Financial Times

Lanka IOC annual report
Auditors cast doubt on Govt. creditworthiness
Pricewaterhousecoopers, the auditors of Lanka IOC Limited, have modified the company’s audit report for the year ended 31st March 2005 on the basis of the subsidy amount receivable from the government of Sri Lanka.
In their report the auditors emphasized that the subsidy was claimed by LIOC as compensation for the loss arising from the price differential suffered by it because of the price revision not being carried out by the government as per the pricing formula.

The amount of Rs 4.6 billion represents the claim from January 2004 to March 2005. The emphasis of the “matter paragraph” is generally given by the auditors to highlight a matter affecting the financial statements which is included in a note to the financial statements that more extensively discusses the matter and do not affect the auditor’s opinion.

Analysts said the auditor’s reference in the audited company results to the subsidy owed by government to LIOC meant they were questioning the creditworthiness of the government.

The auditors also drew attention about the limitation of scope of audit. According to the audit report the limitation is explained as follows; “The share of the results of the associate company, Ceylon Petroleum Storage Terminals Lanka Limited has been accounted based on the draft financial statements. In the absence of audited financial statements for the years ending 31st March 2004 and 2005, we are unable to satisfy ourselves as to the accuracy of the share of profits relating to the investment in the associate company and its carrying value as at 31st March 2005.”

However the auditors have not qualified the audit report in this limitation of scope. But analysts said since the associate company profits are also taken in to the LIOC profit, as these were not audited, if anything goes wrong it may affect LIOC.

According to the audited financial statements, Lanka IOC recorded a post tax profits of Rs 2.3 billion or Rs 5.24 per share, for the year ended March 31, 2005, a 303 percent rise from the Rs 0.57 billion, or Rs 4.20 per share earned in the previous year.

Share of profits of its associate company has also increased sharply to Rs 540 million compared to that of Rs. 77 million earned in the previous year, an increase of 603 percent.

The company’s revenue for the year 2004/2005 was Rs 27.6 billion, up 90 per percent from Rs 14.5 billion recorded in the previous year.
Despite this performance, the company’s financial cost recorded a negative trend. The net finance cost for the year was Rs 74.4 million as against Rs 83.7 million net finance income earned in the previous year. However the company has tightened its administrative, selling and distribution expenses.

The company’s shareholders funds as at March 31, 2005, was Rs 10.6 billion up from Rs 4.7 billion a year ago, representing an increase of 126 percent. The company’s market capitalization as at September 6, 2005 was Rs 21.3 billion, ranking the company in fifth place among all other listed companies on the Colombo Stock Exchange (CSE).

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