That strategy is occurring alongside a considerably larger investment programme.
Hayleys spent approximately Rs 17.9 billion on property, plant and equipment during the quarter, more than four times the Rs 4.1 billion invested during the comparable period.
For international investors, that number may prove almost as significant as the 86% increase in quarterly profit.
It suggests Hayleys is not merely harvesting the benefits of Sri Lanka’s economic recovery but committing substantial capital to increasing productive capacity and positioning its businesses for another phase of growth.
There are, nevertheless, balance-sheet considerations.
Finance costs increased 94% to Rs 8.57 billion, although sharply higher finance income restricted the increase in net finance costs to 31%.
Hayleys carried approximately Rs 87.85 billion of non-current interest-bearing borrowings at June 30, alongside Rs 41.85 billion representing the current portion of long-term borrowing and Rs 175.33 billion of short-term interest-bearing borrowings.
The Group’s strong earnings growth therefore comes with a sizeable financing structure – something investors will continue monitoring as Sri Lanka’s interest-rate and credit environment evolves.
Cash generation also lagged accounting earnings during the quarter.
Net operating cash flow was negative Rs 441 million, compared with positive Rs 1.99 billion a year earlier, reflecting in part the working-capital requirements of a substantially larger business.
Inventories increased to Rs 127 billion from Rs 91.5 billion a year earlier, while trade and other receivables rose to Rs 214.4 billion from Rs 155.1 billion.
Those numbers warrant attention, but they also need to be read against the extraordinary expansion occurring elsewhere in the accounts.
Revenue increased by nearly Rs 49 billion in a single quarter compared with the previous year, while the Group simultaneously deployed almost Rs 18 billion into property, plant and equipment.
The central question for investors over the coming quarters will therefore be whether that investment produces a corresponding increase in cash generation and allows leverage to moderate relative to the enlarged earnings base.
There are already encouraging indications in the underlying numbers.
Operating profit increased considerably faster than revenue, suggesting improving operating leverage, while the removal of the loss-making Maldives operation could improve the quality of future earnings.
Continuing operations generated earnings of Rs 5.07 per share, compared with Rs 2.63 a year earlier, while discontinued operations reduced reported quarterly EPS by Rs 0.51.
That may ultimately provide a better indication of Hayleys’ underlying earnings trajectory than the reported Rs 4.56 quarterly EPS.
