Could you give us some background information on Aitken Spence & Company , its structure and today’s main activities?
Aitken Spence can trace its beginning to the year 1868. It was a British company established for trading purposes, specially the export of plumbago, sapanwood, ebony, coffee and coir products and the import of rice and coal for ships. We continued to be a British company till the early '50's, when our country gaining independence in 1948; there was then a trend for the British to move out and for the Sri Lankans to come in. I joined the company in 1960. At that time we were mainly an agency house, involved in shipping, plantation management and insurance. I must mention that we were appointed agents of Lloyd's of London, way back in 1876. The 1970's saw a period of difficulty when the government in power embarked on a policy of nationalization. Consequently, much of the company's business was taken over or restricted. Out of these difficult times, the company saw resurgence, when it commenced a major program of diversification. It was planned that we go into areas of activity that any future government would support, regardless of its political beliefs. It was clear that two persistent problems the country faced was the scarcity of foreign exchange and unemployment. Therefore diversification was directed at alleviating these two ailments. Thus the company moved into tourism and cargo logistics services. I was given a personal challenge in my career, when the Board of Directors appointed me to pioneer the company's tourism project, with the building of a tourist hotel. In 1974, I was able to report back to the Board that the company's first hotel, called Neptune, was completed and ready for operations. Since then, the company's tourism sector, which now includes hotels and travels, has been the main growth sector. Of course, there have been incessant problems. Firstly, as a result of communal riots, then through a southern insurgency and right now, because of a Northern terrorist movement. Sri Lanka can easily be described as being one of the very best tropical island destinations in the world. The variety of attractions is unrivalled. But because of these problems, the growth rate has been restricted. Currently, the annual average tourist arrivals are in the region of 400,000. If not for the present problems, we could easily average 1 million or more. The cargo logistics sector also grew steadily with improvements being made to the Colombo Port. The Port of Colombo has the potential of being the biggest transhipment hub in South Asia. In the area of plantations, the government did a complete reverse turn. Having nationalized it in the early '70's, these plantations were given back to the private sector in the late '90's. With the expertise that we had, we readily got into this sector and here again the potential for growth is excellent. Ceylon tea is still the best tea in the world. However, we are facing a problem regarding the cost of production. Particularly labour cost. It is unfortunate that whenever there is a labour crisis, the government steps in and pressurizes the private sector to give into the demands of the labour unions, instead of allowing the private sector to handle the crisis. The private sector can most certainly handle the crisis to the satisfaction of both the Union and the management. We are also in printing & packaging and we have gained a reputation of excellence in printing. We cater to the quality conscious manufacturers and exporters. The latest sector in which we have got into is infrastructure development, which again is a high growth business. We are starting off with two thermal power plants, which come under the management of two joint venture companies.
We have 51% equity and so our company will play a leading role. In this project, we are working with the Commonwealth Development Corporation and a company from Finland - Wartsila NSD and an Indian partner - Banaras House. We did run into a problem at one of the power project sites. This was in Anuradhapura, which is an ancient capital in Sri Lanka and in which is found the oldest historical tree in the world. The sacred Bo tree. The problem was regarding a possible damage to the Bo tree, as a result of environmental pollution. This has been resolved and the Government has given us another site.
You are a widely diversified company; you are in the plantation sector, in the shipping sector, and also in the insurance and garment sectors. What is the strategy behind this?
Light Engineering is no longer in our portfolio. This is a result of a continuous process of restructuring, where we have been getting rid of unviable businesses. Our objective was to become a leaner and more agile organization instead of being a lumbering giant. A garment is another sector, which we are looking at very carefully, and if we get an opportunity, we wouldn't mind selling it off. Printing & Packaging too is causing us concern and we would like to move out of this field but again, it does have very good potential and so we may hold onto it and re-organize it so that we can continue in this business for some time. Therefore our product portfolio consists of tourism, cargo logistics services, plantations, infrastructure development and printing & packaging. I must at this stage mention the negative impact to business as a result of politicization of every area of public life. Very often law enforcement officers and head of government departments are prevented from doing their legitimate duty because of unreasonable interference by politicians, even in our latest project regarding the thermal power plants, this element of politicization became a threat. But fortunately we were able to overcome it. We are an established company, which practiced good governance and transparency long before it became a buzzword in modern corporate management and whatever happens, we will not give up the high principles on which our company was built. Therefore sometimes it is disheartening when others try to short circuit us using dubious methods.
What areas are you looking at for further development? Is IT appealing to you?
We deliberately kept off IT because it is high tech and progresses are being made almost every day. Therefore to succeed, we have to keep abreast with this advancing technology and to do this, we have to be very dependent on people. Unfortunately, the mobility of people in this industry is very high. Furthermore we would like to keep to our core businesses where we have the experience and expertise and expand on them. Infrastructure Development was a bit of an exception. But here we had excellent partners who gave us the technological back up and furthermore it is an extremely high growth industry.
How many hotels do you have?
We own and/or manage 10 hotels in Sri Lanka and we own 3 hotels in the Maldives. Our venture into the Maldives was something I personally initiated because I felt that it was not a competitive destination but a complementary destination. That step proved a wise one because today, the Maldives provides us with steady profit growth, unlike the ups and downs of the Sri Lankan hotels. We now have total room strength of 1121 and our market share is 5% of the total bed strength. Once we consolidate our financial position in the Maldives, we will consider moving into the Indian sub-continent. Such a step will be beneficial to both Sri Lanka and us.
The main market for Sri Lanka is Europe. Are you trying to attract tourists from other markets as well?
We have been and we will continue to do so. One of our target markets is India. It has a large affluent middle class population of over 200 million whose per capita income is between 20 - 25,000 US Dollars. However, the problems we face are three fold. Firstly airline connections are difficult due to the aviation policies of both countries, especially India. Secondly, does the Indian government exercise the foreign exchange problem with its relevant controls? Thirdly is the volatile security situation in our country. Of these three, the airline problem is the most serious. If that can be solved, we can definitely get large numbers of Indian tourists, especially from North India coming to Sri Lanka. | What measures have you taken to attract a growing number of tourists?
We have been using the sea and sand story to attract tourists to Sri Lanka, but now we are taking a different angle. We are going beyond the beaches. We will be focussing on Culture, Nature and Adventure. By this we are creating a new product, which will attract more tourists. The bio-diversity of our small country is so vast that the range of attractions would meet the needs of any sophisticated tourist. No sooner we overcome the problem with our Northern terrorists, tourists arrivals will definitely increase at a much faster rate than it is doing now.
How would you describe the investment climate in the country, and what would you say are the strongest points that make Sri Lanka attractive not only for tourists but also for investors?
The investment climate and here I refer to the activity of the stock exchange, was great in the 90's. We had a P.E. of 30-40. We were trading at 20. That is the investor confidence they had in the country. They felt we were going on the correct tract. We were going in to a liberalized economy and there were no hindrances. An Aitken Spence share was going at Rs. 350/- today it is Rs. 80/- and we are unable to trade and market at 4 or 5. The investor confidence has disappeared. I really mean disappeared. If foreign direct investment is what you are talking about, this is very hard to come by on any project.
For example going back to 1980's I brought a German Company to do a hotel development project on the beach. It was a very up-market club called the Robinson's Club. They failed operationally and lost confidence in local management and the government and they felt that they had no way they could recover their investment. We have in turn invested Rs.30 Million in the Maldives. We would rather have developed two beautiful sites that we have in Sri Lanka if we were certain of a pay back. But we are taking our money elsewhere to earn money and so are many other businesses. The apparel industry for example is today's backbone of the export industry in Sri Lanka. I think the very big players and the medium sized players are going abroad. They are going to the Maldives, sub-Sahara division, to Mauritius, Botswana. They are taking their money out and investing it. The new comers in the investment climate are very poor. I am sure that if they put the governmental democratic process in order and our politicians get their priorities right, all our serious problems will be over, specially the terrorist problem. We will then win back in no time our tourism and we can bring back our investments. Our politicians and bureaucrats only give lip service about the private sector being the engine of growth. I have had no help for the last four years from any one of these bureaucrats or politicians A typical example is our power project. When we set up we had a 'Mode of Understanding' with an Australian Company as an equity partner and to lend his expertise as well. One and a half years went by and nothing was happening, he could not lock himself into the Sri Lankan scene so then he pulled out and we started a partnership with a Japanese firm. We were going on for two years. They spent huge sums of money and I think the Japanese senior management came to Sri Lanka over twenty times. Aitken Spence benefited because we learned the business through their expertise and our association. Then they were disappointed and pulled out about a year ago.
What would you say are the sectors in Sri Lanka, which have the most potential? What are the most attractive incentives Sri Lanka provides to foreign investors?
According to my thinking it is tourism. We have not even started scratching the bottom of the barrel where tourism is concerned. Our return on investments is not even 5%. We have 1200 rooms in this country. We have seen days where we have had 40% returns. We are now not even getting 5%. In the Maldives we are saying 35%.
To what extent are you playing an active role and what would you say, given that you are an internationally known player, is your image in Sri Lanka and abroad?
I think we are one of the respected blue chips in this country. Though we have not come within the top ten in various assessments, I consider Aitken Spence as one of the three best companies operating in this country.
Looking at the total picture on an international scene, I think that is why we are going into infrastructure. If we got a big player who wants to come and develop a project here in Sri Lanka, I think he will fall easily on three or five laps and we will be one of them for reliability, governance, dependability, everything. In our country, we have all the qualities that a foreigner needs. In fact we took over a hotel in Sri Lanka where a Singaporean had invested. He had been taken on a long ride. I think he was tricked out of about three to four million U.S. Dollars by a Sri Lankan organization. Ultimately he was so distraught and he came to us and said can you help me? We are running this hotel now having saved him of Millions of Dollars and putting him on track. So in the total picture, we are there in front and we are recognized as straight, clean-jacketed players.
Where would you like to see Aitken Spence in the next three to four years?
I think that as a Company, we should be among the first three anyway. We have a growth in earnings per share of about 20% to 25% per year; I believe that in three years, in these difficult times, we should be ale to maintain this ratio because of the infrastructure development. Another feature is that 75% of the earnings of Aitken Spence is in foreign exchange. That is the buffer and the hedge against devaluation and I believe we should keep over 25% to 30% per year. However, we have to tighten our belt, we have to be prudent, we have to chop and change our style in the next three years, with the changing of times. We have brought in a cultural change. We must be and will be pro-active.
What would you say has been your biggest achievement as Chairman at Aitken Spence and may be if you want to give our readers a final message?
I was a school leaver when I joined Aitken Spence in 1960. I chose to come in to a private sector organization, instead of joining the medical profession like my father. I have grown in this company, which is the typical Japanese style, which may or may not be the proper style. I have had several knocks in my day but I stood firm, with dedication, loyalty, commitment to the organization and I believe that the most important thing in a leader is that you set an example that you believe in and follow it, so that no one questions you as to what your basic principles are. The greatest achievement would be the creation of tourism for the Group. I entered into tourism a long time ago in 1974. You cannot look at it in rupees and cents alone. I was able to give employment to approximately 8000 people. Employment in tourism is not like working in an industry or factory. It is very satisfying to see people happy in their places of work, they are well remunerated, the environment is good, and everything is perfect. For the last twenty-five years we did not have one single worker going on a strike or protest. I think that is a great thing. That speaks for tourism and Aitken Spence. To the readers I would say that I cannot welcome them right now but I am sure that in six months to one year or so we will be back on track.
There will be a lot of investment to Sri Lanka. It is a safe place to invest because the people are intelligent, co-operative and so nice. Basically they are honest, they are not sharks; the people of this country are very clean, honest and very clever people. You are in good hands. As long as the constitutional reforms are in place and there are a few things to be done, and we end the war, there will be no lack of development.
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