VAT, NBT Exemption To Hurt Beer Industry

The exemption of the Value-Added Tax (VAT) and Nation Building Tax (NBT) from the beer industry, coupled with the increase of excise duty to recover the lost government revenue, will form an adverse effect on the industry, according to Sri Lanka’s largest brewer, Lion Brewery (Ceylon) PLC.“For many years, the alcohol industry has been subjected to poorlythought-out policies. The adjustment is a case in point. These seem good on paper to those without the benefit of proper information,” Lion Brewery said in a review to its second quarter performances. Lion, the industry leader, is expecting a cost increase of Rs.600 million due to the new policies.

The exception of VAT and NBT from sale of beer has led t o t he inability of the company to claim input VAT from the government.This usually happens when the taxes on supplies purchased for production outweigh the taxes collected f rom the consumer.Further, t he excise duties were increased by Rs.10 and Rs.15 for mild and strong beer, respectively on October 10 during the lead up to the budget and on October 24 with the budget 2015, duties were further increased by Rs.30 and Rs.40 for mild and strong beer, respectively to recoup the loss of VAT and NBT receipts. Lion had passed on the first excise duty increase to the consumer but could not justify another increment within just two weeks.

“The company’s net result in the remaining period of this financial year may not be as buoyant as in the first half,” the company therefore reasoned.

The company has also been experiencing greater complexity in its supply chain due to VAT and NBT exceptions as it cannot issue VAT invoices for customers liable for it, such as hotels, restaurants and supermarkets, which can no longer claim input VAT on beer.

Supermarkets and other retailers have been particularly affected since they are also subject to a maximum retail price as per Sri Lankan regulations.

“Such customers have negative margins post-VAT and as a result, t hey have stopped orders for beer from October 25. This is likely to lead to a loss in volumes although a part of it will be recouped through wine shops, which are not liable for VAT,” the company noted.

It was also of the belief that these ad-hoc policies promote the products of illegal brewers, who do not pay tax.“The public believes that alcohol tax increases lead to lower consumption but the reality is far from it; the illicit and quasi legal manufacturers sell more and make more profits,” the company said and stressed that this would result in lower revenue for the government and poorer quality for consumers.
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Sri Lankan stocks at more than 3-1/2 year high; banks lead

Nov 18 (Reuters) - Sri Lankan stocks rose for a sixth straight session on Tuesday to their highest closing level in more than three-and-a-half years, led by telecom and banking stocks as the central bank held its key policy rates steady at multi-year lows.

The Central Bank of Sri Lanka kept key policy rates steady at record lows for a 10th straight month, and said stable inflation and steady credit expansion should help the economy grow by around 8 percent over this year and next.

Continued foreign buying, low interest rates and hopes of better corporate earnings helped boost investor sentiment, traders said.

"Now, the market has gone up a bit. I believe there could be small profit-taking, especially in December there could be profit-taking and correction," said Dimantha Mathew, manager, research at First Capital Equities (pvt) Ltd.

The main stock index rose 0.32 percent, or 24.23 points, to 7,548.23, its highest closing level since April 12, 2011.

The market has been in the overbought region since Nov. 13. The relative strength index was 76.644 on Tuesday, above the upper neutral range of 70, Thomson Reuters data showed.

Turnover was 3.83 billion rupees ($29.24 million), exchange data showed, well above this year's daily average of 1.44 billion rupees.

Foreign investors were net buyers of 212.6 million rupees worth of shares, extending net foreign buying so far this year to 18.43 billion rupees, exchange data showed.

Dialog Axiata Plc rose 6.87 percent, leading overall gains, while Carson Cumberbatch Plc added 7.93 percent.

Shares in the country's biggest listed lender, Commercial Bank of Ceylon Plc, rose 0.80 percent. 

($1 = 131.0000 Sri Lankan rupee) 

(Reporting by Ranga Sirilal; Editing by Subhranshu Sahu)

Sri Lanka stocks close up 0.3-pct

Nov 18, 2014 (LBO) - Sri Lanka's stocks closed 0.32 percent higher with telco and diversified stocks gaining, brokers said.

The Colombo benchmark All Share Price Index closed 24.23 points higher at 7,548.23, up 0.32 percent.

The S&P SL20 closed 34.79 points higher at 4,204.87, up 0.83 percent.

Turnover was 3.83 billion rupees, up from 2.43 billion rupees a day earlier with 97 stocks closed positive against 114 negative.

Access Engineering closed 70 cents lower at 41.50 rupees with a massive off market transaction of 1.60 billion rupees changing hands at 40.10 rupees per share contributing 42 percent of the turnover while attracting most number of trades during the session.

The aggregate value of all off-the-floor deals represented 47 percent of the daily turnover.

Foreign investors bought 334.01 million rupees worth shares while selling 121.45 million rupees worth shares.

Dialog Axiata closed 90 cents higher at 14.00 rupees and Carson Cumberbatch closed 34.90 rupees higher at 474.90 rupees, contributing most to the index gain.

Monetary Policy Review – November 2014 - Policy rates unchanged

Reflecting the recent downward adjustments to domestic energy prices, headline inflation on a year-on-year (y-o-y) basis declined to its lowest level since November 2009 to record 1.6 per cent in October 2014, compared to 3.5 per cent in the previous month. Annual average headline inflation also declined to 3.8 per cent from 4.2 per cent. Core inflation (y-o-y) meanwhile, was at 3.6 per cent in October 2014 compared to 3.7 per cent in the previous month indicating well contained demand pressures on inflation. It is expected that subdued commodity prices in the international market, recent budget proposals such as reducing the Value Added Tax (VAT) to 11 per cent and stable inflation expectations would keep inflation at benign levels in the period ahead.

Broad money (M2b) grew by 12.8 per cent (y-o-y) in September 2014 compared to 12.3 per cent in the previous month reflecting the expansion in bank credit obtained by the private and public sectors. During the first nine months of the year, net credit to the government (NCG) from the banking sector has increased by Rs. 87.3 billion while credit to public corporations has declined by Rs. 1.2 billion. Net foreign assets (NFA) of the banking sector have increased by Rs. 225.9 billion during this period.

A healthy growth of credit disbursements to the private sector by commercial banks were observed for the second consecutive month in September 2014. Credit obtained by the private sector from commercial banks increased by Rs. 52.3 billion during the month of September, following an increase of Rs. 47.7 billion in August. On a y-o-y basis, this was an acceleration of credit to 4.6 per cent in September 2014 from 2.6 per cent in the previous month. The quarterly survey of commercial banks’ loans and advances to the private sector reflected substantial credit flows to the Industry and the Services sectors in the first three quarters of the year. In the meantime, providing further impetus for a robust credit growth in the period ahead, the impact of the contraction in pawning advances on private sector credit growth following the decline in international gold prices appears to have gradually diminished in response to the policy measures introduced by the Central Bank. The reduction in market interest rates, including those on medium and long term credit facilities, is also expected to reinforce a continued credit flow to the economy.

On the external front, the Sri Lanka rupee remained broadly stable supported by foreign currency inflows mainly on account of export earnings, tourism, remittances, and other inflows to the banking sector. Accordingly, the gross official reserves stood at an estimated US dollars 8.8 billion, equivalent to 5.3 months of imports by end October 2014.

In this background, the Monetary Board at its meeting held on 17th November 2014, was of the view that the current monetary policy stance of the Central Bank is appropriate. Accordingly, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank will remain unchanged at their current levels of 6.50 per cent and 8.00 per cent, respectively. Access to the Standing Deposit Facility (SDF) will remain rationalised while OMO auctions will be conducted as necessary.

The date for the release of the next regular statement on monetary policy would be announced in due course.

Monetary Policy Decision: Policy rates unchanged

Standing Deposit Facility Rate (SDFR) 6.50%
Standing Lending Facility Rate (SLFR) 8.00%

Statutory Reserve Ratio (SRR) 6.00%
http://www.cbsl.gov.lk/pics_n_docs/latest_news/press_20141118e.pdf

Richard Pieris records 6-months revenue of Rs. 18 b

The Richard Pieris Group in a statement said yesterday it has ended its first half-year with a strong performance. The Group reported a profit before tax of Rs. 1.2 b on revenue of Rs. 18 b for the six months ended 30 September 2014.

The period under review evidenced a steady performance in all its major sectors where the reported profits represent business profits, and do not include any gains of a capital nature.

Retail Sector: The Retail Sector of the Group comprises Arpico Super centres and the network of Arpico outlets scattered island wide. The sector had a dynamic first six months with many activities. During the quarter under consideration it commenced operations of five Arpico Daily outlets, which are outlets of a smaller scale and which line of business is being expanded.

The company continued its focus on marketing activities with the very popular ‘Privilege family beach holiday’ campaign for the fifth consecutive year. The novel ‘Top tips’ campaign created a lot of excitement in the market, showing the true commitment to its valued customers. The ‘Top tips’ campaign was very well received by all, as evidenced by the enthusiasm shown at the super centres.

Plastics and Distribution Sector: The Plastics and Distribution Sector performed well during the first six months of 2014/15 where most of the business units performed better when compared with the corresponding period of the previous year. The sales of water tanks continued to thrive with the newly introduced hybrid tanks being well accepted in the market place. The prolonged drought in the southern part of the country also contributed to boost sales. The sector also conducted an aggressive sales promotion of its mattresses which enabled a revenue growth of 15% over last year.

Plantation Sector: The Plantation Sector of the Group experienced a quiet first half year which was hampered by adverse weather conditions and low prices. The Richard Pieris Group possesses three of the largest plantation companies in the country with diverse crops which includes high grown, mid grown and low grown tea, rubber, oil palm, coconut, cinnamon, cardamom, rambutan and other crops contributing to more than 20% of Group turnover.

The Plantation Sector was adversely affected by low rubber prices and production volumes. There was an increase in the prices of oil palm but a drop in production volumes. Even tea production decreased during the period under consideration when compared with the previous year. Adverse weather conditions which prevailed affected crops and production volumes.

Tyre Sector: During the period under review the tyre sector continued to benefit from favourable raw material prices and savings in energy sources which were introduced last year resulting in an overall increase in terms of profitability. The sector is exploring new business opportunities in overseas markets for its retreading business and initial efforts have been successful.

Rubber Manufacturing Sector: The sector continued to thrive during the six months ended on 30 September 2014 in the back drop of a very successful 2013/14. Its excellence was well recognised with the winning of two Gold awards at the National Chamber of Commerce Export Awards Ceremony which was held recently. There was an overall improvement in the performance of the sector with most business units achieving the set goals.

The latex foam business continued to maintain its high standards and there was an increase in the demand for latex mattresses and pillows especially in the local market. Richard Pieris Exports continued its success story from the previous quarter and was benefited by changes in its product mix with increased sales orders from high margin products. This was in addition to continuous improvements made in reducing wastage, energy and overheads.

Financial Services Sector: Though the Group is focused in its traditional businesses, diversification into financial services was successfully ventured over the past few years. At present Richard Pieris Group consists of its own insurance, stock broking, fund management and a finance company.

The sector, though at an infant stage reported a positive bottom line when compared to a marginal loss which was recorded last year. Richard Pieris Finance Ltd. (RPFL), a subsidiary company of Richard Pieris and Company PLC, acquired 81.77% of shareholding of Chilaw Finance PLC (CF) consequent to the memorandum of understanding entered into between the parties (RPFL and CF) on 15 August. This is in order to facilitate the financial sector consolidation process initiated by the Central Bank of Sri Lanka.

With a strong overall performance during the first six months of 2014/15, the Group is set to perform well in the upcoming quarter which is usually a very busy period for the Richard Pieris Group with the seasonal activities, a company spokesman said.
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Expolanka divests investments in 8 firms, land for Rs. 1.16 b

As part of the on-going restructuring, Expolanka Holdings Plc has fully divested its investments in eights subsidiaries for Rs. 740 million.

The eight firms are Expolanka teas Ltd., Expolanka plantations Ltd., World Spices & Tea Ltd., Neptune Holdings Ltd., Castle Commercial Ltd., Expolanka Pharmaceuticals Ltd., Bio Extracts Ltd., and Saffron Foods Ltd.

Expolanka has also entered into a sale and purchase agreement to sell its land located at Avissawella Road for Rs. 421 million to Aberdeen Holdings.

The buyer was Aberdeen Holdings Ltd., whose major shareholder and director Osman Kassim is also a director of Expolanka Holdings.

“The entire transaction was undertaken after undergoing a transparent and competitive bidding process which was managed and facilitated by a leading firm of Chartered Accountants and the process was overseas by the Independent Directors of the Company,” Expolanka Holdings said in a filing to the Colombo Stock Exchange.

It said the company has undertaken this divestment with the aim of bringing improved returns and cash flows to the organisation and also to bring focus to the core business operations.
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EPF equity portfolio’s unrealised profit tops Rs. 14 b

The Central Bank said yesterday the mark to market value of the EPF’s investments in equities as at 14 November comfortably exceeded Rs. 14 billion, in the background of favourable equity market performances.

In addition, the EPF has also realised Rs. 6.7 billion by way of dividends, debenture interest and capital gains from its investments in equities and corporate debt instruments so far during 2014, the Central Bank added.
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Hemas Holdings posts 29% growth in underlying earnings

The Hemas Holdings group has recorded consolidated revenues of Rs. 15.7 b, a growth of 22.0%, and group earnings of Rs. 887 m, a drop of 9.9% over the same period last year.

However last year’s corresponding period included a one off capital gain of Rs. 364 m on the transfer of Peace Haven to PH Resorts, a joint venture company. Underlying earnings, adjusted for one-off items, recorded a growth of 29.5% over last year.

Hemas Holdings CEO Steven Enderby said the Group’s personal care business has grown revenue by 26.0%, to Rs. 5.9 b with personal wash, oral care and home care categories contributing positively to sector top line growth. The sector enjoyed a good quarter with encouraging volume growth contributing to the increase in revenue. In addition to good financial performance it has also received industry recognition for the performance of its leading consumer brands,’ he said.

Its personal wash brand, Velvet, was awarded Sri Lanka’s ‘Brand of the Year’, ‘Local brand of the Year’ and ‘Product brand of the Year’ at the recent Brand Excellence Awards held by the Sri Lanka Institute of Marketing. During the quarter, the sector divested its interest in the tissue and toilet paper category with the sale of Nimex.

The Healthcare sector recorded a growth in revenue of 13.0% to Rs. 6.5 b, led by the higher contribution of its third hospital in Thalawathugoda, good growth at Wattala hospital and recent acquisition, JL Morison.

“Our pharmaceutical segment’s performance continued to be hampered by weak market conditions. The industry grew at 0.03% during the second quarter (Source: IMS). In these weak market conditions, the company maintained its market leadership position,” Enderby said.

J.L. Morison achieved revenue growth of 5.3% to Rs. 1.3 b, led by an increase in production at its pharmaceutical manufacturing operation, which grew by 21.4% over last year. This growth is being augmented by its investment in the upgrading of the facility to meet globally-recognised Good Manufacturing Practices and an increase in capacity. The business has recovered well from the plant shutdown which impacted Q1 results, according to the Hemas CEO.

The Leisure sector achieved revenue growth of 39.4% to record Rs. 1.2 b. The growth in sector revenue was driven by the Hotels segment with revenues of Rs. 638 m, an increase of 86.9%, while earnings grew to Rs. 89 m during the period under review. However year-on-year comparisons are not particularly meaningful due to the closure of Club Hotel Dolphin and Hotel Sigiriya for refurbishment during the corresponding period the previous year. During the period the hotels recorded an average occupancy rate of 73%.

The Transportation sector posted revenues of Rs. 723 m, 27.0% growth, with a strong contribution from the Maritime and Logistic segments. The Maritime segment continued to enjoy an increase in volumes driven by an increase in transhipment volumes to Sri Lanka, along with the addition of new destination ports during the last quarter. The Logistics segment consolidated its presence in container yard operations increasing capacity utilisation and contributed to the overall sector earnings growth of 16.3%.

Hemas’ IT solutions business, N-able, recovered well from project delays in Q1 to enjoy a good quarter with the completion of several key contracts. The business recorded earnings of Rs. 43 m for the year to date, a significant increase over the same period last year.

The Power sector posted revenue of Rs. 262 m, a decline of 22.1% over the previous year hampered by the low rainfall experienced in Q1. The heat rate reserve charge on the Heladhanavi income statement led to the decline in sector profitability, recording a loss of Rs. 45 m, a decline of 132.1% over the previous year.

During the quarter, the Group entered into an agreement to sell its shareholding in Hemas Power PLC to a consortium of buyers, consisting of NDB Capital Holdings PLC, ACL Cables PLC and Trydan Partners Ltd., thus divesting the company’s interest in the Power sector.

“This is an important move for the Group in line with our strategy to focus on our core strengths of Wellness, Leisure and Mobility,” Enderby emphasised.

“This renewed focus on our core strengths coupled with ongoing investments in healthcare, personal care and leisure provides us with the confidence to weather an increasingly competitive business environment and achieve growth across our business sectors,” the Hemas CEO added.
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