John Keells’ Consumer Foods and Retail industry groups continue strong growth momentum; impact to Leisure business affects Group performance.

• The Consumer Foods, Retail, Leisure and Property industry groups continued its growth momentum from the first quarter despite the disruptions post the Easter Sunday terror attacks which occurred in April 2019.
• The Group’s year-on-year performance for the quarter was impacted by the downturn in the Group’s Sri Lankan leisure business which continued to be significantly impacted post the Easter Sunday terror attacks, lower finance income as a result of the deployment of cash in new investments and lower exchange gains recorded at the Holding Company on its foreign currency denominated cash holdings.
• We are encouraged that the forward bookings for the Sri Lankan hotels have witnessed an upward trend and we expect occupancy in the peak season to be in line with the previous year, albeit at a moderately lower room rate.
• During the quarter under review, we added our fourth resort property to our Maldivian hotel portfolio, Cinnamon Velifushi Maldives, in line with our asset light investment strategy where the hotel was handed over to Cinnamon on an operating lease.
• The quarterly performance of the Group’s Ports and Shipping business, South Asia Gateway Terminals, was impacted by an operational disruption in August whilst the Group’s Bunkering business, Lanka Marine Services, recorded strong growth in profits driven by improved margins.
• Retail performance was driven by robust revenue growth in the Supermarkets business, supported by a notable contribution from new outlets and strong growth in customer footfall.
• Consumer Foods witnessed growth on account of an improved performance in the Beverages and Frozen Confectionery businesses, driven by growth in volumes and improved profitability on account of higher margins. It should be noted that the volume growth momentum prior to the month of September displayed encouraging double-digit growth, although adverse weather impacted volumes in September.
• The quarter under review marked the first tranche of revenue recognition for the “Tri-Zen” residential development project. Revenue recognition of the project will ramp up over the next few quarters as the project progresses.
• The installation of external facades, mechanical and electrical services and interior works are nearing completion for the Cinnamon Life Residential and Office Towers, for handover from April 2020 onwards. The full completion of the project is on track for March 2021.

*EBITDA includes interest income and the share of results of equity accounted investees which is based on the share of profit after tax

John Keells Holdings PLC reported a 3% growth in Group revenue during the second quarter of the year of Rs.33.70 billion compared to the Rs.32.63 billion recorded in the previous financial year. The performance of the Consumer Foods, Retail, Leisure and Property industry groups continued its growth momentum from the first quarter despite the disruptions post the Easter Sunday terror attacks which occurred in April 2019.

The underlying performance of the Group set out below, is depicted after adjusting for the new Accounting standard SLFRS 16 which came to effect this year, for fuller disclosure. Accordingly, EBITDA in 2018/19 is comparatively adjusted for the impact of SLFRS 16, on a like-with-like basis against the EBITDA in 2019/20 (adjusted EBITDA).

The Group’s Bunkering business, Lanka Marine Services (LMS), recorded a strong growth in profits driven by improved margins. Whilst the Group’s Ports and Shipping business, South Asia Gateway Terminals (SAGT), recorded an increase in domestic throughput for the quarter under review, profitability was impacted by a decline in overall volumes due to a disruption in operations in August 2019. The Transportation industry group EBITDA of Rs.1.12 billion for Q2 of FY2019/20 was a 3% decrease over the adjusted EBITDA of Rs.1.15 billion for the second quarter of 2018/19.

The Consumer Foods industry group EBITDA of Rs. 736 million for Q2 of FY2019/20 was a 6% increase over the adjusted EBITDA of Rs.693 million for the second quarter of 2018/19. The Beverage and the Frozen Confectionery businesses recorded encouraging double-digit growth in July and August. However, adverse weather conditions in many parts of the country in the month of September hampered distribution resulting in a muted volume growth for both categories for the quarter.

Retail industry group recorded a robust revenue growth of 21% which was driven by a strong performance in the Supermarkets business, driven by a notable contribution from new outlets and strong growth in customer footfall. Retail recorded an EBITDA of Rs.1.02 billion compared with the adjusted EBITDA of Rs.431 million in the same period last year. Two new outlets were opened during the quarter, increasing the total store count to 100 as at 30 September 2019.

The Group’s Sri Lankan leisure business continued to be significantly impacted by the Easter Sunday terror attacks in April 2019. The quarter performance was also impacted by the  partial closure of Cinnamon Dhonveli Maldives for refurbishment and start-up costs related to Cinnamon Hakuraa Huraa Maldives and the Group’s new resort, Cinnamon Velifushi Maldives. EBITDA for the second quarter of 2019/20 was Rs.134 million, compared to the Rs.1.14 billion (adjusted) recorded in 2018/19 Q2. However, the Group is encouraged that the forward bookings for the Sri Lankan hotels have witnessed an upward trend and expect occupancy in the peak season to be in line with the previous year, albeit at a moderately lower room rate.

The City Hotels sector and the Sri Lankan Resorts segment recorded a decline in both occupancies and average room rates.  However, despite the challenging operating environment, the City Hotels sector maintained its fair share of available rooms in the 5-star category in the quarter under review. During the quarter under review, the Group added a fourth resort property to its Maldivian hotel portfolio, Cinnamon Velifushi Maldives. The hotel was handed over to Cinnamon on an operating lease, in line with the Group’s asset light investment strategy, and will commence operations in October. Cinnamon Velifushi Maldives, consisting of 90 rooms, is positioned as a 5-star deluxe resort. Initial bookings for the resort are above expectations. With the completion of the partial refurbishment of Cinnamon Dhonveli Maldives in November 2019, and the completion of the reconstruction of Cinnamon Hakuraa Huraa Maldives in December 2019, the Group will have the full complement of all its four Maldivian hotels operational from the fourth quarter of this financial year, with a new and premium product offering. The newly re-constructed Cinnamon Bentota Beach hotel in the Sri Lankan resorts segment will also commence operations in December 2019, as planned. This flagship Cinnamon property will be positioned as the epitome of luxury in the Group’s leisure portfolio.

In the Property Industry Group, the quarter under review marked the first tranche of revenue recognition for the “Tri-Zen” residential development project. The revenue recognition of the project will ramp up over the next few quarters as the project progresses. Whilst sales for the previous quarter were impacted by the Easter Sunday terror attacks in April, the sales momentum is now improving, where interest has reverted to pre-incident levels with both the months of August and September recording encouraging sales.

The installation of external facades, mechanical and electrical services and the interior works are nearing completion for the Cinnamon Life Residential and Office Towers, for handover from April 2020 onwards. The full completion of the project is on track for March 2021.

The Financial Services industry group recorded a marginal drop in EBITDA (2019/20 Q1: Rs.563 million versus 2018/19 Q1: Rs.564 million], while Other, Including Information Technology and Plantation Services sectors recorded an EBITDA of Rs.1.18 billion in the second quarter of 2019/20 over the adjusted EBITDA for the second quarter of the previous financial year [2018/19 Q1: Rs.2.44 billion], as a result of the decline in finance income as a result of the deployment of cash in new investments and lower exchange gains recorded at the Holding Company on its foreign currency denominated cash holdings.

During the quarter under review, the Group’s carbon footprint per million Rupees of revenue decreased by 6 per cent to 0.74 MT, and in absolute terms, by 2 per cent to 25,131 MT, driven by reduced activity at Cinnamon Air and the Leisure industry group as a result of the Easter Sunday impacts. Water withdrawal per million Rupees of revenue increased by 5 per cent to 14.81 cubic meters, and in absolute terms, by 9 per cent to 500,734 cubic meters due to higher water usage for replanting purposes at the Rajawella golf course.

John Keells Holdings PLC (John Keells), is a Sri Lankan company, which is also the country’s largest listed conglomerate in the Colombo Stock Exchange, operating over 70 companies in 7 diverse industry sectors. John Keells provides employment to over 13,000 persons and has been ranked as Sri Lanka’s ‘Most Respected Entity’ by LMD Magazine for 14 years. Whilst being a full member of the World Economic Forum and a Member of the UN Global Compact, John Keells drives its vision of “empowering the nation for tomorrow,” through the John Keells Foundation and the social entrepreneurship initiative, ‘Plasticcycle’ is a catalyst in scientifically reducing plastic pollution in Sri Lanka.