John Keells Holdings (JKH) reported a turnaround in the September 2024 quarter, posting earnings of Rs1.36 billion, compared to a Rs574 million loss in the same period last year. A barometer of the economy with its influence across core sectors – financial services, container terminals, consumer goods, and tourism – the results also demonstrate the shifting tide in the economy.
Quarterly revenue grew by 20% to Rs76.9 billion, propelled by increased consumer demand in the Retail, Consumer Foods, and Transportation divisions. The Retail sector, aided by stable prices and a 12% rise in foot traffic, achieved a 21% boost in EBITDA. Sales volumes climbed 14% in same-store sales, as lower raw material costs and reduced electricity prices supported broader profitability across consumer operations.
In the Consumer Foods segment, beverages and frozen confectionery saw significant growth, with the latter recording a 17% rise in volume and carbonated drinks increasing by 13%. Volume-driven efficiencies absorbed fixed costs, contributing to higher margins across consumer goods.
The Transportation division recorded a 17% increase in EBITDA, bolstered by rising demand for bunkering at the Port of Colombo, where regional disruptions, particularly in the Red Sea, have rerouted shipping activity. The Ports and Shipping segment, led by South Asia Gateway Terminals (SAGT), saw gains in both domestic and transshipment volumes. The West Container Terminal (WCT-1) project at the Colombo Port is progressing on schedule, positioning JKH to capture further regional trade flows.
In Financial Services, loan portfolio expansion and higher fee income at Nations Trust Bank (NTB), combined with premium gains in Union Assurance, increased revenue by 14% year-over-year. Insurance premiums rose from policy renewals and new business despite the impact of lower interest rates on profitability.
Currency movements also played a role, as the appreciating rupee led to a Rs1.94 billion non-cash exchange gain on a $213 million loan owed by Waterfront Properties while reducing income from Maldivian resorts. Additionally, the partial conversion of convertible debentures issued to HWIC Asia Fund in February 2024 lowered interest expenses from Rs991 million to Rs550 million, benefiting the bottom line.
The Property segment saw a strong recovery, with unit sales in the City of Dreams Sri Lanka and TRI-ZEN residential developments. A successful rights issue earlier this year raised Rs24 billion to fund Waterfront Properties, reflecting confidence in the Sri Lankan property market. Cumulative unit sales in City of Dreams reached 262, and the phased opening of the Cinnamon Life hotel, launched in October 2024, signals its potential as a central tourism and hospitality asset.
The Leisure sector faced mixed results as costs associated with the City of Dreams ramp-up weighed on EBITDA. Meanwhile, Maldivian resorts saw profitability fall due to currency impacts and fewer arrivals from traditional European markets. Domestically, however, cumulative tourist arrivals rose by 25% in the first half of 2024, with forward bookings for JKH properties suggesting a solid peak season ahead. JKH has emphasized that delayed destination marketing by the government remains crucial to sustaining tourism growth.
In a note to shareholders, JKH Chairman Krishan Balendra said during the quarter under review, Sri Lanka continued to witness a stable macroeconomic environment with key indicators supporting a sustained growth trajectory. The transition following the Presidential elections has been smooth, with stability and recovery momentum sustained, boosting business and consumer confidence, Balendra said, sharing insights into the economic recovery.
Headline inflation declined for the first time since 2015 to a negative 0.5% in September 2024, and interest rates remained stable below 10%. Improved foreign exchange inflows from tourism and remittances, alongside stable import demand, supported the rupee appreciation against major currencies. GDP growth estimates have been revised upwards to 4%-4.4%, reflecting a stronger-than-expected performance.
Sri Lanka also achieved progress in external debt restructuring, completing consultations with the Official Creditor Committee and IMF, a critical step for securing future reviews and disbursements under the IMF Extended Fund Facility. The new government has committed to expediting the debt restructuring process without deviation from prior agreements. The tourism sector continued its recovery, with 1.6 million arrivals recorded as of date and an estimated 2 million expected by the end of the year.
JKH’s results provide a snapshot of Sri Lanka’s economic transition. The IMF’s recent debt restructuring consultations could lead to a sovereign credit upgrade, drawing foreign investment and boosting corporate confidence. Balendra noted that declining inflation, stable interest rates, and an appreciating currency align with JKH’s revenue growth, suggesting corporate resilience may aid Sri Lanka’s economic recovery.
As JKH extends investments in retail, transportation, and real estate, its performance points to Sri Lanka’s recovery. the upcoming budget and IMF-backed reforms will likely shape JKH’s strategy, as policy adjustments affect inflation, consumer spending, and foreign investment flows. JKH’s results in the quarters ahead may thus provide a benchmark for Sri Lanka’s path toward long-term economic stability.