Business
4th March 2001

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Always going up

Sri Lankan industry and consumers have been hit by rising prices of fuel and basic consumer goods in the past year. This graph shows the rise in prices of bread and rice, the staple diet of any Sri Lankan, and diesel used extensively by industry during a 10 year period. There are some expectations that this week's budget would address these issues and bring some relief to the community

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News

  • Mind your Business
  • Budget: major juggling act
  • SLT hurt by foreign exchange losses
  • Commercial Bank reveals credit rating
  • Mobitel receives BOI's premier flagship status, boosts growth
  • Changes to Banking Act, boon to 'synergies'
  • Private sector urged to help the poor
  • ESPN, Star Sports goes off the air
  • New South Asian women's group takes off


  • Mind your Business

    Checking for who's who

    Company bigwigs have been inundated with reports that their ranks may be infiltrated with reds seeking to destabilize the corporate world.

    Some are taking these warnings seriously but others believe anyone can be won over with a reasonable compensation package.

    But at least one blue chip is not taking any chances: it has decided to introduce a thorough 'political background check' on all new recruits.

    Matches and catches

    It is no longer a secret that tourism in this country will be promoted through cricket and having one man at the helm of both subjects makes the task easier.

    A good example is the current tour by the Brits but indications are that future tours will be even more tourism linked. Among the plans are scheduling tours as far as possible during winter seasons for the tourists, special promotions in cricketing nations and locating local venues close to tourist attractions.

    IT is hit

    The local information technology trade was badly hit by the floating dollar because traders were quick to increase prices which never came down even though the dollar did. The result was a marked reduction in sales with consumers expecting the prices to tumble sooner rather then later. Now, those in the trade say, a 'reverse effect' is being felt: prices have stabilized but consumers, put off by the initial hike have not returned yet and sales have slowed to a trickle.

    Only smoke no fire

    Has the long-awaited tobacco and alcohol policy run into some snags or is the delay due to people who matter knowing others in high places?

    Foot in the mouth

    The pundit in an international outfit is said to have extended his brief and trampled a few toes in the process. The talking point in business circles is that he seems to be "talking out of turn" and has gone beyond normally set boundaries by his predecessors


    Budget: major juggling act

    By the Business Editor

    The Sri Lankan government would have to perform a major juggling act in this week's budget as the economy slows down, revenue collections fall and the budget deficit worsens, economists and analysts said.

    "It's a tough call for the government. The situation is worse than it was a year ago when the 2000 budget was presented in February," an economist said, adding that foreign exchange reserves are low while interest rates have gone up.

    However, Central Bank's Economic Research director Dr A.G. Karunasena said the reserves position was boosted by a sum of US $ 50 million received from Sri Lankan Airlines via Emirates and loan proceeds from the Asian Development Bank (ADB)

    He said these monies came during late January and early February helping to prop up the reserve position. The rupee was floated in January in a bid to halt falling foreign exchange reserves.

    The government total budget for 2001 is Rs 364 billion of which defence spending accounts for Rs 63 billion, which analysts believe could rise further during the year and put more pressure on the economy.

    Some of the key issues of the budget are revenue collection, the deficit and whether the government could keep to set targets, rising expenditure and import tax collections.

    Dr. Dushni Weerakoon, senior fellow at the Institute of Policy Studies, said GST collection has been improving and there was unlikely to be any shortfall.

    She said she believed the government would make adjustments on the expenditure side by putting a cap on spending similar to state measures imposed in mid-2000, soon after the military went on a weapons buying spree.

    Expenditure cuts won't help the private sector, which is hoping that spending on infrastructure would be increased this year. "One of the main requests to the government this year is not to cut infrastructure expenditure," explained Chandra Jayaratne, chairman of the Ceylon Chamber of Commerce.

    Weerakoon believes that there is too much fuss being made about war spending these days. "Everybody talks of high war spending as if this is a new item. After about 20 years of fighting, this cost should be built in and options kept for up or down expenditure," she said.


    SLT hurt by foreign exchange losses

    Sri Lanka Telecom (SLT), the country's biggest phone provider, says post-tax profits last year was a healthy 2.2 billion rupees but unfortunately foreign exchange losses trimmed these gains to just 748 million rupees.

    SLT chairman Lalith de Mel said in a statement that total revenue during the year was up six percent at 19.4 billion rupees while the company was able to control costs, despite inflationary pressures, to three percent over 1999 figures.

    De Mel noted that SLT lost two billion rupees in revenue from international outgoing and incoming calls, saying this monopoly position did not materialize in practice and a substantial number of calls bypassed SLT's international gateway.


    Commercial Bank reveals credit rating

    Sri Lanka's Commercial Bank got a major boost last week, receiving a SL AA+ credit rating by Fitch Ratings Lanka, which it says, would help to obtain foreign credit at low interest rates.

    Commercial Bank is the first Sri Lankan bank to disclose its credit rating.

    "This exceptionally high rating will enable us to obtain foreign credit lines at very low risk premiums," Commercial Bank CEO, Amitha Gooneratne told The Sunday Times Business.

    Mr. Gooneratne said the new rating would boost the bank's attractiveness to foreign investors and credit line providers, reducing Commercial Bank's cost of capital in the future.

    According to the rating, Fitch Ratings Lanka has disclosed that the debt repayment capacity of the Commercial bank is high and the indications of financial risk are very low.

    The Commercial Bank has been known in the banking sector for its clean balance sheet and the low percentage of non-performing loans (NPL's). Commenting on the balance sheet stability, Mr. Gooneratne said "prudence in lending and good credit evaluation skills practised by the bank, are the main reasons for the strong balance sheet."

    The bank's quality of loans are also reflected by the low number of parate executions carried out compared to other commercial banks. Since 1990, only 143 board resolutions calling for parate executions have been passed.

    "We take all possible measures to revive the businesses of clients facing financial difficulties. The Commercial Bank resorts to foreclosures only as a last resort," Mr. Gooneratne added.


    Mobitel receives BOI's premier flagship status, boosts growth

    Mobitel Ltd, Sri Lanka's top mobile phone operator, has received premier flagship status from the Board of Investment (BOI) after bringing in or committing a total investment of US $ 50 million, the company's outgoing chief executive officer said

    "This is a great achievement for us and for the country too in terms of the money that we have brought in," CEO Cathy Aston told The Sunday Times Business.

    Last month, Aston ended a successful three-year stint with the company - a joint venture between Sri Lanka Telecom and Australia's Telstra Corp - and is returning to Australia for an equally challenging assignment with a new-formed Telstra subsidiary called PCCW.

    It is a joint venture between Hong Kong Telecom and Telstra, which Aston is helping to kickstart in a new segment of seamless data services which includes offering roaming services across the world at the same price of the country of origin of the user.

    Aston said Mobitel had invested US $ 36 million since its entry into Sri Lanka's telecommunications field since 1993 and is committed to investing a further US $ 14 million in the next three years.

    "In fact we have already invested US $ 7 million this year, so we would probably put much more in the next two years," noted the Mobitel CEO who saw a phenomenal expansion in the industry in the three years she has been here.

    Mobile phone users have touched 400,000 in Sri Lanka with the industry growing at an average 50 percent annually. There is greater scope for expansion if and when the Calling Party Pays (CPP) system becomes effective.

    Last Thursday, Posts and Telecommunications Minister Nimal Siripala called a meeting of mobile and fixed phone operators to discuss the pros and cons of the move, which is opposed by fixed phone companies and paging operators, who fear they stand to lose if CPP is introduced.

    The CCP in which the calling party on a mobile phone pays instead of the receiving party also having to pick up the tab as it is now, will certainly boost the market and help especially consumers, Aston said. The new CEO is Chris Malloy who last served in Telstra's Malaysian operation.

    Mobitel has a wide coverage in the island and plans to expand into the rural countryside in the next few years reaching as many nooks and corners, offering its latest prepaid service card for low income groups. Its customers in addition to corporate clients include trishaw drivers, construction workers and fishmongers.

    The company has also signed up with Ericcson to undertake a joint marketing study on 3G (third generation) technology. This technology includes high-speed data on a phone and the provision of video images. "This would be ideal for Sri Lanka for instance for a cricket-crazy fan to get a glimpse of the field action on his phone," she added.

    Prices of handsets, Aston noted, had come down sharply by as much as 400 percent in the past decade due to bigger volumes of telephones being sold.

    Aston said there is a massive demand for all kinds of telephone services since about eight percent of Sri Lanka's 19 million people have fixed phones while less than one percent of the population own handsets. "There is a huge market out there." The business editor


    Changes to Banking Act, boon to 'synergies'

    By Chanakya Dissanayake

    Draft amendments to Sri Lanka's 1998 Banking Act, now being studied by the banking community, provides for easier "amalgamations" or synergies between specialised banks and commercial banks, banking sources said.

    The amendments, proposed by the Central Bank, is expected to be presented to parliament once bankers made their comments on the draft. Banks have been listed under the category of Licensed Specialised Banks (LSBs) and Licensed Commercial Banks (LCB). LSBs include development banks, savings banks and mortgage banks.

    The sources said the move is viewed as a positive signal to pending amalgamations between development banks and commercial banks in the market. Currently, the NDB's proposed takeover of ABN AMRO Bank and the amalgamation between DFCC and Commercial Bank are awaiting Central Bank approval.

    The 1988 laws don't formally allow amalgamations between LSBs and LCBs. In the past the Central Bank adopted a "case by case" approach to deal with amalgamations with the DFCC acquisition of a 30 percent stake in Commercial Bank, some years back, being one such example.

    The amendments are however silent on mergers or consolidations between commercial banks, contrary to market speculation that this would be included in the new draft

    "A merger between commercial banks, if not mutually negotiated and hostile could fail to add value to the stake-holders. Also, since there are not many commercial banks in Sri Lanka, consolidations could hamper competition," noted the CEO of a local commercial bank.

    He said these were the main reasons for amalgamations between commercial banks to be left out in the old law. "The amalgamations between development banks and commercial banks have a high probability of adding value to the stake holders", he added.

    The proposed amendments also provides a veto right to the head of the Central Bank's banking supervision department, to have the final say in appointments of chairmen, directors, and CEOs of commercial banks. This is in line with the "proper person" concept to improve the governance of the financial sector, the sources said.

    The appointments of directors at the AGM of the bank by its shareholders, would be subjected to the approval of the Central Bank, giving rise to two schools of thoughts among legal experts.

    One section is opposed to interference citing the resulting reduction in shareholder control and rights. "If the shareholders think that a particular person is fit enough to manage their money, I see no reason for regulatory interference," a top commercial lawyer said

    The other school of thought holds the view that the provisions will improve the professional management of the financial sector.

    "Earlier the banking act also contained requirements for directors. But the approach was reactive in nature. Now the Central Bank can intervene at the appointment stage itself if these requirements are breached,", said Aritha Wickramanayake, former SEC Director-General.

    "The proactive approach will be much more effective in dealing with the financial sector," he added.

    DFCC CEO Nihal Fonseka commenting on the amendments said these provisions were evolved over time according to the needs of the market. " These are reactions to the circumstances that have emerged in financial markets".


    Private sector urged to help the poor

    A senior government minister has urged Sri Lanka's corporate sector to join hands with the government and help the country's poor.

    "The government alone cannot end poverty in this country. The private sector should play its role as corporate citizens with a social responsibility and help to reduce poverty in Sri Lanka," said Posts and Telecommunications Minister Nimal Siripala de Silva.

    Speaking at a ceremony last week where Dialog GSM, the Malaysian-backed mobile phone operator in Sri Lanka, donated a sizable sum to three charities, De Silva said other private sector organizations should take a cue from Dialog and start their own social service projects in their sectors.

    Dialog GSM donated a total of Rs. 552,000 or Rs. 184,000 each to the Jaipur Foot Foundation, the National Child Protection Society and the Ceylon School for the Deaf and the Blind through its Change Trust Fund.

    The Trust was set up some three years ago by Dialog in an effort to raise funds to help social projects. It has so far given donations for the third time, including last week's one, to the three recipients.

    Dialog GSM Chief Executive Officer Dr Hans Wijesuriya said the money for last week's donations came through a year 2000 New Year's eve project where Dialog customers were encouraged to contribute a rupee a minute from their calls to this fund.

    Dialog then doubled the figure collected that night by putting in its own funds.


    ESPN, Star Sports goes off the air

    ESPN Star Sports, one of the world's biggest sports networks, says it has temporarily discontinued both ESPN and Star Sports services to M/s Ruhuna 2001 Multivision due to problems with the local cable operator.

    ESPN & Star Sports have been available in Sri Lanka as a premier satellite sports services, carried on the MMDS/Cable TV network of M/s Ruhuna 2001 Multivision since September 1998.

    "The decision to temporarily discontinue our services has been taken as M/s Ruhuna 2001 Multivision have failed to honour their contractual financial commitments," the company said.

    ESPN Star Sports is committed to maintaining its position as the premier sports broadcaster in Sri Lanka, by delivering the world's best sporting action to its viewers, affiliates and advertisers. "We will continue to pursue various alternatives to achieve this goal," the company said in a statement.


    New South Asian women's group takes off

    The Women's Chamber of Industry & Commerce (WCIC) is launching its SAARC Women Entrepreneur Council (SWEC) on March 29 in Colombo in a bid to recognize women entrepreneurs in South Asia, the WCIC said.

    It said this would be followed by a SAARC Women in Business Trade Fair and a Women Entrepreneur Awards ceremony.

    The event is sponsored by the Norwegian government, the Board of Investment and the Export Development Board.

    Is there a need for regional women's business council? SWEC project coordinator Rezani Aziz thinks so because women-owned businesses often operate outside the economic mainstream and are thus excluded from the "information loop" about available resources and opportunities.

    These enterprises are small in traditional gender-role related sub sectors and are often home based. "They have limited opportunities to provide input to industrial and trade policies," she added, noting that on the other hand women who operate slightly large enterprises don't get enough credit, as they don't fall into the category of micro enterprises.

    Aziz said development programmes and NGO's would not lend to them as they are perceived to be too big unless they offer some form of collateral. "Some banks in the region do not help women unless the husbands sign as a guarantor," she said about the problems confronting women entrepreneurs in the region.


    Company News

  • Cheers for Three Coins
  • HNB assists Royal College union
  • Delmege to handle QEII and liners
  • SLT's debentures on Rating Watch
  • Suntel goes to Matara
  • Tritel tries out tarrif revision
  • LTTE ban unlikely to enthuse investors
  • Stockmarket update
  • other stock news
  • CTC profits down, earnings seen lower

  • Cheers for Three Coins

    The McCallum Brewing Co, Sri Lanka's niche market beer brewer, which launched an ambitious project to market and launch a branded product in 22 countries in Asia, says it has no problem with the government's alcohol and tobacco policy.

    "We have no problems with it. Alcohol abuse is a serious problem and we are certainly prepared to function within the restrictions," said McCallum's chairman Chandana Ukwatte at last week's Colombo launch of "3 Coins RIVA".

    The company signed a joint venture with the 17th century Riva Brewery of Belgium to produce a joint branded wheat "white" beer for the local market as well as export to 22 countries in Asia and the Pacific including Thailand, Singapore, Japan, Korea, Hong Kong, New Zealand, the Philippines and SAARC countries.

    The deal is a major breakthrough for a Sri Lankan company, which would have its imprint on sleek, little bottles carrying a cloudy version of beer unlike the clear beer that drinkers are familiar with.

    "White beer is a specialty product and catering to niche markets across the world," Ukwatte said. His company is the only white beer brewer in Asia. The joint product would be distributed and marketed by a new joint venture company in which McCallum and Riva hold an equal 50 percent stake.

    "Joint branding is far more significant than manufacturing under licence because it creates a whole new opportunity for Sri Lanka to establish itself as a credible base for the manufacture of high-value specialty products," Ukwatte added.

    Annick de Splenter, CEO of Riva and coming from a generation of Splenter families who have owned the Belgium brewery for centuries, said they had been looking at an Asian partner for a long time and finally opted for McCallum.

    "We were fascinated and impressed by the high degree of innovation of this niche market brewer and its world-class approach to product quality, packaging and marketing," she said. McCallum is also considering producing other gourmet beer under the joint brand name.

    While the "white" beer bottles are expected to hit local markets in week of second March, the company plans to start producing for the export market in around six months time. McCallum was once a mass-market beer producer but moved into the niche market segment about 18 months ago after the government brought in curbs on alcohol and tobacco marketing.


    HNB assists Royal College union

    A cheque exceeding Rs.100,000 - was handed over to the Principal, Royal College, Mr. Laxman Gomes by Mr. Upali de Silva, Snr.-DGM-Administration & Marketing of HNB at a simple ceremony held on 15th February at the principal's office.

    Mr. Dias Jayasinghe, Secretary of the Royal College Union (RFU) stated that the RCU Visa Affinity Card is a very successful project as a large number of old boys and members have obtained the RCU Credit Card and are extensively using it. The concept of paying 0.1% of each transaction is a novel idea as the RCU is assured of a regular monthly income to meet the cost of various development projects on hand.

    Mr. de Silva said that the cheque presented to the Royal College Union represents the collective effort of many RCU members who have not only obtained the Credit Card and also used it extensively. He further said HNB has always been involved in many school development projects in various forms. However, this is the first ever time, assistance to an educational institute is being extended by the use of Affinity Credit Cards.


    Delmege to handle QEII and liners

    \Three of the world's most luxurious passenger liners are scheduled to call at Colombo this month as a confirmation of the revival of cruise tourism to this country.

    Two of the three ships, the Queen Elizabeth II (QEII) and the Seabourn Sun, are on world cruises spanning nearly four months, while the Seabourn Spirit is cruising the South China sea and Indian Ocean, their local handling agent Lewis Shipping, a member of the Delmege Group said.

    "The visit to Colombo by these Five-Star cruise ships of Cunard Seabourn Line, is an exciting event for the local shipping and tourism sectors," Lewis Shipping Director Capt. L N Jayasooriya said. "The QEII, for example, last called on Colombo five years ago, while the Seabourn Sun, then known as Royal Viking Sun, berthed at Colombo four years ago."

    This is the first time these celebrated luxury liners are making a stop in Colombo since the merging of the famous Cunard Line with Seabourn, to form the Cunard Seabourn Line, he said. The Delmege Group has represented the Cunard Line, and subsequently, Cunard- Seabourn continuously for more than 75 years.

    As the owner's agent for these vessels, Lewis Shipping will be responsible for the entire port operation and for coordinating shore excursions with the ground handling companies, the company said.


    SLT's debentures on Rating Watch

    Sri Lanka's only rating agency said it was placing Sri Lanka Telecom's five year listed debentures in the "rating watch" category due to the impact of the free float of the rupee and non-materialization of expected tariff increases on the semi-state telephone provider.

    The possibility of the Calling Party Pays (CPP) system coming into force would also impact on SLT's profitability, Fitch Ratings Lanka said in a statement.

    Although the domestic revenue of SLT has grown, according to SLT the realised domestic tariff increase was much lower than the anticipated 20% increase as per the agreement with the government of Sri Lanka.

    The decline of international revenue to SLT has been somewhat mitigated through strategies followed by SLT. Even with this reduction the net margin on foreign revenue is sufficient to meet debt obligations denominated in foreign currency in the short term. Fitch however will analyze the impact of Rupee depreciation on future repayment of foreign currency denominated debt in the medium to long term.

    Fitch will monitor the impact of the above developments and review SLT's business risk profile in light of the new strategies adopted.


    Suntel goes to Matara

    Suntel Limited, Sri Lanka's largest private telecom operator enhanced its presence in Sri Lanka by launching its services in Matara last week.

    The Suntel service in Matara was launched at the Ruhunu Cultural Centre under the auspices of Nimal Siripala De Silva, Minister of Posts and Telecommunications. Mangala Samaraweera, Minister of Urban Develo-pment, Construction & Public Utilities was the chief guest on the occasion. The ceremony was also attended by senior government ministers, deputy ministers and officials, members of the media and senior executives from Suntel.

    Since its inception in 1996, Suntel has connected over 100,000 subscribers (including rural subscribers as per TRCSL norms), spanning a large geographical region. The company's state-of-the-art digital network includes three AXE switches in Colombo and Kandy coupled with proven transmission and access technologies from world-renowned suppliers.

    Speaking at the opening of Suntel's services in Matara, Hugo Cederschiold, Managing Director of Suntel said, "Suntel is committed to the development of telecommunication in all of Sri Lanka. Hence we are very happy to bring our services further out from Colombo. Today we do so in the city of Matara, an area that clearly is very dynamic and progressive."


    Tritel tries out tarrif revision

    Tritel, the largest pay phone operator in the country has announced the company's first increase in charge rates since it began operations in 1997.

    Effective March 1, the local call rates will be increased by Rs 2 per minute from Rs 4 to Rs 6. Although the local call rate has increased the nationwide call rate will only be increased in the urban areas, keeping the rural, military and university rates the same as they were in 1997.

    The Chief Executive Officer of Tritel, Robert Schuster said Tritel had been successful in keeping the call rates flat. "Unfortunately, faced with the current economic situation we can no longer hold our charges at the same levels they were in 1997 while maintaining the same high degree of service."

    Tritel Services (Pvt) Ltd is backed by Sri Inderajaya Sdn Bhd, a Malaysian company that has diverse and extensive interests in telecommunications and power projects in the South Asia region.

    Tritel also has a pilot project that provides advanced communications in the form of fax, e-mail and web surfing services around the country through Tritel Cafes.


    LTTE ban unlikely to enthuse investors

    The UK ban on the Liberation Tigers of Tamil Eelam puts extra pressure on the group to resume talks with the Sri Lankan government but this positive signal to the economy is unlikely to wake up the country's "sleepy" stockmarket, analysts said.

    "As far as the market is concerned, it is dead and has been so for some time now," one stockbroker noted, adding that stocks once the barometer of confidence in the country's economy - need much more than signals to perk it up.

    Daily turnover at the Colombo bourse has fallen by nearly half to Rs 25million since January this year compared to Rs 45 million in 2000. Brokers, who said recent incentives provided by the CSE to attract more companies to list have failed to enthuse the market, noted that the market could improve if and when peace talks began.


    Stockmarket update

    As expected the British ban on the LTTE failed to generate any excitement in the stockmarket, with in fact one foreign investor dumping one million shares of Commercial Bank.

    Earlier in the week, Habarana Walk Inn & the Walkers Tours Ltd - part of the giant John Keells group - were delisted due to uncertain market conditions. Tourism is one of the industries affected by the country's ethnic conflict.

    The Colombo bourse continued to stagnate during the week keeping the main benchmark indexes at the 440 and 690 levels. On Monday, large quantities of Asiri Hospitals and Vanik Inc changed hands with Asiri shares expected to come down after the announced bonus issue.

    On Wednesday, reasons for the demand for Asiri shares were finally known when a 30% interim dividend was announced on the existing share capital. In the meantime, the ceramic sector has begun to show improvement with increasing market prices.

    A total of 59,100 shares of Lanka Tiles Ltd at Rs. 19.50 and 74,800 shares of Lanka Walltiles at Rs. 7 changed hands. This was further enhanced with the 35% interim dividend declaration by Lanka Tiles and Lanka Ceramics. -Ashwin Hemmathagama


    Other stock news

    *LOLC Lanka Orix Leasing Co Ltd, which recently said profits rose by 50 percent in the nine months to December 2000, has announced the provision of a second interim dividend of 10 percent. The declaration of this dividend brings the total interim dividends for the year to 25 percent, totalling up to Rs. 41.7 million.

    *Dankotuwa Porcelain Ltd said it was paying a first and final dividend of 15 percent for the financial year 2000.

    Many other companies reported their net figures for the nine months to December 2000. They are:

    *Millers Ltd's after tax profit was Rs. 49.3 million up from Rs. 47.3 million. The company's consolidated net turnover was Rs 2.7 billion against Rs.2.2 billion in the corresponding years. Miller's is a member of the Ceylon Theatres group.

    *The Swadeshi Industrial Works Ltd, the well-known soap manufacturer based in Kandana, said after tax profits totalled Rs. 13.3 million, down from Rs. 17.2 million in the 1999 period while turnover rose to Rs. 356 million from Rs. 313 million.

    *Among Hayleys group companies, Hayleys Photoprint Ltd reported net profit of Rs. 3.7 million against Rs. 4.8 million; Hayleys Exports Ltd saw net group profits rise to Rs.35.8 million from Rs.11.8 million: Haytech Marketing Ltd said net profit fell to Rs.2.2 million from Rs. 3.4 million; Haycarb Ltd said net profits rose to Rs. 201 million from Rs. 99 million while Dipped Products Ltd reported group profits up sharply at Rs. 166.6 million against Rs.58.3 million in 1999.


    CTC profits down, earnings seen lower

    Ceylon Tobacco Ltd (CTC), the country's monopoly cigarette producer, has reported reported lower-than expected profits of Rs. 199.2 million in the fourth quarter of 2000, down by a sharp 48 % from the previous corresponding period, brokers said.

    The company's full year 2000 net profit was also down at Rs. 853 million from Rs. 1.5 billion in 1999. Stockbroker Asia Securities in a report, analysing CTC's performance, said the company faced a risk element last year.

    "The departure of the government's stance on sharing any cigarette price hike with the company in May 2000 has certainly introduced a new risk factor into CTC's earnings outlook," it said.

    The report said that though the government tried to reconcile this by allowing a greater share to CTC in November, "we believe that given the increasing likelihood of further price hike(s) in 2001, the company's earnings prospects can become more volatile in the medium-term."

    Following last year's price hike, volumes have fallen as smokers have shifted to cheaper substitutes.

    With tobacco leaf prices remaining steady, it has improved production efficiencies and the fall in volumes that were responsible for lower direct expenses.

    However, restructuring costs and other staff related overheads have eroded profitability further, Asia said.

    Imported paper and filter costs have been affected by the rapid depreciation of the rupee in the fourth quarter of 2000 while prices of its tobacco leaves (accounting for the bulk of the raw materials) have remained stable, Asia said.

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