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Plantations too marginally profitable
Transportation and leisure helps boost JKH’s third quarter

John Keells Holdings Limited (JKH), the biggest market capitalised company quoted on the Colombo Stock Exchange, has boosted after-tax profits during the 9 months ending December 31, 1999 by 30% on a turnover growth of 10%, the company announced in an interim report to shareholders incorporating unaudited results.

JKH Chairman Ken Balendra, attributed the improved performance largely to earnings from the transportation sector with the DHL courier service, the general sales agencies of various airlines held by the company and shipping agencies performing best.

"The leisure sector too has done better and marginal profitability has been achieved in the plantation sector where results were negative a year earlier,’’ Balendra said.

He expected performance by the plantations in the last quarter of the current financial year to be very much better than in the previous year. "The plantations performed disastrously during the latter part of the previous year,’’ he noted.

According to the provisional figures, turnover at Rs.214.4 million was up from Rs.195.1 million a year earlier during the 9 months under review. The pre-tax profit of Rs.341 million was up 32% from Rs.257.5 million a year earlier. With taxation up 54% to Rs.44 million from Rs.28.6 million, some of the gains in the pre-tax profits had been eroded.

The group’s after-tax profit of Rs.297 million compared with Rs.228.6 million a year earlier. With retained profits brought forward, JKH which has an issued capital of Rs.485.8 million had Rs.314.8 million available for appropriation as at December 31, 1999.

The company has just announced a 10% interim dividend for the current financial year.

JKH had capital reserves of Rs.2.35 billion, revenue reserves of Rs.0.7 billion and retained profits of Rs.0.3 billion in its books as at December 31, 1999.

In its consolidated profit and loss account incorporating group performance, JKH had a turnover growth of 2% to Rs.7.7 billion, a pre-tax profit growth of 11% to Rs.0.9 billion and an after -tax profit growth of 9% to Rs.0.68 billion. After discounting minority interest, profits attributable to JKH was up 17% to Rs.0.5 billion.

Tourism propels Aitken Spence to peak 9-month performance

Aitken Spence & Company Limited, cashing in on a good performance by the tourism sector, has posted an impressive 48.5% growth in pre-tax profits at the end of the third quarter - one of the best by a blue chip conglomerate enabling the declaration of a 15% interim dividend for the current financial year.

Just released figures for the 9 months ended December 31, 1999 indicated that the operating profit had increased by 78.9% and the profit attributable to shareholders was up 36.7%.

"This performance clearly enhances the confidence of shareholders in the company’s management,’’ a company spokesman said.

Aitken Spence said that previous trends had continued within the group with the tourism sector comprising both hotels and travel making the major profit contribution. He said that the company had done better than the country where tourist arrivals were up 15% hitting an all time high 436,000 in 1999.

"Our tourism sector achieved growth figures very much higher than the national figures thanks to effective market strategies conducted by the hotels and travel divisions,’’ the spokesman said.

The best performance among Aitken Spence Hotels in Colombo was by Kandalama where profits have topped Rs.30 million in the 9-month period under review. The beach properties also had done well in the face of strong competition with the Nepture, Aitken Spence’s first hotel, recording excellent growth.

The spokesman said that their Maldivian properties continued to show profits despite competition and construction of their third hotel in the Maldives was progressing according to plan. It will be completed by next June well within the targeted time frame and budget.

Aitken Spence is confident that this resort which will be marketed shortly will help give the group a substantial share of the Maldivian tourist market.

While the cargo logistic sector had recorded marginal profit growth, plantations have not lived up to expectation. However the last quarter is expected to impact favourably on this sector.

The insurance sector had also shown significant improvement in performance, the company said.

Mr. R. Sivaratnam, Chairman/Managing Director of the company, said that the directors were pleased to approve a 15% interim dividend to shareholders on these results. Fifty percent of this dividend will be tax free in the hands of shareholders.

Land acquisition compensation puts Kegalle in the black

The government has acquired 20.2 hectares of land from Eadella Estate belonging to Kegalle Plantations Limited and paid compensation of Rs.25 million giving the owning company a capital gain of Rs.23.6 million during the current financial year, shareholders have been told.

This exceptional item and share of associate company profits had helped Kegalle offset an operating loss of Rs.17.1 million during the 9 months ending December 31, 1999.

Kegalle which earned an operating profit of Rs.13.7 million during the 9 months ending Dec. 31, 1998, had an after-tax profit of Rs.27.9 million during the first 9 months of the current financial year. This compared with Rs.51.9 million earned a year earlier when the associate company profit share too was higher.

With retained profits of Rs.57.5 million brought forward, Kegalle had Rs.85.3 million available for appropriation as at December 31, 1999.

The company which has an issued capital of Rs.250 million had general reserves of Rs.175 million in its books. It paid a modest 5% dividend to shareholders during the year ending March 31, 1999.

Kegalle is a substantial shareholder of Maskeliya Plantations Limited.

New financial order

By Kanes
When the East Asian crisis struck with disastrous effects on vast parts of the world, there were loud calls for a new global financial structure. Although there was no consensus on how to rework the system, many agreed that the old one had to go. Curiously the architecture is still standing and there is little talk about tinkering. This is mainly because the US economy was unscathed and continues to boom while the Asian crisis has bottomed out and growth has revived. The crucial issue during the crisis was how to control the disruptive hot money movements. Although some analysts talked about creating a system of international speed humps to slow the flow, nothing has materialized except a proposal of Basle’s Bank of International Settlements to raise capital requirements for banks investing in high risk assets. The Washington backed "Contingent Credit Line" scheme in which pre-approved emergency loans would be made available via the IMF to countries with enlightened economic policies, is also under study.

In the meantime, action has been taken at national levels relating to hot money movements. Malaysia set up capital controls to keep hot money fleeing fast and some Asian central banks are now fully tuned to regulating their banking sectors and monitoring capital inflows. Transparency is also improving. Thailand for instance, where the crisis started, now releases macroeconomic statistics every six months.

Divergent Views

There is an ongoing rift between the IMF and the World Bank on policy advice to Asia’s crisis-hit economies. At the heart of the dispute is the IMF’s traditional prescription of high interest rates and tight budgets for countries that find themselves under speculative attack and are trying desperately to save their currencies from plummeting. While the IMF maintains that this policy was crucial in helping Asia’s former Tiger economics weather the storm, many critics have lambasted that strategy for its devastating effects on the lives of millions of ordinary people in Asia. Joseph Stiglitz, chief economist of the World Bank, for instance, states, "It is still the case that the effects of the crisis are pervading the lives of millions of people in the region". Stiglitz blames the IMF and the US Treasury for bad engineering in the way they foisted overheated capital flows and privatization on emerging markets, nearly all of which lack the financial institutions and regulatory apparatus to absorb an influx of private cash that in Asia alone reached nearly $500 billion between 1993 and 1997.

There is also disagreement between the US Council on Foreign Relations and the Institute of International Finance - a global association of 300 financial institutions. The former has issued a report recently calling for the IMF to do less and commercial banks and investors to do more in bailing out troubled economies. The latter disagrees holding that the private sector should participate only on a case-by-case basis in bailouts, leaving the heavy lifting to national governments and the IMF. Some also maintain that capital inflows to Asia will fall if the IMF proceeds with the above suggestion to make creditors bear more of the pains of crisis through the so-called "bailing in" efforts. Others, however, argue that this will not happen as capital flows invariably tend to resume after a crisis; capital inflows to Latin America, for example were substantial in the 1990s despite the debt crisis of the 1980s. The IMF on its part had informed Ecuador that it wouldn’t release further funds until it reached agreement with its bondholders on a restructuring or rescheduling of its foreign bonds. Some point out that this was almost asking Ecuador-to default on its bonds and "bailing in" was actually coercion of private investors and lenders to agree on rescheduling debts and not a voluntary affair as the banks wanted. Others, however, disagree and point out this is only a sharing of the costs of a crisis for both lenders and borrowers were responsible.

Robert Rubin, the former US Treasury Secretary expressed his views on this matter as follows: "With respect to architectural reform activity we had a lot of discussion within Treasury about how to try to frame all this. Because on the one hand, creditors should take the risk and bear the consequences of the risks. On the other hand, the consequences of doing that may be that you get a run on a country, or it creates contagion elsewhere. I think that for a system to work right, the market has to have discipline".

International agreement is also lacking on how to deal with financial contagion. A body called the Financial Stability Forum has been established at the Basel headquarters of the Bank for International Settlements to bring other national financial officials to discuss key architectural issues. It has established three working groups including one to study options for regulation of hedge funds and has invited a number of countries including Malaysia to participate. It meshes with the efforts of the US, Canada an other G7 members to form a group of "systemically significant nations" whose agreement will be essential in creating an international consensus on a new architecture for the global economy. However, there is no evidence of any proposal of either body being put into practice.

As a result of disagreement on the causes and remedies for global financial contagion, the pace of architectural reform of the financial sector is very slow. The US is opposed to hastily crafted solutions that might decentralize the slowly reviving but fragile world economy and prefers to pursue a cautious incremental strategy until a broad international consensus is formed. It also takes credit for preventing the Asian crisis from becoming worse. The US policy of maintaining the strength of the US economy when the financial crisis struck East Asia and many other countries, provided a market for exports of crisis-hit countries and helped to buoy up their recovery. This resulted in the US trade deficit rising from $220 billion in 1998 to $300 billion in 1999, but it prevented a worldwide depression.

Areas of Agreement

Many countries are in favour of a new set of universally acceptable practices to help those who participate in financial markets better manage risk. If private investors had known of Asia’s hazards earlier in the last crisis, they could have reduced their exposure gradually instead of pulling out all at once. This is an argument for developing more rigorous and transparent accounting and disclosure standards and upgrading of corporate governance and regulation of the financial sector. Some argue, however, that even if countries report their true financial condition, governments tend to ignore warnings of danger. There is a broad international consensus on more flexible exchange rates. There is less enthusiasm for defending pegged currencies after the 1997-1998 crisis. The East Asian countries spent billions of dollars defending their currencies pegged to the dollar and the IMF alone spent about $5 billion in vain in trying to save Russia’s overvalued rouble in July 1998. Such interventions also create a "moral hazard" giving the impression among speculators that they could dabble in national currencies with impunity.

Most countries also believe that pending international action, selective controls on speculative capital movements can be useful. This belief has been strengthened by Malaysia’s successful control of short-term capital movements to contain the crisis. Malaysia faced widespread criticism for its capital controls but the IMF has recently conceded that this strategy produced results. In fact capital controls have not discouraged foreign direct investment in Malaysia. Komag, one of the world’s largest makers of magnetic film for disk drives is moving its production to Malaysia and disk-drive maker Western Digital is shifting to Malaysia from Singapore. Further. Malaysia used the breathing space created by capital controls to float successfully $1 billion in international bonds in May 1999 and the foreign investors did not sell them when the controls were lifted in September. Before Malaysia, Chile had for years regulated flows of speculative short-term capital movements quite effectively by taxation. Many analysts expect short-term capital movements to resume as the fundamental factors driving such flows have not changed. Savings will grow in developed countries as populations age and emerging markets will continue to offer higher returns on investment. Developing countries fear that the resumption of short-term capital flows will destabilize their economies again, and they believe that controls over them will be unavoidable without an international regulatory mechanism.

Crisis Ended Too Soon

The global economy is weaker than it was before the Asian crisis. While rising interest rates threaten to cool US’s long expansion, much of Latin America is in recession still and an increasing number of countries such as Ecuador, Ivory Coast, Pakistan and Russia are close to default on tens of billions of dollars owed to private lenders. In spite of these hazards, the movement towards a new global financial architecture is unlikely to be formulated soon; in fact it may take five years or more, and it will not be surprising if another financial crisis occurs before then. The recovery of Asia has also caused the urgency of reform to fade. In fact, as’ the Canadian Finance Minister Paul Martin states: "There is a danger that the crisis, having diminished, will cause a slow down in preparations to prevent the next one".

Professor Paul Krugman, in an address to Thai bankers warned: "If you are looking for major international architecture financial reform - don’t bother. This crisis has come to an end too soon. I have watched proposals that appeared very likely to be adopted last spring just fade away". Many of Asia’s economies and banking systems have merely stabilized’ and still remain weak. Banks and corporations remain burdened by non-performing debt. Krugman points out: "The Asian economies have not succeeded in restoring their financial system. What they have done is succeeded in adapting their economies to the fiscal implosion. In short, the Asian financial crisis ended too soon, before fundamental reforms were enacted - before a new financial architecture was designed. Robert Rubin, former US Treasury Secretary, expressed the view that as the US and Europe were not much affected by the Asian crisis there is a kind of complacency which weakens the urgency of reform. I think that the fact we came from the October ’87 crash so quickly, that the Asian financial crisis never really upset our economy, that the industrial countries’ stock markets are for the most part back to pre-crisis levels, seems to me to have created a kind of complacency. And I think that complacency is very dangerous".

A mouse of a budget for Year 2000

By Analyst
The budget speech of the President was more like a throne speech. It referred to the many perceived achievements of the PA government, a form of self-delusion. It did not refer to the problems facing the economy like the oil price hike in the world market, the worsening position of the foreign exchange reserves and the poor performance of the economy.

A budget speech is supposed to analyse the problems and prospects of the economy, at least those in the short-term. The economy continues to suffer from a number of fundamental weaknesses, none of which are even referred to in the budget.

Our growth rate has come down, the level of productivity in both agriculture and industry are much lower than in competing countries. The ratio of investment is low and much of investment is financed from foreign aid which is being curtailed by aid donors. The economy is subject to a high degree of instability.

The growth rate which was 6.3% in 1997 declined to 4.7% in 1998 and final figures for 1999 are not available but unlikely to be impressive. These GDP figures of course include defence expenditure which can hardly be considered as contributing to the welfare of the people.

Some sectors like manufacturing industry and even agriculture are languishing. The prospects for export industries are poor. The import bill is likely to increase considerably owing to the rising oil prices. But we are not told what its impact will be on our Balance of Payments which is adverse on current account year in and year out.

Nor is there any mention of how the rupee funds needed by the Petroleum Corporation to import oil are to be obtained. Perhaps the public will know these only after the forthcoming election. Meanwhile goodies for all.

Budget Deficit

When the PA government first took office in 1994, it announced a medium term plan to correct the excessive budget deficits. While it is not possible to bring down the deficits in a single effort, credible steps should have been taken to do so over the term of its office. The PA government failed to bring down the deficits as projected. In 1999 it was 8% although the projection was 6% according to the medium term plan to correct the deficits.

Excuses of course can be found. So the Minister of Finance has now come out with another medium term projection to correct budget deficits, conveniently moving targets to avoid shooting at. Public sector deficits are difficult to bring down and even more difficult to maintain. But that is no excuse for not doing so.

Two things are required if the government is serious. It must boost its ability to raise revenue through taxation and it must cut spending. In the long run there must be reform of the public services, pensions and the social welfare services. But instead the government resorts to various give-aways and adds to tax concessions.

The golden rule in budgeting is to balance the current account of the budget. The PA government has never followed it. The current account deficits persist year after year. This year the government has budgeted for a current account surplus to GDP ratio of 0.6% and an over-all deficit of 8%.

But this is fiction. There are to be 5% savings in recurrent expenditure. If the government is sure of achieving it surely it should cut the estimated expenditure. But that would mean too many supplementary estimates. Far better to talk non-existing savings instead.

After all when the realized figures are available, the public would have forgotten anyway what was said in the budget speech. If Finance Ministers are to be judged by their budget speeches, we have produced great ministers indeed. As usual the budget speech is full of platitudes and shibboleths.

The budget is the plan of the government’s spending plans and revenue raising plans to meet the planned expenditure. The budget is also important because the other instruments of economic policy like monetary policy and exchange rate policy are not very effective. Exchange rate policy is merely reactive given the lack of convertibility. Monetary policy is inhibited owing to the lack of developed financial markets.

Fiscal policy is the only economic tool left and even a small deficit has a disproportionate effect in increasing the cost of credit for the private sector, howering taxes will not help to boost the economy because the cost of credit and the availability of funds for investment are more important. Tax concessions to industry are not effective. It distorts investment while the government loses revenue.

In view of the unreliability of revenue estimates and deficits projected it is better to look at the planned borrowings instead. In 1999 foreign borrowings were Rs. 12 billion, domestic borrowings Rs. 60 billion, divestiture proceeds (from privatisation) Rs. 8 billion and foreign grants Rs. 8 billion making a total of Rs. 88 billion which was the revised budget deficit for 1999.

For the year 2000 the government expects to receive Rs. 30 billion from divestiture of state undertakings, the sale of the stake in Sri Lanka Telecommunications being the main item. Foreign grants and foreign borrowings are expected to be Rs. 22 billion. This leaves Rs. 43 billion to be raised by domestic borrowings.

So much will depend on the success of the privatisation proceeds. To depend on privatisation proceeds to finance a budget deficit is of course sheer political expediency. But for how long, can we go on selling this family silver? What happens when in the next few years there are no state enterprises to sell to balance the budget? In this context to give tax concessions is irresponsibility.

Politicians treat the voters as idiots. They think that years of blundering ineptitude will be forgotten if only they can produce a few months of the "feel good" factor. Cutting taxes and increasing spending would mean higher public borrowings. Sooner or later this will push up interest rates, particularly lending rates, if businessmen have any sense they will realise that there is no point in receiving tax concessions if their creditors, particularly the banks take them back through higher interest rates.

Everybody knows that the spending limits will not be enforced and hence the anticipated savings in recurrent expenditure and interest payments of Rs. 5.7 billion will not be forthcoming - this is the essence of the trick - budget for saving but then make no attempt to make it stick.

The cheques will be signed for the Rs.5 billion and this amount too will have to be borrowed from the market. The appeal of this strategy is that there is a lag before the spending shows up in the official statistics. Our businessmen must be either naive or servile to heap encomiums on the budget.

Interest costs on previous borrowings will still be Rs. 60 billion, almost a third of the tax revenue of the government, a burden which will increase each year and become unsustainable.

The Public Sector - a drag on the economy

The economy is held back by a structural and politically rooted constraint - the need to balance the public sector accounts and to create a more efficient state. Until reforms are effected to the state machinery investors will continue to have doubts about the permanence of macro-economic stability, about the efficiency of the economy and its ability to withstand the shocks of the war and the increase in world oil prices.

The reform must start at the very top with the president holding her ministers accountable for their financial integrity. Presently the ministers are not accountable to Parliament where they dominate through the party majority. They are not accountable under the law for their indulgence in political patronage and corruption. State funds are being plundered with impunity. The top public servants have been reduced to stooges.

Unless independent commissions, truly independent through independent minded men who head them, are set up for the public service, the police, the Elections Department, Audit Department, the Bribery Commission etc. We might as well write off any hope of good governance.

Improve Efficiency

Public sector reform must move away from crude budgetary cuts, to finding ways to improve public sector efficiency in order to get better value for money. But unless a code of public service ethics is enforced against the ministers and other politicians there is no point in tinkering with the bureaucracy by having such rituals as performance evaluation.

Top officials know that what matters is not their performance but how well they ingratiate themselves with the ministers and politicians. Can we expect good governance or economic efficiency from them? Political patronage and corruption mean there is no economic efficiency. What economic development can the public expect from such a public service? The Nolan committee in Britain exposed the sleaze in the public service and urged that a statutory offence of "misuse of power" be created. Corruption is difficult to define in the law, unless a code of ethics is enacted in the constitution as in the Papua - New Guinea.

The benefits to the economy from improving public sector efficiency could be significant. On average government production of services is about 20% of GDP which includes defence services. Thus a 10% improvement in productivity through improved efficiency represents a potential boost to GDP of 1.5% to 2.0%.

There is little scope for squeezing public services except by the sort of radical reforms which is anathema to our political leaders. But the government could make huge savings in public investment if it cares to reduce sleaze and political patronage. If the ministers are not allowed to meddle in the management of public enterprises there could be considerable improvements in efficiency. But then, what is power for, except to be enjoyed. This is the creed of our political leaders.

But the government is living in a make believe world. Our political leaders do not have the statesmanship or the courage to admit the mistakes of the past fifty years. Social harmony which was obtained at Independence through a constitutional power-sharing was shattered. Tamils were discriminated against. They were killed in riots, their property destroyed, their constitutional safeguards were summarily thrown out. Then when they resort to arms seeking secession after 40 years of harassment, Sinhala nationalists ask innocently "What is the problem that Tamils have?"

Public Investment

The primary need is to bring down the fiscal deficit, by limiting government expenditure, freezing government borrowing and keeping the money supply within limits. Public investment must be made economically efficient which means carrying them out without political patronage or corruption which increase the cost of investments and reduce the returns.

In 1999 public investment was Rs. 85 billion. In 2000 it’s expected to rise to Rs. 102 billion. It’s not much of an increase in real terms given the annual rate of inflation. But the productivity of the public investment is as important as the quantum of investment and the productivity is very low indeed.

The productivity of the investment depends on the productivity of labour as well. The government is unable to get its employees to work. The executives in the public sector have long given up their role as supervisors of work. They prefer to turn a blind eye, rather than risk their jobs by taking disciplinary action against subordinates who do not work.

The public servants are supposed to be servants of the public. The way they treat them shows who are the real masters. In addition to the already excessive protection given to public employees by public service rules and procedures, they now invoke the Supreme Court on transfers and promotions in addition to appeals against disciplinary orders.

We are undoubtedly having a weak state. Various agencies like the security units of powers that be seem to be pursuing their own private agendas.

As for private sector investment, its productivity is also affected by the excessive protection given to labour. No amount of gimmicks preached by management gurus can improve productivity unless the macro-economic conductions for increasing productivity are present. The large number of holidays paid for by employers without any work being performed, the rigid labour laws, the Termination of Employees Act which make retrenchment of staff a costly improbability, the application of the complex public service disciplinary procedures, all make workers an irresponsible and indisciplined lot.

But political leaders do not like to resolve the problems faced by the economy. A committee is to be appointed to study pensions reform. The public servants pensions which are now met from the budget on a pay as you go basis, requires to be reformed.

The private sector should be allowed to have their own pension funds with sufficient safeguards. The EPF and ETF funds should be invested in providing infrastructure, not frittered away in providing welfare for the contributors. Time is running out for adjusting the fiscal deficit, as our foreign reserves run down steadily.

Micro-economic Management

The economic subsidy on diesel continues, causing traffic congestion in the city and the urban areas. It is partly responsible for the rush to enter the prestigious schools in the city and the provincial towns. Free education is supposed to provide equality of opportunity for the poor. What a farce. The poor have no chance of entering these schools. The per pupil government expenditure on the schools exceeds that on pupils entering the rural schools where buildings are poor, facilities are absent and teachers are short.

The only equitable course is to fix a per pupil expenditure and call upon these prestigious schools to recover a part of their costs from the parents. The pupils attending these schools are from the elite, if not by origin, at least by destination.

Not only education even health and other social welfare services must be over-hauled in the interests of long term economic growth.

Tax Concessions and the Black Economy

The government must know that the black economy is large. It allows people, like the professionals to earn and spend without paying taxes. Giving more tax concessions will only increase the amount of tax evasion. The Samurdhi scheme is another colossal waste of public resources. A good portion of such money leaks to politicians and political supporters.

The government seems hardly serious about curbing the deficit. If not corrected it will mean a growing burden of interest payments, higher inflation, higher current account deficits. The solutions are obvious, abolish subsidies, reduce the numbers in the public service, privatise, introduce user charges for partial cost recovery for education and health from the better-off.

Taxation eats into Elephant House 3rd quarter profits

Ceylon Cold Stores Limited has seen a sharp drop in profitability on a slightly reduced turnover during the first three quarters of the current financial year largely on account of taxation.

According to a provisional financial statement now with shareholders, turnover during the period under review was down 2% to Rs.860 million from Rs.874 million a year earlier while the pre-tax profit was down 1% to Rs.157.7 million from Rs.158.7 million during the comparative period a year earlier.

The tax liability of Rs.28.6 million was up from a nil liability during the comparative period the previous year and the after-tax profit of Rs.129.1 million was down 19% from Rs.158.7 million a year earlier.

With retained profits brought forward, the company had Rs.231 million available for appropriation as at December 31, 1999. An interim 15% dividend for the current financial year was announced by the company last week.

Ceylon Cold Stores, popularly known as Elephant House, is a member of the JKH group and is the leading soft drink manufacturer in the country. It has an issued capital of Rs.173 million, capital reserves of Rs.576.5 million and revenue reserves of Rs.310.5 million in addition to Rs.231 million in retained profits in its books as at December 31, 1999.

Group profitability after-tax was down nearly 30% to Rs.115.2 million from Rs.163.9 million during the comparative period the previous year on a slightly reduced turnover of Rs.1.4 billion.

Shareholders have been told that the Elephant House Farm operated on a lease had been handed back to the government during the period under review.

Since the company had a tax loss during the period up to December 31, 1998, no provision for taxation had been made during that period.

9-month results see leisure contribute to JKH profits
Ceylon Holiday Resorts odd man out as JKH hotels perform

There have been substantial improvements in the performance of the hotel companies belonging to the JKH group during the first three quarters of the current financial year with most companies reporting higher earnings. But there were two exceptions - Ceylon Holiday Resorts where losses have increased despite turnover growth and Beruwela Walk Inn which has recorded a small loss for the first 9 months of the current financial year.

Habarana Walk Inn Limited, the oldest of the JKH Hotels had seen 24% turnover growth but a high incidence of taxation had limited after-tax profit growth during the 9 months under review to Rs.18.4 million, up a negligible 2% up from the previous year.

But the company which had Rs.19.4 million available for appropriation as at December 31, 1999, last week announced a 20% interim dividend for the current financial year.

Habarana Walk Inn has an issued capital of Rs.25 million, capital reserves of Rs.1.7 million and revenue reserves of Rs.36.3 million. The company posted an after tax profit of Rs. 22.4 million on a trurnover of Rs. 64.5 million for the year ended March 31, 1999.

The results at Habarana Lodge Limited was substantial better with turnover up to Rs.96.6 million from Rs.76.2 million a year earlier and the after-tax profit up to Rs.22.4 million from Rs.2.9 million during the comparative period a year earlier.

With retained profits of Rs.3.1 million brought forward, the company had Rs.25.5 million available for appropriation as at December 31, 1999. It last week announced a 10% dividend on its issued capital of Rs.72 million.

Habarana Lodge had a post-tax profit of Rs.18.1 million on a turnover of Rs.119.1 million during the year ended March 31, 1999 when it paid a 20% dividend to shareholders.

At Kandy Walk Inn, turnover was up 24.5% to Rs.86.2 million and the after-tax profit was up 9.3% to Rs.13.3 million with a small 5.4% reduction in tax liability helping the bottom line.

The company which had retained profits of Rs.10.5 million as at December 31, 1999, had Rs.23.9 million available for appropriation as at that date. Along with most other JKH companies, Kandy Walk in announced a 10% interim dividend on the current year’s results.

It has an issued capital of Rs.52.5 million, capital reserves of Rs.87.2 million land revenue reserves of Rs.35 million.

Beruwela Walk Inn saw turnover dipping slightly by Rs.0.5 million to Rs.22.3 million but its after-tax loss was up to Rs.1.9 million from Rs.0.6 million a year earlier despite a reversal of tax provision of Rs.0.2 million.

The company which has an issued capital of Rs.9 million has Rs.47.9 million in its capital reserve and Rs.5.8 million in its revenue reserve.

The big loser in the JKH hotel sector is Ceylon Holiday Resorts which despite a turnover gain from Rs.39.5 million to Rs.113.9 million during the 9 months under review saw its after-tax loss growing to Rs.48.8 million from a loss of Rs.5.3 million a year earlier.

The company which was already carrying retained losses of Rs.13.1 million is now carrying a retained loss of Rs.61.9 million as at December 31, 1999.

Ceylon Holiday Resorts which has an issued capital of Rs.79 million has Rs.763.8 million capital reserves and Rs.90 million revenue reserves. But it is carrying Rs.61.9 million retained losses in its balance sheet.

International Tourists and Hoteliers Limited, owners of Hotel Bayroo in Beruwela saw both turnover and profit growth during the 9 months under review with turnover rising by Rs.19.2 million to Rs.70.8 million and the after-tax profit going up sharply to Rs.11.2 million from Rs.1.7 million during the comparative period the previous year.

The company which has an issued capital of Rs.77.5 million last week declared an interim 10% dividend for the current financial year.

Lower taxes help Tea Smallholders
Factories to keep profits stable

Tea Smallholder Factories Limited, a privatised company manufacturing bought leaf, has seen a decline in turnover during the 9 months ending December 31, 1999 but has maintained a satisfactory level of profitability thanks to lower taxation.

The company in which Central Finance and John Keells Holdings are the main shareholders had turned over Rs.615.8 million during the period under review, down from Rs.693.4 million a year earlier. Its pre-tax profit of Rs.46.7 million was down from Rs.67.7 million during the comparative period the previous year. However, taxation at Rs.6 million was down sharply from Rs.19.6 million a year earlier and the after tax profit of Rs.40.7 million compared with a profit of Rs.48.1 million during the comparative period in 1998.

With retained profits brought forward, the company had Rs.84.3 million available for appropriation as at December 31, 1999. No dividend has yet been declared by the company which gave its shareholders a 20% return absorbing Rs.30 million during the year ended March 31, 1999, when the after tax profit was Rs.52.4 million.

The company had an issued share capital of Rs.150 million, a general reserve of Rs.135 million and retained profits of Rs.84.3 million in its books as at December 31, 1999.

According to a statement to shareholders incorporating provisional results, the company has said that net assets per share during the period under review was Rs. 24.62, up from Rs. 23.62 year earlier. The highest price per share during the quarter was Rs.31.75 against Rs.36 a year earlier while the lowest was Rs.25.50 against Rs.33 during the third quarter of the previous year.

Formal opening of Leo Burnett here on Thursday

Leo Burnett Solutions Inc., the local representative of Leo Burnett Company Inc. will be opened on February 24 in Colombo

To commemorate the launch, the local office has made plans to hold an exhibition of the best work from Leo Burnett offices across the world displaying print and TV campaigns from over 40 countries.

Leo Burnett campaigns for leading international brands such as Coca-Cola, McDonald’s, Procter & Gamble, Heinz, Hallmark, Johnnie Walkers, Fiat and Marlboro will be on display at this opening, a company news release said.

Most of these campaigns had won international and country awards, Leo Burnett, Colombo said. The exhibition to be held at Gallery 706, Colombo 04, will be opened to the public from February 25 to 27 (both days inclusive) from 10 am to 7 pm daily.

Stephen Gatfield, Regional Managing Director of Leo Burnett in the Asia Pacific Region will be in Colombo for the launch of the local office and to declare open the exhibition.

Leo Burnett Solutions Inc. was established here in June 1999 and is headed by Ranil de Silva. The company boasts that it has some of the country’s best professionals on its team and has already made an impact in the communication industry here.

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