manusath-derana

Rising price of raw material, 15% VAT on condominiums significantly challenged the industry says Sumal Perera

July, 23, 2019

Access engineering PLC will mainly focus on achieving their strategic goals, business continuity, and diversification to sustain growth momentum in order to be the leading construction company in the coming years.

“We can claim of being the most innovative construction company in the sector with a diversified customer proposition and portfolio. During the coming years, we will follow our strategic framework to become the leader in our sector,” Access Engineering PLC Chairman Sumal Perera told shareholders in the firm’s 2018/2019 annual report.

Speaking further Perera noted that mega infrastructure projects that have been commissioned to them in the state and private sectors will spur growth potential in their core business line of construction.

“Our real estate ventures will also contribute to the Company growth, while the completion of Access Tower I and II have added A grade office spaces. The automobile sector is showing encouraging signs of recovery. Thus, despite economic headwinds, we remain optimistic about the immediate future. Our confidence is derived from the strong foundations that are in place, clear strategic direction that steers the Company, and the value of resilience that is embedded in our organisational culture,” he added.

Meanwhile, he also emphasized upon the main challenges that impacted the industry during the reporting year.

“One of the main challenges the industry and our Company faced during the year was the lack of clear policy stability and slow approval processes which hindered growth.”

He also said "the rising price of raw material, and a curtailed spending and consumption patterns were other significant challenges that impacted the industry during the reporting year."

The firm was also hit by higher income tax at 28 percent and a 15 percent value added tax on condominiums.

“A clear strategic direction is essential to the long-term sustainability of our Company. Thus, our medium-term strategy focuses on improving our core business lines. However, in the long term, we recognise that diversification and synergy between different business lines will be key to take the next step in our corporate journey.” Perera said.

“The subdued macro-economic conditions impacted our flagship real estate ventures “Capital Heights”, Rajagiriya and the “Marina Square”, Colombo in terms of sales. Yet, substantial progress were made in the construction of both projects where the piling work was completed and excavation and shoring commenced in the Marina Square project and in Capital Heights, the major portion of its superstructure was completed within the year,” he added.

“The two projects will continue as planned with Capital Heights poised for completion in 2020 and Marina Square in 2023.”

 

 

The full statement conveyed by the chairman is given below.

 

We outperformed our expectations amidst a volatile environment recording the highest Company and Group turnover since incorporation, of LKR 19.4 Bn. and LKR 32.3 Bn. respectively with corresponding yearly growth rates of 8% and 24%.

Our outstanding financial performance has positioned us to confront the forthcoming demands in the construction sector to deliver value for all our stakeholders. During the year, tangible steps were taken to expand our core business lines and further develop our prospective and diversified business areas. This is evident from the fact that the biggest contributor to the growth experienced at Group level came from the automobile and the property arms. These ventures have widened our scope and cemented our position as a leading corporate entity in Sri Lanka.

Equipped with strong foundations, we envision creating value to the communities in which we operate and to the Nation at large, in the short, medium as well as long term. During the year, we completed infrastructure projects of national importance and continued large-scale projects both independently and in joint venture with international companies. As we look ahead, our focus is set on achieving our strategic goals, business continuity, and diversification to sustain our growth momentum.

A CHALLENGING CONTEXT

Sri Lanka experienced a challenging year where a slow growth momentum in economic activity prevailed for the most part of the year. According to the CBSL Annual Report 2018, Sri Lanka recorded a subdued growth of 3.2% in 2018, much below the growth forecasts by CBSL, ADB, and IMF.

Though measures were taken by the CBSL to relieve the pressure on the exchange rate, the Sri Lankan Rupee depreciated by 19% against the US Dollar in 2018. This had a negative impact on all the imported raw materials and USD priced condominium units. Further, the Company’s core construction business being taxed at 28% commencing 1 April 2018 will influence the sector as a whole.

Introduction of higher LC margin on motor car imports, cash margin requirement on selected consumer goods imports and lowering of the loan to value ratio on motor vehicle-related financing coupled with the steep depreciation of the rupee had a profound impact on the automobile sector. One of the main challenges the industry and our Company faced during the year was the lack of clear policy stability and slow approval processes which hindered growth.

Further, the shortage of skilled labour, ambiguities in regulatory provisions, like the 15% VAT introduction from April 2019 on condominium apartments, the rising price of raw material, and a curtailed spending and consumption patterns were other significant challenges that impacted the industry during the reporting year.

 

A COMMENDABLE PERFORMANCE

Our stellar performance in the year 2018/19, outlined in the joint statement of the Managing Director and the Chief Operating Officer, exemplifies our continuous leadership in the sector. Our core and subsidiary business lines have created a niche for themselves and continue to occupy market leadership positions in their respective sectors.

Over the recent history, we have consistently delivered value to our stakeholders embodying our principal ethos of value engineering in all our operations. Our diversified business portfolio that complements one another, the synergies derived from international partners, as well as our strong relationships with our principals and partners are some of our core strengths. The exceptional performance in 2018/19 is due to the leveraging of new technology in the industry, highly-skilled employees, high retention rate, best practices in management systems and processes, and the strong governance structures that are in place.

 

DIVERSIFICATION IS THE KEY

A clear strategic direction is essential to the long-term sustainability of our Company. Thus, our medium-term strategy focuses on improving our core business lines. However, in the long term, we recognise that diversification and synergy between different business lines will be key to take the next step in our corporate journey. The subdued macro-economic conditions impacted our flagship real estate ventures “Capital Heights”, Rajagiriya and the “Marina Square”, Colombo in terms of sales.

Yet, substantial progress were made in the construction of both projects where the piling work was completed and excavation and shoring commenced in the Marina Square project and in Capital Heights, the major portion of its superstructure was completed within the year. The two projects will continue as planned with Capital Heights poised for completion in 2020 and Marina Square in 2023.

 

OUTLOOK

We can claim of being the most innovative construction company in the sector with a diversified customer proposition and portfolio. During the coming years, we will follow our strategic framework to become the leader in our sector. The mega infrastructure projects that have been commissioned to us in the state and private sectors will spur growth potential in our core business line of construction. Our real estate ventures will also contribute to the Company growth, while the completion of Access Tower I and II have added A grade office spaces. The automobile sector is showing encouraging signs of recovery.

Thus, despite economic headwinds, we remain optimistic about the immediate future. Our confidence is derived from the strong foundations that are in place, clear strategic direction that steers the Company, and the value of resilience that is embedded in our organisational culture.

 

ACKNOWLEDGEMENTS

In conclusion, I wish to thank our highly-skilled team of professionals who form the lifeblood of this Company and who drive us towards innovative solutions. 

Further, my colleagues on the Board of Directors for their exemplary governance, guidance, and support. The Corporate Management Team led by the MD and the COO, deserves my gratitude for steering the Company towards success. Finally, I wish to thank our customers, business partners, investors and shareholders for their continued trust and loyalty in Access Engineering PLC.

  • Sumal Perera - Chairman