one hundred and fifty years of delivering stakeholder value

OUR APPROACH TO REPORTING

We are pleased to present to our stakeholders our seventh integrated annual report for the year ended 31st March 2018. The report contains information regarding the Group’s financial, social and environmental performance during the year and serves as an easily accessible tool for stakeholders to compare the progress made by the Group over the years.

This report is an important communication tool to our stakeholders and in line with Clause R of the Group’s Integrated Sustainability Policy. The aim of this integrated annual report is to “Report on the Group’s performance in a timely and accurate manner for the benefit of all stakeholders”. This report is supplemented by a range of additional reports, all of which are available on our website: www.aitkenspence.com/ annualreport/

Reporting Parameters
Scope

The annual report focuses on the main operations and activities of Aitken Spence PLC and its Group of Companies for the 12-month period ending 31st March 2018. The report strives to reflect on,

  • Value creation of the Group
  • Comprehensive view of our business sectors by analysing our performance against the strategic objectives of the sectors highlighting the successes and challenges experienced during the year.
  • Our Governance; Group strategy and outlook; risk management process; our financial, economic, ethical, social and environmental performance; and prospects within the operating segments and sectors.

Reporting Boundary

Financial and economic performance reflected in this report comprises of performance of the Company and all the subsidiaries of Aitken Spence Group and the Group’s interest in equity accounted investees

The sustainability strategy of Aitken Spence in its full framework has only been implemented in our operations in Sri Lanka and the Maldives. As such, comprehensive disclosures on sustainability performance is limited to our operations in these two geographical locations. Information on identified material areas for our port management operation in Fiji, and our hotel properties in Oman and India have been disclosed in this report. This information was introduced in the reporting boundary of our report in the 2016/17 financial year. Where applicable, the figures will be restated to allow a comparative analysis. We hope to complete implementation of the sustainability strategy of Aitken Spence within these operations in due course and it is a short-term goal of ours to include comprehensive sustainability disclosures from these operations within the next year.

Reporting Standards

This is Aitken Spence PLC’s seventh integrated annual report and the Group has commenced reporting in line with the Global Reporting Initiative’s GRI Standards reporting framework “In Accordance – Core” for our sustainability priorities (material topics). We also follow the guidelines of the International Integrated Reporting Council (IIRC) to illustrate the cohesion between our priorities, resource streams, operations, processes and the performance. These guidelines serve as benchmarks used to continually improve our management practices and disclosures on performance across the Aitken Spence Group. We are committed to work towards improving our social and environmental governance practices which we hope will be reflected in the year-on-year improvements achieved in our disclosures.

The financial statements are prepared in accordance with the Sri Lanka Accounting Standards (SLFRSs and LKASs) in alignment with the International Financial Reporting Standards (IFRS), the Companies Act No.07 of 2007, the Listing Rules of the Colombo Stock Exchange, as well as the Code of Best Practice on Corporate Governance jointly issued by the Securities Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka and other related guidance.

Reporting Standards

The Report includes forward-looking statements, which relate to the possible future financial position and results of the Group’s operations. These statements by their nature involve an element of risk and uncertainty, as they relate to events and depend on circumstances that may or may not occur in the future. However, the Group does not undertake to update or revise any of these forward-looking statements publicly, whether to reflect new information or future events or otherwise.

Assurance

The Company has obtained an independent opinion on the Financial Statements from its external auditors who are appointed by the shareholders to ensure of their independence. The

independent opinion of Messrs. KPMG in respect of the financial statements of the Company and the Group is detailed on page 249 of the report.

As part of the implementation framework of the Group’s sustainability policy (clause R), the Company and the Group obtained an

independent assurance on our social and environmental governance processes. The assurance is obtained from Messrs. DNV GL Business Assurance Lanka (Pvt) Ltd. The assurance statement is detailed in pages 374 to 377 of this report.


CREATING SUSTAINABLE
VALUE


KEY EVENTS
March ‘18
March ‘18
Aitken Spence Rated Platinum Consecutively for Corporate Accountability

Aitken Spence PLC was rated Platinum for its corporate accountability practices and performance in the STING Corporate Accountability Index 2018 for the 6th consecutive year. We have been ranked among the top three companies in the index since 2011.

March ‘18
March ‘18
Aitken Spence Travels Attracted 54 Charter Flights

Strengthening a new front in its efforts to promote tourism to Sri Lanka, Aitken Spence Travels brought in total 54 charter flights from Russia, Poland, UK and Nordic.

August ‘17
March ‘18
Sri Lanka’s First Waste-to-Energy Plant

Aitken Spence Power entered into a partnership with the Sri Lankan government and the Colombo Municipal Council to construct and operate a revolutionary 10 Megawatt (MW) waste-to-energy power plant in Muthurajawela. The project represents a vital and much needed solution to the current challenges of disposing solid waste in Colombo. The plant is estimated to convert 600-800 metric tonnes of municipality waste into electricity daily.

March ‘18
March ‘18
Aitken Spence Travels handles 178,000 visitors to the country

Sri Lanka’s largest inbound tourism operator, Aitken Spence Travels records an unprecedented 178,000 visitors to Sri Lanka within the financial year and surpassing last year’s record number of 150,000 happy visitors. Thereby, affirming its market leadership and strong contribution to Sri Lanka’s tourism industry.

May ‘17
March ‘18
Aitken Spence Partnered with Thalassemia Foundation of Sri Lanka to Raise Awareness of Thalassemia Disease

Aitken Spence partnered with Thalassemia Foundation of Sri Lanka to raise awareness of Thalassemia disease through a walk in which Aitken Spence employees across Sri Lanka and highest level of management together with supporters of Thalassemia Foundation marched from Aitken Spence premises in Vauxhall Street to Independence Square.

December ‘17
March ‘18
Heritance Ahungalla wins TUI Top Quality 2018

The five-star Heritance Ahungalla, part of the premier hospitality chain Aitken Spence Hotels, was lauded with the coveted TUI Top Quality 2018 award from TUI Germany, the largest leisure, travel and tourism company in the world.



What we do

Tourisam
Maritime & Logistics

Maritime & Logistics

  • Maritime & Port Services
  • Freight Forwarding & Courier
  • Integrated Logistics
  • Airline GSA (Cargo)
  • Maritime Education
Strategic Investments

StrategicInvestments

  • Power Generation
  • Printing & Packaging
  • Apparel Manufacturing
  • Plantations
Services

Services

  • Inward Money Transfer & Port Services
  • Elevator Agency
  • Insurance
  • Property Management

Revenue

56,031

Rs.Mn

Profit Before Tax

6,398

Rs.Mn

Total Assets

107,843

Rs.Mn

Market Capitalisation

Rs. 20.5 Bn

as at 31 March 2018


Employees

13,533

Nos.

Total Funds Channeled for Community Development

128.2

Rs.Mn

AITKEN SPENCE OF THE FUTURE


“The Group’s success over the last 150 years was due to keeping the focus on the long term perspective and never losing sight of the fact that what we do today will have a significant influence on who we are tomorrow. We will continue to make strategic investments with the vision and commitment of delivering superior value to all our stakeholders.”



Aitken Spence Today


PERFORMANCE HIGHLIGHT

2017/2018
Rs. Mn
2016/2017
Rs. Mn
Change
%
2015/2016
Rs. Mn
Financial Capital
Results of the Year
Group revenue with equity-accounted investees
56,031 50,013 12 31,061
Group revenue 52,735 45,892 15 25,978
Profit from operations 7,081 5,758 23 3,897
Profit before tax 6,398 5,247 22 3,806
Profit attributable to equity holders of the company 3,560 2,890 23 2,027
As at 31st March
Non-current assets
73,881 63,411 17 51,995
Current assets 33,812 31,735 17 21,210
Total assets 107,843 95,295 13 73,354
Total equity 56,285 50,793 11 44,200
Non-current liabilities 23,560 19,503 21 13,639
Current liabilities 27,997 24,999 12 15,515
Total liabilities 51,558 44,502 16 29,154
Share Information - Per Share (Rs)
Market price per share as at 31st March
50.60 56.20 (10) 73.50
Earnings per share 8.77 7.12 23 4.99
Dividends per share 2.00 1.75 14 1.50
Net asset value per share as at 31st March 110.35 97.24 13 90.26
Price earnings ratio 5.77 7.90 (27) 14.72
Ratios and Statistics
Dividend cover (times covered)
4.38 4.07 8 3.33
Dividend - payout ratio 0.23 0.25 (7) 0.30
Current ratio (times covered) 1.21 1.27 (5) 1.37
Debt - equity ratio 0.35 0.34 3 0.28
Return on equity (%) 8.45 7.59 11 5.66
Interest cover ratio 8.29 7.29 14 16.80


Earnings Per Share
Rs. 8.77
Net Assets per Share
Rs. 110.35
Return on Equity
8.45%


2017/2018
Rs. Mn
2016/2017
Rs. Mn
Change
%
2015/2016
Rs. Mn
NATURAL CAPITAL
Direct energy consumption (GJ)
551,202 597,687 399,643 342,718
Indirect energy consumption (GJ) 138,605 151,429 77,744 143,183
Total energy produced from non-renewable sources (GJ) 320,149 277,010 200,994 212,996
Total energy produced from renewable sources (GJ) 243,286 221,873 152,539 61,675
Group revenue with equity-accounted investees 56,031 50,013 12 31,061
Water
Total volume of water withdrawn (m3)
2,233,493 1,310,967* 1,210,920 709,038
Total number of water sources significantly affected by withdrawal (m3) None None None None
Total volume of water re-cycled and used or re-cycled by the organisation (m3) 638,187 598,120 526,872 311,954
Emissions
Direct (Scope 1) greenhouse gas emissions (tCO2)
370,126 375,351 276,622 22,420
Energy indirect (Scope 2) green house gas emissions (tCO2) 29,125 31,583 27,732 29,432
Quantified amount of greenhouse gas emissions reduced and/or offset (tCO2) 27,473 25,613 22,548 8,822
Total investment on sustainability processes and action plans (Rs.Mn) 108.6 88.2 111.7 115
HUMAN CAPITAL
Total Employees (including employees of equity accounted investee)
13,533 13,693 13,065 13,129
Attrition rate
Females (%) 26 39 30 24
Males (%) 21 30 37 48
Return to work after maternity leave (%) 100 92 100 94
Total investment in employee training (Rs. Mn) 47.00 22.43 17.95 15.80
Average hours of training per employee (No of hours) 15.5 5.6 5.1 4.9
SOCIAL AND RELATIONSHIP CAPITAL
Total funds channelled for community development (Rs. Mn)
128.20 135.00 71.70 140.23
Grievances about labour practices filed through formal grievance mechanisms 3 7 5 3
Significant fines and non-monetary sanctions for non-compliance with laws and regulations None None None None


13,533

Direct income provided for families

41%

Percentage of female employees

27,473
tonnes CO2e

Emissions reduced and/or offset

638,187m 3

Waste water treated for reuse or safe disposal




EXECUTIVE REVIEWS


CHAIRMAN'S STATEMENT

D.H.S. Jayawardena

Chairman






Our brand is legendary; a status highly coveted by peers and our brand equity continues to attract leading global companies to seek partnerships with the Group.




The year 2018 stands out as a historically significant milestone for Aitken Spence PLC, for it marks the Group’s 150th anniversary. Reflecting on how far the Group has come in the past century and a half, the guiding principle of the Group’s success has been - the vision to excel in all our activities. I firmly believe it is this vision that has led the Group to where it is today – one of the most successful diversified conglomerates in Sri Lanka and a pioneer in many fields. The Group is also among the few Sri Lankan entities with a recognizable offshore footprint. Our brand is legendary; a status highly coveted by peers and our brand equity continues to attract leading global companies to seek partnerships with the Group. All reasons to be proud, which I am sure is a sentiment shared by all Spensonians past and present who have at some point, been part of the Group’s 150-year journey of excellence.

It is on this pleasing note that I present to you the annual report and financial statements of Aitken Spence PLC for the year ending 31st March 2018.

Global Impact

The global economy rebounded in 2017 in what is widely seen as the imminent cyclical recovery. World’s GDP growth is estimated to have surpassed 4% on the back of a broad-based upturn in investments that saw more than half the world’s economies reporting higher year-on-year growth for the first time since the Global Financial Crisis in 2008.

img-fluid mx-auto d-block Sri Lankan Perspective

In Sri Lanka, the GDP growth slowed to a multi-year low reaching an estimated 3.1% in 2017. Affected by persistent bad weather for the second consecutive year, many key sectors underperformed, with the growth primarily driven by services. Higher inflation and interest rates as well as a weaker currency brought further pressure on the economy.

However, on a more positive note, the Government’s ongoing fiscal consolidation strategies enabled the country to access the fourth tranche of USD 251.4 million under the Extended Fund Facility programme with the International Monetary Fund

From a policy standpoint, I welcome the introduction of the new Foreign Exchange Act to further liberalize cross border transactions including capital inflows to the country. I believe it is a step in the right direction that will help build investor confidence and pave the way for the country to tap into targeted foreign direct investments to strengthen key growth sectors of the economy.
I am also encouraged to see the interest shown by global hotel chains to invest in Sri Lanka. While I must admit that this brings added competitive pressure for our own

Strategy in Action

In view of the subdued economic climate of the country in 2017, our key growth strategies remained anchored to the Tourism and Maritime and Logistics sectors, two areas that have emerged with a noteworthy track record of above average growth in the recent past both locally and globally. Our investments in Fiji Ports Terminals Ltd and Fiji Ports Corporation Limited performed exceptionally well with the increase in volumes handled by the ports in Fiji as well as the significant improvements in efficiency and productivity achieved by the Group’s strategic management team. Given our success in port management in Fiji and South Africa, we feel that we have potential in expanding our footprint in this segment. The Group is in the process of initiating plans to widen its exposure in the Maritime and Logistics sector and we have taken the first step to invest in a container freight station in operation in South Africa located at Durban and Cape Town.

Looking to strategically deepen our investments in the Tourism sector, we began construction work on Heritance

Aárah in the Maldives, a 160-room property that I expect would spearhead efforts to globalise the Heritance brand.

img-fluid mx-auto d-block

A core part of our long-term strategy is the desire to work with world-class partners, whose expertise and brand equity will give the Group a strong competitive advantage in their respective business domains. At this point I must acknowledge the Group’s long-standing partnership with TUI, the world’s largest travel and leisure company, which has been instrumental in the phenomenal success of the Group’s destination management business

Our decades-long partnerships with Singapore airlines and Lloyd’s of London and the more recently formed partnership with DB Shenker logistics, Qatar Airways and Hapag Lloyd have also proven to be immensely fruitful alliances as evidenced by the consistent results achieved.

Our Performance

I am pleased to report that the Company had an excellent year, recording its highest ever profit before tax of Rs. 6.4 billion for the year, a growth of 21.9%. The net profit attributable to equity holders was Rs. 3.6 billion a 23.2% growth over the previous year. Earnings per share stood at Rs. 8.77 while the return on equity was 8.4% a growth of 11.3%.

In keeping with the strong performance and with the intention of providing an attractive.

return on investment to our shareholders, the board recommends a final dividend of Rs. 2.00 per share.

In terms of profitability, the Tourism, Strategic investments and Services sectors performed exceptionally well during the year with the Maritime and Logistics sector showing a slight decline in profits compared to the last year. The performance of the individual business segments is described in greater detail in the reviews that follow in this report. I would like to commend the performance of the following business segments.

Destination management segment of the Group had an excellent performance with a net profit before tax growth of 19.3% and has retained its position as the market leader in Sri Lanka and in the year under review handling 178,071 number of tourist. Heritance Tea Factory had an excellent year recording the highest ever revenue and profit before tax.

The power generation and port management segments and our resorts in the Maldives had a good year contributing positively to the bottom line. The plantation segment had an exceptionally a good year with the prices of tea remaining at healthy levels and with the increase in the yields achieved for tea and oil palm. The plantations diversification into oil palm has proven to be a success and we are targeting to increase its extent of cultivation.

t brings me great pleasure to inform that Turyaa Chennai, was conferred the ‘best five-star deluxe hotel’ in Tamil Nadu at the recently held Tamil Nadu Tourism Awards 2018. The resort’s performance had a challenging year with the ban on the sale of liquor for four and five-star hotel properties, within a periphery of 500 meters from the national and state highway.
I am glad the ban which was applicable for the first six months of the financial year was withdrawn and we should expect a better performance in the next year.

I am pleased to report that the Company had an excellent year, recording its highest ever profit before tax of Rs. 6.4 billion for the year, a growth of 21.9%. The net profit attributable to equity holders was Rs. 3.6 billion a 23.2% growth over the previous year.

I am pleased to announce your Company ventured into a pioneering project to commence work on a waste-to-energy power project; an urgent need of the country at present. The project would be a solution to the current challenges faced in disposing solid waste within the Colombo Municipal Area. Upon completion, the 10MW waste-to-energy plant would be equipped to convert between 600 – 800 metric tonnes of municipal solid waste to electricity on a daily basis.

img-fluid mx-auto d-block Governance and Stewardship

The Group’s governance model provides the framework and processes to support the achievement of our strategic objectives. It encompasses all aspects of our business and ensures the execution of the Group’s strategic objectives effectively and ethically in compliance with applicable legislature in the markets in which we operate.

Fully committed to the highest level of corporate governance, we continue to refine our structures, policies and procedures aimed at strengthening the Group’s governance framework with special emphasis on the adoption of globally accepted best practices in relation to Board leadership and effectiveness.

img-fluid mx-auto d-block Sustainability

We maintain a holistic and long-term perspective in managing our economic, social and environmental impacts, so that we are able to generate value and growth without compromising our ability to do so in the future. The Group’s corporate sustainability strategy, developed in-house, was recognized when the Ceylon Chamber of Commerce conferred the Best Corporate Citizen Sustainability 2017 award to Aitken Spence PLC.

The commitment towards securing the long-term viability, profitability and integrity of the Company will continue to be a constant focus. The technological transformation, changing nature of society and the unprecedented strains on the environment will compel us to relook a

our business models across industries to remain as robust enterprises of the future. We look forward to strengthening our engagement with our stakeholders in ensuring Aitken Spence remains resilient to the demands of the future.

Future Outlook

The economic outlook in the markets in which we operate, remains mixed. However, thanks to its strong fundamentals and solid strategy, the Group has demonstrated time and again the ability to overcome the challenges of a volatile operating environment

Technology has become a business driver as well as a game changer in the market place. With the millennials being technological savvy and the higher interest of customers in online marketing, the Group is aggressively moving towards digital marketing and innovating the service offerings to our customers. The Group has embraced the adoption of these technological advancements to gain the first mover advantage and provide the service requirements of the ever-evolving markets.

As we look to the year ahead and beyond, we have reason to be optimistic. We remain confident in our ability to deliver steady returns for our shareholders by leveraging on the synergies between our businesses and on finding new ways to grow and meet the demands of the market. To capitalize on possible opportunities for growth, we remain open to developing our global operating platform, investing in our brand portfolio and expanding our global footprint particularly in identified high- growth sectors.

To strengthen our franchise as agents of change, we will seek to stay relevant in changing times and thereby contribute meaningfully towards socio-economic progress of the communities and the environment in which we operate

Appreciations

In closing, I wish to thank and remember all past chairmen, past directors and all past employees who contributed invaluably during the last 150 years in making Aitken Spence such a great Company. I thank my colleagues on the Board for their steadfast support, commitment and conscientious stewardship in steering the Group.

The success and growth of a Group such as ours is dependant solely upon the contributions made by each and every employee of the Group. I would like to express my gratitude to all Spensonian employees around the world, whose dedication and passion is both impressive and a great source of strength and competitive advantage to the Group.

My sincere gratitude also to our business partners for the confidence and trust placed in the Group. In conclusion, I wish to thank our customers, shareholders and other stakeholders for their continued patronage. You remain the reason we are driven to innovate, succeed and grow.

Diluted EPS

Rs.14.22

MANAGING DIRECTOR'S REVIEW

J.M.S. Brito

MANAGING DIRECTOR






In our commitment to excellence we look to integrate sustainability into our business strategy and daily operations, which we believe will drive competitiveness and increases the value for all our stakeholders.




In a year which saw the country progressing at a moderate GDP growth of 3.1%, many challenges were faced by the Group due to the slowing down of economic activities and the limited opportunities that were available for growth. Increase in inflation, high interest rates, lower-than-expected tourist arrivals and a weakening currency did not help the growth momentum of the corporate sector.

Notwithstanding the challenges posed by a turbulent operating environment, our prudent and astute strategies continued to hold Aitken Spence in good stead, enabling the Group to achieve a remarkable performance recording its highest ever profit before tax of Rs. 6.4 billion during the year. I am happy to report that the targeted strategy execution along with the pursuit of new opportunities to diversify, expand and innovate, enabled all sectors to meet their growth objectives and build resilience for the future.

A Journey of excellence – 150 years and counting

September 2018 marks the sesquicentennial of the Aitken Spence Group. Founded by two Scotsmen, Thomas Clark and Patrick Gordon Spence, the Group initially ventured into business under the name of “Clark Spence and Company” exporting gems, plumbago, coffee and various other spices and supplying coal for ships and chartered sailing vessels.

The vision of the forefathers has continued to date: fast forward 150 years and our focus and diversification strategy to venture mainly into foreign income generating businesses is showcased in the Group’s

business portfolio. The Group’s prudent investment and growth strategy and commitment to maintain a balanced investment portfolio has certainly been critical to our success. It has given us the ability to develop existing markets and swiftly seize emerging market opportunities, enabling the generation of returns that exceed the expectations of our stakeholders. Testifying to the success of this strategy is the Group’s investments in resorts overseas as well as the port management operations, which continues to yield stronger returns each year.

The Aitken Spence Group has been consistent in delivering on its vision of excellence and I can proudly state that this legendary commitment to excellence is at the core of everything we do, essentially defining who we are and what we stand for. In our commitment to excellence we look to integrate sustainability into our business strategy and daily operations, which we believe will drive competitiveness and increases the value for all our stakeholders. Building on a solid foundation of corporate governance, sustainability principles permeate the decisions and actions we undertake, ensuring our business operates efficiently, and used resources effectively in order to foster and nurture the environments and the societies we operate in.

To generate value and maintain growth momentum in this economic environment the Group focused on consolidating mature businesses, while pursuing a strategy of cautious diversification aimed at minimizing risk and scaling up where appropriate. Further the Group was able to make steady progress in its efforts to become more sustainable, underpinned by technology and innovation-led capacity

improvements, with a renewed emphasis on strengthening partnerships together with targeted investments towards improving people and processes. I believe this guarded yet proactive approach amidst tough operating conditions was instrumental in our ability to deliver on growth targets.

Group Financial Results

For the year under review the Group recorded a revenue of Rs. 52.7 billion which was a year on year growth of 14.9% and an operational profit of Rs 7.1 billion, a growth of 23.0%. This growth in operational profit includes Rs. 307.6 million of the profit on divestment of MPS Hotels (Pvt) Ltd, the owner of the Hilltop Hotel. The operating profit margin growth excluding the above divestment was 2.4%. Growth in the operating profit margin is primarily due to managing operating costs, improving efficiencies through technological innovation and concentrated effort to improve the performance of the loss making segments.

The net financing cost increased by 10.6% due to the increase in borrowings to fund our investments in India and the Maldives. The profit before tax of the Group was Rs. 6.4 billion, the highest achieved in the history of the Group. The profit after tax recorded for the year of Rs. 5.1 billion was also the highest ever achieved by the Group. The profit attributable to our equity holders also showed an impressive growth of 23.2% to Rs. 3.6 billion. The earnings per

managing director

Annual Report 2017-2018 share was Rs.8.77 compared with Rs.7.12 recorded last year.

managing director

The share price of the Company as at 31st March 2018 was Rs.50.60 which is trading at a discount of 54.1% to the net assets value per share of the Company, clearly indicating that the present share price is not reflective of the true value of the Company.

Sector-wise Performance
Tourism

The Tourism sector ended the year with a strong performance, marking higher revenues and profits. Revenues grew by 25.8%, from Rs. 20.5 billion in the previous year to Rs. 25.7 billion in the year under review, while profit before tax increased from Rs. 2.1 billion in 2016/2017 to Rs. 3.1 billion for the current year, denoting a year- on-year increase of 47.0%

In the hotels segment, the local hotels ended the year with a satisfactory performance for the year, with revenues up by 18.9% compared to the previous year. All properties under the Group’s flagship Heritance brand achieved revenue targets, with Kandalama, Tea Factory and Ayurveda Maha Gedara reporting good results despite being affected by a slow start to the year

I am also pleased to observe that despite severe competition facing beach properties Heritance Ahungalla recorded a satisfactory performance, while the newest addition to the portfolio – Heritance Negombo, shows great promise for the future. Meanwhile Turyaa Kalutara and Hotel RIU did not perform as per our expectations

with both resorts reporting an operational loss. The local hotels segment performed better compared to the previous year with a growth in profit before tax of over 400% even with higher finance costs The segment’s bottom line received a boost with the gain of Rs. 307.6 million resulting from the divestiture of Hotel Hilltop, Kandy. The decision to divest the Group’s interests in Hotel Hilltop was a strategic one prompted by the fact that the property’s value proposition had long been an inapt fit for Group’s hotel portfolio. Meanwhile Aitken Spence Hotel Holdings PLC a subsidiary company of the Group increased its stake in Heritance Tea Factory from 87.6% to 94.4% during the year under review

The local hotels segment continues to be plagued with serious challenges; the acute shortage of skilled labour, inadequate destination marketing and poor tourism infrastructure being among the gravest. To address the shortage of labour, the Group’s local hotels segment has already taken action with strategies being implemented to attract more women into the workforce, which I believe will offer a more sustainable solution to the issue

Regrettably however there is only so much that Aitken Spence alone can do to promote Sri Lanka as a travel destination. In fact, for destination marketing to be effective, I believe it needs to be part of a cohesive country strategy to differentiate Sri Lanka’s value proposition from peer offerings. As I have frequently reiterated in the past, I continue to urge the relevant

authorities to take immediate action to promote Sri Lanka as a prime tourist destination that offers exceptional value to travellers. This call to action includes an impassioned plea to strengthen the country’s tourism infrastructure including domestic airports, highways and importantly the protection provided to tourists, which is vital to sustain the country’s tourism industry.

Moving on, I am encouraged to note that despite socio-political concerns, the occupancy levels were higher at all Adaaran resorts in the Maldives and the segment reported a steady performance for the year. Alongside ongoing renovations at a number of Adaaran resorts, it is particularly pleasing to see the steady progress in the construction work on Heritance Aarah – which is scheduled to open in time for the winter season of 2018

Meanwhile our interests in Oman, faced by the economic downturn in the Middle East reported a dip in performance, while in India, Turyaa Chennai reported a resilient performance amidst stiff competition and the ban on the sale of liquor for four and five-star hotel properties, within a periphery of 500 meters from the national and state highway which was applicable for the first six months of the year

Celebrating 40 years in the business, the Group’s destination management segment registered its best-ever performance in 2017/18, enabling the segment to further cement its position as the number one inbound travel operator in Sri Lanka with a market share of 8%. I am particularly pleased to see the phenomenal success of the segments’ charter business, which recommenced in the previous year thanks to the Group’s long-standing ties with TUI, the world’s leading travel operator. In the year under review the partnership was responsible for a total of 38 charter flights, bringing in 8,000 inbound tourist from key European source markets during the winter season The airline GSA, which represents Singapore Airlines (SIA) too registered a strong performance, with passenger load factors reporting an unprecedented increase, prompting SIA to further increase its Colombo daytime frequency from 10 to 11 flights per week by end March 2018. The Sri Lankan airlines GSA operation in the Maldives also performed well despite facing a severe setback following the withdrawal of European flights by the airline.

Maritime and Logistics

Aided by a recovery in the global shipping industry, the performance of the Maritime and Logistics sector registered an improvement. Revenues grew by 6.8% year- on-year from Rs. 8.0 billion in the previous year to Rs. 8.6 billion for the year under review.

Within the sector, the integrated logistics operations experienced mixed fortunes. Directly affected by the weak economic activity in Sri Lanka, the performances of the depot operation and the container freight station came under pressure while the transport segment managed to overcome the stiff competition to deliver an improved performance. The special operations segment tabled an exceptional performance for the year

under review, by capitalizing on the current infrastructure boom in the country. Notable improvements in performance were also reported by the distribution services and the mobile storage solutions segments

managing director

The maritime segment reported a solid performance supported by the port management operation in Fiji, where the Group manages the Port of Suva in South Eastern Fiji and Port of Lautoka in the North-Western Coast of Fiji

Another key part of the maritime segment,

the shipping agency operation too registered a notable turnaround in performance. After facing the full force of the global shipping industry slowdown in 2016, the agency business benefited from a strong increase in imports and transshipment volumes following greater stability seen in the shipping industry in

managing director

2017. I am happy to acknowledge that the joint venture partnership with Hapag Lloyd as well as strong ties with other leading international cargo carriers contributed significantly towards this increase

In the freight segment, while the cargo airline GSA’s in Colombo, Maldives and Bangladesh performed exceptionally well, the results of the segment were negatively impacted due to the steps taken to rescale the brokerage and express businesses

The brokerage business faced challenges in maintaining margins due to low cost operators penetrating the market, while the express business experienced a substantial drop in volumes both locally and in the Maldives due to change of networks and the dynamics of the new service model, which resulted in a loss in import volumes mainly from Europe.

Strategic Investments Secto

The strategic investments sector reported a strong performance bolstered by healthy contributions from the power generation and the plantations segments.

The sector’s revenue increased to Rs. 16.8 billion in 2017/18, up 4.7% from Rs. 16.0 billion in 2016/17, while profit before tax grew by 14.9% from Rs. 1.1 billion in the previous year to Rs. 1.3 billion for the year under review.

The largest contributor to the top line, the power generation segment reported an encouraging performance mainly due

to the renewal of the Power Purchase Agreement (PPA) for the Embilipitiya thermal power plant for the second consecutive year. The year also saw the power generation segment enter into a landmark waste supply agreement with the Colombo Municipal Council and a PPA with the Ceylon Electricity Board to begin work on a waste-to-energy project, a compelling requirement to the country at present. This ambitious Rs. 13 billion undertaking, would see the construction of a 10MW waste- to-energy plant in Muthurajawela which upon completion, would be equipped to convert on a daily basis between 600 – 800 metric tonnes of municipal solid waste to electricity, which I expect would greatly relieve the Colombo City of its waste disposal burden

The plantations segment too increased its contribution to the sector, as better prospects for Ceylon tea and the strong demand for oil palm helped revive the segments fortunes. The segments’ rubber division however remained under stress amidst challenging times in global rubber markets. The energy division received a boost following the launch of the Governments’ campaign to promote solar energy under the Surya Bala Sangramaya, programme aimed at adding 100 MW of solar power capacity to the national grid. Swift action to capitalize on the move saw the plantation segment complete two large-scale rooftop solar projects, with many more in the pipeline

Disappointingly, the printing segment had a decline in profits for the first time in many years as a number of its

key markets were affected due to the slow growth in the economy. The apparel manufacturing segment, while showing significant improvement in performance over the previous year was able to record only a marginal operational profit.

Services Sector

The Services sector reported an improved performance compared to the previous year, with the revenue growing by 18.2% from Rs. 1.4 billion in the previous year to Rs. 1.6 billion while profit before tax increased to Rs. 233.4 million in the current financial year up by 18.9% from Rs. 196.3 million recorded in the previous financial year.

I am pleased with the long-standing partnership with Lloyds of London which continues to yield good results for the insurance segment. Further, I welcome the segments’ new partnership with Websters International, which came into effect from 1st April 2018

The elevators segment too reached an important milestone in the current financial year by recording the highest-ever number of confirmed orders for OTIS elevators in a year, which I believe stems from the ongoing construction boom in the country.

Sustainability

We remain committed to uphold the core values of the United Nations Global Compact and to work towards sustaining ong term viability, profitability and integrity of our Companies. As part of our broader sustainability vision, Aitken Spence PLC embraced the United Nations Sustainable Development Goals (SDG) approved by the UN in September 2015. We have since been working to enhance the Group’s commitment to certain key goals, setting targets with the aim of contributing towards the achievement of the 2030 SDG targets

In striving to achieve competitive leadership vis-à-vis a strong emphasis on technology-led innovation and best practices to fuel downstream operational efficiencies, we are seeking to emphasize our commitment to Goal 9 – Industry, innovation & infrastructure.

Demonstrating the commitment to Goal 8 – Decent work & economic growth Aitken Spence PLC., continues to invest in recruiting, retaining and developing the best talent needed to take our business forward. Attractive remuneration, continuous training and clear opportunities for career growth are fundamental pillars of our employment proposition and each year we commit considerable resources to enhance these core areas for the benefit of our people. In the year under review, we took steps to reinforce the Group’s leadership pipeline through the launch of a specially designed coaching and mentoring programme entitled “Leadership Journey at Aitken Spence” to groom the second tier of leaders for all sectors of the Group.

managing director

Meanwhile in businesses where we are faced with acute labour shortages, such as in the local hotels, apparel manufacturing and specialised logistics transport segments, we have begun rolling out new initiatives to recruit the necessary cadre. For example in the local hotels segment, we are making a concerted effort to attract more females into the workforce starting with Heritance Kandalama, where the construction work on a dedicated female housing facility was initiated recently. This is also seen as a significant step forward in supporting the United Nation’s Women’s Empowerment to which Aitken Spence PLC., became one of the first signatories.

As a responsible corporate citizen, we lead the way in addressing such issues as clean water and a quality education for our communities. Emphasizing our commitment to Goal 6 – Clean water & sanitation, effluents generated at all hotel properties, the printing facility, and the power plants are channelled to effluent treatment units, while the commitment to Goal 4 – Quality education, is strengthened by the Group’s efforts to create new avenues for employment through education on specific skills in diverse industries (e.g. maritime skills and hospitality)

Looking Ahead

I welcome the policy changes brought in through the new Foreign Exchange Act which has liberalized the capital inflows and outflows and simplified the processes associated with current account transactions. Whilst the new Act has streamlined the procedures to be adopted in making investments overseas it is also hoped that certain provisions in it would be modified to provide more flexibility in granting approvals required by Sri Lankan corporates for their overseas investments.

I also fully support the modernization of the tax system in the country with introduction of the revenue administration and management information system and the implementation of the new Inland Revenue Act, a long felt need of this country. However, I am concerned with regard to certain provisions of the Inland Revenue Act which are not conducive for business in Sri Lanka. Particularly with regard to the differential treatment in the imposition of tax on the gains on the disposal of immovable property used in the business. Further more the subjective aspect of identifying businesses entitled to the concessionary tax rate could create an unfair advantage to some companies as well as complexities to corporates as well as to the revenue authorities.

Moving forward, we have set ourselves ambitious growth targets despite the uncertain outlook in major markets and the sluggish economy. I am convinced that the Group has the resilience and the capability to accelerate its growth trajectory even amidst headwinds by drawing on our innate domain expertise and business acumen. In doing so we will look for long term growth opportunities by focusing on sectors and markets where we see ourselves having a distinctive role, now and in the future. We will continue the strategy of expanding in domestic and offshore markets through enabling partnerships and improving competitiveness by making consistent investments in technology, people and processes.

Appreciations

I wish to thank the Chairman and my fellow Directors on the Board for their unstinted support and wise counsel extended to me at all times. My grateful thanks also to all Spensonians around the world whose dedication and passion towards our business is an immense source of strength that sets Aitken Spence PLC., apart

I take this opportunity to thank Dr. Parakrama Dissanayake, who relinquished his duties as a Group Director with effect from June 2017, to take up duties as the Chairman of the Sri Lanka Ports Authority. Dr. Dissanayake, having served the Group in various capacities has been an invaluable asset and is credited with the transformation of the Group’s Maritime and Logistics sector to what it is today. I also wish to thank Mr. Keethi Jayaweera, head of GSA operations of Singapore Airlines who retired after serving almost 40 years in the Group. I wish them both well in their future endeavours.

I wish to thank all Spensonians whose expertise and professionalism contributed to the performance of the Group and will no doubt drive their respective businesses to new heights in the coming years.

In conclusion, I wish to thank all our shareholders; you remain the reason we are driven to succeed and grow.

managing director

Diluted EPS

Rs.14.22

THE
AITKEN SPENCE
STORY



OUR LEADERSHIP
TEAM


Board of Directors

Mr. D.H.S. Jayawardena
Chairman
Mr. J.M.S. Brito
Deputy Chairman & Managing Director
Dr. R.M. Fernando
Executive Director
Ms. D.S.T. Jayawardena
Executive Director
Mr. G.C. Wickremasinghe
Independent Non-Executive Director
Mr. C.H. Gomez
Independent Non-Executive Director
Mr. N.J. De Silva Deva Aditya
Non-Executive Director
Mr. R.N. Asirwatham
Independent Non-Executive Director

Group Supervisory Board

Mr. J.M.S. Brito
Dr. R.M. Fernando
Ms. D.S.T. Jayawardena
Ms. N. Sivapragasam
Mr. R.G. Pandithakorralage

Board of Management

All members of the Group Supervisory Board are members of the Board of Management
Ms. N.W. De A. Guneratne
Mr. C.M.S. Jayawickrama
Mr. D.S. Mendis
Mr. P. Karunathilake
Mr. L. Wickremarachchi
Mr. N.A.N. Jayasundera
Mr. D.T.R. De Silva
Mr. S.K.R.B. Jayaweera
Resigned w.e.f. 31.03.2018
Mr. I.S. Cuttilan
Mr. A.J. Gunawardena
Mr. S. Mariappan
Mr. J.E. Brohier
Mr. C. Gunawardana

SENIOR MANAGEMENT COMMITTEE

Tourism Sector
Mr. S.N. De Silva
Chief Executive Officer - Oman Hotels Segment
Mr. C.C.S. Dissanayake
Assistant Vice President Maldives Resorts Segment
Mr. D.G.P. Ekanayake
Assistant Vice President - Sri Lankan Hotels Segment
Mr. S.T.B. Ellepola
Chief Operating Officer - Destination Management Segment
Mr. G.P.J. Goonewardene
Non-Executive Director - Hotel Segment
Mr. M.D.B.J. Gunatilake
Chief Operating Officer - Maldives Resorts Segment
Mr. A.S. Hapugoda
Assistant Vice President - Destination Management Segment
Mr. P.L. Perera
Vice President - Destination Management Segment
Mr. A.R.D. Raj
Assistant Vice President - Indian Hotels Segment
Mr. R.S. Rajaratne
Vice President - Hotels Segment
Mr. R.S. Ratnayake
Assistant Vice President - Destination Management Segment
Mr. H.P.N. Rodrigo
Vice President - Destination Management Segment
Mr. B. Van Der Horst
Vice President - Hotels Segment
Mr. D.L. Warawita
Assistant Vice President - Destination Management Segment
Mr. J.C. Weerakone
Vice President - Sri Lankan Hotels Segment
Ms. I. Wijegunawardane
Assistant Vice President - Hotels Segment
Mr. M.P. Wijesekera
Chief Operating Officer - Overseas Hotels Segment

SENIOR MANAGEMENT COMMITTEE

MARITIME AND LOGISTICS SECTOR
Mr. C.A.S. Anthony
Assistant Vice President - Integrated Logistics Segment
Ms. T.D.M.N. Anthony
Assistant Vice President - Freight Segment
Mr. M. Balasooriya
Assistant Vice President - Freight Segment
Mr. H. Dela Bandara
Assistant Vice President - Maritime Segment
Mr. M.A.M. Isfahan
Assistant Vice President - Freight & Integrated Logistics Segment
Mr. A. Jayasekera
Assistant Vice President - Maritime Segment
Mr. C.J. Jirasinha
Assistant Vice President - Freight Segment
Mr. L.I. Witanachchi
Assistant Vice President - Maritime Segment

SENIOR MANAGEMENT COMMITTEE

STRATEGIC INVESTMENT SECTOR
In alphabetical order
Mr. A. Bakeer Markar
Assistant Vice President - Corporate Services
Mr. M.S. Buhar
Assistant Vice President - Corporate Services
Mr. B. Bulumulla
Chief Executive Officer - Plantations Segment
Mr. A.L.W. Goonewardena
Director - Plantations Segment
Ms. R.I.D. Katipearachchi
Vice President - Corporate Services
Mr. R.T.B. Navaratne
Assistant Vice President - Printing and Packaging Segment
Ms. R.D. Nicholas
Assistant Vice President - Corporate Services
Mr. V.S. Premawardhana
Assistant Vice President - Corporate Services
Mr. H.K.A. Rathnaweera
Assistant Vice President - Corporate Services
Ms. W.A.D.L. Silva
Assistant Vice President - Corporate Services

SENIOR MANAGEMENT COMMITTEE

SERVICES SECTOR
In alphabetical order
Mr. J.V.A. Corera
Assistant Vice President - MMBL Money Transfer
Mr. S.D. De Silva
Assistant Vice President - MMBL Money Transfer
Mr. A.N. Seneviratne
Assistant Vice President - Insurance Segment

PRIORITIES FOR
OPERATIONAL SUSTAINABILITY


A specific topic or sustainability issue is deemed to be ‘material’ when its potential impact on the long- term viability, profitability and integrity of the Group becomes sufficiently significant that it warrants proactive action in order to limit or mitigate the adverse outcome. Read more about the Aitken Spence method to identify material topics for social and environmental impact control.

Key stakeholders contribute towards the sustainability of the Group by communicating on issues and concerns that can potentially affect our ability to sustain the financial, social and environmental performance in line with our values and priorities. Read about our stakeholder engagement practices here.




Materiality Assessment
Stakeholder Engagement
Supply Chain
Our Approach to Sustainable Wealth Creation
Our location in Sri Lanka -
Strategic Investments Sector
Our locations Maldives -
Tourism Sector, Maalhosmdulu Atoll
Our locations Maldives -
Tourism Sector, Kaafu Atoll
Our location in Sri Lanka - Tourism Sector
Integrated Policy (Sinhala)
Integrated Policy (English)
Integrated Policy (Tamil)

OUR PERFORMANCE
OVER THE YEAR


FINANCIAL CAPITAL REVIEW

 

OVERVIEW

One of the strategic strengths of Aitken Spence is the depth of the financial capital available to the Group and the acumen the Group possesses for the professional management of this resource. The Financial Capital Review details the structure of the financial capital of the Group, its management, the key outcomes and its movement as a result of the operations during the year.


 
 

FINANCIAL CAPITAL PHILOSOPHY

Effective and efficient management of the financial resources, leveraging on the best mix between debt and equity for future growth and expansion to ensure consistent positive economic value creation for all stakeholders.


 
KEY INPUTS 2017/2018 2016/2017
Total equity (Rs. Mn) 56,284.7 50,793.4
Net working capital (Rs. Mn) 5,814.8 6,736.3
Capital expenditure on property, plant and equipment (Rs. Mn) 7,237.0 5,843.7
Non-current interest bearing liabilities (Rs. Mn) 19,683.4 17,191.0
Current portion of interest bearing liabilities (Rs. Mn) 5,780.9 4,829.7
Bank overdrafts and other short term borrowings (Rs. Mn) 9,157.5 8,427.3
Cash & short-term deposits (Rs. Mn) 9,636.4 6,032.6

 
KEY OUTCOMES 2017/2018 2016/2017
Profit from operations (Rs. Mn) 5,757.6 5,757.6
Cash generated from operating activities (Rs. Mn) 15.8 15.8
Employee costs (Rs. Mn) 8,044.4 7,474.2
Net finance expense (Rs. Mn) 895.1 895.1
Net finance expense (Rs. Mn) 3,560.3 2,890.0
Total dividends (Rs. Mn) 812.0 716.0
Return on equity (%) 8.6 7.6
Market capitalisation (Rs. Mn) 20,543.4 22,817.0

 
OPERATING PROFIT MARGIN (%) 2017/2018 2016/2017
13.4% 12.5%
14.8% 13.4%
17.0% 18.3%
9.3% 8.2%
15.7% 17.5%
HUMAN CAPITAL REPORT

 

OVERVIEW

Providing direct income to approximately more than 13,500 families within four of the country’s foremost industry sectors (Tourism, Maritime and Logistics, Services and Strategic Investments), our Human Capital is one of the main building blocks of the Group’s foundation.


 
 
Total Workforce
13,533


Male
7,957
mx-auto d-block

Female
5,576

 
TOTAL EMPLOYEE BREAKDOWN ON GENDER AND EMPLOYMENT
Employee Breakdown

 
EMPLOYEE DISTRIBUTION IN LOCATIONS

  EMPLOYEE DISTRIBUTION IN LOCATIONS

 
EMPLOYEE DISTRIBUTION IN LOCATIONS

  EMPLOYEE DISTRIBUTION IN LOCATIONS
 
SOCIAL & RELATIONSHIP CAPITAL

 

OVERVIEW

Social and relationship capital is an essential asset for any organisation: Our ability to maintain long term viability, profitability and integrity of the organisation is dependent on our ability to foster strong, sustainable relationships with our stakeholders.


OUR PHILOSOPHY

Our vision to achieve excellence in all our activities, establish high growth businesses in Sri Lanka and across new frontiers, and become a globally competitive market leader in the region, is strengthened by the social and relationship capital of Aitken Spence PLC. Our focus is on;

  • Building long term relationships with stakeholders that sustain our business
  • Creating shared value for sustainable socioeconomic development through our social and relationship capital
  • Working with our stakeholders to ensure sustainable product and service quality through social governance and compliance with international benchmarks

Our ethos over generations has not changed. We are driven by the same values and guiding principles. Our focus and value proposition to our key stakeholder have not changed; reliability, stability, and strength in our diversity.


 

 

All members of the Group Supervisory Board are members of the Board of Management.

9000+

Network of direct suppliers and service providers
Image

Over 200

international tour operators represented in Sri Lanka
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Part of the World’s largest destination management company through our partnership with TUI
Image
1st Sri Lankan resort operator to engage with a global hotel chain to introduce all-inclusive hotel experience to Sri Lanka 1st Sri Lankan company to enter into a Public Private Partnership overseas with our partnership with the Fiji Ports Corporation
Image
Relationship with Singapore International Airlines spanning over 4 decades. Longest standing General Service Agents (GSAs) of Singapore International Airlines within all GSAs of SIA.

2000+

sub-agent network over locations countrywide, including banks, financial institutions and retail outlets offering Western Union Money Transfer services in Sri Lanka

Over 140 Years

(since 1876) As survey and claim settling agents for Lloyd’s of London, covering the commercial ports in Sri Lanka and the Republic of Maldives
Image
Signatory to the UN Global Compact and members of the Local Network Sri Lanka and the Steering Committee since its inception. Being members of the Board of UNGC Local Network Sri Lanka, Dr. Rohan Fernando held the position of Chairman of the Board through the 2017/18 financial year.
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Joint venture with Mercantile Merchant Bank, Sri Lanka to offer Western Union Money Transfer services in Sri Lanka
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One of the first corporates in the world to become signatory to the Women’s Empowerment Principles (UN Women)
NATURAL CAPITAL

 

OVERVIEW

Natural capital is a vital asset to any organization;

  • Any organization is inherently dependent on many ecosystem services as well as the opportunities stemming from the biodiversity and the natural environment. These opportunities make our operations possible
  • In addition to the more evident ecosystem services, the less visible services such as climate regulation, providing natural defence against events such as floods and landslides as well as providing carbon sinks through forests and other natural environs enable a sustainable environment in which businesses can thrive
  • There are many environment related risks that may arise. As such, there is need for businesses to identify its impacts and manage these risks and opportunities that could arise from our response to those risks
  • The cost of neglecting natural capital can result in loss of biodiversity, possible declining human ecosystem productivity and resilience over time, and could subject regions to adverse weather conditions such as floods and droughts which can in turn have drastic impacts on how we do business.

Our ethos over generations has not changed. We are driven by the same values and guiding principles. Our focus and value proposition to our key stakeholder have not changed; reliability, stability, and strength in our diversity.

OUR PHILOSOPHY

Adopting the precautionary approach, the Group’s ethos is to proactively identify potential adverse environmental impacts and establish control measures through ‘Environmental Management Systems (EMS)’. Our purpose is to identify and reduce environmental risk and to enhance positive impact directly within our operational scope and our extended sphere of influence.

OVERVIEW

The stock of natural capital and ecosystem services that sustain our businesses include;

  • Energy
  • Water
  • Crops and forest cover
  • Natural environment and biodiversity
BREAKDOWN OF THE WATER CONSUMPTION WITHIN THE OPERATION

12.14% Municipal Water 17.74% Ground Water 70.08% Surface Water 0.04% Harvested Rainwater

51.8%

1.5%

44.9%

1.8%

Total energy consumed within the organisation

689,807 GJ

50%

16%

32%

2%

Scope 1 Emissions

370,126 tCO 2

Green House Gas emissions from direct energy consumed

5%

2%

93%

Negligible

Scope 2 Emissions

29,125 tCO 2

Green House Gas emissions from direct energy consumed

62%

10%

21%

6%

Breakdown of Total Renewable Energy Generated

243,286 GJ

Green House Gas emissions from direct energy consumed

4.1%

0.3%

95.6%

-

MANUFACTURED CAPITAL REPORT

 

OVERVIEW

The Group’s Manufactured Capital consists of the physical assets that enable each of the diverse businesses to create value for their respective stakeholders. Manufactured capital plays a vital role in many of the Group’s businesses, namely hotels, printing and packaging, logistics and warehousing, port management, apparel manufacture, plantations and power generation. Comparatively the significance of Manufactured capital is less in service-related businesses such as destination management, airline GSA, freight forwarding, elevators, insurance and money transfer.

GROUP MANUFACTURED CAPITAL PHILOSOPHY

Develop a high-quality asset base that would provide a distinctive competitive advantage, which would in turn secure the long-term growth prospects of the Group and to ensure that all assets are maintained at optimal levels always to eliminate downtime or re -work.

KEY COMPONENTS AS AT
31st MARCH 2018
RS.'000
ADDITIONS DURING
THE YEAR
RS.'000
Hotels 41,504,626 5,469,601
Printing and Packaging 1,232,747 36,776
Logistics 4,525,075 145,851
Port Operations and Management 496,454 58,531
Power Generation 3,849,710 1,561,774
Apparel Manufacture 366,472 14,119
Plantations 828,626 110,020
Other 7,223,701 241,272
Our Manufactured Capital Portfolio
The largest hotel room inventory owned by a Sri Lankan resort company
316 Fleet of transport vehicles used in business
Warehouse capacity of 320,977 sqft
Power plants (renewable/ non-renewable)
Manufacturing facilities
Office space of 195,784 sqft in the heart of Colombo’s business hub
Technology and equipment
Green architecture and infrastructure
HOW WE HAVE MADE A MARK IN THE INDUSTRIES WE OPERATE IN THROUGH MANUFACTURED CAPITAL
1st LEED certified building outside USA and the 1st hotel to obtain the certification
Heritance Hotels was the 1st resort chain to obtain the ISO 50001:2011 certification for energy management
1st Carbon neutral, LEED Gold certified printing facility in South Asia
Strategically positioned infrastructure to enhance our value addition to the economy
INTELLECTUAL CAPITAL

 

OVERVIEW

Intellectual capital is a collective outcome of our other capitals such as manufactured capital, social and relationship capital, natural capital, financial capital, and human capital. These capitals are mutually inclusive in contributing towards our intellectual capital and thereby strategically enhances its intangible value across the Company.

GROUP MANUFACTURED CAPITAL PHILOSOPHY

To invest in our intellectual capital as it not only gives us a competitive edge but helps us strive to assimilate an integrated thinking into every level of the business by making it an integral part of our strategy. Our intellectual capital is derived from our other capitals as shown below.


Approximated significance of material topics with the potential to contribute to the intellectual capital of Aitken Spence

Material Topics (As per GRI)
Economic value creation
Environment
Social Standards

 
High significance. Considered a priority for action

Medium significance. Adequate action is required to control potential impacts

Low significance. Adequate measures are in place or the impact is outside our control

 

TOURISM


SECTOR REVIEW
TOURISM

Overview

The Tourism sector consists of three complementary businesses; hotels, destination management and the airline General Sales Agency (GSA). Under the hotels segment, the Group owns and manages a portfolio of world-renowned, iconic properties in Sri Lanka and the Maldives and is also the only company in Sri Lanka to own and operate hotels in both India and Oman.

The Sri Lankan hotel cluster comprises of a diverse range of properties under the Group’s flagship brand – ‘Heritance’. The legendary Heritance Kandalama, a 152 -room luxury resort is located in the heart of Sri Lanka’s cultural triangle. World renowned for its unique concept and green building design, Heritance Kandalama was the first hotel in the world and the first property outside USA to receive the acclaimed LEED certification.

Other Heritance properties include, the Heritance Tea Factory in the cool climes of Nuwara Eliya, Heritance Ahungalla on the sandy beaches of the southern coast, Heritance Ayurveda Maha Gedara – a veritable oasis of healing and the latest addition; Heritance Negombo – a 139- room cosmopolitan offering located in close proximity to the airport. In addition to the premier Heritance brand, the Sri Lankan hotel portfolio also consists of Turyaa Kalutara, a mainstream beach offering closer to Colombo and also includes the 501-room Hotel RIU - Ahungalla, the only international club concept proposition currently available in Sri Lanka.

The Group’s overseas Hotels segment consists of interests in the Maldives, India and Oman. In the Maldives, the Group owns the Adaaran chain of resorts, and has the accreditation of being the first Sri Lankan company to invest in a resort in the Maldives. The Maldives portfolio includes the 202-room Adaaran Select Hudhuranfushi, 130-room Adaaran Club Rannalhi, the 238-room Adaaran Select Meedhupparu and the 50-room Adaaran Prestige Vadoo.

Expanding the Group’s investments overseas, in 2015 the Group launched Turyaa Chennai, its first property owned in the Indian sub-continent. Turyaa Chennai is a fully-fledged 140-room city hotel located along Chennai’s thriving IT corridor. In 2016 the Group acquired Al Falaj Hotel in Oman, a 150-room four-star property which had been under the management of the Group.

The Group’s hotel management arm specializes in the management of hotels and resort properties. Backed by many years of expertise, the hotel management unit operates through a multi-country management model and currently manages a portfolio of 20 properties, in the four destinations it operates. Although the Group does not have a stake in few of the hotels under its management, the owners have consistently renewed the management contracts for each property, further testifying to the capability of the hotel management division.

Both the destination management and airline GSA segments are operated through highly successful long-standing partnerships with leading international partners. The destination management segment is operated as a joint venture with TUI, the largest integrated travel company in the world. In operation for the past forty years, today the travel business is ranked as Sri Lanka’s No.1 inbound travel operator.

The other business under the Tourism umbrella is the General Sales Agency (GSA) for Singapore Airlines (SIA). Having maintained the partnership for over forty years, the Group holds the global record for the longest serving SIA agency to date.

The segment is also the General Sales Agent for Sri Lankan Airlines in the Maldives.

PESTEL (Political, Economic, Social, Technological, Environmental, Legal) Analysis

KEY CONCERNS
Political >>

Political stability in Sri Lanka, Maldives, Oman and India. Tourism destinations need to be free of any political unrest to foster the safe environment required for the growth of the industry.

Economic >>

Changes in the global economy has a significant impact on the industry as this directly impacts the disposable income of the prospective tourist.

Social >>

Consumer preference in lodging has taken a shift with more clientele favouring a local experience. This has seen an increase of private accommodations. The rise of Air BnB and similar sites are a challenge for the formal sector.

Technological >>

The technological advancements have become the biggest influencer in changing the way the industry operates in terms of marketing, hotel and airline bookings etc. Cloud technology and Internet of things will be the way forward for the industry.

Environmental >>

Sustainable tourism is a key concern. The focus has now shifted to eco-tourism with priority on ensuring minimum negative impact to the environment the industry operates in.

Legal >>

Effective legislation with regard to the tourism industry is essential for the regularization of the industry and the creation of a level playing field for all operators.


 
SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis

 
Operating Context

Global tourism industry recorded an impressive year – posting the best results since 2010 - as international tourist arrivals grew by a record 7% compared to a trend of around 4% during the last seven years. The latest World Tourism Organisation (UNWTO) World Tourism Barometer credits the growth in international travel to the ongoing recovery of the global economy, notably the Western economies that are emerging from recession, while the strong demand from emerging Asian markets supports growth from the region. While most popular destinations had strong growth this year, it was also noteworthy that several new destinations attracted the keen interest of visitors.

Mediterranean destinations led the growth; Europe showcased exceptional results with an 8% growth year on year. Africa rebounded posting an 8% growth over 2016 while Asia and the Pacific regions grew by 6%, the Middle East by 5% and the Americas by 3%. UNWTO statistics for the Asia Pacific Region indicate that South Asia returned the strongest performance reporting a 10% growth in arrivals. South- East Asia and Oceania recorded increases of 8% and 7% respectively while North-East Asia reported 3% growth.

Operating Context

The sector recorded a remarkable performance playing an important role in the overall profitability of the Group for the financial year 2017/2018. Contributing Rs. 26.1 billion to the Group revenue, and Rs. 3.1 billion to Group profit before tax, the sector was the highest profit generator to the Group contributing 48.9% of its profit before tax. Over the years, the Group’s footprint in tourism has expanded significantly both in Sri Lanka and overseas, accounting for 59.4% of the Group’s asset base.

Collectively, the sector directly employs over 3,700 people, while providing thousands more indirect employment opportunities in areas where the Group is present.



 
Select a Chart
Performance Highlights

HOTELS


Financial year 2017/2018 was a record breaking year for Heritance Tea Factory with the property recording a revenue increase of 11.5% and its highest ever net profit before tax which was an increase of 22.5%.

Sri Lanka
Overview

Sri Lanka’s performance however was in stark contrast to the South Asian Region, as the country recorded an unimpressive 3.2% year-on-year growth from 2,050,832 visitors in 2016 to 2,116,407 in 2017. This was the slowest growth reported by Sri Lanka since the end of the war in 2009. India, China, UK, Germany and France accounting for 51.2% of arrivals for the year, were the top five source markets for 2017.

A further analysis reveals that the demand from key source markets, China and Germany, witnessed a sharp drop in the crucial June – September summer season following the negative travel advisories issued in the wake of floods and the threat of Dengue. The decision of the national carrier, Sri Lankan Airlines, to withdraw direct flights from key European destinations

also proved to be a severe blow in attracting conventional travellers from traditional source markets in Europe, especially Germany, which has long since been a captive market for Sri Lanka.

Meanwhile stymied by the absence of a cohesive destination marketing strategy to promote the country, Sri Lanka’s tourism industry continued to face the arduous task of penetrating new source markets. Further, the lack of commitment shown by the authorities to develop the country’s tourism infrastructure placed the country at a disadvantage compared to other regional players whose continuous and ongoing development programmes give them an edge in the global market.

Business Review
Performance

The decline in tourist arrivals during the period June to September 2017 resulted in the segment returning a lacklustre performance for most part of the year until the fourth quarter. However, with the final quarter of the year recording a massive rebound in arrivals the segment was able to catch up the deficit accumulated during the first three quarters. The round-trip properties; Heritance Kandalama, and Heritance Tea Factory in particular benefited from the surge in the arrivals in the fourth quarter of the year. During the year, the Group divested its entire stake in Hotel Hill Top Kandy at a profit of Rs. 307.6 million.

The revenue of the segment increased by 18.9% over the previous year; a creditable performance in comparison to the subdued arrivals growth to the country. Overall the Group occupancy grew from 68% to 70% whilst the average room rates also recording a marginal growth.

The operational profits of the segment increased by 37.5%, while the increase in profit before tax was 201.4% excluding the profit from the sale of Hotel Hill Top Kandy, as a result of significant contributions from Heritance Kandalama, Heritance Tea Factory and Heritance Ayurveda Maha Gedara. The segment’s flagship property – Heritance Kandalama despite being challenged by the ever-increasing number of new properties emerging in the area, continued to perform well and retained its position as the top contributor among the sector’s premium brands.

Retaining their status as niche offerings, both Heritance Tea Factory and Heritance Ayurveda Maha Gedara did well to register improved year-on-year results. Financial year 2017/2018 was a record breaking year for Heritance Tea Factory with the property recording a revenue increase of 11.5% and its highest ever net profit before tax which was an increase of 22.5%. The strategy of differentiating the product offerings and managing yield through targeted marketing strategies were the main factors for the performance. Heritance Ayurveda Maha Gedara also had an impressive year with a revenue growth of 7.8% and a profit before tax growth of 28.2%.

Heritance Ahungalla embarked on a successful re-pricing strategy to attract a higher number of travellers in the face of increased room inventory in the industry as a result of large international hotel chains entering the coastal market. This flagship property recorded a significant improvement in performance leading to a turnaround in operating results from a deficit in the previous year to a profit in the year under review. Turyaa Kalutara, the mid-range offering of the segment, faced the full force of the price war among properties on the southern coastal belt and as a result performed below expectations. Hotel RIU the 501-room hotel property at Ahungalla, following a difficult period for the first 9 months of the year, recovered somewhat during the final quarter of the financial year. As a result, the property recording a revenue lower than projected coupled with the high depreciation charge on the capital investment and the interest cost incurred on loans obtained for construction resulted in a net loss position during the year.

Heritance Negombo, the newest addition to the premium basket remains popular among high-end travellers. Now in its second year of operation, the property performed exceedingly well in the year under review with a significant increase in operational profits compared to the previous year with the revenue per available room increasing by 61.1%. However, the property reported a net loss mainly due to the high interest cost on loans obtained for the construction of the property.

The property in the east coast; Amethyst Resort in Passikudah, continued to struggle as did most hotels in the area. The delays in improving accessibility and tourism infrastructure in the area by the Government is the main challenge along with a relatively short season during the year.

Strategy

Being the largest resort operator in Sri Lanka, the segment has a distinct advantage over many other resorts in the island, owing to its ability to cross-sell the entire portfolio by leveraging on the demand for iconic properties under the premium Heritance brand.

Given the increasing competition from international hotel chains along the southern coastal belt and for Heritance Kandalama from mushrooming properties springing up in the cultural triangle the segment is exploring opportunities at widening its reach across key source markets.

Hence the focus has now shifted towards enhancing the brand exposure through a fresh and cohesive strategy aimed at reinforcing the Heritance brand as a leading Sri Lankan hotel chain. In this context the emphasis was on deepening the penetration into the segment’s traditional market strongholds in Europe and exploring new non-traditional markets. Shifting the focus from traditional sales channels also saw a stronger commitment to leverage on technology and online marketing platforms in order to tap into a broader cross section of the travel market. The move is also part of a broader yield management strategy aimed at realigning the product mix between the fixed rate model and the variable rate offering in order to optimize yields. Going hand-in-hand with these measures, much emphasis was placed on quality of the Food and Beverage (F&B) proposition, guest services and technology-based efficiency improvements at all properties. Ongoing improvements to F&B offerings saw a number of changes being brought model and the variable rate offering in order to optimize yields.

Going hand-in-hand with these measures, much emphasis was placed on quality of the Food and Beverage (F&B) proposition, guest services and technology-based efficiency improvements at all properties. Ongoing improvements to F&B offerings saw a number of changes being brought in at most of the hotels while renewed focus on training and development activities saw a significant investment to raise the standard of guest servicing at all properties. Other notable developments included the commissioning of a 150-kW capacity solar power generation facility at Turyaa Kalutara in July 2017, while work also began on the construction of a fully equipped staff housing complex specifically for the female staff of Heritance Kandalama.

Heritance Negombo, the newest addition to the premium basket remains popular among high-end travellers. Now in its second year of operation, the property performed exceedingly well in the year under review with a significant increase in operational profits

Outlook

Current indications suggest that Sri Lanka’s tourism industry appears to be on track to deliver much improved results in the foreseeable future. However, for these signs to fully materialize as expected, it is imperative that urgent action be taken to address the underlying systemic issues that hinder the progress of the tourism industry. Crucially, the country’s socio-political environment needs to be stable and more importantly safe for tourists. The recent civil unrest in Kandy and the sporadic incidents of harassment of tourists on the beaches of the South Coast are good examples of how socio-political issues are dampening the growth potential for Sri Lanka tourism. Nonetheless tourism authorities are predicting double-digit growth for the year ahead.

From a business perspective, the focus for the Group’s local hotel segment would be centred on further consolidating the performance of the newer properties, while the goal for the mature offerings would be to strengthen the differentiating factors that would enable each property to continue to stay ahead of their immediate competition in all aspects of the business.


TRAVELS


Aitken Spence Travels (Pvt) Ltd reiterated its undisputed market leadership position in the inbound travel business in Sri Lanka by facilitating over 178,000 visitor arrivals to the country. This is the highest number of visitors facilitated by a Sri Lankan destination management company in a given year to-date.




Business Review
Performance

In a fitting tribute to commemorate its 40th year, the Group’s inbound travels segment registered its best-ever performance with all KPI’s reporting robust year-on-year increases. Aitken Spence Travels (Pvt) Ltd (ASTL) reiterated its undisputed market leadership position in the inbound travel business in Sri Lanka by facilitating over 178,000 visitor arrivals to the country, surpassing the previous years’ record of 153,000 visitors. This is the highest number of visitors facilitated by a Sri Lankan destination management company in a given year to-date. As a result of this healthy increase in volumes, revenue and profits for 2017/18 grew by 7.5% and 19.3% respectively over the figures reported in 2016/17. Meanwhile, the market share of ASTL taken as a percentage of tourist arrivals to the country rose from 7.4% in the previous year to 8.0% in the year under review.

Destination management companies/ tour operator channels contributed to the majority of the business and the increase in online bookings was also strengthened. However, testifying to the growing popularity of online tour operators and bed banks, a sharp increase in online volumes was seen in the year under review. Meanwhile volumes in the cruise segment too were higher than in the previous year.

UK, Germany, Russia, India and China made up the top 5 source markets that were responsible for the above growth numbers.

Strategy

The strong performance reported for the year was the result of a focused agenda to deepen the penetration in all main source markets. During the year, ASTL strengthened the ground presence in key source markets with the appointment of dedicated marketing representatives who would serve as the main point of contact for overseas travel agents in each of the respective markets. This strategy resulted in the forging of a closer relationship with tour operators in key markets thereby generating higher number of visitor arrivals to the country.

Following the successful resumption of European charter operations in the previous year, steps were taken to further expand the number of inbound charters from Eastern Europe. Leveraging on the long-standing partnership with a leading travel company in Russia, a total of 20 charter flights were secured from Russia for the winter season. During the winter of 2017/18 the Northern and Eastern Europe charter operation brought 15,841 passengers to the country and was a major step forward in improving the overall market share of the segment.

Meanwhile, the consistency in service and agility along with attractive pricing enabled the UK and Nordic charter operations to continue for the second successive year. Successful negotiations with TUI UK and Nordic charter operators helped secure a charter operation over a period of six months between November 2017 and April 2018.

Following another strategic tie-up with TUI, the world’s largest integrated tourism company, a further 13 charter flights were secured from Poland in time for winter 2017/18 season.

The strong emphasis on growing the cruise business, enabled the segment to handled more than 50% of the cruise arrivals in 2017/18. Other notable developments included the launch of “Cuurate”, a new unit equipped with a dedicated website and specialized team to tap into the high-end luxury travel segment as the demand for luxury travel remains strong. Hand-in-hand with these efforts to boost volumes, system and process enhancements were also expedited in order to improve the service model. Steps taken to enhance IT systems saw the integration of the ‘Hotelbeds’ reservations system directly with the ‘Travel Assist’ system. This process was extended to cover ‘Excursions’ as well where the TUI Asterix system was also integrated with the ‘Travel Assist’ system to improve response times and enhance overall efficiency.

Outlook

The key focus going forward would be to capitalize on the increase that is predicted to materialize in the coming years where the priority would be to grow volumes across all channels. This would mean strengthening ties with tour operators, charter partners as well as online bedbanks.

The key to sustaining the charter business would be to ensure that the operators continue to see value in coming to Sri Lanka, despite stiff competition from destinations in South and East Asia.


AIRLINE GSA


Aitken Spence Travels (Pvt) Ltd reiterated its undisputed market leadership position in the inbound travel business in Sri Lanka by facilitating over 178,000 visitor arrivals to the country. This is the highest number of visitors facilitated by a Sri Lankan destination management company in a given year to-date.



Meanwhile efforts to develop online volumes would be centred on increasing the digital exposure on social media platforms to reach out to millennial travellers and also to tap into the niche market for experiential tourism.

Performance

Singapore International Airlines (SIA) GSA segment, had a good year compared to the past years with revenue up by 8.2%.

The strong results were attributed to a substantial increase in passenger numbers, with the average load factors for both the daytime and night-time operations consistently exceeding the previous year. This is a commendable achievement, even amidst the challenges arising as a result of the national carrier commencing operations to Melbourne during the latter part of last year, which led to some initial volume loss on the Colombo/Melbourne sector. The other key challenge facing the segment is the fierce competition caused by the growing number of international and regional carriers entering the market.

Encouraged by the high load factor reported for the year, SIA further increased its frequency of flights from Colombo. The addition of a new daytime flight with effect from 27th March 2018 increased the total flights per week out of Colombo to 11.

In contrast to the passenger segment, the performance of the cargo segment fell short of expectations particularly in the first six months of the year amidst the disturbing trend where cargo agents were seen bypassing regular airlines and directly negotiating with charter operators to move cargo to a number of key export destinations. A gradual rebound in the second half of the year, however, enabled the cargo segment to register an improved performance compared to the previous year.

Strategy

The strong performance reported by the passenger segment was the result of a multi-pronged strategy to drive volumes. With the leisure travel market becoming increasingly skewed towards western destinations as a result of the frequent and multiple promotions by the Gulf carriers, increased emphasis was placed on promoting SIA’s strong network presence in the South East Asian and Trans Pacific regions to lock in numbers to these destinations.

Further, a widespread media campaign targeting the MICE / Group travel market was conducted highlighting the attractiveness of Sri Lanka as a group and incentive travel destination. To further complement the effort, “SIA holidays” was re-introduced to the market, while a more competitive pricing structure was also rolled out through Silk Air.

Outlook

The increased frequency and capacity offered by SIA in Sri Lanka would provide the segment the opportunity to compete effectively using the airline’s network connections throughout the world to increase the ex-Colombo passenger load factor.

The Free Trade Agreement signed between the Governments of Singapore and Sri Lanka recently is expected to generate higher cargo volumes in the years ahead thereby benefiting the cargo segment.

Ace Aviation Services
Maldives
Performance

It was a good year for the Sri Lankan Airlines GSA operation in the Maldives. Maintaining a cabin factor of 65%, the segment reported a 25.3% increase in revenue along with an increase in profits compared to the previous year. Total ticket sales also increased by 9% year on year, led by higher sales numbers reported following the appointment of three new passenger sales agents in GAN Island Addu city, the second destination of Maldives, while the new sales office opened at the water front – jetty, in Male also contributed towards the increase.

Outlook

Given the strong increase in numbers seen throughout the year, going forward the segment expects to open a new sales office in Hulu Male as well as other key Atolls. The GSA agreement with Sri Lankan Airlines was renewed in 2017 for a further period of 3 years.


MARITIME
AND
LOGISTICS SECTOR


HUMAN CAPITAL REPORT

 

OVERVIEW

Providing direct income to approximately more than 13,500 families within four of the country’s foremost industry sectors (Tourism, Maritime and Logistics, Services and Strategic Investments), our Human Capital is one of the main building blocks of the Group’s foundation.


 
 
Total Workforce
13,533


Male
7,957
mx-auto d-block

Female
5,576

 
TOTAL EMPLOYEE BREAKDOWN ON GENDER AND EMPLOYMENT
Employee Breakdown

 
EMPLOYEE DISTRIBUTION IN LOCATIONS

  EMPLOYEE DISTRIBUTION IN LOCATIONS

 
EMPLOYEE DISTRIBUTION IN LOCATIONS

  EMPLOYEE DISTRIBUTION IN LOCATIONS
 
SOCIAL & RELATIONSHIP CAPITAL

 

OVERVIEW

Social and relationship capital is an essential asset for any organisation: Our ability to maintain long term viability, profitability and integrity of the organisation is dependent on our ability to foster strong, sustainable relationships with our stakeholders.


OUR PHILOSOPHY

Our vision to achieve excellence in all our activities, establish high growth businesses in Sri Lanka and across new frontiers, and become a globally competitive market leader in the region, is strengthened by the social and relationship capital of Aitken Spence PLC. Our focus is on;

  • Building long term relationships with stakeholders that sustain our business
  • Creating shared value for sustainable socioeconomic development through our social and relationship capital
  • Working with our stakeholders to ensure sustainable product and service quality through social governance and compliance with international benchmarks

Our ethos over generations has not changed. We are driven by the same values and guiding principles. Our focus and value proposition to our key stakeholder have not changed; reliability, stability, and strength in our diversity.


 

 

All members of the Group Supervisory Board are members of the Board of Management.

9000+

Network of direct suppliers and service providers
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Over 200

international tour operators represented in Sri Lanka
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Part of the World’s largest destination management company through our partnership with TUI
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1st Sri Lankan resort operator to engage with a global hotel chain to introduce all-inclusive hotel experience to Sri Lanka 1st Sri Lankan company to enter into a Public Private Partnership overseas with our partnership with the Fiji Ports Corporation
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Relationship with Singapore International Airlines spanning over 4 decades. Longest standing General Service Agents (GSAs) of Singapore International Airlines within all GSAs of SIA.

2000+

sub-agent network over locations countrywide, including banks, financial institutions and retail outlets offering Western Union Money Transfer services in Sri Lanka

Over 140 Years

(since 1876) As survey and claim settling agents for Lloyd’s of London, covering the commercial ports in Sri Lanka and the Republic of Maldives
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Signatory to the UN Global Compact and members of the Local Network Sri Lanka and the Steering Committee since its inception. Being members of the Board of UNGC Local Network Sri Lanka, Dr. Rohan Fernando held the position of Chairman of the Board through the 2017/18 financial year.
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Joint venture with Mercantile Merchant Bank, Sri Lanka to offer Western Union Money Transfer services in Sri Lanka
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One of the first corporates in the world to become signatory to the Women’s Empowerment Principles (UN Women)
NATURAL CAPITAL

 

OVERVIEW

Natural capital is a vital asset to any organization;

  • Any organization is inherently dependent on many ecosystem services as well as the opportunities stemming from the biodiversity and the natural environment. These opportunities make our operations possible
  • In addition to the more evident ecosystem services, the less visible services such as climate regulation, providing natural defence against events such as floods and landslides as well as providing carbon sinks through forests and other natural environs enable a sustainable environment in which businesses can thrive
  • There are many environment related risks that may arise. As such, there is need for businesses to identify its impacts and manage these risks and opportunities that could arise from our response to those risks
  • The cost of neglecting natural capital can result in loss of biodiversity, possible declining human ecosystem productivity and resilience over time, and could subject regions to adverse weather conditions such as floods and droughts which can in turn have drastic impacts on how we do business.

Our ethos over generations has not changed. We are driven by the same values and guiding principles. Our focus and value proposition to our key stakeholder have not changed; reliability, stability, and strength in our diversity.

OUR PHILOSOPHY

Adopting the precautionary approach, the Group’s ethos is to proactively identify potential adverse environmental impacts and establish control measures through ‘Environmental Management Systems (EMS)’. Our purpose is to identify and reduce environmental risk and to enhance positive impact directly within our operational scope and our extended sphere of influence.

OVERVIEW

The stock of natural capital and ecosystem services that sustain our businesses include;

  • Energy
  • Water
  • Crops and forest cover
  • Natural environment and biodiversity
BREAKDOWN OF THE WATER CONSUMPTION WITHIN THE OPERATION

12.14% Municipal Water 17.74% Ground Water 70.08% Surface Water 0.04% Harvested Rainwater

51.8%

1.5%

44.9%

1.8%

Total energy consumed within the organisation

689,807 GJ

50%

16%

32%

2%

Scope 1 Emissions

370,126 tCO 2

Green House Gas emissions from direct energy consumed

5%

2%

93%

Negligible

Scope 2 Emissions

29,125 tCO 2

Green House Gas emissions from direct energy consumed

62%

10%

21%

6%

Breakdown of Total Renewable Energy Generated

243,286 GJ

Green House Gas emissions from direct energy consumed

4.1%

0.3%

95.6%

-

MANUFACTURED CAPITAL REPORT

 

OVERVIEW

The Group’s Manufactured Capital consists of the physical assets that enable each of the diverse businesses to create value for their respective stakeholders. Manufactured capital plays a vital role in many of the Group’s businesses, namely hotels, printing and packaging, logistics and warehousing, port management, apparel manufacture, plantations and power generation. Comparatively the significance of Manufactured capital is less in service-related businesses such as destination management, airline GSA, freight forwarding, elevators, insurance and money transfer.

GROUP MANUFACTURED CAPITAL PHILOSOPHY

Develop a high-quality asset base that would provide a distinctive competitive advantage, which would in turn secure the long-term growth prospects of the Group and to ensure that all assets are maintained at optimal levels always to eliminate downtime or re -work.

KEY COMPONENTS AS AT
31st MARCH 2018
RS.'000
ADDITIONS DURING
THE YEAR
RS.'000
Hotels 41,504,626 5,469,601
Printing and Packaging 1,232,747 36,776
Logistics 4,525,075 145,851
Port Operations and Management 496,454 58,531
Power Generation 3,849,710 1,561,774
Apparel Manufacture 366,472 14,119
Plantations 828,626 110,020
Other 7,223,701 241,272
Our Manufactured Capital Portfolio
The largest hotel room inventory owned by a Sri Lankan resort company
316 Fleet of transport vehicles used in business
Warehouse capacity of 320,977 sqft
Power plants (renewable/ non-renewable)
Manufacturing facilities
Office space of 195,784 sqft in the heart of Colombo’s business hub
Technology and equipment
Green architecture and infrastructure
HOW WE HAVE MADE A MARK IN THE INDUSTRIES WE OPERATE IN THROUGH MANUFACTURED CAPITAL
1st LEED certified building outside USA and the 1st hotel to obtain the certification
Heritance Hotels was the 1st resort chain to obtain the ISO 50001:2011 certification for energy management
1st Carbon neutral, LEED Gold certified printing facility in South Asia
Strategically positioned infrastructure to enhance our value addition to the economy
INTELLECTUAL CAPITAL

 

OVERVIEW

Intellectual capital is a collective outcome of our other capitals such as manufactured capital, social and relationship capital, natural capital, financial capital, and human capital. These capitals are mutually inclusive in contributing towards our intellectual capital and thereby strategically enhances its intangible value across the Company.

GROUP MANUFACTURED CAPITAL PHILOSOPHY

To invest in our intellectual capital as it not only gives us a competitive edge but helps us strive to assimilate an integrated thinking into every level of the business by making it an integral part of our strategy. Our intellectual capital is derived from our other capitals as shown below.


Approximated significance of material topics with the potential to contribute to the intellectual capital of Aitken Spence

Material Topics (As per GRI)
Economic value creation
Environment
Social Standards

 
High significance. Considered a priority for action

Medium significance. Adequate action is required to control potential impacts

Low significance. Adequate measures are in place or the impact is outside our control

 

TOURISM


SECTOR REVIEW
TOURISM

Overview

The Tourism sector consists of three complementary businesses; hotels, destination management and the airline General Sales Agency (GSA). Under the hotels segment, the Group owns and manages a portfolio of world-renowned, iconic properties in Sri Lanka and the Maldives and is also the only company in Sri Lanka to own and operate hotels in both India and Oman.

The Sri Lankan hotel cluster comprises of a diverse range of properties under the Group’s flagship brand – ‘Heritance’. The legendary Heritance Kandalama, a 152 -room luxury resort is located in the heart of Sri Lanka’s cultural triangle. World renowned for its unique concept and green building design, Heritance Kandalama was the first hotel in the world and the first property outside USA to receive the acclaimed LEED certification.

Other Heritance properties include, the Heritance Tea Factory in the cool climes of Nuwara Eliya, Heritance Ahungalla on the sandy beaches of the southern coast, Heritance Ayurveda Maha Gedara – a veritable oasis of healing and the latest addition; Heritance Negombo – a 139- room cosmopolitan offering located in close proximity to the airport. In addition to the premier Heritance brand, the Sri Lankan hotel portfolio also consists of Turyaa Kalutara, a mainstream beach offering closer to Colombo and also includes the 501-room Hotel RIU - Ahungalla, the only international club concept proposition currently available in Sri Lanka.

The Group’s overseas Hotels segment consists of interests in the Maldives, India and Oman. In the Maldives, the Group owns the Adaaran chain of resorts, and has the accreditation of being the first Sri Lankan company to invest in a resort in the Maldives. The Maldives portfolio includes the 202-room Adaaran Select Hudhuranfushi, 130-room Adaaran Club Rannalhi, the 238-room Adaaran Select Meedhupparu and the 50-room Adaaran Prestige Vadoo.

Expanding the Group’s investments overseas, in 2015 the Group launched Turyaa Chennai, its first property owned in the Indian sub-continent. Turyaa Chennai is a fully-fledged 140-room city hotel located along Chennai’s thriving IT corridor. In 2016 the Group acquired Al Falaj Hotel in Oman, a 150-room four-star property which had been under the management of the Group.

The Group’s hotel management arm specializes in the management of hotels and resort properties. Backed by many years of expertise, the hotel management unit operates through a multi-country management model and currently manages a portfolio of 20 properties, in the four destinations it operates. Although the Group does not have a stake in few of the hotels under its management, the owners have consistently renewed the management contracts for each property, further testifying to the capability of the hotel management division.

Both the destination management and airline GSA segments are operated through highly successful long-standing partnerships with leading international partners. The destination management segment is operated as a joint venture with TUI, the largest integrated travel company in the world. In operation for the past forty years, today the travel business is ranked as Sri Lanka’s No.1 inbound travel operator.

The other business under the Tourism umbrella is the General Sales Agency (GSA) for Singapore Airlines (SIA). Having maintained the partnership for over forty years, the Group holds the global record for the longest serving SIA agency to date.

The segment is also the General Sales Agent for Sri Lankan Airlines in the Maldives.

PESTEL (Political, Economic, Social, Technological, Environmental, Legal) Analysis

KEY CONCERNS
Political >>

Political stability in Sri Lanka, Maldives, Oman and India. Tourism destinations need to be free of any political unrest to foster the safe environment required for the growth of the industry.

Economic >>

Changes in the global economy has a significant impact on the industry as this directly impacts the disposable income of the prospective tourist.

Social >>

Consumer preference in lodging has taken a shift with more clientele favouring a local experience. This has seen an increase of private accommodations. The rise of Air BnB and similar sites are a challenge for the formal sector.

Technological >>

The technological advancements have become the biggest influencer in changing the way the industry operates in terms of marketing, hotel and airline bookings etc. Cloud technology and Internet of things will be the way forward for the industry.

Environmental >>

Sustainable tourism is a key concern. The focus has now shifted to eco-tourism with priority on ensuring minimum negative impact to the environment the industry operates in.

Legal >>

Effective legislation with regard to the tourism industry is essential for the regularization of the industry and the creation of a level playing field for all operators.


 
SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis

 
Operating Context

Global tourism industry recorded an impressive year – posting the best results since 2010 - as international tourist arrivals grew by a record 7% compared to a trend of around 4% during the last seven years. The latest World Tourism Organisation (UNWTO) World Tourism Barometer credits the growth in international travel to the ongoing recovery of the global economy, notably the Western economies that are emerging from recession, while the strong demand from emerging Asian markets supports growth from the region. While most popular destinations had strong growth this year, it was also noteworthy that several new destinations attracted the keen interest of visitors.

Mediterranean destinations led the growth; Europe showcased exceptional results with an 8% growth year on year. Africa rebounded posting an 8% growth over 2016 while Asia and the Pacific regions grew by 6%, the Middle East by 5% and the Americas by 3%. UNWTO statistics for the Asia Pacific Region indicate that South Asia returned the strongest performance reporting a 10% growth in arrivals. South- East Asia and Oceania recorded increases of 8% and 7% respectively while North-East Asia reported 3% growth.

Operating Context

The sector recorded a remarkable performance playing an important role in the overall profitability of the Group for the financial year 2017/2018. Contributing Rs. 26.1 billion to the Group revenue, and Rs. 3.1 billion to Group profit before tax, the sector was the highest profit generator to the Group contributing 48.9% of its profit before tax. Over the years, the Group’s footprint in tourism has expanded significantly both in Sri Lanka and overseas, accounting for 59.4% of the Group’s asset base.

Collectively, the sector directly employs over 3,700 people, while providing thousands more indirect employment opportunities in areas where the Group is present.



 
Select a Chart
Performance Highlights

HOTELS


Financial year 2017/2018 was a record breaking year for Heritance Tea Factory with the property recording a revenue increase of 11.5% and its highest ever net profit before tax which was an increase of 22.5%.

Sri Lanka
Overview

Sri Lanka’s performance however was in stark contrast to the South Asian Region, as the country recorded an unimpressive 3.2% year-on-year growth from 2,050,832 visitors in 2016 to 2,116,407 in 2017. This was the slowest growth reported by Sri Lanka since the end of the war in 2009. India, China, UK, Germany and France accounting for 51.2% of arrivals for the year, were the top five source markets for 2017.

A further analysis reveals that the demand from key source markets, China and Germany, witnessed a sharp drop in the crucial June – September summer season following the negative travel advisories issued in the wake of floods and the threat of Dengue. The decision of the national carrier, Sri Lankan Airlines, to withdraw direct flights from key European destinations

also proved to be a severe blow in attracting conventional travellers from traditional source markets in Europe, especially Germany, which has long since been a captive market for Sri Lanka.

Meanwhile stymied by the absence of a cohesive destination marketing strategy to promote the country, Sri Lanka’s tourism industry continued to face the arduous task of penetrating new source markets. Further, the lack of commitment shown by the authorities to develop the country’s tourism infrastructure placed the country at a disadvantage compared to other regional players whose continuous and ongoing development programmes give them an edge in the global market.

Business Review
Performance

The decline in tourist arrivals during the period June to September 2017 resulted in the segment returning a lacklustre performance for most part of the year until the fourth quarter. However, with the final quarter of the year recording a massive rebound in arrivals the segment was able to catch up the deficit accumulated during the first three quarters. The round-trip properties; Heritance Kandalama, and Heritance Tea Factory in particular benefited from the surge in the arrivals in the fourth quarter of the year. During the year, the Group divested its entire stake in Hotel Hill Top Kandy at a profit of Rs. 307.6 million.

The revenue of the segment increased by 18.9% over the previous year; a creditable performance in comparison to the subdued arrivals growth to the country. Overall the Group occupancy grew from 68% to 70% whilst the average room rates also recording a marginal growth.

The operational profits of the segment increased by 37.5%, while the increase in profit before tax was 201.4% excluding the profit from the sale of Hotel Hill Top Kandy, as a result of significant contributions from Heritance Kandalama, Heritance Tea Factory and Heritance Ayurveda Maha Gedara. The segment’s flagship property – Heritance Kandalama despite being challenged by the ever-increasing number of new properties emerging in the area, continued to perform well and retained its position as the top contributor among the sector’s premium brands.

Retaining their status as niche offerings, both Heritance Tea Factory and Heritance Ayurveda Maha Gedara did well to register improved year-on-year results. Financial year 2017/2018 was a record breaking year for Heritance Tea Factory with the property recording a revenue increase of 11.5% and its highest ever net profit before tax which was an increase of 22.5%. The strategy of differentiating the product offerings and managing yield through targeted marketing strategies were the main factors for the performance. Heritance Ayurveda Maha Gedara also had an impressive year with a revenue growth of 7.8% and a profit before tax growth of 28.2%.

Heritance Ahungalla embarked on a successful re-pricing strategy to attract a higher number of travellers in the face of increased room inventory in the industry as a result of large international hotel chains entering the coastal market. This flagship property recorded a significant improvement in performance leading to a turnaround in operating results from a deficit in the previous year to a profit in the year under review. Turyaa Kalutara, the mid-range offering of the segment, faced the full force of the price war among properties on the southern coastal belt and as a result performed below expectations. Hotel RIU the 501-room hotel property at Ahungalla, following a difficult period for the first 9 months of the year, recovered somewhat during the final quarter of the financial year. As a result, the property recording a revenue lower than projected coupled with the high depreciation charge on the capital investment and the interest cost incurred on loans obtained for construction resulted in a net loss position during the year.

Heritance Negombo, the newest addition to the premium basket remains popular among high-end travellers. Now in its second year of operation, the property performed exceedingly well in the year under review with a significant increase in operational profits compared to the previous year with the revenue per available room increasing by 61.1%. However, the property reported a net loss mainly due to the high interest cost on loans obtained for the construction of the property.

The property in the east coast; Amethyst Resort in Passikudah, continued to struggle as did most hotels in the area. The delays in improving accessibility and tourism infrastructure in the area by the Government is the main challenge along with a relatively short season during the year.

Strategy

Being the largest resort operator in Sri Lanka, the segment has a distinct advantage over many other resorts in the island, owing to its ability to cross-sell the entire portfolio by leveraging on the demand for iconic properties under the premium Heritance brand.

Given the increasing competition from international hotel chains along the southern coastal belt and for Heritance Kandalama from mushrooming properties springing up in the cultural triangle the segment is exploring opportunities at widening its reach across key source markets.

Hence the focus has now shifted towards enhancing the brand exposure through a fresh and cohesive strategy aimed at reinforcing the Heritance brand as a leading Sri Lankan hotel chain. In this context the emphasis was on deepening the penetration into the segment’s traditional market strongholds in Europe and exploring new non-traditional markets. Shifting the focus from traditional sales channels also saw a stronger commitment to leverage on technology and online marketing platforms in order to tap into a broader cross section of the travel market. The move is also part of a broader yield management strategy aimed at realigning the product mix between the fixed rate model and the variable rate offering in order to optimize yields. Going hand-in-hand with these measures, much emphasis was placed on quality of the Food and Beverage (F&B) proposition, guest services and technology-based efficiency improvements at all properties. Ongoing improvements to F&B offerings saw a number of changes being brought model and the variable rate offering in order to optimize yields.

Going hand-in-hand with these measures, much emphasis was placed on quality of the Food and Beverage (F&B) proposition, guest services and technology-based efficiency improvements at all properties. Ongoing improvements to F&B offerings saw a number of changes being brought in at most of the hotels while renewed focus on training and development activities saw a significant investment to raise the standard of guest servicing at all properties. Other notable developments included the commissioning of a 150-kW capacity solar power generation facility at Turyaa Kalutara in July 2017, while work also began on the construction of a fully equipped staff housing complex specifically for the female staff of Heritance Kandalama.

Heritance Negombo, the newest addition to the premium basket remains popular among high-end travellers. Now in its second year of operation, the property performed exceedingly well in the year under review with a significant increase in operational profits

Outlook

Current indications suggest that Sri Lanka’s tourism industry appears to be on track to deliver much improved results in the foreseeable future. However, for these signs to fully materialize as expected, it is imperative that urgent action be taken to address the underlying systemic issues that hinder the progress of the tourism industry. Crucially, the country’s socio-political environment needs to be stable and more importantly safe for tourists. The recent civil unrest in Kandy and the sporadic incidents of harassment of tourists on the beaches of the South Coast are good examples of how socio-political issues are dampening the growth potential for Sri Lanka tourism. Nonetheless tourism authorities are predicting double-digit growth for the year ahead.

From a business perspective, the focus for the Group’s local hotel segment would be centred on further consolidating the performance of the newer properties, while the goal for the mature offerings would be to strengthen the differentiating factors that would enable each property to continue to stay ahead of their immediate competition in all aspects of the business.


TRAVELS


Aitken Spence Travels (Pvt) Ltd reiterated its undisputed market leadership position in the inbound travel business in Sri Lanka by facilitating over 178,000 visitor arrivals to the country. This is the highest number of visitors facilitated by a Sri Lankan destination management company in a given year to-date.




Business Review
Performance

In a fitting tribute to commemorate its 40th year, the Group’s inbound travels segment registered its best-ever performance with all KPI’s reporting robust year-on-year increases. Aitken Spence Travels (Pvt) Ltd (ASTL) reiterated its undisputed market leadership position in the inbound travel business in Sri Lanka by facilitating over 178,000 visitor arrivals to the country, surpassing the previous years’ record of 153,000 visitors. This is the highest number of visitors facilitated by a Sri Lankan destination management company in a given year to-date. As a result of this healthy increase in volumes, revenue and profits for 2017/18 grew by 7.5% and 19.3% respectively over the figures reported in 2016/17. Meanwhile, the market share of ASTL taken as a percentage of tourist arrivals to the country rose from 7.4% in the previous year to 8.0% in the year under review.

Destination management companies/ tour operator channels contributed to the majority of the business and the increase in online bookings was also strengthened. However, testifying to the growing popularity of online tour operators and bed banks, a sharp increase in online volumes was seen in the year under review. Meanwhile volumes in the cruise segment too were higher than in the previous year.

UK, Germany, Russia, India and China made up the top 5 source markets that were responsible for the above growth numbers.

Strategy

The strong performance reported for the year was the result of a focused agenda to deepen the penetration in all main source markets. During the year, ASTL strengthened the ground presence in key source markets with the appointment of dedicated marketing representatives who would serve as the main point of contact for overseas travel agents in each of the respective markets. This strategy resulted in the forging of a closer relationship with tour operators in key markets thereby generating higher number of visitor arrivals to the country.

Following the successful resumption of European charter operations in the previous year, steps were taken to further expand the number of inbound charters from Eastern Europe. Leveraging on the long-standing partnership with a leading travel company in Russia, a total of 20 charter flights were secured from Russia for the winter season. During the winter of 2017/18 the Northern and Eastern Europe charter operation brought 15,841 passengers to the country and was a major step forward in improving the overall market share of the segment.

Meanwhile, the consistency in service and agility along with attractive pricing enabled the UK and Nordic charter operations to continue for the second successive year. Successful negotiations with TUI UK and Nordic charter operators helped secure a charter operation over a period of six months between November 2017 and April 2018.

Following another strategic tie-up with TUI, the world’s largest integrated tourism company, a further 13 charter flights were secured from Poland in time for winter 2017/18 season.

The strong emphasis on growing the cruise business, enabled the segment to handled more than 50% of the cruise arrivals in 2017/18. Other notable developments included the launch of “Cuurate”, a new unit equipped with a dedicated website and specialized team to tap into the high-end luxury travel segment as the demand for luxury travel remains strong. Hand-in-hand with these efforts to boost volumes, system and process enhancements were also expedited in order to improve the service model. Steps taken to enhance IT systems saw the integration of the ‘Hotelbeds’ reservations system directly with the ‘Travel Assist’ system. This process was extended to cover ‘Excursions’ as well where the TUI Asterix system was also integrated with the ‘Travel Assist’ system to improve response times and enhance overall efficiency.

Outlook

The key focus going forward would be to capitalize on the increase that is predicted to materialize in the coming years where the priority would be to grow volumes across all channels. This would mean strengthening ties with tour operators, charter partners as well as online bedbanks.

The key to sustaining the charter business would be to ensure that the operators continue to see value in coming to Sri Lanka, despite stiff competition from destinations in South and East Asia.


AIRLINE GSA


Aitken Spence Travels (Pvt) Ltd reiterated its undisputed market leadership position in the inbound travel business in Sri Lanka by facilitating over 178,000 visitor arrivals to the country. This is the highest number of visitors facilitated by a Sri Lankan destination management company in a given year to-date.



Meanwhile efforts to develop online volumes would be centred on increasing the digital exposure on social media platforms to reach out to millennial travellers and also to tap into the niche market for experiential tourism.

Performance

Singapore International Airlines (SIA) GSA segment, had a good year compared to the past years with revenue up by 8.2%.

The strong results were attributed to a substantial increase in passenger numbers, with the average load factors for both the daytime and night-time operations consistently exceeding the previous year. This is a commendable achievement, even amidst the challenges arising as a result of the national carrier commencing operations to Melbourne during the latter part of last year, which led to some initial volume loss on the Colombo/Melbourne sector. The other key challenge facing the segment is the fierce competition caused by the growing number of international and regional carriers entering the market.

Encouraged by the high load factor reported for the year, SIA further increased its frequency of flights from Colombo. The addition of a new daytime flight with effect from 27th March 2018 increased the total flights per week out of Colombo to 11.

In contrast to the passenger segment, the performance of the cargo segment fell short of expectations particularly in the first six months of the year amidst the disturbing trend where cargo agents were seen bypassing regular airlines and directly negotiating with charter operators to move cargo to a number of key export destinations. A gradual rebound in the second half of the year, however, enabled the cargo segment to register an improved performance compared to the previous year.

Strategy

The strong performance reported by the passenger segment was the result of a multi-pronged strategy to drive volumes. With the leisure travel market becoming increasingly skewed towards western destinations as a result of the frequent and multiple promotions by the Gulf carriers, increased emphasis was placed on promoting SIA’s strong network presence in the South East Asian and Trans Pacific regions to lock in numbers to these destinations.

Further, a widespread media campaign targeting the MICE / Group travel market was conducted highlighting the attractiveness of Sri Lanka as a group and incentive travel destination. To further complement the effort, “SIA holidays” was re-introduced to the market, while a more competitive pricing structure was also rolled out through Silk Air.

Outlook

The increased frequency and capacity offered by SIA in Sri Lanka would provide the segment the opportunity to compete effectively using the airline’s network connections throughout the world to increase the ex-Colombo passenger load factor.

The Free Trade Agreement signed between the Governments of Singapore and Sri Lanka recently is expected to generate higher cargo volumes in the years ahead thereby benefiting the cargo segment.

Ace Aviation Services
Maldives
Performance

It was a good year for the Sri Lankan Airlines GSA operation in the Maldives. Maintaining a cabin factor of 65%, the segment reported a 25.3% increase in revenue along with an increase in profits compared to the previous year. Total ticket sales also increased by 9% year on year, led by higher sales numbers reported following the appointment of three new passenger sales agents in GAN Island Addu city, the second destination of Maldives, while the new sales office opened at the water front – jetty, in Male also contributed towards the increase.

Outlook

Given the strong increase in numbers seen throughout the year, going forward the segment expects to open a new sales office in Hulu Male as well as other key Atolls. The GSA agreement with Sri Lankan Airlines was renewed in 2017 for a further period of 3 years.


MARITIME
AND
LOGISTICS SECTOR


SECTOR REVIEW

MARITIME AND LOGISTICS SECTOR

2017/2018
Rs.’000
2016/2017
Rs.’000
% 2015/2016
Rs.’000
Revenue (with equity accounted investees and inter-segment) 10,356,853 7,080.9 7,080.9 7,080.9
Profit before tax 1,758,923 7,140.5 7,140.5 7,140.5
Profit after tax 8,044.4 8,044.4 8,044.4 8,044.4
Total taxes paid to Governments (Indirect and direct taxes) 989.6 989.6 989.6 989.6
Total assets 3,560.3 3,560.3 3,560.3 3,560.3
Total liabilities 812.0 812.0 812.0 812.0
Employee numbers 8.4 8.4 8.4 8.4
Number of TEUs moved in Fiji ports 20,543.4 20,543.4 20,543.4 20,543.4
Total supply chain fleet 8.4 8.4 8.4 8.4
Warehouse facilities (Sqft) 20,543.4 20,543.4 20,543.4 20,543.4
Annual student registration at CINEC 8.4 8.4 8.4 8.4
Market capitalisation 20,543.4 20,543.4 20,543.4 20,543.4

 
Overview

The Maritime and Logistics sector is the second largest sector of the Group in terms of profitability contributing 18.2% and 27.5% to the Group’s revenue and net profit before tax.

The sector has multiple business lines which offers the full gamut of services in the maritime and logistics operations. The business of the sector is broadly categorized under three main segments; the integrated logistics, freight & courier segments and the maritime segment.

The Maritime and Logistics is a capital intensive sector and accounts for 9.5% of the Group’s assets, including the inland container terminal (ICT) in Mabole, the container freight station (CFS) in Wattala, warehousing complex in Katunayake and Welisara.

The performance of the sector is driven by a number of key strategic partnerships such as the General Sales Agencies (GSA) for Qatar Airways Cargo and the Sri Lankan Airlines Cargo in the Maldives. The sector has partnered with leading ocean freight carriers in the world and is the agent for DB Schenker in Sri Lanka and Maldives one of the leading German supply chain and logistics management companies. The segment’s express business is a partnership with DPD Group of France, the second largest international parcel delivery network in Europe.

The port management operation at present is involved in the management of the Suva and Lautoka ports in Fiji through Fiji Ports Terminals Ltd (FPTL) in which the Group has a 51% shareholding, and the management of the port of Nacala in Mozambique. The Group also has a 20% equity stake in Fiji Ports Corporation Ltd (FPCL) which is the commercial regulator of the ports sector in Fiji owning the infrastructure of all major ports in the country.


Operating Environment

After facing an exceptionally tough year in 2016, the fortunes of the global shipping industry were seen reversing slowly in 2017, with most shipping lines making profits on the back of higher global cargo volumes. According to industry sources, the global ocean freight cargo volumes grew by nearly 4% in 2017 as a result of sustained trade momentum led by a recovery in import demand from both advanced and emerging economies, and higher export volumes registered by most emerging economies.

The Port of Colombo saw an increase in volume throughput of 8.3% in 2017 as compared to 2016. Transshipment and import volumes for 2017 grew by 8.9% and 5.7% respectively while export volumes grew by 2.6% as compared to 2016. Significantly, volumes handled by the privately operated terminals SAGT and CICT grew by 10.9% and 19.3% respectively in 2017, while the SLPA operated JCT Terminal showed a decline of 4.3% compared to the previous year. Freight rates from Colombo were higher in 2017 compared to 2016.

The Mozambique economy grew by 4.3% in 2017 and the cargo volumes handled by the Port of Nacala also increased significantly compared to the previous year. The Fiji economy remained stable and the country achieved a GDP growth of 3.8% in 2017. The container throughput volumes and the general cargo volumes handled by the ports increased by 12.5% and 8.3% respectively during 2017.

The consolidation in the global shipping industry continued in 2017 bringing some degree of market stability. The merger of Hapag Lloyd and UASC was concluded in 2017, while the formal merger of the 3 Japanese lines also concluded within the year, paving the way for all three to operate under a single umbrella from April 2018. As a result of these changes the makeup of the global shipping industry changed once again with the reduction in the number of major alliances to 3 from 5 in the previous year resulting in reduced industry competition. Owing to these developments freight rates rose compared to the previous year, while capacity also increased by 12%.

Select a Chart
Maritime

 

PESTEL (Political, Economic, Social, Technological, Environmental, Legal) Analysis

Key Concerns
Political >> Policy changes affecting industry prospects
Economic >>

>>
Limited investment in port infrastructure and facilities causing competitive challenges from other regional ports.

High inflation leading to increased cost of material and labour
Social >> Negative social perceptions causing a shortage of skilled labour
Technological >> High cost of adoption needed to keep pace with technological advancements
Environmental >> Increased global awareness bringing pressure on compliance
Legal >> The directive by the Director General of Merchant Shipping to comply with the minimum recommended tariff for inland container terminal
SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis

MARITIME



 
 



 
Overview

The Maritime segment consists of three components; the shipping agency business, port operations and maritime education.

The shipping agency business provides import and export container handling services to some of the leading container carriers in the world, handling transshipment cargo, and the servicing of passenger cruise vessels, car carriers and casual callers.

The port management segment operates and manages the two main international ports in Fiji located at Suva and Lautoka under Fiji Ports Terminal Ltd, where the Group has a 51% shareholding. The Group also has a 20% equity stake in Fiji Ports Corporation Ltd (FPCL) who is the regulator of the ports sector in Fiji owning the infrastructure of all major ports in the country and offering navigation services in Fiji. The port management segment also has a contract for the management of cargo operations and equipment in the port of Nacala in Mozambique.

The maritime education segment consists of the Colombo International Nautical and Engineering College (CINEC) Campus, which specializes in fulfilling the training and education requirements of the maritime industry as well as in other fields of management. Located in Malabe, the CINEC Campus is Sri Lanka’s largest private higher education institution. CINEC offers undergraduate, postgraduate, and doctoral degrees as well as vocational related courses in maritime-related disciplines and other areas such as engineering and management. CINEC also has branches in Colombo, Trincomalee and Jaffna. CINEC also manages the maritime academies in Fiji and Seychelles.

Business Review
Performance

The shipping agency business of the segment reported a 12% increase in volumes, marked by a significant increase in imports and transshipments. The joint venture partnership with Hapag Lloyd as well as strong ties with other leading international cargo carriers contributed significantly towards the increase. Transshipment volumes received a boost as a result of several new services being introduced in Asia by Hapag Lloyd following its merger with UASC. Meanwhile on the import front, the car carrier business increased significantly due to the higher demand for smaller vehicles following the reduction in Customs duties with effect from November 2017. Notably, the agency segment also handled a record number of passenger cruise vessels and causal callers in 2017. Increased volumes, supported by higher freight rates helped the shipping agency segment’s revenue to grow by 19.0% year-on-year, with profits increasing by 33.5% year-on-year.

The performance of the port operations segment recorded growth during the year driven by higher volumes at all three port operations; Suva and Lautoka in Fiji and Nacala in Mozambique. Both Fiji ports reported strong results for the year, as improved operational efficiencies enabled the operator to handle higher container throughput and cargo volumes. Combined, volumes at both Fiji ports showed a 2.5% increase over the previous year, while total revenue and bottom line figures were up by 5.0% and 9.9% respectively, compared to the previous financial year. The Nacala port in Mozambique too showed an improved performance compared to the previous year.

The CINEC Campus witnessed a decline in student registrations for the year owing to practical delays in operationalising the cadet placement programme of the flagship maritime courses due to the slowdown in the global shipping industry as many carriers scaled back operations, making it difficult to secure adequate slots for cadet placements. The decline in the number of student registrations had a direct impact on the top and bottom line of the campus.


Logistics



 
 



 
Overview

Aitken Spence Logistics, a leading integrated logistics service provider in Sri Lanka offers specialized services in inland container terminal services, container repair, rigging and container conversions, container freight stations, warehousing, 3PL/4PL logistics management, mobile storage solutions, distribution services and the handling of all types and sizes of cargo including containerized, heavy or over dimensional. The segment lays claim to a number of strategically located cargo storage complexes with a total floor area exceeding 300,000 sqft, located in Colombo, Wattala, Mabole and Katunayake Zone with a modern fleet of equipment and cargo handling machinery. These resources provide the segment with the capacity and capability to deliver professional and comprehensive logistics solutions tailor made to customer requirements enabling it to be a one- stop- shop solution to the customer for all their logistics requirements.



 
Business Review
Performance

Given the mixed performance of the various sub segments, the integrated logistics segment recorded a marginal increase in its revenue compared to the previous year but was able to achieve a 23.9% improvement in its profitability driven by improved performances in special operations, distribution services, mobile storage solutions and storage activities.

Despite the increased competitive pressure exerted from port terminals offering free storage to shipping lines, the performance of the Inland Container Terminal (ICT) operations remained in line with the previous year. The segment’s ICT operations remain the market leader due to its pioneering efforts, commitment to ongoing infrastructure upgrade and reputation for service excellence.

Similarly, the segment was able to maintain the profitability of its Container Freight Station (CFS) operation amidst stiff competition faced during the year, with the segment’s market share remaining unchanged at approximately 60%.

The repair and rigging segment experienced a difficult year, with the profitability of the segment declining as a result of lower rates being offered to shipping lines in order to maintain the segment’s competitiveness in the market. Lately the prospects of the repair business have been challenged by the emergence of China as a low cost service provider in Asia.

The segment experienced a decline in its transportation business volumes as a result of lower vehicle utilizations due to the dearth of skilled drivers and assistants. Nonetheless the segment managed to table a positive growth in its profitability, despite the increased competitive pressure from the influx of small-scale low cost operators in the market.

Challenged by the overcapacity in the market, the performance of the warehouse segment fell short of expectations. In contrast, the special operations sub segment recorded an exceptional performance for the year under review, by capitalizing on the current infrastructure boom in the country. Notable performances were also reported by both the distribution services segment and the mobile storage solutions.

The segment was able to maintain the profitability of its Container Freight Station (CFS) operation amidst stiff competition faced during the year, with the segment’s market share remaining unchanged at approximately 60%.

FREIGHT FORWARDING, COURIER AND
AIRLINE GSA (CARGO)



 
 



 
Overview

The gamut of operations covered by the segment include air and sea freight operations in Sri Lanka, Maldives and Bangladesh, custom house agencies (brokerage), Airline Cargo GSA representation and courier /express business. The segment also represents DB Schenker, one of the leading global logistics solution providers in Sri Lanka and in the Maldives. The segment in courier and express also represents DPD Group and DTDC Express in Sri Lanka and Maldives and provides the clientele with state-of-the-art express delivery solutions. The segment represents the cargo GSA for Qatar airways in Sri Lanka and the cargo GSA for Sri Lankan Airlines in Maldives and Myanmar, and are the managing agents for cargo GSA for Sri Lankan Airlines in Bangladesh.



Business Review
Performance

The Freight segment experienced mixed fortunes with DB Schenker operation and the airline – cargo General Sales Agency (GSA) business reporting a strong growth for the year whilst the local freight and courier operation contributing negatively to the performance of the segment. Although there was a top-line growth, the segment reported a loss for the year due to the negative performance of the courier/ express division.

DB Schenker operation which operates independently, performed exceptionally well with network support to record a 46.6% growth in profit from operations. This operation which provides all freight and local brokerage services handles many networks nominated accounts and ensures that the local customers are given a high-end service.

The local air freight operation challenged by limited network nominations struggled to meet regular volume targets for the period but managed to conclude the year with an overall volume increase of 24% year-on-year. The volume increase was mainly due to the result of an increase in transshipments from Bangladesh in the third and the fourth quarter of the year. Local ocean freight volumes recorded an appreciable growth of 12% year-on-year, enabling the freight division to report a 30.4% increase in the revenue compared to the previous year. The brokerage business faced challenges in maintaining margins due to low cost operators penetrating the market in the first half of the year. The division recovered in the third and fourth quarter with rationalization of costs and review of low yield accounts but reported a loss for the year. The division is in the process of further re-engineering the operations to turnaround its operations.

The Qatar Airways GSA for Cargo carried an average of over 2,400 MT per month increasing its market share to 23% in-terms of cargo exports. The growth in volumes was primarily due to the reinstatement of GSP+ concessions on apparel exports as well as the lifting of the ban on fish exports by the European Union. The Qatar Cargo GSA, which performed excellently throughout the year despite intense competition, ended the year with a year on year profit from operations of 52.7%. The airline GSA operations in Bangladesh managed by the segment performed well in 2017/18 with a 90% cabin factor for passenger and a 97% load factor for cargo. While the high demand helped to maintain a healthy yield on the Dhaka – Colombo sector for the first nine months of the year, downgrading of aircraft by the carrier and the discontinuation of the freighter on this route had an adverse impact on fourth quarter results. The Sri Lankan airlines cargo GSA operation in the Maldives also performed well but faced a severe setback following the withdrawal of European flights by the Airline. The decision to discontinue flights to Europe saw competitors swiftly moving in to tap into the country’s export sector to secure the large volume of fish heading to Europe. A steady increase in volumes and a notable improvement in margins was seen in the Maldives freight sub-segment following the establishment of two regular shipping trade lanes from Malaysia and Singapore to the Maldives. Transshipment of chilled fish via Colombo to Europe using synergies achieved in conjunction with the GSA’s handled by the segment also helped to maintain a healthy yield for the Maldives operation.

The margins of the Bangladesh freight operation were adversely affected due to the rate increase implemented by the airlines and shipping lines due to the congestion at the airport and the port. As a result, nominated freight accounts suffered due to the inability to change rates on long-term contracts.

With the change over from TNT to a new agency, the express courier business representing DPD Group and DTDC Express in Sri Lanka and Maldives had the first full year of operation. The courier business experienced a substantial drop in volumes both locally and in the Maldives as they were faced with the challenge of introducing a new brand to the market with a different service offering and network capabilities to the previous agency. The division which had excess resources after the changeover, is in the process of re aligning its costs and operations to the current volumes.


STRATEGIC INVESTMENTS
SECTOR


SECTOR REVIEW

STRATEGIC INVESTMENTS SECTOR



2017/2018
Rs.’000
2016/2017
Rs.’000
% 2015/2016
Rs.’000
Revenue (with equity accounted investees and inter-segment) 10,356,853 7,080.9 7,080.9 7,080.9
Profit before tax 1,758,923 7,140.5 7,140.5 7,140.5
Profit after tax 8,044.4 8,044.4 8,044.4 8,044.4
Total taxes paid to Governments (Indirect and direct taxes) 989.6 989.6 989.6 989.6
Total assets 3,560.3 3,560.3 3,560.3 3,560.3
Total liabilities 812.0 812.0 812.0 812.0
Employee numbers 8.4 8.4 8.4 8.4
Area Cultivated (Ha) 20,543.4
tea 8.4 8.4 8.4 8.4
Rubber 20,543.4 20,543.4 20,543.4 20,543.4
Palm Oil 8.4 8.4 8.4 8.4
Sundry 20,543.4 20,543.4 20,543.4 20,543.4
Total area cultivated
Power generated (MW)
Thermal 10,356,853 7,080.9 7,080.9 7,080.9
Hydro 1,758,923 7,140.5 7,140.5 7,140.5
Wind 8,044.4 8,044.4 8,044.4 8,044.4
Solar energy 989.6 989.6 989.6 989.6
Garments manufactured (Number Pieces) 3,560.3 3,560.3 3,560.3 3,560.3

 
Overview

The Strategic Investments sector demonstrates the Aitken Spence commitment to seize opportunities in fast-growing sectors of the economy. The sector comprises of four main segments; power generation, plantations, printing and packaging and apparel manufacturing.

The power generation segment marks its presence in both renewable and non-renewable categories and one of the largest private sector contributors to the national electricity grid. The plantations segment with interests in tea, rubber, oil palm and hydro and solar-based renewable energy and provides direct employment to over 5,000 people and supports the larger estate community as well.

The printing and packaging segment is ranked among the top printers in the country and is also renowned in the industry for its pioneering efforts towards integration of sustainability processes across its across the value chain. The apparel manufacturing operation is the fourth segment under the strategic investments, with factories in Mathugma and Koggala and a collective workforce of over 2,000 employees.

The total asset base of the Strategic Investments sector as at end of the financial year was Rs. 29.5 billion and the sector accounts for 27.4% of the total assets of the Group. The total borrowings in the sector as at the year end stood at Rs 8.8 billion.

During the year under review the revenue contribution to the Group by the sector was Rs 18.6 billion an increase of 6.1% over the previous year. The sector contributed 20.0% of the Group profit before tax recording an increase of 14.9% over the previous year. The growth in profits was mainly due to the excellent contribution from the power generation segment and the contribution made from plantations which is accounted as an equity accounted investee and the recovery of the apparel manufacturing segment.

The strategic investments sector is the highest employment generator of the Group with a total workforce of 8,120 and the sector also accounts for the largest land bank within the Group.


Power Generation

Overview

The Group’s power generation segment consists of Ace Power Embilipitiya, a 100 MW thermal power plant licensed to supply power to the national grid under a Power Purchase Agreement (PPA) with the Ceylon Electricity Board (CEB), which plays a critical role in providing an uninterrupted power supply to the southern regions of the country.

The power generation segment also operates the Branford Hydro Power, a 2.5 MW hydro power plant and Ace Wind Power with a further 3 MW capacity also contributing to the national grid.

Operating Context

According to the statistics released by the Public Utilities Commission of Sri Lanka (PUCSL), at the end of the year 2016, 239 grid-connected power plants were operated in Sri Lanka, with a total installed capacity of 3,887 MW. The Ceylon Electricity Board (CEB) which owns and operates 17 hydro, 9 thermal and a single wind power plant has the largest generation capacity while a further 5 thermal power plants are owned and operated by Independent Power Producers (IPPs). Another 207 renewable power plants including mini hydro, solar, wind power and biomass power plants, are owned and operated by Small Power Producers (SPPs). IPP’s and SPP’s are mainly private sector operators.

Select a Chart
Maritime

 

PESTEL (Political, Economic, Social, Technological, Environmental, Legal) Analysis

Key Concerns
Political >> The Government policy towards encouraging independent power producers to take part in power generation is not clearly stated.
Economic >>

>>
Expected growth in demand for electricity is expected to be 6% per year. This will have to result in adding more generation capacity to the national grid.

Upfront taxes and levies on imported power plant equipment will result in higher capital expenditure for new power plants resulting in increasing cost of electricity generation.
Social >> Due to scarcity of land and high density of population, finding land for constructing power plants is a social challenge.
Technological >>

>>
New technologies help generate power with a minimal emission.

Such new technologies are expensive resulting in high electricity cost
Environmental >> Environmental standards for power plants are stringent and meeting such standards will result in increasing operation and maintenance (O&M) costs.
Legal >> The legal framework is an impediment for private sector participation for power generation over 25 MW installed capacity.

SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis


 

POWER GENERATION



 
 



 


The private sector contribution to Sri Lanka’s power sector is facilitated through licenses issued by the government and operationalised through Power Purchase Agreements (PPA’s) that ensure guaranteed buy back by the CEB.

In the past two years, the CEB has been steadily increasing the power purchased through PPA’s, mainly to counteract the shortage in hydropower caused by the effects of prolonged drought conditions. As per PUCSL data, IPP thermal and renewable sources now contribute approximately 15% and 9% respectively, to the country’s power generation mix.

Power Capacity
Business Review
Performance

The Group’s power generation segment represents one of the largest IPP’s present in the country. During the financial year 2017/18 the segment registered a strong performance with both the revenue and the profit reporting year-on-year growth bolstered by the higher utilization of the facility due to the lower hydro power generation in the country during this period. Following the renewal of the PPA for a second consecutive year, the segment’s 100 MW thermal power plant at Embilipitiya remained in operation throughout the year.

The mini-hydro power plant located at Matale, remains heavily dependent on the water released by the Mahaweli Authority to feed the Suduganga. Its power generation peaked during the first nine months of 2017/18, due to the steady release of water by the authorities. Although the generation dropped in the final quarter amidst lower volumes being released by the authorities during January – March 2018, the overall results for 2017/18 showed a 16.8% increase in the power generated compared to the previous year, resulting in a revenue and profit growth of 16.7% and 116.9%.

The performance of the wind power operation fell short of expectations for the year due to the failure of the South West Monsoon, and the power generated during the year under review declined by 14.0% compared to the previous year which resulted in a decline in revenue and profit.


PLANTATIONS



 
 


 
Overview

The plantations segment consists of Elpitiya Plantations PLC (EPP) which is an equity accounted investee of the Group. EPP operates thirteen estates located in the up, mid and low country regions. The segment engages in the cultivation, manufacture, and marketing of black tea, rubber, oil palm and other crops including commercial forestry (timber). In order to reduce the dependency on the core products the segment continues to diversify into other related business activities and has ventured into hydropower, oil palm milling, eco tourism, and production of specialty teas.



 
Business Review
Performance

The tea segment reported strong results in the year under review. Both the top-line and the bottom line showed a year-on-year improvement, bolstered by higher prices at the Colombo auction. The segments’ Net Sale Average (NSA) for bulk exports was significantly higher in 2017/18 recording a 18.6% increase over the previous year. The segment also reported a strong increase in the direct export of value-added teas, spearheaded by aggressive efforts to deepen the penetration into the Chinese market in partnership with a joint venture partner in China. Cost of production however remained high due to challenges arising as a result of the Glyphosate ban, inherent labour shortages and adverse weather. Commendably however there was an increase of 2.0% in tea crop in 2017/18 compared to the previous year despite lower yields in the low country region, where persistent adverse weather conditions had a negative impact on traditional harvesting patterns.

The rubber segment suffered another disappointing year, as subdued global demand for rubber failed to command higher prices at the Colombo auctions. Crops too declined significantly affected by bad weather during the peak tapping seasons. On a positive note however efforts by the segment to increase direct exports succeeded in generating a 7% increase in export revenue of sole crepe.

The oil palm segment continued to grow steadily throughout the year under review led by a year-on-year increase of 11.1% in crop volumes. The crop’s top-line and bottom line tabled a robust performance assisted by greater price stability in the domestic market attributed to the government decision to continue with the existing duty structure to restrict the import of oil palm.


PRINTING AND PACKAGING



 
 


 
Overview

The printing and packaging segment of Aitken Spence represented by Aitken Spence Printing & Packaging (Pvt) Ltd., and Ace Exports (Pvt) Ltd., is one of the country’s leading printers, with a portfolio of products that include packaging, books and magazine publications, tags and labels, and seasonal products, using both offset and digital printing technologies. The segment’s value proposition of providing innovative printing solutions with short lead-times with a focus on high quality has enabled the segment to secure a sustainable growth model for over 60 years.



 
Business Review
Performance

In a challenging year for the printing and packaging segment, the business experienced a degree of volume loss from its main captive markets, in particular the FMCG and tobacco industries as the manufacturers faced reduced demands for their products in a flagging economy. Although the tea industry volumes registered increases and the demand from the apparel industry also showed growth while experiencing an intense competition, it did not compensate for the revenue loss from FMCG and tobacco industries resulting in a decline of 4.2% in revenue for the segment. The segment’s bottom line was affected due to the drop in revenue as well as the increase in operational and financial costs. Changes to the cost structure were mainly due to higher raw material costs and interest expenses. The FOB price of paper pulp, which had remained relatively stable for many years, rose significantly in 2017, further exacerbated by import duty levies and a weakening of the rupee, leading to substantial price increases of the key raw material of the industry. High interest expenses and the exchange loss incurred on Euro borrowings were the other main components responsible for the increase in costs. Despite the challenges, the segment maintained its reputation as one of the highest quality suppliers of printed products throughout the year. Efficiency and productivity remained high ensuring that deliveries were completed on schedule.


APPAREL MANUFACTURING



 
 


 
Overview

The apparel manufacturing segment of the Group consists of three companies specializing in the manufacture of men’s and children’s garments for global apparel giants in the US and UK. Having served these niche markets since its inception in 1977, the segment has built a reputation as a reliable supplier known for on-time delivery, quality and compliance.

The segment operates two factories, in Koggala and Matugama. High standards maintained by the factories have enabled the segment to secure Vendor Compliance certification, The Worldwide Responsible Accredited Production certification, ISO and Compliance+ certifications.



 
Business Review
Performance

The Group’s apparel manufacturing segment recorded a satisfactory performance for the year under review from an operational perspective as renewed efforts to broaden the customer base led to a 6.7% increase in volumes over the previous year.

Revenue for the financial year 2017/18 was up by 22.4% over the figure reported in 2016/17, although the segments’ bottom line remained a negative for the second consecutive year. However with a strong emphasis on cost containment and efficiency improvement, the segment was able to record an operational profit and reduce the net loss by 90.1%. Amongst a number of initiatives that were carried out during the year to improve the operational performance were improvements on the fabric consumption and enhancements made on production planning leading to better performance. The improved operational performance during this year signals a possible turnaround in the forthcoming year.


SERVICES SECTOR



 
 
SECTOR REVIEW

SERVICES SECTOR



2017/2018
Rs.’000
2016/2017
Rs.’000
% 2015/2016
Rs.’000
Revenue (with equity accounted investees and inter-segment) 10,356,853 7,080.9 7,080.9 7,080.9
Profit before tax 1,758,923 7,140.5 7,140.5 7,140.5
Profit after tax 8,044.4 8,044.4 8,044.4 8,044.4
Total taxes paid to Governments (Indirect and direct taxes) 989.6 989.6 989.6 989.6
Total assets 3,560.3 3,560.3 3,560.3 3,560.3
Total liabilities 812.0 812.0 812.0 812.0
Employee numbers 8.4 8.4 8.4 8.4


Overview

The Group’s Services sector is geared to offer specialised support towards the achievement of the country’s economic growth objectives. The sectors’ elevator segment, a collaboration with OTIS, the world’s leading elevator manufacturer, has become a crucial component in the local construction industry value chain. The Insurance segment as the agents for the prestigious Lloyds of London, provide mandatory marine cargo insurance survey service for the country’s export sector. As an authorized agents for Western Union money transfer services, the money transfer segment serves as a key artery in facilitating the smooth flow of foreign currency coming into the country by way of migrant worker remittances.

All businesses operate on a relatively low manufactured capital model with the sectors’ assets accounting for only 3.8% of the Group assets. However swift action to pursue opportunities for growth within their immediate operating environment has enabled all businesses to grow and consequently increase the sector’s share of the contribution to Group revenue over the past few years.



 
Select a Chart
Maritime



ELEVATORS



 
 


 
Overview

The elevators segment of the Group is the sole distributor for OTIS elevators and escalators in Sri Lanka and the Maldives and has enjoyed this accreditation for the past twenty-eight years. The representation of this world-renowned brand with its unprecedented track record of high quality products and safety standards coupled with the technical know-how and the dedication for superior customer service of the elevators segment of Aitken Spence has enabled the segment to secure its place as a reliable and competent service provider in the industry. With this reputation, the segment has been successful in benefiting immensely from the boom in the infrastructure industry witnessed in the country in the recent past.

Business Review
Performance

It was an outstanding year for the Group’s elevator segment, with total revenue recording a 30.3% year-on-year growth. Sales of OTIS elevators, registered a strong performance, with the order book growing by an impressive 39% in Sri Lanka and 136% in Maldives compared to the previous year.

Notably the highest-ever number of confirmed orders for OTIS elevators was also recorded in the current financial year. These numbers helped boost OTIS’s volume-base market share to 35% as at March 2018 from 22% a year ago and 10% at the end of 2016.

The effect of the increase in new equipment sales, was felt in the maintenance and installation business as well, where a year-on-year increase of 46.5% in revenue was reported.

However, despite the increase in the order book and the growth in revenue in maintenance and installation business, profits declined by 8.3%. This was due to higher operational costs and other factors such as the delays in completing certain large projects owing to uncontrollable factors, affected the cash flows which in-turn negatively impacted the profitability of the segment.


MONEY TRANSFER SERVICES



 
 


 
Overview

MMBL Money Transfer (Pvt) Ltd., (MMBL) is the largest principal agent in Sri Lanka for Western Union money transfer services, a partnership that has thrived since its establishment in 1995. MMBL operates branches across the country to provide fast, reliable, and convenient service with the sub-agency network expanded to 2000 plus locations during the year, including banks, financial institutions and retail outlets.

Business Review
Performance

As an authorized agent for Western Union in Sri Lanka, the Group’s money transfer services business has a commanding 65% share of the Western Union business in Sri Lanka.

While the money transfer business reported an approximately 5.0% year-on-year reduction in transaction numbers for 2017/18 in direct correlation to the drop in inward remittances, no noticeable impact was felt on the market share. However, the segment’s total revenue rose by 10.3% compared to the previous year and 2.6% ahead of target for the year due to various internal and external factors. However, profitability took a dip due to lower gains on foreign exchange recorded by the company.


INSURANCE



 
 


 
Overview

The Insurance segment has the distinction of serving as Lloyd’s of London Agents since 1876, representing the insurance giants network as survey and claims settlement agents in Sri Lanka and the Maldives. The segment’s association with Lloyds together with its reputation for the quality of reporting, reliability and efficiency has enabled Aitken Spence to become the gold standard in its field in both countries. Over the years, Aitken Spence has also been appointed as Marine Survey and Claim Settling Agents by several other leaders in the global insurance industry. The segment’s key clients also include shipping lines as well as importers and exporters of air and sea cargo in both Sri Lanka and the Maldives for whom it offers services ranging from marine cargo surveys and claims settlements for pre-shipment inspections. The segment also offers services such as insurance brokerage, risk management and other ancillary insurance consulting services.

Performance

The Group’s insurance segment reported good results for the year under review, denoted by healthy 8.1% growth in revenue compared to the previous year. However, due to the previous year’s results including a sizable gain on the sale of fixed assets and a comparatively higher gain on foreign exchange the profitability of the segment was only 4.1% higher compared to the previous year. Further the segment incurred higher costs during the current year for the development of its networks. The segment’s core business, marine cargo survey services, which relies significantly on the recommendations by overseas principals reported higher volumes. A notable increase was seen in the hull class as well, thanks to aggressive efforts to secure hull and machinery assessment work from the Maldives, as well as multi-day fishing vessels locally.


PROPERTY MANAGEMENT






 

The property management segment are the owners and the managers of the Aitken Spence Towers situated at Vauxhall Street, Colombo. A total rentable space of 195,784 square feet under the management of the segment had an occupancy of almost 100% throughout the year. Approximately 75% of the premises are rented to house the Aitken Spence Group companies with the rest being occupied by prestigious corporate entities.

The Aitken Spence Towers is one of the best planned office spaces situated in the heart of the capital, with a perfect blend of modern architecture and advanced environmental management systems.

Performance

The revenue of the segment increased by 2.7% while the profitability of the segment declined marginally by 0.2%. The segment continuously monitors the energy and the water consumption of the office complex and attempts to reduce consumption by continuously improving on the technology in the building management system.


FINANCIAL
STATEMENTS


FINANCIAL STATEMENT
Statements of profit or loss and other comprehensive income
Statements of financial position
Consolidated statement of changes in equity
Company statement of changes in equity
Statement of cash flows
Financial Information Section - Full Report






SUPPLEMENTARY INFORMATION



 
 
VOLUNTARY ENDORSEMENTS

 
GRI Reporting

Aitken Spence PLC uses the Global Reporting Initiative’s (GRI) GRI Standard reporting framework to disclose non-financial performance information of the Group. Refer to this link to peruse the material topics for the Group as per the framework.


UNGC Principals / WEP Principals

Aitken Spence PLC has been a signatory of the UN Global Compact since 28 th May 2002 and the annual report of the Group is the Communication on Progress for this commitment. The report also communicated progress made towards internalising the Women’s Empowerment Principles to which we were among the first corporates in the World to become signatory (2011).


Memberships and Affiliations

The memberships we maintain, positions held and collaborations we take part in within the professional/ industry organisations is one method through which we add value to the industries we operation in within our sphere of influence. This is a list of our memberships and positions held within organisations.


 
 
Awards and Accolades: Financial Year 2017/18

 

Aitken Spence PLC and its companies strive towards achieving excellence in all our activities, to establish high growth businesses in Sri Lanka and across new frontiers, and to become a globally competitive market leader in the region. In that effort, recognition we receive in our journey is an encouragement and testament to the success of our management approach.


  • Aitken Spence PLC was adjudged the Best Corporate Citizen for the year 2017 at the BCCA Sustainability Awards ceremony conducted by the Ceylon Chamber of Commerce on the 28th November 2017. This was the 12 th year we applied for this award and are ranked among the Top 10 Corporate Citizens for the 12 th consecutive year.


  • The company secured the following awards;

    • Winner of the Best Corporate Citizen Sustainability Award
    • Category Award for the Top Ten Best Corporate Citizens 2017
    • Category Award Winner for Environmental Sustainability (Planet)
    • Sector Award Winner for Diversified Holdings
    • Award Winner for Employee Relations
    • Award Winner for Community Relations

  • Aitken Spence PLC was Placed 3rd in the STING Corporate Accountability Index of 2018, while maintaining the Platinum classification for the sixth consecutive year.


  • Aitken Spence PLC was the winner of the Bronze Award in the Diversified Holdings category at the Annual Report Awards 2017 of the Chartered Accountants of Sri Lanka. The annual competition recognizes best practices in reporting in the corporate sector by awarding companies which have demonstrated leadership in transparency, accountability and good governance via their annual reports.


  • Aitken Spence Hotels Holdings PLC won the Gold Award at Annual Report Awards 2017 of the Chartered Accountants of Sri Lanka.

Visit our website to peruse a more comprehensive list of accolades and awards won by Aitken Spence Companies.

CERTIFICATIONS

 

Our products and services are benchmarked to international best practices, and standards to offer thebest options to our customers. All operations have implemented management systems to establish and continually improve standard procedures to streamline the quality, safety, reliability and sustainability of the product/ service we offer.


 
 
AITKEN SPENCE PLC

SHAREHOLDER FEEDBACK FORM


 

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7. Out of the following, what areas of sustainability do you feel Aitken Spence Group should focus more on?

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i) Education
 
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