Sept. quarter listed corporate earnings slip

• 3Q17 corporate earnings slip 1.4% to Rs.60.5bn
• Banking, finance and insurance sector earnings declined 3% to Rs.25bn
• Earnings primarily driven by growth in diversified holdings sector
• Beverage, food & tobacco sector earnings down indicating drop in consumer demand

Earnings of the listed corporates in Colombo bourse for the September quarter suffered a setback for the first time in many quarters amid key sectors recording dwindling profits, which mirrored the debilitating effects of the slowdown in consumer spending and overall difficult economic conditions.   

The earnings slipped 1.4 percent year-on-year (YoY) to Rs.60.5 billion during the July – September quarter (3Q17) from the same three months in 2016, weighed down by major segments with the exception of diversified holdings sector.

This is against the 4.6 percent YoY increase in market earnings during the second quarter (2Q17) to Rs.54 billion.

According to the regular quarterly earnings update by Capital Alliance Research (CAL Research), September corporate earnings were primarily driven by growth in the diversified holdings sector.

The sector’s contribution towards the total market earnings increased to 18 percent against the 8.0 percent in the same period last year. 

The earnings of the diversified sector earnings rose by 62 percent YoY to Rs.10.7 billion predominantly due to the improved earnings from Melstacorp PLC, C.T Holdings PLC and Vallibel One PLC, which reported a profit of Rs.806 million against a loss of Rs.3 billion during the same period last year. 

John Keells Holdings was the biggest contributor to the sector but the country’s most valued conglomerate saw its profits edging down by 1.0 percent YoY to Rs.3.73 billion for the quarter under review.

The banking, finance and insurance sector which accounts for the biggest share of the earnings (41 percent) declined 3.0 percent YoY during the quarter to Rs.25.0 billion, weighed down by profits of finance and leasing companies and insurance companies, which declined by 16 percent and 3.0 percent YoY, respectively. The largest contributors to the sector were Commercial Bank PLC and Hatton National Bank PLC with Rs.4.1 billion profits each while the LOLC group posted a profit of Rs.1.9 billion, the highest in the finance and leasing company sector.  “Despite a 22 percent YoY growth in net interest income, banking sector profit growth was contained at 6.0 percent YoY in 3Q17 due to increase in impairment charges at most banks”, CAL Research said.

Meanwhile, the beverage, food & tobacco sector earnings sapped by 4.0 percent YoY to Rs. 9.1 billion reflecting the weaker consumer spending. Among others, food and beverage segment is a close barometer of the performance of the overall economy. 

The trailing twelve months corporate earnings by end-September grew by 6.0 percent YoY to Rs. 251.2 billion, mostly driven by the banking, finance and insurance sector. 

Listed corporate earnings are a close bellwether of the country’s future economic prospects, which at the moment are not looking very bright.