A price war among some Colombo city hotels had resulted in the sabotage of the ‘minimum rate policy’ enforced last year resulting in a situation that had benefited nobody, Mr. Ravi Thambiayah, Chairman of Renuka City Hotels PLC, has said in his company’s just released annual report.

He has said that despite lower arrivals and consequent low occupancy faced by a number of city hotels, Renuka City had been able to increase room revenue in the first part of the financial year due to the implementation of minimum rates in the Colombo city hotels.

"However due to short sighted action by a few of the city hoteliers, the ‘minimum rates’ which was based on different categories of hotels and which was progressing quite well, came to an abrupt halt," he said.

"This resulted in five-star hotels reducing their rates in direct competition with two and three star hotels, at a time when the cost of utilities, maintenance and food items were escalating exponentially.

Such action not only had a direct impact on the bottom line of Renuka City Hotel, but government tax revenue and staff service charge also suffered drastically; benefiting no one."

Despite this problem, Renuka, now in its 14th year of operation, has posted what Thambiayah called a "pleasing’’ result with a profit after-tax of Rs.106 million in the year ended March 31, 2009, up from Rs.83.4 million a year earlier.

This was largely due to interest earnings of Rs.77.9 million and what Thambiayah called ``prudent investment practices.’’

"However the average occupancy was only at 56% which was well below previous years," he noted.

He said that the year under review had been the most difficult in the history of the company with a variety of factors including the global recession, high oil prices and uncertainty in the traditional tourist markets together with the accelerated war effort in the North and North East taking a heavy toll on the tourism industry.

"Although the tight security checks in and around the city of Colombo saved the city from any major terrorist attack, the adverse travel advisories issued by our key tourist generating markets during the financial year, contributed to the decline in tourist arrivals," he said.

The global economic meltdown accompanied by job losses in the US, Europe and Australia, although not directly impacting Sri Lanka, resulted in people traveling less with long haul travel particularly becoming almost negligible.

Saving money and holding jobs was the top priority and if holidays were taken, they were mostly to nearby cities and/or towns in the traffic generating countries.

"In this scenario of gloom, we had to find innovative ways to stay in business while looking after our guests, property and staff," Thambiayah said.

But now the picture has changed with the dawn of peace after 27 years and Sri Lanka was on the threshold of a new era which promises much.

"But promises count for little in the final equation. We as an industry have to gear and prepare ourselves and promote our country to make sure that Sri Lanka lives up to her potential as a tourist haven," he said.

"We have to seize the moment. Our time is now."

Renuka City with a stated capital of Rs.110 million, a general reserve of Rs.1.2 billion and retained earnings of Rs.23.1 million has a strong balance sheet with borrowings limited to a Rs.9.1 million bank overdraft.

The company’s quoted share portfolio costing Rs.533.3 million had diminished as at last balance sheet date to a market value of Rs.349.3 million with a provision of Rs.45.3 million made in the books for the fall in value of investment. But since then, the stock market picture has changed in Renuka’s favour.

During the year under review the company posted an exchange gain of Rs.11.7 million, a share sale profit of Rs.25.2 million and dividend income of Rs.19.4 million in addition to its Rs.77.9 million interest income.

The company had sold off a holding of over 0.16 million shares of Hayleys taking a tidy profit, the report reveals.

Renuka Hotels Limited with 62.31%, Cargo Boat Development with 6.5% and J.B Cocoshell with 4.45% are the major owners of the company.

Net assets per share were up to Rs.191.88 from Rs.181.72 the previous year and the Renuka share traded at a high of Rs.90 and a low of Rs.60 during the year against a trading range of Rs.103 to Rs.90 the previous year.