Please see link below to our latest news bulletin capturing the key economic, business and consumer news in Sri Lanka during January 2014.

1. Gradient
Alliance
M ont hly Bullet in: Januar y 2 0 1 4
In Economic news:
• 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)
In Business 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
In Consumer news:
• 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

2. Gradient
Alliance
M ont hly Bullet in: Januar y 2 0 1 4
In Economic news:
Central Bank unveils unveils Map Map for 2014. Mr. Ajith
Central Bank Road Road for 2014. Mr. Ajith
Cabraal, Governor of the Central Bank of the Central Bank of Sri Lanka
Cabraal, Governor of Sri Lanka (CBSL) presented the
Road Map for 2014. The key objectives are realising afor 2014 stating objectives of
(CBSL)presented the Road Map sound medium term
macroeconomicrealising a and sustained real economic growth of over
framework sound medium term macroeconomic framework
8% to avoid the middle income trap. Key economic2014-16 were presented avoid
and a sustained real targets for growth of over 8% to
with Mr. Cabraalthe middle income trap.Key targets for 2014-16 were
commenting;
Roadmap tab
presented with Mr. Cabraal commenting;
On economic growth: “GDP growth target for 2014 is 7.8% and a high 8.5%
by 2016”.
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 midOn inflation: In 2014 and going to the medium term the
single digits.
Source: CBSL
target would be mid-single digits.
On expansive monetary policy: “Policy would be relaxed if inflation and
On expansive monetary policy: “Policy would be relaxed if inflation and inflation expectations eased,
inflation expectations eased, aggregate demand is low, monetary and credit
expansion takes aggregate demand is low, monetary and credit expansion takes place at rates lower than projected
place at rates lower than projected and economic growth is
below potential”. and economic growth is below potential”.
On restrictive monetary
On restrictive monetary policy: “Tightened ifpolicy:“Tightened if demand driven inflation signs of economic overheating occur, aggregate demand
demand driven inflation and expectations pick up, and expectations pick up, signs of
economic overheating occur, aggregate demand expands at a 'high' rate and 'excessive' monetary and
expands at a ‘high’ rate and ‘excessive’ monetary and credit expansion takes place.”
credit expansion takes place.”
Strategies to achieve Road Map targets are to be based on the 5+1 hub concept
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.
Maritime hub Development to be on
vessel trading, financial
services, legal services
and crew training.
600MW from
Norochcholai coal
power plant to be
added to the
national grid in
mid-2014
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 Commercial
activity,
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
aerospace
engineering 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
The above presentation was a mammoth 176 slide power point presentation with about half of it detailing positive
detailing positive aspects of country’s performance to date. At the organised Road Map forum, panelist
aspects of country’s performance to date. At the organised Road Map forum, panelist Anila Dias Bandaranaike provided
Anila Dias Bandaranaike provided a much need critical analysis of the Road Map stating;
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
“It is an interesting and exciting time because so much has been achieved in Sri Lanka, but one of the immediate problems I see
Lanka, but one of the immediate problems I see in the country is the complete lack of
in the country is the complete lack of space for discussion and debate. You hardly see constructive criticism and responses.
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
A lot has been achieved, but no one wants to hear ‘I did this, I did that’. The
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
development in the country is fabulous – it doesn’t have to be repeated over and over
what I would like to see in the country.”
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.”
2

3. Gradient
Alliance
M ont hly Bullet in: Januar y 2 0 1 4
Issue date
1,450
$1.0bn
6.250%
2.520%
3.730%
5 year
$500m
7.400%
2.340%
5.060%
5 year
$500m
8.250%
4.280%
3.970%
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.
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).
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”.
1,350
Net Credit to Government (Rs. bn)
59%
YoY%
49%
31%
1,250
26%
1,150
39%
21%
1,050
34%
16%
950
750
Source: CBSL
95%
85%
75%
65%
250
55%
45%
200
35%
25%
Oct-13
Nov-13
Jul-13
Sep-13
Jun-13
Aug-13
Apr-13
May-13
Jan-13
Feb-13
Mar-13
Oct-12
Dec-12
Nov-12
Jul-12
Sep-12
Jun-12
Aug-12
Apr-12
15%
May-12
150
Jan-12
Oct-13
Nov-13
Jul-13
Sep-13
Jun-13
Aug-13
Apr-13
May-13
Jan-13
Feb-13
Mar-13
Oct-12
Dec-12
Nov-12
Jul-12
Sep-12
Jun-12
14%
Aug-12
Oct-13
Nov-13
Jul-13
Sep-13
Jun-13
Aug-13
Apr-13
May-13
Jan-13
Feb-13
Mar-13
Oct-12
Dec-12
Nov-12
Jul-12
Sep-12
Jun-12
Aug-12
Apr-12
May-12
Jan-12
Mar-12
Feb-12
Source: CBSL
105%
19%
Apr-12
6%
1,900
850
Jan-12
11%
24%
May-12
2,000
29%
Feb-12
2,100
115%
YoY%
300
Feb-12
2,200
Credit to State Corporations (Rs. bn)
350
44%
Mar-12
2,300
400
54%
Mar-12
36%
3.320%
10 year
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.
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).
41%
4.370%
2.930%
Coupon
Rate
Source: CBSL
Borrowing rates cut to stimulate growth. CBSL cut
YoY%
1.505%
6.250%
Oct-07
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
Credit to the Private Sector (Rs. bn)
5.875%
$1.0bn
Oct-09
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.
2,400
$1.0bn
10 year
Sep-10
Crisis in Sri Lanka’s power generation reaches a
new height. It was revealed that as many as three powerplants had
2,500
$1.0bn
10 year
Jul-11
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%
5 year
Spread vs.
US Treasuries
(similar time period) benchmark (US
Trys)
6.000%
3.000%
3.000%
Jul-12
Sri Lanka issued sixth sovereign bond, $1.0bn
priced at a 6.0%, lower than the initial price guidance level of
Amount
Jan-14
In Economic news:
Tenure
Source: CBSL
3

4. ADVERTISEMENT
4

5. Gradient
Alliance
M ont hly Bullet in: Januar y 2 0 1 4
In Economic news:
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.
16.0%
Inflation (point to point, YoY%)
14.0%
12.0%
10.0%
Pakistan
8.0%
Bangladesh
6.0%
Vietnam
India
4.0%
Sri Lanka
2.0%
Source: CBSL
The rupee ended the month at 129.28/132.16
vs. USD (rupee stronger ~0.13% MoM)
USD/LKR Exchange Rate
140
Mid point (Rs. per US$)
Bid - Ask spread (Rs. per US$)
7.5
135
6.5
130
125
5.5
120
3.5
110
2.5
105
1.5
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.
4.5
115
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%).
Source: CBSL
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.
USD/LKR Exchange Rate
140
135
130
Mid point (Rs. per US$)
Bid - Ask spread (Rs. per US$)
7.5
6.5
125
5.5
120
4.5
115
2.5
105
1.5
• 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.
3.5
110
• 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.
• 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
5

6. Gradient
Alliance
M ont hly Bullet in: Januar y 2 0 1 4
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
BUSINESS NEWS
Immigration Department as opposed to SLTDA’s manual method. This
http://www.sundayobserver.lk/2011/
reclassification resulted in full year 2013 arrivals increasing tooranges
1,274,593 a
Apples to
04/03/fea08.asp
significant 26.7% increase from 2012.
industry data. The
tourist arrivals comparison make a mockery of
Sri Lanka Tourism Development Authority (SLTDA)
changed its classification of a “tourist”,choosing to use data from the
SLTDA noted that “The new validation was carried out based on the statistics
electronic visa system at the Sri Lanka Immigration Department as
provided by the computer data collection method of the Immigration and manual method. means analysis between 2013 and 2012 being as
opposed to SLTDA’s criteria. Not doing so This reclassification resulted in full
Emigration Department.
meaningful as 1,274,593 a significant 26.7%
year 2013 arrivals increasing to a comparison between apples and oranges increase
from 2012.
This follows the standards set by the UNWTO for defining a tourist .... a b) Failed to restate annual target. We assume the original tourist
person who stays at least one night in a country and does not exceed his arrivals target for 2013 of 1.25m to haveout basedon the previous
SLTDA noted that “The new validation was carried been based on the
stay period for more thanMar months.”
12
classification criteria.
Jan
Feb
Apr
May statistics providedAug
Jun
Jul
Sep
Oct
Nov
Dec
Jan
by the computer data collection method of the
2011
74,197
65,797
75,130
63,835
48,943
53,636
83,786
60,219
69,563
90,889
97,517
Immigration and Emigration Department of Sri 72,463
Lanka [and]follows the standards set by the UNWTO
However, defining ato undertake two important actions which we arrivals figures,effect of the above two points and assuming that
for SLTDA failed tourist when calculating the tourist To better analyse the which says a person who stays at
83,549
91,102
69,591
57,506
90,338 79,456the
71,111
80,379 109,202
693,772
2012
85,874
feel are crucial to understanding industry performance; 65,245 exceed his same type of tourist arrived 122,252 97,411 in 2013, we recalculated
least one night in a country and does not
stay period for more in 2012 12 months.”
than as
Growth Yo
15.74%
26.98%
21.26%
9.02%
17.50%
21.64%
7.82%
9.65%
18.09%
monthly arrivals for15.55% 20.15% 25.36% 13.43%
2012 applying the same adjustment factor as
2013
97,411
93,232
98,155
79,829
70,026
73,628
98,944 100,224
89,761
102,805 112,213
########
a) Growth Yo to restate 2012 7.74%
Failed 13.43%
classification26.14%SLTDA used which monthly numbers.
However,SLTDA monthly to undertake two important actions on 201327.90% feel are crucial to understanding
failed arrivals using new12.85%
we
11.59%
14.71%
21.77%
9.53%
26.23%
industry performance;
a) Failed to restate 2012 monthly arrivals using new classification criteria. Not doing this means
Tourism Arrivals
2013 Revised. 2013 Orginial. Adj. Factor
2012 Revised. (based on YoY % (1
YoY % (1
ananalysis between 2013 '13 adj. factor) (5)
and 2012versus 4)
being as meaningful as a comparison between apples and oranges
(1)
(2)
(3)
2012 Acual (4)
versus 5)
Jan
110,543
97,411
1.13
85,874
97,451
28.7%
2013 Revised. (1)
2012 Acual (4)
13.4%
2013 Orginial. (2)
2012 Revised. (based on '13 adj. factor) (5)
Feb
113,968
93,232
1.22
83,549
102,131
36.4%
11.6%
b) Failed to restate annual target. We assume the original tourist arrivals target for 2013 of 1.25m to
170,000
Mar
113,208
1.15
91,102
105,073
24.3%
7.7%
have been 98,155
based on the previous classification criteria.
Apr
80,737
79,829
1.01
69,591
70,383
16.0%
14.7%
150,000
May
74,838
70,026
1.07
61,458
30.1%
21.8%
To better analyse the 57,506
effect of the above two points and assuming that the same type of tourist
Jun
90,279
73,628
1.23
65,245
80,000
38.4%
12.8%
130,000
arrived in 2012 as in 2013, we recalculated monthly arrivals for 2012 applying the same adjustment
Jul
107,106
98,944
1.08
90,338
97,790
18.6%
9.5%
factor as SLTDA used on 2013 monthly numbers. 110,000
Aug
123,269
100,224
1.23
79,456
97,726
55.1%
26.1%
2012 rev. (based on
YoY % (1 YoY % (1
Factor Adj 2012 (Act.) (4) 2013 factor adj.) (5)
versus 4) versus 5)
71,111
71,569
27.0%
26.2%
Jan
110,543
97,411
1.13
85,874
97,451
28.7%
13.4%
Oct Feb107,058113,968102,805 93,232
1.04
80,379
83,704
33.2%
1.22
83,549
102,131 27.9%
36.4%
11.6%
1.15
91,102
105,073
24.3%
7.7%
Nov Mar109,420113,208112,213 98,155
0.98
109,202
106,484
0.2%
2.8%
Apr
80,737
79,829
1.01
69,591
70,383
16.0%
14.7%
Dec May153,918 74,838131,532 70,026
1.17
122,252
143,059
25.9%
7.6%
1.07
57,506
61,458
30.1%
21.8%
1.23
65,245
80,000
38.4%
12.8%
Total Jun
1,274,683 90,279
1,147,760 73,628
1.11
1,005,605
1,116,827
26.7%
14.1%
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%
Note: Dec 1313 Oct factor is theis the average102,805 13 (peakWhich was Which 80,379 Deccalculate Dec 13unde83,704 unde 33.2%
adjustment 107,058 of Jan- of Jan- (peak season). season). used towas used to 13 tourist arivals tourist arivals methodology
average
Mar 13 Mar
calculate
the previous the
1.04
27.9%
Note: Dec adjustment factor
Nov
112,213
0.98
109,202
106,484
0.2%
2.8%
previous methodology 109,420
Source: Sri Lanka Tourism Development Authority and Gradient Analysis
Dec
153,918
131,532
1.17
122,252
143,059
25.9%
7.6%
Total Tourism Development Authority and Gradient Analysis
1,274,683
1,147,760
1.11
1,005,605
1,116,827
26.8%
14.1%
Source: Sri Lanka
Sep
2013
2013
(2)
90,339Rev. (1) 89,761 Org. 1.01
Tourism tab
ysis
90,000
70,000
1250000
1,100,000
(113,063)
2013 Rev. (1)
2012 (Act.) (4)
170,000
53,466
150,000
50,000
2013 Org. (2)
1387746.214
1,221,217
2012 rev. (based on 2013 factor adj .) (5)
vs.130,000 vs. rev target
org target
1.39
1.22 http://www.dailymirror.lk/business/features/3
110,000
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
0.92
1.04
90,000
Oct
Nov
Dec
70,000
8.1%
4.4%
Source: Sri Lanka Tourism Development Authority and Gradient Analysis
50,000
1250000
Feb
1,100,000
1,221,217
53,466
Ja n
Tourism Arrivals 1387746.214
Note: Dec 13 adjustment fa ctor is the average of Jan- Ma r 13 (peak season). W hich w as used to calculate
Dec 13 tourist ariva ls unde the previous metho dology
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Source: Sri Lanka Tourism Development Authority and Gradient Analysis
(113,063)
2013 Revised.
2013 Orginial. (2)
adjustment factor of 1.11 to annual target of
As per our calculations tourist arrivals in 2012 increases (4)(1) 1,116,827 Moreover applying the (5)
to
2012 Acual
2012 Revised. (based on '13 adj. factor)
As per our calculationstourist arrivals in 2012 increases to 1,116,827 from SLTDA statedarrivals fell short
1.25m increases it to 1,387,746, meaning actual tourist 1,005,605
from SLTDA stated 1,005,605 (+11.1%). This results in 2013 arrivals being
170,000
(+11.1%YoY). This results in 2013 arrivals being just 14.1% higher than 2012 and not 26.7% as
just 14.1% higher than 2012 and not 26.7% as stated by the authority. of the target by 8.1% in 2013.
Source: Sri Lanka Tourism Development Authority and Gradient Analysis
stated by the authority. Moreover applying the adjustment factor of 1.11 to annual target of 1.25m
150,000
increases it to 1,387,746, meaning actual tourist arrivals fell short of the target by 8.1% in 2013.
130,000
Original annual target for 2013 (source SLTDA)
110,000
Adjustment factor
Adjusted annual target for 2013
90,000
Actual arrivals in 2013 (based on SLTDA’s new criteria)
70,000
Shortfall
1,250,000
1.11
1,387,746
1,274,683
(113,063), (8.1%)
Source: Sri Lanka Tourism Development 50,000
Authority and Gradient Analysis
Source: Sri Lanka Tourism Development Authority and Gradient Analysis
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Previously a tourist arrivals Sri Lanka Tourism Development Authority and was established for 2014 this looks likely to be reviewed
target of 1.5m Gradient Analysis
Source:
given changes to arrivals methodology.
6

7. Gradient
Alliance
M ont hly Bullet in: Januar y 2 0 1 4
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
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
Sri Lanka Tea Production and Exports
Tea Production (m kgs)
40
Tea Exports (m kgs)
35
30
25
20
15
10
5
0
Jan 13
Feb 13
Mar 13
Apr 13
May 13
Jun 13
Jul 13
Aug 13
Sep 13
Oct 13
Nov 13
Dec 13
Source: Forbes and Walker
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).
Motor Vehicle Registrations (New/Pre Owned)
Motor Cars, SUVs and Vans
3 wheelers
2 wheelers
Trucks
16,000
14,000
12,000
12 000
10,000
• 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%.
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%.
8,000
6,000
4,000
2,000
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Source: JB Securities
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
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%).
7

8. Gradient
Alliance
M ont hly Bullet in: Januar y 2 0 1 4
In Business news:
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
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 prepaid 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.
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
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
Action targeting specific banks
• 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
• New foreign banks setting up in Sri Lanka will also have to be locally
incorporated. Currently foreign banks operate as branches of a parent
CBSL help
Other banking news
• 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%.
• 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.
8

9. Gradient
Alliance
M ont hly Bullet in: Januar y 2 0 1 4
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
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.”
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”.
170
LMD- Nielsen Business Confidence Index
160
150
140
130
120
110
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.
100
90
80
Source: lmd.lk
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9

10. Gradient
Alliance
M ont hly Bullet in: Januar y 2 0 1 4
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
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
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).
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.
10

11. Gradient Alliance
Helping to shape your Business
We are a management consultancy and financial advisory services provider.
Combining experience and comprehensive capabilities across many industries and
business functions, we work with clients to achieve a higher level of excellence.
We carry out company and market research, developing company financial
models, valuations and competitor analysis. Moreover we perform market surveys,
feasibility & due diligences studies and construct business plans.
Mo n t h l y B u l l e t i n : January 2014
4A, Deal Place A,
Colombo 03
Sri Lanka
M: + 94 773 619800
P: + 94 11 5786787
roshaanr@gradientalliance.com
www.gradientalliance.com
11