Corporate earnings slow to 7% in June quarter as consumption slows

Sri Lanka’s listed companies’ earnings in the June quarter grew by 6.6 percent to Rs.50 billion from a year ago, slowing from a 16 percent growth or Rs.61 billion total earnings in the March quarter, an independent research firm showed. 

According to Capital Alliance Research (CAL Research), the expected slower growth in corporate earnings during the June quarter was a result of the absence of lower interest rates and fiscal stimulus available during the corresponding quarter last year. 

With the monetary policy having further been tightened and the fiscal account been brought under check by the International Monetary Fund (IMF), the September quarter earnings growth is expected to slow further. 
The outlook for business and investments also remains dim with widespread uncertainty. 

In 2015, the excess demand created by the imprudent fiscal management and the monetary stimulus pushed up the consumption as the people were seen lavishly spending the Rs.10,000 giveaway by the coalition regime among other freebies, which in turn pushed up corporate earnings. 

But the party did not last long as the political masters were forced to resort to austerity measures including tax hikes. The Central Bank jacked up the interest rates twice to tame the inflation, which is now biting into consumer spending and thereby corporate earnings. 

Meanwhile, the trailing 12-month market earnings grew by 5 percent year-on-year (YoY) to Rs.217 billion.   
Premier Ranil Wickremesinghe is due to make his economic policy statement for the next five years by late August, which is expected to revive the business sentiments, equity analysts say. 
Banks, finance and insurance sector contributed the most to the June quarter profits, with 46 percent.

Beverage, food and tobacco accounted for 15 percent of the earnings and diversified holdings accounted for another 10 percent. 
Among the largest individual contributors to the June quarter earnings were Hatton National Bank PLC with 6.8 percent, Commercial Bank PLC with 6.5 percent, Ceylon Tobacco with 6.1 percent, Sampath Bank PLC with 5 percent and John Keells Holdings with 4.8 percent. 
“Carson Cumberbatch reported the highest net loss for the quarter of Rs.667 billion vs. a net profit of Rs.624 million in 2Q15,” CAL Research said.  
On sector wise, power and energy and land and property had the largest growth in earnings during June with 166 percent and 82 percent YoY.