September quarter earnings dragged by F&B, telecoms and materials sectors

September quarter earnings in listed firms fell by 10 per cent year-on-year (YOY) to Rs. 54.3 billion mainly due to slow performances in food, beverage and tobacco (F&B), telecommunication and materials sectors which offset the encouraging momentum by banks and insurance sectors.

F&B and telecommunication and materials sectors saw weakened earnings mainly owing to the lower consumer spending stemming from subdued economic growth, analysts said.

Profits declined in Carsons Cumberbatch PLC and in Bukit Darah PLC due to a loss of Rs.943 million as a result of change in fair value of financial assets, deferred tax of Rs. 442 million and Rs. 821 million foreign exchange loss. Ceylon Cold Stores (CCS) saw a drop due to a decline in volumes as a result of the sugar tax which caused the 31 per cent YoY decline in food, beverage and tobacco sector earnings. The plantations sector which is also part of the F&B also did pretty badly. For an example Watawala Plantations PLC was down 11 per cent during the last quarter. Lanka Milk Foods was down a massive 89 per cent. “All in all the FMCG sector was down which impacted the 3Q earnings,” an analyst said. He said that despite certain firms such as Nestle’s PLC increasing their products’ prices, there was a volume drop in all firms in this sector. Tobacco sector was down 7 per cent.

Amidst the heavy depreciation in the rupee, Dialog PLC recorded a foreign exchange loss which led to a 54 per cent YoY decline in earnings leading to a 36 per cent YoY dip in telecommunication sector earnings. Telcos (SLT) and Dialog’s core business did well. While SLT also had a Rs. 500 million foreign exchange loss, Dialog’s foreign exchange loss was higher owing to Dialog’s foreign loans from its holding company, analysts said. A dip of 68 per cent YoY in material sector earnings came from a 90 per cent YoY dip in earnings of Tokyo Cement PLC due to the slowdown in economic activities. A second analyst added that the construction sector was contfacting during the last quarter. “The rupee deprecation affected this spectator badly," he said.

Banking and insurance sector earnings continued to grow during the last quarter. Banking sector earnings posted a 14 per cent YoY growth to Rs. 17.7 billion while continuing to be the largest contributor to overall earnings. Commercial Bank, HNB and Sampath being the largest banks in asset base of this sector (which is 40 per cent of the total market) contributed 72 per cent to total banking sector earnings.

Improved earnings during the quarter in this sector saw higher interest rates prevailing in the market thus improving margins and spread which negated the effect of increase in impairment provisioning under accounting standard IFRS 9. Two-fold growth in the insurance sector earnings was owing to phenomenal growth in earnings of Union Assurance PLC (Rs. 1.6 billion) and Asian Alliance Insurance PLC (Rs. 2.3 billion) due to the reversal in deferred tax assets in life insurance business. This deferred tax assets reversal is a one-off event.