Formula coming, oil price reduction soon: Minister

A new pricing formula taking into consideration the international fuel price reduction is to be submitted to the President soon, Petroleum Minister Chandima Weerakkody said. He said the formula would be discussed with the Finance Ministry before implementation.

“The Government will take a decision regarding the reduction of fuel prices with the implementation of a new price formula. We expect the new pricing formula will be implemented within a month. There should be a basis for reducing prices. “There is a fluctuation of prices in the world market and reductions cannot be done on a regular basis. We will prepare a report on how it should be done and send it to the President,” he said.

Mr. Weerakkody said that the ministry in its recommendations would propose to whom concessions should be given.
A senior Finance Ministry official said the fuel concessions should be given in a manner that it did not further burden the national budget. “We cannot decide on a fuel price reduction based only on the falling international prices,” he said.

Over the weekend, the price of crude oil dropped to less than US$ 45 a barrel, compared to about US$ 100 during the same period last year. Opposition politicians have called on the Government to further reduce prices.

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CA to make representations to SEC on ‘whistle blowing’

By Duruthu Edirimuni Chandrasekera

The Institute of Chartered Accountants Sri Lanka (CA) is to make representations to the Securities and Exchange Commission (SEC) on ‘whistle blowing’, officials say. ”We are in the process of making representations to the SEC to find the right balance in terms of whistle blowing,” a CA official told the Business Times.

He added that while they are awaiting SEC’s draft legislation which aims to incorporate fresh laws mandating auditors to bring any financial irregularities to the SEC, the CA is in the process of reviewing their Ethics Code, to be out next year and that they want to incorporate the whistle blowing elements into this code.

He pointed out that whistle blowing by accountants and auditors are filled with ethical challenges and that they are sensitive to mandated whistle blowing.

“Auditors have confidentiality obligation not to divulge client information,” he said, adding that they are supposed to seek out and find instances of materially false and ambiguous financial statements. But the SEC says that when the cost of non-disclosure is potentially damaging to individuals or society, discretion must be overridden. They say that similar laws are adopted in countries such as Malaysia and the US.
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Laugfs to get 2nd ship by month end

By Duruthu Edirimuni Chandrasekera

Laugfs Gas PLC (LGL), an energy group, through its new subsidiary Laugfs Maritime Services Pvt Ltd (LMS) is wrapping up the final loose ends to purchase its second vessel to transport downstream Liquefied Petroleum Gas (LPG), officials said.

This has come on the back of a similar purchase last year, which came at a cost of US$ 6.9 million, with officials saying that the new ship will also cost about the same and is scheduled to arrive by month end. They said that a second ship, bought from Greece, was needed to cater to the burgeoning LPG demand. “The LPG prices are coming down significantly and the demand for LPG is rising, where it has come to a point that we cannot cope with it,” an official told the Business Times, explaining that LMS wants to own, operate, hire and charter various types and size of ships including LPG vessel and other type of vessels that can carry various energy products.

He added that the Laugfs Group has plans to control their logistics on their own. In a bid to carry this plan forward, Laugfs’s fully owned subsidiary Laugfs Terminal Ltd, entered into a business venture with Sri Lanka Ports Authority (SLPA) to set up a LPG storage terminal project at the Hambantota Mahinda Rajapaksa Port last year. Laugfs will lease land for two projects, one of which will be to establish an LPG storage and distribution plant at a cost of $20 million while a less expensive effort will be made to build a lubricants blending plant with a capacity of 50 000 metric tons per annum at a cost of $1.14 million.

LGL now primarily engages in the operations of import, storage, filling, distribution and sale of LPG. Its plant in Mabima in the Western Province contains a storage facility of 3,000 MT. LGL operates as the only private – sector owned-gas company with a market share of 30 per cent in a duopoly market with state owned Litro Gas as its sole competitor. LGL’s operations cater to the domestic sub sector, commercial sub sector and industrial bulk sector.

Laugfs’ other sectors including vehicle emission testing (VET), leisure, mini hydro power generation, property development and transport and logistics via five subsidiaries Laugfs Eco Sri (Pvt) Ltd, Laugfs Leisure Ltd, Laugfs Power Ltd and Laugfs Property Developers (Pvt) Ltd.

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Gestetner records 67% profit growth in 2014/15

Gestetner of Ceylon PLC continued on the upward trajectory for the financial year 2014/2015. The company marked a significant growth in profit for the financial period ending March 2015, with profit after tax for the year growing by 67%.

Revenue for the year also improved notably at a 16% increase on the previous year. This can be attributed to a cohesive expansion of the company's dealer network, with a strong presence of 22 dealers across the island at present. The company, which imports office automation equipment in Sri Lanka, has also introduced several new products and services to its portfolio over the last year. Most recently it presented a total document solution, which currently services several top corporates in Sri Lanka.

Profit-wise, Gestetner marked a robust growth for the year at Rs 52.33 million, in comparison to the previous financial year's Rs 31.31 million. Basic earnings per share also rose from Rs 13.74 to Rs 22.97. Dividends per share rose by 80% to Rs 9 per share.

"The rapid growth in profit we've witnessed over the last few financial years is quite remarkable," noted Chandima Perera, Managing Director for Gestetner of Ceylon PLC, adding that this steady financial growth was largely due to the company's willingness to constantly reinvent itself. "We're determined to keep pace with rapidly evolving market needs for the kind of services and products we offer, and that keeps us at the top of our game."

Having pioneered the introduction of digital copiers in Sri Lanka, Gestetner today offers cutting-edge digital document management solutions such as digital duplicators, digital imaging systems, network laser printers, and facsimile machines. With partners Ricoh Asia Pacific, the company has made significant strides in its retail business, introducing products such as digital copiers and P2P (Print to Profit) copier outsourcing services – another first for the country. Gestetner celebrated its 50th anniversary as a public quoted company in Sri Lanka last year, and commands the market as one of the top three document solution providers in the industry.
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Sri Lankan shares edge down on weaker rupee, policy uncertainty

Reuters: Sri Lankan shares edged down on Friday in light trade for a second session, led by falls in banking and telecommunication shares, as a weakening rupee and high interest rates prompted investors to cut their positions in risky assets, brokers said.

Trading volume remained low as investors awaited cues from the policy of the new government.

The main stock index ended 0.09 percent or 6.45 points weaker at 7,153.49.

Turnover stood at 474.6 million rupees ($3.4 million), well below this year's daily average of 1.13 billion rupees.

"Lack of policy direction is the main problem and investors are waiting to see the budget and how the government is going to bridge the budget deficit," said Dimantha Mathew, a research manager at First Capital Equities (Pvt) Ltd.

"This trend will continue until a clear statement or some sort of a positive signal comes in."

On Tuesday, the bourse hit a near eight-week low as investors waited for economic policies from the newly formed government. A weaker rupee curbed investor risk appetite and rising market interest rates also hit sentiment with t-bill yields were at more than five-month high.

Foreign investors sold a net 86.2 million rupees worth shares on Friday extending the year to date net foreign outflow to 3.29 billion rupees worth of equities so far this year.

Shares in biggest listed lender Commercial Bank of Ceylon Plc fell 0.54 percent and Dialog Axiata Plc fell 0.88 percent, dragging down the overall index. 

($1 = 138.9000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anand Basu)

Sri Lanka’s EAP Broadcasting gets [SL]BBB rating from ICRA

ECONOMYNEXT – ICRA Lanka Limited said it has given an issuer rating of [SL]BBB for Sri Lankan television broadcaster EAP Broadcasting Company Limited (EBC) with a stable outlook.

The rating takes into account the strong positioning of some of EBC’s TV and radio channels which has enabled it to generate repeat advertisement revenues from leading corporate houses in Sri Lanka, a statement said.

“EBC has been able to capitalize on these strengths and improve its financial profile which is currently characterised by robust profitability, healthy cash flows, moderate capital structure and comfortable coverage metrics.”

EBC’s flagship channel – Swarnawahini – is estimated to be among the top three viewed TV channels in the island on the strength of its programming content and island wide reach, said ICRA Lanka, a subsidiary of ICRA Ltd, a group company of Moody’s Investors Service.

The full rating report follows:

ICRA Lanka Limited, a wholly owned subsidiary of ICRA Ltd, a group company of Moody’s Investors Service has assigned an Issuer rating of [SL]BBB (pronounced S L triple B1) for EAP Broadcasting Company Limited ("EBC”/ “the Company”). The outlook on the rating is stable.

The rating takes into account the extensive experience of the Company’s management in the media industry and the strong positioning of some of EBC’s Television (TV) and radio channels which has enabled the Company to generate repeat advertisement revenues from leading corporate houses in Sri Lanka. The Company’s flagship channel – Swarnawahini – is estimated to be among the top 3 viewed TV channels in the island on the strength of its programming content and island wide reach.

Despite lower reported market share, the Company’s radio channels also count leading business houses as its customers, indicating healthy listenership levels for some of its prime time shows. The ratings also take note of the strong entry barriers in Sri Lanka’s media industry owing to significant capital investments required to build technical competence, curb on new media license issuances and strong linkages of incumbent market leaders with leading corporate houses which cumulatively bestow existing players with competitive advantages. EBC has been able to capitalize on these strengths and improve its financial profile which is currently characterised by robust profitability, healthy cash flows, moderate capital structure and comfortable coverage metrics. EBC’s revenue profile is also diversified, spread across a broad array of domestic and international corporate clients which mitigates revenue concentration risks to an extent.

These strengths are partially offset by concerns over increasing competitive intensity among existing players necessitating aggressive pricing and high marketing spends, regulatory risks given stringent annual review of media licenses, exposure to cyclicality in corporate ad-spending and volatile profitability of the Company’s radio business on account of under investment in programming content and technology.

ICRA also takes note of significant inter-Group (EBC is part of the EAP Group) balances due to and from EBC. Though the Company has implemented measures to restrict such advances in the future, the outstanding advances expose EBC to the business/financial risks of Group’s firms which are engaged in non-related businesses.

One of the Group’s businesses (ETI Finance) which was primarily engaged in pawning has incurred heavy write-downs in the recent past which accentuates spill over risks given considerable intergroup transactions. These risks are now being managed through the Group’s Treasury & Investments Committee, Board Risk Management Committee and Board Audit Committee. Ability of the Group to ensure strict control over such advances would be a key sensitivity to the ratings. In this context, ICRA Lanka derives comfort from the recent induction of experienced professionals across key verticals of the Group which would aid in strengthening strategy formulation besides also ensuring implementation of sound corporate governance practices.

In arriving at the rating, ICRA has assessed the EAP Group’s proposed restructuring plans under which EBC’s recently setup subsidiary– Galaxy Landmark – is likely to buy out several properties worth over LKR 1,500Mn from ETI Finance as part of recapitalization efforts. The funding for the said transaction would be in the form of debt and equity from EBC. EBC is in turn expected to fund the same through a mix of accruals and external borrowings. Galaxy Landmark proposes to convert these properties into rentable commercial real estate assets. The first such project would be the construction of a mall in Rajagiriya (Impala Cinema) at a cost of ~LKR 980 Mn, funded by incremental bank debt taken in Galaxy Landmark’s books.

The entry into the commercial real estate business increases the overall risk in the group, given the lumpy nature of cash flows and project specific risks inherent to the real estate business. However, ICRA has taken comfort from the expected healthy cash flow generation from EBC’s existing standalone business lines on the back of expected growth in corporate ad-spends led by economic growth, which is expected to be adequate to cover debt obligations. EBC’s continuous efforts to improve programming content as well as expanding reach is also expected to help improve market share which would aid in sustaining wallet share with corporate entities and thereby improving EBC’s standalone financial profile.

However, any unforeseen delays in the proposed mall construction which would require incremental funding support from EBC or inability of the Group to sustain the growth in profitability of the volatile radio business could adversely impact cash flows and hence would remain key sensitivities to the rating. ICRA would continue to monitor the progress of the mall construction and would re-assess the impact of any new developments on EBC’s cash flows on a case-to-case basis.

Company Profile

EBC is a part of the EAP group of companies which has wide spread business interests across sectors such as financial services, jewellery retailing, cinema distribution, real estate and hotels. EBC is one of the flagship entities of the group and is engaged in the production, sourcing and broadcasting of content over television. It has two free-to-air (FTA) channels – ETV and Swarnawahini. Swarnawahini is considered to be market leader in several Sinhala based programmes and is estimated to be ranked among top 3 channels in Sri Lanka. ETV on the other hand focuses on English channels. EBC also produce and broadcasts content over three radio channels (E FM, Ran FM and Shree FM) for which licenses are held by EBC’s subsidiary Colombo Communications Limited.

According to recently made available audited statements, on a standalone basis, for the FYE Mar-15, EBC reported a net profit of LKR 442.5 Million on a total income of LKR 2.565.5 Million compared to a net profit of LKR 211.9 Million reported on a total income of LKR 2,088.2 Million in FYE Mar-14.

On a consolidated basis, for the FYE Mar-15, EBC reported a net profit of LKR 433.8 Million on a total income of LKR 2,565.5 Million compared to a net profit of LKR 261.9 Million reported on a total income of LKR 2,388.1 Million in FYE Mar-14.

Rs 60 Billion in the pipeline L & T to invest in Infrastructure here

(PTI Mumbai, September 10): Engineering major Larsen & Toubro (L&T) is expecting Rs 60 Billion Lankan rupees worth infrastructure projects in Sri Lanka as it seeks to expand its global presence, an Indian media reported yesterday.

"We are looking at expanding our global presence. There is an opportunity we are looking at in Sri Lanka. Almost three infrastructure projects worth Rs. 60 Sri Lankan rupees are likely to come up and we believe that we have a good chance of getting them," Chairman and Managing Director A.M. Naik told reporters on the sidelines of the company's 70th Annual General Meeting.

Once the resources are tied up, these projects are likely to be materialized during the fourth quarter and the company can bag those projects, he added. Naik said the company is also looking at a few more countries to expand its international presence.

"We are already in West Asia and also made a foray into the African markets. We will continue to look at some more countries for expansion. But our order mix will continue to be 20-25 per cent international and 75-80 per cent domestic, as the market here is now looking promising," he said.

L&T is also expecting a 15 per cent growth in order inflow this fiscal, he said.
While orders in the hydrocarbons segment in West Asia have not picked up, there is scope in the infrastructure sector.

The current order book of L&T stands at around Rs 2,39,000 crore.

Naik further said the company will continue to be cautious while selecting road projects and will continue to concentrate on its core business.

"We have around 17 road projects out of which 6-7 are not profit-making. Few years back, everyone went aggressive when they thought that roads sector is a sunrise industry. That time we did not understand there could be impediments in terms of right of way, or work will stop, cost will rise and government will not give extra claims because of which majority projects not going well."

"Our focus will be to make them profitable and until that happens we will not invest more. It might take another two years for the projects becoming profitable. But we will continue to review the mood conservatively and selectively bid for projects," he said.
Naik further said the company will continue to monetise its non-core assets.

"Last year we sold the Dhamra Port in Odisha and we will continue to sell some more, especially in the realty sector. Realty projects in Chandigarh and Seawoods, Navi Mumbai, would be put on block. Also we will sell the Kattupalli Port (Tamil Nadu). These projects, especially the real estate ones, are meant to be churned and invested in other projects," Naik added.

When asked whether the company was planning to sell its road projects as well, he said, 

"We will focus on making them profitable and not sell them."

The Chairman, earlier told the shareholders, that the company will keep unlocking value by listing subsidiaries that are unrelated to its core infrastructure business.

"Value unlocking will impact shares of L&T positively. We are offering a platform by listing the subsidiaries which will allow them to grow much faster. Spinning L&Ts' infrastructure business is not considered wise by the Board.

But, we will unlock value by selling subsidiaries which are nowhere aligned to our core business," he said.
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