Chairman’s Review: D H S Jayawardena

15 Jun

It is with a sense of pride and satisfaction that I present to you the Annual Report and Statement of Accounts of your Company for a year which heralded the dawn of a terrorism free era in Sri Lanka and in which Aitken Spence has recorded an outstanding performance despite the continued fallout of the global recession. Aitken Spence consolidated its bases both in Sri Lanka and overseas during the year, in readiness for an expansion drive over the next few years. Having focused on overseas growth in the recent past, we feel the time is opportune to shift our focus to Sri Lanka where a terrorism-free landscape offers countless opportunities. The experiences we gathered from our overseas markets – the Maldives, Bangladesh, South Africa, Oman and India – has expanded the Group’s management capabilities and its ability to cope with diverse situations. The proficiency and expertise we have acquired therein can now be employed to reap similar success in Sri Lanka. The Colombo-based employees are now housed at the new building on Vauxhall Street, which has enabled the Group to bring together many of its previously scattered offices in and around Colombo, enabling greater efficiencies and better interaction.

Economic Review

As the world emerges from a recession that has seen extraordinary policy intervention from governments across the world, the post crisis economic landscape will become clearer in the coming year. Already an increasing number of countries have registered positive GDP growth in late 2009, along with a recovery in international trade and global industrial production. Despite facing widespread domestic and global challenges, Sri Lanka recorded a growth of 3.5% in 2009, with the economy making a very commendable recovery in the second half. Buoyant investor confidence consequent to the end of the conflict in May 2009, together with several policy measures, boosted the economy and resulted in an unprecedented balance of payments surplus of USD 2.7 billion and foreign exchange reserves of USD 5.1 billion at the year end. Inflation declined significantly from the unwieldy double digit rates of 2008 to close the year at 4.8%, as lower commodity prices and tighter monetary policy measures contributed to facilitate an annual average inflation of 3.4%, the lowest levels in twenty four years. The Central Bank has forecast a 6.5% expansion of the economy for this year.

Corporate Performance

Despite the economic downturn worldwide and a year full of challenges faced by the country, I am proud of your Company’s performance which recorded the highest ever profit attributable to shareholders amounting to Rs. 2,077 million.

This year’s growth was driven mainly by the maritime transport, integrated logistics, printing and tourism segments. Although our Sri Lankan resorts made losses during the first half of the year, due to the escalation of the war during the final battle to liberate the country, the positive returns in the second half negated these adverse effects. Our hotels in the Maldives fared marginally better than last year, which is still an impressive performance, even though global conditions continued to impact the market. The money transfer businesses recorded reduced profitability, while losses arose in the airline GSA business, where reduced flights and reduced airfares combined with the oppressive conditions of the industry worldwide.

Shareholder Returns

The Board of Directors recommend a final dividend of Rs. 6.50 while an interim dividend of Rs. 3.50 was paid in May 2010. In total, this will amount to a dividend of Rs. 10.00 per share. The performance of the Aitken Spence share has been outstanding – it closed the year at a market value of Rs. 1,373.75 per share, compared to a value of Rs. 315.00 per share a year ago. You would be happy to note that the current price is a much closer reflection of the true value of your investment.

It is significant to note that your Company has followed a strategy of self-sustaining its investments without resorting to further raising of capital from the shareholder community. The Company has over the past fifteen years pursued a policy of funding its expansion through internally generated funds and through debt financing. Aitken Spence Hotel Holdings PLC., the investing company of our Hotels and Resorts segment which is earmarked to lead the Group’s growth over the next few years, has approached its shareholders to raise Rs. 2.5 billion through a right issue which was successfully concluded recently.

Future Outlook

His Excellency the President Mahinda Rajapaksa and his government have both garnered resounding mandates at the recently concluded presidential and parliamentary elections. This is no doubt an endorsement of the government’s successful campaign to wipe out terrorism and end the thirty year conflict in the North and East. I congratulate the President and his government on their magnificent achievement and I am confident that their vision of making Sri Lanka the ‘new miracle of Asia’ can be realised through the proposed strategies, timely action and the creation of an enabling environment. Our Company will actively participate in the development strategies outlined by the government to bring prosperity and success to the country as well as the Company. Foreign investments will be essential to meet the country’s ambitious growth targets over the next few years as Sri Lankan enterprises on their own do not have the required ability and capacity to absorb the scale of earmarked projects. Over the past year, we have witnessed a significant increase in foreign investor interest both in Aitken Spence and Sri Lanka as a whole. This interest must be converted into investment through selective incentives, particularly for the tourism sector, to enable the country to reap the benefits of such interest. It is important to note that enabling rules and regulations and many incentives do currently exist, but their implementation involves many bureaucratic obstructions and delays, which could discourage potential investors.

The public sector is a pivotal player in the country’s forward march, and needs to be structured and directed to support the policies of the government and efforts of the private sector. The economic policy needs to be strengthened by addressing areas of concern. One such area is the prevalent taxation policy which is not conducive to an enabling business environment. The current tax regime involves in addition to corporate taxes, a plethora of indirect taxes applicable to various industries. It is hoped that the government will consider the weight of these taxes on the business community and also consider broad-basing the tax net as an alternative method to increase tax revenue. A consistent, clear and concise tax policy would benefit the entire corporate sector while at the same time enabling the government to realise its revenue targets. High duties on imports also have a negative effect on business; it is often counterproductive to levy high duties on imports that the country requires in order to achieve a high economic growth. The newly liberated economies of the North and East offer much potential for development. Resources available in these provinces require to be complemented by the necessary logistics and incentives. The traditional industries of the North and East should be supported through area specific incentives, a tool that has been used by countries such as India, with much success. 2010/11 will see Aitken Spence embark on a new phase in its expansion in Sri Lanka. As I stated last year, the Group remains committed to play its part in the nation building agenda of the government. With this in mind, our expansion plans will encompass the newly liberated areas of North and East.

Appreciations

My fellow Directors on the Board have been a source of great strength, supporting the vision of the Company through their respective expertise. I welcome two new members to the Board – eminent professional Mr. Rajan Asirwatham and Dr. Parakrama Dissanayake, who heads the Group’s maritime business. The management team has driven Aitken Spence to exemplary performances even through the toughest times and it is due to their guidance and strategic foresight that the Group is well positioned today. I thank them on behalf of the Board.

I thank all the members of the Aitken Spence team and take this opportunity to recognise the key role played by its employees, especially over the past two years of considerable challenges. Their commitment and loyalty to the Company and belief in the spirit of Aitken Spence is indeed noteworthy.

My appreciation also to you- our shareholders, who have kept their faith in Aitken Spence. It is your confidence in the Company that has driven it to greater heights.

For more information on the Groups reports and performance, click: http://www.aitkenspence.lk/about_us/financial_reports_of_aitken_spence_sri_lanka.asp

Annual Report – Message from Our Chairman – 15 June 2010

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