March corporate earnings defy overall negative sentiment

• Listed corporate March earnings up 29.1% to Rs.99bn
• Earnings still up by 19.4% excluding one off gains 
• Banking, Finance & Insurance sector biggest contributor 
• John Keells Holdings biggest individual contributor

Sri Lanka’s listed entities reported some strong growth in earnings for the quarter ended in March (1Q18), as the traditional leading sectors continue to push up market earnings while the one-off gains in insurance sector further lifted overall profits. 

For the January-March period, listed entities reported Rs.99 billion in overall earnings, up 29.1 percent over the same period last year, led by banks, finance & insurance companies with the sector’s share expanding to 45 percent from 43 percent in the same period in 2017. 

However, when the one-off gain in the insurance sector is excluded, the overall earnings still grew by a robust 19.4 percent. 

The insurance sector recorded some hefty gains, particularly from the Rs.7.1 billion stemming from the sale of general insurance business of Janashakthi Insurance to Allianz Insurance Lanka Limited and substantial one-off life fund surplus transfers recorded by other life insurers such as HNB Assurance and AIA Insurance. 
The 1Q18 listed company earnings growth defies the weak consumer demand and poor business and investment sentiments that cloud the economy.

The overall economy grew by 3.2 percent during the first quarter of this year, little slowing from 3.5 percent in the quarter ended in December 2017 and the 3.3 percent growth recorded in 2017.

It is widely argued that the listed entities, which account for less than 300 firms, are far from reflecting the overall economy as over two third of the economy is made by the micro and small and medium enterprises. 

At the same time, the expansion in the banking and finance sector profit growth broadly suggests that financial resources have been going into a few sectors dominated by consumption and imports, with little contribution to a sustainable economy. 

In a positive move, the government last week introduced a new interest subsidy loan scheme aimed at multiple sectors such as agriculture, dairy, manufacturing, tourism etc. to revive the enterprise sector, which had been lagging for so many years. 

Last week, Professor Razeen Sally, a renowned scholar and the Chairman of Institute of Policy Studies (IPS), Colombo, slammed the crony private sector in Sri Lanka and elsewhere in Asia that undermines the enterprise renaissance and effective capitalism. 

Crony private sector or the crony capitalism is where a small section of business elites are being shielded from competition by a corrupt government through favours extended by way of offering legal permits, government grants, special tax breaks and import restrictions.   

Meanwhile, the sectors, which made sizeable contribution to the overall market earnings were: banking, finance & insurance with 45 percent share, diversified holding with 23 percent share and beverage, food & tobacco with 11 percent share. 

The largest individual contributors to the March earnings were John Keells Holdings PLC with 10.1 percent share, Janashakthi Insurance PLC with 7.0 percent share, Hatton National Bank PLC with 4.7 percent share, Commercial Bank of Ceylon PLC with 4.4 percent share and Ceylon Tobacco Company PLC with 3.8 percent share. 

Meanwhile, for the 12 months ended in March 31, 2018, Sri Lanka’s listed company earnings grew by 13.9 percent year-on-year to Rs.299 billion.