Cost of Sales
Cost of sales increased by 14% over last year and this was mainly due to higher production volumes and inflation. However, the Company was able to derive benefit from economies of scale (highest ever production) and various cost control initiatives in its supply chain. As a result, increase in cost per unit was contained at 6% over last year, which is well below inflation.
Operating and Other Costs
Despite inflationary pressures and increased volumes, the Company continued its focus on investment in its brands and people. A number of initiatives were undertaken in marketing, but effective campaigns coupled with adoption of global best practices kept marketing costs at the same spend level as in 2006. The Company considers talent a key factor in driving its growth. In pursuance of its commitment towards attracting and retaining high quality talent, the Company maintained a competitive remuneration package.
Moreover, the employees further benefited from the performance bonuses, a result of the outstanding Company performance in 2007. These factors were the major drivers of the increase in the administrative expenses by 15% over last year. Other income increased by Rs 35 million in comparison to last year, and this was primarily due to the prior year adjustments. Other expenses showed an increase of 36% in 2007 and this can be attributed to the cost of restructuring and increased contribution to Workers’ Profit Participation Fund (WPPF) and Workers’ Welfare Fund (WWF).
Cash Flows
Improved financial performance of the Company translated into a significant increase in its operating cash flows. Though they were partially offset by higher dividend payments and investment in plant and equipment during the same period, yet it resulted in a net increase in cash amounting to Rs 358 million in comparison to a net decrease of Rs 887 million in 2006.
