Blockbuster Sept. earnings season comes to close

• Listed corporates deliver all-time high Rs.110bn in total earnings 
• Indicates successful acclimatisation of big corporates to new business climate
•  Lower taxes, historically low interest rates, pent-up demand and rupee depreciation among key contributors to higher earnings 

Bringing a blockbuster earnings season to a close, Sri Lanka’s listed companies have delivered robust earnings for the quarter ended in September 2021 indicating that big corporates have largely built resilience and have acclimatised with the new economic order characterised by intermittent restrictions and lockdowns. 

Citing a report by Softlogic Stockbrokers, Gradient Alliance, a Colombo based corporate finance services and research firm said the listed companies had reported Rs.110 billion in cumulative earnings in the July-September period, marking a robust 48 percent growth from the comparable quarter in 2020. 

During the same period in 2020, Sri Lanka’s listed companies reported cumulative Rs.73.9 billion in earnings, hitting at least a two-year high, as the economy was recovering from months long lockdowns, which gave rise to a strong pent-up demand and exceptional support from historically low interest rates and other liquidity support that came from the Central Bank. 

Sri Lanka’s listed companies’ earnings reached an all-time high in the January-March quarter in 2021 when the cumulative earnings crossed the Rs.100 billion mark for the first time in history to record Rs.109 billion, logging a 189 percent growth, Softlogic Stockbrokers reported in June. 

Although these earnings slowed down in the subsequent April-June quarter to Rs.76.3 billion, the September quarter earnings is a clear reflection that big corporates have largely defied the nearly one and a half months long soft lockdowns that prevailed during that quarter to come out stronger than ever. 

Their deep pockets relative to small and medium sized enterprises and their outsize nature, which have given them the ability to command a significant influence of the daily lives of people and the economy in general, have also enabled them to successfully navigate the restrictions.  

While the September earnings season has largely been a mixed bag, companies in the banking, insurance and finance sector firms with significant exposure into exports, telecommunication, pharmaceutical, FMCG and other consumer staples, construction and real estate reported higher earnings, the analysis of the interim reports filed with the Colombo Stock Exchange (CSE) showed. 

The higher earning hopes, particularly in companies with a larger exports component such as Expolanka Holdings and Hayleys PLC pushed the stock indices to all-time highs as they delivered robust top and bottom line performances, made possible by the strengthening global demand and the weakening rupee against the dollar.

The lower corporate income tax, the Value Added Tax and the removal of the Nation Buildings Tax also contributed to elevated bottom lines of the companies during both 2020 and 2021, while the all-time low interest rates saved millions of rupees in interest expenses for companies, which otherwise would have eroded their earnings.  

Perhaps due to the record-high corporate earnings enjoyed for nearly two years, the government proposed to impose a 25 percent one-off surcharge tax on those who have earned a taxable profit of Rs.2.0 billion for the financial year ended 2020/21, affecting about 62 larger companies. 

The proposal immediately sparked debate across business circles over its retrospective nature and questions were widely raised why only the already big taxpayers were targeted to foot the bill.