Financial Times

Port terminal, bunkering boost JKH profits
John Keells Holdings investments in Colombo port's Queen Elizabeth Quay container terminal and acquisition of bunker supplier Lanka Marine Service have paid dividends with the transport sector contributing the biggest share of group profits.

JKH chairman Vivendra Lintotawela also confirmed that the conglomerate was exiting from the plantations sector and was re-evaluating its supermarkets strategy because of inadequate returns, as was reported by The Sunday Times FT recently.

"Our heavy investments in the Transportation Sector were vindicated by the sector yet again being the single largest contributor to group profits," Lintotawela said in his annual report to shareholders.

"Despite aggressive competitor pressures, an excellent performance from South Asia Gateway Terminals (SAGT) and a full year's contribution from Lanka Marine Services (LMS), ensured this success," he said. The completion of the port project in September 2003 enabled SAGT to also declare its first dividend.

JKH's consolidated profits grew by 46 percent to Rs. 1.9 billion in spite of it incurring a hefty Rs. 767 million on a Voluntary Retirement Scheme. Although the turnover increased by 25 percent to Rs. 20.9 billion, the operating profit before exceptional items grew by 60 percent to Rs. 3.45 billion, reflecting increased operating efficiencies, Lintotawela said.

Return on Equity and Return on Capital Employed, before the VRS, were 16.1 percent and 16.3 percent compared to the 14.3 percent and 14.5 percent of the previous year.

Lintotawela said that although the food and beverage sector operating profits remained the same as the previous year, the VRS resulted in a significantly reduced profit after tax. "While the quest for operating efficiencies continues at Ceylon Cold Stores and Keells Food Products, the supermarket strategy has been the subject of ongoing review with the objective of arriving at a sustainable model," he said.

He also said that despite better year-on-year contributions from the plantations sector, JKH's long term strategy is to exit this sector and focus on other areas that could yield better returns. RPK, the owning company of Maskeliya and Kegalle Plantations, was sold in March 2004.

Good performances from the Sri Lanka-based resort hotels, the Maldivian hotels and the destination management companies, coupled with reasonable contributions from the city hotels saw the leisure sector contributing close to 35 percent of group profits.

The financial services sector, with strong performances from John Keells Stock Brokers and Nations Trust Bank made "significant" contributions to group profits as did the real estate sector following the acquisition of the Crescat complex.

"A strategic framework has been agreed upon and we are currently orienting this sector to implement a viable action plan." Lintotawela also urged the new government to "resist the temptation for short-term populist measures" and, in their stead, adopt those geared to medium and long-term prosperity.

"While the new government is assured of our strong partnership, we urge it to ensure that the operating environment is founded on fiscal and monetary stability and sound economic policies that enable the private sector to conduct its business in a predictable manner."

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