JKH reports healthy profit growth in 3Q

John Keells Holdings (JKH) yesterday reported healthy profit growth for the third quarter and first nine months.
It said the Group profit before tax (PBT) at Rs. 5.42 billion in the third quarter of the financial year 2014/15 is an increase of 27% over the corresponding Rs. 4.27 billion recorded in the previous financial year.
The PBT for the first nine months of the financial year 2014/15 at Rs. 12.16 billion is an increase of 33% over the Rs. 9.11 billion recorded in the corresponding period of the last financial year.
The profit attributable to equity holders for the third quarter at Rs. 4.33 billion reflects an increase of 28% over the corresponding Rs. 3.39 billion in the previous year, while the performance for the first nine months at Rs. 9.13 billion reflects an increase of 30% over the corresponding Rs. 7.04 billion recorded in the last financial year.
The revenue at Rs.25.47 billion in the third quarter of the financial year 2014/15 is an increase of 9% over the corresponding Rs.23.47 billion recorded in the previous financial year. The revenue for the first nine months of the financial year 2014/15 at Rs.68.92 billion is an increase of 7% over the Rs.64.21 billion recorded in the corresponding period of the last financial year.
The company PBT for the third quarter of the financial year 2014/15 at Rs.2.33 billion is an increase of 8% over the corresponding Rs.2.17 billion recorded in the previous financial year, while the PBT for the first nine months of the financial year at Rs.6.39 billion is an increase of 38% over the corresponding Rs.4.62 billion recorded in the financial year 2013/14.
Following is the brief review of sectoral performance by JKH Chairman Susantha Ratnayake.
Transportation: The Transportation industry group PBT of Rs. 727 million in the third quarter of 2014/15 is an increase of 35% over the third quarter of the previous financial year [2013/14 Q3: Rs. 538 million]. The increase in profitability is mainly attributable to the performance of South Asia Gateway Terminals, where overall volumes and domestic throughput recorded an increase over the corresponding period of the last financial year.

The contraction in margins arising out of an increasingly competitive operating environment negatively impacted the performance of the Bunkering business. The performance of the Logistics business was in line with expectations as the growth in the active customer base resulted in an increase in both profitability and market share.
Leisure: The Leisure industry group PBT of Rs. 1.40 billion in the third quarter of 2014/15 is a decrease of 9% over the third quarter of the previous financial year [2013/14 Q3: Rs.1.54 billion]. Sri Lanka recorded a total of 1.53 million tourist arrivals for the calendar year 2014, representing a year-on-year growth of 19.8%. However, the economic volatility in Russia and the continuing unrest in Ukraine had a significant negative impact on the occupancies of both the Maldivian and Sri Lankan Resorts in the peak booking periods of November and December. The performance of the Sri Lankan Resorts was further impacted by the timing of the Presidential Election which was held in January 2015. During the quarter under review, a Property Management System aimed at enhancing the overall guest experience under the “Cinnamon” brand was introduced across the City Hotel sector and will be rolled out across the Sri Lankan and Maldivian Resort properties in the months to follow. We remain positive that such initiatives will expand and strengthen our brand presence and help differentiate in a market which now has a variety of product offerings.
The Sri Lankan Resorts sector, notwithstanding the above, recorded an increase in profitability, aided by the growth in tourist arrivals from key external markets such as China, United Kingdom and the Middle East, as well as a healthy contribution from the local tourist segment. Successful yield management and efficiency improvements further enhanced the sector bottom-line. In the calendar year 2014, tourist arrivals from China to Sri Lanka recorded a significant growth of 136% (from 54,288 to 128,166) over the previous year. This growth momentum will be further augmented throughout 2015 by the improved connectivity following the introduction of direct flights by Air China and continuation of the weekly charter, in collaboration with our destination management business.
Property: The Property industry group PBT of Rs.376 million in the third quarter of 2014/15 is an increase of 8% over the third quarter of the previous financial year [2013/14 Q3: Rs.347 million]. The growth in PBT is mainly on account of higher revenue recognition at the ‘OnThree20’ residential development project which reached completion. The handing over of apartments commenced in the quarter under review. The ‘7th Sense’ on Gregory’s Road residential development is on schedule for completion by mid-2015.
The Honourable Prime Minister announced in Parliament yesterday that the agreements entered into with Waterfront Properties Ltd. under the Strategic Development Projects Act will be amended to restrict the ability to rent space for gaming activities. Your company will engage with the Government in this regard. Whilst the proposed amendment will constrain the ability to command premium rentals on this component of the project, the multi-faceted nature of this development gives your Board the confidence that the project will still be viable given its diverse portfolio of revenue streams and iconic design which, we believe, will transform the landscape of Colombo.
As such, the project will continue as planned. The overall brand architecture for the ‘Waterfront Project’ has now been finalised with the project being branded as ‘Cinnamon Life’ and demand for both the residential and commercial spaces continues to remain encouraging.
Consumer Foods and Retail: The Consumer Foods and Retail industry group PBT of Rs. 583 million in the third quarter of 2014/15 is an increase of 156% over the third quarter of the previous financial year [2013/14 Q3: Rs. 228 million], with both sectors contributing to the improved performance.
This is a reflection of the strategies implemented during the past several months which have yielded the desired results in terms of gains in market share in the targeted market segments and enhanced operational efficiencies. Ceylon Cold Stores witnessed an increase in profitability, aided by its evolving product mix amidst improving consumer sentiment and changing consumption patterns. This performance is despite the adverse weather conditions which resulted in severe floods in many areas of the country during the quarter under review, which curtailed volume growth in both the Frozen Confectionery and Beverage businesses of the Group. Keells Food Products recorded a significant increase in both volumes and profitability compared to the corresponding period of the last financial year. The Retail sector continued its strong performance with an increase in both footfall and average basket values contributing positively towards a year-on-year growth in same store sales for the period under review.
Financial Services: The Financial Services industry group PBT of Rs. 1.10 billion in the third quarter of 2014/15 is an increase of 8% over the third quarter of the previous financial year [2013/14 Q3: Rs.1.01 billion]. Union Assurance was the primary contributor to the improved performance. The segregation of the Life and General businesses was concluded on 1 January 2015 subsequent to obtaining the requisite approval from shareholders and in line with regulatory guidelines. The segregation of the insurance businesses was followed by the successful sale of a 78% stake of the General Insurance business to Fairfax Asia Ltd. This was completed on 2 January. During the quarter under review, Nations Trust Bank benefitted from the encouraging growth in credit volumes and the continued emphasis placed on cost management. The performance of the stock broking arm of the Group was in line with expectations as profitability increased on the back of improved market activity.
Information Technology: The Information Technology industry group PBT of Rs. 120 million in the third quarter of 2014/15 is an increase of 38% over the third quarter of the previous financial year [2013/14 Q3: Rs. 87 million]. The Office Automation business witnessed an increase in profitability due to its evolving sales mix and better working capital management. The Business Process Outsourcing operations of the Group was positively impacted by the growth witnessed across a few large clients, coupled with added focus on operational cost management.
Other, Including Plantation Services: Other, Including Plantation Services and the Corporate Centre recorded a PBT of Rs. 1.11 billion in the third quarter of 2014/15, this being an increase of 116% over the third quarter of the previous financial year [2013/14 Q3: Rs.517 million]. The increased PBT was mainly a result of the capital gain of Rs. 593 million on the divestment of the Group’s stake in Access Engineering PLC held under John Keells Capital. Political unrest and economic volatility witnessed across some of the key markets for Sri Lanka’s tea exports, combined with adverse weather conditions and declining oil prices, negatively impacted the profitability of the Plantations Services sector.