Annual Report 2011/2012 - Colombo Stock Exchange

ANNUAL REPORT 2011 / 12
CHAIRMAN'S REVIEW FOR THE YEAR 2011/2012
It is with much pleasure that I welcome all of you to the 31st
Annual General Meeting of the Company. During the year
under review the Group made a net loss of Rs. 32.2 million
compared to a net loss of Rs. 23.3 million last year, whilst the
Company showed a net profit after tax of Rs. 5.5 million as
opposed to a net loss after tax last year of Rs. 8 million. The
Company’s main source of income is a management fee paid
to it by its wholly owned, BOI approved subsidiary, which owns
and operates the two new vessels, Mercs Uva and Mercs
Uhana. The shareholders will be aware that the main and
substantial source of income for the Group is the charter hire
derived by its subsidiary from its aforementioned two vessels,
which have been given out on time charter for operations in the
international trade.
I indicated in the Review last year that the shipping industry
worldwide was in a depressed state, consequent to worldwide
economic problems and that charter rates had to be reduced
last year owing to pressures in the market. Although in Euro
terms there was a reduction in Group Revenue consequent to
reduction in the charter rate, in Rupee terms Revenue has
increased from Rs. 599 million in the last financial year to Rs.
609.5 million in the year under review owing to the devaluation
of the Rupee. However, in Rupee terms expenditure has also
increased resulting in increased losses.
I regret to state that the position has become even worse
throughout the current year. As you would be aware many
European countries are in grave economic crisis and even
China and India, the major Asian economies, have shown a
significant reduction in their growth rates. The shipping
industry, being linked to the international economy, has had to
face even further depressed charter rates to carry the limited
cargo available. In fact as recently as March this year we were
compelled to accept a still further reduction in the charter rate
that was payable to us, as the charterer was facing huge losses
at the rates they were earlier paying to us and other ship
owners, whose vessels they were operating. The charterer, in
fact, offered to return the vessels to us if we could not accept
the reduced rate, but since inquiries by Reederei Eugen
Friederich (REF), our foreign partners, in the international
shipping market revealed that we could not obtain a higher
rate, it was decided that we should accept the reduced charter
rate as the best option.
The reduced charter hire earned by the Group is adequate to
meet operational expenses and maintain the vessels to their
customary high safety and technical standards, but will enable
us only to pay the interest payable on the loans granted by the
German lending Bank. The Bank has agreed in principle to a
further rescheduling of our loans, as the shipping industry is in
difficulties worldwide, and formal approval, specifying the
details, is expected in the near future. I must in this connection
place on record the Company’s deep appreciation of the
assistance rendered to us in our negotiations with the foreign
charterers and the German lending Bank by REF, and
especially by our Managing Director, Mr. T. Kriwat.
Your Company has been exploring opportunities in shipping or
shipping related activities in Sri Lanka and has now identified
an investment opportunity. International carriers transiting our
waters have required a change of crew and security personnel
in Galle which has resulted from the threat of pirate attacks on
those vessels when operating in the Gulf region and in the
Indian Ocean. This operation requires the use of crew transport
boats, and your Company, in collaboration with Hemas
Transportation Ltd. has formed a joint venture company on a
50% / 50% basis to own and operate these crew transport
boats, under the name and style of H & M Shipping Services
(Pvt) Ltd. The Board of Directors of your Company has after
evaluation decided to invest up to Rs. 30 million in this new
venture. The joint venture Company has ordered two boats
initially and operations are expected to commence in the near
future.
It must be mentioned however that crew transport vessels,
such as ours, are small boats, plying for short distances, from
shore to the big ships lying offshore and their earning too will
be correspondingly extremely low compared to international
charter rates for the larger vessels owned by the Company’s
subsidiary. It is expected however, that crew boat services will
be a growing area of business.
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