Corporate

Hayley's post tax profit Rs. 803 m

Commendable performances by business in global markets and manufacturing and agri inputs have helped Sri Lanka's Hayleys PLC to weather hostile economic conditions in 2008-09.

The group this week reported that consolidated turnover for the 12 months ending March 31, 2009 had grown nearly 5 percent to Rs. 32.4 billion. However, the multinational blue chip's high degree of exposure to export markets placed many of its businesses directly in the path of decelerating international trade and finance flows, declining industrial production and softening consumer demand in the year reviewed. These pressures, combined with an unfavourable domestic policy environment significantly impacted on Group profits.

Releasing its results for the year to the Colombo Stock Exchange, Hayleys PLC reported that profit before tax had declined 26 percent to Rs. 1,475 million. Profit after tax and losses from discontinued operations at Rs. 803 million reflected a drop of 26 percent, and profit attributable to equity holders of the company was down 31 percent to Rs. 311 million.

The group reduced the impact of discontinued operations, principally the consumer durables business to Rs. 100 million from Rs. 431 million in 2007-08. There will be no-carry-over of losses from consumer durables beyond March 31, 2009. Among the major contributors to group performance with improved performances in the year under review were Hand Protection with Rs. 9,463 million turnover and Rs. 312 million profit. Purification products with Rs. 4,504 million turnover and Rs. 406 million profit and agri inputs with Rs. 3,678 million turnover and Rs. 213 million profit.

Transportation with Rs. 3,800 million turnover and Rs. 429 million profit and plantations with Rs. 2,433 million turnover and Rs. 320 million profit also made significant contributions, although their performances were below those of the previous year.

Elaborating on these results, Hayleys Group Chairman N. G. Wickremeratne said.

"Hayleys, like no other public quoted company, is exposed to global trade as our manufacturing and plantation businesses account for over 60 percent of revenue.

We have continuously drawn attention to the fact that these businesses are hugely affected and their profitability eroded when there is no adjustment for inflation in the exchange rate and we suffer appreciation of the rupee in real terms.

"We witnessed a further deterioration on this score which was relieved in part only recently. In our estimation we have lost 5-7 percentage points off our margin in our different businesses since 2005, even after achieving cost reductions and productivity improvements that have been essential survival measures."

He said Hand Protection was one of the most affected by the global slowdown, with order levels declining sharply and customer demands for lower prices. "However, the resilience and stability of the business have been amply demonstrated by the results returned this year". Wickremeratne said, noting that low rubber prices in the last quarter as well as the improvement in exchange rate competitiveness had helped performance. DPL Thailand, the Group's medical glove production unit, has now achieved profitability after a prolonged struggle to rectify equipment related problems. "DPTL, has performed strongly from November up to the time of writing, and is now a significant contributor to the Hand Protection sector's success: again, a testament to our capacity to transfer our expertise to overseas location," Wickremeratne said.

Among the significant actions taken by Hayleys PLC and subsidiaries in 2008-09 were the disposal of non-core and non-performing businesses and assets.

The Board of Directors of Hayleys PLC has proposed the payment of Rs. 3 as dividend, of which Rs. 1.50 is being paid in May 2009 as an interim dividend. A final dividend of Rs. 1.50 is to be paid after the company's Annual General Meeting.

Commenting on the prospects for the group, Wickremeratne said: "No one can say with certainly how soon economic conditions will turn positive, but one cannot successfully engage in entrepreneurship without a sense of optimism that things will improve and a sense of confidence that we will succeed, regardless of external factors.

"I believe we have done the right things at the right time. There are no challenges we cannot overcome if we continue doing that."

RAM ratings reaffirms alliance Finance ratings

RAM Ratings Lanka has reaffirmed Alliance Finance Company PLC's ("AFC" or "the Company") respective long and short-term financial institution ratings at BBB and P2; the long-term rating has a stable outlook. The reaffirmation is premised on AFC's better-than-industry asset quality, moderate financial performance and capitalisation. On the other hand its ratings are weighed down by its fragile funding structure.

AFC is a medium-scale Registered Finance Company ("RFC") that accounted for 3.40 percent of the industry's assets as at end-December 2008. With a 53-year track record, it is one of the oldest finance companies in Sri Lanka. The Company has weathered many turbulent times in its history, underscored by its conservative growth strategy and prudent management.

During the reviewed period, there had been an uptick in defaults for AFC. Nonetheless, RAM Ratings Lanka still deems the Company to have adequate asset quality.

Although AFC improved its asset quality until FYE March 31 2008 ("FY Mar 2008"), the worsening macroeconomic environment had pushed up its Non-Performing Loans ("NPLs"). As at end-December 2008, the Company's gross NPL ratio (on a 6-month classification basis) stood at 5.22 percent (end-March 2008: 3.33 percent). That said, the Company's NPL ratio was still better than the industry average, which came up to 6.70 percent as at end-December 2008. Additionally, we note the Company's strategy to combat its rising NPLs.

Meanwhile, AFC's financial performance had moderated during the reviewed period, a result of rising interest rates, overheads and provisions. Consequently, the Company's returns on assets ("ROA") slumped from 1.64 percent as at end-FY Mar 2008 to 0.90 percent (annualised) as at end-December 2008. However, RAM Ratings Lanka notes that the Company had made additional provisions for overheads; after adjusting for these, its cost-to-income ratio eased to 65.53 percent as at the same date (unadjusted: 78.10 percent). Accordingly, its adjusted pre-tax profit ameliorated to LKR 57.43 million from LKR 32.61 million (adjusted ROA: 1.04 percent).

In the face of rising interest rates, the negative gap in AFC's asset-liability maturity profile had widened. The Company's loans-to-deposits ratio, although lower, remained elevated. On a more positive note, its statutory liquid-asset ratio improved from 16.59 percent as at end-March 2008 to 18.32 percent as at end-December the same year.

Com Bank group posts turnover of Rs. 10,982m

The Commercial Bank of Ceylon Group has posted a turnover of Rs 10,982 million in the three months ended March 31, 2009, a healthy growth of 6.85 percent.

In results released to the Colombo Stock Exchange this week, Commercial Bank of Ceylon PLC, its associates and subsidiaries reported a profit before tax and financial VAT of Rs. 2,150 million, and profit before tax of Rs 1,635 million. Group Net profit after tax for the quarter was Rs. 892.2 million.

Significant developments in the period reviewed included a suspension of interest on certain loans by the Bank, as a result of the prevailing economic situation. This resulted in net interest income declining from Rs. 2,992 million in the first quarter of 2008 to Rs. 2,942 million this year, although total interest income grew by more than 3 percent.