EPF gets zero income from investments in 14 companies

By Saman Indrajith

The Employees’ Provident Fund (EPF) incurred heavy losses and did not receive any income by investing billions of rupees in the share market, Parliament was told yesterday.

The EPF annual report for the year 2012 tabled in Parliament by Chief Government Whip Water Supply and Drainage Minister Dinesh Gunawardena on behalf of the Minister of Labour and Labour Relations said that the EPF had not received any income from investments amounting to Rs 500,000,000 in an airline company, Rs. 205,489, 613 in 5,091,200 shares of a finance company and Rs. 810,321,611 in 23,712,200 shares of a hotel company in 2010.

"The EPF has not received any income from the investment of Rs. 8,793,951,889 in 14 companies as at December 31 2012. Out of those 14 companies, the investments made in six companies amounted to Rs. 7,358, 547, 720," observes the Auditor General on the financial statements of the EPF for the year 2012. The Auditor General has made this servation on June 19, 2014.

Five companies in which the EPF has invested Rs. 2,412, 402,036 have incurred losses in 2012/2013. Out of those five companies, four companies in which Rs. 2,206,912,423 was invested have incurred losses in the year of accounts 2011/2012 as well. The EPF has not received an income whatsoever from the respective companies in the two years of accounts, the report says.

The fund has made an overall investment of Rs. 63,102, 761, 384 as at December 2012 on long term and short term basis in 72 companies listed in the share market.

The report says that the EPF has invested Rs. 3,890,902,522, Rs. 6,877,822,908, Rs. 39,133,587,926, Rs. 73,948,947,927, Rs. 63,102,761,384 in share market in 2008, 2009, 2010, 2011 and 2012 respectively. The income received from those investments in the years 2008, 2009, 2010, 2011 and 2012 was 8.93 per cent, 22.99 per cent, 5.08 per cent, 3.58 per cent and 3.77 per cent respectively.

The Auditor General under the subheadings of management inefficiencies of the EPF observes: "The surcharges recoverable amounting to Rs. 101,140, 260 from 396 institutions had not been recovered even by April 2014. Action had not been taken even upto April 30, 2014 for the recovery of the outstanding contributions and surcharges amounting to Rs 175, 449,814 due from 148 institutions relating to the area of District Labour Office, Colombo East. Notices as required had not been sent for the recovery of the surcharges of the EPF amounting to Rs 14,379,993 recoverable from 169 local authorities in respect of the period from the year 2000 to the end of the year 2013. The outstanding contributions and the surcharges relating to the period from the year 2009 to January 2013 amounting to Rs 145,268,636 recoverable from 297 institutions in the area of authority of the District Labour office, Gampaha had not been recovered."
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Alto, ViVA, Panda etc car prices tumble in Sri Lanka

While the prices of smaller motorcars saw a huge decrease through the 2015 Budget proposals, motorcar sales institutions have now released the new prices of their imported vehicles.

Accordingly, a spokesman for Associated Motorways told AdaderanaBiz.lk an Alto motorcar which earlier cost Rs. 1,850,000 has gone down to Rs. 1,498,000.

A Suzuki Wagon R which earlier cost Rs. 2,765,000 has decreased to Rs. 2,450,000 and a Suzuki StingRay which was sold earlier at Rs. 2,855,000 is now being sold at Rs. 2,615,000.

A Suzuki Celerio auto gear sold at Rs. 2,540,000 earlier is now Rs. 2,465,000 and a Suzuki Celerio manual gear which earlier cost Rs. 2,190,000 is now Rs. 2,050,000.

Similarly, a Suzuki Omni van which was earlier priced at Rs. 1,850,000 is now being sold at Rs. Rs. 1,675,000 and a Suzuki Swift sold earlier at Rs. 3,150,000 is now being sold at Rs. 2,850,000.

Meanwhile, United Motors which markets the ViVA motorcar manufactured by Perdua states a smaller 850cc ViVA car which cost Rs. 1,925,000 is now Rs. 1,760,000 and that the company now sells only smaller motorcars.

When AdaderanaBiz.lk inquired from Micro Motors, a spokesman said that a Panda GB motorcar priced earlier at Rs. 1,545,000 is now Rs. 1,245,000 and a Panda GS which earlier cost Rs. 1,670,000 is now only Rs. 1,395,000.

A Panda Cross which was earlier Rs. 2,075,000 is now Rs. 1,825,000.

However, it has been revealed that due to the current high demand a buyer has to be in the waiting list for around three months to own a vehicle.
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Sri Lanka bourse extends winning streak on banks, construction shares

Nov 14 (Reuters) - Sri Lankan stocks broke past a key psychological barrier of 7,500 on Friday to hit a 43-month high as investors picked up banks and construction shares on hopes of growth in those sectors.

Continued foreign buying, low interest rates and better earnings expectations also helped sentiment.

Sri Lanka's main stock index rose 0.29 percent, or 21.40 points, to 7,501.09, its highest closing level since April 18, 2011.

"Foreign and local investors are looking at the market and it's on the run, with low interest rates and high growth expectations supported by good earnings," said Reshan Kurukulasuriya, chief operating officer of Richard Pieris Securities (Pvt) Ltd.

Friday's turnover was 2.4 billion rupees ($18.3 million), well above this year's daily average of 1.42 billion rupees. Foreign investors net bought 192 million rupees worth of stocks. The bourse has witnessed foreign inflows of 18.06 billion rupees this year, exchange data showed.

Lanka Orix Leasing Co Plc rose 5.7 percent, leading the overall gains, while Union Bank of Colombo Plc added nearly 7 percent.

Shares of Access Engineering Ltd rose 2.3 percent.

Traders said hopes for a boost in the vehicle leasing and construction businesses helped those shares.

The country's central bank kept key policy rates steady for a ninth straight month in October, saying private sector credit growth was picking up and long-term lending rates were adjusting downwards. 

($1 = 130.9000 Sri Lankan rupee) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Prateek Chatterjee)

Fitch Rates Lion Brewery's Unsecured Debentures Final 'AA-(lka)'

(The following statement was released by the rating agency) 

COLOMBO/SYDNEY, November 14 (Fitch) Fitch Ratings has assigned Sri Lanka-based Lion Brewery PLC's (Lion; AA-(lka)/Stable) unsecured redeemable debenture issue of up to LKR2bn a final National Long-Term rating of 'AA-(lka)'. The assignment of the final rating follows the receipt of documents conforming to information previously received, and is line with the expected rating assigned on 4 September 2014. The debenture rating is in line with Lion's National Long-Term Rating as the debentures constitute unconditional, unsubordinated and unsecured obligations of the company. The debenture, which is structured with a bullet maturity at the end of five years, is to be issued at a fixed rate, and is intended to refinance short-term debt, minimising exposure to short-term floating rate funding. 

KEY RATING DRIVERS 
High Leverage: Leverage, as measured by net adjusted debt/operating EBITDAR increased to 2.48x at end-October 2014, up from 2.05x a year earlier following the completion of Lion's acquisition of competing domestic brewer Millers Brewery Limited (MBL) and its trademarks, with the acquisition cost in line with our expectation. The acquisition comes on the heels of expansion at Lion's production facility, which resulted in high debt over the financial year ended 31 March 2013 (FY13) and FY14. Leverage over FY14 and FY13 was 2.11x and 2.59x respectively, exacerbated by margin deterioration as Lion had to sell more costly imported canned beers at the same price as domestic production. Fitch expects leverage metrics to improve over the medium term, driven by improved profitability with the replacement of canned imports by local production from mid-FY14. 

Increased Production Capacity: Lion has almost doubled its production capacity, allowing it to meet additional demand without further significant debt-funded capex. The expanded production facility will be able to accommodate integration of MBL's volumes, which could enhance economies of scale. 

Market Leadership: Lion is the leading beer producer in Sri Lanka, with sales led by its flagship Lion brand. The MBL acquisition will be favourable for Lion's business risk profile as it will increase Lion's share of beer production in the country. The acquisition will also add new products such as MBL's Three Coins, Sando, and Grand Blonde brands to Lion's portfolio. 

High Regulatory Risk: The Sri Lankan government frequently raises taxes on domestic alcohol production to curb consumption, which encourages consumers to turn to illicit sources and depresses industry profitability. Lion was hit with two excise duty increases in October 2014. There are also restrictions on advertising and retailing of alcohol, which inhibit growth of consumption, although this allows incumbent licensed players with established brands and distribution networks, such as Lion, to preserve their market share. 

RATING SENSITIVITIES 
Negative: Future developments that may, individually or collectively, lead to a negative rating action include: - Leverage of over 2.0x on a sustained basis 

No positive rating action is expected over the next 24 months as leverage is likely to remain high. However, future developments that may individually or collectively lead to a positive rating action include: - Leverage of below 1.5x on a sustained basis. 

Contact: 
Primary Analyst Shyamila Serasinghe Analyst +94 11 254 1900 Fitch Ratings Lanka Limited Level 15-04 East Tower World Trade Center Colombo 01 Secondary Analyst Kanishka De Silva Analyst +94 11 254 1900 Fitch Ratings Lanka Limited Level 15-04 East Tower World Trade Center Colombo 01 Committee Chairperson Vicky Melbourne Senior Director +612 8256 0325 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com. 

Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(lka)' for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable. Additional information is available on www.fitchratings.com. Applicable criteria, 'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage', dated 28 May 2014, and 'National Scale Ratings Criteria', dated 30 October 2013, are available on www.fitchratings.com. Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage hereNational Scale Ratings Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

John Keells Hotels Plc September quarter profits up 38-pct

Nov 14, 2014 (LBO) - Profits at Sri Lanka's John Keells Hotel PLC, grew 38 percent from a year earlier to 342 million rupees the September 2014 quarter, the interim report of the company shows.

The company reported earnings of 0.24 rupees per share. In the year to September it reported earnings of 0.32 rupees per share.

The company revenues rose 5 percent to 2.6 billion rupees and cost of sales rose 3 percent to 933 million rupees. The company grew gross profit 6 percent to 1.7 billion rupees.

Other operating income enhances to 364 million rupees, from 343 million rupees a year earlier.

Profit from Sri Lanka JKH property increase to 133 million rupees from 20 million rupees a year earlier while Maldives hotels shows a decrease to 210 million rupees from 229 million rupees.

Sri Lanka stocks close up 0.3-pct

Nov 14, 2014 (LBO) - Sri Lanka's stocks closed higher with the positive price movements in Lanka Orix Leasing Company and Vallibel One, brokers said.

The Colombo benchmark All Share Price Index closed 21.40 points higher at 7,501.09, up 0.29 percent.

The S&P SL20 closed 11.96 points higher at 4,155.82, up 0.29 percent.

Turnover was 2.40 billion rupees, down from 4.08 billion rupees a day earlier with 115 stocks closed positive against 104 negative.

The aggregate value of all off-the-floor deals represented 11 percent of the daily turnover.

Union Bank of Colombo closed 1.30 rupees higher at 26.10 rupees and Access Engineering closed 90 cents higher at 39.90 rupees, attracting most number of trades during the day.

Foreign investors bought 446.77 million rupees worth shares while selling 253.99 million rupees worth shares.

Lanka Orix Leasing Company closed 5.00 rupees higher at 93.00 rupees and Vallibel One closed 1.50 rupees higher at 26.20 rupees, contributing most to the index gain.

Chevron Lubricants Lanka closed 10.00 rupees higher at 359.90 rupees.

The Automated Trading System (ATS) version 7.18 and the new central depository system will be implemented with effect from next Monday, the stock exchange said.

The exchange added that all carried forward orders remaining in the ATS will be purged and therefore will not be available in the upgraded ATS version.

Broker firms are requested to re-enter such orders into the ATS on Monday.

The pre-open will be extended up to 9.45 a.m. on 17th November 2014.

DFCC Group posts robust 1H performance

* Portfolio YoY growth +19%; PAT up 70% to Rs. 2.07 b; first single digit coupon debenture issue

The DFCC Group announced yesterday it has recorded a robust first half performance with consolidated profit after tax of Rs. 2,071 m for the six months ended 30 September 2014 compared with Rs. 1,222 m during the previous period.

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

The standalone operating profit before taxes of the Group’s banking business was Rs. 2,996 m and profit after tax was Rs. 2,002 m, against Rs. 1,962 m and Rs. 1,180 m respectively in the previous period. This represents impressive growth of 53% and 70% respectively.

The other members of the DFCC Group, which includes the joint venture investment bank, Acuity Partners Ltd., collectively contributed Rs. 126 m to PAT compared with Rs. 104 in the previous period – a growth of 21%.

The Group’s banking business recorded a portfolio growth of 19% year-on-year. This was a notable achievement given the weak demand for credit that persisted throughout most of the period. In fact, this growth rate far exceeded that achieved by the banking industry.

The period was also marked by drop in benchmark interest rates leading to a steep decline in lending rates. While borrowing costs also declined, the lag effect had an impact on net interest income, which decreased by 18% from Rs. 4,092 m to Rs. 3,364 m. 

However, fee and commission income in the period increased by 21% to Rs. 453 m compared to Rs. 373 m in the previous period.

A notable feature is that this income not only included fees generated by the commercial banking subsidiary from trade finance and commercial banking services, but also consultancy fees earned from overseas assignments undertaken by DFCC Bank.

Cost control remains a critical focus area and during the period, stringent cost management enabled the Group’s Banking Business to contain operating cost increases to 8% over that of the comparable period. Of these increases, 3% was on account of a charge for Nation Building Tax, while the balance included the expenses incurred for the addition of 10 new branches in the year to date.

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 unrealised 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 m compared to the fair value gain of Rs. 569 m in the previous comparable period. At the same time, capitalising 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 m.

The period was also noteworthy for DFCC Bank’s funding activities. In August, the bank trail-blazed the way when it undertook its second issue of listed debentures at a single digit coupon rate – the first such issue to hit the market. The initial offer was for Rs. 3,000 m with an option to raise a further Rs. 2,000 m. Due to the overwhelming response, where the issue was oversubscribed three times over during the first day itself, DFCC exercised its option to increase the issue to the total value of Rs. 5,000 m.

Commenting on DFCC Group’s performance, CEO Arjun Fernando said: “The strong performance of the Group’s banking business should be viewed in the context of weak credit demand and excess liquidity. While the combined business represents a mix of development banking and commercial banking, the bulk of the portfolio comprises project loans. These are amortising facilities in that they are continuously repaid over a period of time. This means that achieving absolute growth is that much more difficult. In fact, our project loan book grew by almost 16% from January to September this year and if you factor in the repayments the growth is close to 37%, which is a remarkable achievement.”
He further commented that the reduction in interest rates have benefitted DFCC’s banking business clientele, as these low rates have been passed on to them. “Given the circumstances, maintaining interest margins is going to be a challenge and the bank recognises that relying only on lending activities is no longer tenable. We have taken steps to grow other income to ensure shareholders continue to realise good returns on their investment. I am happy that an Organisational Efficiency Improvement Program, which was introduced last year, is bearing fruit in eliminating unnecessary costs and achieving efficiency gains. In fact the business banking group’s cost to income ratio is one of the lowest in the industry and that of DFCC itself is the lowest.”

Commenting on the future, he said: “It is business as usual for the DFCC Business Banking Group. As you know the DFCC Bank (Repeal and Consequential Provisions) Act No. 39 of 2014, which provides for the registration of DFCC Bank as a public limited company incorporated under the Companies Act with the name DFCC Bank PLC was certified by the Speaker on 1 November. The proposed law will enable the bank to come into being as DFCC Bank PLC from a date specified by the Minister and continue to carry on its business as a licensed specialised bank without any interruption. As regards the proposed merger with NDB, discussions between the institutions are well underway with facilitation from the Boston Consulting Group.”

He concluded: “We are in for very challenging but exciting times and all of us at DFCC Group are looking forward to a new era.”
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LOLC ups 1H pre-tax profit by 118% to Rs. 3.7 b

LOLC Group announced yesterday it has recorded 118% growth in PBT for the six months ended September, reaching a strong profit signature of Rs. 3.7 b compared with Rs. 1.7 b reported for the same period last year.

The main contributor to this growth in the profits comes from LOLC’s core business, financial services, where all three regulated companies recorded excellent performance for the first six months of 2014. The trading sector too contributed to strong profitability while the other sectors and equity accounted investments yielded higher returns, further strengthening Group performance.

LOLC’s financial services sector including, Lanka ORIX Finance PLC (LOFC), Commercial Leasing & Finance PLC (CLC) and LOLC Micro Credit Ltd.

(LOMC) contributed Rs. 3 b to the profits of the Group compared with Rs. 1.8 b recorded last year. LOFC records Rs. 1 b in PBT, a 34% growth over last year. CLC also records Rs. 1 b profits against Rs. 745 m in September 2013. LOMC too contributed Rs. 780 m as profits in the current year against Rs. 542 m recorded in the same period last year.

LOLC Group Managing Director/CEO Kapila Jayawardena said: “The financial performance of the Group demonstrates the robust and aggressive growth strategy of LOLC. We expect the positive trend set in the first six months to continue in the future which would position LOLC as one of the best performing Conglomerates in the country.”

The financial services sector significantly benefited from an aggressive growth in the lending portfolio and the prevalent low interest rates, which has reduced the borrowing costs. As the Group makes investments for future growth in terms of human capital and capacity building, operating expenses saw an increase with personnel costs moving up by 32%.

Concentrated efforts put in towards strengthening the recovery efforts of the financial services sector paid dividends witnessing a 22% reduction in provisioning for bad and doubtful debts, compared with September 2013 enhancing the overall profitability of the Group.

LOLC Insurance Co. Ltd. (LOIC), the fully-owned composite insurer of LOLC, has performed extremely well in the current year with Rs. 1.3 b revenue, a 61% growth over last year. LOIC has a strong presence in the non-life business and the life business is gathering momentum with a strong agency network established backed by LOLC Group’s island wide branch network.

Share of profits of equity accounted investments includes the Group’s investment in Seylan Bank and LOLC’s direct investment in PRASAC Micro Finance Institution Ltd. of Cambodia. These investments together contributed Rs. 1 b as profits to the Group, a 90% growth during the last 12 months.

LOLC making further expansion in its core business of financial services acquired 60% controlling stake of TPC (Thaneakea Phum Cambodia Ltd.) of Cambodia, the fifth largest micro finance company in Cambodia. This investment complements LOLC’s long-term strategy of expanding the core business in the region.

LOLC’s investment in this company was Rs. 2.6 b and the Group expects strong profitability growth from this investment, considering the past performance of TPC and the future potential of microfinance within Cambodia which is a growing economy.

Complying with the Central Bank of Sri Lanka’s (CBSL) financial services sector consolidation exercise, CLC bought the controlling stake of BRAC Lanka Finance PLC (BRAC) for Rs. 608 m, a further investment by the Group into this company increasing the overall holding to 94.35%. BRAC’s strong presence in the micro finance sector will contribute positively to the growth objectives of CLC who strengthening its presence in this high potential market segment.

CLC’s strong presence in the regions together with BRAC’s contribution to the overall footprint will enable CLC to increase its micro finance business deriving stronger results in the medium to long term. BRAC will be merged with CLC in the near future in line with the consolidation strategy of CBSL.

Brown and Company PLC (BCL) led trading sector has generated strong operating profits in the current year overcoming difficult times in the agriculture equipment sales and the consumer sector. The ongoing restructuring process within the Browns Group is expected to bring about strong profitability growth going forward and higher contribution to the overall performance of the LOLC Group.

The ongoing development projects in the leisure sector are in line with the estimates and two projects are nearing completion and will be commissioned in the near future. The three properties that are in operations are contributing well in revenue terms and are awaiting stronger results in the coming months, which is the season with higher tourist arrivals.

Browns Hotels & Resorts signed up with Starwood Hotels & Resorts recently to offer the management rights to five-star Sheraton Kosgoda Turtle Beach Resort and this property will be commissioned shortly.
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