Richard Pieris on a roll

• Posts all-time high Group operating profit of Rs. 3.4 billion

By Cheranka Mendis

Richard Pieris Group posted all-time high profits from operations in the financial year ended 31 March with an impressive Rs. 3.4 billion, a growth of Rs. 1.5 billion from the previous financial year.

A landmark achievement for the 78-year-old group, a 200% growth was also recorded in group profit after tax from group operations with a final value of Rs. 2.1 billion.

Plantation, retail and plastics, which are identified as the core businesses for the Group, also recorded high numbers, with the plantation sector generating an operational profit of Rs. 2 billion – a 147% increase since the previous financial year, forming 51% of group operational profit, while the retail sector continues to be the value driver representing 40% of group revenue and a sectoral profit of Rs. 828 million (61% growth from the previous year). The plastic sector recorded 43% growth during the financial year, which accounted for 11% of group financial profit.  

The growth of the plantation sector is attributed to the increase in rubber prices and steady tea and palm oil prices. The group, which owns three public quoted companies in the plantation sector – Kegalle Plantations, Namunukula Plantations and Maskeliya Plantations – is the biggest tea, rubber and palm oil manufacturer in the country. The group also promotes and plants diverse crops, which include coconut, cinnamon, cardamom and rambutan.

Chairman of the Group Dr. Sena Yaddehige announcing the group financials yesterday stated that Rs. 1 billion had been invested in the sector for replanting, factory development, restructuring, manufacturing process, fertilising and so on during 2010 to reap such profits.

“In plantation, soil is being wasted. People take but don’t put back.  Our production has gone down in the past 12 years. Lately what we have been doing is putting more into soil and upgrading equipment,” Yaddehige said.

Admitting that the group has the biggest coverage of land of tea, he asserted that rubber managed to bring in a profit of Rs. 1.3 billion while palm oil (without processing) brought in a profit of Rs. 400 million. “The group has been pouring money into the ground,” he asserted.

Yaddehige also divulged that tea plays a smaller role in the overall process, while rubber would always be connected to productivity and palm oil to oil prices. “I don’t think average prices will therefore come down. Profits will be sustainable from rubber and palm oil.”

Yaddehige also revealed that a foreign government, the name of which he refused to disclose, had offered him 60,000 hectares for palm oil production, while another country had offered another 16,000 hectares.

The group hopes to expand during the next two to three years by adding yet another 1,000 hectares into the system for palm oil. “The future for rubber and palm oil would be great even though tea rides on uncertainty.”

The retail sector, which will take on an aggressive expansion in the future led by robust marketing strategies, anticipates 35 supercentres within the next two years. The larger part of investment will go into this area, Yaddehige said, noting that Rs. 2 billion would be injected into the sector within this year.  

Within the next two months an investment of Rs. 550 million will take place for the latest supercentre, he said. This supercentre, titled Big Blue, will open in Galle within the next six to eight months.

The group opened its 12th supercentre in Kadawatha last month. Also known as the ‘Blue Wonder,’ the supermarket extends over 25,000 square feet, which would soon be expanded to 37,000 square feet.

“When Andrew Dalby joined the Group as CEO of Richard Pieris Distributors from Lloyds Bank London, he promised me 10% nett over the turnover. He is now fairly close to it. Our investments would mainly be made in the retail sector,” he said, adding, “Our model is different from other chains. We are not scared to invest. Our new strategy is to buy whenever possible and as a result our balance sheet is full of assets.”

Supercentre premises under Arpico are all built on land that has been bought by the group.

Yaddehige acknowledged that a USA company offered Rs. 6 billion for the Hyde Park Corner Arpico premises eight months back. However, he noted that ownership of such premises would benefit the growth and expansion of the group in the long run.

The tyre and plastics sectors also recorded steady operating profits amounting to Rs. 724 million, contributing some 20% of group operating profits. Richard Pieris Tyre Company is said to be the largest tyre retreader in Asia, building some 600,000 tyres per annum, reaching 1,300 dealers islandwide.

The plastics sector recorded 33% growth during the financial year, amounting to 11% of the group profit. The increase in profits in this sector was attributed to productivity increase and inventory controls.

Future plans for the sector include new product development and new market development in the context of plastics and local and overseas expansion and management of total solutions for customers in the tyre sector.

Yaddehige outlines plans to move into BPO, tourism and education

Talking about new ventures, Chairman of Richard Pieris Group Dr. Sena Yaddehige stated that the Group hoped to get into the sectors of BPO, education and tourism in the future.

“We are going to go slow on the tourism front,” he noted, adding, “at present we have entered the hotel supplies segment of the market and in the future we hope to enter the industry by converting the bungalows we have in our name in the plantation sector. We hope to start with five initially.”

The Group has over 25 bungalows and is hoping to convert them as boutique hotels and resorts.

It is also holding discussions with TATA Group India for possible BPO partnerships, Yaddehige told the Daily FT.

Representatives from the TATA Group held a third round of discussions with Richard Pieris yesterday in Sri Lanka. Identifying the negotiations as “mature discussions,” Yaddehige stated that the parties were now trying to establish critical mass for the venture.

Education, a sector which the Group is expected to enter within the next four to five years, as mentioned to the Daily FT, aims at bringing down one of the top universities in the world to Sri Lanka.

The 13 acre high manufacturing plant in Navinna will be moved to one of the many industrial sites in the Group’s name within the next four years and the area would be used for an education institute. The Group is currently in talks with various universities, he said.

“They are not very amenable at the moment. We do not want just a tuition institute; this will be big, believe me,” he said.

Yaddehige also showed interest in going into vegetable plantation in the future. He stated that this had been tried on an earlier occasion on a 23 acre plot of land five years ago, but had been unsuccessful.

“We are keen to establish ourselves in this area. We are currently negotiating to buy a 1,000 acre land which is located 1,500 feet above sea level in a good climatic condition for this purpose. We do expect to get into large scale vegetable cultivation.”

“What I would also love to do in Sri Lank is rice cultivation; 5,000 acres of rice using modern facilities. I love agriculture and I love getting my hands dirty,” he added.