Packer's project a 'go'

By Mario Andree

Ceylon Finance Today: Australian billionaire gaming tycoon James Packer's US$ 400 million resort project in Colombo is still on the cards with the government in the process of finalizing the agreement.

Packer's project was said to have been put on hold after the government released a Gazette notification on the project, which left out the setting up of gaming facilities.

Minister of Investment Promotion Lashman Yapa Abeywardena told Ceylon FT, that despite some legal issues that needed to be ironed out in the agreement, the US$ 400 million mixed development would proceed as planned. The minister said the agreement had not specified proper terms and conditions, after it had to rescind on the casino agreement amidst growing opposition.

Australian billionaire and gaming tycoon James Packer according to news reports in April this year had informed the Sri Lankan Government that he would abandon the planned US$ 400 million integrated resort project in Colombo, if the operation of casinos was not allowed.

Packer's project as well as two other projects by local blue chip, John Keells Holdings and Local Gaming Mogul Dhammika Perera, came under serious criticism following gazette notifications, which said that the first two projects approved by Cabinet included casinos.

Contradicting President Mahinda Rajapaksa and Minister of Economic Development Basil Rajapaksa's statements, government spokesman Keheliya Rambukwella in early May this year said that Packer and Perera would be able to operate casinos in their projects, as a result of restricting casino operations in the country to D. R. Wijewardena Mawatha.

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Amtrad helps boost Ascot profits

The recent acquisition of Amtrad Limited by Ascot Holdings PLC and the expansion of L & A Quarries (Pvt) Limited in the North of Sri Lanka had helped Ascot Holdings PLC to massively increase revenue by 134% and the profit after tax by 194% from the previous year in the year ended March 31, 2014, its Chairman Mohan Ratnayake has said in the annual report.

"Amtrad Limited will continue with the improvements to the main factory in Pasyala with the intention of further improving quality and the cost effectiveness of newer technology. We see an enormous potential in Amtrad considering the rapid development taking place in the country in the infrastructure and construction segment," Ratnayake said.

Ascot reported a 25% increase in its operating profit to Rs.92.6 million in the year under review while its pretax profit was up 89% to Rs.37.2 million and its attributable net profit by 86% to Rs.20.3 million resulting in an earnings per share of Rs.2.54 against Rs.1.36 a year earlier.

Ratnayake said that administrative cost had been held with a marginal increase of Rs.5 million by 10% despite the twofold increase in revenue.

Finance expenses too had been held at previous year’s level representing 16% of revenue against 37% of revenue the previous year.

"We have been successful in restructuring the financial liabilities of Ascot Developments (Pvt) Limited to match the cash flows of the company. In keeping with our focused strategic investments, we have been successful in gaining entry into the leisure sector to reap the benefits of the boom in the tourism industry," Ratnayake said.

He saw the year concluded as one of tremendous growth in the group and said that the Board will continue to invest and further expand on strategic investments to add to its portfolio.

The directors have not recommended the payment of any dividend for the year under review.

Ascot has a stated capital of Rs.92.4 million, revenue reserves of Rs.445.3 million and other components of equity of Rs.23.1 million in its books.

Total assets ran at Rs.1.34 billion and total liabilities Rs.710.7 million.

The main shareholders of the company are Axis Investments (Pvt) Limited (25.77%), St. Louis Capital (21.46%) and Mr. W.D.N.H. Perera (20.41%).

The company’s share with a book value of Rs.70.23, up from Rs.67.68 the previous year, traded at a high of Rs.169 and a low of Rs.93.50 closing at Rs.114. This compared with a trading range of Rs.220 to Rs.130 closing at Rs.157.30.

The directors of the company are: Messrs. R.M.M.J. Ratnayake (Chairman), A.G. Weerasinghe (Resigned on 15.02.2014), R.A. Iriyagolle, N.D. Gunaratne, D.J. Gunaratne, M.D.A. Weerasooriya, M.T.U. Mendis (w.e.f. 23.07.2014) and Ms. C.P.S. Bogollagama.
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Kotmale profits dip due to capacity constraints etc.

Cargills’ dairy sector consolidated

Kotmale Holdings PLC, a member of the Cargills group of companies, has seen group profits dip in the year ended March 31, 2014 to Rs.93.4 million from Rs.116.1 million a year earlier.

This followed the consolidation of the dairy sector operations within the Cargills group and capacity constraints where some of Kotmale’s branded products are now manufactured elsewhere.

However, the royalty fee is being paid to the Kotmale for the use of the brand, Mr. Stuart Young, Chairman of the company has said in the annual report.

This resulted in a revenue decline of 36% to Rs.783 million during the year under review with other income up by Rs.56.6 million as a result of the royalties.

Young, previously MD/CEO of Nestle Lanka from November 2002 to October 2008, reported an increasing trend in domestic milk production during the year with the total milk production in the country up 6.8% to 319.8 million litres in 2013.

"Consequently the importation of milk powder declined by 16.9% in 2013 in line with the state policy of achieving self-sufficiency in milk," he said.

This enabled the country to reduce the import of milk powder to 65.9 million kg from 79.4 million kg in 2012, he reported.

Increased milk production was supported by various initiatives such as improved chilling facilities, provision of financial assistance to smallholders and stable farm gate prices. There was also a shift in the market towards the consumption of local fresh milk and milk products.

Kotmale Holdings which collects fresh milk both for its own operations as well as those for other Cargills group companies is presently the second largest private sector milk collector in the country with an average daily collection of approximately 50,000 litres, Young said.

"Our network comprises over 98,000 farmers from the Central region of Sri Lanka who directly supply to the company through 330 collection centres connected to 15 chilling centres spread across the Central Province," he said.

During the year under review Kotmale had paid a total of Rs.790 million to smallholder farmers.

Young said that the trend in shifting from imported powder milk to local fresh milk created a substantial supply constraint within the domestic dairy sector particularly in relation to UHT (Ultra Heated Treated) milk.

Addressing this problem would require a long-term collaborative effort from the private and public sector to increase animal productivity, build farmer capacities, enhance feed and feed quality while developing the infrastructure to meet the increasing demand.

"Our parent company Cargills, having made substantial investments in adding capacity to its dairy sector is now focused on building the supply side towards sustainable growth," he said.

Young reported that yoghurt and the newly introduced ‘Yoguard’ as well as pasteurized and UHT milk categories are successfully marketed under the Kotmale brand and enjoyed wide consumer appeal.

Kotmale cheese wedges, a product of high quality, further strengthens the brand’s position in the cheese category, he said.

"The success of the ‘Kotmale’ brand is attributed to the strong distribution network of Cargills both in mass market and modern trade," Young said.

Kotmale has a stated capital of Rs.314 million, reserves of Rs.94.6 million and retained earnings of Rs.471.3 million in its books. Total assets ran at Rs.1.23 billion and total liabilities at Rs.352 million.

Cargills Quality Foods Limited with 94.07% of the company is the dominant shareholder with all other shareholders individually owning less than one percent.

Net assets per share were down to Rs.17.01 from Rs.17.41 a year earlier and the company’s share traded at a high of Rs.58 and a low of Rs.33.50. This compared with a trading range of Rs.47.10 to Rs.20 the previous year.

The directors of the company are: Messrs. Stuart Young (Chairman), V.R. Page (Deputy Chairman), M.I. Abdul Wahid (MD), P.S. Mathavan, A.T.P Edirisinghe, Sunil Mendis and J.C. Page.
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Odel was looking at making brand international before Otara’s exit

Otara Gunewardene as she appears in the latest annual report of Odel PLC. The tall and willowy Gunewardene who had been a fashion model from before she launched her brand has been her company’s most visible brand ambassador.

Before the sell-off to Softlogic on Sept. 11, Odel had been looking at leveraging synergies with Parkson "to take our brand to international markets and to bring more international brands to Sri Lanka," Odel Chairman Ruchi Gunewardene has said in the company’s recently released annual report.

Parkson Retail Asia Limited with 47.46% of Odel was the company’s top shareholder as at March 31, 2014. Pathirage’s Softlogic has acquired 45% thereafter.

With Softlogic acquiring the shares of Ms. Otara Gunewardene and her brothers Ajit and Ruchi, and a mandatory offer at a price of Rs.22 per share pending, analysts expect Softlogic to become the controlling shareholder.

Softlogic Chairman, Ashok Pathirage is on record saying that he was open to working with Parkson. However, Parkson’s intentions have still not been made public.

Ruchi Gunewardene said in the annual report that they have significant land banks under their belt opposite the Town Hall and at Battaramulla. He noted that there are only a few available vacant blocks of this scale in Colombo and Greater Colombo giving them some good strategic expansion options.

"Our management team is working hard with the architects and local authorities to finalize these plans," he said.

He also reported that they have invested heavily in upgrading their information technology system which will enable them to better serve customers and they were making significant progress in their human resources management to ensure better train and motivate employees to provide superior customer service.

Otara Gunewardene said in what was perhaps her last CEO’s letter in the Odel annual report that the introduction of the new VAT on retail businesses earnings of Rs.500 million a quarter had impacted retail sales and margins during FY 2013. This had impacted their bottom line.

"However, with improved sourcing, continuous negotiations and more efficient supply chain management, we were able to offset this to a great extent and hope to see improvement to the bottom line in the years ahead," she said.

The annual report did not offer any hint of the Gunewardenes planning to exit the company which Otara founded.

The company’s AGM was held on Sept. 9 in Colombo.

Other than the Parkson and Otara and Ajit Gunewardene, Dr. T. Senthilverl, with 1.87% is the biggest shareholder ranking No.4.

Net assets per share were up to Rs.19.18 from Rs.18.72 the previous year. The Odel share traded at a high of Rs.28.10 and a low of Rs.18.10 during the year under review against a trading range of Rs.26.90 to Rs.16 the previous year.

The directors of the company are (as at March 31, 2014): Mr. Ruchi Gunewardene (Chairman), Ms. Otara Gunewardene, Messrs. Paul Topping, Sanjay Kulatunga, Ignatius Perera, Yoong Choong, Kheng San, Koh Huat Lai, Hia Ngee Yeow (alternate to Datuk Cheng Yoong Choong). 
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An overwhelming endorsement from Union Bank Shareholders for TPG Investment

Union Bank of Colombo PLC (UBC) held its extraordinary general meeting on 17th September 2014, facilitating shareholder approval for the conclusion of its landmark investment agreement of US$ 117Mn with TPG, a leading global investment firm. Mr. Alex Lovell, Chairman of Union Bank stated that the Bank received an overwhelming endorsement from shareholders for the TPG investment. As per the circular to shareholders issued by UBC, the resolutions passed in summery included (1) the issue of 742,156,249 ordinary voting shares of the Company for LKR 15.30 each to Culture Financial Holdings Ltd (CFHL) by way of a private placement. (2) The issue of 218,281,250 warrants to CFHL for LKR 0.30 per warrant conferring the right to subscribe to one new ordinary voting share per Warrant at any time within a period of six (6) Years at a consideration of Sri Lankan Rupees sixteen (LKR 16.00) per ordinary voting share.. (3). 742,156,249 ordinary voting shares to be issued to CFHL by way of the private placement without offering such ordinary voting shares to the holders of the existing ordinary voting shares of the Company. (4). Articles of Association of the Company be amended to reflect provisions of the investment agreement.

The investment, one of the largest foreign direct investments to Sri Lanka in the recent years, now places Union Bank amongst the top five private Banks in equity and dominates in the second position in stated capital amongst all Banks in Sri Lanka. It further aligns UBC to the Central Bank road map on consolidation in the banking and non -bank financial institution sectors. Marking this milestone investment to the financial services industry in Sri Lanka and to Union Bank in particular, Mr. David Bonderman, Founding Partner of TPG is currently in Sri Lanka.

Mr. Lovell, further stated that the investment agreement would leverage highlighted benefits to Union Bank, its subsidiaries and the shareholders. It would ensure strong capital support with The Central Bank Road Map anticipating the increase of capital in licensed commercial banks to a minimum of LKR 10 billion in the next two years. www.island.lk

Weather hits Colombo Fort Lands bottom line

Group posts a loss on account of plantation subsidiaries

The Colombo Fort Land & Building PLC, a modestly capitalized asset rich company, has posted a group loss of Rs.457 million in the year ended March 31, 2014, against a profit of Rs.1,400 million a year earlier. The group's attributable loss was Rs.313 million against a profit of Rs.744 million the previous year.

The group's auditors, KPMG, while stating that the consolidated financial statements gave a true and fair view of the financial position of the company and its subsidiaries, had without qualifying their opinion laid emphasis on the fact that that several subsidiaries whose accounts had been prepared on a `going concern' assumption carried heavy accumulated losses with net assets less than half the stated capital of these companies.

These subsidiaries included Agarapatana Plantations Limited, Lankem Consumer Products Limited, SunAgro Farms Limited, Lankem Development PLC and SunAgro Foods Limited.

The Colombo Fort Lands group had total assets of nearly 35.3 billion in its books as at March 31, 2014 against total liabilities of slightly over Rs.22.6 billion.

The company's Chairman, Mr. A. Rajaratnam, has reported to shareholders that group performance had been greatly handicapped by the sub-optimal weather patterns experienced in the country during the course of the year under review.

"The operations of some of the company's main subsidiaries, the plantation companies - Kotagala Plantations PLC and Agarapatana Plantations Limited and Lankem Ceylon PLC's crop protection activities are heavily dependent on weather and extreme drought and very heavy rainfall had a direct impact on the profitability of these operations," he said.

"To a lesser extent, Lankem Ceylon PLC's paint division was also adversely affected by long spells of heavy rainfall and gloomy conditions. The decline in commodity prices, especially the price of natural rubber has also impacted profitability."

He also said that the performance of Lankem Ceylon PLC and its plantation subsidiaries, Kotagala Plantations and Agarapatana Plantations continued to be affected by the weather.

Other areas of the groups businesses had fared relatively well compared to the competition with operations of C.W. Mackie PLC and E.B. Creasy & Company PLC rebounding strongly in the year under review.

There had been further improvement in the group's subsidiaries operating in the hospitality sector with occupancy in their four properties showing positive improvement.

"The demography of tourists coming to Sri Lanka is changing. We are now getting many more visitors from the Middle East and Asia. Our hotels are well placed to take advantage of the changing trends in the industry and increase the profitability of their operations," Rajaratnam said.

"The coming years are likely to see the hospitality sector becoming a major driver of the group's profitability."

He said that the performance of the group's automotive sector continued to be subdued with the very high prices Lankan consumers pay for motor vehicles dampening the demand for the two vehicle brands the group markets.

"While the holding company C.M. Holdings PLC continues to operate at a profit, the true potential of the company cannot be realized without an easing of the myriad of high taxes that are imposed on the industry," he said.

Rajaratnam said that the impact on the weather cannot be understated with regard to the performance of the group and the need of the hour is for companies impacted by the weather to diversify their businesses into less weather dependent industries.

"For the plantation sector this must involve the setting up of plantations outside of Sri Lanka. We will take all steps to further mitigate the impact of weather on the profitability of the companies. The group is also taking steps to rationalize costs so that we can rapidly recover from this downturn," he said.

At company level a profit of Rs.88 million has been posted, down from Rs.99.9 million the previous year. This was attributed by the chairman to weaker dividend yields from their subsidiaries.

He said that despite the group's loss, the company will pay a dividend of 30 cents per share, the same as the previous year.

Property and Investment Holdings (Pvt) Limited with 15.78%, Colombo Investment Trust PLC (13.94%), Capital Investments Limited (12.91%) and Colombo Fort Investments PLC (12.025%) are the major shareholders of the company.

Colombo Fort Lands group has been profitable from the financial year ended March 31, 2005 until it reverted to a loss making year in the year under review.

The directors of the company are: Messrs. A. Rajaratnam (Chairman - Alternate Anushman Rajaratnam), S.D.R. Arudpragasam, N.H.B.S. Perera, A.M. de S. Jayaratne, R. Seevaratnam, Anushman Rajaratnam Ms. A. K. Gunawardhana and C.P.R. Perera.
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