Waterfront Development Project will be "transformational’’

Susantha mum on casino controversy in JKH annual report

"For a growing major city and its main building project, an icon has to stamp a contemporary mark that projects to the future. The strong backdrop and cantilever - forms of the Waterfront Integrated Resort provide that dynamic and powerful ambition, that JKH and Sri Lanka subscribe to."

- Cecil Balmond

John Keells Holdings Chairman Susantha Ratnayake has made no reference to the casino controversy in his chairman’s message published in the JKH annual report released on Friday.

But he has said that the group is very confident that based on expectations of its current portfolio and the Waterfront Project "we will achieve higher rates on our capital employed in the medium to long term on the back of the investments we are making to date."

JKH has posted a 5% increase in group revenue to Rs.89.26 billion and a marginal one percent decline on its group earnings before interest and tax to Rs.16.62 billion. Group profit before-tax was down 2% to Rs.15.4 billion and the after-tax group profit down 3% to Rs.13 billion. The group profit attributable to shareholders was also down 3% to Rs.11.7 billion.

However, JKH whose Board had declared a final dividend of Rs.1.50 per share payable on June 17 giving shareholders a total of Rs.3.50 per share as in the previous year has noted that the total payout for the year under review is Rs.3.27 billion against Rs.2.99 billion a year earlier.

This is on account of the increase of the number of shares in issue following the rights issue to raise cash for the Waterfront Development Project.

JKH which accounts for over 14% of Sri Lanka’s stock market operates 85 companies in major industry sectors across the region. It said that the multi-million dollar luxury mixed Waterfront Development Project that is now under construction "will be a transformational event in our group’s history."

The year under review had seen diluted earnings per share down 10% to Rs.12.33 from Rs.13.65 the previous year and cash earnings per share up 6% to Rs.15.22 from the previous year’s Rs.14.34.

Ratnayake said that although, the year under review was challenging at times in terms of the operating environment, it "was rewarding in that we are able to conclude the formalities associated with, and commence the construction of the Waterfront Project.’’

He reported that following cabinet approval of the project as a strategic development project, the gazette notification had been published and this has been approved by parliament on April 25. Construction has already commenced, he said.

"You will appreciate that the investments we are making today in ensuring a sustainable long-term future, and the revaluation of our land, buildings and other assets… will have short to medium term implications on some of our ratios," he said.

He pointed out that the return on the capital employed and return on equity had been impacted by the equity expansion via the rights issue at the company level and the debt drawn by the Waterfront Project in the year under review.

The largest contributor to the JKH bottom line was the leisure industry group reporting revenues of Rs.22.5 billion and a profit after-tax of Rs.4.82 billion contributing 23% of the group’s revenue and 37% of the group profit after-tax.

The city hotels had been the largest contributor to the leisure industry group’s profit after–tax with the Sri Lankan resorts also demonstrating significant growth in PAT.

Ratnayake said that the Lankan resorts had achieved higher occupancies in all its hotels compared to the previous year on the back of the growth on tourism with occupancy rising to 75% against 61% the previous year.

The transportation industry group contributed a profit after-tax of Rs.2.51 billion on revenue of Rs.21.8 billion.

South Asia Gateway Terminals had seen the volume of containers handled decline mainly on account of one of the shipping consortiums they serviced ``re-aligning.’’

Ratnayake was confident that the new deep water terminal in the Colombo South harbour now in commercial operation will augur well for the group’s business in the next three to four years.

He noted that this was the only terminal in the Indian sub continental to offer the combined infrastructure of a deep draft and longer outreach cranes with the ability to handle the newest generation of container ships which could not be catered to previously in Colombo.

The property industry group had posted revenue of Rs.4.14 billion and a profit after-tax of Rs.1.29 billion contributing 4% and 10% to group revenue and profit after-tax.

There was encouraging demand for their Gregory’s Road property development with 70% of the units already sold by March 31, 2014 while work on the 475 unit residential development was progressing on schedule and is expected to be completed as planned by December.

Ratnayake also said that the demand for residential and office space on the Waterfront Project was "most encouraging."

Consumer food and retail had contributed a little over Rs.1 billion to the profit after-tax and Rs.25.41 billion to revenue, despite challenging market conditions on the back of discretionary spending on the first half of the financial year.

In financial services (insurance and banking) the revenue contribution was Rs.12.57 billion and the profit after-tax Rs.1.64 billion with Union Assurance reporting growth in both the life and non-life segments on the back of expanded distribution capabilities. Nation’s Trust Bank has maintained its growth trend and increased its market share.

Ratnayake expected that with the low interest rate environment expected to prevail, loan growth is likely to gain momentum and have a positive impact on the performance of the bank.

He said that economic growth during the year under review had recovered to encouraging levels reflecting the strengthening demand, improved external environment and a buoyant tourism industry amidst stable inflation, a conducive monetary policy and continued infrastructure development.

"The recent relaxation on monetary policy will further facilitate lending to, and borrowing by, the private sector and intensify its expansion,’’ he said.

He expected a low inflationary environment and stable international food and commodity prices and a fall in fiscal deficit. Exports are expected to increase with the improving prospects in the US and EU, these being Sri Lanka’s main export destinations.

The JKH board comprises: S. C Ratnayake – Chairman, A D Gunewardene – Deputy Chairman, J R F Peiris, E F G Amerasinghe, A Cabraal, I Coomaraswamy, T Das, N Fonseka, A R. Gunasekara and M A Omar
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