Perfect method of setting coloured gems like `floating diamonds’
Blue Diamonds Jewellery Worldwide PLC whose shares, both voting and non-voting, have been actively traded on the Colombo Stock Exchange recently will have its 21st annual general meeting on October 7 with accumulated losses of Rs.902.7 million in its books and a loss of Rs.14.2 million incurred in the year ended March 31, 2011, down from a loss of Rs.20.1 million a year earlier.
The company last posted a modest profit of Rs.10.4 million in 2008, up from a profit of Rs.8.5 million the previous year but has since had three consecutive loss making years.
However, Mr. W.G.B.M. Ranaweera, the company’s Chairman/MD, has told shareholders in the annual review that "barring any unforeseen circumstances, your company is heading into a profitable level in the very near future."
Future plans include the use of coloured gemstones in jewellery using the carbonlokd (floating diamonds) setting concept which has already been developed by their production team.
Ranaweera said that given the global economic recession, there has been a trend among the affluent to invest in precious metals and non-financial instruments rather than stocks, bank and government securities etc.
Also, the economic boom in China and India had contributed heavily to the increased global demand for precious metals, especially gold.
"These factors have resulted in the increase of the prices of gold by 30% during the period under review.
Economists forecast a further escalation of prices of precious metals to its highest in future," he said.
Alongside this, the international demand for diamond jewellery, a luxury product, was slowing with consumers looking for alternatives. Their company mainly exports its products to the Middle East and the uncertain market conditions had an adverse impact on their export performance.
The biggest challenge the company faced now was price escalation of important raw materials – gold, diamonds and other gemstones. The opinion in the jewellery trade is that after the price of gold reaches a level of US$ 2,500 per troy ounce, a price slide in gold is likely.
"Another setback that affected the jewellery industry in Sri Lanka is the lack of qualified & trained staff in all areas of the jewellery industry. Due to the shortage of experienced gemstones setters, craftsmen, polishers and staff for soldering & laser engraving, major manufacturers find it difficult to retain staff after an extensive training program which is very costly as they are offered employment abroad," Ranaweera said.
He thanked shareholders for the confidence placed in the company when 62% of a rights issue they floated last December was subscribed infusing Rs.187.4 million equity finance into the business. The business plan they issued along with the rights issue documents has been initiated and positive results seen so far.
"The factory automation process has commenced and new machinery and equipment ordered to upgrade the factory production sections. Our marketing team made vigorous successful efforts in developing new markets such as India during the period and products were exported to the Indian market with a significant order," he said.
Despite difficult market conditions, they had increased revenue 20% during the year under review and exports had grown to Rs.163.5 million from Rs.92.3 million the previous year.
New products had been developed and 75% factory utilization achieved. Net assets per share had more than doubled from Rs.0.68 to Rs.1.39 and the loss during the year was down 30% from the previous year.
Their voting share had gone up to Rs.13 which was the highest value received in the recent past signaling investor confidence in the future direction of the company.
They were observing strict cost control measures and closely monitoring expenses to ensure efficiency. This helped control expenditure and operate economically. Despite cost reduction strategies, attractive employee benefits well above industry standards have been maintained.
"By this the company has retained its experience and well trained staff to maintain the high quality standards and secrecy of the production techniques and employee loyalty towards the company," Ranaweera said.
He reported that the company had prepared itself to enter new markets such as Russia, Europe, Australia and New Zealand with positive results obtained from efforts to revive traditional markets like Singapore and Malaysia.
"We have added a collection of traditionally set diamond jewellery into our product range and our product development team has developed new range of jewellery set with coloured gemstones using the carbonlokd (floating diamonds) setting concept. This major achievement had excited the jewellery trade and customers the world over. In addition we are pioneering the traditionally set diamond and gemstones jewellery," Ranaweera said.
He was optimistic that this would help the company to reduce its dependence on carbonlokd jewellery without undermining their prime asset, this setting concept, where they continue to hold an international monopoly.
The company is also looking at a Rs.14 million plan to build a new administration and marketing building as their old buildings are in very poor condition. They hoped to have this building ready eight months after construction begins.
The recent success of their product development division perfecting setting of coloured gemstones using the carbonlokd method had opened new possibilities of using mainly Sri Lankan coloured gemstones and some imports of types not found to produce a fine range of jewellery. Local designers as well as some from the UAE, USA, Australia and the Peoples Republic of China will work on this, Ranaweera said.
"With the frequent changes in the prices of gold and diamonds, it became necessary for us to diversify production into the use of cheaper raw materials, such as range of coloured gemstones products which will in actual cost 10% of the cost similar design using diamonds."
In addition the company is also working on designing and manufacturing a collection of 24 kt gold jewellery initially for the UAE market. A range of samples were recently presented to their buyer in the UAE who has shown interest and assured them of a substantial order.
The company’s Auditors, KPMG Ford, Rhodes, Thornton & Company have issued a qualified opinion saying that Blue Diamonds had obtained a credit facility of US$ 2.75 million from the Seylan Bank in previous years by pledging an inventory of jewellery as security. During the year ended March 31, 2005, the directors had resolved to write back the balance outstanding to the bank in respect of this facility on the basis that the company had handed over jewellery in lieu of the said credit facility as a full and final settlement.
Although Rs.203.5 million had been written back to the income statement during that financial year there was insufficient and appropriate audit evidence of this transaction. The Seylan Bank has in December 2009 demanded US$ 4.3 million together with further interest of 8% being the total outstanding sum.
The company and bank have agreed to go to arbitration on this matter and this process has commenced with the case currently at the trial stage.
The auditors have pointed out that no liability had been recorded in the financial statements in respect of the balance payable to the bank. They were therefore unable to satisfy themselves of the completeness, existence and accuracy of this liability as at March 31, 2011.
The auditors have also made reference to a write back of Rs.4.5 million to the income statement out of a payment due to Ceylinco Investment Co Ltd during the year. They have not been able, due to the absence of sufficient and appropriate audit evidence, satisfy themselves "as to the completeness, accuracy, existence of amount due to Ceylinco Investment Co Ltd of Rs.19.4 million as at March 31, 2011."
Blue Diamonds has a stated capital of Rs.1.06 billion and a general reserve of Rs.135 million in its books as at March 31, 2011. Total assets ran at Rs.372.9 million and total liabilities at Rs.75.8 million.
The Blue Diamonds share had traded at a high of Rs.13 and a low of Rs.1.90 against a trading range of Rs.4.30 to Rs.1.30 the previous year.
The directors of the company are: Messrs. W.G.B.M. Ranaweera (Chairman/MD), G. de Kretser, K.V.D.D.A. Dias, W.K. Galagoda, M.M.N. Priyantha, H.A. Wehalle and W.P.J.L.M. Fernando.
source - www.sundayisland.lk
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