- Plans for expansion via Rs.1.2 billion IPO after
- In FY 2011 revenue up 15% to $ 83.2 m and a net profit after tax up 23% $ 6.1m
- Apparel sector bullish Chief Ashroff Omar says companies must grow to become regional players
By Uditha Jayasinghe
The Rs.1.2 billion Initial Public Offering (IPO) of Textured Jersey (TJ) is to tap into the “tremendous” growth expected for Sri Lanka apparel said a top industry expert yesterday insisting that the country’s target of US$ 5 billion revenue by 2015 will be reached earlier if current growth rates are preserved.
Chairman Ashroff Omar who is also Brandix CEO told the media at the launch of the Rs.1.2 billion IPO by Textured Jersey Lanka that Sri Lanka’s apparel industry has all the ingredients to become a strong regional player. Making a presentation he pointed out that the industry has proved to be resilient even beyond the last decade and has managed to grow despite many challenges. In fact the industry is expected to grow at 50% for the next five years.
During the IPO Textured Jersey is issuing 12.21% stake which will comprise of 80 million shares at a price of Rs.15 per share. Of the Rs.1.2 billion IPO, Rs. 344 million is expected to be used to expand production facilities, Rs. 1 billion for equipment and Rs.82 million for a water treatment plant. Textured Jersey recorded revenue of US$83.2 million and a net profit of US$ 6.1 million. This is a 15% and 23% year on year increase respectively.
The company is currently majority owned by Pacific Textiles, which owns 45.6% of the company with 34.3% being held by Brandix Lanka and the balance 20.1% being held by 47 other shareholders. Post listing it is expected that 29.9% of Textured Jersey will be held with the public. A private placement was made in May 2011 at a transaction of Rs.2.9 billion. Subsequent to the IPO, Pacific Textiles and Brandix Lanka will collectively hold 70.08% of the total issued shares of the company.
“From the 1983 riots to the tsunami and then the financial tsunami due to the global financial crisis, the phasing out of the quota system and the loss of GSP+. These are all trials that the industry has faced. However, except for 2001 when Sri Lanka’s airport was attacked by the LTTE and 2009 when the world faced a financial crisis we have always managed to record growth. In addition we have seen the market for knit fabric growing steadily and that is good news for Textured Jersey,” he said.
He stated that US$ 270 million worth of knit fabric imports were made in Sri Lanka last year, showing the immense growth potential. Textured Jersey is one of the largest knit fabric mills in the local industry and Omar insisted that larger factories were needed if Sri Lanka is to emerge as a regional player. Last year US$17.8 billion knitted apparel was manufactured in the region showing the growth potential.
Pacific Textiles CEO Bill Lam, who is also a Director at Textured Jersey said that the listing would enable Textured Jersey to take advantage of potential inorganic growth opportunities in knit fabric in both Sri Lanka and the South Asian region in the medium term. “Volatility in cotton prices and regional currency appreciation are industry-wide headwinds, but we believe these challenges will facilitate industry consolidation in the longer term, and stronger players will continue to gain market share,” he added.
Textured Jersey is one of Sri Lanka’s most sophisticated production facilities, manufacturing knitted fabrics for the intimate apparel and sportswear industries. Specialising in the manufacture of high quality, weft-knitted and dyed stretch fabrics, Textured Jersey is a major supplier to apparel manufacturers throughout Asia and end-chain retailers. Amongst its largest clients are Victoria’s Secret, Marks & Spencer and Intimissimi. Infrastructure at the 650,000 sq. ft facility in Avissawella enables a capacity to knit, dye and finish up to 2.5 million meters of fabric a month. Despite facing challenges in the form of rising cotton prices, high energy costs and loss of tariff concessions, Textured Jersey has delivered strong financial results during the past five years.
The Company has a strong financial track record, with five year revenue and net profit CAGRs of 25% and 21% respectively, during a period of multiple challenges for the apparel industry.
In order to both motivate and retain talent, as well as align employee interests with long term shareholder interests, Textured Jersey has offered an ESOP to the senior management personnel of the Company, amounting to 1% of the issued stated capital as at 26 March 2011. The ESOP will be in the form of options with an exercise price of Rs 15 per share, and the earliest exercise date forthe options will be 31 May 2013.Textured Jersey is being advised by investment bankers CT Capital (Pvt) Ltd and Acuity Partners (Private) Limited, who will also act as managers to the capital raising and listing exercise.
The Hong Kong listed Pacific Textiles is a leading manufacturer of customized knitted fabric in the global textile industry, with a focus on complex, value-added fabrics. It has one of the largest textile manufacturing facilities in China, and provides integrated services of knitting, dyeing, printing and finishing.Despite cotton prices more than doubling, Pacific Textiles reported 22% YoY growth in revenue to HK$ 7,181 mn (USD921 mn) and 9% YoY growth in net profit to HK$ 876 mn (USD112 mn) during the year ended 31st March 2011. Pacific Textiles was invited to invest in Textured Jersey in 2004, and has been instrumental in transferring industry best practices and technical expertise, with full time seconded personnel being based at Textured Jersey and proactively involved in raising benchmarks of excellence.
Brandix Lanka has been accredited as Sri Lanka’s single largest apparel exporter. Having pioneered the concept of ‘total solutions’ in Sri Lanka’s apparel sector, Brandix is a preferred solutions provider to some of the world’s leading apparel brands, including Victoria’s Secret, PINK, Gap, Banana Republic, Marks & Spencer, Lands’ End, Tommy Hilfiger, Hanes, Express, H&M, Intimissimi and Tesco. The Brandix Group is supported by 32 manufacturing locations island-wide, in addition to other facilities in the South Asian region, and strategically located international sourcing offices. Brandix directly employs over 30,000 associates in Sri Lanka.
With the backing of these two strong shareholders, the listing would enable the Company to take advantage of potential growth opportunities in both Sri Lanka and the South Asian region, and also provide a separate independent platform to raise funds from capital markets to support its future growth aspirations. The Company remains confident in mitigating the challenge posed by the recent volatility in cotton prices, given its ability to pass on these industry generic costs, and with commodity prices also having recently declined.
The Company expects to expand its current Sri Lankan business operations to a USD 150 million
turnover capacity from its current capacity of USD 83 million. In order to achieve this, the Company is
expecting to construct a modern production facility built according to internationally accepted quality
standards. It is also expecting to purchase state of the art machinery to enable the Company to better
achieve these targets through increased efficiency. TJL also expects to explore expansion opportunities
in the South Asian sub continent region in the long term.
However, it is of importance to note that the above mentioned future plans will only hold provided
the following factors: current market demand prevails or continues to improve, the Company is able to
successfully procure necessary water supplies, the price volatility in plant and machinery and building
materials remains to be minimum etc.
Amitha, Prof. Malik join Textured Jersey Board
In order to further facilitate independent judgment in Board decisions, the Textured Jersey Board of Directors was recently strengthened by the addition of two highly respected independent directors, Amitha Gooneratne, the MD of Commercial Bank of Ceylon PLC, and Prof. Malik Ranasinghe, the Vice-Chancellor of the University of Moratuwa. Both were present at the IPO briefing yesterday.
The Board of Directors of Textured Jersey comprises Ashroff Omar (Chairman and Non-Executive Director), Wing Tak Bill Lam (Non-Executive Director), Dr. King Man Clement Lam Non-Executive Director Kam Chuen Mau (Executive Director), Dave Ranasinghe (Non-Executive Director), Amitha Gooneratne (Independent Non-Executive Director) and Prof. Malik Ranasinghe (Independent Non-Executive Director).