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Nov 16, 2010

LOLC shows exceptional results in 1H

LOLC group pre-tax profits for the first half of 2010/11 soared to Rs. 4.5Bn with post tax profits of Rs. 3.9Bn. Compared with the previous year, pre-tax profits grew by 370%. The company's acquisitions made in the previous financial year contributed well to the bottom line along with other income, which increased by 215% to reach Rs. 2.7 Bn at the end of the second quarter.

The revenue of the group grew by 500% over last year, mainly contributed by the trading companies in the Brown & Co PLC cluster. The trading profits complemented well to the group's financial services related business income of Rs5.8Bn, a 22% growth over last year. The borrowing costs continued to come down in line with the sliding interest rates with the group raising funds at attractive rates. This is mainly due to LOLC's ability to source long-term funding from foreign multilateral and bilateral agencies at attractive rates contributing to the reduction in borrowing costs. The borrowing cost for the six months was 3% lower than last year and was Rs. 3Bn. This decrease is despite the increase in the quantum of borrowings.

Balance sheet growth was substantial with total assets reaching Rs. 98Bn, a 31% growth over last six months. Aggressive growth in the lending business increased the total advances to Rs. 47Bn, a 48% growth over last year. To support this aggressive growth in lending especially in the North and East, and branch expansion, the Group raised additional funding at attractive interest rates increasing the total borrowing by 29% over the last six months.

LOLC's exponential growth, expansion strategy and strategic investments has positioned the Group on a strong footing for a steady stream of medium to long term sustainable profitability and this is already evident from the record increase in profits when compared with last year same period.

Aggressive growth in executions in the lending business over the last 12 months especially in the rural areas are contributing well to the bottom line of LOLC, Lanka ORIX Finance Co. Ltd.(LOFC), Lanka ORIX Micro Credit Ltd. (LOMC) and Commercial Leasing Company Ltd. (CLC), the main lending companies of the Group. Economies of scale from operations and multiplying synergies from sharing the distribution channels are reaping the benefits to the companies with each company making significant profit contributions to the Group. Effective and improved collection strategy following the initial disbursement complements well to this success. Strategic expansion of the footprint of the lending operations continues with the expansion of branches and "Isuru Diriya" centers being opened at an average of four a month in the rural areas. The total count of the financial services sector outlets now exceeds 135, of which, Lanka Indian Oil Company outlets and "Isuru Diriya" centers increased to 63 with "Isuru Diriya" centers reaching 50 Last month. The company's entry into the North and East with significant number of outlets being opened in the region is already reaping benefits to the lending businesses with significant business volumes coming from these untapped markets. The Company's fully owned subsidiary LOFC the registered finance company within the Group, is performing exceptionally well with tremendous growth in its deposit base to reach a Rs. 12.7Bn a 70% growth over last year.

The deposit base increased by 26% within the last six months clearly establishing the financial stability and strong confidence the depositors have placed in the company.

CLC and LOMC, operates in the SME/Micro sectors and are well positioned ad geared to capitalize on the heightened activity due to the positive sentiments in economic growth. These two companies are already contributing significantly to the bottom line of the Group giving high returns on the investments.

The Group's investments in the leisure sector are going through a phase of close evaluation for positioning for the future with significant investments being committed during the next twelve to eighteen months. The capital investment envisaged for this sector is in excess of Rs. 3.5Bn and LOLC Leisure is currently negotiating with major international hoteliers to enter into strategic alliance for the management of these prime properties situated in the golden mile of the south coast of Sri Lanka.

The company is gearing up to start off the two new operations namely LOLC Insurance and LOLC Securities. LOLC obtained a composite license for insurance and is expected to commence business in both life and General insurance in early next year. LOLC Securities received the stock broking license recently and is expected to commence operations again in the early part of 2011.

The Group made a strategic investment into the construction sector, by acquiring 20% of Sierra Holdings Pvt. Ltd and 20% in Sierra Constructions Pvt. Ltd at a cost of RS. 1.6Bn.

"LOLC has firmly set its sights on creating an organization with outstanding strength through sustainable income, profitability, strategic expansion and good governance, building on the solid business base in financial services. The Post War situation is gradually metamorphersizing the country into a leading economic hub in Asia. LOLC too will take full advantage of the promising future laid before us and continually seek opportunities to diversify" said the Group's Managing Director, Mr. Kapila Jayawardena reflecting on the half year financial performance.
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Nov 15, 2010

NDB Group's Q3 profits grow significantly

The NDB Group's Profit After Tax for the third quarter ended 30 September 2010 grew significantly by 83% over the second quarter of 2010. The NDB Group's growth in Profit After Tax for the third quarter of 83% also compares favourably with the growth in Profit After Tax for the second quarter, which was 44%. The financial conglomerate's improved performance further substantiates the stability of the NDB Group that has been evidenced by Fitch Rating Lanka Limited affirming a rating of "AA (lka)".

The 14% growth in NDB bank's core banking profits (excluding exceptional gains made in 2009) confirms that its core business is being sustained under the improved economic conditions that are being experienced at present. On the same basis, Profit After Tax also grew by 17% over the corresponding period last year.

Though the core banking profits on an as is basis reflects a decline of 12% over 2009, this gap has declined from 22% as at the end of the second quarter. Similarly the gap in Profit After Tax has also been systematically reduced from 22% as at the end of the second quarter to 14% at the end of the third quarter.

The Bank's gross lending portfolio grew significantly by 16% from Rs. 56.1 b as at the beginning of the financial year to Rs. 65.1 b as at 30 September 2010. This significant growth of 16% compares well with the industry growth of 10% as at 31 August 2010.

It is noteworthy to mention that all business segments of the Bank grew satisfactorily with project finance, SME, retail and trade finance accounting for a major share.Customer deposits grew 18% over the last 12 months from Rs. 44.3 b as at 30 September 2009 to Rs 52.1 b, and was 4% over the last financial year end. NDB Bank's Tier 1 Capital Adequacy Ratio of 12.68% and a Tier 1 & 2 ratio of 14.85% are well in excess of the regulatory minimum of 5% and 10% respectively.

The stringent policies adopted by the bank to maintain a high quality portfolio resulted in the Bank's ratio of Non Performing Loans (NPLs) to the gross lending portfolio improving from 2.58% as at 31 December 2009 to 2.08% as at 30 September 2010.

NDB Group's Q3 profits grow significantly
Due to the above, NDB Bank's NPL ratio remains one of the healthiest in the local banking industry, and compares very favourably with the industry NPL ratio of 6.7% as at 30 September 2010.

The Bank's Open Loan Position (Non Performing Loans - Loan loss Provisions, divided by Shareholder's Equity, i.e. NPL's not provided for as a percentage of Shareholder's Equity') which signifies the stresses on un-provided NPL's on the banks equity was 1.70% and also compares very favourably with the industry Open Loan Position of 28%.

Operating costs

The operating costs of NDB Bank increased by 14% over the corresponding period last year, which was partially influenced by inflation and to a greater extent resulted due to measures initiated to increase capacity and reach. However, NDB Bank's cost to income ratio of 43% for the period compares favourably with the industry ratio, which is in excess of 50%.

SME Lending
NDB Bank expanded in SME lending through its presence in the newly opened five branches in the Northern and Eastern Provinces focusing on sectors such as fisheries, manufacturing, hotels & tourism, agriculture, commercial transportation and trading, with a view to rebuilding the communities in post war Sri Lanka.

With this view to build sustainable livelihoods, NDB Bank launched its latest SME banking scheme, 'NDB Divi Aruna'. The Divi Aruna scheme will enable entrepreneurs take on the challenges of post war Sri Lanka by providing the much needed capital with flexible repayment terms at an attractive pricing, with convenient accessibility.

Further, NDB Bank has taken the lead by approving and disbursing highest number of loans under the Small and Medium Enterprise Regional Development Project (SMERDP). Among the participating Banks of the scheme, NDB has taken the lead by approving over 40 facilities for the 1st quarter of 2010 covering all the Provinces of the country including the north and east.

Empowering the NE youth

In a bid to empower youth and stimulate further economic regeneration in post-conflict Sri Lanka, NDB Bank introduced the NDB Jeevana Livelihood Training/Loan Scheme. This pioneering scheme, an industry first, is targeted at youth aged 18 - 35 in both the north and east of the island.

The NDB Jeevana Livelihood Training/Loan Scheme is an innovative initiative that couples a livelihood training scheme with a special personal loan that will be issued at a very concessionary rate with a grace period for payment, making the scheme more accessible.

Driving savings at national level

NDB Bank announced a comprehensive communication campaign in the month of September, with a view to enlightening those who consider saving, but feel that it is impossible given their day to day expenses.

Extending the thought process beyond traditional monetary savings, the NDB Bank's 'ithiri karamu, api hademu, rata hadamu' Savings Drive aims to highlight the potential benefits of cutting down unnecessary waste that takes place in ones day to day lives. Savings made in these aspects will translate to a financial saving in the long term, helping to build a brighter future for individuals as well as the nation.

In this light, NDB Bank has taken the initiative to publish a handy 'Saving Booklet' that offers useful tips on how to optimise the benefits and minimise waste of common everyday essentials via the discounting of continuous unconscious wastage of national resources.

Diversity, strength and stability

The NDB Group differentiates itself from its peers, as its customers have access to a full range of banking and financial services, including project and infrastructure finance, SME lending, retail banking and corporate banking through NDB Bank; while it also offers a wide spectrum of products and services in the areas of investment banking, stock broking and wealth management through the investment banking cluster, and insurance solutions through AVIVA NDB Insurance.

A very strong and healthy balance sheet, capital and liquidity, supported by its talented and committed team, positions the NDB Group to grow aggressively as a dominant force in the financial services sector.
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HNB Group records post tax profit of Rs. 2.9 b in first nine months of 2010

HNB Group posted a pre-tax profit of Rs. 4.7 billion and a post tax profit of 2.9 billion for the nine months ended September 2010, up by 10% compared to first nine months of 2009, with HNB PLC recording a pre-tax profit of Rs. 4.4 billion and a post tax profit of Rs. 2.7 billion during the period under review amidst pressures on margins and acceleration in demand for credit mainly during the third quarter of 2010.

Interest income dropped by 15% during the nine months ended September 2010 to Rs. 17.6 billion despite loan growth due to re-pricing of assets during the year and prevailing low interest rates. Nevertheless, due to prudent asset and liability management the Bank was successful in recording a 5% growth in net interest income during the period.

The non interest income increased by 22% year on year mainly on account of capital gains and marked to market gains on the trading portfolio while the foreign exchange income witnessed a marginal growth. During the third quarter of 2010, the Bank divested the direct stake of 49.99% held in Acuity Securities (Pvt) Ltd. to Acuity Partners (Pvt) Ltd., the joint venture Investment Bank with DFCC Bank as part of the Bank's long term strategy.

Commenting on the growth the Senior DGM - Strategy Nihal Kekulawala stated that with the economic resurgence, the industry witnessed a growth in demand for credit while the Bank recorded an increase of Rs. 14.2 billion in gross loans and advances to Rs. 190.9 billion during the nine months.

The performing loans increased to Rs. 177.8 billion by 8% compared to end 2009 while the gross and net NPA ratios

improved to 5.9% and 3.1% respectively as at end of September 2010 due to prudent lending policies and concerted recovery effort by the Bank. Further the bank maintained a provision cover of 48% as at end of the third quarter of 2010.

Despite downward revisions in interest rates, the Bank was successful in increasing the deposit base by Rs.7.4 billion to Rs.221.4 billion as at end of September 2010. Furthermore a shift in deposit mix was observed towards low cost deposits, improving the low cost deposit base
Contd. on B2

HNB Group records post tax profit of Rs. 2.9 b in first nine months of 2010

as a percentage of total deposits to over 51% as at end of the period under review.

The tier I and total capital adequacy ratios continue to be well above the regulatory minimum and stood at 10.49% and 12.25% respectively as at end of September 2010.

As at end of the nine months under review HNB voting as well as non-voting shares recorded over 100% gains with the closing voting share price as at 30th September 2010 increasing by 127% to Rs. 386.10 from Rs. 170.25 as at end of December 2009 and the non voting share recording a gain of 129% from Rs. 104.75 to Rs. 239.90 as at 30th September 2010.

Recognised as 'The Strongest Bank in Sri Lanka 2010' by The Asian Banker, HNB continuously focuses on enhancing value to all its stakeholders. As such, with a view to expand the reach and to better serve the latent SME and microfinance segments in order to move towards economic prosperity, the Bank has expanded the distribution network by 14 customer centers during the year and now serves through 200 dedicated customer centers. The Bank plans to open 5 more customer centers during November and December 2010.

In October 2010, Fitch Ratings Lanka affirmed HNB's National Long-term rating at 'AA-(lka) with a stable outlook reflecting HNB's sound financial profile supported by good profitability, asset quality and capitalisation among local commercial banks.

Recently HNB was ranked no.2 by the Business Today Magazine and was recognised as the Overall 1st Runner-up and the Winner of the Employee Relations category at the Best Corporate Citizens Awards 2010 organised by the Ceylon Chamber of Commerce.
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Nov 4, 2010

Cargills buys Kotmale Holdings

Cargills (Ceylon) PLC has acquired Kotmale Holdings PLC as part of its accelerated expansion and diversification drive in the FMCG industry.

The agreement in this regard was sealed yesterday. The acquisition includes 3 production plants under Kotmale Holdings PLC located in Bogahawatta, Kaluthara and Colombo.

Cargills acquired a 73% stake at a maximum price of Rs. 40/- per share and a mandatory offer, as per regulations for the balance shares would follow shortly.

The move consolidates Cargills' interest in the dairy industry enabling the Company to enhance its dairy product range which is currently spearheaded by Cargills Magic, Sri Lanka's No. 1 dairy ice cream. This would also provide Cargills the opportunity to expand its dairy out-grower base from its present network of 5,000 and thereby further empower the local dairy industry. Kotmale at present collects over 12 million litres of fresh milk per annum.

Since its entry into the food manufacturing business over two decades ago, Cargills has enjoyed exceptional levels of growth in its FMCG businesses.

All Cargills manufacturing brands, Cargills Magic, Cargills Finest, Cargills Supremo and Cargills Kist are established market leaders being responsible for driving industry growth through an innovation driven strategy.

Cargills is of the view that the anticipated double digit economic growth in the medium term and the consequent growth in per capita income and change in lifestyles provide vast opportunities for the FMCG business. The Company is therefore looking to further diversify its businesses in line with its core business interests. The acquisition of Kotmale Holdings PLC comes in the wake of these identified opportunities and potential for sustainable long term growth.
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