Hayleys PLC has closed the year ended March 31, 2009 with its worst performance in a decade with the attributable profit down to Rs.310.9 million from Rs.452.6 million the previous year.

The company’s Chairman/CEO, Mr. N.G. Wickremeratne, who is retiring on June 30 after two years as chairman and 38 years at Hayleys, has said in the company’s recently released annual report that "this is not a result remotely worthy of this group," and given several reasons for this.

"My predecessor and I have alluded in one way or the other over some years to the fact that the potential of the group is at least five times this figure and I said so yet again last year," Wickremeratne said pointing out that shareholders needed to understand the reason for the under-performance and of the remedial measures, where possible, that are being contemplated.

Hayleys exited from their consumer durable businesses two years ago and this had continued to impact on the group’s performance with a final charge of Rs.107 million spilling over to the year under review.

Outlining the several causes for the poor result, Wickremeratne said that Hayleys, unlike no other public quoted company, is exposed to global trade as their manufacturing and plantation businesses account for over 60% of revenue.

"We have continuously drawn attention to the fact that these businesses are hugely affected and their profitability eroded when there is no adjustment for inflation in the exchange rate and we suffer appreciation of the rupee in real terms," he said.

Although this problem had been marginally relieved in recent months, Hayleys estimated that they had lost between 5% to 7% from the margins in their different businesses since 2005. This was after achieving cost reductions and productivity improvements that were essential survival measures.

Wickremeratne said that some of their businesses had made strong contributions to their results posting commendable returns in the face of unfavourable business conditions. However, others performed well below potential.

Their global markets and manufacturing businesses, for the most part, had done well in the conditions that had to be faced as well as fall in demand and customer pressure for lower prices.

"These export businesses have received modest relief from a slightly improved exchange rate and lower energy costs from the third quarter of the year," he said estimating that overall they had probably performed at below half their capacity.

Among the businesses that had done well were Haycarb, the country’s pioneer activated carbon manufacturer, and Dipped Products, one of the world’s largest non-medical glove manufacturers.

Wickremeratne said that DPL Thailand, their new medical glove production unit, had now achieved profitability after a long struggle to rectify equipment related problems.

"DPTL has performed strongly from November up to the time of writing, and is now a significant contributor to the hand protection sector’s success - again a testament to our capacity to transfer our expertise to overseas locations," he said.

While the textile business had done creditably though at markedly lower levels than in the previous year, fibre had a difficult year.

Plantations had done superbly in the first half of the year under review aided in part by high world prices for tea and rubber.

"The dual misfortune of a collapse in commodity prices and a drop in crop yields on poor rainfall saw profitability decline in their final quarter in October-December," he said.

However, the performance of the segment was commendable.

Transportation, the consistent contributor to the group’s overall financial performance, had been affected by shrinking volumes and withdrawal of shipping service as a result of the slowdown in international trade.

The year had seen Hayleys selling off some capital assets including its 28% holding in Dimo, the disposal of assets of Kinetics whose operation has been closed down the previous year and the sale of the Grandpass property belonging to Volanka.

These disposals as well as the exit from consumer durables had added Rs.134 million to the Hayleys bottom line and Rs.1.1 billion to cash flow.

"Our execution of these plans placed us in a far more secure position to meet the many financial challenges we faced in the second half of the year when the financial crisis broke over us," he said.

Wickremeratne strongly argued that the inescapable logic of export-led growth strategy of the country was the need to retain export competitiveness.

"However, the unfortunate reality is that policy initiatives to support the exports sector have been inadequate at best. The balance of economic incentives does not support export-led growth," he said.

Urging that an exchange rate that adjusts automatically to inflation differences is a prerequisite, he pointed out that major markets and competitors have allowed their currencies to devalue steeply equipping them to face the challenges of surviving in difficult times.

"Our exchange rate in contrast barely moved until a near currency crisis was upon us in October," he said.

Wickremeratne said that domestic capacity building seemed to have lost its priority status to a consumption-based economy, bringing increased dependence on migrant worker remittances and expensive commercial borrowings.

"Is this sustainable?", he asked pointing out that other economies that had grown rapidly on consumption-led growth had suffered from the global fallout from the implosion of excessive consumption.

"We would do well to learn from their errors," he said.

Mr. Dhammika Perera who acquired 21% of Hayleys in June 2008 joined the board as a non-executive director in August and has been appointed to the company’s nominations committee, remuneration committee and audit committee.

Wickremeratne said that Perera had "brought change to the board’s deliberations" which they expected will benefit the group in the future.

Mr. Mohan Pandithage succeeds Wickremeratne as Chairman/CEO and the outgoing Chairman/CEO wished Pandithage and his board "all success in steering Hayleys through these most challenging times."

"On the eve of my departure from the Hayleys Group, I look back on the remarkable development of this company and consider it a privilege to have been able to contribute to that growth," Wickremeratne said.

While it was inevitable and necessary that Hayleys will change, he hoped that the principles on which the group had built its position and reputation will remain sacrosanct "and that we will hold fast to the heritage left to us by our founders."

A final dividend of Rs.1.50 per share giving shareholders a return of Rs.3 per share for the year under review has been recommended by the directors.

Hayleys has a stated capital of Rs.1.58 billion, capital reserves of Rs.5.7 billion and revenue reserves of Rs.5.1 billion in its books with non-current liabilities including interest bearing borrowings of Rs.2.3 billion running at Rs.4.8 billion against a total equity of Rs.16.6 billion.

Mr. Dhammika Perera with 21.43% is the company’s largest shareholder followed by the Trustees of the D.S. Jayasundera Trust (11.60%), Trustees of the Hayleys Employees Share Trust (9.14%) and the Life Fund of the Sri Lanka Insurance Corporation (6.20%).