The Sunday TimesBusiness

11th May, 1997

| PLUS

| HOME PAGE | FRONT PAGE | EDITORIAL/OPINION | NEWS / COMMENT | TIMESPORTS

Contents

BoC on way up

Despite reduced lending rates the Bank of Ceylon (BOC) hopes to achieve a Rs 3.5 bn profit this year, improving on its 1996 profit of Rs. 3.2 bn, General Manager, Ms. Savithri Jayasinghe told the Business Times.

Its first quarter results are on line with this target, she added.

Provisional figures for the first quarter show a surplus of around Rs. 800 mn, the banks's DGM Treasury and Investment banking, R. Nadarajah said.

"In a falling interest rate scenario, banks' profit margins get slimmer, but we will build up our lending portfolio on volume," Ms. Jayasinghe said.

The Central Bank has so far twice reduced commercial banks statutory reserve ratios this year, in an effort to bring down lending rates and improve money supply.

A total of about Rs. 7.5 bn has been injected to the money supply by this move. Central Bank reduced statutory reserve ratio by 1% this January and by 2% in March to bring commercial bank's reserve ratios to....%

With reduction of reserve ratios, commercial banks were expected to increase the volume of lending at lower interest rates to stimulate economic activity.

The Bank of Ceylon has responded to this call by reducing lending rates constructively, Ms. Jayasinghe explained.

When the Central Bank reduced reserve ratios in January, some banks reduced their lending rates selectively. But the BOC reduced lending rates across the board by one per cent. With the second reduction in reserve ratios, the bank again selectively reduced interests rates from 0.5 per cent to one per cent.

Responding to government policy on a lower interest regime to promote priority sectors, BOC has prioritized exports, tourism, agriculture, industry, animal husbandry and fisheries for lower interest rates.

The Bank's Interest rates now range from 16 per cent per annum to 23.5 per cent for unsecured loans. Short term working capital funds are given at 2 per cent below the lowest current lending rate.

Deposit rates have also been adjusted in keeping with the current market rates to a range of 10 per cent to 14.5 per cent on savings and fixed deposits.

The profits have been building up over recent years. "Our profit has been mainly on volume and we hope to improve this trend, Ms. Jayasinghe said.

The banks first quarter results have also shown a reduction in non performing loans, Mr. Nadarajah said.

This is a definite improvement on the 3rd and final quarter results of 1996, when the effects of the power crisis reflected adversely in the bank's books.

The severity of the power crisis also led to a govt. directive on a moratorium on repayments, with most state private commercial banks giving concessions on interest rates etc.

Even in their catalytic role as a commercial development cum social banker, the BOC has managed to record an upward trend in profits, Ms. Jayasinghe said.


BOTTOM LINE

By P.M.N. Bandara

Ceylon Oxygen

The provisional financial statements of Ceylon Oxygen Ltd., for the 3 months ended 31st March 1997 show sharp improvement in turnover, profit before tax and profit after tax.

Company's turnover up by 19% from Rs. 110.3m. to Rs. 131.2m. during the period under review compared to the same period in the previous year. Profit before taxation was Rs. 16.9m. a 34% increase. Profit after taxation increased by 44% from Rs. 10.9m. to Rs. 15.7m.

Shareholders' funds were up by 103.7% from Rs. 206.9m. to Rs. 421.5m. This is mainly due to increase of issued capital by Rs. 30m. together with Rs. 150m. share premium account and the increase of retained profits.

Pugoda Textiles

Pugoda Textiles Lanka Limited reposited Rs. 206m. consolidated loss for the 9 months ended 31st December 1996. This is 32% increase of loss compared to the previous year loss of Rs. 156m.

Turnover of the company decreased by 1.4% from Rs. 588m. to Rs. 579.6m. The losses incured by the company adversely affected the shareholders' funds.

Kelani Valley Plantations

Kelani Valley Plantations Limited reported favourable financial results for the year ended 31st December 1996.

According to the provisional accounts, company's turnover was up by 16.9% from Rs. 726.1m. to Rs. 849.3m. Profit with zero taxation increased by 87.7% from Rs. 45.7m. to Rs. 85.8m.

Union Assurance

Despite the increase of gross premiums written, Union Assurance Limited reported decrease of profit for the year ended 31st December 1996.

According to the provisional accounts gross premiums written increased by 17.6% from Rs. 893.3m. to Rs. 1051m. Profit with zero tax provision was decreased by 22% from Rs. 76.0m. to Rs. 59.2m. However, shareholders' funds increased by 8% from Rs. 430.7 to Rs. 465.6m.

Dipped Products

Favourable financial results have been reported by Dipped Products Limited for the 9 months ended 31st December 1996.

According to the provisional financial statements, the company's group turnover was Rs. 1349m., a 95.7% increase. Profit before taxation increased by 35.9% from Rs. 101.7m. to Rs. 137.6m. Profit after taxation was Rs. 129.1m. This is an increase of 45% over the previous period. Shareholders' funds as at 31st December 1996 were Rs. 623.7m. This shows an increase of 47% over the figure as at 31.12.1995.

James Finlay

"The James Finlay group of Companies in Sri Lanka recorded excellent results during 1996, the best ever in its history," says Chairman, R.L. Juriansz.

According to the provisional accounts for the year ended 31st December 1996, the turnover of the group amounted to Rs. 1045.9m., a 34% increase over the previous year. Group profit before taxation amounted to Rs. 89.6m. which is more than double the profit of Rs. 38.5m. earned in 1995. Profit after taxation also increased by 92% from Rs. 35.5m. to Rs. 68.1m.

Earning per share amounted to Rs. 6.81, an increase of 92% compared with the previous year's figure of Rs. 3.55.

Directors have resolved to recommend at the AGM the declaration of a final dividend of 12.5% which together with the 7.5% interim dividend declared in December 1996, amounts to a total dividend of 20% the entirety of the 20% dividend is out of tax free profit and dividends received, and this will not be liable to Advance Company Tax.

"The excellent results achieved has been largely due to the performance of Management Services provided to the Plantation sector," says the Chairman. Explaining the major factors contributed for achievement he further added, "Helped by buoyant tea prices which prevailed throughout the year and the increased tea production consequent to the large scale capital development work undertaken by us over the last 4 1/2 years during which we have managed Hapugastenne Plantations Limited, that company earned a significant profit, a share of which accrued to the Finlay Group as management fee."


Mind Your BUSINESS

By Business Bug

Shell shock over deal

Everyone is shell shocked about the dispute at the gas company because this is the second major crisis since the management changed.

After the first strike, employer-employee relations were rosy for some time but the present strike has ended such illusions.

Now, we hear that the powers that be are considering reviewing the monopoly status of the company - though that would be mean reneging on a previous agreement, thereby hurting the confidence of prospective investors.

But, some feel that would be a fair deal both by the workers and the consumers at large.

Restructuring state banks

The announcement this week that there will be no "privatisation" of the two major state banks surprised many in financial circles.

They all knew that "privatisation" was a dirty word among trade unions but thought that some restructuring was in the offing; until last week's quite categorical statement.

But boys at the treasury still say that major changes at the two banks will take place, sans any label so no one will be alarmed....


Private, Govt, sectors to work in tandem

A recent publication of the Ceylon Chamber of Commerce, 'Window on the Economy', has called on the country's private sector to initiate a dialogue with the government to identify aspects of infrastructure development in which they can participate profitably. The publication in an article states the current level of development of the Sri Lankan economy which is on the development path of the East Asian miracle economies, suggests that the single most important sector requiring priority attention is the country's physical infrastructure. It states that investment is urgently required in the expansion of communication services, energy and the transportation network.

It notes that defence expenditure as a result of the ongoing North East war which has increased to 3.5 to 5 percent of the GDP has caused a decline in public expenditure in infrastructure development.

The article attributes private sector reluctance to participate in transport infrastructure and large scale energy projects to three main reasons.

Firstly, investment in such infrastructure is extremely costly and beyond the capacity of local private companies. Secondly, infrastructure investment has a relatively long gestation period before yielding economic returns. Therefore, private firms cannot afford the waiting period involved, which may be several years in duration.

Thirdly, it is difficult for the economic returns on infrastructure to be appropriated entirely, or even mainly, by the investor.

However, it notes that improved political stability could assist in mitigating the first and second reasons since the economic climate of the country would then become attractive to foreign companies with the financial capacity to invest infrastructure.

This would offer opportunities for local private firms to link up with foreign companies and invest in the sector.

Greater political security would also reduce the economic risks, resulting from long gestation periods involved in infrastructure investment.

However the article notes that the present state of negotiations with the LTTE and the time horizon for a permanent settlement are inadequate to have more than a marginal impact on the prospects of attracting private sector involvement in the infrastructure sector.

Further, political stability is inadequate to overcome the third reason advanced to explain the reluctance of a private sector to invest in infrastructure, i.e., the difficulty of appropriating an adequate proportion of the economic returns involved.

It notes that as a result, the government would have to continue as the principal source of investment funds for infrastructure provision, expansion and improvement.

The article suggests that the private sector could make an important contribution to the infrastructure development efforts of the government by manufacturing key components used in infrastructure projects such as processed materials. It notes that such an undertaking, besides being economically profitable to the local business community, could also serve to enhance the capacity of government to expand infrastructure at competitive costs.

The release suggests that a consortium of private sector firms would be better equipped to undertake production on the scale required for infrastructure projects than firms operating on their own.

It adds the three factors that make investing in infrastructure projects attractive. Firstly, foreign funding for heavy infrastructure is likely to expand.

Japan and the ADB are already known to be displaying renewed interest in heavy infrastructure projects in transport and energy. Secondly, the scale of operations in infrastruture projects offer scope for high profits and thirdly, such a development would in the long term lead to an investment climate that would serve to attract foreign investment.


CFLB offers to buy Colonial Motors

Colombo Fort Land and Building Company (CFLB) has offered to buy all the shares of Colonial Motors Ltd., held by minority shareholders at Rs. 12.50 per share.

This is a mandatory offer triggered by the Take-Overs and Mergers code after CFLB acquired more than a third of its issued capital.

CFLB currently holds 34.84 per cent of the share capital or 2.8 mn shares.

In a circular to shareholders the Board of CML said the offer at Rs. 12.50 per share valued the company at Rs. 101 mn.

The major assets of the company were a freehold property at Union Place, shares in listed companies and the shares held by wholly owned investment company Union Investments Ltd.

The land of 208 perches had been valued at Rs. 350,000 in March 1992, or Rs. 92.5 mn.

"A more acceptable valuation, particularly since the present valuation was obtained five years ago would, in the Director's opinion, be a minimum of Rs. 500,000 a per perch," the circular said.

This would put the value of the land at Rs. 104 mn, and when the value of buildings is added on it could be around Rs. 125 mn.

The shares owned by CML and Union Investment Ltd. had been valued at a further Rs. 140 mn.

On this basis the net worth of CML was Rs. 265 mn or Rs. 32.70 per share.

The company was also hoping to buy the automobile distributorship Carplan Ltd., which currently held the agency for KIA.

Directors said CML also planned to expand the import and sale of spares.

The Directors were also planning to list Union Investment Ltd. by way of a public issue.

The relocation of the garage and workshop of the company was also planned as the Union Place property was earmarked to be developed.

Directors said it was difficult to advise shareholders whether to reject or accept the offer.

CML's Chairman R. Senathirajah and Director P. A. D. Samarasekera were also directors of CFLB which made the offer.

Both had declared their interest to the CML Board.

As required by the Take-overs Code independent advice was also provided by Chartered Accountants Amerasekera and Company.

The net worth of the company according to the balance sheet when land was taken at the 1992 valuation was Rs. 247 mn or Rs. 31.50 per share

On an earnings basis taking the sector price earnings ration as at April 9, was Rs. 8.27.

The company's share traded at Rs 14. The accountant's report said despite the low values placed on the share on an earnings basis the offer price seemed comparatively low considering the company's net wroth.

However the net worth could only be realised if the company was liquidated or if the stock market took an upward trend.

Shareholders had to evaluate the merits and demerits of the offer themselves taking their own risk profiles into consideration, the Accountants said.

"Those shareholders who are optimistic of a revival of the stock market may hold their shares without accepting the offer whereas those shareholders who do not want to run the risk may accept the offer."


Continue to Business page 2

Go to the Business Section Archive

Plus

Home Page Front Page OP/ED News Sports

Please send your comments and suggestions on this web site to
info@suntimes.is.lk or to
webmaster@infolabs.is.lk