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31st October, 2004  Volume 11, Issue 16

First with the news and free with its views                                     First with the news and free with its views                             First with the news and free with its views                                    

Business

CEB debt to reach Rs. 35 bn by year end

By Shehan Moses 

The government has estimated the total debt of the Ceylon Electricity Board (CEB) to increase to over Rs.35 billion by the end of this year. According to sources, the CEB presently owes the Treasury around Rs.25 billion.

Power and Energy Deputy Minister, Mahindananda Aluthgamage highlighted the issue when he met CEB officials and union leaders last week. According to sources, the Deputy Minister attributed the rocketing debt mainly to the rising world crude oil prices.

Aluthgamage had also stressed on the importance of restructuring the CEB to reduce operational costs and the massive losses faced by the CEB.

However, Convener, All CEB Trade Unions, Ananda Nimalaratne told The Sunday Leader the decision taken by the government to restructure the CEB would not solve the crisis. He pointed out the only solution is the Upper Kotmale and Norochcholai power plants, which the government had failed to go ahead with to date.

During the discussion held last Tuesday, Aluthgamage agreed to conduct a full day workshop for employees and union representatives of the CEB on November 14, to ascertain views of employees and make amendments regarding the controversial CEB Reform Act passed in parliament by the previous United National Front (UNF) regime in 2002.

Nimalaratne accused the United People's Freedom Alliance (UPFA) government of following the footsteps of the UNF government by privatising state entities.

"The UPFA came to power promising they would not privatise state entities. However, it is sad that they are following the UNF privatisation policy which is against public interest," Nimalaratne charged.

The CEB Reform Act states the reasons for restructuring are to increase efficiency, higher productivity and provide customers a better service. However, Nimalaratne charged these are cover up statements for the privatisation of the CEB.

There are two clauses within the CEB Reforms Act that confuse employees. First, the act enables the Treasury Secretary to sell shares of the CEB to the private sector after parliamentary approval; secondly, the act enables the Public Utilities Commission of Sri Lanka (PUCSL) to decide on the tariff structure of the CEB.

According to Nimalaratne, there would be no significant difference between the Treasury selling shares of government entities with parliamentary approval or without approval.

"Any government would hold a majority in parliament. Therefore, it would anyway be passed in parliament," he said, suggesting that the requirement of a two third majority in parliament should be in place before any shares are sold.

Further, Nimalaratne expressed concerns regarding job security and other employee benefits after the restructuring takes place.

However, Chairman, CEB, Ananda Gunasekara told The Sunday Leader the restructuring of the CEB would not create any job losses.

"Once the CEB is restructured, employees' rights would be secured and there would not be any job losses," he said.

However, Nimalaratne pointed out that while authorities state there would not be any job losses before a government entity is privatised, once these entities are privatised, there are massive job cuts after paying compensation.

Therefore, he stressed, it is important to have a formal agreement with the unions that there would not be any job losses after the restructuring takes place. He also warned of severe trade union action, which could lead to disaster, in the event there are any job cuts.


An unlikely boost for leasing business

By Jamila Najmuddin 

The increased import duty slapped on vehicles by the UPFA government has brought about a huge increase in business for leasing companies. The increase in tax and import duty on vehicles this month resulted in a drastic increase in vehicle prices.

Assistant Manager, Operations, Commercial Leasing Company Limited, Hemal Jayasooriya told The Sunday Leader that although the company averaged a turnover of Rs. 250 million per month, this month the company expected a turnover of Rs. 275 million due to the high demand for vehicle leases.

"This is tremendous increase and we expect business to be booming till end November, when the new taxes will be implemented through the budget," Jayasooriya said.

Jayasooriya added that although people were under the impression the public would refrain from buying vehicles, people who have already booked, reserved and paid advances on vehicles went ahead and purchased the vehicles as many dealers still continued to sell vehicles at earlier prices.

"Although dealers have raised vehicle prices, the full price revision on vehicles will be implemented only after the month of November. Due to this, customers prefer to purchase their vehicles now," Jayasooriya said.

He said since the day the government raised the tax, the company's customer potential had increased, adding, "we did not expect such an increase in volume."

However, Jayasooriya also said business was likely to decline in November, December and January as people would have to adjust to the price revisions.

"It is only once people get used to the new price revisions that business is likely to increase once again," Jayasooriya said.

Jayasooriya maintained that while the prices of vehicles are continually increasing, people still continue to purchase vehicles since they are an essential item today.

"Just because prices were increased, people did not stop purchasing vehicles," he said.

Meanwhile, other leasing companies, who wished to remain unnamed, also maintained business had increased and targets were being met despite the increased tax.

Company officials said although the tax increase has affected the unregistered car market, the registered car market continued to have "tremendous" sales.

"Since dealers are selling their existing vehicles, they have not implemented the full price revision yet. Therefore, people prefer to purchase their vehicles now rather than wait until the new budget is introduced," sources said.


Eco tourism project initiated in Trinco

Tourism, Industries and Investment Promotion Minister, Anura Bandaranaike forwarded a cabinet paper for approval to develop Trincomalee as a tourist destination titled 'Trincomalee: Where The Elephant Meets The Whale' last week.

Bandaranaike stated Trincomalee could be promoted as a destination for eco tourism through the development of the area's natural resources. Trincomalee is unique in that it is an area where the two largest land and sea mammals - elephants and whales - are both present.

Addressing the weekly cabinet press briefing, Media Minister, Mangala Samaraweera said Trincomalee, which is also known as the whale capital owing to the large number of whales who inhabit the surrounding seas, would be the ideal place to be promoted as an eco tourism destination as well as a place to witness elephants and whales.

A cabinet committee headed by Bandaranaike has been appointed to further study the project and the final report is due in two months. Members of the committee include Ministers Mangala Samaraweera, Lakshman Kadirgamar, Dr. Sarath Amunugama, Dinesh Gunewardena, Tissa Vitharana, Ferial Ashraff and M. Athaullah.

-- Mandana Ismail Abeywickrema


"Remaining at the top is tougher"

The Commercial Bank of Sri Lanka was recently awarded the 'Bank Of The Year' award for the fourth time by The Banker magazine, UK. "Reaching the top is at times easier than remaining there. To remain at the top, we need to maintain a high level of investment to ensure our continued superiority in operational, financial and social responsibility areas. Of course we look upon it more as an investment than a cost. Honours such as these naturally raise customer expectations very high and it becomes essential that we maintain the edge over others in our service standards," said Managing Director, Commercial Bank, Amitha Gooneratne in an interview.

Following are excerpts: 

Q: Winning the 'Bank Of The Year' award for four successive years certainly can't happen by chance. What has been the secret of Commercial Bank's success.

A: I agree it wasn't by chance. I would primarily attribute the repeated success to our commitment towards maintaining a strong financial performance and our constant attention to both sides of the balance sheet and the P&L. Together with it there was a continuous and sustained effort towards meeting and wherever possible exceeding, expectations of all our key stakeholders, namely shareholders, staff, depositors, borrowers and other service providers.

This policy has had the fullest blessing of our board of directors, under whose guidance the corporate and senior management has performed magnificently. This meeting of minds and understanding of each other's concerns, I should say, has been an important reason for our continued success.

Q: Were there any specific strategies that you followed in order to achieve the honour?

A: There had in fact been many strategies. At the operational level I can think of our strategies to keep up with fast changing banking technology by increasing investment in IT and applying IT to achieve operational efficiencies in a cost effective manner. Then there were the superior HR practices we adopted, better management of assets and liabilities and timely re-pricing and management of risks. All this contributed towards our success. I can say that our decision to invest in Bangladesh embodied all these strategies and enabled us to spread our risks over a larger geopolitical sphere.

Q: What is the downside of being nominated as the best bank in Sri Lanka?

A: As you will agree reaching the top is at times easier than remaining there. To remain at the top, we need to maintain a high level of investment in areas such as IT, HRD, CSR, etc. merely to ensure our continued superiority in operational, financial and social responsibility areas. Of course we look upon it more as an investment than a cost. Honours such as these naturally raise customer expectations very high and it becomes essential that we maintain the edge over others in our service standards. It is a difficult task and we believe there is always room for improvement in this manner.

Q: Cooperation of staff at all levels is essential to be successful. How have you managed to motivate your staff towards excellence?

A: We firmly believe that a well contended, highly motivated, exceptionally productive staff is a sine qua non for corporate excellence. In this regard, we have focused attention on four dimensions, namely, rewards, relationship, training and development and working environment.

We carry out an annual survey on employee compensation and benefits and make every endeavour to be the best in the banking sector. Our rewards are linked to performance and bank has established a performance oriented culture where good performers are rewarded better than others.

We work on the theme 'One Bank - One Family' and have established good relationship using appropriate HR techniques such as grievance handling and counseling, always encouraging the team spirit. We have built a conducive work environment where each member of staff performs the duties entrusted competently, adding value to the organisation and also looking forward to career progression which depends on performance and value addition. All of us are keen to learn and perform better and ours is a learning organisation.

Training has also played a significant role in building a high quality workforce. We have adopted a scientific approach to training where training is need based and competency focused. This approach has helped us to build a high quality workforce and also achieve employee productivity and leadership among banks where we average 21 employees per branch as against 28 for the closest competitor.

In regard to human resources, our theme is to reach corporate excellence through people power and our vision is to be the most exemplary, caring and sought after employer in Sri Lanka.

Q: What can be said about your profit performance during the past few years?

A: Each year, we aim to achieve a growth in profit in excess of the rate of inflation and the GDP growth. A closer look at the income statements for the past, say five years reveals that we have been on target and both the profit before tax and the profit after tax have grown at an average annual rate of over 20%, a rate which is well in excess of the combined average growth of inflation and GDP over the same period.

In the year 2000, our profit before tax exceeded Rs. 1 bn. for the first time while in the year 2001 our profit after tax too exceeded Rs. 1 bn. Our group profit before tax exceeded Rs. 2 bn. 2003. In fact, we take it very seriously right from the point of preparing the corporate plan and the budget up to the implementation of the strategies prioritised therein.

Q: Clearly, the staff and shareholders have benefited. But what about the depositors?

A: They too have benefited because the benefits cannot be narrowed down to any one segment. The good results and the honours are shared by all stakeholders. It is highly reassuring for every depositor to know that, while earning highly competitive rates of interest, he or she is banking with the country's best bank, which also enjoys the highest credit rating (AA+ Sri) among local private sector banks.

Recognition through awards such as 'Bank of the Year' and 'Best Bank in Sri Lanka' also provides an assurance that Commercial Bank has abided by the many different criteria - statutory, regulatory and prudential needed to operate a successful bank

Q: What has your bank's success meant to the country and the national economy ?

A: We have always been contributing in many ways to the national economy. As a strong national bank, we contribute positively to the entire banking sector in Sri Lanka and a strong banking sector is a basic need for the success of any economy. The initiatives taken by us in upgrading the level of banking services, introduction of latest technology, enhancing standards of training for bankers by tying up with bodies such as AIT of Bangkok, are all a part of our contribution to the banking sector and through it to the national economy.

Another major tangible contribution is the taxes that we pay to the state coffers. For example, in the year 2003 alone, Commercial Bank has paid over Rs. 527 mn as direct taxes and over Rs. 1 bn as indirect taxes.

We have also launched a special social responsibility trust to undertake activities aimed at fulfilling our CSR objectives and have already agreed to rehabilitate irrigation tanks in the Wayamba and North Central Provinces under this programme.  Our nomination as 'Best Bank in Sri Lanka' for a record fourth time will only encourage us more to make even greater contributions.

Q: What can be said about your plans for the future ?

A: To reinforce our image as a strong national bank by further expanding our branch network in Sri Lanka by establishing branches in rural and under banked areas. Our medium term vision is to build up on our entry into Bangladesh and expand our presence in South Asia, particularly India and other neighbouring countries.

We would focus on technology driven products to minimise delivery costs, eg: bill payments and opening of accounts through internet, etc. Building on the Udara Senior Citizens Account already launched, we would also focus on serving the needs of the senior citizens of our community and would structure appropriate products.

In the area of corporate social responsibility, we hope to further enhance our involvement through the Special Trust that we set-up for such purposes into which we would be contributing upto 1% of our profits every year.


Commendation from Media magazine for Leo Burnett

By Marianne David

Leo Burnett Solutions Inc. received a special commendation under the 'Most Effective Use Of Public Relations' category at the Asian Brand Marketing Effectiveness Awards 2004 presented by Media magazine recently.

A leading advertising solutions firm in Sri Lanka, Leo Burnett received the commendation for the campaign it did for the Joint Apparel Association Forum (JAAF). Described as 'A Tribute To The Daughters Of Our Nation,' the campaign aims to recognise the garment workers' efforts, which have brought economic gain and fame to Sri Lanka.

Speaking to The Sunday Leader about the campaign, Director (Client Services), Leo Burnett Solutions Inc., Michael Holsinger said, "This campaign was quite a challenge for us from the very start, because the manner in which we approached it was totally different from traditional advertising. We used the medium of song to get the message through."

According to Holsinger, the problem was that the apparel industry workers, or juki girls as they are called, were being treated badly by society and they were facing many problems.

"The main culprit as it were who were dragging their image into the mud were the tele-dramas, by portraying these girls as villains. These girls come from villages to get jobs in the garment industry and they are most often the breadwinners in their families. But unfortunately, when they go back to the villages, they are seen as not marriageable and considered to have loose morals. Our real enemy in this sense was tele-drama. We had to combat the power of tele-drama through advertising, so we got good artistes to perform songs for us," he said.

The artistes featured in the campaign are Rukantha Goonetilleke, Deepika Priyadharshini, Bathiya and Santhush, Victor Ratnayake, Amarasiri Peiris and Nirosha Virajini and the songs revolved around six themes: Bread Winner, Economy Driver, Working Conditions, Creator Of Neighbourhoods, 21st Century Girls For A 21st Century Challenge and Made In Sri Lanka All Over The World.

"We approached the artistes to do this as a project together with us and they put their heart and soul into it. The campaign was born and we called it 'A Tribute To The Apparel Worker.' It was launched at Sugathadasa Stadium with all the featured artistes performing live and was telecast over Rupavahini channel," said Holsinger.

The campaign went on auto-pilot from thereon and the featured songs received wide publicity, being aired on radio and the videos were featured on TV constantly, proving the campaign's effectiveness in touching the lives of many and making a difference in the lives of the juki girls.

"That's the essence of public relations. Public relations is not about merely getting an article in the papers; it is about finding some kind of method to solve a problem. The campaign winning an award in an international competition is probably the first award Sri Lanka has won in the public relations industry. To our industry, it's like winning a Golden Globe or an Oscar. People live for that," asserted Holsinger.

The Media magazine awards supplement had this to say about the campaign:

"Sri Lanka's leading lyricists, musicians, and singers were enlisted to restore dignity to the country's apparel workers, portrayed in soaps and the media as juki girls - temptresses and exploited sex workers. The resulting songs and videos - each focusing on a girl and her true values - gained wide exposure and entered the charts. The public saw the workers in a new light, whilst the number of girls seeking work in the apparel trade rose dramatically."

According to Holsinger, the campaign had a great response in the country, especially from the people who own factories and the juki girls are now treated better in the factories as well as by society in general.

As a result, "the credibility and effectiveness of having a juki girl as the villain in the tele-dramas is not effective anymore," he said.

A total of 44 awards were given in the Asian region and it is an incredible feat that Sri Lanka could be recognised through Leo Burnett to get one of the 44 awards. Ironically, the campaign did not receive an award or any recognition at the local advertising awards.

"The sad thing is the campaign was put up for the awards in the local advertising industry but it just flew over their heads and won nothing in Sri Lanka. With this commendation, it proves that some things we Sri Lankans cannot see, others can see," asserted Holsinger.

"The commendation was given to us because they thought this strategy was very innovative. They couldn't give us anything more because we don't have a monitoring system in this country to measure results. These awards are for effectiveness and effectiveness is all about the results that you actually achieve but we didn't get a higher award because we couldn't quantify the results," Holsinger further said.


Mobile phones boost small-scale businesses

By Marianne David 

The use of mobile phones in conducting day to day business has given a new lease of life to small scale businesspeople such as three wheeler drivers, vegetable, meat and fruit sellers, fishermen and farmers in Sri Lanka.

Mobiles, which were a luxury just a few years ago, are now commonplace due to affordability, unlike land phones, and give an added advantage to many, enabling them to operate their businesses more efficiently.

The affordability of mobile phones in the recent past is the major factor contributing to the surge in use of mobile phones by many sections of society, without it being limited to the more privileged sections of society.

Mobile operators cover many remote areas and the short time period involved in getting a mobile phone and connection, compared to getting a land phone, has boosted sales.

The portable handsets give farmers and traders better access to demand and price information, so their stocks could be controlled according to demand, instead of ordering too little or too much.

Says Rohan Udith Dharshana, a fruit seller in Borella, "Using a mobile has made business much easier. I can now order what I need on the phone."

Even when it comes to getting a three-wheeler, a popular mode of transport in the country, one does not have to wait on the road for a three-wheeler in most cases any longer. Now it's just a matter of calling up a known three-wheeler driver who operates in the area on his mobile, who will then turn up in a few minutes.

Even fishermen are called on their mobiles and asked to deliver fish to houses or sales outlets according to the requirement, making sales that much easier and faster.

"When we tell the fish man what to bring, he makes it a point to set aside our order when making his rounds. By the time he comes to our lane, I don't have to worry that the fish I want to buy will be over since I have already told him what to keep," said Sonali, a house-wife in Mount Lavinia.

The number of people using mobile phones to conduct businesses is huge and it has increased the income level of three-wheeler drivers who no longer have to hang around waiting for hires as often as they used to.

Their phones are constantly ringing, bringing in new business and the rate they pay for the mobile service is more than compensated for, due to the increase in hires.

Says Nimal, a three-wheeler driver who operates from Ratmalana, "We park at the Galle Road and there are hires that go down the lanes but many people have to walk up since there are no three-wheelers at the bottom of the lanes. Now with my phone, I get calls from those who want to come to the road and just go down and pick them up. There are so many hires like this that come my way everyday and it has increased the number of hires a day to almost double the number I used to have."

Many operate with card connections, which do not have monthly rentals while the few who have permanent connections say that since they have the one-minute incoming free facility, they end up paying a very small amount since the calls last less than a minute.

Says Ravi, a three-wheeler driver who operates from Bambalapitiya, "When people call about a hire, they only have to tell us who it is and where to pick them from, which does not take even a minute. But it is easier to use the card connection since we can recharge the card with small amounts now."

According to an official from a mobile phone company, over 70% of the company business is on pre-paid (card) connections and it is small-scale businesspeople who use these connections to conduct their business activities.

"Since they can also update the amount of credit on their phones with a small payment, many of them find that having a mobile phone helps grow their business. It is only the more affluent who obtain permanent connections," the official said.


Quota dispute settled in favour of garment exporter

A leading garment manufacturer, Amrita Apparels (Pvt) Ltd., which is a member of the well-known export group Ranliya has since 1992 been deprived of the legitimate quota due to them which is 25,000 dozens of USA quota as stipulated in the agreement that the company entered into with the BOI at the time.

Over the years Amrita was allocated only 10,000 dozens of quota per year out of the 25,000 dozens stipulated in the agreement.

The company recently sought relief from the Supreme Court for the injustice that had been meted out. It is only then the authorities agreed to allocate the balance quantity of 15,000 dozens and came to an amicable settlement.

However, the company has had to forego 15,000 dozens per year of this quota for 12 consecutive years since 1992 absorbing the immense financial loss over the years. The country too has lost valuable foreign exchange.

This episode has also adversely affected the better welfare facilities that the company could have extended to its almost 1000 strong work force had the quota not been reduced drastically over these years.


Rigel flush valves for Asia Pacific Golf courses

Rigel, a leading brand in manual and sensor flush valves, has been selected for all the washrooms at the prestigious Asia Pacific Golf Courses, Battaramulla. Rigel was selected from a range of reputed brands, for its quality and durability - a trademark of all Rigel products.

Rigel is manufactured in Singapore by Rigel Technology  (Pte) Ltd. to high quality standards recognised around the world and is the leading brand in Asia. Rigel products are in use in many prestigious buildings such as Ceylinco House, Access Tower, IFS complex and the BIA to name a few.

The Rigel product range is wide and also includes sensor hand driers, soap dispensers and SS washroom accessories and special application taps for selected industries. The brand is represented in Sri Lanka by Perry Jumat.


 Today is World Thrift Day

How to avoid losing your
money in saving and investing

By Ravi Abeysuriya 

Be it that you are depositing money in a financial institution or investing in a company stock or debt instrument, it makes sense to verify the financial health of that institution. Financial statements are an indispensable source of information about institutions' financial health and its prospects for the future.

Depositors and investors should learn to make use of the information they contain as a report card of that institution's management performance and accountability and as an early indicator of the institution's future success or potential failure. This is why regulators such as the Central Bank of Sri Lanka and the Securities and Exchange Commission require public deposit taking institutions and listed companies respectively to make public their financial statements.

Even if you have no clue about accounting, with a little bit of effort you can learn to interpret financial statements. Understanding a company is very much the same process as understanding your own personal finances. As we analyse our own finances, we typically start looking at how much cash we received and how much cash we paid and ultimately our net worth (how much money we are left with after we add all moneys owed to us and subtract our debt.

This is usually 'the truth' of how we really spent our money and how much money we have. How we look at corporate financial statements is very much the same. These financial statements are called (1) the statement of cash flows, (2) the statement of income (profit and loss), and (3) the balance sheet.

One should start with the cash flow statement, to get the truth, a sense of where does cash come from (source of cash) and where does it go (use of cash). The cash flow statement has three parts; however, the components may vary depending on the type of business and the company engages in:

(1) Cash flow from operations (CFFO) - describes cash coming in and out from a company's day-to-day business.

(2) Cash flow from / used in investment activities - describes cash coming in and out from longer-term purchases, asset sales or investment accounts.

(3) Cash flow from / used in financing activities  - describes additional sources of cash coming in or going out from interest paid, interest received, loans, bonds sold or stock issued. Accounting choices affect whether cash flows are classified under operating, financing or investing activities.

The statement of income communicates the profitability of a company over a specified period. A company's profit or net income is equal to its revenues and gains minus its expenses and losses. The measurement of accounting earnings involves two steps:

(1) Identifying revenues for the period and

(2) Matching the corresponding costs to revenues.

It is important to recognise that revenue is not the same as cash received. According to the accrual principal of accounting, revenue is recognised as soon as "the effort required to generate the sale is substantially complete and there is a reasonable certainty that payment will be received."

According to the matching principal of accounting, the capital expenditure, need to be spread over the useful life to match with the revenue. Companies are given great latitude in how they recognise their revenue and identify their expenses and CFFO under the accounting principals (which leads to all the cooking!).

The balance sheet presents a snapshot of a company's resources (i.e. its assets) and the claims against those resources (i.e. its liabilities and owners' equity or capital) at a specific point in time. The asset position of the balance sheet reports the effects of all of a company's past investment decisions.

The liabilities and owners' equity position reports the effects of all of the company's past financing decisions. Capital is obtained from both short and long-term creditors and from owners.  The critical equation to remember is: Assets = Liabilities + Owners' Equity. A balance sheet is very much like a bikini. What it reveals is interesting, what it conceals is vital.

Although much has changed in today's business world, it pays you to be aware of what dishonest company executives will resort, to stretch or even hide the truth. Financial Shenanigans by Howard Schilit, McGraw-Hill, second edition is an excellent resource that describes seven fundamental tricks that companies use to fool auditors and investors even for those with no background in accounting or financial analysis.

In his book, Schilit defines financial shenanigans as actions or omissions designed to hide or distort the real financial performance or financial condition of a company.

Financial problems can easily be detected by a through examination of financial statements. Here are four steps to interpret financial reports:

Analysis of the statement of cash flows

Create and analyse the common-size income statements and balance sheets

Carefully read the footnotes and other qualitative information

Calculate a few ratios to ascertain productivity, liquidity, solvency and operating efficiency.

Screaming warning signs of problems can be found in the CFFO. It answers whether the company is generating enough cash from normal operations or have to generate cash from sale of assets or from additional borrowing to meet its cash needs. Remember to adjust reported CFFO by removing the effects of nonrecurring items such as extraordinary items or discontinued items.

By watching the trends in CFFO and comparing CFFO with reported net income you can more easily spot deterioration in a business often long before the problem flow through earnings. Red flags are warranted when a company's earnings growth surpasses the growth rate of CFFO.

Creating a common-size income statement and a balance sheet is easy. Express all income statement items as a percentage of revenues and all balance sheet items as a percentage of total assets. Vertical analysis of income statements and balance sheets will help you to spot structural changes year-over-year (YOY).

Generally, the percentages remain stable over time. Horizontal analysis develops trends in balance sheet and income statement percentages over time. Designate a particular year as the base year and calculate percentage changes in subsequent years. For example, Table 1 reveals several incredible and troubling changes, though if one look at only column 1 and 2 see as an improvement YOY.

Gross margins (line 3) jumped from 2% to 25% a tenfold increase. Admin expenses (line 4) have declined from 17% to 13% possibly showing a shifting of current expenses to future periods. Shrinkage in cash (line 10) from 28% to 12%, although revenue (line 1) has increased by 62% cash has declined by 30%. A jump in account receivable (line 11) from 20% to 29%, is growing at 148% faster than the revenue growth of 62%.

Bloated inventories (line 12) rises from 27% to 33% a 100% increase YOY and more than the 24% growth in cost of sales (line2). Trade and other payables (line 20) are growing at 204%, twice as faster than inventory (line 12) growth rate of 100%. 

By carefully reading the footnotes, auditor's report and management discussion one could find a wealth of information for assessing the financial condition of a company and the quality of its reported earnings. The footnotes detail such matters as pending or imminent litigation, sudden departure from past accounting practices, changes in auditors, or outside legal counsel.

Footnotes or the fine print is where company's hide the bad stuff they do not want to disclose but have to, where few people will find them. Watch for qualified opinions in the auditor's report. Be wary when no audit committee exists with outside members of the board, or chairman's wife is also on the board! Read the management discussion with a grain of salt.

Use ratios to compare a company's performance with its prior years' performance and with the performance of similar companies in the industry. Decreasing productivity of assets i.e. inventory, receivables, falling margins gross profit or net profit margin and declining return on assets or equity, earnings per share are sure signs of deteriorating earnings quality.

Shrinking ability to meet debt obligations found by looking at debt to assets or equity and interest coverage (operating income / interest expense) ratios.  In most cases, some adjustment to the reported numbers will reveal the true health of a company.

If Pramuka depositors took the trouble to look at the bank's year 2000 financial report as described above, they would not be in the plight they are in today.  Regrettably, until financial reporting is in plain language and accounting standards are developed for the benefit of investors, the primary users of financial statements, instead of for the benefit of issuers, enabling management to manipulate earnings and hide liabilities and losses, investors will be disadvantaged.

Therefore, it is always sensible to make use of independent analyst recommendations such as credit ratings from recognised third party advisory services to find out the financial health of a particular institution before depositing money or investing.

(The writer is Managing Director, Amba Research Lanka (Pvt.) Ltd.)


Decision to de-tariff fire insurance criticised

By Marianne David

The decision taken by the Insurance Board of Sri Lanka to de-tariff fire insurance with effect from January 1, 2005 is one that will ruin the industry, according to Insurance Consultant, S.I. Fernando, a member of the committee that was appointed to review and revise the existing tariff.

"This is not a wise step. It will only ruin the industry. If the insurance market is a disciplined one, the IBSL may think of deregulating, but it is an indisciplined market and as such there should be a tariff to regulate the industry," Fernando told The Sunday Leader.

He said that monitoring a tariff ensures adequate solvency margins and technical reserves, in addition to maintaining a good rapport with re-insurers, thereby safeguarding the interest of the policy holder and the long-term survival of the insurance companies.

However, President, Sri Lanka Insurance Brokers Association (SLIBA), Upali Wickremaratne said the insurance companies are in favour of the decision to de-tariff fire insurance since "there is no need for a tariff in the open market."

Depending on their strengths and weakness, each company must have its own underwriting philosophy and fix rates within that framework," he said.

One of the primary reasons for the SLIBA to object to the introduction of a new fire tariff is the increase in premiums that is bound to occur in several areas. The association is of the opinion that any increase in premia is surely unwelcome, given the rising cost of living.

Director (Marketing), Janashakthi Insurance Co. Ltd., Tryphon Mirando told The Sunday Leader the decision to de-tariff fire insurance is good because different companies will compete with each other in order to get business.

"It all depends on what reinsurance arrangements the insurance companies have and if it is good, they can get better rates," he further said.

According to Fernando, the committee appointed by the IBSL to review and revise the present tariff which is over 50 years old drafted the tariff and passed it on to the Insurance Association for their comments, which he says took over six months to go through the draft tariff and agree to accept with certain amendments.

Out of the 10 insurance companies only three companies objected to the implementation. However, the IBSL decided to implement the tariff with effect from June 1, this year and appointed an advisory committee to monitor and regulate the industry and stop unethical practices.

However, the Brokers Association objected to the implementation of the revised tariff and with the assistance of the Chamber of Commerce, made representations to the finance minister.

"The minister, without even consulting the IBSL, requested them to defer the implementing of the tariff. The secretary to the minister then requested the IBSL to obtain advice from an independent expert to do a comparison of the fire tariff probably with a country like India," Fernando said.

The services of Secretary / CEO, Tariff Advisory Committee, India, K.K. Srinivasan, were obtained to do this proposed exercise and Srinivasan had discussions with the Fire Advisory Committee, Insurance Association, Brokers Association and Chamber of Commerce members.

"After these meetings, he also had a round of discussions with the FAC and rates were slashed down by 40% and limit of sum insured on large risks not subject to tariff rates were reduced from Rs. 500 m to Rs. 300 m. If anyone now says that the reduced rates are still high, the insurance companies will have no other alternative other than to provide free cover to their clients. In fire insurance, the rates charged should commensurate with the risk involved, otherwise in the even of any loss or damage the insurance companies will find it difficult to pay claims and thereby the policyholder will suffer," asserted Fernando.

In the event IBSL de-regulates fire insurance, Fernando queried on what basis insurance companies would rate a risk in the absence of a tariff as the rates vary from risk to risk, adding, "Or will they continue the present practice of undercutting rates so as to get business for their survival?"

"For how long can insurance companies under cut rates? I foresee not for long, a time will come when insurance companies will call for a tariff to save them from bankruptcy. It is a well known fact in the insurance market that they find it difficult to place their re-insurance abroad. Because of the low rates, there have been instances where some companies even find it difficult to place 100% of a large risk."

According to Fernando, it is the IBSL, as regulatory body, that could question the insurers and take necessary action in terms of the act "to save the industry."

"In my view the IBSL by de-regulating fire insurance is only trying to palm off their responsibility to insurance companies, allowing them to regulate themselves. Then why should there be a regulatory board? In the event of IBSL de-tariffing fire insurance, at this stage the insurers will not hesitate to change the terms and condition of the fire policy, as they have done in motor insurance," he charged.

Fernando further said that since motor insurance has already been de-tariffed, insurers are introducing interesting covers to the motor policy to please the customers.

"It is welcome, but they have gone to the extent of introducing the 'Condition of Average' to the Motor Policy, which is against the principles of insurance. What next?" Fernando questioned, adding, "this is the result of de-tarrifing - insurers can do many things to the detriment of the customer.


Synergy and 4A's launch diploma course in advertising

The Synergy School of Marketing in association with the 4A's (Accredited Advertising Agencies Association of Sri Lanka) announced the local launch of the first ever internationally recognised diploma course for students interested in the profession of advertising, last week.

The CAM advanced certificates leading to the Advanced Diploma in Communication Studies and the CAM higher certificates, leading to higher diploma qualifications were launched last week. The qualifications are the first of its kind to be launched in Sri Lanka.

Awarded by the Communications Advertising and Marketing Education Foundation Limited, UK (CAM), the awards are tailored to the integrated marketing communications needs of modern business. 

CAM is an industry led and recognised educational body that acts as the glue between the various disciplines of the communication industry and it also bridges the gap between the academic and the practical.

CAM is kept up to date by leading communication experts and the majority of tutors are practitioners in the industry. It is flexible and relevant making the certificates suitable for anyone's continuing professional development.

President, 4A's Sri Lanka, Rohan Rajaratnam said the dire need for such qualifications was keenly felt by the advertising industry in Sri Lanka and the 4A's with the assistance of the Synergy School of Marketing were glad to fill this void that would undoubtedly benefit the industry as a whole.

In 2000 the CAM Foundation formed an alliance with the Chartered Institute of Marketing UK (CIM) and since then, CAM qualifications have been managed and awarded by CIM.

Director, Synergy School of Marketing, Michael Ranasinghe said CIM's aim was to provide marketers with the best practice marketing knowledge and to help them deliver world class marketing.

"CAM qualifications are tailored to the integrated marketing communications needs of modern business," he said.

When studying for these qualifications, students become CIM studying members and have access to all the benefits of membership as well as resources to support their studies.

CAM's ability to integrate the many disciplines present in the marketing communications industry is its main benefit, giving specialists the breadth of knowledge to advise clients, internal and external, on the best ways to communicate a product or service.

CAM improves career prospects, adds 'roundness' to knowledge gained and to that of the team and satisfies clients needs to look more broadly at the way in which their products and services are communicated.

For thousands of professionals, CAM has provided a solution to the challenges of modern marketing communication, satisfying the growing need to look broadly at the way products and services are communicated.

CAM qualifications also help clients to receive better service, delivered with greater professionalism by practioners who inspire confidence and for organisations to retain and develop valued employees.

CAM also allows individuals to become more productive and helps them move into demanding roles where versatility and responsibility are vital. Practioners also gain confidence to devise, plan and execute communication programmes that work.

"CAM helps the industry improve its reputation and ability to set standards and continually improve them. It also helps the managers and directors of tomorrow to launch and invigorate careers as CAM provides a broad based platform from which to work. CAM gives practical knowledge plus theoretical understanding - the winning combination for professional success," Ranasinghe said.

CAM helps students right across the spectrum agency, client and supplier backgrounds. Students could either work in marketing, advertising, public relations, the media, market research, sales promotion and direct marketing in both private and public sectors. They will gain indepth knowledge of all the key elements needed for planning and executing integrated campaigns, far greater breadth of knowledge and competence than work experience alone can provide, flexibility to chose different ways in which to study up to date, relevant knowledge of both the theory and the reality of present and future marketing communication practice.

Synergy in its attempt to shape the future of local students has embarked on this innovative attempt to offer those interested in building a career in advertising and the opportunity to benefit from a globally recognised diploma.

The vision statement for the 4A's enshrines a desire to improve the knowledge base of the industry thus achieving its objective of cultivating a vibrant and world class advertising industry in this country.

CAM is the first step taken in partnership to achieving this goal.

According to Ranasinghe, registrations for these qualifications will commence in the first week of December and the duration period for this course is 18 months with examinations held in June and December.


Amana MD addresses International Islamic Finance Forum

Managing Director, Amana Investments Limited, Faizal Salieh, was invited to speak at the International Islamic Finance Forum held in Istanbul, Turkey recently. The International Islamic Finance Forum is the premier forum for Islamic finance in the world today.

The forum in Istanbul was attended by a large number of delegates and included bankers, financiers, regulators, investment companies, Shariah scholars, academics and government officials from all over the world.

Salieh spoke on 'Islamic Finance Initiatives in Sri Lanka and Amana's Success Story' in the technical session on 'New Markets, New Opportunities, New Frontiers.'

In his presentation, he illustrated how the Amana Group in Sri Lanka has made vast strides in introducing, pioneering and growing Islamic financial services since 1997 and the impact it has made on the country's financial services sector and the community.

The Amana Group consists of five companies engaged in Shariah-compliant investment and financing activities, Takaful Insurance, corporate advisory services, real estate management, bullion trading and produce broking.

Amana has strategic alliances with Bank Islam of Malaysia and Sariyakat Takaful of Malaysia in its finance and insurance businesses. The parent company's key shareholders include two large corporate groups in the country, namely Expo Lanka and Akbar Brothers, Bank Islam of Malaysia and a number of local and foreign individuals and companies.

Salieh told the forum that the Muslim community in Sri Lanka was a dominant trading community and essentially consisted of small and medium sized enterprises. He estimated the size of the Islamic market segment at about US$ 500 million and growing at 15% p.a.

He commended the Sri Lankan government on its plans to support, assist and revitalise the small and medium scale enterprises in the country as they formed the back-bone of the economy.

"The independent identity of Muslims, their increasing political and ethical awareness, the growth of Islamic banking in the Middle East and Malaysia and limited access to conventional banks were the factors that influenced the thirst for Shariah-compliant products and the ready migration of customers into Amana's folds," Salieh explained.

"Our customers are strongly Shariah-focused and will not compromise on Shariah when it comes to banking transactions. Business ethics is the major driver of our business," he said.

Amana offers the market a wide range of Shariah-compliant investment and financing products and insurance products. Its customers comprise both Muslims and non-Muslims. Over its seven-year history, Amana has recorded remarkable growth in investments and advances, and returns to investors have compared well with some of the conventional, Riba-based market instruments.

Salieh put down "changing the mindset of regulators to accept and see value in an ethics-driven business model for banking and insurance, accelerating the customer conversion rate in the primary Islamic market segment, reaching the non-Islamic market segments and diffusing the apprehensions of conventional competitors and developing and developing co-existence" as the main challenges faced by Amana in Sri Lanka.

Speaking to the media soon after his presentation, Salieh said that his country's regulators are clearly moving forward in keeping with global trends; that they have licensed Amana's insurance business and were now looking positively at Islamic banking.

The licencing of the Islamic Bank of Britain by the FSA in the UK in August and the presence of four Islamic banks in Thailand were landmark developments and indicate the acceptance and approval of Islamic banking practices by global regulators.

He said that Amana would open the doors for the flow of new investments into Sri Lanka from global Islamic funds that were looking for Shariah-compliant investment opportunities.


'Lifetime Award' for Prof. Balakumaran

Prof. Mahadeva Balakumaran received the 'Lifetime Award' in recognition of his outstanding contribution to the banking field and especially to the Chartered Institute of Bankers, Colombo Centre from the Association of Chartered Bankers of Sri Lanka Trust recently.  The youngest recipient of this prestigious award, Prof. Mahadeva Balakumaran is an outstanding banker, scholar and a much sought after management consultant and trainer.

The former assistant general manager of Seylan Bank Limited, he is presently a faculty member in many academic, professional institutions and universities and considered to be the most professionally qualified banker in this country having obtained his PhD from the University of Honolulu, USA.

A citation was delivered by President, Association of Chartered Bankers of Sri Lanka Trust, S. Sivanathan in honour of Professor M. Balakumaran at the 'Lifetime Awards In Banking' ceremony held recently, at Hotel Taj Samudra. "The 'Lifetime Award' of the Association of Chartered Bankers of Sri Lanka Trust has been presented to Prof. Mahadeva Balakumaran a well earned reward for his considerable contribution, in general to the banking profession in Sri Lanka, and in particular to being education and the Colombo Local Centre," said Sivanathan.

Prof. Balakumaran was also the first recipient from Sri Lanka to be awarded the Financial Studies Diploma (Dip FS) - the highest level qualification of the Chartered Institute of Bankers, London, and also one of the first four persons to obtain the Diploma in Bank Management from the Institute of Bankers, Sri Lanka. Prof. Balakumaran has also been awarded fellowships by both the Chartered Institute of Bankers, London (FCIB) and the Institute of Bankers, Sri Lanka (FIB).

Among his qualifications is a MBA from the Postgraduate Institute of Management, University of Sri Jayewardenapura, as well as postgraduate certificates in human resource management in banks and asset and liability management from the same institution. He is also an associate of the Institute of Credit Management in Sri Lanka. Prof. Balakumaran's immense contribution to banking, finance and management is testimony to his scholarly achievements. He is also a distance-learning tutor of the Chartered Institute of Bankers, London and has received letters of commendation for 100% success rate of his students.

He is a member of the Association of Banking Teacher (ABT), which is affiliated to the Chartered Institute of Bankers (London) and a being a regular contributor to several national and foreign publications. Prof. Balakumaran had his primary education at Royal College, Colombo 7. He later graduated in commerce from the University of Madras.



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