Despite challenges JKH posts Rs. 3.2 b net profit in 9 months

Despite challenges Sri Lanka’s premier blue chip John Keells Holdings (JKH) has posted a Rs. 3.2 billion consolidated net profit attributable to its ordinary shareholders in the first nine months of 2007/8 financial year, up by 64% over the corresponding period of last year.

“The group profits attributable to equity holders for the quarter, and nine months, ended 31 December 2007, were Rs. 1.36 billion and Rs. 3.20 billion respectively, being growths of 99 and 64% over the corresponding periods in the previous year,” JKH said.

The growths in Earnings Per Share (EPS) for the quarter, and nine months, ended 31 December 2007, were 79% and 48% respectively, over the previous year.

The group recorded revenues of Rs. 11.07 billion and Rs. 29.20 billion in the third quarter, and for the nine months, ended 31 December 2007, representing increases of 37 and 23% respectively.

At a company level, Profit After Tax (PAT) for the quarter, and nine months, ended 31 December 2007, were Rs. 813 million and Rs. 1.70 billion respectively, these being, increases of 468 and 73% respectively, over the corresponding periods in the previous year.

The Transportation industry group continued to be the largest contributor to group profits with Profit Before Tax (PBT) increasing by 12% for the nine months ended 31 December as compared to the same period in the previous year. However, the third quarter PBT showed a decrease of 5% over the same quarter in 2006 with the start up costs of the supply chain management business being the main reason.

The Leisure industry group’s PBT of Rs. 88 million during the third quarter though 35% below that in 2006, was a significant improvement on the Rs. 66 million loss recorded in the previous quarter.

“We are hopeful that the year to date loss of Rs. 330 million can be substantially improved given that the Maldives will be fully operational in the peak winter season following the refurbishment, and rebranding, of Ellaidhoo and Dhonveli and signs of better tourist arrivals into Sri Lanka,” JKH Chairman Susantha Ratnayake said.

“It is our hope that the violence that has been experienced in the first two weeks of 2008 will not adversely impact the present tourists’ confidence,” he added.

JKH chief also welcomed the implementation of minimum room rates by Colombo’s leading hotels under the aegis of the Ministry of Tourism. “If sense prevails, there is no doubt that all the stakeholders will stand to benefit as a result of this move. Though it is early days, going by the evidence of the first two weeks of January 2008, the higher room rates could significantly boost the profitability of all the city hotels,” he added.

The conditional voluntary offer, announced in October 2007, by John Keells Hotels PLC to acquire 100% of the issued shares of the three listed hotel companies operated under the Confifi Group did not materialise as the conditions of the offer were not met by the initial offer closure date of 20 November 2007.

The Property industry group’s PBT for the quarter, and nine months ended, 31 December 2007, at Rs. 207 million and Rs. 391 million respectively, were 264% and 30% higher than the PBTs recorded in the corresponding periods in the previous year.

A part of the revenue arising from the final instalment of “The Monarch” has been recognised, in the quarter, in keeping with the recognition principles and the remaining revenue from the project is expected to be fully recognised by the financial year end. “The Emperor” apartment development is progressing as per schedule.

The Consumer Foods & Retail industry group’s PBT for the quarter, and nine months, ended 31 December 2007 registered decreases of 4% and 21% respectively when compared to the corresponding periods in the previous year.

According to Ratnayake the installation of the new bottling line took longer than expected and this coupled with the increasing price of inputs and lower disposable incomes have had a negative impact on the production and sales volumes of our carbonated soft drinks.

Keells Food Products completed a successful trial of the manufacture of processed foods, under contract, in India.

Meanwhile, JKH’s Retail segment operating under the “Keells Super” brand is continuing its aggressive growth in Sri Lanka and 6 new outlets were opened during the third quarter, the Chairman said.

The Financial Services industry group’s PBT during the third quarter at Rs. 123 million was 21% higher than that of the previous year on account of good performance from our associates Nations Trust Bank PLC (NTB) and Union Assurance PLC (UAL). The NTB 1:3 Rights Issue with warrants attached, announced in December 2007, was approved by the Shareholders at an EGM on 17 January 2008.

The stock broking operations have been hampered by the weaker market sentiment prevailing during most of the year and, in particular, the third quarter and this has resulted in profitability below that recorded in the previous year.

The Information Technology industry group posted a PBT of Rs. 6 million in the third quarter which was 61% lower than the same period in the previous year. “Our software business continues to perform well. The Business Process Outsourcing (BPO) business is also progressing well having acquired new customers. Whilst we have now established a strong capability in this area, what we look forward to is the conversion of some exciting leads that we currently have, into firm sales contracts in absorbing the fixed costs incurred in building such a capability,” the Chairman said.

Others, comprising Plantation Services, Strategic Investments and Corporate Centre recorded a third quarter PBT of Rs. 446 million as against a loss of Rs. 192 million during the same period last year.

Plantation Services, in particular, more than doubled its PBT both in the quarter, and the nine months, ended 31 December 2007 to Rs 120 million and Rs 290 million respectively, with Tea Smallholder Factories PLC leading the way.

JKH subscribed Rs. 2.85 billion to the rights issue of John Keells Hotels PLC in the second quarter of 2007-08 but still generated significant income through its treasury operations following a strengthening of the group balance sheet with the proceeds of the JKH rights issue.

Considering that the PAT of the Company, for the year ending 31 March 2008, is projected to be significantly higher than the previous year, because of higher dividend income, interest income arising from a high interest rate environment and various cost savings measures, JKH Board recently resolved to pay a Special Dividend of Rs. 2 per share.

“Whilst we acknowledge that we are confronted with external factors outside our control, we continue to rigorously review our role in society under a stakeholder model and this has been recognised with JKH being awarded the “Best Corporate Citizen 2007” by the Ceylon Chamber of Commerce,” Ratnayake said. JKH associate company UAL won the Gold award for Best Annual Report both by the Institute of Chartered Accountants of Sri Lanka (ICASL) as well as the South Asian Federation of Accountants (SAFA).

The JKH Annual report also won the Gold Award for Good Corporate Governance Disclosure both by the ICASL and SAFA.

“The increase in hostilities in the North and East of Sri Lanka and various incidents of violence in other parts of the country have impacted business sentiment in general and our leisure industry group in particular. High inflation and the resultant high interest rates are sources of great concern and we are very aware of the need to distinguish between fixed and variable costs in formulating strategies, policies and action plans in mitigating the aforesaid risks,” Ratnayake said.

“As I stated in my last message, there are always opportunities in the challenges we face and we will aggressively pursue new investments both in Sri Lanka as well as the region,” JKH Chairman added.