Lanka Cement, a state-owned firm with a defunct factory in northern Sri Lanka, has revealed heavy losses and plans to revive production in its latest accounts which the auditors have refused to give an opinion on.
According to a stock exchange filing the firm made a loss of 9.9 million rupees in the nine months ending September 30, 2010 compared with a profit of 18 million the previous year. Sales fell to 159 million rupees from almost 500 million rupees the year before.
The firm made a loss of 3.4 million rupees for the September 2010 quarter against a loss of 2.5 million rupees the previous year with sales falling to 50 million rupees from 123 million rupees, according to unaudited accounts filed with the stock exchange.
The Colombo Stock Exchange moved Lanka Cement out of the bourse's default board, where it had been for not presenting accounts, after it submitted financial statements for the March, June and September quarters of 2010.
Lanka Cement has accumulated losses of 1.7 billion rupees according to its annual report for the year ending December 31, 2009, the latest available, which auditors KPMG Ford Rhodes Thornton & Co. said raise doubt that the company will be able to continue as a going concern.
The auditors have refused to give an opinion on the accounts for the year ending December 31, 2009 and have also drawn attention to their inability to verify several transactions in the accounts.
Lanka Cement shares have seen bouts of heavy trading from time to time owing to interest by foreign cement firms in reviving a defunct cement plant sitting on a rich deposit of limestone in northern Jaffna.
With the end of the island's 30-year ethnic war in 2009, demand for cement is recovering, especially in rebuilding in the war-torn north and east, along with construction elsewhere as economic growth accelerates.
KPMG Ford Rhodes Thornton & Co. noted that Lanka Cement's net assets are less than half of its stated capital and that it faces a serious loss of capital.
The auditors said they were unable to verify property, plant and equipment with a carrying value of 859 million rupees as at December 31, 2009 and that they were unable to verify the "existence, completeness and accuracy" of local cement purchases amounting to 186 million rupees.
They also said they were unable to verify the completeness and accuracy of sales in northern Jaffna worth 313 million rupees "due to improper documentation."
KPMG Ford Rhodes Thornton & Co. said: "We were unable to verify the accuracy and completeness of the recording cash receipt and the cash payments since the company doesn’t maintain proper double entry system of accounting / control accounts and reconciliations when recording cash receipt and the cash payments."
They also said they were unable to verify the existence of a long term loan payable to the main shareholder Sri Lanka Cement Corporation amounting to 757 million rupees "due to lack of documentation" and that they were "unable to assess the appropriateness of the classification of the loan as non-current liability."
Lanka Cement has said it intends setting up a packing and grinding plant at Kankesanthurai in Jaffna to increase profitability in the near future.
The plant, once commissioned, will reduce the cost of production enabling it to "under-price all competition to achieve market dominance," it said.
Its chairman S J Paranagama told shareholders the company would be "restructured and converted to a viable enterprise."
Lanka Cement is to re-commission cement manufacturing facilities at Kankesanthirai with a modern plant and also rebuild the Harbour View Hotel there to cater to increasing demand for accommodation in Jaffna, he said.
The company resumed cement imports and sales in 2008. The factory in Jaffna stopped manufacturing when the ethnic war intensified and it was damaged in the fighting.
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