John Keells Holdings (JKH), one of the country’s biggest conglomerates, has taken a Rs.904 million one-off hit from the Supreme Court judgment on the Lanka Marine Services (LMS) case that had depressed the group’s earnings for the third quarter of the current financial year ended December 31, 2008 as well as for the nine months ended December 31, 2008.

JKH Chairman Susantha Ratnayake has told shareholders that the profit attributable to equity holders for the December quarter was Rs.765 million, down 44% from a year earlier, and for the nine months was Rs.2.6 billion, down 19% from the profit earned during the corresponding period the previous year.

"The decrease in group performances is mainly due to the one-off charges in additional taxes and write offs arising out of Lanka Marine Services (LMS) and a decrease in profitability of LMS relative to the previous year, as a result of adopting a different mode of operations," he said.

The nine-month results indicate that JKH has suffered third quarter downturns in most of its business segments other than financial services where good performances by the Nation’s Trust Bank and Union Assurance had ensured profit growth.

Ratnayake explained that although the Rs.9.3 billion revenue for the third quarter was 16% below what had been earned a year earlier, the Rs.31.1 billion revenue for the full nine months was 7% more than earnings a year earlier.

"At a company level, the net profits for the quarter, and nine months, ended December 31, 2008 were Rs.1.1 billion and Rs.4 billion respectively, these being increases of 34% compared to Rs.813 million and 132% compared to Rs.1.7 billion respectively, over the corresponding periods in the previous year," he said.

He explained that following the Supreme Court determination, the company had changed the business model at LMS which had resulted in increased cost for that company.

LMS was now running with a combination of floating and land-based bunker storage and this operating process was still in what Ratnayake called "a nascent stage" requiring "regular fine tuning" as LMS seeks to optimize its operating efficiencies.

"We are confident that performance and the profitability of this new format will improve as we go forward," he said.

The transportation sector, which includes South Asia Gateway Terminals (SAGT) and LMS, has seen the December quarter profit dipping 53% to Rs.346 million from Rs.729 million a year earlier while cumulatively this segment earned a pre-tax profit of Rs.1.8 billion for the nine months to December, down 24% from earnings during the same period the previous year.

Transportation is JKH’s main cash cow.

In the leisure sector, JKH has done well in the Maldives with the segment recording a pre-tax profit of Rs.122 million, up 39% from a year earlier, in the December quarter.

Ratnayake said that full operation of two of their Maldivian resorts closed for refurbishing last year had been re-opened.

However, the leisure segment overall was losing during the nine-month in review with losses up to Rs.459 million from Rs.330 million in the corresponding period last year.

"The Sri Lankan resorts and city hotels were impacted by high inflation and increased utility costs. The reopening of Cinnamon Island, Alidhoo post construction of a breakwater in November 2008 should improve the performance of the leisure group in this (final) quarter," Ratnayake said.

In the property sector too JKH had a poor third quarter with pre-tax profits dipping 57% to Rs.88 million from the Rs.207 million recorded in the third quarter of the previous year.

Ratnayake attributed this to the delay in the recognition of revenues arising in this business sector mainly out of a delay in receiving final tranches against the backdrop of the prevailing macro economic environment.

He said that property profit before-tax for the nine months ended December 31, 2008 was 4% below last year. Construction of their new project, the Emperor on the grounds of the Cinnamon Grand Hotel continued despite many obstacles due to road closures and security restrictions in the area.

JKH’s consumer food and retail businesses had also seen a third quarter downturn with a pre-tax profit of Rs.99.8 million, down 14% to Rs.117 million earned a year earlier. The nine-month result, at Rs.174 million was 28% below the Rs.242 million earned during the comparative period the previous year.

Ratnayake said that part of the reason for this included an initial set up cost of their subsidiary in India which has expanded both marketing and sales of processed meats in five Indian states during the period under review.

"Ceylon Cold Stores has continued to improve its performance over the past nine months on the back of higher sales revenue. The Keells Super chain is continuing to expand, with the total number of outlets established as at end of the quarter increasing to 40 and a further six outlets identified for completion before the end of the financial year," Ratnayake said.

He reported that although consumer spending was down due to high inflation, people continue to patronize supermarkets in growing numbers.

Financial services saw the December quarter posting a pre-tax profit of Rs.136 million, up 11% from the Rs.123 million earned a year earlier.

This was possible due to strong performances by the Nation’s Trust Bank and Union Assurance with the nine-month performance of this sector up 8% to Rs.409 million from Rs.377 million a year earlier.

Financial services had done well for the JKH group although its stock broking activities had suffered from decline in global market conditions and local sentiment.

Information technology posted a loss of Rs.27 million for the December quarter against a profit of Rs.6 million a year earlier and a nine-month loss of Rs.45 million against a profit of Rs.1.2 million in the comparative period.

Ratnayake said that their business process out source (BPO) business was making steady progress in its expansion efforts.

The conglomerate’s other activities comprises plantation services, strategic investments and corporate centre had also seen pre-tax profits dipping by a sharp 66% to Rs.154 million in the third quarter mainly as a result of drop in tea prices impacting plantation services and lower interest income at the holding company.

However, for the nine-month period ended December 31, 2008, these activities saw profit before-tax growing 62% to Rs.1.7 billion from Rs.1 billion the previous year largely on account of interest earnings earlier in the year.

JKH completed a re-purchase of 25.5 million shares at a cost of Rs.2.3 billion in December last year.

"We recognize the challenges and the opportunities we face in the current global economic environment and are confident that the measures we have taken in the past two years in developing operating models which are easily adaptable to the dynamism and volatility of our operating environment are proving to be effective in dealing with the current recessionary trends.

``We will continue to be proactive in this regard and will take measures to cautiously pursue opportunities that will strengthen and supplement our existing portfolio whilst reviewing our strategies to grow organically. We will be relentless in optimizing our operating costs and in further improving our processes. As I had mentioned sometime ago, the one thing constant at John Keells has been "change," Ratnayake said.