Sri Lanka’s leading listed entities stand tall amid turbulence

For much of 2018, the Sri Lankan economy was reeling from the corollary of a depreciating currency and the prospect of massive external debt repayments. And to add to the misery, in the runup to the customary ‘budget speech’ in November, the nation was dragged into a state of chaos against the backdrop of a constitutional crisis.

Businesses that were already lamenting the state of economic uncertainty were forced to ‘wait and see’ even as news of alleged ‘monetary exchanges’ between members of the political class ruled the roost over proceedings of a different kind – the house as we know, was closed for business.

While reports of horse trading didn’t come as a surprise to the man on the street, the brazen execution surely predicated that the culture of corruption in political circles is deeply entrenched.

Transparency International’s Corruption Perceptions Index (CPI) places Sri Lanka in 91st place (up from No. 95 in the previous year) from among 180 countries and territories with a score of 38 out of 100 (on a scale of 0 – or ‘highly corrupt’; to 100 – i.e. ‘very clean’). This score was no different to where we stood in 2014.

Speaking to reporters, Executive Director of Transparency International Sri Lanka (TISL) Asoka Obeyesekere noted that “a close analysis of Sri Lanka’s positioning in the CPI from 2012 to 2017 shows that despite the institutional strengthening of anticorruption agencies following the 19th Amendment, consistent failure in implementation has led to very limited progress.”

He added: “It would seem that the anticorruption drive has limited momentum. Citizens still face corruption when trying to avail themselves of essential public services ranging from waste collection to school enrolment. Therefore, the limited change in the perception of public sector corruption reflects the limited change experienced by people in their everyday encounters with the state.”

TISL points out that progressive legal reforms such as offering citizens the right to freely access asset declarations of public representatives have also been stalled in cabinet, “which is indicative of a lack of bureaucratic and political will.”

At the same time, the South Asia Economic Focus Fall 2018 report of the World Bank projects Sri Lanka’s fiscal deficit to reach 5.2 percent of GDP in 2018 “despite a primary surplus due to heavy interest payments.”

The report asserts: “Population ageing could make the country’s generous social programmes unaffordable in a not so distant future. Sri Lanka is the only ageing society in South Asia. With older populations come higher healthcare costs and larger spending on public pensions.”

“Furthermore, much job creation has been seen in the public sector, which puts additional pressure on expenditures. Sri Lanka thus needs to keep [its] social programmes affordable. It also needs to increase tax revenues, which until recently were steadily declining relative to GDP,” it adds.

Moreover, the report says that “economic growth is projected to recover from the effects of last year’s weather disruptions, which negatively impacted agriculture, and remain around four percent in the next two years.”

Moving on to brighter territory, there were several stand out performers in financial year 2017/18 among Sri Lanka’s leading listed entities, which is highlighted in an all-encompassing reference point to the world of business here in Sri Lanka – the LMD 100 rankings.

The latest edition of the LMD 100 sees Hayleys retaining the top spot ahead of Lanka ORIX Leasing Company (LOLC – now LOLC Holdings) – Hayleys’ consolidated revenue (Rs. 163 billion) is nine percent higher than that of LOLC.

Meanwhile, John Keells Holdings (JKH) reclaims the No. 1 slot for profitability from LOLC – in 2017/18, JKH recorded a post-tax profit of over Rs. 23 billion.

As for market capitalisation, which is another prime indicator of corporate might, JKH led the way with an equity value of more than 221 billion rupees at 31 March 2018.

Forty-five of the leading 100 listed corporations reported lower earnings in financial year 2017/18 compared to 33 in the preceding 12 months. Moreover, the latest rankings reveal that there are nine loss makers among the 100 leaders (2016/17 – 10) although 55 companies (compared to 67 in 2016/17) reported profit upside in the double digits or higher.

In the latest edition of the nation’s premier listed company rankings, as many as 71 companies (the same number as in the prior year) recorded an annual turnover in excess of Rs. 10 billion. And in terms of bottom lines, 15 entities (versus nine in 2016/17) enjoyed post-tax profits of over five billion rupees.

Turning the clock back 25 years when the pioneering rankings were first published in 1993/94 (that was when the LMD 100’s predecessor – The LMD 50 – was compiled for the first time), the list of corporate heavy-weights contained 25 entities that do not feature in the latest edition of Sri Lanka’s leading listed companies.

An equal number of corporations were not in contention at the inception of the rankings including the likes of LOLC, Dialog Axiata and Lanka IOC, all of whom feature on the 2017/18 Leaderboard.

Aggregate revenue of the 50 leading listed entities has grown by 20 percent in the latest rankings whereas their combined bottom lines expanded by 12 percent. To put things in perspective, back in 1993/94 cumulative revenue rose by 20 percent year on year while profits spiked by as much as 60 percent.

The aggregate asset value of the 50 leaders meanwhile, appreciated by 17 percent during 2017/18 while their combined shareholders’ funds were 15 percent higher from when the financial year began.

As to whether the nation’s leading business houses can maintain this momentum into the next financial year and beyond, the picture is blurred.

Yes, there are geopolitical rumblings – particularly the prospect of oil price volatility and implications of a debilitating trade war between the two largest economies on the planet – but since of late, a house under arrest and run-of-the-mill political machinations have overshadowed what was already a gloomy horizon.

The million dollar question is whether the resilience of the nation’s engine of growth can withstand a downright ugly political war? Only time will tell.

– LMD/Media Services

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