JKH second quarter profits surge on recovery in key businesses

• Leisure business cuts losses on Maldivian resorts sector recovery to near pre-pandemic levels 
• Property segment emerges stronger on sales at Cinnamon Life & Tri Zen residential units 
• Higher costs pinch margins and profits at consumer foods manufacturing unit 
• Retail suffers profit decline due to store closures

John Keells Holdings PLC (JKH) reported robust top and bottom line performance for the three months to September as its property, transport and financial services businesses did well although its consumer and retail units faced headwinds from the virus-induced restrictions on consumer activity and rising costs. 

Meanwhile, the group’s leisure business made the notable rebound during the quarter from the same period last year predominantly on the strong recovery in its Maldivian resorts sector, which is on its way to reach pre-pandemic occupancy levels in the upcoming winter season. 

This unit cut its net losses by nearly 40 percent to Rs.1.27 billion in the July-September quarter from Rs.2.06 billion in the same period last year on revenues of Rs.3.09 billion, up by 162 percent, significantly buttressing group revenues and profits. 

JKH reported earnings of Rs.2.17 a share or Rs.2.86 billion for the three months, up by a massive 321 percent from earnings of Rs.52 cents a share or Rs.679.7 million in the same period last year. 
The revenue for the quarter was Rs.45.49 billion, up 60 percent. 

JKH share rose Rs.2.75 or 1.87 percent to close at Rs.150 yesterday, with a market capitalisation of just below Rs.198 billion. 

Investors were eagerly waiting the earnings of the diversified conglomerate to gauge as to how its each business vertical representing separate industries in the economy fared during the quarter as the period was characterised by multiple headwinds from supply chain disruptions, soaring global commodities prices, virus related lockdowns and foreign exchange shortage.  Reflecting the rising costs, the group’s cost of sales rose by as much as 57 percent to Rs.42.1 billion from the same period last year.  

“In this context, and despite the disruptions on account of the quarantine curfew for a significant period during the quarter, the performance of many of the industry groups displayed resilience,” said Krishan Balendra, Group Chairman in an earnings release. 

“The group navigated this challenging period given better insights on consumer behaviour and the business momentum seen in the first half of the quarter which helped mitigate some of the impacts on account of this outbreak”, he added. JKH’s transportation segment consisting of ports business, South Asia Gateway Terminals and the bunkering business reported strong revenues of Rs.7.97 billion, up 96 percent from the same period last year while the net profit rose by 24.8 percent to Rs.1, 070.3 million.  Consumer foods business revenues however remained little changed at Rs.5.23 billion in the quarter, but the net profit fell to 314.23 million, down 46 percent as the rebound in volumes lost momentum and the company felt the pressure on its margins from higher raw material costs.  JKH said its beverage and frozen confectionary business saw its volumes declining. “The overall profitability and margins of the businesses were also impacted by pressure on some raw material prices and the increased factory related costs due to COVID-19 safety protocols, which were implemented to ensure uninterrupted supplies,” Balendra said. 

JKH made some selective price increases to partly offset the impact from volume declines. Further, they also expanded take-home range of products for which they now see a strong recovery momentum with consumer activity returning after the easing of restrictions.

Although retail operations revenues represented by its Keells supermarket chain rose by nearly 20 percent to Rs.20.9 billion, its net profits fell by 26 percent to Rs. 480.4 million due to the closure of outlets to the public for half of the quarter due to the lockdowns. 

Meanwhile, the property segment emerged particularly strong during the quarter with sales of Rs.8.1 billion compared to Rs.170.8 million a year ago and net profit of Rs.1.12 billion from a loss of Rs.47.9 million due to continued growth in sales in the residential components of both Cinnamon Life mixed development project and Tri-Zen condominium project. 

The group’s financial services cluster mainly comprising of its licensed commercial bank, Nations Trust Bank and the life insurance company, Union Assurance reported revenues of Rs.3.91 billion and net profit of Rs.976.79 million, up from 3.2 percent and 90.2 percent respectively predominantly on the loan growth and lower impairment charges at the bank and the growth in new premium incomes at the insurance company. 

Given the high vaccination level, Balendra expressed optimism for the future trajectory of its business with the gradual easing of the restrictions on the foreign travellers as well as other economic activities at home. 

“We believe a more sustained recovery can be expected in comparison to the previous outbreaks, as evident in other countries, as Sri Lanka has reached high levels of vaccination,” he said.