have a negative impact on the cashflow of the company as many customers have delayed their payments,†he added.

To mitigate the losses caused by the pandemic, Lanka Aluminium constantly strived to lower the fixed costs. It also negotiated with banks and lending institutions to restructure short term loans and other payments, which fell due in April.

“ We, unfortunately, are not eligible for any of the concessions offered by the government, since we are not coming under the SME sector,†he said.

In April, the firm had negotiated and obtained reductions to some of their overhead expenses.

“The directors and senior management consented to a reduction of salaries and the workforce also consented for a reduction in wages which was kept to a bare minimum,†he said.

Currently, the firm is planning to operate their plant and machinery in such a manner to reduce costs, increase efficiencies in spite of carrying out small runs to meet the reduced demand for their products.

“Our intention is to reduce inventories, settle bank dues and ultimately to reduce interest cost. We plan to improve our cash flow by concentrating on cash sales as well as obtaining more favourable terms from creditors,” he said.

Further,”We plan to continue our search for export markets, which may take time to materialize,” he added.