Rs. 168 b in kitty of 20 firms

Some of the leading local listed companies collectively have a staggering Rs. 168 billion in their kitty in terms of revenue reserves/retained earnings, which is above the estimated US$ 1 billion target of Foreign Direct Investment (FDI) earmarked by the country.

The combined figure of Rs. 168.2 billion for financial years ended 31 December 2010 and 31 March 2011 is up by 30% or Rs. 38.7 billion in comparison to a year earlier. The Daily FT in its sample excluded multinational companies as well as financial institutions.

Analysts said that the ballooning reserves reservoir shows the underlining resource muscle for listed entities to undertake fresh investments where appropriate or when opportunities are available. However, others noted that some of the earnings had been parked at short-term investments. Retained earnings balance of some companies is likely to have reduced following declaration of dividends where applicable.

“The local firms have the financial capacity to invest either in diversification, expansion or new acquisitions provided there are new opportunities,” analysts noted. “The collective financial muscle is quite substantial and reflects the potential,” they added.

Ironically the Rs. 168.2 billion is equivalent to US$ 1.5 billion, which is higher than the envisaged inflow of FDIs for 2011. 

“If the macroeconomic as well as industry specific environment improves along with a further pick-up in confidence levels, the country could see a higher trajectory in investments by listed companies,” other analysts pointed out.

However, despite two years since the end of the war, the desired level of investments and confidence has been elusive. This could partly be due to bottlenecks and delays in implementation of planned projects, policies as well as structural reforms.

“It is important that the Government and policymakers realise the urgency in unleashing the post-war potential of the private sector with greater facilitation and reforms,” analysts added.

In fact in an interview with the Daily FT, business leader and Access Group Chairman Sumal Perera underscored the same view. “Entrepreneurship must be encouraged at all levels on a coherent and planned basis so that wealth, income, jobs or livelihoods can be generated at community level. If we do this, Sri Lanka as a country can realise its potential fully,” Sumal said. (See full interview on Page 11.)

The retained earnings have swelled thanks to unprecedented rise in profits as well as improvement in profitability in post-war Sri Lanka.

As per TKS Securities, which analysed a sample of 226 companies out of 255 listed, combined corporate earnings have soared 120% YoY to Rs. 137.7 billion in FY11 and earnings have increased 67% YoY to Rs. 37.3 billion in 4QFY11. In comparison the corporate earnings recorded an increase of two folds YoY to Rs. 22.4 billion in FY10.

Revenue reserves reservoir!

Figures in Rs. Bn.     2010/11   2009/10

1 SLT    31.4    27.9

2 Distilleries    25.5    17.3

3 JKH    25.4    18.9

4 Carson    18.8    14.1

5 Spence    8.3    7.4

6 Hayleys    7.1    6.5

7 Dockyard    7.0    5.5

8 Hemas    6.3    5.5

9 Browns    6.3    3.1

10 CIC    4.1    3.4

11 Ceylon Tea    4.0    3.2

12 CT Holdings    3.7    3.0

13 Royal Ceramics    3.5    2.6

14 Tokyo    3.3    3.5

15 Richard Pieris    3.2    2.0

16 DIMO    2.8    0.8

17 Fort Land    2.1    1.0

18. Lanka Walltile    2.1    2.0

18 Laugfs    1.8    0.8

19 Sunshine    1.5    1.0

Source: Audited and interim accounts of companies for financial years ended 31 December 2010 and 31 March 2011, where applicable.