Corporate

SriLankan catering earns Rs. 1.2 billion net profit

SriLankan Catering (Pvt) Ltd. has reported a net profit after tax of Rs. 1.26 billion during the last financial year, and is looking forward to an even greater performance with the expected boom in the country's tourism industry following the Dawn of Peace.

Chairman of SriLankan Catering Nishanta Wickremasinghe, who is also the Chairman of SriLankan Airlines Group said: "SriLankan Catering continues to be a tower of strength to our nation and the SriLankan Airlines Group, with yet another stellar performance. The company has proven itself to be a perfect example of consistency and has crossed the Rs. 1 billion profit mark for the third time in the last four years."

This performance for the financial year 2008/09 was a 30% increase over the net profit of the previous year, a tremendous achievement by the catering arm of Sri Lanka's National Carrier during a year of crisis in the global airline industry.

CEO of SriLankan Catering Sarath Fernando said: "The Dawn of Peace has brought with it exciting possibilities for growth in the country's tourism industry. SriLankan Catering is perfectly positioned with a state of the art operation and an experienced team to grasp these opportunities with both hands and propel the company towards even greater heights."

Tourism arrivals have been increasing rapidly over the last several months, and BIA is experiencing a steady growth in business.

Expectations are high that more airlines will soon fly into BIA to take advantage of opportunities, and existing airlines would also increase their frequencies.

Fernando, the first Sri Lankan CEO of the Company, added: "The SriLankan Catering Team has worked wonders to overcome the multiple challenges faced during the past year.

This is an extraordinary performance by a talented team, operating under the guidance of a Board that is 100% Sri Lankan, and the direction of an experienced management team."

SriLankan Catering is the fully owned subsidiary of SriLankan Airlines, and provides inflight meals for airlines that operate in and out of Bandaranaike International Airport (BIA).

These include such globally reputed airlines as Emirates Airlines, Qatar Airways, Malaysian Airlines, Royal Jordanian Airlines, Kuwait Airways, China Airlines, Singapore Airlines, Saudi Arabian Airlines, as well as Mihin Lanka and SriLankan Airlines.

SriLankan Catering maintains the highest standards of efficiency, food safety, hygiene and quality control throughout its procurement, production, storage and operations processes.

It is one of a handful of airline caterers in the world to hold the triple certification of ISO 9001:2008 - the latest international standard for quality management; ISO 2200:2005 for quality and efficiency; and HACCP Codex Alimentarius for food safety and hygiene.

SriLankan Catering has distinguished itself by winning many prestigious culinary awards.

These include ITCA Mercury Awards for Innovation & Excellence, and Food & Beverage.

The company is also a consistent performer at the country's main catering competition Culinary Art.The company's modern production facility at BIA, built at an investment of Rs. 2.5 billion three years ago, is considered to be among the finest in the Asian region.

It produced an average of 11,000 meals per day during the last financial year, and requires no further investment for several years since it has a production capacity of 25,000 meals per day.

The 18,300 square metre flight kitchen, which is Halal certified, is located on a 5-acre property at BIA.

It currently produces more than 60 different menus.SriLankan Catering also operates three restaurants at BIA, and supplies catering services for several other restaurants and lounges in the airport that are operated by other institutions including Airport & Aviation Services (Sri Lanka) Ltd.

RAM Ratings Lanka reaffirms Co-Operative Insurance's rating

CPA rating of BB RAM Ratings Lanka has reaffirmed the BB claims-paying ability rating of Co-operative Insurance Company Limited ('CICL' or 'the Company'), with a stable outlook. The rating is premised on the Company's moderate competitive position, extensive distribution network and moderate underwriting standards. On the other hand, the rating is pressured by hefty overheads and inadequate reserving in the general-insurance business.

CICL is a small composite insurer in an industry where the 2 largest players command about 57% of the sector's gross written premiums ('GWPs'). Leveraging on the distribution networks of other co-operative societies, the Company was able to sustain its above-average premium growth in FYE 31 December 2008 ('FY Dec 2008'). CICL's overall premiums augmented 67.52% to LKR 653.45 million, resulting in a 1.12% share of the market as at the same date (end-FY Dec 2007: 0.75%). The growth was mainly driven by the motor insurance sub-class, which charted an unprecedented 97.97% year-on-year ('y-o-y') expansion in 2008.

While expanding its premiums, we note that CICL's overall claims ratio for general insurance increased from 46.80% to 58.98% in FY Dec 2008, owing to the high claims experience in the motor sub-class. Nonetheless, it was still better than the industry average of 64.92%. We note that the Company has been facing an increasing trend in claims in the motor sub-class, which may become a concern. However, for now we have taken into account the management's measures to arrest this rising trend. In the context of life insurance, RAM Ratings Lanka considers CICL's life insurance fund to be moderate owing to its benign claims ratio and lapse rates.

In the meantime, CICL has maintained its conservative investment strategy by investing about 79% of its funds in government securities. The high interest rate environment in 2008 aided the Company to increase its investment income from LKR 45.93 million to LKR 102.50 million y-o-y. Meanwhile, we note that the Company's reserving levels in general insurance also weakened in FY Dec 2008, pressured by escalating overheads. All said, CICL's pre-tax profit augmented 70.42% to LKR 53.17 million in FY Dec 2008 (FY Dec 2007: LKR 31.20 million). However, the core business performance is considered weak due to its heavy overheads. Elsewhere, the Company reported solvency ratios of 1.10 and 1.13 times in the life and general segments, respectively, as at end-FY Dec 2008. However, RAM Ratings Lanka's independent calculation of CICL's ratio (excluding the fixed deposit placed with a registered finance company or RFC) revealed a marginal shortfall. Nonetheless, subsequently the management has taken remedial action.

On a more positive note, the Company's capital adequacy has improved after capital infusions. This had followed the Insurance Board of Sri Lanka's ('IBSL') provisional direction to increase an insurance company's paid-up capital to LKR 500 million (or LKR 250 million for each class of business) by end-2009.