news bulletin - may 2012

7/31/2019 News Bulletin - May 2012

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BI- Gradient

AllianceM o n t h l y B u l l e t i n : M a y 2 0 1 2

Trade decit grew to $861.3m in March 2012, up 22.5% YoY; the decit for 1Q12 was up YoY44.8% to $2.6bn. Exports were $835.7m (-10.2% YoY) and imports were $1.7bn (+3.9% YoY),indicative of a slowing economy. Gross ocial at $5.7bn accounted for only 3.3 months of

imports.In May, ination rose to an eight month high 7.0%, a 90bps MoM increase, led by a 2.5%increase in the prices of food and non-alcoholic beverages.

The Rupee ended at 131.80/132.20, down about 1.4% MoM. The CBSL reconrmed Rs.125 asits steady state rate despite a senior CBSL ocial claiming Rs.132 as likely.

Fitch Ratings armed Sri Lanka's foreign and local currency IDRs at 'BB-' and termed theOutlook for both ratings as Stable.

Capital raised in the Sri Lankan private equity market have reportedly dropped to Rs.9.5bn inFY2012 (-31.3% YoY); due to regulations introduced. Regulations relate to locking-in privateequity investors for nine-months after an IPO and for one-year for placements within 12

months prior to the IPO.

In Economic news:

In Business news:Group prots at most commercial banks in 1Q12 were higher due to higherinterest income; however non-performing loans slightly rose suggestingtightening economic conditions. Several non-nancial sector companiesrecorded signicant foreign exchange losses, amounting to almost Rs.5.9bn todate.

The Colombo stock market lost 10.8% in the month as new regulatory measures,uncertainty over the rupee and rising interest rates dampened investor sentiment.

National Savings Bank (NSB) reversed its transaction to purchase a 13% purchaseof The Finance Company for Rs.390 million. The deal to purchase 7.8m shares atRs.49.75 was at signicant premium given that the shares were trading at Rs.30-32during this time.

Sri Lankan Airlines recorded revenue of Rs.78.9bn for 2011 (+16.4% YoY) but higherexpenses caused operating losses to rise to Rs.19.1bn (203% YoY).

The LMD-Nielsen Business Condence Index for April was at a three year low;down 30 points MoM to 105 as concerns about future business prospects andination, rose.

Prices of gas, cement and milk wereincreased. The CBSL raised interest rates

chargeable by banks on credit cards to28% p.a. up from 24%. Singer Sri Lanka

reported higher demand for consumerdurables despite publicly expressedconsumer and business woes.

The Nielsen Consumer Condence

Index in April 2012 was at a 12-monthlow of 65.

In Consumer news:


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Trade deficit in March 2012 grew to $861.3m, up 22.5% YoY; deficit

for 1Q12 was up YoY 44.8% to $2.6bn. As per the Central Bank of Sri Lanka (CBSL) during March2012 exports were $835.7m (-10.2% YoY) and imports were $1.7bn (+3.9% YoY), indicative of a slowing economy, impacted by scaland monetary policy measures.

Textile and garments exports, accounting for approx. 38% of total exports, reduced 11.7% YoY, attributed to slower demand in EUand US. Tea exports, accounting for 12% of total exports, continued to be aected by the unrest in the Middle East and dropped6.3% YoY. In February, tea exports reduced 11.6% YoY. Import growth was mainly from investment goods; accounting for 23% oftotal imports, it grew 28.7% YoY in March 2012. Petroleum imports increased to $408m up 16.4% YoY, reecting an increase in theaverage crude oil import price to $ 125.39 per barrel from $ 111.31 per barrel in March 2011.

Gross ocial reserves were recorded at $5.7bn, down 30% from the peak of $8.1bn in July 2011; and accounting for only 3.3 monthsof imports. Worker remittances and foreign inowscontinued to oset the trade imbalance resulting ingovernment external surplus of $365mn. During therst quarter of 2012 exports were $2.6bn (-1.4% YoY)while imports $5.2bn (+17.0% YoY) thus expandingthe trade gap 44.8% $2.6bn.

CBSL expects the trade decit to be $9.2bn in 2012,with forecasts at $20bn imports and $11.7bn exports.

The trade decit is likely to be funded through $6.5bnworker remittances, $1.2bn tourist earnings, $2bn FDIs and other capital inows of $4bn. This should result in a balance ofpayments surplus of about $1.2bn.

The Rupee ended at131.80/132.20 at the end ofMay 2012. During the month, Reuters citing asenior ocial at the CBSL stated that the rupee shouldstabilize at Rs.132 without intervention. Later the CBSLand the Finance Ministry, issued press releases

reiterating the expected steady state level as Rs.125and noting Rs.132 as an error made by the reporter.

In Economic news:

Inflation rose to an eight month high of 7.0%. The CBSLreported a 90bps MoM increase (April 6.1%). Predictably the food and non-alcoholic category roseby 2.5% MoM and the non-food category rose 0.6%. Within the non-food category, rent, fuel andelectricity increased by 1.2% and clothing and footwear increased 0.8%. Food and beverages has a

41.0% weightage in the consumer price index whilst rent, fuel and electricity have 23.7% andclothing and footwear have 3.1%.

020

40

60

80

100

120

140

160

180

200

Apr-1

0

May

-10

Jun-10

Jul-1

0

Aug-10

Sep-10

Oct-1

0

nov-10

Dec-1

0

Jan-11

Feb-11

Mar

-11

Apr-1

1

May

-11

Jun-11

Jul-1

1

Aug-11

Sep-11

Oct-1

1

Nov-11

Dec-1

2

Jan-12

Feb-12

Mar

-12

A gr icul tura l Exports Industr ia l Exports M ineral Ex port s Consumer Goods Imports Int ermedi at e Goods Imports Investment Goods Imports

Sources: Central bank of Sri Lanka

Sources: Oanda.com

0.00

1.00

2.00

3.00

4.00

5.00

6.00

114

116

118

120

122

124

126

128

130

132

134

1-Feb-12

8-Feb-12

15-Feb

-12

22-Feb

-12

29-Feb

-12

7-M

ar-12

14-M

ar-12

21-M

ar-12

28-M

ar-12

4-Ap

r-12

11-Apr

-12

18-Apr

-12

25-Apr

-12

2-M

ay-12

9-M

ay-12

16-M

ay-12

23-M

ay-12

30-M

ay-12

M id po in t ( LK R p er US $ L HS B is -a sk sp re ad (L KR pe r U S$ ) R HS


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Fitch Ratings armed Sri Lanka's foreign and local currency IDRs at 'BB-' and termed the outlook for both ratings as Stable. PhilipMcNicholas, Director, Asia-Pacic Sovereign Ratings group at Fitch said "the ratings reect Fitch's view that the authorities have

taken the appropriate action to correct recent pressure on the balance of payments and place it on a more sustainable trajectory".

In Guardian Capital Partners PLCs 2012 Annual Report,Chairman Israel Paulraj stated that the tighter lock-in periodintroduced by the regulators has impacted the private equitymarket.

Regulations introduced locks-in private equity investors fornine-months after an IPO; and if the placement had been donewithin 12 months prior to the IPO, the lock-in is extended to

one-year. Previously the lock-in periods commenced from thedate of the allotment of private placement shares, reportedlysimilar to other emerging markets.

The Chairman further noted the existence of eight privateequity enterprises in Sri Lanka, up from six in FY2011, causingaverage deal size to reduce to Rs.1.2bn from Rs.2.2bn in FY2011.

Sri Lanka was placed 22nd among 60 developing and emerging worldeconomies and rst among South Asian countries in KPMGs ChangeReadiness Index, 2012. The survey was conducted by KPMGInternational, in collaboration with researchers from the OverseasDevelopment Institute (ODI).

The index displays a countrys ability to manage and mitigate risksassociated with change and its potential to capitalise more on newopportunities over others. India was ranked 23th place, Bangladesh was45th place, Nepal was 50th, and Pakistan was 54th place.

Sri Lanka was ranked 21st in A T

Kearneys Global Services Location Index.The index ranks the size of the workforce and size of existing IT/BPO industry ineach country (as indicators of the relative size of the talent pool). A T Kearneystated that Sri Lankas position is impressive as smaller countries tend to fair less

in comparison to countries such as China, India, Egypt and Mexico. It also notedSri Lanka has the potential established itself as knowledge service hub.

Selected positives aspects of Sri Lanka; to achieve 75% IT literacy level by 2015,

superior infrastructure compared to other low-cost countries, second-highestnumber of CIMA students in the world. Separately rigid labour regulations andprocedures were highlighted as a negative.

M o n t h l y B u l l e t i n : M a y 2 0 1 2

BI- Gradient

AllianceIn Economic news: Fitch Ratings affirms

Sri Lanka at 'BB-'; Outlook Stable.

Capital raised in Sri Lankas private equity marketdropped to Rs.9.5bn in FY2012 (-31.3% YoY).

Sri Lanka ranked 22nd in KPMGs

Change Readiness Index, 2012.

Country

China

SriLanka

India

Thailand

Philippines

Bangladesh

Vietnam

13

22

23

32

38

45

49

14

29

22

38

43

30

46

17

25

18

46

42

35

47

19

18

39

13

23

58

44

OverallRank

EconomicSub IndexRank

GovernanceSub IndexRank

Social SubIndex Rank

A T Kearneys Global Services Location Index

Sources: KPMG Change Readiness Index, 2012

Ranks 1-25

Financial

0

India

China

Malaysia

Egypt

Indonesia

Mexico

Thailand

Vietnam

Philippines

Chile

Estonia

Brazil

Latvia

Lithuania

UAE

UK(Tier II)

Bulgaria

US (Tier II)

Costa Rica

Russia

Sri Lanka

Jordan

Tunisia

Poland

Romania

1 2 3 4 5 6 7

People Environment

3.1

2.6

2.8 1.4

3.1

3.2

2.7

3.0

3.3 1.2 1.2

3.2

2.4

2.3

2.0

2.6

2.5

2.4 0.9

0.9

0.5 2.9

2.8

2.5

3.2

3.0

3.1

2.1

2.5 1.0 1.6

1.3 1.8

0.8 1.4

0.8 1.5

0.9 1.1

1.8 1.1

0.9 1.6

2.0

2.3

2.8 0.9 1.7

2.2

2.1

0.9 2.0

0.9 2.0

2.1 1.4

1.0 2.2

1.3 1.8

1.3 1.2

1.4 1.3

1.6 1.4

1.5 1.0

1.4 1.4

1.8

2.6 1.3

2.8 1.1 7.0

6.5

6.0

5.8

5.8

5.7

5.7

5.7

5.7

5.5

5.5

5.5

5.5

5.4

5.4

5.4

5.4

5.3

5.3

5.3

5.3

5.2

5.2

5.2

5.2

Ranks 26-50

0

Germany (Tier II)

Ghana

Pakistan

Senegal

Argentina

Hungary

Singapore

Jamacia

Panama

Czech Republic

Mauritious

Morocco

Ukraine

Canada

Slovakia

Uruguay

Spain

Colombia

France(Tier II)

South Arfica

Australia

Israel

Turkey

Ireland

Portugal

1 2 3 4 5 6 7

0.8

3.2

3.2 1.2

3.2

2.4

2.0

1.0

2.8 0.9 1.3

2.8

1.8

2.4

2.8

2.9

0.6

2.3 0.9

2.4

2.3 1.2

2.3

0.5

1.4

1.9

0.4

1.2 1.1 1.9

1.7 2.1

1.3 1.2

1.3 1.6

1.8 2.1

0.9 1.4

0.9 1.6

1.2

0.9

0.8 2.1 1.9

1.4

1.7

2.1 2.3

1. 1 1 .0

0.9 1.3

0.9 1.7

1.1 2.0

0.7 1.5

1.7 2.4

1.2 1.8

1.6 1.1

1 .2 1 .1

0.8

0.7 1.3

2.2 2.3 5.2

5.2

5.1

5.1

5.1

5.1

5.1

5.0

5.0

5.0

5.0

5.0

5.0

5.0

4.9

4.8

4.7

4.7

4.6

4.6

4.4

4.4

4.3

4.2

4.2

2.8


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BI- Gradient


Most commercial banks reported solid performance in 1Q12. Net interestincome among the ve largest banks rose on average 22%% YoY due to higher interest income from loan advances, however net

interest margins at banks level remained steady at 4%. Group prots rose on average 47% YoY. On average return on assets and returnon equity at bank level increased to 2.8% (+60bps) and 26.8% (+310 bps) QoQ respectively. QoQ loans to deposit ratio held steady at

99% versus 100% in 4Q11. Non-performing loans rose to 2.8% from 2.7% in 4Q11.

Several non-nancial sector companies recorded signicant foreign

exchange losses. For 1Q12 alone, listed companies have so far reported a totalof over Rs.5.9bn in exchange losses due to the depreciation of the rupee.

Dialog Axiata stated a loss of Rs.2.1bn on foreign loans. The companyreported an 18% YoY growth in revenue to Rs.10.9bn and a 13.8% YoY

increase in costs to Rs.7.2bn. In a similar situation, Sri Lanka Telecomexperienced a 47% YoY decline in prot before tax which stood at Rs.901m

and a 72% YoY decline in prot after tax due to foreign exchange losses ofRs.1.4bn. On the other end of the spectrum, Colombo Dockyard PLC reportedRs.325m in unrealized foreign exchange gains.

In Business news:

Commercial bank of Ceylon

HNB

Sampath Bank

NDB

BOC

average

Banks results rising

3 month results

Net Interest Income

Group

Rs. Bn YoY%

5.1 17.1%

4.7 16.0%

2.5 19.3%

1.3 24.0%

7.9 35.2%

3.4 22.3%

Net Interest margin

Bank

1Q12 4Q11

4.4% 4.4%

4.7% 4.7%

3.9% 4.1%

3.6% 3.7%

3.3% 3.2%

4.0% 4.0%

Net prots

Group

Rs. Bn YoY%

2.8 38.0%

1.5 26.0%

1.5 52.0%

0.7 19.0%

4.5 100.3%

1.6 47.1%

Loans to deposit

1Q12 4Q11

88.1% 90.4%

91.3% 91.1%

96.8% 92.8%

120.1% 127.7%

94.3% 93.6%

99.1% 100.5%

ROA

Bank level

1Q12 4Q11

3.6% 2.7%

2.2% 2.2%

3.4% 2.6%

2.1% 1.7%

2.6% 2.0%

2.8% 2.2%

ROE

Bank level

1Q12 4Q11

25.2% 20.7%

15.3% 17.8%

29.2% 22.6%

22.8% n.a

41.4% 33.7%

26.8% 23.7%

Gross NPL

Bank level

1Q12 4Q11

3.6% 3.4%

4.3% 3.9%

2.6% 2.7%

1.4% 1.4%

2.2% 2.1%

2.8% 2.7%

Telecommunications Dialog Rs.2.1bnSLT Rs.1.4bnPower and Energy LankaIOC Rs.845m

Hemas Power Rs.57mHotels and Travels Galadari Rs.733m

Taj Rs.67mBeverage, Food and Tobacco Ceylon Breweries Rs.207m

Lion Brewery Rs.206mManufacturing Grain Elevators Rs.153m

Piramal Glass Rs.100mNestle Lanka Plc Rs.50mBogala Graphite Rs.15mThree Acre Farms Rs.3.5m

Total Rs.5.9bn

During May the Colombo Stock Exchange(CSE) ended at 4,832.15 losing 10.8% MoMand down 34.6% YoY. Investor sentiment suered due to newregulatory measures stemming from the NSB-TFC deal, uncertainty over the rupee

and rising interest rates. The worst performing sectors in the month wereinformation technology (-24.8%), stores and supplies (-22.6%) and investment trusts(-19.4%). Foreign investors were net buyers of Rs.1.3bn and have been net buyers of

Rs.22.5bn in 2012.


5/9


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BI- Gradient

AllianceM o n t h l y B u l l e t i n : M a y 2 0 1 2In Business news:

On the positive side, Cargills Ceylon PLC continued to purchasefresh milk through its network of 17,000 small dairy farmers.Cargills together with Kotmale source a daily average of 60,000

litres of fresh milk. Nestl Lanka PLC announced that it hasincreased its local fresh milk collection by over 45% (YoY) during

the period January to April 2012.

Ceylon Tobacco Corporation (CTC)

continues to beef up government

coffers. Despite tax hikes on cigarettes, Ceylon TobaccoCompany Plc (CTC) paid Rs.15.2bn (+9.0% YoY) as governmentlevies in 1Q12. C TC paid Rs.12.9bn as excise special provision taxesand Rs.2.1bn as VAT. CTC contributes around 8% of governmentstotal tax revenue. Increased tax levied resulted in net prots

dipping to Rs.1.48bn in 1Q12, down from Rs.1.95bn in 4Q11,although 82% higher than 1Q11.

Local dairy industry turning sour. Protests by dairy farmers that resulted in the spilling of 12,000litres of fresh milk on the streets of Hatton brought to light the current problems in the industry. Farmers complained thatwhile they were encouraged to increase production, the milk was not purchased. Preference for milk powder by the general

public and a lack of capacity to store fresh milk hinders the local dairy industry. Industry ocials state that Sri Lankas annualconsumption of milk powder is about 58,000 MT, of which 50,000 MT are imported.

The LMD-Nielsen Business ConfidenceIndex for April was at a three year low;down 30 points MoM to 105. The Nielson Company reported that pessimismwith regard to future business prospects and concerns about ination have

signicantly risen. Specically identied negatives were the high interestrates, taxes and the devaluation of the rupee. In the latest survey, 57% of therespondents believed that the economy will get worse over the next 12

months, higher than the 40% in February 2012.

Apr-12 105

Mar-12 135

Feb-12 154

Jan-12 151

Dec-11 149

Nov-11 158Oct-11 153

Sep-11 162

Aug-11 173

Jul-11 160

Jun-11 148

May-11 168

Apr-11 170

Mar-11 150

Feb-11 134

Jan-11 170LMD-NielsenBu

siness

CondenceIn

dex


7/9

BI- Gradient


Prices of gas, cement and milkwere increased. The price of a 12.5 kg cylinder wasincreased by Rs.350 to 2,396. In March 2012, Chairman of LaugfsGroup Mr. WKH Wegapitiya had requested a minimum price hikeof Rs.350 stating high international gas prices and the depreciation

of the rupee. The last revision was imposed in August 2011 whenthe CAA approved a price increase of Rs.156 on a domestic gas

cylinder. The price of a 50kg bag of cement was increased by Rs.70.

A packet of 400g and one kilogram of imported milk powder wasincreased to Rs.329 (+Rs.61) and Rs.810 (+Rs.163), respectively. Thisincrease was a day after the Finance Ministry imposed a levy of

15% (Rs.92) on a kilogram of imported milk powder (excludinginfant milk powder). The Government said that the measure was

taken to protect the local milk producer.

In Consumer news:

The Nielsen ConsumerConfidence Index in April

2012 was at a 12-month low of 65, versus 72 inMarch 12. 53% of the respondents believed they would

suer in their day to day purchase of essentials versus

28% in March 2012. The index also revealed that the

number of consumers who consider job prospects to be

bad over the next 12 months had risen to 44%, from

16% in March 2012 and 8% in May 2011.

Credit cards rate hiked. The CBSL stated that the maximum interest rate chargeable by banks on creditcards is 28% per annum from 24% previously. As at December 2011 the total number of credit cards in use were 862,340(+10.8% YoY) but was still below the 3Q08 level of 947,640. Cheque clearance volumes in 3Q11 appear to be at a recent highof 11,891,021 (+5.1% YoY). Latest CBSL data is only available for 4Q11. However as per data released by dailyft.lk approximately

7,000 credit cards were issued in January 2012 and 5,000 credit cards were issued in February 2012.

Apr-12 65

Mar-12 72

Feb-12 77

Jan-12 85

Dec-11 87

Nov-11 85Oct-11 75

Sep-11 69

Aug-11 77

Jul-11 77

Jun-11 69

May-11 65

Apr-11 62

Mar-11 64

NielsenConsum

erIndex


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BI- Gradient

AllianceM o n t h l y B u l l e t i n : M a y 2 0 1 2In Consumer news:

Higher demand for consumer durables despite publicly

expressed consumer and business woesSinger Sri Lanka, one of Sri Lankas leading consumer durable retailers reported growth across all major consumer durablescategories, excluding televisions in 1Q12. Consumer durables revenue accounted for about 84% of the total group

revenue of Rs.5.2bn (+21.3% YoY).White goods recorded a high growth of 45.5% YoY and currently accounts for 44% of total consumer durables revenue (upfrom 36% in 1Q11). Within the white goods category, refrigerators were up 40% YoY, microwaves up 501% and air

conditioners up 52%. Growth was experienced despite negative economic and consumer sentiments.

Televisions were down 23% YOY, as 1Q11 was a signicant quarter for televisions due to the Cricket World Cup. However,it was interesting to note that baring the furniture segment, prot before tax margins at other consumer segments had

dropped. Margins for Kitchen related products dropped the most, recording 290bps YoY.

Motor bikes reportedly dropped 46%, impacted by increased vehicle import taxes and high fuel costs. In March 2012,import tax on motor cycles was raised to 100% from 61%.

Lanka Business Online (www.lbo.lk) citing analysts stated that authorities in the past have imposed taxes on consumer

durables claiming they were 'luxury goods' but that had not been done during the latest crisis. They assumed thatconsumer durables may have been untouched since there is a policy of making Sri Lanka a shopping paradise targetingforeign visitors.

Sources: Company Report

Rev. 718m, +34.7% YoY

Rev. 1,472m, -7.2% YoY

Rev. 2,259m, +45.5% YoY

Rev. 424m, +20.9% YoYRev. 334m, +24.6% YoY

PBT 7.8%, -13bps YoY




PBT 8.0%, +51bps YoY

3.0%

5.0%

7.0%

9.0%

11.0%

0

500

1,000

1,500

2,000

2,500

Sewing-Related Products Consumer Electronics White Goods Kitchen-Related Products Furniture


9/9

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news bulletin - may 2012

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