Easter Sunday-hit and COVID-19-hit JKH expects ‘material’ impact on 2020/21 performance

The double blow in particular to Sri Lanka’s tourism-related businesses from the Easter Sunday 2019 terror attacks and the current COVID-19 pandemic will have a significant impact on large companies like John Keells Holdings (JKH) for instance.
In its 2019/20 annual report ending March 31, 2020, JKH said – in the results announced in the Colombo Stock Exchange on Thursday – that while the impact on the financial year 2020/21 cannot be ascertained at this point of time given the uncertain and evolving situation, it expects the impact on performance in the first and second quarter to be “material”, particularly for the tourism-focused businesses. 
However, the statement by Group Chairman Krishan Balendra, pointed out that with the resumption of activity across the country, there seems to be early signs of an encouraging recovery of consumer activity which should be positive “for our consumer-focused businesses such as Consumer Foods, Retail, Logistics and Insurance”. 
“The priority will be to ensure a smooth transition while maintaining our agility considering the uncertainty of the environment post the easing of restrictions,” his statement said.
For the financial year 2019/20, group revenue increased by 3 per cent to Rs.140.04 billion while recurring group EBITDA (Earnings before interest, tax, depreciation and amortization) decreased by 14 per cent to Rs.22.06 billion. Recurring group profit before tax (PBT) decreased by 28 per cent to Rs.12.28 billion while the recurring profit attributable to equity holders of the parent (company) decreased by 26 per cent to Rs.9.33 billion for the financial year ended 31 March 2020.
Mr. Balendra, while reflecting on the fact that the group is celebrating 150 years of service to the community in 2020, said that while they are confident that the company’s investments, particularly in the recent past, “has positioned us well for the next phase of growth, and, as a group, our future, looks exciting, we remain confident that, as always, we have the strength and resolve to keep moving forward through this period of unprecedented challenges, as we have done, ‘enduring the times’, over the past 150 years”.
Referring to the COVID-19 pandemic, Mr. Balendra ‘recognised and commended’ the relevant authorities for the aggressive and proactive efforts undertaken to contain the spread of the virus, and said it was encouraging that there is no indication of community spread in the country.
“At the onset of the crisis, in order to evaluate the financial position of each business, particularly over the next 12 months, each of the businesses were stress-tested under multiple operating scenarios, and, subsequently at a group consolidated level, to ascertain the impact on the ability to sustain its operations with its cash reserves and banking facilities in place. While the assumptions vary across the businesses, the group is satisfied of the ability of the businesses to manage its operations even under an extreme stress-tested scenario. In addition, the group has initiated and implemented a series of measures with a view to focusing on cash management and liquidity, which include the adoption of weekly dashboards which cover financial and non-financial KPIs and revised targets, monitoring of weekly cash targets and spend control initiatives including a freeze on all non-essential capital expenditure and stringent expense control measures, including a reduction in executive staff remuneration ranging from 5 to 60 per cent across the group until June 2020, subject to further review depending on the macro and operating environment,” his statement said.
It said that the Government has also announced certain relief measures including a moratorium on repayment of loans and concessionary working capital facilities for eligible industries and where relevant, group companies have also applied for such relief measures which will help ease the financial position further.
“The most recent release by the Government states that curfew restrictions in the two districts will remain, with restrictions being eased off during the day for the gradual commencement of economic activity by the public and private sectors. Although it is too soon to make an assessment, we have seen a smooth transition with the resumption of business activity where we are already seeing a positive momentum. Given the volatile and evolving landscape, the group will continue to monitor the impacts to its operations and proactively take measures to ensure business continues as seamlessly as possible. At this moment, the focus is on transitioning to back-to-work arrangements ensuring all health and safety protocols are in place,” the statement said.
On transportation, the report said that while the initial impact on volumes in the Colombo port was from the lockdown in China and subsequently from India, given the higher reliance on transshipment volumes, the degree of impact to overall port operations will largely depend on how regional trade will evolve post recovery. However, the recovery of trade in China has been encouraging where the group is seeing a pick-up in vessel movement, although volumes in Colombo will also depend on trade in India and the South Asian region, given that a majority of transshipment volume for the Colombo port emanates from this region.