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Monday, 19 March 2012






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'Cost reduction could mitigate currency devaluation impact'

Currency devaluation has posed challenges for certain sectors and this has called for vigorous cost reduction strategies to mitigate the negative impact. The

Chevron Lubricant
Lanka Managing
Director and CEO
Kishu Gomes

reduction in absolute value perspective is large in the downward revision in the growth forecast for this year. However, the sound macro economic environment in place will support the business growth despite the adverse external factors, Chevron Lubricant Lanka Managing Director and CEO Kishu Gomes told Daily News Business. As the country is heavily dependent on imports, currency devaluation may lead to rise in inflation thus raising the cost of production by having a negative impact on disposable income. Our venture being a non petroleum producing entity, profitability will affect in the long run, he said.

The recent increase in fuel prices which directly affect the transport sector will in-turn reduce the demand for lubricants as there is a co-relation between consumption and price. This will have a negative impact on the lubricant industry where a new plan of action is necessary. We are faced with stiff competition from 13 competitive players in the market and the North and the East market growth was slow during last year. However, increase in the vehicle population, reduction in taxes supported by Maldives and Bangladesh wealth intensification drove volumes and margin growth, he said. The company's strategies enabled it to save operational expenses and the reduction in the corporate tax from 35 percent to 28 percent also complemented this effort.

However, this year will pose huge challenges as currency stabilization plays a crucial role in company performance and the increase in the fuel prices will cut down on vehicle movement. The lubricant market will be further affected by the rising inflation and reduction in disposable income.

These serious and new challenges were not anticipated at the beginning of the year. 'Despite the unfavourable conditions we expect positive market growth where we will be able to better company performance this year too. We need to adopt new strategies to overcome changes in the landscape to re-shape the country's lubricant industry, 'Gomes said.


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