Comments /1511 Views / Monday, 11 June 2012 00:00
Diesel and Motor Engineering Plc (DIMO) has announced plans to invest Rs. 5 billion over the next three years despite a tough environment to further bolster its business which enjoyed a windfall.
“We are targeting investments totalling Rs. 5 billion over the three years ending 2013/14,” DIMO Chairman and Managing Director Ranjith Pandithage revealed in the company’s 2012 Annual Report released last week.
Giving a sneak preview of some of the major long term investments, he said that starting from Matara, DIMO is introducing a new experience in vehicle tyre sales and service under the banner ‘Tyre Plus’.
“Work is in progress on the construction of the TATA and Mercedes-Benz Centres; sales and service centres in Jaffna, Trincomalee and Kurunegala; and the DIMO Technical Institute in Sooriyawewa,” Pandithage added.
In FY12 the company acquired 186 perches of land for Rs. 301.6 million in close proximity to the proposed Mercedes Centre to develop a showroom and a workshop dedicated to Tata Vehicles.
In addition, two lands were purchased to construct a showroom and a workshop at Kurunegala and Jaffna. The construction work is scheduled to commence during the current financial year.
The Bosch Centre at the Head Office premises and the new showroom and workshop at Anuradhapura were completed during FY12.
During the financial year ended on 31 March 2012, DIMO established DIMO Customer Contact Points in many parts of the country. The Siyambalape workshop facility was expanded and the state-of-the-art Bosch Centre which accommodates all popular vehicle makes and modern diesel injection systems was commissioned.
These planned new initiatives and investments are expected to strengthen DIMO’s business which saw a major leap due to favourable tariff though fortunes have lessened following the upward revision from early this year.
Pandithage told shareholders that riding on the favourable macroeconomic environment and duty regime of the previous year, DIMO saw an all time best in FY12. DIMO Group’s gross turnover grew by 36% to Rs. 39.9 billion and net profit attributable to equity holders rose by 27% to Rs. 2.69 billion. Group after-tax profit amounted to Rs. 3.7 billion, up by 9% over FY11.
“In a nutshell, it was an excellent performance all round,” Chairman Pandithage emphasised.
Bringing DIMO shareholders up to speed on the company’s strategic thinking for the future, Pandithage said the business cycle was getting shorter. “While we conclude another year with outstanding results, we are entering an era of challenge,” he added.
He said that the company was mindful of the two main factors that contributed to phenomenal growth in 2010/11; the decline in interest rates and the reduction of duty on imported motor vehicles. A relatively stable exchange rate that prevailed during the first three quarters also favoured this scenario.
“We were well positioned to benefit from such an economic climate. However, there was also a downside,” he said.
The resulting surge in imports and increased consumption led to the overheating of the economy in the second half of 2011. In response to the widening deficit in the balance of payments the Central Bank of Sri Lanka intervened with corrective measures that included the depreciation of the Rupee, a hike in policy rates and a curb on credit expansion by financial institutions. March 2012 saw an upward revision of the duty structure.
“While these may well be early warning signals, they also serve to prepare us to face the future with grit and determination,” the DIMO Chief said.
According to him, the current financial year (FY12/13) will be one that will test DIMO’s mettle.
“We have experienced difficult times in our long history. We look back on them with pride and satisfaction, having overcome the hardships while holding true to the DIMO ethos. The real challenge during such periods is to shield our customers and employees from the adverse situations arising from the business cycle,” the Chairman said.
“Our customers’ businesses and livelihoods are dependent on our unfailing service. The quality of life of the families that are dependent on our employees cannot be compromised. As such, DIMO has to be consistent in its delivery of value to them. They in turn will drive DIMO’s value creation. We work simultaneously to keep our principals’ brands alive. Thus, while grappling with the demands that are before us, we will not yield to short-term measures that would compromise our ongoing commitment to our stakeholders,” Pandithage assured in the Chairman’s Review of DIMO’s 2012 Annual Report.
He reiterated on DIMO’s eight strategic imperatives as they form the basis for all plans and actions; and naturally the structure of the Annual Report.
“Our six forms of non-financial or intellectual capital - customers, employees, business partners, regulatory authorities, community and concern for the environment - are in dynamic interaction to create financial value for DIMO, our seventh form of capital. That’s only one side of the coin in economic value creation. The other side is the value that DIMO delivers to each of the six forms of intellectual capital. Encompassing the seven forms of capital is our business domain or portfolio mix – and managing this is our eighth strategic imperative,” Chairman said.
Focusing on the eighth imperative, Pandithage explained that it was prudent to consider diversity when selecting an investment portfolio in order to reduce the risk. “The individual components of the portfolio should bring about synergies. They should also build on the strengths of the Group and forge new pathways for sustainable development and growth.”
The Chairman acknowledged DIMO’s heavy concentration in the motor vehicles segment – high dependence on a select few, albeit prestigious, principals and all five business segments of Dimo, being import-dependent, are exposed to the vagaries of the exchange rate and the tariff structure. “Both can change overnight, as we have seen in the recent past – with positive and negative implications,” he said adding, “These prompt us to further our thinking.”
Whilst the Group achieved its budgeted profit before tax in FY12, the second half of the year witnessed some macro economic developments that adversely affected the vehicles segment.
Among the adverse factors are increases in interest rates, depreciation of the rupee and duty increases in passenger vehicles. Further continuation of these negative factors is likely to hinder growth. However, investments made in building capacity and competencies could partially off-set these adverse effects.
In this background, the budgets prepared for the financial year 2012/13, does not envisage a substantial growth in profits, although a stable performance is expected, as per DIMO’s FY12 Annual Report.
“DIMO has withstood the test of time. Good times and bad. The golden thread that kept the fabric of our enterprise together through its 73-year history was, and is, our reputation. We call it institutional integrity in accounting for our intellectual capital. This is our mainstay in an ever changing business world,” Chairman Pandithage told shareholders.
In keeping with the performance of the company, the Board has recommended further rewarding of shareholders with a final dividend of Rs. 27.50 per share, which inclusive of the two previous interim dividends, amounts to a total dividend payout of Rs. 40 per share for the year. In FY11, it was Rs. 61 per share.
During the year DIMO’s Group assets topped the Rs. 15 billion mark to finish FY12 at Rs. 15.5 billion from Rs. 10.9 billion a year earlier whilst at company level it was Rs. 14.7 billion, up from Rs. 10.5 billion in FY11.
The Board of Directors of DIMO Plc comprises A.R. Pandithage (Chairman and Managing Director), A.G. Pandithage (CEO), A.N. Algama, S.C. Algama, A.M. Pandithage, B.C.S.A.P. Gooneratne, R.C. Weerawardane, Dr. H. Cabral, Prof. U.P. Liyanage, T.G.H. Peries and R. Seevaratnam.
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