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Thursday, 8 November 2018 00:59 - - {{hitsCtrl.values.hits}}
Transportation
The Transportation industry group PBT was Rs. 1.06 billion in the second quarter of 2018/19 [2017/18 Q2: Rs. 1.07 billion]. The market share and profits of the Group’s Bunkering business, Lanka Marine Services (LMS), increased as a result of a growth in volumes and improved margins. Whilst South Asia Gateway Terminals (SAGT) recorded a 12% growth in throughput over the corresponding period of the previous financial year, a decline in the volume of domestic TEUs impacted profitability. The Logistics business recorded a strong performance due to an increase in throughput. The design work and obtaining building approvals for the new 200,000 sq. ft. warehouse in Muthurajawela is ongoing, and construction is expected to commence in the fourth quarter of 2018/19.
Leisure
The Leisure industry group PBT of Rs. 453 million in the second quarter of 2018/19 is a decrease of 46% over the second quarter of the previous financial year [2017/18 Q2: Rs. 838 million]. The decline in profitability is mainly attributable to the City Hotels sector, the partial closure of “Ellaidhoo Maldives by Cinnamon” for refurbishment and the closure of “Cinnamon Hakuraa Huraa Maldives” for the reconstruction of the hotel.
Whilst the City Hotels sector maintained average room rates, profitability was impacted by a decline in occupancies, due to the increased supply of room inventory within Colombo and the lower volumes generated through the corporate segment. However, the year-on-year total number of room nights occupied in the city increased by 9% during the quarter under review, demonstrating the steady absorption of new room capacity.
Profitability in the Sri Lankan Resorts segment was impacted by a decline in occupancies, and an exchange loss on the translation of its foreign currency denominated debt arising from the depreciation of the Rupee during the quarter.
The business will however accrue the benefits of the depreciation on account of its foreign currency denominated revenue streams over the ensuing periods.
The Maldivian Resorts segment recorded an improvement in occupancies, although profitability was impacted by lower average room rates, particularly from “Ellaidhoo Maldives by Cinnamon” due to the refurbishment during the quarter. In addition, profits in the second quarter of 2017/18 included “Cinnamon Hakuraa Huraa Maldives”, which is now closed, with re-construction expected to be completed in December 2019.
Despite increased activity in the informal sector, occupancies at our hotels in the Maldives remained above the industry average during the quarter under review.
Property
The Property industry group PBT of negative Rs. 14 million in the second quarter of 2018/19 is a decrease over the second quarter of the previous financial year [2017/18 Q2: Rs. 57 million]. The decline in profitability is mainly attributable to Rajawella golf course, which is currently undergoing a relaying of the fairways.
The construction of “Cinnamon Life” is progressing with encouraging momentum. The super structure of all buildings in the development is expected to be completed by April 2019. The project is slated for completion in the calendar year 2020 with the residential apartments and office complex ready for handover and occupation by early 2020. Evaluation of the tender submissions for the “Tri-Zen” residential development is currently in progress, and construction of the project is expected to commence in the ensuing quarter. In addition, the master planning of an 18-acre suburban site North of Colombo is also currently underway.
Consumer Foods
The Consumer Foods industry group PBT of Rs. 443 million in the second quarter of 2018/19 is a decrease of 40% against the second quarter of the previous financial year [2017/18 Q2: Rs. 738 million]. The decline in profitability is primarily on account of a volume decline of 31% in the carbonated soft drinks (CSD) range of the Beverages business and costs relating to the commissioning of the new ice cream factory as discussed below.
The decline in beverage volumes is due to the implementation of a sugar tax on CSD from November 2017, which resulted in substantial price increases\ across the industry. However, it is encouraging that the growth in monthly volumes within the quarter has been on an upward trend. The performance of the non-CSD product range continue to be encouraging.
The Frozen Confectionery business recorded a volume growth of 8% during the quarter under review, driven by growth in the impulse segment. Whilst the business recorded volume growth, profits were impacted by plant commissioning and start-up costs due to the gradual ramp up of production at the new manufacturing facility in Seethawaka and the depreciation and finance expense relating to the investment. The new facility will be pivotal to the long-term growth prospects of the business, given its scalability of product range and volumes and higher operational efficiencies.
During the quarter, four new impulse stick range varieties were launched.
Keells Food Products PLC recorded an increase in profitability on account of a 12% growth in volumes and a better sales mix.
Retail
The Retail industry group PBT of negative Rs. 75 million in the second quarter of 2018/19 is a decrease against the second quarter of the previous financial year [2017/18 Q2: Rs. 506 million]. The Supermarkets business PBT of negative Rs. 91 million in the second quarter of 2018/19 is a decrease against the second quarter of the previous financial year [2017/18 Q2: Rs. 381 million]. The supermarkets business continued to record a growth in customer footfall which contributed towards modest same store sales, despite the subdued macro conditions which also resulted in a contraction in average basket values. In addition to the impact of subdued consumer sentiment, PBT was impacted by the one-off re-branding and re-fitting costs of a majority of our stores which amounted to Rs. 115 million during the quarter under review. PBT was further impacted by store expansion related costs, which included a significantly higher interest expense based on the planned funding strategy, and higher depreciation as a result of the higher store count, both of which collectively accounted for Rs. 152 million during the quarter under review.
All existing outlets are expected to be re-fitted and re-branded by November 2018. The new format and offering continues to be very well received. During the quarter under review, six new outlets were opened, bringing the total store count to 88 as at 30 September 2018.
Profitability of the Office Automation business was impacted by significant exchange losses which impacted margins during the quarter under review.
Financial Services
The Financial Services industry group PBT of Rs. 484 million in the second quarter of 2018/19 is an increase of 29% over the second quarter of the previous financial year [2017/18 Q2: Rs. 376 million]. The increase in profitability was primarily due to Union Assurance PLC (UA). Nations Trust Bank PLC recorded robust loan growth during the quarter under review. With the introduction of the new tax base in terms of Section 67 of the Inland Revenue Act No. 24 of 2017, UA will have taxable income from the year ending 31 December 2018. UA will be eligible to claim its brought forward tax losses against its taxable income within a period of 6 years. Accordingly, during the quarter under review, UA recognised a deferred tax asset amounting to Rs. 1.53 billion arising from brought forward tax losses as at 31 December 2017.
Other, including Information Technology and Plantation Services
Other, including Information Technology and Plantation Services industry group recorded a PBT of Rs. 2.34 billion in the second quarter of 2018/19, this being an increase of 71% over the second quarter of the previous financial year [2017/18 Q2: Rs. 1.37 billion]. The increase in PBT is mainly attributable to the higher exchange gains recorded at the Company on its foreign currency denominated cash holdings compared to the corresponding quarter of the previous financial year. The performance of the Plantation Services sector was impacted by a decrease in tea prices during the quarter under review.
The Information Technology sector recorded an increase in profitability on account of onboarding new clients.
