Seylan Bank records profit growth of 43% to post PAT of Rs 1.740 mn during 1H 2015

Seylan Bank posted a record half-yearly performance with Profit before Income Tax reaching Rs. 2,579 Million for the 6 months ended June 30, 2015. Profits after Tax reached Rs. 1,740 Million a 43% increase compared to the Rs. 1,212 Million reported in the corresponding 6 month period in 2014.

The quarterly (Q-2 2015) Profit after Tax figure of Rs. 1,089 Million was an improvement of 56% compared with Rs. 698 Million reported in corresponding 3 months of last year.

Net Interest income increased from Rs. 5.16 Billion to Rs. 5.83 Billion a 13% increase for the 6 months ended 30th June 2015. Net fee and commission income increased by 13% from Rs. 1,055 Million to Rs. 1,191 Million with the bank showing a continuation of the solid growth trend recorded in the past few years.

During 1H 2015, the Net Advance portfolio grew from Rs. 155 Billion to Rs. 162.7 Billion, while the Deposit base grew from Rs. 185.9 Billion to Rs. 190.5Billion. The Bank's low cost deposit base (CASA) stood at 38% as at end June 2015.

The Bank was also able to improve its asset quality through effective recovery and rehabilitating efforts. This enabled the Bank to reduce its Gross NPA (net of IIS) from 7.69% in December 2014 to 6.53% as at end June 2015. The Bank has consistently been able to improve its asset quality since 2009 through focused, sustained and effective recovery efforts.

The Bank, based on its 4 - year Strategic Plan (2012 - 2016) has focused significantly on areas which include Advance/Deposit growth, Branch Expansion, Customer Service improvement, Staff Development, NPA reduction, Cost Control, New Product Development, IT Infrastructure, Shareholder value, etc. The Strategic Plan also earmarks the opening of 100 libraries in under privileged schools. 70 such school libraries have been opened by the Bank, since 2013.

The Branch relocation and refurbishment project too continued in full steam during 1H 2015, with a view to enhance the customers' service experience. As of end June 2015, over 75% of the branch network has been refurbished. As at 30th June 2015, the Bank network comprised of 159 Branches, 181 ATMs and 93 Student Savings Centres.

The Bank's total Capital Adequacy ratio stands at 13.74% at the end of Q-2 2015, well above the regulatory requirements. In July 2015, Fitch affirmed the Bank rating at 'A -lka' with a stable outlook.

As a result of the impressive performance, Earnings per share were at Rs. 5.04 for Q-2 2015, while Return (profit before tax) on Assets and Return on Equity stood at to 2.03% and 14.52% respectively. The Bank's Net Asset Value per share as at 30th June 2015 was Rs. 71.48 (Group Rs. 74.88).

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Sri Lanka records a deflation of 0.2-pct in July after two decades

(LBO) – Sri Lanka has experienced a deflation of 0.2 percent for July 2015, for the first time after March 1995.

The main contributor for this decline was the major decrease in non food prices, statistics department said.

“This was mainly due to the decrease of electricity and water bills, LP gas, kerosene, petrol and diesel.”

Year on year inflation of food group has decreased from 4.0 percent in June 2015 to 2.5 percent in July 2015 while non‐food group increased by ‐3.2 percent to ‐2.5 percent during this period.

The overall rate of inflation measured by Colombo Consumer Price Index on year on year basis is ‐0.2 percent in July 2015 and inflation calculated for June 2015 was 0.1 percent.

The CCPI for all items for the month of July was 182.8.

An increase of 1.2 index point or a percentage of 0.68 has been recorded in July compared to June 2015.

The moving average inflation rate for the month is 1.3 percent and the corresponding rate for June 2015 was 1.7 percent.

Sri Lanka’s Dankotuwa Porcelain to raise Rs722mn through rights issue

July 30, 2015 (LBO) – Sri Lanka’s tableware exporter Dankotuwa Porcelain is to raise 722 million rupees by way of a rights issue, the company said in a stock exchange filing.

Subject to the necessary approvals, the company is to issue 90.31 million ordinary shares at 8.00 rupees each in the ratio of 5 for every 4 shares.

The proceeds will be utilized for plant modernization and to settle short term loans which would improve the gearing ratio, the company said.

The stock closed at 14.50 rupees on Wednesday.

Sri Lanka’s Fitch affirms Lion Brewery at ‘AA-(lka)’ with stable outlook

(LBO) – Sri Lanka’s Fitch Ratings has affirmed Lion Brewery (Ceylon) national long-term rating at ‘AA-(lka)’ with a stable outlook.

The agency also affirmed Lion’s senior unsecured rating and the rating on its debentures at ‘AA-(lka)’.

The full text of the announcement is reproduced below.

Fitch Affirms Lion Brewery at ‘AA-(lka)'; Outlook Stable

Fitch Ratings-Colombo-30 July 2015: Fitch Ratings has affirmed Lion Brewery (Ceylon) PLC’s (Lion) National Long-Term Rating at ‘AA-(lka)’. The Outlook is Stable. The agency also affirmed Lion’s senior unsecured rating and the rating on its debentures at ‘AA-(lka)’.

The National Long-Term rating takes into account Lion’s strong business profile as the leading beer producer in Sri Lanka. The rating also factors in the growing demand for beer driven by increasing urbanisation and preference for lower alcohol content beverages. The company faces risks from regulation and financial risk following a debt-funded expansion and acquisition of the second-largest brewer Millers Brewery Limited (MBL).

KEY RATING DRIVERS
Market Leadership: Lion is the largest producer of beer in Sri Lanka, where beer is the second most-consumed alcoholic beverage after arrack. Its flagship brand, Lion, accounts for close to 80% of its revenue, with its domestically produced and imported brands making up the rest. Lion’s leading position helps the company secure new brands and access a wide distribution network.

Debt-Funded Investments: Lion’s leverage increased to 2.9x during the financial year ended 31 March 2015 (FY15) from 2.2x at end-FY14 after the MBL acquisition was completed in October 2014, and following capacity expansion over the last two years. However, Fitch believes the financial risk is partially offset by improvement in its competitive position stemming from the investments. The acquisition of MBL will bring brands such as Three Coins, Sando, and Grande Blonde under Lion’s portfolio.

The added capacity will also support Lion’s business profile. Lion, which is currently operating at around half its capacity, will be able to meet additional demand over the medium term without extensive production-related capex. In the medium term, the company will undertake less capex, which will free up cash flow to pay down debt.

Highly Regulated Sector: The government regulates the alcoholic beverages sector heavily, including a complete ban on advertising and licensing of participants. There is a high risk of regulatory change, with the most recent being a rise in excise duties to make up for the elimination of offsets under the new value-added tax, which increased Lion’s effective tax burden to 50% of gross revenue in FY15 (FY14: 44%). Fitch expects the importance of the sector in terms of its contribution to government revenue to reduce the likelihood of excessive regulation and taxation.

Growing Demand for Beer: Beer production is increasing to meet demand as lifestyle changes stimulate a preference for beer. Fitch expects demand for locally manufactured hard liquor to decline in the longer term, driven by lower alcohol consumption, and the greater affordability of lower-alcohol content beverages.

KEY ASSUMPTIONS
Fitch’s key assumptions within the rating case for Lion include:
– Low double-digit revenue growth in the medium term
– Profitability, as measured by EBITDA margin, of around 24%
– Maintenance of current dividend policy
– Capex of LKR1.5bn-1.7bn to upgrade warehousing and raw material procurement in FY16
– No material capex from FY17

RATING SENSITIVITIES
Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
– Adjusted net leverage (adjusted net debt to operating EBITDAR) of over 2.0x on a sustained basis (end-March 2015: 2.9x)

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 adjusted net leverage of below 1.5x on a sustained basis

JKH reports robust 1Q results

Premier blue chip John Keells Holdings (JKH) yesterday reported robust results for the first quarter of new 2015/16 financial year, with transportation, consumer foods and retail and financial services sectors driving enhanced value.

JKH Group profit before tax (PBT) at Rs. 3.19 billion in the first quarter of the financial year 2015/16 is an increase of 6% over the Rs. 3.02 billion recorded in the previous financial year which included a capital gain of Rs. 389 million.

“The increase in PBT for the quarter over the previous year is primarily on account of a 43% increase in operating profits, demonstrating a robust underlying business performance,” JKH Chairman Susantha Ratnayake said in his review to shareholders accompanying interim results.

The profit attributable to equity holders at Rs. 2.18 billion reflects an increase of 2% over the Rs. 2.14 billion in the corresponding period of the previous financial year.

The revenue at Rs. 21 billion for the period under review is a marginal increase over the Rs. 20.70 billion recorded in the previous financial year.

The company PBT for the first quarter of 2015/16 at Rs. 3.25 billion is an increase of 10% over the Rs. 2.96 billion recorded in the corresponding period of 2014/15.

Following is the brief outline of performance of sectors of JKH by Chairman Ratnayake.

Transportation: The Transportation industry group PBT of Rs. 590 million in the first quarter of 2015/16 is an increase of 19% over the first quarter of the previous financial year [2014/15 Q1: Rs. 498 million]. The increase in profitability is attributable to the performance of the Group’s Bunkering business which recorded an improvement in margins on the back of an improved local operating environment and the performance of South Asia Gateway Terminals (SAGT), where an encouraging growth in higher yielding domestic TEUs contributed positively towards its profitability. The performance of the Logistics business was in line with expectations as the combined impact of a growth in its active customer base and improved operational efficiencies resulted in an overall improvement in profitability of DHL Keells.

Leisure: The Leisure industry group PBT of Rs. 553 million in the first quarter of 2015/16 is a decrease of 16% over the first quarter of the previous financial year [2014/15 Q1: Rs. 659 million]. The decline in PBT is mainly on account of the City Hotel sector, where the Group’s 5 star city hotels recorded a decline in occupancies due to the partial closure of Cinnamon Lakeside. The current slowdown in business related travel into the City, combined with the increased supply of room inventory within Colombo, also negatively impacted occupancies. However, Cinnamon Red continued to perform above expectations with average occupancies exceeding 75% in the period under review. The Sri Lankan and Maldivian Resorts sectors recorded an increase in profitability due to successful yield management and efficiency improvements. The Sri Lankan Resorts also benefitted from the continuing growth in tourist arrivals to the country.

Property: The Property industry group PBT of Rs. 203 million in the first quarter of 2015/16 is a decrease of 7% over the first quarter of the previous financial year [2014/15 Q1: Rs.218 million]. The decline in PBT is mainly on account of the lower revenue recognition of the “OnThree20” residential development project which reached completion in the previous financial year. Over 90% of units have been handed over to the buyers with the balance handovers expected to be completed during the ensuing quarter. Construction of the ‘7th Sense’ residential development is nearing completion with all 66 units being reserved as of the end of the first quarter of 2015/16. Waterfront Properties Ltd. finalised a syndicated project development facility amounting to USD 395 million with the Standard Chartered Bank, thus concluding the required debt financing for the ‘Waterfront Project’.

Consumer Foods and Retail: The Consumer Foods and Retail industry group PBT of Rs. 880 million in the first quarter of 2015/16 is an increase of 86% over the first quarter of the previous financial year [2014/15 Q1: Rs. 472 million], with both sectors contributing to the improved performance. We are encouraged by the continued strong performance of the industry group amidst growth in consumer spending as well as the fruition of our strategies in the respective sectors. The Frozen Confectionery and Beverage businesses witnessed an increase in profitability driven by double digit volume growth. Keells Food Products recorded a significant increase in profitability on account of enhanced operational efficiencies and higher volumes across all channels. The Retail sector reported a strong performance aided by an increase in footfall which contributed towards a year-on-year growth in same store sales, whilst average basket values remained stable.

Financial Services: The Financial Services industry group PBT of Rs. 373 million in the first quarter of 2015/16 is an increase of 12% over the first quarter of the previous financial year [2014/15 Q1: Rs. 332 million]. Nations Trust Bank was the primary contributor to the improved performance. The overall insurance industry benefited from the increase in disposable incomes with both the Life and General Insurance businesses recording an encouraging growth in gross written premiums.

On 28 May, Union Assurance PLC announced that a maximum of 26,785,714 ordinary shares will be repurchased at a price of Rs. 167.80 per share in the proportion of 10 shares for every 32 shares held. The offer closed on 28 July and JKH has accepted the offer to repurchase its entitlement.

Information Technology: The Information Technology industry group PBT of Rs. 68 million in the first quarter of 2015/16 is an increase over the first quarter of the previous financial year [2014/15 Q1: Rs. 21 million]. The improved profitability is mainly attributed to the Group’s Business Process Outsourcing operations which benefitted from the growth witnessed across a few large clients and the successful implementation of a number of cost management initiatives. The Office Automation business recorded a growth in volumes across its three main product segments.

Other, Including Plantation Services: Other, including Plantation Services and the Corporate Centre recorded a PBT of Rs. 522 million in the first quarter of 2015/16, this being a decrease of 37% over the first quarter of the previous financial year [2014/15 Q1: Rs. 826 million]. The lower PBT is primarily due to the gain of Rs. 389 million arising from the disposal of the investment in Expolanka Holdings PLC included in the last financial year. Revenue and profitability in the Plantations Services sector were negatively impacted as tea prices continued to remain at low levels. Subsequent to receiving shareholder approval on 26 June, the company completed the subdivision of its ordinary shares, whereby seven shares were subdivided into eight shares.
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