Financial Times

Lanka Tiles to fire idle kiln as sales boom
Floor tile manufacturer Lanka Tiles Ltd., a subsidiary of the Ceylon Theatres group, intends to bring an idle kiln on line to expand production to meet rising demand for tiles in the domestic market and has put back plans to set up a plant overseas.

The domestic market is still very good, prices are good," said Mahendra Jayasekera, managing director of Lanka Tiles. "So we should make use of it in the immediate future."

The company recently released its financial results which show profit attributable to shareholders rose 14 percent to Rs 158 million in the financial year ending March 31, 2005. Gross sales inclusive of VAT rose 22 percent to Rs 1.4 billion.

The board of directors have declared an interim dividend of 15 percent. Efforts to expand domestic capacity have been given precedence over a plan to build a plant in Bangladesh which would have taken two years to come on stream.

"The overseas plant can wait while we look at domestic expansion," Jayasekera said. The company now makes 7,400 square metres of tiles a day and intends to add another 2,500 square metres a day with an investment of Rs 150 million to re-start the kiln.

"I have an idle kiln which I need to fire," said Jayasekera. "We're trying to invest another Rs 150 million on machinery with which to expand production by 30 percent." The firm has an annual saleable production capacity of 1,796,924 square metres.

Lanka Tiles is 51 percent owned by Lanka Walltiles which is a subsidiary of Lanka Ceramics which in turn is owned by the Ceylon Theatres Group. Lanka Tiles had earlier revealed it was thinking of setting up a plant in Bangladesh because of soaring local energy costs.

Electricity and LP gas are the main sources of energy and account for 28 percent of the cost of sales, according to LOLC stock brokers."The earlier proposition was different," Jayasekera explained. "The market changes very fast and we have to respond to market changes quickly."

The surcharge on import duty on tiles had acted as a deterrent to cheap imports, mainly from China, which threatened to flood the Sri Lankan market. The company makes glazed ceramic tiles and has a network of 30 dealers and 35 distributors who service 450 sub dealers.

Its market is presently in short supply enabling it to sell its entire production, according to LOLC stock brokers. Lanka Tiles exports about 15 percent of turnover but revenue growth is being realised mainly in the domestic market which accounts for 85 percent of turnover, they said.

Its main export market is Australia and it also exports to Singapore, Italy, Maldives, Japan and Canada. It recently launched its brand in the USA and is on the verge of launching it in Germany.

LOLC said the Lanka Tiles management perceives a limit to capacity expansion in Sri Lanka due to the scarcity of raw materials such as ball clay and restrictions on mining it.

"The Agrarian Development Act No 46 of 2000 imposes restrictions on mining ball clay, an integral component of the production process," LOLC said in a recent report. "This restrictive policy inhibits further investments in the tile industry and despite lobbying for changes the management does not foresee a change in the regulatory environment."

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