JKH posts impressive 2Q results but flags off Land Bill concern

Premier blue chip John Keells Holdings Plc (JKH) yesterday announced impressive second quarter results, reflecting strong resilience despite challenging times.
The Group profit before tax (PBT) at Rs. 3.68 billion in the second quarter of the financial year 2014/15 was an increase of 39%. The cumulative PBT for the first half of the financial year 2014/15 at Rs. 6.74 billion was an increase of 39%.
“The profit attributable to equity holders for the second quarter at Rs. 2.65 billion reflects an increase of 29% over the previous year, while the first half performance at Rs. 4.79 billion reflects an increase of 32% over the corresponding period of the previous financial year,” JKH Chairman Susantha Ratnayake said in a note accompanying interim results.
The revenue at Rs. 22.16 billion in the second quarter of the financial year 2014/15 was an increase of 6% over the Rs. 20.88 billion recorded in the second quarter of the previous financial year. The cumulative revenue for the first half of the financial year 2014/15 at Rs. 43.45 billion was an increase of 7% over the revenue of Rs. 40.73 billion recorded in the same period of the previous financial year
Company PBT for the second quarter of the financial year 2014/15 at Rs. 1.09 billion was an increase of 481% over the PBT of Rs. 188 million recorded during the same period last year, while the PBT for the first half of the financial year at Rs. 4.06 billion was an increase of 65% over the previous financial year.
Though posting impressive results, JKH made it a point to refer to the contentious Land Bill in the Chairman’s Review.
“The Land (Restrictions on Alienation) Act recently passed by Parliament poses several challenges to business in general. Impacts to the Group, if any will be assessed once the specifics in the Act are interpreted and understood,” JKH Chief Ratnayake added.
Following is a snapshot of JKH’s sectoral performance:
Transport: The Transportation industry group PBT of Rs. 589 million in the second quarter of 2014/15 was a decrease of 21% over the second quarter of the previous financial year [2013/14 Q2: Rs. 745 million]. The decline in profitability is mainly attributable to the lower contribution from the Bunkering business, where, in spite of maintaining market share, margins contracted on account of an increasingly competitive operating environment. The performance of the port business was in line with expectations, as volumes stabilised and the continuous focus on cost management further contributed towards profitability. DHL Keells witnessed an improvement in its performance aided by the continued growth in its active customer base.
Leisure: The Leisure industry group PBT of Rs. 1.15 billion in the second quarter of 2014/15 was a marginal increase over the second quarter of the previous financial year [2013/14 Q2: Rs. 1.14 billion]. The associate Cinnamon Red, a select service business hotel, commenced operations during the quarter under review and has recorded encouraging occupancies to date. The Sri Lankan resorts sector witnessed an increase in occupancies, aided by the growth in tourist arrivals, whilst higher average room rates and successful management of costs further strengthened profitability.
The performance of the city hotel sector was negatively impacted during the quarter under review on account of lower volumes generated primarily through the corporate and MICE segments. The performance of the destination management business was in line with expectations primarily driven by a significant improvement in volumes generated from China which was augmented by the commencement of a weekly charter.
Property: The Property industry group PBT of Rs. 341 million in the second quarter of 2014/15 was a significant increase over the second quarter of the previous financial year [2013/14 Q2: Negative Rs. 45 million]. The improved performance was mainly on account of higher revenue recognition at the OnThree20 and 7th Sense on Gregory’s Road residential apartment projects, which have sold 96% and 83% of apartment units to date respectively.
Construction of the ‘Waterfront Project’ is in progress with demand for both the residential and commercial spaces continuing to be promising.
Consumer Foods and Retail: The Consumer Foods and Retail industry group PBT of Rs. 496 million in the second quarter of 2014/15 was an increase of 96% over the second quarter of the previous financial year [2013/14 Q2: Rs. 253 million].
Both the Frozen Confectionary and Beverage businesses benefited as a result of a growth in volumes emanating from the improving consumer sentiment and an evolving product portfolio. Keells Food Products recorded a growth in volumes compared to the second quarter of the previous financial year with its performance being in line with expectations. The Retail sector recorded a significant improvement in performance as it continued to benefit from year-on-year growth in same store sales due to a notable increase in footfall.
Financial Services: The Financial Services industry group PBT of Rs. 460 million in the second quarter of 2014/15 was an increase of 51% over the second quarter of the previous financial year [2013/14 Q2: Rs. 305 million]. Nations Trust Bank was the primary contributor to the improved performance as it benefited from a marginal pick up in credit volumes coupled with an increased focus on operational cost management and investment in IT infrastructure. The performance of the insurance business was in line with expectations. The life business maintained its market share while the general business focused on managing underwriting results in an increasingly competitive industry coupled with a low interest rate environment. The stock broking business recorded strong results in the quarter under review driven by the higher revenue on account of the improved daily market turnover levels and the execution of a few large transactions.
Information Technology: The Information Technology industry group PBT of Rs. 112 million in the second quarter of 2014/15 was an increase of 162% over the second quarter of the previous financial year [2013/14 Q2: Rs. 43 million]. The improved performance was driven by the office automation business and the software services business, which realised a gain of Rs. 41 million on the sale of its hotel reservation software Zhara HS. The office automation business benefited from the growing demand for smart phones, whilst greater emphasis on managing margins further enhanced profitability. Growth from existing clients had a positive impact on the Group’s Business Process Outsourcing (BPO) operations.
Other, Including Plantations: Other, including Plantation Services and the Corporate Centre recorded a PBT of Rs. 531 million in the second quarter of 2014/15, which was an increase of 154% over the second quarter of the previous financial year [2013/14: Rs. 209 million]. The improved performance is mainly on account of an increase in the finance income.
JKH also announced one rupee per share interim dividend for FY15 with payment on 25 November and XD on 14.Nov.2014.

www.ft.lk