Sri Lanka has a better chance to shine in the services sector

Lankem Ceylon Plc Managing Director Anushman Rajaratnam talked to Daily FT of prospects for his company, future plans to maintain growth and the positives of consolidating a diversified holding company in a year filled with high expectations. Following are excerpts of the interview.  

By Uditha Jayasinghe

Q: How has the company fared in the past year?

A: Our company, Lanka Fort Land Holdings, which has several prominent companies including E.B Creasy, Lankem, Colonial Motors, Kotagala Plantations, C.W Mackie, Colombo Investment Trust Plc, Agarapatana Plantations, Colombo Fort Hotel and York Arcade Trading Plc has done very well over the past nine months. This strong growth is particularly reflected in our tea and rubber plantations that have done very well. Tourism increased rapidly last year and we expect more expansion in terms of profits from our hotel holdings. The Budget reduced vehicle taxes and we hope that this will also spur growth. At present our largest profit is from plantations but we hope that this will be superseded by our chemical company Lankem in the near future. As Sri Lanka looks to expand both in agriculture and infrastructure we feel that the outlook for more growth in this sector is very positive.

Q: Are you considering more diversification in 2011?

A: No. At the moment we feel that we have enough fingers in different pies. What we want to do is look to consolidate on the companies and sectors that we are already involved in. One aspect would be looking to expand regionally with Robbialac as we feel that there could be a strong market for a quality product in India. It is already around number three in Sri Lanka and is well established as a household name giving it a good foundation to become a regional player. There is good real estate in Colombo, Kandy and the Eastern Province that we are holding on to including a property on the Beira Lake that can be converted into a city hotel. So these are the medium to long term expansions that we are planning.

Q: What are your expectations for this year? Do you expect this high rate of growth to continue?

A: I believe that 2011 will continue to see growth. However it will not be on the same level as 2010. During the last nine months we grew at a phenomenal rate of 100%-120% but it would be unrealistic to expect this to continue. A growth rate of 20%-25% is more likely for 2011. It will not be the same explosive growth as 2010 but it will be more sustained. The outburst of growth that happened with the end of the war and favourable economic conditions created by it has slowly filled the vacuum now.

Q: With this fall of growth how do you expect to maximise on profits?

A: We are going to focus on efficiency. Agriculture is still the mainstay of the Sri Lankan economy so flood affected areas will recover within the next three to six months. Hopefully inflation will be controlled and production costs will remain consistent. We have already invested Rs.100 million on a new IT network and the aim is to make our factories as efficient as possible. As I mentioned earlier our chemical arm is expected to outplay the plantations so the inclement weather will not affect our growth significantly. The rest of the companies have some of the best known brands in Sri Lanka so we are confident that the wide variety of companies will continue to grow.

Q: Most tea and rubber are exported without value additions. Do you hope to change this?

A: Yes. We agree that there is a strong need for value additions in our tea and rubber. We are at the bottom of the value chain so it is important for us to move up with technology infusion. Being conscious of this fact was what prompted us to acquire C.W Mackie to add value to our rubber products. There is a strong need to create a brand for tea so we are hoping to make a related investment in this regard.

Q: What are your plans for the hospitality arm?

A: We have three properties and while hotel rates have increased since the end of the war they are still not attractive. Nonetheless I believe that with infrastructure, which the government is investing heavily on, the returns should come. Sri Lanka is an expensive destination to get to and promoting access is important. There has been growing tourism numbers from the Middle East, China and India but the high spenders are still mostly Europeans. If we show sufficient diversification of market then I think we can make Sri Lanka more popular. A positive indication is eco tourism picking up.

Q: What sustainable business practices do you follow?

A: For us the most valuable asset is human capital. Attracting and keeping talented people is always a challenge in Sri Lanka, especially since many of them tend to go abroad within a few years of graduation. So we are very focused on supporting further education. We work with universities to provide them with information of what the job market requires, which is an aspect that I believe is not paid enough attention to, and give paid internships. Global Reporting Initiatives (GRI) centred on triple bottom line reporting will be started soon. At present they are followed by us but not formulated properly in the annual reports so it is not commonly perceived by the public.

Q: You mentioned hopes to become a regional player with Robbialac. Do you feel FTAs are important for Sri Lankan businesses to establish themselves?

A: FTAs are important but sometimes when it comes to doing practical business certain aspects like the negative lists can minimise their effectiveness. The finer details have to be carefully considered before entering into FTAs. Personally I think it is more important for Sri Lanka to stop the brain drain. The best talent is being taken out of the country and that hampers its economic growth more.

Q: Foreign Direct Investment (FDI) has been slow to flow into the country. How crucial do you think this is and what effect will it have?

A: FDI investment into the stock market is important because it shows confidence in the country’s overall economic prospects as well as promoting capital markets. Investment in tourism is good and I believe that is already happening. FDI is a very important sign of the rejuvenation or Sri Lanka’s economy and for it to realise its full potential. Yet we must understand that people and space is limited in Sri Lanka unlike a country like Vietnam or India or China that has both in abundance. Manufacturing companies are not going to be attracted by a market of Rs.20 million when they can have a market of one billion. When it comes to services Sri Lanka has a better chance to shine in the global light.