Sampath sweetens forthcoming rights issue with one for 19.7 scrip issue Second cash call within three months

Sampath Bank PLC Friday sweetened its forthcoming rights issue of approx. 50.13 million new voting shares in the proportion of three new shares for every 13 already held shares at a price of Rs. 250 per share by announcing a scrip issue of approx. 13.55 million new shares in the proportion of one share for every 19.728 (approx) already held shares.

Following the scrip issue announcement on the CSE, the Sampath share closed at Rs. 327.40 on Friday, Rs. 9.40 up on the market, with 82,425 shares trading between a low of Rs. 319 and a high of Rs. 330.

This is the second capital call on Sampath shareholders since November last year and the bank has sent out notices summoning an Extraordinary General Meeting (EGM) on Mar. 7 to obtain shareholder approval for the rights issue.

The previous one for six rights issue was priced at Rs. 245 per share, at a sharp discount to then prevailing market price. Many investors who applied for additional shares were allotted up to 9,000 shares each enabling a windfall profit.

The availability of a fairly large number of additional shares was attributed by analysts to some large foreign shareholders not taking up their full entitlement and also not applying for additional shares to maintain their percentages.

At least one large shareholder who applied for a large number of additionals was disappointed by the 9,000-share limit on allotment of additional shares.

The bank has not indicated in its circular on what basis additional shares will be allotted to applicants but has made no underwriting arrangements with the directors saying "that the interest shown for the company’s share does not warrant an underwriting for the issue."

The company has also declared that it had "not sought any written commitment from any shareholder for subscription in full for their entitlement for the proposed rights issue and for their commitment to further subscribe to any unsubscribed shares."

"The company is confident that that the shareholders will subscribe in full for their entitlement for the proposed rights issue and there will be ample subscribers for the additional shares," the circular said.

It said the forthcoming rights issue is priced at a discount of Rs. 67.01 to the group’s net asset value per share. The Sampath share traded in Jan. at a high of Rs. 330 and a low of Rs. 313.60 closing at Rs. 318.20 with over 3.1 million shares transacted in 1,461 trades.

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Depositors’ woes continue at failed finance companies

By Quintus Perera

With regard to the failed finance companies (FCs), the Central Bank (CB) appears to have proved that throughout it has neglected its responsibility of ‘monitoring and supervising’ the finance companies as the very purpose of having a separate unit to monitor and supervise is to prevent these finance companies from failing.

Instead of fulfilling their responsibility, the CB is now reduced to issuing media statements and circulars which are sometimes inconsistent and contrary to one another leading to losing confidence on this premier financial regulator by Sri Lankans as well as foreigners, aggrieved depositors say.

To prevent FCs failing and safeguard them, a special unit – Department of Supervision of Non-Bank Financial Institutions of the CB but their non-action is reflected in several FCs failing and no resolution of issues in sight.

The latest circular – Circular No.1 of 2018 – issued by the Resolutions and Enforcement Department of the CB to the CEOs of all member institutions of Sri Lanka Deposit Insurance and Liquidity Support Scheme states that the definition of depositors has been widened to include the value of shares of shareholders who were initially deposit holders.

Members of the scheme are required to include all the details for the purpose of calculation of premium and send those data effective from January 1, 2018.

Depositors fear that some of these failed companies would be liquidated and all the depositors to be paid at the rate of Rs. 600,000 irrespective of deposits above this limit. It is apparent that the liquidation is prevented since these failed FCs have gone for litigation against the violation of the rights of the depositors.

Depositors associations of these failed finance companies that are earmarked to be liquidated are objecting to the CB claim of paying only Rs. 600,000 to all the depositors as they indicate that all their members are equal and any decision to pay back the deposits has to be fair and reasonable and their full amounts to be paid according to the CB’s own media release on 16/10/2016.

A depositor pointed out that it is unfair to pay only Rs. 600,000 for a depositor who may have deposited Rs. 15 to 20 million.

Some depositors complain that non-settlement of these issues pertaining to failed FCs leads to further wastage of funds as large funds have to be utilised to maintain them. A depositor of Standard Credit Ltd said that they are forced to pay Rs. 3 to 5 million a month for the upkeep of nearly 30 employees of this defunct company.

This depositor has asked the CEO of Standard Credit to ‘take immediate action’ to correct this sorry state of affairs and ensure the safety of all documents at the company as they intend to request President Maithreepala Sirisena to appoint a Presidential Commission of Inquiry to investigate the massive frauds that has taken place in collapsed CB-registered finance companies in the past.

He also indicated that they believe that it was during the tenure of the present CFO of Standard Credit that the Treasury Bills to the value of Rs. 2.5 billion vanished from Standard Credit.

Though it is the responsibility of the CB to find investors to resurrect these failed FCs, in several cases the depositors themselves have attempted to bring in investors.

W. Gunawardene, President, Central Investment and Finance Ltd Depositors’ Association (CIFLDA) pointed out that it is very unfair by the CB that it has supported the failed FC – ETI (Swarnavahini) and promoted two investors, one local and the other foreign and also granted some concessions to ETI.

He said that depositors associations of some of these failed FCs tried to bring in investors to restore their failed companies, but it is apparent that with the CB imposing various terms and conditions on these prospective investors, progress is slow.

He said that they have been finding investors to resurrect their failed FCs, but due to the CB imposing several terms and conditions the investors’ response has slowed down. When the CB threatened CIFL by issuing notice of Cancellation of Business Finance Licence, these investors panicked.

He said that collectively they have been struggling to get relief for their members for the last 4 ½ years, but it appears that a favourable result is bleak.

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SEC halts On’ally’s mandatory offer

By Duruthu Edirimuni Chandrasekera

The Securities and Exchange Commission (SEC) last week halted the mandatory offer by Renuka Capital PLC to purchase On’ally Holdings PLC.

In a letter dated February 8 to On’ally Holdings PLC, the SEC said that it has received a written complaint against Renuka Capital PLC “the offeror” in the said mandatory offer alleging acts of misrepresentation and miscommunication to the market and thereby violating the provisions of the SEC’s the Takeovers and Mergers Code 1995 as amended (TOM Code) and the SEC Rules.

“The complaint has also challenged the Independent Advisor’s Report obtained by your company. The allegations against ‘the offeror’ stated in the above said complaint has given rise to the need for the SEC to conduct investigations to check the veracity of the said allegations in terms of section 13 (0) of the SEC Act which in turn may require the SEC to issue certain directions to ‘the offeror’ and also to your company as ‘the offeree’ if deemed appropriate,” the letter said. The name of the complainant was not disclosed.

The SEC acting in terms of the SEC Act in order to protect the interests of investors, has instructed and directed Renuka Capital PLC to take steps forthwith to keep the ‘offer period’ open until further notice by the SEC and give notice of such fact to the market and also to the shareholders of On’ally Holdings PLC in respect of the extension of the said mandatory offer period.

“The reasons for the instructions to keep the ‘offer period’ open is to enable the SEC to issue directives to ‘the offeror’ and also to your company as ‘the offeree’ in respect of the above said mandatory offer,” the regulator has said.

On’ally Holdings PLC was instructed by the SEC to obtain a second Independent Advisor’s Report in respect of the mandatory offer by engaging another qualified advisor who is independent in terms of Rule 12 of the TOM Code and submit a draft of the report within one week of engaging the independent advisor for the approval of the SEC in terms of Rule 18 of the Code prior to dispatching same to the shareholders of On’ally Holdings PLC.

“Your company is further requested to keep the SEC informed as to the identity of the advisor prior to engaging such advisor. During the period the offer is kept open you are advised against taking any steps to dispose of any assets of the company without the approval of the shareholders or the SEC, other than to enter into any contract in the ordinary course of business in pursuance of a contract entered into earlier before this offer became imminent. You are also instructed to await further directions from the SEC,” the letter added.

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TESS AGRO returns to profit owing to GSP+ return

The return of GSP+ concessions has propelled TESS AGRO to a winning position from losses earlier.

Dilshan Fernando, company Director/CEO, said in a media release that TESS AGRO recorded a sharp growth in its profits during the last quarter of 2017 ending December 31.

The operating profit grew by 297 per cent to Rs. 8.27 million from an operating loss of Rs. 4.18 million in the previous quarter.

This increase in profits and turnover for this quarter can be largely attributed to the company sourcing its product from Sri Lanka as a result of the GSP + concession that Sri Lanka obtained in June 2017 by the European Union, he said.

The company has announced to its shareholders the plan to go for a rights issue subject to regulatory approval. The main reason for the plan is to infuse working capital to strengthen its purchases from Sri Lanka as local exports has increased significantly in 2017 after the GSP + concession.

“During the EU ban the company continued to carry out its business with the help of its Belgium branch by importing from other neighbouring countries such as the Maldives and the Philippines hoping that when Sri Lanka is back in business we would still hold on to our market share,” he said.

In 2016 the company purchased almost 90 per cent of its requirement from these neighbouring countries which meant that only seven per cent was purchased from Sri Lanka. Since June 2017 after the GSP+ return, Sri Lankan exports have increased by 40 per cent while 60 per cent was purchased from neighbouring countries.

In January 2018 the company has purchased more than 80 per cent from Sri Lanka.

The company is expected to raise Rs. 59 million through this rights issue for which Rs. 32 million will be used for working capital needs to procure fish from Sri Lanka while the balance will be used to retire debt.

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CBSL extends primary dealer suspension of Pan Asia Bank

The Monetary Board of the Central Bank of Sri Lanka has decided to extend the suspension from carrying on the business and activities of a primary dealer by Pan Asia Banking Corporation PLC (PABC) for a period of six months with effect from 10 a.m. of February 15,2018.

This is acting in terms of the regulations made under the Registered Stock and Securities Ordinance and the Local Treasury Bills Ordinance. This is to continue the investigations, being conducted by the Central Bank of Sri Lanka.

The Central Bank wishes to emphasize that this regulatory action restricts PABC’s access to the primary auctions for government securities. It does not affect any of the other activities, services of PABC.
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HNB Assurance, HNB General Insurance post Rs 910 mn PAT

HNB Assurance PLC (HNBA) and its fully owned subsidiary HNB General Insurance Limited (HNBGI) has posted a Profit After Tax (PAT) of Rs 910 million for the year ended December 31, 2017.

This depicts a steady growth of 41% in comparison with the PAT of Rs 647 million recorded in 2016.The Group recorded a Gross Written Premium (GWP) of Rs 7.82 billion signifying a growth of 17% as contrasted with the GWP of Rs 6.65 billion recorded in the financial year 2016. The Parent Company, HNB Assurance PLC recorded a GWP of Rs 3.96 billion and the subsidiary, HNB General Insurance Limited recorded a GWP of Rs. 3.86 billion.

The Group was able to yield an Interest and Dividend Income of Rs. 1,693 million, showcasing a growth of 43% against an interest and dividend income of Rs. 1,180 million achieved during the previous year. Total assets of the Group reached a mark of Rs. 18.65 billion and Investments in Financial Instruments reached a value of Rs15.05 billion. During the course of 2017, the Life Insurance Fund reached a value of Rs. 10.9 billion and the General Insurance Fund reached a value of Rs 2.38 billion.

Expressing her views on the solid financial performance during the year under review, Chairperson of HNB Assurance Group, Rose Cooray said, “the Group delivered a superlative financial performance during the course of 2017, depicting a steady flow of revenue generation and accelerating progress towards achieving our corporate goals during 2017.

The Management guided by the Board has meticulously executed a well-crafted plan that focused on creating value to all stakeholders.”

“Not only have we been able to fulfil the aspirations of the shareholders, the Group paid out Rs 2.29 billion in claims and have focused on rewarding its employees, while contributing towards society through various corporate stewardship initiatives and we are confident that this growth we’ve embarked on will continue during 2018.”

Sharing his thoughts on the Group’s financial performance, Managing Director/CEO of HNBA and HNBGI Deepthi Lokuarachchi said, “the strategies deployed during the course of 2017 led the Group capture emerging and dynamic markets. The Group was able to maintain its solid industry position throughout the course of 2017, despite the volatile macro-economic conditions and heightened competition.”
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CB keeps policy rates unchanged: Economy currently operating below potential

LBO - Sri Lanka will keep policy rates unchanged in February as the economy is stabilizing with improvements in trade figures, the islands central bank said.

“The decision of the Monetary Board is consistent with the objective of maintaining inflation at mid-single digit levels over the medium term and thereby facilitating a sustainable growth trajectory,’ it said in a statement.

The Monetary Board also noted that the economy is currently operating at a level below its potential.

“Nevertheless, as per the available indicators, the economy is likely to recover from the effects of adverse weather conditions in the past two years and benefit from the expected boost in external demand and foreign direct investment inflows,”

“Improvements in the trade front, including the execution of new trade agreements supported by increased private
investment driven by structural reforms, are also likely to provide the necessary impetus for the economy to achieve its potential in the medium term.”

The full statement follows:

Considering the recent developments in the domestic and international macroeconomic environment, the Monetary Board, at its meeting held on 14 February 2018, was of the view that the current monetary policy stance is appropriate and decided to maintain the policy interest rates of the Central Bank of Sri Lanka at their present levels.

The decision of the Monetary Board is consistent with the objective of maintaining inflation at mid-single digit levels over the medium term and thereby facilitating a sustainable growth trajectory. The rationale underpinning the monetary policy stance is set out below.

Policies adopted by the Central Bank and the government have helped stabilise the economy. By end 2017, both the growth of broad money supply and the growth of credit extended to the private sector by commercial banks moderated to desired levels.

In the external sector, export earnings reached an all-time high of around US dollars 11.4 billion in 2017, largely supported by the sustained increase in export earnings stemming from the restoration of the GSP+ facility by the European Union, favourable prices for key commodities in the international market and the flexible exchange rate policy maintained by the Central Bank.

However, drought related imports and increased gold imports caused an expansion in the trade deficit. Positive momentum in services exports, including the tourism sector, also continued while there was a moderation in workers’ remittances. Direct investment inflows are also estimated to have increased considerably in 2017, partly due to the receipt of divestment proceeds from the lease of the Hambantota port.

Reflecting these developments, gross official reserves stood at US dollars 7.7 billion at end January 2018, while the rupee depreciated by 0.9 per cent against the US dollar so far during 2018.

Meanwhile, with the considerable slowdown in food inflation, headline inflation as measured by the year-on-year change in Colombo Consumer Price Index (CCPI, 2013=100) declined sharply in January 2018. It is expected thatthe National Consumer Price Index (CCPI, 2013=100) will also register a substantial decline in January 2018, and both headline and core inflation will stabilise in the desired mid-single digit levels during the remainder of 2018.

The Monetary Board also noted that the economy is currently operating at a level below its potential. Nevertheless, as per the available indicators, the economy is likely to recover from the effects of adverse weather conditions in the past two years and benefit from the expected boost in external demand and foreign direct investment inflows.

Improvements in the trade front, including the execution of new trade agreements supported by increased private
investment driven by structural reforms, are also likely to provide the necessary impetus for
the economy to achieve its potential in the medium term.

On the fiscal front, available indicators suggest that the government has been able to record a marginal surplus in the primary fiscal balance in 2017 after several decades. However, the overall fiscal performance is expected to have deviated from the envisaged path, mainly due to increased expenditure on flood and drought related relief measures and some slippages in revenue collection.

With regard to the global economy, the International Monetary Fund revised its global growth projections upwards in its update to the World Economic Outlook issued in January 2018. While it is anticipated that this improved global growth momentum will have an overall positive effect on the Sri Lankan economy, tighter global financial conditionsremain a concern.

Considering these developments, the Monetary Board decided to maintain the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 7.25 per cent and 8.75 per cent, respectively.

Piramal Glass Sri Lanka unit December profit down 52-pct

ECONOMYNEXT – Piramal Glass Ceylon PLC said net profit fell 52% to Rs97 million in the December 2017 quarter from a year ago as demand in the food, beverage and liquor markets was yet to recover from a slowdown.

Total sales growth of the firm, a unit of India’s Piramal Glass, was virtually flat at Rs1.98 billion over the same period, according to interim results filed with the stock exchange.

Quarterly earnings per share were 10 cents. Piramal Glass Ceylon’s share last traded at Rs6 Wednesday.

EPS in the nine months to 31 December 2017 was 26 cents with net profit down nine percent to Rs251 million while sales remained flat at Rs5 billion.

Domestic sales for the December 2017 quarter fell 20% to Rs. 1,256 million from the previous year, a company statement said.

“The dip felt in the overall domestic market since beginning of the year did not recover during the quarter under review,” it said.

“Due to the increase in levies and taxes, the final products are becoming more expensive. This results in a decline in consumer demand which ultimately reflects in the reduction of sales in the food, beverage and liquor segment.

“Added to this , the impact of extreme weather conditions impacted the sales in Virgin Coconut Oil and the agro chemical segment.”

Piramal Glass Ceylon’s management has tried its best to channel the extra capacity towards the export market to bridge the gap due to the loss of domestic volumes, with exports shooting up 75% to Rs. 729 million.

“Sales to USA, Canada, Australia and neighbouring markets showed an exceptional increase which partly helped to shorten the gap,” the statement said.

“PGC is focussing to develop these potential markets to contract the incremental capacity added in the year 2016/17.”

The company said margins improved as it had reduced imports of bottles from India which it resorted to when the furnace was shut down for a capacity expansion, but higher finance costs on borrowings had restrained profit growth.

Sri Lanka Melstacorp profits fall 12-pct in Dec

ECONOMYNEXT - Profits at Sri Lanka's diversified Melstacorp fell 12.3 percent from a year ago to 1.5 billion rupees in the December 2017 quarter, on falling liquor margins and losses in telecommunications despite gains in plantations and financial services.

The company reported earnings of 1.25 percent a share. In the nine months to December earnings amounted to 3.77 rupees a share on total profits of 4.4 billion rupees, down 24 percent from a year earlier.

Revenue including sales taxes fell 1.35 percent in the quarter to 27.1 billion rupees. Net of sales taxes, revenue was 11.1 billion rupees, up 7.6 percent from a year ago.

Cost of sales grew 19 percent to 7.3 billion rupees contracting gross profits 8.9 percent to 3.8 billion rupees.

Administrative expenses grew 14.27 percent to 1.5 billion rupees and net finance cost increased 15.8 percent to 252.5 million rupees.

Distribution expenses fell 2.4 percent to 399.3 million rupees in the quarter.

Revenue from beverages which includes listed Distilleries Company of Sri Lanka fell 4 percent to 71.2 billion rupees in the nine months to December on higher sales taxes. Profits fell 44 percent to 4.9 billion rupees.

Rubber and tea plantations revenue grew 39 percent to 2.5 billion rupees. Profits amounted to 355.9 million rupees, compared to a loss of 118.8 million rupees a year earlier.

Telecommunications which includes Lanka Bell, revenue fell 4 percent to 2.2 billion rupees and losses expanded 24 percent to 1.2 billion rupees.

Revenue from financial services, which includes Continental Insurance and Melsta Regal Finance, grew 40 percent to 2.8 billion rupees and profits increased 50 percent to 316 million rupees.

A segment classified as diversified reported revenues of 1.7 billion rupees, up 21 percent from a year earlier with profits surging 250 percent to 983.8 million rupees.

This segment includes logistics, BPO, IT, hydropower, media, textiles and hotels.

Sri Lanka's Kelsey Developments losses expand 53-pct

ECONOMYNEXT - Losses at Sri Lanka Kelsey Developments, a property developer, expanded 53 percent to 70.9 million rupees in the December 2017 quarter on sliding housing sales and mounting debts, interim accounts showed.

The company reported a loss of 4.07 rupees a share in the quarter. In the nine months to December 2017 losses amounted to 6.87 rupees a share on total losses of 119.7 million rupees, increasing 324 percent from a year earlier.

Revenue fell 99 percent to 1 million rupees, cost of sales fell at the same rate to 0.3 million rupees, contracting gross losses by 97 percent to 0.7 million rupees.

Administration costs fell 34 percent to 27.5 million rupees. Selling and distribution expenses fell 94 percent to 1.4 million rupees.

Net finance costs amounted to 44 million rupees, compared to a 0.2 million income a year earlier.
Long term loans increased 20.7 percent to 473 million rupees as at end December 2017. Short term debt grew 175 percent to 392.4 million rupees.

In September 2017, the company acquired Pre-Fab Engineering Projects for 90 million rupees.

The company has four subsidiaries in construction, real estate, gated housing and condominiums. Kelsey Developments has built over a thousand residential units since incorporation in 1984, the company says.

Sri Lanka's Ceylon Beverage Holdings margins up, net down

ECONOMYNEXT - Profits at Ceylon Beverage Holdings fell 41 percent from a year earlier to 186.9 million rupees in the December 2018 quarter, with last year's profits boosted by insurance receipts, but margins on beer widened sharply with sales picking up.

The company reported earnings of 8.90 rupees a share in the quarter. In the nine months to December earnings per share was 15.10 rupees on a total profit of 708 million rupees, compared to a loss of 668.7 million rupees a year earlier.

Revenue in the quarter grew 44 percent to 8.6 billion rupees which includes the year end festive season and a part of the tourism peak.

Cost of sales grew 30 percent to 6.4 billion rupees, with gross profits soaring 109 percent to 2.1 billion rupees.

Distribution costs rose 26 percent to 827 million rupees amid larger volume sales.

Net finance costs fell 14 percent to 383 million rupees.

Last year the firm received over 2.0 billion rupees of insurance and wrote off items worth 1.1 billion rupees due to flood damage.

This year's revenues are profits are from beer sales.

The company holds 52.25 percent stakes in both Lion Brewery and Millers Brewery, and dealerships for Diageo (Johnny Walker, Smirnoff and Guinness) and Moet Hennessey (Glenmorangie and Dom Perignon). It also manages 34 pubs under the Machang, 8.8%, Chillax and O! brands.

The company suffered a loss of 1.5 billion rupee for the year ending March 2017 after floods inundated the Lion Brewery.

That year the government increased excises taxes on beer by 70 percent and later introduced VAT. But taxes were lowered this year.

Sri Lanka's Lion Brewery December profits up 29-pct

ECONOMYNEXT - Sri Lanka's Lion Brewery said profits grew 29 percent to 412.5 million rupees in the December 2017 quarter from a year earlier with sales recovering after floods shut its brewery for six months in 2016.

The company reported earnings of 5.16 rupees a share in the quarter. In the nine months to December earnings were 10.24 rupees a share on total profits of 819.2 million rupees, compared to a loss of 634 million rupees a year earlier due to floods inundating its brewery.

Revenue in the quarter grew 50 percent to 8 billion rupees, cost of sales increased 36 percent to 6 billion rupees, expanding gross profits 121 percent to 1.9 billion rupees, interim accounts filed with the stock exchange showed.

Earnings growth was helped by a one-off stocks and assets write down due to flood related damages amounting to 1.1 billion rupees a year earlier.

Distribution costs rose 34 percent to 796 million rupees and administrative expenses grew 8 percent to 264 million rupees.

Net finance costs fell 15 percent in the quarter to 345 million rupees.

Lion Brewery reported flood related losses of 1 billion rupees in the year ending March 2017. The company receivedinsurance claims totalling 2 billion rupees, half of it to cover business interruption.

To help the company recover, the government granted the brewer tax concessions to import beer for the local market at the same rate that applied to locally manufactured beer. However a Buddhist monk filed a law suit against the concessions. The case is being heard in the Court of Appeals.

The company, a unit of Ceylon Beverage Holdings, brews the popular Lion Beer, a hit even among tourists. Carlsberg Brewery Malaysia holds a 25 stake in the company which also sells beer under that brand in the domestic market and the Maldives.

The company exports to 15 countries accounting for less than two percent of total revenue even prior to the floods.

The 75 million lire per annum brewery was shut down for nearly six months after floods in May 2016.

Sri Lanka's Sampath Bank net up 52-pct in Dec

ECONOMYNEXT - Profits at Sri Lanka's Sampath Bank rose 52 percent to 3.89 billion rupees helped by a 23 percent growth in net interest income and a lower tax bill, interim account showed.

The group reported earnings of 19.95 rupees for the quarter. In the year to December the group reported earnings of 49.28 rupees on total profits of 12.6 billion rupees which were up 33 percent from a year earler.

In the December quarter net interest income rose 29.5 percent to 23.1 billion rupees, interest expenses rose at a faster 33.4 percent to 14.6 billion rupees and the bank grew net interest income 23.4 percent to 8.5 billion rupees.

Fee and commission income rose 32.1 percent to 2.3 billion rupees

Specific loans loss provisions rose 29 percent to 242 million rupees and general provision fell 64 percent to 128 million rupees.

Pre-tax profits rose 32 percent to 5.1 billion rupees, but income tax fell absolutely 17 percent to 1.2 billion rupees, from 1.3 billion rupees a year earlier.

Sri Lanka’s Cargills Ceylon December profit up 30-pct

ECONOMYNEXT - Sri Lanka's supermarket chain Cargills Ceylon said profits grew 29.8 percent to 826.9 million rupees in the December 2017 quarter from a year ago helped by capital gains, despite shrinking retail margins.

"It has been a challenging consumption environment on account of the inclement weather affecting buying power in key agriculture regions of the country," the company said.

The company reported earnings of 3.69 rupees a share in the quarter. In the nine months to December, earnings amounted to 13.90 rupees a share on total profits of 3.1 billion rupees, up 60.8 percent from a year earlier, interim accounts filed with the stock exchange showed.

Revenue grew 5.26 percent to 23.2 billion rupees in the quarter, cost of sales rose 5.7 percent to 20.5 billion rupees, expanding gross profits by 2 percent to 2.7 billion rupees.

Administrative expenses rose 6.8 percent to 1 billion rupees, distribution costs increased 10.5 percent to 645 million rupees, and net finance costs fell 14 percent to 267.9 million rupees.

During the nine months to December the share of associate profit was recorded at 199 million rupees due to a 481 million rupee gain by Cargills Bank, an associate firm, from disposing its subsidiary Colombo Trust Finance to listed telco Dialog, the company said.

Cargills Ceylon said its subsidiary Dawson Office Complex disposed freehold property in Colombo valued at 4.2 billion rupees, recognizing a profit of 1 billion rupees.

Revenue from retail, which includes the Cargills Food City supermarket chain, grew 7 percent during the nine month period to 54.7 billion rupees, but profits were flat from a year ago at 2.3 billion rupees.

Cargills Food City opened its 338th outlet in this period.

Fast moving consumer goods revenue grew 8 percent to 16.6 billion rupees and profits rose 6 percent to 1.8 billion rupees.

Revenue from restaurants, which includes a KFC franchise, grew 12 percent to 2.8 billion rupees and profits surged 75 percent to 349.8 million rupees.

Sri Lanka's Odel December profits up 11-pct

ECONOMYNEXT - Sri Lanka's department store Odel, a unit of the Softlogic group, said profits rose 11 percent to 66.3 million rupees in the December 2017 quarter from a year earlier on lower tax payments despite thinning margins.

The company had earnings of 24 cents a share in the quarter, interim accounts showed.

In the nine months to December 2017, earning amounted to 0.43 cents a share on total profits of 116.3 million rupees, down 32 percent from a year earlier on higher interest costs and administrative expenses.

Odel last traded at 22.90 rupees Friday.

Revenue in the quarter rose 6 percent to 2 billion rupees, cost of sales grew 1 percent to a billion rupees, expanding gross profits by 11 percent to a billion rupees.

Distribution costs rose 11 percent to 124 million rupees and administrative costs also rose 11 percent to 678.9 million rupees. Net finance costs rose 58 percent to 115 million rupees.

Taxes paid in the quarter fell 58 percent to 23 million rupees.

Odel said it invested 10 million rupees to form a new company to carry out a Board of Investment approved project.

The company said it has entered into an agreement with Access Engineering for 570 million rupees to construct the diaphragm wall and piling work of the proposed Odel department store.

Odel has also entered into an agreement with China Construction Third Engineering Bureau for 7 billion rupees to develop its Ward Place property.

Sri Lanka’s Laugfs Gas back in the red in December quarter

ECONOMYNEXT – Sri Lanka’s Laugfs Gas group slipped back in to the red in the December 2017 quarter with losses rising 184% to Rs527 million from a year ago.

The company made a Rs1.36 loss per share, according to interim results filed with the stock exchange. The stock was last traded at Rs26.20 Friday.

December quarter sales rose 38% to Rs6.6 billion but cost of sales rose faster, at 52% to Rs5.6 billion, squeezing margins and reducing gross profits by eight percent to a billion rupees.

In the nine months to 31 December 2017, the loss per share was Rs2.43 with losses of Rs942 million although sales rose 40% to Rs18 billion.

Laugfs Gas had returned to profit in the September 2017 quarter with net earnings of Rs40 million, down 85% from a year ago, after three successive quarters of losses.

The firm has attributed the downturn to local price controls as LPG and steel prices rose internationally, rupee depreciation and rising interest costs and said it continued to lobby for a pricing formula.

Sri Lanka's The Finance Losses up 24-pct, balance sheet gap Rs16bn

ECONOMYNEXT - Losses at Sri Lanka's troubled The Finance Company expanded 24 percent to 598.2 million rupees in the December 2017 quarter, and a hole in the balance sheet expanded by 1.6 billion rupees to 16 billion in the past 9 months.

Losses in the quarter were 3.73 rupees a share. In the nine months to end December 2017, losses were 10.50 rupees a share, on a total loss of 1.7 billion rupees, up 41 percent from a year earlier.

The Finance shares gained 10 cents on Friday closing at 5 rupees on Friday.

Interest income in the quarter grew 6 percent to 866.9 million rupees, interest expenses increases 20 percent to 1.1 billion rupees, ballooning net interest losses by 122 percent to 248.8 million rupees.

The company has 30 billion rupees of deposits and 5.0 billion borrowings but only 22.4 billion rupees of assets of which over 4 billion rupees are not interest bearing.

Fees and commission income grew 29 percent 19.3 million rupees and other income fell 49 percent to 12.1 million rupees.

Bad loan provisioning increased 34 percent to 117.7 million rupees.

Operating expenses including personnel increased 16 percent to 263.9 million rupees.

The Finance Company's book value, or shareholder funds, was a negative 16 billion rupees as at end December 2017, up 12 percent from March.

The Finance Company's loan book expanded 28 percent in this period to 4.9 billion rupees, its hire purchase portfolio shrank 10 percent to 4.6 billion rupees, leasing fell 28 percent to 729 million rupees.

Financial investments fell 2.2 percent to 6.2 billion rupees. Real estate investments fell 18 percent to 805.8 million rupees.

Ceylinco Crisis

The Finance's problems began with the collapse of Golden Key, over 10 years ago, when interest rates rose after a period of high inflation fired by deficit spending and loose monetary policy.

The Finance was incorporated in 1940 and later became part of the now defunct Ceylinco Group, controlled by Justin Kotelawala.

Ceylinco Group was founded in the late 1930s by Hugh Weerasekere and Cyril E. S. Perera, who relinquished control over to Kotelawala in the 60s.

The Ceylinco crisis began under Kotelawala’s son Lalith, when the Golden Key Credit Card Company, an unregulated credit card issuer, collapsed, unable to settle 26 billion rupees in unauthorised customer deposits.

The Finance faced a run on deposits, and worse, borrowers stopped servicing loans.

The central bank took control through a management agent, but the firm continues to bleed money.

For one, the company had invested heavily in property, which couldn’t be liquidated fast enough.

The Finance also had loans to Ceylinco group companies, which were not paid back.

In 2010, the Central Bank converted 10 percent of The Finance’s deposits worth 2 billion rupees into non-voting shares and raised another 1.6 billion rupees via a public offer.

The Employees Provident Fund managed by the Central Bank was forced to invest in 5.1 million shares. The Finance shares were trading on the stock exchange at 37 rupees at end-March 2011. Today, a share is worth 5 rupees, losing 86.5 percent in value since.

The company’s 19 billion rupee pre-crisis loan book deteriorated rapidly to 7 billion rupees in the three years to 2012. Its deposit base fell by a quarter to 21 billion rupees. The Finance reported a 9 percent negative interest margin that year.

In the two years to 2014, the loan book grew 14 percent to 8 billion rupees, but deposits rose to 24 billion rupees. Its annual report that year hailed high growth in deposits as a sign of growing public confidence, but this only pushed negative interest margins further into the red at 14 percent.

To help reduce negative interest expenses, in December 2014, the Central Bank granted a 6 billion rupee low-cost loan to The Finance, mostly invested in government securities.

That year, The Finance’s board finalised a five-year business plan (2014/15 to 2019/20) approved by the Central Bank detailing a strategy to revive the company with low-cost deposit mobilisation, converting non-yielding real estate into yielding assets or selling them to finance long -term business loans, and improving the collection of 3.8 billion rupees worth of Ceylinco Group loans.

The company also has some real estate. The firm had land and real estate assets worth 1.7 billion rupees at end-March 2017 in its books, down 73 percent from 6.5 billion rupees in 2011 after provisioning for losses.

Despite appreciating land prices, there is a growing gap in the balance sheet.