April 2007


Business Today
The heads of the winning companies of the year (2003-2004) alongside then Presidential nominee Mahinda Rajapaksa L-R: The Business Today TOP 10 analysis team - Shiron Gooneratne, Keith Bernard and Dinesh Weerakkody; Shuhei Anan, CEO,Sri Lanka Telecom; Dr T N Jinasena, Chairman, DFCC Bank; Andrew O’Regan, CEO, Ceylon Tobacco Company; Mathi K Parthipan, Managing Director / CEO, BT Options; D H S Jayawardena, Chairman, Distilleries Company of Sri Lanka and Aitken Spence & Company; Thilak de Soyza, Chairman, Carson Cumberbatch & Company; Rienzie Wijetilleke, Chairman, Hatton National Bank; Harris Premaratne, Senior Deputy GM-Corporate Banking,Commercial Bank of Ceylon; Susantha Ratnayake, Deputy Chairman, John Keells Holdings; and Richard Ebell, Finance Director, Hayleys










10 HAYLEYS | 1.925



Business Today takes pleasure in presenting once again its choice of the TOP 10 Sri Lankan companies for the financial year 2005 - 2006. The Business Today TOP 10 is chosen based on a selection process devised and refined by Business Today. Companies identified by Business Today as its TOP 10, have amply justified their selection to the elite list more often than not, by out-performing those companies that had reigned as business champions in the past.

This year too, many companies reported impressive financial results, but unfortunately, only 10 can be selected to the Business Today TOP 10 list. Selecting 10 among many near equals is an arduous task, but Business Today with the assistance of KPMG Ford, Rhodes, Thornton & Co. applied a rigorous and careful process to determine it's Business Today TOP 10 companies.

The Business Today TOP 10 performers this year can certainly be proud of their performance whilst those aspiring to make it to the list, should be inspired and encouraged by the new names that have entered the list during the last three years. Companies that have been and/or are in the Business Today TOP 10 already know what it takes to excel, and they would certainly be determined to improve their positions in future years.

Business Today is committed to offering an equal opportunity and a level playing field to all companies of acceptable and comparable size to make it to the Business Today TOP 10. Outsourcing is today an important consideration for many businesses, but the nature of the business determines the extent to which such outsourcing is possible, hence for some it is easier than for others. In this backdrop Business Today considers it relevant to discontinue the criterion Profit per Employee and Value Addition per Employee. The discontinuity of these two criterion obviously affects those companies that practice a significant level of outsourcing and those who contribute a large part of their top line to the government in the form of taxes and other levies, but on the whole makes it fairer by a majority of the top performers. The criteria used for this year's ranking are Growth in Turnover, Profitability, Growth in Profitability, Earnings per Share, Return on Equity, Market Capitalization, Value of Shares Transacted and Value Addition. A high and growing top line performance by companies although necessary was considered insufficient to qualify as a top performer in the absence of profit. Weights applied are not disclosed for proprietary reasons. Business Today however assures that weights were assigned to the criteria mentioned above after due consideration to significance of the criteria and ensuring all business sectors are fairly represented. Weights were applied uniformly with no prejudice.

Before commenting on the individual performance of companies that made it to the Business Today TOP 10 list, Business Today out of a sense of obligation wishes to share a few observations with all companies that were selected to the Business Today TOP 10 list in the past, those on the latest list, and those who aspire to find its place among the elite. Some of these observations are repeated in the comments to follow for the individual companies.

As observed, over a period of ten years since the introduction of the Business Today TOP 10, it has been dominated by banks and companies from the financial sector. Development banks were prominent among these players, but over the years their prominence diminished and in the latest list no development bank is present. Commercial banks such as Commercial Bank and HNB have been regular entrants within the top five, and in the case of Commercial Bank even at number one and number two positions. A player in the financial sector, Central Finance was a company that entered the Business Today TOP 10 list several times, but in recent years the company has been kept out by stronger contenders. Ceylon Tobacco and Distilleries are the only two companies from the manufacturing sector that had continuously qualified to be in the Business Today TOP 10. These two companies are still on the list, but importantly Distilleries whom had occupied places in the third and last quartile of the Business Today TOP 10 until about four years ago leapt to the top quartile and is now a serious contender for the number one position. The reason for Distilleries ability to fast track to the top position is its well-executed diversification plan. Distilleries acquisition of the Aitken Spence Group and Sri Lanka Insurance are key to this momentum. The competition for the top position in the recent years has been between conglomerates with well-diversified portfolios and in constant search for new opportunities. There are however other conglomerates that have entered the Business Today TOP 10, but have been seriously challenged and are threatened by others because of their obsession with traditional core businesses and failure to stay in step with new developments. The world is seeing a re-emergence of the traditional brick and mortar companies, but the success of those companies hinge on their ability to innovate and re-engineer their business processes. Traditional businesses in Sri Lanka certainly have the capacity to grow, but if they are to grow and keep pace with the new world businesses they would have to constantly review, modify and at times dare to overhaul their business models, else they choose to be left behind. And with regard to new growth sectors, companies in the telecommunications sector are making steady ground in corporate Sri Lanka, and this is evident by the entry of new entrants from the telecommunications industry direct in to second and third positions respectively. It is interesting to note that Distilleries too, the business conglomerate in the first position this year, has shown its interest to expand the telecommunications business, which it entered into in recent years.

The above analysis is to provide some perspective on developments in general from a broad observation of the Business Today TOP 10 experience over a decade. It should not be construed as an insult to any company. Business Today respect all companies and conglomerates that have nurtured and shaped the Sri Lanka business landscape, and it is in support and appreciation of the contribution made by all these companies to Sri Lanka that Business Today recognizes the Business Today TOP 10 performers each year. What a year it was for Distilleries –Distilleries returned to the top of the list after having lost its position to John Keells Holdings last year. The company, which is a landmark success in privatization, has stamped its mark on how to make an average performer a superior performer by strategically diversifying and relentlessly pursuing excellence. The company is today a conglomerate with interests in Alcohol, Tourism, Power Generation & Infrastructure Development, Destinations Management, Plantations, Telecommunications, Fabric Processing, Garments, Insurance, Financial Services, Shipping and telecommunications. Interestingly when Distilleries earned its top place in the rankings initially its shares were trading as low as a quarter of its current trading price, hence some ways it lends itself as a means of validating the Business Today TOP 10 selection process.

Sri Lanka Telecom (SLT) achieved the second position in the Business Today TOP 10 climbing one position from the previous year. SLT yet again a privatization success, completed 10 years as a private sector managed company and continued in its journey of success. In addition to its traditional business, SLT recorded phenomenal growth as a local and international carrier of both voice and data resulting from its strategic investments in infrastructure, new business development including mobile telephony and of course people. Telecommunications is one of the fastest growing industries, and although the leader in the fixed line telephony market in Sri Lanka, SLT did not rest on its laurels, but kept pushing its traditional boundaries. Thus its place in the rankings is no surprise, but a direct outcome of the company's attitude and ability to challenge its self.

Dialog Telekom, a star performer and the company with the largest profit in Sri Lanka entered the best of the best at number three last year. With many service achievements and awards at both local and international level to its credit, Dialog Telekom has been the chief catalyst, driver and trendsetter in the Sri Lanka mobile telephony market and the main reason for the industry boom in the country. The company may have been fortunate to be in an industry that is experiencing above average growth, but credit is due to Dialog Telekom for the foresight the company had to enter an industry with promising prospects at an early stage and while carving its place in the market, set the standards for innovation, growth and best practices. To earn its place in the ranking Dialog Telekom reported superior performance in all considered criteria, but perhaps could be considered unfortunate to have possibly lost a high position in the ranking due to its neglect or decision to not include a Value Addition Statement as part of its Annual Report for the year 2005 - 2006.

John Keells Holdings recorded another good year in terms of performance, but was not able to retain its earlier position at number one. The conglomerate has over the years been the undisputed corporate benchmark in Sri Lanka and still continues to hold that status, but the stellar performance of the top three in the Business Today TOP 10 was hard to match. The reason was partly due to the overall performance of the telecom sector in which the second and third companies in the Business Today TOP 10 are dominant, and the number one company has made inroads. Transportation was once again the largest contributor to the group's profit after Tax with 2.21 billion, being 63% of the Group total. John Keells Holdings, a leading conglomerate known to be a superior performer with diverse interests in many growth sectors and having a solid foundation will no doubt continue to be a strong contender for the top position in the future.

Commercial Bank secured fifth position, falling one place from the previous year. Commercial Bank has a strong deposit and asset base and that strength complemented by a well defined, focused and managed business strategy and business processes has contributed to the bank's consistent above average performance. There has however been a noticeable decline in the dominance of the banking sector in the Business Today TOP 10 rankings; in the last four to five years conglomerates and businesses in new growth sectors have forced some of the previous top performers from the financial sector down in the list. Commercial Bank has been a victim of this development, but has nevertheless ensured its position above others from the banking sector within the Business Today TOP 10 List. HNB re-joined the elite list at number six after a brief absence. The Bank took substantial losses resulting from non-performing loans last year, but re-bounced with strong results recording significant profits driven by Net Interest Income from core banking activity. This achievement lays the foundation for HNB to be selectively aggressive in other areas such as forex trading, bond trading etc. in the future. HNB will certainly be encouraged by this performance and set its sights on better performance and consequently better positions on the Business Today TOP 10 List in the years to follow.

Ceylon Tobacco Company is placed at number seven in the rankings this year. The company has the largest value addition, but the beneficiary of a significant portion of that value is the government of Sri Lanka due to very high taxes and levies on the sale of tobacco. CTC has a monopoly in the manufacture of cigarettes in the country and is one of the few manufacturing companies to secure a place on the Business Today TOP 10 since the inception of the process. For a company that is always held in the public eye and subjected to severe pressure from public lobbyists and activists CTC has done well to weather the pressure and demonstrate good conduct through it commitment to good Corporate Governance and sincere Corporate Social Responsibility.

Aitken Spence which secured the number nine position last year climbed to eighth position in 2005 - 2006. The Aitken Spence Group continues to be a leading business conglomerate in the county and this is reflected by the confidence of the investment community in the company and by the market price of its shares. The Aitken Spence Group will however do well to review its portfolio of businesses with a view to sustaining its position and capacity to remain in the front lines of Sri Lanka business.

The Bukit Darah, the holding company of the Carsons Group with further interests overseas entered the Business Today TOP 10 list last year and continued to stay on it, at ninth position in the year 2005 - 2006. Although the group did not record a growth in profits, performance in other criteria was reasonable. The group has been aggressive in its pursuit of success, particularly in its overseas operations. Bukit, although a public listed company is closely controlled due to a majority of its holdings held privately in the hands of a very few. This mainly is the reason for its high score in Earnings per Share.

Hayleys, not withstanding a negative growth in profits in the year 2005 - 2006, was able to secure tenth place in the rankings primarily due to its achievements in turnover and value addition. The Hayleys Group has been a strong and visible blue chip in the country that has provided good returns to its shareholders consistently. The company is seen to have strong ties to its culture rooted in tradition has been very selective and conservative in its choice of new businesses and this presumably has prevented the group from profiting from new and emerging industries.

The Business Today TOP 10 companies have been selected on the basis of their financial performance by Keith Bernard and Shiron Gooneratne with the expert advise and support of Business Today TOP 10 specialists and with the assistance of KPMG Ford, Rhodes, Thornton & Co.

Business Today thanks all those voluntary contributors of the Business Today TOP 10 resource team for making the Business Today TOP 10 a reality.