Financial Times

In the absence of Seylan Bank’s communication to auditors
Blue Diamond’s audit report ‘qualified’ again
By K. Kenthiran
KPMG Ford Rhodes Thornton and Co, the auditors of Blue Diamond Jewelry Worldwide Limited, have ‘qualified’ the audit report issued to the shareholders of the company as they were unable to obtain a communication from the Seylan Bank with regard to write back loans and overdraft amounting to Rs 203.5 million for the year ending March 31, 2005.

The Blue Diamond’s audit reports have been qualified several times in the previous years including the previous year 2003/2004. Commenting on the unpayable bank overdraft to the Seylan Bank, the audit reports reads as follows “The company had written back a balance of Rs. 203.5 million to the income statement being the amount payable on credit facilities granted by the bank in the previous years net of the carrying amount of inventories pledged as securities for the said credit facility.

In the absence of a communication from the bank, we were unable to satisfy ourselves as to the appropriateness of the credit of rupees 203.5 million in the income statements”.

The above also resulted in the auditor’s doubt being cast on the going concerns of the company as the audit reports highlight, “the Company recorded a net profit of Rs 267.2 million, which included the aforesaid balance of Rs. 203.5 million which we were unable to satisfy ourselves as explained in the preceding paragraph. Further the company had net assets of Rs. 76.2 million as at the balance sheet date.

If on availability of additional information, the above credit facility becomes payable to the bank, then the company’s liability would exceed its assets by Rs 127.3 million the factors may have an implication on the ability of the company to continue as a going concern.’ Seylan Bank and Blue Diamonds are part of the Ceylinco Group headed by tycoon Lalith Kotelawela. Seylan Bank also holds a 6.5% stake in the company along with other Ceylinco group of companies.

Blue Diamonds recorded a turnover of Rs. 128.4 million for the year ended 31st March 2005 as against Rs. 92.9 million in the previous year indicating a sharp increase of 38 %. The company’s earnings per share for the year rose to Rs. 3.47 as against cents 0.05 recorded in the previous years, indicating a huge increase of 6,840 % over the earlier year, largely contributed by the write back of bank overdrafts and other creditors payable amounting to Rs. 276 million. The results also turned the company’s shareholders wealth to Rs. 76.3 million as at the year end compared to that of a negative Rs. 256.3 million a year ago.

Despite this qualification and going concern issues raised by the auditors company chairman Lalith Kotelawela in a statement to the shareholders says that the implementation of a number of well planned strategies has ensured the continuous growth of the company. One reason for success at the end of 2005 is the launch of new product ranges, the second being participating at world recognized trade shows and thirdly entering into strategic trade partnerships with reputed jewelers in Australia, Malaysia and duty free retail outlets.

Commenting on the future activities of the company, the chairman states that “the company continues to focus on continuous investment in building, plant and machinery.

Investments are made with the view of increasing the capacity and thereby to reduce the unit cost in order to meet market challenges. This will increase the chances of prices being competitive. We will not compromise on the quality and therefore will deliver the end user perfect products”.

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