Singer revenue tops Rs. 51.5 bn

Singer (Sri Lanka) PLC announced yesterday its Group results for the year ended December 31, 2017. The results showed an increase in Group revenue of 9.8 % compared to the previous year, with Group Revenue exceeding Rs. 51.5 billion in spite of tough business conditions.

The continuous drought in the dry zone resulted in a sharp drop in the harvest eroding the purchasing power of a large segment dependent on agriculture. Customer purchasing power was further affected by increased Value Added Tax (VAT), higher interest rates compounded by floods in the wet zone. The consumer durables industry, is normally affected much more than other sectors when consumer incomes decline.

Commenting on the results, Asoka Pieris, Group CEO said “The change of ownership has been extremely positive. Singer continues to pursue its strategies to maintain market leadership in consumer durables. We believe that with additional ideas, plans and resources generated by the new owners and synergies with Hayleys PLC, a bright future augurs for the Singer Group.”

Commenting on the outlook, Mohan Pandithage, Group Chairman said “Hayleys Group as the major shareholder is confident that Singer’s position as the leader in consumer durables will further strengthened as Hayleys and Singer have an excellent strategic fit with potential for significant growth prospects.”

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Sri Lanka’s LOFC acquired a 100 percent shares of LOLC Micro Credit

LBO - LOLC Finance PLC (LOFC) said the company has acquired a 100 percent shares of LOLC Micro Credit for 12.3 billion rupees.

The shares were brought at 156.18 a share, the Company said in a stock exchange filing.

LOFC Finance acquired 80 percent of LOLC Micro Credit from the parent company for 9.8 billion rupees while the balance 20 percent was purchased from FMO for 2.5 billion rupees.

LOFC and LOLC Micro Credit are subsidiaries of listed Lanka Orix Leasing Company PLC (LOLC).

Sri Lanka DFCC Bank's Basel III debt rated 'A+(lka)(EXP)'

ECONOMYNEXT - Fitch Ratings said it has assigned DFCC Bank PLC's proposed Sri Lanka rupee-denominated Basel III-compliant subordinated unsecured debentures an expected National Long-Term Rating of 'A+(lka)(EXP)'.

The debentures, totalling Rs7 billion, will have maturities of five and seven years and carry fixed coupons and will be listed on the Colombo Stock Exchange.

The bank plans to use the proceeds to support its loan-book expansion and strengthen its Tier II capital base, a statement said.

The full rating report follows:

Fitch Ratings-Colombo-29 January 2018: Fitch Ratings has assigned DFCC Bank PLC's (DFCC, B+/AA-(lka)/Stable) proposed Sri Lanka rupee-denominated Basel III-compliant subordinated unsecured debentures an expected National Long-Term Rating of 'A+(lka)(EXP)'.

The debentures, totalling LKR7 billion, will have maturities of five and seven years and carry fixed coupons. 

The debentures qualify as regulatory Tier II capital for the bank and include a non-viability clause. The bank plans to use the proceeds to support its loan-book expansion and strengthen its Tier II capital base. The debentures will be listed on the Colombo Stock Exchange.

The final rating is subject to the receipt of final documentation conforming to information already received.

KEY RATING DRIVERS

Fitch rates the proposed Basel III Tier II notes one notch below the bank's National Long-Term Rating of 'AA-(lka)'. This reflects the notes' higher loss-severity risks compared with senior unsecured instruments due to the notes' subordinated status.

The notes include a non-viability clause whereby they would convert to equity upon the occurrence of a trigger event, as determined by the Monetary Board of Sri Lanka.

DFCC's National Long-Term Rating is used as the anchor rating because the rating reflects the bank's standalone financial strength.

Fitch believes the bank's standalone credit profile best indicates the risk of becoming non-viable.

Fitch has not differentiated the notching on the proposed notes from the notching on DFCC's legacy Tier II notes as it is assumed that the authorities would step in late, moving the point of non-viability close to liquidation.

Fitch has not applied additional notching to the notes for non-performance risk according to Fitch's criteria, as the notes have no going-concern loss-absorption features.

DFCC's ratings also reflect its developing commercial banking franchise and capitalisation, which is still high relative to rating peers.

RATING SENSITIVITIES

The rating of the notes would move in tandem with DFCC's National Long-Term Rating.

Sri Lanka's HDFC Bank downgraded on lack of state support; negative watch

ECONOMYNEXT - Sri Lanka's HDFC Bank, a publicly traded state-controlled mortgage lender, has been downgraded to 'BBB- (lka)' from 'BBB(lka)' after the government failed to inject capital in time and has also been placed on negative rating watch making another downgrade possible.

"The one-notch downgrade reflects Fitch's assessment of the weakening of support from the Sri Lanka sovereign (B+/Stable) to HDFC Bank," Fitch said.

The government had failed to boost capital by 5.0 billion rupees by the regulatory deadline of January 01.

"However, Fitch believes that it is still likely that the authorities would provide adequate support to meet the shortfall within an extended deadline.

The Rating Watch Negative indicates the possibility of a further downgrade.

"The RWN reflects the risk that the state, as major shareholder, would not raise the bank's capital to meet the minimum capital requirement, in which case Fitch will downgrade the rating to reflect the bank's weaker intrinsic strength.

The full statement is reproduced below:

Fitch Downgrades Sri Lanka's HDFC Bank to 'BBB-(lka)'; Maintains on RWN

Fitch Ratings-Colombo-29 January 2018: Fitch Ratings has downgraded Housing Development Finance Corporation Bank of Sri Lanka's (HDFC Bank) National Long-Term Rating to 'BBB-(lka)' from 'BBB(lka)'. HDFC Bank's senior secured and senior unsecured debentures have also been downgraded to 'BBB-(lka)' from 'BBB(lka)'. The ratings are maintained on Rating Watch Negative (RWN).

The one-notch downgrade reflects Fitch's assessment of the weakening of support from the Sri Lanka sovereign (B+/Stable) to HDFC Bank. This is after the state failed to provide capital to the bank in timely manner for it to meet the minimum LKR5 billion regulatory capital requirement by 1 January 2018. However, Fitch believes that it is still likely that the authorities would provide adequate support to meet the shortfall within an extended deadline.

The RWN reflects the risk that the state, as major shareholder, would not raise the bank's capital to meet the minimum capital requirement, in which case Fitch will downgrade the rating to reflect the bank's weaker intrinsic strength.

KEY RATING DRIVERS

HDFC's rating reflects Fitch's expectation that the bank would receive extraordinary support from the sovereign, if required. Our assessment captures the National Housing Development Authority's direct 49% stake in the bank, which brings the state's holdings in the bank to 51% effectively; the bank's quasi-policy role in supporting housing-development initiatives; as well as HDFC Bank's low systemic importance.

Fitch's assessment of the bank's standalone profile is weak compared with better-rated peers. HDFC Bank's reported NPL ratios (18.5% at end-3Q17) are above the industry average and its capital buffers (Fitch Core Capital ratio of 14.2% at end-3Q17) are thin and declining. The bank is also more exposed than peers to low- and middle-income customers, mainly through housing loans (87% of total loans at end-3Q17), which are susceptible to economic and interest rate cycles.

The bank's outstanding debentures are rated in line with its National Long-Term Rating and rank equally with the claims of other senior unsecured creditors. Fitch has not provided any rating uplift for the collateralisation on the senior secured debentures as their recovery prospects are considered to be average and comparable with those of the unsecured notes in a developing legal system.

RATING SENSITIVITIES

Fitch will downgrade the bank's rating if the sovereign does not raise HDFC Bank's capital as this would indicate that sovereign support cannot be relied upon. Should this occur, Fitch is likely to downgrade the bank to the 'BB' category on the National Rating scale; the extent of the downgrade would depend on whether the bank's intrinsic strength continues to weaken.

Furthermore, Fitch may also downgrade HDFC Bank's ratings if there is a change in our expectation of state support due to a weakening of the bank's linkages with the state, through a dilution of the state's majority ownership or a revision of Fitch's view of the bank's policy role.

HDFC Bank's rating could be affirmed and removed from RWN if the state were to provide the additional capital required in the next six months.

The ratings of the senior secured and senior unsecured debentures will move in tandem with HDFC Bank's National Long-Term Ratings.

Sri Lanka's Dipped Products net up 85-pct in Dec 2017

ECONOMYNEXT - Sri Lanka's Dipped Products Plc, which has interests in glove making and rubber tea plantations, said profits in the December 2018 quarter rose 85 percent from a year earlier to 197 million rupees, helped by rising commodity prices.

The group reported earnings of 3.30 rupees per share. In the nine months to December the group reported earnings of 3.50 rupees, from total profits of 209 million rupees, up from 85 million a year earlier. The stock last traded at 85 rupees.

Revenues rose 10 percent to 6.79 billion rupees in the quarter, cost of sales rose 10 percent to 5.6 billion rupees and gross profit rose 6 percent to 1.134 billion rupees.

In the nine months, gloves brought in 12.1 billion rupees of revenue, up 11 percent from a year earlier but rising latex prices had pre-tax profits to 200 million rupees, Managing Director Mahesh Ranasoma said in a statement.

Bu rising commodity prices had pushed plantations revenues by 33 percent to 9.3 billion rupees and pre-tax profits were 400 million rupees, which was higher than last year, he said.

The group has factories in Sri Lanka and Thailand.

Sri Lanka’s Talawakelle Tea December quarter profit almost doubles

ECONOMYNEXT – Sri Lanka’s Talawakelle Tea Estates said net profit almost doubled to Rs153.6 million in the December 2017 quarter from a year ago helped by higher tea prices.

The 97% rise in quarterly profit was on the back of a 10% rise in sales to Rs876 million, according to interim accounts filed with the Colombo stock exchange.

December quarter earnings per share were Rs6.47 compared with Rs3.27 a year ago.
In the nine months to December 2017, EPS was Rs12.16 with net profit at Rs289 million compared with a loss of Rs44 million the year before while sales were up 13% to Rs2.9 billion.

The accounts showed that while tea sales were up sharply rubber revenue was down and revenue from mini hydro power was also down.

Profits from tea during the nine month period rose sharply to Rs415 million from Rs56 million while losses from rubber were Rs11 million, about the same as the year before.

Profits from mini hydro fell to Rs14 million from Rs38 million over the period.

Sri Lanka's NDB Bank net up 64-pct in Dec 2017

ECONOMYNEXT - Profits at Sri Lanka's NDB Bank group December 2017 quarter profits rose 64 percent to 1.19 billion rupees, as net interest income rose expanded with loans growing 20 percent during the year, interim accounts showed.

The group reported earnings of 7.10 rupees per share in the quarter. In the year to December it reported earnings of 22.04 rupees on total profits of 3.7 billion rupees which were up 38 percent.

Interest income was up 21 percent to 9.9 billion rupees, interest expense was up a slower 15 percent to 6.7 billion rupees and net interest expense was up 36 percent to 3.1 billion rupees.

Fee income was up 28 percent to 1.028 billion rupees.

The group's loans grew 20 percent to 274 billion rupees, while deposits grew at a faster 34 percent to 273 billion rupees.

Sri Lanka is now recovering a balance of payments crisis, fired by the central bank buying securities from the Treasury or banks with printed money to artificially expand bank reserves so that their credit exceeds deposits.

Once a balance of payments crisis ends, loan to deposit ratios improve.

Loan loss provisions rose 22 percent to 459 billion rupees, with 223 million rupees set aside as a general provision.

Gross assets rose 14 percent to 388 billion rupees. Group net assets rose 12 percent to 34 billion rupees.

At bank level, net assets rose 17 percent to 28.8 billion rupees.

At bank level Tier 1 capital was 8.85 percent (required 7.25-pct), down from 9.31 percent a year earlier and total adequacy was 12.89 percent (required 11.25-pct) up from 12.95 percent.

Allianz boosts Sri Lanka general insurance share to 20-pct with acquisition

ECONOMYNEXT - Allianz, a Munich, Germany based insurer said it would become the second largest player in the non-life business in Sri Lanka with the acquisition of Janashakthi General Insurance in a market that has double digit growth.

Zakri Khir, a direction of Allianz Asia operations said Sri Lanka has a lot of infrastructure development and there was middle class that was acquiring assets.

"The more assets people gather, the more things to insure," Zakri said. "We think there is a lot of opportunity here."

The firm is paying 16.4 billion rupees, which is higher than the net asset value.

But there was a strategic fit, with coverage into the hill country, officials said.

Up to September 2017, general insurance premium grew 19 percent to 66 billion rupees in Sri Lanka. Janashakthi posted gross written premium of 8.9 billion rupees, taking over 13 percent of the market.

Janashakthi General is expected to write around 12 billion rupees of business by December, analysts say.

Surekha Alles, Managing Director Allianz Insurance Lanka said the acquisition will make her company the second largest player in general insurance in the island. It is at present the 5th largest player.

Allianz also had a 6 percent share of the life business.

Ramesh Schaffter, director of Janashakthi Insurance said the firm was looking for an international insurance partner and Capital Alliance, an investment bank had found Allianz who had wanted to take the entire stake.

Janashakthi is keeping the life business. Schaffter said the company will boost capital with the sale proceeds and return the balance to shareholders through a buyback.

Janashakthi would continue to search for an international partner for the life business, he said.

Sri Lanka Treasuries yields flat

ECONOMYNEXT- Sri Lanka's Treasuries yields were flat at Tuesday's auction with the 26 billion rupees of 6 and 12 month bills being sold, data from the state debt office showed.

The debt office sold 6-month bills at an average yield of 7.95 percent, down 01 basis point from a week earlier.

The 12-month average yield was flat at 8.90 percent.

The cut-off rates at kept secret by the debt office, which is a unit of Sri Lanka's central bank.

Three month bill were not offered. They were last sold on December 20, at 7.69 percent.

Sri Lanka’s JKH group December net profit down 13-pct

ECONOMYNEXT – Sri Lanka’s John Keells Holdings said group net profit fell 13% to Rs.4.49 billion in the December 2017 quarter from the previous year with lower earnings from its hotels, property and consumer foods and retail businesses and gains in transportation and financial services.

Sales rose 12% to Rs.31.22 billion in the quarter, according to interim results filed with the stock exchange.

JKH’s quarterly earnings per share were Rs3.24.

EPS in the first nine months to December 2017 were Rs7.97 with net profit down two percent to Rs.11.06 billion from the previous financial year while sales grew 15% to Rs.87.66 billion.

JKH chairman Susantha Ratnayake said the group’s leisure business pre-tax profit fell 34% to Rs.901 million in the third quarter of 2017/18 from the previous year.

“The decline in profitability is mainly attributable to the City Hotel sector which witnessed a decline in occupancies primarily as a result of the increase in room inventory within Colombo,” he said.

“However, it is encouraging that the total number of rooms occupied in the city witnessed a double-digit growth in the quarter under review.”

While JKH’s Sri Lankan resorts saw an improvement in room rates and maintained occupancies, profit for the quarter was lower when compared to the previous financial year which included the operations of “Bentota Beach by Cinnamon” which is now closed for the construction of a new hotel.

The Maldivian resorts saw an improvement in average room rates, although profitability was impacted by lower occupancies and the partial closure of “Ellaidhoo Maldives by Cinnamon” for refurbishments in October 2017, Ratnayake said.

“However, occupancies at our hotels remained above the industry average during the quarter under review.”

JKH’s property business pre-tax profit fell 83% to Rs.34 million in the third quarter of 2017/18 from the previous year, which included recognition of revenue on the “7th Sense” on Gregory’s Road residential development.

Ratnayake said construction of Cinnamon Life is progressing well with the super structure approximately 50 per cent complete.

“Parallel to the ongoing construction work of the super structure, the installation of the façade of the hotel will commence shortly. The construction work on the main access point via a six lane bridge is nearing completion. The pre-sales of both the residential and commercial space continue to be encouraging.”

Ratnayake said the concept design for the new 800-apartment joint venture residential development project, “Tri-Zen”, in Union Place, Colombo, has been finalised with initial bookings very encouraging.

Consumer Foods and Retail
JKH’s Consumer Foods and Retail industry group pre-tax profit fell 26% to Rs.947 million in the December quarter from the previous financial year.

The Beverage and Frozen Confectionery businesses recorded a decline in volumes as a result of continued tapering of demand arising from subdued consumer discretionary spending, Ratnayake said.

“The volume decline in the Beverage business was further exacerbated by the implementation of a sugar tax from November 2017, which resulted in substantial price increases across the industry,” he said.

“Whilst over the years we have taken measures to reduce a significant quantum of sugar in our beverages, we will continue to aggressively expand our low sugar product range by accelerating the launch of such new products.”

Ratnayake said that as a continuing part of JKH’s beverage portfolio strategy, it will also launch more non-carbonated beverages to broaden offerings.

JKH’s transportation industry group pre-tax profit rose 12% to Rs.945 million in the third quarter of 2017/18 from the previous financial year with its South Asia Gateway Terminals (SAGT) seeing growth in throughput of 11 per cent.

“The market share and profits of the Group’s Bunkering business increased as a result of a double-digit growth in volumes,” Ratnayake said.

The group’s financial services business pre-tax profit rose 35% to Rs.1.54 billion in the third quarter mainly on account of the performance of Union Assurance, where gross written premiums recorded strong growth above industry average whilst Nations Trust Bank recorded sound loan growth, he said.

Sri Lanka's Access Engineering wins Rs3bn nanotech park deal

ECONOMYNEXT - Sri Lanka's Access Engineering Plc has won a 3.0 billion rupee deal to expand a nanotechnology park, from Sri Lanka's ministry of Science and Technology.

The nanotechnology park is in Pitipana Homagama.

The cabinet of ministers had approved the award of the contract to Access Engineering plc, for 3.088 billion rupees, the government said.

Publicly traded Access Engineering closed at 23.20 rupees Friday.

Sri Lanka's Chevron Lubricant unit revenues slide, profit down

ECONOMYNEXT - Profits at Chevron Lubricants Lanka Plc, a unit of Chevron, fell 21 percent from a year earlier to 549 million rupees in the December 2017 quarter, with revenues sliding 5 percent, interim accounts showed.

The firm reported earnings of 2.29 cents per share. For the year to December it reported earnings of 10.54 rupees per share on total profits of 2.55 billion rupees which fell 27 percent. The stock last traded at 114.70 rupees down 40 cents.

Revenues in the December 2017 quarter was down 5 percent to 2.8 billion rupees and cost of sales rose 1 percent to 1.68 billion rupees, shrinking gross profits 12 percent to 1.22 billion rupees.

Distribution cost rose 17 percent to 206 million rupees.

The firm reported finance income of 22.3 million rupees, down from 38 million a year earlier.

The quarterly fall in revenues at 5 percent was slower than the full year fall of 9 percent to 11.05 billion rupees.

Sri Lanka's Janashakthi General sold to Allianz for US107mn

ECONOMYNEXT - Sri Lanka's Janashakthi Insurance Plc said its general insurance unit will be sold to Allianz SE, a Munich based insurer for 16.4 billion rupees (107 million US dollars).

The price will be adjusted to reflect the net asset value of Janashakthi General Insurance at the time of the transfer, the firm said in a stock exchange filing.

The sale proceeds will be distributed to shareholders through a share buyback at a price to be determined based on the final sale price.

Janashakthi Insurance Plc was up 2.10 rupees to 23.90 rupees in mid-day trading Friday.

The share spiked as much as 25 rupees.

Sri Lanka's Hatton Plantations gains 10.3-pct on debut

ECONOMYNEXT - Sri Lanka's Hatton Plantations closed 80 cents higher at 8.60 rupees on its debut on the Colombo Stock Exchange Friday, up 10.26 percent from its opening price.

Over 236.6 million ordinary voting shares were listed on the Colombo Stock Exchange, by way of an introduction at 7.80 rupees per share.

Hatton Plantations was incorporated in September 2017 and is the segregated upcountry tea businesses of listed Watawala Plantations (down 10 cents to 28.50 rupees).

"We segregated the up country tea business so we could focus and formulate better strategies for tea plantations. It will result in better results, notwithstanding external variables," said Sunil Wijesinhe, Chairman at Hatton Plantations.

"The legal, technical and accounting aspects of the segregation were quite a journey and it's going to be rewarding," Wijesinhe said

The upcountry tea business accounted for 59% percent of Watawala Plantation's total revenue of 6.4 billion rupees in 2016/17, but accounted for less than 20 percent to its 1.7 billion gross profits with palm oil contributing 76 percent. Watawala has interests in dairy farming and exports as well.

Restated financial statements for Hatton Plantations show an after tax earnings of 28.4 million rupees in 2016/17, compared to a loss of 300.2 million a year earlier. The upcountry tea business has been losing money since reporting a 92 million rupee profit for the 2012/13 financial year.

Improving agricultural practices and improving labour productivity is critical, something the company has been improving over the years.

The upcountry tea business revenue has fallen 18 percent in the two years to end March 2017, but costs have declined 26%. Operating losses which peaked at 285.5 million rupees in 2014.15, turned into a 168 million rupee profit during this period.

"This strategy has resulted in attractive prices at the Colombo Tea Auction," he said.

Over 70 percent of cost of production is wages, a withdrawal of a fertilizer subsidy and increased labour costs due to manual weeding due to a glyphosate weedicide ban, also hurt profitability in recent years.

Hatton Plantations consists of 17 estates with a combined area of 4,465ha located over 4,800 feet above sea level in the central hills of Sri Lanka.

The company also owns 11 tea processing factories with a combined green leaf capacity of 232,300kg. Ninety percent is auctioned at the Colombo Tea Auction and the balance sold directly to buyers.

Ceylon Teas commands some of the highest prices in the world. The average price at the Colombo Tea Auction was 4.04 US dollars per kilo during the first quarter of 2017, leading Mombasa (2.82 US dollars per kilo) and Cochin and Kolkata (1.92 US dollars per kilo).

The company purchases green leaf from third party suppliers, apart from its own crop to manufacture tea.

In 2014, it accounted for nearly 40 percent of total crop, but the companies focus on quality has seen the share fall to 33% during the first four months of the 2017/18 financial year, according to NDB Investment Bank, Financial Advisors and Joint Managers to the introduction.

Estate Management Services controlling a 75.65 percent stake in Watawala Plantations incorporated Hatton Plantations in September 2017 issuing shares mirroring the shareholding of Watawala Plantations.

Estate Management Services is a subsidiary of Sunshine Holdings PLC, a 19.2 billion revenue group of companies with interests in pharmaceuticals, consumer goods and energy.

Sunshine Holdings closed 40 cents higher at 59.60 rupees.