Active portfolio management and evaluation by JKH has resulted in the group housing a portfolio of businesses that lead in strategic growth sectors of the economy. The company will continue to build its portfolio of investments by effective regional investments/expansion and enhancing its investments in core industry groups.

The JKH portfolio evaluation and review process is grounded on four filters

• “Financial Filter”that has the JKH hurdle rate as its cornerstone

• “Growth Filter” which evaluates a business in terms of its industry attractiveness

• “Strategic Fit” that critiques the long term competitive advantage of a business/industry by evaluating the strength of competitive    forces, specific industry/business risks, ability to control value drivers and the competencies and critical success factors    already inherent in the group company

• “Complexity Filter” which considers factors such as senior management time and the risk to brand, image and reputation

JKH's hurdle rate (or required rate of return) is a function of the weighted average cost of capital (WACC), derived from the group's cost of equity, cost of debt, target leverage, tax rates and the value creation premium required over and above the WACC. Strategic business units are risk assessed under headings such as customer concentration, suppliers/JV partner dependence, risk of international entrant, labour dependence, cyclicality, dependence on Sri Lankan economy, regulatory dependence and impact of the NorthEast conflict etc.

Given below is a graphical representation of an output of the JKH portfolio review and evaluation process. As indicated by the graph, Hotel Management, Transportation, Destination Management, Financial Services and Property performed well above the “Financial Filter” hurdle rate expectation. The Transportation industry group continues to generate the highest return on capital employed (ROCE) of the portfolio, apart from the low capitalintensive Hotel Management business. Financial Services sector continued its strong performance during the year under review led by the associates NTB and UA. Property industry group generated relatively higher returns than the previous year due to recognition of most of the income from “The Monarch” during the year. Destination Management sector saw a major turnaround with strong performance of Walkers Tours during 2007/08. Gains on exchange translations due to the exercise of prudent hedging, process efficiencies which resulted in significant cost savings and the gain on the disposal of land were the key factors which contributed to this growth. The Consumer Foods industry group experienced a relatively low ROCE, largely as a result of lower margins due to cost pressures and a higher capital employed attributable to investment in 2 modern bottling lines by CCS. The Retail sector, though continuing to be below the hurdle rate, is expanding aggressively and the returns will improve with the sector gaining scale through increased number of outlets. The Leisure industry group continues to perform well below the hurdle rate due to the ongoing ethnic conflict in Sri Lanka having an adverse impact on tourism. The Maldivian resorts, which have been the strongest performer for the group's Leisure portfolio, experienced relatively low returns during 2007/08. This was due to the addition of Alidhoo, the group's first Cinnamon property in the Maldives and extensive refurbishments at Ellaidhoo and Dhonveli, which enhanced the capital employed of the portfolio, further impacted by drop in revenues and profits due to closure of Ellaidhoo and Dhonveli for refurbishment during part of the year.