LankaClear surpasses Rs 500 m threshold

LankaClear has recorded a 12% growth in revenue surpassing the Rs. 500 mn revenue threshold and recording a topline of Rs.518 mn in the financial year 2014/2015.

The highest ever revenue figure recorded by the company was mainly driven by growth in electronic transactions across all LankaClear electronic payment products, despite stagnant growth incheque clearing. Chairman Anil Amarasuriya said LankaClear is on target to achieve its final objective of developing and deploying a comprehensive common electronic payment infrastructure for the country.

“In the new financial year LankaClear will continue to consolidate the country’s common payment system by educating the public and all other key stakeholders regarding LankaPay, thereby assisting the nation to reap the full benefits of the national common payment network. Given LankaClear’s track record to date, I am confident Sri Lanka will see a fully operational comprehensive national electronic payment platform by end 2016.”

LankaClear’s General Manager and Chief Executive Officer, Sunimal Weerasooriya said the significant growth in electronic transactions is a testimony to the increasing awareness and confidence placed on the payment systems we deploy.

“Our achievements would not have been possible without our team of exceptionally talented and dedicated people.A common national payment system to facilitate any type of electronic transaction 24x7 is now ready for deployment, positioning the country for rapid socio-economic change.”

The Company experienced pressure on the bottom line due to higher operational expenses from the LankaPay project and the new payment systems not reaching breakeven point. However, the company recorded a decent PBT of Rs.183mn and a PAT of Rs. 129 m with a Net Profit Ratio of 25%. LankaClear closed the year with a strong balance sheet with net assets reaching Rs.1.2 b which is a 9.4% increase compared to the previous year.

During the year 2014/15 five commercial banks joined the LankaPay common ATM network, expanding the number of interconnected ATMs by 1,296. As at end March 2015, a total of 2,558 ATMs of 9 banks accounting for 80% of the total ATMs in the country, were linked up.Currently, the LankaPay Common ATM network has grown to over 2,600 ATMs of 11 Banks. 

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Softlogic Holdings Group boosts revenue to Rs.40.0 bn

Softlogic Holdings PLC boosted Group Revenue to nearly Rs.40.0 Bn (a 35.3% growth) while Profit before tax grew to Rs.2.3 Bn (up 80.3%) and profit after tax increased to Rs.1.8 Bn (up 80.3%) for the financial year 2014/2015.

Asset growth: Total assets at end - March 2015 rose to Rs.87.6 Bn, from Rs.65.9 Bn last year, said Softlogic Holdings PLC Chairman, Ashok Pathirage.

He identified Opening of Group’s first resort, Centara Ceysand Resorts & Spa, acquisition of Odel, commencement of ‘Samsung’ operations and the representation of new brands (Tommy Hilfiger, Pepe Jeans, Whirlpool and Crocs). As some key strategic moves last year.

“The Odel acquisition was the year’s highlight, and we now own 93.39% of the company.”

“Our Financial Services sector moved steadily during the year, with good performances all round. Asian Alliance Insurance, which ranks 5th in Life Insurance, led the way. Overall Gross Written Premium for both Life and General insurance reached Rs.4.9 Bn, an increase by 16.1% over the previous year.

Life business recorded a growth of 20.4%. General Insurance, which enjoys some synergy with our Healthcare and Automotive Sectors, saw premiums rise 8.9%.”
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Sri Lanka Monetary Policy Review – August 2015 - Policy Rates Unchanged

Headline inflation remained in the negative territory for the second consecutive month, recording -0.2 per cent in August 2015 on a year-on-year basis. Headline inflation, on an annual average basis, moderated further to 1.0 per cent in August 2015 from 1.3 per cent in the previous month. Meanwhile, core inflation, which reflects the underlying price movements in the economy, increased to 3.9 per cent in August 2015 on a year-on-year basis, from 3.5 per cent in the previous month. Going forward, the inflation outlook and expectations remain favourable for the remainder of the year, supported by improved domestic supply conditions and subdued global commodity prices. 

Although some pressures in the short term interest rates were observed along with declining liquidity levels in the domestic money market, most market interest rates continue to remain at low levels. Supported by the prevailing low interest rates, the year-on-year growth of credit extended to the private sector by commercial banks accelerated to 19.4 per cent in June 2015 compared to 17.6 per cent in May 2015. Credit disbursed in absolute terms increased by around Rs. 55 billion during the month of June, while on a cumulative basis, credit to the private sector increased by around Rs. 205 billion during the first half of 2015 compared to a decline of Rs. 53 billion during the corresponding period in 2014. The expansion in private sector credit in the first half of the year was largely due to higher disbursements of credit to the Industry and Services sectors. Nevertheless, the rapid increase in the imports of consumer durables including motor vehicles driven by credit available at low interest rates, among other things, has raised some concerns. The Central Bank is closely monitoring these developments in order to ensure that credit continues to be available to support productive economic activity while avoiding excessive expansion in credit in the period ahead. Meanwhile, driven by the expansion in private sector credit along with increased bank borrowings by the public sector, the year-on-year growth of broad money (M2b) remained at 15.3 per cent in June 2015 compared to 15.4 per cent in the previous month. 

In the external sector, increased expenditure on imports relative to earnings from exports widened the trade deficit in the month of June 2015 as well as on a cumulative basis during the first half of the year. However, regular inflows of remittances and earnings from tourism continued to support the current account balance. In the meantime, net inflows to the financial account moderated further during this period, largely responding to expected developments in the advanced economies. In addition, reflecting the repayments made under the IMF's Stand-By Arrangement (SBA) and the payments made to the Asian Clearing Union (ACU), as well as the intervention by the Central Bank to reduce excess volatility in the domestic foreign exchange market, gross official reserves, which stood at US dollars 7.5 billion at end June 2015, are estimated to have decreased to US dollars 6.8 billion by end July 2015. However, official reserves are expected to increase during the remainder of the year with higher inflows arising from improved business outlook and investor confidence along with the realisation of the remaining proceeds of the currency swap arrangement with the Reserve Bank of India (RBI) amounting of US dollars 1.1 billion and long term financial flows to the government, including the planned term loan of US dollars 500 million. Reflecting the domestic and global developments, the Sri Lankan rupee has depreciated by 2.3 per cent to Rs. 134.30 against the US dollar so far during the year. 

Taking the above developments in the economy into consideration, the Monetary Board, at its meeting held on 31 August 2015, was of the view that the current monetary policy stance is appropriate. Accordingly, the Monetary Board decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at 6.00 per cent and 7.50 per cent, respectively. 

Sri Lanka bond auction yields soar; 5-year up 97bp

ECONOMYNEXT - Sri Lanka's 5, 6 and 11 year bonds yields rose sharply at Tuesday's auction, with 2020 bonds rising 97 basis points to 9.35 percent from the last auction on August 11, data from the state debt office show.

The debt office sold 5.5 billion rupees of the bond maturing on 01.05.2020.

The average yield of a six year bond maturing on 01.08.2021 rose 64 basis points to 9.71 percent up from the last auction on August 04 at 9.07 percent. A total of 1.755 billion rupees of the bond was sold.

The debt office also sold 24.063 billion rupees of a bond maturing on 01.06.2026 to yield 10.34 percent.

There was no recent auctions of the same maturity but bond maturing on 01.09.2025 were auctioned on August 25 for 9.97 percent.

Bond yields have tended to rise higher when there is a large rollover, with the Central Bank saying that all bonds will be auctioned from this year, but then eases. However with state spending racheted up in January with a revised budget, Sri Lanka's doemstic credit has risen requiring higher interest rates to keep the economy in equilibrium.

On September 01, about 79.5 billion rupees of bonds and 15 billion rupees of coupons are due, dealers said. The debt office raised a total of 31.31 billion rupees of bonds from this auction.

On August 25, another 30 billion rupees of bonds were sold to be settled on September 01. 

Sri Lankan shares slip ahead of c.bank policy move

Reuters: Sri Lankan shares snapped three straight sessions of gains to end lower on Monday as investors booked profits and waited for cues from the central bank's August monetary policy meeting later in the day.

The Central Bank of Sri Lanka is expected to keep its policy rates unchanged at record lows at the policy meeting, a Reuters poll showed.

The country's main stock index ended 0.59 percent lower, or down 43.58 points, at 7,306.94, not far off its lowest close since July 23 hit last Tuesday.

"Investors are sceptical and the market is down on low trade," said Reshan Kurukulasuriya, chief operating officer of Richard Pieris Securities (Pvt) Ltd.

Foreign investors were net buyers for the first time in seven sessions on Monday, purchasing a net 29.7 million rupees ($220,817.84) worth of shares on Monday. They have however been net sellers of 3.35 billion rupees worth of shares so far this year.

Turnover stood at 517.8 million rupees, its lowest since July 21 and around half this year's daily average of 1.16 billion rupees.

Shares in conglomerate John Keells Holdings fell 1.69 percent while Ceylon Tobacco Company Plc fell 1.59 percent, dragging down the overall index. 

($1 = 134.5000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)

Sri Lanka milk firm caught by pincer state controls

ECONOMYNEXT - Sri Lanka's milk powder distribution is caught between high import taxes and price controls, despite plunging world prices, Lanka Milk Foods, a dairy company has said, in line with pincer controls seen in several other sectors.

Global milk powder prices reached high levels two year ago amid but most food commodities including oil and metals are now falling as the US Federal Reserve has stopped excessive money printing and the dollar is going up.

Sri Lanka's rulers who imposed price controls when global food prices went up, then started to tax import milk powder. Taxes on milk powder was raised from 57 to 82 and to 135 rupees a kilo.

After a January 2015 budget, rulers forced firms to cut prices by 152 rupees a kilo.

"Simultaneously, the increasing import duty on imported milk powder will continue to make milk powder a luxury and not a necessity, as should be the case for the citizens of the country," Lanka Milk Foods told shareholders in the annual report.

"The maximum retail price imposed by the government authorities serves to have a detrimental effect on the selling price of the final product, thereby affecting the accessibility to a nutritious essential product such as milk, which provides the dietary calcium requirement for children and adults."

LMF said it had resumed distribution of Lakspray branded milk powder after a six month gap.

Though Sri Lanka got independence from the British in 1948, freedom activists say native rulers then intensified controls on the people, using tool inherited from the British such as customs department to try to make the population dance to their tune.

One of the ruler fads is to force people to drink liquid milk, though the price of liquid milk has been driven up to unaffordable levels by state mandated farmgate prices which are raised to create an autarky due to nationalist ideology imported from Europe or to win elections, analysts say.

As a result in Sri Lanka liquid milk is higher than the rest of the world, and there is no incentive for dairy farmers to improve productivity. The rulers have tried to undermine the milk powder industry despite many households being unable to afford refrigerators.

LMF group also has its own farms set in the hill country where high yield milk cows are grown. It runs Ayrshire and Friesian breeds.

The firm said the heard at Ambewela Dairy Farm & New Zealand Dairy Farm is constantly improved from selected imported cattle semen. Fodder maize and imported varieties of rye grass are also being grown as pasture.

Analysts say other sectors in the food industry such as poultry has also been caught by state pincer controls preventing the ability of the people to feed themselves.

Chicken is price controlled but the price of maize is kept high through import duties to create an autarky, hurting chicken farmers and pushing them out of business. Sri Lanka's chicken prices are also out of line with world prices due to the maize autarky.

Protein malnutrition is high among poorer children in Sri Lanka, which analysts say is partly due to a vicious National-socialist style autarky to create self-sufficiency through high prices and import controls.

Mandatory offer for PMB too Low, says independent advisor

NDB Investment Bank, (NDBIB) in an independent opinion on the joint mandatory offer by the People’s Bank and People’s Leasing and Finance PLC (PLC) to purchase all the remaining ordinary shares of People’s Merchant Finance PLC (PMB) has advised that the offer price of Rs. 22 per share is not attractive to shareholders of PMB and has recommended that they should not accept it.

The offer was triggered by the People’s Bank and PLC together acquiring almost 6.5 million shares (9.75%) of People Merchants Finance at a price of Rs.22 per share on July 3 this year.

Currently the joint offerors with slightly over 32.9 million shares hold 48.77% of PMB. The recent acquisition triggered the joint mandatory offer requirement of the SEC’s Takeovers and Mergers Code with the Rs.22 price now offered being the highest they, acting in concert, have paid for PMB shares within the previous 12 months.

The Takeovers and Mergers Code requires that an independent opinion on the offer should be made available to shareholders of companies being taken over or merged to assist them to take a decision on whether they would retain their shares or sell out.

The People’s Bank is one of the largest commercial banks in the country with over 13 million customers - the largest customer base of any bank in the country. People’s Leasing and Finance (PLC) is the country’s largest finance company with an asset base exceeding Rs. 100 billion with approximately Rs. 35 billion in customer deposits.

PLC currently operates five subsidiaries and is active in business segments including insurance, finance, micro finance, fleet management and property development. As a subsidiary of the People’s Bank, it enjoys government protection along with private sector flexibility.

Currently the People’s Bank is the top shareholder of PMB with 30.93% followed by PLC with 17.84%, the Capital Trust Group (22.1%) and other shareholders (31.02%).

PMB has run up losses of Rs. 91.4 million after taxes in 2012/13, Rs. 219 million in 2013/14 and Rs. 104.9 million (unaudited) up to December 31, 2014. As at December 31, 2014 PMB’s total assets exceeded Rs.4.9 billion whilst its total liabilities stood at approximately Rs. 4 billion.

NDBIB has calculated the net asset value of PMB at Rs. 13.9 per share and said that the Rs. 22 price offered represents a premium of 56.7% to the net asset value per share.

With a price to book value ratio (median of the identified peer companies as at March 31, 2015) they have estimated the value of an ordinary PMB share at Rs. 25.12 and said that based on this valuation Rs. 22 price offered by the joint offerors represent a discount of 12%.

The NDBIB opinion states that the share price of PMB has largely remained below the offer price since January, 2012 and liquidity too has been low. With a favourable swing in momentum seen in the ASPI during mid 2014, the PMB share too had moved accordingly and had been thinly trading above the offer price.

With the uptick in the ASPI last year, the price of the PMB share has remained largely above the offer price since April, 2014 and weighted average price to date for the period ended July 2, 2015 was Rs. 24.93.

"Therefore, the offer price of Rs.22 is at an 11.74% discount to the weighted average market price," the opinion said.

It also made the point that with the joint offerors emerging as the single largest shareholder group of PMB, it can be expected that the company would be better positioned to draw on the strengths of its parent company. This may potentially result in the ability to mobilize deposits at a faster pace when compared to peers while being able to leverage on available expertise in order to achieve growth in lending assets.

"Hence, PMB may be able to generate above average growth and deliver attractive returns to its shareholders in the medium to long term," the opinion said. Also, the emergence of a controlling shareholder of PMB would enable prompt and smooth execution of new business plans which may potentially enhance the value of the company.

NDBIB has also said that with Sri Lanka having over 40 registered finance companies in operation, there was stiff competition for deposit mobilization and lending products. This situation, in the absence of financial sector consolidation may lead to lower net interest margins and higher marketing costs in order to grow businesses.

"This may potentially result in PMBs turnaround strategy being prolonged and investors having to be patient until the company returns to profitability and is able to generate adequate shareholder returns," the opinion said.

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