Financial Times - Ceylon Glass Company expanding to designer bottle market

Ceylon Glass Company expanding to designer bottle market

By Dilshani Samaraweera

The Ceylon Glass Company has begun a $20 million expansion drive to increase its global presence. Sri Lanka’s one and only manufacturer of glass bottles signed an agreement with the Board of Investment (BOI) last week to relocate to a new plant in Horana. The move will allow the glass bottle maker to double production, increase its export volumes and also enter the high-end designer market for wine containers.

“Initially 15–20 percent of production will be exported. Today exports are only about 5 percent. With the new facility we will focus on boutique wine bottles,” Vijay Shah, Managing Director of Gujarat Glass told journalists after the inking of agreements. Gujarat Glass currently owns 54 percent of the Ceylon Glass Company with the balance shares publicly owned. Construction on the new facility in Horana is expected to begin at once and the new plant is expected to be operational within one year.

The $20 million syndicated funding injection organised by the DFCC Bank will allow Ceylon Glass to increase production and upgrade its technology. The local bottle maker manufactures around 150–200 million glass bottles per year at the moment in different shapes and sizes. The new plant in Horana will increase production to over 300 million bottles.

The increased capacity will also allow the company to increase its production of specialised items, like higher priced coloured glass bottles. At the moment Ceylon Glass is the only glass manufacturer in Asia to have a colouring forehearth.

This means the Sri Lankan based bottle maker has an advantage over many others in Asia in being able to offer a wider range of choices to customers. The company is planning to use its more sophisticated colouring facilities to get a foothold in the global coloured wine bottle market and high end niche markets. “We are the only company in Asia that can do different shades of colour because we are the only glass manufacturer in Asia to have a colouring forehearth. With the new facility having more flexibility, we will target the niche, boutique wine bottle segment,” said Sanjay Tiwari, CEO of Ceylon Glass.

Boutique wine bottles are high value containers for the more expensive brands of wines and are designed for the exclusive use of these individual brands. At the moment a French company controls this entire market as a single supplier. Ceylon Glass’s entry into the field will make it the second global supplier for this exclusive segment of glass bottles.

The company is also hoping to increase its presence in the much larger market for standard wine bottles. The total world demand for wine bottles is around 120 billion bottles per year. The biggest suppliers are mainly European based companies but with its expansion plans Ceylon Glass says it can carve out a tiny slice of this market. “The world wine bottle market is huge. We will target only a very small share of it,” said Tiwari.

The company has already used its very limited existing export capacity to work out entry strategies into the international wine bottle market.

“Even now we export some coloured wine bottles and blue liquor bottles but production capacity is inadequate at present. But we have already explored export avenues to India, Bangladesh, Mauritius and Australia.

Australia alone is a market for 12 billion bottles per year and is 10 percent of the world market,” said Tiwari.

Ceylon Glass says it has many other items in its product portfolio that would help position it as a quality glass manufacturer for the world, from its current status of being the only glass bottle supplier for Sri Lanka.

“We will focus on expanding our presence in markets in Europe and the Asia Pacific region. We are already manufacturing a range of bottles for export. The new facility will ensure flexibility to meet varied customer requirements with reduced lead time and wider range and colour of bottles. We will expand exports to 15–20 percent of production in two years from the current 5 percent,” said Tiwari.

Tax holiday reward

Ceylon Glass is utilising the latest government incentives to leverage its expansion plans. The company is using the government’s 300 factories programme to relocate to larger premises in Horana, from its current location in Ratmalana.

The 300 factories programme gives incentives to companies that either relocate, or set up new production facilities, outside the districts of Colombo and Gampaha. In the case of the glass bottle maker the BOI has already found a 26 acre land for the company outside its export processing zone in Hoarana. “The Ceylon Glass Company is one of the major companies listed in the Colombo Stock Exchange that is making use of the Nipayum Sri Lanka, 300 Enterprises Programme. They are getting a five year tax holiday under the scheme. So this is the message we are giving to companies in Colombo and Gampaha. By relocating they are freeing up very valuable land in these areas for other development work,” said Prof Lakshman Watawala, Chairman, BOI.

Ceylon Glass reported a turnover of over Rs 1.5 billion in 2005 with growth of 22 percent compared to 2004. The company that was set up originally as a fully government owned manufacturing facility in Naththandiya, close to the silica deposits, went into private hands in 1955. The company went public in 1995 and India’s Gujarat Glass group, currently having turnover of $200 million, acquired majority control in 1999. The company has declared dividends continually since the formation of the Indian partnership and says it has sunk over Rs 600 million in upgrading production facilities and technology since 1999. The company directly employs around 300 people at the moment.

“We are the most environmentally friendly company in the packaging industry because we recycle and reuse our bottles. We also provide large numbers of indirect employment through recycling because it employs people to collect and return used glass bottles. We spend over Rs 50 million per year in paying these people that collect used glass bottles and return them to the factory for recycling,” said Sanjay Tiwari.

Ceylon Glass not transparent

Some minor shareholders of the Ceylon Glass Company were not very happy with its annual general meeting (AGM) held last Tuesday, saying that it was not transparent.

“There was no transparency at the AGM,” a minor shareholder told The Sunday Times FT, adding that the annual report was not up to standard. “The shareholders needed clarification about the audit reports, but none of the representatives from the company’s auditors was present,” he said. Sanjay Tiwari, Director Operations at Ceylon Glass told The Sunday Times FT that the company’s auditors, Ernst and Young came late.

However he said that all the queries by the shareholders were answered. “There are a set of ‘standard shareholders’ who are in the habit of raising queries at many AGMs. They had questions that were not mandatory,” he said.

He said that there were questions such as why the company has not disclosed a bonus issue and also about a share split. “These happened during 2004-05 and not during the year under review, which is 2005-06,” he said.

Shareholders said the corporate governance information was not disclosed in the report and when the shareholders commented on it, the chairman had said that it was not necessary. “These questions, along with most others were not mandatory and not logical,” Tiwari said in response.

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