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Amidst a gradually improving business environment, John Keells Holdings (JKH) had a very strong second quarter, confirming yet again, the fundamental strength of the Group. Consolidated Group revenue increased by 29% and net profit after tax and minority interest increased by 247% to Rs. 491.1 million in the first quarter of 2003 driven by strong growth in most sectors. Excluding the profit from the sale of discontinued operations of Rs. 103 million. Group net profit for the first quarter of 2003 is up 174%. Group net profit for the 2nd quarter was Rs. 235.8 million compared to Rs. 52 million in the same period last year, a growth of 349%, Chairman JKH, Vivendra Lintotewela said in a release.

The sharp improvement seen in the performance of the Food and Beverage sector's performance in the first quarter, continued into the second quarter, driven by a significant increase in net profit at Ceylon Cold Stores on the back of higher volumes and cost savings partly from the Voluntary Retirement Scheme implemented last year. "We expect the sector to show solid growth for the rest of the year as well, despite higher excise taxes."

The Transportation sector has continued to perform strongly. South Asia Gateway Terminals (SAGT) had another good quarter. Construction work on the second berth is progressing well and is expected to be in operation by the end of the year.

Two more cranes are due in December and the entire project is likely to be completed in 1Q 2004. The Group took over Lanka Marine Services (LMS), the monopoly bunker fuel supplier at the Colombo Port on August 20, 2002.

"LMS is seeing improved volumes this year and will make a positive contribution to Group profits. We believe there is tremendous scope for improving profitability further through superior marketing, better product mix and process re-engineering. We expect the Transportation sector to benefit significantly from the forecast improvement in external trade activity for the rest of the year," Lintotewela said.

The Leisure sector's Sri Lankan and Maldivian operations saw a substantial year-on-year improvement in the 2nd quarter. Tourist arrivals to Sri Lanka grew sharply from the low levels seen last year following the attack on the Colombo airport and the events of September 11. Similarly, the Group hotels in the Maldives have enjoyed unusually high occupancy levels this off-season. With the peace process gathering momentum, we expect the improvement seen in tourist arrivals in Sri Lanka to continue into the winter season as well. "In this sector, we will actively pursue new investments in the region, while consolidating our strong presence in Sri Lanka."

The Plantation sector reported a reduced level of profitability. The recent wage hike will have a significant negative impact on sector profitability. However, the outlook for tea prices is promising, as some major producing countries have seen a fall in output this year.

Rubber prices have risen following the curtailment of production by the three major producer countries and we expect the current price levels to remain for some time, the chairman said.

The Information Technology sector continued its recovery in the second quarter as a result of a focused and effective marketing initiative and a pick up in IT spending from our key customers. Increasing demand for our software services in overseas markets augurs well for the sector's future returns.

The sector's domestic business units are seeing better volumes as the local business environment is gradually improving.

The Financial Services sector saw strong growth from John Keells Stock Brokers and Nations Trust Bank (NTB). John Keells Stock Brokers benefited from the higher volumes in the Colombo Stock Exchange, especially in September. With volumes expected to continue to be high, the stock broking unit should have a very good year. Nations Trust Bank, in pursuance of its strategy of growth through acquisitions, acquired the Kandy Branch of Standard Chartered Bank and the Sri Lankan operations of American Express Bank. The performance of our associate Union Assurance was negatively impacted by intense price competition and higher reinsurance costs.

In the light of the changes that are taking place in the global economy, as well as the commencement of the recent peace process in Sri Lanka, we believe it is an appropriate time for the company to position itself to take advantage of new opportunities and improve its operating model in line with global best practice. The Board has mandated a leading strategy consulting firm, the Boston Consulting Group (BCG), to assist us with this important initiative over the course of the next year.

"The domestic economy is showing signs of a gradual recovery from the downturn in 2001. Export volumes in August was up by 33% in US Dollar terms, compared to August last year. Tourist arrivals have grown by almost 150% during August and September. We are confident that the current peace process will lead to a lasting solution to the conflict and sustained economic growth for the country. The various sectors of the Group are well positioned to benefit from any upturn in the economy. This has been reflected in our performance in the first half and we expect to see strong earnings growth for the rest of the year," Lintotawela said.

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