Sri Lankan shares end steady; rising interest rates weigh

Reuters: Sri Lankan shares ended steady on Monday as concerns over rising interest rates and foreign outflows erased early gains from positive sentiment after an IMF loan approval.

Turnover was very low at 476.2 million rupees, well below this year's daily average of around 788 million rupees.

The International Monetary Fund's (IMF) executive board has approved a three-year $1.5 billion loan to support Sri Lanka's economic reform agenda, the global lender said on Saturday.

The benchmark Colombo stock index, which gained 0.46 percent in early trade, ended flat at 6,518.98. It declined 0.8 percent last week, losing for the third straight week after gaining six consecutive weeks.

Treasury bill yields rose between 4 and 35 basis points to near three-year highs in the last two weekly auctions through Wednesday despite the central bank leaving key policy rates steady for a third straight month on May 20.

"Market was up in the morning due to the IMF news," said Dimantha Mathew, head of research at First Capital Equities (Pvt) Ltd.

"With high interest rates, investors are still on a wait and see approach and the biggest issue is the foreign outflow."

Investors are concerned about foreign outflows, with overseas investors offloading a net 92.3 million rupees worth of shares on Monday, extending the year-to-date net foreign outflow to 5.64 billion rupees.

Stockbrokers said a rise in interest rates could be detrimental to risky assets if they jumped beyond 12 percent. The average prime lending rate (AWPR) edged up 8 basis points to 10.23 percent in the week ended June 3.

Shares of Lion Brewery Plc fell 5.85 percent while shares of John Keells Holding Plc fell 0.19, dragging the overall index. 

($1 = 146.8000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair)

Reform or relapse IMF warns SL with $ 1.5 b cash

Urgent reforms for revival of an economy showing signs of strain is the emphatic message from the International Monetary Fund (IMF) for Sri Lanka with the former’s approval of $ 1.5 billion cash support under a three year program.

The IMF’s Executive Board on Saturday approved a 36-month extended arrangement under the Extended Fund Facility (EFF) with Sri Lanka for an amount equivalent to SDR 1.1 billion (about US$1.5 billion, or 185% of quota) to support the country’s economic reform agenda.

The decision by the Government to seek an EFF from the IMF stemmed from both external and domestic developments.

The IMF said the arrangement aims to meet balance of payments needs arising from a deteriorating external environment and pressures that may persist until macroeconomic policies can be adjusted. It is also expected to catalyze an additional US$650 million in other multilateral and bilateral loans, bringing total support to about $2.2 billion (over and above existing financing arrangements).

The IMF Executive Board’s decision will enable an immediate disbursement of SDR 119.894 million (about US$ 168.1 million), and the remainder will be available in 6 instalments subject to quarterly reviews.

The Central Bank said the interest rate applicable on the EFF, the basic rate of charge is equivalent to the SDR interest rate, which currently stands at 0.05% per annum, plus 100 basis points. Hence, the interest rate of the EFF facility is significantly lower than the prevailing market rates.

Following the Executive Board discussion on Sri Lanka, IMF Deputy Managing Director and Acting Chair Min Zhu said: “Despite positive growth momentum, Sri Lanka’s economy is beginning to show signs of strain from an increasingly difficult external environment and challenging policy adjustments. The new government’s economic agenda, supported by the Extended Fund Facility, provides an important opportunity to re-set macroeconomic policies, address key vulnerabilities, boost reserves, and support stability and resilience.”

“A return to fiscal consolidation, targeting a reduction in the overall fiscal deficit to 3.5% of GDP by 2020, is the linchpin of the reform program. Rebuilding tax revenues through a comprehensive reform of both tax policy and administration will be key in this regard, supplemented by steps toward more effective control over expenditures and putting state enterprise operations on a more commercial footing.

“Medium-term growth prospects also need to be supported through a greater role for market forces and a decisive shift toward an outward orientation. A clear commitment to exchange rate flexibility will enable adjustment to a shifting external environment while allowing the central bank to rebuild foreign exchange reserves and focus more closely on its key mandate of price stability. The economic program also supports the government’s objective of boosting competitiveness and greater integration with regional and global markets through comprehensive trade reform and improvements to the investment environment. Steadfast implementation of these reforms should strengthen Sri Lanka’s ability to attract investment, improve prospects for sustained medium-term growth, and reduce fiscal risks.”

In response to the request for an EFF by the Sri Lankan authorities, a team of IMF officials visited Sri Lanka in March/April 2016, and conducted several rounds of discussions with the Sri Lankan authorities. The discussions with the senior staff of the IMF were continued by the Sri Lankan delegation to the IMF during its Annual Meetings in April 2016. Subsequent to the successful completion of technical level negotiations, meeting of the recommended prior actions by the government, and the signing of the Letter of Intent (LOI) by Sri Lankan authorities in May 2016, the EFF was approved by the Executive Board of the IMF on 03 June 2016.

Program Summary

The proposed new IMF-supported program aims to provide a policy anchor for macroeconomic stability and structural reforms, while strengthening external resiliency in a challenging global environment.

The key objectives of the program relate to fiscal policy and the balance of payments, and measures to:

(a) implement a structural increase in revenues,

facilitating a reduction in the fiscal deficit;

(b) reverse the decline in central bank foreign exchange reserves;

(c) reduce public debt relative to GDP and lower

Sri Lanka’s risk of debt distress; and

(d) enhance public financial management and improve the operations of state owned enterprises.

The program also aims to transition toward inflation targeting with a flexible exchange rate regime and to promote sustainable and inclusive economic growth.

To achieve these objectives, the program would envisage implementation of a set of reforms under six pillars:

(i) Fiscal consolidation;

(ii) Revenue mobilisation;

(iii) Public financial management reform;

(iv) State enterprise reform;

(v) Transition to flexible inflation targeting under a flexible exchange rate regime; and

(vi) Reforms in the trade and investment regime.
Central Bank says IMF program will ensure high and inclusive growth

The Central Bank on Saturday said the IMF program and its benefits will help facilitate high and inclusive growth in Sri Lanka, enabling the exploitation of Sri Lanka’s economic potential.

“The outcomes of the EFF supported economic program will result in improving macroeconomic stability, bolster market confidence, enhance competitiveness and outward orientation and strengthening external resilience in a challenging global environment. This, in turn, will help facilitate high and inclusive growth in Sri Lanka, enabling the exploitation of Sri Lanka’s economic potential,” the Central Bank said in its statement.

It also said the approval of the EFF by the Executive Board of the IMF signals its support for the government’s economic reform agenda over the medium term.

According to the Central Bank the government plans to introduce fundamental and comprehensive reforms to tax policy and administration, which will ease the burden of public debt and the pressure on the BOP while providing fiscal space for the government’s key social and development spending programs.

Accordingly, a steady reduction of the overall budget deficit to 3.5 % of GDP is expected by 2020. The reform agenda also focuses on transforming State Owned Enterprises (SOEs) into commercially viable entities, underpinned by cost reflective pricing mechanisms and transparent governance. The gradual building up of foreign reserves and maintenance of inflation at mid-single digit level are also expected under the EFF supported economic program.

Other key structural reforms include trade facilitation through the reduction of protection and the pursuit of new trade agreements. In the meantime, the Central Bank is expected to move towards introducing flexible inflation targeting as its monetary policy framework supplemented by the continuation of the flexible exchange rate policy.

The approval of the EFF is expected to attract additional funds from other multilateral and bilateral sources for the successful implementation of the reform agenda of the government.

The decision by the Sri Lankan authorities to seek an EFF from the IMF stemmed from both external and domestic developments. Externally, there has been renewed global economic uncertainty, particularly with the slowdown of the Chinese economy, fears of a Britain’s exit from the European Union, and adverse geopolitical developments in the Middle East. At the same time, the monetary policy normalisation in the United States prompted an outflow of funds from emerging market and developing economies, including Sri Lanka. Despite the low level of international commodity prices, the slowdown in the growth of demand in Sri Lanka’s traditional export markets and capital outflows exerted significant pressure on the external sector generating an overall deficit in the BOP. The government and the Central Bank adopted corrective measures to help dampen the pressure on the BOP and the domestic foreign exchange market. In particular, greater flexibility was allowed in the determination of the exchange rate, new macroprudential regulations were introduced as selective demand management instruments and monetary policy was tightened commencing end 2015.

Nevertheless, the structural issues in the fiscal and external sectors persisted, and the government was of the view that an IMF support would further strengthen the government’s efforts to address structural issues.
www.ft.lk

Adam Investments, Adam Capital declare dividends

Adam Investments Plc and Adam Capital Plc have announced dividends to their shareholders.

Adam Investments Plc has announced a first and final dividend of 10 cents for FY2016 whilst a similar dividend has been announced by Adam Capital Plc as well.

Both resolutions by the respective Boards of the two companies are subject to shareholder approval.

www.ft.lk

CIC Holdings FY16 revenue up 13% to Rs. 26.6 b; PAT up 57% to Rs. 1.63 b

CIC Holdings Group has achieved a growth in revenue of 13% to Rs. 26.67 billion in the financial year ended 31 March 2016 and an after tax profit of Rs. 1.63 billion, up by 57% over the previous year.

Group pre-tax profit grew by 41.6% to Rs. 2.01 billion. Net profit attributable to equity holders of the company rose by 77.7% to Rs. 1.35 billion.

CIC Holdings Plc Chairman Harsha Amarasekera said in addition to the organic growth from the existing business ventures, the Group has invested Rs. 2 billion in growth sectors enhancing the future earnings potential of the group.

“Increased earnings and timely risk management initiatives enhanced the asset quality by improving the Net Asset Value per Share from Rs. 75.14 to Rs. 93.44, a 24 % increase. Concurrently, the Board also increased the dividend per share from Rs. 3.0 to Rs. 4.0, which in turn contributed to a dividend yield of 4%,” the CIC Chairman said in his review in the 2015/16 Annual Report.

“This combined with a capital appreciation for the share of 26% resulted in a Total Shareholder Return (TSR) of 31%. Return on Equity (ROE) was at 15% compared to 12% the previous year, confirming our strategy to enhance future earnings potential,” Amarasekera added.

The Debt to Equity ratio stood at 120% for 2015/2016 as opposed to 117% for the previous financial year, a factor which is closely monitored by the Board.

“It is indeed gratifying to note the consistent improvement in profitability and growth sustained over the past eight quarters,” the Chairman emphasised.

Encouraged by the progress achieved, CIC has chartered a new trajectory for growth which is multifaceted, building on the Group’s core competencies and considerable strengths developed over three decades. The new strategies formulated entrenched the group presence in the agriculture and livestock, healthcare and consumer sectors.

Working together with external consultants, CIC also critically assessed their business portfolios, current positioning and how the CIC Group is perceived. The Chairman said it became clear that sharpening the corporate vision and mission and better defining and grouping of its diverse businesses were a prerequisite to strengthening CIC’s true identity as a well-diversified conglomerate.

“Consequently, we have modified and rearranged the Group structure into five clear business segments in order to enhance group synergies and to facilitate a sharper focus on potential areas of high growth. As part of the same process, we have also re-defined our corporate vision and mission statement as it’s now depicted in this report. Further as the business grows and diversifies into new sectors, stretching the corporate brand CIC across an innumerable and diverse range of products and services will not be optimal or possible,” Amarasekera said.

According to him the new structure enables each business segment to have its own identity and brands for individual product lines with a higher level of visibility for the individual brands. The brands will be discrete, each one holding a distinct promise of quality and value for the end user. Where relevant, the CIC logo will be retained in an overarching capacity to provide continuity and reassurance.

CIC also implemented several structural changes during FY16 to ensure that all business sectors are well positioned for growth.

Relocating the PVA manufacturing facility in Ratmalana to the Godagama Industrial Zone was an important step; one which has been in the contemplation of the Company for several years and this move mitigates potential environmental and social issues in an urban neighbourhood. This has made available approximately 4 acres of land in an urban area which could be sold or developed. The relocation project required an investment of Rs.400 million and resulted in capacity expansion of 100% which is expected to commence its pay off from this financial year.

Amarasekera said the Board identified areas for growth and investment immediately following the turnaround in the performance of the Group in 2014/15 prioritising the many options available based on the potential value created for shareholders and Group synergies.

Accordingly, the Group invested Rs.1 billion on building facilities for drying and storage of maize in Talawa and Siyambalanduwa, with an aggregate capacity of 50,000 MT, synergising the value chain from agriculture input distribution to the feed milling business within the Agri Produce and Livestock Solutions sectors.

“This venture epitomises CIC’s philosophy of creating broader stakeholder value and is aligned with the Ministry of Agriculture’s Food Production National Program 2016 – 2018, where maize is a crop aimed at self-sufficiency and the Sustainability Development Goals of poverty alleviation, zero hunger and reduced inequalities too are addressed. The project also supports around 10,000 farmers in these two rural communities through buy back guarantees and provision of technical support to maximise yields. We also strengthened the value proposition to farmers by facilitating crop protection insurance and banking services,” Chairman said.

Strategic investments

Another strategic investment approved by the CIC Board was a further Rs.1 billion for cultivation of vegetables in greenhouses using the latest technology. Higher value vegetables will be grown for export supporting the country’s export drive and building CIC’s reputation as an exporter of high quality vegetables. The investment in greenhouses seeks to mitigate the impact of adverse weather, land and labour shortage which regularly hampers the output of the agriculture sector.

Chairman has told shareholders via his review in the 2016 Annual Report that the Pharmaceuticals sector indicates significant potential for growth with a steady income throughout the year as indicated by the country’s demographics and changing wealth patterns.

The CIC group’s pharmaceutical manufacturing plant produces generic lifestyle medications used on a continuous basis, including medications for diabetes, hypertension, cholesterol and gastric reflux among others.

Given the increasing focus on availability of affordable generic drugs, this investment also supports the national healthcare agenda and saves valuable foreign exchange for the country. CIC is also investing a sum of approximately Rs.100 million in constructing a purpose built facility for storage of pharmaceuticals in Ekala, filling a lacuna in CIC’s infrastructure to support growth of this vital business segment.

“Meeting stringent standards of our principals, this facility will enable us to widen the range of products marketed by the Group. Pharmaceuticals being a key growth sector at CIC, we will now be well positioned to ensure its continued expansion,” Amarasekera said.

He pointed out that a solid financial position, decades of diverse industry insights, strong relationships globally with principals and locally with farmers, distributors and regulators provide a sound foundation for growth.

“Our businesses are also in sectors important from an economic and social perspective to the country such as agriculture, healthcare and industrial solutions vital for the country’s progress. We have emerged from the losses incurred in 2013/14 as a stronger group, delivering increasing value to stakeholders and we are ready for further investment,” the Chairman said.

Growth plans

“ Projects commenced this year will enhance earnings of the Group in the coming year and we also expect to implement further plans for growth during the coming year,” he added.

Amarasekera also says in Chairman’s Review “Our course is clear – we expect to be one of the top three players in the country in every business we are engaged in.”

According to him the CIC Board will continue to drive performance from the centre supported by strong reporting and risk management processes for objective decision making.

“Our new identity will facilitate greater visibility and brand building, driving the value of each individual business and the conglomerate as a whole,” he added.

In order to further drive and build value, the CIC Board has approved an ESOP scheme aimed at the top management of the Group. The Resolution in respect of the same will be placed before the Shareholders immediately after the AGM. “The Board is confident that this would pave the way for even greater commitment from the Management to improve the results of the Group, CIC Chairman Amarasekera said.

The CIC Holdings Plc’s Board of Directors comprises of S.H. Amarasekera (Chairman), S.P.S. Ranatunga (Managing Director/CEO), M.P. Jayawardena, R.S. Captain, P.WM.B.B. Marambe, R.N. Asirwatham, S.M. Enderby, A.V.P. Silva, R.C.W.M.R.D. Nugawela, K.B. Kotagama and D.S. Weerakkody.
www.ft.lk

Lanka Ashok Leyland declares 250% dividend for FY 2015/16

Against a backdrop of uncertainty due to revisions in import duty structure, devaluation of Rupee and restriction on financing/ leasing, Lanka Ashok Leyland saw its sales improve 10% for 2015/16 to Rs 9.1bn compared to Rs 8.2bn in 2014/15 driven mainly by 12% growth in new vehicle sales.

The depreciation of the Lankan rupee and frequent changes in import duty structure negatively impacted the company, raising its import costs which eroded its gross profit margin down to 8% resulting in an 18% decline in gross profit to Rs 760.4mn against Rs 924.4mn in the last period.

Known for prudent fiscal management, the company was able to trim down its operating costs to help offset a fall in other income. Higher interest rates during the year resulted in finance expense increasing to Rs 54.8mn, an 89% increase year on year. Inventories accumulated over the year with a 13% increase to Rs 3.8bn cf. Rs 3.4bn a year earlier while interest bearing liabilities fell 12% for the same period to Rs 2bn. As a result net asset value increased to Rs 773.9 from Rs 754.5 recorded atMarch 31, 2015.

Profit after tax for 2015/16 fell to Rs 314mn owing to the external environment. Lanka Ashok Leyland maintained their payout ratio at 43.6% with a final dividend of Rs 25 to its shareholders. Umesh Gautam, CEO of Lanka Ashok Leyland commented on the year’s performance, “Another challenging year is behind us and I am convinced of the results we have been able to achieve. In an environment where we have to contend with variables beyond our control such as the exchange and interest rates, we have done our best to mitigate and manage our risks in a manner that hasn’t forced us to deviate or change our operating environment or curtail our expansion plans. Transport industry operates at the mercy of exchange rate volatility, and 2015/16 saw rapid decrease in the Rupee triggered by the devaluation in China in August 2015 increasing our import costs which could not be transferred to our customers who had to contend with rising interest rates and changes in vehicle financing regulations.

That said, looking at the metrics that are within our control, we feel that we have achieved a lot of what we planned for this year,
www.dailynews.lk

Arpico Insurance records 62% growth in GWP in 2015

Arpico Insurance recorded a 62% growth in Gross Written Premium (GWP) for the financial year ending 2015.

The company was able to gain Rs 482 million against the Rs. 297 million GWP earned in 2014. Chief Executive Officer, Arpico Insurance PLC, D C Kevitiyagala stated in the annual report recently published that the ‘ Life Fund’ experienced a 56% growth reaching up to Rs. 449 million.

The report continued its praise towards the company’s achievements by stating that the company’s total asset base saw an increase to Rs. 1,180 million from the Rs. 980 million. Profits too have recorded a 100% growth to 25.7% in 2015, which is a significant increase when compared to the 12% recorded in 2014.

“Arpico Insurance continued its strategic selection of investment instruments for its investment portfolio consisting of both long term and short-term instruments. As a result the investment portfolio saw a 16 percent increase to record Rs. 982 million in the year under review,” Kevityagala said.

According to Kevitiyagala in the report, Apico Insurance’s market penetration is still at its infancy. The company is reaching a penetration of about 12.6%. It is suggested that though Arpico insurance has up to 20 listed companies there is a void in the life insurance sector when compared to the general insurance sector. It was also mentioned in the report that the Sri Lanka’s insurance sector has unrealized potential to grow and to tap into the market and education process must be underway as Life insurance today is a necessary requirement.

Arpico Insurance has 24 physical branches spread in seven provinces and 28 virtual branches.
www.dailynews.lk

Citrus Leisure posts strong Q4 - 2015/16

The Citrus Leisure Group announced very positive results for the fourth quarter ending 31st March 2016 resulting in a strong performance for the financial year.

Accordingly, the Group recorded a revenue of Rs. 1,093.7 million for FY 2015/16, a noteworthy 76% growth compared to FY 2014/15. Citrus Waskaduwa contributed Rs. 651.3 million while Citrus Hikkaduwa contributed Rs. 295.7 million for the year.

The performance by Citrus Waskaduwa was 104% higher than the previous year being the first year in full commercial operation while Hikkaduwa’s performance was higher by 9% for the year. Citrus Silver contributed Rs. 128.5 million, while the rest was contributed by Citrus Vacations.

The Citrus Leisure Group revenue for the fourth quarter of 2015/16 wasRs. 378 million, a 49% growth compared to the corresponding quarter in 2014/15. The group’s first property, Citrus Hikkaduwa contributed Rs. 110.9millionwhile the Group’s flagship property Citrus Waskaduwa contributed Rs. 215.6 million for the quarter.

The performance by Citrus Waskaduwa was 46% higher than the corresponding quarter while Hikkaduwa’s quarterly performance was 13% higher than the same period. Citrus Silver which manages The Steuart by Citrus, the Colombo city business boutique hotel which opened in July2015,contributed Rs. 49.9 million, while Citrus Vacations, the inbound and outbound travel arm contributed to the rest.

The Citrus Group recorded a Gross Operating Profit of Rs 128.8 million for the quarter and Rs. 237.2 million for the FY 2015/16 making a significant improvement to its bottom line.

On a very positive note Kalpitiya Beach Resort PLC, posted a Profit After Tax of Rs. 209.9 millionfor FY 2015/16.
www.dailynews.lk

Tea sales increases in 2016

The Asia Siyaka weekly tea update for the week starting from May 23 to 28, shows a slight increase in private tea sales in the mentioned week compared to the same period last year.

The report shows that the weekly sale for 2016 as 65,799 kg as opposed to 52,111kg recoded in the same period in 2015. The amount of tea sold to date through private sales amounted to1,089,996 kg which is a slight increase from the 1,025,431 kg sold in 2015. However sales did not show the same progress in the public auction sales. The report shows last week’s sale as 6,697,227 kg as opposed to the 6,902,508 kg sold in the same period last year. The sales through public auctions to date was recorded as 116,637, 272 kg as opposed to the 127,286,156 kg sold in 2015. The tea prices of high and medium grown tea showed a significant increase during the aforementioned week with regard to tea auction prices. Last week’s prices for high grown tea was recorded close to Rs. 400 per kilo as opposed to Rs. 360 per kilo in 2015. Medium grown tea prices last week too has increased to Rs.410 as opposed to the Rs. 340 per kilo recorded for the same period last year.

It was mentioned in the report that 7.62 million Kilograms of tea were on offer last week at the Colombo tea auction. 3.38 million of Kilograms of the amount were recorded as low grown main grades and 2.65 million kilograms were of high and mid grown main.
www.dailynews.lk