Diversified

The Company

John Keells Holdings (JKH) is Sri Lanka’s largest conglomerate and holds diverse business interests. The group, which began operations as far back as the 1870s as a produce and exchange broking business, was incorporated as a public limited liability company in 1979 and obtained a listing on the Colombo Stock Exchange in 1986. JKH has issued global depository receipts, which were listed on the Luxembourg Stock Exchange, and it was the first Sri Lankan company to be listed overseas.

JKH’s operations extend into many segments, including in transportation, container handling and oil bunkering, hotels and property development, consumer food and retail, finance and IT services. The biggest contribution to revenue in FY 2015 came from the group’s consumer food and retail business, with 29%. Food and retail was followed by hotels (23%), then transportation (19%) and financial services (13%). However, the group’s earnings before interest and tax (EBIT) were dominated by the hotel segment at 29%, while financial services, consumer food and retail, and transportation contributed 18%, 13% and 13%, respectively.

JKH possesses a large and valuable land bank, which it has been developing in order to launch mega-projects. The group currently holds 5.89 acres of freehold land within Colombo and has 133 acres of freehold and 15 acres of leasehold land outside Colombo.

Development Strategy

JKH has initiated the construction of a mixed-use integrated resort project, which is valued in excess of $650m and is the single largest private sector investment in Sri Lanka. The project, which has been identified as a strategic development project, received approval from Sri Lanka’s Board of Investment (BOI) during FY 2014. The BOI granted sweeping tax concessions for the project, including a three-year tax exemption and a further 15 years at a lower tax rate of 6%. The integrated resort consists of multiple businesses, including a 800-room five-star luxury hotel, a convention centre with capacity for 2500 guests, and entertainment and gaming facilities, spanning 150,000 sq feet. A 400,000-sq foot shopping mall is also included in the plans, with luxury condominiums (approximately 240 units in one tower) planned in phase one of construction. Phase two, meanwhile, includes approximately 200 serviced apartments or residential apartment units and office space of approximately 400,000 sq feet. Phase one of the project is expected to be completed by the end of FY 2018, boosting JKH’s profitability by around 40% from LKR14bn ($100.8m) in FY 2015 to LKR20bn ($144m).

Forecast

The consumer foods and retail segment is expected to register a strong growth trajectory, recording an EBIT compound annual growth rate (CAGR) of 20% between the end of FY 2016 and the end of FY 2018. Sector EBIT grew by a CAGR of 44% between FY 2012 and FY 2015. Higher disposable income and increasing GDP per capita is likely to bring benefits via increased consumer demand for the group’s products, while also converting to higher footfall for the supermarkets and increasing the value of the basket of goods per consumer.

JKH’s finance operations, which include the life insurance firm, Union Assurance and a 29.9% stake in Nations Trust Bank (NTB) are expected to increase their contribution to revenues, led by sector EBIT and a CAGR of 23% for NTB between the end of FY 2015 and the end of FY 2018. NTB earnings between FY 2016 and FY 2018 are backed by its strong credit growth and high interest margins, while Sri Lanka’s life insurance segment, one of the most under-penetrated segments compared to regional peers, is expected to take off amidst a growing middle income population. JKH earnings should grow at a CAGR of 20%, from the end of FY 2016 to the end of FY 2018, to reach LKR20bn ($144m), and the group is expected to reach LKR24bn ($172.8m) by the end of FY 2020.

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The Report: Sri Lanka 2016

Capital Markets chapter from The Report: Sri Lanka 2016

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