Pegasus Hotels of Ceylon : Annual Report 2021-22

Pegasus Hotels of Ceylon PLC

A Carson Cumberbatch Company

Annual Report 2021/22

CONTENT
Chairman's Statement...............................................................................	2
Management Discussion & Analysis.......................................................	4
Directors Profiles........................................................................................	7
Risk Management.......................................................................................	9
Annual Report of the Board of Directors on the
Affairs of the Company........................................................................	13
Related Party Transactions Review Committee Report....................	23
Audit Committee Report.........................................................................	25
Financial Calendar....................................................................................	28
Independent Auditors' Report...............................................................	29
Statement of Profit or Loss and
Other Comprehensive Income..........................................................	34
Statement of Financial Position.............................................................	35
Statement of Changes in Equity............................................................	36
Statement of Cash Flows.........................................................................	37
Notes to the Financial Statements........................................................	38
Five Year Summary...................................................................................	95
Statement of Value Added......................................................................	97
Information to Shareholders and Investors........................................	98
Notes.........................................................................................................	100
Notice of Meeting...................................................................................	101
Form of Proxy..........................................................................................	103
Corporate Information............................................................................	IBC

This report can be accessed online at

http://www.carsoncumberbatch.com

CHAIRMAN'S STATEMENT

"In spite of the upheaval in business conditions, your Company navigated the financial year 2021/22 with operational agility"

Dear Shareholder,

On behalf of the Board, it gives me great pleasure to welcome you to the 56th Annual General Meeting of Pegasus Hotels of Ceylon PLC. I am pleased to present to you the annual report and financial statements of the Company and the Group for the financial year ended 31st March 2022.

The past year was yet another difficult and turbulent one, particularly for those of us in the hospitality industry. On the positive side, it was reassuring to note the overall improved travel sentiment due to the progress of vaccination against the COVID-19 pandemic and the relaxation of strict border policies. Global travel, however, was far from reaching pre-pandemic levels as recovery was derailed by multiple headwinds, including soaring inflationary pressures and economic woes across the world, knock-on effects of China's continued lockdowns on global economies and the tragic advent of the Russia-Ukraine crisis.

For Sri Lanka, tourist arrivals did not display a steady rebound until the final months of 2021 due to the repercussions of the pandemic. Despite the reopening of borders for travellers in early 2021, the country's tourism sector stumbled on several occasions with fresh waves of COVID-19 waves impeding

its much-needed recovery efforts. However, I must applaud the health authorities for eventually controlling the rate of infections to a vast extent through the adequate rollout of vaccines to every corner of the country.

Having witnessed one crisis after another since 2019, our industry has been envisaging a 'turning point' that offers some degree of hope. Unfortunately, there seems to be no end in sight for our challenges, as the nation is haunted today by the worst economic turmoil encountered since 1948. At this point

in time where our motherland is bound by a severe foreign exchange crisis, record-high inflation levels and scarcity of essential goods, it is very disheartening to note its devastating impact on society at large. The state of the economic crisis is further exacerbated by the travel advisories issued for Sri Lanka by multiple countries at the time of composing this message. Hence, it is imperative that the nation's political leadership unite to take expedient action to address these economic and societal shocks, even though we may be a long way away from achieving a complete recovery.

In spite of the upheaval in business conditions, your Company navigated the financial year 2021/22 with operational agility. At both hotels, we enacted various adaptive measures to enhance our revenues and rationalise our expenditure. With COVID-19 infections in the country rising, Pegasus Reef Hotel was temporary converted into an Intermediate Care Centre (ICC) of Asiri Central Hospital for a duration of five months in the concluded financial year. From November 2021 onwards, the hotel returned to regular operations and executed pragmatic business strategies within the Rooms, Weddings and MICE segments in a fiercely competitive marketplace. Similarly, the hotel stringently focused on operational cost management and the deferment of all non-critical capital expenditure while giving due emphasis to guest expectations and quality standards.

The above initiatives underpinned our performance, enabling Pegasus Reef to achieve an annual occupancy of 33% and register cash profits in the latter months of financial year 2021/22. Likewise, Giritale Hotel achieved an annual occupancy of 28%, primarily riding on the improved business evident within the local market. More details on our operational context will follow in the Management Discussion and Analysis section of this report.

2 PEGASUS HOTELS OF CEYLON PLC

In this challenging phase, the biggest concern that the industry faces is the high staff turnover rate. On top of the already apparent shortage of skilled staff in the market, this has created additional burdens for hoteliers, as a majority of the employees prefer to seek new career paths or consider migrating to other nations due to the unforeseen challenges of the present day. Given such vulnerabilities in the labour market, we have taken every measure as a responsible hotelier to ensure that our staff feel content and empowered at all times, including ensuring meaningful career progression and succession planning, addressing their learning gaps and ultimately recognising

and rewarding their success. During these difficult times, we distributed essential dry rations to support all our staff and their families along with the delivery of emergency rations to affected households in our locality. Moreover, we opted to upgrade the staff quarters of our workforce who have been the cornerstone of our success in these exceptionally challenging periods. Concurrently, we are also exploring options to attract new talent by extending training opportunities to the youth in local communities.

With respect to financial performance, on a consolidated basis, your Company was able to record a revenue of Rs. 386.1 Mn for the concluded financial year, denoting a YoY increase of 95%, while the loss for year reduced by 16% YoY to reach

Rs. 193.6 Mn. The net debt position on a consolidated basis was observed at Rs. 177.2 Mn. In April 2022, the Company announced that it will be raising a sum of Rs. 75.98 Mn by means of a rights issue, where the generated proceeds will be utilised to subscribe for the rights issue of Equity Hotels Limited (EHL). The objective of the above capital raise is to partially settle EHL's existing borrowings and restructure its remaining debt to facilitate the financial flexibility of the Subsidiary.

Over the past three years of unprecedented hardship, the macro-level relief granted to the industry via debt service relief and other non-financial support were instrumental in manoeuvring through the crisis. As dark clouds continue to loom, the industry is in dire need of sustained macro-level support, specifically to restructure its existing debt burdens on more sustainable terms. Hence, I propose that authorities consider new options for debt restructuring upon the expiry of debt moratorium, by allowing extensions for grace periods and payment terms, and introducing concessionary interest rates for loans in order to relieve the financial distress experienced by all local hospitality-related establishments at present.

As further means of support, hotels could be permitted to

accumulate foreign reserves to hedge against future cost increases pertaining to their capital investments. I believe that at this juncture, such policy action focused on liquidity management would be fundamental to keep the industry alive and rekindle its growth.

It is reasonable to assume that the road ahead for the industry will be an uphill climb, as uncertainty lingers in the economy due to the gravity of socio-economic concerns emerging from the present debt crisis. Tourism plays an integral role as a key foreign exchange earner and driver of gross domestic product of our country. It is therefore an industry whose recovery and resilience plans should never be undermined; as its revival would undoubtedly strengthen the influx of crucial foreign exchange into the island nation.

However unclear the outlook may seem, the final pace of returning to normalcy will certainly depend on credible policy measures and the timely execution thereof. Perhaps, a good starting point here would be to establish a conducive environment for travel and tourism activities within the country in order to restore confidence among foreign travellers. In the meantime, we will continue to meet the crisis at hand by being adaptive and prudent in our operational strategy while doing our part to assist communities to emerge from the present crisis.

As I sign off, I wish to thank my fellow Board members and the members of the Audit Committee, Remuneration Committee, Nomination Committee and the Related Party Transactions Review Committee for their valued guidance. Further,

I acknowledge the overwhelming support extended to us by all our business partners and other stakeholders during the past period. My gratitude and appreciation also extend to our valued employees for all their hard work and accomplishments during the year. Most importantly, I wish to thank all our shareholders for your continued trust and faith in us.

(Sgd.)

D.C.R. Gunawardena

Chairman

27th June 2022

Annual Report 2021/22

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