RPCs jolted!

By Azhar Razak

As unpredictable weather patterns and labor issues haunt plantation industry, Tea sector falls behind on global stage whilst outlook for rubber remains bleak

Sri Lanka’s tea plantation industry, which had expectations for industry profitability during the current financial year, given that it was spared of wage negotiations, has been affected by persistent rainfall during the latest quarter resulting in a drop in output and profitability. According to a recent industry update by a top brokerage firm, while the rubber industry continues its decline due to bleak global market conditions and unfavorable weather locally, palm oil, on the other hand, has continued to yield positive results for Regional Plantation Companies (RPCs) with exposure to it.

“Therefore, diversity emerges as the key to success for plantation companies. It is imperative that plantations counters considered for investment be diversified both in terms of crop mix and also in terms of elevation when it comes to exposure to Tea,” Bartleet Religare Securities (BRS) advocated to investors in a research report titled ‘Sri Lankan Plantations Sector Update’ released last week.

Given the volatile nature of the industry, the BRS report stated that the sector, which although currently trades at a Price to Earnings Ratio (PER) of 9.7x and a Price to Book Value (PBV) of 0.8x deserved to trade at a discount.

During the period January-September 2014, Sri Lanka’s cumulative tea production increased by 7.2mn kg to 255.7mn kg (+2.92%). High grown and Low grown tea recorded YoY growths of 9.1% to 59.8mn kg and 4.4% to 157.9mn kg respectively. Mid grown tea recorded a drop of 10.4% YoY to 35.5mn kg.

“At USD 3.60 per kg Sri Lankan Tea fetches almost twice that of its competitors in India and Kenya. However, this phenomenon is negated by the fact that Sri Lanka has the highest unit cost of production among all major producers. Daily wages of a Sri Lankan plucker stands at USD 5.30, considerably higher than that of Kenya (USD 2.60) and India (USD 2.10). Sri Lanka’s unit labor cost alone is higher than the total unit production cost of most of its competitors,” the BRS
report outlined.

It noted that Sri Lanka’s daily output per plucker is 18 kg/day and significantly lower than the Kenyan output of 48 kg/day and the Indian output of 27 kg/day.

“Productivity among male pluckers in Sri Lanka is especially low compared to global peers and also compares to only around 60% - 70% of female pluckers. This is in contrast to the situation in Kenya where male pluckers’ daily output is significantly higher than female pluckers. In addition to high wages and lower labor productivity, RPCs are also required to provide free accommodation, healthcare facilities and other amenities to workers and their families. Local RPCs incur significant costs to provide these facilities as opposed to their global counterparts,” the report further noted.

Meanwhile, the report stated the local rubber industry has continued to decline in line with the current global stagnation of the global market for the commodity. This is due to the weak demand conditions in China and the E.U coupled with excess supply.
“Adverse weather conditions have hampered tapping during most of the year, bringing down output as many smallholders have resorted to discontinue tapping further. The slight price recovery witnessed recently has been a result of this reduction in supply,” the report said.

On the other hand, palm oil, due to its essentially low labor requirement, has successfully cushioned the impact of wage increases (which occur bi-annually) on the companies that have exposure to it. Additionally, Palm oil has also resisted volatility owing to adverse weather conditions which have plagued Tea and Rubber.

“Palm oil has accounted for over 80% of Watawala Plantations and Namunukula Plantation’s profits in FY 14. The attractiveness of the crop has lead Kotagala Plantations and Horana Plantations to diversify their crop mix to include Palm oil. Local producers also receive protection in the form of heavy import taxes.”
www.nation.lk

Nation Lanka Finance PLC says “delivers outstanding performance”

Nation Lanka Finance PLC (NLF), a growing financial entity with the backing of the Nawaloka Group, top investor Asanga Seneviratne and a consortium of high net worth investors, has announced what it calls “an outstanding financial performance” for the 2rd quarter ended 30th September 2014 and for the seven months ended 31st October 2014.

“This is a reflection of the company’s continuous and rapid growth and the commitment of its new management which took over in 2011 and is steering the company to a solid financial foundation and strong growth,” the company said in a media statement.

Total Asset base surpassed Rs. 5.9 billion for the first time in the 27 year history of NLF, representing more than a 35 per cent year-on-year increase. The driving force behind the asset base growth was the phenomenal 44 per cent increase in the lending base which compared to the industry growth is exceptional. Similarly, the company’s fixed deposit base also recorded substantial growth of around 50 per cent year-on-year, crossing the Rs. 4.5 billion mark by end October 2014, it said.

With the company positing a net profit of around Rs. 203 million for seven months ended 31st October 2014, Return on Equity (RoE) stood at nearly 40 per cent with a Return on Assets (RoA) ratio of around 4 per cent. “The most important element in this growth story is how the company has been able to manage its Non Performing (NP) portfolio, which stood at 5 per cent as at 31st October 2014, well below industry norms,” it said.
NLF said it was “perhaps the only company” in the country to repay distressed depositors of the original Ceylinco group in full.

“The achievement up to 31st October 2014 yet again highlights the superior growth momentum currently enjoyed by NLF, which is much above the industry growth. I can assure you that we will be continuing this for the remainder of this financial year as well as into the next. We have already laid out plans to exceed Rs.1 billion operating profits for the next financial year and also to grow our asset base to Rs. 10 billion,” said CEO Mr. Charith.

www.sundaytimes.lk

DFCC’s name change to DFCC Bank Plc now legal

The DFCC Bank will be renamed DFCC Bank PLC under amendments to the DFCC Act approved by parliament and will continue to carry on its business as a licensed specialised bank without any interruption, the bank said this week.

“As regards the proposed merger with NDB, discussions between the institutions are well underway with facilitation from the Boston Consulting Group,” said Group CEO Arjun Fernando in a statement announcing the bank’s first half 2014 results.

The DFCC Group reported consolidated post tax profit of Rs. 2,071million for the 6 months ended 30th September, 2014 compared with Rs. 1,222 million during the previous period.

This growth of 70 per cent was underpinned by the strong performance of the group’s banking business (a composite of DFCC Bank, a specialised bank, and its 99 per cent owned subsidiary, DFCC Vardhana Bank, a commercial bank).

The stand alone operating profit before taxes of the group’s banking business was Rs. 2,996 million and profit after tax was Rs. 2,002 million, against Rs. 1,962 million and Rs. 1,180 million respectively in the previous period. The other members of the DFCC Group, which includes the joint venture investment bank, Acuity Partners (Pvt) Ltd collectively contributed Rs. 126 million to PAT compared with Rs. 104 million in the previous period – a growth of 21 per cent. DFCC Bank’s performance also benefited from the performance of the Colombo stock market. The impact of the stock market on the value of the listed shares in DFCC Bank’s equity portfolio is recognised by the fair value changes representing unrealized gains or losses in other comprehensive income. During the period ended 30 September 2014, due to the share market appreciation there was a fair value gain of Rs. 4,679 million compared to the fair value gain of Rs. 569 million in the previous comparable period.

At the same time, capitalizing on the upward momentum in the Colombo stock market, DFCC Bank divested some of its mature equity holdings and realised a capital gain of Rs. 300 million, the bank’s media release said.

www.sundaytimes.lk

Ground breaking for biggest Indian hotel investment on Nov. 19

The ground breaking for the biggest investment in Sri Lanka by an Indian hotel company will take place on Nov. 19 at Galle Face when ITC Ltd. launches its ITC Colombo One luxury Hotel and Residencies.

Economic Development Minister Basil Rajapaksa will be the chief guest on this occasion at which ITC’s Chairman, Mr. Y.C. Deveshwar, will be present.

This will be the first project outside India for the company which runs a chain of over 100 hotels in over 70 destinations in India.

ITC is a diversified conglomerate with interests in FMCG, hotels, paperboard and packaging, agribusiness and IT. It has a market capitalization of approx. USD 45 billion and an annual turnover of over USD 7 billion.
www.island.lk

CIC Holdings records ‘impressive Q2 results’

‘CIC Holdings PLC recorded impressive financial results during the second Quarter of the FY 2014/2015 ending 30 September 2014. Group Turnover of the diversified entity grew to Rs.11,235 mn for the period 1 April to 30 September 2014 a 7 percent increase against the corresponding period in 2013. Profit After Tax (PAT) from continuing operations was Rs. 513 million at the end of Q2, an eight fold increase over the previous year. Consumer, Healthcare, Agriculture & Livestock segments contributed significantly to the group’s turnover, a press release said.

‘Profits from the continuing businesses have increased by 149% and 723% for the company and group respectively. This is mainly due to the increase in revenue and the company’s continuous focus on controlling operational costs. Profit increases in the Consumer and Healthcare segment, the Packaging segment and the Industrial Raw Material segment increased by 167%, 52% and 13% respectively. Despite the reduction of the share of profit of equity accounted, these businesses have contributed significantly to the group’s overall improved financial performance.

‘Improvement in the group’s continuing operations has resulted in the increase of the earning per share-continuing operations five folds to Rs.3.93. CIC Holdings’ Agriculture and Livestock arm and its Consumer and Healthcare segments contributed to 86% of turnover and 81% of operative results.

‘CIC’s CEO and Managing Director S. P. S. Ranatunga commenting on the group’s exceptional Q2 performance said, "I am pleased with the impressive financial results the company has achieved in this financial Quarter. The outstanding performance of each business unit has helped CIC Holdings PLC excel as a group and following our dynamic re-strategizing initiative, we are well on track towards our annual revenue and profit targets. Agriculture, Livestock and Healthcare remain our key areas of focus as we continue to contribute to the well-being of the nation and its people. The government has put the necessary policies in place to support the growth of both the agricultural and healthcare industries and I remain confident that these policies will continue to assist us in our efforts to further develop these business areas."

‘CIC has been a leading blue chip conglomerate in Sri Lanka for decades and its business portfolio extends into the areas of agriculture, animal feed, nutrition, healthcare, industrial materials and consumer products.
www.island.lk

Com Bank records 9-month operating profit of Rs 13.119 bn

The Commercial Bank of Ceylon PLC has reported profit before VAT and NBT of Rs 13.119 billion for the nine months ended September.

‘In spite of a healthy10.38% growth inOperating Income, Profit before tax grew by 7.77 % due to the imposition of Nation Building Tax (NBT) effective January this year, the Bank said in a filing with the Colombo Stock Exchange, a press release said.

The release adds: ‘Profit after tax improved by 7.89% to Rs 7.805 billion despite lower margins during the period under review resulting in gross income growing 2.14% to Rs 54.644 billion, the Bank said.

‘Net interest income for the nine months was up 6.23% to Rs 19.789 billion, and other income comprising of commissions, exchange profit, recoveries and gains on trading, grew by a noteworthy 21.63% to Rs 8.366 billion, largely due to gains from financial investments.

‘Commercial Bank Chairman Dharma Dheerasinghe described the Bank’s nine-month performance as "characteristically robust," with higher business volumes compensating to some degree, for the reduced margins.

‘The Bank’s Managing Director/CEO Jegan Durairatnam said momentum had picked up during the third quarter, during which pre and post-tax profit had grown by a healthy 21.62% and 20.40% respectively over the corresponding three months of 2013, to Rs 4.739 billion and Rs 3.326 billion.

‘Net operating income for the period improved by 9.89% to Rs 24.713 billion, despite an increase in impairment charges by 14.04% to Rs 3.443 billion, mainly due to a change in the basis of computation of provisioning for individual impairment. This change is intended to improve provision cover.

‘Operating expenses for the period under review grew by 9.35% to Rs 11.594 billion.

‘Total assets increased by Rs 140.683 billion or23.19% over the nine months to Rs 747.290 billion, from Rs 606.607 billion at 31st December 2013, averaging a growth of over Rs 15 billion a month.

‘Total loans and receivables to banks and customers amounted to Rs 482.940 billion at the end of the period under review, an increase of Rs 63.435 billion or 15.12% since end December 2013. This represents an average loan book growth of Rs 7 billion a month during the period.

‘Total deposits grew by Rs 53 billion or 11.75% over the nine months at an average of almost Rs 6 billion a month, to Rs 504.161 billion as at 30th September, 2014.
www.island.lk

SLT Group ups 9-month profits by 29% to Rs. 5 b

Maintaining the growth momentum, Sri Lanka Telecom Group yesterday said it has recorded Rs. 48 b revenue during the nine months ending September 2014 with 8% year-on-year growth.

All the revenue segments comprising Fixed, Mobile and Others have contributed to this growth. The operating cost has increased by 8% to Rs. 33.2 b during the nine months to 2014. A Rs. 673 m one-time charge on the operating expenses of the SLT resulting from an out-of-court settlement on civil litigation in relation to the import of the IPTV system in 2007/2008 has largely driven this increase in cost.

The Group Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) was up by 7% year-on-year to Rs. 14.9 b despite pressures on profitability and the EBITDA margin has been maintained at the range of 31%.

The Group reported Rs. 6.6 b profit before tax during the period under review with a year-on-year growth of 25%. The profit after tax increased by 29% from the corresponding period of the previous year, to Rs. 5 b. The Group annualised earnings per share had increased from Rs. 2.88 to Rs. 3.73 during the same period of the previous year.

The holding company reported Rs. 28.9 b revenue during the nine months to September 2014, which compared to the same period of previous year shows an increase of 7%. This increase was driven by non-traditional revenue streams such as internet, wholesale, global, international and IPTV. The company introduced a new state-of-the-art IPTV system with high capacity and this novel feature will address the increasing demand for this service.

Operating expenses of the company increased year-on-year by 9% to Rs. 21.6 b during the nine months to September 2014. The Rs. 673 m one-time charge for an out of court settlement to civil litigation has contributed to this increase. Accordingly the company EBITDA margin marginally dropped from 26.7% to 25.3% during the first nine months of 2014, compared to same period of the previous year, however under normal circumstances the margin is over 27%.

The profit before tax and after tax have dipped by 3% and 8% respectively during the period under review compared to year on year, to Rs. 3.1 b and Rs. 2 b.

Mobitel Ltd., the mobile arm of the SLT Group, continued its consistent growth feat despite intensifying competitive environment in the industry. Revenue for the first nine months of 2014 increased to Rs. 22.7 b, up by 11% compared to corresponding period in 2013.

This growth was mainly driven by the increase in Mobitel subscribers both in voice as well as in data reporting a 7% increase in the overall subscriber base. It is a testimony of the continuous investments made in latest technology, capacity enhancements and coverage expansion providing the customer a better experience with Mobitel.

Backed by the robust growth in revenue, Mobitel was able to record a growth in all key profitability indicators. When comparing the first nine months performance it is observed that company EBITDA and EBIT has grown by 9% and 8% respectively YoY.

The company’s profit after tax for the first nine months of 2014 was recorded at Rs. 2.6 b compared to a profit after tax of Rs. 1.6 b in first nine months of 2013. Thus growth in profit after tax during the period is appreciable compared to same period in last year. 

This is attributable to the growth in EBITDA and EBIT as well as favourable macro conditions that prevailed during the period.
www.ft.lk