Brown & Company PLC with a heritage of over 100 years has grown group turnover in the year ended March 31, 2012 to Rs. 14.4 billion from the previous year’s Rs.12.1 billion but seen attributable profit down to Rs.1.17 billion from the Rs.2.19 billion the previous year.
The group which has borrowed substantially for new investment is now going into health care and leisure, its annual report revealed.
Brown’s Chairperson Rohini Nanayakkara said that the group, a diversified conglomerate managing what it calls "a fast-growing and valuable portfolio of brands across several industry sectors in which we hold top market positions," had always been customer responsive.
"Nearly all of (our) business divisions are now positioned as being a provider of services rather than simply a supplier of products," she said.
Brown’s had also taken advantage of the close relationships with their partners such as the LOLC group and had set up an industrial park that will eventually house all assembly and warehouse operations, serving as a central manufacturing and logistics hub for the group.
They had also ventured into new areas of business – healthcare and leisure - investing in building a secondary care general hospital in Kandy with plans to expand to other under-served areas that show demand for quality private healthcare.
"Through the company’s investment vehicle, Browns Investments PLC and its partners, the group has made strategic investments in several hotel properties," she said.
These hotels will become operational over the next few years capitalizing on the booming tourism industry that will see increasing demand for hotels and related services, Nanayakkara said.
"Both of these new business lines are expected to contribute significantly to the company’s bottom line in the years ahead," she said.
The group balance sheet shows that interest bearing borrowings have more than doubled to Rs.2.26 billion from Rs.1.05 billion the previous year with total group assets running at Rs.32.95 billion and total liabilities at Rs.9.46 billion.
During the year under review the company’s profit attributable to shareholders was down to Rs.406.5 million from Rs.507 million the previous year with group earnings per share at Rs.16.61, down from Rs.30.87 the previous year and company earnings per share down to Rs.5.74 from the previous year’s Rs.7.15.
Brown’s group Managing Director/CEO Murali Prakash said that the best performing sectors were agriculture, general trading, consumer, retail, plantations support services and power systems – all of which grew 40% year-on-year.
He said that while gross profit at company level was up 33%, group profit grew only 6% primarily due to the 73% drop in gross profits at Browns Investments due to disposal of investments the previous year.
Prakash reported that interest expenses had increased by 50% and 57% at company and group levels respectively due to increased interest rates and increased borrowings to fund new investments.
There was a steep increase in ‘other expenses’ at group level due to investment share portfolios being adjusted on a mark to market basis and losses arising out of this.
"While overall growth has been positive, there was continued erosion of investments both at the level of the parent company as well as subsidiaries. This was brought about by mark to market losses, largely due to external factors such as the dismal performance of the Colombo Stock Exchange," he said.
However, he expressed the view that this impact would be temporary and was confident of the value of these investments in the medium to long term.
The Brown’s share price closed at Rs.155.10 at the end of the financial year against Rs.289.80 the previous year with net assets per share at Rs.202.41.
"We believe that the stock market was overheated during the year due to speculative buying and required a correction," Prakash said.
The year under review had seen Browns Investments, a subsidiary company, raising Rs.4.4 billion through a private placement and an Initial Public Offering with part of these funds used to settle interest bearing loans and the rest to make strategic investments such as in Agstar Fertilisers PLC and in the construction of hotel properties.
The issue price of the share was Rs.5 per share but market price remained low throughout the year with net assets per share remaining at Rs.5.85.
Browns had continued to dominate the market in several business segments holding either first or second place by market share. These included batteries (72% market share), power tools (37%), generators (30%), franking machines (90%), four-wheel tractors (60%), two-wheel tractors (33%), radiators (42%), marine engines (32%), pet food (29%), veterinary pharmaceutical (40^), plantation machinery (50%), grinding wheels (54%) and office automation (24%).
"The favourable growth of sectors such as agriculture, industry and services augured well for the growth of the business, specifically agricultural machinery, power tools, plantation support services and retail sales," Prakash said.
"New agricultural lands in the North and East being brought under cultivation as well as expansion of the fisheries sector due to removal of fishing restrictions after the war, had a significant positive impact on sales and returns of the agricultural and marine business divisions of Browns."
They had bought land in Kandy for a secondary care general hospital which will be the first of a chain of hospitals and diagnostic centres around the island they plan to set up.
Other key investments made during the year through Browns Investments included the acquisition of Excel Global Holdings (Pvt) Limited and Ajax Engineering (Pvt) Limited and the construction of several new hotel projects.
"All of these new investments have been in emerging or sunshine industries that are poised to grow over the next few years," Prakash said.
He said that in terms of new business areas, they will focus on expanding presence in healthcare, leisure and real estate. In real estate they would leverage on the existing assets of a relatively large land bank in prime locations in the city and the suburbs.
Development plans being considered for these locations range from entertainment complexes to mixed development and housing projects. An improved business climate, political stability and increased per capita income, makes real estate a sector to watch for," he said.
The major shareholders of Browns are: Engineering Services (Pvt) Ltd (23.41%, Masons Mixture Ltd (19.38%), EPF (9.07%), LOLC (4.77%) and Muthugala estates (Pvt) Ltd (4.211%). The EPF, SLIC, NSB, ETF and BOC are also among the 20 largest shareholders.
The directors of the company are: Mrs. R.L. Nanayakkara (Chairperson), Messrs. A.L. Devasurendra (Deputy Chairman), N.M. Prakash (Group MD/CEO), S.V. Somasunderam, I.C. Nanayakkara, H.P.J. de Silva, R.N. Asirwatham (Resigned 10.05.2912), W.D.K. Jayawardena (w.e.f. 24.07.2012) and Mrs. K.U. Amarasinghe (w.e.f. 24.07.2012).