Financial Times

Transportation helps drive JKH profits to Rs 3.15 bln
John Keells Holdings has reported a pre-tax profit of Rs 3.15 billion for the year ended March 31, 2005, up 33 per cent over the previous year, with transportation contributing over half of it.

The net dividend payout for the year was Rs 1.03 billion, an increase of 42 per cent over the previous year and total shareholder returns for the year was 37 per cent.

JKH chairman Vivendra Lintotawela, who retires at the end of the year, said group earnings are expected to rebound strongly during 2005/06, supported by an expected recovery in tourism, an upgraded leisure product offering including newly refurbished rooms at the city hotels, continued strong performance from the transportation sector and a restructured food and beverage sector.

Lintotawela will be succeeded by chairman designate, Susantha Ratnayake and Ajit Gunewardene will become deputy chairman. "The impacts of the tsunami stymied the strong growth momentum achieved by your company during the first nine months of the year, following on record earnings of last year," Lintotawela told shareholders in the company's annual report.

JKH group revenue increased six per cent to Rs 23.65 billion from Rs 22.28 billion the year before while profit attributable to shareholders rose 21 per cent to Rs 2.28 billion from Rs 1.89 billion. The impact of the December 26 tsunami was felt mainly in the leisure sector and is estimated to have cost the group about Rs 750 million in net attributable profits.

The tsunami impact resulted in the pre-tax Return on Capital Employed dipping to 12.9 per cent from the 16.3 per cent last year and the Return on Equity declining to 12.6 per cent from the previous 14.6 per cent.

If not for the tsunami impact, the pre-tax ROCE, the ROE and the EPS would have been approximately 16.1 per cent, 15.8 per cent and Rs.7.15 respectively, the annual report said. JKH increased its dividend payout to Rs.3 per share compared to Rs.2.50 last year and this too on an increased share capital following the private placement, rights issue and bonus issues.

"Transportation continued to be the dominant sector in our portfolio contributing 58 per cent of the pre-tax profits of the group," Lintotawela said. "The strong performance of our associate, South Asia Gateway Terminals, continued with the Queen Elizabeth Quay recording a 32 per cent growth in volumes. Lanka Marine Services also performed well helped by the addition of popular fuel grades to its offerings."

The tsunami affected what is traditionally the best quarter for JKH's leisure sector in a year that had promised record tourist arrivals. Consequently this sector, which had registered a 102.6 per cent pre-tax growth during the first nine months, ended the year with a negative growth of 14 per cent, Lintotawela said.

"We have acted with speed in the reconstruction effort. Of the five resorts that suffered damages, three have re-commenced operations. While Hakuraa in the Maldives will commence operations in time for the winter season of 2005, uncertainty prevails over Hotel Bayroo, where we are yet to receive clear instructions from the government regarding restrictions on coastal construction."

The Colombo Plaza and Trans Asia performed well in spite of the tsunami and have undertaken extensive refurbishment plans that would significantly enhance their positioning. Lintotawela said the food and beverage sector bore the heavy burden of higher input costs imposed by a new tax regime and, as a result it recorded lower profits than expected.

However, the firm increased its market share in ice creams and processed meats through a number of innovative product offerings. All retail businesses performed commendably, particularly the supermarket chain, which has shown signs of a turnaround following the re-launch of a number of outlets under the "Keells Super" brand, Lintotawela said. The group's financial services sector did not fare that well with lower stock market activity and retrospective taxation affecting profitability.

Union Assurance suffered losses as a result of tsunami related claims but this was off-set to some extent by contributions from Mercantile Leasing Limited, acquired during the second quarter of the year.

Plantations performed well mainly due to a goodperformance from Tea Smallholder Factories Limited, which recorded the highest sales average for an individual institution in the low grown sector.

Property development profits fell, as expected, compared to last year, due to the limited number of apartments that were available for sale at the Crescat Residencies.

However, construction of "The Monarch" apartment complex commenced in January 2005, with over 90 per cent of its 195 apartments pre-sold.

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