Directors reveal status quo, Alufab to convene EGM on 2 June

The Board of Directors of Alufab Plc at their latest meeting had resolved to convene an Extraordinary General Meeting on 2 June to inform shareholders of the company’s current state of health.

The company also last week issued a Report to the Shareholders under Section 220 of the Companies Act No. 07 of 2007 for discussion ahead of the EGM.

It said the Directors were aware that the net assets of the company had fallen below half of the stated capital of the company.

The company has incurred substantial losses in the recent past and the composition of such losses as disclosed in the interim accounts for the period ending 31 December 2010 is shown in Table 1.

Based on the data in Table 1, the net assets of the company as at 31 December 2010 stands at a negative Rs. 48,624,321, whilst the stated capital is Rs. 41,198,323.

As stated in the annual reports of the company for the years 2007/08, 2008/09 and 2009/10 it faced numerous hardships during the said periods.

The company invested in a subsidiary for the setting up of an advanced powder coating plant using advanced technology under the name of Eurocoat Limited.

This plant is the first and only plant to date in Sri Lanka that has third party certification of this plant meeting the quality compliance from the world’s leading powder coat polymer material Suppliers such as Akzo-Nobel, Dupont, HB Fuller, and Jotun, that the powder coating meets the various Internationally recognised powder coating standards, where they are willing to warrant the powder coating.

Unfortunately in view of the continuous challenges faced by the construction industry due to the war, and the non existence of any local standards for powder coating, the company failed to make any inroads into the market.

With both the Company and Eurocoat Limited adapting the strategy that it shall follow the path of providing good quality rather than cheaper products, both businesses suffered, due to loss of market share, underutilisation of its plant, while having to comply with the certifications, environmental compliance, etc.

Thus the company was not able to meet its financial obligations and was caught up in an interest spiral. Eventually the banks took legal action against the company and its subsidiary, which, being unable to defend the creditor’s action, allowed judgement to be passed in favour of the creditor banks and financial institutions.

The company has accumulated losses over several years, even prior to the enactment of the new Companies Act No. 7 of 2007.

The company faced severe hardships which were aggravated by the loss of two principal Directors who passed away. Thus the remaining Directors P. Johan Claesson and T. N. Dole had to face the multiple challenges of turning the company around.

During these difficult times the Directors financed the basic obligations of the business by providing several loans to meet the working capital requirements, as well as meet its statutory obligations, penalties etc. The Directors and major shareholders have provided substantial loans more than double the paid up capital in non-interest bearing loans over the past decade, to sustain the business.

In the light of the past default by the company in settling its lenders, and with corporate guarantees given to its subsidiary Eurocoat Limited being called in and not being honoured, the Directors have been reported to the Credit Information Bureau (CRIB).

As such the company has not been able to raise any debt from the lending institutions. Thus it will not even be able to raise any working capital. Hence the company will also be constrained from raising even the basic bonds and guarantees to secure the building contracts, unless there is 100% margin provided.

The Board of Directors comprising the major shareholders has continued to finance the business in the past and proposes to do so in the foreseeable future. Apart from retained earnings, the company will explore other means of raising some form of equity capital apart from converting the present debt into equity.

With the conclusion of the war and with the company being able to hold on to its reputation for quality products and its technical competence, it is now poised to take off with the increased opportunities it now has with the increase in the construction industry and tourism. With the economy expected to grow at over 8% per annum, and the infrastructure and construction sectors taking a lead role in driving the economy the company stands to gain.

It is the intent of the company to seek the necessary regulatory and corporate approvals to capitalise on its liabilities.

Further the company will pursue all avenues available at its disposal with the lower cost of capital, and favourable sentiments of the stock market to raise capital to meet its working capital needs, and settle off all its long outstanding creditors.

Such steps would reduce the debt service charges considerably which would lead to improved profitability. The improved financial standing of the company will help generate steady business.

The Directors will exercise their best endeavours to support the company till such time it can regularise its affairs.