Financial Times

Cargo ships helped cushion Aitken Spence profits fall
Aitken Spence net profits plunged 43 percent to Rs 408 million for the six months ended September 30, 2005 mainly owing to a sharp downturn in tourism because of the tsunami, although good profits from an expanding fleet of cargo ships helped cushion its impact.

“Unless there is a major turnaround in the economic conditions and a quick recovery in tourist arrivals to the country, the Group will find it a challenge to significantly improve on last year’s performance at year end,” the company said in a statement.

However, the company said it considers 2005-06 as a year of consolidation and will focus on “building a strong foundation for rapid growth and expansion in improved economic conditions over the next few years.”

The group recorded net revenue of Rs. 5.74 billion for the six months, an increase of 14.4 percent from the same period last year. It attributed the lower profits to the sharp drop in tourist arrivals and the temporary closure of its two flagship hotels, Triton and Kandalama, for refurbishment.

Aitken Spence said its diversified interests in several strategic sectors helped the group to withstand the post-tsunami slump in tourism and a challenging macroeconomic environment to post what it called a creditable performance.
The Cargo Logistics sector registered a “noteworthy performance” which helped off-set the negative impact of the tourism sector results. “The sector recorded a healthy contribution to its profits from its recent investments in ship ownership which has paid rich dividends, and a steady performance from the freight forwarding and integrated logistics divisions of the Group,” the statement said.

The sector has also increased the number of overseas offices in a concerted effort to expand regionally. The overall decline in the tourism sector performance was a reflection of the decline in genuine tourist arrivals to Sri Lanka by 54 percent for the period January to August 2005.

In addition, there was a 43 percent decline in tourist arrivals to the Maldives during the period January to September 2005, due to the post tsunami dip in tourism.

Foreign guest nights in hotels in Sri Lanka (outside Colombo) during the period January to August 2005 also recorded a drop of 55 percent. The Triton and Kandalama hotels are expected to re-commence operations at the end of the third quarter. “The recent recovery in the Maldives tourism industry and the completion of the luxury water villas at the Meedhuparu resort in December 2005 will contribute to an improved performance from the tourism sector at year end,” the statement said.

However, it warned that the post-tsunami recovery in tourist arrivals particularly from Western Europe appears to be much slower than anticipated due to the negative publicity generated and is only expected to pick up to pre-tsunami levels in the winter of 2006.

The Group’s investments in the power generation sector including the new 100 MW plant in Embilipitiya continue to fare well, with the company taking over the day-to-day operations and maintenance of the plant in Matara, which had hitherto been outsourced.

However, it warned that the adverse financial position of the Ceylon Electricity Board is “an ever present concern” and needs to be addressed by the authorities as a matter of urgency.

Aitken Spence also reported a less-than-expected performance from the Group’s other investments and a reduction in other operating income which included the profit from sale of investments in the previous year’s results.

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