SOFTLOGIC HOLDINGS PLC | ANNUAL REPORT 2017-18 REPORT ANNUAL | PLC HOLDINGS SOFTLOGIC
EXCELLENCE OF ENTREPRENEURSHIP
Annual Report 2017-18
EXCELLENCE OF ENTREPRENEURSHIP
The excellence of entrepreneurship pushes the bar towards the skies, a core aspiration for Softlogic. We build people in our endeavours to champion the best consumer-focused conglomerate with solid brand equity. Softlogic’s aspirations are ambitious, aimed at achieving something of great import. Our focus will always be on increasing value in our businesses and our renewed impetus for capital will thereby create superior enterprise value and shareholder wealth. 2 SOFTLOGIC HOLDINGS PLC CONTENTS
Pages 03-15 OVERVIEW
About this Report...... 3 Financial Highlights...... 4 Pages 42-55 Highlights of the year...... 6 OPERATING CONTEXT About Us...... 10 Pages 120-126 Stronger Together...... 12 AND STRATEGY COMMITTEE REPORTS The Restructuring...... 13 Value Creation Model...... 42 Snapshot of our businesses...... 14 Stakeholder Engagement...... 43 Annual Report of The Board Economic and Industry Environment . .45 of Directors on The Affairs of The Company...... 120 Material Matters...... 48 Board Audit Committee Report. . . .124 Pages 18-41 Risk Management Report...... 49 Board Related Party Transactions LEADERSHIP & Review Committee Report...... 125 GOVERNANCE HR & Remuneration Pages 56-119 Committee Report...... 126 Chairman’s Message ...... 18 Board of Directors...... 22 MANAGEMENT DISCUSSION Sector Heads ...... 28 AND ANALYSIS Pages 128-243 Functional Heads...... 32 Business Line Reviews Corporate Governance...... 36 FINANCIAL STATEMENTS Retail Sector...... 56 Healthcare Services...... 64 Statement of Directors’ Responsibilities...... 128 Information Communications Technology...... 70 Independent Auditors’ Report. . . . 129 Financial Services...... 76 Income Statement...... 134 Leisure & Property...... 82 Statement of Comprehensive Income.135 Automobile...... 88 Statement of Financial Position. . . .136 Statement of Changes in Equity. . . 138 Capital Management Reports Cash Flow Statement ...... 140 Financial Capital...... 92 Notes to The Financial Statements. . 142 Manufactured Capital...... 97 Human Capital...... 100 Social and Relationship Capital. . . . 107 Pages 244-252 Intellectual Capital ...... 114 SUPPLEMENTARY Natural Capital ...... 116 INFORMATION
Investor Information...... 244 Corporate Directory ...... 246 Corporate Information...... 247 Notice of Meeting...... 250 Form of Proxy...... 251 OVERVIEW
ANNUAL REPORT 2017-18 3 ABOUT THIS REPORT
Softlogic Group’s Annual Report for the financial year end 31 March 2018, presents a balanced and comprehensive overview of factors which shaped the Group’s financial, social and environmental performance during the year. This report covers the operations of Financial Capital Softlogic Holdings PLC and its 53 subsidiaries. The content included in Pages 92 - 96 this Report has been determined based on a materiality analysis which identified the most significant matters for stakeholders (vide page 48).
Financial statements included here have been prepared in accordance with Sri Lanka Accounting Standards issued by CA Sri Lanka and independently audited by Messrs. Ernst & Young. The Report meets the requirements of the Companies Act No.7 of 2007 and the listing requirements of the Colombo Stock Exchange and takes note of the Manufactured Capital Code of Best Practice on Corporate Governance jointly issued by the Pages 97 - 99 Securities and Exchange Commission of Sri Lanka (SEC) and CA Sri Lanka.
Reporting improvements Every year we give attention to improving the readability and meaningfulness of the Report and this year we have focused on the following aspects: Human Capital »» A gradual transition towards an Integrated Annual Report. Thus, the Pages 100 - 106 narrative is based on the six capital inputs defined by the Integrated Reporting Framework.
»» Increased connectivity between information through use of navigation icons and signposting.
»» Improved disclosure of non-financial information. Social and Relationship Capital Pages 107 - 113
Visit Us Online Intellectual Capital Pages 114 - 115 www.softlogic.lk
Scan the QR Code with your smart Scan the QR Codes to connect device to view this report online. with us on social media.
Natural Capital Pages 116 - 119 4 SOFTLOGIC HOLDINGS PLC FINANCIAL HIGHLIGHTS
For the year ended 31 March 2018 2017 2016 2015 2014 2013 2012 Restated Restated
Earnings Highlights Group Revenue Rs.Mn 66,019 58,882 54,600 39,564 29,246 25,351 21,819 Gross Profit Rs.Mn 23,673 19,579 18,559 14,117 11,012 8,983 7,330 Earnings Before Interest, Tax, Depreciation & Amortisation Rs.Mn 11,695 8,451 7,897 6,398 5,025 4,227 4,486 Group Earnings Before Interest & Taxation Rs.Mn 9,052 6,391 6,082 4,959 3,918 3,208 3,608 Group Earnings Before Taxation Rs.Mn 3,092 1,581 2,836 2,266 1,258 453 1,601 Group Earnings After Taxation Rs.Mn 2,278 920 1,870 1,819 1,009 153 1,016 Total Comprehensive Income Net of Taxation Rs.Mn 2,827 1,793 2,859 2,160 1,237 2,077 856 Group Earnings Attributable to Equity Holders Rs.Mn 204 120 565 556 156 (371) 448 Group Comprehensive Income Attributable to Equity Holders Rs.Mn 450 783 1,829 761 220 557 340 Gross Profit Margin % 36 33 34 36.0 38.0 35.0 34.0 Net Profit Margin % 3.45 1.56 3.43 5.0 3.0 1.0 5.0 Earnings Per Share Rs. 0.26 0.15 0.73 0.72 0.20 (0.44) 0.60 Dividends Rs.Mn 503 387 194 - 120 234 101 Return on Capital Employed * % 11.02 9.42 9.81 8.37 8.73 8.76 10.58
Balance Sheet Highlights Total Assets Rs.Mn 118,823 100,915 93,152 87,324 65,863 53,836 44,688 Current Ratio No. of times 0.93 0.94 0.84 1.04 0.90 0.80 0.70 Asset Turnover No. of times 0.60 0.61 0.61 0.45 0.40 0.50 0.50 Total Interest Bearing Borrowings Rs.Mn 61,227 52,255 46,480 43,906 31,518 23,037 22,782 Shareholders' Funds Rs.Mn 11,591 8,547 8,159 7,336 6,802 7,288 7,202 Net Asset Value Per Share ** Rs. 14.91 11.04 10.54 9.47 8.7 9.4 9.2 Total Equity Rs.Mn 20,917 15,623 15,531 15,356 13,351 13,568 11,312 Debt : Equity *** No. of times 2.93 3.34 2.99 2.86 2.40 1.70 2.00 Debt : Total Assets No. of times 0.52 0.52 0.50 0.50 0.50 0.40 0.50 Operating Cashflow Rs.Mn -216 2,331 3,432 426 1,775 1,777 157 Capital Expenditure Rs.Mn 4,524 6,311 5,252 4,438 3,604 2,271 1,138 Cash Earnings Per Share Rs. (0.28) 3.01 4.43 0.50 2.30 2.30 0.20
Investor Information Market Price as at 31 March Rs. 24.6 11.9 13.3 13.2 10.6 10.4 11.2 Shares in Issue Mn 962 779 779 779 779 779 779 Market Capitalisation as at 31 March Rs.Mn 23,659 9,270 10,205 10,283 8,257 8,102 8,725 52-Week Market Share Price High Rs. 26.20 15.50 18.0 20.4 8.1 13.3 28.0 52-Week Market Share Price Low Rs. 11.70 11.70 12.30 10.3 12.5 9.4 11.10 Price to Book Value No. of times 1.65 1.01 1.10 1.40 1.50 1.40 1.40 Enterprise Value Rs.Mn 78,733 58,730 53,677 52,263 38,014 29,816 30,593 Enterprise Value : EBITDA No. of times 6.73 7.19 6.60 8.20 7.60 7.10 6.80 Dividend Per Share Rs. 0.65 0.50 0.25 - 0.16 0.30 0.13
* Return on Capital Employed calculated as a percentage of EBIT to Total Capital Employed (Equity plus Interest Bearing Borrowings) ** Net Asset Value Per Share calculated based on weighted number of shares as at 31.03.2018 *** Debt to Equity calculated based on Total Equity Capital OVERVIEW
ANNUAL REPORT 2017-18 5
Equity infusion to enhance business value and growth
Rs.Mn Rs.Mn Rs.Mn 70,000 9,000 120,000
8,000 60,000 100,000 7,000 50,000 6,000 80,000
40,000 5,000 60,000 30,000 4,000
3,000 40,000 20,000 2,000 10,000 20,000 1,000
0 0 0 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
REVENUE OPERATING PROFIT TOTAL ASSETS 66.0 8.3 118.8 Rs. Bn Rs. Bn Rs. Bn
More than Close to More than 50 10,000 100 Operating companies Employees across International in Sri Lanka our six diverse sectors brands and Australia 6 SOFTLOGIC HOLDINGS PLC HIGHLIGHTS OF THE YEAR
2017 – Galleria, an International Watch & Sunglass store and an International JULY APRIL Luggage store. This helps us further tap into the tourist market.
Softlogic Restaurants acquired the franchise for Baskin-Robbins, the world’s largest chain of ice cream specialty outlets.
Softlogic Retail acquired Suzuki Motors Softlogic Life Insurance launched a Lanka Limited, the exclusive distributor flood relief campaign through a mobile of Suzuki motorcycles, spare parts & network and this was recognised as accessories under a distributorship the most innovative global mobile arrangement with the Suzuki Motor Mövenpick Hotel Colombo attained messaging campaign in the world. Corporation, Japan. numerous awards and recognitions during its first year in operation, JUNE Softlogic Life Insurance won the ‘Best including the Brand Leadership and Agency Distribution’ and ‘Excellence Best Employer Award at the Golden in Claims’ awards at the National Globe Tigers Awards 2017. The hotel Insurance Awards by Fintelekt. was also adjudged Sri Lanka’s Leading Hotel in 2017 and the Country’s Mövenpick Hotel Colombo was Leading Hotel Suite for the year by crowned as Sri Lanka’s Leading World Travel Awards. Business Hotel at the South Asian Travel Awards 2017. The hotel also Softlogic Retail was appointed as claimed numerous talent awards and the sole distributor for VEGO, one of a gold medal for the I.D.L Cocktail India’s leading air cooler brands. The Competition at the Culinary Art Food VEGO products is another addition Expo 2017. The 25th National Mixology to Softlogic’s cost-effective and Softlogic Life Insurance was chosen as Challenge 2017 also brought several environment-friendly product range. one of the best 25 companies to work such recognitions for the hotel. for in Sri Lanka by the Great Place to ® MAY Work Institute. AUGUST Asiri Laboratories won the silver award at the Quality Circle Competition conducted by the National Convention on Quality & Productivity in 2017. The award was won for the fourth consecutive year.
In addition to the Odel and BURGER Softlogic added Aldo, a renowned global KING® outlet at the Departure Hall footwear and accessories’ retailer which in Bandaranaike International Airport, is familiar in the high streets of Paris, Softlogic opened three other stores London, Milan and New York. Desigual OVERVIEW
ANNUAL REPORT 2017-18 7
also joined the brand portfolio for handbags and accessories at Odel. OCTOBER NOVEMBER
Odel Alexandra Place added 10,000 sq.ft. of retail space. This new shopping area consists of a revamped and a bigger Odel sports department housing the best of global heavyweight sporting brands such as Nike, Reebok, Adidas, Puma and Canterbury covering the full range from sports performance clothing to footwear and accessories. The Odel men’s department was given more space housing a full line up from formal Charles & Keith opened its 3rd outlet and casual apparel to footwear and at Odel Alexandra Place further accessories. Top notch men’s brands enhancing the ladies shoe, bag and such as Emmanuelle Khanh, US Polo, accessories range at Odel. Allen Solly, Louis Philippe, Van Heusen Asiri Surgical Hospital divested 50% and Peter England were added to the of its Asiri AOI Cancer Centre to form range. The new space also housed a a Joint Venture with Cancer Treatment range of lingerie, swimwear, luggage, Services, Hyderabad. This company will and a complete denim lab. Odel also launch a world-class cancer treatment Odel launched its signature luxury introduced two widely popular European centre with nuclear medicine and after-dark evening wear range under fashion brands, Vero Moda and Only, radiotherapy treatment in October the brand name, ‘LUXE’. This was which carry a strong line-up of ladies 2018. The Gamma Camera SPECT introduced as an exclusive collection of clothing. scanner, the latest imaging technique party wear for ladies covering cocktail and glamour evening wear. Odel also Softlogic Life Insurance introduced in oncology treatment, was also launched ‘LUXE BAGS’, its designer an electronic receipt process, another introduced at Asiri Surgical as it paves bags department which includes way of contributing to protecting our the way to becoming one of the best Emporio Armani, Love Moschino, environment. oncology centres in Sri Lanka. Trussardi, Cavalli Class and Blumarine Softlogic Life Insurance launched an handbags. These luxury bag brands SEPTEMBER innovative life insurance cover ‘Per being available in the country provide Day Insurance’ by partnering with tremendous potential in the retail Dialog Axiata and MILVIK. This can be market. activated through a mobile phone.
The Bone Marrow Transplant unit at Central Hospital was selected as a training facility for medical post-graduate trainees in clinical haematology and bone marrow transplants. The programme is approved by the Post Graduate Softlogic Life Insurance, the Institute of Medicine, University of frontrunners for innovation in the Colombo. insurance business, introduced the first ever ‘On the Spot’ cover in Sri Lanka. 8 SOFTLOGIC HOLDINGS PLC HIGHLIGHTS OF THE YEAR
Softlogic Life Insurance clinched the Surgeons in the UK. In total, 44 DECEMBER gold award in the ‘Overall Insurance candidates from different parts of Sector’ at the National Business the world sat the examination with Excellence Awards (NBEA) 2017 a contingent of 18 senior consultant organised by the National Chamber neurosurgeons arriving from the UK. of Commerce of Sri Lanka (NCCSL), for the 14th consecutive time. The MARCH company also secured the silver award Softlogic Mobile Distribution acquired for ‘Excellence in Corporate Social the distributorship rights for Energizer Responsibility’ and the bronze for handsets and accessories. Energizer ‘Overall Extra Large Corporates’. offers a range of rugged waterproof smartphones with a long lasting battery Softlogic Information Technologies life. won the top Asia Emerging Markets (AEM) award at the South Asia Partner Softlogic Life Insurance tied up with Summit 2017. This recognition was two new reinsurers, ‘ScoR’ -- Asia’s based on performance as top AEM largest health re-insurer, and ‘Toa Commercial Metal Partner Tier 1 Re’ -- Japan’s largest re-insurer. Category Winner contributing 11% of Softlogic Restaurants signed its The companies are rated A+ by the category with revenue growth of third master franchise with France’s rating agencies, AM Best and S&P 20%. Delifrance S.A., to develop, open and respectively. operate Delifrance outlets in Sri Lanka. One outlet of this frozen and bakery Softlogic Life Insurance made another foods operator is located at the Odel country-first initiative by releasing 2018 flagship store. an audio visual version of its Annual Report. FEBRUARY Asiri Laboratory Services expanded its lab network during the year. The company now has 51 collection centres, 17 laboratories and 300+ third party collection points.
Asiri Laboratory Services won a silver award at the Quality Circle Competition conducted at the National Convention on Quality & Productivity 2017 for the fourth consecutive year. The Brain & Spine Centre at Central The Anuradhapura laboratory was BURGER KING® Sri Lanka was honoured Hospital was selected to host the recognised as the Best Laboratory with the Gold Crown for Operations clinical component of the first in 2017 at the Suwa Wishishtatha Excellence for the category ‘Under-30 International FRCS examination Awards, organised by the Private Restaurant Operator’ at the BK AsiaPac’s in Neurosurgery in Colombo. This Health Services Regulatory Council, Asia Pacific Convention 2017 Awards. prestigious event was organised in North Central Province. conjunction with the Joint Surgical Colleges Fellowship Examination (JSCFE) Board and Joint Colleges Intercollegiate Examination (JCIE) Board of the Royal Colleges of OVERVIEW
ANNUAL REPORT 2017-18 9
Reporting at the competition organised by the Chartered Management Accountants of Sri Lanka. The company also clinched the bronze award in the Insurance Sector at the CA Sri Lanka’s Annual Report Awards 2017. The company went on to rank 43rd among the top 100 World’s best annual reports for the year by the League of American Communication Profession Odel and Softlogic Max extended (LACP). Baskin-Robbins which underwent a their reach to Negombo by opening post-acquisition strategic makeover an 18,220 sq.ft. store offering global Softlogic Life Insurance’s network took its total outlet count to six in lifestyle, clothing and consumer increased by 33 to 95 branches by Kollupitiya, Kandy, Moratuwa, the durables brands under one roof. This end-March 2018. Crescat Mall, the Odel Flagship store marked Softlogic Retail’s 220th store and in Ja-Ela. in its consumer electronics retail chain taking its total retail space as at the BURGER KING® continued to expand close of the financial year to its network, taking its total outlet 290,300 sq.ft. For Odel, this marked its strength to 19 after opening in Malabe, 22nd store, significantly establishing its Peradeniya, Moratuwa and Kotahena footprint in this key locality. during the year.
Softlogic Retail commenced a foray Softlogic Finance continued to expand into affordable stylish comfortable its network; opening 04 branches in furniture under the brand name, Gampaha, Kalutara, Kotahena and Softlogic Information Technologies was ‘Softlogic LifeStyles Furniture’ which Kottawa with total branch strength recognised as the ‘Best Commercial will be retailed through Softlogic Max reaching 35 during the financial year. Business Partner’ at the Dell Power and Softlogic Retail outlets island- Awards during the year. The company wide. This has since then made good Capitalising on Group synergies, a also received the ‘Best Client progress in offering customers a wide strategic partnership was entered Competitive Win Back’ while ‘Best range of furniture products for living between Suzuki Motors Lanka and Salesman’ for the year was awarded rooms, dining rooms and bedrooms. Softlogic Finance to offer customised to its AGM Sales & Marketing, Private Softlogic also introduced its own label swift value-added leasing solutions to Sector. of mattresses in the local market. customers of Suzuki.
Sting Corporate Accountability categorised Softlogic in the bronze category in the Diversified Holdings Segment in 2018.
Life changing Scoliosis Surgery was successfully performed by the neurosurgical team at Central hospital, for the first time.
Softlogic Life Insurance was ranked amongst the top 10 companies in Sri Lanka for Excellence in Integrated 10 SOFTLOGIC HOLDINGS PLC ABOUT US
Softlogic Holdings PLC is one of Sri Lanka’s most successful and reputed conglomerates, operating a multi- brand, multi-channel and multi-strategy Group across its core businesses in its three prime verticals – Retail & Telecommunications, Healthcare and OUR VISION Financial Services – and its non-core operations – IT, Automobile and To be the most preferred and trusted product and Leisure. service provider, enhancing enterprise value. Softlogic Holdings PLC was established in 1991 before being listed on the Main Board of the Colombo Stock Exchange in June 2011.
As a consumer-focused business, we OUR CREDO have over 100 international brands marketed through one of the country’s To make responsible investment decisions and strongest distribution channels. Its retain the best people so as to become the insurance and healthcare services have a leading presence in their markets, most admired corporate in Sri Lanka. with state-of-the-art solutions including innovations which have accomplished numerous breakthroughs and achieved many ‘country-firsts’. Softlogic’s offices employ over 9,500 people. INTEGRITY RESPECT Nothing compromises what we do. We respect the value of the individual. ACCOUNTABILITY Every employee is responsible to OPENNESS do the right thing. We encourage unrestrained constructive feedback. TRUST & LOYALTY We build honest and rewarding LEADERSHIP relationships. Our visionary and inspirational leadership leads by example. QUALITY Raise standards as we progress. INNOVATION We make a difference. PASSION We passionately safeguard our SUCCESS reputation. We promote the ‘can do’ attitude with disciplined thinking. OVERVIEW
ANNUAL REPORT 2017-18 11
Healthcare Services 18% 26% ICT Pages 64 - 69 Pages 70 - 75
Financial Services 17% 4% Leisure Pages 76 - 81 Pages 82 - 87
Automobile 3% 32% Retail Pages 88 - 91 Pages 56 - 63
Sri Lanka’s leading Fully-fledged A prominent A leading retailer Five-star city private healthcare financial player in software of consumer hotel - Mövenpick provider operating services provider and hardware durables, Hotel Colombo and 4 hospitals under with interests in solutions and one branded a four-star plus the ‘Asiri Health’ insurance of the leaders apparel resort - Centara brand and a leader in (Softlogic Life in handset and fashion Ceysands Resort & diagnostics Insurance), distribution accessories Spa in Bentota financing operating Odel PLC (Softlogic Finance), while also operating asset management the franchise for and stockbroking BURGER KING®, Baskin-Robbins and Delifrance in Sri Lanka
ECONOMIC IMPACT
9,681 Rs. 6.8 Bn Rs. 14 Bn Employees Tax payments Lending to Micro and SME 12 SOFTLOGIC HOLDINGS PLC STRONGER TOGETHER
At Softlogic, synergies are identified, developed and maximised making our business units stronger.
Enhanced Customer Value proposition: The depth and diversity of operations, particularly in the consumer-driven sectors, has enabled Softlogic to enhance its customer value proposition and drive customer acquisition and retention. Numerous promotions and offers have been introduced across our sectors, to reinforce customer loyalty and raise visibility of the brand. Softlogic will launch a Group-wide loyalty programme to extend these benefits to our RETAIL entire customer base.
Diversification: The diversity of Softlogic’s businesses shelters the Group against risks and cyclical downturns.
Shared Infrastructure: Group companies share ample and diverse resources, helping it realise HEALTHCARE SERVICES significant economies of scale. The rapid success of new business initiatives is primarily derived from its established infrastructure. For instance, Samsung emerged as leader in the smartphone segment within its first year of operations as the brand was able to capitalise on Softlogic’s existing distribution network.
Expertise: The cumulative know-how and expertise of management across the ICT three core verticals, aided by a strong entrepreneurial instinct, makes our successful growth strategies. For instance, Asiri Health was the first private healthcare provider to expand from Colombo to Matara, and will reach another milestone with the opening of Asiri Hospital Kandy. The strength Winning of the Group and its spirit and experience have empowered the Group in Synergies taking such bold strides.
Human Resources: FINANCIAL SERVICES Each company benefits from a unique combination of young and innovative talent and experienced professionals. Knowledge sharing, job rotation and inter-company transfers; help Softlogic get the best from its human resources while providing for the development and growth of its 9,000+ employees.
Effective Cost Management: Group companies are able to select suppliers and service providers at LEISURE & PROPERTY the best cost. The size and strength of the Group and its longstanding relationships with globally renowned business partners/principals have supported all Group companies in this way.
Corporate Governance: The Group strives for sound corporate governance within each of its business entity. Seven Softlogic companies, including the Holding Company, are listed on the Colombo Stock Exchange. The Healthcare and Financial AUTOMOBILE Services sectors additionally comply with the rules and regulations imposed on them by the regulators in their respective sectors. OVERVIEW
ANNUAL REPORT 2017-18 13 THE RESTRUCTURING
In March 2018, Softlogic’s Retail sector was restructured. This resulted in the creation of a sector holding company, Softlogic Retail Holdings (Pvt) Ltd. This new company now owns the Group’s interest in Consumer Durables and in it telecommunication entities. This process unlocked hidden value. The Group’s shareholding in Odel and Softlogic Restaurants will be transferred to the new company in the current financial year to ensure intense focus on these two companies as well. The proposed supermarket chain will also be ultimately owned by this new sector holding company.
Retail sector before restructure Retail sector after restructure
Softlogic Holdings PLC Softlogic Holdings PLC
Softlogic Retail (Pvt) Ltd. Softlogic Retail Holdings (Pvt) Ltd.*
Suzuki Motors Lanka Ltd. Softlogic Retail (Pvt) Ltd. » SML Holdings (Pvt) Ltd. » Suzuki Motors Lanka Ltd. Dai-Nishi Securities (Pvt) Ltd. » SML Holdings (Pvt) Ltd. Odel PLC » Dai-Nishi Securities (Pvt) Ltd. » Softlogic Brands (Pvt) Ltd. » Odel PLC » Odel Lanka (Pvt) Ltd. » Softlogic Brands (Pvt) Ltd. » Odel Apparels (Pvt) Ltd. » Odel Lanka (Pvt) Ltd. » BSL International (Pvt) Ltd. » Odel Apparels (Pvt) Ltd. » Greenfield Trading (Pvt) Ltd. » BSL International (Pvt) Ltd. » Odel Properties (Pvt) Ltd. » Greenfield Trading (Pvt) Ltd. » Odel Information Technology » Odel Properties (Pvt) Ltd. Services (Pvt) Ltd. » Odel Information Technology » Odel Properties One (Pvt) Ltd. Services (Pvt) Ltd. » Odel Restaurants (Pvt) Ltd. » Odel Properties One (Pvt) Ltd. Softlogic Restaurants (Pvt) Ltd. » Odel Restaurants (Pvt) Ltd. » Silk Route Foods (Pvt) Ltd. Softlogic Mobile Distribution (Pvt) Ltd. Softlogic Retail One (Pvt) Ltd. » Softlogic Communications (Pvt) Ltd. Softlogic Communication Services (Pvt) Ltd. Softlogic International (Pvt) Ltd. Softlogic Restaurants (Pvt) Ltd. » Silk Route Foods (Pvt) Ltd. Softlogic Retail One (Pvt) Ltd. Softlogic Supermarkets (Pvt) Ltd.
Softlogic will henceforth classify its business sectors as The Core Verticals are the top contributors to performance follows: in the Group. Management will closely examine the Automobile and Leisure businesses to realign them with the 1. Core Verticals emerging model. a. Retail & Telecommunication b. Healthcare Services The Financial Statements for the year ended 31 March 2018 c. Financial Services do not reflect the new structure described here, but are 2. Non-Core Vertical based on the previous structure comprising six sectors. IT, Automobile and Leisure Most of the commentary in this Report is based on the new structure. 14 SOFTLOGIC HOLDINGS PLC SNAPSHOT OF OUR BUSINESSES
SOFTLOGIC HOLDINGS PLC
CORE VERTICALS
Retail & Telecommunications Healthcare Services Financial Services
100% 51% 75%
Softlogic Retail Holdings (Pvt) Ltd.* Asiri Hospital Holdings PLC Softlogic Capital PLC
Softlogic Retail (Pvt) Ltd. Asiri Surgical Hospital PLC Softlogic Life Insurance PLC » Suzuki Motors Lanka Ltd. » Asiri AOI Cancer Centre (Pvt) Ltd. Softlogic Finance PLC » SML Holdings (Pvt) Ltd. Central Hospital Ltd. Softlogic Stockbrokers (Pvt) Ltd. » Dai-Nishi Securities (Pvt) Ltd. Asiri Central Hospitals Ltd. Capital Reach Portfolio Odel PLC Management (Pvt) Ltd. Asiri Diagnostics Services (Pvt) Ltd. » Softlogic Brands (Pvt) Ltd. Asiri Hospital Matara (Pvt) Ltd. » Odel Lanka (Pvt) Ltd. Asiri Hospital Kandy (Pvt) Ltd. » Odel Apparels (Pvt) Ltd. Digital Health (Pvt) Ltd. » BSL International (Pvt) Ltd. Asiri Laboratories (Pvt) Ltd » Greenfield Trading (Pvt) Ltd. Jendo Innovations (Pvt) Ltd. » Odel Properties (Pvt) Ltd. » Odel Information Technology Services (Pvt) Ltd. » Odel Properties One (Pvt) Ltd. » Odel Restaurants (Pvt) Ltd.** Softlogic Mobile Distribution (Pvt) Ltd. » Softlogic Communications (Pvt) Ltd. Softlogic Communication Services (Pvt) Ltd. Softlogic International (Pvt) Ltd. Softlogic Restaurants (Pvt) Ltd. » Silk Route Foods (Pvt) Ltd. Softlogic Retail One (Pvt) Ltd. Softlogic Supermarkets (Pvt) Ltd.
* Softlogic Retail Holdings (Pvt) Ltd., was incorporated on 9 March 2018 ** Odel Restaurants (Pvt) Ltd., was incorporated on 19 February 2018
Probably the only company in Sri Lanka The Healthcare Services sector comprises The Financial Services sector is represented retailing over 100 international brands. one of Sri Lanka’s leading private by Softlogic Life Insurance PLC, one of the The sector comprises consumer durables, healthcare providers, Asiri Health, which fastest growing life insurance providers; fashion & household items and Quick operates 600+ beds across four multi- Softlogic Finance PLC, a registered finance Service Restaurants. speciality hospitals with state-of-the-art company and Softlogic Stockbrokers, a medical facilities. licensed stockbroker. Revenue 32% Revenue 18% Revenue 17% Assets 25% Assets 19% Assets 32% Employees 26% Employees 44% Employees 14% OVERVIEW
ANNUAL REPORT 2017-18 15
SOFTLOGIC HOLDINGS PLC
NON-CORE VERTICAL
Leisure & Property Automobiles Information Technology & Others
100% 100% 100%
Softlogic Properties (Pvt) Ltd.
Softlogic City Hotels (Pvt) Ltd. Future Automobiles (Pvt) Ltd. Softlogic Information Ceysand Resorts Ltd. Softlogic Automobiles (Pvt) Ltd. Technologies (Pvt) Ltd. Softlogic Computers (Pvt) Ltd. Softlogic Destination Softlogic Australia (Pty) Ltd. Management (Pvt) Ltd. Softlogic Solar (Pvt) Ltd. Sabre Travel Network Nextage (Pvt) Ltd. Lanka (Pvt) Ltd. Softlogic Corporate Services (Pvt) Ltd. Softlogic BPO Services (Pvt) Ltd.
The Leisure sector comprises a 5-star city The Automobile sector is the exclusive The ICT sector provides a wide spectrum hotel, Mövenpick Hotel Colombo, and authorised dealer for Ford vehicles and of IT solutions to the public and private Centara Ceysands Resort & Spa, a 4-star King Long buses in Sri Lanka while also sectors. Telecommunications sector holds plus resort in Bentota. It also operates a being the Authorised Service Partner for local distributor rights for several leading destination management company for Daihatsu. It includes a fully-fledged multi- global handset brands across all price inbound and outbound travel. brand Collision Repair Centre. points. Revenue 4% Revenue 3% Revenue 26% Assets 14% Assets 2% Assets 5% Employees 7% Employees 2% Employees 7% 16 SOFTLOGIC HOLDINGS PLC
THE FIRST STATE-OF-THE-ART MULTI-SPECIALITY PRIVATE HOSPITAL TO OPEN IN KANDY ANNUAL REPORT 2017-18 17
» 180 beds » Operating theatre complex with ultra-modern facilities » Cardiac catheterisation lab and cardiac operating theatre » 24-hour emergency services and out-patient services » Coronary and cardiothoracic intensive care units » Diagnostic Radiology and laboratory services » Endoscopy unit and a dialysis unit » Mother and baby unit with a Neonatal Intensive Care Unit » Multi-storey car park complex
Reaching out to the Central, Northern and Eastern Provinces of the country 18 SOFTLOGIC HOLDINGS PLC
LEADERSHIP & GOVERNANCE CHAIRMAN’S MESSAGE
Our long term value creation framework is built upon this strong foundation: three solid verticals in Retail & Telecommunications, Healthcare and Financial Services coupled with the numerous capital projects in the pipeline, supported by our best-cost operating platform and executed by an exceptional team
Dear Shareholders,
Softlogic Holdings PLC recorded positive aspirations of the market. Coinciding with to inflation and increased trade deficits results during the year under review this, a pipeline of projects has been set in presented further challenges, requiring amidst macro-economic challenges. motion to build on our growth trajectory; agile strategies to deliver business Decisive actions were taken during in our efforts to ensure sustainable value growth. I am pleased to report that the the year in the best interest of our to our shareholders. Softlogic Group recorded revenue growth shareholders. A capital raising exercise across all sectors except ICT, where was undertaken to strengthen the Testing our Mettle revenue declined marginally due to Group’s financial position. Equity interruptions in Nokia’s global business. Softlogic Group recorded a 12% infusions by way of a private placement Resource allocation to high growth revenue growth despite a landscape (Rs. 3.1 Bn) and rights issue (Rs. 3.9 sectors enabled us deliver profits as we of moderating GDP growth across Bn) concluded in March/April 2018 were grasped opportunities and managed risks agriculture, industry and services sectors, successful and very significant. Samena towards raising enterprise value. aggravated by rising inflation. Tightened Ceylon Holdings Ltd., part of a Mauritius monetary and fiscal policy in response based Investment Group – Samena The Retail sector sustained its growth Capital, invested in Softlogic at a price momentum despite tough economic approximately 40% over the market Asset Growth conditions which limited customer at that time. This increased investor Rs. Mn Rs. Mn purchasing power. The Consumer 120,000 7,000 confidence and capital ratios achieved Durables division, which makes up about commendable improvements. Positive 100,000 6,000 50% of sector revenues, increased its footprint to 310,000 sq.ft. of total retail investor sentiment led the share price 5,000 80,000 of the Company to more than double space upon opening its 220th store 4,000 in Negombo. We obtained the master during the financial year. 60,000 3,000 franchises for Baskin-Robbins and It is gratifying to witness the progress 40,000 Delifrance during the year. The branded 2,000 towards our vision in a year marked fashion business, the Odel Group, which 20,000 by moderate growth across many 1,000 adds colour and vibrancy to the sector, industry sectors, and I commend the 0 0 continued to add to its brand portfolio. determination and professionalism of 2014 2015 2016 2017 2018 Odel’s new 10,000 sq.ft. shopping space the dynamic team who continue to Total assets consists of a revamped and bigger Odel Capital expenditure drive our growth, making the impossible sports department retailing the best of possible. We continue to help transform global sporting brands such as Nike, the country’s socio-economic and city ASSETS Reebok, Adidas, Puma and Canterbury. landscape with our investments, making Aldo and Desigual were significant Softlogic one of the most visible entities additions to the range, followed by Vero through its island-wide footprint and Moda and Only. Our watch selection its relevance to the current needs and was enhanced with the addition of Mido, 118.8Rs. Bn LEADERSHIP & GOVERNANCE
ANNUAL REPORT 2017-18 19 20 SOFTLOGIC HOLDINGS PLC
LEADERSHIP & GOVERNANCE CHAIRMAN’S MESSAGE
Hamilton, Tissot, Calvin Klein, Swatch corporates and state agencies were and Flik Flak. We will launch the Rado Planned Investments enhanced and Softlogic Australia started and Longines brands soon. Through »» The Odel Mall providing customised IT solutions to the these actions, and others, we continue American and Middle Eastern markets. »» Mall space at Colombo City to provide our customers a wider Centre range of choice. We will soon introduce Acquisition of Suzuki Motors in the ranges from Diesel, Michael Kors, Love »» Mall Space at One Galle Face by first quarter of the year diversified our Shangri La, Colombo Moschino, Jack & Jones, United Colors of automobile sector’s value proposition. We Benetton, Valentino, Swarovski, Carpisa »» Asiri AOI Centre tripled the dealer network during the year to cater to demand for two-wheelers. The and Yamamay. We are probably the »» Asiri Hospital Kandy only retailer in Sri Lanka with over 100 Automobile sector, however encountered international brands and our presence in »» Consumer Durables store several hurdles, which we are seeking expansions malls being constructed in Colombo will to overcome through rigorous working increase their exposure. We will occupy »» Softlogic Supermarkets capital management. This supported the 40,000 sq.ft. in the Colombo City Centre sector’s operating performance during while 90,000 sq.ft. of space will be the year. taken at One Galle Face by Shangri La, through which local students can aspire Colombo. to a foreign MBBS at an affordable cost. Revenue of the Leisure & Property We believe this will help the healthcare sector doubled to Rs. 2.6 Bn with a As the largest healthcare group in industry to increase its available pool of full year’s revenue from Mövenpick the country, we dominate the private expertise. Hotel Colombo, though the hotel has healthcare sector in size, service, quality yet to breakeven. Centara Ceysands and technology. Expansion of our Softlogic Life Insurance supported Resort & Spa continued its strong profit range of services, pursuit of operational growth of the financial services sector. performance during the year. Mövenpick excellence and streamlined processes The life insurer’s increasing market share Hotel Colombo has quickly achieved enabled improvements in operating reflects our commitment to growth in favourable ratings on sites such as Trip margins during the year. It was an this key sector. We adopted a strategy Advisor and Bookings.com, reflecting important year for Asiri Health, with its tempered with caution for Softlogic our attention to high standards in this Kandy project nearing completion and Finance, maintaining operations at similar intensely competitive sector. Centara the Asiri AOI Cancer Centre expected to levels in response to changes in the is a favourite pick among hotels in unveil one of Sri Lanka’s most advanced macroeconomic environment. Bentota on Bookings.com, in testimony cancer treatment units. We introduced to the consistency of our approach to The ICT sector maintained its high cutting-edge medical technology during hospitality. The property sector concluded visibility as the retailer of leading the year. A fully-equipped ENT console construction of a residential apartment technology and handset brands. and operating instruments with the project – Everest Apartments – on De The Telecommunications segment latest diagnostic equipment, a fully- Fonseka Road, Colombo 5. The profit dominated the sector top line with fledged dialysis centre, a palliative from sale of these apartments will be strong contributions from the Samsung care unit, a wound management booked in the new financial year. This business. Nokia’s global business centre, a clinical psychology unit and capital intensive sector is presently interruption affected performance, a second cardiac catheterisation lab focusing on the Odel Mall, set to open in though a strong turnaround was seen were amongst the specialised centres 2020. in the latter part of the year with the introduced at Asiri Surgical while Asiri new Nokia Android launch. We have Breast Care commenced at Central Delivering Results expanded our range of affordable Hospital, followed by a Sleep Apnoea smartphones by introducing Energizer Our Income Statement reflects our Lab in Matara. Discussions are taking and Intex. The B2B IT segment ability to strategise and deliver results. A place with the University of Aberdeen, maintained its performance during combination of acquisitions and business aimed at launching an MBBS degree the period, as formal contracts with expansion enabled us to deliver business LEADERSHIP & GOVERNANCE
ANNUAL REPORT 2017-18 21
We have always balanced investing for the long term while ensuring profitability in the short term as we drive growth in our three core verticals
growth despite various challenges. (Pvt) Ltd., were transferred to the new delivering long term value to all of our Improved cost absorption and profit holding company for a consideration of stakeholders. growth saw the Group earning a Profit Rs. 6.3 Bn on 31 March 2018. Holdings after tax of Rs. 2.3 Bn (Rs. 920 Mn last in Odel PLC and Softlogic Restaurants Appreciations year) for the year ended 31 March 2018. (Pvt) Ltd., will be transferred to the same I deeply appreciate the guidance Gross profit improved 21% to company in due course to consolidate and counsel extended by the Board Rs. 23.7 Bn which enabled absorption of all retail operations under this umbrella. of Directors who contributed their the increase in operating costs. Finance Such an exercise also makes visible the collective wisdom in guiding the affairs expenses were a key concern as interest hitherto ‘hidden reserves’ on the balance of the Group. The leadership team at rates increased in the first half of the sheet and strengthens it, reflecting the Softlogic continues to raise the bar of year. As explained at the outset, the value of those successful ventures. performance, accepting challenges and private placement completed in March inspiring team members to achieve the 2018 and the Rights Issue completed in An Enduring Vision of aspirational targets set by the Group, April 2018 address these concerns. The Value Creation and I thank them all. I also thank our benefits of the equity raising measure will The indomitable spirit, professionalism principals and franchise partners who are be more clearly seen in the future. and agility of the Softlogic team are an integral part of our success. assets that cannot be monetised but the Geared for Growth results stated here would not have been The Board joins me in thanking our Balance Sheet growth was broad-based possible without their combined efforts. shareholders for their confidence in across all sectors, reflecting the diversity Our relationships with principals and Softlogic’s ability to deliver sustained of the Group and its potential in key franchise partners make up an important growth and value. growth sectors of the economy. We are resource that we rely on for our growth ready and positioned for growth with a with innovative products and state of the pipeline of projects that will transform the art processes. The brands we represent Retail, Telecommunication, Healthcare support the delivery of value to our key and Financial Services subsectors in the stakeholders. Relationships with our country and elevate customer experience. customers are also key to our success. Ashok Pathirage We undertook a restructuring of the Retail Our long term value creation framework sector bringing all sector holdings under is built upon this strong foundation: Chairman/Managing Director the newly incorporated Softlogic Retail three solid verticals in Retail & 13 August 2018 Holdings (Pvt) Ltd., to drive synergies Telecommunications, Healthcare Colombo within this area. Consequently, 100% and Financial Services coupled with ownership of Softlogic Holdings PLC in numerous capital projects in the pipeline, Softlogic Mobile Distribution (Pvt) Ltd, supported by our best-cost operating Softlogic Communications (Pvt) Ltd., platform executed by our exceptional Softlogic Communications Services (Pvt) team throughout the country. We remain Ltd., and Softlogic International (Pvt) Ltd. confident of our ability to manage our and a 99.9% stake in Softlogic Retail businesses effectively and to continue 22 SOFTLOGIC HOLDINGS PLC
LEADERSHIP & GOVERNANCE BOARD OF DIRECTORS
ASHOK PATHIRAGE HEMANTHA GUNAWARDENA Chairman/Managing Director Executive Director
HARESH KAIMAL RANJAN PERERA Executive Director Executive Director
ROSHAN RASSOOL DR. S SELLIAH Executive Director Non-Executive Independent Director LEADERSHIP & GOVERNANCE
ANNUAL REPORT 2017-18 23
PRASANTHA LAL DE ALWIS, PC HARRIS PREMARATNE Non-Executive Independent Director Non-Executive Director
RICHARD EBELL AARON RUSSELL-DAVISON Non-Executive Independent Director Non-Executive Director
PROF. AJANTHA DHARMASIRI SHIRISH SARAF Non-Executive Independent Director Non-Executive Director 24 SOFTLOGIC HOLDINGS PLC
LEADERSHIP & GOVERNANCE BOARD OF DIRECTORS
ASHOK PATHIRAGE HEMANTHA GUNAWARDENA RANJAN PERERA Chairman/Managing Director Executive Director Executive Director
Mr. Ashok Pathirage, recognised as a Mr. Hemantha Gunawardena is one of Mr. Ranjan Perera is a co-founder of visionary leader of Sri Lanka’s corporate the co-founders of the Softlogic Group Softlogic. He is the sector head of the world, is the founding member and and has served as a Director since Group’s mobile phone operations and Chairman/Managing Director of Softlogic inception. He has extensive experience in is the Managing Director of Softlogic Group, one of Sri Lanka’s leading the field of IT, both front and back-end, International (Pvt) Ltd. He possesses conglomerates. He manages over 50 and counts over 30 years in this field. extensive knowledge from his many companies with a pragmatic vision He was a senior software manager at years of experience in senior managerial providing employment to more than a leading Sri Lankan blue chip prior to positions handling world renowned 9,500 employees. Mr. Pathirage gives joining Softlogic. He presently overlooks brands in the mobile telecommunication strategic direction to the Group which has the software operations in Softlogic industry. a leading market presence in four vertical Australia (Pty) Ltd., while serving as sectors – Retail & Telecommunications, an Executive Director of Softlogic BPO ROSHAN RASSOOL Healthcare Services, Financial Services Services (Pvt) Ltd. Executive Director and IT, Leisure & Automotive. The Asiri Hospital chain is the country’s leading Mr. Roshan Rassool joined Softlogic in HARESH KAIMAL private healthcare provider which has 1995 and was appointed to the Board Executive Director achieved technological milestones in 2009. He is the Director/CEO of in medical innovation in Sri Lanka’s Mr. Haresh Kaimal is a co-founder the Computing Systems & Systems private healthcare. Softlogic Capital PLC, of Softlogic and a Director since its Integration Solutions Division of Softlogic Softlogic Life Insurance PLC, Softlogic inception. With over 30 years of Information Technologies (Pvt) Ltd., Finance PLC, Asiri Hospital Holdings PLC, experience in IT and operations, he which has business partnerships with Asiri Surgical Hospital PLC and Odel PLC currently heads the IT Division of the Dell Corporation, Apple Computers, where he serves as Chairman/Managing Group and has been instrumental in Lenovo, CISCO, EMC storage systems, Director are listed on the Colombo driving advancements in Information Microsoft, HP imaging products and Stock Exchange. He is also the Deputy Technology and Enterprise Resource VMware. He was appointed as a member Chairman of National Development Bank Management within Softlogic. He is also of Dell South Asia Partner Advisory PLC and the Chairman of NDB Capital a Director of Softlogic Finance PLC, Council in 2011. He served as Chairman Holdings Limited. Odel PLC and Softlogic BPO Services of Infotel Lanka in 2006/2007 and was (Pvt) Ltd. President of the Sri Lanka Computer Vendors Association at the same time. He was also Chairman of the Federation of Information Technology Industries, Sri Lanka in 2007. He holds an MBA from the University of East London. He is also an Associate Member of the Association of Business Executives and a Member of the Cyprus Institute of Marketing. He has over 30 years of experience behind him in the ICT industry having worked at senior managerial positions in reputed companies. LEADERSHIP & GOVERNANCE
ANNUAL REPORT 2017-18 25
DR. S SELLIAH PRASANTHA LAL DE ALWIS, PC HARRIS PREMARATNE Non-Executive Independent Director Non-Executive Independent Director Non-Executive Director
Dr. Sivakumar Selliah holds an MBBS Mr. Prasantha Lal De Alwis joined the Mr. Harris Premaratne joined the degree and a Masters Degree (M.Phil). Softlogic Board as a Non-Executive Softlogic Board in 2014. He has He joined the Board of Softlogic Director in 2011. He obtained his LL.B extensive banking experience, having Holdings PLC in 2010. He has over (Bachelor of Law) and LL.M (Masters in held several top positions and gained two decades of experience in multiple Law) from the University of Colombo many accolades in the banking industry. fields. He is the Deputy Chairman of and was enrolled as an Attorney-at- He is an Associate of the Chartered Asiri Hospital Holdings PLC, Asiri Surgical Law in 1983. He started his career as a Institute of Bankers, London. Mr. Hospital PLC, and Central Hospital Ltd. State Counsel at the Attorney General’s Premaratne is a Past President of the Sri He is a Director of Odel PLC, HNB Department of Sri Lanka in 1983 and Lanka Banks’ Association. He currently Assurance PLC, Lanka Walltiles PLC, served in that capacity until 1990. He serves on the Boards of Asiri Hospital Lanka Tiles PLC, ACL Cables PLC, Lanka subsequently joined the private bar Holdings PLC, Asiri Surgical Hospital Ceramics PLC, Swisstek (Ceylon) PLC and since then has practised in both PLC, Softlogic Capital PLC, Asiri Central and Swisstek Aluminium (Pvt) Ltd. He Appellate and Trial courts. He was Hospitals Ltd., and Central Hospital Ltd., also serves as Chairman of JAT Holdings appointed a President’s Counsel in and is Chairman of the Remuneration (Pvt) Ltd., Cleanco Lanka (Pvt) Ltd., and 2012. He is a member of the Board of Committee and member of the Audit Vydexa Lanka Power Corporation (Pvt) Management of the Centre for Studies of Committee of the above-mentioned Ltd. Dr. Selliah serves on the Human Human Rights, Faculty Board of Law of hospitals. He was an Executive Director Resource & Remuneration, Audit, University of Colombo and Incorporated and the Deputy Chairman of Softlogic Investment, Related Party Transactions Council of Legal Education. Mr. De Alwis Finance PLC for the period 2015-2018. and Strategic Planning Committees was a Director of Sampath Bank PLC of some of the companies on whose from 2002 to 2011 and Chairman of Boards he serves. its Human Resources, Remuneration and Risk Management Committees. He presently serves as a Director of Siyapatha Finance PLC, SC Securities (Pvt) Ltd., Coral Sands Hotel Ltd., and Alethea International School. He is an Associate of the Chartered Institute of Marketing (CIM), UK and is presently Honorary Legal Advisor of CIM Sri Lanka and the Ayurveda Doctors (Gampaha Wickremarachchi) Association of Sri Lanka. He was a founder member of the Consumer Affairs Authority of Sri Lanka in 2002. He was appointed as Honorary Consul for Seychelles in Sri Lanka by the President of the Republic of Seychelles in October 2013. He is the Commander of St. John’s ambulance service. 26 SOFTLOGIC HOLDINGS PLC
LEADERSHIP & GOVERNANCE BOARD OF DIRECTORS
RICHARD EBELL PROF. AJANTHA DHARMASIRI AARON RUSSELL-DAVISON Non-Executive Independent Director Non-Executive Independent Director Non-Executive Director
Mr. Richard Ebell was appointed to Prof. Ajantha Dharmasiri joined the Mr. Aaron Russell-Davison joined the the Board of Softlogic Holdings PLC in Board of Softlogic in 2016. He, a Board of Softlogic in 2016. With over 2014. He is a Fellow of the Institute of Professor in Management, is the twenty years of banking experience, Chartered Accountants of Sri Lanka and Director and the Chairman of the Board he was most recently the Global Head the Chartered Institute of Management of Management of the Postgraduate of Debt Capital Markets for Standard Accountants (CIMA), UK. He also Institute of Management, University of Chartered Bank, Singapore. Mr. Russell- holds a Diploma in Marketing from the Sri Jayewardenepura. He is the Honorary Davison has held a series of other senior Chartered Institute of Marketing (CIM), President of the Institute of Personnel investment banking positions in Hong UK. He has 41 years of experience in Management (IPM), Sri Lanka and a Vice Kong, Singapore and London during his finance, commercial and Board roles after President of the Asia Pacific Federation career. He graduated from the University qualifying as a Chartered Accountant. of Human Resource Management of Western Australia in 1991 with a He is a Past President of CIMA, Sri (APFHRM). He also serves as an Bachelor of Arts in Asian History and Lanka Division. He serves on the Adjunct Professor at the Price College Politics. Mr. Russell-Davison serves as an Working Group of an Audit Committee of Business, University of Oklahoma, Executive Director and Deputy Chairman Forum established in 2014, and on the USA. He has over 25 years of both at Softlogic Finance PLC. He also is a part Working Committee of an Independent private and public sector experience of the Board of Amana Bank PLC. Non-Executive Directors Forum formed including Unilever and Nestle. He has recently by the Sri Lanka Institute of engaged in consultancies in over fifteen Directors. Mr. Ebell also serves on the countries in Africa, Asia and the Middle Board of Cargills Bank Ltd. East. He is a Commonwealth AMDISA Doctoral Fellow, Fulbright Postdoctoral Fellow and Commonwealth Postdoctoral Fellow. He holds a Ph.D. and an MBA from the Postgraduate Institute of Management and a B.Sc. in Electrical Engineering from the University of Moratuwa. He is a Chartered Electrical Engineer, a Fellow of the Chartered Institute of Management, UK and an independent director of several boards. Being an author of six books and editor of the longest publishing management journal in Sri Lanka, he has won many accolades including gold medals for best papers in two international management conferences, Emerald best paper award in 2014, and the platinum award by the Alumni of the Postgraduate Institute of Management (PIMA) for outstanding academic contribution in 2010. He also won the prestigious IPM Lifetime Gold Award 2014, the highest honour for an HR professional in Sri Lanka. LEADERSHIP & GOVERNANCE
ANNUAL REPORT 2017-18 27
SHIRISH SARAF CHETAN GUPTA Non-Executive Director Alternate to Mr. S Saraf
Mr. Shirish Saraf joined the Board of Mr. Chetan Gupta is the Managing Softlogic in April 2018 as the nominee Director of Samena Capital Investments Director of Samena Ceylon Holdings Limited in Dubai, focusing on Limited. He is the Founder and Executive investments within the Special Situations Vice Chairman of Samena Capital. Funds.
He has been a Director of various He is a member of the Board of companies in different jurisdictions Directors and Executive Committee of across Samena’s portfolio, including RAK Logistics LLC. Mr. Gupta is also RAK Ceramics PSC, RAK Logistics LLC, an Investment Committee member of Dynamatic Technologies Limited and the Samena Special Situations Funds. Tejas Networks Ltd. Mr. Saraf previously Prior to joining Samena Capital, he held Directorships in Aramex Holdings, was an equity analyst at Tricolor India Commercial Bank of Oman SADG, Abraaj Fund focusing on companies in the Capital, EFG Hermes and Amwal Capital manufacturing, commodities, consumer (Qatar). and pharmaceutical sectors. Previously, he was a part of the General Electric In September 2013, Asian Investor listed Financial Management Leadership him as one of Asia’s 25 most influential Programme which centred on financial people in Private Equity. planning and analysis.
Mr. Saraf has obtained a Bachelor of Mr. Gupta is a Chartered Financial Science degree in Economics from Analyst (AIMR), Chartered Alternative the London School of Economics and Investment Analyst and holds a Masters Political Science. in Management (Finance) from the University of Mumbai. 28 SOFTLOGIC HOLDINGS PLC
LEADERSHIP & GOVERNANCE SECTOR HEADS LEADERSHIP & GOVERNANCE
ANNUAL REPORT 2017-18 29 30 SOFTLOGIC HOLDINGS PLC
LEADERSHIP & GOVERNANCE SECTOR HEADS
DR. MANJULA KARUNARATNE IFTIKAR AHAMED NASSER MAJEED Healthcare Services Financial Services Retail
MBBS, M.Sc (Trinity, Dublin), Mr. Iftikar Ahamed is the Managing Mr. Nasser Majeed joined Softlogic to Dip. MS Med (UK) MSOrth Med. (Eng) Director of Softlogic Capital PLC, which is serve as the CEO of the Retail sector the financial services holding company of in 2013. He counts over 35 years of Dr. Manjula Karunaratne was appointed the Group that has interests in Insurance, multidisciplinary business experience, to the Board of Asiri Hospital Holdings Leasing & Finance and Stockbroking. starting his career at KPMG Ford Rhodes PLC and Asiri Surgical Hospital PLC in He is also the Managing Director of Thornton & Company in 1981 and 2006, and currently serves as the Chief Softlogic Life Insurance PLC and an moving to Singer Industries (Ceylon) Ltd., Executive Officer of the Asiri Group. He Executive Director of Softlogic Finance in 1984. He served the Singer group in also serves on the Boards of Central PLC and Softlogic Stockbrokers (Pvt) many areas including Cost Accounting, Hospital Ltd., Asiri Central Hospitals Ltd., Ltd. Mr. Ahamed counts over 30 years Product Management, Exports, Marketing Asiri Hospital Matara (Pvt) Ltd., Asiri of experience in a wide range of métiers and General Management. He was also Diagnostic Services (Pvt) Ltd. and Asiri within the financial services industry. He Director/General Manager of PT Singer Hospital Kandy (Pvt) Ltd. He previously has extensive banking experience both Indonesia Tbk., from 2005 to 2006 and held the positions of Medical Director, in Sri Lanka and overseas, having held thereafter served as Marketing Director of Asiri Hospital Holdings PLC and was senior management positions as Deputy Singer Sri Lanka PLC from 2009 to 2013. Group Chief Operating Officer, Asiri Chief Executive Officer at Nations Trust He also served on the Boards of Regnis Group. Dr. Karunaratne is a Specialist in Bank PLC and Senior Associate Director Appliances Ltd., and Singer Sri Lanka PLC Sports/Orthopedic Medicine. at Deutsche Bank AG. He holds an MBA as an Alternate Director. He served as from the University of Wales, UK. Chairman of the judging panel of SLIM He possesses over 25 years of Brand Excellence in 2015 and 2016 and experience in the field of healthcare, and continues to serve on the Advisory panel is responsible for the overall medical for SLIM Brand Excellence. policy of the Group. Under his guidance the hospital group has introduced over twenty five new medical procedures and technologies to Sri Lanka amongst which are the country’s first Bone Marrow Transplant Unit, minimally invasive cardiac surgery service, first fully fledged stroke unit and a high end interventional neuroradiology unit. In addition a ‘live donor’ Liver Transplant service is currently being set up.
Left to right : Dr. Stephan Anthonisz, Nasser Majeed, Iftikar Ahamed, Dr. Manjula Karunaratne, Chamath Tennekoon and Dr. Udaya Indrarathna LEADERSHIP & GOVERNANCE
ANNUAL REPORT 2017-18 31
DR. UDAYA INDRARATHNA DR. STEPHAN ANTHONISZ CHAMATH TENNEKOON Leisure Real Estates Automobiles
Dr. Udaya Indrarathna joined Softlogic Dr. Stephan Anthonisz was appointed as Mr. Chamath Tennekoon was appointed Holdings PLC in 2018 as the Chief the CEO/Director of Softlogic Properties CEO/Head of the Automotive Sector Executive Officer of the Leisure sector. (Pvt) Ltd., in 2012. He was responsible for the Group in 2015. He formerly He has 25 years of work experience in for our two leisure projects, Centara headed the Daihatsu/King Long Bus senior management positions across Ceysands Resort & Spa and Mövenpick franchises and the Collision Repair government and the private sector in the Hotel Colombo, both now successfully Business at Softlogic Automobiles (Pvt) United Arab Emirates. Dr. Indrarathna in operation. Dr. Anthonisz has held Ltd., as General Manager. An Engineer held office as an Executive Director of managerial positions covering diverse by profession, he counts over 20 years Policy, Strategy and Tourism Affairs for the roles in Sri Lanka and overseas with of experience in Strategy, Business Government of Dubai at its Department leading conglomerates. He previously Development and Sales representing of Tourism & Commerce Marketing held the position of Head of Value tech products, starting his career with (DTCM) during the period 2002-2012. Added Tea Exports at Unilever Ceylon Xante Corporation in Mobile, Alabama, He also served as a Senior Advisor to Ltd., before taking on the role of CEO, USA where he commenced as an the Chairman’s office in the Abu Dhabi Property Development with Asian Hotel intern in 1997 and rose to the position Tourism & Culture Authority (Government & Properties PLC. Dr. Anthonisz is the of International Sales Manager for the of Abu Dhabi) during 2012-2017. author of the book ‘Marketing high Middle East, North Africa and the Pacific rise luxury condos in a middle income Rim in year 2001. Since relocating to Dr. Indrarathna is a Fellow and Chartered country in Asia’ which was published Sri Lanka in 2003, Mr. Tennekoon has Marketer of the Chartered Institute of last year. He holds an MBA and a pursued a career in the automotive Marketing (CIM), UK. He holds a PhD Doctorate in Business Administration industry and is a senior management in Applied Management & Decision from the Australian Institute of Business personality with multi-faceted experience Sciences. He acquired his MBA (Finance) Administration, Adelaide. in franchise management encompassing from AMBA accredited University of sales, after-sales, marketing, distribution, Leicester, UK and an MA in Marketing process improvement, CRM, CSR, ERP from the University of Birmingham City, improvement, Mobile App development UK. He is also a Certified Operations and local assembly of automobiles. Analyst from Cornell University, New York, He has in the past represented USA. the franchises of BMW, Ssanyong, Daihatsu, and a host of Chinese car and commercial vehicle brands. He holds a Bsc. in Mechanical Engineering from the University of South Alabama in Mobile, US. 32 SOFTLOGIC HOLDINGS PLC
LEADERSHIP & GOVERNANCE FUNCTIONAL HEADS LEADERSHIP & GOVERNANCE
ANNUAL REPORT 2017-18 33 34 SOFTLOGIC HOLDINGS PLC
LEADERSHIP & GOVERNANCE FUNCTIONAL HEADS
AASHIQ LAFIR DAMITH VITHARANAGE DESIREE KARUNARATNE Group Chief Financial Officer Group Head of Risk and Internal Audit Group Director – Marketing
Mr. Aashiq Lafir joined Softlogic in 2018, Mr. Damith Vitharanage joined Softlogic Ms. Desiree Karunaratne joined Softlogic and counts over 30 years of senior to head the Group Risk and Internal Audit in 2003 and now serves as Group managerial experience in companies Divisions in 2013. He is responsible Director Marketing. She is responsible for with diverse operations as a Finance and for Internal Audit, Risk and Compliance Group marketing activities and crafting Operations specialist. activities of the Group. Damith counts the long term marketing strategy of over 18 years of senior managerial the Group. She has over 16 years of Mr. Lafir is a Fellow of the Institute of experience in Audit, Investigations, senior management experience across Chartered Accountants of Sri Lanka (CA Financial Management, Financial a diverse range of businesses in Retail, Sri Lanka) and the Chartered Institute of Analysis, Administration, Human Fashion, Information Technology, Travel Management Accountants (CIMA), UK Resource Management, Information and Media. She holds an MBA from the and is a Chartered Global Management Security, Risk Management and General University of Wales, UK. She serves on Accountant (CGMA), US. He also Management in both the state and the Boards of Softlogic Restaurants (Pvt) holds a Masters Degree in Business private sectors in Sri Lanka and the Ltd., Softlogic Destinations Management Administration from the University of Sri Middle East. He is a Management (Pvt) Ltd., Silk Route Foods (Pvt) Ltd., Jayewardenepura. Mr. Lafir is also the Graduate from the University of Colombo Nextage (Pvt) Ltd., and Sabre Travel Chairman of Skills International (Pvt) Ltd., (BBA), holds a Postgraduate Diploma Network Lanka (Pvt) Ltd. and is the former Executive Director - in HR and possesses a Management Finance of United Motors Lanka PLC. He MBA specialised in Transformational is the immediate past President of Sri Leadership. He has Associate Lanka-Malaysia Business Council. Memberships from the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka), the Chartered Institute of CHINTHAKA RANASINGHE Management Accountants (CIMA), UK, Head of Strategy and and the Chartered Institute of Marketing Business Development (CIM), UK, and is a Certified Information Mr. Chinthaka Ranasinghe joined System Auditor (CISA), USA and a Softlogic in 2014 as the Head of Strategy Certified Project Manager (PMP) USA. and Business Development. He has over 17 years of senior managerial experience in equity research and investment banking in one of Sri Lanka’s leading conglomerates. He is a Management Graduate from the University of Colombo (BBA) and a Passed Finalist of the Chartered Institute of Management Accountants (CIMA), UK.
Left to right standing : Indresh Fernando, Damith Vitharanage, Hiran Perera, Natasha Fonseka Chinthaka Ranasinghe Left to right seated : Niloo Jayatilake, Desiree Karunaratne, Linton Nelson and Aashiq Lafir LEADERSHIP & GOVERNANCE
ANNUAL REPORT 2017-18 35
HIRAN PERERA LINTON NELSON NILOO JAYATILAKE Head of Treasury and Director – Logistics Head of Investments Corporate Finance Mr. Linton Nelson joined Softlogic Ms. Niloo Jayatilake joined Softlogic in Mr. Hiran Perera joined Softlogic in 2013 in 2013 as Director – Logistics and 2015 to head the Group Investments as the Head of Treasury and Corporate is responsible for Group Shipping & Division. Counting over 20 years of Finance. Prior to this, he was Head of Logistics (including Odel’s distribution experience in the Investments and Wholesale Risk at HSBC, Sri Lanka and centre) and Group Security. He has Portfolio Management field, she is Maldives, and counts over 28 years of over 37 years of experience in the responsible for the Group’s investment banking experience at HSBC including Department of Customs of Sri Lanka, portfolio. Prior to joining Softlogic group cross-border exposure in the with 15 years of senior managerial Holdings PLC, she worked as Head Middle East. experience as Head of Intelligence and of Portfolio Management/Director of Director Sea Cargo Clearance. He holds Guardian Fund Management Ltd., for 10 a Bachelor’s Degree in Law and a Higher years, handling client funds and Ceylon INDRESH FERNANDO National Certificate in Business Studies. Guardian promoters’ funds with assets Chief Process Officer He has had special offshore training on under management of over Rs. 25 Bn. Ms. Indresh Fernando joined Softlogic Border Controls, Supply Chain Security She is a Fellow of the Chartered Institute in 2014 and was seconded to Softlogic and Logistics Management in the US, UK, of Management Accountants (CIMA), Finance PLC as Chief Operating Officer. Japan, Australia and China. UK and an Associate Member of the In 2018, she was appointed as Chief Institute of Chartered Secretaries and Process Officer of Softlogic Holdings PLC. Administrators, UK. NATASHA FONSEKA She is a Fellow of the Chartered Institute of Management Accountants (CIMA), UK Group Director – Human Capital & Taxation and counts over 24 years of experience in the Accountancy profession in diverse Ms. Natasha Fonseka joined the Group sectors such as Financial Services, in 2010 and is presently the Group Hospitality, Transportation, Inbound Travel Director, Human Capital & Taxation. She and Telecommunications. is responsible for Corporate Taxation and Human Capital activities of the Softlogic She served in the capacity of Sector Group. She counts over 25 years of Finance Director at both Hemas experience in senior managerial positions Transportation and Serendib Group prior in Human Resources Management, to joining Softlogic. Taxation, Financial Advisory Services and Finance in reputed international professional firms and the private sector. She is an Associate of the Chartered Institute of Management Accountants (CIMA), UK and a Chartered Global Management Accountant (CGMA), US. 36 SOFTLOGIC HOLDINGS PLC
LEADERSHIP & GOVERNANCE CORPORATE GOVERNANCE
Performance of our growing portfolio of businesses relies on appropriate corporate governance, facilitating effective entrepreneurial management and balancing interests of stakeholders for long term sustainability and growth. Our governance mechanisms comprise organisation structures, policies and processes and reporting mechanisms, facilitating direction and control of the businesses by the Board and Senior Management
A Framework for Governance BOARD COMPOSITION Softlogic’s corporate governance framework has been designed to comply with regulatory requirements and take note of voluntary codes that reflect best practice as Executive Directors set out below.
Governing Principles Internal External Independent Non-Executive Directors »» Articles of Association »» Stakeholder »» Companies Act No. 7 of »» Code of Business engagement and 2007 Conduct management »» Listing Rules of the »» Terms of References »» Strategic planning Colombo Stock Exchange for Board sub- »» Risk management »» Code of Best Practice on Non-Independent Non-Executive Directors committees »» Conflict of Interest Corporate Governance »» Comprehensive »» Regulatory compliance issued by the SEC and framework of »» People management CA Sri Lanka policies, systems and »» Internal controls and procedures audit A. DIRECTORS This report has been structured according to the above-mentioned Code of Best A.1 The Board Practice on Corporate Governance to provide a succinct overview of governance A.2 Chairman and Managing Director in Softlogic Group. The Board is reviewing the Code of Best Practice on Corporate A.3 Chairman’s Role Governance issued in December 2017 by the Institute of Chartered Accountants. A.4 Financial Acumen A.5 Board Balance Code of Corporate Governance 2013 A.6 Supply of Information The Company Shareholders A.7 Appointments to the Board A. Directors E. Institutional Investors A.8 Re-election B. Directors’ Remuneration F. Other Investors A.9 Appraisal of Board Performance C. Relations with Shareholders G. Sustainability Reporting A.10 Disclosure of Information in D. Accountability & Audit respect of Directors LEADERSHIP & GOVERNANCE
ANNUAL REPORT 2017-18 37
A. Directors Governance Structure The Board of Directors sets the tone at the The structure of the Group, which comprises 07 public listed companies including top and is responsible for guiding strategy the Holding Company, and 47 unlisted companies categorised in three core while balancing stakeholder interests and verticals and one non-core vertical, is shown below. complying with regulatory requirements. Composition of the Board is set out The Board is supported by the under-noted committees which help discharge of graphically alongside while profiles of its responsibilities. Directors are given on pages 22 to 27.
Non-Executive Directors provide annual Our Governance Structure declarations of independence in accordance with the stipulations of the Listing Rules of Shareholders the CSE. Board balance is facilitated with seven Non-Executive Directors who are experienced in their fields, of whom four Board of Directors are independent. A sufficiency of financial acumen within the Board is delivered through the presence of Directors who are experienced accounting and finance Group Group professionals. The skills and experience of Managing Support Director Functions individual Board members help deliberation on matters before the Board and the exercise Audit Committee of independent judgement. Directors can seek independent professional advice if necessary, at the Company’s expense. HR & Remuneration Committee
The Board is responsible for the following:
»» Providing strategic direction and Related Party Transactions Review Committee performance objectives to monitor achievement of strategic goals
»» Establishing effective management Sector Subsidiary Companies »» Establishing appropriate systems of governance Sector Heads Board of Management »» Ensuring the effectiveness of internal CEO Directors Team controls, a Code of Business Conduct and other policies for regulatory compliance and risk management 38 SOFTLOGIC HOLDINGS PLC
LEADERSHIP & GOVERNANCE CORPORATE GOVERNANCE
Sub-Committee Composition Mandate Audit Committee R A Ebell (Chairman) Responsible, principally, for ensuring the integrity of the Company’s Dr. S Selliah and Group’s financial statements, appropriateness of accounting policies and effectiveness of internal control over financial Prof. A S Dharmasiri reporting. A Russell-Davison* W M P L De Alwis, PC** HR & Remuneration Prof. A S Dharmasiri (Chairman) Responsible for determining remuneration of Directors and Senior Committee W M P L De Alwis, PC Management. G L H Premaratne R A Ebell A Russell-Davison* Related Party Transactions Dr. S Selliah (Chairman) To assist the Board in reviewing related party transactions carried Review Committee W M P L De Alwis, PC out by the Company in accordance with the Code of Best Practice on Related Party Transactions issued by the SEC. H K Kaimal * A Russell-Davison resigned from Board Audit Committee and HR & Remuneration Committee on 20 April 2018. ** W M P L De Alwis appointed to Board Audit Committee on 26 July 2018.
Meetings The Board meets quarterly and dates for Board meetings are determined and communicated in advance with additional meetings being scheduled when deemed necessary. Meeting agenda and relevant papers are circulated to all Directors prior to the meeting, to help conduct an effective meeting. Attendance at Board meetings and sub-committee meetings is given below;
Statutory Committees Director Board Remuneration Related Party Transactions Audit Committee Committee Review Committee A K Pathirage 4/4 - - - H K Kaimal 4/4 - - 3/3 G W D H U Gunawardena 4/4 - - - R J Perera 3/4 - - - M P R Rassool 4/4 - - - G L H Premaratne 4/4 - 01/01 - Dr. S Selliah 4/4 11/12 - 3/3 W M P L De Alwis, PC 4/4 - 01/01 1/3 R A Ebell 4/4 12/12 01/01 - Prof. A S Dharmasiri 1/4 05/12 01/01 - A Russell-Davison 3/4 10/12 - - S Saraf - - - - C Gupta (Alternate to S Saraf) - - - - LEADERSHIP & GOVERNANCE
ANNUAL REPORT 2017-18 39
Company Secretary environment, including regulatory Softlogic Corporate Services (Pvt) Ltd., changes and market dynamics. Non- B. DIRECTORS’ REMUNERATION Executive Directors also have access provides company secretarial services B1 Remuneration Procedures to the Group, except for the Board to the Chairman/Managing Director B2 The Level & Makeup of and the Company Secretary to present Audit Committee of the Company, and Remuneration is responsible for advising the Board matters of concern or seek clarifications B3 Disclosure of Remuneration on governance matters and assists the that may arise. Chairmen in planning the agendas of the meetings. Directors have access to Chairman & Managing Director the advice and services of the Company The roles of the Chairman and the B. Directors’ Remuneration Secretary. Managing Director are combined in The HR & Remuneration Committee one person to effectively manage the makes recommendations to the Appointment & Re-election operations of this large and diverse Board on remuneration policy and Appointments to the Board are Group. remuneration of Executive Directors based on recommendations of the and Key Management Personnel in line Chairman and other Directors who Investment Appraisal with business goals. Terms of Reference ensure the Board has sufficient The Group’s business portfolio is of this sub-committee complies with skills and experience to discharge reviewed continuously to determine guidelines prescribed by the Code of their responsibilities. The Articles of relevance to the Group’s long term Best Practice. Association require three Directors to business goals and opportunities for retire at each Annual General Meeting growth. Systematic processes are in The Group’s Remuneration policy is (AGM), who may offer themselves for place to ensure relevant expertise when designed to attract and retain talent and re-election. Directors appointed during capital investment decisions are taken comprises fixed income and variable the year are required to seek re-election and independent views are sought to income linked to performance. Non- at the next AGM. The following Directors ensure high quality decision making. Executive Directors’ remuneration thus retire and offer themselves for re- comprises fixed fees and does not have a variable component. No election; Board Activities in 2017/18 Director is able to determine his own Mr. G W D H U Gunawardena Key matters that were deliberated by remuneration, with due consideration Mr. H K Kaimal the Board during the year under review given to the recommendations of the are given below; Dr. S Selliah Remuneration Committee. Mr. S Saraf »» Board Composition & Appointment The Report of the Board Remuneration »» Business Expansion A resolution will be proposed at the Committee on pages 126 and 127 »» Equity Infusion and Debt Retirement AGM in terms of Section 211 of the provides further information. The Companies Act to re-appoint Mr. G L H • Private Placement of aggregate remuneration paid to the Premaratne who is 70 years of age. 182,728,395 Ordinary Shares Directors is disclosed in the Notes to the • Rights Issue of 230,814,814 Financial Statements on page 226 of Board Induction and Training shares this Report. Directors are given sufficient induction • Retirement of short term debt on appointment to the Board. worth Rs. 7.1 Bn Directors receive appropriate briefings »» Performance Management from Key Management Personnel »» Risk Management on developments in the operating »» Financial Reporting 40 SOFTLOGIC HOLDINGS PLC
LEADERSHIP & GOVERNANCE CORPORATE GOVERNANCE
D. Accountability and audit the Code of Best Practice on Board Audit Committees issued by CA Sri Lanka and C. SHAREHOLDER RELATIONS Board responsibilities include presenting guidelines stipulated by the SEC. C1 Constructive use of AGM and a balanced assessment of the Group’s General Meetings financial performance, position and The Audit Committee is responsible for prospects on a quarterly and annual C2 Communication with approving the terms of engagement of basis. This Annual Report has been Shareholders the external auditors including audit fees. prepared as part of discharging this C3 Major and Material Transactions The principal auditor has not engaged responsibility and includes the following in any services which are stipulated declarations/further information required as restricted and the audit fees and by regulatory bodies and voluntary codes: C. Shareholder relations non-audit fees paid by the Company to »» Audited Financial Statements Shareholder relations are managed its auditors are separately disclosed on - pages 129 to 243 through a process with multiple platforms page 179 of the Notes to the Financial facilitating shareholder engagement and »» Statement of Directors’ Responsibility Statements. timely dissemination of information. The - page 128 The Board holds overall responsibility AGM is the key platform for shareholder »» Directors’ Statement on Internal for implementing risk management and engagement and notice of the AGM and Controls - page 122 internal control systems to contain risk relevant documents are circulated among »» Annual Report of the Board of exposures. The Group’s internal control shareholders at least 15 working days Directors on the Affairs of the systems are aimed at safeguarding prior to the AGM. The Chairmen of Board Company - pages 120 to 123 shareholders’ investments and managing Committees and External Auditors attend »» Committee Reports risks that may impact achievement of the AGM to respond to queries that may - pages 124 to 127 strategic objectives. A discussion on be raised by the shareholders. In addition the Company’s key risk exposures and to the AGM, shareholder engagement is »» Management Discussion & Analysis mitigation mechanisms are given in the also facilitated by the Group’s investor - pages 56 to 119 Risk Management Report on pages 54 relations department which maintains and 55 of this Report. dialogue with shareholders through The Board Audit Committee has dissemination of announcements on responsibility for oversight of financial A whistleblowing policy is in place material developments and quarterly processes to support integrity, accuracy enabling employees to raise concerns performance. They are also a point of and timeliness in financial reporting. It anonymously on unethical behaviour, reference for shareholders. also has oversight on Internal Control and breach of regulations and/or violations of Risk Management processes and receives the Group’s Code of Conduct. reports from Group Internal Audit to D. ACCOUNTABILITY & AUDIT support this. The Audit Committee The Board Related Party Transactions D1 Financial Reporting comprises four Non-Executive Directors Review Committee has been set up in D2 Internal Control all of whom are independent. The compliance with guidelines stipulated D3 Audit Committee Chairman of the Audit Committee is by the CSE. Directors individually make D4 Code of Conduct & Ethics a finance professional with extensive appropriate declarations to the Company experience in the relevant areas whose D5 Corporate Governance and its subsidiaries when necessary. Disclosures profile is given on page 26. The Terms A formalised process is in place for of Reference of the Audit Committee identifying related party transactions and complies with the recommendations of avoiding conflicts of interest. LEADERSHIP & GOVERNANCE
ANNUAL REPORT 2017-18 41
G. Sustainability Reporting SHAREHOLDERS The Group continues its efforts to embed Institutional Investors sustainability into its operations and report on how the Group manages risks E.1 Shareholder Voting stemming from economic, environmental E.2 Evaluation of Governance and social factors. The Group’s Annual Disclosures Report is used as a platform to Other Investors provide comprehensive sustainability F.1 Investing/Divesting Decisions communication to all stakeholders F.2 Shareholder Voting and this year we have enhanced the scope and coverage of our sustainability reporting by adopting a stakeholder value E&F. Shareholders creation approach. Holistic sustainability reporting is a journey and we continue to Shareholders are encouraged to attend improve in this arena. the AGM of the Company and vote on resolutions which form part of the agenda. Extraordinary General Meetings are called to inform shareholders on material changes that impact their interests and to obtain their consent in accordance with provisions of the Companies Act and other relevant rules and regulations. 42 SOFTLOGIC HOLDINGS PLC
OPERATING CONTEXT AND STRATEGY VALUE CREATION MODEL
CAPITAL INPUTS OUR VALUE CREATING ACTIVITIES OUTPUTS/OUTCOMES
Core Verticals Non-Core Operations
Retail & Telecommunication IT Shareholders Financial Capital Healthcare Services Automobiles Sustainable growth Shareholders’ funds: Rs. 20.9 Bn Financial Services Leisure in earnings Net Debt: Rs. 55.1Bn Revenue: Rs. 66.0 Bn (pages 92 to 96) Profit: Rs. 2.3 Bn 12-month share STRATEGIC AGENDA price increase: Growth Rs. 12.7 per share Dividends: Rs. 0.65 per share Existing Business Acquisition of Diversification Growth New Brands Manufactured Capital Property, plant and equipment: Rs. 28.5 Bn Customer Focus (pages 97 to 99) Growing our Customer Product Employees Presence Experience Responsibility Rewarding and challenging work environment Payments to employees: Rs. 9.1Bn Human Capital Driven by People Investment in training: Employee Talent Empowering Skills and attitudes Rs. 57 Mn Engagement Management Employees of 9,681 employees Career and skill development (pages 100 to 106)
Excellence in Operations Streamlined Supplier Performance procedures and Management Management processes Social and Customers Relationship Capital Total Revenue Customer relationships A Sustainable Business Rs. 66.0 Bn Business partner relationships Eco-friendly Business Social Value Relationships with our communities (pages 107 to 113) Community Investment in CSR
Intellectual Capital Tacit knowledge Brands (pages 114 to 115) Government Tax contribution Rs. 6.8 Bn OPERATING CONTEXT AND STRATEGY
ANNUAL REPORT 2017-18 43 STAKEHOLDER ENGAGEMENT
The Group’s stakeholder engagement takes place through formal and informal mechanisms which ensure that concerns are identified in a timely manner.
The table below lists key methods of engagement, as well as concerns raised by stakeholders during the year; our responses to these concerns are addressed throughout this report.
Importance of Engagement Method and Frequency of Key Topics arising from Relevance to Engagement Engagement Strategy Providers of risk capital expect a »» Quarterly publication of »» Financial returns Growth commensurate reward. Consequently, financial statements together »» Stability of earnings our investors expect long term value with a comprehensive Operational »» Reputation & creation through business growth, Chairman’s narrative excellence governance profitability and stability which »» Timely announcements of will provide returns in the form of price sensitive information dividends and increased share price. »» Annual Report
Shareholders »» Annual General Meeting »» Meetings with investors and analysts upon request »» Attendance at roadshows and investor forums Employees are key to driving our »» Structured engagements »» Commensurate Driven by performance and growth. Their roles with the Chairman and remuneration/rewards people are multi-faceted varying from being management of each sector »» Recognition the Group’s ambassadors on the »» Open door policy »» Career progression front line to an increasingly strategic »» Continuous professional »» Training & development role at the centre. Corporate values Employees development and a strong performance culture »» Income stability »» Human capital helpline link employees across the Group, inspiring them to reach higher goals. As a customer focused Group, their »» Personalised service with »» Affordability Customer focus experiences determine our success. islandwide customer touch- »» Availability We seek to attract, retain and grow points for individuals »» Ease of access our customer base, both corporate »» Structured engagement »» Product responsibility and individuals, by increasing the with corporate customers to »» Customer service value created for them through new ensure satisfaction Customers services and product offerings. Our »» After-sales services »» Customer surveys and engagements are tailored to suit market research »» Group-wide loyalty specific requirement. programme Relationships with principals of global »» Structured Relationship »» Business growth Growth repute enhance our ability to create Management is in place for »» Brand compliance value. Our Group has been founded our key principals, deepening Customer focus »» Trust on our ability to bring global brands relationships and addressing
Partners to the local market, fuelling significant any concerns that arise growth. Principals/Business 44 SOFTLOGIC HOLDINGS PLC
OPERATING CONTEXT AND STRATEGY STAKEHOLDER ENGAGEMENT
Importance of Engagement Method and Frequency of Key Topics arising from Relevance to Engagement Engagement Strategy Suppliers play a key role in driving »» Centralised purchasing »» Business growth Operational our businesses as materials used functions lower Group unit »» Timely settlements excellence by sectors such as Healthcare costs and increase synergy. »» Feedback and support Services must be of the best quality. Supplier relationships for improvement We believe in mutually rewarding are annually reviewed. A
Suppliers relationships with suppliers and high level of interaction is choose those with the ability to available as needed. provide a reliable service with high levels of accountability. The Ministry of Health, Central Bank »» Relationships with regulators »» Compliance Sustainability of Sri Lanka, Insurance Regulatory are generally high level at »» Support for Government Commission of Sri Lanka, Consumer Corporate Management initiatives Affairs Authority, Inland Revenue and and Board levels with Sri Lanka Customs are key regulators engagement as needed at
Government & who recommend legislation and frequent intervals. Regulatory Bodies implement existing legislation. As retailers, we seek high levels of »» Identifying community needs »» Employment creation Sustainability engagement with the community, in and supporting them through »» Support for socio- line with expectations. a structured programme economic growth »» Respecting cultural values Communities »» Community-driven projects OPERATING CONTEXT AND STRATEGY
ANNUAL REPORT 2017-18 45 ECONOMIC AND INDUSTRY ENVIRONMENT
Global Economic Environment Global Economic Growth Global economic activity posted firmer % recovery in 2017, with GDP growth 6 accelerating to 3.8%, the fastest since 5 2011. The second half of the year 4 signalled stronger prospects for 2018, 3 with global output increasing 4%. 2 Stronger investments and easing of 1 monetary policies in several advanced 0 World Output Advanced Emerging Market and economies spurred growth with the Economics Developing Economics United States (+2.3%), Japan (+1.7%) 2016 2017 2018F 2019F and the Euro region (+2.3%) performing Source: International Monetary Fund above expectations. Emerging markets grew 4.8% during the year, resulting from an increase in private consumption Consumption Expenditure 2017, resulting in the Standing Deposit particularly in China (+6.9%) and India Private consumption expenditure (PCE) Facility Rate (SDFR) and the Standard (+6.7%). Improvement in commodity grew 87% in 2017 (2016: 3.1%) Lending Facility Rate (SLFR) increasing to markets supported the growth in during the year; expenditure on food 7.25% and 8.75% respectively. Resulting commodity exporting countries such as and non-alcoholic beverages which from this, market interest rates recorded Brazil and Russia. accounts for the largest portion of PCE an up-tick during the first half of the year, grew 5.4% while expenditure on clothing with market lending rates also on the Sri Lankan Economy and footwear contracted during the rise. For instance, the AWPR increased from 11.48% in January 2017 to Sri Lanka’s GDP growth moderated year, reflecting reduced consumption of 11.88% by mid-year before decelerating to 3.1% in 2017 due to the less than discretionary spending. towards the latter part of the year expected performance of the agriculture following an improved liquidity position in sector as well as a tightened monetary Interest Rates the domestic money market. policy and fiscal consolidation measures A relatively tight monetary policy stance adopted by the Government. Adverse was adopted for most part of the year weather conditions in several parts of with a view to addressing inflationary the country resulted in the agricultural pressures. Accordingly, the policy rate sector contracting 0.8% during the was raised by 25 basis points in March year. This had a cascading effect on other sectors of the economy, through increased import expenditure and higher Consumption Expenditure inflationary pressures. The expansion Rs. Bn in manufacturing activities supported 10,000 growth in the industries sector which 8,000 grew 3.9% in 2017 (2016: 5.8%). The 6,000 services sector grew 3.2% during the 4,000 year led by growth in financial services, telecommunication and wholesale & 2,000 retail trade activities. 0 2015 2016 2017 Clothing and Footwear Food and Non-Alcoholic Beverages Health Private Consumption Expenditure Restaurants and Hotels (PCE) Source: Central Bank of Sri Lanka 46 SOFTLOGIC HOLDINGS PLC
OPERATING CONTEXT AND STRATEGY ECONOMIC AND INDUSTRY ENVIRONMENT
Interest Rates imports and firmer commodity prices. Workers’ remittances declined during % 16 the year partly due to weaker economic 14 conditions in the Middle Eastern region 12 as well as reduced labour migration 10 8 under all skilled categories. Following 6 improvements to the Financial Account, 4 the country’s Balance of Payments 2 0 recorded a surplus of USD 2.1 Bn in 2017, following two consecutive years of Jul-17 Jul-16 Jul-15 Jan-17 Jan-16 Jan-15 Apr-17 Apr-16 Apr-15 Jun-17 Jun-16 Jun-15 Oct-17 Oct-16 Oct-15 Feb-17 Feb-16 Feb-15 Aug-17 Aug-16 Aug-15 Sep-17 Sep-16 Mar-17 Sep-15 Mar-16 Mar-15 Dec-17 Dec-16 Dec-15 Dec-14 Nov-17 Nov-16 Nov-15 May-17 May-16 May-15 deficits.
AWLR AWFDR
Source: Central Bank of Sri Lanka Outlook The country’s economic outlook remains positive over the medium to long term, given the Government’s commitment Exchange Rates External Sector towards liberalising the economy, the The Government allowed more flexibility Exports have been identified as a key Free Trade Agreements with Singapore in exchange rate determination, with the growth driver and the country’s export and China, and the focus on export objective of absorbing foreign exchange earnings grew 10.2% in 2017, to record development. Business process out- to build up forex reserves. This allowed high levels supported by the strong sourcing and ICT-related services are a relatively smooth exchange rate policy impetus, recovery of advanced key areas of focus facilitating transition behaviour limiting sharp fluctuations; economies and the reinstatement of the to a knowledge-based economy. The resulting from this, the Sri Lankan Rupee European Union’s GSP+ facility. Earnings Government’s finances remain weak remained somewhat stable during the from industrial exports (led by textiles with high debt levels; however, efforts year depreciating only 2% against the US and garments) increased 7.6% and was towards fiscal consolidation are expected dollar in 2017. The first quarter of 2018 the major contributor to the country’s to bear fruit over the medium term has however seen continued downward export growth. The current account with the IMF showing satisfaction with pressure resulting from increased foreign deficit, however, widened to 2.6% reforms undertaken by the Government outflows. of GDP (from 2.1% the year before) to raise revenue and reduce debt. Against due to a faster increase in imports, this backdrop, the Central Bank of Sri lower remittances and moderation in Lanka projects Sri Lanka’s GDP to grow growth of tourism. Import expenditure between 5% and 5.5% in 2018. increased 9.4% primarily driven by fuel OPERATING CONTEXT AND STRATEGY
ANNUAL REPORT 2017-18 47
Opportunities and Risks Sri Lanka’s changing economic landscape presents numerous opportunities for Softlogic Group, which has proactively positioned itself in key growth sectors of the economy. Key trends which could materially impact the Group, either in a positive or negative manner are presented below. Further details on these trends are presented in the Business Line Reviews on pages 56 to 91 of this Report.
Sector Opportunities Risks Retail »» Increasing disposable incomes »» Exchange rate fluctuations »» Growing middle class »» Insufficient availability of retail space in »» Increasing customer sophistication and preference for Colombo aspirational goods »» Increasing tourism »» Government strategy to make Sri Lanka a regional shopping hub Healthcare »» Increasing disposable income »» Shortage of skilled labour including doctors, Services »» Propensity towards convenience and comfort in obtaining nurses and technicians healthcare services »» Cost escalations »» Increasing prevalence of non-communicable diseases »» Increasing competition ICT »» Government impetus towards BPO and ICT-related »» Shortage of skilled labour services »» Intense competition from regional markets »» Increased connectivity and mobile penetration »» Government’s digitisation strategy »» Growing demand for Fintech solutions Financial Services »» Government’s financial inclusion agenda »» Government’s monetary policy direction »» Relatively low life insurance penetration in the country »» Over indebtedness among vulnerable groups »» Intensifying competitive pressures Leisure »» Government’s Tourism Strategic Plan (2017-2020) and »» Difficulties in staff attraction and retention efforts to promote Sri Lanka as a destination »» Competition from informal sector »» Increasing arrivals from the Indian and Chinese markets »» Changing customer expectations Automobile »» Government’s infrastructure development agenda »» Lack of policy clarity on import duties »» Increasing disposable incomes »» Exchange rate fluctuations »» Boom in the tourism sector »» Industry survival depends on Government policy 48 SOFTLOGIC HOLDINGS PLC
OPERATING CONTEXT AND STRATEGY MATERIAL MATTERS
The matters listed below represent the issues that could have the most significant impact on the Group’s ability to create value. These topics anchor the Group’s Annual Report and are determined based on a comprehensive materiality analysis which includes stakeholder engagement, evaluation of emerging risks and opportunities in the external environment, and our strategic aspirations. Identify matters impacting the value creation process
Evaluate their significance to the Group and stakeholders
Prioritise and determine material issues
1 4 5 6 7 8 9 10 High 2 11 12
13 3 14 Medium Impact on our Stakeholders Low
Low Medium High
Significance of Impact
Material Aspect 1 Brand acquisition 2 Innovation 3 New markets 4 Product responsibility 5 Product & service accessibility 6 Service quality 7 Management of products and services 8 Employee engagement 9 Training and development 10 Productivity 11 Talent management 12 Managing principal relationships 13 Managing natural inputs (paper and energy) 14 Managing natural outputs (waste, effluents and carbon footprint) OPERATING CONTEXT AND STRATEGY
ANNUAL REPORT 2017-18 49 RISK MANAGEMENT REPORT
As a well-diversified business underpinned by a sustainable business model, Softlogic is well-equipped to manage risks and uncertainty inherent in its business verticals
We, at Softlogic understand that robust The following areas of risks are aligned »» Independence of the risk function management of risks should be an with the Group’s strategy and business with adequate distinction between risk integral part of corporate governance. model which captures industry-wide generating units and those responsible Throughout Softlogic’s 27 years of best practices, regulatory and supervisory for its control and supervision, and business, we have been conscious in requirements. having consultation access to the balancing reward and risk, with the use risk department which is responsible »» A culture of risks is integrated of varied approaches which have proven for setting and supervising the risk throughout the organisation. It decisive in generating sustainable and strategy and policies. embraces a risk awareness culture balanced earnings to create shareholder with a series of attitudes, values, »» Detailed approach to all risks including value. skills and ways of managing risks those which are endogenous and that are integrated into all processes, exogenous. Softlogic’s risk approach focuses including change management. This is on maintaining a digestible level of »» An organisational and governance developed by strongly involving senior risk exposure and managing risks model that assigns risks to those management in handling and taking encountered in achieving the Group’s responsible for control and decisions on risks, remuneration aspiration to deliver sustainable long term management, conserving the principle frameworks are aligned with the shareholder returns. of independence with clear and risk appetite, training processes and coherent reporting mechanisms in robust control mechanisms which are each subsidiary of the Group. embedded at all levels to manage and control risks.
Risk Management Framework Our management and control model is based on three lines of defence.
1st Line of Defence BUSINESS LEVEL Sector Management OPERATIONAL MANAGEMENT »» Operational »» Front Line
2nd Line of Defence PROACTIVE MONITORING »» Risk Management Functional RISK MANAGEMENT AND COMPLIANCE Management »» Compliance »» Information Security & Risk »» Financial Control
Internal Control Framework Internal 3rd Line of Defence OVERSIGHT Board Audit INTERNAL AUDIT & EXTERNAL AUDIT Committee and »» Internal Audit Board of Directors »» External Audit 50 SOFTLOGIC HOLDINGS PLC
OPERATING CONTEXT AND STRATEGY RISK MANAGEMENT REPORT
All employees in their day-to-day lives are 1. Budgeting, Planning and responsible to manage risk, with ultimate Reporting 1 accountability residing with the Board. To enable informed and timely decision Budgeting, planning and reporting making, we use strategic planning, annual The primary responsibility for managing budgeting and monthly operational risk lies at the business level, which is and variance analysis reviews. Strategic 2 the first line of defence. Part of the role planning includes analysis of our markets, Risk assessment and mitigation of business managers throughout the review of competition and assessment Group is to ensure risks are managed of our own business. We try to anticipate appropriately. The risk management major changes that may influence us to 3 function is part of the second line of restructure the sectors we operate in. defence, and independently assesses Our quarterly business review process Fraud risk management material risks. The third line, which covers operational entities and corporate includes internal and external audit, departments. The budgeting process 4 reviews and challenges the Group’s risk delivers a detailed Group budget for a management practices. Crisis and business three-year cycle. The budget is reviewed continuity management and approved by the Board. The three lines of defence have sufficient separation and independence Stress testing is conducted in subsidiaries, 5 not to compromise the working of the especially Softlogic Finance where Transfer of risks framework. They operate in coordination analysis includes risks (credit, market with one another, to maximise rates, securitisation, cost of funding, etc.,), effectiveness. using data at the end of the financial year, adjusted for an asset quality review. A Shared Approach Sensitivity analysis and scenario analysis Each subsidiary adapts specific risk are undertaken, with scenarios reflecting management around Group expectations. the risk identification process and risk This model enables adoption of best appetite. Strategic decisions are taken practices in the three core verticals in based on the stress testing results. which the Group operates.
2. Risk Assessment & Mitigation Key Risk Management Processes Our risk management process include the following six steps: Group risk policy is guided by principles 1 of the International Committee of Map and anticipate main identifiable risks periodically Sponsoring Organisations of the Treadway 2 Commission (COSO) framework, which Prioritise them based on severity and probability involves risk identification at a strategic and operational level, and evaluation of 3 mitigating controls. Develop risk appetite and assign risk ownership
4 Communicate key risks to business level
5 Develop and implement policies and mitigative action plans
6 Provide training, guidance and support OPERATING CONTEXT AND STRATEGY
ANNUAL REPORT 2017-18 51
Integrated into Group processes, our approach is based on responsibility, ownership, performance and continuous improvement. Key risks are assigned to risk owners who are responsible for developing operational plans. Top-down view Strategic risks Group Alignment of organisation to strategic and Enterprise-wide risks, business objectives acquisitions, key investments, etc. Subsidiary All types of risks linked to a business.
Operational risks Activity Units Process efficiency and integrity Processes and procedures
Tactical risks Departments Crisis management; Procurement, Sales, Marketing, HR, security and HSE Operations, Logistics, Distribution, After-Sales, certifications Quality Control, etc. Bottom-up view
3. Fraud Risk Management We have an anti-fraud framework to prevent, detect, deter, report and respond to fraudulent activities. This is overseen by respective Heads of Audit, Risk and Compliance who are in turn governed by respective Board Audit Committees and, where they exist, Integrated Risk Management Committees (IRMCs). Internal audit processes are devised on the ‘what could go wrong’ methodology to reduce fraud risk.
Whistleblowing arrangements allow staff to report any suspicion of fraud or irregularities induction, as well as regular staff training, highlights anti-fraud and anti-bribery measures, and the importance of ethical behaviour.
4. Crisis and Business Continuity Management We cannot identify all risks we may encounter, so we have crisis management processes and business continuity responses to improve resilience to unforeseen events – such as a supply chain disruption, natural disasters and cyber-attacks – and minimise their impacts.
This encompasses escalation and communication, anticipation and action, and assignment of roles and responsibilities. Each company in the Group has a crisis management team.
5. Transfer of Risks Our insurance programmes cover property damage, business interruption, public, product and professional liability, and employee health & safety. These aim to protect the Group against large or numerous claims, so any cost arising does not impair Group competitiveness. 52 SOFTLOGIC HOLDINGS PLC
OPERATING CONTEXT AND STRATEGY RISK MANAGEMENT REPORT
Control & Monitoring The reliability of internal controls is meetings, including private sessions, with The model used manages risk within the regularly tested by internal auditors. the Board Audit Committee. Groups risk appetite. The Board Audit Committee regularly Review of the Effectiveness of the reviews the work of Internal Audit. System of Internal Control Internal Control The Board Audit Committee is required Softlogic has implemented an internal Internal Audit to carry out a review of the Internal control framework based on a clear The Internal Audit team has direct and Control at the end of the financial statement of ethical business principles, unlimited access to Group operations, year after approving the audit plan at established policies and training of key documents and employees. It reports the beginning of the year. Relevant personnel who implement and oversee directly to the Head of Internal Audit and information and reports are collated by it. It focuses on reporting financial has a direct line of communication with the Group Head of Audit and presented position and performance reliably and Board Audit Committee Chairmen and to the Board Audit Committee for review complying with applicable laws and reporting line to the Managing Director. and comment. regulations. The external auditors hold regular
Perceived Principal Risks The table below provides a brief description of the key strategic and operational risks to which the Group is exposed and the mitigating controls in place to manage these risks. Opportunities for further enhancement are evaluated continually.
Group Risk Mitigating Activities Net Risk Assessment 2017/18 2017/16 BUSINESS RISKS
Demographics
We are a consumer-focused »» Diversification of business activities Moderate Moderate conglomerate. A change in the targeting diverse customer segments Based on the pace of demographics can impact our change, diversification and business model. ability to attract and retain talent and customers
GEO-POLITICAL AND ECONOMIC RISKS
Wealth
Our business growth is tightly »» Statistics on Sri Lanka’s per capita income, Moderate Moderate correlated with income growth of prices and distribution of income are Based on trends and consumers. monitored and used as a guide indicators which are favourable for the Group
Government Policy
All our businesses are impacted by »» Active participation in industry associations Moderate Moderate Government policy with Financial in the key sectors, facilitating industry-wide Underpinned by the and Healthcare Services subject response to current issues Group’s ability to to higher levels of impact as they »» Ability to revise prices to reflect policy effectively respond to operate in regulated sectors changes changes OPERATING CONTEXT AND STRATEGY
ANNUAL REPORT 2017-18 53
Group Risk Mitigating Activities Net Risk Assessment 2017/18 2017/16 Customer Experience & Satisfaction
Customer satisfaction is key to »» High levels of customer interaction to Moderate Moderate business growth and drives our understand areas of concern including Based on processes in performance as a consumer market research and customer feedback place and adjusted to oriented conglomerate as described in Stakeholder Engagement recognise the rapid pace on pages 43 and 44 and Social of change in customer Relationship Capital on pages 107 to 117 requirements »» Regular review of product portfolios and product launches to introduce new products to the market »» High levels of product responsibility maintained throughout the entire Group »» Monitoring customer rankings
MARKET RISK
Exchange Rate Risk
Exchange rate risk arises primarily »» Close monitoring of foreign currency Moderate Moderate from Retail, ICT and Automotive exposures Based on forecast businesses which are reliant on »» Risk limiting thresholds in place for currency movements and imports while the Leisure sector exposures mitigating strategies provides a hedge »» Hedging through forward contracts by Group Treasury to limit exposures within specified thresholds
Interest Rate Risk
Group’s loan book and its »» Centralised Treasury monitors and Moderate-High Moderate operations in Financial Services manages market conditions and the Based on the prevalent sector defines Softlogic’s exposure potential impact of interest rate changes high interest rates to interest rate risk »» Cap and floor agreements, fixed and floating rates and asset/liability maturity analyses are used to assess and mitigate risks
CREDIT RISK
Group has exposure to Hire »» Customer credit due diligence Moderate Moderate Purchase through its retail sector »» Diversified credit portfolio (concentration Based on value involved while Softlogic Finance managing and tail risks) other lending activities including »» Credit approval is reviewed by respective SME, leasing, etc. authority levels depending on the value involved »» Internal client ratings 54 SOFTLOGIC HOLDINGS PLC
OPERATING CONTEXT AND STRATEGY RISK MANAGEMENT REPORT
Group Risk Mitigating Activities Net Risk Assessment 2017/18 2017/16 OPERATIONAL RISK
Employee Engagement & Productivity
A highly motivated team is vital to »» Open door policy for employees to Low Low our success as they are our brand discuss areas of concern Based on established ambassadors »» Training and development structures, procedures, »» Balanced HR policies applied in a monitoring and review consistent manner to build trust with mechanisms employees »» Policy of giving preference to internal candidates for vacancies »» Mentoring culture »» Refer the Human Capital Report on pages 100 to 106 of the Report for further information.
Technology
ICT, Healthcare Services and Retail »» Setting the pace for technological change Moderate Moderate sectors are positioned as leaders in the ICT, Healthcare Services and Retail Based on the in technology with other sectors sectors organisation’s culture having varying degrees of reliance »» Strong partnerships facilitate introduction in embracing emerging on IT systems for business support of new technology to the market technologies »» A tech savvy culture within the Group ensures that we embrace technology as a competitive edge for business growth
Product Responsibility
Product responsibility is critical to »» Compliance with regulatory and Low Low our reputation and growth certification requirements Based on processes in »» Dedicated after-sales function for place consumer durables and ICT »» Dedicated customer service functions at all retail outlets »» Monitoring of customer complaints »» Quality control processes »» Regularly calling customers OPERATING CONTEXT AND STRATEGY
ANNUAL REPORT 2017-18 55
Group Risk Mitigating Activities Net Risk Assessment 2017/18 2017/16 STRATEGIC RISK
Relationships with Principals
A significant proportion of our »» High levels of engagement with principals Low Low businesses relies on relationships at senior levels Based on processes in with principals of global repute »» Compliance with varying franchise place for compliance and requirements of principals for storage, proven track record of marketing and distribution of their performance products and other administrative aspects »» Consistent delivery of value to principals
Investment Decisions
Softlogic requires independent »» Independent risk appraisal by respective Moderate Moderate multi-disciplinary review of major risk departments is part of the investment Based on value and investment proposals before review process impact of investment submission to the Board. »» Material risks and associated mitigations are highlighted and discussed prior to making an investment decision
The economy continues to be challenging, and our continued commitment to risk management has proved effective. We recognise that maintaining and continually enhancing our risk management capabilities will be important to ensure that Group’s financial and strategic objectives are achieved. 56 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS
RETAIL MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 57
Our Retail sector boasts of diversity and depth, with strong market positions and industry-leading brands in Consumer Durables, Branded Fashion, Furniture and Quick Service Restaurants. Softlogic’s growth aspirations in this fast-growing segment have uniquely positioned it to capture opportunities stemming from higher disposable incomes, tourism growth, increasing customer sophistication and aspiration for high-end brands.
REVENUE
Focus was on widening the product portfolio, a consolidation of the 21.0 distribution network and new Rs. Bn strategic partnerships with international brands
PROFIT
Longer term outlook remains promising as economic 16% growth stabilises, and Increase disposable incomes rise
EMPLOYEES
Female employees in this 2,454 sector numbered 663 58 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS RETAIL SECTOR
»» Slowdown in consumption »» Widening geographical »» 7% revenue growth expenditure in 2017 footprint and visibility »» 14% growth in operating »» Positive long term outlook »» New brand & product profit supported by increasing acquisitions disposable incomes, Strategy »» Enhancement of customer
customer sophistication and Performance proposition changing lifestyles
Operating Environment »» Entry into supermarkets
Aggregated Performance Operating Environment Sri Lanka’s household consumption has Financial Year Ended recorded robust growth since the end 31 March (Rs. Mn) 2018 2017 Change Financial Capital of military hostilities in 2009, growing Revenue 21,018 19,571 7% by an average of over 6% over the last Operating Profit 2,454 2,162 14% five years. The country is considered Profit Before Taxation 522 831 (37%) a consumer-driven economy, with Profit After Tax 487 421 16% household consumption accounting for Total Assets 27,012 21,610 25% over 50% of GDP in 2017. Over the Manufactured Capital short term however, economic reforms Property, Plant & Equipment 2,910 2,278 28% are likely to see subdued consumer (Excluding land) demand. Key challenges include higher Capital Expenditure 1,202 839 43% inflation levels, rising food prices and Human Capital increased taxes which in turn affect Total Headcount (Nos) 2,454 2,229 10% consumer demand. The longer term Female Representation 27% 29% outlook remains promising as economic Intellectual Capital Brand Count (Nos) >100 > 60 growth stabilises and disposable incomes rise. The country is currently at the upper edge of the lower-middle income
Retail Sector - Financial Performance
Rs.Mn 25,000
20,000
15,000
10,000
5,000
0 2016 2017 2018 Revenue MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 59
classification and given improving Softlogic Holdings PLC macro-economic conditions, the retail sector presents numerous SOFTLOGIC RETAIL HOLDINGS (PVT) LTD opportunities for growth. » SOFTLOGIC RETAIL (PVT) LTD According to AT Kearney, retail sales Retailer of consumer durables and furniture in the country are expected to grow » SUZUKI MOTORS LANKA LTD by around 6% annually over the Authorised Dealer for Suzuki motorcycles short to medium term. Meanwhile, » SML HOLDINGS (PVT) LTD Non-operational subsidiary as disposable incomes increase, and the country strives for middle income » DAI-NISHI SECURITIES (PVT) LTD Non-operating subsidiary status, there is growing customer sophistication and preference for » ODEL PLC Chain of retail department stores premium products. International brands are increasingly visible across » SOFTLOGIC BRANDS (PVT) LTD Branded Apparel stores value chains, with a growing number of active franchises particularly in » ODEL PROPERTIES ONE (PVT) LTD Developer of Odel Mall restaurants and consumer goods. » OTHER ODEL SUBSIDIARIES Since barriers to entry are high, Manufacturing products and providing support services to Odel Group players with established distribution networks and retail space like SOFTLOGIC RESTAURANTS (PVT) LTD ® Softlogic are at an advantage. Sri QSR chain operating BURGER KING restaurants, the ice cream business - Baskin-Robbins and the French frozen & bakery food outlet - Delifrance Lanka is striving to establish itself as a regional shopping hub for which » SILK ROUTE FOODS (PVT) LTD Operates the BURGER KING® outlet at the Bandaranaike International Airport the presence of leading international brands becomes a must. SOFTLOGIC SUPERMARKETS (PVT) LTD Operator of Softlogic’s soon-to-launch supermarket chain 60 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS RETAIL SECTOR
Consumer Electronics
Branded Apparel/Footwear/Handbags
International Watches
Eyewear
Departmental Stores Online Store
Restaurants Furniture MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 61
Sri Lanka’s modern grocery retail sector has also seen robust growth supported Softlogic Showroom 199 by improving incomes, rising urbanisation Ja na Softlogic Max 21 Branded Apparel 20 and changing lifestyles which have 5 1 Odel Stores 26 attracted more customers from Kilinochchi Burger King Restaurants 19 traditional grocery channels. Modern Baskin-Robbins 6 1 Mullativu trade penetration, however, remains Delifrance 1 2 low with only 12%-15% of FMCG sales generated by modern grocery retail, Mannar Vavuniya relatively low in comparison with regional 1 peers (according to Nielsens). Currently, Trincomalee supermarkets are concentrated in urban 5 areas, with large untapped potential in Anuradhapura rural areas. 20
Strategy and Performance Polonnaruwa The Retail sector’s revenue and 6 operating profit increased 7% and 14% Puttalam Batticaloa respectively during the year, emerging 4 Kurunegala 4 Matale as the second largest contributor 18 5 to consolidated operating earnings. Performance of the year was supported Kandy Kegalle by a widening product portfolio, Gampaha 15 1 3 2 2 1 Ampara consolidation of the distribution network 8 1 Nuwara-Eliya 15 5 9 5 1 Badulla 7 and new strategic partnerships with 4 1 Colombo 11 international brands. The sector’s pre-tax profit was Rs. 522 Mn for the year. 14 11 17 11 11 4 1 Monaragala Kalutara Ratnapura 5 Consumer Durables 8 2 1 1 11
Softlogic is among the top three Galle Hambantota retailers of consumer electronics and Matara 7 durables in Sri Lanka, representing an 14 2 array of leading global brands such as 9 Panasonic, Samsung, Whirlpool, Candy, Dell and Nokia. Its competitive edge in leading air cooler brands, providing we also launched ‘Softlogic’ branded this segment stems from an extensive additions to the sector’s competitive mattresses during the year. distribution network, comprising 220 product range. In catering to an outlets (310,000 sq.ft.); including increasingly fitness-conscious segment, Branded Fashion 21 large-format ‘Softlogic Max’ stores we introduced Xterra and Schwinn Softlogic represents a host of leading catering to urban areas and 199 smaller fitness equipment in our stores, the international fashion brands and is ‘Softlogic’ stores across the island. During response to which has been extremely Sri Lanka’s largest retailer of branded the year, we sought to consolidate encouraging. In the furniture sub-sector, apparel, operating through a network of our network with increased focus on we launched the ‘Softlogic Lifestyles’ 20 branded apparel and 26 Odel outlets. metropolitan and prime city areas. This range, an affordable and stylish collection Brand acquisition is a key priority for segment continued to expand its strategic retailed through our network of ‘Softlogic the sector. We added a range of fashion partnerships and product portfolio. Max’ and ‘Softlogic’ outlets. In enhancing brands including Only, Vero Moda, Aldo, For instance, we obtained the sole contributions from proprietary brands, Desigual and Armani Exchange during distributorship of VEGO, one of India’s the year. 62 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS RETAIL SECTOR
Following Softlogic’s acquisition of Odel product portfolio and adding a host of in 2015, its outlets have increased their international brands such as Emmanuelle Sector highlights value proposition to customers. Odel Khanh, US Polo, Allen Solley, Louis »» Expansion of geographical reach captilised on Group synergies with added Philippe, Van Heusen and Peter England. »» New partnerships with benefits stemming from the branded Odel also launched its signature luxury international brands apparel division. Odel emerged as a key after-dark evening wear range under »» Widened product portfolio contributor to sector earnings supported the brand name of ‘LUXE’, including an by its strong brand reputation, superior exclusive collection of ladies’ cocktail and »» Post-acquisition restructure of customer experience and extensive party wear. ‘LUXE BAGS’ was launched Baskin Robbins product portfolio. during the year introducing a line-up of »» Acquisition of Delifrance designer bag brands, such as Emporio franchise The Odel flagship store at Alexandra Armani, Michael Kors, Love Moschino, Place is the largest department store Trussardi, Cavalli Class and Blumarine. in the country, housing an array of Odel marked the opening of its 22nd Quick Service Restaurants (QSR) proprietary, local and leading international outlet in Negombo, partnering with The Group owns the franchise rights brands. During the year, we added Softlogic Max to offer global lifestyle, of BURGER KING® - one of the fastest 10,000 sq.ft. of retail space to this store, clothing and consumer durables brands growing QSR chains in the country. revamping the Odel sports department under one roof. We operate a total of 19 restaurants. which offers the best of global sporting Our pricing strategy is focused on brands such as Nike, Reebok, Adidas, strengthening our position in the Puma and Canterbury. We also expanded mid-market through an affordable the men’s department, widening the value product offering. Despite intense competition in this segment, BURGER KING® has maintained its position through competitive pricing, cross and joint promotions across Group businesses and ongoing product development while profitability was protected through proactive negotiations with suppliers.
Following the acquisition of the Baskin- Robbins franchise, strategic focus was placed on consolidating and optimising
Sector Human Capital 2017/18
Softlogic Retail Softlogic Brands Softlogic Restaurants ODEL MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 63
our network through relocations and closure of non-performing outlets. We also enhanced product standards and our range in line with international standards, enhancing the customer value proposition. As a result, Baskin-Robbins posted strong recovery and is positioned for pleasing growth over the medium term.
Softlogic Restaurants signed its third franchise agreement with France’s Delifrance S.A; a frozen and bakery food operator to open and operate Delifrance outlets in Sri Lanka. Currently, one outlet operates at the Odel flagship store.
Looking Forward The Retail sector presents substantial upside potential and we are excited by the opportunities presented by the vibrancy and dynamism of the Sri Lankan market. The sector’s growth strategy for 2018/19 will centre on enhancing retail space and visibility and leveraging the sector’s synergies. The objective of the restructuring of this sector is to consolidate all retail operations under one entity, for more inclusive management action and decision making. We are also eagerly awaiting the completion of the Colombo City Centre, where the Group’s retail arm will occupy around 40,000 sq.ft. We will also occupy over 90,000 sq.ft. in One Galle Face by Shangri La, Colombo; housing Odel, international brands and our QSR chain. Furthermore, we hope to expand the Retail sector’s cross promotions and bundled offers in a Group-wide Loyalty Programme, covering all of Softlogic’s segments, again enhancing the overall customer value proposition as we leverage on our natural synergies. To cement our position in the country’s which will complement the Group’s other retail industry, Softlogic also intends to consumer driven businesses allowing it launch a supermarket chain soon; we to be present across, and visible in all key believe this is a natural progression consumer value chains. 64 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS
HEALTHCARE SERVICES MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 65
The Healthcare Services sector encompasses the Asiri Group of Hospitals, a leader in Sri Lanka’s private healthcare sector, with over 600 beds in four multi-speciality hospitals. It is the market leader in laboratory & radiology diagnostic services, having built a reputation for accuracy and reliability. The sector is a leading contributor to Group earnings and is positioned for accelerated growth with its regional expansion plans.
REVENUE
Revenue growth was driven by improved occupancy levels in the Colombo hospitals, strong growth in cardiac 12Rs. Bn care and expansion of the laboratory network
PROFIT
Disciplined cost management and streamlined procurement 65%Increase supported profit growth
EMPLOYEES
Asiri Health employs nearly 3,000 female 4,114 employees 66 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS HEALTHCARE SERVICES
»» Rising demand for private »» Technology driven »» 16% growth in revenue healthcare innovation »» 60% growth in operating »» Increasing disposable »» Geographical expansion profit incomes »» Patient-centric processes »» 65% growth in profit for »» Rapidly ageing population Strategy »» Quality focus the year »» Increase in health insurance Performance coverage Operating Environment »» Increasing prevalence of Non-Communicable Diseases
Aggregated Performance Operating Environment Successive Governments in Sri Lanka Financial Year Ended have adopted a free and universal 31 March (Rs. Mn) 2018 2017 Change Financial Capital healthcare system resulting in the Revenue 12,025 10,373 16% Government sector playing a vital role in Operating Profit 3,426 2,141 60% meeting the country’s healthcare needs. Profit Before Taxation 2,635 1,346 96% Supported by an extensive distribution Profit After Tax 1,938 1,177 65% of general, provincial and base hospitals Total Assets 21,012 17,891 17% around the country, the Government Manufactured Capital sector accounts for around 92% of bed Property, Plant & Equipment 12,521 11,189 12% capacity. In recent years however, private (Excluding Land) healthcare services have seen rapid Capital Expenditure 2,620 2,172 21% growth driven by increasing disposable Bedcount (Nos) +600 +600 incomes, increased preference towards Laboratory Network (Nos) 17 13 31% convenience, and comfort and the Collection Centres (Nos) 51 44 16% Human Capital rising prevalence of non-communicable Total Headcount (Nos) 4,114 4,143 -1% diseases. The distribution of their facilities Female Representation 67% 66% is however concentrated primarily in the Social & Relationship Capital main cities of Colombo, Kandy and Galle Patient Satisfaction Index 82% 82% in which disposable incomes are higher. Percentage of Feedback Collected 78% 33% 45% Third party Collection Centres (Nos) 326 235 39% Government Private Intellectual Capital In-Patients 85% 15% Visiting Specialist Doctors (Nos) 787 762 3% Out-Patients 60% 40% Full-time Specialist Doctors (Nos) 40 37 8%
Strategy and Performance The healthcare sector was a key contributor to Group profitability during the year, achieving revenue and profit growth of 16% and 65% respectively. Revenue growth was driven by improved occupancy levels in the Colombo hospitals, strong growth in cardiac care as well as expansion of the laboratory network. Despite escalating costs, the MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 67
Softlogic Holdings PLC
ASIRI HOSPITAL HOLDINGS PLC 110-bed hospital in Colombo
» ASIRI SURGICAL HOSPITAL PLC 165-bed hospital offering specialised surgical care inclusive of a state-of-the-art heart centre, modern operating theatres and urology treatment facilities » ASIRI AOI CANCER CENTRE (PVT) LTD Joint Venture with Cancer Treatment Services Hyderabad (Private) Limited
» ASIRI CENTRAL HOSPITALS LTD Non-operational
» CENTRAL HOSPITAL LTD 264-bed state-of-the-art technologically advanced, modern one stop medical centre that offers diagnostic, therapeutic and intensive care facilities.
» ASIRI HOSPITAL MATARA (PVT) LTD 80-bed hospital in Matara, offering a range of general and surgical care facilities
» ASIRI DIAGNOSTICS SERVICES (PVT) LTD Laboratory services in the Central Province
» ASIRI HOSPITAL KANDY (PVT) LTD 180- bed multi-speciality hospital under construction in Kandy
» DIGITAL HEALTH (PVT) LTD Joint Venture with Digital Holdings Lanka (Pvt) Ltd
JENDO INNOVATIONS (PVT) LTD An associate company involved in bio-medical research and product development
Healthcare Services Sector focus on disciplined cost management the prestigious JCI accreditation (for - Financial Performance and streamlining procurement, together Central Hospital) ISO 9001, ISO 14001 Rs.Mn with a one-off disposal gain, allowed and OHSAS 18001, bear testament 15,000 the sector to record a 60% growth in to our ongoing focus on enhancing operating profit. Tax increased to Rs. 697 quality of service. Hospitals within 12,000 Mn from Rs. 169 Mn in the previous year the Group are also in the process of
9,000 due to the change in the tax rate from obtaining the Australian Council on 12% to 28% for healthcare operators Healthcare Standards International
6,000 and a deferred tax liability impact. The (ACHSI) certification. Attesting to our sector’s profit after tax amounted to international standards of care, Central
3,000 Rs. 1.9 Bn during the year, compared to Hospital was appointed as an accredited Rs.1.2 Bn the previous year. examination centre for the Royal College 0 of Surgeons - Aberdeen, Scotland, the 2016 2017 2018 Asiri Group maintained its position as first hospital outside UK to receive this Revenue Sri Lanka’s leading private healthcare recognition. Meanwhile the Bone Marrow Pre-tax profit operator, underpinned by its unmatched Transplant unit at Central Hospital is a bed capacity, technology-enabled centre for postgraduate training by the innovation and quality focus. Multiple Postgraduate Institute of Medicine. Asiri local and international accreditations for Health will launch an MBBS degree various aspects of operations, including in partnership with the University of 68 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS HEALTHCARE SERVICES
Aberdeen. This degree programme will Surgical divested 50% stake of Asiri enable medical students to complete AOI Cancer Centre to form a Joint Initiatives in 2017/18 their first three pre-clinical years in the Venture with Cancer Treatment Services, »» Fully-equipped ENT console University of Aberdeen followed by two Hyderabad. The construction of this and operating instruments with clinical years at Asiri Health. This would state-of-the-art facility commenced in the latest diagnostic equipment make international medical education 2017 and the facility is expected to be at Asiri Surgical affordable to Sri Lankan students while launched in the latter part of 2018. The »» Fully-fledged Dialysis Centre at elevating the clinical practice standards centre which will be positioned among Asiri Surgical within Asiri Health. This education the sub-continent’s best, will feature programme, approved by the General nuclear medicine, radiotherapy treatment »» Paediatric Respiratory Disease centre for children at Asiri Medical Council of the UK, will be and offer the country’s only true beam Medical launched in 2020. linear accelerator and Brachytherapy machine for advanced treatment of »» Palliative Care Unit at Asiri Technology-led innovation is a key specific forms of cancer. Central Hospital Surgical source of the competitive edge in the also made investments in expanding »» Elderly Care Unit at Asiri healthcare industry and the Asiri Group the scope of services offered at its Brain Surgical Wellness Centre has introduced numerous ‘firsts’ in the and Spine Centre, enabling it to perform »» Launch of Sleep Apnoea lab in country’s healthcare sector. During the scoliosis surgery - a precision driven Asiri Matara year we made considerable investments procedure. in further enhancing our clinical and »» Introduced 07 new laboratory medical technology while widening Sector’s capital expenditure for the tests the services offered. For instance, Asiri year amounted to Rs. 2.6 Bn and »» Second Cardiac Catheterisation Lab at Asiri Surgical »» Wound Management Centre at Asiri Surgical »» Clinical Psychology Unit at Asiri Surgical Wellness Centre »» Free Antenatal Programme at Asiri Medical »» Asiri Breast Care Centre at Central Hospital
Revenue Contribution 2017/18
Central Hospital Asiri Hospital Holdings Asiri Surgical Hospital Asiri Hospital Matara Others MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 69
comprised ongoing investments in the latest 180-bed tertiary hospital in Kandy. Being the first-of-its-kind in the Central Province, the hospital will offer the latest diagnostic and laboratory services. Capital expenditure was also directed towards Phase 2 of the Asiri Medical renovation, refurbishment of Asiri Surgical and ongoing investments in new medical and clinical technology.
Asiri Health, the market leader in the diagnostics segment, has built a reputation for reliability, accuracy and speed of service. Asiri Health boasts the largest test menu for clinical laboratory diagnostics in the country. Our laboratories have also obtained multiple accreditations including ISO 9001: 2015, ISO 15189: 2012 and ISO 14001: 2005. We have also pursued geographical expansion of our network and currently operate a network of 13 labs (excluding the 04 hospital labs) and 51 collection centres across the island. During the year, Asiri Laboratory Services won two gold awards at the National Quality and Productivity Awards 2018.
Looking Forward The consistent rise in the demand for private healthcare is expected to augur well for the Group as it pursues expansion of its hospital portfolio. Asiri Hospital Kandy will start operations in 2019 and given its central location will enable the attraction of patients from the country’s Central, Eastern and Northern regions. Softlogic’s associate company, Jendo Innovations - a medical research unit, is also expected to reap benefits for the sector over the long term, with several new breakthrough projects in the pipeline. 70 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS
INFORMATION COMMUNICATIONS TECHNOLOGY MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 71
Softlogic is one of Sri Lanka’s leading mobile phone distributors with distributor rights for world- leading brands such as Samsung, Nokia, Energizer, Blackberry and Intex. The sector’s competitive edge is underpinned by its unmatched distribution network of over 1,500 retail points which has enabled it to capture dominant market share. The sector also provides a range of hardware and software solutions for the SME and corporate market.
REVENUE
Sector revenue was led by Samsung and Nokia handsets followed by 16.9Rs. Bn the IT segment
PROFIT Strong performance of the Samsung and the new Nokia Android phone range together with contributions from the 101%Increase B2B IT segment contributed to sector profitability
EMPLOYEES
152 female employees are 689 employed in this sector 72 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS INFORMATION COMMUNICATIONS TECHNOLOGY
»» Increased migration »» Build distribution network »» Marginal decline in revenue from feature phone to further »» 39% growth in operating smartphones »» Acquire new brands profit »» Intense competition »» Widen product portfolio »» 91% growth in pre-tax profit between global brands Strategy »» Ensure excellent after-sales »» Opportunities from Performance service Government digitisation Operating Environment plans
Aggregated Performance The country’s ICT sector has been earmarked as a key sector for growth Financial Year Ended by the Government and is also among 31 March (Rs. Mn) 2018 2017 Change six sectors for development to achieve Financial Capital export targets set in the National Export Revenue 16,898 17,539 (4%) Strategy. Through the 2018 budget, Operating Profit 959 690 39% the Government committed towards Profit Before Taxation 717 376 91% providing Rs. 3.0 Bn funding for the Profit After Tax 519 259 101% Total Assets 5,665 5,339 6% ICT sector over the next three years by Manufactured Capital way of grants, equity, mentoring and Property, Plant & Equipment 367 413 (11%) technical support with the objective (Excluding Land) of creating an IT-enabled advanced Capital Expenditure 52 54 (4%) environment. The country has also Human Capital built a unique competitive advantage in Total Headcount (Nos) 689 639 8% Business Process Outsourcing (BPO) Female Representation 22% 29% based on its young talent pool, agility, Intellectual Capital cultural adaptability and quality of life Brand Count (Nos) 31 25 and as a destination for doing business. In 2017, Sri Lanka was ranked 11th in A. T. Kearney’s ‘Global Services Location ICT Sector - Financial Performance Operating Environment Index’, moving up three notches from Rs.Mn Rs.Mn Sri Lanka’s connectivity has grown rapidly 2016 attesting to its attractiveness as 20,000 800 in recent years, with mobile phone a location for outsourcing. In 2017, penetration increasing to 126 (per 100 earnings from computer and information 15,000 600 persons) in 2017 from just 17 (per 100 systems exports increased 8.5% to persons) in 2005. Internet penetration USD 786 Mn.
10,000 400 in the country has also increased from 20 (per 100 persons) in 2005 to 28 Strategy & Performance (per 100 persons) in 2017. Sri Lanka 5,000 200 The ICT sector turned in a year of strong was the first South Asian nation to adopt profitability, with revenue of Rs. 16.9 Bn 4G technology in 2013 and intense and profit after tax more than doubling to 0 0 competition in the market has resulted Rs. 519 Mn. Profitability was supported 2016 2017 2018 in some of the lowest data and phone by the consistently strong performance Revenue tariffs in the world. Pre-tax profit of the Samsung handset segment and the encouraging performance of the new Nokia Android phone range together MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 73
Telecommunications
Information Technology
Softlogic Holdings PLC
Information Technology SOFTLOGIC INFORMATION TECHNOLOGIES (PVT) LTD Provider of software, hardware, infrastructure and security solutions to corporates, SMEs and the Government
SOFTLOGIC COMPUTERS (PVT) LTD Specialised IT Solutions provider to financial services, retail and hospitality sectors
SOFTLOGIC BPO SERVICES (PVT) LTD IT support services provider to the Group and customised IT solutions provider to corporates
SOFTLOGIC AUSTRALIA PTY. LTD Software solutions provider based in Australia whose services extend to the USA and the Middle East
Telecommunications SOFTLOGIC COMMUNICATIONS (PVT) LTD National Distributor for Nokia and Intex handsets
SOFTLOGIC MOBILE DISTRIBUTION (PVT) LTD National Distributor for Samsung and Energizer handsets
SOFTLOGIC COMMUNICATION SERVICES (PVT) LTD Service arm for the mobile sector
SOFTLOGIC INTERNATIONAL (PVT) LTD Business partner of Dialog Axiata PLC and National Distributor of Blackberry handsets 74 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS INFORMATION COMMUNICATIONS TECHNOLOGY
with strong contributions from the B2B extensive distribution network of 20 IT segment. In the telecommunications (own) outlets, 26 regional distributors Softlogic Information Technologies segment, we continued to leverage and over 1,500 independent retailers »» Top Asia Emerging Markets on our extensive distribution network, across the island has allowed us award at the South Asia Partner which has given us island-wide reach outperform long-standing competitors Summit and set us ahead of competition. in the market. We widened our dealer »» ‘Best Commercial Business Operating profit grew 39% during the network during the year. Within just Partner’ in FY18 at the Dell year while rationalisation of borrowings 3 years of obtaining distributor rights, Power Awards led to a 27% reduction in finance Samsung has emerged as one of the »» Best Competitive Win Back at costs. Resulting from this, sector profit country’s most popular smartphone the Dell Power Awards for the year doubled to Rs. 519 Mn brands. We provide the industry’s best compared to Rs. 259 Mn the year before. after-sales through six care centres across »» Best Salesman awarded to AGM Our commitment to excellence was major cities, thereby providing convenient Sales & Marketing, Private Sector recognised through numerous accolades and accessible after-sales service. »» Digital Security Team Awards: during the year. »» SONICWALL – Best Performer The response to Nokia’s new range of »» CISCO – Appreciation award In Telecommunications, the Samsung Android phones has been extremely smartphone range continued to perform promising in Sri Lanka, with the phone’s well as we achieved deeper penetration market share as a percentage is the brand has been able to leverage its and increased market share. Our highest in the world for the brand. The strong reputation as a leading feature phone brand and excellent customer service (such as the one-to-one replacement within the warranty period) has allowed it to rapidly capture market share. We are extremely optimistic about the growth potential presented by this range. We also launched the Blackberry Android range last year.
During the year, we acquired distributorship rights for the Energizer handsets, which is positioned as a rugged smartphone category. Energizer offers a range of phones which are water proof, with long-lasting battery life. Our other entry level proposition, Intex, has performed well, driven by its attractive pricing, and superior after-sales service and extensive retail network.
The IT Solutions segment continued its steady pace supported by its partnerships with world-leading brands such as Dell, Panasonic, Xerox and NEC, which have enabled us to introduce the latest, technologically advanced solutions to Sri MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 75
Our strategy in this segment is focused on consolidating operations in Australia through value added services and world- class solutions while deepening market penetration in USA and the Middle East.
Looking Forward With mobile penetration already over 100%, growth potential in telecommunications will stem from the increasing migration to smartphones and customer upgrades to newer models. Increasing connectivity has paved the way for migration to smartphones, even in rural regions where we see enormous potential for growth. We intend to widen our product proposition in the affordable phone segment even further through new brands and strategic partnerships. We will continue to invest in our distribution network, with the objective of retaining our leading position in the feature phone segment and widening our share in smartphones. While we continue to hold a leading position in end-user computing, providing equipment to the corporate sector, we are also making Lanka. Our pre-sales and support team is Softlogic’s Australian venture provides strong strides in enterprise and data also a key source of competitive strength, customised software solutions across centre segments. Our focus on digital consistently supporting customers with a range of industries and is positioned security also shows substantial customer the transfer of knowledge. Opportunities for strong growth following a restructure interest. We have signed up for various are rife given the Government’s of the company and recapitalisation. state and private sector projects to commitment to the e-governance It is one of the top providers of menu provide IT infrastructure in 2018/19. We programme and digitisation projects in management/food production software will continue to be a part of the country’s Education, Defence and ICTA. Softlogic (ChefMax®) & resource management ambitious digitisation programme. Information Technologies was upgraded solutions (Invisible Systems®) in to be the only Titanium Dell partner in Australia. During the year we set up the country. This status is the highest operations in the USA and Middle that a partner can achieve and is based East, widening our global footprint on Dell certifications, success stories by partnering with specialised local and continuous achievement of revenue companies in these markets. This has targets quarter-on-quarter. Only a handful allowed us to widen our customer reach of Titanium partners exist in the Asian and in 2017/18, a solution developed for region. medium to large hospitals was launched in the USA and the Middle East, gaining traction despite intense competition. 76 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS
FINANCIAL SERVICES MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 77
The Financial Services sector comprise Softlogic Life Insurance (Life Insurer) Softlogic Finance (Licensed Finance Company) and Softlogic Stockbrokers. Softlogic Life Insurance has built a reputation for innovation and customer service excellence, enabling it to rapidly capture market share in a competitive industry. Softlogic Finance is a medium-sized finance company and contributes towards the country’s financial inclusion agenda by providing access to finance.
REVENUE
Strong Gross Written Premium (GWP) growth in the insurance 11.1Rs. Bn sector supported business growth
PROFIT Multi-channel distribution strategy, an unmatched talent pool and innovative product solutions paved the 104%Increase way for the sector to beat industry averages
EMPLOYEES
Female headcount was 473 in the financial 1,352 services sector 78 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS FINANCIAL SERVICES
»» Inclement weather Life Insurance »» 26% growth in revenue conditions increased claim »» Innovation & customer convenience »» 165% growth in operating ratios and NPL impairments »» Geographical expansion profits »» Macro-prudential measures, »» Multi-channel strategy including a rise in interest Strategy Finance Company
rates Performance »» A focus on process re-engineering and »» Weakened asset quality efficiencies Operating Environment »» Volatile stock market »» Re-balancing the loan portfolio to bring conditions optimum risk-return dynamics »» Growing life insurance sector »» Strengthened talent pool with the recruitment of industry professionals Equity »» Client building »» Research driven »» Foreign and institutional customer focus
Aggregated Performance Operating Environment Non-Bank Financial Institutions (NBFI): Financial Year Ended The NBFI industry asset growth slowed 31 March (Rs. Mn) 2018 2017 Change Financial Capital to 11% in the year ending March 2018, Revenue 11,061 8,768 26% compared to 15% in the previous year Operating Profit 1,788 674 165% as credit growth was impacted by macro Profit Before Taxation 1,858 1,080 72% prudential measures implemented by Profit After Tax 2,283 1,117 104% the Government and a persistently weak Total Assets 35,094 32,294 9% agriculture sector. A contraction in Net Manufactured Capital Interest Margins (NIMs) coupled with an Property, Plant & Equipment 820 623 32% increase in impairment charges resulted (Excluding Land) in the sector’s profit after tax declining Capital Expenditure 231 137 69% 15%. Meanwhile, most industry players Human Capital witnessed a deterioration in credit quality, Total Headcount (Nos) 1,352 1,121 21% Female Representation 35% 36% NBFI Sector Financial Performance
Rs.Mn % 30,000 25
25,000 20
20,000 15
15,000
10 10,000
5 5,000
0 0 2014 2015 2016 2017 2018 Profit After tax Return on equity MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 79
Softlogic Holdings PLC
SOFTLOGIC CAPITAL PLC Holding Company of the Group’s financial services sector companies and Licensed Investment Manager regulated by the Securities & Exchange Commission (SEC)
» SOFTLOGIC LIFE INSURANCE PLC Life Insurer regulated by the Insurance Regulatory Commission of Sri Lanka » SOFTLOGIC FINANCE PLC Licensed Finance Company regulated by the Central Bank of Sri Lanka – Department of Supervision of NBFIs
» SOFTLOGIC STOCKBROKERS (PVT) LTD Stockbroker regulated by the SEC
» CAPITAL REACH PORTFOLIO MANAGEMENT (PVT) LTD Non-operational subsidiary
with the gross NPA ratio increasing to 6% Strategy and Performance Life Insurance Industry in March 2018, from 5% the year before. The Financial Services sector retained Rs.Mn % 80,000 25 its position as the strongest contributor Life Insurance Industry: As at end- to Group profits during the year. The 70,000 December 2017, the Sri Lankan life 20 sector’s revenue increased 26% to 60,000 insurance industry comprised 14 players, Rs. 11.1 Bn, driven by strong GWP 50,000 of whom 12 were exclusively life 15 growth in the insurance sector, and insurance providers. The Life Insurance 40,000 contribution from Softlogic Finance. sector emerged as the key contributor to 10 The sector’s operating profit more than 30,000 insurance asset growth - expanding 14% doubled to Rs. 1.8 Bn driven by good 20,000 in 2017. Gross Written Premium (GWP) 5 claims performance and disciplined cost 10,000 grew 13% during the year primarily management. The sector’s profit for the supported by increased penetration. 0 0 year nearly doubled to Rs. 2.3 Bn 2014 2015 2016 2017 2018 Industry profitability was further bolstered (Rs. 1.1 Bn in 2016/17) supported by Life Insurance - GWP by a 10% reduction in claims and a one- a change in contract liability due to a Year-on-Year Growth off surplus. transfer of a one-off surplus and impact from deferred tax. Stockbroking Industry: The Colombo Stock Exchange recorded some volatility in the year ending 31 March 2018, although the All Share Price Index (ASPI) increased 1.7% to close at 6,477 points. The moderate economic conditions during the year, as well as the Government’s tight monetary and fiscal policy stance affected overall performance. Market capitalisation, increased 4.6% during the year. 80 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS FINANCIAL SERVICES
Financial Services Sector - Financial Performance
Rs.Mn 12,000
10,000
8,000
6,000
4,000
2,000
0 2016 2017 2018 Revenue Pre-tax profit
Softlogic Life Insurance PLC: The Group’s insurance arm turned in another year of strong performance with GWP increasing 39% during the year. The company has consistently reported above average growth driven by its innovation- led strategy, unmatched agency team, widening geographical presence and multi-channel approach. It is noteworthy that Softlogic Life Insurance has nearly Meanwhile, we continue to grow our Sector Human Capital doubled its market share over the geographical reach, adding 33 branches last five years, attesting to its unique to our network and bringing our total customer value proposition. Innovation count to 95 contact points. led customer convenience is a vital part of our strategy and key achievements The company’s claims and combined during the year included the ‘One Day ratios amounted to 19% and 79% Claim Settlement’ initiative, the launch during the year, while the increase in of virtual branches and automated interest rates and proactive portfolio underwriting systems. management allowed the company to Softlogic Finance Softlogic Life increase its investment income by 33%. Our multi-channel distribution strategy Softlogic Stockbrokers Overall, the insurance arm generated has been a key driver of our growth. The profits of Rs. 2.5 Bn during the year, company’s unmatched agency team an increase of 109% compared to the is amongst its key strengths, achieving previous year. average premium values which are double the market average. This year also Softlogic Finance PLC: The Group’s marks the first full year of performance finance arm experienced a year of of our Alternate Channels team which numerous challenges stemming from was set up to drive increased penetration the economic and industry environment. among banks and corporate customers. The slowdown in credit demand resulted MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 81
strengthened with the appointment of Softlogic Life Insurance qualified professionals while new talent »» National Business Excellence was brought in for several key corporate Awards – Gold (Insurance and senior management positions. Sector) Softlogic Stockbrokers: The fortunes of »» Best Agency Team – Fintelekt Sri the Group’s stockbroking arm mirrored Lanka Insurance Awards 2017 that of the broader market, reflecting »» Best Claims Settlement – volatility throughout the year. The Fintelekt Sri Lanka Insurance company’s competitive edge is centred Awards 2017 on its best-in-class research capabilities and excellent client servicing which in the Company’s interest income has enabled it to develop sustainable growth moderating to 3% while the relationships with a diverse pool of acceleration in funding costs by 12% customers. The company ranked among led to a contraction in the NIMs. The the top three equity broking houses in subdued performance of the country’s the industry during the year, based on agriculture sector had a direct impact volumes traded. on the company’s SME portfolio which experienced an increase in NPLs. In Looking Forward responding to these challenges, we In Insurance, we will continue to took proactive efforts to rebalance our focus on enhancing our customer portfolio to achieve a better risk-return value proposition through the use balance. Accordingly, we widened of technology-based solutions and exposure to gold loans, two-wheelers digitisation which will provide greater and three-wheelers. Strategic emphasis value for both company and customer. was also placed on driving process Given the relatively low life insurance efficiencies, which enabled the company penetration in Sri Lanka, we see strong to contain the increase in overhead potential for growth and will drive our costs to 6%. Impairment charges efforts towards increasing market share declined sharply during the year as we through new product development, revised our Loss Given Default (LGD) service excellence and customer and Probability of Default (PD) ratios accessibility. In the finance business, our following approval by our external medium term priorities are directed at auditors. Overall the company’s profit for strengthening collection and recovery the year declined 11% to Rs. 218 Mn. mechanisms to ensure sustainable Considerable investments were made in improvement in credit quality while the company’s human capital during the rebalancing our portfolio to drive better year with a view to driving our ambitious risk-return dynamics. strategic aspirations; the Board was 82 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS
LEISURE & PROPERTY MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 83
The Group’s leisure sector comprises the 5-Star city hotel, Mövenpick Hotel Colombo, Centara Ceysands Resort & Spa, a 4-Star plus resort in Bentota and a Destination Management Services company for inbound and outbound travel. The property sector consists of the recently completed Everest apartment complex in Colombo 5 and the Odel Mall construction which is in progress. As a non-core sector of the Group, we will seek to realign the sector’s investments with Softlogic’s long term growth aspirations.
REVENUE
Strong top line growth signals the potential for growth and the favourable outlook of this strategically important sector, 2.6Rs. Bn even though tempered by rapid supply expansion and geopolitical risks
PROPERTY, PLANT & EQUIPMENT This capital intensive sector is currently focusing on the construction of the Odel Mall following the successful 12.4Rs. Bn completion of the apartment project in Colombo 5
EMPLOYEES 11% female employment in this sector Our strategic tie-ups with international partners have 632 afforded the sector an advantage in recruitment 84 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS LEISURE & PROPERTY
»» Moderation in tourist arrivals »» Driving service excellence in »» 113% growth in revenue into the country in 2017 our hotel properties »» Profitability impacted by »» Intense competition from »» Brand building initiatives finance costs of this capital both the formal and informal intensive sector sectors Strategy
»» Robust demand for Performance apartments Operating Environment
Aggregated Performance Operating Environment Growth in tourist arrivals in Sri Lanka Financial Year Ended moderated to 3.2% in 2017, due to 31 March (Rs. Mn) 2018 2017 Change Financial Capital several reasons including partial closure Revenue 2,585 1,213 113% of the Bandaranaike International Airport, Operating Profit (142) (143) 1% adverse weather conditions and the Profit Before Taxation (672) (404) (66%) dengue epidemic. In terms of source Profit After Tax (865) (289) (199%) markets, the Western European region Total Assets 15,337 13,419 14% continued to account for the largest share Manufactured Capital at 32%, followed by South Asia (mainly Property, Plant & Equipment 11,012 11,176 (1%) India) and East Asia (led by China). India (Excluding Land) maintained its position as the single Capital Expenditure 359 2,992 (88%) largest individual source market, followed Hotel Rooms by China, UK, Germany and France. Mövenpick Hotel Colombo 219 219 Centara Ceysands Resort & Spa 166 166 On the supply side, competitive Human Capital pressures on hospitality providers have Total Headcount (Nos) 632 665 (5%) Female Representation 11% 10% intensified, following a rapid growth in Social & Relationship Capital both the formal and informal sectors. Customer Ratings The total number of graded rooms has TripAdvisor - Mövenpick Hotel Colombo 4.5/5 4.5/5 increased by over 45% during the last TripAdvisor - Centara Ceysands Resort & Spa 4.5/5 4.5/5 five years, with further projects in the Occupancy (%) pipeline. By March 2018, there were Mövenpick Hotel Colombo 65% -* Centara Ceysands Resort & Spa 80% 77% Leisure & Property Sector Intellectual Capital - Financial Performance
International Hotel Operators (Nos) 2 2 Rs.Mn 3,000 * Mövenpick Hotel Colombo started operations in January 2017
2,500
2,000
1,500
1,000
500
0 2016 2017 2018 Revenue (Rs. Mn) MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 85
316 approved projects, with a total of 17,991 rooms. In Colombo, a few international hotel operators including the Hyatt, Sheraton, ITC and NEXT have commenced construction. Competitive pressures from the informal sector have also intensified given the increasing preference for authentic experiences such as home stays. The informal sector’s room capacity has increased by nearly 70% since 2012. In graded establishments, the average occupancy rate for the year decreased marginally to 73.3%, from 74.8% the previous year.
Meanwhile, demand for residential properties, particularly condominiums is Status of project No. of No. of Investment on the rise, driven by increasing incomes, projects rooms (USD) urban migration, costs of maintaining Final approval granted 316 17,991 2,870 houses and the ease and security of Under construction 113 7,261 1,015 apartment living. The luxury housing Projects in operation 161 8,932 1,651 segment has seen a capital appreciation Projects not yet started 42 1,798 204 of around 10%-15% per annum and Jones Lang LaSalle Sri Lanka forecasts that 3,740 luxury units will come in to Softlogic Holdings PLC the market from projects launched in 2017-2019. While the Government’s SOFTLOGIC PROPERTIES (PVT) LTD fiscal consolidation efforts could dampen Holding Company of the leisure sector and developer of Everest Apartments demand over the short term, well- » SOFTLOGIC CITY HOTELS (PVT) LTD 5-star, 219-room city hotel in Colombo Sector Human Capital » CEYSAND RESORTS LTD 4-star plus, 165-room resort in Bentota
SOFTLOGIC DESTINATION MANAGEMENT (PVT) LTD Travel solutions provider
SABRE TRAVEL NETWORK LANKA (PVT) LTD Technology provider for travel and tourism - Global Distribution System
Centara Ceysands Movenpick 86 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS LEISURE & PROPERTY
designed, attractively located projects are expected to see robust demand.
There is a clear shortage of quality mall space in Sri Lanka, despite a number of mall projects in the pipeline. The present malls lack space for parking and entertainment. The concept of Sri Lankan malls do not replicate the idea of using an international retailer as anchor tenants like the rest of the world. We can clearly see a change in the lifestyle of consumers led by increasing income levels and tourism. They prefer spending time in malls with international brands/ products. Sri Lanka can position itself as an attractive shopping destination competing with countries such as Singapore and Dubai once luxury malls define shopping experience.
Strategy and Performance Sector revenue growth was commendable at 113% driven by higher occupancy and Average Room Rates (ARRs) at both properties and increased footfall at Mövenpick’s restaurants. Profitability, however, continued to international awards and was adjudged a degree of resilience to intense price be affected by cost pressures, price Sri Lanka’s Leading Hotel at the World competition. competition and a surge in finance costs Travel Awards in 2017. given the sector’s capital intensity. The sector’s talent pool comprises 632 Centara Ceysands Resort & Spa turned in individuals who are offered opportunities Mövenpick Hotel Colombo completed a year of strong performance, achieving for training and career development in its first full year of operations in January healthy occupancy levels and above a dynamic and rewarding environment. 2018 and has emerged as a popular average ARRs. Average occupancy levels Although talent attraction and retention destination among tourists and local increased to 80% from around 77% remain a key challenge among hotel patrons alike. The hotel has 219 rooms the year before. The resort’s distinctive sector operators, our strategic tie-ups with with 5-star amenities including multi- positioning between the Bentota River international partners have afforded us cuisine restaurants and a range of and the Indian Ocean affords it a an advantage in recruitment. Employee facilities including a fitness centre, spa, unique competitive edge and makes turnover remained considerably lower for an exclusive nightclub and a rooftop bar. it a favourite spot for water sports and us than for our industry counterparts. Its unique value proposition and strong for active holidaymakers. Our strategic brand enabled the hotel to widen its partnership with Centara Hotels & The sector completed construction of corporate and banquet business while Resorts, Thailand has enabled us to offer ‘Everest’- a 25 unit, mid-luxury apartment building relationships with airlines and international standards in service quality, complex in Colombo 5 during the year. international sports teams. The hotel giving us a competitive edge enabling Nearly half of the units have been is a frequent recipient of local and sold, although profit from these units MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 87
will be recognised in 2018/19. Given apartments leading up to a sky garden, a the persistent increase in demand swimming pool with an open club house Mövenpick Hotel Colombo for affordable housing, particularly in overlooking the Colombo city and an »» World Travel Awards 2017: Best Colombo and its suburbs, we remain area for sports and fashion events. Presidential Suite in Sri Lanka optimistic above the growth potential of »» World Travel Awards 2017: Sri this business. Looking Forward Lanka’s Leading Hotel As a sector driving economic growth, The Odel Mall, a mixed development »» South Asian Travel Awards July Sri Lanka’s leisure sector presents project, initiated construction in April. 2017: Sri Lanka’s Leading enormous upside potential. Both our The construction will be carried out by Business Hotel properties are positioned to benefit from China State Construction Engineering »» Golden Globe Tigers July 2017: this boom, given our partnerships with Corporation (CSCEC) while the interior Brand Leadership Award in Sri reputed international hospitality brands. design will be by globally renowned Lanka AccorHotels, a French multinational German architects -- Blocher Partners. operating more than 4,000 hotels across »» Golden Globe Tigers July 2017: The mall will be 645,000 sq.ft. in extent Best Employer Brand 2017 in the world has announced the acquisition and will be dubbed a ‘green boulevard’, Sri Lanka of our principal operator, Mövenpick as it includes a sky garden and other Hotels & Resorts; this is expected to environment-friendly features. Apart augur well for us given Accor’s global from the shopping area, the complex reputation and world-class standards. will include fine dining restaurants, one in the speciality restaurants in our city In the short to medium term, we will of the largest multiplexes in the country hotel through a range of marketing and place emphasis on enhancing footfall with seven cinema halls, 39 premium customer engagement initiatives.
The Property sector stands out as one of the most exciting in the Group, with construction plans to launch the mall in 2020. The mall will enhance the Colombo landscape and transform Colombo into an attractive shopping destination in South Asia. 88 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS
AUTOMOBILE MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 89
The Automobile sector holds exclusive authorised dealership for Ford vehicles, King Long buses and Suzuki motorcycles in Sri Lanka. It is also the Service Partner of Daihatsu. Despite numerous challenges, the sector showed recovery in the year, supported by increased market penetration in certain product segments. As a non-core sector, the Group currently pursues opportunities to realign it with Softlogic’s long term growth aspirations.
REVENUE
The sector’s strategy of targeting specific market segments, particularly in the 2.4Rs. Bn Ford double cab range has started to pay dividends
PROFITABILITY Operational growth was supported by increased market penetration in the double cab range, launch 33%Improvement of the new Ford Focus and ongoing improvements in spare parts and workshop EMPLOYEES
12% of employees 158 are female 90 SOFTLOGIC HOLDINGS PLC
BUSINESS LINE REVIEWS AUTOMOBILE
»» Revisions to duty »» Restructure and consolidate »» 72% growth in revenue computation methodology Softlogic Automobiles, »» Operational turnaround »» Downturn in overall demand service partner of Daihatsu »» Depreciation of the »» Focus on Government and exchange rate corporate market for Ford Strategy
»» Rising interest rates »» Leverage new vehicle Performance models
Operating Environment »» Positive outlook for the country’s tourism sector »» Pursuing opportunities in the tourism sector for luxury coaches
Operating Environment On the positive side, the Government Sri Lanka’s motor vehicle industry faced has made efforts towards expanding yet another challenging year, affected the country’s route network for long- by policy instability, depreciation of the distance luxury coaches. There has exchange rate and unfavourable loan to also been a notable shift in consumer value ratios (LTV) on leasing facilities. In preferences towards hybrid vehicles, and the Budget for 2018, the Government the Sri Lanka Transport Board is currently revised the base for computation of exploring the introduction of electric city import duty from vehicle value to buses. engine cubic capacity; this resulted in a significant increase in the price of high- Strategy and Performance engine capacity vehicles. This, together The sector’s performance reflected the with the near 2% depreciation of the Sri volatility of the market, although the Lankan rupee and the up-tick in interest targeting of specific market segments, rates led to market volatility for most particularly in the Ford double cab part of the year. New registrations of range started to pay dividends. Revenue vehicles declined 9% in 2017, with sharp increased 72% during the year reductions seen in motor cars (-13%) supported by market penetration of the and dual purpose vehicles (-59%). double cab range, launch of the new
New Registrations of Motor Vehicles
Nos. 700,000
600,000
500,000
400,000
300,000
200,000
100,000
0 2013 2014 2015 2016 2017 MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 91
Aggregated Performance Softlogic Holdings PLC Financial Year Ended 31 March (Rs. Mn) 2018 2017 Change SOFTLOGIC AUTOMOBILES (PVT) LTD Financial Capital Authorised Dealer for King Long Revenue 2,421 1,407 72% Service Partner of Daihatsu Operating Profit 1 (83) 101% Collision Repair Centre Profit Before Taxation (185) (241) 23% Profit After Tax (164) (244) 33% FUTURE AUTOMOBILES (PVT) LTD Total Assets 2,120 950 123% Authorised Dealer for Ford Manufactured Capital Property, Plant & Equipment 391 316 24% (Excluding Land) Capital Expenditure 24 14 72% Human Capital Total Headcount (Nos) 158 156 1% Female Representation 12% 19% Social & Relationship Capital Principals (Nos) 4 3 Intellectual Capital Brand Count (Nos) 4 3
Ford Focus and improvements in spare the Ford Focus 1.0 litre sedan with the obstacle to industry growth last year and parts and workshop revenue. The sector award winning 1.0 litre EcoBoost Engine, we firmly believe that the Government thus witnessed a turnaround at operating the initial response to which has been should maintain the duty structure profit level, generating a marginal EBIT. extremely encouraging. implemented in the last budget to bring Rising interest rates impacted overall stability and sustainability to the industry. profitability, although the sector reduced Following exit from the Daihatsu franchise its losses by 33%. in 2016/17, emphasis was placed on restructuring and consolidating operations Operating performance continued to be of Softlogic Automobiles, comprising maintained by Future Automobiles (on King Long Service and Collision Repairs. Ford vehicles), with a higher market share Expansion in the country’s tourism sector in the double cab segment. The ‘below supported growth of King Long sales and 2.5 litre category’ more than doubled we hope to pursue aggressive growth Automobile Sector - Financial Performance its market share to 10%, through here. We also introduced a 37-seater Rs.Mn 2,500 increased penetration in the Government new model during the year. tender market while the ‘above 2.5 2,000 litre category’ recorded marginal Looking Forward improvement to 12%. Strategic emphasis 1,500 The outlook for the luxury coach segment was placed on targeted marketing to remains positive as the country’s tourism the corporate sector, which generated 1,000 sector sees continued growth. The commendable growth during the year. To National Transport Commission’s plans to meet the increased demand for servicing, 500 expand the route network for luxury long- we enhanced Ford service infrastructure, distance coaches will provide significant 0 contributing towards increased customer upside for sale of King Long steel body 2016 2017 2018 satisfaction and brand value. During coaches. Policy instability was a key Revenue the year, Future Automobiles launched 92 SOFTLOGIC HOLDINGS PLC
CAPITAL MANAGEMENT REPORTS FINANCIAL CAPITAL
The Group turned in a year of strong performance amidst macro challenges in its operating environment. An equity infusion of Rs. 7.1 Bn is expected to strengthen key capital ratios, as Group borrowings reduce and liquidity position is enhanced. This improvement in the Group’s funding profile is expected to support strong and sustainable growth in earnings over the short to medium term while measures have been taken to raise equity at subsidiary levels to fund their respective capital projects.
What we achieved in 2017/18 »» Strengthened balance sheet with an equity infusion through a private placement in March 2018 followed by a rights issue in April 2018
»» Reduced debt
»» Disciplined cost management to improve margins
»» Top line growth of 12%
Challenges »» Rising interest rates
»» Challenging macro-economic conditions and adverse weather conditions
Way Forward »» Proceeds from the rights issue (concluded in April 2018) will be used to pare debt
»» Positioned for strong and sustainable growth in earnings Shareholders’ funds of 12% growth Equity infusion of »» Past capital investments to come to Rs. 20.9 Bn in revenue to Rs. 7.1 Bn fruition in 2018/19 -- Asiri Hospital Rs. 66 Bn Kandy, Asiri AOI Cancer Centre, Colombo City Centre mall presence and retail geographical expansion MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 93
Financial Performance Sector Revenue Contribution to Revenue Change (%) Group (%) Softlogic Group continued to Retail +7 32 Information Communications Technology (4) 26 demonstrate commendable top line Healthcare Services +16 18 growth, with revenue increasing by 12% Financial Services +26 17 to Rs. 66.0 Bn during the year. Despite Leisure & Property +113 4 challenging macro-economic conditions, Automobiles +72 3 a weakening of the country’s agriculture sector and policy instability, all sectors within the Group, other than the ICT Gross profit Health continued to leverage its strong sector, achieved top line growth. This is Consolidated gross profit grew at an market position, unmatched service in reflection of our efforts to penetrate accelerated rate of 21% to Rs. 23.7 quality and innovative clinical technology, the market through new brands, Bn, reflecting improved profitability and was again the top contributor to products/service development and margins in several business sectors. Group earnings making up 37% of the geographical expansion. Margins widened to 36% from 33% Group’s operating profit. The Financial the year before, supported by proactive Services sector contributed 22% to Retail sector retained its position as the negotiations with suppliers leveraging Group EBIT, with strong contributions largest contributor to Group revenue, Group synergies, deeper penetration in from both Softlogic Life Insurance and followed by Healthcare and Financial value-added segments and stringent cost Softlogic Finance. Services sectors which grew by 16% management strategies. and 26% respectively during the year, Net finance cost while Leisure (+113%), Retail (+7%) Earnings before interest and tax The Group’s finance income, comprising and Automobiles (+72%) also recorded primarily the income generated by the revenue growth during the year. Disciplined cost management and ongoing focus on productivity insurance arm’s investment portfolio, improvement enabled the Group to increased 23% to Rs. 1.1 Bn. Finance Refer to Business Line contain the increase in overhead costs to costs for the year increased 24% to Reviews on pages 56 to 91 for 11%, with distribution and administrative Rs. 6.0 Bn, mainly due to the upward further information. expenses increasing 2% and 14% trajectory in interest rates for most part respectively. Other operating income of the year. However, finance costs are increased 77% to Rs. 1.8 Bn mainly due expected ease over the short to medium Consolidated Revenue Growth to profit on disposal of investments at the term, as the Group intends to reduce Rs. Mn % 70,000 40 Healthcare Services sector. Consolidated EBIT Trends 60,000 35 Consolidated EBIT increased 59% to Rs. Mn % 30 9,000 16 50,000 Rs. 8.3 Bn during the year. EBIT margins 25 widened to 13% from 9% the year 8,000 14 40,000 7,000 20 before. It is noteworthy that all sectors 12 30,000 6,000 15 recorded an improvement in operating 10 5,000 20,000 performance with strong EBIT growth 10 8 seen in Information Technology (+39%), 4,000 10,000 5 6 Financial Services (+165%), Healthcare 3,000 4 0 0 Services (+60%) and Retail (+14%). 2,000 2014 2015 2016 2017 2018 The Automobile sector generated an 1,000 2 Revenue Growth operating profit for the first time while 0 0 the Leisure & Property sector marginally 2014 2015 2016 2017 2018 trimmed its losses to Rs.142 Mn. Asiri EBIT EBIT Margin 94 SOFTLOGIC HOLDINGS PLC
CAPITAL MANAGEMENT REPORTS FINANCIAL CAPITAL
Sector-wise EBIT of Rs. 798 Mn arising from a change in Sector-wise Profit Performance
Rs.Mn life insurance liabilities resulted in the Rs.Mn 3,500 Group’s pre-tax profit rising 96% to 2,500 Rs. 3.1 Bn during the year. Consolidated 3,000 2,000 profit for the year was Rs. 2.3 Bn, from 2,500 Rs. 920 Mn the year before. Several 1,500 2,000 sectors marked improved bottom lines 1,000 1,500 including ICT (101% growth), Retail 500 1,000 (16% growth), Financial Services (104% 0 500 growth) and Healthcare Services (65% growth). 0 -500
-500 -1,000 Other Comprehensive Income (OCI) ICT Retail Retail Leisure Leisure Services Services Financial The Group’s OCI which amounted to Financial Healthcare Healthcare Technology Information Automobile Rs. 549 Mn during the year comprised Automobile 2017/18 2016/17 2016/17 2017/18 revaluation gains on land and building and net gains on Available-For-Sale exposure to borrowings following the financial assets. The Group’s total recent equity infusion of Rs. 7.1 Bn comprehensive income amounted to Financial Position (including proceeds from the Rights Rs. 2.8 Bn, an increase of 58% Assets Issue). Improvement in its funding compared to the previous year. profile is expected to position the Group Ongoing capital investments in the for sustainable growth in earnings, Cash flow Retail, Leisure & Property and Healthcare particularly given the improvements in Services sectors resulted in continued Group’s cash flow improved during the operating performance. asset growth, with Group’s total assets year, mainly due to inflows from the expanding 18% to Rs. 118.8 Bn during private placement. Net operating cash Profitability the year. Key contributors to asset inflow declined 18% to Rs. 6.1 Bn during expansion were Property, Plant and Improved operating performance from the year reflecting increased working Equipment (+14%), investments in the core verticals coupled with a surplus capital investments while cash outflow working capital (+22%) increased short from investing activities amounted to term investments (+88%) and increases Rs. 5.3 Bn given capital investments Profit After Tax in liquid assets (+120%) following in the Group’s ongoing projects. Net Rs. Mn an equity infusion through a private cash inflow from financing activities 2,500 placement in March 2018. The relatively increased to Rs.10.5 Bn from Rs. 2.7 high interest rate climate coupled with 2,000 Bn the previous year due to the private the decline in credit demand resulted in placement (Rs. 3.1 Bn), proceeds the advances portfolio of the Financial 1,500 from other current financial liabilities Services sector contracting 11% during (Rs.11.3 Bn) and proceeds from long- the year. Acquisitions, capital expansions 1,000 term borrowings (Rs. 3.9 Bn); the cash and ongoing investments in key growth inflow was utilised to settle long term sectors have resulted in the Group’s 500 borrowings of Rs. 6.7 Bn during the year. total asset base doubling over the last Overall the net increase in cash and cash five years, positioning it for sustainable 0 equivalents amounted to Rs. 5.0 Bn 2014 2015 2016 2017 2018 earnings growth. compared to a decline of Rs. 1.7 Bn the year before. MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 95
Asset Composition Way Forward Asset Growth The recent equity infusion and paring of Rs. Mn Rs. Mn 2017/18 120,000 7,000 2016/17 debt is expected to position the Group for strong and sustainable earnings 100,000 6,000
growth. Capital expenditure over the 5,000 80,000 past few years has focused on sectors 4,000 which present high growth potential 60,000 and the improvement in its funding 3,000 40,000 profile will pave the way for Softlogic 2,000 PPE to unlock these opportunities over the Other non-current assets 20,000 1,000 Working capital short to medium term. Management’s Non-current financial assets choice to restructure the Group to 0 0 Loans and advances focus on three core verticals – Retail & 2014 2015 2016 2017 2018 Cash balances Total assets Other current assets Telecommunications, Healthcare and Capital expenditure Financial Services – which makes up most of Softlogic’s earnings. Strategic Capital Structure decisions would be made concerning the Performance of Share The Group’s funding profile improved non-core sectors, comprising Leisure & Softlogic Holdings PLC’s ordinary shares considerably during the year following Property and Automobile. are listed on the Main Board of the an equity infusion of Rs. 3.1 Bn via a Colombo Stock Exchange; a total of private placement. The investor, Samena Investor relations 961,728,395 shares were in issue as at Ceylon Holdings Limited, is a subsidiary end-March 2018. The broader market Softlogic Holdings PLC maintains of a Mauritian-based investment group, demonstrated some volatility during the ongoing dialogue with its majority Samena Capital, which has substantial year ending 31 March 2018, although and minority shareholders, facilitated investments in South Asia, Middle East the All Share Price Index (ASPI) increased through numerous engagement and North Africa. Post-balance sheet, 2% to close at 6,477 points. The platforms including the AGM, the Annual Softlogic Group obtained an additional economic conditions prevalent during Report, quarterly performance updates, equity injection of Rs. 3.9 Bn via a rights the year, as well as the tight monetary participation in various road-shows, issue (concluded in April 2018) further and fiscal policy stance adopted by the constant dialogue with equity research strengthening its financial position. The Government affected overall investor teams, as well as announcements to the aggregate proceeds of these capital sentiment. CSE market capitalisation, CSE. These engagement platforms are infusions, which amounted to Rs. 7.1 Bn, however, increased 4.6% during the year. designed to provide timely, relevant and would be utilised to settle Group’s short meaningful information to shareholders, term borrowings, primarily commercial ensuring transparency and informed papers, and reduce general indebtedness Funding Composition decision making. by partially settling other borrowings. 2017/18 2016/17 Group’s net debt to equity improved to 2.63 times compared to 3.17 times the year before. Net debt at holding company level accounted for 33% of the Group’s net debt, although strong dividend upstreaming from subsidiaries allowed the Company to meet its debt obligations comfortably. Shareholders funds Short term borrowings Long term borrowings 96 SOFTLOGIC HOLDINGS PLC
CAPITAL MANAGEMENT REPORTS FINANCIAL CAPITAL
Against this backdrop, our share performed exceedingly well with its price Financial year end 31 March 2018 2017 Closing share price (Rs.) 24.60 11.90 nearly doubling to close the year at Earnings per share (Rs.) 0.26 0.15 Rs. 24.60 following the equity infusion Dividends per share (Rs.) 0.65 0.50 and improved operating performance. Net asset value per share (Rs.) 14.91 11.04 This signals positive investor sentiment Market capitalisation (Rs. Mn) 23,659 9,270 and confidence in Softlogic. In June Price to book value (No. of times) 1.61 1.08 2018, the share entered the S&P Sri Lanka 20 Index which is based on market capitalisation, liquidity and financial Shareholders thresholds. Shareholding Structure The Company’s shareholding was held 2017/18 by a total of 11,032 shareholders as at The share traded between a low of 2016/17 Rs 11.70 and a high of Rs. 26.20 during end-March 2018. In terms of ownership the year. Market capitalisation more than however, the holding held by individuals doubled to Rs. 23.7 Bn, while the share declined during the year following the traded actively during the year with entry of Samena Ceylon Holdings Ltd. 152 Mn shares changing hands. Institutional shareholders now account for 38% of the total shares, compared to Shareholder returns 23% the year before. 1-1000 1,001-10,000 Dividend policy is formulated taking 10,001-100,000 into consideration overall performance, 100,001-1,000,000 Over 1,000,000 growth aspirations and market dynamics. Key investor return ratios are given below with many indicators including earnings per share and net asset value per share demonstrating improvements during the year. MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 97 MANUFACTURED CAPITAL
Group’s Manufactured Capital consists of physical infrastructure which includes logistic centres, island-wide retail and service network, healthcare facilities and hotels. This infrastructure has proved to be one of Softlogic’s core strengths in facilitating greater value creation, particularly for its new businesses which could derive synergy from the existing infrastructure
What we achieved in 2017/18 »» Capital investments of Rs. 4.5 Bn primarily in the Retail and Healthcare Services sectors
Challenges »» Rising rates of interest increased cost of investment
Way Forward »» The Odel Mall is scheduled to be complete by 2020
»» Asiri Hospital Kandy will commence operations in 2019
»» A state-of-the-art cancer treatment unit by Asiri AOI Cancer Centre is envisaged to open in October 2018
»» Odel and Softlogic Brands will occupy space in the city’s most exciting upcoming malls – Colombo City Centre and One Galle Face by Shangri La, Colombo.
Property, plant and equipment Capital Expenditure (excluding land) Rs. 4.5 Bn Rs. 28.5 Bn in 2017/18 98 SOFTLOGIC HOLDINGS PLC
CAPITAL MANAGEMENT REPORTS MANUFACTURED CAPITAL
As a consumer focused conglomerate, Group’s Manufactured Capital plays a vital role Capital Expenditure in 2017/18 in driving product accessibility and creating customer contact points across the island. Meanwhile, the quality of the physical infrastructure in the Healthcare and Leisure sectors are a key source of competitive advantage in these industries, driving customer attraction and satisfaction. The key manufactured capital inputs utilised by our business sectors are given below.
Sector Manufactured Capital Value of Property, Plant & Equipment (Excluding Land) Information Technology (Rs. Mn) Leisure Healthcare Services »» 600+ beds in four multi- 12,521 Retail speciality hospitals in Colombo Automobile Financial Services and Matara Healthcare »» Fifth hospital under construction in the Central Province »» Laboratory network – 51 Value addition in 2017/18 collection centres, 17 The Group’s capital expenditure for the laboratories and year amounted to Rs. 4.5 Bn, reflecting 13 satellite labs. ongoing capital investments in the Retail Leisure & Property »» Mövenpick Hotel Colombo: 11,012 219- room, 5-star city hotel and Healthcare Services sectors. »» Centara Ceysands: 166-room, 4-star plus resort in Bentota In the Healthcare Services sector, capital Retail »» 21 Softlogic Max stores and 2,910 investments during the year primarily 199 Softlogic showrooms focused on the ongoing construction of a »» 19 BURGER KING® outlets 180-bed tertiary hospital in Kandy. »» 6 Baskin-Robbins outlets The Retail sector’s capital investment »» 1 Delifrance outlet was driven by a 10,000 sq.ft. extension »» 26 Odel outlets at the Odel flagship store while Softlogic »» 20 Branded Apparel outlets Restaurants, which acquired the Baskin- Financial Services »» Softlogic Life: 92 branches 820 Robbins franchise during the year, »» Softlogic Finance: 35 branches invested in turning around the business »» Softlogic Stockbrokers: 3 by relocating and refurbishing them. branches ® Automobile »» One 3S-Facility 391 BURGER KING opened four outlets during the year. »» 12 outsourced service centres Information & »» 20 retail points and 6 customer 367 Communications Technology care centres »» Head Office building Others »» Back-Office furniture, fittings and 437 equipment of Holding Company and 102,096 sq.ft. of warehouse and storage space at Piliyandala MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 99
Way Forward offering 39 exclusive apartments »» Asiri Hospital Kandy is expected to The Odel Mall is classified under the and two floors of multiplex cinema commence operations by mid-2019 screens. Leisure & Property sector. Hence, capital »» Asiri AOI Cancer Centre’s specialised expenditure will emerge primarily from »» A total retail space of 40,000 sq.ft. state-of-the-art facility will start Retail sector and the Property segment in will be occupied in the Colombo treating patients from October 2018. the following years. City Centre
»» The construction of the Odel mall, a »» Total retail space of 90,00 sq.ft. will 640,000 sq.ft. mixed development be taken in the One Galle Face Mall project, is expected to be completed by Shangri La, Colombo in 2020. This will house the world’s »» Softlogic Supermarkets will open its leading retail brands while also first outlet in 4Q2018
Value Addition to Manufactured Capital
Building
Plant and machinery
Computer equipment & furniture
Motor vehicles
Capital WIP
0 500 1,000 1,500 2,000 Rs. Mn 100 SOFTLOGIC HOLDINGS PLC
CAPITAL MANAGEMENT REPORTS HUMAN CAPITAL
Softlogic Group’s dynamic and agile team of 9,681 employees drive our strategic aspirations and sustainability objectives, ensuring the creation of shared values. Strong market positions in growth sectors, a reputation for innovation, partnerships with international players and employee development have enabled the Group to position itself as a preferred employer, attracting and retaining the country’s top talent.
What we achieved in 2017/18 »» Invested Rs. 57 Mn in training
»» Promoted more than 364 employees
»» Recruited 2,672 employees during the year
»» All employees received performance appraisals
»» Total remuneration of Rs. 9.1Bn was paid during the year, which is an increase of 29% compared to the previous year
Challenges »» Shortage of skilled personnel
»» Retention of employees at Executive grades and grades below
Way Forward »» Better synergise employee talent across the Group
»» Ensure continuous Professional Development
»» Emphasise work-life balance – flexible 9,681 43% Collective skills, experience and remote working Employees Female and work ethic representation of our team MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 101
Managing our talent Employees by Sector 2017/18 2016/17 Since over 40% of the Group’s talent pool ICT 689 639 is employed in the Healthcare Services Retail 2,454 2,229 sector, its employment practices have a Financial Services 1,352 1,121 significant impact on the Group’s overall Leisure 632 665 human capital. The six operating sectors Healthcare Services 4,114 4,143 have independent HR functions. At a Group Automobile 158 156 level, these departments are supported by Others 282 311 centralised HR personnel, which ensures Total 9,681 9,202 implementation of Board approved policy frameworks. HR policies and procedures have been formulated to ensure compliance with all relevant legal requirements including the prohibition of child labour and providing equal opportunities.
The Code of Conduct The Softlogic Code of Business Conduct and Ethics (referred to as the Code) sets out the principles and standards of ethical behaviour expected from all our employees. The Code is communicated to all Group employees at the point of recruitment and is easily accessible via the Group’s intranet and other staff communications.
Human Capital by Sector
ICT Retail Financial Services Leisure Healthcare Services Automobile Others 102 SOFTLOGIC HOLDINGS PLC
CAPITAL MANAGEMENT REPORTS HUMAN CAPITAL
Softlogic Holdings PLC
Board of Directors Listed Subsidiaries
Board of Directors Other Subsidiaries HR and Remuneration Committee HR and Remuneration Committee
Group Director, Sector Heads/ Sector HR Sector HR Heads/ Human Capital CEO Heads/Managers Managers
Talent attraction New Recruits by Gender Recruitment by Age The Group’s employees have numerous opportunities for career progression 1,400 2,000 given our strong market positions in the 1,200 country’s growth businesses, enabling 1,500 1,000 us to attract the country’s top young talent. Our recruitment and selection 800 mechanisms are designed to ensure 1,000 600 that we attract and retain employees 400 who reflect the Group’s dynamism and 500 agility. Recruitment is focused primarily 200 on attracting young professionals who 0 0 are acclimatised to the organisation Male Female 18-30 30-55 Above 56 through a formal on-boarding session and subsequent opportunities for talent development. We are an equal 1 opportunity employer and do not Annual bonus discriminate based on gender, age or 2 ethnic representation. During the year, Staff discounts at retail and telecommunications outlets, Asiri Health, we added a 2,672 new recruits, including Mövenpick Hotel Colombo and Centara Ceysands Resort & Spa. replacements, to the Softlogic team. 3 Foreign tours and air tickets for achievement of sales objectives New Recruits by Sector 4 Sector 2017/18 Health insurance ICT 179 Retail 118 5 Financial Services 519 Reimbursement of professional membership fee Leisure 151 Healthcare Services 1,644 6 Educational support Automobile 14 Others 47 7 Concessionary rates on hire purchase schemes
8 Distress loans MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 103
Rewards and recognition accommodation, employee counselling The Group’s remuneration schemes are services and hostel facilities for competitive and have been designed employees. to attract and retain the country’s top talent. Remuneration is determined Learning and Development on skills, qualifications and results of The Group’s performance management annual performance appraisals which are framework enables us to effectively carried out for all employees. Exceptional identify training needs, ensuring performers are also recognised and duly alignment of employee goals with rewarded through Spotlight, the corporate corporate goals. All sectors have in place employee recognition programme and comprehensive training and development quarterly/annual performance rewards programmes which include on-the-job- at subsidiary companies. Apart from training, cross functional opportunities statutory benefit plans, the sales-force and structured training programmes. operates on a commission/incentive We support employees’ lifelong learning based reward schemes. by providing training on language development, leadership, management Working conditions across the Group and critical thinking skills. The Group is sometimes necessitate additional also an approved training partner for mechanisms to ensure staff satisfaction professional bodies such as CA Sri Lanka. and retention. Our benefit schemes to employees therefore include 104 SOFTLOGIC HOLDINGS PLC
CAPITAL MANAGEMENT REPORTS HUMAN CAPITAL
Skills Development in the Employee Productivity
Healthcare Services sector Rs. Mn Rs. Mn In the Healthcare Services sector, where 8 0.25 limited availability of skilled labour is 7 0.20 an industry-wide challenge, the Asiri 6 Group has invested in a dedicated 5 0.15 nurse-training school through which all 4 nursing staff undergo three-year training 0.10 programme based on the Government 3 curriculum. Meanwhile, trainee Medical 2 0.05 Laboratory Technicians (MLT) and trainee 1
‘In an increasingly challenging Phlebotomists are required to complete 0 0.00 corporate world, our skills and a three-year rigorous on-the-job training 2017 2018 at our laboratory service prior to being Revenue per employee resources are more relevant Net profit per employee than ever, and the need for absorbed as a Junior MLT or Junior continuous personal and Phlebotomist. professional development is vital Productivity Employee Engagement at Softlogic’. Employees’ contribution towards Maintaining staff morale and motivation the Group’s growth and profitability Natasha Fonseka through ongoing employee engagement objectives are measured through Group Director of Human Capital is a key area of focus and numerous & Taxation assessing their productivity. While formal and informal engagement industry-specific indicators are used to mechanisms are in place across the monitor productivity at sector-level, at Group. A year-round event calendar Group level the standard measures of Training Opportunities including religious and cultural revenue per employee and net profit per A summary of the training activities celebrations and community engagement employee are used. carried out during the year are given initiatives ensure work-life balance and below. nurtures conducive work environment »» Motivation and attitude development and a team spirit. »» Product training Industrial Relations »» Retail management We recognise and respect our »» Showroom administration employees’ right to freedom of »» Life Insurance technical training association and collective bargaining. Our employees are represented by only one »» Leadership development trade union, namely, Food and Tobacco programme Workers Union for Centara Ceysands’ »» Risk Management employees. We maintain harmonious »» Sales & Customer care and cordial relations with this trade union and during the year under review, there were no disruptions to work due to industrial action or labour unrest. MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 105
Health and Safety such sessions covering 2,394 man- We are committed to provide a safe, days. Targeted prevention efforts (safety hazard-free work environment for our equipment), first-aid training and drills employees, particularly in the Healthcare are conducted regularly to reduce the Services sector where employees are number of work-related injuries and exposed to various safety hazards. During illnesses across the Group. the year, the Asiri Group conducted 247
‘I started my job at Softlogic to not only financially support my passion for dancing and choreography but also to pursue a career in Human Resources. Softlogic provided me with all the support in terms of flexibility and encouragement to pursue my dancing career. After eight years at Softlogic, my full-time job has become one of my dreams. I am now reading for my MBA at the University of Wales Trinity Saint David. I was the principal dancer in the first Ballet Opera to be hosted in Sri Lanka setting a record of continuous one and a half hours dancing at this event.’
Lasni Subasinghe Assistant Manager – Human Capital. 106 SOFTLOGIC HOLDINGS PLC
CAPITAL MANAGEMENT REPORTS HUMAN CAPITAL
Grievance handling An open-door policy and numerous formal and informal engagement mechanisms ensure that employees have the opportunity to bring forward their grievances. In addition, a formal grievance handling mechanism is in place, which ensures anonymity and equitable treatment. The mechanism also allows employees to present grievances directly to the HR Department, Group HR Director or even the Group Chairman, bypassing their immediate supervisors if they wish to do so.
Employee has a concern
Does not like to discuss with the immediate supervisor Yes
Discuss with immediate supervisor Concern/issue resolved Yes END
No Does not like to discuss with Discuss with the Concern/issue immediate Yes END Head of Department/Operations resolved supervisor or HOD No
Discuss with HR Department
Initial Inquiry of the concern Concern/issue (verbal/written) resolved Yes END
No
Written complaint lodged
Initial assessment of the complaint
Respondent notified of complaint, reply and sought further information/ evidence sought from complainant/ witness
Case Review Conciliation
Concern/issue Further Investigation resolved Yes END MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 107 SOCIAL AND RELATIONSHIP CAPITAL
Softlogic has nurtured meaningful and mutually-beneficial relationships with a broad-base of customers, principals, suppliers, business partners and communities across the island. Given the diversity, depth and retail-oriented nature of the Group’s businesses, these stakeholders form a vital aspect of our value creation model, underpinning both the Group’s commercial and social sustainability.
What we achieved in 2017/18 24X7 Call Centre Follow us on Facebook: »» Only company with over 100 international brands concentrated in the Retail & Telecommunications sectors Asiri Health Emergency 1313 Retail +94 11 554 1900 https://www.facebook.com/ »» Continued to extend customer base Mobile Services +94 77 772 6724/+ 94 77 759 4594 SoftlogicHoldingsPLC/ IT Services + 94 11 236 9640 with rapid expansion and brands Life Insurance +94 11 233 3888 Softlogic Finance +94 11 235 9700 »» Initiated partnerships with leading Ford Service +94 77 226 0602 international brand principals
»» Invested in community engagement Complaints & Inquiries Investor Relations Desk initiatives
»» Introduced multiple innovations and new product developments during the year [email protected] Phone: +94 11 557 5176 Phone: +94 11 557 5000 Email: [email protected] »» Engaged with international strategic equity partners – TPG, DEG, FMO and Fax Customer Feedback Samena Capital
Challenges »» Managing diverse brands and partners Fax: +94 11 2508 291 Customer Feedback Forms and Surveys Way Forward »» Increased customer base
»» Australian venture to aggressively operate in the USA and the Middle East
Island-wide Extensive Long-standing Capital Expenditure of Regional Distributors Customers international Rs. 4.5 Bn /dealers/suppliers principals in 2017/18 108 SOFTLOGIC HOLDINGS PLC
CAPITAL MANAGEMENT REPORTS SOCIAL AND RELATIONSHIP CAPITAL
The Group’s Social and Relationship Capital
Customers Softlogic caters to an island-wide network of customers through its diverse business interests.
Softlogic’s core business verticals cater primarily to the domestic customers while Leisure sector targets both local and international markets. Its Australian Business Partners Softlogic Customers venture is providing software solutions to Holdings PLC (1) Principals (1) Distributors the US and Middle-Eastern markets. (2) SME suppliers (2) Retailers We have sought to increase customer (3) Large scale suppliers (3) End-customers penetration in recent years through (4) Others geographical expansion, new product/ service and brand launches and a superior customer value proposition which has allowed the Group to build Communities strong market positions.
Customer Value Proposition
The Group Innovation is driven Service quality The Group complies maintains a high through new product/ maintained in keeping with a range of local level of customer service launches with global brands and international engagement across our business Softlogic represents certifications which facilitated through sectors, including in Sri Lanka. Service is provide assurance multiple platforms. numerous industry, viewed as a prime KPI to our customers country and even in our businesses. regarding product and regional-firsts. process quality.
Customer Engagement Innovation Service Quality Product Responsibility
Customer Engagement The Group maintains a high level forms, suggestion boxes and formal environmental and social awareness of engagement with its customers, grievance mechanisms, the results of campaigns to commemorate World facilitated through numerous formal and which form a vital input in formulating Environment Day and World Animal’s informal platforms. Most sectors track product and marketing strategy. We also Day among others. customer satisfaction through feedback engage customers through a range of MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 109
Innovation The strength of Softlogic’s market positions in growing economic sectors of the country is underpinned by its ability to cater to emerging customer needs through innovative product and service solutions. The Group has introduced several groundbreaking solutions in the Healthcare Services, Insurance and Retail sectors allowing it to fortify its brand and grow market share. Key innovations and new products/services launched during the year are listed below.
Sector New product/service development Retail »» Ran spring, summer, autumn and winter seasonal campaigns at Odel »» Launched a signature luxury after-dark evening wear range, LUXE, at Odel »» Launched a range of eye-wear, watches and bags of international esteem »» Acquired the Baskin-Robbins franchise - the world’s largest chain of speciality ice cream outlets »» Ventured into affordable stylish comfortable furniture »» Introduced a range of special mattresses Financial Services: »» First ever ‘On the Spot’ cover in Sri Lanka Insurance »» Flood relief campaign through a mobile phone network »» Launched ‘Per Day Insurance’ »» First audio visual version of the Annual Report Healthcare Services »» Introduced Gamma Camera SPECT scanner - latest imaging technique in oncology treatment »» Performed Scoliosis Surgery for the first time in Sri Lanka »» Introduced seven new lab tests
Service Quality Retail Sector ICT Sector As a Group with significant interests in Relationship with Principals Relationship with Principals Retail, Hospitality and Healthcare Services sectors, we are committed to maintaining 13 the highest standards of service quality. Customer complaints/grievances are 6 6 received through formal channels and 33 tracked and analysed on an ongoing basis. An active social media presence also enables customers to provide 5-15 years feedback on products and services. Less than 5 years 5-15 years Less than 5 years 110 SOFTLOGIC HOLDINGS PLC
CAPITAL MANAGEMENT REPORTS SOCIAL AND RELATIONSHIP CAPITAL
Product Responsibility As a distributor of some of the world’s leading retail brands, the Group is expected to comply with international standards in product responsibility. Measures in place to ensure the highest standards of product responsibility are given below.
Retail ICT Healthcare Services Financial Services Leisure »» Consumer »» Adherence to »» Central Hospital: »» Regular statutory »» Annual health electronics - principals’ standards Joint Commission reporting to the and safety checks conform to International Central Bank of by independent »» Best practices CE European Accreditation Sri Lanka (CBSL) authority through Standards; all and Insurance certifications and refrigerators and »» ISO 9001:2008 Regulatory »» Environmental knowledge sharing air conditioners are Quality Commission of Sri impacts assessment with principals certified with 3-star Management Lanka (IRCSL) and above System »» Responsible »» Excellent service »» ISO 22000:2005 marketing support through Food Safety communications warranties Management System »» Transparent »» Food products disclosure of all are sourced from »» Pre-survey for product related vendors who have international information USDA Organic, hospital Fairtrade, ISO 22000, JAS, LK- accreditation with BIO-149, HACCP, Australian Council SLAB, GMP Health Standard Certification International (ACHSI) »» Regular PHI inspection and certification for food establishments
»» Child safety tests through brands such as ELC and Mothercare
Customer Satisfaction at Softlogic Life 2017 Patients Satisfaction at Asiri Health 2017/18
Excellent Poor Excellent Fair Good Average Good Poor MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 111
Promoting Financial Inclusion Softlogic Finance PLC, Group’s registered finance company, is engaged in the provision of loans and advances to individuals and enterprises as well as the mobilisation of deposits. The company’s island-wide reach allows it to provide access to affordable finance to the country’s most under-served segments, thereby promoting financial inclusion and contributing towards rural development. For instance, the company’s ‘Atha Hitha’ small business loans is targeted at encouraging small and regional entrepreneurs to develop their ventures.
Lending Customers (by Province) of a stable relationship with Softlogic. We product proposition and contribute to the have also placed strategic emphasis on long term economic sustainability of their widening our product portfolio through businesses. partnering with new principals. For instance, during the year under review Community Engagement Softlogic Retail was appointed as sole The depth and diversity of our operations distributor for VEGO, one of India’s enable us to create meaningful change leading air cooler brands. Meanwhile, in the communities we operate in. Softlogic Mobile Distribution acquired Softlogic’s community engagement the distributorship rights for Energizer Central Sabaragamuwa initiatives are governed by its CSR handsets and accessories. Eastern Southern policy which identifies specific areas North Central Uva North Western Western for community investments. All sectors Northern Supporting Local Entrepreneurs engage in year-round community through Odel engagement projects which are broadly Odel aspires to support local Business Partners aligned to the said areas of community entrepreneurs and cottage industries support. The initiatives are formulated, Group business partners consist primarily through providing a platform for selling rolled-out and monitored in a way that of international principals (particularly their products. The company therefore ensures optimum use and effective in the Retail, ICT and Automobile maintains relationships with over 600 distribution of resources. sectors) and suppliers through which local suppliers whose products are sold the Group procures products. We have across the island. Odel also maintains The subsequent section provides a nurtured long term relationships with our ongoing engagement with these summary of such initiatives that were international principals, with Nokia being suppliers by providing customer-oriented conducted during the year. the oldest brand counting over 20 years and market information to improve its 112 SOFTLOGIC HOLDINGS PLC
CAPITAL MANAGEMENT REPORTS SOCIAL AND RELATIONSHIP CAPITAL
Health and Wellness Blood Donation Campaigns by Softlogic A Whole Lot of Heart This is conducted as an ongoing Softlogic’s Healthcare Services sector effort of the Softlogic Group, in leverages its specialised expertise partnership with Asiri Health, Business Youth empowerment in cardiac care for social benefit by which encourages employees Partners providing free heart surgeries for to donate blood to the National underprivileged children. Conducted Blood Transfusion Service. The as an ongoing programme since 2011, campaigns were conducted for Asiri Surgical Hospital has performed the fifth consecutive year under 146 such surgeries, averaging three the supervision of the National every month, each at an estimated Transfusion Service. Health and Other cost of over Rs. 500,000. The patients wellness donations are either identified at the free health Free Clinics camps organised by Asiri Heart Centre in the rural regions of the country or are Asiri Health conducts free clinics hospital dietician, physiotherapist, clinical referred by Lady Ridgeway Hospital for for underprivileged communities on an psychologist and Consultant Geriatric Children. ongoing basis. For instance, free clinics Physician. Ample time was allocated for were held on a weekly basis by the Brain the participants to ask questions and & Spine Centre and Asiri Breast Care clarify concerns with the Consultant Batticaloa Teaching Hospital Emergency and Accident Project Centre of Central Hospital. Meanwhile, Geriatric Physician. (BEAP) Mother & Baby Care Unit conduct The project BEAP was initiated by Dr. antenatal programmes for expecting Sisu Diriya mothers on Saturdays. Asiri Hospital David A Young & his team of volunteers Softlogic supports the educational needs Matara conducted a neuro camp with of ‘The Foundation Supporting a of its employees’ children by distributing renowned Neuro Surgeon, Dr. Sunil National Trauma Service in Sri Lanka’. stationery on an ongoing basis. During Perera, commemorating World Elders’ The construction of the Accident & the year over 1,100 such packs were Day, with the participation of over 250 Emergency Care Unit at the Teaching distributed. Hospital, Batticaloa was commenced on people. 13th November 2015. Asiri Health being Asiri Surgical Hospital organised two Youth Empowerment the Platinum Sponsor of the project, has such similar sessions to commemorate donated a total of Rs. 20 Mn since 2015 WIN Project by Softlogic Life Insurance World Elders’ Day with the participation for the BEAP. Softlogic Life Insurance engages youth of more than 200 elderly people. A from underprivileged areas in career free screening was done including BMI, guidance workshops and internship hearing, dental and vision followed by opportunities with the long term aim educational sessions conducted by the of enhancing the employability and MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 113
corporate readiness of A/L qualified Provincial distribution of WIN Programme students. These four-day workshops Province School Name No.of Participants feature practical sessions which are Sabaragamuwa Balavinna Maha Vidayalaya 68 focused on developing communication Sabaragamuwa Pallebedda Maha Vidayalaya 35 and presentation skills. During the year, North Central Galenbindunuwewa Maha Vidayalaya 113 nine workshops were conducted in Central Dambulla Maha Vidayalaya 47 seven provinces with a total participant Central Sigiriya Maha Vidayalaya 24 base of over 900 students. The objective Eastern Hindu College, Batticaloa 100 of this initiative is to engage youth in underprivileged areas in valuable career North Western MaEliya Maha Vidayalaya 83 guidance workshops, which will enhance Southern Karandeniya Central College 86 employability and boost confidence in Northern Kokkuvil Hindu College 143 their preparation to enter the workplace. Southern Bolana Central College 72 Eastern Vivekananda Vidyalaya, Trincomalee 134 The programme will be extended to Total 905 all provinces of the country and in its next stage will partner organisations were successful at the exam; they were A rainwater harvesting scheme, a well which are able to provide jobs. Softlogic ceremonially recognised at the Kingsbury to collect ground water, and a tank to Life Insurance also offers one month Hotel in Colombo, together with their hold up to 5,000 litres to blend water internships to two of the best participants parents and teachers. from the well with the rain water were in each programme to provide them installed. Five distribution tanks with exposure to working in a corporate Educational Visits community taps were strategically located throughout the village. This initiative environment. As career guidance, the two hotels of allowed each family in the village to have Softlogic organised a visit for school access to 10 litres of clean drinking water Scholarship Programme for Grade 5 and hotel school students to provide an students per day. insight into hotel operations. Initiated by Softlogic Life Insurance, this Other Donations initiative aims to enhance the education Flood Relief Efforts levels of Grade 5 students from Mövenpick Hotel Colombo celebrated Softlogic Group engaged in various flood impoverished families in the Gampaha Christmas with the Salvation Army Girls relief activities to support employees division. The programme entails providing Child Development Centre. The hotel and many others who were displaced access to teachers along with educational also donated books, dry rations and other from their homes due to the severe material required for the Grade 5 essentials to those children. flooding during the monsoon rains. Scholarship Examination. The company This was initiated by the employees provided scholarships for students who Mövenpick Hotel Colombo also of Softlogic who formed a team to donated 150 kilograms of dry rations provide necessary financial and medical to Shilpa Children’s Trust Children’s assistance while arrangements were also School Name No of Home at Nawala. This was done to made to distribute dry rations and other Participants mark the Mövenpick ‘Kilo of Kindness’ necessities. Ranpokunugama M/V 37 global campaign, which marks the UN Walpola Vidyalaya 29 International Day of Charity. Alawala M/V 24 Ford’s Community Water Project Urapola Vidyalaya 26 Future Automobiles along with its Yatawaka Vidyalaya 22 principal, Ford Motor Company, Walikadamulla 14 collaborated with World Vision Lanka Vidyalaya to provide safe drinking water to 223 Bopagama Vidyalaya 9 families in Kattimurivu village. This village Godagama Vidyalaya 5 had faced severe hardship to access Total 166 clean water for drinking and sanitation. 114 SOFTLOGIC HOLDINGS PLC
CAPITAL MANAGEMENT REPORTS INTELLECTUAL CAPITAL
Group intellectual capital comprises its unique base of organisational capital, systems, standards and processes as well as the strength of its brand portfolio across the operating segments.
What we achieved in 2017/18 »» Acquired several new international brands
»» Obtained numerous re-accreditations and re-certifications in the Healthcare Services sector
»» Ranked among the country’s top brands by independent parties
Challenges »» Intense competition
Way Forward »» Further strengthening our portfolio of brands
Extensive Representing Strength of industry experience over 100 our own international brands brands MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 115
Systems, Standards and Our Brands Organisational Capital In its sectors of Retail and ICT, the Group The tacit knowledge base of our represents an unmatched portfolio of employees and established track leading international brands, enabling record in core business sectors, has local consumers to access the world’s allowed Softlogic to build an invaluable best-selling brands. (Please refer to the base of organisational capital. This is Business Line Reviews on pages 56 complemented by a host of international to 91) for a full list of the brands we and domestic certifications (particularly represent). In addition, the Group’s own in the Healthcare Services sector) brands have built a strong reputation which ensures the highest standards for innovation, quality and customer of quality and provides assurance to service and rank among Sri Lanka’s most our stakeholders. The Group’s tacit valuable brands. knowledge is a source of competitive edge, allowing the Group to maintain its market leadership position in several sectors.
Index Group Name Rank Brand Value (Rs. Mn) Most respected Softlogic Holdings PLC 13 - entities of Sri Lanka- Asiri Health 36 - LMD (2017) Odel PLC 41 - Brand Finance-Most Asiri Health 38 2,289 valuable brands of Sri Odel 41 2,022 Lanka (2018) Softlogic Life Insurance 48 1,250 Softlogic Finance 77 545 116 SOFTLOGIC HOLDINGS PLC
CAPITAL MANAGEMENT REPORTS NATURAL CAPITAL
Our key environmental impacts result from consumption of natural resources such as energy, paper and water as well as outputs including paper waste, e-waste and the emission of greenhouse gases. As a responsible corporate citizen, we adopt concerted efforts to increase the efficiency of our natural inputs while minimising our adverse impact on the environment.
What we achieved in 2017/18 »» Robust framework to monitor energy consumption at Mövenpick Hotel Colombo
»» Launch of e-receipts at Softlogic Life Insurance
»» Driving organisation-wide efforts to reduce electricity consumption
»» A range of environment-friendly products in our Consumer Electronics portfolio
»» Responsible waste system in the Restaurant business
»» Environment-friendly shopping carriers in the retail sector
Challenges »» Waste from construction site
Way Forward »» Pursuing renewable energy alternatives at Centara Ceysands Over 20,000 Kg Multiple initiatives to drive Customer Resort & Spa of paper recycled biodiversity and community conservation engagement MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 117
Approach to Environmental Management As a consumer and service driven organisation, the Group has no significant adverse environmental impacts. However, as a responsible corporate citizen we seek to minimise the environmental footprint of our operations and aspire to meaningfully contribute towards environmental preservation through employee, customer and community engagement. Our approach towards environmental management is centred on four pillars namely; minimising adverse environmental impacts, optimising use of natural resources, preserving biodiversity, and propagating use of environment-friendly products and services.
We adopt concerted Organisation-wide Our companies As a leading retailer of efforts to minimise initiatives are in place engage in several consumer durables, the waste and to reduce energy and ongoing initiatives we play an integral emissions arising water consumption. targeted towards role in driving from our operations. preserving areas of consumer preferences rich biodiversity in the towards environment- country. friendly products
Minimising adverse Optimising the use Preserving Propagating the use environmental impacts of natural resources biodiversity of environmentally friendly products
Compliance
Environment-Friendly Products and Services We are one of the leading retailers of consumer durables in the country and as such are cognisant of the role we can play in propagating the use of environment-friendly products among our clientele, driving consumer preferences towards more sustainable products. Our companies have placed continued emphasis on introducing green products that reduce energy consumption, increase energy efficiency and contribute towards reduction in our carbon footprint. Such products in our portfolio include;
Product Energy Efficient Feature TV »» Low power system on-chip design »» Samsung LED TV estimated to be around 35% more energy efficient Bulbs »» Panasonic LED bulbs with unique Centre Mount Technology and energy efficiency estimated to be 84% better than incandescent light bulbs Air Conditioners »» Panasonic air conditioners with inverter technology Printer »» Power consumption saving in sleep mode Personal Computer »» Software for PC power saving mode using a chip set control WAP »» Power saving automation technology for user and scheduled-based wireless RAN Daihastu Mira & Move »» ‘EcoIdle’ technology where the engine stops when the vehicle is not moving and revs back to life when the car starts moving. This increases fuel efficiency and reduces emission levels. Ford »» Ford has the eco-boost engine which has the capability to deliver more power with less fuel consumption. 118 SOFTLOGIC HOLDINGS PLC
CAPITAL MANAGEMENT REPORTS NATURAL CAPITAL
Minimising Adverse Environmental Impacts
Paper Recycling Softlogic engages in responsible disposal of its paper waste by recycling used paper through an approved third-party recycler. During the year under review, we recycled over 20,000 kg of waste paper. Over 20,000 kg of paper recycled
Disposal of Clinical Waste at Asiri Health A formal waste management framework has been implemented across our hospitals to ensure the responsible disposal of all hazardous and non-hazardous waste. Trilingual safety data sheets have been introduced on all hazardous material while spill management kits are available on every floor to be used in the event of a spill. Clinical 35,628 litres waste including laboratory waste, blood & body fluids and pathological waste are of oil collected and transported in identifiable yellow bags with the bio-hazard symbol and sent for incineration.
Clean Zone Initiative by Softlogic Finance Carried out as an ongoing initiative by Softlogic Finance, this programme aims to create ‘Clean Zones’ within a 2-kilometre radius of all our branches by mobilising community support for waste segregation and recycling. Launched in the Nawala branch in 2015, 81,204 kwh of electricity the project has now been extended to several other branches contributing towards the cleanliness of adjacent neighbourhoods and supporting the eradication of diseases.
During the year we extended the scope of this programme to cover public spaces including places of worship, town centres, recreational facilities, hospitals and bus stations among others as given below.
645,166 litres of water
Location City Lady Ridgeway Hospital Colombo 8 Matara General Hospital Matara St. Thomas Church Kotte Vinayagar Kovil Bambalapitiya Gangaramaya Temple Colombo 2 61 cubic meter Weligama Town Centre Weligama of landfill Matale Children’s Park Matale Dambulla Central Bus Stand Dambulla Gas Paha Junction Pettah Ruwanweliseya Sthupa Anuradhapura Hatton Railway Station Hatton Ratnapura Town Centre Ratnapura Muthiyangana Raja Maha Viharaya Badulla 20,301 kg Kotte Raja Maha Viharaya Kotte of carbon emissions MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT 2017-18 119
Preserving Biodiversity collections and during the year LUV Optimising the use of natural SL featured a collection for World resources Earth Hour in our Hotels Environment Day 2017 on preserving Sri Group-wide energy initiatives Employees of Mövenpick teamed up Lankan corals which are under threat due with students of St. Mary’s Girls School, to direct and indirect human action. Concerted efforts are made to drive Colombo 3; to plant herbal trees in the reductions in energy consumption across the Group, which include school premises to commemorate earth Protect Your Beautiful World by hour. Softlogic Life Insurance the use of energy-efficient lighting solutions, engaging employees in energy Softlogic Life Insurance’s environmental conservation and consistent tracking of LUV Corals Initiative by Odel sustainability agenda is driven through electricity consumption. Carried out as an initiative under Odel’s ‘Protect Your Beautiful World’, an ongoing flagship community brand, LUV SL, initiative involving the sponsorship the LUV Corals campaign involved the of hoardings in several areas of rich Issue of e-receipts by Softlogic Life Insurance planting of 500 mangrove trees along biodiversity such as Yala National Park, the coast of Kalpitiya in partnership Habarana, Hurulu Eco Park, Minneriya, In fulfilling dual objectives of driving with the Seacology-Sudeesha Sri Lanka Galle and other areas in the Southern process efficiencies and minimising Mangrove Conservation Programme. Coast. To date the company has erected use of paper, Softlogic Life launched The project was in commemoration and maintains 71 such trilingual boards e-receipts for Life Insurance payments of World Environment Day and was which carry slogans such as ‘Drive Slow’ during the year. Since September 2017, aimed at protecting and rejuvenating and ‘Be Watchful’. The primary objective the company has issued 250,582 such marine habitats and coastal resources. of this campaign is to minimise the receipts. Odel is also committed to propagating number of animal fatalities arising from its environmental interests through its vehicle accidents. 120 SOFTLOGIC HOLDINGS PLC ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY
The Directors of Softlogic Holdings This report forms an integral part of the Capital Expenditure PLC have pleasure in presenting to the Annual Report of the Board of Directors. The total capital expenditure incurred members their Annual Report together on the acquisition of property, plant and with the Audited Financial Statements of Financial Statements equipment for the Company and the the Company and the Group for the year Section 168 (b) of the Companies Act Group amounted to Rs. 49 Mn (2017 ended 31 March 2018. require that the Annual Report of the – Rs. 46 Mn) and Rs. 4,510 Mn (2017 Directors include financial statements of – Rs. 6,231 Mn) respectively. Details of General the Company, in accordance with Section capital expenditure and their movements Softlogic Holdings PLC is a public limited 151 of the Act and Group financial are given in Note 22 to the Financial company which was incorporated under statements for the accounting period, in Statements on pages 188 and 189 of the Companies Act No. 17 of 1982 as a accordance with section 152 of the Act. the Annual Report. private limited company on 25 February The requisite financial statements of the 1998, re-registered under the Companies Company are given on pages 129 to 243 In addition to the above, a sum of Rs. Act No. 7 of 2007 on 17 December of the Annual Report. 619 Mn has been incurred by the Group 2007, converted to a public limited in respect of the Odel Mall project. liability company on 10 December Directors’ Responsibility for 2008, and listed on the Colombo Stock Financial Reporting Restructuring of the Retail Sector Exchange on 20 June 2011. The name of of the Group The Directors are responsible for the the Company was changed to Softlogic preparation of the Financial Statements Softlogic Retail Holdings (Private) Holdings PLC on 25 August 2011. of the Company to reflect a true and fair Limited (“SRH”), which is a fully owned view of the state of affairs. The Directors subsidiary of Softlogic Holdings PLC was Principal Activities are of the view that these financial incorporated on the 9th day of March The principal activities of the Company statements have been prepared in 2018. The purpose of incorporating this are holding investments and providing conformity with the requirements of the company was to restructure the Retail management services and financial Companies Act No. 7 of 2007 and the Sri Sector of the Softlogic Group in order to assistance to its subsidiaries. The principal Lanka Accounting Standards. A statement consolidate all retail operations under activities of the subsidiary companies in this regard is given on page 128. one arm. The following steps were are Information and Communication completed during the year under review. Technology, Automobiles, Retailing, Auditor’s Report »» 100% ownership of Softlogic Holdings Hoteliering and Leisure, Financial and The Auditor’s Report on the financial PLC in Softlogic Communication Insurance services and Healthcare statements is given on pages 129 to 133 Services (Private) Limited, Softlogic services. The Group operates through of the Annual Report. Mobile Distribution (Private) Limited branches, offices and subsidiaries in Sri and Softlogic International (Private) Lanka and overseas. Limited were transferred to SRH. Significant Accounting Policies The significant accounting policies »» 99.99% stake of Softlogic Retail Future Developments adopted in the preparation of the (Private) Limited held by Softlogic An indication of likely future financial statements are given on pages Holdings PLC was transferred to SRH. developments is set out in the 142 to 243 of the Annual Report. There Chairman’s Review on pages 18 to The current stated capital of SRH is was no change in the accounting policies 21. In the ordinary course of business Rs. 6,272,393,020.00 represented by adopted from the previous year. the Group develops new products and 627,239,302 shares. Information relating services in each of its business segments. to the said transactions is given Note 8.2 Property, Plant & Equipment to the Financial Statements. The details and movement of property, Performance Review plant and equipment during the year The Group ownership of Softlogic The Financial Statements reflect the state under review is set out in Note 22 to the Restaurants (Private) Limited and Odel of affairs of the Company and the Group. Financial Statements on pages 188 and PLC will also be transferred to SRH as 189. part of the restructuring process. COMMITTEE REPORTS
ANNUAL REPORT 2017-18 121
Reserves Rights Issue of Shares Related Party Transactions The reserves of the Company of the The stated capital of the Company was The Company’s transactions with Group amounted to Rs. 5,193 Mn increased from Rs. 8,195,382,715.00 Related Parties, given in Note 47.6 to the (2017 – Rs. 2,008 Mn) and Rs. 3,396 representing 961,728,395 ordinary Financial Statements have complied with Mn (2017 – Rs. 3,458 Mn - restated) shares to Rs. 12,119,234,553.00 the Listing Rules of the Colombo Stock respectively. representing 1,192,543,209 in May Exchange. 2018 with the conclusion of the rights The movement and composition of the issue of 230,814,814 shares at Rs. Directorate Capital and Revenue reserves is disclosed 17.00 per share which were listed on the The following Directors held office during in the Statement of Changes in Equity. Colombo Stock Exchange on 10th May the year under review. The biographical 2018. details of the Board members are set out Donations on pages 22 and 27. During the year, donations made by the Syndicated loan agreement - Odel Properties One (Pvt) Ltd Mr. A K Pathirage Company and the Group amounted to (Chairman/Managing Director) Rs. 0.6 Mn (2017 - Rs. 6.3 Mn) and Odel Properties One (Pvt) Ltd together Mr. G W D H U Gunawardena Rs. 16.9 Mn (2017 – Rs. 15.4 Mn) Odel PLC entered into a syndicated respectively. loan agreement with Hatton National Mr. R J Perera Bank PLC, Sampath Bank PLC and Mr. H K Kaimal Bank of Ceylon on 01 June 2018 to Stated Capital Mr. M P R Rassool raise Rs. 5,400 Mn to part finance the The stated capital of the Company Dr. S Selliah development cost of ‘Odel Mall Project’ as at 31 March 2018 was Rs. at Alexandra Place, Colombo 07. Details Mr. W M P L De Alwis, PC 8,195,382,715.00 represented by of this is provided in Note 52.2 on page Mr. G L H Premaratne 961,728,395 shares. The stated capital 235 of the Annual Report. Mr. R A Ebell of the Company was increased from Rs. 5,089,000,000.00 representing Prof. A S Dharmasiri Taxation 779,000,000 ordinary shares to Mr. A Russell-Davison The information relating to Income Tax Rs. 8,195,382,715.00 representing Mr. S Saraf (appointed w.e.f. 26 March and Deferred Taxation is given in Note 19 961,728,395 ordinary shares during the 2018 as a Nominee Director of Samena to the Financial Statements. year under review with the conclusion of Ceylon Holdings Limited) issue of 182,728,395 shares at Rs. 17.00 Mr. C K Gupta (appointed as an Alternate per share to Samena Ceylon Holdings Statutory Payments Director to Mr. S Saraf w.e.f. 27 March Limited by way of a private placement. The Directors, to the best of their 2018). These shares were listed on the Colombo knowledge and belief are satisfied that Stock Exchange on 28th March 2018. all taxes, duties and levies payable Retirement and Re-election of by the Company and the Group, all Directors Events after the Date of the contributions, levies and taxes payable In terms of Article 87 of the Articles of Statement of Financial Position on behalf of, and in respect of, the Association of the Company, Mr. G W D No circumstances have arisen and no employees of the Company and the H U Gunawardena, Mr. H K Kaimal and material events have occurred after the Group, and all other known statutory Dr. S Selliah retire by rotation and being date of Statement of Financial Position, dues as were due and payable by the eligible offer themselves for re-election. which would require adjustments to, Company and the Group as at the date or disclosure in the accounts other of the Statement of Financial Position In terms of Article 94 of the Articles of than those disclosed in Note 52 to have been paid or, where relevant Association of the Company, Mr. S Saraf the Financial Statements including the provided for, except as specified in Note retires and being eligible offers himself following. 50 to the Financial Statements, covering for re-election. contingent liabilities. 122 SOFTLOGIC HOLDINGS PLC ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY
The Directors have recommended the resolution will be placed before the the Company’s system of internal control. reappointment of Mr. G L H Premaratne shareholders in terms of Section 211 of Internal control systems are designed who is 70 years of age, as a Director the Companies Act in regard to the re- to meet the particular needs of the of the Company; and accordingly a appointment of Mr. G L H Premaratne. organisation concerned and the risk to which it is exposed, and by their nature Directors’ Shareholding can provide reasonable but not absolute assurance against material misstatement Directors’ interest in the shares of the Company as at 31 March 2018 were as follows. or loss. The Directors are satisfied that a Name of Director As at 31 March 2017 As at 31 March 2018 strong control environment is prevalent No. of Shares No. of Shares within the Company and that the internal Mr. A K Pathirage 364,715,322 384,181,775 control systems referred to above are Mr. G W D H U Gunawardena 57,527,300 57,527,300 effective. Mr. R J Perera 60,836,700 60,836,700 Mr. H K Kaimal 64,870,800 64,870,800 Risk Management Mr. M P R Rasool - - The Group’s risk management objectives Dr. S Selliah 2,000,000 2,000,000 and policies and the exposure to risks, Mr. W M P L De Alwis, PC - - are set out in pages 49 to 55 of the Mr. G L H Premaratne - - Annual Report. Mr. R A Ebell - - Prof. A S Dharmasiri - - Corporate Governance Mr. A Russell-Davison - - The report on Corporate Governance is given on pages 36 to 41 of the Annual Mr. S Saraf - - Report. Mr. C K Gupta - - (Alternate Director to Mr. S Saraf) The Auditors The Board Audit Committee reviews the Directors’ Remuneration Act No. 7 of 2007. All Directors have appointment of the external auditors, as Details of remuneration and other disclosed their interests pursuant to well as their relationship with the Group, benefits received by the Directors are Section 192(2) of the said Act. including monitoring the Group’s use of set out in Note 47.7 to the Financial the auditors for non-audit services and Statements. Shareholders’ Information the balance of audit and non-audit fees The distribution of shareholders is paid to the auditors. Directors’ interests in contracts indicated on page 244 of the Annual and proposed contracts with the Report. There were 11,032 registered The Auditors of the Company, Messrs Company shareholders as at 31 March 2018 (31 Ernst & Young, Chartered Accountants Directors’ interests in contracts, both March 2017 – 12,974). were paid Rs. 2.5 Mn as audit fees for direct and indirect are referred to in the financial year ended 31 March 2018 note 47 to the Financial Statements. Share Information (2017 – Rs. 2.8 Mn) by the Company. The Directors have no direct or indirect Details of which are given in Note 18 to Information on share trading is given on interest in any other contract or proposed the Financial Statements. page 245 of the Annual Report. contract with the Company. As far as the Directors are aware, the Internal Control Interests Register Auditors do not have any relationship The Directors are responsible for the (other than that of an auditor) with the The Interests Register is maintained by governance of the Company including Company that would have an impact on the Company as per the Companies the establishment and maintenance of COMMITTEE REPORTS
ANNUAL REPORT 2017-18 123
their independence. The Auditors also do Board is satisfied that the Company and not have any interest in the Company. the Group have adequate resources to continue its operations in the foreseeable Having reviewed the independence future. Therefore, the Directors have and effectiveness of the external adopted the going-concern basis in auditors, the Audit Committee has preparing the financial statements. recommended to the Board that the existing auditors, Messrs Ernst & Young, Annual General Meeting Chartered Accountants be reappointed. The Annual General Meeting of the Ernst & Young have expressed their Company will be held at the “Orchid willingness to continue in office and an Room” of Bandaranaike Memorial ordinary resolution reappointing them International Conference Hall (BMICH), as auditors and authorising the Directors Bauddhaloka Mawatha, Colombo 07 on to determine their remuneration will be Wednesday, the 12th day of September proposed at the forthcoming AGM. 2018 at 10.30 a.m. The Notice of the Annual General Meeting is on page 250 Going Concern of the Annual Report. The Directors having assessed the environment within which it operates, the
For and on behalf of the Board
A K Pathirage H K Kaimal Chairman/Managing Director Director
Softlogic Corporate Services (Pvt) Ltd Secretaries
13 August 2018 Colombo 124 SOFTLOGIC HOLDINGS PLC BOARD AUDIT COMMITTEE REPORT
Scope The Committee met twelve times during c. discussion with property valuers The responsibilities of the Committee are laid the year. Attendance at these meetings and actuaries entrusted with out in its written Terms of Reference (TOR). was as follows: valuation of retirement gratuities. Mr. R A Ebell 12/12 2. Procedures in place to examine the The Committee does not engage directly Dr. S Selliah 11/12 Company’s ability to continue as a with Group companies covered by other Prof. A Dharmasiri 05/12 going concern. Mr. A Russell-Davison 10/12 audit committees established under 3. The work and performance of the mandatory regulatory requirements; it Internal Auditors. reviews the minutes of those committees’ The Group Chief Financial Officer 4. The Group’s implementation of ERP meetings and receives appropriate attended the Committee’s meetings by software, so far as it impacted on briefings on matters arising from those. invitation, and other members of the Senior Management attend meetings by financial accounting and reporting. Composition invitation when necessary. The External 5. Review of procedures in place to The Committee consisted of the following Auditors attended meetings when their monitor compliance with applicable members, who are all Independent Non presence was necessary; they attended Laws & Regulations. Executive Directors. Their profiles appear seven of the meetings held during the 6. Review of steps focused on IT Security. year. The Committee meets with the elsewhere in this Annual Report. 7. Greater formalisation of processes External Auditors, with no members of Mr. R A Ebell (Chairman) enabling whistleblowing. Dr. S Selliah management present, to cover matters Prof. A Dharmasiri they wish to discuss in confidence. The Committee makes written reports to Mr. A Russell-Davison* the Group Chairman/Managing Director, Mr. W M P L De Alwis, PC** Activity & Focus, and Reporting for dissemination to the Board, following * Mr. Russell-Davison subsequently The Committee has continued to focus its each quarterly meeting at which financial resigned from the Committee on 20 attention mainly on the following during statements are reviewed. These draw April 2018 on assuming executive the year: attention to matters needing consideration responsibilities in Softlogic Finance PLC. and action. The Committee also briefs the 1. The integrity of the Company’s and ** Mr. W M P L De Alwis, PC was appointed Group Chairman/Managing Director from on 26 July 2018 Group’s financial statements, including time to time on matters of importance, the reasonableness of assertions made, generally at meetings scheduled by Mr. D Vitharanage, Chief Internal the appropriateness of accounting him periodically with the Non-Executive Auditor/Chief Risk Officer served as the policies used, the adequacy of Directors. Committee’s Secretary presentation and disclosures made, and the effectiveness of internal control The composition of the Committee over financial reporting. This has Reappointment of External Auditors enables a blend of finance & accounting continued to be a major thrust of the The Audit Committee has proposed to knowledge and wide business experience Committee, and has again included the Board of Directors, having considered to guide its deliberations and actions. during the year; their independence and performance, that a. interactions with the External the incumbent auditors Ernst & Young, Meetings Auditors of the Holding Company, Chartered Accountants be re-appointed for the year ending 31 March 2019 at the The Committee met quarterly to review and the Group companies not Annual General Meeting. and make recommendations on the covered by separate Board Audit quarterly and annual financial statements Committees, on their audit plans, before they were considered and observations and key findings; approved by the Board. It met at several b. review and follow-up of other times also, to consider matters observations in Management R A Ebell Chairman referred to in the rest of this report. Letters presented by these auditors Audit Committee post-audit, with the relevant Group companies and; 13 August 2018 Colombo COMMITTEE REPORTS
ANNUAL REPORT 2017-18 125 BOARD RELATED PARTY TRANSACTIONS REVIEW COMMITTEE REPORT
Purpose of their positions. The Committee The purpose of the Related Party ensures adherence to the rules set in Transactions Review Committee is the Code of Best Practices on related to conduct an appropriate review party transactions issued by the Securities of Softlogic Group’s related party & Exchange Commission of Sri Lanka transactions and to ensure that interests (SEC) and CA Sri Lanka. The Committee of shareholders and other stakeholders states opinions in accordance with the are considered when engaging in related party transaction charter approved related party dealings, hence preventing by the Board of Directors. It reviews Directors, key management personnel or the charter and policies while making substantial shareholders taking advantage recommendations to the Board as and when deemed necessary.
Composition The Related Party Transactions Review Committee comprises two Non-Executive Independent Directors, including the Chairman, and one Executive Director.
Dr. S Selliah Non-Executive Independent Director Chairman Mr. W M P L De Alwis, PC Non-Executive Independent Director Member Mr. H K Kaimal Executive Director Member
Meetings Name Attendance Dr. S Selliah 3/3 Mr. W M P L De Alwis, PC 1/3 Mr. H K Kaimal 3/3
Softlogic Corporate Services (Pvt) Ltd., serves as secretary to the Committee. The Group Chief Financial Officer attends the meetings by invitation.
Review of Related Party Related Party Transactions entered by Transactions for the period the Group during the above period are The Committee reviewed all proposed disclosed in Note 47.6 to the financial Related Party Transactions of Softlogic statements. Holdings PLC and scrutinised such transactions to ensure that they are no less favourable to the Group than those generally available to an unaffiliated third party in a similar circumstance. The activities of the Committee have been communicated to the Board quarterly Dr. S Selliah through tabling minutes of the meeting Chairman of the Committee at Board Meetings. Related Party Transactions Review Committee Relevant disclosures have been made to the Colombo Stock Exchange in 13 August 2018 compliance with regulations. Details of Colombo 126 SOFTLOGIC HOLDINGS PLC HR & REMUNERATION COMMITTEE REPORT
Purpose and the long term interests of the Group The Committee spent time The principal purpose of the Committee whilst also recognising the interests of understanding the interaction of is to consider, agree and recommend stakeholders. remuneration and culture of the to the Board a remuneration policy that organisation and how our remuneration The responsibilities of the Committee are is aligned with its long term business structures influence our chosen laid out in its written Terms of Reference strategy, objectives, risk appetite, values strategic behaviours. We performed a (TOR). comprehensive review of our executive remuneration offering in order to Committee Composition and Meeting optimise the structure of our package to The Remuneration Committee comprises of three Non-Executive Directors (two enhance competitiveness. of whom, including the Chairman, are Independent Directors). Decisions of the Committee are taken at meetings or by circular resolutions. Softlogic Corporate Summary Services (Pvt) Ltd., serves as secretaries to this Committee. Group Head of Human The Remuneration Committee will Capital attends the Committee Meetings by invitation. During the year under continue to monitor the remuneration review, one Remuneration Committee meeting was held. The composition of the policy to ensure that it is correctly Remuneration Committee and the attendance at the meeting held is as below: aligned with the Group’s strategy. The Committee’s policy aims to properly Name Category Attendance reward performance in line with the Prof. Ajantha Dharmasiri Chairman 01/01 Company’s business objectives and Mr. Prasantha Lal De Alwis, PC Member 01/01 growth to enrich shareholder value. Mr. Harris Premaratne Member 01/01 In conclusion, I thank the members of Mr. R A Ebell Member 01/01 the Committee, Mr. Prasantha Lal De Alwis, PC, Mr. Harris Premaratne and The Chairman of the Group, who is also Our investment in the globally renowned Mr. Richard Ebell and also extend my Managing Director, attends meetings by ERP platform, Oracle, will continue gratitude to the Head of Group Human invitation. No Director of the Company to strengthen the effectiveness and Capital, Ms. Natasha Fonseka and her is involved in determining his own efficiency of the system and processes. team, for their valuable contributions. remuneration. The Chairman of the Committee reports to the Board on its Our Reward Framework activities. The Committee focused on delivering a reward framework that is transparent, Activities of the Year tailored to individual roles and provide We continued to ensure that our a clear link to Softlogic’s strategic remuneration policies were consistent objectives. The objective is to drive Prof. Ajantha S. Dharmasiri with our strategic objectives, and performance to the highest standards were designed with the long term while rewarding both performance Chairman success of the Group in mind. This and value behaviours. It seeks to be Board Remuneration Committee was particularly so when considering sufficiently competitive in order to attract, 13 August 2018 how our remuneration schemes can retain and motivate employees of the Colombo drive behaviour in line with our chosen highest calibre. objectives and in line with industry best practices. FINANCIAL STATEMENTS
Statement of Directors’ Responsibilities 128 Independent Auditors’ Report 129 Income Statement 134 Statement of Comprehensive Income 135 Statement of Financial Position 136 Statement of Changes in Equity 138 Cash Flow Statement 140 Notes to The Financial Statements 142 128 SOFTLOGIC HOLDINGS PLC STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The responsibilities of the Directors, in and for taking reasonable steps for the relation to the financial statements of the prevention and detection of fraud and Company differ from the responsibilities other irregularities. In this regard the of the Auditors, which are set out in the Directors have instituted an effective Report of the Auditors on Pages 129 to and comprehensive system of internal 133. control. The Directors are required to prepare financial statements and to The Companies Act No. 7 of 2007 provide the external auditors with every stipulates that the Directors are opportunity to take whatever steps and responsible for preparing the Annual undertake whatever inspections they Report and the financial statements. may consider to be appropriate to enable Company law requires the Directors to them to give their independent audit prepare financial statements for each opinion. financial year, giving a true and fair view of the state of affairs of the Company at The Directors are of the view that they the end of the financial year, and of the have discharged their responsibilities as Statement of Comprehensive Income set out in this statement. of the Company and the Group for the financial year, which comply with the Compliance Report requirements of the Companies Act. The Directors confirm that to the best of their knowledge, all taxes, duties The Directors consider that, in preparing and levies payable by the Company, all financial statements set out on Pages contributions, levies and taxes payable 134 to 243 of the Annual Report, on behalf of and in respect of the appropriate accounting policies have employees of the Company and other been selected and applied in a consistent known statutory dues as were due and manner and supported by reasonable payable by the Company as at the date and prudent judgments and estimates, of the Statement of Financial Position and that all applicable accounting have been paid or, where relevant standards have been followed. The provided for, in arriving at the financial Directors confirm that they are justified results for the year under review except in adopting the going concern basis in as specified in Note 50 to the Financial preparing the financial statements since Statements covering contingent liabilities. adequate resources are available to continue operations in the foreseeable For and on behalf of the Board of future. SOFTLOGIC HOLDINGS PLC The Directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy, at any time, the financial position of the Company and enable them to ensure the financial statements comply with the SOFTLOGIC CORPORATE SERVICES Companies Act No. 7 of 2007 and are (PVT) LTD prepared in accordance with Sri Lanka Secretaries Accounting Standards (SLFRS/LKAS).
They are also responsible for 13 August 2018 safeguarding the assets of the Company Colombo FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 129 INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Softlogic Basis for opinion period. These matters were addressed in Holdings PLC We conducted our audit in accordance the context of our audit of the financial Report on the audit of the financial with Sri Lanka Auditing Standards statements as a whole, and in forming statements (“SLAuSs”). Our responsibilities under our opinion thereon, and we do not provide a separate opinion on these Opinion those standards are further described in the Auditor’s responsibilities for the audit matters. For each matter below, our We have audited the financial of the financial statements section of our description of how our audit addressed statements of Softlogic Holdings PLC report. We are independent of the Group the matter is provided in that context. (“the Company”), and the consolidated in accordance with the Code of Ethics financial statements of the Company We have fulfilled the responsibilities issued by CA Sri Lanka (“Code of Ethics”) and its subsidiaries (“the Group”), which described in the Auditor’s responsibilities and we have fulfilled our other ethical comprise the statement of financial for the audit of the financial statements responsibilities in accordance with the position as at 31 March 2018, and section of our report, including in relation Code of Ethics. We believe that the audit the income statement, statement of to these matters. Accordingly, our audit evidence we have obtained is sufficient comprehensive income, statement included the performance of procedures and appropriate to provide a basis for our of changes in equity and cash flow designed to respond to our assessment opinion. statement for the year then ended, of the risks of material misstatement and notes to the financial statements, of the financial statements. The results Emphasis of Matter including a summary of significant of our audit procedures, including the accounting policies. We draw attention to Note 50.1 to the procedures performed to address the financial statements which describes matters below, provide the basis for In our opinion, the accompanying a contingent income tax liability. Our our audit opinion on the accompanying financial statements of the Company opinion is not qualified in respect of this financial statements. and the Group give a true and fair view matter. of the financial position of the Company and the Group as at 31 March 2018 Key audit matters and of their financial performance and Key audit matters are those matters cash flows for the year then ended in that, in our professional judgment, were accordance with Sri Lanka Accounting of most significance in our audit of Standards. the financial statements of the current 130 SOFTLOGIC HOLDINGS PLC
INDEPENDENT AUDITORS’ REPORT
Key audit matter How our audit addressed the key audit matter
Valuation of land and buildings of the Group Our audit procedures focused on the valuations performed As at 31 March 2018, land and buildings (including buildings by external valuers engaged by the Group, and included the on leasehold land), classified as Property, Plant & Equipment following; and Investment Property amounting to Rs. 29.5 Bn and Rs. »» Assessed the competency, capability and objectivity of the 1.2 Bn respectively, were carried at fair value. The fair value external valuers engaged by the Group. of those assets was determined by external valuers engaged »» Read the external valuer’s report and understood the key by the Group. The valuation of them was significant to our estimates made and the approach taken by the valuers in audit due to the use of significant estimates such as per determining the valuation of each property. perch price and value per square foot disclosed in notes 22.3 and 24.2 to the financial statements. »» Engaged our internal specialised resources to assess the reasonableness of the valuation techniques, per perch price and value per square foot.
We have also assessed the adequacy of the disclosures made in notes 22.3 and 24.2 to the financial statements relating to the valuation technique and estimates used by the external valuers.
Interest bearing loans, borrowings and other financial Our audit procedures included the following; liabilities of the Group »» We obtained an understanding of the covenants attached to As disclosed in note 39 and note 45 the Group’s total external borrowings, by reading the loan agreements. interest bearing loans, borrowings and other financial »» We evaluated the statement prepared by the management liabilities amounted to Rs. 56.5 Bn, which represents a and tabled at a board meeting on the Group’s compliance significant portion of its total liabilities. The maturities of with applicable financial covenants as at 31 March 2018. such interest-bearing loans, borrowings and other financial liabilities are disclosed in note 9.3.3. »» We obtained confirmations from external lending institutions about compliance by the Group with covenants. The management’s assessment of Group’s ability to continue to meet its financial covenants and liquidity risk We assessed the adequacy of the disclosures made in note 45 aspects were largely based on expectations and informed and note 9.3 to the financial statements relating to the interest estimates. Therefore we considered compliance with bearing loans and borrowings and liquidity risk aspects. financial covenants and Group’s liquidity risk aspects as a key audit matter. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 131
Key audit matter How our audit addressed the key audit matter
Tax-related contingent liability in a subsidiary Our audit procedures included the following;
A dispute has arisen with the Department of Inland Revenue »» Obtained an understanding of the agreement entered with regard to applicability of the tax exemption period as into with the Board of Investments and subsequent explained in note 50.1. Due to the complexity of the matter correspondence between the Company and other and the uncertainty around the tax treatment, we considered authorities. this as a key audit matter. »» Evaluated the uncertainty around the tax treatment, its developments since last year and the status of litigation in court of appeal.
»» Assessed the management’s judgement in respect of tax- related contingent liability.
»» Inspected the opinions obtained by the management from its tax and legal consultants in connection with the dispute.
»» We evaluated the appropriateness of the disclosures made in Note 50.1 regarding tax related contingent liability.
Impairment of Loans and advances in a subsidiary. To assess the reasonableness of the allowance for impairment, As at 31 March 2018, Loans and advances in a subsidiary we performed the following key procedure, among others: amounted to Rs. 17.4 Bn. This contributed 14.6% to the »» Understood & evaluated the key internal controls over Group’s total assets. The impairment of loans and advances estimation of the allowance for impairment including to customers from finance activities is estimated by the those over identifying occurrence of loss events and non- management through the application of judgement and use performing loans. of subjective assumptions of the losses incurred within the »» Tested estimation of the collective impairment focusing loan portfolios at the reporting date. Due to the significance specifically on parameters associated with the historical of loans and advances and the related estimation loss experience including probability of default and other uncertainty, this is considered a key audit matter. information. The related estimates used for the provision of impairment We have also evaluated the adequacy of the disclosures in note of loans and advances from finance activities is disclosed 9.2.8 and 9.2.14 to the financial statements. under note 29.3 and 33.1to the financial statements. 132 SOFTLOGIC HOLDINGS PLC
INDEPENDENT AUDITORS’ REPORT
Key audit matter How our audit addressed the key audit matter
Insurance contract liabilities in a subsidiary Our audit procedures focused on the valuations performed by The Group has significant insurance contract liabilities the external actuary engaged by the subsidiary company of the amounting to Rs. 7.1 Bn which represents 7.2% of the Group and included the following; Group’s total liabilities. Further, a gain amounting to Rs. »» Involved the component auditor of the subsidiary company 0.8 Bn arising from the change in contract liabilities due to to perform the audit procedures to assess the reasonability the transfer of one off surplus has been recognised in the of the assumptions and test the key controls on a sample income statement during the current financial year. basis over the process of estimating the insurance contract The valuation of the insurance contract liabilities and the liabilities. measurement of the one off surplus in relation to the life »» Engaged our internal expert to assess the reasonability of business required the application of significant assumptions the assumptions used in the valuations of the insurance as disclosed in note 38.4 and assessing the completeness contract liabilities. and accuracy of the information used in the underlying We have also evaluated the adequacy of the disclosures and the valuations. Changes in such significant assumptions used movement in the insurance contract liabilities in note 38.1. in the valuation of the insurance contract liabilities directly impact the income statement.
Other information Responsibilities of the Management and Auditor’s responsibilities for the audit of those charged with governance the financial statements Other information comprises the information included in the Annual Management is responsible for the Our objectives are to obtain reasonable Report. Management is responsible for preparation and fair presentation of the assurance about whether the financial the other information other than the financial statements in accordance with statements as a whole are free from financial statements and our auditor’s Sri Lanka Accounting Standards, and for material misstatement, whether due to report thereon. such internal control as management fraud or error, and to issue an auditor’s determines is necessary to enable the report that includes our opinion. Our opinion on the financial statements preparation of financial statements that Reasonable assurance is a high level does not cover the other information and are free from material misstatement, of assurance, but is not a guarantee we do not express any form of assurance whether due to fraud or error that an audit conducted in accordance conclusion thereon. with SLAuS will always detect a In preparing the financial statements, material misstatement when it exists. In connection with our audit of the management is responsible for assessing Misstatements can arise from fraud financial statements, our responsibility the Group’s ability to continue as a going or error and are considered material is to read the other information and, in concern, disclosing, as applicable, matters if, individually or in the aggregate, doing so, consider whether the other related to going concern and using the they could reasonably be expected information is materially inconsistent going concern basis of accounting unless to influence the economic decisions with the financial statements or our management either intends to liquidate of users taken on the basis of these knowledge obtained in the audit or the Group or to cease operations, or has financial statements. otherwise appears to be materially no realistic alternative but to do so. misstated. If, based on the work we have As part of an audit in accordance performed, we conclude that there is Those charged with governance with SLAuS, we exercise professional a material misstatement of this other are responsible for overseeing the judgment and maintain professional information, we are required to report Company’s financial reporting process. scepticism throughout the audit. We also: that fact. We have nothing to report in this regard. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 133
»» Identify and assess the risks of on the audit evidence obtained up financial statements of the current material misstatement of the to the date of our auditor’s report. period and are therefore the key audit financial statements, whether due to However, future events or conditions matters. We describe these matters fraud or error, design and perform may cause the Group to cease to in our auditor’s report unless law or audit procedures responsive continue as a going concern. regulation precludes public disclosure to those risks, and obtain audit about the matter or when, in extremely evidence that is sufficient and »» Evaluate the overall presentation, rare circumstances, we determine that appropriate to provide a basis for structure and content of the a matter should not be communicated our opinion. The risk of not detecting financial statements, including in our report because the adverse a material misstatement resulting the disclosures, and whether the consequences of doing so would from fraud is higher than for one financial statements represent the reasonably be expected to outweigh resulting from error, as fraud may underlying transactions and events the public interest benefits of such involve collusion, forgery, intentional in a manner that achieves fair communication. omissions, misrepresentations, or presentation. the override of internal control. Report on other legal and regulatory »» Obtain sufficient appropriate audit requirements evidence regarding the financial »» Obtain an understanding of internal As required by section 163 (2) of information of the entities or control relevant to the audit in order the Companies Act No.7 of 2007, we business activities within the Group to design audit procedures that are have obtained all the information and to express an opinion on the appropriate in the circumstances, explanations that were required for the consolidated financial statements. but not for the purpose of audit and, as far as appears from our We are responsible for the direction, expressing an opinion on the examination, proper accounting records supervision and performance of effectiveness internal controls of the have been kept by the Company. Company and Group. the group audit. We remain solely responsible for our audit opinion. CA Sri Lanka membership number of »» Evaluate the appropriateness of the engagement partner responsible for We communicate with those charged accounting policies used and the signing this independent auditor`s report with governance regarding, among other reasonableness of accounting is 2199. estimates and related disclosures matters, the planned scope and timing made by management. of the audit and significant audit findings, including any significant deficiencies in »» Conclude on the appropriateness internal control that we identify during of management’s use of the going our audit. concern basis of accounting and, based on the audit evidence We also provide those charged with obtained, whether a material governance with a statement that we 13 August 2018 uncertainty exists related to have complied with ethical requirements Colombo events or conditions that may in accordance with the code of ethics cast significant doubt on the regarding independence, and to Group’s ability to continue as a communicate with them all relationships going concern. If we conclude and other matters that may reasonably that a material uncertainty exists, be thought to bear on our independence, we are required to draw attention and where applicable, related safeguards. in our auditor’s report to the related disclosures in the financial From the matters communicated with statements or, if such disclosures those charged with governance, we are inadequate, to modify our determine those matters that were of opinion. Our conclusions are based most significance in the audit of the 134 SOFTLOGIC HOLDINGS PLC INCOME STATEMENT
In Rs. ‘000 Note Group Company For the year ended 31 March 2018 2017 2018 2017 Restated Continuing operations Revenue 13 66,018,915 58,882,353 649,823 628,427 Cost of sales (42,346,048) (39,303,353) (216,633) (200,181) Gross profit 23,672,867 19,579,000 433,190 428,246
Dividend income 14 - - 893,013 1,343,213 Other operating income 15 1,761,747 994,431 4,634,942 1,137,301 Distribution expenses (3,114,739) (3,039,151) - - Administrative expenses (14,013,166) (12,322,682) (523,053) (898,734) Results from operating activities 8,306,709 5,211,598 5,438,092 2,010,026
Finance income 16 1,103,805 897,391 1,122,857 1,045,636 Finance expenses 17 (5,959,866) (4,809,538) (2,695,998) (2,039,862) Net finance cost (4,856,061) (3,912,147) (1,573,141) (994,226)
Change in insurance contract liabilities 38.2 (1,374,037) (82,440) - - Change in contract liability due to transfer of one off surplus 38.7.2 798,004 - - - Change in fair value of investment property 24 198,000 354,120 92,475 62,176 Share of profit of equity accounted investees 27.2 19,787 9,998 - - Profit before tax 18 3,092,402 1,581,129 3,957,426 1,077,976
Tax expense 19.1 (814,359) (806,062) (258,757) (52,560) Profit for the year from continuing operations 2,278,043 775,067 3,698,669 1,025,416
Profit for the period from discontinued operation 8.3.1 - 145,317 - - Profit for the year 2,278,043 920,384 3,698,669 1,025,416
Attributable to: Equity holders of the parent 204,200 119,613 Non-controlling interests 2,073,843 800,771 2,278,043 920,384
Earnings per share Basic - continuing operations 20.1 0.26 0.07 - discontinued operations 20.1 - 0.08
Dividend per share 21 0.65 0.50
Figures in brackets indicate deductions. The accounting policies and notes as set out in pages 142 to 243 form an integral part of these financial statements. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 135 STATEMENT OF COMPREHENSIVE INCOME
In Rs. ‘000 Note Group Company For the year ended 31 March 2018 2017 2018 2017 Restated Profit for the year 2,278,043 920,384 3,698,669 1,025,416
Other comprehensive income Continuing operations Other comprehensive income to be reclassified to income statement in subsequent periods Currency translation of foreign operations (3,063) (4,948) - - Net change in fair value on derivative financial instruments 39.3 (34,266) (38,096) - - Net (loss) / gain on available-for-sale financial assets 463,171 (371,744) - - Available-for-sale financial assets reclassified to income statement 17,641 (20,364) - - Net other comprehensive income/(loss) to be reclassified to income statement in subsequent periods 443,483 (435,152) - -
Other comprehensive income not to be reclassified to income statement in subsequent periods Revaluation of land and buildings 22.1 2,580,861 1,322,817 - - Re-measurement loss on employee benefit liabilities 41 (74,103) (50,034) (10,219) (1,338) Share of other comprehensive income/(loss) of equity accounted investments (net of tax) 27.2 (80) 289 - - Tax on other comprehensive income not to be reclassified to income statement in subsequent periods 19.2.1 (2,401,415) (38,366) 2,861 375 Net other comprehensive income/(loss) not to be reclassified to income statement in subsequent periods 105,263 1,234,706 (7,358) (963) Other comprehensive income/(loss) from continuing operations for the year, net of tax 548,746 799,554 (7,358) (963)
Other comprehensive income from discontinued operation for the period, net of tax 8.3.2 - 72,883 - - Total comprehensive income for the year, net of tax 2,826,789 1,792,821 3,691,311 1,024,453
Attributable to: Equity holders of the parent 450,413 783,432 Non-controlling interests 2,376,376 1,009,389 2,826,789 1,792,821
Figures in brackets indicate deductions. The accounting policies and notes as set out in pages 142 to 243 form an integral part of these financial statements. 136 SOFTLOGIC HOLDINGS PLC STATEMENT OF FINANCIAL POSITION
In Rs. ‘000 Note Group Company As at 31 March 2018 2017 01-04-2016 2018 2017 Restated Restated Assets Non-current assets Property, plant and equipment 22 41,337,923 36,350,857 30,760,142 208,459 201,287 Lease rentals paid in advance 23 805,601 852,722 853,759 - - Investment property 24 1,238,300 1,037,000 682,880 704,000 609,385 Intangible assets 25 8,610,364 8,569,237 8,701,079 593 1,040 Investments in subsidiaries 26 - - - 19,856,700 13,598,299 Investments in equity accounted investees 27 111,885 68,528 60,241 11,000 11,000 Non-current financial assets 28 10,564,380 10,101,272 11,350,627 828,355 1,490,000 Rental receivable on lease assets and hire purchase 29.1 1,042,759 359,972 481,365 - - Other non-current assets 30 928,503 236,546 385,626 - - Deferred tax assets 19.2.2 749,406 508,968 245,374 - - 65,389,121 58,085,102 53,521,093 21,609,107 15,911,011
Current assets Inventories 31 11,250,539 8,979,963 8,712,393 - - Trade and other receivables 32 11,838,130 9,317,037 8,171,727 362,930 453,324 Loans and advances 33 13,098,641 14,665,990 10,802,560 - - Rental receivable on lease assets and hire purchase 29.2 523,777 589,345 955,777 - - Amounts due from related parties 47.1 807 333 808 8,588,380 5,675,892 Other current assets 34 3,449,051 2,686,028 3,519,866 16,709 16,830 Short term investments 35 7,120,608 3,796,256 4,508,634 1,719,676 1,665,030 Cash in hand and at bank 6,151,833 2,794,608 2,958,754 2,916,160 92,204 53,433,386 42,829,560 39,630,519 13,603,855 7,903,280 Total assets 118,822,507 100,914,662 93,151,612 35,212,962 23,814,291
Equity and Liabilities Equity attributable to equity holders of the parent Stated capital 36 8,195,383 5,089,000 5,089,000 8,195,383 5,089,000 Revenue reserves (577,403) 108,357 469,679 5,193,136 2,008,175 Other components of equity 37 3,973,279 3,350,030 2,600,643 - - 11,591,259 8,547,387 8,159,322 13,388,519 7,097,175 Non-controlling interests 9,325,667 7,075,208 7,372,103 - - Total equity 20,916,926 15,622,595 15,531,425 13,388,519 7,097,175 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 137
In Rs. ‘000 Note Group Company As at 31 March 2018 2017 01-04-2016 2018 2017 Restated Restated Non-current liabilities Insurance contract liabilities 38.1 7,192,591 6,616,558 6,534,118 - - Interest bearing borrowings 39 25,729,331 29,655,414 21,231,336 7,453,907 8,509,979 Public deposits 40 3,237,633 1,986,055 1,521,943 - - Deferred tax liabilities 19.2.2 2,829,959 459,096 273,609 157,916 23,696 Employee benefit liabilities 41 1,012,888 801,930 688,105 68,252 49,130 Other deferred liabilities 42 127,635 153,159 1,610 111,712 147,748 Other non-current financial liabilities 43 122,502 28,849 28,733 186,200 186,200 40,252,539 39,701,061 30,279,454 7,977,987 8,916,753
Current liabilities Trade and other payables 44 7,268,577 6,953,744 7,851,450 44,415 24,133 Amounts due to related parties 47.2 7,566 17,565 47,340 17,877 68,064 Income tax liabilities 19.1.4 348,372 535,788 568,385 33,309 56,555 Other current financial liabilities 45 23,607,505 12,056,238 14,875,267 10,526,355 4,447,998 Current portion of interest bearing borrowings 39 7,244,641 6,328,018 7,237,386 2,984,531 2,580,019 Other current liabilities 46 1,467,326 1,435,066 1,155,143 86,221 73,347 Public deposits 40 13,063,838 14,049,443 12,469,899 - - Bank overdrafts 4,645,217 4,215,144 3,135,863 153,748 550,247 57,653,042 45,591,006 47,340,733 13,846,456 7,800,363 Total liabilities 97,905,581 85,292,067 77,620,187 21,824,443 16,717,116 Total equity and liabilities 118,822,507 100,914,662 93,151,612 35,212,962 23,814,291
I certify that the financial statements comply with the requirements of the Companies Act No. 7 of 2007.
A C M Lafir Group Chief Financial Officer
The Board of Directors is responsible for these financial statements. Signed for and on behalf of the Board.
A K Pathirage H K Kaimal Chairman Director
13 August 2018 Colombo
Figures in brackets indicate deductions. The accounting policies and notes as set out in pages 142 to 243 form an integral part of these financial statements. 138 SOFTLOGIC HOLDINGS PLC STATEMENT OF CHANGES IN EQUITY
Group In Rs. ‘000 Attributable to equity holders of parent Attributable to equity holders of parent Stated Treasury Restricted Revaluation Foreign Available- Statutory Other Cash flow Revenue Total Non- Total capital shares regulatory reserve currency for-sale- reserve reserves hedge reserve controlling equity reserve translation reserve fund reserve interests reserves
As at 1 April 2016 5,089,000 (55,921) - 3,754,705 (38,314) (575,351) 190,324 (502,065) (106,710) 1,034,232 8,789,900 7,543,661 16,333,561 Prior year adjustment - note 49.2 ------(66,025) - - (564,553) (630,578) (171,558) (802,136) As at 1 April 2016 - restated 5,089,000 (55,921) - 3,754,705 (38,314) (575,351) 124,299 (502,065) (106,710) 469,679 8,159,322 7,372,103 15,531,425
Profit for the year ------119,613 119,613 800,771 920,384 Other comprehensive income - - - 875,606 (4,948) (175,214) - - (38,017) (25,671) 631,756 167,798 799,554 Other comprehensive income from discontinued operation - - - - - 32,063 - - - - 32,063 40,820 72,883 Total comprehensive income - - - 875,606 (4,948) (143,151) - - (38,017) 93,942 783,432 1,009,389 1,792,821
Direct cost on issue of shares/ repurchases ------(18,993) (18,993) (21,725) (40,718) Transfer to reserve fund ------50,723 - - (50,723) - - - Deferred tax reversal on depreciation impact of revaluation - - - (1,656) - - - - - 1,656 - - - Changes in ownership interest in subsidiaries ------10,830 - - 10,830 (258,971) (248,141) Disposal of subsidiary ------212,736 212,736 Dividend paid ------(387,204) (387,204) - (387,204) Subsidiary dividend to non-controlling interest ------(1,238,324) (1,238,324) As at 31 March 2017 - restated 5,089,000 (55,921) - 4,628,655 (43,262) (718,502) 175,022 (491,235) (144,727) 108,357 8,547,387 7,075,208 15,622,595
Profit for the year ------204,200 204,200 2,073,843 2,278,043 Other comprehensive income - - - 146,010 (3,063) 187,615 - - (34,239) (50,110) 246,213 302,533 548,746 Total comprehensive income - - - 146,010 (3,063) 187,615 - - (34,239) 154,090 450,413 2,376,376 2,826,789
Issue of shares 3,106,383 ------3,106,383 - 3,106,383 Transfer to reserve fund ------40,041 - - (40,041) - - - Transfer of one-off surplus - - 309,613 ------(309,613) - - - Acquisitions and disposals of treasury shares - 55,921 ------13,169 69,090 20,773 89,863 Acquisition of subsidiary ------11,211 11,211 Changes in ownership interest in subsidiaries ------(78,649) - - (78,649) 457,747 379,098 Dividend paid ------(503,365) (503,365) - (503,365) Subsidiary dividend to non-controlling interest ------(615,648) (615,648) As at 31 March 2018 8,195,383 - 309,613 4,774,665 (46,325) (530,887) 215,063 (569,884) (178,966) (577,403) 11,591,259 9,325,667 20,916,926
Company In Rs. ‘000 Stated Revenue Total capital reserve equity
As at 1 April 2016 5,089,000 1,373,222 6,462,222
Profit for the year - 1,025,416 1,025,416 Other comprehensive loss - (963) (963) Total comprehensive income - 1,024,453 1,024,453
Dividend paid - (389,500) (389,500) As at 31 March 2017 5,089,000 2,008,175 7,097,175
Profit for the year - 3,698,669 3,698,669 Other comprehensive loss - (7,358) (7,358) Total comprehensive income - 3,691,311 3,691,311
Issue of shares 3,106,383 - 3,106,383 Dividend paid - (506,350) (506,350) As at 31 March 2018 8,195,383 5,193,136 13,388,519 Figures in brackets indicate deduction The accounting policies and notes as set out in pages 142 to 243 form an integral part of these financial statements. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 139
Group In Rs. ‘000 Attributable to equity holders of parent Attributable to equity holders of parent Stated Treasury Restricted Revaluation Foreign Available- Statutory Other Cash flow Revenue Total Non- Total capital shares regulatory reserve currency for-sale- reserve reserves hedge reserve controlling equity reserve translation reserve fund reserve interests reserves
As at 1 April 2016 5,089,000 (55,921) - 3,754,705 (38,314) (575,351) 190,324 (502,065) (106,710) 1,034,232 8,789,900 7,543,661 16,333,561 Prior year adjustment - note 49.2 ------(66,025) - - (564,553) (630,578) (171,558) (802,136) As at 1 April 2016 - restated 5,089,000 (55,921) - 3,754,705 (38,314) (575,351) 124,299 (502,065) (106,710) 469,679 8,159,322 7,372,103 15,531,425
Profit for the year ------119,613 119,613 800,771 920,384 Other comprehensive income - - - 875,606 (4,948) (175,214) - - (38,017) (25,671) 631,756 167,798 799,554 Other comprehensive income from discontinued operation - - - - - 32,063 - - - - 32,063 40,820 72,883 Total comprehensive income - - - 875,606 (4,948) (143,151) - - (38,017) 93,942 783,432 1,009,389 1,792,821
Direct cost on issue of shares/ repurchases ------(18,993) (18,993) (21,725) (40,718) Transfer to reserve fund ------50,723 - - (50,723) - - - Deferred tax reversal on depreciation impact of revaluation - - - (1,656) - - - - - 1,656 - - - Changes in ownership interest in subsidiaries ------10,830 - - 10,830 (258,971) (248,141) Disposal of subsidiary ------212,736 212,736 Dividend paid ------(387,204) (387,204) - (387,204) Subsidiary dividend to non-controlling interest ------(1,238,324) (1,238,324) As at 31 March 2017 - restated 5,089,000 (55,921) - 4,628,655 (43,262) (718,502) 175,022 (491,235) (144,727) 108,357 8,547,387 7,075,208 15,622,595
Profit for the year ------204,200 204,200 2,073,843 2,278,043 Other comprehensive income - - - 146,010 (3,063) 187,615 - - (34,239) (50,110) 246,213 302,533 548,746 Total comprehensive income - - - 146,010 (3,063) 187,615 - - (34,239) 154,090 450,413 2,376,376 2,826,789
Issue of shares 3,106,383 ------3,106,383 - 3,106,383 Transfer to reserve fund ------40,041 - - (40,041) - - - Transfer of one-off surplus - - 309,613 ------(309,613) - - - Acquisitions and disposals of treasury shares - 55,921 ------13,169 69,090 20,773 89,863 Acquisition of subsidiary ------11,211 11,211 Changes in ownership interest in subsidiaries ------(78,649) - - (78,649) 457,747 379,098 Dividend paid ------(503,365) (503,365) - (503,365) Subsidiary dividend to non-controlling interest ------(615,648) (615,648) As at 31 March 2018 8,195,383 - 309,613 4,774,665 (46,325) (530,887) 215,063 (569,884) (178,966) (577,403) 11,591,259 9,325,667 20,916,926
Company In Rs. ‘000 Stated Revenue Total capital reserve equity
As at 1 April 2016 5,089,000 1,373,222 6,462,222
Profit for the year - 1,025,416 1,025,416 Other comprehensive loss - (963) (963) Total comprehensive income - 1,024,453 1,024,453
Dividend paid - (389,500) (389,500) As at 31 March 2017 5,089,000 2,008,175 7,097,175
Profit for the year - 3,698,669 3,698,669 Other comprehensive loss - (7,358) (7,358) Total comprehensive income - 3,691,311 3,691,311
Issue of shares 3,106,383 - 3,106,383 Dividend paid - (506,350) (506,350) As at 31 March 2018 8,195,383 5,193,136 13,388,519 Figures in brackets indicate deduction The accounting policies and notes as set out in pages 142 to 243 form an integral part of these financial statements. 140 SOFTLOGIC HOLDINGS PLC CASH FLOW STATEMENT
In Rs. Note Group Company For the year ended 31 March 2018 2017 2018 2017 Restated Cash flows from / (used in) operating activities Profit before tax from continuing operations 3,092,402 1,581,129 3,957,426 1,077,976 Loss before tax from discontinued operation - (109,594) - - 3,092,402 1,471,535 3,957,426 1,077,976 Adjustments for: Finance income 16 (1,103,805) (897,391) (1,122,857) (1,045,636) Dividend income 14 - - (893,013) (1,343,213) Finance cost 17 5,959,866 4,809,538 2,695,998 2,039,862 Change in fair value of investment property 24 (198,000) (354,120) (92,475) (62,176) Share of results of equity accounted investees 27.2 (19,787) (9,998) - - Gratuity provision and related cost 41 218,953 170,672 13,222 10,075 Provisions for / write-off of impaired receivables 252,445 343,542 64,000 452,288 Provisions for / write-off of inventories 31.1 108,930 293,705 - - Provisions for / write-off of impaired investments 26.3 - - 24,900 54,008 Provisions for / write-off of loans and advances 9.2.8.2 102,829 295,502 - - Provisions for / write-off of investments in lease and hire purchase 9.2.14.2 (18,091) 119,818 - - Depreciation of property, plant and equipment 22 2,284,583 1,711,638 36,039 28,899 Profit/ (loss) on sale of property, plant and equipment 15 (19,558) (19,155) (10,100) (4,578) Profit on sale of investments 15 (335,499) (40,016) (4,588,114) (1,112,456) Unrealised loss on foreign exchange 19,271 25,237 - - Amortisation / impairment of intangible assets 25 358,068 348,651 5,738 3,716 Amortisation of prepaid lease rentals 1,116 1,037 - - Increase in deferred income (7,483) 210,857 (36,036) (18,018) Impairment & derecognition of property, plant & equipment 18,705 17,442 - - Profit before working capital changes 10,714,945 8,498,494 54,728 80,747
(Increase) / decrease in inventories (2,255,849) (558,243) - - (Increase) / decrease in trade and other receivables (3,125,663) (1,122,215) 90,394 (279,252) (Increase) / decrease in loans and advances 1,092,599 (2,843,657) - - (Increase) / decrease in investments in lease and hire purchase (720,680) 368,007 - - (Increase) / decrease in other current assets (735,564) 110,310 120 13,306 (Increase) / decrease in amounts due from related parties (474) 474 (3,495,009) (866,778) Increase / (decrease) in trade and other payables 295,561 482,959 20,282 (7,229) Increase / (decrease) in amounts due to related parties (10,000) (29,774) (50,186) (202,742) Increase / (decrease) in other current liabilities (11,009) 416,808 12,872 194,166 Increase / (decrease) in public deposits 265,973 2,043,655 - - Increase / (decrease) in insurance contract liabilities 38.2 576,033 82,440 - - Cash generated from/ (used in) operations 6,085,872 7,449,258 (3,366,799) (1,067,782)
Finance income received 947,843 809,711 1,067,003 843,469 Finance expenses paid (5,899,483) (4,752,244) (2,689,213) (1,992,112) Dividend received 3,015 1,800 893,013 1,343,213 Tax paid (1,265,120) (1,088,653) (136,584) (16,134) Gratuity paid 41 (87,901) (88,754) (4,319) (5,551) Net cash flow from/ (used in) operating activities (215,774) 2,331,118 (4,236,899) (894,897) FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 141
In Rs. Note Group Company For the year ended 31 March 2018 2017 2018 2017 Restated Cash flows used in investing activities Purchase and construction of property, plant and equipment (4,510,011) (6,010,132) (49,384) (51,196) Addition to investment property 24 (3,300) - (2,140) (709) Addition to intangible assets 25 (256,485) (221,672) (2,377) (2,246) (Increase)/ decrease in other non-current assets (691,957) 564 - - (Purchase) / disposal of short term investments (net) (1,125,217) (1,601,966) 1,208 (2,500) Dividends received 68,279 99,943 - - (Purchase) / disposal of non-current financial assets 991,812 (387,387) (341,522) (1,021,043) Proceeds from disposal of controlling interest 794,836 - - 1,173,296 Increase in interest in subsidiaries (513,932) - (179,381) (1,650,323) Acquisition of business, net of cash acquired 8.1 (214,050) - - - Disposal of business, net of cash disposed 8.3.4 - 1,313,733 - - Proceeds from sale of treasury shares (net) 89,863 - - - Proceeds from sale of property, plant and equipment 59,385 154,864 16,241 17,308 Net cash flow used in investing activities (5,310,777) (6,652,053) (557,355) (1,537,413)
Cash flows from financing activities Proceeds from issue of shares 36 3,106,383 - 3,106,383 - Dividend paid to non-controlling interest (615,648) (959,115) - - Proceeds from long term borrowings 39 3,878,419 15,661,103 1,866,930 6,932,770 Repayment of long term borrowings (6,697,977) (8,551,820) (2,530,612) (2,825,297) (Increase) / decrease of controlling interest - (247,888) - - (Increase) / decrease in other non-current financial liabilities 84,339 116 - 21,200 Proceeds from / (repayment of) other current financial liabilities (net) 11,297,002 (2,819,029) 6,078,358 (2,279,196) Direct cost on issue of shares/ share repurchase - (40,718) - - Dividend paid to equity holders of parent (503,365) (387,204) (506,350) (389,500) Net cash flow from financing activities 10,549,153 2,655,445 8,014,709 1,459,977
Net increase / (decrease) in cash and cash equivalents 5,022,602 (1,665,490) 3,220,455 (972,333) Cash and cash equivalents at the beginning 866,428 2,531,998 (458,043) 514,290 Effect of exchange rate changes (70) (80) - - Cash and cash equivalents at the end 5,888,960 866,428 2,762,412 (458,043)
Analysis of cash and cash equivalents Favourable balances Cash in hand and at Bank 6,151,833 2,794,608 2,916,160 92,204 Short term investments 4,382,344 2,286,964 - - Unfavourable balances Bank overdrafts (4,645,217) (4,215,144) (153,748) (550,247) Cash and cash equivalents 5,888,960 866,428 2,762,412 (458,043)
Figures in brackets indicate deductions. The accounting policies and notes as set out in pages 142 to 243 form an integral part of these financial statements. 142 SOFTLOGIC HOLDINGS PLC NOTES TO THE FINANCIAL STATEMENTS
1 Corporate and group information healthcare services and management consultancy and financial advisory services. Reporting entity Softlogic Holdings PLC is a public limited liability company There were no significant changes in the nature of the principal incorporated and domiciled in Sri Lanka and listed on the Colombo activities of the Company and the Group during the financial year Stock Exchange. The registered office and principal place of under review other than the acquisition of Suzuki Motors Lanka Ltd business of the company is located at No. 14, De Fonseka Place, as explained in note 8.1. Colombo 5.
Softlogic Holdings PLC became the holding company of the group 3 Basis of preparation and other significant accounting during the financial year ended 31 March 2003. policies
Basis of preparation Consolidated financial statements The consolidated financial statements have been prepared on The financial statements for the year ended 31 March 2018, an accrual basis and under the historical cost convention except comprise “the Company” referring to Softlogic Holdings PLC as the for investment properties, land and buildings, fair valued through holding company and “the Group” referring to the companies that profit or loss financial assets, derivative financial instruments and have been consolidated therein. available-for-sale financial assets, which have been measured at fair value. Approval of financial statements Each material class of similar items is presented cumulatively in The financial statements for the year ended 31 March 2018 were the Financial Statements. Items of dissimilar nature or function are authorised for issue by the Board of Directors on 13 August 2018. presented separately unless they are immaterial as permitted by the Sri Lanka Accounting Standard - LKAS 1 ‘Presentation of Financial Responsibility for financial statements Statements’. The responsibility of the Board of Directors in relation to the financial statements is set out in the “Statement of Directors’ Presentation and functional currency Responsibilities” report in the Annual Report. The consolidated financial statements are presented in Sri Lanka Rupees (Rs.) the Group’s functional and presentation currency, Statement of compliance which is the currency of the primary economic environment in The financial statements which comprise the income statement, which the holding company operates. Each entity in the Group uses statement of comprehensive income, statement of financial this currency of the primary economic environment in which they position, statement of changes in equity and statement of cash operate as their functional currency except for entities incorporated flows, together with the accounting policies and notes (the outside Sri Lanka. “financial statements”) have been prepared in accordance with Sri Lanka Accounting Standards (herein referred to as SLFRS/LKAS) The following subsidiary uses a functional currency other than the issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Sri Lanka Rupee (Rs.). Lanka) and in compliance with the requirements of the Companies Act No. 7 of 2007. Name of the subsidiary Country of Functional currency incorporation
2 Principal activities and nature of operations Softlogic Australia (Pty) Ltd Australia Australian Dollar (AUD)
Holding Company Comparative information Softlogic Holdings PLC, the Group’s holding company, provides The presentation and classification of the financial statements of management services and warehouse management facilities the previous years have been amended, where relevant for better to Group companies, facilitates funding requirements of these presentation and to be comparable with the statements of the companies and provides other value added services. current year except for the note 49 to the financial statements.
Subsidiaries and associates 4 Summary of significant accounting policies The business activities of other companies within the Group cover A summary of significant accounting policies has been disclosed information & communication technology products and services, along with relevant individual notes in the subsequent pages. automobile sales and after sales services, consumer electronic retailing, garment manufacturing & fashion retailing, hoteliering, The accounting policies presented with each note, have been quick service restaurant operations, development of apartments, applied consistently by the Group. financial services, life insurance services, stock brokering services, FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 143
Other significant accounting policies not covered with individual Foreign operations notes The statement of financial position and income statement of overseas subsidiaries and associates deemed to be foreign The following accounting policies, which have been applied operations are translated to Sri Lanka Rupees (Rs.) at the rate of consistently by the Group, are considered significant and are not exchange prevailing as at the reporting date and at the average covered in any other sections. annual rate of exchange for the period respectively.
Current versus non-current classification The exchange differences arising on the translation are taken directly to the statement of other comprehensive income. On disposal of The Group presents assets and liabilities in the statement of financial a foreign entity, the deferred cumulative amount recognised in the position based on a current/ non-current classification. statement of other comprehensive income relating to that particular An asset is current when it is: foreign operation is recognised in the income statement. »» expected to be realised or intended to be sold or consumed in the normal operating cycle, The Group treated goodwill and any fair value adjustments to the carrying amounts of assets and liabilities arising on acquisition »» held primarily for the purpose of trading, as assets and liabilities of the parent. Therefore, those assets »» expected to be realised within twelve months from the reporting and liabilities are non-monetary items already expressed in date, or the functional currency of the parent and no further translation »» a cash or cash equivalent unless restricted from exchange or use to differences occur. settle a liability for at least twelve months after the reporting date. The exchange rates applicable during the period were as follows: All other assets are classified as non-current.
A liability is current when it is: Statement of financial Income statement »» expected to be settled in the normal operating cycle, position 31-03-2018 31-03-2018 »» incurred primarily for the purpose of trading, Australian Dollar 119.36 118.68 »» due to be settled within twelve months after the reporting date, Pakistan Rupee 1.35 1.44 and »» not affected by any unconditional right to defer settlement for at 6 Summary of significant accounting judgements, least twelve months after the reporting date. estimates and assumptions The Group classifies all other liabilities as non-current. In preparing these financial statements of the Group/ Company, the management has made judgements, estimates and assumptions Deferred tax assets and liabilities are classified as non-current assets that affect the application of the Group’s accounting policies and and liabilities. the reported amounts of assets, liabilities, income, expenses and the disclosure of contingent liabilities. Judgements and 5 Foreign currency translation, foreign currency estimates are based on historical experience and other factors, transactions and balances including expectations that are believed to be reasonable under The consolidated financial statements are presented in Sri Lanka the circumstances. Hence, actual results may differ from these Rupees (Rs.), which is the holding company’s functional and judgements and estimates. Estimates and underlying assumptions presentation currency. This functional currency is the currency of the are reviewed on an ongoing basis and revisions to accounting primary economic environment in which virtually all the entities of estimates are recognised prospectively. the Group operate. All foreign exchange transactions are converted to the functional currency, at the rates of exchange prevailing at the The management considered the following items, where significant time the transactions are effected. Monetary assets and liabilities judgements, estimates and assumptions have been used in denominated in foreign currency are retranslated to functional preparing these Financial Statements. currency equivalents at the spot exchange rate prevailing at the reporting date. Going concern The Directors have assessed, and are confident that the Company Non-monetary items measured in terms of historical cost in a will be able to continue in operation for the foreseeable future. In foreign currency are translated using the exchange rates as at the addition, the Directors are not aware of any material uncertainties dates of the initial transactions. The gain or loss arising on non- that may cast significant doubt upon the Group’s/ Company’s monetary items subsequently valued at fair value is in keeping with ability to continue as a going concern. Accordingly, these financial the recognition of gains or losses on other fair valued items. statements have been prepared on a going concern basis. 144 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
Significant areas of critical judgements, assumptions and estimation uncertainties in applying accounting policies that have significant effects on the amounts recognised in the financial statements of the Group are detailed in the following notes.
Note Note Valuation of property, plant & equipment 22 Valuation of insurance contract liabilities 38 Valuation of investment property 24 Provisions and contingent liabilities 50 Valuation of intangible assets 25 Valuation of financial liabilities at fair value 11.1 Deferred taxation and taxes 19 through profit or loss Employee benefit liability 41 Valuation of derivative financial instruments 11.2
7 Basis of consolidation and material partly owned subsidiaries
Accounting policy
Basis of consolidation Transactions eliminated on consolidation The consolidated financial statements comprise the financial All intra-group assets, liabilities, equity, income, expenses and cash statements of the Company and its subsidiaries as at 31 March flows relating to transactions between members of the Group are 2018. The financial statements of the subsidiaries are prepared in eliminated in full on consolidation. compliance with the Group’s accounting policies unless otherwise stated. Control over an investee is achieved when the Group is A change in the ownership interest of a subsidiary, without a loss of exposed or has rights to variable returns from its involvement with control, is accounted for as an equity transaction. the investee and when it has the ability to affect those returns through its power over the investee. Loss of control If the Group loses control over a subsidiary, it derecognises the Control over an investee related assets (including goodwill), liabilities, non-controlling interest Specifically, the Group controls an investee if, and only if, the Group and other components of equity while any resultant gain or loss has: is recognised in the income statement. Any investment retained is »» power over the investee (i.e., existing rights that give it the recognised at fair value. current ability to direct the relevant activities of the investee) The total profits and losses for the year of the Company and of its »» exposure, or rights, to variable returns from its involvement subsidiaries included in consolidation are shown in the consolidated with the investee income statement and consolidated statement of comprehensive »» the ability to use its power over the investee to affect its income and all assets and liabilities of the Company and of its returns subsidiaries included in consolidation are shown in the consolidated statement of financial position. Subsidiaries that are consolidated have been listed in note 26.
Consolidation of a subsidiary begins when the Group obtains Non-controlling interest (NCI) control over the subsidiary and ceases when the Group loses Non-controlling interests, which represents the portion of profit control of the subsidiary. Assets, liabilities, income and expenses of or loss and net assets not held by the Group, are shown as a a subsidiary acquired or disposed during the year are included in component of profit for the year in the consolidated income the consolidated financial statements from the date the Group gains statement and statement of comprehensive income and as a control until the date the Group ceases to control the subsidiary. component of equity in the consolidated statement of financial position separately from equity attributable to the shareholders of Profit or loss and each component of other comprehensive income the parent. (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. The financial statements of the subsidiaries are prepared for the same reporting period as the parent Company, which is 12 months ending 31 March, using consistent accounting policies unless otherwise stated. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 145
7.1 Names and financial information of material partly-owned subsidiaries Financial information of subsidiaries that have material non-controlling interests (NCI) are provided below:
In Rs. ‘000 Financial Services Softlogic Finance PLC Softlogic Life Insurance PLC 2018 2017 2018 2017 Restated Summarised income statement for the year ended 31 March Revenue 3,523,556 3,431,752 7,368,671 5,187,860 Other income 520,504 746,956 220,192 216,136 Operating expenses (3,825,851) (3,865,030) (5,839,732) (4,749,228) Change in insurance contract liabilities - - (1,374,037) (82,440) Change in contract liability due to transfer of one off surplus - - 798,004 - Finance income - - 920,684 633,668 Finance expenses (25,130) (30,075) (36,597) (20,268) Profit before tax 193,079 283,603 2,057,185 1,185,728 Tax expense 25,686 (39,268) 420,000 - Profit for the year 218,765 244,335 2,477,185 1,185,728 Other comprehensive income/ (loss) 7,955 15,197 531,236 (297,664) Total comprehensive income 226,720 259,532 3,008,421 888,064
Profit attributable to material NCI 98,594 112,266 1,385,901 664,091
Dividend paid to NCI 46,066 35,595 - 566,268
Summarised statement of financial position as at 31 March Current assets 16,952,387 18,203,516 5,405,635 2,909,236 Non-current assets 4,727,829 3,502,466 7,673,327 7,376,665 Total assets 21,680,216 21,705,982 13,078,962 10,285,901
Current liabilities 14,737,286 15,275,268 950,498 1,790,643 Non-current liabilities 4,662,481 4,589,172 7,627,621 7,002,850 Total liabilities 19,399,767 19,864,440 8,578,119 8,793,493
Accumulated balance of material NCI 1,234,636 879,554 2,754,588 835,854
Summarised cash flow information for the year ended 31 March Cash flows from operating activities 1,037,305 847,337 2,187,602 1,508,007 Cash flows used in investing activities (41,901) (107,166) (1,437,767) (402,333) Cash flows used in financing activities (649,680) (643,431) (160,000) (1,121,917) Net increase/ (decrease) in cash and cash equivalents 345,724 96,740 589,835 (16,243) 146 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
In Rs. '000 Healthcare Service Asiri Hospital Holdings PLC Asiri Surgical Hospital PLC Central Hospitals Ltd 2018 2017 2018 2017 2018 2017 Summarised income statement for the year ended 31 March Revenue 3,731,903 3,239,834 3,275,349 2,884,316 4,494,980 3,842,135 Other income 1,397,120 1,048,907 238,151 30,006 33,021 28,578 Operating expenses (2,691,510) (2,263,469) (2,809,477) (2,645,716) (3,647,239) (3,225,415) Finance income 42,164 18,495 93,759 114,181 11,650 7,589 Finance expenses (921,127) (803,986) (45,472) (52,337) (218,431) (244,360) Profit before tax 1,558,550 1,239,781 752,310 330,450 673,981 408,527 Tax expense (300,414) (57,781) (205,707) (67,660) (1,605) 115,888 Profit for the year 1,258,136 1,182,000 546,603 262,790 672,376 524,415 Other comprehensive income/ (loss) (26,387) 264,193 (167,921) 126,928 196,060 308,848 Total comprehensive income 1,231,749 1,446,193 378,682 389,718 868,436 833,263
Profit attributable to material NCI 226,680 128,052 317,654 164,734 317,447 259,582
Dividend paid to NCI 333,783 252,987 268,910 248,550 158,283 264,184
Summarised statement of financial position as at 31 March Current assets 1,638,754 1,286,611 803,837 610,394 691,093 583,640 Non-current assets 15,847,487 14,326,498 4,095,292 4,039,161 6,865,180 6,745,693 Total assets 17,486,241 15,613,109 4,899,129 4,649,555 7,556,273 7,329,333
Current liabilities 5,992,404 4,348,986 421,692 363,631 738,854 909,538 Non-current liabilities 3,964,887 4,284,402 909,685 638,905 1,581,727 1,730,827 Total liabilities 9,957,291 8,633,388 1,331,377 1,002,536 2,320,581 2,640,365
Accumulated balance of material NCI 3,675,293 3,445,253 2,136,293 2,286,199 2,563,156 2,321,009
Summarised cash flow information for the year ended 31 March Cash flows from operating activities 35,775 440,938 884,135 556,415 1,167,037 663,241 Cash flows from/ (used in) investing activities 139,380 375,320 (119,506) (104,274) (247,126) (145,312) Cash flows from used in financing activities (1,003,319) (533,794) (517,197) (446,208) (570,606) (759,650) Net increase/ (decrease) in cash and cash equivalents (828,164) 282,464 247,432 5,933 349,305 (241,721)
The above information is based on amounts before intercompany eliminations. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 147
8 Business combinations and acquisition of non-controlling interest
Accounting policy
Business combinations & goodwill benefit from the combination, irrespective of whether other assets Business combinations are accounted for using the acquisition or liabilities of the acquiree are assigned to those units. method of accounting. The Group measures goodwill at the acquisition date as the fair value of the consideration transferred Impairment is determined by assessing the recoverable amount of including the recognised amount of any non-controlling interests the cash-generating unit to which the goodwill relates. Where the in the acquiree, less the net recognised amount (generally fair recoverable amount of the cash generating unit is less than the value) of the identifiable assets acquired and liabilities assumed, all carrying amount, an impairment loss is recognised. The impairment measured as of the acquisition date. loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets pro- rata to the When the fair value of the consideration transferred including carrying amount of each asset in the unit. the recognised amount of any non-controlling interests in the acquiree is lower than the fair value of net assets acquired, a gain is Goodwill and fair value adjustments arising on the acquisition of a recognised immediately in the income statement. foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. The Group elects on a transaction by transaction basis whether to measure non-controlling interests at fair value, or at their Where goodwill forms part of a cash generating unit and part of the proportionate share of the recognised amount of the identifiable net operation within that unit is disposed of, the goodwill associated assets, at the acquisition date. Transaction costs, other than those with the operation disposed of is included in the carrying amount of associated with the issue of debt or equity securities, that the Group the operation when determining the gain or loss on disposal of the incurs in connection with a business combination are expensed as operation. Goodwill disposed of in this circumstance is measured incurred. based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation Impairment of goodwill in accordance with the contractual terms, economic circumstances Goodwill is tested for impairment annually (as at 31 March) and pertinent conditions as at the acquisition date. and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the If the business combination is achieved in stages, the acquisition recoverable amount of each cash-generating unit (or group of date fair value of the acquirer’s previously held equity interest in the cash-generating units) to which the goodwill relates. Where the acquiree is re measured to fair value at the acquisition date through recoverable amount of the cash generating unit is less than their the income statement. carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration which is deemed to be an asset or liability, which is a financial instrument and within the scope of LKAS 39, is measured at fair value with changes in fair value either in the income statement or as a change to the statement of other comprehensive income. If the contingent consideration is classified as equity, it will not be remeasured. Subsequent settlement is accounted for within equity. In instances where the contingent consideration does not fall within the scope of LKAS 39, it is measured in accordance with the appropriate SLFRS/LKAS.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if the events or changes in the circumstances indicate that the carrying value may be impaired.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units that are expected to 148 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
8.1 Obtaining control of subsidiaries In July 2017, Softlogic Retail (Pvt) Ltd, a subsidiary of Softlogic Holdings PLC acquired 66.51% ordinary shares of Suzuki Motors Lanka Ltd and it became a subsidiary of the Group.
In Rs. '000 Note For the year ended 31 March 2018 Property, plant & equipment 22.1 106,629 Lease rentals paid in advance 23 3,884 Non-current financial assets 26,655 Inventories 123,655 Trade and other receivables 89,482 Other financial assets 30,552 Income tax refund 19.1.4 7,309 Cash in hand and at bank 19,514
Retirement benefit liability 41 (5,803) Other non-current financial liabilities (9,313) Interest bearing borrowings 39 (10,975) Other current financial liabilities (254,265) Other current liabilities (25,229) Bank overdrafts (68,562) Net identifiable assets 33,533 Non-controlling interest holding 353 Intangible recognised on acquisition 25 142,680 176,566 Investment by Non-controlling interest (11,564) 165,002
Total purchase price paid Cash consideration 165,002 Cash at bank and in hand acquired 49,048 214,050
8.2 Gain on share restructure transaction - Softlogic Holdings PLC In March 2018, Softlogic Holdings PLC transferred its ownership in Softlogic Communication Services (Pvt) Ltd, Softlogic Mobile Distribution (Pvt) Ltd, Softlogic International (Pvt) Ltd and Softlogic Retail (Pvt) Ltd to Softlogic Retail Holdings (Pvt) Ltd, which is a fully owned subsidiary of Softlogic Holdings PLC.
The company management performed valuations of each entity transferred to Softlogic Retail Holdings (Pvt) Ltd, reviewed the same by an independent party and the gains resulting from these transactions have been accounted for as ‘Other Operating Income’ of the company..
For the year ended 31 March 2018 2017 In Rs. ‘000 Transaction Gain Transaction Gain value value Shares disposed/ brought back from Softlogic Communication Services (Pvt) Ltd 1 - - - Softlogic Communications (Pvt) Ltd - - 69,064 63,086 Softlogic Information Technologies (Pvt) Ltd - - 411,402 399,841 Softlogic International (Pvt) Ltd 456,749 450,050 692,831 649,529 Softlogic Mobile Distribution (Pvt) Ltd 1,633,500 1,623,500 - - Softlogic Retail (Pvt) Ltd 4,181,143 2,514,564 - - 4,588,114 1,112,456 FINANCIAL STATEMENTS
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The key assumptions used in valuing each entity transferred to Softlogic Retail Holdings (Pvt) Ltd are given below.
Business growth - volume growth has been budgeted on a Discount rate - the discounting rate used is the risk free rate reasonable and realistic basis by taking into increased by an appropriate risk premium. account the growth rates of one to five years immediately subsequent to the budgeted Margin - budgeted gross margins are the gross margins year, based on industry growth rates. achieved in the year preceding, adjusted for Cash flows beyond a five year period are projected market conditions and business extrapolated using zero growth rate. plans.
Inflation - budgeted cost inflation is the inflation rate, based on projected economic conditions.
8.3 Disposal of subsidiaries The directors of Softlogic Life Insurance PLC, a subsidiary of Softlogic Holdings PLC announced that on 24 June 2016, the company entered into a “Share Sales and Purchase Agreement” for the sale of its entire stake in Asian Alliance General Insurance Ltd to Fairfax Asia Ltd or another nominated member of the Fairfax Group.
The said transaction was completed on 03 October 2016 and Softlogic Life Insurance PLC divested its 100% stake in Asian Alliance General Insurance Ltd to Fairfax Asia Ltd.
The “General Insurance” business segment was not previously classified as a “discontinued operation”. The comparative “Statement of Income” and “Statement of Comprehensive Income” have been restated to reflect the impact of the discontinuation of a significant business segment (the General Insurance business).
The disclosures relating to reclassification of a significant business segment (i.e. General Insurance business) as required by SLFRS - 5 “Non- Current Assets Held-for-Sale and Discontinued Operations” are as follows.
8.3.1 Summarised income statement of discontinued operation In Rs. '000 For the year ended 31 March 2017 Revenue 959,713 Cost of sales (870,198) Gross profit 89,515 Other operating income 32,372 Operating expenses (302,610) Net finance cost 71,129 Loss before tax (109,594) Tax expense (1,417) Loss for the period from discontinued operation (111,011)
Profit on disposal of discontinued operation 256,328 Profit for the period from discontinued operation 145,317
Considering the nature of the transaction and the presentation of the financial statements of the Group, the gain on disposal has been reported separately under the result of “Discontinued Operation”. 150 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
8.3.2 Summarised other comprehensive income statement of discontinued operation In Rs. '000 For the year ended 31 March 2017 Net gain on available-for-sale financial assets 95,489 Tax on other comprehensive income (22,606) Net other comprehensive income for the period from discontinued operation 72,883
8.3.3 Summarised cash flow statement of discontinued operation In Rs. '000 For the year ended 31 March 2017 Net cash flow from operating activities 267,963 Net cash flow used in investing activities (430,615) Net cash flow from financing activities 300,000 Net increase in cash and cash equivalents 137,348 Cash and cash equivalents at the beginning (118,828) Cash and cash equivalents at the end in discontinued operation 18,520
8.3.4 Impact on Group’s assets and liabilities In Rs. '000 Note For the year ended 31 March 2017 Total non-current assets 244,924 Total current assets 2,720,404 Total non-current liabilities (18,127) Total current liabilities (1,926,867) Net identifiable assets and liabilities 1,020,334
Share of net assets disposed 448,614
Non-controlling interest investment reversal 784,457 Gain on disposal of discontinued operation 8.3.1 256,328 Cash consideration to be received on disposal of discontinued operation (157,146) Cash consideration received on disposal of discontinued operation 1,332,253 Net cash and cash in hand disposed 8.3.3 (18,520) Net cash outflow on disposal of discontinued operation 1,313,733
9 Financial risk management objectives and policies The Group’s principal financial liabilities consist of public deposits, borrowings, trade & other payables, and financial guarantee contracts. The main purpose of these financial liabilities is to finance the Group’s operations. The Group’s financial assets comprise loans and advances, rental receivable on lease assets & hire purchase, trade & other receivables, cash and short-term deposits that flow directly from its operations. The Group also holds other financial instruments such as investments in equity instruments. The Group is exposed to market risk including currency risk, interest rate risk and price risk, credit risk and liquidity risk. The Group’s overall risk management programme seeks to minimise potential adverse effects on the Group’s financial and non-financial performance.
Risk management framework The Board of Directors of Softlogic Holdings PLC and its Group companies have overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies are established to identify, assess and take action on the risks faced by the Group, within their risk appetite. Risk management policies and systems are reviewed to reflect changes in market conditions and the Group’s activities. The Group FINANCIAL STATEMENTS
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through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees clearly understand their roles and obligations. Oversight is assisted by the Group’s Risk Management Department and cluster risk units.
Internal Audit undertakes reviews of risk management practices. The results are reported to the Audit Committee.
9.1 Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will adversely deviate because of changes in market movements. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include: borrowings, trade payables, short term investments and available-for-sale investments.
9.1.1 Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to changes in market interest rates relates significantly to the Group’s long-term debt obligations.
9.1.1.1 Exposure to interest rate risk The interest rate profile of the Group’s interest bearing financial instruments is as follows: In Rs. ‘000 Group Company Nominal amount Nominal amount As at 31 March 2018 2017 2018 2017 Restated Fixed rate instrument Financial assets 35,550,268 30,123,813 2,916,160 94,704 Financial liabilities (17,653,822) (17,831,552) (44,700) (73,650) 17,896,446 12,292,261 2,871,460 21,054
Variable rate instruments Financial assets - - 7,896,628 6,070,979 Financial liabilities (59,860,389) (50,449,403) (21,818,542) (16,014,592) (59,860,389) (50,449,403) (13,921,914) (9,943,613)
9.1.1.2 Interest rate sensitivity The following table demonstrates sensitivity to a reasonably possible change in interest rates on loans and borrowings that may be affected. Provided all other variables are held constant, the Group’s profit before tax can be affected by changes on floating rate borrowings, as follows:
In Rs. ‘000 Increase in basis points Effect on profit before tax Rupee Other Group Company borrowings currencies 2018 +100b.p +25b.p (473,606) (156,116) -100b.p -25b.p 473,606 156,116 2017 +150b.p +25b.p (636,590) (240,219) -150b.p -25b.p 636,590 240,219
The spread of interest rates used in the sensitivity analysis is based on the currently observable market environment. 152 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
9.1.2 Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of adverse fluctuations in foreign exchange rates. The Group’s exposure to the risk of fluctuations in foreign exchange rates relates primarily to the Group’s operating activities and foreign currency borrowings. Management requires the company and its subsidiaries to manage their foreign exchange risk appropriately.
9.1.2.1 Foreign currency sensitivity The following table demonstrates the sensitivity to possible changes in the USD/Rs exchange rate, provided all other variables are held constant. The Group’s exposure to foreign currencies other than USD is not material. In Rs. ‘000 Increase in Effect on profit Effect on exchange rate before tax equity USD 2018 +4% (130,692) (196,504) -4% 130,692 196,504 2017 +5% (280,974) (57,458) -5% 280,974 57,458
The Group manages its foreign currency risk using a balanced approach involving forward contracts on exposures expected to occur within a maximum 24 month period. Where hedging is not economical, it is the Group’s policy to negotiate with counterparties or banks to obtain more advantageous positions for the Group.
9.1.2.2 Foreign exchange risk in operating activities The exposure is mainly from foreign currency obligations arising from operating activities where fluctuations of foreign exchange rates may occur during a credit period of 3 - 6 months.
9.1.3 Equity price risk
9.1.3.1 Listed equity investments The Group holds listed equity securities which are susceptible to market-price risk arising from uncertainties about future values of these securities. The Group manages the equity price risk through diversification and by placing limits on individual and total equity instruments. Periodic reports on equity investment portfolios are submitted to the senior management of individual business segments. The respective Boards of Directors review and approve all equity investment decisions.
Group Financial assets at fair value through profit or loss Available-for-sale investments 2018 2017 2018 2017 Rs. '000 % Rs. '000 % Rs. '000 % Rs. '000 % Bank, finance and insurance 294,524 47.58 222,335 37.37 1,651,953 100.00 1,637,446 99.91 Beverage, food and tobacco - - 1,404 0.24 - - - - Diversified holdings 169,549 27.39 208,004 34.96 - - 1,426 0.09 Healthcare 3,780 0.61 3,874 0.65 - - - - Hotels and travels 13 - 15 - - - - - Manufacturing 125,453 20.27 95,144 15.99 17 - 17 - Power and energy 25,705 4.15 11,103 1.87 - - - - Telecommunications - 53,140 8.92 - - - - 619,024 100.00 595,017 100.00 1,651,970 100.00 1,638,889 100.00 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 153
Company Financial assets at fair value through profit or loss 2018 2017 Rs. '000 % Rs. '000 % Bank, finance and insurance 6,871 0.43 4,903 0.32 Footwear and textiles 1,585,903 99.45 1,530,794 99.56 Power and energy 1,902 0.12 1,833 0.12 1,594,676 100.00 1,537,530 100.00
9.1.3.2 Unquoted equity investments Investments in unquoted equity investments are made with the relevant Board’s approval.
9.1.3.3 Sensitivity analysis The following table demonstrates the sensitivity of aggregate fair value to reasonably possible changes in equity prices provided all other variables are held constant.
Group Company In Rs. ‘000 Change in Effect Effect on Effect Effect on equity price on profit equity on profit equity before tax before tax 2018 Quoted equity investments listed on the Colombo Stock Exchange +7% 43,332 115,638 111,627 Nil -7% (43,332) (115,638) (111,627) Nil 2017 Quoted equity investments listed on the Colombo Stock Exchange +10% 59,502 163,889 153,753 Nil -10% (59,502) (163,889) (153,753) Nil
9.2 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 Group is exposed to credit risk from its operating activities (primarily on trade receivables and customer lending) and from its investing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. The Group trades only with recognised, creditworthy third parties. It is the Group’s policy that all clients who wish to trade on credit terms are subject to credit evaluation. In addition, receivable balances are monitored, so that the Group’s exposure to bad debts is addressed appropriately. Hire purchase and lease portfolios are broad based, accounting for 144,033 (2017 - 147,435 customers) contracts, and the risk of non- payment is mitigated by credit approval processes. There is no concentration risk on any single region, customer or sector in particular; from customers are robust, with delinquency rates better than the financial industry average. With respect to credit risk arising from other financial assets of the Group, such as cash and cash equivalents, available-for-sale financial investments and short term investments, the Group’s exposure arises from default of the counterparty. The Group avoids any excessive concentration of counterparty risk.
9.2.1 Credit Risk - Default risk Default risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur financial loss. It arises from lending, trade finance and treasury and other activities undertaken by the Group. The Group has in place standards, policies and procedures for the control and monitoring of such risks.
9.2.2 Credit Risk - Concentration risk The Group seeks to manage its credit concentration risk exposure through diversification of its lending, investing and financing activities to avoid undue concentrations of risks with individuals or groups of customers in specific businesses. It also obtains security when appropriate. The types of collateral obtained include cash margins, mortgages over properties and pledges over equity instruments. The prospect of an impairment is analysed at each reporting date on an individual basis for major clients. Less significant receivables are grouped into homogeneous groups and assessed for impairment collectively. The calculation is based on actual historical data. 154 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
9.2.3 Risk exposure The tables below show the maximum exposure to credit risk for the various components, shown gross before the effect of mitigation through the use of collateral arrangements.
Risk Exposure - Group In Rs. '000 Note Non-current Loans and Rental receivable Cash in hand and Trade and other Short term Amounts due from Total % of allocation financial advances on leased assets & at bank receivables investments related parties As at 31 March 2018 assets hire purchases Government securities 9.2.4 3,171,984 - - 950,000 - 3,065,527 - 7,187,511 15.14 Corporate debt securities 9.2.5 1,612,624 - - - - 493,048 - 2,105,672 4.44 Deposits with banks and Unit Trusts 9.2.6 20,418 - - - - 2,818,009 - 2,838,427 5.98 Loans to executives 9.2.7 3,790 - - - 34,029 - - 37,819 0.08 Loans and advances 9.2.8 - 15,811,256 - - - - - 15,811,256 33.30 Policyholders loans 9.2.9 - 148,722 - - - - - 148,722 0.31 Trade receivables 9.2.10 773,040 - - - 9,238,284 - - 10,011,324 21.09 Other receivables 9.2.11 - - - - 2,441,266 - - 2,441,266 5.14 Reinsurance receivables 9.2.12 - - - - 124,551 - - 124,551 0.26 Amounts due from related parties 9.2.13 ------807 807 - Rental receivable on leased assets & hire purchase 9.2.14 - 1,566,536 - - - - 1,566,536 3.30 Cash in hand and at bank 9.2.15 - - - 5,201,833 - - - 5,201,833 10.96 Total credit risk exposure 5,581,856 15,959,978 1,566,536 6,151,833 11,838,130 6,376,584 807 47,475,724 100.00
Financial assets at fair value through profit or loss 9.1.3.1 - - - - - 619,024 - 619,024 21.60 Available-for-sale investments 9.1.3.1 2,121,187 - - - - 125,000 - 2,246,187 78.40 Total equity risk exposure 2,121,187 - - - - 744,024 - 2,865,211 100.00 Total 7,703,043 15,959,978 1,566,536 6,151,833 11,838,130 7,120,608 807 50,340,935
Risk Exposure - Group In Rs. '000 Note Non-current Loans and Rental receivable Cash in hand and Trade and other Short term Amounts due from Total % of allocation financial advances on leased assets & at bank receivables investments related parties assets hire purchases As at 31 March 2017 Restated Restated Restated Restated Government securities 9.2.4 3,606,575 - - - - 2,418,822 - 6,025,397 15.53 Corporate debt securities 9.2.5 1,557,368 - - - - 161,502 - 1,718,870 4.43 Deposits with banks and Unit Trusts 9.2.6 31 - - - - 495,915 - 495,946 1.28 Loans to executives 9.2.7 8,342 - - - 16,571 - - 24,913 0.06 Loans and advances 9.2.8 - 17,010,492 - - - - - 17,010,492 43.85 Policyholders loans 9.2.9 - 144,914 - - - - - 144,914 0.37 Trade receivables 9.2.10 331,434 - - - 7,796,272 - - 8,127,706 20.95 Other receivables 9.2.11 - - - - 1,313,496 - - 1,313,496 3.39 Reinsurance receivables 9.2.12 - - - - 190,698 - - 190,698 0.49 Amounts due from related parties 9.2.13 ------333 333 - Rental receivable on leased assets & hire purchase 9.2.14 - - 949,317 - - - - 949,317 2.45 Cash in hand and at bank 9.2.15 - - - 2,794,608 - - - 2,794,608 7.20 Total credit risk exposure 5,503,750 17,155,406 949,317 2,794,608 9,317,037 3,076,239 333 38,796,690 100.00
Financial assets at fair value through profit or loss 9.1.3.1 - - - - - 595,017 - 595,017 21.04 Available-for-sale investments 9.1.3.1 2,108,106 - - - - 125,000 - 2,233,106 78.96 Total equity risk exposure 2,108,106 - - - - 720,017 - 2,828,123 100.00 Total 7,611,856 17,155,406 949,317 2,794,608 9,317,037 3,796,256 333 41,624,813 FINANCIAL STATEMENTS
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Risk Exposure - Group In Rs. '000 Note Non-current Loans and Rental receivable Cash in hand and Trade and other Short term Amounts due from Total % of allocation financial advances on leased assets & at bank receivables investments related parties As at 31 March 2018 assets hire purchases Government securities 9.2.4 3,171,984 - - 950,000 - 3,065,527 - 7,187,511 15.14 Corporate debt securities 9.2.5 1,612,624 - - - - 493,048 - 2,105,672 4.44 Deposits with banks and Unit Trusts 9.2.6 20,418 - - - - 2,818,009 - 2,838,427 5.98 Loans to executives 9.2.7 3,790 - - - 34,029 - - 37,819 0.08 Loans and advances 9.2.8 - 15,811,256 - - - - - 15,811,256 33.30 Policyholders loans 9.2.9 - 148,722 - - - - - 148,722 0.31 Trade receivables 9.2.10 773,040 - - - 9,238,284 - - 10,011,324 21.09 Other receivables 9.2.11 - - - - 2,441,266 - - 2,441,266 5.14 Reinsurance receivables 9.2.12 - - - - 124,551 - - 124,551 0.26 Amounts due from related parties 9.2.13 ------807 807 - Rental receivable on leased assets & hire purchase 9.2.14 - 1,566,536 - - - - 1,566,536 3.30 Cash in hand and at bank 9.2.15 - - - 5,201,833 - - - 5,201,833 10.96 Total credit risk exposure 5,581,856 15,959,978 1,566,536 6,151,833 11,838,130 6,376,584 807 47,475,724 100.00
Financial assets at fair value through profit or loss 9.1.3.1 - - - - - 619,024 - 619,024 21.60 Available-for-sale investments 9.1.3.1 2,121,187 - - - - 125,000 - 2,246,187 78.40 Total equity risk exposure 2,121,187 - - - - 744,024 - 2,865,211 100.00 Total 7,703,043 15,959,978 1,566,536 6,151,833 11,838,130 7,120,608 807 50,340,935
Risk Exposure - Group In Rs. '000 Note Non-current Loans and Rental receivable Cash in hand and Trade and other Short term Amounts due from Total % of allocation financial advances on leased assets & at bank receivables investments related parties assets hire purchases As at 31 March 2017 Restated Restated Restated Restated Government securities 9.2.4 3,606,575 - - - - 2,418,822 - 6,025,397 15.53 Corporate debt securities 9.2.5 1,557,368 - - - - 161,502 - 1,718,870 4.43 Deposits with banks and Unit Trusts 9.2.6 31 - - - - 495,915 - 495,946 1.28 Loans to executives 9.2.7 8,342 - - - 16,571 - - 24,913 0.06 Loans and advances 9.2.8 - 17,010,492 - - - - - 17,010,492 43.85 Policyholders loans 9.2.9 - 144,914 - - - - - 144,914 0.37 Trade receivables 9.2.10 331,434 - - - 7,796,272 - - 8,127,706 20.95 Other receivables 9.2.11 - - - - 1,313,496 - - 1,313,496 3.39 Reinsurance receivables 9.2.12 - - - - 190,698 - - 190,698 0.49 Amounts due from related parties 9.2.13 ------333 333 - Rental receivable on leased assets & hire purchase 9.2.14 - - 949,317 - - - - 949,317 2.45 Cash in hand and at bank 9.2.15 - - - 2,794,608 - - - 2,794,608 7.20 Total credit risk exposure 5,503,750 17,155,406 949,317 2,794,608 9,317,037 3,076,239 333 38,796,690 100.00
Financial assets at fair value through profit or loss 9.1.3.1 - - - - - 595,017 - 595,017 21.04 Available-for-sale investments 9.1.3.1 2,108,106 - - - - 125,000 - 2,233,106 78.96 Total equity risk exposure 2,108,106 - - - - 720,017 - 2,828,123 100.00 Total 7,611,856 17,155,406 949,317 2,794,608 9,317,037 3,796,256 333 41,624,813 156 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
Risk Exposure - Company In Rs. '000 Note Non- Cash in Trade Short term Amounts Total % of current hand and at and other investments due from allocation As at 31 March 2018 financial banks receivable related assets parties Government securities 9.2.5 - 950,000 - - - 950,000 7.48 Loans to executives 9.2.7 - - 2,624 - - 2,624 0.02 Trade receivables 9.2.10 - - 276,358 - - 276,358 2.18 Other receivables 9.2.11 - - 83,948 - - 83,948 0.66 Amounts due from related parties 9.2.13 828,355 - - - 8,588,380 9,416,735 74.17 Cash in hand and at bank 9.2.15 - 1,966,160 - - - 1,966,160 15.49 Total credit risk exposure 828,355 2,916,160 362,930 - 8,588,380 12,695,825 100.00
Financial assets at fair value through profit or loss 9.1.3.1 - - - 1,594,676 - 1,594,676 92.73 Available-for-sale investments 9.1.3.1 - - - 125,000 - 125,000 7.27 Total equity risk exposure - - - 1,719,676 - 1,719,676 100.00 Total 828,355 2,916,160 362,930 1,719,676 8,588,380 14,415,501
Risk Exposure - Company In Rs. '000 Note Non- Cash in Trade Short term Amounts Total % of current hand and at and other investments due from allocation As at 31 March 2017 financial banks receivable related assets parties Corporate debt securities 9.2.5 - - - 2,500 - 2,500 0.03 Loans to executives 9.2.7 - - 1,030 - - 1,030 0.01 Trade receivables 9.2.10 - - 156,780 - - 156,780 2.03 Other receivables 9.2.11 - - 295,514 - - 295,514 3.83 Amounts due from related parties 9.2.13 1,490,000 - - - 5,675,892 7,165,892 92.90 Cash in hand and at bank 9.2.15 - 92,204 - - - 92,204 1.20 Total credit risk exposure 1,490,000 92,204 453,324 2,500 5,675,892 7,713,920 100.00
Financial assets at fair value through profit or loss 9.1.3.1 - - - 1,537,530 - 1,537,530 92.48 Available-for-sale investments 9.1.3.1 - - - 125,000 - 125,000 7.52 Total equity risk exposure - - - 1,662,530 - 1,662,530 100.00 Total 1,490,000 92,204 453,324 1,665,030 5,675,892 9,376,450
9.2.4 Government securities As at 31 March 2018 as shown in the table above, 15.14% (2017 - 15.53%) of Group debt securities comprised investments in government securities, consisting of treasury bonds, bills and reverse repo investments. Government securities are usually considered risk free due to the sovereign nature of the instrument. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 157
9.2.5 Corporate debt securities As at 31 March 2018, corporate debt securities comprising 70.53% (2017 - 57.74%) of the total investments for the Group were rated “A-” or better.
Group Company As at 31 March 2018 2017 2018 2017 Fitch/ ICRA rating Rating Rating Rating Rating Rs. '000 % of total Rs. '000 % of total Rs. '000 % of total Rs. '000 % of total AA 63,196 3.00 ------AA- 588,424 27.94 486,372 28.30 - - - - A+ 333,499 15.84 51,510 3.00 - - - - A 125,429 5.96 206,873 12.04 - - 2,500 100.00 A- 374,546 17.79 247,593 14.40 - - - - BBB+ 234,164 11.12 232,188 13.51 - - - - BBB 164,969 7.83 61,652 3.59 - - - - BBB- - - 208,887 12.15 - - - - BB+ - - 31,700 1.84 - - - - B+ - - 192,095 11.17 - - - - CC 193,017 9.17 ------Not rated 28,428 1.35 ------Total 2,105,672 100.00 1,718,870 100.00 - - 2,500 100.00
9.2.6 Deposits with banks and Unit Trusts Deposits with banks consist mainly of fixed and call deposits.
As at 31 March 2018, 84.46% (2017 - 57.79%) of the Group’s deposits and investments in Unit Trusts related to deposits in institutions rated “BBB” or better and to investments in Unit Trusts.
Group As at 31 March 2018 2017 Fitch rating Rating Rating Rs. '000 % of total Rs. '000 % of total AA+ 26 - 26 0.01 AA 20,361 0.72 - - AA- 451,281 15.90 7,692 1.55 A+ 280,587 9.89 7,473 1.51 A 10,291 0.36 - - A- 15,578 0.55 14,137 2.85 BBB - - 257,017 51.82 BBB- 441,140 15.53 - - BB+ 182 0.01 182 0.04 B+ - - 209,139 42.17 Unit trust 1,618,950 57.04 249 0.05 Not rated 31 - 31 - Total 2,838,427 100.00 495,946 100.00 158 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
9.2.7 Loans to executives The portfolio consists largely of short term loans granted to executive staff. Respective business units have obtained powers of attorney/promissory notes to secure the loans granted.
9.2.8 Loans and advances As a part of overall risk management strategy, the Board of Directors of the Softlogic Finance PLC has delegated responsibility for the oversight of credit risk to their ‘Credit Committee’ and ‘Integrated Risk Management Committee’. Their ‘Credit Risk Monitoring Unit’ reports to the ‘Risk Committee’ through the ‘Chief Risk Officer’ who is responsible for managing the company’s credit risk. Steps taken to manage credit risk include: »» introduction of a comprehensive credit policy as the guideline in lending, which has strengthened the credit evaluation process »» regular evaluation of the concentration risk of credit, with the credit policy amended appropriately to ensure the credit granting process responds »» implementation of delegated authority levels, to strengthen credit screening and evaluation »» implementation of a customer rating system as a way of building a data base within the company for efficient and effective credit evaluation »» regular discussions by both ‘Credit Committee’ and ‘Integrated Risk Management Committee’ in relation to credit risk and actions to be implemented.
The table below shows the maximum exposure to credit risk for components of the Statement of Financial Position. The maximum exposure is shown gross, before the effect of mitigation through the use of collateral arrangements.
Loans and advances excluding loans to life policyholder In Rs. '000 Note Personal Pawning Revolving Consumer SME & Total Total loans loans loans mortgage loans As at 31 March 2018 2017 Restated Assets at amortised cost Individually impaired - gross amount 8,012 1,257,551 903,126 - 920,349 3,089,038 2,321,166 - unearned income (988) - - - (75,539) (76,527) (91,066) Gross carrying amount 7,024 1,257,551 903,126 - 844,810 3,012,511 2,230,100 - allowance for impairment 9.2.8.2 (762) (1,084) (10,258) - (177,948) (190,052) (212,550) Net carrying amount 6,262 1,256,467 892,868 - 666,862 2,822,459 2,017,550
For the rest of portfolio where collective impairment is applicable - gross amount 1,603,262 - 150,787 80,663 13,386,896 15,221,608 17,197,058 - unearned income (144,836) - - (7,014) (1,519,383) (1,671,233) (1,740,927) Gross carrying amount 9.2.8.1 1,458,426 - 150,787 73,649 11,867,513 13,550,375 15,456,131 - allowance for impairment 9.2.8.2 (150,088) - (3,439) (6,809) (401,242) (561,578) (463,189) Net carrying amount 1,308,338 - 147,348 66,840 11,466,271 12,988,797 14,992,942 Total net carrying amount 1,314,600 1,256,467 1,040,216 66,840 12,133,133 15,811,256 17,010,492
As at the reporting date, the net exposure on loans and advances excluding loans to life policyholders’ after considering the collateral arrangements is amounted to Rs. 16.56 Mn (2017 - Rs. 10.28 Mn). FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 159
9.2.8.1 Age analysis of facilities considered for collective impairment In Rs. '000 Personal Pawning Revolving Consumer SME & Total Total loans loans loans mortgage loans As at 31 March 2018 2017 Restated Category Not due/ current 528,544 - 52,382 52,924 8,901,383 9,535,233 12,023,438 Less than 30 days 70,535 - 40,076 1,245 796,764 908,620 1,012,675 31 - 60 days 59,518 - 35,748 515 393,592 489,373 627,764 61 - 90 days 50,283 - 1,396 438 189,369 241,486 277,385 91 - 120 days 42,637 - - 829 155,263 198,729 298,973 121 - 150 days 51,885 - - 633 179,299 231,817 206,291 151 - 180 days 93,928 - 8,384 599 260,610 363,521 154,639 181 - 365 days 97,132 - 5,797 3,313 363,441 469,683 335,272 above 365 days 463,964 - 7,004 13,153 627,792 1,111,913 519,694 Total 1,458,426 - 150,787 73,649 11,867,513 13,550,375 15,456,131
9.2.8.2 Movement in impairment allowance for loans advances
In Rs. '000 Movement in specific Movement in collective Movement in impairment impairment allowance impairment allowance allowance As at 31 March 2018 2017 2018 2017 2018 2017 At the beginning of the year 212,187 263,671 463,189 337,164 675,376 600,835 Net impairment charge for the year (1,202) (2,804) 104,031 298,306 102,829 295,502 Transfers during the year 31,150 - - - 31,150 - Set-offs during the year - (10,948) - (76,448) - (87,396) Write-offs during the year (52,083) (37,369) (5,642) (95,833) (57,725) (133,202) At the end of the year 190,052 212,550 561,578 463,189 751,630 675,739
9.2.9 Loans to life policyholders Softlogic Life Insurance PLC issued loans to life policyholders of the company considering the surrender value of their life policies as collateral. As at the reporting date, the value of policy loans granted amounted to Rs. 148.72 Mn (2017 – Rs. 144.91 Mn) and their related surrender value is greater than their carrying value.
9.2.10 Trade receivables Customer credit risk is managed by each business unit according to the Group’s established policy, procedures and control relating to customer credit risk management. Credit quality of the customer is assessed based on a credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored and outstandings of major customers are, where feasible, covered by bank guarantees or other forms of credit insurance. 160 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
In Rs. '000 Group Company As at 31 March 2018 2017 2018 2017 Non hire Hire Total Non hire Hire Total Total Total purchase purchase purchase purchase debtors debtors debtors debtors Restated Restated Trade receivable settlement profile Current/ 0 - 30 days 3,843,762 3,576,176 7,419,938 2,930,138 3,203,104 6,133,242 77,060 75,866 31 - 60 days 1,403,468 61,615 1,465,083 827,313 53,121 880,434 33,194 32,258 61 - 90 days 317,060 30,864 347,924 255,292 22,997 278,289 32,412 5,008 91 - 120 days 356,747 23,993 380,740 340,567 19,783 360,350 57,548 1,330 > 121 days 712,653 15,203 727,856 675,460 128,568 804,028 76,145 42,318 Impaired 202,055 374,088 576,143 227,462 136,385 363,847 77,852 77,853 Gross amount 6,835,745 4,081,939 10,917,684 5,256,232 3,563,958 8,820,190 354,211 234,633 Less : Unearned income - (330,215) (330,215) - (328,637) (328,637) - - Gross carrying value 6,835,745 3,751,724 10,587,469 5,256,232 3,235,321 8,491,553 354,211 234,633 Less : Impairment provision Individually assessed impairment provision (22,760) (374,088) (396,848) (97,645) (136,385) (234,030) (77,853) (77,853) Collectively assessed impairment provision (179,297) - (179,297) (129,817) - (129,817) - - Total 6,633,688 3,377,636 10,011,324 5,028,770 3,098,936 8,127,706 276,358 156,780
The requirement for impairment is analysed at each reporting date on an individual basis for major clients. Less significant receivables are grouped into homogeneous groups and assessed for impairment collectively. The calculation is based on actual historical data.
9.2.11 Other receivables The Group’s other receivables consists mainly of dues receivables from foreign suppliers. Outstanding supplier receivables balances are regularly monitored by each business unit and impairment is analysed at each reporting date on an individual basis.
The Company’s other receivables consists mainly of dues receivable on intercompany dividends on which company has established the right to receive the payment.
9.2.12 Reinsurance receivable As a part of overall risk management strategy, Softlogic Life Insurance PLC cedes insurance risk through proportional, non-proportional and specific risk reinsurance treaties. While these mitigate insurance risk, the recoverables from reinsurers and receivables arising from ceded reinsurance expose the company to credit risk. Following are the steps taken to manage reinsurance risk: »» Policy guidelines are approved by the Board of Directors annually, in line with the guidelines issued by the Insurance Board of Sri Lanka »» Counterparties’ limits are set each year and are subjected to regular reviews with management assessing the creditworthiness of reinsurers to update the reinsurance strategy and ascertain the allowance for impairment of reinsurance assets »» Outstanding reinsurance receivables are reviewed monthly to ensure that all dues are collected or set off against payables »» Close professional relationships are maintained with reinsurers »» No cover is issued without confirmation of reinsurance, except for non-reinsurance business.
As at the reporting date reinsurance receivables amounted to Rs. 124.55 Mn at 31 March 2018 (2017 - Rs. 190.70 Mn). This consists mainly of reinsurance receivables on paid claims amounting to Rs. 89.63 Mn (2017 - Rs. 154.30 Mn) and the reinsurance share of claim reserve (receivables on outstanding claims) of Rs. 34.92 Mn as at 31 March 2018 (2017 - Rs. 36.40 Mn). FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 161
9.2.13 Amounts due from related parties The Group’s dues from related parties consists mainly of dues from associate companies and receivables from KMPs. The Company balance consists mainly of balances due from affiliate companies.
9.2.14 Rental receivable on lease assets & hire purchase As a part of overall risk management strategy, the Board of Directors of Softlogic Finance PLC has delegated responsibility for the oversight of credit risk to its ‘Board Credit Committee’. Its ‘Independent Credit Risk Monitoring Unit’ reports to the ‘Risk Committee’ through the ‘Head of Credit Risk’ who is responsible for managing the company’s credit risk. Following are the steps taken to manage credit risk: »» introduction of a comprehensive credit policy as the guideline in lending, which has strengthened the credit evaluation process »» formulation of that policy considering current market conditions and evaluating it quarterly to keep it in line with market conditions »» determining the levels of service and quality of the evaluators involved in the credit evaluation process »» regular discussion in both the Credit Committee and Integrated Risk Management Committee on credit risk, with necessary actions being implemented
The table below shows the maximum exposure to credit risk for the components of the statement of financial position. This is shown gross, before the effect of mitigation through the use of collateral arrangements. In Rs. '000 Note Rental Rental Total Rental Rental Total receivable on receivable on receivable on receivable on lease assets hire purchase lease assets hire purchase As at 31 March 2018 2017 Assets at amortised cost Individually impaired - gross amount 182,684 41,402 224,086 57,375 109,412 166,787 - unearned income (43,717) (9,161) (52,878) - (17,260) (17,260) Gross carrying amount 138,967 32,241 171,208 57,375 92,152 149,527 - allowance for impairment 9.2.14.2 (3,582) (1,936) (5,518) (27,824) (13,886) (41,710) Net carrying amount 135,385 30,305 165,690 29,551 78,266 107,817
For the rest of the portfolio, where collective impairment applies - gross amount 1,750,366 163,751 1,914,117 906,127 299,045 1,205,172 - unearned income (389,479) (1,912) (391,391) (179,806) (13,749) (193,555) Gross carrying amount 9.2.14.1 1,360,887 161,839 1,522,726 726,321 285,296 1,011,617 - allowance for impairment 9.2.14.2 (55,906) (65,974) (121,880) (50,165) (119,952) (170,117) Net carrying amount 1,304,981 95,865 1,400,846 676,156 165,344 841,500 Net carrying amount 1,440,366 126,170 1,566,536 705,707 243,610 949,317 162 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
9.2.14.1 Age analysis of facilities considered for collective impairment In Rs. '000 Rental Rental Total Rental Rental Total receivable on receivable on receivable on receivable on lease assets hire purchase lease assets hire purchase As at 31 March 2018 2017 Category Not due/ current 714,306 4,498 718,804 350,425 25,208 375,633 Overdue: - Less than 30 days 269,378 1,268 270,646 81,887 21,930 103,817 31 - 60 days 43,600 1,844 45,444 51,730 15,436 67,166 61 - 90 days 20,215 1,130 21,345 12,493 9,719 22,212 91 - 120 days 1,844 2,389 4,233 4,301 3,375 7,676 121 - 150 days 1,482 - 1,482 790 8,736 9,526 151 - 180 days 64 - 64 8,610 2,111 10,721 181 - 365 days 543 265 808 10,882 5,965 16,847 above 365 days 309,455 150,445 459,900 205,203 192,816 398,019 Total 1,360,887 161,839 1,522,726 726,321 285,296 1,011,617
9.2.14.2 Movement in impairment allowance In Rs. '000 Movement in specific Movement in collective Movement in impairment allowance impairment allowance impairment allowance As at 31 March 2018 2017 2018 2017 2018 2017 At the beginning of the year 41,710 40,678 170,118 143,301 211,827 183,979 Net impairment charge for the year 30,146 93,002 (48,237) 26,816 (18,091) 119,818 Transfers during the year (31,150) - - - (31,150) - Write offs during the year (35,188) (91,970) - - (35,188) (91,970) At the end of the year 5,518 41,710 121,881 170,117 127,398 211,827
9.2.15 Cash in hand and at bank Deposits with banks consist mainly of fixed and call deposits. Credit risk from balances with banks and financial institutions is managed by the Group’s treasury department in accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed annually, and may be updated during the year subject to appropriate approval. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through the counterparty’s failure to make payments. The Group’s maximum exposure to credit risk for the components of the statement of financial position are the carrying amounts shown.
9.3 Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, debentures, finance leases and hire purchase contracts that provide sufficient liquidity to meet its liabilities when due under normal and stressed conditions. The Group assessed the concentration of risk on refinancing its debt and concluded it to be low. Access to sources of funding is sufficient and debt maturing within 12 months can be rolled over with existing lenders. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 163
9.3.1 Net debt / (cash) In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 Restated Short term investments 7,120,608 3,796,256 1,719,676 1,665,030 Cash in hand and at bank 6,151,833 2,794,608 2,916,160 92,204 Total liquid assets 13,272,441 6,590,864 4,635,836 1,757,234
Other current financial liabilities 23,607,505 12,056,238 10,526,355 4,447,998 Current portion of interest bearing borrowings 7,244,641 6,328,018 2,984,531 2,580,019 Bank overdrafts 4,645,217 4,215,144 153,748 550,247 Total liabilities 35,497,363 22,599,400 13,664,634 7,578,264
Net debt / (cash) 22,224,922 16,008,536 9,028,798 5,821,030 Adjustments for; Short term investments with maturity less than 3 months 4,382,344 2,286,964 - - Unutilised approved banking facilities 1,671,138 2,108,374 133,868 515,544 Unutilised funds raised through private placement and rights issue of shares 5,307,289 - 5,307,289 - 10,864,151 11,613,198 3,587,641 5,305,486
Further the Group will utilise excess liquidity through operating cycles, restructuring of short term financial commitments, funds available through commercial papers and revolving loan facilities as positive cash flows to manage the liquidity position of the Group.
9.3.2 Liquidity risk management Positive and negative cash flows and investment returns and contractual obligation maturing are collated through an intra-day cash reporting system. The Group is in the process of building a ‘Liquidity Dashboard’ with the implementation of its ERP programme. This would help further the review and identification of debt maturities relating to net liquidity position on a daily basis and enable proactive funding mobilisation and reinvestment of cash surpluses, and re-scheduling maturity profiles to de-stress cash flows and align them with investment tenors. This would support optimal liquidity positioning, reduce borrowing cost and enhance reinvestment income.
9.3.3 Maturity analysis The table below summarises the maturity profile of the Group’s financial liabilities at 31 March 2018 based on contractual undiscounted (principal and interest) payments.
In Rs. ‘000 Within Between Between Between Between More than Total 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Interest bearing loans and borrowings 10,170,594 10,820,747 7,664,548 6,416,415 2,727,665 4,641,730 42,441,699 Other non-current financial liabilities - 6,600 115,902 - - - 122,502 Trade and other payables 7,268,577 - - - - - 7,268,577 Amounts due to related parties 7,566 - - - - - 7,566 Other current financial liabilities 23,607,505 - - - - - 23,607,505 Public deposits 14,142,178 1,607,026 1,768,634 242,387 368,243 - 18,128,468 Bank overdrafts 4,645,217 - - - - - 4,645,217 59,841,637 12,434,373 9,549,084 6,658,802 3,095,908 4,641,730 96,221,534 Contingent gross commitment on put option 1,812,828 - - - - - 1,812,828 164 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
The table below summarises the maturity profile of the Company’s financial liabilities at 31 March 2018 based on contractual undiscounted (principal and interest) payments.
In Rs. ‘000 Within Between Between Between Between More than Total 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Interest bearing loans and borrowings 4,111,328 3,778,565 3,233,853 1,836,939 324,923 49,202 13,334,810 Other non-current financial liabilities 23,617 53,378 49,360 45,344 41,328 68,394 281,421 Trade and other payables 44,415 - - - - - 44,415 Amounts due to related parties 17,877 - - - - - 17,877 Other current financial liabilities 10,526,355 - - - - - 10,526,355 Bank overdrafts 153,748 - - - - - 153,748 14,877,340 3,831,943 3,283,213 1,882,283 366,251 117,596 24,358,626
The table below summarises the maturity profile of the Group’s financial liabilities at 31 March 2017 based on contractual undiscounted (principal and interest) payments.
In Rs. ‘000 Within Between Between Between Between More than Total 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Interest bearing loans and borrowings 9,546,462 9,058,708 9,686,753 6,643,486 5,539,974 6,709,238 47,184,621 Other non-current financial liabilities - 28,849 - - - - 28,849 Trade and other payables 6,953,744 - - - - - 6,953,744 Amounts due to related parties 17,565 - - - - - 17,565 Other current financial liabilities 12,056,238 - - - - - 12,056,238 Public deposits 14,842,336 1,014,340 1,112,797 73,633 129,683 - 17,172,789 Bank overdrafts 4,215,144 - - - - - 4,215,144 47,631,489 10,101,897 10,799,550 6,717,119 5,669,657 6,709,238 87,628,950 Contingent gross commitment on put option 1,812,828 - - - - - 1,812,828
The table below summarises the maturity profile of the Company’s financial liabilities at 31 March 2017 based on contractual undiscounted (principal and interest) payments.
In Rs. ‘000 Within Between Between Between Between More than Total 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Interest bearing loans and borrowings 3,863,335 3,467,047 3,117,709 2,643,683 1,249,739 51,936 14,393,449 Other non-current financial liabilities 24,187 53,725 49,645 45,567 41,488 68,526 283,138 Trade and other payables 24,133 - - - - - 24,133 Amounts due to related parties 68,064 - - - - - 68,064 Other current financial liabilities 4,447,998 - - - - - 4,447,998 Bank overdrafts 550,247 - - - - - 550,247 8,977,964 3,520,772 3,167,354 2,689,250 1,291,227 120,462 19,767,029 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 165
9.3.4 Capital management No changes were made in the objectives, policies or processes for The primary objective of the Group’s capital management is to managing capital during the year ended 31 March 2018. ensure that it maintains a strong credit rating and healthy capital The Group monitors capital using a gearing ratio for the company ratios to support its business and maximise shareholder value. and subsidiaries, net debt divided by total capital plus net debt, The Group manages its capital structure and makes adjustments to which is monitored by senior management. Net debt of the Group it in light of changes in economic conditions. To maintain or adjust includes, interest bearing loans and borrowings less cash and cash the capital structure, the Group may adjust the dividend payment to equivalents. shareholders, return capital to shareholders or issue new shares.
In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 Restated Net debt 55,074,861 49,460,206 18,388,581 16,182,239 Equity 20,916,926 15,622,595 13,388,519 7,097,175 Capital and total net debt 75,991,787 65,082,801 31,777,100 23,279,414 Gearing ratio (X) 0.72 0.76 0.58 0.70
10 Fair value measurement and related fair value disclosure
Fair value measurement using the asset in its highest and best use or by selling it to another Fair value related disclosures for financial instruments and non- market participant that would use the asset in its highest and best financial assets that are measured at fair value are disclosed in this use. note. Apart from this note, additional fair value related disclosures, including the valuation methods, significant estimates and The Group uses valuation techniques that are appropriate in the assumptions are also provided in: circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Note
Property, plant and equipment under revaluation model 22.3 All assets and liabilities for which fair value is measured or disclosed Investment properties 24.2 in the financial statements are categorised within the fair value Investment in unquoted equity shares 26.3 hierarchy, described as follows, based on the lowest level input that Financial instruments 11 is significant to the fair value measurement as a whole: Level 1 - Quoted (unadjusted) market prices in active Accounting policy markets for identical assets or liabilities Level 2 - Valuation techniques for which the lowest level input Fair value is the price that would be received to sell an asset or that is significant to the fair value measurement is paid to transfer a liability in an orderly transaction between market directly or indirectly observable participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or Level 3 - Valuation techniques for which the lowest level input transfer the liability takes place either: that is significant to the fair value measurement is unobservable »» in the principal market for the asset or liability, or »» in the absence of a principal market, in the most For assets and liabilities that are recognised in the financial advantageous market for the asset or liability. statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by The principal or the most advantageous market must be accessible reassessing categorisation (based on the lowest level input that is by the Group. significant to the fair value measurement as a whole) at the end of each reporting period. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing The Group determines the policies and procedures for both the asset or liability, assuming that market participants act in their recurring fair value measurement, such as investment properties economic best interest. and unquoted AFS financial assets, and for non-recurring measurement, such as assets held-for-sale in discontinued A fair value measurement of a non-financial asset takes into account operations. a market participant’s ability to generate economic benefits by 166 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
External valuers are involved for valuation of significant assets, such For the purpose of fair value disclosures, the Group has determined as land and building and investment properties, and significant classes of assets and liabilities on the basis of the nature, liabilities, such as insurance contracts. Selection criteria for external characteristics and risks of the asset or liability and the level of the valuers include market knowledge, reputation, independence fair value hierarchy as explained above. and whether professional standards are maintained. The Group decides, after discussions with the external valuers, which valuation techniques and inputs to use for each case.
10.1 Financial assets and liabilities by fair value hierarchy - Group The Group held the following financial instruments carried at fair value in the statement of financial position:
Financial assets In Rs. ‘000 Level 1 Level 2 Level 3 As at 31 March 2018 2017 2018 2017 2018 2017 Assets measured at fair value Financial assets held for trading 619,024 595,017 1,618,701 - - - Available-for-sale 4,587,586 6,569,059 - - - - Total 5,206,610 7,164,076 1,618,701 - - - Liabilities measured at fair value Other current financial liabilities - - 9,357 9,357 - - Total - - 9,357 9,357 - -
During the reporting period ended 31 March 2018, there were no transfers between Level 1 and Level 2 fair value measurements.
Non-financial assets In Rs. ‘000 Level 1 Level 2 Level 3 As at 31 March 2018 2017 2018 2017 2018 2017 Assets measured at fair value Land and buildings - - - - 24,008,256 15,309,306 Buildings on leasehold land - - - - 4,774,770 4,623,909 Investment property - - - - 1,238,300 1,037,000 Total - - - - 30,021,326 20,970,215
10.2 Financial assets and liabilities by fair value hierarchy - Company The Company held the following financial instruments carried at fair value in the statement of financial position:
Financial assets In Rs. ‘000 Level 1 Level 2 Level 3 As at 31 March 2018 2017 2018 2017 2018 2017 Assets measured at fair value Financial assets held for trading 1,594,676 1,537,530 - - - - Available-for-sale ------Total 1,594,676 1,537,530 - - - -
During the reporting period ended 31 March 2018, there were no transfers between Level 1 and Level 2 fair value measurements. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 167
Non-financial assets In Rs. ‘000 Level 1 Level 2 Level 3 As at 31 March 2018 2017 2018 2017 2018 2017 Assets measured at fair value Investment property - - - - 704,000 609,385 Total - - - - 704,000 609,385
In determining the fair value, highest and best use of the property prices for similar properties, with appropriate adjustments for size and including the current condition of the properties, future usability and location. The appraised fair values are rounded within the range of associated redevelopment requirements have been considered. Also, values. the valuers have made reference to market evidence of transaction
11 Financial instruments
11.1 Financial assets
Accounting policy
Initial recognition and measurement value recognised in finance income or finance costs in the income Financial assets within the scope of LKAS 39 are classified as statement. financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for- sale financial The Group evaluates its financial assets held for trading, other than assets, or as derivatives designated as hedging instruments in derivatives, to determine whether the intention to sell them in the an effective hedge, as appropriate. The Group determines the near term is still appropriate. When the Group is unable to trade classification of its financial assets at initial recognition. these financial assets due to inactive markets and management’s intention to sell them in the foreseeable future significantly All financial assets are recognised initially at fair value plus, in changes, the Group may elect to reclassify these financial assets the case of assets not at fair value through profit or loss, directly in rare circumstances. The reclassification to loans and receivables, attributable transaction costs. Purchases or sales of financial assets available-for-sale or held to maturity depends on the nature of the that require delivery of assets within a time frame established by asset. This evaluation does not affect any financial assets designated regulation or convention in the marketplace (regular way trades) are at fair value through profit or loss using the fair value option at recognised on the trade date, i.e. the date that the Group commits designation. to purchase or sell the asset. Loans and receivables The Group’s financial assets include cash and short-term deposits, Loans and receivables are non-derivative financial assets with fixed trade and other receivables, loans and advances, Rental receivable or determinable payments that are not quoted in an active market. on lease assets and hire purchase, quoted and unquoted financial After initial measurement, such financial assets are subsequently instruments and derivative financial instruments. measured at amortised cost using the effective interest rate method (EIR), less impairment. Amortised cost is calculated by taking into Subsequent measurement account any discount or premium on acquisition and fees or costs The subsequent measurement of financial assets depends on their that are an integral part of the EIR. The EIR amortisation is included classification. For the purpose of subsequent measurement financial in finance income in the income statement. The losses arising from assets are classified in four categories. impairment are recognised in the income statement in finance costs.
Financial assets at fair value through profit or loss Held-to-maturity investments Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial Non-derivative financial assets with fixed or determinable payments recognition at fair value through profit or loss. Financial assets are and fixed maturities are classified as held-to-maturity when the classified as held for trading if they are acquired for the purpose of Group has the positive intention and ability to hold them to selling or repurchasing in the near term. maturity. After initial measurement, held-to-maturity investments are measured at amortised cost using the effective interest method, Financial assets at fair value through profit or loss are carried in less impairment. Amortised cost is calculated by taking into account the statement of financial position at fair value with changes in fair any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in 168 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
finance income in the income statement. The losses arising from cash flows in full without material delay to a third party under a impairment are recognised in the income statement in finance ‘pass-through’ arrangement; and either costs. a. the Group has transferred substantially all the risks and rewards of the asset, or Available-for-sale financial investments b. the Group has neither transferred nor retained substantially Available-for-sale financial investments include equity and debt all the risks and rewards of the asset, but has transferred securities. Equity investments classified as available-for-sale are control of the asset. those, which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category When the Group has transferred its rights to receive cash flows are those which are intended to be held for an indefinite period of from an asset or has entered into a pass-through arrangement, time and which may be sold in response to needs for liquidity or in and has neither transferred nor retained substantially all of the risks response to changes in the market conditions. and rewards of the asset nor transferred control of it, the asset is recognised to the extent of the Group’s continuing involvement in it. After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealised gains or In that case, the Group also recognises an associated liability. The losses recognised as other comprehensive income in the available- transferred asset and the associated liability are measured on the for-sale reserve until the investment is derecognised, at which time basis that reflects the rights and obligations that the Group has the cumulative gain or loss is recognised in other operating income, retained. or determined to be impaired, at which time the cumulative loss is reclassified to the income statement in finance costs and removed Continuing involvement that takes the form of a guarantee over the from the available-for-sale reserve. Interest income on available-for- transferred asset is measured at the lower of the original carrying sale debt securities is calculated using the effective interest method amount of the asset and the maximum amount of consideration and is recognised in the income statement. Investments in unlisted that the Group could be required to repay. equity instruments with inactive markets are carried at cost and subsequently tested for impairment. Impairment of financial assets The Group evaluates its available-for-sale financial assets to The Group assesses at each reporting date whether there is any determine whether the ability and intention to sell them in the objective evidence that a financial asset or a group of financial near term is still appropriate. When the Group is unable to trade assets is impaired. A financial asset or a group of financial assets is these financial assets due to inactive markets and management’s deemed to be impaired if, and only if, there is objective evidence intention to do so significantly changes in the foreseeable future, of impairment as a result of one or more events that has occurred the Group may elect to reclassify these financial assets in rare after the initial recognition of the asset (an incurred ‘loss event’) circumstances. Reclassification to loans and receivables is permitted and that loss event has an impact on the estimated future cash when the financial assets meet the definition of loans and flows of the financial asset or the group of financial assets that can receivables and the Group has the intent and ability to hold these be reliably estimated. assets for the foreseeable future or until maturity. Reclassification to the held-to-maturity category is permitted only when the entity has Evidence of impairment may include indications that the debtors the ability and intention to hold the financial asset accordingly. or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the For a financial asset reclassified out of the available-for-sale probability that they will enter bankruptcy or other financial category, any previous gain or loss on that asset that has been reorganisation and where observable data indicate that there is recognised in equity is amortised to the income statement over a measurable decrease in the estimated future cash flows, such the remaining life of the investment using the EIR. Any difference as changes in arrears or economic conditions that correlate with between the new amortised cost and the expected cash flows is defaults. also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the Financial assets carried at amortised cost amount recorded in equity is reclassified to the income statement. For financial assets carried at amortised cost, the Group first assesses whether the objective evidence of impairment exists Derecognition individually for financial assets that are individually significant, or A financial asset (or, where applicable, a part of a financial asset or collectively for financial assets that are not individually significant. part of a Group of similar financial assets) is derecognised when: If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant »» the rights to receive cash flows from the asset have or not, it includes the asset in a group of financial assets with expired similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment »» the group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 169
and for which an impairment loss is, or continues to be, recognised Available-for-sale financial investments are not included in a collective assessment of impairment. For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an If there is objective evidence that an impairment loss has been investment or a group of investments is impaired. incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of In the case of equity investments classified as available-for-sale, estimated future cash flows (excluding future expected credit objective evidence would include a significant or prolonged decline losses that have not yet been incurred). The present value of the in the fair value of the investment below its cost. ‘Significance’ estimated future cash flows is discounted at the financial asset’s is evaluated against the original cost of the investment and original effective interest rate. If a loan has a variable interest rate, ‘prolonged’ against the period in which the fair value has been the discount rate for measuring any impairment loss is the current below its original cost. Where there is evidence of impairment, the effective interest rate. cumulative loss measured as the difference between the acquisition cost and the current fair value (less any impairment loss) is The carrying amount of the asset is reduced through the use of an removed from other comprehensive income. Impairment losses on allowance account and the amount of the loss is recognised in the equity investments are not reversed through the income statement; income statement. Interest income continues to be accrued on the increases in their fair value after impairment are recognised directly reduced carrying amount and is accrued using the rate of interest in other comprehensive income. used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of In the case of debt instruments classified as available-for-sale, finance income in the income statement. impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded Loans together with the associated allowance are written off when for impairment is the cumulative loss measured as the difference there is no realistic prospect of future recovery and all collateral between the amortised cost and the current fair value, less any has been realised or has been transferred to the Group. If, in a impairment loss on that investment previously recognised in the subsequent year, the amount of the estimated impairment loss income statement. increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment Future interest income continues to be accrued based on the loss is increased or reduced by adjusting the allowance account. reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring If a write-off is later recovered, the recovery is credited to finance the impairment loss. The interest income is recorded as part of costs in the income statement. finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed through the income statement.
11.2 Financial liabilities
Accounting policy
Initial recognition and measurement Subsequent measurement Financial liabilities within the scope of LKAS 39 are classified as The measurement of financial liabilities depends on their financial liabilities at fair value through profit or loss, loans and classification as follows: borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the Loans and borrowings classification of its financial liabilities at initial recognition. After initial recognition, interest bearing loans and borrowings All financial liabilities are recognised initially at fair value and, in are subsequently measured at amortised cost using the effective the case of loans and borrowings, carried at amortised cost. This interest rate method (EIR). Gains and losses are recognised in the includes directly attributable transaction costs. income statement when the liabilities are derecognised as well as through the effective interest rate method amortisation process. The Group’s financial liabilities include trade and other payables, bank overdrafts, loans and borrowings, financial guarantee contracts, Amortised cost is calculated by taking into account any discount or and derivative financial instruments. premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs of the income statement. 170 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
Financial guarantee contracts An analysis of fair values of financial instruments and further details Financial guarantee contracts issued by the Group are those as to how they are measured are provided in note 11. contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to Derivative financial instruments make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially Initial recognition and subsequent measurement as a liability at fair value, adjusted for transaction costs that are The Group uses derivative financial instruments such as forward directly attributable to the issuance of the guarantee. Subsequently, currency contracts, interest rate swaps and forward commodity the liability is measured at the higher of the best estimate of the contracts to hedge its foreign currency risks, interest rate risks expenditure required to settle the present obligation at the reporting and commodity price risks, respectively. Such derivative financial date and the amount recognised less cumulative amortisation. instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently Derecognition remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the A financial liability is derecognised when the obligation under the fair value is negative. Any gains or losses arising from changes in the liability is discharged or cancelled or expires. fair value of derivatives are taken directly to the income statement.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an Derivative financial instruments and hedging activities existing liability are substantially modified, such an exchange or Derivatives are initially recognised at fair value on the date a modification is treated as a derecognition of the original liability derivative contract is entered into and are subsequently remeasured and the recognition of a new liability, and the difference in the at their fair value. The method of recognising the resulting gain or respective carrying amounts is recognised in the income statement. loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Investment sold together with a deep in the money put option are group designates certain derivatives as, not derecognised from the statement of financial position as the »» hedges of the fair value of recognised assets or liabilities or a Group retains substantially all of the risks and rewards of ownership. firm commitment (fair value hedge), or The corresponding cash received is recognised in the consolidated »» hedges of a particular risk associated with a recognised asset or statement of financial position as an asset with a corresponding liability or a highly probable forecast transaction obligation to return it, including accrued interest as a financial (cash flow hedge), or liability, reflecting the transaction’s economic substance as a loan to »» hedges of a net investment in a foreign operation the Group. The difference between the sale and put option exercise (net investment hedge). price is treated as interest expense and is accrued over the life of agreement using the EIR. The group documents at the inception of the transaction the relationship between hedging instruments and the hedged Off-setting of financial instruments items, as well as its risk management objectives and strategies Financial assets and financial liabilities are offset and the net for undertaking various hedging transactions. The company also amount reported in the consolidated statement of financial position documents its assessment, both at hedge inception and on an if, and only if, there is a currently enforceable legal right to offset ongoing basis, of whether the derivatives that are used in hedging the recognised amounts and there is an intention to settle on a net transactions are highly effective in offsetting changes in fair values basis, or to realise the assets and settle the liabilities simultaneously. or cash flows of hedged items.
The fair values of various derivative instruments used for hedging Fair value of financial instruments purposes are disclosed in note 39.4. Movements on the hedging The fair value of financial instruments that are traded in active reserve on the other comprehensive income statement (OCI) are markets at each reporting date is determined by reference to shown in the same note. The fair value of a hedging derivative is quoted market prices, without any deduction for transaction costs. classified as a non-current asset or liability when the remaining hedged item is more than 12 months and as a current asset or For financial instruments not traded in an active market, the fair liability when the remaining maturity of the hedged item is less than value is determined using appropriate valuation techniques. 12 months. Trading derivatives are classified as a current asset or Such techniques may include using recent arm’s length market liability. transactions; reference to the current fair value of another instrument that is substantially the same a discounted cash flow analysis or other valuation models. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 171
Cash flow hedge Fair value of financial instruments The effective portion of changes in the fair value of derivatives that Where the fair value of financial assets and financial liabilities are designated and qualify as cash flow hedges is recognised in the recorded in the statement of financial position cannot be derived other comprehensive income statement (OCI). The gain or loss in from active markets, their fair value is determined using valuation relation to the ineffective portion is recognised immediately in the techniques including the discounted cash flow model. The inputs to income statement. these models are taken from observable markets where possible.
Amounts accumulated in equity are reclassified to profit or loss in Where this is not feasible, a degree of judgment is required in the periods when the hedged item affects profit or loss. When a establishing fair values. The judgments include considerations of hedging instrument expires or is sold, or when a hedge no longer inputs such as liquidity risk, credit risk and volatility. Changes in meets the criteria for hedge accounting, any cumulative gain or loss assumptions about these factors that could affect the reported fair existing in equity at that time remains in equity and is recognised value of financial instruments, are further explained in note 11. when the forecast transaction is ultimately recognised in the income statement. When the forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. 172 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS 333 2017 2017 17,565 28,849 359,972 589,345 Restated 9,317,037 3,796,256 6,328,018 4,215,144 6,953,744 2,794,608 1,986,055 10,101,272 75,290,470 41,624,813 14,049,443 14,665,990 12,056,238 29,655,414 Total Total Total Total 807 2018 7,566 2018 523,777 122,502 7,268,577 7,120,608 7,244,641 3,237,633 1,042,759 6,151,833 4,645,217 23,607,505 25,729,331 84,926,810 50,340,935 13,063,838 10,564,380 11,838,130 13,098,641 ------2017
7,500 2017 17,565 28,849 232,973 240,473 6,328,018 4,215,144 6,953,744 1,986,055 75,281,113 14,049,443 12,046,881 29,655,414 ------investments measured at 2018 7,566 2018 amortised cost Held-to-maturity Financial liabilities 236,367 236,367 122,502 7,268,577 7,244,641 3,237,633 4,645,217 84,917,453 25,729,331 13,063,838 23,598,148 ------
2017 9,357 9,357 2017 125,000 7,164,076 7,039,076 ------2018 9,357 9,357 2018 financial assets or loss (FVTPL) Available-for -sale Available-for 125,000 value through profit 4,821,141 4,696,141 Financial liabilities at fair ------2017 595,017 595,017 ------2018 360,663 through profit or loss 2,237,724 2,598,387 Financial assets fair value 333 2017 359,972 589,345 Restated 9,317,037 3,068,739 2,794,608 2,829,223 33,625,247 14,665,990 807 2018 523,777 Loans and receivables 4,757,884 1,042,759 5,271,209 6,151,833 42,685,040 11,838,130 13,098,641 Total Total Bank overdrafts Public deposits Current portion of interest bearing borrowings Rental receivable on lease assets and hire purchase Amounts due to related parties Other current financial liabilities In Rs. ‘000 March As at 31 Financial instruments in non-current assets Non-current financial assets Financial instruments in current assets and other receivables Trade Loans and advances Rental receivable on lease assets and hire purchase Amounts due from related parties Financial instruments in current liabilities and other payables Trade Short term investments Cash in hand and at bank In Rs. ‘000 March As at 31 Financial instruments in non-current liabilities Interest bearing borrowings Other non-current financial liabilities Public deposits Financial instruments Financial assets and liabilities in the tables below are split into categories accordance with LKAS 39. Financial assets by category - Group Financial liabilities by category - Group FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 173 2017 2017 92,204 24,133 68,064 453,324 550,247 186,200 9,376,450 5,675,892 1,665,030 1,490,000 4,447,998 2,580,019 8,509,979 16,366,640 Total Total Total Total 2018 2018 17,878 44,415 828,355 362,930 153,748 186,200 1,719,676 2,916,160 8,588,380 7,453,907 14,415,501 2,984,531 21,367,035 10,526,356 - - - - 2,500 2,500 2017 2017 24,133 68,064 550,247 186,200 4,447,998 2,580,019 8,509,979 16,366,640 ------cost investments 2018 2018 Held-to-maturity 17,878 44,415 Financial liabilities 153,748 186,200 7,453,907 measured at amortised 2,984,531 21,367,035 10,526,356 - - - - 2017 125,000 125,000 - - - - 2018 financial assets Available-for -sale Available-for 125,000 125,000 . - - - - 2017 1,537,530 1,537,530 - - - - 2018 through profit or loss 1,594,676 1,594,676 Financial assets fair value - 2017 92,204 453,324 7,711,420 5,675,892 1,490,000 - 2018 828,355 362,930 2,916,160 Loans and receivables 8,588,380 12,695,825 Total Total Bank overdrafts Current portion of interest bearing borrowings Financial instruments in current liabilities and other payables Trade Amounts due to related parties Other current financial liabilities Other non-current financial liabilities As at 31 March As at 31 Financial instruments in non-current liabilities Interest bearing borrowings Short term investments Cash in hand and at bank In Rs. ‘000 Amounts due from related parties Financial instruments in current assets and other receivables Trade Financial instruments in non-current assets Non-current financial assets In Rs. ‘000 March As at 31 Financial liabilities by category - Company Financial instruments Financial assets and liabilities in the tables below are split into categories accordance with LKAS 39. Financial assets by category - Company 174 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
The fair value of financial assets and liabilities is included at the »» Fair value of unquoted ordinary shares has been estimated amount at which the instrument could be exchanged in a current using a Discounted Cash Flow (DCF) model. The valuation transaction between willing parties, other than in a forced or requires management to make certain assumptions about liquidation sale. the model inputs, including forecast cash flows, the discount rate, credit risk and volatility. The probabilities of the various The following methods and assumptions were used to estimate the estimates within the range can be reasonably assessed and fair values: are used in management’s estimate of fair value for these »» Fair value of quoted equities, debentures and bonds is based unquoted equity investments. on price quotations in an active market at the reporting date. »» Approximately 78% of loans and advances, rental receivable »» The fair value of unquoted instruments, loans from banks and on lease assets and hire purchase have a remaining maturity of other financial liabilities, obligations under finance leases, as less than one year. Therefore, fair value of the lending portfolio well as other non-current financial liabilities is estimated by approximates to the carrying value at the reporting date. All discounting future cash flows using rates currently available for loans and advances are granted with fixed interest rate terms. debt on similar terms, credit risk and remaining maturities.
12 Sri Lanka accounting standards (SLFRS/LKAS) issued but not yet effective The Institute of Chartered Accountants of Sri Lanka has issued the following SLFRS that have an effective date in the future and have not been applied in preparing the current financial statements. Those SLFRS will have an effect on the accounting policies currently adopted by the Group and may have an impact on the future financial statements. The Group is currently in the process of evaluating the potential effects of adoption of these standards and amendments on its financial statements. Such impact has not been quantified as at the balance sheet date.
SLFRS - 9 Financial Instruments SLFRS 9 is effective for annual reporting periods beginning on or Debt securities are expected to be measured at fair value through after 1 January 2018, with early adoption permitted. OCI under SLFRS 9 as the Group expects not only to hold the assets to collect contractual cash flows, but also to sell a significant SLFRS 9 replaces the existing guidance in LKAS 39 Financial amount on a relatively frequent basis. Instruments: Recognition and Measurement. SLFRS 9 includes revised guidance on the classification and measurement of financial Loans and advances, rental receivable on lease assets and hire instruments, a new expected credit loss model for calculating purchase, amounts due from related parties and trade receivables impairment on financial assets, and new general hedge accounting are held to collect contractual cash flows and are expected to requirements. It also carries forward the guidance on recognition give rise to cash flows representing solely payments of principal and derecognition of financial instruments from LKAS 39. and interest. The Group analysed the contractual cash flow characteristics of those instruments and concluded that they The Group has performed a preliminary impact assessment on all meet the criteria for amortised cost measurement under SLFRS 9. three aspects of SLFRS 9. This preliminary assessment is based Therefore, reclassification for these instruments is not required. on currently available information and may be subject to changes arising from further detailed analyses or additional reasonable and Impairment supportable information being made available to the Group in the future. SLFRS 9 requires the Group to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The Group will apply the simplified Classification and measurement approach and record lifetime expected losses on all loans and The Group does not expect a significant impact on its statement advances, rental receivable on lease assets and hire purchase, of financial position or equity on applying the classification and amounts due from related parties and trade receivables. measurement requirements of SLFRS 9. It expects to continue measuring at fair value all financial assets currently held at fair value. Hedge accounting Quoted and unquoted equity shares currently held as available for sale (AFS) with gains and losses recorded in other comprehensive The Group determined that all existing hedge relationships that are income statement (OCI) are intended to be held for the currently designated in effective hedging relationships will continue foreseeable future. No impairment losses were recognised in profit to qualify for hedge accounting under SLFRS 9. As SLFRS 9 does or loss during prior periods for these investments. The Group will not change the general principles of how an entity accounts for apply the option to present fair value changes in OCI. Therefore, the effective hedges, applying the hedging requirements of SLFRS 9 will application of SLFRS 9 will not have a significant impact. not have a significant impact on the Group’s financial statements. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 175
SLFRS - 15 Revenue from Contracts with Customers SLFRS 15 is effective for annual reporting periods beginning on or reviewed its contracts with customers in several sectors with the after 1 January 2018, with early adoption permitted. assistance of external consultants.
SLFRS 15 establishes a comprehensive framework for determining Sale of goods whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including LKAS 18 Revenue, Under SLFRS 15, revenue will be recognised upon satisfaction of LKAS 11 Construction Contracts and IFRIC 13 Customer Loyalty performance obligation. The Group expects the revenue recognition Programmes to occur at a point in time when control of the asset is transferred to the customer, generally on delivery of the goods. SLFRS 15 establishes a five-step model to account for revenue arising from contracts with customers. Under SLFRS 15, revenue is Rendering of services recognised at an amount that reflects the consideration to which an Currently, the Group recognises service revenue by reference to the entity expects to be entitled in exchange for transferring goods or stage of completion. Under SLFRS 15, the Group shall determine services to a customer. at contract inception whether it satisfies the performance obligation over time or at a point in time. For each performance obligation Revenue of the Group is generated through the sale of goods satisfied overtime, the Group shall recognise the revenue over time and the rendering of services as reflected in note no 13 to these by measuring the progress towards complete satisfaction of that financial statements. In preparation for SLFRS 15, the Group has performance obligation.
SLFRS - 16 Leases SLFRS 16 is effective for annual reporting periods beginning on or and SIC 27 evaluating the substance of transactions involving the after 1 January 2019, with early adoption permitted. legal form of a lease. Earlier application is permitted for entities that apply SLFRS 15 Revenue from Contracts with customers. SLFRS 16 provides a single lessee accounting model, requiring leases to recognise assets and liabilities for all leases unless the The Group is currently in the process of evaluating the potential lease term is 12 months or less or the underlying asset has a low effects and amendments on its financial statements of adoption of value even though lessor accounting remains similar to current this standard with the assistance of external consultants. The impact practice. on the implementation has not been quantified as at the balance sheet date. This supersedes: LKAS 17 leases, IFRIC 4 determining whether an arrangement contains a lease, SIC 15 operating leases - incentives;
The following amendments and improvements are not expected to have a significant impact on the Group’s financial statements »» Long-term Interests in Associates (Amendments to LKAS 28) »» Prepayment Features with Negative Compensation (Amendments to SLFRS 9) »» Insurance Contracts (Amendments to SLFRS 4)
13 Revenue
Accounting policy
Continuing operations
Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group, and the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, net of trade discounts and value added taxes, after eliminating sales within the Group.
The following specific criteria are used for revenue recognition:
Sale of goods buyer with the Group retaining neither a continuing managerial Revenue from the sale of goods is recognised when the significant involvement to the degree usually associated with ownership, nor risk and rewards of ownership of the goods have passed to the an effective control over the goods sold. 176 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
Rendering of services Overdue charges Revenue from rendering of services is recognised by reference to Overdue charges of leasing, loans and hire purchases have been the stage of completion. Where the contract outcome cannot be accounted when the receipt in established. measured reliably, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered. Life insurance business - Gross Written Premiums (GWP) Gross written premiums comprise the total premiums received/ Income from leases, hire purchases, loans and advances receivable for the whole period of cover provided by contracts The accounting for income from leases, hire purchases, loans entered into during the accounting period. Gross written premium is and advances is recognised using the Effective Interest Rate (EIR) generally recognised in full at the inception of the policy. which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial instrument or a Gross recurring premiums on life insurance contracts are recognised shorter period, where appropriate, to the net carrying amount of as revenue when payable by the policyholder (policies within the the financial asset. The calculation takes into account all contractual 30 day grace period are considered as due). Premiums received terms of the financial instrument and includes any fees or in advance are not recorded as revenue and recorded as a liability incremental costs that are directly attributable to the instrument and until the premium is due unless the relevant policy conditions are an integral part of the EIR, but not future credit losses. require such premiums to be recognised as income. Benefits and expenses are provided against such revenue to recognise profits Once the recorded value of a financial asset or a group of similar over the estimated life of the policies. For single premium business, financial assets has been reduced due to an impairment loss, revenue is recognised on the date on which the policy is effective. interest income continue to be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring Consultancy and professional service income the impairment loss. These are recognised as income in the accounting period in which the services are rendered or performed. Rental income Rental income arising from operating leases is recognised on a straight line basis over the term of hire and operating leases.
Discontinued operations
General insurance business - Gross Written Premiums (GWP) over the period of risk in proportion to the amount of insurance Gross written premiums recognised on the date on which the policy protection provided. commences. General insurance business - reinsurance premium Rebates that form part of the premium rate, such as no-claim Reinsurance premiums written comprise the total premiums rebates, are deducted from the gross written premium. payable for the whole cover provided by contracts entered into the period and are recognised on the date on which the policy incepts. General insurance business - Unearned Premium Reserve Premiums include any adjustments arising in the accounting period (UPR) in respect of reinsurance contracts incepting in prior accounting Unearned premiums are those proportions of premiums written periods. in a year that relate to periods of risk after the reporting date. UPR represents the portion of the premium written in the year but General insurance business - unearned reinsurance premium relating to the unexpired term of coverage. Unearned reinsurance premiums are those proportions of premiums written in a year that relate to periods of risk after the Unearned premiums are calculated on the 1/365 basis except for reporting date. Unearned reinsurance premiums are deferred marine and title policies which are computed on a 60 - 40 basis in over the term of the underlying direct insurance policies for risks- accordance with the Regulation of Insurance Industry Act, No. 43 attaching contracts and over the term of the reinsurance contract of 2000. However, for those contracts for which the period of risk for losses-occurring contracts. Unearned reinsurance premiums are differs significantly from the contract period, premiums are earned calculated on the 1/365 basis except for marine policies which are computed on a 60:40 basis. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 177
Turnover based taxes Companies in the Group pay turnover based taxes including value added tax, economic service charge, nation building tax and tourism development levy in accordance with the respective statutes.
In Rs. ‘000 Group Company For the year ended 31 March 2018 2017 2018 2017 Restated Sale of goods 39,629,431 38,154,217 - - Rendering of services 22,866,620 17,261,792 649,823 628,427 Interest income 3,522,864 3,466,344 - - 66,018,915 58,882,353 649,823 628,427
13.1 Business segment analysis In Rs. ‘000 Group For the year ended 31 March 2018 2017 Restated Automobile 2,420,806 1,407,461 Financial Services 11,060,913 8,767,799 Healthcare Services 12,025,178 10,372,594 Information Technology 16,897,773 17,539,350 Leisure 2,585,423 1,213,183 Other 11,256 10,945 Retail 21,017,566 19,571,021 66,018,915 58,882,353
14 Dividend income
Accounting policy
Dividend income is recognised when the Company’s right to receive the payment is established.
In Rs. ‘000 Company For the year ended 31 March 2018 2017 Dividend income from investments in subsidiaries and equity accounted investees 893,013 1,343,213 893,013 1,343,213
15 Other operating income
Accounting policy
Gains and losses Fee income Net gains and losses of a revenue nature arising from the disposal Fee income from services includes mainly documentation and of property, plant and equipment and other non-current assets, processing fees for the service provided in processing loan facilities including investments, are accounted for in the income statement, for customers. after deducting from the proceeds on disposal, the carrying amount of such assets and the related selling expenses. Profit on disposal of investments
Gains and losses arising from activities incidental to the main On derecognition of an investment classified as available-for- revenue generating activities and those arising from a group of sale, the cumulative gain or loss previously recognised in other similar transactions which are not material are aggregated, reported comprehensive income statement is transferred to the income and presented on a net basis. statement. 178 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
Other income Other income is recognised on an accrual basis.
In Rs. ‘000 Note Group Company For the year ended 31 March 2018 2017 2018 2017 Commission income 69,605 53,747 36,036 18,018 Fees received 475,344 606,684 - - Net exchange gain 51,977 39,220 - - Other laboratory income 89,716 97,661 - - Proceeds from investment disposal gain of Asiri share trust 558,894 - - - Profit on disposal of investments 335,499 40,016 - - Profit on disposal of investments in subsidiaries 8.2 - - 4,588,114 1,112,456 Profit on sale of property, plant & equipment 19,558 19,155 10,100 4,578 Sundry income 161,154 137,948 692 2,249 1,761,747 994,431 4,634,942 1,137,301
16 Finance income
Accounting policy Finance income comprises interest income on funds invested, Interest income is recorded as it accrues using the effective interest dividend income, fair value gains on financial assets at fair value rate (EIR), which is the rate that exactly discounts the estimated through profit or loss and gains on the re-measurement to fair value future cash receipts through the expected life of the financial of any pre-existing interest in an acquiree recognised in the income instrument or a shorter period where appropriate, to the net statement. carrying amount of the financial asset. Interest income is included in finance income on the income statement.
In Rs. ‘000 Group Company For the year ended 31 March 2018 2017 2018 2017 Interest income 887,733 728,370 882,835 687,289 Dividend income on - available-for-sale financial assets 103,187 89,006 - - - financial assets at fair value through profit or loss 23,537 10,936 - - Net change in fair value of financial instruments at fair value through profit or loss 29,238 (12,262) 55,854 202,167 Finance income on other financial instruments 60,110 81,341 184,168 156,180 1,103,805 897,391 1,122,857 1,045,636 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 179
17 Finance costs
Accounting policy Finance costs comprise interest expenses on borrowings, fair value Borrowing costs directly attributable to the acquisition, construction losses on financial assets at fair value through profit or loss and or production of an asset that necessarily takes a substantial period impairment losses recognised on financial assets (other than trade of time to get ready for its intended use or sale are capitalised receivables). as part of the cost of the respective assets. All other borrowing costs are expensed in the period in which they occur. Borrowing Interest expense is recorded as it accrues using the effective interest costs consist of interest and other costs that the Group incurs in rate (EIR), which is the rate that exactly discounts the estimated connection with the borrowing of funds. future cash payments through the expected life of the financial instrument or a shorter period where appropriate, to the net carrying amount of the financial liability.
In Rs. ‘000 Group Company For the year ended 31 March 2018 2017 2018 2017 Interest expense on borrowings 4,662,922 3,914,890 1,516,380 1,367,542 Finance cost on other financial instruments 1,104,072 725,541 1,145,858 669,540 Other finance expenses 192,872 169,107 33,760 2,780 5,959,866 4,809,538 2,695,998 2,039,862
18 Profit before tax
Accounting policy
Expenditure recognition Expenses are recognised in the income statement on the basis of For the purpose of presentation of the income statement, the a direct association between the cost incurred and the earning of “function of expenses” method has been adopted, on the basis specific items of income. All expenditure incurred in the running of that it presents fairly the elements of the Company and Group’s the business and in maintaining the property, plant and equipment performance. in a state of efficiency has been charged to the income statement.
Profit before tax is stated after charging all expenses including the following:
In Rs. ‘000 Group Company For the year ended 31 March 2018 2017 2018 2017 Remuneration to Executive and Non-Executive Directors 288,693 238,512 42,225 23,286 Auditors' remuneration - Audit 27,230 19,986 2,506 2,798 - Non audit 13,922 10,364 2,168 43 Cost of defined employee benefit - Defined benefit plan cost 218,953 170,673 13,222 10,075 - Defined contribution plan cost - EPF/ETF 764,930 609,949 38,387 31,948 Staff expenses 7,812,532 5,997,475 301,506 270,074 Depreciation of property, plant and equipment 2,284,583 1,711,638 36,039 28,899 Amortisation of intangible assets 279,494 281,006 2,824 3,716 Amortisation of lease rentals paid in advance 1,116 1,037 - - Donations 16,910 15,429 570 6,320 Provisions for/ write off of impaired receivables 252,445 343,542 64,000 452,288 Provision for impairment of inventories 108,930 293,705 - - Provisions for/ write off of impaired investments - - 24,900 54,008 Profit on sale of property, plant and equipment (19,558) (19,155) (10,100) (4,578) Impairment and derecognition of property, plant and equipment 18,705 17,442 - - Impairment/ derecognition of intangible assets 78,574 67,645 - - 180 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
19 Taxation
19.1 Income tax
Accounting policy
Current tax comprehensive income is recognised in other comprehensive Current tax assets and liabilities for the current and prior periods are income and not in the income statement. Management periodically measured at the amount expected to be recovered from or paid to evaluates positions taken in the tax returns with respect to situations the taxation authorities. The tax rates and tax laws used to compute in which applicable tax regulations are subject to interpretation and the amount are those that are enacted or substantively enacted at establishes provisions where appropriate. the reporting date in the countries where the Group operates and generates taxable income. Management has used its judgment on the application of tax laws including transfer pricing regulations involving identification of Current income tax relating to items recognised directly in associated undertakings, estimation of the respective arm’s length equity is recognised in equity and for items recognised in other prices and selection of appropriate pricing mechanisms.
In Rs. ‘000 Note Group Company For the year ended 31 March 2018 2017 2018 2017 Restated Current income tax Current tax charge 882,320 757,824 42,315 37,501 Under provision of income tax of previous years 39,150 (24,618) 79,361 13,678 10% withholding tax on intercompany dividends 163,878 256,548 - - Total income tax expense 19.1.3 1,085,348 989,754 121,676 51,179
Deferred income tax Relating to origination and reversal of temporary differences 19.2.1 (270,989) (183,692) 137,081 1,381 814,359 806,062 258,757 52,560
19.1.2 Reconciliation between accounting profit and taxable profit In Rs. ‘000 Group Company For the year ended 31 March 2018 2017 2018 2017 Restated Profit before tax 3,092,402 1,581,129 3,957,426 1,077,976 Dividend income from Group companies 1,877,396 3,221,964 - - Share of results of equity accounted investees (19,787) (9,998) - - Other consolidation adjustments 5,606,421 2,772,872 - - Profit after adjustment 10,556,432 7,565,967 3,957,426 1,077,976 Exempt profits (652,129) (378,454) - - Profits not liable for income tax (7,597,128) (3,855,226) (4,656,789) (1,389,445) Resident dividend (2,004,119) (3,322,120) (893,198) (1,343,427) Adjusted accounting profit chargeable to income taxes 303,056 10,167 (1,592,561) (1,654,896) Deductible expenses (3,447,181) (2,685,747) (54,612) (60,968) Non deductible expenses 5,032,398 3,869,060 1,794,516 1,838,587 Other source of income 73,974 18,199 3,783 11,210 Set off against tax losses (248,610) (317,406) - - Other reductions (14,997) (68,020) - - Taxable income 1,698,640 826,253 151,126 133,933 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 181
19.1.3 Reconciliation between tax based on accounting profit and tax expense In Rs. ‘000 Group Company For the year ended 31 March 2018 2017 2018 2017 Restated Tax effect on chargeable profits 327,459 533,841 (444,858) (460,232) Tax effect on non deductible expenses 935,266 696,521 502,464 514,804 Tax effect on deductible expenses (380,405) (472,538) (15,291) (17,071) Under/ (over) provision for previous years 39,150 (24,618) 79,361 13,678 Other income based taxes 10% withholding on intercompany dividends 163,878 256,548 - - Total income tax expense 1,085,348 989,754 121,676 51,179
Income tax charged at Standard rate - 28% 768,492 657,060 42,315 37,501 Other concessionary rates 113,828 100,764 - - Under/ (over) provision for previous year 39,150 (24,618) 79,361 13,678 Charge for the year 921,470 733,206 121,676 51,179
Other income based taxes 10% withholding on intercompany dividends 163,878 256,548 - - Total income tax expense 1,085,348 989,754 121,676 51,179
Group tax expense is based on the taxable profit of individual companies within the Group. At present the tax laws of Sri Lanka do not provide for Group taxation.
19.1.4 Income tax liabilities In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 Restated At the beginning of the year 535,788 568,387 56,555 36,663 Charge for the year 1,085,348 989,754 121,676 51,179 Acquisition/ (disposal) of subsidiary (7,309) (23,709) - - Payments and set off against refunds (1,265,455) (998,644) (144,922) (31,287) At the end of the year 348,372 535,788 33,309 56,555
19.2 Deferred tax
Accounting policy Deferred tax is provided, using the liability method, on temporary controlled, and it is probable that the temporary differences will differences at the reporting date between the tax bases of assets not reverse in the foreseeable future. and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax Deferred tax liabilities are recognised for all taxable temporary losses, to the extent that it is probable that taxable profit will be differences except: available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can »» where the deferred tax liability arises from the initial recognition be utilised except: of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects »» where the deferred tax asset relating to the deductible neither the accounting profit nor taxable profit or loss; and temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business »» in respect of taxable temporary differences associated with combination and, at the time of the transaction, affects neither investments in subsidiaries and associates, except where the the accounting profit nor the taxable profit or loss; and timing of the reversal of the temporary differences can be 182 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
»» in respect of deductible temporary differences associated with liability is settled, based on tax rates (and tax laws) that have been investments in subsidiaries and associates, deferred tax assets enacted or substantively enacted at the reporting date. are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future Deferred tax relating to items recognised outside the income and taxable profit will be available against which the temporary statement is recognised outside the income statement, either in differences can be utilised. other comprehensive income or directly in equity.
The carrying amount of deferred income tax assets is reviewed at Deferred tax assets and deferred tax liabilities are offset if a legally each reporting date and reduced to the extent that it is no longer enforceable right exists to set off current tax assets against current probable that sufficient taxable profit will be available to allow all or tax liabilities and when the deferred taxes relate to the same taxable part of the deferred tax asset to be utilised. Unrecognised deferred entity and the same taxation authority. tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits No deferred tax asset or liability has been recognised in the will allow the deferred tax assets to be recovered. companies enjoying Board of Investment (BOI) Tax Holidays’ if no qualifying assets or liabilities continue beyond the BOI period. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the
19.2.1 Deferred tax charge / (release) In Rs. ‘000 Group Company For the year ended 31 March 2018 2017 2018 2017 Restated Income statement Deferred tax expense arising from; Accelerated depreciation for tax purposes 302,197 12,970 (536) 3,939 Revaluation of investment property to fair value 9,450 - 108,683 (914) Employee benefit liabilities (126,730) (21,674) (2,493) (1,233) Benefit arising from tax losses (284,699) (209,725) - - Others (171,207) 34,737 31,427 (411) (270,989) (183,692) 137,081 1,381 Other comprehensive income Deferred tax expense arising from; Revaluation of land and building to fair value 2,420,819 43,483 - - Actuarial loss on employee benefit liabilities (19,404) (5,117) (2,861) (375) 2,401,415 38,366 (2,861) (375)
Deferred tax has been computed at 28% for all standard rate companies (including listed companies), and at 14% for leisure sector companies and at 15% for Central Hospitals Ltd. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 183
19.2.2 Deferred tax
In Rs. ‘000 Group Asset Liability As at 31 March 2018 2017 2018 2017 Restated At the beginning of the year 508,968 245,374 459,096 273,609 Charge and release 240,438 316,030 2,370,863 185,487 Disposal of subsidiary - (52,436) - - At the end of the year 749,406 508,968 2,829,959 459,096
The closing deferred tax asset balance relates to the following: In Rs. ‘000 Group Asset Liability As at 31 March 2018 2017 2018 2017 Restated Revaluation of land and building to fair value (46,861) (67,943) 2,613,489 221,348 Revaluation of investment property to fair value (450) - 9,000 - Accelerated depreciation for tax purposes (177,306) (223,501) 822,668 428,685 Employee benefit liabilities 98,125 34,221 (175,661) (97,240) Losses available for offset against future taxable income 615,698 765,472 (473,616) (32,938) Provision for bad debts 135,471 - - (67,457) Lease capital balance - - 61,190 22,990 Unclaimed impairment provisions 56,093 - - - Others 68,636 719 (27,111) (16,292) 749,406 508,968 2,829,959 459,096
19.2.2 Deferred tax - Company In Rs. ‘000 Liability As at 31 March 2018 2017 At the beginning of the year 23,696 22,690 Charge and release 134,220 1,006 At the end of the year 157,916 23,696
The closing deferred tax liability balance of the company relates to the following: In Rs. ‘000 Liability As at 31 March 2018 2017 Revaluation of investment property to fair value 149,523 40,840 Accelerated depreciation for tax purposes 12,412 12,948 Employee benefit liabilities (19,110) (13,756) Others 15,091 (16,336) 157,916 23,696 184 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
19.3 Sales tax Accounting judgements, estimates and assumptions Revenues, expenses, assets and liabilities are recognised net of the The Group is subject to income tax and other taxes including VAT. amount of sales tax except: Significant judgment was required to determine the total provision for current, deferred and other taxes due to the uncertainties that exist »» where the sales tax incurred on a purchase of assets or services with respect to the interpretation of applicability of tax laws at the is not recoverable from the taxation authority, in which case the time of the preparation of these financial statements. sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and Uncertainties also exist with respect to the interpretation of complex »» where receivables and payables are stated with the amount of tax regulations and the amount and timing of future taxable income. sales tax included. Given the wide range of business relationships and the long-term nature and complexity of existing contractual agreements, differences The net amount of sales tax recoverable from, or payable to, the arising between the actual results and assumptions made or future taxation authority is included as part of receivables or payables in changes to such assumptions may require future adjustments to tax the statement of financial position. income and expense already recorded. Where the final tax outcome of such matters is different from the amounts that were initially recorded, such differences will impact the income and deferred tax 19.4 Tax on dividend income amounts in the period in which the determination is made. Tax on dividend income from subsidiaries is recognised as an expense in the consolidated income statement. The Group has tax losses in subsidiaries that have a history of losses that do not expire and may not be used to offset other tax liabilities, where the subsidiaries have no avenues available that could partly support the recognition of these losses as deferred tax assets.
19.5 Tax losses carried forward In Rs. ‘000 Group As at 31 March 2018 2017 Restated Tax losses brought forward 14,919,394 11,315,980 Adjustments on finalisation of liability (255,809) 531,293 Acquisition/ (disposal) of subsidiary 10,113 (1,294,259) Tax losses arising during the year 5,027,543 4,683,786 Utilisation of tax losses (248,610) (317,406) 19,452,631 14,919,394
The group has tax losses amounting to Rs. 15,562 Mn (2017 - Rs. 12,068 Mn) available to offset against future taxable profits but not utilised for recognition of theses losses as deferred tax assets.
With the introduction of the Inland Revenue Act no. 24 of 2017, which is effective from 1 April 2018, significant changes have been introduced to the income tax law of Sri Lanka. Further the Department of Inland Revenue has issued a Gazette notification no. 2064/53 on the transitional provisions that would be applicable in implementing the above Act.
As per the gazette notification issued in relation to the transitional provisions, any unclaimed loss as at 31 March 2018 is deemed to be a loss incurred for the year of assessment commencing on or after 01 April 2018 and shall be carried forward up to 6 years. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 185
19.6 Applicable rates of income tax The tax liability of resident companies are computed at the standard rate of 28% except for the following companies which enjoy full or partial exemptions and concessions.
19.6.1 Exemptions/ concessions granted under the Board of Investment Law/ Inland Revenue Act
Company Basis Exemption or Period concessions concessions Central Hospital Ltd Providing healthcare Exempt 8 years from 1st year of profit or 2 years from commencement of operation services whichever is earlier (from FY 2012/13 onwards) Softlogic City Hotels Construction of Exempt 7 Years from 1st year of profit or 2 years from commencement of operation (Pvt) Ltd tourist hotel whichever is earlier (from FY 2018/19 onwards) Ceysand Resorts (Pvt) Promotion of 14% Open ended Ltd tourism Softlogic Destination Promotion of 14% Open ended Management (Pvt) Ltd tourism Softlogic B P O Services BPO service Exempt 6 years commencing from year in which the company make profits or (Pvt) Ltd any year of assessment not less than 2 years reckoned from the date of commencement of commercial operations whichever is earlier (from FY 2015/16 onwards)
19.6.2 Income tax rates of off-shore subsidiaries
Company Country of incorporation Rate Softlogic Australia (Pty) Ltd Australia 28%
20 Earnings per share
Accounting policy Basic EPS is calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the weighted number of ordinary shares outstanding during the year.
20.1 Basic earnings per share Note Group For the year ended 31 March 2018 2017 Restated Profit attributable to equity holders of the parent - continuing operations (Rs. ’000) 204,200 55,684 - discontinued operation (Rs. ’000) - 63,929
Weighted average number of ordinary shares 20.2 777,222,725 774,408,293
Basic earnings per share - continuing operations (Rs.) 0.26 0.07 - discontinued operation (Rs.) - 0.08 186 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
20.2 Amount used as denominator Group For the year ended 31 March 2018 2017 Ordinary shares at the beginning of the year 779,000,000 779,000,000 Effect of purchase of treasury shares (4,280,404) (4,591,707) Effect of issue of private placement shares 2,503,129 - Weighted average number of ordinary shares 777,222,725 774,408,293
21 Dividend per share Equity dividend on ordinary shares declared and paid during the year
Group For the year ended 31 March 2018 2017 Rs. Rs.‘000 Rs. Rs.‘000 Interim dividend 0.65 503,365 0.50 387,204
22 Property, plant and equipment
Accounting policy
Basis of recognition Any revaluation surplus is recognised in the statement of other Property, plant and equipment are recognised if it is probable that comprehensive income and accumulated in equity in the future economic benefits associated with the asset will flow to the asset revaluation reserve, except to the extent that it reverses a Group and the cost of the asset can be reliably measured. revaluation decrease of the same asset previously recognised in the income statement, in which case the increase is recognised in the income statement. A revaluation deficit is recognised in the income Basis of measurement statement, except to the extent that it offsets an existing surplus on Plant and equipment are stated at cost less accumulated the same asset recognised in the asset revaluation reserve. depreciation and any accumulated impairment loss. Such cost includes the cost of replacing component parts of the plant and Accumulated depreciation as at the revaluation date is eliminated equipment and borrowing costs for long-term construction projects against the gross carrying amount of the asset and the net amount if the recognition criteria are met. When significant parts of plant is restated to the revalued amount of the asset. Upon disposal, and equipment are required to be replaced at intervals, the Group any revaluation reserve relating to the particular asset being sold derecognises the replaced part, and recognises the new part with is transferred to retained earnings. Where land and buildings are its own associated useful life and depreciation. Likewise, when a subsequently revalued, the entire class of such assets is revalued major inspection is performed, its cost is recognised in the carrying at fair value on the date of revaluation. The Group has adopted a amount of the plant and equipment as a replacement if the policy of revaluing land and buildings by professional valuers at least recognition criteria are satisfied. All other repair and maintenance every 3 years except for properties held for rental and occupied costs are recognised in the income statement as incurred. mainly by group companies.
Land and buildings are measured at fair value less accumulated De-recognition depreciation on buildings and impairment charged subsequent to the date of the revaluation. An item of property, plant and equipment is derecognised upon replacement, disposal or when no future economic benefits are The carrying values of property, plant and equipment are reviewed expected from its use. Any gain or loss arising on derecognition of for impairment when events or changes in circumstances indicate the asset is included in the income statement in the year the asset that the carrying value may not be recoverable. is derecognised. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 187
Depreciation and the lease term. Operating lease payments are recognised as an Depreciation is calculated by using a straight-line method on the operating expense in the income statement on a straight-line basis cost or valuation of all property, plant and equipment, other than over the lease term. freehold land, in order to write off such amounts over the estimated useful economic life of such assets. Impairment of property plant and equipment The Group assesses at each reporting date whether there is an The estimated useful life of assets is as follows: indication that an asset may be impaired. If any such indication Assets Rate exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. Buildings 40 - 75 An asset’s recoverable amount is the higher of an asset’s or Buildings on leasehold land 40 - 60 or over cash generating unit’s fair value less costs to sell and its value in the period of lease use and is determined for an individual asset, unless the asset Plant & machinery 4 - 10 does not generate cash inflows that are largely independent of Computer equipment, furniture & fittings 2 - 10 those from other assets or groups of assets. Where the carrying Motor vehicles 4 - 8 amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The useful life and residual values of assets are reviewed, and In assessing value in use, the estimated future cash flows are adjusted if required, at the end of each financial year. discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognised in Capital work-in-progress the income statement, except that impairment losses in respect of Capital work in progress consists of the cost of assets, labour and property, plant and equipment previously revalued are recognised other direct costs associated with property, plant and equipment against the revaluation reserve through the statement of other being constructed by the Group. Once the assets become comprehensive income to the extent that they reverse a previous operational, the related costs are transferred from construction in revaluation surplus. progress to the appropriate asset category and are depreciated together with the related asset. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may Group as a lessee no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised Finance leases which transfer to the Group substantially all the impairment loss is reversed only if there has been a change in risks and benefits incidental to ownership of the leased item, the estimates used to determine the asset’s recoverable amount are capitalised at the commencement of the lease at the fair since the last impairment loss was recognised. If that is the case, value of the leased property or, if lower, at the present value of the carrying amount of the asset is increased to its recoverable the minimum lease payments. Lease payments are apportioned amount. That increased amount cannot exceed the carrying amount between finance charges and reduction of the lease liability so as that would have been determined, net of depreciation, had no to achieve a constant rate of interest on the remaining balance of impairment loss been recognised for the asset in prior years. Such the liability. Finance charges are recognised in finance costs in the reversal is recognised in the income statement unless the asset is income statement. carried at a revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation A leased asset is depreciated over the useful life of the asset. charge is adjusted in future periods to allocate the asset’s revised However, if there is no reasonable certainty that the Group will carrying amount, less any residual value, on a systematic basis over obtain ownership by the end of the lease term, the asset is its remaining useful life. depreciated over the shorter of the estimated useful life of the asset 188 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
22.1 Group In Rs. ‘000 Land and Buildings Plant and Computer, Motor Capital Total Total buildings on machinery Equipment, vehicles work-in- leasehold furniture progress land and fittings As at 31 March 2018 2017 Freehold assets Cost or Valuation At the beginning of the year 21,145,324 5,907,368 5,698,215 8,428,372 374,683 1,629,696 43,183,658 36,525,122 Additions 803,680 103,487 737,700 901,760 96,076 1,867,307 4,510,010 6,230,700 Acquisition/ (disposal) of subsidiary 43,000 54,000 - 10,985 8,630 - 116,615 (80,783) Disposals - (8,776) (205,341) (108,756) (41,598) - (364,471) (500,055) Transfers* (383,012) (71,038) 410,603 405,281 138,128 (788,833) (288,871) (247,193) Impairment/ derecognition (5,770) - (12,922) - - (13) (18,705) (67,493) Revaluations 2,360,640 220,221 - - - - 2,580,861 1,322,817 Effect of movements in exchange rates - 20 - 55 253 - 328 543 At the end of the year 23,963,862 6,205,282 6,628,255 9,637,697 576,172 2,708,157 49,719,425 43,183,658
Leasehold assets Cost At the beginning of the year - - 179,594 4,297 324,291 - 508,182 526,119 Additions - - - - 13,850 - 13,850 80,595 Acquisition of subsidiary - - - 2,336 3,900 - 6,236 - Disposals - - - - (15,870) - (15,870) (39,602) Transfers - - - (2,336) (21,133) - (23,469) (58,930) At the end of the year - - 179,594 4,297 305,038 - 488,929 508,182 Total value of assets 23,963,862 6,205,282 6,807,849 9,641,994 881,210 2,708,157 50,208,354 43,691,840
Freehold assets Accumulated depreciation At the beginning of the year 29,423 558,467 2,798,071 3,595,496 213,934 - 7,195,391 6,149,108 Charge for the year 226,000 302,122 597,295 1,051,466 48,215 - 2,225,098 1,645,304 Acquisition/ (disposal) of subsidiary - - - 7,177 6,792 - 13,969 (37,011) Disposals - (7,374) (140,721) (97,702) (30,148) - (275,945) (384,958) Transfers* (252,809) (214,613) (7,060) (4,252) 17,269 - (461,465) (127,120) Impairment/ derecognition ------(50,051) Effect of movements in exchange rates - 11 - (63) 28 - (24) 119 At the end of the year 2,614 638,613 3,247,585 4,552,122 256,090 - 8,697,024 7,195,391
Leasehold assets Accumulated depreciation At the beginning of the year - - 47,835 4,297 93,460 - 145,592 141,992 Charge for the year - - 18,275 26 41,184 - 59,485 66,334 Acquisition of subsidiary - - - 465 1,788 - 2,253 - Disposals - - - - (11,608) - (11,608) (18,991) Transfers - - - (491) (21,824) - (22,315) (43,743) At the end of the year - - 66,110 4,297 103,000 - 173,407 145,592 Total accumulated depreciation 2,614 638,613 3,313,695 4,556,419 359,090 - 8,870,431 7,340,983
Carrying value As at 31 March 2018 23,961,248 5,566,669 3,494,154 5,085,575 522,120 2,708,157 41,337,923 As at 31 March 2017 21,115,901 5,348,901 3,031,903 4,832,876 391,580 1,629,696 36,350,857
* Transfers include the accumulated depreciation amounting to Rs. 467.22 Mn (2017 - Rs. 143.90 Mn) as at revaluation date that was eliminated against the gross carrying amount of the revalued assets. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 189
22.2 Company In Rs. ‘000 Furniture and Computer Motor Total Total fittings and office vehicles Equipment, As at 31 March 2018 2017 Freehold assets Cost At the beginning of the year 34,742 41,598 91,207 167,547 94,374 Additions 2,206 3,594 43,585 49,385 45,954 Disposals - (492) (10,677) (11,169) (5,745) Transfers (23) (62) - (85) 32,965 At the end of the year 36,925 44,638 124,115 205,678 167,548
Leasehold assets At the beginning of the year - - 147,806 147,806 135,803 Additions - - - - 66,190 Disposals - - (11,970) (11,970) (21,222) Transfers - - - - (32,965) At the end of the year - - 135,836 135,836 147,806 Total value of assets 36,925 44,638 259,951 341,514 315,354
Freehold assets Accumulated depreciation At the beginning of the year 10,359 14,701 50,404 75,464 50,624 Charge for the year 4,688 5,767 10,515 20,970 9,423 Disposals - (219) (7,201) (7,420) (4,031) Transfers (23) (32) - (55) 19,448 At the end of the year 15,024 20,217 53,718 88,959 75,464
Leasehold assets Accumulated depreciation At the beginning of the year - - 38,603 38,603 48,780 Charge for the year - - 15,069 15,069 19,476 Disposal - - (9,576) (9,576) (10,205) Transfers - - - - (19,448) At the end of the year - - 44,096 44,096 38,603 Total accumulated depreciation 15,024 20,217 97,814 133,055 114,067
Carrying value As at 31 March 2018 21,901 24,421 162,137 208,459 As at 31 March 2017 24,383 26,897 150,006 201,287
22.3 Revaluation of land and buildings
Accounting judgements, estimates and assumptions fair value, maximising the use of relevant observable inputs and The Group uses the revaluation model of measurement of land minimising the use of unobservable inputs. The date of the most and buildings. The Group engaged independent expert valuers, recent revaluation was on 31 March 2018. to determine the fair value of its land and buildings. Fair value is determined by reference to market-based evidence of transaction The changes in fair value are recognised in other comprehensive prices for similar properties. income and in the statement of equity. As a result of the valuations of land and buildings the surplus arising from the change in fair Valuations are based on open market prices, adjusted for any value was Rs. 2,580.86 Mn (2017 - Rs. 1,322.82 Mn) which has difference in the nature, location or condition of the specific been credited to the revaluation reserve. property. The valuation techniques used are appropriate in the circumstances, for which sufficient data is available to measure 190 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
Details of group’s land and buildings stated at valuations are indicated below:
Group
Company Property Method Extent Range of estimates for significant Correlation of unobservable inputs to fair valuation value Per perch Per square foot value - Rs. Mn. value - Rs. 2018 2017 2018 2017 Property valuations by Mr. G W G Abeygunawardene (Chartered Valuation Surveyor) Land of Softlogic Holdings PLC 14, De Fonseka OMV 21.89 P 14.50 - 13.25 - - - Positive Place, Colombo 05 15.50 13.50 Softlogic Properties 24, Dharmapala Mw., OMV 2 R 18.00 12.00 - - Positive (Pvt) Ltd Kollupitiya, Colombo 03 11.68 P Suzuki Motors 371, New Nuge Road, OMV 28.39 P 1.50 - - - Positive Lanka Ltd Peliyagoda Building of Softlogic Information 14, De Fonseka DCC - - - 6,250 - 6,500 - Positive Technologies (Pvt) Ltd Place, Colombo 05 7,550 7,500 Suzuki Motors 371, New Nuge Road, DCC - - - 4,500 - - Positive Lanka Ltd Peliyagoda 6,000 Softlogic City Hotels 24, Dharmapala Mw., DCC - - - 18,880 - Positive (Pvt) Ltd Kollupitiya, Colombo 03 Land and building of Softlogic Holdings PLC 262, Gagarama Road, OMV/ 1 A 2 R 00.65 00.40 700 - 300 - Positive Piliyandala DCC 33.5 P 6,000 6,000 Softlogic Retail (Pvt) Ltd 402, Galle Road, OMV/ 17.3 P 16.50 12.50 4,500 - 7,500 Positive Colombo 03 DCC 6,250 Odel PLC Dr. C W W. Kannangara OMV/ 1 A 3 R 15.00 - 13.00 - 4,000 - 5,500 - Positive Mw., Colombo 07 DCC 27.58 P 15.50 13.50 4,250 5,750 29 A, Jayatilake Mw., OMV/ 1 R 1.90 1.60 2,540 - 4,500 - Positive Panadura DCC 2.16 P 4,950 5,000 18 & 20, Sama Mw., OMV/ 20.0 P 1.40 1.20 4,450 - 4,500 - Positive Boralesgomuwa DCC 4,950 5,000 Odel Properties (Pvt) 475/32, Kotte Road, OMV/ 1 R 6.00 4.75 5,000 - 5,500 - Positive Ltd Rajagiriya DCC 7.42 P 6,250 6,250 Softlogic Finance PLC 13, De Fonseka Place, OMV/ 12.62 P 15.50 12.50 6,500 - 6,500 - Positive Colombo 04 DCC 8,250 8,000 Property valuations by Mr. P B Kalugalgedara (Chartered Valuation Surveyor) Building of Asiri Surgical Hospital 21, Kirimandala DCC - - - 3,000 - 3,000 - Positive PLC Mw., Colombo 05 8,250 8,000 Future Automobiles 1124/5, Parliament DCC - - - 4,000 - 8,000 Positive (Pvt) Ltd Road, Battaramulla 8,000 Ceysand Resorts Ltd Centara Ceysands Resort DCC - - - 3,000 - 3,000 - Positive & Spa, Bentota 12,500 12,500 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 191
Company Property Method Extent Range of estimates for significant Correlation of unobservable inputs to fair valuation value Per perch Per square foot value - Rs. Mn. value - Rs. 2018 2017 2018 2017 Land and building of Asiri Hospital Holdings 181,Kirula Road, OMV/ 1 A 10.00 7.50 2,000 - 2,000 - Positive PLC Colombo 05 DCC 30.21 P 16,000 16,000 Central Hospitals Ltd 114, Norris Canal Road, OMV/ 1 A 11.00 9.00 2,000 - 2,000 - Positive Colombo 10 DCC 21.03 P 10,000 10,000 Asiri Matara Hospital 26, Esplande Road, OMV/ 1 A 0.70 - 0.65 - 2,000 - 2,000 - Positive (Pvt) Ltd Uyanwatta, DCC 2 R 1.3 P 1.00 00.90 8,000 7,500 Softlogic Life Insurance 283, R A De Mel Mw., OMV/ 12.0 P 15.00 11.00 9,750 10,000 Positive PLC Kollupitiya, Colombo 03 DCC
Effective date of valuation of group’s land and buildings was 31 March 2018 except for Softlogic Life PLC which valued at 31 December 2017.
Summary description of valuation methodologies The valuer has used valuation techniques such as market values and discounted cash flow methods where there was lack of comparable market data available based on the nature of the property.
Open market value method (OMV) Direct capital comparison method (DCC) Open market value method uses prices and other relevant This method may be adopted when the rental value is not available information generated by market transactions involving identical or from the property concerned, but there are evidence of sale price comparable assets, liabilities or a group of assets and liabilities, such of properties as a whole. In such cases, the capitalised value of the as a business property is fixed by direct comparison with the capitalised value of similar property in the locality.
22.4 Land and buildings In Rs. ‘000 Group As at 31 March 2018 2017 At cost 774,891 6,531,587 At valuation 28,783,026 19,933,215 29,557,917 26,464,802
22.5 Carrying value In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 At cost 12,239,375 16,055,052 116,719 92,084 At valuation 28,783,026 19,933,215 - - On finance lease 315,522 362,590 91,740 109,203 41,337,923 36,350,857 208,459 201,287
22.6 The carrying amount of revalued land and buildings if they were carried at cost less depreciation, would be as follows: In Rs. ‘000 Group As at 31 March Land and Buildings on 2018 2017 buildings leasehold land Total Total Cost 15,778,637 3,077,643 18,856,280 12,408,240 Accumulated depreciation (1,094,072) (342,572) (1,436,644) (1,136,625) Carrying value 14,684,565 2,735,071 17,419,636 11,271,615 192 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
22.7 Property, plant and equipment pledged as securities Group land and buildings with a carrying value of Rs. 7,526.26 Mn (2017 - Rs. 8,010.00 Mn) have been pledged as security for term loans obtained, details of which are disclosed in note 53. Further property plant & equipment with a carrying value of Rs. 315.52 Mn (2017 - Rs. 362.59 Mn) and Rs. 91.74 Mn (2017 - Rs. 109.20 Mn) for the Group and Company respectively have been pledged as securities for the lease facilities obtained.
22.8 Fully depreciated but still in use Group property, plant and equipment with a cost of Rs. 3,241.68 Mn (2017 - Rs. 2,090.60 Mn) have been fully depreciated and continue to be in use by the Group. The cost of fully depreciated assets in the Company amounts to Rs. 47.54 Mn (2017 - Rs. 58.83 Mn).
22.9 Permanent fall in value of property, plant and equipment There is no permanent fall in the value of property, plant and equipment which requires a provision for impairment other than the details disclosed under note 18 and note 22.1 to the financial statements.
22.10 Title restriction on property, plant and equipment There were no restrictions that existed on the title to the property, plant and equipment of the Group/ Company as at the reporting date.
22.11 Capital work-in-progress - Group Group Capital work-in-progress mainly consists the cost of 180 beds multi-disciplined hospital under construction in Kandy by Asiri Hospital Kandy (Pvt) Ltd which is a fully own subsidiary of Asiri Hospital Holdings PLC.
23 Lease rentals paid in advance
Accounting policy Prepaid lease rentals paid to acquire land use rights are amortised over the lease term in accordance with the pattern of benefits provided.
In Rs. ‘000 Group As at 31 March 2018 2017 At the beginning of the year 852,722 853,759 Acquisition through business combinations 3,884 - Amortisation for the year (51,005) (1,037) At the end of the year 805,601 852,722
Prepaid lease rentals paid to acquire land use rights have been classified as lease rentals paid in advance and are amortised over the lease term in accordance with the pattern of benefits provided.
23.1 Details of prepaid lease rentals In Rs. ‘000 Extent Lease period Group As at 31 March 2018 2017 Asiri Surgical Hospital PLC, Colombo 05 2 A 1 R 11.6 P 50 years from 29 March 2000 84,164 85,201 Asiri Hospital Kandy (Pvt) Ltd, Mulgampala 2 A 1 R 13.84 P 50 years from 01 January 2015 717,632 767,521 Suzuki Motors Lanka Ltd, Peliyagoda 21.40 P 50 years from 02 December 1999 3,805 - 805,601 852,722 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 193
24 Investment properties
Accounting policy Properties held to earn rental income and properties held for capital Investment properties are derecognised when disposed, or appreciation have been classified as investment property. permanently withdrawn from use because no future economic benefits are expected. Any gains or losses on de-recognition or Investment properties are measured initially at cost, including disposal are recognised in the income statement in the year of de- transaction costs. The carrying value of an investment property recognition or disposal. includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition Transfers are made to or from investment property only when criteria are met, and excludes the costs of day-to-day servicing there is a change in use. For a transfer from investment property of the investment property. Subsequent to initial recognition, the to owner occupied property or inventory (WIP), the deemed cost investment properties are stated at fair values, which reflect market for subsequent accounting is the fair value at the date of change conditions at the reporting date. in use. If owner occupied property becomes an investment property or inventory (WIP), the Group accounts for such property Gains or losses arising from changes in fair value are included in in accordance with the policy stated under property, plant and the income statement in the year in which they arise. Fair values equipment up to the date of change in use. Where Group are evaluated at frequent intervals by an accredited external, companies occupy a significant portion of the investment property independent valuer. of a subsidiary, such investment properties are treated as property, plant and equipment in the consolidated financial statements, and accounted using the Group accounting policy for property, plant and equipment.
In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 At the beginning of the year 1,037,000 682,880 609,385 546,500 Additions during the year 3,300 - 2,140 709 Change in fair value during the year 198,000 354,120 92,475 62,176 At the end of the year 1,238,300 1,037,000 704,000 609,385
24.1 Amounts recognised in the income statement relating to investment property In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 Amounts recognised in income statement Revenue - - 76,589 67,348 Direct operating expenses 940 784 20,714 18,214
24.2 Accounting judgements, estimates and assumptions The fair value of investment property is ascertained by independent of transaction prices for similar properties, with appropriate valuations carried out by Chartered Valuation Surveyors, who have adjustments for size and location. The appraised fair values are recent experience in valuing properties of similar category in similar rounded within a range of values. location. Investment property is appraised by the independent valuers in accordance with LKAS 40, SLFRS 13 and the 8th edition Changes in fair value of lands and buildings which are recognised of International Valuation Standards published by the International as investment property are recognised in the income statement. Valuation Standards Committee (IVSC). In determining the fair The valuer has used the open market approach in determining the value, the current condition of the properties, future usability and fair value of the land. Further details on fair value of investment associated re-development requirements have been considered. property are disclosed in the below note. Also, the valuers have made reference to market evidence 194 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
Valuation details of investment property
Group
Company Property Method Extent Range of estimates for significant Correlation of unobservable inputs to fair valuation value Per perch Per square foot value - Rs. Mn. value - Rs. 2018 2017 2018 2017 Property valuations by Mr. G W G Abeygunawardene (Chartered Valuation Surveyor) Land of Softlogic Retail (Pvt) Dekatana, Gampaha OMV 20 A 2 R 0.03 0.03 - - Positive Ltd 27 P Odel Lanka (Pvt) Ltd 271 & 271F, Kaduwela OMV 1 A 2 R 4.80 4.00 - - Positive Road, Thalangama & 25.7 P 197/C, Kalapaluwawa Road, Thalangama
Company
Company Property Method Extent Range of estimates for significant Correlation of unobservable inputs to fair valuation value Per perch Per square foot value - Rs. Mn. value - Rs. 2018 2017 2018 2017 Property valuations by Mr. G W G Abeygunawardene (Chartered Valuation Surveyor) Land of Softlogic Holdings PLC 14, De Fonseka OMV 21.89 P 14.50 - 13.25 - - - Positive Place, Colombo 05 15.50 13.50 Land and building of Softlogic Holdings PLC 262, Gagarama Road, OMV/ 1 A 0.65 0.40 700 - 300 - Positive Piliyandala DCC 2 R 33.5 P 6,000 6,000
Effective date of valuation of group’s / company’s investment properties was 31 March 2018.
Summary description of valuation methodologies are disclosed under property, plant & equipment and note no. 22.3 to the Financial Statements.
25 Intangible assets
Accounting policy
Basis of recognition Following initial recognition, intangible assets are carried at cost less An intangible asset is recognised if it is probable that future any accumulated amortisation and any accumulated impairment economic benefits associated with the asset will flow to the Group losses. and the cost of the asset can be reliably measured. Internally generated intangible assets, excluding capitalised development costs, are not capitalised, and expenditure is charged Basis of measurement against income in the year in which the expenditure is incurred. Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 195
Useful economic lives, amortisation and impairment Purchased software The useful lives of intangible assets are assessed as either finite or Purchased software is recognised as an intangible asset and is infinite. Intangible assets with finite lives are amortised over their amortised on a straight line basis over its useful life. useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. Present Value of acquired In-force Business (PVIB)
The amortisation period and the amortisation method for an The present value of future profits on a portfolio of long term life intangible asset with a finite useful life is reviewed at least at each insurance contracts as at the acquisition date is recognised as an financial year-end and such changes are treated as accounting intangible asset based on a valuation carried out by an independent estimates. The amortisation expense on intangible assets with finite actuary. Subsequent to initial recognition, the intangible asset is lives is recognised in the income statement. carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets with infinite useful lives are not amortised but tested for impairment annually, or more frequently when an The PVIB is amortised over the average useful life of the related indication of impairment exists either individually or at the cash- contracts in the portfolio. The amortisation charge and any generating unit level. The useful life of an intangible asset with impairment losses would be recognised in the consolidated income an infinite life is reviewed annually to determine whether infinite statement as an expense. life assessment continues to be supportable. If not, the change in the useful life assessment from infinite to finite is made on a Brand name prospective basis. Brands acquired as part of a business combination, are capitalised as Brands if they meet the definition of an intangible asset and Goodwill are tested for impairment annually or more frequently if events or The Group measures goodwill at the acquisition date and initial changes in the circumstances indicate that the carrying value may recognition and impairment testing policy is stated in the note 8 to be impaired. the financial statements. Software licenses Lease rights Software license costs are recognised as an intangible asset and Lease rights acquired as part of a business combination, are amortised over the period of the related license. capitalised if they meet the definition of an intangible asset and the recognition criteria are satisfied. Leased rights are amortised on a straight-line basis over their estimated useful life.
A summary of the policies applied to the group’s intangible assets is as follows:
Intangible Useful life Acquired/ internally Impairment testing generated Goodwill Infinite Acquired annually or when an indication of impairment exists Lease rights Over the remaining lease period Acquired when an indication of impairment exists Purchased software 3 - 5 years Acquired when an indication of impairment arises Present Value of acquired 16 years Acquired when an indication of impairment exists In-force Business (PVIB) Brand name Infinite Acquired annually or when an indication of impairment exists Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised. 196 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
In Rs. ‘000 Goodwill Lease PVIB Brand Others* Group Company right name Total Total Computer Software As at 31 March 2018 2017 2018 2017 Cost / carrying value At the beginning of the year 4,115,823 874,406 1,980,620 1,666,234 1,175,097 9,812,180 9,679,261 11,949 9,703 Additions - - - - 256,485 256,485 221,672 2,377 2,246 Acquisition/ (disposal) of subsidiary 124,680 18,000 - - - 142,680 (225) - - Transfers ------(5,024) - - Impairment/ derecognition - - - (78,574) - (78,574) (83,504) - - Exchange translation difference - - - - 38 38 - - - At the end of the year 4,240,503 892,406 1,980,620 1,587,660 1,431,620 10,132,809 9,812,180 14,326 11,949
Accumulated amortisation and impairment At the beginning of the year - 133,657 691,154 - 418,132 1,242,943 978,182 10,909 7,193 Amortisation - 21,921 123,789 - 133,784 279,494 281,006 2,824 3,716 Disposal of subsidiary ------(25) - - Transfers ------(361) - - Impairment/ derecognition ------(15,859) - - Exchange translation difference - - - - 8 8 - - - At the end of the year - 155,578 814,943 - 551,924 1,522,445 1,242,943 13,733 10,909
Carrying value As at 31 March 2018 4,240,503 736,828 1,165,677 1,587,660 879,696 8,610,364 593 As at 31 March 2017 4,115,823 740,749 1,289,466 1,666,234 756,965 8,569,237 1,040
* Other intangible assets include purchased software and software licenses, other license fee and franchise fee paid on acquiring of operational rights.
Goodwill & brand names Goodwill and brand names acquired through business combinations have been allocated to seven cash generating units (CGU’s) for impairment testing as follows:
In Rs. ‘000 Goodwill Brand name As at 31 March 2018 2017 2018 2017 Information and Communication Technology 14,087 14,087 - - Automobiles 124,680 - - - Retail 742,616 742,616 998,180 998,180 Travel and Leisure 182,207 182,207 4,169 4,169 Financial Services 817,742 817,742 78,575 157,149 Healthcare Services 2,327,710 2,327,710 506,736 506,736 Others 31,461 31,461 - - 4,240,503 4,115,823 1,587,660 1,666,234 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 197
Present Value of acquired-In -force Business (PVIB) Upon acquiring a controlling stake in Softlogic Life Insurance PLC the Group recognised in the consolidated financial statements an intangible asset representing the present value of future profits on SLI’s portfolio of long term life insurance contracts at the acquisition date, known as the present value of acquired in-force business (PVIB). PVIB recognised at the acquisition date is being amortised over the life of the business acquired and reviewed annually for any impairment in value.
25.1 Impairment of goodwill
Accounting judgements, estimates and assumptions cash flows generated from continuing use of the unit. The key Impairment exists when the carrying value of an asset or cash assumptions used are given below: generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use (VIU). The fair Business growth - volume growth has been budgeted on a value less costs to sell calculation is based on available data from reasonable and realistic basis by taking into an active market in an arm’s length transaction of similar assets, or account the growth rates of one to five years observable market prices less incremental costs for disposing of the immediately subsequent to the budgeted asset. The value in use calculation is based on a discounted cash year, based on industry growth rates. flow model. The cash flows are derived from the budget for the next Cash flows beyond a five year period are five years and do not include restructuring activities that the Group extrapolated using zero growth rate. is not yet committed to or significant future investments that will enhance the performance of the cash generating unit being tested. Inflation - budgeted cost inflation is the inflation rate, The recoverable amount is most sensitive to the discount rate used based on projected economic conditions. for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes. Discount rate - the discounting rate used is the risk free rate The key assumptions used to determine recoverable amounts for increased by an appropriate risk premium. the different cash generating units are as follows. Margin - budgeted gross margins are the gross margins The recoverable amount of all CGUs have been determined based achieved in the year preceding, adjusted for on the higher of fair value less costs to sell and its Value in Use projected market conditions and business (VIU) calculation. VIU is determined by discounting the future plans.
26 Investment in subsidiaries
Accounting policy Investments in subsidiaries are initially recognised at cost in recognised in the income statement. Following initial recognition, the financial statements of the Company. Any transaction cost investments in subsidiaries are carried at cost less any accumulated relating to acquisition of investment in subsidiaries is immediately impairment losses.
In Rs. ‘000 Note Company As at 31 March 2018 2017 Quoted investments 26.1 8,260,396 8,087,898 Unquoted investments 26.2 11,596,304 5,510,401 19,856,700 13,598,299 198 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
26.1 Group quoted investments In Rs. ‘000 Group Company As at 31 March No of shares Effective No of shares Holding % 2018 2017 holding %
Cost Asiri Hospital Holdings PLC 586,858,799 51.20 579,434,088 50.94 5,563,998 5,416,999 Asiri Surgical Hospital PLC 414,243,632 40.12 - - - - Odel PLC 265,880,359 97.70 - - - - Softlogic Capital PLC 515,952,743 74.98 515,952,743 74.98 2,670,061 2,644,562 Softlogic Finance PLC 41,289,050 45.86 779,969 1.15 24,777 24,777 Softlogic Life Insurance PLC 193,996,310 38.80 175,550 0.05 1,560 1,560 8,260,396 8,087,898
Group quoted investments In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 Market Value Asiri Hospital Holdings PLC 16,138,617 14,941,224 15,934,437 14,799,324 Asiri Surgical Hospital PLC 4,225,285 3,582,404 - - Odel PLC 6,886,301 6,634,038 - - Softlogic Capital PLC 2,837,740 2,401,478 2,837,740 2,401,478 Softlogic Finance PLC 1,445,117 1,279,961 27,299 24,179 Softlogic Life Insurance PLC 4,403,716 4,331,502 3,985 3,423 35,936,776 33,170,607 18,803,461 17,228,404 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 199
26.2 Group unquoted investments In Rs. ‘000 Group Company As at 31 March Number of Effective Number of Holding % 2018 2017 shares holding % shares Asiri Central Hospitals Ltd 10,299,309 48.24 - - - - Asiri Diagnostics Services (Pvt) Ltd 273,221 34.06 - - - - Asiri Hospital Kandy (Pvt) Ltd 4,000,000 51.18 - - - - Asiri Laboratories (Pvt) Ltd 100,000 51.18 - - - - Asiri Hospital Matara (Pvt) Ltd 25,999,999 51.18 - - - - BSL International (Pvt) Ltd 298,400 97.70 - - - - Central Hospitals Ltd 214,539,804 51.04 - - - - Ceysand Resorts Ltd - Voting 17,087,669 99.90 - - - - - Non voting 134,250 96.58 - - - - Dai-Nishi Securities (Pvt) Ltd 49,999,998 99.99 - - - - Future Automobiles (Pvt) Ltd 19,300,000 100.00 19,300,000 100.00 195,675 195,675 Greenfield Trading (Pvt) Ltd 1 97.70 - - - - Odel Apparels (Pvt) Ltd 2 97.70 - - - - Odel Information Technology Services (Pvt) Ltd 1 97.70 - - - - Odel Lanka (Pvt) Ltd 27,000,002 97.70 - - - - Odel Properties (Pvt) Ltd 1,081,002 97.70 - - - - Odel Properties One (Pvt) Ltd 18,858,339 97.70 - - - - Odel Restaurants (Pvt) Ltd 100,000 97.70 - - - - Silk Route Foods (Pvt) Ltd 5,100 51.00 - - - - SML Holdings (Pvt) Ltd 99,999 66.50 - - - - Softlogic Australia (Pty) Ltd - Ordinary shares 1,900,002 100.00 1,900,002 100.00 162,256 162,256 - Preference shares 256,578 100.00 256,578 100.00 31,687 - Softlogic Automobiles (Pvt) Ltd 5,000,000 100.00 5,000,000 100.00 50,000 50,000 Softlogic B P O Services (Pvt) Ltd 5,100,000 100.00 5,100,000 100.00 51,000 51,000 Softlogic Brands (Pvt) Ltd 716,368 97.70 - - - - Softlogic City Hotels (Pvt) Ltd 230,569,836 99.92 - - - - Softlogic Communication Services (Pvt) Ltd 100 100.00 - - - 1 Softlogic Communications (Pvt) Ltd 442,153 100.00 - - - - Softlogic Computers (Pvt) Ltd 200,000 100.00 200,000 100.00 2,354 2,354 Softlogic Corporate Services (Pvt) Ltd 2,725,002 100.00 2,725,002 100.00 10,394 10,394 Softlogic Destination Management (Pvt) Ltd 100,000 100.00 100,000 100.00 1,000 1,000 Softlogic Information Technologies (Pvt) Ltd 436,496 100.00 436,496 100.00 4,906 4,905 Softlogic International (Pvt) Ltd 669,808 100.00 - - - 6,698 Softlogic Mobile Distribution (Pvt) Ltd 1,000,000 100.00 - - - 10,000 Softlogic Properties (Pvt) Ltd 483,421,208 99.92 483,421,208 99.92 4,438,214 2,948,214 Softlogic Restaurants (Pvt) Ltd 59,500,000 100.00 59,500,000 100.00 595,000 595,000 Softlogic Retail (Pvt) Ltd 169,345,616 99.99 - - - 1,666,579 Softlogic Retail Holdings (Pvt) Ltd 627,239,302 100.00 627,239,302 100.00 6,272,393 - Softlogic Retail One (Pvt) Ltd 100,000 100.00 100,000 100.00 1,000 1,000 Softlogic Solar (Pvt) Ltd 100 100.00 100 100.00 1 1 Softlogic Stockbrokers (Pvt) Ltd 19,700,000 74.98 - - - - Softlogic Supermarkets (Pvt) Ltd (previously known as Softlogic Real Estate (Pvt) Ltd) 100,000 100.00 100,000 100.00 1,000 1,000 Suzuki Motors Lanka Ltd 3,831,051 66.51 - - - - 11,816,880 5,706,077 Less - Impairment of investments (note 26.3) (220,576) (195,676) 11,596,304 5,510,401 200 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
26.3 Impairment of investments
Accounting judgements, estimates and assumptions An impairment assessment was carried out as at 31 March 2018 and it was concluded that the net realisable value of all investments included under quoted and unquoted investments exceed their carrying value except for the investments made in Future Automobiles (Pvt) Ltd, Softlogic Solar (Pvt) Ltd and Softlogic Australia (Pty) Ltd.
Movement in provision for impairment of investments in subsidiaries In Rs. ‘000 Company As at 31 March 2018 2017 At the beginning of the year 195,676 141,668 Provision for impairment 24,900 54,008 At the end of the year 220,576 195,676
27 Investment in equity accounted investees
Accounting policy An associate is an entity over which the Group has significant Goodwill relating to the associate or joint venture is included in the influence. Significant influence is the power to participate in the carrying amount of the investment and is not tested for impairment financial and operating policy decisions of the investee, but is not individually. control or joint control over those policies. The income statement reflects the Group’s share of the results of Associate companies of the Group which have been accounted for operations of associates or joint venture. OCI of those investees is under the equity method of accounting are: presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in the equity of the associate or Name of the company Country of incorporation joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains Digital Health (Pvt) Ltd Sri Lanka and losses resulting from transactions between the Group and the Gerry’s Softlogic (Pvt) Ltd Pakistan associate or joint venture are eliminated to the extent of the interest Nextage (Pvt) Ltd Sri Lanka in the associate or joint venture. Sabre Travel Network Lanka (Pvt) Ltd Sri Lanka The aggregate of the Group’s shares of profit or loss of associates A joint venture is a type of joint arrangement whereby the parties and joint venture is shown on the face of the income statement that have joint control of the arrangement have rights to the net outside operating profit and represents profit or loss after tax and assets of the joint venture. Joint control is the contractually agreed non-controlling interests in the subsidiaries of the associate and sharing of control of an arrangement, which exists only when joint venture. decisions about the relevant activities require unanimous consent of the parties sharing control. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its Joint venture company of the Group which have been accounted investment in its associate or joint venture. At each reporting date, for under the equity method of accounting is: the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is Name of the company Country of incorporation such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate Asiri A O I Cancer Centre (Pvt) Ltd Sri Lanka or joint venture and its carrying value, and then recognises the loss as ‘Share of results of equity accounted investees’ in the income The considerations assessed in determining significant influence a statement. similar to those in determining control over subsidiaries. Upon loss of significant influence over the associate or joint control The Group’s investments in its associates and joint venture over the joint venture, the Group measures and recognises any are accounted for using the equity method. Under the equity retained investment at its fair value. Any difference between the method, the investment in an associate or a joint venture is carrying amount of the associate or joint venture upon loss of initially recognised at cost. The carrying amount of the investment significant influence and the fair value of the retained investment is adjusted to recognise changes in the Group’s share of net and proceeds from disposal is recognised in the income statement. assets of the associate or joint venture since the acquisition date. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 201
The accounting policies of associate and joint venture companies corresponding financial period or a matching 12 month period. conform to those of the Group. In the case of associates whose reporting dates are different to the Group reporting dates, adjustments are made for significant The equity method of accounting has been applied for associates transactions or events up to 31 March. and joint venture using their financial statements for the
In Rs. ‘000 Note Group Company As at 31 March 2018 2017 2018 2017 Investments in equity accounted investees 27.1 111,885 68,528 11,000 11,000 111,885 68,528 11,000 11,000
27.1 Group investments in equity accounted investees In Rs. ‘000 Note Group Company As at 31 March 2018 2017 2018 2017 Investments in joint ventures Unquoted Asiri A O I Cancer Centre (Pvt) Ltd 27,000 - - - 27,000 - - - Investments in associates Unquoted Digital Health (Pvt) Ltd 18,944 30,000 - - Gerry's Softlogic (Pvt) Ltd - - 2,700 2,700 Nextage (Pvt) Ltd 6,056 6,812 1,250 1,250 Sabre Travel Network Lanka (Pvt) Ltd 43,528 23,429 9,750 9,750 68,528 60,241 13,700 13,700 Less: impairment of investment in Gerry's Softlogic (Pvt) Ltd - - (2,700) (2,700) 68,528 60,241 11,000 11,000
Share of profit accruing to the group 27.2 19,787 9,998 - - Share of associate companies dividend (3,350) (2,000) - - Share of OCI accruing to the group 27.2 (80) 289 - - 111,885 68,528 11,000 11,000 202 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
27.2 Summarised financial information of equity accounted investees In Rs. ‘000 Group As at 31 March Associates Joint venture 2018 2017 Total Associates Group share of: Revenue 140,404 12,442 152,846 116,328 Operating expenses (123,365) (10,074) (133,439) (107,189) Other income 380 - 380 859 Share of profit for the year 17,419 2,368 19,787 9,998
Group share of: Other comprehensive income/ (loss) of equity accounted investees (80) - (80) 289 Share of other comprehensive income/ (loss) for the year (80) - (80) 289
Group share of: Total assets 144,348 14,686 159,034 107,879 Total liability (70,519) (1,485) (72,004) (48,135) Net assets 73,829 13,201 87,030 59,744 Unrealised profits (202) - (202) (107) Deferred tax on undistributable profits (5,917) - (5,917) (5,917) Goodwill 14,808 16,166 30,974 14,808 82,518 29,367 111,885 68,528
Contingent liabilities Nil Nil Nil Nil Capital commitments Nil Nil Nil Nil FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 203
28 Non - current financial assets In Rs. ‘000 Note Group Company As at 31 March 2018 2017 2018 2017 Restated Quoted equity investments 28.1 1,651,970 1,638,889 - - Unquoted equity investments 28.2 469,217 469,217 - - Non equity investments 28.3 8,443,193 7,993,166 828,355 1,490,000 10,564,380 10,101,272 828,355 1,490,000
28.1 Quoted equity investments
In Rs. ‘000 Note Number of Group As at 31 March shares 2018 2017 ACL Cables PLC 616 17 17 Browns Capital PLC - - 1,426 Hatton National Bank PLC - - 5,000 National Development Bank PLC 28.1.1 12,399,141 1,650,326 1,626,835 Seylan Bank PLC - Non voting 29,544 1,627 5,611 1,651,970 1,638,889
28.1.1 Reclassification of financial assets at fair value through profit or loss (FVTPL) to Available for Sale (AFS) Softlogic Life Insurance PLC and Softlogic Finance PLC reclassified their investments in National Development Bank PLC (NDB) equity shares into Available for Sale (AFS) from financial assets at Fair Value Through Profit or Loss (FVTPL) category on 31 July 2015 as approved by the respective Boards of Directors, who had resolved to reclassify the investments as the Group would no longer hold the investments for the purpose of being sold in the near term. This decision was taken after considering the potential synergies that could be developed between the NDB and companies within the Softlogic Group, and taking in to account the strategic intent in the holding.
Details of amounts reclassified from financial assets at Fair Value Through Profit or Loss (FVTPL) to Available for Sale (AFS) as at 31 July 2015 are as follows:
Rs. ‘000 Softlogic Finance PLC 131,175 Softlogic Life Insurance PLC 2,241,718 Total value of reclassification 2,372,893
The fair value gains / (losses) recorded in the Group income statement and the Group other comprehensive income statement at the beginning of the financial period, at the date of the reclassification and at the end of each financial period ended is given below:
In Rs. ‘000 Fair value/ carrying Impact on Group Impact on Group other value income statement comprehensive income As at 01 April 2015 2,139,918 - - As at 31 July 2015 2,372,893 232,975 - As at 31 March 2016 1,456,525 - (916,368) As at 31 March 2017 1,276,862 - (208,692) As at 31 March 2018 1,304,564 - (59,970) 204 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
28.2 Unquoted equity investments In Rs. ‘000 Number Group As at 31 March of shares 2018 2017 Voyages Jean Mermoz Ltd 10 10 Ceylon Lexcon Services Ltd 207 207 Cargills Bank Ltd 34,000,000 469,000 469,000 469,217 469,217
28.3 Non equity investments In Rs. ‘000 Note Group Company As at 31 March 2018 2017 2018 2017 Restated Placement with banks and financial institutions 31 31 - - Debentures 1,612,624 1,557,368 - - Government securities 3,171,984 3,606,575 - - Fixed deposits 20,387 - - - Loans to executives 3,790 8,342 - - Loans to subsidiaries - - 828,355 1,490,000 Hire purchase trade debtors 32.1 773,040 331,434 - - Loans and advances 33 2,861,337 2,489,416 - - 8,443,193 7,993,166 828,355 1,490,000
29 Rental receivable on lease assets and hire purchase
Accounting policy
Initial recognition and measurement recognised. Amounts receivable under finance leases are included When the Group is the lessor in a lease agreement that transfers under “Rentals receivable on leased assets”. Leasing balances are substantially all of the risks and rewards incidental to ownership of stated in the statement of financial position after deduction of the asset to the lessee, the arrangement is classified as a finance initial rentals received, unearned lease income and the provision lease and a receivable equal to the net investment in the lease is for impairment losses.
29.1 Receivable from one to five years In Rs. ‘000 Group As at 31 March 2018 2017 Rental Rental Total Rental Rental Total receivable on receivable on receivable on receivable on lease assets hire purchase lease assets hire purchase Rental receivables 1,516,697 - 1,516,697 424,257 46,385 470,642 Rentals received in advance (873) - (873) - - - Unearned income (413,578) - (413,578) (101,131) (9,539) (110,670) Impairment (59,487) - (59,487) - - - 1,042,759 - 1,042,759 323,126 36,846 359,972 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 205
29.2 Receivable within one year In Rs. ‘000 Group As at 31 March 2018 2017 Rental Rental Total Rental Rental Total receivable on receivable on receivable on receivable on lease assets hire purchase lease assets hire purchase Rental receivables 428,471 205,424 633,895 539,571 362,072 901,643 Rentals received in advance (950) - (950) (326) - (326) Unearned income (29,914) (11,343) (41,257) (78,675) (21,470) (100,145) Impairment - (67,911) (67,911) (77,989) (133,838) (211,827) 397,607 126,170 523,777 382,581 206,764 589,345 1,440,366 126,170 1,566,536 705,707 243,610 949,317
29.3 Impairment of rental receivables
Accounting judgements, estimates and assumptions For rental receivables on lease assets and hire purchases, the Group or not, it includes the asset in a group of financial assets with first assesses whether objective evidence of impairment exists similar credit risk characteristics and collectively assesses them for individually for financial assets that are individually significant, or impairment. Assets that are individually assessed for impairment collectively for financial assets that are not individually significant. and for which an impairment loss is, or continues to be, recognised If the Group determines that no objective evidence of impairment are not included in a collective assessment of impairment exists for an individually assessed financial asset, whether significant
30 Other non-current assets In Rs. ‘000 Note Group As at 31 March 2018 2017 Rent advances 307,694 233,741 Deferred expenditure 1,402 2,805 Work-in-progress - Odel Mall project 30.1 619,407 - 928,503 236,546
30.1 Work-in-progress - Odel Mall project Odel Properties One (Pvt) Ltd, a fully own subsidiary of Odel PLC Work-in-progress - Odel Mall project includes advances paid to is engaged in the development and construction of an integrated contractors, directly attributable costs incurred on the project and complex with an approximate area of 645,000 sq. ft., comprising borrowing costs capitalised. retail and associate facilities, residential units, cinemas and a car park. 206 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
31 Inventories
Accounting policy Inventories are valued at the lower of cost and net realisable value. The cost of inventories is: »» Finished goods - cost of direct materials and direct labour and Net realisable value is the estimated selling price less estimated an appropriate proportion of fixed overheads based on normal costs of completion and the estimated costs necessary to make the operating capacity sale. »» Other stock - actual cost
In Rs. ‘000 Note Group As at 31 March 2018 2017 Finished goods 9,303,125 7,742,239 Other stocks 2,343,640 1,595,241 11,646,765 9,337,480 Less - provision for write-down of inventories 31.1 (396,226) (357,517) 11,250,539 8,979,963
31.1 Movement in provision for write-down of inventories In Rs. ‘000 Group As at 31 March 2018 2017 At the beginning of the year 357,517 326,034 Provision for write-down of inventories 108,930 293,705 Written off during the year (70,221) (262,222) At the end of the year 396,226 357,517
32 Trade and other receivables
Accounting policy
Trade and other receivables Reinsurance receivables Trade receivables are amounts due from customers for goods sold The Group cedes insurance risk in the normal course of business or services performed in the ordinary course of business. Other for all of its businesses. Reinsurance receivables represent financial receivables are recognised as other receivables. If collection balances due from reinsurance companies. Amounts recoverable is expected in one year or less (or in the normal operating cycle of from reinsurers are estimated in a manner consistent with the the business if longer), they are classified as current assets. If not, outstanding claims provision or settled claims associated with they are presented as non-current assets. the reinsurer’s policies and are in accordance with the related reinsurance contract. Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
In Rs. ‘000 Note Group Company As at 31 March 2018 2017 2018 2017 Restated Trade and other receivables 32.1 9,238,284 7,796,272 276,358 156,780 Reinsurance receivables 124,551 190,698 - - Loans to executives 34,029 16,571 2,624 1,030 Other receivables 2,441,266 1,313,496 83,948 295,514 11,838,130 9,317,037 362,930 453,324 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 207
32.1 Trade and other receivables In Rs. ‘000 Note Gross Unearned Group Company As at 31 March income 2018 2017 2018 2017
Restated Hire purchase debtors 4,081,939 (330,215) 3,751,724 3,235,321 - - Trade receivables 6,835,745 - 6,835,745 5,256,232 354,211 234,633 10,917,684 (330,215) 10,587,469 8,491,553 354,211 234,633 Less - provision for impairment of trade and other receivables 32.2.1 (576,145) (363,847) (77,853) (77,853) 10,917,684 (330,215) 10,011,324 8,127,706 276,358 156,780
Trade and other receivables Receivable within one year 9,238,284 7,796,272 276,358 156,780 Receivable after one year 773,040 331,434 - - 10,011,324 8,127,706 276,358 156,780
32.2 Impairment of receivables Accounting judgements, estimates and assumptions The Group assesses the evidence of impairment of receivables Collective assessment is carried out by grouping together at both an individual asset and at a collective level. All individually receivables with similar risk characteristics. significant receivables are individually assessed for impairment by considering objective evidence i.e. significant financial difficulties or In assessing collective impairment, the Group uses historical default in payments of a customer. Those found not to be impaired information on the probability of default, the timing of recoveries, are then collectively assessed for any impairment that has been and the amount of loss incurred, and makes an adjustment if incurred but not yet individually identified. Receivables that are current economic and credit conditions are such that the actual not individually significant are collectively assessed for impairment. losses are likely to be greater or lesser than suggested historical trends.
32.2.1 Movement in provision for trade and other receivables In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 At the beginning of the year 363,847 117,920 77,853 - Acquisition of subsidiary 8,460 - - - Provision for impairment of trade and other receivables 252,445 343,542 - 77,853 Written off during the year (48,607) (97,615) - - At the end of the year 576,145 363,847 77,853 77,853
33 Loans and advances
Accounting policy
Initial recognition and measurement Loans and advances are financial assets with fixed or determinable acquisition and fees and costs that are an integral part of the EIR. payments that are not quoted in an active market. Such assets The amortisation is included in ‘interest income’ in the Statement are recognised initially at fair value plus any directly attributable of profit or loss. The losses arising from impairment are recognised transaction costs. in ‘impairment charge for loans and advances’ in the Statement of profit or loss. Loans and advances are initially recognised at fair value, which is the cash consideration to originate or purchase the loan including Policyholders’ loans are granted up to 90% of the surrender value any transaction costs, and measured subsequently at amortised of a life insurance policy at a rate equivalent to the market rate. cost using the EIR, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on 208 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
In Rs. ‘000 Gross Unearned Group As at 31 March income 2018 2017 Restated Personal loans 1,611,274 (145,824) 1,465,450 2,138,824 Pawning receivables 1,257,551 - 1,257,551 822,791 Policyholders loans 148,722 - 148,722 144,914 Revolving loans 1,053,913 - 1,053,913 1,054,813 Consumer loans 80,663 (7,014) 73,649 97,759 SME & other loans 14,307,245 (1,594,922) 12,712,323 13,572,044 Allowance for impairment (751,630) (675,739) 18,459,368 (1,747,760) 15,959,978 17,155,406
Loans and advances Receivable within one year 13,098,641 14,665,990 Receivable after one year 2,861,337 2,489,416 15,959,978 17,155,406
33.1 Impairment of loans and advances
Accounting judgements, estimates and assumptions »» known cash flow difficulties experienced by the borrower If there is objective evidence that an impairment loss has been »» past due contractual payments of either principal or incurred, the amount of the loss is measured as the difference interest between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit »» breach of loan covenants or conditions losses that have not yet been incurred). This encompasses re »» probability that the borrower will enter bankruptcy or other assessment of the enforceability of any collateral held and the financial realisations, and timing and amount of actual and anticipated receipts. The present value of the estimated future cash flows is arrive at by discounting »» legal action instituted against the borrower. them at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any 33.1.2 Collective assessments of impairment impairment loss is the current effective interest rate. Collective impairment is based on the statistical model of the net flow rate method, which takes into consideration all historical The carrying amount of the asset is reduced through the use of an loss experience on similar credit risks and is based on customer allowance account and the amount of the loss is recognised in the credit risk patterns. The total portfolio is segmented into groups income statement. Interest income continues to be accrued on the carrying similar credit risks. Under this methodology movement of reduced carrying amount and is accrued using the rate of interest outstanding balances of customers into arrears “buckets” is used used to discount the future cash flows for the purpose of measuring to estimate amounts that will eventually be written off as a result the impairment loss. The interest income is recorded as part of of events occurring before the balance sheet date, which the finance income in the income statement. Loans together with Group is not able to identify on an individual loan basis but can the associated allowance are written off when there is no realistic reliably estimate. In arriving at ultimate loss ratios the past trend in prospect of future recovery and all collateral has been realised or collateral realisation is considered, and management judgement as has been transferred to the Group. If, in a subsequent year, the to whether current economic and credit conditions are such that amount of the estimated impairment loss increases or decreases the actual losses are likely to be greater or less than suggested by because of an event occurring after the impairment was recognised, historical data. the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later Under this methodology, loans are grouped into ranges according recovered, the recovery is credited to the income statement. to numbers of days in arrears and statistical analysis is used to estimate the likelihood that loans in each range will progress 33.1.1 Individual assessments of impairment through the various stages of delinquency and ultimately prove The Group first assesses individually whether objective evidence of irrecoverable. impairment exists for financial assets that are individually significant. 33.1.3 Write off of loans and receivables The criteria used to determine whether there is objective evidence The Group writes off certain loans and advances when they are of impairment include: determined to be irrecoverable. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 209
34 Other current assets
Accounting policy The Group classifies all non-financial current assets under Other Advances and deposits are carried at historical value less a provision current assets. Other current assets comprise mainly advances, for impairment. Prepayments are amortised over the period during deposits, prepayments and tax refunds and receivables. which they are utilised and are carried at historical value less amortisation and impairments if any.
In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 Restated Prepayments, advances & non-cash receivables 2,174,453 1,400,450 5,876 7,168 Tax refunds & receivables 721,515 569,404 10,833 9,662 Other receivables 553,083 716,174 - - 3,449,051 2,686,028 16,709 16,830
35 Short term investments In Rs. ‘000 Note Group Company As at 31 March 2018 2017 2018 2017 Quoted equities at market value 35.1 619,024 595,017 1,594,676 1,537,530 Unquoted equity investments 35.2 125,000 125,000 125,000 125,000 Other investments (more than 3 months and less than 1 year) 35.3 1,994,240 789,275 - 2,500 2,738,264 1,509,292 1,719,676 1,665,030
Other investments (less than 3 months) Government securities 3,065,527 1,638,822 - - Commercial papers 204,938 154,002 - - Fixed deposits 1,111,879 494,140 - - 4,382,344 2,286,964 - - 7,120,608 3,796,256 1,719,676 1,665,030 210 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
35.1 Quoted equities at market value In Rs. ‘000 Group Company As at 31 March Number 2018 2017 Number 2018 2017 of shares of shares ACL Cables PLC 264 11 14 - - - B P P L Holdings PLC 90,000 1,188 - - - - Cargills (Ceylon) PLC - 1,404 - - - Ceylinco Insurance PLC 89 160 141 - - - Chevron Lubricants Lanka PLC 140,000 14,630 28,900 - - - Commercial Bank of Ceylon PLC 706,786 95,982 31,886 - - - DFCC Bank 296 35 34 - - - Dialog Axiata PLC - 53,140 - - - Dunamis Capital PLC 305 7 6 - - - Hatton National Bank PLC 396,753 97,204 75,588 - - - Hatton National Bank PLC - Non voting - 7,770 - - - Hemas Holdings PLC 149,353 18,654 76,628 - - - John Keells Holdings PLC 827,887 132,132 131,354 - - - Kelani Cables PLC - 2,103 - - - Lanka IOC PLC 63,200 1,902 1,833 63,200 1,902 1,833 Lanka Tiles PLC 997 99 93 - - - LVL Energy Fund Ltd 1,561,600 15,460 - - - - National Development Bank PLC 689 92 91 - - - Odel PLC - - 61,231,769 1,585,903 1,530,794 Panasian Power PLC 3,090,000 8,343 9,270 - - - Piramal Glass Ceylon PLC 995,839 5,776 22,400 - - - Renuka City Hotels PLC 50 13 15 - - - Richard Pieris & Co PLC 210 3 16 - - - Richard Pieris Export PLC 200 34 42 - - - Royal Ceramics Lanka PLC 4,443 468 - - - - Sampath Bank PLC 13,946 4,184 3,096 13,946 4,184 3,096 Sampath Bank PLC - Share Application Money 804 - - 804 - Seylan Bank PLC 137 12 12 137 12 12 Seylan Bank PLC - Non voting 343,963 18,952 18,184 33,960 1,871 1,795 Teejay Lanka PLC 1,050,000 33,495 12,950 - - - The Lanka Hospital Corporation PLC 62,995 3,780 3,874 - - - Tokyo Cement Company (Lanka) PLC 1,291,707 69,752 28,642 - - - Union Bank of Colombo PLC 6,023,317 77,098 85,531 - - - Vallibel One PLC 829,845 18,754 - - - - 619,024 595,017 1,594,676 1,537,530
35.2 Unquoted equity investments In Rs. ‘000 Group Company As at 31 March Number 2018 2017 Number 2018 2017 of shares of shares Cargills Bank Ltd 10,000,000 125,000 125,000 10,000,000 125,000 125,000 125,000 125,000 125,000 125,000 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 211
35.3 Other investments In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 More than 3 months and less than 1 year Government securities - 780,000 - - Fixed deposits 87,180 1,526 - - Debentures maturing within a year 288,110 7,500 - 2,500 Others - Investment in Unit Trust 1,618,950 249 - - 1,994,240 789,275 - 2,500
36 Stated capital As at 31 March Note 2018 2017 Number of Value of Number of Value of shares shares in shares shares in Rs. ‘000 Rs. ‘000 Fully Paid Ordinary Shares At the beginning of the year 779,000,000 5,089,000 779,000,000 5,089,000 Shares issued during the period 36.1 182,728,395 3,106,383 - - 961,728,395 8,195,383 779,000,000 5,089,000
36.1 The Directors of Softlogic Holdings PLC resolved on 24 January 2018 to issue 182,728,395 ordinary shares of the company by way of a private placement to Messrs. Samena Ceylon Holdings Ltd at a price of Rs. 17.00 per share amounting to a total consideration of Rs. 3,106.38 Mn. This was subsequently approved by shareholders at an EGM held on 26 March 2018.
37 Other components of equity In Rs. ‘000 Note Group As at 31 March 2018 2017 Restated Treasury shares - (55,921) Restricted regulatory reserve 37.1 309,613 - Revaluation reserve 37.2 4,774,665 4,628,655 Foreign currency translation reserve 37.3 (46,325) (43,262) Available-for-sale reserve 37.4 (530,887) (718,502) Statutory reserve fund 37.5 215,063 175,022 Other reserves 37.6 (569,884) (491,235) Cash flow hedge reserve 37.7 (178,966) (144,727) 3,973,279 3,350,030
37.1 Restricted regulatory reserve reflects the equity holders’ share of the one-off surplus attributable to policyholder non-participating fund. This reserve has been made as per the direction no. 16 on 20 March 2018 issued by the ‘Insurance Regulatory Commission of Sri Lanka (IRCSL) on ‘Identification and Treatment of one-off surplus’. 37.2 Revaluation reserve consists of the net surplus on the revaluation of property. 37.3 Foreign currency translation reserve comprises the net exchange movement arising on the currency translation of foreign operations and net equity investments of other currency denominated associates into Sri Lankan Rupees (Rs.). 37.4 Available-for-sale reserve includes changes on fair value of financial instruments designated as available-for-sale financial assets. 37.5 Statutory reserve fund reflects the profit transfer made by Softlogic Finance PLC in compliance with the Central Bank direction no. 01 of 2003. 37.6 Other reserve is used to recognise goodwill or gains from purchases on subsequent acquisitions of further equity interests in subsidiaries and gains or losses arising from partial and deemed acquisitions/disposals in its subsidiaries. 37.7 Cash flow hedge reserve reflects the effective portion of the gain or loss on the hedging instrument. 212 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
38 Insurance contract liabilities
Accounting policy The Directors agreed to the long term insurance business provisions into account all liabilities including contingent liabilities, and is based on the recommendation of the appointed actuary following annual on assumptions recommended by the appointed external actuary. valuation of the life insurance business. The actuarial valuation takes
In Rs. ‘000 Note Group As at 31 March 2018 2017 Provision - life 38.1 7,192,591 6,616,558 7,192,591 6,616,558
38.1 Movement in life insurance fund In Rs. ‘000 Note Group As at 31 March 2018 2017 At the beginning of the year 6,616,558 6,534,118 Increase in life fund 2,536,037 1,162,440 Transfer to shareholders 38.3 (1,162,000) (1,080,000) Increase in insurance contract liabilities 38.2 1,374,037 82,440 Change in contract liability due to transfer of one off surplus 38.7.2 (798,004) - At the end of the year 7,192,591 6,616,558
38.2 Change in life insurance contract liabilities The results of Softlogic Life Insurance PLC is life business segment is consolidated line by line into the Group’s consolidated income statement.
The increase in insurance contract liabilities represents the transfer to the Life Fund of the difference between all income and expenditure attributable to life policyholders during the year.
In Rs. ‘000 Note Group For the year ended 31 March 2018 2017 Revenue 7,368,671 5,187,860 Cost of sales (3,342,789) (2,836,982) Gross profit 4,025,882 2,350,878 Operating expenses including distribution and administration expenses (2,167,502) (1,696,111) Net finance income 677,657 507,673 Profit attributable to shareholders 38.3 (1,162,000) (1,080,000) Change in insurance contract liabilities 1,374,037 82,440
38.3 Recommendation of surplus transfer The valuation of the life insurance fund as at 31 March 2018 was made by Appointed Actuary Mr. Kunj Behari Maheshwari, FIA, FIAI, Messrs. Willis Towers Watson India (Pvt) Limited, who recommended: »» no transfer to shareholders from the participating life fund »» transfer of a sum of Rs. 1,162.00 Mn from the non-participating life insurance fund / insurance contract liabilities to the shareholders’ fund (2017 - Rs. 1,080.00 Mn); transfer of the amount of Rs. 585.00 Mn declared as surplus for the quarter ended 31 March 2018, as recommended by the Appointed Actuary was permitted by the Insurance Regulatory Commission of Sri Lanka (IRCSL) (previously known as Insurance Board of Sri Lanka (IBSL)) subject to specified conditions. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 213
38.4 Valuation of life insurance fund Long duration contract liabilities included in the life insurance fund result primarily from traditional participating and non-participating life insurance products. The actuarial reserves have been established by Appointed Actuary Mr. Kunj Behari Maheshwari, FIA, FIAI, Messrs. Willis Towers Watson India (Pvt) Limited as at 31 March 2018.
Details of the calculation of policy liabilities and net cash flows are provided in the following table for each class of products.
Details of product category Basis of determining policy liability Basis of calculating net cash flows Individual traditional non-participating Discounting “net cash flows” at the Future premium income (-) death benefit outgo (+) rider benefit products risk free interest rate curve outgo (+) surrender benefit outgo (+) maturity benefit outgo (+) commission expenses outgo (+) policy expenses outgo (+) reinsurance recoveries (-) reinsurance premium outgo (+) reinsurance commissions (-) Individual traditional participating Maximum (guaranteed benefit Same as above products liability, total benefit liability) Individual universal non- participating Discounting “net cash flows” at the Future premium income (-) death benefit outgo inclusive of products risk free interest rate curve dividend accumulations (+) rider benefit outgo (+) surrender benefit outgo inclusive of dividend accumulations (+) maturity benefit outgo inclusive of dividend accumulations (+) commission expense outgo (+) policy expense outgo (+) reinsurance recoveries (-) reinsurance premium outgo (+) reinsurance commission (-) Group traditional non-participating Net cash flow Death benefit outgo (+) policy expense outgo (+) reinsurance products - Group term (life) recoveries (-) Group traditional non-participating Policy liability has been set equal to Not applicable products - Group hospitalisation cover Unearned Premium Reserve (UPR)
38.4.1 Measurement Life insurance liabilities are recognised when contracts are entered Measurement is usually based on the prospective method by into and premiums are charged. These liabilities are measured on determining the difference between the present value of future a market consistent basis in accordance with the Solvency Margin benefits and future premiums. The actuarial assumptions used for (Risk Based Capital) Rules 2015 issued under Sections 105 and the calculation include, in particular, assumptions relating to: 26 (1) of the Regulation of Insurance Industry Act No. 43 of 2000, »» Mortality rates with effect from 01 January 2016. For periods up to 31 December 2015, the Company used the Net Premium Valuation (NPV) »» Morbidity rates methodology to calculate insurance liabilities in accordance with the »» Expense assumptions Solvency Margin (Long Term Insurance) Rules 2002. »» Expense inflation »» Lapse ratios The value of life insurance liabilities is determined as follows: »» Dividend rates Best Estimate Long term Liability (BEL) + »» Participating fund yield Life insurance liabilities = Risk Margin for adverse deviation (RM) »» Bonus rates
The best estimate liability is the present value of all future best Assumptions are estimated on a realistic basis at the time the estimate cash flows calculated using the risk free interest rate insurance contracts are concluded and they include adequate yield curve issued by the Insurance Regulatory Commission of Sri provision for adverse deviations to make allowance for the risks Lanka (IRCSL). A discounted cash flow approach, using the Gross of change and random fluctuations. In valuing the policy liability, Premium Valuation (GPV) valuation methodology has been used to provisions for reinsurance have been allowed for according to calculate liabilities as at 31 March 2018. the applicable reinsurance terms as per current reinsurance arrangements. 214 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
38.4.2 Key assumptions used and the bases of arriving at them are summarised in the following table: Assumption Basis of estimation Risk free rate Based on Sri Lankan Government bond yields issued by IRCSL for the industry as at 31 March 2018. Mortality rates Based on the Mortality investigation carried out as at 30 November 2017 » Individual life - 65% of A67/70 (ultimate) » Group term products - 50% of A67/70 (ultimate) Morbidity rates Based on the loss ratios (loss ratio is calculated as the ratio of settled and pending claims to earned premiums) Expenses Based on the expense investigation carried out as at 31 December 2017 on expenses incurred during 2017. For the purpose of the expense study, a functional split of expenses between acquisition or maintenance costs has been made on the basis of inputs from various departments/ heads of each cost centre to determine a reasonable activity based split of expenses. These have been further identified as either being premium or policy-count driven bases on the nature of expenses to determine a unit cost loading for use in the valuation. Expense inflation The best estimate expense inflation has been assumed to be 5% p.a. The expense inflation assumption has remained unchanged since the previous valuation. The assumption is also in line with the long term inflation target of the Central Bank of Sri Lanka which is in the range of 4 % to 6%. Persistency ratio Discontinuance assumptions are based on the experience investigations carried out as at 30 November 2017. The discontinuance assumptions are set with reference to actual experience and vary by policy duration. Bonus rate Bonus rate scale assumed has been arrived at based on bonus declared as at 31 December 2017, based on the Company management’s views on policyholders’ reasonable expectations. This assumes maintenance of the current bonus levels into the future and is unchanged from the previous valuation. Participating fund yield Based on the weighted average of projected asset mix on expected yields for various asset types
38.5 Solvency Margin In the opinion of the appointed actuary, the Company maintains a as per the Solvency Margin (Risk Based Capital) Rules 2015 Capital Adequacy Ratio (CAR) of 209% and Total Available Capital requirement prescribed under section 26 (1) of the Regulation of (TAC) of Rs. 6,631.00 Mn as at 31 March 2018, which exceed the Insurance Industry Act No. 43 of 2000. minimum requirements of 120% and Rs. 500.00 Mn respectively
38.6 Liability Adequacy Test (LAT)
Accounting policy
Measurement Any deficiency shall be recognised in the income statement by At each reporting date, an assessment is made of whether the setting up a provision for liability adequacy. recognised life insurance liabilities are adequate by using an existing liability adequacy test as laid out under SLFRS 4 – Insurance Valuation Contracts. The liability value is adjusted to the extent that it is Liability Adequacy Test for life insurance contract liability was carried insufficient to meet future benefits and expenses. out by Appointed Actuary Mr. Kunj Behari Maheshwari, FIA, FIAI, Messrs. Willis Towers Watson India (Pvt) Limited as at 31 December In performing the adequacy test, current best estimates of future 2017. When performing the LAT, the Company discounted all contractual cash flows, including related cash flows such as claim contractual cash flows and compared this amount with the carrying handling and policy administration expenses, policyholder options value of the liability. and guarantees, as well as investment income from assets backing such liabilities, are used. A number of valuation methods are Based on the actuarial assessment assets are adequate as applied, including discounted cash flows to the extent that the test compared to the discounted cash flows reserves and in contrast to involves discounting of cash flows, the interest rate applied being the reserves as at 31 March 2018. based on management’s prudent expectation of current market interest rates. No additional provision was required against the LAT as at 31 March 2018. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 215
38.7 Surplus created due to change in valuation method - one off surplus zeroed at product level
Accounting policy Insurance contract liabilities are measured on a market consistent arising from the change in the policy liability valuation within the basis in accordance with the Solvency Margin (Risk Based Capital) long term insurance fund/ insurance contract liabilities separately as Rules 2015 with effect from 01 January 2016. In the period up to “Surplus created due to change in valuation method from NPV to 31 December 2015, the Company used the Net Premium Valuation GPV” and not transfer/ distribute any part until specific instructions (NPV) methodology to calculate insurance liabilities in accordance are issued in this regard. Therefore up to 31 March 2017, one with Solvency Margin (Long Term Insurance) Rules 2002. off surplus has been presented in the financial statements as a separate item within the insurance contract liability. A one off unallocated surplus was created with the migration to the new regime effective 01 January 2016. The surplus created due to the change in the valuation method of policy liabilities from Net Premium Valuation (NPV) to Gross Premium Valuation (GPV) is measured based on the difference in Measurement the policy liability valuation by the Independent Actuary based on The Insurance Regulatory Commission of Sri Lanka (IRCSL) has NPV and GPV based valuation as at 31 December 2015 as directed directed insurance companies to maintain this one off surplus by IRCSL through a letter dated 02 February 2017.
Valuation Details of one off adjustment as at 01 January 2016 are as follows:
In Rs. '000 Participating Non- Total fund participating fund Value of Insurance contract liability based on Independent Actuary - NPV as at 31 December 2015 3,866,780 2,472,575 6,339,355 Value of Insurance contract liability based on Independent Actuary - GPV 31 December 2015 2,810,245 1,674,571 4,484,816 Surplus created due to change in valuation method - One off surplus as at 01 January 2016 1,056,535 798,004 1,854,539
38.7.1 Re-classification of opening insurance contract liability Subsequent to a direction received from the Insurance Regulatory non-zeroed basis; this resulted in a reduction of the one off surplus Commission of Sri Lanka (IRCSL), Softlogic Life Insurance PLC (SLI) from Rs. 4,814.80 Mn to Rs. 1,854.54 Mn (one off surplus in non- has reclassified its insurance contract liability based on product level Participating fund reduced from Rs. 3,758.30 Mn to Rs. 798.04 Mn zeroed negative liability basis which is disclosed in the below table and there is no change in the one off surplus in the participating during the period ended 31 March 2018, whereas comparative fund). As this surplus was categorised as part of the life fund figures for the year ended 31 March 2017 are recorded on a liability, there was no impact on net assets of the Group.
In Rs. '000 Previous presentation as per Re-arrangement New presentation audited financial statements (zeroed at product level) (non-zeroed) Insurance contract liabilities as at 31 December 2016 1,814,822 2,960,256 4,775,078 Surplus created due to change in valuation method from NPV to GPV as at 31 December 2016 4,814,795 (2,960,256) 1,854,539 6,629,617 - 6,629,617
38.7.2 Transfer of one-off surplus from policy holder fund to shareholder fund The Insurance Regulatory Commission of Sri Lanka (IRCSL) has ended 31 March 2018. The transfer has been presented as a issued a Direction No 16 on 20 March 2018 on “Guidelines/ separate line item in the Income Statement as “change in contract directions for Identification and Treatment of One-off Surplus” and liability due to transfer of one off surplus” and as a separate reserve has instructed all life insurance companies to comply with the new in the Statement of Financial Position as “Restricted Regulatory direction. Based on the new guidelines life insurance companies are Reserve” under equity in accordance with the above Direction. As directed to transfer the one off surplus attributable to policyholder required by the said direction, the company received approval for non-participating fund to shareholder fund in the reporting year this transfer on 29 March 2018. 216 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
Further distribution of the one off surplus to shareholders, held as One-off surplus in respect of participating business is held within part of the “Restricted Regulatory Reserve”, is subject to meeting the participating fund as part of the unallocated valuation surplus governance requirements stipulated by the IRCSL and can only and may only be transferred to the shareholder fund by means of be released as dividends upon receiving approval from the IRCSL. bonuses to policyholders in line with Section 38 of the “Regulation The one off surplus in the shareholder fund will remain invested of Insurance Industry, Act No. 43 of 2000”. Please refer Note 38.7.3 in Government debt securities and deposits as disclosed in Note for details of assets supporting the restricted regulatory reserve as at 38.7.3 as per the directions of the IRCSL 31 March 2018.
In Rs. '000 Participating Non- Total fund participating fund Value of insurance contract liability based on Independent Actuary - NPV as at 31 December 2015 3,866,780 2,472,575 6,339,355 Value of insurance contract liability based on Independent Actuary - GPV as at 31 December 2015 2,810,245 1,674,571 4,484,816 Surplus created due to change in valuation method from NPV to GPV - One off Surplus as at 01 January 2016 1,056,535 798,004 1,854,539 Transfer of one off surplus from long term fund to Restricted Regulatory Reserve as at 31 December 2017 - (798,004) (798,004) Surplus created due to change in valuation method from NPV to GPV - One off surplus as at 31 March 2018 1,056,535 - 1,056,535
Distribution of one off surplus The distribution of the one off surplus to shareholders as dividends »» assets and liability management policy shall remain restricted until the company develops appropriate »» policy on internal target Capital Adequacy Ratio policies and procedures for effective management of its business, as listed below. »» considerations for transfer of funds from policyholder fund to shareholder fund. »» expense allocation policy setting out the basis of allocation of expenses between the shareholder fund and the policyholder These policies should be approved by the Board of Directors of fund as well as between different lines of business within the the Company and must also comply with any relevant guidance policyholder fund, particularly participating and non-participating issued by IRCSL from time to time. Further IRCSL will reconsider the »» dividend declaration policy for universal life business distribution of the one off surplus when the Risk Based Capital rules are revised. »» bonus policy for the participating business, which should include treatment of one off surplus for the purpose of bonus declaration
38.7.3 Composition of investments supporting the Restricted Regulatory Reserve as at 31 March 2018 In Rs. ‘000 Face value Market value as at 31 March 2018 Government Securities Treasury Bond 100,000 127,236 Repos Commercial Bank of Ceylon PLC 281,611 First Capital Holdings PLC 90,569 Deposits Sampath Bank PLC 250,000 257,147 Hatton National Bank PLC 200,000 205,595 Total market value of the assets 962,158 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 217
39 Interest bearing borrowings In Rs. ‘000 Group As at 31 March 2018 2017 Finance Debenture Loans Total Finance Debentures Loans Total leases leases At the beginning of the year 301,069 1,483,628 34,261,503 36,046,200 301,903 2,803,672 25,400,042 28,505,617 Additions 17,387 - 3,878,419 3,895,806 82,031 - 15,661,103 15,743,134 Repayments (113,313) (158,658) (6,426,011) (6,697,982) (71,296) (1,338,672) (7,130,278) (8,540,246) Acquisition of subsidiary 2,419 - 8,556 10,975 - - - - Transfers/discontinuation - - (309,655) (309,655) (11,569) - - (11,569) Unamortised loan processing cost - - (16,207) (16,207) - - (19,655) (19,655) Finance charges (25,735) - - (25,735) (43,113) 18,628 - (24,485) Exchange translation difference 282 - 70,288 70,570 - - 330,636 330,636 At the end of the year 182,109 1,324,970 31,466,893 32,973,972 257,956 1,483,628 34,241,848 35,983,432
Repayable within one year 69,915 65,000 7,109,726 7,244,641 86,927 18,628 6,222,463 6,328,018 Repayable after one year 112,194 1,259,970 24,357,167 25,729,331 171,029 1,465,000 28,019,385 29,655,414 182,109 1,324,970 31,466,893 32,973,972 257,956 1,483,628 34,241,848 35,983,432
In Rs. ‘000 Company As at 31 March 2018 2017 Finance Loans Total Finance Debentures Loans Total leases leases At the beginning of the year 85,594 10,973,091 11,058,685 65,641 1,000,000 5,826,878 6,892,519 Additions - 1,866,930 1,866,930 58,697 - 6,932,770 6,991,467 Repayments (35,735) (2,494,880) (2,530,615) (38,744) (1,000,000) (1,786,557) (2,825,301) Processing fee - (10,805) (10,805) - - (13,384) (13,384) Finance charges/ accrued interest (5,159) 59,402 54,243 (11,944) - 56,641 44,697 At the end of the year 44,700 10,393,738 10,438,438 73,650 - 11,016,348 11,089,998
Repayable within one year 23,973 2,960,558 2,984,531 28,694 - 2,551,325 2,580,019 Repayable after one year 20,727 7,433,180 7,453,907 44,956 - 8,465,023 8,509,979 44,700 10,393,738 10,438,438 73,650 - 11,016,348 11,089,998
Security pledged and interest rates pertaining to interest bearing borrowings are disclosed in note 53 to the financial statements.
39.1 Present value of minimum lease payments In Rs. ‘000 Group Company Finance lease obligations Finance lease obligations Finance lease obligations Finance lease obligations repayable within one year repayable between one repayable within one year repayable between one and five years and five years As at 31 March 2018 2017 2018 2017 2018 2017 2018 2017 Minimum lease payments 82,944 109,486 124,899 191,583 27,705 35,479 22,154 50,115 Finance charges (13,029) (22,559) (12,705) (20,554) (3,732) (6,785) (1,427) (5,159) Present value of minimum lease payments 69,915 86,927 112,194 171,029 23,973 28,694 20,727 44,956 218 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
39.2 Details regarding the listed debentures are as follows; In Rs. ‘000 Annual Interest Allotment Maturity Face Amortised cost interest payment date date value rate frequency As at 31 March 2018 2017 Group Softlogic Finance PLC Listed, secured, Type "A" debentures* 10.00% Quarterly 29-08-2014 28-08-2019 949,870 859,840 959,611 Listed, secured, Type "B" debentures* 3 month TB net + 1.50% Quarterly 29-08-2014 28-08-2019 450,130 400,130 454,746 Unlisted, unsecured, subordinated debentures 15.50% Quarterly 29-11-2013 28-11-2018 65,000 65,000 69,270 1,324,970 1,483,627
* Secured by a 100% guarantee provided by “GuarantCo” up to an aggregate of Rs. 1,400.00 Mn (rupee equivalent of USD 10.00 Mn).
39.3 Derivative financial instruments In Rs. ‘000 Group As at 31 March 2018 2017 Asset Liability Asset Liability Foreign currency cash flow hedges 179,293 - 145,026 -
Cash flow hedge The risk management objective of the cash flow hedge is to hedge the risk of variation in the foreign currency exchange rates associated with USD denominated forecast sales
The risk management strategy is to use the foreign currency variability (gains /losses) arising from revaluation of the foreign currency loan attributable to changes in the spot foreign exchange on LKR conversion of USD denominated forecast sales. The effective portion of the gain or loss on the hedging instrument is recognised in the Other Comprehensive Income Statement (OCI) and any ineffective portion is recognised immediately in the Income Statement.
The amount recognised in Other Comprehensive Income is transferred to the Income Statement when the hedge transaction occurs (when the forecasted revenue is realised). If the forecast transaction is no longer expected to occur, the cumulative gain or loss previously recognised in Other Comprehensive Income is transferred to the Income Statement.
Ceysand Resorts Ltd Softlogic City Hotels (Pvt) Ltd Hedging instrument - Foreign currency borrowing of USD 7.50 Hedging instrument - Foreign currency borrowing of USD 36.40 Mn in February 2013, maturing in March Mn in May 2015, maturing in June 2025 2024, and foreign currency borrowing of USD 2.50 Mn in October 2013, maturing Hedged item - USD denominated sales expected to occur in March 2024 in each month of April 2017 to June 2025
Hedged item - USD denominated sales expected to occur The cash flow hedge has a notional amount of USD 35.39 Mn and in March and September of 2016 to 2024 cash flows are expected to occur as 101 monthly installments of 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024 and 2025 in The cash flow hedge has a notional amount of USD 10.00 Mn USD 35.39 Mn capital and interest repayments on the 25th of each and cash flows are expected to occur as 17 equal semi-annual month till May 2025. installments at 15 March and 15 September of 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023 and 2024 in USD 588,235 capital and interest repayments at 15 March and 15 September of each year. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 219
In respect of the cash flow hedge instrument, the following balance has been recognised in the Other Comprehensive Income Statement (OCI) as the fair value loss on the hedging instrument.
In Rs. ‘000 Group For the year ended 31 March 2018 2017 Net change in fair value on derivative financial instruments (34,266) (38,096)
On the hedged instrument the following attributable to the hedged risk has been recognised in the Group Income Statement.
In Rs. ‘000 Group For the year ended 31 March 2018 2017 Under Finance expenses Realised exchange loss on foreign currency borrowings 39,930 15,313 Unrealised exchange loss on foreign currency borrowings 2,511 9,479 42,441 24,792
40 Public deposits In Rs. ‘000 Group As at 31 March 2018 2017 Deposits maturing after one year 3,237,633 1,986,055 Deposits maturing within one year 13,063,838 14,049,443 16,301,471 16,035,498
41 Employee benefit liabilities
Accounting policy
Defined benefit plan - Gratuity The liability recognised in the statement of financial position is the As per the payment of Gratuity Act No. 12 of 1983, this liability only present value of the defined benefit obligation at the reporting date arises upon completion of 5 years of continued service. using the projected unit credit method. Any actuarial gains or losses arising are recognised immediately in other comprehensive income. The gratuity liability is not externally funded.
In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 At the beginning of the year 801,930 688,105 49,130 43,390 Current service cost 118,939 106,230 7,057 5,316 Interest cost on benefit obligation 100,014 64,442 6,165 4,759 Loss arising from changes in assumptions 74,103 50,034 10,219 1,338 Acquisition/(disposal) of subsidiary 5,803 (18,127) - - Transfers to related companies - - - (122) Payments (87,901) (88,754) (4,319) (5,551) At the end of the year 1,012,888 801,930 68,252 49,130
The employee benefit liability of the Group is based on actuarial valuations carried out by Messrs. Actuarial & Management Consultants (Pvt) Ltd, Messrs. Smiles Global (Pvt) Ltd and Mr. Piyal Goonatilleke, actuaries. 220 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
Defined contribution plan - Employees’ Provident Fund and Accounting judgements, estimates and assumptions Employees’ Trust Fund The employee benefit liability of the Group is based on the actuarial Employees are eligible for Employees’ Provident Fund contributions valuation carried out by an independent actuarial specialist. The and Employees’ Trust Fund benefits in line with the respective actuarial valuations involve making assumptions about discount statutes and regulations. The companies contribute the defined rates and future salary increases. Given the complexity of the percentages of gross emoluments of employees to an approved valuation, the underlying assumptions and the long term nature Employees’ Provident Fund and to the Employees’ Trust Fund of the liability, the defined benefit obligation is highly sensitive to respectively, which are externally funded. changes in these assumptions.
All assumptions are reviewed at each reporting date.
The principal assumptions used in determining the cost of employee benefits were as bellow: As at 31 March 2018 2017 Discount rate (%) 8.10-12.00 11.00-13.00 Future salary increases (%) 7.50-10.00 7.50-12.00
41.1 Sensitivity to assumptions used If there is a one percentage point changes in the assumptions, it would have the following effect: In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 Effect on the defined benefit obligation liability: Increase by one percentage point in discount rate (36,271) (26,006) (2,801) (1,195) Decrease by one percentage point in discount rate 39,389 28,187 2,993 1,262
Effect on the defined benefit obligation liability: Increase by one percentage point in the salary increment rate 43,577 32,080 3,226 1,462 Decrease by one percentage point in the salary increment rate (40,985) (30,132) (3,070) (1,405)
41.2 Maturity analysis of payments The following payments are expected on account of employees benefit liabilities in future years. In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 - within the next 12 months 250,575 224,264 9,070 7,021 - between 1 and 2 years 272,791 236,605 11,926 28,885 - between 3 and 5 years 316,217 207,512 39,321 8,293 - between 6 and 10 years 133,255 105,608 6,028 4,076 - beyond 10 years 40,050 27,941 1,907 855 Total expected payments 1,012,888 801,930 68,252 49,130
41.3 Weighted average durations of service The Group’s and the Company’s weighted average durations of service in is 6.37 years (2017 - 5.49 years) and 4.47 years (2017 - 2.76 years) respectively. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 221
42 Other deferred liabilities
Accounting policy
Deferred revenue Warranty Deferred revenue is the money received for goods or services Provisions for warranty related costs are recognised when which have not yet been delivered. According to the revenue the product is sold or service provided to the customer. Initial recognition principle, it is recorded as a liability until delivery is recognition is based on historical experience and revised annually. made, at which time it is converted to revenue.
In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 Within one year Deferred revenue 189,671 164,998 36,036 36,036 Warranty provision 37,594 44,226 - - 227,265 209,224 36,036 36,036 After one year Deferred revenue 127,635 152,891 111,712 147,748 Warranty provision - 268 - - 127,635 153,159 111,712 147,748 Total other deferred liabilities 354,900 362,383 147,748 183,784
43 Other non-current financial liabilities In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 Security deposits 11,723 28,849 - - Advances received 110,779 - - - Payable to related party - - 186,200 186,200 122,502 28,849 186,200 186,200
44 Trade and other payables
Accounting policy Trade payables are the aggregate amount of obligations to pay for business. Trade payable are classified as current liabilities if payment goods or services that have been acquired in the ordinary course of is due within one year.
In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 Trade and other payables 5,203,971 5,308,820 44,415 24,133 Reinsurance payables 181,006 229,140 - - Dividend payable 71,845 330,003 - - Sundry creditors including accrued expenses 1,811,755 1,085,781 - - 7,268,577 6,953,744 44,415 24,133 222 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
45 Other current financial liabilities In Rs. ‘000 Note Group Company As at 31 March 2018 2017 2018 2017 Loans* 17,913,513 8,689,281 4,997,247 1,090,398 Commercial papers 5,684,635 3,357,600 5,529,108 3,357,600 Financial liabilities at fair value through profit or loss 45.1 9,357 9,357 - - 23,607,505 12,056,238 10,526,355 4,447,998 * Group loan outstanding balance reflects money market loan payables and import loans.
45.1 Financial liabilities at fair value through profit or loss Softlogic Holdings PLC (“SH”), Softlogic Capital PLC (“SC”) and Softlogic Life Insurance PLC (“SLI”) entered into a “Shareholders Agreement” and “Share Purchase Agreement” dated 20 December 2012 as amended on 13 February 2013 with Deutsche Investitions - Und Entwicklungsgesellschaft MBH (“DEG”) and Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (“FMO”) to sell 19% of the ordinary shares of SLI, held by SH to FMO and 19% of the SLI ordinary shares held by SC to DEG. As per the above agreements, SC has granted a ‘Put Option’ to FMO and DEG which will be valid for a three year period with effect from 7 March 2017 to repurchase 38% of the shares held by DEG and FMO based on a ‘Put Option’ price as specified in the amended agreements.
Subsequent to the evaluation of ownership interests on the shares transferred to non-controlling interests (NCI) based on pricing, voting rights, decision making and dividend rights, management determines that SH & SC have transferred full ownership interests to the NCI. Therefore, the investment in SLI shares were derecognised and any liability arising from the put option is recognised based on the option valuation methodology in line with LKAS - 39 Financial Instrument Recognition and Measurement.
As at 31 March, 2018, the Group had pledged 52,368,036 shares (2017 – 52,368,036 shares) of Asiri Hospital Holdings PLC owned by Softlogic Holdings PLC and 20,000 shares (2017 – 20,000 shares) of Softlogic Life Insurance PLC owned by Softlogic Capital PLC as collateral on the said transaction.
45.1.1 Valuation of obligation on the put option liability The obligation on the put option liability of the Group is based on the binomial method of valuation carried out by the management of Softlogic Capital PLC. The principal inputs used in determining the liability were:
Group As at 31 March 2018 2017 Continuous compounded risk free rate (%) 10.34 12.89 Annualised volatility (%) 42.63 40.81 Appraisal value (Rs.) 368 293 Probability to move up (Pu) of the option value (%) 90 90 Probability to move down (Pd) of the option value (%) 10 10 Upward movement of the appraisal value (%) 1.35 1.33 Downward movement of the appraisal value (%) 0.74 0.75
Risk free rate - Rate of return of an investment with no risk of financial loss Appraisal value - Based on a valuation performed by an independent valuer FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 223
45.1.2 Sensitivity of assumptions used A one percentage point change in the assumptions would have the following effect:
In Rs. ‘000 Group As at 31 March 2018 2017 Effect on the put option obligation liability: Increase by one percentage point in risk free rate (119) (127) Decrease by one percentage point in risk free rate 122 130
Effect on the put option obligation liability: Increase by one percentage point in appraisal value (273) (210) Decrease by one percentage point in appraisal value 273 210
Effect on the put option obligation liability: Increase by one percentage point in probability to move up of the option value (1,840) (2,124) Decrease by one percentage point in probability to move up of the option value 2,174 2,551
46 Other current liabilities
Accounting policy The Group classifies all non-financial current These include non-refundable deposits recorded at amounts expected to be set-off liabilities under other current liabilities. and other tax payables. These liabilities are at the reporting date.
In Rs. ‘000 Note Group Company As at 31 March 2018 2017 2018 2017 Advances received 435,488 287,981 - - Taxes payables 184,939 261,246 32,015 20,610 Other liabilities 619,634 676,615 18,170 16,701 Other deferred liabilities 42 227,265 209,224 36,036 36,036 1,467,326 1,435,066 86,221 73,347
47 Related party transactions The Companies within the Group disclosed under the Corporate Directory engage in trading transactions under relevant commercial terms and conditions.
Outstanding current account balances at year end are unsecured and interest free and settlement occurs in cash. Interest bearing borrowings are on pre-determined interest rates and terms.
47.1 Amounts due from related parties In Rs. ‘000 Note Group Company As at 31 March 2018 2017 2018 2017 Subsidiaries 47.3 - - 8,588,380 5,675,892 Associates 47.4 609 135 - - Key Management Personnel 198 198 - - 807 333 8,588,380 5,675,892 224 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
47.2 Amounts due to related parties In Rs. ‘000 Note Group Company As at 31 March 2018 2017 2018 2017 Subsidiaries 47.3 - - 15,885 66,072 Associates 47.5 5,074 4,932 - - Key Management Personnel 2,492 12,633 1,992 1,992 7,566 17,565 17,877 68,064
47.3 Subsidiaries In Rs. ‘000 Company Amount due to Amount due from As at 31 March 2018 2017 2018 2017 Ceysand Resorts (Pvt) Ltd - 31,831 2,833 - Future Automobiles (Pvt) Ltd - - 62,302 65,545 Softlogic Australia (Pty) Ltd - - 3,974 3,974 Softlogic Automobiles (Pvt) Ltd - - 8,635 10,651 Softlogic B P O Services (Pvt) Ltd - - 119,501 117,265 Softlogic Brands (Pvt) Ltd - - 189 241 Softlogic City Hotels (Pvt) Ltd - - 973,444 931,157 Softlogic Communication Services (Pvt) Ltd - - 7,585 4,735 Softlogic Communications (Pvt) Ltd - - - 4,986 Softlogic Computers (Pvt) Ltd 2 - - 12,114 Softlogic Corporate Services (Pvt) Ltd 877 5 - - Softlogic Destination Management (Pvt) Ltd - - 6,702 7,143 Softlogic Information Technologies (Pvt) Ltd 13,146 32,158 - - Softlogic International (Pvt) Ltd - - - 81 Softlogic Mobile Distribution (Pvt) Ltd - - - 1,773 Softlogic Properties (Pvt) Ltd - - 357,297 201,994 Softlogic Restaurants (Pvt) Ltd - - 212 239 Softlogic Retail (Pvt) Ltd - - 39,734 59,187 Softlogic Retail Holdings (Pvt) Ltd - - - - Softlogic Retail One (Pvt) Ltd 1,000 1,218 - - Softlogic Solar (Pvt) Ltd - - 34,613 34,613 Softlogic Supermarkets (Pvt) Ltd (previously known as Softlogic Real Estate (Pvt) Ltd) 860 860 - - 15,885 66,072 1,617,021 1,455,698 Less - Provision for impairment - - (96,914) (73,976) 15,885 66,072 1,520,107 1,381,722 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 225
47.3 Subsidiaries In Rs. ‘000 Company Loans received Loans given As at 31 March 2018 2017 2018 2017 Ceysand Resorts (Pvt) Ltd - - 144,246 - Future Automobiles (Pvt) Ltd - - 683,108 614,635 Odel PLC - - 76,443 - Softlogic Automobiles (Pvt) Ltd - - - 102,913 Softlogic Automobiles (Pvt) Ltd - - 119,359 - Softlogic Brands (Pvt) Ltd - - 98,828 - Softlogic City Hotels (Pvt) Ltd - - 68,451 20,485 Softlogic Communications (Pvt) Ltd - - - 568,075 Softlogic Destination Management (Pvt) Ltd - - 31,657 33,355 Softlogic Information Technologies (Pvt) Ltd - - - - Softlogic International (Pvt) Ltd - - - 17,936 Softlogic Properties (Pvt) Ltd - - 68,639 46,459 Softlogic Restaurants (Pvt) Ltd - - 476,812 58,485 Softlogic Retail (Pvt) Ltd - - 5,628,599 3,118,636 - - 7,396,142 4,580,979 Less - Provision for impairment - - (327,869) (286,809) - - 7,068,273 4,294,170 15,885 66,072 8,588,380 5,675,892
47.4 Amounts due from related parties In Rs. ‘000 Group As at 31 March 2018 2017 Associates Sabre Travel Network Lanka (Pvt) Ltd 609 135 609 135
47.5 Amounts due to related parties In Rs. ‘000 Group As at 31 March 2018 2017 Associates Gerry's Softlogic (Pvt) Ltd 5,074 4,930 Nextage (Pvt) Ltd - 2 5,074 4,932 226 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
47.6 Transactions with related parties In Rs. ‘000 Group Company For the year ended 31 March 2018 2017 2018 2017 Subsidiaries (Purchases)/ sales of goods - - (14,301) (36,428) (Receiving) / rendering of services - - 623,478 527,485 (Purchases) / sale of property plant & equipment - - (37,733) (44,942) Loans given/ (obtained) - - 3,024,616 742,379 Interest received / (paid) - - 829,547 632,248 Rent received / (paid) - - 56,900 49,158 Dividend received - - 889,998 1,054,604 Profit on disposal of shares - - 4,588,114 1,112,456 Guarantee charges received - - 181,887 155,967
Associates (Purchases) / sale of property plant & equipment 11,296 10,718 - - (Receiving) / rendering of services 698 1,800 10,898 10,718 Dividend received - - 3,015 1,800
Key Management Personnel Loans given/ (received) (2,294) (12,436) (1,992) (1,992) Guarantees given/ (obtained) (510,000) (730,000) (100,000) (100,000) Loans given/ (customer deposits received) (44,853) (84,672) - - Advances given/ (received) (160,455) (60,765) - - (Receiving) / rendering of services 1,257 2,972 - - Interest paid on customer deposits 3,579 8,087 - -
Close family Members of KMP (Receiving)/rendering of services - - - -
47.7 Compensation of Key Management Personnel Key management personnel include members of the Board of Directors of Softlogic Holdings PLC and its subsidiary companies.
In Rs. ‘000 Group Company For the year ended 31 March 2018 2017 2018 2017 Short term employee benefits 288,693 238,512 42,225 23,286 Post-employment benefits 44,413 40,461 12,750 7,826 288,693 238,512 42,225 23,286
FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 227
48 Operating segment information
Accounting policy The Group’s internal organisation and management is structured based on individual products and services which are similar in nature and process and where the risks and returns are similar. The operating segments represent this business structure.
The Group is thus organised into business units based on their products and services and has seven operating business segments as follows:
Information Technology Financial Services The Information Technology operating segment comprises the The Financial Services operating segment offers a complete range areas of software development, hardware and system software of financial solutions including some banking related services, solutions, market specific ICT solutions, office automation and insurance, stock broking, debt trading, fund management and telecommunication solutions. leasing.
Leisure and Property Healthcare Services The Leisure and Property operating segment comprises one The Healthcare Services operating segment comprises a leading five star hotel, one four star hotel, destination management and private hospital chain providing private healthcare and laboratory development/sale of residential apartments. services.
Retail Others The Retail operating segment comprises consumer electronics and This sector consists of Softlogic Holdings PLC, which provides durables, branded apparels & fashion and quick service restaurants. ancillary services to Group companies.
Automobiles The Automobile operating segment deals in branded motor vehicles and ancillary services.
Segment information has been prepared in conformity with the accounting policies adopted for preparing and presenting the consolidated financial statements of the Group.
The Board of Directors monitors the operating results of its business units separately for the purpose of making decisions about resource allocations and performance assessments.
Segment performance is evaluated based on operating profit or loss which in certain respects is measured differently from operating profit or loss in the consolidated financial statements.. 228 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
48.1 Revenue and profit In Rs. ‘000 Information Technology Leisure & Property Retail Automobiles Financial Services Healthcare Services Others Group For the year ended 31 March 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Restated Restated Restated Continuing operations Revenue Total revenue 18,440,814 18,569,380 2,718,660 1,345,294 22,130,826 20,461,837 2,488,046 1,640,446 11,068,797 8,781,789 12,412,747 10,759,284 677,335 652,470 69,937,225 62,210,500 Inter group (1,543,041) (1,030,030) (133,237) (132,111) (1,113,260) (890,816) (67,240) (232,985) (7,884) (13,990) (387,569) (386,690) (666,079) (641,525) (3,918,310) (3,328,147) Total external revenue 16,897,773 17,539,350 2,585,423 1,213,183 21,017,566 19,571,021 2,420,806 1,407,461 11,060,913 8,767,799 12,025,178 10,372,594 11,256 10,945 66,018,915 58,882,353
Results from operating activities 958,867 689,631 (141,980) (142,875) 2,454,038 2,162,003 698 (82,758) 1,787,616 673,554 3,425,945 2,141,097 (178,475) (229,054) 8,306,709 5,211,598
Finance income 12,261 35,974 18,499 18,434 62,946 82,540 2,463 105 912,225 706,897 85,020 40,450 10,391 12,991 1,103,805 897,391 Finance expenses (254,177) (349,390) (548,155) (279,273) (2,192,737) (1,767,492) (187,968) (158,724) (265,351) (217,718) (869,483) (824,486) (1,641,995) (1,212,455) (5,959,866) (4,809,538) Change in insurance contract liabilities ------(1,374,037) (82,440) - - - - (1,374,037) (82,440) Change in contract liability due to transfer of one off surplus ------798,004 - - - - - 798,004 - Change in fair value of investment property - - - - 198,000 354,120 ------198,000 354,120 Share of profit of equity accounted investees ------(6,496) (11,056) 26,283 21,054 19,787 9,998 Profit/ (loss) before taxation 716,951 376,215 (671,636) (403,714) 522,247 831,171 (184,807) (241,377) 1,858,457 1,080,293 2,634,986 1,346,005 (1,783,796) (1,407,464) 3,092,402 1,581,129 Taxation (197,803) (117,326) (193,752) 114,713 (35,060) (409,811) 21,030 (2,348) 424,083 (108,211) (696,506) (168,733) (136,351) (114,346) (814,359) (806,062) Profit/ (loss) for the year from continuing operations 519,148 258,889 (865,388) (289,001) 487,187 421,360 (163,777) (243,725) 2,282,540 972,082 1,938,480 1,177,272 (1,920,147) (1,521,810) 2,278,043 775,067
Profit for the period from discontinued operation ------145,317 - - - - - 145,317 Profit/ (loss) for the year 519,148 258,889 (865,388) (289,001) 487,187 421,360 (163,777) (243,725) 2,282,540 1,117,399 1,938,480 1,177,272 (1,920,147) (1,521,810) 2,278,043 920,384
Depreciation of property, plant & equipment (PPE) 83,405 75,459 589,423 234,647 485,440 385,735 42,399 39,380 174,536 158,861 872,062 783,323 37,318 34,233 2,284,583 1,711,638 Amortisation of lease rentals paid in advance ------79 - - - 1,037 1,037 - - 1,116 1,037 Amortisation / impairment of intangible assets 29,820 44,415 20,683 15,399 70,680 60,933 - - 225,538 215,669 8,522 8,522 2,825 3,713 358,068 348,651 Retirement benefit obligations and related cost 30,045 22,387 10,006 3,520 33,486 25,725 3,639 1,429 30,726 27,128 97,692 80,844 13,359 9,639 218,953 170,672 Purchase and construction of PPE 52,133 54,113 359,009 2,991,717 1,201,570 838,696 23,644 13,779 231,150 136,637 2,619,809 2,172,118 36,545 104,235 4,523,860 6,311,295 Additions to intangible assets 98,343 91,665 17,421 15,994 138,152 39,198 - - 191 72,571 - - 2,378 2,244 256,485 221,672 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 229
48.1 Revenue and profit In Rs. ‘000 Information Technology Leisure & Property Retail Automobiles Financial Services Healthcare Services Others Group For the year ended 31 March 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Restated Restated Restated Continuing operations Revenue Total revenue 18,440,814 18,569,380 2,718,660 1,345,294 22,130,826 20,461,837 2,488,046 1,640,446 11,068,797 8,781,789 12,412,747 10,759,284 677,335 652,470 69,937,225 62,210,500 Inter group (1,543,041) (1,030,030) (133,237) (132,111) (1,113,260) (890,816) (67,240) (232,985) (7,884) (13,990) (387,569) (386,690) (666,079) (641,525) (3,918,310) (3,328,147) Total external revenue 16,897,773 17,539,350 2,585,423 1,213,183 21,017,566 19,571,021 2,420,806 1,407,461 11,060,913 8,767,799 12,025,178 10,372,594 11,256 10,945 66,018,915 58,882,353
Results from operating activities 958,867 689,631 (141,980) (142,875) 2,454,038 2,162,003 698 (82,758) 1,787,616 673,554 3,425,945 2,141,097 (178,475) (229,054) 8,306,709 5,211,598
Finance income 12,261 35,974 18,499 18,434 62,946 82,540 2,463 105 912,225 706,897 85,020 40,450 10,391 12,991 1,103,805 897,391 Finance expenses (254,177) (349,390) (548,155) (279,273) (2,192,737) (1,767,492) (187,968) (158,724) (265,351) (217,718) (869,483) (824,486) (1,641,995) (1,212,455) (5,959,866) (4,809,538) Change in insurance contract liabilities ------(1,374,037) (82,440) - - - - (1,374,037) (82,440) Change in contract liability due to transfer of one off surplus ------798,004 - - - - - 798,004 - Change in fair value of investment property - - - - 198,000 354,120 ------198,000 354,120 Share of profit of equity accounted investees ------(6,496) (11,056) 26,283 21,054 19,787 9,998 Profit/ (loss) before taxation 716,951 376,215 (671,636) (403,714) 522,247 831,171 (184,807) (241,377) 1,858,457 1,080,293 2,634,986 1,346,005 (1,783,796) (1,407,464) 3,092,402 1,581,129 Taxation (197,803) (117,326) (193,752) 114,713 (35,060) (409,811) 21,030 (2,348) 424,083 (108,211) (696,506) (168,733) (136,351) (114,346) (814,359) (806,062) Profit/ (loss) for the year from continuing operations 519,148 258,889 (865,388) (289,001) 487,187 421,360 (163,777) (243,725) 2,282,540 972,082 1,938,480 1,177,272 (1,920,147) (1,521,810) 2,278,043 775,067
Profit for the period from discontinued operation ------145,317 - - - - - 145,317 Profit/ (loss) for the year 519,148 258,889 (865,388) (289,001) 487,187 421,360 (163,777) (243,725) 2,282,540 1,117,399 1,938,480 1,177,272 (1,920,147) (1,521,810) 2,278,043 920,384
Depreciation of property, plant & equipment (PPE) 83,405 75,459 589,423 234,647 485,440 385,735 42,399 39,380 174,536 158,861 872,062 783,323 37,318 34,233 2,284,583 1,711,638 Amortisation of lease rentals paid in advance ------79 - - - 1,037 1,037 - - 1,116 1,037 Amortisation / impairment of intangible assets 29,820 44,415 20,683 15,399 70,680 60,933 - - 225,538 215,669 8,522 8,522 2,825 3,713 358,068 348,651 Retirement benefit obligations and related cost 30,045 22,387 10,006 3,520 33,486 25,725 3,639 1,429 30,726 27,128 97,692 80,844 13,359 9,639 218,953 170,672 Purchase and construction of PPE 52,133 54,113 359,009 2,991,717 1,201,570 838,696 23,644 13,779 231,150 136,637 2,619,809 2,172,118 36,545 104,235 4,523,860 6,311,295 Additions to intangible assets 98,343 91,665 17,421 15,994 138,152 39,198 - - 191 72,571 - - 2,378 2,244 256,485 221,672 230 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
48.2 Segment assets and liabilities In Rs. ‘000 Information Technology Leisure & Property Retail Automobiles Financial Services Healthcare Services Others Group As at 31 March 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Restated Restated Restated Property, plant and equipment 162,757 193,232 11,011,804 11,150,981 5,040,937 6,956,138 433,983 316,011 1,133,101 881,422 17,130,704 14,384,168 209,100 201,878 35,122,386 34,083,830 Lease rentals paid in advance - - 212,621 - - - 3,804 - - - 801,796 852,722 - - 1,018,221 852,722 Investment property 207,566 205,530 1,343,700 1,100,000 5,010,000 1,442,000 ------704,000 609,385 7,265,266 3,356,915 Intangible assets 327,395 258,841 29,940 19,802 415,064 347,591 - - 106,706 129,691 - - 593 1,040 879,698 756,965 Non-current financial assets 567 567 - - 776,498 341,942 20,361 - 9,421,192 9,408,791 345,762 349,972 - - 10,564,380 10,101,272 Rental receivable on lease assets and hire purchase ------1,042,759 359,972 - - - - 1,042,759 359,972 Other non-current assets 7,851 11,201 627,863 8,456 281,319 202,379 4,637 6,677 3,500 3,500 3,333 4,333 - - 928,503 236,546 Segment non-current assets 706,136 669,371 13,225,928 12,279,239 11,523,818 9,290,050 462,785 322,688 11,707,258 10,783,376 18,281,595 15,591,195 913,693 812,303 56,821,213 49,748,222
Investments in equity accounted investees 111,885 68,528 Goodwill 4,240,503 4,115,824 Intangible assets through business combinations 3,490,163 3,696,448 Deferred tax assets 749,406 508,968 Eliminations/ adjustment (24,049) (52,888) Total non-current assets 706,136 669,371 13,225,928 12,279,239 11,523,818 9,290,050 462,785 322,688 11,707,258 10,783,376 18,281,595 15,591,195 913,693 812,303 65,389,121 58,085,102
Inventories 1,679,095 1,717,671 1,164,933 668,747 6,374,504 5,483,701 1,376,924 478,590 131,743 115,944 523,340 515,310 - - 11,250,539 8,979,963 Trade and other receivables 2,867,335 2,209,909 297,216 185,568 6,910,914 5,534,679 195,324 88,062 1,011,716 833,690 539,401 454,972 16,224 10,157 11,838,130 9,317,037 Loans and advances ------13,098,641 14,665,990 - - - - 13,098,641 14,665,990 Rental receivable on lease assets and hire purchase ------523,777 589,345 - - - - 523,777 589,345 Other current assets 162,889 349,866 231,342 190,962 1,406,740 860,192 45,182 50,883 1,217,730 792,356 368,135 424,926 17,033 16,843 3,449,051 2,686,028 Short term investments 103 5,106 342 323 30,960 28,051 1,500 1,500 6,234,216 3,626,788 719,470 - 134,017 134,488 7,120,608 3,796,256 Cash in hand and at bank 249,242 386,669 417,660 93,719 765,383 413,311 38,100 8,012 1,169,241 886,586 580,189 904,913 2,932,018 101,398 6,151,833 2,794,608 Segment current assets 4,958,664 4,669,221 2,111,493 1,139,319 15,488,501 12,319,934 1,657,030 627,047 23,387,064 21,510,699 2,730,535 2,300,121 3,099,292 262,886 53,432,579 42,829,227 Amounts due from related parties 807 333 Total current assets 4,958,664 4,669,221 2,111,493 1,139,319 15,488,501 12,319,934 1,657,030 627,047 23,387,064 21,510,699 2,730,535 2,300,121 3,099,292 262,886 53,433,386 42,829,560 Total assets 118,822,507 100,914,662
Insurance contract liabilities ------7,192,591 6,616,558 - - - - 7,192,591 6,616,558 Interest bearing borrowings 70,342 96,556 5,873,172 6,615,879 3,080,526 3,969,091 53,799 72,380 2,647,702 3,435,225 6,549,883 6,956,303 7,453,907 8,509,980 25,729,331 29,655,414 Public deposits ------3,237,633 1,986,055 - - - - 3,237,633 1,986,055 Employee benefit liabilities 160,534 124,149 23,410 10,993 157,807 112,244 10,788 4,455 125,400 99,508 465,672 400,973 69,277 49,608 1,012,888 801,930 Other deferred liabilities 15,924 5,411 ------111,711 147,748 127,635 153,159 Other non-current financial liabilities - 6,512 115,902 22,337 - - 6,600 ------122,502 28,849 Segment non-current liabilities 246,800 232,628 6,012,484 6,649,209 3,238,333 4,081,335 71,187 76,835 13,203,326 12,137,346 7,015,555 7,357,276 7,634,895 8,707,336 37,422,580 39,241,965 Deferred tax liabilities 2,829,959 459,096 Total non-current liabilities 246,800 232,628 6,012,484 6,649,209 3,238,333 4,081,335 71,187 76,835 13,203,326 12,137,346 7,015,555 7,357,276 7,634,895 8,707,336 40,252,539 39,701,061
Trade and other payables 2,423,941 2,823,896 790,782 490,706 1,863,075 1,539,860 34,192 11,389 1,259,578 1,029,748 854,982 1,036,009 42,027 22,136 7,268,577 6,953,744 Other current financial liabilities 2,710,446 1,673,297 231,832 27,273 12,846,635 8,772,831 1,366,596 206,287 559,357 823,054 1,054,533 - 10,526,355 4,447,998 29,295,754 15,950,740 Current portion of interest bearing borrowings 25,232 62,000 857,084 563,566 1,600,169 1,405,943 32,524 27,680 519,991 518,139 1,225,111 1,170,672 2,984,530 2,580,018 7,244,641 6,328,018 Other current liabilities 290,263 412,993 318,077 175,789 243,066 306,945 38,064 7,858 491,039 373,609 18,404 84,159 68,413 73,713 1,467,326 1,435,066 Public deposits ------13,063,838 14,049,443 - - - - 13,063,838 14,049,443 Bank overdrafts 86,041 37,780 591,452 431,494 1,372,334 875,448 83,650 43,172 675,885 1,228,807 1,682,107 1,048,196 153,748 550,247 4,645,217 4,215,144 Segment current liabilities 5,535,923 5,009,966 2,789,227 1,688,828 17,925,279 12,901,027 1,555,026 296,386 16,569,688 18,022,800 4,835,137 3,339,036 13,775,073 7,674,112 62,985,353 48,932,155 Income tax liabilities 348,372 535,788 Amounts due to related parties 7,566 17,565 Eliminations/ adjustment (5,688,249) (3,894,502) Total current liabilities 5,535,923 5,009,966 2,789,227 1,688,828 17,925,279 12,901,027 1,555,026 296,386 16,569,688 18,022,800 4,835,137 3,339,036 13,775,073 7,674,112 57,653,042 45,591,006 Total liabilities 97,905,581 85,292,067
Total segment assets 5,664,800 5,338,592 15,337,421 13,418,558 27,012,319 21,609,984 2,119,815 949,735 35,094,322 32,294,075 21,012,130 17,891,316 4,012,985 1,075,189 110,253,792 92,577,449 Total segment liabilities 5,782,723 5,242,594 8,801,711 8,338,037 21,163,612 16,982,362 1,626,213 373,221 29,773,014 30,160,146 11,850,692 10,696,312 21,409,968 16,381,448 100,407,933 88,174,120 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 231
48.2 Segment assets and liabilities In Rs. ‘000 Information Technology Leisure & Property Retail Automobiles Financial Services Healthcare Services Others Group As at 31 March 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Restated Restated Restated Property, plant and equipment 162,757 193,232 11,011,804 11,150,981 5,040,937 6,956,138 433,983 316,011 1,133,101 881,422 17,130,704 14,384,168 209,100 201,878 35,122,386 34,083,830 Lease rentals paid in advance - - 212,621 - - - 3,804 - - - 801,796 852,722 - - 1,018,221 852,722 Investment property 207,566 205,530 1,343,700 1,100,000 5,010,000 1,442,000 ------704,000 609,385 7,265,266 3,356,915 Intangible assets 327,395 258,841 29,940 19,802 415,064 347,591 - - 106,706 129,691 - - 593 1,040 879,698 756,965 Non-current financial assets 567 567 - - 776,498 341,942 20,361 - 9,421,192 9,408,791 345,762 349,972 - - 10,564,380 10,101,272 Rental receivable on lease assets and hire purchase ------1,042,759 359,972 - - - - 1,042,759 359,972 Other non-current assets 7,851 11,201 627,863 8,456 281,319 202,379 4,637 6,677 3,500 3,500 3,333 4,333 - - 928,503 236,546 Segment non-current assets 706,136 669,371 13,225,928 12,279,239 11,523,818 9,290,050 462,785 322,688 11,707,258 10,783,376 18,281,595 15,591,195 913,693 812,303 56,821,213 49,748,222
Investments in equity accounted investees 111,885 68,528 Goodwill 4,240,503 4,115,824 Intangible assets through business combinations 3,490,163 3,696,448 Deferred tax assets 749,406 508,968 Eliminations/ adjustment (24,049) (52,888) Total non-current assets 706,136 669,371 13,225,928 12,279,239 11,523,818 9,290,050 462,785 322,688 11,707,258 10,783,376 18,281,595 15,591,195 913,693 812,303 65,389,121 58,085,102
Inventories 1,679,095 1,717,671 1,164,933 668,747 6,374,504 5,483,701 1,376,924 478,590 131,743 115,944 523,340 515,310 - - 11,250,539 8,979,963 Trade and other receivables 2,867,335 2,209,909 297,216 185,568 6,910,914 5,534,679 195,324 88,062 1,011,716 833,690 539,401 454,972 16,224 10,157 11,838,130 9,317,037 Loans and advances ------13,098,641 14,665,990 - - - - 13,098,641 14,665,990 Rental receivable on lease assets and hire purchase ------523,777 589,345 - - - - 523,777 589,345 Other current assets 162,889 349,866 231,342 190,962 1,406,740 860,192 45,182 50,883 1,217,730 792,356 368,135 424,926 17,033 16,843 3,449,051 2,686,028 Short term investments 103 5,106 342 323 30,960 28,051 1,500 1,500 6,234,216 3,626,788 719,470 - 134,017 134,488 7,120,608 3,796,256 Cash in hand and at bank 249,242 386,669 417,660 93,719 765,383 413,311 38,100 8,012 1,169,241 886,586 580,189 904,913 2,932,018 101,398 6,151,833 2,794,608 Segment current assets 4,958,664 4,669,221 2,111,493 1,139,319 15,488,501 12,319,934 1,657,030 627,047 23,387,064 21,510,699 2,730,535 2,300,121 3,099,292 262,886 53,432,579 42,829,227 Amounts due from related parties 807 333 Total current assets 4,958,664 4,669,221 2,111,493 1,139,319 15,488,501 12,319,934 1,657,030 627,047 23,387,064 21,510,699 2,730,535 2,300,121 3,099,292 262,886 53,433,386 42,829,560 Total assets 118,822,507 100,914,662
Insurance contract liabilities ------7,192,591 6,616,558 - - - - 7,192,591 6,616,558 Interest bearing borrowings 70,342 96,556 5,873,172 6,615,879 3,080,526 3,969,091 53,799 72,380 2,647,702 3,435,225 6,549,883 6,956,303 7,453,907 8,509,980 25,729,331 29,655,414 Public deposits ------3,237,633 1,986,055 - - - - 3,237,633 1,986,055 Employee benefit liabilities 160,534 124,149 23,410 10,993 157,807 112,244 10,788 4,455 125,400 99,508 465,672 400,973 69,277 49,608 1,012,888 801,930 Other deferred liabilities 15,924 5,411 ------111,711 147,748 127,635 153,159 Other non-current financial liabilities - 6,512 115,902 22,337 - - 6,600 ------122,502 28,849 Segment non-current liabilities 246,800 232,628 6,012,484 6,649,209 3,238,333 4,081,335 71,187 76,835 13,203,326 12,137,346 7,015,555 7,357,276 7,634,895 8,707,336 37,422,580 39,241,965 Deferred tax liabilities 2,829,959 459,096 Total non-current liabilities 246,800 232,628 6,012,484 6,649,209 3,238,333 4,081,335 71,187 76,835 13,203,326 12,137,346 7,015,555 7,357,276 7,634,895 8,707,336 40,252,539 39,701,061
Trade and other payables 2,423,941 2,823,896 790,782 490,706 1,863,075 1,539,860 34,192 11,389 1,259,578 1,029,748 854,982 1,036,009 42,027 22,136 7,268,577 6,953,744 Other current financial liabilities 2,710,446 1,673,297 231,832 27,273 12,846,635 8,772,831 1,366,596 206,287 559,357 823,054 1,054,533 - 10,526,355 4,447,998 29,295,754 15,950,740 Current portion of interest bearing borrowings 25,232 62,000 857,084 563,566 1,600,169 1,405,943 32,524 27,680 519,991 518,139 1,225,111 1,170,672 2,984,530 2,580,018 7,244,641 6,328,018 Other current liabilities 290,263 412,993 318,077 175,789 243,066 306,945 38,064 7,858 491,039 373,609 18,404 84,159 68,413 73,713 1,467,326 1,435,066 Public deposits ------13,063,838 14,049,443 - - - - 13,063,838 14,049,443 Bank overdrafts 86,041 37,780 591,452 431,494 1,372,334 875,448 83,650 43,172 675,885 1,228,807 1,682,107 1,048,196 153,748 550,247 4,645,217 4,215,144 Segment current liabilities 5,535,923 5,009,966 2,789,227 1,688,828 17,925,279 12,901,027 1,555,026 296,386 16,569,688 18,022,800 4,835,137 3,339,036 13,775,073 7,674,112 62,985,353 48,932,155 Income tax liabilities 348,372 535,788 Amounts due to related parties 7,566 17,565 Eliminations/ adjustment (5,688,249) (3,894,502) Total current liabilities 5,535,923 5,009,966 2,789,227 1,688,828 17,925,279 12,901,027 1,555,026 296,386 16,569,688 18,022,800 4,835,137 3,339,036 13,775,073 7,674,112 57,653,042 45,591,006 Total liabilities 97,905,581 85,292,067
Total segment assets 5,664,800 5,338,592 15,337,421 13,418,558 27,012,319 21,609,984 2,119,815 949,735 35,094,322 32,294,075 21,012,130 17,891,316 4,012,985 1,075,189 110,253,792 92,577,449 Total segment liabilities 5,782,723 5,242,594 8,801,711 8,338,037 21,163,612 16,982,362 1,626,213 373,221 29,773,014 30,160,146 11,850,692 10,696,312 21,409,968 16,381,448 100,407,933 88,174,120 232 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
49 Prior year adjustment The Consolidated Financial Statements have been restated in accordance with Sri Lanka Accounting Standard LKAS - 8, Accounting Policies, changes in Accounting Estimates and Errors, to reflect the following.
Softlogic Retail (Pvt) Ltd, Softlogic Communications (Pvt) Ltd and Softlogic Finance PLC which are subsidiaries of Softlogic Holdings PLC adjusted errors mainly due to overstatement and understatement of assets and liabilities in previous years and the correction of error in data fields used for interest income accrual on loans and advances and as a consequence interest income and interest receivable were overstated.
In addition to the above, financial assets previously classified under other current assets were reclassified to trade and other receivables.
Comparative information in the consolidated financial statements have been restated as follows:
49.1 Impact to the consolidated income statement for the year ended 31 March 2017 In Rs. ‘000 Published Impact of Published for FY 2017 errors for FY 2018 Continuing operations Revenue 59,087,731 (205,378) 58,882,353 Cost of sales (39,377,707) 74,354 (39,303,353) Gross profit 19,710,024 (131,024) 19,579,000
Administrative expenses (12,350,088) 27,406 (12,322,682) Results from operating activities 5,315,216 (103,618) 5,211,598
Profit before taxation 1,684,747 (103,618) 1,581,129 Tax expense (863,567) 57,505 (806,062) Profit for the period from continuing operations 821,180 (46,113) 775,067 Profit for the period from discontinued operation 145,317 - 145,317 Profit for the year 966,497 (46,113) 920,384
Attributable to: Equity holders of the parent 108,189 11,424 119,613 Non-controlling interest 858,308 (57,537) 800,771 966,497 (46,113) 920,384
Earnings per share Basic - continuing operations 0.06 0.01 0.07 - discontinued operations 0.08 - 0.08 FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 233
49.2 Impact to the consolidated financial position as at 01 April 2016 and 31 March 2017 In Rs. ‘000 Equity as at 31 March 2017 Equity as at 01 April 2016 Published/ Impact Published Published for Impact of Published restated for of errors/ for FY 2016 errors for FY 2017 reclassification FY 2018 FY 2018 Assets Non-current assets Non-current financial assets 10,094,562 6,710 10,101,272 11,385,373 (34,746) 11,350,627 Total Non-current financial assets 58,078,392 6,710 58,085,102 53,555,839 (34,746) 53,521,093
Current assets Trade and other receivables 8,400,128 916,909 9,317,037 8,444,525 (272,798) 8,171,727 Loans and advances 14,871,368 (205,378) 14,665,990 11,222,013 (419,453) 10,802,560 Other current assets 3,418,590 (732,562) 2,686,028 3,495,133 24,733 3,519,866 Total current assets 42,850,591 (21,031) 42,829,560 40,298,037 (667,518) 39,630,519 Total assets 100,928,983 (14,321) 100,914,662 93,853,876 (702,264) 93,151,612
Equity and liabilities Equity attributable to equity holders of the parent Revenue reserves 72,841 35,516 108,357 1,034,232 (564,553) 469,679 Other components of equity 3,374,121 (24,091) 3,350,030 2,666,668 (66,025) 2,600,643 Equity attributable to equity holders 8,535,962 11,425 8,547,387 8,789,900 (630,578) 8,159,322 Non-controlling interests 7,132,745 (57,537) 7,075,208 7,543,661 (171,558) 7,372,103 Total equity 15,668,707 (46,112) 15,622,595 16,333,561 (802,136) 15,531,425
Non-current liabilities Deferred tax liabilities 427,305 31,791 459,096 338,202 (64,593) 273,609 Total non-current liabilities 39,669,270 31,791 39,701,061 30,344,047 (64,593) 30,279,454
Current liabilities Income tax liabilities 535,787 - 535,787 403,920 164,465 568,385 Total current liabilities 45,591,006 - 45,591,006 47,176,268 164,465 47,340,733 Total equity and liabilities 100,928,983 (14,321) 100,914,662 93,853,876 (702,264) 93,151,612 234 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
50 Contingent liabilities
Accounting policy Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and 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. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only if it is virtually certain.
The expense relating to any provision is presented in the income statement net of any reimbursement.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
All contingent liabilities are disclosed as a note to the financial statements unless the outflow of resources is remote. A contingent liability recognised in a business combination is initially measured at its fair value.
Subsequently, it is measured at the higher of: »» the amount that would be recognised in accordance with the general guidance for provisions above (LKAS 37) or »» the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with the guidance for revenue recognition (LKAS 18) Contingent assets are disclosed where inflow of economic benefit is probable. As at reporting date, there were no significant contingent liabilities at the date of the statement of financial position which require adjustment to or disclosure in the financial statements, other than disclosed below. No provision has been made in respect of the contingent liabilities stated below for the reasons given.
50.1 Asiri Surgical Hospital PLC 50.3 Asiri Central Hospitals Ltd A dispute has arisen with the Department of Inland Revenue on H.C. (Civil) 417/2015/MR - Krishnan Thangaraj Vs. Asiri Central the tax exemption applicable as per the agreement between the Hospitals Ltd, Oraz International Property Developers and subsidiary Asiri Surgical Hospital PLC and the Board of Investment Construction (Pvt) Ltd and H.G. Shalika Perera relating to a (BOI) in 2000. permanent injunction restraining the payment of any commission on the sale of the land and premises bearing assessment no. 37, Since there is litigation in the Court of Appeal in CA (Writ) Horton Place, Colombo 07 to P.P.M. Edwards. 386/2016 with regard to this matter, in accordance with Paragraph 92 of LKAS 37, the group is unable to provide further information An enjoining order was issued restraining the above at the first on this and associated risks, in order not to impair the outcome instance. and/ or prejudice the subsidiary’s position in this matter. The aforesaid matter is coming up for argument on 3 October 2018 at 50.4 Softlogic Life Insurance PLC (SLI) the Court of Appeal. VAT Assessments were received by Softlogic Life Insurance PLC in October 2011 and April 2013 for the taxable periods ended 31 50.2 Asiri Hospital Holdings PLC and Asiri Surgical December 2009 and 31 December 2010, amounting to Rs. 4.50 Hospital PLC Mn and Rs. 52.30 Mn respectively. Pending litigations against Asiri Hospital Holdings PLC and Asiri Surgical Hospital PLC, with a maximum liability of Rs. 41.2 Mn and SLI has filed an appeal in November 2011 on the basis that the Rs. 100.0 Mn respectively exist as at 31 March 2018 (2017 - Asiri underlying computation includes items which are exempt/ out Hospital Holdings PLC : Rs. 41.2 Mn and Asiri Surgical Hospital PLC of scope of the Value Added Tax Act. The Commissioner General : Rs. 100.0 Mn). of Inland Revenue has determined the assessment and the SLI has appealed to the Tax Appeals Commission and awaits the final Although there can be no assurance, the Directors believe, based decision. on the information currently available, that the resolution of such legal processes are not likely to have a material adverse effect on the Group. FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 235
Based on the information available and the advice of the tax 2011, 2012 and 2013. The SLI is of the view that no additional tax consultants, the Directors are confident that the resolution of this liability would arise and has filed a response in consultation with its contingency is unlikely to have a material adverse effect on the tax consultants. Even if this materialises against, no additional tax Group. liabilities are required to be provided due to carried forward taxable loses and credits applicable for SLI. The accumulated tax losses of Further the SLI has received a tax assessment/ notice of the Life business will reduce by Rs. 1,189.00 Mn if the assessments assessment letters for Life Insurance taxation for the years 2010, are confirmed.
51 Capital and other commitments
51.1 Capital commitments In Rs. ‘000 Group As at 31 March 2018 2017 Capital commitments approved but not provided for 9,370,995 1,832,799 Capital commitments approved but not contracted 8,310,000 2,252,649 Anchor space commitments 2,105,681 -
51.2 Guarantees issued and in-force, and commitments for unutilised facilities In Rs. ‘000 Group Company As at 31 March 2018 2017 2018 2017 Guarantees issued and in-force 1,948,065 1,906,578 22,611,617 20,868,890 Commitment for unutilised facilities 13,637 75,576 - -
52 Post balance sheet events There were no significant events subsequent to the date of the statement of financial position, which require disclosure in the financial statements other than the following.
52.1 Rights issue announcement - Softlogic Holdings PLC The Directors of Softlogic Holdings PLC, announced that the Company will issue 230,814,814 ordinary shares by way of a Rights Issue at a price of Rs. 17.00 per share and listing of the said shares in the Colombo Stock Exchange(CSE) was completed on 10 May 2018. Shareholders approved this share issue at the EGM held on 26 March 2018.
The proceeds from the aforesaid Rights Issue will be used to settle the short term debt and the long term borrowings.
52.2 Syndicated loan agreement - Odel Properties One (Pvt) Ltd The Directors of Odel PLC, a subsidiary of Softlogic Holdings PLC announced that Odel Properties One (Pvt) Ltd, a fully own subsidiary of Odel PLC and Odel PLC have entered into a syndicated loan agreement with Hatton National Bank PLC, Sampath Bank PLC and Bank of Ceylon on 01 June 2018 to raise Rs. 5,400 Mn to part finance the development cost of ‘Odel Mall Project’ at Alexandra Place, Colombo 07. 236 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
52.3 Utilisation of funds raised through private placement and rights issue of shares Total Funds raised through private placement in FY 1718 and rights issue in FY 1819 amounting to Rs. 3,106 Mn and Rs. 3,924 Mn respectively was fully utilised for the objectives stated in the circular to shareholders issued on respect of the above.
Objective Objective as per Amount Proposed Amount % of total Amount % of Clarification if number circular allocated as per date of allocated from proceeds utilised in Rs. utilised not fully utilised circular in Rs. utilisation proceeds in Rs. (B) against including if not as per (A) allocation utilised where circular [(B)/(A)] are the funds invested (e.g. whether lent to related parties) Utilisation of funds raised through private placement of shares Settlement of Within commercial two papers 3,106,382,715 months 3,106,382,715 - 3,106,382,715 100.00 NA
Utilisation of funds raised through rights issue of shares 1 Settlement of Within commercial Maximum of three Maximum of papers 3,923,851,838 months 3,923,851,838 - 3,173,851,838 80.89 NA 2 Short term loan Within settlement - Maximum of three Maximum of Seylan Bank PLC 3,923,851,838 months 3,923,851,838 - 750,000,000 19.11 NA FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 237 (shared security given by Softlogic and Holdings PLC Softlogic Retail (Pvt) Ltd to finance the acquisition of Odel PLC) 337,475,657 shares of Asiri Hospital Holdings PLC and shares of Asiri Hospital Holdings PLC 337,475,657 shares of Softlogic owned by Capital PLC 60,957,359 Softlogic Holdings PLC owned by Softlogic shares of Odel PLC 126,817,359 Retail (Pvt) Ltd Primary concurrent mortgage for Rs. 130.00 Mn over land Primary concurrent mortgage for Rs. 130.00 Place Colombo - 05 De Fonseka and building at No. 14, Secondary concurrent mortgage Mn over for Rs. 50.00 Place Colombo - De Fonseka land and building at No. 14, 05 and shares of Asiri Hospital Holdings PLC 16,452,405 shares of Softlogic owned by Capital PLC 100,000,000 Softlogic Holdings PLC owned by Softlogic shares of Odel PLC Retail 25,000,000 (Pvt) Ltd 90,440,000 shares of Asiri Hospital Holdings PLC, 90,440,000 shares of Asiri Hospital Holdings PLC, shares of Softlogic and 63,200 Capital PLC 119,850,336 owned by Softlogicshares of Lanka IOC PLC Holdings PLC Primary concurrent mortgage for Rs. 70.00 Mn over land Primary concurrent mortgage for Rs. 70.00 Place Colombo - 05 De Fonseka and building at No. 14, Secondary concurrent mortgage Mn over for Rs. 30.00 Place Colombo - De Fonseka land and building at No. 14, 05
a) b) a) b) c) d) c) Security a) b) value of Rs. Mn Carrying collaterals 3,248.18 3,248.18 1,829.94 1,829.94 12,900.42 12,900.42 917 2017 147,434 817,904 817,904 341,718 Rs. ‘000 752,618 821,078 821,078 350,135 313,927 313,927 150,058 150,058 909,058 909,058 484,640 1,538,832 1,538,832 - 2018 20,833 20,833 Outstanding Balance 617,990 617,990 Rs. ‘000 552,718 120,106 120,106 244,355 231,056 280,227 708,445 708,445 620,938 620,938 385,895 385,895 1,206,189 1,206,189 32 monthly installments 32 commencing from October 2015 20 quarterly20 installments commencing after 6 months grace period from March 2016 48 monthly installments commencing from October 2016 48 monthly installments commencing from May 2016 48 monthly installments commencing from May 2016 54 monthly installments 54 commencing after 6 months grace period from July 2015 60 monthly installments commencing from February 2017 60 equal monthly installments commencing from April 2017 60 monthly installments commencing from April 2017 72 monthly installments 72 commencing after 12 months of grace period from November 2014 Repayment Term equal quarterly20 installments commencing from November 2015 AWPLR + 2.00% AWPLR + 1.25% AWPLR + 2.00% AWPLR + 2.00% AWPLR + 2.00% AWPLR + 1.50% AWPLR + 2.50% AWPLR + 2.50% AWPLR + 2.50% AWPLR + 1.00% Interest Rate AWPLR + 2.00% Term loan Term Term loan Term Term loan Term loan Term Term loan Term Term loan Term Term loan Term loan Term loan Term Term loan Term Term loan Term Nature of facility Term loan Term Seylan Bank PLC Hatton National Bank PLC Commercial Bank of Ceylon PLC Lending Institution Interest bearing borrowings Interest Security and repayment terms Softlogic Holdings PLC Company 53 53.1 238 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS
5,026,667 shares of Asiri Hospital Holdings PLC owned shares of Asiri Hospital Holdings PLC 5,026,667 by Softlogic Holdings PLC Corporate guarantees from Softlogic Information (Pvt) Ltd, Softlogic Retail (Pvt) Ltd and Technologies Suzuki Motors Lanka Ltd for Rs. 800.00 Mn 11,972,390 shares of Asiri Hospital Holdings PLC, shares of Asiri Hospital Holdings PLC, 11,972,390 shares of Softlogic 274,410 Life Insurance PLC, 175,550 shares 16,495,301 shares of Asiri Hospital Holdings PLC and shares of Asiri Hospital Holdings PLC 16,495,301 36,686,068 shares of Asiri Hospital Holdings PLC owned shares of Asiri Hospital Holdings PLC 36,686,068 by Softlogic Holdings PLC shares of Softlogic owned by 30,000,000 Capital PLC Softlogic Holdings PLC shares of Softlogic owned 22,000,000 Life Insurance PLC by Softlogic Capital PLC Corporate guarantees from Softlogic for Rs. Capital PLC Mn 1,631.00 of Odel PLC, 497,975 shares of Softlogic Finance PLC 497,975 of Odel PLC, shares of Softlogic owned by Capital PLC and 4,359,784 Softlogic Holdings PLC owned by Softlogic shares of Odel PLC Retail 49,427,861 (Pvt) Ltd Corporate guarantee from Softlogic Retail (Pvt) Ltd for Rs. 2,000.00 Mn 135,278,651 shares of Softlogic owned by Capital PLC 135,278,651 Softlogic Holdings PLC Corporate guarantee from Softlogic Retail (Pvt) Ltd for Rs. 2,000.00 Mn a) b) a) a) Security a) b) c) b) c) b) - - value of Rs. Mn Carrying 938.23 938.23 collaterals 3,197.65 3,647.08 3,647.08 1,008.87 2,293.20 - - 2017 4,950 4,950 Rs. ‘000 931,575 931,575 114,400 114,400 1,328,660 1,328,660 2,008,444 11,016,348 11,016,348 - - 2018 Outstanding Balance Rs. ‘000 849,720 849,720 800,680 1,002,521 1,002,521 1,076,854 1,076,854 1,675,211 1,675,211 10,393,738 10,393,738 60 monthly installments commencing after 06 months of grace period from March 2018 20 equal quarterly20 installments commencing after 6 months of grace period from December 2016 72 monthly installments 72 months commencing after 12 of grace period from April 2015 3 equal annual installments month commencing after 12 grace period from March 2018 48 monthly installments months commencing after 12 of grace period from July 2016 Repayment Term AWPLR + 2.5% AWPLR + 2.25% AWPLR + 1.50% 3 months AWPLR + 3.00% AWPLR + 3.50% Interest Rate Term loan Term Term loan Term Term loan Term Term loan Term Term loan Term Term loan Term loan Term Nature of facility Sampath Bank PLC Nations Trust Nations Trust Bank PLC Peoples Bank Peoples Pan Asia Pan Banking Corporation PLC Sri Lanka Savings Bank Lending Institution Softlogic Holdings PLC Company FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 239
Primary mortgage bond for USD Mn over the land 36.40 (extent - 85.98 P) owned by Softlogic Properties (Pvt) Ltd and building other project assets of Hotel being constructed Corporate guarantee from Softlogic for USD Holdings PLC Mn 36.40 Primary floating mortgage Mn over bond for Rs. 300 property situated at No. 402, Galle Road, Colombo - 03 owned by Softlogic Retail (Pvt) Ltd 337,475,657 shares of Asiri Hospital Holdings PLC and shares of Asiri Hospital Holdings PLC 337,475,657 shares of Softlogic owned by Capital PLC 60,957,359 Softlogic Holdings PLC owned by Softlogic shares of Odel PLC 126,817,359 Retail (Pvt) Ltd Corporate guarantees from Softlogic for Rs. Holdings PLC Mn Mn and Rs. 1,500.00 1,350.00 Mortgage Mn over credit and debit bond for Rs. 1,540.00 card sales receivables including installment of all outlets of the Softlogic Retail (Pvt) Ltd Supplementary mortgage bond over credit and debit card sales including installment of all outlets the Softlogic Retail (Pvt) Ltd Mn over credit and debit Mortgage bond for Rs. 100.00 card sales including installment of all outlets the Softlogic Retail (Pvt) Ltd routed through the acquiring and participating banks (shared security given by Softlogic and Holdings PLC Softlogic Retail (Pvt) Ltd to finance the acquisition of Odel PLC) a) b)
Security a) b) c) a) b) c) - value of Rs. Mn Carrying 300.00 collaterals 1,350.00 1,500.00 1,640.00 11,322.58 11,322.58 - 2017 1,000 Rs. ‘000 38,000 38,000 246,700 246,700 291,667 291,667 992,800 1,347,498 1,347,498 1,251,900 1,251,900 5,446,557 5,446,557 - - 2018 Outstanding Balance Rs. ‘000 191,667 191,667 203,128 203,128 200,100 200,100 734,600 734,600 981,900 981,900 1,082,810 1,082,810 5,043,116 5,043,116
60 monthly installments commencing from December 2015 48 monthly installments commencing from June 2017 Repayment Term 60 equal monthly installments commencing from November 2016 monthly installments 72 commencing from October 2014 equal monthly installments 36 commencing from March 2017 60 equal monthly installments commencing from November 2016 120 months including 19 months including 19 120 months capital repayment grace period commencing from May 2015
AWPLR + 1.25% LIBOR + 4.00% AWPLR + 2.50% AWPLR + 1.50% AWPLR + 2.50% Interest Rate AWPLR + 1.25% AWPLR + 0.50% Term loan Term Term loan Term Term Loan Term Term loan Term Term loan Term Term loan Term Term loan Term Nature of facility Term loan Term Term loan Term Hatton National Bank PLC Commercial Bank of Ceylon PLC Commercial Bank of Ceylon PLC DFCC Bank PLC DFCC Lending Institution Commercial Bank of Ceylon PLC Interest bearing borrowings Interest Security and repayment terms Softlogic Retail (Pvt) Ltd Softlogic City Hotels (Pvt) Ltd Softlogic International (Pvt) Ltd Company 53 53.1 240 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS Corporate guarantee from Softlogic for Rs. Holdings PLC Mn 500.00 Corporate guarantee from Softlogic for Rs. Holdings PLC Mn 120.00 Mortgage bond over credit and debit card sales receivables of all outlets the Softlogic Restaurants (Pvt) Ltd Corporate guarantee from Softlogic for Rs. Holdings PLC Mn 200.00 Mortgage over stock of kitchen equipment, fixtures & Nugegoda, fittings and appliances located at Panadura, Moratuwa and Kotahena Malabe, Kandy, Ja Ela, Kelaniya, outlets of Softlogic Restaurants (Pvt) Ltd. Corporate guarantee from Softlogic for Rs. Holdings PLC Mn 120.00 Primary mortgage for Rs. 15.00 Mn over land at No. 371, Mn over land at No. 371, Primary mortgage for Rs. 15.00 New Nuge Road, Peliyagoda Corporate guarantee from Softlogic for USD Holdings PLC Mn 9.20 Corporate guarantee from Softlogic for Rs. Holdings PLC Mn 10.00 Assignment of AMEX receivables Corporate guarantee from Softlogic for Rs. Holdings PLC Mn 200.00
a) b)
Security a) b) c) 15.00 15.00 value of Rs. Mn Carrying 120.00 163.00 360.37 360.37 500.00 200.00 200.00 collaterals 1,440.88 - - - - - 2017 97,322 97,322 82,772 26,143 26,143 Rs. ‘000 161,086 161,086 120,000 120,000 1,313,560 1,313,560 2018 3,844 6,999 27,959 27,959 55,790 78,907 78,907 28,351 85,227 85,227 20,639 20,639 96,000 Outstanding Balance Rs. ‘000 163,000 163,000 1,138,999 1,138,999 14 equal bi annual 14 installments commencing from March 2017 48 monthly installments commencing after a grace months from period of 12 2018 February 54 monthly installments 54 commencing after a grace period of 6 months from December 2016 48 equal monthly installments commencing from September 2017 58 monthly installments 58 commencing from December 2016 monthly installments 54 commencing from December 2017 60 equal monthly installments commencing from April 2017 58 monthly installments 58 commencing from March 2018 72 equal monthly installments 72 commencing after a grace months from period of 12 December 2014 monthly installments 59 commencing from April 2017 Repayment Term monthly installments 72 commencing after a grace period of 6 months from July 2014 3 months LIBOR + 4.00% AWPLR + 1.50% AWPLR + 2.00% AWPLR + 2.00% AWPLR + 2.00% AWPLR + 2.00% AWPLR + 1.75% AWPLR + 2.00% AWPLR + 1.50% AWPLR + 2.00% Interest Rate AWPLR + 1.50% Term loan Term Term loan Term Term loan Term Term loan Term Term loan Term loan Term loan Term Term loan Term Term loan Term loan Term Nature of facility loan Term Nations Trust Nations Trust Bank PLC Bank of Ceylon Commercial Bank of Ceylon PLC Hatton National Bank PLC DFCC Bank PLC DFCC Union Bank of Colombo PLC Lending Institution Sampath Bank PLC Ceysands Resorts (Pvt) Ltd Suzuki Motors Lanka Ltd Softlogic Restaurants (Pvt) Ltd Company Future Automobiles (Pvt) Ltd FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 241
Mortgage over lease and hire purchase receivables for Mortgage over personal loans receivables of Softlogic Finance PLC 35,188,840 shares of Softlogic owned Life Insurance PLC 35,188,840 by Softlogic Capital PLC Mortgage over lease and hire purchase receivables for 158,611,920 shares of Softlogic and Life Insurance PLC 158,611,920 shares of Softlogic owned by Finance PLC 13,244,981 Softlogic Capital PLC Primary mortgage over apartment project assets constructed by Softlogic Properties (Pvt) Ltd. for Rs. 600 Mn Corporate guarantee from Softlogic for Rs. Holdings PLC 600.00 Mn Corporate guarantee from Softlogic for Rs. Holdings PLC Mn 120.00 Rs. 300.00 Mn Rs. 300.00 Mn Rs. 250.00
Security a) b) - - value of Rs. Mn Carrying 120.00 120.00 795.27 795.27 224.35 300.00 300.00 200.00 200.00 600.00 600.00 collaterals 4,048.20 4,048.20 - 2017 Rs. ‘000 112,034 112,034 315,551 112,000 112,000 183,557 183,557 156,593 156,593 509,217 509,217 338,300 300,000 300,000 952,000 952,000 - 2018 93,700 93,700 88,000 Outstanding Balance Rs. ‘000 119,788 132,000 132,000 214,843 214,843 243,534 300,000 300,000 340,000 340,000 932,000 932,000
2 equal quarterly installments months commencing after 24 of grace period from January 2017 48 monthly installments commencing from March 2016 60 equal monthly installments commencing from December 2016 36 monthly installments 36 commencing 24 monthly installments 24 commencing from August 2017 Bullet payment at the maturity after a grace period of 60 months commencing from March 2017 48 monthly installments commencing from October 2015 5 annual installments commencing after a grace months period of 12 commencing from March 2017 Repayment Term 3 equal quarterly installments months commencing after 15 of grace period from January 2017 after a grace period of 6 months commencing from June 2016 AWPLR + 3.00% AWPLR + 2.00% AWPLR + 2.50% 13.75% AWPLR + 3.50% AWPLR + 2.75% AWPLR + 2.50% AWPLR + 2.75% (Floor rate 14%) Interest Rate AWPLR + 3.00% Term loan Term Term loan Term Term loan Term Convertible to equity Securitisation Term loan Term Term loan Term Term loan Term Term loan Term Nature of facility Term loan Term
Bank of Ceylon Union Bank of Colombo PLC Seylan Bank PLC Sampath Bank PLC FMO 1 - Trust Peoples Bank Peoples Nations Trust Nations Trust Bank PLC Commercial Bank of Ceylon PLC Sampath Bank PLC Lending Institution Softlogic Properties (Pvt) Ltd Softlogic B P O Services (Pvt) Ltd Softlogic Finance PLC Softlogic Capital PLC Company 242 SOFTLOGIC HOLDINGS PLC
NOTES TO THE FINANCIAL STATEMENTS Securitisation of all future credit/ debit card receivables Central Hospital Ltd Primary concurrent mortgage over the premises at No. Norris Canal Road, Colombo - 10 114, for Corporate guarantee from Asiri Hospital Holdings PLC Mn Rs. 326.00 Securitisation of all future credit/ debit card receivables Asiri Hospital Holdings PLC Primary concurrent mortgage bond for Rs. 125.00 Kirula Road, Mn over hospital property at No. 181, Narahenpita owned by Asiri Hospital Holdings PLC for Corporate guarantee from Asiri Hospital Holdings PLC Mn Rs. 148.40 Corporate guarantee from Asiri Surgical for Hospital PLC Mn Rs. 363.00 Primary concurrent mortgage bond for Rs. 100.00 Mn Primary concurrent mortgage bond for Rs. 100.00 Kirula Road, Narahenpita owned over property at No. 181, by Asiri Hospital Holdings PLC Mn over property at Secondary mortgage for Rs. 275.00 Kirula Road, Narahenpita owned by Asiri Hospital No. 181, Holdings PLC 74,454,026 shares of Central Hospital Ltd held by Asiri 74,454,026 Hospital Holdings PLC Corporate guarantee from Asiri Surgical for Hospital PLC Mn Rs. 500.00 Corporate guarantee from Central Hospital Ltd for Rs. Mn 562.50 Corporate guarantee from Asiri Surgical for Hospital PLC Mn Rs. 550.00
a) b)
a) b) Security a) b) c) - - value of Rs. Mn 513.60 326.00 Carrying 890.80 519.78 273.40 273.40 375.00 550.00 363.00 363.00 collaterals 2,098.16 2,098.16 2017 30,201 Rs. ‘000 218,007 218,007 736,666 736,666 199,344 199,344 402,374 402,374 383,554 635,362 635,362 586,546 586,546 244,496 244,496 1,803,115 1,803,115 1,006,000 2018 26,129 Outstanding Balance 519,778 Rs. ‘000 319,618 138,177 335,729 203,744 203,744 513,602 513,602 548,526 145,480 145,480 890,800 1,504,440 1,504,440 96 equal monthly installments commencing after 24 months of grace period from September 2014 60 equal monthly installments commencing from December 2015 96 monthly installments commencing from April 2015 96 monthly installments commencing from April 2015 25 years commencing from FY25 2000/01 48 equal monthly installments commencing from March 2017 120 monthly installments 120 commencing from January 2016 120 monthly installments 120 commencing from December 2015 96 monthly installments commencing from April 2015 72 monthly installments 72 commencing from July 2014 Repayment Term 96 monthly installments commencing from April 2015 AWPLR + 0.75% AWPLR + 0.50% AWPLR + 0.50% AWPLR + 0.50% AWPLR + 1.25% AWPLR + 0.25% AWPLR + 0.25% AWPLR + 0.50% AWPLR + 0.50% Interest Rate AWPLR + 0.50% Term Loan Term Term loan Term Term loan Term Term Loan Term Lease Term loan Term Term Loan Term Term loan Term loan Term Term loan Term Nature of facility Term loan Term Bank of Ceylon Sampath Bank PLC Commercial Bank of Ceylon PLC Sampath Bank PLC Board of Investment Hatton National Bank PLC Commercial Bank of Ceylon PLC Lending Institution Central Hospitals Ltd Asiri Hospital Holdings PLC Asiri Surgical Hospital PLC Company FINANCIAL STATEMENTS
ANNUAL REPORT 2017-18 243 Primary mortgage bond over credit and debit card sales of all outlets of the company (excluding BIA) routed through three acquiring banks Primary mortgage bond over credit and debit card sales of all outlets of the company (excluding BIA) routed through three acquiring banks Primary mortgage bond over credit and debit card sales of all outlets of the company (excluding BIA) routed through three acquiring banks Primary mortgage Mn over premises bond for Rs. 55.00 at Panadura Mn over an allotment Primary mortgage bond for Rs. 41 July 1995 dated 24 of land Lot A in Plan No. 3418 situated at Cinnamon Gardens containing an extent of 2 R P 36.12 Assignment over AMEX receivables for Corporate guarantee from Asiri Hospital Holdings PLC Mn Rs. 630.60 for Corporate guarantee from Asiri Hospital Holdings PLC Mn Rs. 2,120.00
a) b) Security - - 67.55 67.55 96.00 value of Rs. Mn Carrying 194.44 194.44 224.98 224.98 298.96 298.96 630.60 630.60 collaterals 2,120.00 2,120.00 - 2017 29,714 38,012 41,250 86,852 86,852 Rs. ‘000 361,110 324,986 324,986 630,600 630,600 1,071,054 1,071,054 34,241,848 34,241,848 - - 2018 67,552 67,552 16,000 16,000 Outstanding Balance Rs. ‘000 224,978 194,442 194,442 298,955 298,955 630,600 630,600 1,887,704 1,887,704 31,466,893 31,466,893
60 monthly installments commencing from October 2016 60 monthly installments commencing from July 2015 48 monthly installments commencing from September 2017 36 monthly installments 36 commencing from June 2016 84 equal monthly installments after a grace period of 12 months from June 2011 Repayment Term 90 monthly installments after a grace months period of 24 from December 2015 96 monthly installments after a grace months period of 24 from September 2016 AWPLR + 1.75% PLR + 0.50% PLR + 2.00% PLR + 1.50% AWPLR + 1.00% Interest Rate AWPLR + 0.50% AWPLR + 1.50% Term loan Term Term loan Term Term loan Term Term loan Term Term loan Term Term loan Term Term loan Term Nature of facility loan Term Term loan Term Nations Trust Nations Trust Bank PLC Commercial Bank of Ceylon PLC Commercial Bank of Ceylon PLC Bank of Ceylon DFCC Bank DFCC Lending Institution Commercial Bank of Ceylon PLC Asiri Hospital Matara (Pvt) Ltd Odel PLC Company Asiri Hospital Kandy (Pvt) Ltd 244 SOFTLOGIC HOLDINGS PLC INVESTOR INFORMATION
1 General Stated Capital as at 31 March 2018 was Rs. 8,195,382,715.00 Current Stated Capital is Rs. 12,119,234,553.00
2 Stock Exchange Listing The ordinary shares of Softlogic Holdings PLC were listed in the Colombo Stock Exchange of Sri Lanka on 20 June 2011 and the trading commenced on 12 July 2011.
3 Shares held by the public was 15.02% as at 31 March 2018. The number of public shareholders as at 31 March 2018 was 11,022.
4 Distribution of Shareholding as at 31 March 2018 There were 11,032 registered shareholders as at 31 March 2018.
No. of Shares held No. of % of Total % of Shareholders Shareholders Holding Total Holding
1 - 1,000 7,383 66.92 4,579,755 0.48 1,001 - 10,000 3,160 28.64 10,810,558 1.12 10,001 - 100,000 398 3.61 11,678,695 1.21 100,001 - 1,000,000 63 0.58 16,929,091 1.76 Over 1,000,000 28 0.25 917,730,296 95.43 Total 11,032 100.00 961,728,395 100.00
5 Analysis report of Shareholders as at 31 March 2018 Category No. of % of Total % of Shareholders Shareholders Holding Total Holding
Individual 10,833 98.20 594,831,951 61.85 Institutional 199 1.80 366,896,444 38.15 Total 11,032 100.00 961,728,395 100.00
Resident 10,990 99.62 665,202,853 69.17 Non-resident 42 0.38 296,525,542 30.83 Total 11,032 100.00 961,728,395 100.00 SUPPLEMENTARY INFORMATION
ANNUAL REPORT 2017-18 245
6 Twenty Major Shareholders as at 31 March 2018 Shareholder No. of Shares % as at 31/03/2018
1 Mr. A K Pathirage 345,231,775 35.90 2 Samena Ceylon Holdings Limited 182,728,399 19.00 3 Mr. H K Kaimal 64,870,800 6.75 4 Samena Special Situations Fund III L.P. 60,900,834 6.33 5 Mr. R J Perera 60,836,700 6.33 6 Mr. G W D H U Gunawardena 57,527,300 5.98 7 Pemberton Asian Opportunities Fund 46,000,000 4.78 8 Commercial Bank of Ceylon PLC/A K Pathirage 38,950,000 4.05 9 Employees Provident Fund 7,230,500 0.75 10 Mrs. A Selliah 4,236,000 0.44 11 J B Cocoshell (Pvt) Ltd 4,115,402 0.43 12 Mr. S J Fancy 4,000,000 0.42 13 Arunodhaya (Pvt) Ltd 3,950,000 0.41 14 Arunodhaya Investments (Pvt) Ltd 3,950,000 0.41 15 Arunodhaya Industries (Pvt) Ltd 3,950,000 0.41 16 Mrs. A Kailasapillai 3,800,000 0.40 17 Miss. S Subramaniam 3,800,000 0.40 18 Mr. K Aravinthan 3,500,000 0.36 19 Dr. K M P Karunaratne 3,000,000 0.31 20 MAS Capital (Pvt) Ltd 2,330,447 0.24
7 Share Trading Information 2017/2018 2016/2017
Highest (Rs.) 26.20 15.50 Lowest (Rs.) 11.70 11.70 Closing (Rs.) 24.60 11.90 Turnover (Rs.) 2,662,901,881.20 393,193,367.00 No. of shares Traded 151,984,230 27,888,438 No. of Trades 12,947 5,372
8 Equity Information 2017/2018 2016/2017
Earnings per share (Rs.) 0.26 0.15 Dividend per share (Rs.) 0.65 0.50 Dividend pay out (Times) 2.50 3.33 Net Asset Value per share (Rs.) 14.91 11.04 246 SOFTLOGIC HOLDINGS PLC CORPORATE DIRECTORY
Name of the Company Date of Registration Registered office Softlogic Holdings PLC 25/02/1998 No. 14, De Fonseka Place, Colombo 05 1 Asiri A O I Cancer Centre (Pvt) Ltd 3/17/2017 No. 21, Kirimandala Mawatha, Colombo 05 2 Asiri Central Hospitals Ltd 7/09/1992 No. 114, Norris Canal Road, Colombo 10 3 Asiri Diagnostics Services (Pvt) Ltd 19/09/1995 No. 181, Kirula Road, Colombo 05 4 Asiri Hospital Holdings PLC 29/09/1980 No. 181, Kirula Road, Colombo 05 5 Asiri Hospital Kandy (Pvt) Ltd 16/03/2007 No. 21, Kirimandala Mawatha, Colombo 05 6 Asiri Hospital Matara (Pvt) Ltd 17/04/2007 No. 26, Esplanade Road, Uyanwatta, Matara 7 Asiri Laboratories (Pvt) Ltd 08/03/2016 No. 181, Kirula Road, Colombo 05 8 Asiri Surgical Hospital PLC 30/03/2000 No. 21, Kirimandala Mawatha, Colombo 05 9 BSL International (Pvt) Ltd 22/07/2009 No. 475/32, Kotte Road, Rajagiriya 10 Capital Reach Portfolio Management (Pvt) Ltd 24/05/2006 No. 13, De Fonseka Place, Colombo 04 11 Central Hospitals Ltd 14/09/2006 No. 114, Norris Canal Road, Colombo 10 12 Ceysand Resorts Ltd 6/03/1973 No. 14, De Fonseka Place, Colombo 05 13 Dai-Nishi Securities (Pvt) Ltd 26/07/1993 No. 14, De Fonseka Place, Colombo 05 14 Digital Health (Private) Limited 14/08/2015 No. 475, Union Place, Colombo 02 15 Future Automobiles (Pvt) Ltd 6/12/2010 No. 14, De Fonseka Place, Colombo 05 16 Greenfield Trading (Pvt) Ltd 23/03/2012 No. 475/32, Kotte Road, Rajagiriya 17 Jendo Innovations (Pvt) Ltd 6/22/2015 No. 14, De Fonseka Place, Colombo 05 18 Nextage (Pvt) Ltd 11/04/2012 No. 79, C W W Kannangara Mawatha, Colombo 07 19 Odel Apparels (Pvt) Ltd 10/10/1991 No. 475/32, Kotte Road, Rajagiriya 20 Odel Information Technology Services (Pvt) Ltd 30/11/2007 No. 475/32, Kotte Road, Rajagiriya 21 Odel Lanka (Pvt) Ltd 4/07/2006 No. 475/32, Kotte Road, Rajagiriya 22 Odel PLC 31/10/1990 No. 475/32, Kotte Road, Rajagiriya 23 Odel Properties (Pvt) Ltd 10/10/1991 No. 475/32, Kotte Road, Rajagiriya 24 Odel Properties One (Pvt) Ltd 10/06/2016 No. 475/32, Kotte Road, Rajagiriya 25 Odel Restaurants (Pvt) Ltd 19/02/1018 No. 475/32, Kotte Road, Rajagiriya 26 Sabre Travel Network Lanka (Pvt) Ltd 21/01/1999 Softlogic Building, Level 4, No. 14, De Fonseka Place, Colombo 05 27 Silk Route Foods (Pvt) Ltd 10/10/2014 No. 14, De Fonseka Place, Colombo 05 28 SML Holdings (Pvt) Ltd 4/27/2000 No. 331, Union Place, Colombo 02 29 Softlogic Australia Pty. Ltd 5/01/2000 Unit 4,15 Ricketts Road, Mount Waverley, Vic 3149 30 Softlogic Automobiles (Pvt) Ltd 2/04/2012 No. 14, De Fonseka Place, Colombo 05 31 Softlogic B P O Services (Pvt) Ltd 13/12/2013 No. 14, De Fonseka Place, Colombo 05 32 Softlogic Brands (Pvt) Ltd 8/11/1993 No. 14, De Fonseka Place, Colombo 05 33 Softlogic Capital PLC 21/04/2005 No. 14, De Fonseka Place, Colombo 05 34 Softlogic City Hotels (Pvt) Ltd 30/06/2011 No. 14, De Fonseka Place, Colombo 05 35 Softlogic Communication Services (Pvt) Ltd 16/09/2009 No. 14, De Fonseka Place, Colombo 05 36 Softlogic Communications (Pvt) Ltd 30/10/2000 No. 14, De Fonseka Place, Colombo 05 37 Softlogic Computers (Pvt) Ltd 13/09/1995 No. 14, De Fonseka Place, Colombo 05 38 Softlogic Corporate Services (Pvt) Ltd 24/06/2005 No. 14, De Fonseka Place, Colombo 05 39 Softlogic Destination Management (Pvt) Ltd 22/03/2012 No. 14, De Fonseka Place, Colombo 05 40 Softlogic Finance PLC 24/08/1999 No. 13, De Fonseka Place, Colombo 04 41 Softlogic Information Technologies (Pvt) Ltd 2/09/1992 No. 14, De Fonseka Place, Colombo 05 42 Softlogic International (Pvt) Ltd 9/06/1997 No. 14, De Fonseka Place, Colombo 05 43 Softlogic Life Insurance PLC 21/04/1999 No. 283, R A De Mel Mawatha, Colombo 03 44 Softlogic Mobile Distribution (Pvt) Ltd 30/09/2014 No. 14, De Fonseka Place, Colombo 05 45 Softlogic Properties (Pvt) Ltd 4/01/2005 No. 14, De Fonseka Place, Colombo 05 46 Softlogic Retail (Pvt) Ltd 27/08/2014 No. 14, De Fonseka Place, Colombo 05 47 Softlogic Restaurants (Pvt) Ltd 5/08/2013 No. 14, De Fonseka Place, Colombo 05 48 Softlogic Retail Holdings (Pvt) Ltd 3/09/2018 No. 14, De Fonseka Place, Colombo 05 49 Softlogic Retail One (Pvt) Ltd 4/07/2014 No. 14, De Fonseka Place, Colombo 05 50 Softlogic Solar (Pvt) Ltd 14/11/2002 No. 14, De Fonseka Place, Colombo 05 51 Softlogic Stockbrokers (Pvt) Ltd 26/11/2010 No. 6, 37th Lane, Queens Road, Colombo 03 52 Softlogic Supermarkets (Pvt) Ltd 6/09/1969 No. 14, De Fonseka Place, Colombo 05 (Previously known as Softlogic Real Estate (Pvt) Ltd) 53 Suzuki Motors Lanka Ltd 9/12/1985 No. 371, New Nuge Road, Peliyagoda SUPPLEMENTARY INFORMATION
ANNUAL REPORT 2017-18 247 CORPORATE INFORMATION
Name of Company Directors Investor Relations Softlogic Holdings PLC A K Pathirage Softlogic Holdings PLC - Chairman/ Managing Director 14, De Fonseka Place, Legal Form G W D H U Gunawardena Colombo 05 Company was incorporated on 25th R J Perera Sri Lanka H K Kaimal February 1998 under the name of Tel : +94 11 5575 000 M P R Rasool Softlogic Holdings (Private) Limited Fax : +94 11 2595 441 and re-registered on 17th December Dr. S Selliah W M P L De Alwis, PC 2007 under the Companies Act No. 7 Contact for Media of 2007. Changed to a Public Limited G L H Premaratne Softlogic Holdings PLC Liability Company on 10th December R A Ebell 14, De Fonseka Place, 2008. The shares of the Company were Prof. A S Dharmasiri Colombo 05 listed on the Colombo Stock Exchange A Russell-Davison Sri Lanka on 20th June 2011 and the name of S Saraf the Company was changed to Softlogic C K Gupta (Alternate Director) Tel : +94 11 5575 000 Holdings PLC w.e.f. 25th August 2011. Fax : +94 11 2595 441 Audit Committee
Company Registration No R A Ebell - Chairman Bankers PV 1536 PB/PQ Dr. S Selliah Bank of Ceylon Prof A S Dharmasiri Commercial Bank of Ceylon PLC W M P L De Alwis, PC Registered Office of the Company DFCC Bank Limited Hatton National Bank PLC 14, De Fonseka Place, HR and Remuneration Committee Muslim Commercial Bank Colombo 05 Nations Trust Bank PLC Sri Lanka Prof. A S Dharmasiri - Chairman W M P L De Alwis, PC Pan Asia Banking Corporation PLC G L H Premaratne People’s Bank Contact Details R A Ebell Sampath Bank PLC 14, De Fonseka Place, Seylan Bank PLC Colombo 05 Related Party Transactions Union Bank of Colombo PLC Sri Lanka Review Committee Tel : +94 11 5575 000 Dr .S Selliah - Chairman Auditors Fax : +94 11 2508 291 W M P L De Alwis, PC Ernst & Young E-mail : [email protected] H K Kaimal Chartered Accountants Web : www.softlogic.lk No. 201, De Saram Place Secretaries and Registrars Colombo 10 Softlogic Corporate Services (Pvt) Ltd Sri Lanka 14, De Fonseka Place, Colombo 05 Lawyers Sri Lanka Nithya Partners, Attorneys-at- Law No. 97 A, Galle Road Colombo 03 Sri Lanka 248 SOFTLOGIC HOLDINGS PLC NOTES ANNUAL REPORT 2017-18 249 250 SOFTLOGIC HOLDINGS PLC NOTICE OF MEETING
NOTICE IS HEREBY GIVEN that the Annual General Meeting of Softlogic Holdings PLC will be held at the “Orchid Room” of Bandaranaike Memorial International Conference Hall (BMICH), Bauddhaloka Mawatha, Colombo 07 on Wednesday the 12th day of September 2018 at 10.30 a.m for the following purposes:
1. To receive and consider the Annual Report of the Board of Directors and the Financial Statements of the Company and of the Group for the year ended 31st March 2018 together with the Report of the Auditors thereon.
2. To re-elect Mr. G W D H U Gunawardena who retires by rotation in terms of Article 87 of the Articles of Association of the Company, as a Director.
3. To re-elect Mr. H K Kaimal who retires by rotation in terms of Article 87 of the Articles of Association of the Company, as a Director.
4. To re-elect Dr. S Selliah, PC who retires by rotation in terms of Article 87 of the Articles of Association of the Company, as a Director.
5. To re-elect Mr. S Saraf who retires in terms of Article 94 of the Articles of Association of the Company, as a Director.
6. To pass the ordinary resolution set out below to re- appoint Mr. G L H Premaratne who is 70 years of age, as a Director of the Company.
“IT IS HEREBY RESOLVED THAT the age limit stipulated in Section 210 of the Companies Act No. 7 of 2007 shall not apply to Mr. G L H Premaratne who is 70 years of age and that he be and is hereby re-appointed as a Director of the Company in terms of Section 211 of the Companies Act No. 7 of 2007”.
7. To re-appoint the retiring Auditors, Messrs Ernst & Young as Auditors of the Company for the ensuing year and to authorize the Directors to determine their remuneration.
8. To authorize the Directors to determine and make donations for the year ending 31st March 2019 and up to the date of the next Annual General Meeting.
By Order of the Board SOFTLOGIC CORPORATE SERVICES (PVT) LTD
SECRETARIES
13 August 2018 Colombo
Note:
A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy who need not be a member, to attend on behalf of him/her. The Form of Proxy is enclosed in this Report. The completed Form of Proxy should be deposited at the Registered Office of the Company, No. 14, De Fonseka Place, Colombo 05 by 10.30 a.m. on Monday the 10th day of September 2018 being forty eight (48) hours before the time appointed for the holding of the meeting. ANNUAL REPORT 2017-18 251 FORM OF PROXY
*I/We ...... of ...... being *a member/ members of SOFTLOGIC HOLDINGS PLC, do hereby appoint ...... (holder of N.I.C. No...... ) of ...... or (whom failing)
Mr A K Pathirage of Colombo (whom failing) Mr G W D H U Gunawardena of Colombo (whom failing) Mr R J Perera of Colombo (whom failing) Mr H K Kaimal of Colombo (whom failing) Mr M P R Rasool of Colombo (whom failing) Dr S Selliah of Colombo (whom failing) Mr W M P L De Alwis, PC of Colombo (whom failing) Mr G L H Premaratne of Colombo (whom failing) Mr R A Ebell of Colombo (whom failing) Prof A S Dharmasiri of Colombo (whom failing) Mr A Russell-Davison of Colombo (whom failing) Mr S Saraf of India as *my/our Proxy to represent *me/us and to speak and vote for *me/us on *my/our behalf at the ANNUAL GENERAL MEETING OF THE COMPANY to be held at the “Orchid Room” of Bandaranaike Memorial International Conference Hall (BMICH), Bauddhaloka Mawatha, Colombo 07 at 10.30 a.m on the 12th day of September 2018 and at any adjournment thereof, and at every poll which may be taken in consequence thereof. FOR AGAINST 1. To receive and consider the Annual Report of the Board of Directors and the Financial Statements of the Company and of the Group for the year ended 31st March 2018 together with the Report of the Auditors thereon. 2. To re-elect Mr. G W D H U Gunawardena who retires by rotation in terms of Article 87 of the Articles of Association, as a Director of the Company. 3. To re-elect Mr. H K Kaimal who retires by rotation in terms of Article 87 of the Articles of Association, as a Director of the Company. 4. To re-elect Dr. S Selliah who retires by rotation in terms of Article 87 of the Articles of Association, as a Director of the Company. 5. To re-elect Mr. S Saraf who retires in terms of Article 94 of the Articles of Association, as a Director of the Company. 6. To pass the ordinary resolution set out below to re-appoint Mr. G L H Premaratne who is 70 years of age, as a Director Company. “IT IS HEREBY RESOLVED THAT the age limit stipulated in Section 210 of the Companies Act No. 7 of 2007 shall not apply to Mr. G L H Premaratne who is 70 years of age and that he be and is hereby re-appointed as a Director of the Company in terms of Section 211 of the Companies Act No. 7 of 2007”. 7. To re-appoint Messrs Ernst & Young, as Auditors and to authorize the Directors to determine their remuneration.
8. To authorize the Directors to determine and make Donations
...... *Signature/s Date Note: * Please delete the inappropriate words. Instructions as to completion are noted on the reverse hereof. 252 SOFTLOGIC HOLDINGS PLC
INSTRUCTIONS AS TO COMPLETION
1. Kindly perfect the Form of Proxy after filling in legibly your full name, address and the National Identity Card number and signing in the space provided and filling in the date of signature.
2. A Member entitled to attend and vote at the Meeting is entitled to appoint a Proxy who need not be a member, to attend and vote on behalf of him. Please indicate with an “X” in the boxes provided how your Proxy is to vote on each resolution. If no indication is given, the Proxy in his discretion will vote as he thinks fit.
3. If the Form of Proxy is signed by an Attorney, the relevant Power of Attorney should also accompany the completed Form of Proxy for registration, if such Power of Attorney has not already been registered with the Company.
4. In the case of a Corporate Member, the Form of Proxy must be executed in the manner prescribed by the Articles of Association/Statute.
5. The completed Form of Proxy should be deposited at the Registered Office of the Company, No. 14, De Fonseka Place, Colombo 05 by 10.30 a.m on Monday the 10th day of September 2018 being forty eight (48) hours before the time appointed for the holding of the meeting.
Please provide the following details:
Shareholder’s N.I.C./ Passport/ Company Registration No...... Shareholder’s Folio No...... Number of shares held ...... Proxy Holder’s N.I.C. No. (if not a Director) ...... Designed & produced by
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Softlogic Holdings PLC 14, De Fonseka Place, Colombo 05, Sri Lanka Tel : +94 (11) 557 5000, Fax : +94 (11) 250 8291 E-mail : [email protected], [email protected]