Sri Lanka's Nestle, revenues, profits, fall amid consumer crunch

ECONOMYNEXT - Profits at Sri Lanka's Nestle unit plunged 34 percent to 779 million rupees in the March 2017 quarter as revenues fell for the second quarter in a row, interim accounts showed as the hangover from Keynesian type stimulus and a drought hurt consumer spending.

The firm reported earnings of 14.51 rupees per share. In the six months to June, Nestle Lanka Plc reported earnings of 30.50 rupees per share on total profits of 1.64 million rupees, which were down 33.4 percent.

In the March quarter revenues fell 6.8 percent to 8.59 billion rupees, and cost of sales fell at a slower 2.6 percent to 5.59 billion rupees, shrinking gross profits 13.9 percent to 3.5 billion rupees.

Sri Lanka's government engaged in a misguided 'Keynesian stimulus' in 2015 raising state salaries and ratcheting up subsidies, which were partly financed with printed money, driving bank credit up, running down forex reserves and generating a balance of payments crisis.

The rupee collapsed from 131 to 154 to the US dollar pushing inflation up and the state raised taxes on the ordinary people to pay higher state salaries and subsidies, bringing consumer spending back to earth.

Sri Lanka is also hit by a drought which has pushed up oil imports, which is now no longer financed with printed money but by slowing credit. Global oil prices are also higher.

The central bank is collecting forex reserves amid slower credit and an improving budget gap with private earnings, which would have brought higher returns going to the state spending in the form of higher tax to gross domestic product ratio.

Returns from state spending, where politicians and bureaucrats spend someone else's money is typically lower than when people spend their own money.

Sri Lankan shares fall for 4th straight week, end below 6,500

Reuters: Sri Lankan shares fell to a more than three-and-a-half month low and breached the psychological level of 6,500 points on Friday, dragged down by diversified and beverage shares.

The market has ended lower in 10 out of the last 11 sessions through Friday, even as yields on short-term government securities fell over the past two weeks.

The Colombo stock index fell 0.36 percent, or 23.63 points, to 6,492.69, its lowest close since April 19. The bourse fell 1.2 percent for the week, its fourth straight weekly fall.

"Market is coming down and there is very little foreign activity," said Hussain Gani, deputy CEO at Softlogic Stockbrokers.

"With the market dipping, investors are waiting for some direction."

Foreign investors net bought shares worth 4.9 million rupees (about $32,026) on Friday, extending their year-to-date net inflow to 26.7 billion rupees.

Turnover stood at 396 million rupees, less than half of this year's daily average of around 877.3 million rupees.

Shares of Hemas Holdings Plc fell 3.5 percent, while Ceylinco Insurance Plc dropped 5 percent. Colombo Cold Stores Plc ended 1.5 percent weaker, Sampath Bank Plc ended 1.4 percent down and conglomerate John Keells Holdings Plc fell 0.5 percent.

Analysts expect equities to reverse the downtrend, helped by a fall in government bond yields.

Short-term treasury-bond yields fell between 10 basis points (bps) and 16 bps at a weekly auction on Wednesday, while the yields on a 59-month bond dropped by 99 bps and that on a 118-month bond fell by 78 bps at the last week auction.

($1 = 153.0000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Vyas Mohan)

CDS relocates operations to Rajagiriya to support expansion

(LBO) – To support expansion planned for the Colombo Stock Exchange, the Central Depository System (Pvt) Ltd (CDS), has relocated its operations to a larger premises located in Rajagiriya.

The CDS, a fully owned subsidiary of the Colombo Stock Exchange, is now located at on the Ground Floor of the M & M Centre, No.341/5, Kotte Road, Rajagiriya.

“While the new address will be used for correspondence, all other details including the Company’s website (www.cds.lk), telephone number (+94 11 2356456) and fax number (+94 11 2440396) remain unchanged. The change of address will not have an impact on any policies or procedures presently maintained by the CDS,” the CSE said.

The expansion drive is focused on pursuing a new phase of innovation by the CDS and aims to surpass the initial objectives of streamlining the clearing and settlement of transactions taking place on the CSE and safekeeping of securities on behalf of domestic and international investors.

Through the expansion, the CDS intends to enhance the services offered to all stakeholders and to encourage investors to take an active role in the management of their investment portfolios. The relocation is set to support the CDS to further strengthen its depository infrastructure and to diversify operations into selective value-added business ventures.

A number of technology driven value added services including a range of online services for CDS account holders through the CDS e-connect portal, SMS alerts and eStatements have already been introduced.

Sri Lanka’s Melstacorp June quarter net down 41-pct

(LBO) – Profits at Melstacorp, the holding company of Sri Lanka’s largest hard alcohol maker Distilleries Corporation, fell 41 percent to 1.1 billion rupees from a year ago in the June quarter, interim accounts showed.

The diversified group, which has interests in beverages, plantations, telecommunications and financial services, has reported basic earnings of 98 cents per share for the quarter compared to 1.65 cents per share posted a year ago.

Net revenues grew 10 percent to 10.3 billion rupees in the quarter from a year earlier, while sales costs rose at a faster 37.7 percent to 7.5 billion rupees with gross profits up 29.6 percent to 2.7 billion rupees.

Finance income rose 283 percent to 389 million rupees while finance costs rose 81 percent to 429 million rupees.

In segmental analysis, profits in the beverages segment fell 54 percent to 1.3 billion rupees in the quarter from a year ago.

Profits at diversified segment rose 180 percent to 406 million rupees in the quarter.

Melstacorp invested 20 billion rupees in equity of Distilleries Corporation with effect from January 2017 and Distilleries Corporation used these funds to settle their liabilities against Melstacorp.

Singer Group revenue crosses Rs 25 bn at half year

Singer (Sri Lanka) PLC results for the six months ending June 30, 2017 showed a good revenue growth of 13.6% to Rs 25.1 billion compared to the same period in the previous year.

There was a strong growth in several product categories such as smart phones that grew by 46%, bottle coolers and deep freezers by 32%, televisions by 22% and furniture by 14%.

This is a commendable growth in view of increased Value Added Tax (VAT), higher interest rates and currency devaluation affecting customer purchasing power.

The continuous drought in the dry zone and floods in the wet zone hugely affected households in Sri Lanka, 30% of which are dependent on agriculture.

When customer income increases, the demand for consumer durables is above that of the general market demand and when customer income decreases the demand for consumer durables is below that of general market demand.

Due to slack market conditions, Singer’s gross margins were reduced to 29% compared to 31% in the previous year. Increased mix of smart phone sales with lower margins also impacted the overall group gross margin.

The group was successful in lowering selling and administration expenses from 22.3% last year to 21.3% in the current year. As a result, operating profit had a marginal increase.

Net Finance Cost for the half year increased by 45% to Rs. 956 million largely due to increase in interest rates.

As a result, Group Net Profit was Rs. 666.5 million, a reduction of 27% compared to the previous year. In the case of the Company, Net Profit was Rs. 525.5 million, a decrease of 26%.

Commenting on the Half Year results of 2017, Asoka Pieris, Group CEO stated, “We are anticipating gradual improvements in the business conditions during the remainder of 2017 and are pursuing strategies to improve margins and lower the costs.”

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Sri Lanka IOC unit in the red in June 2017 quarter

ECONOMYNEXT - Lanka IOC, a unit of Indian Oil Corporation, reported losses of 135 million rupees in the June 2017 quarter, down from profits of 1.9 billion rupees, amid higher oil prices and price controls.

The firm reported losses of 26 cents per share.

The loss, however, has narrowed from 652 million rupees (797 million rupees pre-tax) in the March quarter.

Revenues rose to 20.4 billion rupees in the June quarter from 18.9 billion rupees, but costs rose sharply to 19.8 billion rupees from 3.2 billion rupees.

Operating profits fell to 277 million rupees from 2.26 billion rupees.

Oil prices started to rise from the second month of 2016, and Sri Lanka still controls prices. However, taxes are sometimes adjusted to help oil distributors. Under a deal wtih the International Monetary Fund, market repricing is expected next year.

Lanka IOC is the country's second-largest fuel distributor after state-run Ceylon Petroleum Corporation.

LIOC also has revenues from other areas like lubricants.

Printcare to invest Rs.750mn in state-of-the-art label printing technology

Top packaging exporter and pioneer in Sri Lanka’s tea packaging sector, Printcare PLC, is to invest Rs.750 million in new label printing technology hitherto unavailable in Sri Lanka, the company said.

“We have a history of innovation and a track record of introducing new technologies. These investments follow our rich history of knowing where the curve is going and staying ahead of it,” Printcare PLC General Manager Krishna Ravindran said.

With only limited technology of this nature in Asia, Printcare’s new Gallus RCS equipment is set to redefine the local label printing capabilities enabling maximum flexibility in the selection of printing methods and an exceptionally high level of automation.

“In today’s world of intense competition, brand owners crave innovation and will grab it when it becomes available. We have known our customers to be extremely progressive and they are anxious to keep pace with the rest of the world. Our goal is to facilitate this move.” Ravindran noted.

He explained how the tea bag industry showcased higher growth in the 1980s after Printcare made superior packaging available to it. Prior to the advent of Printcare, there were hardly 10 tea bag machines in the country and they were importing all their material. Today there are well over 500 and Sri Lanka is the largest tea bag producing country in the world. 

Also, the company’s introduction of high-value box making and embellished cartons recently has produced similar results, enabling our tea boxes to be showcased with the best overseas. Implicit in Printcare’s ambition is to help develop the label market, to help customers’ present superior and sophisticated product packaging, attractively positioned on supermarket shelves.

“The current generation of label presses in Sri Lanka is basic. Our new hybrid machinery, the first of its kind in the country, will have the ability to use multiple printing processes and finishes in one pass, exhibiting the differentiation on the shelf our customers seek through a visual advantage,” explained Ravindran. Printcare understands that product labels are a key form of marketing for a brand on the store shelf and the vibrancy and detail offered by the new equipment will truly make it (labels) stand out.
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