Earnings Squeeze

December 20, 2006 (LBO) – Caltex Lubricants Lanka said Wednesday that earnings in 2007 will take a hit, after the government upped taxes on base oil, used as a raw material in manufacturing lubricants. The government increased a three percent cess on base oil imposed in October to six percent from November 18, with the cess computed on the Cost Insurance Freight (CIF) value, going up by ten percent.

The government has also upped the Port and Airport levy from 2.5 percent to 3 percent with effect from January next year, which will also affect earnings.

"Based on the current exchange rates and estimated base oil prices for 2007, these changes to the tariff structure is expected to negatively impact on the earnings of Caltex Lanka Lubricants to the extent of about 300 million rupees before tax and 195 million rupees after tax for the year 2007," the company said in a statement to the Colombo Stock Exchange.

Base oil prices currently range between 900 to 1300 dollars a tonne, differing based on the type of grade sold.

The company is yet to take a decision on raising product prices to cope with the increased cess and taxes, Kishu Gomez, Managing Director of Caltex Lanka, told LBO.