John Keells Holdings PLC (JKH) saw another quarter of declining profits in December with the diversified corporate giant’s consumer-related businesses struggling amid a weaker economy and the below par performance of the group’s leisure sector operations.
JKH reported earnings of Rs.3.24 a share or Rs.4.49 billion for the December quarter (3Q18), down from Rs.3.73 a share or Rs.5.15 billion reported in the same period last year.
In the September quarter too, the group reported lower earnings than the same quarter a year earlier.
However, on a quarter-on-quarter basis, the earnings were up by about 20 percent, as the December quarter has traditionally been a better quarter than the rest.
The group’s Rs.31.2 billion revenue for the quarter was 12 percent, higher than revenue reported for the same quarter, last year.
JKH is a corporate leviathan, which has its tentacles in many a business.
This makes JKH’s performance becoming a barometer of the health of corporate Sri Lanka and general economic condition as the group has businesses in many sectors, expanding into further sub-sectors.
Meanwhile, for the nine months ended in December 2017, the group reported earnings of Rs.7.97 a share or Rs.11.1 billion, down from Rs.8.24 a share or Rs.11.29 billion.
The group’s top line was up by 15 percent year-on-year (YoY) to Rs.87.66 billion from Rs.76.43 billion reported a year earlier.
The earnings were affected largely by the lower profitability in the leisure sector and consumer foods and retail segment.
The leisure sector was mainly impacted by the below par performance of the city hotels, due to a drop in occupancy levels.
“However, it is encouraging that the total number of rooms occupied in the city witnessed a double-digit growth in the quarter under review,” said JKH Chairman Susantha Ratnayake in his earnings review.
The leisure sector top line declined to Rs.6.1 billion for the quarter from Rs.6.5 billion in the same quarter last year, while the after-tax profit of the segment more than halved to Rs.639.1 million, from Rs.1.12 billion a year earlier.
The consumer foods and retail segment, which engages in manufacturing of ice cream and beverages and operates supermarket chain with 71 outlets, also posted a negative performance, due to a drop in demand and increasing raw material prices.
“The beverage and frozen confectionery businesses recorded a decline in volumes as a result of continued tapering of demand arising from subdued consumer discretionary spending,” Ratnayake said.
“The volume decline in the beverage business was further exacerbated by the implementation of a sugar tax from November 2017, which resulted in substantial price increases across the industry.
... we will continue to aggressively expand our low sugar product range by accelerating the launch of such new products,” Ratnayake added in his review of operations.
The consumer food and retail business reported a top line of Rs.13.5 billion, up from Rs.12.0 billion YoY, while the profit after tax for the period declined to Rs.673.4 million, from Rs.908.4 million.
Meanwhile, the group’s property segment profits fell sharply due to the recognition of revenue on the ‘7th Sense’ on Gregory’s Road residential development in the year earlier period. Ratnayake said the construction of the group’s flagship project property sector project Cinnamon Life is progressing well with the super structure approximately 50 percent complete.
“Parallel to the ongoing construction work of the super structure, the installation of the façade of the hotel will commence shortly. The construction work on the main access point via a six-lane bridge is nearing completion,” he added.
Meanwhile, the group’s property arm has also finalised the design for a new 800-apartment joint venture residential development project titled ‘Tri-Zen’ in Union Place, Colombo and the schematic designs are currently underway.
Last month, John Keells Properties presented both projects in Toronto, Canada to woo the Sri Lankans living overseas and the company claims the pre-sales for both projects have been encouraging.
The group’s transportation segment reported earnings of Rs.884.5 million, against Rs.817.5 million a year ago, as the Port of Colombo witnessed a YoY growth of 8 percent, whilst South Asia Gateway Terminals (SAGT) recorded a growth in throughput of 11 percent. “The market share and profits of the group’s bunkering business increased as a result of a double-digit growth in volumes,” Ratnayake said. The segment’s top line increased to Rs.4.89 billion from Rs.3.27 billion in the comparable period.
Meanwhile, the group’s financial services segment reported earnings of Rs.1.54 billion compared to Rs.1.14 billion a year earlier.
The performance was supported by the higher gross written premiums of the group’s insurance arm, Union Assurance PLC and the sound growth in loans at Nations Trust Bank PLC.
As of December 31, 2017, Broga Hill Investment Ltd, a special-purpose investment vehicle of Malaysia’s sovereign wealth fund Khazanah, held a 10.2 percent stake in JKH, while S.E. Captain held 10.1 percent, increasing from 9.9 percent he held three months ago.