JKH first half pre-tax profit up 16% to Rs. 8.75 b

John Keells Holdings Plc has reported a Group profit before tax (PBT) of Rs. 5.17 billion in the second quarter of the financial year 2016/17, up by 14% from a year earlier. The cumulative PBT for the first half was Rs. 8.75 billion, up by 16%.

Following are excerpts from JKH Chairman Susantha Ratnayake’s review accompanying interim results.

The Group profit before tax (PBT) at Rs. 5.17 billion in the second quarter of the financial year 2016/17 is an increase of 14% over the Rs. 4.52 billion recorded in the previous financial year. 

The cumulative PBT for the first half of the financial year 2016/17 at Rs.8.75 billion is an increase of 16% over the PBT of Rs. 7.57 billion recorded in the same period of the previous financial year.

The profit attributable to equity holders for the second quarter at Rs. 3.77 billion reflects an increase of 8% over the previous year, while the first half performance at Rs. 6.14 billion reflects an increase of 9% over the corresponding period of the previous financial year.

The revenue at Rs. 25.76 billion for the quarter under review is a 13% increase over the Rs. 22.76 billion recorded in the previous financial year. The cumulative revenue for the first half of the financial year 2016/17 at Rs. 48.49 billion is an increase of 11% over the revenue of Rs. 43.86 billion recorded in the corresponding period of the previous financial year.

The company PBT for the second quarter of 2016/17 at Rs. 1.74 billion and for the first half of the financial year 2016/17 at Rs. 4.59 billion is a decrease of 65% and 44% respectively over the corresponding periods of 2015/16, which included a capital gain of Rs. 3.10 billion arising from the share repurchase of Union Assurance Plc.

Transportation

The Transportation industry group PBT of Rs. 668 million in the second quarter of 2016/17 is a decrease of 18% over the second quarter of the previous financial year [2015/16 Q2: Rs.814 million]. The decline in profitability is mainly attributable to the lower contribution from the Group’s Bunkering business and to a lesser extent the Ports business. 

The Port of Colombo witnessed a year-on-year growth in excess of 8%, which underscores the overall potential and augurs well for capacity-led growth. While South Asia Gateway Terminals (SAGT) recorded double-digit growth in throughput over the corresponding period of the previous year, a decline in the volume of domestic TEUs impacted profitability.

The Bunkering business maintained its market leadership position during the quarter under review although profitability was impacted due to supply disruptions caused by shipping delays. 

The Logistics business recorded a strong performance due to an increase in throughput in its warehouse facilities. 

The Government of Sri Lanka called for Expressions of Interest to develop and operate the East Container Terminal where JKH, together with its consortium partners, APM Terminals and CONCOR (Container Corporation of India), expressed interest in September 2016.

Leisure

The Leisure industry group PBT of Rs. 1.36 billion in the second quarter of 2016/17 is an increase of 54% over the second quarter of the previous financial year [2015/16 Q2: Rs.885 million]. The City Hotels sector and Sri Lanka Resorts segment witnessed an increase in occupancy and average room rates across all properties compared to the corresponding period of the previous financial year. 

While the profitability of the City Hotels sector for the quarter under review included Cinnamon Lakeside, which was partially closed for refurbishment during the corresponding quarter of the previous financial year, the Sri Lanka Resorts segment was aided by the 12% increase in tourist arrivals compared to the corresponding period of the previous financial year and successful yield management across its properties. The performance of the Maldivian Resorts segment was impacted by the slower than expected recovery of the overall market from the effects of political events in late 2015. However, occupancies at our hotels remained above the industry average during the quarter under review.

Property

The Property industry group PBT of Rs. 52 million in the second quarter of 2016/17 is a decrease of 81% over the second quarter of the previous financial year [2015/16 Q2: Rs. 273 million]. The corresponding quarter of the previous year included revenue from the ‘7th Sense’ on Gregory’s Road residential development project which has since been completed. 

As planned, the second residential tower of the ‘Cinnamon Life’ project, comprising 196 apartment units, was launched as ‘The Suites at Cinnamon Life’ during the quarter under review. The presales of both residential towers of the project continue to be encouraging.

Consumer Foods and Retail

The Consumer Foods and Retail industry group PBT of Rs. 1.60 billion in the second quarter of 2016/17 is an increase of 55% over the second quarter of the previous financial year [2015/16 Q2: Rs. 1.04 billion], with both sectors contributing to the improved performance. 

Profitability of the Frozen Confectionery and Beverage businesses were driven by double-digit growth in volumes and improved margins. In order to cater to the envisaged demand and address existing capacity constraints, investments in both a new ice cream plant and bottling line at a cost of Rs. 3.20 billion and Rs. 2.50 billion respectively are due to commence shortly. 

The Retail sector continued its strong performance with steady growth in average basket values and customer footfall contributing positively towards a year-on-year growth in same store sales coupled with a notable incremental contribution from the newly-opened outlets. Nine new outlets have been opened during the period under review and a further 11 outlets are due to be opened during the remainder of the financial year. 

Financial Services 

The Financial Services Industry group PBT of Rs. 244 million in the second quarter of 2016/17 is an increase of 18% over the second quarter of the previous financial year [2015/16 Q2: Rs. 207 million]. The increase in profitability is mainly on account of Nations Trust Bank, which recorded encouraging loan growth. While the Life Insurance business recorded an encouraging growth in gross written premiums, profitability was lower when compared to the previous financial year’s corresponding quarter which included the benefit of higher interest income received from the sales proceeds on the disposal of a 78% stake of the General Insurance business in January 2015.

Information Technology

The Information Technology industry group PBT of Rs. 162 million in the second quarter of 2016/17 is significantly higher than that recorded in the second quarter of the previous financial year [2015/16 Q2: Rs. 23 million]. The Office Automation business, which is the largest contributor to profits, recorded a substantial increase in profitability due to double-digit growth in volumes across its three main product segments.

Other, Including 

Plantation Services

Other, comprising the Holding Company and other investments, and the Plantation Services sector recorded a PBT of Rs. 1.08 billion in the second quarter of 2016/17, which is a decrease of 16% over the second quarter of the previous financial year [2015/16 Q2: Rs. 1.28 billion]. 

The decline is mainly on account of lower exchange gains recorded at the company on its foreign currency denominated cash holdings compared to the corresponding quarter of the previous financial year. 

The Plantations Services sector recorded an improvement in profitability due to improved tea prices and other operational efficiencies.