Access Engineering hit by Sri Lanka monetary instability, ‘Nixon’ shock

ECONOMYNEXT – The collapse of Sri Lanka’s soft-peg with the US dollar and trade controls slapped by authorities to block imports had hit Access Engineering Plc, which has interests in construction and motor vehicles, but the firm is expecting better conditions in 2019.

"Introduction of higher LC margin on motor car imports, cash margin requirement on selected consumer goods imports and lowering of the loan to value ratio on motor vehicle-related financing coupled with the steep depreciation of the rupee had a profound impact on the automobile sector," Access chief Sumal Perera told shareholders in the annual report.

Sri Lanka’s central bank printed money in to cut rates just as the economy and credit system recovered in 2018 and they slapped Nixon-shock style controls as a currency peg came under pressure recalling trade controls slapped by the then US Presidnet as the gold-peg of the US dollar came under pressure from money printing.

The rupee fell from 153 to 182 during 2018, and has been allowed to appreciate to 176 as credit contracted in 2019 in the wake of the previous year’s monetary instability.
 
"This had a negative impact on all the imported raw materials and USD priced condominium units," Perera said.

He said "the rising price of raw material, and a curtailed spending and consumption patterns were other
significant challenges that impacted the industry during the reporting year."

The firm was also hit by higher income tax at 28 percent and a 15 percent value added tax on condominiums.

"The subdued macro-economic conditions impacted our flagship real estate ventures ‘Capital Heights’, Rajagiriya and the ‘Marina Square’, Colombo in terms of sales," Perera said.

"Yet, substantial progress were made in the construction of both projects where the piling work was completed and excavation and shoring commenced in the Marina Square project and in Capital Heights, the major portion of its superstructure was completed within the year.

"The two projects will continue as planned with Capital Heights poised for completion in 2020 and Marina Square in 2023."

Perera said the firm had won some construction contracts.

"The automobile sector is showing encouraging signs of recovery," he said. "Thus, despite economic headwinds, we
remain optimistic about the immediate future."

In the March quarter the firm reported profits of 685 million rupees (earnings of 67 centres per share) down from 1.19 billion rupees a year earlier as revenues grew from 7.0 billion rupees to 10.6 billion. Last year earnings was helped by 2.45 billion rupees in one off earnings. (Colombo/July20/2019)