The Sunday Leader

John Keells Holdings PBT decreased by 4% to Rs. 14.87 billion

John Keells Holdings Profit Before Tax has decreased by 4 per cent to Rs. 14.87 billion, according to the Interim Report for the nine months ended 31 December 2017, states Susantha Ratnayake, Chairman of John Keells Holdings.

Following is the JKH Chairman’s Review:

The cumulative revenue for the first nine months of the financial year 2017/18 at Rs. 87.66 billion is an increase of 15 per cent over the revenue of Rs. 76.43 billion recorded in the same period of the previous financial year. The revenue at Rs. 31.22 billion for the quarter under review is a 12 per cent increase over the Rs. 27.94 billion recorded in the previous financial year.

The Group profit before tax(PBT) for the first nine months of the financial year 2017/18 at Rs. 14.87 billion is a decrease of 4 per cent over the PBT of Rs.15.48 billion recorded in the same period of the previous financial year. The Group PBT at Rs. 5.83 billion in the third quarter of the financial year 2017/18 is a decrease of 13 per cent over the Rs. 6.72 billion recorded in the corresponding period of the previous financial year.

The profit attributable to shareholders in the first nine months at Rs. 11.06 billion is a decrease of 2 per cent over the corresponding period of the previous financial year while the Rs. 4.49 billion recorded in the third quarter is a decrease of 13 per cent over the previous year.

The Company PBT for the first nine months of the financial year 2017/18 at Rs. 7.90 billion is an increase of 7 per cent over the previous financial year. The Company PBT for the third quarter of 2017/18 at Rs. 2.36 billion is a decrease of 16 per cent over the Rs. 2.83 billion recorded in the corresponding period of 2016/17.

Transportation

The Transportation industry group PBT of Rs. 945 million in the third quarter of 2017/18 is an increase of 12 per cent over the third quarter of the previous financial year [2016/17 Q3: Rs. 845 million].

During the calendar year 2017, the Port of Colombo witnessed a year on year growth of 8 per cent whilst South Asia Gateway Terminals (SAGT) recorded a growth in throughput of 11 per cent. The market share and profits of the Group’s Bunkering business increased as a result of a double-digit growth in volumes. The performance of the Logistics business was in line with expectations. A new 57,000 sq. ft. warehouse was commissioned in Enderamulla during the quarter under review. DHL Keells recorded an improvement in performance driven by a growth in its active customer base.

Leisure

The Leisure industry group PBT of Rs. 901 million in the third quarter of 2017/18 is a decrease of 34 per cent over the third quarter of the previous financial year [2016/17 Q3: Rs.1.36 billion].

The decline in profitability is mainly attributable to the City Hotel sector which witnessed a decline in occupancies primarily as a result of the increase in room inventory within Colombo. However, it is encouraging that the total number of rooms occupied in the city witnessed a double digit growth in the quarter under review. Whilst the Sri Lankan Resorts segment recorded an improvement in room rates and maintained occupancies, profit for the quarter under review was lower when compared to the corresponding period of the previous financial year which included the operations of ‘Bentota Beach by Cinnamon’ which is now closed for the construction of a new hotel.

The Maldivian Resorts segment recorded an improvement in average room rates, although profitability was impacted by lower occupancies and the partial closure of ‘Ellaidhoo Maldives by Cinnamon’ for refurbishments in October 2017. However, occupancies at our hotels remained above the industry average during the quarter under review.

Property

The Property industry group PBT of Rs.34 million in the third quarter of 2017/18 is a decrease of 83 per cent over the third quarter of the previous financial year [2016/17 Q3: Rs. 196 million]. The decline in profitability is on account of the third quarter of the previous year which included recognition of revenue on the ‘7th Sense’ on Gregory’s Road residential development. The construction of Cinnamon Life is progressing well with the super structure approximately 50 per cent complete. Parallel to the ongoing construction work of the super structure, the installation of the façade of the hotel will commence shortly. The construction work on the main access point via a six lane bridge is nearing completion. The pre-sales of both the residential and commercial space continue to be encouraging.

The concept design for the new 800-apartment joint venture residential development project, ‘Tri-Zen’, in Union Place, Colombo, has been finalized whilst the schematic designs are currently underway. This unique development will target a broader section of the market with apartments offered at attractive price points. Presales have commenced and initial bookings are very encouraging.

Consumer Foods and Retail

The Consumer Foods and Retail industry group PBT of Rs.947 million in the third quarter of 2017/18 is a decrease of 26 per cent over the third quarter of the previous financial year [2016/17 Q3: Rs.1.29 billion]. The decline in profitability is on account of the Consumer Foods sector and to a lesser extent the Retail sector. The Beverage and Frozen Confectionery businesses recorded a decline in volumes as a result of continued tapering of demand arising from subdued consumer discretionary spending. The volume decline in the Beverage business was further exacerbated by the implementation of a sugar tax from November 2017, which resulted in substantial price increases across the industry. Whilst over the years we have taken measures to reduce a significant quantum of sugar in our beverages, we will continue to aggressively expand our low sugar product range by accelerating the launch of such new products.

As a continuing part of our beverage portfolio strategy, we will also launch more non-carbonated beverages to broaden our offerings. Keells Food Products PLC recorded an increase in profitability on account of a better sales mix.

The Retail sector recorded growth in footfall contributing towards a year-on-year growth in same store sales, although profitability was impacted by store expansion related costs and promotional expenses. During the quarter under review, three new outlets were opened, bringing the total store count to 72 as at 31 December 2017. The stores opened during the quarter featured the new branding which will be rolled out to the existing stores as well in the ensuing quarters.

The branding initiative encompasses new elements to the store in line with evolving consumer needs which we are confident will drive footfall, although this impacted the rollout of the store openings for the quarter under review.

Financial Services

The Financial Services industry group PBT of Rs. 1.54 billion in the third quarter of 2017/18 is an increase of 35 per cent over the third quarter of the previous financial year [2016/17 Q3: Rs. 1.14 billion]. The increase in profitability is on account of the performance of Union Assurance PLC, where gross written premiums recorded strong growth above industry average whilst Nations Trust Bank recorded sound loan growth during the quarter under review.

Information Technology

The Information Technology industry group PBT of Rs. 86 million in the third quarter of 2017/18 is a decrease of 56 per cent over the third quarter of the previous financial year [2016/17 Q3: Rs. 195 million]. The corresponding quarter of the previous year included profits of the Group’s BPO business which was divested in September 2017. The Office Automation businesses recorded a decline in profitability on account of lower volumes in its 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. 1.37 billion in the third quarter of 2017/18, which is a decrease of 19 per cent over the third quarter of the previous financial year [2016/17 Q3: Rs. 1.70 billion]. The decrease in PBT is mainly attributable to lower exchange gains recorded at the Company on its foreign currency denominated cash holdings compared to the corresponding quarter of the previous financial year. The performance of the Plantation Services sector was impacted by trading losses due to a decline in tea prices within the quarter under review.

Sustainability Initiatives

Demonstrating the ongoing efficiency initiatives implemented by the Group, the carbon footprint and water withdrawn per million rupees of revenue decreased by 6 per cent and 18 per cent respectively to 0.79 MT and 15.12 cubic meters during the quarter. In absolute terms, the carbon footprint increased by 2 per cent to 23,244 MT mainly as a result of increased operational activities in the Retail sector and the inclusion of Cinnamon Air to the Group’s sustainability reporting scope whilst water withdrawal decreased by 11 per cent to 443,384 cubic meters mainly due to decreased operational activities in the Consumer Foods sector and the closing down of ‘Bentota Beach by Cinnamon’ for refurbishment.

The quarter on quarter performance when assessed against the 2020 Group sustainability goals, indicates a 5 per cent increase in energy usage and a 7 per cent reduction in water usage, from the targets established against the baseline year of 2015/16.

The Group continuously monitors the progress towards the established goals and will strive to achieve the 2020 Goal. Group employees were provided with approximately 9 hours of training per employee, whilst 61 occupational injuries were reported during thequarter under review.

Corporate Social Responsibility

Following are some of the highlights of John Keells Foundation’s (JKF) initiatives during the quarter under review:

• Under the John Keells English Language Scholarship Programme, a total of 1,248 school children followed classes under English fo“r Teens’ courses held in variousparts of the country.

• Under the Neighbourhood Schools Development Project, Ordinary Level revision classes were conducted benefiting 196 students sitting for the examination in December 2017.

• The third and final phase of the three-year Science Day Programme (conducted in collaboration with the Sri Lanka Association for the Advancement of Science) was completed with a cumulative participation of 858 students and 66 teachers from 62 schools in 6 districts.

• Under ‘Project WAVE’ (Working Against Violence through Education), 741 employees were sensitized on gender based violence and child abuse. JKF conducted its second public awareness campaign against sexual harassment in public transport to coincide the International Day for the Elimination of Violence Against Women.

The campaign targeting train commuters and undertaken in collaboration with the Sri Lanka Railways saw 107 John Keells volunteers disseminating approximately 30,000 information cards to commuters as well as pasting 1,500 stickers in railway carriages. Parallel to the public campaign, a social media campaign and a campaign targeting staff were also carried out.

• Under the John Keells Vision Project, 6,008 students of 30 schools in the Colombo district underwent vision screening and 475 eye glasses were donated to students.

• A total of 1,901 persons were sensitised under the John Keells HIV and AIDS Awareness Campaign. World AIDS Day falling on 1st December was commemorated across the Group with awareness raising initiatives for internal and external audiences.

• Under the Village Adoption Project, 30 low income families in Mullaitivu were provided seed capital and guidance to pursue self-enterprises under a Family Empowerment Programme conducted in collaboration with Sri Lanka Red Cross Society.

• Under Project Gathering (a 2-year research initiative on elephant gathering, behavioural and dispersion patterns undertaken by Cinnamon Nature Trails in collaboration with JKF), the satellite tracking of two elephant herds was initiated through GPS collaring.

Dividends

The Company paid a first interim dividend for the financial year 2017/18 in November 2017, amounting to Rs. 2.00 per share. Your Board declared a second interim dividend of Rs. 2.00 per share to be paid on 22 February 2018.

Retirements and Appointments

I would like to place on record our deep appreciation for the invaluable contribution made by Mr. Ajit Gunewardene, Deputy Chairman, and Mr. Ronnie Peiris, Group Finance Director, who retired with effect from 31 December 2017.

As announced in the Group’s succession plan, Mr. Krishan Balendra and Mr. Gihan Cooray assumed office as the Deputy Chairman and the Group Finance Director respectively, effective from 1 January 2018.

Further, Mr. Balendra will take over as Chairman and Mr. Cooray as Deputy Chairman/ Group Finance Director upon my retirement at the end of this year.

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