Nawaloka Group reports record losses in 2006 - 07

By K. Kenthiran

The Nawaloka Group has reported a net loss of Rs. 113.4 million for the year ended March 31, 2007, the lowest performance of the group since its inception.

This negative performance was due to its newly acquired associate company Galadari Hotel’s share of losses amounting to 157.8 million. Nawaloka owns a 24.03 % stake in Galadari Hotel.

The company report said the group made a staggering cash investment amounting to Rs. 843.2 million to acquire the 24.03 % stake in Galadari Hotel during last year. Such huge investment has been brought down to Rs 659.6 million as at March 31, 2007 due to the losses absorbed. However the market value of such investment amounted only Rs. 471.3 million as at that date.

According to latest financial statement released by the Galadari Hotels Ltd the hotel’s accumulated losses has surpassed Rs 7 billion as at March 31, 2007. The hotel’s net assets as at that date amounts to only Rs. 520.9 million. Galadari Hotel has been continuously making heavy losses in the recent past and the hotel’s net assets have been eroded to very low levels. One financial analyst, considering these facts and the continuing downfall of the tourism industry, questioned the strategic thinking of Nawaloka Group to tie up such a huge amount of money in this investment.

Commenting on the prospect of the associate company, Galadari Hotels, Nawaloka Group CEO Jayantha Dharmadasa said in his message to shareholders that “we are planning to revamp the hotel’s operations. We expect steps taken by management will ensure a respectable performance by Galadari Hotel for the coming year, within the context of the difficulties facing the industry.”

Despite losses from the associate company, during the year under review group turnover increased by 19% to Rs. 1.98 billion, the highest level achieved in the history of the company. A little over 65% of the hospital’s revenue comes from five departments namely drugs and surgical charges, room rental, angiograms, lab tests and surgical supplies.

Operationally, the group performed well. Gross profits for the group rose by 19.5% to reach Rs. 898 million. Despite cost increases, operating profit recorded a growth of 2% to reach Rs.223 million despite rising costs particularly staff and electricity which rose by almost 14% to Rs.77 million, necessitated price increases on most services.

The company has invested heavily in human resources in an attempt to retrain quality staff and believes this is essential for the long term growth of the hospital, particularly in the light of increased migration overseas by qualified medical practitioners. The hospital has continued to invest both in people and in technology.

Dharmadasa highlighted the difficulties in re-training trained medical staff. Migration of medical personnel to the UK, Australia and elsewhere has plagued the industry as a whole and in order to retain sufficient staff to maintain the high levels of services that Nawaloka patients have been accustomed to the company revised its system of rewarding staff.

“We now offer a highly competitive remuneration package and have in place schemes to motivate and retain staff through non financial reward systems and this has contributed to rising costs we believe is an essential investment in order to maintain long-term competitiveness,” he said.

Investments in medical technology made in the year under review include Rs.120 million spent on cathlab equipment, Rs.12 million on mammography equipment in the X ray department and Rs.12 million spent on echocardiogram equipment. In total, some Rs.358 million has been invested in capital equipment in the year under review.

Commenting on the future prospect of the hospital, the CEO said that “Nawaloka Hospitals looks to the future with confidence and barring any unforeseen circumstance we expect to report improved performance in the next year. The hospital will continue to invest in high technology, better business practices and improved efficiency measures to enhance returns to all our stakeholders.”

The hospital treated 30,410 indoor patients during the year, an increase of eight percent over the previous year on average room occupancy rates rose to 90 % from around 80 the previous year. There was significant increase in cardiac surgeries performed which rose by 16 % compared to last year.