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Spence achieves creditable results despite tsunami and refurbishments - 11/10/2005

Despite a sharp drop in tourist arrivals and the temporary closure of its two flagship hotels for refurbishment, Aitken Spence recorded a net profit attributable of Rs. 408 million in the six months ended 30th September 2005, as reflected in the results which were released recently.

One of Sri Lankaís foremost players in tourism and cargo logistics, the Group has diversified interests in several strategic sectors which have assisted Aitken Spence to withstand the post-tsunami slump in tourism and a challenging macroeconomic environment to post a creditable performance.

The group recorded net revenue of Rs. 5.74 billion for the six months ended 30th September, which is an increase of 14.4% from the same period last year. Profit attributable to shareholders however declined by 43% when compared with the corresponding period in the previous year.

The overall decline in the Tourism sector performance is a reflection of the decline in genuine tourist arrivals to Sri Lanka by 54% for the period January to August 2005. In addition there was a 43% 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%. This was further compounded by the closure for refurbishment of the companyís two flagship hotels, Triton and Kandalama, which 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.

However, 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 Winter 2006.

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 sector has also increased the number of overseas offices in a concerted effort to expand regionally.

The Groupís investments in the power generation sector including the new 100 MW plant in Embilipitiya continue to fare well, with the company successfully taking over the day-to-day operations

and maintenance of the plant in Matara, which had hitherto been outsourced. However the adverse financial position of the off-taker 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 Groupís other investments and a reduction in other operating income which included the profit from sale of investments in the previous yearís results.

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 yearís performance at year end. However the Company 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.