Mixed results in the third quarter

Corporate results:

Aitken Spence net profit rose 37% to Rs.55.1 mn YOY in the quarter ending August 2000. John Keells Holdings recorded a 42% decline in net profits YOY to Rs.103.6 mn while National Development Bank's net profits also dipped marginally by 22.7 per cent YOY to Rs.151.2 mn. Hayleys recorded a 111% increase in profits YOY to Rs.274 mn in the first half. The IFC five which are tracked largely by foreign funds also includes DFCC which has not released their results yet.

Aitken Spence benefited from an improvement in its plantation sector associates, a growth in the cargo handling sector and a turnaround in apparel manufacture..

Sectors which performed below expectations at John Keells Holdings include information technology and leisure. 

While reduced tourist arrivals impacted the leisure sector, profitability in the IT sector has been affected by increased investment in recruitment and training and additional infrastructure requirements in the software division. The groups venture into the Maldives is expected to improve performance in the second half, the company said.

NDB profits declined, showing susceptibility to provisioning of loan and equity portfolios despite the strong growth of core operations.

Marketing for small business in Sinhala

The book does not attempt to define marketing. What is given is a set of clear and practical guidelines on how to identify your customer and your market and to prepare a marketing plan to help your business succeed. This objective is certainly attainable if you follow the principles and practices of marketing outlined in "Sulu Vyaparaye Alevikaranya", a news release says.

The introduction explains the importance of marketing and the need for a well thought out marketing plan. It explains the components that make up a successful marketing plan for your business.

Chapter one of "Sulu Vyaparaye Alevikaranya" recommends that you start by getting to know your own product or service intimately.

Chapter two is dedicated to help you understand your customer and your market.

Chapter three helps you draw up marketing strategies for your business. It also explains the 4 Ps you were dogged with marketing articles.

The final chapter looks at how you can monitor and control your marketing activities to achieve the best results.

This publication is just one of the series of six books launched as a joint project by the Southern Development Authority and the Athwela Vyaparika Sangarawa, the Sinhala business journal dedicated to improving the attitudes, knowledge and the skill levels of the small and medium sized business operators in Sri Lanka.

The other books in the series, published in Sinhala, are: Starting Small Business, Starting a Home Business, Managing a Small Business. Record Keeping for a Small Business and Financial Management for the Small Business. As these six books are published as a set, they are cross-referred to each other and to the multitude of relevant articles which have been published in the Athwela Vyaparika Sangarawa which stepped into the third year of publishing last July.

Click on to Carson Cumberbatch

The website has general information about the Carsons group including profiles of business sectors, financials of the group's 13 quoted companies and vacancies. 

All information on the group's business sectors, namely oil palm plantations, beer, leisure, real estate, investment holdings and financial services are presented separately. Pages for each sector feature their own unique identities along with specific industry information relating to the sector, a news release says. 

Under the leisure sector, direct room reservations at the group's two hotels, Pegasus Reef Hotel and Giritale Hotel, are possible. 

The facilities available at each hotel, its location and popular tourist sites in the vicinity are some other useful features highlighted on this page. 

Options ranging from reserving a seat on KLM-Northwest airlines to registering for frequent flyer programmes are also available among other features on the airlines page. 

The beer sector, which focuses on its own brand Lion beer, will provide features such as contactability with the sales division, particularly for export orders. The beer sector's own portal, presently under construction, will be dedicated to making available a range of products and services, which are related to and support the overall business. 

The real estate sector of Carsons provides a profile of its six Colombo properties while an inquiry facility on availability of vacant space adds value to the sector home page. For job seekers local and overseas, the Carsons website features all its Group job vacancies and provides an option for potential applicants to e-mail their resumes direct to the Group's human resource division, the release adds.

The user-friendly techniques adopted in designing this website are expected to make the site a popular one among web surfers and give more exposure to the Group locally and internationally. Significant value has been added to this site by its flexibility and ability to meet the needs of different users. 

The site also links to popular sites among web surfers locally and internationally, such as the Malaysian Palm Oil Board, Colombo Stock Exchange, KLM Royal Dutch Airlines, Northwest Airlines etc. 

Suntel debenture on Friday

The issue has been structured and managed by Citi National Investment Bank. The International Finance Corporation, USA (IFC) and the National Development Bank of Sri Lanka (NDB) will guarantee the issue in the proportions of 60% and 40% respectively. 

This landmark transaction will comprise of the issuance of Rs 1,000 million guaranteed debentures with tenures of five, six and seven years, which will be listed on the Colombo Stock Exchange. 

The debentures will have a bi-annual coupon and will be issued on a fixed rate basis. The coupon on the debentures will be determined using the three year weighted average treasury bond rate from the treasury bond auction immediately preceding the issue. The five-year debentures will carry a coupon, which will be 80 basis points higher than this rate while the six-year and seven-year debentures will carry coupons 105 and 130 basis points higher than this rate respectively. 

Suntel is one of the two companies which were awarded licenses by the Government to provide fixed access telecommunication services using Wireless Local Loop technology. Since its inception in 1996 the company has connected over 70,000 telephone lines spanning a large geographical region. 

Suntel's state of the art digital network includes three AXE switches with a capacity of 106,000 lines coupled with proven transmission and access technologies from world renowned suppliers such as Ericsson (Sweden), SR Telecom (Canada), DMC Stratex (USA) and Airspan (UK), enables them to deliver total telecommunications solutions to a wide spectrum of corporate and residential subscribers.

Up to the end of 1999, Suntel had financed its network roll out through a combination of equity, internally generated cash and vendor financing. Around June 1999, the Company began short-listing international and local banks with a view to arranging its long-term debt financing requirements. At this time, IFC first approached the Company with an offer to participate in this long term financing arrangement and by November 1999 agreement had been reached with IFC and NDB (Arrangers) to structure Suntel's debt financing requirement in the following manner:

LKR (Million)

Listed and fully guaranteed debenture issue 1,000

Syndicated bank loan (partially guaranteed) 1,850

NDB / DFCC Syndicated Loan 850 

3,700

Additionally, IFC also expressed its willingness to participate in the Company's equity with an investment of USD 7.5 million.

Another centre CIMA training

Each lecture programme is designed to meet specific learning objectives and to transfer specific skills, and has set prerequisites, it added. As a CIMA training institute, WBA believed that no matter how efficiently time was spent in a classroom training event, learning must continue beyond the classroom. Therefore, WBA had developed its materials to facilitate continued practice, exploration and growth, the release said.

With more people striving to be professionally qualified, educational institutions are mushrooming to cater to this demand.

Beer company gearing up

The company claims that there is money to be made in the small but discerning segment of the market that is becoming increasingly more global and world-class in its outlook. 

"We abandoned our efforts to be a significant player in the mass market largely due to the absence of any opportunities in it for differentiation," says Strategy and Policy Planning Manager Lasath Suriyapperuma. 

"There is no room, whatsoever, for innovation in a market which is as price sensitive as the Sri Lanka's mass market for beer."

But he explained that the growing affluence among the educated classes is freeing them, as a niche marketer, from the necessity of taking a purely developing-world approach to product design and development.

Three Coins plans to introduce a variety of specialty beers. Brewing Engineer, Jan Schwieger, says that, "There is much more to beer than the ordinary lagers and stouts. We hope to show how incredibly rich the world of beer is, a world where flavours and aromas are just as exquisite and as refined as those of wine."

This process of producing, what the industry calls, craft or gourmet beer began in August when the Company launched Sri Lanka's first "white" beer, which uses top-fermenting yeast and wheat-malt, the release added.

The Three Coins strategy is based on the belief that in marketing the concept of "life style" is going out and the concept of "personal style" is coming in.

"Our strategy is based on the slow but inevitable growth in the demand for world-class gourmet products, which the increasing affluence amongst educated consumers is expected to generate. Because of this, as niche marketer, our business model has an excellent strategic framework for sustainable growth," says the company's operations manager, Anthony de Rosa.

Sri Lanka beats Asian giants

Our regional strategist, Dan Fireman, in assessing markets for a safe-haven strategy in the face of falling US equities, looked for low volatility as the first criterion and then low correlation with the US markets (see -As a Tomorrow, 20 October). 

Assessing Sri Lanka on the same criteria that were used to analyse the bigger markets in the report, we find that Sri Lanka easily eats all the Asian giants on both criteria, and by a huge margin in terms of volatility (Figures 5 and 6). However, we maintain our Underweight on Sri Lanka in the regional portfolio because our regional strategy outlook incorporates the assumption that the US markets will improve in 2001 after weakening further this year.

Too small to be hurt Sri Lanka remained untouched by the recent turbulence in equity markets across the region due to its infinitesimal weighting in an Asian portfolio. Given that investors consider markets such as the Philippines and Pakistan to e too small, the chances of Sri Lanka-without one-twentieth the market cap of the Philippines and less than one-fifth that of Pakistan's- being on investors' radar screens appear remote. In the past two years, FIIs' actions in Sri Lanka have had very little in common with their course of action in other markets. This hurt Sri Lanka in 1999, when other markets recovered but Sri Lanka continued to fall.

However, this de-coupling on account of size has served Sri Lanka well in recent sell-offs across the region.

Negative beta of micro markets in assessing the fact that diversification attributes are a function of size rather than an intrinsic characteristic for Sri Lanka, we looked at a market cap assessment against standard risk measures on a global basis. We took into account some micro-cap markets which are of a similar size as Sri Lanka. It appears that many other micro markets share Sri Lanka's positive risk diversification characteristics.

Lower absolute volatility In terms of volatility, Sri Lanka trades at 65% of the volatility of the S&P 500, compared with the emerging markets average of 127%. In this analysis, we have calculated volatility as annualised standard deviations of weekly percentage changes in the index for each country rebased to the weekly volatility of the S&P 500 composite index.

Size of a frontier market In terms of size, Sri Lanka fits in with the frontier markets of the world. These are small and illiquid markets, even by emerging-market standards, and are categorised as such by the IFC. There are 20 frontier markets, which are tracked by a monthly S&P/IFCG frontier market Index. The average market cap of a frontier market is a out US$900m, based on the stocks covered in the S&P/IFCG index. Based on this index, Sri Lanka has a market cap of about US$800m.

Infrastructure and openness of an emerging market Given its early liberalisation, a highly advanced stock exchange infrastructure and relatively strong regulatory structures and corporate governance, Sri Lanka has been classified as an emerging market. It is included in the MSCI AC World Free, MSCI Asia e -Japan and MSCI Emerging Markets Free indices as well as in the S&P/IFC emerging markets indices. However, due to its size, Sri Lanka's weighting in many of these indices is depicted as 0.0%, as extra decimal points are needed for the weighting to register.

Most frontier markets are in EMEA Sri Lanka's isolation stems from the fact that frontier markets are mainly in EMEA (Europe/Middle East/Africa), which accounts for 18 of the 20 frontier markets. The other two are Bangladesh in Asia and Ecuador in Latin America. Among markets classified as emerging by the S&P/IFCG index , Zimbabwe and Slovakia have the same size as Sri Lanka, with market caps of less than US$2 n in the index .

Liquidity discount at the frontier Classification by size rather than geography appears to correspond with valuations-there is clearly a liquidity discount applied to micro markets. Sri Lanka's valuations have consistently been the cheapest in Asia, particularly when compared with larger emerging markets. 

Hopes of Sri Lanka being rerated closer to valuations of the regional and emerging markets have not been realised. However, in the frontier markets category, Sri Lanka appears to be in the company of markets with valuations closer to its level, although it is still one of the cheapest markets in the category.

Cheap even among frontier markets Based on S&P/IFCG data, Sri Lanka trades at a sharp 75% PER discount to the emerging markets' average, but at a lower 44% discount to the frontier markets' average. 

Among frontier markets, Sri Lanka is the cheapest market next to Ukraine on a PER basis (Figure 12). 

Other very cheap markets are Cote d'Ivoire, Mauritius, Jamaica and Ghana, which trade at less than 8, though this is still higher than Sri Lanka. 

Investing for safety in Sri Lanka - A possibility Sri Lanka's small size makes it difficult for most large funds to exploit its safe-haven status. However, unlike most frontier markets, Sri Lanka is included in many benchmark indices.

This, coupled with the market's attributes of a solid regulatory structure and an advanced stock exchange infrastructure, makes investing for safety in Sri Lanka a possibility for smaller funds.

Festival pressure mounts on money market rates

The inter-bank call money market and the overnight repo market

Given the widening liquidity shortfall, the inter-bank money market rates remained under severe pressure. The liquidity shortfall during the week ended 23rd November, reached new highest levels, as the market continued to purchase dollars from the Central bank and on the back of the increased government expenditure. The liquidity shortfall was estimated to be in the range of Rs. 20~21Bn, which was approximately Rs. 3~4Bn higher than the previous week. The inter-bank call money rate persistently stood above 20%. The weekly Call money average surged further to close at 21.08%, which was 123 basis points higher than the previous week. Given the prevailing market sentiments and the constantly building liquidity shortfall, a greater demand stemmed for term money. Consequently, the one month money was quoted at 25%~28%, which was at 22%~25% in the week earlier. 

With the Central Bank increasing its reverse repo rate to 20% on Tuesday, the overnight market repo rate was pushed up to close at 19.8%~20%. 

We expect the cash in circulation to improve during the month of December, on the back of the festive spending. Therefore, the liquidity shortfall could expand further, exerting additional pressure on the money market rates.

Central Bank open market operations

On Tuesday, for the second time in the month of November, the Central Bank increased its open market operations rates, repo and reverse repo rates by 200 basis points. At the week end the Central Bank repo and reverse repo rates stood at 17% and 20% respectively. However, as the market was well short of liquidity, had no option than borrowing from the Central Bank reverse repo window. During the week the market borrowed Rs. 99.4Bn, from the reverse repo window, averaging Rs. 19.88Bn a day. We expect the Central Bank's reverse repo window to remain as the main lender in the market and to set the direction for market repo rate. 

Treasury bill auction.

During the week Rs. 2956Mn worth treasury bill matured and the full amount was offered to the market. Though the auction in general was marginally oversubscribed, the 182 days category was under subscribed. Given the much-widened gap between the 364-day yield and the 2-year bond yield, and the lucrative marker repo rates, the investors' interest for treasury bills was slightly affected. The Central Bank intervened for 756Mn. Amidst the Central Bank intervention the bill yields improved across the board. The highest gain witnessed in the 364 days category. Nevertheless, the gap between one year and two year yields stretched further to 350 basis points. We expect the aggravated liquidity shortfall and the rapidly rising bond yields to continue to exert pressure on the treasury bill yields. 

Treasury bond auction

Having changed the pre planed bond auction, Rs. 3000Mn worth of 2 year bonds offered to the market, in the bond auction held in the week. Though the auction was oversubscribed, the bids were at higher yields, resulting a noteworthy rise in the yield, and the two-year bond yield was surged by 193 basis points to close at 21.81%. We are of the opinion that the enhanced borrowing program of the Government to bridge the expanded budget deficit will keep bond yields at the peak in the near future. 

Maturity 01-Nov-01

Coupon 10.75%

Amount offered Rs.Mn 3000

Amount Accepted Rs.Mn 3000

Weighted Average 21.81 %

Change 1.93 %

Foreign exchange - dollar spot movement

During the week the Central Bank increased the middle rate by 59cents and on the week ending Thursday, the Central Bank buying and selling range closed at Rs.78.68 and Rs. 81.22 respectively. With this, the annualised rupee depreciation for the year climbed to 13.87% on the spot rate and 10.5% on the Central Bank middle rate. Most of the instances the spot was quoted above Central Bank Selling rate. Hence, we believe that most of the banks would have approached the Central Bank to purchase dollars. However, on the week closing Thursday, the spot took a beating, as the forex dealers met to explore the possibilities of maintaining the rupee at a favorable level. Three months forward was quoted at Rs. 84.50 to Rs. 84.70, while six months was at Rs. 87.40 to Rs.87.60. 
Table

Days 91 182 364 

Last Week 16.17 16.31 17.12

This Week 16.56 16.7 18.3

Change 00.39% 00.39% 01.18%

In the sky

Sri Lankans will have a thrice a week access to New York's John F. Kennedy (JFK) airport when Delta Air Lines operates its new expansion from the Middle East to New York's John F. Kennedy International Airport (JFK). New flights from Tel Aviv, Cairo and Dubai will start in June 2001, a news release says.

The new service Dubai/New York-JFK (via Cairo) will offer Sri Lankans Monday/Thursday/ Saturday flight to New York. Both Sri Lankan Airlines' and Emirates' daily service to Dubai offers a convenient connection onto Delta's New Service to New York-JFK.

EK 77 CMB/DXB 31.5 a.m. 5.30 a.m.

DL 121 DXB/JFK 6.45 a.m. 3.45 p.m.

In addition Delta continues to offer a daily service Zurich/ New York-JFK with convenient connections from Colombo.

Delta also announces a new service effective 2nd April 2001 for travel via the Pacific. Delta will operate a daily Tokyo/New York-JFK service with convenient connections from Colombo. The Sri Lankan Airlines direct service to Tokyo, 3 times a week offers convenient connections into New York-JFK on Delta.

UL 454CMB/NRT 11.50 p.m. 11.50 a.m. next day

DL 26NRT/JFK 3.45 p.m. 3.20 p.m.

This is in addition to the existing daily Tokyo/Los Angeles and Tokyo/Atlanta services.

The added advantage of these two new services is that Sri Lankan do not require transit visas for Dubai/Cairo/Zurich or Tokyo.

Delta recently announced plans to embark on a $1.6 billion terminal expansion and redevelopment project at New York-JFK. Upon completion of the projecting 2004, Delta's customers will benefit from additional flights and more convenient service to international and US markets.
Swisair in the air

SriLankan Airlines and Swissair will start a code share service between Colombo and Zurich on December 1.

SriLankan will be the operating carrier and would deploy its new Airbus A330 on this route in a two-class configuration. Flights would operate Fridays and Sundays from Colombo as well as from Zurich, a news release said.

"Our aim is to expand our route network with direct and code share services and so make Colombo an attractive hub in South Asia," says SriLankan Airlines' Chief Executive Officer Peter Hill. 

"Swissair also entered into another code share service between Colombo and Zurich with its subsidiary Belair, which is the operating carrier flying new Boeing B767 on this route in a two class configuration leaving Zurich on Mondays and Colombo on Tuesdays", says Swissair's General Manager for India, Sri Lanka and the Maldives Hans-Peter Doser. 

"These days of operation are complementary to the days operated by the Swiss/Sri Lankan code share, thus bringing the number of Swissair code share operations to 3 per week between Sri Lanka and Switzerland," he said.

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