Sri Lanka’s premier blue chip John Keells Holdings (JKH) last week reported a mixed performance in the first half of 2008/9 financial year.

Whilst its flagship transportation suffered an obvious hit because of the Supreme Court ruling, some of JKH’s other sectors too reported mixed fortunes with some doing well in second quarter with improved profit though reporting lower on a six month basis.

In its interim statement JKH said despite Profit Before Tax for the quarter, and six months, ended 30 September 2008, at Rs. 1.86 billion and Rs. 3.01 billion being 46 per cent and 27 per cent above the PBT of Rs. 1.28 billion and Rs. 2.37 billion in the corresponding periods in the previous year, the Profits Attributable to Equity Holders for the quarter, and six months, ended 30 September 2008 of Rs. 1.01 billion and Rs. 1.85 billion respectively, were marginal decreases of 1.5 per cent and 0.2 per cent over the corresponding periods in the previous year because of the one off tax charge suffered by the group as a result of the Supreme Court Judgement relating to Lanka Marine Services (Private) Limited (LMS).

Revenues at Rs. 10.73 billion and Rs. 21.82 billion in the second quarter and the first half of Financial Year 2008/09, were 11 per cent and 20 per cent above the Rs. 9.67 billion and Rs. 18.14 billion recorded in the corresponding periods in the previous year.

At a Company level, the net profits for the quarter, and six months, ended 30 September 2008 were Rs. 2.52 billion and Rs. 2.87 billion respectively, these being increases of 329 per cent compared to Rs. 589 million and 222 per cent compared to Rs. 891 million respectively, over the corresponding periods in the previous year. This increase was primarily due to the contribution from the John Keells Capital division, arising from the sale of the 20 per cent stake in Associated Motorways (AMW) and increased dividend income.

Transportation was significantly affected by the costs associated with the judgment relating to LMS. The operating update and financial implications are detailed in note 10 to the financial statements.

The PBT for the quarter was Rs. 545 million, a 34 per cent decrease compared to the Rs. 831 million for the corresponding period last year and for the six months, the PBT was Rs. 1.47 billion, a 11 per cent decrease compared to the Rs. 1.65 billion for the same period last year. During the quarter, JKH acquired an additional stake of 4.22 per cent in South Asia Gateway Terminals (SAGT) for Rs. 478 million, increasing our total holding in the company to 37.97 per cent.

Leisure continued to make losses in the face of negative travel advisories on Sri Lanka resulting in lower than expected tourist arrivals. Furthermore, high input costs particularly in respect of electricity also impacted profitability.

Additionally, despite high local inflation, the SL Rupee has held steady against the US Dollar, thereby causing margins to be significantly reduced.

The Loss for the second quarter was Rs. 223 million compared to a loss of Rs. 66 million for the same period last year, while the loss for the first six months was Rs. 581 million compared to a loss of Rs. 418 million in the corresponding period last year. The partial closure of Cinnamon Island, Alidhoo for construction of a breakwater and a weaker than expected off season performance by Chaaya Reef, Ellaidhoo contributed to disappointing earnings, during the quarter, by the Maldivian resorts. All resorts will be fully operational by 1 November 2008 and we expect a better performance during the winter season.

Property recorded a second quarter PBT of Rs. 108 million, which was 21 per cent higher than the PBT of Rs. 89 million recorded in the same period last year. This increase was due to the recognition of the cash receipts from the Monarch apartments that were handed over to owners during the quarter. Construction of the Emperor continues at a satisfactory pace although behind schedule, as mentioned in the last quarterly review. The PBT for the six months ended 30 September 2008 at Rs. 287 million was 57 per cent above the Rs. 184 million recorded in the same period the last year.

Consumer Foods and Retail, despite high inflation and other adverse economic conditions impacting purchasing power and input costs, recorded a PBT of Rs. 74 million for the second quarter, an 89 per cent increase over the Rs. 39 million recorded in the corresponding period in the previous year.

Ceylon Cold Stores and Keells Food Products have continued to improve their performance. Though in challenging times, the Keells Super chain is continuing to expand, with the total number of outlets established as at end of the quarter being 38 with a further 11 outlets identified for completion very shortly. The PBT for the six months ended 30 September 2008 at Rs. 74 million was 40 percent lower than the Rs. 125 million recorded in the same period in 2007/2008.

Financial Services recorded a PBT at Rs. 86 million for the quarter, which was 39 per cent lower when compared to Rs. 141 million for the corresponding period in the previous year. This was mainly due to a decline in the performance of the stock broking arm of the group. The PBT of Rs. 272 million for the six month period was 7 per cent higher than the Rs. 254 million recorded in the same period last year.

Information Technology recorded a loss of Rs. 2 million for the second quarter compared with the profit of Rs. 21 million in the same period last year. For the six month period, the loss was Rs. 18 million compared to the loss of Rs. 5 million recorded in the same period in 2007/2008. The BPO business is making steady progress and we are continuing to identify leads in order to expand the business. We currently have 330 staff in Gurgaon and 370 staff in Colombo.

Others, comprising Plantation Services, Strategic Investments and Corporate Centre recorded PBTs of Rs. 1.28 billion for the second quarter and Rs. 1.51 billion for the six month period, being 470 per cent and 161 per cent above the Rs. 224 million and Rs. 577 million recorded in the previous year. This was largely due to the contribution from John Keells Capital as mentioned previously and a PBT of Rs. 122 million from Plantation Services. In September, JKH offered to re-purchase a maximum of 25,500,000 of its Ordinary Shares at a price of Rs. 90 per share on a pro rata basis of 1 share for every 25 shares held. The repurchase will result in a maximum outflow of Rs. 2.3 billion. The Board also resolved to pay an interim dividend of Rs. 1 per Ordinary Share for the year ending 31 March 2009, payable on the pre repurchase capital in issue.

“The business environment in Sri Lanka continues to pose significant challenges. The potential trickle down effect of the global financial crisis will add to this. Notwithstanding the above, we believe there are opportunities in these times to take advantage of the significant re-rating of valuations, given the strength of the Group’s balance sheet,” JKH Chairman Susantha Ratnayake said.

Highlights

• Group revenue for the six months ended 30 September 2008 increased by 20 per cent to Rs. 21.82 billion.
  
• Profit before tax for the six months ended 30 September 2008 increased by 27 per cent to Rs. 3.01 billion.
  
• Profit attributable to equity holders of JKH for the first half of FY 2008-09 decreased by a marginal 0.2% to Rs. 1.85 billion because of the one off tax charge as a result of the Supreme Court judgement relating to Lanka Marine Services (Private) Limited (LMS).
  
• At a Company level, JKH Limited made a net profit of Rs.2.87 billion for the 6 months ended 30 September 2008.
  
• An interim dividend of Rs. 1.00 per share for the financial year ending 31 March 2009 was declared.