John Keells Holdings is the largest listed company in the island. Its market capitalization tops 110 billion rupees. The 130 year old firm has diverse business interest in food, port services, hotels, IT, Banking, Property Development and Plantations.

The food and retail businesses lead by Ceylon Cold Stores and supermarket chain Keells Super - and Port services are the group’s most profitable.

Ajit Gunewardene, the deputy chairman JKH say the improved economic conditions have thrown open a wide array of opportunities for growth.

He discussed the firm’s strategy with LBR.

LBR: JKH’s hotel owning company raised 3.6 billion rupees in a rights issue recently. How exactly will that money be used? Can you give us a break down?

A: Since the dawning of peace last May, we’ve been very bullish on the leisure sector. We have been involved in leisure sector for over thirty years and we are one of the dominant players in Sri Lanka. Our view is that since the dawning of peace this is going to be a significant growth area and an area of serious opportunity for Sri Lanka. So we are planning to expand our exposure in this area. We have already begun some of theses initiatives in terms of capital expenditure in this business.

We have refurbished part of old Trans Asia and launched it as Cinnamon Lake last September. We have upgraded 250 rooms at Cinnamon Grand to bring them up to five start standard.

In terms of the resorts where we raised the money, we completed and just ‘soft opened’ Chaaya Blu. I want to emphasize that it was a soft opening because most of the rooms are open and a most of the common areas are operational but absolute completion would be only in the first week of June. That was about a five million dollar investment.

We have committed to invest in a 195 room hotel on our land in Beruwala. We have acquired a block of land which was owned by the Confifi Group and we have got a contiguous block of a bout eleven acres. The designs have been done and the final approvals obtained and we are now in the final stages of contract negotiation. We hope to launch the project by mid June. It’s a brand new hotel under the Chaaya brand. It will take about 24 months to complete at a cost of 20 million dollars.

We have also made a call to close Coral Gardens which is a very old hotel and has barely seen any investment over the years. We have done the designs. It will be closed in July this year for a complete stripping and refurbishment. It will come up as a brand new 150 room hotel which will take 18 months to complete at approximately eleven million dollars.

We have currently closed Habarana Lodge. We are investing approximately three million dollars there to upgrade some of the rooms which were not upgraded for so many years and the dining areas as well and add on a couple of new eating areas and a conference area. We can re-launch it in around November at a five star standard.

Another investment we will be making is a soft upgrade of Benthota Beach which will also cost about two million dollars.

So those are our immediate investment plans. However we will be looking at new projects in Sri Lanka and some of these are at early stages of discussion. We believe that we need to add more capacity in to our hotel portfolio under both the Cinnamon and the Chaaya brand.

LBR: JKH didn’t take up the entire rights entitlement. You sold your rights. Why did you do this as if you say hotels will be some of your top profit generators in the next few years?

A: It’s a strategy that we always follow at JKH. It’s an issue of balancing our portfolio of investments. We owned 92 percent of JKH Hotels which is also a listed company which is in great demand as a share.

The issue here was that there was opportunity to create more liquidity in the market and it has done that. It is one of the highest trading stocks now. We currently own 82 percent of JKH Hotels Holdings even by not taking up the total share holding. We did take up the balance. There was a demand for the rights and we created that liquidity in the market and we still retain a significant ownership of Keells Hotels at 82 percent. So it was just a balancing strategy.

LBR: Sometime ago, after you raised 12 billion rupees through a rights issue JKH announced that it is looking for investment opportunities in the region. It seemed you were pursuing regional investment ahead of the ones in Sri Lanka. Now that the situation is different are you keener to invest here?

A: Of course. At that stage the opportunities in Sri Lanka were limited due to issues that were completely outside our control. But with the turn in turn of events in Sri Lanka and what has taken place globally we believe we are going to get the maximum bang for our buck in Sri Lanka. So we are certainly going to focus in Sri Lanka.

But our vision of being regional leaders in Sri Lanka still remains. We may be able to achieve this regional leadership with investments in Sri Lanka. We are very confidant that the growth momentum in Sri Lanka is exponential over the next several years. So the regional leadership vision is certainly something that remains in our sights. It might be led by investments in Sri Lanka.

LBR: What are the other sectors that you think will grow fast? Are there any other sectors in the economy that you would like to diversify in to?

A: whether we would diversify in to other sectors is a little doubtful. We believe that we have got a portfolio that is positioned to take advantage of the growth areas in Sri Lanka.

We are in the leisure business which has significant growth opportunities going forward. We are in the ports and logistics business. With the much improved security situation and the investments that are going to take place in Sri Lanka the ports and logistics area is certainly going to have significant growth.

We have a large property portfolio and we are in property development. A stable economy, security and peace is an environment which tends to fuel investment in property and we believe over the next three to five years property development can be a significant area of growth and we are well positioned in this environment with the investments that we have made in the property business.

The other area is food and beverages. GDP is expected to grow at the pace of 6 percent plus and we don’t think it is unreasonable to expect double digit growth can be achieved over the next three years in which case consumption will also increase. Food and beverage, carbonated soft drinks, ice creams, processed meat are the areas in which consumer demand will increase in. So we are well positioned in these areas again as market leaders.

So by and large most of our businesses are well positioned and we believe our investments will be channeled in to theses businesses to grow them and take advantage of what we believe is going to be a very dynamic and exiting future.

LBR: You said food and a beverage is a promising sector. Do you have plans to expand your supermarket chain to the North and East?

A: Yes, we will expand to other areas based on the economic developments taking place in each of these areas. We take a measured approach to expansion and not just dotting the country with stores or branches for the sake of being there. It will be based on what we can add to that environment and not what we can take away from that environment.

LBR: SAGT terminal is the busiest terminal at the Colombo port. But in three years another deep water terminal will be added to the port. Do you think it will be tough to maintain the same level of profitability afterwards? How are strategizing to face this?

A: Well, from a macro level we believe that Sri Lanka is well positioned to be a logistics hub for South Asia. I don’t think anybody doubts that South Asia is going to be a growth engine for the rest of the world. So we think Sri Lanka as a logistics hub is the way forward.

So in terms of capacity over the next several years we think all of this will get taken up. But it will depend on the region’s as well as Sri Lanka’s growth. We are not too concerned. We actually think it’s a good thing that there is new capacity being created so that the shipping lines can make their plans in terms of trans shipping or using the facilities available in Sri Lanka.

Sri Lanka can become a hub as some of the other countries in Asia and the Middle East have become in the past. We are extremely well positioned. We are confidant logistics and port operations as a business for the nation will grow and grow rapidly.

LBR: What is the outlook like for the group this year?

A: We are positive. We are optimistic. There are challenges as always. Life will not be exiting without challenges. We believe that we are going to have a very decent year during the current financial year.

We are doing a lot of work in terms of up grading our facilities and investing a lot of our businesses to take advantage of the new dynamic and changed environment. So this is a year during which we are going to be looking in to the future and positioning ourselves for the new Sri Lanka. So we are very positive and optimistic.

LBR: Is there anything that worries you about the performance of the group?

A: Nothing worries me.

After what we have gone through over the last 25 to 30 years, the fact of the matter is that John Keells has achieved a lot in an environment that wan not the most conducive. For us the new changed environment is a breadth of fresh air. We are no longer swimming against the tide. Everything is working in favor of business. There are always challenges in various areas but for us, I think we are well positioned to see exponential growth and join the country in its drive for a new Sri Lanka.