Financial Times

Transportation, property sectors boost JKH 2Q profits
John Keells Holdings profits for the second quarter of the 2006 financial year were up 12 percent to Rs 730 million, buoyed by a good performance from the group’s property and transportation sectors, which cushioned a sharp fall in contributions from its leisure sector.

JHK chairman Vivendra Lintotawela said that although, as expected, the leisure sector registered a sharp decline in profitability, there were early signs of a revival in the industry.

Group revenue rose 30 percent to Rs. 7.82 billion in the quarter, according to a JKH statement on interim results for the six months ended September 30, 2005.

The improved profitability during the quarter has resulted in the profit attributable to the group for the six months ended 30 September 2005, at Rs 1,117 million being just five per cent below the profit attributable of Rs 1,180 million in the corresponding period in the previous year as compared to the 27 per cent deficit at the end of the first quarter 2005/2006.

JKH said transportation continued to perform well with the outlook remaining positive. However, CT Smith Stockbrokers said that while transportation was a key contributor to JKH’s 2Q-FY06 net profit, accounting for 60 percent of total group profit, there were signs of a slow down.

Volumes handled by its associate port operator South Asia Gateway Terminals (SAGT) increased by only 2.2 percent YoY to 246,815 TEUs in 2Q-FY06, with its tax-free contribution estimated to have remained flat at approximately Rs211 million.

“Group profits however received a tremendous boost from the property development sector, with part revenue recognition of the fully-booked ‘Monarch’ luxury apartment complex,” the brokers said. Construction of Monarch commenced in early 2005, and we expect further profit contributions by the end of the financial year.”

The JKH statement said Group profit before tax (PBT) for the quarter under review, at Rs 1068 million was seven per cent above the PBT of Rs 1,002 million in the corresponding period in the previous year.

The Property Development, Food and Beverage, Transportation, Financial Services and Information Technology Groups recorded markedly better PBTs than the corresponding period in 2004, it said. “The Leisure Group profitability, however, was significantly lower than the corresponding quarter of the previous year, as a result of lower occupancies arising from a decline in leisure tourist arrivals,” JKH said. The improved PBT during the quarter has resulted in the Group Profit Before Tax for the six months ended 30 September 2005 at Rs 1,671 million being just five per cent below the PBT of the corresponding period in the previous year as compared to the 21 per cent deficit at the end of the first quarter.

Food and beverage profits maintained the growth momentum witnessed during the last quarter, helped by a strong performance by Ceylon Cold Stores and the retail segment, the statement said.

During the quarter, four new “Keells Super” outlets were launched in the suburbs of Colombo, increasing the geographical diversity of the chain of supermarkets. However, Keells Food Products recorded poor profitability because of a lower demand for its products arising out of the negative effects of adverse publicity on the processed meats industry.

Leisure sector PBT at Rs 27 million in the quarter was well below the Rs 352 million registered in the same period in 2004. The city hotels, which enjoyed high occupancies during the quarter, recorded reasonable profits despite absorbing substantial costs in respect of the repositioning strategy they are currently pursuing under the “Cinnamon” brand.

“There are early signs of a revival in the industry with evidence of a gradual increase in occupancies at our resort hotels,” said Lintotawela. He said there has been good progress in the construction of the 100 room resort hotel in Alidhoo, Maldives, but Beach Hotel Bayroo remains closed pending governmental direction on coastal construction.

Lintotawela said that while the construction of Monarch continues to be on schedule, the sector is also currently evaluating new opportunities for future growth. He called for the emergence of a political leadership that can “rise above partisan political wrangling in delivering to all citizens of Sri Lanka a good standard of living.”

Lintotawela warned that Sri Lanka is fast losing its comparative and competitive advantage. “In our corporate capacity we look for nothing more than an enabling environment that promises an enduring peace, upholds law and order, eliminates corruption, induces investment, creates employment and rewards performance.”

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