Financial Times

Royal Fernwood CEO's knack for …
Turning around troubled companies
By Iromi Perera
When Jagath Anil Peiris took over as Chairman of Royal Fernwood Porcelain in January 2000, the company was almost on the verge of bankruptcy. Its net asset value was negative; there were problems in marketing, problems in production, severe financial problems. Today, the company is making profits and is the recipient of many awards.

Peiris decided that the best way to turn around the company was to get the product right first to suit the global market. He handpicked some people who were in the industry in other companies as he had had experience in working in other porcelain companies. "I handpicked the correct technical guys and they did a fantastic job in getting the correct product and we had a lot of contacts in the market and we went to the markets showing them the products we had," Peiris told The Sunday Times FT.

The buyers were happy with the products and the company continued to supply them even though the price they were willing to offer for the products were less than the cost of production.

Another strategy that made a big difference in the company's turnaround was cost cutting. Peiris went on a mission to cut costs wherever possible and operated the company with a very low fixed overhead. They moved to a small office but still continue to work from there even though they can now afford a bigger one.

According to Peiris, the company improved productivity by mainly cutting costs in energy. The company is one of the largest consumers of LP Gas in the country, consuming around seven tonnes everyday. With the assistance of the National Engineering Research & Development Centre (NERD), they were able to cut down the cost of gas by recycling the waste feed. For this effort, the company was honoured by the government for energy saving, winning the Ceylon Petroleum Corporation Award and also an award from the Sri Lanka Association for the Advancement of Science, and was the only private sector company to have been honoured.

The employees of the company also played a big role. Everyone worked harder because they were told that the company was not doing well. They all worked with one common goal - to make sure that the company does not close. Peiris said that from the top-level employee to the bottom level employee, everyone worked together in the same office, ate in one place and even dressed in identical shirts, even up to today. In 2003, the company made its first profits and continued to make profits. At the end of March 31, 2004 financial year, the company's profits were Rs 110 million.

Peiris said that the profits for last year could fall owing to the rupee depreciating. Last year, the company went on a massive expansion with an investment of Rs 120 million. This gave a 40 per cent expansion in capacity and the company has been able to market out that production as well. Currently, they manufacture 1.2 million pieces of porcelain every month, exporting 90 percent of that production to 38 countries. Some of the countries are the US, UK, Italy, France, Germany, Japan, India and Pakistan.

Peiris said that they are hoping to upgrade their technology and maybe diversify their investments into tiles. At present, the company only trades tiles and this was in order to get some idea of the market. They import tiles and the quality is tested in their own laboratories. Some Rs 30 million is also being invested for a new kiln for the factory in Kosgama.

Speaking of the competition from China, Peiris said that they are looking at it differently. "We need not compete with Chinese products because we are of superior quality," said Peiris. He added that they (Royal Fernwood) give better service to the customers and even though the price is higher compared to the Chinese products, it is easy to convince customers, as the quality is better.

The company has won many awards, including the National Productivity Award by the Department of Labour and the National Quality Award by the Sri Lanka Standards Institution - the only company is Sri Lanka to win both these awards.

At the recently concluded CIMA Janashakthi Pinnacle Awards, Peiris won Gold in the Medium Scale category for the Business Leader of the Year award. Out of the three porcelain companies in Sri Lanka - Noritake, Royal Fernwood and Dankotuwa, Royal Fernwood Porcelain is the only 100 percent Sri Lankan owned porcelain company. Before Peiris took over at Royal Fernwood, he was the Managing Director and Chief Executive Officer of Dankotuwa Porcelain for eight years.

Dankotuwa was not doing well at the time Peiris took over, but under his guidance, the company become one of the most profitable companies and listed in the stock exchange in 1994 and was oversubscribed. Before he joined Dankotuwa, Peiris was the Managing Director of Lanka Ceramics.

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