Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) received the Silver award in the category of NGO/NPO in the Best AnnualReports Competition conducted by the Institute of Chartered Accountants of Sri Lanka (ICASL) recently.

This proves that FCCISL is within the ambit of Transparency, Social Accountability and Good Governance.

Earlier FCCISL received several awards including some international Awards. For the first time in Sri Lanka FCCISL won the award for the Best Unconventional project for SMEs  at the 5th World Chambers Congress held in Turkey for the FCCISL project “Back to Business”.

FCCISL was adjudged the Best Social Marketing Project at the Brand Excellence Awards of the Asian Brand Congress held in Mumbai for its “Business for Peace Initiative” (BPI) and it received another international award for the Best Corporate Social Responsible Project for BPI from the Asian CSR Forum, Singapore.

FCCISL Secretary General Samantha Abeywickrama said,”They have gained ISO 9000 international accreditation, the second Chamber in Sri Lanka to gain this standard. They have also gained SA 8000 International Social Accountability Standard, the first Sri Lankan Chamber to achieve this standard.”

He said that they are in the process of gaining ISO 14001, the International Standard for Environmental Management. Once they receive this FCCISL will go for ISO 27000, the International Standard on information security management.

“We are a strong body with 56 regional chambers and altogether around 12,500 companies coming under FCCISL umbrella and thus it is our responsibility that we set an example by achieving these accolades,” said Abeywickrama

Licensing system for 2nd hand vehicle parts imports

Import of second hand vehicle cabin parts may be made only by the consumer and not by the trade under a new licensing system, the industry said.

Fawaz Izzeth, Assistant Secretary, Used Motor Spare Parts Importers Association (UMSIA) told The Sunday Leader that this new licensing system became effective from November 6 through a gazette notification.

When this reporter spoke to Import Control Department (ICD) Assistant Controller Roshan Jayalath, he was told to speak to the Controller L.T. Jayathilake who was however not immediately available for comment.

Izzeth said that under the licensing system the consumer will have to go to the Registrar of Motor Vehicles (RMV) and obtain a letter certifying this requirement. He would then have to obtain a license from ICD to make the necessary import.

He further said that four other sections dealing with the import of second hand vehicle body parts had earlier been brought under a licensing system.

Those were seats, body shells, cut portions and chassis.

However, this was more often than not observed in the breach after allegedly paying speed money to the relevant authorities by the industry.

When this reporter suggested to Izzeth why doesn’t the trade continue to operate the usual way by circumventing the new licensing system after allegedly paying speed money to the relevant authorities, he said that ultimately the trade might have had to resort to that action.

He alleged that the authorities were demanding Rs. 35,000 for the new licensing system for which apparently no receipts are being given.

Izzeth was however unable to say as to whether the Department had issued any new licenses under the recent scheme. But he said that their 250 strong membership body have had not applied for the new license as they have been advised not to do so by UMSIA.

UMSIA as a single body will however apply for this license, said Izzeth.

They will also forward a letter to President Mahinda Rajapakse early next month requesting for a meeting regarding the new licensing system which he says is illegal.

Those licensing systems are applicable only to second hand importers and not to brand new importers of such parts.

One of UMSIA’s members had earlier this month met the President on this matter. Rajapakse had allegedly accused them of importing parts and assembling vehicles here, thereby depriving the State of revenue. He had however requested them to forward their grievances in writing, which they will be doing so early next month, Izzeth said.

Levies compelled LIOC to revert to old petrol price

Non reduction of government levies compels Lanka Indian Oil Company Ltd., (LIOC) to revert to the old petrol retail price of Rs. 122 a litre, a company official said.

LIOC Managing Director K. R. Suresh Kumar told The Sunday Leader that the compliance with the Court order, ie the reduction of petrol prices at the pump from Rs. 122 to Rs. 100 a litre was on the condition that the government would reduce its taxes and duties on petrol from the current Rs. 74 per litre or thereabouts gained from such levies to around Rs. 24 a litre, a Rs. 50 reduction.

However, neither the Treasury nor Customs had granted them that relief despite LIOC asking them to do so, compelling them to revert to the old price of Rs. 122 a litre.

This was after obeying the Supreme Court order for a brief period, by retailing petrol at the old price of Rs. 100 a litre. 

 In a clear violation of a Court order, perhaps the first time since independence, the government refused to reduce the price of petrol though ordered by Court, on the pretext that that would deprive it of a revenue source, and saying it requires more time to study the order.

Kumar said that their action was not tantamount to contempt of court as the Court order rested on the pillar of the reduction of government levies which had however not been complied with.

He said that his lawyers will be filing a motion in Court in this regard.

Courts are currently on vacation for the Christmas season.

Kumar said that when they had written to the Treasury asking for a reduction in duties and taxes on petrol imports as per the Court order, Treasury had informed him that no such reduction could be given.

Consignments that LIOC had imported after the Court order which was delivered on December 17, had been levied the old taxes and duties, compelling them to increase petrol prices to the old rates.

However, in the spirit of the Court order, they had earlier sold their old stocks at Rs. 100 a litre despite incurring a loss because of the government levies charged, he said.

LIOC petrol price reduction lasted for a brief period from December 19 evening to December 24 evening, a period of five days.

However motorists told this reporter that even on December 24 evening several LIOC operated sheds in the city were bereft of any petrol. The Rs. 122 increase was effective from December 24 midnight.

Referring to the shortage of petrol witnessed in LIOC sheds in the past few days, Kumar said that those shortages were however now over, after taking recent delivery of new stocks.

He said that the shortage was caused during that brief period when they reduced petrol prices to Rs. 100 a litre, that generated a greater demand at the pump, as their competitor, the State run Ceylon Petroleum Corporation were retailing petrol at the higher price of Rs. 122 a litre.

“Petrol sales as a result went up from 400-450,000 litres per day to 700,000 litres in LIOC sheds, as a result the sheds ran dry,” said Kumar. He however said that now the 150 LIOC sheds in the island were stocked with petrol in their go downs, assuring the consumer of no shortage.

SLT’s doubtful debts up 41%

During the quarter (Q) ended September 30, 2008, Sri Lanka Telecom Ltd. (SLT) restated its fixed line subscriber base to 1.49 million from 1.54 million, a report said.

This included an adjustment of approximately 29,000 in CDMA subscriber numbers who may have moved to cheaper operators, John Keells Stock Brokers (JKSB) said.

JKSB has revised 10% downwards SLTL’s profit forecasts to Rs. 5,836 million for the financially year ending December 31,2008.

Operating costs grew by 18% during the cumulative period, driven mainly by a 30% increase in personnel cost and a 41% increase in doubtful debts.

SLT’s unconsolidated earnings, for the 3Q ended September 30, 2008 (3Q2008) dipped 45% year on year (YoY) to Rs. 993 million on the back of high inflationary pressure and heavy price competition while earnings at group level fell 31% to Rs. 1,235 million, “eased off “ by a growth in earnings to Rs. 229 million from Rs. eight million from its mobile segment.

JKSB said that cumulative company earnings to 3Q2008 too witnessed a  YoY decline of 16%, while at group level, earnings grew marginally to reach Rs. 4.4 billion from Rs. 4.3 billion.

Revenue at group level for the 1-3Q2008 grew by 10% yoy to Rs.35 billion despite a drastic fall in revenue from new CDMA connections which declined by 70% during the same time period.

Data and other operating revenue continued to expand as revenue increased 45% from 1-3Q2007.

Mobitel, the group’s mobile arm witnessed steady growth as its subscriber base grew to 2.26 million, with a net addition of over 401,000 during the quarter. This was mainly due to the introduction of ‘Upahara,’

aimed at state employees including pensioners. Mobitel enjoyed a revenue growth of  71% yoy with revenue exceeding Rs. 8 billion for the cumulative period along with an 82% growth in EBITDA to reach Rs. 3.12 billion.

The mobile operator has undertaken aggressive tariff reductions with the support of its parent company to attract more subscribers.

“We expect revenue from new CDMA connections to experience a sharp decline due to a reduction in incremental connection.  Further, the fixed segment is likely to suffer from slow growth in “MOU’s” given current economic conditions. However we expect Mobitel to enjoy a growth in earnings as more subscribers enrol with the ‘Upahara’ package,” JKSB said.

Earnings outlook down 14%

 Royal Ceramics Lanka plc (RCL) achieved an earnings growth of 16% to Rs. 163 mn., for the second quarter of the financial year ended 2009 (September 30, 2008)-2QFY09 in spite of challenging macro economic conditions.

“We expect RCL’s volumes to stagnate at present levels despite declines experienced in most other companies due to its wider range of products, market dominance and aggressive marketing,” John Keells Stock Brokers in a report said.

“With the prevailing country outlook, we have revised downwards the expected RCL

earnings by 14% to Rs. 525 mn., year on year (YoY),” said JKSB.

The net revenue for the Q reached Rs. one bn., achieving an 18% YoY growth on

the back of repeated price revisions. Amidst a gloomy construction sector, the group has however not experienced a decline in volumes suggesting a wider market share in the domestic market.

RCL has opened three new outlets adding to its existing 37 showrooms.

The group divested its share holding of Lanka Ceramic during the Q, gaining Rs.74 mn., as capital gain while provisioning for diminishing value of investments stood at Rs. 87 mn.

RCL’s finance costs grew 30% to Rs.88 mn., with the debt financing current expansions. The company in the first half ended September 30, 2008 saw revenue grow by 17% YoY to Rs. 1.8 bn., while net profits grew by 23% YoY to Rs. 240 mn.

Diversifying into the bathware sector, RCL’s new bathware range is expected to be available by end December. The construction of the new porcelain tile facility, a capacity of 10,000 square metres daily, is currently in progress and is expected to be completed mid next year.

  RCL expects to add a further 10 showrooms during FY09 fuelling growth in its market share.

Earnings cut by Rs.120 mn.,

A stock broking firm has downgraded Tokyo Cement Co., Lanka plc’s forecasted earnings for financial year (fy) 2009 to Rs.790 m from Rs.910 m on account of high raw material costs.

This nevertheless represents a 23% year on year (YoY) growth, John Keells Stock Brokers in a report said.

However, the company in the first half (1H) ended September 30, 2008 saw net profit decline by 17% YoY to Rs. 370 million.

“Given the large scale government infrastructure projects in the pipeline we expect Tokyo Cement revenue prospects to be healthy,” JKSB said.

 Despite a revenue growth of 19% to Rs. 4.4 billion in the second quarter (2Q) ended September 30, 2008, Tokyo Cement recorded lower sales volumes resulting from a 20 day power failure in Trincomaleee in 2Q.

Tokyo Cement’s margins dropped significantly to 15% from 18% in 2Q of fy 2008 (FY08) and 16% in 1QFY09 as the rapid escalation of raw material prices, energy costs and transportation costs continued.

Government’s price ceiling has resulted in the company being unable to raise prices in line with rising costs.

With the 10MW bio mass power plant now completed, it is likely to be operational during the latter part of 3QFY09 which will help Tokyo Cement to significantly improve their margins as the plant covers the company’s total electricity requirement, the report said.

Equities market down 35%

THE current slump in the equity market which has dropped almost by 35% in the last three months has wiped out opportunities for any trading gains, resulting in a dip in investment sector earnings, a report said.

John Keells Stock Brokers (JKSB) whose report specifically dealt with the Carsons Cumberbatch Group which has an exposure to the palm oil, soft liquor, hotels, real estate and investment businesses said that Palm oil sector earnings year on year (YoY) declined 44% in the second quarter (2Q) ended September 20,2008 from Rs.412 m to Rs.231 m led by the collapse in palm oil prices, triggered by the rapid decline in crude oil prices.

In 1Q palm oil price was at its peak levels reaching a maximum of US $ 1,096 per MT. During

the period July -September prices plummeted from US $ 1,076 to US $ 662.

 “We expect Carsons earnings to decline in the 3rd and 4th Qs on account of the prevailing slump in palm oil prices which is unlikely to recover in the next six months due to the current global recession,” said JKSB.

As the current macro economic conditions are expected to continue, the real estate and beverage sector would continue to be adversely affected. However the beverage sector is likely to gain through the joint venture in India with Carlsberg International, the report said..

It further said that the hotel sector continued to suffer with low tourist arrivals while real estate sector profits grew 86%.

The real estate performance was geared by the rental properties as the development business remained sluggish with prevailing macro economic conditions, it said.

Earnings from management services which derive revenue through outsourced management of group plantations declined 58% amidst noteworthy gains in 1Q of financial year 2009 (FY09).

Meanwhile, Carsons Cumberbatch saw profits attributable to equity holders grow 14% YoY to Rs.346 m., in 2QFY09.

 2Q group revenue grew 21% to Rs.3.9 billion driven by palm oil and beverage sector revenues.

Palm oil revenue grew 21% despite a slump in prices due to the increase in palm oil production. Beverage sector revenue grew 25% with repeated price increases, notwithstanding a marginal drop in volumes.

With the drastic decline in prices, group GP margins dropped to 45% from 68% in 1QFY09 and 53% in 2QFY08.

Investments sector earnings grew 63% to Rs.245 m for the Q with the sale of a number of long term investments.

Beverage sector registered a loss of Rs.17 m for the Q as against a profit of Rs.31m in the comparative Q in FY08 driven mainly by escalation of costs of inputs and the increase in levies. “ We expect Carsons earnings to grow 22% to Rs.2.5bn for FY09,” JKSB however said.

UK increases travel tax

UK Chancellor’s Pre-Budget Report abandoned plans to introduce Aviation Duty and the proposed per plane tax on the grounds that this is no time for introducing greater instability in the airline industry-a catalyst for economic growth.

However, he announced the increase in UK Air Passenger Duty (APD), adding millions of Pounds to the cost of travel from the UK

“This is another cash grab by the Treasury, thinly disguised as an environmental measure. The UK Government already admits that the current GBP2 billion take from APD more than covers the cost of aviation’s climate change impact.

Airlines take their environmental responsibility seriously. This year alone IATA led efficiency measures have saved over 14 million tonnes of CO2. How much CO2 will the increased APD save? The blunt instrument of taxation does nothing to improve environmental performance,” said International Air Transport Association (IATA) Director General Giovanni Bisignani.

None of the APD revenue is earmarked for environmental initiatives. “I ask a question that I have asked many times before. How many trees will the Treasury plant with the cash? And where is the commitment to end APD when aviation joins the European Emissions Trading scheme in 2012? We cannot accept tax upon tax in place of a sound environmental policy,” said Bisignani.

IATA also criticised the UK Government’s proposal for creating commercial distortions. “The restructured APD does almost everything wrong. It is a disproportionate burden for trips over 2,000 miles. It disadvantages UK carriers compared to their rivals.

The highest travel taxes in the world reduces UK’s competitiveness for businesses that depend on global connectivity. Increases in economy fares are a step backwards to the days when world travel was only accessible to the wealthy.

The environment won’t see even a penny of the cash collected. And the proposal puts the UK’s 200,000 aviation jobs at risk. The only one smiling is the Chancellor as the Treasury counts its billions,” said Bisignani.

Gloomy forecast for Bukit

Bukit Darah, a Carson Cumberbatch Company which owns and operates oil palm plantations in South East Asia, saw earnings dipped 23% year on year (YoY) to Rs.174 m in the second quarter (2Q) ended September 30, 2008 on the back of declining palm oil prices.

“We expect Bukit Darah’s earnings to decline in the 3rd and 4th quarters as low palm oil prices are unlikely to recover in the next  six months  With the prevailing global and domestic economic conditions expected to continue the real estate, beverage and hotel sectors are likely have an unfavourable 2nd half in financial year 2009 (FY09). The current slump in the equity market has wiped out opportunities for any trading gains in the investment sector,” John Keells Stock Brokers in a report said.

Bukit also has substantial interests in the Carsons Group’s the real estate, beverage and hotel sectors.

However earnings for the six  months grew 48%  to Rs. 1,217 million.

As group earnings are primarily derived through the 46.4% holding in Carsons group and the Indonesian palm oil company PT Agro Bukit, the decline in PAT of the two companies has adversely affected Bukit Darah.

With the slump in palm oil prices GP margins of the group dropped sharply to 46% from 68% in  first Q of the financial year (1QFY09) and 55% in 2QFY08. Palm oil earnings for the quarter declined by 50%. Palm oil segment is the largest revenue generator for Bukit Darah contributing 46% of the total revenue in 2QFY09 (Rs. 3,944 million, a 19% YoY growth).

The Investment sector performed reasonably due to the sales of a number of long term investments.

Beverage sector under the Carsons group recorded a loss for 2QFY09 resulting from escalation of input costs and increase in levies. The Hotel sector continued to post losses while the real estate sector relying on rental properties as the development business suffered due to the sluggish market sentiment.

Management Services sector also declined by almost 58%.

“We expect Bukit’s earnings to reach Rs.1.5bn for FY09 registering a  marginal 2% growth,” JKSB said.

Recession to hit tile exports

Lanka Walltile plc’s (LWL’s) earnings dipped 53% to Rs.70 mn., while six months earnings dropped 50% to Rs.108 mn., as a result of the weak construction sector and high competition, John Keells Stock Brokers (JKSB) in a report said.

“As a global recession steps in, we expect LWL’s volumes to drop with exports expected to fall together with domestic sales. In the coming quarters we expect lower prices and volumes resulting in a dip in revenue,” they further said.

Revenues in second quarter ended September 30, 2008 grew 7% to Rs.1.9 bn., heavily contributed by repeated price revisions indicating a decline in volumes predominantly due to gloomy domestic sales. Revenue in the first half ended September 30, 2008 grew by 10% year on year to Rs. 3.6 billion.

With the production capacity increase in Lanka Tiles financed by borrowings, group finance cost jumped by 61% to Rs.49 m.

Minority interest shot up to Rs.95 m., a 105% growth of 105% arising primarily out of plantation sector earnings.

However taxes imposed on imported products may boost earnings of domestic tile manufacturers in the 4th quarter.

In a step towards saving cost, LWL is moving to use fuel wood to power part of its machinery. The group invested Rs.45 mn., in a wood gasification plant to power the spray drier at the Meepe factory.

LWL plans to expand its capacity at the Meepe factory by 50% at a cost of Rs.400m. The expansion is expected to be commissioned by July 2009. “We expect LWL to register earnings of Rs. 205 mn., for financial year ’09,” JKSB further said.

6% growth in’08

The economy is estimated to grow by around 6% in 2008, the Central Bank in a press release said.

 It further said that the country recorded a 6.3% economic growth for the third quarter. A notable growth of 12.4% was observed in the Agriculture sector while the Industry and Services sectors expanded by 5.6% and 5.5% respectively. The overall growth during the first three quarters has been 6.5 %.

The statement further said that the declining trend in year-on-year inflation that began from July 2008 continued into November.

It further said: “Inflation, as measured by the year-on-year change in the new Colombo Consumers’ Price Index (base=2002) was 16.3% in November 2008 compared to 20.2% in the previous month.

The significant decline in inflation is attributable to the pass-through of the rapidly declining international commodity prices, the stringent demand management policies adopted by CB and improvements in domestic supply conditions. 

CB’s continued demand management policies have been instrumental in curbing demand driven inflationary pressures in the economy by containing the expansion in monetary aggregates and ultimately, domestic demand. Reserve money has been maintained well within the stipulated targets for the first three quarters of 2008 and it is envisaged that the target for the final quarter would also be achieved. Growth in broad money supply has decelerated to single digit levels with growth declining to

9.8% by end October 2008 compared to 16.6% at end 2007. The impact of the slower expansion in monetary aggregates is expected to be more visible in the coming months with the continued decline in inflation to acceptable levels. Further deceleration in inflation would help investors as well as consumers in their decision making process, improving the economy’s growth outlook.  The US dollar–rupee exchange rate is stabilising as a major part of short-term capital flows by way of Treasury bills and bonds have already flowed out of the country and the large stock of oil imports bills at high petroleum prices have already been settled. The government is also exploring ways of raising external finances from alternative sources. These measures are expected to be announced in January 2009.

The sharp deceleration in monetary aggregates together with recent favourable developments in relation to international commodity prices are expected to bring down inflation at a rate faster than previously expected. 

The monetary policy announcement dates for 2009 will be published in the  “Road Map: Monetary and Financial Sector Policies for 2009 and beyond,” scheduled to be announced on January 2, 2009.

Lufthansa in expansion spree

Lufthansa will operate a new Italian airline, Lufthansa Italia, from February 2, 2009, offering connections from northern Italy to major European destinations. Lufthansa has another Italian subsidiary, Air Dolomiti and is considering a stake in Alitalia, as is Air France KLM.

Lufthansa is the exclusive bidder for Austrian Airlines, and, said CEO Wolfgang Mayrhuber, would liked to have taken more than a 19% stake in JetBlue but was prevented from doing so by the cap on foreign ownership of  U.S. airlines;

“Nobody should be afraid of foreign direct investment,” he added.

Lufthansa Italia,with a fleet of six two class 138-seat Airbus A319s, the Lufthansa subsidiary initially will offer non-stops from Milan to Barcelona and Paris de Gaulle with flights to Brussels, Budapest, Bucharest and Madrid added in early March, and London Heathrow and Lisbon at end March.

Lufthansa said Milan Airport operator SEA will successively upgrade Malpensa infrastructure to provide its passengers with more service and comfort, including “an enhanced lounge product and ‘fast track’ passage through security.” (Washington Aviation Summary)

Total Gross loans and advances portfolio stood at Rs 14.58 bn., as at the end of the 3rd quarter of 2008, a 35% YoY growth. .However, this is relatively low compared to the 53% loan growth achieved in the same period in 2007 due to a policy decision made by DVB to curtail loan growth in the light of a weakening macro environment.

In Brief

$ hits Rs. 113

The foreign exchange market saw little or no activity on Friday due to the seasonal holidays, with the US dollar being quoted at Rs. 112/80/113 in spot, with however hardly any trades going through because of slack trading.

Most corporates are on holiday, a revival of market activity may be witnessed from January 5, after the holidays, market sources said. Activity in the secondary market for government securities was also virtually non-existent, they said.

However there was trading in the inter-bank market, with overnight borrowings commanding rates of between 13½-14%, the sources said.

Rough seas ahead

Chinese shipbuilders have taken a bigger hit than their foreign competitors from the global economic downturn and the outlook is even gloomier for the next two years.

In the first 11 months of 2008,  Chinese shipyards reported a 44% drop in new orders compared to the world average of a 37% decline, according to Clarkson Research Studies.

 The global research company’s report showed that during the 11month period, Chinese shipyards received new building orders totalling 54.26 million tons deadweight compared to South Korea’s 65.97 million tons and Japan’s 17.92 million tons.  (Marine Talk)

Algae jet fuel

 Almost US$200 million has been spent this year on research into the conversion of algae into fuel for airplanes and automobiles.

Algal Biomass Organization (ABO) formed in 2007 with a mission to accelerate development of the algae industry, held a forum for the world’s leading algae scientists, technologists, process engineers and entrepreneurs to present data on projects including pilot plants, innovative growth technologies and algal strain selection.

Representatives from Boeing, Airbus, Honeywell unit UOP and KLM outlined steps they are taking to address carbon dioxide emissions, including the use of algal-based jet fuel.

Bankrupt airline

Sterling Airlines filed for bankruptcy and ceased operations as a result of the Icelandic financial collapse. A Danish venture capital firm is involved in negotiations to buy the Icelandic-owned carrier which is based in Denmark, but talks stalled due to union opposition. SAS, Norwegian Air and Transavia announced flights to former Sterling destinations.

NextGen support staff

President George W. Bush signed an executive order making implementation of the Next Generation Air Transportation System (NextGen) “ a leading priority for agencies across the federal government.”

The order directs Department of Transportation (DOT) to recruit NextGen support staff by January 18 and assemble an advisory committee within six months.

In a farewell speech to DOT employees, Bush supported New York-area slot auctions which begin in January and said that while DOT is not in the business of managing airlines, it is “in the business of making it easier for airlines to do the job we expect them to do.”

Inter-connections, good business

A Civil Aviation Authority, UK (CAA) report supports claims that connecting passengers help maintain a wider range of flights to different destinations and ensure more frequent flights to popular, often business, destinations, improving Heathrow’s competitive position against other major European airports.

Among the study’s findings: 90% of connecting air passengers in the UK use the three main London airports; Heathrow alone accounts for 70% of all connections, the majority of which are made by non-UK residents; and, two thirds of connections at Heathrow between international and domestic services were made by people travelling to or from Scotland or Northern Ireland. (Washington Aviation Summary)

“Aurora Borealis” will be a unique vessel, a combination of a heavy icebreaker, a scientific drilling ship and a multi-purpose research platform that can operate year-round in all polar waters. When completed, it will be the world’s most sophisticated research vessel. (Marine Talk)