Diversifying in new directions – hospitality plantations, broking and health care

(Excerpted from the Merrill J Fernando autobiography)

Sometime in 2003, together with Dilhan and his family, I holidayed in Bali. Indonesia, at Bali Villas, an exclusive hospitality complex. We rented two units which came with a highly-personalized service, including maids and a chef for each villa. We also had our own swimming pools and a common spa facility. Outside the complex there were cafes, restaurants, and little eating houses, offering dazzling arrays of food, which made eating out a daily adventure.

On the morning of the second day, a very tall gentleman walked in to my villa and introduced himself: “Good morning, Mr. Dilmah, I am an Aussie and the owner of this hotel.” Over a cup of tea, he told me his story. He had first visited Sri Lanka looking for both a location and a partner to launch this special hospitality concept he had in mind. Whilst he had been happy with the opportunities, he had not been able to find a suitable partner, nor had he been very comfortable with the political climate. Abandoning Sri Lanka for those reasons, eventually be had located this special project in Bali.

After an interesting conversation with me, he called his CEO, Chris Green, an Englishman, and told him to give us anything we wanted and Chris offered us a 60% discount on all the spa treatments. In the course of our friendly discussion with Chris which followed, I told him that I was interested in setting up a similar project in Sri Lanka and asked for his advice.

One week later Chris was in Sri Lanka and Malik was taking him around, visiting potential locations in the plantation regions. The tourist industry has always attracted me, in view of the tremendous potential that Sri Lanka possesses and the fact that it is an industry that Sri Lanka can own totally. The raw material is the composites of our unparalleled natural beauty, the easily accessible game parks, the cultural and historical heritage seen in our many ancient cities like Polonnaruwa, Anuradhapura, and Sigiriya, and the natural friendliness and spontaneous, welcoming hospitality of our people. These charming inborn attributes cannot be supplanted by imports!

Ceylon Tea Trails

Our upcountry plantation areas are amongst the most scenic in the country, with the emerald green cover of tea carpeting an undulating landscape, broken up by spectacular rock escarpments and mountains blanketed by montane forest, heavily-wooded ravines in the valleys, and the whole crisscrossed by tumbling streams and cascading waterfalls.

There are also the historic plantation bungalows, rambling and comfortable, often somewhat neglected but set in large gardens and, invariably, panoramically sited. The British who first built them had, collectively, an unerring instinct for commanding locations, obviously conditioned by the ‘monarch of all I survey’ worldview of the Western coloniser.

The Cape — A peerless location View from the pool — all the way to the South Pole Tranquility at dusk Old fashioned comfort in a modern setting

Following the preliminary tour with Chris, Malik engaged Miguel, a young Spaniard, who toured the plantation regions on a motorcycle and identified four bungalows with the best combination of scenery, attractive bungalow configuration, and accessibility: the Tientsin, Norwood, Summerville, and Castlereagh bungalows, all located in close proximity to each other in the Bogawanthalawa-Norwood area, were finally selected for the project.

The proximity of the picturesque Castlereagh Reservoir, nestled in the basin created by the surrounding tea-covered hills, was one of the key selling points. Later, Dunkeld bungalow, sited on the Western banks of the reservoir and located on our own estate, was restored and added to the list, when the demand for accommodation rapidly overtook capacity.

A South African interior designer was selected to reconfigure and refurbish all the bungalows. This was a delicately-managed operation, as the prime consideration was to maintain the original, old world charm of the bungalows, whilst unobtrusively introducing all the modern amenities and conveniences expected by a discerning clientele, accustomed to and prepared to pay for luxurious but unique hostelry in exclusive locations. The new had to merge seamlessly with the old, as if the offering in its entirety had been there always, handed down intact across generations by the original British owners.

The features of comfort and attraction needed to be tangible, quantifiable, and visible, while the designer’s hand remained invisible. There were no invoices submitted to the guest on departure. The customer was made to feel that he/she was holidaying in the home of a wealthy, generous, and caring friend. It was a personalized service where guests discussed dining choices for each meal with an own chef, whilst the in-house butlers’ service was at hand, at any time of the day or night, to attend to every guest need or fancy. What was on offer was a fully-inclusive concept, which anticipated and provided everything that the guest needed and desired.

Thus, with the opening of the first bungalow, Castlereagh, in June 2005, ‘Ceylon Tea Trails’ was born and, simultaneously, Malik came in to his own as an entrepreneur. Tea Trails projected the now somewhat-hackneyed boutique hotel concept into a new dimension, previously unknown to Sri Lanka. The bungalows were between two to 15 kilometres apart and guests could walk or cycle between them, and be served meals in any one of them, as if they had visited the house of a close friend. Each bungalow had four to five bedrooms and suites and a total of 27 rooms, in locations in the tea-covered hills encircling the Castlereagh Reservoir.

Many of the vegetables, herbs, and spices featured in the wide-ranging and exquisite cuisine on offer at the bungalows are grown organically in the bungalow gardens themselves. The preparation is personally handled by experienced chefs with international training.

Tea Trails soon became a high-demand holiday destination, fully booked most of the time and I frequently had great difficulty in securing a room when I wanted one. Most bookings were repeats and made a year ahead! Finally, Malik developed a nice little cottage on Dunkeld, designated as the ‘Owner’s Cottage,’ for my personal use, supposedly at my will and pleasure.

Once it was done I asked him to hand the keys over to me, but I was not very surprised when Malik apologetically responded that I would have to be little patient as it had been booked till the end of August that year! Though it has been over two years since it was completed, I have been able to occupy it with friends only once.

On account of its exclusivity, exceptional quality of service and cuisine, and guests’ recommendations, Tea Trails was invited to join the prestigious Paris-based Relais & Chateaux Association, known for its uncompromisingly rigid admission standards. Since the 65 years of its founding in France, it has permitted only 580 landmark hotels and restaurants worldwide to enter its elite membership.

Since then the two other resorts in our group which followed, Tea Trails, Cape Weligama in Weligama and Wild Coast Tented Lodge, deeper south in Yala, have been admitted to Relais & Chateaux to date the only three members in Sri Lanka.

Cape Weligama

A few years ago, Malik persuaded me to buy a beautiful hilltop property near the beach in Weligama, overlooking the Indian Ocean east of Galle. My original intention was to resell it to a hotel developer, but Malik had other ideas and convinced me that the location was ideal for an exclusive, boutique-type hotel. He hired a well-known architect, Lek Bunnag from Thailand, who produced an exceptional design.

Along with Malik I visited Bangkok to review the plans and was very impressed by them. The construction then commenced and on completion, much to my serious displeasure, the final cost had far exceeded the initial budget.

Malik’s explanation was that this was the first hotel we built from ground-up and that it was also a learning experience for us! Further, in the process of construction, many new features had to be introduced to complement the degree of exclusivity and uniqueness that we were striving for. It opened in 2014 with 39 suites and villas, the latter starting at around 130 square metres in extent.

Wild Coast Lodge

With two exclusive and successful tourist destinations in our portfolio, and a little more experience in the hospitality trade under our belts, we decided to expand further in that direction and commenced work on a seven-acre, heavily-wooded site, near the Yala National Park. The land, between the beach and the jungle and comprising a contiguous segment of the real jungle, lent itself ideally to the concept we had in mind for a tented, but luxurious resort.

It is an arresting fusion of two extremes, the wildness and the potential danger of the proximal animal inhabited scrub forest, as a counterpoint to the understated indulgence of every modern comfort and convenience within. The bamboo and tented resort blended seamlessly with the surrounding forest and opened for business in 2017. It has since has won several global awards, including a UNESCO award for uniqueness of design.

Resplendent Ceylon

With these three destinations, Malik has very successfully captured the contrasting aspects of the beauty of different parts of our country, and the scenic diversity it has to offer the traveler. “Resplendent Ceylon,” as he calls this varied collection the gentle, quaint charm of our verdant plantation country, with its cool climate and orderly tea cultivation, the warm, balmy beach land of the south, and the harsh, arid beauty of the south east epitomizes the multi-faceted, natural splendour of our country. The only commonality between these destinations, with such contrasting features of attractiveness, is the matchless service they offer. Given these attributes, it is fair to say that Resplendent Ceylon is the pioneering small luxury hotel brand in Sri Lanka.

Acquisition of Forbes and Walker and Kahawatte Plantations

Elsewhere in this writing I have several times referred to my resolve to eventually become independent of external assistance for critical aspects of my business operation. In this age of enterprise complexity, admittedly, it is difficult for any operation, however efficient it may be, to be totally self-sufficient. Independent providers of ancillary services and products do play an important part in any large business operation. Generally, obtaining the services of independent contractors to complement the less-crucial aspects of your operation makes sound commercial sense.

However, in regard to my tea export business, the mainstay of my group enterprise, I was determined that I would become totally self-reliant, with direct ownership and control of the value chain, ‘from-bush-to-cup’ as it were. It was that intent which earlier led to my investing in Printcare. I did not put a label on my purpose, but business management experts identify it as the principle of ‘vertical integration’.

I decided that the first step in the above direction would be to acquire control of a tea broking company. Broking has been an important corollary activity of the plantation industry, growing from a purely marketing service in its infancy in the last quarter of the 19th century, to its present multi-faceted role as provider of warehousing, finance, technical advisory, and other related services.

Sometime in early 2000 I became aware that the owners of Forbes Ceylon Limited (FCL), VANIK Incorporated a now largely-inactive private investment bank were seriously considering the sale of Forbes & Walker (F&W), including its produce broking arm, Forbes Tea Brokers, a very reliable and well-established broking firm with a long history. As a tea buyer and exporter for over five decades up to that time, I was very familiar with the company and, over the years, had got to know all its key personnel from the early 1950s onwards.

However, one condition attached by VANIK to the sale of Forbes was that Forbes Plantations, through which it owned Kahawatte Plantations Plc, a Regional Plantation Company, should also be disposed of at the same time. The intention of VANIK was to exit from the tea industry altogether. The purchase of Kahawatte Plantations, then owned by FCL, had to be part of the transaction. One could not happen without the other.

Whilst I was discussing the possible sale of Forbes Brokers with VANIK, the latter were in negotiation with another party, Central Highfields Ceylon (Pvt) Ltd. (CHFC) incorporated in the UK, with its Sri Lankan interests represented by Nimal Silva, a former planter, for the sale of Kahawatte Plantations. An agreement had been signed between VANIK, CHFC, and FCL, with CHFC paying an advance of Rs. 100 million against an agreed price of Rs. 200 million, for the purchase of a majority shareholding of Kahawatte, through Forbes Plantations.

Since CHFC was unable to deliver the balance Rs. 100 million on the due date, it agreed to VANIK borrowing the sum from my company. I agreed to the proposal, because I wanted to assist CHFC in its purchase of Kahawatte, thus ensuring that I would be able to purchase Forbes Brokers, thereby meeting VANIK’s condition of an exit from the tea industry altogether. As security against the loan, VANIK furnished my company with a primary mortgage over the Kahawatte shares held by Forbes Plantations.

Luxury inside a tent The forest outside and the indulgence within — a matchless union. Unique design

It had not been my original intention to buy the plantation company as, at that time, my company already had sizeable holdings in both Elpitiya and Talawakelle Plantations. Therefore, a produce broking company was the only missing link in the vertical integration value chain.

I gave CHFC more than one extension on the deadline for the settlement of the advance. In fact, even after I had served VANIK with notice to transfer the Kahawatte shareholding in lieu of settlement of the loan. I gave additional time to CHFC to settle the issue. However, it was unable to secure funding and by end of 2000, both Forbes & Walker and Kahawatte Plantations had become part of the MJF Group of Companies.

The main reason for my decision to exercise my right to the Kahawatte shareholding, was that the uncertainty surrounding the ownership transfer was soon reflected in management inadequacies,which were visibly affecting the company’s performance. Further delays in the finalization of the transaction would only have accelerated its decline.

When I acquired Kahawatte, it was in dire financial straits, with large accumulated losses and substantial liabilities, a significant proportion of the latter represented by unpaid statutory dues. Those

were settled soon after the acquisition. Subsequently, a comprehensive factory rehabilitation, in parallel with a product quality policy drive, resulted in the company achieving the highest annual net sale average for in the Regional Plantation Company sector.

It has maintained this position for several years. Apart from the capital intensive consolidation of core crops, involving extensive replanting of both tea and rubber, we also launched a major crop diversification initiative, cultivating Ceylon Cinnamon in the low-country sector. Presently, Kahawatte has over 200 Ha in mature cinnamon, making it the largest single owner of cinnamon in the country.

Since its acquisition, the investment in shares and the value of corporate guarantees extended to Kahawatte by MJF Holdings and its subsidiaries together exceed Rs. 3 billion. As for Forbes & Walker, it was my firm belief that as a broker, F&W should remain independent, despite being part of the main group. That could be achieved only if the management also had a stake in the company, with the company itself being operated as a Joint Venture. Consequently, I caused a management trust to be created, which held 30% of the F&W shareholding on behalf of the management of the broking company. It proved to be a sound principle and has continued to operate efficiently to the present day.

The health sector

My friend, the late Lawrence Tudawe, who built my Maligawatte office and packing complex, had, at some point in time, purchased Durdans Hospital. It had been founded in 1939 and in the colonial period, was the primary military hospital in then Ceylon, mostly serving the British Armed Forces then stationed in the country. In 1945 it was acquired by a group of doctors and managed as Ceylon Hospitals Limited, before being bought by the Tudawe family.

The younger Tudawes , Ajit, Rohan, and Upul have since developed it to its present position as one of the finest private healthcare centres in the country. A few years ago, I was persuaded by the Tudawe family to invest in the company and I acquired a reasonable shareholding in Ceylon Hospitals, which owns and operates Durdans Hospital. Subsequently I made a further investment in the more modern entity, Durdans Medical and Surgical Hospitals (Pvt) Ltd. I consider it a very useful investment, not only on account of the financial returns but also because of the excellent healthcare service it provides the public, which also includes the employees of my group of companies.