First Capital Equities, the equity arm of First Capital Holdings PLC, has taken several steps to strengthen its business by establishing strategic partnerships with brokering houses based in Asia and the US, in addition to reinforcing its local efforts through the group’s expanding branch network.
Director/Group CEO, Dilshan Wirasekara told the Business Times that they have tied up with foreign brokerages in Japan and New York who will promote local equities amongst their clients.
He added that the group sees its earnings moderating in the second half with interest rates stabilising resulting in lower trading opportunities for the primary dealer business. The group recorded a profit after tax of Rs. 731 million for the first half of 2017/18, a substantial increase compared to Rs. 406 million in the corresponding period of the previous year. Total comprehensive income for the first half was Rs. 641 million (2016/17 – Rs. 406 million).
The primary dealer business dominated the group’s earnings reporting a profit after tax of Rs. 538 million for the first half (2016/17 – Rs. 371 million), Mr. Wirasekara said. First Capital Treasuries PLC capitalised on opportunities created by declining interest rates in the secondary market realising significant trading gains, he added noting that it has a capital base of Rs. 2.2 billion.
A strategic approach has led to improved activity in the corporate finance business, mobilising Rs. 13 billion for clients through structuring and placement of corporate debt securities and recording a fee income of Rs. 42 million (2016/17 – Rs. 30 million) during the period under review.
First Capital Asset Management Ltd recorded a growth in funds under management to end with Rs. 6.7 billion as at 30th September2017.
“Our main focus is to enhance the fee based activities and the management of risk,” Mr. Wirasekara added.
The credit rating of First Capital Holdings PLC and First Capital Treasuries PLC was reaffirmed by ICRA Lanka Ltd in October 2017 at “A-”.
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The Sri Lankan insurance industry continues its growth as a result of increased awareness on life insurance, introduction of new life insurance products to cater to customer requirements such as retirement solutions and investment products, enhanced customer service, etc, insurance sector experts said in Colombo.
The country has a Rs. 498 billion insurance industry in terms of total assets dividing it as Rs. 332 billion and Rs. 166 between Life and General insurance, respectively.
Twelve insurers operate in the life insurance business along with another three other insurers handling both general and life while 13 companies operate as general insurers, they disclosed.
Sri Lanka’s aging population is going to be a major concern and life insurance will play a vital role towards the welfare of these aged people, they said adding that with frequent occurrence of natural disasters, the risks in the life of normal people are also increasing.
Chairman of People’s Insurance PLC. Jehan P. Amaratunga and newly appointed CEO Deepal Abeysekara expressed these views at a ceremony organised in connection with the re-launching of its insurance brand in Colombo recently.
Outlining the performance of the company, Mr. Amaratunga noted that they commenced business seven years back and today People’s Insurance PLC has emerged as one of the most profitable insurers in the country with consecutive underwriting profits during last five years.
It is part of the country’s largest financial group, consisting of People’s Bank and People’s Leasing & Finance PLC and is backed by strong international re-insurers (rated above the minimum standards set by the IBSL), he pointed out.
Newly appointed Chief Executive Officer of People’s Insurance PLC Mr. Abeysekara told the gathering that the company is in the forefront of the non-life insurance industry.
“We are well known among our insured public for our prudent underwriting and efficiency of service. Our successful journey reached a culmination in 2016 when our company was positioned among the biggest stakeholders in the insurance sector after recording an investment portfolio which surpassed Rs. 5 billion,” he said.
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By Duruthu Edirimuni Chandrasekera
Brush manufacture, and exporter of sanitary maintenance tools, BPPL Holdings PLC has had a tough six months ending September this year.
The impact of floods in May/June affected timber supplies, restricting their sales growth during the period. In a bid to avoid such hardships in the future, the company has opted to import some timber for manufacturing their products, BPPL Managing Director Dr. Anush Amarasinghe told the Business Times.
“We now carry a limited quantity of imported timber as a safety measure to manufacture our products.” Although the situation had normalised by July 2017, inventory replenishment took longer than anticipated due to the threat of landslides affecting tree uprooting early on. Inventories only normalised by September 2017, which meant that shipments could only be regularised towards the end of the reported period.
Dr. Amarasinghe added the order pipeline for the next few quarters is strong with substantial order flows from customers in the disaster management and janitorial sectors in the US. “The need to replenish inventory rapidly following the recent hurricanes has boosted orders from the disaster management sector. We have also had significant wins from customers in the janitorial sector for our synthetic fiber/monofilament products. Revenue from these orders is expected to flow through from the Oct-Dec’ 2017 quarter onwards,” he has said in the quarterly statement.
Supply of the yarn extrusion machinery is also on track with deliveries expected during November – December 2017. Machinery will be commissioned during the January to March quarter of 2018 and contribute to revenue from April 2018.
Consolidated revenue for the period was Rs. 1.2 billion, up 7 per cent over the corresponding period in the previous year. The North American region remained the dominant contributor, accounting for 82 per cent of reported revenue. The region saw a 9 per cent increase in revenue over the previous financial year. Robust growth was also seen in Australia, and the European region, Dr. Amarasinghe has said.
BPPL has continued to roll out their own brand of cleaning products in the South-East Asian region. A distributor was appointed in Malaysia during the past quarter and another national hypermarket chain undertook to carry its products in Indonesia. “Now there are four national hypermarket chains and seven local stores in the Jakarta region that retail our products,” Dr. Amarasinghe has added.
BPPL’s gross profit was slightly down to Rs. 439 million for the six month period as gross margins fell due to wage escalation as a result of the floods. Irregular timber supplies increased overtime payments as workers had to process the timber as and when it arrived.
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Out of the 29 stockbrokers operating at the Colombo Stock Exchange (CSE), only the top five are profitable, the next 10 may be breaking even while the rest are full of woes, market analyst say.
Some stockbrokers are closing their outstation branches in a move to cut costs and manage bottom-lines and some who boasted over 25 branches have cut this number by four fold to end up at just five, they say.
While the broking companies are faced with several serious issues with strapped cash flows, some firms are shedding staff. The Securities and Exchange Commission (SEC)’s new rules in capital adequacy which direct the implementation of a risk based Capital Adequacy Requirement (CAR) of 1.2 times the risk requirement of stock brokers subject to a minimum liquid capital requirement of Rs. 35 million is also curtailing their operation, they said.
Broking firms have cost cuts on many items since the crisis in the CSE nearly three years ago, but to no avail. It’s hard to rally in profits and some new firms are selling their licenses.
At least three firms are in the market for sale, according to analysts. Some others who are chugging along had hinted at reintroducing margin credit, but the SEC is firm on not doing so. Margin credit is to extend credit facilities to clients in broking firms through margin providers registered with the SEC.
“In the wrong hands margin credit will be disaster and it’ll be a repeat of the 2011-2013 era,” a SEC official said.
They said that some run their branches on CSE premises which are subsidised by the CSE. “Branches at Matara, Kandy, Kurunegala, Negombo and Jaffna are highly subsidised. They pay a minimal rent only and no utilities,” a CSE official said. But this isn’t enough, many in the industry say.
“There should be a stronger pull to attract retailers, otherwise many firms in the trade will sink,” a CEO at a broking firm added.
The CSE insists that the market continues to trade at a discount compared to regional peers and offers further opportunities for investors – with a market price to earnings (P/E) recorded at 10.99 as of the end of October. “The market has also continued to attract foreign investment throughout 2017 with Rs. 98 billion in foreign buying contributing to a net foreign inflow of Rs. 19.6 billion year-to-date, a figure that is substantial compared to foreign activity in 2015/16. 2017 also recorded an all-time high for foreign investor buying recorded in the first half of a calendar year,” the CSE said in a statement earlier this month.
While acknowledging all this, brokers reiterate their issue lies with the retailers. To be fair by them, the CSE tries hard.
“The CSE through its market development activities has embarked on an awareness drive in 2017, reaching out to multiple investor segments around the country and in international markets. Such efforts have seen the CSE work with the SEC on ‘Invest Sri Lanka’ investor forums in the US, Australia and New Zealand in 2017 and an island-wide local retail investor focused Investor Forum campaign to create awareness on stock market investment. The CSE branch network has also conducted over 500 educational programmes so far in 2017. In addition, CSE and the Colombo Stock Brokers Association is also presently conducting a series of events presenting investment research on companies featured on the S&P SL 20 Index, to an exclusive audience of Local Institutional Investors,” the CSE statement said.
It added that the Benchmark All Share Price Index (ASPI) has made a 2.78 per cent gain in October alone and a 6.31 per cent gain year-to-date, while the S&P SL 20 index, which features the CSE’s 20 largest and most liquid stocks has also improved consistently, making a 5.74 per cent gain in October and a 11.50 per cent gain since the start of 2017. “The positive growth of the indices mark a reversal of the declining trend recorded in 2015 and 2016, during which the ASPI recorded a decline of 5.54 per cent and 9.66 per cent, respectively. The performance of the market has also resulted in an improved involvement among investors, where the Daily Average Turnover is recorded at Rs. 943 million year-to-date, which is a 28 per cent increase from Rs. 737 million in 2016.”
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