Record tea crop of 340 Mn kg in 2013

Sri Lanka Tea Board has confirmed annual tea production in 2013, at a highest ever 340 Mnkg 3.6% more than the 2012 figure of 328 Mnkg. Previous record was 331 Mnkg achieved in 2010.

This years figure was released relatively late and would have included most estate returns. The crop figure is an exceptional achievement considering the adverse weather that restricted production from Western High Grown districts during May to July. In the Low Country too the weather did not follow the traditional pattern. The availability of fertilizer at subsidized rates went a long way to assist both small holders and regional plantation companies to over come mixed growing conditions. Additionally high tea prices for Low Country teas and the resulting rise in bought leaf prices encouraged small holders to optimize production. In fact unhealthy competition for leaf by factories and leaf collectors increased production of low quality leaf.

National Green Tea production reached an all time high of 3.69 Mnkg in 2013; up 22% on the 2012 figure of 3.03 Mnkg. CTC production was 22.4 Mnkg down on the 2012 record of 23.3 Mnkg.

Elevational Production
It was a record year for Low country with production reaching a highest ever 208 Mnkg well ahead of the 2012 adjusted figure of 202 Mnkg. Tea crop from this region which contributes 61% of the national harvest; has a finite capacity to grow from the current base of production.

High Grown did well to achieve 75.5 Mnkg, nominally ahead of previous years figure of 73.6 Mnkg, but well below the highs of 86.9 Mnkg achieved in 2002 or even the figure of 78 Mnkg produced in 2011. The elevational numbers for 2013 YoY 2012 were propped up by improved production from the Eastern slopes of the central hills; that had a extended dry spell mid 2012. Mid Growns were similarly boosted by better growing conditions in Eastern growing districts and rose 7% from 52 to 56 Mnkg.

Agro Climatic Districts
In the Low Country the sub district of Ratnapura made the biggest contribution of 56 Mnkg, nominally lower than the 2012 figure of 57 Mnkg. Galle followed with an improved performance from 44 to 48 Mnkg. Morawaka 27 Mnkg, Kalutara 24 Mnkg and Deniyaya 16 Mnkg were the other significant contributors.
- Asia Siyaka Commodities PLC.

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Copal Amba Country Head puts opportunities in Sri Lankan stock market in context

Moody’s new subsidiary Copal Amba Sri Lanka Country Head Chanakya Dissanayake at the Invest Sri Lanka Forum in Singapore put the opportunities in the Colombo stock market in context via a brief yet insightful presentation.

He said that valuations at the CSE were attractive from a regional perspective since the All Share Index (ASI) was trading at low valuation in comparison to peers such as India, Indonesia, Philippines and Thailand though Vietnam was much lower.

“Overall valuations at CSE are still subdued despite the stronger growth outlook,” Dissanayake added.

He also said new investors in Singapore and South East Asia via the CSE had diversification opportunity due to low correlation to global events. He said QE3 tapering led sell-off had had minimal impact on the CSE in comparison to BRIC and other emerging markets. The continuing net inflows to the CSE since 2012 were also emphasised.

The relatively stable exchange rate was highlighted as a strong positive to foreign investors of the Colombo Bourse. This is because Sri Lanka Rupee depreciation was the lowest among regional currencies in 2013, according to Dissanayake.

He added that Sri Lanka’s gross official reserves were on the rise whilst Foreign Direct Investments had almost tripled over the past three years. Low inflation and its support to lower interest rate regime and anticipated lower Government borrowing with reforms and profits improving in the public sector were some of the other key reasons highlighted by the Copal Amba Sri Lank Country Head to emphasise that Sri Lankan equities were poised for a re-rating.

Dissanayake recalled that in 2009 the primary focus of economic commentary on Sri Lanka was whether the country would be able to achieve sustainable economic growth. Concerns included achieving a high investment yet low inflation economy, achieving a sustainable Government debt trend driven by fiscal consolidation and higher FDI to fund the infrastructure spending.

“By end 2013, we have seen investment in major infrastructure to reduce capacity bottlenecks. as well as maintenance of a high investment to GDP ratio whilst restricting inflation to single digit rates over the past five years,” Dissanayake said.

“Furthermore, Sri Lanka has attracted FDI to embark on large-scale infrastructure projects whilst debt to GDP ratio has been reduced to 78% in 2013 from 86% in 2009,” he added.
Having emphasised the far-reaching positives, Dissanayake also highlighted a few risks facing Sri Lanka and equities. Reversal of global economic growth trajectory especially in key export markets and significant energy price shocks that could reverse the Government’s ability to maintain turnaround in CEB and CP through market price adjustments were two of those.

He also cited unfavourable weather patterns that could lead to food price inflation and increase the cost of power generation.

Banking/Finance and Conglomerates: Growth sectors
Focusing on growth sectors for foreign investors, which he described as “sectors in structurally sweet spots for medium term growth,” Dissanayake picked Banking and Finance and Conglomerates as attractive ones.

On Banking and Finance, he said short to medium term growth catalysts were falling into place. His optimism stems from the fact that there was upside potential on Net Interest Margins as interest rates decline, pickup in demand for credit and long term bond portfolios mark-to-market valuation upside due to declining rates. Furthermore, Dissanayake said policy-driven consolidation in the Banking and Finance sector was a long term catalyst since the move should help reduce inefficiencies in the sector, improve sector stability and improve cost to income ratios, providing sustainable support to Return on Equity.

He said that the Banking and Finance sector saw Non Performing Loans rise in 2013 but the risks were mitigated by high Capital Adequacy Ratios, provisions and the waning impact of the gold price decrease. It was noted that the impact of the 2013 NPL rise was already factored into current valuations in Banking and Finance sector equities and mid-teen ROEs versus below 2 times Price to Book value make the sector attractive for investors.

He said banks were trading at low valuations despite stronger growth outlook. His analysis covered Commercial Bank, HNB, DFCC Bank, Sampath Bank, NDB, NTB and Seylan Bank.

With regard to conglomerates, Dissanayake said these companies enjoy multiple growth drivers with transport, logistics and port services being high growth trajectory, leisure brimming with exponential growth owing ambitious targets as well as potential for post-conflict growth in tourism. The Copal Amba Country Head highlighted the attractiveness of JKH (as good as buying the index and emerging as a prime property player in Colombo with integrated resort projects), Aitken Spence (a play on tourism and logistics), CT Holdings (provides exposure to spending growth in the middle class consumers via retail, real estate and food processing), Hayleys (Sri Lanka’s top exporter, earnings growth aligned to recovery in export destinations), Hemas Holdings (a play on healthcare, FMCG, hydro and thermal power and leisure) and Expolanka Holdings (provides exposure to the high growth freight and logistics sector) in the diversified sector.
www.ft.lk

Sri Lanka shares fall on large caps, foreign selling after Fed decision

COLOMBO, Jan 30 (Reuters) - Sri Lankan shares fell on Thursday, led by blue chips and large caps and due to foreign selling, following the regional trend a day after the U.S. Federal Reserve further trimmed its monetary stimulus. 

The Fed announced a further $10 billion reduction in its monthly bond buying as it stuck to plans to wind down its extraordinary stimulus despite the recent turmoil across many emerging markets. 

The main stock index lost 0.4 percent, or 24.88 points, to 6,227.26. The fall was led by a 1.93 percent loss in market heavyweight Ceylon Tobacco Company Plc and a 3.16 percent fall in Cargills (Ceylon) Plc. 

Shares in John Keells Holdings lost 0.29 percent to end at 240 rupees, a day after it posted a 17 percent year-on-year gain in its December-quarter net profit. 

Foreign investors were net sellers of 216.5 million rupees ($1.66 million) worth of shares on Thursday, but bourse has witnessed net inflow of 823.5 million rupees so far this year. 

They bought 22.88 billion rupees of stocks last year. 

Stockbrokers said local retail and institutional investors were active in markets after interest rates in treasury bills eased at a weekly auction on Wednesday to multi-year lows, making fixed-income assets unattractive. 

The index has been in an overbought region since Jan. 7, Thomson Reuters data shows. 

It has risen 5.32 percent so far this year, following a 4.8 percent gain in 2013, after having fallen in the previous two years. 

The day's turnover was 808 million rupees, less than last year's daily average of about 828.4 million rupees. 

($1 = 130.7300 Sri Lanka rupees)

(Reporting by Shihar Aneez; Editing by Anupama Dwivedi)

Sri Lanka stocks close down 0.4-pct

Jan 30, 2014 (LBO) – Sri Lanka stocks close 0.40 percent lower Thursday with tobacco and hotel stocks losing ground amid strong foreign selling and Fed’s stimulus cut, brokers said.

The Colombo benchmark All Share Price Index closed 24.88 points lower at 6,227.26, down 0.40 percent. The S&P SL20 closed 12.13 points lower at 3,444.56, down 0.35 percent.

Turnover was 808.33 million rupees, down from 809.31 million rupees a day earlier, with stocks of 122 firms closing in the red against 69 gainers.

Aitken Spence closed 90 cents lower at 100.10 rupees with four off market transactions of 165 million rupees contributing to 20 percent of the turnover.

The aggregate value of all off market deals accounted for 30 percent of the daily market turnover.

Union Bank closed 20 cents lower at 19.70 rupees and Nation Lanka Finance closed 50 cents higher at 9.50 rupees, attracting most number of trades during the day.

Foreigners bought 88 million rupees worth shares while selling 304 million rupees of shares.

Ceylon Tobacco Company closed 25.60 rupees lower at 1,300.00 rupees and Asian Hotels and Properties closed 2.90 rupees lower at 63.10 rupees, contributing most to the index drop.

Cargills Ceylon closed 4.90 rupees lower at 150.10 rupees and Aitken Spence Hotel Holdings closed 2.40 rupees lower at 69.50 rupees.

Carson Cumberbatch ended 60 cents lower at 345.20 rupees and JKH closed 70 cents lower at 240.00 rupees.

JKH’s W0022 warrants closed 2.40 rupees lower at 75.30 rupees and its W0023 warrants closed 1.10 rupees lower at 79.90 rupees.

Asiri Hospital Holdings closed 80 cents higher at 19.10 rupees and Ceylinco Insurance ended 31.30 rupees higher at 1,371.30 rupees.

Nestle Lanka ended 11.00 rupees higher at 2,150.00 rupees and Bukit Darah ended 2.80 rupees higher at 614.80 rupees.

Nations Trust Bank closed 1.90 rupees higher at 66.90 rupees and Commercial Bank closed 60 cents lower at 127.00 rupees.

Distilleries closed 90 cents higher at 211.00 rupees and troubled Touchwood Investments ended flat at 3.10 rupees.

Vallibel Power closed 20 cents higher at 5.90 rupees with its interim accounts showing 134.48 million rupees of profit for the third quarter, a 15 percent growth over the previous year.

Earnings per share of the company have increased to 0.18 rupees from 0.16 rupees along with 127 percent growth in its 9 months profits over the same period the previous year.

JKH posts strong 3Q

Group revenue up 11% to Rs. 24 b; pre-tax profit up 19% to Rs. 4.27 b

• Bottom line up 17% to Rs. 3.4 b; Rights proceeds boost interest income
• Core sectors except transportation improve performance
• First nine months Group revenue up 4% to Rs. 62 b; PBT up 2% to Rs. 9.1b; Bottom line up 1% to Rs. 7 b

Premier blue chip John Keells Holdings PLC (JKH) yesterday reported strong results for third quarter as all core sectors except transportation improved their performance and high interest income helping the bottom line.
The Group revenues at Rs. 23.89 billion and Rs. 64.98 billion in the third quarter and the nine months ended 31 December 2013 were 11% and 4% above the Rs. 21.51 billion and Rs. 62.20 billion recorded in the corresponding periods in the previous year.

Results from operating activities grew by 30% to Rs. 2.64 billion in the 3Q and by 7% to Rs. 5.89 billion in the nine months.

The Group profit before tax (PBT) at Rs. 4.27 billion in the third quarter of the financial year 2013/14 was an increase of 19%. The Group PBT for the nine months ended 31 December 2013 of Rs. 9.11 billion was an increase of 2%.

Pre-tax profit figure was boosted by Rs. 1.26 billion net finance income up by 24% in the first quarter and Rs. 3.08 billion in nine months, up by 19%. This was largely on account of the increase in the cash balance arising from the proceeds of the rights issue which is earmarked for the ‘Waterfront’ Project.

The PBT for the nine months ended 31 December 2013, included a non-recurring charge of Rs. 139 million on account of the voluntary retirement scheme offered at Keells Food Products PLC, a non-cash charge of Rs. 144 million relating to the share based payments which came into effect in the current financial year and an impairment loss of Rs. 141 million arising from the demolition of buildings at Glennie Street and Justice Akbar Mawatha, totalling Rs. 424 million. The impact of these expenses on PBT for the quarter amounted to Rs. 211 million.

JKH’s bottom line – net profit attributable to equity holders of the parent was up 17% to Rs. 3.4 billion in 3Q and by 1% to Rs. 7.04 billion in the nine months.

JKH interim results were released after the market was closed but the stock was on the up anyway. JKH closed up 2% or Rs. 4.80 to Rs. 240.70 though on a surprisingly very thin volume of 28,493 shares.

Detailing sectoral performance JKH Chairman Susantha Ratnayake said the transportation industry group PBT of Rs. 538 million for the third quarter of 2013/14 was a decrease of 36% in comparison to the corresponding period in the previous financial year [2012/13 Q3: Rs. 844 million].

The decline in PBT is mainly attributable to the lower contribution from the ports and bunkering businesses. The ports business witnessed a drop in volumes as a result of the re-alignment of services experienced in the second quarter.

The Group’s bunkering business, although retaining market leadership in terms of share, recorded lower earnings compared to the same period last year as a result of the continued depression in the global bunker market coupled with the local and regional competition.

Leisure
The Leisure industry group PBT of Rs. 1.54 billion for the third quarter of 2013/14 was an increase of 15% compared to the corresponding period of the previous financial year [2012/13 Q3: Rs. 1.34 billion]. The increase in PBT was driven by the improved performance of Sri Lankan and Maldivian resorts compared to the previous year.

The performance of Sri Lankan resorts improved as a result of revised market positioning and implementation of effective yield management strategies which resulted in higher occupancies across the portfolio of hotels, whilst Maldivian resorts also benefitted from higher occupancies. The performance of city hotels and destination management continued to be in line with expectations.

Property

The property industry group PBT of Rs. 347 million for the third quarter of 2013/14 was a 93% increase over the PBT recorded in the corresponding period of the previous financial year [2012/13 Q3: Rs. 180 million]. The growth in PBT is on account of higher revenue recognition during the quarter in the ‘OnThree20’ development and the recognition of revenues from ‘7th Sense’ which had not commenced in the previous year. Construction of both developments are progressing as scheduled with approximately 90% of units of ‘OnThree20’ and 70% of ‘7th Sense’ sold to date.

Consumer foods and retail
The consumer food and retail industry group PBT of Rs. 228 million in the third quarter of 2013/14 was an increase of 23% over the PBT recorded in the corresponding period of the previous financial year [2012/13 Q3: Rs. 186 million]. Both the soft drinks and frozen confectionary segments recorded an increase in volumes.

Keells Food Products had a one off cost of Rs. 139 million during the quarter under review associated with the voluntary retirement scheme offered to its employees at the Ja-Ela plant in order to improve productivity and to make possible an internal restructuring of operations.

The retail business continued to witness same store sales growth on the back of increased footfall and basket values.

Financial services

The financial services industry group PBT of Rs. 1.01 billion in the third quarter of 2013/14 was an increase of 38% over the PBT recorded in the corresponding period of the previous financial year [2012/13 Q3: Rs. 734 million].

Both the insurance and banking businesses were the primary contributors to the improved performance. The implementation of the bank’s new positioning strategy was successfully concluded during the quarter under review.

As stipulated under the Insurance Industry Act No. 3 of 2011, the insurance business is in the process of making the necessary arrangements to segregate the life and general businesses by February 2015.

The stock brokering business gained market share despite the decrease in average daily turnovers as a consequence of the lower level of activity that prevailed on the Colombo Stock Exchange.

Information technology

The information technology industry group PBT of Rs. 87 million for the third quarter of 2013/14 was a decrease of 16% compared to the corresponding period of the previous financial year [2012/13 Q3: Rs. 103 million].

This decrease in PBT was largely on account of the software services business. The office automation business, which is the significant contributor towards the profits of the industry group, recorded a marginal decline in profits compared to the corresponding period in the previous year.

Other, including plantation services
Other, comprising of plantation services and the corporate centre recorded a PBT of Rs. 517 million in the third quarter of 2013/14 [2012/13 Q3:Rs. 194 million]. The increase in PBT was primarily attributable to an increase in net interest income at the company as a result of the increase in the cash balance arising from the proceeds of the rights issue which is earmarked for the ‘Waterfront’ Project.

The plantation sector also saw a significant improvement in its performance following improved quality of made tea, attractive prices and positive market conditions.

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