Long troubled Asia Capital PLC, back to profit after three loss making years, has described its major shareholder Dato’ Vijeyeswaran Vijayaratnam, the prominent Malaysian investor now owning 87% of the company, as the “white knight” who had bought a 10% chunk of Asia Capital’s stake in Asian Alliance Insurance PLC to make the former solvent with an immediate cash infusion. Despite the group posting a profit of Rs.222.4 million in the year ended March 31, 2010, up from a loss of Rs.379.2 million a year earlier, its auditors have pointed out that the company’s accumulated losses up to March 31, 2010, stand at Rs.855.3 million and current liabilities exceeds current assets by Rs.329.3 million.
“The going concern assumption on which the financial statements are prepared is greatly dependent on the success of the company’s future endeavours,” its auditor, KPMG Ford, Rhodes, Thornton & Company said.
But the company now under a “new management, with a fresh vision,” has told shareholders in its annual report that they are creating a “fundamental change recalibrating their structure and manufacturing real value.”
The changed management team of Asia Capital led by Mr. Manohan Nanayakkara, Chairman/MD, is looking to “hit the next ball out of the ground.”
Nanayakkara said in his review that changes in management was subsequent to Dato’ Vijeswaran’s initial entry to the company in May
2009 when he bought a 29% stake in Asia Capital from Asia Fort Asset Management (Pvt) Ltd, a connected company. In February this year Vijeyeswaran purchased a further 58% increasing his holding to 87%.
At the time of the changeover they had faced a difficult and challenging task with losses increasing over three years and the company in deep crisis, he said.
“We needed to manage both the crisis and its consequences, and to turn the company around. In this we were helped by the fortuitous external circumstances and a patient majority shareholder who was strongly committed to the country and its potential, and had faith in the management and staff of the company,” he said.
The biggest crisis the company faced was with its subsidiary, Asia Asset Finance Limited, which was running at heavy losses in the wake of the Golden Key collapse, high domestic interest rates as well as weak management.
Added to this, the group debt had been crippling with the previous management resorting to informal sources of financing at very high cost.
Staff morale was low with many members taking voluntary pay cuts to keep the company afloat. Most divisions were lethargic, dispirited, de-motivated and in despair, Nanayakkara said.
With the immediate cash infusion required obtained through the sale of 10% of Asian Alliance Insurance to Vijeyeswaran, with a buy-back provision for Asia Capital, they had been able to make the latter solvent.
“Stringent steps were taken to control discretionary overhead costs.
However, the staff salaries were fully restored and all voluntary pay-cuts were repaid to the staff with thanks,” Nanayakkara said.
This had enabled the company to perform well, assisted by external circumstances. With improvement in profitability a bonus had been paid to group staff in December 2009 with an additional bonus to the lowest paid employees from overhead cost savings.
“Our employees appear now to be both highly motivated and deeply committed,” Nanayakkara said.They had sorted out issues relating to corporate governance and got out long delayed shareholder results.
“There was a backlog of unpublished annual reports. No AGMs had been held for three years. Asia Capital had been on the default board of the Colombo Stock Exchanged for almost five years. One by one the backlog was cleared, with the company being reinstated to the main board in May 2010,” he said.
Asia Capital has set its goal of growing at least 5% above its cost of capital with the weighted average cost of capital calculated at 15%.
“We must then achieve a target of approximately 20% growth per annum over the next decade to justify your faith in us. That decade appears to be headed to being the brightest economic period in the short economic history of independent Sri Lanka. We believe our target is achievable in these favourable circumstances,” Nanayakkara said.
“We are proud that as a group we were able to turn around last year’s net loss of Rs.379.2 million to report a more than healthy profit of
Rs.222 million. The share price has increased from a low of Rs.5.50 in April 2009 to around Rs.47 at the time of writing.
“Success is 80% luck and indeed we were lucky due to the opportunities that were presented to us. The balance 20% is to know when we are lucky and to make the best use of it – and I am indeed very grateful to all the members of my team and the staff of all of the group companies for their commitment and had worked over the last year to stabilize Asia Capital PLC and record commendable results.”
Nanayakkara concluded by describing the financial year 2010 as a year of turnaround with 2011 to be a year of consolidation.
“Our house was on fire. Our focus was to douse the flames. Having done that, our focus has shifted to recovery, and to growth,” he said adding that the prospects are indeed good.
Mr. Asanga Seneviratne resigned as CEO of Asia Capital with effect from June 11, 2010 and resigned from the board of the company with effect from September 1, 2010. His successor has thanked him for the “invaluable role he played in guiding me in the intricacies of the stock broking business where I was a novice.”
Nanayakkara said that stock broking and investment banking had performed “incredibly well” during the period under review primarily due to overseas interest consequent to the cessation of the civil war in May 2009.
Asia Capital has a string of subsidiaries in securities trading, financial services, insurance, venture capital, fund based activities, commodities broking and leisure.
The company’s stated capital is over Rs.1.1 billion and accumulated losses Rs.855.3 million (group Rs.871.5 million).
Mrs.Laurette Ann Carmen Amerasekera with 1.84% and Mr. Lalith Prabash with 1.17% are the only shareholders other than Dato’ Vijeyeswaran Vijayaratnam with over one percent of the company. The public held 11.08% of Asia Capital.
The directors of the company are: Messrs. Manohan Nanayakkara (Chairman/MD), J.H.P. Ratnayeke (Deputy Chairman), A.C. Seneviratne (CEO), F.X.R. Pereira and A.D. Ross.