Getting Hayleys back on track

Businesses are feeling intense pressure to perform despite growing unease about the uncertain economy and the direction of the country.

Hayleys Ltd Chairman, N.G. Wickremeratne admits that Group performance could have been much better but shows optimism for future growth and development. "The Group did worse than we expected," he said during an interview with The Sunday Times FT last week.

Two important events which ended up skimming close to Rs.400 million from the company's bottom line was the failure of a joint venture with Onril in the Fibre sector and the need to restructure the consumer durables business in the last quarter of the year. "That wiped out all the gain and eventually, our attributable profits were 9% less than in the previous year.

If these two events hadn't occurred, we would have been more or less in line with the kind of projections we had anticipated which was about Rs.1 billion."

This makes the Rs.534 million made last year significantly less than the company's projections.

Hayleys: Performance,
Initiatives and the Future

Despite falling short of their anticipated projections, Hayleys has undertaken various initiatives to deliver the results it should. "One of the major initiatives we undertook last year was to send nearly the whole senior management team to the Indian School of Business," Wickremeratne said. The programme was threefold and designed to emphasize strategy, business competencies which included marketing, IT, operations, finance, business development and human resource management.

The last step in the programme was focused on transformation and leadership. "The way the course was structured enabled the Group to look at areas in which performance improvement can take place and equip the managers concerned to lead and make the changes that are necessary.

Operational efficiency was one area that we are targeting by looking at the strategies we employ, marketing concepts, the way we do our financial analysis, the efficiency of our operations and IT." Wickremeratne said the team was well equipped to deal with the improvements envisaged for the business.

"Instead of getting outside consultants to look into the organization and come up with ideas by going into various segments and looking from the outside in, here we were equipping the team to do that. Following from that, it was decided that we would strengthen the core of Hayleys," Wickremeratne explained. The core area of business the company has decided to develop, in terms of institutional developments, is the strategic business development unit. This purpose of the unit is to connect the various sectors, evaluate its strategies and development plans and see how it fits into the overall strategy.

Hayleys also has a head of HR and the various sectors are driving their own processes. "We have seen the necessity to develop a core IT capability and platform. Also, we haven't had a central treasury for such a large group so we have developed one." The central treasury and the HR will commence in July 2007. "We have seen the need for Hayleys to finance itself," he said and in this respect, there has been interest from a couple of bilateral funding agencies, both in debt and equity financing. The chairman expects the results from these initiatives to kick in during the next two years. "The results will come as we move on." Out of the four sectors in the group, -- manufacturing which is mainly industry based accounts for 50% of the entire business.

These include hand protection, activated carbon, fibers and textiles amongst others. Around 15% of business comes from agriculture and agribusiness. "Those are our plantations, agricultural services, products through farming and plantation communities in Sri Lanka," Wickremeratne said. Products vary from flower seeds, gherkins and most recently, sweet potatoes. The gherkins are used in most Asia Pacific McDonald's chains. Tea and rubber also come under this category even though they are factory industries. Hayleys also has an important business in transportation and infrastructure.

Thoughts on the Economy
In the 2006/2007 Annual Report, Wickremeratne wrote that 'it is perhaps reasonable to ask why the Group's business is not performing better, given the growth in the economy of 7.4%.

The unfortunate answer to this is that the contribution of agriculture and manufacturing to national growth is barely 13% or in other words these two sectors in which more than half the population is engaged has contributed 1%.' According to Central Bank reports, Wickremeratne said construction is also regarded as industry but that the construction we have today is focused more on 'urban construction rather than industry based construction you would capture in you national accounts.' He said there was a lack of meaningful infrastructure development.

"The people are our greatest asset," the chairman said. "Sri Lanka has had a great performance in reaching most of our Millennium Development Goals." He also spoke of the great achievements of the nation in terms of education, infant mortality, literacy, access to clean water and an overall good quality of life.

He said someone once described Sri Lanka to him as a 'first world country that is poor because it manages to shoot itself in the foot.' It is also likely that the population will start declining by the year 2020, typical of a developed country. He also mentioned an article in The Economist magazine which describes Sri Lanka as the star of South Asian development. "We are poised to growth despite the security situation and war. We have been growing at around 5% since the 1990's but we could be growing better."