Sri Lanka Newspapers Tuesday 14/02/2012

Bourse falls deeper in to the red - Broker: Will share market investors manage risks, or run?

The Colombo bourse continued to bleed for the eighth straight day with both indices falling sharply yesterday (Feb. 13) as selling pressure continues to dominate activity with a leading brokerage painting a bleak, realistic picture, asking the question whether investors would manage risks or run.

The All Share Price Index fell a sharp 2.20 percent, losing 117.01 points to close at 5,199.98 while the Milanka Price Index of more liquid stocks lost 102.97 points to close 2.23 percent lower at 4,524.17.

The world’s second worst performing stock exchange has now fallen 14.40 percent year-to-date.

Turnover amounted to Rs. 1.46 billion on more than 69.5 million shares changing hands during the day.

Only a mere 37 counters closed on a positive note while 187 closed in the red.

Net foreign inflows amounted to Rs. 44.33 million.

" ‘You got to know when to hold them, know when to fold them, Know when to walk away and know when to run’; Taking some advise from famous poker players and singer Kenny Rogers we can safely say that the Sri Lankan equity markets finally know that its time to run," Bartleet Religare Securities said in a report yesterday.

"The increase in fuel prices added fuel to the fire to the existing bearish sentiment in the market. Both indices crumbled in the morning and surprisingly managed to recover 100 points. The market still holds the 5,000 support for now but the bear game is not over. We could now see the market consolidate between 5,000 and 5,450.

"We are not trying to scare clients away but our objective is to protect client capital by providing all with honest advise. It is important that clients try not to pick bottoms and try to manage their risks during such bearish times.

The market is clearly telling a story. The question is, are investors going to hold them or are they going to run?" BRS said.
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*Banks feel the pinch as liquidity tightens

The rupee had a steep fall against the dollar closing at Rs. 117.20/30 on Monday (Feb 14) as the Central Bank stayed clear away from the foreign exchange market.

Dealers said the rupee to fell to around 117.50 against the greenback during the day, with some trades going at Rs. 118. But the currency gained some ground to close at Rs. 117.20/30. The rupee has fallen by nearly 3 percent from Rs. 113.90 against the dollar before the Central Bank announced it would no longer intervene in the market to stabilise the exchange rate.

Since July 2011, the Central Bank had sold nearly US$ 2.5 billion from the reserves to maintain a fixed exchange rate with high credit growth fuelling ‘severe’ import demand, dealers said.

Dealers said the rupee could fall to around Rs. 120 against the dollar.

"We do not see the rupee falling beyond this. We see a lot of speculation and panic buying by importers but this is only natural. The market would soon settle somewhere within the Rs. 118 range with occasional volatility," a dealer said.

Dealers said the Central Bank could still intervene if it wanted to.

"We feel the Central Bank would have a psychological limit and would perhaps intervene to keep the rupee within this limit. What it is we do not know, but we feel the bank may intervene to prevent sharp fluctuations, although it seems to have adopted a stance of distancing itself from the market just to gauge where the exchange rate was heading," a dealer said.

Dealers said that there was a degree of caution in the foreign exchange market.

"Pressure for the rupee to depreciate was so severe that we find it hard to believe that the exchange rate did not fall as sharply as expected."

Expected foreign currency inflows and high interest rates are expected to ease the pressure on the rupee going forward.

"The distortions in domestic fuel prices have been corrected, although too late with drastic repercussions fuelling country-wide protests, and this could also ease some pressure on the balance of payments going forward. The recent interest rate hike it is hoped would also dampen import demand further," a dealer said.

Interbank interest rates have been somewhat muted despite the announced hike to monetary policy rates, this was due to the Central Bank still pumping in rupees to the banking sector as some banks continue to find it difficult to maintain overnight balances.

Call money market rates for interbank borrowings not backed by collateral stayed flat at 9.80 percent yesterday and last Thursday. Easing somewhat from 9.95 percent on February 03, the day the Central Bank announced the interest rate hike.

Market repo rates for interbank borrowings backed by security eased to 8.70 percent from 8.72 percent last Thursday. On February 03, the rate was 8.71 percent.

The Sri Lanka Interbank offered rate was at 9.96 percent, from 9.70 percent last Thursday. On February 03, the rate was 9.56 percent.

Since February 03, the Central Bank has pumped in Rs. 42 billion into the banking system struggling to maintain overnight balances.

Banks had to borrow nearly 4 billion since February 03 from the Central Bank via the reverse repurchase window at 9 percent. This option is used as a last resort for banks facing liquidity constraints.
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*Suggested measures now come at greater cost to the economy

Several economists, who have for years urged the government to take action to stave off an impending balance of payments crisis, have now been vindicated but they are not taking the last laugh as they remain gravely concerned.

Several economists had been vocal in the recent past that Sri Lanka’s balance of payments was under stress with reserves fast depleting and competitiveness of exports eroding. But they were ostracized in the media and elsewhere. They were called ‘friends of exporters’ and other unkind names. The Island Financial Review has even heard a top ranking official question one economist’s loyalty to the country.

There is a saying, "Physical cowardice is bad enough but intellectual cowardice is worse". Many economists who saw the impending problems were ostracised to such an extent they never spoke up again. Economists close the administration had vilified these brave economists and their arguments.

One economist in particular had not long ago rubbished claims that the reserves position was not too comfortable and that there was a balance of payments issue.
Yesterday, in an interview aired on state television, this same economist shamelessly spoke of these problems justifying the depreciation of the rupee, and only because the government has realised to act too late.

"Yes the government has finally done the things we have been suggesting for a long time. But now there is a grave issue in the country and these adjustments are going to come at a greater cost to the economy. There is dissent and people are disappointed. This is because the government has all this time postponed the difficult decisions and accumulated the problems, leading the people to a false sense of complacency. Everyone thinks that booms are permanent and busts are temporary. Ignoring the dangers and delaying tough decisions only results in even bigger issues and this is what we are seeing today," an economist said, not wanting to be named.

Another economist says that if these tough decisions were taken at a time reserves were very strong and credit demand was still building up, things would have been much different today. "We could have been in a comfortable position today, had the tough decisions been taken much earlier. But no, some tried to mislead the people that everything was alright, and now look where we have gotten ourselves," another economist said, also not wanting to be named.

Economists are hoping the people of the country would have the patience and resilience to live through these tough times, because these measures are expected to bring better results tomorrow.

However, the need of the hour is for the country to develop a healthy culture of public debate, free of name calling ostracisms.
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*Profits fall but surpass billion rupee mark

Seylan Bank Plc reported its best ever Q4 results, reflecting a growth of 82 percent over last year to report a post-tax-profit of Rs. 699.73 million (2010 – Rs. 383.91 million), the bank said in a statement yesterday.

Chairman of Seylan Bank, Eastman Narangoda stated, "Profit-after-tax for the entire year surpassed Rs. 1 billion. This was even after the extraordinary cost of Rs. 698.7 million incurred for a Voluntary Retirement Scheme. The 2011 reported post-tax-profit of Rs. 1,003 million is below last year’s profit figure of Rs. 1,229 million. However, if the VRS cost (Rs. 698.7 Mn) is factored out, 2011results would have significantly exceeded last year’s performance".
During the year, significant growth was evident in the performing loan book, which grew by 27.6 percent to reach Rs. 97.5 billion. Deposits too recorded a growth of 9.5 percent to reach Rs. 121 billion as at end of the year. Total assets stood at Rs. 166 billion, recording a growth of 11 percent over 2010. A notable feature was the robust growth in the bank’s core business activities in the second half of the year with the momentum increasing significantly in the last quarter.

In 2011, Seylan Bank successfully raised Rs. 4.7 billion. through a fully subscribed Rights Issue. The Bank’s equity ended the year at Rs. 17.5 billion, significantly higher than Rs. 12.1 billion recorded last year. This enabled the Bank’s Capital Adequacy Ratio (Tier II) to reach 14.53 percent (2010 – 12.07 percent) for 2011, one of the highest in the industry.

During Q3, Fitch Rating upgraded the Bank’s rating to "A-", which was yet another milestone reached in 2011.

In terms of network, Seylan Bank further expanded its reach in 2011 by opening four new branches and seven convenient centres. It also relocated 10 branches / convenient centres to service customers better. As at end 2011, Seylan Bank boasted of 133 branches and convenient centres spread across the country. In addition, 08 new ATMs were added to the ATM network, increasing the total to 134.

General Manager/Chief Executive Officer of Seylan Bank Kapila Ariyaratne stated, "The results prove beyond doubt that the re-structuring of the organisation structure, improvement of operational and risk management processes and the significant improvement in HR practices and processes are beginning to yield the desired results. Emphasis on recoveries/restructuring of non performing debt, branch credit and customer service quality has combined to provide a platform for sustainable growth in Core activities. Non-Performing Advances which stood at Rs. 25.7 billion were reduced to Rs. 20.9 billion as at end 2011, a reduction of Rs. 4.8 billion. This resulted in the NPA ratio (Net of IIS) significantly reducing from 21.4 percent in 2010 to 14.2 percent in 2011".

In terms of efficiency, the Bank was able to rationalize overall staff numbers from 3,622 in 2010 to 3,150 as at end 2011. This reduction, despite expansion, was possible due to efficiency obtained through re-structuring, centralisation, automation and process re-engineering.

In terms of Group results, profit applicable to equity holders of the Bank stood at Rs. 1,006 million as of 2011. Group Net Assets per share was at Rs. 52.99, an improvement from the last year’s figure of Rs. 49.17.

With regard to national visibility, the ‘Seylan Thagi Pita Thagi’ campaign, launched in October 2011 was a highly successful brand building and deposit mobilisation campaign which has attracted great attention from Sri Lankans across the country and from all walks of life.

In Q3 & Q4, Seylan Bank developed a four-year Strategic Plan with the participation and input of staff across the branch network as well as all organisational support functions. The plan focuses on growth and profitability in the 04 years ahead with customer service, asset quality, automation and improved efficiency being key areas of focus.

"The unveiling of the Strategic Plan comes at an opportune time, when the Bank has consolidated itself and is ready for "growth" in the years ahead. 2011 has, in retrospect, been a year of consolidation where growth levels and efficiency ratios point towards the correct direction and a firm platform being laid for well chartered growth and further consolidation of its position as one of the leading players in Sri Lanka’s banking industry", the bank’s Chairman, Narangoda, said.
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Blue chip conglomerate Aitken Spence PLC reported its interim results to the Colombo Stock Exchange on Monday, showing Rs 3.02 bn as pre-tax profit and Rs 1.95 bn as profit attributable to shareholders for the nine months ended 31st December 2011; an increase of 24 per cent and 20 per cent respectively over the previous year. For the third quarter, the company recorded a growth of 53 per cent in pre-tax profit and a growth of 41 per cent in profit attributable to shareholders to Rs. 1.34 bn and Rs. 819 mn respectively, the company said in a statement.

The diversified group’s nine-month revenue rose by 15 per cent to Rs. 21.02 bn while the revenue for the third quarter rose by 30 per cent to Rs. 8.06 bn. Earnings per share increased by 20 per cent to Rs. 4.81 for nine-month period while it rose by 41 per cent to 2.02 during the third quarter.

"Our travels, Maldivian resorts, and maritime services sectors contributed considerably to the bottom line. The Group’s port related operation in the African Continent which completed five years of business continued to contribute strongly towards the performance of the Group while the apparel sector successfully surmounted the removal of GSP and having secured strong relationships with customers performed well during the year. The printing sector too performed well and with its continues commitment to quality invested in a new state of the art six colour printing press and an eco friend factory in Mawaramandiya which will be in operation soon.", said J M S Brito, Deputy Chairman & Managing Director of Aitken Spence PLC.

The Company’s travel arm, the largest inbound operator in the country, which recorded a robust performance during the period under review, is a joint venture with TUI Travel Plc, the world’s largest integrated tourism group. Aitken Spence is amongst five largest resort operators in the Maldives with an internationally-acclaimed chain of resorts under the brand Adaaran. The Group is Sri Lanka’s largest logistics service provider covering the whole gamut of logistics related services including container operations, freight forwarding, maritime services and express.

During the period under review Aitken Spence increased its stake in Colombo International Nautical and Engineering College (Private) Ltd., (CINEC) and now has a significant holding in the country’s largest private sector higher education campus. The Company expects to extend the synergies derived from this affiliation to expand the educational programmes offered by CINEC into other industries that the Group operates in.

Subsequent to the balance sheet date the Company having secured the contract to develop the Colombo South Terminal being the sole bidder in consortium with China Merchants Holdings (International) Company Limited (CMHI), finalised the formalities to sell it’s 30% shareholding in Colombo International Container Terminals Limited (CICT) the project company to CMHI. This sale would realise a capital gain of approximately Rs 630 million to the Group during the year 2011/2012 which will be reflected in the 4th quarter

Aitken Spence in its continuous drive to enhance shareholder value ventured overseas in areas where the group had strong management and operational capabilities. The Group’s power sector successfully bid for and were selected to develop two thermal power plants in Bangladesh on a BOO basis.
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Hayleys PLC has more than quadrupled net profit and profit attributable to equity holders for the nine months ending 31st December 2011, in a performance that reflects the accelerated momentum of the Blue chip conglomerate in FY 2011-12.

With strong operational growth in key manufacturing sectors and capital gains being complemented with noteworthy contributions from new areas of business, the Group has reported profit after tax of Rs 3.6 billion at the end of the third quarter.

Profit attributable to equity holders of the parent company amounted to Rs 2.3 billion on pre-tax profit of Rs 4.3 billion, the Group said in a filing with the Colombo Stock Exchange.

Turnover for the nine months increased to Rs 46.4 billion, swelled by significant contributions to top line growth by businesses in the Hand Protection, Purification Products, Plantations and Agriculture sectors.

In a statement accompanying the financial statements for the period reviewed, Hayleys Chairman Mohan Pandithage said the Group expects to maintain positive results in the fourth quarter of the year ending 31st March 2012.

Pandithage said improved turnover and profit in several sectors in the first nine months of the year, particularly from those in Global Markets and Manufacturing, and substantial capital gains of Rs 2.1 billion from subsidiaries of Hayleys PLC contributed to the results reported.

"The Hand Protection sector performed exceptionally well and strong contributions came from Purification Products, Agriculture and Plantations, although the Plantation sector’s profits were lower than in the corresponding nine months of last year, consequent to the wage hike in the sector and lower demand for tea," he said.

Transportation also made a worthwhile contribution, as did the relatively new Construction Materials sector.

The Fibre and Textiles sectors need to improve performance, Pandithage noted.

Business units within the Leisure and Aviation sector performed well in the period under review. Since its purchase, Amaya Leisure has reported a positive three-month performance. The Ceylon Continental Hotel is undergoing a substantial refurbishment.

The Power and Energy sector posted mixed results, with Industry Inputs performing well while Power & Energy reported lower profits for the nine months.

Established in 1878 and adjudged Sri Lanka’s Best Corporate Citizen four times, the Hayleys Group employs more than 30,000 people, and accounts for 2.78 per cent of the country’s export income.

The Board of Directors of Hayleys PLC comprises Messrs A. M. Pandithage (Chairman and Chief Executive), K. D. D. Perera (Deputy Chairman), M. R. Zaheed, J. A. G. Anandarajah, W. D. N. H. Perera, S. C. Ganegoda, H. S. R. Kariyawasan, Dr. Harsha Cabral PC, Dr. M Ranasoma, M. D. S. Goonatileke. R. P. Pathirana and L. T. Samarawickrama.
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