Mixed bag of results

It is the season for reporting of third quarter (2023-24) results of companies, banks and other financial services, particularly those listed at the Colombo Stock Exchange (CSE). The public has access to these results through the CSE website. The results released cover the 3-month period October-December 2023 and the 9-month period April-December 2023.

The flavour of the month, however, is the increase in the Value Added Tax (VAT) from 15 per cent to 18 per cent with effect from January 2024 and its impact on company results for the current quarter (January 1, 2024 to March 31, 2024). “While companies have not done too badly, the impact of the increased VAT on the bottom lines remains to be seen when the annual results for 2023-24 are released in the second quarter of this year,” said a stock broker.

This was also on the mind of my jolly-mood economist friend, Sammiya (short for Samson) when he called on the home phone this Thursday morning. “I see from the results of companies rolling in and reported by the local press that it’s a mixed bag,” he said. Sammiya, as a hobby, constantly follows the stock market happenings and the performance of companies.

“Yes its mixed results but the real results would be known only after the final quarter is released because this would include the impact of the VAT increase on company profits,” I said.

“Well, there are other yardsticks to consider as operational costs are going up, the cost of goods is rising with rising taxes, there is a demand for increased incomes for private sector workers, power and water rates are going up…….In general, all costs are going up which would hit the bottom lines,” he said.

“There are also reports that some supermarkets are not stocking up on food and essentials owing to a drop in demand as consumers are finding it difficult to meet essential food costs,” I said.

While some companies have been functioning in a moderately stable environment with borrowing interest rates coming down, others have been faced with challenges, particularly some export companies – garment manufacturers in particular – with a recession in key markets resulting in a drop in orders.

There are also challenges from the strict regime of the IMF programme amidst rising poverty levels where thousands have had to skip a meal a day.

With the results rolling in, the Business Times gathered data of a sample of some companies and their results to get a more meaningful understanding of their performance in the last quarter and the 9-month period.

According to stock market specialists, overall the companies have not done too badly – a mixed bag with some export companies doing well. Banks are yet to release the annual results for 2023 as of Thursday, as they have more time than companies to do so. Banks generally have been doing well but in recent months have had to increase provisioning (bad debts) as borrowers – particularly small and medium enterprises – are struggling to repay loans having lost a lot of business during the COVID-19 pandemic and the economic crisis. Many SMEs have closed down.

According to the Business Times analysis, results of export companies (as stated earlier) have been mixed. For example, at Haycarb Plc, a key exporter, the results for the 9-month period revealed an after tax profit of Rs. 3.3 billion which was, however, lower than Rs. 5.6 billion in the previous corresponding period.

After-tax profits at Dipped Products, another large scale exporter, also fell to Rs. 2.8 billion for the 9-month period from Rs. 7 billion in the corresponding 2022-23 period. Hayleys results for the nine months ending December 31, 2023 revealed an after-tax profit of Rs. 7 billion against Rs. 24 billion in the previous corresponding period in 2022-23, while it was pointed out that the current quarter ending March 31, 2024 is crucial because of the imposition of the new VAT levels. At Udapussellawa Plantations, tea producer and exporter, results for the nine months ending on December 31, 2023 was a profit of Rs. 527 million, however, lower than the Rs. 868 million recorded in the previous corresponding period.

At conglomerate Lankem Ceylon Ltd, consolidated profit/ loss for the nine months ending on December 31, 2023 was a loss of Rs. 105,195 against a profit of Rs. 2.7 million in the same period in 2022.

Sunshine Holdings Group recorded a consolidated revenue of Rs. 42.4 billion for the nine months ending on December 31, 2023, up 9.9 per cent year-on-year. Amidst the backdrop of moderately stable macroeconomic conditions, the group has reported solid top-line and bottom-line growth of 10 per cent and 44 per cent YoY with Profit after tax (PAT) increased to Rs. 5.5 billion as a result of business growth and lower finance costs during the period. This group’s revenue, from Healthcare, Consumer and Agribusiness sectors, contributed 49.6 per cent, 35 per cent and 15.3 per cent respectively.

The nine months ending on December 31, 2023, for Renuka Agri Foods showed a loss of Rs. 455 million versus a profit of Rs. 713 million.

How have tourism business-related companies fared? Losses were seen at hotel company Jetwing Symphony which dropped in the nine months to Rs. 269 million against Rs. 1 billion in the previous year. Sigiriya Village, another hotel company, reported a loss of Rs. 78 million against a loss of Rs. 82 million in the nine months of the 2022 period. The losses are largely owing to loans taken during the crisis period and the repayment of these loans.

Tourism itself is booming this year with the authorities setting an ambitious target of 2.3-2-4 million arrivals for 2024, higher than the previous record achieved in 2018. The country fell short of the 2023 target of 1.5 million with arrivals at 1,487,303 in 2023, sharply up by 106.6 per cent from 719,978 in 2022.

Among other companies whose results were analysed, Hemas Holdings has done well, while Vidullanka PLC showed profits mainly from its hydro power operations in Uganda. Financial services firm People’s Leasing & Finance PLC also did well.

As I went into the ‘last lap’ of my column, Kusssi Amma Sera brought in my second mug of tea, saying her friends didn’t come for their usual ‘weekly’ chat this Thursday as they were busy.

I nodded my acknowledgement, reminding myself that while companies are showing a mixed bag of results, the political discourse is also taking different turns as uncertainty prevails as to whether presidential or parliamentary elections will be held first amidst wide speculation of the presidential system of governance being scrapped.