.

Hayleys still lead the league with 24 scrip issues in 46 years
JKH bonus track record shining in recent years

Last week’s announcement of John Keells Holdings making a bonus issue of one new share for every five held has brought JKH to the front-line of companies offering shareholder value by scrip issues in addition to maintaining an attractive dividend payment record.

Share analysts noted that since 1994, when JKH broke new ground for Sri Lanka firms by making a Global Deposits Receipts (GDR) share issue, the group has made five bonus issues including the one just announced.

Hayleys has been widely acknowledged as the quoted company with the best bonus track record with an enviable 24 scrip issues in 46 years. But as one JKH source put it, ``we can’t go as far back as Hayleys historically, but in more recent years our bonus issues are comparable.’’

The JKH record is: 1994 - 1 for 6, 1996 - 1 for 7, 1997 - 1 for 7, 1998 - 1 for 4 and 1999 - 1 for 5.

For these years, Hayleys made the following scrip issues with no gap as JKH had in 1995: 1994 - 4 for 21, 1995 - 1 for 5, 1996 - 1 for 9, 1997 - 1 for 10, 1998 - 1 for 11 and 1999 - 1 for 6. But its scrip issue record goes back much further to 1956 when it made a 5 for 6 bonus and followed up with similar issues averaging better than one every two years.

``Some of these issues were on a very high proportion like 1 for 1 in 1976 and 1 for 2 in 1979 and 1987 with several 1 for 3 and 1 for 4 issues,’’ one analyst said.

Shareholders highly covet bonus issues as they constitute a high tax-free return on investments. This is specially so if companies can maintain attractive dividend payments like JKH and Hayleys do.

``There is often a debate in companies on whether they could service their accustomed rate of dividends after making scrip issues. But that should not be a problem for shareholders because when they have more shares after a bonus, even if the dividend rate goes down, they collect as much or more than they did before,’’ one big investor said.

The GDR issue by JKH was priced at US $ 11.75 each with two ordinary shares underlying each GDR. The GDRs infused a lot of new money into JKH making it cash rich and reduced its interest costs to negligible levels.

``The big question, of course, is whether the GDR investors after factoring in five bonuses and the continuing depreciation or the rupee have done well on the investment,’’ said one analyst. ``But a fair assessment cannot be made with the market as low as it is right now.

The JKH share rose seven rupees to Rs. 192 on Wednesday after the bonus announcement had been made.

Other companies with attractive bonus issue records include Singer, Ceylon Tobacco, Commercial Bank and HNB.

Controlling shareholder assumes management for fat fee
Watawala claims "more progress but less profits’’

"More progress but less profits’’ is how Watawala Plantation’s Chairman G. Sathasivam has summed up 1998 for his company which saw the after-tax profit plunge to Rs.100.2 million from Rs.219.1 million a year earlier.

Sathasivam reported that the unprecedented revision in labour wages during the year without any corresponding improvement in labour productivity significantly eroded the company’s profitability.

In addition to tea and rubber plantations, Watawala is the country’s only major palm oil grower. Sathasivam said that they have newly planted 175 hectares of this crop on their property, doubled the capacity of their mill and modernised it to the state-of-the-art.

The year under review has seen the appointment of Estate Management Services (Pvt) Limited (EMSPL) which owns a 59% stake in the company as its managing agents with effect from July 1, 1998, for a 5-year period. The managing agents will be paid a remuneration of 4% of turnover and 7.5% on operating profits for their services.

According to the company’s report, EMSPL had been paid a remuneration of Rs.22.5 million for the year under review computed from July 1 upto December 31, 1998. No profit based remuneration had been paid for this period "due to the inadequacy of profit for the said period.’’

The company’s Managing Director had been paid Rs.648,000 for the year covering the period January 1 to June 30, 1998 as he vacated office on July 1, 1998 following the managing agents taking over. His remuneration for 1997 was Rs.4.6 million.

Sathasivam said that from a developmental perspective, it had been a year of consolidation for the company. On the agricultural front, it had put in place a package of up-dated practices laying the foundation for higher productivity in the short and medium terms.

The year had also seen the company launching its Zesta brand of tea in the local market with what the chairman called "a very encouraging initial response’’. He said that they would continue to focus on increasing direct consumer sales during the current year.

Watawala which paid a 35% dividend in 1997 has not declared any dividend for 1998. No provision for taxation has been made during the year in view of brought forward unadjusted allowances of previous years and eligible deductions and allowances.

Watawala employees who are also shareholders of the company receiving 10% of its then equity free from the government had been paid a Rs.5.3 million profit share during the year under review, down from Rs.11.8 million the previous year.

The company has 17,975 shareholders owning up to 500 shares each (10.8% of the issued capital). In addition to employees, the Secretary to the Treasury sold 19% of the issued capital of the company on the floor of the Colombo Stock Exchange.

The directors of the company are: Messrs. G. Sathasivam (Chairman), R.K. Krishna Kumar, S. Kabiraj, N.L. Wijeyeratne (w.e.f. 22.12.98) and V. Govindasamy (CEO).

America’s ruthless onslaught to prise open markets

by Kanes
Since the East Asian crisis began in July 1997, the IMF and the US have told the world that it was Asia’s own fault, that it was due to their cronyism, corruption and lack of transparency. They hid from the world that both the IMF and the US had given good ‘character’ certificates to these very countries and had praised their sound macroeconomic fundamentals a few weeks before the crisis. The International Monetary Fund’s chief - Michael Camdessus - had, for instance, described Malaysia, just before the turmoil, as a "good example where the authorities are well aware of the challenges of managing the pressures that result from high growth and maintaining a sound financial system amid capital flows and a booming property market". Earlier, the World Bank in its study ‘The East Asian Miracle’ had underlined the fact that the rapid growth in East Asian countries was achieved in large measure "by getting the basics right". It states: "Macroeconomic management was unusually good and macroeconomic performance unusually stable, providing the essential framework for private investment". There was no reference in World Bank/IMF studies to cronyism, corruption and non-transparency as obstacles to economic growth.

When several economists, both in Asia and elsewhere, expressed the view that the East Asian crisis was created by excessive liberalization of the financial sector in East Asian countries prematurely to allow the volatile short-term speculative capital movements in search of profits and security to move in and move out freely, the IMF/US dismissed it as nonsense. When George Soros - the very person who engineered the Thai baht crisis in July 1997 - admitted belatedly that the "financial markets are inherently unstable, which can cause tremendous damage to society" and advocated "greater supervision and regulation of capital markets in general" the IMF/US opposed any such regulation. On the contrary they want the crisis-stricken countries to liberalize further their financial sector as a means of recovery.

U.S. Wants Financial Liberalization

The New York Times in mid-February now reveals, after its interviews with key US officials, that the East Asian crisis was not created by the alleged cronyism, corruption and non transparency but by Washington’s policies which "fostered vulnerabilities that were an underlying cause of the economic crisis that began in Thailand in July 1997, rippled through Asia and Russia and is now shaking Brazil and Latin America". Ricki R. Helfer, the former Chairwoman of the Federal Deposit Insurance Corporation, for instance, states that one of the principal causes of the Asian crisis was that "financial liberalization was undertaken in countries that didn’t have the infrastructure to support it". The American push for greater liberalization was directed at Asia particularly as it was seen as an El Dorado for American banks and brokerages. Laura d’Andrea Tyson, a former chairwoman of President Clinton’s Council of Economic Advisers and later the National Economic Council, said: "Our financial services industry wanted to get into these markets".

The US administration was ruthless in carrying out its agenda of prising open financial markets around the world. Its objective was to press Asia and other regions into removing or reducing its barriers to American goods and financial services so as to help "Fidelity sell mutual funds, Citibank sell checking accounts and American International group sell insurance". US officials went round the world to push for banking and financial liberalization to facilitate entry of US financial institutions into foreign markets. Jeffrey E. Garten, Dean of the Yale School of Management, and a former Commerce Department official says: "I never went on a trip where my brief didn’t include either advice or congratulations on liberalization". When developing countries like Malaysia pointed out that the developing countries were neither ready for financial liberalization nor to face an invasion by the powerful American banks and other financial institutions, they were dismissed as protectionist sentiments.

Admission of ruthlessness

The US administration had selected 10 ‘rising economic powers’ to push relentlessly for business for US companies, and the East Asian countries were in this target group. A ‘war room’ was set up in the Commerce Department under the Commerce Secretary - the late Ron Brown - "where computers tracked big contracts and everyone from the CIA to the ambassadors to the President himself was called upon to help land deals". US administration, in other words, took upon itself the job of opening up markets and pushing the goods and services of US transnational corporations. There were warning bells. Laura d’Andrea Tyson is reported to have disagreed with the campaign to push all countries into liberalization, irrespective of the size or stage of development of the country. Joseph Stiglitz of the World Bank, when he was chairman of the President’s Council of Economic Advisers pointed out the need to slow the pace of liberalization in undeveloped financial markets, but nobody listened. The Administration was so obsessed with the idea of financial market liberalization that it was blind to its possible adverse effects on developing countries.

Now with hindsight, US officials are admitting that they blundered in pushing hard undeveloped money markets into rapid liberalization. Jeffrey E. Garten, states; "It’s easy to see in retrospect that we probably pushed too far, too fast; in retrospect, we overshot and in retrospect, there was a certain degree of arrogance". The former US Trade Representative and the current Commerce Secretary - Mickey Kantor - has expressed his view that the risks of financial liberalization in the absence of sound banking and financial systems are akin to "building a skyscraper with no foundation". He has further stated: "It would be a legitimate criticism to say that we should have been more nuanced, more frightened that this could have happened" and that "the US was insufficiently aware of the kind of chaos that financial liberalization could provide". Several US economists too have now admitted that East Asian and other countries are in turmoil because the US supplied them the blueprints and pushed too hard for financial liberalization and free capital flows.

US - the Main Beneficiary

Nevertheless, the US administration has not wavered in its resolve to open up the financial markets of developing countries for their transnational corporations. The same policy which led to the East Asian crisis, is being pursued with a vengeance. This is not surprising as the biggest beneficiaries of the East Asian crisis are the US businesses which have acquired or merged with some of the largest Asian companies which were crippled by the economic crisis and whose asset prices had fallen to very low levels. The economic turmoil has thrown out of employment over 10 million in Indonesia, 3 million in Thailand, 2 million South Korea and thousands in other Asian countries, but this is no concern of the transnational corporations who seek to find new markets for their goods and services.

The American companies are assisted in their expansion programme by the International Monetary Fund which has directed the crisis-stricken countries to open up their markets further for foreign business. As the IMF’s assistance depends on the progress made on its recommendations, the crisis-hit countries have no alternative but to carry out the IMF’s prescriptions even if they disagree with them. The crucial recommendations by the IMF is that the countries should remove all legislative and administrative restrictions on foreign investment and ownership to enable foreign - mainly US - companies to buy up the ailing domestic companies and banks. This is described as a ‘reform’! South Korea, Thailand and Indonesia now face the prospect of some of their big indigenous enterprises going into foreign hands. General Motors, for example, has purchased President Suharto’s half brother’s firm in Indonesia and is negotiating a venture with Daewoo in South Korea; Ford Motors is proposing to take a bigger stake in Kia motors in South Korea; Procter and Gamble has purchased a paper making company from Ssangyong group in South Korea; U.S. chip maker Intel has invested $100 million in Samsung Electronics in South Korea; Coca Cola has increased its shareholding in South Korea and Thailand. Foreign banks, mainly American, have purchased or proposing to purchase controlling stakes in crisis-hit Asian banks; Seoul Bank and Korean First Bank in South Korea, First Bangkok City Bank, and Bangkok Investment in Thailand and Panin Bank and Nisp Bank in Indonesia

Professor Jeffrey Sachs of Harvard hit the nail on the head when he stated:

"The US and the IMF made the crisis worse than it had to be by pounding hard on Asia’s economies, riling the markets. They tried to use the crisis to push a reform agenda. The problem was that they misunderstood the real source of the crisis, and things blew up in their hands".

US Pressure on Trade Liberalization

The ruthless moves by the US to prise open financial markets of developing countries are not anything to be surprised at when we consider its relentless crusade to open up foreign markets for American goods. We referred to the "Banana War" in our columns on April 4, 1999 where the US fought for equal access for the banana exports of its companies in the European market. The WTO to which this dispute was referred, ruled in favour of the US and this has been used by the US to impose 100 per cent tariff on nearly $200 million worth of imports from Europe till the Europe Union removes its preferences for bananas of former European colonies in Africa, Caribbean and the Pacific.

How desperate the US is for foreign markets for its transnational corporations is clearly demonstrated in its dispute with India. India had been having import restrictions for many years and it had justified them on its balance of payments situation. The United States sought a WTO ruling to challenge Indian restrictions on imports of consumer goods and agricultural, textile and petroleum-related products, which it said constitute the largest barrier to increasing US exports to the Indian market. It was further shown that the IMF had determined in 1997 that India no longer had balance of payments difficulties that could justify import curbs.

The WTO has now ruled against India and the recent decision by India to liberalize its import regime and open the door to nearly 900 previously restricted foreign products is related to the WTO ruling.

The US is also blocking China’s entry to the WTO because China’s current import regime obstructs market access to American exports. The US considers China to be one of the largest potential markets for its goods and services and is pressing China to open its doors for US products. In order to placate the US, Premier Zhu Rongji in his recent visit to the US has agreed to modify China’s animal and plant health rules that have blocked imports of US wheat, meat, poultry and citrus and to lift its ban on wheat imports from 7 northwest US states and citrus products from four states. In addition, it has agreed to slash import tariff and increase market access for a broad range of farm goods. The US, however, wants more concessions before it allows China’s entry to the WTO.

It is not unusual for the US to mix politics with commerce when it wants new markets for its exports. For instance, President Clinton has taken political credit for getting aircraft orders from Saudi Arabia, and former Commerce Secretary Ron Brown took to China, India and elsewhere, plane loads of US businessmen, claiming that his efforts procured contracts for the US. The ruthless American trade policy is personified in the U.S. Trade Representative - Charlene Barshefsky - whose ruinous strategy has been described by the Economist of January 23rd 1999 as follows:

"Her policy like that of many of her predecessors, is based on a narrow, legalistic view of the world. It is about screwing concessions from other countries, rather than about the mutual benefits of free trade. It is about enforcing the letter of those 260-odd new agreements, at the expense of the bigger picture. It is about keeping client’s such as the steel industry, happy by picking fights, going to the brink and settling at the last minute, rather than finding ways to help consumers by opening American markets to trade. Trade deals are a means to that end; they make it easier for countries to liberalise, and hence increase the prosperity of all. But for Counsellor Barshefsky, it seems, making and enforcing the law is an end in itself."

The dismal prospects for the economy

By Analyst
For the last two months the government has been pre-occupied - its time and energy been absorbed in the provincial council election campaign. It has been oblivious to the trends in the economy while putting out all sorts of rosy pictures and write-ups for political propaganda.

But there are ominous signs which should not be ignored. Tea prices which have been dropping since the last few months of the previous year, have declined by 35%. Exports of tea, food, beverages and tobacco have declined by 42% over the first two months of this year compared to the same period last year. Most companies in the plantation sector are incurring losses.

Some say each kilo of tea produced has to be sold at a loss of Rs. 10.00. Rubber prices have hit rock bottom and rubber production has declined. There are no signs of any recovery in commodity prices in sight.

The world economy is expected to grow slower than in 1998. The IMF forecasts over-all growth of 3.1% for developing economies in 1999 compared with 3.3% in 1998. The World Bank forecasts are more pessimistic, being about 1/2% less. Last year we had a higher rate of growth than other developing countries.

The government takes pride in stating that because of its prudent economic policies, the country was saved from the East Asian and South East Asian crisis which began in July 1997 and is still to be fully resolved. But the fact is that we were never integrated sufficiently into the global economy to benefit from the high rates of growth that prevailed in those countries during their heyday, and so did not suffer either from their crisis.

We never had full convertibility of the currency like those countries. Our current account convertibility was hemmed in with controls. We never had free flows of capital and benefited very little from the vast capital outflows that took place in those days when trillions of dollars moved to global financial and stock markets.

Our receipts from this global flow of capital was only a drop in the bucket, hardly meriting any reference at all. Direct foreign investment was also negligible in scale inspite of all the tax incentives offered. With the collapse of the East and South East Asian economies this flow of international capital has dried up. Of course, being a large importer of primary commodities we have benefited from the fall in imported prices of goods like rice wheat and sugar. Wheat prices have declined by 25% and sugar prices by 18%. So we still have a healthy level of foreign exchange reserves to finance 5 1/2 months of imports.

But foreign exchange held by the banking system has declined and the official foreign reserves dipped by 4.5%. Foreign remittances by our workers who slave abroad, are steady and should remain so barring political upheavals in the Middle East or a catastrophic fall in oil prices which now seems unlikely.

Sources of growth

What are the sources of our economic growth? The economy is still dominated by commodity exports if we consider the net domestic value added only of our industrial exports like garments. Our commodity exports are suffering because of the drastic fall in prices of tea and rubber. The fall in tea prices was accentuated by the Russian financial crisis. Russia is still not out of the woods and even if conditions don’t get worse, they are unlikely to improve for some time more.

The East Asian economies have improved and the stock market in Korea has recovered so have their exchange rates although they are still low. Our fortunes are linked more to the Indian subcontinent in so far as capital inflows are concerned. With the political instability in India likely to continue at least for another six months, there will be no net inflow of portfolio capital to South Asia in general and Sri Lanka will be similarly affected since we get only a small percentage of funds allotted to the area by foreign funds. The local stock market is in the doldrums and is likely to remain so for this year.

Credit crunch

The increase in oil prices will lead to a further drain of foreign exchange. It should also affect adversely the budget deficit of the government has any economic sense it should ensure that more adverse factors which are within its control, are not added to this bad situation.

Public sector employees are agitating for higher wages. The employees of the two state owned banks which still account for nearly 60% of banking activity, are engaged in a go-slow for several days now. Cheques drawn on such banks take three to four weeks to be cleared. This has created serious problems for a multitude of business firms, particularly the small firms.

The circular flow of credit has been disrupted. All firms will therefore require a large volume of credit. The big firms and corporates will be able to borrow more. But what about the small firms? Will the banks be liberal with them?

The banks will have to extend a larger volume of short term credit to tide over this crisis caused by the go-slow in the state banks. Any drying-up of credit will worsen the deflation. The banks have made enough money and banking is still the best business in town, providing high rates of return on capital. Their margins are still high and they have liquidity.

While reserve money which is a base for a multiple expansion of bank credit has increased by 11.9% in the last year, credit to the private sector has increased by only 11.3% showing that the banks are still over-liquid. They are either unable to find good borrowers or are unduly restrictive.

The demand for export credit would have declined with the fall in the prices of tea and rubber. So the banks don’t have to be unduly restrictive. They have provided for their bad debts adequately. They have not really written off many bad loans since they are adequately covered with collateral and there is no fall in the value of such collateral as land and buildings. If they foreclose under present economic conditions they may trigger off more deflation.

The state banks may be riddled with inefficiency and corruption but this is not propitious timing to clean up their balance sheets. The capital market is practically dead and the banks, particularly the two development banks are the only sources of funds for investment by business.

The companies even if they have excessive debt in their balance sheets, cannot raise equity in the depressed stock market conditions. In fact as in Germany and Japan the banks may have to swap debt for equity when well managed companies have got into difficulties through no fault of their own but due to adverse economic factors.

Government finances

In 1998 government revenue has increased by only 3.7% which is even less than the G.D.P. growth rate. The government has had to borrow more than it budgeted for and public debt has increased by 18.8% as at end of January 1999 over January 1998. The go-slow in the two state banks and the long holidays for the Sinhala and Hindu New Year will have serious adverse effects on government revenue collection by way of customs tariffs and the G.S.T. GST collections are likely to take a dip with the emerging deflationary conditions in the economy and the go-slow in the banks.

Banking

The banks as well as the public sector institutions are facing wage demands from highly unionised staff who are already well paid. If labour markets were free, the banks could have expanded their staff and provided more jobs through branch expansion.

As it is, they have to follow the pattern in developed countries and introduce electronic technology to improve their efficiency and service. ATMs and telephone banking have been introduced. Internet banking may be the next innovation. But modern electronic technology requires huge capital investments in a country which is severely short of capital.

It’s a pity that staff costs in the banks have been arbitrarily driven up, checking branch expansion since there is still a demand for banking services in the semi-urban and rural areas.

The banks are the most likely candidates to be affected by the Y2K problem. Will their systems cope with the millennium bug? Will people pull out their money at the year end as a precaution? If so how much money will be so withdrawn? How will the loan portfolios of the banks fare if the economy contracts sharply this year?

Our banks are not all that well informed. They were taken unawares by the Russian devaluation and debt default for example, and reined in such lending only after the crisis broke. A well informed bank should have advised its clients before hand.

The American economy is still doing well and its stock market boom is still on. But Lawrence Summers appearing on television pointed out that the world economy cannot be driven by a single (American) engine of growth. Japan and the European Union must return to growth if the world economy is to be sustained.

A severe recession in America could drive us into a deep depression such as we have never seen before.

The government, if it continues to borrow more and more, will drive up interest rates and make the debt burden of private sector firms unbearable unless of course inflation takes over and reduces the real burden.

Economic growth

Economic growth depends partly on domestic policies as well as on external factors referred to, like primary commodity prices, output growth in the rich countries and the size of private capital flows. The most worrying is the slump in commodity prices - particularly tea prices. Few forecasters in the developed world expect commodity prices to recover quickly even if oil prices could be an exception.

Sluggish world demand growth, excess supply, lack of money in Russia to buy our teas, the situation in Iraq, are not likely to disappear soon. Will Libya buy more tea, now that economic sanctions are lifted after the surrender of the Lockerbie bombing suspects?

Our tea production continues to increase inspite of the fall in prices. Rubber production however has fallen. There is also likely to be no recovery in the tourist sector until bombs stop exploding and there is peace.

Nor is any recovery in private capital inflows likely to take place inspite of the Indo-Lanka Free Trade Agreement. The agreement itself seems to be coming apart. In any case, its effects for good or bad, will take place only over several years. If we do not limit our rate of inflation to the same level as in India, we will of course be committing economic ‘hara kiri’.

If we can maintain a low tax, low inflation regime, the Free Trade Agreement could provide an opportunity for economic growth and better integration with the world economy. Its a challenge for our political leaders who are not showing any signs of efficiently supplying with the economic problems.

Perhaps our best is to go for foreign borrowing, utilising such borrowing to finance expansion of physical infrastructure. Our roads are below par, not built to carry the heavy container loads now plying on them. Our bridges are serious bottle-necks. Our power plant capacity must be increased. Our ports require large capital investments and high operational efficiency. Our transport equipment and railway facilities have to be improved.

Official Foreign Aid is drying up and borrowing from the private foreign capital markets require a good credit rating. But the high level of corruption and inefficiency is unlikely to earn us a good credit rating. The inefficiency of the government and the incompetency of the ministers, the bungling of the President as in the Evans affair, are a poor advertisement. So is the on going civil war with no sign of settlement.

Earlier the World Bank and the IMF thought corruption was not their business. No longer. The economic consequences of corruption have become too glaring for them to ignore. The World Bank knows what proportion of the funds it provides goes to the pockets of politicians and their cronies. They are aware of how the permanent commission on bribery and corruption was annihilated and the commissioners harassed.

The ADB alone seems to be unconcerned about corruption. The ADB still seems to look with favour upon the loan applications of the government if we are to believe the government newspapers.

Countries that refuse to curb corruption are being punished now by the World Bank. It reduced its loan commitments not only to Kenya but to Nigeria as well. Countries that want bail outs are being asked to clean up their ways of governance. Foreign companies in countries outside USA have now agreed to give up bribing government ministers and officials in the third world and follow the example of US companies.

Democracy has not helped in to clean government. The distinction between private and public interest has never existed in our pre-colonial societies. The concept of power as a trust and the politician as a trustee has not been established inspite of fifty years of democracy.

Institutions essential for good governance like a free press, an independent public services commission, an independent police service commission have never taken root. They were the first casualties of population and political opportunism in the 1950s. Nor are they ever likely to be re-established inspite of promises given in party election manifestos.

Promises publicly given by the President have been reneged upon. Bread was promised at Rs. 3/50 but is now Rs. 8/50. Will it ever be possible to build habits of mind in our politicians that eschew corruption? The public themselves don’t mind corruption as long as they stand to get some benefit.

The politics of corruption is too far gone. There is no popular indignation against corruption, no outcry against the annihilation of the permanent commission on bribery and corruption. Ours is a society where honesty does not pay. It is violence and corruption that reign, the so-called ‘dushanaya’ and ‘beeshanaya’ which are popular catchprases of the leaders of the government.

Will the forms of democracy themselves disappear and will anarchy take over?

Kelani Valley feels bite of Russian crisis & wage hike
Tea price plunge swallows second half profits

Kelani Valley Plantations Limited has seen an unprofitable second half of 1998 after tea prices which hit record highs in the first half of the year fell sharply following the economic upheaval in. Russia, the company’s 1998 annual report said.

The company reported an after-tax profit of Rs.117.1 million for the year ending December 31, 1998, down from Rs.212.7 million the previous year. Turnover for the year at Rs.1.14 billion was up from the previous year’s Rs.1.09 billion.

"A feature of the company’s performance was that following the strong showing in the first half, earnings in the second barely added anything to the overall result,’’ Kelani Valley Chairman Sunil Mendis said.

He reported that a global record tea crop last year bettering previous year’s production by 125 million kg. did not help prices. But the company’s own tea harvest was down 5% on account of dry conditions in the beginning of the year followed by excessive rain in the second half.

Mendis said that a 15% and 20% wage hike respectively for rubber and tea workers effective February last year absorbed Rs.100 million from profits. This was after including provision for gratuity.

"In the final analysis, given the increased revenues of the company, this factor was the principal reason for the reduction in earnings during the year,’’ he said.

DPL Plantations Limited which owns the controlling interest of Kelani Valley also serves as the company/s managing agent and has been paid a profit share of Rs.27.5 million during the year under review. The company which paid shareholders an interim dividend of 15% in. December 1998 absorbing Rs.51 million has declared no further dividend.

Mendis said that the dividend paid in December was the first since privatisation. He explained that no further dividend was recommended in view of prevailing circumstances with trading conditions unlikely to improve in the short term.

He said that in addition to the tea price drop, the depressed market prices of rubber too contributed significantly to the reduction in profits. Despite heavy rainfall, the rubber crop was up 10% from a year earlier but the sector recorded a loss for the year largely due to significant declines in latex crepe prices.

The price of latex crepe which comprised over 65% of the volume of rubber produced had declined 40% during the year. The company’s Devalakanda, Panawatte and Kiriporuwa estates are internationally reputed for producing sole crepe of the highest quality.

"I foresee the ensuing year to be one of the most difficult for the company in recent years. Strategies have been drawn up to meet the challenge,’’’ he said.

He assured shareholders that the company would improve the quality of teas produced by its factories to earn higher prices. Rubber factories were producing high quality sole crepe, latex crepe, sheet rubber and centrifuged latex. They would tailor the products mix of rubber manufactured to take best advantage of market conditions.

Mendis said that enhancing productivity will be the company’s main focus in ensuing years. Trials are being carried out to mechanise certain agricultural operations such as harvesting, pruning, crop collection and uprooting of rubber. These measures are expected to resolve problems of labour shortage in. some estates.

Kelani Valley has set up a green house to grow strawberries using the hydrophonic system on one of its estates. This hitech project has been developed with the assistance of AgEnt, the USAID agency for agricultural development.

"We expect to target both domestic and export markets for the strawberries. We would expect to expand this venture into other high value horticultural crops given initial success,’’ Mendis said.

The directors of the company are: Messrs. S. Mendis (Chairman), N.G. Wickremeratne, R.W. Soysa, J.A.G. Anandarajah, G.K. Seneviratne, N.I.R. de Mel and H.A. Pieris.

E-mailed daily summary from JK Stock Brokers

John Keells Stock Brokers has moved towards becoming Sri Lanka’s first on-line broker by offering clients a daily stock market up-date by e-mail.

"This service will be provided free of charge to any client. It would include a brief summary of the market, stock market statistics including closing prices of selected counters, a section of the latest business snippets both from home and abroad with particular focus on capital markets, stock market announcements and key recommendations,’’ a company spokesman said.

E-commerce (electronic commerce), which is a popular concept in most developed markets like in the US, is now being frequently used by the financial services industry, globally. JKSB has as a result decided to introduce this concept with regard to its broking activities.

The following is a sample of the April 23 stock market summary issued on-line by JKSB.

67.5% dividend and 3 for 11 bonus
1998 boom year for Singer shareholders

Singer (Sri Lanka) has reported a successful year ending January 2, 1999 with turnover up 18.1% to Rs.3.6 billion and the after-tax profit up 37.3% to Rs.236.9 million.

The company’s Chairman, Mr. Hemaka Amarasuriya, reported that 1998 had been a good year for shareholders with the company’s authorised capital doubled from Rs.250 million to Rs.500 million to accommodate a bonus issue of 3 new shares for every 11 shares issued on October 12, 1998.

The company which had paid three interim dividends amounting to Rs.5.75 per ten rupee share has now proposed a final dividend of Re.1 per share giving shareholders a 67.5% dividend which is among the highest paid by quoted companies for the last financial year.

Amarasuriya said that though the market price per share had come down to 12.75% from Rs.51 in January to Rs.44.50 on December 31, 1998 subject to the bonus issue in a bearish market, the share had performed better than the CSE All Share Index which declined 15% for the year.

Among the other listed companies that gave shareholders good returns were the NDB (65%) and Ceylon Tobacco Company whose dividend pay out also exceeded 50%.

According to a 10-year summary, the Singer profit after-tax for 1998 was the highest ever on record and the dividend rate for the year, up from 37.5% in 1997, has also been the highest in the company’s history.

Amarasuriya said that while the company had priced up for inflation, substantial gains in the market share for their home appliance range had equally contributed to growth "which is the highest so far recorded in value terms.’’

Colour television receivers and refrigerators had been outstanding in the home appliance category with a new line of televisions with high technological features capturing market share gains along with an array of refrigerator models, both locally built and imported.

Amarasuriya also said that their agro products category had benefited from a restructuring of management recording a 22% sales growth. They have added a range of mammoties from Lanka Loha and expanded their offer of water pumps and tractor models again at a competitive advantage.

The chairman said that GST which became effective on April 1, 1998 saw indirect taxation rising to Rs.217.8 million during the year under review from the previous year’s Rs.71.8 million. This had led to pressure on margins but compensatory savings had been obtained through astute procurement of merchandise from the Far East.

They had also contained finance cost by resorting to short-term borrowing through commercial paper, corporate notes and bonds. The increase in interest cost to Rs.136 million in 1998 from Rs.130 million the previous year was marginal in comparison to the sharp business growth and deployment of total assets.

The directors of the company are: Messrs. H.D.S. Amarasuriya (Chairman), G.C.B. Wijeyesinghe, N.C. Peiris, K. Shah (alternate D.J.A. Abeyesekera), J.C. Yuan (resigned l30.6.98)and S. Ramanathan (appointed 29.7.98. Alternate A.P.G.P. Abeysuriya).

Trade balance narrows in Jan. but likely to widen

Substantial savings on the country’s import bill in January this year has enabled the deficit in the trade balance to narrow by as much as 58.4%, the latest economic data reveals. A 1.5% in export earnings also helped this result. But a 5% widening is projected for 1999 by a leading Colombo brokerage.

An analysis on the trade figures done by researchers at John Keells Stock Brokers said that the combination of a 22.6% decline in import cost together with a 1.5% growth in export earnings had reduced the trade deficit during the month to USD 91 million against a deficit of USD 219 million for the comparative period last year.

"However, the comparison is marred by the temporary halt in petroleum imports in January 1999 due to maintenance stoppages at the oil refinery,’’ the analysis said.

The 1.5% growth in January exports was prompted mainly by a 9.5% growth in textile and garment exports. But a 26.4% decline in agricultural exports, largely on account of weak tea prices, created the drag on growth.

John Keells said that all categories of imports had registered declines to pull down overall import bill for January this year by 22.6% year-on-year.

Falling prices of sugar and rice and a relatively weaker Japanese Yen saw consumer imports decline by 19.3%. Import of intermediate goods, mainly attributable to the temporary halt in petroleum imports due to the closure of the Sapugastenna refinery, declined by 24.1%.

Wheat imports have been cheaper this year averaging USD 140.5/mt this January compared to USD 165/mt in January 1998.

The import of investment goods during the month under review declined 21.2% partly due to the drop in cement price and prices of other building materials following sluggish demand in Asian economies in the wake of the East Asian crisis.

"However, the moderate recovery in oil prices is likely to inflate the import bill marginally leading to a 5% widening of the 1999 trade balance ,’’ the analysis said.

Sathosa Motors fete top Isuzu dealers

Sathosa Motors Chairman Sumal Perera recently told Isuzu dealers countrywide that they had to all work as one family to achieve sales targets for mutual benefit. He stressed the importance of an effective communication system between the head office and dealers so that customers could be efficiently served.

Perera was speaking at the annual Isuzu Dealer Convention recently held at the Kandalama Hotel, Dambulla, with senior officials of the company including the chairman and Mr. T. Sugaya, Managing Director participating.

The company’s Deputy General Manager, Mrs. S. de Livera, told the dealers that their credit period had been extended from 30 days to 45 days in order to give them more flexibility.

Marketing Manager Janaka Haththotuwegama offered dealers sales guidelines and outlined for the benefit of its service providers a promotional scheme for the maintenance of the Isuzu range of vehicles.

He also outlined plans to improve sales performance by supplying spare parts for reconditioned vehicles.

The marketing manager told dealers that they should display genuine Isuzu spare parts in their outlets so that customers can see the difference between the genuine spares and imitations that are in the market.

The convention ended with dealers who had achieved the best sales targets being awarded prizes. Janasiri Motors of Kandy won Rs.100,000 and a plaque for being the top dealer in 1998.

A company spokesman said that the dealer convention was followed by a cricket match between dealers and Sathosa Motors staff.

| NEWS | PROVINCIAL | POLITICS | EDITORIAL | DEFENCE | FEATURES | LEISURE | BUSINESS | ADS |