Financial Times

Royal Ceramics Group has reported post-tax profit of Rs.467 million for 2005-06, up sharply by 90% over the previous year partly due to revenue of Rs.153 million from the sale of a block of land the company had invested in several years ago at Rajagiriya.

“This sale once again provides evidence of the effectiveness of your Board’s far-sighted investments, since the land has multiplied several times in value from its original purchase price,” Group chairman A. M.Weerasinghe said in his review.

The strategy saw the company returning the largest after-tax profit in its history. “However even if this additional revenue was discounted, the group has achieved a record profit of Rs.375 million before tax,” he said.

The company has decided to upgrade machinery at its new subsidiary company Rocell Bathware Ltd to produce a wide range of products of the highest quality. This upgrade increased the investment to Rs.850 million from the earlier estimated Rs.550 million. The factory will be located in Panagoda and preliminary work has already begun to prepare the land for construction.

Royal Ceramics is also expecting to commission several more showrooms in the coming year which would increase the network to approximately 40.

During the year under review Royal Ceramics purchased another 16% stake in the Fortress Resorts Ltd to increase the holding to 24%, and a 20% shareholding of Lanka Ceramics Ltd at an investment of Rs.148 million and Rs.219 million, respectively.

Plans are underway to considerably increase production capacity of the Eheliyagoda plant from its present 4,000 square metres to up to 10,000 square metres.

J. K.Menon, the Chief Executive Officer, in his review said the industry continues to face the longstanding issue of obtaining ball clay of high quality which is essential in maintaining the excellent standard of our products.

“We continue to urge the government to liberalise its policy with respect to mining of ball clay in disused paddy lands, which is at presently restricted.

We reiterate that this would not in any way harm the production of paddy since mining would only be carried out in fields which have been lying dormant for several years. In fact, this would serve to introduce quality standards in the supply of ball clay, an area that is lacking at present since suppliers are obliged to mine from less than ideal sources,” he said.

The CEO said the issue of increasing cost of energy continues to dog the industry. “However, there appears to be little hope that a solution would be found in the near future which would significantly reduce this. In the absence of any natural gas sources in the country, we hope to depend on refinery products which will be relatively expensive as long as oil prices stay high,” he added.

The company was to continue with its policy of not competing with imported products of lower quality, mainly from China, Indonesia etc, which do not pose a threat since Royal Ceramics range is being positioned towards a higher-end target market.

The company’s manufacturing plant at Horana is on the verge of an explosive increase in its capacity, with the planned commissioning in the first quarter of this year, of a new production line that will more than double its production to 8,000 square metres per day from its earlier 3,600 square metres.