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Very difficult year ahead - Sunil Mendis
Hayleys maintain dividend record despite profit decline

Hayleys Limited, one of the country’s most diversified conglomerates with an export focus, has after several years of profit growth reported results where net profits attributable to the company had declined 15.3% to Rs.355 million during the year ended March 31, 1999.

Hayleys’ just published annual report has incorporated a new table demonstrating the company’s bonus share issue and dividend record which financial analysts said are unparalleled among Sri Lanka companies.

Since 1979, Hayleys has made annual bonus issues to its shareholders excepting in three years (1980, 1984 and 1985) and has sustained over the last 13 years annual dividend payments of a minimum 30% and a maximum 33%.

Despite the downturn partly attributable to the finance charges the company continues to carry which rose to Rs.292 million during the year under review from Rs.274.4 million a year earlier, the 30% dividend is being maintained for fiscal 1998-99.

"Hayleys is at a disadvantage where interest is concerned over similar conglomerates like John Keells Holdings which too have had comparable bonus share issues and dividend records in recent years,’’ an analyst said. "JKH was able to infuse a large tranch of zero cost capital via the issue of Global Depository Receipts (GDRs) at a very high premium when the Sri Lanka capital markets were booming around 1994. This gives JKH the advantage of not having to carry a heavy interest burden although this is now changing.’’

Since 1954 when Hayleys made a rights issue of 1 for 2 at a ten-rupee issue price, along with regular bonus issues, the company has raised shareholder cash only once - with a rights issue of 1 for 5 at an issue price of Rs.160 only in 1994. All other capitalisations had been by way of scrip issues.

"We have endeavoured to look after our shareholders,’’ Hayleys Chairman, Sunil Mendis said.

In his latest annual review, Mendis expressed concern about the over-valued rupee which he said was particularly visible in the face of the East Asian crisis. Value added rubber gloves and carbon produced by the Hayleys group are among products seriously affected.

Mendis also expressed concern about the high effective rate of taxation prevailing on businesses trading locally. He said that the non-deductibility of proper expenditure, mainly overseas travel and part of the national security levy, remained unfair and onerous.

"These anomalies cause the real rate of taxation on these businesses to be considerably higher than the published rate of corporate taxation, and require urgent remedial action from government,’’ he said.

The chairman also expressed disappointment about government support for agro based businesses. He said that exports to the EEC from Sri Lanka attract import duties ranging from 11% to 16%. Pointing out that their activities in this sector provide employment for more than 8,000 people, including outgrowers, he urged that incentives similar to those provided elsewhere in South Asia be considered.

In the course of his review, Mendis also stressed the importance of making changes in the existing labour legislation and said that they were dismayed that no progress had been made on this front.

"Our concerns on Sri Lanka’s labour laws are greatest on the provisions governing permanent employment, the termination of employment and holiday/leave entitlements. It is imperative that Sri Lanka’s labour laws meet the needs of the free market economy it espouses. Left as they are, the laws in force will continue to discourage employment and significantly compromise Sri Lanka’s competitiveness,’’ he said.

Looking at strategy and prospects, Mendis said that the current year will be a very difficult one for the group and they will focus on consolidating existing activity, productivity enhancement and cost reduction.

They will also continue their strategy of recent years to base offices alongside production locations and further decentralise services.

"We will also carry on our strategy of sub-contracting activity and outsourcing production, and we will continue to exit loss-making activities where these cannot be turned around,’’ he said.

The directors of the company are: Messrs. Sunil Mendis (Chairman/CEO), M.J.C. Amarasuriya (Deputy Chairman), M.T.L. Fernando, R. Yatawara, N.G. Wickremeratne, S. Krishnananthan, R.A. Ebell, S.S. Jayawickrama, A.M. Pandithage, L.K.B. Godamunne and Dr. W.M. Tilakaratna.

Troubled Metalix to sell part of its Kotte property

The troubled Metalix Engineering Company Limited is seeking shareholder approval to sell part of the company’s property at Epitamulla Road, Kotte together with 14,344 square feet of building thereon to reduce overdue debts to the Hatton National Bank (HNB).

Last June, Metalix shareholders approved the sale of land at Watareka together with the newly constructed factory buildings there as a means of reducing liabilities to the bank.

But the Metalix board has now decided not to dispose the Watareka property as it considers the retention of ownership of the company’s manufacturing base as vital to its continued operations.

Instead, they have proposed to shareholders "the preferred alternative’’ of rationalising the use of the Kotte land and office buildings which are considered an under-performing asset.

HNB, who are the company’s principal bankers, holds the primary mortgage over the Kotte property where the buildings to be disposed presently houses the company’s registered office.

Shareholders have been furnished a copy of the plan of the Kotte property marking the portion that is to be sold. This indicates that Metalix will continue to own considerable extent of land at Kotte even after the sale of the 56 perches.

An extraordinary general meeting of shareholders has been summoned for June 14 to consider the resolution authorising the property sale.

Grant’s expect "phenomenal growth’’ with Air Lanka account

Grant McCann Erickson which has bagged the Air Lanka advertising account - Sri Lanka’s largest - sees ``phenomenal growth for us’’ with this prize carrying a budget of over US $ 6 million according to Ms. Neela Marikkar, managing director of Grant’s.

She said that a worldwide account director from McCann will be based in Colombo to help service this account and that they would also be drawing from regional resources. Additionally, the effort will be supported by a local team and new job opportunities will be created in the company.

A Grant’s news release described the Air Lanka account as the ``largest ever’’ in this country. Marikkar said it would be difficult to quantify in money terms what the business will be worth for Grant.

She was quoted in the news release saying: ``We are thrilled to be chosen to handle this account and are really looking forward to working on it. It is very exciting for us to become partners in building a new Air Lanka.’’

"The entire strength of McCarnn’s truly extensive global network will be pout behind Air Lanka. In fact, a senior level international teal of experts in the aviation business flew to Sri Lanka to work on the presentation. The advertising campaign will draw on their experience to position Air Lanka as a truly international quality airline,’’ Ms. Marikkar stated.

McCann Erickson is the world’s largest global advertising agency with office in 186 cities in 127 countries. Founded in 1902 the company posted billings of US$ 16.2 billion n 1998. McCann-Erickson was also named the "Global Agency of the Year’’ for 1998 by Adweek.

Grand Advertising, the local partner is the leading edge advertising agency in the country with a history of 41 years in the Sri Lankan market.

Vanik abandons ‘Prestige’ project

The Vanik group has decided to divest a prime Galle Road, Colombo 3 property valued at Rs.378 million on which a BOI approved property development project was planned, the company’s shareholders have been told.

This land belongs to Prestige Property Development Limited, a fully owned subsidiary of Forbes Real Estate (Pvt) Limited, a member of the Vanik group.

Vanik shareholders have been told that the Rs.378 million valuation which was made on March 8 this year excluded development cost and interest cost. But no provisions had been made in the Vanik accounts for 1998 in respect of the decline in value "as the directors are of opinion that these costs are realisable at the point of sale.’’

Vanik said in its annual report that any capital gain or loss arising from this sale will be accounted for at the time of realisation.

Coconut prices tumble

Coconut prices which hit a peak in March/April when prices of up to Rs.10 per nut ex- estate were realised have tumbled in recent weeks with current price levels around Rs.6 to Rs.6.50 per nut.

"Rs.6.50 is the maximum now. The Vesak crop is usually the best for the year and some estates have recorded unexpectedly high production. But this is not the only reason for the price drop," a coconut trader said. "Parings from the copra and desiccated coconut industry have become difficult even impossible to sell and this is a major reason for the current price drop.’’

Coconuts held its own while tea and rubber prices declined sharply recently. But that picture is now changing, the trader said.

Hayleys get duty free shop at last

Hayleys Electronics has been granted a duty free shop at the arrivals terminal of the Bandaranaike International Airport, the company has announced.

Hayleys application for this facility had been a long-standing one and the company’s Chairman, Mr. Sunil Mendis, has in his annual report thanked the government for issuing this facility.

Many Lankans working abroad wished to make duty free purchases of appliances and other electronic goods find shopping at the airport a great convenience as it eliminates pressure on their airline baggage allowances and also gives them a similar or better duty free price to those available in. the Middle East.

The American economic model

By Kanes
Both developed and developing countries are being constantly tutored by the US, IMF, World Bank and many economists and financial analysts to liberalize and deregulate the economy, slash public spending, particularly on welfare, eliminate state intervention, introduce flexibility to labour markets and open the doors widely for foreign trade and investment so as to put their houses in order and to achieve rapid growth of income and employment. They are being told, in other words, to copy the American model, hook, line and sinker, to be strong and viable.

Germany and other countries in Western Europe are having high persistent unemployment exceeding 10 per cent and Japan is experiencing an economic recession with negative growth after several years of low growth. The trouble with them, according to the US/IMF/World Bank, is their outdated models of economic development, and they can revive their economies and increase income and employment by abandoning their obsolete models and adopting instead the American model of laissez faire capitalism.

The IMF and the World Bank are the most effective propagators of the American model. Their stereotype reform packages and restructuring programme are calculated to introduce the American model to all the countries, particularly the developing countries and the economies in transition (former socialist countries). There was a time when the Japanese and German models were admired by the IMF/World Bank and even considered superior to the American one, particularly when they brought about higher growth rates and better employer-employee relations, but not any more. It was only about two years ago that the IMF/World Bank considered East Asian economies as ideal models of economic growth for the other developing countries, but now they are being told and pressurized to reject their tried and tested model and to adopt the "free-market" system of the US.

Different Models

Different countries are having different models of economic growth, shaped by their history and culture. They have their strong points as well as weak points; they have had their successes with periods of high growth and failures with periods of low growth. Just because some countries are having low growth now while others are experiencing high growth, it does not necessarily mean that the economic model of the former is flawed and that of the latter is ideal. Success and failure can result from the model itself; they can also result from factors other than the model. Let us take four basic models of economic growth: Japan, Germany, the East Asian Tigers and the USA and compare their strengths and weaknesses.

The Japanese model of state guided capitalism was responsible for building the war-torn economy into a world economic power. State guidance, protection, assistance and sometimes direction, provided a decisive stimulus to private enterprise; life-time employment ensured loyalty and high skill levels; high expenditure on education resulted in an educated and skilled labour force; close links between business firms and banks was mutually reinforcing: corporate cross-shareholdings sheltered managers from shareholders and allowed them to take a long-term view of business, rather than short-term profits. The Japanese economy, however, has suffered from poor growth and is in recession - with negative growth in 1998 and possibly in 1999, and this has led to a questioning of the traditional virtues which built it up. Life-time employment, it is argued is preventing firms from cutting costs; state guidance, protection, business-banks linkages and cross-shareholdings have been criticized as conducive to sheltering companies from exposure to the market forces fully and reducing incentive to use capital efficiently; business networks, it is presumed, discourage foreign investment and competition.

The social-market model of Germany embracing a high level of education and training, social harmony resulting from generous welfare benefits and narrow wage dispersion, high investment arising out of close links between banks and business and worker participation in management, was instrumental in transforming the war-ravaged economy into a leading economic power like Japan in a relatively short time. The critics, however, point out that its strong trade unions, high taxes, generous jobless benefits and labour restrictions have contributed to Germany’s high rate of unemployment. The Swedish model which is even more welfare-oriented than the German one, has become difficult to support in a recession without budget deficits and inflation and it is pointed out that its high taxes reduce incentives to work.

The more recent and the more publicized model is that of East Asian ‘tigers’ which in Korea and Taiwan, following the Japanese model, consisted of selective state intervention, state ownership of strategic sectors, protection for infant industries and free trade for mature industries, and excessive dependence on foreign capital investment and loans in spite of their high rate of domestic savings; Singapore adopted most of these strategies except protection while Hong Kong being a colony and a free port was an exception. Malaysia, Indonesia and Thailand too adopted this model with some variations. These economies which were helped up by the IMF/World Bank as models of rapid growth for the other developing countries are now being found fault with for the very strategies they adopted. They are being accused of crony capitalism, non-transparency and corruption which were never mentioned by these organizations when they were growing rapidly until the recent crisis.

Sustained High Growth

It is important to recognize that these models ensured sustained high growth, high levels of employment and income in all these countries in the past as shown in the table. Japan for instance, achieved sustained high growth for thirty years 1960-1990: its average annual growth rate exceeded that of the USA in all these years. In fact, it was more than double the US rate in the sixties. It was only in the nineties that it fell below the US growth rate. The German growth rate was very close to that of the USA in the twenty years 1960-1990 and in fact it exceeded the US rate in the 15 years 1965-1980. However, it declined and fell below the US rate from 1980 onwards.

The East Asian Tigers achieved the world’s highest sustained economic growth in recent years. South Korea, Taiwan and Hong Kong had an average growth rate of around 9 per cent in the thirty years 1960-1990 with Singapore coming closely behind. The newly industrializing countries of South East Asia achieved slightly lower growth rates; Thailand’s growth rate was around 8 per cent in the 36 years 1960-1996 while Indonesia and Malaysia’s was around 7 to 8 per cent in the 26 years 1970-1996. It is only after the currency crisis of 1997 that rapid growth has been interrupted in those countries.

China, which is a socialist market economy with Chinese characteristics, has achieved an average growth over 10 per cent in the 16 years 1980-1996 - the highest in the world.

It cannot be denied that the Japanese and the East Asian models brought about high sustained economic growth in Japan and East and South-East Asia. Japan had a higher rate of economic growth than other developed countries, particularly the USA for over 30 years and East and South-East Asia achieved high sustained growth exceeding that of other developing countries for about 25 to 30 years. Japan has experienced low growth below the US rate only in the last eight years and East and South-East Asia have had low - in some cases negative - growth only in the last year or two. Are we right in rejecting a model which has generated sustained high growth for about 30 years just because growth has declined for a few years - eight years in Japan and two years in East and South-East Asia?

US Economic Performance

The US economy can be a model worthy of emulation only if it has proved to have been an outstanding success with its performance superior to other economies. But is this so? In thirty years 1960-1990, the US economic growth, as pointed out earlier, was much lower than Japan’s. In the last ten years 1989-1990, the average economic growth in the US and Germany has been almost the same but higher than Japan’s, but the growth of GDP per head in the US has been 1.6 per cent, the same as in Japan, but less than 1.9 per cent in Germany. Second, growth of productivity (GDP per worker) over the decade in the US of about 1.0 per cent was less than in both Japan and Germany; Japan’s rate was slightly above that of the US but the German rate of 2.6 per cent was more than twice as fast. The US, however, has shown its superiority in one vital sector - employment creation. Unemployment in the US has fallen to about 4.2 per cent of the labour force or less than half of Germany’s rate of 10.5 per cent and even less than Japan’s 4.6 per cent. The US, it is argued, has been able to create new employment to reduce its unemployment when unemployment is increasing in Germany and Japan, mainly because of its flexible labour market - flexible wages and the freedom the employer has to hire and fire his workers without difficulty.

Few however, point out that the US was able to create jobs because it is experiencing an economic boom whereas Japan and Germany are having recession or low growth and jobs cannot be created in such conditions. One of the most severe criticisms of the American model is that even if it creates employment it also creates vast inequality of income. The lowest 20 per cent of the population receive 4.8 per cent of the total income in the US (in 1994) as compared to 9.0 per cent in Germany (in 1989) and 7.2 per cent in France (in 1989) and the highest 20 per cent of the population receive 45.2 per cent of the total income in the US as compared to 37.1 per cent in Germany and 40.1 per cent in France. The Economist of 10 April 1999 concludes:

"Overall, however, the notion that the American economy stands on top of the world is questionable. It is also vulnerable to criticism because of its wider income inequality. It is often asserted that America has traded higher inequality for faster growth; yet over the past decade, average incomes have risen by similar amounts in the three countries, despite America’s bigger income differentials. The richest 20 per cent earn nine times as much as the poorest 20 per cent compared with a ratio of four times in Japan and six times in Germany. Despite high average income in America the poorest 20 per cent in Japan are about 50 per cent better off than America’s poorest 20 per cent. If America’s economy were now to go into recession its "model" would come under fire from other directions as well".

Some economic analysts in fact, fear an end to the buoyant conditions in America in the near future. They point out the over-valued stock market, negative personal savings which makes the country heavily dependent on foreign capital, large current account deficit of nearly $300 billion, declining growth rate of exports from 11.6 per cent in 1997 to 2.2 per cent in 1998, slower economic growth and the current depreciation of the dollar against the yen, as signs of a bubble about to burst. If that were to happen the American economy will in all probability cease to be a model. It must not be forgotten the American economy looked as if its rapid economic growth would not end in the 1920s but in 1930 it crashed.

Besides, the introduction of the American model may not help Japan, Germany or the East Asian countries, for the causes of their crises lie not in their models but elsewhere. In the case of Japan and Germany, their slowdown is caused mainly by a slump in demand caused by oversight monetary and fiscal policies and consequently, what is necessary in these countries is reflation by expansionary monetary and fiscal policies.

Some of the leading Japanese corporations like Sony and NEC have retrenched their workers in order to downsize their enterprises as in America, but this has only increased Japan’s rate of unemployment as there is no business investment in a recession. Germany is restrained by the Maasrtricht Treaty to follow expansionary policies.

The East Asian crisis was caused not by any shortcomings in its model but by the disruptive movements of speculative short-term foreign funds; the remedy lies in international regulation of capital movements and failing that, in national control, and not in any tinkering with the ‘East Asian Model’. Failure of monetary and fiscal policies and excessive exposure to short-term foreign capital should not be mistaken as a failure of an economic model.

All models have their strengths and weaknesses but different models suit different countries owing to historical and cultural factors. America, for instance, is less concerned than Japan and Germany about equality and social cohesion; it is more individualistic and aggressively competitive. There is a great danger in introducing foreign models to countries with different backgrounds. Perhaps the best example is the transformation of Russia into a basket case by attempting to introduce laissez faire capitalism into a country with a history and a culture hostile to it. The American model may therefore stifle growth rather than promote it. 

Cost of terrorism cover bites into developers’ profits
New office space flooding Colombo’s saturated market

One of the leading operators of office buildings in Colombo has reported that ``more and more (office) rental space has flooded the already saturated market’’ and developers are unable to obtain increased rentals to contend with growing operating costs.

Said Reginal. F. Poulier, chairman of Equity One Limited, the Carsons subsidiary owning an office complex at the Dharmapala Mawatha: ``Competition within the sector has remained intense throughout the year with many property developers resorting to lowering rental rates attract new tenants.’’

His company, however reported improved profitability largely on account of lower taxation for the year ended March 31, 1999 on a flat turnover and operating profits.

Taxation for the year at Rs.4.2 million was down from Rs.6.2 million the previous year enabling the company to post a Rs.10 million after-tax profit against Rs.8.3 million a year earlier although the operating profit of Rs.14.2 million was marginally down from Rs.14.5 million earned the previous year.

Poulier said that with several new sophisticated high-rise buildings coming into the market, Equity One had to stress its location and personalised services to retain and renew expiring tenancies at higher rates.

He said that occupancy had increased to 95.6% from 92.6% the previous year. They have begun a comprehensive refurbishing to retain standards and their select client portfolio. Phase one of the refurbishing was completed last year and phase two was continuing now.

Poulier said that if economic conditions in the country improved, they could look forward to a more promising year since real estate and property development are among the first to benefit from improved economic growth.

Carsons Management Services Limited, who are the managers of the company, said that although economic conditions were not ideal to launch new properties, a few new projects initiated two or three years ago had been completed and more rental space flooded the already saturated market.

"Due to surplus rental space in the market, property developers were unable to obtain material increases in rental rates to contend with escalating operating costs,’’ the managers said.

They said that although the cost of insurance continued to exact a heavy toll on profits, the directors considered it prudent to continue terrorism cover in the context of the prevailing security situation.

However, the company renewed such policies "in short breaks’’ with the stabilisation of the security situation so that it could take advantage of lower premium.

The company has declared a final dividend of 8% on top of an 8% interim to give the shareholders a 16% return for the year, up from 13% the previous year.

The directors of the company are: Messrs R.F. Poulier (Chairman), H. Selvanathan, W. Unamboowe, C. Wijenaike, S. Nagendra and K.C.N. Fernando.

Coco Lanka ups profit

Coco Lanka Limited, manufacturers of coconut milk for the domestic and export markets, had seen both an increase in turnover and profitability during the year ending March 31, 1999 according to a provisional financial statement now with shareholders.

Turnover during the year under review at Rs.150.1 million was up from Rs.133.5 million a year earlier while the operating profit had grown to Rs.27.1 million from Rs.20.7 million the previous year.

With other income too rising to Rs.4.3 million from Rs.3.4 million a year earlier, and the provision for taxation declining to Rs.35,000 from Rs.234,000 the previous year, the company posted an after-tax profit of Rs.31.4 million, up from Rs.23.9 million the previous year.

With retained profits of Rs.41.3 million brought forward, the company had Rs.72.7 million available for appropriation as at March 31, 1999.

Coco Lanka which has an issued capital of Rs.42 million has not yet announced any dividend for the year under review. A dividend absorbing Rs.8.4 million was paid the previous year.

Rhino Roofing depot in Kurunegala

Rhino Roofing, a leading supplier of quality roofing products in the country, will shortly open its first outstation depot in Kurunegala, the company’s Chairman, Mr. A.Y.S. Gnanam, announced.

Gnanam who met dealers in Kurunegala recently said that the new depot will serve the NWP, NCP, Central and Eastern provinces and make the product more accessible. Delivery time too will be shortened.

Gnanam who said that this would be the first such depot in the country, asked the dealers for their suggestion on running it smoothly with customer convenience as the top priority. If this experiment proves a success, they would seriously consider opening outlets that will strategically located in various parts of the country.

Rhino which enjoys a 45% market share of asbestos roofing sheets in the country produces fibre cement sheets for roofing as well as flat asbestos sheets for ceilings.

The company is due to shortly commission its third fully automated manufacturing unit with three vats built at a cost of Rs.150 million that will raise total production to 500 mt. per day.

Royal Ceramics braves inhospitable climate

Royal Ceramics Lanka Limited, a leading manufacturer of floor tiles has improved on its performance during the year ending March 31, 1999 despite an increasingly competitive trading environment both locally and abroad.

The company had boosted consolidated turnover to Rs.625.8 million from Rs.588.6 million a year earlier and posted a trading profit of Rs.94.9 million, up from Rs.81 million earned in 1997/98.

With other income of Rs.5.4 million (Rs.3.9 million the previous year), the company had a pre-tax profit of Rs.100.2 million during the year under review, up from Rs.84.8 million a year earlier. Taxation remained marginal at Rs.1.4 million as the company is still within its tax holiday and the after-tax result was a profit of Rs.98.8 million, up from Rs.83.5 million the previous year.

After allowing for deferred revenue expenditure of Rs.3.1 million, Royal Ceramics had a profit of Rs.95.7 million for the year against Rs.77.7 million the previous year. With brought forward profits, the company had Rs.230.7 million available for appropriation as at March 31, 1999. An interim dividend of 10% has already been paid. No final dividend has yet been announced as the accounts presented to shareholders are provisional and subject to audit.

Royal Ceramics had an issued share capital of Rs.307.7 million and reserves of Rs.470.9 million in its books as at March 31, 1999.

Eagle takeover - the next step

The CTC Eagle Insurance Company Limited has formally notified shareholders of the acquisition of 80.36% of its shares by Zurich NDB Finance Lanka (Pvt) Limited (ZFL).

The announcement said that the directors of CTC Eagle are awaiting the offer documents from ZFL in terms of the Take Overs and Mergers Code to consider the offer ZFL is now obliged to make to all CTC Eagle shareholders and make their observations to the shareholders.

ZFL paid a price of Rs.44.25 for the majority stake in the company held by the Ceylon Tobacco Company Limited and is obliged by law to offer the same price to other shareholders of CTC Eagle which will shortly change its name to Eagle Insurance Company Limited.

SIA will invest to promote Lanka as a destination

A top Singapore Airlines (SIA) executive who was in town last week for a meeting of the airline’s area and sales managers from South Asia, West Asia and Africa has indicated SIA’s interest in promoting Sri Lanka as a holiday destination and investing in that cause, travel trade executives said.

"The action plan is in place to promote Sri Lanka in November,’’ said Ratna Sivaratnam, Chairman and CEO of Aitken Spence and Co. Ltd. who have been SIA’s general sales agents here for 29 years.

Michael. J.N. Tan, Executive Vice President (Commercial) of SIA, the highest ranking SIA executive to visit Sri Lanka in the last decade, discussed joint promotion of the country during a courtesy call on Tourism and Aviation Minister Dharmasiri Senanayake on Friday. Tan, who holds the No. 2 slot in his airline, told a Colombo news conference that the minister was ``most supportive.’’

Asked whether SIA was willing to spend money on such promotion, Tan responded "I wouldn’t say ‘spend’. I’d rather say we’d invest in the future.’’ He stressed that promoting the destination was not the only task before them. There had also to be a parallel increase in airline transportation capacity to bring the tourists in.

The local travel trade was delighted that SIA had chosen Colombo for this regional meeting, interpreting this to mean that the region’s most vibrant airline had confidence in the country’s stability and security.

Sivaratnam had been encouraging them to hold this meeting here for the past two or three years. Bringing some 50 delegates for this meeting which reviewed the airline’s performance and plans was considered a major plus for the country’s tourism industry.

"Mr. Sivaratnam has given us a very warm welcome and we’re very pleased to be here,’’ Tan said.

Asked whether the ongoing conflict and security situation were matters of concern, Tan said: ``As far as tourism is concerned, foreign tourists are getting confident to come to Sri Lanka.’’

SIA which currently operates seven weekly frequencies to Colombo have no immediate plans to increase their number of flights here. But they would like to eventually increase their frequencies by increments of three with ten weekly flights in the first stage. Total traffic on the Singapore - Colombo sector had grown 18% in the last six months with the growth coinciding with increased capacity.

Sivaratnam said that SIA which now operates seven weekly fights to the Maldives had done yeoman service in promoting that destination. Beginning by routing two European flights through the Maldives, several fights now terminate there.

He told the Sunday Island: ``I’d like them to do for us what they did for the Maldives in the Asian region where they cover 68 cities.’’

Tan said that a market was emerging from the recession in South Korea with their load factors increasing 3 percent. South Koreans flying to Singapore may like to extend their visit to Sri Lanka. So also the Australian market which SIA served with fifty weekly flights.

Tea Smallholders lose 50% of profit but invests for the future

Tea Smallholder Factories Limited, among the biggest manufacturers of smallholder green leaf in the country, had seen a 53% plunge in its pre-tax profit of Rs.61.4 million for the financial year ended March 31, 1999, entirely attributable to the collapse of the tea market. But it has commissioned a new factory and invested heavily on capital development.

The company’s Chairman, Mr. Chandra Wijenaike, said that despite the need to control leaf intakes to cater to a selective market and restricted factory capacity, production had increased during the year by 2.2% to 6.4 million kg.

The company commissioned its new state-of-the-art factory named Karawita at Nivitigala in the Ratnapura District last March. This factory with a capacity of 840,000 kg. per year has produced encouraging results on initial invoices. It is expected to have a positive impact on the company’s performance in the current financial year.

The company has invested Rs.192 million over the past year on capital development and infrastructure to automate and upgrade capacity at its nine factories located at various elevations. The construction of the Karawita Factory was part of this development.

Wijenaike said that there was fierce competition for leaf from newly established government and private factories offering ad hoc concessions to producers. But the company which serves 14,300 individuals/smallholders maintained its established bonds with suppliers.

"It is evident that our stability, our unique personalised extension services, our capacity to pay well and on time have been the key factors of our success. As your Chairman I am proud to state this fact,’’ Wijenaike said.

He welcomed the revision of the "unrealistic’’ green leaf price formula over which agitation had reached crisis proportions with the depressed market. The recent modification of this formula was described as a welcome move.

Wijenaike said that the company will continue to endeavour to achieve its targeted crops without compromising on quality. They were educating suppliers of "below best’’ green leaf to supply a better product with some of the factories ensuring lucrative returns for premium leaf.

The company in which the John Keells Holdings and Central Finance are the major shareholders paid an interim dividend of 10% and has now proposed a final 10% dividend for the year giving the shareholders a 20% return. This compared with the previous year’s 25% dividend yield.

Wijenaike said that the current year could be viewed with some optimism in the context of upward movement of prices for long leaf teas in recent weeks. The new factory will also contribute to enhancing the company’s performance.

JKH is the biggest shareholder of the company with a 37% stake while Central Finance owns 15.6% and its associate, CF Growth Fund, owns 6.1%. The NDB has a 12.2% slice, the Tea Plantations Investments Trust 8.3% and the Regent Sri Lanka Fund 2.6%.

The directors of the company are: Messrs. C. Wijenaike (Chairman), K. Balendra (Deputy Chairman), V. Lintotawela, J.S. Ratwatte, V.A.A. Perera, L.D. Ramanayake, T.M. Dunuwille, W.D. Barnabas, M.O.F. Salieh and Dr. D.S.A. Samaraweera.

Orienting to new corporate structure after Forbes acquisition
Vanik upbeat despite small loss in 1998

Vanik Incorporation Limited which began in 1993 with a single computer and the dream of becoming the country’s leading merchant bank has completed a difficult year ending December 31, 1998 with a loss of Rs.16.8 million attributable to the company, down from a profit of Rs.78.6 million in 1997.

But Vanik’s Chairman, Dr. W.M. Tilakaratna, has seen the corporation "moving forward in a difficult market’’ in a year of consolidation.

Justin Meegoda, Vanik’s Chief Executive Officer, has also remained upbeat saying that nobody would have envisaged that Vanik would acquire Forbes "as it was not within the market experience that a 4-year-old company should attempt to purchase a 125-year-old entity with an asset base twice as large as itself.’’

Meegoda reported that Forbes was purchased in the last week of fiscal 1997, but it was only in 1998 that they oriented themselves to the new corporate structure which was significantly different to what they had prior to the acquisition.

1998 had seen Vanik’s interest cost growing to Rs.945.2 million from Rs.705.9 million a year earlier mainly due to the interest cost on 101 million debentures issued for the acquisition of Forbes Ceylon.

The group’s total assets had decreased Rs.2 billion from Rs.13.5 billion in 1997 to Rs.11.4 billion in 1998. Investments in fixed income securities had decreased sharply from Rs.1.7 billion to Rs.0.2 billion with the funds being used to settle some of the creditors.

Vanik also reduced its investments in government securities during the year to Rs.1.6 billion - nearly half the value of the preceding year’s portfolio.

However, the group’s leasing portfolio had increased by Rs.363 million while loans, advances and other facilities increased by Rs.273 million.

The year had seen the group increasing its holding in the Pan Asia Bank from 15% to 20% with the cost of this investment now amounting to Rs.147 million.

The Vanik group had also acquired a 20% stake in Watawala Plantations at a cost of Rs.299.4 million and increased its stake in LB Finance Limited, which stood at 53% at the beginning of the year to 68% at an additional cost of Rs.20.2 million.

Shareholders’ funds had reduced 3% during the year to Rs.1.3 billion. The setback was attributed to provisions made in respect of doubtful debts and reduction in share value.

Vanik said that it had managed to record a profit of Rs.25.2 million in its first year of operations after the acquisition of the Forbes group. Although the return on shareholders’ funds was a "dismal’’ figures of 1.8% compared to the highest return of 26% achieved in 1994, Vanik said that it has "ventured into management of a well diversified group which is expected to prosper in the future.’’

It also said that investments in associate companies had brought a low return. But these were medium and long term investments and high returns were not expected in the short term. "However, the group expects higher returns on these investments in the future.’’

In June 1998 the company paid a 5% dividend amounting to Rs.38.5 million in comparison to dividends of 18% and 8% paid during 1994 and 1995.

The Commonwealth Development Corporation was the top shareholder of Vanik with 8.59% of its shares. This stake has now been purchased by Colombo businessman Nahil Wijesuriya. Asian Finance and Investments Corporation Limited owns a 8.21% stake and is the company’s second biggest shareholder.

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