Lanka Walltile Ltd. has with the concurrence of the BOI given up its BOI status in order to acquire the flexibility of marketing a larger proportion of its production locally, the company's chairman, Mr. B. Mahadeva, has reported to shareholders.

"The companies of our group which had set up as BOI projects ceased to have BOI status in March 1998. We are now free to sell much larger quantities of tiles in the local market,'' he said.

The company which saw a downturn in profitability during fiscal 1997/98 has caught up lost ground by a sharp increase in the total profits of its subsidiaries during the year. The result has been a fivefold increase in group profits accruing to shareholders of Lanka Walltile Ltd., Mahadeva said.

He said that company's after tax profit of Rs. 34.8 million was down from Rs. 46.9 million a year earlier. But the group profit of Rs. 86.9 million was up substantially from the Rs. 17 million earned a year earlier. A 5% dividend has been proposed by the directors on the company's profit. Although a higher dividend was possible, capital expenditure requirements over the next year or two had necessitated resource conservation.

Mahadeva said that the parent company's profits had been sharply eroded by heavy interest payments on its loans aggravated by exchange losses on dollar loans. These loans had been mostly raised to fund a large new factory at Meepe and for the securing of controlling interests in Lanka Tiles Ltd. and Ceyexxe Plantations Ltd.

Interest paid by Lanka Walltile in the year under review was Rs. 76 million while the exchange loss resulting from the rapid depreciation of the rupee against the dollar was Rs. 6.3 million. But the investments in the subsidiaries had boosted group earnings which will rise further when the Meepe factory achieves its full potential "in the next year or two.''

Mahadeva said the company had made strenuous efforts to reduce its interest and exchange loss burden by restructuring its loans. They had succeeded in replacing part of their loans from the NDB and DFCC with preference shares and reduced the interest rate on some other loans. Negotiations were on to pre-pay dollar loans and substitute them with rupee loans.

"As a result of these changes, we hope that our interest and exchange loss burden would be further reduced,'' the chairman said.

Mahadeva said that there were fears that the East and South East Asian financial crisis would hit Sri Lanka's ceramic tile industry hard and deprive them of most of their export markets. The fear was that the virtual collapse of the construction industry in many Asian countries would result in factories in those countries being saddled with a large volume of surplus tiles. These were expected to be exported at prices Sri Lanka could not match.

"Fortunately, these gloomy predictions were proved wrong,'' Mahadeva said. Lanka Walltile and its tile-making subsidiaries had achieved higher export volumes in the year under review than in the previous year. The quality of the product and a strenuous marketing effort had enabled a satisfactory level of exports being maintained.

"We cannot, however, afford to be complacent. The threat from other Asian exporters still exists, and if we are to increase, or even maintain, the present level of our exports, we must further strengthen our marketing activities,'' Mahadeva said.

While he said that predictions for the future were hazardous in the present volatile environment, results of the first four months of the current financial year gave him reasonable cause for confidence that last year's sales will be surpassed this year.

"The value of tile exports by Lanka Walltile and its subsidiaries was higher (during these 4 months) than in the corresponding period of the previous year. If this trend continues, our profits in the current year should comfortably exceed the profits achieved in 1997/98,'' the chairman said.

The directors of the company are Messrs. B. Mahadeva (chairman), Prof. C.L.V. Jayatillake, R.M. Ratnayake, Tilak de Zoysa, J.B. Wimalasekera, S. Sivasubramaniam, M. Perera and J.A.P.M. Jayasekera.