JKH FY19 pre-tax profit down 33% to Rs. 18.6 b

Premier blue chip John Keells Holdings (JKH) has achieved a pre-tax profit of Rs. 18.6 billion in FY19, down by 33% from the previous year. 

Post-tax profit was down 30% to Rs. 16.2 billion. Net profit attributable to equity holders of parent was lower by 27% to Rs. 15.2 billion. 

The dip is due to JKH in the previous FY18 having several extraordinary items as well as a strong fourth quarter as against the current year’s.

JKH’s recurring pre-tax profit for FY19 was Rs. 18.4 billion. Group revenue was up 12% in FY19 to Rs. 135.4 billion.

JKH said South Asia Gateway Terminals (SAGT), the Group’s Ports and Shipping business, maintained its growth momentum with a volume growth of 11%. The Frozen Confectionery business recorded a volume growth of 10%, despite difficult market conditions, driven by the Impulse segment and the expansion of its product portfolio, post the commissioning of the new factory. 

The Beverage business displayed signs of recovery and is expected to witness growth in volumes following price reductions, post the introduction of a threshold on the sugar tax.

The Supermarket business continued to gain market share. The ‘Keells’ brand was launched in October 2018 with the completion of a refit and rebranding across all outlets. The outlet roll-out continued beyond the Western Province.

The City Hotels sector maintained its fair share in the five-star hotel category despite a sharp increase in room supply and political volatility during the latter part of 2018. The newly reconstructed ‘Cinnamon Hakuraa Huraa Maldives’ and ‘Cinnamon Bentota Beach’ will commence operations in December.

The ‘Tri-Zen’ residential development project is witnessing strong momentum in sales with 200 units sold. Revenue recognition will commence from the June quarter onwards. 

The construction of ‘Cinnamon Life’ is continuing with encouraging momentum with the residential apartments and office tower slated for handover from March 2020 onwards.

Financial Services was impacted by mark-to-market losses at Union Assurance PLC (UA) due to a decline in the stock market. UA’s profits in 2017/18 included a one-off surplus of Rs. 3.38 billion. Nations Trust Bank (NTB) recorded a double-digit growth in both deposits and advances, although profitability was impacted by introduction of the Debt Repayment Levy and higher impairment charges due to the elevated credit risk stemming from subdued economic performance and the implementation of SLFRS 9.

In the fourth quarter pre-tax profit dipped sharply by 58% to Rs. 5.3 billion and post-tax profit by 68% to Rs. 3.6 billion with bottom line down 68% to Rs. 3.1 billion.

The blue chip said the underlying recurring operating performance of all industry groups, with the exception of Leisure and Financial Services, improved against the previous year. The Consumer Foods and Retail industry groups witnessed growth in profits on the back of improved consumer demand.

Consumer Foods witnessed growth on account of a better performance in the Frozen Confectionery business driven by a 21% growth in volumes, and improved profitability in the Beverage business on account of higher margins.

Retail performance was driven by strong revenue growth in the Supermarket business supported by new outlets and a reasonable pick up in same store sales to 4.5%.

The decline in Group PBT by 58% to Rs. 5.38 billion was mainly due to the one-off surplus and optimal surplus transfer recorded in 2017/18 by the Life Insurance business, Union Assurance PLC (UA), which cumulatively amounted to Rs.7.02 billion. The annual life insurance surplus recorded by UA amounted to Rs. 1.10 billion in 2018/19. Profits of UA were further impacted by mark-to-market losses on its equity investment portfolio due to a decline in the stock market.

Leisure was impacted by lower occupancies in the City Hotels sector due to the increase in room inventory within Colombo and the closure of ‘Cinnamon Hakuraa Huraa Maldives’ for the reconstruction of a new hotel.

Performance of Property was impacted due to 2017/18, including a one-off revenue recognition at Rajawella Holdings Ltd. on the sale of leasehold rights and lower fair value gains on investment property in 2018/19 in comparison to 2017/18.

The performance for the quarter also included an exchange loss at the Holding Company as a result of the appreciation of the rupee, in comparison to an exchange gain recorded in the fourth quarter of 2017/18.