Laugfs says loss-making resorts will break even by 2020

By Chandeepa Wettasinghe 
The Laugfs group is expecting its heavily indebted, loss-making hospitality subsidiary, Laugfs Leisure Ltd, to break even by the 2020 financial year, after going public this year.

“We’re hoping to break even by 2020 and thereafter we should be quite profitable,” said Laugfs Gas PLC Director H.A. Ariyaratne. While hospitality analysts have noted that in Sri Lanka, for a star-class hotel to break even, it could take around six to eight years, hotels start to make profits around two years after commencing operations, as has been the case of the latest hotels company to go public- Jetwing Symphony.

However, Laugfs Leisure, which opened its first hotel four years ago in February 2014, has not been able to deliver such performance.

By end-2016 financial year, after two years of operation, Laugfs’ 87-room Anantaya Chilaw hotel did not seem to show any sign of posting profits, with Rs.113.4 million in losses after tax compared to Rs.162.1 million in losses after tax made in 2015 and Rs.37.3 million in losses after tax made in 2014. After the 51-room Anantaya Passikudah resort came into operation in the popular east coast destination, the 2017 financial year saw the losses after tax posted by the two hotels increasing to Rs.403.7 million. The retained losses amounted to Rs.741.5 million as at March 31, 2017.

Ariyaratne said that the losses at the Chilaw property were explained by the fact that it was a region not popular among tourists and that Laugfs had to spend a lot on marketing the destination and that tour companies are now starting to respond. Further, he said that the occupancy at the Passikudah property is now above the industry average.

Laugfs Group Chairman W.K.H. Wegapitiya added that the two hotels have won multiple awards for their hospitality.

However, none of these developments stopped the firm from posting losses after tax of Rs.324.9 million during the first nine months of the 2018 financial year ended last December, compared to the loss of Rs.265.3 million year-on-year, showing no sign of easing the momentum at which Laugfs Leisure is making losses.

There was no breakdown over the properties in Chilaw and Passikudah in the financials to determine whether Anantaya Chilaw has started to post profits, nearly four years after opening its doors.
Laugfs Leisure, which has Rs.2 billion in borrowings, is slated to go public within three months, as part of a corporate restructuring plan of the parent Laugfs Gas PLC, which is currently the only publicly listed entity of the group.

Laugfs Leisure has invested over Rs.4.5 billion in its hotel infrastructure, according to the balance sheet and the initial plans were to invest a total of Rs.9 billion in three hotels, with the third in Wadduwa expected to become the largest, with 200 rooms and a theme park to be constructed on a 15-acre land worth Rs.500 million, which is already in possession of Laugfs Leisure.

The firm even had ambitious plans to venture into the Maldives, having incorporated a subsidiary. However, it had not purchased any land in the neighbouring archipelago. 

With opinions emerging now that the Maldives tourism market is too saturated for entry at the moment, Wegapitiya admitted that these plans could change, since Laugfs has not made a commitment there.

Wegapitiya, the majority owner of the Laugfs group, said that he has no intentions of divesting Laugfs Leisure.

He has been bitter over the fact that the parent Laugfs Gas has not been able to attract a higher market value and the shedding of non-core operations such as leisure is part of his plan to increase the valuation, although he admitted that the high debt in the group could be a reason for the market attributing subdued price for Laugfs shares.