The Kandy Hotels Co. (1938) PLC

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TheKandy HotelsCo. (1938)PLCAnnual Report 2019/20The Kandy Hotels Co. (1938) PLC Annual Report 2019/2001

CONTENTSGroup Structure. 1Group Financial and Operational Highlights. 2Chairman’s Review. 3Profile of Directors. 5Management Discussion and Analysis. 8Annual Report of The Board of Directors on the Affairs of the Company. 11Statement of Director’s Responsibilities for Preparing the Financial Statements. 16Corporate Governance. 17Report of the Audit Committee. 25Report of the Related Party Transactions Review Committee. 26Report of the Remuneration Committee. 27Financial ReportsIndependent Auditor’s Report . 29Statement of Profit or Loss and Other Comprehensive Income. 32Statement of Financial Position. 33Statement of Changes In Equity. 34Statement of Cash Flows. 36Notes to the Financial Statements. 38Investor Information. 825 Year at a Glance. 85Notice of Annual General Meeting. 86Form of Proxy. 87Corporate Information.IBC

GROUP STRUCTURETHE KANDY HOTELS COMPANY (1938) PLC100%Suisse Hotel (Pvt) Limited50%Suisse Hotel Kandy (Pvt) LimitedQueens HotelHotel Suisse92 Rooms90 Rooms02 Banquet Halls03 Banquet HallsOzo Kandy122 RoomsThe Kandy Hotels Co. (1938) PLC Annual Report 2019/201

GROUP FINANCIAL ANDOPERATIONAL HIGHLIGHTSPerformance for the year ended 31 rnings before Interest, Tax , Depreciation & Amortisation (EBITDA)100,799,156290,932,517Profit/(Loss) before Tax (PBT)(65,206,318)156,897,527Profit/(Loss) after Tax (PAT)(72,549,520)125,625,048(0.13)0.22Dividend per Share (Company)-0.10Dividend Payout Ratio 45,189,9507,910,050,0016,953,982,004No of Ordinary Shares in Issue577,500,000577,500,000Net Assets per Ordinary Share13.7012.04Gearing Ratio8.1%9.3%Debt/Total 50,000Earnings/(Loss) per ShareFinancial Position as at 31 MarchTotal AssetsTotal DebtTotal EquityCurrent Ratio (Times)Market/Shareholder information as at 31 MarchClosing Market Price Per ShareMarket Capitalisation2The Kandy Hotels Co. (1938) PLC Annual Report 2019/20

CHAIRMAN’S REVIEWI am pleased to present the annual reportand the audited financial statements forthe year ended 31st March 2020. Duringthe financial year under review yourcompany faced two major unforeseenevents occurring in succession resultingin unprecedented challenges for thelocal as well the global travel and tourismindustry.GLOBAL TOURISMInternational tourist arrivals grew 4%in 2019 reaching 1.5 billion arrivalsaccording to the United Nations WorldTourism Organization (UNWTO). Allregions showed positive growth in touristarrivals with the strongest growth beingrecorded in the Middle East ( 8%) andAsia Pacific ( 5%) regions.However, with the rapid escalation ofthe COVID-19 outbreak to a globalpandemic, the entire world economyand specially the global travel andtourism industry was disrupted withstringent containment measures suchas lockdowns, travel restrictions,airport closures and border closuresimplemented locally and globally. Giventhese unprecedented measures takento contain the COVID-19 pandemic,UNWTO is estimating international touristarrivals to decline by 60% - 80% in 2020.SRI LANKA TOURISMIn the aftermath of the ‘Easter Attacks’,the Sri Lanka Tourism industry wentthrough a sharp downturn dueto bookings cancellations, flightcancellations, and the imposition ofadverse travel advisories by almost allthe major tourist source markets dueto security concerns surrounding SriLanka. This resulted in Tourist Arrivals toSri Lanka declining by 420,094 (-18%)arrivals in 2019 reaching only 1,913,702arrivals compared to 2,333,796 arrivalsrecorded in 2018.Despite this setback, the industry was ina recovery mode due to the aggressivepromotional strategies and the combinedefforts of all its stakeholders. This isevident through the month-on-monthimprovement in tourist arrival numbersupto December 2019, with the peakmonth of December 2019 dropping onlyby 4.5% vis-à-vis December 2018.Arrivals from all major markets witnesseda decline in 2019, however, touristarrivals from Russia saw a sharp increasegrowing by 34.2%, whilst tourist arrivalsfrom China declined steeply by 36.9%.India continues to remain the largesttourist source market for Sri Lankafollowed by United Kingdom, China andGermany.Earnings from tourism declined by 18%in line with the decline in tourist arrivalsto US 3.6 billion in 2019 compared US 4.4 billion recorded in 2018.GLOBAL COVID-19 PANDEMICStarting from the beginning of 2020,tourist arrivals to Sri Lanka witnessed adeclining trend with the escalation of theCOVID-19 outbreak across the world. InFebruary, tourist arrivals from China sawa sharp drop of more than 90%, whichis a significant source market segmentfor the hotel portfolio of your company.On the 11th of March, the World HealthOrganization declared COVID-19 a globalpandemic resulting in unprecedentedborder control measures across theworld that brought global tourism to asudden halt, impacting the 4th quarterearnings which otherwise is the bestperforming quarter in a financial year.Starting from mid-March 2020, followingthe identification of COVID-19 patientsin Sri Lanka, the Government declared astate of “work from home” for the generalpublic. These measures were furtherstrengthened from 20th March 2020onwards, where an island-wide curfewwas imposed excluding certain servicesthat were categorized as essential. Asa further measure, the internationalairport was also closed for all inwardinternational commercial passengerflights from 19th March 2020.The COVID-19 pandemic and thecontainment measures taken (Locallyand Globally) to prevent its spread, haveimpacted the Travel and Tourism Industrythe hardest. Zero tourist arrivals havebeen recorded since April 2020 and thereis still no definite timeline in place onthe reopening of the airport for tourists.The resultant impact of the pandemicon the business of the Company isunprecedented, as it has affected allstreams of income generation.A resumption in domestic travel andtourism has initially started within localborders albeit in a price competitivemarket due to the many options availablefor local travelers, as Sri Lanka wassuccessful in managing the spread of theCOVID -19 virus due to the leadershipof H.E. President of Sri Lanka andthe measures taken by the taskforceon prevention of COVID-19 outbreak.Therefore, your company is currentlydependent on local tourism, banquets,events and the restaurant businesssegments as the hotels in Kandy operatea City Centric business model.PERFORMANCE REVIEWThe Kandy Hotels Company(1938) PLC (KHC)The KHC at a Company level recorded atotal revenue of Rs 410.7 million for thefinancial year ended 31st March 2020compared to Rs 703.5 million recordedlast year, a sharp decline of 41.6% dueto the challenging external environmentwitnessed during the financial year.As a result, Company operating profitfor the year under review also declinedto Rs.33.7 million, compared Rs 224.6million recorded last year. CompanyNet Profit for the year under review wasRs 26.9 Million, compared to Rs 175.4million in FY 2018/2019. The reductioncan be mainly attributed to the drop ingross profit from Rs 495.3 million duringthe previous financial year to Rs 274.2million as a result of the sharp declinein Revenue. Stringent cost controlmeasures were implemented during theThe Kandy Hotels Co. (1938) PLC Annual Report 2019/203

CHAIRMAN’S REVIEWfinancial year in order to improve on thecost efficiency of the overall businessoperation and these measures werefurther strengthened with the escalationof the COVID-19 pandemic.The Group performance of KHCrecorded a net loss of Rs. 72.5 millionfor the year under review (which includesthe share of loss from the joint ventureSuisse Hotel Kandy (Pvt) Limited),compared to a net profit of Rs. 125.6million recorded during the previousfinancial year.Suisse Hotel Kandy (Pvt) LtdSuisse Hotel Kandy (Pvt) Limitedoperates the OZO Hotel in Kandy. Theproperty has recorded a loss of Rs 198.5million during the FY 2019/2020. Thisloss is a consequence to the decline inRevenue by 51% that occurred duringthe financial year due to the abovementioned external environmentalchallenges faced by the tourism industry.OUTLOOKGiven the severity of the COVID-19pandemic, the outlook for the financialyear 2020/ 2021 is negative with thefinancial performance projected to seea sharp decline due to low levels ofoccupancies as the borders continue tobe closed for tourists. Future industryprospects will remain challenging as aresumption of global travel and tourismis dependent on multiple external factorssuch as the continuous containment ofthe virus, prevention of any reemergencethrough second waves, lifting of borderrestrictions, and removal of requirementfor quarantine during a tourist visit and/ or after returning to a tourists’ homecountry. All the above factors will drivethe decision making process of touristsprior to making any future plans aboutglobal travel.4Therefore, until a concrete solutionin terms of a vaccine is found andinternational travel restrictions areeased, your Company will continue tofocus on the domestic travel segment.However, the domestic travel segmentis also vulnerable to any resurgence inCOVID-19 within Sri Lanka, thereforeyour company continues to operate alean business model to navigate throughthese uncertain period. The Companyhas also positioned itself for a changein hospitality trends, where customersare prioritizing health, safety andhygiene standards as a core part of theirexpectations. Given our decades longexperience in the hospitality industry weare committed to adapting our businessmodel to align with these changinghospitality trends.APPRECIATIONThe Company is thankful to theleadership of H.E. President of Sri Lanka,the taskforce on prevention of COVID-19outbreak, and is mostly grateful to thehealthcare providers, tri-forces, policeand all other authorities for their tirelessefforts and the sacrifices made tomanage this unprecedented crisis.I also wish to thank my fellow Directorsfor their guidance and counsel and thankthe associates of the Company for theirendurance and cooperation during thesevery challenging times.The Company is also grateful to thetimely financial support provided by theCentral Bank of Sri Lanka post EasterAttacks and at the start of the COVID –19 pandemic through debt moratoriumsand working capital support.The Kandy Hotels Co. (1938) PLC Annual Report 2019/20I also would like to thank our valuedGuests, Travel Agents, Suppliers,Bankers, Auditors, and our Secretariesfor the invaluable support at all times.Finally, a special word of thanks goesto our Shareholders for their continuedtrust and confidence placed on theBoard as we navigate an unprecedentedchallenging year in the leisure and travelindustry.(Sgd.)Sanjeev GardinerChairman11th November 2020

PROFILE OF DIRECTORSMR. SANJEEV GARDINERMR. CHARITHA RATWATTEMR. LAKSHMANSAMARASINGHEMr. Sanjeev Gardiner was appointedto the Board of The Kandy Hotels Co.(1938) PLC in September 2005.Mr. Ratwatte was appointed to the Boardof The Kandy Hotels Company (1938)PLC in May 2002.Mr. Samarasinghe, was appointed to theBoard of The Kandy Hotels Co. (1938)PLC in September 2005.He is the Chairman and Chief ExecutiveOfficer of the Gardiner Group ofCompanies which includes the GalleFace Hotel Co Limited, Galle Face Hotel1994 (Pvt) Ltd, Ceylon Hotels Holdings(Pvt) Ltd (holding Co of Ceylon HotelsCorporation PLC), The Kandy HotelsCompany (1938) PLC and United HotelsCo Limited which owns the The Surf(Bentota), The Safari (Tissa) and TheLake – (Polonnaruwa). He is also theChairman of Ambeon Capital PLC,Ambeon Holdings PLC, and MillenniumI.T. E.S.P. (Pvt) Ltd and is a Director onthe Board of Dankotuwa Porcelain PLC,among its other companies. He is alsoa Director of Cargills (Ceylon) PLC since1994 and has been a senior Director ofCeylon Hotels Corporation PLC since1996.An attorney-at-law by profession, Mr.Ratwatte, possess over 23 years ofexperience in Government Serviceand has served as the Secretary tothe Ministries of Finance & Treasury,Policy Development & Implementation,Youth Affairs & Employment, ManpowerMobilization and Reconstruction,Rehabilitation & Social Welfare.As a Director of Galle Face Hotel Co. Ltdfor over 42 years and a Director of allGroup Companies for over 4 decades,Mr. Samarasinghe is the longest servingDirector of the Company and countsfor over 50 years of Managementexperience. He possess a wealth ofknowledge and has proven to be aninvaluable member of the Company.He has also served as Vice President ofthe World Assembly of Youth and AsianYouth Council and as a Consultant tothe Chief of Mission of the US AID WorldBank in Mongolia.Mr. Samarasinghe served as anExecutive Director of Autodrome PLC fora period of 20 years thereafter continuedas a non-Executive Director until 2007when he opted to retire under the StockExchange rules.Mr. Gardiner counts over 30 years ofmanagement experience in a diversearray of business. He holds a Bachelor’sDegree in Business from the RoyalMelbourne Institute of Technology,Australia and, a Bachelor’s Degree inBusiness (Banking and Finance) fromMonash University, Australia.Mr. Ratwatte had also been the SeniorAdvisor to the former Prime Minister,Hon. Ranil Wickramasinghe from 2015to 2019.(CHAIRMAN)He currently is a Director of Sri LankaBusiness Development Centre andserves on the Boards of several otherorganizations.He was appointed as the Chairman ofCeylon Hotels Corporation PLC in July2005 and has continued in that capacityfor 15 consecutive years.In addition to his work in the corporatesector, Mr. Gardiner is also a Director andCouncil member of Helpage Sri Lankaand a member of many other charitableinstitutions.The Kandy Hotels Co. (1938) PLC Annual Report 2019/205

PROFILE OF DIRECTORSMR. PRIYANTHA MADDUMAGEMR. LAKSHMAN SIRIMANNEMR. RANJITH GUNATHILLEKEMr. Maddumage was appointed to theBoard of The Kandy Hotels Co (1938)PLC in September 2005.Mr. Sirimanne was appointed to theBoard of The Kandy Hotels Co. (1938)PLC in September 2011.Mr. Gunathilleke was appointed to theBoard of The Kandy Hotels Company(1938) PLC in November 2011.Mr. Maddumage holds a Bachelor ofCommerce Special Degree from theUniversity of Sri Jayawardenapura anda Master of Business Managementfrom Edith Cowan University in Australiaand counts over 27 years of FinanceManagement experience.He holds a Diploma in Mechanical andChemical Engineering from the Universityof Moratuwa and an external degree inManagement Science from the Instituteof Management Science, Middlesex UK.He is a Graduate of the Faculty ofEngineering, University of Peradeniya anda former Lecturer in Project Managementat the Sri Lanka Institute of Architecture.Mr. Gunathilleke possess a wideexperience in senior management havingserved as the Chief Engineer of MitsuiConstruction between the years of 1979to 2003.He is a Fellow Member of the Instituteof Chartered Accountants of Sri Lanka,The National Institute of Accountantsof Australia, CPA Australia and Instituteof Certified Management Accountantsof Sri Lanka and also a Fellow Memberof Institute of Certified ProfessionalManagers of Sri Lanka.Mr. Maddumage serves as a Directorin all subsidiary Companies of CeylonHotels Corporation PLC.Having served at Ceylon Tobacco CoLtd for over 27 years and thereafter onthe Main Board at East West PropertiesPLC and its subsidiaries for over10 years, Mr. Sirimanne possessesextensive management experience in theCorporate Sector.Mr. Sirimanne was nominated to theBoard of Autodrome PLC in 2007 andretired after serving 8 years. However hewas re-elected again.Currently, Mr. Maddumage is the GroupChief Investment Officer of the Galle FaceGroup of Companies.6The Kandy Hotels Co. (1938) PLC Annual Report 2019/20He is a member of the Institute of CivilEngineers UK since 1979. The Instituteof Engineers Sri Lanka since 1984 andthe Society of Structural Engineers in SriLanka. Also he is in the Director Boardof Construction Industry DevelopmentAuthority (CIDA).Mr. Gunathilleke presently serves as theCEO of Sanken Group and the Chamberof Construction Industry in Sri Lanka.

MR. NAHIL WIJESURIYAMR. CHANDRA MOHOTTIMR. PRADEEP NILANGA DELAMr. Wijesuriya was appointed to theBoard of The Kandy Hotels Company(1938) PLC in May 2002.Mr. Mohotti was appointed to the Boardof The Kandy Hotels Company(1938)PLC in September 2004. He hasan extensive background in thehotel industry with over 43 years ofmanagement experience and isacknowledged to be one of the mostsenior and respected professionals in theSri Lankan hotel industry.Mr. Nilanga Dela was appointed to theBoard of The Kandy Hotels Company(1938) PLC in July 2006 and has servedas a as a Non-Executive Director of theCompany for 14 years.Having had his initial training withInter-Continental Hotels in Australia Mr.Mohotti began his career at the HotelCeylon Inter – Continental; the first 5 starhotel in Colombo and proceeded to holdseveral Senior Management positions atthe Hotel until 1983. Subsequently hejoined the Meridian International chainand received exposure in many of Hoteldisciplines in several countries.The highlights of his career include aidingand supporting numerous temples andDamma schools around the Island thatare in need.A Marine Engineer by profession, hegained his professional qualificationsfrom The Leicester College of Technology(UK).Mr. Nahil Wijesuriya is the FoundingChairman of the East West PropertiesGroup of Companies. Through thisParent company, he founded manysuccessful businesses including the TVbroadcasting channels, ETV1 and ETV2,now known as Swarnavahini, and EastWest Information Systems now knownas EWIS.He has also completed severalsubstantial property developmentshaving successfully ventured into theLondon and Singapore property markets.When the Marriott succeeded theMeridian in Colombo, Mr. Mohotti wasretained as its Executive AssistantManager. Mr. Mohotti thereafter held theposition of General Manager of GaladariHotels (Lanka) PLC for a period of 10years. Subsequently, he also went onto be the General Manager at the GalleFace Hotel.He has held many prestigiousGovernment-related positions amongwhich were Chairman of the CeylonHotels Corporation PLC, Chairman ofthe Sri Lanka Institute of Tourism & HotelManagement, Chairman of the Tourismand Hospitality Industry Skills Counciland Chairman of Waters Edge.Whilst having been the Senior VicePresident of the Galle Face HotelManagement Company, Mr. Mohottiassists the Chairman Mr. SanjeevGardiner as the Executive Directorof “The ISN Gardiner CKDu” Fund, anon-profit organization with a mission toprovide relief to patients suffering fromChronic Kidney Disease.He is the present Diyawadana Nilame orChief Custodian of Sri Dalada Maligawaand 19th Diyawadana Nilame.Mr. Nilanga Dela has been awardedseveral titles in recognition of hisreligious and social services, amongthem are the “Nalanda Keerthi Sri” byNalanda College, Colombo, “BuddhaSasana Bandu” by the SyamopaliMaha Nikaya and the” SabaragamuSarasavi Abhiramya” by the SabaragamuUniversity.MR. SHALIKE KARUNASENA(Alternate Director)Mr. Shalike Karunasena presently servesas the Group Chief Financial Officer ofthe Galle Face Group of Companies.Mr. Karunasena has over 20 years ofexperience in Financial Management,Treasury and Strategy in the fieldsof , Commodities Trading, OverseasPlantations, Refining & Manufacturingand Leisure/Hospitality with over 15years of Senior Management experiencefunctioning within the South East AsianRegion. He is a Fellow of the CharteredInstitute of Management Accountants,UK.The Kandy Hotels Co. (1938) PLC Annual Report 2019/207

MANAGEMENT DISCUSSIONAND ANALYSISECONOMIC ENVIRONMENTSri Lankan EconomyGross Domestic ProductTotal Gross Domestic Product (nominal)of Sri Lanka crossed the Rs. 15 trillionmark in 2019 albeit the real GDP growthrate slowed down further to 2.3% from3.3% recorded in 2018. The Agriculturesector witnessed a sharp slowdownwith a growth rate of 0.6%, whereas theindustry and the services sectors grewat 2.7% and 2.3% respectively. However,the GDP measured in US indicateda negative growth rate, with total GDP(nominal) declining from US 88.4 billionto US 84.0 billion. The per capita GDPhas also declined accordingly, droppingto US 3,852 from US 4,079. This wasprimarily due to the rapid depreciationin the Sri Lanka Rupee in 2019 wherethe annual average US to LKR rateincreased from 162.54 in 2018 to 178.78in 2019, which was an increase of 10%.Gross Domestic Product (Nominal)US BnLKR 000782,00002015 2016 2017 2018 201976YearNominal GDP - LKR BnNomical GDP - US BnCOVID-19 IMPACT ON GDPThe Sri Lankan economic output, workerremittances, exports and earnings fromtourism are expected to be adverselyaffected due to the impact from theglobal COVID-19 pandemic. Thestringent lock down measures that wereimposed as a response to contain thepandemic has resulted in a slowdown ineconomic activity specially from March2020 onwards.8Trade Account, WorkerRemittances and TourismEarningsTotal imports to the country decreasedby 10.3% from US 22.23 billion in 2018to US 19.94 Bn in 2019. However, totalexports from Sri Lanka grew marginallyby 0.4% from US 11.89 billion in 2018to US 11.94 billion in 2019. As a result,the trade deficit reduced by US 2.35billion from US 10.34 billion to US 7.99billion.However, earnings from tourism wereadversely affected after the EasterAttacks, with a decline of 17.7% fromUS 4.4 billion in 2018 to US 3.60billion in 2019. Worker Remittancesalso followed a similar trend with inflowsamounting to US 6.72 billion in 2019compared to US 7.02 billion in 2018.Given the COVID-19 pandemic, demandfor export products such as textiles andgarments from major markets such asthe USA and EU witnessed a decline,however overall export earnings haveremained resilient specially during theperiod from July 2020 – Sep 2020,supported by export earnings fromrubber based products, coconut-basedproducts, tea and other agri products.Inflows from worker remittances havealso remained at a healthy level despitethe drop in crude oil prices and joblayoffs taking place globally. Tourismis one of the hardest hit industrieswith a sharp decline in earnings asunprecedented travel restrictions are putin place as a containment measure toslow the spread of the virus.Interest RatesThe policy interest rates of the CentralBank of Sri Lanka have come downsince March 2019 with the slowdownexperienced in the beginning of 2020being a key factor. The standing depositfacility rate dropped from 8% to 4.5%by July 2020. Similarly, the standingThe Kandy Hotels Co. (1938) PLC Annual Report 2019/20lending facility rate declined from 9% to5.5%. This relaxing of monetary policywas further supported with the Bank ratebeing reduced to 8.5% (July 2020) from15% in March 2019 and the statutoryreserve requirement was reduced from5.0% in March 2019 to 2.0% by June2020.The average weighted prime lending rate(AWPR) also followed suit with a year onyear drop of 299 basis points from March2019 (12.23%) to March 2020 (9.35%).INDUSTRY ENVIRONMENTSri Lanka TourismTotal Arrivals from January to December2019 declined to 1,913,702 tourists from2,333,796 recorded in 2018, which wasa 18% decline. The primary reasons forthe decline was the adverse industryimpact that resulted from Easter Attacks,which resulted in bookings cancellations,flight cancellations and travel advisories.Despite this setback, the industry was inrecovery mode from the second half of2019, due to the aggressive promotionalstrategies and the combined efforts ofall its stakeholders although in a pricediscounted environment.Unfortunately, the recovery got disruptedfrom the beginning of 2020, with theescalation of the COVID-19 outbreakacross the world. In February, touristarrivals from China saw a sharp drop ofmore than 90%, which is a significantsource market segment for thehotel portfolio of your company. Themovement in tourist arrivals during thefinancial year is depicted in the belowtable.

ArrivalsYoY Change2019 January244,2392%2019 February252,0337%2019 March244,3285%2019 April166,975-7%2019 May37,802-71%2019 June63,072-57%2019 July115,701-47%2019 August143,587-28%2019 September108,575-27%2019 October118,743-22%2019 November176,984-10%2019 December241,663-5%2020 January228,434-6%2020 February207,507-18%71,370-71%2020 MarchSource: SLTDAIndia continued to remain as the single largest contributor of tourists to Sri Lankafollowed by UK and China. Almost all the top ten tourist source markets showeda decline in arrivals during 2019 with the exception being Russia, which showed astrong performance with a growth of 34% in total tourist arrivals. China dropped frombeing the second largest source market to the third position as tourist arrivals fromChina continued to slow down declining by 37% during the year.The overall decline from the top ten markets was inline with the total decline intourist arrivals at 18% and the composition of tourist arrivals from the top 10 marketscontinue to remain at 68% of tourist arrivals which is the same as 2018.20182019 YOY ChangeIndia424,887355,002-16%United rance106,44987,623-18%Russia64,49786,54934%United 7961,913,702Top 10 markets % of Total ArrivalsTotal Arrivals5%5%4%27%7%7%7%15%10%13%IndiaUnited KingdomChinaGermanyAustraliaFranceRussiaUnited StatesMaldivesCanadaTourism EarningsTourist Arrivals by Country of ResidenceTop Ten MarketsMarket Share of Top TouristSource Markets:Tourism earnings recorded a negativegrowth rate of 17.7% in 2019 recordingUS 3.6 Bn compared to US 4.4 Bnrecorded in 2018. Tourism earnings areexpected to decline sharply in 2020as tourist arrivals have stalled due tothe travel restrictions and lockdownmeasures that are in place to containthe spread of the COVID-19 pandemic.Given that tourism earnings accountedfor 4.3% of Gross Domestic Product in2019 and has a multiplier effect, lossin tourism earnings have negativelyimpacted the overall economic activitylevels in Sri Lanka.Room SupplyAs per the Sri Lanka TourismDevelopment Authority (SLTDA) therewere 2,619 registered establishmentsproviding tourist accommodation with atotal room inventory of 40,365. However,as per industry sources, this numbercould be greater due to the manyunregulated establishments that are yetto be brought under SLTDA registration,which presents many challenges forthe registered tourist accommodationproviders.-18%The Kandy Hotels Co. (1938) PLC Annual Report 2019/209

MANAGEMENT DISCUSSION ANDANALYSISEmployment in TourismThe industry continues to be an integralpart of the Sri Lankan economy providingemployment to 402,607 people asat 2019 with 173,592 being directlyemployed and 229,015 being indirectlyemployed as per the Sri Lanka TourismDevelopment Authority. Given that SriLanka had a labor force of 8.18 millionas at the 4th quarter of 2019 (Source:department of census and statistics), thetourism industry accounts for 4.9% of thetotal labour force.OVERVIEW OF FINANCIAL ANDOPERATIONAL PERFORMANCEThe Kandy Hotels Company (1938) PLC(KHC) are the owners of the QueensHotel and Hotel Suisse in Kandy. TheGroup also has a joint venture in OZOHotel, Kandy via its subsidiary SuisseHotel Kandy (Pvt) Limited.Kandy Hotels Company (1938)PLCRevenueKHC at a Company level recorded atotal revenue of Rs 410.7 million for thefinancial year ended 31st March 2020compared to Rs 703.5 million recordedlast year, a sharp decline of 41.6%.Company performance was adverselyaffected due to two major factors, 1)Drop in tourist arrivals after the EasterAttacks and 2) the Global COVID-19pandemic which impacted the 4thquarter earnings.Room revenue of the companydecreased from Rs 350 million in FY2019 to Rs. 198.7 million in FY 2020,which is a decline of 43.3%.The food revenue decreased from Rs247.0 million to Rs 110.8 million, whereas the beverage revenue decreasedfrom Rs 49.4 million to Rs 26.2 million.Banquet operations recorded a revenueof Rs 42.3 million compared to Rs 18.7million

The Kandy Hotels Co. (1938) PLC Annual Report 2019/20 5 PROFILE OF DIRECTORS MR. SANJEEV GARDINER (CHAIRMAN) Mr. Sanjeev Gardiner was appointed to the Board of The Kandy Hotels Co. (1938) PLC in September 2005. He is the Chairman and Chief Executive Officer of