GMAC says GTI revenue drop evidence of tough times

[geovalin]

Eddie Morton

The Garment Manufacturers Association of Cambodia (GMAC) has condemned the latest minimum wage increase after Grand Twins International (GTI) posted hefty losses in the third quarter.

GMAC's secretary-general, Ken Loo, cited GTI’s 40 per cent decline in revenue during the three-month period ending September 30 as a “warning” to the garment industry and government of the financial cost of worker strikes and wage hikes.

Taiwanese-owned GTI, one of just two listed firms on the Cambodian Stock Exchange, blamed its poor third-quarter performance on a slump in buyer orders in December and January, when the industry faced widespread worker demonstrations.

“They [GTI] are a solid business with a long track record and a reliable customer base. So if they have taken this kind of hit, what can we expect for some of the other factories, which aren’t on such firm financial footing?” Loo said in a statement issued yesterday.

According to the statement, GMAC estimates the newly set $128 per month minimum wage, which will take effect next year, will add more than $200 million to the garment industry’s 2015 wage bill.

“In an industry that traditionally works on profit margins between 2 and 5 per cent, you don’t have to be a top economist to see what more than $200 million dollars in extra costs will do to an industry that has already been affected by the strikes this year,” Loo said.

But, independent economist Srey Chanty was less dire about profit estimates for garment manufacturers and the financial implications of the wage increase.

He believed that average margins in the industry would be traditionally greater than 5 per cent.

“If the potential profit margins for investment into Cambodia’s garment industry were actually below five per cent, I do not think many companies would risk their money investing here,” he said.

Chanty added that a lack of recent data to show industry-wide costs made it difficult to forecast accurately the implications for the industry.

GTI’s latest financials showed a cumulative 8 per cent decline in revenue for the first nine months of the year. Despite the loss, the company still managed to record a 42 per cent increase in profits.

“Our profit margin last year is about 11 per cent,” Stanley Shen, spokesman for GTI said yesterday.

“We forecast this year will be slightly lower than last year due to the wage hike, which caused increases in production expenses.”

GTI’s production expenses totalled $35.1 million at the end of September, down 12 per cent from $39.5 million during the same nine-month period in 2013.

While the Taiwanese garment factory’s revenue woes have divided opinions in the industry over how minimum wage increases will affect industry profits, GTI workers remain focused on improving their working conditions.

Chengny Vorleak, a worker representative at GTI, said yesterday she was not aware of the company’s financial situation.

“I did not know if the factory lost income or not. I think maybe it is true, but I am not sure of their reasons,” said Chengny Vorleak.

“The factory is blaming the workers because of our protests, but why doesn’t the factory first ask why the workers are protest? We still get a low wage that doesn’t support our food or living standards.”

GTI shares have remained stable this week, up marginally to $1.92 at yesterday’s close.

http://www.phnompenhpost.com/business/gmac-says-gti-revenue-drop-evidence-tough-times