First Capital to become investment bank, records Rs 868 m PAT in first Half

Fizel Jabir

First Capital Holdings will be transformed into a fully fledged investment bank, said Dilshan Wirasekara, Chief Executive Officer, First Capital Holdings at a reception hosted to celebrate a resounding 2014/15 first half performance of Rs 868 mn profit after tax (PAT).

Attributing the overwhelming success to hard work and dedication from its staff, the CEO said First Capital Holdings has been able to identify market opportunities that prevailed both in the interest rate front as well at the equity side of their business by properly analyzing the economic fundamentals and predicting in terms of direction of inflation and various other factors.

Wirasekara said, “We have been a constantly monitoring and following the macro economic fundamentals and have been able to read the market. Our research plays a big part and we have an in house research department for that purpose.”

He said the company carries out a very in depth analysis of various factors and they consider volatility as always an opportunity to make money, if one was on the right side of it and made the right calls on the majority of the time. “We already have the different business functions in place and are expanding our corporate finance advisory function into mergers and acquisitions, advisory on balance sheet restructuring and so on and so forth.

The first half of the financial year 2014/15 saw First Capital Holdings receiving an upgrade in its National long-term and short-term Corporate Credit Rating to A-/P2.

The company reached several milestones during that period such as the launch of a Platinum Bond, the first ever long term repo investment product which pioneered the first ever Micro Finance backed securitization and the introduction of three new units trusts including a gilt-edged and money market unit trust. The First Capital Wealth Fund was lauded as the best performing fixed income unit over the past 12 months with returns of over 25%.
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Softlogic Holdings revenue up 20.7%

Softlogic Holdings PLC consolidated revenue for the Interim quarter ending September 30, 2014 increased by 20.7% to Rs.8.7 bilion taking the cumulative revenue to near Rs.17 Bn, (up 17.7%).

Retail cluster outperformed with a 25.6% contribution to the Group’s cumulative turnover for 1HFY15 followed by Healthcare Services with a 25.1%, Financial Services and ICT each contributing 24.4% and 22.4% respectively. We expect 2HFY15 to report much stronger numbers with most of our business segments skewed towards the seasonal peak, viz, Retail, Insurance, Healthcare and Leisure.

Consolidated Gross Profit increased 18.7% to reach Rs. 3.1 Bn during the second quarter of the financial year with cumulative first half Gross Profit increasing 19.3% to Rs. 6.1 Bn.

Finance Income, which registered an exceptional three-fold growth to Rs. 1.2 Bn (Rs. 800.3 Mn during the quarter), was primarily led by investment portfolio gains at Asian Alliance Insurance PLC which registered Rs. 1.1 Bn gain in its fixed and equity investments for the cumulative period under review. Finance expenses declined to Rs.684.3 Mn as opposed to Rs.733.1 Million in the comparative quarter.

Cumulative finance expenses also reduced to Rs.1.3 Bn with declining interest rates in the wider economy which has assisted the Group’s rapid growth momentum. At this juncture, debt is a much cheaper source of funds in comparison to equity. However, necessary steps are being taken to address Group’s gearing position to bring it to an acceptable level.

Group PBT registered over a two-fold growth to Rs.427.0 Mn during the quarter taking cumulative PBT to 721.8 Mn (Rs. 343.0 Mn in 1HFY14). Profit for the six-month period amounted to Rs.579.1 Mn (up by a strong 91%) with the 2QFY14 reporting Rs.353.8 Mn (up 198.8%).

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Sampath Bank's nine-month PAT grows by 56%

Sampath Bank recorded an impressive profit after tax growth of 56% during the nine month period ended 30th September 2014.

The post -tax profit of the Bank during the period was Rs 3.71 Bn, as compared to Rs 2.38 Bn, achieved in the corresponding period in 2013. Improvements in all sources of income namely, net interest income (Rs.420 Mn), net fee and commission income (Rs.385 Mn), net trading income (Rs.501 Mn), other operating income (Rs. 979 Mn) and drop in impairment charge for loans ( Rs.1,020 Mn), contributed towards this growth in profit.

Sampath Bank Group too recorded a profit after tax of Rs. 3.93Bn for the nine month period ended 30th September 2014, a growth of 54% compared to Rs 2.55 Bn for the same period in 2013.

NII, which is the main source of income from the fund based operations and representing over 66% of the total operating income, increased from Rs 11,267 Mn for the nine months ended 30th September 2013 to Rs 11,686 Mn for the nine months ended 30th September 2014, recording a modest growth of 3.7%. .
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Foreign inflows to CSE hit all-time high

The strategy to conduct road shows in overseas locations has been successful in attracting foreign institutional investors to invest in the Lankan capital market

In a year that has proved to be record breaking, the Colombo Stock Exchange has reached yet another milestone in 2014 by recording its highest-ever inflow of foreign investment into the equity secondary market.

Foreign purchases in 2014 as at 14th November is Rs. 95,083.8 Million surpassing the previous highest foreign purchases of Rs.92, 425. 5 Million recorded in 2010.

The CSE in association with the Securities and Exchange Commission (SEC) initiated a strategy to attract foreign investors to the market, over the past two years. The strategy to conduct road shows in overseas locations has been successful in attracting foreign institutional investors to invest in the Lankan Capital Market.

These Forums have generated wide interest amongst international Fund managers and generated tangible results in the form of investments in equity and debt.

The "Invest Sri Lanka" Investor Forums were held in Mumbai, Dubai, Hong Kong, Singapore, London and New York and the purchases originating from these countries account for 60.3 per-cent of overall foreign purchases within 2014. The CSE also attractednew foreign entrants to the market, in 2014, from locations where these Investor Forums were hosted and they accounted for 44.4%.

Investors from the United Kingdom showed a remarkable interest in the market with the positive inflow from 2013 showing a phenomenal increase in 2014.

"It is only in the past 18 months that we have put serious capital to work and that is why I would say now is an excellent time to invest in Sri Lanka. I am very positive about the outlook of the Sri Lankan economy; in my opinion the best economic growth stories are very supply side led, here Sri Lanka can excel adding infrastructure where it did not exist before, Sri Lanka is adding port capacity to leverage its position on east-west shipment routes, developing itself into a transhipment hub, and working on more efficient and powerful power capacity - these very simple improvements will have a very large impact on the productive potential of the economy," Gordon Fraser, a Fund Manager, Member of the Emerging Markets Specialists Team, Blackrock said, during the Forum in London this May.
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RPCs jolted!

By Azhar Razak

As unpredictable weather patterns and labor issues haunt plantation industry, Tea sector falls behind on global stage whilst outlook for rubber remains bleak

Sri Lanka’s tea plantation industry, which had expectations for industry profitability during the current financial year, given that it was spared of wage negotiations, has been affected by persistent rainfall during the latest quarter resulting in a drop in output and profitability. According to a recent industry update by a top brokerage firm, while the rubber industry continues its decline due to bleak global market conditions and unfavorable weather locally, palm oil, on the other hand, has continued to yield positive results for Regional Plantation Companies (RPCs) with exposure to it.

“Therefore, diversity emerges as the key to success for plantation companies. It is imperative that plantations counters considered for investment be diversified both in terms of crop mix and also in terms of elevation when it comes to exposure to Tea,” Bartleet Religare Securities (BRS) advocated to investors in a research report titled ‘Sri Lankan Plantations Sector Update’ released last week.

Given the volatile nature of the industry, the BRS report stated that the sector, which although currently trades at a Price to Earnings Ratio (PER) of 9.7x and a Price to Book Value (PBV) of 0.8x deserved to trade at a discount.

During the period January-September 2014, Sri Lanka’s cumulative tea production increased by 7.2mn kg to 255.7mn kg (+2.92%). High grown and Low grown tea recorded YoY growths of 9.1% to 59.8mn kg and 4.4% to 157.9mn kg respectively. Mid grown tea recorded a drop of 10.4% YoY to 35.5mn kg.

“At USD 3.60 per kg Sri Lankan Tea fetches almost twice that of its competitors in India and Kenya. However, this phenomenon is negated by the fact that Sri Lanka has the highest unit cost of production among all major producers. Daily wages of a Sri Lankan plucker stands at USD 5.30, considerably higher than that of Kenya (USD 2.60) and India (USD 2.10). Sri Lanka’s unit labor cost alone is higher than the total unit production cost of most of its competitors,” the BRS
report outlined.

It noted that Sri Lanka’s daily output per plucker is 18 kg/day and significantly lower than the Kenyan output of 48 kg/day and the Indian output of 27 kg/day.

“Productivity among male pluckers in Sri Lanka is especially low compared to global peers and also compares to only around 60% - 70% of female pluckers. This is in contrast to the situation in Kenya where male pluckers’ daily output is significantly higher than female pluckers. In addition to high wages and lower labor productivity, RPCs are also required to provide free accommodation, healthcare facilities and other amenities to workers and their families. Local RPCs incur significant costs to provide these facilities as opposed to their global counterparts,” the report further noted.

Meanwhile, the report stated the local rubber industry has continued to decline in line with the current global stagnation of the global market for the commodity. This is due to the weak demand conditions in China and the E.U coupled with excess supply.
“Adverse weather conditions have hampered tapping during most of the year, bringing down output as many smallholders have resorted to discontinue tapping further. The slight price recovery witnessed recently has been a result of this reduction in supply,” the report said.

On the other hand, palm oil, due to its essentially low labor requirement, has successfully cushioned the impact of wage increases (which occur bi-annually) on the companies that have exposure to it. Additionally, Palm oil has also resisted volatility owing to adverse weather conditions which have plagued Tea and Rubber.

“Palm oil has accounted for over 80% of Watawala Plantations and Namunukula Plantation’s profits in FY 14. The attractiveness of the crop has lead Kotagala Plantations and Horana Plantations to diversify their crop mix to include Palm oil. Local producers also receive protection in the form of heavy import taxes.”
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Nation Lanka Finance PLC says “delivers outstanding performance”

Nation Lanka Finance PLC (NLF), a growing financial entity with the backing of the Nawaloka Group, top investor Asanga Seneviratne and a consortium of high net worth investors, has announced what it calls “an outstanding financial performance” for the 2rd quarter ended 30th September 2014 and for the seven months ended 31st October 2014.

“This is a reflection of the company’s continuous and rapid growth and the commitment of its new management which took over in 2011 and is steering the company to a solid financial foundation and strong growth,” the company said in a media statement.

Total Asset base surpassed Rs. 5.9 billion for the first time in the 27 year history of NLF, representing more than a 35 per cent year-on-year increase. The driving force behind the asset base growth was the phenomenal 44 per cent increase in the lending base which compared to the industry growth is exceptional. Similarly, the company’s fixed deposit base also recorded substantial growth of around 50 per cent year-on-year, crossing the Rs. 4.5 billion mark by end October 2014, it said.

With the company positing a net profit of around Rs. 203 million for seven months ended 31st October 2014, Return on Equity (RoE) stood at nearly 40 per cent with a Return on Assets (RoA) ratio of around 4 per cent. “The most important element in this growth story is how the company has been able to manage its Non Performing (NP) portfolio, which stood at 5 per cent as at 31st October 2014, well below industry norms,” it said.
NLF said it was “perhaps the only company” in the country to repay distressed depositors of the original Ceylinco group in full.

“The achievement up to 31st October 2014 yet again highlights the superior growth momentum currently enjoyed by NLF, which is much above the industry growth. I can assure you that we will be continuing this for the remainder of this financial year as well as into the next. We have already laid out plans to exceed Rs.1 billion operating profits for the next financial year and also to grow our asset base to Rs. 10 billion,” said CEO Mr. Charith.

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DFCC’s name change to DFCC Bank Plc now legal

The DFCC Bank will be renamed DFCC Bank PLC under amendments to the DFCC Act approved by parliament and will continue to carry on its business as a licensed specialised bank without any interruption, the bank said this week.

“As regards the proposed merger with NDB, discussions between the institutions are well underway with facilitation from the Boston Consulting Group,” said Group CEO Arjun Fernando in a statement announcing the bank’s first half 2014 results.

The DFCC Group reported consolidated post tax profit of Rs. 2,071million for the 6 months ended 30th September, 2014 compared with Rs. 1,222 million during the previous period.

This growth of 70 per cent was underpinned by the strong performance of the group’s banking business (a composite of DFCC Bank, a specialised bank, and its 99 per cent owned subsidiary, DFCC Vardhana Bank, a commercial bank).

The stand alone operating profit before taxes of the group’s banking business was Rs. 2,996 million and profit after tax was Rs. 2,002 million, against Rs. 1,962 million and Rs. 1,180 million respectively in the previous period. The other members of the DFCC Group, which includes the joint venture investment bank, Acuity Partners (Pvt) Ltd collectively contributed Rs. 126 million to PAT compared with Rs. 104 million in the previous period – a growth of 21 per cent. DFCC Bank’s performance also benefited from the performance of the Colombo stock market. The impact of the stock market on the value of the listed shares in DFCC Bank’s equity portfolio is recognised by the fair value changes representing unrealized gains or losses in other comprehensive income. During the period ended 30 September 2014, due to the share market appreciation there was a fair value gain of Rs. 4,679 million compared to the fair value gain of Rs. 569 million in the previous comparable period.

At the same time, capitalizing on the upward momentum in the Colombo stock market, DFCC Bank divested some of its mature equity holdings and realised a capital gain of Rs. 300 million, the bank’s media release said.

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