Can you give us some background information, historical background, main activities and the structure of the John Keells Holdings Ltd?
From modest beginnings as a produce and share broking company in the early 1870s, John Keells has evolved into the country's premier conglomerate, the single largest quoted company on the Colombo Stock Exchange and a benchmark of the economy. Over the years we have made significant investments in areas such as Food & Beverages, Tourism, Transportation, Plantations, and most recently in Ports and IT. Our non-core areas include Financial Services and domestic & international trade.
Our overall strategy remains intelligent diversification through sound investment policies. However, the success of John Keells could be particularly attributed to the endeavour of past and present management teams, to continually reinvent the group in order to pursue growth sectors in various areas. Thus, focus has shifted from commodity brokers in the 60's, Tourism and Cargo transportation in the 70s, Food and beverages in the 80s and Plantations in the early 90s, to our present thrust sectors, Infrastructure and IT. During the last financial year, JKH reported a gross revenue of Rs12 bn (US$ 146 mn) and a net profit of Rs780 mn (US$10 mn). We have registered a 24% compound annual growth rate in earnings over the past 5 years. Nevertheless, we are by no means complacent in our success and will continue to seek new and innovative avenues of profit growth and shareholder value creation.
How do you see your prospects and your involvement in the tourist industry?
I'm sure many would agree that there is tremendous potential for tourism in Sri Lanka, if not for the present security conditions and the negative publicity. At present, we have good tourism seasons in spurts, in the absence of any major security incidents. However, we have taken all necessary steps to ensure that we are in an excellent position to reap the best from a possible improvement in the situation.
We offer periodically refurbished hotels and quality tourism services in excellent locations around the country. We are the largest inbound tour operator in Sri Lanka and own the largest number of hotel beds outside Colombo. However, one of our main problems in this area has been the inability to command reasonable prices for the products we offer. The negative publicity generated has indeed greatly reduced the number of high-spending and FIT travellers to Sri Lanka.
What is encouraging though is that all parties concerned are now working in concert to make the best of this situation. The present minister of tourism and the chairman of the Tourist Board have offered many useful ideas for the development of the industry and are working closely with the local hoteliers and tour operators to promote the country. On our part, we are in the process of e-commercialising our business to obtain maximum benefits of e-business strategies.
The present cash cows in our tourism sector are the Maldivian resorts. In the Maldives, we are able to command about 3-4 times the prices fetched by local hotels. Our premium products here are water bungalows, featured in our resort in the island of Hakura. However, the supply of hotel rooms has been steadily increasing in the Maldives over the past few years and we are now closely looking at new avenues of growth. At present we are evaluating a number of options for hotel projects in the region - particularly, south India.
You also have a strong presence within the IT sector, what developments do you see in this sector and what are the prospects of the JKH in it?
Yes,IT is another area where we have made significant investments in, particularly over the past few years, and we currently view it as one of our thrust sectors for the future. John Keells Computer Services, our software services company, increased its cadre to over 400 technicians from just about 150 in the last year, and is now ready to compete in the rapidly changing global business environment. The main offering of the company is the concept of "offshore development centres" while it also seeks to take advantage from being appointed as an Oracle solutions partner during the last year.
At present we have set up development centres for Emirates and P&O in the UK, while we are also negotiating contracts with NTT of Japan, Sri Lankan Airlines and a few firms in Norway and other Scandinavian countries. The potential here for John Keells is immense considering the sizeable difference in revenue per technician compared to regional IT giants especially in India. Of course Sri Lanka was relatively late in moving in to the industry unlike India, but we hope that our recent efforts to develop the infrastructure and backbone for a good IT company with an emphasis on training should help narrow this gap.
Given the need for more trained IT professionals, we launched the John Keells Institute of Information Technology two years ago in collaboration with TATA InfoTech of India. Presently there are over 1,300 individuals being trained here and we feel that this is a key area of development, not only for John Keells but for Sri Lanka as well.
John Keells has been rated as the number one company in Sri Lanka, how do you describe the success of this?
John Keells is a group of professionals managed by professionals. Enhancing shareholder value is our primary corporate goal, while performing our fiduciary duties to all other stakeholders as well. We take great pains to ensure that our internal reporting and appraisal system reflects our primary goal and that every employee in every revenue, cost, and profit centre recognises its importance.
We seek to be a premium conglomerate, using active diversification to fuel growth but at the same time being disciplined in our approach. Over the years we have won shareholder confidence in being able to pick the right investments, making acquisitions or expanding only when the competitive logic is compelling, while being able to divest businesses that are competitively disadvantaged. Secondly, we see ourselves not only as managers of investments but also as managers of people. A significant amount of resources are deployed every year in human resources development. We make every effort to build a congenial working environment, which nurtures team spirit. Indeed we are a people's company. Thirdly, we are unafraid of complexity or venturing into the unknown and in this, we will aggressively pursue new avenues of future growth. Our stake in the development of the QE quay of the Colombo port where we are the single largest shareholder, the huge investments we have made in IT, even at the cost of short term earnings, and many projects in the pipeline will continue to hold true to this. | We are on a continued quest to achieve best practices in corporate governance and transparency while the appointment of independent non-executive directors on our board and the gradual transformation in our corporate reporting processes reflect this effort. We place considerable importance in our social responsibilities and strive to be an exemplary corporate citizen, spending over Rs90 mn in our efforts to protect the environment alone during the past three years. We are a truly Sri Lankan company with a very high trademark of reputation. But perhaps, we can do more.
As a prominent business figure in the country how would you describe the investment climate of the country and what are in your view the most positive and negative aspects of this environment?
Despite some political uncertainties in recent times, Sri Lanka still offers one of the best investment climates in South Asia. We do not see many differences in the policies of the ruling party and main opposition, who have both tended to favour an open economy and capital market friendly policies. We strongly believe that there are many attractive opportunities for the discerning investor in one of the most liberalised economies in South Asia, whatever the political evolvements may be. The country is ideally located as a regional trading hub with strategic access to the Indian market while the Indo-Lanka free trade agreement strengthens this further. We have a highly literate and cost-competitive labour force, solid infrastructure with the increased involvement of the private sector, attractive investment laws and the continued de-regulation of capital markets.
While foreign investors directly own about 36% of the issued share capital of John Keells, there is also fairly substantial foreign investment involved in a number of our projects. For instance, although we are the single largest shareholder in the Queen Elizabeth Quay development project, over 58% of the US$240 mn project is held by foreign investors. This is yet another success story for us, as well as the country. We also have a 7% stake in a high dividend yielding power project, where the balance is funded by foreign investment. In addition, our group companies have many joint ventures and strategic alliances with numerous international names. To date, we have not had a single unhappy partner.
Where do you see the Sri Lankan economy and where do you see yourself within the next two years?
The private sector expects economic growth to slow down to around 4 - 4.5% in 2001, but improve to about 5 - 5.5% in 2002. The IMF in a recent statement intimated that gross official reserves would rise starting from about mid-2001 as donor funds come in and trade momentum improves, together with accelerated rupee depreciation, along with the effective free floating of the local rupee earlier this year. We are encouraged that the government, on IMF guidance, targets a medium term reduction in the overall budget deficit to 5% of GDP. There are indications that interest rates might be lowered soon as well.
As I mentioned before, our main growth sectors over the next few years should be Transportation and IT. Our investment in the port development project is the single largest private sector investment in the country. Although we are already seeing healthy returns from it in its first full year of operations, the development project will be completed only by 2003, more than tripling its initial capacity. Once the Colombo port is developed, we expect synergies to result in the entire transportation sector delivering substantially superior returns. During the last year, we also invested in an Indian shipping firm to commence shipping services within India and Sri Lanka, which would enable us to benefit from the innate characteristics of the Colombo port as a transhipment hub. We further ventured into Maldivian waters last year with our shipping operations and soon hope to move into other South Asian countries as well.
In IT, we are now well equipped to exploit any opportunity in the global market while our trained marketing and communications team is on a constant look out for new openings and breakthroughs. In a short space of time, we acquired a number of big names to our credit and in the next few years will look to maximise our global reach but at the same time focus on the high-spending Scandinavian markets.
On the Food & Beverages side, our soft drinks and processed meats are already being exported to South India and Maldives while our soft drinks, particularly Elephant Ginger Beer, is being exported to many other regional countries and Australia. A dedicated tourism sector team is on a constant lookout for attractive hotel investments in the region and we should see a positive materialisation of these plans at least within the next two years. We have ample human, financial and capital resources, and will aggressively pursue any lucrative growth opportunity that comes our way.
In the medium to longer-term horizon, we are aiming at a 70 - 80% US$ denominated revenue base derived from Transportation, IT, Tourism and consumer product exports. By the year 2010, we intend to be a company recognized not merely within the region but globally as well.
What about your personal success in the John Keells Holdings, what have been your biggest achievements and what would be your final message to our readers, who are all businessmen and potential investors to the country and many of the sectors you are involved in?
I was appointed Chairman of John Keells Holdings at the beginning of this year; accepting the torch from Mr.Ken Balendra, who I am sure requires no introduction. Each executive director on the main board represents a business sector and hence the transition was as smooth as expected, with no business interruptions or loss of stakeholder confidence.
I began my career at John Keells as an accountant and have been with the group for 23 years. My tenure here has taught me that teamwork and team spirit is key and has been the driving force behind each of my personal successes in the past. Having worked in all sectors I have an in-depth knowledge of the entire group. Over the past ten years in particular, I have been involved and been an integral part of every strategic decision made concerning the group and its sectors, so much so that my biggest achievements are entwined with the group's. Together with a brilliant and confident executive team I expect that greater achievements are yet to come.
Sri Lanka is a wonderful place and John Keells has already been ranked as its top company. During my term as Chairman, I hope to see it evolving into the truly global success story it aspires to be.
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