Kelani Tyres Ltd. (KTL), recorded a net loss of Rs 34.34 million for the financial year ended March 31 of last year, compared with a loss of Rs 181.97 million made for the year ended March 31, 2000, KTL’s directors, in their report for the year under review said.

The directors in their review further said that on June 30, 1999, the company transferred its tyre manufacturing assets to a joint venture company (JVC) Ceat Kelani Associated Holdings (Pvt) Ltd. (CKAH) which began its activities on July 1, 1999. The company records 50% of the profit/loss of the JVC as its share of profit/loss.

As a result, the company recorded no sales income during this period. However, it made a sales income of Rs 118.073 million in the preceding financial year (1999/2000). Meanwhile, KTL made a turnover of Rs 4.287 million from ‘other operating income’ during the period under review (2000/2001). Other operating income included a rent income of Rs 3.723 million.

However, the company was burdened with a loss of Rs 16.674 million (as against a profit of Rs 27.25 million the previous year) which KTL has termed as ‘share of results of joint venture’ in their income statement for the period under review.

KTL and CKAH chairman Chanaka De Silva in his review said that the operational results of their JVCs, namely CKAH, Ceat Kelani International Tyres (Pvt) Ltd. (CKITL) and Associated Ceat (Pvt) Ltd. (ACPL), were reasonably good during the preceding financial year, namely 1999/2000 (de Silva is also the chairman of both CKITL and ACPL).

As a result, KTL received a tax free dividend of Rs 30 million from CKAH which was redistributed in its entirety last February amongst its shareholders. However, during the year under review (2000/2001), the JVCs experienced operational difficulties resulting from intense competition caused by lower priced imported tyres.

This has eroded the contribution from Rs 323.8 million in the previous year to Rs 292.6 million during the year under review. This was despite the fact that turnover increased by more than 30%, that is from Rs 881.3 million to Rs 1,166.2 million.

The final profit of the JVC was reduced drastically due to the above and further aggravated by the increased costs of raw material, electricity and fuel oil. De Silva further said that the loss of Rs 16.674 million shown in their consolidated financial statements was the 50% loss of the JVCs for the year under review.

Meanwhile, the company, in its notes to the financial statements said that as at the balance sheet date (March 31, 2001) the company had substantial accumulated losses and its current liabilities exceeded its current assets by Rs 25 million.

Due to the continuing availability of banking facilities, the renegotiations of the repayment terms of the existing facilities and the agreement entered into by the company to form a strategic alliance/joint venture with ACPL and Ceat Ltd., India (CEAT), the directors believe that it is appropriate to prepare the financial statements on the ‘going concern’ basis, which assumes that KTL will continue its operational existence for the foreseeable future and would continue to meet its financial obligations as and when they fall, due for a period of at least 12 months from the date of signing these financial statements, which was on October 19.

Meanwhile, KTL made an operational loss of Rs 19.952 million during the period under review, as against a loss of Rs 183.551 million suffered the previous year. This operating loss included Rs 1.446 million as directors emoluments (it was Rs 629,000 the previous year) and management fees of Rs 6.104 million (it was Rs 6.184 million the previous year) paid to Avon Lanka Ltd. of which de Silva is chairman.

Other disclosures made in the company’s ‘notes to financial statements’ are the receipt of a monthly advance of Rs 13.42 million as per the joint venture agreement, received from CKAH.

The company has rented out stores premises and vehicles to Wheels (Pvt) Ltd. (of which also de Silva is chairman) and earned an income of Rs 781,961 during the year. KTL has bought tyres from Wheels amounting to Rs 54,755 during the year for the use of its vehicles.

The company has rented out office quarters to CKITL and earned an income of Rs 303,204 for the year. KTL occupies premises rented from CKITL and has paid a monthly rent of Rs 180,000 for the year.

KTL in its normal course of business had financial transactions with Union Bank (of which also de Silva is chairman) and earned an interest of Rs 713,004 for the year. The company has rented out stores premises to Union Commodities (Pvt) Ltd., of which too de Silva is chairman, and had earned an income of Rs 1,743,912 for the year.

Meanwhile, the market value of an ordinary share of KTL as at March 31 was Rs 4.25. This was also the lowest recorded during the period under review. The highest value of a share recorded during the period under review was Rs 9.50 (on May 19).

In contrast, the market value of a share recorded during the previous financial year (1999/2000) was a share value of Rs 8.50 recorded on March 31,2000; while the highest value recorded during that period was Rs 14 (registered on April 9, 1999) and the lowest, Rs 8.25 on November 2, 1999. Meanwhile, KTL’s shares closed at Rs 7.25 on Friday.

KTL operates on a structure where it has transferred all tyre manufacturing assets and liabilities to CKITL to carry on the tyre manufacturing business of the company on July 1, 1999; after an agreement to form a strategic alliance/joint venture was entered into between ACPL, CEAT and KTL.

KTL says that the primary objectives of this alliance are to form a separate entity, CKITL, to carry on the tyre manufacturing business of the company by acquiring the assets and liabilities relating to the tyre manufacturing business of KTL.

The shareholders of ACPL were incorporated into Associated Ceat Holdings (Pvt) Ltd. (ACH). Another company, CKAH was incorporated to acquire and eventually hold all of the shares of ACPL and CKITL. The consideration for such an acquisition was the issuance by CKAH of its shares to both ACH and KTL in equal proportions.

The management of CKITL, ACPL and CKAH has been organised on a common basis through a board of directors. With respect to each of such companies, KTL will be entitled to nominate one half of the total number of directors.

CEAT will provide technical support to ensure ‘quality tyres are manufactured to meet both local and international standards.’ Separate agreements have been entered into for these purposes, and CEAT, as entitled in those agreements, with respect of CKITL, CKAH and ACPL, has nominated its chief executive officer who is a member of the board of directors, as the managing director of such companies.

KTL’s five major shareholders as at March 31 were Avon Lanka Ltd. (41.692%), Readywear Industries Ltd. (10.29%), Sri Lanka Insurance Corporation Ltd. (2.43%), Bank of Ceylon A/C Ceybank Unit Trust (1.923%) and National Development Bank (1.659%).

KTL’s directors are Chanaka De Silva (chairman), Rohan T. Fernando (managing director), Lasantha P. Fernando and T. Bevan Perera (executive directors), H. S. De Silva, M. G. Barnard, D. Pegler (alternate director to Barnard) and S. B. Hewage.(PA)