Mercantile Investments posts Rs. 417 m after tax profit in 1H

Mercantile Investments and Finance PLC (MI) has announced a profit after tax of Rs. 417 million for the six months ended 30 September 2012 whilst pre-tax profit was Rs. 467 million.

The performance is lower in comparison to Rs. 634 million of PAT and pre-tax profit of Rs. 684 million in the 1H of last financial year.

The company said while income from core business, mainly net interest increased by a very commendable 70% to Rs. 211 million, the declining share market led to a considerable decrease in share investment income by 64% to Rs. 369 million, contributing significantly to the lower profit.

Operating expenses increased by 29% mainly due to the increased number of branches and volumes. There was also substantial growth in the balance sheet, with advances growing to Rs. 12.1 billion, up by 36% and deposits growing by 25% to Rs. 6.6 billion, with total assets growing by 23% to Rs. 19.4 billion.

Despite a very difficult environment, with rising interest rates, slowing demand and the adverse effects of the drought, Mercantile Investments was also very successful in improving the credit quality of its lending portfolio, with gross and net NPL ratios significantly improving to 2.52% and 2.24% from 4.25% and 3.85% respectively from last year.

Net NPL values improved as well from Rs. 329 million to Rs. 287 million.

Mercantile Investments Managing Director Gerard Ondaatjie said: “I am very pleased with the progress this year, especially the growth and contribution from core business activities. While increasing our balance sheet, we have also ensured that credit quality and the recoveries process was streamlined. I am confident that we have now set the basis for healthy growth in the years to come.”

During this financial period, the company was able to open its 16th branch located in an ideal location in Gampaha, strengthening the branch network that is already well established and located in key business hubs of the country. Management continued efforts in boosting volumes through business expansion and concentrated efforts on building on MI’s critical success factors that include service excellence have paid off handsomely in the past few years.

Like others in the finance company sector, MI too had to overcome numerous market challenges in this period to maintain anticipated performance levels. The continued rise in market interest rates that reached levels beyond 25% had a negative effect on the lending business especially since it stressed borrowers to seek finance for their purchases such as vehicles, machinery etc. On the other hand managing cost of funding was a challenge with the persistent rise in rates on borrowings while deposit mobilisation continued to be highly competitive due to the price sensitiveness of customers.

Being 12 times gold winner of the annual report competition in the finance company sector category, organised by the Institute of Chartered Accountants of Sri Lanka, Mercantile Investments was able to add to its accolades epically winning two international awards in this period.

MI for its 2011/12 Annual Report won Silver for the cover photo and design at the recently-held Arc Awards in New York, in the financial services – general category, while winning a Bronze for the overall report at the League of American Communication Professional (LACP) in the financials diversified services category, held again in New York earlier in this period.