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JKH December net profit falls 10% over previous year’s capital gains

1 February 2016 10:53 am - 0     - {{hitsCtrl.values.hits}}

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Sri Lanka’s premier blue ship, John Keells Holdings PLC (JKH) saw its net profit for the quarter ended December 31, 2015 (3Q16) dropping 10 percent year-on-year (yoy) to Rs.3.9 billion as the corresponding quarter last year included a capital gain of Rs.610 million, the financial results released to the Colombo Stock Exchange (CSE) showed.

The basic earnings per share (EPS) declined to Rs.3.27 from Rs.3.76 while the diluted EPS fell to Rs.3.26 from Rs.3.72 a year ago. JKH said the group net profit increased 5 percent yoy if the capital gain is excluded. The JKH share closed Rs.154.60, Rs.1.10 or 0.72 percent higher at last week’s close. The group top-line remained virtually unchanged at Rs.24.7 billion for the quarter mainly due to the group’s insurance arm, Union Assurance General Limited being classified as an associate company postsegregation of life and non-life from January 01, 2015.

The steep reduction in global oil prices also had an adverse impact on the group’s bunkering business with old consignments being sold at prevailing low prices. The gross profit however, increased by 6 percent yoy to Rs.7.3 billion. Meanwhile, the group’s segmental analysis showed several key business segments narrowing their profits with only property and the consumer foods and retail arms improving their bottom lines.

The group’s transport segment narrowed its net profit 34.4 percent yoy to Rs. 418.4 million while the top-line fell 39.7 percent yoy to Rs.2.29 billion. The decline in profits was due to lower contribution from the group’s bunkering business and to a lesser extent the Ports business, the company said.

The group’s international courier franchise, DHL Keells improved the performance due to continued growth in its active customer base. The group’s leisure sector saw its net profit declining by 12 percent yoy to Rs.1.09 billion but the top-line rose by 7 percent yoy to Rs. 6.2 billion. The poor performance was due to, “decrease in occupancies against the corresponding period of the previous year due to the increased supply of room inventory within Colombo and the lower volumes generated through the corporate and MICE segments,” said the group Chairman, Susantha Ratnayake in an earnings release. Commenting further on the sector he said, the Sri Lankan resorts sector witnessed an increase in average room rates although occupancies declined marginally due to increased room inventory coupled with a decrease in arrivals from the Russian market.

“Tourist arrivals in to the Maldives were negatively impacted by the prevailing political uncertainties and travel advisories to the country,” Ratnayake added. JKH operates several resorts in the archipelagos. The group’s destination management business however recorded an improved performance driven by the growth in the European market. The group’s property segment saw its net profit rising by as much as 52 percent yoy to Rs. 541.9 million while the revenue rose by 8 percent yoy to Rs.2.15 billion. According to the company, the improved performance was due to the final tranches of revenue recognized on account of the ‘7th Sense’ residential development project. Meanwhile, Ratnayake said the pre-sales of the upcoming US $ 580 million residential and commercial complex, ‘Cinnamon Life’, which was earlier known as the Waterfront project, had been encouraging. However he said the project had faced some “unforeseen delays” and therefore the completion of the project was delayed to 2019.

The project was previously slated to be completed in 2017. Leisure and construction have been identified as the only growth drivers in the slowing Sri Lankan economy amid global economic worries and domestic fiscal concerns and the fragile external sector. The consumer foods and retail segment increased its net profit by as much as 74 percent yoy due to positive consumer sentiments driving consumption demand.

The segment revenue rose by 21 percent yoy to Rs.9.3 billion. The company said its retail segment recorded significant improvement due to year-on-year growth in same store sales due to a notable increase in footfall and incremental contribution from recently established outlets. The financial services segment increased its after tax profit by 2.9 percent yoy to Rs.973 million but the top-line declined by 31 percent yoy to Rs.1.9 billion due to Union Assurance PLC’s general insurance arm being consolidated as an associate instead of a subsidiary as earlier.

Meanwhile, JKH’s commercial banking unit, Nations Trust Bank PLC’s net interest margin has narrowed impacting its profitability growth. Information technology unit of the group saw its net profit declining 25 percent yoy to 69.6 million but the topline grew 11.6 percent yoy to Rs.2.4 million. The decline in profit was due to its office automation business which contributes a lion share to the segment profit witnessing a decline in performance mainly due to lower margins on account of the depreciation of the rupee. This, the group said, was despite recording a growth in volumes across its three main product segments. Other business which included plantation services saw their net profits falling 42.5 percent yoy while the revenues declined 28.5 percent yoy to Rs.770.9 million. The decline in performance is mainly attributable to the capital gain of Rs.610 million recorded during the third quarter of previous year.

The performance of the plantation sector was adversely affected as the tea prices continued to remain depressed. Meanwhile the JKH group for the nine months ended December 31, 2015 posted a net profit of Rs.9.5 billion, up 5 percent over the corresponding period last year. However the net profit rose 17 percent yoy when the aforementioned capital gain was excluded, the company said. The basic EPS improved to Rs.8.26 from 8 while the diluted EPS rose to Rs.8.23 from Rs.7.92 a year ago. During the nine months, the group paid an interim dividend of Rs.4.50 per share in November 2015 amounting to Rs.7.74 billion in total. The 2015 warrants brought Rs.7.97 billion in equity during the period. As of December 31, 2015 Broga Hill Investments Limited held 10.4 percent stake being the largest shareholder. This is followed by 10.1 percent by Sohli Captain and 7.7 percent by Paints & General Industries Limited.

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