Hotels and Travels Sector

Transcription

1

2 Hotels and Travels Sector Executive Summary 3 Demand Dynamics 22 Short-term Forecast 46 Arrivals Mn arrivals by Global Tourism 6 Composition of arrivals 24 Shopping to increase earnings 48 An Overview 7 Guest nights composition 25 Room inventory requirement 49 Long term trend 8 Category of visitors 27 Employment forecast 50 Asia and the Pacific region 9 Pleasure arrivals 28 South Asian region 11 VFR arrivals 29 Potential for Growth 52 Arrivals snap shot 12 MICE arrivals 30 Heritage and culture 53 MICE arrivals potential 31 Cultural triangle lead the earnings 54 Sri Lanka Tourism 13 Tourist spend 32 Enhancing the value chain 55 An Overview 14 Spending composition 33 Guideline for gaming 56 Economic importance 15 China and India 34 Average room rates 16 Local visitors 36 Listed Space 57 Value for money region 17 SL Operating Profit Margin (OPM) 58 Round trip concept 18 Supply Dynamics 37 OPM peer country comparison 59 Occupancy trends 19 Total room inventory 38 SL trading multiples 60 The value chain 20 Total room inventory in pipeline 39 Global trading multiples 61 SWOT analysis 21 City room inventory in pipeline 40 Moving towards global multiples 62 5 star hotel operators 41 Global and regional comparison 63 Global hotel operators 42 Outside city room composition 43 Valuation of Key Counters 65 Employment 44 SERV 66 Cost of construction 45 AHPL 69 KHL 72 2

3 Hotels and travels Sector Executive summary The report mainly focuses on how the demand and supply dynamics in the leisure sector will impact listed hotels. The listed hotels and travels counters account for 8,146 rooms amounting to ~27.0% of total accommodation of the country as at end of In 2015, 1.79 Mn tourists spent USD 2.9 Bn (3.6% of GDP) in the island whilst in 2009, 447,890 tourists spent USD Mn (0.8% of GDP). This resulted in a significant increase of 91.4% of average spending per tourist per day (USD in 2015 from USD 85.7 in 2009). However, the length of stay of an average tourist increased only marginally to 10.1 days in 2015 from 9.1 days in By 2020, we forecast 3.8 Mn tourists will spend USD 8.3 Bn (7.1% of estimated GDP) with an estimated average length of stay of 11.2 days. Therefore, in order to boost the earnings from tourism, Sri Lanka should focus on infrastructure that can induce more spending as well as longer stays in the country. From a demand point of view, we expect Sri Lanka to record a 5 year CAGR of 16.5% in tourist arrivals from 2015 to 2020 bringing total arrivals to 3.8 Mn, a conservative estimate in comparison to Sri Lanka Tourism Development Authority (SLTDA) s revised forecast of 4.2 million arrivals. To meet this demand, we estimate the sector to provide 52,000 SLTDA registered rooms by 2020 as opposed to 30,000 registered rooms as at end of Currently, the addition of 7,500 rooms by 2017 has been approved by SLTDA. However, the industry may have to account for the steady growth witnessed in unregistered rooms, as they can negatively impact the occupancy levels and operating profit margins of graded room operators. Tourism industry is considered a mainstay of the export earnings of the country whilst contributing substantially to the economy both directly and indirectly (total contribution of an estimated 11.1% to GDP as at 2014). The industry has been earmarked as a key thrust sector and is given substantial prominence by the Government of Sri Lanka (GoSL). Post war, the country s foreign currency earnings grew at a 7 year CAGR of 11.3% up to 2015 whilst the earnings from tourism grew significantly at a 7 year CAGR of 43.0%. For the same period, exports and foreign remittances only grew at a 7 year CAGR of 6.8% and 13.1% respectively. 3

4 Hotels and travels Sector Executive summary continued Leisure sector plays an important role in the global economy as it contributed 30.0% to the global service exports in During the same year, global arrivals surpassed 1.0 Bn travelers. The United Nations World Travel Organization (UNWTO) estimates arrivals to grow by 4.0% in However, gloomy global economic outlook fueled by crude oil fluctuations, geo-political tension in the Middle East, threats from terrorism and currency war amongst nations may have a negative impact on global tourism over the coming year. South Asia recorded a 10 year CAGR in tourist arrivals of 8.5% up to 2015, becoming the fastest growing tourist regional destination in the world (global 10 year CAGR was 3.9%). Surpassing the region, Sri Lanka posted a 10 year CAGR in tourists arrivals of 16.2% for the same period. Sri Lanka s market share in the South Asia region has increased to 9.8% by 2015 from 6.8% in India remains the largest source destination for Sri Lanka with a market share of 17.6% of the arrivals closely followed by China with a market share of 11.9% as at end Asia and the Pacific remains the largest source region with a market share of 49.7% followed by Europe with 38.9% as at end Significant growth in Chinese arrivals to Sri Lanka is an encouraging sign for tourism as they travel in groups and tend to stay for 7 to 10 days. This is in comparison to Indian tourists average stay of 4 to 6 days (currently Sri Lanka s largest source market). China has overtaken India in terms of recorded foreign guest nights and has become the 2 nd largest guest nights contributor in Both of these markets are considered to be heavy spenders in retail and entertainment as opposed to expenditure on accommodation. Therefore, we expect Sri Lanka to focus on improving it s shopping and entertainment experience in the country. The country wide occupancy stood at 74.5% whilst city hotel occupancy rate was 76.4% as at

5 Hotels and travels Sector Executive summary continued Sri Lanka has an immense potential to attract Meetings, Incentives, Conventions and Exhibitions (MICE) sector of tourists mainly due to its strategic location in the Indian Ocean. This segment of tourists tend to spend 2x that of a leisure traveler. The commencement of international hotel chain operations are expected to contribute significantly to the growth of the MICE arrivals to the country. Further, major developments such as Megalopolis Development Plan and Port City project are expected to improve Sri Lanka s international visibility. Moreover, the GoSL s plan of creating a financial hub around the Colombo City whilst focusing on KPO/BPO industries are expected to increase the attractiveness of Sri Lanka for MICE events. Human capital plays a pivotal role when it comes to the services industry, especially the leisure sector. It is our understanding that the country lacks qualified and skilled professionals to cater to the employment demand. We estimate that Sri Lanka s staff to room ratio stood at 3.6 as at end Therefore, based on the estimated room inventory needed by end of 2020, we forecast a demand for around 76,000 skilled employees for the hotels and restaurants segment by The cost structure of the hotel sector in Sri Lanka is considered to be fairly high. Therefore, this report scrutinizes the construction cost of the sector in Sri Lanka and peer countries including and excluding the land cost. Sri Lanka s construction cost of a five star luxury resort is estimated at USD (USD excluding land) per square feet (sqft), cheapest among the selected peer countries, closely followed by India with USD per sqft. The report concludes with an analysis of key listed hotel operators in Sri Lanka along with its global and regional counterparts. Further, the recommendations carried out in this report are narrowed down to three listed counters based on various factors with the main being the market capitalization. 5

6 Hotels and travels Sector Hotels and Travels Sector Global Tourism Sri Lanka Tourism Demand Dynamics Supply Dynamics Short-term Forecast Potential for Growth Listed Space Valuation of Key Counters 6

7 Global Tourism An overview Global tourism snapshot Bn Global tourists 3.9% YoY Growth in arrivals 1/11 Jobs in tourism USD 1.3 Tn Earnings from tourism 609 Mn (3.0% YoY) Arrivals to Europe 7.0% World s exports 209 Mn (6.0% YoY) Arrivals to Asia & the Pacific 10.0% Global GDP 30.0% World s service exports 4.0% Projected growth Source:- UNWTO 7

8 Global Tourism Long term trend Global CAGR in arrivals is estimated at 3.8% up to 2020 Mn Arrivals grew at a 20 Year CAGR of 4.1% 1, , , In 2003, SAARS breakout contributed to the decline of 0.9% YoY in arrivals. Great recession during the period contributed to the decline of 3.9% YoY in arrivals. 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% % No of Tourists 'Mn Year CAGR; Global GDP 3.16% Arrivals 4.29% YoY Year CAGR; Global GDP 2.68% Arrivals 3.91% UNWTO projects arrivals to grow by 4.0% in 2016 and 10 year CAGR of 3.8% during UNWTO definition: A tourist (or overnight visitor) is classified as such if his/her trip includes an overnight stay. The definition of tourism does not include purposes of visit related to the exercise of an activity remunerated in the visited place. Source:- UNWTO, World Bank 8

9 Global Tourism Asia and the Pacific region The regional arrivals outpaced global arrivals Mn % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source:- UNWTO Europe Asia and the Pacific Americas Africa Middle East Composition of regional arrivals 16.4% 19.0% 21.7% 22.5% 23.0% 23.1% 23.4% 57.4% 56.0% 51.5% 52.0% 52.1% 51.7% 51.4% Europe Asia and the Pacific Americas Africa Middle East Region 10 Year CAGR ( ) Europe 3.0% Asia and the Pacific 6.0% Americas 3.7% Africa 4.3% Middle East 4.8% Global 3.9% Asia and the Pacific region recorded the highest growth on arrivals during the last decade ( ), outpacing the global growth by 1.54 times during the same period. Meanwhile South Asia, one of the four constituents of Asia and the Pacific, recorded the fastest 10 year CAGR of 8.5% during

10 Global Tourism Asia and the Pacific region The region commands a higher share of receipts in comparison to arrivals share 16.0% 4.8% 4.6% Europe 23.3% 51.2% International arrivals Asia and the pacific Americas Africa Middle east 16.1% 23.6% 4.5% 4.5% 51.3% Arrivals (Mn) YoY Europe % Asia and the Pacific % Americas % Africa % Middle East % Global 1, , % Asia and the pacific, Americas and Europe surpassed Global YoY growth in arrivals in Receipts from arrivals % 3.98% Europe 2.68% 4.46% Receipts (USD Bn) YoY Europe % Asia and the Pacific % Americas % Africa % Middle East % Global 1, , % 21.16% 32.45% 39.62% Asia and the pacific Americas Africa Middle east 22.48% 34.01% 36.36% Asia region s receipts and global receipts dipped due to the global economic turmoil witnessed in Asia and the Pacific accounted for a higher share of receipts (34.0%) compared to its share in arrivals (23.6%) in Sri Lanka recorded a YoY growth of 22.6% in receipts for the same period. Source:- UNWTO 10

11 Global Tourism South Asian region South Asian region continues to grow faster than the rest of the world Mn 15 Year CAGR of 6.3% South Asia 15 Year CAGR of 7.6% which is the fastest within the region Mn Asia and the Pacific Others Mn 15 Year CAGR of 3.2% Mn Asia and the Pacific arrivals % 5.1% 51.4% 36.9% North - East Asia China, Japan, North & South Korea South - East Asia Brunei, Myanmar, Cambodia, East Timor, Laos, Malaysia, Philippines, Singapore, Thailand & Vietnam Oceania Australasia countries South Asia Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan & Sri Lanka South Asia s market share within the region has improved to 6.6% in 2015 from 5.5% in South Asia recorded the highest 5 year CAGR of 8.8% within the region during Sri Lanka grew at a 22.3% CAGR during the same period. North - East Asia South - East Asia Oceania South Asia Source:- UNWTO, SLTDA 11

12 Global Tourism Arrivals snap shot Top 10 global destinations Arrivals Top 10 global destinations Spending Russia Mexico U.K Germany Turkey Italy Top 10 destinations based on arrivals accounted for 43.0% (510.0 Mn) of the total arrivals recorded in Macao (China) Hong Kong (China) Germany Italy Thailand United Kingdom In 2015, the top 10 destinations contributed ~52.0% to the overall spending which amounted to US$ Bn. China France Spain Spain U.S.A China France United States Top 10 source markets Spending Australia Italy Korea Canada Russia France United Kingdom Germany United States China Source:- UNWTO Mn ~57.3% of spending in 2015 was contributed by the top 10 source markets USD Bn USD Bn ~312 Mn tourists visited European countries, which accounted for 26.3% of 2015 arrivals. China is the only Asian country featured in the top 10 arrivals recording 56.9 Mn tourists visiting the country. China is the largest spender amongst arrivals since of the top 10 spending source markets in the world are featured in Sri Lanka s list of 2015 top 10 source markets. Sri Lanka accounted for ~0.18% of China s outbound travelers despite China being the second largest source market for Sri Lanka in

13 Hotels and travels Sector Hotels and Travels Sector Global Tourism Overview Sri Lanka Tourism Overview Demand Dynamics Supply Dynamics Short-term Forecast Potential for Growth Listed Space Valuation of Key Counters 13

14 Sri Lanka Tourism An overview Sri Lanka tourism snapshot Mn Tourist arrivals 10.1 Average stay 17.8% YoY Growth in arrivals 30,078 SLTDA registered rooms USD 2.9 Bn Earnings from tourism USD Average spending per day by a tourist 14.6% Forex earner 66.6% Pleasure arrivals 25.5% VFR arrivals 1.6% MICE arrivals Source:- SLTDA 14

15 Sri Lanka Tourism Economic importance USD Mn 3,000 2,500 2,000 1,500 1,000 Tourism earnings 000 1,800 1,600 1,400 1,200 1, Credit given to tourism activities LKR Mn 100,000 80,000 60,000 % 3.0% 2.5% 2.0% 1.5% ,000 20,000 Credit given to the sector 5 Year CAGR was 25.8% compared to overall credit growth of 17.8% during % 0.5% USD Mn 20,000 Earnings Tourist Arrivals Composition of forex earners 9.3% 5.1% 6.2% 11.8% 14.6% Tourism sector credit Top 5 forex earners 0.0% Credit to tourism as a % of total credit 15,000 10, % 25.7% 3.2% 30.9% 4.3% 30.9% 31.1% 35.6% 34.6% 34.1% 34.1% 23.6% 14.6% 6.5% Foreign remittance Textiles and garments Tourism 5, % 65.8% 64.8% 63.8% 58.2% 56.1% 54.1% 51.3% 3.7% Tea Exports Foreign remittance Tourism Overall forex earnings 7 year CAGR was 11.3% during whereas; Exports, foreign remittances and tourism 7 year CAGR were 6.8%, 13.1% & 43.0% respectively during the same period. Source:- Census and statistics, CBSL, SLTDA 34.1% 17.5% Rubber products Others Tourism emerged to third place (14.6%) in 2015 from sixth position in 2009 (3.2%) in the forex earners list of the country. 15

16 Sri Lanka Tourism Average room rates Index Accommodation index Global, Asia & Sri Lanka All regions Asia Sri Lanka Sri Lanka accommodation index has been calculated based on SLTDA Index of tourist prices statistics. Average room rate USD (derived based on SLTDA statistics) Large amount of tourist influx post war and lack of room inventory to cater to the upsurge in the tourists demand were the reasons for the accommodation price index to rise. Asia hotel price index, an index compiled by hotels.com based on actual price paid by the tourists, was seen to be declining since 2012 and fell below the starting point of 100. Asia and the Pacific recorded the second largest arrivals in Due to strong dollar and rather weak currencies, the region is expected to attract more travelers in coming years. Average Room Rate (USD) Foreign spending recorded in Hotel segment (USD '000) > a 372, , ,600 1,120,600 1,563,200 1,931,800 No of registered beds (Graded & Supplementary) > b 40,188 40,445 43,746 50,945 55,168 58,581 No of available bed nights -> c -> (b * 365) 14,668,620 14,762,425 15,967,290 18,594,925 20,136,320 21,382,065 Average overall occupancy % -> d 70.1% 77.1% 71.2% 71.7% 74.3% 74.5% Total no of bed nights contributed to revenue -> e -> (c * d) 10,282,703 11,381,830 11,368,710 13,332,561 14,961,286 15,929,638 Local guest nights (Graded & Supplementary) -> f 1,889,428 2,182,351 2,139,437 2,078,758 2,584,903 2,224,867 Foreign guest nights (Graded & Supplementary) -> g -> (e - f) 8,393,275 9,199,479 9,229,273 11,253,803 12,376,383 13,704,771 Total spending per bed night per tourist (USD) -> h -> (a/g) Ratio of beds to rooms (Graded & Supplementary) -> I Total spending per room night per tourist (USD) -> j -> (h * i) Spending on a room as a % of total revenue -> k** 54.2% 54.2% 54.2% 54.2% 54.2% 54.2% Average room rate (USD) (j * k) **Based on FY14/15 CSE listed hotel financials Source:- SLTDA, Hotels.com, NDBS research 16

17 Sri Lanka Tourism Value for money region Average room rate (ARR) amongst peer destinations USD ARR Is on par with regional destinations. However, we expect average room rates to slide down marginally as a result of new room inventory supply in the pipeline. Colombo city star class hotels are currently operating with the regulated minimum room rate (5 star USD 125.0, 4 star USD 95.0, 3 star USD 75.0, 2 star USD 55.0). However, this regulation will be revoked with effect from 31 st march 2017 paving way for demand and supply factors to determine the price. This may further slide room rates. However, currently the Tourism Ministry is contemplating if the minimum room rate should remain in place for at least another couple of years. Asia hotel price index dropped to 99 in year 2015, the first time ever the region fell below its starting point since the commencement of the index in The trend once again put Asia region as a value for money tourist destination. 24 of the 25 destinations based on average room rates analyzed for constructing Hotel Price Index were Asian destinations Cambodia Vietnam Malaysia Thailand Indonesia Taiwan Sri Lanka India Philippines Singapore Maldives Asian destinations H H YoY Cambodia % Vietnam % Malaysia % Thailand % Indonesia % Taiwan % India % Philippines % Singapore % Sri Lanka due to its relatively unique offerings and being a rather immature destination due to the recent opening up after the three decade war, managed to command a relatively higher price for hotel accommodation than its peers. However, additional rooms in the pipeline and declining average room rates in other Asian destinations may force Sri Lankan hotel operators to revise their prices downwards in order to maintain ~70 75% average occupancy level. Source:- Hotels.com, SLTDA, NDBS research 17

18 Sri Lanka Tourism Round trip concept This may enable a tourist to experience different dynamics within one trip Northern region 51 rooms 72.0% occupancy 55.8% 2 year CAGR ( ) East coast 895 rooms 74.1% occupancy 30.3% 5 year CAGR* Greater Colombo 3,041 rooms 74.4% occupancy 2.9% 5 year CAGR* Colombo city 3,966 rooms 76.4% occupancy 4.8% 5 year CAGR* South coast 6,787 rooms 74.3% occupancy 5.9% 5 year CAGR* *5 year CAGR calculated based on number of rooms between 2009 and 2015 Source:- SLTDA Ancient cities 3,601 rooms 75.2% occupancy 5.5% 5 year CAGR* Hill Country 1,035 rooms 74.3% occupancy 4.1% 5 year CAGR* Countrywide overall occupancy is 74.5% during % 5 year CAGR* 18

19 Sri Lanka Tourism Occupancy trends Monthly arrivals Vs monthly average occupancy rate /16 351, , , ,838 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Q1 Q2 Q3 Q Monthly Average Occupancy % 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Avg. country occupancy of 74.5% (2015) Despite Sri Lanka s year-round offering for tourists, Q2 and Q3 draws ~54.0% of annual arrivals. The trend is visible through the increased average occupancy levels seen during Q2 and Q3. Sri Lanka needs to promote activities to boost arrivals during Q1 & Q4 of the year. Northeast monsoon is from mid December February. A better season for South and Southwestern coast sea Southwest monsoon prevails from mid July September. A better season for East coast sea Q1 Q2 Q3 Q4 Region April - June July - September October - December January - March Southwestern coast Not recommended 2nd best season with rough sea Mixed season Best season with good sea South coast Not recommended 2nd best season with rough sea Mixed season Best season with good sea East coast Not recommended Best season with good sea Not recommended Mixed season Hill country Mixed season Mixed season Mixed season Mixed season Kandy area Mixed season Mixed season Mixed season Mixed season Cultural triangle Mixed season Mixed season Mixed season Mixed season Source:- SLTDA, NDBS research 19

20 Sri Lanka Tourism The value chain Currently 5 casino licenses have been issued by GoSL. However, the cabinet announced in January 2015 that new licenses will not be issued to any of the Integrated Resorts (IR) projects that are in the pipeline. The segment tends to attract gaming affluent Chinese and Indian travelers which ensures steady tax revenue to the government. Airline National carrier Sri Lankan Airlines (Mihin Lanka is expected to cease its operations by October) operated by GoSL. There are 06 domestic airlines operators. Cinnamon Air is the only airline that represents the listed equities through JKH PLC. As tourist arrivals grow, this segment may benefit from the increase in footfall. Restaurant chain operators have exposure in the listed space through CARG (KFC & TGIF), ABANS (McDonalds) SHL (Burger King). Malls may play a major role in attracting travelers for shopping. Most of the mixed development projects which are in the pipeline propose international standard malls as part of the offering. All heritage and cultural sites are operated by the government. However, accommodations which are located in close proximity to these sites may benefit. Entertainment & gaming Restaurant chains & shopping malls Heritage & cultural sites Tourism Sector MICE Travel operators Hotel chain operators Online bookings are on the rise. Hence, going forward, most travelers may bypass travel operators. All the main hotel chain operators have their own travel arms. Contributed ~64.0% of tourists earnings in ,146 of rooms out of 19,376 graded rooms have exposure towards listed space. Important element in order to attract high spending tourist segment. Currently, the largest convention centers, BMICH and SLECC are owned by GoSL and Pico Global respectively. However, a 4,000 seat center (Cinnamon Life) is in the pipeline (developed by JKH PLC). This report mainly focuses on Hotel chain operators since the segment contributes more than 60% on tourist spending. Source:- NDBS research 20

21 Sri Lanka Tourism SWOT analysis Strengths & Opportunities dominate over Weaknesses & Threats Unique location Catering to all kinds of travelers with pristine a beaches, wild life, hill country, green tourism, medical tourism, UNWTO approved heritage cultural and religious sites. The Colombo city is becoming home to renowned international brands and a strong contender within South Asia to be a MICE destination. Language proficiency and courteous work force in comparison to Asian peer countries. Over populated heritage and cultural sites. Shortage of experienced and skilled work force for the hotel industry. Lack of value for money in graded accommodation. No proper/international specification for graded accommodation. No proper policy or system in place to streamline informal accommodation providers such as home stay, room sharing, Airbnb etc. S SWOT W Relatively unexplored destination. O Poised to attract arrivals by introducing cultural and sports related activities ain addition to the MICE sector. Increasing connectivity across the country to reduce time taken to do full round trip. International hotel chain operators to attract more affluent travelers to the country. Increasing middle income earners in Asian countries including Sri Lanka to make leisure travels. Relatively cheaper destination for medical tourism. Reduction in hotel prices in competing countries such as Malaysia, Thailand and India. Other Asian countries appear more attractive than Sri Lanka, due to their depreciating currencies. Countries inability to attract repeat travelers. Decline in arrivals from high spending destinations markets such as Russia and Ukraine due to geo political and currency crisis. Arrivals of unregulated homestay/sharing accommodation such as Airbnb. T Source:- UNWTO, SLTDA, NDBS research 21

22 Hotels and travels Sector Hotels and Travels Sector Global Tourism Overview Sri Lanka Tourism Overview Demand Dynamics Supply Dynamics Short-term Forecast Potential for Growth Listed Space Valuation of Key Counters 22

23 Demand Dynamics Arrivals Arrivals expected to grow albeit at a slower rate 000 2,000 1,800 1,600 1,400 1,200 1, USD Source:- SLTDA Overall arrivals Vs Global market share 0.047% 0.050% 0.069% 0.086% 0.097% 0.117% 0.134% 5 year ( ) CAGR 22.4% 0.152% Total Arrivals As a % of World Arrival Average spending per tourist per day 5 year ( ) CAGR 13.3% Average spending per tourist per day Tourist arrivals growth YoY 0.16% 0.14% 0.12% 0.10% 0.08% 0.06% 0.04% 0.02% 0.00% 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Sri Lanka s share in the Global arrivals has increased gradually to 0.15% in 2015 from 0.05% in Further, the country s market share in Asia and the Pacific increased from 0.32% in 2010 to 0.65% in Moreover, Sri Lanka s market share in South Asia increased from 5.45% in 2010 to 9.78% in Tourism earnings grew at a 5 year CAGR of 33.4% during which is higher than the arrivals growth during the period. Sri Lanka s average tourist spending per day has almost doubled to USD in 2015 from USD 89.0 in 2009 LKR depreciated against USD by 8.0% during the last twelve months which is expected to further boost average earnings per tourist per day in coming years. 23

24 Demand Dynamics Composition of arrivals China to drive the growth in arrivals World s largest source market China became the 2 nd largest arrivals contributor in India China U.K. Germany Maldives France Australia Russia U.S.A. Japan Arrivals 5 Year CAGR ( ) India 20.0% China 83.2% U.K. 8.9% Germany 20.4% Maldives 20.4% France 22.5% Australia 13.7% Russia 36.0% U.S.A. 19.8% Japan 22.4% Overall arrivals 22.4% 000 Composition of arrivals region wise Western Europe (UK and Germany) as a region, the traditional source market for Sri Lanka, continues to dominate the arrivals. East Asia (due to China, 2 nd largest source market) (2 year CAGR 48.1%) and South Asia (due to India the largest source market) (2 year CAGR 26.6%) were the other two major source markets on arrival. Eastern Europe (mainly Russia and Ukraine) region recorded a negative YoY growth of 3.7% in 2015 amidst growing geo political tension and currency crisis. 0.0 Western Europe South Asia East Asia Eastern Europe Middle East North America Australasia Africa Latin America Source:- SLTDA 24

25 Demand Dynamics Guest nights composition Western Europe continues to dominate foreign guest nights Foreign guest nights Foreign guest nights % 0.7% 0.1% 4.3% 5.9% 0.2% Top 3 regions (Western Europe 43.5%, Asia 33.0% and Eastern Europe 6.8%) contribute to 83.3% of foreign guest nights. 36.3% 43.6% 33.0% 43.5% #1 contributor to guest nights Western Europe; U.K 30.2% and Germany 22.2%. 0.4% 6.2% 5.9% 5.8% 6.8% 0.5% North America Latin America & the carribean Western Europe Eastern Europe Middle East Africa Asia Australasia Australasia Asia Africa Middle East Eastern Europe Western Europe Latin America & the carribean North America Average length of stay 2010 vs 2015 Average stay 10.1 (2015) Days Days #2 contributor to guest nights Asia; China 33.9% and India 30.3%. #3 contributor to guest nights Eastern Europe; Russia 52.2%. Peer countries average stay 2014 Sri Lanka Thailand India Malaysia Maldives Singapore Source:- SLTDA 25

26 Demand Dynamics Guest nights composition Composition of foreign guest nights over the years Nearly ~1/6 th of foreign guest nights were recorded from unregistered accommodation Among registered accommodation with SLTDA, foreign nights mix between Graded and Supplementary were recorded at 63.1% : 19.1% in % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 17.9% 15.3% 19.1% 26.2% 63.1% 58.5% 26.3% 23.6% 50.1% 11.1% 25.0% 63.9% 23.4% 26.8% 23.8% 23.9% 52.8% 49.2% Graded Supplementary Others Class of Accommodation Overall occupancy 70.1% 77.1% 71.2% 71.7% 74.3% 74.5% 5 Star 76.8% 78.7% 71.5% 71.9% 74.8% 74.9% 4 Star 74.7% 78.1% 69.7% 70.2% 74.9% 75.1% 3 Star 68.1% 74.6% 65.3% 70.3% 73.9% 74.3% 2 Star 67.4% 76.4% 71.9% 69.9% 73.4% 73.6% 1 Star 66.5% 77.9% 70.3% 73.1% 72.9% 73.2% Unclassified 67.7% 76.8% 78.6% 74.9% 75.1% 75.3% Supplementary establishments 66.2% 70.3% 76.2% 77.1% 77.8% 78.0% More than 1/4 th of foreign guest nights were recorded in unregistered accommodation Graded and Supplementary mix changed significantly over the years and recorded 49.2% : 23.9% in 2014 If the country does not manage to attract pleasure arrivals at the current growth rate, average occupancy witnessed during the recent years may not be continued since overall supply among registered rooms are expected to increase by 1/4 th by end of Source:- SLTDA 26

27 Demand Dynamics Category of visitors 2010 Purpose of visit Sri Lanka 2015 Business & MICE, 1.6% Business & MICE, 13.7% VFR, 5.4% Religious & Culturals, 0.8% Pleasure, 78.9% Health, 0.0% Others, 1.2% Pleasure, 66.6% VFR, 25.5% Religious & Culturals, 0.1% Health, 3.2% Others, 3.0% 170.0% 120.0% 70.0% 20.0% -30.0% -80.0% Overall arrivals growth Vs purpose of arrivals growth % All arrivals Pleasure Business & MICE VFR Visiting Families and Relatives (VFR) contributed to 27.0% of global tourist arrivals in 2014, incidentally the same percentage was recorded in year 2010 as well. Sri Lanka VFR arrivals too reflect a similar global trend in VFR arrivals. VFR segment grew at a 5 year CAGR of 67.0% during outpacing overall arrivals growth of 22.4% during the same period. Arrivals for business and MICE recorded a negative 5 year CAGR of 20.3% during Source:- SLTDA 27

28 Demand Dynamics Pleasure arrivals Trend in Pleasure arrivals 000 2, % 1,800 1,600 1,400 1,200 1,000 The segment grew at a 6 year CAGR of 22.3% during whereas overall arrivals grew 26.0% during the same period 33.3% 23.9% 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% % 8.7% 12.0% 15.5% 20.0% 15.0% 10.0% % Pleasure Others Pleasure arrivals YoY growth 0.0% The segment contributed 80.0% of arrivals in 2009 The segment contributed 66.6% of arrivals in 2015 A similar pattern is visible in growth of pleasure arrivals and foreign guest nights recorded in the Graded rooms. However, pleasure arrivals as a % of total arrivals is declining. During pleasure arrivals grew at a 6 year CAGR of 22.3%, whereas foreign guest nights in Graded rooms grew at 21.2% during the same period. Source:- SLTDA, CBSL 28

29 Demand Dynamics Visiting Friends & Relatives (VFR) Composition of arrivals 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 78.9% 5.4% Overall arrivals 5 Year CAGR 22.4% 5 Yr CAGR 18.3% 5 Yr CAGR 67.0% 66.6% 25.5% VFR Pleasure Other VFR segment occupies a significant portion of the arrivals to Sri Lanka in the recent years. The segment s average stay is usually higher than an average pleasure visitor's stay in the island. Most of the VFR arrivals' accommodation is provided by their families or friends in the country. 51.7% of SLTDA registered foreign guest nights were accounted by VFR arrival in year CAGR Arrivals -> a 654, ,975 1,005,605 1,274,593 1,527,153 1,798, % Average stay -> b Foreign guest nights -> c -> (a * b) 6,544,760 8,559,750 10,056,050 10,961,500 15,118,815 18,163, % VFR arrivals -> d 35,342 70, , , , , % Average stay** -> e VFR nights -> f -> (d * e) 530,126 1,052,849 1,764,837 2,370,743 6,288,052 6,878, % Foreign guest nights at SLTDA registered rooms -> g 5,375,690 7,258,887 7,410,332 9,697,846 11,578,658 13,294, % Foreign guest nights at Unregistered rooms -> h 1,169,070 1,306,863 2,645,718 1,211,204 3,540,157 4,868, % VFR nights as a % of Unregistered rooms -> (f/(g + h)) 8.1% 12.3% 17.6% 21.7% 41.6% 37.9% Source: SLTDA, NDBS, **NDBS estimate 29

30 Demand Dynamics MICE arrivals International events held in the country stagnating; Promotional activities in need Arrivals # of events Meetings, Incentives, Conferences and Exhibitions (MICE) contributed to 14.0% of global tourist arrivals in 2014, marginally down from 15.0% in In Sri Lanka, visitors for MICE contributed a minimal ~1.6% for tourist arrivals in Business & MICE MICE travelers spend 2X higher than their leisure counterparts visiting the country. Currently Colombo city could accommodate only up to 1,500 delegates at any given time at a convention centre, due to capacity constraints. Hence, the destination has been overlooked by the mass scale MICE event organizers. However, Cinnamon Life (JKH PLC) is getting ready with a seating capacity for 4,000 delegates by In 2015, Sri Lanka welcomed ~29,000 arrivals for MICE purposes, which is 1.6% of the total arrivals. 40% (~7.3 Mn) of Indian outbound travelers are MICE tourists. Their most preferred destinations for MICE activities are USA, Dubai & Thailand. Through focused efforts, Sri Lanka is in an ideal position to attract a substantial portion of MICE travelers from India. Source:- SLTDA, Pacific world destination index International events_bmich Proposed infrastructure facelift is to benefit MICE International Financial Centre (IFC) Proposal has been made to build an IFC in Sri Lanka which will draw similarities from Dubai Financial Center. The IFC is expected to have a separate judicial system that will expedite business disputes among the firms operating within the center. Several foreign banks have indicated their interest to establish respective offices at the IFC. Megalopolis plan The Island nation is getting ready with a long term plan to upgrade urban physical infrastructure as well as to harness knowledge based innovation to supplement the global economic environment. With the port city been included under the Megalopolis plan, the country will lure foreign investors to start up their businesses in Sri Lanka. Speed connectivity Submarine cables in place connecting key destinations in the world in order to maximize data connectivity speed and breadth. 30

31 Demand Dynamics MICE arrivals potential The destination is getting ready to attract MICE travelers Human development index (HDI) Ranked 1 st in the South Asia region Sri Lanka Maldives India Bhutan Bangladesh Nepal Pakistan Afghanistan The Human Development Index (HDI) is a composite statistic of; Education Income per capita Life expectancy which are used to rank countries into four tiers of human development. Improved sentiment on Sri Lanka as a destination for BPO and KPO businesses due to the country s possession of human capital and unique geographic location is expected to augur well for further development of the MICE industry. Bhutan Doing business index 2015 BPO and shared service location index Ranked 3 rd in the South Asian region India 20 Nepal Sri Lanka Maldives India Pakistan Bangladesh Afghanistan Sri Lanka China Malaysia Philippines Vietnam Top 3 MICE destinations in Asia for 2015 Thailand Indonesia Singapore Source:- HDI 2015, Ease of doing business

32 Sri Lanka Tourism Tourist spend USD Source:- SLTDA Average spending per tourist per day peer destinations (2014) Malaysia Thailand Sri Lanka India Singapore Maldives Sri Lanka is on par with Thailand and well below regional peers such as India, Maldives and Singapore. This is a testimony to the fact that Sri Lanka is not a high end destination. Sri Lanka outperformed all the sub regions in average spending per tourist including North East Asia where the world s largest gambling industry (value wise), Macao is located. Macao average earnings per tourist stood at US$ 3,555.6 in 2014 which was 2.2X of Sri Lanka s earnings per tourist. Top ten tourist arrivals nation Tourists average spending in Sri Lanka is higher than the Global average and top ten destination preferred by travelers except for the USA Asia arrivals Average spending per tourist (USD) Arrivals (Mn) Average length of stay (days) Average spending per day (USD) France USA 2, Spain 1,003.1 N/A N/A China 1, Italy Turkey Germany 1, UK 1, Russia N/A N/A Mexico N/A N/A Sri Lanka 1, Global 1,094.0 N/A N/A Average spending per tourist (USD) North East Asia ,453.6 South East Asia ,104.2 South Asia ,589.4 Sri Lanka 1.5 1,591.9 Asia Region ,

33 Sri Lanka Tourism Spending composition Spending composition from % 90% 80% Tourism spending composition 4 year growth Composition 4 Year CAGR ( ) Banks 36.4% 70% 60% 50% 65.0% 64.1% 65.3% 64.3% 64.8% Travel Agencies 37.7% Shops 36.8% 40% 30% 20% 10% 0% Banks Travel Agencies Shops Hotels Gem Coporation Composition of spending amongst some of the peers 25.9% 24.6% 22.4% 17.5% 9.7% Accommodation Food & Beverage Shopping Sight Seeing, Entertainment & Gaming Others 16.0% 24.0% Hotels 37.2% Gem Corporation Sri Lanka 2015 Singapore 2014 Thailand % 9.1% 11.0% 4.3% 64.8% Banks Travel Agencies Shops Hotels Gem Corporation 10.0% 19.0% 31.0% 42.0% Total 37.3% Accommodation Food & Beverage Shopping Sight Seeing & Entertainment Transport Source:- SLTDA, Singapore & Thailand tourism board 33

34 Demand Dynamics China and India China is expected to outpace overall arrivals and overtake India by 2018 Mn Indian arrivals Vs SL market share Outbound in Mn Sri Lanka share Mn 1.40% % % % % % % % - Chinese arrivals Vs SL market share Outbound in Mn Sri Lanka share 0.20% 0.18% 0.16% 0.14% 0.12% 0.10% 0.08% 0.06% 0.04% 0.02% 0.00% Indian outbound travelers only accounted for ~2.0% of the total population of India in 2014 of which Sri Lanka attracted ~1.32%. Largest spending by Indian travelers was on retail (30.6%) followed by transport (28.4%) and accommodation (22.4%). As Sri Lanka s top source market, India s outbound tourism offers immense potential for Sri Lanka due to the fast growing middle income population (grew by over 10% during 2009 to 2014) in India. Average spending of an Indian traveler was USD whilst average spending per day was USD 88.6 in China became the second largest source market for Sri Lanka in 2015 surpassing traditional source market U.K for the first time in the history. China s overall outbound tourist departure during grew at a 5 year CAGR of 16.1% whereas arrivals to Sri Lanka grew at a much faster rate of 83.2% due to the concentrated efforts by SLTDA to attract Chinese arrivals to the island. As a result, Sri Lanka managed to increase its market share of China s outbound tourists to 0.18% in 2015 from 0.02% in Despite the slow down in the economy, Chinese travelers continue to occupy the top position in tourist spending worldwide since Average spending by a Chinese traveler in 2014 was USD 1,099.1 whilst average spending per day by a Chinese tourist was USD Source:- SLTDA 34

35 Demand Dynamics China and India Top two source markets are fond of shopping The capital city Colombo has only 08 operational shopping malls with a retail space of 0.66 million sqft. Kandy City Center is the only mall outside of Colombo city. The country currently lacks an international quality mall. However, most of the mixed development projects that are in the pipeline will satisfy this need in coming years. Government s recent budget proposal to revise PAL (Port and Airport development Levy) to 2.5% is an encouraging sign to boost shopping experience in Sri Lanka for tourists visiting Sri Lanka. China spending 2014 India spending % 3.7% 5.8% 1.5% 0.3% 3.7% Shopping 9.0% Lodging 30.6% 10.9% Transport Retail Accomodation Entertainment & Sightseeing Food Transport 17.8% 57.8% Attraction tickets Entertainment 28.4% Food Travel intermediaration Tipping 4.5% 22.4% Others Data from PATA s mpower market intelligence tool suggests, during 2012, visitors from China and India travelling to Hong Kong, Macau, Korea and Japan have spent 60.0%, 49.0%, 43.0% and 32.0% respectively on shopping Source:- Ministry of Tourism INDIA, China National Tourism Administration, Pacific Asia Travel Association, World Tourism Cities Federation Market Research report, August 2014, Insights on the INDIA tourism market, JLL Research 35

36 Demand Dynamics Local visitors Local guests nights composition 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% % USD 22.5% 77.5% 5 Yr CAGR 8.4% 5 Yr CAGR 1.6% 28.6% 71.4% Graded Supplementary Per capita income during Low income: USD 1,035 or less Lower middle income: USD 1,036 to 4,085 Upper middle income: USD 4,086 to 12,615 High income: USD 12,616 or more Local travel makers guest nights (based on guests nights recorded in graded and supplementary) grew at a 5 year CAGR of 3.3% during , whereas country s per capita income grew at 12.0% for the same period. Recent increase in public sector salaries and proposed private sector salary increments alongside relatively low inflationary environment may encourage local visitor segment to do more trips. This may benefit graded/hotel operators. 14.0% 12.0% 10.0% 8.0% Real income (Jan 2010 Sep 2016) % 4.0% 2.0% 0.0% day T Bill Inflation Source:- SLTDA, CBSL, NDBS Research 36

37 Hotels and travels Sector Hotels and Travels Sector Global Tourism Overview Sri Lanka Tourism Overview Demand Dynamics Supply Dynamics Short-term Forecast Potential for Growth Listed Space Valuation of Key Counters 37

38 Supply Dynamics Total room inventory Existing Room Inventory 2015 Rooms 30,000 25,000 20,000 15,000 10,000 5,000-5 year CAGR ( ) in arrivals 22.4% 5 year CAGR in registered accommodation 7.9% Graded Supplementary Graded Vs Supplementary rooms 30,078 rooms were registered with SLTDA (including graded and supplementary) as at end ,376 graded rooms (which includes boutique rooms and unclassified rooms) were available as at end of % : 29.1% ratio of graded to supplementary rooms in 2009 has now changed to 64.4% : 35.6% by % of foreign guest nights were recorded under unregistered accommodation in 2015 up from 11.7% recorded in Mix of graded rooms inventory 2,744 5 Star 4 Star 35.6% Graded Supplementary 64.4% 9, ,330 1,725 2,084 1,469 3 Star 2 Star 1 Star Boutique Hotel Unclassified Source:- SLTDA 38

39 Supply Dynamics Total room inventory in the pipeline Capacity to grow by 1.25x in 2017 (only based on SLTDA registered rooms) Rooms 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000-30,078 - Upcoming SLTDA registered rooms up to ,933 5,855 30,078 37,608 1,675 35, Registered rooms New rooms Among the new rooms under construction, Colombo region is expected to add 3,015 rooms in addition to South Coast s expected addition of 2,646 rooms by Informal sector new rooms statistics are not available. During 2015, SLTDA registered room inventory increased by 1,652 rooms Proposed to commence operations Projects under construction as at end of Region Projects Rooms Projects Rooms Projects Rooms Projects Rooms Northern Region Greater Colombo Colombo 18 3, , ,097 South Coast 41 3, , Hill Country Ancient Cities East coast , , ,675 Source:- SLTDA 39

40 Supply Dynamics City room inventory in the pipeline City may expect an increase in capacity of 1.8x by 2017 Rooms 8,000 7,000 6,000 5,000 4,000 3,966 5,884 1,918 6,981 1,097 According to SLTDA approved projects, Colombo city is expected to add 1.8x of the existing room capacity by ,000 5,884 2,000 3,966 1, Registered rooms New rooms Upcoming luxury apartments Destiny Residency 205 Astoria 608 Altair 225 Colombo City Centre 180 The Residences at One Galle Face 406 Cinnamon Life Colombo city may witness an addition of 2,024 luxury apartment units through A trend can be seen that investors in luxury apartments are renting out their properties to tourists on short-term basis. Such investments are facilitated by room sharing app Airbnb. Source:- SLTDA, market research 40

41 Supply Dynamics 5 star hotel operators City has been given a make over; yet better connectivity and infrastructure will take time 20.5% of Graded rooms are located 80.5% of Island s 5 Star rooms F E B A C D All operational 6 star hotels are listed 501 Keys hotel managed by Sri Lankan entity Cinnamon Hotels and resorts, ultimate parent company is JKH PLC 450 keys hotel owned by UAE based Galadari Brothers Co. L.L.C. The hotel was earlier managed by international chains Meridian and Marriot 382 keys hotels managed by Hilton Worldwide, which operates more than 540 hotels in 78 countries across the world Ranked #1 amongst the fastest growing tourist cities across the world in terms of overnight visitors by growing 21.1% in 2015, according to a survey carried out by MasterCard 2,208 keys of 5 star rooms in Sri Lanka are located in the Colombo city. 346 Keys hotel managed by Sri Lankan entity Cinnamon Hotels and resorts, ultimate parent company is JKH PLC 300 keys hotels managed by The Indian Hotels Company Limited, which operate more than 93 hotels in 55 locations across the world 229 keys hotel managed by Sri Lankan entity, Hayleys PLC with a 46.41% stake Source:- CSE, NDBS Research 41

42 Supply Dynamics Global hotel operators International visibility to boost arrivals; more focus on MICE Asia Pacific's leading luxury hotel group based in Hong Kong. Owning & managing over 90 hotels with 38,000 keys across Asia Pacific, the USA, the UK, Australia & Middle East. Building a 500 room 5 Star hotel in Sri Lanka located in the Galle face strip. Expected opening in Meanwhile Shangri-La Hambantota is fully operational since June A global hospitality chain based in U.S.A and home to several leading brands including Hyatt Grand. It owns and manages 627 properties in 52 countries across the world. The company will manage a 475 room 5 Star hotel under the brand of Hyatt Grand. It is expected to commence operation by 2018 and located in Colombo 03. India s second largest hotel chain operators with over 100 hotels located in 70 destinations. Ventured in to Sri Lanka to build a 350 room 5 Star hotel to be located in the Galle face strip and expected to be operational in Sheraton Hotel is a flagship brand owned by Starwood's Hotels and Resorts headquartered in U.S.A. In November 2015, Marriott International acquired Starwoods International. This Combined entity is now the worlds' largest hotel chain operator with 5,500 hotels across the world. 306 room 5 Star hotel being built in Colombo 03 and expected to open in Outside Colombo city limit; RIU, a Spain based hotel operator, has opened its first ever 501 room 5 star Asian property in Sri Lanka Ahungalla in August, 2016 Marriot, a 200 room 5 star property is scheduled to open in 2017 in Weligama. Movenpick Hotels & Resorts is an international upscale hotel management company located in 24 countries with 83 hotels and resorts. Softlogic Holdings PLC is building a 219 room 5 Star hotel situated in Colombo 03 to be managed by Movenpick Hotels & Resorts. Expected to be completed in Arrivals of international hotel chain operators along with existing international operators (Hilton and Taj) may enhance the visibility of Colombo as a potential city for leisure and MICE events. Source:-Market research 42

43 Supply Dynamics Outside city room composition Accommodation composition (outer city) 2015 Region No. of Units No. of Rooms Average occupancy % Greater Colombo North Colombo South Colombo South Coast 128 6, Up to Galle 77 4, Beyond Galle 51 2, East Coast High Country Ancient Cities 78 3, Kandy Area 30 1, Anuradhapura Area Polonnaruwa / Giritale Habarana / Sigiriya Dambulla Northern Region Total , % of graded establishments in Outer City 90.1% 79.5% Government s continuous focus on improving connectivity between cities by way of constructing expressways have allowed tourists to do a round trip within a short span of time. This may enable resort operators outside Colombo city to increase their average occupancy going forward. Island is better connected Northern expressway (feasibility stage) Proposed highway expected to connect Kandy and Jaffna Colombo Katunayake expressway 25.8 km highway connects Colombo to Bandaranaike International Airport (BIA) Outer circular highway 29 km highway connects Colombo Katunayake expressway to Southern expressway Eastern expressway (feasibility stage) Proposed highway expected to connect Colombo to Trincomale The central expressway Proposed highway expected to connect Colombo and Kandy Southern expressway 126 km highway connects Colombo with Galle and Matara Source:- SLTDA, RDA 43

44 Supply Dynamics Employment Global parameter for staff to room ratio; Sri Lankan sector is over employed Direct Employment* Indirect employment Total employment Indirect to direct Direct as a % of total employment No. of Registered rooms Staff to room Sri Lanka 352, , , % 28, Singapore 152, , , % 40, Malaysia 724,500 1,045,500 1,770, % 262, Maldives 48,000 44,000 92, % 26, India 23,024,000 13,671,500 36,695, % 82, Thailand 2,210,000 3,173,000 5,383, % N/A N/A World 107,833, ,745, ,578, % 17,500, * This includes employment by hotels, travel agents, airlines and other passenger transportation services (excluding commuter services). It also includes, for example, the activities of the restaurant and leisure industries directly supported by tourists. 5 Star 4 Star Staff to room ratio in hotels Sri Lanka s average staff to room ratio is 3.6 as at (Direct employment 109,567 in hotels & restaurants sub segment (source:- hrdc.lk) is divided by the SLTDA registered rooms 30,078). However, Global average and India average is less than Star India UNWTO Source:- SLTDA, respective countries travel & tourism economic impact reports 2015,STR global, hrdc.lk, HVS survey 2011 Staff 44

45 Supply Dynamics Cost of construction Construction cost per room across the United States Upper mid scale USD 154,000 per room cost Up scale 235,000 per room cost Upper scale 443,000 per room cost 3, , , , , , , , , , , , , , ,000.0 Land Building & Site improvements Soft costs Furniture, fixtures & equipment Pre-Opening & Working Capital Cost per sqft (including land) In Sri Lanka, it costs USD 219,000 (including land) to construct a five star hotel room Comparison of construction cost per sqft in a few selected peer countries (including land cost) Construction cost per sqft - in USD India Thailand Malaysia Hong Kong Singapore 3 Star/ Mid/ Budget hotel Star/ Business hotel data unavailable Star/ Luxury hotel Resort hotel data unavailable data unavailable data unavailable Star hotel construction cost in Sri Lanka Construction costs are comparatively low in Sri Cost per sqft (excluding land) Lanka compared to most of the Asian destinations and is on par with India to construct a five star luxury hotel USD Sri Lanka construction cost has been calculated based on a recently constructed five star hotel in the North Colombo region. Source:- International construction consultancy, NDBS research 45

46 Hotels and travels Sector Hotels and Travels Sector Global Tourism Sri Lanka Tourism Demand Dynamics Supply Dynamics Short-term Forecast Potential for Growth Listed Space Valuation of Key Counters 46

47 Short-term Forecast 3.8 Mn arrivals by 2020 We estimate arrivals to grow at a 5 year CAGR of 16.5% up to 2020 Historical CAGR Regional Composition Conservative Moderate Aggressive 2 Yr 2015 Jan - Jul' 5 Year Arrivals 5 Year Arrivals 5 Year Arrivals 2015 Region Composition Composition CAGR YoY 2016 YoY CAGR '000 CAGR '000 CAGR '000 Composition 13.8% 16.9% 18.0% 4.7% North America 5.0% % 12.5% % 17.5% % 20.9% 12.2% 25.6% 0.3% Latin America & the Caribbean 15.0% % 20.0% % 30.0% % 14.5% 15.3% 18.4% 30.7% Western Europe 12.5% % 15.0% 1, % 25.0% 1, % 8.7% -3.7% 7.2% 8.3% Eastern Europe 5.0% % 7.5% % 15.0% % 12.0% 13.6% 13.7% 5.6% Middle East 5.0% % 10.0% % 17.5% % 26.3% 6.1% -4.3% 0.7% Africa 1.5% % 2.5% % 7.5% % 27.0% 26.3% 18.3% 45.7% Asia 15.0% 1, % 20.0% 2, % 25.0% 2, % 8.5% 9.8% 19.3% 4.0% Australasia 10.0% % 15.0% % 20.0% % Total 3, , , year CAGR ( ) 12.3% 16.5% 23.3% Mix between South and East Asian arrivals changed to 55.9% : 44.1% in 2015 from 63.4% : 36.6% in East Asian arrivals growth was led by dominant Chinese tourists. We estimate the growth in Chinese tourist arrivals will continue its upward momentum due to Sri Lanka s heavy promotions targeting the Chinese market. India, the single largest source market may also continue its dominant arrivals trend due to its expanding middle income category and close proximity to Sri Lanka. Western Europe contributed to 30.7% of total arrivals in However, Sri Lanka s market share in Western European tourists is increasingly under threat by locations such as Maldives, Indonesia, Mauritius etc. Further, UK and German arrivals contributed to 50.3% of Western European arrivals in We expect UK arrivals to be slightly volatile in the short-term due to the uncertainty surrounding BREXIT and the weakening currency. However, Germany is expected to continue its growth momentum albeit at a slower rate mainly due to its resilient economy. Russian arrivals contributed to 41.6% of the Eastern European arrivals in However, geo political tension and declining oil prices resulted in a decline in arrivals from Eastern Europe of 3.7% in Arrivals from the region during January July 2016 increased by 7.2% YoY despite Russian arrivals further sinking YoY by 15.1%. The growth during the first 7 months in 2016 was driven mainly by arrivals from Ukraine that grew at a staggering 53.5% YoY. Middle East, 4 th largest source region, contributed to 5.6% of arrivals in Going forward, we expect arrivals from the region to be volatile given its unstable geo political tensions coupled with volatility in the oil markets. Source:- SLTDA, NDBS Research 47

48 Short-term Forecast Shopping to increase earnings We estimate earning from tourism to touch USD 8.3 Bn by 2020 Conservative Moderate Aggressive Region Composition Average stay Weighted average stay Composition Average stay Weighted average stay Composition Average stay Weighted average stay Western Europe 31.0% % % Asia 47.6% % % Others 22.0% % % Expected average stay Estimated arrivals - '000 3, , ,124.5 Estimated foreign guest nights - '000 29, , ,021.8 Average spending per day (ASPD) USD ASPD - YoY - 2 year CAGR ( ) 2.5% Spending on shopping - based on Thailand 15.0% Average spending per day USD Tourism earnings - USD 'Bn USD Potential spending per day per tourist E 2017E 2018E 2019E 2020E ASPD - Current ASPD - Shopping Current per day spending per tourist (base case) is expected to increase at a 2 year CAGR of 2.5% (recorded during ) until If shopping were given prominence through conducive infrastructure, current shopping expenditure per tourist of USD 17.8 (2015), which is a 10.8% of the current total spending, is expected to reach USD 25.5 per tourist (15% of the expected total spend per tourist) by By the end of 2020, if gaming was to be promoted, average spending per day would increase up to USD per tourist. This is based on casino to room revenue multiplier of 6.0 derived from Marina Bay Sands Singapore operations. This will result in an additional earnings of USD 3.5 Bn by end of 2020 based on our moderate arrivals assumptions. Source:- SLTDA, NDBS Research 48

49 Short-term Forecast Room inventory requirement We estimate an additional 22k room inventory requirement by 2020 to cater the demand 2015A 2020E (Moderate) Remarks SLTDA registered rooms -> a 30,078 51,235 NDBS forecast Beds to room ratio -> b 2 2 Ratio as at 2015 Total bed nights per year -> c 21,408,017 37,401,520 Local guest nights -> d 2,224,867 2,456,433 Grow at a 5 CAGR of 2% until 2020 Available for foreign guests -> e -> (c d) 19,183,150 34,945,087 After accounting for local guests nights Tourist arrivals -> f 1,798,380 3,856,471 NDBS forecast Average stay -> g NDBS forecast Total Foreign guest nights -> h -> (f*g) 18,163,638 43,009,338 Foreign guest nights at SLDA -> i 13,294,693 27,956,069 % of foreign guest nights at SLTDA (i/h) 73.2% 65.0% Unregistered category to account for 35% Occupancy % of foreign guest nights (i/e) 69.3% 80.0% Occupancy to improve Rooms 50,000 40,000 30,000 20,000 Number of rooms requirement Arrivals - Conservative Arrivals - Aggressive 5,855 43,271 (5 year CAGR 7.5%) 66,975 (5 year CAGR 17.4%) 3,407 1,675 3,407 3,407 67,400 63,578 3,407 30,078 30,078 35,933 41,015 44,421 47, E 2017E 2018E 2019E 2020E Existing rooms SLTDA registered additions in the pipeline Needed to meet the demand 68.6% occupancy Asia and the Pacific & Europe 54,426 51,235 48, % occupancy - USA 75.0% occupancy 80.0% occupancy 85.0% occupancy With the expectation of 35.0% of foreign guest nights to be recorded in unregistered accommodation and to command occupancy rate of 80.0% at the SLTDA registered rooms, Sri Lanka may need another ~22,000 rooms (5 year CAGR of 11.2%) to cater to the demand by Source:- SLTDA, NDBS Research 49

50 Short-term forecast Employment forecast The sector needs ~95K more direct employment by end of 2020 Composition of employment in leisure sector 2015 National tourist organization, 0.5% Guides, 3.4% Tourist Shops, 1.3% Agencies Providing recreational facilities, 0.7% Airlines, 4.7% Travel agents & Tour operators, 7.0% State sector, 1.9% Hotels & Restaurants, 80.6% 80.6% of direct employment recorded in 2015 was from hotels & restaurants If 3.6 staff per room ratio is expected to be maintained through 2016 to 2020, an additional staff of ~76,000 is needed in hotels & travels segment based on the estimated room inventory addition forecast for the period. SLTDA estimates that for every 5.6 arrivals 1 employee is needed, which has improved from every 4 arrivals, due to increase in efficiency amongst the workforce. Based on the current estimate, the sector would need ~ 750,000 employees by end of 2020 with the expectation of 4.2 Mn arrivals. Sector Employment E 2017E 2018E 2019E 2020E Direct 67, , , , , , , , ,318 Indirect 95, , , , , , , , ,279 Total 162, , , , , , , , ,596 Direct to indirect employment Direct employment to room ratio Source:- SLTDA, IPS, SLITHM, NHRDC labor market study report

51 Source Markets Short-term Forecast Better pricing required Cost comparison of trips among peer countries USD India China U.K. Germany Australia Types of accommodation Sri Lanka India Maldives Singapore Malaysia Thailand Minimum 5-star 584 N/A Malaysia 4-star 221 N/A Sri Lanka 3-star 217 N/A Sri Lanka Affordable 180 N/A Sri Lanka Types of accommodation Sri Lanka India Maldives Singapore Malaysia Thailand Minimum 5-star Malaysia 4-star Malaysia 3-star Thailand Affordable Malaysia Types of accommodation Sri Lanka India Maldives Singapore Malaysia Thailand Minimum 5-star India 4-star India 3-star India Affordable India Types of accommodation Sri Lanka India Maldives Singapore Malaysia Thailand Minimum 5-star Thailand 4-star Sri Lanka 3-star Thailand Affordable Thailand Types of accommodation Sri Lanka India Maldives Singapore Malaysia Thailand Minimum 5-star Thailand 4-star Malaysia 3-star Thailand Affordable Singapore Source:- Expedia.com 51

52 Hotels and travels Sector Hotels and Travels Sector Global Tourism Sri Lanka Tourism Demand Dynamics Supply Dynamics Short-term Forecast Potential for Growth Listed Space Valuation of Key Counters 52

53 Cultural Anuradhapura Polonnaruwa Sigiriya Kataragama Galle Dambulla Natural Potential for growth Heritage and Culture Proper marketing, promotions and pricing are required Sacred city of Anuradhapura Ancient city of Polonnaruwa 80% 70% 60% 50% 40% 35.93% 70.34% The country is home to 02 UNESCO world heritage Natural sites out of 39 sites in the South Asia. Sinharaja Forest Reserve Ancient city of Sigiriya Sacred city of Kandy 30% 20% 10% 0% 15.79% 0.02% 2.09% 0.09% Central Highlands of Sri Lanka Old town Galle and its fortification Golden temple of Dambulla The country is home to 06 UNESCO world heritage Cultural sites out of the 39 sites in South Asia. One in every three pleasure visitors travelled to Sigiriya in Average earnings per tourist recorded in Sigiriya was USD 24.8 in A focused effort to promote other cultural sites may induce more visitors thereby increasing earnings. Central highlands was given Natural heritage status in 2010 comprising of Knuckles Conservation Forest, Horton Plains Natural Park and Peak Wilderness Protected Area. Horton Plains national park attracted 7.3% of pleasure visitors in India- 31 Sri Lanka - 08 Thailand - 05 Malaysia - 04 Singapore - 01 Maldives - 00 Source:- SLTDA, UNESCO 53

54 Potential for growth Cultural triangle lead the earnings % of pleasure arrivals to Cultural Triangle % of pleasure arrivals to Wild Life Among the sites managed by GoSL, Cultural Triangle has recorded the highest earnings of LKR 2.4 Bn in % 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Government earned LKR 1.0 Bn from Wild Life sites during % 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% No of tourists % of tourists No of tourists % of tourists % of pleasure arrivals to Zoological % of pleasure arrivals to Botanical Zoological parks contributed LKR Mn earnings in % 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Botanical gardens contributed LKR Mn earnings in % 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% No of tourists % of tourists No of tourists % of tourists Source:- SLTDA 54

55 Potential for growth Enhancing the value chain Sub segments within leisure that may transform in to key thrust segments Destination management Having an own itinerary planning department that establishes links with global travel agencies may benefit hotel operators in selling their room inventory. Online marketing and booking Hoteliers are promoting usage of their respective brand applications among travelers in order to eliminate middleman (travel agencies) role in the value chain. According to global trends, 65.4% bookings are done through brand websites whereas merchandise websites accounted for 19.5% of bookings in Laundry services Value Chain - Leisure Institute and training schools SLTDA estimates that 200,000 new direct employment opportunities will be needed by 2020 to cater to the demand. Supply from existing hotel schools falls short of meeting this requirement. Transportation Pickme.lk, a Sri Lankan start up taxi booking app, successfully penetrated the market. Uber, an international player, entered the market following the pickme.lk success. Both apps are a hit amongst travelers. Event management Outsourcing laundry related services may free up staff and allow operators to focus more on core operations whilst reducing the cost element. Consolidation and outsourcing are two key aspects as the sector moves into the mature stage of growth Country is in need of large scale event management companies in order to attract travelers for events which feature international iconic artists. Source:- NDBS Research 55

56 Potential for growth Guideline for gaming Singapore may be a proxy if Sri Lanka were to reconsider issuance of new Gaming licenses Singapore government implemented the casino control bill in The construction of integrated resorts (IR s) were offered to two international operators, Las Vegas Sands and Genting International. This was done after a tedious tender evaluation process. Operation of both IR s started in Marina Bay Sands (MBS) A US$ 5.7 Bn worth of investment with three 55 storied hotel towers. Gaming operation occupies an area of 161,459 sqft and offers 600 table games and 2,500 slot machines. Features 1.2 Mn sqft convention and exhibition center which can accommodate up to 45,000 delegates. USD Gaming revenue vs operating profit per sqft Revenue per sqft grew at a 4 year CAGR of 4.9% Marina Bay Sands USD (2H) Gaming revenue in US$ - per sqft Gaming operating profit in US$ - per sqft Resorts World Sentosa (RWS) A US$ 4.6 Bn investment housing Asia s first universal studio theme park. Casino operation occupies a 161,500 sqft and features over 500 gaming tables. Marina Bay Sands recorded 6.7 times of room revenue from casino operations whilst commanding above country average occupancy rate of 99.0% in % 95.0% 90.0% 85.0% 80.0% 75.0% 70.0% 65.0% 60.0% 55.0% 50.0% MBS; 78.0% of revenue from 2.6% of gross floor area RWS; 72.8% of revenue from 2.6% of gross floor area Average occupancy % vs casino to room revenue x Marina Bay Sands 73.4% 93.6% 98.9% 98.6% 99.0% 2010(2H) Average Occupancy Casino to room revenue (X) x Source:- Las vegas sands & Resort World Santosa annual reports, Singapore tourism board, NDBS Research 56

57 Hotels and travels Sector Hotels and Travels Sector Global Tourism Sri Lanka Tourism Demand Dynamics Supply Dynamics Short-term Forecast Potential for Growth Listed Space Valuation of Key Counters 57

58 Listed Space SL Operating Profit Margin (OPM) Sri Lankan listed hotels enjoy 22.8% in operating margin, in line with Global operators; average revenue per room is at USD 46,000 Ticker No. of rooms Revenue in LKR Mn Revenue per room in 'LKR 000 Revenue per room in 'USD 000 Operating expenses per room in 'LKR 000 Operating expenses per room in 'USD 000 Cost of revenue as a % of revenue Selling and distribution expenses as a % of revenue Administrative expenses as a % of revenue Operating expenses as a % of revenue AHPL 847 8, , (7,129.38) (49.17) 41.5% 3.0% 30.2% 74.7% AHUN , , (10,035.51) (69.21) 20.4% 3.5% 52.2% 76.2% KHL 1,336 10, , (5,498.17) (37.92) 32.7% 3.0% 31.3% 67.0% TRAN 346 2, , (5,257.46) (36.26) 36.8% 3.0% 22.1% 61.9% HDEV 382 2, , (5,205.35) (35.90) 18.6% 59.7% 78.3% GHLL 450 2, , (4,251.50) (29.32) 49.7% 4.6% 32.1% 86.4% KHC , (1,291.10) (8.90) 32.1% 3.7% 31.8% 67.6% CHOT 197 1, , (6,113.91) (42.16) 28.7% 4.2% 57.8% 90.7% SERV 229 2, , (8,643.19) (59.61) 47.9% 3.6% 30.6% 82.0% BBH 143 N/A N/A N/A N/A N/A N/A N/A N/A N/A CONN 420 1, , (1,804.54) (12.45) 34.1% 6.4% 24.8% 65.3% TAJ 300 1, , (4,164.31) (28.72) 111.1% 5.8% 20.2% 96.7% NEH , (1,716.15) (11.84) 20.4% 4.1% 17.6% 42.2% LHL , (6,474.68) (44.65) 21.7% 3.4% 55.7% 80.8% SHOT 304 1, , (3,505.36) (24.17) 21.2% 3.9% 58.2% 83.4% Mean 6, (5,077.90) (35.02) 36.9% 4.0% 34.6% 75.2% Median 6, (5,231.41) (36.08) 32.4% 3.7% 31.5% 77.2% Source:- Bloomberg, CSE, company annual reports, NDBS research 58

59 Sri Lanka s median operating profit margin 22.8% is higher than peer countries Listed Space OPM peer country comparison Malaysia India Cost of revenue as a % of revenue Selling and distribution expenses as a % of revenue Administrative expenses as a % of revenue Other operating expense as a % of Revenue Operating expenses as a % of revenue Ticker Name MIT MK Equity Mulpha Intl Bhd N/A N/A N/A 28.9% 28.9% LMK MK Equity Landmarks Berhad 39.6% N/A 59.1% 45.0% 143.8% GRND MK Equity Grand Central En 11.4% N/A 62.3% N/A 115.3% PGKH MK Equity Pan Malaysia Holdings 42.8% N/A 13.5% 52.9% 109.1% Mean 23.5% N/A 33.7% 31.7% 99.3% Median 25.5% N/A 36.3% 37.0% 112.2% IH IN Equity Indian Hotels Co 11.9% N/A 47.2% 48.3% 107.4% EIH IN Equity Eih Ltd 14.6% N/A 36.8% 38.1% 89.5% MHRL IN Equity Mahindra Holiday N/A N/A 28.6% 57.0% 85.6% Mean 8.8% N/A 37.5% 47.8% 94.2% Median 11.9% N/A 36.8% 48.3% 89.5% Singapore GLL SP Equity Gl Ltd 42.4% N/A 39.8% 0.0% 82.3% OUE SP Equity Oue Ltd 65.1% 5.1% 15.1% 15.1% 100.3% BTH SP Equity Banyan Tree Hold 12.1% 9.8% 80.2% 30.3% 132.4% FEOR SP Equity Far East Orchard 73.9% 4.7% 12.2% 0.5% 91.3% Mean 48.4% 6.5% 36.8% 11.5% 101.6% Median 53.8% 5.1% 27.4% 7.8% 95.8% Marina Bay Sands Singapore operations did command an operating profit margin of 42.8% in 2014 Thailand CENTEL TB Equity Central Plaza Ht 58.8% 4.5% 25.2% N/A 88.4% LRH TB Equity Laguna Resorts 57.6% 11.2% 46.4% N/A 115.2% ERW TB Equity The Erawan Group 47.9% 6.6% 34.9% N/A 89.4% DTC TB Equity Dusit Thani Pcl 72.4% 7.9% 22.3% N/A 102.7% GRAND TB Equity Grande Asset Hot 33.3% 14.7% 58.6% N/A 106.6% Source:- Bloomberg, annual reports, NDBS research Mean 54.0% 9.0% 37.5% N/A 100.5% Median 57.6% 7.9% 34.9% N/A 102.7% 59

60 Listed Space SL trading multiples Key industry ratios and multiples are attractive than Global Counters No. of rooms Gross Profit margin % EBITDA margin % Operating Profit margin % Net profit margin % Debt to capital % Return on equity % EV/EBITDA P/S P/E P/BV Major shareholder % of holding AHPL % 29.5% 23.0% 21.2% 2.8% 6.1% John Keells Holdings PLC 78.6% AHUN % 32.2% 24.9% 14.4% 26.0% 8.2% Aitken Spence PLC 71.2% KHL 1, % 34.0% 19.2% 15.8% 13.5% 8.4% John Keells Holdings PLC 80.3% TRAN * % 17.9% 8.8% 9.2% 10.5% 4.0% John Keells Holdings PLC 48.6% HDEV % 16.6% 0.7% 2.7% 0.9% 0.4% N/A N/A N/A N/A Government of Sri Lanka N/A GHLL % 25.6% 10.4% 13.7% 0.0% 2.3% Galadari Brothers Co 63.6% KHC % 42.6% 32.0% 12.2% 0.1% 1.2% Ceylon Hotels Corporation PLC 76.5% CHOT % 30.5% 17.3% -0.9% 8.9% -0.2% n.a. 0.6 Ceylon Hotels Holdings 33.5% SERV % 28.8% 20.0% 12.0% 47.3% 14.0% Hayleys PLC No 46.4% BBH 143 N/A N/A N/A N/A 32.5% -1.9% N/A N/A N/A N/A Melstacorp Limited 41.9% CONN % 38.9% 28.1% 14.8% 34.1% 6.1% Hayleys PLC 40.3% TAJ % 25.8% 8.8% -2.7% 63.3% -4.6% n.a. 2.3 Tal Hotels & Resorts Ltd 58.1% NEH % 29.9% 29.9% 28.1% 0.1% 6.0% G L A Ondaatjie 30.0% LHL % 29.6% 19.1% 16.4% 7.2% 5.2% Jetwing Hotels Management Services (Pvt) Ltd 40.1% SHOT % 32.6% 23.6% 11.4% 17.2% 7.0% Leisure Asia Investments Ltd 28.1% Mean 66.3% 29.6% 19.0% 12.0% 17.6% 4.2% Median 70.3% 29.8% 19.6% 13.0% 10.5% 5.2% Top 15 counters are selected based on their market capitalization. *TRAN is a subsidiary of AHPL 60

61 Listed Space Global trading multiples Global hotel chain operators (Top 10 operators based on number of rooms under operation) Headquarters International Hotel chain operators No. of rooms* Gross Profit margin % EBITDA margin % Operating Profit margin % Net profit margin % Debt to capital % Return on equity % EV/EBITDA P/BV P/E United States Marriott International 759, % 10.3% 9.3% 5.9% N/A N/A N/A United States Hilton Worldwide 758, % 24.5% 18.4% 12.5% 63.9% 23.6% United Kingdom United States Intercontinental Hotels Wyndham Worldwide 744, % 88.6% 83.3% 67.8% 83.9% 383.1% , % 22.1% 17.8% 10.5% 76.4% 61.4% France Accor Hotels 517, % 17.8% 11.9% 3.7% 41.7% 5.2% United States Choice Hotels 507, % 27.5% 26.2% 14.9% N/A N/A N/A United States Starwoods Hotels 369, % 17.7% 12.8% 8.5% 64.5% 37.6% China China Lodging Group 278, % 21.9% 10.4% 7.6% 8.6% 12.7% United Kingdom Belmond Hotels 215, % 20.8% 11.7% 2.9% 47.0% 2.5% United States Hyatt Hotels 159, % 15.5% 7.5% 2.9% 25.6% 3.1% Mean 48.4% 26.7% 20.9% 13.7% 51.5% 66.1% Median 51.6% 21.4% 12.4% 8.0% 55.5% 18.1% Source:- Bloomberg, company annual reports *Rooms are including franchised, managed, owned & leased 61

62 Listed Space Moving towards global multiples Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Market capitalization composition CSE Beverage Food and Tobacco, 20.2% Diversified, 16.6% Hotels and Travels, 12.1% Top 5 counters within the sector (Market capitalization) AHPL 18.8% TRAN 38.8% AHUN 13.2% KHL Manufacturing, 6.2% Telecommunications, 5.7% 3.9% 12.5% 12.8% GHLL Others Bank Finance and Insurance, 23.9% Other sectors, 15.2% ASPI Vs Indexed Hotels & Travels index ( ) 8, , , , , , , ,000.0 ASPI Indexed Hotels & Travels Sector index stagnated at these levels over the last year. Relative multiples are nearing towards global multiples Source:- CSE, Bloomberg 62

63 Listed Space Global and regional comparison Price to Sales (P/S) (X) 6.0 P/S Sri Lanka ( ) Sri Lanka Global Median 2.0 Asia Emerging Asia Global (X) Price to Earnings (P/E) Sri Lanka 17.0 (X) P/E Sri Lanka ( ) Global Median 18.3 Asia Emerging Asia Global (X) Source:- CSE, Bloomberg 63

64 Listed Space Global and regional comparison Enterprise Value to Earnings Before Interest Tax Depreciation and Amortization (EV/EBITDA) (X) Sri Lanka EV/EBITDA Sri Lanka ( ) Asia Emerging Global Median Asia Global Price to Book Value (P/BV) Sri Lanka 0.9 (X) 0.0 (X) P/BV Sri Lanka ( ) Global Median 1.2 Asia Emerging Asia Global (X) Source:- CSE, Bloomberg 64

65 Hotels and travels Sector Hotels and Travels Sector Global Tourism Sri Lanka Tourism Demand Dynamics Supply Dynamics Short-term Forecast Potential for Growth Listed Space Valuation of Key Counters 65

66 Valuation of Key Counters SERV.N0000 The Kingsbury Target Price - LKR Recommendation Share Data Price Performance LKR - Buy Market Price as at Week Range Shares in Issue (as at ) Average Daily Volume (52 Weeks) Estimated Free Float (%) LKR LKR ,000,000 45, % Main Shareholders as at No. of Shares % Hayleys PLC 112,307, Carbotels (Pvt) Ltd 31,625, Employees Provident Fund 25,559, Bank of Ceylon No - 2 A/C 7,833, Bank of Ceylon - A/C Ceybank Unit Trust 5,152, Oct-15 Jan-16 Apr-16 Jul-16 Volume Price Adjusted ASPI Volume, Mn The Kingsbury PLC is the 3 rd largest revenue earner among the six 5-star city hotel operators with only 229 rooms and other amenities. The hotel is located in the Colombo city limit controlled by Hayleys PLC. During FY15/16 the hotel recorded an average occupancy of 71.0%, which is marginally lower compared to 75.0% recorded by the company an year ago and the countrywide five star hotel occupancy of 74.9% recorded during SERV s revenue and profit after tax (PAT) recorded a YoY growth of 8.4% and 0.7% respectively in FY15/16. Subdued PAT growth was mainly on account of the spike in tax related expenses and marketing expenses. SERV staff was reduced from 890 to 670 during the last year, which brings down the average staff per room ratio to 2.9 from 3.9, well below the country average of 3.6. Hence, going forward, we expect employment related cost to be stagnant whilst efficiency to improve. However, finance cost, which forms the 3 rd largest expense item after COGS and admin & depreciation expenses, increased substantially by 29.0% during FY15/16. Depreciation of LKR currency and gradual increase in the yield curve could have been the reasons for the escalation in finance cost. Meanwhile SERV has also retired a LKR Mn worth of loan during FY15/16. We expect average occupancy rate to pick up given that the property is positioning itself as a luxurious city hotel with offerings for MICE activities. Even after the arrivals of international operators, the unique location of the property may have an advantage charging competitive prices especially once the minimum room rate has been removed. Food and beverage revenue is expected to command 1.1X of room revenue during the forecasted period given the variety of offerings coupled with locals preference to dine out gaining momentum at the backdrop of an increase in real earnings. We expect SERV to record a five year revenue and PAT CAGR of 2.0% and 4.2% through FY16/17 to FY20/21. The counter is currently trading at a P/E of 14.6X substantially lower than the Asia and Global P/E of We derived LKR 19.8 as a fair value per share based on free cash flow (75%) and relative (25%) based valuation methods. Hence we initiate a BUY recommendation for the counter with an upside potential of 20.2%. Source: Bloomberg, company reports, CSE, NDBS Research 66

67 Valuation of Key Counters SERV.N0000 Key Ratios FY13/14 FY14/15 FY15/16 FY16/17 (E) FY17/18 (E) FY18/19 (E) Growth Ratios Turnover Growth 994.3% 9.0% 8.4% 1.9% 1.7% 2.2% Profit for the period Growth (107.3%) 790.7% 0.7% 6.2% 2.7% 4.0% Profitability Ratios Gross Profit Margin 50.3% 52.1% 54.9% 54.9% 54.9% 54.9% Operating Profit Margin 13.7% 17.8% 20.2% 20.7% 20.2% 19.8% Net Profit Margin 1.5% 12.1% 11.2% 11.7% 11.8% 12.0% Du Pont Analysis Net Profit Margin 1.5% 12.1% 11.2% 11.7% 11.8% 12.0% Asset Turnover (X) Equity Multiplier (X) ROE 2.5% 16.0% 14.2% 13.9% 13.5% 13.3% Solvency Ratios Debt to Equity 188.7% 126.2% 98.5% 79.6% 67.5% 56.4% Interest Coverage (X) Investor Ratios EPS (LKR) NBV (LKR) DPS (LKR) Dividend Yield* % 4.8% 4.8% 4.8% P/E (X)* P/BV (X)* EV/EBITDA (X)* *Historical ratios have been calculated based on respective 31 st March MPS, forward ratios have been calculated based on MPS as at the report date Income Statement in LKR'000 FY13/14 FY14/15 FY15/16 FY16/17 (E) FY17/18 (E) FY18/19 (E) Revenue 2,213,935 2,412,816 2,616,488 2,665,992 2,710,814 2,769,969 Cost of sales (1,099,942) (1,155,415) (1,178,832) (1,201,136) (1,221,330) (1,247,981) Gross Profit 1,113,993 1,257,401 1,437,656 1,464,857 1,489,485 1,521,988 Other Income 2,156 5,559 2,919 2,919 2,968 3,033 1,116,149 1,262,960 1,440,575 1,467,776 1,492,453 1,525,021 Selling and marketing expenses (101,512) (86,274) (122,455) (110,049) (111,899) (114,341) Administrative expenses (529,812) (535,280) (569,418) (598,059) (630,072) (665,893) EBITDA 484, , , , , ,787 Depreciation (178,379) (198,334) (216,675) (202,898) (197,314) (192,126) Amortisation (3,532) (3,988) (4,277) (4,935) (4,772) (4,653) EBIT/Operating profit 302, , , , , ,008 Finance cost (281,896) (145,786) (188,283) (191,980) (181,230) (168,602) Finance income 12,711 16,192 18,393 20,278 23,288 26,751 Profit before tax 33, , , , , ,157 Income tax (1,009) (8,698) (64,493) (68,507) (70,367) (73,197) Profit for the period 32, , , , , ,960 67

68 Valuation of Key Counters SERV.N0000 Balance Sheet in LKR'000 As at As at As at As at (E) As at (E) As at (E) ASSETS Non Current Assets Property, Plant and Equipment 3,796,076 3,836,937 3,791,472 3,721,873 3,619,438 3,524,261 Intangible Assets 23,536 24,517 24,110 23,118 22,354 21,797 3,819,612 3,861,454 3,815,582 3,744,991 3,641,792 3,546,058 Current Assets Inventories 82,684 75,571 65,435 71,837 73,045 74,639 Trade and Other Receivables 127, , , , , ,240 Other non financial assets 74,885 55,265 57,890 57,890 57,890 57,890 Income tax receivable 8,681 18,056 24,903 24,903 24,903 24,903 Cash and short term deposit 278, , , , , ,204 Other Current Financial Assets 82,717 67,881 56, , , , , , ,875 Total Assets 4,473,956 4,568,943 4,640,424 4,535,029 4,477,459 4,433,933 EQUITY AND LIABILITIES Stated Capital 836, , , , , ,000 Revaluation Reserve 952, , , , , ,830 Retained Earnings (117,414) 196, , , , ,026 Total Equity 1,670,714 1,963,212 2,181,984 2,300,009 2,426,496 2,565,856 Non Current Liabilities Interest Bearing Loans and Borrowings 2,099,595 1,702,610 1,350,116 1,215,104 1,080, ,081 Post employment benefit obligations 15,897 20,973 30,703 30,703 30,703 30,703 Deferred Tax Liabilities 97, , , , , ,367 2,213,231 1,829,022 1,545,186 1,410,174 1,275,163 1,140,151 Current Liabilities Trade and Other Payables 232, , , , , ,409 Interest Bearing Loans and Borrowings 281, , , , , ,964 Bank overdraft Other non financial liabilitites 76, , , , , , , , , , , ,926 Total Liabilities 2,803,243 2,605,730 2,458,440 2,235,020 2,050,963 1,868,077 Total Equity and Liabilities 4,473,957 4,568,942 4,640,424 4,535,029 4,477,459 4,433,933 68

69 Valuation of Key Counters AHPL.N0000 Asian Hotels & Properties Target Price - LKR AHPL is the holding company of two five star hotel properties within the city limit, namely Cinnamon Grand (CG) (501 rooms) and Cinnamon Lakeside (CL) (346 rooms), and manages rental property Crescat Boulevard (shopping mall). AHPL is owned by one of the largest listed conglomerate JKH PLC. Recommendation Share Data Market Price as at Week Range Shares in Issue (as at ) Average Daily Volume (52 Weeks) Estimated Free Float (%) LKR LKR ,775,000 23, % Main Shareholders as at No. of Shares % John Keells Holdings PLC 347,824, Employees Provident Fund 45,249, Sri Lanka Insurance Corporation Ltd-Life Fund 10,055, Bank of Ceylon A/C Ceybank Unit Trust 9,769, Dr. S. Yaddehige 3,415, Price Performance LKR Buy 40.0 Oct-15 Jan-16 Apr-16 Jul-16 Volume Price Adjusted ASPI Volume, Mn CG is the largest five star city hotel operator in the island with 14 restaurants and 10 meeting spaces and historically has been the highest revenue contributor to the AHPL (65.1% to the topline in FY15/16). The contribution from CG to the top line during FY15/16 has risen to 65.0% from 60.0% historically, mainly due to part closure of CL for refurbishment. As a result CL has recorded a mediocre occupancy of 43.0% during FY15/16. Over the years, average occupancy of CL has seen a dip amidst elevated competition from addition of new city rooms and a lack of arrivals under business segment due to low international MICE events. We expect CG to be a cash cow for AHPL and to maintain slightly above the current occupancy rate of ~76.0% (FY15/16) during the forecasted period. We are of the view that new international hotel chain operators may be forced to charge higher room rates to cover their huge CAPEX and OPEX, and also to be in line with their global standards. In addition to this, they also may need to differentiate from the local hotel chain operators. Arrivals of international chain operators may put Colombo in the spotlight and attract large influx of business arrivals which in turn may benefit CG to maintain its current occupancy rate going forward. Abolishment of the minimum room rate may benefit CG in order to be competitive in the market in terms of pricing. CG is expected to record occupancy rates of 76.0% % over the forecasted period and to record a 5 year revenue CAGR of 2.8%. In the meantime, CL is expected to bounce back its operation as the management has unveiled new strategies to attract the top two source markets India and China. Therefore, initiatives may increase occupancy rates while exerting pressure on average room rates. Hence, we expect CL to record an improved occupancy rate of 51.0% over the forecasted period while recording a revenue CAGR of 4.8%. We forecast AHPL to record a 5 year revenue and profit CAGR of 3.4% and 2.9% respectively through FY16/17 to FY20/21. The company is expected to maintain a dividend payout ratio of 70.0% through out the forecasted period. We derived LKR 70.1 as a fair value per share based on free cash flow (75.0%) and relative (25.0%) based valuation methods. Hence, we initiate a BUY recommendation for the counter with an upside potential of 18.2%. Source: Bloomberg, company reports, CSE, NDBS Research 69

70 Valuation of Key Counters AHPL.N0000 Key Ratios FY13/14 FY14/15 FY15/16 FY16/17 (E) FY17/18 (E) FY18/19 (E) Growth Ratios Turnover Growth 4.6% (2.1%) (0.2%) 7.3% 2.4% 2.4% Profit attributable to equity holders Growth (3.9%) (26.7%) 4.8% 2.6% 3.1% 3.0% Profitability Ratios Gross Profit Margin 60.8% 58.5% 57.6% 58.0% 58.0% 58.0% Operating Profit Margin 30.0% 26.3% 23.5% 25.6% 25.3% 25.1% Net Profit Margin 34.1% 25.8% 25.1% 24.0% 24.1% 24.3% Du Pont Analysis Net Profit Margin 34.1% 25.8% 25.1% 24.0% 24.1% 24.3% Asset Turnover (X) Equity Multiplier (X) ROE 13.1% 9.2% 8.5% 8.6% 8.8% 9.0% Solvency Ratios Debt to Equity 0.0% 0.6% 0.5% 1.4% 2.1% 1.7% Interest Coverage (X) , Investor Ratios EPS (LKR) NBV (LKR) DPS (LKR) Dividend Yield* 5.9% 6.3% 9.4% 5.0% 5.1% 5.3% P/E (X)* P/BV (X)* EV/EBITDA (X)* *Historical ratios have been calculated based on respective 31 st March MPS, forward ratios have been calculated based on MPS as at the report date Income Statement in LKR'000 FY13/14 FY14/15 FY15/16 FY16/17 (E) FY17/18 (E) FY18/19 (E) Revenue 8,256,149 8,080,152 8,066,693 8,657,916 8,864,177 9,075,217 Cost of sales (3,239,562) (3,356,728) (3,424,137) (3,638,328) (3,724,731) (3,813,131) Gross Profit 5,016,587 4,723,424 4,642,556 5,019,588 5,139,446 5,262,086 Other Income 75,546 80,523 76,739 84,173 86,178 88,230 5,092,133 4,803,947 4,719,295 5,103,760 5,225,624 5,350,316 Selling and marketing expenses (207,964) (238,765) (326,979) (303,391) (310,619) (318,014) Administrative expenses (1,277,049) (1,364,466) (1,389,550) (1,445,132) (1,502,937) (1,563,055) Other operating expense (631,760) (607,048) (579,259) (602,429) (626,527) (651,588) EBITDA 2,975,360 2,593,668 2,423,507 2,752,808 2,785,542 2,817,660 Depreciation (482,938) (455,964) (512,585) (525,982) (527,034) (528,388) Amortisation (16,278) (15,611) (13,763) (14,260) (13,867) (13,673) EBIT/Operating profit 2,476,144 2,122,093 1,897,159 2,212,567 2,244,640 2,275,599 Finance cots (3,287) (190) (47,074) (17,873) (15,596) (13,049) Finance income 305, , , , , ,609 2,777,899 2,321,861 2,006,795 2,336,328 2,408,803 2,481,159 Change in Fair Value of Investment Property 268,564 28, , Profit before tax 3,046,463 2,350,653 2,231,460 2,336,328 2,408,803 2,481,159 Income tax (227,952) (263,196) (208,789) (261,592) (269,707) (277,808) Profit for the period 2,818,511 2,087,457 2,022,671 2,074,736 2,139,096 2,203,351 Profit attributable to; Equity holders 2,397,946 1,756,629 1,841,133 1,888,525 1,947,108 2,005,596 Minority holders 420, , , , , ,754 70

71 Valuation of Key Counters AHPL.N0000 Balance Sheet in LKR'000 As at As at As at As at (E) As at (E) As at (E) ASSETS Non Current Assets Property, Plant and Equipment 18,511,385 20,703,920 21,291,020 21,321,489 21,364,161 21,419,043 Lease Hold property 818, , , , , ,644 Investment Property 3,904,514 3,935,508 4,165,000 4,165,000 4,165,000 4,165,000 Intangible Assets 5,265 2,858 2,897 2,047 1,614 1,399 Non Current Financial Assets 17,027 12,173 24,590 24,590 24,590 24,590 Other Non Current Assets 4,786 2,644 3,835 3,835 3,835 3,835 23,261,641 25,463,363 26,281,198 26,298,413 26,328,248 26,370,512 Current Assets Inventories 121, , , , , ,002 Trade and Other Receivables 481, , , , , ,871 Amounts Due from Related Parties 48,863 66,484 87,901 87,901 87,901 87,901 Other Current Assets 141, , , , , ,021 Short Term Investments 3,134,194 2,475,667 1,198,681 2,178,983 2,765,515 3,363,222 Cash In Hand and at Bank 430, , , , , ,691 4,358,004 3,932,511 2,822,210 3,433,242 4,104,045 4,787,709 Total Assets 27,619,645 29,395,874 29,103,408 29,731,654 30,432,293 31,158,221 EQUITY AND LIABILITIES Stated Capital 3,345,117 3,345,117 3,345,117 3,345,117 3,345,117 3,345,117 Revenue Reserves 7,880,070 7,883,065 7,139,930 7,825,136 8,531,598 9,259,281 Other components of equity 11,110,871 12,808,756 12,824,188 12,824,188 12,824,188 12,824,188 22,336,058 24,036,938 23,309,235 23,994,441 24,700,903 25,428,586 Non-Controlling Interest 3,451,487 3,388,477 3,227,406 3,294,968 3,364,626 3,436,377 Total Equity 25,787,545 27,425,415 26,536,641 27,289,409 28,065,529 28,864,962 Non Current Liabilities Deferred tax liabilities 337, , , , , ,721 Employee benefit liabilities 221, , , , , ,150 Interest bearing borrowings , , ,949 89, , , , , , ,845 Current Liabilities Trade and Other Payables 626, , , , , ,361 Amounts Due to Related Parties 87, , , , , ,789 Income tax liabilities 111, ,236 62,859 62,859 62,859 62,859 Other current liabilities 317, , , , , ,743 Current portion of borrowings ,053 62,290 41,527 20,763 Bank Overdrafts 130, , , , , ,899 1,273,455 1,387,524 1,587,999 1,553,451 1,567,945 1,584,413 Total Liabilities 1,832,100 1,970,459 2,566,767 2,442,245 2,366,764 2,293,259 Total Equity and Liabilities 27,619,645 29,395,874 29,103,408 29,731,654 30,432,293 31,158,221 71

72 Valuation of Key Counters KHL.N0000 John Keells Hotels Target Price - LKR Recommendation Share Data Market Price as at Week Range Shares in Issue (as at ) Average Daily Volume (52 Weeks) Estimated Free Float (%) Main Shareholders as at No. of Shares % John Keells Holdings PLC 1,169,598, Employees Provident Fund 78,474, Sri Lanka Insurance Corporation Ltd. - Life Fund 71,622, Mercantile Investments PLC 13,000, Mr. D. J. M. Blackler 6,514, Price Performance LKR Buy LKR LKR ,456,146,780 47, % 10.0 Oct-15 Jan-16 Apr-16 Jul-16 Volume Price Adjusted ASPI Volume, Mn KHL owns and controls the largest room inventory in Sri Lanka (08 resorts with 997 rooms) and 3 resorts with 340 rooms in Maldives. KHL is owned by a premier listed company, JKH PLC. Properties are well spread across the country and the company holds the advantage of having a sister company that owns and manages three prominent star class city hotels. A newly rolled out property management system that brings all the properties under the common name "Cinnamon" will make KHL properties immensely attractive. KHL s revenue recorded YoY growth of 1.6% whilst profit after tax (PAT) contracted by 6.3% during FY15/16. Contraction is mainly due to 10.0% increase in administration expenses and 4.5% spike in COGS, whilst finance expenses declined by 31.0% during FY15/16. The management has successfully implemented a property management system for their Sri Lankan resorts and is currently in the process of implementing the same for its Maldivian resorts. The system is expected to be the first of its kind in Sri Lanka and will improve efficiency in client management and eliminate duplication of certain functions. During the previous financial year, KHL carried out various brand building activities such as pre-pageant tours for Miss India & Miss China contestants, a unique familiarization tour for French Travel Agents and Asia s first ever Travel Bloggers Conference in association with government authorities. These are expected to further benefit KHL in attracting travelers to their premises. Maldives recorded a suboptimal growth of 2.9% in tourist arrivals during FY15/16. However, arrivals in 1QFY16/17 had declined by 1.2% in comparison to 1QFY15/16 mainly on account of prevailing political instability in the country. Asia and the Pacific contributed ~49.0% in arrivals during China continued to be the top arrival contributor since 2010 with ~29.0% of market share while recording a negative growth of 1.1% during KHL Maldivian resort recorded a blended occupancy rate of 85.0% during FY15/16 whereas overall country occupancy stood at 69.0% during We expect KHL Maldivian operation to record a slightly lower occupancy range of 79.0% % through FY16/17 to FY18/19, yet maintaining above country average occupancy rate. We expect that Sri Lankan resorts will continue to increase its relative revenue contribution to the topline with the mix of Sri Lanka to Maldives at 54.0%:46.0% by FY17/18. We forecast the blended occupancy rate of Sri Lankan resorts to be 75.0% % throughout the forecasted period. KHL has recently purchased freehold lands in Nuwara Eliya and Yala; further information on CAPEX and other related information are yet to be disclosed. Hence, we have not incorporated these additions in our forecast. We forecast a 3 year revenue and PAT CAGR of 3.1% and 0.7% respectively through FY16/17 to FY18/19. We derived LKR 17.2 as a fair value per share based on free cash flow (75.0%) and relative (25.0%) based valuation methods. Hence, we initiate a BUY recommendation for the counter with an upside potential of 44.1%. Source: Bloomberg, company reports, CSE, NDBS Research 72

73 Valuation of Key Counters KHL.N0000 Key Ratios FY13/14 FY14/15 FY15/16 FY16/17 (E) FY17/18 (E) FY18/19 (E) Growth Ratios Turnover Growth 17.4% 4.4% 1.6% 3.3% 3.0% 3.0% Profit attributable to equity holders Growth 40.2% 18.4% -6.4% -11.3% 7.0% 7.4% Profitability Ratios Gross Profit Margin 67.3% 71.2% 70.5% 69.7% 69.7% 69.7% Operating Profit Margin 20.7% 20.5% 18.0% 15.7% 15.7% 15.7% Net Profit Margin 14.4% 16.3% 15.0% 12.9% 13.4% 14.0% Du Pont Analysis Net Profit Margin 14.4% 16.3% 15.0% 12.9% 13.4% 14.0% Asset Turnover (X) Equity Multiplier (X) ROE 9.2% 9.7% 8.1% 6.6% 6.8% 7.0% Solvency Ratios Debt to Equity 35.2% 21.2% 16.3% 12.5% 9.0% 5.7% Interest Coverage (X) Investor Ratios EPS (LKR) NBV (LKR) DPS (LKR) Dividend Yield* 1.7% 3.3% 3.2% 3.2% 3.2% P/E (X)* P/BV (X)* EV/EBITDA (X)* *Historical ratios have been calculated based on respective 31st March MPS, forward ratios have been calculated based on MPS as at the report date Income Statement in LKR'000 FY13/14 FY14/15 FY15/16 FY16/17 (E) FY17/18 (E) FY18/19 (E) Revenue 10,966,381 11,444,150 11,631,973 12,010,384 12,367,176 12,734,564 Cost of sales (3,590,914) (3,290,496) (3,436,976) (3,644,954) (3,753,234) (3,864,730) Gross Profit 7,375,467 8,153,654 8,194,997 8,365,430 8,613,942 8,869,833 Other Operating Income 156, , , , , ,234 7,531,480 8,262,917 8,384,943 8,525,984 8,779,265 9,040,067 Administrative Expenses (2,609,279) (2,574,537) (2,836,386) (3,049,115) (3,247,307) (3,458,382) Distribution Expenses (326,174) (305,919) (319,504) (336,060) (346,043) (356,323) Other Operating Expenses (1,503,527) (1,451,430) (1,456,723) (1,507,708) (1,560,478) (1,615,095) EBITDA 3,092,500 3,931,031 3,772,330 3,633,101 3,625,436 3,610,267 Depreciation (819,189) (918,039) (980,767) (1,037,767) (1,024,864) (1,014,583) Amortization - (672,417) (700,853) (715,533) (655,562) (600,617) Operating Profit 2,273,311 2,340,575 2,090,710 1,879,801 1,945,010 1,995,067 Finance Income 153, , , , , ,889 Finance Expenses (533,877) (265,101) (182,025) (174,728) (139,782) (104,837) Net Finance Expenses (380,072) (149,266) (54,896) (73,608) (12,479) 81,052 Share of results of Equity investments - (622) (593) Profit before tax 1,893,239 2,190,687 2,035,221 1,806,193 1,932,531 2,076,119 Tax expense (318,313) (322,923) (286,422) (254,190) (271,970) (292,178) Profit for the year 1,574,926 1,867,764 1,748,799 1,552,002 1,660,561 1,783,941 Profit attributable to; Equity holders 1,565,846 1,853,724 1,734,543 1,539,351 1,647,024 1,769,399 Minority holders 9,080 14,040 14,256 12,652 13,537 14,542 73

74 Valuation of Key Counters KHL.N0000 Balance Sheet in LKR'000 As at As at As at As at (E) As at (E) As at (E) ASSETS Non Current Assets Property, Plant and Equipment 13,152,921 13,560,033 14,272,874 14,060,624 13,885,801 13,746,510 Lease rentals paid in advance 8,235,508 7,861,533 8,537,247 7,821,714 7,166,152 6,565,535 Equity accounted investments 59,834 59,296 67,215 67,215 67,215 67,215 Intangible assets 670, , , , , ,407 Othe non current financial assets 22,570 22, , , , ,476 Deferred tax assets 38,368 55,099 71,888 71,888 71,888 71,888 Other non current assets ,180,228 22,229,814 23,805,596 22,877,813 22,047,428 21,307,520 Current Assets Invetories 196, , , , , ,571 Trade and receivables 909, , , ,722 1,013,975 1,044,097 Other current assets 313, , , , , ,292 Amount due from related parties 138, , , , , ,879 Other investments 1,985,510 2,076,400 2,570,671 2,570,671 2,570,671 2,570,671 Cash in hand and at bank 743, , ,080 1,968,377 3,123,754 4,311,798 4,287,294 4,519,555 5,094,004 6,218,106 7,408,356 8,632,308 Total Assets 26,467,522 26,749,369 28,899,600 29,095,919 29,455,784 29,939,829 Equity and liabilitites Equity Satetd Capital 9,500,247 9,500,247 9,500,247 9,500,247 9,500,247 9,500,247 Revenue reserves 4,708,642 6,189,643 7,278,122 8,235,014 9,299,580 10,486,520 Other components of equity 3,886,925 4,637,612 6,106,444 6,106,444 6,106,444 6,106,444 18,095,814 20,327,502 22,884,813 23,841,705 24,906,271 26,093,211 Non controlling interest 100, , , , , ,683 Total Equity 18,196,256 20,445,689 23,017,765 23,987,309 25,065,411 26,266,894 Non Current liabilitites Interest bearing borrwings 4,245,400 2,900,658 1,852,851 1,838,557 1,378, ,278 Deferred tax liabilitties 144, , , , , ,468 Retirement benefit liability 113, , , , , ,077 Other defered liabiltities 68,426 77,926 84,401 84,401 84,401 84,401 Other non current financial liabilitites 63,752 67,919 78,418 78,418 78,418 78,418 4,635,775 3,366,367 2,408,215 2,393,921 1,934,281 1,474,642 Current liabilitties Trade and other payables 858, , , , , ,578 Other current liabilities 258, , , , , ,080 Amounts due to related parties 110, , , , , ,970 Income tax liabilitties 292, , , , , ,642 Current portion of interest bearing borrowings 1,840,626 1,295,992 1,150,925 1,142, , ,023 Bank overdrafts 274, , , Total Liabilities 3,635,491 2,937,313 3,473,620 2,714,690 2,456,092 2,198,293 Total Equity and Liabiltities 26,467,522 26,749,369 28,899,600 29,095,919 29,455,784 29,939,829 74

75 Disclaimer This document is based on information obtained from sources believed to be reliable, but NDB Securities (Pvt) Ltd., (NDBS) accepts no responsibility or makes no warranties or representations, express or implied, as to whether the information provided in this document is accurate, complete or up-to-date. Furthermore, no representation or warranty is made by NDBS as to the sufficiency, relevance, importance, appropriateness, completeness or comprehensiveness of the information contained herein for any specific purpose. Prices, opinions and estimates reflect our judgment on the date of original publication and are subject to change at any time without notice. NDBS reserves the right to change their opinion at any point in time as they deem necessary. There is no guarantee that the target price for the stock will be met or that predicted business results for the company will be met. NDBS accepts no liability whatsoever for any direct or consequential loss or damage arising from any use of these reports or their contents. References to tax are based on our understanding of current law and Inland Revenue practices, which may change from time to time. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressee only and is not to be taken as substitution for the exercise of judgment by addressee. The information contained in any research report does not constitute an offer to sell securities or the solicitation of an offer to buy, or recommendation for investment in, any securities within Sri Lanka or any other jurisdiction. The information in any research report is not intended as financial advice. Moreover, none of the research reports is intended as a prospectus within the meaning of the applicable laws of any jurisdiction and none of the research reports is directed to any person in any country in which the distribution of such research report is unlawful. Past results do not guarantee future performance. NDBS cautions that any forward-looking statements in any research report implied by such words as anticipate, believe, estimate, expect, and similar expressions as they relate to a company or its management are not guarantees of future performance. The investments in undertakings, securities or other financial instruments involve risks. Any discussion of the risks contained herein should not be considered to be a disclosure of all risks or complete discussion of the risks which are mentioned. NDBS and its associates, their directors, and/or employees may have positions in, and may affect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other financial services for these companies.