Intense Marketing efforts to offset the negative impacts from a shrinking market in the vehicles business propelled an 11.6% (34% - 2006/07) increase in the Gross Profit. The Gross Profit Margin increased from 16.5% to 18.9%.
The percentage increase/(decrease) in the segment result over the previous year is given below:
% increase/(decrease)
2007/08
2006/07
Vehicles
01
80
Vehicle Parts & Services
00
32
Lighting & Power Tools
19
16
Construction & Material
Handling Machinery
(16)
(13)
Diversified Activities
05
10
Distribution and Administrative Expenses
The Distribution and Administrative Expenses increased by 31% (2006/07 -
22% ). Containment of expenses were curtailed to an extent by the fixed nature of most of the Administrative Expenses and increase in price levels fuelled by the high rates of inflation.
Finance Expenses
Finance cost increased by 12% (2006/07 - 73%) to Rs. 521 mn (2006/07 - Rs. 464 mn) mainly as a result of the increase in interest rates. The statistics shows that the Company’s average interest rate has increased by 10% during the year. As a result of rising interest rates and reduced profits, the interest cover deteriorated from 2.1 times to 1.7 during the year under review.
Taxation
The income tax expense was Rs. 139 mn (2006/07 - Rs. 211 mn). The corporate income tax rate applicable to the Company was 35%. A social responsibility levy of 1% of the income tax payable was also applicable. The disallowable expenses relating to advertising and overseas travelling pushed the effective tax rate to 40% (2006/07 - 41%). The reconciliation between accounting profit and taxable income is available on page 116.
Earnings
Earnings before interest & tax (EBIT) for the year were Rs. 859 mn (2006/07 - Rs. 972 mn). This is a key performance indicator that is used to measure operational efficiency of a business unit without taking into consideration the volatility of interest rates.
The net profit after tax decreased by 32% in 2007/08 (2006/07 - increase of 14%).
Return on average capital employed and return on investment were 20% (19% in 2006/07) and 13% (22% in 2006/07) respectively.
Earnings Per Share (EPS) was Rs. 16.95 (2006/07 - Rs. 25.76) constituting a 34% decrease during the year. The compounded growth of EPS over five years was 18%.
Return on Equity (ROE)
It is noteworthy that Return on equity has grown steadily in the past from 6% in 2002/03 to 22% in 2006/07. However, the ROE in the year under review dipped to 13%. The main cause of the fall in the ROE was the reduction in the profit after tax the reasons for which were explained earlier in this review.
Dividends
The Directors have approved a final dividend of Rs. 2.50 (2006/07 - Rs. 3.00) per share, and this will bring the total dividend to Rs. 4.00 (2006/07 - Rs. 6.00) per share for the year under review. The dividend cover was 4.24 times (2006/07 - 4.16 times). The Company possesses the necessary funds in order to finance the funding requirement that will arise due to the final dividend and satisfies the solvency test requirements for payment of dividends as laid down in the Companies Act No. 7 of 2007.
