Abans Finance (AFSL) reports modest profit, deposits at 6.5bn, balance sheet shrinks sequentially

LBO – Colombo Stock Exchange listed Abans Finance PLC (AFSL) released quarterly results for the period ended June 2018.

The CBSL registered finance company reported a modest profit of Rs18mn for the quarter on an equity base of over Rs1.5bn. Total assets were Rs8.8bn, while total deposits were Rs6.5bn.

The balance sheet of the company actually shrank from the previous quarter with total assets and deposits both down 2% in the 3 months ended June 30 2018.

Approximately 2 years ago AFSL attracted a private equity investment from newly established Sri Lanka private equity fund Ironwood Investment Holding. Currently Ironwood owns approximately 42% of the total shares outstanding. The shares were acquired and capital infused into the company in several transactions at Rs25/share.

With a minority stake in the company, and the firm’s book value close to Rs24/share, it is unclear whether this will turn out to be a successful investment for the private equity firm. Many higher quality finance related stocks are trading at a fraction of book value, with much better liquidity.

In addition to likely overpaying for their investment in AFSL, Ironwood may also be troubled by the fact that minority shareholders in Sri Lanka have had a long history of being oppressed. Minority shareholder oppression has been a key factor that has stunted the development of the private equity industry in Sri Lanka.

Pan Asia Bank PAT tops Rs.800Mn in 1H 2018

LBO - Pan Asia Banking Corporation PLC reported its best ever profit recorded in a first half in 2018 anchored by solid growth in new loans, prudent margin and asset-liability management.

For the six months ended in June 30, 2018 (1H’18), the bank reported a profit after tax of Rs.819.6 million, up by a strong 33 percent from the same period in 2017.The net interest income rose by 18% on a year-on-year (yoy) basis to Rs.2.8 billion supported by better margins recorded amid the rising cost of funds.

The net interest margin increased to 3.92% during this period from 3.61% in December 2017 as the bank continuously reviewed the pricing of its asset and liability portfolio and managed them efficiently. This improvement is a testament to the bank’s ability to recalibrate its asset portfolio from low yielding ones to high yielding ones in order to optimize the margins.

Meanwhile for the quarter ended in June 30, 2018 (2Q’18), the bank reported a profit of Rs.506.8 million on a net interest income of Rs.1.5 billion compared to Rs.263.5 million profit and Rs.1.2 billion net interest income reported in the same quarter last year. The better top line performance in the 1H’18 is also a reflection of relatively strong growth in new loans.

“We recorded a commendable growth in our loan book during the first half of 2018 amid the many headwinds we faced during this period. I consider this achievement noteworthy because we recorded it amid a moderation in sector loan growth and rising non-performing loans”, said Nimal Tillekeratne, Pan Asia Bank’s Director/ Chief Executive Officer.

Singer (Sri Lanka) revenue up 16-pct in 1Q

LBO – Singer (Sri Lanka) PLC announced a 16 percent increase in its revenue to 15.1 billion rupees in the first quarter of FY19 in spite of challenging business conditions, the Company said in a statement.

While an improvement in the rural economy was noted in April-May, the company noted a lower consumer demand in urban areas. The consumer durables industry, where Singer is present, is more susceptible to market conditions than other industries.

In the period under review, the profit before tax increased to 640 million rupees while profit for the period increased by 7 percent to 450 million rupees.

In a statement, Singer said it anticipates gradual improvements in the business conditions during 2018 with an improved harvest in August/September and will pursue strategies to improve revenue and margins while lowering costs via key business initiatives.

Group CEO Asoka Pieris said: “Despite a challenging environment, Singer is continuing to increase market share and market leadership in consumer durables. We are confident that, with the new strategies and initiatives in place, combined with synergies of Hayleys Group, the Singer Group can look forward to significant growth.”

Group Chairman Mohan Pandithage said: “As the major shareholder, Hayleys Group is poised to significantly strengthen Singer’s growth prospects as the leader in consumer durables and maximise its potential further.”

CSE listed CDB reports profit of Rs339mn; Deposits grow to Rs47bn

LBO – Colombo Stock Exchange listed Citizens Development Business Finance (CDB) reported robust profits for the June 2018 quarter.

Profits at the CBSL registered finance company were Rs339mn for the quarter on equity of approximately Rs7.6bn. The firm is operating a full balance sheet with assets of approximately Rs80bn.

Deposits grew to a massive Rs47bn by the end of the quarter.

Despite regularly stellar performance, the company’s stock trades at close to just 1/2 of its book value.

Controlled by parent Ceylinco Insurance (CINS), the company has failed to inspire confidence with minority shareholders and therefore trades at strikingly low valuation.

Ceylinco Insurance (CINS) has a history of minority shareholder oppression and has been subject to litigation by one of its largest shareholders Prabash Subasinghe. Subasinghe has effectively been frozen out of Ceylinco Insurance for several years. The company has failed to grant his request for a board seat, and continues to pay relatively small dividends to shareholders alongside significant compensation to top executives. Subasinghe and related entities own just under 30% of the company, a multibillion rupee holding.

Piramal Glass Sri Lanka unit June net down 55-pct

ECONOMYNEXT – Piramal Glass Ceylon said net profit fell 55% to Rs47 million in the June 2018 quarter from a year ago as despite exports almost doubling domestic sales shrank for the second straight year and costs rose.

Overall sales of Sri Lanka’s sole container glass maker, a unit of India’s Piramal Group, rose 17.5% to Rs1.6 billion during the period, according to interim results filed with the stock exchange.

Earnings per share were five cents in the June quarter. The stock closed Monday at Rs4.30, down 10 cents or 2.27%.

A statement said domestic sales fell 8% to Rs1,016 million from the same quarter in 2017, the second straight year in which sales fell.

“The major impact came through the liquor segment. Over the past two years a shift of consumption was observed from the high end locally filled foreign liquor segment to the low end liquor. This was further aggravated with heavy taxes imposed on the liquor industry,” it said.

“The high end liquor segment uses new bottles whilst the low end uses used, scrapped bottles. Thus this shift has impacted the demand of fresh bottles.”

The company said it has entered into the retail segment with the launch of glass bottles for food and water for house hold consumption, opening a new category of business and providing alternatives to plastics and PET.

Export sales for the quarter grew by 98% to Rs633 million from a year ago.

“This is 39% of the overall sales value as against 23% in the previous year first quarter,” the statement said.

“The company did its best to fill the excess capacity created with the decline in the domestic market through exports. Most of the orders obtained at short notice from the mass market as capacity fillers did not yield the same attractive margins as the domestic and high niche segment of the exports.”

The company said it continuously strives towards gradually shifting the volumes from the mass market to the premium segment.

Presently company is exporting to USA, Canada, New Zealand, Australia, India, Pakistan, Myanmar and several other markets. A significant growth has been experienced in the USA and Canadian markets.

Piramal Glass Ceylon said gross profit for the period fell to Rs286 million from Rs351 million the corresponding period the previous year.

“Whilst product mix being one of the reasons for low margins, the other factors were the energy costs and other input cost increases,” the statement said.

“The LPG rate was an all-time high for the past three years. Diesel rate increased by Rs. 24/= per litre impacting cost of production in several fronts including increases in raw material prices, packing material cost and transportation costs.”

Sri Lanka Telecom private placement to roll over short-term debt

ECONOMYNEXT – Sri Lanka Telecom (SLT), the dominant state-owned fixed line provider, said it will issue almost 80 million new voting shares through a private placement with the funds going to roll over short-term debt.

A stock exchange filing said the private placement of shares, at a price yet to be fixed, will be with local and foreign institutional investors.

The share price will be announced after a share valuation and feedback from potential investors, SLT said.

The main purpose of the new share issue is to meet the stock exchange’s minimum public shareholding requirement.

SLT will issue 89.77 million ordinary voting shares representing 4.74% of issued shares after the private placement.

The company’s present issued capital is Rs18 billion represented by 1.8 billion ordinary voting shares.

Sri Lanka’s Jetwing Symphony losses marginally down in June quarter

ECONOMYNEXT- Sri Lanka's Jetwing Symphony Plc, a hotel owneer and operator, reported net losses of 155.3 million rupees for the June quarter, down 3 percent from a year earlier with revenues and gross profits picking up.

According to interim financials submitted to the Colombo Stock Exchange, Jetwing posted a loss of 31 cents per share. Jetwing shares closed at 12.10 rupees on Friday, down 20 cents.

Gross profits grew 14.8 percent to 241.6 million rupees from a year earlier, with revenue growing 12 percent to 298.7 million rupees and cost of sales growing 2 percent to 57 million rupees.

Finance costs grew 5 percent to 106 million rupees from a year earlier while foreign exchange losses increased 108 percent to 17.7 million rupees.

Retained losses reached up to 1 billion rupees during the quarter for Jetwing, which is operating five hotels opened over the past 5 years.

Final approvals for the sixth, Jetwing Kandy, a 26 room hotel which was to be constructed in two stages, has been delayed, the company said.

“The initial plan was to complete 17 rooms at an estimated cost Rs 500 million and the rest to be developed at a later date.”

“Due to the delay in final approvals, the board of Jetwing Symphony PLC has now decided to construct the 26 rooms in one stage as per the Master Plan at an estimated cost of Rs 753 million.”

Jetwing said that the total cost for the project remains unchanged.

It said that the equity contribution has been increased to 380 million rupees in addition to the revaluation reserve. Another 350 million rupees will come from debt.

Sri Lanka's Hayleys group to sell assets to reduce debt

DOMINANCE: Hayleys recently acquired Singer Sri Lanka, a consumer durables retailer and brand owner. The group aims to be the dominant player in chosen industry segments.

ECONOMYNEXT- Sri Lanka's Hayleys Plc, a diversified group, is planning to sell some of its assets to settle debts taken to fuel an aggressive expansion drive and focus on high return businesses, officials said.

Hayleys borrowed heavily over the past year to buy the country’s largest consumer durable retailer Singer Plc for 12.5 billion rupees. It also acquired Sri Lanka Shipping Company Ltd for 4.9 billion rupees to become the country’s largest ship owner with 22 vessels.

"Yes, we are overleveraged, but we are not worried," Executive Director Sarath Ganegoda told reporters.

He said that Hayleys will examine it balance sheet to identify assets that are not generating adequate returns on investment, and sell them.

"We are likely to liquidate some assets. We’re now looking at the return on assets, which we didn’t look closely at before," he said.

Hayleys group ROA fell to 1.58 percent in the year to March 2018 down from 3.88 percent a year earlier. Return on capital employed (ROCE) fell to 7.48 percent from 9.41 percent.

In the June 2018 quarter, shareholders of the parent lost money. Hayleys last reported double digit returns on shareholder funds in 2005 at 10 percent.

Analysts say in the 1980s and 1990s, nominal returns may also have been helped by high inflation and currency depreciation, though the group had a practice of revaluing assets to calculate ROCE as well as tax holidays as it had a focus on exports.

Hayley's stock price had fallen from 296 rupees to about 200 rupees in the 12-months to June 2018.

Ganegoda said that Hayleys, in its 140 year history has acquired many assets, some of which don’t have their true value shown on the balance sheet.

The group’s acquisition drive is over for the foreseeable future, and will consolidate its businesses in the 16 industries Hayleys is now in, he said.

"We are looking to be number one in every sector we get into," Chairman Mohan Pandithage said.

Pandithage said they group was targeting a billion dollar revenue in 2020, but had already achieved it after acquiring Singer Sri Lanka.

Some of the more recent industries Hayleys entered into, such as leisure and renewable energy, are putting temporary pressure according to Ganegoda.

“They are cash heavy and are putting temporary pressure on our liquidity,” he said.

These sectors are expected to drive long-term growth and stability, Ganegoda said.

Hayleys’ more traditional businesses in agriculture and manufacturing will help in the short-term profitability, liquidity and debt repayment capacities, he said.

He said that Hayleys is looking to reduce its debt to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio to 3x.

At the end of the last financial year in March 2018, the ratio was at 6x according to company data. For the 4 previous years leading back to 2014 the group had maintained a 3x debt to EBITDA ratio.

By the end of the June 2018 quarter, Hayleys had 35 billion rupees in long-term borrowings, compared to 20.5 billion rupees in the June 2017 quarter before the latest round of acquisitions.

Short-term borrowings in June 2018 increased to 43.1 billion rupees from 23.5 billion rupees a year earlier.

The current portion of long-term borrowings increased to 23.9 billion rupees from 4.5 billion rupees a year earlier.

Sri Lanka's Hayleys says twin towers need government concessions

ECONOMYNEXT- Hayleys Plc, one of Sri Lanka’s largest companies, said that its twin tower office complex is commercially unviable, unless the project receives government concessions.

Executive Director Sarath Ganegoda said that Hayleys is not actively seeking government concessions, but said that some large private sector developments had received concessions in the past as strategically important projects.

"Some time ago a few projects got strategic important status and concessions."

"We're ready to kick off the project provided it becomes commercially viable, if we get the same concessions given to projects which were given strategic important status," Ganegoda said.

Strategically important projects received long-term tax holidays and duty free import of raw materials, while the common man had to pay more to build houses due to high protectionist tariffs for building materials.

Hayleys Chairman and Chief Executive Mohan Pandithage said that the project has received all regulatory approvals.

The project titled the ‘World Export Centre’ is expected to built on Hayleys' current office premises.

According to Hayleys’ plans, the twin towers would have 55 floors each, with 3.8 million square feet of commercial Grade A office space. It would have 3 floors of retail space and amenities.

The towers will provide working space for 20,000 employees, with parking for over 2,000 vehicles, according to Hayleys’ plans.

Sri Lanka’s Aitken Spence June profit down 41-pct

ECONOMYNEXT – Sri Lanka’s Aitken Spence group said net profit fell 41% to Rs211 million in the June 2018 quarter from a year ago amid mounting losses from its hotels business and lower earnings from power generation.

Sales of the group fell 8.2% to Rs10.6 billion, interim accounts filed with the stock exchange showed.

Earnings per share for the quarter were 52 cents. The stock closed at Rs47, down 20 cents or 0.4% Friday.

The accounts showed higher losses from its hotel and lower profits from power while maritime business profits were up.

A statement said the group incurred major expenses on construction of Heritance Aarah resort, in the Maldives, and the 10MW waste-to-energy power plant in north of Colombo.

Sri Lanka's Hayleys in the red amid rising interest costs

ECONOMYNEXT - Sri Lanka's Hayleys Plc, which is in manufacturing, consumer durables and logistics lost 264 million rupees in the June 2018 quarter up from a loss of 149 million rupees, amid rising interest costs.

The group reported a loss of 3.48 rupees per share for the quarter. The stock closed at 199.90 rupees, down 20 cents on Friday.

After consolidating recent acquisitions, revenues rose 74 percent to 50.6 billion rupees, cost of sales rose 67 percent to 38.7 billion rupees and gross profit rose 96 percent to 11.5 billion rupees.

Distribution expenses rose to 2.9 billion rupees from 1.08 billion and administration expenses rose to 5.57 billion rupees from 3.6 billion rupees.

Net finance costs rose 171 percent to to 2.75 billion rupees from 875 million rupees a year earlier.

Hayleys has gone on an acquisition spree in recent years, mostly funded by debt.

Long term borrowings rose to 34.9 billion rupees at the end of June 2018 from 20.5 billion rupees and short term borrowings rose to 43.0 billion rupees from 23.4 billion rupees.

The current portion of long term borrowings rose to 23.9 billion rupees from 4.5 billion rupees.

Sri Lankan shares end marginally lower; John Keells down over 2 pct

Reuters: Sri Lankan shares edged lower for a second straight session on Monday, led by market heavyweight John Keells Holdings, as the absence of any positive triggers dampened appetite for the island nation’s risky assets.

The Colombo stock index fell 0.21 percent to 6,128.82 points, moving further away from its highest close since July 25 hit on Thursday. The index has declined about 3.8 percent so far this year.

Turnover stood at 242.2 million rupees ($1.51 million) on Monday, less than a third of this year’s daily average of 840 million rupees.

“There was no market moving news, both on the political and economic fronts,” said Prashan Fernando, CEO at Acuity Stockbrokers.

Global equities fell on Monday as Turkey’s worsening currency crisis persuaded investors to dump equities and flee to safer assets such as government bonds and the U.S. dollar.

Foreign investors bought shares worth a net 36.8 million rupees, after having sold a net 2.75 billion rupees worth of equities so far this year.

Shares in John Keells fell 2.1 percent while those of top mobile phone operator Dialog Axiata fell 0.7 percent.

The central bank left its key policy rates unchanged, as expected, on August 3, citing its goals of stabilising inflation and fostering sustainable economic growth.

Central bank Governor Indrajit Coomaraswamy said the economy was unlikely to grow more than 4 percent in 2018, falling short of an earlier estimate of 5 percent. 

($1 = 159.9000 Sri Lankan rupees) 

(Reporting by Shihar Aneez; Editing by Vyas Mohan)