Normalised corporate earnings dip in September quarter despite robust earnings

By Nishel Fernando

Normalised corporate earnings of Sri Lanka’s publicly quoted companies saw a 16 percent year-on-year (YoY) dip in the September quarter, despite posting robust earnings driven by an improving economic landscape, according to First Capital Research (FCR).

In the quarter, market earnings at large accelerated by 65.5 percent YoY and 121 percent quarter-on-quarter (QoQ) to Rs. 223.30 billion, supported by a one-off gain from LOLC and its affiliated companies. This marked the fourth consecutive growth in quarterly market earnings.

“A one-off gain, which had a significant influence on the earnings of Browns Investments PLC, LOLC Holdings PLC, and Brown & Company PLC, was the reason for this notable uptick,” FCR noted.

The three entities completed acquisitions of several tea estates in Kenya and China during the quarter, resulting in one-off gains.

Despite the YoY decline in normalised quarterly earnings, excluding the non-recurring inflow, normalised earnings grew by 16 percent QoQ in the quarter ended in September. This indicates a ‘reasonable increase’ from the June quarter, with many sectors recording higher profits, while only a few sectors posting losses.

The Food, Beverage & Tobacco sector emerged as the top contributor to market earnings, recording an impressive 105 percent YoY growth. However, a key driver behind this growth was Browns Investments, which saw a remarkable 575.7 percent YoY surge, with earnings surpassing Rs. 48 billion. This was primarily due to a significant gain on the acquisition and divestment of group investments. 

Meanwhile, Melstacorp PLC emerged as a notable contributor, with a surge in other operating income and a reduction in finance costs, recording a 143.8 percent YoY improvement in its bottom line. “Several companies within the sector reported improved revenue, attributed to both declining inflation and recovering consumer demand. This led to margin expansion across the segment, highlighting a positive shift in profitability,” FCR added.
Diversified Financials were the second-largest contributor to quarterly earnings, with Rs. 38.3 billion in earnings. The Capital Goods sector reported a 539.8 percent YoY increase in earnings for the September quarter, primarily driven by the performance of Brown & Company PLC. 

Brown & Company saw a staggering 1020.5 percent YoY increase in earnings, supported by increased gross profit and significant reductions in both distribution and administration expenses. 

Further, the company recorded a sharp rise in gains from bargain purchases, which significantly boosted overall earnings. In addition, banks were among the top four contributors, with Rs. 37.7 billion in earnings for the quarter.
Meanwhile, the energy sector (-68.5 percent YoY) and the Consumer Durables & Apparel sector (-50.1 percent YoY) negatively impacted overall corporate earnings in the quarter. Overall, FCR noted that earnings for the majority of sectors recorded gains, while others recovered from previous losses.

While Browns Investments PLC, LOLC Holdings PLC, and Brown & Company PLC secured the top three positions, Commercial Bank and CTC were also among the top five contributors to the quarterly earnings.