Corporate
RAM Ratings Lanka reaffirms AFC PLC's ratings at BBB/P2
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 moderate financial performance,
capitalisation and reputable franchise, but is weighed down by our
concerns with regards to the Company's asset quality.
With a track record of nearly 54 years, AFC ranks among the oldest
registered finance companies ('RFCs') in Sri Lanka. Despite its long
operating history, the Company has remained a medium-sized entity,
accounting for only 3.58% of the industry's assets as at end-March 2009.
This has been underscored by AFC's conservative growth strategy and
prudent management.
On the back of its cautious lending strategy, the Company has
traditionally maintained above-industry-average asset quality. In tandem
with the less conducive economic climate during the reviewed period,
however, AFC had experienced an influx of non-performing loans (NPLs).
As such, its gross NPL ratio (on a 6-month classification basis) had
deteriorated to 5.84% by the end of FYE 31 March 2009 (FY Mar 2009),
from 3.58% a year earlier; the ratio climbed up further to 7.97% as at
end-September 2009. While this had been exacerbated by a contraction in
its loan portfolio, we note that absolute NPLs had also increased by LKR
64.92 million (or 28.76%) over the same period.
However, the management has taken steps to curb its rising NPLs;
lending to sectors that experienced higher delinquencies have been
either frozen or curtailed. That said, we remain concerned about the
influx of NPLs and will continue monitoring the developments in this
regard; downward rating pressure may be exerted in the event that asset
quality deteriorates further.
Meanwhile, AFC's financial performance remained moderate, albeit
easing marginally in line with higher funding costs and hefty overheads.
The Company's pre tax profit ebbed slightly to LKR 70.65 million in FY
Mar 2009 (FY Mar 2008: LKR 73.92 million). Consequently, its return on
assets ('ROA') dipped from 1.63% to 1.30% as at end-FY Mar 2009,
although still better than the industry average of 0.83% as at the same
date.
On a separate note, the Company had strengthened its liquidity
position during the reviewed period; its statutory liquid-asset ratio
advanced to 16.29% as at end-September 2009, from 14.84% as at end-FY
Mar 2009. Meanwhile, AFC had maintained the healthy growth of its
deposit base, which expanded 34.97% year-on-year ('yoy') to LKR 3.36
billion as at end-FY Mar 2009, before augmenting further to LKR 3.56
billion by end-September 2009.
AFC's tier-1 and overall risk weighted capital-adequacy ratios ('RWCAR')
clocked in at 10.56% and 12.94% as at end-September 2009, comfortably
above the regulated minimums of 5% and 10%, respectively.
ETI overcomes challenging financial year
In spite of the crisis that affected the Sri Lankan financial
services sector, Edirisinghe Trust Investments (ETI) posted tremendous
results at the end of the 2009 financial year. The crisis, caused by
mismanagement at a number of finance companies and worsened by
deteriorating global conditions, was negotiated successfully by ETI
because of its commitment to the highest standards of professionalism
and quality service.
Beginning in the third quarter of 2008, a liquidity crunch rocked
finance companies, including banks, and led to a loss of a public
confidence. This, in turn, caused a large scale withdrawal of timed
deposits, further compounding finance companies' troubles. The Central
Bank intervened in order to control the situation and ETI employees
worked round-the-clock to ensure that depositors' funds were secured.
Prevailing despite the odds, ETI has emerged from the crisis with a
renewed belief in the values that have guided it since its inception.
Other finance companies can trace their difficulties to unethical
policies and poor management decisions, including weak organisational
structures, lack of oversight, unsustainable expansion, unsuitable
employees, improper pricing of products, and imprudent investments. ETI,
on the other hand, weathered the financial storm by adhering to core
management principles; indeed, the company's impressive financial
results are a direct result of its insistence on management oversight,
long-term planning, and experienced, ethical employees.
For example, in the financial year that ended on March 31, 2009, the
company's net interest income grew 90.4% from Rs. 271 million to Rs. 516
million. As a finance company, ETI is ultimately involved in the buying
and selling of cash; net interest income, therefore, is an especially
useful indicator of the company's performance. The interest income of
its credit business was Rs. 117 million, which was roughly the same as
in the previous year, admirable given the tough economic times and the
deteriorating leasing and hire purchase market. Pawning, the company's
core business, accounts for 60% of its product range; interest income
from pawning rose dramatically from Rs. 496 million to Rs. 1.1 billion,
a phenomenal increase of 114%.
As the private sector leading in pawning, ETI is hailed for
continuing to raise the bar in quality service, expertise, and
professionalism. Over a period of 40 years, the company has wisely
adopted a slow but steady plan of expansion, a strategy that has been
vindicated by the events of the recent past. Indeed, its 41 branches and
pawning centres have been modernized with a number of innovations,
including the implementation of a high-tech data network that allows for
transactions to be processed in three minutes.
The company has opened four new pawning centres in Moneragala,
Tissamaharama, Kegalle and Eheliyagoda, giving its customers
industry-best service standards and interest rates at a more convenient
location.
As ETI looks ahead, its future appears brighter than ever. Economists
expect a significant recovery in the leasing and hire purchase market.
In addition, the company's property development arm stands to prosper
due to recent interest rate cuts that will allow its customers to obtain
cheaper housing loans. In spite of the difficulties that affected the
financial services sector, ETI continued to upgrade its facilities and
quality levels. For example, the company's dedication to superior
standards is evident in the renewal of its ISO certifications for its
leasing and property development units. Commenting on the way forward,
ETI CEO Mr. Mahendra de Silva noted that "'ETI doesn't believe in making
a quick buck at the customer's expense. Instead, all our management
decisions are taken with the long-term view of improving the lives of
our customers. After all, we thrive because of our customers."
Hayleys MGT reports profit
Hayleys MGT Knitting Mills, the Hayleys Group's cotton and synthetic
fabric manufacturing business reported a net profit of US$ 1.96 million
for the nine months ending 31st December 2009, on a turnover of US$ 37
million.
According to figures released to the Colombo Stock Exchange this
week, both turnover and profit declined in the third quarter of the
year, when compared to the corresponding period of last year.
Hayleys MGT Jt. Managing Director Bandula Weerasinghe said prices had
fallen in the third quarter and volumes had also declined as the company
had lost some orders to lower-priced overseas competitors. However, the
company has regained the lost orders in the current quarter and expects
a better year-end result, he said.
The company achieved a 23 percent drop in its cost of sales though a
combination of lower energy costs and lean production practices,
Weerasinghe said. However, the drop in prices and volumes and volumes in
the third quarter had resulted in a decline of 7 percent in profits to
shareholders.
The outlook for the final quarter and the year as a whole would be
enhanced by the savings generated by the company's new bio mass steam
generator and earnings from the recently acquired state-of-the-art
rotary and digital printing facility, Weerasinghe disclosed. A major
supplier to top international brands such as Marks & Spencer, Next,
Nike, Tesco and Decathlon, Hayleys MGT is the first fabric manufacturer
in Sri Lanka to be certified as compliant with the world's most
stringent Social Accountability Standard, SA8000. The standard
represents a comprehensive and flexible system for the management of
ethical workplace conditions throughout global supply chains and assures
a humane workplace through respect for workers rights.
Hayleys MGT has a production capacity of 4 million metres of fabric
per month as its state-of-the-art plant at Narthupana Estate in the
kalutara district. The company is a key supplier of high quality knitted
fabric to the Sri Lankan apparel industry and to export markets.
Aitken Spence Q3 Profits up by 14%
Aitken Spence PLC showed a 10 per cent rise in pre-tax profits to Rs
914 million and a 14.3 per cent rise in profit attributable to
shareholders to Rs 541 million over the same quarter last year.
Aitken Spence is among Sri Lanka's leading corporate entities with
interests in Hotels, Services, Logistic Solutions and Strategic
Investments in South Asia, the Middle East and Africa.
The diversified conglomerate reported Rs 2.14 billion as pre-tax
profit and Rs 1.3 billion as profit attributable to shareholders for the
nine months ended 31st December; an increase of 3.3 per cent and 3.1 per
cent respectively over the previous year.
Performance from the Group's resorts in the Maldives which operate as
Adaaran Resorts, showed signs of recovery despite being lower than last
year. With seven resorts under its portfolio, Aitken Spence is the
largest international resort operator in islands, which was sharply
affected by a slump in tourist arrivals due to the global recession.
During the quarter under review, Adaaran Prestige Resorts was
acclaimed as "The Indian Ocean's Leading Water Villa Group" and Adaaran
Prestige Water Villas at Meedhupparu won the award for "The Maldives
Leading Water Villas" for the second consecutive year at the World
Travel Awards ceremony held in London during the 2009 World Travel
Market.
"Increased tourist arrivals due to the end of the armed conflict in
the country has improved income from our resorts in Sri Lanka during the
quarter. An outstanding rebound in tourism is imminent for the next
season. With a focused and robust destination marketing strategy that
builds a strong country brand internationally, we believe that the
private sector is capable of making tourism a key engine of sustainable
economic growth for Sri Lanka", said J M S Brito, Deputy Chairman and
Managing Director of Aitken Spence PLC.
Aitken Spence is the largest resort operator in Sri Lanka with nine
award-winning properties across the island. The company has announced
plans to expand its hospitality portfolio in the island with proposed
resorts in the South, North and the East.
Aitken Spence opened the newly-rebranded Heritance Tea Factory in
December, which joins Heritance Kandalama, Heritance Ahungalla and
Heritance Madurai under the up-market Heritance Hotels and Resorts
umbrella.
The company also announced that it will be managing the 130-roomed
Ramada Hotel and Convention Centre in New Delhi, which is due to open in
March this year.
Aitken Spence currently operates five hotels and resorts in India,
including the eco-friendly Barefoot at Havelock in the Andaman Islands. |