Plantations lead in earnings rise in most companies
Plantations have led the way in net profits of earnings of most companies grew by 38% YoY in 4Q07 (Oct – Dec Quarter) with a 25% YoY growth in revenue, according to ‘Sri Lanka's Earnings Review for 4Q07 results’ by Capital Alliance.
Plantations, run by the private sector, showed a 504% YoY profit jump in 4Q07, reflecting the high tea, rubber and palm oil prices that were prevalent during the period. The Banks, Finance and Insurance sector reported a profit growth of 47% YoY in 4Q07 with strong contributions from Commercial Bank, HNB, Ceylinco Insurance and LOLC. The Diversified sector net profits in 4Q07 reported a growth of 32% YoY, mainly due to the 99% YoY profit growth of John Keells Holdings, the Review said.
The Manufacturing sector profits witnessed a drop, declining by 23% YoY in 4Q07. Though the majority of the companies reported modest growth in 4Q07, the poor performance of Pelwatte Sugar, Tokyo Cement, ACL Cables and Dipped Products lead to this decline. The Telecommunications sector saw profits fall by 28% YoY in 4Q07 attributed by profit declines of 35% YoY in Dialog Telekom and 17% YoY in Sri Lanka Telecom.
The Review also states that though headline growth of the net profit total could be considered sensitive to the impact of outliers, the median growth rate in net profit in 4Q was 27% YoY while the average growth rate after excluding the top and bottom 10% growth rates (Trimmed Mean at 20%) was 39% YoY confirming the overall picture of an acceleration in profit growth in the fourth quarter. However cumulative net profits up to December grew by only 12% YoY less than the 27% growth rate in Net Assets, resulting in a fall in ROE for the cumulative period.
The market net profit growth was driven by the profits of the Plantations sector. Most companies in the sector posted record high earnings growth for the cumulative period with plantations such as Hapugastenne, Kahawatte, Balangoda, leading the list.
The Review said Banks Finance and Insurance sector, on a whole, recorded a net profit growth of 12% YoY for the cumulative period. Commercial Bank reported a net profit growth of 48% YoY for the cumulative period exclusive of the exceptional items reported for the corresponding period last year. HNB's cumulative profit growth rate stood at 41% YoY while that of Nations Trust Bank and Sampath Bank stood at 56% YoY and 7% YoY respectively. Net profits of insurance companies alone witnessed a 23% YoY growth with Union Assurance and Asian Alliance being the biggest gainers.
The Food, Beverage and Tobacco sector, on a whole, witnessed a net profit growth of 21% YoY for the cumulative period. This was largely led by the profit growth in Ceylon Tobacco, Distilleries, Cargills and Lanka Milk Foods. Bairaha Farms recorded a turnaround during this period, with profits rising up by Rs.87.9 million to Rs.88.5 million, up by 15,704% YoY.
According to the Review, Ceylon Cold Stores was the biggest loser with profits falling by Rs.93 million for the cumulative period.
The revenues of the sector for the cumulative period up to December 2007 rose by 16% YoY while that of the quarter reported an increase of 19% YoY. The higher utility costs continues to exert pressure on the earnings of this sector.
Profit growth in JKH, Carsons and Aitken Spence largely helped the conglomerates to record an overall net profit growth of 20% YoY for the cumulative period despite a fall in the profits of Richard Pieris, James Finlay, Hayleys and Hemas.
The Manufacturing sector, on a whole recorded a 29% profit decline in the cumulative period. Within the sector, ups and downs were evident but the weight was more towards the profit declines. Pelwatte Sugar saw the highest decline in the cumulative period while Associated Electricals, ACL Cables and Tokyo Cement also reported relatively high declines in profits. The biggest gainers were Chevron Lubricants, Regnis Lanka and Royal Ceramics. The ceramics companies alone reported a profit growth of 31% YoY for the cumulative period.
The Oil Palms sector reported a sharp 107% YoY increase in net profits to Rs.1.24 billion for the cumulative period reflecting the high palm oil prices. Nevertheless the sector reported a 34% profit decline in 4Q07 attributed by the negative profit growth reported by Bukit Darah for the said period due the impact of rupee appreciation, the Review added.