Hayleys Limited, one of the country’s largest multinationals with a portfolio of globally competitive core businesses, has seen its attributable profit shrinking 15% to Rs.453 million in the year ended March 31, 2008, but has in its annual report released last week projects strong potential for the future.

Early last week, the Ceylon Guardian Investment Trust and Ceylon Investments, both quoted investment vehicles of the Carsons group, As well as the Ceyank Unit Trust, all three among the top 20 shareholders of Hayleys, exited the company selling off 6% of the conglomerate’s equity at a Rs.125 per share price.

These shares were bought by the Dhammika Perera connected Vallibel interest at a premium of around Rs.25 to the Rs.100 market price at which Hayleys shares were being transacted before the major deal early in the week.

"This is both an index of the group’s potential in Perera’s view as well as a signal from the seller of the money that is there to be made in fixed income instruments in the current market," an analyst said.

Hayleys is a broad based company with no single shareholder owning more than 12% of its equity and, as pointed out in the annual report, in the 56 years since its incorporation as Hayleys, it has a record of 26 scrip (bonus) issues and four modestly priced rights issues together with a dividend payout averaging 25% in each of these years.

Hayleys, with an AA-(lka) credit rating by Fitch today accounts for 2.6% of Sri Lanka’s export income with the company engaging in global markets and manufacturing, agriculture and agri-business, transportation and infrastructure and consumer products and leisure.

There are unconfirmed rumours in the stock market that Hayleys is looking at exiting from its associate, Dimo, but no confirmation of this market speculation has been forthcoming either from Hayleys or Dimo which has long held the Mercedes Benz, Tata and other high profile automobile agencies in Sri Lanka.

Hayleys Chairman N.G. Wickremeratne indicated in his annual report statement that the year had seen consolidated turnover growing 17% to Rs.31 billion and the pre-tax profit up 10% to nearly Rs.2 billion. However, the attributable profit was down 15%.

"Still this represented a strong recovery from the poor results at the start of the year and is in fact more than a two fold increase over the performance in the first 9 months," he noted.

Wickremeratne attributed the overall result partly to the restructuring of their consumer durable business which had cost Rs.384 million in the year under review as well as the discontinuance of another company, Kinetics, at a cost of Rs.46 million with the total provided for these assets amounting to Rs.430 million.

"But for this, the attributable profit would have been Rs.865 million," he said.

He also commented on what he called "a deadly combination of high inflation, high interest rates and appreciating exchange rate" that had hurt the group’s manufacturing businesses during the year.

While it was difficult to calculate the effect of this, he was certain that it would have exceeded billion rupees or 5% of their exports manufacturing revenues.

Wickremeratne said that these businesses engaged in manufacturing a range of products for global markets accounted for more than half the group’s turnover.

"They performed well under difficult circumstances but in most cases greatly below potential," he explained.

"High domestic inflation and an exchange rate which appreciated rather than depreciating under the circumstances could only result in a loss of profit margin."

Compounding these were high energy price, specially of electricity and furnace oil, heaping further challenges on these companies.

Hayleys has proposed a final dividend of Rs.1.50 per share on top of an interim of Rs.1.50 paid in May that will give the shareholders a return of Rs.3 per share, down from the previous year’s Rs.3.50.

Wickremeratne explained that their decision to exit from consumer durables during the year was taken because the alternative would have been to invest substantial funds with increased risks when better alternatives were available.

The areas from which they have exited were not core competencies of the group and when the exit is completed, they will cease to drain group profitability.

"That group profit after tax was Rs.1.5 billion before accounting for discontinued businesses shows the potential there is for recovery of the business," he pointed out.

Wickremeratne announced that the group will look at divesting other non core businesses and exits as well but did not identify what these were.

He said that their plans for development of their Deans Road property where their headquarters is located on a large extent of land have slowed down due to market conditions.

The Deans Road property standing on 6.11 acres of land in a prime city location has a market value of Rs.3 billion according to the most recent revaluation which has pushed up net assets per share to Rs.162.96 during the year under review from Rs.156.01 a year earlier.

Hayleys has a stated capital of Rs.1.58 billion, capital reserves of nearly Rs.6 billion and revenue reserves of Rs.4.7 billion. The company’s share traded at a high of Rs.1.58 billion, capital reserves of nearly Rs.6 billion and revenue reserves of Rs.4.7 billion. The company’s share traded at a high of Rs.156.50 and a low of Rs.95 during the year under review against a trading range of Rs.165 to Rs.85 a year earlier.

The major shareholders of the company are: D.S. Jayasundera Trust (11.60%), (Hayleys) Employees Share Trust (9.10%), SLIC Life Fund (6.18%), Dipped Products (4.71%), Dean Foster (Pvt) Ltd. (3.90%), Promar Overseas SA (2.97%) and Renuka Consultants & Services Ltd. (2.91%)