Pelwatte Directors recommend Rs 300 m Rights Issue

Ravi LADDUWAHETTY

The Directors of Pelwatte Sugar Industries PLC have recommended to shareholders the raising of a Rs. 300 million Rights Issue to raise working capital for the company.

Two Directors of the company-Harry Jayawardena and LUD Fernando, in a circular to shareholders, have summoned an Extra Ordinary General Meeting of the shareholders to probe how the net assets of the company is less than half of the stated capital in the company's balance sheet as at March 31, 2011.

They have in their circular, pointed out that the company had recorded a loss of Rs. 628.2 million for the year ended March 31, 2011 was against the loss for the year ended March 31, 2010 was Rs. 442.2 million. Consequent to the losses of both years, the net asset position of the company has also declined to Rs. 262.2 million as at March 31, 2011 which was less than half the stated capital of the company as at March 31, 2011.

They have in their circular to shareholders, pointed out that the reasons for the losses was the high administration costs and the high production related overheads. The 2% gross profit margin recorded by the company was inadequate to cover the administration overheads of Rs. 522 million. The reduction of the gross profits was due to the increase in the purchase prices of cane and the less than proportionate increase in the sugar selling prices.

Reduction in the gross profit margin from 6.3% ( Rs. 123.4 million) in the last year to 2% ( Rs. 44.8 million) in the current year together with the increased administration costs from Rs. 391.1 million to Rs. 522 million resulted in the losses of the company, they have pointed out.

The increase in the administration costs have been attributed to staff costs, predominantly gratuity payments as a result of granting the agreed revisions of the salaries and wages in 2010 and 2011.

Pelwatte has also experienced a change in the management during the latter part of 2010/2011 with the purchase of 47% of the equity by Melstacorp Ltd and the reconstituted Board anticipates the restructuring of the company to ensure the profitability.

The Directors have also said that the new management and the Board also envisages high quality productivity of both the plantations and machinery.