Financial Times

JKH mulls investments abroad
John Keells Holdings Ltd. has “intensified” its internationalization effort and is evaluating opportunities identified in the region and outside, the conglomerate’s chairman Vivendra Lintotawela said.

“We believe that internationalization will provide JKH a wider market for its products and services and thereby allow it to enjoy economies of scale that are not possible in Sri Lanka,” he said in a statement that accompanied the firm’s results for the first quarter ended 30 June, 2005.

JKH profits suffered a sharp downturn in the first quarter as earnings from its leisure sector were hit by the tsunami but the group’s food, beverage, financial and transportation did better than last year, Lintotawela said. JKH believes that internationalization will provide Sri Lanka, as it did for countries such as South Korea and Japan, access to advanced technology, inputs and knowledge transfer and the opportunity to serve sophisticated buyers and customers, he said. The group could transfer this experience in serving the domestic markets on an incrementally improving basis.

JKH has commenced a repositioning strategy exercise on the group’s hotels as a first step in its expansion and internationalization of the hotels sector.
Group revenue for the first quarter 2005/06 grew by six per cent to Rs. 6.4 billion but group profit before tax dipped by 21 per cent to Rs 603 million from the previous year’s Rs 759 million. Net profit attributable to shareholders fell 27 per cent to Rs 388 million from Rs 528 million recorded in the corresponding quarter of the previous year. However, there was steady growth from the transportation sector and a marked turnaround from the financial services and food and beverage sectors.

Lintotawela reported that numerous internal initiatives including group sourcing, risk management, operating model changes and HR initiatives have neared completion and implementation.

“We are confident that the leisure sector will show an improved performance going forward with increased tourist arrivals and the other sectors in the group will continue to perform well.” Lintotawela said. JKH remains bullish about future prospects in the leisure sector as well as the whole group despite its subdued performance in the first quarter.

“We hope that the tourism authorities will send out the right signals and create the levels of comfort that tourists look for and that the politicians and lawmakers will work towards common goals, which are in the best interest of the nation and her citizens.” Significantly lower leisure arrivals resulted in JKH destination management companies showing a marked decline in profits from that achieved in the corresponding quarter of the previous year.

The city hotels, however, recorded healthy profits, offsetting to a degree the lower profits from the rest of the sector. The revamped food and beverage sector witnessed a significant turnaround in profitability with both manufacturing and retailing segments performing better than the corresponding quarter in FY2004/05.

“Our Carbonated Soft Drinks, Frozen Desserts and Meat Products improved in year on year profitability because of the availability of an improved range of products, increased productivity and a more focused operating model,” Lintotawela said.

“The Supermarket Business also performed above expectations due to the increased customer count and basket sizes.” Transportation continued its steady performance, recording a 30 per cent growth in profit before tax compared to the first quarter of last year.

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