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9th September 2001
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Features

  • Combination of factors deflates reconditioned vehicles market
  • Drop in car sales but more new showrooms
  • Returns on sovereign bond market outpace all other investments
  • Commercial Bank pace setter in 1st half 2001
  • Productivity seminar
  • UK firm aims to bring down SL suicide rates
  • SL firms clinch orders from Japan
  • Alliance Exel Collaboration holds first annual dealer convention
  • Singer offers three-year debenture
  • In Brief
  • Combination of factors deflates reconditioned vehicles market

    A combination of factors is affecting Sri Lanka's imported used vehicles' market where sales have dropped sharply due to high prices, the removal of permits and high interest rates.

    While on one hand, dealers of reconditioned vehicles say prices of vehicles would come down by as much as Rs 300,000 per Japanese car if not for an unrealistic depreciation table applied by the authorities on imported re-conditioned cars, others said a current economic slowdown was also affecting the business.

    The Vehicle Importers' Association of Sri Lanka (VIASL), which has close to 175 members and employs directly and indirectly about one million, at a recent meeting discussed the adverse impact of escalating prices of reconditioned vehicles, on the average vehicle user, as well as the motor trade.

    In a statement to the Sunday Times Business, VIASL president Vijitha Ranasinghe said:

    "Today a medium sized, full option, brand new car costs between Rs. 2.2 million in the case of a Toyota Corolla or a Honda Civic and Rs. 1,8 million in the case of a Mitsubishi Lancer or a Nissan Sunny which is a commonly used medium sized car in Sri Lanka. This price is beyond the reach of an average buyer - a doctor, engineer, mercantile executive or a senior executive in the public sector. It is in this context that reconditioned Japanese cars are a boon to this category of vehicle user. A re-conditioned car falling into any of the brands detailed above will cost half the price of a brand new car."

    "The condition and durability of re-conditioned Japanese cars which are between 2 to 3 years (cars beyond three years of age are not permitted to be imported) compares favourably with the durability of brand new cars and gives 'value for money' as the brand new car would cost at least double the price."

    "Some of the reasons why re-conditioned Japanese cars give value for money are:

    * Re-conditioned Japanese cars imported to Sri Lanka have been run on good road surfaces and as such the condition of a Japanese car which is around 2 1/2 years old, would be as good as a brand new car, run on Sri Lankan roads for a year.

    * Anti-pollution equipment is mandatory for vehicles used in Japan and hence re-conditioned Japanese cars imported to Sri Lanka have anti-pollution equipment and therefore does not harm the environment.

    * Safety features such as ABS, air bags etc. are standard in almost all Japanese used cars imported to Sri Lanka.

    * Cars used in Japan have to satisfy Japan Industrial Standards (JIS) and therefore they can be considered superior in quality.

    * In order to cut down costs, agents in Sri Lanka for brand new Japanese cars, order vehicles without anti-pollution equipment etc. In this context a reconditioned Japanese car is more environment friendly than a brand new Japanese car.

    "Importers of re-conditioned Japanese cars could sell cars much cheaper than at present if the following anomalies are corrected:

    A car that has been used for 2 1/2 to 3 years in Japan can be bought for around 35% of the original brand new price. However, when such a car is imported to Sri Lanka, it is valued for duty on 75% of the original "brand new price". As such, the duty payable is around 40% more than the import duty that would be charged if duty were levied on the actual buying price of a re-conditioned car. As a result of the above inflated duty charged, the cost of an average car increases by around Rs. 400,000.00 to Rs. 500,000.00 to the buyer.

    "This is due to a very unrealistic "Depreciation Table" applied to imported re-conditioned cars.

    "The association made representations on this matter to the Ministry of Finance and the Sri Lanka Customs by letters dated 8th February 2001 and 28th March 2001 and urged that a more realistic depreciation table be adopted. The matter is yet to receive the attention of the authorities.

    "If our proposal is accepted, a re-conditioned Japanese car could be offered around Rs. 300,000 less than the present price of a re-conditioned car.

    "This would give a better deal to the average car user who has to stretch his budget to purchase a car and enable the re-conditioned vehicle import trade which gives direct and indirect employment to a vast number and contributes 25% of the revenue generated by the customs to the national economy, to continue this dual role of giving employment and contributing to revenue."


    Drop in car sales but more new showrooms

    By Akhry Ameer and Diana Mathews
    "There was a 50 percent drop in sales during the last few years," said Victor Wijeratne, Sales Manager of Autoland Ltd. "The duties have increased drastically and the current duty of Rs. 150,000 is too high," he said.

    The duty-free permits for petrol and diesel vehicles have been removed plus clearing charges have risen as well adding to the higher vehicle prices. "Six months ago we had sales of around 20 to 25 vehicles per month. But currently our sales have reduced to 12 vehicles per month," he said.

    Another well-known dealer of reconditioned motor vehicles said there has been a drastic drop in the demand for reconditioned vehicles. "Every week at least three cars were sold in the past but currently we sell only one car per week," he said.

    There is a greater demand for petrol than diesel vehicles mainly because maintenance costs of the latter are higher and diesel prices have also risen sharply in recent months, he said.

    Berty Widanagamage, Managing Director of Tokyo Express (Pvt) Ltd, who has been a wholesaler for 20 years importing vehicles in bulk and supplying to various car dealers, agreed that there has been a proliferation of new showrooms in recent months but there were good reasons for it.

    "Earlier there were many who were importing vehicles and supplying to the dealers. This was because all the dealers were not in a position to carry out the importation procedures. Lately many Sri Lankans went to work in Japan and then they started sending vehicles to their relatives, friends, etc. So the wholesalers couldn't maintain their position as wholesalers, because the margins were getting smaller. Thus they too were pushed into opening their own outlets to sell direct and maintain their margins. It is not because the business is lucrative."

    He said on the other hand the regulatory aspects also affected the trade. People who began importing were not following procedures like maintaining garage numbers, GST files, etc. "But now they have been corrected to a great extent," he added.

    The trade also had its share of good and bad luck by the issuing of the now suspended permits. "The previous government also issued permits, but these permits had a restriction that you cannot transfer the vehicle for five years. But the permits issued recently were in a sense an open licence to make money. So the trade was affected because most of them were buying vehicles to make money and not for their personal use. Even dealers bought permits to import and sell. The brand new vehicle importers also made money. But now if you look at a reconditioned car the price one has to pay is unrealistic. So the vehicles are not moving," he said.

    "The commercial vehicles are a different story. There is a drop in sales of trucks and vans because there is less business activity."

    "The other problems affecting the trade these days are the high costs and interest rates. The bank interest rates went up three times this year. If you don't sell a vehicle within two months after importation, you don't make a profit and you will only be enriching the bank," Widanagamage said.



    First Capital Review

    Returns on sovereign bond market outpace all other investments

    With the gradual reduction in the interest rates, over the last few months the investors of the sovereign bond market have been able to gain a higher return in terms of capital gains and interest income. Based on the First Capital Sovereign Bond Index, the only index to measure the performance of the bond market, the total return on the liquid segment of the sovereign bond portfolio for the year 2001 is 16.47%. On investment in government securities, the capital gains are free from income tax. Hence, the return in the hands of bond investors is commendable as compared with the other financial market returns. The stock market has given only a negative return of 10% for the same period and other indicators such as AWDR and AWFDR remain well below. The sovereign bonds are considered a risk free investment.

    With the improvement of the market liquidity and the reduced pressure on the exchange rate over the past few months, the Central Bank of Sri Lanka (CBSL) gradually eased the open market rates. The primary and secondary market treasury bills and bond yields followed the changes in the CBSL open market rates. Hence, with the lowering of yields the bond investors can make use of capital gain opportunities, which are free from income tax.

    In real terms the CBSL has adjusted the repurchase (repo) and reverse repurchase (reverse repo) rates on five occasions since February 2001 by 700 basis points (7%) and 800 basis points (8%) respectively. Consequently, the primary and secondary market bond yields have plummeted drastically. The two-year bond yield has dropped from a high of 22.03% at the end of February, to 15.68% at present. Therefore, an investor who has invested at the highest levels at the end of February now is in a position to realise a capital gain of approximately Rs. 7.50 for each bond. (Face value of a bond is Rs. 100).

    The First Capital Sovereign Bond Index, which tracks the movement of the liquid segment of the sovereign bond portfolio has been on the upward trend ever since bond rates started lowering. The index originally represented the bonds maturing after a year and before two years. However, with the improvement in the liquidity of the three-bond category, these too were added to the index subsequently. The market capitalisation of the index has grown over the period and now it stands at Rs. 108 billion, representing approximately 45% of the total bond outstanding. 


    Commercial Bank pace setter in 1st half 2001

    The Commercial Bank of Ceylon has reported the highest pre-tax profits in both volume and growth terms among other banks for the first half of 2001.

    In its recently released financial results for this period, the bank reports that pre-tax profit at Rs 711.1 million was up 41.45 percent, the highest among private local banks, while post-tax profits grew 30.6 per cent to Rs 517.1 million.

    The bank said, in a statement, that growth was substantially higher than the rate of inflation in the country, reflecting significant real growth. Post tax profit growth would have been higher if not for the 20 percent tax surcharge imposed by the government, but the growth achieved was nevertheless extremely satisfactory in the context of the prevailing macro economic conditions.

    The bank has, however, cautioned that the second half of the year should be approached with guarded optimism, due to the unsettled conditions in the country. The bank has increased its general provisions on the advance portfolio in view of the current political and economic situation, and is also implementing other appropriate strategies to counter the effect of micro economic aspects on the future performance of the bank.


    Productivity seminar

    Skills Development Fund Ltd, a leading training provider in Sri Lanka, in collaboration with the Ministry of Science and Technology's Institution Building Project recently conducted a seminar on "Productivity Improvement Tools".

    The seminar organised to promote productivity in the country, was attended by a group of senior academics from different universities and research development centres, the fund said.

    The main areas covered by the programme were - productivity and measuring productivity in the workplace, improving personal productivity, emerging concepts of quality and practices of total quality management and the use of IT to enhance productivity.


    UK firm aims to bring down SL suicide rates

    LONDON - Biotechnology firm Protherics has won approval from US regulators for a drug to counteract accidental overdoses of heart medicines, which could also be used to stop Sri Lankans killing themselves by eating poisonous flowers.

    The Food and Drugs Administration's decision to approve the product, DigiFab, was the second success in a year for Macclesfield-based Protherics, which got the go-ahead in October to launch an antidote for rattlesnake bites.

    DigiFab treats toxicity caused by digoxin, a drug used to treat heart conditions which is harmful when it reaches a certain level in the bloodstream.

    Protherics believes there is a $20m annual market for the product in the US, among elderly patients who have taken heart drugs for a long period or children who have mistaken heart drugs for sweets.

    Protherics' chief executive Andrew Heath said: "Digoxins are very widely prescribed to elderly people, as their hearts get weaker. They can sometimes forget to take it, or take too many, which is when it can cause problems.

    "The really serious type of case, though, is when a toddler goes into granny's medicine box and samples some pills."

    Digoxins are based on a naturally occurring substance found in foxgloves and oleanders. In an unexpected bonus, Protherics is negotiating to sell thousands of the pills to the government of Sri Lanka, where consumption of oleander seeds is a popular way of committing suicide.

    Dr. Heath said: "We're in negotiations with the Sri Lankans to sell them the three batches of DigiFab we've produced so far. We'll begin manufacturing for the US market later in the year."

    Protherics produces treatments for poisons by injecting toxic substances into sheep, then collecting the antibodies produced in the animals' bloodstream.

    Despite its success in getting two products past the FDA, the company's shares have performed poorly. They edged up 0.25p to 25p, having slipped from 44p since the beginning of the year.

    The company has struggled to keep up with demand for its snakebite serum, amid booming demand after US firm Wyerth-Ayerst ceased production of a rival product.

    Protherics is also working on a way of chemically castrating domestic and farm animals. (Courtesy The London Guardian).


    SL firms clinch orders from Japan

    Some Sri Lankan companies, which participated at recent Japanese trade fairs, have been successful in obtaining orders from Japanese companies, according to the Japan External Trade Organisation (JETRO).

    Lanka Canneries Ltd and Prime Food Products (Pvt) Ltd, participants at the FOODEX 2001 trade fair, succeeded in obtaining orders from several Japanese companies to the value of US$ 56,395 and US$ 40,000, respectively.

    At the International House-wares Show 2001 held in Tokyo, Sri Lanka had won confirmed orders to the value of approximately US$ 50,000. Orders to the value of US$ 132,000 are under negotiation, according to a JETRO newsletter.

    Warna Exporters (Pvt) Ltd, Simplex International (Pvt) Ltd, Nishavi Industries, Timberlina Ltd and Royal Fernwood Porcelain Ltd participated at this trade fair which was coordinated by the Export Development Board.


    Alliance Exel Collaboration holds first annual dealer convention

    Alliance Exel Collaboration held its first annual dealer convention on September 3 at the Ceylon Continental Hotel in Colombo.

    The company, which markets internationally acclaimed RAK ceramic tiles, along with high quality sanitaryware, said in a statement it sees this conference as a first step towards consolidating its market position and building a strategic partnership with its island-wide dealer network. The company also made use of the occasion to reward dealers who had contributed to the growth of its market share.

    At the culmination of the convention several outstanding dealers were presented with special awards from Alliance Exel Collaboration in recognition of their contribution to boosting sales. The winner of the gold award was Seka Enterprises, Kiribathgoda. The silver went to W.W. de Silva & Sons, Kurunegala and the bronze went to Fazal Traders, Galle. Alliance Exel Collaboration has supplied numerous Sri Lankan companies and homes with world class ceramic tiles and sanitaryware. (The company also markets marble and granite flooring). 

    Alliance Exel Collaboration aims at becoming a leader in its field, providing both global choices and more indigenous products for the Sri Lankan market.


    Singer offers three-year debenture

    Singer Sri Lanka Ltd is issuing a three-year debenture to raise up to Rs. 400 million to finance future expansion plans, the company said.

    It has planned a 10 percent increase of the branch network and three more Mega stores for the year 2001.

    Singer chairman Hemaka Amarasuriya said the debenture would also finance a rapid expansion of its in-house hire purchase facility.

    "We will be marketing the debenture through our islandwide branch network. This may be the first time a leading corporate is tapping the rural investor base to raise capital," Amarasuriya said.

    The debenture having a credit rating of SL A by Fitch Ratings, will be issued at a par value of Rs 100/=. A fixed interest rate of 17 percent per annum is payable semi-annually from the date of allotment - 12th November 2001.

    The minimum subscription is 200 shares and the closing date for applications is 25th October 2001.


    In Brief

    CIMA meeting
    CIMA Sri Lanka has organised a presentation on trends in knowledge management and measurement of intellectual capital on Thursday, September 13 at the CIMA auditorium.

    Dr. Suresh Marcandan, a UK-based expert and managing director/principal consultant of People Power (Aust) Pvt Ltd will made a presentation at this session.

    Medical plan from Ceylinco
    A new benefit that covers policyholders against 500 types of surgery has been launched by Ceylinco Insurance, Sri Lanka's leading private sector life insurer, a company statement said.

    "Ceylinco Major Medical 500" is available to people between 18 and 60, and pays upto three times the basic value of the plan for any of the types of surgery specified during the term of the policy, it said. This is the only medical benefit of its kind in Sri Lanka that does not require bills or receipts and does not place annual limits or event limits or pays only part of the expenses.

    Combank's share issue oversubscribed
    The Commercial Bank said last week that the first 50 million cumulative, (redeemable in five years) preference share issue has been oversubscribed.

    "Thus the other 50 million shares will be available to investors till it is oversubscribed or till September 19," a bank press release said.

    These preference shares are an excellent investment opportunity, particularly at a time when interest rates are on the decline, it said.

    Golden Key credit cards for juniors
    Golden Key Credit Card Company (GK) recently launched the Golden Key Junior Privilege Card for juniors aged between 6 and 17.

    "The privilege card offers various privileges and facilities to holders," said Khavan Perera, company chairman. "Card holders would be able to obtain discounts from bookshops, computer institutes, restaurants and various other establishments," he said.

    "It is important to introduce the younger generation to the plastic cards," he said. Youngsters who are fascinated by the use of plastic cards should be given an opportunity to familiarise themselves with cards.

    GK launched the first Golden Key Privilege Card in August 2000 with over 2000 members and with 200 establishments offering discounts.

    Janashakthi launches hospital cash plan
    Janashakthi Insurance Co has launched Prathamadara, a new hospital cash plan that takes not only hospital expenses into account but also supplements loss of income during the period of hospitalisation, a company press release said.

    It said Prathamadara is not merely a medical insurance policy which re-imburses expenses during hospitalisation but pays fixed sums for each consecutive day spent in hospital except the first three days up to a maximum of 90 days.

    Print seminars
    A series of seminars and workshops by the Sri Lanka Association of Printers (SLAP) begins on September 17 at the Ingrin Institute auditorium, Wijewardena Mawatha, Colombo 10.

    Sathis Abeywickrama, SLAP President, explained that this programme will comprise seminars spread over nine consecutive months and would be sponsored by Asia Invest, Brussels. He said the main objective of this programme is to improve the quality of the graphic media industry.

    Women in management
    Sri Lanka's Worldview Institute recently organised an interactive workshop for women in management in collaboration with Nancy Ho Consulting, Singapore.

    The two-day workshop was conducted by Nancy Ho, herself. Over one hundred female managers in private and public sector organisations took part.

    Mr. Nalin Jayasuriya, Managing Director and CEO, Worldview Institute (Pvt) Ltd, noted the importance of focusing on managerial development for women in the country. He said half of the world's population is women and they represent almost half the working population, which necessitated a balance between female and male managers in order to cater to everyone's interest.

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