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Sri Lanka’s Nestle, revenues, profits, fall amid consumer crunch

ECONOMYNEXT – Profits at Sri Lanka’s Nestle unit plunged 34 percent to 779 million rupees in the March 2017 quarter as revenues fell for the second quarter in a row, interim accounts showed as the hangover from Keynesian type stimulus and a drought hurt consumer spending.

The firm reported earnings of 14.51 rupees per share. In the six months to June, Nestle Lanka Plc reported earnings of 30.50 rupees per share on total profits of 1.64 million rupees, which were down 33.4 percent.

In the March quarter revenues fell 6.8 percent to 8.59 billion rupees, and cost of sales fell at a slower 2.6 percent to 5.59 billion rupees, shrinking gross profits 13.9 percent to 3.5 billion rupees.

Sri Lanka’s government engaged in a misguided ‘Keynesian stimulus’ in 2015 raising state salaries and ratcheting up subsidies, which were partly financed with printed money, driving bank credit up, running down forex reserves and generating a balance of payments crisis.

The rupee collapsed from 131 to 154 to the US dollar pushing inflation up and the state raised taxes on the ordinary people to pay higher state salaries and subsidies, bringing consumer spending back to earth.

Sri Lanka is also hit by a drought which has pushed up oil imports, which is now no longer financed with printed money but by slowing credit. Global oil prices are also higher.

The central bank is collecting forex reserves amid slower credit and an improving budget gap with private earnings, which would have brought higher returns going to the state spending in the form of higher tax to gross domestic product ratio.

Returns from state spending, where politicians and bureaucrats spend someone else’s money is typically lower than when people spend their own money. (Colombo/Aug11/2017)

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