Financial Times

A host of reasons including foreign exchange volatility, shortage of raw material, delays in VAT refunds and subsidy dues on fertilizer saw the Hayleys Group, among Colombo’s three largest listed conglomerates, report a lower-than-expected 2005-06 year.

Hayleys Chairman Rajan Yatawara said the performance in the past year has been disappointing for, instead of the predicted 50 per cent increase in group profits before tax and profits attributable to shareholders, the result was a 21 per cent and 24 per cent decline respectively. “Needless to say, many of the benchmarks we set ourselves were not reached," he said in a statement that reflected the group’s disappointing year.

The group last week reported a turnover of Rs 24 billion, up 23.5 per cent over the previous year but as stated pre and post tax profits fell due to adverse factors “on which the group had reported throughout the year with the release of its quarterly results.”

Hayleys declared a final dividend of 17.5 per cent bringing total dividends for the year to 35 per cent on par with the previous year, the statement said.

Despite the challenges it faced during the year, the group invested heavily in new businesses and expansion. Investments during the year included Rs 1 billion in equity investments in Mountain Hawk Express (which holds the FedEx agency), in an Activated Carbon facility in Sulawesi, Indonesia, in Onril (a joint venture between Rileys and O&N of Italy), in a new hotel being built in Sigiriya, in a mattress company in China, in mini hydro power projects, and in increasing the group's equity in subsidiaries.

The impact of negative factors on key business sectors such as Purification Products and Fibre and to some extent on Hand Protection, resulted in group profit before tax declining by 21 per cent to Rs 1,484.5 million while profit after tax and minority interest, at Rs 586.3 million was down 24 percent.

A significant aspect of the growth was that around 50 per cent of turnover or Rs 12 billion was derived in foreign exchange from export businesses, an indication of Hayleys' exposure to exchange rate movements, or lack of them.

Additionally, the Fibre and Purification Products sectors incurred losses attributable to the high costs and non-availability of raw materials, and yielded a contribution which was not able to recoup fixed cost.

The statement said group companies had to also contend with delays in the refund of VAT and other taxes, and subsidies on fertiliser totalling around Rs 500 million at any given time.

Chief among the positive contributors to Hayleys' profits in the year under review were the Transportation, Agri Inputs, Textiles, Consumer Products and Industry Inputs sectors, which produced solid performances. There were solid performances from Hand Protection and Plantations also, albeit lower than in the last year, the statement said.

The Transportation sector's turnover grew a noteworthy 62 per cent to Rs 2,892 million, and contributed Rs 691.8 million in pre-tax profit, following a profit growth of 59 per cent over the previous year.

Turnover in the Agri Inputs sector grew 34 per cent to Rs 3,152 million, with pre-tax profit recording an increase of 53 per cent to Rs 181.3 million.

Consumer Products reported a turnover of Rs 3,448 million, a growth of 34 per cent, and pre-tax profit growth of 31 per cent to Rs 135 million. Industry inputs almost doubled turnover and more than doubled profit, while profits from the Textiles sector were up 52 per cent to Rs 162 million.

The Board of Directors of Hayleys comprises R. Yatawara (Chairman), N. G. Wickremeratne (Deputy Chairman), R. A. Ebell, Deshamanya Dr. W. M. Tilakaratna (resigned 31st October 2005), A. M. Pandithage, L. K. B. Godamunne, P. S. P. S. Perera, J. D. Bandaranayake, A. D. B. Talwatte, A. Hettiarachchy, M. R. Zaheed and A. M. Senaratna (appointed 1st November 2005).