Listed company earnings surge in June YoY; but markedly down from March

• 262 firms report accumulated earnings of Rs.76.3bn up from Rs.35.3bn YoY
• However, this was down from Rs.110.8bn in earnings reported by 253 firms 3 months ago
• Ongoing lockdowns could weigh even on Sept.quarter earnings- Analysts 

Sri Lanka’s listed companies reported robust earnings for the three months to June 2021 compared to the same period in 2020, when the lockdowns weighed more heavily on a large swath of businesses, but 2021 June results marked a break from the March quarter when earnings reached a record high.  

Some 262 listed entities reported an accumulated Rs.76.3 billion in earnings for the April-June quarter compared to Rs.35.3 billion in the corresponding period in 2020 when nearly two thirds of the quarter was under much harsher lockdowns imposed since the virus first struck the country in 2020, according to earnings data compiled by First Capital Research (FCR). 

This translated into a solid 116 percent surge in the earnings between the two periods. 

However, this marked a decline of 31.1 percent from Rs.110.8 billion in earnings reported by some 253 companies during the previous quarter from January through March 2021, when the earnings were boosted by the economic resurgence during that time, which corresponded with the brief return of normalcy with the dissipation of the virus.  The solid March quarter performance was also reported barring some key segments of the economy such as leisure, entertainment and in-classroom education, which could have further elevated the earnings.  

Nevertheless, the return of the virus from around mid-April resulted in fresh restrictions on a large swath of businesses causing a severe bearing on the financial performance as reflected in June quarter earnings. 

While the faster acclimatisation of businesses to the virus related restrictions could mitigate the full effects on their top and bottom lines, the ongoing lockdowns could weigh even on the September quarter earnings, as consumer activity, which accounts for more than two thirds of the Sri Lankan economic output, remains at levels near its bottom. 

The June quarter earnings were largely supported by capital goods, banks, food, beverage & tobacco, consumer durable & apparel, 

transportation and telecommunication sectors. However, the performance was sluggish in diversified financials and insurance sectors. 

Capital goods segment recorded an impressive 255 percent growth due to the rebound in performance in many counters, FCR said.  Meanwhile, John Keells Holdings PLC saw its earnings surging by Rs.3.2 billion supported by all segments with the exception of consumer foods, while the first time revenue and profit recognition from the handover of the residential units at ‘Cinnamon Life’, resulted in its property segment EBITDA surging by 1, 978 percent from a year ago.  Meanwhile, Hayleys PLC profits rose by Rs.2.5 billion mainly led by the strong top line performance of most sectors, which logged a 46.4 percent growth from a year ago and the 21.7 percent fall in net finance cost. 

The banking sector profits were led by the three large private sector commercial banks, Commercial Bank of Ceylon PLC, Hatton National Bank PLC and Sampath Bank PLC supported by the improvement in their interest margins and conservative loan book growths, despite increases in loan loss provisions.  Food, beverage & tobacco sector revenues were supported by the recovery in consumer demand relative to the same period in 2020, and consumer durables and apparel sector profitability was led by the capital gain from the sale of South Asia Textiles by Ambeon Holdings PLC.  Further, transportation sector profits were led by the logistics star, Expolanka Holdings PLC, while the telecommunication sector profits were driven by Dialog Axiata PLC and Sri Lanka Telecom PLC, amid rising demand for data stemming from remote working and learning.

Meanwhile, the decline in diversified financial sector profits was led by LOLC Holdings PLC, due to high base effects in the same period last year as a result of the gain of Rs.42.9 billion recorded from the disposal of 40 percent stake in PRASAC Microfinance in Cambodia. 

Further, the insurance sector earnings declined by higher provisions by life insurance funds amid lower interest rates.