Financial Times

JKH expands Keells Super brand
By Duruthu Edirimuni
The supermarket war is hotting up with John Keells Holdings going ahead with an aggressive expansion of their chain of Keells Super outlets and renaming the Elephant House Super Pola stores following market research that revealed a marked customer preference for the former brand.

"We are moving ahead with the Keells Super brand and will expand with 50 new outlets within the next three years," Sumithra Gunesekera, Director, in charge of the Food and Beverage sector, told The Sunday Times FT.

The conglomerate has decided not to expand any further their 'Elephant House Super Pola' brand and to have Keells Super as the only brand name in their supermarket chain.

The first official name change of the 'Elephant House Super Pola' to Keells Super will take place in their Nugegoda outlet next week. Currently, the conglomerate has stiff competition in the food and beverage sector from Cargills, who has taken supermarketing to the rural areas as well.

Gunesekera said JKH is looking at expanding outside Colombo and that there is tremendous potential in the industry for further growth. Market research done by the conglomerate during the past year has revealed that the Keells Super brand is better known and preferred.

Gunesekera said that JKH had tried out the Elephant House Super Pola concept based on a limited range of products. This is according to a model known as the 'small store' concept where essentials fit the consumer basket.

Research has further discovered that Sri Lankans prefer a lot of brands on the shelves even though they buy a limited number of products, revealing that their psyche is to have a 'plentiful display' when they shop.

"We are taking forward the concept of a greater product range with Keells Super brand," Gunesekera said. He said that the market research has revealed that "a new type of buyer has evolved in the market," and that now supermarketing is not for the privileged but for people who want convenience, quality and value for money.

JKH is planning to introduce new products and strategies in the food and beverage sector, which contributes 31 percent of total turnover, within the next year.

Hotels restructured into one holding company
JKH has announced a major restructuring of its hotels by offering to buy up shares in its listed hotels and bring them, along with its Maldivian resorts, under a single holding company that would be listed on the Colombo bourse.

The restructuring, which does not include the city hotels, would ensure greater capital, administrative and operating efficiencies, JKH said in a statement.

JKH's fully owned subsidiary, Keells Hotels Limited (KHL), would be the future holding company of its hotels sector. KHL has announced a voluntary offer in accordance with the provisions of the Company Takeovers and Mergers Code to acquire all the outstanding shares of the JKH hotel companies, in a swap, whereby KHL would issue an equivalent value of its own shares priced at Rs. 60 each, as consideration.

For the purpose of the swap, the shares of the four companies listed on the Colombo Stock Exchange, have been valued at the higher of their respective thee-year market price high and book values, as follows:

Ceylon Holiday Resorts (holding company of Bentota Beach Hotel and Coral Gardens Hotel) - Rs 118.44 (book value), Habarana Lodge (owning company of The Lodge, Habarana) - Rs 77 (three-year high as of August 12, 2004)

International Tourists & Hoteliers (owning company of the Beach Hotel Bayroo) - Rs 35.25 (three-year high as of August 12, 2004) Kandy Walk Inn (owning company of The Citadel) - Rs 84 (three-year high as of August 12, 2004)

The non-listed companies, which comprise of Habarana Walk Inn (owning company of The Village, Habarana), Unawatuna Walk Inn (owning company of 23 acres of land in Unawatuna), Trinco Walk Inn (owning company of Club Oceanic), Wirawila Walk Inn (owning company of 25 acres of land in Wirawila) and John Keells Maldivian Resorts (holding company of Hakuraa and Velidhu in the Maldives), will be valued at their respective book values, for the purpose of the swap.

KHL is in the process of obtaining a listing on the Colombo Stock Exchange and those shareholders accepting the offer will be allotted listed shares. The market capitalisation of KHL, priced at Rs. 60 per share, upon the completion of the restructuring, will be significantly larger than the aggregate of the four hotel companies currently listed on the CSE.

As a result, JKH said, its shares are expected to be more liquid and tradable. JKH said the offer is an "attractive value proposition" to all investors as benefits include exposure to the lucrative Maldivian sector and reduced investor risk to the volatilities in the local tourism sector.

Shareholders would also be able to hold a more capital efficient investment due to the greater asset and earnings backing of a group of nine hotels compared to the single/dual-hotel investments presently held by them.

"Should all shareholders accept the offer, the free float of the listed KHL would be far greater than those of the present listed companies," JKH said. "Hence, investors would be swapping their low-liquidity stocks for a more liquid and tradable stock." Minority shareholders of the de-listed Habarana Walk Inn and Unawatuna Walk Inn would be able to receive tradable shares.

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