Investor Presentation Review of FY2018

Transcription

1 Investor Presentation Review of FY2018 This Investor Presentation should be read in conjunction with the JKH Annual Report 2017/18 to obtain a more comprehensive understanding of the drivers and strategies of our businesses 1

2 About JKH Market cap of USD 1.4 billion No controlling shareholder % free float Debt : Equity ratio of 13% Group cash balance of approximately USD 406 million The Board comprises of three Executive Directors and five Independent Non-Executive Directors 2

3 Contribution to net profits; a gradual rebalancing of portfolio profitability PAT attributable to equity holders 2015/ / /18 23% 14% 10% 21% 32% 25% 15% 4% 23% 33% 35% 17% 22% 20% 5% Transportation Leisure Property Consumer Foods and Retail Financial Services Information Technology Note: The above excludes the contribution from Information Technology and Other including Plantation Services The Group has consciously driven the shift in the composition of its earnings with a greater contribution from higher ROCE earning industry groups such as Consumer Foods and Retail and Financial Services 2017/18 excludes the one-off surplus transfer of Rs.3.38 billion at Union Assurance PLC The decline in contribution from the Property industry group is due to revenue of residential apartments at Cinnamon Life not being recognised 3

4 Cumulative profitability update : for the year ended 31 March 2018 PAT to equity holders of JKH Industry Group FY2018 FY2017 YoY Growth (Rs. Million) (Rs. Million) (%) Transportation 3,073 2,968 4 Leisure 2,822 4,165 (32) Property CF & R 2,371 3,165 (25) Financial Services 8,016 1, Total PAT 21,021 16, Diluted earnings per share (Rs.) Recurring PAT 18,320 16, Refer page 62 of the JKH Annual Report 2017/18 for commentary on recurring adjustments 4

5 Profitability update : Q4 FY2018 PAT to equity holders of JKH Industry Group Q4 FY2018 (Rs. Million) Q4 FY2017 (Rs. Million) YoY Growth (%) Transportation (53) Leisure 1,588 1,776 (11) Property CF & R (24) Financial Services 5, ,235 Total PAT 9,966 4, Adjusted PAT* 6,842 4, * Adjusted PAT excludes the one-off surplus recorded at Union Assurance PLC amounting to Rs.3.38 billion 5

6 Portfolio evaluation 2017/18; returns vs. effective capital deployed 60 Financial Services - 54% Industry group % of effective capital employed 50 Financial Services 5 Retail Retail - 36% Consumer Foods - 34% IT - 21% Transportation - 18% Consumer Foods 3 Information Technology 1 Transportation 9 Leisure 20 Property (Excl. Cinnamon Life) 10 Cinnamon Life 20 In addition, the Holding Company accounts for 28 per cent of effective capital employed (Rs.45 bn), which consists primarily of cash 10 Leisure - 8% Property (Excl. Cinnamon Life) - 6% Hurdle Rate - 15% Cinnamon Life (0.1%) Note the following adjustments: Adjusted effective 1) The above graph excludes the capital employed at Cinnamon Life as it is a project under development capital employed 2) Investment property and revaluation gains/losses for FY16,FY17 and FY18 (Rs.bn) 3) 2013 Rights issue funds, 2015 and 2016 Warrant funds and debt drawn at Cinnamon Life 4) Capital employed in non-operational properties of the Group has been allocated to Property Excl. Cinnamon Life 5) The adjusted capital employed considers the effective share based on the ownership 6

7 Investment pipeline of over USD 600 million during FY2019 and FY2020 Aggressive investment pipeline exceeding USD 600 million over the next two years. Given the gestation period, the realisation of benefits from these investments is expected to accrue from FY2021 onwards Approximately USD 160 million of these investments to be funded through available/internally generated cash. Some of the key projects include: Project Expected completion Cinnamon Life CY2020 Reconstruction of Bentota Beach by Cinnamon End 2019 Refurbishment of Cinnamon Hakura Huraa Maldives End 2019 Cinnamon red Kandy Frozen Confectionery manufacturing plant Roll out of 80 Retail outlets Retail Centralised Distribution Centre JK Logistics - construction of a warehouse FY2020 1Q FY2019 FY2019 & FY2020 2H FY2019 FY2020 7

8 Leisure - overview Chain of Resort hotels in Sri Lanka 8 Resort hotels in strategic tourist destinations (1,000 rooms) 10% of the country s 4-5 star class tourist accommodation 2 five star city hotels in Colombo (847 rooms) 240 roomed lean luxury hotel managed by Cinnamon; Cinnamon red 3 Resort properties in the Maldives (340 rooms) Established hotel brand Cinnamon Leading inbound tour operator in Sri Lanka Tour operator partners include global players such as Thomas Cook, Kuoni, Hotel Plan and Virgin Holidays 8

9 Round trip offering in key tourist destinations; further potential to expand the Cinnamon footprint Greater focus on asset light investment models as a part of the strategy to enhance the Cinnamon footprint in Sri Lanka Land bank of 173 acres of freehold and 127 acres of leasehold land in addition to 517 acres of leasehold land in Digana Of the total freehold land acreage owned, a total of 96 acres of freehold land are in key tourist hotspots: Ahungalla (Southern Province) Trincomalee (Eastern Province) Nilaveli (Eastern Province) Wirawila (Southern Province) Nuwara Eliya (Central Province) : 10.9 acres : 14.6 acres : 41.7 acres : 25.2 acres : 3.4 acres 9

10 Occupancies and average room rates Sector Occupancy (%) FY2018 ARR(US $) EBITDA Margin (%) Occupancy (%) FY2017 ARR (US $) EBITDA Margin (%) City Hotels* Resorts in Sri Lanka Resorts in Maldives City Hotels occupancies and ARRs were impacted by the increase in room inventory The decrease in EBITDA margins of the Sri Lankan Resorts segment is on account of the closure of Bentota Beach by Cinnamon Maldivian Resorts affected by the partial closure of Cinnamon Dhonveli and Ellaidhoo by Cinnamon Sector Q4 FY2018 Q4 FY2017 Occupancy (%) ARR (US $) Occupancy (%) ARR (US $) City Hotels* Resorts in Sri Lanka Resorts in Maldives *Note City Hotels occupancy and ARR excludes Cinnamon red 10

11 Encouraging growth momentum of tourist arrivals to Sri Lanka Annual tourist arrivals to Sri Lanka 2,500 2,000 1,500 1, Year Tourist arrivals (In 000 s) Growth (%) , , , , , ,116 3 Arrivals from China and India Tourist arrivals from April 2017 March 2018 was 2,219,378, a growth of 7.2%, as compared to 2,070,967 recorded in the comparative period of the previous year Arrivals for the quarter increased by 17.0% Year China India , , , , , , , ,628 Jan-Apr 18 98, ,293 Source: Sri Lanka Tourism Development Authority 11

12 Tourist Arrivals Significant growth in Asian arrivals to Sri Lanka 2,500,000 2,000,000 1,500,000 1,000, , Calendar year North America Western Europe Eastern Europe Asia Others Total Source: Sri Lanka Tourism Development Authority 12

13 Arrivals (Mns) Tourist arrivals to Sri Lanka lag well below regional peers Malaysia Indonesia Thailand Vietnam Cambodia Sri Lanka Actual/Target Source: Governmental tourism websites 13

14 Room inventory in Colombo lags far behind other popular regional capital cities 60,000 31,790 30,114 26,113 9,100 7,600 5,019 Bangkok Manila Kuala Lampur Jakarta Ho Chi Minh Hanoi Colombo 14

15 Pipeline of room inventory to support arrivals trajectory Colombo is increasingly becoming an attractive location for City Hotel developments Expected 5-star room supply: Development No. of rooms Year of completion Sheraton Cinnamon Life ITC Ritz Carlton Total rooms 1,906 Cinnamon Life is slated for completion in the calendar year 2020 with the residential apartments and office complex ready for hand over and occupation by early

16 Property - overview John Keells Properties ; explore property development opportunities by leveraging on brand equity Focused strategies for expansion via developer/landowner tie ups Catering to different target market segments: Luxe Spaces Metropolitan Spaces Suburban Spaces 7th Sense on Gregory s Road High-rise apartment complexes completed 7th Sense on Gregory s Road OnThree20 The Emperor The Monarch OnThree20 16

17 Industry potential Low levels of urbanisation within Sri Lanka in comparison to regional peers Annual condominium supply far below regional peers 160,000 Annual condominium supply in regional cities 45,000 Source: CBRE Research 2,000 KL Ho Chi Min City Colombo 17

18 One of the largest privately held land banks in prime city locations Key real-estate sites in Colombo; City Centre Cinnamon Grand premises : 8.03 acres (freehold land) Cinnamon Lakeside premises : 7.65 acres (leasehold land till 2081) Cinnamon Life : acres (under development) Developable freehold land within the city limits Vauxhall Street, Colombo 2 : 9.38 acres Union place, Colombo2 : 0.58 acres Mackinnons Keells, Colombo 1 : 0.45 acres Keells Realtors, Colombo 15 : 1.22 acres Two neighbourhood malls, one with freehold land of approximately 6.6 acres, in addition to a 17.7 acre land extent located in an emerging township, identified under the Government led urban development strategy (Megapolis) 18

19 Developable land bank of over 36 acres in central Colombo Prime developable land bank of over 36 acres held in central Colombo Opportunities for development at land banks held in Crescat City and Cinnamon Lakeside Vauxhall street land bank: Prime freehold land extent of 9.38 acres, to be developed with Finlays Colombo Limited Located in close proximity to the Beira lake water front which is earmarked for development of recreational and residential projects by the UDA 19

20 Developable freehold land of approximately 25 acres in close proximity to Colombo city Bandaranaike International Airport Thudella 18 Acres freehold Kapuwatta 6.6 Acres freehold Greater connectivity and reduction in travel time to Colombo city post construction of the outer circular expressway Direct connectivity to the Port City Colombo and a multi modal transportation hub to be developed Opportunity to expand into residential apartment projects in proximity to the Colombo city Port City Development Colombo - Katunayake expressway/ outer circular expressway connecting to the southern expressway Port access elevated highway 20

21 Robust development pipeline; on going developments 1. Cinnamon Life Cinnamon Life Total units Number of units sold as at 31 March 18 The Residence at Cinnamon Life The Suites at Cinnamon Life Cinnamon Life - commercial complex 10 floors 4 floors Revenue recognition of Cinnamon Life will be on completion in CY Tri-Zen - an 891 apartment residential development in central Colombo, with expected completion in FY2022/23 (pre-sales have commenced) 3. Master planning has been initiated for the 18-acre land under JK Thudella Properties (Private) Limited 4. Master planning has been initiated for the jointly held 9.38-acre property under Vauxhall Land Development (Private) Limited (VLDL) 5. Finalising the acquisition of approximately 100 perches of land located in the heart of Colombo, for a niche residential development which is expected to be launched in 4Q FY Future development of the land bank held at Rajawella Holdings Limited discussed in detail overleaf 21

22 Robust development pipeline: Scenic 500 acre land bank with an 18-hole golf course Rajawella Holdings Limited (RHL) Owners of a majority stake in RHL to complement the Group s leisure and property portfolios The 500 acre land in Digana includes an 18-hole, Donald Steel designed, Golf Course and developable land extent of approximately 80 acres Currently developing the master plan to maximise the development potential of the land plot Troon International has taken over the management of the course and the refurbishment of the course commenced in February 2018 Expected appreciation of land value with the completion of the central expressway Development and sale of properties such as villas, club house facilities, activity zones and possible operation of a hotel in the long term 22

23 Cinnamon Life Integrated Resort 23

24 Integrated development in Colombo 24

25 Integrated development in Colombo 25

26 Integrated development in Colombo 26

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28 Cinnamon Life construction progress 28

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30 Development programme Conferencing ; capacity (4,837 pax) in three venues and car park facility (2,450 slots) 800 guest room hotel. Include conferencing, banqueting, 7 specialty restaurant and entertainment facilities Rentable mall and entertainment space of 372,000 Sq. Ft (Gross 518,000 Sq. Ft) First residential development of approximately 358,000 Sq. Ft (231 units). Second residential development of approximately 255,000 Sq. Ft (196 units). Note: Areas are subject to change based on final drawings A standalone office development - 254,000 Sq. Ft rentable area 30

31 Transportation - overview 42% stake in SAGT SAGT capacity: 2 million TEUs Largest cargo and logistics service provider in the country Leading bunkering services provider Joint Ventures with Deutsche Post for DHL air express and A P Moller for Maersk Lanka GSA for Jet Airways, KLM Royal Dutch airlines and Gulf Air. Other operations include warehousing and supply chain management 31

32 The strategic location of the Port of Colombo linking key shipping routes ADEN GWADAR BAHL KARACHI KOLKATA MUMBAI VISHAKHAPATNAM CHITTAGONG CHENNAI YANGON KOCHI LAMU MOMBASA DAR-ES-SALAM PORT LOUIS CAPE TOWN 32

33 Capacity enhancements in the Port of Colombo 33

34 Million TEUs Sustained volume growth in the Port of Colombo

35 Rapid absorption of capacity in the Port of Colombo Container handling capacity in the region Port Colombo Hong Kong Singapore Shanghai Container handling capacity (TEUs) 8 million* 21 million 40 million 36 million Port of Colombo estimated utilisation CY2017 : 78 per cent Volumes (TEU) Q4 FY2018 Q4 FY2017 % Change SAGT 507, , SLPA 559, , CICT 639, , Total 1,706,351 1,468, SAGT Domestic : Transshipment volume mix (FY2018): 21:79 Sources: Government websites/ Sri Lanka Ports Authority 35

36 Opportunities for growth in the Bunkering businesses Bunkering Business (Lanka Marine Services) Total volumes at LMS grew by 20 per cent during 4Q FY2018 Port of Hambantota Strong opportunities for private bunkering service providers The Port will occupy an area of 1,815 hectares and have a capacity to accommodate 33 vessels at a time Positioned within 10 nautical miles of the world s busiest shipping lanes in which 200 to 300 ships sail through on a daily basis Logistics Business (John Keells Logistics) Total warehouse space under management grew up to approx. 250,000 CBM in the year 2017/18 Sources: Government websites/ Sri Lanka Ports Authority John Keells Holdings PLC 36

37 Consumer Foods - overview Market leader in soft drinks, ice creams and processed meats Custodians of the consumer brands Elephant House, Keells and Krest : high brand equity Key performance indicators (%) FY2016 FY2017 FY2018 Growth of ice cream volumes (4) Growth of beverage volumes (16) Growth of convenience food volumes 11 (4) 3 PBT growth- Consumer Foods (31) EBIT margin - Consumer Foods Key performance indicators (%) Q4 FY2018 Growth of ice cream volumes 2 Growth of beverage volumes (22) Growth of convenience foods volumes 11 A sugar tax on carbonated beverages was implemented from 9th November 2017 onwards, which resulted in the selling prices across the CSD portfolio being increased by approximately 40 per cent. Other mitigation strategies are discussed overleaf Beverage : Frozen Confectionary revenue mix stood at 56:44 as at 31 March

38 Low consumption patterns and penetration reflects potential for sustained growth Carbonated Soft Drinks - Per Capita Consumption (Litres) Bulk vs. impulse split - regional Impulse Bulk % 70% 92% 8% 44% 56% Philippines Thailand Singapore Malaysia Sri Lanka Sri Lanka Thailand CCS reformulated its flagship flavours to replace approximately 40 per cent of sugar content with the natural sweetener Stevia while also implementing the following initiatives; Malaysia Launch of sugar free CSD variants - branded GO Sugar Free (accounting for 25% of CSD volumes since launch) Acceleration of non-csd product launches (flavoured milk and water branded under Elephant House, and additional flavours for Fit-O ) The bulk-impulse mix of regional markets are highly skewed towards the impulse markets, demonstrating the significant growth potential for the impulse category 38

39 Retail - overview Modern Retail Penetration (%) Singapore Malaysia Hong Kong Taiwan Thailand Sri Lanka Sources: Central Bank of Sri Lanka, Nomura Research Institute, Unilever Corp, Web articles 16 Keells is a chain of ~10,000 square foot modern grocery retail outlets Present share of modern retail No. of outlets Keells * 80 Cargills 352 Arpico 44 Laugfs 32 * As at 31 th March

40 Rapid expansion to capitalise on low retail penetration levels Modern trade density population ( 000) per store Keells Super forecasted coverage FY2018/19 Source: Retail and shopper trends in the Asia Pacific, AC Nielsen Comparatively higher modern trade density population per store ratios as against regional peers High potential for expansion due to lower penetration of modern trade in Sri Lanka Over 160 outlets expected by FY2019/20 No. of new stores expected FY FY

41 Retail - overview Profitability margin FY2015 FY2016 FY2017 FY2018 PBT margin (%) EBIT margin (%) Profitability margins impacted by the imposition of control prices on essential items, cost of expanding and operating new stores coupled with the cost associated with rebranding and refitting stores Although outlets are profitable in the first year of operations, the aggressive outlet rollout undertaken has resulted in margin contraction in the short term as a result of the ramp up period of a new outlet The sector will undertake planned capex of approximately USD 90 million over the next two years for an aggressive expansion of the store footprint and construction of a centralised Distribution Centre. The projects will be funded via debt given the low gearing ratio of the business Key performance indicators - Retail FY2015 FY2016 FY2017 FY2018 Same store sales growth (%) Same store foot fall growth (%) In addition to the impact due to subdued market conditions, same store sales were impacted by the rapid store expansion plans of the sector and the corresponding cannibalisation effect it entailed 41

42 Rs. bn Financial Services Insurance sector overview Union Assurance (JKH Stake : 90%) Highest new business growth in the year 2017 Committed to a digital first business model with an investment of over Rs. 800Mn to become the largest digital insurer in Sri Lanka Developing Bancassurance channels - 53% growth in % 5% 4% 3% 2% Life Insurance Penetration as a % of GDP Global average 3.47% Life Insurance Gross Written Premiums % 0%

43 Financial Services Insurance sector overview Key performance indicators CY2013 CY2014 CY2015 CY2016 CY2017 Market share 14% 13% 13% 13% 14% Premiums growth 8% 8% 17% 19% 22% Recurring net profit growth 48% 11% 23% 17% 205% Recurring net profit (Rs. Mn) ,127 1,313 4,002* Surplus from Life Fund (Rs. Mn) ,100 3,642 Life Fund (Rs. Bn) Capital Adequacy Ratio** N/A N/A N/A 411% 352% *Excludes a one-off surplus of Rs billion arising from the change in policy liability valuation 43

44 Financial Services Banking sector overview Nations Trust Bank (JKH effective economic interest : 32.16%) Focus on SME / retail strategy Franchise for American Express cards Key performance indicators CY2013 CY2014 CY2015 CY2016 CY2017 Loans and advances growth 12.1% 19.5% 22.4% 23.7% 25% Industry (LCB s) 8.5% 12.3% 23.5% 17.7% 19.2% Return on equity 19.6% 19.8% 18.2% 17.7% 17.4% Industry (LCB s) 17.3% 16.8% 15.7% 17.3% 17.5% Net Interest Margin 5.8% 5.8% 5.5% 5.1% 4.4% Industry (LCB s) 3.7% 3.6% 3.5% 3.5% 3.5% NPL ratio (%) Deposit base (Rs. Bn) Asset base (Rs. Bn) Net Profit (Rs. Mn) 2,136 2,537 2,614 2,869 3,372 44

45 THANK YOU This document was produced by John Keells Holdings PLC for information purposes only. The information contained in this document are a review of the financial information pertaining to the Financial year 2018, and does not constitute an issue prospectus or a financial analysis. This Investor Presentation should be read in conjunction with the JKH Annual Report 2017/18 to obtain a more comprehensive understanding of the drivers and strategies of our businesses. Whilst John Keells Holdings accepts responsibility for the accuracy of the information contained in this document, it does not assume any responsibility for investment decision made by the prospective investors based on information contained herein. In making the investment decision, prospective investors must rely on their own examination and assessments of the Company including the risks involved. 45