OUR PORTFOLIO WELL ALIGNED WITH KEY GROWTH SECTORS: JKH CHAIRMAN
Today, Mirror Business in partnership with the Colombo Stock Exchange (CSE) kicks off an interview series, featuring the Chairmen of the CSE S&P SL20 companies. Following are the excerpts of an interview with John Keells Holdings PLC (JKH) Chairman Susantha Rathnayake, where he shares his insights about the JKH’S future, industries the group is in and the country’s economic potential. Q: What are the key milestones achieved in the last financial year?
The consolidated PBT in the last Financial Year, being 2014/2015, was Rs.19.08 billion, a growth of 25 percent over 2013/14.
The consolidated PBT for the nine month period ended 31 December 2015 is Rs.13.13 billion, a 9 per cent increase against the corresponding period of the previousfinancial year. The construction of the Rs.820 million integrated resort, “Cinnamon Life” (“Waterfront”), continues.the required debt funding for “Cinnamon Life” was concluded through a syndicated project development facility in June 2015. In September 2015, we acquired a controlling stake in Rajawella Holdings (Private) Limited, which owns a 500 acre land in Digana with an 18-hole Donald Steel designed Golf Course. This investment will complement the Group’s leisure and property portfolios. The construction of the premium residential development, “7th Sense” on Gregory’s Road, was completed in December 2015.
In June 2015, JKH completed the subdivision of its ordinaryshares, whereby seven shares were subdivided into eightshares. JKH also completed the conversion of the 2015 Warrant, where almost the entirety of warrants were exercised and accepted. Q: What are the growth prospects prevalent in the industries you operate in?
Our portfolio is well aligned with the key growth sectors of the economy and this augurs well for the Group. The acceleration of the pace of consumption, shift in consumption patterns and increasing per capita incomebenefitted the Consumer Foods and Retail businesses in the last year.opportunities to further capitalise on these aspects combined with the significant room for higher per capita penetration indicates longer term growth prospects for many of our consumer focused industry groupssuch as Financial Services and Consumer Foods and Retail.
Given the slowdown in global trade and decline in commodity prices, shipping, bunkering and ports will be impacted throughout the world and this could be a challenge for Sri Lanka in the near term
The tourism industry is expected to maintain its growth momentum and our leisure portfolio is well positioned to capture this growth under the umbrella of our “Cinnamon” brand. Further, we believe thatin the medium to long term,the opportunity ofthe Meetings, Incentives, Conferences and Exhibitions (MICE) market, particularly from India, will enable us to attract the high spending segment of tourists which Sri Lanka has hitherto been unable to satisfy.
Given the strategic location of the country and the inherent advantage Sri Lanka possesses as a maritime hub,we also expect the logistics, ports and bunkering businesses to benefit from the increase in traffic with furtherinfrastructure expected to support this traffic. Q: How do you intend to capitalize on these growth opportunities?
The significant strength of the JKH balance sheet coupled with its ability to leverage substantially, if required, has been one of the key factors that have allowed JKH to undertake some landmark investments in the past. The Group is fortunate to be in a similar position at this juncture where significant resources are at its disposal which will enable the Group to benefit from the numerous opportunities presented to us at this moment.
Our focus has been on establishing an umbrella brand, “Cinnamon”, across our leisure portfolio, to capitalise on the growth potential in tourism. We believe that “Cinnamon” positions us to capture the higher spending customers through the differentiated products and services the brand promises.in addition, this initiative aims to streamline all processes, policies and standards within the Leisure group in contributing to a more effective management of room inventory, yield management, enhanced guest experiences and in deriving synergies on common costs which lend themselves to centralisation.
As stated earlier, we believe that “Cinnamon Life” is uniquely placed to cater towards the emerging requirements ofthe contemporary tourist and the increasing MICE traffic, positioning Colombo as a hub for business and leisure travel.
Since consumers nowadays are continuously evolving and more informed, they are always on the lookout to better their lifestyle, be it a healthier option, shift to modern trade or convenience. Given this, our Consumer Foods and Retail businesses will continuously focus on expanding our portfolio, remaining relevant and widening our footprint by staying ahead of the market and understanding consumer needs, as we have done in the past.
The ability to quickly cater to emerging needs has been a key factor in propelling shareholder value
Opportunities in the Transportationbusiness will continue to be evaluated, particularly considering any opportunities based on the Government’s interests in private-public partnerships, such as with the East Container Terminal of the Port of Colombo. Q: In your opinion, what challenges do you anticipate in the industries that you operate in?
Whilst we recognize that significant growth opportunities are present in the tourism industry, our primary concerns relate to the lack of regulation and the coordination of effort. The attractions of tourists with a high spend and the right stay is a key challenge in promoting this industry. The unregulated proliferation of rooms in the informal sector is impacting occupancies and average room rates. Whilst the emergence of Small and Medium-sized Enterprises in tourism is a good thing, we are of the view that they have to operate in line with certain minimum standards if the industry is to thrive.
Attracting the right skills, improving productivity and retaining this vital stakeholder are challenges for the Group
Given the slowdown in global trade and decline in commodity prices, shipping, bunkering and ports will be impacted throughout the world and this could be a challenge for Sri Lanka in the near term.
The management of human resources and retention of talent will be a focal point for many industries in Sri Lanka, with some of our businesses being no exception. Attracting the right skills, improving productivity and retaining this vital stakeholder are challenges for the Group, especiallyinthe retail, hospitality and financial servicesbusinesses.outdated labour laws which impede the productivity, flexibility and the agility of organizations in an ever-changing, fast-paced dynamic world are also concerns. Q: What is your assessment on the readiness of your organization to meet these challenges?
We constantly re-align, reposition and re-invent ourselves in pursuing the growth sectors of the time.maintaining flexible cost structures is a key objective for us in successfullyadaptingto these challenges within a dynamic environment.
Sustainability practices in line with international standards, employee branding, engraining Group values and culture in the DNA of employees and continuously striving towards a performance driven culture have contributed to managing the previously mentioned challenges pertaining to the human resource front. Q: What efforts and initiatives are you taking to drive shareholder value?
Over the years, our corporate agility, resilience and business adaptability have driven a welldiversified portfolio. The ability to quickly cater to emerging needs has been a key factor in propelling shareholder value. When allocating funds for various investments, our well proven project evaluation model strives to strike a balance between optimizing immediate portfolio returns against the returns in the future.we are delighted to state that we are currently in the process of evaluating an exciting pipeline of projects which we believe will further propel the growth momentum of the Group. Q: How has listing on the CSE transformed your company?
JKH listed on the Colombo Stock Exchange in 1986 and is currently one of the largest listed companies in Sri Lanka.greater access to capital through diverse sources, both international and foreign, and shareholder centric decisions have enabled the company to sustain a good performance over a long period of time and this stance seems appropriate for JKH when looking ahead.
The strength of the balance sheet, as I stated previously, and the ability to raise funds has been the cornerstone of the Group. These have enabled landmark investments such as the acquisition of Ceylon Cold Storesplc (Whittalls), Asian Hotels and Properties PLC, and the investments in South Asia Gateway Terminal and “Cinnamon Life”, to name a few.
While being a listed company has provided liquidity to shareholders of the company, it also has paved the way for JKH to introduce an Employee Share Option (ESOP) scheme. This ESOP scheme has ensured better alignmentof management with the interests of shareholders and have contributed to our efforts in staff retention and attraction.