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Premier blue chip John Keells Holdings (JKH) has ended what could be described as its most challenging year with positive top line growth but sharp decline in profit on account of the double blow of the Easter Sunday terror attacks and the COVID-19 pandemic, both within the 2019/20 Financial Year
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JKH Chairman Krishan Balendra |
(FY).
Group revenue rose by 3% to Rs. 140 billion for the one-year period ended on 30 March while recurring group EBITDA decreased by 14% to Rs. 22.06 billion. The Financial Year also marked the 150th anniversary of JKH.
In the company’s 2019/20 Annual Report released yesterday, JKH Chairman Krishan Balendra said the decline in the recurring EBITDA was mainly on account of the downturn in the group’s Sri Lankan Leisure business due to the Easter Sunday terror attacks, decrease in interest income on account of lower cash and cash equivalents at the holding company due to the planned equity infusions to fund the ‘Cinnamon Life’ project, and lower exchange gains on the company’s foreign currency denominated cash holding as against the previous year.
The recurring group Profit Before Tax (PBT) decreased by 28% to Rs. 12.28 billion while the recurring profit attributable to equity holders of the parent decreased by 26% to Rs. 9.33 billion in FY20.
The Consumer Foods, Retail and Property industry groups recorded a growth in profits, both during the year and fourth quarter.
“While we have been in the midst of unprecedented circumstances due to the ongoing COVID-19 pandemic, we have ensured that our commitment to financial reporting transparency and timely disclosure is maintained despite the restricted operating environment which prevailed in the country until 11 May,” JKH Chief Balendra said.
“This financial year has been one of the most challenging ones in the recent past due to the events of Easter Sunday 2019 and the outbreak of a global pandemic. Whilst we are confident that our investments, particularly in the recent past, have positioned us well for the next phase of growth, and, as a group, our future looks exciting, we remain confident that, as always, we have the strength and resolve to keep moving forward through this period of unprecedented challenges, as we have done, ‘enduring the times’, over the past 150 years,” Balendra told shareholders.
From a macroeconomic perspective, he said heightened domestic vulnerabilities, such as lower earnings from tourism on the back of the Easter Sunday terror attacks and moderation of worker remittances, exerted pressure on the economy.
As a result, consumer discretionary spending remained subdued in the first three quarters of the financial year due to the lacklustre performance of the economy and dampened consumer and investor confidence.
“However, discretionary spending witnessed a rebound from the fourth quarter of the year under review, where the performance of our consumer businesses showed strong momentum while bookings in the Leisure business had recovered close to the levels seen prior to the Easter Sunday attacks,” he said.
“Unfortunately, this recovery was hampered by the outbreak of the COVID-19 pandemic and the resultant disruptions arising from the curfew imposed across the country, including the closure of the international airport for arrivals from March onwards. However, with the resumption of activity across the country post the easing of curfew restrictions, we are seeing early signs of an encouraging recovery of consumer activity, which should be positive for our consumer-focused businesses, such as Consumer Foods, Retail, Logistics and Insurance,” JKH Chairman added.
The group’s Bunkering business recorded a strong growth in profits, driven by improved margins. South Asia Gateway Terminal (SAGT), the group’s Ports and Shipping business, became liable for Corporate Income Tax during the year under review, impacting profitability.
Consumer Foods witnessed growth on account of an improved performance in the Beverages and Frozen Confectionery businesses, driven by growth in volumes and expansion of margins due to a better sales mix. The Supermarket business witnessed a strong rebound in profits as it continued to gain market share, supported by a notable contribution from new outlets and strong growth in customer footfall.
JKH said in the aftermath of the Easter Sunday terror attacks, both the City Hotels sector and the Sri Lankan Resorts segment recorded a decline in occupancy and average room rates. “However, occupancy at our hotels recovered faster than expected with forward bookings maintaining an upward trend where occupancy in the peak season was in line with the previous year, albeit at a moderately lower room rate,” Chairman Balendra said.
Whilst the tourist arrivals to the country had recovered close to pre-incident levels, developments surrounding the global spread of COVID-19 derailed this momentum, he added.
In FY20, the foundation work of the Tri-Zen residential development project was completed ahead of schedule. The superstructure work is currently in progress. Tri-Zen recorded encouraging sales, with 262 apartments sold as at 31 March, outperforming the market. Additionally, the finishing works of the Cinnamon Life residential and office towers are nearing completion whilst the interior works of the hotel and retail space are on-going.
Some of the highlights of sectoral performances during the year are as follows.
The Transportation industry group recurring EBITDA of Rs. 4.42 billion in 2019/20 is a marginal decrease of 3% over the recurring EBITDA of the previous financial year (2018/19: Rs. 4.56 billion).
The Consumer Foods industry group recurring EBITDA of Rs. 3.37 billion in 2019/20 is an increase of 16% over the recurring EBITDA of the previous financial year (2018/19: Rs. 2.89 billion). The increase in profitability is mainly on account of the performance of the Beverage business and the Impulse segment of the Frozen Confectionery business.
The Retail industry group recurring EBITDA of Rs. 5.11 billion in 2019/20 is an increase of 77% over the recurring EBITDA of the previous financial year (2018/19: Rs. 2.89 billion).
The Supermarket business recorded a recurring EBITDA of Rs. 4.27 billion in 2019/20, an increase of 80% against the previous financial year (2018/19: Rs. 2.37 billion).
The Leisure industry group recurring EBITDA of Rs. 2.34 billion in 2019/20 is a decrease of 56% over the recurring EBITDA of the previous financial year (2018/19: Rs. 5.30 billion). The decline in profitability is on account of the negative impacts to the Sri Lankan Leisure business as a result of the Easter Sunday terror attacks in April 2019 and the resultant adverse travel advisories from key source markets in the immediate aftermath of the incident, in addition to the partial closure of Cinnamon Dhonveli Maldives for refurbishment and start-up costs related to Cinnamon Hakuraa Huraa Maldives and their new resort, Cinnamon Velifushi Maldives. The decision by the Government of Maldives to suspend entry to tourists from certain key source markets in the fourth quarter of the year under review, in the wake of the COVID-19 pandemic, also impacted revenue generation.
The Property industry group recurring EBITDA of Rs. 568 million in 2019/20 is an increase of 76% over the recurring EBITDA of the previous financial year (2018/19: Rs. 323 million). The increase in profitability is on account of the commencement of revenue recognition of the Tri-Zen residential development project.
The Financial Services industry group recurring EBITDA of Rs. 2.99 billion in 2019/20 is a decrease of 11% over the recurring EBITDA of the previous financial year (2018/19: Rs. 3.36 billion).
‘Other’, comprising of the holding company and other investments, the Information Technology and Plantation Services sectors, together, recorded a recurring EBITDA of Rs. 3.26 billion in 2019/20, a decrease of 48% over the recurring EBITDA of the previous financial year (2018/19: Rs. 6.25 billion). The decrease in profitability is mainly attributable to the decrease in interest income on account of lower cash and cash equivalents at the holding company due to the planned equity infusions to fund the Cinnamon Life project, and lower exchange gains on the company’s foreign currency denominated cash holding as against the previous year.
