Sri Lanka's diversified conglomerate John Keells Holdings (JKH) said its net profit for the December quarter fell 50%  from a year earlier to Rs.2.4 billion, whilst the first nine months performance at Rs.5.68 billion is a decrease of 53 % over the previous year.

"The profit attributable to equity holders in the third quarter of the financial year 2019/20 at Rs.2.40 billion is a decrease of 50 per cent over the corresponding period of the previous financial year, whilst the first nine months performance at Rs.5.68 billion is a decrease of 53 per cent over the previous year," Chairman of JKH, Krishan Balendra said in his review.

Full Statement of the Chairman;

Dear Stakeholder,

The Group revenue at Rs.37.46 billion for the third quarter of the financial year 2019/20 is a 2 per cent increase over the Rs.36.55 billion recorded in the previous financial year. The cumulative revenue for the first nine months of the financial year 2019/20 at Rs.102.90 billion is an increase of 4 per cent over the revenue of Rs.99.34 billion recorded in the same period of the previous financial year.

As discussed in detail in my previous Messages, effective 1 April 2019, the Group adopted SLFRS 16 – the accounting standard on Leases - which primarily impacts the accounting treatment of the Group’s operating leases and lease commitments, particularly in the Supermarkets business and the Maldivian Resorts segment. Similar to the previous two quarters, to depict the underlying performance of the Group, the ensuing discussion is based on an adjusted earnings before interest, tax, depreciation and amortisation (EBITDA), where the lease expense in EBITDA in 2018/19 is comparatively adjusted on a like-withlike basis against the EBITDA in 2019/20 (adjusted EBITDA).

Group EBITDA at Rs.5.60 billion in the third quarter of the financial year 2019/20 is a decrease of 25 per cent over the Rs.7.47 billion recorded in the corresponding period of the previous financial year. The decrease in EBITDA is mainly attributable to the downturn in the Group’s Sri Lankan leisure business which continued to be impacted post the Easter Sunday terror attacks, exchange losses recorded at the Holding Company on its foreign currency denominated cash holdings compared to the significant exchange gains recorded in the previous year and lower finance income as a result of the deployment of cash in new investments. The Group EBITDA for the first nine months of the financial year 2019/20 at Rs.14.07 billion is a decrease of 23 per cent over the EBITDA of Rs.18.26 billion recorded in the same period of the previous financial year.

The Group profit before tax (PBT) at Rs.3.11 billion in the third quarter of the financial year 2019/20 is a decrease of 45 per cent over the Rs.5.63 billion recorded in the corresponding period of the previous financial year. The Group PBT for the first nine months of the financial year 2019/20 at Rs.7.06 billion is a decrease of 47 per cent over the PBT of Rs.13.23 billion recorded in the same period of the previous financial year.

The profit attributable to equity holders in the third quarter of the financial year 2019/20 at Rs.2.40 billion is a decrease of 50 per cent over the corresponding period of the previous financial year, whilst the first nine months performance at Rs.5.68 billion is a decrease of 53 per cent over the previous year.

The Company PBT for the third quarter of 2019/20 at Rs.1.35 billion is a decrease of 64 per cent over the Rs.3.76 billion recorded in the corresponding period of 2017/18. The Company PBT for the first nine months of the financial year 2019/20 at Rs.4.22 billion is a decrease of 52 per cent over the previous financial year.

The Presidential Election was concluded in November 2019 and several policy and fiscal stimulus measures have been

announced by the new Government. The tax relief measures, in particular, are expected to improve consumer sentiment and economic activity in the short to medium term as a result of higher disposable income in the hands of consumers.

TRANSPORTATION

The Transportation industry group EBITDA of Rs.1.29 billion in the third quarter of 2019/20 is an increase of 8 per cent over the adjusted EBITDA for the third quarter of the previous financial year [2018/19 Q3: Rs.1.19 billion]. The increase in profitability is attributable to the performance of the Group’s Bunkering business, Lanka Marine Services. The Group’s Ports and Shipping business, South Asia Gateway Terminals, recorded flat volumes compared to the corresponding quarter of the previous year.

CONSUMER FOODS

The Consumer Foods industry group EBITDA of Rs.722 million in the third quarter of 2019/20 is an increase of 21 per cent over the adjusted EBITDA for the third quarter of the previous financial year [2018/19 Q3: Rs.598 million]. Consumer Foods witnessed growth on account of an improved performance in the Beverages and Frozen Confectionery businesses driven

by growth in volumes and a better sales mix. Subsequent to the recent tax relief announcements made by the Government, price reductions have been taken in selected SKUs from January 2020 onwards to pass on the benefit to our consumers. Keells Food Products PLC recorded a 7 per cent growth in volumes and a better sales mix.

RETAIL

The Retail industry group EBITDA of Rs.1.59 billion in the third quarter of 2019/20 is an increase of 108 per cent over the adjusted EBITDA for the third quarter of the previous financial year [2018/19 Q3: Rs.766 million].

The Supermarkets business EBITDA of Rs.1.32 billion in the third quarter of 2019/20 is an increase of 96 per cent over the adjusted EBITDA for the third quarter of the previous financial year [2018/19 Q3: Rs.673 million]. The business continued to record strong growth in profitability driven by a notable contribution from new outlets and a robust 6.1 per cent growth in customer footfall which contributed towards a 5.4 per cent increase in same store sales. Seven new outlets were opened during the quarter, increasing the total store count to 107 as at 31 December 2019.

The Office Automation business recorded an improvement in profitability on account of volume growth in the mobile phone category. The business was impacted by significant exchange losses during the third quarter of 2018/19.

LEISURE

The Leisure industry group EBITDA of Rs.656 million in the third quarter of 2019/20 is a decrease of 51 per cent over the adjusted EBITDA for the third quarter of the previous financial year [2018/19 Q3: Rs.1.34 billion]. 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 and the partial closure of Cinnamon Dhonveli Maldives for refurbishment.

Against the backdrop of the April 2019 incident, both the City Hotels sector and the Sri Lankan Resorts segment recorded a decline in occupancy and average room rates. We are however encouraged that occupancy at our hotels has recovered faster than expected with forward bookings continuing to maintain an upward trend where occupancy in the peak season is in line with the previous year, albeit at a moderately lower room rate. The tourist arrivals to the country have witnessed a gradual recovery, as expected, and is now close to pre-incident levels, although recent developments with the spread of the Coronavirus in the region could have a negative impact if the outbreak is not contained.

The newly reconstructed 159-room Cinnamon Bentota Beach commenced operations in January 2020. The unique location and architecture of this heritage 5-star property, coupled with an unparalleled food and beverage offering, is expected to further strengthen and enhance the "Cinnamon" brand offering.

With the completion of the partial refurbishment of Cinnamon Dhonveli Maldives and the reconstruction of Cinnamon Hakuraa Huraa Maldives in December 2019, the full complement of all four of our Maldivian hotels is now in operation. Following the refurbishment of Ellaidhoo Maldives by Cinnamon and the water suites at Cinnamon Dhonveli Maldives last year, the average room rates recorded for the quarter under review are above expectations.

PROPERTY

The Property industry group EBITDA of Rs.34 million in the third quarter of 2019/20 is a decrease of 65 per cent over the adjusted EBITDA for the third quarter of the previous financial year [2018/19 Q3: negative Rs.97 million].

Foundation work of the “Tri-Zen” project has now been completed and the super structure work is in progress. The second tranche of revenue was recognised in the quarter under review, and this is expected to ramp up over the next few quarters as the project progresses. The sales momentum for the project continues to be encouraging with pre-sales reaching 243 units as at 31 December 2019. The removal of VAT on condominiums with effect from December 2019 will be positive for the overall sales outlook.

The construction of Cinnamon Life is progressing well, and the full completion of the project is on track for first half 2021. The installation of external facades, mechanical and electrical services and interior works are nearing completion for the Cinnamon Life Residential and Office Towers, as planned. The handover will commence with the Office tower, from April 2020 onwards. It is pleasing to witness a pick-up in interest in the residential and office tower sales on the back of improving sentiment and with the project nearing completion.

FINANCIAL SERVICES

The Financial Services industry group EBITDA of Rs.1.16 billion in the third quarter of 2019/20 is an increase of 11 per cent over the adjusted EBITDA for the third quarter of the previous financial year [2018/19 Q3: Rs.1.05 billion]. Nations Trust Bank PLC recorded a strong improvement in profitability as a result of an increase in fee-based income and better management of operational expenses. The performance of Union Assurance PLC improved driven by a growth in gross written premiums of 7 per cent.

OTHER, INCLUDING INFORMATION TECHNOLOGY AND PLANTATION SERVICES

Other, including the Information Technology and Plantation Services industry group EBITDA of Rs.151 million in the third quarter of 2019/20 is a decrease over the adjusted EBITDA for the second quarter of the previous financial year [2018/19 Q3: Rs.2.44 billion]. The decrease in profitability is mainly attributable to the exchange losses recorded in the third quarter of 2019/20 compared to the significant exchange gains recorded in the same period of the previous financial year due to the steep depreciation of the Rupee in the latter half of calendar year 2018. Profitability was also impacted by the on-going deployment of equity into the Cinnamon Life project which resulted in a year-on-year decrease in finance income. The Information Technology sector recorded an increase in profitability on account of onboarding new clients coupled with cost management initiatives. The performance of the Plantation Services sector was impacted by a decrease in tea prices during the quarter under review. Performance was further impacted by provisions for bad debts on advances due from factories which have discontinued operations as a result of challenging operating conditions.

SUSTAINABILITY INITIATIVES

During the quarter under review, the Group’s carbon footprint per million Rupees of revenue decreased by 3 per cent to 0.65MT, and in absolute terms, by 1 per cent to 24,383 MT, driven by reduced activity at Cinnamon Air and the Leisure industry group as a result of the Easter Sunday impacts. Water withdrawal per million Rupees of revenue increased by 1 per cent to 12.33 cubic meters, and in absolute water terms, by 4 per cent  to 459,391 cubic meters due to the store expansion at the Supermarkets business and higher water usage for replanting purposes at the Rajawella golf course.

The Group continues to monitor its progress towards its 2020 energy and water goals against the established 2015/16 baseline. Whilst water withdrawal recorded a 8 per cent reduction against the 2015/16 baseline figures, energy usage recorded a 2 per cent increase in the quarter under review, as relative energy efficiency was impacted by increased operations in the Retail industry group and a reduction in activity in the Leisure industry group. Group employees were provided with approximately 17 hours of training per employee, whilst 29 occupational injuries were reported this quarter.

During the quarter under review, Plasticcycle – the Group’s social entrepreneurship project, extended the network of collections bins placed to the outer Circular Highway and Southern Expressway in December 2019. The project has collected and sent for recycling 49 metric tons of plastic waste as of December 2019.

CORPORATE SOCIAL RESPONSIBILITY

Following are some of the highlights of John Keells Foundation’s (JKF) initiatives during the quarter under review:

• Under the English Language Scholarship Programme, the Tier 1 programme was inaugurated at all the locations while 150 registered students under the Tier 2 programme completed the Soft Skills workshops.
• Under Project WAVE (Working Against Violence through Education), JKF conducted the following programs:

– A public campaign was conducted in collaboration with police stations in Slave Island, Hikkaduwa, Ranala, Kalutara and Ja-Ela. The campaign, which comprised awareness material based on the theme #reportforsupport, is estimated to have impacted 10,000 persons. Posters were distributed within the Group companies as well as the police stations and other organisations in the locations.

– 14 Group staff underwent a pilot 5-day Training of Trainers (ToT) on gender training. The second ToT on child protection was also conducted, increasing the total pool of Group trainers on child protection to 54 while the first session by new trainers was conducted at Hikka Tranz by Cinnamon for 120 parents and 114 children.

– A poster campaign on child protection was conducted in October benefiting 16 schools in Colombo 02, Hikkaduwa and Ranala. This initiative was followed by a series of awareness sessions conducted in schools around Hikka Tranz by Cinnamon, impacting 299 students. JKF also supported an initiative of the Department of Labour by sponsoring study packs for 130 children of four disadvantaged schools in Moratuwa as a means of encouraging children to pursue education.

• Under the Village Adoption Project in Mullaitivu, JKF completed the renovation of the school well rainwater harvesting system at the Mathalan primary school impacting 58 children and 6 teachers.

• As part of the “John Keells Praja Shakthi” initiative, the construction of the De Mel Park Multi-Disciplinary Community Centre in Colombo 02, undertaken in collaboration with the Colombo Municipal Council, was completed and vested in the public. Financial literacy awareness was conducted in both Colombo 02 and Hikkaduwa benefiting a total of 51 community members.

• In furtherance of its focus on promoting Arts & Culture, JKF initiated sustained sponsorship support for the Gratiaen Trust as well as The Museum of Modern and Contemporary Art Sri Lanka (MMCA) with MMCA launching its debut exhibition in December at the Colombo Innovation Tower

DIVIDENDS

The Company paid a first interim dividend of Rs.1.00 per share for the financial year 2019/20 in November 2019. Your Board declared a second interim dividend of Rs.1.50 per share, to be paid on 19 February 2020, which is an increase from the previous two dividend payments of Rs.1.00 each per share, reflecting the positive momentum and outlook for the performance of our businesses.

RESIGNATION OF DIRECTOR

Dr. Radhika Coomaraswamy resigned from the Board with effect from 31 December 2019. I wish to place on record our deep appreciation for the invaluable contribution made by her during her tenure on the Board.