by The Invisible Fri Jul 26, 2019 5:31 am
JKH profits halve on finance costs, Easter bombings
ECONOMYNEXT- Net profits at John Keells Holdings, Sri Lanka's largest conglomerate, fell 54 percent to 994.3 million rupees from a year earlier, the firm said, with accounting changes to finance costs and lower revenue growth hitting the bottom line.
Earnings per share for the quarter was 75 cents. The firm's share closed at 151 rupees, down 80 cents on Thursday.
Revenue grew at a slower 5 percent to 31.7 billion rupees from a year earlier due to the hotel segment which suffered from low tourist arrivals following the Easter bombings, while cost of sales rose 8 percent to 26.5 billion rupees, leading to gross profits falling 8 percent to 5.2 billion rupees.
Finance costs grew 145 percent to 1.2 billion rupees.
John Keells Group Chairman Krishan Balendra said that the rise in finance costs was due to a change in accounting standards from LKAS 17 to SLFRS 16, which does not recognize operating leases.
"Under the adoption of SLFRS 16, the impact to the income statement is front-loaded due to the higher finance expense at the inception of the lease," he said.
The new standard affected the group's hotels in the Maldives and supermarkets, for which lands are leased.
Long-term borrowings of the group rose to 36.3 billion rupees in June from 21.2 billion rupees in March, while short term borrowings rose to 4.1 billion rupees from 3.2 billion rupees.
Meanwhile, finance income fell 25 percent to 2 billion rupees from a year earlier.
Short-term investment assets of the group fell to 38.5 billion rupees in June from 52.8 billion in March.
Tax expenses were down 33 percent to 457.4 million rupees.
The group's leisure operations recorded a revenue of 2.9 billion rupees, down from 4.4 billion rupees a year earlier, while losses after tax grew to 1 billion rupees from 278.4 million rupees.
"The decline in profitability is on account of the negative impacts to the Sri Lankan leisure business as a result of the Easter Sunday terror attacks in April 2019 which targeted several religious establishments and three city hotels including Cinnamon Grand Colombo," Balendra said.
"The growth momentum of arrivals is expected to recover to pre-incident levels in the next 9-12 months, as historically indicated by other travel destinations which have experienced similar terrorism incidents," he said.
The relaxation of travel advisories which were placed by key tourism markets and Sri Lanka being listed on top global travel publications is helping recovery, he said.
"We are encouraged that the forward bookings for the Group’s Sri Lankan resort hotels have witnessed an upward trend in recent weeks, reaching levels of approximately 75 per cent compared to the bookings received at the same time last year, indicating signs of recovery."
Two hotels, Hakuraa Hurra in the Maldives, and Cinnamon Bentota Beach which were closed for reconstruction will reopen in December 2019, he said.
Meanwhile, transportation segment revenue fell to 5.5 billion rupees in June from 5.6 billion rupees a year earlier, while profits after tax grew to 961.7 million rupees from 826 million rupees.
"Transportation recorded a strong performance in the Ports and Shipping business, South Asia Gateway Terminals (SAGT), driven by higher volumes and an improved volume mix," Balendra said.
Logistics throughput grew 30 percent, he said.
However, bunkering operations had suffered in May and June due to from fuel price variations between Colombo and Singapore, lowering volumes of bunkering fuel sold in Colombo, he said.
The retail segment revenue grew to 15.7 billion rupees from 13.1 billion rupees, while after tax profits fell to 141.6 million rupees from 170.5 million rupees, hit by finance costs under the new accounting standard for leases.
The customer's average basket value at Keells supermarkets had grown 1.6 percent, while customer footfall had grown 2 percent, contributing to a 3.6 percent rise in same-store sales Balendra said.
However, limited entry into malls due to security concerns following the bombins had led to lower sales at supermarkets inside malls.
Three new supermarkets were opened during the quarter, bringing the total to 98, while between 25 to 30 store openings are planned for the entire year, Balendra said.
The consumer foods segment, which produces processed foods, soft drinks and ice cream, posted sales of 4.5 billion rupees, which was a growth from 3.7 billion rupees, while profits grew to 406.6 million rupees from 231.5 million rupees.
Balendra said that higher demand for fruit juice, dairy, water, fizzy drinks and ice cream pushed the segment up, helped by the newly installed ice cream plant.
Revenue from the financial services segment fell marginally to 2.46 billion rupees from 2.52 billion rupees while after tax profits fell to 314.9 million rupees from 550 million rupees.
The profits at the group's insurance business Union Assurance had enjoyed a higher profit base a year earlier due to a one-off tax credit, Balendra said.
"Profitability of Nations Trust Bank was impacted by a decrease in the rate of loan growth and higher impairment charges due to the heightened credit risk from subdued macro-economic conditions," he said. (Colombo/Jul25/2019)
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