John Keells’ Group revenue up 3%. Recurring group PBT down 28% in 2019/20

May, 22, 2020

John Keells’ Consumer Foods, Retail and property industry groups grow profits

Sri Lanka’s John Keells Group’s revenue increased by 3% to Rs. 140.04  billion while recurring Group earnings before interest expense, tax, depreciation and amortisation (EBITDA) decreased by 14% to Rs.22.06 billion, for the financial year 2019/20.

Company’s Chairman, Krishan Balendra said in his review, “The decline in the recurring EBITDA was mainly on account of the downturn in the Group’s Sri Lankan Leisure business due to the Easter Sunday terror attacks, decrease in interest income on account of lower cash and cash equivalents at the Holding Company due to the planned equity infusions to fund the ‘Cinnamon Life’ project, and lower exchange gains on the Company’s foreign currency denominated cash holding as against the previous year.”

The recurring group Profit Before Tax (PBT) decreased by 28% to Rs. 12.28 billion while the recurring profit attributable to equity holders of the parent decreased by 26% to Rs. 9.33 billion in FY20.

The Consumer Foods, Retail and Property industry groups recorded a growth in profits.

“This financial year has been one of the most challenging ones in the recent past due to the events of Easter Sunday 2019 and the outbreak of a global pandemic. Whilst we are confident that our investments, particularly in the recent past, have positioned us well for the next phase of growth, and, as a group, our future looks exciting, we remain confident that, as always, we have the strength and resolve to keep moving forward through this period of unprecedented challenges, as we have done, ‘enduring the times’, over the past 150 years,” JKH Chairman Balendra said shareholders. 

From a macroeconomic perspective, he said heightened domestic vulnerabilities, such as lower earnings from tourism on the back of the Easter Sunday terror attacks and moderation of worker remittances, exerted pressure on the economy.  As a result, consumer discretionary spending remained subdued in the first three quarters of the financial year due to the lacklustre performance of the economy and dampened consumer and investor confidence. 

“However, discretionary spending witnessed a rebound from the fourth quarter of the year under review, where the performance of our consumer businesses showed strong momentum while bookings in the Leisure business had recovered close to the levels seen prior to the Easter Sunday attacks. Unfortunately, this recovery was hampered by the outbreak of the COVID-19 pandemic and the resultant disruptions arising from the curfew imposed across the country, including the closure of the international airport for arrivals from March onwards. However, with the resumption of activity across the country post the easing of curfew restrictions, we are seeing early signs of an encouraging recovery of consumer activity, which should be positive for our consumer-focused businesses, such as Consumer Foods, Retail, Logistics and Insurance,” he added.

However, While the performance of the Group initially witnessed strong momentum in the fourth quarter of the financial year 2019/20, the outbreak of the COVID-19 pandemic, had varying levels of impact on the performance of the businesses.

The Group’s Bunkering business recorded a strong growth in profits driven by improved margins. South Asia Gateway Terminal (SAGT), the Group’s Ports and Shipping business, became liable for corporate income tax from October 2019 onwards, which, therefore, had a negative impact on performance as the Group recognises its share of profit after tax, as SAGT is an equity accounted investee.

The Transportation industry group recurring EBITDA of Rs.4.42 billion in 2019/20 is a marginal decrease of 3 per cent over the recurring EBITDA of the previous financial year [2018/19: Rs.4.56 billion].

The Consumer Foods industry group recurring EBITDA of Rs.3.37 billion in 2019/20 is an increase of 16 per cent over the recurring EBITDA of the previous financial year [2018/19: Rs.2.89 billion]. The increase in profitability is mainly on account of the performance of the Beverage business and the Impulse segment of the Frozen Confectionery business.

The Retail industry group recurring EBITDA of Rs.5.11 billion in 2019/20 is an increase of 77 per cent over the recurring EBITDA of the previous financial year [2018/19: Rs.2.89 billion]. The Supermarket business recorded a recurring EBITDA of Rs.4.27 billion in 2019/20, an increase of 80 per cent against the previous financial year [2018/19: Rs.2.37 billion]. The business recorded a strong growth in profitability driven by a notable contribution from new outlets and a robust growth in customer footfall which contributed towards an increase in same store sales.

The Group’s Sri Lankan Leisure business displayed a faster than expected recovery post the Easter Sunday attacks, with occupancy in the peak season in line with the previous year, albeit at a moderately lower room rate. However, the momentum of this recovery was derailed by the developments surrounding the global spread of COVID-19 where arrivals to Sri Lanka were impacted gradually from February 2020 onwards. From mid-March 2020 onwards there were no tourist arrivals with the closure of the international airport. In addition, the quarter under review included the start-up costs relating to the newly launched premium resort in Sri Lanka, ‘Cinnamon Bentota Beach’ which affected the performance of the Sri Lankan Resorts segment.

In the Property industry group, The ‘Tri-Zen’ residential development project continued its encouraging sales momentum, recording sales of 19 units during the months of January and February, although sales in March was impacted by the effects of the pandemic. Whilst the construction of both ‘Tri-Zen’ and ‘Cinnamon Life’ was suspended with the imposition of curfew, both sites have now gradually commenced work as permitted under the relevant Government directives. The EBITDA of the Property industry group for the quarter included fair value gains on investment property.

The Financial Services industry group recurring EBITDA of Rs.2.99 billion in 2019/20 is a decrease of 11 per cent over the recurring EBITDA of the previous financial year [2018/19: Rs.3.36 billion]. Nations Trust Bank recorded a strong improvement in profits driven by the removal of the Debt Repayment Levy and NBT on financial services. Profitability of Union Assurance PLC during the quarter was impacted by a notional tax credit reversal under investment income.

Other, Including Information Technology and Plantation Services sectors recorded a recurring EBITDA of Rs.349 million in 2019/20 is an increase of 81 per cent over the recurring EBITDA of the previous financial year [2018/19: Rs.192 million]. The improved performance is on account of onboarding new clients and completion of a few key projects. The prospects for the IT business are quite promising given the increased propensity for digital adoption in the current environment. The Plantation Services sector recurring EBITDA of Rs.20 million in 2019/20 is a decrease of 95 per cent over the recurring EBITDA of the previous financial year [2018/19: Rs.365 million]. The performance of the Plantation Services sector was impacted by adverse weather conditions and a oneoff impairment of debtors at John Keells PLC considering the stresses faced by tea producers due to lower tea prices last year.

During the year under review, several initiatives were undertaken to further strengthen the Group’s governance framework and controls. These include implementing a comprehensive data classification and rights managements system, roll-out of the anti-money laundering and anti-corruption policies across the Group and strengthening and streamlining the Group’s cybersecurity resilience through device management, user access and data protection to cater to the evolving hybrid cloud environment and digitisation requirements of the Group. While the Group has a strong information technology (IT) governance framework, given the higher incidence of remote working arrangements in the wake of the COVID-19 pandemic, measures have been taken to further strengthen the IT governance and cybersecurity framework.

John Keells Holdings PLC, a Sri Lankan company, is also the largest company listed on the Colombo Stock Exchange, which operates over 70 companies in 7 diverse industry sectors, and, in 2020, commemorates 150 years of being in business. The Group provides employment to over 14,000 persons and has been ranked as Sri Lanka’s ‘Most Respected Entity’ for 14 years. Whilst being a full member of the World Economic Forum and a Member of the UN Global Compact, John Keells Group drives its vision of “empowering the nation for tomorrow,” through the John Keells Foundation and through the social entrepreneurship initiative, ‘Plasticcycle’, is a catalyst in scientifically reducing plastic pollution in Sri Lanka.