US bond rate increase good for CSE; not so much for local bonds

Despite being one of the poorest performing markets in the region, Sri Lanka’s stock market which has been in the doldrums has attracted a lot of foreign buying interest since of late.

This heavy investor participation stems mainly from the rate increase in the US bond market. While the rates going up is seeing foreign funds shifting back to the US from frontier markets such as Sri Lanka, a small component of their corresponding funds which invest in stock markets are being ploughed into the Colombo Stock Exchange (CSE), analysts say.

There has been continuous foreign selling in local bonds and as at January 1, 2017 it was US$ 2 million. The new regime under Donald Trump is trying to strengthen the US Dollar and luring back funds to the US.

Atchuthan Srirangan, Senior Research Analyst First Capital Equities noted that on the back of all this, this month’s foreign inflow at CSE was Rs. 600 million as at February 8. Mr. Srirangan said that in the year to date the total foreign participation so far is more than 50 per cent of CSE’s turnover, while for the same period last year it’s 38 per cent.

But why put cash in the CSE?

That’s due to most shares at the CSE trading at 4x their price to Earnings Ratio (PER) which has made these bargain counters for foreign investors. Foreign fund managers say that CSE is a good investment this year owing to superior earnings projections, low valuations and the potential for better earnings.

From January 1 to 8 February, foreigners bought Rs. 7.67 billion and sold Rs. 8.63 billion. While the net outflow is Rs. 1.026 billion, analysts note that some foreign selling was done to foreigners themselves.

Analysts say that a considerable foreign play was done by Norway’s $830 billion sovereign wealth fund, locally managed by Lynear Wealth Management. The fund has been increasing its focus on emerging countries but only has about 4 per cent of its assets managed externally. Negotiated deals were recorded in many counters early this month – mostly blue chips and mid-caps bought by foreign funds — Hatton National Bank (0.7 million shares at Rs. 227) and Commercial Bank (0.2 million shares at RS. 145). The aggregate value of crossings accounted for 45 per cent of the turnover. Subsequent to its scrip dividend announcement, Sampath Bank attracted high investor preference where stock price increased to Rs. 267 up by 0.8 per cent.

On February 2, foreign investors stood on the ‘buy’ side with a net foreign inflow of Rs. 90 million. Net foreign inflows were seen in Commercial Bank at Rs. 29 million, Sampath at Rs. 29 million, Melstacorp at Rs. 17 million while net foreign outflows was mainly seen in Seylan Bank (Rs. 5 million). Foreign participation was 66 per cent.

Hemas Holdings saw 2.8 million shares crossed at Rs. 104 on February 2. Its main buyer in 3Q17 was Morgan Stanley and Co: International PLC. But Franklin Templeton Investment Funds had reduced its position in Hemas during the same period.

Overseas Realty Rights Issue saw a 24 per cent acquisition by Jilansu Tao Shing Pee Education Foundation on February 3. Foreign investors were net buyers with a new foreign inflow of Rs. 27 million on this day and net foreign inflows were mainly seen in Sampath Bank Rs. 35 million, Melstacorp Rs. 13 million and Tokyo Cement non-voting Rs. 12 million. That following Monday foreign investor activity accounted for 47 per cent of the turnover.

The day after foreign investors stood on the ‘buy’ side with a net foreign inflow of Rs. 111 million. Net foreign inflows were seen in John Keells Holdings (JKH) Rs. 51 million, Hemas Holdings Rs. 30 million, and Nestle Rs. 28 million while net foreign outflow was mainly seen in National Development Bank Rs. 4 million. Foreign participation was 52 per cent that day. On February 8 foreign investors were net buyers with a net foreign inflow of Rs. 152 million. Net foreign inflows were seen in JKH (Rs. 103 million), Sampath Bank (Rs. 49 million) and Melstacorp (Rs. 10 million). Net foreign outflow was mainly seen in Hatton National Bank (Rs. 17 million). Foreign participation was 33 per cent.

On February 13, foreign investors were net buyers with a net foreign inflow of Rs. 333.33 million foreign participation was 61 per cent. Let’s hope this trend co continues.

Price controls hit Sri Lanka IOC unit as crude, taxes rise

ECONOMYNEXT - Sri Lanka's Indian Oil Corporation said December quarter profits fell to 80 percent to 257.5 million rupees in the December 2017 quarter from a year earlier, as taxes rose amid price control, interim accounts show.

Profits plunged 82 percent from 1,461 in the September quarter.

The firm reported earnings of 0.48 cents per share for the quarter.

Crude prices which fell to unusual lows of around 38 dollars a barrel in the first quarter of 2016 had risen to around 50 dollars by the fourth quarter with a steep increase taking place in the last quarter, data shows.

Revenues rose to 20.5 billion rupees in the December quarter from 18.1 billion rupees a year earlier, while cost of sales rose to 19.2 billion rupees, from 16.44 billion rupees.

Gross profit fell to 1.2 billion rupees from 1.7 billion rupees.

By end September the firm had 12 billion rupees of inventory, which had reduced to 8.0 billion rupees by December.

The firm said in August customs duty was increased by 6.0 rupees a litre in June 201 and excise import duty by 10 rupees in August.

Sri Lanka was supposed to have a price formula in place by December 2016 to prevent the economy and the rupee and the economy from being hit by credit taken to cover losses, but it did not happen.

Piramal Glass Sri Lanka unit December net up 22-pct

ECONOMYNEXT – Piramal Glass Ceylon said net profit rose 21.7 percent to Rs202 million from a year ago in the December 2016 quarter, the first quarter in operation after a two-month shutdown to upgrade its furnace.

The Sri Lankan container glassmaker's December quarter sales grew 11 percen to almost Rs2 billion over the period, with growth mainly from the domestic market.

Earnings per share for the quarter were 21 cents, according to interim accounts filed with the stock exchange. The share was last traded at Rs5.50.

EPS for the nine months ending 31 December 2016 were 29 cents, with net profit down 39 percent to Rs276 million from the previous year.

A statement said sales grew 6 percent to Rs5.1 billion over the period, with 7 percent growth in domestic sales and a 3 percent increase in export sales.

“During the year, the company’s export portfolio has showed a marked increase in its sales to USA,” it said.

Piramal Glass Ceylon said nine month profits were lower because of higher borrowing costs, the plant closure, and reliance on lower-margin trading and rising gas prices.

“The long-term loan interest cost has yet again started rising from this quarter onwards due to the long-term loan of Rs3 billion obtained for the relining,” it said.

“The plant was inoperative for two months due to relining and hence a major portion of domestic sales were done through trading. Although margins are low, we were compelled to resort to trading to ensure continuity of supply to our customers,” the company said. “The continuous upward trend of LPG prices has a major impact on the cost of production.”

Sri Lanka’s Softlogic December net down 33-pct, sales sluggish, costs up

ECONOMYNEXT – Sri Lanka’s Softlogic Holdings group said December 2016 quarter net profit fell 33 percent to Rs151 million from a year ago, with finance costs almost doubling as interest rates rose along with higher marketing expenses for new operations.

Group sales were stagnant at Rs15.7 billion over the period, according to interim accounts filed with the stock exchange.

Finance costs almost doubled during the quarter as interest rates rose, while there was an increase in operating costs owing to the opening of te new Mövenpick City Hotel and marketing costs of new ventures.

The accounts showed that Softlogic group’s Information & Communication Technology business profit doubled during the December quarter and retail business profits improved. But the group’s healthcare services and financial services earnings were sharply lower, the automobile business loss was slightly lower, and leisure sector losses narrowed.

December quarter earnings per share were 20 cents. The share last traded at Rs12.40.

In the nine months to 31 December 2016, EPS was 45 cents with net profit down 18 percent to Rs347 million, while sales went up 10 percent to Rs45 billion.

Softlogic Chairman Ashok Pathirage said the group’s outlook has “tremendous potential for increasing its overall value substantially through its strategic investments in growing sectors of the economy.”

He said the opening of the Mövenpick City Hotel, a substantial investment of the group, received rave reviews from the industry and was the first new five-star luxury hotel to operate after almost three decades in Colombo.

“ODEL Mall will commence in the near future, so its unrivalled leadership in retailing would take the country to its next level of consumerism and lifestyle improvements,” Pathirage said.

He said the group faced economic challenges like rising interest and tax rates, and falling consumer confidence, which affected retail and services.

Pathirage said group December quarter sales were stagnant “primarily due to the group’s substantial downsizing of ‘Nokia’ operations.”

Sri Lanka's Melstacorp December net down 7-pct

ECONOMYNEXT - Melstacorp Limited, a diversified group that controls Sri Lanka's largest hard alcohol maker, said December 2016 quarter net profit fell 7 percent to Rs1.67 billion from a year ago.
Sales rose 17 percent to Rs27.5 billion over the period, according to the group’s first set of interim accounts, as the listed company filed with the Colombo Stock Exchange.

The accounts showed a sharp hike in finance and tax costs during the quarter, with earnings per share at Rs1.34. The share was trading at Rs65 at mid-day Friday. EPS for the nine months ended 31 December 2016 was Rs4.66, with net profit up 16 percent to Rs5.78 billion and sales up 29 percent to Rs81.9 billion.

The group’s liquor business continued to dominate sales and profits with its plantations and mobile phone units making losses and lower earnings from its financial services and diversified sectors.

Melstacorp is now the holding company of Distilleries Corporation of Sri Lanka, following a share swap in which former Distilleries stockholders were issued Melstacorp shares.

Sri Lanka’s Namunukula Plantations December net up 170-pct

ECONOMYNEXT – December 2016 quarter net profit of Sri Lanka’s Namunukula Plantations shot up 170% to Rs90 million from a year ago as palm oil prices remained high on production shortfalls.

Sales rose 41% to Rs629 million over the period, according to interim results filed with the stock exchange.

Quarterly earnings per share were Rs3.78. The share last traded at Rs86.90.

In the nine months to 31 December 2016, EPS was Rs13.85 with net profit up 231% to Rs329 million while sales rose 33% to Rs1.89 billion from the year before.

Namunukula Plantations, part of the Richard Pieris & Company group, has a diversified crop base and cultivates tea, rubber, oil palm, coconut and cinnamon.

Namunukula Plantations’ losses from the tea business narrowed to Rs73 million from Rs161 million while losses from rubber grew to Rs53 million from Rs34 million.

The firm’s oil palm profits rose 73% to Rs508 million while coconut generated a small profit and cinnamon cultivation a loss, according to the accounts.

Namunukula Plantations has a stake in the AEN Palm Oil Processing (Pvt.) Ltd. joint venture with Agalawatta Plantations and Elpitiya Plantations.

Sri Lanka Telecom's outlook changed to stable, sales slowdown seen

ECONOMYNEXT - Fitch Ratings said it has changed the outlook on Sri Lanka Telecom's (SLT) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to stable from negative and confirmed the IDRs at 'B+'.

The dominant fixed line operator’s sales growth are likely to slow down after tax hikes, the rating agency said in a statement.

The rating actions follow the outlook revision on Sri Lanka's sovereign ratings to stable from negative on 9 February 2017.

The agency also affirmed SLT's National Long-Term Rating at 'AAA(lka)' with a stable outlook.

The full statement follows:

Fitch Ratings-Singapore/Colombo-14 February 2017: Fitch Ratings has revised the Outlook on Sri Lanka Telecom PLC's (SLT) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to Stable from Negative and affirmed the IDRs at 'B+'.

The rating actions follow the Outlook revision on Sri Lanka's Long-Term Foreign- and Local-Currency IDRs to Stable from Negative on 9 February 2017. The agency also affirmed SLT's National Long-Term Rating at 'AAA(lka)' with a Stable Outlook.

KEY RATING DRIVERS

Ratings Constrained by Sovereign: SLT's IDRs are constrained by the sovereign's IDRs of 'B+', as the government directly and indirectly holds a majority stake in SLT and exercises significant influence on its operating and financial profile. Therefore the Outlook has been revised to Stable, following the revision of the sovereign Outlook to Stable. SLT's second-biggest shareholder, Malaysia's Usaha Tegas - which owns 44.9% of SLT - does not have any special provisions in its shareholder agreement that dilute the government's significant influence over SLT.

Negative FCF, Large Capex: We expect SLT to have negative FCF in 2017-2018 (2016 estimated FCF deficit: LKR7bn-8bn), as cash flow from operations will be insufficient to fund its large capex plan. We expect SLT to invest about LKR20bn-22bn, or 28%-30% of revenue, in capex each year to expand its optical fibre and 3G/4G mobile networks.

Taxes Hinder Growth: We expect SLT's revenue growth to slow to 2%-3% in 2017 (2016 estimated: 9%), as consumers will likely curb usage due to the reintroduction of value-added tax and nation-building tax on telecom services from November 2016. The effective tax rate for voice and SMS services increased to about 50%, from 28%. The effective tax on data services increased to 32% from 12%, and will further increase to 50% when the telecommunications levy increase becomes effective from April 2017. Revenue growth from increased use of data services is likely to be more than offset by declines in revenue from fixed-voice, code division multiple access and international operations.

We forecast SLT's EBITDA margin to narrow by about 50bp over 2017-2018, from an estimated 29% in 2016, as improving profitability of fixed-broadband and mobile internet usage will only partly offset margin erosion from a change in revenue mix and the tax hikes.

Solid Market Position: SLT's ratings are underpinned by its market-leading position in the fixed-line services and second-largest position in the mobile market, along with its ownership of the country's extensive optical fibre network. The company benefits from a diverse service offering, which includes fixed-voice, broadband, mobile, pay-tv, enterprise, international terminations and international data services. We believe SLT's market position will strengthen from its planned mobile and fibre infrastructure expansion.

Market Consolidation, M&A Risk: We believe some industry consolidation is likely with ongoing intense competition - especially in the mobile segment where there are five operators, of which the smaller operators are unprofitable, and all of them face still-high investment requirements. SLT's National Long-Term Rating could come under pressure if it were to do a debt-funded acquisition of a smaller operator; any rating action will be based on the acquisition price, funding structure and the financial and operating profile of the combined entity. The international ratings, which are constrained by the sovereign ratings, have sufficient headroom to absorb a debt-funded acquisition.

DERIVATION SUMMARY

SLT's Foreign-Currency and Local-Currency IDRs are constrained by Sri Lanka's IDRs of 'B+', given the government's ownership and significant influence on its operating and financial profile. SLT's National Long-Term Rating is based on a relative comparison of domestic peers. SLT has a lower exposure to the crowded mobile market and more diverse service platforms than Sri Lanka's mobile market-leader, Dialog Axiata PLC (AAA(lka)/Stable). Distilleries Company of Sri Lanka PLC (DIST, AAA(lka)/Rating Watch Negative) faces high regulatory risk, with frequent excise tax hikes. However, it benefits from a higher EBITDAR margin and stronger FCF generation than SLT. SLT's estimated 2016 FFO-adjusted net leverage of 1.5x is broadly similar to that of Dialog Axiata and DIST.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:

- Slower revenue growth of 2%-3% in 2017 (2016: 9%) on higher taxes.

- Growth to recover from 2018 to a mid-single-digit percentage, driven by fixed-broadband and mobile data services.

- Operating EBITDAR margin to fall by about 50bp in 2017-2018, due to a change in revenue mix and higher taxes.

- Capex/revenue to remain high around 28%-30%, as SLT expands it fibre and 3G/4G networks.

- Dividend payout to remain similar to 2016, at LKR1.6bn.

- Negative FCF during 2017-2018, resulting in gradual increase in FFO-adjusted net leverage.

RATING SENSITIVITIES

Developments that may, individually or collectively, lead to positive rating action include:

-A change in Sri Lanka's IDRs will result in a corresponding action on SLT's IDRs.

-A weakening of links between SLT and the sovereign could result in SLT's Local-Currency IDR being upgraded above Sri Lanka's Local-Currency IDR. However, SLT's Foreign-Currency IDR will remain constrained by the Country Ceiling of 'B+'.

Developments that may, individually or collectively, lead to negative rating action include:

- A downgrade in Sri Lanka's IDRs will result in a corresponding action on SLT's IDRs.

- A debt-funded acquisition of a smaller operator could threaten SLT's National Long-Term Rating, depending on the acquisition price and the financial profile of the combined entity.

LIQUIDITY

Solid Access to Capital: Cash of LKR5.8bn and committed undrawn bank lines of LKR7.9bn were insufficient to fund its short-term debt of LKR12.7bn and annual FCF deficit of LKR3bn-5bn. However, SLT is in the process of raising LKR6bn to refinance its short-term debt and has demonstrated a solid record of accessing capital from local banks and capital markets.

Fitch upgrades Sri Lanka Insurance Corp's outlook to stable

ECONOMYNEXT – Fitch Ratings said it has revised the outlook on Sri Lanka Insurance Corporation's (SLIC) Insurer Financial Strength (IFS) rating to stable from negative, and confirmed the IFS rating at 'B+'.

The rating action follows the revision of the outlook on Sri Lanka's Long-Term Local-Currency Issuer Default Rating (IDR) to stable from negative and the confirmation of the rating at 'B+' on 9 Feburary 2017, a statement said.

SLIC's IFS rating is constrained by Sri Lanka's Long-Term Local-Currency IDR and the Negative Outlook reflects the Negative Outlook on Sri Lanka's IDR, it said.

The rating review does not include SLIC's 'AA(lka)' National Long-Term Rating and 'AA(lka)' National IFS rating.

Fitch said SLIC's ratings reflect its established franchise and market position in Sri Lanka, 99.9%-state ownership and importance to the government as the largest state-owned insurer.

“Offsetting these strengths are significant investments in non-core subsidiaries and a high equity exposure, which weighs on its risk-based capital,” it said.

If the sovereign ratings are upgraded in the future, and the constraints on SLIC's IFS rating are relieved, Fitch said it would take similar rating action on SLIC's IFS rating.

Conversely, a downgrade of Sri Lanka's ratings will lead to downgrade of SLIC's IFS rating.

Fitch said the IFS rating may also be downgraded if there is:

- Significant weakening in SLIC's market position.

- Deterioration in the non-life combined ratio to above 100% on a sustained basis.

- Weakening in SLIC's importance to the government, increased pressure from the state for higher dividend

payouts or a significant increase in non-core investments.

Sri Lanka beers sales plunge 40-pct, arrack up after tax hike: brewery

ECONOMYNEXT - Sri Lanka's beer sales volumes have plunged 40 percent and arrack sales have risen 14 percent after a steep hike in beer taxes, while toddy industry which pays little taxes are also making gains, the brewer has warned.

Lion Beer, which produces Lion and Carlsberg brands said beer taxes were raised 70 percent and taxes on arrack, a hard alcohol was raised 25 percent, leading to a shift in demand.

The firm said beer which has an alcohol content of around 5 percent or higher is taxed at 315 rupees a litre while toddy which also has a similar alcohol content is only taxed at 50 rupees a litre.

"As a result, consumers are shifting in large numbers to toddy," Lion Beer said.

"In revenue terms too, the Government is losing out since available data clearly indicates that this industry is a habitual tax evader."

"If the intention of the steep tax increase on beer was to reduce consumption of legally made alcobevs, it has not worked since arrack volumes have grown to compensate."

Lion Beer claimed that toddy is made from mixing chemicals under unhygienic conditions.

"In reality, what is currently sold as toddy is not fit for human consumption. Yet, its sale is encouraged by the application of a preferential tax."

A 10 and 15 rupee tax was also levied on cans from November.

"Again the objective is not clear. Why only beer cans?," the firm asked.

"If the intention was to protect the environment, why not on similar packaging of other products including beverages?

"Irrational policy measures of this nature scare away all investors – not just brewers – and at a time when the Country is seeking to expand its manufacturing base, this is counter-productive."

The taxes however are expected to help boost sales of 'quarter' bottle arrack, and bring back to the alcohol market, working class consumers who had started to consume 'strong' beer, analysts familiar with the market say.

However Lion Beer said the government had helped the firm import beer paying the same domestic manufacturing taxes, after its factory was damaged by floods.

The move had helped keep the product flowing, though imports cost more and margins were lower.

The firm was also in talks to get a 2.0 billion rupees insurance claim, of which a billion had already been received.

The factory was re-started from November but was fully operational only in late December, the firm said.
Lion Brewery said revenues fell 35 percent to 5.3 billion rupees in the December quarter from a year earlier and profits fell 29 percent to 327 million rupees. It reported earnings of 4.0 rupees per share for the quarter.

In the nine months to December the firm lost 613 million rupees, compared to profits of 1.7 billion rupees a year earlier.

Sri Lanka’s Haycarb December net profit up 23-pct

ECONOMYNEXT – Sri Lankan coconut shell-based activated carbon manufacturer Haycarb said December 2016 quarter net profit rose 23.3% to Rs210 million from a year ago despite difficulties in securing raw material owing to bad weather.

Group sales rose 21% to Rs3.5 billion over the same period, according to interim accounts filed with the stock exchange.

Earnings per share for the December quarter were Rs7.08. The share was last traded at Rs150.

EPS for the nine months ending December 2016 were Rs17.08 with net profit up 19% to Rs507 million and sales up 12% to Rs9.4 billion.

Haycarb Managing Director Rajitha Kariyawasan said that the company continued to face challenges in some locations due to the shortage of charcoal that was driven by adverse weather conditions that prevailed in 2016.

“However, the company’s initiatives to strengthen raw material supply chain networks in other key locations contributed to sustaining charcoal supplies to support the group’s growing demand,” a statement said.

“The company continues to invest in acquisition of new customer accounts and product segments backed by continued focus on product development and commercialization of value added products that shows positive results,” Kariyawasan said.

“We also continued to expand sales volumes globally in our key markets. The challenges of cost increases were partially offset through lean and productivity improvement measures that resulted in increased efficiencies in processes and supply chain.”

Haycarb’s Environmental Engineering arm, Puritas (Pvt.) Ltd., continued to make steady progress increasing its regional presence and is expected to continue its growth momentum, Kariyawasan said.

Sri Lankan brush maker to list on stock exchange

ECONOMYNEXT – B P P L Holdings Ltd., a Sri Lankan brush manufacturer and supplier of other cleaning products, has got approval from the Colombo Stock Exchange to list on the Diri Savi second board.

The firm, also known as Beira Group, will issue 30.68 million ordinary shares at Rs12 each, with the offer opening on 7 March 2017, a statement said.

The prospectus will be available on 22 February. The share issue is managed by CT CLSA Capital (Pvt) Ltd.

According to the Beira Group website, the company claims to be Sri Lanka’s largest brush manufacturer and exporter of sanitary maintenance tools, with over 30 years of experience.

Its products like brushes, brooms, banisters, dusters and scrubs are made for household, professional, commercial and industrial cleaning applications.

Sri Lanka’s Serendib Leisure Hotels December net down 12-pct

ECONOMYNEXT – Sri Lanka’s Serendib Leisure Hotels group said December 2016 quarter net profit fell 12 percent to Rs33 million from a year ago and that the last quarter would be highly competitive, with more room inventory and weaker currencies of key markets.

Sales of the firm, part of the Hemas group, fell 2 percent to Rs436 million, according to interim accounts filed with the stock exchange.

Earnings per share for the December quarter were 29 cents.

EPS for the nine months ending 31 December 2016 were 22 cents, down from 47 cents the year before when net profit had halved to Rs24 million, with sales up 3 percent to Rs1.2 billion.

“With an increased room inventory, particularly in the regions that we operate, we anticipate a highly competitive final quarter for the current financial year,” a statement said.

“Our revenue will be under further pressure with a weak outlook on the euro and the Sterling Pound, the currencies of our key markets. With a focused effort on sales and marketing, we expect to close the year with good results for the final quarter.”

The Serendib Leisure Hotels group comprises Serendib Hotels and its subsidiaries Dolphin Hotels, Hotel Sigiriya and Serendib Leisure Management Ltd.

The Serendib group had an overall occupancy of 73 percent for the nine month period, and a drop of 3 percent over last year, the statement said.

“The increase in overheads and reduction in exchange gains compared to last year resulted in a reduction in operating profit by 40 percent to Rs88 million,” it said. “Notably, the repayment of debt has reduced our finance costs by 46 percent to Rs11 million by the end of Q3.”

Serendib Leisure Hotels said that, with the partial closure of the Bandaranaike International Airport from 6th January to 6th April 2017 for repairs, a drop of 12-13 percent in flight capacity is anticipated.

“However, we do not expect occupancy levels at our hotels to be significantly affected,” it said.

The group under the Serendib Leisure umbrella currently manages AVANI Bentota Resort & Spa, AVANI Kalutara Resort, Club Hotel Dolphin and Hotel Sigiriya, with a consolidated inventory of 413 keys, a statement said.

Jada Resorts & Spa (Pvt) Ltd., the owning company of AVANI Kalutara is treated as an investment, and its operating results are not reflected in the results of Serendib Hotels.

Sri Lanka’s Bogala Graphite December net doubles to Rs24mn

ECONOMYNEXT – Sri Lanka's Bogala Graphite said net profit for the December 2016 quarter rose 95 percent to Rs24.2 million from a year ago.

Sales of Bogala Graphite Lanka, controlled by Germany's Graphit Kropfmuhl Gmbh, rose 12.3 percent to Rs174 million over the period, according to interim accounts filed with the stock exchange.

Earnings per share for the quarter were 26 cents. The share was last traded at Rs13.20.

EPS for the year ended 31 December 2016 were 78 cents, with net profit at Rs74 million and sales at Rs583 million, up 21 percent from the year before.

Sri Lanka’s Aitken Spence December quarter net up 36-pct

ECONOMYNEXT – Sri Lanka's Aitken Spence said group net profit for the December 2016 quarter rose 36.4 percent to Rs870 million from a year ago.

Sales of the conglomerate rose 102 percent to Rs13.1 billion over the period, according to interim accounts filed with the stock exchange.

Earnings per share for the quarter were Rs2.14. The share was last traded at Rs60.

EPS for the nine months to 31 December 2016 were Rs4.09, with net profit up 17 percent to Rs1.66 billion and sales up 69 percent to Rs30.5 billion.

Tourism business profits fell sharply, while there was strong growth in maritime and logistics sector earnings, the accounts showed. Finance costs were much higher.

“The Maritime and Logistics, Services and Strategic Investments sectors all showed positive growth figures, contributing to the bottomline gain during the reporting period,” a company statement said.

“Growth in the Strategic Investments sector was driven by the power generation, plantations and printing segments, while the elevator agency segment helped the Services sector performance. The Maritime & Logistics sector benefited from growth in port management services, the education segment and the addition of a new freight forwarding representation,” the statement said.

“Unfavourable market conditions in foreign markets, particularly the Maldives and India, and the high cost of finance have negatively contributed towards a challenging period for the tourism sector, despite topline growth.”

Aitken Spence group said the addition of RIU Sri Lanka in Ahungalla, Al Falaj Hotel (Oman), TuryaaChennai and the new wing of Turyaa Kalutara contributed to the rise in revenue.

“We have seen growth in revenue, and more significantly contributions from some of our new investments to the group's topline, which is a healthy indicator of the performance of those investments,” Deputy Chairman and Managing Director of Aitken Spence J M S Brito said.

“Most of the group’s key sectors have experienced positive growth in the third quarter. We are also confident that the tourism sector will rebound across the various geographical markets and that the new investments we made will continue to pay off in the coming years,” he said.

Sri Lanka's Sunshine Holdings hit by pharma price controls

ECONOMYNEXT - Sri Lanka's Sunshine Holdings Plc said profits in its healthcare business fell 66 percent to Rs91 million in the nine months ended December 2016 due to price controls imposed by the state.

Revenues grew 10.5 percent, with 4.1 percent coming from retail sales, the group said. Margins fell 4.3 percent to 3.3 percent mainly due to price controls, which led to a write down of Rs123 million in stock.

The firm said it was the second-largest player in the pharma sector in the country with a 12 percent market share.

Revenues in pharmaceuticals had grown 6 percent from a year earlier, while surgical grew 19 percent, retail 34 percent, diagnostics 6 percent and wellness 16 percent.

The firm also has interests in agriculture and fast moving consumer goods.

Group revenues grew 3.2 percent to Rs4.42 billion in the December quarter, with profit after tax growing 3.2 percent to Rs402 million, helped by agriculture, especially palm oil.

Its branded tea sales were also growing.

Sri Lanka’s Aitken Spence Hotel Holdings December net up 7.8-pct

ECONOMYNEXT – Sri Lanka’s Aitken Spence Hotel Holdings said December 2016 quarter net profit rose 7.8 percent to Rs405 million from year ago.

Sales during the December quarter rose 32 percent to Rs4.4 billion over the period, according to interim resulrs filed with the stock exchange.

Earnings per share for the quarter were Rs1.19. Aitken Spence Hotel Holdings' share was traded at Rs40.10 during mid-day Tuesday.

Aitken Spence Hotel Holdings’ EPS for the nine months ended 31st December 2016 was 14 cents, with net profit down 93 percent to Rs57 million, while sales rose 17 percent to Rs10.4 billion.

The accounts showed that the group’s Sri Lankan hotels made a pre-tax loss of Rs18 million compared with Rs536 million pre-tax profit the year before.

The group’s South Asian and Middle East sector pre-tax profit halved to Rs452 million from Rs921 million the year before

Six months of the period under review related to the off season of the tourism industry both in Sri Lanka and overseas, where the group operates, a note to the accounts said.

Sri Lanka's Dialog Axiata December net doubles to Rs1.25bn

ECONOMYNEXT - Sri Lankan celco Dialog Axiata said December 2016 quarter net profit rose 102% to Rs1.25 billion from a year ago but was much lower than the previous quarter after a tax hike slowed sales and earnings growth.

Group sales in the quarter grew 13.7% to Rs22.8 billion, according to interim accounts filed with the stock exchange.

Dialog Axiata's net profit in the September 2016 quarter was Rs2.8 billion.

Earnings per share for the quarter were 15 cents. The share was last traded at Rs10.60.

EPS for the financial year ending 31 December 2016 were Rs1.11 with net profit up 74% to Rs9 billion and sales up 17% to Rs87 billion.

The accounts showed continued losses in the Dialog Axiata group’s television and broadband businesses.

A statement accompanying the accounts said Dialog Television (DTV) continued its “positive growth momentum, recording a revenue growth of 5% YoY and QoQ to reach Rs6.1 billion for FY 2016 and Rs1.5Bn for Q4 2016.

“Notwithstanding revenue growth, EBITDA (earnings before interest, taxes, depreciation, and amortization) contracted by 37% YoY to Rs383 million, due to direct cost expansion accruing from product enhancements featuring the expansion of channel genres.

“ . . . on a QoQ basis, EBITDA contracted 24%. The decline in EBITDA translated to an equivalent negative impact on NPAT leading to a net loss of Rs644 million for FY 2016 and a net loss of Rs298 million for Q4 2016,” the statement said.

Dialog Broadband Networks (DBN) sales grew 28% to Rs9.3 billion for FY 2016 and 7% to Rs2.6 billion in Q4 2016.

“Downstream of strong revenue performance, DBN EBITDA for FY 2016 was recorded at Rs4.0 billion and Rs1.2 billion in Q4 2016, representing an increase of 39% YoY and 25% QoQ respectively,” the statement said.

“DBN's net loss for FY 2016 increased to Rs385 million relative to the net loss of Rs133 million recorded in FY 2015 underpinned by the higher depreciation and finance cost.”

The statement said the 4th Quarter featured the re-introduction of Value Added Tax (VAT) effective 1st November 2016, which moderated revenue growth to 5% Quarter-on-Quarter to reach Rs22.8 billion.

"On a QoQ basis EBITDA declined 4% to post at Rs7.4 billion."

Dialog Axiata said group net profit declined 56% QoQ to be Rs1.3 billion for Q4 2016 due to lower EBITDA combined with increased depreciation and higher non-cash translational forex losses.

Sri Lanka Renuka Holdings December net profit up sharply to Rs135mn

ECONOMYNEXT - Sri Lanka’s Renuka Holdings said December 2016 quarter net profit shot up 659% to Rs135 million from a year ago.

Group sales rose 12.7% to Rs2.4 billion over the period, according to interim accounts filed with the stock exchange.

Earnings per share for the quarter were Rs1.33. the company shares were last traded at Rs21 in Thursday afternoon trade.

Renuka Holdings EPS for the nine months ending December 2016 were Rs7.15 with net profit up 242% to Rs728 million and sales up 6% to Rs6.3 billion.

The accounts showed the group’s agribusiness sales and profits were lower while fast moving consumer goods sales were higher but profits down.

In a note accompanying the accounts Executive Director Shamindra Rajiyah said the group’s Property Sector reported a net profit of Rs510 million for the period ended 31st December 2016 which includes the revaluation of investment property of Rs426 million.

Sri Lanka Taj Samudra Hotel December net profit down 63-pct

ECONOMYNEXT – December 2016 quarter net profit of Sri Lanka’s Taj Samudra Hotel, part of India’s Taj hotels group, fell 63% to Rs13 million from a year ago.

Sales of Taj Samudra, owned and operated by TAL Lanka Hotels, connected to India's Taj Hotels group, rose 5% to Rs778 million, according to interim accounts filed with the stock exchange.

December quarter earnings per share of Taj Samudra were nine cents. The share last traded at Rs24.90.

EPS was 75 cents for the nine months ending December 2016 with net profit at Rs105 million against a loss of Rs89 million the year before and sales up 8% to Rs2.1 billion.

Sri Lanka’s Odel December net profit down 61-pct

ECONOMYNEXT –Sri Lankan retailer Odel said December 2016 quarter net profit fell 61% to Rs60 million from a year ago.

December quarter sales rose 6% to Rs1.9 billion over the same period, according to interim accounts filed with the stock exchange.

The accounts showed much higher administrative expenses and finance costs.

Quarterly earnings per share of Odel, part of the Softlogic group, were 22 cents. The share was trading at Rs21.80 in mid-morning trade Thursday.

In the nine months ending December 2016, EPS was 62 cents with net profit down 31% to Rs170 million while sales rose 8.3% to Rs5.2 billion.

Sri Lanka's Multi Finance capitalized by Fairway Holdings

ECONOMYNEXT - Fairway Holdings (Pvt) Ltd, a property developer will inject 550 million rupees to capitalize Multi Finance Plc, a firm controlled by controversial Entrust group which has seen a run on deposits.

Fairway will buy 41.1 million shares at 13.40 rupees injecting 550.87 million rupees to the company under a deal backed by the Central Bank, which regulates registered finance companies, the firm said in a stock exchange filing.

Current majority shareholders Entrust Holdings Ltd and Entrust Ltd, which failed to capitalize the firm until now, has been prohibited by the regulator, from taking part in the current share placement following irregularities in the group.

A primary dealer in the Entrust group is under a criminal investigation.

Other minority shareholders would be allowed to buy 7.39 million shares offered as part of the recapitalization plan.

Following the capital injection a deposit and borrowing ceiling imposed on the firm by the central bank will be removed.

Sri Lanka’s Hemas Group Dec quarter profit flat

ECONOMYNEXT – Sri Lanka’s Hemas Holdings said December 2016 quarter group net profit was virtually flat at Rs864 million compared with a year ago with tax hikes hurting its healthcare business while logistics and maritime sector earnings surged.

December 2016 quarter sales grew 14.4% to Rs11.3 billion from a year ago, according to interim results filed with the stock exchange.

The group’s fast moving consumer goods and health care business profits were down slightly in the December quarter, profits from the leisure sector went up slightly while earnings from the logistics and maritime business rose 340% up to Rs101 million.

Diluted quarterly earnings per share were Rs1.51. The Hemas share was last traded at Rs104.50.

For the nine months ending December 2016, Hemas reported diluted EPS were Rs4.20 with group sales up 12.9 percent to Rs31.9 billion and net profit up 26.1% to Rs2.4 billion.

Hemas group chief executive Steven Enderby said the firm faced "increasingly challenging operating conditions across most sectors" in the December quarter.

"We anticipate a challenging last quarter for our businesses with the latest developments in the macroeconomic context," he added.

"Increasing VAT (value added tax) rates and the introduction of VAT at hospitals, new pharmaceutical pricing regulation, and increasing inflation have impacted Q3 profitability," he said.

"During the last quarter, healthcare sector experienced challenges arising from new pharmaceutical price regulation and the introduction of VAT on specified hospital services," he said.

But Hemas group pharmaceutical distribution operation recorded a “solid performance” over last year with an increased volume growth, Emderby said.

"Our hospitals also delivered good growth over last year with its latest investments in bed expansion in Hemas Hospital Wattala and a range of new surgical specialties and medical equipment."

Hemas group also saw higher sales and distribution costs in Bangladesh as it grow its operations there.

Hemas also had continued losses at its new hotel, Anantara Peace Haven Resort in Tangalle, its joint venture with Thailand’s Minor Group, although performance was helped by more tourist arrivals in the December quarter, the start of the peak season, Enderby said.

N*Able, the information technology arm of Hemas, performed behind last year, Enderby said.

The growth in Hemas group logistics and maritime business was driven by its new maritime agency for the Evergreen shipping line.

Sri Lanka's Sierra Cables December quarter net up 28-pct

ECONOMYNEXT - Sri Lanka's Sierra Cables, which has been expanding into Africa and the Pacific islands, said December 2016 quarter group net profit rose 28% to Rs81 million from a year ago.

Sales for the quarter rose 51% to Rs1.1 billion, according to interim accounts filed with the stock exchange.

Basic Earnings Per Share for the quarter were 15 cents up from 12 cents a year ago. The share was last traded Rs3.50

EPS in the nine months to December 2016 rose to 49 cents from 41 cents the year before with net profit up 21% to Rs265 million and sales rising 30% to Rs3 billion.

The Sierra group subsidiaries are Sierra Industries (Private) Limited, Sierra Power (Private) Limited, Sierra East Africa Ltd and Associate Companies T & G Lanka (Private) Limited and Tea Leaf Resorts (Private) Limited.

Sierra Cables has set up plant in Kenya to supply transmission and distribution cables to East African countries and plans to set up a joint venture power cable factory in Fiji, with three other partners, where the firm will own a 30 percent stake.

Sri Lanka’s J L Morisons to invest $13.5mn in pharma plant

ECONOMYNEXT – Sri Lanka’s J L Morisons Son & Jones (Ceylon) PLC said it plans to invest $13.5 million to build a new pharmaceutical manufacturing plant.

The company, a unit of the Hemas Holdings group, said in a stock exchange filing that commercial operations of the plant are expected to start in 2019.

“This research and manufacturing facility will be located within the Sri Lanka Institute of Nanotechnology park in Pitipana, Homagama,” it said. “The proposed plant will significantly enhance the manufacturing capacity of the company, while complying with global regulatory standards.”

Sri Lanka's Laugfs in the red as LPG costs soar amid price controls

ECONOMYNEXT - Sri Lanka's Laugfs said it lost Rs185 million in the December 2016 quarter against a profit of Rs293 million a year earlier, as liquefied gas prices soared and it was seeking a price hike from authorities.

The group, which also has interests in tourism, reported losses of 46 cents per share. In the nine months to December, it reported earnings of 28 cents per share on total profits of Rs120 million.

However, finance costs also rose to Rs403 million from Rs186 million.

"Significant increases in LPG prices in the world market have had a substantial negative impact on our bottomline compared to the corresponding period last year," Laugfs Chairman W K H Wagapitiya told shareholders.

"However, in order to effectively counteract the impacts of these global trends, we have already engaged with the relevant stakeholders for a realignment of prices. While some of our long-term investments have also had a significant negative impact on our financial results, we remain positive and confident of the long-term returns these will yield."

Sri Lanka had a price formula for LGP during the last administration, which protected distributors, the rupee and the credit system by matching domestic demand with imports.

However, the current administration had mandated a series of price reductions outside the formula.

Over the last quarter, both propane and butane prices, which make up LPG, have soared.

The price of $295 a metric tonne in September 2016 had soared to $510 by February 2017. Butane had shot up from $320 a tonne to $600 in the same period.

Crude prices have also recovered from unusually low prices in the first quarter of 2016.