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Listed company earnings to show hit in March quarter 

01 Apr 2022

 
  • Companies to feel the impact of energy, power crises
  • Manufacturing businesses set to show biggest impact 
  BY Shenal Fernando  Doom and gloom near-term predictions for the Colombo Stock Exchange (CSE) as experts forecast a quarter-on-quarter (QoQ) decrease in profits for most listed companies during the fourth quarter of financial year (FY) 2021, due to the fuel shortages and power outages which have plagued the country during the current financial quarter.  Speaking to The Morning Business on Wednesday (30 March), NP Capital Group Chairman and businessman Nimal Perera and several sources from the broker community expressed their dismay over the prevailing conditions in the country and claimed that all listed companies will be affected by this energy crunch in the country, because on the one hand, productivity will affected by travel restrictions created by the fuel shortage and on the other hand, the companies will be unable to operate at full capacity due to the inability to source their required energy. Perera noted: “Most companies are heavily reliant on energy whether its fuel or electricity. Particularly, in the tile manufacturing sector, over 35% of their cost is for energy which is gas or diesel. If they don’t get the required quantity of energy for their manufacturing process, they will be badly affected.” He further stated that manufacturing companies have a practice of switching energy sources based on price levels. Therefore, factories are built in such a way to utilise either gas or diesel based on affordability. However, since both energy sources are currently in short supply in the country, he questioned how the Government expects companies to function amidst the current power outages.  Perera and sources from the broker community agreed that almost all companies will observe a decrease in financial performance during the current financial quarter despite the increase in turnover following the imposition of import restrictions, because increasing energy costs and lack of adequate supply of energy to companies will impact their bottom line.  They further disclosed to The Morning Business that while the primary impact of the energy crunch in the country will be on manufacturing companies, the banking sector will be impacted heavily if Sri Lanka pursues debt restructuring due to impairments.  Perera further stated that he can see no silver lining in the current crisis unfolding in the market and doesn’t expect the Government to intervene to help out companies because their immediate priority will be the general public, who are also suffering. Perera noted: “People are getting scared because of these 10-12 hour power cuts. We used to have power cuts in the past as well, because we have never had 100% sufficient power generation throughout the year due to droughts. We have drought cycles, where every three to four years we face similar power cuts, but previously, in such situations, we would obtain the services of foreign power suppliers who would bring the floating power stations to our ports and supply them to the national grid. Thereby we used to limit power cuts to around two hours per day. However, due to this current economic crisis we don’t have US dollars to buy electricity from outside suppliers.”  He further claimed that the collapse of the CSE observed over the past few weeks is due to the fact that “traders are scared and are trying to sell and recover what they can considering the way the rupee is depreciating. The rupee has already depreciated by over 40% due to the blunders of the Central Bank of Sri Lanka Governor. He promised that he will not devalue the rupee, but within a week from making this statement he floated the exchange rate and the rupee crashed. People are now panicking because they don’t trust this Government which is unable to keep its promises”.

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