United Motors wins over senior government officials in duty-free vehicles market

United Motors Lanka PLC (UML) has succeeded in securing a fair share of orders from senior government officials given duty-free vehicle permits by the government which in turn helped to boost profits, the company said.

Its chairman Ranjit Fernando however raised concerns over the longer term implications of rising oil prices, its effect on inflation and increases in fiscal levies being imposed on vehicle imports from time to time.

UML turnover grew by 28.4 percent in the first half (April-September) of the financial yea ending March 2008 but post-tax profits was deterred by high interest rates and increasing import levies.

Fernando, in a report to shareholders, said the automobile market continued to face challenges due to the escalating cost of imports resulting from the depreciation of the Rupee, high government fiscal levies and rising interest rates. Mitsubishi vehicle imports, he says, were particularly affected in the first half of the financial year, by the Japanese Yen appreciating against the Rupee by approximately six percent.

The high import taxes and other government levies on motor vehicles inflated inventory values resulting in increased borrowings. Interest rates had risen by around 25 percent in the period under review, fuelling an escalation in the company’s borrowing costs.

Notwithstanding these constraints the Mitsubishi Canter Truck gained in popularity recording a volume increase of nearly 50 percent from the corresponding period of the last financial year. After sales services also improved and made a useful contribution to the company’s profitability.

Despite the country’s inflation rate being over 17 percent, the company had carefully managed its controllable operating expenditure, thereby reducing the impact of high inflation.

First half PAT of Rs. 134.2 million was 17.8 percent below the first half of last year, the drop being mainly due to the issues facing the automobile market.

The consolidated PAT for the Group of Rs. 95.6 million also reflected a decline of 52 percent over last year due to reduced profits in UML and losses incurred by some of the subsidiary companies.