JKH 1Q succumbs to pandemic-related biz disruptions

• June quarter revenue slumps 32% to Rs.21.6bn with earnings turning to negative to Rs.1.7bn
• Leisure sector remains a drag on group; others seen recovering to near pre-pandemic levels
• Pent-up demand seen in leisure sector as forward bookings exceed previous year levels
• Group declares a dividend of 50 cents a share considering faster recovery in business

John Keells Holdings PLC (JKH) succumbed to the pandemic-induced business disruptions during the April-June 2020 quarter (1Q21), as the lockdowns, which remained for half of the quarter, erased nearly a third of its revenues, plunging the group deep into red.

But the premier blue chip closed the quarter with business activity reaching near pre-pandemic levels, barring its leisure sector.

JKH, which has its business interest in transportation, consumer foods, retail, leisure, property and financial services, recorded revenues of Rs.21.6 billion for the three months under review, over Rs.10 billion short of the revenues recorded a year earlier, as the diversified entity had only limited defensive business units, which could shield it from the economic shocks brought in by the pandemic.

The group’s leisure sector became the immediate casualty of the lockdowns, as its hotels and resorts, both in Sri Lanka and the Maldives, were left with no business at all for nearly three months, until the local resorts reopened for local visitors from June. This sector delivered the group with the biggest blow in terms of bottom line impact compared to others, as the leisure sector net loss more than doubled to Rs.2.5 billion during the quarter, from a loss of Rs.1 billion in the year earlier period, due to massive fixed costs.

JKH said it took several proactive measures to conserve cash and maintain liquidity such as freezing of non-essential capital expenditure, cost containment initiatives such as reduction in executive staff remuneration and productivity 
improvement measures.

JKH however reported a net loss of Rs.1.66 billion or a loss of Rs.1.26 a share for the quarter under review, compared to a profit of Rs.994.3 million or earnings of 75 cents a share in the comparable period in 2019. 

Despite the losses, the company declared a dividend of 50 cents a share, which comes to a payout of Rs.659 million to be paid on or before August 28, as the group is witnessing a “faster than anticipated recovery momentum in business activity and the generation of cash profits by the group”, JKH said in an earnings release. 

Although the bookings for the next few weeks are low, the company’s hospitality sector is now seeing encouraging forward bookings for the peak season of January to April 2021, exceeding the bookings it had for the same period last fiscal year, “demonstrating the ‘pent-up’ demand for leisure travel should restrictions on travel ease,” JKH Chairman Krishan Balendra said.

Meanwhile, the group’s retail business saw a faster recovery with the easing of the lockdowns with a steady increase in customer footfall close to 
pre-pandemic levels. Same store sales growth for the month of June has also recovered to negative single-digit levels, compared to the decline of 45 percent on average during April and May. 

However, the operator of ‘Keells’-branded supermarket chain is observing some change in the shopping patterns of customers in the aftermath of the pandemic, where there is a change in the frequency and purchase patterns due to consolidation of baskets.

Retail sector revenues however declined to Rs.12.4 billion in the quarter, from Rs.15.7 billion in the year earlier period, as store visits were restricted for nearly one and half months while the e-commerce could not fully offset the in-store sales, which the company had to forgo during lockdowns. This sector made a net loss of Rs.273.4 million, compared to Rs.141.6 million in the year earlier period.

Meanwhile, the consumer foods segment, which produced processed foods, frozen foods, confectioneries and beverages, recorded a revenue of Rs.3.2 billion for the quarter, compared to Rs.4.5 billion a year ago.

The company’s frozen confectionary and convenience foods have seen a positive volume growth in June but its beverage business recorded a low single-digit decline.
This segment recorded a net profit of Rs.140.8 million, compared to Rs.406.6 million in the year earlier period.

Meanwhile, the group’s transportation segment revenues dropped to Rs.3.14 billion, from Rs.5.5 billion in the year earlier period while the earnings of the segment slumped to Rs.293.2 million, from Rs.961.7 million in the year earlier period.

The financial services segment of the group, which predominantly captures the performance of Nations Trust Bank PLC and Union Assurance PLC, reported revenues of Rs.2.3 billion, little down from Rs.2.5 billion while the earnings rose to Rs.399.5 million, from Rs.314.9 million a year ago.

Commenting on the group’s flagship mixed development project, Cinnamon Life, JKH said its construction work resumed in mid-May after two months and added that “the finishing work of the apartment and office towers are being re-sequenced to be completed within the financial year to 
enable handover”.

Being the main local buyer during the quarter, the Life Fund of Sri Lanka Insurance Corporation Limited accumulated 10.5 million shares of JKH, increasing its stake to 1.1 percent, from 0.3 percent of the conglomerate. SLIC remains its eighteenth largest shareholder.