AITKEN SPENCE PLC Financial Summary and Investment Analysis

Executive Overview

AITKEN SPENCE PLC is a diversified Sri Lankan conglomerate operating across Tourism, Maritime & Freight Logistics, Strategic Investments, and Services, with operations spanning Sri Lanka and overseas markets. The latest audited 12-month period ended 2026-03-31 showed relatively modest revenue growth but materially stronger profitability, helped by lower finance costs, improved core-sector earnings and foreign-exchange gains. The latest Q2 2026 interim results continued the profit improvement despite slightly lower revenue.

Periods covered: Q3 2023 to Q2 2026; derived CY2024 and CY2025; audited 12 months ended 2026-03-31; latest position at 2026-06-30.

Key observations:

• Audited revenue for the 12 months ended 2026-03-31 increased 1.6% to LKR 96.59 Bn.
• Profit before tax increased 18.3% to LKR 12.81 Bn and profit after tax increased 26.9% to LKR 9.11 Bn.
• Profit attributable to shareholders increased 27.5% to LKR 6.80 Bn; EPS rose from LKR 13.13 to LKR 16.74.
• CY2025 revenue increased only 3.3%, but operating profit rose 13.4% and PAT 23.7%, showing significant margin improvement.
• H1 2026 revenue declined 3.2% YoY, while PAT rose 30.1% and attributable profit rose 47.2%.
• Latest Q2 2026 PAT increased 157.8% YoY despite revenue declining 1.2%.
• Tourism remains the largest profit engine but is strongly seasonal; Maritime & Freight Logistics and Services are increasingly important earnings contributors.
• Strategic Investments remains the major weak point, particularly apparel manufacturing.

The audited statements received a true-and-fair-view audit opinion. The latest Q2 2026 interim figures remain subject to audit.

Financial Performance

Revenue and Profitability Trends

*LKR Bn except EPS. Gross profit is not separately reported because consolidated expenses are presented by nature.*

CY2024 revenue was approximately LKR 94.84 Bn, operating profit LKR 13.15 Bn and PAT LKR 6.61 Bn. CY2025 improved to LKR 97.97 Bn revenue, LKR 14.92 Bn operating profit and LKR 8.17 Bn PAT. Operating margin therefore expanded from 13.9% to 15.2%, while PAT margin increased from 7.0% to 8.3%.

Q2 2026 demonstrates continued earnings improvement: operating profit increased 33.2% YoY, PBT 74.1%, PAT 157.8%, and attributable profit 172.0%.

Balance Sheet Analysis

*Excluding lease liabilities.

Balance-sheet quality materially improved during the audited year through stronger equity, higher cash and reduced leverage. Some reversal occurred in Q2 2026 as borrowings increased and cash declined.

NAV per share increased from LKR 190.23 to LKR 218.90 at 2026-03-31 and to LKR 223.61 at 2026-06-30. However, part of the audited NAV increase came from a LKR 7.97 Bn freehold-land revaluation, which increased comprehensive income/equity rather than operating profit.

Cash Flow Analysis

Annual cash generation was strong. Borrowing repayments of LKR 17.07 Bn exceeded new borrowings of LKR 11.34 Bn during the audited year, supporting lower financial leverage.

Q2 2026 cash conversion was weak despite higher profits: trade/payable movements, LKR 1.70 Bn of interest payments and LKR 1.13 Bn of tax payments contributed to negative operating cash flow. This should be monitored across subsequent quarters.

Key Financial Ratios and Growth Indicators

• ROE, 12 months ended 2026-03-31: 8.18%, up from 7.06%.
• Approximate ROA: 4.2%.
• EPS: LKR 16.74, up 27.5%.
• Dividend: LKR 4.00/share; dividend cover 4.18x; payout ratio 24%.
• Net finance expense fell 22.2% to LKR 4.30 Bn.
• Approximate EBITDA proxy: LKR 22.46 Bn, about 23.3% of revenue.
• From 12 months ended 2024-03-31 to 2026-03-31, revenue CAGR was approximately -0.5%, while PAT CAGR was approximately 43% and attributable-profit/EPS CAGR approximately 52%. Earnings growth has therefore come primarily from margins, financing and business mix rather than top-line expansion.
• Inventory turnover and consolidated receivable-day ratios are not meaningfully comparable because of the Group's diverse business models and absence of a consolidated cost-of-sales measure.

At the supplied 2026-08-14 close of LKR 142.00, rolling four-quarter EPS is approximately LKR 19.00, implying a derived P/E of about 7.5x. Using latest NAV of LKR 223.61 gives a derived P/B of approximately 0.64x. The LKR 4.00 dividend represents approximately a 2.8% yield at that price.

Economic and Market Context

Management identified easing domestic interest rates, relative exchange-rate stability and improving Sri Lankan macroeconomic conditions as major positives. Sri Lankan economic growth was reported at approximately 5% in 2025, tourist arrivals increased 15% to 2.4 million, Colombo Port freight traffic increased 6%, and textiles/garments exports increased 5%.

Counterbalancing this recovery are Middle East geopolitical tensions, energy-price risk, global inflation, shipping disruptions and climate events. Cyclone Ditwah disrupted Sri Lankan tourism and certain power operations during 2025.

Approximately 61.4% of Group PBT for the audited period originated overseas, reducing dependence on Sri Lanka but increasing international geopolitical and currency exposure.

Future Potential and Outlook

Tourism achieved record PBT of approximately LKR 7.9 Bn, up 31.6%, supported by hotels, destination management and airline representation. Management sees opportunities in premium/high-yield travel and expansion across South and Southeast Asia.

Maritime & Freight Logistics generated approximately LKR 4.7 Bn PBT. Expansion of specialised logistics, warehouses, cold-chain services, automation and asset-backed logistics could reduce dependence on traditional agency relationships.

Services PBT increased 276.5% to approximately LKR 1.2 Bn, with BPO scaling strongly. The Group reduced its Port City BPO holding from 50% to 33.5% to bring in a strategic investor with international networks.

Strategic Investments is being repositioned toward sustainable packaging, renewable energy, higher-value agriculture, regenerative tourism and niche export-oriented opportunities. Group-wide digitalisation and adoption of AI are also strategic priorities.

Risks and Challenges

• Strategic Investments: LKR 0.94 Bn audited PBT loss, principally from apparel due to weak demand, tariffs, operating inefficiency and finance costs.
• Tourism cyclicality: Q2 2026 Tourism PBT deteriorated to a LKR 1.01 Bn loss, although other sectors compensated.
• Finance/leverage: finance costs remain material; Q2 borrowings and net leverage increased.
• Cash conversion: Q2 2026 operating cash flow was negative.
• Geopolitical/energy risk: Middle East disruptions affect tourism, shipping, fuel, insurance and supply chains.
• Principal dependency: DB Schenker's exit reduced freight volumes; new alliances mitigated the impact.
• Climate risk: extreme weather affects hotels, plantations, renewable generation and logistics.
• Cybersecurity, liquidity, credit, FX and interest-rate risk remain designated principal risks.
• Auditors identified land valuation and impairment assessments of goodwill/investments as key audit matters.

Shareholder and Corporate Information

At 2026-06-30, public holding was 47.52% with 5,908 public shareholders. Major holders were Melstacorp PLC 51.33%, Rubicond Enterprises Limited 16.25%, and Employees' Provident Fund 5.07%.

D.S.T. Jayawardena became Interim Managing Director effective 2026-04-01. C.R. Jansz retired on 2026-06-30.

The supplied 90-session market snapshot to 2026-08-14 shows a LKR 142.00 close, LKR 132.50-161.00 trading range and +2.16% price return. Foreign holdings declined from 25.69% to 25.35%, a reduction of 1.36 million shares.

Investment Decision Indicators

Strengths

• Strong profit, EPS and margin expansion despite modest revenue growth.
• Lower finance burden and improved annual leverage.
• Record Tourism performance and resilient Maritime earnings.
• Services emerging as a meaningful growth contributor.
• High overseas earnings diversification.
• Strong annual free cash generation and conservative dividend payout.

Weaknesses

• Strategic Investments remains structurally loss-making at consolidated-sector level.
• Tourism earnings remain highly seasonal and externally sensitive.
• Latest quarter showed negative operating cash flow and slightly higher leverage.
• Some NAV growth resulted from asset revaluation rather than retained operating earnings.

Opportunities

• Tourism recovery and high-yield markets.
• Specialised logistics, cold chain and warehouses.
• BPO scaling and digitalisation.
• Renewable energy, sustainable packaging and higher-value agriculture.

Threats

• Middle East/geopolitical escalation, energy inflation and disrupted trade.
• Climate-related operating interruptions.
• Apparel-sector weakness.
• FX, interest-rate, cyber and principal/partner concentration risks.

Overall assessment: The financial profile has strengthened materially, with earnings growth substantially outpacing revenue, improved financing costs and broader contributions from core sectors. The central questions for an investor are whether the stronger margins and Tourism/Maritime/Services earnings are sustainable, whether Strategic Investments can be repaired, and whether the Q2 2026 deterioration in cash conversion and leverage proves temporary. Valuation metrics in the supplied market context appear substantially below NAV and historical earnings multiples, but this must be weighed against the Group's cyclical exposure, capital intensity and geopolitical risks.