Sharp drop in consumer demand, challenging macroeconomic conditions hinder JKH’s 4Q

Premier blue chip John Keells Holdings PLC (JKH) reported subdued financial results for the quarter ended March 31, 2023 (4Q23) as the challenging macroeconomic environment and the significant drop in consumer demand affected the group’s performance.
The group, which has interests in transportation, consumer foods, supermarkets, leisure, property and financial services saw its revenue for the quarter under review falling 11 percent year-on-year (YoY) to Rs.67.8 billion.

The gross profit also fell 20 percent YoY to Rs.12.9 billion, despite 8 percent YoY reduction in cost of sales. 

The group however recorded an operating profit of Rs.3.8 billion compared to an operating loss of Rs.187.5 million a year ago due to sharp drop in other operating expenses.
The group recurring EBITDA declined by 37 percent YoY to Rs.11.65 billion. Excluding the substantial EBITDA recognition of Rs.4.01 billion recorded at ‘Cinnamon Life Integrated Resort’ in 4Q22, the recurring EBITDA in 4Q23 declined by 20 percent.

The group recorded earnings of Rs.2.39 per share or Rs.3.3 billion in 4Q23 compared to earnings of Rs.7.88 per share or Rs.11.4 billion in 4Q22, which translates into a 70 percent decline.
For FY23, the group reported earnings of Rs.13.12 per share or Rs.18.8 billion compared to earnings of Rs.15.13 per share or Rs.20.4 billion in FY22, a decline of 8 percent.
For the quarter under review, the group incurred a finance cost of Rs.5.4 billion and Rs.17.8 billion for the full year.
JKH said its profitability was impacted by the “significant increase in finance costs on account of high interest rates and the notional interest charge on the convertible debenture issues to HWIC Asia Fund in August 2022.” 

The group’s transportation business recorded a decline in performance mainly on account of the bunkering business which recorded a substantial profit in the previous year due to significantly higher base oil prices and margins, which have normalised in the current quarter. 
The consumer food segment recorded a decline in profitability as volumes across the beverages, frozen confectionary and convenience foods businesses reflected a reduction in consumer discretionary spend. Profitability was further impacted on account of the input cost increases. 

JKH said these impacts are now mitigated to an extent with businesses seeing a reversal in margin pressure. 
The group’s supermarket business recorded a marginal growth in profitability driven by a growth in same store sales. Profitability was off-set to a large extent due to cost escalations compared to the previous quarter, including the newly introduced revenue-based tax of the social security contribution levy and electricity tariff increases, among others. 
However, JKH said despite the growth in the supermarket business, the retail industry group recorded a decline in profitability due to the office automation business. 
The group’s leisure sector recorded a strong recovery driven by the Maldivian Resorts segment. JKH said the Sri Lankan leisure businesses recorded a recovery supported by a return to normalcy on the back of continued political and social stability. 

The profitability of JKH’s insurance unit Union Assurance PLC (UA) was driven by the life insurance surplus which recorded an increase against the corresponding period of the previous year and a growth in gross written premiums and net investment income. 
The performance of the group’s banking unit Nations Trust Bank PLC was driven by growth in net interest margins. 
As at March 31, 2023, JKH’s public shareholding stood at 98.51 percent.