One-off gains boost JKH 4Q; but tough operating conditions weigh on performance

• Operating profits of key segments—transportation, leisure and consumer foods & retail down 
• Transfer of one-off insurance surplus of Rs.3.38bn from Union Assurance boosts profitability  

Despite significantly higher profits recorded by the Sri Lanka’s premier blue chip John Keells Holdings PLC (JKH) due to one-off gains stemming from the group’s financial services sector, the interim financial accounts released to the Colombo bourse indicated tough times faced by the group’s key business segments. 
According to the financial accounts, JKH reported a revenue of Rs.33.6 billion for the January - March quarter (4Q18), up 12 percent year-on-year (YoY). But the operating profits declined by 11 percent YoY to Rs.4.2 billion, reflecting operating challenges faced by the group.

The group’s key businesses—transportation, leisure and consumer foods & retail— showed negative growth in their operations and after-tax profits for the quarter under review. 

The only exceptions were the group’s financial services and property sectors which reported higher bottom lines with the former uplifting the group profits with a hefty non-recurring one-off surplus of Rs.3.38 billion relating to its life insurance business, Union Assurance PLC. 

Dampened business sentiment, heightened political uncertainty, weakening disposable incomes affected business performance, while the ongoing projects in certain business segments may have dented the profits—particularly in leisure and property. 

Group’s consumer foods and retail business reported Rs.13.9 billion in revenue, higher than the Rs.11.7 billion in the corresponding quarter last year, but the operating profit declined to Rs.944.1 million from Rs.1.1 billion a year ago. 

The leisure segment recorded revenue of Rs.8.3 billion, slightly up from Rs.8.1 billion a year ago, but the operating profit fell to Rs.1.9 billion from Rs.2.1 billion. 
Meanwhile, the group’s transportation unit, despite recording higher revenue of Rs.5.0 billion against Rs.3.6 billion a year ago, saw its operating profit plunging to Rs.423 million from Rs.2.1 billion a year earlier.  

The financial services business of the group, which mainly comprise of operations of Nations Trust Bank PLC and Union Assurance PLC, recorded Rs.2.5 billion in revenue, but the segment’s operating profit jumped to Rs.5.9 billion from just Rs.170 million due to the aforesaid one-off insurance surplus. 

“The life insurance business, Union Assurance PLC, recorded an annual life insurance surplus of Rs.3.64 billion and a one-off surplus of Rs.3.38 billion, which was recorded in the fourth quarter of the year under review. 

“The significant increase is due to a policy change across the industry in keeping with international norms for computation of insurance contract liabilities as per the directive and guidelines issued by the Insurance Regulatory Commission of Sri Lanka,” the company said in a brief press release on the interim results. 

As a result of this one-off surplus, the group reported Rs.9.97 billion in total earnings or Rs.7.18 cents a share for the quarter against Rs.4.99 billion in total earnings or Rs.3.59 cents a share reported for the same quarter, last year. 

Meanwhile, for the year ended March 31, 2018 (FY18), the group reported Rs.21 billion in total earnings or Rs.15.15 a share against Rs.16.3 billion or Rs.11.85 a share a year earlier.  

The total revenue for the year was Rs.121.2 billion, up 14 percent year-on-year. 

By March end, Broga Hill Investments Limited, a special-purpose investment vehicle of Malaysia’s sovereign wealth fund Khazanah Nasional Berhad, held 10.21 percent stake in JKH as the single largest shareholder, closely followed by S.E. Captain with a 10.1 percent stake.