• The Group reported a resilient performance during the year, amidst the unprecedented challenges in the operating environment, recording a recurring EBITDA growth of 17% to Rs.45.74 billion. This is despite the substantial EBITDA recognition of Rs.6.30 billion from the revenue of the handover of the residential apartment units and commercial floors at ‘Cinnamon Life Integrated Resort’ in 2021/22, compared to the absence of corresponding recognition in the current year.
• The growth in recurring Group EBITDA was mainly driven by the Transportation businesses, the significant turnaround in the Group’s Leisure businesses and improved performance across other business verticals.
• Sri Lanka has witnessed a strong turnaround from the onset of its worst macroeconomic crisis, and it is encouraging to witness the continuation of normal day-to-day activities in the country, supported by continued political and social stability.
• The Group’s Bunkering business recorded a significant increase in profitability driven by higher margins on account of the steep increase in fuel oil prices and volumes during the first half of the year, whilst the profitability of the Group’s Ports and Shipping business recorded an increase as a result of higher revenue from ancillary operations and the translation impact due to the depreciation of the Rupee.
• The groundwork on the West Container Terminal (WCT-1) at the Port of Colombo is progressing well with the entirety of the dredging works for both phases near complete.
• The Leisure industry group recorded a strong performance driven by the Maldivian Resorts and the recovery momentum in the Colombo Hotels and Sri Lankan Resorts segments, supported by a return to normalcy on the back of continued political and social stability during the second half of the financial year.
• The Supermarket business recorded a recurring EBITDA growth of 45% to Rs.7.46 billion due to an increase in same store sales driven by a combination of higher customer footfall and basket values on account of high inflation.
• Profitability in the Consumer Foods businesses was impacted by volume declines in the second half of the year, reflective of dampened consumer sentiments, and lower margins. With global raw material prices coming off its peak, the stabilisation of the country’s foreign exchange liquidity position and the appreciation of the Rupee, the pressure on margins has started to gradually ease from the fourth quarter of 2022/23 onwards.
• The Property industry group recorded a decline in profitability due to 2021/22 including revenue and profit recognition from the handover of the residential apartment units at ‘Cinnamon Life Integrated Resort’, compared with the absence of any corresponding recognition in the current year. The recognition of revenue of all units sold at ‘Cinnamon Life Integrated Resort’ was completed by 31 March 2022.
• Subsequent to the gazetting of the gaming regulations by the Government in August 2022, the Group is currently engaged in discussions with leading international gaming operators to secure the necessary international gaming expertise to operate at ‘Cinnamon Life Integrated Resort’ with the Group leasing the space for such operations. Similar to the experience with integrated resorts in other Asian countries, ‘Cinnamon Life Integrated Resort’ has the potential to transform Colombo as a destination for leisure and entertainment and lead to significant foreign exchange earnings for the country.
• The Financial Services industry group recorded a strong growth in profitability, where the Insurance business witnessed a growth in the life insurance surplus and gross written premiums whilst Nations Trust Bank recorded an increase in net interest margins and a reduction in costs.

CHAIRPERSON’S MESSAGE

Dear Stakeholder,

I am pleased to present the Integrated Annual Report and the Financial Statements for the financial year ended 31 March 2023.

I trust our Report will provide you with an in-depth understanding of the Group’s value creation process and the strategies in place to manage the diverse portfolio of businesses towards driving sustainable growth, particularly in terms of navigating our businesses through the macroeconomic crisis in the country and the way ahead for the Group.

The Group reported a strong performance during the year amidst the unprecedented challenges in the operating environment. Despite the significant earnings before interest expense, tax, depreciation and amortisation (EBITDA) recognition of Rs.6.30 billion from the handover of the residential apartment units and commercial floors at ‘Cinnamon Life Integrated Resort’ in 2021/22 compared with the absence of corresponding recognition in the current year, the recurring Group EBITDA increased by 17% over the previous year to Rs.45.74 billion, driven by the Transportation businesses, the significant turnaround in the Group’s Leisure businesses and improved performance across other business verticals. Over the course of the year under review, Sri Lanka has witnessed a strong turnaround from the onset of its worst macroeconomic crisis, and it is encouraging to witness the continuation of normal day-to-day activities in the country, supported by continued political and social stability.

Whilst there were no pandemic related disruptions during the year, the Sri Lankan economy faced a multitude of unprecedented challenges, particularly during the first two quarters of the year under review. The financial year 2022/23 commenced with significant pressure on the Sri Lankan Rupee on the back of the free float of the currency in March 2022 due to the previously pegged exchange rate not being reflective of market rates and the significant tightening of the foreign exchange markets which had resulted in shortages of many essential commodities. Due to the precarious foreign currency reserves position and lack of liquidity in the foreign exchange markets, the Government of Sri Lanka declared a pre-emptive measure of suspending the servicing of almost all of its external debt obligations, including international sovereign bonds, bi-lateral loans and facilities guaranteed by the Government. The volatile environment and severe shortage of essential items were subsequently exacerbated by social unrest and political uncertainty, culminating in the resignation of both the Prime Minister and the President by July 2022. In addition, tourist arrivals to the country, which was witnessing an encouraging post-pandemic recovery, recorded a sharp slowdown due to multiple travel advisories issued and negative perceptions as a result of the socio-economic turmoil.

The appointment of a new President and the subsequent appointment of a Prime Minister and Cabinet resulted in political stability while many of the shortages of essential commodity items were largely resolved in a relatively short period of time, enabling a faster than anticipated resumption of normal activities. In September 2022, Sri Lanka reached a staff level agreement on an Extended Fund Facility (EFF) arrangement of USD 2.90 billion with the International Monetary Fund (IMF), subject to Sri Lanka meeting a series of conditions that included tightening its fiscal and monetary policy, restructuring its debt with its main international creditors and public sector reforms.

Further to this, the Government announced and implemented several significant policy actions and reforms, aimed towards achieving a path of fiscal consolidation and reaching sustainable debt levels. Significant increases in both direct and indirect tax rates were announced with the intention of increasing Government tax revenue to approximately 15% of gross domestic product by 2025 from the current 8.5%. Market reflective pricing mechanisms were established for fuel and cooking gas whilst multiple upward revisions to electricity tariffs were undertaken to reduce the cost of subsidies provided by the Government. A fuel rationing scheme was successfully implemented to ensure equitable and consistent distribution across the country which addressed the fuel shortage.

With the implementation of the various policy reforms and actions, the domestic economic environment, particularly, the foreign exchange liquidity position in the country experienced a strong turnaround from the peak stresses witnessed in the first two quarters of the year. The country has seen a continued deceleration in inflation, where rates have eased to ~35% in April 2023 from the peak of over ~70% over the past 12 months, as prices started to stabilise due to the high interest rate regime and other factors. Although inflation has decelerated, the elevated levels of inflation prevalent since the beginning of 2022/23 compared to the past, and the impact of higher direct and indirect taxes, have dampened consumer discretionary spend, the impact of which we are witnessing in our Consumer Foods and Supermarket businesses. The Central Bank of Sri Lanka (CBSL) expects inflation to reduce to low single digits by the end of this calendar year aided by the continued tight monetary policy and favourable base effects together with the easing of global inflationary pressures and an appreciating currency. The improving trade balance in the country and substantial increases in tourism receipts and foreign currency remittances resulted in strong net inflows into the country from the fourth quarter of 2022/23 onwards. With the banking sector clearing many of the backlogs and liquidity imbalances stemming from the sharp depreciation of the Rupee in the first half of the year, the foreign currency liquidity position has reverted to normalcy, supported by lower imports and the suspension of the servicing of foreign currency debts. These impacts, together with the impending EFF announcement, at the time, resulted in the Sri Lankan Rupee witnessing an appreciation of approximately 10% in February 2023 which enabled the CBSL to remove some restrictions which were implemented in the market. With the significant turnaround in the foreign exchange market, together with other policy measures, the official reserves position has improved dramatically from that of 12 months ago, where the reserves have increased to USD 2.69 billion as at March 2023 from USD 1.81 billion in April 2022.

Summarised below are the key operational and financial highlights during the year under review.

• The Group reported a resilient performance during the year, amidst the unprecedented challenges in the operating environment, recording a recurring EBITDA growth of 17% to Rs.45.74 billion. This is despite the substantial EBITDA recognition of Rs.6.30 billion from the revenue of the handover of the residential apartment units and commercial floors at ‘Cinnamon Life Integrated Resort’ in 2021/22, compared to the absence of corresponding recognition in the current year.
• The growth in recurring Group EBITDA was mainly driven by the Transportation businesses, the significant turnaround in the Group’s Leisure businesses and improved performance across other business verticals.
• Sri Lanka has witnessed a strong turnaround from the onset of its worst macroeconomic crisis, and it is encouraging to witness the continuation of normal day-to-day activities in the country, supported by continued political and social stability.
• The Group’s Bunkering business recorded a significant increase in profitability driven by higher margins on account of the steep increase in fuel oil prices and volumes during the first half of the year, whilst the profitability of the Group’s Ports and Shipping business recorded an increase as a result of higher revenue from ancillary operations and the translation impact due to the depreciation of the Rupee.
• The groundwork on the West Container Terminal (WCT-1) at the Port of Colombo is progressing well with the entirety of the dredging works for both phases near complete.

 

• The Leisure industry group recorded a strong performance driven by the Maldivian Resorts and the recovery momentum in the Colombo Hotels and Sri Lankan Resorts segments, supported by a return to normalcy on the back of continued political and social stability during the second half of the financial year. The Supermarket business recorded a recurring EBITDA growth of 44% to Rs.7.50 billion due to an increase in same store sales driven by a combination of higher customer footfall and basket values on account of high inflation.

 

• Profitability in the Consumer Foods businesses was impacted by volume declines in the second half of the year, reflective of dampened consumer sentiments, and lower margins. With global raw material prices coming off its peak, the stabilisation of the country’s foreign exchange liquidity position and the appreciation of the Rupee, the pressure on margins has started to gradually ease from the fourth quarter of 2022/23 onwards.

 

• The Property industry group recorded a decline in profitability due to 2021/22 including revenue and profit recognition from the handover of the residential apartment units at ‘Cinnamon Life Integrated Resort’, compared with the absence of any corresponding recognition in the current year. The recognition of revenue of all units sold at ‘Cinnamon Life Integrated Resort’ was completed by 31 March 2022.

 

• Subsequent to the gazetting of the gaming regulations by the Government in August 2022, the Group is currently engaged in discussions with leading international gaming operators to secure the necessary international gaming expertise to operate at ‘Cinnamon Life Integrated Resort’ with the Group leasing the space for such operations. Similar to the experience with integrated resorts in other Asian countries, ‘Cinnamon Life Integrated Resort’ has the potential to transform Colombo as a destination for leisure and entertainment and lead to significant foreign exchange earnings for the country.

 

• The Financial Services industry group recorded a strong growth in profitability, where the Insurance business witnessed a growth in the life insurance surplus and gross written premiums whilst Nations Trust Bank recorded an increase in net interest margins and a reduction in costs.

 

• OCTAVE, the Group’s Data and Advanced Analytics Centre of Excellence, worked on a series of advanced analytics use cases in the Retail, Consumer Foods, Financial Services and Leisure industry groups which yielded promising results with pilot projects delivering evidence of the significant value that can be unlocked from translating advanced analytics insights into front line business interventions.

 

• Reflecting the positive results of the efficiency initiatives embarked upon, the Group’s carbon footprint per million rupees of revenue decreased by 29% and water withdrawn per million rupees of revenue decreased by 31%.

 

• Initiatives under ‘ONE JKH’, the Diversity, Equity, and Inclusion (DE&I) brand of the John Keells Group, included the introduction of 100 days of Equal Parental Leave aimed at eliminating the discrimination associated with recruiting women, due to potential concerns about maternity leave.

 

• Cognizant of the multiple economic hardships faced by the people of the country, and in recognition of the Group’s role as a leading responsible corporate citizen, the Group continued its multi-pronged crisis response programme with a particular focus in the areas of food security, education and nutrition among vulnerable segments such as school children.

 

• JKH donated Rs.100 million to the ‘Suwa Seriya’ Foundation for the operations of the ‘Suwa Seriya Ambulance Service’, which provides free-of charge lifesaving emergency medical assistance to the public across the country. The donation aims to support the ambulance service, which was facing financial constraints, allowing the service to continue operations.

 

Sri Lanka received the much-anticipated approval from the Executive Board of the IMF for the EFF arrangement in March 2023 to support the restoration of macroeconomic stability and debt sustainability. In April 2023, Sri Lanka received the initial tranche of ~USD 333 million whilst Sri Lanka’s creditor nations met in May 2023 to pursue debt structuring options that would provide a sustainable solution to Sri Lanka’s debt repayment obligations, consistent with the parameters of the IMF programme. Sri Lanka is now faced with the challenging task of negotiating with the country’s creditors to reach an equitable debt treatment plan with all creditors. There is still uncertainty as to the need for a domestic debt restructuring (DDR) and, even if so, the form, structure and breadth of the same. The Governor of the Central Bank of Sri Lanka has assured the stability of the domestic banking system as well as the protection of public deposits will be paramount in any kind of debt optimisation programme. The risk premia currently attached to domestic debt as a result of this uncertainty should fall away once there is clarity on the DDR with expectations that interest rates will ease significantly thereafter.

 

Sri Lanka recorded over 770,000 tourist arrivals for 2022/23, with March 2023 recording the highest number of arrivals since the peak of the economic crisis. Although arrivals are still significantly below pre-pandemic levels, it is encouraging to witness the month-on-month pick-up in inquiries and forward bookings. The Group is confident that the current recovery trend in arrivals will continue, particularly given the opening of the Chinese borders for international travel after a period of three years and the increase in frequencies of flights by a few major airlines. Tourism will be a key catalyst to drive the recovery of the economy, particularly in the context of the positive impact it will have on foreign exchange earnings. In light of this, we continue to urge the tourism authorities to expedite the launch of Sri Lanka’s much awaited global marketing campaign, especially in our key source markets, particularly to address the lack of awareness and negative perception regarding the ground situation in the country.

 

We wish to commend and recognise the efforts of the Government and policy-makers for successfully navigating the economic stabilisation measures over the last few quarters and in reaching some key milestones including securing the EFF with the IMF, together with the implementation of difficult policy actions. While many challenges remain, the country has, possibly for the first time ever, put in place the fundamental framework of economic policies that will enable us to emerge from this crisis stronger. We are optimistic that Sri Lanka is on a path to recovery, particularly, if these measures continue to be in place and sustained over a period of time. Whilst these measures, as expected, would curtail consumer spend and activity in the short to medium-term, the stability and confidence in achieving fiscal consolidation will lead to a more sustained recovery. The new legislative enactments regarding fiscal responsibility are much needed to ensure policy consistency and macroeconomic stability as it provides the required checks and balances. We urge the authorities to expedite the implementation of much needed public sector reforms, including privatisation, as done by countries when faced with similar challenges in the past, to restore and sustain fiscal discipline. These reforms will also aid the Government in raising revenue through investment while ensuring better collaboration, technology and knowledge transfer in key industries.

 

Through the volatility and uncertainty of the previous years, your company maintained its belief that challenges can also be catalysts for positive transformation. Together with our partners, we launched the biggest port investment in the country, while the steady progress of work on ‘Cinnamon Life Integrated Resort’ – notwithstanding the obstacles of last year – has moved the Group closer towards completion of this transformational investment. I am confident that as these investments come to fruition, your Group will see a significant upward ‘re-rating’ of its performance from the already strong platform we have built over the years.

 

GROUP PERFORMANCE

For the financial year 2022/23, Group revenue (excluding equity accounted investees) increased by 27% to Rs.276.64 billion while recurring Group EBITDA increased by 17% to Rs.45.74 billion. This growth is despite the significant EBITDA contribution of Rs.6.30 billion from the Group’s Property business, which included the revenue and profit recognition from the handover of the residential apartments and commercial office floors at ‘Cinnamon Life Integrated Resort’, compared with the absence of any corresponding revenue recognition in the current year.

 

The recurring Group profit before tax (PBT) decreased by 30% to Rs.17.14 billion while the recurring profit attributable to equity holders of the parent decreased by 35% to Rs.13.33 billion for the financial year ended 31 March 2023. In addition to the aforementioned decline in the Property industry group, the decline in PBT is on account of the higher finance expenses due to the significant increase in interest rates in the market which affected the Leisure and Retail industry groups, in particular, given the relatively higher working capital and debt facilities. The increase in working capital in Retail was temporary on account of the investments to ensure the continuation of supplies and minimise disruptions, which has now stabilised with the business reverting to normalised levels of working capital. Further, the PBT of the Holding Company was impacted by the translation impact of the IFC loan interest payment and the notional non-cash interest charged on the convertible debentures issued to HWIC Asia Fund (HWIC) in August 2022, in line with the accounting treatment, due to a significant difference between the market interest rates and the 3% interest accrued on the instrument.

 

The recurring EBITDA analysis below is post the elimination of one-off impacts in order to demonstrate the performance of the core operations of the businesses. The recurring adjustments are detailed in the ensuing section, where relevant, of this Message and the Financial and Manufactured Capital Review section of the Report. As the Annual Report contains discussions on the macroeconomic factors and its impact on our businesses as well as a detailed discussion and analysis of each of the industry groups, I will focus on a high-level summation of the performance of each industry group during the financial year 2022/23.

 

ISSUE OF UNLISTED CONVERTIBLE DEBENTURES

 

As announced to the Colombo Stock Exchange in August 2022, the Company received the funds and concluded the issuance of convertible debentures amounting to Rs.27.06 billion, by way of a private placement of Rupee denominated securities to HWIC Asia Fund (HWIC), a subsidiary of Fairfax Financial Holdings Limited, Canada. 208,125,000 Sri Lankan Rupee denominated unrated, unlisted, unsecured convertible debentures were issued to HWIC at an issue price of Rs.130 per debenture. The debentures have a maturity period of three years and will accrue interest at a rate of 3% per annum. The date of maturity of the debentures is 12 August 2025 with HWIC having the option to convert each debenture to one new ordinary share of the Company during the conversion period commencing from 12 February 2024 to 12 August 2025.

 

TRANSPORTATION

 

The Transportation industry group recurring EBITDA of Rs.11.96 billion in 2022/23 is an increase of

95% over the recurring EBITDA of the previous financial year [2021/22: Rs.6.14 billion]. The recurring

EBITDA for 2022/23 includes a one-off deferred tax charge of Rs.1.35 billion in the Group’s Ports and Shipping business, South Asia Gateway Terminals (SAGT), on account of the significant change in income tax rates, as the share of results of equity accounted investees are consolidated net of all related taxes.

 

The increase in profitability is mainly attributable to the strong performance of the Group’s Bunkering business, Lanka Marine Services (LMS), and SAGT. LMS recorded a significant increase in profitability driven by higher margins on account of the steep increase in global fuel oil prices during the first half of the year, as well as higher volumes for the year supported by local fuel sales. LMS continued to retain its market leadership position in the Sri Lankan bunker market. Despite the decline in overall volumes at the Port of Colombo, the profitability at SAGT recorded an increase as a result of higher revenue from ancillary operations and the benefit of the steep depreciation of the Rupee.

 

In May 2022, the Government of Sri Lanka granted approval for licensed bunkering businesses to import and supply fuel oil to local industries to ensure continuity of operations in light of the fuel shortages in the country and ease the burden on Government supplies. LMS also provided fuel to such local industries which helped them navigate supply issues while these sales incrementally supported the overall volumes at LMS.

 

The groundwork on the West Container Terminal (WCT-1) at the Port of Colombo is progressing well with the entirety of the dredging works for both phases near complete. The contract for the quay wall construction, a significant component of the overall construction works, was awarded in October 2022. Overall timelines for the project remain as originally envisaged. The WCT-1, which has a lease period of 35 years, is a deep-water terminal with a quay length of 1,400 meters, an alongside depth of 20 meters and an annual handling capacity of ~3.2 million TEUs. Phase 1 of the terminal, comprising of a quay length of 800 meters as against the previous 600 meters, is slated to be operational by the third quarter of 2024/25. The extension of the quay length in Phase 1 facilitates the servicing of two large vessels concurrently, which will enable a higher throughput once Phase 1 is operational. The remainder of the terminal is expected to be completed by the third quarter of 2025/26.

 

CONSUMER FOODS

The Consumer Foods industry group recurring EBITDA of Rs.3.18 billion in 2022/23 is a decrease of

9% over the recurring EBITDA of the previous financial year [2021/22: Rs.3.48 billion].

 

Despite the macroeconomic disruptions, the Consumer Foods businesses recorded a strong

volume recovery momentum in the first half of the year, with volumes exceeding pre-pandemic levels. However, the performance in the second half of the year was negatively impacted by a decline in volumes and margin contraction across the businesses as the impact of elevated inflation, price increases and dampening consumer demand took effect.

 

Given the increases in raw material prices, which was largely a global phenomenon, coupled with the impact of the steep depreciation of the Rupee and the high inflationary environment, the business undertook price increases across its portfolio to mitigate the margin pressure. The price increases, together with higher direct and indirect taxes and declining consumer disposable income, dampened demand, thereby impacting volumes in the second half of the year. It should be noted that volumes in the third quarter of the previous year benefited to an extent from the stocking up of inventory post the easing of pandemic related restrictions. Whilst the domestic macroeconomic and supply chain conditions recorded substantial improvements during the second half of the year under review and day-to-day business activity reverted to levels of normalcy, consumer demand began to subdue on account of the reasons outlined above. However, it is encouraging to note that the volumes of the Beverages business witnessed a pick-up in the month of April 2023, although it is too early to ascertain whether this trend would continue.

 

With global raw material prices coming off its peak, together with declining freight costs, the stabilisation of the country’s foreign exchange liquidity position, the appreciation of the Rupee and the improved raw material availability, the pressure on margins has started to gradually ease from the fourth quarter of 2022/23 onwards. In addition, the inventory sourced at higher costs is now largely depleted, whilst the gradual reduction in interest rates and normalised level of working capital will further support the profitability of the businesses. While margins at a product level are expected to recover, the impact of the lower dilution of fixed costs due to reduced operating leverage on account of volume declines is yet to be fully seen.

RETAIL

 

The Retail industry group recurring EBITDA of Rs.8.78 billion in 2022/23 is an increase of

16% over the recurring EBITDA of the previous financial year [2021/22: Rs.7.55 billion]. The Supermarket business recurring EBITDA of Rs.7.50 billion in 2022/23 is an increase of 44% against the previous financial year [2021/22: Rs.5.20 billion].

 

Despite the challenging operating environment, the Supermarket business recorded a strong performance with same store sales recording encouraging growth driven by a combination of higher customer footfall and basket values due to high inflation. The sustained increase in footfall is encouraging as it demonstrates the continued potential for higher penetration of certain customer segments. The revenue of the Supermarket business was supported by the substantial price increases driven by suppliers, although growth in basket values were offset to some extent by a reduction in the items purchased due to subdued consumer sentiment. However, margins remain under pressure given the significant cost escalations in operations primarily due to the increase in electricity tariffs and, to a lesser extent, staff costs. The introduction of the Social Security Contribution Levy (SSCL), which is a revenue based tax similar to the Nations Building Tax in force a few years ago, had a further significant impact on the margins of the business. The business managed to re-negotiate margins with suppliers and mitigate this impact to a large extent. The business will continue to place emphasis on cost optimisation and working capital management. The performance of the Supermarket business remained insulated, to a large extent, despite the macroeconomic challenges, considering that essential and regular grocery and household items constitute a large portion of a consumer basket.

 

Given the notable shortages in essential goods and other fast-moving items in the first half of the year, the business proactively ramped up its direct sourcing strategy with the aim of bridging gaps and, more importantly, providing its customers with such products at the best possible value. This has also helped drive footfall to our outlets. Whilst the Supermarket business has increased penetration of its private label range, this focus was augmented with the intention of managing inventory better and also providing its customers with better choice and ‘value for money’. The state-of-the-art distribution centre commissioned in 2021/22, where the entire dry product and fresh range was centralised together with other best in class practices being adopted, was pivotal in managing the supply chain disruptions and ensuring the outlets were supplied in the most optimum and efficient manner.

 

During the year under review, the expansion of the outlet network was moderated due to the uncertainty and volatility of construction related costs. While the investment per outlet has increased significantly, the business is also seeing higher revenue per outlet which will in turn positively impact the feasibility studies of prospective outlets. During the year, four new outlets were opened whilst one outlet was closed, increasing the total outlet count to 131 outlets as of 31 March 2023. The business will continue to selectively expand its network, and such expansions in the outlet base will be considered on a case-by-case basis, with feasibilities stress-tested under sensitised scenarios.

 

In line with the brand expansion plans of the Supermarket business, where the business leverages on a standard and an extended format depending on the income levels of the locality, three outlets were upgraded to the extended ‘iconic’ format during the year under review. This concept for select ‘Keells’ outlets, is aimed at enhancing the overall customer experience through best-in-class retail technological solutions and a wider offering. Despite the additional investment associated with the conversion of the standard format outlets to the extended format, the payback on these investments based on incremental performance has been attractive.

 

The Office Automation business recorded a significant reduction in sales volume due to the continued import restrictions on non-essential items, which was further exacerbated by the steep increase in unit prices of all imported products as a result of the depreciation of the Rupee. The performance of the Office Automation business is witnessing a gradual recovery as the foreign currency liquidity position of the country has stabilised.

 

LEISURE

 

The Leisure industry group recurring EBITDA of Rs.8.60 billion in 2022/23 is an increase of 127% against the recurring EBITDA of the previous financial year [2021/22: Rs.3.78 billion]. The recurring EBITDA for 2022/23 includes an impairment loss amounting to Rs.422 million at the Destination Management business, Whittall Boustead Travel Limited, on its investment in preference shares of Saffron Aviation (Private) Limited (SAL), the operating company of ‘Cinnamon Air’, given the continued multiple setbacks faced by the tourism industry in the recent years which impacted the operating performance of the business.

 

The strong performance was driven by the Maldivian Resorts and the recovery momentum in the Colombo Hotels and Sri Lankan Resorts segments, supported by return to normalcy on the back of continued political and social stability during the second half of the financial year. The PBT of the industry group was impacted by higher finance expenses due to the significant increase in interest rates on working capital facilities obtained.

 

The Maldivian Resorts segment continued its strong performance with occupancies averaging over 90%, supported by arrivals from both traditional and new source markets.

 

The Colombo Hotels recorded a strong performance in its restaurant and banqueting operations. Occupancies of the Colombo Hotels improved on the back of a gradual recovery in business travel. Whilst the first half of the year was subdued due to the fuel restrictions and social instability witnessed in the country, the Sri Lankan Resorts segment witnessed a rebound in occupancies during the second half of the year driven by domestic travel and improved tourist arrivals. Margins in the Sri Lankan Leisure businesses were under pressure given the rising input and utility costs as yields did not pick up commensurately since the benefit of foreign currency revenue was limited due to the gradual recovery of tourism.

 

Sri Lanka recorded over 770,000 tourist arrivals for 2022/23, with March 2023 recording the highest number of arrivals since the peak of the economic crisis. Although arrivals are still significantly below pre-pandemic levels, it is encouraging to witness the pick-up in inquiries and forward bookings. The Group is confident that the current recovery trend in arrivals will continue, particularly given the opening of the Chinese borders for international travel after a period of three years and the increase in frequencies of flights by a few major airlines.

While the current situation on the ground has reverted to normal, the negative perception and lack of awareness, especially in our key source markets, has been a challenge in accelerating the recovery momentum in tourist arrivals. In light of this, we urge the tourism authorities to expedite the launch of Sri Lanka’s much awaited global marketing campaign. Sri Lanka continues to remain attractive as a tourist destination given our diverse landscape and unique offerings, with the added competitive advantage from a pricing perspective due to the significant depreciation of the Rupee.

 

Cinnamon Life Integrated Resort

 

The construction work at ‘Cinnamon Life Integrated Resort’ is progressing well, where the hotel, retail and entertainment components are in the final stages of construction. The fitouts and interior works of the hotel rooms and common areas are well underway with ~500 rooms already completed. Discussions with potential tenants of the retail mall continued during the year, to ensure unique attractions and offerings, although arrangements were not finalised pending clarity on the gaming operator and related strategy. Various alternatives including experiential offerings focused on food and beverages, lifestyle and entertainment, which would complement the hotel and gaming operations, are being considered for the retail space. With the project now reaching its final stretch, we are excited and pleased to announce that ‘Cinnamon Life Integrated Resort’ was formally launched at the Arabian Travel Market 2023 held in May with significant awareness and interest being generated.

 

Subsequent to the gazetting of the gaming regulations by the Government in August 2022, the Group is currently engaged in discussions with some leading international gaming operators to secure the necessary international gaming expertise to operate at ‘Cinnamon Life Integrated Resort’. A lot of groundwork has been carried out by the parties, including detailed site visits, evaluation of the business case and operating model, fit-out requirements, designs and timelines. The discussions are progressing well, where various commercial structures and arrangements are being negotiated. In the event ‘Cinnamon Life Integrated Resort’ is unable to obtain favourable terms to our satisfaction, as an alternative, we will work on a model where the gaming entity sources the requisite international gaming expertise to operate at ‘Cinnamon Life Integrated Resort’, similar to how some other successful regional integrated resorts have established operations.

 

The envisaged structure of the gaming operations is that ‘Cinnamon Life Integrated Resort’ will lease space to the gaming entity, while a third party will invest in the gaming fit-out. Based on discussions, it is estimated that the overall fitout of the gaming space will take a period of approximately 12-15 months once the commercial aspects and agreements are finalised. We are confident that the convergence of all elements in the launch of the integrated resort will unlock its full potential as a transformative development in South Asia and be a catalyst in creating tourism demand and foreign exchange earnings for Sri Lanka.

 

PROPERTY

 

The Property industry group recurring EBITDA of negative Rs.265 million in 2022/23 is a decrease against the previous financial year [2021/22: Rs.7.87 billion]. The previous year included a substantial EBITDA recognition of Rs.6.30 billion from the revenue of the handover of the residential apartment units and commercial floors at ‘Cinnamon Life Integrated Resort’, compared to the absence of corresponding recognition in the current year. The recognition of revenue of all units sold at ‘Cinnamon Life Integrated Resort’ was completed by 31 March 2022, and an inventory of 161 units remains to be sold. The introduction of value added tax (VAT) of 15% on the sale of residential apartments and a SSCL of 2.5%, both of which are on revenue, further suppressed demand.

 

Given the near completion of construction works at ‘Cinnamon Life Integrated Resort’ and the focus and transition on the pre-operational phase of the project with the impending commencement of operations in end 2024, the review and reporting of the hotel, retail and entertainment components of the project were transitioned to the Leisure industry group. The property development components of the project, namely, the two residential apartment towers and the commercial tower continue to be recorded under the Property industry group. The residential sales at ‘Cinnamon Life Integrated Resort’ were slow due to the macroeconomic challenges, where the slowdown in sales is more pronounced in the luxury segment in the market.

 

In discussion with the contractor at ‘TRI-ZEN’, the project construction costs were revisited given the escalation in costs on account of the steep depreciation of the Rupee and global commodity and freight cost increases, particularly to realign work to meet timely completion. As the cost escalation impact is allocated to the profit recognition on the project, there was an adjustment in the current year to reflect the cost impact on the sales already recognised in the previous financial years, which affected the current year profitability somewhat materially. Since this adjustment has been fully absorbed in the current financial year, going forward, the revenue recognition of ‘TRIZEN’ will result in positive profit recognition over the ensuing quarters up to and including project completion. The construction activity at the ‘TRI-ZEN’ residential development project is continuing with encouraging momentum. The mechanical, electrical and plumbing work and fit-outs at ‘TRIZEN’ are well underway, with the overall project scheduled for completion in end-2023. The current high interest rate regime has resulted in a slowdown in sales, although we expect that ‘TRI-ZEN’s positioning as an affordable living solution with a Rupee pricing model, which mitigates the risk of fluctuating exchange rates for buyers, offers a strong value proposition.

 

FINANCIAL SERVICES

 

The Financial Services industry group recurring EBITDA of Rs.6.45 billion in 2022/23 is an increase of 28% over the recurring EBITDA of the previous financial year [2021/22: Rs.5.02 billion]. The strong growth in profitability was driven by both Union Assurance PLC (UA) and Nations Trust Bank PLC (NTB).

 

UA recorded encouraging growth in gross written premiums, driven by renewal premiums, with UA maintaining its position as the second largest regular new business producer in the industry. Net investment income recorded growth as a result of an asset reallocation which benefited from the high interest rate environment which prevailed during the year. The business continued to strengthen its partnerships with multiple leading banks, consolidating its position as the market leader in the bancassurance industry in the country through two new partnerships and renewing an existing partnership during the year. UA recorded an annual life insurance surplus of Rs.2.30 billion in 2022/23, a notable increase against the surplus of Rs.1.60 billion recorded in the previous year, mainly arising from an increase in GWP, increase in net investment income and management of expenses.

Nations Trust Bank PLC (NTB) recorded an increase in profitability driven by an increase in net interest margins due to the timely repricing of assets which comprised primarily of a short-duration lending portfolio in a rising interest rate environment and efficient cost saving strategies, although profitability was impacted, to an extent, by the impairment charges, in line with industry, on the Sri Lankan Government foreign securities. The total exposure in this segment is low at approximately 3% of the total assets of NTB. Whilst the severe macroeconomic stresses have largely stabilised, the Bank will continue to rigorously assess credit quality and persist with the stringent cost management culture in place, including leveraging on technology to enhance customer experience. The Bank is confident that it has the required resources to withstand the potential impacts arising from the current macroeconomic environment, given the strong capital base, healthy liquidity buffers and robust risk management models.

 

OTHER, INCLUDING INFORMATION TECHNOLOGY AND PLANTATION SERVICES

 

The Information Technology sector recurring EBITDA of Rs.758 million in 2022/23 is an increase of 68% over the recurring EBITDA of the previous financial year [2021/22: Rs.451 million]. The improved performance is on account of onboarding new clients and expanding the scope of services.

 

The Plantation Services sector recurring EBITDA of Rs.944 million in 2022/23 is a significant increase over the recurring EBITDA of the previous financial year [2021/22: Rs.239 million]. The increase in profitability is primarily on account of improved tea prices.

 

Other, comprising of the Holding Company and other investments, the Information Technology and Plantation Services sectors, together, recorded a recurring EBITDA of Rs.7.02 billion in 2022/23, which is an increase of 30% over the recurring EBITDA of the previous financial year [2021/22: Rs.5.41 billion]. The increase in EBITDA is mainly attributable to the increase in interest income due to the translation impact on the foreign currency denominated cash held at the Holding Company on account of the depreciation of the Rupee. The PBT of the Holding Company was negatively impacted by an increase in finance expenses as a result of the increase in interest rates, the translation impact of the IFC loan interest and the notional, non-cash, interest charged on the convertible debentures issued to HWIC in August 2022, in line with the accounting treatment, due to significant difference between the market interest rates and the 3% interest accrued on the instrument.

 

ADVANCED ANALYTICS

The Group’s advanced analytics transformation journey, in collaboration with a global consulting firm, continued with the deployment of advanced analytics solutions or ‘use cases’, whilst driving the adoption of a greater degree of data driven decision making in day-to-day operations of businesses across the Group. OCTAVE, the Data and Advanced Analytics Centre of Excellence of the Group, continued to grow in capability and team strength, functioning as a pure play advanced analytics practice equipped to deliver end-to-end advanced analytics solutions.

 

As stated in the 2021/22 JKH Annual Report, work on a series of advanced analytics use cases in the Retail, Consumer Foods, Financial Services and Leisure industry groups yielded promising results with pilot projects delivering evidence of significant value that can be unlocked from translating advanced analytics insights into front line business interventions. Accordingly, tested use cases continued to be rolled out at scale. The ongoing assessment of the impact to the business of these advanced analytics solutions, post roll-out and complete business wide adoption, has provided strong evidence that the anticipated benefits that were evident through initial pilot projects can be sustained at scale, with iterations to adapt to a changing operating environment as and when required.

 

The domestic macroeconomic challenges necessitated a continued review of the timing, piloting and rolling out of certain use cases. However, with the operating environment exhibiting a degree of stability in the second half of the year under review, many of the use cases that were developed and pending pilot, were rolled out successfully, particularly in the Supermarket and the Beverages businesses.

During the year under review, OCTAVE embarked on creating new road maps for potential use cases across several verticals of the Group while data governance practices were further strengthened with the adoption of a data governance tool that was deployed to serve core verticals.

 

The OCTAVE Advanced Analytics Academy, which offers in-class room training, online courses and curated on-the-job learning for each cohort of roles linked to the advanced analytics transformation programme, has successfully trained over 290 team members across the Group in the functioning of advanced analytics roles at OCTAVE and within the businesses.

EMPLOYEES

 

The value creation process of the Group has been built around our loyal and committed employees, and I wish to acknowledge, with gratitude, the contribution and commitment of our employees during yet another year of many challenges.

 

Over the years, we have attracted the best talent towards building a strong team that reflects the diversity of the customers we serve. We continue to engage and encourage our employees to perform to the best of their abilities through a performance-oriented culture founded on ethical and transparent behaviour, which, in turn, promotes sustainable and profitable growth.Our people have been the source of success of the John Keells Group, and, I believe, will continue to be a key differentiator going forward as well.

 

The challenging macroeconomic conditions, notably an environment of high inflation, experienced during the past year have created significant hardships and uncertainty for people across the country, with the talent pools exploring alternative careers overseas, resulting in a substantial increase in migration. The Group is faced with similar challenges in some of its businesses as we continue to take steps to improve retention through various initiatives, while also focusing on enhancing the Employer brand of the Group via the launch of initiatives to make a meaningful, positive and sustainable difference to our people.

 

The Group Executive Committee, in its efforts to mitigate hardships faced by the people as a result of the impact of rising prices, introduced a Temporary Crisis Allowance during the period under review for all eligible staff, which is set to continue for the forthcoming year as well. This measure, a significant step in assisting the employees during these challenging times, is intended to assist the John Keells family in bridging the gap in the costs of basic essential items and, I believe, epitomises one of the core Values of our Group – Caring.

 

The Group conducted its periodic culture survey through the independent third party, Great Place to Work (GPTW), and is pleased to note that the index improved materially from the previous survey. Notwithstanding this improvement, the Group has identified several areas in which it can enhance its people experience, and, as such, put in place a range of initiatives across all sectors to drive specific employee experience related agendas.

 

The Corporate Governance Commentary and the Capital Management Review sections of this Report explain in further detail the best practices, policies and procedures that are in place to ensure that John Keells is ‘More Than Just a Work Place’.

 

ONE JKH – OUR DIVERSITY, EQUITY, AND INCLUSION INITIATIVE

As we reflect on the past year, we are proud to have continued our efforts to create a workplace culture that is truly diverse, equitable, and inclusive. Launched in 2020, ONE JKH focuses on increasing female participation in the workforce, inclusivity of the LGBTIQ+ community, and increasing career opportunities for Persons with Disabilities (PWD). In 2022/23, new initiatives have been launched and ongoing initiatives strengthened.

 

The introduction of 100 days of Equal Parental Leave was aimed at eliminating the discrimination associated with recruiting women, due to potential concerns about maternity leave. We are proud that the men in the Group, eligible for parental leave, are availing themselves of this opportunity, and hope that it will also aid the workforce outside of John Keells Group, by assisting their partners to return to their respective workplaces or join the workforce, following their maternity leave.

 

The setting of the internal five-year goal of achieving 40% women in the workforce by the end of 2025/26 has already yielded results. As of 31 March 2023, the Group reached 33% female participation in our workforce from 30% two years ago, when we set this goal. Further to the launch in 2022/23, we continue to provide all female employees of John Keells Group with free sanitary napkins coupled with awareness sessions on menstrual health. We believe that this will assist to break the stigma around menstruation, address the negative impact on physical and mental well-being due to the inaccessibility to essential sanitation, and support to improve productivity of females in our workforce.

 

In commemoration of Pride Month, in June 2022, a trilingual e-module was launched as an awareness creator to ensure that everyone across the Group understands the relevant facts and terminology in relation to the LGBTIQ+ community. The Group was also a sponsor of the 18th Annual Colombo Pride Festival, partnering with three events that focused on education and awareness.

 

In July 2022, to create a truly equitable and inclusive workplace, the Group launched the usage of Gender-Neutral terminology and created awareness on gender pronouns. This is not only an effective way to normalise discussions about gender identity and create an inclusive work environment for transgender and non-binary persons, but also to avoid masculine generic terms and, instead, use a suitable gender-neutral alternative.

 

In January 2023, we launched our PWD policy which provides details of the disability categories structured in line with globally accepted categorisations that the Group will adopt going forward. We have identified job roles from each business unit that can be filled by those within diverse disability categories, with reasonable accommodation. While a few years ago, we commenced making our locations wheelchair accessible, as part of the supported employment strategy roadmap, we will continue to work on the infrastructure changes required to make our physical and digital spaces accessible to all.

 

GOVERNANCE

 

I am pleased to state that there were no reported violations of the Group Code of Conduct and Code of Business Conduct and Ethics of the Code of Best Practice of Corporate Governance 2013, jointly advocated by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka. I also wish to affirm our commitment to upholding Group policies, where emphasis is placed on ethical and legal dealings, zero tolerance for corruption, bribery and any form of harassment or discrimination in our workplace and any work-related situations.

 

In affirmation of this commitment, JKH was ranked first in the Transparency in Corporate Reporting (TRAC) Assessment by Transparency International Sri Lanka (TISL) for the third consecutive year, with a 100% score for transparency in disclosure practices. This ranking is based on an assessment of corporate disclosure practices among the top 100 companies listed on the Colombo Stock Exchange.

 

During the year under review, several initiatives were undertaken to further strengthen the Group’s governance framework and controls. The Group continued with its multi-pronged approach to internal audits and process reviews by augmenting its integrated fraud deterrent and investigation framework to foster synergy and collaboration efficiencies between components that deliver governance and assurance and related services, in facilitating business strategies. In addition, the Group recorded the Policy for bidding on contracts and tenders, which entails a standardised set of guidelines for bidding, including to those of local and foreign governments and related bodies and further strengthened its Policy on gifts and entertainment to include a reporting and monitoring mechanism for all gifts or benefits received or given.

 

As a part of the Group’s ongoing efforts towards increasing emphasis on environmental, social and governance (ESG) aspects, the Group embarked on re-formulating its ESG framework in collaboration with an international third-party consulting firm, setting revised Group-wide ESG ambitions and translating such ambitions to ESG related targets. This exercise is expected to ensure enhanced alignment between the different ESG strategies of the Group’s business units, culminating in a holistic ESG strategy and roadmap for the Group. Select Group policies related to ESG areas were further enhanced in line with best practices advocated by internationally reputed institutions such as the Asian Development Bank and International Finance Corporation, particularly given their focus on development impacts and positive externalities.

 

Further details on governance compliance and initiatives can be found in the Corporate Governance Commentary of this Report.

 

Integrated Reporting

 

This Report has been prepared in conformance with the Integrated Reporting Framework of the International Integrated Reporting Council. The Board of Directors and the Group Executive Committee are responsible for ensuring the accuracy and integrity of this Annual Report. We confirm, to the best of our knowledge, the credibility, reliability and integrity of the information presented, and, in this regard, external assurance has also been sought from independent auditors, as applicable.

 

SUSTAINABILITY

 

This Report discloses the Group’s sustainability performance in accordance with the Global Reporting Initiative (GRI) Standards and details its integrated approach to sustainable business practices, its management framework and its overall sustainability performance over the reporting year.

 

The Group continued its efforts to manage its Natural Capital through initiatives aimed at improving efficiency, conservation of natural resources and management of outputs such as emissions, effluents and waste in a responsible manner. Further, the Group continued to make investments in its Human Capital through training and development and ensured a safe working environment for its diverse workforce. Encouraging supply chain partners to advance their sustainability efforts and the work done with communities further enabled the Group to strengthen its Social and Relationship Capital.

Upon completion of the ESG exercise referred to above, the Group’s alignment of different ESG efforts will be clearly defined through the framework and the Group’s ESG agenda including ambitions and roadmaps with short, medium and long-term goals on how these ambitious goals would be achieved, would be clearly stated.

 

Given the higher operational activity compared to the previous year, in absolute terms, the Group recorded increases in emissions and resource usage. However, reflecting the positive results of the initiatives embarked upon in these areas on an efficiency basis, the Group’s carbon footprint per million rupees of revenue decreased by 29% and water withdrawn per million rupees of revenue decreased by 31%, respectively. In absolute terms, the Group reported an 8% increase in its carbon footprint to 103,597 MT, a 5% increase in its water withdrawal to 1,931,418 cubic meters and a 2% increase in its waste generation to 8,322 MT. 249 incidences of occupational injuries were recorded during the year. Employees were provided with an average of 26 hours of training per person.

 

The Group’s businesses continue to work towards the established Sustainability Goals to be achieved by 2024/25, which include renewable energy generation and plastic reduction. The performance against these goals is disclosed in this Report.

 

Plasticcycle

The Group’s Social Entrepreneurship Project ‘Plasticcycle’, has been steadfast in its efforts to serve as a catalyst for significantly reducing plastic pollution in the country. Through its initiatives, ‘Plasticcycle’ aims to reduce usage of single-use plastics, support responsible disposal, and promote recycling initiatives and innovation to support a circular economy. Despite the challenges posed by the economic crisis, ‘Plasticcycle’ has collected 127,000 kg of recyclable plastic waste since its inception in 2017/18. This has been made possible through a robust network of over 250 collection bins, with a monitoring and reporting mechanism on the collections, which enables reassigning of the bins to new locations, targeting increased collections per bin.

 

For the year in review, ‘Plasticcycle’ further strengthened its collection network, by placing recyclable plastic waste disposal bins at certain exits of the Central Expressway in partnership with Ceylon Cold Stores PLC, Coca Cola Beverages Sri Lanka, the Road Development Authority and Eco Spindles.

 

‘Plasticcycle’ also conducted customised awareness sessions for over 3,000 students and other target audiences with the aim of highlighting the challenges related to plastic pollution and educating and encouraging them on adopting the 4R’s – Refuse, Reduce, Reuse and Recycle with regard to plastics.

 

CORPORATE SOCIAL RESPONSIBILITY

 

The John Keells Group’s deep-rooted commitment to Corporate Social Responsibility (CSR) is an integral part of our business ethos. We believe in proactively contributing to building a better future for all and ensuring that our efforts had meaningful and sustained impact during the unprecedented economic challenges which prevailed during the year in Sri Lanka.

 

Guided by our CSR vision of ‘Empowering the Nation for Tomorrow’, John Keells Foundation (JKF) continued to operate within the six focus areas of Education, Health, Livelihood Development, Environment, Arts & Culture and Disaster Relief. Our CSR initiatives remain aligned to national priorities and the Sustainable Development Goals as well as principles of the United Nations Global Compact of which JKH is a participant. CSR volunteerism by staff enabled them to contribute to community activities while benefiting from the resultant positive energy, team spirit and personal motivation.

Highlights of our CSR initiatives during the year are outlined below, while details can be found in the Group Consolidated Review section in this Report.

 

Crisis Response

 

The Group initiated a multi-pronged crisis response initiative to address the widespread socioeconomic challenges affecting Sri Lanka. Accordingly, the following projects were designed and implemented to provide both immediate relief as well as sustained empowerment-based support to affected persons under the broad pillars of food security and educational support.

Dry Ration Distribution

‘Keells’ and ‘Union Assurance’, in collaboration with other stakeholders, distributed a total of 35,940 relief packs to disadvantaged families and communities across the country.

School Meal Programme

Under ‘Pasal Diriya’ – an initiative by JKF in partnership with the Ministry of Education and Group businesses, to establish an ecosystem to provide nutritious school meals towards mitigating child malnutrition, increasing school attendance and improving mental wellbeing – a total of 125,977 school meals were provided to 2,951 children of 11 selected schools and 3 preschools. Through the ‘Keells Meal Donation’ crowdfunding initiative, over 49,578 school meals were also distributed to 995 children in 26 preschools.

Home Gardening and Sustainable Farming

Local communities around Group businesses were empowered to improve the productivity of farms and develop home gardens through resources and training on good agricultural practices towards strengthening food security, improving nutrition, enhancing livelihoods and generating additional household income. The production of over 98,273 kgs of fresh produce was attributed to these efforts during the year.

Provision of Entrepreneurship Grants and Other Support

‘Keells’ provided microgrants to 400 beneficiaries in over seven locations and also partnered with USAID and other stakeholders to support 21 small-scale suppliers of ‘Keells’ through loans, grants and technical support and business mentoring to enhance productivity and competitiveness.

Access to Education

The John Keells ‘Praja Shakthi’ Digital Learning Initiative, in partnership with Deutsche Bank,

Dialog Axiata PLC and John Keells Office Automation, was expanded to provide digital devices and data packages to 180 children. Back-end monitoring systems supplemented by cyber safety awareness were implemented to ensure online safety of beneficiary students. Additionally, JKF increased the quota of annual English and Higher Education scholarships awarded to deserving students.

Donation to the `Suwa Seriya’ Foundation

JKH donated Rs.100 million to the ‘Suwa Seriya

Foundation’ for the operations of the ‘Suwa Seriya Ambulance Service’, which provides free-of-charge lifesaving emergency medical assistance to the public across the country. The donation aims to support the ambulance service, which was facing financial constraints, allowing the service to continue operations.

Project WAVE (Working Against Violence through Education)

Project WAVE continued to combat genderbased violence (GBV) and child abuse through multiple public awareness and social media initiatives, including carrying out an interactive forum for lawyers, judges and police officers in partnership with the Bar Association of Sri Lanka, with a total reach of an estimated 631,313 persons, training for 39 police officers of the Polonnaruwa Police Division, child protection awareness for 2,264 school children as well as internal awareness and training programmes for 2,216 Group staff.

Substance Abuse Prevention

Substance abuse awareness was undertaken by

JKF with the National Dangerous Drugs Control Board, Humedica Lanka and local government agencies to conduct customised awareness programmes for 379 school teachers, preschool teachers, parents and government officers and through a social media campaign reaching an estimated 12,447 individuals.

 

John Keells ‘Praja Shakthi’

• The Child Learning Centre at De Mel Park Community Centre in Colombo 2, was established with ChildFund Sri Lanka and the Colombo Municipal Council while a series of 48 aesthetic workshops for youth was concluded with a successful exhibition.
• Women’s Livelihood enhancement continued with batik artisans in Hikkaduwa and paper product entrepreneurs in Ranala.

Upskilling Youth

• Under the long-term collaboration with the University of Moratuwa, 97 undergraduates of the Transport Management and Logistics Engineering Faculty underwent a customised English programme.
• 738 students of the Universities of Ruhuna and Colombo benefited from soft skills webinars towards improving undergraduate employability.

Environment Conservation

JKF’s conservation efforts during the year included:

• Planting of 15,315 seedlings of indigenous forest plants under the 3-year Cinnamon Rainforest Restoration Project – a collaboration between JKF, ‘Cinnamon Hotels & Resorts’, Ruk Rakaganno and the Forest Department – aimed at restoring a degraded 59-acre plot in Suduwelipotha Forest.
• Production of an awareness cum promotional video on the Rumassala Nature Field Centre under a long-term collaboration between JKF and the Central Environment Authority.

 

Arts & Culture

• Kala Pola – The 30th anniversary of Sri Lanka’s renowned annual art fair of visual art showcased the works of 312 adult artists and 358 child artists, to over 33,000 visitors.
• Primary sponsorships/grants – JKF’s sustained support enabled:
• The Museum of Modern and Contemporary Art Sri Lanka (MMCA) to show the ‘Encounters’ exhibition to over 20,866 visitors and conduct capacity building for representatives of 18 Sri Lankan cultural organisations through MMCA’s first Museum Intensive programme with the Reinwardt Academy and the Cultural Heritage Agency in the Netherlands.
• The Gratiaen Trust to conduct the annual Gratiaen Prize, the H.A.I. Goonetileke Prize for Literary Translation and initiate its 30th year commemorations with a literary day in Jaffna.

Group Volunteerism

During the year in review, JKF recorded a total of 4,856 hours of CSR volunteerism by 610 staff volunteers across the John Keells Group in respect of activities conducted by JKF. This number excludes substantial volunteer activities independently undertaken at a business unit level.

DIVIDENDS

 

The Company paid a first interim dividend of Rs.1.00 per share in December 2022 and a second

interim dividend of Rs.0.50 per share in March 2023.

 

Your Board maintained the final dividend for 2022/23 at Rs.0.50 per share given the macroeconomic environment which could result in stresses on operating performance and cashflows and the pipeline of strategic investments such as ‘Cinnamon Life Integrated Resort’ and the WCT-1 project. Accordingly, the dividend declared for 2022/23 is Rs.2.00 per share. The final dividend for 2022/23 will be paid on or before 21 June 2023. The Group will follow its dividend policy which corresponds with growth in profits, whilst ensuring that the Company maintains adequate funds to ensure business continuity and to fund its pipeline of strategic investments.

 

RETIREMENTS AND APPOINTMENT OF DIRECTORS

 

Mr. A. Omar retired from the JKH Board with effect from 27 June 2022, having completed nine years on the Board. I would like to place on record our deep appreciation for the invaluable contribution made by Mr. Omar during his tenure on the Board.

 

Ms. P. Perera will retire from the JKH Board with effect from 30 June 2023, having completed nine years on the Board. I would like to place on record our deep appreciation for the invaluable contribution made by Ms. Perera during her tenure as a Director.

 

As announced to the Colombo Stock Exchange, Dr. Sharmini Amrita Coorey was appointed as an Independent Non-Executive Director of John Keells Holdings PLC, with effect from 1 January 2023.

CONCLUSION

 

The year under review was characterised by many unprecedented events in the country, economically, socially and politically. The corporate sector had to endure challenges unseen before, and I am pleased that the Group performed admirably during this tumultuous period. Whilst the country and our people showed resilience once again to emerge from this challenge to levels of normalcy within a relatively short period of time, an economic crisis of this proportion can be a catalyst for a major economic overhaul for the country and presents a significant opportunity to re-set and re-rate some of the country’s fundamentals. The resolve to continue to stay on the path of consolidation and ensure we address the calls for better governance, including public sector reform, will be pivotal to achieving sustainable growth. As mentioned before, the country has, possibly for the first time ever, put in place the fundamental framework of economic policies that will enable us to emerge from this crisis stronger than we were. As importantly, the ‘checks and balances’ required to ensure financial responsibility, through legislative means, are critical to ensure the framework for independent management of external financing is maintained, and we hope the Government enacts the relevant Acts expeditiously. Whilst Sri Lanka has commendably embarked on the hard road to recovery, it is imperative to sustain the reform momentum, rebuild trust in public institutions through greater transparency and accountability, and protect the livelihoods of those most affected by the crisis. We are hopeful that Sri Lanka’s international partners will continue to extend their support to help achieve this balance between critical reforms and ensuring that people’s safety nets and opportunities are not lost.

 

As always, I am extremely proud of the manner in which our people and teams have rallied around to ensure we continue to prepare, pre-empt and navigate challenges successfully. Whilst the impact and outlook on consumer spend as a consequence of the fiscal and monetary tightening measures, including higher taxation, and elevated inflation are somewhat uncertain at this juncture in time, I am confident that our businesses have done their best to ensure that the momentum of business continues to its utmost potential as we serve all our stakeholders. While the macroeconomic conditions have improved significantly, we are conscious that the current impact on consumer discretionary spend on account of higher taxation, interest rates and policy measures to restore economic stability may continue over the next few quarters. The Group will continue to focus on productivity, cost optimisation and closely review all capital expenditure and new investments as a means to driving profitability. As we look forward to the years ahead, we pledge to play our part and take a proactive role in shaping and driving the nation’s economic recovery, as the Group also brings to bear our landmark transformative projects such as the ‘Cinnamon Life Integrated Resort’ and the West Container Terminal (WCT-1) at the Port of Colombo, which are both expected to commence operations towards the end of 2024. ‘Cinnamon Life’ will be the first integrated resort in Sri Lanka and is the largest private investment in the country to date, evidencing our commitment to nation-development, which remains strong. We continue to be guided by our vision to transform Sri Lanka through such landmark investments. That vision is fast becoming a reality as we look forward to launching operations of both these investments by the end of 2024.

 

We believe that the convergence of an economic revival together with our own landmark transformational projects coming to life will create tremendous opportunities for the country and Group, which we believe will result in a ‘re-rating’ of our performance and investment thesis.

 

In conclusion, on behalf of the Board of Directors and all employees of the John Keells Group, I thank all our stakeholders for the support extended to the Group during the year. I also wish to thank all staff of the John Keells Group for their unstinted commitment, understanding and cooperation throughout yet another extremely challenging year.

 

Finally, I thank my colleagues on the Board and the Group Executive Committee for their valuable guidance and support during the year.

 

 

Krishan Balendra

Chairperson

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