JKH reports robust 4Q performance despite economic adversity

• Receives tailwind from post-pandemic economic normalcy
• Bottom line gets boosted from massive exchange gains
• Leisure sector turnaround provides evidence of sound tourism sector recovery 
• Retail and consumer biz underscore hit from inflation impact  

Premier blue chip John Keells Holdings PLC has reported a robust top line performance in the three months to March 31, 2022 (4Q22), as the group received a tailwind from the end of the pandemic era mobility and other restrictions, which particularly helped its expansive leisure business.  

However, the group was soon confronted with the rising costs and supply chain snarls that came along with the worst economic crisis faced by the country, which may cast a long, dark shadow over the group’s near-term performance, with weaker consumer demand caused by the sharp erosion in disposable incomes amid soaring inflation.

Sri Lanka’s most diversified conglomerate by revenue reported a top line of Rs.76.1 billion in the January-March quarter, recording nearly twice the revenues or Rs.38.8 billion recorded in the same period last year, during when the leisure and property sector contribution was virtually absent.

The group’s Cinnamon-branded hotels and resorts, which could not fully cater to the tourists for nearly two years, generated revenues of Rs.8.3 billion in the three months, compared to Rs.2.7 billion in the same period in 2021. 
JKH said its Maldivian resorts reached pre-pandemic occupancy levels while the Sri Lankan hotels and resorts made a significant rebound in the three months, only to see a decline from April onwards, due to the economic crisis, which precipitated into country-wide social unrest. 

The group’s property segment reported revenues of Rs.20.7 billion, compared to Rs.325.6 million in the year earlier period, as the group recognised revenues from the sale of residential and commercial units of its iconic mixed development project Cinnamon Life, as of March 31, 2022.

The group’s other business units such as transportation, consumer foods, retail and financial services also did well at top line level although there were some weaknesses in the transportation and retail sectors. 

The group’s transportation business, comprising mainly of its bunkering and terminal operations, generated revenues of Rs.11.2 billion in the three months but ended up in a Rs.3.5 billion operating loss, as the company charged a hefty impairment of Rs.5.2 billion on account of South Asia Gateway Terminals (Pvt.) Ltd (Rs.4.7 billion) and Saffron Aviation (Pvt.) Ltd (Rs.506 million). In addition, the segment also suffered a massive Rs.5.7 billion exchange loss.

Although there were top line gains, with the revenue rising by 14.9 percent to Rs.23.9 billion, the group’s retail business fell into a loss of Rs.2.2 billion at operating level, from a profit of Rs.1.2 billion in the corresponding quarter last year. 

JKH runs Sri Lanka’s third largest chain of supermarkets under the Keells brand.
The group’s consumer foods business, which makes frozen foods, beverages and dairy products under the Elephant House and Krest brands, reported revenues of Rs.7.8 billion, up 46 percent from a year ago. 
The operating profits of the segment rose to Rs.1.33 billion, from Rs.1.06 billion. 

It appears that both retail and consumer businesses were confronted with tightening margins amid the rising costs. 

JKH’s financial services cluster, which has a commercial bank, a life insurance company and stock brokerage, generated revenues of Rs.3.9 billion, compared to Rs.3.4 billion. The operating profit was Rs.781.7 million, up from Rs.336.3 million.  

At group level, JKH reported an operating loss of Rs.187.6 million for the quarter, compared to a profit of Rs.3.04 billion in the same period last year. 

However, the earnings before interest tax depreciation and amortisation, which measures the cash operating profit of the group barring the foreign exchange gains and losses, was Rs.18.6 billion for the quarter under review, compared to Rs.7.2 billion. 

The direct costs of the group rose by 85 percent to Rs.59.9 billion. 
The group reported earnings of Rs.7.88 a share or Rs.10.9 billion for the three months, compared to earnings of Rs.3.60 a share or Rs.4.76 billion in the corresponding period in 2021, as the bottom line received a massive Rs.18.6 billion foreign exchange gain. For the full year ended on March 31, 2022, JKH reported earnings of Rs.15.13 a share or Rs.20.2 billion, compared to earnings of Rs.3.62 a share or Rs.4.77 billion in FY21.     
JKH share added 50 cents or 0.38 percent to end at Rs.132.75 at yesterday’s market close. 

Asian Development Bank (ADB) has entered the top five shareholders of JKH, with a 4.7 percent stake, as the company issued 65 million shares to the multilateral lender in January as part of a two-phase private placement, where the former would infuse a rupee equivalent of US $ 80 million.