Lanka Ventures PLC, a subsidiary of Acuity Partners (Pvt) Limited, a joint venture between the DFCC Bank and HNB, which has invested substantially in the renewable energy sector is now actively considering further diversification in this sector through investments overseas, Mr. Nihal Fonseka, Chairman of the company has said in the annual report.
Already a 10 MW wind power plant involving an investment of Rs.384 million has been completed in the Kalpitiya peninsula. But this plant, completed in June this year, has not yet been commissioned due to the non-completion of the grid’s substation located inside the Norochcholai power plant.
In addition to Lanka Ventures subsidiary Pawan Danavi (Pvt) Limited (PDL), which built the Kalpitiya power plant, three other wind power plants with a total installed capacity of 30 MW are awaiting interconnection at the Norochcholai grid’s substation.
``PDL is facing the same predicament as three other wind power plants with a total installed capacity of 30 MW,’’ Fonseka said.
``We anticipated that LVL Energy Fund’s in the current financial year will receive a considerable boost from PDL but the delay in commissioning the plant will affect anticipated group profit for the current financial year.’’
He noted that in the year ended March 31, 2012, the group had invested Rs.412 million in power projects.
The largest investment of Rs.384 million was made in Pawan Danavi (Pvt) Limited (PDL) which undertook the construction of a 10 MW wind power plant in the Kalpitiya peninsula.
Eighty two percent of the company’s total portfolio (Rs.644 million) has been invested in the energy sector with Rs.141 million (18%) in healthcare.
"These investments were undertaken with a view to positioning the company to create shareholder value in the medium term," Fonseka explained.
He said that within the energy sector, Lanka Ventures has achieved some degree of risk diversification by investing in projects utilizing different energy sources in different geographic locations.
Their mini hydro power plants are spread across districts such as Galle, Ratnapura, Kegalle and Nuwara Eliya along different rivers and were therefore somewhat insulated from the risk of varying weather patterns in different parts of the country.
"For example in 2011 when our power plants in Nuwara Eliya and Galle districts were not operating at optimum levels due to poor rainfall in the areas, the plants in Ratnapura and Kegalle districts recorded exceptional results," he said.
Up to now Lanka Ventures have only tapped wind and hydro for renewable energy generation and the spread of investment between wind and hydro was 60:40 with the installed capacity 40:60.
The year had seen LVL Energy Fund Limited (LEF) raising Rs.250 million through a private share placement. Together with the commitment of Rs.300 million from the DFCC Bank in the form of redeemable preference shares of LEF, the total fund base of this company will be Rs.1,050 million.
The year under review had seen a sharp decline of Lanka Ventures’ group income down to Rs.91 million from Rs.161 million the previous year. Investment income too was down to Rs.71.3 million from Rs.127.3 million a year earlier.
Nevertheless what was described as a "deemed disposal profit" of Rs.142 million arising from the private placement of new shares amounting to 10% in LVL Energy Limited (LEF) saw the company posting an after-tax profit of Rs.206 million, up from Rs.142.7 million the previous year.
The ``deemed disposal’’ profit represented the increase in fair value of net assets of LEF attributable to Lanka Ventures shareholders consequent to the private placement.
Although the group had recorded a post-tax profit of Rs.204 million, the distributable profit for the year attributable to the company at only Rs.74 million was insufficient to pay the same Rs.1.50 per share dividend of the previous year as this dividend had aggregated to a total of Rs.75 million.
However, the Rs.1.50 dividend rate has been maintained during the year under review as Lanka Ventures had received dividend income of Rs.78 million from its investments during the year under review.
In addition to its wind power investments, Lanka Ventures has invested in four mini hydro power projects now in operation. But unfavourable weather conditions had severely curtailed their power generation in the first six months of this year when total generation was only 10.4 GWH compared to 20.3 GWH the previous year.
"LEF’s contribution to group profit peaked in financial year 2010/11 to Rs.97 million but declined to Rs.56 million in financial year 2011/12 due to decline in the financial performance of energy companies as a result of poor rainfall in catchment areas of hydro power projects and shut down of one plant for 40 days due to equipment failure and penstock damaged following an earth slip," Fonseka said.
"All plants are currently ready to generate electricity at their maximum capacity if sufficient water is available."
He said that his board was "acutely aware" of the need to diversify the company’s investment portfolio beyond energy and healthcare and they were exploring investment opportunities in leisure and higher education.
"However, we will invest only if we are able to exploit unique opportunities in these sectors that combine partnerships with industry leaders or well established business houses," he said.
Acuity Partners (Pvt) Limited with 79.58% is the controlling shareholder of Lanka Ventures followed by the Merchant Bank of Sri Lanka with 1.21%.
The company’s share traded at a high of Rs.60 and a low of Rs.25 during the year under review against a trading range of Rs.46.80 to Rs.17.75 the previous year.
The company has a stated capital of Rs.631.6 million and retained earnings of Rs.298 million in its books. Total assets ran at Rs.1.3 billion and total liabilities at Rs.217.8 million.
The directors of the company are: Messrs. Nihal Fonseka (Chairman), J.D.N. Kekulawala, J.M.J. Perera (Resigned 31.05.2012), T.L.F.W. Jayasekara, S.E. de Silva, T.W. de Silva, A.R. Munasinghe and M.R. Abeywardena.