‘Narrow contraction indicates gradual recovery’

Sep 2023 earnings saw a marginal decline for the fourth consecutive quarter, experiencing a 3.8%YoY drop to LKR 139.5Bn, while QoQ earnings improved by 50.8%QoQ, reflecting a recovery in most business segments. This was mentioned in a quarterly results review released by First Capital Research for July-September 2023.

The review pointed out that the decline, however, could be be primarily attributed to the following factors:

1. Capital Goods Sector (-49.1%YoY): Driven by high finance and interest expenses, which affected overall profitability.

2. Transportation Sector (-116.8%YoY): Witnessed a substantial decline in earnings, primarily caused by a steep drop in freight rates below pre-pandemic levels.

3. Materials (-53.1%YoY): Slow recovery in the manufacturing segment and lower demand caused headwinds to earnings.

“These sector-specific issues collectively contributed to the overall quarterly earnings decline,” it said.

“Conversely, the decline was mostly offset by notable positive contributors during the quarter as follows.” it said.

1. Diversified Financials sector (+179.4%YoY): driven by declining interest rate environment following the record high rates recorded last year same period.

2. Banking sector (+127.2%YoY): overall sector demonstrated signs of recovery amidst reduced impairment costs

3. Food & Staples Retailing sector (+45.7%YoY): Decline in inflation and improved consumer buying patterns contributed to the sector’s profitability