Income up but net profits down to Rs. 109 mn.
Mercantile Investments pay 150% dividend in challenging year

Mercantile Investments Limited (MI), one of the country’s leading unquoted finance companies, has posted a profit after-tax of Rs. 109 million in the year ended March 31, 2002, described by Chairman, Mr. George Ondaatjie, as "a difficult year."

Although the company’s profitability was down from Rs. 124 million earned a year earlier, Ondaatjie said that the company had risen to the challenges presented by the uncertainties in the economic and political environment boosting income 4% to Rs. 444 million although the net profit dipped 12% over the previous year.

MI has been a high dividend paying company and the directors have recommended a 150% return to shareholders for the year, down from the 250% dividend of the previous year. Ondaatjie said that his board has decided on a lower dividend in order to retain funds for the expansion of the lending business.

"The dividend paid by the company is one of the highest paid by the industry," he noted.

Ondaatjie also said that during the year under review MI had made considerable progress achieving its strategic objectives. A program for restructuring and re-engineering the company’s existing operations have been taken forward and investments in developing new businesses made.

"This strategy will help us in increasing our income and profits in the future," he said.

MI has substantial investments in the hotels industry holding major stakes in Associated Hotels Company Limited, owners of the Lihiniya Surf Hotel at Bentota, Ceylon Hotels Corporation, Royal Palms Beach Hotels, Tangerine Beach Hotels and Nuwara Eliya Hotels.

Ondaatjie said that the budget proposal abolishing the 12.5% GST and the introduction of a 20% VAT on leasing transactions together with the abolition

of the National Security Levy on bank borrowings would make bank borrowings very much cheaper than leasing transactions.

"This would create unfair competition and I would not be surprised if the leasing industry (goes the same way) as the hire purchase industry as a result of introducing VAT to leasing transactions at higher rate," he said.

The Leasing Association and the Finance House Association were continuing to lobby its case and Ondaatjie was hopeful about a favourable outcome.

The Chairman/Managing Director, said that loan recoveries were an area for concern in the context of the economic downturn during the year under review and significant provisions had to be made for doubtful debts. Provision for doubtful debts totalled Rs. 44.1 million for the year, over double the Rs. 22.1 million the previous year.

However, total provisions at Rs. 25.5 million was down from the previous year’s Rs. 41.3 million on account of a write-back of Rs. 19.7 million of provisions previously made for the fall in value for short term investments.

Ondaatjie also said that the company had earned Rs. 6.6 million in share trading compared to a Rs. 2.4 million loss on this account the previous year. Dividend income too had grown 21%.

"We will continue to make investments that are long term and short term in nature when opportunities arise," he said.

Ondaatjie and his family are the controlling shareholders of the company which has a modest issued share capital of Rs. 25 million despite its high asset base. The company has been earning after-tax profits of over Rs. 100 million since 1998 with a peak of Rs. 167.9 million earned in 2000.

The directors of the company are: Messrs. George Ondaatjie (Chairman/MD), Gerard Ondaatjie (Executive Deputy Chairman), J. A. S. S. Adhihetty (Deputy MD), M. B. Assauw, P. M. Amarasekara, Ms. A. M. Ondaatjie, T. J. Ondaatjie, S. H. Jayasuriya, S. B.Rangamuwa, K. D. Rodrigo, G. V. Divitotawela and J. S. Dominic.