Financial Times

JKH mulls options for Cold Stores property
The John Keells group, where profits soared in its last financial year boosted by the peace process and a favourable economic environment, is considering various options for the prime six-acre property where the old Elephant House bottling plant at Slave Island is located.

"This real estate has been idle for awhile. We have a team working to decide how to get the best return from this land," noted Ajit Gunawardene, the group's Joint Managing Director.

The bottling plant at Slave Island is no more, according to Sumithra Gunasekera, the group director overseeing food and beverages. The entire bottling operation has moved to its Kaduwela plant. "We had been doing some of our bottling - about 30-35 percent of production - at Slave Island," he said adding that the company also plans to open a new chain of supermarkets. The first has been set up in Wellawatte while others will be set up in Nugegoda and other Colombo suburbs.

Group revenue for the latest first quarter 2003/2004 year rose to Rs. 4.4 billion from Rs. 3.5 billion in the same three-month period last year while pre-tax profits rose before making provision for the cost of a Voluntary Retirement Scheme (VRS). The VRS at Ceylon Cold Stores in which 691 staff members retired cost the company Rs. 675 million with an estimated payback period of 2.5 years.

Keells is also considering revising its operating and pricing strategy at its hotel properties to woo upmarket clients. "With Sri Lanka being perceived as an attractive destination, we believe that it is opportune for us to review and revise our operating and pricing strategy with a view to attracting higher spending tourists," it said.

Lower share transactions costs under review
Stock brokers are considering way of reducing the total transaction costs of clients who buy and sell shares on the Colombo bourse, Deva Ellepola, head of the Stock Brokers' Association said.

Brokers are also looking at increasing trading of shares by giving clients different options of trading such as 'day trading', which is popular in other markets, he said.
Introduction of negotiated brokerage fees was a "very contentious issue" that also needs to be discussed, he said.

The issue of negotiated brokerage fees was discussed at last week's meeting between stock brokers and the Colombo Stock Exchange where allegations of illegal rebates on brokerage fees being given to some clients by brokers came up.
CSE director general Hiran Mendis said a negotiated brokerage structure would have to be considered in future as happens elsewhere.

"We're a small, illiquid market and brokers are limited to a small range of activity - agency brokerage," he said. "With that type of narrow income base it becomes difficult to survive with a negotiated brokerage structure because brokers do not have much option of differentiating themselves other than price competition, which can be detrimental."

The CSE has suggested negotiated brokerage fees should come with brokers being allowed to become virtually investment banks and venture into a number of businesses. "Then brokers can differentiate themselves much better rather than through price cutting," he said.

Asked about allegations of brokers giving illegal rebates on brokerage fees to some clients, Mendis said: "There has always been allegations but no one has complained. If we find this happening we can take action. We always look into it when we do audits of stock brokering firms but have not come across it in recent times."

Ellepola said stock brokers and market regulators were examining a series of proposals to modernise the industry and reduce the cost of transactions.
"We're looking at bringing down the total cost of transactions, not only the brokerage fee but other components of cost to the client as well," Ellepola said.

"We put buyers and sellers together and charge a fee - our income is limited to that," Ellepola said. "The industry is looking at seeing how our scope of activity could be increased so that we do not solely depend on the brokerage fee. It is considering bringing in other avenues of income and gradually reducing brokerage fees.

"At the end of the day the winner should be the client - the benefit should to go to the client." One of the proposals being considered was to halve the fee for clients doing day trading - buying and selling shares within the same day. "If they close the position within the same day they get a 50 percent reduction. If not, they pay the normal brokerage."

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