The Inland Revenue Department has slapped assessments and penalties of over Rs. 150 million on Lanka Ventures Ltd. (LVL), a subsidiary of the DFCC Bank, over refunds made on the basis of the repealed Tax Amnesty law.

LVL has reported to shareholders that it had obtained legal opinion that no valid assessments can be issued and lodged an appeal with Inland Revenue. This awaits determination.

LVL has posted the best ever financial results from its venture capital business during the year ended March 31, 2005 with a pre-tax profit of Rs.118 million, up 54% over the previous year.

The company’s Chairman, Mr. Nihal Fonseka, reported that the post-tax profit of Rs.114 million for the year is also the highest in the history of LVL if the tax refund of Rs.130 million received in the previous year is ignored. He pointed out that this payment from the Inland Revenue Department related to refunds in respect of previous years.

"For the first time in the history of LVL, the company’s investment income exceeded Rs.100 million representing 75% of the total income of Rs.136 million,’’ Fonseka said.

Interest income of Rs.35 million from fixed income securities represented the balance 25%.

"You would be pleased to note that LVL had been able to gradually increase its investment income over the years to achieve this,’’ the chairman said.

Reporting another first, he said that LVL had exited from three venture capital investments in one year using three different mechanisms typically employed by the industry.

One such exit was through an introduction in the stock market, the second through a negotiated sale to a third party and the third through a buy-back agreement entered into with the promoters of the project.

"This can be termed as a rare but a significant achievement, at least in the context of venture capital in Sri Lanka,’’ Fonseka said.

The total profit realized from these exits amounted to Rs.64 million, he reported with dividend income also increasing significantly to Rs.15 million from Rs.9 million the previous year.

The Inland Revenue Department had informed the company in January this year that they would be issuing assessments for those years covered by the tax refund it had made on account of a claim by the company under the Tax Amnesty Bill.

Fonseka said that LVL had obtained legal opinion to the effect that no valid assessment can be issued and appeals had been accordingly lodged with the Inland Revenue.

"Although no provision has been made in this respect in the audited financial statements, full disclosure of the facts pertaining to the matter had been made in the accounts under contingent liabilities,’’ the chairman said.

As a result of the divestments during the year, LVL’s venture capital investment portfolio had declined to Rs.303 million from the previous year’s Rs.376 million but their portfolio of listed securities had grown to Rs.136 million from Rs.76 million the previous year.

LVL has approved two investments in the power generation sector but no disbursements had been made mainly due to delays in implementing these projects. While total approvals during the year amounted to Rs.125 million, disbursements totaled only Rs.50 million.

Fonseka said that their investments in the stock market had yielded satisfactory returns with a total return on investments amounting to 50% including an unrealized capital gain of Rs.15 million not reflected in the income statement.

"The realized return on stock market activities was 24% which compares very favourably with the returns that could have been realized from monetary instruments in the interest rate climate that prevailed during the year,’’ he said.

He also said that the company will exploit opportunities in the stock market to further enhancing the quality and underline credibility of its listed portfolio by selective disposal of holdings and actively pursuing opportunities for new investments promising profit and growth potential.

This decision has been taken in the context of limited opportunities for attractive venture capital investments notwithstanding the wide expansion of loan portfolios of local financial institutions.

The directors have recommended a first and final dividend of 15% for the year utilizing two-thirds of the company’s after-tax profits.

The DFCC Bank with 58.23% of LVL is its biggest shareholder followed by HNB with 20.07% and Kelmash Investments with 2.92%.

The company has an issued capital of Rs.500 million, a share premium of Rs.131.6 million and retained earnings of Rs.239.3 million in its books.

Net assets per share at Rs.15.72 were up from Rs.14.94 the previous year. The LVL share traded at a high of Rs.16 and a low of Rs.9.25 during the year against a trading range of Rs.13.50 to Rs.8 the previous year.