In the recent past shares of Dankotuwa has become very popular and also recorded remarkable appreciation of price. This is due to the fact the company has decided to accept by way of private placement capital infusion of Rs. 433 m from Environmental Resources PLC and Ceylon Leather Products PLC resulting in the additional issue of 42,163,000 shares at a price of Rs. 9.
The company lacked financial resources in the past for a turnaround and the proposed infusion of funds would be utilized for the following purposes.
- Modernization of machinery including fuel efficient kiln which is costly.
- Expansion of capacity.
- Retirement of some debts.
The Environmental Resources Investment PLC has competent staff and management skill in the rehabilitation of sick companies as evident from the success of Ceylon Leather Production PLC and naturally entry of ERI has been greeted with substantial increase of Dankotuwa share price.
Prior to the proposed entry of ERI the company entered into an MOU with two major unions for wage freeze for three years which was a major obstacle in the turnaround of the company.
It should be recorded the Government made a major contribution in this regard and should be commended.
The company has recorded appreciable net profits during five year period except for 2001 where the losses are insignificant as follows:
It is interesting to note the company has performed well without the benefit of GSP concession, the proposed withdrawal which has been blown out of context by Opposition parties and few governments in the Western world.
The Central Bank has estimated the loss around US Dollars 100 million which could be managed. Dankotuwa has the distinction in introducing an internationally accepted brand name with products of highest quality compared to best in the world.
80 percent of products which are exported to countries such as EU, USA, Japan, and India are available at prestigious department stores. e.g. Macy’s, Bhs, ELCORTE Ingles Iselan migres, Jasanmal.
There are only a handful of such products with Sri Lankan brand name internationally accepted.
Salient factors of restructuring
With the replacement of some machinery which are over 25 years, inefficient and costly to operate would be replaced. This would reduce unit cost and increase production.
It is relevant to mention kiln purchased by a few years back under a different management proved to be unsuitable and substantial cost involved has been written off.
This exercise contributed to a substantial loss of Rs 400m recorded for financial year 2006. Interestingly company recorded a small profit in the following year 2007.
ERI is bullish on the prospect of turnaround of the company despite prospect of losing GSP concession.
This is evident from the fact provision has been made for the expansion of the capacity with the infusion of capital. The proposed expansion would ensure higher turnover and increase competitiveness.
The retirement of some debt with zero cost funds would reduce the finance cost.
The MOU signed would ensure cost of wages at manageable level for next three years.
source - www.dailynews.lk
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