Leisure-hit JKH says outlook for other biz “positive”

Premier blue chip John Keells Holdings (JKH) remains positive of its prospects despite the Easter Sunday terror attacks-triggered setback on its giant leisure segment and muted economic growth impacting performance in the just-concluded FY19. 

“It may be premature to assess the full impact arising from the Easter Sunday attacks, with the exception of the short-term impact on leisure, the outlook for the other businesses are positive,” JKH Chairman Krishan Balendra said. 

Balendra’s confidence stems from the fact that the core earnings from JKH operations are expected to increase as the Group starts to realise the benefits of many of the investments undertaken throughout the last two years.

JKH Chairman, in his review in the Company’s 2018/19 Annual Report released on Friday, also expressed the belief that the macro-economic fundamentals will be able to withstand and overcome incidents such as the Easter Sunday terror attacks, and as such “we do not expect a negative impact on the medium-term outlook of our businesses.”

He also said studies of other travel destinations that were impacted by similar terrorism incidents indicate that destinations require 12 to 18 months to revert to pre-incident levels. Popular destinations which were affected by acts of terrorism such as Bali, Mumbai, Paris and Brussels have seen a recovery in arrivals in less than 18 months.

The Leisure industry group reported revenue, including share of revenue from equity accounted investees, of Rs.24.11 billion and EBITDA of Rs.5.02 billion, contributing 16% and 19% to Group revenue and EBITDA respectively. The recurring EBITDA for 2018/19 decreased by 22% over the previous year. The recurring EBITDA was impacted due to the lacklustre performance of the City Hotels which were impacted by a significant increase in the number of rooms within a short period of time and the impact of the closure of “Cinnamon Hakuraa Huraa Maldives” which was operational in the previous financial year.

“While the Group will play its part in helping the tourism industry and the country achieve a speedy recovery, we have, together with the relevant chambers of commerce, been in engagement with the authorities to urge them to take immediate steps to prevent a recurrence of such heinous acts and ensure regular and consistent dissemination of information only from designated spokespersons of the Government and military,” Balendra said.

He noted that while the Government has initiated many measures to revive the tourism industry, the Group has also re-evaluated its short-term plans for recovery of the Leisure businesses, particularly in the city hotels. 

“Given the anticipated reduction in arrivals, particularly in the next three months, which is a relatively lower occupancy period, the Group will look at managing its fixed and variable cost structures while ensuring operations are not hampered,” Balendra added.

“The Group will initiate its own marketing and outreach efforts once the travel advisories are revised, which is expected in the next few months. The industry group is also devising strategies to engage the domestic market in order to boost occupancy in the short-term. The operating model of each of the hotel properties has been critically evaluated to ensure the optimum operating costs, whilst ensuring sustenance of the brand and service standards,” he said. 

“The Group maintains a positive view of the outlook on arrivals, in line with other destinations that were similarly impacted in the past, and will pursue its recovery strategies accordingly,” Balendra added.

He described FY19 as a challenging year for the overall Group, where economic growth was muted amidst pressures emanating from the external environment, in addition to domestic macro-economic pressures which were exacerbated by political uncertainty. 

Group revenue increased by 12% to Rs.135.46 billion while recurring Group earnings before interest expense, tax, depreciation and amortisation (EBITDA) decreased by 11% to Rs.25.67 billion. 

Balendra explained the decline in recurring EBITDA was on account of the performance of the Leisure, Financial Services, Property and Retail industry groups, where Group witnessed some one-off impacts in addition to the downturn in the performance of the City Hotels sector due to a significant increase in the room supply within a short period of time. 

The one-off impacts, which have not been eliminated in the recurring EBITDA, include the impact of the closure of “Cinnamon Hakuraa Huraa Maldives”, which was operational in the previous financial year, recognition of higher investment property gains in the previous year, and the costs associated with the refit and rebranding program of the Supermarket business.

The recurring Group profit before tax (PBT) decreased by 24% to Rs. 18.40 billion for the financial year ended 31 March 2019. The recurring profit attributable to equity holders of the parent decreased by 25% to Rs.13.68 billion. 

Pre-tax profit was down 33% to Rs. 18.6 billion post-tax profit lower by 30% to Rs. 16.2 billion. Net profit attributable to equity holders of parent was lower by 27% to Rs. 15.2 billion.

The decline in Group pre-tax profit by 58% to Rs.5.38 billion was mainly due to the one-off surplus and optimal surplus transfer recorded in 2017/18 by the life insurance business, Union Assurance PLC (UA), which cumulatively amounted to Rs.7.02 billion.

The JKH Chairman also said the Group has been investing in building more capacity in many of its businesses, and it is pleasing that the benefits from these investments are materialising. 

“This is exemplified in the performance in the latter half of the fourth quarter of FY19, and in the month of April 2019, where we witnessed signs of an improvement in domestic demand conditions, particularly in our consumer-focused businesses,” he added.