Financial Times

Contrasting approaches
The different approaches adopted by two of our biggest diversified blue chips, John Keells Holdings and Hayleys, in the way they handle their businesses are striking in their contrast, as we report in these pages today. JKH, which for long was the largest capitalised stock on the Colombo bourse, till the listing of Sri Lanka Telecom, now appears to be decisively moving out of plantation agriculture, while Hayleys is getting into agriculture in a big way - in the form of value-added exports.

The former has a reputation for growing through acquisitions while the latter prides itself on its organic growth with selective acquisitions where possible. Both have been among the more profitable firms on the Colombo Stock Exchange and their shares the most sought after, especially among foreign investors.

Their diversified nature gives investors exposure to many sectors of the economy while offering some protection against the poor performance of one sector. The involvement in different sectors provides safety and stability - a downturn in one sector in a particular year, say caused by bad weather or external crisis that affects certain markets, can be cushioned by good profits in other sectors, assuring the company of a steady income.

Both firms trace their routes to the colonial era and are justifiably proud of their long history. JKH started in 1870 as produce and exchange brokers while Hayleys began as a small proprietorship in Galle in 1878. Being big, neither can avoid rumours about themselves, particularly about key management personnel and new investments or divestments. Given the size and influence these companies have, it is not unnatural for the investing public to show keen interest in the goings-on in these conglomerates, especially the boardroom rivalries that are inevitable in such profitable enterprises.

Public interest in JKH has been heightened in recent times given what one stockbroker has called its aggressive acquisitive mood. The company made waves when it acquired Asian Hotels Corporation which owns some valuable hotel properties in the heart of Colombo, indicating a new thrust into real estate. JKH has been sitting on much valuable real estate holdings even before the latest acquisition and the company had hinted at these new developments with the recognition that its real estate holdings were giving inadequate returns.

Inadequate returns is also the reason given for JKH's decision to exit the tea plantations and marketing business. Last year it sold off the Gordon Frazer branded-tea marketing venture. This was followed by the sale of its stake in RPK Management Services which owns two publicly quoted plantation companies, Kegalle Plantations and Maskeliya Plantations. JKH is now in talks to sell Namunukula Plantations.

JKH has said that it wants to focus on less cyclical business. Commodity exports are a particularly cyclical and unpredictable business. Hayleys, on the other hand, is a company that usually keeps a low profile and quietly goes about its business, even during times of crisis, always taking a long-term view. The company prides itself on having been a pioneer in certain ventures that are very successful today - such as coir, rubber gloves and activated carbon - all making use of and adding value to raw materials found here. Recently, it expanded its interests in shipping, taking a 20 percent stake in Colombo Dockyard and setting up a shipping subsidiary and buying a containership.

It is now expanding its interests in agriculture, a particularly risky business given the dependence on weather and other external factors, but one that has potential in value-addition. Both JKH and Hayleys are two companies the country can be proud of and their diversified nature and approach to business offers investors a choice. After all, few things, especially private enterprise, survive for over a century in the cold, hard world of free market capitalism.

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