Management Discussion and Analysis

Unwavering Commitment

Macro Economic and Industry Review

When an establishment is well founded, it usually follows that to be successful it must commit to these founding precepts and values.

The Lighthouse Hotel PLC is blessed with such founding and together with the over arching ethos of the Jetwing family, has strong and well defined notions of how it must conduct its business, relate to its stakeholders and play a successful and contributory role in the wider arena that is Sri Lanka’s tourism.

To place performance and achievement in perspective, it is pertinent to comment briefly on our operating environment.

Global Economy and Tourism

The recovery of the global economy from the doldrums of 2008/09 remains sluggish. It grew by 3.2% in 2012, as against 4% in 2011. Emerging economies continue to fare better, with growth in 2012 reaching 5.5% albeit marginally lower than the previous year.

Global tourism grew by 4% in 2012 and by 39 million tourists, with the annual total reaching 1,035 million tourists. This is new milestone in human travel. Again, the growth sector proved to be the emerging markets, which contributed 4.1% to overall growth of tourism, whilst the advanced economies contributed 3.6%. Geographically speaking, Asia and the Pacific saw the largest increase of 7% (arrivals up by 15 million) with total international tourist arrivals reaching 233 million for 2012.

It is interesting to note that the world tourism industry has largely outperformed the global economy in 2012, growing faster than manufacturing, retail, financial services and communications sectors. Its total contribution to GDP grew 3%, with jobs in the industry increasing by 5 million to reach a total of 260 million. This means that, for the first time, one in 11 of all jobs in the world is now supported by tourism.

The Sri Lankan Economy and Tourism

The local economy posted a modest growth of 6.4% for the financial year ending 2012. For the fourth year running, inflation was kept in single digit territory.

The high growth experienced in the two preceding years which reached the 8% mark was not to be in 2012. Tight credit and a widening trade deficit among other factors led the Central Bank to implement several policies pertaining to monetary and fiscal matters including the free floating of the rupee and introducing a ceiling on rupee lending via licensed banks to moderate credit growth.

 

Tourism on the other hand, was booming in calendar year 2012. Tourist arrivals increased 17.5% to reach just over 1 million visitors. The country target for the year had been 950,000 visitors, which was comfortably exceeded. Earnings from tourism grew by 25.1%. This robust performance is seen by many economic analysts as having a favourable knock on effect on other sectors of the economy resulting in the overall improvement of the country’s macro-economic performance

The foremost source of tourists for FY 2012/13 was Western Europe, accounting for 37.5% of all arrivals. South Asia was the next biggest contributor with 24.1%. Arrivals from East Europe, East Asia and Australasia are growing in the wake of greater promotional activity and the addition of several new air services to those regions.

In terms of country of origin of tourists to Sri Lanka, the lead country is India, followed by the UK, Germany, France and Australia. Together these five countries contribute 46.8% of all visiting tourists in 2012. These facts are interesting since they refer to many of the markets that the Hotel has been concentrating on.

One must also note the substantial development that is ongoing in Sri Lanka today - from infrastructure such as construction of roads/highways, the new Mattala airport, the Hambantota port to revival of traditional industries, refurbishment of existing hotels and the building of new ones. This all connotes a country on the move and augurs well for tourism and from our point of view, the hotel trade.

A Review of Operations

Highlights of Our Performance

Details of our financial performance are covered in the Financial Review of this report. What we comment on here, are the operational highlights of the year under review.

The Southern Highway has tremendously improved accessibility to the Hotel, particularly in respect of the domestic market, where demand from the local visitor has increased. During 2013, we also experienced increased demand from Japan, India and France.

Our sales initiatives lead us to work more closely than ever, with on-line travel agents who generate more room nights for the Hotel, whilst bookings via the Hotel’s web site have also increased.

As the chart below indicates, in a 5 year comparison, our occupancy rates have risen in 2013 (70%), almost reaching the high we achieved in 2011 (72%). All these factors combined have served to grow F&B income by 18%.

 

Getting in Shape

It’s hard to imagine that Jetwing Lighthouse has been in operation for 15 years...we’re in such good shape!

Since our inauguration in 1997, the Hotel has been home to many thousands who have revelled in our ‘Bawaesque’ lines and top tier facilities. Yet time marches on; our clients evolve and change with the times and so do their needs. Our refurbishment programme which began last year has seen majority 60 of our Deluxe Rooms and 3 Theme Suites get a makeover. Other areas of the Hotel like the Reception, Restaurant and Gymnasium were also upgraded.

Marketing Our Product

Our marketing strategies take a multi-channel approach in reaching various segments.

We maintain contractual agreements with reputed and productive tour operators in the geographic markets of interest to us, whilst also working closely with the travel agent fraternity in Sri Lanka. We offer both parties attractive rates and packages tailored to their markets.

We also promote the Hotel extensively, attending top annual world trade fairs such as the World Travel Mart in UK, the ITB in Berlin, the ATM in Dubai, the PATA Travel Mart and numerous other international travel fairs. These activities are augmented by advertising targeted at strategic publications in our markets of choice as well as by a constant flow of PR releases and journalist visits.

Of course we use the web - the Hotel is registered on the Jetwing Hotels website - www.jetwinghotels.com. This is a very highly developed site offering the gamut of applications any web surfer or visitor will expect to see regarding the hotel and its facilities. It is also an award winning site - in 2012, it won the Standard of Excellence - Web Award, thus becoming the first Sri Lankan based hotel website to receive such recognition. Jetwing also won the Best Hotel/Accommodation website of the year at the Sri Lanka Tourism Awards. Jetwing will add a Sri Lankan booking engine to the site in May 2013. Search Engine Optimization campaigns have run throughout the year generating higher number of visitors.

PPC campaigns have been conducted in several markets such as Asia, Australia, the Middle East, UK, USA and China with the objective of encouraging guests to make their reservation direct with Jetwing Lighthouse.

We use social media networks extensively. We’re found on Facebook, Flickr, Youtube, Twitter, Pinterest and Instagram. Currently, Jetwing hotels page on Facebook has the largest following of any hotel chain in Sri Lanka. In 2011, Jetwing Lighthouse shared the honour with Jetwing Hotels of being the first Sri Lankan company to win a Gold award at the International Adrian Awards for its Social Media strategy. This year, the Company won the Bronze Award.

Another on-line marketing channel we use is via registering with Online Travel Agents - currently we are registered with - reputed agents such as booking.com, agoda.com, makemytrip.com, roomorama.com, expedia.com, SLH.com, ghotw.com, holidays by design and HRS.com and plan to register with many other online agents this year which will have a very significant impact in our online distribution capability.

Awards and Accolades

It is always heartening and inspiring to be appreciated and rewarded for excellence. Here are some of those instances:

• Awarded Travelife Gold Award in 2013 for running environmentally sustainable operations. Jetwing Lighthouse is now featured on the Travelife Collection - http://www.travelifecollection.com/hotel/599.
• Jetwing Lighthouse received ISO 14001 certification in Environmental Management Systems in 2013.
• Jetwing Lighthouse was voted as Sri Lanka’s Leading Spa Resort for three years in a row from 2010 - 2012 as a part of the World Travel Awards.
• Jetwing Lighthouse received Trip Advisor Certificates of Excellence for two years running from 2011 - 2012.
• Standard of Excellence - Web Award 2012 - The www.jetwinghotels.com website received standard of Excellence recognition at the 2012 Web Awards.
• Best Hotel/Accommodation Website - Sri Lanka Tourism Awards 2012 - Jetwing Hotels Website won the Tourism Award for ‘best Hotel/Accommodation website’ under the Marketing. Communications category at the 2012 Sri Lanka Tourism Awards.
• Jetwing Lighthouse received a Merit Award at the 2010 Sri Lanka Sustainable Energy Awards.

Our service standards are exemplary and we are the recipient of HACCP (Hazard Analysis and Critical Point) accreditation.

In Good Company

Here are two affiliations we are proud of:

• Affiliated/member of the Small Luxury Hotels of the World
• Affiliated/member of the Great Hotels of the World

The Years Ahead

We are confident we are on the right track to even greater achievement and success.

The new wing of the Hotel will be completed in December 2013, enhancing our room count to 85 and adding new areas such as three spa rooms and restaurant. The new wing will have its own Reception and other facilities and the rooms will be luxuriously appointed.

With the plant in place, our strategies are always forward looking as has been borne out by the continuing years of success we have achieved to date.

Financial Review

Adoption of SLFRS

The Institute of Chartered Accountants of Sri Lanka has issued a new volume of Sri Lanka Accounting Standards - 2011 applicable for financial periods beginning on or after 1st January, 2012 in line with the International Financial Reporting Standards.

These Financial Statements for the year ended 31st March, 2013 are the first, the Company has prepared in accordance with
Sri Lanka Accounting Standards comprising SLFRS and LKAS (hereafter ‘SLFRS’), effective for the periods beginning on or after
1st January, 2012. (Refer Note 2.5 to the Financial Statements in page 78 for an explanation of the transition).

In line with the SLFRS, the Company’s financial statements comprises Statement of Financial Position as at the reporting date (previously termed as the Balance Sheet), a Statement of Comprehensive Income, a Statement of Changes in Equity and a Cashflow Statement for the period and notes, comprising a summary of significant accounting policies and other explanatory information. The Statement of Comprehensive Income consists of a separate Income Statement and a Statement of other Comprehensive Income (OCI).

As required by these standards, subject to certain transition elections and exceptions disclosed in Note 2.5, the Company has consistently applied the accounting policies used in preparation of its opening SLFRS Statement of Financial Position at 1st April, 2011 through all periods presented, as if these policies had always been in effect.

Accordingly, three Statements of Financial Position as at 1st April, 2011, 31st March, 2012 and 31st March, 2013 have been included in the Company’s year ended 31st March, 2013 Financial Statements. Further, Statements of Comprehensive Income have been prepared for the year ended 31st March, 2013 along with the Statement of Comprehensive Income for the year ended 31st March, 2012 based on SLFRS.

Financial Performance

Revenue

The Company recorded a revenue growth of 14% by achieving total revenue of Rs. 615 million during the financial year under review compared to Rs. 539 million achieved during the previous period. The growth in revenue is mainly due to increase in room revenue by 12% and Food & Beverage Income by 18%. Room revenue has increased due to the increase in occupancy rate and average room rates (ARR). ARR has increased mainly due to increase in on line sales which has higher yield and the favourable impact of foreign currency exchange rates. Food & Beverage income has increased due to increase in occupancy and Ala carte sales.

Further, foreign exchange rate fluctuations during the year under review had a favourable impact to the Company’s revenue as majority of revenue generated through travel agents/tour operators are based on foreign currency contracts.

 

 

Expenses

During the period under review total expenses have increased by 19% to Rs. 502 million from Rs. 423 million in the previous period. Cost of sales has increased by 13% compared to previous period and it is mainly due to increase in food prices. Administrative costs and Marketing & Promotional expenses have increased by 23% and 39% respectively. Increase in Power & Energy cost by 21% and non-capital nature expenses incurred for the refurbishment have resulted in the increase in Administrative costs. Marketing & Promotional expenses have increased mainly due to increase in marketing initiatives carried out such as e-marketing and participation in International travel fairs. Payroll costs increased by 15% compared to previous period mainly due to salary revision to both Executive and Non-executive staff.

Depreciation for the year was reported at Rs. 56 million which is an increase of Rs. 8 million compared to previous period. This is mainly due to additional depreciation charge from the additions to property, plant and equipment during the year and previous year. Further, re-assessment of depreciation on buildings resulted in an additional charge of Rs 1.5 million.

 

Earnings before Interest, Tax, Depreciation and Amortization (EBITDA)

The Company has reported an EBITDA of Rs. 174 million for the period under review compared to Rs. 165 million achieved during the previous period. This is reflected in an impressive compound annual growth rate of EBITDA over the last four years of 59%. The increase in EBITDA is mainly due to strong growth in revenue. Due to increase in total expenses during the period under review the EBITDA margin has dropped marginally to 28% from 31% last year.

 

Profitability

The Company recorded Profit before tax of Rs. 127 million during the year under review compared to Rs. 124 million during the previous period. This shows a compound annual growth rate of pre-tax profits over the last three years of 62%.

Due to the increase in Revenue and Interest income during the year, Income Tax charge has increased by 15% to Rs. 15 million.

Profit after tax of the Company amounted to Rs. 112 million and represents a marginal increase on the Rs. 111 million achieved in the previous period. Return on Equity for the Company remained same at 5%.

 

Statement of Financial Position

The Company’s reported a strong financial position as at 31st March, 2013 with Total Assets amounting to Rs. 2,510 million compared to Rs. 2,479 million in the previous period. During the year under review, Property, Plant and Equipment additions amounted to Rs. 110.5 million mainly due to capital work in progress (Rs. 54 million) relating to the new rooms and the capital nature refurbishment work carried out in the Hotel. Further, the freehold land was revalued during the year and the surplus arising from the revaluation amounting to Rs. 12 million increased Land value.

During the year an investment of Rs. 14.5 million was made in the Rainforest Ecolodge (Pvt) Ltd. by participating in its rights issue.

As at 31st March, 2013, the Company had a zero gearing level. However, to part finance the construction of new rooms the Company has finalized unsecured loan facility of US$ 1 million and Rs. 75 million.

Shareholders’ Funds

Shareholders’ funds as at 31st March, 2013 increased marginally to Rs. 2,404 million from Rs. 2,372 million in the previous period mainly due to marginal increase in Net profits and the surplus on the revaluation of land. The Company’s net asset per share as at 31st March, 2013 stood at Rs. 52.25 per share.

Cashflow Statement

Due to significant cash outflows made with regard to construction of new rooms and refurbishment activities and marginal increase in earnings, the Company’s cash position as at 31st March, 2013 has reduced to Rs. 126 million compared to Rs. 180 million in the previous period. Cash outflow from investing activities amounted to Rs. 116 million compared to Rs. 40 million in the previous period.

Dividends

The Board of Directors of the Company proposes a final dividend of Rs. 2/- per share (2012 - Rs. 2/- per share) subject to shareholder approval at the AGM. The total gross dividend outflow will amount to Rs. 92 million. A Dividend payout ratio of the Company will be 82% and will maintain the record of distributing more than 75% of Net profits as dividends for over a decade.

 

Sustainability Review

The Jetwing family owns probably one of the most unique, diverse and far reaching sustainability portfolios of any Sri Lankan enterprise. As a constituent of the Jetwing family and an adherent to its sustainability ethos, Jetwing Lighthouse possesses its own unique sustainability portfolio.

Here are the salient features of that portfolio.

People and Society

The Hotel is strongly committed to the welfare, well being and advancement of the wider community including our associates. Several initiatives, many of them unique to the Hotel, distinguish the year 2012/13.

The TukTuk Project

Jetwing Lighthouse initiated the TukTuk project back in 2005. This was a vital project aimed at diffusing feelings of antagonism which existed between the hotel and the local trishaw drivers. The project has expanded over time and a fleet of 46 vehicles comprising of TukTuks, cars and vans drawn from suppliers based in the Galle region have been selected and contracted to work with the Hotel. Jetwing Lighthouse provided training to the participants on local tourist attractions and the etiquette expected in delivering a high standard of service to our guests. During 2012, this initiative was further expanded to Era Beach in Thalpe where a further 12 vehicle suppliers were registered.

Jetwing Youth Development Project at Jetwing Lighthouse

Sri Lanka faces a massive problem with the unemployment of youth, especially in the rural areas. Our country has had the bitter experience of youth uprisings as a direct result of unemployment and its accompanying poverty and frustration. Thus the objectives of the Jetwing Youth Development Project (JYDP) were to seek to address these two major issues in four ways.

• To address the issue of, and provide solutions for the shortage of manpower in our Hotels and the Sri Lanka Hotel Industry in general.
• To involve local communities in Tourism by passing some of its benefits to them.
• To contribute towards resolving the problem of Sri Lanka’s youth unemployment.
• To help resolve the problem of youth frustration by providing the youth with gainful employment.

Focusing on bridging the gap between the unskilled and the skilled, and equipping them for employment, the JYDP provides free training to school leavers from disadvantaged families in the area around Galle for employment at Jetwing Lighthouse. A six-month training programme in hospitality combined with practical and spoken English provides these rural school leavers with a working knowledge which would enable them to express themselves with guests and understand others.

The first JYDP was held at Jetwing Lighthouse, commencing on the 12th November, 2012 and the programme is expected to be completed by the 12th May, 2013.

Looking after Our Own

The Hotel had a total workforce of 260 employees on its cadre, as at 31st March, 2013. The majority are drawn from the Galle district, showcasing a strong commitment to the Jetwing ethos, which is to recruit from within the local area as far as possible, to enhance the livelihoods of those in the area. A large majority of the staff are now on full time permanent basis, while those on probation/ trainee employees, and are absorbed over time depending on their performance. Total employee related costs amounted to Rs. 98 million and shows an increase of 15% compared to the previous year. During the year under review there were no material issues pertaining to employees and industrial relations.

During the year in review, the Hotel conducted a full calendar of events targeting various social groups such as students and other sectors of the general public. These touched on subjects such as - programmes commemorating Earth Day (switching off to conserve electricity), educational presentations to various schools on environmental topics such as coastal conservation, coastal ecosystems, rainforests, the sea shore, presentations to schools, the Navy and the public on tourism and the hotel industry, familiarization visits to the Hotel for students, a life saving programme for associates amongst many. The Hotel also provided clothing, books and English lessons to schools in Galle.

We commemorated World Environment Day by organizing a beach cleanup programme, a tree planting programme with the participation of our hotel guests and made a presentation on Sri Lanka’s biodiversity to a school in Galle.

We also facilitated a programme for the local community-operated taxi line near Era Beach to build awareness of the history of Galle.

The Environment

The Hotel espouses a comprehensive Environmental Policy.

We are committed to-

• Conserving our natural resources by minimizing our negative impacts through the implementation of routine actions and by sustainable management, as well as through education.
• Wherever possible, protecting and enhancing all ecosystems.
• Conserving energy and water.
• Minimizing pollution by reducing the use of harmful substances.
• Making every effort to mitigate and adapt to climate change.
• Reducing, reusing and recycling waste.
• Complying with relevant environmental legislation and regulations.
• Employing local people wherever possible.
• Purchasing local products and services, where possible and feasible, in accordance with our environmental purchasing policy.
• Always seeking to achieve a safe and sustainable environment for our community, future generations and ourselves.

Jetwing Lighthouse is an architectural marvel that embellishes the historic environs of Galle. We not only provide excellent standards of service, but also run an environmentally sustainable operation. We have also earned ISO 14001 Environment Management Systems certification.

Within the hotel’s operations are embedded a host of sustainability initiatives. Some of these are:

• Composting programme for all kitchen and garden waste
• Maintaining a large organic vegetable garden and a paddy plantation adjoining Jetwing Kurulubedda
• Sewage treatment plant - treated water is re-used in the garden
• A Biomass boiler is in use for sustainable heating of water and steam generation for our laundry
• Regular tree planting projects involving hotel guests, school children and associates of the hotel at Kurundakanda forest site
• Monthly beach cleanup programmes

All associates are routinely trained on sustainable initiatives which need to be adhered to; guests are educated on the hotel’s commitment to sustainability via the Green Directory displayed in each guest room and environmental messages are also displayed across the hotel to further raise awareness.

The Green Directory Initiative

To ensure that all hotels attain high standards of environmental custodianship, Jetwing Hotels has initiated a process of compiling Green Directories for the hotels under the guidance and supervision of an independent environmental consultant. Reports are generated and performance is measured and tracked against prior periods striving for continual improvement.

The Green Directory process begins with a two-day workshop where a presentation on the importance of integrating environmental management into routine management is made to all executive staff. The following key performance areas are highlighted.

• Energy conservation and use of renewable energy
• Water conservation
• Waste water management
• Solid Waste management
• Maintenance of air quality and reduction of emissions of greenhouse gases
• Prevention of chemical pollution
• Landscaping
• Switching to using environment-friendly materials
• Environmentally-friendly purchasing
• Health consciousness
• Corporate social responsibility

The Green Directory is published and displayed in all guest rooms, highlighting the hotel’s efforts on environmental management. Jetwing Lighthouse Green Directory can also be downloaded at: http://www.jetwinghotels.com/download-center.html

Energy Conservation and Management

The Hotel systematically tracks its energy usage levels and the savings it achieves through various conservation initiatives. Here are the salient results for the year under review:

• Direct energy consumption by primary energy source: 1,676.7 GJ
• Indirect energy consumption by primary source: 5,482.6 GJ
• Total Indirect Energy Saving due to conservation and efficiency improvements: 545.38 GJ/Year
• Energy savings achieved through installed Biomass fired boiler replacing Diesel fired Boiler saving 4,500.71 GJ/Year
• Each guest room is controlled with card Key switch system, saving 88.29 GJ/Year
• All rooms are equipped with LED backlit televisions, saving 13.04 GJ/Year
• Air conditioning of all rooms is controlled via dual set point Thermostats which will automatically switch to set back temperature when a guest leaves the room saving 288.86 GJ/Year
• At present 69% of lighting at the Hotel is serviced by Energy Saving bulbs, resulting in a saving of 155.18 GJ/Year. The bulb inventory breakdown is shown below:

 

 

Water Consumption and Conservation

Total water withdrawal by source:

• City Water consumption: 53,160 m3/Year
• Ground water consumption: 7,300 m3/Year

Total water discharge by quality and destination:

Approximate waste water generation 39,870 m3/Year (100% of the treated waste water was used for watering the hotel gardens.)

Greenhouse Gas Emissions

Total direct and indirect Greenhouse Gas Emissions by weight:

• Direct Greenhouse gas emission 639.6 tonnes/year
• Indirect Greenhouse gas emission 101.8 tonnes/year

Reduction achieved in GHG Emission:

• Total greenhouse gas emission reduction is 385.3 tonnes/year

Our Role in Marine Conservation

Jetwing Lighthouse is situated within prime marine life territory. The sperm whale, blue whale and spinner dolphin among other species of marine life are frequent visitors to the waters off shore.

The Hotel has and is playing a significant role in promoting responsible ‘marine tourism’ whilst helping to protect these rare species of marine life. Here are some of our initiatives.

Blue Whale Conservation Projects at Jetwing Lighthouse

Whale watching in Mirissa has emerged as one of the biggest and most positive stories for Sri Lanka’s growing tourism industry in recent years, thanks to the efforts of Jetwing. Jetwing Lighthouse has been the home of whale watching and played a pivotal role in researching, promoting and branding the product to the world since its inception in May 2008.

Jetwing Lighthouse Whale and Dolphin Centre

The Centre is the first of its kind on the Southern Coast of Sri Lanka, and aims to educate and create awareness about these magnificent creatures. This is the first purpose built information and research centre in Sri Lanka as a conservation project targeting whales and dolphins.

The core objectives of the Centre are to:

• Continue further studies and research; to monitor the occurrence of all cetaceans along the coastline in Sri Lanka through surveys in order to obtain a comprehensive list of species and their comparative abundance in the area and the threats they face. This will help the protection of all cetaceans, their environment, and the marine ecosystems they inhabit.
• Educate school children, university students and the general public, especially local communities, boat operators, conservationists, whale watching enthusiasts and hoteliers.
• Provide information regarding marine life; the Centre has a variety of notice boards, films, videos, photographs and books on marine diversity.
• Conduct weekly or monthly lectures, training programs and workshops on various subjects with the support of local and foreign experts.
• Improve Responsible Whale Watching and to promote travel with boat operators who maintain good standards of client safety, safeguard the welfare of the animals and conduct naturalist training programmes for licensed boat operators.
• Conduct awareness programmes on marine pollution and threats, Blue whales and other cetaceans may be wounded, sometimes fatally, after colliding with ocean vessels and fishing boats as well as becoming trapped or entangled in fishing gears. The ever-increasing amount of ocean noise, including sonar, drowns out the vocalizations produced by whales, which may make it harder for them to communicate.

Jetwing Lighthouse Whale and Dolphin Centre was opened in January 2012 during the Galle Literary Festival.

Project BLUEprint

Project BLUEprint is a joint partnership between Whale and Dolphin Conservation (WDC), Sri Lankan Airlines, Jetwing Lighthouse and John Keells Hotels. The project aims to develop community-based whale watching and promote responsible vessel behaviour at Mirissa and roll this model out to other whale watch regions including Kalpitiya and Trincomalee.

Jetwing Lighthouse hosted the first visit of the WDC team comprising of Vanessa Williams-Grey, Cynthia Walsh and Andrew Sutton to Sri Lanka in February - March 2013, where they had opportunities first hand to get an in-depth understanding of how the vessels operate in Mirissa and the opportunity to network with key stakeholders including hoteliers, tour operators, boat operators as well as local researchers and the conservationists.