Listed company earnings contraction slows in September quarter

Sri Lanka’s listed company earnings appeared to have ended its year-long contraction three months ago, as the earnings slump seen in back-to-back quarters eased sharply in the September quarter which ended up slipping only 3.8 percent from the same period last year. 

Sri Lanka also recorded an economic growth of 1.6 percent in the same quarter, ending a nearly two-year long recession. 

According to the quarterly results review conducted by First Capital Research (FCR), the earnings available for 274 companies added up to a cumulative Rs.139.5 billion in the July – September 2023 quarter, down only slightly from Rs.144.9 billion in the corresponding period a year ago.

Meanwhile, the September quarter earnings measured on a quarterly basis were however up by a robust 50.8 percent from the June quarter, reflecting somewhat easing conditions in the economy amid sharp moderation in inflation and interest rates.  The corporate earnings were significantly affected due to the economic crisis which sent shockwaves across almost all sectors of the economy as it eroded the purchasing 
power of people.

To curtail runaway prices, the authorities jacked up interest rates to exponential levels and tax rates were also increased under the International Monetary Fund-backed programme. Earnings plunged 43.9 percent, 64.3 percent and 69.4 percent in the preceding three quarters against their year 

earlier levels.  September quarter earnings were weighed down predominantly by the capital goods, transport and materials sectors of which the earnings fell by 49.1 percent, 116.8 percent and 53.1 percent from their previous year levels. 

Higher finance cost resulting from the elevated interest rates, steep drop in freight rates below pre-pandemic levels and slow recovery in the manufacturing activities in the country caused the slump in earnings in the three sectors, respectively. 

What tempered and partially offset the sharp decline in earnings were the diversified sector earnings,

banking and foods and staples retailing sectors, which were seen benefitting from the easing interest rates, lower impairments and dwindling inflation.

The three sectors grew their earnings by 179.4 percent, 127.2 percent and 45.7 percent respectively, from their 
earlier levels.