Royal Palms Beach Hotels Limited, a member of the Mercantile Investments group, had seen occupancy during the year ended March 31, 2006 dip to 57% from 63% the previous year while turnover too was down 2.5% to Rs.210.1 million. The after-tax profit of Rs.23.8 million was also down 50% from the previous year.

The company’s Chairman, Mr. George Ondaatjie, has said in his annual report that these results have to be viewed in the context of general business conditions and increasing administration expenses.

He said that aggressive advertising to attract local tourists during the off-season had pushed up marketing cost to Rs.10 million during the year from Rs.8.2 million a year earlier with expenditure also incurred overseas tourist promotions, particularly travel trade fairs like ITB and WTM.

Administration expenditure was up a marginal 6% to Rs.103.7 million. Costs were up on the staff pay roll, energy and other related expenses.

"Despite economic uncertainty and low occupancy levels, we have been able to retain a staff of 297 employees whilst giving all the regular annual increments as well as the statutory payments without downsizing staff," he said.

The company had also incurred finance cost during the year on account of a post-tsunami refurbishment. They had balanced overdraft usage against foreign currency deposits to keep such increases to a marginal (Rs.1.9 million against Rs.0.6 million a year earlier).

Ondaatjie said that the hotel was partially damaged by the tsunami and the repairs involved interest on short-term borrowings. They had also obtained a Susahana loan of Rs.20 million from the Central Bank offered to property owners who suffered tsunami damage at concessionary interest rate of 6% repayable over eight years.

He said that his board felt the need to refurbish the hotel which is now over 10 years old. This had been pending since 2004 owing to the tsunami and other setbacks.

They were committed to maintain the properry’s luxury status and a refurbishment program had begun this year involving upgrading of rooms, remodeling of public areas and other soft refurbishing.

Artifacts and ideas on the Silk Route theme had been successfully incorporated to re-decorate the entrance lobby, the Ranthalu and Orient restaurants and the night club. The hotel had remained for business throughout the refurbishment as it was important to maintain cash flows throughout the year.

"Having had considerable success in a competitive and troubled industry, our aspirations for the future are high. In spite of uncertainties we recorded reasonable performance in the past years, we have every reason to be enthusiastic and optimistic about the future of Royal Palms," Ondaatjie said.

"Royal Palms has always responded well to whatever challenges it has faced and will continue to do so in the future as well."

Ondaatjie made the point that Sri Lanka was not fully reaping its tourism potential compared to many neighbour countries such as India, Singapore, Thailand and Malaysia. Compared to many other destinations, the country’s scope for tourism was enormous.

"We have the expertise, the talent and above all a country to showcase a variety (of attractions)," he said.

Royals Palms had a an issued share capital of Rs.545 million, a revaluation reserve of Rs.169.3 million, a capital redemption reserve of Rs.5 million and accumulated profits of Rs.132.2 million in its books as at March 31, 2006.

Earnings per share for the year at Rs.0.37 were down from Rs.0.94 with no dividend being paid for the year. An eight percent dividend was paid the previous year.

Net assets per share had grown to Rs.15.71 from the previous year’s Rs.15.29 and the share traded at a high of Rs.37 and a low of Rs.14.25 during the year under review against a trading range of Rs.50 to Rs.28 a year earlier.

Tangerine Beach Hotels with 30.59% of Royals Palms is the biggest single shareholder followed by Mercantile Investments (14.60%), Ondaatjie (10%), Merrill J. Fernando (7.23%) and M.U. Maniku (5.11%). Ondaatjie connected companies and members of his family are also among the major shareholders.