The Chairman/Managing Director of Asia Capital Group, H L L Manohan Nanayakkara says that the reason for the poor performance of new brokerage firms is a consequence of certain policy changes that were adopted by the Securities and Exchange Commission of Sri Lanka (SEC) in the recent past.
“First, the SEC reduced the brokerage fees and also increased the number of brokers from 19 to 27 which resulted in an increase in the cost structure with the brokerage companies competing with each other to attract human resources and poaching on each other’s clients,” Nanayakkara said addressing shareholders at the release of the group’s 2011/2012 Annual Report.
Pointing out that the firm is happy to acquire and merge with them (other broker firms) if potentially found viable, Nanayakkara highlighted that during the last financial year, the market performance was not at all kind to any brokering house or trader.
“The market conditions over the last financial year have successfully damaged quite a few start up brokering firms as indicated in my last Annual Report,” he noted however adding that even in the worst of conditions, Asia Securities (Private) Limited (ASPL) has managed to break even compared to its phenomenal performance in the last two financial years.
During the year ended March 31, ASPL revenues declined by 61% from Rs 822 Million in 2011 to Rs 323 Million in 2012 resulting in the firm suffering an operating loss of Rs. 32 million compared to an operating profit of Rs. 484 million recorded a year ago.
Profit after tax also plummeted from Rs. 387 million in FY2011 to Rs. 23.6 million in FY2012.
However, Nanayakkara said that the share market now appears to be attractive due to the prices being much more reasonable than what it was in its heyday.
“With possible change in the global conditions anticipated in the next two years, we expect a resurgence of the Colombo Stock Market. Global economic commentators are now discussing possible further declines in the Chinese economy and a possible return to a recession in the US,” he said addressing shareholders.
Meanwhile, the company said it expects to focus its energies on expanding its capabilities to build a presence in key foreign markets.
“A tie-up with a Middle- East based brokering house was successfully concluded during the year under review and ASPL anticipates trading operations would commence soon. In addition, negotiations are underway with a USA based brokering outfit for a similar strategic link up. ASPL is also exploring the possibility of forming alliances with parties within the region,” the management disclosed in their analysis.