Corporate

Strong manufacturing performances offset by lower contribution from plantations:

Dipped products revenue Rs. 2.26 bn in 1 quarter

A strong performance by manufacturing operations has enabled Dipped Products PLC (DPL), the Hayleys Group's multinational hand protection business, to post a pre-tax profit of Rs. 91 million for the first-quarter of 2009-10, despite a decline in earnings from its plantations company due to adverse weather conditions and lower commodity prices.

Results released to the Colombo Stock Exchange this week indicate that operating profit from Hand Protection grew nearly 142 per cent to Rs. 150.4 million, with Dipped Products (Thailand) and the Group's Local manufacturing operations making noteworthy contributions, according to a news release issued by the Dipped Products PLC.

Notably, Dipped Products Thailand, DPL's medical glove manufacturing business increased turnover by 4 per cent to Rs. 344 million through a higher utilisation of capacity, and posted a creditable profit before tax of Rs. 40 million in the quarter reviewed.

Local manufacturing helped by lower input material costs in the review period, improved margins to post a significant improvement in performance despite a drop of 30 per cent in FOB turnover from Rs. 1,194 million to Rs. 832 million as a result of a 23 per cent drop in volumes.

However, a reduction of Rs. 363 million in turnover and an operating loss of Rs. 36.6 million from Kelani Valley Plantations PLC (KVPL) in its first-quarter that ended in March 2009 due to unprecedented weather conditions offset the growth in the DPL's hand protection business, resulting in lower group turnover and profit in the quarter.

DPL Managing Director J.A.G. Anandarajah said the drop in turnover from Hand Protection was attributable to a reduction in orders as a result of the global economic downturn.

This was most notable in the industrial gloves segment where products are of a higher value.

Impressive performance by Sampath Bank

Sampath Bank continued to perform well in the second quarter of 2009, recording a successful half year, with the Post-Tax Profit rising to Rs.829.765 Mn, from Rs.639.068 Mn for the corresponding period in 2008, which amounted to an impressive PAT growth of Rs. 190.697 Mn or 29.8 percent.

Pre Tax Profit of the Bank for the period, crossed the Rs.1.5 Billion mark for the half year, and stood at Rs.1,532.965 Mn, as against Rs.1,254.165 Mn for the same period previous year, recording a PBT growth of Rs. 278.8 Mn or 22.2 percent.

Post Tax Profit of the Sampath Group, which consists of the Bank, its 6 Subsidiaries and an overseas Associate Company, was even higher with the PAT rising to Rs. 846.474 Mn in the first half of 2009, from Rs.699.744 Mn recorded in the same period in 2008, recording a growth of Rs. 146.730 Mn, or 21.0 percent.

Pre Tax Profit of the Group amounted to Rs.1,580.260 Mn during the period under review, rising from Rs.1,342.523 Mn in the same period 2008, reflecting a PBT growth of Rs. 237.737 Mn or 17.7 percent.

Contributory factors

Growth in Net Interest Income The Bank continued to manage its fund-base professionally, with net interest income rising from Rs. 2,980.8 Mn in the first half of 2008, to Rs. 3,619.1 Mn in the same period 2009, which recorded an impressive growth of Rs. 638.3 Mn or 21.4 percent.

Despite a moderate growth in the fund base of the Bank, which was very much in line with the industry trends during the period, with the average balances of interest earning assets and interest bearing funds of the Bank increasing by 6.6 percent and 4.2 percent respectively over the corresponding period last year.

The Bank was able to achieve this significant growth in Net Interest Income, primarily through improving the net interest margins.

The net interest margin rose from 4.44 percent in the first half of 2008 to 5.16 percent in the first half of 2009, which was a further improvement of 0.09 percent, over 5.07 percent recorded in the first quarter of 2009.

This was facilitated by several internal and external factors. The primary internal factor was the Bank's success in managing its fund base and the interest rates structure thereon in a prudent and professional manner, through the Assets and Liabilities Management Committee (ALCO) of the Bank.

Other Income

In addition, the reduction in the Statutory Reserve on rupee deposits from 10.0 percent to 7.75 percent in the 4th quarter of 2008, facilitated this improvement and the resultant benefit of this factor on Net Interest Income is estimated to be around Rs. 190.0 Mn.

Total other income of the Bank rose from Rs.1,204.9 Mn in the first half of 2008 to Rs. 1,569.8 Mn in the same period 2009, reflecting a growth of Rs.364.9 Mn or 30.3 percent. Foreign Exchange income, one of the main sources of other income, rose from Rs.110.356 Mn in the first half of 2008 to Rs.454.252 Mn in the same period 2009, recording a growth of Rs.343.896 Mn, as against the negative growth of Rs. 228.598 Mn recorded in the same period 2008.

This significant growth in foreign exchange income was mainly due to the improvement in revaluation gains, on the FCBU's retained profits kept in US Dollars, arising from the depreciation of Sri Lankan Rupee against the US Dollar from Rs.107.68 at the end of June 2008 to Rs.114.95 at the end of June 2009. Consequently, in 2009 the Bank recorded a revaluation gain of Rs. 87 Mn, as against the revaluation loss of Rs. 41 Mn, suffered in the corresponding period last year.

However, the commission and fee based income of the Bank, the bulk of which is relating to the lending activities, recorded a decrease from Rs.1,005.8 Mn in the first half of 2008, to Rs.801.5 Mn in the same period 2009, largely due to the slowdown in the lending activities.

In the first half of 2009, the Bank sold 1.0 Mn shares of its Overseas Associate LankaBangla Finance Ltd., out of the bonus shares so far received, to take advantage of the high share prices currently prevailing in the Dhaka Stock Exchange. This sale resulted in a profit of Rs.269.638 Mn which is reflected under Other Income.

However, the Bank retained 20.60 percent of shares of the company even after this sale as at 30.06.2009, enabling it to recognize the share of profit, under the Equity Method of Accounting in the group results.