Two-month production disruption hurts Alumex 2017/18 results Leading aluminum extruder sees building boom prospects down the road

Alumex PLC, the Hayleys subsidiary which is the country’s leading aluminum extruder, posted below target results in terms of both revenue and profits in the year ended Mar. 31, 2018 but is poised to take-off with a new state-of-the- art production facility at Ekala enabling an additional output of 1,000 mt., the company’s annual report said.

"This will undoubtedly enhance the company’s position as the leading aluminum extruder in Sri Lanka, both with a higher capacity and higher quality of products, enabling the company to capture the premium market segments in both Sri Lanka and the South East Asian region," Alumex Chairman Mohan Pandithage said in the company’s recently released annual report.

A fault in the main extrusion line discovered during a plant refurbishment program at the beginning of the financial year resulted in the loss of 750 mt. production capacity. Although production returned to normal within a short time, sales did not recover at the same pace as the overall demand for aluminum products in the construction industry declined in the latter half of 2017, Pandithage said.

"In this backdrop, our marketing strategy had to be reassessed to suit the competitive environment. These changes, together with the increased demand saw a return to profitability in the last quarter of the financial year."

With the GDP from construction expected to grow seven to eight percent in the next few years a consistent demand for aluminum extruded products is projected and with the strategies the company has in place, it was well positioned to restore the momentum of its business, he said.

The year under review saw the company’s turnover down 5% to Rs. 4.5 billion and the group profit after tax down 52% to Rs. 364 million from the previous year’s Rs. 753 million. Net assets per share were down to Rs. 7.53 from Rs. 7.74 and a dividend of Rs. 1.05 per share was paid, down from the previous year’s Rs. 1.45.

Managing Director Rohan Peris said that their having to keep the main extrusion line out of production for two months compounded an unfavourable market situation. There was also an unforeseen downturn in the growth of the construction industry. Curtailing production led to delays in completion of orders and delivery resulting in reduced sales and a drop in market share although they retained their market leadership.

Their upgraded production facility at Ekala will gear the company to supply aluminum extrusion to upcoming large scale infrastructure projects, both ongoing and in the pipeline. These include the Megapolis, Port City, multi-storey luxury hotels and apartments and commercial mixed development projects.

Alumex has a stated capital of Rs. 283.7 million, reserves of Rs. 665.5 million and retained earnings of Rs. 1.3 billion in its books. Total assets ran at Rs. 6.4 billion and liabilities at Rs. 4.15 billion.

Hayleys with 52.59% of the company is the controlling shareholder, followed by Akbar Brothers (13.50%) and Rosewood (Hirdaramani) 9.80%. Dean Foster, a Hayleys subsidiary owns 4.75%.

The directors of the company are Messrs. Mohan Pandithage (chairman), RP Peris (MD), DWPN Dediwela (COO), SC Ganegoda, RP Pathirana (alternate AJ Hirdaramani), AA Akbarally (alternate T. Akbarally), Dr. H. Cabral and S. Munaweera.

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Browns seek shareholder nod for rights issue as market price slumps below issue price

Old established Brown and Co. PLC has summoned an extraordinary general meeting (EGM) of shareholders on Tuesday (July 17) to seek their approval for a rights issue of 141.75 million ordinary shares of the company, in the proportion two new shares for every share already held priced at Rs. 50 a share.

A circular to shareholders indicated that funds to be raised by the rights issue, to be underwritten without charge by Lanka Orix Leasing Company PLC (LOLC), is intended to settle outstanding borrowings of Rs. 7.087 billion (approx) of a total of approx. 7.094 billion due as at June 1, 2018.

A substantial component of the company’s borrowings as at May 31 is due to related parties with approx. Rs. 6.66 billion due to related parties while approx Rs. 10.03 billion is due to other parties.

Although the Brown’s share traded at highs ranging from Rs. 74.50 to Rs. 73.20 and lows of Rs. 68.50 to Rs. 55.50 in March, April and May, the current downturn in the Colombo Stock Exchange has driven the share below the fifty-rupee rights issue price.

The share closed on Friday at Rs. 48.50 with a small quantity of 672 shares trading between this price and Rs. 50, and closing at Rs. 48.50.

The shareholder circular said that LOLC is currently the ultimate holder of 54% of Browns shares through various related companies while owning 4.77% in its own account. It further said that if, resulting from the underwriting, LOLC were to hold above 30% of Browns, the mandatory offer provisions of the Company’s Takeovers and Mergers Code will not apply to LOLC.

Browns plan to dispatch provisional letters of allotment on July 24 upon receiving shareholder approval for the rights issue at the EGM.

Browns have paid no dividend for 2017/18, a dividend of 50 cents per share the previous year and 30 cents per share a year earlier. In 2014/15 it paid a dividend of Rs. 2.65 a share according to figures furnished in the rights issue circular.

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Asset rich John Keells Hotels looking at leaner expansion model Bentota Beach closure & part closure of two Maldives resorts impact on profits New Cinnamon Red in Kandy

John Keells Hotels PLC. (KHL), one of Sri Lanka’s largest hotel operators owning and managing a portfolio of 1,204 four and five-star rooms in 10 hotels across Sri Lanka and the Maldives saw a decline in both revenue and profitability in the year ended Mar. 31, 2018, with revenue down to Rs. 11.6 billion from the previous year and after-tax profit down to Rs. 1.1 billion from the previous year’s Rs. 1.86 billion.

The company’s chairman, Mr. Susantha Ratnayake, attributed the decline to the complete closure of Bentota Beach by Cinnamon for redevelopment and the partial closure of Cinnamon Dhonveli Maldives and Ellaidhoo Maldives by Cinnamon to facilitate refurbishments.

"The closures resulted in KHL recording a profit before tax of Rs. 1. 35 billion for the financial year ended Mar. 31, 2017, a decline of 40% over the previous year. Excluding the impact of the closures, KHL recorded a satisfactory performance given the increased room supply in the informal and graded sector, particularly in the coastal areas of the country," Ratnayake said.

The company which claims to be Sri Lanka’s hospitality trendsetter commands assets of Rs. 33.2 billion and a net asset value per share of Rs. 18. It posted 81% occupancy in the Sri Lanka sector, up marginally from 80% the previous year, and 82% in the Maldives, down from the previous year’s 89%.

Ratnayake said that Sri Lanka’s tourism sector recorded a subdued 3.2% growth in 2017 to 2.1 million arrivals against the robust 14% in 2016 falling short of the government’s target of 2.5 million arrivals. This was due to three month partial closure of the BIA for renovations and travel advisories from key markets due to floods, dengue and the declaration of a 12-day State of Emergency.

Maldives had recorded 1.39 million tourist arrivals in calendar year 2017, up 8% over the previous year. Arrivals were impacted by the unfavorable political climate in the country resulting in travel advisories being issued from key source markets including China, USA, UK and India. But Russia had recorded a strong recovery in outbound travel to the Maldives growing 33.1% over the previous year with nearly 62,000 arrivals.

Ratnayake said that the redevelopment of 159 rooms and Bentota Beach is ongoing with the hotel due to recommence operations next year. Exceptional expenses at Bentota Beach included an asset write-off and a voluntary retirement scheme expenses.

Looking at the outlook for the future, he said that the government has targeted 2.5 million arrivals this year with traffic from India expected to reach 450,000. The Sri Lanka Tourist Proportion Bureau is focusing on increasing awareness of Sri Lanka as a destination promoting film tourism, destination weddings, MICE (meetings, incentives, conferences and exhibitions) travel and religious and pilgrimage related travel to position Sri Lanka as a ‘destination for all seasons.’

"The group has strong conviction on the long-term growth prospects of the industry and is actively pursuing investment opportunities and partners to expand the Cinnamon hotels portfolio," Ratnayake said.

"The group is conscious of the high asset base of the industry group and in this light, in line with global trends, the group’s future expansion will be executed through asset-light models."

He also announced that they will strengthen their Sri Lanka presence and have made plans to commence construction of Cinnamon Red in Kandy with a room inventory of 210.

JKH with 80.32% of the company, followed by the EPF (5.39%) and the Sri Lanka Insurance Corporation’s Life Fund (4.80%) are the largest shareholders of Keells Hotels. All other shareholders individually own less than one percent.

The share traded at a high of Rs. 11.90 and a low of Rs. 8.30 during the year, closing at Rs. 9.30. This compared to a trading range of Rs. 13.50 to Rs. 9.80 closing at Rs. 10 the previous year.

The directors of the company are Messrs. SC Ratnayake (chairman), KNJ Balendra, JGA Cooray, JR Guneratne, JEP Kehelpannala. BJSM Senanayake, NB Weerasekera and Ms. AK Moonesinghe.

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ASPI positive for first time since late May says Acuity

Sri Lankan equities reversed seven consecutive weeks of negative returns last week, helping the ASPI end on a positive note for the first time since late-May this year, Acuity Srtockbrokers said in their Share Market Weekly.

It noted that despite temporarily falling below the key 6,100 level, the benchmark Index gained ~29 points or 0.48% over the week (cf. -86 point loss the previous week) and similar to that week when the Index breached the 6,100-mark to hit a 15-month low of 6044.03, the ASPI lost ~31 points on Monday to drag the index once again below this key 6100-mark.

However, the ASPI rebounded notably over the latter half of last week and its ~61 point gain between Wednesday and Friday more than offset the losses recorded earlier in the week and helped push the Index safely above the 6,100-mark for the second consecutive week, the report said.

"The stronger performance on the Index was mainly attributable to the return of d.lkInstitutional and high net worth investors and crossings accounted for 46% of weekly turnover (cf. just 36% a week earlier) with Jetwing Symphony and HNB accounting for 53% of the bulk parcels," Acuity said.

"Despite the Index’s stronger performance, overall activity levels on the Bourse remained dull, with turnover decreasing 31% W-o-W to Rs.2.0Bn. Daily turnover levels subsequently hit a 12-week low on both Monday (Rs.155Mn) and Tuesday (Rs143Mn) cf. the previous low of Rs.102Mn recorded in Mid-April amid the traditional New-Year holidays."

The foreign equity sell-off on equities meanwhile, continued once again last week with net outflows from the CSE amounting to Rs.221Mn cf. Rs.900Mn a week earlier. Net foreign outflows from the CSE widened further to Rs.2.8Bn, reflecting the heightened risk-aversion for Emerging and Frontier Market assets since Feb., 2018.

Acuity expected markets in the week ahead likely to look for cues both from domestic political & economic developments.

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