The All Share Price Index has declined by 0.6% WoW to close the holiday shortened trading week at 2,635.7 points whilst Milanka Price Index decreased to 3,235.3 points (down 1.5%). Indices dipped on account of the downturn in prices that was witnessed in Walker and Greig (-7.7% WoW), Sierra Cables (-5.9% WoW), Ceylon Glass (-4.0% WoW), East West Properties (-4.0% WoW), Dankotuwa Porcelain (-3.8% WoW), Ceylinco Seylan Development (-2.8% WoW) whilst blue chip losses were led by Lanka Milk Foods (-1.4% WoW) and John Keells Holdings (-0.8% WoW)

Average daily turnover decreased significantly by 81.3% WoW to LKR198.4 mn, on account of the high value strategic transactions that took place in selected counters last week. The market remained somewhat dull during the current week with renewed buying interest in the plantation sector, particularly in counters such as Balangoda Plantations and Agalawatta Plantations. Retail led buying interest materialised in Walker and Greig, Lanka Milk Foods, Lanka Cement, and Ceylon Hotels Corporation whilst crossings were witnessed in John Keells Holdings and Colombo Dockyard. Further, strategic transfers materialised in Ceylon Tobacco and Haycarb.

Buying interest in Walker and Greig was on account of the proposed rights issue being defeated at the extraordinary general meeting held. Retail interest was witnessed in Lanka Milk Foods in anticipation of strong corporate earnings to be posted whilst speculative led buying interest materialised in Lanka Cement subsequent to the possible re-opening of its cement factory in Kankasanthurai. Additionally, plantation sector counters such as Balangoda Plantations, Agalawatte Plantations and Kegalle Plantations continued to display interest in anticipation of healthy earnings.
Foreigners remained net buyers primarily in John Keells Holdings and Distilleries whilst contributing closer to 50% to the total turnover.


IMF admits that monetary expansion caused less than 16% of Inflation

In response to the clarifications made by the Central Bank of Sri Lanka (CBSL) on the scientific grounds on the validity of the findings in the recent IMF working paper on Pass-through of External Shocks to Inflation in Sri Lanka, Mr. David Burton, the Director of Asia and Pacific Department of the IMF has now issued an explanation to the media.

The Central Bank in a mews release said that during the discussion with the bank officials, the IMF admitted that money supply and output gap were the two variables that represent monetary and fiscal stimulus in the model used. The IMF has further clarified that monetary and fiscal expansion explains only 16 per cent of the variation in inflation, not 75 per cent as interpreted earlier. Accordingly, the IMF explanation implies that the impact of monetary and fiscal expansion on current inflation would be even lower than the 16 per cent captured by the study and that the impact of food and energy prices could be even higher now as food and energy prices rose sharply and monetary and fiscal policies were tightened further since July 2007.

The CBSL is thankful to the IMF for issuing an explanation in this regard as it would provide a more clear interpretation of the results of the Working Paper.

The statement issued by the IMF through David Burton, Director Asia and Pacific Department of the International Monetary Fund is given below.

Our recent IMF Working Paper “Pass-Through of External Shocks to Inflation in Sri Lanka” has attracted a lot of attention in Sri Lanka and we felt it would be useful to clarify some of the points raised by this discussion.

The Working Paper examined the causes of inflation in Sri Lanka and used statistical analysis to investigate how much external shocks—events beyond the government’s control—contributed to inflation. The analysis indicated that such shocks explained about 25 percent of the variation in Sri Lanka’s consumer price inflation between January 2003-July 2007, while 16 percent was explained by monetary growth and excess demand, and the rest by other factors, such as changes in government subsidies and volatile domestic food prices. Based on these findings, the paper concluded that domestic policies play a very important role in containing inflation—a view that is consistent with those of the IMF’s 2007 Article IV report on Sri Lanka and with the experience of other countries.

In this context, it is important to note that the staff study only looks at data up to July 2007, and that it does not take account of the surge in world commodity prices that has been a big cause of the run up in headline inflation in Sri Lanka from 13.5 percent in July 2007 to 25 percent in April 2008.

The Sri Lanka authorities have taken important steps to address this latest challenge. The government took a bold—in the sense of economically correct and politically difficult—step of allowing these price rises to pass through by phasing out food and fuel subsidies during the second half of 2007, and the CBSL has taken welcome steps to tighten monetary policy to combat inflation.

The authorities are right to be concerned about the level of headline inflation, and the IMF supports their goal of bringing it down to single digits. This is why the 2007 Article IV report backed continued efforts to tighten monetary policy and to reduce the budget deficit.


MTI experience on re-structuring at CMA conference

“When the going is good, organisations accumulate a lot of fat”, was the basis of the concept discussed at the recently concluded CMA Conference on April 21, 2008, at the Cinnamon Grand. The theme of the conference was “Restructuring the Corporation”

MTI Consulting, which is one of the fastest growing international management consultancies, this year, presented Re-structuring in Sri Lanka Process & Experiences, at the CMA conference. Speaking at the conference was MTI’s International Consultants, Director, Senior Consultant, MTI Consulting, Sri Lanka & Bangladesh, Sanjeev Abeynayake and Director, Senior Consultant, MTI Consulting, Sri Lanka & Pakistan, Suraj Deen.

For most companies, Restructuring is associated with bad times. Restructuring has been considered synonymous with losses, down-sizing, retrenchments and plant shutdowns. MTI Consulting’s Research and Experiences have seen that companies still use conventional restructuring as emergency surgery before the last breath is drawn!

MTI’s Research and Experience in over 33 countries, shows that fast growing organisations become prime candidates to put on ‘unproductive fat’ and acquire inefficient processes and practices, gradually making the company uncompetitive. MTI’s Experience also shows that smart companies recognise such pitfalls and the need to continuously ask the hard questions, even in the face of continued business success

Presenting at the conference, MTI’s Consultant Sanjeev Abeynayake stated examples on how MTI’s globally acclaimed RSRS® restructuring model was applied. MTI’s Restructuring based on Restrategising Model (RSRS) is a strategy based structuring process that conceptually leaves aside the current structure and employs the Value Adding Flow to build the structure. He further stated that, at this point, we put aside all the current jobs, designations and layers and then re-look how to rebuild business afresh. It is what we call a Ground Zero approach, where the entire corporate structure is razed –with nothing left but the franchise, customers and brands.

Further speaking at the conference Suraj Deen stated that companies need to base their structure on business strategy. Some companies tend to consider their structures more permanent than their buildings. Thus companies do not perceive the need to change these structures to suit the times. He further stated that the structure has to be a means to an end, which is to achieve the business strategy.


WTC at Fort to reach 100% occupancy this year

The World Trade Center in Colombo Fort which reached an occupancy level of 90% in 2006 and 2007 is poised to reach 100% occupancy this year predicts Bartleet Mallory Stockbrokers in its weeklyreport.

BMS report says that OSEA is the Sri Lankan member of World Trade Centers Association which owns and manages the twin towers of World Trade Center (WTC) at Echelon Square, Colombo. Further OSEA is also the prestigious owner and the developer of Havelockcity, one of the largest condominium construction projects in Sri Lanka.

It points out that a closer look at OSEA’s revenue structure depicts that 63% of the total revenue stems exclusively from the rental income of WTC. Moreover WTC being situated at a prime business location, the demand for floor space is very high as the occupancy levels reached the highest of 90% in both 2006 and 2007. OSEA is hoping to extend the occupancy levels closer to 100% in 2008.

Some of the key tenants include Colombo Stock Exchange, Securities and Exchange Commission, BOI, local and international banks, international air line companies and travel agents etc.

The multi complex Havelockcity project comprises residential apartments as well as commercial buildings which eventually builds an inner city at the completion of the project. The Havelockcity project is planned to complete by 2010 and will operate in three phases. Currently, the first phase of constructing 226 apartments is about to be completed by August 2008.
The revenue from the sale of apartments is recognized once 25% of the

total value is received and in 2007 the sale of apartments amounted to 34% of total revenue. Further for 2008 it is expected to increase the contribution from sale of apartments on the back of the completion of its first phase in August 2008.

In FY 2007 OSEA reached Rs.1.13Bn revenue mark depicting a growth of 23% YoY. The bottom line also visualized an annual growth of 9% to attribute Rs.2.2Bn, which consists of a massive Rs.1.8Bn being fair value gain on investment property.
The corresponding figure for FY 2006 was Rs.1.68Bn. Earnings per OSEA share

stands at Rs.3.80 with a growth of 4% YoY, where the company has a P/E multiple of 3.29 times compared to the Land & Property sector P/E multiple of 5.30 times. On 02nd of May the counter closed at Rs.12.50 with a net asset value per share of Rs.17.51.


Gravitas 2008 to hit Colombo in style

The inaugural Hoteliers’ Ball, Gravitas 2008, will take place on Saturday, 31 May 2008 at the Grand Ballroom, Water’s Edge. Organised by the Ceylon Hotel School’s Graduates Association (CHSGA), the event promises to be outstanding in that it will feature the cream of the industry, both locally and internationally.

Commenting on the event, President of the Association and Director, Water’s Edge, Sarath Fernando, said, “I’m sure many people would wonder ‘Why Gravitas’? The rationale behind the branding is that this event is going to be the centre of gravity – the occasion that will attract the best possible individuals and elements of the industry – creating an unparalleled experience for all who are a part of it.”

The star attraction at the event would be Douglas Ankara, the world-renowned mixologist from the UK, who will showcase his talents, ably assisted by the best mixologists and bartenders in Sri Lanka. Compering the event would be the international compere, Rebecca Wicken, who would add that extra sparkle to make the evening glitter that much more. The menu is yet another treat to anticipate – not just for the taste buds, but also for the senses – as Sri Lanka’s top executive chefs from the Colombo hotels join forces to create a sumptuous dinner! Providing the musical accompaniment to this excellent fare would be Misty and Legacy. Undoubtedly, Gravitas 2008 will be a night to remember!


CIMA CEO Forum on opportunities in India and China

The CIMA Sri Lanka CEO forum will be held on the 13th May at Cinnamon Grand. The forum will feature a presentation Mr. V Thyagarajan - Senior Vice President & Regional Director, Asia Pacific GlaxoSmithKline, who is responsible for GlaxoSmithKline operations in Asia Pacific and is based at the Company’s Headquarters in Singapore. Mr. Thyagarajan will speak on ‘Globalization and opportunities it present to Asia”. He will also share his experience on how India and China are gaining from Globalization paying special emphasis on the Singapore Model within the Globalization context and its relevance to Sri Lanka.

The Forum will conclude with an interesting panel discussion on opportunities and challenges of doing business in the region. The session would be moderated by Mr. Prakash Schaffter, Managing Director, Janashakthi Insurance Co. Ltd and comprises; top business leaders Mr. Nihal Fonseka, Chairman, Colombo Stock Exchange & Chief Executive, DFCC Bank, Jeremy Huxtable, Chief Executive Officer, Suntel Limited, Mr. Keith Modder, Managing Director, Virtusa (Pvt) Ltd. Mr. Dave Ranasinghe, Managing Director, Bodyline (Pvt) Ltd and Mr. Mourad Mankarios, former Chairman/CEO Philips Electronics Singapore

The CEO breakfast meetings are organized as part of CIMA’s continuing endeavour to update the business community on emerging developments in the field of finance and management.


India, Iran agree to push for deal on gas pipeline pact

(AFP) - Iran said Tuesday it hoped to finalise a gas pipeline deal with fuel-starved India “in the near future”, stressing the much-delayed project was more than just a commercial agreement.

Iranian President Mahmoud Ahmadinejad said he held detailed talks with Indian Prime Minister Manmohan Singh including “positive” discussions on the petroleum natural gas project.

“The talks were positive and we hope that in the near future we will finalise the project,” Ahmadinejad, speaking through an interpreter, told a news conference after a one-day visit to New Delhi.

He said the 7.5-billion-dollar project, which aims to transport natural gas from Iranian oilfields to Pakistan and India, was not just a commercial deal as India and Iran “shared common roots and had deep historic and cultural ties.”

“This is a very important, very immense project -- not only the pipeline but the very issues involved in this programme have social, economic and political ramifications for both our countries,” he after visiting South Asian neighbours Pakistan and Sri Lanka this week.

The project was mooted in 1994 but stalled by disputes over prices and transit fees.
Indian foreign secretary Shiv Shankar Menon sounded upbeat after the meetings. “Its doable,” he told reporters in a separate brief.

“We not only need to treat it as a commercial deal because it is much more than a commercial deal,” the top Indian diplomat said.
“I think we need to see it also in terms of its potential as a confidence-building measure between the three countries and therefore we need to do things, find ways of assuring supply,” he said.

“This is a pipeline that will hopefully last for 40 years... Price is only a small part of this,” he added in an apparent reference to issues of transit costs and pricing.