John Keells Holdings Chairman Susantha Ratnayake, following the damaging Supreme Court judgement on its acquisition of Lanka Marine Services, has told shareholders that the JKH board "will continue to self-evaluate" with objective of learning from the experience and "ensuring further safeguards in transactions of this nature in the future."

JKH had delayed issuing its first quarter results for the period ended June 30, 2008 as a result of the Supreme Court judgment delivered on July 21.

"In the absence of an informed update and a quantification of the financial implication to LMS and the group of the judgment, a mere publication of the results for the subject quarter, without a meaningful reference to a material post-quarter event would have been premature," he explained.

Following the judgment the conglomerate had concentrated on taking various steps to ensure full compliance with the court order and on the basis of information available up to August 22, a Stock Exchange filing had been made providing an operating update on LMS and the financial implications of the court order, Ratnayake said.

He admitted that "these have been difficult times for JKH" and he assured stakeholders "that in keeping with the traditions, reputation and track record of transparency and ethical standards that JKH has demonstrated over the years, we will be resolute in the pursuit of our strategic direction."

Ratnayake commented that LMS issue may have understandably created questions with the minds of shareholders adding that they would appreciate "that this poses new challenges not only to your company but the private sector as a whole."

The June quarter had seen an attributable profit of Rs.833 million, up marginally from Rs.821 million posted a year earlier on the back of revenue growth of 31% to Rs.11.09 billion.

"The depressed profit margins, despite the high growth in turnover, are mainly a result of the significant increases in power and energy costs across the group, higher input costs in consumer foods and retail and lower than previous year operating income at the holding company," Ratnayake said.

Transportation had continued to be the largest contributor to group profits with a 12% increase in profit before-tax against earnings in the first quarter of the previous year. LMS is a part of JKH’s transportation segment which also includes South Asia Gateway Terminals in the Port of Colombo.

"The continuity of the LMS business is a key priority for us going forward," the JKH chairman said.

The leisure segment had seen a marginal 2% increase in the losses incurred in the first quarter of the previous year with the construction of a breakwater in their Cinnamon Island resort in the Maldives causing some business interruptions during this period.

"The sporadic incidents of violence and the resultant adverse travel advisories continued to negatively affect the occupancies in the city and resort hotels in Sri Lanka," he said.

In the property segment, there had been a 90% increase in the pre-tax profit to Rs.180 million due to recognition of profits from the apartments at The Monarch which were completed and handed over to buyers during the quarter under review.

"We expect the remaining apartments to be handed over during the next two quarters. Construction of The Emperor is behind schedule due to the road closures and restrictions arising from the high security in the area," Ratnayake said.

In the consumer food and retail segment, revenues were up 20% on the back of increased turnover in Keells Super outlets and franchises numbering 37 to date but the pre-tax profit was significantly lower from the comparative period the previous year.

This was attributed to increase in production costs in the manufacturing sector and start-up cost associated with an expanding base of Keells Super outlets. Also, reduced purchasing power of customers had impacted on earnings.

Financial services had done well with a pre-tax profit of Rs.186 million up 64% from a year earlier although the group’s stockbroking arm remains affected by prevailing market conditions.

Nations Trust Bank (NTB) and Union Assurance, both JKH associates, had performed well.

Information technology has continued to lose although losses were lower from a year earlier thanks to a good performance by the office automation business.

Ratnayake also reported that the sale of their AMW stake last July, the first transaction under the banner of John Keells Capital, had realized a net gain of Rs.1.03 billion at group level and will be reflected in the second quarter results in the three months ending September 30.

Ratnayake said that this exit was a significant success as JKH has achieved its objective of securing the land (owned by AMW) for a joint development with AMW and Finlays and exiting at a significant valuation.

He concluded his chairman’s message by thanking shareholders for "their support and understanding in these challenging times."