A strong third quarter by John Keells Holdings (JKH) where the pre-tax profit was up 64% to Rs.1.5 billion from Rs.0.9 million a year earlier has been described as "an early indication of the group’s potential" in the post war environment by JKH Chairman Susantha Ratnayake.

However, the group is still running behind the previous year as far as the results for the nine months ended December 31, 2009 is concerned where a pre-tax profit of Rs.3.37 billion is down 14% from Rs.3.93 billion earned in the comparative period last year.

In a message to shareholders, Ratnayake said there was a significant improvement in the performance of their leisure sector in the third quarter with the pre-tax profit surging 174% to Rs.333 million against Rs.122 million earned in the comparative period the previous year.

"This improvement in performance was mainly from the Sri Lankan city hotels and resort hotels," he said.

He reported a pre-tax profit of Rs.159 million from their leisure sector for the nine-month period against a loss of Rs.459 million recorded in the same period last year.

"During the quarter we acquired four acres of land next to the former Hotel Bayroo which gives us a contiguous block of 10 acres on the prime Beruwela beach front on which we plan to construct a 190-room hotel," he said.

"The south wing of the Cinnamon Grand Hotel, comprising of 254 rooms, will be re-furbished during the next few months."

In view of the substantial plans for expansion, John Keells Hotels announced a rights issue of one new share for every three held priced at Rs.10 per share to raise approximately Rs.3.64 billion new capital. Most of these funds will come out of JKH coffers as JKH owns 92% of John Keells Hotels.

However, analysts have not ruled out the possibility of JKH diluting part of its shareholding of John Keells Hotels provided capital market conditions are right.

During the nine months ended December 31, 2009, JKH posted a profit of Rs.2.4 billion attributable to its shareholders, down 9% from Rs.2.6 billion earned a year earlier. This translated to a basic earning of Rs.3.86 per share, down from Rs.4.10 during the comparative period the previous year.

Segmentally, the transportation business has been the biggest earner for the JKH group during the nine months under review with an attributable profit of nearly Rs.1.6 billion earned there, up from Rs.1.1 billion a year earlier.

Ratnayake said that the third quarter pre-tax profit in transportation was up 46% to Rs.506 million although the nine months pre-tax profit of Rs.1.7 billion was 8% down from Rs.1.8 billion posted during the same period last year.

"South Asia Gateway Terminals continued to perform well" Ratnayake said.

There had been a decline in performance in the group’s property sector where it has been developing highrise residential as well as commercial space on the prime Galle Road, Kollupitiya, site on the grounds of the Cinnamon Grand Hotel.

"There has been a significant increase in interest for apartments in recent months and we expect that this will offer opportunities for further projects," Ratnayake said.

Although the group’s soft drinks and ice cream business (Elephant House) had continued to perform well during the third quarter as well as in the nine months, earnings from the consumer foods and retail segments had declined with 9-month pre-tax earnings of Rs.168 million 4% lower than the Rs.174 million posted a year earlier.

While the retail business had seen an improvement in the third quarter, Ratnayake said that the performance of their processed meat business in India had been below expectation and contributed to the lower result in consumer foods and retail.

In financial services there had been a strong performance with the pre-tax profit up 159% in the third quarter to Rs.353 million while the 9-month pre-tax profit of Rs.735 million was up 80% from a year earlier. John Keells Stock Brokers, Union Assurance and the Nations Trust Bank, the group’s banking associates had contributed.

Although there had been an improved performance in their business process outsourcing segment, the group’s information technology (IT) business had remained a loser despite a small Rs.4 million third quarter profit. The third quarter turnaround from a loss of Rs.27 million had enabled the IT group to reduce 9-month losses to Rs.31 million from Rs.45 million in the comparative period the previous year.

JKH has a stated capital of Rs.22.7 billion, a capital reserve of Rs.7.5 billion and revenue reserve of Rs.16.7 billion in its books as at December 31, 2009.

Foreign funds continue to be the major owners of the group according to the top 20 shareholders as at December 31, 2009 although local interests too have significant shareholdings.

JKH has now moved into healthcare having acquired 24.6% of the share capital of Central Hospital (Pvt) Limited for a consideration of Rs.900 million on December 16, 2009. The results of Central Hospital will be consolidated in the JKH accounts from January 2010 the directors have been told.