Earnings of listed companies in the September quarter have declined by 9.6% to Rs.45.8 billion largely owing to a weaker performance by Insurance, Consumer Services, Capital goods and Beverage and Tobacco sectors.

Analysing interim financials reported by 264 companies, First Capital Research revealed that September quarter earnings dipped by 9.6%YoY to LKR 45.8Bn primarily due to sluggish performance in Insurance (-48%YoY), Consumer Services (-495%YoY), Capital Goods (-39%YoY) and Food, Beverage and Tobacco (-12%YoY) sectors.

“However, earnings upside was witnessed in Material (108%YoY), Consumer, Durable & Apparel (+13600%YoY) and Energy (646%YoY) sectors negating the negative performance in the above-mentioned sectors,” First Capital said.

Lackluster performance in Insurance, Consumer Services and Food, Beverage and Tobacco was mainly owing to the lower consumer spending stemmed from subdued economic activities.

Insurance sector earnings recorded a substantial drop mainly due to earnings decline in AAIC (-85%YoY) from a deferred tax adjustment and UAL (-91%YoY) due to the increased transfer of insurance contract liabilities to the life fund.

Consumer Services sector earnings declined and posted a loss of LKR 1.67Bn relatively to a profit of LKR 0.4Bn in Sep 2018 as a result of drop in tourist arrival subsequent to the Easter Sunday attacks.

Food, Beverage and Tobacco sector earnings dipped by 12%YoY to LKR 7.8Bn led by BIL, MELS and tea plantation companies. BIL posted a loss of LKR 1.19Bn compare to loss of LKR 0.6Bn due to higher finance and admin cost.

MELS earnings dropped by 58% due to hefty taxes while the cost of sales also surged against the last year same period.

Profit dip witnessed across the tea plantation counters due to weaker tea prices further dragged down the Food Beverage and Tobacco sector earnings.

However, First Capital Research noted that the largest positive effect on earnings came from the Material Consumer, Durable & Apparel and Energy sectors.

Material sector saw a profit growth of 108%YoY to LKR 1.8Bn driven by TKYO (573%YoY).

TKYO profits were boosted due to operational efficiencies and increase in maximum retail price. Consumer, Durable & Apparel sector saw impressive earnings growth of 13600%YoY with TJL, MGT and GREG posting earnings growth of 84%, 83% and 184% respectively.

TJL and MGT earnings growth was supported by efficiency improvements, strong order book and stable cotton prices. Energy sector posted a strong earnings growth of 646%YoY in profits as a result of turnaround in LGL which posted earnings of LKR 17.0Mn relative to LKR 305.0Mn loss posted in Sep 2018 and improved performance in LIOC due to higher focus on bunkering, lubricant operations and export market.