Teejay Lanka Successfully Navigates Global and Domestic Economic Challenges

Pubudu de Silva, Chief Executive of Teejay Lanka Plc, shares insights into the listed fabric maker’s impressive financial performance in the second quarter (end-September 2023). In the previous June quarter, Teejay reported approximately $45 million in revenue, marking a significant 70% improvement compared to previous quarters, underscoring its growth potential. Moving into the second quarter, Teejay continued this positive trend, achieving a revenue of $49 million and witnessing substantial enhancements in its bottom-line performance, de Silva says.

According to de Silva, the improved bottom line is attributed to several factors. Firstly, Teejay experienced a modest increase in order volume, contributing an additional $5 million in revenue. Furthermore, the company implemented cost-saving initiatives, including reductions in overheads, raw material costs, and energy expenses. Its efforts in inventory management also bore fruit, significantly reducing inventory levels across the group, and playing a pivotal role in improved second-quarter performance, allowing Teejay to maximize its results. In this interview, de Silva shares insights into this turnaround and prospects for growth.

Can you tell us how Teejay engineered a revenue turnaround amid a challenging period characterized by a downturn in the major markets for Sri Lankan ready-made clothing?

Several noteworthy aspects stand out. Firstly, our dedicated focus on acquiring new customers is a rewarding endeavour and remains a successful strategic pursuit.

Secondly, our proactive investments in enhancing our product lines and diversifying our offerings have played a pivotal role in our strategy. A particularly noteworthy transformation occurred when we shifted towards synthetic products in 2013-2014. While initial progress was slower than expected, recent years have seen remarkable advancements. Currently, approximately 10% of our product range comprises new synthetic offerings, significantly contributing to our top-line revenue.

These investments not only expand our product portfolio but also strengthen our partnerships with vendors and customers. Furthermore, we’ve responded to the growing market demand for sustainable products by introducing various sustainable product lines, positively impacting our business.

In terms of market dynamics, we’ve encountered challenges, particularly in the US market, marked by high interest rates and prolonged difficulties. However, the European market holds promise. Our strategic diversification, with roughly 50% of operations in both the US and the EU, has allowed us to expand our EU market share and foster stronger relationships with customers.

Additionally, we’ve observed a trend where customers prioritize localization, necessitating proximity between raw materials and production centres—a strategy known as “China plus One.” This has led to a redistribution of volumes from China to countries like Vietnam, Bangladesh, and India. Fortunately, our presence in these regions, coupled with a substantial customer base in China, positions us favourably to benefit from this shift.

What does innovation mean that leads your customers to demand your products?

Our focus is on creating unique and innovative products and to make these advancements possible, we’ve made substantial investments in research and development (R&D). Additionally, we’ve enlisted the expertise of top-level consultants who provide us with valuable technical know-how. The journey of fabric manufacturing has evolved from its origins in the Western world to Sri Lanka and is now expanding into regions like Africa. By leveraging technical knowledge and expertise from various parts of the world, we continuously enhance and diversify our product portfolio to stay ahead in the industry.

You said your Sri Lankan plants are running at capacity, whereas you have some idle capacity in India. How will this play out?

Our current trajectory is set for substantial near-term growth, driven by strategic focuses on product innovation, customer base expansion, and digital transformation. These strategies are expected to lead to robust capacity utilization and a growing order book.

A noteworthy recent achievement is the successful launch of our business operations in Bangladesh, where we’re already seeing positive results. To put it in perspective, while Sri Lanka’s annual revenues total approximately $5-6 billion, Bangladesh boasts a significantly larger market, with annual revenues ranging from $45-50 billion.

Our efficient logistics enable fabric delivery from India to Bangladesh in just seven to nine days. Consequently, we anticipate reaching a milestone of half a million to one million within the current financial year, with ongoing expansion plans. We’ve already onboarded several customers in Bangladesh, and our efforts to expand in the region are well underway.

You also talked about the third aspect of optimizing operations to suit the current conditions. Can you tell us how you manage that? 

It’s all about our mindset and approach. We start by forecasting demand and then carefully plan to optimize our capacity to meet that demand effectively. This approach not only ensures that we align our production with actual requirements but also allows us to reduce our utility cost per kilogram of production, a critical aspect of our cost management efforts. In addition to this, we have initiatives in place to reduce overhead costs, including manufacturing expenses and other operational expenses.

About improving the competitive advantage for Teejay Lanka, what do you think you have to get right in the next five years?

In our industry, success hinges on comprehensive excellence. When engaging with customers, whether through visits or orders, our unwavering commitment to exceptional service stands as our foundation.

We prioritize key factors, including on-time delivery, steadfast quality, and tailored services to meet customer needs. Compliance standards, particularly Sri Lanka’s stringent requirements, are integral to our operations, reflecting our view on sustainability as a fundamental aspect of our organizational DNA.

To elevate our operations, we’ve initiated four transformation projects: product and customer transformation, digitization, operational excellence, and an Environmental, Social, and Governance (ESG) framework. Aligned with our values and responsibilities as a public-quoted company, these initiatives meet stakeholder expectations. This framework not only establishes a unique market presence but also ensures high customer satisfaction.