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New players at Sampath lookfor four places on board

The new HNB/Distilleries interest now holding a 45% interest in the Sampath Bank intends seeking four places on the bank’s board according to informed sources.

Well informed business sources indicated that the well known Colombo lawyer, Mr. Gomin Dayasri and Mr. P. Amerasinghe who retired recently as Deputy Governor of the Central Bank have been sounded out by HNB about joining the Sampath board.

Two Distilleries employees Messrs. R. Jansz and Damian Fernando are also mentioned as nominees of the new major shareholding interest for places on the Sampath board.

It is likely that they will be proposed to take the places currently held by 3 directors retiring by rotation proposed for re-election with the support of the existing board. The fourth vacancy may arise if a special resolution to re-elect Mr. Stanley William, who is over 70 years old, is not carried or withdrawn.

At least one of the retiring shareholders, Mr. Arthur Senanayake, has a substantial holding of around 220,000 shares. Mr. William has previously served as Chairman of Sampath and has been closely associated with the bank from the time of its founding.

Although the bank’s 1,400 employees have been encouraged to buy shares and having been doing so in small numbers are vehemently opposed to developments that are now taking place, analysts question how the share muscle of the new interest can be resisted if a poll is taken at the annual general meeting due on June 30.

The Sampath management has been in touch with the Central Bank and the Securities and Exchange Commission about the changes in the shareholding structure that had been taking place in recent days. A senior Sampath source said yesterday that "the ball has been put back into our court," by the regulatory authorities.

Given that about 30% of the Sampath shares are widely dispersed amongst small shareholders, it’s unlikely that the management will be able to obtain the necessary proxies to re-elect their nominees on the board.

At an annual general meeting of the bank held some years ago, small shareholders made a big noise about the re-election of some directors over 70-years old by adopting the necessary resolutions. Eventually, at least one of them decided to stand down. Those present at that meeting recall his trenchant remark in Sinhala: "Api bankuwak haduwe pissonta avilla ke gahannada?" (Did we build a bank for some mad fellows to come and shout?)

"Whatever happens, the AGM on June 30 is going to be quite a meeting," one shareholder said. "I went to Sampath last week to change my share certificate for deposit in the CDS and an employee requested me to fill a proxy form."

The Sampath management had anticipated a possible takeover bid down the road and had been engaged in talks with the development banks and a foreign bank to strike a strategic alliance which could have been a preventive. However, the Sampath share price was steeply pushed up and substantial blocks purchased in a matter of days earlier this month.

"Arrangements like those we had in mind take some time to conclude. But the changes in the share ownership structure happened in a matter of days," one senior Sampath source indicated.

This source also made the point that "money matters, and if anybody wants to spend a great deal of money enabling substantial capital gains, many shareholders will be tempted to take profits."

When the flurry of Sampath share buying began, a leading banker associated with the group now calling the shots assured Sampath Chairman Edgar Gunatunge that "we’re not trying to takeover your bank." Whether that is the case remains to be seen.

Observers noted that both the Sampath and HNB Provident Funds have been buying into the Sampath equity.

Post-tax profit up 38% to Rs. 168 mn.
Mercantile Investments pays 200% dividend second year running

Mercantile Investments Limited, an unquoted finance company incorporated in 1989, has concluded a successful year ending March 31, 2000 enabling what its Chairman, Mr. George Ondaatjie, called a "phenomenal dividend rate" of 200% - one of the highest paid by a Sri Lankan company.

The company which has an issued capital of Rs.25 million paid this same dividend rate the previous year too.

Ondaatjie said that "in another excellent year," the company had risen to the challenges presented by the increasingly competitive environment by boosting its income 33% from the previous year to 441 million. The after-tax profit was up 38% to Rs.168 million.

He said that there was an impressive growth of shareholders’ funds and total assets which stood at Rs.582 million and Rs.1.7 billion respectively. Earnings per share at Rs.67.2 compared to Rs.48.8 the previous year.

Ondaatjie said that the year under review had seen the company making considerable progress towards achieving its strategic objectives having taken forward their program of restructuring and re-engineering existing operations by investing and developing new businesses.

"This strategy has helped us in increasing our income and profits," he said.

Despite severe competition from both banking and non-banking financial institutions, Mercantile Investments had significantly increased its leasing portfolio during the year under review. But the company had to reduce its lending rates to be competitive in the market.

However, the lower lending rate was offset by a decline in the interest rates paid on fixed deposits and the controlled growth of expenses.

Ondaatjie said that the negative effects of GST was felt on their hire purchase business except for specific types of motor vehicles. However, they have been able to enter into a greater number of new hire purchase contracts than in the previous year.

He reported that loan recoveries remained an "area of concern" due to the economic downturn during the year and a significant provision had to be made for doubtful debts. At Rs.34.3 million, this charge on the profit and loss account was up from Rs.11.9 million the previous year.

He noted that the main reason for higher provisioning was the prudent policy they adopted by conforming to the most stringent directions issued by the Central Bank in this regard.

"Loan recoveries have been identified as a key success area for the company and constant top management attention is paid (to it)," he said.

Ondaatjie also reported that profits from share trading and dividends have made a significant contribution to the bottom line. He said they would continue making such investments both for the long and short terms when opportunities arise.

The company had a long-term quoted share portfolio costing Rs.155.3 million and with a market value of Rs.237.6 million as at March 31, 2000. This inlcuded significant holdings in associated companies, Royal Palms Beach Hotels Limited, Tangerine Beach Hotels Limited and Nuwara Eliya Hotels Limited.

In addition to its stake in the equity of associates and subsidiaries, Mercantile Investments hold 220,000 shares in the DFCC Bank, over 1 million shares in Associated Hotels Company Limited (owners of Lihiniya Surf Hotel at Bentota), 50,000 shares in the Ceylon Hotels Corporation and 3.5 million shares in Ocean View Limited.

The company’s short-term quoted portfolio covering shares in banks, finance and insurance, diversified holdings, hotels and travels, manufacturing and unit trusts cost Rs.14.2 million and had a market price of Rs.10.8 million. Full provision of Rs.3.3 million had been made for the fall in value of these investments.

Ondaatjie claimed that theirs was one of the most advanced and efficient information systems among finance companies geared for faster retrieval of customer accounts. This enables the company to offer a higher level of service to their customers and also have better and faster information for decision making.

The chairman reported that the company’s annual report topped the list for the finance companies sector at the annual competition conducted last year by the Institute of Chartered Accountants of Sri Lanka.

He concluded his review by regretting to announce the death of Mr. Lucian.V. Perera who had long served the company as legal director. "He had been a source of great vision, excellent judgement and good advice. We will greatly miss the service of this fine gentleman who symbolised those ideals and values which we strive daily to live up to," Ondaatjie said.

The directors of the company are: Messrs. G. L. A. Ondaatjie (Chairman/MD), N. D. Rajapakse (Deputy Chairman), J. A. S. S. Adhihetty (Deputy M/D), G. G. Ondaatjie, M. B. Assauw, P. M. Amarasekera, A. M. Ondaatjie, T. J. Ondaatjie, K. D. Rodrigo, G. V. Divitotawela and J. S. Dominic.

Investment in associate turns sour
Rs. 44 mn. write-off hurts LOLC profitability

The Lanka Orix Leasing Company Limited (LOLC) has closed the year ending March 31, 2000 with a performance that its chairman described as "reasonable" in the context of the mixed fortunes of the macro economic environment.

Although the company increased both the volume and value of leases executed by 7% and 2% respectively, and also increased its operating profit, the after-tax profit was down to Rs.118 million from Rs.144.2 million the previous year.

LOLC Chairman C.P. de Silva attributed the lower profit directly to a Rs.44 million write-off of the investment LOLC had made in Prudentia Investment Corporation Limited, an associate in which it held 24.8% of the equity. Additionally, LOLC has also written off a Rs.10 million loan made to Prudentia, a company owning a share portfolio and had developed an ocean front leisure home facility close to Colombo.

De Silva said that LOLC expected to show "considerably improved performance," during the current financial year "specially because of their strengthened management team."

He noted that their share price too was down to Rs.22.50 from Rs.47 a year earlier owing to the volatile market conditions. But their net assets had grown 7% to Rs.1.4 billion.

The Orix Corporation of Japan is the biggest shareholder of LOLC with 30% of its equity, followed by Asia Capital (23.6%), the Bank of Ceylon (8.4%) and the Sri Lanka Insurance Corporation Limited General Fund (3%). The ETF board too has a 1.8% stake in the company.

De Silva said that the company which awarded a 1 for 10 bonus issue to its shareholders during the year under review was paying a final dividend of 12.5% on top of a 10% interim in February this year. This gave shareholders a 22.25% return for the year against the previous year’s dividend of 25%.

He reported that a separate Treasury Division was created by the company during the year to help go directly to the market for funds and thereby reduce costs. This division had successful issued a number of financial instruments during the year.

He also said that they have recognised that the bulk of future business would be concentrated in the provinces and had further consolidate their branch network. Two new branches were opened in Anuradhapura and Negombo during the year under review.

The chairman said that their first branch in Kandy continued to perform well and had made a significant contribution to the company’s bottom line. The Matara branch too had performed "extremely well," recording substantial increased profits in the year under review.

Their Badulla branch serving agriculture and trading in the Uva had broken even within 10 months of commencing operations while the Ratnapura branch had reached its break even point within just 9 months.

LOLC was established in Colombo in 1981 on the recommendation of the World Bank’s investment arm - the IFC. It was launched by the Bank of Ceylon with the DFCC and the NDB and the Orient Leasing Company of Japan (which subsequently became the Orix Leasing Company), Asia’s premier leasing company.

LOLC’s principal activities include leasing, mortgage/pledge loans, hire purchase, small and medium enterprises assistance project, consumer finance and fleet management..

The company also runs an `autolease’ service described as a flexible and economical car rental package covering repairs, periodic inspection, insurance service and responsibility for post-accident procedures.

LOLC’s subsidiaries include Lanka Orix Factors Limited (55.1%), LOLC Funding One Limited (100%) and Lanka Orix Insurance Brokers Limited (100%). It has a 24.8% stake in the Prudentia Investment Corporation Limited.

The directors of the company are: Messrs. C. P. de Silva (Chairman), L. S. Jayawardena (Deputy Chairman), N. Ratnasabapathy, M. T. L. Fernando, S. S. Jayawickrama, N. D. C. Austin, R. A. Fernando, Y. Miyauchi, T. Sato, V. R. de Silva, M. Yokota (Alternate to Y. Miyauchi), N. Esaki (Alternate to T. Sato) and J. M. Swaminathan (Alternate to N. Ratnasabapathy).

KG Group unhappy about proposed Singalanka sell-off
Reconstitute board ahead of asset sale says shareholder

A substantial shareholder of Singalanka Standard Chemicals Limited, a quoted company, which is seeking members’ authority to sell off its assets, has called on the company to first reconstitute its board of directors, giving weightage and proper representation to shareholders.

Mr. G. Pathmaraj of the KG Group which owns over 300,000 shares of Singalanka has told the company secretaries that the chairman had said at an extraordinary general meeting on April 26 that there is no future for the company.

All matters that were discussed at that EGM had not been circularised among shareholders who were present at that meeting and those who did not attend. No action had been taken to circulate this information to the members of the company, Pathmaraj has complained.

He had requested that the minutes of the April meeting be quickly circularised. He has urged that the chairman of the company owned only about 300 shares and the other director held no shares. The rest of the shareholders held 600,000 shares.

He has urged that the board should be reconstituted giving weightage and representation to shareholdings before thinking of selling off the company or its assets.

Pathmaraj has called upon the company to summon an EGM for the purpose of reconstituting the board. Singalanka has already summoned an EGM for June 29 to consider a resolution to sell the shares and assets of the company and apply the sales proceeds to meet liabilities. The resolution states that any funds available thereafter will be distributed among shareholders in proportion to their holdings.

The resolution also seeks the authority of members to look for a prospective buyer.

Singalanka had its factory closed in 1996 by a court order. The company was manufacturing sulphuric acid at its Ranala plant and combined a major portion of the production with aluminium hydroxide to produce aluminium sulphate (alum) sold to the National Water Supply and Drainage Board for water purification.

The company won the annual 3,000 mt. tender for alum in 1992, 1993, 1994 and 1996 but thereafter was faced with competition from India on price.

Singalanka Chairman D. C. L. Amerasinghe said that the industry was set up with the necessary permission of the environmental regulators. After the factory had been functional for several years, they encountered problems and a court order halting production had been enforced for over three years. As a result they were confronted with a very difficult situation.

Amerasinghe said that any shareholder who had a point of view on the resolution that would be discussed at the forthcoming EGM could air these views there. He was sure that the shareholders will give due consideration to such points of view.

New stakeholders eyeing place on DFCC board?

Informal contacts have been made about a better balance of representation of shareholder interest in the DFCC Bank in which the HNB/Distilleries/Stassen interest is now estimated at around 20 percent.

``The DFCC is also holding its AGM on Friday, the same day as the Sampath meeting. Whether anything will result from some informal contacts that have been made remains to be seen,’’ one well informed source said.

It has been pointed out that except for the representatives of the Bank of Ceylon, the biggest shareholder of the DFCC with a 15% stake, and DEG, the German Development Bank owning 7.84%, there is inadequate shareholder representation on the board.

``The People’s Bank had just under 5% which has now been sold. Its representative (former Chairman Dr. Gamini Fernando) has resigned. Apart from new players who have taken a stake in the DFCC in recent weeks, the Readywear Group with over 6% is the third largest shareholder listed in the company’s last annual report,’’ a shareholder said.

Most of the incumbent ``shareholder directors’’ on the DFCC board hold less than 3,000 shares on their own account with the exception of Mr. M.R. Prelis, the bank’s former Director/CEO who owns 13,697 shares according to the last annual report listing. They also do not represent any significant shareholding interest.

It is in this context that a sounding has been made. A possible nominee with an interest on his own and his company’s account has been identified with the new stakeholders signalling their backing. Whether this would result in the appointment of a new director is now an open question.

The Citadel profitable despite quality compeitition in Kandy

Kandy Walk Inn Limited, a John Keells company owning the Citadel in Kandy is feeling the heat of competition with several newer and better quality hotels constructed in the Kandy area over the past few years, the company ‘s Chairman, Mr. Ken Balendra has reported to shareholders.

But the company which commissioned the 93-room Citadel in Kandy in 1983 and was able to declare a small dividend after just four months of operation is meeting the challenge by refurbishing its rooms and making other improvements to upgrade the scenic riverside property.

Balendra said that with tourist arrivals to the country up 8% last year and the refurbishment of the rooms having been completed, they have boosted up occupancy 9% to 58% on a year-on basis during the period under review.

This boosted turnover by nearly 24% to Rs.123.9 million and the profit after interest to Rs.26.3 million, up 77% over the previous year. However, the after-tax profit of Rs.24.3 million was up only 17% from a year earlier. Balendra explained that this was because of a tax write back in the previous year helped polish the bottom line.

The directors have recommended a 20% final dividend on top of 10% already paid. This is in line with dividend levels maintained in better days when the company’s profitability was very high due to the supply of quality rooms in the Kandy area not matching demand. In 1997/98, the company paid a record 127.5% dividend.

Balendra reported that the entire old wing of the hotel with 94 rooms had now been upgraded "to very acceptable standard." They no longer received complaints from their clients about shortcomings in this area.

They planned to build a conference room and a health centre very shortly, he said. This will leave the public areas comprising the lobby, bar and main restaurant to be refurbished. This work is to be undertaken in the off-season next year, he said.

Despite the competition, he expressed confidence of maintaining the profitability of the hotel provided tourism is not too adversely affected by the ongoing security situation in the north.

Kandy Walk Inn has an issued capital of Rs.52.5 million. 70% of its equity is owned by John Keells Holdings and its subsidiaries.

The directors of the company are: Messrs. Ken Balendra (Chairman), V. Lintotawela, C. J. Fernando, R. T. Molligoda, G. S. A. Gunasekera, J. S. Ratwatte, V. Leelananda, N. S. Cooray and Ms. D. A. R. C. Perera.

Direct flights to Dhaka and Milan

SriLankan Airlines will launch services to Dhaka and Milan and increase weekly flights to London, on July 1, a news release from the airline said.

Non-stop services to the Bangladeshi capital will operate every Monday and Saturday, while flights to Milan will operate every Monday, Tuesday and Saturday in combination with Rome. (The Tuesday flight will be an additional service to Rome too).

From 1 July, SriLankan Airlines enhances its daily service to London with two additional flights each week, on Wednesdays and Saturdays. These will operate via Dubai, giving passengers the opportunity of a stop at this popular duty-free port.

"Our plans to develop SriLankan’s route network are steadily progressing. Last year we added Stockholm, Sydney and Beirut to our network and this July sees further expansion. We are confident that, with time, our plans to develop Colombo as an aviation hub will see fruition," says Peter Hill, Chief Executive Officer of SriLankan Airlines.

The airline will fly its brand-new Airbus A330 to Milan and Rome as well as on the two new London flights.

Bata gifts shareholders 25% discount vouchers

The Bata Shoe Company of Ceylon Limited which marked its 50th anniversary on June 9 has gifted its 1,689 shareholders a discount voucher to celebrate the milestone.

The company which lost Rs.51 million in 1999 and was unable to pay a dividend for last year is giving its shareholders the opportunity of buying any one pair of Bata footwear of his/her choice at a special discounted rate of 25%.

The company has told its shareholders that 50 years is a long time "and this milestone as the country’s leader in footwear could not have been achieved and maintained without you, our shareholder."

Ocean-front leisure homes forlornly awaits buyers

The Prudentia Investment Corporation Limited, a joint venture between the Lanka Orient Leasing Company Limited (LOLC), Hayleys and JAIC, has run into difficulties with both Hayleys and LOLC writing off their investments.

The result is that a Rs. 370 million luxury leisure home complex, equipped with tennis courts and swimming pool, is lying idle with only a few of its 35 villas sold. An effort to sell off the project as a whole has failed with no takers as at the closing date on April 24.

This company was launched in 1994 at a time that both the share market and real estates were booming and investment banks/companies were reaping large profits by investing in the share market and underwriting Initial Public Offerings (IPOs).

Prudentia Chairman, Mr. C. P. de Silva, who is also Chairman of LOLC, has told shareholders: "Unfortunately for us (and many other companies too), the share market collapsed in the latter part of 1994 and has never recovered. Prudentia was saddled with a share portfolio that had lost a substantial portion of its value."

But he said that the real estate market was "still thriving at that time." The Prudentia board therefore decided to diversify from the share market through its BOI-approved subsidiary, Leisure Homes Limited, an ocean front property development project at Uswetakeiyawa.

Thirty five luxury villas were built to what de Silva said was "a very high standard" by Canadian contractors. The project had a swimming pool, club house, restaurant and tennis court.

But with the country situation deteriorating, only a few villas had been sold and Prudentia had sought to sell the project as a whole. But no offers had been received by the closing date of April 24.

De Silva reported that the land and buildings of this project valued in 1998 at about Rs.370 million by a reputed valuer are mortgaged to two banks.

Forbes Weekly Report

Number of the week 5%

The Central Bank increased the currency spread this week from 2% to 5%, resulting in a immediate 4.8% devaluation of the rupee against the dollar. At the close of the week the rupee was down 5.2%. We suspect that the gradual 6.8% annual rate will continue and therefore on an annual basis 2000 depreciation could turnout to be around 12% as opposed to our earlier projection of 8%. Call money rates rose about 100bps over the last weekend, clearly indicating the sharp reversal in interest rates. Inflation will, as we have said for a while now, rise sharply from its current low of 3%. At the rate the macro environment is evolving we may even see inflation rise to much more than our projected 12-month target of 7%.

Market & business highlights

Market overview: The week saw heightened activity in the Colombo bourse with a total turnover of SLRs867.7m. Over 70% of the turnover were accounted for by trading on Sampath stocks, which was the subject of strategic buying. The ASPI and MPI gained 4% and 5% to close at 497.8 and 814.1. Foreign participation was high, with foreigners being net sellers with an outflow of SLRs359m.

Despite strong fundamentals, we expect the market to remain at these unexciting levels in the near term, given the prevailing negative sentiment. The depreciation of the rupee is expected to further dampen sentiments in the near term.

Plantation Sector Update — Wage hike finalised at last: The plantation sector wage increase was finalised yesterday. The overall hike for the tea side amounts to SLRs121 up from SLRs101, with wages for the rubber segment increasing from SLRs95 to SLRs112. This works out to a 20% and 18% hike for tea and rubber respectively. Our previous expectation was a 17% hike. The revised wage is made up of not only an overall increase on the prevailing wage, but also an attendance related incentive and a price related bonus. This hike in wages is valid until June 2002.

Despite the considerably high increase, the incentive given for attendance could significantly increase worker productivity and efficiency, and enhance company performance in the long run.

Asian Hotels — In dire straits: AHOT reported a PAT of SLRs78.5m for FY00, up 144% from FY99. However this was highly distorted for comparison as it included the gains from discontinued activities amounting to SLRs81.8m without which the company made a less of SLRs1.7m for FY00. The main impact on earning was from the rise in interest costs amounting to SLRs144m, compared to last years SLRs109m, which was as a result of the increase costs being charged to the P&I, as opposed to being capitalised. Moreover a 30% decline in the contributions from associate Trans Asia, brought about by changes in the depreciation policy and difficult trading environment, had a significant impact since it had accounted for almost 95% of earnings over the past few years. The situation was made worse by a 40% decline in operating profits from Crescat, due to poor apartment sales and rentals.

Given the developments in the tourism sector and the substantial debt burden, the repayment of which is highly dependent on the sale of Creseat apartments, we have downgraded earnings by 81% and 68% for FY-1 and FY02 and reiterate our recommendation, SELL.
- Rest of contests

 Market Key Indications Market Valuation (%)

14/06/00 14/06/00 22/06/99 1998 1999 2000

ASPI 497.6 478.8 513.00 EV/EBITDA 3.8 3.4 2.9

%chg PER 5.9 5.8 5.0

Turnover-Volume 3063 981 875

000 Price/cash 3.8 3.6 3.3

Turnover-SLRsm 117.5 20.19 30.6 Price Book 0.9 0.8 0.7

Turnover-US$m 1.56 0.27 0.43 EPS Growth (%) 12.4 2.1 14.9

Exchange rate/US$1 75.12 75.02 70.84

12m T-bill rate (%) 12.01 12.7 11.79

3-m deposit rate (%) 7.50 7.50 7.00

Top-Five Performers in coverage Bottom-Five Performers in coverage.

As at 21/06/00 Price % chg Rec. Price % chg Rec.

1 Lion Brewery 14.00 17BUY 1 Sampath 56.00 11 SELL

2 NDB 58.00 16 BUY 2 Cold Stores 52.00 0 BUY

3 Colombo Dockyard 15.50 15 BUY 3 Ceylon Brewery 28.00 0 BUY

4 Kelani Valley 13.00 13 BUY 4 Aitken Spence 110.00 0 SELL

5 Hayleys 100.00 12 BUY 5 Asian Hotels 6.00 0 SELL

Operating profit barely dents interest costs
Korea Ceylon slashes losses but fights liquidity squeeze

Although Korea Ceylon Footwear Manufacturing Company Limited has been able to substantially reduce its losses to Rs.44 million during the year ended December 31, 1999, from Rs.136 million the previous year, the company’s accumulated losses had built up to a sizable Rs.380.8 million at the end of the year under review.

The company’s Chairman, Mr.A. G. L. Perera, has told shareholders that measures taken to restructure and reorganise the company through a business recovery plan and covered export sales, pricing and ancillary services had contributed substantially to savings in recurring expenditure and a modest increase in gross margins realised.

The company had in fact posted an operating profit of Rs.6.8 million against an operating loss of Rs.85.7 million the previous year. But interest dues of Rs.51.2 million more than swallowed this up. This was despite the cash infusion that was part of the restructuring.

Perera said that additional borrowings to finance losses incurred during the year under review had eroded the benefits accruing from the capital reorganisation scheme. They had to contend with liquidity squeezes which disrupted production due to intermittent delays in procurement and shipment of essential supplies.

While production slipped approximately 1% below 1998 levels, sales were up approximately 5%. The company continued to suffer competitive pressure from East Asian manufacturers benefiting from devalued currencies.

Perera reported that they have received BOI approval to extend their product range from canvas footwear to all types of footwear and rubber based goods. Their capacity for production of rubber boots had been enhanced and export orders covering 90% of production capacity are now being received.

He also reported that they have developed a range of footwear with leather uppers for a branded footwear distributor in the USA for production from this year. He said they will need further capital investment during the next 2 or 3 financial years to support production of leather shoes.

A number of moulded rubber boots had been developed by the company and trial orders have been shipped. Commercial orders are now being received but substantial capital expenditure will be needed to establish a capability to manufacture the diverse range of rubber goods required for the export market.

Discussing future prospects, Perera said that their production activities are organised to respond to the challenges of the footwear export sector. But the continuity of the company’s core business in footwear will depend on the timely and successful implementation of the measures identified in the strategic reorganised business plan.

The C.W. Mackie group of companies and the Ceylon Trading Company Limited owned over 60% of Korea Ceylon Footwear Manufacturing. The two Korean partners, Doosan Corporation and HS Corporation have 5.32 percent each.

The directors of the company are: Messrs. A. G. L. Perera (Chairman), P. B. Rasmussen (Deputy Chairman), S. S. Senaratne (M/D), M. A. Abeynaike, D. A. T. Ranasinghe, S. H. Amarasekera and M. M. Kristensen.

Bartleets Weekly Market Commentary

As an active, positive and eventful week of trading at the Colombo Stock Exchange came to an end, both indices witnessed gains. The ASPI saw a moderate gain on Monday and more significant gains on the next three days while on Friday there was only a marginal gain. It was a similar story with the MPI with the exception on Friday where there was a marginal decline. On a WOW basis the ASPI picked up 18.8 points (3.8%) to end the week at 497.6 points, while the MPI saw a gain of 39.8 points (4.9%) to close the week at 814.1 points. Equity Turnover which recorded a high for the year on Monday totaling Rs. 570.96 Mn. This was mainly due to 7.975Mn. shares of Sampath Bank shares being traded between Rs. 55.25 and Rs. 70.50 on that day. The next three days saw Equity Turnover being on the moderate side while on Friday turnover closed at a healthy Rs. 117.38Mn. On the week as a whole Equity Turnover totaled a whopping Rs. 841.87Mn. while the Average Daily Turnover for the week was an encouraging Rs. 168.37Mn. This is an increase of 26% when compared to the previous week’s figure of Rs. 133.37Mn. There were as many as 18.08Mn. shares traded during the last 5 days while the Average Daily Share Volume totaled 3.62Mn. Foreign selling continued to dominate the market this week as well while foreign purchases continued to be insignificant. During the week foreign purchases contributed Rs. 20.46 Mn. (2.35%) to total market turnover, while foreign sales contributed Rs. 345.61Mn. (39.83%) to total market turnover. This resulted in a net foreign outflow of Rs. 325.1 Mn. Market capitalisation increased by Rs. 3.72Mn. to close the week at Rs. 98.25Bn.

For the third consecutive week Sampath Bank shares were the most actively traded stock for the week. Among the other stocks that were actively traded were Commercial Leasing, Eagle Insurance Debentures, Vanik (Voting and Non-Voting), Ceylon Synthetics, NDB, JKH, Pelwatte Sugar, Blue Diamonds, DFCC, Hayleys, Aitken Spence, Lion Brewery, LOLC, Madulsima, Nations Trust Bank, Distilleries, Grain Elevators, Royal Ceramics, Ceylinco Insurance, Ceylon Tobacco, Dockyard and Tokyo Cement.

Sectorially there were gains in 11 sector indices with the Banks Finance & Insurance (61.0 points), Chemicals & Pharmaceuticals (38.9 points) and the Trading (21.7 points) leading the way. There were 4 sector indices that saw declines with the Services (29.8 points) sector witnessing the most significant decline.

In the coming weeks we anticipate that investors continue be looking at shares that are still trading at discount levels.

Tangerine boosts occupancy, awaits tax-free returns from subsidiary

Tangerine BeachTangerine Beach Hotel Limited, a member of the Mercantile Investment Group, has boosted occupancy during the year ended March 31, 2000 to 66% from the previous year’s 60% and has also slightly improved its average room rates according to the company’s just published annual report.

Mr. George Ondaatjie, the company’s chairman, said that revenue during the year under review at Rs.151.6 million was up from the previous year’s Rs.133.1 million while the pre-tax profit had more than trebled to Rs.25.7 million from the previous year’s disappointing Rs.6.2 million. However, the after-tax profit of Rs. 23 million was down slightly from Rs. 23.7 million earned the previous year.

"During the year under review the company gradually moved in to the all-inclusive concept from a meal plan hotel. This has paid rich dividends," he said.

The company has invested in refurbishing and 19 rooms and 2 suites in its northern wing had been refurbished along with the reception foyer which has enhanced the appearance of the hotel. The main restaurant refurbishing is under way and a much needed children’s pool was commissioned, the chairman reported.

Ondaatjie said that the tourism industry’s future has always been dependent on a healthy political environment and a peaceful settlement of the ethnic issue. Their hotel had always focused on capturing market opportunities and meeting the customer needs of today’s leisure travel.

Ondaatjie said that while in the shorter term, Tangerine is looking at the possibility of maintaining the positive growth with products and services readily marketable to its customers, in the mid/long term, the company "will look forward to consolidate the advantage it has achieved by promoting Royal Palms Beach Hotel, one of the best beach resorts in the island."

He said that this property, with BOI concessions, is entitled to distribute a large share of tax free profits to Tangerine, which maintains a substantial stake in the new company even after the initial public offering.

Also, the hotel is on the verge of deciding whether to become a total all-inclusive hotel or offer the customer the choice of a meal plan as well. He believed that these decisions will take Tangerine ``to new heights."

The company has paid a 5% interim dividend in March and no further dividend has been proposed for the year under review. However, Tangerine ended its tax holiday in October 1997 with a 50% tax free dividend being paid off by redeemable 100-rupee debentures carrying no interest. Two ten-rupee tranches have been redeemed on this account in 1998 and 1999 and Rs. 80 remains to be paid.

The directors of the company are: Messrs. George Ondaatjie (Chairman), N. D. Rajapakse (M/D), L. V. Perera, G. Ondaatjie, H. Cooray, V. Balasubramanium, W. Edwin de Silva (Alternate Ms. S. D. de Silva), G. V. Divitotawela, A. R. Peiris, S. Adhihetty, J. P. Van Twest, T. Ondaatjie, H. Perera (w.e.f. 25.11.99), Ms. Angeline Ondaatjie and Ms. C. A. Ondaatjie.

Telecom operators call for level business environment

June 19, 2000, Colombo: Sri Lanka’s three leading telecom operators- Lanka Internet, Lanka Bell & Suntel jointly addressed the media last week to address some common issues concerning the telecom industry.

Addressing the Media Conference were Hugo Cederschoild, Managing Director, Suntel Vijendran Watson, Managing Director, Lanka Bell and Hemantha Jayawardena, Chief Executive Officer, Lanka Internet. The welcome address was delivered by Janaka Wettasinha, Financial Controller of Lanka Internet.

As representatives of the Telecom Industry, the operators stressed the importance of telecommunications for every country. It is the foundation for the "new society " and is becoming increasingly important to the efficiency and effectiveness of private and public sector institutions. In this rapidly changing technological environment, a competitive marketplace will tap the potential of the telecommunications sector to serve the economic and social well being of all citizens.

As representatives of the Telecom Industry, Lanka Internet, Suntel and Lanka Bell made a plea for a business environment which would help contribute to Sri Lanka’s economic development and bring benefits to the industry and the people of Sri Lanka as well.

In his presentation titled, "The benefits of a free and competitive Telecommunications Market", Mr. Hugo Cederschoild, Managing Director, Suntel, highlighted the benefits of competition. Consumers stand to gain through lower prices, a wider choice of products and suppliers and better quality of service. Competition fosters a climate which rewards companies which are innovative, responsive and customer focused and does not make room for companies which are sluggish or indifferent to their customers.

Experience has clearly shown that free and competitive markets (e.g. USA, UK, Chile, Sweden etc.) create a win-win situation for everybody- the country, the customers, the operators and the society at large. There is therefore an urgent need to actively promote competition by removing legal barriers which protect a monopoly.

The second presentation was made by Mr. Vijendran Watson, Managing Director, Lanka Bell, on the "Need for a Strong and Independent Regulatory Environment". He talked about the need for regulatory framework which is strong and independent in order to aid a smooth transition from a monopoly to a competitive environment.

Monopolies do not have a reputation for decreasing prices. Recent experiences with Gas, Diesel, Electricity and telephone all support this argument. In most countries where deregulation has been followed and new entrants were given a level playing field, the prices came down to the benefit of the customers.

Together with better prices, an independent and strong regulatory climate can also facilitate consumer choice by reporting on the service quality of all operators. The regulator could even give advice on service levels and resolve any legal issues that consumers may have.

In the final presentation Hemantha Jayawardena, Chief Executive officer, Lanka Internet spoke on "International Agreements in Telecommunications". He explained the relevance of the agreements and the need to honour them in today’s global business context. Globalisation is becoming a reality in every sphere and telecommunications has become the main facilitator in this process.

Equity up from Rs. 0.4 mn. to Rs. 35 mn., shareholders funds Rs. 169 mn.
Chemanex reports satisfying 25-year growth

Chemanex Limited which completed its 25th year in 1999 has seen its issued capital grow since founding from Rs.0.4 million to Rs.35 million and shareholders funds including capital reserves and retained earnings hitting Rs.169 million as at last balance sheet date.

The company’s Chairman, Mr. B. R. L. Fernando, expressing pride at this growth said in the company’s just published review for the year ended March 31, 2000 that they were serving a wide customer base today. They had expanded trading activities and ventured into new fields of manufacture, particularly by the formation of subsidiaries.

"We are today a more resilient organisation producing a range of locally manufactured chemicals, which have successfully secured export orders from major international customers," he said.

Fernando said that unremunerative price levels during the year compelled them to limit exports. This had an impact on Chemanex Adhesives (Pvt) Limited and Chemanex Exports (Pvt) Limited. In that context, he regarded the increased turnover of Rs.169.5 million, up from Rs.135.8 million the previous year, to be "satisfying."

Returns from investment had also declined due to timing differences and a sharp downturn in the profits of Chemanex Exports and Chemanex Adhesives. But their investments in the financial services industry in association with the Commercial Bank (Commercial Leasing, Commercial Insurance Brokers, and the Commercial Bank itself) provided Rs.4.9 million in dividends.

Fernando said that they had increased their equity stake in Commercial Leasing by acquiring 715,400 shares during the year. Their investment in the hospitality trade through the Lighthouse Hotel in Galle had paid a 3% tax free dividend of Rs.0.85 million and the hotel was making progress.

"Lower dividend payments from Chemanex Adhesives (Pvt) Limited and Chemanex Exports (Pvt) Limited is only a temporary setback as these companies have now secured improved export orders in the current year," he said.

Chemanex is also into agriculture through investments with the CIC group of companies. Their stake in CIC Fertilizers is 15.9% and they have also an investment in Crop Management Services (Pvt) Limited. Fernando said that CIC Fertilizers had consolidated its market position and gained a significant share of the total fertilizer market. It has also secured a 50-year lease on a government farm through its subsidiary, CIC Seeds (Pvt) Limited, which is expected to add value to the fertilizer business in the coming years.

Chemanex has received a dividend of Rs.3.1 million from CIC Seeds which was the same as in the previous year. Fernando said that Crop Management Services is still to receive the residue of the management fee from Maturata Plantations.

The year under review had seen Chemanex acquiring 521,149 shares in James Finlay & Company Limited at a cost of Rs.10.5 million. No dividend has been received from this source during the year under review.

Their BOI project, Yasui Lanka (Pvt) Limited, producing knitted liners for gloves had faced intense competition at prices they could not match. The result was a failure to secure adequate orders and a loss of Rs.6.3 million for the year. Accumulated losses to date in this company amounts to Rs.18 million including a Rs.11.5 million charge for depreciation.

Fernando said that in order to overcome present difficulties, they have undertaken a sub-contract from a BOI company which is profitable. Additionally, foreign buyers have placed trial orders which they hoped would help secure new business of consequence in the coming year.

A Rs.3 million provision had been made for losses at the Yasui Lanka which despite retained losses had net assets of Rs.2.6 million after accounting for a Rs.9.8 million liability to Chemanex.

Chemanex had an operational profit of Rs.6.5 million during the year under review, up from Rs.1.1 million a year earlier and net finance income of Rs.17.7 million, down from Rs.21 million the previous year. Its pre-tax profit was Rs.24.4 million, up from Rs.22 million the previous year while its after-tax profit was flat at Rs.18.4 million, marginally down from Rs.18.5 million the previous year.

The directors have recommended a final dividend of 12% on top of an interim 12% already paid.

The directors of the company are: Messrs. B. R. L. Fernando (Chairman), C. L. de Alwis (M/D), M. P. Jayawardena, U. P. Liyanage and P. R. Saldin.

Lower tax charge helps Habarana Lodge to double profits

Habarana Lodge Limited, the John Keels’ cultural triangle hotel that has earned itself a reputation as ``a hotel that became a park" has more than doubled profits during the year ending March 31, 2000 thanks to improved tourist arrivals to the country and a 3% increase in its own year round occupancy averaging 54%.

The company’s Chairman, Mr. Ken Balendra, said that turnover was up 19% to Rs.139.5 million while pre-tax profits had grown 49% to Rs.43.9 million.

The after-tax profits picture was even better with an earning of Rs.40.5 million, up 124% from the previous year, attributable to a lower tax charge on the higher profits.

Balendra said that the lower tax charge during the year under review was due to the higher provision of Rs.7.3 million deferred tax the previous year against Rs.1.4 million provided in the current year.

The directors have recommended a final dividend of 30% on top of a 10% interim paid last March.

The company took advantage of a duty free facility offered to the hotel sector to invest in plant, machinery, equipment, furniture and fittings. Rs.26.8 million was spent on this account while a further Rs.5.4 million was invested in the construction of a herbal centre. Total capital expenditure during the year was Rs.32.2 million, Balendra said.

The Habarana Lodge which is the newer of the two JKH hotels at Habarana is built on a chalet concept and is well known for jungle trees on manicured lawns. Work on refurbishing its kitchen is nearing completion, Balendra said, adding that they also planned a discotheque, a conference facility and possibly an a la carte restaurant during the current financial year.

The property which is located among the gigantic trees of the Habarana jungle reflects the architecture of the nearby Ritigala forest monastery. Etchings of 126 varieties of birds that can be seen in the area decorate the rooms.

The 53 detached villas boast 150 guest rooms between them. The twin apartments are luxuriously appointed, boasting what the company called "a subtle medley of tradition and luxury, with antique beds, cool earthen floor tiles, handloom curtains, and etchings of birds."

"Hotel operations are being maintained at a very high level of customer satisfaction and excellent feedback continues to be received from both our foreign and local clientele. We are, therefore, very confident of continuing to generate very satisfactory financial returns from this property providing, of course, the country’s security situation does not affect tourist arrivals too adversely," Balendra said.

He also reported that having achieved ISO 9002 certification last year, they were on course to achieve ISO 14000 certification confirming total conformity with eco-friendly practices already effectively implemented for many years.

JKH and its subsidiaries are the dominant shareholders of the company which has an issued capital of Rs.72 million.

The directors of the company are: Messrs. Ken Balendra (Chairman), V. Lintotawela, C. J. Fernando, A. D. Gunewardene, S. C. Ratnayake, G. S. A. Gunasekera, J. S. Ratwatte, B. S. H. Mendis and Ms. J. C. Ponniah.

Bonanza for SriLankan Airlines’ Customers

SriLankan Airlines held its first ever "Serendib" customer comment form draw for a return air ticket, recently. Over 2000 response forms collected by the airline’s Research Department, between November 1999 and January 2000, were eligible for the draw.

The lucky winner from this inaugural draw is Mr. L. Mehta from Mumbai, India. Mr Mehta has won a return air ticket to any destination of his choice, served by SriLankan Airlines.

Mr. Mehta had travelled on SriLankan Airlines flight UL 303 from Singapore, to Colombo on 15th January, 2000. This had been his fifth consecutive flight on SriLankan covering Kuwait, Jeddah and Dubai in the Middle East region and Singapore and Bangkok in the South East Asian region.

According to the information furnished in the questionnaire, ‘attractive fares’ offered by SriLankan had prompted Mr. Mehta to travel on the airline. Apart from this comment, a very satisfied winner had this to mention as well: "You go beyond a hello and a pretty smile", which speaks volumes for the service and facilities offered by SriLankan.

"Serendib", the inflight magazine of SriLankan Airlines carries this comment form titled "Are You Happy". It provides SriLankan passengers an opportunity to give feedback about their experience of SriLankan customer care. This feedback helps the airline to streamline its facilities to ensure service excellence and customer satisfaction.

The winning form was picked by Mr. Peter Hill, Chief Executive Officer of SriLankan Airlines. "We have set ourselves to become one of the most successful growth-oriented airlines in the world within the next few years. Our objective simply stated, is to become the leading international airline in South Asia, a goal that, judging by our quite remarkable achievements over the last two years, should be well within our grasp," are the confident expectations of Mr Hill.

As a part of the service excellence through customer response campaign of SriLankan Airlines, the "Serendib" customer response form draw will become a quarterly event in the SriLankan calendar.

Hayleys Photoprint to supply x-ray systems to southern hospitals

The photographic products, printers’ requisites and the medical imaging specialist, Hayleys Photoprint Limited has been awarded a contract by the Southern Provincial Council to supply high quality x-ray systems to three rural hospitals.

These new systems, manufactured in USA, are to be installed at the Hambantota, Mahamodera and Matara Chest Hospitals, and maintained by Hayleys Photoprint during the warranty period. The value of the contract is Rs 5.5 million the company said.

"It is very creditable for Hayleys Photoprint to have won this tender, competing with many other suppliers of reputed brands who have been in the field for a considerable period of time," the company’s Director/General Manager, Ashan Abeyesundere said.

The x-ray machine supplied under this contract is the PerformX radiographic system, which is manufactured by Control-X Medical of USA. It is acknowledged that this company has a reputation for the highest level of quality, durability and value in diagnostic x-ray imaging systems, Reshan Goonewardene, Assistant Manager of Healthcare Products & Services Department of Hayleys Photoprint Ltd said.

The PerformX x-ray system is equipped with high frequency generators of latest technology which ensures high quality exposures in the full radiographic range. Due to this feature in the machine, any part of the human body could be x-rayed unlike other models which have restrictions, that necessitate scans.

This system is also equipped with a heavy-duty four-way radiographic table which ensures comfortable patient positioning and tube and wall stands to enable lower extremity exposures, Mr Goonewaredene added.

Hayleys Photoprint Limited was appointed the sole agent in Sri Lanka for Control-X medical products in March this year. The company has been in the medical equipment and consumables business since 1998.

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