home.gif (305 bytes).

b
Who is Uma Kumar Sharma of Multivision?
Mystery investor bids for Intercon owning company

An investor believed to be an Indian has made an attractive bid for a controlling slice of Hotel Services (Ceylon) Ltd., the owning company of the Hotel Ceylon Intercontinental, Colombo’s first five star property which has remained relatively debt free while many of the newer five stars are loaded with debt.

The Colombo Stock Exchange (CSE) Friday suspended trading of Hotel Services shares after the Asian Hotels Corporation, the controlling shareholder of the Intercontinental owning company, notified the CSE that it had received a bid the previous day from a Colombo broker, acting for Mr. Uma Kumar Sharma, Chairman of Multivision International (Pvt.) Ltd., to purchase its 51% stake in Hotel Services at a price of Rs. 26 per share.

Asian Hotels Secretary, Manohan Nanayakkara, told the Surveillance and Enforcement Division of the CSE that his company ``is currently studying the offer.’’

Well informed business circles expect this deal to go through once a debt collection problem is quickly sorted out. One source said that the CSE was being informed on Friday that Asian Hotels was accepting the offer, but there was no confirmation of this.

Lanka Securities acting for Mr. Sharma was tight-lipped on the deal saying it was still under consideration. Asked whether he was an Indian, Lanka Securities’ CEO said ``I can’t tell you even that. I’ve got to keep everything confidential.’’

The offer caught some of the directors of Hotel Services by surprise. They learned of it through the CSE after the formal notification had been made by Asian Hotels. The sources said that although Asian Hotels have said that they received the formal offer at 3.10 p.m. on Thursday, it appears that the news was in the air.

``The Hotel Services share price moved sharply to Rs. 19 on Thursday, up from the previously traded Rs. 14.75,’’ an analyst said. ``It looked like something was cooking.’’ In addition to Asian Hotels, the other major shareholders of Hotel Services are the Mercantile Investments / George Ondaatjie group, the Renuka Hotels / Ravi Thambyah group and Sanjeev Gardiner who together own about 30% of the company.

Ondaatjie said that he was willing to sell out and resign his place on the Hotel Services Board. ``The acquisition of over 30% of a quoted company triggers the mandatory offer requirement,’’ he said. ``But I don’t want to wait for that. I have indicated my willingness to sell now.’’

Thambyah, whose group like Ondaatjie’s, owns about 12% of Hotel Services, said that he too was willing to sell. Like the Mercantile Investments Chairman, he too is willing to quit the Hotel Services board which he joined after acquiring a stake in that company less than an year ago.

Sanjeev Gardiner was out of the country and what his thinking of the 26-rupee bid was not clear yesterday.

The Intercontinental Hotels Corporation which operates the hotel on a lease agreement with Hotel Services also has a 7% stake in the owning company and is represented on its board. According to business circles, the Intercontinental too is believed to be interested in acquiring the owning company.

Ondaatjie acquired nearly 1.8 million shares for Mercantile Investments at Rs. 6.50 a share while he paid a Rs. 10 for his personal stake of 120,200 shares. The Renuka interests averaged Rs. 7.80 for their stake of nearly 2 million shares.

The 250-room Intercontinental stands on a prime seafront site and hoteliers say that at current prices, it would not be possible to build a similar property for less that two billion rupees.

Some months ago, Hotel Services announced a rights issue of slightly over 5 million convertible/redeemable ten rupee debentures to existing shareholders in the proportion of two debentures for every seven shares held. The zero coupon rated debentures were to be issued at a discounted price of Rs. 4 and were to be either converted or redeemed on the fourth anniversary of their issue.

But this issue, intended to raise zero cost cash, had remained pending for some months awaiting approval through a resolution of members of the company.

b5
Govt. took offense over industry pocketing GST benefit?
Beer excise duty whack retaliatory, says Lion

Did the government slap down a huge excise duty hike on beer by the budget of November 1998 because the industry tried to make a fast buck when the 18% turnover tax applicable to beer was replaced with a 12.5% GST in April 1998?

This is the ``apparent reason’’ according to The Lion Brewery Ceylon Ltd. which invested a massive Rs. 1.8 billion on a state-of-the-art brewery which was commissioned last year.

``The authorities apparently took offense at the beer industry for not reducing the price with the introduction of the GST. In retaliation it decided to increase the excise duty on beer in November 1998,’’ Lion alleged.

This increase in excise duty according to both Lion and its parent, The Ceylon Brewery, had placed an industry which became profitable after the 70% excise duty reduction in 1995 back in the doldrums. Volumes had declined by a sharp 28% and profits (industrywide) which were around Rs. 30 million a month have now ``virtually dried up.’’

Lion says that when the lower GST replaced BTT, the industry which had not raised prices for the preceding 30 months ``even in the case of increasing costs’’ decided to retain the advantage of the lower sales tax without passing on the benefit to the consumer.

``In other words, a de facto price increase (was) justified by the fact that beer prices had remained stable for 30 months. Further, the beer industry was not alone in using the GST to its advantage. Indeed, many organisations added on the GST to the prevailing price which included the turnover tax at the time. In fact, beer was one of the few products where prices remained constant with the introduction of the GST,’’ Lion said.

In the company’s just published annual report, it has provided a table comparing the GST ``benefit’’ and the excise duty increase which it says is ``revealing.’’ According to this comparison Lion Lager had a Rs. 2.68 benefit from the lower GST while Carlsberg had a Rs. 3.63 advantage.

But the increase in tax for Lion lager was Rs. 9.20 and Carlsberg Rs. 10.19. So the end result was that Lion Lager had to carry an excess tax of Rs. 6.52 a bottle over the GST benefit while Carlsberg had to carry Rs. 6.56.

b4
"Some spend more time avoiding than doing work’’
Lion Brewery offers a recipe for labour reforms

What’s wrong with Sri Lanka’s labour? It’s notorious for its lack of productivity and companies cannot fire employees for incompetence, says The Lion Brewery Ceylon Ltd. which has invested Rs. 1.8 billion in a state-of-the-art brewery commissioned a few months ago.

Shooting from the hip, Lion’s annual report has said: ``Fortified by such incomprehensible regulations ( that is a company can’t dismiss an employee for incompetence), employees, particularly those in trade unions, spend time in seeking methods of avoiding rather than doing work. Thus it is not surprise that productivity suffers.’’

The company has argued that ``such stringent labour laws’’ act as a deterrent to employment generation. As unproductive employees cannot be dismissed, many businesses prefer a capital intensive option or automation to employment generation.

It has said that the result is that the law as its exists, which intends to safeguard employment, ``has a reverse effect in reality.’’

The company has cited itself as a prime example of the point it has made and said that had labour laws here been more `industry friendly’ automation at its new brewery ``may have been substituted by labour at least to some degree.’’

Lion has strongly urged that labour regulations must permit usinesses the flexibility of retrenchment. ``This will guarantee a productive labour force and it will help employment generation,’’ the report has said. ``A company will not dismiss a productive employee on flimsy grounds; it’s bad for business,’’ it said.

Arguing that this logic will safeguard the rights of productive employees, the report makes the point that organisations need labour, be it managerial, clerical or physical. Employees at all levels contribute very significantly to the growth of the organisation, the report said, and must be properly paid for their efforts.

``The most pragmatic method of linking rewards to performance is to tie remuneration to productivity - an area that labour reforms must focus on,’’ the report said

Lion also stressed the necessity of preventing wildcat strikes and recommended a system of secret balloting of union members to take a strike decision. The company believes that this will limit the incidence of strikes at short notice.

Management charges nearly thrice dividend
Balangoda pays Rs. 70 mn. management fee to Stassen

Balangoda Plantations Limited controlled by the Stassen Group through the Distilleries Company of Sri Lanka Limited and Milford Exports (Ceylon) Limited have paid a management fee of Rs.70.7 million to Stassen Exports Limited during the financial year ending December 31, 1998, the company’s annual report reveals.

The Balangoda directors have recommended a 10% dividend to shareholders which will absorb Rs.23.6 million, down from the previous year’s 30% dividend costing Rs.60 million. The 1998 dividend is being paid on a higher share capital consequent to Milford Exports converting Rs. 150 million worth of convertible shares it held into 3.6 million ordinary ten-rupee shares on Dec. 1, 1998.

The management fee paid to Stassen Exports during the previous financial year was Rs.78.1 million. Balangoda’s 1998 turnover at Rs.1.3 billion was down slightly from the previous year’s Rs.1.37 billion.

The company’s Chairman, Mr. V.P. Vittachi, described 1998 as "a year of changing fortunes’’ for the plantation industry in general and tea in particular. While buoyant tea prices from the previous year spilled over into the first half of the last year, they had taken a nose-dive in the second half.

Vittachi said that despite the 6.6% decline in Balangoda’s estate leaf due to adverse weather conditions, the bought leaf intake was up 9.7% and as a result their total tea production declined only by 1.2%.

Thanks to the first half increase in tea prices, the 1998 average price achieved by the company’s teas was Rs.118.05 per kg. up from Rs.115.80 the previous year. But rubber prices dropped sharply from Rs.69.94 to Rs.50.63. Rubber production was also affected by a crop decline.

All these factors combined to reduce the company’s pre-tax profit to Rs.174.3 million, down from the record Rs.310.8 million the previous year. Vittachi claimed that it was possible to achieve a profit in the face of various adverse conditions essentially due to efficient management by a dedicated group of people.

The directors of the company are: Dr. V.P. Vittachi (Chairman), Messrs. D.H.S. Jayawardena (Managing Director), R.K. Obeyesekere, C.R. Jansz and S.K.L-.Obeyesekere (CEO).

Inequality is reduced

By Analyst
Plato told his pupil Aristotle that within any organisation, nobody should have more than 5 times as much as the lowliest worker. But the Chief Executive of a big American firm earns more than 1 million dollars a year, which is at least 40 times as much as an ordinary production worker.

Mr. Franklyn Amarasinghe Director General of the Employers Federation in a recent article says in our own private sector the differential between the highest and the lowest in a company is about 1:20. In the public sector the differential is very much lower, being about 1:4 he says.

Of course the Chief Executives in the departments in the public service and corporation managers have abdicated their power of management to the lower grade employees and even join in with trade unions in support of higher pay.

But to what extent are such differentials justified socially? In Britain the commission for social justice painted a grim picture of poverty amid wealth. It’s much worse in America. What of our own country?

Most people argue rightly that income equality worsened after the economy was opened in 1977. Similar increases in income inequalities have occurred in economies like Britain, U.S.A. and New Zealand where free market policies have been pursued most zealously.

Although most economists now agree that Adam Smith’s invisible hand is a superior economic engine, they worry that economic rewards are not being shared adequately. It is commonly assumed that with the liberalisation of the economy and the introduction of the open economy, those at the top of the income distribution, grew enormously while those at the bottom have few gains to show.

This disparity in income, it was assumed would widen with the large tax concessions to individuals and firms. The trickle down effect was discounted and growth with social justice was considered to be mere rhetoric with cash incentives for the rich and false promises for the poor.

The Report on Consumer Finances and Socio-Economic Survey 1996/97 states that there is a slight narrowing of disparities in income in both urban village and estate sectors unlike in the previous survey reports. Inequality had widened between 1978/79 and 1981/82 and remained almost unchanged between 1981/82 and 1986/87.

The report states that "the deterioration of the income distribution in the early post-liberalization period was due to the fact population in lower income groups who were protected through interventionist policies, became marginalised while those who were better equipped with physical and other assets had the opportunity to reap the benefits of the liberalised market mechanism. Thus any improvement in income equality was not reflected in the surveys conducted in 1978/79, 1981/82 and 1986/87. In contrast, the present survey shows a turn around in this trend".

Measuring inequality

The share of income accruing to the poorest 10% of income receivers increased from 1.1% in 1986/87 to 1.3% in 1996/97 while the share accruing to the bottom 40% rose from 11.4% to 12.9%. The share of the middle income groups also increased from 20.9% to 22.6%. The income share of the richest 10% declined from 41.4% in 1986/97 to 37.3% in 1996/97.

Thus the worsening of the income equality which took place after 1977 and was reflected in both the surveys of 1981/82 and 1986/87 have been reversed.

If poverty is defined as the condition of income receivers with say less than half of the median (a better measure than the mean) income, then poverty is mainly in the estate sector. The median income in 1996/97 was Rs. 1,195 in terms of 1986/87 prices. If we consider as poor those income receivers with less than half of this income or Rs. 597 and compare it with the real incomes in the various sectors we find it is Rs. 691 in the estate sector, Rs. 1,214 in the rural and Rs. 1,714 in the urban sector. If we use the mean instead of the median we find poverty is less than 30% for all sectors.

Economists measure income equality in two ways. The first is to use a ratio called the Gini coefficient which is expressed as a scale running from 0 to 1 on which 0 signifies perfect equality (everybody has the same income) and 1 signifies extreme inequality (one person gets the whole income).

The second method is to look at the share of total income earned by different decile groups in society — the share earned by the poorest 10% or the richest 10% for example. All forms of income are included not only wages but also government welfare payments like Janasaviya or Samurdhi.

On both measures inequality has narrowed between 1986/87 and 1996/97. The Gini coefficient for income receivers (one month income) declined from 0.52 in 1986/87 to 0.48 in 1996/97. The estate sector with a Gini coefficient of 0.29 had the least inequality and was less than 1986/87. Inequality was highest in the urban sector where the Gini coefficient was 0.54 and there was a slight widening of income disparities. In the rural sector it was 0.45, an improvement from 0.50 in 1986/87.

The decile distribution ratio (the ratio of the bottom 40% to top 20%) moved from 0.20 to 0.24. The Lorenz Curve is used to depict graphically the improvement in equality as the curve for the later survey in 1996/97 moves to the left, closer to the 450 digree line.

Lorenz Curve for Income Receivers

The Central Bank Report observes that "a sharper rise in per capital income in real terms is observed in the rural sector where almost the country’s population lives. This was due to the emerging diversity of economic activities in the rural sector, which led to an expansion of income generation activities mainly in the form of off-farm employment".

One wonders whether devolution of political power to the provinces could have brought about some change in the usual urban biassed allocation of resources. The Central Bank says this narrowing of income distribution would have helped to ease social tension since both the poor and the middle class have improved their relative positions in relation to the most affluent 20% of the population.

Causes of Inequality

One of the problems in any analysis of statistics for income in the economy, is that it perhaps leaves out the high income earners drawing on the black economy. The governments have lost the early post independence enthusiasm for redistributive tax policies. Instead tax rates applicable at the highest income levels have been reduced, reduced drastically leaving considerable income in the incomes of high income earners.

Those who earn and spend in the black economy have never had it so good. There is no taxation of presumptive incomes as in India. Tax evasion is more the rule than the exception among both professionals like doctors and lawyers as well as among businessmen. The latter maintain two sets of books and judge their returns. The lawyers give no receipts, the doctors visiting private hospitals accept only cash.

Wider wage and salary differentials is another factor. In a free market economy, income inequalities arise from the independent actions of individuals with different skills and assets who are rewarded according to what consumers and producers are prepared to pay. So the market economy has no moral sensibilities.

But the high pay and perks of managers and bosses in the private sector are not based on market forces. Their salaries are not market determined but influenced by the excessive collective bargaining power of their trade unions and associations. Inspite of deregulation in the financial sector there is no deregulation in the labour market.

The benefits of a free market economy still elude us because of inadequate deregulation. Economists agree that deregulating the factor markets, chiefly the labour market is critical. Then can be no effective free market unless the entrepreneur is free to hire and fire and pay market determined wages.

Instead of doing so the government has resorted to giving tax incentives. But this only go to assist tax evasion and fuel the black economy. The small scale sector is still not having enough freedom to operate. The transport sector is unable to function effectively owing to the holding down of bus fares and rail fares by the government.

We have to get out of the "fixed price" syndrome. Prices have to change in accordance with supply and demand. Supply response takes time but it will not be forthcoming unless prices rise before, due to imbalance in supply and demand.

Wealth is perhaps more unevenly distributed than income. There are no statistics of wealth distribution in the economy. Few people will grudge the rich their wealth or higher incomes, so long as they perceive the wealth or income to have been earned fairly and squarely. But the large size of the black economy throws this in doubt.

Are large differences in wages and salaries necessary for economic prosperity? In the organised sector Chief Executives and Managers have been giving themselves pay rises even when their companies were in the red. This is economically unjustifiable and calls for greater shareholder activism to stop it.

The gap between the highest and the lowest in the work place is too large. Some of the perks given to private sector executives, like free houses, and free cars have to be taxed adequately according to their true market values. Of course this doesn’t call for government intervention except through tax reform.

If income inequalities really reflect the reward for risk and enterprise then any lessening of such inequality will have economic costs. But our private sector salaries structure does not reflect any such risk rewards.

Some economists even argue that inequality may be harmful to growth. A study of 56 countries reported in the American Economic Review in 1994 found a strong negative relationship between income inequality and growth in G.D.P. per head. Countries with wider inequalities have more ill health, social stress and crime which all hinder economic success, according to another study in Britain.

So the government cannot allow the black economy to flourish. Casinos are not being taxed. Nor are manufacturers and distributors of illicit hooch. Smugglers and drug traffickers are also not within the tax net. These activities play a large role in the economy, generating cash flows which are spent on ostentatious living in hotels, and on the purchase of luxury vehicles. The government most irresponsibly permits the import of vehicles on duty free basis for politicians and bureaucrats.

Our welfare schemes have not acted as redistributive agencies either. The Free Education policy has not provided equality of opportunity, it has not provided access to a worthwhile education for the poor but only for the better off and the middle classes, and that too only in the urban areas where the prestigious schools are located.

Although the government provides free health sources, public health preventive services are neglected. The doctors determine the allocation of resources giving priority to curative services which provides them with financial benefits, although better health of the people can be brought about through preventive public health measures instead.

Samurdhi benefits given in the name of poverty alleviation are a political dole given only to party supporters. Rajiv Gandhi once said that out of every Rupee spent on development programmes, only 19 paisa reached the people, for, before the benefit of poverty eradication programmes reaches the poor, it flows through at least four intermediaries — local politicians, bureaucrats, political cronies and the non-poor. Each party takes a cut and only a pattance reach the poor.

Why is it that we have not been able to generate a growth of 12-13% as in China? She also attracted $ 25-30 billion as foreign investment. Our politicians only pay lip service to market forces and competition. In fact they do not wish to hand over resources to the private sector. After all, if the economy is to be completely left to market forces, what is the point in getting elected after spending all that money for the campaign.

It is in their interest to control the economy so that they can get a piece of the cake. If state enterprises are handed over to the private sector how can they give jobs to their supporters or take their cut from contractors.

We have never followed the principle of merit in recruitments and in awarding tenders or in economic decision making in general. Politicians of whichever political party will never have any commitment to such principles. The public need to understand this and to bring pressure on the legislators to pass laws outlawing political patronage and instead enshrining the merit principle.

The most urgent need is to legislate for a code of conduct for politicians, even make it a part of the constitution and set up an independant organisation to implement such a code.

The regular column by Kanes will reappear next Sunday

Sampath Bank introduces new ATM

by Saman Indrajith
The Sampath Bank in collaboration with IFS International (IFS) and DMS Electronics Ltd. (DMS), has introduced a new Auto Teller Machine (ATM) Switch IFS TP II method to Sri Lanka enabling the local customers to meet the challenges of the next millennium.

The General Manager of the Sampath Bank, Anil Amarasuriya told a press conference on Saturday that the ATM Switch would improve the products and services of the Sampath Bank and would achieve their aim to become the most chosen bank in Sri Lanka by the customers in the new millennium.

"This new introduction will revolutionize the industry increasing the interaction between the customers and the bank", he said.

"The current mitigation to a new software technology with Y2K compliance called ‘Banks 2000’ will enable Sampath Bank to streamline all our existing services providing greater efficiency and customer convenience. This will also lead to value addition to our range of products and innovation of new products to satisfy the changing customer needs," he added.

With this ATM Switch, the bank will be able to handle larger volumes of transactions that would benefit the customer, and they will be able to meet the requirements of Y2K, said Paul Constable, Regional Director of IFS International said.

Sampath Bank can develop its vision to be a technology bank in future with this innovative addition to the banking industry, he said.

T. Lal Chandranath, Director and General Manager of DMS, said that the DMS has collaborated with Sampath Bank for several years in providing transaction-processing systems to the bank. This ATM Switch will provide the bank with a platform for delivering value enhanced services to its customers over the next millennium. This complex had been completed within a short period of five months thanks to the professionalism and the teamwork on the part of Sampath Bank, IFS and DMS personnel who implemented the project", he added.

Asked how the customers would interact with this new sophisticated introduction to the banking industry, Mr. Amarasuriya said that the bank planned to train all staff members on how to use it and the ATM Switch will be introduced to the customers through media advertisements.

b3
Commercial bank expands network with ‘Cat Super’

by Sanjeevi Jayasuriya
The Commercial Bank of Sri Lanka, has announced the expansion of its on-line financial network overseas, with the launch of a dual purpose Debit and Automated Teller Machine (ATM) card branded ‘Cat Super’.

Addressing a news conference, Commercial Bank Chairman M. J. C. Amarasuriya said that with the arrival of the new millennium, there is a conscious effort to foster globalisation and keep pace with the latest technological innovations. Today, large numbers of financial transactions are made through the Internet and the use of plastic money is becoming the trend in the developing countries, such as Sri Lanka. At Commercial Bank, the application of technology to develop products, increasing customer choice and providing more alternatives to the traditional banking system are going ahead at a steady pace, he said.

With the modern world’s demands for accuracy and speed, and as one of Sri Lanka’s most technologically advanced financial institutions, joining the Master Card network was another step towards further upgrading the banking services, Amarasuriya added.

Master Card International’s Vice President & Country Manager South Asia, Sameer Vakil said that Commercial Bank is acknowledged in both international and local financial circles as a very solid institution with well established infrastructure. As a company involved with many of the world’s leading financial organizations, the Master Card International is pleased to join forces with the one of Sri Lanka’s most dynamic and technologically advanced banks.

With the tie up with Master Card International, it will offer access to over 465,000 ATM machines worldwide through the "Cirrus" network, and the facility to make purchases at more than 4 million international merchant establishments through the "Maestro" merchant network, the world’s first and largest on-line PIN based point of sale (POS) payment system.

In Sri Lanka, the Cat Super provides access to over 500 Maestro Merchant Terminals and nearly 150 ATMs islandwide, including 65 Commercial Bank ATMs (CAT) as well as those of Hong Kong Bank, ANZ Grindlays Bank, Sampath and Union Bank who are the other members of Master Card International offering this facility.

Through this system, both international and local Master Card and Cirrus card holders could draw cash from any CAT machine distributed islandwide. The card is presently available to current, savings and money market account holders, but NRFC account holders will also be included after the incorporation of multi currency software in the system.

Ranil de Silva to head Leo Burnett office in Sri Lanka

by Sumadhu Weerawarne
America’s number one advertising company Leo Burnett Incorporated has set up office in Sri Lanka with advertising veteran Ranil de Silva at its helm. It commenced operations in June 1 this year. The official launch is scheduled for later this year.

De Silva who was with J. Walter Thompson for eighteen years left the company just a few months back, because he was "bored". His last posting was in Singapore as an International Vice President. "I had a good job; a fantastic salary. But I was bored. I had got an international career, but I realised that I was happiest in Sri Lanka. As my career grew I got more and more into management. I was no longer directly involved with the creative side of things. So I talked to the head hunters and moved on," he said.

Once he had decided, he meticulously planned everything right down to the floor plan of the prospective office. He leafs through a book which he terms his "bible in the last few months" and indicates that he planned those he would have on his team, the salary structure, the structure of the company etc. He says that what is most fulfilling to him is being able to set up his own operation and being able to decide on everything right down to the office furniture.

Asked if there is scope for another advertising company in the market, he says that for an advertising company that can create its own space there is scope. "We are an advertising company with a difference. Our challenge is to improve the creative aspect and change the rules of the Sri Lankan advertising industry." He adds that this was what made him align with Burnett.

"Leo Burnett is not only interested in the financial returns but also in the creative product. There is a continuous review of the creative excellence. We submit our work every quarter and a rating is given. It is also the only agency that publishes the best of its work annually. While every other company is financially driven it is also interested in improving creating standards. The Company also sets creative targets, unlike other companies."

The aim of Burnett he says is to provide total communication and not merely advertising. "In the US 70 per cent of money is spent on communication vehicles outside of the conventional ones. This will be our approach. We will chase after a better creative product." De Silva adds that their strategising too will be different.

"All advertising campaigns are based on target consumer groups determined through opinion polls. The sense now is that in opinion polls most people say what they feel the other party wants to hear, knowing that they will be judged on their answer. So there would be problem with their accuracy. We seek human insights and have a host of proprietary research tools with which to do this."

Leo Burnett called Leo Burnett Solutions Inc. in Sri Lanka currently has a team of 18. It opened operations on June 1 and is temporarily located at Jetwing House. "We have already won the Proctor and Gamble contract and all the clients I have spoken with have promised us an assignment," de Silva says.

Burnett Solutions is the 85th office in the international network which has offices in 76 countries, with worldwide billings in excess USD 6 billion. The Asia Pacific region accounts for more than one sixth of that. The Sri Lankan agency while providing expertise in relationship marketing, public relations, outdoor advertising, print buying, publishing, event management, new media and design, will also provide counsel to clients, consultancy services and training in marketing services under its Brand Consultants Unit.

Companies profitable though market is down says CSE

Although the Colombo Stock Exchange (CSE) has continued its relentless downward movement in recent weeks with the All Share Price Index (ASPI) dropping 29.2 (5.3%) points in June while the Milanka Price Index (MPI) shed 59.7 points (6.7%), over half the country’s listed companies have shown profit growth.

CSE said in its June report that 55% of the 215 listed companies reporting interim results for quarter ended March 1999 had posted profit growth on a cumulative basis from a year earlier.

But total profitability on a year-on-year comparison was down. The 215 companies reporting had a total profit of Rs. 3.6 billion, down from the Rs. 5.4 billion total a year earlier.

Foreigners continue to be net sellers on the Colombo bourse with June sales of Rs. 168.4 million - over half the net foreign outflow of Rs. 323.8 during the second quarter of this year from April to June.

This quarter saw the ASPI losing 3.1% (17 points) while the MPI shed 3% (26 points). But average daily turnover, probably on account of bargain valuations with good stock trading at give away prices, had improved a significant 52% over the previous quarter.

b2
Spectacular results from ``conservatism and continuity’’
Record 200 percent dividend from Mercantile Investments

Mercantile Investments Ltd. (MI) which began business in 1964 with a modest issued capital of just fifty thousand rupees has celebrated its 35th anniversary with a record 200 percent dividend to its shareholders absorbing Rs. 50 million on an issued capital of Rs. 25 million.

The company which posted an after-tax profit Rs. 122.1 for the year ended March 31, 1999, up from Rs. 102.6 million a year earlier owns substantial interests in the hotel sector in addition to its thriving core business in finance and leasing.

During a ten year period, the company has increased its income nearly tenfold from Rs. 34.7 million in 1990 to Rs. 330.5 million in the year under review. Its post-tax profit had grown even faster, surging from Rs. 1.1 million in 1990 to Rs. 122.1 million this year. Deposits too had grown from Rs. 86.4 million in 1990 to Rs. 804.5 million in 1999.

``Two words, conservatism and continuity have combined to create our lodestar. Since our main business has been the management of other people’s money, it behoves us to handle it with care, choosing financial instruments carefully to deliver to our depositors reasonable and regular returns,’’ the company said. ``Short-term, high risk vehicles have never featured in our on our portfolio...Rather, we have invested conservatively.’’

MI’s founder, Mr. George Ondaatjie who is the company’s chairman and managing director has told shareholders that the period under review was ``another excellent year’’ with the company achieving its corporate objectives under a difficult economic environment despite increased competition in its core business areas.

He noted that shareholders funds and total assets had grown to Rs. 462 million and Rs. 1.5 billion respectively while earnings per share stood at Rs. 48.82.

While MI’s leasing portfolio had grown by 89% during the year under review, lease income was up 29% from a year earlier. But the introduction of the goods and services tax (GST) had resulted in a major setback for the hire purchase business with income in this area declining 30%.

``Unless the government reviews its policy towards GST on hire purchase, hire purchase business will face a decline, Ondaatjie warned.

He said that loan recoveries during the year under review had remained satisfactory despite the downturn of the economy. Management recognised recoveries as a highly critical area and top management kept close tabs on this area They followed prudent provisioning policies for bad debts following the Central Bank’s most stringent directives.

Ondaatjie said that MI had discontinued its motor vehicles division, transferring the business to an associate, Mercantile Fortunes (Pvt.) Ltd., and was concentrating on their core business of financial services and hotel management. They had also disposed of their short-term investments except those in unit trusts. Future investment will only be in ventures with strategic importance in the long term.

He said that the hotels under group management had done well in the year under review and the company could expect returns in the form of dividends and share price appreciation from these investments.

MI’s hotel interests include Associated Hotels - owners of the Lihinya Surf in Bentota ( 1 million shares), Ceylon Hotels Corporation (35,000 shares), Hotel Services - owners of the Intercontinental ( (1.8 million shares) Royal Palms ( 6 million shares), Tangerine Beach (1.7 million shares) and Nuwara Eliya Hotels (nearly 250,000 shares).

Significantly, except for the Hotels Corporation, the market value of all these shares was above cost price with the portfolio which cost Rs. 140 million having a market price of Rs. 213.5 million as at March 31, 1999.

The appreciation of the Tangerine Beach and Nuwara Eliya Hotels shares were the most significant with Tangerine’s share value reaching Rs. 50.1 million against a cost of Rs. 18.9 million while Nuwara Eliya’s share value had grown Rs. 49.8 million from a cost price Rs. 28.6 million.

The directors of the company are Messrs. George Ondaatjie (chairman and managing director), Naveen Rajapakse (deputy chairman) Sumith Adihetty (deputy managing director), Gerard Ondaatjie (director finance), Lucian Perera (directors legal), Bernadette Assauw (director deposits), Mahes Amarasekera (director recoveries) Angeline Ondaatjie, Travice Ondaatjie and Kolitha Rodrigo (executive directors), Gamini Divitotawela and Justin Dominic.

Colombo’s newest luxury building will have 8 floors for parking
Ceylinco provides the site, $23 mn. from abroad

A group of Singapore businessmen are investing a massive US $ 23 million in a luxury residential building in the bomb devastated area of the Colombo Fort in partnership with Ceylinco Consolidated which describes itself as the country’s top property developer.

The Singaporean interests are putting up the cash for the construction while the 30-perch site on which the building will rise 23 stories is Ceylinco’s contribution. Ceylinco acquired this site adjoining Ceylinco House in Janadhipath Mawatha from the Ceylon Hotels Corporation some years ago.

``With this project, Ceylinco Consolidated and its Singaporean partners will bring in one of the largest foreign investments in property development in recent times,’’ the promoters said. ``Construction is slated to begin in four months and completion will be 24-months after building begins.’’

Industries Minister C.V. Goonaratne, who was a special guest at the signing of the memorandum of understanding between Ceylinco Consolidated and the two Singaporean companies, RSP Architects, Planners and Engineers (Pte.) Ltd. and Lum Chang Building Contractors (Pte.) Ltd. for this project said that it was ``most encouraging’’ that foreign investors were demonstrating confidence in the country’s future.

The new building, already christened the Ceylinco Millennium Tower, will have eight of its floors dedicated to providing parking facilities for tenants and their guests.

``This luxury building is targeted at executives, expatriates and tourists with the luxury flats catering to the segment between budget and deluxe apartments,’’ the promoters said. They see this as a neglected segment.

Albert Hong, CEO of RSP Architects and Planners said that their studies show that multi-national companies are now looking more positively at expanding their businesses here and will be looking for good accommodation facilities. He was confident of the project’s profit potential.

Lum Chang Building Contractors will handle the construction and project management. This company has a regional presence.

Sicille Kotelawela of Ceylinco said that this project was brought in within two months of initial discussions thanks to a Sri Lankan in Singapore, Sharmila Gunasingham whose company, ASG Corporate Planners was incorporated earlier this year to explore landmark business opportunities and promote investment.

Ms. Gunasingham is the daughter of the late Mr. C. Gunasingham, a career officer of the Sri Lanka Overseas Service who served as Sri Lanka’s first High Commissioner in Singapore.

Lion say they’re desperate to break even

The Lion Brewery Ceylon Limited which made a Rs.1.8 billion investment in a new state-of-the-art brewery has complained in it annual report covering the first year of operations that ``from a position of significant profitability we have been reduced to desperately seek a break-even position - all in just one pen stroke.’’

This comment has been made by the company’s Chairman, Mr. Tilak de Zoysa, who has said that the beer industry responded positively to government’s 70% reduction of excise duty in November 1995 by investing over Rs.2.6 billion in capacity expansion, modernisation and employment generation.

But in one stroke, in November 1998, the government had increased beer duties by a "staggering’’ 69% for low alcohol beers and 182% for beers with an alcohol content above 5%.

"In order to retain a semblance of brand affordability, avoid widening the disparity in cost to the consumer between legal and illicit liquor and reduce the adverse impact on volumes, your company absorbed approximately 50% of the duty increase,’’ de Zoysa said.

He noted that approximately 40% of the company’s Rs.1.8 billion investment in the new brewery was generated from overseas. Carlsberg, the global brewing giant was one of the overseas investors who took up a 5% stake in Lion.

"In addition to investment and employment generation, the industry also increased its revenue contribution to the government by over 50% during the period November 1995 - October 1998,’’ he said.

He said that the government’s action in slapping a huge duty increase had seriously eroded the confidence with which they had planned their future direction.

Lion which began commercial operations on June 1, 1998 had achieved a net turnover of Rs.815 million and a pre-tax profit of Rs.165 million for the year ending March 31, 1999. As the company enjoys a 12-year tax holiday, it has no tax liability.

But the chairman was quick to add that they will not achieve this level of profitability in ensuing years as a result of the government’s policy turnaround on beer. "With high excise duty being re-introduced, the immediate future of the company is not encouraging,’’ he said.

De Zoysa said that if the proposed advertising ban is implemented it would add to their existing woes. He was hopeful that the government policy on soft alcohol will change and meanwhile asked the shareholder to bear with the company.

The Lion Brewery is a subsidiary of the Ceylon Brewery which has a 50.4% stake in the company. The Carson Cumberbatch Group holds 52.5% of Lion’s ordinary shares.

The company has paid Rs.17 million management fees to Carsons Management Services (Pvt) Limited which provides management and secretarial services to the company - nearly half the Rs. 37.5 million paid to ordinary shareholders by was of a 7.5% dividend which will be the only pay-out for the year.

``Your company must be amongst the very few who have declared a dividend without even completing a full year in commercial operations. In reality, this dividend is paid from the profits earned during the period May to October 1998, a true indication of the potential of the beer industry given a level playing field,’’ an operational review said.

Both the Ceylon Brewery as well as Lion has been agitating for competitive excise duties based on alcohol content of beer as well as wider availability of the product.

Describing these as the conditions they needed, Lion said that if these are provided they would generate profit, gear employment, increase government revenue, invest further, source export markets and eliminate illicit liquor.

"If not, its back to the bad old days again, with the illicit liquor barons in full control of the trade,’’ the company said.

The directors of the company are: Messrs. Tilak de Zoysa (chairman), Hari Selvanathan (deputy chairman), Mano Selvanathan, Suresh K. Shah (CEO), D.C.R. Gunawardena, Wijaya Unamboowe, Y.Bhg. Dato Jorgen Bornhoft, Chin Voon Loon and Steven Mark Enderby.

Reversal of provisions improves Merchant Bank’s bottom line

The Merchant Bank of Sri Lanka (MBSL) in which the Bank of Ceylon holds a controlling 54% stake has turned around from its disastrous 1997 loss of Rs.1.1 billion to post a loss of Rs.37.4 million in the year ended December 31, 1998, thanks largely to a reversal of provisions.

The MBSL who lost 75 cents per share in the year under review in comparison to a loss of Rs.21.99 the previous year is still not out of the woods. "We have great challenges ahead of us,’’ the company’s chairperson, Mrs. Dayani de Silva has told shareholders in its just published annual report.

One reason for the sharp reduction in MBSL losses last year was the reversal to the tune of Rs.592 million of provisions made in the previous year for doubtful advances and fall in value in investments.

In fact, MBSL’s loss after interest during the year under review at Rs.633.6 million was more than twice the comparative figure of a loss of Rs.236 million the previous year when provisions ran as high as Rs.862.2 million.

Mrs. de Silva said that the company had obtained long term funds amounting to Rs.1.25 billion at favourable rates of interest in order to minimise exposure to the money market. But interest continued to be a severe drain on earnings.

"Your management is now in the process of renegotiating the terms of certain long-term debt contracts with a view to relieving the bottom line from heavy interest burden,’’ she said.

MBSL had disposed of its entire quoted portfolio as a part of the continued restructuring of quoted investments. The bank now retains only a small trading portfolio with strict guidelines in order to capitalise on short-term market opportunities.

MBSL had realised a net capital gain of Rs.66 million by exiting from some of its unquoted investments. A 30% stake in M.B. Financial Services Limited had been sold to Commercial Capital Limited at a capital gain of Rs.26.8 million.

The bank had exited from its investment in the Nepal Sri Lanka Merchant Bank Limited at a capital loss of Rs.8.4 million due to its perception of a poor economic scenario in Nepal.

"Despite these restructuring efforts, some inherent weaknesses in the unquoted portfolio continue to be of concern,’’ de Silva said.

Other than the Bank of Ceylon there are no shareholders with more than 5.5% ownership of MBSL. The other big shareholders are the Sri Lanka Insurance Corporation (5.5%), the bank’s own ESOP (Employees Share Ownership Plan) Trust Fund (3.65%), the Distilleries Company (2.77%), HNB (2.54%) and the ETF (1.84%).

The directors of the company are: Mrs. Dayani de Silva (Chairperson), Mr. Sunil G. Wijesinha (Managing Director/CEO), Mr. M.N. Cader, Mr. M.T.L. Fernando, Mrs. Savitri Jayasinghe, Mr. G. Jinadasa, Mr. Nihal Abeysekera and Mrs. A.C.R. Manuelpillai (alternate to Mrs. Savitri Jayasinghe).

b1
Unilever fighting to retain soap dominance?
Swadeshi licking problems in glycerine extraction plant

The Swadeshi Industrial Works Limited, the country’s pioneer indigenous soap maker, has shed the BOI status it won for a Rs.60 million company to produce crude glycerine using the factory effluent soap lye.

Swadeshi has told its shareholders that they have relinquished the BOI status of this company and will work its glycerine extraction project which had been losing money under the normal laws of the country.

The factory which had been in commercial production for two years had faced serious financial problems due to the decline of the world market price of crude glycerine, the mismatch in the throughputs of its soap washing plant and glycerine extraction plant and the company’s inability to achieve soap production targets.

These problems had resulted in a Rs.12 million loss on the glycerine project in 1997/98 and a Rs.14.5 million loss for 1998/99.

"Due to the adverse financial situation the company rescheduled the existing loans amounting to Rs.47 million to the DFCC Bank. Further, a loan of Rs.36 million taken from the parent company remained unserviced,’’ the company’s CEO, Mr. R.T. Guruge said in Swadeshi’s just published annual report.

He said that this was a severe burden on the company and they have taken steps to solve the problem by investing in increasing the saponification in their soap making plant to overcome the mismatch and increase the efficiency of evaporation.

The increased evaporation capacity will be used to evaporate lye from other soap makers, Guruge said, expressing confidence that they could break even "very soon’’ and make the glycerine project viable in a few months.

Without naming Uni Levers, Guruge said that the year ending March 31, 1999 had seen increased competition in the soap making field with the "major player struggling to safeguard its dominance.’’

"This resulted in increasing number of variants and brands of soap in the market place above rationally explainable numbers. Cost of communicating with the consumers has increased several fold due to proliferation of electronic media. This created a major problem for those who based their business strategy on `marketing’ - in essence on advertising - without satisfying the customer by providing fruits of product innovation.

"They found it more and more expensive to maintain their leadership. On the contrary, we believe that copying others would not provide a competitive advantage in the long run and would use our innovative spirit to gain a higher market share. However, in order to obtain a reasonable share of shelf space, Swadeshi also would have to increase the number of variants of its product range,’’ he said.

Guruge claimed that Swadeshi had increased its market share in laundry soap while safeguarding the loyalty of their customer base in toilet soap. Thus there had been a 19.5% increase in total soap tonnage during the year under review.

He also said that with the rupee depreciating against the dollar and the price of oils in the international market hitting unprecedented levels, they were confronted with production increases. This was particularly so as local coconut oil prices were beyond the reach of soap makers.

"However, your company resisted the temptation of increasing prices of their soap. The average prices of Swadeshi soaps were increased only by 8% forcing competition to revise their prices downward subsequently. This was possible due to our technological innovations and improved productivity of our staff and the workforce,’’ he said.

Swadeshi had made a profit of Rs.16.4 million for the year, up from Rs.5 million the previous year. The group profit was less at Rs.13.6 million, up from Rs.0.9 million the previous year.

The company’s Chairperson, Mrs. A.M. Wijewardene, said that the directors did not recommend a dividend for the year after careful consideration and evaluation of current obligations and commitments. They are optimistic of a better year ahead and look forward with confidence to satisfactory earnings growth.

She said that they sorely felt the loss of their previous Managing Director, Mr. J.N. Ratnasekera, who passed away. But they had immediately recruited a new CEO with wide experience in their core business to fill the void that had been created.

The directors of the company are: Mrs. A.M. Wijewardene (Chairperson), Mrs. B.H.I. Wijewardene, Mrs. C.S.M. Samarasinghe (Alternated to Mrs. B.H.I. Wijewardene), Messrs. J.B.L. de Silva, V.M.J.A. Perera, Thushantha Wijemanne and P.D. Samarasinghe.

24-member trade mission from UK arrives tomorrow

Several suppliers of materials to the textile and garment industry are represented in the 24-member trade mission from the Leicestershire Chamber of Commerce and Industry who will be in Sri Lanka from July 19 to 23, the British High Commission in Colombo said.

The mission, led by the Chief Executive of the Chamber, also includes the Administrator of the UK/Sri Lanka Business Council who will act as mission coordinator.

The composition of the delegation is as follows: Keith Horton (Chief Executive, Leicestershire Chamber of Commerce & Industry - Mission Leader), Stephanie Albon (Administrator, UK/Sri Lanka Business Council - Mission Coordinator).

Simon Hardin (Director, Hospitality Equipment Supplies Ltd) - suppliers of hotel and catering equipment; Steward Grant (Chief Executive, Toolquip International Ltd) - Suppliers of educational and engineering equipment to universities and other educational/training institutions.

Phil Carter (International Sales Executive, Charles Walker & Co Ltd) - Manufacturers of light industrial conveyor, drive and transfer belting; Andy White (Export Executive, BDH Laboratory Supplies) - Suppliers of chemicals, laboratory consumables and equipment;

Chris Gee (Export Sales Executive, Controls Testing Equipment Ltd) - Controls manufacturer, and supplier of testing equipment to the construction and environmental sectors; Joan Cawdron (Group Export Director, CAPITB Group Export Services - Provider of training and consultancy services to the clothing and textile industry;

Michael Carr (Managing Director Textile Division, Paroma Limited) - Manufacturer of narrow fabrics including elastic, rigid tapes, and braids for the apparel industry; Richard Tinsley (Overseas Business Executive, Precision Processes Textiles - Supplier of chemicals to the textile industry, on all substrates from man made to natural fibres. The company also specialises in the treatment of wool to achieve machine washability;

Henri Harrison (Customer Liaison Executive, Precision Processes Textiles) - Provider of textile testing and textile related services; Roger Gregory (Managing Director, RGD Foster Textile Machinery Ltd) - Suppliers of new and reconditioned textile machinery;

Robert Davies (Managing Director, Pladrest Heating Ltd) - Manufacturer of specialised process equipment including curing ovens for the "non iron’’ garment process, and Plad-Vac condensed garment packing systems; Ted Coates (Customer Support Manager, Defence Support (International) Ltd) - Engaged in sourcing and procurement of military and aerospace equipment and spares. The company also markets their own range of active ear defenders;

John Robards (Managing Director, Mate (UK) Ltd) - Manufacturers and distributors of machinery, spare parts, yarn and raw material for the textile industry. The company also specialises in marketing new/used and refurbished fabric inspection/handling/preparation and knitting machinery; Doug Stiles (Director, Atlas Combustion Engineering Ltd) - Designers and builders of waste to energy systems, and developers of energy related projects;

Christopher Pratt (Managing Director, M & A Switchgear Ltd) - Designers and manufacturers of electrical control equipment for use with incineration to generation products; Alison McGuffie (Divisional Manager Marketing Strategy, Chilton Scotland Ltd) - Manufacturers of weft knit fabric: knit, dye and finish. The company offers an extensive product range of single jerseys, fleeces, interlocks and ribs;

Barry Watson (Sales Manager, Automatic Braiding Ltd) - Manufacturers of elastic tapes, cords and various trimmings for the garment manufacturing and associated industdries together with technical support and product application advice; Sunil Phakey (Managing Director, Scotts International UK Ltd) - Manufacturers agents and marketing agents for a range of products including pharmaceuticals, chemists sundries, Smith & Nephew, Fine Fragrances, Clarks Shoes, confectionery soft drinks, Fisherman’s Friends, watches, crockery etc;

Peter Warren (Smallholder Tractor Co) - Manufacturers of agricultural and semi agricultural tractors, and equipment; Alan Leggett (Rodwell Scientific Instruments) - Manufacturers of autoclavers(sterilisers) for the laboratory industry;

Bryan Bestwick (Managing Director, Stikits Ltd) - Manufacturers of self adhesive computer bundle tickets - used primarily by apparel manufacturers; Tonia Symington (Personnel & Training Manager, Coats Viyella Clothing Menswear) - Designers and manufacturers of ladies and men’s clothing.

home.gif (305 bytes) | NEWS | PROVINCIAL | POLITICS | EDITORIAL | DEFENCE | FEATURES | LEISURE | BUSINESS | ADS |