THE Kandy HOTELS CO. (1938) PLC ANNUAL REPORT89th Annual General Meeting for the year ended 31st March 2018 CONTENTS 5-7 Chairman’s Review 8-9 Financial Highlights 10-12 Profile of Directors 13-16 Annual Report of the Board of Directors, on the Affairs of the Company 17-21 Corporate Governance 22 Statement of Director’s Responsibilities for preparing the Financial Statements 23 Corporate Social Responsibilities (CSR) 25-63 Financial Reports 65 Investor Information 69 05 Years at a Glance 71 Notice of Annual General Meeting 72 Notes 73 Form of Proxy Queen's Hotel ne of Sri Lanka’s iconic historic hotels, OQueen’s Hotel, situated in the heart of Kandy, faces the beautiful splendid surroundings alongside the Kandy Lake. With a history of over 160 years, the 91 roomed Queen’s Hotel is a British Colonial style luxury hotel. This former Governor’s residence is one of the oldest hotels in Sri Lanka which is managed by the Ceylon Hotels Corporation. What’s momentous about Queen’s Hotel is that it is situated in Kandy, where the world prominent “Temple of the Tooth Relic of Lord Buddha” is. Every country has its pageants and festivals and so does Kandy which has the world famous “Kandy Esala Perahera Pageant” which is held annually. This pageant proceeds alongside the Queen’s Hotel’s East & West wings, providing the most magnificent viewing facilities for the guests who patronize the hotel. Hotel Suisse deally located right beside the historic and I picturesque Kandy lake, the 90 roomed well known colonial styled Hotel Suisse, the only city hotel in Kandy with a large landscape garden. In the 17th century, it was the residence of the Chief Minister of the Royal Granary. However, in 1818 this property was acquired by the British and occupied by an officer, who named it “Harmby House”. Years later, “Harmby House” was sold to a Swiss lady, who renamed it as “Hotel Suisse”. During the second world war from 1943 to 1945, it was used as the Headquarters of the South East Asia Command. This then was the beginning of the present “The Hotel Suisse”. ANNUAL CHAIRMAN’S REPORT89th Annual General Meeting REVIEW for the year ended 31st March 2018 Queen’s Hotel - Kandy The Kandy Hotels Co. (1938) PLC Annual Report - 31st March 2018 5 CHAIRMAN’S REVIEW t is with great pleasure that I warmly welcome our share Iholders to the 89th Annual General Meeting of Kandy Hotels Co. (1938) PLC and present to you the annual report and the audited financial statements for the year ended 31st March 2018. INTERNATIONAL TOURISM SRI LANKA TOURISM of all arrivals, followed by China that accounted for 12.7% of tourist International Tourist Arrivals grew Sri Lanka Tourism was faced with arrivals. Despite China being the by a remarkable 7% in 2017 to reach a challenging year due to several second largest source country a total 1,322 Million, 87 Million factors, which includes the partial for Sri Lanka, arrivals from China more than in 2016, according to closure of the Bandaranaike resulted in a marginal drop in 2017 the United Nations World Tourism International Airport for the decreasing by 1%, eventhough Organization (UNWTO). renovation of the runway during the globally the Chinese outbound first 3 - 4 months of the calendar traveler market witnessed strong 2017 was characterized by year, followed by floods and a growth. Western Europe as a sustained growth in many dengue epidemic during the 1st and region accounted for 32.2% of all destinations and a firm recovery 2nd quarters of the financial year tourist arrivals led by the United in those that suffered decreases respectively. As a result, tourist Kingdom, continued to grow at an previously. As the third export arrivals to the country grew only encouraging pace. sector in the world, tourism sector by 3.2% reaching 2,116,407 during has become a key driver in economic 2017. This was the lowest year on Cumulative tourism earnings development. This momentum is year growth rate recorded since reached US$ 3.9 Bn in 2017 expected to continue in 2018 though 2009. outpacing the growth rate in tourist at a more sustainable pace after arrivals by increasing at a healthy eight years of steady expansion India continued as the single rate of 11.6% compared to 2016. following the 2009 economic and largest source country for tourists Tourism continues to be one of the financial crisis according to the contributing the most number most important sectors in Sri Lanka UNWTO. of tourists, accounting for 18.2% as it cushions the trade deficit by The Kandy Hotels Co. (1938) PLC 6 Annual Report - 31st March 2018 CHAIRMAN’S REVIEW (Contd..) being one of the largest foreign hotels have come up with 563 Room Resort on Anbarra Island in exchange providers. additional rooms and new Banquet Vaavu Atoll in the Maldives with Halls with adequate parking facility. an investment of approximate of As tourist arrivals continue to grow, USD 50 Million. This investment the competitive landscape of the Company operating profit for the was completely financed by bank tourism industry has also intensified year under review was Rs.238 borrowings obtained during the driven by the burgeoning non-hotel Million, compared Rs 239.8 Million financial year (Please refer the tourist accommodations. As per recorded last year. Net Profit for disclosures made in the financial the Sri Lanka Tourism Development the year under review was Rs 194.8 statements enclosed in this regard). Authority, the registered guest Million, Rs 53 Million less than the houses and homestay units previous year, which was Rs.247.8 SUISSE HOTEL KANDY (PVT) account for more than 30% of the Million, mainly due to net Finance LTD. / (OZO HOTEL KANDY) total registered room inventory. Expenses amounting to Rs 57.6 In addition to the registered room Million incurred on account of As reported last year, OZO Hotel inventory the industry also consists financing the acquisition of shares Kandy has become a popular of an informal sector, which is in United Hotels Co. Ltd as noted destination in Kandy. The Revenue believed to have increased during below. for the year was Rs.579.5 Million the recent past. This increase in the compared to Rs 563.7 Million in non-hotel room supply (informal NEW INVESTMENTS 2017. This year, I am happy to inform and formal) continues to challenge you that OZO Hotel Kandy has the occupancy levels of the hotel Further to the market announcement made a Net Profit of Rs 59.8 Million sector resulting in price competition made on 25th May 2017, the although in 2017, it made a loss of specially during off peak seasons. Company made an investment Rs 3 Million. in United Hotels Co. Ltd (UHCL Kandy as a region was affected – a subsidiary of Ceylon Hotels OUTLOOK during the 4th quarter of the FY Corporation PLC) by Purchasing 2017/2018 as a sudden escalation 48,000,000 shares (16.1%) at Rs 12.5 Tourist arrival growth rates are of communal unrest led to per share costing Rs.600,000,000. projected to rebound, with the travel advisories and bookings UHCL operates EKHO Surf Hotel in Tourism Ministry targeting a record cancellations. Nevertheless, after Bentota (100 Rooms), EKHO Safari 2.5 Mn arrivals in 2018. This is to the Government arrested the in Tissa (50 Rooms), The Lake Hotel be supported through global and situation the industry has returned (40 Rooms) & EKHO Lake House digital media campaigns to be to normalcy. (14 Rooms) in Polonnaruwa. UHCL, launched by the Sri Lanka Tourism whose fully owned subsidiary Development Authority and the Sri PERFORMANCE REVIEW Ceylon Hotels Maldives (Pvt) Ltd Lanka Tourism Promotions Bureau (CHML) has entered in to a 50 : which will lend valuable visibility to The combined turnover of both 50 joint venture with Zhen Hua the destination. Queen’s & Hotel Suisse amounted Engineering Company Ltd (ZHEC), to Rs. 685 Million for the financial a Group Company of the China Sri Lanka has also developed a year ended 31st March 2018, Rs 4 Harbour Engineering Company road map for tourism with the Million more than Rs. 681 Million Ltd. China Harbour is currently the Tourism Strategic Plan 2017 – of the previous year. The growth developer of the Port City Project 2020 a comprehensive document, in revenue though marginal was Colombo. In terms of the aforesaid which if effectively implemented achieved amidst competitive supply Joint Venture CHML and ZHEC could unleash the potential of the side industry dynamics as 12 new have agreed to develop a 85-100 industry. The Kandy Hotels Co. (1938) PLC Annual Report - 31st March 2018 7 CHAIRMAN’S REVIEW (Contd..) In addition to the competition from opening of the central expressway, Staff, who gave their fullest support formal tourist accommodations, which is expected to be completed to him. the informal tourist in stages by 2019 and 2020. accommodations also pose a I also wish to place on record significant challenge to the hotel As owners / operators of my sincere thanks to our Loyal sector. However it is important a established city hotels in Kandy we Guests, Our Business Partners, level playing field is maintained, as continue to leverage on the strength Travel Agents, Bankers, Auditors at present only the formal sector of our long standing brands and & Secretaries and appreciate the is contributing to the industry via strategic locations of the properties support extended to us during this taxes and employee benefits. It to optimize shareholder value year. is encouraging to note that the creation. Tourism Ministry has recognized Finally, a special word of thanks this issue and is actively involved APPRECIATION goes to our Shareholders for their in registering the informal encouragement and Continued establishments.