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To own or manage 10,000 hotelrooms in South Asia and otherdestinations of potential - a millionsatisfied customers by 2014.
John Keells Hotels PLC l 1 l Annual Report 2008/09
Mission:To strive for perfection when providing guest experiences that exceed expectations and be
recognized as an emerging regional leader in Hospitality, through the discovery of quality service
propositions, supported by superior performance from our people and technology, whilst nurturing
values on responsible tourism and providing a sustainable future for all stakeholders.
Values:Integrity:
In our business dealings and with each other.
Teamwork:Always putting the Company and the Team
before oneself.
Service:
To achieve excellence for all our customers both
internal and external.
Technology:The use of cutting edge technological
developments to maintain leadership in
our business.
Environment:
To consciously safeguard our environment
and ensure sustainable continuity of our
natural resources.
Our People:Responsible for creating dynamism and
commitment whilst recognizing and
rewarding achievements.
Social Responsibility:Contribute to the development of the
community in which we do our business.
Vision:
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in anticipation...
John Keells Hotels PLC l 2 l Annual Report 2008/09
Chairmans Statement 4
Group Financial Highlights 7
Group operating Highlights & Financial Calendar 8
Group structure 9
Board of Directors 10
Corporate Governance 13
Audit Committee Report 23
Management Discussion & Analysis
Investor Information 26
Financial review 28
Management Discussion & Analysis of Operations 31
Risk Management 62
Sustainability Reporting
Sustainability Report 68
Our People 76
Financial Reports
Annual Report of the Board of Directors 82
Statement of Directors Responsibility 86
Report of the Auditors 87Balance Sheet 88
Income Statement 89
Cash flow Statement 90
Statement of Changes in Equity 92
Notes to the Financial Statements 93
Consolidated Value Added Statement 118
Quarterly Income Statement 119
Supplementary Information
Indicative US Dollar Consolidated Balance Sheet 122
Indicative US Dollar Consolidated Income Statement 123Six year summary Group 124
Group Real Estate Portfolio 125
Directors of Subsidiary Companies 126
Glossary of Financial terms 127
Notice of meeting 128
Form of Proxy 131
Corporate Information IBC
Contents
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John Keells Hotels PLC l 3 l Annual Report 2008/09
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Chairmans Statement
With the comprehensive victory of the Sri Lankan armed
forces in liberating the North and East of the country,
Sri Lanka is on the brink of a new era of peace and
economic development. The scourge of terrorism and the
violence that accompanied it, had a crippling effect on the
leisure business in Sri Lanka. With this new beginning, I am
confident that the country and your company will see
tremendous, unprecedented opportunities for growth.
The optimism of the industry at thecommencement of the year
waned, as business and
consumer confidence
deteriorated following
the global credit
crunch, which
plunged the global
economy into the
worst recession in
recent times. Travel
demand was initially dampened by the increase in aviation
fuel prices while uncertainty caused by the deepening
global recession and rising unemployment in the developed
countries led to a shrinking number of international visitors
during the second half of the year.
In the face of these challenges, your company, which is a
key player in the regional tourism industry, fine tuned its
operational efficiencies and demonstrated tremendous
resilience in this difficult year.
Having surmounted the challenges of the past year, it is
with pleasure that I, on behalf of your Board, present the
Annual Report and Audited Accounts of John Keells Hotels
PLC for the year ended 31st March 2009.
Industry Contribution to Economy
In Sri Lanka, the 7.5% GDP growth in the Agricultural
sector was the primary contributor to the overall GDP
growth of 6% achieved in 2008 as reported by the Central
Bank of Sri Lanka. Volatility and turbulence in the world
economy along with security concerns negatively impacted
the Hotels and Restaurants sub sector leading to a further
deceleration in GDP growth to -5%. This significant factor
slowed growth in the Services Sector, which has been
the major driver of GDP growth of the Sri Lankan
economy in the past few years.
In the midst of political change, overall GDP
growth in the Maldives slowed to 5.8% from the
7.2% in 2007. The strong growth in the tourism
sector in the Maldives, following the devastation
of the tsunami in 2004, faltered under the
impact of the world economic crisis and resulted
in the 9.4% year on year growth in the tourism
sub sector of GDP achieved in 2007, declining to
3% in 2008.
Preserving, Protecting and Prospecting
Faced with a contracting market and rising
fuel prices, the Group intensified its efforts to
fine tune its internal operating efficiencies,
conserve resources and improve productivity.
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Faced with a contracting market andrising fuel prices, the Group intensified itsefforts to fine tune its internal operating
efficiencies, conserve resources andimprove productivity
John Keells Hotels PLC l 5 l Annual Report 2008/09
Several successful cost saving initiatives were launched
without compromising brand standards.
Brand consolidation initiatives were vigorously pursued andthe accolades received following the successful
participation of our staff in local and global industry
competitions, further enhanced the visibility and
recognition of the brands.
John Keells Resort Hotels swept the boards, winning five of
the nine awards on offer at the Grand Finale of the 17th
National Bartenders Competition organized by the Ceylon
Hotel School Graduates Association (CHSGA) and the
Sri Lanka Institute of Tourism & Hotel Management. This
was followed by success at the Asia Pacific BartendersCompetition held in Singapore, when a young hostess
from Chaaya Village, competing with bartenders from
Japan, Italy, Korea, Thailand and the United Kingdom,
emerged first runner-up with a brilliant performance.
Participating amongst worldwide travel and tourism
organisations, Cinnamon Island Alidhoo received the Grand
Award in the Education and Training category of the Pacific
Asia Travel Association (PATA) 2008 PATA Gold Awards in
recognition of its initiative to uplift the employability of
young Maldivians, which commenced last year.
Clients of First Choice, which is part of the TUI Travel PLC
Group of companies, a leading UK travel company
honoured Chaaya Island Dhonveli with the Gold Choice
2008 award, as the best winter three star accommodation
worldwide.
Several investment opportunities in emerging leisure
destinations in the region were evaluated during the year,
however none crystallised, as they did not meet our return
expectations. The extreme volatility in the global financial
and capital markets as well as its lagged impact on the
tourism industry during the latter part of the year
necessitated greater discipline and prudence in evaluating
projects. However, alert to the emergence of potential
opportunities in the wake of the global industry downturn,
we continue to explore all such prospects in keeping with
our strategy of expanding our presence in the region.
Performance at a Glance
Despite the bleak industry conditions, the Group achieved
revenue of Rs.5.1Bn, which was similar to the previous
year. Revenue growth in the Maldivian segment, helped to
offset the drop in revenue from the Sri Lankan segment.
Due to the construction of a breakwater at Cinnamon
Island Alidhoo, the resort was only partially operational up
to December 2008, negatively impacting revenue.
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Chairmans Statement
John Keells Hotels PLC l 6 l Annual Report 2008/09
Tight control on direct costs enabled the Group to improve
the gross profit margin to 68% from 64% last year.
However, earnings before interest and tax (EBIT) declined
to Rs.70.5Mn from Rs.392.2Mn in the previous year due to
increased expenditure on administration caused by the full
year operation of Cinnamon Island Alidhoo and Chaaya
Reef Ellaidhoo and higher operational expenses arising
from the high cost of fuel during the greater part of the
year.
The overall reduction of 39% in the finance cost was
primarily due to the reduction in debt consequent to the
rights issue last year and lower rates on overseas
borrowings that are structured on variable rates.
The reduction in finance costs mitigated the increase in
expenditure and the Group reported a net loss before tax
of Rs.221.5Mn during the year under review, against the
net loss of Rs.83.3Mn last year. After accounting for a tax
credit of Rs.0.5Mn arising from the reversal of deferred tax,
the consolidated loss after tax for the year amounted to
Rs.221Mn as against the loss after tax of Rs.71.1Mn in the
previous year.
Future Prospects
With peace and stability, we are confident that the tourism
industry in Sri Lanka will witness a resurgence
notwithstanding current global industry concerns. The
country is likely to see a dramatic turnaround in tourist
arrivals, if augmented by a concerted destination
marketing effort.
With the objective of creating a change in the perception
of Sri Lanka as a tourist destination, the new brand of
Sri Lanka Tourism Small Miracle was launched at the
recently concluded ITB in Berlin. This positioning strategy,
formulated upon the diversity, compactness, authenticity
and the island aspects of the destination, seeks to
differentiate it from competition. In addition, Sri Lanka
Tourism advertised and launched the Hikkaduwa Beach
Festival and the Jazz Festival, amongst others, in order to
create interest around these events with the objective of
popularising the destination in niche markets. To
encourage domestic tourism, the Narambamu Sri Lanka
campaign was launched by Sri Lanka Tourism to create an
awareness of locations of interest in the country. These
efforts met with limited success in the larger background
of security concerns. However, it is anticipated that with
the end of the conflict, these initiatives would contribute
to a quick rebound of tourism in Sri Lanka.
The Maldivian Ministry of Finance and Treasury anticipatesa drop in overall country occupancy in 2009 owing to the
impact of the increase in bed capacity and the downturn in
country arrivals. However, the World Tourism Organisation
expects that although average stays may be shorter, the
repeat visitor segment will demonstrate resilience and
destinations offering value for money with favourable
exchange rates would be at an advantage, as price
becomes a deciding factor. In this context, the Chaaya
Maldivian Resorts, are well positioned as they have
cultivated a loyal customer base by providing value for
money.
Conclusion
I extend my sincere appreciation to the Board of Directors
for their invaluable contribution and support during what
has been a demanding year. My thanks also go out to the
Management team, our loyal clientele, our reliable business
partners and our staff at all levels who have worked with
passion to satisfy our guests.
Last but not least, I am deeply appreciative of the patience
and trust of all our shareholders, and look forward to yourcontinued support in the year ahead.
S C Ratnayake
Chairman
25th May 2009
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Group Financial Highlights
John Keells Hotels PLC l 7 l Annual Report 2008/09
Year ended 31st March 2009 2008
Earnings Highlights and Ratios
Group Gross Revenue Rs'000 5,336,697 5,407,828
Group profit before interest and Tax Rs'000 70,534 392,223
Group profit/(Loss) before Tax Rs'000 (221,479) (83,261)
Group profit/(Loss) after Tax Rs'000 (220,976) (71,062)
Group profit attributable to the shareholders Rs'000 (211,498) (61,337)
Earnings/(Loss) per Share (EPS) Rs. (0.19) (0.07)
EPS Growth % (171.43) (117.95)
Interest Cover No. of times 0.24 0.82
Return on Equity (ROE) % (3.0) (1.1)
Pre -Tax ROCE % 0.53 3.48
Balance Sheet Highlights and Ratios
Total Assets Rs'000 14,748,293 14,231,331
Total Debt Rs'000 6,338,755 5,847,034
Total Shareholder's Funds Rs'000 7,176,624 7,070,544
No. of shares in issue Number 000s 1,092,110 1,092,110
Net Assets per share Rs. 6.57 6.47
Debt/Equity % 88 83
Debt/Total Assets % 43 41
Market/Shareholder Information
Market price of share as at 31st March Rs. 6.50 7.00
Market Capitalisation Rs'000 7,098,716 7,644,771
Price Earnings Ratio No. of times (34.21) (100.00)
Others
Total value added Rs'000 1,863,151 1,982,498
To Employees Rs'000 779,082 676,793To Government Rs'000 392,481 422,230
To Others Rs'000 691,588 883,475
Total Employees Number 2,220 2,267
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Group Operating Highlights
John Keells Hotels PLC l 8 l Annual Report 2008/09
Interim Financial Statements
1st Quarter Ended 30th June 2008 12th August 2008
2nd Quarter Ended 30th September 2008 3rd November 2008
3rd Quarter Ended 31st December 2008 3rd February 2009
Annual Report
Annual Report 2008/09 5th June 2009
Meeting
30th Annual General Meeting 29th June 2009
Year ended 31st March 2009 2008
Occupancy - Sri Lanka % 39% 44%
Occupancy - Maldives % 72% 77%
Overall Occupancy % 51% 56%
Guest Nights Number 439,085 452,914
EBITDA Rs. Mn 790 930
Financial Calendar
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Group Structure
John Keells Hotels PLC l 9 l Annual Report 2008/09
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Board of Directors
John Keells Hotels PLC l 10 l Annual Report 2008/09
Susantha Ratnayake Chairman
Mr Ratnayake was appointed as the Chairman and CEO of
John Keells Holdings PLC and Chairman of John Keells
Hotels in January 2006 and has served on the John Keells
Hotels Board since 1999. He has overall responsibility for
Group Strategy and New Business Development.
Mr Ratnayake is a council member of the Employers'
Federation of Ceylon. He also serves as a member of the
Tourism, Sovereign Rating and Investment Promotion
Clusters of the National Council of Economic Development
(NCED). Mr. Ratnayake has over 30 years management
experience, all of which is within the John Keells Group.
Ajit Gunewardene Director
Mr. Gunewardene is the Deputy Chairman of John Keells
Holdings PLC and has been a member of their Board for
over 16 years. He is a Director of many companies in the
John Keells Group and is the Chairman of Nations Trust
Bank PLC and Union Assurance PLC. He is a member of
the board of Nanco (Pvt) Ltd, a company established for
the development of Nanotechnology in Sri Lanka under the
auspices of the Ministry of Science and Technology. He was
also appointed as a member of the National Advisory
Council for Export Development (NACFED) by the Minister
of Export Development and International Trade. He has
also served as the Chairman of the Colombo Stock
Exchange. In addition to being a member of the Board of
the Sri Lanka Tourism Promotion Bureau, he serves on
several committees appointed by the Minister of Tourism
for the development of this industry in Sri Lanka. Mr.
Gunewardene has a degree in Economics and brings over
27 years of experience to your Board.
Sumithra Gunesekera Director
Mr. Gunesekera was appointed to the Board of John Keells
Hotels PLC in 2007/08. He has overall responsibility for the
Plantation Services Sector and the Corporate
Communications function at the Centre and is also the
Head of the Management Committee of the John Keells
Social Responsibility Foundation. He is Chairman of the
Employers' Network on Disability of the Employers
Federation of Ceylon. Furthermore, he serves on the Board
of Directors of Sri Lanka Institute of Tourism and Hotel
Management. Mr. Gunesekera is a Director in many Group
Companies and has over 27 years of management
experience.
Ronnie Peiris Director
Appointed to the board during 2002/03. Mr. Peiris has
overall responsibility for Group Finance, including Treasury,
Taxation, Corporate Finance, Group Initiatives, Shared
Services and the Information Technology functions at the
centre. Previously, Managing Director of Anglo American
Corporation (Central Africa) Limited and EXCO member of
Konkola Copper Mines plc, both in Zambia, Mr. Peiris has
served on many boards overseas. He has over 36 years
finance and general management experience in Sri Lanka
and abroad. He is a Fellow of the Chartered Institute of
Management Accountants, UK, Association of Chartered
Certified Accountants, UK, and the Society of Certified
Management Accountants, Sri Lanka, and holds an MBA
from the University of Cape Town, South Africa. He is a
member of the committee of the Ceylon Chamber of
Commerce, Chairman of its Taxation Sub Committee and
also serves on its Economic, Fiscal and Policy Planning Sub
Committee.
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John Keells Hotels PLC l 11 l Annual Report 2008/09
JayantissaKehelpannala
SumithraGunesekera
SusanthaRatnayake Ajit
Gunewardene
RonniePeiris
AshroffOmar
AmalCabr
aalRa
nelT.Wijesinha
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Board of Directors
John Keells Hotels PLC l 12 l Annual Report 2008/09
Jayantissa Kehelpannala Director
Appointed to the board during 2004/2005, Mr.
Kehelpannala is currently the Executive Vice President /
Sector Head - Resort Hotels. He has over 27 years of
experience in the leisure industry both in hoteliering and
inbound tourism. He is currently The President of The
Sri Lanka Maldives Bilateral Business Council which is
under the aegis of The Ceylon Chamber of Commerce and
Vice Chairman, Hotels and Tourism Employers Group of
the Employers Federation of Ceylon. In addition he his also
a Director of the Rainforest Ecolodge which is an Industry
driven Hotel development project to cater and popularize
Eco Tourism in Sri Lanka.
Ashroff Omar Director*
Ashroff Omar, Chief Executive Officer of Brandix Lanka Ltd
(Brandix) is a leading industrialist and a prominent figure in
the apparel industry. The Brandix Group is the single
largest apparel exporter in Sri Lanka and is positioned as a
leading apparel solutions provider to many of the worlds
super brands.
Mr. Omar was instrumental in the establishment of The
Joint Apparel Association Forum (JAAF) the apex body of
the apparel industry primarily involved in driving strategy
for the industry, which he chaired at its inception. He was
also the former Chairman of The Sri Lanka Apparel
Exporters Association and is a frequent spokesperson for
the apparel industry.
Mr. Omar is a Director of Phoenix Ventures Ltd - the
holding company of Brandix Lanka Ltd. He serves as a non-executive Director for the Colombo Stock Exchange while
also being the Hon. Consul General of the Republic of
Finland.
Ranel T.Wijesinha Director*
Appointed to the Board in July 2005 Ranel T. Wijesinha
functions as Chairman of the Audit Committee. A Fellow
of the Institute of Chartered Accountants of Sri Lanka,
with over 31 years of national and international
professional work experience in accounting, auditing and
consulting, Ranel is a Past President of the Institute ofChartered Accountants of Sri Lanka, and a Past President
of the Confederation of Asian and Pacific Accountants. He
possesses a Masters Degree in Business Administration
from the University of Pittsburgh in Pennsylvania, USA, and
is presently an Independent International Management
Consultant to multilateral and bi-lateral development
banks and institutions providing advisory services to
overseas Governments. The senior managerial positions he
has held in practice have included functioning as Manager
Deloitte, Bahamas and Partner and Head of Consulting and
Financial Advisory Services of PricewaterhouseCoopers,
Sri Lanka. His exposure to industry included, functioning as
Director, Business Development of the John Keells Holdings
Group, Chairman, National Wealth Corporation Ltd,
Chairman, Ayojana Fund Management (Private) Limited
and as founder director of Lanka Ventures Ltd. He has held
several statutory, regulatory and advisory positions for the
Government of Sri Lanka and has a distinctive exposure to
and balance between the private and public sector and is
currently a member of the Accounting and Auditing
Standards Monitoring Board of Sri Lanka.
Amal Cabraal Director*
Mr. Cabraal was appointed to the Board of John Keells
Hotels PLC as an independent Director in October 2005.
He counts over 26 years of local and international business
experience and is presently the Chairman/CEO of Unilever
Sri Lanka. Mr. Cabraal is an alumnus of INSEAD - France
and holds an MBA from the University of Colombo. A
Chartered Marketer by profession, he is currently the
President - Sri Lanka Region of the Chartered Institute of
Marketing - UK. Mr. Cabraal serves on the Sri Lanka
Tourism Advisory Committee and is a member of the
Strategic Review Committee of the Ceylon Chamber of
Commerce and is a Council member of the Employers
Federation of Ceylon.
* Independent Director
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John Keells Hotels PLC l 13 l Annual Report 2008/09
Corporate Governance
John Keells Hotels PLC reaffirms its strong commitment to
maintaining the highest standards of business integrity in
all of its activities and relationships. This commitment will
continue to be the foundation of the strong relationships it
enjoys as it seeks to align the interests of all its
stakeholders for their greater mutual benefit. It is
expressed by transparency, accountability and disclosure of
its business practices and performance.
The Company welcomes the formal publication of theCode of Best Practice on Corporate Governance (Code)
issued jointly by the Securities and Exchange Commission
of Sri Lanka (SEC) and the Institute of Chartered
Accountants of Sri Lanka (ICASL) in June 2008. Having
reviewed its governance structures and practices against
this standard along with section 7 of the listing rules of the
Colombo Stock Exchange, the Company considers that it
has complied with the requirements of the Code
throughout the year ended 31st March 2009.
This report sets out the extent of our adherence to the
principles and provisions of the Code of Best Practice onCorporate Governance issued jointly by the SEC and ICASL
as outlined below.
Composition of Board
Frequency of Board Meetings
As at 31st March 2009, the Board of John Keells Hotels PLC comprised of eight Directors,
five of whom, including the Chairman, hold office in a non independent capacity
Biographical details of the Directors are set out on pages 10 to 12 of this report.
The Board meets on a quarterly basis, however, additional meetings are held if required. The
Board met on four occasions during the year under review, attendance is shown below
THE COMPANYDirectors
The Board - The Company is led by an effective Board, which also directs and controls the activities of the Company
Governance Principle John Keells Hotels Extent of Compliance
Name of Director Capacity Association and InterestShare Management Material
holding BusinessRelationship
S. C. Ratnayake NED/NID Yes Yes No
A. D. Gunewardene NED/NID Yes Yes No
G. S. A. Gunesekera NED/NID Yes Yes No
J. R. F. Peiris NED/NID No Yes No
J. E. P. Kehelpannala NED/NID No Yes No
R. T. Wijesinha NED/ID No No No
A. Omar NED/ID No No No
A. Cabraal NED/ID No No No
NED Non Executive Director, NID Non Independent Director,ID Independent Director
Name of Director MeetingsAttended
S. C. Ratnayake 3
A. D. Gunewardene 4
G. S. A. Gunesekera 3
J. R. F. Peiris 4
Name of Director MeetingsAttended
J. E. P. Kehelpannala 4
R. T. Wijesinha * 4
A. Omar * 2
A. Cabraal * 4
* Independent
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Corporate Governance
John Keells Hotels PLC l 14 l Annual Report 2008/09
Responsibilities of the Board
Strategy formulation
Strategy implementation
Effective Systems
Integrity of information and
compliance with statutes
Stakeholder interests
The Board of Directors is responsible for
The ultimate supervision of the Group and the eventual direction of the Company, in
particular the conduct, management and supervision of the business of the Company,
and the provision of necessary directions
Proper stewardship of the companys resources and share responsibility for maintaining
the highest standards of ethics and integrity
Determination of the composition and structure of the companys executive
management and the Companys operating model
Determination of accounting principles and the integrity of financial information in the
event of loss of capital
Adherence to the Corporate Governance principles of the Company
Formulation and approval of
the Groups long-term strategy and Annual investment budget;
significant financial, commercial or industrial policy issues within an ethical
framework
Implementation and monitoring of strategy by entrusting the management of the
following companies to Keells Hotel Management Services Limited, the Managing
Agents, with whom formal management contracts have been signed
Habarana Lodge Ltd - owners of Cinnamon Lodge, Habarana,
Habarana Walk Inn Ltd - owners of Chaaya Village, Habarana, Kandy Walk Inn Ltd - owners of Chaaya Citadel, Kandy,
Trinco Walk Inn Ltd - owners of Club Oceanic, Trincomalee,
Yala Village (Pvt) Ltd - owners of Yala Village, Yala,
Ceylon Holiday Resorts Ltd - owners of Bentota Beach Hotel, Bentota and Coral
Gardens Hotel, Hikkaduwa,
Travel Club (Pte) Ltd - owners of Chaaya Reef Ellaidhoo, Maldives,
Fantasea World Investments (Pte) Ltd - owners of Chaaya Lagoon Hakuraa huraa,
Maldives,
John Keells Maldivian Resorts (Pte) Ltd - owners of Chaaya Island Dhonveli, Maldives
and
Tranquility (Pte) Ltd - owners of Cinnamon Island Alidhoo.
The operations of these Hotels are conducted by the Managing Agents within the policy
framework outlined by the Board that also requires adherence to best practices in the
hospitality industry. The Managing Agents continuously update the Board by means of
Management reports in prescribed formats to enable the Board to monitor and assess
performance.
The effectiveness of the Companys systems of internal control and the management of
risk;
Compliance with laws and regulations of the countries in which the Groups
subsidiaries operate as well as the selection of appropriate accounting principles which
underlie the integrity of financial information
Taking into consideration the interests of all stakeholders when making decisions to utilise
the companys resources and maintaining the highest standards of ethics and integrity notification to shareholders in the event of loss of capital
Governance Principle John Keells Hotels Extent of Compliance
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John Keells Hotels PLC l 15 l Annual Report 2008/09
Appointment and Renewal of
Board Committees
Review of Reports
Shareholder dialogue
Company Secretary
Compliance with Statutory
and Regulatory
Requirements
Procedures for Directors to
obtain independent
professional advice and
Access to Company Secretary
Independent judgement
Dedication of adequate time
and effort to matters of the
Board and Company
Training for Directors
appointment and renewal of the sub committees
the review and determination of all reports submitted to the Board
maintenance of dialogue with shareholders by
the preparation and timely submission of Interim Financial Statements and the
Annual Report
convening Annual and Extra Ordinary General Meetings
Keells Consultants Limited functions as Secretary to the Board. They ensure that
appropriate Board processes are adopted and that a proper record of all proceedings of
Board meetings is maintained
As the Company is domiciled in Sri Lanka, the Board ensures that the Financial Statements of
the Company and the Group are prepared in accordance with the Sri Lanka Accounting
Standards, the requirements of the Colombo Stock Exchange and other applicable authorities.
The Financial Statements for all companies domiciled in Sri Lanka are prepared in accordance
with The Sri Lanka Accounting Standards issued by the Institute of Chartered Accountants.
The Financial Statements of the companies domiciled in the Maldives are prepared based on
International Financial Reporting Standards. The Board is aware of the importance of the
disclosure of critical accounting policies in the corporate governance framework and opines
that there are no instances where the use of international accounting standards would have
an impact on the Company and the Groups financial performance.
There is an agreed procedure whereby Directors may take independent professional advice
in the furtherance of their duties and all of them have access to the advice and services of
the Company Secretary.
The presence of independent non-executive Directors with proven experience and success in
their respective fields, along with the non independent Directors who are engaged in the
operation of the Company, creates an environment in which an uninhibited exchange of views
can take place. This has yielded improvements in both areas of compliance and performance.
The non independent Directors possess considerable skills in their respective fields that
include Finance, Treasury Management, Marketing and the Hospitality industry enabling
them to bring a wealth of experience to bear on decisions made by the Board.
In proportion with their knowledge and experience, the Directors devote sufficient time and
effort to ensure that they discharge their responsibilities to the Company and the Group. This
includes reviewing Board papers, business visits to understand risk exposures and operating
conditions as well as attending Board meetings and discussions with the Managing Agents.
The updating of all Directors skills and knowledge is a progressive exercise. Formal and
basic training is undertaken by and provided to all Directors as and when deemed
necessary, in such fields as may be appropriate.
All Directors have access to External and Internal Auditors, Senior Management of the
Managing Agents, the services of the Company Secretary as well as the Legal, Tax and
Finance Divisions of the John Keells Group of which the Company is a member.
Non Executive Directors have the opportunity of gaining further insight into the Groups
business by visits to hotels across the brand portfolios.
Governance Principle John Keells Hotels Extent of Compliance
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Corporate Governance
John Keells Hotels PLC l 16 l Annual Report 2008/09
Division of Responsibilities The Chairman is a non executive non independent Director. The responsibility for the
effectiveness of the Board and its Committees vests in the Chairman.
The executive responsibility for the functioning of the Groups business including
implementation of strategies approved by the Board and developing and recommending
to the Board the business plans and budgets that support the group strategy has been
entrusted to the President/ CEO of the Leisure Industry Group.
Governance Principle John Keells Hotels Extent of Compliance
Chairman & CEO
Adequacy of Financial
Knowledge
In addition to the presence of two senior Chartered/Management accountants on the
Board, the non-executive Directors collectively bring to the Board a wide array of domestic
and international experience and expertise in corporate and commercial management.
Financial Acumen
Evaluation and Declaration of
Independence of Non
Executive Directors
Independent Directors
In accordance with the criteria for Independence specified by section 7 of the listing
rules of the Colombo Stock Exchange and as identified by the Code, the Board considers
that three non-executive Directors satisfy the criteria for independence as required under
clause 7.2(b) and has received a declaration of their independence.
Operating in a culture of openness and constructive dissent, the Board is of the view that
its current composition, where three Directors hold office in an independent, nonexecutive capacity, effectively facilitates a healthy balance between executive necessity
and independent judgement, enabling the Board to create and enhance value for the
Companys stakeholders
Board Balance
Adequacy of Notice and
Formal Agenda to be
discussed at Board Meetings
The agenda for Board Meetings is circulated at least a week in advance. Directors are
briefed by means of comprehensive papers, which are accurate and relevant to the
business to be considered at the meeting and enhanced by presentations by key executive
staff during meetings.
During the year under review, the following important matters were featured in the Agenda
Review of policy
Board Sub Committee reports
Monitor alignment with long term strategies and goals
Review and approve Annual Plans and Reforecast
Consider and compare actual performance against plan/reforecast and clarify
significant variances to its satisfaction
Discuss and approve significant capital expenditure, portfolio structure, major
investments, acquisitions and disposals.
Review of effectiveness of internal control and risk management processes
Obtain assurance of compliance with regulatory and statutory requirements
Approve publication of all Interim and Annual financial statements
Supply of Information
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John Keells Hotels PLC l 17 l Annual Report 2008/09
Nomination Committee
Formal and transparent
procedure for new
appointments
Shareholder approval
Disclosure of appointment ofDirectors to shareholders
The Nomination Committee of the Parent Company John Keells Holdings PLC functions as
the nomination committee of the Company and its subsidiaries. The Nomination
Committee of John Keells Holdings PLC comprises three independent Directors and one
non independent Director namely:
Mr. Tarun Das Chairman
Mr. S Enderby
Mrs. S ThiruchelvamMr. S C Ratnayake (Non Independent)
The Board identifies eligible candidates having regard to their professional competence,
experience in commercial management and personal qualities. Eligible candidates are
recommended for appointment by the nomination committee of the parent company,
John Keells Holdings PLC, in keeping with its norms. The John Keels Hotels PLC Board
proceeds to appoint new Directors having considered and approved such
recommendations.
Shareholders must formally approve all new appointments at the first opportunity after
their appointment, as provided by Article 91 of the Articles of Association of the
Company.
Shareholders are informed of the appointment of new Directors by formal announcementon the Colombo Stock Exchange
Governance Principle John Keells Hotels Extent of Compliance
Board Appointments and Re-election
Term of office and re-election
of Directors
One third of the Directors except the Chairman retire by rotation on the basis prescribed in
the Articles. A Director retiring by rotation is eligible for re-election.
The tenure of office for non independent Directors is limited by their prescribed Company
retirement age.
Independent Directors, on the other hand, can be appointed to office for three
consecutive terms of three years, which however, is subject to the age limit set by statute
at the time of re-appointment following the end of a term.
The proposal for the re-appointment of Directors is set out in the Directors Report as well
as the Notice of Meeting on page 128 of this Report.
Re-election of Directors
Effectiveness of Board
performance
The Board is considering the introduction of a formal Board evaluation process from
2009/10
Notwithstanding the lack of a formal evaluation process, Board business has been
conducted in a structured manner, which facilitates constructive dissent and encourages
the flow of communication between management and the Board. The frank and open
relationship which existed has resulted in a form of ongoing evaluation enabling the Board
to perform effectively in the background of the economic uncertainty and industry
challenges which prevailed during the year under review.
Appraisal of Board Performance
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Corporate Governance
John Keells Hotels PLC l 18 l Annual Report 2008/09
Biographical Profiles
Disclosure of appointment of
Directors to shareholders
Other relevant information
pertaining to Directors
The biographical details of the Directors are set out on pages 10 to 12 of this report.
Shareholders are informed of the appointment of new Directors by announcement on the
Colombo Stock Exchange.
The Directors have declared the extent of their dealings with the Company, and this
information is disclosed in this Annual Report as follows:
Details of Shareholding - Pages 26 to 27
Details of related party transactions - Page 116
The attendance of Directors at Board Committee meetings are provided on Page 13
Governance Principle John Keells Hotels Extent of Compliance
Disclosure of Information in Respect of Directors
The annual appraisal of the President/CEO is carried out at parent level and is based on
pre-agreed performance criteria
Appraisal of the CEO
Remuneration Committee
Remuneration Policy
Level and composition of
remuneration
As permitted by the listing rules of the Colombo Stock Exchange, the Remuneration
Committee of the Parent Company John Keells Holdings PLC functions as the
remuneration committee of the Company and its subsidiaries. The Remuneration
Committee of John Keells Holdings PLC comprises three independent Directors:
Mr. E F G Amerasinghe ChairmanMr. M V Muhsin (Up to 28 February 2009)
Mr. P D Rodrigo
The remuneration policy adopted by the Group as recommended by the Remuneration
Committee of its parent, John Keells Holdings PLC is formulated to attract and retain high
calibre executives and motivate them to develop and implement the business strategy in
order to optimise long term Shareholder value creation
Having conducted market surveys, spoken to experts and having considered the
management complexities of the Group, on the recommendation of the remuneration
committee, the Group has adopted the following remuneration policy designed to provide
an appropriate balance between fixed remuneration and variable risk reward as follows,
a fixed element;
a variable element in the form of a short term incentive which is based on the
individual performance and an organization performance metric which covers
revenues and PAT; and
long term incentive in the form of employee share options at John Keells Holdings
PLC for applicable senior executives
A customised pay for performance scheme based on individual and organizational
performance ratings was implemented in 2007/08 for all group employees at manager
level and extended to the assistant manager level in the current financial year, while only
individual performance ratings govern remuneration of group executives at lower levels.
The rationale for excluding the organizational performance rating to pay at the lowerlevels being that individuals at this level have little direct influence on the profitability of
Directors Remuneration
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John Keells Hotels PLC l 19 l Annual Report 2008/09
Governance Principle John Keells Hotels Extent of Compliance
Directors Remuneration
Executive Share Options
Disclosure of Remuneration
the organization. These changes to the performance measures are intended to generate a
more robust alignment between reward and performance.
Compensation for Non-Executive Directors (NEDs) is determined by reference to fees paid
to other NEDs of comparable companies. NEDs receive a fee for devoting time and
expertise for the benefit of the company. Nevertheless, NEDs fees are not time bound or
defined by a maximum/minimum number of hours committed to the group per annum
and hence is not subject to additional/lower fees for additional/lower time devoted. NEDsdo not receive any performance/incentive payments.
Director Fees applicable to non-executive directors nominated by John Keells Holdings PLC
are paid directly to John Keells Holdings PLC and not to individuals.
The Company does not have an employee share option scheme
The aggregate remuneration paid to Directors is disclosed on page 112 of this report.
Relations with Shareholders
Annual General Meeting
Constructive use of Annual
General Meeting
Convening of Annual
General Meeting
The Annual General Meeting provides a useful forum for shareholders to interact with the
Directors of the Company and discuss the progress of the business, its performance and
objectives, while at the same time giving the Directors the opportunity to understand the
issues and concerns of shareholders.
By order of the Board, the Company Secretaries have convened the Annual General
meeting of the Company in accordance with its Articles and relevant statute.
The Notice convening the meeting provides details of the Agenda to be dealt with at the
meeting as separate resolutions. The consideration and adoption of the Reports of the
Directors and the Financial Statements for the year ended 31 March 2009 along with the
Report of the Auditors is presented as a separate resolution.
Accountability and Audit
Financial Reporting
Balanced Assessment of
Groups position and
prospects
The Groups position and future prospects are reported in detail in the following reports
Chairmans Statement on pages 4 to 6
Management Discussion and Analysis of Operations on pages 31 to 39
Major Transactions
Disclosure The Directors ensure that any corporate transaction that would materially affect the net
asset base of the Company are communicated to shareholders as was evidenced when the
Company sought to acquire a controlling interest in the Confifi Group in 2007/08.
Future strategies of the Company are discussed in the
Chairmans Statement on pages 4 to 6
Management Discussion and Analysis of Operations on pages 31 to 39
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Corporate Governance
John Keells Hotels PLC l 20 l Annual Report 2008/09
Internal Controls
Maintain Reliable System of
Internal Control
Internal Audit Function
The Board has overall responsibility for the Groups system of internal financial control.
The Groups systems are designed to provide the Directors with reasonable assurance that
assets are safeguarded, transactions are authorized and properly recorded and that
material errors and irregularities are either prevented or detected in a timely manner. Key
elements of such procedures are as follows:
Formal policies and procedures are defined which include the documentation of key
systems and rules relating to delegation of financial authority. This restricts the
unauthorized use of the Groups assets and ensures the monitoring of controls.
The annual budgets are approved by the Board after detailed management review.
There is a detailed budgeting process for each hotel property of the Group. Budgets are
prepared in a manner that facilitates management to monitor the key business and
financial activities. Results are regularly reviewed against budget and revised forecasts
for the year are prepared on a quarterly basis
The Enterprise resource planning system (SAP) has ensured that monthly management
accounts are prepared promptly providing relevant, reliable and up-to-date financial and
other information.
Capital Expenditure is subject to formal authorization procedures.
Experienced and suitably qualified staff takes responsibility for important business
functions. Annual appraisal procedures have been established to maintain standards of
performance.
To further strengthen internal control and have independent assurance, the Group has
enlisted the services of Messrs. PricewaterhouseCoopers in Sri Lanka & Messrs Ernst &
Young in the Maldives, both firms of Chartered Accountants to monitor and report on
the adequacy of the financial and operational systems of the properties operated by the
Group.
The scope included:
Assessment of the adequacy of accounting and operational control systems in terms
of economy, efficiency and effectiveness.
Governance Principle John Keells Hotels Extent of Compliance
Interim Financial Statements,
Price Sensitive information
and Reports to Regulatory
Authorities
Directors Report
Respective Responsibilities of
Directors and Auditors
Going Concern
The Interim and Annual Financial Statements are prepared and forwarded in a timely
manner. The Colombo Stock Exchange is updated with any information that is considered
to be price sensitive while regulatory reports and returns are submitted by the due dates.
The Annual Report of the Directors is provided on pages 82 to 85
The Statement of Directors Responsibility for the preparation of the Financial Statements
is provided on page 86 while the Report of the Auditors is provided on page 87
The Board of Directors, after considering the financial position, operating conditions,
regulatory and other factors, and such matters required to be addressed in the Corporate
Governance Code, have a reasonable expectation that the company and its subsidiaries
possess adequate resources to continue in operation for the foreseeable future. For this
reason, they continue to adopt the Going Concern basis in preparing the financial
statements.
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John Keells Hotels PLC l 21 l Annual Report 2008/09
Board Review of effectiveness
of system of Internal Controls
Examination of compliance with statutory requirements, management policies and
procedures.
Review and monitor operational and financial controls in order to ascertain
adherence to such controls.
The effectiveness of the system of Internal Control is subject to regular review by the
Internal Auditors under the direction of the Board Audit Committee. Internal Audit reports
are structured in a manner that facilitates the resolution of the concerns highlighted and
follow up action is monitored by the Board on an ongoing basis.
Governance Principle John Keells Hotels Extent of Compliance
Audit Committee
Chairman and Composition
Charter and Terms of
Reference
Attendance
Responsibility
Ensuring objectivity and
independence of External
Auditors
Report
The Audit Committee comprises solely of independent, non-executive Directors. As
prescribed in the Listing Rules of the Colombo Stock Exchange, the Chairman of the Audit
Committee is a member of a professional accounting body - a fellow of the Institute of
Chartered Accountants of Sri Lanka with several years of experience in financial auditing
and accounting.
It is governed by a Charter that encompasses the review and monitoring of internal
control, operational and business risks, adequacy and fairness of disclosures, procedures
relating to statutory, regulatory and related compliances as well as the working of the
committee.
The Audit Committee met on four occasions during the year, attendance was as follows:-
The Chairman/CEO, Executive Directors, the Chief Financial Officer, Sector Financial
Controllers, the Head of Risk Control & Review, the External and Internal Auditors are
regular invitees of the Audit Committee.The Audit Committee focuses principally in assisting the Board to fulfil its duties by
providing an independent and objective view of the financial reporting process, internal
controls, risk review and the audit function.
Working together with the External Auditors, the Audit Committee reviews the accounting
principles, policies and practices adopted in the presentation of published financial
information. The Committee is responsible for the consideration and recommendation of
the External Auditors.
The detailed Report of the Audit Committee is found on page 23 of this report.
Name of Member Meetings Attended
R. Wijesinha * 5
A. Omar ** 1
A. Cabraal 5
S. R. Jayaweera # 0
* Chairman # Appointed on 28.01.2009
** Overseas
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Corporate Governance
John Keells Hotels PLC l 22 l Annual Report 2008/09
Governance Principle John Keells Hotels Extent of Compliance
Code of Business Conduct and Ethics
Code of Conduct and Ethics
Corporate Social
Responsibility
The Company and Group embodied the ethics and conduct expected of its Directors and
employees in its statement of values and has adopted a formal code of ethics covering
Directors and Executives of the company.
The Group recognizes the pivotal role it plays in the local and extended communities in
which it transacts business and the interdependence between its customers, employees
and local entrepreneurs. The activities undertaken by the Group to foster these
relationships and safeguard the environment are described more fully in the Sustainability
Report on pages 68 to 75 of this Report.
Corporate Governance Disclosures
Extent of compliance
Risk Review
This report discloses the governance practices of the Company and the extent to which it
has complied with the Code.
The Companys corporate governance practices are in accordance with the Code except
that
A formal appraisal of Board performance has not been conducted.
The Risk management practices of the Group are described on pages 62 to 65
SHAREHOLDERS
Institutional and Other Investors
Shareholder Voting
Evaluation of Governance
Disclosures
Dialogue with shareholders
All shareholders are encouraged to participate at meetings of the company and a form of
proxy accompanies each notice providing shareholders who are unable to attend such
meetings the opportunity to cast their vote.
Maximum possible information is provided to shareholders in a timely manner and full
disclosure is made subject only to any sensitive information, which could directly affect the
business of the Company and the Group.
The Company through its parent Companys Investor Relations Division maintains an
ongoing dialogue with its key individual and institutional shareholders.
The Company places great emphasis on releasing its financial statements in a timely
manner so as to ensure that shareholders have access to information on which they couldmake informed decisions
Conclusion
The Company is of the firm belief that the real value of
Enterprise Governance lies in co-operative governance,
based on a foundation of trust, loyalty, personal integrity,
fairness to all stakeholders and a strong corporate culture,
which produces infinitely superior results. In an investment
environment in which there is a greater investor
expectation of transparency, integrity and sustainable
governance practices, the Company is well positioned to
reduce its cost of equity by lowering the Companys equity
risk premium.
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John Keells Hotels PLC l 29 l Annual Report 2008/09
possible largely due to the success of promotional offers
targeting local clientele, albeit at the cost of lower room rates.
Profitability
The incidence of rising fuel and commodity prices during the first
half of the year negatively impacted performance during the off
peak season resulting in lower margins. With the decrease in
volumes and higher cost of direct inputs, several cost and energy
saving initiatives were launched which included menu and staff
rationalisation. These steps contributed to achieving a GP marginof 68% against the 64% achieved last year.
Administrative expenses were higher primarily due to the
inclusion of expenses such as island rent and depreciation
associated with the full year operation of Alidhoo. The increase
in the electricity tariff and fuel costs in Sri Lanka during first
three quarters, the higher fuel prices in the Maldives in the first
eight months along with the full operation of Ellaidhoo and
Alidhoo contributed to the 11% increase in Other Operating
Expenses.
Although at operational level the profit before interest and tax
amounted to Rs.41Mn, the 83% year on year decrease was due
to exceptional profits included under other operating income in
the last financial year.
The higher profit contribution from Dhonveli, Ellaidhoo and
Hakuraa absorbed the loss of profit contribution from the release
of Velidhu but this was eroded by losses at Alidhoo due to
curtailed operations on account of the construction of the
breakwater and the global recession which adversely impacted
the high end market at year end.
Finance Expenses
The adverse operating conditions in Sri Lanka were heightened
by the increase in lending rates. In this context, the infusion of
equity during the last financial year and lower LIBOR rates on US
Dollar borrowings in the Maldives, were the key contributory
factors that enabled the Group to achieve a 39% reduction in
finance costs during the year under review.
After accounting for tax credits of Rs.0.5Mn, the net
consolidated loss after tax amounted to Rs.221Mn against the
loss of Rs.71Mn in previous year.
GP Margins
2007/08
2008/09
Qtr 1 Qtr 2 Qtr 3 Qtr 4
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
EBIT Finance Expenses
Interest Cover
06/07
Rs. Mn Times
07/08 08/09
Interest Cover
0
100
200
300
400
500
600
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
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Financial Review
John Keells Hotels PLC l 30 l Annual Report 2008/09
Flat revenue growth and higher operational expenditure incurred
during the year due to adverse macro economic factors, led to a
reduction in interest cover, which decreased from 0.82 to 0.24
notwithstanding the reduction in finance costs.
Funding
Net borrowings as at 31 March 2009 stood at Rs.5.8Bn of which
short term debt amounted to Rs.2.6Bn representing 45% against
the Rs.5.4Bn as at 31 March 2008 with short term debt
representing 33% of total debt.
As mentioned last year, the group debt portfolio is structured to
benefit from the lower interest rate regime on USD borrowings
overseas as opposed to the comparatively higher rates prevalent
in Sri Lanka. The fiscal strategies adopted by the United States
and Europe to stimulate investment led to a reduction in interest
rates on USD borrowings, from which the Group benefited by
way of lower finance costs.
Although the utilisation of short term overseas borrowings are
more attractive in terms of cost and repayment which is less
structured and allows the Group to maximise cyclical operational
cash flows, attempts are being made to convert part of these
borrowings to long term facilities in the light of the current
global shortage of funds.
Cash Generation
Working capital was closely monitored in the backdrop of
turbulence in global financial markets and the consequent credit
crunch. This led to improved collections and generated net
operational cash flows of Rs.916Mn during the year against
Rs.192Mn last year enabling the Group to retire Rs.514Mn of
long term debt. However, the balance generated from
operations was insufficient to fund the cost of construction of
the breakwater at Alidhoo, which was structured by utilising
short term instruments and overdrafts.
With the return of normalcy to Sri Lanka following the cessation
of hostilities, we anticipate tourist arrivals to the country would
improve and contribute to healthy operational cash flows,
enabling the Group to reduce its borrowings in Sri Lanka.Composition of Debt
Short Term Debt
Long Term Debt
06/07 07/08 08/09
0
0.2
0.4
0.6
0.8
1
Equity Debt
Gearing
06/07
Rs. Mn %
07/08 08/09
Gearing
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
0
20
40
60
80
100
120
140
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Management Discussion & Analysis of Operations
John Keells Hotels PLC l 32 l Annual Report 2008/09
as well as within the region. This was aggravated by the
global economic crisis leading to the weak growth of 1.6%
and lower overall occupancy rate of 65.5%, down from
the 70.6% achieved in 2007.
Tourism in Sri Lanka
As the government pursued its objective of eradicating
terrorism in the country, the intensification of the conflict
in the North and East exposed the vulnerability of the
tourism industry in Sri Lanka to safety and security
concerns, resulting in tourist arrivals to the country
declining by 17% in 2008/09 when compared with
2007/08.
During the year under review, 409,661 tourist arrivals were
recorded against the 494,889 arrivals recorded in 2007/08.
Arrivals during the year evolved along similar lines to the
previous year with the steepest decline of over 30%
recorded in August 2008 and January 2009, both
traditionally peak months for the industry. Year on year
growth was only recorded in May 2008 (18%) but this was
chiefly due to the lower base in May 2007 when arrivals
plummeted due to the restriction on night flights following
the attack on the airport.
In terms of market performance, the year on year
reduction of 28,781 arrivals from India saw it slipping
behind the UK which with 78,086 arrivals during the year
under review, emerged as the market leader. The other key
source markets that registered lower arrivals were
Germany, Holland, Japan and Hong Kong/China.
According to the Central Bank of Sri Lanka, during thecalendar year 2008, the average stay declined marginally
The strong growth that characterised the firsthalf of the year saw international touristarrivals touching 924 million at year end...
Tourist Arrivals to Sri Lanka by Month
2006/07
2007/08
2008/09
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
-40%
-30%
-20%
-10%
00%
10%
20%
30%
40%
Australia
Maldives
Russia
France
Germany
India
UK
Market Share 08/09
Sri Lanka Performance ofMajor Source Markets
Growth
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Management Discussion & Analysis of Operations
John Keells Hotels PLC l 34 l Annual Report 2008/09
The Maldivian Tourism Industry
With first quarter growth at 5.6%, tourism in the Maldives
pointed to another good year, well on the way to
exceeding the annual growth target of 9% set for 2008.
However, higher airfares and Europes slide into deeper
recession saw growth moving into negative territory during
the last three quarters of the financial year. The last
quarter, which traditionally peaks in arrivals, saw arrivals
drop by as much as 11%, leading to an overall year on
year decline of 3% with total country arrivals during the
year under review amounting to 660,983. The 9% increase
in bed night capacity led to lower hotel occupancy and
exerted pressure on room rates as hotels sought to
preserve occupancy levels. Rising commodity prices in the
world economy and higher freight and fuel costs resulted
in inflation, as measured by the National Consumer Price
Index, increasing by 12.3% compared with the 3.5% in
2006 and 7.4% in 2007.
Pointing to the influx of Italian tourists to the Maldives
when prices were low during the infancy of the tourism
industry, the new Maldivian President acknowledged that
one of the underlying factors for the drop in arrivals from
Italy was the comparatively higher prices attributed to the
increase in island lease rents over the years. On an official
visit to Italy in February 2009, he attended the BIT trade
fair and encouraged Italian investment in the development
of the newly created Maldivian provinces.
In a bid to reduce its dependence on Europe, the Maldives
Tourism Promotion Board together with the Maldives
tourism industry, having identified the promising outbound
tourism potential of the South East Asian market, held
road shows in Kuala Lumpur, Bangkok and Singapore in
October 2008.
There were however, causes for celebration as travel
agents worldwide voted the Maldives, as the 2008 World
Travel Award Winner for Indian Ocean at the 15th World
Travel Awards in Shanghai in June 2008. This was followed
by more accolades at Londons World Travel Market in
November 2008 when the Maldives was awarded the Best
Country Brand for Beach and Best Country Brand for Rest
Tourist Arrivals to Maldives by Month
2006/07
2007/08
2008/09
30,000
40,000
50,000
60,000
70,000
80,000
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
-10%
-5%
0%
5%
10%
15%
20%
India
Korea
Japan
China
France
Russia
Germany
ItalyU
K
Market Share 08/09
Maldives Performance ofMajor Source Markets
Market Share 07/08 Growth
Others
Food & Beverage
Room
JK Hotels MaldivesComposition of Revenue - 2008/09
66%
22%
12%
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John Keells Hotels PLC l 35 l Annual Report 2008/09
and Relaxation for the year 2008. It also ranked second in
the Best Country Brand for Natural Beauty and came third
in the Best Country Brand for Resort and Lodging Options.
Arrivals from the major source markets of UK and Italy fell
by 6% and 7% respectively during the year, while the
German market contracted by 5% resulting in a total drop
of 18,699 arrivals from Europe.
The decline in the value of the Korean Won, which
depreciated by 48% against the US Dollar, saw arrivals
from Korea dropping by 9%. This drop was offset to some
extent by the Chinese market that grew by 2%.
The average stay increased slightly to 8.0 days from 7.9
days in 2007 while year round occupancy averaged 78%,
compared with the 83%, in 2007. Total bed nights
increased by 3% compared with the 10% in 2007. During
the year, the Maldivian Monetary Authority revised the
basis of computing tourist expenditure per night by
replacing total arrivals with tourist arrivals in the
denominator. This change was applied to previous periods
as well and indicates that tourist expenditure per night for
2008 was USD118.3 against USD113.8 in 2007.
Performance of our Hotels in Sri Lanka
Cinnamon Lodge
Cinnamon Lodge continued to experience low occupancy
albeit at a higher average room rate. The significant drop
in numbers of clients booking round trips, because of
travel advisories warning against travel to the region, had a
negative impact on the up market clientele to which the
resort caters with its promise of indulgence. With the
conclusion of military operations in the North, the Lodge is
tipped to regain its pre-eminence in the region as it is
ideally located to cater to prospective visitors to the
cultural triangle, investors and aid workers operating in the
North and East of the country.
Chaaya Village
The drop in arrivals and the negative travel advisories also
affected the flagship of the Chaaya brand, Chaaya Village.
Supported by its loyal local clientele base, Village was able
to limit the drop in occupancy to 11% although country
AdministrationManagement FeesDepreciation
Finance ExpensesSales and MarketingMaintenance & Repairs
Power & EnergyPayrollCost of Sales
JK Hotels MaldivesComposition of Expenses - 2008/09
24%
24%
11%5%
4%
8%
12%
3%
9%
JK Hotels VsMaldives Occupancy - 2008/09
Occ. %
0
20
40
60
80
100
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Maldives
JK Hotels
JK Hotels Vs Cultural TriangleOccupancy - 2008/09
Occ. %
0
10
20
30
40
50
60
70
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Cultural Trangls
JK Hotels
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John Keells Hotels PLC l 36 l Annual Report 2008/09
arrivals declined by 17% during the year under review.
Chaaya Citadel
Occupancy declined to 43% at Citadel as the number of
tourists on round trips decreased due to the unsettled
security conditions prevailing during the year. This year too,
loyal local guests continued to patronise the hotel enabling
the hotel to achieve growth in the average room rate
despite the contraction in volume.
Bentota Beach
The star amongst the Sri Lankan Keells resorts, in terms of
both occupancy and profitability, Bentota Beach
consolidated its premier position in the region. Posting
average annual occupancy of 58%, despite the adverse
industry conditions, this property is ear marked for re-
branding with the return to normalcy.
Coral Gardens
Amongst the beach hotels, the contraction in country
arrivals was felt most at Coral Gardens, the largest resort
in the group portfolio. Occupancy dropped to 25% from
the 35% achieved last year.
As part of the several cost saving initiatives introduced
during the year, we limited the number of rooms in
operation to 64, leading to significant savings on overheads,
particularly in energy, payroll and other operational costs.
Yala Village
During the first half of the year, sporadic acts of terrorism
within the Yala National Park once again deterred tourists
from visiting Yala. Effective counter measures sawoccupancy begin to pick up at the end of the third quarter
and we anticipate that once travel advisories are relaxed,
Yala will live up to its true potential.
Club Oceanic
The stringent controls imposed on aid workers operating in
the region and intermittent breaches in security resulted in
Club Oceanic recording annual occupancy of 38%, down
from the 41% achieved last year, although the average
room rate improved by over 40%. We were encouraged by
renewed interest by domestic travellers and aidorganisations towards the end of the last quarter, a trend
JK Hotels VsKandy Occupancy - 2008/09
Occ. %
0
10
20
30
40
50
60
70
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Kandy
JK Hotels
JK Hotels VsSouth Coast Occupancy - 2008/09
Occ. %
0
10
20
30
40
50
60
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
South Coast
JK Hotels
JK Hotels VsEast Coast Occupancy - 2008/09
Occ. %
0
10
20
30
40
50
60
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
East Coast
JK Hotels
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that augurs well for the future.
Performance of our Hotels in the Maldives
Chaaya Reef Ellaidhoo
Leveraging on the investment infused through upgrading
and enhancing product offerings, Ellaidhoo became the
standard bearer amongst the Maldivian resorts during the
year under review. Satisfied guests, whose enthusiastic
online reviews on the resort feature frequently in global
forums, added to its popularity and championed the
Chaaya brand. Against a 13% drop in country arrivals in
February 2009, Ellaidhoo achieved optimum occupancy
during the winter season with an improved yield,
underlining its potential for the future in a climate of
growth.
Chaaya Island Dhonveli
With its complement and array of 148 rooms, Dhonveli,
the Chaaya heavyweight in the Maldives was the chief
contributor to group revenue in the Maldives with a year
round occupancy of 85%, well above the country average
of 78%. Profitability too improved since the resort was in
operation throughout the year, unlike the previous year
when it was partially closed for upgrading.
Chaaya Lagoon Hakuraa
The drop in arrivals from the UK and the fluctuation of
parity rates left its mark on the performance of Hakuraa.
Although both revenue and profitability increased, growth
momentum slowed due to the prevailing industry
conditions. Hakuraa achieved average annual occupancy of
Other
China
Switzerland
Australia
France
Russia
Germany
Italy
British
JK Hotels Maldives - 2008/09Occupancy by Guest Nationality
31%
16%
13%
9%
9%
3%
3%
3%
13%
Satisfied guests, whose enthusiastic onlinereviews on the resort feature frequently inglobal forums, added to its popularity...
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94%, slightly below the 96% last year, mainly due to low
demand during the off peak season.
Cinnamon Island Alidhoo
With the intention of improving the beach and enhancing
the appeal of this new resort, following the
recommendation of experts in the field of oceanography,
we constructed a breakwater around approximately half of
the island during the off season. As a result, Alidhoo
became fully operational only towards the end of the thirdquarter of the year under review. Designed to cater to
upmarket clientele, the resort was prevented from
achieving its potential as it bore the brunt of the industry
downturn during the last quarter, which traditionally peaks
in performance.
Brand Consolidation
Continuing customer reviews point to growing recognition
of our brands, enabling us to preserve and grow our
market share in adverse industry conditions. Winning
performances by our staff at several local and internationalindustry competitions attracted positive media publicity,
further boosting brand visibility. We continue to innovate
service offerings and continuously review and monitor
brand standards to ensure consistent quality across the
brands. As we unwaveringly focus on building a franchise
around our brands, we are confident that this will aid our
competitive advantage and help us to grow our presence
in the region.
Awards
Competing with bartenders from Japan, Italy, Korea,Thailand and the United Kingdom, a young hostess from
Chaaya Village emerged first runner-up at the Asia Pacific
Bartenders Competition held in Singapore. And just prior
to this achievement, the Resorts Team won five of nine
awards at the Grand Finale of the 17th National Bartenders
Competition organized by the Ceylon Hotel School
Graduates Association (CHSGA) and the Sri Lanka Institute
of Tourism & Hotel Management.
Continuing the initiative launched last year to provide
opportunities for young Maldivians to acquire marketableskills, Cinnamon Island Alidhoo was accorded the singular
honour from among worldwide travel and tourism
organisations with the Grand Award in the Education and
Training category of the Pacific Asia Travel Association
(PATA) 2008 PATA Gold Awards.
More accolades were received by the Group when Chaaya
Island Dhonveli bagged the Gold Choice 2008 award, being
selected as the Best Winter Three Star Accommodation
worldwide by clients of First Choice, which is part of the UK
based TUI Travel PLC Group.
Prospects - Maldives
In a recent review, the Maldivian Ministry of Finance and
Treasury projected marginal growth of 0.9% for the
calendar year 2009, with expectations that the global
recession will abate during the last quarter. It is anticipated
that bed capacity will increase by 10% in 2009, which will
result in projected overall occupancy for 2009 declining to
63.4%, from 78% achieved in 2008. As world trade
declines and more travellers cut costs by choosing to
holiday locally, international travel demand will weaken. Itis also estimated that arrivals will grow in tandem with the
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gradual recovery of the global economy, averaging 1% and
2.5% for 2010 and 2011. According to the World Travel
and Tourism Council, real GDP growth for the Travel &
Tourism Economy in Maldives is expected to be -10.1% in
2009 and to average 2.2% per annum over the coming
ten years.
Prospects - Sri Lanka
We are confident that the recent liberation of the North
from the menace of terrorism has set the stage for anenduring peace and created conditions that are of
paramount importance to achieving sustained growth in
the tourism industry in Sri Lanka. Past experience, when
temporary respites produced robust gains, strengthened
our conviction in the ability of the industry to rebound
quickly. However, in the larger setting of an ailing world
economy, the attempt to regain lost market share will
require much greater effort. In this context, the branding
exercise aptly entitled Sri Lanka Small Miracle initiated
by the Tourism Promotion Board and soft launched at the
ITB in Berlin earlier this year, needs to be vigorously
pursued. An intense, focused marketing campaign such as
the Visit Malaysia campaign will give added impetus to
tourism growth.
We will continue to monitor the evolving recovery and will
pursue our objective of bringing other identified hotels
under our branding initiative.
Overseas Expansion
The Pacific Asia Travel Association (PATA) states that arrivals
to the Asian region will increase by an average of 4% over
the next three years led by China. Supported with the
competitive strength of the Cinnamon and Chaaya brands,
we believe that the potential for the future lies in
expanding overseas.
In a turbulent world economy marked by uncertainty, we
have remained resilient and proactive.
Our ability to adapt to change, reinvent, willingness to
critically examine and rationalise our operating processes,
maximise opportunities for revenue generation and curtail
expenditure has enabled us to weather the challenges of a
difficult year.
Looking beyond the present economic crisis, the prospects
for tourism remain strong, led by renewed expansion in
emerging countries both as tourism destinations and as
an increasing source of international and domestic visitors.
We remain extremely confident about the tourism
industrys longer-term future.
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Chaaya Citadel,KandyA Kandyan experience, derived from the citys
wealth of history, arts and culture, is what
travellers with a passion for culture tourism yearn
for when holidaying at Chaaya Citadel Kandy. Theproperty, camouflaged by towering trees, sits
rooted in an enviable setting up a hill bordering
the meandering Mahaweli River. Tradition and
modernity come together to offer travellers up-to-
the-minute accommodation in the hotels 121
rooms and suites. The Experience Packages are
personalized and guests are invited on a journey
with many paths that bare the beauty, serenity
and majesty of the glorious hill capital.
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in anticipation...
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Bentota Beach,BentotaLike many of the symbolic sites of Down South
Sri Lanka, the Bentota Beach Hotel of 1968, set on
11 acres of landscaped gardens bordering a
golden beach fringed with palm trees, is a
colourful celebrated landmark property. Geoffrey
Bawa designed an all-embracing place of bliss by
setting this splendid sprawling structure amid the
lazy Bentota River and azure waters of the Indian
Ocean. Complete with 133 spacious, well
appointed rooms offering spectacular vistas,
tranquility awaits guests in all the unexpected
places while Sun, sea and surf escapades are all-
time attractions at Bentota Beach Hotel.
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Yala Village,YalaIf the Yala Wildlife Sanctuary is the place to have a
communion with the wild, then Yala Village is the
elegant star-class jungle resort ideal for a wildlife
tourism experience in the tropics. The jungle
resorts 61 superbly furnished bungalow-style
chalets are located in the heart of the animal
kingdom bordering the cerulean waters of the
Indian Ocean. While wildlife is the main draw, Yala
Village knows best how to unleash untamed and
adventurous Excursions for its guests in the
exotic outdoors.
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in anticipation...
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Coral Gardens,HikkaduwaDiving safaris, scuba diving and snorkeling on the
Western seaboard of Sri Lanka have been all-time
favourite holiday experiences provided by Coral
Garden Hotel Hikkaduwa since the 1960s.
Strategically nestled facing the splendid coral
reefs with a perfect beachfront garden within a
radius of 50 miles, this 155-roomed resort offers
Sun, sea, sand and a show of exotic marine
adventures. With a commanding view of the Indian
Ocean and marine sanctuary on its doorstep, the
range of Excursions offered to guests are
definitely adventurous and refreshing.
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Club Oceanic,TrincomaleeAlong the Sun-drenched Eastern seacoast of
beautiful Sri Lanka in the Trincomalee District,
Club Oceanic Uppuveli lies lazily against a
fantastic palm-fringed show line along a
spectacular stretch of beach. Since the hotel isrenowned for offering some of the best dive spots
in clear waters, guests often seek out the
Experience Packages with the promise of golden
Sunrises; ankle-deep cerulean waters; historical,
cultural and religious sites and hours of basking
around. This 56-roomed seaside resort offers well-
appointed comfortable accommodation in one of
the worlds most breathtaking settings.
in anticipation...
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