JKH reports growth in top line and bottom line for 3Q

Political stability and policy continuity is essential for economic and business growth 

– JKH Chairman Krishan Balendra

Premier blue chip John Keells Holdings (JKH) yesterday announced improved results for the third quarter and nine months ended on 31 December 2018. 

The revenue at Rs. 36.55 billion for the third quarter of the financial year 2018/19 is a 17% increase over the previous financial year. The cumulative revenue for the first nine months of the financial year 2018/19 at Rs. 99.28 billion is an increase of 13%.

The profit attributable to equity holders in the third quarter increased by 7% to Rs. 4.80 billion whilst for  the first nine months it rose by 9% to Rs. 12.08 billion.

The Group earnings before interest, tax, depreciation and amortisation (EBITDA) at Rs. 5.85 billion in the third quarter of the financial year 2018/19 is an increase of 2% over the Rs. 5.74 billion recorded in the corresponding period of the previous financial year. The Group EBITDA for the first nine months of the financial year 2018/19 at Rs. 14.68 billion is a decrease of 2% over the EBITDA of Rs. 15.04 billion recorded in the same period of the previous financial year.

The Group profit before tax (PBT) at Rs. 5.63 billion in the third quarter of the financial year 2018/19 is a decrease of 3% over the Rs. 5.83 billion recorded in the corresponding period of the previous financial year. The Group PBT for the first nine months of the financial year 2018/19 at Rs. 13.23 billion is a decrease of 11% over the PBT of Rs. 14.87 billion recorded in the same period of the previous financial year.

The Company PBT for the third quarter of 2018/19 at Rs. 3.76 billion is an increase of 59% over the Rs. 2.36 billion recorded in the corresponding period of 2017/18. The increase in PBT is mainly attributable to the higher exchange gains recorded at the Company on its foreign currency denominated cash holdings compared to the corresponding quarter of the previous financial year. The Company PBT for the first nine months of the financial year 2018/19 at Rs. 8.81 billion is an increase of 11% over the previous financial year.

“Following a period of political volatility and uncertainty from late October to December 2018, stability has been restored. We reiterate that political stability and policy continuity is essential for economic and business growth,” new John Keells Holdings Chairman Krishan Balendra told shareholders in his review accompanying interim results.

 

Transportation

The Transportation industry group PBT of Rs. 1.10 billion in the third quarter of 2018/19 is an increase of 16% over the third quarter of the previous financial year [2017/18 Q3: Rs. 945 million]. The increase in profitability is mainly on account of the performance of the Group’s Ports and Shipping business, South Asia Gateway Terminals (SAGT). SAGT recorded a growth in throughput of 8%, with transshipment volumes contributing to approximately 77% of total volume. 

The calendar year 2018 marked a significant milestone for both the Port of Colombo and SAGT, recording an all-time high of handling over seven million TEUs and two million TEUs, respectively. The overall capacity utilisation of the Port of Colombo is now in excess of 85%, demonstrating the strong potential for continued capacity led growth. In this context, timely development of the deep-draft East Container Terminal (ECT) is critical to ensure that capacity continues to be enhanced towards attracting further volumes and to sustain continued growth at the Port. 

Whilst the Group’s Bunkering business, Lanka Marine Services, recorded a 9% growth in volumes, profits were impacted by a contraction in blended margins arising from the sharp reduction in global oil prices within a short period. The Logistics business recorded a strong performance due to an increase in throughput in its warehouse facilities. Design work for the new warehouse in Enderamulla was completed during the quarter under review, whilst the civil and structural scopes are expected to be issued in the ensuing quarter.

 

Consumer Foods

The Consumer Foods industry group PBT of Rs. 332 million in the third quarter of 2018/19 is a decrease of 36% over the third quarter of the previous financial year [2017/18 Q3: Rs. 520 million]. The decline in profitability is primarily on account of a volume decline of 23% in the carbonated soft drinks (CSD) range of the Beverages business. The decline in beverage volumes is due to the implementation of the sugar tax on CSD which resulted in substantial price increases across the industry. 

As a result of its lower operating leverage, the EBITDA of the beverage business recorded a decrease of 69% in the third quarter of 2018/19 compared to the corresponding period of the previous financial year. However, it is encouraging that the growth in monthly volumes within the quarter has been on an upward trend.

The Frozen Confectionery business recorded a volume growth of 7% during the quarter under review, driven by growth in the impulse segment. Given the significant investment in the newly constructed Frozen Confectionery plant in Seethawaka, Colombo Ice Company Limited (CICL), and the associated depreciation of the infrastructure coupled with the financing expenditure, EBITDA is more reflective of the underlying growth of the business. 

Accordingly, the EBITDA for the Frozen Confectionery business increased by 18% compared to the corresponding period of 2017/18. During the quarter, two new impulse stick range varieties were launched. Keells Food Products PLC recorded a 3% growth in volumes and a better sales mix.

 

Retail

The Retail industry group PBT of Rs. 159 million in the third quarter of 2018/19 is a decrease of 71% against the third quarter of the previous financial year [2017/18 Q3: Rs. 540 million]. The Supermarkets business PBT of Rs. 137 million in the third quarter of 2018/19 is a decrease against the third quarter of the previous financial year [2017/18 Q3: Rs. 427 million].

As planned, the refitting and rebranding of all outlets was completed by November 2018. The new ‘Keells’ brand was formally launched during the quarter under review. The new brand has been very well received and we are confident that it will continue to drive footfall in line with our expectations.

The supermarkets business recorded a growth of 4.2% in customer footfall which contributed towards a modest growth of 2.4% in same store sales, despite the subdued macro conditions which also resulted in a contraction in average basket values. Excluding the one-off refit and rebranding costs, EBITDA for the quarter showed an encouraging growth of 7%. During the quarter under review, four new outlets were opened, bringing the total store count to 91 as at 31 December 2018.

 

Leisure

The Leisure industry group PBT of Rs. 694 million in the third quarter of 2018/19 is a decrease of 23% over the third quarter of the previous financial year [2017/18 Q3: Rs. 901 million]. The Leisure industry group EBITDA in the third quarter of 2018/19 is a decrease of 9% over the third quarter of the previous financial year. The decline is mainly attributable to the City Hotels sector which maintained room rates, but witnessed a decline in occupancies due to the increased supply of room inventory within Colombo, which impacted profitability. The trend of continued growth in demand for city rooms was impacted in this quarter by the political volatility, which restricted, in particular, business travel to the city.

Operating profitability in the Sri Lankan Resorts segment improved during the quarter. However, PBT was impacted by exchange losses on the translation of its foreign currency denominated debt arising from the depreciation of the rupee during the quarter. The business will however accrue the benefits of the depreciation on account of its foreign currency denominated revenue streams over ensuing periods. 

The Maldivian Resorts segment recorded an improvement in average room rates and occupancies, although profitability was impacted by the closure of ‘Cinnamon Hakuraa Huraa Maldives’ for reconstruction of a new hotel. The reopening of the hotel is on track for December. It is encouraging to note that subsequent to the refurbishment of ‘Cinnamon Dhonveli Maldives’, the average room rates of the hotel recorded for the quarter under review is above expectations.

 

Property

The Property industry group PBT at Rs. 14 million in the third quarter of 2018/19 is a decrease of 58% over the third quarter of the previous financial year [2017/18 Q3: Rs. 34 million]. The decline in profitability is on account of a non-cash consolidation adjustment for the acceleration of the depreciation of old buildings by a Real Estate company on a land earmarked for future development.

The construction of ‘Cinnamon Life’ is progressing with encouraging momentum. The super structure of ‘The Suites at Cinnamon Life’ has been completed whilst all other buildings are also nearing completion. The installation of the mechanical and electrical services, the external façades and the internal works are now underway. Preliminary construction work has commenced on the 891-apartment joint venture residential development project, ‘Tri-Zen’, in Union Place, Colombo. 

The piling work at the site will commence in February. The presales for the project continue to be encouraging. Revenue recognition on this project is expected to commence from the June quarter onwards.

 

Financial Services

The Financial Services industry group PBT of Rs. 936 million in the third quarter of 2018/19 is a decrease of 39% over the third quarter of the previous financial year [2017/18 Q3: Rs. 1.54 billion]. Whilst Union Assurance PLC recorded an encouraging growth of 12% in gross written premiums, profitability was impacted by marked to market losses on its portfolio of equity investments. Whilst Nations Trust Bank recorded an improvement in net interest income and steady loan growth, profitability during the quarter under review was impacted by the introduction of the debt repayment levy.

 

Other, Including Information Technology and Plantation Services

Other, including Information Technology and Plantation Services industry group recorded a PBT of Rs. 2.40 billion in the third quarter of 2018/19 which is an increase of 78% over the third quarter of the previous financial year [2017/18 Q3: Rs. 1.35 billion]. The increase in PBT is mainly attributable to the higher exchange gains recorded at the Company on its foreign currency denominated cash holdings compared to the corresponding quarter of the previous financial year. 

The Information Technology sector recorded an increase in profitability on account of on-boarding new clients. The performance of the Plantation Services sector was impacted by a decrease in tea prices during the quarter under review.

The Company paid a first interim dividend for the financial year 2018/19 in November 2017, amounting to Rs. 2.00 per share. The Board declared a second interim dividend of Rs. 2.00 per share to be paid on 22 February.