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Sri Lanka Equity Forum » Stock Market Talk » “Top Brands, Shopping Malls Prerequisite For Economic Success”

“Top Brands, Shopping Malls Prerequisite For Economic Success”

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Sstar

Sstar
Vice President - Equity Analytics
Vice President - Equity Analytics
“Top Brands, Shopping Malls Prerequisite For Economic Success”

As Sri Lanka traverses ahead literally “full steam” on the economic front, Faraz Shauketaly spoke to the Chief Executive of one of the nation’s most successful conglomerates, Ashok Pathirage, the founder of the Softlogic Group. Heavily diversified and having established for himself the position of ‘retailer of choice’ Ashok Pathirage took time off to share with us his vision for success and Sri Lanka.

Q: You have certainly come a long way since you first ventured out. How many different sectors is your Group in now and how many companies do you have?

A: We are now an LKR 30bn conglomerate carrying out business operations in six sectors – Healthcare, ICT, Retail, Leisure, Automobiles and Finance. We have 34 companies incorporated and in operations for this purpose. We made a bold decision 23 years ago to start as an IT Company with less than six months capital in hand. In life you just got to take that small step forward—and, if you have common sense and strong commercial orientation—then things would fall into place in the most unexpected way. As an entrepreneur you need to be single-minded about putting your energy into creating business value.

Q: Which of these companies would you say is the flagship?
A: We have no flagship company in particular since we have six sectors and all businesses have different comparative advantages. Some companies we will position strategically, grow the business, and moved forward with them while there are others, which we may shrink or even exit if they are not sustainable in the long run.

Q: Which of these many different companies would you identify as having the greatest potential for rapid growth, say over the next three years?
A: Healthcare, Finance and Retail sectors have scope to become significant businesses. We are prudently managing our financial sector, and we are fully regulatory compliant. We are employing some of the best industry practices and we are continually building a talent pool. Markets are volatile, but if we keep to the simple rule of doing the “right” thing we could face up to those growth challenges with relative ease. In the Retail sphere, if we continue to expand our global branded apparel and accessories portfolio, we could gain considerably when we attract the brand-conscious locals who travel overseas for shopping. Also when the tourism sector begins to expand rapidly, we could attract them to spend more on our branded items of both electronics and apparels.
The Leisure Sector too will unlock its full potential during this period and there is a good story behind it.

Q: What is your corporate plan for the next 10 years?
A: We do not have a 10-year corporate plan. In a fast moving economy, markets change overnight, technological and fashion trends are here today and gone tomorrow. We need to be focused for the next 3 – 5 years with a long-term view however in mind. Along with this, we have quarterly rolling forecasts to see whether we are on track with the annual budgetary plan. We run our businesses like any other good corporate entity. We make changes to our corporate plan should the internal or external environment necessitate such a change at any time. Being fluid in our plans has other advantages; we seize opportunities as and when we identify and evaluate them; such decisions are subject to earning the highest return on capital over a period of time and are based on sustainable long term growth potentials. Sometimes going by gut feelings is more important than sophisticated modeling and critical analysis. But there has to be that right balance in any approach.

Q: You are probably best known as the retailer of choice with several global brands under your belt. Quite how many brands do you have?
A: In Retail, we have 28 brands of which six are on exclusive terms such Nokia, Panasonic, Kelvinator, Media, Xerox, Russell Hobbs and Candy. In branded apparel, footwear and accessories, we hold 21 exclusive brands. In Automobile, we drive 3 brands. In Leisure and Travels, we have Centara, Movenpick, and Abacus; and, in Restaurants, we have Burger King.

Q: How has the growth been since 2009?
A: Softlogic Holdings PLC registered a 4-year CAGR of 45.7% in Group Revenue and 29% in PAT in FY13. Growth story was primarily led by acquisitions and expansions.

Q: How best can the government help in terms of growing your companies? What is the import duty regime doing to the products your group markets?
A: We are the third largest importer and distributor of branded consumer electronics and durable goods. We are also the franchisee of top international apparel, footwear and fashion accessory brands in Sri Lanka. The Government has supported this sector but, there is still more to be done in this area. For Branded clothing, wealthy Sri Lankans travel overseas and spend substantial amounts of money annually on such items. We pay more than 35 percent of the cost-price as duties. On top of cost-price and duties, we also have to maintain healthy gross profit margins to cover operational and fixed costs. When all these add up branded items in SL face stiff competition from other destinations such as Thailand, Singapore, Dubai, Malaysia, Indonesia, and Hong Kong.
If our prices become as competitive as other international shopping destinations, it would be another reason for tourists in SL to spend more money besides the country saving on valuable foreign exchange. With the increase in profits we would pay enhanced taxes to the government. We would also increase our revenues through greater network expansion and build a stronger chain of distributing networks across the country.
This will ensure greater employment opportunities, and secure better terms with the counter parties which we could pass on to consumers.A bright city filled up with top-brands and elegant shopping malls is a prerequisite for economic success.

Q: How would you compare the price of a branded item available in India with Sri Lankan item?
A: We are about 10% – 15% more expensive than India. India also manufactures and sells some of these global brands and its duty regime is less than ours. As opined before, we require a duty regime that induces brand growth, so that through economies of scale, the country can thereby gain.

Q: How does your Group fare as a whole when considering the foreign exchange rates? Would you call for a “free float” of the FOREX rates or would you encourage government intervention to maintain the rates or even lower the rate?
A: Ideally, from an importer’s perspective, a strong Rupee is a positive action whereas to an exporter, or service provider, it’s a negative one. We are more an import-oriented group but with our Leisure sector coming into swing this year we require a stable Rupee to forecast and avoid unnecessary price instabilities.
SL does not have a strong export base, so our ER depends on other factors such as worker repatriation, borrowing from foreign governments and multilateral agencies and attracting FDI to bridge the BOP. At this time, we need a controlled free-float which takes into account the greater interests of country rather than having to rely on capricious market forces.

Q: What would your take be on the chances of Sri Lanka establishing itself as a ‘shopping destination’ for holidaymakers?
A: To complement the extraordinary features, which our country proudly possesses, and to attract tourism, creating a world-class shopping destination is a prerequisite to ensure a robust tourist industry. We need that extra dimension other than good hotels and beaches to get tourist to spend their money. Shopping and restaurants would make the city glow. That’s precisely why we have taken up the mantel to secure these global franchises and brands at this point in time.

Q: How important is it for Sri Lanka to get developed to more than a sun and sand destination for tourism?
A: The country’s 5+1 hub strategy with development of the sea, airports and highways is essential for economic progress. We are geographically well positioned to become one of the best service hubs in the region. The Sri Lanka is one of the countries where the most intelligent people live in the world.
We must expand our export base and focus more on driving the economy with “technology” for which investments in scientific innovations must be allocated. If we upgrade our technological base, we could also enjoy those benefits stemming from intellectual property rights later. Asiri Hospital Group is currently eyeing Medical Tourism as the next potential market to yield returns. Sri Lanka is one of the cheapest medical destinations while being technologically on par with other Middle Eastern and Asian countries, so, there’s immense potential in this area for growth.

Q: There is talk in the market that you represent a major British retailer, and that you hope for them to enter the Sri Lanka market? Can you disclose who this is and when they may open in Sri Lanka?
A: Yes, Debenhams. We have signed up with them and we will start operations at the right time.

Q: What is the progress you are making on the Movenpick hotel in Colombo?
A: We have almost completed the Centara Ceysands Spa and Resort Hotel in Bentota, and it will open to the public by end May 2014. We have now reached level 10 in construction of Movenpick and hope to ‘top-out’ 26 levels by end September 2014 and have the hotel ready by end 2015.

Q: Do you have any immediate plans to enter regional/neighbouring markets?
A: We have an IT company in Australia and had one in Pakistan. The economic climate is more fertile here after the three decade long civil-strife had ended 5 years ago. We believe the investment opportunities in SL will be strong for the next 5 years, and the time is ripe for entrepreneurs to make bold investment decisions now. Also, the country must come first. Once these local opportunities are exhausted locally, we would look to other offshore markets for investment opportunities.

Q: What plans do you have on growing your holdings in Hospitals? Will we see more hospitals across the country or will you concentrate on Colombo?
A: We have now actively taken forward the 150-bed Asiri Kandy hospital project with construction set to begin in May 2014. The project has been budgeted at LKR 2.5Bn. Asiri’s Satellite labs have been on an active mode across Sri Lanka. Asiri is the first major private hospital chain which has initiated the roll-out beyond the Colombo-city-limits.

Q: We notice you have delisted the Hospital operation? What is your rationale behind this?
A: Asiri Central (formerly Asha Central) will be delisted. The hospital has not been operative since 2010 and the building has been leased to the SL Army as it temporary hospital site. We also own 99.1% of this company and by virtue of it being a public company we are required to maintain a free float of 20%. The delisting is therefore justifiable.

Q: Do you have any plans to list these companies later or perhaps seek a listing overseas?
A: We may list companies going forward when our plans materialise.

Q: What is your style of management? Are you more ‘hands on’ or are you one for ‘management by delegation’?
A: At this point in time there is an autocratic structure in place. We are recruiting professionals and experienced people to run our various businesses. The more involved they become in the business, the existing structure will fade away. I work 24 hours a day to get insights on how to move forward. It’s important to be passionate about your work. It gives you a good purpose in life. This is not a one-man-show and we all work as a team and each one, I must say, contributes to the whole.

Q: Typically how many hours do you put in at work?
A: I never cease to work; my work is my business and it’s my mission in life.

Q: What percentage of success do you attribute to ‘good luck’ as opposed to ‘hard work’? What would you say is the key to success?
A: Hard work is good luck! Success is a metal game. You need to be disciplined and bold; success or failure must be taken with humility and equanimity.

Q: Do you have an inspirational mentor?
A: I take inspiration from the fact that we started with humble beginnings and rejoice at today’s accomplishments. I have no mentor, but I am guided by the law of cause and effect. What you sow you shall reap! It’s a karmic principle at work here.

Q: Where do you see your Group in 5 years time?
A: Softlogic will become a household name. Then all other good things will follow such as innovation, life-style changes and as the saying goes, health is wealth! To get things right, we must think right and act fairly and all stakeholders must win. We cannot win if the other party loses – that’s unsustainable in long run.
We are here for the long term and committed to our shareholders, partners, employees and customer base in as much as we are contributing to the overall economy and paying duties and taxes transparently. We will always have big plans to take this company to the next level.

Q: Can you share with us what makes you “tick” – perhaps as an inspirational message to youth entering the field of commerce?
A: I think big and envisage that all these things we are involved in shall come to pass. It’s a mental game.
Everything is energy and you must put that to good use. Determination to succeed should be a core-value and getting things done the right way, will give the right result. Obstacles will always be on the path to success but never fear them.
They are there to make you stronger and people will weigh you down with negative thoughts. Heed their advice but do what is right. Be led by your instincts and never be put down. We know that we are right if the group and country gains by the decision we make today. A right decision will make money and a wrong one will not, but you can learn from your mistakes and move forward again.

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