JKH surprises with stellar 2nd Quarter

Premier blue chip John Keells Holdings (JKH) has surprised the corporate world and analysts with an impressive performance in the FY13 second quarter, usually a relatively subdued period for conglomerates.

JKH reported a profit attributable to equity holders of Rs. 2.41 billion in 2Q, up by 59% over the previous year while the first half performance at Rs. 4.07 billion was an increase of 48% over the corresponding period in the previous year.

The Group profit before tax (PBT) at Rs. 2.99 billion in the second quarter of the financial year 2012/13 was an increase of 46% above the Rs. 2.06 billion recorded in the corresponding period in the previous year. The cumulative PBT for the first half of the financial year 2012/13 at Rs. 5.39 billion was an increase of 44% over the PBT of Rs. 3.74 billion recorded in the same period in the previous year.

The revenue at Rs. 20.68 billion and Rs. 40.70 billion in the second quarter and the first half of the financial year 2012/2013 was 17% and 21% above the Rs. 17.63 billion and Rs. 33.51 billion recorded in the corresponding periods in the previous year.

The Company PBT for the first half of Rs. 2.22 billion was an increase of 57% over the Rs. 1.41 billion recorded in the first half of 2011/12.

JKH Chairman Susantha Ratnayake in his review accompanying interim results said: “Despite the volatile macro-economic environment which continues to be challenging, the performance of the Group demonstrates our resilience and our ability to adapt to changing circumstances.”

The JKH Board of Directors have drawn comfort from a special purpose audit carried out by the Group Auditors of all quoted companies and selected subsidiaries for the six months ended 30 September 2012, to ensure a smooth transition of SLFRS/LKAS adoption.

Following are highlights from the sectoral performance of JKH:

Transportation: The Transportation industry group PBT of Rs. 1.02 billion was an increase of 57% over the second quarter of the previous year [2011/12 Q2: Rs. 653 million], with the bunkering and logistics businesses predominantly contributing to growth. The Group concluded the joint venture in respect of its current freight forwarding businesses in India and Sri Lanka with Norbert Dentressangle S.A. of France.

Leisure: The Leisure industry group PBT of Rs. 945 million was an increase of 42% over the second quarter of the previous year [2011/12 Q2: Rs. 667 million]. The growth in PBT was mainly driven by City Hotels and Maldivian Resorts. City Hotels increased market share while Maldivian Resorts witnessed higher occupancies. Sri Lankan Resorts and Destination Management were adversely impacted as a result of a disappointing summer. However, the impact of lower occupancies was somewhat offset by higher average room rates. We continue to reiterate the importance of a focused, Sri Lanka centric, destination marketing strategy to attract the relevant visitor segments in ensuring year-round occupancies and yields which justify continued investment in this industry.

Property: The Property industry group recorded a loss before tax of Rs. 258 million for the second quarter, as against a loss of Rs. 11 million recorded in the corresponding period of the previous year. This is as a result of provisioning against preliminary project development costs. The progress of ‘OnThree20’ is on schedule and construction has progressed up to the 17th floor. Construction of the 140,000 square foot ‘K Zone’ mall in Kapuwatta, Ja-Ela is nearing completion.

Consumer Foods and Retail: The Consumer Foods and Retail industry group PBT of Rs. 288 million was a decrease of 11% over the second quarter of the previous year [2011/12 Q2: Rs. 324 million]. Volumes of carbonated soft drinks were lower than expected amidst challenging market conditions resulting in lower consumption while ice cream volumes witnessed marginal growth. During the quarter, both these businesses continued to invest in enhancing market penetration for their respective products. The acquisition of the meat processing facility of D&W Foods Limited was concluded during the quarter under review. The Rights Issue by Keells Food Products PLC to raise Rs. 1.02 billion to fund the acquisition and the expansion of the D&W facility was successfully completed. The Retail business witnessed revenue growth during the second quarter on the back of same store revenue growth and revenue from new stores following the rolling out of the way forward strategy. The ongoing costs associated with this implementation impacted the profitability.

Financial Services: The Financial Services industry group PBT of Rs. 323 million was an increase of 21% over the second quarter of the previous year [2011/12 Q2: Rs. 268 million]. Nations Trust Bank continued to be the primary contributor to the industry group and maintained its growth momentum in the second quarter. Union Assurance announced a Rights Issue of one ordinary share for every seven shares held to strengthen the capital position of the company in order to proactively meet future regulatory requirements. The low level of activity at the Colombo Stock Exchange continues to adversely impact the revenues of the Stock Brokering business.

Information Technology: The Information Technology industry group PBT of Rs. 56 million was an increase of 17% over the second quarter of the previous year [2011/12 Q2: Rs. 48 million]. This increase was largely as a result of the improved operations of the Business Process Outsourcing (BPO) operations in India compared with the corresponding period in the previous year. The BPO business continued to experience growth in revenue through the acquisition of new customers. The Group divested its stake in the Chicago-based associate Quattro FPO Solutions (Pvt) Limited for a consideration of US Dollars 4.5 million.

Other, including Plantation Services: Other, comprising of Plantation Services, John Keells Capital and the Corporate Centre, recorded a PBT of Rs. 620 million for the second quarter of the financial year 2012/13 [2011/12 Q2: Rs. 107 million] as a result of the capital gains from the divestment of Quattro FPO Solutions and the partial divestment of the freight forwarding businesses to Norbert Dentressangle and higher finance income. Tea Smallholder Factories and the produce brokering business which benefited from the increase in tea prices performed well.

The Board declared a first Interim dividend of Rs. 1 for 2012/2013, to be paid on 23 November.