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John Keells Holdings Limited (JKH) maintained strong growth momentum during the last financial year and in the first quarter by recording a 28 per cent increase in Group Revenue, a 98 per cent growth in Group Operating Profit and a 90 per cent increase in Pre Tax Profit prior to exceptional items, in the second quarter ended September 30, 2003 compared to the corresponding period in 2002/2003.

The Group Revenue, Operating Profit and Pre Tax Profit, prior to exceptional items, for the half year ended September 30, 2003 were higher than the corresponding period in 2002/2003 by 27 per cent, 95 per cent and 77 per cent respectively.

Despite the Subsidiaries, particularly Ceylon Cold Stores, totally absorbing a Rs 756 million Voluntary Retirement Cost during the first half of the year, the profit attributable to the Group was only marginally below that recorded during the first half of 2002/2003 which also enjoyed a Rs 103 million exceptional profit from discontinued operations.

The profit attributable to the Group for the current quarter was however 82 per cent higher than that of the corresponding quarter in 2002/2003, despite a VRS charge of Rs 68 million during the quarter.

The JKH Company Pre Tax Profit for the second quarter and first half are 116 per cent and 124 per cent over the corresponding periods in 2002/2003.

The steady improvement in the economic and business environment resulted in a strong operating performance from all our sectors, particularly the Leisure, Financial Services and Transportation Sectors.

On September 2003, JKH acquired a 60.5 per cent stake in Asian Hotels Corporation (AHC) at a cost of Rs 4 billion, triggering a mandatory offer at the highest paid price of Rs 30.00 per share.

Purchases made between September 19, 2003 and the 30 September 2003 saw the JKH stake increase to 69.25 per cent as at September 30, 2003. The mandatory offer has now closed and based on the acceptances the JKH stake in Asian Hotels will increase to approximately 84 per cent.

A Private Placement of 24 million shares and a 1:7 Rights Issue were subsequently announced, in order to maintain the group's flexibility in gearing itself for future investments. The Private Placement was heavily oversubscribed primarily as a result of heavy demand from foreign institutional investors and was completed successfully raising Rs.3.2 billion for the company. The Rights Issue is expected to close in December this year.

The Food and Beverage Sector enjoyed immediate operating efficiency improvements following the implementation of the VRS and performed in line with expectations during the quarter. The overall improvement in consumer spending levels was reflected in the revenue growth in the Sector, while Jaykay Marketing Services continued the successful rollout, and the consolidation, of its new chain of Elephant House Supermarkets.

Profits from the Transportation Sector were higher than in the previous quarter at the operating level, mainly due to healthy contributions from Lanka Marine Services (LMS). The South Asia Gateway Terminals, which successfully completed the development of the Queen Elizabeth Quay of the Colombo Port during the quarter, also contributed well.

The significant increase in tourist arrivals to the country is reflected in the performance of the Leisure Sector. While the local hotels and the destination management businesses registered marked improvements in profitability, the Maldivian Hotels recorded steady profits. The addition of two premier 5-star City Hotels to the JKH portfolio, as a result of the AHC acquisition, facilitates the enhancement of the JKH leisure offering.

The acquisition also gives the Group more Real Estate options through the Crescat Apartment and Boulevard Complex. The Plantation Sector registered improved profitability with Tea Smallholders and Namunukula Plantations leading the way. The Information Technology Sector profitability was at levels similar to the corresponding period in the previous year.

The Financial Services Sector continued to perform well led by a strong performance from John Keells Stock Brokers who benefited from the upsurge in stock market activity. Nations Trust Bank and Union Assurance profitability were significantly higher than in the corresponding period in 2002/2003.

A more stable economic environment, the adoption of a new operating philosophy, the continuing efforts in developing and empowering our human capital and the potential pay backs of major investment decisions give us the confidence to view the future with great optimism and we will continue to seek new avenues of growth while improving the productivity of our existing asset base.

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