TRANS ASIA HOTELS PLC ANNUAL REPORT 2020 | 2021 CONTENTS
Overview About Us 2 Performance Highlights 3 Operational Highlights 4
Stewardship Chairman’s Message 6 Board of Directors 9 Risk Management 11 Corporate Governance 15
Management Reports Management Discussion & Analysis 35 Financial Performance 38
Shareholder Disclosure Share Information and Shareholding 41
Financial Reports Annual Report of the Board of Directors 46 Statement of Directors’ Responsibility 51 Audit Committee Report 52 Independent Auditors’ Report 55 Statement of Profit or Loss and other Comprehensive Income 59 Statement of Financial Position 60 Statement of Changes in Equity 61 Statement of Cash Flows 62 Index to the Notes 63 Notes to the Financial Statements 64
Supplementary Reports Quarterly Financial Data for the Financial Year Ended 31st March 2021 100 Five Year Financial Summary & Key Indicators 101 Glossary of Financial Terms 103 Corporate Information IBC
Trans Asia Hotels PLC The period under review has seen us remain not just resolute but resilient too. With our foundation of quality, excellent service and value system centred on quality without compromise, we remain undeterred.
In anticipating our discerning clients’ requisites and aiming to give them a better experience, our recently launched ColomBar - a reinvention of our renowned 7 Degrees North has since taken the city by storm and has been a sought after and iconic venue amongst the city’s nightlife circles.
This is to the credit of a loyal team and unwavering focus on being the best at all we do. Today, we remain Sri Lanka’s hallmark of luxury hospitality, having not simply raised the bar for what excellence in service is, but instead, tenaciously defined it.
An ampersand is an indication of the future, an expectation for something more to occur. It could represent the ending of a difficult period and the continuation on to a brighter path.
Annual Report 2020 | 2021 1 ABOUT US
Cinnamon Lakeside, Colombo is one of Sri Lanka’s leading 5-star Colombo hotels, and an urban resort offering a unique blend of luxury and serenity in the heart of Colombo. Catering to both leisure and business travellers through 346 rooms designed for luxury and comfort, Cinnamon Lakeside offers international service standards and delectable cuisine through its 8 award-winning, speciality restaurants. The hotel is part of the Cinnamon Hotels & Resorts chain, Sri Lanka’s premier hospitality provider offering 2,566 rooms across 15 properties in Sri Lanka and the Maldives; Cinnamon Hotels is in turn owned and operated by John Keells Holdings PLC, one of Sri Lanka’s leading diversified conglomerates and among the most valuable listed entities on the Colombo Stock Exchange.
FINANCIAL CAPITAL Rs. 7.17 Billion Total Assets ACCOMMODATION OTHER AMENITIES Rs. 5.84 Billion 346 FIVE STAR LARGEST POOL Net Assets ROOMS IN COLOMBO 0.08 Times Debt/Equity Ratio Including: TENNIS & SQUASH 20 SUITES COURTS 29 EXECUTIVE ROOMS 106 PREMIUM ROOMS GYMNASIUM 191 SUPERIOR ROOMS
OUR STAFF RESTAURANTS & BARS 524 8 SPECIALITY Employees RESTAURANTS Dining Room - The all day dining restaurant which serves an international buffet CUSTOMER RATINGS Royal Thai - Among the best Thai restaurants in Colombo • Second highest rated city Long Feng - Serving traditional hotel in Colombo - ReviewPro Chinese cuisine • Booking.com - Traveler review Library - Exclusive members only bar Award 2020 ColomBar - Unique bar and • Agoda Customer Review restaurant experience showcasing Award 2020 the vibrancy of Colombo • Tripadvisor Travelers’ Choice Goodies - The Cafe at Cinnamon Lakeside Award 2020 Pool Bar - The lounge by the pool The Lounge - Lounge and Sushi bar
2 Trans Asia Hotels PLC PERFORMANCE HIGHLIGHTS
Financial and Operational Highlights 2021 2020 2019 2018 2017
Key Financial Ratios-Statement of Profit and Loss and Other Comprehensive Income Net revenue Rs.000 810,968 2,328,597 2,825,425 3,198,851 3,251,041 Gross profit margin % 18% 51% 59% 58% 61% EBIT (Earnings Before Interest and Tax) Rs.000 (921,809) 329,587 582,185 1,015,971 1,045,069 EBIT % -114% 14% 21% 32% 32% Profit/(Loss) for the year (PAT) Rs.000 (818,746) 275,220 471,424 883,189 907,765 EPS/LPS [Earnings/(loss) Per Share] Rs. (4.09) 1.38 2.36 4.42 4.54 ROE (Return on Equity) % -13% 4% 7% 14% 16% ROCE (Return on Capital Employed) % -14% 5% 9% 15% 17% Interest cover Times (38) 13 10 39 36
Key Financial Ratios- Statement of Financial Position Total assets Rs.000 7,172,289 7,886,933 7,813,703 7,677,470 7,494,800 Net assets Rs.000 5,844,147 6,628,070 6,444,171 6,183,120 6,007,640 Interest bearing loans Rs.000 217,527 186,573 165,479 292,312 370,256 Debt/equity ratio Times 0.08 0.04 0.04 0.05 0.06 Equity asset ratio % 81% 84% 82% 81% 80% Net assets per share Rs. 29.22 33.14 32.22 30.92 30.04 Current ratio Times 0.26 1.01 0.92 0.81 1.19 Quick asset ratio Times 0.22 0.96 0.87 0.76 1.14 No. of shares in issue No. 000’s 200,000 200,000 200,000 200,000 200,000
Market/Shareholder information Market value per share Rs. 55.90 56.30 76.40 95.00 75.10 Market Capitalisation Rs.000 11,180,000 11,260,000 15,280,000 19,000,000 15,020,000 Dividend per share Rs. - 0.50 1.00 3.50 3.00 Price earnings ratio Times (14) 41 32 22 17 Dividend cover Times - 2.75 2.36 1.26 1.51 Dividend yield % - 0.9% 1.3% 3.7% 4.0% Dividend payout ratio % - 36% 42% 79% 66%
Economic performance Value generated by the Company Rs.000 734,821 1,388,201 1,887,310 2,263,000 2,039,548 Value distributed to: Employees as wages and benefits Rs.000 501,067 669,731 673,721 657,784 589,626 Payment to government Rs.000 22,338 216,339 477,354 487,000 485,406 Community investments Rs.000 19 518 3,131 1,728 8,265 Providers of funds Rs.000 24,210 125,555 257,864 726,000 629,000 Value retained within the business Rs.000 187,187 376,058 475,240 390,000 327,000
Annual Report 2020 | 2021 3 OPERATIONAL HIGHLIGHTS
OPERATIONAL PERFORMANCE OUR TEAM OUR PARTNERSHIPS
65% RECOVERY RATE 2021: 524 664 SUPPLIERS in F&B outlet revenue from pre COVID-19 levels 2020: 612 Our business partners Employees 66% Rs. 501 Million Proportion of payments made to Payments to employees local suppliers, out of total purchases
2021: Rs. 13.9 Million Investment in ensuring employee safety
2021: 40 Hours 2020: 43 Hours Annual Training hours (per employee)
OUR ENVIRONMENT MAINTAINING OUR PROPERTY COMMITMENT TO SAFETY & QUALITY
9% REDUCTION Rs. 16.5 Million Occupational health and safety: in energy consumption Capital expenditure ISO 45001:2018
208 MT REDUCTION Food safety management: in emissions (carbon footprint) ISO 22000:2018
COMMITMENT TO ELIMINATE Environmental safety: SINGLE-USE PLASTICS ISO 14001:2015
Safe and Secure Certificate: Sri Lanka Tourism Development Authority
4 Trans Asia Hotels PLC
CHAIRMAN’S MESSAGE
Ensuring the safety of our employees and guests remains a key priority. We continue to take proactive action to mitigate the risk of a spread of the COVID-19 virus, in compliance with the guidelines and regulations stipulated by the health authorities, whilst continuing to rollout additional voluntary and precautionary measures.
Dear Stakeholder, demand for leisure travel, which is evident five-year Global Communication I am pleased to present to you, on when looking at travel destinations Campaign (GCC) is expected to positively behalf of the Board, the highlights of the such as the Maldives, which augurs well contribute to the recovery of the industry Annual Report and Financial Statements for a “V” shaped recovery once travel in the medium to long term. of Trans Asia Hotels PLC for the year restrictions ease out. ended 31st March 2021. The Company Financial Performance remains resilient despite a year that was In Sri Lanka, the Government imposed The Company’s performance for the year extremely challenging for the entire travel restrictions with a full closure reflects the unprecedented challenges tourism industry. As we were compelled of the airport and termination of all faced by the industry during this period. to hibernate the hotel’s operations for passenger flights from mid-March 2020. Revenue declined by 65% to Rs. 811 several weeks during the year, FY2020/21 As a result, total tourist arrivals during Million as occupancy levels dropped has been defined by our ability to remain the period January to December 2020 sharply, and banquet and F&B revenues agile while maintaining excellence in amounted to 507,704, a decline of 73% were subdued due to social distancing service delivery and ensuring strict compared to the tourist arrivals in 2019. and guests’ heightened safety concerns. adherence to health and safety protocols While Sri Lanka reopened its borders to In this environment, managing costs and for the benefit of our employees, guests international tourists on 21st January preserving cashflows, through driving and all other stakeholders. 2021, arrivals during the first quarter of operating efficiencies, managing working 2021 remained subdued reflecting the capital and optimising use of resources Operating Environment lower demand globally for international became a key area of focus. This resulted travel. The emergence of a third wave in Following the outbreak of the COVID-19 in the Company being able to reduce its the country due to the sharp increase in pandemic in March 2020, the global sales and marketing, and other operating COVID-19 positive cases from late April tourism industry witnessed its sharpest expenses by 62% and 43% respectively. In 2021 and resultant border and mobility decline on record with international spite of the increased short-term funding restrictions imposed by the Government arrivals plummeting by almost 74% requirements, net finance costs declined in May 2021 has further slowed compared to 2019. Widespread travel by 2%, reflecting the drop in exchange down short-term recovery prospects restrictions and health and safety losses, and the prevailing low interest for the industry. Given the strategic protocols impacted tourism in almost rates which the Company leverage on importance of the tourism sector to the every region, with the Asia Pacific region fully through proactive negotiations with Sri Lankan economy, the Government recording the highest decrease of 84%. banks. Overall, the Company incurred a has extended several relief measures The Middle East and African regions pre-tax loss of Rs. 946 Million during the including concessionary funding and loan recorded a 75% drop in arrivals while year under review, compared to a profit moratoriums, moratoriums on Sri Lanka Europe and the Americas recorded of Rs. 304 Million in the previous year. The Tourism Development Authority (SLTDA) declines of 70% and 69% respectively. pre-tax loss for the year included a fair registered land leases, and concessions While the world-wide rollout of a value loss on investment property of on payment of levies to support the COVID-19 vaccine is expected to help Rs. 109 Million compared to a fair value recovery of the industry. Sri Lanka Tourism restore consumer confidence to some gain of Rs. 162 Million last year. was one of the first in the Asian region to extent, re-emerging outbreaks across prepare and issue a detailed COVID-19 many countries is likely to defer plans to The Company availed itself of the Health Protocol for the industry which ease travel restrictions, further prolonging debt moratoriums granted to the also received the ‘Safe Travel Stamp’ from a recovery for the industry. It is however tourism sector while also securing World Travel & Tourism Council. Moreover, encouraging to note a significant ‘pent up’ additional overdraft facilities including ongoing efforts to launch an integrated
1 UNWTO World Tourism Barometer January 2021 6 Trans Asia Hotels PLC 2 UNWTO World Tourism Barometer January 2021 concessionary funding through Commercial Operations pandemic as we focused on providing Saubhagya Renaissance Loan scheme As the business adapted to the new employees the skills and competencies promoted by the Government of normal, the Company refined its strategy required to be agile in the new normal. Sri Lanka. Despite the increase in to leverage its unique strengths as a hotel The Company tied up with the Ecole borrowings, the Company’s funding in the City of Colombo renowned for its Hotelier De Lausanne, a leading hotel position remains strong with a low excellence in F&B offerings. Accordingly, management school aimed at developing gearing of 8% as at end-March 2021. F&B revenue streams where augmented a strong talent pipeline. through food delivery, outdoor catering Safety as a Priority and fulfilling customers’ dining needs via In alignment with the Group’s diversity Ensuring the safety of our employees innovative channels. The hotel partnered and inclusion program and gender policy, and guests remains a key priority. We with our sister hotel, Cinnamon Grand in the Company is committed to increasing continue to take proactive action to launching ‘Flavours’ - an online home- the number of women in our workforce mitigate the risk of a spread of the delivery solution which offers a curated by promoting greater female participation COVID-19 virus, in compliance with the menu from our favourite restaurants. in a traditionally male dominated guidelines and regulations stipulated by The value proposition at the Library was tourism industry. During the year we the health authorities, whilst continuing revamped to increase member activations implemented several initiatives such to rollout additional voluntary and whilst encouraging current membership as the introduction of gender targets, precautionary measures. “Cinnamon renewals. ColomBar, which offers a employer supported childcare solutions Care”- the Cinnamon Standard for Care unique bar and restaurant experience and agile work arrangements to promote and Cleanliness was implemented across showcasing the city’s vibrant culture greater female representation across our all our resort and hotel properties with and heritage through food, drink and businesses. stringent health and safety protocols entertainment, performed extremely in line with the guidelines issued by well during the months post easing of With technology and digitalisation the World Health Organisation and the the lockdown and plans are in place to playing an increasingly important role Government of Sri Lanka. Cinnamon further accelerate this momentum. in the tourism eco-system, we continue Lakeside, along with other properties in to explore and implement digitisation the Cinnamon Hotels & Resorts chain Aligning with the Cinnamon Brand initiatives particularly targeting branding and distribution channels. Data analytics were among the first to receive the ‘Safe & In furtherance of the Group’s vision of Secure’ certification awarded by SLTDA. is also being leveraged for decision expanding the “Cinnamon” footprint making, focusing on improving customer by creating a holistic value proposition value proposition and revenue model. In furtherance of our commitment to our that leverages the round trip offering people, the Company ensured continued in key tourist destinations in Sri Lanka Corporate Governance employment to all our permanent and the Maldives, the hotel operations staff, and no salary reductions were were re-aligned, bringing Cinnamon I am pleased to state that there were no implemented for non-executive staff Colombo hotels and resorts under a departures from any of the provisions of despite the financial constraints faced by single operating structure. The unified the Code of Business Conduct and Ethics the Company due to the impact of the organisational structure will result of the Code of Best Practice of Corporate pandemic. Additionally, certain other cash in greater operational synergies and Governance, jointly advocated by the benefits were paid as part of our efforts financial efficiencies across all our hotels. Securities and Exchange Commission of to support our employees through such Sri Lanka and the Institute of Chartered challenging times. Staff development activities continued Accountants of Sri Lanka. I also wish to despite the challenges posed by the affirm our commitment to upholding
As the business adapted to the new normal, the Company refined its strategy to leverage its unique strengths as a hotel in the City of Colombo renowned for its excellence in F&B offerings. Accordingly, F&B revenue streams where augmented through food delivery, outdoor catering and fulfilling customers’ dining needs via innovative channels.
Annual Report 2020 | 2021 7 Chairman’s Message contd.
Group policies, where emphasis is Sri Lanka commenced 2021 on an optimistic note with the re-opening of airports on placed on ethical and legal dealings, zero 21st January 2021. The resurgence of the third wave of outbreak in April 2021 however tolerance for corruption, bribery and any has compelled the Government to re-impose stringent health and safety measures form of harassment or discrimination in our to control the transmission of the COVID-19 virus, including isolation of select areas workplace and any work-related situations. deemed as ‘high-risk’, travel restrictions during select periods, limitations on foreign arrivals and certain restrictions on travel within the country. Sustainability This was a year for further enhancing the Despite the uncertain conditions, the outbreaks in CY2020 and the subsequent recovery sustainability of our internal business post easing of restrictions, has imparted learnings for the Company which will help processes as community engagement us better navigate the ongoing and potential constraints. The lockdowns and various opportunities were limited. A key focus measures imposed has offered insights to business resilience and also highlighted area was developing our local supply the need to manage our businesses and people in an agile work environment. Careful chain partners to cater to the vacuum planning and oversight to enable the Company to adapt as the situation evolves, whilst created in the market due to restrictions managing liquidity and financing will continue to be a key area of focus. on certain imported items. This has increased share of value addition to the Medium to Long-Term (Beyond COVID-19) local economy, supporting livelihoods Whilst significant short-term challenges are expected given the current situation and and providing opportunities for growth of the anticipated addition to the city hotel room inventory with the entry of several local businesses. We remain committed to international players over the next few years and the resultant price pressure, the our environmental agenda, implementing Company remains confident of its medium to long-term prospects. Pent up demand for policies to eliminate single-use plastics leisure travel particularly within the region is expected to fuel demand in the medium from our operations and driving term. Meanwhile with tourist arrivals to Sri Lanka significantly below regional peers responsible consumption of natural the potential for tourism still remains largely untapped presenting significant growth resources including energy and water. potential for the cluster in the long term. The hotel achieved power and energy savings of 1 Million kwh in 2020, through Acknowledgements its energy performance contracts with I wish to thank my colleagues on the Board for their invaluable counsel and increased ECO33- an energy solutions organisation. oversight in a difficult year. The Board, and I, wish to express our appreciation to Mr. J R Gunaratne who retired from the Board in December 2020, for his invaluable Community Action contribution and wish him the very best in all his future endeavours. We also warmly In recognition for the untiring efforts welcome Mr. S Rajendra and Mr. C L P Gunawardane who joined the Board during the year. during the course of the COVID-19 pandemic, Cinnamon Lakeside I also take this opportunity to commend the management and their teams for participated in the “Cinnamon Travel their tireless efforts, commitment and optimism and untiring efforts during this Pledge”, offering 2,000 complimentary extraordinarily challenging year. In conclusion, I extend my sincere appreciation to holiday packages to the frontline health our stakeholders including our tour operator partners, guests and shareholders who care professionals as a way of showing continue to support us. our appreciation for their dedicated work.
Outlook Immediate to Short-Term K N J Balendra Despite rapid vaccination drives in Chairman countries such as the United States and the United Kingdom, the relatively 24th May 2021 slower pace of the vaccination roll-out in many other countries has hindered the resumption of international travel. Meanwhile recurring outbreaks of the pandemic across countries and the resultant tightening of travel restrictions continues to impact short term prospects of the global tourism industry.
8 Trans Asia Hotels PLC BOARD OF DIRECTORS
K N J Balendra J G A Cooray S Rajendra Chairman Director Director
Krishan Balendra is the Chairman of John Gihan Cooray is the Deputy Chairman/ Suresh Rajendra has over 30 years of Keells Holdings PLC (JKH). He is a Director Group Finance Director and has overall experience in the fields of finance, of the Ceylon Chamber of Commerce and responsibility for the Group’s Finance and travel & tourism, hotel management, the Hon. Consul General of the Republic Accounting, Taxation, Corporate Finance property development and real estate of Poland in Sri Lanka. He is a former and Strategy, Treasury, Information management and business development Chairman of Nations Trust Bank PLC and Technology function and John Keells acquired both in Sri Lanka and overseas. the Colombo Stock Exchange. Krishan Research. He is the Chairman of Nations Prior to joining the John Keells Group, he started his career at UBS Warburg, Hong Trust Bank PLC. Gihan holds an MBA from was the Head of Commercial and Business Kong, in investment banking, focusing the Jesse H. Jones Graduate School of Development for NRMA Motoring and primarily on equity capital markets. Management at Rice University, Houston, Services in Sydney, Australia and Director/ He joined JKH in 2002. Krishan holds a Texas. He is a Fellow member of the General Manager of Aitken Spence Hotel law degree (LLB) from the University of Chartered Institute of Management Management (Pvt) Ltd, Sri Lanka. He is a London and an MBA from INSEAD. Accountants, UK, a certified management Fellow member of the Chartered Institute accountant of the Institute of Certified of Management Accountants, UK. He Management Accountants, Australia and is a member of the Group Executive C L P Gunawardane has a Diploma in Marketing from the Committee of the John Keells Group. He Director Chartered Institute of Marketing, UK. He is also the President of the Leisure Group serves as a committee member of The and is responsible for Union Assurance Changa Gunawardane is the Chief Ceylon Chamber of Commerce. PLC, John Keells Information Technology Financial Officer (CFO) of the Leisure Pvt. Ltd. and John Keells Stockbrokers industry group, and been with John (Pvt) Ltd. He serves as a Director of Keells Holdings PLC (JKH) for over 15 M R Svensson Asian Hotels and Properties PLC, Union years. He previously held the position of Director Assurance PLC, Trans Asia Hotels PLC, John Chief Financial Officer of the Information Keells Hotels PLC and also in many of the Technology sector, as well as the Sector Mikael Svensson is the CEO of Cinnamon unlisted companies of the John Keells Financial Controller of the Airlines and Hotels & Resorts, and overlooks Group. He is currently the Chairman of the Logistics SBU within the Transportation Cinnamon’s entire portfolio of hotels Condominium Developers Association of sector. With over 26 years of experience and resorts in Sri Lanka and the Maldives Sri Lanka. as a finance professional in varying including the development of the much- industries including Pharmaceutical, anticipated integrated resort project, Manufacturing, Management Services, Cinnamon Life Colombo. Mikael brings E H Wijenaike Electrical Engineering and Construction, with him extensive international senior Director* Changa is also a Fellow member of the leadership experience in managing and Chartered Institute of Management operating large scale luxury hotels across Eranjith Wijenaike was appointed to the Accountants UK and holds a Masters Asia, the Middle East and Australia, of Board of Trans Asia Hotels PLC as a in Business Administration, from the which over 20 years was with the Hyatt Non-Executive Director in June 2012. He is Postgraduate Institute of Management, Group. He was the opening General the Managing Director of Central Finance University of Sri Jayewardenepura. Manager of the landmark luxury hotel Company PLC, a leading non-banking on the trunk of the Palm Jumeirah, the Financial Institution in the country. Viceroy Palm Jumeirah, Dubai and the Eranjith is also a Director of several other Grand Hyatt Mumbai, India. He was also quoted companies within and outside the General Manager of the Park Hyatt the Central Finance Group. He holds a Canberra, Australia and Hyatt Regency Bachelor’s Degree in Commerce and a Hua Hin, Thailand. Prior to joining Post Graduate Diploma in Finance and John Keells Holdings PLC (JKH), he was Banking. the Senior Vice President of Louis T Collection, a Singapore based hospitality management and building solutions company which owns a portfolio of hotels across Asia and Australia.
Annual Report 2020 | 2021 9 Board of Directors contd.
C J L Pinto J C Ponniah N L Gooneratne Director* Director* Director*
Cholmondeley Pinto was appointed Jhansi Ponniah was appointed to the Navin Gooneratne has been a member as a non-Executive Director and as the Board of Trans Asia Hotels PLC as a of the Trans Asia Hotels PLC Board as a Chairman of the Board Audit Committee Non-Executive Director in October 2013. Non-Executive Director since its inception of Trans Asia Hotels PLC in July 2011. He She has been intimately involved in in 1984. He holds a Bachelor of Science is a Fellow of the Institute of Chartered the travel and tourism industry for over Degree in Engineering and is a Member Accountants of Sri Lanka with 48 years of 30 years and has held directorships in of the Institute of Engineers (Sri Lanka). experience, in the profession and industry. numerous subsidiaries of John Keells He is the Chairman of 1:2:4 Designs Ltd, Before returning to Sri Lanka in 2006 after Holdings PLC−namely Walkers Tours Ltd, Radiance Film International (Pvt) Ltd a spell of 32 years abroad, he worked for Whittals Boustead Travels Limited and and Trans Asia Films (Pvt) Ltd. He is the SABMiller PLC for 23 years, the world’s Gordon Frazer & Co. Limited. She has also Honorary Chairman of SAMA International second largest multinational breweries served as the Secretary to the Sri Lanka Trust, Swarajya Foundation and the Light group, holding CFO positions in its listed Association of Inbound Tour Operators of Asia Foundation. He is also a Patron of subsidiaries in several countries. He is now and is a recipient of Zonta Club Woman of Mahatma Gandhi Centre in Colombo. retired. He is also a Non-Executive Director Achievement Award. of Asian Hotels and Properties PLC.
* Independent Director
10 Trans Asia Hotels PLC RISK MANAGEMENT
Trans Asia Hotels PLC is exposed to many risks arising from its internal and external environments. Anticipating and proactively responding to these risks ensures the Company’s commercial and social sustainability while enhancing stakeholder value. A structured framework for risk management ensures that consistent techniques are used to identify, prioritise, mitigate, monitor and report risks. The John Keells Group Sustainability and Enterprise Risk Management (ERM division) ensure that the policy framework of the Company is aligned to that of the John Keells Group, through ongoing review, assessment and guidance on implementation.
RISK MANAGEMENT RISK GOVERNANCE PRINCIPAL RISKS PROCESS
Risk Management Process In addition to financial and operational risks faced by the Company, due consideration is also given to risks resulting from possible impacts on the environment, employees and community. The risk management team identifies risks through various means, including intelligence gathering, quality audits, safety audits, internal audits and customer feedback and incidents. Identified risks are evaluated in terms of likelihood of occurrence, impact to the Company and velocity. Based on the impact and likelihood ratings, each risk is rated on a scale of ‘insignificant’ to ‘ultra-high’. This enables the Company to identify risks that require the most urgent attention and plan out appropriate response strategies. Each risk is assigned to a risk owner based on their field of expertise. The risk owner is then responsible for the implementation and reporting of the mitigation strategy for the relevant risk. The Risk Register is maintained on an online platform enabling dynamic changes to risk items and facilitating the quarterly risk reviews carried out by the management team.
Risk identification Risk prioritisation & Development Implementation Risk monitoring assessment of risk response of risk response and reporting strategy strategy
Annual Report 2020 | 2021 11 Risk Management contd.
Risk Governance The Company’s risk management Building a Culture of Risk Awareness framework includes clearly defined responsibilities for risk identification, prioritisation, management and reporting. Responsibility for overall risk management lies with the General Manager who is the head of the business unit. The Strategic Business Unit risk management team comprises the Responsible for identifying, measuring, Preparation of Risk & Control General Manager, Heads of Departments monitoring and managing risks Self Assessment (RCSA) and Health and Food Hygiene Executive. The team is guided by the framework established by the Group Enterprise Risk Management (ERM) Division. John Keells Enterprise Risk Management Function
Review and constructive challenge of RCSA
The Board
Review by respective Audit Committee Review by respective Board
Principal Risks in 2020/21 Given the conditions that prevailed during the year, the Company’s risk landscape shifted dramatically, necessitating continued focus on monitoring evolving dynamics and risks in both the internal and external environments. Risk Mitigating Actions Current Assessment Pandemic risk (COVID – 19) Preventive - Adherence to stringent health and safety Impact - High y Loss or closure of business due to regulations including compliance to the Safe & Secure travel restrictions, obstructions to certification issued by the SLTDA, Government of Likelihood of occurrence - High business continuity and health and Sri Lanka and Health authorities and maintain safety of guests and staff recommended hygiene practices. Risk Rating - Ultra-high y Negative publicity and implications Detective - Regular routine health checks for guests and on customer footfall staff, conducting PCR tests for staff, staff trainings on Trend - COVID - 19 virus detections, Collection of data on recent health conditions of guests and staff and association declaration relating to COVID-19 measurements daily. Corrective - Diversification of revenue sources through a focus on F&B income. Expenditure control measures, stress - tests, weekly dashboard monitoring of financial and non-financial KPIs
12 Trans Asia Hotels PLC Risk Mitigating Actions Current Assessment Business Risk Preventive - Pricing, refurbishment, retention of talent, Impact - High y Cost increases due to continuously training and development of staff, product and service improving product quality standards upgrades are carried out to be competitive with industry Likelihood of occurrence - High in line with competitors counterparts. y Anticipated price pressure following Persistent efforts to preserve margins through operational Risk Rating - High increase in inventory excellence and cost management Trend - Detective - Pricing strategies are scrutinised with competitor pricing and other available offers Corrective - Monitoring of guest reviews and rankings, increased marketing efforts including social media strategies and review of pricing strategies Exchange rate fluctuations Preventive - Monitoring of market movements and trends Impact - High Depreciation of LKR will increase cost of of exchange rates purchases and realised losses on USD Detective - Ongoing engagement with Group Treasury Likelihood of occurrence - High loan repayments Corrective - Natural hedging options such as invoicing Risk Rating - High and accepting payments in the same currency and engaging proactively with banks to obtain the best Trend - possible rates Country Risk Preventive - Additional security arrangements including Impact - High y Acts of terrorism can cause additional military personnel and CCTV, continuous disruptions to operations, loss of life/ lobbying with the Government agencies and industry Likelihood of occurrence - Low injury and damage to property & personnel equipment. Detective - Installation of baggage X-ray machines, walk Risk Rating - High y Vulnerability to acts of terrorism can through metal and explosive detectors, vehicle checks Trend - result in travel advisories that can Corrective - Business Continuity Plans, signage and lead tourists to avoid the destination evacuation plans, adequate insurance covers, backup impacting business continuity. plans for data Supply chain disruptions/shortages Preventive - Reviewing supplier standards, maintenance Impact - Low Inability of our suppliers to deliver our of agreements, supplier forums and continuous requirements in terms of quality, and monitoring Likelihood of occurrence - Low price can lead to negative impacts on Capacity building on food safety and insurance service quality and margin pressure. Risk Rating - Low Detective - Identification of alternative suppliers and Short supply of raw materials could supplier audits result in disruptions to operations Trend - Corrective - Modifying the menus and ordering process accordingly, robust supplier engagement Brand and reputation risk Preventive - Maintaining brand standards, health and Impact - High Our reputation on social media will safety standards and high guest & associate satisfaction directly impact our ability to attract levels Likelihood of occurrence - Low customers. Detective - Continuous monitoring of social media. Risk Rating - Low Corrective - Responding immediately to guest concerns and addressing any areas of weaknesses Trend -
Annual Report 2020 | 2021 13 Risk Management contd.
Risk Mitigating Actions Current Assessment Food safety Preventive - ISO 22000 food safety management Impact - High This has an immediate impact on the certification supported by associate training on basic health and safety of our guests, staff food hygiene and establishing systematic waste disposal Likelihood of occurrence - Low and reputation methods Detective - Regular audits and third-party microbiological Risk Rating - Low testing, regular medical checks for food handlers, cleaning, regular sanitisation and pest control schedules Trend - Corrective - Public relations handling by duty managers and immediate action for damage control. Financial risks including credit, Preventive - Stringent credit policy and controls to Impact - Low liquidity and interest rate risks mitigate the impact of default, regular review of credit y Exposure and losses due to default limits, capital investments are planned in a manner which Likelihood of occurrence - Low of settlement by debtors would not adversely impact on the cashflows and gearing y Inability to meet financial status Risk Rating - Low commitments on due dates Detective - Ongoing monitoring against collection targets Trend - y Increased cost of debt with progressive action, regular review mechanisms to monitor the Company’s performance against budgets Corrective - Regular internal audits
Equipment/machinery breakdown Preventive - Regular preventative maintenance programs Impact - High Breakdowns can cause disruption are carried out to operations, adversely impacting Detective - Regular inspections, supervision and monthly Likelihood of occurrence – Low our services and guest experiences maintenance resulting in loss of reputation and Risk Rating – Low Corrective - Maintenance is done on a needs basis increased costs upon identification of issues from detective measures or Trend - breakdown incidents IT Risks including loss of data due to Preventive - Using back up servers, updating of firewalls, Impact - Low IT system failure, unauthorised control service contracts and storage in alternate locations of critical assets and not keeping Disaster recovery plans Likelihood of occurrence – Low up with the latest technological Being updated on the latest technological advances in developments in the industry the industry Risk Rating – Low Drop in service levels, loss of data and Detective - Monitoring potential threats through regular loss of competitive advantage will internal audits and implementation of the cybersecurity Trend - result from these risks. framework Corrective - Maintain hardware redundancy, Immediate measures taken to correct on identified deficiencies
Risk rating unchanged compared to previous year Risk rating increased compared to previous year
14 Trans Asia Hotels PLC CORPORATE GOVERNANCE
As part of the John Keells Group (Group), the Company’s corporate governance practices are defined by judicious governance structures and comprehensive policy frameworks which ensure the highest degree of integrity and transparency. Many of the Company’s structures and policies conform to those of the Group, ensuring an agreed level of compliance across the Group. The Company’s robust corporate governance practices offered a solid foundation in navigating the unprecedented challenges presented by the operating landscape in 2020/21, enabling Trans Asia Hotels PLC (Company) to refine its strategy with a view to long-term value creation. The Company’s robust corporate governance frameworks and practices offered a solid foundation for navigating the complexities stemming from the operating landscape in 2020/21 and was undoubtedly a driving factor behind the Company’s resilience and agility during the year.
Corporate Governance Highlights in 2020/21 Board refreshment y Appointment of 2 Non-Executive Non-Independent Directors to the Board with effect from 01st January 2021 y Mr. S Rajendra y Mr. C L P Gunawardane y Resignation of Mr. J R Gunaratne following his retirement from the Group with effect from 31st December 2020
Key Developments in 2020/21 y ‘Cinnamon Hotels & Resorts’ was strategically re-aligned to create a unified organisational structure to ensure an even more focused leadership and synergised approach across the Group’s hotels. The revised structure encompasses a holistic approach to the portfolio of hotels as opposed to the previous separate verticals of City and Resorts – in Sri Lanka and the Maldives. y Ongoing evaluation of operational performance and financial health in view of the unprecedented operating challenges that prevailed y Stringent measures to ensure the safety of all employees and guests y Critically review all expenses, prioritise payments and define clear reporting metrics and enforced stringent expense control measures through weekly dashboards, which cover financial and non-financial KPIs and revised targets y Strengthened internal audit and process review through automation y Appointment of new Ombudsperson for the JKH Group effective 1st December 2020 y Implementation of Agile working policy & Work from Home policy
Annual Report 2020 | 2021 15 Corporate Governance contd.
Approach to Corporate Governance The Company’s governance framework is based on the following internal and external steering instruments:
Mandatory External Requirements
• Companies Act No.7 of 2007 • Securities and Exchange Commission of Sri Lanka Act. No 36 of 1987 (as amended) • Listing Rules of the Colombo Stock Exchange (CSE) • Code of Best Practices on Related Party Transactions (2013) advocated by the Securities and Exchange Commission of Sri Lanka (SEC)
Voluntary Standards Internal Mechanisms • Code of Best Practice on Corporate • Stakeholder engagement Governance issued by CA Sri Lanka • Quality management GOVERNANCE (2017)* • Budgeting and Finance FRAMEWORK • Code of Best Practice on Corporate • Investor Relations Governance (2013) jointly advocated • People Management by the SEC and the Institute of • Risk Management Chartered Accountants of Sri Lanka (CA Sri Lanka)
Internal Standards
• Articles of Association • Board and Board Sub-Committee charters • John Keells Group governance structures and policies ** • John Keells Group Code of Conduct
* The Company is compliant with almost all the requirements of the 2017 Code of Best Practice on Corporate Governance issued by the CA Sri Lanka to the extent of business exigency and as required by the Company and the John Keells Group ** The internal policies adopted by the Company are explained in detail in under Policy Framework on page 20 of this Report.
16 Trans Asia Hotels PLC Governance Structure The Board is the apex governing authority and is supported by several sub-committees in the discharge of its responsibilities. As permitted by the Listing Rules, certain Board Committees of the parent (Asian Hotels and Properties PLC- AHPL) and ultimate parent company (John Keells Holdings PLC-JKH) function as Board Committees of the Company. Notwithstanding the functioning of the Board Committees, the Board of Directors is collectively responsible for the decisions taken by these sub-Committees. Accordingly, the Nominations Committee of the Asian Hotels and Properties PLC functions as the Company’s Nominations Committee while the Related Party Transactions Review Committee, the Human Resources & Compensations Committee and the Project Risk Assessment Committee of JKH provide key inputs in relation to their areas of responsibility. The Board has appointed an Audit Committee too.
JOHN KEELLS HOLDINGS PLC
ASIAN HOTELS AND PROPERTIES PLC HUMAN RESOURCES AND COMPENSATION COMMITTEE TRANS ASIA HOTELS PLC
Nominations Board of Directors Committee RELATED PARTY TRANSACTIONS REVIEW COMMITTEE
Audit Committee PROJECT RISK ASSESSMENT COMMITTEE
Only the sub-committees of the parent and ultimate parent which are relevant to Trans Asia Hotels PLC is shown in the illustration above.
Annual Report 2020 | 2021 17 Corporate Governance contd.
The roles and responsibilities of the sub-committees are summarised below: Board Committee & Composition Mandate Scope Audit Committee (Trans Asia Hotels PLC) Comprises three Independent Directors Monitor and supervise 1. Confirm and assure: and the Chairman is a Chartered management’s financial reporting y Independence of External Auditor Accountant. process, internal controls, risk reviews y Objectivity of Internal Auditor and the audit function in ensuring: 2. Review with independent auditors the Current members are: y Accurate and timely disclosure adequacy of internal controls and quality of Mr. C J L Pinto - Chairman y Transparency, integrity and financial reporting Mr. E H Wijenaike quality of financial reporting 3. Regular review meetings with management, Ms. J C Ponniah Internal Auditor and External Auditors in seeking assurance on various matters
Refer page 52 for Audit Committee Report Human Resources and Compensation Committee (John Keells Holdings PLC) Committee to comprise exclusively of Determine Remuneration Policy i. Determine and agree with the Board, Non-Executive Directors, a majority of and review implementation a framework for remuneration of the whom shall be independent, the Chairman of same in alignment with Chairman and other Directors of the Committee is a Non-Executive performance appraisal systems, ii. Consider targets, and benchmark principles Director. The Chairman-CEO and Group conduct performance evaluation of for any performance related pay schemes Finance Director are present at all Chairman-CEO, review performance iii. Within the terms of agreed framework, Committee meetings unless the Chairman- evaluation of the Board and its determine total remuneration package of CEO or Executive Director remuneration is committees each Director keeping in view; under discussion respectively. The Deputy y Performance Chairman/Group Finance Director is the y Industry trends Secretary of the Committee. y Past remuneration
Current members are: iv. Succession planning of key Management personnel Mr. D A Cabraal - Chairman Mr. M A Omar v. Determining compensation of Non- Dr. S S H Wijayasuriya Executive Directors is not under the scope of this Committee. Nominations Committee (Asian Hotels and Properties PLC) Comprises two Independent Directors and Define and establish nomination i. Assess skills required on the Board given the one Non-Independent Director namely; process for Directors, lead the needs of the businesses Mr. J Durairatnam - Chairman process and make recommendations ii. From time to time assess the extent to Mr. K N J Balendra to the Board on the appointment of which required skills are represented on Mr. A S De Zoysa Directors. Board iii. Prepare a clear description of the role and capabilities required for appointment iv. Identify and recommend suitable candidates for appointments to the board. v. Ensure that on appointment to the Board, directors receive a formal letter of appointment specifying clearly y Expectation in terms of time commitment y Involvement outside of the formal board meetings y Participation in committees
18 Trans Asia Hotels PLC Board Committee & Composition Mandate Scope Related Party Transactions Review Committee (John Keells Holdings PLC) The Chairman must be a Non-Executive To ensure on behalf of the Board, y The Group has broadened the scope of the Director. May include at least one Executive that all Related Party Transactions of Committee to include senior decision makers Director. Trans Asia Hotels PLC is consistent in the list of key management personnel, with the Code of Best Practices on whose transactions with Group companies Current members are: Related Party Transactions issued by also get reviewed by the Committee, in Ms. M P Perera - Chairperson the SEC. addition to the requisitions of the CSE. Mr. D A Cabraal y Develop, and recommend for adoption by Mr. A N Fonseka the Board of Directors of JKH and its listed subsidiaries, a Related Party Transaction Policy which is consistent with the operating model and the delegated decision rights of the Group. y Update the Board on related party transactions of each of the listed companies of the Group on a quarterly basis. y Define and establish the threshold values for each of the subject listed companies in setting a benchmark for related party transactions, which have to be pre-approved by the Board, and related party transactions which require to be reviewed annually and similar issues relating to listed companies. Project Risk Assessment Committee (John Keells Holdings PLC) Comprises a minimum of four Directors. For augmenting the Group’s 1. Review and assess risks associated with This includes the Chairman-CEO, Investment Evaluation Framework. large-scale investments and the mitigatory the Group Finance Director and two Provides the Board with increased plans thereto, if mitigation is possible, and Non-Executive Directors. The Chairperson visibility of large-scale new identify risks that cannot be mitigated. is a Non-Executive Director. investments and assists in assessing 2. Ensure stakeholder interests are aligned, as risks associated with significant applicable, in making investment decisions. Dr. S S H Wijayasuriya - Chairman investments, above a board agreed 3. Where appropriate, obtain specialised Mr. K N J Balendra investment threshold, at the initial expertise from external sources to evaluate Mr. J G A Cooray stages of discussion, to obtain risks, in consultation with the Group Finance Ms. M P Perera feedback and relevant inputs in Director. relation to mitigating risks, and, Note that the Committee shall convene only when prior to committing to structuring 4. Recommend to the Board, necessary action there is a need to transact in business as per the agreements. required, to mitigate risks that are identified terms of its mandate. in the course of evaluating a project in order to ensure that those risks are captured by the Group Risk Matrix for monitoring and mitigation
Annual Report 2020 | 2021 19 Corporate Governance contd.
Policy Framework The Company’s policy framework is largely aligned to that of the John Keells Group and tailored to suit the specific requirements of the industry wherever relevant. Policies are reviewed and updated regularly to ensure relevance to internal dynamics and the external landscape. Key policies include the following:
PEOPLE MANAGEMENT AN INCLUSIVE WORK PLACE FINANCE AND RISK MANAGEMENT
• Recruitment and selection • Equal opportunity policy • Anti-money laundering • Learning and development • Non-discrimination policy • Group accounting procedures • Rewards and recognition • Anti-sexual harassment and policies • Disciplinary procedure • Ombudsperson policy • Enterprise Risk Management • Grievance handling • Fund management and currency • Health and safety risk mitigation • Tele working & Work from Home
ETHICS AND CONDUCT IT AND CYBERSECURITY SUSTAINABILITY
• Code of Conduct • IT policies and procedures including • Environmental and economic • Anti-fraud and anti-corruption data protection, classification and policies • Communications and ethical security • Policies on energy, emission, water advertising and waste management • Disciplinary procedure • Safety policies to address COVID-19 • Grievance handling pandemic • Policies on products and services
During the year under review, the Company reviewed and refined its Work-from-Home policy in view of the conditions that prevailed.
An Effective Board The Board is responsible for setting strategic direction, building and enhancing stakeholder relationships, determining risk appetite, reviewing performance against objectives and appointing key management personnel. The Board has delegated its executive authority to the President of the Leisure Industry Group. The Board comprises 9 directors who combine diverse skills and industry experience, thereby enriching Board discussions and decision making.
Board Composition The Board’s composition ensures a healthy balance of executive authority and independent judgement. The Board comprises 9 Non-Executive Directors, of whom 4 operate in an independent capacity. The Board has determined that, although Mr. N L Gooneratne has been a member of the Board for a period exceeding 9 years and does not satisfy the “number of years on the Board” criteria set out in the Listing Rules of Colombo Stock Exchange, given the circumstances, he satisfied the qualifying criteria to be deemed independent.
20 Trans Asia Hotels PLC Board Refreshment The tenure of Non-Executive Non-Independent Directors is limited by their prescribed Company retirement age. On the other hand, the Non-Executive Independent Directors can be appointed to office for three consecutive terms of three years, which however, is subject to the age limit set by statute at the time of reappointment following the end of a term. One-third of the Directors except for the Chairman, retire by rotation on the basis prescribed in the Articles of Association of the Company. A Director retiring by rotation is eligible for re-election. The proposal for the re-appointment of Directors is set out in the Annual Report of the Board of Directors on page 48 of this Report.
The Board was refreshed during the year with the appointment of 2 Directors. Mr. C L P Gunawardane and Mr. S Rajendra were appointed as Non-Executive Non-Independent Directors with effect from 01st January 2021, further strengthening the Board skill mix.
Mr. J R Gunaratne resigned from the Board with effect from 31st December 2020 following his retirement from the Group. Mr. C J L Pinto and Mr. E H Wijenaike will resign from the Board with effect from the date of the Annual General Meeting for 2020/2021.
Skill Composition 44% 56% 11% 89% Nos 4
3
2
Board Composition Gender Representation 1
Non-Executive Male 89% Non-Independent Directors 56% Female 11% 0 Non-Executive Independent Directors 44% Finance Corporate Corporate Travel and Travel Leadership Engineering Strategy and Strategy Tourism Industry Tourism
Annual Report 2020 | 2021 21 Corporate Governance contd.
Material Family Continuous business Management/ member a Service for Year of Name of Director/Capacity Shareholding (i) relationship (iii)/ Director (ii) Director or nine years Appointment employee of GM (v) (vi) company (iv) Non-Executive, Non-Independent Director (NED/NID) Mr. K N J Balendra - Chairman No Yes No No N/A 2016 April Mr. J G A Cooray Yes Yes No No N/A 2018 January Mr. J R Gunaratne No Yes No No N/A 2018 January (Resigned w.e.f. 31/12/2020) Mr. M R Svensson No Yes No No N/A 2019 November Mr. S Rajendra No Yes No No N/A 2021 January Mr. C L P Gunawardane No Yes No No N/A 2021 January Non-Executive, Independent Director (NED/ID) Mr. N L Gooneratne Yes No No No Yes 1984 October Mr. C J L Pinto Yes No No No Yes 2011 July Mr. E H Wijenaike No No No No No 2012 June Ms. J C Ponniah No No No No No 2013 October
Definitions (i) Shareholding in the Company (ii) Director of a listed Company in which they are employed, or having a significant shareholding or have a material business relationship (iii) Income/Non-cash benefits derived from the Company is equivalent to 20 percent of the Director’s annual income (iv) Director is employed by the Company two years immediately preceding appointment (v) Immediate family member who is a Director or General Manager (GM) (vi) Has served the Board for a continuous period exceeding 9 years
Meetings and Attendance The Board meets on a quarterly basis and Directors’ attendance during the year is given below. Given the conditions that prevailed during the year, Board meetings were shifted to virtual platforms thereby ensuring continuity of Board activities. Accordinlgy, 4 meetings were held via digital platforms.
During the meetings, the Chairman of the Board appropriately allocated time for Directors to carefully review and discuss all relative information. There were also written minutes that were made available for verification and approved by the Board. All Directors have access to Keells Consultants (Private) Limited, who acts as Company Secretaries, for advice on relevant matters. The Chairman ensured that all Board proceedings were conducted in a proper manner, approving the agenda for each meeting prepared by the Board Secretary. The typical Board agenda in 2020/2021 was as follows;
y Confirmation of previous minutes y Matters arising from the previous minutes y Board Sub-Committee reports and other matters exclusive to the Board y Review of performance in summary and in detail, including high level commentary on actuals and outlook y Approval of quarterly and annual financial statements y Ratification of capital expenditure and donations y Ratification of the use of the Company seal and share certificates issued y Ratification of Circular resolutions y New resolutions y Any other business
22 Trans Asia Hotels PLC The Board meets on a quarterly basis and Directors’ attendance during the financial year 2020/2021 is given below. Meetings Name of Director 21.04.2020 21.07.2020 26.10.2020 25.01.2021 attended Mr. K N J Balendra - Chairman NI/NED √ √ √ √ 4/4 Mr. J G A Cooray NI/NED √ √ √ √ 4/4 Mr. J R Gunaratne (Resigned with NI/NED √ √ √ N/A 3/3 effect from 31.12.2020) Mr. N L Gooneratne I/NED x √ √ x 2/4 Mr. C J L Pinto I/NED √ √ √ √ 4/4 Mr. E H Wijenaike I/NED √ √ √ √ 4/4 Ms. J C Ponniah I/NED √ √ √ x 3/4 Mr. M R Svensson NI/NED √ √ √ √ 4/4 Mr. S Rajendra (Appointed with NI/NED N/A N/A N/A √ 1/1 effect from 01.01.2021) Mr. C L P Gunawardane (Appointed NI/NED N/A N/A N/A √ 1/1 with effect from 01.01.2021)
The Audit Committee met on four occasions during the financial year 2020/2021 and the attendance was as follows: Name of members 20.04.2020 20.07.2020 23.10.2020 18.01.2021 total Mr. C J L Pinto - Chairman 1 1 1 1 4/4 Mr. E H Wijenaike 1 1 1 1 4/4 Ms. J C Ponniah 1 1 1 1 4/4
The Human Resources and Compensation Committee met once during the financial year 2020/2021 and the attendance was as follows: Name of members Eligible to attend Attended Total Mr. D A Cabraal - Chairman 1 1 1/1 Mr. M A Omar 1 1 1/1 Dr. S S H Wijayasuriya 1 1 1/1 By Invitation Mr. K N J Balendra 1 1 1/1 Mr. J G A Cooray 1 1 1/1
The Related Party Transactions Review Committee met on four occasions during the financial year 2020/2021 and the attendance was as follows: Name of members Eligible to attend Attended Total Ms. M P Perera - Chairperson 4 4 4/4 Mr. D A Cabraal 4 4 4/4 Mr. A N Fonseka 4 4 4/4 By invitation Mr. K N J Balendra 4 4 4/4 Mr. J G A Cooray 4 4 4/4
The Nominations Committee met on two occasions during the financial year 2020/2021 and the attendance was as follows: Name of members Eligible to attend Attended Total Mr. J Durairatnam - Chairman 2 2 2/2 Mr. K N J Balendra 2 2 2/2 Mr. A S De Zoysa 2 2 2/2
The Project Risk Assessment Committee did not meet during 2020/2021.
Annual Report 2020 | 2021 23 Corporate Governance contd.
Role of Chairman effective succession planning at senior Board Appraisal The Chairman is a Non-Executive, management level. The Board receives The Board conducted its annual Board Non-Independent Director whose main quarterly statements from the General performance appraisal for the financial responsibility is to lead and manage the Manager confirming compliance with year 2020/2021. This formalised Board and its Committees so that they regulatory requirements. process of individual appraisal enabled can function effectively. He represents the each member to self-appraise on an Company externally and is the focal point Board Induction and Training anonymous basis, the performance of the of contact for shareholders on all aspects The John Keells Group has a formal Board under the areas of: of Corporate Governance. induction process for directors designed y Role clarity and effective discharge of to provide an overview of the John responsibilities The Chairman of John Keells Holdings Keells Group values and culture, Group y People mix and structures PLC serves as the Chairman of Trans governance framework, policies and Asia Hotels PLC and is responsible for processes, Code of Conduct expected y Systems and procedures providing leadership to Board, engaging by the Company, business model of the y Quality of participation Non-Executive Directors and facilitating hotels Group, strategy and the directors’ y Board image NEDs only meetings periodically. responsibilities in accordance with current He sets the tone for the governance legislation. The scoring and open comments were and ethical framework of the group, collated by an Independent Director, facilitates and encourages the expression Directors are encouraged to update their and the results were analysed to give the of diverse views, and by keeping in skills and knowledge on a continuous Board an indication of its effectiveness touch with local and global industry basis and this is facilitated through the as well as areas that required addressing developments, ensures that the Board is following activities. and/or strengthening. alert to its obligations to the Company’s y Access to External and Internal shareholders and other stakeholders. Auditors The effectiveness of the Audit Committee y Periodic reports on performance is evaluated by the Independent, With the assistance of the Board Non-Executive Chairman of the Audit y Updates on topics that range from Secretaries, Keells Consultants (Pvt) Ltd, Committee based on feedback from proposed/new regulations to industry he also ensures that: committee members and regular invitees best practices y Board procedures are followed to the Committee, which includes the y Opportunities to meet Senior y Directors receive timely, accurate and General Manager, Finance Director of the Management of the Managing Agents clear information Company, Chief Financial Officer of the in a structured setting Leisure Group, Sector Financial Controller, y Updates on matters arising between y Access to industry experts and other Head of Group Business Process Review meetings external professional advisory services and the Internal and External Auditors. y The agenda for the board meeting, y Access to the Center Legal, Tax and reports and papers for discussion Finance Divisions of the John Keells Remuneration are dispatched at least one week in Group of which the Company is a The Remuneration policy is advance so that the directors are able member and determined by the Human Resources to study the material and arrive at & Compensation Committee of the sound decisions y The services of the Company Secretary ultimate parent company. Executive y A proper record of all proceedings of All members of the Board devote remuneration policy is designed to attract Board meetings is maintained sufficient time and make every effort and retain highly capable executives to ensure that they discharge their and to motivate the implementation of The General Manager is appointed by the responsibilities to the Company and the business strategy. The policy provides Board with inputs from the Nominations Group in keeping with their knowledge an appropriate balance between fixed Committee of AHPL. He is responsible for and experience. This is achieved by the remuneration and variable ‘risk’ reward implementing the Company’s strategic review of Board papers, business visits to based on both individual performance plans, guiding the senior management understand risk exposures and operating and an organisational performance matrix team, ensuring that the Company’s conditions, visits to properties, attending which covers revenue and after-tax profit. operating model is aligned to the Board meetings and participating in Trans Asia Hotels PLC does not have an strategic aspirations of the ultimate discussion with the Internal & External employee share option scheme (ESOP); parent company, JKH, and ensuring Auditors and the Managing Agents. however eligible employees are entitled
24 Trans Asia Hotels PLC to receive ESOPs of the parent company Stock Exchange in accordance with the such incidents are ensured of complete John Keells Holdings PLC based on actual continued listing rules. confidentiality and such complaints are performance. investigated and addressed via a selected The Company encourages shareholders committee under the direction of the Compensation of Non-Executive to participate at the AGM and exercise Chairman. Independent Directors is determined their votes. In this regard, the Company with reference to fees paid to other arranges to circulate clear instructions on Ombudsperson and NED/IDs of comparable companies procedures governing voting along with Grievance mechanism and is adjusted where necessary. Fees every notice of AGM. Shareholders play a The John Keells Group has appointed received by NED/IDs are determined by role in the re-election of Directors and the the Ombudsperson who is authorised to the Board and reviewed annually. NED/ External Auditors and vote on all matters entertain complaints from employees, IDs do not receive any performance/ for which notice is given including the irrespective of level, of alleged violations incentive payments and are not eligible adoption of the Annual Report and of the published Code of Conduct of the to participate in any of the Group’s share Accounts. Group if the complainant feels that the option plans. The NED/IDs fees are not alleged violation has not been addressed subject to time spent or defined by a Company Secretary satisfactorily by the internally available maximum/minimum number of hours The Company Secretary plays a vital mechanisms. committed to the Group per annum, and role in facilitating good Corporate hence are not subject to additional/lower Governance. The Company Secretary is The findings and the recommendations fees for additional/lesser time devoted. responsible for inducting new Directors, of the Ombudsperson, subsequent to an assisting the Chairman and the Board of independent inquiry, are confidentially Directors fees applicable to NED/NIDs Directors in determining the annual Board communicated to the Chairman or to nominated by John Keells Holdings PLC Plan, guiding the Board and the individual the Senior Independent Director upon are paid directly to John Keells Holdings Directors in the proper discharge of their which the involvement duty of the PLC and not to individuals. The aggregate responsibilities and acting as a central Ombudsperson ceases. remuneration paid to Directors is source of guidance on matters of ethics disclosed on page 74 of this Report. and governance. In addition to the On matters referred to him by the many duties, the Company Secretary Ombudsperson, the Chairman or the Shareholder Relations is responsible for making necessary Senior Independent Director, as the case Shareholders appoint directors, receive disclosures on related party transactions may be, will place before the Board; annual reports and appoint auditors on required by law and regulations and also I. The decision and the a regular basis in accordance with the acts as a channel of communication with recommendations of the Companies Act. The Board recommends shareholders to ensure good shareholder Ombudsperson suitable candidates for appointment as relations. The shareholders can contact II. The action taken based on the directors to shareholders with assistance Keells Consultants (Private) Limited, the recommendations from the Nominations Committee. Company secretaries on 011-2306245 III. The areas of disagreement and The Annual General Meeting (AGM) is for any Company related information the reasons adduced in instances the main platform for engaging with requirements. where the Chairman or the Senior shareholders, and all shareholders are Independent Director disagrees given the opportunity to raise questions Assurance with any or all of the findings and/ to gain a better understanding of the A system of ‘assurance’ is in place as the or recommendations. In such cases, Company’s strategy, business model and supervisory module of the Company’s the Board shall consider the areas future plans. The Chairman of the Audit Corporate Governance Framework of disagreement and determine the Committee and the Auditors attend the to ensure high standards of integrity, way forward. Annual General Meetings to respond accuracy and transparency. to queries that may be raised by the In situation (iii) the Board is required shareholders. Whistle-blower Policy to consider the areas of disagreement ‘The Chairman Direct’ line allows and decide on the way forward. The Shareholders are kept informed about employees to raise concerns about Chairman-CEO or the Senior Independent the performance of the Company any unethical behaviour or violation of Director is expected to take such steps through press releases, quarterly financial group values that could be reported as are necessary to ensure that the statements and notices to the Colombo by employees to the Chairman of John complainant is not victimised, in any Keells Holdings PLC. Employees reporting manner, for having invoked this process.
Annual Report 2020 | 2021 25 Corporate Governance contd.
Independence of this external whistle- IT Governance Internal Controls blower channel was maintained by the IT Governance plays a key role in A robust framework of internal controls appointment of a new Ombudsperson facilitating performance while ensuring ensures that proper accounting records effective 01st December 2020. This compliance and accountability. The are maintained, assets are safe-guarded individual is an attorney-of-law by Company’s IT framework has evolved and that information is disbursed to all profession. from the simple automation of repetitive relevant stakeholders in a timely manner. back-office functions to providing a Key elements of such procedures are as Additionally, skip level meetings, exit robust interface for customer reservations follows; interviews, 360-degree evaluations and availability of real-time management y Clearly defined formal policies conducted by an independent third party information. As reliance on IT increased and procedures which include the and Great Place to Work surveys provide over the years, IT governance has been a documentation of key systems opportunities for employees to provide key focus of the Board to ensure security and rules relating to delegation of feedback on a wide range of potential and reliability of the system and the financial authority. This restricts the issues at the workplace. information produced by the same which unauthorised use of the Company’s impacts all aspects of our operations. assets and ensures the monitoring of During the year under review no issues controls. were raised by any member of the The John Keells Group has progressively y The annual budgets are approved company. improved service quality and mitigated by the Board after a detailed IT risks by implementing prudent internal management review. Code of Conduct controls based on the Information All employees and the Board of Directors Security Management guidelines y The Enterprise resource planning are bound by the John Keells Group outlined in ISO27001 within the COSO system; SAP has ensured that monthly Code of Conduct which clearly defines framework which covers both risk and management accounts are prepared the behaviour expected of employees in business continuity management. The promptly providing relevant, reliable performing their duties and stakeholder Company has also been successful in and up-to-date financial and other interactions. The Chairman of the Board mitigating IT risks through internally information. affirms that there were no material developed IT policy guidelines, stringent y Capital Expenditure is subject to violations of any of the provisions of the internal and external audits and formal authorisation procedures. Code of Conduct during the year. In the compliance requirements which are y Experienced and suitably qualified instances where violations did take place, conducted annually based on the Group’s staff takes responsibility for important or were alleged to have taken place, those information security management business functions. Annual appraisal were investigated and handled through guidelines. The IT Governance Framework procedures have been established to the Company’s established procedures. of the Company is reviewed at the Board maintain standards of performance. Audit Committee on a periodic basis y To further strengthen internal control John Keells Group Code of Conduct and have independent assurance, the Risk Management and y Allegiance to the Company and Company has enlisted the services the Group Internal Controls of Messrs. PricewaterhouseCoopers y Compliance with rules and The Board holds ultimate responsibility (PwC), an internationally reputed firm regulations applying in the for formulating and implementing an of Chartered Accountants, to monitor territories that the Group operates in effective and proactive risk management and report on the adequacy of the framework. The Company’s risk financial and operational systems. y Conduct of business in an ethical management framework ensures that manner at all times and in keeping existing and emerging risks arising from Investment Appraisal with acceptable business practices the external and internal operating The Company has a formalised process y Exercise of professionalism and landscapes are effectively managed in in place for investment appraisals, which integrity in all business and ‘public’ creating and preserving stakeholder ensure the involvement of the relevant personal transactions value. (Please refer to page 11 of this persons when capital investment Annual Report for an overview of the decisions are made. Several views, Company’s key risk exposures and how opinions and advice are obtained prior they were mitigated during the year). to the investment decision being made. The Board Audit Committee ensures Experience has proven that a holistic and the sufficiency and effectiveness of the well debated view of the commercial Company’s internal control systems.
26 Trans Asia Hotels PLC viability and potential of proposed projects including operational, financial, funding, risk and tax implications has usually culminated in a good result. Project appraisal and capital investment decisions are processed through a committee structure which safeguards against one individual having unfettered decision-making powers in such decisions.
Sustainability As an operation with sizable social and environmental impacts, the Company strives to embed the principles of Sustainability to its operations and consistently monitors the opportunities and risks presented to it by economic, environmental and social developments in the operating context. The Company manages its environmental impacts in line with the policies set out by the Group and has in place processes to track, manage and minimise its energy and water consumption. Waste generation and emissions are also measured on a consistent basis. The Company also has a systematic process in place to monitor and respond to stakeholder concerns.
The Company has adopted the main sustainability disclosures prescribed by the Code of Best Practice which cover the elements of economic performance, the environment, labour practice, society and stakeholders, product service responsibility, sustainable reporting, engagement and effective communication.
A detailed report on the extent of our adherence to best practices with appropriate reference is given below; Compliance Summary Statement of Compliance under Section 7.6 of the Listing Rules of the Colombo Stock Exchange (CSE) on Annual Report Disclosure Mandatory Provisions - Fully Compliant Compliance Rule Reference (within the Report) Status (i) Names of persons who were Directors of the Entity Yes Board of Directors (ii) Principal activities of the entity and its subsidiaries during the year, and any Yes Annual Report of the Board of changes therein Directors (iii) The names and the number of shares held by the 20 largest holders of voting Yes and non-voting shares and the percentage of such shares held (iv) The float adjusted market capitalisation, public holding percentage (%), No Share Information & number of public shareholders and under which option the Listed Entity Shareholding complies with the Minimum Public Holding requirement (v) A statement of each Director’s holding and Chief Executive Officer’s holding in Yes shares of the Entity at the beginning and end of each financial year (vi) Information pertaining to material foreseeable risk factors of the Entity Yes Risk Management (vii) Details of material issues pertaining to employees and industrial relations of Yes Annual Report of the Board of the Entity Directors (viii) Extents, locations, valuations and the number of buildings of the Entity’s land Yes Notes to the Financial holdings and investment properties Statements (ix) Number of shares representing the Entity’s stated capital Yes Share Information & (x) A distribution schedule of the number of holders in each class of equity Yes Shareholding/Performance securities, and the percentage of their total holdings Highlights (xi) Financial ratios and market price information Yes (xii) Significant changes in the Company’s or its subsidiaries’ fixed assets, and the Yes Notes to the Financial market value of land, if the value differs substantially from the book value as at Statements the end of the year (xiii) Details of funds raised through a public issue, rights issue and a private Yes Share Information & placement during the year Shareholding/Notes to the (xiv) Information in respect of Employee Share Ownership or Stock Option Schemes Yes Financial Statements (xv) Disclosures pertaining to Corporate Governance practices in terms of Rules Yes Annual Report of the Board 7.10.3, 7.10.5 c. and 7.10.6 c. of Section 7 of the Listing Rules of Directors Corporate (xvi) Related Party transactions exceeding 10 per cent of the equity or 5 per cent Yes Governance Note 09 and 28 of the total assets of the Entity as per audited financial statements, whichever of the Notes to the Financial is lower Statements
Annual Report 2020 | 2021 27 Corporate Governance contd.
Statement of Compliance under Section 7.10 of the Listing Rules of the CSE on Corporate Governance Mandatory Provisions - Fully Compliant Compliance CSE Rule Company Action/Reference (within the Report) Status 7.10 Compliance a./b./c. Compliance with Corporate Governance Rules Yes The Company is in compliance with the Corporate Governance Rules and any deviations are explained where applicable. 7.10.1 Non-Executive Directors (NED) a./b./c. At least 2 members or 1/3 of the Board, Yes All Board members are NEDs. The Company is conscious whichever is higher should be NEDs of the need to maintain an appropriate mix of skills and experience on the Board and to refresh progressively its composition over time. 7.10.2 Independent Directors a. 2 or 1/3 of NEDs, whichever is higher shall be Yes Four out of the 9 NEDs are Independent. “independent” b. Each NED to submit a signed and dated Yes Independence of the Directors has been determined in declaration of his/her independence or non- accordance with CSE Listing Rules and the 4 Independent independence NEDs have submitted signed confirmation of their independence. 7.10.3 Disclosures relating to Directors a./b. Board shall annually determine the Yes All Independent NEDs have submitted declarations as to independence or otherwise of NEDs their independence. c. A brief resume of each Director should be Yes Board of Directors included in the annual report including the directors’ experience d. Provide a resume of new Directors appointed Yes Detailed resumes of the new Independent NEDs appointed to the Board along with details are submitted to the CSE. There were 2 appointments to the Board, during the year under review (Corporate Governance) 7.10.4 Criteria for defining independence a. to h. Requirements for meeting the criteria to be an Yes Corporate Governance Independent Director 7.10.5 Remuneration Committee a.1 Remuneration Committee shall comprise Yes The Human Resources and Compensation Committee of NEDs, a majority of whom will be (equivalent of the Remuneration Committee with a wider independent scope) only comprises of Independent NEDs. a.2 One NED shall be appointed as Chairman of Yes The Senior Independent NED is the Chairman of the the Committee by the Board of Directors Committee. b. Remuneration Committee shall recommend Yes The remuneration of the Chairman-CEO and the Executive the remuneration of the CEO and the Directors is determined as per the remuneration principles of Executive Directors the Group and recommended by the Human Resources and Compensation Committee. c.1 Names of Remuneration Committee members Yes Corporate Governance c.2 Statement of Remuneration policy Yes Corporate Governance c.3 Aggregate remuneration paid to EDs and NEDs Yes Refer note 9 of the Financial Statements
28 Trans Asia Hotels PLC Compliance CSE Rule Company Action/Reference (within the Report) Status 7.10.6 Audit Committee a.1 Audit Committee (AC) shall comprise of NEDs, Yes The Audit Committee comprises only of Independent NEDs. a majority of whom should be independent a.2 A NED shall be the Chairman of the committee Yes The Chairman of the Audit Committee is an Independent NED. a.3 CEO and CFO should attend AC meetings Yes The General Manager, Chief Financial Officer and the External Auditors attended the AC meetings by invitation. a.4 The Chairman of the AC or one member Yes The Chairman of the AC is a member of a recognised should be a member of a recognised professional accounting body. professional accounting body b. Functions of the AC Yes The AC carries out all the functions prescribed in this section. b.1 Overseeing of the preparation, presentation Yes The AC assists the Board in fulfilling its oversight and adequacy of disclosures in the financial responsibilities for the integrity of the financial statements statements in accordance with SLFRS/LKAS of the Company. b.2 Overseeing the compliance with financial Yes The AC has the overall responsibility for overseeing the reporting requirements, information preparation of financial statements in accordance with the requirements as per laws and regulations laws and regulations of the country and also recommending to the Board, on the adoption of best accounting policies b.3 Overseeing the process to ensure that the Yes The AC assesses the role and the effectiveness of the Group internal and risk management controls, are Business Process Review division which is largely responsible adequate, to meet the requirements of the for internal control and risk management. SLFRS/LKAS b.4 Assessment of the independence and Yes The AC assesses the external auditor’s performance, performance of the Entity’s External Auditors qualifications and independence. b.5 Make recommendations to the Board Yes The Committee is responsible for recommending the pertaining to External Auditors appointment, re-appointment or removal of External Auditors and also providing recommendations on remuneration and terms of Engagement. c.1 Names of the Audit Committee members shall Yes Corporate Governance be disclosed c.2 Audit Committee shall make a determination Yes Refer Report of the Audit Committee. of the independence of the external auditors c.3 Report on the manner in which Audit Yes Refer Report of the Audit Committee. Committee carried out its functions.
Annual Report 2020 | 2021 29 Corporate Governance contd.
Statement of Compliance under Section 9.3.2 of the Listing Rules of the CSE on Corporate Governance Mandatory Provisions - Fully Compliant Compliance Rule Reference (within the Report) Status (a) Details pertaining to Non-Recurrent Related Party Transactions Yes Notes to the Financial Statements (b) Details pertaining to Recurrent Related Party Transactions Yes Notes to the Financial Statements (c) Report of the Related Party Transactions Review Committee Yes Refer Report of the Related Party Transactions Review Committee. (d) Declaration by the Board of Directors as an affirmative statement of Yes Annual Report of the Board of Directors compliance with the rules pertaining to RPT, or a negative statement otherwise
Statement of Compliance pertaining to the Companies Act No. 7 of 2007 Mandatory Provisions - Fully Compliant Compliance Rule Reference (within the Report) Status 168 (1) (a) The nature of the business together with any change thereof Yes Annual Report of the Board of Directors 168 (1) (b) Signed Financial Statements of the Group and the Company Yes Financial Statements 168 (1) (c) Auditors’ Report on Financial Statements Yes Independent Auditors’ Report 168 (1) (d) Accounting policies and any changes therein Yes Notes to the Financial Statements 168 (1) (e) Particulars of the entries made in the Interests Register Yes Annual Report of the Board of Directors 168 (1) (f) Remuneration and other benefits paid to Directors of Yes Notes to the Financial Statements the Company 168 (1) (g) Corporate donations made by the Company Yes Notes to the Financial Statements 168 (1) (h) Information on the Directorate of the Company and its Yes Board of Directors subsidiaries during and at the end of the accounting period 168 (1) (i) Amounts paid/payable to the External Auditor as audit fees and Yes Notes to the Financial Statements fees for other services rendered 168 (1) (j) Auditors’ relationship or any interest with the Company and its Yes Report of the Audit Committee/ Subsidiaries Financial Statements 168 (1) (k) Acknowledgement of the contents of this Report and signatures Yes Financial Statements/Annual Report of on behalf of the Board the Board of Directors
30 Trans Asia Hotels PLC Report of the Related Party Transactions Review Committee The following Directors served as members of the Committee during the financial year: M P Perera A N Fonseka D A Cabraal
The Chairman, Deputy Chairman/Group Finance Director, and Group Financial Controller attended meetings by invitation. The Head of Group Business Process Review served as the Secretary to the Committee.
The objective of the Committee is to exercise oversight on behalf of the Board of John Keells Holdings PLC and its listed Subsidiaries, to ensure compliance with the Code on Related Party Transactions, as issued by the Securities and Exchange Commission of Sri Lanka (“The Code”) and with the Listing Rules of the Colombo Stock Exchange (CSE). The Committee has also adopted best practices as recommended by the Institute of Chartered Accountants of Sri Lanka.
The Committee in discharging its functions primarily relied on processes that were validated from time to time and periodic reporting by the relevant entities and Key Management Personnel (KMP) with a view to ensuring that: y there is compliance with “the Code“ and Listing Rules of the CSE y shareholder interests are protected; and y fairness and transparency are maintained.
The Committee reviewed and pre-approved all proposed non-recurrent Related Party Transactions (RPTs) of the parent, John Keells Holdings PLC, and all its listed subsidiaries, namely: John Keells PLC, Tea Smallholder Factories PLC, Asian Hotels and Properties PLC, Trans Asia Hotels PLC, John Keells Hotels PLC, Ceylon Cold Stores PLC, Keells Food Products PLC, and Union Assurance PLC. Recurrent RPTs were reviewed annually by the Committee.
Furthermore, guidelines were introduced to facilitate requisite disclosures & assurances by senior management of the aforementioned listed companies, in relation to Recurrent RPTs so as validate compliance with sec 9.5(a) of the listing rules and thus exclusion from review and pre-approval by the Committee.
Other significant transactions of non-listed subsidiaries were also presented to the Committee for information.
In addition to the Directors, all Presidents, Executive Vice Presidents, Chief Executive Officers, Chief Financial Officers and Financial Controllers of respective companies/sectors have been designated as KMPs in order to increase transparency and enhance good governance. Annual disclosures from all KMPs setting out any RPTs they were associated with, if any, were obtained and reviewed by the Committee.
The Committee held four meetings during the financial year. Information on the attendance at these meetings by the members of the Committee is given alongside.
The activities and views of the Committee have been communicated to the Board of Directors, quarterly, through verbal briefings, and by tabling the minutes of the Committee’s meetings.
M P Perera Chairperson of the Related Party Transactions Review Committee
20th May 2021
Annual Report 2020 | 2021 31 Corporate Governance contd.
Report of the Human Resources and Compensation Committee The Committee determined the remuneration of the Executive Directors including the Chairman-CEO in terms of the methodology set out by the Board, upon an evaluation of their performance by the Non-Executive Directors. The evaluation of the members of the Group Executive Committee (GEC) was considered by the Committee and remuneration was determined based on performance, market comparators for similar positions and in accordance with the Company’s Compensation and Benefits policy.
A report from the Chairman of the Human Resources and Compensation Committee continues to be a standing agenda item at the quarterly Board meetings. The Chairman of the Committee reports on the developments which have taken place since the last Board meeting, if any, and updates the Board on various matters, as relevant and requested.
In light of the COVID-19 impact on the businesses and its people, the Group developed and implemented a Working Arrangement Protocol which set out the working practices to be followed by Group employees in terms of maintaining their health and safety. The Group also implemented a new Agile Working Policy, with the identification of agile roles across all sectors. To mitigate the financial impact of the pandemic on the Group, the employees and the members of the GEC were subject to salary reductions for a limited period of time.
The Committee wishes to report that the Company has complied with the Companies Act in relation to remuneration of Directors. The annual performance appraisal scheme, the calculation of short-term incentives, and the award of ESOPs were executed in accordance with the approvals given by the Board, based on discussions conducted between the Committee and the Management.
D A Cabraal Chairman of the Human Resources and Compensation Committee
20th May 2021
32 Trans Asia Hotels PLC Report of the Project Risk Assessment Committee The following Directors served as members of the Committee during the financial year: S S H Wijayasuriya M P Perera K N J Balendra J G A Cooray
The Project Risk Assessment Committee was established with the purpose of further augmenting the Group’s Investment Evaluation Framework. The committee provides the Board with enhanced illumination of risk perspectives with respect to large-scale new investments, and also assists the Board in assessing the potential impact of risks associated with such investments. Investments which are referred to the committee are those which exceed a board-agreed threshold in terms of quantum of investment and/or potential impact to the Group. The committee accordingly provides early-stage recommendations to the Board with respect to the extent of risk and adequacy of mitigation strategies.
During the year under review, given the unprecedented impact of the COVID-19 pandemic on Group businesses, the Board met more frequently than usual. The increased frequency of Board Meetings provided the opportunity for discussions related to investments and risk assessments to be conducted within Board Meeting agendas. As such, the Committee did not have a requirement to convene separately, during the year under review.
S S H Wijayasuriya Chairman of the Project Risk Assessment Committee
20th May 2021
Report of the Nominations Committee During the reporting period, the Committee recommended that: 1) Mr. C J L Pinto’s contract to be renewed and that he be re-appointed as a Non-Executive Independent Director of AHPL and TAH with effect from 1st June 2020 for a further term of one (01) year until the respective Annual General Meetings of AHPL and TAH for the financial year 2020/2021. 2) the following appointments to the respective Board of Directors.
Asian Hotels and Properties PLC Mr. Changa Gunawardane Trans Asia Hotels PLC Mr. Suresh Rajendra Mr. Changa Gunawardane
The Committee continues to work with the Board on reviewing its skills mix, based on the immediate and emerging needs. Further, the Committee discusses with the Board the outputs of the Annual Board Evaluation.
J Durairatnam Chairman of the Nominations Committee
24th May 2021
Annual Report 2020 | 2021 33
MANAGEMENT DISCUSSION & ANALYSIS
Operating Environment As one of the hardest-hit sectors of the pandemic, tourism marked its worst year on record in 2020, with international arrivals plummeting by 74% due to global travel restrictions and, sharp downturn in demand. The socio-economic implications have been far-reaching, with 100-120 million direct tourism jobs at risk and an estimated loss of USD 1.3 Trillion global export income across the world. The following infographic provides a high-level overview of the performance of both the global and Sri Lankan tourism sector.
Global Travel - International Tourist Arrivals Global Tourism Monthly YTD change (%) in International Tourist Arrivals 74% decline in international arrivals % Source: UNWTO 1 Billion fewer arrivals 0
(20) 100 to 120 Million direct tourism jobs at risk (40) Loss of USD 1.3 Trillion in (60) global export income
(80) Sri Lankan Tourism (100) Month Zero arrivals from April to November 2020 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec due to the complete closure of the country’s borders
Arrivals to Sri Lanka Source: SLTDA 73% decline in tourist arrivals to the country
Mar-21 Top source markets to Sri Lanka (Jan-March 2021) Feb-21 3% 5% 3% 4% 34% Jan-21 5%
0 1000 2000 3000 4000 5000 5%
9% Tracking the Recovery With the successful rollout of vaccines across the world, albeit at different paces, travel 32% restrictions have eased by February 2021, with only 32% of destinations remaining closed, compared to 76%, 9 months prior to that. Top Source Markets
Net Sentiment Score Kazakhstan 34% Russia 4% % Ukraine 32% India 3% 50 Germany 9% USA 3%
40 United Kingdom 5% Others 5% China 5% 30
20
10 Month Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Annual Report 2020 | 2021 35 Management Discussion & Analysis contd.
The economic implications of the industry fallout have been severe, with many tourism establishments being compelled to shut down and reduce staff with knock-on effects across the supply chain. Resultantly, the country’s earnings from tourism declined sharply from USD 3.6 Billion in 2019 to USD 0.7 Billion in 2020, reflecting the impact of the pandemic on this people-intensive sector. The Government extended several relief measures to the sector including concessionary funding and debt moratoriums. Meanwhile, the Sri Lanka Tourism Development Authority implemented stringent health protocols to ensure the safety of both international travellers and hospitality sector employees. Accordingly, Sri Lanka became one of the first in the Asian region to implement a detailed COVID-19 Health Protocol for the industry which received the Safe Travel Stamp from World Travel & Tourism Council.
Commercial Operations As we adapted to the new normal in a rapidly evolving environment, the Company sought to refine its strategy to leverage its unique strengths as a city hotel renowned for its excellence in F&B. Accordingly, we sought to develop F&B revenue streams through food delivery, outdoor catering and fulfilling customers’ dining needs via new channels. We also partnered with our sister hotel, Cinnamon Grand in launching ‘Flavours’ -an online home-delivery solution that offers a curated menu from our favourite restaurants. We revamped our value proposition to the members at the Library during the year to increase member activations whilst encouraging current membership renewals. ColomBar which was launched during the previous year, performed extremely well during the months following the lockdown and we hope to drive penetration in this offering. ColomBar offers a unique bar and restaurant experience showcasing the city’s vibrant culture and heritage through food, drinks and entertainment. Meanwhile, the Cinnamon Hotels and Resorts were strategically aligned under a single operational structure by creating a holistic value proposition that leverages the round trip offering in key tourist destinations in Sri Lanka and the Maldives. The unified organisational structure also allows for greater synergies and operational and cost efficiencies across all our hotels and Cinnamon Lakeside along with Cinnamon Grand now operate under one General Manager which supports the successful transfer of best practices among them as well as driving higher levels of synergies.
36 Trans Asia Hotels PLC Leveraging our Strengths to Rebuild
Strengths • Strategically re-aligned ‘Cinnamon Hotels & Resorts’ to create a unified organisational structure to ensure an even more focused leadership • Strong reputation and brand loyalty stemming from the Cinnamon brand and the Hotel’s own brand equity • Safe & secure certificate of compliance given by Sri Lanka Tourism Development Authority • Portfolio of restaurants offering excellence in dining Weaknesses • Robust processes and procedures • Employee turnover at entry level- • Skilled, highly capable employees typically an industry-wide challenge • Strong financial profile • Limited opportunities for revenue • Financial, management and governance diversification support from John Keells Holdings PLC • Relatively high fixed cost structure of • Strong relationships with industry stakeholders the hotel • Structural challenges & limitations stemming from the age of the property
TRANS ASIA HOTELS PLC
Threats • Resurgence of infections and resultant restrictions are likely to further delay recovery of country’s tourism sector Opportunities • Reduction in footfall at restaurants • Vaccine-rollout expected to support given heightened safety concerns gradual reduction in infections in the • Restrictions over permitted banquet medium term guests owning to safety regulations • Leverage on value chain relationships • Cost escalations due to increased to pursue guests from new markets health and safety protocols • Travellers preference towards reputed hotels • Anticipated increase in city hotel • Low gearing levels which would room inventory over the next few enable the Company to capitalise on years is likely to result in price pressure for future funding needs • Shortage of trained and experienced • ‘Flavours’ delivery website launch for staff in the hospitality industry additional revenue streams • Cost increase in supplies due to supply chain challenges
Annual Report 2020 | 2021 37 FINANCIAL PERFORMANCE
Operating Environment Strategic Focus • Closure of country’s borders for • Enticing domestic guests through international arrivals, lockdowns and attractive promotions and offers heightened health and safety concerns led • Stringent mechanisms to ensure the safety to a drastic decline in occupancy levels of guests and employees • Restrictions on public gatherings and • Launched delivery services from requirements for social distancing restaurants adversely impacted hotels’ ability to • Proactive efforts to optimise resources and generate revenue through banquets and rationalise costs F&B. • Preserving liquidity through deferring • Debt moratoriums and concessionary non-essential expenditure, efficient funding granted to the tourism sector working capital management and cost management
Performance Way Forward • 65% decline in revenue to Rs. 811 Million • Short-to-medium term expected to be • Loss for the year of Rs. 946 Million pressured due to the emergence of the 3rd • Increase in short term borrowings to fund wave and sharp increase in infections working capital and operational activities • Ongoing efforts to attract domestic guests • Strong equity base, funding 81% of total and increase footfall at restaurants assets • Optimistic regarding the industry’s long- term growth potential and will capitalise on brand, international relationships and service excellence to increase our market share.
Revenue and Costs sales decreased by 42% in line with the to operate successfully as we targeted The Company’s performance was reduced operational activity, while gross customers who were engaged in remote inextricably linked to the catastrophic profit fell by 88% to Rs. 146 Million. working practices during this time. As implications of the COVID-19 pandemic, restrictions were eased, we proactively which resulted in unprecedented Our Revenue Strategy sought customer engagement and lockdowns, travel restrictions and a drastic Our strategy was centred on enticing activation through a range of promotions. drop in demand for travel. The tourism domestic travellers through attractive Footfall recorded a gradual increase industry in Sri Lanka was effectively packages; despite some traction, from December 2020, although revenue brought to a standstill following the occupancies averaged 2.5% during the generation was below expectations suspension of all passenger flights and year, sharply affecting room revenues. during Christmas and New Year, given the ship arrivals from March 2020. With the We leveraged on the hotel’s best-in-class heightened safety concerns. gradual easing of restrictions and the restaurants to drive F&B revenue and opening of the country’s borders in restaurants commenced operations from During the year, we also revamped the January 2021, arrivals have trickled in, May 2020, immediately after restrictions membership benefit program at the although numbers remain negligible. were eased following the 1st lockdown. Library, offering value added benefits Resultantly, the hotel sector was We also partnered with Cinnamon Grand, and an extended service offering for compelled to rely primarily on domestic to operate the online delivery service - membership renewal. This offer was tourism; however, the sector, particularly ‘Flavours’, providing the opportunity for enthusiastically taken up by our existing city hotels were impacted by lockdowns, our patrons to continue to experience our members. Despite the prevalent restrictions on events and banquets and award-winning F&B offerings from the conditions we continued to expand our heightened health and safety risks which convenience and safety of their homes. offering, with ColomBar in particular - a limited footfall at restaurants As a result of these initiatives, F&B revenue unique restaurant/bar featuring a special even reached 65% of pre-COVID 19 levels local collection and island flavours, which Our performance mirrored that of the by September 2020. has received an encouraging response. broader industry with revenue declining by 65% to Rs. 811 Million during the However, the emergence of the 2nd Profitability year, reflecting the sharp downturn in wave of the pandemic in Sri Lanka Given the conditions that prevailed occupancy levels as well as the drop in resulted in a lockdown of the Western during the year, we placed relentless revenue from banquets and F&B. Cost of Province, again affecting footfall at the focus on rationalising costs, driving restaurants. Our online delivery continued operational efficiencies and optimising
38 Trans Asia Hotels PLC resource allocation. Emphasis was outstanding receivables, given liquidity 6% also placed on effectively managing pressures across the hotels sector. Given 12% 82% working capital through proactively the conditions that prevailed during the negotiating with suppliers. Resultantly, year and potential liquidity pressures, the sales & marketing and other expenses Company limited its capital expenditure decreased by 62% and 43% respectively, to the most essential requirements. a commendable achievement given the additional costs that had to be incurred 3% to ensure employee and guest safety. 10% 48% Included in the drop in sales & marketing expenses were savings made due to 39% the closure of Airport travel counter and Total Equity and Liabilities as at promotional expenses. Reduction in 31st March, 2021 other expenses included a 43% decline Equity 82% in repair & maintenance expenses as Current liabilities 12% the management diligently negotiated with vendors on service agreements. Non current liabilities 6% Additionally, power & energy related expenses reduced by 31% over the Total Assets as at 31st March, 2021 Cash Flows previous year due to reduced operational PP&E 48% There was a net cash outflow of Rs. 191 factors. Administrative expenses increased Million for the year compared to the by 17% from last year due to provisions Investment property 39% positive cash flow of Rs. 34 Million in made for doubtful debtor balances. Other Non-current assets 10% 2019/20. The cash outflow was mainly Apart from provisions made during the financed by the Company’s overdraft year, payroll and related expenses were Current assets 3% facilities and the Saubhagya loan facility. curtailed by 26% due to efforts taken by the management to cut back on Meanwhile, total liabilities increased by Outlook discretionary staff-related expenses and 6%, driven by an increase in borrowings natural attrition of staff. as the Company was compelled to rely on The sector’s outlook remains further overdrafts to bridge its short-term subdued due to the resurgence of The loss before tax was Rs. 946 Million, working capital requirements. Resultantly, infections with the outbreak of the compared to the previous year profit the Company secured a Rs. 150 Million 3rd wave in recent weeks. With several before tax of Rs. 304 Million. The pre-tax overdraft during the year, which in countries issuing travel advisories against loss for the year included a fair value loss turn increased its overdraft balance Sri Lanka, any expected recovery in on investment property of Rs. 109 Million to Rs. 262 Million by end-March 2021. occupancy is anticipated to be prolonged. compared to a fair value gain of Rs. 162 Other borrowings also increased by Furthermore, increasing competition Million last year. 21% as the Company obtained a Rs. 25 among city hotels, as +2,500 rooms are Million facility under the Saubhagya added to the city hotel inventory and the Financial Position COVID-19 Renaissance Facility initiated foray of several international players to the city hotel sector is expected to insert Despite the significant moderation in by the Government of Sri Lanka to pressure on margins over the short-to- performance, the Company’s financial support the working capital needs of medium term. Despite these challenges, position remains strong, supported by businesses adversely affected by the we remain optimistic about the long-term a healthy balance sheet and funding pandemic. We also successfully applied growth potential of the Company and its profile which enabled us to withstand the for the moratoriums offered by the financial stability. It intends to leverage on challenging implications of the pandemic. Government of Sri Lanka to the Tourism industry. Despite the increase in debt, our strong brand name, relationships with industry stakeholders and excellence in Total assets decreased by 9% to the Company’s funding profile remains dining and customer service to increase Rs. 7.17 Billion during the year, mainly healthy with a low gearing ratio (debt/ customer penetration and strengthen our due to the decline in current assets equity) at 8% by end-March 2021. The presence in new markets. as operational activity decelerated. Company’s equity position decreased by Accordingly, inventories and trade and 12% to Rs. 5.8 Billion due to the losses receivables recorded a decline while the generated by the Company. Company prudently made provisions for
Annual Report 2020 | 2021 39
SHARE INFORMATION AND SHAREHOLDING
1) 2020/2021 Financial Calendar Meeting 40th Annual General Meeting 25th June 2021
Interim Financial Statements 1st Quarter ended 30th June 2020 Released on 22nd July 2020 2nd Quarter ended 30th September 2020 Released on 27th October 2020 3rd Quarter ended 31st December 2020 Released on 25th January 2021 4th Quarter ended 31st March 2021 Released on 24th May 2021
Dividend Declared Paid Interim Nil Nil Final Nil Nil
2) Director’s Shareholding As at 31.03.2021 As at 31.03.2020 Mr. K. N. J. Balendra - Chairman Nil Nil Mr. J. G. A. Cooray 1,200 1,200 Mr. N. L. Gooneratne 514,261 514,261 Mr. J. R. Gunaratne (Resignation date 31st December 2020) N/A Nil Mr. C. J. L. Pinto (Joint account with Mrs. M. R. C. Pinto) 7,400 7,400 Mr. E. H. Wijenaike Nil Nil Ms. J. C. Ponniah Nil Nil Mr. M. R. Svensson Nil Nil Mr. S. Rajendra (Appointed on 01st January 2021) Nil N/A Mr. C. L. P. Gunawardane (Appointed on 01st January 2021) Nil N/A
3) The Company’s issued ordinary share capital of 200,000,000 shares were held by 1,432 shareholders as at 31st March 2021 (1,408 shareholders as at 31st March 2020)
3.1 Share Distribution as at 31st March 2021 Number of shareholders Percentage of shareholding Total number of shares Less than or equal to 1,000 1,200 0.10% 198,070 1,001 to 10,000 178 0.33% 664,584 10,001 to 100,000 40 0.53% 1,054,175 100,001 to 1,000,000 10 2.11% 4,221,808 Over 1,000,001 4 96.93% 193,861,363 Grand total 1,432 100.00% 200,000,000
Annual Report 2020 | 2021 41 Share Information and Shareholding contd.
3.2 The Twenty One Largest Shareholders Shareholding Shareholding as at 31.03.2021 % as at 31.03.2020 % 1 John Keells Holdings PLC 97,284,256 48.64 97,284,256 48.64 2 Asian Hotels and Properties PLC 86,823,028 43.41 86,823,028 43.41 3 Bank of Ceylon A/C Ceybank Unit Trust 5,457,879 2.73 5,455,029 2.73 4 Employees Provident Fund 4,296,200 2.15 4,296,200 2.15 5 Prof. D. N. L. Alwis 600,107 0.30 600,107 0.30 6 Mr. A. N. G. Wijeyekoon 572,960 0.29 572,960 0.29 7 Employees Trust Fund Board 571,941 0.29 571,941 0.29 8 Bank of Ceylon A/C Ceybank Century Growth Fund 569,596 0.28 569,664 0.28 9 Mr. N. L. Gooneratne 514,261 0.26 514,261 0.26 10 Bank of Ceylon No.1 Account 477,200 0.24 477,200 0.24 11 Ellawala Exports (Pvt) Ltd 358,400 0.18 358,400 0.18 12 Mr. G. L. A. Ondaatjie 250,199 0.13 250,199 0.13 13 Mr. D. Gonsalkorale 161,200 0.08 161,200 0.08 14 Secretary 145,944 0.07 145,944 0.07 15 Mrs. V. A. Seneviratne 75,000 0.04 75,000 0.04 16 Mrs. B. J. E. Severin 72,800 0.04 72,800 0.04 17 Mr. R. D. Ranathunga 50,112 0.03 50,112 0.03 18 Mr. N. P. Tippala Gamage 49,500 0.02 49,500 0.02 19 Mr. G. P. Gunawardane 48,468 0.02 48,468 0.02 20 Mrs. M. I. Wijeyekoon 40,000 0.02 40,000 0.02 21 Mr. G. M. T. Gunaratne 33,652 0.02 33,652 0.02 198,452,703 99.24 198,449,921 99.24
3.3 Composition of Shareholders As at 31st March 2021 As at 31st March 2020 Number of Number of Number of Number of shareholders shares % shareholders shares % Directors and Spouses 3 522,861 0.26 3 522,861 0.26
Public non-resident Institutions ------Individuals 15 92,503 0.05 16 92,538 0.05
Public resident Institutions 43 196,149,329 98.07 48 196,159,928 98.08 Individuals 1,371 3,235,307 1.62 1,341 3,224,673 1.61 Total 1,432 200,000,000 100.00 1,408 200,000,000 100.00
42 Trans Asia Hotels PLC 3.4 Public Shareholdings As at 31st March 2021 As at 31st March 2020 Number of Number of Number of Number of shareholders shares % shareholders shares % Inter company Shareholdings 2 184,107,284 92.06 2 184,107,284 92.06 (John Keells Holdings PLC and Asian Hotels and Properties PLC) Directors and spouses 3 522,861 0.26 3 522,861 0.26 Public Shareholding 1,427 15,369,855 7.68 1,403 15,369,855 7.68 Total 1,432 200,000,000 100.00 1,408 200,000,000 100.00
4) Market Information on Ordinary Shares of the Company 2020/21 Q4 Q3 Q2 Q1 2019/20 High (Rs.) 70.00 70.00 67.00 67.90 60.00 80.00 Low (Rs.) 50.00 50.00 58.00 57.50 55.00 56.30 Close (Rs.) 55.90 55.90 65.90 61.50 59.00 56.30 Dividend paid (per share) (Rs.) - - - - - 0.50
Trading Statistics Number of transactions 477 161 153 120 43 615 Number of shares traded (’000) 61 13 23 22 4 206 % of total shares in issue 0.031 0.006 0.011 0.011 0.002 0.10 Value of all shares traded (Rs. Mn) 3.68 0.72 1.43 1.33 0.20 13.62 Average daily turnover (Rs. ’000) 25.70 15.97 39.60 31.60 10.19 114.42 Market capitalisation (Rs. Mn) 11,180 11,180 13,180 12,300 11,800 11,260 Float adjusted market capitalisation (Rs. Mn) 859 859 1,013 945 907 865
Due to the adverse impact to market conditions caused by the COVID-19 pandemic, the Company’s share price has decreased. This has resulted in the Company’s float adjusted market capitalisation falling below Rs. 1.0 Billion for the greater part of the financial year and non compliant under option 1 of Rule 7.13.1 (b) of the Listing Rules of the Colombo Stock Exchange (CSE).
The Company, in accordance with Rule 7.13.2 of the Listing Rules of the Colombo Stock Exchange (CSE) has made announcements in this regard to the market through the CSE in its notices in September 2020, October 2020, February 2021 and April 2021. The Company continues to monitor the situation towards ensuring compliance with the required Public Holding threshold as specified in the CSE Listing Rules.
Annual Report 2020 | 2021 43 Share Information and Shareholding contd.
5) Dividends Since 2004/05 Dividend paid per Dividend paid Year ended 31st March share (Rs.) (Rs.’000) 2004/05 3.50 175,000 2005/06 5.35 267,500 2006/07 2.40 120,000 2007/08 0.75 37,500 2008/09 1.50 75,000 2009/10 1.00 50,000 2010/11 2.00 100,000 2011/12 3.00 300,000 2012/13 3.00 600,000 2013/14 3.50 700,000 2014/15 3.50 700,000 2015/16 2.00 400,000 2016/17 3.00 600,000 2017/18 3.50 700,000 2018/19 1.00 200,000 2019/20 0.50 100,000 2020/21 Nil Nil
6) Share Capital Since 2004/05 Year ended 31st March Number of shares in Issue (’000) 2004/05 50,000 2005/06 50,000 2006/07 50,000 2007/08 50,000 2008/09 50,000 2009/10 50,000 2010/11 50,000 2011/12** 100,000 2012/13** 200,000 2013/14 200,000 2014/15 200,000 2015/16 200,000 2016/17 200,000 2017/18 200,000 2018/19 200,000 2019/20 200,000 2020/21 200,000 ** Sub division of shares
44 Trans Asia Hotels PLC Annual Report of the Board of Directors 46 Statement of Directors’ Responsibility 51 Audit Committee Report 52 Independent Auditors’ Report 55 Statement of Profit or Loss and other Comprehensive Income 59 Statement of Financial Position 60 Statement of Changes in Equity 61 Statement of Cash Flows 62 Index to the Notes 63 Notes to the Financial Statements 64 ANNUAL REPORT OF THE BOARD OF DIRECTORS
The Directors have the pleasure of in Financial Statements and receives and acts upon reports on the presenting the 40th Annual Report of Auditor’s Report results of internal control reviews carried Trans Asia Hotels PLC (Company) together out by outsourced Internal Auditors. The The Financial Statements of the with the Audited Financial Statements for Board confirms that there is an ongoing Company duly signed by the Directors the year ended 31st March 2021. process for identifying, evaluating and and the Auditors’ Report on the managing any significant risks faced Financial Statements are provided on by the Company and that financial, General pages 55 to 99. The Company was incorporated on 17th operational and compliance controls have been reviewed. Risk assessment and July 1981 as a public limited company. Corporate Governance The shares of the Company have been evaluation for the Company takes place The Corporate Governance principles and listed on the Colombo Stock Exchange as an integral part of the business and the practices of the Company are described (CSE) since 17th July 1981. Furthermore, principal risks and mitigating actions in from pages 15 to 33 of this report. in compliance with the provisions of the place are reviewed regularly by the Board Companies Act No. 7 of 2007 (Companies Audit Committee. The Board, through Due to the prevailing situation of the Act) the Company was re-registered on the involvement of the ultimate parent country, the Company has been unable 15th June 2007. Company JKH and the Group Business to comply with the Minimum Public Process Review Division takes steps to Holding Requirement specified in Rule Principal Activity gain assurance on the effectiveness of 7.13.1(b) of the CSE for the greater part control systems in place. The Head of the The principal activity of the Company of the financial year ended 31st March Group Business Process Review Division is hoteliering and this has remained 2021. However, the Directors confirm that has direct access to the Chairman of unchanged. The Company owns the Company is monitoring the situation the Audit Committee. Foreseeable risks Cinnamon Lakeside, Colombo, a Five-Star towards ensuring compliance with the that may materially impact business Hotel situated in Colombo. The Company required threshold. are disclosed in the Risk Management also derives rental income from the Statement on pages 11 to 14 of this investment property adjoining the Hotel. The Directors confirm that the Company Report and notes to the Financial is in compliance with all other continuing Statements on pages 64 to 99. Ultimate Parent Company listing rules of the CSE and has adopted The Company is a subsidiary of Asian the relevant Best Practices on Corporate Going Concern Hotels and Properties PLC, a company Governance (2013) jointly issued by the In determining the basis of preparing the incorporated in Sri Lanka and listed on Securities and Exchange Commission financial statements for the year ended the CSE and the Company’s ultimate of Sri Lanka (SEC) and the Institute of 31st March 2021, based on available parent company is John Keells Holdings Chartered Accountants of Sri Lanka information, the management has PLC (JKH), a company incorporated in (CA Sri Lanka). assessed the prevailing and anticipated Sri Lanka and listed on the CSE. effects of COVID-19 on the Company and The Company is compliant with almost the appropriateness of the use of the Review of the Business and Future the full 2017 Code of Best Practice on going concern basis. Developments Corporate Governance issued by the The financial and operational CA Sri Lanka to the extent of business It is the view of the management performance during the year ended exigency and as required by the John there are no material uncertainties 31st March 2021 and future business Keells Group. that may cast significant doubt on the developments of the Company are Company’ ability to continue to operate provided in the Chairman’s Message System of Internal Control and Risk as going concern due to the improved on pages 6 to 8 and the Management Management operating environment despite the Reports. This Report which forms an The Board has implemented an effective ongoing effects of the pandemic and integral part of the Annual Report of the and comprehensive system of internal the operationalisation of risk mitigation Board of the of Directors together with controls which provide reasonable but initiatives and continuous monitoring the audited financial statements, reflect not absolute assurance that assets are of business continuity and response the state of affairs of the Company. safeguarded and that the financial plans along with the financial strength reporting system may be relied upon in of the Company. The management has the preparation of the financial formed judgement that the Company statements. The Audit Committee has adequate resources to continue
46 Trans Asia Hotels PLC in operational existence for the foreseeable future and continue to adopt the going Dividends concern basis in preparing and presenting these financial statements. There was no dividend declared for the financial year ended 31st March 2021. In determining the above significant management judgements, estimates and However, if a dividend is declared, it is assumptions, the impact of the COVID-19 pandemic has been considered as of the preceded by a confirmation from the reporting date and specific considerations have been disclosed under the relevant Board of Directors that the Company will notes. satisfy the requirements of Section 56 (2) of the Companies Act No. 7 of 2007, Accounting Policies and that it will also satisfy the solvency Details of accounting policies have been discussed in Notes 1 to 34 to the Financial test in accordance with Section 57 of Statements. There have been no changes in the accounting policies adopted by the the Companies Act No. 7 of 2007. The Company during the year under review. Board will also obtain a certificate from the Auditors, prior to recommending the Responsibility of Directors for the Financial Statements dividend The Directors are responsible for the preparation of the Financial Statements so that they present a true and fair view of the state of affairs of the Company. The Directors are Property, Plant & Equipment of the view that these Financial Statements have been prepared in conformity with the The book value of property, plant and requirements of the Sri Lanka Accounting Standards (SLFRS/LKAS), Companies Act, the equipment as at the balance sheet date Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995 and the Continuing amounted to Rs. 3,425 Million (2020 - Listing Rules of the CSE. Rs. 3,547 Million) for the Company.
Revenue Capital expenditure for the year Revenue generated by the Company for the year ended 31st March 2021 amounted to amounted to Rs. 16.5 Million Rs. 811 Million (2020 - Rs. 2,329 Million). (2020 - Rs. 153 Million).
Results & Appropriations Details of property, plant and equipment and their movements are given in Note The loss after tax of the Company and the loss attributable to the equity holders for the 14 to the Financial Statements on page 78 year was Rs. 819 Million (2020 – profit of Rs. 275 Million). The synopsis of the Company’s of this Report. performance is presented in the following table:- Market Value of Properties for the year ended 31st March in Rs. 000’s 2021 2020 All buildings owned by the Company were revalued as at 31st December 2020 After providing for all known liabilities, bad & doubtful (816,019) 162,504 and the carrying value amounted to debts and depreciation on property, plant and Rs. 2,651 Million (2020 - Rs. 2,635 Million). equipment, the profit/(loss) before interest was All information related to the revaluation Interest paid during the year was (24,210) (25,555) is given in Note 14 to the Financial Interest earned during the year was 3,729 4,658 Statements. Change in fair value of Investment Property (109,519) 162,425 Profit/(loss) Before Tax was (946,019) 304,032 All properties classified as investment To/from which was added/deducted the reversal/ 127,273 (28,812) property were valued as at 31st (provision) for taxation including deferred taxation of December 2020 in accordance with the Leaving a net profit/(loss) after tax of (818,746) 275,220 requirements of LKAS 40. This valuation Deferred tax effect on actuarial gain (14) (1,309) too was carried out by Gain on defined benefit plans 96 9,349 M/s. P B Kalugalagedara, Chartered The amount transferred from Revaluation Reserve was 25,134 25,134 Valuation Surveyor. The carrying value When the balance brought forward from the previous 4,011,482 3,803,088 of investment property of Company year was added amounted to Rs. 2,766 Million (2020 - The amount available for appropriation was 3,217,952 4,111,482 Rs. 2,875 Million). The Directors have Interim dividend paid Rs. 0.50 per share (2019/20) Nil (100,000) decided to retain the fair value of Leaving a balance to be carried forward next year of 3,217,952 4,011,482 investment property recognised as at 31st March 2021.
Annual Report 2020 | 2021 47 Annual Report of the Board of Directors contd.
Details of valuation of property, plant Share Information & Shareholding The Company has recommended the and equipment and investment property The market value of an ordinary share of re-election of Mr. N L Gooneratne, who are provided in Notes 14 and 16 to the the Company as at 31st March 2021 was is over the age of 70 years and retires in Financial Statements on pages 78 and 82 Rs. 55.90 (2021 - Rs. 56.30). The number term of Section 210 of the Companies of this Report. of shareholders as at 31st March 2021 Act . The resolutions propose that the was 1,432 (31st March 2020 - 1,408). An age limit stipulated in Section 210 of the Investment Properties analysis of shareholders based on shares Companies Act shall not apply to In accordance with LKAS 40, Investment held, percentage of public holding, the Mr. N L Gooneratne who is 78 years old Property, the net book value of properties distribution of ownership and details of and that he be re-elected as Director of held to earn rental income and properties share transactions during the year are the Company. held for capital appreciation have been provided on pages 41 to 44 of this Report. classified as investment properties. The The list of top twenty one Shareholders Board Sub-committees details of the investment properties are of the Company as at 31st March 2021 is Board Audit Committee explained in Note 16 to the Financial also provided on page 42 of this Annual The following members serve on the Statements on page 82. Report. Board Audit Committee:
Stated Capital Directors Mr. C J L Pinto - Chairman The total stated capital of the Company as The Board of Directors of the Company as Mr. E H Wijenaike at 31st March 2021 was Rs. 1,113 Million at 31st March 2021 and their brief profiles Ms. J C Ponniah (2020 - Rs. 1,113 Million). The Stated are given on pages 9 to 10 of this Report. Capital of the Company comprises of 200 The Audit Committee reviewed the Million Ordinary Shares fully paid up. Retirement and re-election type and quantum of non-audit services of Directors provided by the external auditors to the Company to ensure that their Reserves In accordance with Article 83 of the independence as auditors has not been Total reserves as at 31st March 2021 for Articles of Association of the Company, impaired. the Company amounted to Rs. 4,731 Mr. J G A Cooray and Mr. M R Svensson Million (2020 - Rs. 5,515 Million). The who retire by rotation, and being eligible, The report of the Audit Committee is movement of reserves during the year is offer themselves for re-election. Brief given on page 52 to 54 of this Report. disclosed in the Statement of Changes in profiles of Mr. J G A Cooray and Equity on page 61. Mr. M R Svensson are contained on Page 9 Human Resources and of this Annual Report. Compensation Committee Segment Reporting As permitted by the listing rules of the Mr. J R Gunaratne resigned from the Board Segment wise contribution to Company CSE, the Human Resources and with effect from 31st December 2020. revenue, results, assets and liabilities Compensation Committee of JKH, the Mr. S Rajendra and Mr. C L P Gunawardane is provided in Note 30 to the Financial ultimate parent company functions as were appointed to the Board as Statements. the Human Resources and Compensation Non-Executive Non-Independent Committee of the Company. The Human Directors on 1st January 2021. Contingent Liabilities & Resources and Compensation Committee Capital Commitments of JKH comprises three independent Mr. C J L Pinto and Mr. E H Wijenaike will Directors: Commitments made for capital resign from the Board with effect from the expenditure as at 31st March 2021 and date of the Annual General Meeting for Mr. D A Cabraal - Chairman the contingent Liabilities as at that date 2020/2021. are given in Note 32 to the Financial Mr. M A Omar Dr. S S H Wijayasuriya Statements on page 99. Mr. S Rajendra and Mr. C L P Gunawardane retire in terms of Article 90 of the Articles Events Subsequent to the Balance of Association of the Company, and being Sheet Date eligible offer themselves for re-election. There have been no events subsequent Brief profiles of Mr. S Rajendra and to the balance sheet date, which would Mr. C L P Gunawardane are contained on have any material effect on the Company Page 9 of this Annual Report. other than those disclosed in Note 33 to the Financial Statements on page 99.
48 Trans Asia Hotels PLC Nominations Committee a) Interests in contracts The Nomination Committee of Asian The Directors have all made a general disclosure to the Board of Directors as Hotels and Properties PLC functions as the permitted by Section 192 (2) of the Companies Act No. 7 of 2007 and no additional Nominations Committee of the Company. interests have been disclosed by any Director. The Nomination Committee of Asian b) Indemnities and remuneration Hotels and Properties PLC comprises of Mr. S Rajendra and Mr. C L P Gunawardane were appointed as Non-Executive two independent Directors and one Directors of the Company with effect from 1st January 2021 at the standard non-independent Director namely: Non-Executive fees approved by the Board for Non-Executive Directors (if applicable) which fees are commensurate with the market complexities of Mr. J Durairatnam - Chairman the Company. Mr. A S De Zoysa Mr. K N J Balendra The Human Resources and Compensation Committee of JKH the ultimate parent company has not recommended an increment in fees to the Non-Executive Directors of Related Party Transactions the Company during the year. The fees payable to Non-Executive nominees of JKH are Review Committee paid to JKH and not to individual Directors. As permitted by the listing rules of the CSE, the Related Party Transactions Directors Shareholding in the Company Review Committee of JKH, the ultimate The shareholdings of the Directors and their spouses in the Company are set out below:- parent company, functions as the Related Party Transactions Review Committee As at As at of the Company. The Related Party 31.03.2021 31.03.2020 Transactions Review Committee of JKH comprises of three independent Mr. K N J Balendra - Chairman Nil Nil Directors :- Mr. J G A Cooray 1,200 1,200 Mr. N L Gooneratne 514,261 514,261 Ms. M P Perera - Chairperson Mr. J R Gunaratne (resigned on 31st December 2020) N/A Nil Mr. A N Fonseka Mr. C J L Pinto (Joint account with Mrs. M R C Pinto) 7,400 7,400 Mr. D A Cabraal Mr. E H Wijenaike Nil Nil Ms. J C Ponniah Nil Nil Project Risk Assessment Committee Mr. M R Svensson Nil Nil Project Risk Assessment Committee Mr. S Rajendra Nil N/A of JKH, the ultimate parent company, (appointed with effect from 1st January 2021) functions as the Project Risk Assessment Mr. C L P Gunawardane Nil N/A Committee of the Company. The Project (appointed with effect from 1st January 2021) Risk Assessment Committee members of JKH are as follows; Directors Remuneration Details of the remuneration and other benefits received by the Directors are set out in Dr. S S H Wijayasuriya - Chairman page 74 of the Financial Statements. Ms. M P Perera Mr. K N J Balendra Mr. J G A Cooray Employee Share Option Plan (ESOP) Employees of the Company receive remuneration in the form of share-based The Project Risk Assessment Committee payment transactions, whereby employees render services as consideration for equity policy is detailed in the Corporate instruments (equity-settled transactions). The cost of the employee services received in Governance Report of this Annual Report. respect of the shares or share options granted under the ESOP scheme of John Keells Holdings PLC is recognised in the Income statement over the period that employees Interests Register provide services, from the time when the award is granted up to the vesting date of the options. The overall cost of the award is calculated using the number of share options The Company has maintained an expected to vest and the fair value of the options at the date of grant. Interests Register as contemplated by the Companies Act No. 7 of 2007. The employee remuneration expense resulting from the John Keells Group’s share option scheme to the employees of the Company is recognised in the income statement of the Company. This transaction does not result in a cash outflow to the
Annual Report 2020 | 2021 49 Annual Report of the Board of Directors contd.
Company and expense recognised is Sustainability Reporting met with a corresponding equity reserve The Company has adopted the main Sustainability disclosures prescribed by the Code increase, thus having no impact on the of best Practice which cover the elements of economic performance, the environment, Statement of Financial Position (SOFP). labour practice, society and stakeholders, product service responsibility, sustainable The fair value of the options granted reporting, engagement and effective communication. is determined by the Group using an option model and the relevant details Related Party Transactions are communicated by the Group to all There were no related party transactions required to be disclosed under the Listing applicable subsidiary companies. Rules of the CSE, other than as disclosed under Note 28 of the financial statements. Employment The Company’s transactions with Related Parties, given in Note 28 to the Financial The Company has an equal opportunity Statements, have complied with Colombo Stock Exchange Listing Rule 9.3.2 and the policy and these principles are Code of Best Practices on Related Party Transactions under the Securities and Exchange enshrined in specific selection, training, Commission Directive issued under Section 13(c) of the Securities and Exchange development and promotion policies, Commission Act. ensuring that all decisions are based on merit. The John Keells Group practices Donations equality of opportunity for all employees During the financial year ended 31st March 2021 the Company made COVID -19 related irrespective of ethnic origin, religion, donations amounting to Rs. 0.02 Million. political opinion, gender, marital status or physical disability. Auditors The number of persons employed by the The Audit Committee reviews the appointment of the Auditors, their effectiveness, Company as at 31st March 2021 was 524 independence and relationship with the Company, including the level of audit. (2020 – 612). Messrs. KPMG, Chartered Accountants have indicated their willingness to continue as There were no material issues pertaining Auditors of the Company, and a resolution proposing their re-appointment as auditors to employees and industrial relations will be tabled at the Annual General Meeting. during the Financial Year. Details of the Audit Fees paid to the Auditors are set out in page 74 of the Financial Statutory Payments Statements. The Directors to the best of their knowledge are satisfied that all statutory Further details on the work of the Auditor and the Audit Committee are set out in the payments in relation to the Government, Audit Committee Report on page 52 to 54. other regulatory institutions and the employees have been either duly paid or Annual Report appropriately provided for in the Financial The Board of Directors approved the audited financial statements for issue on Statements. The tax position of the 24th May 2021. Company is disclosed in Note 11 to the Financial Statements. Annual General Meeting The Board of Directors is closely monitoring the ongoing developments in the Country Supplier Policy due to the COVID -19 pandemic and the resultant directives issued by the regulatory The Company applies an overall policy authorities. Given the unprecedented nature of these events and the fact that the health of agreeing and clearly communicating and wellbeing of all Meeting attendees is of paramount importance, the Annual General terms of payment as part of the Meeting shall be a virtual meeting and it will be held on 25th June 2021. commercial agreements negotiated with suppliers, and endeavors to pay for all items properly charged in accordance with these agreed terms. As at 31st March Director Director 2021, the trade and other payables of the Company amounted to Rs. 310 Million (2020 - Rs. 295 Million). Keells Consultants (Private) Limited Secretaries 50 Trans Asia Hotels PLC 24th May 2021 STATEMENT OF DIRECTORS’ RESPONSIBILITY
The following statement sets out the Responsibility of Directors in relation to the Financial Statements. The responsibility of the Auditors in relation to the Financial Statements prepared in accordance with the provision of the Companies Act No. 07 of 2007 and the Sri Lanka Accounting Standards (SLFRS/LKAS) is set out in the Report of Auditors on page 55 to 58 of this Report.
The Financial Statements comprise of: 1) The Income Statement and Statement of Comprehensive Income of the Company, which present a true and fair view of the profit or loss of the Company for the financial year; 2) The Statement of Financial Position, which presents a true and fair view of the state of affairs of the Company as at end of the financial year; and
The Directors are required to confirm that the Financial Statements have been prepared: a) Using appropriate accounting policies which have been selected and applied in a consistent manner and material departures, if any, have been disclosed and explained; b) In accordance with the Sri Lanka Accounting Standards (SLFRS/LKAS) and that reasonable and prudent judgments and estimates have been made so that the form and substance of transactions are promptly reflected; and c) In order to provide the information required by and otherwise comply with the Companies Act No. 07 of 2007 and the Listing Rules of the Colombo Stock Exchange.
The Directors are also required to ensure that the Company has adequate resources to continue in operation, to justify applying the going concern basis in preparing these Financial Statements. Further the Directors have a responsibility to ensure that the Company maintains sufficient accounting records to disclose with reasonable accuracy the financial position of the Company.
The Directors are also responsible for taking reasonable steps to safeguard the assets of the Company in this regard, to give proper consideration to the establishment of appropriate internal control systems with a view to preventing and detecting fraud and other irregularities.
The Directors are required to prepare the Financial Statements and to provide the Auditors with every opportunity to take whatever steps and undertake whatever inspections that may be considered being appropriate to enable them to give their audit opinion.
The Directors are of the view that they have discharged their responsibility as set out in this Statement.
Compliance Report The Directors confirm that to the best of their knowledge all taxes, duties and levies payable by the Company, all contributions, levies and taxes payable on behalf of and in respect of the employees of the Company and all other known statutory dues, as were due and payable by the Company, as at the reporting date have been paid or where relevant, provided for.
By Order of the Board
Keells Consultants (Private) Limited Secretaries
24th May 2021
Annual Report 2020 | 2021 51 AUDIT COMMITTEE REPORT
Introduction The detailed profile of the members of The Board Audit Committee (BAC) of Trans Asia Hotels PLC is formally constituted as a the BAC is given under Board of Directors Sub Committee of the Main Board, to which it is accountable. on pages 9 to 10.
The Committee operates pursuant to the Audit Committee Charter which is reviewed at Meetings of The Board Audit least annually by the Committee. Committee The Audit Committee held four meetings This report focuses on the activities of the Audit Committee for the year under review. during the financial year 2020/2021. The A more general description of the Committee’s functions is also given under Corporate attendance of the Committee members at Governance Report on page 18. these meetings is given under Corporate Governance Report on page 23. Role of The Board Audit Committee The BAC in its role, assist the Board in fulfilling their responsibility with regard to; The activities and views of the Committee have been communicated to the Board y Ensuring the integrity of the Financial Statements of the Company and that good of Directors by tabling the minutes of the financial reporting systems are in place and is managed in order to give accurate, Committee’s meetings at Board Meetings appropriate and timely information to the management, regulatory authorities and and verbally at Board meetings when shareholders in accordance to the financial reporting standards of The Institute necessary. of Chartered Accountants of Sri Lanka, Companies Act No.7 of 2007, the Sri Lanka Accounting and Auditing Standards and the continuing Listing Rules of the Colombo Stock Exchange. Financial Reporting y Assessing the independence and monitoring the performance of external auditors The Audit Committee has reviewed and external internal auditors and discussed the Company’s quarterly and annual Financial Statements prior y Ensuring the Company’s internal control and risk management process is efficient to publication with management and and effective the external auditors, including the y Ensure compliance with applicable laws, regulations, and policies of the Group extent of compliance with Sri Lanka and Company Accounting Standards and the adequacy y Assess the company’s ability to continue as a going concern in the foreseen future. of disclosures required by other applicable laws, rules, and guidelines. The Composition of The Board Audit Committee and Meetings Committee has also regularly discussed the operations of the Company and The Audit Committee of Trans Asia Hotels PLC comprised of three Independent Non- its future prospects with management Executive Directors. The composition is in compliance with the requirement to have and is satisfied that all relevant matters a minimum of two Independent Non-Executive Directors in terms of the Rules on have been taken into account in the Corporate Governance for Listed Companies issued by the Colombo Stock Exchange. preparation of the financial statements. The Head of Finance of the company serves as the Secretary to the Audit Committee.
The General Manager of Trans Asia Hotels PLC, Chief Financial Officer - Leisure Group, Internal Audit & Control Sector Financial Controller – City Sector and the Head of Group Business Process Review Assessment (Group BPR) of John Keells Holdings PLC attend the meetings of the Audit Committee The internal audit plans and scope of by invitation. Other officials are invited to attend on a needs basis. The External Auditors work were formulated in consultation and the Outsourced Internal Auditors also attend meetings on a regular basis. with the internal audit function, which at John Keells is termed Group Business The Board Audit Committee (BAC) is comprised of the following Non-Executive Directors Process Review (Group BPR) Division and who conduct Committee proceedings in accordance with the terms of reference set out the outsourced Internal Auditors and in the Audit Committee Charter. approved by the Committee.
Mr. C J L Pinto* Chairman The main focus of the Internal Audit was Mr. E H Wijenaike* Member to provide independent assurance on Ms. J C Ponniah* Member the overall system of internal controls, *Independent Non-Executive Director risk management and governance by evaluating the adequacy and
52 Trans Asia Hotels PLC effectiveness of internal controls, and compliance with laws and regulations and Insurance Assessment established policies and procedures of the company. An integrated assessment of the adequacy of insurance of the Hotel is During the year, Internal Audit Reports received by the Committee from the outsourced done by the committee on a periodic Internal Auditors, Messrs. PricewaterhouseCoopers (PwC) were reviewed and discussed basis. The committee assesses the with management and Group Business Process Review Division of John Keells Holdings adequacy of insurance coverage in terms PLC. The recommendations of the Internal Auditors have been followed up and of Employee well-being, public liability implemented. and Economic benefit. The committee draws conformity of the Group Insurance Risk Assessment Broker for the expertise and confirmation The Audit Committee has also reviewed the processes for the identification, evaluation of its compliance. and management of all significant operational risks faced by the Company. The most significant operational risks and the remedial measures taken to mitigate them have Whistle Blowing Assessment been reviewed with management and the John Keells Group Sustainability and The company has an established Enterprise Risk Management Division. mechanism for employees to report to the Chairman of John Keells Holdings Formal confirmations and assurances have been received from senior management through a communication link named quarterly regarding the efficacy and status of the internal control systems and risk “Chairman Direct” about any unethical management systems, and compliance with applicable laws and regulations. behavior or any violations to group values. Employees reporting such incidents are External Audit guaranteed complete confidentiality. The External Auditors’ Letter of Engagement, including the scope of the audit was The committee reviews this process on a reviewed and discussed by the Committee with the external auditors and management periodic basis. prior to the commencement of the audit. Compliance with Code of Best The External Auditors kept the Committee advised on an on-going basis regarding Practice on Audit Committee any unresolved matters of significance. At the conclusion of the Annual Audit, the The BAC scope and functions are in Committee met with the external auditors to discuss all audit issues and agree on compliance with the requirements of the their treatment. The Committee also met the External Auditors, without management Code of Best Practice on Audit Committee present, at the conclusion of the annual audit to review the financial statements and the issued jointly by the Securities and reports thereon and to respond as necessary to such reports. Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of The Audit Committee is satisfied that the independence of the External Auditors has Sri Lanka (CA Sri Lanka). not been impaired by any event or service that gives rise to a conflict of interest. Due consideration has been given to the level of audit and non-audit fees received by the Compliance with Code of Best external auditors from the John Keells Group and confirmation has been received from Practice on Corporate Governance the external auditors of their compliance with the independence criteria given in the Code of Ethics of the Institute of Chartered Accountants of Sri Lanka. The BAC has conducted its affairs with the requirements of the code of best The performance of the External Auditors has been evaluated and discussed with practice on Corporate Governance issued the senior management of the Company, and the Committee has recommended to jointly by the Securities and Exchange the Board that Messrs. KPMG be re-appointed as the External Auditors of Trans Asia Commission of Sri Lanka and the Institute Hotels PLC for the financial year ending 31st March 2022, subject to approval by the of Chartered Accountants of Sri Lanka shareholders at the Annual General Meeting. (CA Sri Lanka).
Information Technology Risk Assessment Keeping abreast with international standards, the company seeks the services of Information Technology (IT) to provide customers with a superior service. Adaptation of changes, going concern of the IT infrastructure and the security aspect of data is reviewed and assessed by the Committee on a periodic basis. The committee draws conformity of the Leisure Group Head of IT when disseminating this role.
Annual Report 2020 | 2021 53 Audit Committee Report contd.
Compliance with Corporate Governance Rules as per Section 7.10 of The Listing Rules of The Colombo Stock Exchange The BAC has conducted its affairs with the requirements of Corporate Governance Rules as per section 7.10 of the listing Rules of the Colombo Stock Exchange.
Evaluation of The Board Audit Committee Evaluation of the BAC is done on a periodic basis. The committee seeks the assistance of the Group Business Process Review Team for this purpose. The members of the BAC along with other participants such as General Manager of the Hotel, Chief Financial Officer of the Leisure Group, Internal auditors, and external auditors assess the Committee. The assessment is tabled at the Audit Committee Meeting and communicated to the Board of the Company.
Conclusion Based on the reports submitted by the External Auditors and the outsourced Internal Audit the Company, the assurances and certifications provided by the senior management, and the discussions with management and the auditors both at formal meetings and informally, the Committee is of the view that the control environment within the Company is satisfactory and provides reasonable assurance that the financial position of the Company is adequately monitored and its assets are safeguarded.
C J L Pinto Chairman of the Audit Committee
24th May 2021
Members: C J L Pinto - Chairman E H Wijenaike J C Ponniah
54 Trans Asia Hotels PLC INDEPENDENT AUDITORS’ REPORT
TO THE SHAREHOLDERS OF TRANS ASIA HOTELS PLC Basis for Opinion We conducted our audit in accordance with Sri Lanka Report on the Audit of the Financial Statements Accounting Standards. Our responsibilities under those standards Opinion are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are We have audited the financial statements of Trans Asia Hotels independent of the Company in accordance with the Code PLC (“the Company”), which comprise the statement of financial of Ethics issued by CA Sri Lanka (Code of Ethics), and we have position as at 31 March 2021, and the income statement, fulfilled our other ethical responsibilities in accordance with statement of profit and loss and other comprehensive income, the Code of Ethics. We believe that the audit evidence we have changes in equity and cash flows for the year then ended, obtained is sufficient and appropriate to provide a basis for our and notes to the financial statements, including a summary of opinion. significant accounting policies and other explanatory notes to the financial statements set out in pages 59 to 99. Key Audit Matters In our opinion, the accompanying financial statements give a Key audit matters are those matters that, in our professional true and fair view of the financial position of the Company as at judgement, were of most significance in our audit of the 31 March 2021, and of their financial performance and cash flows company financial statements and consolidated financial for the year then ended in accordance with Sri Lanka Accounting statements of the current period. These matters were addressed Standards. in the context of our audit of the company financial statements and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
01. Management Assessment of the Company’s Impacts of the COVID-19 Related Events. Risk Description Our Response The Company incurred net loss of Rs. 819 Mn for the year ended 31st March 2021. Our audit procedures included: Further, current liabilities of the Company exceeded its current assets by Rs 660 Mn as y Obtaining the cash flow projections at the reporting date. and discussing with management the possible impact on the key assumptions However, these financial statements have been prepared on a going concern basis. used in preparing the projections due to When adopting the going concern basis in preparation of the financial statements, COVID-19 pandemic. the directors have reviewed the Company’s cash flow projections, prepared by the management. The cash flow projections were based on management’s assumptions y Inspecting the facility agreements for the and estimation of future cash inflows and outflows, also taking into consideration the Company’s long-term loans to identify impact of COVID-19 related events. any financial covenants or similar terms and assessing the implication of these on the Company’s liquidity;
Annual Report 2020 | 2021 55 Independent Auditors’ Report contd.
Risk Description Our Response Notes to the financial statements, describes the impact of COVID-19 outbreak to y Assessing adequacy of disclosures in the current year financial statements and possible effects to the Company’s, future the financial statements, in relation prospects, performance and cash flows. Further, the management has described how to the impact of prevailing pandemic they plan to deal with these events and circumstances as the outbreak is still prevailing situation to sustain its operations in the as at the date of this report. foreseeable future with reference to the requirements of the prevailing standards. We identified management assessment of the Company’s ability to continue as going concern and COVID-19 related disclosures as a key audit matter because the cash flow projections referred to above involves consideration of future events and circumstances which are inherently uncertain, and effect of those uncertainties may significantly impact the resulting accounting estimates. Therefore, the assessment requires the exercise of significant management judgement in assessing future cash inflows and outflows which could be subject to potential management bias.
02. Valuation of the Land and Buildings (Property, Plant and Equipment and Investment Property) Risk Description Our Response Refer to note 14 and 16 to the Financial Statements Our Audit procedures included; As at 31st March 2021, the Company’s Land and Buildings carries at fair value, classified y Discussions with management and as Property, Plant and Equipment and Investment Properties amounting to Rs. 2.66 Bn the external valuer and comparison and Rs. 2.76 Bn respectively. The Company has engaged an independent professional of the key assumptions used against Valuer with appropriate expertise to determine the fair value of these properties in externally published market comparable accordance with recognised industry standards. or industry data where available and challenging the reasonableness of key Estimating the fair value is a complex process which involves a significant degree of assumptions based on our knowledge of judgement and estimates in respect of price per perch of the land, capitalisation rates, the industry and the possible impact on value per square feet, fair market rental and diversity of locations and nature of the the key assumptions and the resulting land and buildings and investment properties. valuation due to COVID-19 pandemic. y Assessing the key inputs used in the Further, the Company has incorporated a COVID-19 risk adjustment for property valuation by the independent external valuation to reflect the associated risks in the valuation model based on reasonable valuer against our expectations based and supportable information available to management at the reporting date. on our experience, externally published market comparable and our knowledge We identified this as a key audit matter because of the significance of the value of of property market, consultation with these properties to the Financial Statements and significant judgement/estimation internal valuation specialist. involves in the valuation. y Assessing the objectivity, independence, competence and qualifications of the external valuer. y Assessing the adequacy of the disclosures in the financial statements, including the description and appropriateness of the inherent degree of subjectivity and key assumptions in the estimates.
56 Trans Asia Hotels PLC Independent Auditors’ Report contd.
Other Information As part of an audit in accordance with SLAuSs, we exercise Management is responsible for the other information. The other professional judgement and maintain professional skepticism information comprises the information included in the annual throughout the audit. We also: report, but does not include the financial statements and our auditor’s report thereon. y Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design Our opinion on the financial statements does not cover the and perform audit procedures responsive to those risks, and other information and we do not express any form of assurance obtain audit evidence that is sufficient and appropriate to conclusion thereon. provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than In connection with our audit of the financial statements, our for one resulting from error, as fraud may involve collusion, responsibility is to read the other information and, in doing so, forgery, intentional omissions, misrepresentations, or the consider whether the other information is materially inconsistent override of internal control. with the financial statements or our knowledge obtained in the y Obtain an understanding of internal control relevant to the audit, or otherwise appears to be materially misstated. When we audit in order to design audit procedures that are appropriate read the annual report if we conclude that there is a material in the circumstances, but not for the purpose of expressing an misstatement there in, we are required to communicate the opinion on the effectiveness of the Company internal control. matter to those charged with governance. We have nothing to y Evaluate the appropriateness of accounting policies used report in this regard. and the reasonableness of accounting estimates and related disclosures made by management. Responsibilities of Management and Those Charged y Conclude on the appropriateness of management’s use of with Governance for the Financial Statements the going concern basis of accounting and, based on the Management is responsible for the preparation and fair audit evidence obtained, whether a material uncertainty presentation of the financial statements in accordance with Sri exists related to events or conditions that may cast significant Lanka Accounting Standards, and for such internal control as doubt on the Company’s ability to continue as a going management determines is necessary to enable the preparation concern. If we conclude that a material uncertainty exists, of financial statements that are free from material misstatement, we are required to draw attention in our auditors’ report whether due to fraud or error. to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our In preparing the financial statements, management is conclusions are based on the audit evidence obtained up responsible for assessing the Company’s ability to continue as a to the date of our auditors’ report. However, future events or going concern, disclosing, as applicable, matters related to going conditions may cause the Company to cease to continue as a concern and using the going concern basis of accounting unless going concern. management either intends to liquidate the Company or to y Evaluate the overall presentation, structure and content of the cease operations, or has no realistic alternative but to do so. financial statements, including the disclosures, and whether Those charged with governance are responsible for overseeing the financial statements represent the underlying transactions the Company’s financial reporting process. and events in a manner that achieves fair presentation. y Obtain sufficient appropriate audit evidence regarding Auditors’ Responsibilities for the Audit of the the financial information of the entities or business Financial Statements activities within the Company to express an opinion on the Our objectives are to obtain reasonable assurance about consolidated financial statements. We are responsible for the whether the financial statements as a whole are free from direction, supervision and performance of the group audit. material misstatement, whether due to fraud or error, and to We remain solely responsible for our audit opinion. issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that We communicate with those charged with governance an audit conducted in accordance with SLAuSs will always detect regarding, among other matters, the planned scope and a material misstatement when it exists. Misstatements can arise timing of the audit and significant audit findings, including any from fraud or error and are considered material if, individually or significant deficiencies in internal control that we identify during in the aggregate, they could reasonably be expected to influence our audit. the economic decisions of users taken on the basis of these financial statements.
Annual Report 2020 | 2021 57 Independent Auditors’ Report contd.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements As required by section 163 (2) of the Companies Act No. 07 of 2007, we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company.
CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor’s report is 2599.
Chartered Accountants Colombo, Sri Lanka
24th May 2021
58 Trans Asia Hotels PLC STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
All values are in Rupees’ 000s, unless otherwise stated
For the year ended 31st March Note 2021 2020
Revenue from contracts with customers 6 810,968 2,328,597 Cost of sales (664,878) (1,146,158) Gross profit 146,090 1,182,439
Other operating income 7 3,717 7,579
Administrative expenses (784,104) (667,587) Sales and marketing expenses (45,430) (120,652) Other operating expenses 8 (136,292) (239,275) (Loss)/profit from operations 9 (816,019) 162,504
Finance income 10 3,729 4,658 Finance cost 10 (24,210) (25,555) Net finance cost (20,481) (20,897) Change in fair value of investment property 16 (109,519) 162,425
(Loss)/profit before tax (946,019) 304,032 Income tax reversal/(expense) 11 127,273 (28,812) (Loss)/profit for the year (818,746) 275,220
Other comprehensive income Items that will not be reclassified to profit or loss Revaluation gain/(loss) on buildings 14 39,829 (1,948) Re-measurement gain on defined benefit obligation 25 96 9,349 Other comprehensive income not be reclassified to profit or loss in subsequent years 39,925 7,401 Tax effect on other comprehensive income 11.3 (5,590) (1,036) Other comprehensive income for the year, net of tax 34,335 6,365 Total comprehensive (expense)/income for the year, net of tax (784,411) 281,585
Rs. Rs.
Basic/diluted (loss)/earnings per share 12 (4.09) 1.38 Dividend per share 13 0.00 0.50
Note: The accounting policies and notes as set out on pages 64 to 99 form an integral part of these Financial Statements. Figures in brackets indicate deductions.
Annual Report 2020 | 2021 59 STATEMENT OF FINANCIAL POSITION
All values are in Rupees’ 000s, unless otherwise stated
As at 31st March 2021 2020
ASSETS Non-current assets Property, plant and equipment 14 3,425,319 3,547,493 Right-of-use asset 15 731,836 744,240 Investment property 16 2,765,506 2,875,025 Intangible assets 17 689 1,006 Non current financial assets 29.2.3 12,547 9,224 Other non-current assets 29.2.3 2,024 2,380 Total non current assets 6,937,921 7,179,368
Current assets Inventories 18 36,535 39,858 Trade and other receivables 19 63,627 451,249 Other current assets 20 48,521 60,620 Amounts due from related parties 28.2 14,882 45,095 Cash in hand and at bank 70,803 110,743 Total current assets 234,368 707,565 Total assets 7,172,289 7,886,933
EQUITY AND LIABILITIES Stated capital 21 1,112,880 1,112,880 Revenue reserves 3,217,952 4,011,482 Other components of equity 22 1,513,315 1,503,708 Total equity 5,844,147 6,628,070
Non-current liabilities Interest bearing loans and borrowings 23 40,016 39,954 Employees benefits 25 146,037 137,681 Deferred tax liabilities 11.5 247,501 382,839 Total non-current liabilities 433,554 560,474
Current liabilities Trade and other payables 26 310,459 294,688 Other current liabilities 27 98,962 119,142 Amounts due to related parties 28.4 14,847 12,403 Current tax liabilities 11.6 30,685 49,281 Interest bearing loans and borrowings 23 177,511 146,619 Bank overdrafts 262,124 76,256 Total current liabilities 894,588 698,389 Total liabilities 1,328,142 1,258,863 Total equity and liabilities 7,172,289 7,886,933
Rs. Rs. Net assets per share 29.22 33.14
Note: The accounting policies and notes as set out on pages 64 to 99 form an integral part of these Financial Statements. I certify that the financial statements are prepared and presented in compliance with the requirements of the Companies Act No. 7 of 2007.
C L P Gunawardane Chief Financial Officer
The Board of Directors is responsible for the preparation and presentation of these Financial Statements. Approved and signed for and on behalf of the Board;
K N J Balendra J G A Cooray Chairman Director
24th May 2021 60 Trans Asia Hotels PLC STATEMENT OF CHANGES IN EQUITY
All values are in Rupees’ 000s, unless otherwise stated
Note Stated Other Components of Revenue Total Equity Capital Equity Reserve Other Capital Revaluation Reserve Reserve
Balance as at 1st April 2019 1,112,880 18,927 1,509,276 3,803,088 6,444,171
Total comprehensive income for the year Profit for the year - - - 275,220 275,220 Other comprehensive Income for the year net of tax - - (1,675) 8,040 6,365 Total comprehensive income for the year - - (1,675) 283,260 281,585
Transferred to revaluation reserve (Note a) - - (25,134) 25,134 -
Share based payments 24 - 2,314 - - 2,314
Transaction with owners of the company Interim dividend paid - 2019/2020 13 - - - (100,000) (100,000) Balance as at 31st March 2020 1,112,880 21,241 1,482,467 4,011,482 6,628,070
Balance as at 1st April 2020 1,112,880 21,241 1,482,467 4,011,482 6,628,070
Total comprehensive income for the year Loss for the year - - - (818,746) (818,746) Other comprehensive Income for the year net of tax - - 34,253 82 34,335 Total comprehensive income for the year - - 34,253 (818,664) (784,411)
Transferred to revaluation reserve (Note a) - - (25,134) 25,134 -
Share based payments 24 - 488 - - 488 Balance as at 31st March 2021 1,112,880 21,729 1,491,586 3,217,952 5,844,147
Note (a) As per Sri Lanka Accounting Standards No. 16 on “Property Plant and Equipment” when the revalued asset is used by an entity, the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the original cost of the asset is transferred from revaluation surplus to retained earnings.
The accounting policies and notes as set out on pages 64 to 99 form an integral part of these Financial Statements. Figures in brackets indicate deductions.
Annual Report 2020 | 2021 61 STATEMENT OF CASH FLOWS
All values are in Rupees’ 000s, unless otherwise stated
For the year ended 31st March Note 2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES (Loss)/profit before tax (946,019) 304,032
Adjustments for: Finance income 10 (3,729) (4,658) Finance expenses 10 14,202 12,270 Depreciation of property, plant and equipment 14 174,466 187,993 Profit on disposal of property, plant and equipment 7 (2,476) (3,939) Amortisation of right-of-use assets 15 12,404 12,404 Amortisation of intangible assets 17 317 441 Employee benefits provision and related costs 25.1 25,981 24,332 Exchange loss on interest bearing borrowings 23 10,008 13,285 Change in fair value of investment property 16.1 109,519 (162,425) Provision made on slow moving inventory 9 (8,054) 232 Provision for impairment of trade receivables 19.1 276,314 3,124 Share based payment expenses 24 488 2,314 Operating (loss)/profit before working capital changes (336,579) 389,405
Decrease/(Increase) in inventories 11,377 (3,837) Decrease/(Increase) in trade and other receivables 111,308 41,202 Decrease/(Increase) amount due from related parties 30,213 52,408 Decrease/(Increase) in other current assets 12,099 4,597 Decrease/(Increase) in other non-current assets (2,967) (2,697) (Decrease)/Increase in trade and other payables 15,771 (16,754) (Decrease)/Increase amount due to related parties 2,444 (53,237) (Decrease)/Increase in other current liabilities (25,053) (41,079) Cash (used in)/generated from operations (181,387) 370,008
Finance income received 10 3,729 4,658 Finance expenses paid 10 (5,756) (3,471) Tax paid 11.6 (27,378) (18,761) Employee benefits paid/transfers 25 (17,529) (19,156) Net cash (used in)/generated from operating activities (228,321) 333,278
Cash flows from/(used in) investing activities Purchase and construction of property, plant and equipment 14 (16,522) (153,058) Purchases of intangible assets 17 - (186) Proceeds from disposal of property, plant and equipment 6,535 8,568 Net cash used in investing activities (9,987) (144,676)
Cash flows from financing activities Dividend paid 13 - (100,000) Loan obtained during the year 23 25,000 - Repayment of long term borrowing 23 (12,500) (990) Net cash generated from/(used in) financing activities 12,500 (100,990)
Net (decrease)/increase in cash and cash equivalents (225,808) 87,612 Cash and cash equivalents at the beginning of the year 34,487 (53,125) Cash and cash equivalents at the end of the year (191,321) 34,487
Analysis of cash and cash equivalents Cash in hand and at bank 70,803 110,743 Bank overdrafts (262,124) (76,256) (191,321) 34,487
Cash and cash equivalents in the statement of financial position comprise cash at banks and in hand and short-term deposits with a maturity of three months or less. For the purpose of the cash flow statement, cash and cash equivalents consist of cash and short-term deposits as defined above, net of outstanding bank overdraft.
Note: The accounting policies and notes as set out on pages 64 to 99 form an integral part of these Financial Statements. Figures in brackets indicate deductions. 62 Trans Asia Hotels PLC INDEX TO THE NOTES
Note No Page No Corporate and Group Information 1. Corporate Information 64
Basis of Preparation and other Significant Accounting Policies 2. Basis of Accounting 64 3. Significant Accounting Judgements, Estimates and Assumptions 65 4. Summary of Significant Accounting Policies 65 5. Changes in Accounting Standards and Standards Issued but not yet Effective 71
Business, Operations & Management 34. Directors’ Responsibility Statement 99 30. Segmental Information 98
Notes to the Income Statement, Statement of Comprehensive Income and Statement of Financial Position 6. Revenue from Contracts with Customers 72 7. Other Operating Income 72 8. Other Operating Expenses 73 9. Profit from Operating Activities 73 10. Net Finance Cost 74 11. Income Tax Expense 75 12. (Loss)/Earnings Per Share 78 13. Dividends Per Share 78 14. Property, Plant and Equipment 78 15. Right of use Assets 82 16. Investment Property 82 17. Intangible Assets 84 18. Inventories 85 19. Trade and Other Receivables 85 20. Other Current Assets 86 21. Stated Capital 86 22. Other Components of Equity 86 23. Interest Bearing Loans and Borrowings 87 24. Share-Based Payment Plans 88 25. Employee Benefits 89 26. Trade and Other Payables 90 27. Other Current Liabilities 91 28. Related Party Transactions 91 29. Financial Instruments 93
Other Disclosures 31. Capital Management 98 32. Capital Commitments and Contingent Liabilities 99 33. Events Occurring after the Reporting Date 99
Annual Report 2020 | 2021 63 NOTES TO THE FINANCIAL STATEMENTS
1. Corporate Information Standards (SLFRS/LKAS) as issued by the Going concern Reporting entity Institute of Chartered Accountants of Sri In determining the basis of preparing Lanka (CA Sri Lanka) and in compliance Trans Asia Hotels PLC (the Company) the financial statements for the year with the Companies Act No. 7 of 2007. is a public limited liability company ended 31 March 2021, based on available incorporated and domiciled in information, the management has Sri Lanka and listed on the Colombo assessed the prevailing and anticipated Stock Exchange. The registered office 2. Basis of Accounting effects of COVID-19 on the Company and and principal place of business of Basis of preparation the appropriateness of the use of the the Company is located at 115, Sir The Financial Statements have been going concern basis. Chittampalam A. Gardiner Mawatha, prepared in accordance with Sri Lanka Colombo 2. Accounting Standards (LKAS/SLFRS) It is the view of the management laid down by the Institute of Chartered there are no material uncertainties Principal shareholders of the Company Accountants of Sri Lanka (CA Sri Lanka) that may cast significant doubt on the are John Keells Holdings PLC and Asian and the requirements of Companies Act Company’ ability to continue to operate Hotels and Properties PLC who hold No. 7 of 2007. as going concern due to the improved 48.64% and 43.41% respectively. operating environment despite the Basis of measurement ongoing effects of the pandemic and the operationalisation of risk mitigation The number of persons employed by the The Financial Statements have been initiatives and continuous monitoring Company as at 31st March 2021 was 524 prepared on the historical cost basis of business continuity and response (2020 - 612). except for the following which are plans along with the financial strength measured on an alternative basis on each of the Company. The management have Approval of financial statements reporting date. formed judgement that the Company The financial statements for the year y Buildings are measured at cost at the has adequate resources to continue in ended 31st March 2021 were authorised time of acquisition and subsequently operational existence for the foreseeable for issue by the Board of Directors on 24th recognised at revalued amounts future and continue to adopt the May 2021. which are fair values at the date going concern basis in preparing and of revaluation less accumulated presenting these financial statements. Principal activities and nature of depreciation and impairment losses operations of the Company if any, In determining the above significant The principal activity of the Company is y Investment properties are stated at fair management judgements, estimates and hoteliering. The Company also derives values. assumptions, the impact of the COVID-19 rental income from the commercial y Defined benefit obligations are pandemic has been considered as of the property. measured at its present value, based reporting date and specific considerations on an actuarial valuation as explained have been disclosed under the relevant Responsibility for financial in Note 25. notes. statements The responsibility of the Board of Presentation of functional currency Comparative information Directors in relation to the financial The Company’s Financial Statements The presentation and classification of the statements is set out in the Statement are presented in Sri Lankan Rupees financial statements of the previous years of Directors’ Responsibility report in the which is the Company’s functional and have been amended, where relevant for Annual report. presentation currency. All amounts have better presentation and to be comparable been rounded to the nearest thousand, with those of the current year. Statements of compliance unless otherwise indicated. The Financial Statements which comprise the Statement of Profit or Loss and Other Each material class of similar items is Comprehensive Income, Statement of presented separately in the Financial Financial Position, Statement of Changes Statements. Items of dissimilar nature or in Equity and The Statement of Cash function are presented separately unless Flows, together with the accounting they are immaterial as permitted by the policies and notes (the “Financial Sri Lanka Accounting Standard-LKAS 1 on Statements”) have been prepared in ‘Presentation of Financial Statements’. accordance with Sri Lanka Accounting
64 Trans Asia Hotels PLC 3. Significant Accounting Coronavirus (COVID-19) pandemic The significant accounting estimates Judgements, Estimates and The ongoing COVID-19 pandemic has impacted by these forecasts and Assumptions increased the estimation uncertainty associated uncertainties are in the preparation of these Financial predominantly related to expected credit In preparing of the Financial Statements, Statements. losses, fair value measurement, and management has made judgements, recoverable amount assessments of estimates and assumptions that effect the non-financial assets. application of the Company’s accounting The estimation uncertainty is associated policies and the reported amounts of with: The impact of the COVID-19 pandemic assets, liabilities, income and expenses. y the extent and duration of the on each of these accounting estimates Actual results may differ from these disruption to business arising from the is discussed further below and/or in estimates. actions by governments, businesses and consumers to contain the spread the relevant note to these Financial Statements. Estimates and underlying assumptions are of the virus; reviewed on an ongoing basis. Revisions y the extent and duration of the to accounting estimates are recognised expected economic downturn 4. Summary of Significant prospectively. (and forecasts for key economic factors including GDP, employment Accounting Policies Assumptions and estimation and house prices). This includes Summary of significant accounting uncertainties the disruption to capital markets, policies have been disclosed along Information about assumptions and deteriorating credit, liquidity concerns, with the relevant individual notes in the estimation uncertainties that have a increasing unemployment, declines subsequent pages. significant risk of resulting in a material in consumer discretionary spending, adjustment in the year ending 31st March reductions in production because Those accounting policies presented with 2021 is included in the following notes: of decreased demand, and other each note, have been applied consistently by the Company. y Determining the fair value of restructuring activities; and investment property; y the effectiveness of government Other significant accounting y Measurement of defined benefit and central bank measures that have policies not covered with individual obligations: key actuarial assumptions; and will be put in place to support businesses and consumers through notes. y Recognition and measurement of this disruption and economic Except for the above, following provisions and contingencies: key downturn. accounting policies, which have been assumptions about the likelihood and applied consistently by the Company, magnitude of an outflow of resources. The Company has developed various are considered to be significant but not y Provision for expected credit losses of accounting estimates in these Financial covered in any other sections trade receivables and contract assets Statements based on forecasts of y Recognition of deferred tax assets; economic conditions which reflect Current versus non-current classification availably of future taxable profit expectations and assumptions as at 31 The Company presents assets and against which deductible temporary March 2021 about future events that the liabilities in statement of financial differences and tax losses carried Directors believe are reasonable in the position based on current/non-current forward can be utilised. circumstances. There is a considerable classification. degree of judgement involved in The preparation of these Financial preparing forecasts. The underlying An asset is current when it is: Statements requires the use of assumptions are also subject to y Expected to be realised or intended management judgement, estimates and uncertainties which are often outside to be sold or consumed in normal assumptions that affect reported amounts the control of the Company. Accordingly, operating cycle and the application of accounting actual economic conditions are likely to y Held primarily for the purpose of policies. Such estimates and judgements be different from those forecast since trading are reviewed on an ongoing basis. anticipated events frequently do not y occur as expected, and the effect of those Expected to be realised within twelve months after the reporting period, or A brief explanation of the key estimates, differences may significantly impact assumptions and judgements that have accounting estimates included in these changed during year ended 31 March financial statements. 2021 are as follows.
Annual Report 2020 | 2021 65 Notes to the Financial Statements contd.
y Cash or cash equivalent unless Non-monetary items that are measured A financial asset is measured at amortised restricted from being exchanged or based on historical costing in a cost if it meets both of the following used to settle a liability for at least foreign currency are translated using conditions and is not designated as at twelve months after the reporting the exchange rate at the date of the FVTPL: period transaction. Foreign currency differences y it is held within a business model arising on retranslation are recognised in whose objective is to hold assets to All other assets are classified as profit or loss. collect contractual cash flows; and non-current. y its contractual terms give rise on (b) Financial instruments specified dates to cash flows that A liability is current when: (i) Recognition and initial measurement are solely payments of principal and y It is expected to be settled in normal Trade receivables and debt securities interest on the principal amount operating cycle issued are initially recognised when outstanding. they are originated. All other financial y It is held primarily for the purpose of assets and financial liabilities are initially trading Company’s’ financial assets classified and recognised when the Company becomes measured at amortised cost are limited to y It is due to be settled within twelve a party to the contractual provisions of its trade debtors, related party receivables, months after the reporting period the instrument. short term investments and cash & cash y There is no unconditional right to equivalents. defer the settlement of the liability A financial asset (unless it is a trade for at least twelve months after the receivable without a significant financing A debt investment is measured at FVOCI if reporting period component) or financial liability is initially it meets both of the following conditions measured at fair value plus, for an item and is not designated as at FVTPL: The Company classifies all other liabilities not at fair value through profit or loss y it is held within a business model as non-current. (FVTPL), transaction costs that are directly whose objective is achieved by both attributable to its acquisition or issue. collecting contractual cash flows and Deferred tax assets and liabilities are A trade receivable without a significant selling financial assets; and classified as non-current assets and financing component is initially measured non-current liabilities. at the transaction price. y its contractual terms give rise on specified dates to cash flows that (a) Foreign currency Financial Assets are solely payments of principal and interest on the principal amount (i) Foreign currency transactions Classification and subsequent outstanding. Transactions in foreign currencies are measurement of financial assets. translated to functional currency of the On initial recognition, a financial asset is On initial recognition of an equity Company at exchange rates at the dates classified as measured at: amortised cost; investment that is not held for trading, of the transactions. Monetary assets fair value through other comprehensive the Company may irrevocably elect to and liabilities denominated in foreign income (FVOCI) - debt investment; fair present subsequent changes in the currencies at the reporting date are value through other comprehensive investment’s fair value in OCI. This election retranslated to the functional currency income (FVOCI) - equity investment; or is made on an investment-by-investment at the exchange rate at that date. The fair value through profit or loss (FVTPL). basis. foreign currency gain or loss on monetary items is the difference between amortised Financial assets are not reclassified All financial assets not classified as cost in the functional currency at the subsequent to their initial recognition measured at amortised cost or FVOCI as beginning of the year, adjusted for unless the Company changes its business described above are measured at FVTPL. effective interest and payments during model for managing financial assets, in This includes all derivative financial assets. the year, and the amortised cost in foreign which case all affected financial assets On initial recognition, the Company may currency translated at the exchange rate are reclassified on the first day of the first irrevocably designate a financial asset at the end of the year. Non-monetary reporting period following the change in that otherwise meets the requirements assets and liabilities that are measured the business model. to be measured at amortised cost or at at fair value in foreign currency are FVOCI as at FVTPL if doing so eliminates retranslated to the functional currency at or significantly reduces an accounting the exchange rate at the date that the fair mismatch that would otherwise arise. value was determined.
66 Trans Asia Hotels PLC Company’s investment in equity Financial assets that are held for trading Additionally, for a financial asset investments are classified as Fair Value or are managed and whose performance acquired at a discount or premium to its through OCI. is evaluated on a fair value basis are contractual par amount, a feature that measured at FVTPL. permits or requires prepayment at an Financial assets - Business model amount that substantially represents the assessment Financial assets -Assessment whether contractual par amount plus accrued The Company makes an assessment contractual cash flows are solely (but unpaid) contractual interest (which of the objective of the business model payments of principal and interest may also include reasonable additional in which a financial asset is held at a For the purposes of this assessment, compensation for early termination) is portfolio level because this best reflects ‘principal’ is defined as the fair value of treated as consistent with this criterion if the way the business is managed and the financial asset on initial recognition. the fair value of the prepayment feature is information is provided to management. ‘Interest’ is defined as consideration for insignificant at initial recognition. The information considered includes: the time value of money and for the y the stated policies and objectives credit risk associated with the principal Financial assets - Subsequent for the portfolio and the operation amount outstanding during a particular measurement and gains and losses of those policies in practice. These period of time and for other basic lending Financial assets at amortised cost include whether management’s risks and costs (e.g. liquidity risk and These assets are subsequently measured strategy focuses on earning administrative costs), as well as a profit at amortised cost using the effective contractual interest income, margin. interest method. maintaining a particular interest rate profile, matching the duration of In assessing whether the contractual cash The amortised cost is reduced by the financial assets to the duration flows are solely payments of principal impairment losses. Interest income, of any related liabilities or expected and interest, the Company considers the foreign exchange gains and losses and cash outflows or realising cash flows contractual terms of the instrument. This impairment are recognised in profit or through the sale of the assets; includes assessing whether the financial loss. Any gain or loss on de-recognition is asset contains a contractual term that y how the performance of the portfolio recognised in profit or loss. could change the timing or amount of is evaluated and reported to the contractual cash flows such that it would Company’s management; Equity investments at FVOCI not meet this condition. In making this These assets are subsequently measured y the risks that affect the performance of assessment, the Company considers: at fair value. Dividends are recognised the business model (and the financial y contingent events that would change as income in profit or loss unless the assets held within that business the amount or timing of cash flows; dividend clearly represents a recovery of model) and how those risks are part of the cost of the investment. Other managed; y terms that may adjust the contractual coupon rate, including variable-rate net gains and losses are recognised in OCI y how managers of the business features; and are never reclassified to profit or loss. are compensated - e.g. whether y prepayment and extension features; compensation is based on the fair Financial Liabilities and value of the assets managed or the Classification, subsequent measurement contractual cash flows collected; and y terms that limit the Company’s claim and gain and losses y the frequency, volume and timing to cash flows from specified assets Financial liabilities are classified as of sales of financial assets in prior (e.g. non-recourse features). measured at amortised cost or FVTPL. periods, the reasons for such sales A financial liability is classified as at FVTPL and expectations about future sales A prepayment feature is consistent if it is classified as held-for-trading, it is activity. with the solely payments of principal a derivative or it is designated as such and interest criterion if the prepayment on initial recognition. Financial liabilities Transfers of financial assets to third parties amount substantially represents unpaid at FVTPL are measured at fair value and in transactions that do not qualify for amounts of principal and interest on the gains and losses, including any interest de-recognition are not considered sales principal amount outstanding, which expense, are recognised in profit or loss. for this purpose, consistent with the may include reasonable additional Other financial liabilities are subsequently Company’s continuing recognition of compensation for early termination of measured at amortised cost using the assets. the contract. the effective interest method. Interest expense and foreign exchange gains and
Annual Report 2020 | 2021 67 Notes to the Financial Statements contd.
losses are recognised in profit or loss. the amounts and it intends either to settle The Company considers a financial asset Any gain or loss on de-recognition is also them on a net basis or to realise the asset to be in default when: recognised in profit or loss. and settle the liability simultaneously. y the borrower is unlikely to pay its credit obligations to the Company in (ii) De-recognition (iv) Impairment full, without recourse by the Company Financial assets Financial instruments and contract to actions such as realising security The Company derecognises a financial assets (if any is held); or asset when the contractual rights to the The Company recognises loss allowances y the financial asset is more than 90 days cash flows from the financial asset expire, for Expected Credit Losses (ECLs) on: past due. or it transfers the rights to receive the y financial assets measured at amortised contractual cash flows in a transaction cost; Lifetime ECLs are the ECLs that result in which substantially all of the risks and y debt investments measured at FVOCI; from all possible default events over the rewards of ownership of the financial and expected life of a financial instrument. asset are transferred or in which the y contract assets. Company neither transfers nor retains 12-month ECLs are the portion of ECLs substantially all of the risks and rewards of that result from default events that are The Company measures loss allowances ownership and it does not retain control possible within the 12 months after the at an amount equal to lifetime ECLs, of the financial asset. reporting date (or a shorter period if the except for the following, which are expected life of the instrument is less than measured at 12-month ECLs: The Company enters into transactions 12 months). whereby it transfers assets recognised y debt securities that are determined to in its statement of financial position, but have low credit risk at the reporting The maximum period considered retains either all or substantially all of the date; and when estimating ECLs is the maximum risks and rewards of the transferred assets. y other debt securities and bank contractual period over which the In these cases, the transferred assets are balances for which credit risk (i.e. Company is exposed to credit risk. not derecognised. the risk of default occurring over the expected life of the financial Measurement of ECLs Financial liabilities instrument) has not increased ECLs are a probability-weighted estimate The Company derecognises a financial significantly since initial recognition. of credit losses. Credit losses are measured liability when its contractual obligations as the present value of all cash shortfalls are discharged or cancelled, or expire. The Loss allowances for trade receivables is (i.e. the difference between the cash flows Company also derecognises a financial always measured at an amount equal to due to the entity in accordance with liability when its terms are modified and lifetime ECLs. the contract and the cash flows that the the cash flows of the modified liability Company expects to receive). are substantially different, in which case When determining whether the credit a new financial liability based on the risk of a financial asset has increased ECLs are discounted at the effective modified terms is recognised at fair value. significantly since initial recognition and interest rate of the financial asset. when estimating ECLs, the Company On de-recognition of a financial considers reasonable and supportable Credit-impaired financial assets liability, the difference between the information that is relevant and available At each reporting date, the Company carrying amount extinguished and without undue cost or effort. This assesses whether financial assets carried the consideration paid (including any includes both quantitative and qualitative at amortised cost and debt securities at non-cash assets transferred or liabilities information and analysis, based on the FVOCI are credit-impaired. A financial assumed) is recognised in profit or loss. Company’s historical experience and asset is ‘credit-impaired’ when one or informed credit assessment and including more events that have a detrimental (iii) Offsetting forward-looking information. impact on the estimated future cash flows Financial assets and financial liabilities are of the financial asset have occurred. offset and the net amount presented in The Company assumes that the credit the statement of financial position when, risk on a financial asset has increased and only when, the Company currently significantly if it is more than 30 days has a legally enforceable right to set off past due.
68 Trans Asia Hotels PLC Evidence that a financial asset is (vi) Non-financial assets y In the principal market for the asset or credit-impaired includes the following At each reporting date, the Company liability, or observable data: reviews the carrying amounts of its non- y In the absence of a principal market, in y significant financial difficulty of the financial assets (other than inventories the most advantageous market for the borrower or issuer; and deferred tax assets) to determine asset or liability y a breach of contract such as a default whether there is any indication of or being more than 180 days past due; impairment. If any such indication exists, The principal or the most advantageous then the asset’s recoverable amount is market must be accessible by the y the restructuring of a loan or advance estimated. Company. by the Company on terms that the Company would not consider For impairment testing, assets are The fair value of an asset or a liability is otherwise; grouped together into the smallest group measured using the assumptions that y it is probable that the borrower will of assets that generates cash inflows market participants would use when enter bankruptcy or other financial from continuing use that are largely pricing the asset or liability, assuming that re-organisation; independent of the cash inflows of other market participants act in their economic y the disappearance of an active market assets or CGUs. Goodwill arising from best interest. or a security because of financial a business combination is allocated to difficulties. CGUs or group of CGUs that are expected A fair value measurement of a non- to benefit from the synergies of the financial asset takes into account a market Presentation of allowance for ECL in the combination. participant’s ability to generate economic statement of financial position benefits by using the asset in its highest Loss allowances for financial assets The recoverable amount of an asset or and best use or by selling it to another measured at amortised cost are deducted CGU is the greater of its value in use and market participant that would use the from the gross carrying amount of its fair value less costs to sell. Value in use asset in its highest and best use. the assets. is based on the estimated future cash flows, discounted to their present value The Company uses valuation techniques For debt securities at FVOCI, the loss using a pre-tax discount rate that reflects that are appropriate in the circumstances allowance is charged to profit or loss and current market assessments of the time and for which sufficient data are available is recognised in OCI. value of money and the risks specific to to measure fair value, maximising the the asset or CGU. use of relevant observable inputs and (v) Write-off minimising the use of unobservable An impairment loss is recognised if the inputs. The gross carrying amount of a financial carrying amount of an asset or CGU asset is written off when the Company exceeds its recoverable amount. All assets and liabilities for which fair value has no reasonable expectations of is measured or disclosed in the financial recovering a financial asset in its entirety Impairment losses are recognised in profit statements are categorised within the or a portion thereof. For individual or loss. They are allocated first to reduce fair value hierarchy, described as follows, customers, the Company has a policy the carrying amount of any goodwill based on the lowest level input that is of writing off the gross carrying amount allocated to the CGU, and then to reduce significant to the fair value measurement when the financial asset is 360 days past the carrying amounts of the other assets as a whole: due based on historical experience of in the CGU on a pro rata basis. recoveries of similar assets. For corporate y Level 1 - Quoted (unadjusted) market customers, the Company individually prices in active markets for identical (d) Fair Value measurement makes an assessment with respect to the assets or liabilities timing and amount of write-off based on Fair value is the price that would y Level 2 - Valuation techniques whether there is a reasonable expectation be received to sell an asset or paid for which the lowest level input of recovery. The Company expects no to transfer a liability in an orderly that is significant to the fair value significant recovery from the amount transaction between market participants measurement is directly or indirectly written off. However, financial assets that at the measurement date. The fair observable. value measurement is based on the are written off could still be subject to y Level 3 - Valuation techniques presumption that the transaction to sell enforcement activities in order to comply for which the lowest level input the asset or transfer the liability takes with the Company’s procedures to that is significant to the fair value place either: recover the amounts due. measurement is unobservable.
Annual Report 2020 | 2021 69 Notes to the Financial Statements contd.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The Company determines the policies and procedures for both recurring fair value measurement, such as investment properties, and for non recurring measurement, such as assets held for sale in discontinued operations.
External valuers are involved for valuation of significant assets, such as land and building and investment properties. Selection criteria for external valuers include market knowledge, reputation, independence and whether professional standards are maintained. The Company decides, after discussions with the external valuers, which valuation techniques and inputs to use for individual assets and liabilities.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
Fair value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair values are only, disclosed are reflected in this note. Aside from this note, additional fair value related disclosures, including the valuation methods, significant estimates and assumptions are also provided in: y Property, plant and equipment under revaluation model Note 14 y Investment properties Note 16
(e) Fair Value measurement Fair values vs carrying amounts Amortised cost Other financial Total carrying liabilities amount
31st March 2021 Cash in hand and at bank 70,803 - 70,803 Trade and other receivables 63,627 - 63,627 Amounts due from related parties 14,882 - 14,882 149,312 - 149,312
Trade and other payables - 200,118 200,118 Amounts due to related parties - 14,847 14,847 Loans and borrowings - 217,527 217,527 Bank overdrafts - 262,124 262,124 - 694,616 694,616
31st March 2020 Cash in hand and at bank 110,743 - 110,743 Trade and other receivables 451,249 - 451,249 Amounts due from related parties 45,095 - 45,095 607,087 - 607,087
Trade and other payables - 185,507 185,507 Amounts due to related parties - 12,403 12,403 Loans and borrowings - 186,573 186,573 Bank overdrafts - 76,256 76,256 - 460,739 460,739
All the above financial assets and liabilities are not measured at fair value. Fair value for above financial assets and liabilities is not disclosed since the carrying amount is a reasonable appropriation of their fair value. Accordingly fair value hierarchy does not apply.
70 Trans Asia Hotels PLC 5. Changes in accounting Standard and Standards Issued but not yet Effective Changes in accounting standard The following amendments and improvements do not expect to have a significant impact on the Company financial statements. y Amendments to SLFRS 3: Definition of a Business. y Amendments to LKAS 1 and LKAS 8 Definition of Material. y Conceptual Framework for Financial Reporting.
Standards issued but not yet effective The following amendments and improvements are not expected to have a significant impact on the Company’s current year financial statements y Amendments to SLFRS 7, SLFRS 9 and LKAS 39 : Interest Rate Benchmark Reform - Phrase 1. y Amendments to SLFRS 9, LKAS 39, SLFRS 7, SLFRS 4 and SLFRS 16 : Interest Rate Benchmark Reform - Phrase 2. y Amendments to LKAS 1 : Classification of liabilities as Current or Non-current. y Amendments to SLFRS 3: Reference to the Conceptual Framework. y Amendments to LKAS 16 : Property, Plant & Equipment - Proceeds before Intended Use. y Amendments to LKAS 37 : Onerous Contracts - Cost of Fulfilling a Contract.
Annual Report 2020 | 2021 71 Notes to the Financial Statements contd.
All values are in Rupees’ 000s, unless otherwise stated Figures in brackets indicate deductions.
6. Revenue from Contracts with Customers Accounting Policy Performance obligations and revenue recognition policies SLFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised.
Contracts with customers Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
The Company’s performance obligations and significant judgements are summarised below: The revenue for providing the services are usually recognised at or after the guests’ departure, over the period of stay or at the point of arrival of guests. The entity identifies the services under each contract as one performance obligation. The revenue is accounted based on the output method. Since revenue will be based on the final good or service provided, the output method will provide a faithful depiction in recognising revenue. Accordingly, revenue is recognised on the rooms occupied on daily basis and food and beverages and hotel related sales are accounted for at the time of sale and rental income is recognised on an accrual basis. When obtaining destination management service (travel agents), the entity acts as the principal. Customer receives and consumes the benefits of the entity’s performance, as and when the service is performed. Therefore, revenue is recognised at gross over the period, based on the output method. The timing and the amount of cashflow will vary according to the agreements. Transaction price shall comprise of supplier fee and company mark-up, summing up to be the Gross Service fee. The advance payments are recognised as a liability. Upon provision of the services, the liability is set off and revenue is recognised over the period.
For the year ended 31st March 2021 2020
Rooms 38,058 823,571 Food 464,747 1,078,001 Beverage 124,447 136,032 Food and beverage - other 54,926 52,557 Power Drome revenue 10,024 22,347 Rental income from investment property 65,048 65,048 Others 53,718 151,041 Total revenue from contracts with customers 810,968 2,328,597
7. Other Operating Income Accounting Policy Other income is recognised on an accrual basis.
Gains and losses Net gains and losses of a revenue nature arising from the disposal of property, plant and equipment and other non-current assets, including investments, are accounted for in the Statement of Profit or Loss, after deducting from the proceeds on disposal, the carrying amount of such assets and the related selling expenses.
On the disposal of any revalued property, plant and equipment, the amount remaining in the Revaluation reserve, relating to that particular asset is transferred directly to retained earnings.
Gains and losses arising from activities incidental to the main revenue generating activities and those arising from a group of similar transactions, which are not material are aggregated, reported and presented on a net basis.
72 Trans Asia Hotels PLC For the year ended 31st March 2021 2020
Profit on disposal of property, plant and equipment 2,476 3,939 Gain on exchange 305 1,434 Sundry income 55 1,836 Reversal of unclaimed dividend 881 370 3,717 7,579
8. Other Operating Expenses Accounting Policy Expenditure recognition Expenses are recognised in the Statement of Profit or Loss on the basis of a direct association between the cost incurred and the earning of specific items of income. All expenditure incurred in the running of the business and in maintaining the property, plant and equipment in a state of efficiency has been charged to the Statement of Profit or Loss.
For the purpose of presentation of the Statement of Profit or Loss, the “function of expenses” method has been adopted, on the basis that it presents fairly the elements of the Company’s performance.
For the year ended 31st March 2021 2020
Repairs and maintenance expenses 34,502 60,124 Heat, light and power expenses 100,755 146,375 Bank charges 807 879 Other 228 1,552 Nation building tax - 30,345 136,292 239,275
9. Profit from Operating Activities Accounting Policy Expenditure recognition Expenses are recognised in the income statement on the basis of a direct association between the cost incurred and the earning of specific items of income. All expenditure incurred in the running of the business and in maintaining the property, plant and equipment in a state of efficiency has been charged to the income statement.
For the purpose of presentation of the income statement, the “function of expenses” method has been adopted, on the basis that it presents fairly the elements of the Company’s performance.
Annual Report 2020 | 2021 73 Notes to the Financial Statements contd.
All values are in Rupees’ 000s, unless otherwise stated Figures in brackets indicate deductions.
Profit from operating activities is stated after charging all expenses including the following For the year ended 31st March 2021 2020
Directors fees 4,920 6,000 Audit services 700 700 Audit related services - 82 Donations/CSR 19 518 Depreciation of PPE and amortisation of ROU asset 187,187 200,838 Provision for impairment-trade receivables 276,314 3,124 (Reversal)/Provision for slow moving inventory (8,054) 232 Legal fees 2,291 5,708 Foreign exchange (gain) (305) (1,434) Staff cost (includes the following) 501,067 659,938 Defined benefit plan costs - employees benefit 25,981 24,332 Defined contribution plan costs -EPF and ETF 47,265 54,154
10. Net Finance Cost Accounting Policy Finance income Finance income comprises interest income derived on funds invested. Interest income is recorded as it accrues using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset.
Borrowing cost Borrowing costs are recognised as an expense in the period in which they are incurred, except to the extent the borrowing costs that are directly attributable to the acquisition or construction of an asset that takes a substantial period of time to get ready for its intended use, and are capitalised as part of that asset.
Finance costs Finance costs comprise interest expense on borrowings, overdrafts and exchange loss on borrowings. For the year ended 31st March 2021 2020
Finance income Interest income on staff loan 1,446 1,216 Interest income other 337 304 Interest income on short term investments 1,946 3,138 3,729 4,658
Finance expenses Interest expense on interest bearing loans and borrowings (8,446) (10,648) Exchange loss on Interest bearing loans and borrowings (10,008) (13,285) Interest expenses on bank overdraft (5,756) (1,622) (24,210) (25,555) Net finance cost (20,481) (20,897)
74 Trans Asia Hotels PLC 11. Income Tax Expense Accounting Policy The interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of LKAS 12 Income Taxes. The Company applies significant judgement in identifying uncertainties over income tax treatments. Since the Company operates in a complex environment, it assessed whether the Interpretation had an impact on its consolidated financial statements. Company determined that it is probable that its tax treatments will be accepted by the taxation authorities. The interpretation did not have an impact on the financial statements of the Company. Income tax expenses comprise of income tax and deferred tax.
Current Taxation The company is liable for taxation at the rate of 14% as per the first schedule of the Inland Revenue Act, No 24 of 2017, on its profits derived from “promotion of tourism”. Income Tax for any other income is computed at 24%.
For the year ended 31st March 2021 2020
Current tax charge (11.1) 13,646 23,273 Under provision income tax on previous year 9 4,449 Deferred tax expense (11.3) (140,928) 1,090 (127,273) 28,812
Other comprehensive income Deferred tax charge Relating to origination and reversal of temporary differences (11.3) 5,590 1,036 5,590 1,036
11.1 Reconciliation Between Income Tax Expense and the Product of Accounting Profit For the year ended 31st March 2021 2020
(Loss)/Profit before tax (946,019) 304,032 Income not liable for income tax (1,695) - Adjusted accounting (loss)/profit chargeable to income taxes (947,714) 304,032
Disallowable expenses 495,706 234,941 Allowable expenses (187,410) (384,822) Tax losses arising during the year (Note 11.4) 696,278 - Taxable income 56,860 154,151
Income tax charged at Standard rate - 24% (2020 - 28% and 24%) 13,646 4,061 Concessionary rate of 14% - 19,212 Current tax charge 13,646 23,273 Under provision on income tax previous year 9 4,449 Deferred tax charge/(reversal) (Note 11.3) (140,928) 1,090 Total income tax expense (127,273) 28,812 Effective tax rate (13.5%) 9.5%
Annual Report 2020 | 2021 75 Notes to the Financial Statements contd.
All values are in Rupees’ 000s, unless otherwise stated Figures in brackets indicate deductions.
11.2 Reconciliation Between Tax Expense and Product of Accounting Profit For the year ended 31st March 2021 2020
Adjusted accounting (loss)/profit chargeable to income taxes (947,714) 304,032
Tax effect on chargeable profits/(loss) (126,995) 44,109 Tax effect on non deductible expenses 1,956 3,601 Tax effect on deductions claimed (583) (23,784) Deferred tax due to rate differentials 167 437 Net effect of deferred tax in respect of prior years (1,827) - Under provision for previous years 9 4,449 Total income tax expense (127,273) 28,812
11.3 Deferred Tax Expense For the year ended 31st March 2021 2020
Income statement Deferred tax expense arising from; Accelerated depreciation for tax purposes (1,338) 2,907 Benefit arising from tax losses and other credits (97,479) - Change in fair value of investment property (417) (1,092) Others (ROU assets/liabilities, trade receivables etc) (40,511) - Employee benefit liability (1,183) (725) Deferred tax charge/(reversal) recognised in the Income Statement (140,928) 1,090
Other comprehensive income Actuarial gains on defined benefit obligations 14 1,309 Revaluation gain/(loss) on buildings 5,576 (273) Deferred tax charge/(reversal) recognised in the other comprehensive income 5,590 1,036 Total deferred tax charge/(reversal) (135,338) 2,126
Deferred tax liability has been computed taking into consideration the tax rate of 14% applicable for the tourism industry as per the new Inland Revenue Act No 24 of 2017 and capital gain tax at 10% on investment assets.
11.4 Tax Losses Carried Forward For the year ended 31st March 2021 2020
Balance at the beginning of the year - - Tax losses arising during the year 696,278 - 696,278 - Tax losses utilised during the year - - Balance at the end of the year 696,278 -
76 Trans Asia Hotels PLC 11.5 Deferred Tax Liability Accounting policy Deferred taxation is provided using the Statement of Financial Position liability method providing for temporary difference between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or substantively enacted by the reporting date. Deferred tax assets including those related to tax effects of income tax losses and credits available to be carried forward, are recognised only to the extent that it is probable that future taxable profit will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that is no longer probable that the related tax benefit will be realised.
As at 31st March 2021 2020
Balance at the beginning of the year 382,839 380,713 Charge/(reversal) for the year (Note 11.3) (135,338) 2,126 Balance at the end of the year 247,501 382,839
The closing deferred tax liability arrives as follows; Revaluation of buildings to fair value 59,365 53,789 Accelerated depreciation for tax purposes 348,079 349,417 Employee benefit liability (20,445) (19,275) Losses and other credits available for offset against future taxable income (97,479) - Revaluation of investment property to fair value (1,508) (1,092) Others (40,511) - 247,501 382,839
11.6 Current Tax Liability Balance at the beginning of the year 49,281 55,880 Charge for the year 13,646 23,273 Payments, adjustments and set off against refunds (27,378) (18,761) Transfer to income tax recoverable (4,864) (11,111) Balance at the end of the year 30,685 49,281
The Inland Revenue (Amendment) Bill, to amend the Inland Revenue Act, No. 24 of 2017, incorporating announcements implemented by the Inland Revenue Circular Nos. PN/IT/2020-03 (Revised) and PN/IT/2021-01 was Gazetted on 18 March 2021.
As the Bill has been Gazetted and also printed by order of Parliament as of the reporting date, the Company management, having applied significant judgement have concluded the provisions of the Inland Revenue (Amendment) bill to be substantially enacted, and have relied upon the income tax rates specified therein to calculate the income tax liability and deferred tax provision for the 2020/21 financial year of the Company.
The Company has contingent liabilities amounting to Rs. 168 Mn (2020 – Rs. 141Mn). These have been arrived at after discussing with independent legal and tax experts and based on information available. All assumptions are revisited as of the reporting date (refer Note 32)
Annual Report 2020 | 2021 77 Notes to the Financial Statements contd.
All values are in Rupees’ 000s, unless otherwise stated Figures in brackets indicate deductions.
12. (Loss)/Earnings Per Share Basic (Loss)/Earnings per share (Loss)/earnings per share is calculated on the profit/(loss) attributable to the shareholders of the Company over the weighted average number of ordinary shares outstanding during the year, as required by Sri Lanka Accounting Standard 33 ”Earnings per share”.
Diluted (Loss)/Earnings per share Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the parent (after adjusting outstanding share option scheme and warrants) by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.
There were no potentially dilutive ordinary shares outstanding at any time during the year/previous year. Therefore diluted earning Per share is the same as basic (loss)/earnings per share. For the year ended 31st March 2021 2020
(Loss)/profit attributable to ordinary shareholders of the company (Rs. ‘000) (818,746) 275,220 Weighted average number of ordinary shares (‘000) 200,000 200,000 Basic/diluted (loss)/earnings per share (Rs.) (4.09) 1.38
13. Dividends Per Share For the year ended 31st March 2021 2020
Interim dividend paid 2019/2020 - 100,000 Interim dividend per share 2019/20 (Rs.) - 0.50
Dividend per share has been calculated, for all periods, based on the number of shares in issue at the time of dividend payout.
14. Property, Plant and Equipment Accounting Policy Basis of recognition Property plant and equipment are stated at cost of purchase or valuation less accumulated depreciation, and any accumulated impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable cost of bringing the asset to working condition for its intended use.
The Company applies the revaluation model for buildings. Such properties are carried at a revalued amount, being its fair value at the date of revaluation less any subsequent accumulated depreciation and any subsequent impairment losses. Revaluations are made at least every five years to ensure that their carrying amounts do not defer materially from their fair values at the reporting date.
When an asset is revalued, any increase in carrying amount is recognised in other comprehensive income and accumulated in equity under the heading of revaluation reserve unless it reverses a previous revaluation decrease relating to the same asset, which was previously recognised as an expense. ln these circumstances the increase is recognised as income to the extent of the previous write down.
When an asset’s carrying amount is decreased as a result of revaluation, the decrease is recognised as an expense unless it reverses a previous surplus relating to that asset. In such case it is charged against any related revaluation surplus, to the extent that the decrease does not exceed the amount held in the revaluation surplus in respect of that same asset. Any balance remaining in the revaluation surplus in respect of an asset, is transferred directly to retained earnings on retirement or disposal of the asset.
The Company applies cost model for other property plant and equipment which are stated at historical cost, less depreciation less any accumulated impairment losses.
78 Trans Asia Hotels PLC Subsequent measurement The cost of replacing a part of an item of property plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied with the part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part is de-recognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss.
De-recognition An item of property, plant and equipment is derecognised upon replacement, disposal or when no future economic benefits are expected from its use. Any gain or loss arising on de-recognition of the asset is included in the Statement of Profit or Loss in the year the asset is de-recognised.
De-recognition Depreciation is calculated by using a straight-line method on the cost or valuation of all property, plant and equipment, other than freehold land, in order to write off such amounts over the estimated useful economic life of such assets.
Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that asset is de-recognised.
Assets Years Plant and machinery 20 Computer equipment 5 Kitchen and laundry equipment 15 Hotel equipment 15 Motor vehicles 5 Motor vehicles - floating restaurant 18 Base stock 10 Circulating assets 3 Furniture and fittings 15
Buildings are depreciated using the straight line method over the remaining lease period of 59 years. The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at each financial year end.
Capital work-in-progress Capital work-in-progress is stated at cost. These are expenses of a capital nature directly incurred on property plant and equipment , awaiting capitalisation.
Annual Report 2020 | 2021 79 Notes to the Financial Statements contd.
All values are in Rupees’ 000s, unless otherwise stated Figures in brackets indicate deductions.
Property, Plant and Equipment Buildings Plant and Computer Furniture Kitchen Hotel Motor Soft Circulating Work In Total Total Machinery Equipment Fixtures and Equipment Vehicles Furnishing Assets Progress 2021 2020 and Laundry Base Stock Fittings Equipment Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
Cost/valuation Balance as at 1st April 2020 2,696,859 663,140 111,682 401,440 292,647 103,714 74,026 719,910 196,522 30,174 5,290,114 5,196,872 Additions 3,188 8,468 648 443 2,074 - - 827 874 - 16,522 153,058 Transfers from WIP 21,631 4,438 - 3,909 - - - 52 34 (30,064) - - Disposals - (13,043) (12,097) (4,758) (2,725) (396) - (3,560) (6,899) - (43,478) (57,868) Transferred to revaluation (97,934) ------(97,934) - Revaluation 39,829 ------39,829 (1,948) Balance as at 31st March 2021 2,663,573 663,003 100,233 401,034 291,996 103,318 74,026 717,229 190,531 110 5,205,053 5,290,114
Accumulated depreciation Balance as at 1st April 2020 61,402 333,840 86,587 237,499 189,768 37,650 38,711 589,520 167,644 - 1,742,621 1,607,931 Charge for the year 48,740 27,092 7,682 22,830 12,366 6,884 3,577 26,839 18,456 - 174,466 187,994 Disposals - (11,425) (12,086) (3,973) (2,360) (167) - (3,040) (6,368) - (39,419) (53,304) Transferred to revaluation (97,934) ------(97,934) - Balance as at 31st March 2021 12,208 349,507 82,183 256,356 199,774 44,367 42,288 613,319 179,732 - 1,779,734 1,742,621
Carrying Amount As at 31st March 2021 2,651,365 313,496 18,050 144,678 92,222 58,951 31,738 103,910 10,799 110 3,425,319 - As at 31st March 2020 2,635,457 329,300 25,095 163,941 102,879 66,064 35,315 130,390 28,878 30,174 - 3,547,493
The cost of the fully depreciated assets in the Company which are still in use of the Company amounting Rs. 1,132 Mn (Rs. 967 Mn in 2020). There are no assets pledged as at the reporting date that require disclosure in the Company.
14.1 Valuation of Property, Plant and Equipment continued The Company uses the revaluation model of measurement for buildings. The Company engaged P. B. Kalugalagedera & Associates, an accredited independent valuer, to determine the fair value of its buildings. Fair value is determined by reference to market-based evidence. Valuations are based on open market prices, adjusted for any difference in the nature, location or condition of the specific property. The date of the most recent valuation was 31st December 2020.
Further, there is no significant change in the fair value as at 31st March 2021.
80 Trans Asia Hotels PLC Details of Company’s buildings stated at valuation are indicated below. Property Method of valuation Effective date of valuation Property valuer Two buildings (Extent -Hotel Direct capital comparison method 31st December 2020 P B Kalugalagedera & Building 316,063 sq.ft. HR This method is primarily based on the principle Associates Chartered Building 28,320 sq.ft) No 115, of substitution, where the purchaser would be Valuation Surveyor Sir Chittampalam A Gardiner unwilling to pay more for a specific property Mawatha Colombo 02 than the cost of obtaining a comparable, competitive property with the same utility, on the open market, provided there is no delay in making the acquisition.
The fair value measurement for property, plant and equipment has been categorised as a level 3 fair value based on the inputs to the valuation. Type of Asset Fair value as at Valuation technique Significant Estimates for Sensitivity of fair value 31.12.2020 unobservable unobservable inputs to unobservable inputs Rs. inputs Building on 2,659,927,000 Direct capital comparison Estimated price Rs. 7,500/- per sq. ft. Estimated fair value will leasehold land method per square feet Rs. 3,350/- per sq. ft. increase/(decrease) if This method is primarily based Rs. 5,975/- per sq. ft. the price per square feet on the principle of substitution, Rs. 500/- per sq. ft. for building increase/ where the purchaser would Rs. 400/- per sq.ft. (decrease) be unwilling to pay more for a Capitalisation 6.25% & 3% for Estimated fair value will specific property than the cost rate 59 years increase/(decrease) if of obtaining a comparable, the capitalisation rate competitive property with the (increase)/decrease same utility, on the open market, provided there is no delay in making the acquisition.
The carried amount of fair value of buildings if they were carried at cost less depreciation would be as follows, As at 31st March 2021 2020
Cost 2,208,495 2,183,676 Accumulated depreciation (653,937) (605,197) Disposals (26,821) (26,821) Carrying value 1,527,737 1,551,658 a) Impairment The Company has not determined Impairment as at the reporting date due to the COVID-19 pandemic as each business unit implemented its business continuity plans which were operationalised during the early days of the pandemic. Business also developed and instituted COVID-19-specific response plans and teams to enable smooth and uninterrupted functioning of business and operations to the extent possible, whilst maintaining strict adherence to Government directives and health and safety considerations in situations where normal operations are disrupted.
Revaluation of land and buildings The Company uses the revaluation model of measurement of land and buildings. The Company engaged independent expert valuers to determine the fair value of its land and buildings. Fair value is determined by reference to market-based evidence of transaction prices for similar properties. Valuations are based on open market prices, adjusted for any difference in the nature, location, or condition of the specific property. These valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. The date of the most recent revaluation carried out was on 31 December 2020.
Annual Report 2020 | 2021 81 Notes to the Financial Statements contd.
All values are in Rupees’ 000s, unless otherwise stated Figures in brackets indicate deductions.
The valuations as of 31 December 2020 contained a higher estimation uncertainty as there were fewer market transactions which are ordinarily a strong source of evidence regarding fair value. The value reflected represents the best estimate based on the market conditions that prevailed, which in valuers’ considered opinion, meets the requirements in SLFRS-13 Fair Value Measurement.
15. Right of use Assets Accounting Policy The Company recognises right of use assets when the underlying asset is available for use. Right of use assets are measured at cost, less any accumulated amortisation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right of use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right of use assets are amortised on a straight-line basis over the shorter of its estimated useful life or the lease term. Right of use assets are subject to impairment.
2021 2020
As at 1 April 744,240 756,644 Amortisation expense (12,404) (12,404) As at 31 March 731,836 744,240
Right of use assets is the land where the Company is located. The leasehold land is on a 99 years long term lease agreement entered with the Urban Development Authority, Sri Lanka, which commenced from 7th August 1981 and is being amortised on a straight line basis over a period of 94 years which commenced from 1st April 1986.
The Company has not determined impairment as at the reporting date due to the COVID-19 pandemic as each business unit implemented its business continuity plans which were operationalised during the early days of the pandemic. Businesses also developed and instituted COVID-19-specific response plans and teams to enable smooth and uninterrupted functioning of businesses and operations to the extent possible, whilst maintaining strict adherence to Government directives and health and safety considerations in situations where normal operations are disrupted.
15.1 Details of Right of Use Assets Property In Rs. ‘000s Land extent Lease period 2021 2020
Trans Asia Hotels PLC A07 - R01 - P24.28 99 years from 07-08-1981 731,836 744,240 731,836 744,240
16. Investment Property Accounting Policy Basis of recognition and measurement Investment property is the property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is initially measured at cost and subsequently at fair value with any change therein recognised in profit and loss.
Cost includes expenditure that is directly attributable to the acquisition of the investment property. The cost of self - constructed investment property includes the cost of materials and direct labour, any other costs directly attributable to bringing the investment property to a working condition for their intended use and capitalised borrowing costs.
82 Trans Asia Hotels PLC Any gain or loss on disposal of an investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss.
As at 31st March 2021 2020
Balance at the beginning of the year 2,875,025 2,712,600 Change in fair value during the year (Note 16.1) (109,519) 162,425 Balance at the end of the year 2,765,506 2,875,025
16.1 Valuation Details of Investment Property Fair value of the investment property is ascertained by independent valuations carried out by M/s P.B. Kalugalagedara, Chartered Valuation Surveyors, who have recent experience in valuing properties of akin location and category. Investment property is appraised in accordance with LKAS 40.
In determining the fair value, the current condition of the properties, future usability and associated redevelopment requirements have been considered. Also, the valuers have considered the property location and size.
The fair value measurement for investment property has been categorised as a level 3 fair value, based on the inputs to the valuation technique used.
The Commercial Centre was revalued on 31st December 2020 by qualified valuers and the deficit arising from the valuation was transferred to the statement of profit or loss.
As per the valuer’s opinion, there is no significant change in the fair value as at 31st March 2021.
As at 31 March Property Method of Valuation 2021 2020 Leasehold property Direct capital comparison method 2,765,506 2,875,025 This method is primarily based on the principle of substitution, Commercial Centre where the purchaser would be unwilling to pay more for a (Land extent - A 01 - R02 - P30.0, specific property than the cost of obtaining a comparable, Building extent - 55,548 sq.ft. - competitive property with the same utility, on the open market, Number of Buildings 1) provided there is no delay in making the acquisition. No. 117, Sir Chittampalam A Gardiner Mawatha, Colombo 02
Rental income earned from investment property by the Company amounted to Rs. 65 Million (2020 - Rs. 65 Million) and direct operating expenses incurred by the Company amounted to Rs. 8 Million (2020 - Rs. 8 Million).
Annual Report 2020 | 2021 83 Notes to the Financial Statements contd.
All values are in Rupees’ 000s, unless otherwise stated Figures in brackets indicate deductions.
16.2 Description of Valuation Techniques used and Key Inputs and Assumptions used for Valuation Estimates for Significant Sensitivity of fair value to Valuation technique unobservable unobservable Inputs unobservable inputs inputs Commercial Direct capital comparison method y Capitalisation rate y 6.25% & 3% Estimated fair value will Centre building This method is primarily based on for 59 years increase/(decrease) if the the principle of substitution, where capitalisation rate (increase)/ the purchaser would be unwilling to decrease pay more for a specific property than y Price per building y Rs. 3,725 Estimated fair value will the cost of obtaining a comparable, square feet increase/(decrease) if the price competitive property with the same per square feet for building utility, on the open market, provided increase/(decrease) there is no delay in making the y Estimated price per y Rs. 14.5Mn Estimated fair value will acquisition. land perch increase/(decrease) if the price per perch for land increase/ (decrease)
The valuations as of 31 December 2020 contained a higher estimation uncertainty as there were fewer market transactions which are ordinarily a strong source of evidence regarding fair value. The value reflected represents the best estimate based on the market conditions that prevailed, which in valuer’s considered opinion, meets the requirements in SLFRS-13 Fair Value Measurement.
17. Intangible Assets Accounting Policy Recognition and Measurement An intangible asset is an identifiable non-monetary asset without physical substance held for use in the production or supply of goods or other services, rental to others or for administrative purpose.
An intangible asset is initially recognised at cost, if it is probable that future economic benefits will flow to the enterprise, and the cost of assets can be measured reliably. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.
Computer Software All computer software costs incurred, licensed for use by the Company, which are not integrally related to associated hardware, which can be clearly identified, reliably measured and it’s probable that they will lead to future economic benefits, are included in the Statement of Financial Position under the category intangible assets and carried at cost less accumulated amortisation and any accumulated impairment losses.
Amortisation Intangible assets with finite lives are amortised over the estimated useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. Intangible assets are amortised on a straight line basis from the date on which the asset was available for use, over the best estimate of its useful life. The estimated useful life of software is five years. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end.
84 Trans Asia Hotels PLC De-recognition An intangible asset is de-recognised on disposal or when no future economic benefits are expected from its use and subsequent disposal.
As at 31st March 2021 2020
Computer software Cost Balance at the beginning of the year 26,863 26,677 Additions - 186 Balance at the end of the year 26,863 26,863
Accumulated amortisation Balance at the beginning of the year 25,857 25,416 Amortisation for the year 317 441 Balance at the end of the year 26,174 25,857
Carrying amount 689 1,006
18. Inventories Accounting Policy Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the weighted average principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs, and other costs incurred in bringing them to their existing location and condition.
As at 31st March 2021 2020
Food 8,780 16,316 Beverage 13,065 15,310 Engineering spares 8,340 8,975 Guest supplies 2,212 2,291 Others 4,856 5,738 Provision for slow moving inventory (718) (8,772) 36,535 39,858
19. Trade and Other Receivables See Note 4(b) for the accounting policy on financial instruments As at 31st March 2021 2020
Trade receivables 318,570 428,247 Provision for impairment (Note 19.1) (289,365) (13,051) 29,205 415,196
Advances and deposits 31,243 33,489 Staff loans recovered within one year (Note 29.2.3) 3,179 2,564 34,422 36,053 63,627 451,249
Annual Report 2020 | 2021 85 Notes to the Financial Statements contd.
All values are in Rupees’ 000s, unless otherwise stated Figures in brackets indicate deductions.
19.1 Provision for Impairment of Trade Receivables As at 31st March 2021 2020
Balance at the beginning of the year 13,051 9,927 Provision made during the year 276,314 3,124 Balance at the end of the year 289,365 13,051
The Company’s exposure to credit risk is influenced by the individual characteristics of each customer. The individual receivable balances were re-assessed, specific provisions were made wherever necessary, existing practice on the provisioning of trade receivables were re-visited and adjusted to reflect the rearrangement of homogeneous groups where the COVID-19 outbreak has affected different types of customers. Receivable balances are monitored on an ongoing basis to minimise bad debt risk and to ensure default rates are kept very low whilst the improved operating environment itself during the financial year has resulted in improved collections.
20. Other Current Assets As at 31st March 2021 2020
Advances to other creditors 311 4,648 Prepayments 48,202 32,493 WHT recoverable 8 14,059 ESC recoverable - 9,420 48,521 60,620
21. Stated Capital Accounting Policy The ordinary shares of the Trans Asia Hotels PLC are quoted in the Colombo Stock Exchange. The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are eligible for one vote per share at Annual General Meetings of the Company.
As at 31st March 2021 2020
Issued and fully paid 200,000,000 ordinary shares 1,112,880 1,112,880
22. Other Components of Equity As at 31st March 2021 2020
Balance at the beginning of the year 1,503,708 1,528,203 Transferred to revenue reserve (25,134) (25,134) Share based payments - (Note 24) 488 2,314 Revaluation gain/(loss) on Building net of tax 34,253 (1,675) Balance at the end of the year 1,513,315 1,503,708
22.1 Revaluation Reserve Revaluation reserve relates to the revaluation of property,plant and equiment.
86 Trans Asia Hotels PLC 23. Interest Bearing Loans and Borrowings See Note 4(b) for the accounting policy of financial instrument As at 31st March 2021 2020
Balance at the beginning of the year 186,573 165,479
Cash Changes Loans obtained 25,000 - Repayments (12,500) (990)
Non Cash Changes Accrued Interest 8,446 8,799 Exchange difference 10,008 13,285 At the end of the year 217,527 186,573
Repayable within one year 177,511 146,619 Repayable after one year 40,016 39,954 217,527 186,573
Security and repayment terms 2021 2020 Nature of facility Interest rate Repayment terms Collaterals Face Carrying Face carrying value Value value value Term Loan (USD) LIBOR+ Margin Capital repayment in 5 equal None 187,782 187,782 177,774 177,774 quarterly instalments of USD 187,500 commencing on 01.04.2021. Interest to be serviced monthly. Interest accrued on Lower of Repayment in 5 equal monthly None 17,245 17,245 8,799 8,799 term loan USD during LIBOR +Margin instalments of USD 18,455 COVID-19 moratorium or one year commencing from 01.04.2021 phase 1 and 2 Fixed Deposit rate+1% Saubagya Loan 4% 6 Equal instalments commencing None 12,500 12,500 - - from January 2021
The Company continued to place emphasis on ensuring that cash and undrawn committed facilities are sufficient to meet the short, medium and long-term funding requirements, unforeseen obligations as well as unanticipated opportunities. Constant dialogue between Company and banks regarding financing requirements, ensures that availability within each single borrower limit is optimised by efficiently reallocating under-utilised facilities within the Company. The daily cash management processes at the business units include active cash flow forecasts and matching the duration and profiles of assets and liabilities, thereby ensuring a prudent balance between liquidity and earnings.
Annual Report 2020 | 2021 87 Notes to the Financial Statements contd.
All values are in Rupees’ 000s, unless otherwise stated Figures in brackets indicate deductions.
24. Share-Based Payment Plans Accounting Policy In accounting for employee remuneration in the form of shares, SLFRS 2- Share Based Payments, is effective for the Company’s Ultimate Parent entity John Keells Holdings PLC, from the financial year beginning 2013/14.
Employees of the Company receive remuneration in the form of share- based payment transactions, whereby employees render services as consideration for equity instruments of the Parent entity, John Keells Holdings PLC (equity-settled transactions). The cost of the employee services received in respect of the shares or share options granted is recognised in the income statement over the period that employees provide services, from the time when the award is granted up to the vesting date of the options. The overall cost of the award is calculated using the number of share options expected to vest and the fair value of the options at the date of grant.
The employee remuneration expense resulting from the Group’s share option scheme to the employees of Trans Asia Hotels PLC is recognised in the income statement of the Company. This transaction does not result in a cash outflow to the company and expense recognised is met with a corresponding equity reserve increase, thus having no impact on the statement of financial position (SOFP). The fair value of the options granted is determined by the Group using an option valuation model and the relevant details are communicated by the Group to all applicable subsidiary companies.
Employee share option scheme Under the John Keells Group’s employees share option scheme (ESOP), share options of the parent are granted to senior executives of the Company with more than 12 months of service. The exercise price of the share options is equal to the 30 day volume weighted average market price of the underlying shares on the date of grant. The share options vest over a period of four years and is dependent on a performance criteria and a service criteria. The performance criteria being a minimum performance achievement of “Met Expectations” and service criteria being that the employee has to be in employment at the time the share options vest. The fair value of the share options is estimated at the grant date using a binomial option pricing model, taking into account the terms and conditions upon which the share options were granted.
The contractual term for each option granted is five years. There are no cash settlement alternatives. The Group does not have a past practice of cash settlement for these share options.
The expense recognised for employee services received during the year is shown in the following table: 2021 2020
Expense arising from equity-settled share-based payment transactions 488 2,314 Total expense arising from share-based payment transactions 488 2,314
Movements in the year The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in, share options during the year: 2021 2020 No. WAEP No. WAEP
Outstanding at 1 April 260,167 157.37 322,746 160.02 Granted during the year - - 50,000 136.97 Lapses/forfieited during the year (65,774) 151.44 (68,146) 142.81 Adjustment during the year - - (44,433) 176.04 Outstanding at 31 March 194,393 159.37 260,167 157.37 Exercisable at 31 March 157,578 158.41 177,626 155.61
Fair value of the share option and assumptions The fair value of the share options is estimated at the grant date using a binomial option pricing model, taking into account the terms and conditions upon which the share options were granted. The valuation takes into account factors such as stock price, expected time to maturity, exercise price, expected volatility of share price, expected dividend yield and risk free interest rate. 88 Trans Asia Hotels PLC 25. Employee Benefits Accounting Policy Defined contribution plans A defined contribution plan is a post- employment benefit plan under which an entity pays fixed contributions into a separate entity- and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an employee benefit expense in profit or loss in the periods during which related services are rendered by employees.
Employees are eligible for Employees’ Provident Fund contributions and Employees Trust Fund contributions in line with respective statutes and regulations. The Company contributes 12 percent and 3 percent of gross emoluments of employees to Employees’ Provident Fund and Employees’ Trust Fund respectively.
Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.
The Company is liable to pay retirement benefits under the Payment of Gratuity Act, No. 12 of 1983. The liability recognised in the Financial Statements in respect of defined benefit plans is the present value of the defined benefit obligation as at the reporting date. The defined benefit obligation is calculated by a qualified actuary as at the reporting date using the Projected Unit Credit (PUC) method as recommended by LKAS 19 -’Employee Benefits’. Such actuarial valuations will be carried out every year, The liability is not externally funded. All Actuarial gains or losses are recognised under other comprehensive income.
Under the Payment of Gratuity Act No. 12 of 1983, the liability to an employee arises only on completion of 5 years of continued service.
As at 31st March 2021 2020
Balance at the beginning of the year 137,681 141,854 Current service cost 10,836 10,147 Interest cost 15,145 14,185 Transfer in 210 1,760 Transfer out (1,319) (5,621) Payments made during the year (16,420) (15,295) Actuarial gain arising from changes in the assumptions in the previous years (96) (9,349) Balance at the end of the year 146,037 137,681
The employee benefit liability of the Company is based on the actuarial valuation carried out by Mr. Poopalanathan AIA, Messrs. Actuarial and Management Consultants (Pvt) Ltd., a firm of professional actuaries as at 31st March 2021. The principal assumptions used in determining the cost of employee benefits were:
25.1 Provision Recognised in the Income Statement For the year ended 31st March 2021 2020
Current service cost 10,836 10,147 Interest cost 15,145 14,185 Total Provision recognised in the Income Statement 25,981 24,332
Annual Report 2020 | 2021 89 Notes to the Financial Statements contd.
All values are in Rupees’ 000s, unless otherwise stated Figures in brackets indicate deductions.
25.2 Provision Recognised in Other Comprehensive Income For the year ended 31st March 2021 2020
Actuarial gain during the year (96) (9,349) Total Provision recognised in Other Comprehensive Income (96) (9,349)
2021 2020
Discount rate 8% 11% Future salary increases 8% 8%
Sensitivity of assumptions used If a one percentage point change in the assumptions it would have the following effects: For the year ended 31 March, 2021 2020 Discount Salary Discount Salary rate increment rate increment
Effect on the defined benefit obligation liability Increase by one percentage point (5,925) 6,673 (5,503) 6,371 Decrease by one percentage point 6,435 (6,253) 5,981 (5,953)
Maturity analysis of the payments The following payments are expected on employee benefit liabilities in future years. Future working life time Defined Benefit Obligation 2021 2020
Within the next 12 months 23,450 26,594 Between 1 and 2 years 33,593 28,688 Between 2 and 5 years 55,278 45,491 Between 5 and 10 years 23,441 26,787 Beyond 10 years 10,275 10,121 Total expected payments 146,037 137,681 The average duration of the defined benefit plan obligation at the end of the reporting period is 4.51 years .
26. Trade and Other Payables As at 31st March 2021 2020
Trade payables 79,392 97,874 Contract liabilities 10,048 10,048 Advances and deposits received 47,881 19,185 Accruals and other payables 149,819 148,018 Staff payables 23,319 19,563 310,459 294,688
90 Trans Asia Hotels PLC 27. Other Current Liabilities As at 31st March 2021 2020
Contract liabilities (Banquet Advance) 85,006 83,580 Other advances 8,339 5,197 Other taxes payable 5,617 30,365 98,962 119,142
28. Related Party Transactions Terms and conditions of transactions with related parties The Company carries out transactions in the ordinary course of business on an arm’s length basis with parties who are defined as Related Parties in “ Sri Lanka .Accounting Standards (LKAS 24) Related Party Disclosures, the details of which are reported below.
Outstanding current account balances at the year end are unsecured, interest free and settlements occur in cash.
Non-recurrent related party transactions There were no non-recurrent related party transactions which in aggregate value exceeds 10% of the equity or 5% of the total assets whichever is lower of the Company as per 31 March 2020 audited financial statements, which required additional disclosures in the 2020/21 Annual Report under Colombo Stock Exchange listing Rule 9.3.2 and Code of Best Practices on Related Party Transactions under the Security Exchange Commission Directive issued under Section 13(c) of the Security Exchange Commission Act.
Recurrent related party transactions There were no recurrent related party transactions which in aggregate value exceeds 10% of the revenue of the Company as per 31 March 2020 audited financial Statements, which required additional disclosures in the 2020/21 Annual Report under Colombo Stock Exchange listing Rule 9.3.2 and Code of Best Practices on Related Party Transactions under the Security Exchange Commission Directive issued under Section 13(c) of the Security Exchange Commission Act.
The parent entity of the company is Asian Hotels and Properties PLC. In the opinion of the directors, the ultimate parent undertaking and controlling entity is John Keells Holdings PLC which is incorporated in Sri Lanka.
28.1 Transactions with Related Companies 2021 2020
Ultimate Parent - John Keells Holdings PLC Rendering of Services 256 3,275 Receiving of Services (38,872) (41,908) Rent received 27,767 29,369
Parent - Asian Hotels and Properties PLC Rendering of services 4 538 Receiving of services (660) (2,821)
Transactions with Companies under common control of John Keells Holdings PLC Purchase of goods (7) (3,448) Rendering of services 6,928 62,227 Receiving of services (76,738) (163,807) Rent Received 42,484 44,935
Equity accounted investees of John Keells Holdings PLC Rendering of services 633 9,449 Receiving of services (5,283) (6,598) Annual Report 2020 | 2021 91 Notes to the Financial Statements contd.
All values are in Rupees’ 000s, unless otherwise stated Figures in brackets indicate deductions.
Transaction with Key Management Personnel (KMP) According to ‘Sri Lanka Accounting Standards (LKAS 24) ‘ Key Management Personnel are those having authority and responsibility for planning and controlling activities of the entity. Accordingly, the Directors of the Company (including Executive and Non Executive Directors) have been classified as KMP of the Company.
2021 2020
Compensation of key management personnel Short term employee benefits 4,920 6,000
Key management personnel Rendering services 225 371
Governance structure, nature of the entity’s relationships, principal place of business and the country of incorporation have been disclosed in the “Report of the Related Party Transaction Review Committee”.
28.2 Amounts Due from Related Parties See Note 4(b) for the accounting policy of financial instrument Ultimate parent - John Keells Holdings PLC 5,632 9,987 Parent - Asian Hotels and Properties PLC 592 519 Companies under common control of JKH PLC (28.3) 8,658 34,589 14,882 45,095
28.3 Companies Under Common Control of JKH PLC Walkers Tours Limited 3,312 12,806 Cinnamon Hotel Management Ltd 2,998 7,943 Others 2,348 13,840 8,658 34,589
28.4 Amounts Due to Related Parties See Note 4 (b) for the accounting policy of financial instrument Ultimate parent - John Keells Holdings PLC 4,000 4,159 Parent-Asian Hotels and Properties PLC 1,856 332 Cinnamon Hotel Management Ltd 8,090 6,796 Companies under the common control of John Keells Holdings PLC 901 1,116 14,847 12,403
92 Trans Asia Hotels PLC 29. Financial Instruments 29.1 Financial Assets and Liabilities by Categories Financial assets and liabilities in the tables below are split into categories in accordance with SLFRS 09. Financial assets and liabilities by categories Financial Assets Financial Liabilities at amortised cost at amortised cost As at 31st March 2021 2020 2021 2020
Financial instruments in non-current assets/(liabilities) Other non-current assets 2,024 2,380 - - Non-current financial assets 12,547 9,224 - - Interest bearing loans and borrowings - - (40,016) (39,954)
Financial instruments in current assets/(liabilities) Trade and other receivables/payables 63,627 451,249 (200,118) (185,507) Amounts due from/due to related parties 14,882 45,095 (14,847) (12,403) Cash in hand and at bank 70,803 110,743 - - Bank overdrafts - - (262,124) (76,256) Current portion of interest bearing borrowings - - (177,511) (146,619) Total 163,883 618,691 (694,616) (460,739)
The management assessed that the fair value of cash, trade receivables, trade payables, bank overdrafts and other current financial liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. Accordingly the fair value hierarchy does not apply.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between knowledgeable and willing parties, other than in a forced sale or on liquidation.
29.2 Financial Risk Management Objectives and Policies Financial instruments held by the Company, principally comprises of cash, loans and other receivables, trade and other receivables, trades and other payables, related party receivable & payables and Interest bearing loans and borrowings.
The main purpose of these financial instruments is to manage the operating, investing and financing activities of the Company.
Financial risk management of the Company is carried out based on guidelines established by its Parent Company’s central treasury department (Group Treasury) which comes under the purview of the Group Executive Committee (GEC) of the Parent Company. Group Treasury identifies, evaluates and hedges financial risks in close co-operation with the Hotel’s operating unit. The parent Company provides guidelines for overall risk management, as well, covering specific areas such as credit risk, investment of excess liquidity, interest rate risk and foreign currency risk.
The Company has established guidelines for risk controlling procedures and for the use of financial instruments, including a clear segregation of duties with regard to financial activities, settlement, accounting and related controlling . The guidelines upon which the Company’s risk management process are based and designed to identify and analyse these risks throughout the Company, to set appropriate risk limits and controls and to monitor the risks by means of reliable and up-to-date administrative and information systems. The guidelines and systems are regularly reviewed and adjusted to changes in markets and products. The Company manages and monitors these risks primarily through its operating and financing activities.
Audit committee of the Company monitors how management compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework relation to the risks faced by the Company. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.
Annual Report 2020 | 2021 93 Notes to the Financial Statements contd.
All values are in Rupees’ 000s, unless otherwise stated Figures in brackets indicate deductions.
29.2.1 Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.
The Company trades only with recognised, creditworthy third parties. It is the Company’s policy that all clients who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Company’s exposure to bad debts is not significant.
With respect to credit risk arising from the other financial assets of the Company, such as cash and cash equivalents, the Company’s exposure to credit risk arises from default of the counterparty. The Company manages its operations to avoid any excessive concentration of counterparty risks and the Company takes all reasonable steps to ensure that the counterparties fulfil their obligations.
COVID-19 impact on the credit risk is presented in Note 19.
29.2.2 Credit risk exposure The maximum risk positions of financial assets which are generally subject to credit risk are equal to their carrying amounts (without consideration of collateral, if available. Following table shows the maximum risk positions.(without consideration of collateral, if available).
Notes Other Cash at Trade Short term Amounts Total % of non current bank and other investments due from allocation financial assets receivables related parties
As at 31st March 2021 Loans to executives 29.2.3 14,571 - 3,179 - - 17,750 14% Trade and other receivables 29.2.4 - - 29,205 - - 29,205 22% Amounts due from related parties 29.2.5 - - - - 14,882 14,882 11% Bank balances 29.2.6 - 69,255 - - - 69,255 53% Total credit risk exposure 14,571 69,255 32,384 - 14,882 131,092 100%
As at 31st March 2020 Loans to executives 29.2.3 11,604 - 2,564 - - 14,168 2% Trade and other receivables 29.2.4 - - 415,196 - - 415,196 71% Amounts due from related parties 29.2.5 - - - - 45,095 45,095 8% Bank balances 29.2.6 - 110,100 - - - 110,100 19% Total credit risk exposure 11,604 110,100 417,760 - 45,095 584,559 100%
94 Trans Asia Hotels PLC 29.2.3 Loans to Executives Loans to executive portfolio is made up of vehicle loans which are given to staff at manager level and above. Company has obtained the necessary Power of Attorney/Promissory Notes as collateral for the loans granted.
As at 31 March 2021 2020
At the beginning of the year 14,168 11,356 Loans granted 11,000 9,218 Recoveries (7,418) (6,406) At the end of the year 17,750 14,168
Receivable within one year (Note 19) 3,179 2,564
Non Current Financial Assets Receivable between one and five years 14,571 11,604 17,750 14,168
29.2.4 Trade receivables Age analysis of trade receivables and other carrying value net of impairment losses is given below: Company As at 31 March 2021 2020
Neither past due nor impaired 1,151 953
Past due but not impaired < 30 days 21,863 63,864 31 - 60 days 12,410 212,468 61 - 90 days (1,624) 59,513 91 - 120 days (6,633) 53,786 121 - 180 days (2,222) 25,068 > 180 days 293,625 12,595 Gross carrying value 318,570 428,247 Less: impairment provision Individually assessed impairment provision (289,365) (13,051) Total 29,205 415,196
The Company has obtained deposits from major customers by reviewing their past performance and credit worthiness, as collateral. The requirement for an impairment is analysed at each reporting date on an individual basis for major customers.
29.2.5 Amounts due from related parties The Company’s amounts due from related party mainly consists balances from related companies.
29.2.6 Cash and cash equivalents In order to mitigate settlement and operational risks related to cash and cash equivalents, the Company uses several banks with acceptable rating for its deposits. The Company held cash in hand and at bank of Rs. 70.8 Million excluding bank overdrafts as at 31 March 2021 (2020 Rs. 110.7 Million).
29.3 Liquidity risk Liquidity risk is the risk that the Company encounter a difficulty in meeting the obligation associated with it’s financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to Company’s reputation.
Annual Report 2020 | 2021 95 Notes to the Financial Statements contd.
All values are in Rupees’ 000s, unless otherwise stated Figures in brackets indicate deductions.
Company monitors the level of expected cash inflows on trade and other receivable together with expected cash outflows on trade and other payables as at 31st March 2021. The expected cash flow from trade and other receivables maturing within two months were Rs. 102 Million (2020 - Rs. 200 Million).
This excludes the potential impact of extreme circumstances that cannot reasonably be predicted such as natural disasters.
Company has approved overdraft facilities amounting to Rs. 406 Million as at 31st March 2021 of which Rs. 262 Million had been utilised as at 31st March 2021.
The following are the remaining contractual maturities at the end of reporting period of financial liabilities, including estimated interest payments and excluding the impact of netting agreements.
Carrying Total 2 Months or 2 -12 1-2 Year 2-5 Year More than 5 Amount less Months years
Contractual cash flows - 2021 Trade payables 79,392 79,392 79,392 - - - - Staff payables 23,319 23,319 23,319 - - - - Amount due to related parties 14,847 14,847 14,847 - - - - Loans and borrowings 217,527 217,527 - 177,511 40,016 - -
Contractual cash flows - 2020 Trade payables 97,874 97,874 97,874 - - - - Staff payables 19,563 19,563 19,563 - - - - Amount due to related parties 12,403 12,403 12,403 - - - - Loans and borrowings 186,573 186,573 - 146,619 39,954 - -
Management of Liquidity risk The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to it’s reputation.
Company monitors the level of expected cash flows on trade and other receivables together with expected cash outflow on trade and other payables and it expected a significant portion of Trade receivables as at the reporting date would mature within a shorter period of time, given the historical trends, which enable to meet its contractual obligations.
Company has implemented a mixed approach that combines elements of the cash flow matching approach and the liquid assets approach. The business units attempt to match cash outflows in each time bucket against the combination of contractual cash inflows plus other inflows that can be generated through the sale of assets, repurchase agreement, or other secured borrowings.
The Company continued to place emphasis on ensuring that cash and undrawn committed facilities are sufficient to meet the short, medium and long-term funding requirements, unforeseen obligations as well as unanticipated opportunities. Constant dialogue between banks regarding financing requirements, ensures that availability within borrower limit is optimised by efficiently reallocating under-utilised facilities within the Company.
The daily cash management processes of the Company include active cash flow forecasts and matching the duration and profiles of assets and liabilities, thereby ensuring a prudent balance between liquidity and earnings.
The Government of Sri Lanka offered certain relief measures including a moratorium on repayment of loans and concessionary working capital facilities for eligible industries. Company qualified for such relief measures and it helped ease the financial position further during the financial year. On 19th March 2021, the Government issued a circular extending the debt moratorium granted for tourism sector for another six months commencing 1 April 2021, which was availed by the qualifying companies.
96 Trans Asia Hotels PLC 29.4 Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates will affect income or the value of its holdings of financial instruments, The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
29.4.1 Currency risk Foreign currency risk is that the fair value or future cash flows of a financial instrument will fluctuate, due to changes in foreign exchange rates. Company as at the reporting date, do not hold significant “ Financial Instruments” denominated in currencies other than its functional/reporting currency, hence do not get significantly exposed to currency risk from transaction of such balances in to the functional/reporting currency, which is Sri Lankan Rupees.
The bank loan obtained in US Dollar terms are matched with US Dollar receipts from customers. The annual average US Dollar receipts of the Company is USD 10,235 approximately.
However, Company engages in transactions associated with foreign currencies in its ordinary course of operations, hence exposed to Currency risk.
Across the industry, the hotel rates targeting the foreign tourists are quoted in US Dollar terms, However a fluctuation in the exchange rate will not have a significant impact since majority of the quotes are converted to local currency at the point of invoicing. The Company monitors fluctuations in foreign exchange rates and takes precautionary measures to revise its exchange rates on a regular basis. In an attempt to mitigate the exposure to currency risk arising from its transactions.
The Sri Lankan Rupee witnessed significant volatility during 2020/21 on the back of the COVID-19 pandemic and macro-economic pressures. The Company adopted prudent measures, as and when required, to manage the financial impacts arising from currency fluctuations by matching liabilities with corresponding inflows .
Interest rate risk Interest rate risk mainly arises as a result of Company having interest sensitive assets and liabilities which are directly impacted by changes in the interest rates.The company is exposed to interest rate risk for USD loan obtained from Hatton National Bank. However ,management monitors the sensitivities on regular basis and ensure risks are managed on a timely manner.
The outbreak of the COVID-19 pandemic has resulted in reductions in policy rates and monetary easing policies by Central Bank of Sri Lanka which has resulted in a sharp reduction in lending rates. The Company has managed the risk of increased interest rates by having a balanced portfolio of borrowings at fixed and variable rates.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Company’s and the Company’s profit before tax.
Increase/(decrease) in basis points Effect on profit before tax Rupee borrowings Other currency borrowings Rs.000’s + 375 + 87 (9,615) 2021 - 375 - 87 9,615 + 274 +156 (2,773) 2020 -274 -156 2,773 The assumed spread of basis points for the interest rate sensitivity analysis is based on the currently observable market environment changes to base rates such as AWPLR and LIBOR.
Annual Report 2020 | 2021 97 Notes to the Financial Statements contd.
All values are in Rupees’ 000s, unless otherwise stated Figures in brackets indicate deductions.
30. Segmental Information Accounting Policy A segment is a distinguishable component of the Company that is engaged either in providing products or services which are subject to risks and rewards that are different from those of other segments. The rental income generated from the Commercial Centre which is categorised as Investment Property is shown separately.
The Company has the following two strategic division, which are its reportable segments. Reportable Segment Operation Hotel Hotelliering activities Investment property Renting out building premises
Hotel Investment Property Total For the year ended 31st March 2021 2020 2021 2020 2021 2020
Revenue from contracts with customers 745,920 2,263,549 65,048 65,048 810,968 2,328,597 Other operating income 3,717 7,579 - - 3,717 7,579 Expenses (1,622,515) (2,165,635) (8,189) (8,037) (1,630,704) (2,173,672) Net finance cost (20,481) (20,897) - - (20,481) (20,897) Change in fair value of investment property - - (109,519) 162,425 (109,519) 162,425 Profit/(loss) before taxation (893,359) 84,596 (52,660) 219,436 (946,019) 304,032 Segment assets 4,406,783 5,011,908 2,765,506 2,875,025 7,172,289 7,886,933 Segment liabilities 1,328,142 1,258,863 - - 1,328,142 1,258,863
31. Capital Management The primary objective of the Company capital management is to ensure that it maintains a strong financial position and healthy capital ratios in order to support its business and maximise shareholder value.
Company manages its capital structure, and makes adjustments to it, in the light of changes in economic conditions. To maintain or adjust the capital structure, the Company may issue new shares, have a rights issue or buy back of shares.
2021 2020
Total liabilities 1,328,142 1,258,863 Less: cash and short term deposits 70,803 110,743 Adjusted net debt 1,257,339 1,148,120 Total equity 5,844,147 6,628,072 Adjusted net debt to adjusted equity ratio 22% 17%
98 Trans Asia Hotels PLC 32. Capital Commitments and Contingent Liabilities Accounting Policy Provisions Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Contingent Liabilities Contingent liabilities are disclosed if there is a possible future obligation as a result of a past event, or if there is a present obligation as a result of a past event but either a payment is not probable or the amount cannot be reasonably estimated. The contingent liabilities of the Company as at 31st March 2021 relates to the following:
Income Tax Assessments Income tax assessments relates to years of assessments 2012/13 to 2017/2018. The company has lodged appeals against the assessments and is contesting these under appellate procedure. Having discussed with independent legal and tax experts and based on the information available, the contingent liability as at 31st March 2021 is estimated at Rs. 168 Million.
CMC Tax Matter In the year 2009, Colombo Municipal Council (CMC) imposed a trade tax on the hotel revenue for all the hotels within the city limits with subsequent gazetted amendments. However, the hoteliers together with Tourist Hotels Association of Sri Lanka (THASL) are in the process of negotiations with CMC through court, for which the resolution is still pending. Accordingly, the Company has made a provision in the financial statements amounting to Rs. 3 million per year based on the guidelines issued by THASL.
The management is confident that the ultimate resolution of the above contingencies are unlikely to have a material adverse effect on the financial position of the company.
The capital commitments of the Company as at the reporting date as follows. Bank guarantees Guarantee Amount Rs. Purpose Tax Appeal Commission 14,836,444 Tax Appeal Airport and Aviation Services 2,861,892 Security deposit for the rental Sri Lanka Ports Authority 2,829,538 Security deposit for rental
33. Events after the Reporting Period There have been no events subsequent to the reporting date which require disclosure in the Financial Statements.
34. Directors’ Responsibility Statement The Board of Directors is responsible for the preparation and presentation of the Financial Statements. Please refer to the page 51 for the statement of Directors’ Responsibility for Financial Reporting.
Annual Report 2020 | 2021 99 QUARTERLY FINANCIAL DATA FOR THE FINANCIAL YEAR ENDED 31ST MARCH 2021
Income Statement 30 Jun ‘20 30 Sep’20 31 Dec ‘20 31Mar ‘21 Total for the For the Quarter ended Year
Turnover 67,035 297,711 187,308 258,914 810,968 Cost of Sales (95,887) (211,846) (164,263) (192,882) (664,878) Gross Profit/(Loss) (28,852) 85,865 23,045 66,032 146,090 Other Operating Income 956 1,404 629 728 3,717 Administrative Expenses (122,126) (209,026) (193,942) (259,010) (784,104) Sales and Marketing Expenses (6,772) (19,733) (11,632) (7,293) (45,430) Other Operating Expenses (20,296) (38,253) (35,125) (42,618) (136,292) Loss from Operating Activities (177,090) (179,743) (217,025) (242,161) (816,019) Finance Cost (2,392) (3,145) (3,377) (15,296) (24,210) Finance Income 1,568 694 647 820 3,729 Change in Fair Value of Investment Property - - - (109,519) (109,519) Loss before Taxation (177,914) (182,194) (219,755) (366,156) (946,019) Income tax expense 21,835 24,791 30,830 49,817 127,273 Loss after Taxation (156,079) (157,403) (188,925) (316,339) (818,746)
Loss Per Share for the period - - - - (4.09)
Balance Sheet As at 30 Jun ‘20 30 Sep’20 31 Dec ‘20 31Mar ‘21
Net Assets Property, Plant & Equipment 3,503,208 3,461,698 3,420,137 3,425,319 Other Non Current Assets 3,627,947 3,624,071 3,620,175 3,512,602 Net Current Assets (126,751) (168,065) (406,431) (660,220) 7,004,404 6,917,704 6,633,881 6,277,701 Less : Non Current Liabilities (532,227) (602,744) (507,831) (433,554) 6,472,177 6,314,960 6,126,050 5,844,147
Shareholders’ Funds Stated capital 1,112,880 1,112,880 1,112,880 1,112,880 Other components of equity and revenue reserves 5,359,297 5,202,080 5,013,170 4,731,267 6,472,177 6,314,960 6,126,050 5,844,147
Net Assets Per Share 32.36 31.57 30.63 29.22
100 Trans Asia Hotels PLC FIVE YEAR FINANCIAL SUMMARY & KEY INDICATORS
20/21 19/20 18/19 17/18 16/17 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000
Operating Results Total revenue 810,968 2,328,597 2,825,425 3,198,851 3,251,041 Sales growth/(decline) % (65.17) (17.58) (11.67) (1.61) 30.89 Profit/(Loss) from operating activities (816,019) 162,504 413,980 605,095 776,841 Finance expenses 24,210 25,555 57,864 26,251 29,197 Rates, insurance, depreciation & amortisation 219,783 231,439 235,192 237,189 250,386 Net profit/(loss) before tax (946,019) 304,032 524,321 989,719 1,015,871
Shareholder’s Funds Stated capital 1,112,880 1,112,880 1,112,880 1,112,880 1,112,880 Other components of equity 1,513,315 1,503,708 1,528,203 1,560,892 1,589,102 Revenue reserves 3,217,952 4,011,482 3,803,088 3,509,347 3,305,658 Total equity 5,844,147 6,628,070 6,444,171 6,183,119 6,007,640
Assets Employed Property, plant and equipment 3,425,319 3,547,493 3,588,941 3,685,300 3,653,984 Right-of-use asset 731,836 744,240 756,644 769,048 781,452 Investment property 2,765,506 2,875,025 2,712,600 2,546,000 2,148,400 Other non current assets 15,260 12,610 10,170 11,313 10,724 Net current assets (660,220) 9,176 (68,720) (161,037) 144,937 6,277,701 7,188,544 6,999,635 6,850,624 6,739,497
Less Non-current liabilities Employee benefits 146,037 137,681 141,854 137,080 129,229 Deferred tax liability 247,501 382,839 380,713 384,269 346,297 Loans and borrowings 40,016 39,954 32,897 146,156 256,331 Net assets 5,844,147 6,628,070 6,444,171 6,183,119 6,007,640
Key Indicators Current ratio times 0.26 1.01 0.92 0.81 1.19 Net asset per share (Rs.) 29.22 33.14 32.22 30.92 30.04 Market price per share (Rs.) 55.90 56.30 76.40 95.00 75.10 Earnings/(loss) per share (Rs.) (4.09) 1.38 2.36 4.42 4.54
Statistical Summary Occupancy % 2 42 49 63 64 No. of rooms occupied 3,123 53,282 61,714 79,475 81,387 Average daily rate (Rs.) 12,186 15,457 21,607 19,339 19,121
Annual Report 2020 | 2021 101 Five Year Financial Summary & Key Indicators contd.
20/21 19/20 18/19 17/18 16/17 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000
Revenue Rooms 38,058 823,571 1,333,449 1,536,986 1,556,182 Food 464,747 1,078,000 1,044,878 1,173,681 1,189,097 Beverage 124,447 136,032 135,822 151,916 151,537 Food & beverage others 54,926 52,558 51,675 53,119 47,918 Investment property income 65,048 65,048 63,816 61,330 61,330 Other 63,742 173,388 195,785 221,819 244,223 Total Revenue 810,968 2,328,597 2,825,425 3,198,851 3,251,041
Direct Expenses Rooms 83,215 212,051 291,394 338,816 324,841 Food cost 179,288 404,852 384,526 449,173 464,452 Beverage cost 44,168 44,836 44,344 50,537 52,355 Food & beverage 328,010 433,269 418,816 455,680 379,300 Investment property cost 681 701 633 441 1,615 Others 29,516 81,192 90,889 115,212 117,723 Total direct expenses 664,878 1,176,901 1,230,602 1,409,859 1,343,847
Gross operating income 146,090 1,151,696 1,594,823 1,788,990 1,907,194
Other Expenses Administration & general 481,469 276,043 265,846 250,395 239,527 Advertising & sales 45,049 112,319 279,004 260,267 213,214 Heat, light & power 100,755 146,375 151,340 154,703 147,266 Repairs & maintenance 86,289 114,932 106,823 106,829 105,135 Operating fee 32,099 107,329 140,244 163,915 174,241 Marketing expenses 381 8,333 13,607 15,684 15,879 Total deductions 746,042 765,331 956,863 951,792 895,262
Gross operating profit/(loss) (599,953) 386,364 637,960 837,198 1,011,932 Other income 7,446 12,237 12,817 18,361 40,122 Change in fair value of investment properties (109,519) 162,425 166,600 397,600 243,400 (702,026) 561,026 817,377 1,253,159 1,295,454
Finance expenses 24,210 25,555 57,864 26,251 29,197 Insurance & rates 32,593 30,601 31,376 30,335 31,097 Depreciation & amortisation 187,190 200,838 203,816 206,855 219,289 243,993 256,994 293,056 263,440 279,583
Net profit/(loss) before tax (946,019) 304,032 524,321 989,719 1,015,872
102 Trans Asia Hotels PLC GLOSSARY OF FINANCIAL TERMS
Accounting Policies Capital Reserves Earnings Per Share (EPS) The specific principles, bases, Reserves identified for specific purposes Profit attributable to equity holders conventions, rules and practices adopted and considered not available for divided by the weighted average number by an enterprise in preparing and distribution. of ordinary shares in issue during the presenting financial statements. period. Capital expenditure Accrual Basis The total additions to property, plant and EBIT Recognising the effects of transactions equipment. Earnings before interest and tax (includes and other events when they occur other operating income). without waiting for receipt or payment of Corporate Governance cash or its equivalent. The process by which corporate entities EBITDA are governed. It is concerned with the Earnings before interest, tax, depreciation Amortisation way in which power is exercised over the and amortisation The systematic allocation of the management and direction of an entity, depreciable amount of an intangible asset the supervision of executive actions and Effective Tax Rate over its useful life. accountability to owners and others. Provision for taxation for the year divided by the profit before tax. Average Room Rate Debt/Equity Ratio Hotel revenue divided by the number of Debt as a percentage of shareholders’ EPS Growth rooms sold. funds. Percentage increase in the EPS over the previous year. Booking Engine Deferred Tax Application which helps the travel and Sum set aside in the financial statements Equity Assets Ratio tourism industry support reservation for taxation that may become payable Total assets divided by shareholder’s through the Internet. It helps guests to in a financial year other than the current equity. book hotel services online. financial year. Fair Value Capital Employed Dividend Yield Fair value is the amount for which an Shareholders’ funds plus debt. Dividend earned per share as a asset could be exchanged between percentage of its market value. acknowledgeable willing buyer and a Cash Equivalents knowledgeable willing seller in an arm’s Short term highly liquid investments that Dividend Cover length transaction. are readily convertible to known amounts The ratio of company’s earnings (net of cash and which are subject to an income) over the dividend paid to Gross Profit Margin insignificant risk of changes in value. shareholders, calculated as earnings per What remains from sales after a company share divided by the dividend per share. pays out the cost of goods sold. To obtain Contingencies gross profit margin, divide gross profit by A condition or situation existing at Dividend Per Share sales. Gross profit margin is expressed as a Balance Sheet date where the outcome Dividend per share (DPS) is the total percentage. will be confirmed only by occurrence or dividends paid out over an entire year non- occurrence of one or more future (including interim dividends but not Impairment events. including special dividends) divided by This occurs when recoverable amount of the number of outstanding ordinary an asset is less than its carrying amount. Current Ratio shares issued. Current assets divided by current Intangible Asset Dividend Payout Ratio liabilities. An intangible asset is an identifiable The percentage of earnings paid to a non- monetary asset without physical shareholder as dividends. substance.
Annual Report 2020 | 2021 103 Glossary of Financial Terms contd.
Interest Cover Pre-Tax Return On Capital Profit before interest and tax over finance Employed expenses. Profit before interest and tax as a percentage of average capital employed Key Management Personnel at year end. Key management personnel are those persons having authority and Price Earnings Ratio responsibility for planning, directing and Market price per share over Earnings controlling the activities of the entity, per Share. directly or indirectly, including any Director (whether Executive or otherwise) Prudence of that entity. Inclusion of a degree of caution in the exercise of judgement needed in making Materiality the estimates required under conditions The relative significance of a transaction of uncertainty, such that assets or income or an event, the omission or misstatement are not overstated and liabilities or of which could influence the economic expenses are not understated. decisions of users of financial statements. Quick Asset Ratio Market Value Per Share The quick ratio measures a company’s The price at which an Ordinary share can ability to meet its short term obligations be purchased in the stock market. with its most liquid assets and is calculated as follows- Market Capitalisation Quick Asset Ratio = (current assets- Number of shares in issue at the end of inventories)/current liabilities period multiplied by the market price at end of period. Related Parties Parties where one party has the ability Net Assets to control the other party or exercise Total assets minus current liabilities minus significant influence over the other long term liabilities. party in making financial and operating decisions, directly or indirectly. Net Assets Per Share Shareholders· funds divided by the Return On Equity weighted average number of ordinary Profit attributable to shareholders as a shares. percentage of average shareholders· funds. Occupancy The number of rooms occupied at a given Room Night time at the Hotel One hotel room occupied for one night; a statistical unit of occupancy. Operational Risk This refers to the risk of loss resulting from Shareholders’ Funds inadequate or failed internal processes, Stated capital plus capital and revenue people and systems or from external reserves. events. Total Debt Long term loans plus short term loans and overdrafts.
104 Trans Asia Hotels PLC CORPORATE INFORMATION
Name of the company Bankers Trans Asia Hotels PLC Citibank NA Deutsche Bank AG Sampath Bank PLC Legal form The Hongkong and Shanghai Banking Corporation Ltd A Public Limited Liability Company incorporated in Sri Lanka Nations Trust Bank PLC on 17th July, 1981 and listed on the Colombo Stock Exchange. People’s Bank PLC Commercial Bank of Ceylon PLC Hatton National Bank PLC Company registration number DFCC PLC PQ 5
Company related information requirements Registered Office Shareholders can contact Keells Consultants (Private) Limited No. 115, Sir Chittampalam A. Gardiner Mawatha, Colombo 2. on 011-2306245 for any Company related information Tel : 2491000 requirements. Fax : 2449184 E-mail : [email protected] Website : http://www.cinnamonhotels.com/ cinnamonlakeside.htm
Board of Directors Mr. Krishan Niraj Jayasekara Balendra - Chairman Mr. Joseph Gihan Adisha Cooray Mr. Navindra Lal Gooneratne Mr. Cholmondeley John Lloyd Pinto Mr. Eranjith Harendra Wijenaike Mrs. Jhansi Carryl Ponniah Mr. Mikael Ronald Svensson Mr. Suresh Rajendra Mr. Changa Lashantha Poojitha Gunawaradane
Audit committee Mr. C. J. L. Pinto (Chairman) Mr. E. H. Wijenaike Mrs. J. C. Ponniah
Company Secretaries and registrars Keells Consultants (Private) Limited 117, Sir Chittampalam A Gardiner Mawatha Colombo 02
Auditors Messrs. KPMG Chartered Accountants 32A, Sir Mohamed Macan Markar Mawatha, Colombo 03 TRANS ASIA HOTELS PLC