Sri Lanka's JKH June net profit down 23-pct on consumption slump, losses at hotels

ECONOMYNEXT - Profits at Sri Lanka's listed John Keells Holdings fell 23 percent from a year earlier to 2.2 billion rupees in the June 2018 quarter weighed down by declining earnings at retail and consumer foods businesses and losses at hotels and resorts offsetting gains from bunkering, port operations, banking and insurance.

The group reported earnings of 1.58 rupees a share in the quarter, interim accounts filed with the stock exchange showed. The stock closed 2.70 rupees lower at 142 rupees on Friday.

In the June quarter revenue grew 12 percent from a year ago to 30.2 billion rupees, cost of sales grew a faster 22 percent to 24.6 billion rupees contracting gross profit by 17 percent to 5.6 billion rupees.

Administrative expenses fell 3 percent to 3.2 billion rupees while selling and distribution expenses grew 18 percent to 1.2 billion rupees and other operating costs increased 31 percent to 1 billion rupees.

Net finance income fell 30 percent to 2.3 billion rupees.

-Segment results-

John Keells Holdings' June quarter earnings were bolstered by profit growth at its transportation and financial services business units, which were offset by declining earnings at retail, consumer foods and property businesses (which includes the 850 million US dollar Cinnamon Life mixed development project) and losses from hotels managed by the group.

Profits at the transportation unit grew 4 percent from a year earlier to 842 million rupees on a 53 percent growth in revenue of 5 billion rupees.

"The increase in profitability is mainly attributable to the performance of the group’s bunkering, and ports and shipping businesses," Chairman Susantha Ratnayake said.

In the June quarter, container volumes handled at South Asia Gateway Terminals which the group has a stake in grew 24 percent, compared to a volume of growth 15 percent for the entre Port of Colombo, Ratnayake said.

Bunkering volumes had grown 20 percent in the quarter.

Financial services segment saw profits increase 131 percent to 550 million rupees with revenue growing 12.4 percent to 2.5 billion rupees.

"The increase in profitability was primarily due to Union Assurance PLC, driven by a growth of 13 percent in gross written premiums. Nations Trust Bank recorded an improvement in performance driven by steady loan growth during the quarter under review".

Hotels and resorts reported a 278 million rupee loss in the June quarter, compared to a profit of 179 million rupees a year ago, with revenue falling 10.5 percent to 4.4 billion rupees.

"The decline is mainly attributable to the lower profitability in our city hotels and a non-cash impact of 202 million rupees at Cinnamon Hakuraa Huraa Maldives, on account of an impairment loss on non-financial assets arising from the closure of the hotel for re-construction," Ratnayake said.

Another property in the Maldives, Ellaidhoo Maldives by Cinnamon is partially closed for on-going refurbishment.

The remaining segments of the group - retail, consumer foods, property, plantation and tech - reported declining profits.

Retail which contributes the most to group turnover, reported a 51 percent decline in profits to 235 million rupees despite a 20.5 percent growth in revenue of 13.1 billion rupees.

"Profitability was impacted by depressed basket values due to weak consumer sentiments and store expansion related costs".

Consumer foods profits fell 46 percent to 339 million rupees with revenues falling 4 percent from a year earlier to 3.7 billion rupees in the June quarter.

"The decline in profitability is on account of the beverages business which recorded a volume decline of 37 percent. This is due to the implementation of a sugar tax from November 2017, which resulted in substantial price increases across the industry".

The group is introducing a range of sugar-free fizzy drinks, juices, dairy products and bottled water to shore-up revenue.

Profits from Plantations and Information Technology reported as a single unit fell 28 percent to 1.2 billion rupees on a 9.8 percent growth in revenue of 1.4 billion rupees, mainly due to falling finance incomes.

Plantations' earnings were hit by falling tea prices and the IT businesses reported lower profits because the previous year included profits of the group’s BPO business which was divested in September 2017.

The property segment of the group reported an 85.5 percent decline in profits to 9 million rupees despite revenue growing 1.3 percent to 226 million rupees.

"The construction of Cinnamon Life is progressing with encouraging momentum, with approximately 62 percent of the floor area sold in the two residential towers.

"Tender submissions for the Tri-Zen residential development project are expected to be received in the ensuing quarter, whilst presales continue to be encouraging.

"In addition, the master planning of an 18-acre suburban site North of Colombo is also currently underway," Ratnayake said.