Billion Rupee profit club doubles post-war

The country’s most profitable league of listed companies has more than doubled in numbers and by 74% value wise in the first full financial year since the end of the war.

With annual results release season almost coming to an end, the country has so far produced a record 45 companies achieving Rs. 1 billion and above in the financial year ended 31 December 2010 and 31 March 2011. A year earlier the figure was only 20. Their combined value of after-tax profit is a staggering Rs. 125.76 billion up by 74% from Rs. 72.4 billion in the previous year.

Of the 45 companies which have so far qualified, two companies are yet to release full year results but were included by virtue of the duo crossing the one billion benchmark within the first nine months. When they too release full year accounts and if a few more companies qualify, the final figure is likely to be stupendous, reaffirming the unprecedented rebound following the defeat of terrorism in the country. Some of the best performers with 31 December as the financial year have already delivered over billion profits in the first quarter of 2011 itself. They are Commercial Rs. 2.06 billion, SLT Rs. 1.29 billion, HNB Rs. 1.23 billion and Dialog 1.15 billion. Analysts said that the rebound has been largely fuelled by improved investor, consumer sentiments, a relatively better operating environment as well as return of tourists. The reduction in interest rates also helped companies to boost profits aided by lower finance cost.

Additionally, reduction in taxes has boosted bank bottom lines whilst rationalisation of taxes has helped telcos. The boom in stock market helped in accounts factoring the hike in unrealised gains as well.

“If the true end of war advantage is translated in real high growth in economic, business growth as well as higher foreign direct investment as well as overall gains in productivity and efficiency, companies and Sri Lanka can certainly enhance more wealth,” analysts told the Daily FT.

“In that context the real potential of Sri Lanka is yet to be experienced though it is now two years since the end of the conflict,” they emphasised. Some of the companies which have released their annual reports too had alluded to this fact. For example, Chairman of JKH Susantha Ratnayake, which produced its best-ever results, said that the best was yet to come and the premier blue chip was looking to the future with excitement. However, given the extensive exposure of JKH in leisure, he called for further enhancements to tourist experiences in Sri Lanka. Ceylon Brewery CEO Suresh Shah, whilst noting that was noteworthy was that the country was still largely riding on the sentiments that arose out of the defeat of the LTTE, pointed out that it was now two years since and positive sentiment alone would not sustain the growth momentum for much longer into the future.

“A process of policy-led consolidation is critical if Sri Lanka is to emerge as a strong, sustainable economy. Whilst many changes have been implemented, there are still some significant issues that need to be addressed,” he added.

Shah emphasised that in peace the country needed to address issues that gave rise to the war and that to sustain high growth Sri Lanka needed to attract higher FDI, which is also vital for transfer of technology.

Echoing the same sentiments, diversified Hemas Holdings Chairman Lalith de Mel in the company’s 2010/11 Annual Report said: “The war is fast becoming a distant memory. The tranquillity of peace gives us the climate to plan for the future without apprehension. However, the expectation that a great economic boom is the dividend of peace has not quite materialised.”

“Our excellent GDP growth has not been strong enough to generate inflows of investment. ‘Why?’ is the tantalising question that hangs in the air without a clear answer.”

De Mel in his review recalled that there was an interesting comment by the Country Director of ADB that is certainly food for thought. As reported, he said the World Bank has ranked the island 105th out of 183 countries in its “ease of doing business classification”. He therefore stressed the need to cut red tape, minimise bureaucracy, expedite approval processes, guarantee investment protection and have consistent policies in place to attract investments.

The Hemas Chairman also noted that providers of funds were concerned with aspects outside monetary returns. “Human rights, good governance and an atmosphere free of political interference are now becoming as important as or possibly more important than good returns on investments. Importantly, it is the perceptions that matter, whatever the facts. Perceptions are reality and the real challenge is to manage perceptions,” he added.

However, de Mel assured that that as for the future Hemas had every reason to be optimistic. “The emerging role has brought into focus the need to determine and design the best structures that will provide optimum corporate governance. This will be a key area of my focus in the coming year,” he added.