Sri Lanka News bulletin - January 2014

In Economic news:

In Business news: In Consumer news:• 2013 records highest annual tea production,340.2mkgs (+7.5% YoY) breaks 2010 level

• Vehicle registrations down 1.9% in Dec 13 with full year registrations falling to 322,172 (-17.3% YoY).

• Mobitel in talks to possibly buy Hutch

• CEO’s more confident about 2014, MTI’s CEO survey reveals

• CBSL Road Map has specific plans for the banking and finance industry

• LMD-Nielsen Business Confidence Index drops to 130 in Dec 13 (down 8pts MoM) on tax and inflation concerns

Monthly Bul let in : Januar y 2014

• Central Bank unveils Road Map for 2014 with aggressive GDP targets to avert potential middle income trap

• Sri Lanka issues sixth sovereign bond, $1.0bn @ 6.00%, lower than initial price guidance level of 6.25%

• Apples to oranges tourist arrivals comparison make a mockery of industry data

• Crisis in Sri Lanka’s power generation reaches a new height as three power plants experience technical failures and rains fails to come

• 50bps interest rate cut to stimulate growth

• All Share Price Index closes at 6,248.08, up 5.7% MoM, as all sectors recording positive growth

• Inflation drops to 4.4% YoY in Jan 14 (-30bps MoM) a 22 month low

• Rupee ended Jan 14 at 129.28/132.16 vs. USD (rupee stronger ~0.13% MoM)

• 140,000 smartphones imported during the third quarter of 2013, Samsung remains number one choice

• Spending on personal care products in significant rise as Neilsen advises targeting “Generation Y” through digital media

• Milk powder prices increase as Nestlé buys a record level of milk from local farmers

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In Economic news:


Central Bank unveils Road Map for 2014. Mr. Ajith Cabraal, Governor of the Central Bank of Sri Lanka (CBSL) presented theRoad Map for 2014. The key objectives are realising a sound medium termmacroeconomic framework and sustained real economic growth of over8% to avoid the middle income trap. Key targets for 2014-16 were presented with Mr. Cabraal commenting;

On economic growth: “GDP growth target for 2014 is 7.8% and a high 8.5% by 2016”.

On inflation: In 2014 and going to the medium term the target would be mid-single digits.

On expansive monetary policy: “Policy would be relaxed if inflation and inflation expectations eased, aggregate demand is low, monetary and credit expansion takes place at rates lower than projected and economic growth is below potential”.

On restrictive monetary policy: “Tightened if demand driven inflation and expectations pick up, signs of economic overheating occur, aggregate demand expands at a ‘high’ rate and ‘excessive’ monetary and credit expansion takes place.”

Strategies to achieve Road Map targets are to be based on the 5+1 hub concept

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Central Bank unveils Road Map for 2014. Mr. Ajith Cabraal, Governor of the Central Bank of Sri Lanka (CBSL)presented the Road Map for 2014 stating objectives of realising a sound medium term macroeconomic framework and a sustained real economic growth of over 8% to avoid the middle income trap.Key targets for 2014-16 were presented with Mr. Cabraal commenting;

On economic growth: “GDP growth target for 2014 is 7.8% and a high 8.5% by 2016”

On inflation: In 2014 and going to the medium term the target would be mid-single digits.

On expansive monetary policy: “Policy would be relaxed if inflation and inflation expectations eased, aggregate demand is low, monetary and credit expansion takes place at rates lower than projected and economic growth is below potential”.

On restrictive monetary policy:“Tightened if demand driven inflation and expectations pick up, signs of economic overheating occur, aggregate demand expands at a 'high' rate and 'excessive' monetary and credit expansion takes place.”

Strategies to achieve Road Map targets will be based on the 5+1 hub concept, as outlined in the Road Map

Knowledge hub - Programmes to reduce resource disparities between rural and urban schools through the transformation of 1,000 secondary schools and 5,000 primary schools.

Special focus on IT education in 1,000 secondary schools and the introduction of the technology stream at the GCE A/L examinations

Energy hub - Construction of 500MWSampur coal power project.

600MW from Norochcholai coal power plant to be added to the national grid in mid-2014

Maritime hub -Development to be on vessel trading, financial services, legal services and crew training.

To promote domestic boat industry – higher duties on boat imports, reduction in taxes on shipping lines, freight forwarders and logistics industry services to incentivise training of local professionals

Tourism hub - Commercialactivity,infrastructure, and health and education facilities to boost tourist arrivals

Commercial hub -Hambantota and Colombo South ports as free ports to attract private sector investments

Aviation hub -Development of flying schools and aerospaceengineering schools.

Promoting investment opportunities in the proximity of Mattala airport. Ratmalana to be developed as a city airport and to accommodate international traffic of private jets

The above presentation was a mammoth 176 slide power point presentation with about half of it detailing positive aspects of country’s performance to date. At the organised Road Map forum, panelist Anila Dias Bandaranaike provided a much need critical analysis of the Road Map stating;

“It is an interesting and exciting time because so much has been achieved in Sri Lanka, but one of the immediate problems I see in the country is the complete lack of space for discussion and debate. You hardly see constructive criticism and responses.

A lot has been achieved, but no one wants to hear ‘I did this, I did that’. The development in the country is fabulous – it doesn’t have to be repeated over and over again. Let’s see where we are short and see what the criticism is and be constructive. This is what I would like to see in the country.”

Roadmap tab

Source: CBSL

The above presentation was a mammoth 176 slide power point presentation with about half of it detailing positive aspects of country’s performance to date. At the organised Road Map forum, panelist Anila Dias Bandaranaike provided a much need critical analysis of the Road Map stating;

“It is an interesting and exciting time because so much has been achieved in Sri Lanka, but one of the immediate problems I see in the country is the complete lack of space for discussion and debate. You hardly see constructive criticism and responses.

A lot has been achieved, but no one wants to hear ‘I did this, I did that’. The development in the country is fabulous – it doesn’t have to be repeated over and over again. Let’s see where we are short and see what the criticism is and be constructive. This is what I would like to see in the country.”

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In Economic news:Sri Lanka issued sixth sovereign bond, $1.0bn priced at a 6.0%, lower than the initial price guidance level of 6.25%. The five year issue which was subscribed 3.2x is somewhat of a salute to country’s improving macroeconomic conditions and confidence placed on the 2014 budget. The issuance being the first among emerging markets in the year was also to have worked in its favour. CBSL noted that US investors bought 62% of the issue, 26% by Europeans and 12%


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Crisis in Sri Lanka’s power generation reaches a new height. It was revealed that as many as three powerplants had experienced technical failures and the current patch of dry weather had caused hydro power generation to drop to a low of 30% of total power generation. This meant Ceylon Electricity Board (CEB) relying more on the expensive thermal power generation and purchasing power from independent power producers.

On 10th of Jan, Norochcholai coal power plant was shut following a technical problem. Admittedly this is the 27th time the plant had broken down since 2009. According to Ms. Pavitra Wanniarachchi, Minister, Power and Energy, since inception the power plant has been out of commission for 136 days specifically due to technical failures (operating for 1,086

days), losing an estimated Rs.3.0bn and 1,084 GwH. Trial runs of the second phase of the Norochcholai power plant (costing $375m) commenced. Worryingly this was constructed by the very same China Mechanical Engineering Corporation who was involved in phase one.

Technical failures at power plants at Rantembe (52MW), Kelanitissa (55MW) and Randenigala (126MW) led to temporary curtailment in its power generation. Moreover CEB reported that hydro reservoir storage had dropped to 50% of capacity due to poor rainfall in catchment areas.

On a separate note the Petroleum Ministry stated that discussions with the United States, (US) on importing crude oil from Iran had failed. Restrictions on Iranian oil imports were imposed following its’ attempt to develop nuclear energy, an action not favourably viewed by US. Iran was Sri Lanka’s main source of oil and the refinery at Sapugaskanda is deemed more suited to refining Iranian oil.

Source: CBSLSource: CBSLSource: CBSL

26%

31%

36%

41%

2,300

2,400

2,500 Credit to the Private Sector (Rs. bn) YoY%

6%

11%

16%

21%

1,900

2,000

2,100

2,200

Jan-1

2

Feb-1

2

Mar-

12

Apr-

12

May-1

2

Jun-1

2

Jul-

12

Aug-1

2

Sep-1

2

Oct-

12

Nov-1

2

Dec-1

2

Jan-1

3

Feb-1

3

Mar-

13

Apr-

13

May-1

3

Jun-1

3

Jul-

13

Aug-1

3

Sep-1

3

Oct-

13

Nov-1

3

39%

44%

49%

54%

59%

1,150

1,250

1,350

1,450 Net Credit to Government (Rs. bn) YoY%

14%

19%

24%

29%

34%

39%

750

850

950

1,050

Jan-1

2

Feb-1

2

Mar-

12

Apr-

12

May-1

2

Jun-1

2

Jul-

12

Aug-1

2

Sep-1

2

Oct-

12

Nov-1

2

Dec-1

2

Jan-1

3

Feb-1

3

Mar-

13

Apr-

13

May-1

3

Jun-1

3

Jul-

13

Aug-1

3

Sep-1

3

Oct-

13

Nov-1

3

75%

85%

95%

105%

115%

300

350

400Credit to State Corporations (Rs. bn) YoY%

15%

25%

35%

45%

55%

65%

150

200

250

Jan-1

2

Feb-1

2

Mar-

12

Apr-

12

May-1

2

Jun-1

2

Jul-

12

Aug-1

2

Sep-1

2

Oct-

12

Nov-1

2

Dec-1

2

Jan-1

3

Feb-1

3

Mar-

13

Apr-

13

May-1

3

Jun-1

3

Jul-

13

Aug-1

3

Sep-1

3

Oct-

13

Nov-1

3

Borrowing rates cut to stimulate growth. CBSL cut reverse repo (injecting cash into the banking system) rates by 50 bps to 8.00% while leaving repo rates unchanged at 6.50%. The reduction in interest rate is to stimulate credit growth to private sector which has continued to trend lower (see below).

It appears that current interest rates would be held over short term with Mr. Ajith Cabraal, Governor of the CBSL commenting that “There may be some other adjustments that we may need to make in the economy as we move on, but from the rates point of view, it seems appropriate in the current circumstances”.

Credit to business and personal customers continued at a sluggish pace growing just 7.3% YoY in Nov 13 to Rs.2,519.0bn. Credit to state enterprises in Nov 13 was at its lowest level in eight months at Rs.308.bn (+18.0% YoY). However credit to state government continued unabated closing the month at Rs.1,325.5bn (+25.6% YoY).

Issue date Tenure Amount Coupon

RateUS Treasuries

(similar time period)

Spread vs. benchmark (US

Trys)Jan-14 5 year $1.0bn 6.000% 3.000% 3.000%

Jul-12 10 year $1.0bn 5.875% 1.505% 4.370%

Jul-11 10 year $1.0bn 6.250% 2.930% 3.320%

Sep-10 10 year $1.0bn 6.250% 2.520% 3.730%

Oct-09 5 year $500m 7.400% 2.340% 5.060%

Oct-07 5 year $500m 8.250% 4.280% 3.970%

Source: CBSL

by Asians. 89% of buyers were fund managers, 8% banks and 2% private banks. The offering was rated B1 by Moody’s, B+ by S&P and BB- by Fitch.

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In Economic news:


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The rupee ended the month at 129.28/132.16 vs. USD (rupee stronger ~0.13% MoM)

Inflation drops to 4.4% YoY in Jan 14 (-30bps MoM) a 22 month low. The annual average rate of inflation also reduced to 6.5% from 6.9% in Dec 13.

CBSL reported that prices in the non-food category grew 1.7% MoM but were offset by 0.9% decline in food prices. Prices of up-country vegetables, big onions, red onions, potatoes, limes and fruits decreased. In the Non-Food category, prices rose in health (~8.0%), communication (~3.9%) and transport (~3.3%).

Department of Census and Statistics (DCS) in Sri Lanka is to restructure the inflation index by changing the basket and cover the entire island as the current index only covers Colombo. This would be third change in eight years (2006, 2008), and comes on the back of International Monetary Fund (IMF) mentioning that “Sri Lanka’s national accounts suffer from insufficient data sources and undeveloped statistical techniques”, and that the inflation index needs to cover “All Sri Lanka”.

According to Mr. D.C.A Gunawardena, Head of DCS, “The current index does not reflect the whole country. It represents only 17% of the Sri Lankan population. ”Mr. Gunawardena also said that the basket of goods measured will vary depending on the region.

In other news • Millennium Housing Developers was the first IPO of the year offering 32m shares at Rs.6.00 to raise Rs.192m. A subsidiary of Nation Lanka PLC, the company intends to build houses in Ja-Ela, Seeduwa, Wattala, Piliyandala and Homagama, at a cost of Rs.800m.

• The Securities and Exchange Commission (SEC) is looking to ensure “fairness of the Initial Public Offering (IPO) offer price” by seeking the services of an independent institution. SEC notes overpricing as a key reason for the failure of recent IPOs.

• Several stock brokers are seeking permission from the CSE to temporarily stop their operations due to low activity levels at the stock exchange. Dr. Nalaka Godahewa, Chairman of SEC stated that “I think there are far too many brokers in our market. But like the Central Bank who has told the finance companies to consolidate, we have not told brokers to do so. The industry has to decide on its own. We are not going to tell them how to do business”.

• India Infoline Limited (IIFL) exited IIFL Securities Ceylon (Pvt.) Limited by divesting its 76% stake to current CEO Ms. Priyani Ratna-Gopal

• Frontier Capital Partners Ltd to divest its 75% stake in Global Media Networks Ltd. (GMNet) to Sierra Information Technologies Ltd. GMNetowns stock market simulation Game ‘VstoX’, online platform - Sri Lanka Equity Forum and business news portal Lanka Business Today.

• Malaysia’s RAM Holdings sold its stake in RAM Ratings (Lanka) Ltd to management led by Preethiraj Jayawardena and Adrian Perera. The company is to be rebranded and a new logo would be unveiled.

Source: CBSL

12.0%

14.0%

16.0% Inflation (point to point, YoY%)

Sri Lanka

Pakistan

India

Bangladesh

Vietnam

2.0%

4.0%

6.0%

8.0%

10.0%

Source: CBSL

6.5

7.5

130

135

140

USD/LKR Exchange Rate

Mid point (Rs. per US$) Bid - Ask spread (Rs. per US$)

1.5

2.5

3.5

4.5

5.5

105

110

115

120

125

130

Source: CBSL

6.5

7.5

130

135

140

USD/LKR Exchange Rate

Mid point (Rs. per US$) Bid - Ask spread (Rs. per US$)

1.5

2.5

3.5

4.5

5.5

105

110

115

120

125

130

The All Share Price Index closed at 6,248.08, up 5.7% MoM. All sectors recorded positive growth. Best performing sectors in the month were healthcare (+18.8% MoM), power and energy (+12.5%) and information technology (+10.0%).

During January the stock index broke through the 6,000 mark after a lapse of five months, a psychological barrier considered by many traders. Strong performance was led by John Keells Holdings PLC and a low interest rate regime driving investors to risky assets.

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In Business news:


Apples to oranges tourist arrivals comparison make a mockery of industry data. The Sri Lanka Tourism Development Authority (SLTDA) changed its classification of a “tourist” ,choosing to use data from the electronic visa system at the Sri Lanka Immigration Department as opposed to SLTDA’s manual method. This reclassification resulted in full year 2013 arrivals increasing to 1,274,593 a significant 26.7% increase from 2012.

SLTDA noted that “The new validation was carried out based on the statistics provided by the computer data collection method of the Immigration and Emigration Department.

This follows the standards set by the UNWTO for defining a tourist .... a person who stays at least one night in a country and does not exceed his stay period for more than 12 months.”

However, SLTDA failed to undertake two important actions which we feel are crucial to understanding industry performance;

a) Failed to restate 2012 monthly arrivals using new classification

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criteria. Not doing so means analysis between 2013 and 2012 being as meaningful as a comparison between apples and oranges

b) Failed to restate annual target. We assume the original tourist arrivals target for 2013 of 1.25m to have been based on the previous classification criteria.

To better analyse the effect of the above two points and assuming that the same type of tourist arrived in 2012 as in 2013, we recalculated monthly arrivals for 2012 applying the same adjustment factor as SLTDA used on 2013 monthly numbers.

As per our calculations tourist arrivals in 2012 increases to 1,116,827 from SLTDA stated 1,005,605 (+11.1%). This results in 2013 arrivals being just 14.1% higher than 2012 and not 26.7% as stated by the authority.

Moreover applying the adjustment factor of 1.11 to annual target of 1.25m increases it to 1,387,746, meaning actual tourist arrivals fell short of the target by 8.1% in 2013.

Source: Sri Lanka Tourism Development Authority and Gradient Analysis

BUSINESS NEWS

Apples to oranges tourist arrivals comparison make a mockery of industry data. The Sri Lanka Tourism Development Authority (SLTDA) changed its classification of a “tourist”,choosing to use data from the electronic visa system at the Sri Lanka Immigration Department as opposed to SLTDA’s manual method. This reclassification resulted in full year 2013 arrivals increasing to 1,274,593 a significant 26.7% increase from 2012.

SLTDA noted that “The new validation was carried out based on the statistics provided by the computer data collection method of the

Immigration and Emigration Department of Sri Lanka [and]follows the standards set by the UNWTO for defining a tourist when calculating the tourist arrivals figures, which says a person who stays at least one night in a country and does not exceed his stay period for more than 12 months.”

However,SLTDA failed to undertake two important actions which we feel are crucial to understanding industry performance;

a) Failed to restate 2012 monthly arrivals using new classification criteria. Not doing this means ananalysis between 2013 and 2012 being as meaningful as a comparison between apples and oranges

b) Failed to restate annual target. We assume the original tourist arrivals target for 2013 of 1.25m to have been based on the previous classification criteria.

To better analyse the effect of the above two points and assuming that the same type of tourist arrived in 2012 as in 2013, we recalculated monthly arrivals for 2012 applying the same adjustment factor as SLTDA used on 2013 monthly numbers.

As per our calculationstourist arrivals in 2012 increases to 1,116,827 from SLTDA stated 1,005,605 (+11.1%YoY). This results in 2013 arrivals being just 14.1% higher than 2012 and not 26.7% as stated by the authority. Moreover applying the adjustment factor of 1.11 to annual target of 1.25m increases it to 1,387,746, meaning actual tourist arrivals fell short of the target by 8.1% in 2013. Original annual target for 2013 (source SLTDA) 1,250,000 Adjustment factor 1.11 Adjusted annual target for 2013 1,387,746 Actual arrivals in 2013 (based on SLTDA’s new criteria) 1,274,683 Shortfall (113,063), (8.1%) Source: Sri Lanka Tourism Development Authority and Gradient Analysis

Previously a tourist arrivals target of 1.5m was established for 2014 this looks likely to be reviewed given changes to arrivals methodology.

2013 Rev. (1) 2013Org. (2) Factor Adj 2012 (Act.) (4)2012 rev. (based on2013 factor adj.) (5)

YoY % (1versus 4)

YoY % (1versus 5)

Jan 110,543 97,411 1.13 85,874 97,451 28.7% 13.4%Feb 113,968 93,232 1.22 83,549 102,131 36.4% 11.6%Mar 113,208 98,155 1.15 91,102 105,073 24.3% 7.7%Apr 80,737 79,829 1.01 69,591 70,383 16.0% 14.7%May 74,838 70,026 1.07 57,506 61,458 30.1% 21.8%Jun 90,279 73,628 1.23 65,245 80,000 38.4% 12.8%Jul 107,106 98,944 1.08 90,338 97,790 18.6% 9.5%Aug 123,269 100,224 1.23 79,456 97,726 55.1% 26.1%Sep 90,339 89,761 1.01 71,111 71,569 27.0% 26.2%Oct 107,058 102,805 1.04 80,379 83,704 33.2% 27.9%Nov 109,420 112,213 0.98 109,202 106,484 0.2% 2.8%Dec 153,918 131,532 1.17 122,252 143,059 25.9% 7.6%

Total 1,274,683 1,147,760 1.11 1,005,605 1,116,827 26.8% 14.1%


Note: Dec 13 adjustment factor is the average of Jan- Mar 13 (peak season). Which was used to calculate Dec 13 tourist arivals unde the previous methodology

ysis 1250000 1,100,0001387746.214 1,221,217

(113,063) 53,466


50,000

70,000

90,000

110,000

130,000

150,000

170,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2013 Rev. (1) 2013 Org. (2)2012 (Act.) (4) 2012 rev. (based on 2013 factor adj.) (5)

http://www.sundayobserver.lk/2011/04/03/fea08.asp

Tourism tab

Source: Sri Lanka Tourism Development Authority and Gradient Analysis Source: Sri Lanka Tourism Development Authority and Gradient Analysis


170,000

Tourism Arrivals2013 Revised. (1) 2013 Orginial. (2)2012 Acual (4) 2012 Revised. (based on '13 adj. factor) (5)

50,000

70,000

90,000

110,000

130,000

150,000


Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan2011 74,197 65,797 75,130 63,835 48,943 53,636 83,786 72,463 60,219 69,563 90,889 97,517

2012 85,874 83,549 91,102 69,591 57,506 65,245 90,338 79,456 71,111 80,379 109,202 122,252 97,411 693,772Growth Yo 15.74% 26.98% 21.26% 9.02% 17.50% 21.64% 7.82% 9.65% 18.09% 15.55% 20.15% 25.36% 13.43%

2013 97,411 93,232 98,155 79,829 70,026 73,628 98,944 100,224 89,761 102,805 112,213 ########Growth Yo 13.43% 11.59% 7.74% 14.71% 21.77% 12.85% 9.53% 26.14% 26.23% 27.90%

2013 Revised.(1)

2013 Orginial. (2)

Adj. Factor (3) 2012 Acual (4)

2012 Revised. (based on '13 adj. factor) (5)

YoY % (1 versus 4)

YoY % (1 versus 5)

Jan 110,543 97,411 1.13 85,874 97,451 28.7% 13.4%

Feb 113,968 93,232 1.22 83,549 102,131 36.4% 11.6%

Mar 113,208 98,155 1.15 91,102 105,073 24.3% 7.7%

Apr 80,737 79,829 1.01 69,591 70,383 16.0% 14.7%

May 74,838 70,026 1.07 57,506 61,458 30.1% 21.8%

Jun 90,279 73,628 1.23 65,245 80,000 38.4% 12.8%

Jul 107,106 98,944 1.08 90,338 97,790 18.6% 9.5%

Aug 123,269 100,224 1.23 79,456 97,726 55.1% 26.1%

Sep 90,339 89,761 1.01 71,111 71,569 27.0% 26.2%

Oct 107,058 102,805 1.04 80,379 83,704 33.2% 27.9%

Nov 109,420 112,213 0.98 109,202 106,484 0.2% 2.8%Dec 153,918 131,532 1.17 122,252 143,059 25.9% 7.6% vs. org target vs. rev target

Total 1,274,683 1,147,760 1.11 1,005,605 1,116,827 26.7% 14.1% 1.39 1.22 http://www.dailymirror.lk/business/features/30.92 1.04

8.1% 4.4%Source: Sri Lanka Tourism Development Authority and Gradient Analysis 1250000 1,100,000

1387746.214 1,221,217(113,063) 53,466



50,000

70,000

90,000

110,000

130,000

150,000

170,000


Tourism Arrivals2013 Revised. (1) 2013 Orginial. (2)2012 Acual (4) 2012 Revised. (based on '13 adj. factor) (5)

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In Business news:


Tea production breaks record. According to John Keells Tea Brokers tea production in 2013 was 340.2m kgs (+7.5% from 2012), surpassing previous record of 331.4m Kgs in 2010.

Moreover Forbes & Walker Tea Brokers reported that

tea exports from Sri Lanka in 2013 reached 319.7m kgs marginally lower than 319.9m kgs recorded in 2012. Tea exports by value reached Rs.199.4bn (~$1.6bn) significantly higher than the 180.1bn generated in 2012 (+11.3% YoY). Higher values were due to drop in global supplies

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and depreciation of the Sri Lankan rupee. According to Asia Siyaka Commodities export earnings relate to a FOB value per kg was Rs.623.91 ($4.87) above the 2012 record of Rs.563.94 per kg ($4.40).

Source: Forbes and Walker

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40

Sri Lanka Tea Production and ExportsTea Production (m kgs) Tea Exports (m kgs)

0

5

10

15

20

25

Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13

Vehicle registrations down 1.9% in Dec 13 with full year registrations falling to 322,172 (-17.3% YoY). According to JB Securities total vehicle registrations were only 25,233 in Dec 13

• Three wheeler registrations were down a significant 21.2% YoY to 5,768, lowest in 18 months. For the full year 2013 registrations were 82,967, down 13.4% YoY.

• Motor cars registrations were 1,801 up 22.9% YoY. For the full year 2013 registrations were 22,969, down 6.6%.

• 2-wheeler volumes at 13,831 (+15.3% YoY). For the full year 2013 registrations were 165,714, down 11.7%.

Source: JB Securities

12 000

14,000

16,000

Motor Vehicle Registrations (New/Pre Owned)Motor Cars, SUVs and Vans 3 wheelers 2 wheelers Trucks

-

2,000

4,000

6,000

8,000

10,000

12,000

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13

CBSL removed the requirement to place a 100% cash margin against letter of credit when importing motor vehicles to Sri Lanka. CBSL cited an appreciating local currency from improving external trade

Samsung continues to dominate smartphone market in Sri Lanka. According to Sri Lanka Mobile Handsets Markets Review 3Q 2013, about 140,000 smartphones were imported during the third quarter of 2013 to Sri Lanka. The report published by Cyber Media Research notes

Samsung accounted for 39.0% of the quarterly shipments, followed by Huawei 15.5% and Micromax 11.2%.

According to Tarun Pathak, analyst, Cyber Media Research “The first two months of the quarter witnessed a drop in overall Sri Lanka mobile handset shipments, primarily due to the seasonal impact and shortage of inventory on account of issues between retailers and distributors. However, the market started picking up from the month of September with new launches from Tier-I vendors and a push from operators, as a part of their bundling offers and data pack schemes”.

He further went to say “The increase in shipments of smartphones can be attributed to significant price drops by all vendors across the island nation, resulting in a reduction in the ASP”.

On the overall mobile handsets market in Sri Lanka it reported that in terms of shipments Nokia was the leader with 27.2% of the shipments followed by Samsung (17.4%) and Micromax (16.1%).

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Mobitel to buy Hutch? SLT Mobitel is in talks with Hutchinson Asia Telecom to take over Hutchison Telecommunications Lanka Ltd (Hutch). The announcement was made by Mobitel’s parent company Sri Lanka Telecom in a filing with the Colombo Stock Exchange. It noted that negotiations are at

CBSL Road Map has specific plans for the banking and finance industry. As part CBSL’s initiative to improve financial system stability through consolidation, the regulator announced its objectives of;

• 58 non-bank financial institutions consolidated into 20 larger ones• Multiple finance companies under one holding company and those in groups with banks encouraged to merge• At least five Sri Lankan banks to have assets of Rs.1trn • A large development bank to provide a substantial impetus to development banking activities in the country

Specific deadlines

• By Jun 14 a group could operate only one non-bank financial institution• By Jun 14 directors who own controlling shares in more than one NBFI have to arrange a merger between • By Dec 14 investors or banks are expected to absorb non-bank financial institutions with negative net worth

Action targeting specific banks

• New foreign banks setting up in Sri Lanka will also have to be locally incorporated. Currently foreign banks operate as branches of a parent

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In Business news:

a preliminary stage with the final decision contingent on completion of confirmatory due diligence, counterparty agreement and regulatory approval. An article published in the “The Daily FT” speculated the deal to be worth around $ 115 million. Hutch offers customised post and pre-paid mobile packages to rural customers. Moreover the article reported Hutch’s islandwide 3G broadband infrastructure and GSM 900 frequency to have greater benefits than Mobitel’s GSM 1800 frequency.

which are incorporated elsewhere• DFCC Bank and National Development Bank to merge• Bank of Ceylon and People’s Bank to expand its international presence• National Savings Bank to broaden its services

CBSL help

• Investors bringing in funds to boost capital at financial institutions will be given matching funds from a deposit insurance fund• CBSL to bear cost of consultancy fees for any merger• Finance companies to receive a liquidity facility

Other banking news

• UB Finance Co., previously a part of Union Bank of Colombo PLC commenced operations in Jan 14. UB Finance is to offer fixed deposits, saving accounts, asset backed financing etc.

• After almost two years of waiting Cargills (Ceylon) Plc received its banking license. The entity is called Cargills Bank will be the 13th local commercial bank and 25th overall (including foreign banks). Main shareholders: CT Holdings and Cargills 15% each, Merrill J. Fernando Group 10%, International Finance Corporation (IFC) 10%, Germany’s development finance arm DEG 10%.

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In Consumer news:


Uptick on 2014 at MTI CEO survey MTI Consulting in partnership with CIMA Sri Lanka conducted a survey among CEOs of top companies in Sri Lanka. Key highlights;

• Looking back to 2013 - 53% consider year 2013 was below expectations in regards to the business environment for their respective industries/domains (vs. 54% in 2012) - 39% felt their businesses met their expectations

MTI says “We believe, challenges posed by the macro environmental factors such as high interest rate regime, high energy and commodity prices, volatility in the exchange rate, etc. would have severely hindered the bottom line of the companies,”

• In 2014 – Macro economy - 62% expect country’s economy to stabilise in 2014 (vs. 56% in 2013)- 20% expect acceleration in the economy (vs. 17% in 2013)- 18% expect a sharp decline in the economy (vs. 27% in 2013)

MTI says “Despite the economy being greatly challenged in 2013 due to unfavourable movements in local macro environmental factors and gloomy global growth, it is encouraging to see the improvement in confidence level among the business community over country’s economic outlook which we

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believe would have partially attributed by desirable actions taken by the CBSL and the recovery signs of world economy”.

• In 2014 – Industry- 58% expect higher year over year growth in their businesses (vs. 52% in 2013) - 38% expect present challenges in the business environment to remain (vs. 38% in 2013)- 4% are pessimistic about the future (vs. 10% in 2013)

MTI says “In spite of country failing to sustain the confidence level in 2013 that was witnessed immediately after post war era, ongoing developments in country’s economic environment namely reduction in key monetary policies, relatively stabilised exchange rates coupled with the improvement in external trade are expected to thrust towards a conducive environment for businesses”.

LMD-Nielsen Business confidence Index drops to 130 in Dec 13 (-8 points MoM). Mr. Shaheen Cader noted that “there is an increase in the percentage of respondents that say business has decreased. Yet, almost half the sample (45%) is of the view that the economy would improve in the next 12 months.”

The most significant movement was in the share of respondents who believe compared to last year their business’s sales volume had decreased, rising to 39% from 29% Nov 13. Share of respondents who believe the economy will get better in the next 12 months increased to 45% from 44% in Nov 13. Those who believe the economy will get worse over the same time period increased to 32% from 28% in Nov 13. Source: lmd.lk

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170LMD- Nielsen Business Confidence Index

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In Consumer news:


Spending on personal care products in significant rise as Neilsen advises targeting “Generation Y” through digital media. Key findings;

o Spending on household care down despite personal care products growing at double digits. Nielsen notes that recovery in the food and beverages and household could result from a strong turnaround in the agriculture sector (employing 30%of the workforce)

o Fastest growing categories are lifestyle or personal care products such as hair dye, soya meat, sanitary napkins, creams and lotions, talcum powder, perfumes and colognes, cooking aids, face wash and noodles

o “Magic price point” for food and beverages was Rs.30, Rs.40-45 for personal care and Rs.35 for household care

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o Consumer group ‘Generation Y’ (born in the 1980s and 1990s) are more optimistic than other groups and more likely to spend on themselves. As such are best engaged via events, media habits, social media and even radio

Nestlé buys a record level of milk from local farmers. Nestlé Lanka PLC announced that it had bought 62m liters of milk from local farmers in 2013 (+15.1% YoY). The company noted that it currently purchases about 170,000 litres of fresh milk daily from 18,000 Sri Lankan farmers. In its continuous bid to improve the livelihood in the North and East regions the company recently opened a fresh milk chilling centre in Pudukuduirippu.

According to Mr. Ganesan Ampalavanar, Managing Director of Nestlé Lanka PLC “We have made intense and determined efforts to procure maximum quantities of fresh milk from the North and East to help develop these areas. We have established a milk collection network in the regions, made up of collection points to provide farmers living in distant, rural areas easy access to sell their milk and milk chilling centres to help farmers keep their milk fresh”.

According to the Ministry of Co-Operatives and Internal Trade prices of powdered milk was increased. The controlled retail price of a 400g

Cost of Living allowance increased. Public sector workers enjoyed another handout with monthly cost of living allowance increased to Rs.7,800 from Rs.6,600. The increase outlined in the Budget 2014 is to alone cost the tax payer Rs.17.3bn annually. Those employees serving on a daily wage on a casual basis would see their allowance increase by Rs.40 to Rs.260.

packet of milk powder will now be Rs.386 (up by Rs.61) and the price of a one kilogramme packet will be Rs.962 (up by Rs.152).

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Sri Lanka News bulletin - January 2014

Business

Transcript of Sri Lanka News bulletin - January 2014