JKH 9-month results better amidst tough 3Q

Premier blue chip John Keells Holdings (JKH) yesterday announced improved results for nine months, but the third quarter has been challenging.

The cumulative profit attributable to equity holders for the nine months ended 31 December 2012 at Rs. 6.97 billion reflects an increase of 28% over the corresponding period in the previous year, while the profit attributable to equity holders for the third quarter at Rs. 2.90 billion up by only 8%.

The cumulative Group profit before tax (PBT) for the nine months ended 31 December 2012 at Rs. 8.97 billion was an increase of 27% over a year earlier.

Group PBT at Rs. 3.58 billion in the third quarter represented an increase of 8% above the Rs. 3.33 billion recorded during the same period last year.

The cumulative revenue for the nine months ended 31 December 2012 at Rs. 62.20 billion represented an increase of 13%. The revenue for the third quarter at Rs. 21.51 billion was a marginal increase over the Rs. 21.41 billion revenue recorded in the same period last year. The company PBT for the nine months ended 31 December 2012 of Rs. 3.93 billion was up 69%.

“The Group’s quarterly results reflect the challenges that we continue to face in a volatile macro-economic environment,” JKH Chairman Susantha Ratnayake said in a review accompanying interim results yesterday.





In the 3Q gross profit was up by only 3% to Rs. 5.56 billion whilst results from operating activities was down by 8% to Rs. 1.99 billion. Finance income of Rs. 1.08 billion in 3Q, up by 54% (71% rise in net finance income to Rs. 790 million) and 14% growth in share of results of equity accounted investees to Rs. 787 million helped JKH to improve the pre-tax performance. Net finance income in the nine months was a high Rs. 2.2 billion, up by 46%.

Commenting on segmental results, he said the transportation industry group PBT of Rs. 844 million was in line with the third quarter PBT of the previous year [2011/12 Q3: Rs. 845 million] mainly on account of exchange losses in the bunkering business as a result of the appreciation of the rupee. The new domestic aviation associate of the Group, operating under the brand name ‘Cinnamon Air,’ completed the purchase of two Cessna amphibian aircrafts.

Operations of the airline are scheduled to commence during the fourth quarter of the financial year 2012/13, which we believe will be an important addition to the tourism infrastructure within the country.

The Leisure industry group PBT of Rs. 1.34 billion was an increase of 33% over the third quarter of the previous year [2011/12 Q3: Rs. 1.00 billion]. The growth in PBT was predominantly driven by City Hotels.

“Sri Lankan Resorts was impacted by lower than expected occupancies as a result of a drop in our traditional markets, combined with aggressive marketing by competing destinations. We continue to reiterate the importance and urgency of creating greater awareness of Sri Lanka as a travel destination, to ensure that the country fully realises the substantial multiplier effects to the economy from this important industry,” JKH Chief Ratnayake said.

The Property group PBT of Rs. 180 million for the third quarter was a decrease of 44% over the PBT recorded in the corresponding period of the previous year [2011/12 Q3: Rs. 319 million], primarily as a result of the revenue recognition cycle. The progress of ‘OnThree20’ is on schedule and construction has progressed up to the 28th floor. The 140,000 square foot ‘K Zone’ mall in Kapuwatte will commence operations in February 2013.

JKH’s Consumer Foods and Retail industry group PBT of Rs. 186 million was a decrease of 65% over the third quarter of the previous year [2011/12 Q3: Rs. 533 million] mainly due to a non-recurring income of Rs. 120 million in the corresponding quarter of the previous year.

Ice cream, soft drink and processed meat volumes were below expectations while overall profitability was negatively impacted by excise and duty increases and other cost escalations during the quarter under review. This was compounded by the severe floods experienced in many districts, Ratnayake added.

The Retail sector is seeing benefits arising from the implementation of the new way forward strategy and witnessed growth in footfall and basket values. The imposition of the value added tax (VAT) of 12% with effect from 1 January 2013 on retail businesses with turnover exceeding Rs. 500 million per quarter is expected to have an impact on the margins of the Retail sector.

“Whilst we support the principle of broadening the tax base, the fact that no transitional provisions were made available to allow for the claim of input VAT on the closing stocks as at 31 December 2012 was disappointing. This will result in a significant ‘one-off’ impact on profitability in the next quarter,” JKH Chairman pointed out.

The Financial Services industry group PBT of Rs. 734 million was an increase of 27% over the third quarter of the previous year [2011/12 Q3: Rs. 577 million]. Nations Trust Bank was the primary contributor to growth. Union Assurance raised Rs. 750 million through a rights issue to strengthen its capital base.

The Information Technology industry group PBT of Rs. 103 million was an increase of 59% over the third quarter of the previous year [2011/12 Q3: Rs. 65 million]. The growth in PBT was driven by the improved performance of the Office Automation and Software Services businesses compared with the corresponding period last year.

Other, comprising of Plantation Services, John Keells Capital and the Corporate Centre, recorded a PBT of Rs. 194 million as opposed to the loss of Rs. 16 million recorded for the third quarter of the financial year 2011/12, mainly as a result of higher income arising from better interest rates.