COLOMBO: Sri Lanka’s listed companies saw their total net profits sliding 6.2 percent year-on-year (yoy) to 47.7 billion in the September quarter, amid losses incurred by companies with larger market capitalizations, earnings update by an independent research arm said.
Third quarter earnings demonstrates a reversal of the growth trend in corporate earnings as second (June) quarter earnings grew by a healthy 10.7 percent yoy.
According to Capital Alliance (CAL) Research, the total earnings in the September quarter were weighed down by Lanka IOC PLC, Carson Cumberbatch PLC and Bukit Darah PLC which incurred heavy losses of Rs.373 million, Rs.497 million and Rs.1 billion respectively.
Barring the total losses of these companies, the total market earnings grew by a paltry 0.5 percent yoy.
To a larger extent, the corporate earnings in 2015 was driven by the boom in consumer demand which was stimulated by the lower interest rates, benign inflation and fiscal stimulus extended by way of lower taxes and higher public sector salaries.
However, the trend will soon reverse as the consumer demand is expected to slow down amid tightening credit due to rising interest rates, increase in inflation and higher taxes which will taper people’s disposable income.
Hence, the outlook for corporate earnings in 2016 largely remains negative.
It was only recently Nielsen Sri Lanka Managing Director, Shaheen Cader said consumer confidence in November had come down by a notch, although it is higher on a yoy basis.
Meanwhile, the trailing 12-month market earnings grew 2.1 percent yoy to Rs.203.2 billion, supported by low interest rates and improving disposable incomes driving the consumption.
The largest individual contributors to September quarter earnings were John Keels Holdings, Ceylon Tobacco, Commercial Bank and Hatton National Bank with 7.3 percent, 6.9 percent, 6.8 percent and 5.6 percent respectively.
The sector-wise highest contributors were, banking, finance and insurance (BFI) sector with 43 percent share followed by beverage, food and tobacco (BFT) with 19 percent and the diversified holdings with 13 percent share.
BFI sector net profits in September quarter rose by 6 percent yoy to Rs.20.6 billion, driven by non-banking finance sector total earnings of Rs.8.8 billion, up by 5 percent yoy, private sector commercial bank earnings of Rs.11.6 billion, up 2.2 percent yoy and insurance sector earnings of Rs.1.1 billion, up 68 percent yoy.
BFT sector total earnings in September quarter grew by 35 percent yoy to Rs.9.3 billion.
Notably, the construction and engineering sector earnings declined by 19 percent yoy to Rs. 753 million, mainly due to 120 percent decline in earnings in MTD Walkers PLC to Rs.70 million. This constituted 2 percent of sector earnings.
The sectors which experienced the largest growths were; motor (54 percent), healthcare (50 percent), services (50 percent) and BFT (35 percent).
Meanwhile oil palm, plantations and power and energy suffered the most as their profits declined by 947 percent, 736 percent and 73 percent respectively.
