Marawila Resorts PLC has summoned an extraordinary general meeting on February 5 in terms of the new company law to seek shareholder approval to continue in business as the net assets of the company are less than half of its stated capital.
Shareholder approval will be sought at this meeting for the company to continue in business despite its many financial and other problems.
Section 220 of the Companies Act No.7 of 2007 stipulates that when this fact (net assets being less than half stated capital) is known, the directors are required to convene an EGM of shareholders of the company.
The directors have prepared a report on the present situation in terms of Section 220 of the Companies Act setting out the company’s financial position.
In their report the directors have said that the company, previously known as Travel Club 2000 Ceylon (Pvt) Limited, became a subsidiary of Lankem Ceylon PLC on February 11, 2003.
The company’s main operating activity is to carry on the business of a tourist hotel and its accumulated trading loss as at March 31, 2008 was Rs.784.3 million, the directors said.
The net assets position of the company had been negative since 1997 until 2007 with the exception of 1998. It became positive due to revaluation of land in March 2007.
"The company has never been able to maintain the necessary ratios since 1997. It was a negative 8% as at March 31, 2008," the directors who have listed out the "manifold" reasons for the losses said. The principal among them was the drop in tourist arrivals to the country due to the continuing conflict and negative tourism advisories from foreign governments.
Due to these unfavourable market conditions, the hotel had recorded an average occupancy of 52% over three years and had been able to only attract the low end of the tourism market.
Operational cost too had escalated with increase in fuel cost, high interest rates and unprecedented increase in electricity rates pushing up overheads. This had been further aggravated by the increase in food cost.
"Due to the prevailing high competition, the company has not been able to pass on (these increases) to its customers," the directors said.
Saying that its Chairman’s Review (in the Annual Report) had duly addressed these issues over the years, the Marawila directors said that the company was taking preventive steps to mitigate further losses.
It was also evaluating market strategies to offer specialized products by value additions and to cater to niche up-market clientele.
Other strategies include improving the product mix, enhancing the product range, offering high yield tourism products appealing to high spending tourists and also promoting other income.
The directors said that energy efficiency programs, cost reductions and cost control programs are also being investigated.
The company raised Rs.l56 million equity capital through a discounted rights issue of 14 million shares issued at Rs.4 each in August 2007 in the proportion of one new ordinary share for every four ordinary shares held.
The directors said that the rights issue was floated to raise funds for working capital requirements.
In March 2007, the company’s land costing Rs.21.4 million was revalued by a qualified valuer. A surplus of Rs.428.6 million arose on what was described as "forced sale value’’ of the land.
This had improved the company’s net assets from Rs.146.7 million to Rs.229.9 million during the year ended March 31, 2008.
The Marawila directors said that the company had a substantial bank loan and it has not defaulted on settlement of borrowings.