The Nation GAIN

Sunday, May 6, 2012

Singer revenue grows by over Rs.1bn to Rs. 6.2 bn

Sri Lanka’s Singer Group has passed a financial milestone during its first quarter ending March 31, 2012 as its revenue grew by over a billion (Rs.1.1 billion in absolute terms) or 22% over the first quarter of the previous year to Rs.6.2 billion, interim results released last week showed. Singer Sri Lanka Group CEO Asoka Pieris stated that the organization’s performance was despite the fact that consumer sentiments were affected by the rupee’s devaluation and sharp increase in electricity and fuel costs.
The growth in the Group’s revenue has boosted its profit before tax by 11% and its profit after tax by 36%.
According to a press release issued by the firm, the Group’s performance was driven, in part, by a surge of sales in major product categories, signaling continued success in its mission to improve Sri Lankan lifestyles. For example, sales of refrigerators increased by 40% over the first quarter of 2011, while sales of domestic and artisan sewing machines improved by 25%. Other product lines which experienced significant increases were fans (74%), microwaves (501%), air conditioners (52%), kitchen appliances (55%), irons (229%), water pumps (45%) and bicycles (61%).
With more than 360 stores island-wide, Singer Sri Lanka also has the country’s most extensive retail network.

Trade deficit shoots up by 67.5% in February

Sri Lanka’s trade deficit in the month of February 2012 shot up by a sharp 67.5% to US $701.8 bn whilst the cumulative deficit for the two months in 2012 has surged by 59.7% to a near US $1.7 bn, statistics from the Central Bank showed.

In February 2012, although earnings from exports increased by 7.6 per cent to US dollars 879 million, expenditure on imports increased by a sharper 27.9 per cent to US dollars 1,581 million over the corresponding month of the previous year.

The largest contribution to the export earnings in February 2012 was from industrial exports. Industrial exports grew by 3.3 per cent, year-on-year in February 2012 mainly driven by gem, diamonds and jewellery and rubber products. Export earnings from gems, diamonds and jewellery increased by 34.1 per cent. Earnings from rubber based products increased by 17.5 per cent due to the continuous high demand from major export destinations, particularly from the USA. Earnings from textiles and garments exports, which accounted for about 40 per cent of total export earnings, increased moderately by 1.4 per cent. Earnings from petroleum products, transport equipment, food, beverages and tobacco, leather, travel goods and footwear and ceramic products declined in February 2012.

Earnings from agricultural exports declined in February 2012, as a result of lower performance recorded in traditional agricultural exports of tea and rubber. Earnings from tea exports declined by 11.6 per cent, year-on-year, to US dollars 105 million mainly due to geo political uncertainties in major tea importing countries in the Middle East.

Expenditure on imports increased by 27.9 per cent in February 2012 compared to the same month of the previous year. Expenditure on intermediate goods increased by 36.8 per cent to US dollars 947 million mainly due to higher petroleum imports. Expenditure on petroleum imports increased by 111.7 per cent to US dollars 506 million in February 2012 compared to that of February 2011, reflecting substantial increase in both price and volume of imports.

The average price of crude oil imports increased by 16.2 per cent to US dollars 119.86 per barrel in February 2012. Expenditure on imports of textiles and clothing, fertiliser, diamond and precious stones, vehicles and machinery parts and food preparations declined in February 2012. Reflecting continuous expansion in economic activities, investment goods imports grew by 41.3 per cent to US dollars 380 million in February 2012. All three major categories of investment goods; transport equipment, building materials and machinery and equipment recorded growth rates of 74.4 per cent, 38.6 per cent and 25.6 per cent, respectively.

Cumulative expenditure on imports during the first two months of 2012 increased by 24.7 per cent to US dollars 3,496 million. Expenditure on investment goods imports increased by 57.8 per cent to US dollars 903 million, mainly on account of machinery and equipment and transport equipment. Expenditure on imports of intermediate goods increased by 22.2 per cent to US dollars 2,044 million during the first two months of 2012. Expenditure on petroleum imports increased by 58.1 per cent to US dollars 1,021 million. However, expenditure on imports of textiles and clothing and gold decreased by 4.8 per cent and 37 per cent, respectively. Expenditure on consumer goods during the first two months of 2012 decreased by 2.2 per cent to US dollars 539 million. The trade deficit during the January-February 2012 stood at US dollars 1,699 million.

Rising costs dent Piramal profits

Leading manufacturer of specialty glass for food and beverages, Piramal Glass Ceylon PLC last week said that the sharp escalation of costs in the recent quarter ending March 31, 2012 had negatively affected its profit during its 2012 financial year. PGC’s Chief Executive Officer and Executive Director, Sanjay Tiwari reviewing the results of the fourth quarter ending March 31, 2012 said that although turnover grew by 23% to Rs.1.3 billion during the period, Profit After Tax fell down to a mere 7% of sales at Rs.98 million as against Rs.178 million and 16% of sales it achieved during the similar period of the previous year.
“The main factors contributing towards this drop in performance figures were the energy price increase and the dollar depreciation,” Tiwari analysed. He pointed out that the increasing LPG Gas prices, electricity tariff and furnace oil had impacted negatively in the last quarter where the price of furnace oil increase of 80% and the electricity tariff increase of 15% together laid a heavy burden on the cost parameter.
Tiwari said that the company never anticipated an overnight increase of this magnitude. “In fact, the relevant authorities were requested to phase out such increases so that the burden can be absorbed by the consumers over a period of time”.
He further noted that although the company has had no option but to pass off some part of the cost increase to its customer, this pricing strategy does not hold true and sustain in the international market as this would end up with the company losing the market it has created for itself in the international shores with much effort. Tiwari urged the government to be more cautious when increases of this magnitude are brought in. “Increases should be done in a phased out manner which could be gradually absorbed by the industry. Any such further increases would definitely bring about a question mark on the sustainability of the manufacturing industry itself”. “The rupee depreciation too had a significant impact on the Foreign Exchange Loan the Company has obtained in 2009. A loss of over Rs.100 million has been booked under administrative costs by revaluing the closing balance of the US Dollar loan at March 31, 2012 rates”. However, complemented by the sharp increase in the export earnings portfolio, PGC recorded its highest ever pre-tax profit of Rs.687 million for the year ended March 31, 2012. Tiwari said their export product portfolio saw a marked increase in its shift from mass market to the high end premium market segment yielding higher realizations. “This year we have ensured the sustenance and continuity of the rich harvest we started reaping from our facility at Horana,” the CEO said.
According to financials, the firm’s revenue during the FY2012 grew by 23% to Rs.5.1 billion as against corresponding figures of FY2011 whilst profit after tax saw an increase of 19% to Rs.687 million.

Lanka, a hidden gem for outsourcing – A T Kearney

Global Management consultancy firm, A.T. Kearney, which was recently commissioned by ICTA (ICT Agency of Sri Lanka) to benchmark Sri Lanka as a destination for Knowledge Services Exports says the island nation is in many ways, a hidden gem for outsourcing as it is one of the safest, lowest risk, emerging markets both in terms of personal safety and business security. A report on the nation points out that the island is expected to become a major player in the IT, BPO and knowledge Services industry in the next few years as it is uniquely positioned to offer companies highly skilled talent and a strong business environment at very competitive costs.
“Although costs are deemed to rise, Sri Lanka is believed to maintain its competitive advantage as a very favorable business environment,” the A T Kearney report stated.
Sri Lanka was ranked 21st in the Global Services Location Index; a measure utilized by AT Kearney and was regarded as an impressive status given the emphasis of the determinant on size of workforce and scale of IT/BPO industry, as opposed to giants such as India and China. Sri Lanka’s current state was identified as a knowledge service hub focused on quality of skill base, infrastructure and business environment. The report can be found on the web at: (http://www.icta.lk/icbp/Competitive_Benchmarking_Sri_Lanka_Knowledge_Services.pdf) The findings of the exercise went on to state that “below the radar of most industry observers, however, a significant knowledge services industry has been developing in Sri Lanka.
The report encapsulated the IT industry of the country and its contribution to the economy as a whole and its contribution to the global arena in many capacities. “The specialty of Sri Lanka’s offering is that it did not merely limit itself to software development, call centers and transaction processing but spanned beyond by taking the lead in providing sophisticated services such as accounting services, financial analytics, offshore legal services, medical diagnostics and architectural requirements to many global clients.

Apparel firm says NO to organic expansion

IPO money to partly finance purchase of a fabric mill within south Asia soon
Sri Lanka’s leading producer of value-added knitted fabric, Textured Jersey Lanka Plc (TJL) said last week that it intends to soon use part of its proceeds raised through its Initial Public Offering (IPO) last year towards the purchase of an operating fabric mill located within South Asia for which negotiations are in progress. According to a disclosure filed with the Colombo Stock Exchange, the apparel exporting firm said that given the changes in the global and local macro-economic environment, immediately after the listing in July 2011, the firm’s Board of Directors had decided to hold back the proposed organic expansion within the Avissawella BOI Zone.
“After evaluating different options, the Board feels that TJL’s expansion should be by way of acquiring an operating fabric mill within the South Asian subcontinent. Evaluations with regard to these acquisitions are currently ongoing. However a timeline has not been decided yet,” the firm said adding that this will provide the company the access to an operating fabric mill and the results would be faster than investing in an internal expansion.
Meanwhile, the CSE filing also revealed that TJL had invested a small portion of the funds raised through the IPO in addressing bottlenecks within the production facility which has assisted in increasing capacity as well as improving efficiency. However, the filing did not specify as to how much money was spent or is needed to acquire the proposed fabric mill in future. The disclosure further noted that the recent fuel price hike which resulted in a Rs.40 increase in the price of furnace oil has adversely impacted the energy cost of TJL. “In this respect, the Board is evaluating options on an alternative energy source, including but not limited to coal and bio-mass, which will require an investment by the company into the relevant technology. Such investment will enable the company to enjoy substantial savings to its future energy cost,” the disclosure further added.

AHS mulls SL entry

Top hair replacement company, Advanced Hair Studio (AHS) in India is to soon form joint ventures with local partners and its UK-based parent company to establish its presence in Sri Lanka apart from Bangladesh and the Gulf region, a foreign media report states. According to the report, AHS India, which has rights to operate in the Indian sub-continent and the Gulf region, will be the majority stakeholder in these overseas ventures.
“The company, which took five years to establish five hair replacement studios in India, has now accelerated its pace of expansion. It will be opening 15 more studios in top Indian cities, while entering Colombo, Dhaka, Dubai and Abu Dhabi by 2015,” the report stated.
AHS India had started its operations in the country in 2007 as a 50:50 joint venture between $2.3 billion Advanced Hair Studio International and the entity owned by Sanket Shah who is also the CEO of Planet Education and Elite Infrastructure in India.
“We will soon be partnering with a Sri Lanka-based business house,” said Sanket Shah, CEO of AHS India.
Globally, 200 celebrities endorse the brand and of this 20 are cricketers, including Saurav Ganguly, Shane Warne, Graham Gooch and Michael Vaughan.

Small motor dealers cry foul

Small scale vehicle importers, who consist of more than 70% of the total vehicle dealers in the country allege that they will go bust if the recent proposal requiring a vehicle importer to obtain an annual license is implemented while the authorities maintain that such measures are necessary to save the vehicle buyers from the unscrupulous traders who compromise on quality.
Chairman of Vehicle Importers Association of Lanka (VIAL), Sampath Merenchige says that the government’s plan to impose an annual license fee of Rs 5 million for small players would push the small player out leaving only a few large firms competing in the industry.
“This is no more an industry which is dominated by a few large scale dealers limited to Colombo. There are people who bring down one or two vehicles depending on the requirement of the area and could be the bread and butter of large number of people who directly and indirectly depending on this trade. They would certainly go out of business overnight because I don’t think they can even dream of paying such a colossal amount annually for a license,” Merenchige said.
He noted that although they were prepared to help the government in making the industry more organized, even possibly with a licensing scheme, they were not capable of spending the reported ‘huge’ amount as annual fees.
The VIAL Chairman further stated that the recent policy changes by the government including hikes in excise duty, interest rates, appreciation of the dollar, higher transportation cost due to shifting the port to Hambantota and the more recent directive to obtain a permit will eventually increase vehicle prices.
“These measures will result in owning a vehicle a dream forever for the poor masses,” he highlighted.
Meanwhile, according to the government, the recently proposed requirement to obtain annual permits for vehicle importers is expected to streamline the industry which has been long ailing with haphazard entry of players who compromise on the quality of vehicles thus affecting the consumer.
Explaining the underlying reasons behind this new initiative, the Director General of Department of National Planning at the Ministry of Finance, Dr B M S Batagoda told The Nation “We saw there has been a continuing issue with the quality of the vehicles which are imported by some unorganized vehicle importers in the country and this is something we cannot keep a blind eye on as responsible authorities because ultimately it’s the poor customers who are affected”.
He further noted there was a racket by some of these parties who attempt to evade from the country’s excise duty system by deliberately undervaluing the vehicle’s real value at the point of exporting from a foreign country. “We cannot let it happen because the country is losing at the end of the day due to less taxes paid,” he added.