Apparels smart under negative growth and wage increases

For the first time in 15 years, Sri Lanka's lucrative money spinner, the apparel industry is expected to report a negative eight percent growth this year, due to high production costs followed by under utilisation of quotas, industry officials said.

In the face of mounting production costs, the industry is expected to record a negative five percent growth next year.

"Export quotas are freely available with considerable under utilisation. Many factories are in difficulty and some have closed down, whilst others such as Polytex, Smart Shirts are relocating or expanding in the Maldives due to poor productivity in Sri Lanka," Chairman Exporters Association of Sri Lanka, Lyn Fernando said.

The industry is also up in arms about the recent Rs. 500 wage increase to employees.

As a result of the impending elections, the Labour Minster has activated the Wages Boards to grant wage increases of around Rs. 500 per month.

At a recent Wages Board meeting for the apparel manufacturing trade, the employers were taken by surprise when they were told the Labour Commissioner has sent a directive for a Rs. 500 wage increase, whereas it is the usual practice for trade unions to ask for wage increases, Fernando said.

The apparel trade was last granted a Rs. 500 wage increase in April 1998 and if the present proposal of Rs. 500 is also implemented the wages in Sri Lanka's ailing apparel industry would increase by as much as 50% in the short span of 18 months, he said. Employers also explained that there was an acute shortage of workers, that today it was market driven and that all employers were paying wages well in excess of the minimum wage essentially by way of bonuses - production incentives, attendance bonus.

"The government should not at this stage interfere in the industry, which is at the threshold of a major crisis," Fernando said.

Unfortunately the Wages Board is constituted in such a manner that three nominated members hold the deciding votes. These are nominees of the Labour Minister and they vote according to the dictates of the Ministry.

"Although employer representatives have repeatedly complained to the minister that these appointed members should be people of some standing either academics, university dons who will be able to study the issues and then take an independent decision, sadly this has not being implemented."

In the Wages Board for the garment manufacturing trade regrettably there are even ex-trade unionists and pensioners who will only cast their vote with the unions.

It is sad that the Labour Ministry should interfere and create a problem for the future of the garment industry by making proposals ostensibly for cheap personal political gain without considering the plight of this flagship industry which will soon become a major burden for the government and for the banks.

"The President has always assured the private sector that she was in favour of a minimum wage for Sri Lanka and any payment over and above should be linked to increases in productivity. Contrary to her promise that there will be no election handouts that would have economic or commercial repercussion the Labour Minister has activated all wages boards," Fernando said.

Loyal Keells customers to be rewarded

Keells Supermarkets hopes to introduce a customer loyalty card for high spending shoppers next year, a top company official said. The trend in developed markets, the loyalty card is one method used to reward and encourage shoppers to spend more. Customers who spend over a certain amount can collect points, which can be redeemed, whenever a customer wants at a later date.

Presently, around 20% of shoppers who spend Rs. 2,000 or more contribute to around 85% of a supermarket's business, industry officials said. Director Operations, Jay Kay Marketing Services, Sarinda Unamboowe said that further details would be revealed when the company introduces the scheme next year.

Supermarketing has become fiercely competitive since the concept was first introduced nearly a decade ago.

Supermarkets hoped to compete directly with the wayside grocer by offering a number of products under one roof. But the concept has not caught on as fast as the companies would have liked, due to the perception among ordinary shoppers that supermarkets are expensive, upmarket etc.

As another step to offer more value added services to supermarket shoppers, the Nations Trust Bank last week announced they were tying up with Keells Supermarkets and Park 'n Shop to offer 'in store banking' services to shoppers.

The main attraction being that shoppers can avail themselves of a gamut of personal banking services ranging from opening and operating current and savings accounts to fixed advances, payment of bills, NRFC account services, housing and other pre-packaged personal loans, purchasing travellers cheques, NTB CEO/Director, Anura Gunasekera said. Shoppers will also get a chance of obtaining extended banking services seven days of the week till 8.00 or 9.00 p.m. He said that instore banking was a proven concept in developed countries with more and more established banks increasingly venturing into this area.

NTB has invested around Rs. 20 million towards this novel concept. Gunasekera says that the instore concept was more cost effective to operate than opening a separate bank branch. "It costs only one fourth of the infrastructure expenditure and one fifth of operating expenditure of a fully fledged branch," he said.

Unamboowe said that their outlets are patronised daily by over 6,000 customers and business was growing rapidly. Chairman, Park 'N Shop, Pubudu Wickrama too expressed similar sentiments saying they hoped to add outlets in Thalawatugoda and the Millenium Park in the future.

NTB will introduce this facility during the first quarter of next year, initially at the Keells outlets at Liberty Plaza, Wattala and Mount Lavinia and at the Park 'N Shop outlets in Kohuwela and Nugegoda. (M.G.)

Pepper hots up

World pepper production is expected to rise by a mere 2.3 percent to 217,164 tonnes in 2000, resulting in no surplus of the commodity, the International Pepper Community (IPC) said here Tuesday.

The estimate was reached in a meeting between exporters and importers earlier this month in Sri Lanka, the IPC said, adding that 52,000 tonnes would be white pepper.

"Under this projection, the world pepper output will only rise by around 5,000 tonnes and this does not mean that there would be a surplus," K.P.T. Menon, executive director of the IPC, told AFP.

Menon said although production would rise by 5,000 tonnes, the exportable quantity in 2000 would be almost 3,000 tonnes less than this year.

The projected exportable surplus for 2000 was estimated at 182,200 tonnes, compared to 184,921 tonnes in 1999.

IPC, Menon said, also expected world prices of black and white pepper to briefly continue a current decline.

But the decline would only be a temporary phenomenon and pepper prices would stabilise at a reasonable level in the months to come.

The IPC gathers major pepper producing countries Brazil, India, Indonesia, Malaysia, Thailand and Sri Lanka.

IPC member countries contribute some 80 percent of the world's pepper supply while Vietnam alone accounts for about 18 percent.(AFP)

Bangkok seduced into drinking tea

By Mel Gunasekera

"Excuse me Ma'am would you like to have a free cup of garden fresh Ceylon tea?" said a brightly clad young woman. "I can even show you how to make a fresh cup, why not try one?" she persisted. A cup of tea I certainly needed, after spending the day holed up at a workshop, but a teaholic like me certainly did not need a lesson in tea preparation.

This question was not posed to me in Colombo where some civic minded Sri Lankan tea firm decided to offer free tea to passerby's but at the Zen Department Store supermarket situated in the World Trade Centre, Bangkok. The free tea stall, tea hostess Kundalee informs me, is part of the Ceylon (she pronounces it as Seylong) Tea Board's efforts to popularise tea among Thailand's growing urbanites.

Kundalee shows me an array of flavoured teas, while I try to spy my usual 'Ceylon Supreme' or 'Monks blend' tea. She then proceeds to pour boiling water, while explaining to me and a few other inquisitive shoppers that the tea bag should boil for around four minutes. "You shouldn't take it with milk ma'am," she tells me disapprovingly when I reach for the milk. "Tea is best drunk plain with little or no sugar and it's good for your health."

The tea stall, I later find out is part of many such promotions conducted by the Ceylon Tea Board to promote tea as a health drink in Thailand. Thailand has a 65 mn population plus an annual 8 mn floating tourist population. The Tea Board hopes that the impact of focussed promotions on the Thai market, will eventually filter into neighbouring countries such as Cambodia (10 mn population) and Vietnam (78 mn population), said Hasitha de Alwis Director Tea Promotion's Bureau.

Thailand is a predominantly Buddhist country, which had a remarkable economic growth until the recent East Asian crisis resulting in a significant depreciation of the Baht. Although the country underwent a severe recession, the economy was one of the first to recover after the 'Asian flu' with the Baht bouncing back to give the Thai's a reasonable relief. Though Thailand has never been under colonial rule, over the past decades there has been a tremendous influence of the American lifestyle on the Thai way of life. This is specifically apparent in Bangkok, where the elite and the middle classes portray totally American taste in consumer products.

Due to the tremendous American influence, coffee had been the most popular beverage for decades although one would think a Buddhist nation of this magnitude should be bathing in tea. The young on the other hand, think it trendy to drink cappuccino. Yet, the tea and health fad is catching up with Thai consumers in recent times where a gradual change of consumption habits from coffee and carbonated drinks to tea could be positively predicted.

Women consumers do not favour coffee as they feel it damages their skin, while young people feel carbonated drinks are not the best, the Counsellor of the Sri Lankan Embassy in Thailand, Rajika Jayatilleke said.

She says that Thailand could be termed 'a growing tea market', with increasing numbers of Thais gradually realising the harmful effects of coffee and willing to turn to viable alternatives.

There are Thai people who are aware of the goodness of tea and some who can identify the taste of good tea. Yet there are not many Thais who identify Ceylon Tea with the world's best teas. This needs an intensive and extensive process of educating," she said.

The young think it is not trendy to drink hot tea, which they associate with the elderly. The younger generations have been heavily into carbonated drinks like Coke, Pepsi and flavoured milk and drinking yogurt. However, in recent times they do drink canned iced tea and can even be enticed with fruit cocktails with a Ceylon Tea base. So there is potential for novel ideas of promoting tea-based products," she said.

Most tea drinking Thais favour tea bags as they are more convenient unlike the leaf tea which, although preferred by the connoisseur, involves more work. The popular supermarkets in down town Bangkok allocate more shelf space to coffee (many brands), while tea gets comparatively less shelf space.

The most prominently displayed and most widely served at hotels and restaurants, is Lipton Yellow Label tea bags. As a more up market product one can get varieties like 'English Breakfast', 'Ceylon Orange Pekoe', 'Darjeeling', 'Jasmine' and 'Prince of Wales'. Of the Ceylon teas, there is Dilmah regular teas in tea bags and as leaf tea while there is also a small collection of Mlesna teas. However, over the last few years, it has been mainly Dilmah, handled by Sri Lankan born Soji Robert in Thailand. Driven by Merrill J Fernando's vision Robert is battling against severe odds to try to open up the Thai market for Ceylon tea.

Quota allocation

Thailand does not specifically divide tea imports among producing countries. Instead, Thailand allocates tea imports on a global tariff quota in accordance with the World Trade Organisation's Agro agreement. De Alwis says 609 metric tonnes of tea was allocated in 1999 by the Department of Foreign trade of the Commerce Ministry 70% green tea and 30% black tea. The demand for black tea has increased, so the quota of 70-30 may not reflect the real demand situation, he said. The Thai Commerce Ministry is expected to change the 70% to 30% ratio to a more equitable distribution next year. "We are anticipating that the future distribution could be on a 60% to 40%, or a 50% to 50% distribution basis for green tea vis-a-vis black tea, he said.

The quota for black tea is divided among historical importers and new importers on an 80-20 basis respectively. To become a black tea importer in Thailand, one needs to have one's credentials accepted with a sample of tea to be imported approved by the Food and Drug Authority in Thailand.

Dilmah imports through International Marketing Company, while Mlesna imports through Sithri Trading. Tea Tang is also present in a very small way.

Promotions

Since 1988 The mission and Dilmah have embarked on a campaign to promote Ceylon tea as a health drink. Having started the programme, the organisers discovered that Thais, at best are not discerning tea drinkers and it needs a lot of persuasion to make them understand the difference between pure Ceylon tea and blends of less quality tea and other similar products such as herbal drinks.

Tea is being sold to people on the street from wayside tea kiosks too and some are said to trick people into believing coloured maize water is tea. This indicates the necessity to educate Thai people on the basics of tea, including taste, specifically Ceylon tea.

Most tea drinkers, use tea bags for convenience and hence, do not really know how to make a good cup of tea. The Ceylon tea promotional campaign has this aim also as part of the programme. The Ceylon Tea Board allocated US$ 6,000 for the promotional activities in 1999.

Under the slogan, "the promotion of tea as a health drink in Thailand", the mission hopes to educate the Thai consumers on the merits of Ceylon tea, especially the youth who are the consumers of tomorrow. The mission hopes to increase Ceylon tea's quota allocation by increasing the number of brands of Ceylon tea represented in Thailand. As part of its promotional campaign, the mission serves free tea in selected venues in Bangkok. Tea is also sold by the mission at discounted prices during the International Red Cross bazaar in Bangkok.

Ceylon Tea promotions are also conducted in at least two schools and two universities along with films, leaflets, brochures to explain the health effects of tea. The Thai media together with the foreign correspondents association has been roped in to carry the message of the health effects of tea to the people. Promoting tea as a health drink has begun to have some effects and this is tangibly reflected in the intensity of the promotion of coffee which gained momentum fairly recently.

Jayatilleke says that the media has helped spread the word and recalls how worried coffee exporters counteracted with an article spelling out the health virtues of coffee! On a lighter vein, Coffee World, a beverage parlour in Bangkok, imports Ceylon tea from Tea Tang, has turned a new chapter in marketing tea in Thailand. The founder and Managing Director of Coffee World, Ms. Helen Tung has created chilled tea cocktails with fruit juices and Ceylon a tea base, complete with exotic names such as 'Bahamas Sunrise', 'African sunset', 'Lady in red' etc.

She says these beverages have in particular captivated the young. Sri Lankan mission officials say Dilmah Tea's courageous, single-handed effort to promote Ceylon tea in the Thai market, is totally inadequate for any substantial measure of success.

Ceylon black tea imports to Thailand rose from 842 kilos in 1997 to 9,678 kilos in 1998. Presently Sri Lanka does not export green teas to Thailand. In order to increase the market share, the Sri Lankan mission is knocking on the Ceylon Tea Board's door for the extra allocation of funds to continue their promotional activities next year.

The Sri Lankan mission in Thailand is scouting for more importers, at least three different brands of Ceylon tea catering to different market niches, to introduce their products to the Thai market. Introducing novelty products like tea cocktails, tea based recipes, tea accessories may be the route to the Thai's hearts, but officials say a lot of ground work needs to be done to create an awareness that Ceylon tea is the best drink in the world.

Technical hitch halts trading

The Colombo Stock Exchange ground to a halt with a technical hitch on Friday, ending a languid weeks trading. The market remained closed most of Friday, trading between 2.15 pm and 3.30 pm.

Average turnover during the week was Rs 21.7 mn. Foreign participation remained negligible in the run up to the elections and net foreign inflows were Rs 1 mn. The All Share Price Index rose 1.4 per cent to close at 552.2 while the Milanka Price Index gained 2.8 per cent to register 552.2. The MBSL Midcap Index declined 1.37 per cent to 970.89.

Top gainers for the week included Watawala Plantations 20 per cent, Kelani Tyres 18.9 per cent and Kegalle Plantations 16.6 per cent. Soy Foods declined 18.5 per cent while dipped products dropped 10.7 per cent and Colombo Land fell 8.9 per cent.

"Blue chips will be sought after but the absence of quantities at current market prices will cause turnover levels to be low," Director, John Keells Stock Brokers, Nandakumar Nair said.

"Not much will happen on the market next week but the week after next might see some retail activity," Head of Research, CDIC Sassoon Cumberbatch, Diluk Desinghe said. "The market is stagnant because of the uncertainty caused by elections. We hope for more speculative trading but there are no clear signals yet," he said.

"There in no room for the market to go down further, a mini rally is inevitable which ever party comes in," Head of Research, MMBL Phillip Securities, Nouzab Fareed said.

"Y 2K related fears are likely to keep foreign institutional activity subdued in most emerging markets. The effect of this could be felt in Sri Lanka over December," Strategist, Jardine Fleming HNB Securities, Amal Sanderatne said.

"The market is likely to remain inactive and subdued and will be range bound at current levels," Head of Research, Asia Securities, Dushyanth Wijaysingha said "There is risk averseness in the market due to the forthcoming elections and heightned military action in the north and recovery in corporate fundamentals in the third quarter are not reflected in share prices," Wijaysingha said.

Patent culture low here

By Mel Gunasekera

Sri Lanka receives fewer requests for patents compared to developed countries, due to the lack of awareness and inaccurate application forms, officials from the local patent office said.

Sri Lanka receives applications for around 200-300 patent applications annually and nearly 90 percent of these come from overseas companies. Developed countries usually receive around 15,000 applications annually and a large number comes from local inventors.

"There are only very few patents made by Sri Lankans and it is critically important for us to correct this situation and put the creativity process on the right track," officials said.

Sri Lanka has been a signatory to the international Patent Cooperation Treaty (PCT) since 1982. The PCT makes provisions for filing international patent applications by patent applicants in PCT member countries. By filing one international application, an applicant can simultaneously seek protection for an invention in a large number of countries.

The PCT system also helps the applicant to evaluate his chances to protect the invention while investigating its commercial possibilities overseas. Inaugurating a World Intellectual Property Organisation national seminar on PCT, Trade Minister Kingsley Wickremaratne said that though Sri Lanka was a signatory, a patent system and PCT system will not be useful for Sri Lanka unless we have our own inventions and the inventors come forward to register their patents. He said that in order to encourage local inventors, the President had allocated Rs. 200 million to start a Young Inventors Club among school children.

A legal framework to protect and manage intellectual property in Sri Lanka is expected to be introduced next year. Minister Wickremaratne also said that the intellectual property administrative system will also be restructured including the provision on automated support to the national intellectual property office.

Tea Update

Plantation IPOs on hold

Shafraz Farook

Malwatte Plantations and Elpitiya Plantations will have to wait for the Presidential Elections to be over before going for an initial public offering (IPO). The Public Enterprises Reform Commission (PERC) told news wires that it had put plans of listing the two plantations on hold until the elections. Officials said they had previously scheduled a couple of IPO's for the period but decided to wait.

Four million shares or 20 percent of Malwatte Plantations will be offered at Rs. 10 each in mid January and four million shares or 20 percent of Elpitiya Plantations at Rs. 10 each in February, officials said. However, they added that the Elpitiya plantation IPO might be delayed. They also said that Mathurata and Pussellawa were next in line to being listed.

At the auctions, low growns, the star performer for the past few weeks is expected to record a lower average in last week's auction. Brokers said this was due to the generally low demand for teas of this category. Low growns reached a high of 134.70 in recent weeks.

High and mid growns declined in quantity and brokers said that consequently the prices too had dropped, particularly for the better teas.

Asia Siyaka predict that the market in December is likely to be affected adversely by factors impacting on key markets. The series of events in December is most likely to affect auctions here, while Ramazan and the Russian General elections is expected to affect buying.

Bottomline

By KalQlus

Hayleys Ltd profit down by 45 per cent YOY

Hayleys Ltd profit after tax for the six months ended 30 th September 1999 dropped 45 per cent YOY to Rs 186.9 mn. Profits for the corresponding period last year was Rs 343 mn. "The same profit level has been maintained in the second quarter of 1999 as of 1998.

It is the first quarter's results that were poor due to losses from the plantation sector," Chairman, Hayleys Ltd, Sunil Mendis told The Sunday Times Business. "However tea prices have picked up since and we hope to end the year with a reasonable profit in plantations," he said. "Exports should improve and textiles should reflect a big improvement," Mr Mendis said outlining the prospects for the next quarter.

The company's turnover for the period declined 1.5 per cent YOY to Rs 4.1 bn.

HNB holds more cash and short term funds

Hatton National Bank's profit after tax for the nine months ending 30 th September 1999 increased 1.94 per cent YOY to Rs 457 mn. Income for the period grew 14.7 per cent to Rs 5.5 bn.

Interest income increased 17 per cent while interest expense grew 23.7 per cent indicating that margins have been squeezed.

Deposits grew 27.14 per cent to Rs 51 bn while loans and advances grew 20 per cent Rs 41.6 bn.

The bank appears to be holding a part of the deposits mobilised in cash as cash and short term funds increased 37.2 per cent to Rs 7.5 bn.

Foreign exchange income dropped 21 per cent YOY to Rs 240 mn. "This was due to the slow devaluation of the rupee and fewer letters of credit being opened for imports," Managing Director, Hatton National Bank, Rienzie Wijetilleke told The Sunday Times Business.

"Most banks have shown a negative growth in this sector," he added.

Operating expenses increased by 16.7 per cent to RS 1.8 bn while income grew 14.7 per cent indicating that efficiency has been negatively affected during the period.

However the provision for bad and doubtful debts has declined 14.9 per cent YOY to Rs 140.8 mn.

Assets grew 19.8 per cent to Rs 69.5 bn while liabilities grew 19.73 per cent to Rs 65.5 bn indicating the bank has retained its gearing levels during the period. However subsequently the bank raised Rs 1.05 bn by issuing non voting shares.

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