As the reporting season gets underway …

Investor confidence low due to uncertain security situation

By Duruthu Edirimuni

With the reporting season for financial year accounts ending March underway, corporates are churning out satisfactory results but their reports reflect growing concerns about the security situation in the country and long term effects on business and the economy.
Many reports including that of John Keells are expected in the next few weeks as companies prepare to hold their AGMs –most before June 30.
But JKH Chairman Susantha Ratnayake said the group has gone through this situation before. “It’s not new to businesses. Business has grown and it would be business as usual.”
Dimuthu Abeyesekera, CEO, Asha Phillip Securities Ltd said that companies while being concerned about the volatile situation in the country will post very good results, but these results will not reflect the actual values in the share prices of those respective companies. “March companies which are to release their annual results seem to have done very well, but the share prices will not reflect the actual values because investor confidence at present is not very good,” he said.
He said the confidence factor has reduced drastically due to the war situation and many corporates are expected to raise the peace issue in their reviews and statements. “The main criteria for investor confidence are peace,” he emphasized.
Deva Rodrigo, President of the Ceylon Chamber of Commerce said the country's situation is very fragile and if it worsens there is a threat of increases in freight costs because foreign shipping lines will push for war risk rates, while increasing corporate taxes will have a drastic effect on the corporate and investor sentiment at large.
“It will be interesting to analyse the taxes paid by the corporates in relation to their profit before tax (PBT) and compare it with last year. The government is planning to push the corporate tax to 19 to 20 percent of GDP. It would useful to ascertain how much the increase in the tax revenue to the government has increased the effective rates of corporate tax,” he said.
Market analysts said that many companies were very concerned about a conducive environment to business and are awaiting a firm stand on peace. Some said that it is noteworthy that the tourism sector of some companies has shown a revival in the last quarter but the firms are concerned about the future.
Chinthaka Ranasinghe, Head of Research, John Keells said that corporates dealing in only tourism will be hit badly but generally the corporate results that are due to be posted are looking very good. “We have been through worse times. There will be volatility in the country, but we are a long way from the post 1994 era,” he said.
Sanjeev Gardiner, Director Ceylon Hotels Corporation said that it is important for companies to have consistency in efficiency and productivity in a volatile situation and some companies such as Dialog have done this. “Dialog has done extraordinarily well in a challenging environment,” he said.

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