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LOLC group’s profit rise by 72% to Rs. 472mn in 3Q
Lanka Orix Leasing Company (LOLC) with a strong track record of business excellence recorded
a cumulative profit of Rs 419 mn for the nine months ending December 30, 2004 reflecting a
whopping 72% increase in net profits compared to the previous financial year. LOLC’s business
model which deliberately focused on diversification whilst retaining a leading edge in its core
business increased a group profits upto of Rs 472 mn, a hike of 77%, when compared with the
previous financial year.
Growth in business volumes achieved through LOLC’s commitment to maintain a high level of
customer satisfaction supported a 67% increase in operating profit compared to the 45% growth in
operating profit recorded during the first half of the current financial year. These results were
achieved despite highly competitive market conditions and a higher level of provisioning for credit
losses made by the company purely on a prudential basis.
Return on Capital Employed (ROE) increased to 25% at the end of the 3rd quarter compared to
the ROE of 17% at the end of the 3rd quarter of the previous financial year. Astute asset and
liability management and pragmatic approach cost control measures enabled LOLC achieve a 7%
Return on Assets compared to 4%, in the previous year. Total assets of the Company grew by 8% to
reach Rs. 8.7bn as at 31st December 2004.
Shareholders funds amounted to Rs. 2.2 bn at the end of the nine months compared to Rs1.8Bn in
the previous year. The market capitalization of the Group increased to 3.8 bn from Rs 2.4bn in the
previous year, resulting in a 58% growth in shareholder wealth. The company paid an interim
dividend of Rs.38 mn to their ordinary shareholders compared to the interim dividend of 35 Mn paid
during the previous financial year. Continued improvement in LOLC’s profitability is expected to
result in further benefits to our valued shareholders.
Chandana Silva, Head of Corporate Affairs, attributed the consistently superior performance of
LOLC to the ability of its management teams to react quickly to challenges in the business
environment and convert them into commercial success. He also said that LOLC group is now well
positioned as a partner of choice for debt factoring, insurance broking, investing and trading of
securities in addition to its core business lines of leasing and asset financing.
LOLC’s Annual Report, which has been repeatedly endorsed as the winner in the Leasing Sector
by the Institute of Charted Accountants of Sri Lanka, was recently awarded the first prize in the
category of Non- Banking Financial Sector by the South Asian Federation of Accountants. .
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Launch of first SME Bank to foster entrepreneurship
Sri Lanka’s first SME Bank was declared open by Minister of Finance and
Planning, Dr. Sarath Amunugama at the invitation of Minister Rohitha Bogollagama at
a ceremony held at the EDB Auditorium. This is the first bank to come under the
mantle of the Ministry of Advanced Technology and National Enterprise Development .
The Government announced the establishing of the SME Bank of Sri Lanka in the UPFA Budget
2005 to provide ‘Micro, Small and Medium Development Finance’ that would incorporate a wide
range of infrastructure, professional support services and assistance to entrepreneurs; today we
see the fulfilment of that promise, said Dr. Amunugama, speaking at the opening of
the SME Bank .
“In my Budget Speech, I affirmed that the creation of this bank would make an extensive range
of financial initiatives for innovative development available to a multitude of targeted sectors. The
Ministry of Advanced Technology and National Enterprise Development, under the able leadership
of Minister Bogollagama, now takes on the task to translate this vision into reality”.
The SME Bank has an explicit mission: “Improving lives by creating opportunities in small and
medium businesses; supporting and developing the SME sector by providing necessary financial and
technical assistance on a sustainable basis, enabling the SME sector to contribute to economic
development through value and adherence to the highest standards of institutional integrity.”
These aspirations aim to first, transform SME into a nerve centre of the development process to
achieve a balanced rate of economic growth, regionally distributed benefits, high levels of
employment and productivity and meet the need to establish a multi-prong support mechanism to
promote SME competitiveness while extending full assistance to exporters engaged in high value
addition to domestic resources. The SME Bank, more positively, will provide the way around
deterrents such as collateral dependent debt, shortfall in equity financing, high interest rates and low
availability of credit convoluted by complicated loan application procedures. While these are all
main barriers to business expansion and productivity, the problems become even more complex in
the absence of business plans and total management skills which are consequent to failure and the
inability to repay loans.
Continued on page II
Launch of...
In these circumstances, the development of the SME sector takes on high priority status for the
relevant Ministry, while keeping the budget proposals in focus. The SME Bank will be set up with a
Capital Base of Rs.5,000 million to provide direct fund credit guarantee schemes, equity and debt
capital, restructuring aid and more. A SME Authority will be set up with the EDB and BOI as role
models to function as the Apex Body of SME Development with an allocation of Rs.100 million to
begin with while providing incentives and assistance .
Among the incentives for advanced technology is the Duty-Free import of machinery with the
SME Bank providing financial support to new or existing companies investing Rs.5 million and 2
million respectively. Software exports and Business Process Outsourcing with foreign exchange
earnings of circa US$75 million is targeting US$ 1 billion by 2012 involving a workforce of 40,000
and the private sector will be encouraged to use local software with a 100% depreciation in the year
of purchase. The BOI will target Business Process Outsourcing Operators to locate in Sri Lanka
under an Incentive Package. Handloom, soft toys, handloom fabrics, giftware, curtaining and linen,
currently manufactured by small entrepreneurs presents huge potential. They will now be assisted
with designs, a better range of products, external market access and most importantly, concessionary
micro credit schemes and development grants, apart from permanent marketing infrastructure for
craft products in the form of a Shopping Complex and Exhibition Centre in joint collaboration with
the BOI, the EDB, Tourist Board, National Crafts Council and Laksala.
Majority of apparel manufacturers fall into the SME category in terms of international standards.
To remain competitive, necessitates upgrading of infrastructure and technology, with quality
standards in view. The proposed SME Bank will provide manufacturers lacking access to long-term
financial assistance, a guarantee to financial organizations - banks included , to provide financial
assistance. Fishermen will have a special loan scheme to enable them purchase boats and equipment
at concessionary rates. Small and medium paddy millers, will receive special credit lines to
modernize both rice mills and the quality of milling. The establishment of modern, well-equipped
lapidaries have been identified as essential for the re-generation of the Gem and Jewellery industry.
The SME Bank will fund as many as ten such lapidaries, equipped with modern cutting and
polishing equipment, in gem producing regions to add value to rough precious stones.
Minister Bogollagama said the Bank’s mission statement indicates many more instruments
and initiatives to meet long-term development objectives creating a new dimension of SME
Development Financing in Sri Lanka, benefiting even the smallest micro finance business through
listening to concerns, dispersing the obstacles, keeping entrepreneurs competitive to create the
wealth society needs, while respecting their dignity by not extending charity – but opportunities and
the many ways they can turn these into significant contributions towards uplifting the living
standards and prosperity of all Sri Lankans .
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UK based Fielding Group invests in Hemas Garments
The Hemas Group today confirmed the sale of a have agreed to sell a majority its of the shares
they own in Hemas Garments (Pte) Ltd, the apparel arm of the Hemas Group, to Monitane
Holdings Ltd, the parent company of The Fielding Group. The venture is expected to provide the
company with a more apparel focused parent, and add more value to the company’s customers. The
design, product development and fabric manufacturing capabilities of The Fielding Group are
expected to synergize well with the apparel manufacturing capabilities of Hemas Garments (Pte)
Ltd.
The Fielding Group is a US$ 100 million turnover company supplying clothing and accessories to
many of UK’s top retailers. The Company has joint ventures in Bangladesh and Sri Lanka, in
garment and fabric manufacturing, with trading partners in over nine countries.
As a major supplier to Marks & Spencer, The Fielding Group has been an active buyer of Sri
Lankan apparel. This investment will see the Company consolidating its trading and manufacturing
operations in Sri Lanka. Hemas Garments, a longstanding supplier to many leading brands,
including Next, Nike, Marks & Spencer, Columbia Sportswear and Tesco, expects this association
to strengthen customer relationships.
In retaining a stake in the enterprise, the Hemas Group intends to participate in the Company’s
progress and expansion plans, while Murtaza Esufally who spearheaded the company will remain on
the Board
The new Board of Hemas Garments (Pte) Ltd will consist of Ravi Fernando (Joint Managing
Director), Rehan Lakhany (Joint Managing Director), Annesley de Fonseka (Marketing Director),
Michael Wolff, Ms. Helen Murray, Murtaza Esufally and Ms. Serena Fonseka.
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MBSL & India’s SBI Cap. to develop new products
By Steve A. Morrell
Merchant Bank of Sri Lanka (MBSL) and the State Bank of India (SBI) signed Memorandum of
Understanding (MoU) this week to expand financial activities particularly in the local context to
lend latitude and strength to financing solutions to cover a cross section of projects in both public
and corporate sectors. Although signing the MOU signalled influx of expertise and substantial
financing options, SBI was a fee based organisation which lent support to given enterprises, said
Managing Director and CEO SBI Caps. Indrajit Gupta.
Signing the MoU related to fusion of both banking entities within allocated financial
parameters which in essence carried traditional significance, said Gupta. SBI was this year
completing 200 years of its existence and with tradition and history of this magnitude he said that
MBSL could benefit from the intrusion, to further stabilise its interests. Having said that, he said
SBI employs approximately 220,000 people spread diametrically across the sub continent covering
14.000 branches. Group companies include 7 subsidiaries, and 7 associate banks.
Its capital base was $128 billion (US), and its recorded profits 2004 was approximately US$1.3bn.
Apart from normal banking activities, SBI was also unofficial advisor to the Indian Government on
the subjects of Roads, Telecom, Power, and Ports. He also said that during its long history SBI had
always declared dividends so that share holders would not be deprived of their investments.
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MBSL...
The organisation he represented was a fee based business entity, and features included raising
funds both internally and externally. The Banks capital market included influx of interest through
the Asian Development Bank (ADB) at 14 %.
Managing Director and CEO MBSL Sunil G. Wijesinghe said that similar to the establishment
base of SBI, MBSL was a subsidiary of the Bank of Ceylon which underscored the financial
strength of its interests and apart from the stability this portrayed it also lent trading strength to its
interests. This was indicated by Gupta when he said that the synergy observed was in tandem with
their corporate vision.
The signed MOU (Carried out earlier during the day) was exchanged between Gupta, and
Chairman MBSL S.N.P.Palihena.
Manager Capital Markets MBSL Jayantha Perera said that their expertise would be available
for both corporate as well as public sector enterprises and quite like its Indian partner MBSL could
facilitate funds inputs to ease corporate searches. This would complement more productive time
for planning and practical applications which , given the corporate time constraint could be an added
dividend quotient in efficient time management.
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Increased foreign inflows results in BOP surplus in fourth quarter 2004
The overall Balance of Payments (BOP) recorded a turnaround during the fourth quarter of 2004
generating a surplus of US dollars 40 million. In contrast, the first three quarters had recorded
deficits of US dollars 40.3 million, US dollars 182.9 million and US dollars 22.2 million,
respectively. The increased foreign inflows to the government and the private sector, particularly
during the last two months, resulted a surplus in the fourth quarter. This brought the overall balance
for the year to a lower than expected deficit of US dollars 205 million, compared to a much higher
surplus of US dollars 502 million during 2003. The annual BOP deficit is largely attributed to the
higher expenditure on imports, mainly on petroleum products and other intermediate goods and
investment goods, and a slowing down in foreign financial inflows under programme loans to the
government. The BOP is projected to record a surplus of about US dollars 200 million in 2005
benefiting from favourable growth in exports, debt relief offered by the bilateral donors and
increasing foreign inflows to the government.
Surpluses in the service and transfer accounts amounted to around US dollars 518 million
offsetting 77 per cent of the trade deficit during the fourth quarter. In the services account, earnings
from tourism grew by 17 per cent to US dollars 135 million in the fourth quarter of 2004 from US
dollars 115 million in the corresponding quarter in 2003. Inflows from worker remittances, the
second largest inflow in the current account, increased by 17 per cent to US dollars 399 million in
the fourth quarter as compared to US dollars 342 million in the corresponding period in the previous
year, which helped to offset a substantial part of deficits in trade and income accounts and contain
the current account deficit to US dollars 211 million in the fourth quarter of 2004.
Net inflows to the capital and financial account amounted to US dollars 302 million in the fourth
quarter of 2004. In the capital account, net transfers to government declined by 55 per cent to US
dollars 11 million in the fourth quarter of 2004 as compared to US dollars 25 million in the
corresponding quarter of 2003, reflecting a decline in grants to the country by bilateral and
multilateral donors. Net inflows to the financial account were significantly higher at US dollars
288 million in the fourth quarter of 2004 as compared to the corresponding quarter last year mainly
due to the successful US dollar 100 million Sri Lanka Telecom bond issue, which is captured in the
financial account as a private sector inflow.
Reflecting the relatively higher inflows to the government compared to the first three quarters of
2004, net inflows to government increased to US dollars 211 million in the fourth quarter of 2004
from US dollars 117 million in the corresponding quarter last year. Improvements in the
disbursement of programme loans by the multilateral financial institutions and foreign aid by the
donor countries during the fourth quarter were the main contributory factor for the significantly
higher inflows during the quarter. During the same period net inflows to the share market amounted
to US dollars 3.5 million, from a net inflows of US dollars 19 million recorded in the fourth quarter
of 2003. Reflecting these developments, overall balance recorded a surplus of US dollars 40 million
during the fourth quarter of 2004 compared to the surplus of US dollars 17 million during the fourth
quarter of 2003.
However, reflecting the overall deficits recorded in the BOP during the first nine months of 2004,
the gross official reserves declined from US dollars 2,329 million (4.2 months of imports) at end
December 2003 to US dollars 2,196 million (3.3 months of Imports) at end December 2004.
Though, gross official reserves declined to US dollars 1,896 million in January2005, it has increased
significantly by mid March 2005due to receipt of around US dollars 157 million as Emergency
Assistance from the IMF and disbursement of loans by other donors. Meanwhile, total external
reserves of the country, which include foreign exchange reserves of commercial banks, increased
from US dollars 3,218 million (5.8 months of imports) at end December 2003 to US dollars 3,438
million (5.2 months of imports) at end December 2004.
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Increased...
Foreign Exchange Market and Exchange Market Developments
The domestic foreign exchange market was marked with relatively high volatility throughout
2004, especially in the first, third and fourth quarters. The rupee, which depreciated substantially
during the second and third quarters moderated during the fourth quarter mainly due to the The
volatility in the second quarter of the year is not as evident due to the rapid depreciation of the
Rupee against the US dollar during the months of May and June. increased foreign inflows in the
fourth quarter. Increased duty rates and the imposition of 100 per cent margin requirement in
October 2004 against the Letters of Credit for importation of certain classes of vehicles for private
use substantially reduced the vehicle imports during the fourth quarter and hence the demand for
foreign exchange. Reflecting this, the rupee depreciated marginally by about 0.9 per cent in the
fourth quarter and reached Rs.104.60 by end December 2004, recording an annual depreciation of
7.5 per cent. From end December 2004, the rupee started to appreciate against the US dollar and
reached Rs.99.46 per dollar by end February, which is an appreciation of 5.2 per cent mainly due to
expected inflows under tsunami assistance. During this period, the rupee also appreciated against all
other major currencies.
In the domestic front, while political uncertainties as well as uncertainties regarding the peace
process led to lower than expected inflows, higher expenditure on imports, primarily due to the
higher oil prices and the larger demand for investment and intermediate goods, led to a widening
trade deficit, which in turn, exerted pressure on the exchange rate. In the international markets, the
US dollar depreciated broadly in the fourth quarter as market participants renewed focus on the
widening US current account deficits and its potential impact for the dollar. During the fourth
quarter, the dollar depreciated by 8.2 percent against the euro and by 6.7 percent against the yen.
The euro and the UK pound appreciated by 8.2 and 8.1 per cent, respectively against the US dollar
whereas the Indian rupee and the Japanese yen appreciated by 4.3 and 4.1 per cent respectively, as a
result if which, the Sri Lankan rupee depreciated against these currencies during the year.
While
itReflecting this trend, the rupee depreciated against almost all major currencies, such as the Euro
euro (10.2 per cent), and the UK sterling pound (7.3 per cent), it also depreciated substantially
against the Indian rupee (5.8 per cent) and the Japanese yen (8.3 per cent) as wellduring the fourth
quarter. Meanwhile, the rupeeIt depreciated against the SDR, by 5.8 per cent. The Nominal
Effective Exchange Rate (NEER) (based on 24-currency basket) depreciated by 5.3 per cent during
the quarter propelling a depreciation of 11.0 per cent during the year. However, the Real Effective
Exchange Rate (REER) of the Sri Lanka rupee, based on the 24 currency basket appreciated by 1.2
per cent during the fourth quarter indicating a deterioration in external competitiveness. However,
for the year as a whole, it depreciated by 1.2 per cent, indicating a marginal improvement in the
external competitiveness of Sri Lanka, in spite of relatively higher domestic inflation rate compared
with trading partner and competitor countries.
The foreign exchange transaction in the inter-bank market increased considerably during the
fourth quarter with Spot, Tom, Cash and Spot Next transactions amounting to US dollars 1,159
million. However, the volume of forward transactions declined during the fourth quarter to US
dollars 216 million. The year as a whole, The Central bank, which continued to intervene in the
interbank foreign exchange market in order to stabilize the excessive volatility of the rupee, sold US
dollars 541.7 million and purchased US dollars 27 million in 2004, resulting in a net sales of US
dollars 514.7 million. Monitoring of repatriation of export proceeds was also intensified towards
the latter part of the year as there was evidence of exporters holding back their foreign exchange
earnings.
the volume of transactions in the inter-bank foreign exchange market increased from US dollars
3,649 million in 2003 to 4,330 million in 2004, and the volume of forward transactions declined
considerably to US dollars 1,026 million in 2004 from US dollars 1,441 million in 2003, to 983
million in 2004 reflecting the uncertainty and the volatility that prevailed in the market during most
of 2004. This is was also reflected by the high forward premia that prevailed during the year.
Outlook for 2005
The imports for the reconstruction and rehabilitation of tsunami hit coastal areas of the country,
replenishment of destroyed capital stocks including household items and for meeting increasing
demand for raw materials are likely to increase during the year far exceeding the export growth. The
growth observed in exports during 2004 is likely to continue benefiting from world recovery and
duty free treatment offered for the Sri Lanka’s apparel under the EU’s new GSP scheme. Though
trade and current account deficits are likely to widen during the year, expected increased foreign
inflows to private individuals, non-governmental organizations and government are expected to
finance the widening current account deficit without exerting pressure on the exchange rate and
official reserves.
The IMF has already disbursed about US dollars 157 million as emergency assistance, in addition
to rescheduling of debt repayment amounting to around US dollars 100
million. Meanwhile,
Paris club countries including G7 and other bilateral donors have
announced moratorium on debt repayment of around US dollars 300 million. Reflecting these
developments, the overall BOP is likely to turnaround and record a surplus about US dollars 200
million in 2005. As a result, the level official reserve is likely to improve to a comfortable level,
while stabilising the foreign exchange market. The nominal effective exchange rate (NEER) of the
Sri Lanka rupee based on the nominal exchange rates of 24 trading partners and competitors
depreciated more by 11.74 per cent during the year
However, taking the respective inflation rates of the countries into account, the real effective
exchange rate (REER) of the Sri Lanka rupee based on the 24 currency basket depreciated by 1.5
per cent, indicating an that the competitiveness of Sri Lankaexports had been maintained.
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