The country will continue to see reasonable economic growth despite the political volatility and this augurs well for businesses, Krishan Balendra told the Business Observer.
Balendra took over as Chairman of the John Keells Group, one of the largest listed conglomerate on the Colombo Stock Exchange, recently.
He said at present there are some negative sentiments regarding the country, but looking at economic growth and improvements there is good reason to be positive about the future.
Excerpts of the interview:
Q: How do you see your appointment as the Chairman of the JKH Group being a long-standing member of the company?
A: I joined the Group in 2002 and my first stint was as head of corporate finance. Thereafter, I headed the Keells Super business and finally, ran the leisure and hotels business. I believe I have had good exposure in different parts of the Group.
In corporate finance, we dealt with new investments and strategy which involved working with all our businesses. I was also involved in the Investor Relations function and had regular interactions with our shareholders.
Operating businesses, in particular during the period that I was in the Keells Super business gave me a hands- on exposure to business operations which I believe will hold me in good stead in my new role.
Q: Could you elaborate on your short, mid and long term-plans for the Group?
A: We have developed medium to long term plans for all our business verticals. Except for the three hotels in the Maldives, all our businesses are in Sri Lanka.
Our view is that the country will continue to see reasonable economic growth despite the political volatility and this augurs well for business. There is some negative sentiment at present, but if you look at the economic growth and improvements in social indicators that the country has achieved over many years, despite the war and other issues, there is good reason to be positive about the future.
We believe there is a growth opportunity in all our verticals and we have invested in expanding capacity and ability, with local and foreign expertise.
We are building new hotels and refurbishing some of our properties in Sri Lanka and the Maldives and aggressively expanding our supermarket chain. We have launched the Trizen apartment project, completed a new ice cream plant recently, and are building a new distribution centre for our logistics business.
The scale of the investments that the John Keells Group is making across our verticals would easily surpass any other business organisation in the country. This is a reflection of our confidence in the growth opportunity for our businesses.
Q: What is the Group’s Outlook for the current year and the next?
A: In 2015 and 2016 we witnessed a consumer boom driven by lower petrol, diesel and electricity prices and other factors such as the public sector wage hike in 2015. In 2017 and 2018 following some signs of overheating, the Government took measures to strengthen the macro outlook.
This has had a short term impact on consumption which impacted some of our verticals. We are beginning to see early signs of a recovery in consumption and we hope this would sustain. We are positive on the outlook for the consumer business as consumption levels and penetration remains low compared to regional countries. For example, in Sri Lanka, supermarkets or ‘modern retail’ accounts for only about 15% of grocery consumption compared to over 40-50% in regional countries such as Thailand and Indonesia.
Another area where we have seen a negative impact is in our city hotels. This is primarily because of the increase in the number of hotel rooms within a short period.
It is encouraging that demand for rooms in Colombo continues to grow and we believe the supply will be absorbed over time.Under some of the new developments such as our Cinnamon Life project John Keells Group will introduce big malls and large conferencing and banqueting spaces that Colombo has not had before.
This will create a new regional market for the city to tap. While the number of new rooms may seem high compared to what we had, it is small compared to regional cities. While in the short term there is an oversupply, we are confident that this will change in the future.
The hotels sector profits have also been impacted because two of our flagship properties, the Bentota Beach Hotel and Hakura in the Maldives are closed for reconstruction work. Both hotels will be operational in November.
Similarly, there is a significant opportunity for growth across our other verticals as well. The financial services segment continues to show good growth and the strong performance of the Colombo Port has driven our ports and logistics segment.
Q: How has the performance of the Group been in recent years?
A: The company has a strong balance sheet and generated very good operating cash flows, which has enabled it to make large investments. It also has possibly the largest privately owned land bank in the heart of Colombo.