Sri Lanka’s 03-month Treasury Bill yield falls to 8.54-pct

ECONOMYNEXT – Sri Lanka's 03-month treasury Bill yield fell 13 basis points to 8.54 percent at this week’s auction from 8.67 percent last week, the public debt department of the central bank said.

The 06-month bill yield fell 09 basis points to 8.93 percent from 9.02 percent, it said in a statement.

The 01-year bill yield rose 02 basis points to 9.46 percent from 9.44 percent last week.

The public debt department received Rs62 billion worth of bids and accepted bids worth Rs20 billion.

Sri Lankan stocks hit 7-week closing low; John Keells drags

Reuters: Sri Lankan shares fell for a fifth straight session on Wednesday, posting their lowest close in seven weeks, pulled down by market heavyweight John Keells Holdings amid continued worries over 2018 budget policies.

The budget imposed taxes on cash-rich telecom and banking sectors to boost revenue.

The Colombo stock index ended 0.45 percent weaker at 6,428.83, its lowest close since Sept. 27. It slipped 2.6 percent in the last five sessions.

“Keells dragged the index down. The market is still awaiting some clarity on budget policies,” said Prashan Fernando, CEO, Acuity Stockbrokers.

Foreign investors, however, net bought shares worth 280 million rupees ($1.82 million), extending the net foreign inflow into equities to 19.4 billion rupees so far this year.

Finance Minister Mangala Samaraweera imposed new taxes on motor vehicles, telecoms, banks and liquor in a bid to boost revenues in its 2018 budget outlined on Thursday, as the budget deficit for the current year slipped to 5.2 percent of the gross domestic product.

Samaraweera imposed taxes on telecom towers and text messages, and introduced a debt repayment levy of 20 cents per 1,000 rupee bank transaction with effect from April 1 next year.

The turnover on Wednesday was 928.6 million rupees, less than this year’s average of around 954.4 million rupees.

Shares in John Keells, which accounted for 82.8 percent of the day’s turnover, ended 2.5 percent down.

($1 = 153.7500 Sri Lankan rupees) 

(Reporting by Shihar Aneez; Editing by Sherry Jacob-Phillips)

LAUGFS Gas records 49% turnover growth in 1H 2017/18

LAUGFS Gas PLC recorded a healthy growth of 49 percent in turnover for the first half of the year 2017/18 driven by the group’s long and medium term strategic growth drivers.

The group’s Operating Profits is down by 14 percent and Profit After Tax (PAT) was down by 85 percent in comparison to the corresponding period of the previous year.

This is mainly attributed to a combination of market factors, mainly the rapid increase in global Liquefied Petroleum Gas prices, and upward trajectory of world steel prices. Further, the depreciation of the value of rupee against the US dollar as well as the rising interest rates has also impacted the profitability quite significantly. While International prices of Liquefied Petroleum Gas have been rising sharply since October 2016, domestic gas prices, which are regulated in the country, have not been adjusted accordingly in the absence of a pricing formula.

This has significantly eroded the short term profitability and shareholder value of the group and the company has already made representations to the relevant authorities to rectify the situation with a long term sustainable solution.

“In spite of the modest results of this quarter, we remain positive about our future outlook. We are focusing on aggressive yet strategically well placed investments for LAUGFS Gas PLC which will enable us to strengthen our regional presence further in the power and energy sector.

With a single-minded focus on ‘Investing for growth’, we have identified emerging market trends with tremendous growth prospects that will yield long-term returns in safeguarding our stakeholder interests,” said, LAUGFS Gas PLC Chairman, W. K. H. Wegapitiya.

Apart from being the first and the largest investment in the Hambantota port, this terminal will be one of the largest LPG import and export terminals in its class in South Asia in terms of storage capacity as well as the most strategic in terms of its location with access to serve a population of around half a billion within neighbouring countries. Value generation from the LPG Import & Export Terminal is expected from the second half of the year 2018.

With LAUGFS becoming Sri Lanka’s first energy brand to become a multinational with the acquisition of Petredec Elpiji Ltd and setting up of LAUGFS Gas (Bangladesh) in 2015, the company is all set to receive the returns of its investments in one of the most lucrative emerging markets for LPG in Asia. In the backdrop of the government support to popularize LPG in Bangladesh as an energy alternative with the rapid exhaustion of natural gas reserves, the market potential for growth in Bangladesh remains very promising. In January 2017, LAUGFS Maritime purchased their third LPG vessel ‘Gas Courage’ which now operates under the Sri Lankan flag. This strategic step strengthened the company’s LPG fleet to support the fast expansion of LAUGFS’s LPG downstream activities in Sri Lanka and Bangladesh and to cater to the growing demand for LPG across the region.

In line with its visionary and global approach to sustainability and business growth, LAUGFS has been continuously focusing on sustainable energy solutions. LAUGFS’ investment in solar power generation aims to capitalize on this global trend in terms of business growth while contributing to the Government's efforts to increase the contribution of renewable energy by 20 percent to the total energy requirement in the country by 2020.

“We hope that the relevant authorities will take this into account and introduce a pricing formula linked to the world market price trends. Nevertheless, we are confident that our strategic direction and the timely investments will steer us towards vigorous growth within the planned timeline,” commented LAUGFS Gas PLC Group Managing Director, Thilak De Silva.
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Sri Lankan Beer makers to regain market share with tax changes: Fitch

LBO - Sri Lanka’s beer industry will regain market share from hard liquor following a more favourable tax regime for the segment announced in the Sri Lankan government’s budget on 9 November, Fitch Ratings said.

The rating agency, however, expects the ratings on Distilleries Company, the largest hard liquor manufacturer, and Lion Brewery (Ceylon), the leading beer maker, to remain steady.

Full statement is reproduced below.

Sri Lanka’s beer industry will regain market share from hard liquor following a more favourable tax regime for the segment announced in the Sri Lankan government’s budget on 9 November, Fitch Ratings says. However we expect the ratings on Distilleries Company of Sri Lanka PLC (DIST, AAA(lka)/Rating Watch Negative), the largest hard liquor manufacturer, and Lion Brewery (Ceylon) PLC (Lion, A+(lka)/Negative Outlook), the leading beer maker, to remain steady.

The Sri Lankan government’s 2018 budget reduced excise taxes on strong beer by 33% and raised that on hard liquor by 2%, effective immediately. The budget also introduced a Nation Building tax of 2% on all alcoholic beverage sales, which will take effect from April 2018.

With the latest tax revisions and barring further changes, we expect beer’s market share of total reported alcohol consumption in Sri Lanka, as calculated by Fitch, to increase to around 24%-25% in the medium term, posting an average volume growth of 22% over 2017-2019. We expect hard liquor sales volumes to contract 2% over this period, reversing some of the market share gains it made in the last few years. Hard liquor’s share rose to 84% in 2016 from 71% in 2014, after a series of tax increases for beer. The market share for beer fell to 14% from 27% over the same period.

Lion accounts for over 80% of Sri Lanka’s beer sales, and the lower excise tax has led to a 23% drop in the price of its main strong beer product. This will make it competitively priced per unit of alcohol against hard liquor. Beer makers will also be helped by the removal of a tax on beer cans in the government budget. Fitch expects beer to regain market share lost to hard liquor during the last two years, when frequent tax increases on beer eroded its price advantage.

However, we believe beer sales volumes are unlikely to recover fast enough in the next 12 to 18 months for Lion’s net leverage (as measured by net debt/operating EBITDAR) to reduce to less than 3.0x (6.3x at end-March 2017), given the already high debt levels.

At the same time, we expect sales volumes of hard liquor market leader DIST to drop, as consumers substitute strong beer for arrack, the most popular hard liquor in the country. Effective immediately, spirit producers will also have to pay additional duty on raw materials used for ethanol production, which will increase input costs for hard liquor makers. However, we expect these taxes to have minimal impact on DIST’s profit margins because the company has increased the price of its key product, Extra Special Arrack, by around 6% per bottle to reflect both the higher input costs and taxes.

Taxes on alcohol makers are hefty with top-line taxes accounting for around 70% and 60% of gross company revenues for DIST and Lion, respectively, in the financial year ended 31 March 2017. We believe the government is unlikely to impose further taxes on the industry to the extent that alcoholic beverages become prohibitively expensive to the average consumer, because the alcohol excise taxes contributed 8% to government tax revenue in 2016. As such, we expect further tax increases to be gradual, especially for hard liquor.

The budget also proposes to simplify the issuance and rate structure of liquor retail licenses, which we believe will help sales, although further details are yet to be disclosed. Both Lion and DIST command leadership in their respective segments, given their entrenched brands which continue to benefit from a complete ban on advertising of alcoholic beverages.

Janashakthi Insurance records growth of 12.4-pct upto Sept

LBO - Janashakthi Insurance PLC (Janashakthi) reported a consolidated Gross Written Premium (GWP) of 11.047 billion rupees for the nine months ended 30th September 2017, the company said in a statement.

This is a growth of 12.4 percent over the same period last year.

Posting a GWP of 8.9 billion rupees, the Non-Life or General Insurance segment continued to be the key driver of Janashakthi’s growth, while the Life Insurance segment recorded a GWP of 2.1 billion rupees.

The insurer says that ongoing restructuring of its Life Insurance business was set to drive higher returns in Q4 2017.

Janashakthi posted these numbers despite the impact of a spike in Fire & Engineering and Medical claims during this period, as well as the kicking in of the full year adjustment for impairment of goodwill.

The Company had disbursed Rs. 5.5 billion towards claims, posting an 11% YoY rise during the period under review. This further underscores Janashakthi’s strong fundamentals as well as its steadfast commitment to standing by its policyholders during times of distress.

“I am pleased to report that we have been able to build on the momentum gained during the first half of the year and register double digit growth in premiumsat the end of the third quarter.We have posted these numbers despite having witnessed a significant rise in claimsettlements. This has been possible thanks to our strong fundamentals and prudent reinsurance structure. We look forward to ending the year on a high note while staying focused on growing the business exponentially and delivering greater value to all our stakeholders,” said Prakash Schaffter, Managing Director of Janashakthi Insurance PLC.

The Group’s consolidated total assets stood at 35.8 billion rupees as of 30th September 2017,of which 24.5 billion rupees was held in the form of investments.

The investments portfolio grew by 2.9 billion rupees during the nine months under review,with average yields exceeding 11%. This was the key driving force behind the 30 percent YoY growth in total other revenue, which came in at 2.242 billion rupees.

Sri Lanka’s HNB Sept net profit flat at Rs4bn

ECONOMYNEXT – Sri Lanka's Hatton National Bank (HNB) group reported net profit remained flat at Rs4 billion for the September 2017 quarter compared with the previous year amid a sharp rise in trading losses and provisioning for bad loans.

Diluted earnings per share fell 12% to Rs8.27 in the quarter from the previous year, according to interim accounts filed with the stock exchange. The stock was last traded at Rs263.

Interest income rose 25% to Rs26.9 billion while interest expenses rose 33% to Rs15 billion with net interest income up 15% to Rs11.9 billion.

Net fee and omission income was up 22% to Rs2.3 billion.

However, trading losses during the September quarter rose 165% to Rs1.9 billion from the previous year, the accounts showed.

Individual impairment for loans rose 3,125% to rs386 million and collective impairment rose 1,402% to Rs546 million.

EPS for the nine months to September 2017 were up 3% to Rs25.99 with net profit up 6% to Rs11.3 billion from the previous year.

HNB said in a statement interest income grew by 33.5% in the nine months to September 2017 supported by a 14.9% growth in advances.

The 14.9% year-on-year growth in current account and savings account (CASA) deposits to Rs247.2 billion enabled HNB to improve net interest income by 18.7% to Rs 29.6 billion.

“The interest income was complimented by fee and commission income which grew by 20.4% y-o-y on a net basis, adding Rs 6.1 billion to the bank’s topline,” it said.

“Credit card business, trade finance and guarantee commission continued to be key contributors towards this growth.”

An increase in swap rates as well as the volume of swaps led to the ‘trading loss’ increasing to Rs2.8 billion during the first nine months of 2017 compared to the loss of Rs 1.3 billion in the corresponding period of the previous year, HNB said.

The Non Performing Asset ratio increased to 2.6% as at end of September 2017 while the total impairment charge for the period amounted to Rs 2.3 billion.

The increase in Value Added Tax to 15% from 11% in 2016, led to an increase of 29.6% in VAT and Nation Building Tax charges for the period.

“This resulted in the bank’s profit before tax growth being constrained to 6.3%, leading to a PBT of Rs 15.4 billion for the period,” HNB said.

The bank’s total tax charge for the period (including VAT & NBT) amounted to Rs 8.2 billion with the effective tax rate being 43% for the nine months ended September 2017.

HNB’s asset base grew by 11% to Rs 953.3 billion while net loans and advances reached Rs 625 billion as at end of September 2017. Deposits grew by Rs 76.4 billion during the period to almost Rs 700 billion.

HNB said its rights issue in the third quarter of 2017 enabled it to improve its Tier I and Total Capital Ratios to 12.91% and 16.42% respectively, significantly above the Basel III guidelines as set out by the Central Bank of Sri Lanka.

The capital raised also resulted in Return on Equity declining to 16.1%, while Return on Assets was at 1.6% for the period.