CSE News Updates

Sept 20, 2011 (LBO) - The Colombo Stock Exchange plans to change the classification of listed Sri Lankan companies based on revenue and has called for public comments on draft guidelines.
"The CSE is considering the revision of the present industry sector classification of listed companies with the view to ensure that each listed company is classified under the sector which best represents the business activities of such company," a statement said.

At present, listed companies are classified into 20 sectors but some have not been currently classified under the most appropriate sector, it said.

"Therefore, the CSE has formulated the guidelines to ensure that listed companies are classified into sectors in line with the revenue generating activities of the companies."

The CSE said it also intends to define each sector and to annually assess and revise the adequacy and appropriateness of the classification of listed companies.

Comments from the public in writing on the guidelines and definitions on industry sector classification proposed by the CSE must be sent by October 07, 2011, it said.

According to the proposed guidelines, classification based on the revenue generated by the listed company from its business activities is the global standard.

"In calculating the proportion of contribution of revenue of each business activity to the total revenue, the past three-year average of all the business activities that the company is engaged in at present shall be considered," the CSE said.

A company engaged in one business activity shall be classified under the sector that best matches its revenue source while a firm engaged in two different business activities shall be classified under the sector that generates the majority of its revenue.

A company engaged in three or more different business activities with none generating 60 percent or more of the total revenue will be classified into the “diversified sector” based on two criteria.

The first criteria is for a company engaged in not more than five different business activities out of which at least 03 contribute not less than 10 percent each to the total revenue of the company.

The second criteria is for firms engaged in more than 05 different business activities and out of which at least 03 business activities contribute not less than five percent each to the total revenue of the company.

"The rationale behind excluding business activities that generate less than 05 percent and 10 percent of total revenue is to discourage companies with small revenues from different activities from being classified under diversified sector," the CSE said.

All other companies which do not fall under the diversified category will be classified under the sector which provides the largest contribution to the total revenue.

The existing sectors are Bank, Finance & Insurance; Beverage, Food & Tobacco; Chemicals & Pharmaceuticals, Construction & Engineering; Diversified Holdings; Footwear & Textile; Health Care; Hotels & Travels; Investment Trusts; Information Technology; Land & Property; Manufacturing; Motors; Oil Palms; Plantations; Power & Energy; Services; Stores & Supplies; Telecommunications and Trading.

The proposed sector definitions are as follows:

1 - Bank Finance & Insurance - BFI - Banking, Finance and Insurance activities (Life & Nonlife)

2 - Beverages, Food & Tobacco - BFT - Manufacture of food products, beverages & tobacco products

3 - Chemicals & Pharmaceuticals – CP - Manufacture of chemicals, chemical products & Pharmaceuticals

4 - Construction & Engineering - CE - Civil engineering activities such as Construction of buildings, Construction of utility projects

5 - Diversified Holdings - DIV - Company engaged in 03 or more business activities not directly related to one another where each activity required relatively different expertise.

6 - Footwear & Textile – FT - Manufacture of textiles, wearing apparel, leather & related Products

7 - Health Care - HLT - Hospitals & health care activities, dealings of medical equipments

8 - Leisure - LEI Hotels/Tourism & travels

9 - Investment Trusts – INV - Investment funds & forestry (excludes finished wood products)

10 - Information Technology - IT - Software/Hardware, other information services

11 - Land & Property - LP - Sales/Rents out lands & property

12 - Manufacturing - MFG - Manufacture of goods except BFT, CP, FT, MT and OIL

13 - Motors – MT - Trade/ assemble/ Manufacture of automobiles, spare parts & related products (Tyres, …)

14 - Oil Palms - OIL - Manufacture and trade of palm oils

15 - Plantations - PLT - Companies growing crops (Tea, Rubber, etc)

16 - Power & Energy - PE - Electric power generation/transmission, Manufacture and/or distribution of gas/ lubricants/ fuel.

17 - Services - SRV - Businesses that produce/ provide services, eCommerce

18 - Stores & Supplies - SS - Warehousing, storage & support activities

19 - Telecommunications - TLE - Telecommunication service providers (fixed line, mobile)

20 - Trading - TRD - Trading of goods specifically not covered under other sectors (home appliances, electrical items ...)

(When a company is engaged in manufacturing and trading, it should come under manufacturing because the first activity is considered.)