JKH sees faster than expected recovery in 2Q barring leisure sector

• Revenue recovers to Rs.3.2bn, shy of Rs.3.4bn in 2019
• Leisure losses at Rs.2bn as revenues at 1/3 of last year’s levels 
• Strong consumer demand powers retail, consumer foods sectors
• Declares second interim divided of 50 cents a share

Faster than anticipated recovery in business activities and strong consumer demand lifted performance at John Keells Holdings PLC (JKH) as most of its businesses reached pre-pandemic levels barring the leisure segment.
The diversified corporate behemoth recorded revenues of Rs.32.4 billion for the three months ended in September (2Q21), down just 4 percent from Rs.33.7 billion reported for the same period last year, although the leisure sector generating only a third of what it made a year ago. 

“During the quarter under review, the group witnessed a faster than anticipated recovery momentum with the performance of most businesses reaching close to pre COVID-19 levels with business activity and consumer trends being near normal. This positive momentum is reflected in the performance of the group excluding leisure,” JHK Chairman Krishan Balendra said.

Investors cheered at the results of Sri Lanka’s highest valued conglomerate yesterday as the company’s share added by 60 cents or 0.44 percent to close the day at Rs.136.00.  

The group’s earnings before interest, tax, depreciation and amortization—an often used gauge to assess an entity’s operating health before any non-cash adjustments—recorded a 15 percent increase to Rs.4.5 billion, excluding the leisure business, compared to the same period last year. 

The group reported earnings of 52 cents a share or Rs.679.7 million for the July-September quarter compared to earnings of Rs.1.74 a share or Rs.2.29 billion in the comparable period last year. 

Given the stronger than expected recovery in key business lines with the exception of leisure enabled the group to maintain its dividend track record even during a pandemic as the Board declared 50 cents a share as its interim second dividend for the ongoing financial year. 

The group earlier declared a dividend of 50 cents a share with its June results, which was paid 
in August. 

“The group will follow its dividend policy which corresponds with the growth in profits, whilst ensuring that the company maintains adequate funds to ensure business continuity given the unprecedented nature of the current circumstances,” Balendra said. 

Leisure business, which remains a drag due to prolong travel restrictions, had revenues of Rs.1.2 billion compared to 3.7 billion in the year ago period.

JKH said despite the re-opening of the Maldives airport in mid-July, momentum is still slow but has seen an encouraging momentum of forward bookings, demonstrating pent up demand for leisure travel when restrictions on travel ease. 

Meanwhile, the domestic traveller in Sri Lanka had softened the full negative impact on the Sri Lankan leisure sector of the group caused by the absence of the foreign traveller. 

“Although the Sri Lankan airport remains closed to-date for foreign arrivals, the resumption of domestic travel continued during the quarter, with all properties in the Sri Lankan resorts segment recording an encouraging increase in month-on-month occupancy”, Balendra said.

Meanwhile, the strong consumer demand helped the group’s consumer foods & beverages and retail businesses to eclipse their last year’s 
financial performance. 

Further, the group’s transportation business comprising Lanka Marine Services and South Asia Gateway Terminals reported earnings of Rs.857.9 million compared to Rs.987.2 million in the year earlier period due to its port business becoming liable for income tax from September 2019 and change in its throughput mix. 

“The bunkering business was adversely impacted by a reduction in demand for bunker fuel on the back of the COVID-19 pandemic, which resulted in a contraction in overall market volumes and exerted pressure on margins,” Balendra said. 

However, SAGT recorded throughput growth of 7 percent against the corresponding period of the previous financial year driven by an increase in transshipment volumes, which recorded encouraging growth. 

JKH said this demonstrates the urgent need,  and opportunity, for deep water capacity enhancement in the Port of Colombo. 

Meanwhile, the group, which is also in property development, remains hopeful that the current low interest rates to bode well for the property industry growth as the sales at its Tri-Zen residential development project continued to recover to pre-COVID-19 levels. 

The group’ financial services industry EBITDA for the quarter was at Rs.652 million, an increase of 16 percent against the EBITDA of the corresponding period in the previous year, helped by better performance of Nations Trust Bank PLC and Union Assurance PLC.

During September quarter, Sisil Investment Holdings (Pvt) Ltd. and Don and Don Holdings (Pvt) Ltd, linked to LOLC group had entered the top 20 shareholders of JKH, collectively buying 1.8 percent stake or just under 24 million shares. 

JKH is the only major listed company in Sri Lanka that does not have a controlling or 
dominant shareholder.