JKH posts good results but leisure woes persist

• Transportation, Consumer Foods, Retail and Financial Services industry groups record growth in profits

• Performance impacted by tourism downturn after Easter Sunday attacks but recovery underway

• Lower net finance income and forex loss among causes for 49% dip in bottom line 

• Says several policy and fiscal stimulus measures is expected to improve consumer sentiment and economic activity

• Declares higher second dividend reflecting the positive momentum and outlook for the performance of the businesses

Proving its resilience the premier blue chip John Keells Holdings Plc yesterday reported good operating results for third quarter in all its core sectors except Easter Sunday tragedy-hit leisure segment.

Group revenue rose 2% to Rs. 34 billion whilst results from operating activities grew by 40% to Rs. 2.47 billion. However the Group EBITDA was down 25% to Rs.5.60 billion. Pre-tax profit was down by 45% to Rs. 3.1 billion and post-tax figure was lower 49% to Rs. 2.55 billion. JKH’s bottom line (Profit attributable to equity holders of the parent) was Rs. 2.4 billion, down by 49%.

Among reasons for the dip in profit year on year in 3Q were last year JKH had a big exchange gain as Rupee depreciation whilst in the current year 3Q JKH saw an exchange loss following appreciation of the Rupee. 

The decrease in EBITDA was mainly attributable to the downturn in the Group’s Sri Lankan leisure business which continued to be impacted (Rs. 656 million as opposed to Rs. 1.3 billion a year earlier) post the Easter Sunday terror attacks, exchange losses recorded at the Holding Company on its foreign currency denominated cash holdings compared to the significant exchange gains recorded in the previous year and lower finance income as a result of the deployment of cash in new investments.

Reflecting the positive momentum and outlook for the performance of the businesses, JKH declared a second interim dividend of Rs.1.50 per share was declared, which is an increase from the previous two dividend payments of Rs.1.00 each per share.

JKH also said post Presidential Election announcement of several policy and fiscal stimulus measures is expected to improve consumer sentiment and economic activity.  

JKH Chairman Krishan Balendra

For the first nine months Group revenue grew by 4% to Rs. 103 billion and results from operating activities improved by 18% to Rs.  4.1 billion. The Group EBITDA for the first nine months was down by 23% to Rs. Rs.14.07 billion. Pre-tax profit was down 47% to Rs. 7 billion. Bottom line for the nine months was down by 53% to Rs. 5.68 billion.

JKH said in the third quarter the Transportation, Consumer Foods, Retail and Financial Services industry groups recorded a growth in profits although overall group performance was impacted by the Sri Lankan Leisure business and exchange losses at the Holding Company, the statement said. 

The group’s bunkering business, Lanka Marine Services (LMS), recorded a strong growth in profits. The Transportation industry group EBITDA of Rs. 1.29 billion in Q3 of 2019/20 was an 8% increase over the adjusted EBITDA of Rs. 1.19 billion for the third quarter of 2018/19. 

The Consumer Foods industry group EBITDA of Rs. 722 million for Q3 of FY2019/20 was a 21% increase over the adjusted EBITDA of Rs. 598 million for the third quarter of 2018/19. Both the Beverage and the Frozen Confectionery businesses recorded an improvement in performance driven by volume growth and a better sales mix.

The Retail industry group recorded robust revenue growth of 18% for the quarter which was driven by a strong performance in the Supermarkets business, driven by a notable contribution from new outlets and strong growth in customer footfall. Retail recorded an EBITDA of Rs. 1.59 billion compared with the adjusted EBITDA of Rs. 766 million in the same period last year. Seven new outlets were opened during the quarter, increasing the total store count to 107 as at 31 December 2019.

The group’s Sri Lankan leisure business continued to be impacted by the Easter Sunday terror attacks in April 2019. The quarter performance was also impacted by the partial closure of Cinnamon Dhonveli Maldives for refurbishment. EBITDA for the third quarter of 2019/20 was Rs. 656 million, compared to the Rs. 1.34 billion (adjusted) recorded in Q3 2018/19. However, it is encouraging that occupancy at the group’s hotels has recovered faster than expected with forward bookings continuing to maintain an upward trend where occupancy in the peak season is in line with the previous year, albeit at a moderately lower room rate. 

Tourist arrivals to the country have witnessed a gradual recovery, as expected, and are now close to pre-incident levels, although recent developments with the spread of the coronavirus in the region could have a negative impact if the outbreak is not contained.

The newly-reconstructed 159-room Cinnamon Bentota Beach commenced operations in January 2020. The unique location and architecture of this heritage five-star property, coupled with an unparalleled food and beverage offering, is expected to further strengthen and enhance the Cinnamon brand offering. With the completion of the partial refurbishment of Cinnamon Dhonveli Maldives and the reconstruction of Cinnamon Hakuraa Huraa Maldives in December 2019, the full complement of all four of the group’s Maldivian hotels is now in operation.

In the Property industry group, foundation work on the Tri-Zen project has now been completed and the super structure work is in progress. The second tranche of revenue was recognised in the quarter under review, and this is expected to ramp up over the next few quarters as the project progresses. The sales momentum for the project continues to be encouraging, with pre-sales reaching 243 units as at 31 December 2019. The removal of VAT on condominiums with effect from December 2019 will be positive for the overall sales outlook.

The construction of Cinnamon Life is progressing well, and the project is on track for completion during the first half of 2021. The installation of external facades, mechanical and electrical services and interior works are nearing completion for the Cinnamon Life Residential and Office Towers, as planned. The handover will commence with the office tower from April 2020 onwards.

The Financial Services industry group EBITDA of Rs. 1.16 billion for Q3 of FY2019/20 was an 11% increase over the adjusted EBITDA of Rs. 1.05 billion for the third quarter of 2018/19. Nations Trust Bank Plc recorded a strong improvement in profitability as a result of an increase in fee-based income and better management of operational expenses. The performance of Union Assurance Plc improved driven by a growth in gross written premiums.

Other, Including the Information Technology and Plantation Services sectors, recorded an EBITDA of Rs. 151 million in the third quarter of 2019/20 over the adjusted EBITDA of Rs. 2.44 billion for the third quarter of 2018/19. The decrease in profitability is mainly attributable to the exchange losses recorded in the third quarter of 2019/20 compared to the significant exchange gains recorded in the same period of the previous financial year due to the steep depreciation of the rupee in the latter half of 2018. Profitability was also impacted by the ongoing deployment of equity into the Cinnamon Life project, which resulted in a year-on-year decrease in financial income.

During the quarter under review, the group’s carbon footprint per million rupees of revenue decreased by 3% to 0.65MT, and in absolute terms, by 1% to 24,383 MT, driven by reduced activity with Cinnamon Air and the Leisure industry group as a result of the Easter Sunday attacks. Water withdrawal per million rupees of revenue increased by 1% to 12.33 cubic metres, and in absolute water terms, by 4% to 459,391 cubic metres due to the store expansion in the Supermarkets business and higher water usage for replanting purposes at the Rajawella golf course.