Sunday, June 17, 2007

Sri Lanka downturn cushioned by Maldives profits of top leisure firms

Two of Sri Lanka's leisure sector players have managed to cushion a downturn in tourism on the island, with profits from resorts they own in the Maldives.

John Keells Holdings, one of the biggest capitalised firms in the Colombo bourse, and Aitken Spence, have been expanding in to the Maldive Islands in recent years.

The investments have helped prop up their bottom line at a time when their Sri Lankan hotel properties have been hard hit by an intensifying internal conflict.

The violence has prompted travel warnings in key Western markets and led to a sharp downturn in arrivals to the island.

John Keells Holdings said revenues from its leisure sector grew by 39.5 pct to 7.6 billion rupees in the financial year ended March 31, 2007.

This was mainly a result of increased revenues from its Maldivian operations, the firm told shareholders.

The addition of two new properties, Dhonveli and Ellaidhoo, helped boost performance with both resorts doing well in their first year under the group’s portfolio.

"Despite the adverse situation in Sri Lanka impacting the leisure industry, the earnings before interest and tax of the Leisure industry group increased to 1.09 billion rupees, primarily due to the contribution from the group’s Maldivian hotels," the firm's annual report said.

JKH chairman Susantha Ratnayake said the decline in profits from its Sri Lankan hotels was partially offset by the profits from Maldives.

The group's leisure sector reported a 19 per cent decline in profit after tax to 500 million rupees, as the Sri Lankan operations were affected by the escalation in hostilities and the consequent negative travel advisories issued by major markets.

"Had we not taken several pre-emptive measures to contain costs, the effects would have been more adverse," Ratnayake said.

"The decline was partially offset by the strong performance of our four Maldivian resorts, including the Dhonveli and Ellaidhoo Island resorts that were acquired this year."

In the past two years alone, JKH has invested 62 million US dollars in the Maldives, bringing the total number of rooms under its control to 524.

Most Sri Lankan hotels have been hit hard by the downturn in arrivals which has worsened this year after Tamil Tiger air strikes.

The Tigers launched their first air raid in March on the main military airbase next to the international airport, disrupting flights and scaring away tourists.

The threat of Tiger attacks prompted the government to shut the airport at night to prevent further disruption and any harm to tourists.

The Tigers have also staged several bomb attacks in or near the capital Colombo.

The other big Sri Lankan group with resorts in the Maldives, Aitken Spence, has also been cushioned by profits from the Maldives.

Aitken Spence managing director Rajan Brito told shareholders that the group's "strategic shift" in tourism that led to cross border expansion in hospitality management helped mitigate the effects of the downturn in Sri Lanka.

"The mediocre performance of the Sri Lankan portfolio was offset by the strong resurgence in profitability of the sector's Maldivian resorts."

Overall Aitken Spence leisure sector profits rose by 178 pct to 889 million rupees in the financial year ended March 31, 2007.

At its listed hotels unit, Aitken Spence Hotels, Sri Lankan operations grossed 692 million with 275 million in losses. But overseas operation had a top line of 4.2 billion rupees, netting 419 million.

Source: LBO

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