JKH business momentum displays a faster than anticipated recovery; Leisure downturn impacts profits

Summarised below are the key operational and financial highlights of our performance during the quarter under review:

• Post the easing of the strict lockdown measures from mid-May onwards, the underlying month-on-month performance of the Transportation, Consumer Foods, Retail and Financial Services businesses, displayed a faster than anticipated recovery momentum reaching almost pre COVID-19 levels.
• The proactive cost containment and productivity improvement measures undertaken to strengthen the Group’s financial and cash position from the beginning of the quarter, combined with the recovery momentum in business activity, enabled the Group to record cash profits despite the extremely challenging operating conditions.
• Given the faster than anticipated recovery momentum in business activity and the generation of cash profits by the Group, a first interim dividend of Rs.0.50 per share, amounting to a payout of approximately Rs.659 million, was declared to be paid on or before 28 August 2020.
• The Group’s Leisure business was significantly impacted during the quarter given the suspension of operations of our hotels in April and May on account of the closure of the airports in Sri Lanka and the Maldives and the lockdown measures in Sri Lanka. The Maldivian airport was opened for arrivals in mid-July. While bookings for the next few weeks are low, we are encouraged by strong forward bookings for the peak season of January to April 2021, exceeding the bookings we had for the same time last year. Whilst Sri Lanka is yet to re-open its airport, our hotels in Sri Lanka have now commenced operations where the recovery of domestic tourism has been encouraging.
• The Consumer Foods businesses displayed a faster than expected recovery in volumes post the easing of the lockdown in May. In the month of June, the Frozen Confectionery and Convenience Foods recorded positive volume growth whilst the Beverage business recorded a low single digit decline.
• The week-on-week momentum of same store sales of the Supermarket business displayed signs of recovery.
• The Group’s Bunkering business, Lanka Marine Services, recorded an increase in profitability driven by improved margins despite a reduction in the overall market volumes due to lower throughput in the Port of Colombo.
• Construction resumed at ‘Cinnamon Life’ in mid-May after a 2-month closure and it is encouraging to note that the momentum is gradually reaching pre COVID-19 levels. The Group is working closely with the contractor to ascertain the impact of the COVID-19 disruptions on the overall timelines of the project. The finishing work of the apartment and office towers are being re-sequenced to be completed within the financial year to enable handover.
• The profitability of Nations Trust Bank recorded an increase despite pressure on margins, due to the positive impact on account of the removal of the Debt Repayment Levy from January 2020 onwards.
• Due to the deployment of cash equity to fund the ‘Cinnamon Life’ project, Group profitability for the quarter was impacted by a year-on-year decrease in finance income, as expected.