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Premier blue chip John Keells Holdings (JKH) has begun the new 2017/18 financial year on a strong note with double-digit growth in the top line and bottom line.
The company announced yesterday that the group’s profit before tax (PBT) at Rs. 4.09 billion in the first quarter of the financial year 2017/18 was an increase of 14% over a year earlier. The profit attributable to equity holders grew by 19% to Rs. 2.83 billion.
Group revenue was up 18% to Rs. 26.82 billion in the first quarter. At the company level, pre-tax profit was up 18% to Rs. 3.36 billion.
Transportation, property, financial services, IT and other sectors including Plantation Services did well whilst Leisure, Consumer Foods and the retail sector’s profit before tax declined.
The transportation industry group PBT of Rs. 807 million in the first quarter of 2017/18 is an increase of 14% over the first quarter of the previous financial year [2016/17 Q1: Rs. 711million]. The increase in profitability is mainly attributable to the performance of the group’s Ports, Shipping and Logistics businesses which recorded improved performances as a result of increases in volumes and throughput. Whilst the group’s bunkering business improved market share and recorded a notable growth in volumes, a contraction in margins arising out of the competitive operating environment impacted profitability during the quarter.
Leisure
The leisure industry group PBT of Rs. 179 million in the first quarter of 2017/18 is a decrease of 68% over the first quarter of the previous financial year [2016/17 Q1: Rs. 558 million].
As noted in my message in the 2016/17 Annual Report, the decline was anticipated and arises from a non-cash impact of Rs. 203 million on account of the acceleration of depreciation on assets from the closure of ‘Bentota Beach by Cinnamon’ and the partial closures of ‘Cinnamon Dhonveli Maldives’ and ‘Ellaidhoo Maldives by Cinnamon’ for ongoing refurbishments.
During the quarter under review, overall arrivals to Sri Lanka witnessed a moderation in growth as a result of the negative publicity and travel warnings following the flooding and landslides in May. Despite this, both the City Hotels sector and Sri Lankan Resorts segment recorded an improvement in occupancies which partially offset the impact of the decline in average room rates.
The occupancies in the Maldivian Resorts segment were also impacted due to a lower than expected growth in arrivals because of adverse weather conditions. However, it is noteworthy that occupancies at Cinnamon hotels remained above the industry average during the quarter under review. The improved performance of the Chinese and UK markets contributed towards a notable growth in profitability for the Destination Management business.
Property
The property industry group PBT of Rs. 62 million in the first quarter of 2017/18 is an increase of 7% over the first quarter of the previous financial year [2016/17 Q1: Rs. 57 million]. The increase in profitability is mainly attributable to the higher rental income received from the property management businesses.
The feasibility evaluation of the prospective property development project in central Colombo is ongoing, where the finalisation of design concepts and obtaining the requisite approvals are underway. The construction of Cinnamon Life is progressing with encouraging momentum.
Consumer foods and retail
The consumer foods and retail industry group PBT of Rs. 1.07 billion in the first quarter of 2017/18 is a decrease of 18% over the first quarter of the previous financial year [2016/17 Q1: Rs. 1.30 billion]. The decline in profitability is mainly on account of the lower volumes in the Frozen Confectionery and Beverage businesses, where a tapering of demand continued to be witnessed in the quarter under review as a result of subdued consumer discretionary spending, as alluded to in my message in the 2016/17 Annual Report. Volume reductions were further exacerbated by the impacts of the flooding and landslides in May. The decline in profitability was partially mitigated by the Retail sector which recorded a strong performance. This was aided by growth in footfall which also contributed towards a year-on-year growth in same store sales. The overall profitability was enhanced as a result of notable contributions from the newly-opened outlets. The planned outlet expansion is on track, with a number of sites identified.
Financial services
The financial services industry group PBT of Rs. 239 million in the first quarter of 2017/18 is an increase of 22% over the first quarter of the previous financial year [2016/17 Q1: Rs. 196 million]. The increase in profitability was primarily due to Union Assurance Plc, which recorded encouraging double-digit growth in gross written premiums, and John Keells Stock Brokers, which recorded a better performance when compared to the previous year. Nations Trust Bank recorded encouraging loan growth and an improvement in net interest income.
Information Technology
The Information Technology industry group PBT of Rs. 71 million in the first quarter of 2017/18 is an increase over the first quarter of the previous financial year [2016/17 Q1: Rs. 25 million]. This was due to a significant one-off charge in the BPO business in the corresponding quarter of 2016/17.
Other including plantation services
Other, including the plantation services sector and the Holding Company, PBT of Rs. 1.66 billion in the first quarter of 2017/18 is a significant increase over the first quarter of the previous financial year [2016/17 Q1: Rs. 735 million].
The increase in PBT is mainly attributable to the increases in finance income due to higher interest rates and a higher value under investment, and exchange gains recorded at the company on its foreign currency denominated cash holdings compared to the exchange loss recorded in the corresponding quarter of the previous financial year. The Plantations Services sector recorded an improvement in profitability due to improved tea prices.
