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John Keells Ltd recorded a net profit of Rs. 141.5 million for the first six months ended September 30, 2001 which is a 45% reduction in comparison to the profit of the same period of the previous year of Rs 257.6 million, Chairman, V. Lintotawela said in the half-year report.

The turnover of the company was impacted by the prevailing market conditions and the performance of the Group, with a reduction of 5% from Rs. 463.7 million to Rs. 440.9 million. The increase in cost of funds also had its effect on the company, with a 73% increase in finance costs from Rs. 47.7 million to Rs. 82.7 million. Profit after tax therefore fell by 26% from Rs. 271.9 million to Rs. 200.2 million.

While Ceylon Cold Stores has been able to increase its market share over the last six months, the economic environment severely impacted on the performance of the food and beverage sector. Additionally, the Voluntary Retirement Scheme of the flagship of the sector, Ceylon Cold Stores, which although contributing to lower operating costs, in the future cost the company Rs. 35.4 million in the first half of the year. The total outflow in respect of the 327 persons who have accepted the package would be approximately Rs. 150 million.

Consequent to the LTTE terrorist attack on the Air Force Base and the international Airport and the World Trade Centre bombing of September 11, the leisure sector has been the most adversely impacted with profits in the Maldives being insufficient to compensate for losses in our Sri Lankan operations. "We plan to expand our operations into South India and the Maldives before the end of the year to reduce our reliance on the volatile domestic market," Mr. Lintotawala said.

In the plantation sector, the unprecedented drought that prevailed during the first half of this financial year contributed to a sharp decline in output and a rise in the COP of tea. With NSAs failing to benefit from the depreciation of the Sri Lanka Rupee, and wage costs being higher on account of the attendance incentive granted in February 2001, sector profitability has been adversely affected.

The transportation sector has continued to perform ahead of last year, with most sector companies engaged in shipping and air travel exceeding expectations. Notwithstanding a likely higher contribution from SAGT in the final quarter, the current downturn in external trade and the uncertainty surrounding both the aviation and shipping industries may however slow sector growth rates in the second half of the current financial year. The third tranche of our investment in SAGT is also being met during this period.

While the IT sector has accelerated its marketing efforts during the past quarter the lead time associated with acquiring new clients is lengthy and these will bear fruition only towards the end of the current financial year.

In the financial services sector, the Waldock Mackenzie portfolio has been restructured and is benefiting from lower interest rates and John Keells Stock Brokers is performing ahead of expectations. Given the recent recovery in stock market activity and further reduction in interest rates.

Despite the welcome and long overdue reduction in interest rates combined with the removal of the liability to Turnover Tax of Banks and the 1% reduction in NSL, the macro-economic outlook for the second half of the current financial year remains unpromising, with the domestic economy continuing to suffer from the unsettled political situation and the US economy in danger of sinking into recession.

The Group has the diversity and the resilience to weather the present situation and we believe that with better business conditions, shareholders can expect a substantially improved performance in the next financial year, especially once the effects of our current strategies and restructuring become more visible.

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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