John Keells profits roll in from the hills

By Feizal Samath

The clock has turned full circle for Sri Lanka's biggest conglomerate bringing it prosperity. From a group thriving on commodities broking and leisure - tourism and travel-the John Keells group then put its money into plantations. The dividend has paid off handsomely and somewhat nostalgically, it has brought back the good old days of the plantation economy to Keells. Five years ago, the giant conglomerate relied on tourism, transport and food & beverages as its core industries but now the bulk of the company's earnings comes from plantations, after it went into management and then ownership of estates.

Last week, John Keells Holdings Ltd reported an after-tax profit of 1.4 billion rupees for the 1997/1998 end March financial year, doubling what it had made the previous fiscal year.

The figures were welcomed by economists and stockbrokers and is consistent with forecasts that many large companies, listed on the Colombo stock exchange, are expected to do well in the 1997/98 year.

Crossing the billion-rupee mark in post-tax earnings was a milestone not only for the group but also for any other company in Sri Lanka.

'The decision to invest in plantations has paid off substantially. Before that food and beverages, leisure, transport, management and investment were our key growth sectors," group chairman Ken Balendra told The Sunday Business Times, relaxing in his wood-panelled office overlooking the once-beautiful but now dirty Beira Lake.

The picturesque lake may have been neglected and polluted due to scant regard by policy makers but John Keells, fringing the Beira for decades — ever since Britons Edwin John and his brother George sailed to Ceylon from England in 1870 and set up E. John and Co, exchange and producer brokers — have not looked back.

The group has gone from strength to strength, each year investing wherever it saw some economic sense and becoming a net lender with a cash pile that is growing by the day.

This year plantations accounted for 38 percent of its revenue, food & beverages 20 percent, leisure 14 percent and transport eight percent. The rest of the activities accounted for the balance revenue.

With plantations taking over from leisure and food and beverage sectors as the key area of growth, the group is pushing ahead with, what Balendra calls "rationalisation and diversification of the plantation sector."

He said that in the first few years of management and ownership, it was a case of putting things right at the factory, field and labour levels. "Without rushing around diversifying, we wanted these estates to be structurally sound, fit them into our accounting and reporting standards and get it into agricultural shape," he added.

The group, which accounts for 14 percent of the country's total tea output and eight percent of rubber, is now preparing for the second stage of development - diversification - and is looking for a joint venture partner to develop its non-usable tea and rubber land.

"We have land from sea level upto 6,000 feet above sea level with all the agro-climatic conditions and we want to develop these lands. We are looking for a joint venture partner for the agro-based project and several names are being considered," Balendra said.

He said that they were looking for a foreign partner with technical expertise and marketing capability and if they want to put in equity, its fine by us."

The company plans to use a substantial extent of around 500 acres for the agro based project, plus out-growers to grow a product that would be processed and packaged in a state-of-the-art factory and to Colombo for export or domestic consumption.

John Keells is unsure as to what should be grown and wants to leave that decision to the foreign partner " because they would be in a better position to decide what should be grown in different types of elevation," contends Balendra. Are plantations going to be profitable this year too, given the fact that the wage bill has increased?

"It would depend on yields and prices. I also have a gut feeling - although there are no statistics to prove it - that demand is rising because tea is being accepted as a health drink and there are tea bags, tea in bottles and in cans from vending machines and so on," the former planter and rugger player, said.

The John Keells chairman's rugby-playing days are probably over. So are his skills as a planter - having worked in estates more than 30 years ago. But that does not deter junior plantation managers from making an occasional plea for him to visit the estates so that they could benefit from his experience.

"I don't have a clue about what is going on," laughs Balendra, adding that his outdated plantation skills are not required anymore as the three plantations companies in the group have the country's best planters managing them.

The wage burden is eating into the profits of all plantations firms, not only those belonging to the John Keells group. But there is hope that if prices hold this year, crops and yields will increase and there won't be a serious dent in profitability.

A foreseeable shortage in labour - now in the south but expected to spread across plantations lands in three to four years - is a issue of concern for John Keells.

Children of current workers are unwilling to work on estates and seek - what they call dignified - jobs outside even though it may pay less. "We are trying to mechanise - to prepare for any labour shortages - and also motivate workers through providing uniforms, new designations and improving social conditions including housing to uplift standards and the dignity of labour," Balendra said.

As for its former flagship sector, leisure, John Keells is pumping in profits to upgrade and buy new properties. Profits from leisure doubled in the year under review and company analysts expect tourism to be back on the rails as more and more visitors get used to Sri Lanka's on-off war situation.

The company is raising its first resort hotel in the Maldives - started in November 1996 - to 100 rooms from 80 and is leasing a second property there which is being built and would be ready for occupation by December.

As building or leasing new properties outside Sri Lanka makes sense - in view of the political uncertainty on the island -, the company is planning to build a new 100-150 room beach resort in south India with an unnamed local partner.

A programme of upgrading or improving the service of a string of John Keells hotels is also underway with the refurbishing of the Bentota Beach hotel at a cost of 350 million rupees, heading the list. The group is not interested in new investments or upgrading its hotels to a five-star status because "spending about a million rupees per room is not viable when we may never see a return," says Balendra.

In the food and beverages sector, a new Pizza hut in Mount Lavinia is in the pipeline while a 350 million-rupee new bottling plant at Kaduwela that will for the first time churn out mega bottles of Elephant House drinks has already been installed.

The mega-bottle section goes into operation in August/September and would provide stiff competition to multinationals like Coca Cola and Pepsi, as price-wise " we don't have to worry about the costs of franchise and essences that others have," the chairman noted.

John Keells is also planning to set up meat processing units in south India and Dubai to sell its highly successful range of meat products. The proposed south Indian plant will make pork and chicken products while in Dubai it would be exclusively halal meat products, which are already sold there but imported from Sri Lanka.

The controversial P & O project to develop and operate the Queen Elizabeth quay is at the documentation stage and may get off the ground around mid or late 1998.

John Keells is the biggest single shareholder of a project that would ultimately cost one billion US dollars, when completed in all three phases. In the new South Asian Gateway Terminals Ltd company, that would be involved in the project, John Keells has a 26.5 percent equity stake with the P & O group holding a similar stake and the Sri Lanka Ports Authority having 15 percent.

Balendra feels this would be one of the most challenging projects in the country in addition to the biggest ever investment and talks of exciting times ahead. But he declined to comment on the controversies surrounding the project, particularly the opposition by port labour unions, saying that was a problem for the government to tackle. The, company has also applied to the Central Bank for a banking licence and is considering buying the business of the local Overseas TrustBank and running it as a joint venture with Central Finance.

"But we will await the issue of the licence before deciding on the next step.

Banking is a sensible addition to our financial services," he said.

Young Entrepreneur Sri Lanka launched in schools islandwide

By Priyantha Gamage

Did you ever wonder what the secret behind the entrepreneurial spirit, in the average American citizen was?

Well, it's almost taken for granted, as if the almighty has made them the chosen ones to lead the free enterprises across the globe.

But in actual fact it is not so. The entrepreneurial skills have been skillfully bred into the young Americans at a very early age that they become natural businessmen. And one of the most elementary stages at which this sharpening of wits is done is in school.

This skilled art has been inculcated in millions of children for years as a properly planned programme and business is virtually in their genes.

And the mega non-profit organisation behind the scene is known as "Junior Achievement International."

Junior Achievement Inc. which by today has become an international phenomena, was founded in USA as far back as 1919. As the President and CEO of this business education organisation James B. Hayes in its Annual Report for the year 1996 claims, Junior Achievement enrolled its 20 millionth student in its 77th year (1996) and during the school year 1995-96 alone 2.3 million students enrolled the programme across America.

Today, Junior Achievement is helping kids understand business in 114 countries across the globe reaching over 3 million youngsters every year.

The programme started in Sri Lanka under the auspices of the Federation of Chambers of Commerce and Industry in Sri Lanka (FCCISL). And the man behind the idea is its versatile President of the Federation, Patrick Amarasinghe.

"When I was in USA about 20 years ago, I came across this programme", he reminisces.

"What I first saw was a Junior Achievement stall at a carnival with Junior Achievement (JA) T-shirts, JA caps and everything. I saw this booklet on JA. And I thought to myself, what a wonderful programme it would be for our kids.

But unfortunately we had a closed market economy at that time and it was difficult to introduce the programme here. But when I became the Federation President one of the first things I did was to contact Junior Achievement. And from there we worked on."

According to Mr. Amarasinghe, JA International has stringent standards for enrollment and a lot of persuasion was needed. So the Federation of Chambers approached the US AID agency who granted the initial US $ 50,000 to carry out feasibility studies and other preliminaries.

"They also sent the consultants". And we became the 114th member country of the JA international programme. The local member of the JA International is "Young Entrepreneur - Sri Lanka" (YESL) registered as a non-profit trust organisation, with Education and Higher Education Ministries, approval for the programme to be implemented in selected schools on a pilot basis.

The pilot programme has been implemented in nine schools in the country. And those lucky nine are:

Swarnamali Balika Vidyalaya, Kandy, Ananda College, Isipatana College, D. S. Senanayake College, St. Peter's College and Visakha Vidyalaya all of Colombo, Zahira College, Gampola, Saranalankara Madhya Maha Vidyalaya, Bingiriya and Gateway International College, Colombo (self-financed).

"We adopt the time tested curriculum and material prepared by JAI" says Executive Director, Young Entrepreneur Sri Lanka, Mr. Premasiri Weliwita.

The schools themselves select the most suitable to them, out of three main programmes currently adopted by the YESL, Primary school programme, Middle school programme and High school programme.

The primary school programme aims at giving the students an early start to prepare for their future and the country's. "You catch them young" at an early age as Grade 1 to 7 and let them learn about the economic system.

The Primary School Programme is being conducted at Anula Vidyalaya, Nugegoda, Madhya Maha Vidyalaya, Maharagama, and Southlands College, Galle, Swarnamali Balika Vidyalaya, Kandy, and Ananda College, Colombo.

The Middle school programme which focuses on Grade 8 to 10 children provides them business skills and supply reasons to stay in school.

The schools that are already in the programme are Ananda College, Isipatana College, D. S. Senanayake College, Colombo, Anula Vidyalaya, Nugegoda, Swarnamali Balika Vidyalaya, Kandy, Southlands College and Richmond College, Galle.

"These are parallel programmes which go on along with the formal education system" explains Mr. Weliwita. "So there's no clash at all. Each school has a time schedule either during school, after school, at their convenience".

The High School programme prepared for the school-leavers after their G. C. E. (O.L.) and Grades 12 and 13 offers a practical approach.

According to Mr. Welivita, it prepares the workforce and relates practical concepts and business skills for real life situations.

"The Company programme" has proven to be very successful", Mr. Amarasinghe says.

Students form their own company for business. "Here the YESL functions as the Registrar of Companies. And the children go on to incorporate companies, raise capital, have board meetings, take decisions and everything else an average company does. And they even wind-up their companies strictly in Compliance with the requirements of the companes Act at the end of the year," he said.

The YESL and Mr. Amarasinghe are making every endeavour to make it close to a real business outside school as possible.

Mr. Lalith Kotelawala has agreed to let the Board room of Seylan Bank for the children to conduct their Board meetings," Mr. Amarasinghe noted with appreciation. And the Seylan Bank has not stopped at that, together with Ceylinco Insurance has come to bear the cost of Rs. 1.5 million of the first one thousand (1000) students who are benefited by the programme.

"The cost for each child comes close to Rs. 1000," Mr. Weliwita disclosed. "This is a historical contribution from the private sector to extend this programme to the poorest child in the country. By sponsoring the programme it has taken the burden off the child," he goes on. "Mr. Kotelawala has even promised a Secretariat (for YESL) when the Seylan Towers open".

It has been very encouraging to see how much the private sector businessmen have volunteered to take this programme forward.

The office has come with the courtesy of Furnifits and the present office of the YESL was donated by Woodplex Ltd. free of charge and the telephone line is a gift from Lanka Bell. Even the computer is a gift from Precision Tech. Services.

"We need private sector volunteers as consultants who can spend 2-3 hours a week on the programme and sponsorships too are most welcome. Mr. Amarasinghe said, "In 3 to 5 years, we like to extend this programme to 1500 schools to reach 200,000 children. We'd like to do more, but we need more consultants and sponsorships," he added.

As mr. Amarasinghe says, "one person can sponsor at least one child". And you can even help your own school by sponsoring the YESL programme or as a consultant. The consultants are given the necessary expertise by the "Train the trainers programme".

The Ministry of Education and Higher Education, United States Agency for International Development (USAID), Federation of Chambers of Commerce and Industry Sri Lanka (FCCISL) and Technology Initiative for the Private Sector (TIPS) are the partners of YESL in this worthy cause.

John Geigr, Regional representative Asia, Junior Achievement International is the consultant.

The Board of Driectors of YESL is: Patrick Amarasinghe, President; Pathmasiri Dias, Vice President, Rohan Weerasuriya, Secretary, Prof. Lakshman Jayatilake, Ranjith Fernando, Moksevi Prelis, Dr. Sunil Jayantha Navaratne, Granville Perera, Mocky Hashim, Edgar Cooray and Nihal Abeysekara.

SCOPE AND SEQUENCE OF YOUNG ENTREPRENEUR SRI LANKA

PRIMARY SCHOOL PROGRAMME:

Ourselves

Our Families

Our Community

Our City

Our Region

Our Nation

Our World

MIDDLE SCHOOL PROGRAMME:

Personal Economics

Enterprise In Action

The International Marketplace

The Economics of staying in School

HIGH-SCHOOL PROGRAMME:

Economies

Company Programme

Management & Economics Simulation Exercise (Contest).

Globe

JA connections

*Isipatana College; Colombo:

Greenland Co.

(A Co. to produce Greeting cards which involves a capital close to Rs. 20,000/= and 30 students);

*Swarnamali Balika Vidyalaya, Kandy:

*Swarnalanka Ltd.

(produces school needs like badges, identity cards etc.)

It also runs its own dancing company which has several performances to date.

*Ananda College, Colombo

*Wallaby Co.

(produces school stationery with school name and emblem

Another Co. is in the process of incorporation)

*Anula Vidyalaya, Nugegoda

(produces school needs)

*Southlands College, Galle

*Richmond College, Galle

*D.S. Senanayake Vidyalaya, Colombo. The companies are in the process of incorporation

ECHOPEN: The right way to write:

This is a competition that runs as a part of the high school programme.

It is a computer based management and economic simulation exercise of the Junior Achievement International in which schools all over the world participate in. Echopen, an imaginary company and an industry are set up so that students can learn economic concepts and management principles in the actual running of a business, as they compete.

"The winning school surviving three play rounds, have a chance to travel to USA for a final round of play." Mr. Weliwita said. And the winning school receives the top prize of US $ 3000.

Last year nine (09) schools from the island participated and Precision Tech Services (Pvt) Ltd. contributed the registration fee for eight. "Outstation schools like Bingiriya Central, Gampola Zahira, participated. Even Kekirawa Central and Anuradhapura Central wanted to compete. But they were too late." This year too the competition is on.

Drop in interest made banks look for other avenues of profit

"The days of broad mar-gins are long gone" says Sampath Bank Chairman Dunstan de Alwis.

Identifying the marked drop in general interest rates as one dominant feature that influenced the domestic banking industry last year he describes it as a very deliberate endeavour by the Central Bank to ease a tight monetary policy that was pursued before.

"Though it was not without its benign influence on the economy, bankers were hard pressed to maintain the gratifying year-on- year profit growth to which they had been accustomed", he adds.

According to him, the drop in margins has necessarily made the banks look for avenues of profit growth other than traditional interest income and is bound to tax their ingenuity in the coming years as competition gets more fierce.

Looking at happenings in South East Asia in his annual review to shareholders, Chairman de Alwis describes them as 'traumatic' and would appear to pose a threat to the world economy at large if corrective action is not taken fast.

"Strong medicine is required and the IMF is ready and willing to administer just that", he points out. He highlights three most critical factors that have led to this situation, the burning desire of these countries to accelerate development without adequate domestic savings and thereby get into unmanageable foreign debt; pegging their currencies to the US dollar, and the lack of an effective supervisory and regulatory framework monitoring the financial system.

"When the bubble burst, many banks found themselves inadequately hedged with overburgeoning non-performing loan portfolios, thereby discouraging foreign inflows of fund", he says.

Looking at the situation in Sri Lanka, he comments that we are rather fortunate to the extent that we have not got too much foreign debt, do not have the Rupee pegged to any one currency, and do have regulatory framework.

"What needs to be done is to have a more effective supervisory and regulatory framework especially in relation to those institutions that do not gather demand deposits. Supervisory and regulatory mechanisms must keep pace with deregulation in the financial sector", he stresses.

Adding that these mechanisms are now legally in place, he suggests that effective supervision and regulation in relation to 'Licensed Specialised Banks' must be pursued very deliberately and vigorously.

Commenting on the performance of Sampath Bank during 1997, Mr de Alwis says that the Bank consolidated itself further with growth in assets of 23.6% year-on-year as well as making a profit before tax and loan loss provision of Rs 514.1 million, a 11.7% growth.

He points out that these achievements were in the backdrop of shrinking margins, increasing overhead costs and fierce competition. Shareholder funds stand at Rs 1.44 billion, an increase of 23% as a result of an increase in reserves of Rs 269.1 million during 1997.

Stating that deposits grew by 26.4%, he says he is pleased with this growth, as the bank did not actively canvass for business during the year. He calls it a natural growth pattern attributed entirely to superior service and value addition. In Advances, a 34.8% growth in quality loans was recorded.

"It has been the policy of Sampath to have as its core value, the quality of corporate prudence which is quintessential to the business in which we are engaged. We have, over the years, built reserves that will ultimately provide the Bank with a cushion against leaner times". he points out.

Announcing that a first and final dividend of 15% has been declared for 1997, he says that in an environment of falling interest rates, this is very reasonable return on investment.

"The value of the share rose to flattering Rs 90 during the year only to be subject to the investment gloom in the wake of South East Asian misfortunes. At end of year it was trading at Rs 60 which, in the current context of the market, is really very robust. It continues to be one of the most actively traded on the exchange", he says.

Mr de Alwis believes that in 1998 the environment in the industry is bound to be even more competitive with even leaner spreads in interest rates.

EDS opens office in the UK

Recognised as one of the Asian region’s leading software houses, the EDS Group has commenced operations in the UK. The decision to enter the highly competitive UK market, mooted by Mohan Wijeyekoon, Chief Executive Officer, has paid off. Today, Technical Services UK, initially set up to market specialised services within the vast arena that is Information Technology, handles operations not only for the UK but for the entire European region as well, a company release says

“We opened offices on a very low revenue budget, as a start up company in the extremely crowded western market,” says a spokesperson for EDS, “The idea was to buy adequate lead time - but Technical Services Ltd., UK succeeded so well, outperforming goals already set, achieving a twelve month budget of Pounds Sterling 500,000 in just three months.”

The company expects revenues to pass the Pounds Sterling One Million mark by September this year. Among TSL UK’s impressive customers are some of the largest software development houses in the UK and large trading organisations with offices across Europe.

Currently, UK initiated projects are operational in Europe - France, Germany, Spain and Portugal; they have also handled projects in the Seychelles and Bahrain.

EDS has strong roots - founded by a small group of professionals with a collective 32 years of experience in financial management, general management and software development between them. The EDS group commenced operations as a systems company in Singapore in 1979.

A high level of competitiveness was considered a key strength from the start, says the company spokesperson; the EDS Group set a goal of combining excellent pricing with an output that would be on par or better than western software houses. “Today’s growth - and our business success has stemmed from this pioneer philosophy” she says.

The founders had a clear objective of building an enterprise that would consistently outperform competition - wherever across the globe they would encounter competitors, she adds. With a strong business ethic, expansion came fast.

By the beginning of a new decade in 1990, offices were operational across Asia - in Singapore, Thailand, the Philippines, India and Sri Lanka. Each EDS office is manned by a competent team that brings together technical support, marketing, sales and administrative capabilities, EDS sources claim; over 400 multi national workforce of professionals work for EDS across the world. Today, IT circles regard EDS as the largest independent IT Solutions & Software house in the Southeast Asian region.

The decision to enter the sophisticated Western market was taken in 1996 as a move that would follow consolidation. Technology Services Limited UK commenced operations in September 1996 with Graham Willengale as Managing Director and Paul Cunnington as the Sales Director; both were in Sri Lanka recently to assess the technical capability, solution process and quality procedures of the Asia Wide Maintenance (AWM) Centre set-up at the EDS offices in Colombo.

AWM is likely to support the UK customer base of TSL, EDS sources confirm. The Asia Wide Maintenance Centre operational in Sri Lanka is currently supporting a large customer base within the Asian region.

“The TSL UK Team were impressed with the Sri Lankan operation of EDS,” says the EDS spokesperson, “They felt that our team of professionals who have international exposure were competent enough to handle the high level of maintenance required by the UK customer base.” TSL UK already provides customer support via leased internet circuits from the EDS Asia Wide Maintenance Centre in Sri Lanka.

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