CORPORATE

Asian Alliance Insurance records Rs. 368m net profit

by Sapumali Galagoda

Asian Alliance Insurance (AAI) completed 10 years in the business of protection in the year ended December 31.

Asian Alliance has the highest retention rates in the industry - 70 percent and in the year ended December 31 recorded the highest ever net profit of Rs 368 million, a 154 percent growth from the previous year, said a company spokesman.

In addition to this RAM ratings upgraded the company from a BB+ to a BBB- on the basis of the soundness of the company’s operations and financial strength.

AAI continued to maintain healthy solvency margins in the life and non-life businesses, well above the stipulated requirements, adding further confidence to the security of all policyholders.

Gross written premiums (GWP) reached Rs 1673 million and the net profit after tax attributable to shareholders of Rs 368 million.

A substantial contribution towards the net profit came from investment income from the life and general funds with a growth of 77 percent to Rs 693 million.

Reserves reached Rs 498 million an impressive growth of 86 percent from the previous year and is testament to the sound management of the company.

The life division contributed 69 percent to the company’s bottom line, exhibiting an excellent performance with GWP of Rs 1243 and underwriting profit of Rs 318 million.

In view of this performance the actuarial consultant recommended an interim bonus to the policyholders of Rs 90 million.

In the coming year the life division will be looking at product innovation and improvement in customer service to increase customer retention rates and aims to increase its annualised new business premiums (ANBP) by 25 percent supported by the proposed opening of a further 10 branches. The non-life division will focus this year on restructuring and streamlining processes as well as on training of staff to increase standards of professionalism and productivity.

The industry has seen a lot of other insurance companies packaging investment products in the guise of insurance.

AAI firmly believes in sticking to the principles of insurance, and continue to offer pure insurance products, focusing instead on capitalizing on the company’s stability and risk awareness. AAI believes this will stand the company in good stead and sustain the company through many more years.

EPF notches Rs. 900 billion in 2010

The Employees’ Provident Fund (EPF) recorded another year of noteworthy performance in 2010. During the year, the member contributions rose by 12.5 percent and the number of active members of the Fund increased by 9.5 percent reflecting the increased new employment opportunities in the economy.

EPF received Rs. 54.8 billion as member contributions and paid-out Rs. 34.9 billion as refunds to members and legal heirs in 2010. The gross income of the Fund was Rs. 121.3 billion, which was 10.6 percent higher compared to that of the preceding year.

The Funds investment policy continued to be focused on the long-term positive rate of real return to the members while ensuring the safety of the Fund. Accordingly, more than 94 percent of the funds have been invested in Government securities as a result of which, interest income and amortization gains were the main sources of income to the Fund.

EPF earned Rs. 118 billion from its investments in Government securities.

EPF also invested Rs. 32 billion in the equity market which recorded substantial gains, better corporate earnings, and more favourable economic prospects in the country. Hence, equity investments which represented 1.3 percent of the total EPF portfolio at end 2009 increased to 5 percent by end 2010.

EPF’s key focus was on fundamentally sound stocks in the banking, finance and insurance, hotel, travel and diversified sectors.

These sectors are expected to flourish in the medium to long-term. Consequently, EPF was able to generate just over Rs. 1.5 billion in realized gains, and further Rs. 16.2 billion in unrealized gains from its equity portfolio.

Since the major portion of the EPF’s equity investments are held in the long-term portfolio, further substantial gains are also expected to be realised in the future.

By end 2010, the total value of the Fund reached Rs. 900 billion registering a growth of 16.9 percent over that of 2009.

At the same time, the EPF has been able to appropriate an interest rate of 12.5 percent of the MoU on the year-end member balances, which is a very attractive rate under the current low interest rate environment.

During 2011, the total value of the Fund is expected to surpass Rs. 1,000 billion (Rs. 1 trillion) mark through its income from investments and member contributions.

Standard Chartered operating profit soars 19% to $ 6.12b

Standard Chartered PLC announced an eighth successive year of record income and operating profit, demonstrating the consistent and sustainable growth strategy of the Group.

Normalised earnings per share increased 14 percent and dividend per share was up 9 percent, with RoE at 14.1 percent, as the Group continues to deliver long-term value for shareholders.

2010 delivered strong and diversified profit and income growth across markets in Asia, Africa and the Middle East. Twenty-three markets delivered over US$ 100m income, with 11 contributing over US $ 500m. 15 markets delivered over US $ 100m profit, with India and Hong Kong both delivering over US $ 1bn.

The Group continues to be in the right parts of the world, with strong long-term growth opportunities.

Wholesale Banking and Consumer Banking saw business activity in a number of products grow strongly over the year, as the Group took market share from competitors across markets.

Wholesale Banking saw income climb by seven percent to just under US $ 10bn, with profit up 17 percent at US $ 4,770m.

Wholesale Banking has now achieved double-digit profit growth every year since 2002. Client income grew 17 percent on the back of growing trade and investment flows to and from our markets, with trade finance assets and contingents growing 28 percent, commodities by 66 percent, and FX by 14 percent.

Wholesale Banking continues to see strong growth momentum as it deepens client relationships and invests in product and service sets to meet client demand, with corporate finance and financial markets growing income by 32 percent and 18 percent.

Income growth was underpinned by a strong increase in cash management volumes, up 21 percent.

Consumer Banking continues to make strong progress in its transformation, with income up eight per cent to just over US $ 6 billion, whilst profit climbed 51 percent to US $ 1.31 bn, despite ongoing margin compression. Income growth was driven by good volume growth in mortgages, credit cards and personal loans, alongside a recovery in wealth management revenues.

The focus on the strong fundamentals of the consumer business continues, with a low average loan-to-value of around 51 percent on the mortgage book, and a well-diversified and strongly secured loan book. We continue to attract strong deposit growth, up 15 percent on 2009, with 59 percent of deposits now in current and savings accounts (CASA).

The investment in the business continues as the Group positions for long-term growth, with 113 new and refurbished branches in 2010, alongside 2,000 new frontline staff and an increase in technological innovations with an expansion of mobile and online banking offering, including the launch of ‘Breeze’, one of the first iPhone banking applications.

The Group continued to maintain a strong focus on the fundamentals of the balance sheet, with the recent rights issue protecting the ability to meet Basel III capital requirements whilst simultaneously taking advantage of the growth opportunities in markets.

The balance sheet remains conservative, highly liquid, with minimal refinancing requirements. Strong organic equity growth of over US $ 4.2 billion, supplemented by a successful capital raising, saw Core Tier 1 capital rise to 11.8 percent, up from 8.9 percent in 2009, with total capital up 1.9 percent to 18.4 percent.

The normalised cost/income ratio rose slightly to 55.9 percent, reflecting the deliberate and strong investment across the Group.

The advances to deposits ratio remains strong at 77.9 percent as the Group continues to grow both sides of the balance sheet. Customer deposits grew by 23 percent (US $ 60 bn) to US $ 317 billion, whilst customer assets were up 22 percent (US $ 45 bn).

Continued action to de-risk the asset book positions the Group well to deal with any future economic uncertainty. Loan impairments fell significantly by 56 percent to US $ 883 million. Consumer Banking loan impairments fell 45 percent year-on-year, whilst Wholesale Banking loan impairments declined 68 percent in the same period.

Standard Chartered has continued to provide support for its customers and corporate clients, both during and after the financial crisis, with total lending up over US $ 90 bn, up 60 percent, from the start of the crisis in mid-2007.

SME lending climbed by 32 percent, or just under US $ 4.3 billion during 2010, on top of a 14 percent increase in 2009. The Group continued to support potential home owners, with mortgage lending up by 23 percent.

Group Chief Executive, Standard Chartered, Peter Sands said, “This has been a strong year for the Group, with good growth in volume as we take market share from our competitors.

Access to entire island helped Chevron expand in 2010

Chevron Lubricants Lanka Plc., has recorded a revenue of Rs. 9.5 b, a growth of 8.98 per cent, in the year ended 2010. The profit after tax of Rs. 1.5 b is marginally above last year, said Managing Director/CEO Chevron Lubricants Lanka Plc.

As far as lubricants consumption is concerned, the operating environment from the start of 2010 was positive and the unrestricted access to the entire island for the first time since Chevron began operating in Sri Lanka gave the company the opportunity to expand coverage.

As a result a positive growth was seen in the industry.

Prior to 2010 the market declined for two consecutive years.

Base oil prices also increased sharply and the average cost per ton increased by 16 percent compared to last year which impacted gross margins.

The company underwent a restructuring to improve organisational efficiency. This resulted in severance costs of Rs. 33 m. From early 2010 access to new areas in the North and East became possible which resulted in a more conducive operating environment for the company.

This access is a milestone for all players in the lubricant market and Chevron has been in the forefront of it by creating new retail distribution channels in these parts for early wins.

The company expanded its retail network through new distributor appointments and branded channels across the island to better reach these emerging markets.

The company channel brand named ‘oil mart’, an exclusive oil selling outlet staffed by persons with a sound knowledge in lubricants was further expanded targeting the growing product and customer segments.

The company’s export volumes to the Maldives and Bangladesh have increased significantly (24 percent and 61 percent) through greater penetration into new customer and product segments assisted by global economic recovery.

The growth in the Maldives is attributed mainly to the recovery of the tourism industry as well as growth in the fisheries, sea transportation and power generation industries.

In Bangladesh Chevron was successful in penetrating into the power generation sector.

Healthy competition benefits the consumer, but a focused regulatory framework is necessary to ensure that this market is not further diluted with entrants who do not possess technology capabilities to offer the right product performance.

The power generating sector continues to be a major sector for the lubricant industry.

Private power generating companies enjoy duty rebates when purchasing imported finished lubricants.

However, the same does not apply when purchasing from local manufacturers.

This creates a disadvantage for local manufacturers and discourages further investment in manufacturing plants in the country Chevron as a local manufacturer expects the government to correct this policy so as to enable greater value addition to the country through local manufacturing.

Chevron’s commitment to the community remains strong and during 2010 the company participated in many projects.

The key projects were the Water Conservation Program and the Road Safety Awareness Campaign.

Chevron welcomes the reduction of corporate and personal tax rates as announced in the 2011 budget.

The government took the initiative to reduce a number of other taxes such as the debit tax.

These reductions in personal taxes will increase the disposable income of consumers.

The operating environment for 2011 is positive, with further expansion of the industry, a strengthened rupee and moderate inflation GDP is also expected to grow by 8 per cent.

The phenomenal growth in new vehicle registration will lead to increased lubricants consumption.

The increased momentum in the tourism industry and other accelerated development projects will also contribute to positive growth.

Nation Lanka Finance gets new board

by Sapumali Galagoda

Nation Lanka Finance PLC announced its new board of directors last week in Colombo.

Jayantha Dharmadasa                  Pic: Kavindra Perera

The company’s board will be headed by Chairman Jayantha Dharmadasa and Chief Executive Officer Bede Fernando.

The Directors will include Asanga Seneviratne, Harshith Dharmadasa, Jayaprakash Rudra, Lalith Karunaratne, U.H. Palihakkara and Chandra Sahabandu.

The company headed by the new board will provide a range of financial products and services focusing on capital markets and the property sector and also will look to expand services through tie ups and foreign partnerships, offering a wider range of finance services and competitive investment opportunities.

Nation Lanka Finance is backed by a consortium of established investors led by Investor Access Equities (Pvt) Ltd and Nawaloka Construction Company (Pvt) Ltd.

Chairman Jayantha Dharmadasa said that this is a very exciting time for the company.

The company will look into expanding services reinforcing financial stability. He said that they are planning to list Millennium Housing Developers a subsidiary of Nation Lanka Finance.

Nation Lanka Finance has 12 branches islandwide and is registered in the Colombo Stock Exchange.

The company offers credit, real estate, leasing, property development and investment services.

It has a balance sheet of Rs. 800 billion. Rs. two billion debt instruments portfolio and 2,500 depositors.

Fitch Affirms Abans at ‘A-(lka)’; Outlook Stable

Fitch Ratings Lanka has affirmed Sri Lankan retailer Abans (Pvt) Ltd’s (Abans) National Long-Term rating at ‘A-(lka)’ with Stable Outlook. Fitch has also assigned Abans’ proposed Rs. 300m senior unsecured debenture 2011-2014 an ‘A-(lka)’ National Long-Term rating.

The affirmation reflects an expected increase in both sales (approximately up by more than 30 percent as of the first half to financial year ending March 2011 based on interim management accounts) and operating profitability in the key consumer durables segment for FY11.

An expected turnaround at Abans Financial Services Ltd. (AFS) in operating profitability is also likely to aid Abans’ performance in the near term.

Gross profit margin fell to 28 percent in FY10 from 31 percent in FY09 and costs increased Rs. 190m due to higher import taxes as well as stock and bad debt provisions. Leverage (total adjusted net debt to operating EBITDAR) weakened significantly to 5.5x from 3.6x after EBITDAR fell 39 percent.

AFS has been weighing on group (Abans (Pvt) Ltd and its subsidiaries) profitability with PBT losses of Rs. 20m in FY09 and Rs. 102m in FY10. At FYE10, AFS’s gross loans overdue by six months (NPLs as defined by the regulator) were 20.5 percent of Rs. 1.2bn gross loans.

This compares with an average of 5.5 percent at end-March 2010 for registered finance companies (RFC) rated by Fitch (comprising 40 percent of total RFC sector assets).

However, AFS management indicates that the subsidiary is expected to turn around in FY11 on lower provisioning.

The Stable Outlook reflects Fitch’s expectations that the retail industry will recover from the low levels in FY09 and FY10, amid slower inflation and lower interest rates. Tax incentives provided in the government’s November 2010 budget to the consumer durables industry are expected to improve profitability. All these should contribute to improved gross profit margins and, consequently, help reduce leverage below 5x on a sustained basis.

Fitch notes there is plenty of scope for improvement at Abans in its management information systems for more timely release of interim results and audited financial results; its FY10 audited accounts were released 10 months after the year’s end.

Abans continues to suffer from weak corporate governance, such as a lack of independent board representation and an audit committee, given its complex ownership structure and high inter-company and related-party transactions.

These are all constraints on Abans’ rating at the current level. The ratings may come under pressure if FY11 EBITDAR fails to improve as expected and if leverage (excluding AFS) remains above 4.5x on a sustained basis. Any expansion funded by additional debt leading to weaker leverage could result in negative rating action.

Abans has adequate liquidity, with unutilised debt facilities of Rs. 530m as of end-September 2010, representing 16 percent of the consumer durables segment’s total borrowings.

Amana Takaful announces rights issue

Amana Takaful, has announced a rights issue on 1:1 basis at Rs. 1.50 a share, which is subject to approval by the Company’s Shareholders.

The rights issue will see Amana Takaful’s core capital rise to Rs. 1.25bn, which will facilitate its expansion strategy in spearheading Takaful in Sri Lanka as well as consolidating its position to meet changes in regulations pertaining to risk-based capital and splitting of life and general business.

“We feel bullish about the opportunities that are emerging through the post conflict development taking place, backed by long-term economic policies of the Government.

The changes in regulation pertaining to the insurance industry is also a strong impetus and the recent amendments to the Regulation of the Insurance Industry Act (RII Act) will allow us to spread Takaful more strongly in Sri Lanka,” said Director/CEO, Amana Takaful PLC Ehsan Zaheed.

“These changes also allow us to spread our investments portfolio, which has up to now been limited.

The budget proposals are also an added source of strength to us, which will help us increase financial performance,” he said.

LOLC introduces working capital product

The Factoring/Working Capital Business Unit (WCBU) of Lanka ORIX Leasing Company PLC(LOLC) has introduced a structured working capital product named “privilege cheque financing”. The product provides a flexible, hassle free working capital solution for corporate clients.

Privilege cheque financing offers the benefit of financing a client’s working capital needs either against cheques received from their customers or against their own cheques.

It targets businesses with a minimum monthly turnover of Rs. 5Mn and over and offers SMEs with a strong asset base to get their working capital financial requirements addressed through the product.

Group Managing Director/CEO of LOLC Kapila Jayawardena said, “The product has proven to be popular among many WCBU clients during its introductory stage.

It was formulated to offer clients the best of our total working capital solutions”.

Sanjiv Keerthiratne joins Delmege Insurance Brokers

Sanjiv Keerthiratne joined Delmege Insurance Brokers (DIB) as Deputy Managing Director recently. DIB has been a forerunner in insurance broking for many years with many corporate customers under its portfolio.

The company is regulated by the Sri Lanka Insurance Board and the current representative of Aon Benfield, the largest reinsurance broker in the world.

Sanjiv was the former CEO of Lanka Orix Insurance Brokers and was involved with LOLC from the formation of the company. He is a Chartered Marketeer and a diploma holder of the Chartered Insurance Institute - UK and has been in the insurance industry for more than 22 years.

He is Vice President of the Sri Lanka Insurance Institute and has been involved with the Sri Lanka Insurance Brokers Association as a Council Member and Treasurer for many years. He pioneered the concept of co-branding insurance products in Sri Lanka.