JKH posts satisfactory 3Q but challenges remain

Premier blue chip John Keells Holdings (JKH) on Friday announced that it had performed satisfactorily during the third quarter but challenges faced by several of its core businesses still remained.

The latest results are dwarfed by the impact of nearly Rs. 1 billion in capital gains enjoyed in the third quarter of the last financial year but excluding that JKH’s recurrent results look better.

Transportation, leisure and IT sector results were down whilst property and consumer foods and retail and financial services continued with their robust performance.

The group profit before tax (PBT) in the third quarter of the financial year 2015/16, at Rs.5.30 billion, is 1% below the PBT of Rs. 5.37 billion, which included capital gains of Rs. 610 million, recorded in the corresponding period of the previous year. 

The group profit before tax (PBT) for the first nine months of the financial year 2015/16, at Rs. 13.13 billion, is an increase of 9% over the PBT of Rs. 12.04 billion, which included capital gains of Rs. 999 million, recorded during the same period of the previous financial year.



Excluding the impact of the aforementioned capital gains, the adjusted Group PBT for the quarter and the first nine months are an increase of 11% and 19%, respectively, above the corresponding periods of the previous financial year.

Though the profit attributable to shareholders for the quarter, at Rs.3.90 billion, is a decrease of 10% from the Rs. 4.33 billion recorded in the corresponding period of the previous financial year, the profit attributable to shareholders for the first nine months, at Rs.9.55 billion, is an increase of 5% over the corresponding Rs.9.13 billion recorded in the same period of the previous financial year.

Excluding the impact of capital gains, the adjusted profit attributable to shareholders for the quarter and the first nine months are an increase of 5% and 17% respectively, above the corresponding periods in the previous financial year.

The revenue recorded for the quarter at Rs. 24.71 billion is marginally below the Rs. 24.77 billion recorded in the corresponding period of the previous financial year, mainly due to Union Assurance General Limited being classified as an associate company from January 2015 onwards and the steep reduction in global oil prices which impacted the bunkering business. 

The cumulative revenue for the first nine months of the financial year 2015/16, at Rs. 68.38 billion, is an increase of 2% over the revenue of Rs. 66.97 billion recorded during the same period of the previous financial year.

The Company PBT for the third quarter of 2015/16, at Rs. 2.67 billion, is an increase of 14% over the Rs. 2.33 billion recorded during the corresponding period of 2014/15. The Company PBT for the first nine months of the financial year 2015/16, at Rs. 10.84 billion, inclusive of a capital gain of Rs. 3.10 billion arising from the share repurchase of Union Assurance Plc, is an increase of 70% over the previous financial year.

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

Transportation

The Transportation industry group PBT of Rs. 464 million in the third quarter of 2015/16 is a decrease of 32% over the third quarter of the previous financial year (2014/15 Q3: Rs.678 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 5% overall, which underscores the potential and augurs well for capacity-led growth.

The Bunkering business maintained its market share during the quarter under review. However, revenue and profitability were significantly impacted due to the steep reduction in global oil prices where inventory purchased at higher prices had to be marketed at prevailing market prices. DHL Keells recorded an improvement in performance compared to the corresponding period of the last financial year due to the continued growth in its active customer base.

Leisure

The Leisure industry group PBT of Rs. 1.22 billion in the third quarter of 2015/16 is a decrease of 13% over the third quarter of the previous financial year (2014/15 Q3: Rs. 1.40 billion). The City Hotels sector, with the exception of Cinnamon Red, witnessed a decrease in occupancies against the corresponding period of the previous year due to the increased supply of room inventory within Colombo and the lower volumes generated through the corporate and MICE segments. 

The Sri Lankan Resorts sector witnessed an increase in average room rates although occupancies declined marginally due to increased room inventory coupled with a decrease in arrivals from the Russian market. 

Tourist arrivals into the Maldives were negatively impacted by the prevailing political uncertainties and travel advisories to the country. The Destination Management business recorded an improved performance driven by the growth of the European market.

Property

The Property industry group PBT of Rs. 558 million in the third quarter of 2015/16 is an increase of 48% over the third quarter of the previous financial year (2014/15 Q3: Rs.376 million). The improved performance is mainly on account of the revenue recognised, post the final tranches received as at 31 December 2015, at the ‘7th Sense’ residential development project. 

The construction of Cinnamon Life is in progress with pre-sales of both the residential and commercial space continuing to be encouraging. However, the project has encountered some unforeseen delays and as such, the construction of Cinnamon Life is now expected to be completed in the calendar year 2019.

Consumer Foods and Retail

The Consumer Foods and Retail industry group PBT of Rs. 1.08 billion in the third quarter of 2015/16 is an increase of 86% over the third quarter of the previous financial year (2014/15 Q3: Rs. 583 million). Both the Frozen Confectionery and the Beverage businesses recorded encouraging results compared to the corresponding period of the previous financial year. The improved performance is mainly attributable to the double digit volume growth on account of positive consumer sentiment. 

Keells Foods Products witnessed an increase in volumes and profitability with the overall performance being in line with expectations. The Retail sector recorded a significant improvement in performance as it continued to benefit from year-on-year growth in same store sales due to a notable increase in footfall coupled with the incremental contribution from recently established outlets.

Financial Services

The Financial Services industry group PBT of Rs. 1.09 billion in the third quarter of 2015/16 is a decline of 1% over the third quarter of the previous financial year (2014/15 Q3: Rs. 1.10 billion). The decline is due to Union Assurance Plc treating the post segregated general insurance company as an associate following the sale of a 78% stake in January 2015. 

The Financial Services industry group PBT, excluding the general insurance business, increased by 9% to Rs. 1.06 billion (2014/15 Q3: Rs. 974 million). The performance of the Life Insurance business was in line with expectations, with gross written premiums recording encouraging growth. Nations Trust Bank maintained robust loan growth although the reduction in net interest margins impacted the growth in profitability during the quarter under review. 

Information Technology

The Information Technology industry group PBT of Rs. 92 million in the third quarter of 2015/16 is a 24% decrease over the third quarter of the previous financial year (2014/15 Q3: Rs. 120 million). The Office Automation business, which is the largest contributor to profits, witnessed a decline in its performance mainly due to lower margins on account of the depreciation of the Rupee, despite recording a growth in volumes across its three main product segments. 

Other, Including Plantation Services

Other, comprising of the Holding Company and other investments, and the Plantation Services sector, recorded a PBT of Rs. 796 million in the third quarter of 2015/16, which is a decrease of 29% over the third quarter of the previous financial year (2014/15 Q3: Rs. 1.11 billion). 

The decline in PBT is mainly attributable to the capital gain of Rs. 610 million recorded in the third quarter of the previous financial year. The performance of the Plantation Services sector was negatively impacted as tea prices continued to remain depressed.

Dividends

The company paid a first interim dividend for the financial year 2015/16 in November 2015, amounting to Rs. 4.50 per share, which included a special dividend of Rs. 3.50 per share. The payment of the special dividend was enabled by the cash inflow of Rs. 4.14 billion to the company from the share repurchase made by Union Assurance Plc. The Board declared a second interim dividend of Rs. 1.00 per share to be paid on 19 February 2016.