Despite fierce competition from China, Dipped Products Limited (DPL), the Hayleys and Richard Pieris associate, has succeeded in boosting group turnover 25% to Rs. 2.7 billion and improving after-tax profitability 9% to Rs. 244.6 million in the year ended March 31, 2003, the company’s annual report said.

DPL is the fifth largest glove manufacturer in the world servicing up to 5% of global demand through both developed and emerging markets with a growing network of 120 distributors in 44 countries. North America and Europe are their principal markets.

The company’s Managing Director, Mr. N. G. Wikckremeratne, has said that the main source of Chinese competitiveness comes from two sets of ‘incentives’ available to manufacturers in that country – both, "if true," prohibited by the WTO under the acquisition protocol agreed to by China in November 2001.

"We have wondered what strange and marvellous invention and skill the Chinese are able to conjure from their ancient and great past to defy all conventional economic responses to rising costs," Wickremeratne said.

"We understand that the main source of Chinese competitiveness comes from two sets of ‘incentives’ available to the manufacturers."

He explained that the first of these is a "so called 17% VAT rebate" available to specified manufactured exports including gloves.

"Since this is paid irrespective of whether VAT is paid and at a flat rate, it amounts to an export subsidy. Additionally because of the control of foreign exchange, exporters sell 70% of the export proceeds of their invoices at 10% or higher rates than the official rate of the banking system. This creates a two-tier exchange rate in favour of exports," he said.

Wickremeratne said that their findings have been reported to the Director of Commerce who has been requested to raise this issue formally with the Chinese authorities at the WTO.

"The activities of the Chinese manufacturers are merely depressing the export volumes and value of a fellow low-income country and making a gift to high-income markets," he noted.

"We cannot be certain these matters will be resolved soon at the WTO given Lanka’s limited bargaining power. It is likely to affect several other industrial exports from Sri Lanka."

However, he reported a plus side from the threat from China which DPL has seen as an opportunity to take out surplus costs from its system.

In addition to its core glove making business, DPL is also into plantations with a controlling interest of Kelani Valley Plantations Limited (KVPL) which has benefited substantially from sharply improved rubber prices.

Wickremeratne reported that KVPL, which is also a tea producer, is now "at an advanced stage of discussions" with a reputed tea shipper to form an alliance to add value to the tea they produce on their plantations through better marketing.

DPL Chairman Sunil Mendis said that a highlight of group performance was the resilience of its glove sector "in the face of continued severe competition from China."

He said that despite the acute competition, their manufacturing sector has retained its previous year’s profitability level with their new acquisition in Italy, ICO Guanti SpA generating profits that justified DPL’s first foreign acquisition. Wickremeratne said that their factories had the capacity to increase volumes 15% to 20% further. They were nearing completion of the development of a new range of coated knitted gloves designed to reduce stress and total loads applied to human tissue of working hands.

DPL has proposed a final dividend of 20% for the year under review on top of a 15% interim paid in March. The dividend remains tax-free in shareholders’ hands as it has been earned out of tax-exempt profits and dividends.

Hayleys is the leading shareholder of DPL with 34.9% of its equity on its own account and approximately 10% through other subsidiaries like Haycarb (8.05%) and others. Richard Pieris owns 29.7%.

The directors of the company are: Messrs. Sunil Mendis (chairman), N. G. Wickremaratne (MD), H. A. Pieris, P. I. Pieris (resigned w.e.f. Dec. 3, 2002), R. Yatawara, R. W. Soysa, J. A. G. Anandarajah, Dr. W. S. E. Fernando, G. K. Seneviratne and A. D. B. Talwatte (appointed on March 1, 2003)