Softlogic Holdings PLC Annual Report 2019/20 CONTENTS
OVERVIEW About This Report 1 Financial Highlights 2 Non-Financial Highlights 3 About The Group 4 Our Businesses 6 Year At A Glance 8
LEADERSHIP FINANCIAL & GOVERNANCE STATEMENTS Chairman’s Message 10 Statement of Directors’ Responsibilities 56 Board of Directors 14 Independent Auditors’ Report 57 Sector Heads 18 Income Statement 62 Functional Heads 20 Statement of Comprehensive Income 63 Corporate Governance Report 22 Statement of Financial Position 64 Statement of Changes In Equity 66 2 5 Statement of Cash Flow 68 Notes to the Financial Statements 70
OPERATIONAL & SUPPLEMENTARY FINANCIAL REVIEW INFORMATION Overview of Economy 28 Shareholder Information 176 Risk & Uncertainty 29 Corporate Directory 178 Financial Review 32 Notice of Meeting 182 Form of Proxy 183 3 6 Corporate Information IBC
MANAGEMENT DISCUSSION & ANALYSIS Retail 36 Healthcare Services 38 Financial Services 40 Leisure And Property 42 Automobiles 44 4 Information Technology & Others 46 Committee Reports Annual Report of the Board of Directors on the Affairs of the Company 48 Board Audit Committee Report 51 Report of The Related Party Transactions Review Committee 52 HR & Remuneration Committee Report 53 1 ABOUT THIS REPORT
This Annual Report covers the operations of Softlogic Holdings PLC and its Group companies for the period from 1st April 2019 to 31st March 2020. Given the unprecedented financial and operational challenges that prevailed during the year, we have sought to produce a concise report which complies with all relevant statutory requirements while fulfilling the high-level information needs of our stakeholders. The Report includes discussions on the Group’s operating landscape during the year, strategy and performance of business sectors, corporate governance, and risk management practices.
The financial statements included herein have been prepared in accordance with the Sri Lanka Financial Reporting Standards (SLFRS) and external assurance has been provided by Messrs. Ernst & Young. The Report also conforms to the requirements of the Companies Act No.7 of 2007, Listing Requirements of the Colombo Stock Exchange, and the revised Code of Best Practice on Corporate Governance (2017) issued by CA Sri Lanka.
OUR VISION To be the most preferred and trusted product and service provider, enhancing enterprise value.
OUR CREDO To make responsible investment decisions and retain the best people so as to become the most admired corporate in Sri Lanka.
INTEGRITY RESPECT Nothing compromises what we do. We respect the value of the individual.
ACCOUNTABILITY OPENNESS Every employee is responsible to do We encourage unrestrained constructive feedback. the right thing. LEADERSHIP TRUST & LOYALTY Our visionary and inspirational leadership We build honest and rewarding relationships. leads by example.
QUALITY INNOVATION Raise standards as we progress. We make a difference.
PASSION SUCCESS We passionately safeguard our reputation. We promote the ‘can do’ attitude with disciplined thinking.
Scan the QR Code with your smart device to view this report online.
Softlogic Holdings PLC | Annual Report 2019/20 2 OVERVIEW FINANCIAL HIGHLIGHTS
For the year ended 31 March 2020 2019 2018 2017 2016 2015 2014 2013 2012
Earnings Highlights Group Revenue Rs. Mn 76,722 75,143 66,019 58,882 54,600 39,564 29,246 25,351 21,819 Gross Profit Rs. Mn 27,044 27,636 23,673 19,579 18,559 14,117 11,012 8,983 7,330 Earnings Before Interest, Tax, Depreciation & Amortisation of Intangibles Rs. Mn 9,807 11,721 11,695 8,451 7,897 6,398 5,025 4,227 4,486 Group Earnings Before Interest & Taxation Rs. Mn 6,462 8,859 9,052 6,391 6,082 4,959 3,918 3,208 3,608 Group Earnings Before Taxation Rs. Mn (2,899) 1,743 3,092 1,581 2,836 2,266 1,258 453 1,601 Group Earnings After Taxation Rs. Mn (3,181) 2,990 2,278 920 1,870 1,819 1,009 153 1,016 Total Comprehensive Income Net of Taxation Rs. Mn (2,272) 3,127 2,827 1,793 2,859 2,160 1,237 2,077 856 Group Earnings Attributable to Equity Holders Rs. Mn (4,724) 105 204 120 565 556 156 (371) 448 Group Comprehensive Income Attributable to Equity Holders Rs. Mn (4,096) 353 450 783 1,829 761 220 557 340 Gross Profit Margin % 35 37 36 33 34 36 38 35 34 Net Profit Margin % (4.15) 3.98 3.45 1.56 3.43 5.00 3.50 1.00 4.70 Earnings Per Share Rs. (3.96) 0.09 0.25 0.15 0.73 0.72 0.20 (0.44) 0.60 Dividends Rs. Mn 596 596 503 387 194 - 120 234 101 Return on Capital Employed* % 6.58 9.78 11.02 9.42 9.81 8.37 8.73 8.76 10.58
Balance Sheet Highlights Total Assets Rs. Mn 150,044 130,670 118,823 100,915 93,152 87,324 65,863 53,836 44,688 Current Ratio No. of times 0.78 0.83 0.93 0.94 0.84 1.04 0.90 0.80 0.70 Asset Turnover No. of times 0.51 0.58 0.56 0.61 0.61 0.45 0.40 0.50 0.50 Total Interest Bearing Borrowings Rs. Mn 76,512 65,788 61,227 52,255 46,480 43,906 31,518 23,037 22,782 Shareholders' Funds Rs. Mn 9,507 14,343 11,591 8,547 8,159 7,336 6,802 7,288 7,202 Net Asset Value Per Share Rs. 8.0 12.23 14.05 11.04 10.54 9.47 8.7 9.4 9.2 Total Equity Rs. Mn 21,726 24,839 20,917 15,623 15,531 15,356 13,351 13,568 11,312 Debt : Equity ** No. of times 3.52 2.65 2.93 3.34 2.99 2.86 2.40 1.70 2.50 Debt : Total Assets No. of times 0.51 0.50 0.52 0.52 0.50 0.50 0.50 0.40 0.50 Operating Cash Flow Rs. Mn 9,009 1,556 (106) 2,331 3,432 426 1,775 1,777 157 Capital Expenditure Rs. Mn 7,637 5,743 4,524 6,311 5,252 4,438 3,604 2,271 1,138 Cash Earnings Per Share Rs. 7.55 1.33 (0.13) 3.01 4.43 0.50 2.30 2.30 0.20
Investor Information Market Price as at 31 March Rs. 12.30 16.00 24.60 11.90 13.30 13.20 10.60 10.40 11.20 Shares in Issue Mn 1,193 1,193 962 779 779 779 779 779 779 Market Capitalisation as at 31 March Rs. Mn 14,668 19,081 23,659 9,270 10,205 10,283 8,257 8,102 8,725 52-Week Market Share Price High Rs. 17.00 25.80 26.20 15.50 18.00 20.40 12.70 13.30 28.00 52-Week Market Share Price Low Rs. 11.00 15.90 11.70 11.70 12.30 10.30 8.10 9.40 11.10 Price to Book Value No. of times 1.50 1.30 1.75 1.01 1.10 1.40 1.50 1.40 1.40 Enterprise Value Rs. Mn 87,454 81,672 78,733 58,730 53,677 52,263 38,014 29,816 30,593 Enterprise Value : EBITDA No. of times 8.92 6.97 6.73 7.19 6.60 8.20 7.60 7.10 6.80 Dividend Per Share Rs. 0.50 0.50 0.65 0.50 0.25 - 0.16 0.30 0.13 Dividend Payout Ratio No. of times (0.53) (0.89) 0.14 0.38 0.19 - (5.13) 0.67 0.23
* Return on Capital Employed calculated as a percentage of EBIT to Total Capital Employed (Equity plus Interest Bearing Borrowings) ** Debt to Equity calculated based on Total Equity Capital
Softlogic Holdings PLC | Annual Report 2019/20 3
Softlogic Holdings continues to inspire positive change across diverse sectors - aspiring to holistically impact its people and nurture longstanding business partnerships.
SUPPLIERSNO AND OF EMPLOYEESBUSINESS PARTNERS SUPPLIERSSTAFF AND RETENTION BUSINESS RATE PARTNERS (AS AT 31ST MARCH 2020) (2019/2020) 11,278350+ 350+91%
INVESTMENTS ON TRAINING PRINCIPAL RELATIONSHIPS 2019/2020 138 Rs.51Mn
SUPPLIERS AND BUSINESS PARTNERS DISTRIBUTORS & OUTLETS 350+ 1850+
Softlogic Holdings PLC | Annual Report 2019/20 4 OVERVIEW ABOUT THE GROUP
ABOUT US Softlogic Holdings PLC is one of Sri Lanka’s leading conglomerates, operating a multi- brand, multi-channel offering in key consumer-focused businesses. The Group has leading market positions in its three primary business verticals of Retail, Healthcare and Financial Services while also having a presence in the Information Technology, Automobiles and Leisure sectors. Softlogic’s competitive edge lies in its future-fit and agile business model which has enabled it to cater to the evolving needs of Sri Lanka’s increasingly affluent customer segments. Through its diverse businesses, the Group has access to one of the country’s largest consumer basis, which is supported through an extensive island-wide distribution network.
RETAIL HEALTHCARE FINANCIAL SERVICES Sri Lanka’s leading mobile phone The leader is Sri Lanka’s private The Financial Services sector consists distributor and retailer of consumer healthcare industry, operating over of Softlogic Life Insurance PLC, electronics representing an array 800 beds in 7 hospitals through the Sri Lanka’s 3rd largest life insurer, of global brands. Represents over Asiri Health brand. The Sector is also Softlogic Finance PLC – a licensed 100 international fashion brands the leader in medical diagnostics, finance company and Softlogic in addition to ODEL and Cotton operating a network of 6 Hospital Stockbrokers. Collection. The sector also operates laboratories, 17 Satellite laboratories Burger King, Baskin Robbins and and 58 collection centres across the Deli France restaurants through a Island. franchisee model and Crystal Jade, a specialty Chinese restaurant. Also operates the GLOMARK supermarket chain and is the authorised dealer for Suzuki motorcycles in Sri Lanka.
LEISURE & PROPERTY AUTOMOBILES ICT The leisure sector comprises of The Automobiles sector is represented The IT Sector provides a range of our two hotel properties: Centara by Softlogic Automobiles which is the services along the IT value chain Ceysands Resort and Spa in Bentota authorised dealer for King Long buses including end-user computing, and the 5-star city hotel Movenpick in Sri Lanka and Future Automobiles back end data centres, advanced as well as Sabre, an online ticketing which is the authorised dealer for all infrastructure, IT security, imaging, platform, and Softlogic Destination Ford vehicles in Sri Lanka. The Sector and printing to managed services. Management for outbound travel. also operates a state-of-the-art The Sector represents an array of collision repair centre. world-leading brands such as Dell EMC, Microsoft, Cisco, Lenovo, Huawei, HP imaging systems, Checkpoint, VMware, Whale Cloud McAfee, and Epson among others.
Softlogic Holdings PLC | Annual Report 2019/20 5
OUR BUSINESS PORTFOLIO - TURNOVER Softlogic Holdings PLC is one of Sri Lanka’s most diversified business conglomerates with a focus on sectors with excellent opportunities in the medium to long-term while occupying leading market positions in several industries. Automobiles Leisure & Property
Information Technology & others 1% 3%
6% Financial Services
20% Retail 50%
20%
Healthcare
SOFTLOGIC IN NUMBERS RETAIL SPACE AT INTERNATIONAL BRANDS ONE GALLE FACE MALL 140+ 100,000 Sq Feet
TOTAL PAYMENT TO EMPLOYEES 2019/2020 CUSTOMER CONTACT POINTS PROPERTY PLANT AND EQUIPMENT RS.10 Bn 1,850+ RS. 52 Bn
Softlogic Holdings PLC | Annual Report 2019/20 6 OVERVIEW OUR BUSINESSES
RETAIL HEALTHCARE SERVICES FINANCIAL SERVICES
100% 52% 75%
CORE VERTICALS
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 A O I Cancer Centre (Pvt) Ltd Softlogic Finance PLC »» SML Holdings (Pvt) Ltd Softlogic Stockbrokers (Pvt) Ltd Central Hospital Ltd »» Dai-Nishi Securities (Pvt) Ltd Softlogic Asset Management (Pvt) Ltd Asiri Diagnostics Services (Pvt) Ltd
Odel PLC Asiri Hospital Matara (Pvt) Ltd »» Softlogic Brands (Pvt) Ltd Digital Health (Pvt) Ltd »» Odel Lanka (Pvt) Ltd Asiri Hospital Galle (Pvt) Ltd »» Odel Apparels (Pvt) Ltd Asiri Diagnostic Services ( Asia) Pte Ltd »» BSL International (Pvt) Ltd »» Asiri Myanmar Ltd »» Odel Properties (Pvt) Ltd Asiri Central Hospitals Ltd »» Odel Information Technology Asiri Laboratories (Pvt) Ltd Services (Pvt) Ltd »» Odel Properties One (Pvt) Ltd »» Odel Restaurants (Pvt) Ltd »» Cotton Collection (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 Rewards (Pvt) Ltd
Softlogic Holdings PLC | Annual Report 2019/20 7
LEISURE & PROPERTY AUTOMOBILES INFORMATION TECHNOLOGY & OTHERS
100% 100% 100%
NON-CORE VERTICALS
SOFTLOGIC PROPERTIES (PVT) LTD
Softlogic City Hotels (Pvt) Ltd Future Automobiles (Pvt) Ltd Softlogic Information Technologies Ceysand Resorts Ltd Softlogic Automobiles (Pvt) Ltd (Pvt) Ltd Softlogic Destination Management (Pvt) Softlogic Computers (Pvt) Ltd Ltd Softlogic Australia (Pty) Ltd Sabre Travel Network Lanka (Pvt) Ltd Softlogic BPO Services (Pvt) Ltd (40%) Nextage (Pvt) Ltd (50%) Softlogic Corporate Services (Pvt) Ltd Jendo Innovations (Pvt) Ltd (21%) Softlogic Healthcare Holdings Ltd Softlogic Solar (Pvt) Ltd
Softlogic Holdings PLC | Annual Report 2019/20 8 OVERVIEW YEAR AT A GLANCE
2019 2019 2019 April MAY October Asiri Hospital Kandy, the seventh A hypermarket comprising ODEL Softlogic Life Insurance became the only hospital of the growing Asiri Health chain, departmental store, Glomark, Softlogic Sri Lankan company to be in Forbes Asia’s commenced operations to serve the Max, Burger King and Baskin-Robbins was Best Under A Billion 2019 list, a business people in Central and Northern provinces. opened in Kurunegala. This four-storied ranking which spotlights Asia’s 200 top- This 190-bed multi-specialty tertiary building has ample parking space with performing listed companies with less care hospital is backed by cutting-edge the lower ground floor being occupied than USD 1 Bn in revenue with consistent medical technology and is geared to carry by Glomark, the ground floor by Baskin top- and bottom-line growth. Softlogic Life out complex cardiac and neurosurgical Robbins and Burger King, the first floor by is the only company in Sri Lanka and one procedures which will be a boon to the ODEL and second floor being collectively of the only two insurance companies in the people in those provinces. This hospital occupied by ODEL Sports, ODEL Home and Asian region to achieve this momentous complex is the first private hospital of this Softlogic MAX. feat. Forbes shortlisted Softlogic Life from scale in the Central Province. 1,400 finalists, which was based on a universe of 19,000 candidates, for passing their criteria for profitability, growth and modest indebtedness.
2019 2019 2020 November November Softlogic opened 28 stores occupying Softlogic Restaurants, the fast-food Glomark, Softlogic’s supermarket chain, over 100,000 sq.ft. at the One Galle Face. company of the Group, acquired the opened six outlets during the year. Glomark Softlogic’s leading market position in the franchise for the Michelin star-awarded Essential stores were opened in Asiri country’s retail sector with the biggest culinary brand, Crystal Jade Hong Kong Central and Asiri Hospital Kandy as well portfolio of world’s leading brands marks it Kitchen Restaurant, which is one of as in Orion City. Glomark was also opened position as the anchor tenant at the mall. Asia’s most celebrated and diversified in Kottawa, Kurunegala and Nawala. restaurant brands. The first Crystal Jade This expansion drive which is pursued by ODEL department store at the One Galle restaurant was opened at the One Galle the supermarket business is essential to Face, a total of 3 floors spanning across Face. Softlogic also opened three other achieve the critical mass for sustainable 52,000 sq.ft.. The three core categories food and dining brands at the One Galle growth. of Beauty, namely Fragrances, Cosmetics Face Mall, Burger King, Baskin Robbins and and Skin Care was launched bringing in a Delifrance. host of fresh international beauty brands at ODEL. Global favourite kids wear brand, OVS Kids has also been launched within the Kids department at ODEL OGF. Softlogic also launched an exclusive range of bespoke, luxury men’s formal outfits by international retail giant Sacoor Brothers at ODEL.
Softlogic Holdings PLC | Annual Report 2019/20 9
At Softlogic Holdings, we are led by the combined power of a purposeful vision and innovative thinking to deliver creative solutions to the people.2
LEADERSHIP & GOVERNANCE Chairman’s Message 10 Board of Directors 14 Sector Heads 18 Functional Heads 20 Corporate Governance Report 22
Softlogic Holdings PLC | Annual Report 2019/20 10 LEADERSHIP & GOVERNANCE CHAIRMAN’S MESSAGE
2020 Challenges faced during the financial year under review were unprecedented HIGHLIGHTS as we commenced the year with the Easter Sunday terror attacks and closed the year under lockdown as countries around the world implemented Healthcare stringent measures to curtail the COVID-19 pandemic. Despite these »» Opening of Asiri Hospitals Kandy challenges, the Softlogic Team remained optimistic and agile to deliver »» Australian Council on Healthcare top line growth of 2% to Rs. 76.7 Bn as we worked with our supply chain Standards International (ACHSI) partners at every level to drive mutually beneficial growth. This reflects our for Asiri Group of hospitals determination as our Retail and Leisure sectors relied primarily on face-to
Retail -face contact with customers at our high-end market spaces designed to »» Opening of 100,000 sq. ft retail enhance customer experiences and both black swan events impacted footfall space at One Galle Face Mall to these key locations. with an expanded portfolio of international retail brands The earning capacity of the Group also enabled easing cashflow constraints. increased during the year with the opening Consequently, we were able to maintain »» Expansion of Glomark of Asiri Hospitals Kandy which is a 190 our considerable retail footprint with supermarket chain bed multi-specialty tertiary care hospital streamlining and importantly, maintain our with 6 new stores with cutting-edge technology. Softlogic permanent cadre. We continue to monitor also opened 100,000 square feet of retail developments and performance closely Financial Services store space at Colombo’s latest shopping as the twin health and economic crises »» Softlogic Life becomes the 3rd destination One Galle Face Mall at Shangri continue to require careful recalibration largest life insurer moving up two La, becoming the anchor tenant for this of strategy and responsiveness to positions in the insurance league prime real estate location. Softlogic stakeholders. Life continues to gain market share and table moved up two positions to become the A SECTOR VIEW »» Softlogic Life is the only company 3rd largest insurer in the country and the in Sri Lanka to be featured in only company in Sri Lanka to be featured in Financial Services, Healthcare Services and Information Technology sectors Forbes Asia’s ‘Best Under A Billion Forbes Asia’s Best Under a Billion 2019 list. remained profitable while external events 2019’ list The impact of the two black swans in one took its inevitable toll on the Retail sector »» Launch of Softlogic Invest year and policies implemented to curtail which recorded a loss in the year under operating 2-unit trusts vehicle and other imports are clearly review compared to a profit in the previous reflected in the Group’s performance. year. The Leisure and Property sector was Operating profits declined by 26% to also impacted by the black swans in line Rs. 6.1 Bn leaving little room to absorb the with the industry both locally and globally. net finance costs which increased by 28% Economic policies implemented to manage due to increased borrowings. Consequently the trade deficit had a significant impact the Group recorded a loss of Rs. 3.1 Bn on both Retail and Automobiles sectors compared to a profit of Rs. 2.9 Bn in the and these continue to be a concern moving previous year despite the investments into forward as well. growth across the Group. The onset of the pandemic in March 2020 was indeed a Financial Services blow as it is typically a peak month in the Softlogic Capital PLC, the parent company run up to the festive season in April. of our financial services businesses, recorded its highest ever consolidated Despite significant odds, the Softlogic revenue of Rs. 17.8 Bn during 2019/2020 Group continues to strengthen value reflecting growth of 18%over the previous propositions for its customers while year. Pre-tax profit from the Financial reining in expansion plans to optimise Services sector was Rs. 1.4 Bn reflecting resource allocation and utilisation. The profit growth in a challenging year sharp decline in interest rates in the supported strongly by our insurance financial year that has commenced has business. Softlogic Life recorded a been a relief as the average interest rate commendable performance delivering has nearly halved, easing the pressure profit before tax of Rs. 1.9 Bn and on cashflow. Support from key business continues to maintain growth rates well partners has also supported cashflow above industry growth rates. Digitisation management. A Group-wide effort to of customer interfaces through rollout of streamline costs and generate cashflow LifeUp Mobile Application, E-Advisor and
Softlogic Holdings PLC | Annual Report 2019/20 11
The opening of Asiri Hospitals Kandy added 190 beds to the Group while offering people in the hill Capital access to cutting edge medical technology at an internationally accredited tertiary care facility.
IME has supported growth as we focused Rs. 15.5 Bn despite declining patient Lanka with progress reviewed via online on delivering customer convenience and volumes in the wake of the April terror platforms at regular intervals. Other than empowered customers. attacks and the pandemic. Profit before Asiri Kandy all our hospitals obtained tax declined by 41% to Rs. 1.4 Bn reflecting accreditation by the Australian Council We are charting a new course for Softlogic a near doubling of finance costs stemming on Healthcare Standards International Finance which has performed below from expansion and narrower operating (ACHSI), while Asiri Central obtained the expectations and now have one of the margins. prestigious JCI accreditation during the most experienced teams in the industry to year affirming high standards of care. drive our future vision. Softlogic Invest was The opening of Asiri Hospitals Kandy launched during the year and operates two added 190 beds to the Group while Information Technology Unit Trusts. Stockbrokers were adversely offering people in the hill capital access Information Technology delivered top line impacted by the uncertain business to cutting-edge medical technology at growth of 13% with revenue of Rs. 4.6 Bn landscape which featured two black swans, an internationally accredited tertiary care as the demand for IT products and services a presidential election and the uncertainty facility. Opening of the Asiri AOI Cancer increased during the year as disruptions of a pending general election in one single Care Centre at Asiri Surgical Hospital highlighted the need for investments year. harnesses the expertise of the American in future ready systems, particularly in Oncology Institute to provide precision- the last two weeks of the year. We also Healthcare Services driven cancer treatment regime based on boarded key global partnerships with Asiri Group of Hospitals is the leading on collaborative protocols with University Lenovo for personal computers and private healthcare operator in the country of Pittsburgh Medical Centre. Treatment Huawei for enterprise solutioning which and recorded 15% revenue growth to planning is done in the USA for the patients strengthened our portfolio. Enterprise in consultation with the oncologists in Sri
Softlogic Holdings PLC | Annual Report 2019/20 12 LEADERSHIP & GOVERNANCE CHAIRMAN’S MESSAGE
and Security businesses recorded strong under review compared to a pre-tax profit market share supported by our reputation performance as more corporates explored Rs. 476 Mn reflecting the woes of the for excellent after sales service. After avenues for digitally engaging their own sector. sales services were extended to Male as customers. Despite exchange rate impacts well during the year and is performing in the financial year under review, the Glomark, our supermarket chain, plans to satisfactorily despite the challenging outlook for the Information Technology add over 100,000 sq, ft., opening 7+ stores times. We continue to inspire and motivate is positive as enterprises embrace digital in 2021 in the bustling suburbs around our dealers with attractive incentives, technologies as they adapt to social Colombo and a flagship store in Colombo sharing our success with these key distancing requirements. Enhancing 07. Offering a wider choice with products stakeholders. online offerings to customers, supporting from across the globe which include a employees to work from home and a growing range of speciality items, Glomark Automobiles growing BPO industry provide avenues for is carving a niche to delight gourmets. The Automobiles sector faced challenges further growth as we support the countries Integrated spaces with coffee shops and due to import restrictions on vehicles, digitisation. electronics make it a fun experience for hampering operations of Ford. King everyone, inspiring and elevating the Long buses also suffered setbacks due Leisure & Property everyday shopping experience. Our early to the drop in tourist arrivals and the The Leisure & Property Sector recorded investment in creating the widest online pause in issuance of route permits for as pre-tax loss of Rs. 1.7 Bn as Sri Lanka offering served us well in the financial year buses. Consequently, turnover declined recorded a sharp decline in tourist arrivals that has commenced as customers looked to a mere third of the previous year while in 2019 after the terror attacks and again for a wide range of items online. Adding pre-tax losses increased from Rs. 35 Mn in December and the first quarter as travel PickMe to supplement our online offering in the previous year to Rs. 195 Mn for FY safety was impacted by COVID-19. Industry was also a success and it is now matching 2019/20. woes were compounded by hedging costs our own. Consequently, our online sales for dollar-denominated loans as the Sri grew by 250% from the start of this year PURSUING OUR VISION Lankan rupee depreciated during the year as consumers sought a combination of from Rs. 174.45 to Rs. 191.16. The outlook safety and online availability of products. As we adjust to new societal norms with for the sector remains uncertain even at Plans to launch our own private label social distancing, our spirit remains present as travel restrictions remain in range, adding another 60-100 lines makes unquenched and the determination to force for the greater part of the world and Glomark a strong challenger for growth in succeed against the odds grows. Our disrupted industry ecosystems struggle to the competitive modern trade segment in immediate focus is on extending the cash maintain equilibrium. the coming year. runway as cash is king amidst prolonged uncertainty and our strategy is to manage Retail Positioned as the country’s dominant EBITDA in the short term. Consequently, player in luxury goods, our international we have converted inventory to cash where The Retail sector recorded Rs. 37.9 Bn brands gained high levels of visibility as possible with exciting promotions that turnover accounting for nearly half the Softlogic became the anchor tenant at were enthusiastically received by worry- Group’s turnover with a wide ranging Colombo’s premier shopping destination, weary customers. We have undertaken portfolio of branded clothing, footwear One Galle Face Mall at Shangri La, giving a Group-wide initiative to streamline and accessories, beauty,white goods, Sri Lankans a significantly enhanced costs which continues to be monitored supermarkets and mobiles. Operating retail experience on par with international and reinforced to support cashflow profits more than halved to standards. Import controls introduced management. We have also renegotiated Rs. 1.4 Bn due to the challenges faced to manage the twin budget and trade our interest rates with banks to reflect during the year and our reluctance to deficits together with the lockdown and market rates which have declined sharply, reduce our footprint and the need to save significantly reduced footfall in malls supporting the bottom line and cashflow. as many jobs as we could. Coupled with proved to be impediments but we continue increased finance costs, this resulted in to maintain the vibrancy of our offerings As a dynamic group, our plans for growth a pre-tax loss of Rs. 2.5 Bn for the year to boost waning consumer confidence. We continue to be visionary and many of these have strengthened our online presence plans are well advanced with funding in and redoubled our efforts on targeted place. We have signed contracts with GROUP REVENUE marketing to ensure that Softlogic third parties to expand and build our retail maintains its leadership position in the operations. Work has commenced on many Retail space. projects and we need to complete these Rs.76.7 Bn projects. Our largest project on hand is Encouragingly, Telecommunications the Odel Mall and the completion of this recorded strong growth as social landmark has been deferred for 2023 in EBITDA distancing requirements unleashed view of the delays experienced during the an unprecedented demand for mobile year. communication devices. As over 95% Rs.9.8 Bn of mobile dealers work with us, we were Our landmark hypermarket in Mount able to support the demand and capture Lavinia opened in November 2020,
Softlogic Holdings PLC | Annual Report 2019/20 13
realising part of our long-term retail options. Meanwhile, the loans with regard to BEYOND strategy to build destinations offering the Leisure sector have been renegotiated unique retail experiences to consumers for more favourable terms in view of the 2020 on par with developed markets. This retail global and industry-wide impact on the utopia brings together three of our brands same. »» Odel Mall in 2023 Softlogic Glomark, Odel and Softlogic Max in a sprawling 25,000 sq ft purpose built »» Hypermarket in Mount Lavinia ACKNOWLEDGEMENTS retail space offering a heady combination »» Expansion of Glomark modern In uncertain times, the indefinable magic of chic, glamour, technology, choice and trade chain including launch of convenience for the entire family. This is that makes the impossible possible is the private label expected to stimulate revenue growth as spirit of the people. I have been fortunate to it appeals to a wider consumer segment, lead a team of people who can infect others »» Acquisition of Abans Finance driving synergies and cost efficiencies in our with this spirit and seek every opportunity to PLC exciting new retail model. thrive in the challenging times we are living through. I wish to thank every member of »» Softlogic Capital PLC rights Softlogic Capital PLC, the holding company the Softlogic Team for their efforts to ensure issues of the financial services arm of the Softlogic that our customers remained engaged and »» Softlogic Finance PLC rights Group, has agreed to acquire a 49.67% upholding high standards of service which issue stake in Abans Finance PLC subject to has been our key differentiator. receipt of all regulatory approvals which will »» Retail fund management I thank the Board for their counsel and also trigger a mandatory offer to minority product roll out shareholders of Abans Finance PLC. We are strengthened vigilance during this period awaiting the necessary approvals on this and count on their foresight and guidance transaction at present. which is described in as we move forward. The Board joins me note 53 to the Financial Statements. in expressing our appreciation of the moratoria and other accommodations Both Softlogic Capital PLC and Softlogic granted by our bankers and business Finance PLC have announced rights issues. partners which supported our cashflow Funds raised by Softlogic Capital PLC will management in a difficult year. We thank be utilised to invest in Softlogic Finance our shareholders for the continued PLC while the funds raised by Softlogic confidence and look to crafting an improved Finance PLC will augment its Core Capital performance for the Softlogic Group in the requirements. future.
Softlogic Invest plans to add on Fund Management with a vision of strengthening retail investor participation in capital markets by introducing investments that start at just Rs. 5,000.
After a continuous period of investments, in Ashok Pathirage Asiri Hospitals it is proposed to consolidate Chairman/Managing Director operations and enhance asset utilisation in the year that has commenced as there 15 December 2020 is sufficient capacity within the Group, Colombo supported by a growing number of centres of excellence.
The outlook for the Information Technology sector remains positive driven by demand for secure systems that facilitate working from home, increased digitisation of business processes and on boarding of customers to digital platforms.
We are closely monitoring the Automobiles and Leisure & Property sectors due to the high levels of uncertainties with regard to these two sectors and will keep weighing our
Softlogic Holdings PLC | Annual Report 2019/20 14 LEADERSHIP & GOVERNANCE BOARD OF DIRECTORS
ASHOK PATHIRAGE HEMANTHA GUNAWARDENA Chairman/Managing Director Executive Director
HARESH KAIMAL RANJAN PERERA Executive Director Executive Director
ROSHAN RASSOOL HARRIS PREMARATNE Executive Director Non-Executive Director
Softlogic Holdings PLC | Annual Report 2019/20 15
DR. SIVA SELLIAH PRASANTHA LAL DE ALWIS, PC PROF. AJANTHA DHARMASIRI Non-Executive Independent Director Non-Executive Independent Director Non Executive Independent Director
AARON RUSSELL - DAVISON SHIRISH SARAF Non-Executive Director Non-Executive Director
NIHAL KEKULAWELA Non-Executive – Independent Director
Softlogic Holdings PLC | Annual Report 2019/20 16 LEADERSHIP & GOVERNANCE BOARD OF DIRECTORS
ASHOK PATHIRAGE BPO Services (Pvt) Ltd, Director of Odel of the Cyprus Institute of Marketing. He Chairman/Managing Director PLC, Softlogic Finance PLC, Softlogic Life has over 30 years of experience behind Insurance PLC and many other Group him in the ICT industry having worked in Mr. Ashok Pathirage, recognised as a Companies. senior managerial positions in reputed visionary leader of Sri Lanka’s corporate companies. world, is the founding member of RANJAN PERERA Softlogic Group, one of Sri Lanka’s Executive Director leading conglomerates. He manages over HARRIS PREMARATNE 50 companies with a pragmatic vision Mr. Ranjan Perera is a co-founder of Non-Executive – Independent Director providing employment to more than Softlogic and is an Executive Director Mr. Harris Premaratne joined the Softlogic 11,000 employees. Mr. Pathirage gives since its inception and also holds many Board in 2014. He has extensive banking strategic direction to the Group which Board Directorships in subsidiaries of the experience, having held several top has a leading market presence in three Softlogic Group. He is the Sector Head positions and gained many accolades in core verticals – Retail, Healthcare and of the Group’s Mobile Phone Operations the banking industry. He is an Associate of Financial Services and three non-core and Managing Director of Softlogic the Chartered Institute of Bankers, London. verticals - IT, Leisure and Automotives. International (Pvt) Ltd. With the extensive Mr. Premaratne is a Past President of the The Asiri Hospital chain is the country’s knowledge in Senior Managerial positions Sri Lanka Banks’ Association. He currently leading private healthcare provider which and having over two decades of experience serves on the Boards of Asiri Hospital has achieved technological milestones in in the telecommunication field, he handles Holdings PLC, Asiri Surgical Hospital medical innovation in Sri Lanka’s private world renowned brands in the mobile PLC, Softlogic Capital PLC, Asiri Central healthcare. He is the Chairman/Managing industry. Hospitals Ltd., and Central Hospital Ltd., Director of Asiri Hospital Holdings PLC, Asiri and is Chairman of the Remuneration Surgical Hospital PLC, and ODEL PLC. He He also contributes to the Retail Sector Committee and member of the Audit also serves as the Chairman of Softlogic of the Softlogic Group and is heading the Committee of the above-mentioned Capital PLC and Softlogic Life Insurance Softlogic Consumer Electronics Dealer hospitals. He was an Executive Director and PLC in addition to the other companies Business and also the FMCG Channel, the Deputy Chairman of Softlogic Finance of the Group. He is also the Chairman of Higher Purchase Division and the Service PLC for the period 2015-2018. NDB Capital Holdings Limited, Sri Lankan Centre Operations. He is the Managing Airlines Limited and Sri Lankan Catering Director of Lifeline Pharmaceuticals (Pvt) DR. SIVAKUMAR SELLIAH Limited. Ltd and having vast experience in the area Non-Executive Independent Director of Supply Chain Management & Logistics, HEMANTHA GUNAWARDENA he Heads the Group’s Logistics and Dr. Sivakumar Selliah holds an MBBS Executive Director Warehouse Operations. degree and a Masters Degree (M.Phil). He joined the Board of Softlogic Holdings Executive Director Mr. Hemantha ROSHAN RASSOOL PLC in 2010. He has over two decades Gunawardena is one of the co-founders of Executive Director of experience in multiple fields. He is the Softlogic Group and has served as a the Deputy Chairman of Asiri Hospital Director since inception. He has extensive Mr. Roshan Rassool joined Softlogic Holdings PLC, Asiri Surgical Hospital PLC, experience in the field of IT, both front and in 1995 and was appointed to the and Central Hospital Ltd. He is a Director back-end, and counts over 30 years in this Board in 2009. He is the Director/CEO of Odel PLC, HNB Assurance PLC, Lanka field. He was a senior software manager of the Computing Systems & Systems Walltiles PLC, Lanka Tiles PLC, ACL Cables at a leading Sri Lankan blue chip prior to Integration Solutions Division of Softlogic PLC, Lanka Ceramics PLC, Swisstek joining Softlogic. He presently overlooks Information Technologies (Pvt) Ltd., (Ceylon) PLC and Swisstek Aluminium (Pvt) the software operations in Softlogic which has business partnerships with Dell Ltd. He also serves as a Chairman of JAT Australia (Pty) Ltd. and the Automobiles Corporation, Apple Computers, Lenovo, Holdings (Pvt) Ltd., Cleanco Lanka (Pvt) Sector, while serving as an Executive CISCO, EMC storage systems, Microsoft, Ltd., and Vydexa Lanka Power Corporation Director of Softlogic BPO Services (Pvt) HP imaging products and VMware. He (Pvt) Ltd. Dr. Selliah serves on the Ltd. was appointed as a member of Dell South Human Resource & Remuneration, Audit, Asia Partner Advisory Council in 2011. He Investment, Related Party Transactions HARESH KAIMAL served as Chairman of Infotel Lanka in and Strategic Planning Committees of Executive Director 2006/2007 and was President of the Sri some of the companies on whose Boards Lanka Computer Vendors Association at he serves. Mr. Haresh Kaimal is a co-founder of the same time. He was also Chairman of the Softlogic Group and a Director since the Federation of Information Technology PRASANTHA LAL DE ALWIS, PC its inception. With over 3 decades of Industries, Sri Lanka in 2007. He holds Non-Executive Independent Director experience in IT and Operations, he heads an MBA from the University of East the Group IT division which oversees the London and is a doctoral student at Mr. Prasantha Lal De Alwis joined the entire group requirements in information the University of Kelaniya. He is also an Softlogic Board as a Non-Executive technology covering all sectors. He is Associate Member of the Association Director in 2011. He obtained his LL.B also an Executive Director of Softlogic of Business Executives and a Member (Bachelor of Law) and LL.M (Masters
Softlogic Holdings PLC | Annual Report 2019/20 17
in Law) from the University of Colombo He holds a Ph.D. and an MBA from the NIHAL KEKULAWELA and was enrolled as an Attorney at- Postgraduate Institute of Management and Non-Executive – Independent Director Law in 1983. He started his career as a a B.Sc. in Electrical Engineering from the Mr. Kekulawala counts over thirty years in State Counsel of the Attorney General’s University of Moratuwa. He is a Chartered the banking profession and was appointed Department of Sri Lanka in 1983 and Electrical Engineer and a Fellow of the as a Director in January 2019. He has held served in that capacity until 1990. He Chartered Institute of Management, UK. senior positions at Hatton National Bank subsequently joined the private bar PLC and played a strategic role in the and since then has practiced in both He has three decades of both private and diversification of HNB from Commercial Appellate and Trial courts. He was public sector experience including stints at Banking to Investment Banking, venture appointed a President’s Counsel in Unilever and Nestle, and is a sought after capital, stock brokering and life/ general 2012. He is a visiting lecturer at the Law conference speaker, corporate trainer, insurance. Mr. Kekulawala served as the faculty, University of Colombo, Kotelawala strategy consultant, acclaimed author and lead consultant and was responsible Defence University (KDU) and APIIT Law an accomplished academic. for setting up a Commercial Banking School. He is a member of the Council Operation in the Solomon Islands. He of University of Moratuwa, Board of AARON RUSSELL-DAVISON functioned as the inaugural CEO of the Management of the Centre for Studies of Non-Executive – Non Independent Director bank. He presently serves on the Board of Human Rights, Faculty Board of Law of several public companies. Mr. Kekulawala University of Colombo and Incorporated Mr. Aaron Russell-Davison joined the Board is a Fellow of the Institute of Chartered Council of Legal Education. Mr. De Alwis of Softlogic in 2016. With over twenty Accountants England and Wales, and Sri was a Director of Sampath Bank PLC years of banking experience, he was most Lanka, Fellow of the Chartered Institute of from 2002 to 2011 and Chairman of its recently the Global Head of Debt Capital Bankers, England and has an MBA from the Human Resources, Remuneration and Markets for Standard Chartered Bank, University of Manchester. Risk Management Committees and was Singapore. Mr. Russell-Davison has held a a Director of Siyapatha Finance PLC series of other senior investment banking (2011-2020). He presently serves as a positions in Hong Kong, Singapore and CHETAN GUPTA Director of SC Securities (Pvt) Ltd., Asset London during his career. He graduated Alternate to Mr. Shirish Saraf from the University of Western Australia Line Leasing (Pvt) Ltd., Coral Sands Hotel Mr. Chetan Gupta is the Managing Director in 1991 with a Bachelor of Arts in Asian Ltd., and Alethea International School, of Samena Capital Investments Ltd in History and Politics. Mr. Russell-Davison Honorary Legal Advisor of CIM Sri Lanka Dubai, focusing on investments within the serves as an Executive Director and and the Ayurveda Doctors (Gampaha Special Situations Funds. Mr. Gupta is a Chairman at Softlogic Finance PLC. He is Wickremarachchi) Association of Sri member of the Board of Directors of U-Gro also a Non-Executive Independent Director Lanka. He was a founder member of the Capital Ltd (India), Imperial Hotels (Pvt) at Amana Bank PLC. Consumer Affairs Authority of Sri Lanka Ltd (India) and RAK Logistics (Singapore). in 2002. He was appointed as Honorary He is also a member of the Investment Consul for Seychelles in Sri Lanka by the SHIRISH SARAF Committee of the Special Situations Funds. President of the Republic of Seychelles in Non-Executive Director Prior to joining Samena Capital, Mr. Gupta October 2013. He is the Commander of St. Mr. Shirish Saraf joined the Board of was an equity research analyst at Tricolour John’s Ambulance Bridge and a member of India Funds and previously was a part of the Press Council Sri Lanka. Softlogic in April 2018 as the nominee Director of Samena Ceylon Holdings Ltd. the General Atlantic Financial Management He is the Founder and Executive Vice Leadership Program. Mr. Gupta is a PROF. AJANTHA DHARMASIRI Chairman of Samena Capital. He has Chartered Financial Analyst (AIMR), Non Executive Independent Director been a Director of various companies in Chartered Alternative Investment Analyst and holds a Masters in Management Prof. Ajantha Dharmasiri was appointed different jurisdictions across Samena’s (Finance) from the University of Mumbai. to the Board in 2016 as a Non Executive portfolio, including RAK Ceramics PSC, RAK Independent Director. Logistics LLC, Dynamatic Technologies Ltd and Tejas Networks Ltd. Mr. Saraf Prof. Dharmasiri currently serves as previously held Directorships in Aramex the Chairman / Director of the Board Holdings, Commercial Bank of Oman SADG, of Management of the Postgraduate Abraaj Capital, EFG Hermes and Amwal Institute of Management, University of Capital (Qatar). In September 2013, Asian Sri Jayewardenepura. He was a Past Investor listed him as one of Asia’s 25 most President of the Chartered Institute of influential people in Private Equity. Mr. Personnel Management (CIPM), Sri Lanka Saraf has obtained a Bachelor of Science and was a Vice President of the Asia degree in Economics from the London Pacific Federation of Human Resource School of Economics and Political Science. Management (APFHRM). He also serves as an Adjunct Professor at the Price College of Business, University of Oklahoma, USA.
Softlogic Holdings PLC | Annual Report 2019/20 18 LEADERSHIP & GOVERNANCE SECTOR HEADS
DR. MANJULA KARUNARATNE IFTIKAR AHAMED Healthcare Services Financial Services
MOHAMMED RIZVI Retail
Softlogic Holdings PLC | Annual Report 2019/20 19
DR. MANJULA KARUNARATNE IFTIKAR AHAMED MOHAMMED RIZVI Healthcare Services Financial Services Retail MBBS, M.Sc (Trinity, Dublin), Mr. Iftikar Ahamed is the Managing Mr Mohammed Rizvi joined as the Chief Dip. MS Med (Eng) MSOrth Med. (UK) Director of Softlogic Capital PLC, which is Executive Officer of Softlogic Retail (Pvt) the Financial Services holding company Limited, who is a key stakeholder of Dr. Karunaratne was appointed to the of the Softlogic Group that has interests the Consumer Electronic Industry in Sri Board of Asiri Hospital Holdings PLC and in Life Insurance, Leasing & Finance, Lanka. He also heads the Softlogic Office Asiri Surgical Hospital PLC in 2006, and Stockbroking and Asset Management. He Automation Division. currently serves as the Chief Executive is also the Managing Director of Softlogic Officer of the Asiri Group. He also serves Life Insurance PLC and an Executive He is an accomplished executive with on the Boards of Central Hospital Ltd., Director of Softlogic Stockbrokers (Pvt) domestic and international experience with Asiri Central Hospitals Ltd., Asiri Hospital Ltd and Softlogic Asset Management (Pvt) proven success in the IT, Infrastructure Matara (Pvt) Ltd., Asiri Hospital Galle, Asiri Ltd. Mr. Ahamed counts over 30 years and Telecommunication Industry in a wide Diagnostic Services (Pvt) Ltd. and Asiri of experience in a wide range of métiers range of fortes within the service and other Hospital Kandy (Pvt) Ltd., He previously within the financial services industry. He various sectors. held the positions of Medical Director, Asiri has extensive banking experience both Hospital Holdings PLC (1996-2000) and in Sri Lanka and overseas, having held Mr Mohammed Rizvi is responsible was Chief Operating Officer, Asiri Hospitals senior management positions as Deputy for transforming Softlogic Retail (Pvt) Group during the period 2006-2014. Chief Executive Officer at Nations Trust Limited by introducing smart portfolios, Bank PLC and Senior Associate Director at streamlining the operations and He possesses over 30 years of experience Deutsche Bank AG. He holds an MBA from instrumental in making strategic decisions in the field of healthcare, and is the University of Wales, UK. for the Company. Prior to his assignment responsible for the overall medical policy with Softlogic Retail, He served as a Vice of the Group. Under his guidance the President of Siemens LLC – UAE. Group has introduced large number of new medical procedures and technologies to During his career span, he has had wide Sri Lanka amongst which are the country’s exposure in general management and first Bone Marrow Transplant Unit, first demonstrated track record of delivering Minimally Invasive cardiac Surgery service, results. first fully fledged Stroke Unit with facilities for ‘clot retrieval’, a high end Interventional Radiology Facility, a fully-fledged Nuclear Medicine Service and the country’s first True Beam Linear Accelerator for Radiotherapy. In addition A Stem Cell Laboratory another first ,is currently nearing competition.
Softlogic Holdings PLC | Annual Report 2019/20 20 LEADERSHIP & GOVERNANCE FUNCTIONAL HEADS
HIRAN PERERA INDRESH PUVIMANASINGHE FERNANDO DAMITH VITHARANAGE Director Group Treasury Chief Process Officer Group Head of Risk and Internal Audit
DESIREE KARUNARATNE AASHIQ LAFIR Group Director – Marketing Group Finance Director
NATASHA FONSEKA CHINTHAKA RANASINGHE NILOO JAYATILAKE Group Director – Human Capital Head of Strategy and Business Head of Investments and Taxation Development
Softlogic Holdings PLC | Annual Report 2019/20 21
HIRAN PERERA Management Accountants (CIMA), UK, and Group. She counts over 25 years of Director Group Treasury the Chartered Institute of Marketing (CIM), experience in senior managerial positions UK, and is a Certified Information System in Human Resources Management, Mr. Hiran Perera joined Softlogic in 2013 Auditor (CISA), USA and a Certified Project Taxation, Financial Advisory Services to head its treasury function. Prior to this, Manager (PMP) USA. and Finance in reputed international he was Head of Wholesale Risk/ Acting professional firms and the private sector. Chief Risk Officer at HSBC, Sri Lanka and She is a Fellow of the Chartered Institute of Maldives, and counts over 28 years of DESIREE KARUNARATNE Management Accountants, UK-FCMA and a banking experience at HSBC which also Group Director – Marketing Chartered Global Management Accountant includes cross-border exposure. He is also Ms. Desiree Karunaratne joined Softlogic (CGMA), USA. She served in the capacity of a Director of National Development Bank in 2003 and serves as Group Director Director Tax at EY prior to joining Softlogic. PLC. Marketing. She is responsible for Group marketing activities and crafting the CHINTHAKA RANASINGHE INDRESH PUVIMANASINGHE FERNANDO long-term marketing strategy of the Head of Strategy and Business Chief Process Officer ( CPO) Group. She has over 17 years of senior Development management experience across a diverse Ms. Indresh Fernando joined Softlogic range of businesses in Retail, Fashion, Mr. Chinthaka Ranasinghe joined Softlogic in 2014 and was seconded to Softlogic Information Technology, Travel and Media. in 2014 as the Head of Strategy and Finance PLC as Chief Operating Officer. In She holds an MBA from the University Business Development. He has over 20 2018, she was appointed as Chief Process of Wales, UK. She serves on the Boards years of senior managerial experience in Officer of Softlogic Holdings PLC. She of Softlogic Restaurants (Pvt) Ltd., equity research and investment banking in is a Fellow of the Chartered Institute of Softlogic Supermarkets Pvt Ltd., Softlogic one of Sri Lanka’s leading conglomerates. Management Accountants (CIMA), UK. She Destinations Management (Pvt) Ltd., Silk He is a Management Graduate from the counts for over 25 years of experience Route Foods (Pvt) Ltd., Nextage (Pvt) Ltd., University of Colombo (BBA) and a Passed in the Accountancy profession in diverse Softlogic Rewards Pvt Ltd., and Sabre Finalist of the Chartered Institute of sectors such as Financial Services, Travel Network Lanka (Pvt) Ltd. Management Accountants (CIMA), UK. Hospitality, Transportation, Inbound Travel and Telecommunications. She served in the capacity of Sector Finance Director at AASHIQ LAFIR NILOO JAYATILAKE both Hemas Transportation and Serendib Group Finance Director Head of Investments Group prior to joining Softlogic. Mr. Aashiq Lafir joined Softlogic in 2018, Ms. Niloo Jayatilake holds the position and counts over 30 years of senior of CEO / Director of Softlogic Invest, the DAMITH VITHARANAGE managerial experience in companies with asset management arm of the Softlogic Group Head of Risk and Internal Audit diverse interests. And is a proven Finance Group. She is also the Head of Investments and Operations specialist. of the Softlogic Group PLC. With more Mr. Damith Vitharanage joined Softlogic than 25 years in the investments and to head the Group Risk and Internal Audit Mr. Lafir is a Fellow of the Institute of portfolio management field, previously Divisions in 2013. He is responsible for Chartered Accountants of Sri Lanka she held the position of Head of Portfolio Internal Audit, Risk and Compliance (CA Sri Lanka) and the Chartered Management/Director of Guardian Fund activities of the Group. Damith counts Institute of Management Accountants Management Ltd for a period of 10 years. over 20 years of senior managerial (CIMA), UK and is a Chartered Global Niloo has represented Sri Lanka and holds experience in Audit, Investigations, Management Accountant (CGMA), US. He national colours in golf. Currently, serves Financial Management, Human Resource also holds a Masters Degree in Business as Council Member of the Sri Lanka Golf Management and Administration, Administration from the University of Sri Union (SLGU) and serves as Chairperson Information Security, Risk Management Jayewardenepura. Mr. Lafir is also the of its Junior Sub Committee overlooking and General Management in both the Chairman of Skills International (Pvt) Ltd., the national golf development program. state and private sectors in Sri Lanka and and is the former Executive Director - Also Heads the Women’s Committee of the the Middle East. Prior to joining Softlogic Finance of United Motors Lanka PLC. He National Olympic Committee of Sri Lanka. Holdings PLC, He worked as Deputy General is a past President of Sri Lanka-Malaysia She is a Fellow Member of the Chartered Manager - Head of Audit and Investigations Business Council. Institute of Management Accountants, UK at Seylan Bank PLC. He is a Management and Associate Member of the Institute of Graduate from the University of Colombo Chartered Secretaries and Administrators, (BBA), holds a Postgraduate Diploma in NATASHA FONSEKA UK. HR, Post Graduate Diploma in Integrated Group Director – Human Capital & Taxation Waste & Energy Management and Ms. Natasha Fonseka joined the Group in possesses a Management MBA specialised 2010 and is presently the Group Director, in Transformational Leadership. He has Human Capital and Taxation. She is Associate Memberships from the Institute responsible for Corporate Taxation and of Chartered Accountants of Sri Lanka Human Capital activities of the Softlogic (CA Sri Lanka), the Chartered Institute of
Softlogic Holdings PLC | Annual Report 2019/20 22 LEADERSHIP & GOVERNANCE CORPORATE GOVERNANCE REPORT
Corporate Governance (CG) is a framework BOARD OF DIRECTORS The role of the Board is to provide of rules and practices by which an The Board of Directors is responsible entrepreneurial leadership of the Company organisation is directed, controlled and for setting the strategic direction of the within a framework of prudent and managed. The above CG framework Group, safeguarding assets, managing effective controls facilitating effective provides an overview of the Corporate risks and setting the tone at the top. They risk management. They are collectively Governance structures, principles, policies have set in place governance frameworks responsible for the following: and practices of the Board of Directors of to facilitate achievement of strategic »» Providing strategic direction and Softlogic Holdings PLC (SHL). At Softlogic, goals and compliance with regulatory establishing performance objectives the approach to CG is guided by ethical frameworks while balancing stakeholder to monitor the achievement of culture, stewardship, accountability, interests. Composition of the Board is strategic goals independence, continuous improvement, set out graphically on the previous page oversight of strategy and risk. The while profiles of the Directors are given »» Establishing an effective management fundamental relationship among the on pages 16 to 17 Directors provide team Board, Management, Shareholders and annual declarations of independence in »» Establishing appropriate systems of other Stakeholders is established by our accordance with the stipulations of the corporate governance in the Group; governance structure, through which the Listing Rules of the CSE and the guidelines ethical values and corporate objectives of the Code of Best Practice. Board balance »» Ensuring the adequacy and are set and plans for achieving those is facilitated with seven Non-Executive effectiveness of internal controls, objectives and monitoring performances Directors who are reputed leaders in their Code of Business Conduct and other are determined. To serve the interests fields of whom four are Independent. A policies to facilitate regulatory of shareholders and other stakeholders, sufficiency of financial acumen within the compliance and risk management. SHL’s Corporate Governance system is Board is assured with the presence of four subject to ongoing review, assessment Directors who are experienced accounting and improvement. The Board of Directors and finance professionals. The skills, proactively adopts good governance experience and standing of the individual policies and practices designed to align the Board members ensures sufficient interests of the Board and Management deliberation on matters set before the with those of shareholders and other Board and exercise of independent stakeholders and to promote the highest judgement. Directors can also seek standards of ethical behaviour and independent professional advice when risk management at every level of the deemed necessary, for which the expenses organisation. are borne by the Group.
THE GROUP GOVERNANCE STRUCTURE
Composition of the Board Skills of the Board
Entrepreneurship 5 4 Independent Directors Accounting Medical & Finance 1 2 Executive 1 Directors Executive Non Independent, Alternate Skills Chairman Non-Executive Director Directors Banking Marketing
Legal & HR
Softlogic Holdings PLC | Annual Report 2019/20 23
Softlogic Holdings PLC Administration of the Board
Shareholders
Group Group Board of Directors Managing Director Support Functions
Audit Committee Sector Administration of the Board is HR & Remuneration Subsidiary Companies Committee done by Softlogic Corporate Sector Heads Services (Pvt) Ltd, a subsidiary of Softlogic Holdings PLC. Related Party Board of CEO Management Transactions Directors Team Review Committee
Governance Framework
External Internal Governance Systems yy Companies Act No. 07 of 2007 yy Articles of Association yy Stakeholder engagement and yy Listing Rules of the Colombo Stock yy Code of Business Conduct management Exchange yy Terms of References for Board sub- yy Strategic planning yy Code of Best Practice on Corporate committees yy Risk management Governance issued by the SEC and ICASL yy Comprehensive framework of policies, yy Regulatory compliance systems and procedures yy People management yy Internal controls yy Internal and external audit
COMMITTEES OF THE BOARD The Board is supported by the following committees which facilitate effective discharge of its responsibilities. Minutes of the sub-committee meetings are circulated to the Board at the following Board meetings ensuring awareness of the activities of the sub-committees by the other Board members.
CODE OF CORPORATE GOVERNANCE
Sub-Committee Composition Mandate
Audit Committee »» Mr. J.D.N. Kekulawala - Chairman Responsible for ensuring the integrity of the Company’s and »» Dr. S. Selliah Group’s Financial Statements, appropriateness of accounting policies and effectiveness of internal control over financial »» Prof. A.S. Dharmasiri reporting »» Mr. W.M.P.L. De Alwis, PC
Remuneration Committee »» Prof. A.S. Dharmasiri - Chairman Responsible for determining remuneration policy and the terms »» Mr. W.M.P.L. De Alwis, PC of engagement and remuneration of the Chairman, the Board of Directors and the Executive Committees. »» Mr. G.L.H. Premaratne
Related Party Transactions »» Dr. S. Selliah - Chairman To assist the Board in reviewing all related party transactions Committee »» Mr. W.M.P.L. De Alwis, PC carried out by the Company and its listed companies in the Group by early adopting of the Code of Best Practices on Related »» Mr. H.K. Kaimal Party Transactions as issued by the Securities and Exchange Commission of Sri Lanka and CA Sri Lanka.
Softlogic Holdings PLC | Annual Report 2019/20 24 LEADERSHIP & GOVERNANCE CORPORATE GOVERNANCE REPORT
MEETINGS The Board meets on a quarterly basis and dates for Board meetings are determined and communicated in advance at the beginning of the year with additional meetings being scheduled whenever deemed necessary. Meeting agenda and relevant papers are circulated to all Directors at least 7 days prior to the meeting providing sufficient time for review facilitating the conduct of an effective meeting. Attendance at Board meetings and Sub Committee meetings during the year under review is given below;
Director Board Statutory Committees
Audit HR & Remuneration Related Party Transactions Committee Committee Review Committee Mr. A.K. Pathirage 5/5 Mr. G.W.D.H.U. Gunawardene 5/5 Mr. R.J. Perera 5/5 Mr. H.K. Kaimal 5/5 3/4 Dr. S. Selliah 5/5 13/13 4/4 Mr. W.M.P.L. De Alwis 4/5 12/13 1/1 4/4 Mr. G.L.H. Premaratne 5/5 1/1 Prof. A.S. Dharmasiri 2/5 8/13 1/1 Mr. A Russell-Davison 4/5 Mr. J.D.N. Kekulawela 4/5 11/13 Mr. S. Saraf 0/5
COMPANY SECRETARY »» The following Directors thus retire and »» Business Expansion offer themselves for re-election: Messrs. Softlogic Corporate Services »» Financial Reporting (Private) Limited function as Company Mr. R.J. Perera »» Performance Management Secretaries to the Group. The Company Mr. A. Russell-Davison Secretary provides guidance to the Board Mr. S. Saraf as a whole and to individual Directors with DIRECTORS’ REMUNERATION regard to how their responsibilities should The Remuneration Committee makes be discharged. The Company Secretary CHAIRMAN & CEO recommendations to the Board on is also responsible for ensuring that the The roles of the Chairman and the remuneration policy and remuneration Board is compliant with the applicable Managing Director are combined in one of the Chairman and Managing Director, rules and regulations and that all person due to the diversity of the Group’s Executive Directors, Non-Executive activities of the Board are in line with the business operations in line with a number Directors and Key Management Personnel appropriate procedures. of large diversified holding companies. in line with the business goals of the Company. Terms of Reference of this APPOINTMENT, RE-ELECTION TO THE INVESTMENT APPRAISAL key sub-committee complies with the BOARD guidelines prescribed by the Code of Best The Group’s diverse business portfolio Practice and other investor guidelines. »» Directors are appointed by the Board in is reviewed periodically to determine a structured and transparent manner. their relevance to the Groups long term The Group’s Remuneration policy is business goals, risks and opportunities »» Appointments are made with due designed to attract and retain talent and for growth. Consequently, investment and consideration given to the diversity of comprises fixed income and a variable divestment decisions, acquisitions are key skills and experience within the Board. income which is linked to performance. areas of focus for the Board with proposals Non-Executive Directors’ remuneration »» As per the Company’s Articles of reviewed for commercial viability, strategic comprises only a fixed fee and does Association, three of the Directors alignment, operational, funding and risk not have any variable component. No shall retire from office at each Annual implications. Systematic processes are in Director is able to determine his own General Meeting and offer themselves place to ensure the involvement of relevant remuneration as Directors’ Remuneration for re-election. persons when capital investment decisions is a matter reserved for the Board as a are taken and numerous views are sought »» All Directors appointed during the year whole with due consideration given to the to ensure high quality decision making. seek re-election at the subsequent recommendations of the Remuneration AGM. Committee of the Board. »» Board Composition & Appointment »» The Managing Director is not subject to retirement by rotation. »» Risk Management The Report of Board Remuneration Committee is on page 53 provides further »» Funding Structure of Group
Softlogic Holdings PLC | Annual Report 2019/20 25
information. The aggregate remuneration in this regard. The Audit Committee and avoiding conflicts of interest. All paid to the Directors is disclosed in the comprises 4 Non-Executive Directors all Related Party Transactions as defined Notes to the Financial Statements on page of whom are Independent. The Chairman by the applicable accounting standards 105 of this Report. of the Audit Committee is a Finance are disclosed on Note 48 of the Financial professional with extensive experience in Statements on page 153 of this Report. the relevant areas whose profile is given SHAREHOLDER RELATIONS on page 16. The Terms of Reference of SHAREHOLDERS Shareholder relations are managed the Audit Committee complies with the through a structured process with recommendations of the Code of Best All shareholders are encouraged to multiple platforms facilitating shareholder Practice on Board Audit Committees attend the Annual General Meeting of the engagement and timely dissemination of issued by ICASL and guidelines stipulated Company and vote on the resolutions which information. The Annual General Meeting by the SEC. form part of the agenda in accordance is the key platform for engagement with matters reserved for shareholders. and notice of the AGM and all relevant The Audit Committee is responsible for Extraordinary General Meetings are also documents are circulated among approving the terms of engagement of called to inform shareholders on material shareholders at least 15 working days the external auditors including audit fees. developments that impact their interests prior to the AGM. The Chairmen of the The principal auditor has not provided and their consent is obtained for the same Board Committees and External Auditors any services which are stipulated as in accordance with the provisions of the attend the Annual General Meetings to restricted by the SEC and the audit fees Companies Act. respond to queries that may be raised and non-audit fees paid by the Company by the shareholders. In addition to to its auditors are separately disclosed SUSTAINABILITY REPORTING the AGM, shareholder engagement is on page 105 of the Notes to the Financial The Group continues its efforts to embed also facilitated by the Group’s investor Statements. relations department which maintains a Sustainability in to its operations and report on how the Group manages risks continuous dialogue with shareholders The Board holds overall responsibility for stemming from economic, environmental through dissemination of announcements determining the Group’s risk appetite and and social factors. The Group’s Annual on material developments and quarterly implementing sound risk management Report is used as a platform to performance. They are also a point of and internal control systems to ensure provide comprehensive sustainability clarification for shareholders. that risk exposures are maintained within communication to all stakeholders and defined parameters. The Group’s internal this year we have enhanced the scope and control systems are aimed at safeguarding ACCOUNTABILITY AND AUDIT coverage of our sustainability reporting shareholders investments and effectively Board responsibilities include presenting by adopting a stakeholder value creation managing risks that may impact the a balanced assessment of the Group’s approach. Holistic sustainability reporting achievement of its strategic objectives. financial performance, position and is a journey and we continue to improve A discussion on the Company’s key risk prospects on a quarterly and annual basis. the reports each year in discharge of our exposures and mitigation mechanisms This Annual Report has been prepared obligations. are given in the Risk Management in discharge of this responsibility and Report on page 29 of this Report. The includes the following declarations/ Audit Committee annually reviews the further information required by regulatory effectiveness of the Group’s risk and requirements and voluntary codes: internal control systems. »» Audited Financial Statements – pages 62 to 174 A formalised whistle-blowing policy is »» Statement of Director’s Responsibilities in place enabling employees to raise - page 56 concerns anonymously on unethical behaviour, breach of regulations and/ »» Annual Report of the Board of Directors or violations of the Group’s Code of on the Affairs of the Company Conduct. Such complaints are investigated – pages 48 to 50 and addressed through a formalised »» Management Discussion & Analysis procedure and brought to the notice of – pages 36 to 47 the Board, serving as an overriding control mechanism. The Audit Committee has oversight responsibility for monitoring and The Board Related Party Transactions supervising financial processes to ensure Review Committee has been set up in integrity, accurate and timely financial compliance with guidelines stipulated by reporting. It is also responsible for the CSE. Directors individually declare their ensuring adequacy and effectiveness of relevant transactions with the Company the Internal Control and Risk Management and its subsidiaries on a quarterly basis. processes and receives reports from Group A formalised process is in place for Internal Audit and Group Risk Management identifying related party transactions
Softlogic Holdings PLC | Annual Report 2019/20 26 LEADERSHIP & GOVERNANCE CORPORATE GOVERNANCE REPORT
COMPLIANCE WITH CORPORATE GOVERNANCE RULES OF THE CSE The following disclosures are made in conformity with Section 7 of the Listing Rules of the Colombo Stock Exchange:
Section Criteria Status of Disclosure Details Compliance 7.10.1 (a) Non-Executive Directors Compliant Out of 12 Directors 7 are Non-Executive Directors. 7.10.2 (a) Independent Directors Compliant There are 4 Independent Directors on the Board. All Non-Executive Directors have submitted the declaration with regard to their independence/non-independence. 7.10.3 Disclosures relating to Directors Compliant The names of Independent Directors are disclosed in the Board profile presented on pages 16 and 17 7.10.3.(c) Disclosures relating to Directors. A Compliant A brief profile of each Director is available in the Board profile brief resume of each Director should presented on pages 16 and 17 be included in the Annual Report including his/her area of expertise 7.10.3.(d) Appointment of new Directors. A brief Not applicable. This requirement is not applicable as there were resume of any new Director appointed no appointments to the Board during the year to the Board 7.10.5 Remuneration Committee Compliant Comprises 3 Independent Non-Executive Directors. The names of the members of the Committee are stated on page 23 of the Annual Report. 7.10.6 Audit Committee Compliant Comprises 4 Independent Non-Executive Directors. The names of the members of the Committee are stated on page 23 of the Annual Report. The report of the Committee is stated on page 51. The Chief Financial Officer attends all meetings.
STATUS OF TRANSFERRING TO THE DIRI its’ Shareholders at the Annual General SAVI BOARD OF CSE Meeting to be held on 19th January, 2021 The Company having noted that, it was (being the next General Meeting which not in compliance with the Minimum is to be held immediately subsequent Public Holding (MPH) criteria applicable to the securities of the Company being to companies listed on the Main Board, as transferred to the Second Board ), that prescribed under the Listing Rules of CSE its securities have been transferred to the took steps to obtain an extension from Second Board, as a consequence of being the CSE and continues to comply with the non-compliant with the MPH criteria set requirement of providing the CSE with a out under the provisions of Rule 7.13 of the quarterly statement regarding such non- Listing Rules of CSE. compliance, since 14th October, 2019. In view of the above, the Company made The Company was informed by a letter an application to CSE and has been dated 15th October, 2020 from the CSE, transferred accordingly to the Diri Savi that the company’s securities would be Board. transferred to the “Second Board” w.e.f. 9th November, 2020, by application of Rule 7.13.2 (b) of the Listing Rules of the CSE on the grounds of the said non-compliance, and accordingly the securities of the Company remain on the “Second Board” of the CSE.
As required under the Listing Rules of the CSE, the Company will duly notify
Softlogic Holdings PLC | Annual Report 2019/20 27
Ours is a philosophy of continued growth and progress, through adaptive strategies designed to navigate the changing dynamics of today. 3
OPERATIONAL & FINANCIAL REVIEW Overview of Economy 28 Risk & Uncertainty 29 Financial Review 32
Softlogic Holdings PLC | Annual Report 2019/20 28 OPERATIONAL & FINANCIAL REVIEW OVERVIEW OF ECONOMY
ECONOMIC GROWTH The economic fallout of the COVID-19 pandemic in Sri Lanka is yet to be accurately ascertained or quantified; the Department of Census and Statistics has announced ECONOMIC GROWTH a delay in the publication of the National Accounts for the 2nd quarter of 2020. 2017 3.40% However, the impacts are expected to be devastating with all sub-sectors of the 2018 3.20% economy likely to see sharp contractions, stemming from increased unemployment, impacts on disposable incomes, drastic drops in consumer spending and import 2019 2.60% restrictions. Meanwhile the recent resurgence of infections has renewed the need 1Q2020 -1.9% for further lockdowns, which is likely to delay recovery. Source: Dept. of Census and Statistics
INTEREST RATES EXCHANGE RATES The Sri Lankan Rupee was relatively stable in 2019, appreciating Multiple reductions in policy by 0.6% during the year. Following the outbreak of the pandemic, rates over the last 18 months the Rupee recorded sharp depreciation towards the end of 1Q2020, falling by 6% to Rs. 192.85 by end-April 2020. However, have led to a consistent decline the external sector has somewhat improved in ensuing months in market interest rates. supported by restrictions on non-essential imports, decline in global petroleum prices and a rebound in remittances.
15.0 200
12.5 180 10.0 160 % 7.5 140
5.0 Rs/USD 2.5 120 0.0 100 JUL-19 JUL-20 OCT-19 JUL-20 JUL-19 JAN-20 MAY-19 MAY-20 APR-19 APR-20 FEB-20 OCT-19 NOV-19 SEP-19 AUG-19 AUG-20 DEC-19 JUN-19 JUN-20 JAN-20 MAY-20 MAY-19 APR-20 APR-19 FEB-20 NOV-19 SEP-19 MAR-20 AUG-20 AUG-19 DEC-19 JUN-20 JUN-19 MAR-20 AWPR 1-year T-bill rate SLR vs USD
RELEVANT REGULATORY CONSUMER SPENDING The Easter Attacks in April 2019 followed by heightened security DEVELOPMENTS concerns led to a sharp decline in consumer spending by mid- »» Import restrictions on non-essential items including 2019. While sentiments gradually improved towards the latter motor vehicles part of the year, the outbreak of the pandemic in March 2020 »» Debt moratoriums granted to the tourism sector and the resultant lockdown had a massive impact on disposable incomes and consumer spending. »» Multiple downward revisions of the policy rate and the Statutory Reserve Ratio (SRR) »» Implementation of stringent safety and hygiene +3.6% Y-O-Y practices across all operations and facilities HOUSEHOLD CONSUMPTION EXPENDITURE 2019
OUTLOOK: Looming government debt, together with ongoing fiscal challenges, the drastic drop in tourism earnings and massive impact on the SME sector, is anticipated to present unprecedented challenges for the Sri Lankan economy. Accordingly, the International Monetary Fund projects Sri Lanka’s GDP to contract by 4.6% in 2020. That said, numerous measures adopted by the Government to support business activity, including debt moratoria, monetary easing and manageable inflation levels, are likely to support economic revival over the medium-term, although the upside potential is tempered by the recent surge in COVID-19 infections.
Softlogic Holdings PLC | Annual Report 2019/20 29 RISK & UNCERTAINTY
The Group’s risk landscape changed dramatically during the year, given the unprecedented challenges stemming from the outbreak of COVID-19. As a diverse business conglomerate, Softlogic is exposed to an array of internal and external risk factors and given the industry- specific nature of most risks, identification and management of risks occurs primarily at sector level. Sectors also operate under the regulatory frameworks of their relevant regulators including the Central Bank of Sri Lanka, Insurance Regulatory Commission of Sri Lanka, and the Private Medical Regulatory Council which in turn inform their risk management practices.
Principals Risks of 2019/20
Net Risk Assessment Risk Exposure Risk Mitigants 19/20 18/19 Risks of increasing COVID-19 infections The outbreak of the COVID-19 pandemic »» Stringent hygiene and safety standards High - has led to unprecedented challenges implemented across all facilities and including: operations Based on the »» Adverse impact on disposable »» Proactive cost rationalisation measures resurgence of incomes and consumer spending infections in »» Deferment of capital expenditure October ’20 and the »» Border closures and its impact on »» Increasing focus on the e-commerce resultant lockdown the tourism sector platform »» Disruptions to the supply chain and logistics during lockdown »» Ensuring the health and safety of all employees and customers »» Adverse impacts on profitability and liquidity Consumer spending As a consumer-focused organisation, a Exposure to various market segments High High weakening of consumer spending and through diverse business profile Based on the curtailment of discretionary spending »» Strong market position in relatively moderation in have a direct impact on the Group’s defensive industries such as healthcare disposable incomes growth and profitability. and slowdown in »» Ongoing monitoring of macro-economic private consumption trends expenditure. Government Policy All our verticals are directed impacted »» Negotiations with suppliers to obtain High Moderate by the Government’s monetary and extended credit periods Given import fiscal policy measures as well as »» Proactive monitoring of market trends restrictions on regulations, particularly in the financial and policy implications non-essential services and healthcare sectors. items which will »» Active participation in industry have a significant associations, facilitating industry-wide impact on our Retail responses to current issues. businesses such as branded apparel, QSR and Modern Trade.
Softlogic Holdings PLC | Annual Report 2019/20 30 OPERATIONAL & FINANCIAL REVIEW RISK & UNCERTAINTY
Net Risk Assessment Risk Exposure Risk Mitigants 19/20 18/19 Exchange rate risk The Group is exposed to exchange rate »» Close monitoring of foreign currency Moderate High risk through Retail, ICT and Automobiles exposures Given measures by sectors which rely on imports. »» Risk limiting thresholds in place for the Government exposures to curtail imports, the exchange rate »» Hedging through forward contracts by is expected to be Group Treasury to limit exposures within relatively stable specified thresholds over the short-to- medium term. Interest rate risk The Group is exposed to interest rate »» A Centralised Treasury function monitors Moderate High risk due to its exposure to borrowings and manages market conditions and the The declining as well as repricing of the financial potential impact of interest rate changes interest rates have sector’s advances and deposit »» Cap and floor agreements, fixed and had a favourable portfolios. floating rates and asset/liability maturity impact on the analyses are used to assess and mitigate Group. risks Customer experience and satisfaction Satisfying and retaining customers is »» High levels of customer engagement Moderate Moderate key to business growth, particularly facilitated through numerous platforms given the increasing competitive »» Regular review of product portfolios intensity in the operating landscape. and product launches to introduce new products to the market »» High levels of product responsibility maintained throughout the entire Group »» Monitoring customer rankings Credit risk Credit risk exposure stems primarily »» Customer credit due diligence High Moderate from the financial services sector »» Increased focus on secured lending The moderating engages in the provision of leasing, products economic conditions working capital and other loans. have led to pressure »» Diversified credit portfolio (concentration on repayment and tail risks) capabilities. »» Credit approval is reviewed by respective authority levels depending on the value involved »» Internal client ratings People related risks Our people drive the Group’s strategic »» Strong employee engagement Low Low aspirations and facilitate the customer mechanisms experience and are therefore a vital in »» Attractive remuneration schemes the creation of sustainable value. »» Opportunities for training and skill development »» Culture of mentoring
Softlogic Holdings PLC | Annual Report 2019/20 31
Net Risk Assessment Risk Exposure Risk Mitigants 19/20 18/19 Technological obsolescence As a Group with significant interests »» Strong partnerships facilitate Moderate Moderate in technology, the rapid obsolescence introduction of new technology to the of technology has an impact on the market Group’s inventory management and »» Proactive monitoring of consumer earnings. preferences and emerging technological trends »» A tech-savvy culture within the Group ensures that we embrace technology as a competitive edge for business growth Relationships with principals Our relationships with globally-reputed »» High levels of engagement with principals Low Low principals is a key source of competitive at senior levels edge. »» Compliance with varying franchise requirements of principals for storage, marketing and distribution of their products and other administrative aspects »» Consistent delivery of value to principals
Softlogic Holdings PLC | Annual Report 2019/20 32 OPERATIONAL & FINANCIAL REVIEW FINANCIAL REVIEW
REVENUE The Softlogic Group recorded a top line growth of 2% to Rs. 76.7 Bn during the year, demonstrating strategic CONSOLIDATED REVENUE GROWTH agility and adaptability in the wake of unprecedented Rs.Mn % 100,000 40 challenges. Growth was supported by the resilient performance of Healthcare Services (+15%), Financial 35 80,000 Services (+14%), Information Technology (+13%) and 30 Retail (+1%) sectors as the Group sought to increase 60,000 25 availability of its products through strengthening 20 partnerships with suppliers and leverages on its 40,000 leading market positions. Revenue growth was however 15 hampered by the contraction in the Automobiles and 10 20,000 Leisure sectors which reflected the adverse industry 5 conditions for most part of the year.The Retail Sector 0 0 maintained its position as the largest contributor to 2016 2017 2018 2019 2020 consolidated revenue with a share of 50% during the Revenue Y-o-Y Growth(%) year.
Revenue Sector Drivers Change (%) Contribution
Information Technology +13% 6% »» Strong performance of IT Security and Enterprise sub-segment »» New partnerships »» Deeper relationships with existing clients Leisure & Property -30% 3% »» Sharp fall in tourist arrivals after the Easter Sunday attacks »» Closure of country borders following the outbreak of COVID-19 Retail +1% 50% »» Growth in the telecommunication and modern trade sub- segments »» Fashion and branded apparel impacted by the decline in customer footfall and spending power Automobiles -73% 1% »» Sharply impacted by restrictions on vehicle imports Financial Services +14% 20% »» Consistent growth in Softlogic Life »» Weak credit growth in Softlogic Finance Healthcare +15% 20% »» Increased contributions from Asiri Hospitals Kandy
GROSS PROFIT OPERATING PROFITABILITY Despite the top line growth, the Group’s gross Disciplined cost management and optimization of profit declined by 2% to Rs. 27.0 Bn during the year, resources enabled the Group to contain the increase reflecting exchange rate volatility which adversely in overhead costs to 7% during the year. Distribution impacted costs of imported products and lower expenses declined by 9% reflecting consolidation business volumes in several sectors such as Leisure across the distribution network and temporary closure and Automobiles. Resultantly, the consolidated of outlets during the lockdown period. Meanwhile gross profit margin narrowed to 35.2% from 36.8% administrative expenses increased by 10% mainly due the previous year. A further decline was stemmed to the addition of around 100,000 sq.ft of new retail by proactive efforts aimed cost rationalisation and space at One Gall Face mall. Meanwhile Other operating process efficiencies. income decreased by 21% due to a fall in fee and commission income.
Softlogic Holdings PLC | Annual Report 2019/20 33
Overall, the Group’s Operating profitability weakened during the CONSOLIDATED EBIT TRENDS year, with Earnings before interest and tax (EBIT) declining by Rs.Mn % 27% to Rs. 6.5 Bn. Despite the extremely challenging operating 10,000 14 environment that prevailed during the year, all sectors except 12 the Leisure & Property sector generated operating profits 8,000 during the year. The Financial Services sector delivered a 11% 10 increase in operating profit, upheld by the strong performance 6,000 8 of Softlogic Life while other sectors recorded declines in profitability. The Healthcare Sector retained its position as the 4,000 6 largest contributor to consolidated operating profit, with a 4 share of 47% during the year under review. 2,000 2
0 0 NET FINANCE COSTS 2016 2017 2018 2019 2020 The Group’s net finance costs increased by 28% to Rs.7.3 Bn, EBIT EBIT margin (%) reflecting an increase in borrowings to fund expansion and working capital requirements. The increase in finance costs stemmed primarily from the Retail and Healthcare sectors SECTOR-WISE EBIT TRENDS which pursued debt-funded capacity expansions as well as the Rs.Mn Leisure & Property sector which relied on borrowings to fund 3,500 working capital needs. Meanwhile, the Group’s finance income increased by 46% to Rs. 2.0 Bn during the year, supported by 3,000 fair value gains of investments and interest income. 2,500 2,000 1,500 PROFITABILITY 1,000 The decline in operating profitability coupled with the increase in net finance costs and change in insurance contract liabilities 500 resulted in the Group incurring a pre-tax loss of Rs. 2.9 Bn 0 during the year, compared to a profit of Rs. 1.7 Bn the previous -500 year. Tax expenses for the year amounted to Rs. 282.7 Mn, Retail Leisure which in turn resulted in a loss-after-tax of Rs. 3.2 Bn. The Services Financial Healthcare Technology Automobile Healthcare, Financial services and Information Technology Information sectors delivered profits during the year, although this was 2018/19 2019/20 countered by the weak performance of the Retail, Leisure and Automobile sectors which were directly impacted by the Easter Sunday attack, pandemic and the resultant lockdowns. ASSET GROWTH Rs.Mn Rs.Mn 160,000 7,000 FINANCIAL POSITION 140,000 Asset Growth 6,000 120,000 Despite the challenges that prevailed, the Group took a long- 5,000 100,000 term view to value creation by continuing to invest in enhancing 4,000 its earnings capacity. Total assets expanded by 15% to Rs. 80,000 3,000 150.0 Bn during the year, supported by a near 22% increase 60,000 in non-current assets. Property, plant, and equipment (PPE) 2,000 40,000 increased by 12% reflecting capital investments relating to Asiri 1,000 Hospital Kandy as well as the expansion of the Group’s retail 20,000 footprint at the One Galle Face mall. Growth in non-current 0 0 assets were also supported by the recognition of Rs. 6.6 Bn 2016 2017 2018 2019 2020 of right-of-use assets in line with the adoption of SLFRS-16. Total assets CAPEX Meanwhile, current assets increased by 4% mainly due to an increase in short-term investments. The recent acquisitions and capital expansions have enhanced the Group’s long-term earnings capacity, positioning it for strong growth upon revival of the economic activity.
Softlogic Holdings PLC | Annual Report 2019/20 34 OPERATIONAL & FINANCIAL REVIEW FINANCIAL REVIEW
Capital Structure The Group’s total equity base decreased by 13% to Rs. 21.7 Bn as a result of losses generated during the year and accounted for 31% of total funding. Meanwhile total borrowings increased by 16.3% to Rs. 76.5 Bn by end-March 2020, as the Group pursued debt-funded capital expansions. Given the prevalent low-interest rate scenario, the Group sought to increase exposure to long-term borrowings which accounted for 41% of total borrowings during the year. While gearing levels increased to 0.77X from 0.72X the previous year, the sustained decline in interest rates during the year is expected to result in a decrease in finance costs over the short-term.
WAY FORWARD The performance of the year reflects the inevitable toll of the Easter Sunday attacks and the COVID-19 pandemic on the Group’s operations. While the diversity of its earnings profile and strong market positions in several defensive sectors enabled the Group to withstand to these pressures to a certain degree, the short- term outlook is anticipated to remain challenging, particularly given the recent surge in infections across the country. Against this backdrop, strategic focus has been placed on optimising resources, preserving liquidity and rationalizing costs. Despite these short-to-medium term pressures, the Group remains optimistic regarding the long-term growth potential of its businesses and is confident that the investments it has made in strengthening earnings capacity will position it in good stead to capture emerging opportunities.
Softlogic Holdings PLC | Annual Report 2019/20 Softlogic Holdings is driven by the trust our stakeholders have placed in us, promising a host of resilient, people-centric business solutions. 4 MANAGEMENT DISCUSSION & ANALYSIS Retail 36 Healthcare Services 38 Financial Services 40 Leisure and Property 42 Automobiles 44 Information Technology & Others 46
Committee Reports Annual Report of the Board of Directors on the Affairs of the Company48 Board Audit Committee Report 51 Report of The Related Party Transactions Review Committee 52 HR & Remuneration Committee Report 53 36 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS
Retail
RELEVANCE TO GROUP STRATEGY & PERFORMANCE »» The deceleration in consumer spending directly impacted the country’s retail sector in 2019/20, following the Easter Sunday terror attacks and the lockdown which was implemented to curtail 50% the spread of the COVID-19 pandemic. Accordingly, growth in household consumption expenditure Revenue moderated to 2.9% in 2019, before falling further to 0.9% in the first quarter of 2020. »» Challenges in the operating landscape had its inevitable toll on the Group’s retail sector: while revenue increased marginally to Rs. 38.0 Bn, operating profit halved to Rs. 1.5 Bn reflecting 24% prevalent challenges. Despite industry conditions, the Sector took a long-term view to enhancing EBIT its earnings capacity by becoming the anchor tenant at One Galle Face Mall at Shangri La, Colombo’s latest premier shopping destination. These debt-funded expansions led to the Segment’s finance costs increasing by 40% during the year, resulting in a loss of Rs. 2.1 Bn. 24% »» Telecommunications recorded strong growth as migration to online schooling and remote working Total Assets arrangements fueled demand for mobile communication devices. Timely and proactive efforts to clear stocks enabled us to cater to pent up demand, thereby capturing market share and improving our cash cycle. Samsung also awarded us the exclusive after sales service for Male during the year. 28% »» Consumer electronics experienced a difficult year, reflecting fluctuations in the exchange rate, Liabilities import restrictions, increased price competition and weaker demand. We sought to consolidate the existing network of showrooms while further widening our product portfolio to include high- end automated solutions such as robotic vacuum cleaners, IOT enabled air conditioners and other SMART products. That said, performance improved considerably in the first 2 quarters of 2020/21, 30% supported by increased digital adoption. of Employees »» Branded apparel and fashion expanded its footprint with the addition of retail space at One Galle Face. We offer customers an array of choice at various price points, ranging from local to international brands. Performance, was however, impacted by the sharp decline in tourists as well as exchange rate fluctuations, decrease in consumer spending and recent import restrictions. »» Quick service restaurants: We continued our strategy of driving penetration across market segments through differentiated offerings. During the year, we added 2 new Burger King outlets, 2 Baskin Robbins outlets, as well as one Deli France outlet to the network. The Chinese Restaurant- Crystal Jade opened to rave reviews at the One Galle Face Mall, and has emerged as one of Colombo’s most popular destinations for Chinese food. In line with the standards set by our international partners, we implemented stringent safety and hygiene practices in all our QSR outlets, thereby ensuring the safety of both our customers and employees. The segment also intends to widen its QSR offering with the launch of Popeyes, an international fried chicken brand in January 2021, with plans to expand to major cities over the short-to-medium term.
Softlogic Holdings PLC | Annual Report 2019/20 37
RISKS OPPORTUNITIES PERFORMANCE Rs.Mn »» Uncertainty regarding further »» Growth in the e-commerce 40,000 1,000 spread of the virus platform 35,000 500 »» Decline in consumer spending and »» Consistent demand growth for 30,000 0 affordability telecommunication products 25,000 -500 »» Import restrictions »» Increased propensity towards 20,000 -1,000 modern trade 15,000 »» Increased price competition in key -1,500 10,000 business segments 5,000 -2,000 0 -2,500 2017/18 2018/19 2019/20 Revenue Pre-tax profit
»» Modern trade: Softlogic GLOMARK performed relatively well during the year with most outlets recording strong trading patterns and generating profits at operating level. The Group opened 3 new outlets during the year and plans to add over 100,000 sq,ft to the network through the addition of 7+ stores in 2021, in the bustling suburbs around Implications of COVID-19 Colombo and a flagship store at a central location in Colombo 7. and Way forward »» Suzuki and Houjue: Softlogic holds the exclusive distributorship of Suzuki Motorcycles, spare parts, and accessories in Sri Lanka. The Sector marked delivered good growth in FY 2019/20, nearly doubling volumes and capturing market share. Growth was We expect the operating landscape to supported by an expansion in the distribution network coupled with the addition of 2 remain challenging over the short- new models to the portfolio. During the year, the Group also partnered with the Chinese term and will focus on extending motorcycle brand Houjue, introducing several models to the Sri Lankan market. The cash runways and manage operating short-to-medium term outlook of this segment is challenging, given the import profitability. Concerted efforts restrictions implemented by the government and our focus will be on generating to streamline costs and improve revenue through the spare parts and service business. efficiencies across the Group are »» In the immediate aftermath of the lockdown outlets faced numerous challenges ongoing and is expected to support including the loss of staff and disruptions to operations. However, proactive measures liquidity management. Despite these taken to scale up the existing online platform served as well, enabling customer challenges, we remain optimistic retention and continuous cash flow generation. We also leveraged our data analytical about the long-term potential of capabilities to drive targeted marketing and regain lost customers and increased our businesses; plans to expand our penetration of loyalty customers. retail operations remain unchanged »» As social distancing measures and concerns on health and safety have limited and we are committed to completing customers’ mobility, we have sought to widen our online presence through these projects, although delays are strengthening our e-commerce platform. The service is currently offered for the likely given the disruptions faced. The Group’s fashion retail, modern trade and consumer electronics portfolios and has seen Softlogic complex in Mount Lavinia consistent growth in traffic in recent months. was also opened in November 2020 and houses the Group’s retail offerings providing an integrated retail solution to the area..
Softlogic Holdings PLC | Annual Report 2019/20 38 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS
Healthcare Services
RELEVANCE TO GROUP STRATEGY & PERFORMANCE »» Demand for private healthcare in Sri Lanka has continued to increase supported by higher disposable incomes, an ageing population and increasing urbanisation. While the public sector 20% still dominates healthcare, fiscal constraints have led to limited availability of resources, Revenue resulting in overcrowding and long waiting times at government hospitals. »» The Asiri Group of Hospitals maintained its position as the leading private healthcare operator in the country. The segment recorded a 15% growth in revenue in 2019/20, despite a drop in 34% patient volumes following the April terror attacks and outbreak of the pandemic. Profitability, EBIT however, was impacted by narrower operating margins and a near doubling of finance costs, given recent debt-funded capacity expansions. Overall, the segment generated a pre-tax profit 18% of Rs. 1.4 Bn (41%) and was the largest contributor to Group pre-tax earnings during the year. Total Assets »» Recent investments in capacity expansion have shown promising results, particularly Asiri Hospital Kandy which has seen consistent growth in patient volumes. The first of its kind in the Central Province, the tertiary hospital offers advanced diagnostic and laboratory services and is equipped to carry out a range of high-end surgeries. During the year, the Sector also acquired 13% a land in Galle, adjacent to its hospital, with the aim of expanding capacity and the range of Liabilities services offered.
»» Our state-of-the-art oncology centre, ‘Asiri-AOI Cancer Centre,’ a joint venture with the 46% American Oncology Institute, has gained traction and shows significant potential for growth. of Employees Through this centre, patients have access to world-class, precision driven personalised cancer treatment including support from a pool of global oncologists, which is facilitated through a collaboration with the University of Pittsburg Medical Centre.
»» Despite the prevalent challenges we continued to invest in technology upgrades, employee training and quality assurance. Other than Asiri Kandy all our hospitals obtained the Australian Council on Healthcare Standards International (ACHSI) certification, while Asiri Central obtained the prestigious JCI accreditation during the year.
»» The segment sought to consolidate its laboratory network during the year, retaining its market leadership position. Expansion was limited, with just 5 collection centres being added to the network.
Softlogic Holdings PLC | Annual Report 2019/20 39
RISKS OPPORTUNITIES PERFORMANCE Rs.Mn »» Heightened safety concerns »» Increasing demand for private 20,000 30 3,000 following the outbreak of COVID-19 healthcare
»» Exchange rate fluctuations »» Demographic trends including 15,000 2,500 an aging population and rising »» Shortage of skilled healthcare prevalence of NCDs 10,000 2,000 personnel »» Regional opportunities for growth »» Intense competitive pressures 5,000 1,500 »» Partnerships with leading global 40 operators 0 1,000 2017/18 2018/19 2019/20 Revenue Pre-tax profit
SOFTLOGIC HOLDINGS PLC
ASIRI HOSPITAL HOLDINGS PLC Implications of COVID-19 115 - bed hospital in Colombo and Way forward 190 - bed hospital in Kandy Asiri Laboratories network
ASIRI SURGICAL HOSPITAL PLC 155-bed hospital offering specialised surgical care inclusive of a state-of-the-art Following the outbreak of COVID-19, heart centre, modern operating theatres and urology treatment facilities extremely stringent hygiene ASIRI AOI CANCER CENTRE (PVT) LTD protocols were adopted across all Joint Venture with Cancer Treatment Services Hyderabad (Pvt) Ltd our hospitals, providing assurance to both patients and doctors on the CENTRAL HOSPITAL LTD 260-bed state-of-the-art technologically advanced, modern one stop medical cen- safety levels offered at our hospitals. tre that offers diagnostic, therapeutic and intensive care facilities. We were also the first private sector ASIRI HOSPITAL MATARA (PVT) LTD operator to obtain the accreditation 60-bed hospital in Matara, offering a range of general and surgical care facilities to carry out PCR testing. While ASIRI DIAGNOSTICS SERVICES (PVT) LTD patient volumes declined in the Laboratory services in the Central Province months immediately following the DIGITAL HEALTH (PVT) LTD lockdown, the segment has now Joint Venture with Digital Holdings Lanka (Pvt) Ltd seen definite signs of recovery and is confident that the remaining ASIRI HOSPITAL GALLE (PVT) LTD 32-bed hospital in Galle, offering a range of general and surgical care facilities quarters of 2020/21 would see continued growth. We have also ASIRI DIAGNOSTIC SERVICES (ASIA) PTE LTD partnered India’s leading IVF provider Non-operational and hope to launch a dedicated IVF ASIRI MYANMAR LTD centre in the short-to-medium term. Non-operational
ASIRI CENTRAL HOSPITALS LTD Non-operational ASIRI LABORATORIES (PVT) LTD Non-operational
Softlogic Holdings PLC | Annual Report 2019/20 40 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS
Financial Services
RELEVANCE TO GROUP STRATEGY & PERFORMANCE »» Sri Lanka’s life insurance industry recorded good growth in 2019, with GWP increasing by 11%. However, an increase in claims and operating expenses led to a 26% decline in profitability 20% with Return on Equity falling to 17% (2018: 26%). Meanwhile, the NBFI Sector experienced a Revenue challenging year, with Sector PAT declining 38% due to the slowdown in credit expansion and increase in non-performing-loans. The Colombo Stock Exchange recorded volatility for most part of 2019 reflecting weaker investor sentiments; the ASPI gained marginally by end-December 19% 2019, before falling sharply in the ensuing months following the outbreak of pandemic. EBIT »» The Group’s Financial Services segment delivered a commendable performance given prevalent challenges, with top line and operating profit increasing by 11%. Profit after tax declined by 62% to Rs. 1.3 Bn, reflecting a deferred tax adjustment in 2018/19; excluding this the segment’s PAT 26% is estimated to have increased by 33%. Total Assets »» Insurance: The Segment’s profitability continues to be upheld by Softlogic Life, which recorded consistent growth supported by its multi-channel distribution strategy, focus on customer convenience and innovative product mix. With its GWP growth consistently surpassing the 26% industry average, the Company has rapidly gained market share in recent years, notching up a Liabilities further position to emerge as the 3rd largest player in the industry in 2019. The Company gained recognition as the only Sri Lankan corporate to be featured in the Forbes Asia’s ‘Best Under A 13% Billion’ in 2019 and won the coveted ‘Brand of the year-2019’ at the EFFIE awards. of Employees »» Finance: Performance of Softlogic Finance weakened during the year, reflecting a slowdown in credit growth and weak portfolio quality which in turn led to a loss of Rs. 334 Mn. That said, recent measures taken to strengthen leadership capabilities through new appointments to several key positions are expected to revive the Company over the medium term. Focus will be placed on increasing contributions from the secured lending portfolio, particularly leasing, gold loans and factoring. Other priorities include preserving quality of the new lending book and leveraging technology to drive improved customer convenience. Capital will also be enhanced with a rights issue of approximately of Rs. 1.9 Bn in the near term.
»» Stockbrokers: The fortunes of the Group’s stockbroking arm mirrored that of the broader market; performance improved in line with the upturn in the CSE following the Presidential election and has maintained its momentum in recent weeks. Softlogic Stockbrokers’ best-in-class research capabilities and access to foreign clientele has enabled it to consistently rank among the country’s top 3 stockbrokers (based on volumes traded).
Softlogic Holdings PLC | Annual Report 2019/20 41
RISKS OPPORTUNITIES PERFORMANCE Rs.Mn »» Slowdown in the leasing market »» Low penetration in life insurance in 20,000 30 2,000 following restrictions on vehicle Sri Lanka 10 imports »» Increased demand for health and 15,000 1,500 »» Preserving portfolio quality life insurance products given the outbreak of the pandemic 10,000 1,000 30 »» Leveraging technology to offer better solutions for customers 5,000 500
0 0 2017/18 2018/19 2019/20 Revenue Pre-tax profit
»» We launched Softlogic Invest during the year, With the aim of venturing into asset management through leveraging the Sector’s existing capabilities and network. The Company currently operates two unit trusts and will pursue penetration in the retail market, offering investment opportunities from just Rs. 5000. Implications of COVID-19 and Way forward
SOFTLOGIC HOLDINGS PLC SOFTLOGIC CAPITAL PLC Softlogic Life continued to serve Holding Company of the Group’s Financial Services Sector companies and Licensed its customers during the lockdown Investment Manager regulated by the Securities & Exchange Commission (SEC) period, with minimal disruptions SOFTLOGIC LIFE INSURANCE PLC to processes, premium collection Life Insurer regulated by the Insurance Regulatory Commission of Sri Lanka and claims settlement. Recent SOFTLOGIC FINANCE PLC investments in technology served Licensed Finance Company regulated by the Central Bank of Sri Lanka – Department of Supervision of NBFIs the Company well during this time, as it seamlessly transitioned to SOFTLOGIC STOCKBROKERS (PVT) LTD Stockbroker regulated by the SEC remote working arrangements, attesting to both the agility of SOFTLOGIC ASSET MANAGEMENT (Pvt) Ltd its infrastructure and people. The outlook for the life insurance sector remains positive given the relatively low penetration levels in the country and the higher priority placed on insurance following the outbreak of COVID-19. Meanwhile Softlogic Finance will look to refine its operating model and reposition itself as a customer-driven, agile, technologically advanced company over the medium term. We are also excited about the opportunities presented by our recent foray into asset management, and hope to consolidate our position both in the institutional and retail market.
Softlogic Holdings PLC | Annual Report 2019/20 42 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS
Leisure and Property
RELEVANCE TO GROUP STRATEGY & PERFORMANCE »» The year under review was a devastating one for Sri Lanka’s tourism industry, which experienced unprecedented challenges following the terror attacks in April 2019 and the outbreak of the 3% COVID-19 pandemic in March 2020. Tourist arrivals, which declined sharply following the April Revenue attacks showed gradual signs of recovery towards the latter part of 2019, before coming to a virtual standstill following the outbreak of the pandemic and the resultant closure of Sri Lanka’s borders for foreign arrivals.
10% »» Since April 2019, tourist arrivals recorded m-o-m declines every month of the year with total Total Assets arrivals decreasing by 29% in the 12 months ending March 2020. Since then, there have been no tourist arrivals into the country as border controls have remained in place. 11% »» Hotel operators have sought to attract the domestic market through attractive discounts and Liabilities promotions; although driving occupancies and generating revenue, the lower pricing has had a considerable impact on yields and ARRs.
»» The performance of the Group’s Leisure and Property segment reflected industry woes, with 5% revenue declining by 30% while operating losses amounted to Rs. 487 Mn. Finance costs for of Employees the year increased by 35% to Rs. 1.2 Bn mainly due to the impact of the Rupee depreciation on Mövenpick’s dollar-denominated borrowings. Resultantly, the sector’s post-tax losses increased to Rs. 1.7 Bn from Rs. 849 Mn the previous year.
»» The Segment has sought to address immediate liquidity pressures through consolidating operations and pooling resources wherever possible. All capital investments have been deferred and operating costs rationalised in a bid to extend the cash runway. The segment has also availed itself of the debt moratoriums which have been granted to the leisure sector.
»» Despite the extremely challenging operating conditions, the segment has to date retained all its employees, attesting to the Group’s commitment towards its people and ensuring job security in these difficult times.
Softlogic Holdings PLC | Annual Report 2019/20 43
RISKS OPPORTUNITIES PERFORMANCE Rs.Mn »» Continued global travel restrictions »» Opportunities in the domestic 3,500 30 -500 and border closure as COVID-19 market 3,00010 infections rise »» Emergence of travel corridors 2,500 among regional destinations -1,000 2,000 »» Decline in market interest rates 1,50030 -1,500 1,000
500
0 -2,000 2017/18 2018/19 2019/20 Revenue Pre-tax profit
SOFTLOGIC HOLDINGS PLC
SOFTLOGIC PROPERTIES (PVT) LTD Implications of COVID-19 Holding Company of the Leisure sector and developer of Everest Apartments and Way forward
SOFTLOGIC CITY HOTELS (PVT) LTD Mövenpick - 5-star, 219-room city hotel in Colombo
CEYSAND RESORTS LTD The country’s leisure sector is Centara - 4-star plus, 165-room resort in Bentota unlikely to recover in the short-to- SOFTLOGIC DESTINATION MANAGEMENT (PVT) LTD medium term, as global restrictions Total outbound travel solutions provider on air travel as well as Sri Lanka’s border closure is expected to SABRE TRAVEL NETWORK LANKA (PVT) LTD prevail until at least early 2021. Technology provider for travel and tourism - Global Distribution System As infections continue to increase globally, the United Nations World Travel Organisation (UNWTO) estimates tourist arrivals to fall by around 60% to 80%in 2020, with the Asia and Pacific regions showing the highest impact. Against this backdrop, our immediate priority is to rationalise costs and effectively manage liquidity levels, as we prepare for extremely challenging quarters ahead.
Softlogic Holdings PLC | Annual Report 2019/20 44 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS
Automobiles
RELEVANCE TO GROUP STRATEGY & PERFORMANCE »» It was yet another challenging year for Sri Lanka’s Automobiles sector which was impacted by import restrictions on vehicles, exchange rate volatility and an overall slowdown in 1% demand given moderating economic conditions. Following the outbreak of the pandemic, the Revenue Government sought to further tighten import restrictions in a bid to preserve the exchange rate. Accordingly, expenditure on vehicle imports recorded a decline of 16% y-o-y in the first 6 months of 2020, falling further in ensuing months.
1% »» The performance of the Group’s Automobiles Segment understandably reflected industry Total Assets challenges; revenue fell sharply by 73% while operating profit reduced to Rs. 5 Mn. Finance costs recorded a marginal decline reflecting the decline in interest rates. Overall, the Segment’s 1% losses for the year increased to Rs. 210 Mn from Rs. 35 Mn the previous year. Liabilities »» The Government tender market which we previously focused on to drive sales of buses, ambulances, and double cabs recorded a slowdown during the year as fiscal constraints impacted government demand. This was compounded by the pause in issuance of route permits during the year. Demand for King Long buses also dwindled following the April terror attacks and 1% the outbreak of COVID-19 which had a catastrophic impact on the tourism industry. of Employees »» Future Automobiles which is the authorised dealer for Ford vehicles in Sri Lanka also experienced a challenging year, given weak consumer sentiments following the terror attacks in April. Subsequent import restrictions in the aftermath of the pandemic further weakened its performance.
Softlogic Holdings PLC | Annual Report 2019/20 45
RISKS OPPORTUNITIES PERFORMANCE Rs.Mn
»» Import restrictions on vehicles »» Income generation from collision 3500 30 0 repair centre »» Reduced disposable incomes 300010 -50 »» Exchange rate volatility 2500 2000 »» Decline in government demand -100 1500 due to fiscal constraints 30 1000 -150 500
0 -200 2017/18 2018/19 2019/20 Revenue Pre-tax profit
SOFTLOGIC HOLDINGS PLC
FUTURE AUTOMOBILES (PVT) LTD Implications of COVID-19 Authorised Dealer for Ford and Way forward
SOFTLOGIC AUTOMOBILES (PVT) LTD Authorised Dealer for King Long Service Partner of Daihatsu The pandemic and the subsequent Collision Repair Centre import restrictions have brought the brand new vehicle market to a standstill; as restrictions are likely to remain over the short-term, we do not foresee an immediate recovery of this segment in the near term. The collision repair centre is expected to generate earnings following its relocation to a larger and more accessible facility in Kaduwela.
Softlogic Holdings PLC | Annual Report 2019/20 46 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS
Information Technology & Others
RELEVANCE TO GROUP STRATEGY & PERFORMANCE »» Sri Lanka’s ICT Sector is poised for strong growth, fuelled by the government and private sector’s efforts to promote the country as a technology hub and drive IT as enabler in developing sectors 6% such as healthcare, agriculture, and education. As the telecommunications and BPO industries Revenue reach a degree of maturity, there is increased focus on developing high-end, innovative solutions.
»» The Group’s IT segment delivered a commendable performance with revenue increasing by 5% 13% to Rs. 4.6 Bn during the year. Performance was upheld by the IT Security and Enterprise EBIT sub-segments while the performance of the BPO and distribution operations moderated during the year. Operating profit recorded a decline of 21% mainly due to the sharp depreciation of the exchange rate in the latter part of FY 2020; this was however partly offset by a near halving of 2% finance costs as interest rates declined during the year. Overall, the Segment’s profit-after-tax Total Assets amounted to Rs. 102 Mn, a decrease of 11% compared to the previous year.
»» We leveraged the capabilities of our team and partnerships with world leading brands to deepen 2% relationships with existing customers and effectively capitalise on growing demand. Liabilities »» The segment also sought to widen its service offering, entering new partnerships with Lenovo and Huawei during the year. With this addition, the segment now offers the entire gamut of end- 3% to-end solutions to its clientele. of Employees »» The significant increase in digital adoption across organisations and households, following the outbreak of the pandemic offered opportunities for growth, particularly in the months immediately following the financial year-end, as we facilitated the necessary technology infrastructure to enable work-from-home and online learning solutions.
»» As organisations seek to transform their business models in adapting to the new norm, the Group is aptly positioned to support such transitions through its wide array of services, advanced infrastructure, and unique base of organisational knowledge.
Softlogic Holdings PLC | Annual Report 2019/20 47
RISKS OPPORTUNITIES PERFORMANCE Rs.Mn »» Exchange rate volatility »» Government thrust towards ICT 5,000 30 300 »» Increasing digital adoption in 10 250 organisations 4,000 200 »» Opportunities in BPO, healthcare 3,000 and education sectors 150 2,00030 100
1,000 50
0 0 2017/18 2018/19 2019/20 Revenue Pre-tax profit
SOFTLOGIC HOLDINGS PLC Information Technology Implications of COVID-19 SOFTLOGIC INFORMATION TECHNOLOGIES (PVT) LTD and Way forward 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 Demand for the IT segment’s services remained resilient during SOFTLOGIC AUSTRALIA (PTY) LTD the pandemic given our presence Software solutions provider based in Australia whose services extend in essential industries such as to the USA and the Middle East healthcare, banking, and the military. SOFTLOGIC BPO SERVICES (PVT) LTD The outlook is promising given IT support services provider to the Group and customised IT solutions provider to corporates the Government’s thrust towards leveraging technology to enhance Others several key areas of public service as NEXTAGE (PVT) LTD well as increased digital adoption by SOFTLOGIC CORPORATE SERVICES (PVT) LTD private sector organisations. On the Group Company Secretarial function other hand, key downside risks such JENDO INNOVATIONS (PVT) LTD as import restrictions and exchange An Associate Company involved in bio-medical research and product development rate volatility is likely to temper the SOFTLOGIC HEALTHCARE HOLDING LTD Segment’s earnings outlook in the Non-operational next financial year. SOFTLOGIC SOLAR (PVT) LTD Non-operational
Softlogic Holdings PLC | Annual Report 2019/20 48 COMMITTEE REPORTS ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY
The Directors of Softlogic Holdings Statements for the accounting period, in RESERVES PLC have pleasure in presenting to the accordance with section 152 of the Act. The reserves of the Company and the members their report together with the The requisite Financial Statements of the Group amounted to Rs. 2,120 Mn (2019 Audited Financial Statements of the Company are given on pages 62 to 174 of – Rs. 3,871 Mn) and (Rs. 2,612 Mn) Company and the Audited Consolidated the Annual Report. (2019 – Rs. 2,223 Mn) respectively. The Financial Statements of the Group for the movement and composition of the Capital year ended 31 March 2020. DIRECTORS’ RESPONSIBILITY FOR and Revenue reserves is disclosed in the FINANCIAL REPORTING Statement of Changes in Equity. GENERAL The Directors are responsible for the Softlogic Holdings PLC is a Public Limited preparation of the Financial Statements of DONATIONS Company which was incorporated under the Company to reflect a true and fair view During the year, donations made by the the Companies Act No. 17 of 1982 as a of the state of affairs. The Directors are of Company and the Group amounted to Rs. Private Limited Company on 25th February the view that these Financial Statements 397,789 (2019 - Rs. 30,000 and Rs. 4.2 Mn 1998, re-registered under the Companies have been prepared in conformity with the (2019– Rs. 8.2 Mn) respectively. Act No. 7 of 2007 on 17th December 2007, requirements of the Companies Act No. converted to a Public Limited Liability 07 of 2007 and the Sri Lanka Accounting Company on 10th December 2008, and Standards. A statement in this regard is STATED CAPITAL listed on the Colombo Stock Exchange on given on page 56. The stated capital of the Company as at 20th June 2011. The name of the Company 31 March 2020 was Rs. 12,119,234,553 was changed to Softlogic Holdings PLC on represented by 1,192,543,209 shares. AUDITOR’S REPORT 25th August 2011. The Auditor’s Report on the Financial Statements is given on pages 57 to 61 of EVENTS AFTER THE DATE OF THE PRINCIPAL ACTIVITIES AND NATURE the Annual Report. STATEMENT OF FINANCIAL POSITION The principal activities of the Company No circumstances have arisen and no are holding investments and providing material events have occurred after the SIGNIFICANT ACCOUNTING POLICIES management services and financial date of Statement of Financial Position, assistance to its subsidiaries. The Principal The significant accounting policies which would require adjustments to, or activities of the subsidiary companies adopted in the preparation of the Financial disclosure in the accounts other than are providing Healthcare, Financial, Statements are given on pages 70 to 174 those disclosed in Note 53 to the Financial Insurance services, Management and Unit of the Annual Report. There was no change Statements. Trust, Hospitality and, Leisure services, in the accounting policies adopted from Products & Services relating to Retail, the previous year except for the adoption Automobiles, Information Technology and of SLFRS 16: leses. TAXATION Communication. The information relating to Income Tax and Deferred Taxation is given in Note 19 to the PROPERTY, PLANT & EQUIPMENT Financial Statements. FUTURE DEVELOPMENTS The details and movement of property, An indication of likely future developments plant and equipment during the year under is set out in the Chairman’s Review on review is set out in Note 22 to the Financial STATUTORY PAYMENTS pages 10 to 13 In the ordinary course of Statements on pages 111 to 117. The Directors, to the best of their business the Group develops new products knowledge and belief are satisfied that all taxes, duties and levies payable by the and services in each of its business CAPITAL EXPENDITURE segments. Company and the Group, all contributions, The total capital expenditure incurred levies and taxes payable on behalf of, on the acquisition of property plant and and in respect of, the employees of the PERFORMANCE REVIEW equipment for the Company and the Group Company and the Group, and all other The Financial Statements reflect the state amounted to Rs 3 Mn (2019 – Rs 2 Mn) known statutory dues as were due and of affairs of the Company and the Group. and Rs 7,637 Mn ( 2019 – Rs 5,743 Mn) payable by the Company and the Group as This Report forms an integral part of the respectively. Details of capital expenditure at the date of the Statement of Financial Annual Report of the Board of Directors. and their movements are given in Note 22 Position have been paid or, where relevant to the Financial Statements on pages 113 provided for, except as specified in Note and 114 of the Annual Report. 50 to the Financial Statements, covering FINANCIAL STATEMENTS contingent liabilities. Section 168 (b) of the Companies Act In addition to the above, a sum of Rs. require that the Annual Report of the 1,756 Mn (2019 - Rs. 2,022 Mn) has been Directors include Financial Statements incurred by the Group in respect of the RELATED PARTY TRANSACTIONS of the Company, in accordance with Odel Mall project. The Company’s transactions with Related Section 151 of the Act and Group Financial Parties, given in Note 48 to the Financial
Softlogic Holdings PLC | Annual Report 2019/20 49
Statements have complied with the Listing Mr. J.D.N. Kekulawala in any other contract or proposed contract Rules of the Colombo Stock Exchange. Mr. C.K. Gupta with the Company. (Alternate Director to Mr. S. Saraf) DIRECTORATE Mr. A.K. Pathirage INTERESTS REGISTER The following Directors held office during (Alternate Director to Mr. H.K. Kaimal) The Interests Register is maintained by the the year under review. The biographical Company as per the Companies Act No. 07 details of the Board members are set out RETIREMENT AND RE-ELECTION OF of 2007. All Directors have disclosed their on pages 16 to 17. DIRECTORS interests pursuant to Section 192(2) of the said Act. In terms of Article 87 of the Articles of Mr. A.K. Pathirage Association of the Company Mr. R.J. Perera, (Chairman/ Managing Director) Mr. A Russell- Davison and Mr. S. Saraf SHAREHOLDERS’ INFORMATION Mr. G.W.D.H.U. Gunawardena retire by rotation and being eligible to offer The distribution of shareholders is Mr. R.J. Perera themselves for re-election. indicated on page 176 of the Annual Mr. H.K. Kaimal Report. There were 10,729 registered The Directors have recommended the Mr. M.P.R. Rassool shareholders as at 31 March 2020 (31 re-appointment of Mr. G.L.H. Premaratne March 2019 – 10,676). Dr. S. Selliah who is 72 years of age, as a Director of the Mr. W.M.P.L. De Alwis, PC Company; and accordingly a resolution will SHARE INFORMATION Mr. G.L.H. Premaratne be placed before the shareholders in terms of Section 211 of the Companies Act in Information on share trading is given on Prof. A.S. Dharmasiri regard to the re-appointment of Mr. G.L.H page 177 of the Annual Report. Mr. A. Russell Davison Premaratne. Mr. S. Saraf INTERNAL CONTROL The Directors are responsible for the DIRECTORS’ SHAREHOLDING governance of the Company including the Directors’ interest in the shares of the Company as at 31 March 2020 were as follows. establishment and maintenance of the Company’s system of internal control. Internal control systems are designed Name of Director As at 31 March 2019 As at 31 March 2020 to meet the particular needs of the No. of Shares No. of Shares organisation concerned and the risk to Mr. A.K. Pathirage 477,843,941 486,244,633 which it is exposed, and by their nature Mr. G.W.D.H.U. Gunawardena 71,333,852 71,333,852 can provide reasonable but not absolute assurance against material misstatement Mr. R.J. Perera 75,437,508 75,437,508 or loss. The Directors are satisfied that a Mr. H.K. Kaimal 80,439,792 80,439,792 strong control environment is prevalent Mr. M.P.R. Rassool - - within the Company and that the internal control systems referred to above are Dr. S. Selliah 2,480,000 2,480,000 effective. Mr. W.M.P.L. De Alwis, PC - - Mr. G.L.H. Premaratne - - RISK MANAGEMENT Prof. A.S. Dharmasiri - - The Group’s risk management objectives Mr. A. Russell-Davison - - and policies and the exposure to risks, are Mr. J.D.N. Kekulawala - - set out in pages 29 to 31 of the Annual Mr. S. Saraf - - Report. Mr. C.K. Gupta - - (Alternate Director to Mr. S. Saraf) CORPORATE GOVERNANCE The Report on Corporate Governance is DIRECTORS’ REMUNERATION DIRECTORS’ INTERESTS IN CONTRACTS given on pages 22 to 26 of the Annual Report. Details of remuneration and other benefits AND PROPOSED CONTRACTS WITH THE received by the Directors are set out in COMPANY Note 18 to the Financial Statements. Directors’ interests in contracts, both THE AUDITORS direct and indirect are referred to in Note The Board Audit Committee reviews the 48 to the Financial Statements. The appointment of the external auditors, as Directors have no direct or indirect interest well as their relationship with the Group, including monitoring the Group’s use of
Softlogic Holdings PLC | Annual Report 2019/20 50 COMMITTEE REPORTS ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY
the auditors for non-audit services and the in office and an ordinary resolution balance of audit and non-audit fees paid to re-appointing them as auditors and the auditors. authorising the Directors to determine their remuneration will be proposed at the The Auditors of the Company, Messrs forthcoming AGM. Ernst & Young, Chartered Accountants were paid Rs. 2.4 Mn as audit fees for the GOING CONCERN financial year ended 31 March 2020 (2019 – Rs. 2.8 Mn) by the Company. Details of The Directors having assessed the which are given in Note 18 to the Financial environment within which it operates, the Statements. Board is satisfied that the Company and the Group have adequate resources to As far as the Directors are aware, the continue its operations in the foreseeable Auditors do not have any relationship future. Therefore, the Directors have (other than that of an auditor) with the adopted the going-concern basis in Company that would have an impact on preparing the Financial Statements. their independence. The Auditors also do not have any interest in the Company. ANNUAL GENERAL MEETING The Annual General Meeting of the Having reviewed the independence and Company will be held as a hybrid meeting effectiveness of the external auditors, the at the Auditorium of Central Hospital Audit Committee has recommended to the Limited (4th Floor), No. 114, Noris Canal Board that the existing auditors, Messrs. Road, Colombo 10 on Tuesday the 19th Ernst & Young, Chartered Accountants January 2021 at 10.00 a.m. The Notice of be re-appointed. Ernst & Young have the Annual General Meeting is on page 182 expressed their willingness to continue of the Annual Report.
For and on behalf of the Board
A.K. Pathirage H.K. Kaimal Chairman/Managing Director Director
Softlogic Corporate Services (Pvt) Ltd Secretaries
15 December 2020 Colombo
Softlogic Holdings PLC | Annual Report 2019/20 51 BOARD AUDIT COMMITTEE REPORT
SCOPE OF THE COMMITTEE of the Committee and the results are 2. Procedures in place to examine The Board Audit Committee supports communicated to the Board. Company’s ability to continue as a the Board of Directors in fulfilling in going concern. discharging its oversight responsibilities COMPOSITION in relation to financial reporting, Internal 3. The work and performance of the The Audit Committee is appointed by the Audit function, compliance with laws & Internal Auditors. Board of Directors and comprises four regulations, internal controls and risk independent Non-Executive Directors. management and External Auditors’ 4. The Group’s implementation of ERP Their profiles appear in the Board of performance and their independence. software, so far as it impacted on Directors section of this Annual Report The scope, functions and responsibilities financial accounting and reporting. are adequately set out in the terms Mr. J.D.N. Kekulawala (Chairman) of reference of the Committee which Dr. S. Selliah 5. Review of procedures in place to monitor compliance with applicable has been approved by the Board and is Mr. W.M.P.L. De Alwis, PC reviewed annually. The Committee places Laws and Regulations. Prof. A. Dharmasiri reliance on other Audit Committees in the Group without prejudicing the Mr. D. Vitharanage, Group Head-Chief 6. Review of steps focused on IT independence of those Committees. Internal Auditor/Chief Risk Officer served Security. However, the Committee reviews the as the Committee’s Secretary minutes of those committees’ meetings 7. Greater formalisation of processes and receives appropriate briefings The composition of the Committee enables enabling whistle-blowing. on matters arising from those. The a blend of financial and audit expertise and effectiveness of the Committee is wide business and regulatory experience to The Committee makes written reports to evaluated annually by each member fulfil its responsibilities. the Group Chairman/Managing Director, for dissemination to the Board, following each quarterly meeting at which Financial MEETINGS Statements are reviewed. These reports The Audit Committee met on thirteen (13) occasions during the year under review including draw attention to matters requiring quarterly meetings to review and make recommendations on the quarterly and annual consideration and action. The Committee financial statements before they were considered and approved by the Board of Directors. also briefs the Group Chairman/Managing The attendance at Audit Committee meetings was as follows: Director from time to time on matters of importance, generally at meetings scheduled by him periodically with the Name of Director Attendance Non-Executive Directors. Mr J.D.N. Kekulawala 11/13
Dr. S. Selliah 13/13 REAPPOINTMENT OF EXTERNAL AUDITORS Prof. A.S. Dharmasiri 9/13 The Audit Committee has proposed to the Mr. W.M.P.L. De Alwis, PC 12/13 Board of Directors, having considered their independence and performance, that the The Group Finance Director attended the the adequacy of presentation incumbent auditors M/S Ernst & Young, Committee’s meetings by invitation and and disclosures made and the Chartered Accountants be re-appointed other members of the Senior Management effectiveness of internal control for the year ending 31 March 2021 at the attend meetings by invitation when over financial reporting. This has Annual General Meeting. necessary. The External Auditors attended continued to be a major thrust of the meetings when their presence was Committee; required; they attended three meetings a. Interactions with the External held during the year. The Committee Auditors of the Holding Company, meets with the External Auditors, with no and the Group companies not members of Management present, to cover covered by separate Board Audit J.D.N. Kekulawala matters they wish to discuss confidentially. Committees, on their audit plans, Chairman – Board Audit Committee observations and key findings; ACTIVITY & FOCUS, AND REPORTING b. Review and follow-up of 15 December 2020 The Committee has continued to focus its observations in Management Colombo attention mainly on the following during Letters presented by external the year: auditors, with relevant Group 1. The integrity of the Company’s companies and; and Group’s Financial Statements, c. Discussion with property valuers including the reasonableness of and actuaries entrusted with assertions made, the appropriateness valuation of retirement gratuities. of accounting policies used,
Softlogic Holdings PLC | Annual Report 2019/20 52 COMMITTEE REPORTS REPORT OF THE RELATED PARTY TRANSACTIONS REVIEW COMMITTEE
PURPOSE COMPOSITION »» If there is any potential conflict in The purpose of the Related Party The Related Party Transactions Review any related party transactions, the Transactions Review Committee is to Committee comprises two Non-Executive Committee may recommend the conduct an appropriate review of Softlogic Independent Directors, including the creation of a special committee to Group’s related party transactions and to Chairman, and one Executive Director. review and approve the proposed ensure that interests of shareholders and related party transactions. Dr. S. Selliah other stakeholders are considered when - Non-Executive – Independent Director – engaging in related party dealings, hence »» Ensuring that immediate market Chairman preventing Directors, Key Management disclosures and disclosures in the Personnel or substantial shareholders Mr. W.M.P.L. De Alwis, PC Annual Report as required by the taking advantage of their positions. The - Non Executive - Independent Director - applicable rules/regulations are made Committee ensures adherence to the rules Member in a timely and detailed manner. set in the Code of Best Practices on related Mr H.K. Kaimal party transactions issued by the Securities – Executive Director - Member REVIEW OF THE RELATED PARTY & Exchange Commission of Sri Lanka (SEC) TRANSACTIONS DURING THE YEAR and CA Sri Lanka. The Committee states The Group Finance Director attends the The Committee reviewed all proposed opinions in accordance with the charter meeting by invitation. Softlogic Corporate Related Party Transactions of Softlogic of the Related Party Transaction Review Services (Pvt) Ltd, serves as Secretaries to Holdings PLC and scrutinised such Committee. It reviews the charter and the Committee. transactions to ensure that they are no policies while making recommendations to less favourable to the Group than those the Board as and when deemed necessary. generally available to an unaffiliated third party in a similar circumstance. The ATTENDANCE AT MEETINGS activities of the Committee have been communicated to the Board quarterly Name of Director Attended/ Eligible to attend through tabling minutes of the meeting Dr. S. Selliah 4/4 of the Committee at Board Meetings. Relevant disclosures have been made Mr. W.M.P.L. De Alwis, PC 4/4 to the Colombo Stock Exchange in Mr. H.K. Kaimal 3/4 compliance with regulations. Details of Related Party Transactions entered by ROLES AND RESPONSIBILITIES »» If related party transactions are the Group during the above period are ongoing (recurrent related party disclosed in Note 48 to the Financial »» Reviewing all proposed related party Statements. transactions of the Company and transactions) the Committee its listed companies in the Group in establishes guidelines for Senior compliance with the Code. Management to follow in its ongoing dealings with the relevant related party. »» Adopting policies and procedures to review related party transactions of the »» Ensuring that no Director of the Dr. S. Selliah Company and reviewing and overseeing Company shall participate in any existing policies and procedures. discussion of a proposed related party Chairman – Related Party Transactions transactions for which he or she is a Review Committee »» Determining whether related party related party, unless such Director is requested to do so by the Committee transactions that are to be entered into 15 December 2020 by the Company require the approval for the express purpose of providing Colombo of the Board or Shareholders of the information concerning the related respective companies. party transactions to the Committee.
Softlogic Holdings PLC | Annual Report 2019/20 53 HR & REMUNERATION COMMITTEE REPORT
PURPOSE COMMITTEE COMPOSITION AND MEETING The principal purpose of the Committee is The Human Resources and Remuneration to consider, agree and recommend to the Committee consists of Non-Executive Board a remuneration policy that is aligned Independent Directors. During the year with its long term business strategy, under review, there were no changes in the objectives, risk appetite, values and the membership of the Human Resources and long term interests of the Group whilst also Remuneration Committee. The members of recognising the interests of stakeholders. the Human Resources and Remuneration The responsibilities of the Committee are Committee as at 31 March 2020 and the laid out in its written Terms of Reference attendance at the meeting held is as (TOR) below:
ATTENDANCE AT MEETINGS
Name of Director Category Attended/ Eligible to attend Prof. A.S. Dharmasiri Chairman 01 /01 Non-Executive Independent Director Mr. W.M.P.L. De Alwis, PC Member 01 /01 Non- Executive - Independent Director Mr. G.L.H. Premaratne Member 01 /01 Non-Executive- Independent Director
The Chairman of the Group who is also The Committee spent time understanding the Managing Director and Ms. Natasha the interaction of remuneration and Fonseka - Group Director -Human Capital culture of the organisation and how attends Committee Meetings by invitation. our remuneration structures influence our chosen strategic behaviours. We performed a comprehensive review of our ACTIVITIES OF THE YEAR executive remuneration offering in order to We continued to ensure that our optimise the structure of our package to remuneration policies were consistent enhance competitiveness. with our strategic objectives, and were designed with the long term success of the Group in mind. This was particularly so SUMMARY when considering how our remuneration The Remuneration Committee will schemes can drive behaviour in line with continue to monitor the remuneration our chosen objectives and in line with policy to ensure that it is correctly industry best practices. aligned with the Group’s strategy. The Committee’s policy aims to properly reward Our investment in a renowned HR performance in line with the Company’s platform, will continue to strengthen the business objectives and growth to enrich effectiveness and efficiency of the systems shareholder value. and processes.
OUR REWARD FRAMEWORK The Committee focused on delivering a reward framework that is transparent, Prof. A.S. Dharmasiri tailored to individual roles and provide a Chairman – Remuneration Committee clear link to Softlogic’s strategic objectives. The objective is to drive performance to the highest standards while rewarding both 15 December 2020 performance and value behaviours. It seeks Colombo to be sufficiently competitive in order to attract, retain and motivate employees of the highest calibre.
Softlogic Holdings PLC | Annual Report 2019/20
55
We are strengthened by a broad spectrum of brands designed to deliver excellence and value across every stakeholder5 category.
FINANCIAL STATEMENTS Statement of Directors’ Responsibilities 56 Independent Auditors’ Report 57 Income Statement 62 Statement of Comprehensive Income 63 Statement of Financial Position 64 Statement of Changes In Equity 66 Statement of Cash Flow 68 Notes to the Financial Statements 70
Softlogic Holdings PLC | Annual Report 2019/20 56 FINANCIAL STATEMENTS STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The responsibilities of the Directors, in relation to the Financial COMPLIANCE REPORT Statements of the Company differ from the responsibilities The Directors confirm that to the best of their knowledge, all taxes, of the Auditors, which are set out in the Report of the Auditors duties and levies payable by the Company, all contributions, levies on pages 57 to 61 and taxes payable on behalf of and in respect of the employees The Companies Act No. 07 of 2007 stipulates that the Directors of the Company and other known statutory dues as were due and are responsible for preparing the Annual Report and the Financial payable by the Company as at the date of the Statement of Financial Statements. Company law requires the Directors to prepare Position have been paid or, where relevant provided for, in arriving at Financial Statements for each financial year, giving a true and the financial results for the year under review except as specified in fair view of the state of affairs of the Company at the end of the Note 50 to the Financial Statements covering contingent liabilities. financial year, and of the Statement of Comprehensive Income of For and on behalf of the Board of the Company and the Group for the financial year, which comply with the requirements of the Companies Act. SOFTLOGIC HOLDINGS PLC The Directors consider that, in preparing Financial Statements set out on pages 62 to 174 of the Annual Report, appropriate accounting policies have been selected and applied in a consistent manner and supported by reasonable and prudent judgements and estimates, and that all applicable accounting standards have been followed. The Directors confirm that they have justified in adopting the going concern basis in preparing the Financial Statements since adequate resources are available to continue operations in the Softlogic Corporate Services (Pvt) Ltd. foreseeable future. Secretaries The Directors are responsible for keeping proper accounting records, which disclose reasonable accuracy, at any time, the financial 15 December 2020 position of the Company and to enable them to ensure the Financial Colombo Statements comply with the Companies Act No. 07 of 2007 and are prepared in accordance with Sri Lanka Accounting Standard (SLFRS/LKAS).
They are also responsible for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities. In this regard the Directors have instituted an effective and comprehensive system of internal control. The Directors are required to prepare Financial Statements and to provide the External Auditor with every opportunity to take whatever steps and undertake whatever inspections they may consider to be appropriate to enable them to give their independent audit opinion.
The Directors are of the view that they have discharged their responsibilities as set out in this statement.
Softlogic Holdings PLC | Annual Report 2019/20 FINANCIAL STATEMENTS 57 INDEPENDENT AUDITORS’ REPORT
TO THE SHAREHOLDERS OF SOFTLOGIC HOLDINGS PLC Report on the audit of the Financial Statements Opinion Key audit matters We have audited the Financial Statements of Softlogic Key audit matters are those matters that, in our Holdings PLC (“the Company”), and the consolidated professional judgment, were of most significance in our Financial Statements of the Company and its subsidiaries audit of the Financial Statements of the current period. (“the Group”), which comprise the statement of financial These matters were addressed in the context of our audit position as at 31 March 2020, income statement and of the Financial Statements as a whole, and in forming the statement of comprehensive income, statement of our opinion thereon, and we do not provide a separate changes in equity and statement of cash flows for the opinion on these matters. For each matter below, our year then ended, and notes to the Financial Statements, description of how our audit addressed the matter is including a summary of significant accounting policies. provided in that context.
In our opinion, the accompanying Financial Statements We have fulfilled the responsibilities described in the of the Company and the Group give a true and fair view of Auditor’s responsibilities for the audit of the Financial the financial position of the Company and the Group as Statements section of our report, including in relation at 31 March 2020, and of their financial performance and to these matters. Accordingly, our audit included the cash flows for the year then ended in accordance with Sri performance of procedures designed to respond to Lanka Accounting Standards. our assessment of the risks of material misstatement of the Financial Statements. The results of our audit Basis for opinion procedures, including the procedures performed to address the matters below, provide the basis for our We conducted our audit in accordance with Sri Lanka audit opinion on the accompanying Financial Statements. Auditing Standards (SLAuSs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Statements section of our report. We are independent of the Group in accordance with the Code of Ethics issued by CA Sri Lanka (Code of Ethics) and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Softlogic Holdings PLC | Annual Report 2019/20 58 FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT
Key audit matter How our audit addressed the key audit matter
Valuation of land and buildings The Group carries freehold land and buildings under Our audit procedures focused on the valuations performed Property, Plant and Equipment and Investment Property by external valuers engaged by the Group and included the at fair value. As of reporting date, such land and buildings following: within Property, Plant and Equipment and Investment »» We assessed the competency, capability and objectivity Property amounted to Rs. 36.7 Bn & Rs. 2.0 Bn respectively of the external valuers engaged by the Group. which represents 26% of total assets. The fair values of land and buildings were determined by the external valuers »» Read the external valuers’ reports and identified the engaged by the Group. key assumptions, used and the approach taken by the valuers in determining the valuation of each property. The valuation of freehold land and buildings was considered a key audit matter due to the use of significant estimates »» We engaged specialised resources to assist us in and assumptions, including the Management’s judgments assessing the appropriateness of the valuation relating to possible effects of the COVID-19 outbreak on techniques and reasonableness of the key assumptions those significant assumptions and estimates disclosed in used by the external valuers. notes 22.3 and 24.2 to the financial statements. »» We have also evaluated the overall appropriateness of the related Financial Statement disclosures in notes 22.3 and 24.2.
Impairment allowance for lease, loan and factoring receivables of Finance Activities. As at 31 March 2020, lease, loan and factoring receivables in To assess the reasonableness of the allowance for a subsidiary amounted to Rs. 16.3 Bn. This contributed 11% impairment, we performed the following key procedure, to the Group’s total assets. among others:
Significant assumptions and judgements were used »» We evaluated the design, implementation and operating by the management to determine the impairment effectiveness of key internal controls over estimation of allowance and complex calculations were involved in its impairment for Lease receivables, Factoring receivables estimation. Probable impacts of COVID -19 outbreak on the and Loan receivables, which included assessing the level economically impacted customers and related government of oversight, review and approval of impairment policies relief measures on the key assumptions, the higher level by the Board Audit Committee and management. of estimation uncertainty involved, and materiality of the »» We test-checked the underlying calculations and data amounts reported in the Group’s financial statements, used in such calculations underpinned our basis for considering this impairment assessment as a Key Audit Matter. »» In addition to the above, following focused procedures were performed: For those individually assessed for impairment:
–– we assessed the main criteria used by the management for determining whether an impairment event had occurred.
–– where impairment indicators existed, we assessed the reasonableness of management’s estimated future recoveries including the expected future cash flows, discount rates and the valuation of collateral held. We also compared the actual recoveries against previously estimated amounts of future recoveries.
Softlogic Holdings PLC | Annual Report 2019/20 59
Key audit matter How our audit addressed the key audit matter
For those collectively assessed for impairment:
–– We tested the completeness of the underlying information used in the impairment calculations by agreeing details to the source documents and information in IT systems.
–– We also considered reasonableness of macro- economic and other factors used by management in their judgemental overlays, by comparing them with relevant publicly available data and information sources.
»» We assessed the adequacy of the related financial statement disclosures as set out in notes 9.1.8, 9.1.14. 29 and 33.
Interest bearing loans and borrowings of the Group. As disclosed in note 40 the Group’s total non-current Our audit procedures included amongst others, the interest-bearing borrowings amounted to Rs. 31.0 Bn which following: represents 24% of its total liabilities. »» We obtained an understanding of the covenants Given the magnitude of the borrowings, assessing attached to external borrowings, by perusing the loan continuous compliance with all the covenants are important agreements. for us to ensure appropriateness of disclosures relating »» We understood the Group’s processes and assessed to liquidity risk management, maturity profile and current the design and operating effectiveness of controls for vs non-current classification of such borrowings in the recording and reporting the terms and conditions of financial statements. interest-bearing liabilities. Considering above facts together with volume of borrowing »» We evaluated the Management's statements of contracts and complexity involved in monitoring of compliance with loan covenants of the Group as of 31 compliance with covenants, we considered non-current March 2020, by; interest bearing borrowing as a focus area. –– Corroborating those with direct confirmations obtained from selected lending institutions regarding entity's compliance with respective loan covenants as of the reporting date; and
–– validating on a sample basis, the key information reported in those statements.
»» We assessed the accuracy and adequacy of the disclosures made in notes 9.3.3 and 40 to the Financial Statements relating to the interest-bearing borrowings.
Softlogic Holdings PLC | Annual Report 2019/20 60 FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT
Key audit matter How our audit addressed the key audit matter
Insurance contract liabilities in a subsidiary The Group has insurance contract liabilities amounting to Our audit procedures focused on the valuations performed of Rs. 13.1 Bn which represents 10% of the Group’s total by the external actuary engaged by the subsidiary company liabilities. of the Group and included the following;
The valuation of the insurance contract liabilities in relation »» We involved the component auditor of the subsidiary to the life business required the application of significant company to perform the audit procedures to assess assumptions such as mortality, morbidity, lapses and the reasonableness of the assumptions and test the surrenders, loss ratios, bonus and expenses and assessing key controls on a sample basis over the process of the completeness and accuracy of the information used estimating the insurance contract liabilities. in the underlying valuations. Changes in such significant »» We engaged our expert to assess the reasonableness of assumptions used in the valuation of the insurance contract the assumptions used in the valuations of the insurance liabilities directly impacts the income statement. Therefore, contract liabilities. we considered this as Key Audit Matter. »» We have also evaluated the adequacy of the disclosures and the movement in the insurance contract liabilities in note 39.
Other information included in the 2019/20 Annual Those charged with governance are responsible for Report overseeing the Company’s and the Group’s financial reporting process. Other information consists of the information included in the Annual Report, other than the Financial Statements and our auditor’s report thereon. Management is responsible for the Auditor’s responsibilities for the audit of the Financial other information. Statements Our objectives are to obtain reasonable assurance about Our opinion on the Financial Statements does not cover whether the Financial Statements as a whole are free from the other information and we do not express any form of material misstatement, whether due to fraud or error, assurance conclusion thereon. and to issue an auditor’s report that includes our opinion. In connection with our audit of the Financial Statements, our Reasonable assurance is a high level of assurance, but is responsibility is to read the other information and, in doing not a guarantee that an audit conducted in accordance with so, consider whether the other information is materially SLAuSs will always detect a material misstatement when it inconsistent with the Financial Statements or our knowledge exists. Misstatements can arise from fraud or error and are obtained in the audit or otherwise appears to be materially considered material if, individually or in the aggregate, they misstated. If, based on the work we have performed, we could reasonably be expected to influence the economic conclude that there is a material misstatement of this other decisions of users taken on the basis of these Financial information, we are required to report that fact. We have Statements. nothing to report in this regard. As part of an audit in accordance with SLAuSs, we exercise professional judgment and maintain professional skepticism Responsibilities of the management and those charged throughout the audit. We also: with governance »» Identify and assess the risks of material misstatement of The Management is responsible for the preparation of the Financial Statements, whether due to fraud or error, Financial Statements that give a true and fair view in design and perform audit procedures responsive to those accordance with Sri Lanka Accounting Standards, and risks, and obtain audit evidence that is sufficient and for such internal control as management determines is appropriate to provide a basis for our opinion. The risk necessary to enable the preparation of Financial Statements of not detecting a material misstatement resulting from that are free from material misstatement, whether due to fraud is higher than for one resulting from error, as fraud fraud or error. may involve collusion, forgery, intentional omissions, In preparing the Financial Statements, management is misrepresentations, or the override of internal control. responsible for assessing the Group’s ability to continue »» Obtain an understanding of internal control relevant to as a going concern, disclosing, as applicable, matters the audit in order to design audit procedures that are related to going concern and using the going concern appropriate in the circumstances, but not for the purpose basis of accounting unless management either intends to of expressing an opinion on the effectiveness of the liquidate the Group or to cease operations, or has no realistic internal controls of the Company and the Group. alternative but to do so.
Softlogic Holdings PLC | Annual Report 2019/20 61
»» Evaluate the appropriateness of accounting policies used From the matters communicated with those charged with and the reasonableness of accounting estimates and governance, we determine those matters that were of most related disclosures made by management. significance in the audit of the Financial Statements of the current period and are therefore the key audit matters. We »» Conclude on the appropriateness of management’s use of describe these matters in our auditor’s report unless law or the going concern basis of accounting and, based on the regulation precludes public disclosure about the matter or audit evidence obtained, whether a material uncertainty when, in extremely rare circumstances, we determine that a exists related to events or conditions that may cast matter should not be communicated in our report because significant doubt on the Group’s ability to continue as a the adverse consequences of doing so would reasonably be going concern. If we conclude that a material uncertainty expected to outweigh the public interest benefits of such exists, we are required to draw attention in our auditor’s communication. report to the related disclosures in the Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the Report on other legal and regulatory requirements audit evidence obtained up to the date of our auditor’s As required by section 163 (2) of the Companies Act No.7 of report. However, future events or conditions may cause 2007, we have obtained all the information and explanations the Group to cease to continue as a going concern. that were required for the audit and, as far as appears from »» Evaluate the overall presentation, structure and content our examination, proper accounting records have been kept of the Financial Statements, including the disclosures, by the Company. and whether the Financial Statements represent the CA Sri Lanka membership number of the engagement partner underlying transactions and events in a manner that responsible for signing this independent auditor`s report is achieves fair presentation. 1697. »» Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated Financial Statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance 15 December 2020 regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including Colombo any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with ethical requirements in accordance with the Code of Ethics regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
Softlogic Holdings PLC | Annual Report 2019/20 62 FINANCIAL STATEMENTS INCOME STATEMENT
In Rs. ‘000 Note Group Company For the year ended 31 March 2020 2019 2020 2019
Continuing operations Revenue from contract with customers 61,271,399 61,635,079 748,895 645,766 Revenue from insurance contracts 11,919,961 9,833,075 - - Interest income 3,530,417 3,674,450 - - Total revenue 13 76,721,777 75,142,604 748,895 645,766
Cost of sales (49,677,851) (47,506,880) (288,729) (240,599) Gross profit 27,043,926 27,635,724 460,166 405,167
Dividend income 14 - - - 514,513 Other operating income 15 755,480 954,483 40,779 28,618 Distribution expenses (3,204,592) (3,521,670) - - Administrative expenses (18,420,621) (16,708,267) (448,441) (442,305) Results from operating activities 6,174,193 8,360,270 52,504 505,993
Finance income 16 2,042,275 1,398,974 2,180,339 1,502,906 Finance costs 17 (9,360,252) (7,116,287) (3,441,668) (2,626,433) Net finance cost (7,317,977) (5,717,313) (1,261,329) (1,123,527)
Change in insurance contract liabilities 39.2 (2,089,317) (1,152,037) - - Change in fair value of investment property 24 332,924 245,000 50,500 40,000 Share of profit of equity accounted investees 27.2 1,611 7,080 - - Profit/ (loss) before tax 18 (2,898,566) 1,743,000 (1,158,325) (577,534)
Tax expense 19.1.1 (282,736) 1,247,284 24,599 (90,593) Profit/ (loss) for the year (3,181,302) 2,990,284 (1,133,726) (668,127)
Attributable to: Equity holders of the parent (4,724,233) 104,669 Non-controlling interests 1,542,931 2,885,615 (3,181,302) 2,990,284
Earnings per share Basic 20 (3.96) 0.09
Dividend per share 21 0.50 0.50
Figures in brackets indicate deductions.
The accounting policies and notes as set out in pages 70 to 174 form an integral part of these financial statements.
Softlogic Holdings PLC | Annual Report 2019/20 63 STATEMENT OF COMPREHENSIVE INCOME
In Rs. ‘000 Note Group Company For the year ended 31 March 2020 2019 2020 2019
Profit/ (loss) for the year (3,181,302) 2,990,284 (1,133,726) (668,127)
Other comprehensive income Continuing operations Other comprehensive income to be reclassified to income statement in subsequent periods Currency translation of foreign operations 8,119 (5,447) - - Net change in fair value on derivative financial instruments 40.2 (37,900) (481,700) - - Net gain/ (loss) on financial instruments at fair value through other comprehensive income 202,103 (110,386) - - Net other comprehensive income/ (loss) to be reclassified to income statement in subsequent periods 172,322 (597,533) - -
Other comprehensive income not to be reclassified to income statement in subsequent periods Revaluation of land and buildings 22.1 1,374,302 1,541,245 - - Re-measurement gain/ (loss) on employee benefit liabilities 42 (149,814) 65,512 (7,743) (3,474) Share of other comprehensive income of equity accounted investments (net of tax) 27.2 (505) 34 - - Net loss on equity instruments at fair value through other comprehensive income (154,517) (519,221) (15,100) - Tax on other comprehensive income not to be reclassified to income statement in subsequent periods 19.2.1 (332,776) (353,223) 2,168 973 Net other comprehensive income/ (loss) not to be reclassified to income statement in subsequent periods 736,690 734,347 (20,675) (2,501)
Other comprehensive income/ (loss) for the year, net of tax 909,012 136,814 (20,675) (2,501)
Total comprehensive income/ (loss) for the year, net of tax (2,272,290) 3,127,098 (1,154,401) (670,628)
Attributable to: Equity holders of the parent (4,096,115) 352,881 Non-controlling interests 1,823,825 2,774,217 (2,272,290) 3,127,098
Figures in brackets indicate deductions.
The accounting policies and notes as set out in pages 70 to 174 form an integral part of these financial statements.
Softlogic Holdings PLC | Annual Report 2019/20 64 FINANCIAL STATEMENTS STATEMENT OF FINANCIAL POSITION
In Rs. ‘000 Note Group Company As at 31 March 2020 2019 2020 2019
Assets Non-current assets Property, plant and equipment 22 52,133,148 46,594,012 84,644 170,963 Right of use assets 23.1 6,600,136 - 63,363 - Lease rentals paid in advance 23.1 - 789,095 - - Investment property 24 2,030,380 1,695,261 794,500 744,000 Intangible assets 25 8,805,006 8,764,534 1,468 686 Investments in subsidiaries 26 - - 20,056,623 20,028,700 Investments in equity accounted investees 27 109,355 78,249 41,000 11,000 Non-current financial assets 28 16,554,159 13,007,216 1,549,170 1,465,042 Rental receivable on lease assets and hire purchase 29.1 1,156,023 1,135,517 - - Other non-current assets 30 4,939,884 3,215,787 - - Deferred tax assets 19.2.2 3,449,138 3,247,950 - - 95,777,229 78,527,621 22,590,768 22,420,391
Current assets Inventories 31 12,434,764 10,689,021 - - Trade and other receivables 32 12,391,226 14,042,394 680,360 912,093 Loans and advances 33 11,526,423 11,962,990 - - Rental receivable on lease assets and hire purchase 29.2 1,004,262 830,478 - - Amounts due from related parties 48.1 4,670 13,692 18,506,617 14,176,360 Other current assets 34 3,822,063 5,358,386 76,290 28,273 Short term investments 35 9,357,231 6,049,396 115,040 130,625 Cash in hand and at bank 36 3,726,096 3,196,350 800,330 18,294 54,266,735 52,142,707 20,178,637 15,265,645 Total assets 150,043,964 130,670,328 42,769,405 37,686,036
Equity and Liabilities Equity attributable to equity holders of the parent Stated capital 37 12,119,235 12,119,235 12,119,235 12,119,235 Revenue reserves (7,395,133) (1,797,474) 2,135,310 3,870,883 Other components of equity 38 4,782,940 4,020,858 (15,100) - 9,507,042 14,342,619 14,239,445 15,990,118 Non-controlling interests 12,218,723 10,496,838 - - Total equity 21,725,765 24,839,457 14,239,445 15,990,118
Softlogic Holdings PLC | Annual Report 2019/20 65
In Rs. ‘000 Note Group Company As at 31 March 2020 2019 2020 2019
Non-current liabilities Insurance contract liabilities 39 13,133,911 8,309,628 - - Interest bearing borrowings 40 31,041,430 25,115,045 6,027,598 7,003,919 Lease liability 23.2 4,322,333 - 3,235 - Public deposits 41 4,858,728 4,601,829 - - Deferred tax liabilities 19.2.2 3,346,327 3,306,076 184,282 173,435 Employee benefit liabilities 42 1,369,586 1,081,320 103,716 81,109 Other deferred liabilities 43 47,390 148,841 39,640 75,676 Other non-current financial liabilities 44 848,092 115,205 - - 58,967,797 42,677,944 6,358,471 7,334,139
Current liabilities Trade and other payables 45 8,645,807 8,428,255 236,343 108,894 Amounts due to related parties 48.2 32,405 2,731 95,208 16,671 Income tax liabilities 19.14 189,389 351,689 - 16,910 Other current financial liabilities 46 27,690,199 23,128,625 16,367,571 10,003,875 Current portion of interest bearing borrowings 40 10,517,214 9,782,952 5,207,906 3,958,498 Current portion of lease liability 23.2 1,348,221 - 10,621 - Other current liabilities 47 1,506,617 1,312,392 93,597 82,229 Public deposits 41 12,157,713 12,385,059 - - Bank overdrafts 36 7,262,837 7,761,224 160,243 174,702 69,350,402 63,152,927 22,171,489 14,361,779 Total liabilities 128,318,199 105,830,871 28,529,960 21,695,918 Total equity and liabilities 150,043,964 130,670,328 42,769,405 37,686,036
I certify that the Financial Statements comply with the requirements of the Companies Act No. 7 of 2007.
A C M Lafir Group Finance Director
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
15 December 2020 Colombo
Figures in brackets indicate deductions.
The accounting policies and notes as set out in pages 70 to 174 form an integral part of these financial statements.
Softlogic Holdings PLC | Annual Report 2019/20 66 FINANCIAL STATEMENTS STATEMENT OF CHANGES IN EQUITY
Group
In Rs. ‘000 Attributable to equity holders of parent Attributable to equity holders of parent Total Non- Total Stated Restricted Revaluation Foreign currency Fair value reserve Statutory Other Cash flow Revenue controlling equity capital regulatory reserve translation of financial reserve fund reserves hedge reserve reserve interests reserve reserves assets at FVOCI
As at 01 April 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 Impact of adopting SLFRS 9 ------(637,466) (637,466) (273,427) (910,893) Restated balance under SLFRS 9 as at 01 April 2018 8,195,383 309,613 4,774,665 (46,325) (530,887) 215,063 (569,884) (178,966) (1,214,869) 10,953,793 9,052,240 20,006,033 Error correction on impairment (Note 33.2) ------(80,529) (80,529) (69,924) (150,453) Adjusted balance as at 01 April 2018 8,195,383 309,613 4,774,665 (46,325) (530,887) 215,063 (569,884) (178,966) (1,295,398) 10,873,264 8,982,316 19,855,580 Profit for the year ------104,669 104,669 2,885,615 2,990,284 Other comprehensive income/ (loss) - - 949,433 (5,447) (252,386) - - (481,288) 37,900 248,212 (111,398) 136,814 Total comprehensive income/ (loss) - - 949,433 (5,447) (252,386) - - (481,288) 142,569 352,881 2,774,217 3,127,098
Issue of shares 3,923,852 ------3,923,852 - 3,923,852 Transfer to reserve fund - - - - - 48,373 - - (48,373) - - - Acquisition of subsidiary ------(37,538) (37,538) Changes in ownership interest in subsidiaries ------(211,106) - - (211,106) (393,724) (604,830) Dividend paid ------(596,272) (596,272) - (596,272) Subsidiary dividend to non-controlling interest ------(828,433) (828,433) As at 31 March 2019 12,119,235 309,613 5,724,098 (51,772) (783,273) 263,436 (780,990) (660,254) (1,797,474) 14,342,619 10,496,838 24,839,457 Adjustment due to initial application of SLFRS 16 (Note 6) ------(23,188) (23,188) (34,023) (57,211) Adjusted balance as at 01 April 2019 12,119,235 309,613 5,724,098 (51,772) (783,273) 263,436 (780,990) (660,254) (1,820,662) 14,319,431 10,462,815 24,782,246 Profit/ (loss) for the year ------(4,724,233) (4,724,233) 1,542,931 (3,181,302) Other comprehensive income/ (loss) - - 740,676 8,119 5,725 - - (37,870) (88,532) 628,118 280,894 909,012 Equity investments at FVOCI reclassified to retained earnings - - - - 39,217 - - - (39,217) - - - Total comprehensive income/ (loss) - - 740,676 8,119 44,942 - - (37,870) (4,851,982) (4,096,115) 1,823,825 (2,272,290) Recognition of put option liability ------(126,217) (126,217) (42,127) (168,344) Changes in ownership interest in subsidiaries ------6,215 - - 6,215 (6,190) 25 Dividend paid ------(596,272) (596,272) - (596,272) Subsidiary dividend to non-controlling interest ------(19,600) (19,600) As at 31 March 2020 12,119,235 309,613 6,464,774 (43,653) (738,331) 263,436 (774,775) (698,124) (7,395,133) 9,507,042 12,218,723 21,725,765
Company
In Rs. ‘000 Stated Fair value reserve Revenue Total equity capital of financial reserve assets at FVOCI
As at 01 April 2018 8,195,383 - 5,193,136 13,388,519 Impact of adopting SLFRS 9 - - (55,353) (55,353) Restated balance under SLFRS 9 as at 01 April 2018 8,195,383 - 5,137,783 13,333,166 Loss for the year - - (668,127) (668,127) Other comprehensive loss - - (2,501) (2,501) Total comprehensive loss - - (670,628) (670,628) Issue of shares 3,923,852 - - 3,923,852 Dividend paid - - (596,272) (596,272) As at 31 March 2019 12,119,235 - 3,870,883 15,990,118 Loss for the year - - (1,133,726) (1,133,726) Other comprehensive loss - (15,100) (5,575) (20,675) Total comprehensive loss - (15,100) (1,139,301) (1,154,401) Dividend paid - - (596,272) (596,272) As at 31 March 2020 12,119,235 (15,100) 2,135,310 14,239,445
Figures in brackets indicate deductions.
The accounting policies and notes as set out in pages 70 to 174 form an integral part of these financial statements.
Softlogic Holdings PLC | Annual Report 2019/20 67
Group
In Rs. ‘000 Attributable to equity holders of parent Attributable to equity holders of parent Total Non- Total Stated Restricted Revaluation Foreign currency Fair value reserve Statutory Other Cash flow Revenue controlling equity capital regulatory reserve translation of financial reserve fund reserves hedge reserve reserve interests reserve reserves assets at FVOCI
As at 01 April 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 Impact of adopting SLFRS 9 ------(637,466) (637,466) (273,427) (910,893) Restated balance under SLFRS 9 as at 01 April 2018 8,195,383 309,613 4,774,665 (46,325) (530,887) 215,063 (569,884) (178,966) (1,214,869) 10,953,793 9,052,240 20,006,033 Error correction on impairment (Note 33.2) ------(80,529) (80,529) (69,924) (150,453) Adjusted balance as at 01 April 2018 8,195,383 309,613 4,774,665 (46,325) (530,887) 215,063 (569,884) (178,966) (1,295,398) 10,873,264 8,982,316 19,855,580 Profit for the year ------104,669 104,669 2,885,615 2,990,284 Other comprehensive income/ (loss) - - 949,433 (5,447) (252,386) - - (481,288) 37,900 248,212 (111,398) 136,814 Total comprehensive income/ (loss) - - 949,433 (5,447) (252,386) - - (481,288) 142,569 352,881 2,774,217 3,127,098
Issue of shares 3,923,852 ------3,923,852 - 3,923,852 Transfer to reserve fund - - - - - 48,373 - - (48,373) - - - Acquisition of subsidiary ------(37,538) (37,538) Changes in ownership interest in subsidiaries ------(211,106) - - (211,106) (393,724) (604,830) Dividend paid ------(596,272) (596,272) - (596,272) Subsidiary dividend to non-controlling interest ------(828,433) (828,433) As at 31 March 2019 12,119,235 309,613 5,724,098 (51,772) (783,273) 263,436 (780,990) (660,254) (1,797,474) 14,342,619 10,496,838 24,839,457 Adjustment due to initial application of SLFRS 16 (Note 6) ------(23,188) (23,188) (34,023) (57,211) Adjusted balance as at 01 April 2019 12,119,235 309,613 5,724,098 (51,772) (783,273) 263,436 (780,990) (660,254) (1,820,662) 14,319,431 10,462,815 24,782,246 Profit/ (loss) for the year ------(4,724,233) (4,724,233) 1,542,931 (3,181,302) Other comprehensive income/ (loss) - - 740,676 8,119 5,725 - - (37,870) (88,532) 628,118 280,894 909,012 Equity investments at FVOCI reclassified to retained earnings - - - - 39,217 - - - (39,217) - - - Total comprehensive income/ (loss) - - 740,676 8,119 44,942 - - (37,870) (4,851,982) (4,096,115) 1,823,825 (2,272,290) Recognition of put option liability ------(126,217) (126,217) (42,127) (168,344) Changes in ownership interest in subsidiaries ------6,215 - - 6,215 (6,190) 25 Dividend paid ------(596,272) (596,272) - (596,272) Subsidiary dividend to non-controlling interest ------(19,600) (19,600) As at 31 March 2020 12,119,235 309,613 6,464,774 (43,653) (738,331) 263,436 (774,775) (698,124) (7,395,133) 9,507,042 12,218,723 21,725,765
Company
In Rs. ‘000 Stated Fair value reserve Revenue Total equity capital of financial reserve assets at FVOCI
As at 01 April 2018 8,195,383 - 5,193,136 13,388,519 Impact of adopting SLFRS 9 - - (55,353) (55,353) Restated balance under SLFRS 9 as at 01 April 2018 8,195,383 - 5,137,783 13,333,166 Loss for the year - - (668,127) (668,127) Other comprehensive loss - - (2,501) (2,501) Total comprehensive loss - - (670,628) (670,628) Issue of shares 3,923,852 - - 3,923,852 Dividend paid - - (596,272) (596,272) As at 31 March 2019 12,119,235 - 3,870,883 15,990,118 Loss for the year - - (1,133,726) (1,133,726) Other comprehensive loss - (15,100) (5,575) (20,675) Total comprehensive loss - (15,100) (1,139,301) (1,154,401) Dividend paid - - (596,272) (596,272) As at 31 March 2020 12,119,235 (15,100) 2,135,310 14,239,445
Figures in brackets indicate deductions.
The accounting policies and notes as set out in pages 70 to 174 form an integral part of these financial statements.
Softlogic Holdings PLC | Annual Report 2019/20 68 FINANCIAL STATEMENTS STATEMENT OF CASH FLOW
In Rs. ‘000 Note Group Company For the year ended 31 March 2020 2019 2020 2019
Cash flows from/ (used in) operating activities Profit/ (loss) before tax from continuing operations (2,898,566) 1,743,000 (1,158,325) (577,534)
Adjustments for: Finance income 16 (2,042,275) (1,398,974) (2,180,339) (1,502,906) Dividend income 14 - - - (514,513) Finance cost 17 9,360,252 7,116,286 3,441,668 2,626,434 Change in fair value of investment property 24 (332,924) (245,000) (50,500) (40,000) Share of results of equity accounted investees 27.2 (1,611) (7,080) - - Gratuity provision and related cost 42 276,998 221,936 17,380 13,759 Provisions for / write-off of impaired receivables 32.2.1 345,746 353,623 - 3,415 Provisions for / write-off of inventories 31.1 139,950 75,137 - - Provisions for / write-off of loans and advances 9.1.8.2 343,334 110,758 - - Provisions for / write-off of investments in lease and hire purchase 9.1.14.2 40,762 61,501 - - Depreciation of property, plant and equipment 22 3,078,435 2,520,118 23,489 36,051 (Profit)/ loss on sale of property, plant and equipment 15 2,423 (7,589) (4,549) (2,140) (Profit)/ loss on sale of investments 15 (11,057) 377 - 10,575 Unrealised (gain) / loss on foreign exchange (13,132) 23,873 - - Maturity of put option liability (9,357) - - - Amortisation / impairment of intangible assets 25 267,246 341,578 2,162 2,542 Amortisation of right of use assets/ prepaid lease rentals 23.1 1,531,183 16,506 35,851 - Impairment and derecognition of property, plant & equipment 19,429 21,318 - - Profit before working capital changes 10,096,836 10,947,368 126,837 55,683
(Increase) / decrease in inventories (1,885,694) 661,206 - - (Increase) / decrease in trade and other receivables 1,254,570 (3,573,802) 231,732 (145,325) (Increase) / decrease in loans and advances 618,587 (224,169) - - Increase in investments in lease and hire purchase (232,031) (465,530) - - (Increase) / decrease in other current assets 1,338,884 (2,068,629) (23,741) (21,074) (Increase) / decrease in amounts due from related parties 9,022 (12,885) (2,453,327) (5,587,037) Increase in trade and other payables 412,677 861,518 127,449 64,481 Increase / (decrease) in amounts due to related parties (327) (4,835) 78,538 (1,207) Increase / (decrease) in other current liabilities 204,088 (70,370) 11,368 (3,992) Decrease in deferred income (111,311) (63,360) (36,036) (36,036) Increase in public deposits 29,554 685,416 - - Increase in insurance contract liabilities 39.1 4,824,283 1,117,037 - - Cash generated from/ (used in) operations 16,559,138 7,788,965 (1,937,180) (5,674,507)
Finance income received 1,442,153 1,261,411 303,893 1,531,157 Finance expenses paid (8,027,722) (6,500,079) (3,296,840) (2,495,236) Dividend received - 35,045 - 50,965 Tax paid (825,766) (921,614) (3,571) (80,989) Gratuity paid 42 (138,546) (108,089) (2,517) (4,375) Net cash flow from/ (used in) operating activities 9,009,257 1,555,639 (4,936,215) (6,672,985)
Softlogic Holdings PLC | Annual Report 2019/20 69
In Rs. ‘000 Note Group Company For the year ended 31 March 2020 2019 2020 2019
Cash flows from / (used in) investing activities Purchase and construction of property, plant and equipment (7,583,055) (5,728,410) (2,525) (1,870) Addition to investment property 24 (2,195) (18,237) - - Addition to intangible assets 25 (308,660) (141,234) (2,944) (2,635) Increase in other non-current assets (2,292,965) (2,245,759) - - (Purchase) / disposal of short term investments (net) 2,060,023 115,631 - 1,550,225 Dividends received 135,922 124,551 - - (Purchase) / disposal of non-current financial assets (4,106,907) (1,825,343) (84,129) (636,686) Acqusition of business, net of cash acquired 8.1 - (952,452) - - Proceeds from sale of property, plant and equipment 167,158 54,075 5,457 5,455 Net cash flow used in investing activities (11,930,679) (10,617,178) (84,141) 914,489
Cash flows from / (used in) financing activities Proceeds from issue of shares 37 - 3,923,852 - 3,923,852 Proceeds from shareholders with non-controlling interest on issue of shares in subsidiaries 177,087 - - - Dividend paid to non-controlling interest (19,600) (828,433) - - Increase in interest in subsidiaries (57,445) (561,897) (57,923) (172,000) Proceeds from long term borrowings 40 15,119,488 7,585,232 3,679,984 2,500,000 Repayment of long term borrowings (9,022,435) (6,874,434) (3,527,327) (2,307,649) Repayment of lease liabilities (1,882,746) - (45,307) - (Increase) / decrease in other non-current financial liabilities 564,542 (7,297) - - Proceeds from / (repayment of) other current financial liabilities (net) 4,570,931 (478,880) 6,363,696 (508,255) Dividend paid to equity holders of parent (596,272) (596,272) (596,272) (596,272) Net cash flow from financing activities 8,853,550 2,161,871 5,816,851 2,839,676
Net increase / (decrease) in cash and cash equivalents 5,932,128 (6,899,668) 796,495 (2,918,820) Cash and cash equivalents at the beginning (1,010,674) 5,888,960 (156,408) 2,762,412 Effect of exchange rate changes (1,571) 34 - - Cash and cash equivalents at the end 4,919,883 (1,010,674) 640,087 (156,408)
Analysis of cash and cash equivalents Favourable balances Cash in hand and at Bank 3,726,096 2,596,037 800,330 18,294 Restricted cash at bank - 600,313 - - Short term investments 8,456,624 3,554,200 - - Unfavourable balances Bank overdrafts (7,262,837) (7,761,224) (160,243) (174,702) Cash and cash equivalents 4,919,883 (1,010,674) 640,087 (156,408)
Figures in brackets indicate deductions.
The accounting policies and notes as set out in pages 70 to 174 form an integral part of these financial statements.
Softlogic Holdings PLC | Annual Report 2019/20 70 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
1 CORPORATE AND GROUP INFORMATION
Reporting entity There were no significant changes in the nature of the principal activities of the Company and the Group during the financial year Softlogic Holdings PLC is a public limited liability company under review. incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange. The registered office and principal place of business of the company is located at No. 14, De Fonseka Place, 2 BASIS OF PREPARATION AND OTHER SIGNIFICANT Colombo 5. ACCOUNTING POLICIES Softlogic Holdings PLC became the holding company of the Group Basis of preparation during the financial year ended 31 March 2003. The consolidated Financial Statements have been prepared on an Consolidated financial statements accrual basis and under the historical cost convention except for investment properties, land and buildings, fair valued through profit The Financial Statements for the year ended 31 March 2020, or loss financial assets, derivative financial instruments and fair comprise “the Company” referring to Softlogic Holdings PLC as the valued through other comprehensive income financial assets, which holding company and “the Group” referring to the companies that have been measured at fair value. have been consolidated therein. Each material class of similar items is presented cumulatively in Approval of financial statements the Financial Statements. Items of dissimilar nature or function are presented separately unless they are immaterial as permitted by the The financial statements for the year ended 31 March 2020 were Sri Lanka Accounting Standard - LKAS 1 ‘Presentation of Financial authorised for issue by the Board of Directors on 15 December 2020. Statements’.
Responsibility for financial statements Presentation and functional currency The responsibility of the Board of Directors in relation to the The consolidated Financial Statements are presented in Sri Lankan Financial Statements is set out in the “Statement of Directors’ Rupees (Rs.) the Group’s functional and presentation currency, Responsibilities” report in the Annual Report. which is the currency of the primary economic environment in which the holding company operates. Each entity in the Group uses Statement of compliance this currency of the primary economic environment in which they operate as their functional currency except for entities incorporated The Financial Statements which comprise the income statement, outside Sri Lanka. statement of comprehensive income, statement of financial position, statement of changes in equity and the statement of All values are rounded to the nearest Sri Lankan Rupees thousand cash flows, together with the accounting policies and notes (the (Rs. ’000) except when otherwise indicated. “Financial Statements”) have been prepared in accordance with Sri Lanka Accounting Standards (herein referred to as SLFRS/LKAS) The following subsidiary is uses a functional currency other than the issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Sri Lankan 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 Principal activities and nature of operations Softlogic Australia (Pty) Ltd Australia Australian Dollar (AUD) Holding Company Softlogic Holdings PLC, the Group’s holding company, provides Comparative information management services and warehouse management facilities to Group companies, facilitates funding requirements of these The presentation and classification of the Financial Statements of companies and provides other value added services. the previous years have been amended, where relevant for better presentation and to be comparable with the statements of the Subsidiaries and associates current year other than the note 33.2. The business activities of other companies within the Group are The Group applied SLFRS 16 with effect from 1 April 2019. Due information & communication technology, automobile sales and to the transition method chosen in applying these standards, after sales, consumer electronic retailing, garment manufacturing comparative information throughout these financial statements & fashion retailing, hoteliering, quick service restaurant operations, have not been restated to reflect the requirements of the new development of apartments, provision of financial services, life standard. insurance services, stock brokering services, management of Unit Trust, healthcare services, management consultancy and financial advisory services.
Softlogic Holdings PLC | Annual Report 2019/20 71
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of significant accounting policies has been disclosed dates of the initial transactions. The gain or loss arising on non- along with relevant individual notes in the subsequent pages. monetary items subsequently valued at fair value is in keeping with the recognition of gains or losses on other fair valued items. The accounting policies presented with each note, have been applied consistently by the Group. Foreign operations Other significant accounting policies not covered with The statement of financial position and income statement of individual notes overseas subsidiaries and associates are deemed to be foreign operations are translated to Sri Lanka Rupees (Rs.) at the rate of The following accounting policies, which have been applied exchange prevailing as at the reporting date and at the average consistently by the Group, are considered significant and are not annual rate of exchange for the period respectively. covered in any other sections. The exchange differences arising on the translation are taken Current versus non-current classification directly to the statement of other comprehensive income. On disposal of a foreign entity, the deferred cumulative amount The Group presents assets and liabilities in the statement of recognised in the statement of other comprehensive income financial position based on a current/ non-current classification. relating to that particular foreign operation is recognised in the income statement. An asset is current when it is: »» expected to be realised or intended to be sold or consumed in The Group treated goodwill and any fair value adjustments to the the normal operating cycle, 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 and liabilities are non-monetary items already expressed in the »» expected to be realised within twelve months from the functional currency of the parent and no further translation reporting date, or differences occur. »» a cash or cash equivalent unless restricted from exchange or use to settle a liability for at least twelve months after the The exchange rates applicable during the period were as follows: reporting date. All other assets are classified as non-current Statement of Income statement financial position 31-03-2020 31-03-2020 A liability is current when it is: »» expected to be settled in the normal operating cycle, Australian Dollar 116.46 122.52 »» incurred primarily for the purpose of trading, »» due to be settled within twelve months after the reporting date, and 5 SUMMARY OF SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS »» not affected by any unconditional right to defer settlement for at least twelve months after the reporting date. In preparing these Financial Statements of the Group/ Company, the management has made judgements, estimates and assumptions The Group classifies all other liabilities as non-current. that affect the application of Group’s accounting policies and the reported amounts of assets, liabilities, income, expenses Deferred tax assets and liabilities are classified as non-current and its disclosure of contingent liabilities. Judgements and assets and liabilities. estimates are based on historical experience and other factors, including expectations that are believed to be reasonable under the circumstances. Hence, actual results may differ from these 4 FOREIGN CURRENCY TRANSLATION, FOREIGN judgements and estimates. Estimates and underlying assumptions CURRENCY TRANSACTIONS AND BALANCES are reviewed on an ongoing basis and revisions to accounting estimates are recognised prospectively. The consolidated financial statements are presented in Sri Lanka Rupees (Rs.), which is the holding company’s functional and The management considered the following items, where significant presentation currency. This functional currency is the currency judgements, estimates and assumptions have been used in of the primary economic environment in which virtually all the preparing these Financial Statements. entities of the Group operate. All foreign exchange transactions are converted to the functional currency, at the rates of exchange prevailing at the time the transactions are effected. Monetary assets and liabilities denominated in foreign currency are retranslated to functional currency equivalents at the spot exchange rate prevailing at the reporting date.
Non-monetary items measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the
Softlogic Holdings PLC | Annual Report 2019/20 72 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
Going concern Going concern in determining the basis of preparing the financial statements for the year ended 31 March 2020, based on available information, the management has assessed the existing and anticipated effects of COVID-19 on the Group Companies and the appropriateness of the use of the going concern basis. In March 2020, each business segment evaluated the resilience of its businesses considering a wide range of factors under multiple scenarios, relating to expected revenue streams, cost management, profitability, the ability to defer non-essential capital expenditure, debt repayment capabilities, salary cuts were implemented at the senior levels in the Group and in businesses with very low revenues. Cash reserves and potential sources of financing facilities were also considered where required, and the ability to continue providing goods and services to ensure businesses continue at acceptable level.
Having presented the outlook for each business segment in the Group and after due consideration of the range and likelihood of outcomes, the Directors are satisfied that the Company, its subsidiaries, associates and joint ventures have adequate resources to continue in operational existence for the foreseeable future and continue to adopt the going concern basis in preparing and presenting these financial statements.
In determining the above significant management judgements, estimates and assumptions the impact of the COVID-19 pandemic has been considered as of reporting date and specific considerations have been disclosed under the relevant notes.
Significant accounting judgements, assumptions and estimation 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.
»» Valuation of property, plant & equipment »» Recognition of right of use assets »» Valuation of investment property »» Valuation of intangible assets »» Deferred taxation and taxes »» Employee benefit liability »» Valuation of insurance contract liabilities »» Provisions and contingent liabilities »» Valuation of financial liabilities at fair value through profit or loss »» Valuation of derivative financial instruments »» Provision for Expected Credit Loss of trade receivables and contract asset »» Provision for Expected Credit Loss of loans & advances and lease and higher purchase receivables
Softlogic Holdings PLC | Annual Report 2019/20 73
6 CHANGES IN ACCOUNTING STANDARDS The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31 March 2019, except for the adoption of new standards effective as of 1 April 2019.
SLFRS 16 Leases SLFRS 16: Leasing, sets out the principles for the recognition, Lessor accounting under SLFRS 16 is substantially unchanged from measurement, presentation and disclosure of leases for both parties LKAS 17. Lessors will continue to classify leases as either operating to a contract, i.e. the customer (‘Lessee’] and the supplier (‘Lessor’]. or finance leases using similar principles as in LKAS 17. Therefore, SLFRS 16 replaced Sri Lanka Accounting Standard LKAS 17 Leases SLFRS 16 does not have an impact for leases where the Group is the and related interpretations. The Group has adopted SLFRS 16 using lessor. modified retrospective method from 1 April 2019, without restating comparative information.
The effect of adoption SLFRS 16 as at 1 April 2019 is as follows: In Rs. ‘000 Group Company
Assets Property, plant and equipment (263,384) (75,533) Lease rentals paid in advance (789,094) - Right of use assets 6,946,533 110,300 Other non-current assets (535,563) - Other current assets (5,170) - 5,353,322 34,767
Equity and Liabilities Revenue reserves (23,188) - Non-controlling interests (34,023) - Interest bearing borrowings (126,263) (20,335) Lease liabilities 5,618,338 55,102 Deferred tax liabilities 1,501 - Trade and other payables (83,043) - 5,353,322 34,767
The lease liabilities as at 1 April 2019 can be reconciled to the operating lease commitments as of 31 March 2019 as follows:
In Rs. ‘000 Group Company Operating lease commitments as at 31 March 2019 9,165,143 37,208
Discounted operating lease commitments at 1 April 2019 5,697,495 34,704 Less : Commitments relating to short-term leases (183,363) - Add: Commitments relating to leases previously classified as finance leases 104,206 20,336 Lease liabilities as at 1 April 2019 5,618,338 55,040
Estimating the incremental borrowing rate The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right of use asset in a similar economic environment. The IBR therefore reflects what the Group ‘would have to pay’, which requires estimation when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the lease. The Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating). The Group’s IBR span within the range of 13.00% - 17.00%.
Softlogic Holdings PLC | Annual Report 2019/20 74 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
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 2020. 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 Specifically, the Group controls an investee if, and only if, the Group interest and other components of equity while any resultant gain or has: loss is recognised in the income statement. Any investment retained is recognised at fair value. »» power over the investee (i.e., existing rights that give it the 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 returns income and all assets and liabilities of the Company and of its subsidiaries included in consolidation are shown in the consolidated Subsidiaries that are consolidated have been listed in note 26. statement of financial position.
Consolidation of a subsidiary begins when the Group obtains control Non-controlling interest (NCI) over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a Non-controlling interests, which represents the portion of profit subsidiary acquired or disposed during the year are included in the or loss and net assets not held by the Group, are shown as a consolidated Financial Statements from the date the Group gains component of profit for the year in the consolidated income control until the date the Group ceases to control the subsidiary. statement and statement of comprehensive income and as a component of equity in the consolidated statement of financial Profit or loss and each component of other comprehensive income position separately from equity attributable to the shareholders of (OCI) are attributed to the equity holders of the parent of the Group the parent. 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.
Softlogic Holdings PLC | Annual Report 2019/20 75
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 Healthcare Service Asiri Hospital Asiri Surgical Central Holdings PLC Hospital PLC Hospitals Ltd 2020 2019 2020 2019 2020 2019
Summarised income statement for the year ended 31 March Revenue 5,706,706 4,194,654 3,654,663 3,475,047 4,990,327 5,026,990 Other income 105,804 1,115,086 83,990 68,524 48,751 33,806 Operating expenses (4,364,240) (2,878,557) (3,195,450) (2,985,620) (4,214,995) (4,055,251) Finance income 92,362 106,264 216,398 (54,952) (442,824) (219,846) Finance expenses (1,731,635) (1,090,977) (151,700) 107,223 306,628 99,993 Profit/ (loss) before tax (191,003) 1,446,470 607,901 610,222 687,887 885,692 Tax expense (110,457) (7,322) (174,790) (243,707) (78,542) (27,133) Profit/ (loss) for the year (301,460) 1,439,148 433,111 366,515 609,345 858,559 Other comprehensive income/ (loss) 337,500 243,232 84,704 (69,431) 20,606 216,789 Total comprehensive income 36,040 1,682,380 517,815 297,084 629,951 1,075,348
Profit/ (loss) attributable to material NCI (147,488) 203,751 257,015 208,106 295,731 410,873
Dividend paid to NCI - 441,519 - 157,597 - 366,369
Summarised statement of financial position as at 31 March Current assets 1,607,728 4,654,034 2,296,362 888,635 2,025,939 1,690,483 Non-current assets 25,025,513 16,719,970 5,571,614 4,975,946 9,454,484 7,871,672 Total assets 26,633,241 21,374,004 7,867,976 5,864,581 11,480,423 9,562,155
Current liabilities 6,350,936 7,736,150 1,737,038 1,353,300 3,393,663 2,674,688 Non-current liabilities 12,347,434 5,336,552 2,074,333 914,845 1,894,620 1,326,494 Total liabilities 18,698,370 13,072,702 3,811,371 2,268,145 5,288,283 4,001,182
Effective holding % owned by NCI 48.39 48.52 59.46 59.64 48.53 48.66
Accumulated balance of material NCI 3,839,651 4,027,555 2,412,248 2,145,057 3,012,966 2,705,854
Summarised cash flow information for the year ended 31 March Cash flows from/ (used in) operating activities 3,621,574 (2,696,390) 294,298 917,206 1,153,884 1,213,277 Cash flows from/ (used in) investing activities (3,984,143) 358,234 (1,702,059) (1,252,845) (1,109,945) (295,034) Cash flows from/ (used in) financing activities 909,833 957,608 1,666,802 (332,236) 590,241 (1,837,576) Net increase/ (decrease) in cash and cash equivalents 547,264 (1,380,548) 259,041 (667,875) 634,180 (919,333)
Softlogic Holdings PLC | Annual Report 2019/20 76 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
In Rs. ‘000 Financial Services Softlogic Softlogic Life Finance PLC Insurance PLC 2020 2019 2020 2019
Summarised income statement for the year ended 31 March Revenue 3,607,234 3,674,450 11,919,961 9,833,075 Other income 209,742 344,443 16,426 3,370 Operating expenses (4,298,877) (3,933,744) (9,323,019) (8,005,077) Change in insurance contract liabilities - - (2,089,317) (1,152,037) Finance income - - 1,808,187 1,174,986 Finance expenses (56,712) (22,033) (88,500) (301,293) Profit/ (loss) before tax (538,613) 63,116 2,243,738 1,553,024 Tax expense 204,654 140,854 (325,838) 1,888,878 Profit/ (loss) for the year (333,959) 203,970 1,917,900 3,441,902 Other comprehensive income/ (loss) 15,756 (30,749) 51,942 (611,481) Total comprehensive income/ (loss) (318,203) 173,221 1,969,842 2,830,421
Profit/ (loss) attributable to material NCI (137,382) 94,250 1,173,785 1,921,454
Dividend paid to NCI - - - 238,418
Summarised statement of financial position as at 31 March Current assets 16,373,630 16,612,747 9,699,604 6,101,173 Non-current assets 5,372,962 5,791,853 15,249,468 11,115,576 Total assets 21,746,592 22,404,600 24,949,072 17,216,749
Current liabilities 14,042,523 15,921,888 2,631,176 1,559,680 Non-current liabilities 5,663,080 4,726,016 13,592,259 8,901,274 Total liabilities 19,705,603 20,647,904 16,223,435 10,460,954
Effective holding % owned by NCI 41.90 46.48 61.20 61.20
Accumulated balance of material NCI 855,097 816,432 5,340,229 4,134,654
Summarised cash flow information for the year ended 31 March Cash flows from/ (used in) operating activities 459,347 (623,408) 5,984,999 2,788,708 Cash flows from/ (used in) investing activities 133,177 (37,601) (6,398,117) (2,202,948) Cash flows from/ (used in) financing activities (159,208) 49,720 (131,095) (546,398) Net increase/ (decrease) in cash and cash equivalents 433,316 (611,289) (544,213) 39,362
The above information is based on amounts before intercompany eliminations
Softlogic Holdings PLC | Annual Report 2019/20 77
8 BUSINESS COMBINATIONS AND ACQUISITION OF NON-CONTROLLING INTEREST
ACCOUNTING POLICY
Business combination & goodwill Business combinations are accounted for using the acquisition carrying amount, an impairment loss is recognised. The impairment method of accounting. The Group measures goodwill at the loss is allocated first to reduce the carrying amount of any goodwill acquisition date as the fair value of the consideration transferred allocated to the unit and then to the other assets pro- rata to the including the recognised amount of any non-controlling interests carrying amount of each asset in the unit. in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all Goodwill and fair value adjustments arising on the acquisition of a measured as of the acquisition date. foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. When the fair value of the consideration transferred including the recognised amount of any non-controlling interests in the Where goodwill forms part of a cash generating unit and part of the acquiree is lower than the fair value of net assets acquired, a gain is operation within that unit is disposed of, the goodwill associated recognised immediately in the income statement. with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the The Group elects on a transaction by transaction basis whether operation. Goodwill disposed of in this circumstance is measured to measure non-controlling interests at fair value, or at their based on the relative values of the operation disposed of and the proportionate share of the recognised amount of the identifiable net portion of the cash-generating unit retained. assets, at the acquisition date. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group Impairment of goodwill incurs in connection with a business combination are expensed as Goodwill is tested for impairment annually (as at 31 March) and incurred. when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the When the Group acquires a business, it assesses the financial recoverable amount of each cash-generating unit (or group of assets and liabilities assumed for appropriate classification and cash-generating units) to which the goodwill relates. Where the designation in accordance with the contractual terms, economic recoverable amount of the cash generating unit is less than their circumstances and pertinent conditions as at the acquisition date. carrying amount, an impairment loss is recognised. Impairment If the business combination is achieved in stages, the acquisition losses relating to goodwill cannot be reversed in future periods. date fair value of the acquirer’s previously held equity interest in the acquiree is re measured to fair value at the acquisition date through 8.1 Obtaining control of subsidiaries the income statement. FY 2019/20 Any contingent consideration to be transferred by the acquirer No changes to the Group Structure other than the increase in will be recognised at fair value at the acquisition date. Contingent controlling stake in direct and indirect subsidiaries. consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent FY 2018/19 consideration classified as an asset or liability that is a financial In August 2018, Odel PLC, a subsidiary of Softlogic Holdings PLC instrument and within the scope of SLFRS 9 Financial Instruments, acquired 100.00% ordinary shares of Cotton Collection (Pvt) Ltd and is measured at fair value with the changes in fair value recognised it became a subsidiary of the Group. in the statement of profit or loss in accordance with SLFRS 9. Other contingent consideration that is not within the scope of SLFRS 9 is Further in November 2018, Asiri Hospital Holdings PLC, a subsidiary measured at fair value at each reporting date with changes in fair of Softlogic Holdings PLC acquired 100.00% ordinary shares of value recognised in profit or loss. Asiri Hospital Galle (Pvt) Ltd (previously known as Hemas Southern Hospitals (Pvt) Ltd) and it became a subsidiary of the Group. 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 benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash generating unit is less than the
Softlogic Holdings PLC | Annual Report 2019/20 78 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
The acquisition had the following effect on the Group’s assets and liabilities.
In Rs. ‘000 Note As at 31 March 2019 Property, plant & equipment 22.1 734,556 Intangible assets 25 1,971 Other non current assets 41,525 Inventories 180,992 Trade and other receivables 178,614 Income tax refund 7,589 Cash in hand and at bank 38,524
Retirement benefit liability 42 (20,490) Deferred tax liabilities 19.2.2 (59,689) Interest bearing borrowings 40 (240,164) Trade and other payables (256,025) Amounts Due to Related Parties (18,259) Bank overdrafts (240,532) Net identifiable assets 348,612 Non controlling interest holding 226,421 Intangible recognised on acquisition 25 364,294 939,327 Investment by Non controlling interest (188,883) 750,444
Total purchase price paid Cash consideration 750,444 Cash at bank and in hand acquired 202,008 952,452
8.2 Share restructure transaction - Softlogic Holdings PLC In comparative period, relating to restructure Softlogic Holdings PLC transferred its stake in Odel PLC to Softlogic Retail Holdings (Pvt) Ltd, which is a fully owned subsidiary of Softlogic Holdings PLC.
The loss resulting from these transactions have been accounted for as ‘Other Operating Income’ of the company.
In Rs. ‘000 2019 Shares disposed Transaction Loss value Odel PLC 1,550,225 10,575 10,575
Softlogic Holdings PLC | Annual Report 2019/20 79
9 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial liabilities consist of public deposits, 9.1 Credit risk borrowings, trade & other payables, and financial guarantee Credit risk is the risk that a counterparty will not meet its obligations contracts. The main purpose of these financial liabilities is to finance under a financial instrument or customer contract, leading to a Group’s operations. The Group financial assets comprise of loans financial loss. The Group is exposed to credit risk from its operating and advances, rental receivable on lease assets & hire purchase, activities (primarily for trade receivables and customer lending) trade & other receivables, cash and short-term deposits that flow and from its investing activities, including deposits with banks and directly from its operations. The Group also holds other financial financial institutions, foreign exchange transactions and other instruments such as investments in equity instruments. financial instruments. The Group is exposed to market risk including currency risk, interest The Group trades only with recognised, creditworthy third parties. rate risk & price risk, credit risk and liquidity risk. Risk management It is the Group’s policy that all clients who wish to trade on credit is carried out under policies approved by the Board of Directors of terms are subject to credit evaluation procedures. In addition, the Group. The Group’s overall risk management programme seeks receivable balances are monitored on an ongoing basis with the to minimise potential adverse effects on the Group’s financial and result that the Group’s exposure to bad debt is not significant. non- financial performance. The hire purchase and lease portfolio is broad based, accounting Risk management framework for 153,594 (2019 - 149,551 customers) contracts, and the risk of The Board of Directors of Softlogic Holdings PLC and its Group non- payment is mitigated by credit approval processes. There is companies have overall responsibility for the establishment and no concentration risk on any single region, customer or sector in oversight of the Group’s risk management framework. particular; collection of dues from customers are robust with the delinquency rate being better than the financial industry average. The Group’s risk management policies are established to identify, assess and take action of the risks faced by the Group falling within With respect to credit risk arising from other financial assets of their risk appetite. Risk management policies and systems are the Group, such as cash and cash equivalents, available-for-sale reviewed regularly along with the risk register to reflect changes financial investments and short term investments, the Group’s in market conditions and the Group’s activities. The Group through exposure to credit risks arises from default of the counterparty. The its training and management standards and procedures, aims to Group manages its operations to avoid any excessive concentration maintain a disciplined and constructive control environment in of counterparty risk. which all employees clearly understand their roles and obligations. 9.1.1 Credit Risk - Default risk The Group’s Integrated Risk Management Committee (IRMC) is Default risk is the risk that one party to a financial instrument will being designated to oversee how management monitors compliance fail to discharge an obligation and cause the other party to incur with the Group’s risk management policies and procedures, and to financial loss. It arises from lending, trade finance, treasury and review the adequacy of the risk management framework in relation other activities undertaken by the Group. The Group has in place to the risks faced by the Group. The committee will be assisted in its standards, policies and procedures for the control and monitoring of oversight by Group’s Risk Management Department and cluster risk all such risks. units. Internal Audit undertakes regular reviews of risk management practices. The results of this are reported to the Audit Committee, 9.1.2 Credit Risk - Concentration risk which supports the Risk Management process through their findings and other deliberations. 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.
Softlogic Holdings PLC | Annual Report 2019/20 80 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
9.1.3 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 Cash in hand Trade and other Short term Amounts due Total % of As at 31 March 2020 investments advances receivable on and at bank receivables investments from related allocation leased assets & parties hire purchases
Government securities 9.1.4 5,375,282 - - - - 2,598,307 - 7,973,589 15.04 Corporate debt securities 9.1.5 4,183,297 - - - - 1,093,730 - 5,277,027 9.95 Deposits with banks and Unit Trusts 9.1.6 29,341 - - - - 5,546,051 - 5,575,392 10.52 Loans to executives 9.1.7 6,107 - - - 14,868 - - 20,975 0.04 Loans and advances 9.1.8 - 14,179,349 - - - - - 14,179,349 26.74 Policyholders loans 9.1.9 - 236,700 - - - - - 236,700 0.45 Trade receivables 9.1.10 1,487,164 - - - 8,740,669 - - 10,227,833 19.29 Other receivables 9.1.11 - - - - 3,301,682 - - 3,301,682 6.23 Reinsurance receivables 9.1.12 - - - - 334,007 - - 334,007 0.63 Amounts due from related parties 9.1.13 ------4,670 4,670 0.01 Rental receivable on leased assets & hire purchase 9.1.14 - - 2,160,285 - - - - 2,160,285 4.07 Cash in hand and at bank 9.1.15 - - - 3,726,096 - - - 3,726,096 7.03 Total credit risk exposure 11,081,191 14,416,049 2,160,285 3,726,096 12,391,226 9,238,088 4,670 53,017,605 100.00
Financial assets at fair value through profit or loss 9.2.3.1 - - - - - 9,243 - 9,243 0.34 Financial assets at fair value through OCI 9.2.3.1 2,583,342 - - - - 109,900 - 2,693,242 99.66 Total equity risk exposure 2,583,342 - - - - 119,143 - 2,702,485 100.00 Total 13,664,533 14,416,049 2,160,285 3,726,096 12,391,226 9,357,231 4,670 55,720,090
Risk Exposure - Group In Rs. ‘000 Note Non-current Loans and Rental Cash in hand Trade and other Short term Amounts due Total % of As at 31 March 2019 investments advances receivable on and at bank receivables investments from related allocation leased assets & parties hire purchases Government securities 9.1.4 3,316,389 - - - - 1,969,419 - 5,285,808 11.12 Corporate debt securities 9.1.5 2,683,462 - - - - 1,030,166 - 3,713,628 7.81 Deposits with banks and Unit Trusts 9.1.6 25,419 - - - - 2,356,296 - 2,381,715 5.01 Loans to executives 9.1.7 550 - - - 43,272 - - 43,822 0.09 Loans and advances 9.1.8 - 15,502,233 - - - - - 15,502,233 32.62 Policyholders loans 9.1.9 - 173,312 - - - - - 173,312 0.36 Trade and other receivables 9.1.10 1,252,299 - - - 10,868,292 - - 12,120,591 25.50 Other receivables 9.1.11 - - - - 2,836,536 - - 2,836,536 5.97 Reinsurance receivables 9.1.12 - - - - 294,294 - - 294,294 0.62 Amounts due from related parties 9.1.13 ------13,692 13,692 0.03 Rental receivable on leased assets & hire purchase 9.1.14 - - 1,965,995 - - - - 1,965,995 4.14 Cash in hand and at bank 9.1.15 - - - 3,196,350 - - - 3,196,350 6.73 Total credit risk exposure 7,278,119 15,675,545 1,965,995 3,196,350 14,042,394 5,355,881 13,692 47,527,976 100.00
Financial assets at fair value through profit or loss 9.2.3.1 - - - - - 568,515 - 568,515 20.98 Financial assets at fair value through OCI 9.2.3.1 2,016,542 - - - - 125,000 - 2,141,542 79.02 Total equity risk exposure 2,016,542 - - - - 693,515 - 2,710,057 100.00 Total 9,294,661 15,675,545 1,965,995 3,196,350 14,042,394 6,049,396 13,692 50,238,033
Softlogic Holdings PLC | Annual Report 2019/20 81
9.1.3 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 Cash in hand Trade and other Short term Amounts due Total % of As at 31 March 2020 investments advances receivable on and at bank receivables investments from related allocation leased assets & parties hire purchases
Government securities 9.1.4 5,375,282 - - - - 2,598,307 - 7,973,589 15.04 Corporate debt securities 9.1.5 4,183,297 - - - - 1,093,730 - 5,277,027 9.95 Deposits with banks and Unit Trusts 9.1.6 29,341 - - - - 5,546,051 - 5,575,392 10.52 Loans to executives 9.1.7 6,107 - - - 14,868 - - 20,975 0.04 Loans and advances 9.1.8 - 14,179,349 - - - - - 14,179,349 26.74 Policyholders loans 9.1.9 - 236,700 - - - - - 236,700 0.45 Trade receivables 9.1.10 1,487,164 - - - 8,740,669 - - 10,227,833 19.29 Other receivables 9.1.11 - - - - 3,301,682 - - 3,301,682 6.23 Reinsurance receivables 9.1.12 - - - - 334,007 - - 334,007 0.63 Amounts due from related parties 9.1.13 ------4,670 4,670 0.01 Rental receivable on leased assets & hire purchase 9.1.14 - - 2,160,285 - - - - 2,160,285 4.07 Cash in hand and at bank 9.1.15 - - - 3,726,096 - - - 3,726,096 7.03 Total credit risk exposure 11,081,191 14,416,049 2,160,285 3,726,096 12,391,226 9,238,088 4,670 53,017,605 100.00
Financial assets at fair value through profit or loss 9.2.3.1 - - - - - 9,243 - 9,243 0.34 Financial assets at fair value through OCI 9.2.3.1 2,583,342 - - - - 109,900 - 2,693,242 99.66 Total equity risk exposure 2,583,342 - - - - 119,143 - 2,702,485 100.00 Total 13,664,533 14,416,049 2,160,285 3,726,096 12,391,226 9,357,231 4,670 55,720,090
Risk Exposure - Group In Rs. ‘000 Note Non-current Loans and Rental Cash in hand Trade and other Short term Amounts due Total % of As at 31 March 2019 investments advances receivable on and at bank receivables investments from related allocation leased assets & parties hire purchases Government securities 9.1.4 3,316,389 - - - - 1,969,419 - 5,285,808 11.12 Corporate debt securities 9.1.5 2,683,462 - - - - 1,030,166 - 3,713,628 7.81 Deposits with banks and Unit Trusts 9.1.6 25,419 - - - - 2,356,296 - 2,381,715 5.01 Loans to executives 9.1.7 550 - - - 43,272 - - 43,822 0.09 Loans and advances 9.1.8 - 15,502,233 - - - - - 15,502,233 32.62 Policyholders loans 9.1.9 - 173,312 - - - - - 173,312 0.36 Trade and other receivables 9.1.10 1,252,299 - - - 10,868,292 - - 12,120,591 25.50 Other receivables 9.1.11 - - - - 2,836,536 - - 2,836,536 5.97 Reinsurance receivables 9.1.12 - - - - 294,294 - - 294,294 0.62 Amounts due from related parties 9.1.13 ------13,692 13,692 0.03 Rental receivable on leased assets & hire purchase 9.1.14 - - 1,965,995 - - - - 1,965,995 4.14 Cash in hand and at bank 9.1.15 - - - 3,196,350 - - - 3,196,350 6.73 Total credit risk exposure 7,278,119 15,675,545 1,965,995 3,196,350 14,042,394 5,355,881 13,692 47,527,976 100.00
Financial assets at fair value through profit or loss 9.2.3.1 - - - - - 568,515 - 568,515 20.98 Financial assets at fair value through OCI 9.2.3.1 2,016,542 - - - - 125,000 - 2,141,542 79.02 Total equity risk exposure 2,016,542 - - - - 693,515 - 2,710,057 100.00 Total 9,294,661 15,675,545 1,965,995 3,196,350 14,042,394 6,049,396 13,692 50,238,033
Softlogic Holdings PLC | Annual Report 2019/20 82 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
Risk Exposure - Company In Rs. ‘000 Note Non- Cash in Trade Short Amounts Total % of As at 31 March 2020 current hand and at and other term due from allocation investments banks receivable investments related parties
Loans to executives 9.1.7 - - 4,198 - - 4,198 0.02 Trade receivables 9.1.10 - - 655,300 - - 655,300 3.04 Other receivables 9.1.11 - - 20,862 - - 20,862 0.10 Amounts due from related parties 9.1.13 1,549,170 - - - 18,506,617 20,055,787 93.12 Cash in hand and at bank 9.1.15 - 800,330 - - - 800,330 3.72 Total credit risk exposure 1,549,170 800,330 680,360 - 18,506,617 21,536,477 100.00
Financial assets at fair value through profit or loss 9.2.3.1 - - - 5,140 - 5,140 4.47 Financial assets at fair value through OCI 9.2.3.1 - - - 109,900 - 109,900 95.53 Total equity risk exposure - - - 115,040 - 115,040 100.00 Total 1,549,170 800,330 680,360 115,040 18,506,617 21,651,517
Risk Exposure - Company In Rs. ‘000 Note Non- Cash in Trade Short Amounts Total % of As at 31 March 2019 current hand and at and other term due from allocation investments banks receivable investments related parties Loans to executives 9.1.7 - - 4,218 - - 4,218 0.03 Trade receivables 9.1.10 - - 398,263 - - 398,263 2.40 Other receivables 9.1.11 - - 509,612 - - 509,612 3.08 Amounts due from related parties 9.1.13 1,465,042 - - - 14,176,360 15,641,402 94.39 Cash in hand and at bank 9.1.15 - 18,294 - - - 18,294 0.10 Total credit risk exposure 1,465,042 18,294 912,093 - 14,176,360 16,571,789 100.00
Financial assets at fair value through profit or loss 9.2.3.1 - - - 5,625 - 5,625 4.31 Financial assets at fair value through OCI 9.2.3.1 - - - 125,000 - 125,000 95.69 Total equity risk exposure - - - 130,625 - 130,625 100.00 Total 1,465,042 18,294 912,093 130,625 14,176,360 16,702,414
Softlogic Holdings PLC | Annual Report 2019/20 83
9.1.4 Government securities As at 31 March 2020 as shown in the table above, 15.04% (2019 - 11.12%) of Group debt securities comprise investments in government securities which consist of treasury bonds, bills and reverse repo investments. Government securities are usually considered to as risk free due to the sovereign nature of the instrument.
9.1.5 Corporate debt securities As at 31 March 2020, corporate debt securities comprise 97.22% (2019 - 88.24%) of the total investments for the Group were rated “A-” or better.
As at 31 March Group 2020 2019 Rs. '000 Rating % Rs. '000 Rating % of total of total
Fitch/ ICRA rating AA+ 857,148 16.24 421,578 11.35 AA- 639,258 12.11 819,801 22.08 A+ 1,342,500 25.44 378,732 10.20 A 2,291,926 43.43 1,087,842 29.29 A- - - 568,936 15.32 BBB+ 25,837 0.50 125,406 3.38 BBB 31,737 0.60 63,006 1.70 BBB- - - 102,985 2.77 CC - - 145,342 3.91 Not rated 88,621 1.68 - - Total 5,277,027 100.00 3,713,628 100.00
9.1.6 Deposits with banks and Unit Trusts Deposits with banks consist mainly of fixed and call deposits.
As at 31 March 2020, 98.03% (2019 - 99.99%) of the fixed and call deposits and investments in Unit Trusts were rated “A-” or better for the Group.
As at 31 March Group 2020 2019 Rs. '000 Rating % Rs. '000 Rating % of total of total
Fitch rating AAA 108,640 1.95 - - AA+ 29,086 0.52 161,439 6.78 AA - - 25,179 1.06 AA- 275,637 4.94 344,517 14.47 A+ - - 444,395 18.66 A 1,469,374 26.35 144,676 6.07 A- 54,318 0.97 659,973 27.71 BBB- 4,727 0.08 - - BBB 105,579 1.89 - - BB+ - - 182 0.01 Unit trust 3,527,819 63.30 601,323 25.24 Not rated 212 - 31 - Total 5,575,392 100.00 2,381,715 100.00
Softlogic Holdings PLC | Annual Report 2019/20 84 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
9.1.7 Loans to executives The Loans to Executives portfolio consists largely of short term distress loans granted to executive staff. The respective business units have taken necessary powers of attorney/ promissory notes as collateral for the loans granted.
9.1.8 Loans and advances As a part of the overall risk management strategy, the Boards of Directors of the respective companies in the Financial Services cluster, have 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 agreements.
Loans and advances excluding loans to life policyholder In Rs. ‘000 Note Consumer Factoring Gold Other Personal Revolving SME Total Total As at 31 March loans loans loans loans loans loans loans 2020 2019
Assets at amortised cost Individually impaired - gross amount - - - 2,491,549 5,063 1,232,923 140,322 3,869,857 2,834,096 - unearned income - - - (407,599) (235) (5,264) (3,920) (417,018) (235,525) Gross carrying amount - - - 2,083,950 4,828 1,227,659 136,402 3,452,839 2,598,571 - allowance for impairment 9.1.8.2 - - - (148,905) (1,927) (65,783) (8,044) (224,659) (192,944) Net carrying amount - - - 1,935,045 2,901 1,161,876 128,358 3,228,180 2,405,627
For the rest of portfolio where collective impairment is applicable - gross amount 72,907 642,747 2,953,867 5,845,921 702,939 223,408 2,674,359 13,116,148 15,810,437 - unearned income (7,019) - - (810,215) (25,302) (230) (145,427) (988,193) (1,750,172) Gross carrying amount 9.1.8.1 65,888 642,747 2,953,867 5,035,706 677,637 223,178 2,528,932 12,127,955 14,060,265 - allowance for impairment 9.1.8.2 (21,594) (42,659) (12,998) (484,968) (205,479) (12,074) (397,014) (1,176,786) (963,659) Net carrying amount 44,294 600,088 2,940,869 4,550,738 472,158 211,104 2,131,918 10,951,169 13,096,606 Total net carrying amount 44,294 600,088 2,940,869 6,485,783 475,059 1,372,980 2,260,276 14,179,349 15,502,233
Softlogic Holdings PLC | Annual Report 2019/20 85
9.1.8.1 Age analysis of facilities considered for collective impairment In Rs. ‘000 Consumer Factoring Gold Other Personal Revolving SME Total Total As at 31 March loans loans loans loans loans loans loans 2020 2019
Category Not due/ current 32,144 515,612 1,086,189 1,223,193 44,332 168,233 586,784 3,656,487 6,360,846 Less than 30 days 10,810 31,627 546,938 757,285 10,455 21,752 257,244 1,636,111 2,692,939 31 - 60 days 1,324 59,135 402,747 320,311 4,755 20,102 99,976 908,350 1,330,573 61 - 90 days 1,127 9,534 340,206 1,168,238 2,891 1,142 44,874 1,568,012 733,794 91 - 120 days 716 26,839 498,914 132,954 7,656 - 64,705 731,784 434,737 121 - 150 days 759 - 67,309 102,694 4,024 5,646 78,585 259,017 257,174 151 - 180 days 141 - 255 105,456 8,406 1,999 68,866 185,123 322,800 above 180 days 18,867 - 11,309 1,225,575 595,118 4,304 1,327,898 3,183,071 1,927,402 Total 65,888 642,747 2,953,867 5,035,706 677,637 223,178 2,528,932 12,127,955 14,060,265
9.1.8.2 Movement in impairment allowance for loans advances In Rs. ‘000 Movement in specific Movement in collective Movement in impairment allowance impairment allowance impairment allowance As at 31 March 2020 2019 2020 2019 2020 2019
At the beginning of the year 192,944 338,953 963,659 575,231 1,156,603 914,184 Impact of adopting SLFRS 9 - - - 592,062 - 592,062 Net impairment charge for the year 31,715 (95,009) 311,619 205,767 343,334 110,758 Set-offs during the year - (1,605) - (70,000) - (71,605) Write-offs during the year - (49,395) (98,492) (339,401) (98,492) (388,796) At the end of the year 224,659 192,944 1,176,786 963,659 1,401,445 1,156,603
9.1.8.3 Maximum exposure to credit risk The table below shows the maximum exposure to credit risk for the components of statement of financial position. The maximum exposure is shown gross, before the effect of mitigation through the use of collateral agreements.
As at 31 March 2020 2019 In Rs. ‘000 Maximum Net Maximum Net exposure to exposure exposure to exposure credit risk credit risk
Loans and receivables 15,953,544 11,911,084 17,208,835 11,306,176
9.1.9 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. 236.70 Mn (2019 – Rs. 173.31 Mn) and their related surrender value is more than carrying value.
Softlogic Holdings PLC | Annual Report 2019/20 86 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
9.1.10 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 outstanding of major customers are, where feasible, covered by bank guarantees or other forms of credit insurance.
In Rs. ‘000 Group Company As at 31 March 2020 2019 2020 2019 Non hire Hire Total Non hire Hire Total Total Total purchase purchase purchase purchase debtors debtors debtors debtors
Trade receivable settlement profile Current/ 0 - 30 days 2,003,023 2,768,409 4,771,432 4,186,131 3,042,415 7,228,546 121,663 99,398 31 - 60 days 1,993,071 37,519 2,030,590 2,969,021 59,446 3,028,467 66,125 51,920 61 - 90 days 982,116 4,121 986,237 658,556 61,233 719,789 47,216 72,251 91 - 120 days 902,781 1,985 904,766 150,223 30,137 180,360 84,112 25,455 > 121 days 1,491,279 168,327 1,659,606 1,062,883 29,779 1,092,662 336,184 149,239 Impaired 538,382 962,494 1,500,876 590,983 758,666 1,349,649 136,621 136,621 Gross amount 7,910,652 3,942,855 11,853,507 9,617,797 3,981,676 13,599,473 791,921 534,884 Less : Unearned income - (124,798) (124,798) - (155,722) (155,722) - - Gross carrying value 7,910,652 3,818,057 11,728,709 9,617,797 3,825,954 13,443,751 791,921 534,884 Less : Impairment provision Individually assessed impairment provision (220,139) - (220,139) (313,268) - (313,268) (77,853) (77,853) Collectively assessed impairment provision (318,243) (962,494) (1,280,737) (277,715) (732,177) (1,009,892) (58,768) (58,768) Total 7,372,270 2,855,563 10,227,833 9,026,814 3,093,777 12,120,591 655,300 398,263
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.
9.1.11 Other receivables The Group’s other receivables consist mainly of dues receivables from foreign suppliers. At each reporting period end management assess the recoverability of these receivable balances and make necessary provisioning for the dough full balances.
9.1.12 Reinsurance receivable As a part of overall risk management strategy, the Group 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 relationship 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. 334.00 Mn at 31 March 2020 (2019 - Rs. 294.29 Mn). This consists mainly of reinsurance receivables on paid claims amounting to Rs. 277.70 Mn (2019 - Rs. 225.57 Mn) and the reinsurance share of claim reserve (receivables on outstanding claims) of Rs. 56.30 Mn as at 31 March 2020 (2019 - Rs. 68.72 Mn).
9.1.13 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.
Softlogic Holdings PLC | Annual Report 2019/20 87
9.1.14 Rental receivable on lease assets & hire purchase As a part of overall risk management strategy, the Board of Directors of the company concerned 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 the 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 agreements.
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 2020 2019
Assets at amortised cost Individually impaired - gross amount 119,276 28,226 147,502 49,620 25,491 75,111 - unearned income (9,507) (1,256) (10,763) (4,488) (4,535) (9,023) Gross carrying amount 109,769 26,970 136,739 45,132 20,956 66,088 - allowance for impairment 9.1.14.2 (20,760) (685) (21,445) (13,275) (761) (14,036) Net carrying amount 89,009 26,285 115,294 31,857 20,195 52,052
For the rest of portfolio, where collective impairment applies - gross amount 2,784,514 86,057 2,870,571 2,652,410 96,060 2,748,470 - unearned income (696,699) - (696,699) (738,994) (5) (738,999) Gross carrying amount 9.1.14.1 2,087,815 86,057 2,173,872 1,913,416 96,055 2,009,471 - allowance for impairment 9.1.14.2 (111,945) (16,936) (128,881) (75,333) (20,195) (95,528) Net carrying amount 1,975,870 69,121 2,044,991 1,838,083 75,860 1,913,943 Total Net carrying amount 2,064,879 95,406 2,160,285 1,869,940 96,055 1,965,995
9.1.14.1 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 2020 2019
Category Not due/ current 959,612 1,111 960,723 752,598 239 752,837 Overdue: Less than 30 days 385,291 - 385,291 380,256 - 380,256 31 - 60 days 203,669 - 203,669 266,712 236 266,948 61 - 90 days 134,335 - 134,335 158,261 - 158,261 91 - 120 days 75,451 - 75,451 98,815 603 99,418 121 - 150 days 47,478 - 47,478 48,373 90 48,463 151 - 180 days 45,025 - 45,025 31,946 - 31,946 above 180 days 236,954 84,946 321,900 176,455 94,887 271,342 Total 2,087,815 86,057 2,173,872 1,913,416 96,055 2,009,471
Softlogic Holdings PLC | Annual Report 2019/20 88 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
9.1.14.2 Movement in impairment allowance In Rs. ‘000 Movement in specific Movement in collective Movement in impairment impairment allowance impairment allowance allowance As at 31 March 2020 2019 2020 2019 2020 2019
At the beginning of the year 14,036 10,090 95,528 121,882 109,564 131,972 Impact of adopting SLFRS 9 - - - (1,864) - (1,864) Net impairment charge for the year 7,409 3,946 33,353 57,555 40,762 61,501 Write offs during the year - - - (82,045) - (82,045) At the end of the year 21,445 14,036 128,881 95,528 150,326 109,564
9.1.14.3 Maximum exposure to credit risk The table below shows the maximum exposure to credit risk for the components of statement of financial position. The maximum exposure is shown gross, before the effect of mitigation through the use of collateral agreements.
As at 31 March 2020 2019 In Rs. ‘000 Maximum Net Maximum Net exposure to exposure exposure to exposure credit risk credit risk
Lease and hire purchase receivables 2,310,611 - 2,075,558 -
9.1.15 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 as shown.
9.2 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.
9.2.1 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.
9.2.1.1 Exposure to interest rate risk The interest rate profile of the Group’s interest bearing financial instruments as reported to Group management is as follows:
In Rs. ‘000 Group Company Nominal amount Nominal amount As at 31 March 2020 2019 2020 2019
Fixed rate instrument Financial assets 38,755,174 31,280,131 - - Financial liabilities (51,439,645) (42,368,861) (17,194,951) (3,273,536) (12,684,471) (11,088,730) (17,194,951) (3,273,536)
Variable rate instruments Financial assets 3,726,096 2,596,037 18,828,562 14,013,567 Financial liabilities (42,338,687) (40,396,514) (10,568,366) (17,867,456) (38,612,591) (37,800,477) 8,260,196 (3,853,889)
Softlogic Holdings PLC | Annual Report 2019/20 89
9.2.1.2 Interest rate sensitivity The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings that may be affected. Provided all other variables are held constant, the Group’s profit before tax is affected through the impact on floating rate borrowings, as follows:
In Rs. ‘000 Increase in basis points Effect on profit before tax Rupee Other Group Company borrowings currencies
2020 + 300 b.p + 200 b.p (999,152) 247,806 - 300 b.p - 200 b.p 999,152 (247,806) 2019 + 100 b.p + 30 b.p (339,446) 38,539 - 100 b.p - 30 b.p 339,446 (38,539)
The spread of basis points used for the interest rate sensitivity analysis is based on the currently observable market environment.
9.2.2 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 has set up a policy that requires the company and its subsidiaries to manage their foreign exchange risk with limits on maximum exposure.
9.2.2.1 Foreign currency sensitivity The following table demonstrates the sensitivity to possible changes in the USD/RS exchange rate, provided that 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 Effect on exchange profit equity rate USD before tax
2020 + 5% 67,808 (305,925) - 5% (67,808) 305,925 2019 + 10% (367,062) (444,325) - 10% 367,062 444,325
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 the nature of the hedging is not economic, it is the Group’s policy to negotiate with counterparties or banks to obtain most advantage position for the Group.
9.2.2.2 Foreign exchange risk in operating activities The exposure is mainly from foreign currency obligations arising out of operating activities where fluctuation of foreign exchange rate may occur during a credit period of 3 - 6 months.
Softlogic Holdings PLC | Annual Report 2019/20 90 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
9.2.3 Equity price risk 9.2.3.1 Listed equity investments The Group holds listed and unlisted 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 Financial assets at fair value through OCI As at 31 March 2020 2019 2020 2019 Rs. '000 % Rs. '000 % Rs. '000 % Rs. '000 %
Bank, finance and insurance 7,988 86.41 357,445 62.88 1,940,670 87.83 1,547,305 100.00 Beverage, food and tobacco - - - - 40,113 1.82 - - Construction and engineering - - - - 37,129 1.68 - - Diversified holdings 51 0.55 147,882 26.01 95,947 4.34 - - Footwear and textile - - - - 56,078 2.54 - - Hotels and travels 12 0.13 13 - - - - - Manufacturing 119 1.29 17,172 3.02 29,459 1.33 20 - Power and energy 1,074 11.62 13,436 2.36 10,286 0.46 - - Telecommunications - - 32,567 5.73 - - - - 9,244 100.00 568,515 100.00 2,209,682 100.00 1,547,325 100.00
Company Financial assets at fair value through profit or loss As at 31 March 2020 2019 Rs. '000 % Rs. '000 %
Bank, finance and insurance 4,066 79.11 4,525 80.44 Power and energy 1,074 20.89 1,100 19.56 5,140 100.00 5,625 100.00
9.2.3.2 Unquoted equity investments Investments in unquoted investments are made with the board approval.
9.2.3.3 Sensitivity analysis The following table demonstrate the sensitivity of cumulative changes in fair value to reasonably possible changes in equity prices provided all other variables are held constant. The effect of a decrease in equity prices is expected to be equal and opposite to the effect of the increase shown.
This table consider only quoted equity shares classified as short term and long term financial assets.
In Rs. ‘000 Group Company Change in Effect Effect on Effect Effect on equity price on profit equity on profit equity before tax before tax
2020 Quoted equity investments listed on the Colombo Stock Exchange + 15% 1,387 331,452 771 Nil - 15% (1,387) (331,452) (771) Nil 2019 Quoted equity investments listed on the Colombo Stock Exchange + 15% 85,277 232,099 844 Nil - 15% (85,277) (232,099) (844) Nil
Softlogic Holdings PLC | Annual Report 2019/20 91
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 will always have sufficient liquidity to meet its liabilities when due under normal and stressed conditions. The Group assessed the concentration of risk with respect to 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.
9.3.1 Net debt / (cash) In Rs. ‘000 Group Company As at 31 March 2020 2019 2020 2019
Short term investments 9,357,231 6,049,396 115,040 130,625 Cash in hand and at bank 3,726,096 3,196,350 800,330 18,294 Total liquid assets 13,083,327 9,245,746 915,370 148,919
Other current financial liabilities 27,690,199 23,128,625 16,367,571 10,003,875 Current portion of interest bearing borrowings 10,517,214 9,782,952 5,207,906 3,958,498 Bank overdrafts 7,262,837 7,761,224 160,243 174,702 Total liabilities 45,470,250 40,672,801 21,735,720 14,137,075
Net debt 32,386,923 31,427,055 20,820,350 13,988,156 Adjustments for; Short term investments with maturity less than 3 months 8,456,624 3,554,200 - - Unutilised approved banking facilities 2,270,774 757,908 281,200 6,521 21,659,525 27,114,947 20,539,150 13,981,635
Further the Group will utilise excess liquidity through operating cycle, restructuring of short term financial commitments, funds available through commercial papers and revolving loan facilities as positive cash flows to the manage the liquidity position of the Group.
9.3.2 Liquidity risk management An optional combination of positive and negative cash flows along with investment returns and contractual obligation maturing is collated through an intra-day cash reporting system for all business segments. High value contractual outflows are processed through various control filters. The Group is in the process of building a “Liquidity Dashboard” with the implementation of its ERP program. This would help further accelerate the review and identification of debt maturities relating to net liquidity position on a daily basis and thus enable proactive funding mobilisation and reinvestment of cash surpluses, and re-scheduling maturity profiles to de-stress cash flows and align them with actual investment tenors. This would engender 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 2020 based on contractual undiscounted 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 13,751,238 12,805,522 7,749,298 5,968,832 5,612,558 8,430,111 54,317,559 Lease liability 1,704,061 1,625,862 1,359,755 1,003,394 640,933 2,318,162 8,652,167 Other non-current financial liabilities - 28,500 516,247 135,000 168,345 - 848,092 Trade and other payables 8,645,807 - - - - - 8,645,807 Amounts due to related parties 32,405 - - - - - 32,405 Other current financial liabilities 27,690,199 - - - - - 27,690,199 Public deposits 13,278,368 2,822,505 1,553,956 861,130 1,849,548 - 20,365,507 Bank overdrafts 7,262,837 - - - - - 7,262,837 72,364,915 17,282,389 11,179,256 7,968,356 8,271,384 10,748,273 127,814,573
Softlogic Holdings PLC | Annual Report 2019/20 92 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
The table below summarises the maturity profile of the company’s financial liabilities at 31 March 2020 based on contractual undiscounted 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 5,994,543 4,790,144 1,115,332 788,055 328,350 227,814 13,244,238 Lease liability 11,684 2,285 1,350 - - - 15,319 Trade and other payables 236,343 - - - - - 236,343 Amounts due to related parties 95,208 - - - - - 95,208 Other current financial liabilities 16,367,571 - - - - - 16,367,571 Bank overdrafts 160,243 - - - - - 160,243 22,865,592 4,792,429 1,116,682 788,055 328,350 227,814 30,118,922
The table below summarises the maturity profile of the Group’s financial liabilities at 31 March 2019 based on contractual undiscounted 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 12,907,941 9,581,274 9,421,147 4,522,075 3,476,983 4,166,077 44,075,497 Other non-current financial liabilities - 4,426 110,779 - - - 115,205 Trade and other payables 8,428,255 - - - - - 8,428,255 Amounts due to related parties 2,731 - - - - - 2,731 Other current financial liabilities 23,128,625 - - - - - 23,128,625 Public deposits 13,252,446 2,394,223 1,438,383 565,690 665,482 - 18,316,224 Bank overdrafts 7,761,224 - - - - - 7,761,224 65,481,222 11,979,923 10,970,309 5,087,765 4,142,465 4,166,077 101,827,761
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 2019 based on contractual undiscounted 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 5,089,886 3,813,199 2,009,971 773,162 433,193 158,361 12,277,772 Trade and other payables 108,894 - - - - - 108,894 Amounts due to related parties 16,671 - - - - - 16,671 Other current financial liabilities 10,003,875 - - - - - 10,003,875 Bank overdrafts 174,702 - - - - - 174,702 15,394,028 3,813,199 2,009,971 773,162 433,193 158,361 22,581,914
9.3.4 Capital management The primary objective of the Group’s capital management is to The Group monitors capital using a gearing ratio for the company ensure that it maintains a strong credit rating and healthy capital and subsidiaries, net debt divided by total capital plus net debt, ratios in order to support its business and maximise shareholder which is monitored closely by senior management. Net debt of the value. Group includes, interest bearing loans and borrowings, trade and other payables less cash and cash equivalents. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.
No changes were made in the objectives, policies or processes for managing capital during the year ended 31 March 2020.
Softlogic Holdings PLC | Annual Report 2019/20 93
In Rs. ‘000 Group Company As at 31 March 2020 2019 2020 2019
Net debt 72,785,584 62,591,496 26,962,988 21,122,700 Equity 21,725,765 24,839,457 14,239,445 15,990,118 Capital and total net debt 94,511,349 87,430,953 41,202,433 37,112,818 Gearing ratio - (X) 0.77 0.72 0.65 0.57
10 FAIR VALUE MEASUREMENT AND RELATED FAIR VALUE DISCLOSURE
Fair value measurement Fair value related disclosures for financial instruments and non- All assets and liabilities for which fair value is measured or disclosed financial assets that are measured at fair value are disclosed in this in the Financial Statements are categorised within the fair value note. Apart from this note, additional fair value related disclosures, hierarchy, described as follows, based on the lowest level input that including the valuation methods, significant estimates and is significant to the fair value measurement as a whole: assumptions are also provided in: Level 1 - Quoted (unadjusted) market prices in active markets for Note identical assets or liabilities
Property, plant and equipment under revaluation model 22.3 Level 2 - Valuation techniques for which the lowest level input that Investment properties 24.2 is significant to the fair value measurement is directly or Investment in unquoted equity shares 26.3 indirectly observable Financial instruments 12 Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable ACCOUNTING POLICY For assets and liabilities that are recognised in the Financial Fair value is the price that would be received to sell an asset or Statements on a recurring basis, the Group determines whether paid to transfer a liability in an orderly transaction between market transfers have occurred between levels in the hierarchy by participants at the measurement date. The fair value measurement reassessing categorisation (based on the lowest level input that is is based on the presumption that the transaction to sell the asset or significant to the fair value measurement as a whole) at the end of transfer the liability takes place either: each reporting period. »» in the principal market for the asset or liability, or The Group determines the policies and procedures for both recurring »» in the absence of a principal market, in the most advantageous fair value measurement, such as investment properties and market for the asset or liability. unquoted AFS financial assets, and for non-recurring measurement, The principal or the most advantageous market must be accessible such as assets held-for-sale in discontinued operations. by the Group. External valuers are involved for valuation of significant assets, such The fair value of an asset or a liability is measured using the as land and building and investment properties, and significant assumptions that market participants would use when pricing the liabilities, such as insurance contracts. Selection criteria for external asset or liability, assuming that market participants act in their valuers include market knowledge, reputation, independence economic best interest. and whether professional standards are maintained. The Group decides, after discussions with the external valuers, which valuation A fair value measurement of a non-financial asset takes into techniques and inputs to use for each case. account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to For the purpose of fair value disclosures, the Group has determined another market participant that would use the asset in its highest classes of assets and liabilities on the basis of the nature, and best use. characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. The Group uses valuation techniques that are appropriate in the 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.
Softlogic Holdings PLC | Annual Report 2019/20 94 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
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 2020 2019 2020 2019 2020 2019
Financial assets Financial assets at fair value through OCI Quoted equity instruments - 1,547,325 2,209,682 - - - Unquoted equity instruments - - - - 483,560 594,217 Quoted debt instruments 1,364,029 2,780,090 - - - - Financial assets at fair value through P&L Quoted equity instruments - 568,515 9,243 - - - Quoted debt instruments 2,105,955 293,477 - - - - Unit Trust - - 3,270,729 601,323 - - Total 3,469,984 5,189,407 5,489,654 601,323 483,560 594,217
Liabilities measured at fair value Financial liabilities at fair value through P&L Other current financial liabilities - - - - 168,345 9,357 Total - - - - 168,345 9,357
Due to the COVID-19 outbreak and the closure of the Colombo Stock Exchange, the Management has assessed and determined the fair value of equity portfolio as of 31 March 2020, based on the closing traded prices that existed as of 31 December 2019 and 28 February 2020.
All the listed equity instruments amounting to Rs. 2,218.93 Mn were transferred from level 1 to level 2 as at 31 March 2020 as it shows factors which are indicative of an inactive market due to COVID-19 pandemic. There was a significant decline in the world equity market and the share prices did not reflect the accurate fair value of the instrument. Hence management decided to recognise all its listed equity instruments in level 2.
Non financial assets In Rs. ‘000 Level 1 Level 2 Level 3 As at 31 March 2020 2019 2020 2019 2020 2019
Non financial assets measured at fair value Land and buildings - - - - 27,217,331 25,954,359 Buildings on leasehold land - - - - 9,556,307 4,736,385 Investment property - - - - 2,030,380 1,695,261 Total - - - - 38,804,018 32,386,005
In determining the fair value of non financial assets measured at fair value, highest and best use of the property has been considered including the current condition of the properties, future usability and associated redevelopment requirements. Also, the valuers have made reference to market evidence of transaction prices for similar properties, with appropriate adjustments for size and location. The appraised fair values are rounded within the range of values.
Softlogic Holdings PLC | Annual Report 2019/20 95
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 pos
Financial assets In Rs. ‘000 Level 1 Level 2 Level 3 As at 31 March 2020 2019 2020 2019 2020 2019
Financial assets Financial assets at fair value through P&L Quoted equity instruments - 5,625 5,140 - - - Financial assets at fair value through OCI Unquoted equity instruments - - - - 109,900 125,000 Total - 5,625 5,140 - 109,900 125,000
All the listed equity instruments amounting to Rs. 5.14 Mn were transferred from level 1 to level 2 as at 31 March 2020 as it shows factors which are indicative of an inactive market due to COVID-19 pandemic. There was a significant decline in the world equity market and the share prices did not reflect the accurate fair value of the instrument. Hence management decided to recognise all its listed equity instruments in level 2.
Non financial assets In Rs. ‘000 Level 1 Level 2 Level 3 As at 31 March 2020 2019 2020 2019 2020 2019
Non financial assets measured at fair value Investment property - - - - 794,500 744,000 Total - - - - 794,500 744,000
In determining the fair value of non financial assets measured at fair value, highest and best use of the property has been considered including the current condition of the properties, future usability and associated redevelopment requirements. Also, the valuers have made reference to market evidence of transaction prices for similar properties, with appropriate adjustments for size and location. The appraised fair values are rounded within the range of values.
Reconciliation of fair value measurements of level 3 financial instruments The Group and Company carries unquoted equity shares are classified as Level 3 within the fair value hierarchy. A reconciliation of the beginning and closing balances including movements is summarised below:
In Rs. ‘000 Financial assets at fair value through OCI Group Company
As at 1 April 2019 594,217 125,000 Remeasurement recognised in OCI (110,657) (15,100) As at 31 March 2020 483,560 109,900
Valuation of level 3 : unquoted equity instruments The fair valuation of level 3 : unquoted equity instruments is measured using internal model of adjusted net asset for illiquidity. Comparative figure stated at cost as permitted by SLFRS 9. Fair value would not significantly vary if one or more of the inputs were changed.
When deciding illiquidity premium, the Group has considered following factors. - the recent acquisition of Finance Companies had taken place at more than the net asset value of target investee - the Bank is in the possession of regular license
Softlogic Holdings PLC | Annual Report 2019/20 96 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
This table consider only unquoted equity shares classified level 3 financial assets.
In Rs. ‘000 Variable Change Effect on equity Group Company
2020 Unquoted equity investments classified as level 3 within the fair value hierarchy Illiquidity + 1% (4,840) (1,100) premium - 1% 5,280 1,200 2019 Unquoted equity investments classified as level 3 within the fair value hierarchy Equity + 1% 6,278 2,350 price - 1% (6,278) (350)
11 FINANCIAL INSTRUMENTS
11.1 Financial assets
ACCOUNTING POLICY
Initial recognition and subsequent measurement Debt instruments Initial recognition and measurement Financial assets at amortised cost Financial assets within the scope of SLFRS 9 are classified as Assets that are held for collection of contractual cash flows where amortised cost, fair value through other comprehensive income those cash flows represent solely payments of principal and interest (OCI), and fair value through profit or loss. are measured at amortised cost. The Group measures financial assets at amortised cost if both of the following conditions are met: The classification of financial assets at initial recognition depends »» The financial asset is held within a business model with the on the financial asset’s contractual cash flow characteristics and objective to hold financial assets in order to collect contractual the Group’s business model for managing them. This assessment is cash flows: and referred to as the SPPI test and is performed at an instrument level. The business model determines whether cash flows will result from »» The contractual terms of the financial asset give rise on collecting contractual cash flows, selling the financial assets, or specified dates to cash flows that are solely payments of both. With the exception of trade receivables that do not contain a principal and interest on the principal amount outstanding. significant financing component or for which the Group has applied Financial the practical expedient are measured at the transaction price. The Group’s financial assets at amortised cost includes trade receivables and short term investments. At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through Financial assets at fair value through OCI profit or loss (FVPL), transaction costs that are directly attributable Assets that are held for collection of contractual cash flows and for to the acquisition of the financial asset. Transaction costs of selling the financial assets, where the assets’ cash flows represent financial assets carried at FVPL are expensed in profit or loss. solely payments of principal and interest, are measured at FVOCI. The Group’s financial assets include cash and short-term deposits, The Group measures debt instruments at fair value through OCI if trade and other receivables, loans and other receivables, quoted and both of the following conditions are met: unquoted financial instruments and derivative financial instruments. »» The financial asset is held within a business model with the objective of both holding to collect contractual cash flows and Subsequent measurement selling: and The subsequent measurement of financial assets depends on »» The contractual terms of the financial asset give rise on their classification. For the purpose of subsequent measurement specified dates to cash flows that are solely payments of financial assets are classified in four categories. principal and interest on the principal amount outstanding. »» Financial assets at amortised cost Movements in the carrying amount are taken through OCI, except for »» Financial assets at fair value through OCI with recycling of the recognition of impairment gains or losses, interest income and cumulative gains and losses foreign exchange gains and losses which are recognised in profit »» Financial assets designated at fair value through OCI with no or loss. When the financial asset is derecognised, the cumulative recycling of cumulative gains and losses upon derecognition gain or loss previously recognised in OCI is reclassified from equity »» Financial assets at fair value through profit or loss to profit or loss and recognised in other gains/ (losses). Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains/ (losses) and impairment expenses are presented as separate line item in the income statement.
Softlogic Holdings PLC | Annual Report 2019/20 97
Equity instruments Financial assets designated at fair value through OCI established a provision matrix that is based on its historical credit Upon initial recognition, the Group can elect to classify irrevocably loss experience, adjusted for forward-looking factors specific to the its equity investments as equity instruments designated at fair value debtors and the economic environment. through OCI when they meet the definition of equity under LKAS 32 Financial Instruments: Presentation and are not held for trading. The 11.2 Financial liabilities classification is determined on an instrument-by-instrument basis. Initial recognition and measurement Gains and losses on these financial assets are never recycled to Financial liabilities are classified, at initial recognition, as financial profit or loss. Dividends are recognised as other income in the liabilities at fair value through profit or loss, loans and borrowings, statement of profit or loss when the right of payment has been payables, or as derivatives designated as hedging instruments in an established, except when the Group benefits from such proceeds as effective hedge, as appropriate. a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair All financial liabilities are recognised initially at fair value and, in value through OCI are not subject to impairment assessment. the case of loans and borrowings and payables, net of directly attributable transaction costs. Financial assets at fair value through profit or loss The Group’s financial liabilities include trade and other payables, Financial assets at fair value through profit or loss include financial loans and borrowings including bank overdrafts, and derivative assets held for trading, financial assets designated upon initial financial instruments. recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the Subsequent measurement purpose of selling or repurchasing in the near term. Derivatives, The measurement of financial liabilities depends on their including separated embedded derivatives, are also classified as classification, as described below: held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely Financial liabilities at fair value through profit or loss Financial payments of principal and interest are classified and measured at liabilities at fair value through profit or loss include financial fair value through profit or loss, irrespective of the business model. liabilities held for trading and financial liabilities designated upon Notwithstanding the criteria for debt instruments to be classified at initial recognition as at fair value through profit or loss. amortised cost or at fair value through OCI, as described above, debt Financial liabilities are classified as held for trading if they are instruments may be designated at fair value through profit or loss incurred for the purpose of repurchasing in the near term. This on initial recognition if doing so eliminates, or significantly reduces, category also includes derivative financial instruments entered into an accounting mismatch. by the Group that are not designated as hedging instruments in Financial assets at fair value through profit or loss are carried in the hedge relationships as defined by SLFRS 9. Separated embedded statement of financial position at fair value with net changes in fair derivatives are also classified as held for trading unless they are value recognised in the statement of profit or loss. designated as effective hedging instruments.
This category includes derivative instruments and listed equity Gains or losses on liabilities held for trading are recognised in the investments which the Group had not irrevocably elected to classify statement of profit or loss. at fair value through OCI. Dividends on listed equity investments are also recognised as other income in the statement of profit or loss Loans and borrowings when the right of payment has been established. This is the category most relevant to the Group. After initial recognition, interest-bearing loans and borrowings are subsequently Derecognition measured at amortised cost using the EIR method. Gains and losses Financial assets are derecognised when the rights to receive are recognised in profit or loss when the liabilities are derecognised cash flows from the financial assets have expired or have been as well as through the EIR amortisation process. transferred and the Group has transferred substantially all the risks Amortised cost is calculated by taking into account any discount or and rewards of ownership. premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the Impairment of financial assets statement of profit or loss. From 01 April 2018, the Group assesses on a forward looking basis the expected credit losses associated with its debt instruments Derecognition carried at amortised cost and FVOCI. The impairment methodology A financial liability is derecognised when the obligation under the applied depends on whether there has been a significant increase in liability is discharged or cancelled or expires. When an existing credit risk. financial liability is replaced by another from the same lender on For trade receivables, the Group applies the simplified approach substantially different terms, or the terms of an existing liability are permitted by SLFRS 9, which requires expected lifetime losses to be substantially modified, such an exchange or modification is treated recognised from initial recognition of the receivables. The Group has as the derecognition of the original liability and the recognition of
Softlogic Holdings PLC | Annual Report 2019/20 98 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
a new liability. The difference in the respective carrying amounts is Derivative financial instruments recognised in the statement of profit or loss. Initial recognition and subsequent measurement Off-setting of financial instruments Initial recognition and subsequent measurement The Group uses derivative financial instruments such as forward currency contracts, Financial assets and financial liabilities are offset and the net interest rate swaps and forward commodity contracts to hedge amount is reported in the consolidated statement of financial its foreign currency risks, interest rate risks and commodity price position if there is a currently enforceable legal right to offset the risks, respectively. Such derivative financial instruments are initially recognised amounts and there is an intention to settle on a net recognised at fair value on the date on which a derivative contract basis, to realise the assets and settle the liabilities simultaneously. is entered into and are subsequently remeasured at fair value. Derivative financial instruments and hedge accounting - Initial Derivatives are carried as financial assets when the fair value is recognition and subsequent measurement The Group uses positive and as financial liabilities when the fair value is negative. derivative financial instruments, such as forward currency contracts, Any gains or losses arising from changes in the fair value of interest rate swaps and forward commodity contracts, to hedge derivatives are taken directly to the income statement. its foreign currency risks, interest rate risks and commodity price risks, respectively. Such derivative financial instruments are initially Derivative financial instruments and hedging activities recognised at fair value on the date on which a derivative contract Derivatives are initially recognised at fair value on the date a is entered into and are subsequently remeasured at fair value. derivative contract is entered into and are subsequently remeasured Derivatives are carried as financial assets when the fair value is at their fair value. The method of recognising the resulting gain or positive and as financial liabilities when the fair value is negative. loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Cash flow hedge Group designates certain derivatives either as, The effective portion of changes in the fair value of derivatives that »» hedges of the fair value of recognised assets or liabilities or a are designated and qualify as cash flow hedges is recognised in firm commitment (fair value hedge) the other comprehensive income statement (OCI). The gain or loss »» hedges of a particular risk associated with a recognised asset in relation to ineffective portion is recognised immediately in the or liability or a highly probable forecast transaction (cash flow income statement. hedge) “Amounts accumulated in equity are reclassified to profit or loss »» hedges of a net investment in a foreign operation (net in the periods when the hedged item affects profit or loss. When a investment hedge). hedging instrument expires or is sold, or when a hedge no longer The Group documents at the inception of the transaction the meets the criteria for hedge accounting, any cumulative gain or loss relationship between hedging instruments and the hedged items, existing in equity at that time remains in equity and is recognised as well as its risk management objectives and strategies for when the forecast transaction is ultimately recognised in the income undertaking various hedging transactions. The company also statement. When the forecast transaction is no longer expected documents its assessment, both at hedge inception and on an to occur, the cumulative gain or loss that was reported in equity is ongoing basis, of whether the derivatives that are used in hedging immediately transferred to the income statement. transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Fair value of financial instruments Where the fair value of financial assets and financial liabilities The fair values of various derivative instruments used for hedging recorded in the statement of financial position cannot be derived purposes are disclosed in note 39.4. Movements on the hedging from active markets, their fair value is determined using valuation reserve on the other comprehensive income statement (OCI) are techniques including the discounted cash flow model. The inputs to shown in the same note. The fair value of a hedging derivative is these models are taken from observable markets where possible. classified as a non-current asset or liability when the remaining hedged item is more than 12 months and as a current asset or Where this is not feasible, a degree of judgment is required in liability when the remaining maturity of the hedged item is less than establishing fair values. The judgments include considerations of 12 months. Trading derivatives are classified as a current asset or inputs such as liquidity risk, credit risk and volatility. Changes in liability. assumptions about these factors that could affect the reported fair value of financial instruments, are further explained in note 11.
Softlogic Holdings PLC | Annual Report 2019/20 99 - - 2019 2019 2,731 13,692 830,478 115,205 1,135,517 3,196,350 6,049,396 7,761,224 7,761,224 4,601,829 8,428,255 9,782,952 13,007,216 13,007,216 11,962,990 50,238,033 14,042,394 91,320,925 12,385,059 25,115,045 23,128,625 Total Total Total Total 2020 2020 4,670 32,405 848,092 9,357,231 9,357,231 1,156,023 1,004,262 3,726,096 7,262,837 7,262,837 4,858,728 4,322,333 8,645,807 1,348,221 11,526,423 55,720,090 16,554,159 12,391,226 12,157,713 12,157,713 27,690,199 27,690,199 10,517,214 31,041,430 108,724,979 ------2019 2019 2,731 293,477 115,205 1,463,163 1,169,686 7,761,224 7,761,224 4,601,829 8,428,255 9,782,952 91,311,568 12,385,059 25,115,045 23,119,268 ------through P&L 2020 2020 32,405 Financial liabilities 679,747 5,382,085 2,105,955 3,276,130 7,262,837 7,262,837 4,858,728 4,322,333 8,645,807 1,348,221 Financial assets fair value value fair Financial assets 12,157,713 12,157,713 27,690,199 27,690,199 10,517,214 31,041,430 measured at amortised cost 108,556,634 ------2019 2019 9,357 9,357 125,000 4,726,242 4,601,242 ------through OCI 2020 2020 value through P&L value 113,742 168,345 168,345 3,947,371 3,947,371 4,061,113 Financial liabilities at fair Financial liabilities at fair Financial assets at fair value value at fair Financial assets 2019 13,692 830,478 8,112,497 1,135,517 3,196,350 4,754,710 11,962,990 44,048,628 14,042,394 2020 amortised cost 4,670 Financial assets at Financial assets 5,967,359 5,967,359 1,156,023 1,004,262 3,726,096 11,526,423 46,276,892 10,500,833 12,391,226 Total Public deposits Bank overdrafts Loans and advances Loans Total Public deposits Lease liability Lease In Rs. ‘000 in non-current assets Financial instruments Non-current financial assets and hire purchase on lease assets receivable Rental in current assets Financial instruments and other receivables Trade and hire purchase on lease assets receivable Rental parties due from related Amounts investments Short term Cash in hand and at bank In Rs. ‘000 in non-current liabilities Financial instruments bearing borrowings Interest Other non-current financial liabilities in current liabilities Financial instruments and other payables Trade parties related due to Amounts Other current financial liabilities bearing borrowings Current portion of interest Current portion of lease liability As at 31 March As at 31 March Financial instruments 9 - Financial Instruments. in accordance with SLFRS categories are split into and liabilities in the tables below Financial assets category by Financial assets - Group categoryFinancial liabilities by - Group
Softlogic Holdings PLC | Annual Report 2019/20 100 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 2019 2019 18,294 16,671 912,093 130,625 174,702 108,894 7,003,919 7,003,919 1,465,042 3,958,498 16,702,414 14,176,360 21,266,559 10,003,875 Total Total Total Total 2020 2020 95,208 680,360 800,330 115,040 160,243 236,343 6,027,598 6,027,598 5,207,906 1,549,170 16,367,571 16,367,571 21,651,517 18,506,617 28,094,869 - - - - 2019 2019 5,625 5,625 16,671 174,702 108,894 7,003,919 7,003,919 3,958,498 21,266,559 10,003,875 - - - - through P&L 2020 2020 5,140 5,140 95,208 Financial liabilities 160,243 236,343 6,027,598 6,027,598 5,207,906 Financial assets fair value value fair Financial assets 16,367,571 16,367,571 28,094,869 measured at amortised cost - - - - 2019 125,000 125,000 - - - - through OCI 2020 109,900 109,900 Financial assets at fair value value at fair Financial assets - 2019 18,294 912,093 1,465,042 16,571,789 14,176,360 - 2020 amortised cost Financial assets at Financial assets 680,360 800,330 1,549,170 21,536,477 18,506,617 Total Total Bank overdrafts In Rs. ‘000 in non-current assets Financial instruments Non-current financial assets in current assets Financial instruments and other receivables Trade parties due from related Amounts investments Short term Cash in hand and at bank In Rs. ‘000 in non-current liabilities Financial instruments bearing borrowings Interest in current liabilities Financial instruments and other payables Trade parties related due to Amounts Other current financial liabilities bearing borrowings Current portion of interest As at 31 March As at 31 March Financial instruments 9 - Financial Instruments. in accordance with SLFRS categories are split into and liabilities in the tables below Financial assets category by Financial assets - Company categoryFinancial liabilities by - Company
Softlogic Holdings PLC | Annual Report 2019/20 101
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The following methods and assumptions were used to estimate the fair values: »» Fair value of quoted equities, debentures and bonds is based on the model inputs, including forecast cash flows, the discount price quotations in an active market at the reporting date. rate, credit risk and volatility. The probabilities of the various estimates within the range can be reasonably assessed and »» The fair value of unquoted instruments, loans from banks and are used in management’s estimate of fair value for these other financial liabilities, obligations under finance leases, as unquoted equity investments. well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for »» Approximately 76% of loans and advances, rental receivable on debt on similar terms, credit risk and remaining maturities. lease assets and hire purchase have a remaining maturity of less than one year. Therefore, fair value of the lending portfolio »» Fair value of unquoted ordinary shares has been estimated approximates to the carrying value at the reporting date. All using a Discounted Cash Flow (DCF) model. The valuation loans and advances are granted with fixed interest rate terms. requires management to make certain assumptions about
12 SRI LANKA ACCOUNTING STANDARDS (SLFRS) ISSUED BUT NOT YET EFFECTIVE The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective.
SLFRS - 17 Insurance Contracts Amendments to SLFRS 3 : Definition of a “Business” SLFRS 17 is effective for annual reporting periods beginning on or In October 2018, the Institute of Chartered Accountants of Sri after 1 January 2021, a comprehensive new accounting standard lanka issued amendments to the definition of a business in SLFRS for insurance contracts covering recognition and measurement, 3 - Business Combinations are made to help the entities determine presentation and disclosure. SLFRS 17 applies to all types of whether an acquired set of activities and assets is a business or not. insurance contracts (i.e., life, non-life, direct insurance and re- They clarify the minimum requirements for a business, remove the insurance), regardless of the type of entities that issue them, assessment of whether market participants are capable of replacing as well as to certain guarantees and financial instruments with any missing elements, add guidance to help entities to assess discretionary participation features. whether an acquired process is substantive, narrow the definition of a business and of outputs, and introduce an optional fair value This supersedes SLFRS 4 Insurance Contracts that was issued in concentration test. 2005. Earlier application is permitted providing that for entities that apply SLFRS 9 Financial Instruments and SLFRS 15 Revenue from The amendments are applied prospectively to all business Contracts with customers. combinations and asset acquisitions for which the acquisition date is on or after the first annual reporting period beginning on or after A few scope exceptions will apply. The overall objective of SLFRS 01 January 2020, with early application permitted. 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the Amendments to LKAS 1 and LKAS 8 : Definition of “Material” requirements in SLFRS 4, which are largely based on grandfathering In October 2018, the Institute of Chartered Accountants of Sri previous local accounting policies, SLFRS 17 provides a Lanka issued amendments to LKAS 1 - Presentation of Financial comprehensive model for insurance contracts, covering all relevant Statements and LKAS 8 - Accounting policies, Changes in accounting aspects. The core of SLFRS 17 is the general model, Accounting Estimates and Errors are made to align the definition of supplemented by: “material” across the standard and to clarify certain aspects of the »» A specific adaptation for contracts with direct participation definition. The new definition states that, “information is material if features (the variable fee approach) omitting or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial »» A simplified approach (the premium allocation approach) statements make on the basis of those financial statements, which mainly for short duration contracts provide financial information about a specific reporting entity.
The amendments are applied prospectively for the annual periods beginning on or after 01 January 2020 with early application permitted.
Softlogic Holdings PLC | Annual Report 2019/20 102 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
13 REVENUE
ACCOUNTING POLICY
Continuing operations Revenue recognition
Revenue from contracts with customers Under SLFRS 15 - Revenue from contracts with customers, revenue from contracts with customers is recognised when control of the goods or services is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services.
Sale of goods Rendering of services Under SLFRS 15 - Revenue from contracts with customers, revenue Under SLFRS 15 - Revenue from contracts with customers, revenue from the sale of goods is recognised at the point in time when from service performance obligation over time or at a point in control of the asset is transferred to the customer, generally on time. For each performance obligation satisfied over time, the delivery of goods. Group recognises the revenue over time by measuring the progress towards complete satisfaction of that performance obligation because the customer simultaneously receives and consumes the benefits provided by the Group.
The Group has several operating segments which are described in Note 49 to these Financial Statements.
Performance obligations The Group’s uses following specific criteria in recognising the revenue.
Financial Services When a financial asset becomes credit-impaired and is, therefore, regarded as ‘Stage 3’, the Group calculates interest income by Life insurance business - Gross Written Premiums (GWP) applying the effective interest rate to the net amortised cost of Gross written premiums comprise the total premiums received/ the financial asset. If the financial assets cures and is no longer receivable for the whole period of cover provided by contracts credit-impaired, the Group reverts to calculating interest income on entered into during the accounting period. Gross written premium is a gross basis. generally recognised in full at the inception of the policy. Interest income on overdue rentals Gross recurring premiums on life insurance contracts are recognised as revenue when payable by the policyholder (policies Overdue charges of leasing, loans and hire purchases have been within the 30 day grace period are considered as due). Premiums accounted when the receipt in established. received in advance are not recorded as revenue and recorded as a liability until the premium is due unless the relevant policy Healthcare Services conditions require such premiums to be recognised as income. Healthcare sector revenue is recognised to the extent that it is Benefits and expenses are provided against such revenue to probable that the economic benefits will flow to the Group and the recognise profits over the estimated life of the policies. For single revenue can be measured, regardless of when the payment is being premium business, revenue is recognised on the date on which the made after considering discounts, offers given to the customers, policy is effective. consultations, and services provided under packages.
Income from leases, hire purchases, loans and advances Retail Sector Under both SLFRS 9 and LKAS 39, interest income and interest Retail sector revenue is recognised upon satisfaction of a expense is recorded using the effective interest rate (EIR) method performance obligation. The revenue recognition occurs at a point for all financial instruments measured at amortised cost. Interest in time when control of the asset is transferred to the customer, income on interest bearing financial assets measured at FVOCI which is generally upon delivery of the goods. The output method will under SLFRS 9, similarly to interest bearing financial assets provide a faithful depiction in recognising revenue. classified as available for sale or held to maturity under LKAS 39 is also recorded by using the EIR method. The EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability.
Softlogic Holdings PLC | Annual Report 2019/20 103
Contract Balances Contract assets Contract liabilities Contract assets are the Group’s right to consideration in exchange Contract liabilities are the Group’s obligation to transfer goods for goods or services that the Group has transferred to a customer, or services to a customer for which the Group has received with rights that are conditional on some criteria other than the consideration (or the amount is due) from the customer. Contract passage of time. Upon satisfaction of the conditions, the amounts liabilities include long-term advances received to deliver goods and recognised as contract assets are reclassified to trade receivables. services, short-term advances received to render certain services.
In Rs. ‘000 Group Company For the year ended 31 March 2020 2019 2020 2019
Goods transferred at a point in time 41,873,109 44,547,507 - - Services transferred at a point in time 19,398,290 17,087,572 748,895 645,766 Total revenue from contracts with customers 61,271,399 61,635,079 748,895 645,766 Revenue from insurance contracts 11,919,961 9,833,075 - - Interest income on lease and hire purchase receivables 493,350 402,528 - - Interest income 3,037,067 3,271,922 - - 76,721,777 75,142,604 748,895 645,766
13.1 Business segment analysis
In Rs. ‘000 Group For the year ended 31 March 2020 2019
Automobiles 835,741 3,136,176 Financial Services 15,596,174 13,628,719 Healthcare Services 15,510,422 13,474,682 Information Technology 4,578,477 4,039,509 Leisure 2,196,048 3,128,298 Other 13,969 12,667 Retail 37,990,946 37,722,553 76,721,777 75,142,604
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 2020 2019
Dividend income from investments in subsidiaries and equity accounted investees - 514,513 - 514,513
Softlogic Holdings PLC | Annual Report 2019/20 104 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
15 OTHER OPERATING INCOME
ACCOUNTING POLICY
Gains and losses Fee and commission income Net gains and losses of a revenue nature arising from the disposal Fee and commission income from services includes mainly of property, plant and equipment and other non-current assets, documentation and processing fees for the service provided in including investments, are accounted for in the income statement, processing loan facilities for customers. after deducting from the proceeds on disposal, the carrying amount of such assets and the related selling expenses. Other income Other income is recognised on an accrual basis. Gains and losses arising from activities incidental to the main revenue generating activities and those arising from a group of Profit on disposal of investments similar transactions which are not material are aggregated, reported and presented on a net basis. On derecognition of an investment classified as financial assets at fair value through P&L and OCI, the cumulative gain or loss previously recognised in other comprehensive income statement is transferred to the income statement.
In Rs. ‘000 Group Company For the year ended 31 March 2020 2019 2020 2019
Commission income 69,330 115,048 36,036 36,036 Fees received 218,190 306,541 - - Maturity of put option liability 9,357 - - - Net exchange gain 99,322 55,520 - - Other laboratory income 75,264 79,003 - - Proceeds from ESOP - 49,049 - - Profit/ (loss) on disposal of investments 11,057 (377) - (10,575) Profit/ (loss) on sale of property, plant & equipment (2,423) 7,589 4,549 2,140 Sundry income 275,383 342,110 194 1,017 755,480 954,483 40,779 28,618
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 carrying statement. 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 2020 2019 2020 2019
Interest income 290,904 211,163 1,988,945 1,364,767 Dividend income on - financial assets at fair value through OCI 131,707 105,612 - - - financial assets at fair value through P&L 4,215 18,939 - - Net change in fair value of financial instruments at fair value through P&L 464,201 13,013 (485) (28,251) Finance income on other financial instruments 1,151,248 1,050,247 191,879 166,390 2,042,275 1,398,974 2,180,339 1,502,906
Softlogic Holdings PLC | Annual Report 2019/20 105
17 FINANCE COSTS
ACCOUNTING POLICY
Finance costs comprise interest expenses on borrowings, unwinding Borrowing costs directly attributable to the acquisition, construction of the discount on provisions, fair value losses on financial assets at or production of an asset that necessarily takes a substantial period fair value through profit or loss and impairment losses recognised of time to get ready for its intended use or sale are capitalised on financial assets (other than trade 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 costs consist of interest and other costs that the Group incurs in interest rate (EIR), which is the rate that exactly discounts the connection with the borrowing of funds. estimated 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 2020 2019 2020 2019
Interest expense on borrowings 6,461,104 5,857,772 1,724,587 1,902,029 Finance cost on other financial instruments 1,373,797 568,178 1,643,671 649,862 Fair value loss on financial assets at fair value through P&L 266 140,075 - - Exchange loss on foreign currency loan conversion 577,945 287,026 - - Finance cost on right of use assets 739,509 - 4,123 - Other finance expenses 207,631 263,236 69,287 74,542 9,360,252 7,116,287 3,441,668 2,626,433
18 PROFIT/ (LOSS) 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/ (loss) before tax is stated after charging all expenses including the following:
In Rs. ‘000 Group Company For the year ended 31 March 2020 2019 2020 2019
Remuneration to Executive and Non-Executive Directors 405,904 402,470 54,603 54,010 Auditors' remuneration - Audit 24,311 27,817 2,426 2,800 - Non audit 36,202 24,100 539 605 Cost of defined employee benefit - Defined benefit plan cost 276,998 221,936 17,381 13,852 - Defined contribution plan cost - EPF/ETF 1,002,774 878,022 44,240 42,046 Staff expenses 9,529,306 8,662,886 358,679 348,040 Depreciation of property, plant and equipment 3,078,435 2,520,118 23,489 36,051 Amortisation of intangible assets 267,246 262,143 2,162 2,542 Amortisation of rights of use assets/ lease rentals paid in advance 1,531,183 1,156 35,851 - Donations 4,244 8,194 398 30 Provisions for/ write off of impaired receivables 345,746 353,623 - 2,472 Provision for impairment of inventories 139,950 75,137 - - (Profit)/ loss on sale of property, plant and equipment 2,423 (7,589) (4,549) (2,140) Impairment and derecognition of property, plant and equipment 19,428 21,318 - - Impairment/ derecognition of intangible assets - 79,435 - -
Softlogic Holdings PLC | Annual Report 2019/20 106 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
19 TAXATION
19.1 Income tax
ACCOUNTING POLICY
Current tax 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 the taxation authorities. The tax rates and tax laws used to compute situations in which applicable tax regulations are subject to the amount are those that are enacted or substantively enacted at interpretation and 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. comprehensive income is recognised in other comprehensive
19.1.1 Tax expense In Rs. ‘000 Note Group Company For the year ended 31 March 2020 2019 2020 2019
Current income tax Current tax charge 778,202 788,440 - 37,614 Under provision of income tax of previous years 56,762 (11,224) (37,614) 36,487 Written-off / (back) of tax receivables (71,243) 151,923 - - 14% withholding tax on dividends 6,099 185,181 - - Total income tax expense 19.1.3 769,820 1,114,320 (37,614) 74,101
Deferred income tax Relating to origination and reversal of temporary differences 19.2.1 (487,084) (2,361,604) 13,015 16,492 282,736 (1,247,284) (24,599) 90,593
19.1.2 Reconciliation between current tax charge and the accounting profit In Rs. ‘000 Group Company For the year ended 31 March 2020 2019 2020 2019
Profit/ (loss) before tax (2,898,566) 1,743,000 (1,158,325) (577,534) Dividend income from Group companies 17,544 1,884,085 - - Share of results of equity accounted investees (1,611) (7,080) - - Other consolidation adjustments 56,643 227,792 - - Profit/ (loss) after adjustment (2,825,990) 3,847,797 (1,158,325) (577,534) Exempt profits (343,152) (868,858) - - Profits not liable for income tax (345,674) (255,826) - - Resident dividend (153,466) (2,007,736) - (554,605) Adjusted accounting profit/ (loss) chargeable to income taxes (3,668,282) 715,377 (1,158,325) (1,132,139) Deductible expenses (8,346,865) (4,345,261) (139,572) (104,906) Non deductible expenses 8,955,056 5,700,523 771,714 1,371,381 Other source of income 24,460 352,312 - - Set off against tax losses 8,782,950 2,718,741 526,183 - Other reductions (2,391,776) (2,301,203) - - Taxable income 3,355,543 2,840,489 - 134,336
Softlogic Holdings PLC | Annual Report 2019/20 107
19.1.3 Reconciliation between tax expense and the product of accounting profit In Rs. ‘000 Group Company For the year ended 31 March 2020 2019 2020 2019
Tax effect on chargeable profits 474,162 736,766 - (316,999) Tax effect on deductible expenses (278,046) (469,874) - (29,374) Tax effect on non deductible expenses 582,086 521,548 - 383,987 Under/ (over) provision for previous years 56,762 (11,224) (37,614) 36,487 Other income based taxes 14% withholding on dividends 6,099 185,181 - - Total income tax expense 841,063 962,397 (37,614) 74,101
Income tax charged at Standard rate 778,202 788,440 - 37,614 Under/ (over) provision for previous year 56,762 (11,224) (37,614) 36,487 Charge for the year 834,964 777,216 (37,614) 74,101
Other tax expenses Written-off / (back) of tax receivables (71,243) 151,923 - -
Other income based taxes 14% withholding on dividends 6,099 185,181 - - Total income tax expense 769,820 1,114,320 (37,614) 74,101
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 2020 2019 2020 2019
At the beginning of the year 351,689 348,372 16,910 33,309 Charge for the year 841,063 962,397 - 74,101 Payments and set off against refunds (1,003,363) (959,080) (16,910) (90,500) At the end of the year 189,389 351,689 - 16,910
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, »» where the deferred tax asset relating to the deductible affects neither the accounting profit nor taxable profit or loss; temporary difference arises from the initial recognition of and an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither »» in respect of taxable temporary differences associated with the accounting profit nor the taxable profit or loss; and investments in subsidiaries and associates, except where the timing of the reversal of the temporary differences can be
Softlogic Holdings PLC | Annual Report 2019/20 108 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
»» in respect of deductible temporary differences associated with Deferred tax assets and liabilities are measured at the tax rates that investments in subsidiaries and associates, deferred tax assets are expected to apply to the year when the asset is realised or the are only recognised to the extent that it is probable that the liability is settled, based on tax rates (and tax laws) that have been temporary differences will reverse in the foreseeable future enacted or substantively enacted as at the reporting date. and taxable profit will be available against which the temporary differences can be utilised. Deferred tax relating to items recognised outside the income statement is recognised outside the income statement, either in The carrying amount of deferred income tax assets is reviewed at other comprehensive income or directly in equity. each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or Deferred tax assets and deferred tax liabilities are offset if a legally part of the deferred tax asset to be utilised. Unrecognised deferred enforceable right exists to set off current tax assets against current tax assets are reassessed at each reporting date and are recognised tax liabilities and when the deferred taxes relate to the same taxable to the extent that it has become probable that future taxable profits entity and the same taxation authority. will allow the deferred tax assets to be recovered. No deferred tax asset or liability has been recognised in the companies enjoying Board of Investment (BOI) Tax Holidays’ if no qualifying assets or liabilities continue beyond the BOI period.
19.2.1 Deferred tax charge / (release) In Rs. ‘000 Group Company For the year ended 31 March 2020 2019 2020 2019
Income statement Deferred tax expense arising from; Accelerated depreciation for tax purposes 243,059 105,624 (1,158) 3,637 Revaluation of investment property to fair value 33,071 24,500 18,424 15,483 Employee benefit liabilities (25,814) (26,915) (4,251) (2,628) Benefit arising from tax losses (445,083) (1,990,017) - - Others (292,317) (474,796) - - (487,084) (2,361,604) 13,015 16,492
Other comprehensive income Deferred tax expense arising from; Revaluation of land and building to fair value 366,600 338,027 - - Actuarial gains/ (loss) on employee benefit liabilities (33,824) 15,196 (2,168) (973) 332,776 353,223 (2,168) (973)
Deferred tax has been computed at 28% for all standard rate companies (including listed companies), at 14% for leisure sector companies and at 15% for Central Hospitals Ltd.
19.2.2 Deferred tax - Group In Rs. ‘000 Asset Liability As at 31 March 2020 2019 2020 2019
At the beginning of the year 3,247,950 749,406 3,306,076 2,829,959 Day 01 Impact of Deferred tax - 73,833 2,137 - Charge and release 201,188 2,424,711 38,114 416,428 Acquisition of subsidiary - - - 59,689 At the end of the year 3,449,138 3,247,950 3,346,327 3,306,076
Softlogic Holdings PLC | Annual Report 2019/20 109
The closing deferred tax asset balance relates to the following: In Rs. ‘000 Asset Liability As at 31 March 2020 2019 2020 2019
Revaluation of building to fair value (89,409) (78,349) 3,275,568 2,920,028 Revaluation of investment property to fair value (5,300) (1,550) 61,721 32,400 Accelerated depreciation for tax purposes (264,821) (259,045) 1,179,968 935,706 Employee benefit liabilities 75,169 56,456 (221,356) (180,570) Losses available for offset against future taxable income 2,763,078 2,833,704 (910,147) (394,437) Provision for bad debts 353,364 303,341 - - Lease capital balance (53,811) (50,134) - - Unclaimed impairment provisions 153,025 153,026 - - Others 517,843 290,501 (39,427) (7,051) 3,449,138 3,247,950 3,346,327 3,306,076
19.2.2 Deferred tax - Company In Rs. ‘000 Liability As at 31 March 2020 2019
At the beginning of the year 173,435 157,916 Charge and release 10,847 15,519 At the end of the year 184,282 173,435
The closing deferred tax liability balance of the company relates to the following: In Rs. ‘000 Liability As at 31 March 2020 2019
Revaluation of investment property to fair value 183,430 165,006 Accelerated depreciation for tax purposes 29,982 31,140 Employee benefit liabilities (29,130) (22,711) 184,282 173,435
19.3 Sales tax 19.5 VAT on Financial Services Revenues, expenses, assets and liabilities are recognised net of the VAT on Financial Services is calculated in accordance with the amount of sales tax except: amended VAT Act No. 07 of 2013. The base for the computation of Value Added Tax on Financial Services is the accounting profit before »» where the sales tax incurred on a purchase of assets or services tax adjusted for the economic depreciation and emolument of is not recoverable from the taxation authority, in which case the employees computed on prescribed rate. sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and 19.6 Debt Repayment Levy »» where receivables and payables are stated with the amount of As per the Finance Act No. 35 of 2018, with effect from 01 October sales tax included. 2018, Debt Repayment Levy (DRL) of 7% was introduced on the value addition attributable to the supply of financial services by each The net amount of sales tax recoverable from, or payable to, the institution. DRL is chargeable on the same base used for calculation taxation authority is included as part of receivables or payables in of VAT on Financial Services as explained above. the statement of financial position. This tax was abolished by the Government with effect from 01 January 2020. 19.4 Tax on dividend income Tax on dividend income from subsidiaries is recognised as an 19.7 Crop Insurance Levy expense in the consolidated income statement. In terms of the Finance Act No. 12 of 2013, all institutions under the purview of Banking Act No.30 of 1988, Finance Business Act No.42 of 2011 and Regulation of Insurance Industry Act No. 43 of 2000 are required to pay 1% of the profit after tax as Crop Insurance Levy to the National Insurance Trust Fund effective from 01 April 2013.
Softlogic Holdings PLC | Annual Report 2019/20 110 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
Accounting judgements, estimates and assumptions The Group is subject to income tax and other taxes including VAT. assumptions made or future changes to such assumptions may Significant judgment was required to determine the total provision require future adjustments to tax income and expense already for current, deferred and other taxes due to the uncertainties that recorded. Where the final tax outcome of such matters is different exist with respect to the interpretation of applicability of tax laws at from the amounts that were initially recorded, such differences will the time of the preparation of these Financial Statements. impact the income and deferred tax amounts in the period in which the determination is made. Uncertainties also exist with respect to the interpretation of complex tax regulations and the amount and timing of future The Group has tax losses in subsidiaries that have a history of losses taxable income. Given the wide range of business relationships that do not expire and may not be used to offset other tax liabilities, and the long-term nature and complexity of existing contractual where the subsidiaries have no avenues available that could partly agreements, differences arising between the actual results and support the recognition of these losses as deferred tax assets
19.8 Applicable rates of income tax The tax liability of resident companies are computed at the standard rate of 24% except for the following companies which enjoy full or partial exemptions and concessions.
19.8.1 Exemptions/ concessions granted under the Board of Investment Law/ Inland Revenue Act Company Basis Exemption or Period concessions concessions Central Hospitals Ltd Providing healthcare Exempt 8 years from 1st year of profit or 2 years from commencement services of operation whichever is earlier (from FY 2012/13 onwards) Softlogic City Hotels (Pvt) Ltd Construction of Exempt 7 Years from 1st year of profit or 2 years from commencement tourist hotel of operation whichever is earlier (from FY 2018/19 onwards) Ceysand Resorts Ltd Promotion of tourism 14% Open ended Softlogic B P O Services (Pvt) Ltd BPO service Exempt 6 years commencing from year in which the company make profits or 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)
19.8.2 Income tax rates of off-shore subsidiaries Company Country of incorporation Rate Softlogic Australia (Pty) Ltd Australia 33.3%
19.9 Tax losses carried forward
In Rs. ‘000 Group Company For the year ended 31 March 2020 2019 2020 2019
Tax losses brought forward 20,235,534 19,452,631 - - Adjustments on finalisation of liability 1,587,225 356,036 505,060 - Acquisition of subsidiary - 9,329 - - Impact due to amalgamation (105,161) - - - Tax losses arising during the year 8,782,950 2,718,741 526,182 - Utilisation of tax losses (2,391,776) (2,301,203) (2,296) - 28,108,772 20,235,534 1,028,946 -
The group has tax losses amounting to Rs. 11,896.00 Mn (2019 - Rs. 8,706.00 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.
Softlogic Holdings PLC | Annual Report 2019/20 111
20 EARNINGS PER SHARE
ACCOUNTING POLICY
Basic EPS is calculated by dividing the profit/ (loss) 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 2020 2019
Profit/ (loss) attributable to equity holders of the parent - continuing operations (4,724,233) 104,669 Weighted average number of ordinary shares in issue 20.2 1,192,543,209 1,172,482,493 Basic earnings per share - continuing operations (Rs.) (3.96) 0.09
20.2 Amount used as denominator
Group For the year ended 31 March 2020 2019
Ordinary shares at the beginning of the year 1,192,543,209 961,728,395 Effect of issue of rights issue shares - 210,754,098 Adjusted weighted average number of ordinary shares 1,192,543,209 1,172,482,493
21 Dividend per share Equity dividend on ordinary shares declared and paid during the year
Group For the year ended 31 March 2020 2019 Rs. Rs.’000 Rs. Rs.’000
Interim dividend 0.50 596,272 0.50 596,272
22 PROPERTY, PLANT AND EQUIPMENT
ACCOUNTING POLICY
Basis of recognition Property, plant and equipment are recognised if it is probable that Land and buildings are measured at fair value less accumulated future economic benefits associated with the asset will flow to the depreciation on buildings and impairment charged subsequent to Group and the cost of the asset can be reliably measured. the date of the revaluation.
Basis of measurement The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate Plant and equipment are stated at cost less accumulated that the carrying value may not be recoverable. depreciation and any accumulated impairment loss. Such cost includes the cost of replacing component parts of the plant and Any revaluation surplus is recognised in the statement of other equipment and borrowing costs for long-term construction projects comprehensive income and accumulated in equity in the asset if the recognition criteria are met. When significant parts of plant revaluation reserve, except to the extent that it reverses a and equipment are required to be replaced at intervals, the Group revaluation decrease of the same asset previously recognised in the derecognises the replaced part, and recognises the new part with income statement, in which case the increase is recognised in the its own associated useful life and depreciation. Likewise, when income statement. A revaluation deficit is recognised in the income a major inspection is performed, its cost is recognised in the statement, except to the extent that it offsets an existing surplus on carrying amount of the plant and equipment as a replacement if the the same asset recognised in the asset revaluation reserve. recognition criteria are satisfied. All other repair and maintenance costs are recognised in the income statement as incurred.
Softlogic Holdings PLC | Annual Report 2019/20 112 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
Accumulated depreciation as at the revaluation date is eliminated operational, the related costs are transferred from construction against the gross carrying amount of the asset and the net amount in progress to the appropriate asset category and are depreciated is restated to the revalued amount of the asset. Upon disposal, together with the related asset. any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. Where land and buildings are Impairment of property plant and equipment subsequently revalued, the entire class of such assets is revalued at The Group assesses at each reporting date whether there is an fair value on the date of revaluation. The Group has adopted a policy indication that an asset may be impaired. If any such indication of revaluing land and buildings by professional valuers at least every exists, or when annual impairment testing for an asset is required, 3 years except for properties held for rental and occupied mainly by the Group makes an estimate of the asset’s recoverable amount. group companies. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use De-recognition and is determined for an individual asset, unless the asset does not An item of property, plant and equipment is derecognised upon generate cash inflows that are largely independent of those from replacement, disposal or when no future economic benefits are other assets or groups of assets. Where the carrying amount of expected from its use. Any gain or loss arising on derecognition of an asset exceeds its recoverable amount, the asset is considered the asset is included in the income statement in the year the asset impaired and is written down to its recoverable amount. In assessing is derecognised. value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects Depreciation current market assessments of the time value of money and the Depreciation is calculated by using a straight-line method on the risks specific to the asset. Impairment losses are recognised in the cost or valuation of all property, plant and equipment, other than income statement, except that impairment losses in respect of freehold land, in order to write off such amounts over the estimated property, plant and equipment previously revalued are recognised useful economic life of such assets. against the revaluation reserve through the statement of other comprehensive income to the extent that they reverse a previous The estimated useful life of assets is as follows: revaluation surplus.
Assets Years An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may Buildings 40 - 75 no longer exist or may have decreased. If such indication exists, Buildings on leasehold land 40 - 60 or over the the recoverable amount is estimated. A previously recognised period of lease impairment loss is reversed only if there has been a change in Plant & machinery 4 - 10 the estimates used to determine the asset’s recoverable amount Computer equipment, furniture & fittings 2 - 10 since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable Motor vehicles 4 - 8 amount. That increased amount cannot exceed the carrying amount The useful life and residual values of assets are reviewed, and that would have been determined, net of depreciation, had no adjusted if required, at the end of each financial year. impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement unless the asset is Capital work-in-progress carried at a revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation Capital work in progress consists of the cost of assets, labour and charge is adjusted in future periods to allocate the asset’s revised other direct costs associated with property, plant and equipment carrying amount, less any residual value, on a systematic basis over being constructed by the Group. Once the assets become its remaining useful life.
Softlogic Holdings PLC | Annual Report 2019/20 113
22.1 Group
In Rs. ‘000 Land and Buildings Plant and Computer, Motor Capital Total Total As at 31 March buildings on machinery Equipment, vehicles work-in- leasehold furniture progress 2020 2019 land and fittings
Freehold assets Cost or Valuation At the beginning of the year 25,975,616 7,161,385 7,363,200 11,180,272 641,899 4,714,471 57,036,843 49,719,425 Additions 317,848 1,383,245 2,183,760 1,718,760 40,465 1,992,576 7,636,654 5,728,410 Acquisition of subsidiary ------971,984 Disposals - - (141,923) (135,332) (15,101) (128,490) (420,846) (360,047) Transfers* (236,923) 4,727,612 (88,103) 997,842 70,077 (5,964,473) (493,968) (526,494) Impairment/ derecognition (9,486) (253) - (99) - (9,680) (19,518) (37,857) Revaluations 1,255,513 118,789 - - - - 1,374,302 1,541,245 Effect of movements in exchange rates - (49) - (318) - - (367) 177 At the end of the year 27,302,568 13,390,729 9,316,934 13,761,125 737,340 604,404 65,113,100 57,036,843
Leasehold assets Cost At the beginning of the year - - 179,594 4,297 291,665 - 475,556 488,929 Additions ------14,795 Acquisition of subsidiary ------2,574 Transfers - - (179,594) (4,297) (291,665) - (475,556) (31,206) Effect of movements in exchange rates ------464 At the end of the year ------475,556 Total value of assets 27,302,568 13,390,729 9,316,934 13,761,125 737,340 604,404 65,113,100 57,512,399
Freehold assets Accumulated depreciation At the beginning of the year 26,145 868,706 3,749,463 5,752,904 315,287 - 10,712,505 8,697,024 Charge for the year 282,166 566,602 768,013 1,394,289 67,365 - 3,078,435 2,463,552 Acquisition of subsidiary ------238,122 Disposals - - (141,916) (97,751) (11,598) - (251,265) (314,820) Transfers* (284,150) (104,080) (239,024) 23,669 44,127 - (559,458) (354,898) Impairment/ derecognition - - - (90) - - (90) (16,539) Effect of movements in exchange rates - (30) - (145) - - (175) 64 At the end of the year 24,161 1,331,198 4,136,536 7,072,876 415,181 - 12,979,952 10,712,505
Leasehold assets Accumulated depreciation At the beginning of the year - - 83,754 4,297 117,831 - 205,882 173,407 Charge for the year ------56,566 Acquisition of subsidiary ------1,880 Transfers - - (83,754) (4,297) (117,831) - (205,882) (26,076) Effect of movements in exchange rates ------105 At the end of the year ------205,882 Total accumulated depreciation 24,161 1,331,198 4,136,536 7,072,876 415,181 - 12,979,952 10,918,387
Carrying value As at 31 March 2020 27,278,407 12,059,531 5,180,398 6,688,249 322,159 604,404 52,133,148 As at 31 March 2019 25,949,471 6,292,679 3,709,577 5,427,368 500,446 4,714,471 46,594,012
* Transfers include the accumulated depreciation amounting to Rs. 496.91 Mn (2019 - Rs. 375.02 Mn) as at revaluation date that was eliminated against the gross carrying amount of the revalued assets.
Softlogic Holdings PLC | Annual Report 2019/20 114 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
22.2 Company
In Rs. ‘000 Furniture Computer Motor Total Total As at 31 March and fittings and office vehicles Equipment, 2020 2019
Freehold assets Cost At the beginning of the year 37,232 45,436 140,962 223,630 205,678 Additions 216 2,318 - 2,534 1,870 Disposals (15) - (3,839) (3,854) (9,811) Transfers - (9) 20,766 20,757 25,893 At the end of the year 37,433 47,745 157,889 243,067 223,630
Leasehold assets At the beginning of the year - - 109,943 109,943 135,836 Transfers - - (109,943) (109,943) (25,893) At the end of the year - - - - 109,943 Total value of assets 37,433 47,745 157,889 243,067 333,573
Freehold assets Accumulated depreciation At the beginning of the year 19,570 25,656 82,974 128,200 88,959 Charge for the year 4,600 6,031 12,858 23,489 25,023 Disposals (9) - (2,937) (2,946) (6,496) Transfers - - 9,680 9,680 20,714 At the end of the year 24,161 31,687 102,575 158,423 128,200
Leasehold assets Accumulated depreciation At the beginning of the year - - 34,410 34,410 44,096 Charge for the year - - - - 11,028 Transfers - - (34,410) (34,410) (20,714) At the end of the year - - - - 34,410 Total accumulated depreciation 24,161 31,687 102,575 158,423 162,610
Carrying value As at 31 March 2020 13,272 16,058 55,314 84,644 As at 31 March 2019 17,662 19,780 133,521 170,963
22.3 Revaluation of land and buildings
Accounting judgements, estimates and assumptions The Group uses the revaluation model of measurement of land The changes in fair value are recognised in other comprehensive and buildings. The Group engaged independent expert valuers, income and in the statement of equity. As a result of the valuations to determine the fair value of its land and buildings. Fair value is of land and buildings the surplus arising from the change in fair determined by reference to market-based evidence of transaction value was Rs. 1,374.30 Mn (2019 - Rs. 1,541.25 Mn) which has been prices for similar properties. credited to the revaluation reserve. Further during the reporting period, deficit arising from the change in fair value of revalued land Valuations are based on open market prices, adjusted for any and buildings were Rs. 0.25 Mn (2019 - Nil). difference in the nature, location or condition of the specific property. The valuation techniques used are appropriate in the As a result of the COVID-19 outbreak in Sri Lanka during the last circumstances, for which sufficient data is available to measure part of the quarter ended 31 March 2020, a reassessment of the fair value, maximising the use of relevant observable inputs and valuations were obtained by the same independent professional minimising the use of unobservable inputs. The date of the most valuers who determined there was no significant change to the recent revaluation was on 31 March 2020 except revaluation of land revalued carrying amount provided prior to 31 March 2020. and building of Softlogic Life Insurance PLC.
Softlogic Holdings PLC | Annual Report 2019/20 115
The following items were indicated in the reassessment reports to Consequently, as at the reporting date, the value reflected the Group; represents the best estimate based on the market conditions that prevailed, which in valuers’ considered opinion, meets the The outbreak of COVID 19, declared by the World Health Organisation requirements in SLFRS-13 Fair Value Measurement. as a “Global Pandemic” on 11 March 2020, has impacted both local and global markets.
Details of group’s land and buildings stated at valuations are indicated below:
Group Company Property Method of Extent No of Range of estimates for Correlation valuation buildings significant unobservable inputs to fair value Per perch value - Rs. Mn. Per square foot value - Rs. 2020 2019 2020 2019
Property valuations by Mr. G W G Abeygunawardene (Chartered Valuation Surveyor) Land of Softlogic Holdings PLC 14, De Fonseka OMV Place, Colombo 16.50 - 15.50 - 05 20.49 P - 17.50 16.50 - - Positive Softlogic Properties 24, Dharmapala OMV (Pvt) Ltd Mw., Kollupitiya, Colombo 03 2 R 11.68 P - 21.00 19.00 - - Positive Suzuki Motors 371, New Nuge OMV Lanka Ltd Road, Peliyagoda 28.39 P - 2.03 1.85 - - Positive Building of Softlogic Information 14, De Fonseka DCC/ IM Technologies (Pvt) Ltd Place, Colombo 6,175 - 6,250 - 05 - 1 building - - 7,475 7,550 Positive Suzuki Motors 371, New Nuge DCC 4,250 - 4,400 - Lanka Ltd Road, Peliyagoda - 1 building - - 5,600 5,650 Positive Softlogic City Hotels 24, Dharmapala DCC (Pvt) Ltd Mw., Kollupitiya, Colombo 03 - 1 building - - 18,870 18,880 Positive Future Automobiles 1124/5, DCC/ IM (Pvt) Ltd Parliament Rd., 2,850 - 3,000 - Battaramulla - 2 buildings - - 8,250 8,500 Positive Asiri Surgical Hospital 21, Kirimandala DCC 3,250 - 3,000 - PLC Mw., Colombo 05 - 3 buildings - - 10,000 8,400* Positive Asiri Hospital Holdings 907, Peradeniya DCC 7,000 - PLC Road, Kandy - 1 building - - 18,750 - Positive Ceysand Resorts Ltd Centara DCC Ceysands Resort 3,000 - 3,000 - & Spa, Bentota - 18 buildings - - 13,250 12,500* Positive Land and building of Softlogic Holdings PLC 262, Gagarama OMV/ DCC 580 - 600 - Road, Piliyandala 1 A 2 R 21 P 14 buildings 0.88 0.75 5,850 6,000 Positive Asiri Hospital Holdings 181,Kirula Road, OMV/ DCC 1 A 2 R 3,250 - 2,500 - PLC Colombo 05 13.98 P 2 buildings 12.00 11.00 9,500 16,000* Positive Softlogic Retail (Pvt) 402, Galle Road, OMV/ DCC/ 4,450 - 4,500 - Ltd Colombo 03 IM 17.3 P 1 building 19.00 18.00 6,200 6,250 Positive Odel PLC Dr. C W W. OMV/ DCC Kannangara Mw., 1 A 3 R 17.00 - 16.00 - 3,500 - 4,000 - Colombo 07 27.58 P 1 building 18.00 17.00 3,700 4,250 Positive 29 A, Jayatilake OMV/ DCC/ 2,350 - 2,450 - Mw., Panadura IM 1 R 2.16 P 1 building 2.80 2.60 4,750 4,850 Positive 18 & 20, OMV/ DCC Sama Mw., 4,125 - 4,250 - Boralesgomuwa 20.0 P 2 buildings 1.98 1.80 4,650 4,750 Positive
Softlogic Holdings PLC | Annual Report 2019/20 116 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
Company Property Method of Extent No of Range of estimates for Correlation valuation buildings significant unobservable inputs to fair value Per perch value - Rs. Mn. Per square foot value - Rs. 2020 2019 2020 2019 Odel Properties (Pvt) 475/32, Kotte OMV/ DCC/ 2,750 - 5,350 - Ltd Road, Rajagiriya IM 1 R 7.42 P 1 building 8.00 7.00 5,950 6,100 Positive Softlogic Finance PLC 13, De Fonseka OMV/ DCC/ Place, Colombo IM 6,450 - 6,500 - 04 12.62 P 1 building 17.50 16.50 8,200 8,250 Positive
Property valuations by Mr. P B Kalugalgedara (Chartered Valuation Surveyor) Land and building of Central Hospitals Ltd 114, Norris Canal OMV/ DCC Road, Colombo 2,000 - 2,000 - 10 1 A 21.03 P 1 building 12.00 11.50 10,000 10,000 Positive Asiri Hospital Matara 26, Esplande OMV/ DCC (Pvt) Ltd Road, Uyanwatta, 1 A 2 R 0.90 - 0.75 - 2,000 - 2,000 - Matara 1.3 P 2 buildings 1.25 1.10 8,500 8,000 Positive Asiri Hospital Galle 59, Wackwella OMV/ DCC 4.00 - (Pvt) Ltd Road, Galle 3 R 33.20 P 4 buildings 5.19 3.00 8,500 8,000 Positive Softlogic Life Insurance 283, R A De Mel OMV/ IM PLC Mw., Kollupitiya, Colombo 03 8.0 P 1 building 20.00 15.00 9,000 9,750 Positive
* Previous year property valuation carried out by Mr. P B Kalugalgedara (Chartered Valuation Surveyor)
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) Investment method (IM) Open market value method uses prices and other relevant The investment method is used to value properties which are let to information generated by market transactions involving identical produce an income for the investor. Conventionally, investment value or comparable assets, liabilities or a group of assets and liabilities, is a product of rent and yield. Each of these elements is derived such as a business. using comparison techniques.
Direct Capital Comparison method (DCC) Residual method (RM) This method may be adopted when the rental value is not available The residual method is based on the concept that the value of a from the property concerned, but there are evidence of sale price property with development potential is derived from the value of of properties as a whole. In such cases, the capitalised value of the the property after development minus the cost of undertaking that property is fixed by direct comparison with the capitalised value of development, including a profit for the developer. similar property in the locality.
22.4 Land and buildings
In Rs. ‘000 Group As at 31 March 2020 2019
At cost 2,564,300 1,551,406 At valuation 36,773,638 30,690,744 39,337,938 32,242,150
Softlogic Holdings PLC | Annual Report 2019/20 117
22.5 Carrying value
In Rs. ‘000 Group Company As at 31 March 2020 2019 2020 2019
At cost 15,359,510 15,633,594 84,644 95,430 At valuation 36,773,638 30,690,744 - - On finance lease - 269,674 - 75,533 52,133,148 46,594,012 84,644 170,963
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 Land and Buildings on Group buildings leasehold land As at 31 March 2020 2019
Cost 16,402,202 8,204,414 24,606,616 19,481,015 Accumulated depreciation (1,530,961) (685,158) (2,216,119) (1,788,819) Carrying value 14,871,241 7,519,256 22,390,497 17,692,196
22.7 Property, plant and equipment pledged as securities 22.9 Permanent fall in value of property, plant and equipment Group land and buildings with a carrying value of Rs. 17,009.85 Mn (2019 - Rs. 12,853.56 Mn) have been pledged as security for term There is no permanent fall in the value of property, plant and loans obtained, details of which are disclosed in note 54. equipment which requires a provision for impairment other than the details disclosed under note 18 and note 22.1 to the financial 22.8 Fully depreciated but still in use statements. Group property, plant and equipment with a cost of Rs. 4,573.16 Mn 22.10 Title restriction on property, plant and equipment (2019 - Rs. 3,791.65 Mn) have been fully depreciated and continue to be in use by the Group. The cost of fully depreciated assets in the There were no restrictions that existed on the title to the property, Company amounts to Rs. 76.36 Mn (2019 - Rs. 43.34 Mn). plant and equipment of the Group/ Company as at the reporting date.
23 RIGHT OF USE ASSETS/ LEASE RENTALS PAID IN ADVANCE
ACCOUNTING POLICY
Set out below are the new accounting policies of the Group upon adoption of SLFRS 16, which have been applied from the date of initial application:
Right of use assets Lease liabilities The Group recognises right of use assets when the underlying asset At the commencement date of the lease, the Group recognises is available for use. Right of use assets are measured at cost, less lease liabilities measured at the present value of lease payments any accumulated depreciation and impairment losses, and adjusted to be made over the lease term. In calculating the present value of for any remeasurement of lease liabilities. The cost of right of use lease payments, the Group uses the incremental borrowing rate at assets includes the amount of lease liabilities recognised, initial the lease commencement date if the interest rate implicit in the direct costs incurred, and lease payments made at or before the lease is not readily determinable. After the commencement date, commencement date less any lease incentives received. Unless the the amount of lease liabilities is increased to reflect the accretion Group is reasonably certain to obtain ownership of the leased asset of interest and reduced for the lease payments made. In addition, at the end of the lease term, the recognised right of use assets are the carrying amount of lease liabilities is remeasured if there is depreciated on a straight-line basis over the shorter of its estimated a modification, a change in the lease term, a change in the in- useful life or the lease term. Right of use assets are subject to substance fixed lease payments or a change in the assessment to impairment. purchase the underlying asset.
Softlogic Holdings PLC | Annual Report 2019/20 118 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to leases that have a lease term of 12 months or less from the commencement date. It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
Expenses relating to short term leases and leases of low value assets amounting to Rs. 183.36 Mn has recognised in profit or loss.
Leases - policy applicable before 01 April 2019 Leases previously classified as Finance Leases Leases previously classified as Operating Leases For leases previously classified as finance leases, the Group Leases in which a significant portion of the risks and rewards of recognised initially at the fair value of the asset or, if lower, the ownership are retained by the lessor are classified as operating present value of the minimum lease payments. Finance charges leases. Payments made under operating leases are charged to the payable are recognised in ‘Interest Expenses’ over the period of the income statement on a straight-line basis over the period of the lease based on the interest rate implicit in the lease so as to give a lease. constant rate of interest on the remaining balance of the liability.
23.1 Right of use assets
In Rs. ‘000 Group Company As at 31 March Lease Leasehold Plant and Motor Total Leasehold Motor Total rentals paid properties machinery Vehicles 2020 properties Vehicles 2020 in advance
Cost As at 31 March 2019 789,095 - - - 789,095 - - - Initial recognition - SLFRS 16 - 5,953,769 - - 5,953,769 34,767 - 34,767 Transfers - SLFRS 16 (789,095) 789,095 179,593 276,584 456,177 - 109,943 109,943 Effect of initial application of SLFRS 16 - (59,714) - - (59,714) - - - As at 1 April 2019 - 6,683,150 179,593 276,584 7,139,327 34,767 109,943 144,710 Additions - 913,106 246,866 48,666 1,208,638 - - - Transfers - - - (54,996) (54,996) - (20,766) (20,766) Derecognition - (13,851) - - (13,851) - - - Exchange difference - - - (889) (889) - - - At the end of the year - 7,582,405 426,459 269,365 8,278,229 34,767 89,177 123,944
Accumulated amortisation Transfers - SLFRS 16 - - 84,385 108,408 192,793 - 34,410 34,410 As at 1 April 2019 - - 84,385 108,408 192,793 - 34,410 34,410 Amortisation expense - 1,459,447 41,887 29,849 1,531,183 24,856 10,995 35,851 Transfers - - - (34,704) (34,704) - (9,680) (9,680) Derecognition - (11,428) - - (11,428) - - - Exchange difference - - - 249 249 - - - At the end of the year - 1,448,019 126,272 103,802 1,678,093 24,856 35,725 60,581
Carrying value As at 31 March 2020 6,134,386 300,187 165,563 6,600,136 9,911 53,452 63,363
Softlogic Holdings PLC | Annual Report 2019/20 119
23.2 Lease liability Set out below are the carrying amounts of lease liabilities and the movements for the period ended 31 March 2020.
In Rs. ‘000 Group Company As at 31 March 2020 2020
Initial recognition - SLFRS 16 5,514,132 34,704 Transfers - SLFRS 16 104,206 20,336 As at 1 April 2019 5,618,338 55,040 Additions 1,130,832 - Derecognition (12,511) - Interest expense 739,509 4,123 Payments (1,804,940) (45,307) Exchange difference (674) - At the end of the year 5,670,554 13,856
Repayable within one year 1,348,221 10,621 Repayable after one year 4,322,333 3,235 5,670,554 13,856
23.3 Amounts recognised in income statement relating to right of use assets Following are the amounts recognised in the income statement for the year ended 31 March 2020.
In Rs. ‘000 2020 As at 31 March Group Company
Amounts recognised in income statement Amortisation of right of use assets 1,531,183 35,851 Interest expense on lease liabilities 739,509 4,123
23.4 Impairment of right of use assets The Group does not foresee any impairment of right of use assets due to the COVID-19 pandemic since as each business unit is operating under the business continuity plans as per the Group risk management strategy, to the extent possible, whilst strictly adhering to and supporting government directives. The Group does not anticipate discontinuation of any right of use assets as at the reporting date.
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 in conditions at the reporting date. use. If owner occupied property becomes an investment property or inventory (WIP), the Group accounts for such property in accordance Gains or losses arising from changes in fair value are included in with the policy stated under property, plant and equipment up to the the income statement in the year in which they arise. Fair values date of change in use. Where Group companies occupy a significant are evaluated at frequent intervals by an accredited external, portion of the investment property of a subsidiary, such investment independent valuer. 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.
Softlogic Holdings PLC | Annual Report 2019/20 120 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
In Rs. ‘000 Group Company As at 31 March 2020 2019 2020 2019
At the beginning of the year 1,695,261 1,238,300 744,000 704,000 Additions during the year 2,195 18,237 - - Change in fair value during the year 332,924 245,000 50,500 40,000 Transfer from property, plant and equipment - 193,724 - - At the end of the year 2,030,380 1,695,261 794,500 744,000
24.1 Amounts recognised in income statement relating to investment property Following are the amounts recognised in the income statement.
In Rs. ‘000 Group Company As at 31 March 2020 2019 2020 2019
Amounts recognised in income statement Revenue 28,800 - 80,672 77,189 Direct operating expenses - 15 24,812 23,741
24.2 Accounting judgements, estimates and assumptions The fair value of investment property is ascertained by independent valuations carried out by Chartered Valuation Surveyors, who have recent experience in valuing properties of similar category. in similar location. Investment property is appraised by the independent valuers in accordance with LKAS 40, SLFRS 13 and the 8th edition of International Valuation Standards published by the International Valuation Standards Committee (IVSC). In determining the fair value, the current condition of the properties, future usability and associated re- development requirements have been considered. Also, the valuers have made reference to market evidence of transaction prices for similar properties, with appropriate adjustments for size and location. The appraised fair values are rounded within a range of values.
As a result of the COVID-19 outbreak in Sri Lanka during the last part of the quarter ended 31 March 2020, a reassessment of the valuations were obtained by the same independent professional valuers who determined there was no significant change to the revalued carrying amount provided prior to 31 March 2020.
The following items were indicated in the reassessment reports to the Group;
The outbreak of COVID 19, declared by the World Health Organisation as a “Global Pandemic” on 11 March 2020, has impacted both local and global markets.
Consequently, as at the reporting date, the value reflected represents the best estimate based on the market conditions that prevailed, which in valuers’ considered opinion, meets the requirements in SLFRS-13 Fair Value Measurement.
Changes in fair value of lands and buildings which are recognised as investment property are recognised in the income statement. The valuer has used the open market approach in determining the fair value of the land. Further details on fair value of investment property are disclosed in the below note.
Softlogic Holdings PLC | Annual Report 2019/20 121
Valuation details of investment property - Group Company Property Method of Extent Range of estimates for Correlation valuation significant unobservable to fair value inputs Per perch value - Rs. Mn 2020 2019
Property valuations by Mr. G W G Abeygunawardene (Chartered Valuation Surveyor) Land of Softlogic Retail (Pvt) Ltd Dekatana, Gampaha OMV/ RM 20 A 2 R 27 P 0.04 0.03 Positive Odel Lanka (Pvt) Ltd 271 & 271F, Kaduwela Road, Thalangama & 197/C, Kalapaluwawa Road, Thalangama OMV/ RM 1 A 2 R 25.7 P 6.50 5.80 Positive Softlogic Communications (Pvt) Ltd Kahandamodara Road, Kahaduwa, Ranna OMV 44.7 P 0.08 0.07 Positive Matara - Hambanthota Road, Ranna, Thangalla OMV 27.7 P 0.09 0.08 Positive Jayabima Road, Panagoda OMV 15.6 P 0.40 0.60 Positive Udaya Mw., Heiyanthuduwa, Biyagama OMV 14 P 0.30 0.30 Positive Bogamuwa Village, Agunakolapalassa OMV 2 R 2.2 P 0.03 0.03 Positive
Company Property Method of No of Range of estimates for Correlation valuation buildings significant unobservable to fair value inputs Per square foot value - Rs. 2020 2019
Property valuations by Mr. G W G Abeygunawardene (Chartered Valuation Surveyor) Building of Asiri Surgical Hospital PLC - 21, Kirimandala New Cancer Care Unit Mw., Colombo 05 DCC 1 building 32,042 28,871 Positive
Valuation details of investment property - Company Company Property Method Extent No of Range of estimates for significant unobservable inputs Correlation of buildings to fair valuation value Per perch value - Rs. Mn. Per square foot value - Rs. 2020 2019 2020 2019
Property valuations by Mr. G W G Abeygunawardene (Chartered Valuation Surveyor) Land of Softlogic 14, De Fonseka 16.50 - 15.50 - Holdings PLC Place, Colombo 05 OMV 20.49 P 17.50 16.50 - - Positive Land and building of Softlogic 262, Gagarama OMV/ 580 - 600 - Holdings PLC Road, Piliyandala DCC 1 A 2 R 21 P 14 buildings 0.88 0.75 5,850 6,000 Positive
Summary description of valuation methodologies are disclosed under property, plant & equipments and note no. 22.3 to the Financial Statements.
Softlogic Holdings PLC | Annual Report 2019/20 122 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
24.3 The table below summarise the maturity profile of Group’s undiscounted lease payments to be received as at 31 March 2020
In Rs. ‘000 Within Between Between Between Between Total 1 year 1-2 years 2-3 years 3-4 years 4-5 years
Lease payments to be received 37,893 40,362 42,551 45,354 19,070 185,230 37,893 40,362 42,551 45,354 19,070 185,230
25 INTANGIBLE ASSETS
ACCOUNTING POLICY
Basis of recognition An intangible asset is recognised if it is probable that future After initial recognition, goodwill is measured at cost less economic benefits associated with the asset will flow to the Group any accumulated impairment losses. Goodwill is reviewed for and the cost of the asset can be reliably measured. impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Basis of measurement Intangible assets acquired separately are measured on initial Lease rights recognition at cost. The cost of intangible assets acquired in a Lease rights acquired as part of a business combination, are business combination is the fair value as at the date of acquisition. capitalised if they meet the definition of an intangible asset and the recognition criteria are satisfied. Leased rights are amortised on a Following initial recognition, intangible assets are carried at straight-line basis over their estimated useful life. cost less any accumulated amortisation and any accumulated impairment losses. Present Value of acquired In-force Business (PVIB) Internally generated intangible assets, excluding capitalised The present value of future profits on a portfolio of long term life development costs, are not capitalised, and expenditure is charged insurance contracts as at the acquisition date is recognised as an against income in the year in which the expenditure is incurred. intangible asset based on a valuation carried out by an independent actuary. Subsequent to initial recognition, the intangible asset is Useful economic lives, amortisation and impairment carried at cost less accumulated amortisation and accumulated impairment losses. The useful lives of intangible assets are assessed as either finite or infinite. Intangible assets with finite lives are amortised over their The PVIB is amortised over the average useful life of the related useful economic life and assessed for impairment whenever there is contracts in the portfolio. The amortisation charge and any an indication that the intangible asset may be impaired. impairment losses would be recognised in the consolidated income statement as an expense. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end and such changes are treated as accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement.
Intangible assets with infinite useful lives are not amortised but tested for impairment annually, or more frequently when an indication of impairment exists either individually or at the cash- generating unit level. The useful life of an intangible asset with an infinite life is reviewed annually to determine whether infinite life assessment continues to be supportable. If not, the change in the useful life assessment from infinite to finite is made on a prospective basis.
Goodwill Goodwill is initially measured at the acquisition date as the fair value of the consideration transferred including the recognised amount of any non-controlling interests in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date.
Softlogic Holdings PLC | Annual Report 2019/20 123
Purchased software Brand name Purchased software is recognised as an intangible asset and is Brands acquired as part of a business combination, are capitalised amortised on a straight line basis over its useful life. as Brands if they meet the definition of an intangible asset and are tested for impairment annually or more frequently if events or Software licenses changes in the circumstances indicate that the carrying value may Software license costs are recognised as an intangible asset and be impaired. amortised over the period of the related license.
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 In- force Business (PVIB) 16 years Acquired when an indication of impairment exists 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.
In Rs. ‘000 Goodwill Lease PVIB Brand Others* Group Company right name Total Total Computer Software As at 31 March 2020 2019 2020 2019
Cost / carrying value At the beginning of the year 4,604,797 892,406 1,980,620 1,509,085 1,568,699 10,555,607 10,132,809 6,814 14,326 Additions - - - - 308,660 308,660 141,234 2,944 2,635 Acquisition of subsidiary ------391,202 - - Transfers - - (12,094) - - Impairment/ derecognition - - - - (4,963) (4,963) (97,978) (4,963) (10,147) Exchange translation difference - - - - (1,366) (1,366) 434 - - At the end of the year 4,604,797 892,406 1,980,620 1,509,085 1,871,030 10,857,938 10,555,607 4,795 6,814
Accumulated amortisation and impairment At the beginning of the year - 178,062 938,732 - 674,279 1,791,073 1,522,445 6,128 13,733 Amortisation - 22,484 123,789 - 120,973 267,246 262,143 2,162 2,542 Acquisition of subsidiary ------24,937 - - Impairment/ derecognition - - - - (4,963) (4,963) (18,543) (4,963) (10,147) Exchange translation difference - - - - (424) (424) 91 - - At the end of the year - 200,546 1,062,521 - 789,865 2,052,932 1,791,073 3,327 6,128
Carrying value As at 31 March 2020 4,604,797 691,860 918,099 1,509,085 1,081,165 8,805,006 1,468 As at 31 March 2019 4,604,797 714,344 1,041,888 1,509,085 894,420 8,764,534 686
* Other intangible assets include purchased software and software licenses, other license fee and franchise fee paid on acquiring operational rights.
Softlogic Holdings PLC | Annual Report 2019/20 124 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
Goodwill & brand names Goodwill and brand names acquired through business combinations have been allocated to six cash generating units (CGU’s) for impairment testing as follows:
In Rs. ‘000 Goodwill Brand name As at 31 March 2020 2019 2020 2019
Information and Communication Technology 14,087 14,087 - - Retail 1,200,377 1,200,377 998,180 998,180 Travel and Leisure 182,207 182,207 4,169 4,169 Financial Services 817,742 817,742 - - Healthcare Services 2,358,921 2,358,921 506,736 506,736 Others 31,463 31,463 - - 4,604,797 4,604,797 1,509,085 1,509,085
Present Value of acquired-In -force Business (PVIB) Upon acquiring a controlling stake in Softlogic Life Insurance PLC (previously known as Asian Alliance Insurance PLC), the Group recognised in the consolidated financial statements an intangible assets 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 Accounting judgements, estimates and assumptions
Impairment of goodwill Impairment exists when the carrying value of an asset or cash Business growth - volume growth has been budgeted on a generating unit exceeds its recoverable amount, which is the higher reasonable and realistic basis by taking into of its fair value less costs to sell and its value in use (VIU). The fair account the growth rates of one to five years value less costs to sell calculation is based on available data from immediately subsequent to the budgeted year, an active market in an arm’s length transaction of similar assets, based on industry growth rates. Cash flows or observable market prices less incremental costs for disposing of beyond a five year period are extrapolated the asset. The value in use calculation is based on a discounted cash using zero growth rate. flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group Inflation - budgeted cost inflation is the inflation rate, is not yet committed to or significant future investments that will based on projected economic conditions. enhance the performance of the cash generating unit being tested. Discount rate - the discounting rate used is the risk free rate The recoverable amount is most sensitive to the discount rate used increased by an appropriate risk premium. for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes. Margin - budgeted gross margins are the gross margins achieved in the year preceding, The recoverable amount of all CGUs have been determined based adjusted for projected market conditions and on the higher of fair value less costs to sell and its Value in Use business plans. (VIU) calculation. VIU is determined by discounting the future cash flows generated from continuing use of the unit. The recoverability of quoted entities determined based on share price existed as at reporting date. The key assumptions used are given below:
Softlogic Holdings PLC | Annual Report 2019/20 125
26 INVESTMENT IN SUBSIDIARIES
ACCOUNTING POLICY
Investments in subsidiaries are initially recognised at cost in the financial statements of the Company. Any transaction cost relating to acquisition of investment in subsidiaries is immediately recognised in the income statement. Following initial recognition, investments in subsidiaries are carried at cost less any accumulated impairment losses.
In Rs. ‘000 Note Company As at 31 March 2020 2019
Quoted investments 26.1 8,288,319 8,260,396 Unquoted investments 26.2 11,768,304 11,768,304 20,056,623 20,028,700
26.1 Group quoted investments
In Rs. ‘000 Group Company As at 31 March No of Effective No of Holding 2020 2019 shares holding % shares %
Asiri Hospital Holdings PLC 596,859,039 51.61 580,434,328 51.03 5,585,003 5,563,998 Asiri Surgical Hospital PLC 415,055,398 40.54 - - - - Odel PLC 265,920,868 97.72 - - - - Softlogic Capital PLC 515,952,743 74.98 515,952,743 74.98 2,670,061 2,670,061 Softlogic Finance PLC 82,623,201 58.10 1,186,909 1.15 31,695 24,777 Softlogic Life Insurance PLC 193,996,310 38.80 175,550 0.05 1,560 1,560 8,288,319 8,260,396
Group quoted investments In Rs. ‘000 Group Company As at 31 March 2020* 2019 2020* 2019
Market Value Asiri Hospital Holdings PLC 11,638,751 12,016,148 11,318,469 11,704,569 Asiri Surgical Hospital PLC 4,067,543 3,935,315 - - Odel PLC 5,876,851 6,940,535 - - Softlogic Capital PLC 2,528,168 2,837,740 2,528,168 2,837,740 Softlogic Finance PLC 1,255,873 1,083,163 18,041 16,847 Softlogic Life Insurance PLC 6,770,471 6,110,884 6,127 5,530 32,137,657 32,923,785 13,870,805 14,564,686
* The indicative market values of the 2020 are based on 28 February 2020 active market prices, since as at 31 March 2020 shows factors which are indicative of an inactive market due to COVID-19 pandemic.
Softlogic Holdings PLC | Annual Report 2019/20 126 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
26.2 Group unquoted investments
In Rs. ‘000 Group Company As at 31 March Number of Effective Number of Holding 2020 2019 shares holding % shares % Asiri Central Hospitals Ltd 10,319,735 48.74 - - - - Asiri Diagnostic Services (Asia) PTE Ltd 1 51.61 - - - - Asiri Diagnostics Services (Pvt) Ltd 273,221 34.34 - - - - Asiri Hospital Galle (Pvt) Ltd 44,000,002 51.61 - - - - Asiri Hospital Matara (Pvt) Ltd 25,999,999 51.61 - - - - Asiri Laboratories (Pvt) Ltd 100,000 51.61 - - - - Asiri Myanmar Ltd 1 51.61 - - - - BSL International (Pvt) Ltd (liquidated on 18-07-2020) 298,400 97.72 - - - - Central Hospitals Ltd 214,539,804 51.47 - - - - Ceysand Resorts Ltd - Voting Shares 17,087,669 99.90 - - - - - Non Voting Shares 134,250 96.58 - - - - Cotton Collection (Pvt) Ltd 600,100 97.72 - - - - 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 (liquidated on 18-01-2020) ------Odel Apparels (Pvt) Ltd 2 97.72 - - - - Odel Information Technology Services (Pvt) Ltd 1 97.72 - - - - Odel Lanka (Pvt) Ltd 27,000,002 97.72 - - - - Odel Properties (Pvt) Ltd 1,081,002 97.72 - - - - Odel Properties One (Pvt) Ltd 76,925,383 97.72 - - - - Odel Restaurants (Pvt) Ltd 100,000 97.72 - - - - Silk Route Foods (Pvt) Ltd 5,100 51.00 - - - - SML Holdings (Pvt) Ltd 99,999 86.17 - - - - 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 31,687 Softlogic Asset Management (Pvt) Ltd 3,500,002 74.98 - - - - 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 97.72 - - - - Softlogic City Hotels (Pvt) Ltd 230,569,836 99.92 - - - - Softlogic Communication Services (Pvt) Ltd 100 100.00 - - - - Softlogic Communications (Pvt) Ltd 10,442,153 100.00 - - - - 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 Healthcare Holdings 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 4,906 Softlogic International (Pvt) Ltd 669,808 100.00 - - - - Softlogic Mobile Distribution (Pvt) Ltd 1,000,000 100.00 - - - - Softlogic Properties (Pvt) Ltd 483,421,208 99.92 483,421,208 99.92 4,438,214 4,438,214 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 - - - - Softlogic Retail Holdings (Pvt) Ltd 627,239,302 100.00 627,239,302 100.00 6,272,393 6,272,393 Softlogic Retail One (Pvt) Ltd 100,000 100.00 100,000 100.00 1,000 1,000 Softlogic Rewards (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 17,100,000 100.00 17,100,000 100.00 171,000 171,000 Suzuki Motors Lanka Ltd 12,031,051 86.17 - - - - 11,988,880 11,988,880 Less - Impairment of investments (Note 26.3) (220,576) (220,576) 11,768,304 11,768,304
Softlogic Holdings PLC | Annual Report 2019/20 127
26.3 Accounting judgements, estimates and assumptions
Impairment of investments An impairment assessment was carried out as at 31 March 2020 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 2020 2019
At the beginning of the year 220,576 220,576 Provision for impairment - - At the end of the year 220,576 220,576
27 INVESTMENTS IN EQUITY ACCOUNTED INVESTEES
ACCOUNTING POLICY
An associate is an entity over which the Group has significant The income statement reflects the Group’s share of the results influence. Significant influence is the power to participate in the of operations of associates. OCI of those investees is presented financial and operating policy decisions of the investee, but is not as part of the Group’s OCI. In addition, when there has been a control or joint control over those policies. change recognised directly in the equity of the associate, the Group recognises its share of any changes, when applicable, in Associate companies of the Group which have been accounted for the statement of changes in equity. Unrealised gains and losses under the equity method of accounting are: resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. Name of the company Country of incorporation The aggregate of the Group’s shares of profit or loss of associates is Digital Health (Pvt) Ltd Sri Lanka shown on the face of the income statement outside operating profit Gerry’s Softlogic (Pvt) Ltd Pakistan and represents profit or loss after tax and non-controlling interests Jendo Innovations (Pvt) Ltd Sri Lanka in the subsidiaries of the associate. Nextage (Pvt) Ltd Sri Lanka Sabre Travel Network Lanka (Pvt) Ltd Sri Lanka After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its A joint venture is a type of joint arrangement whereby the parties investment in its associate. At each reporting date, the Group that have joint control of the arrangement have rights to the net determines whether there is objective evidence that the investment assets of the joint venture. Joint control is the contractually agreed in the associate is impaired. If there is such evidence, the Group sharing of control of an arrangement, which exists only when calculates the amount of impairment as the difference between decisions about the relevant activities require unanimous consent of the recoverable amount of the associate venture and its carrying the parties sharing control. value, and then recognises the loss as ‘Share of results of equity accounted investees’ in the income statement. Joint venture company of the Group which have been accounted for under the equity method of accounting is: Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Name of the company Country of incorporation Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained Asiri A O I Cancer Centre (Pvt) Ltd Sri Lanka investment and proceeds from disposal is recognised in the income statement. The considerations assessed in determining significant influence a similar to those in determining control over subsidiaries. The accounting policies of associate companies conform to those of the Group. The Group’s investments in its associates are accounted for using the equity method. Under the equity method, the investment in an The equity method of accounting has been applied for associates associate is initially recognised at cost. The carrying amount of the using their financial statements for the corresponding financial investment is adjusted to recognise changes in the Group’s share period or a matching 12 month period. In the case of associates of net assets of the associate since the acquisition date. Goodwill whose reporting dates are different to Group reporting dates, relating to the associate is included in the carrying amount of the adjustments are made for significant transactions or events up to investment and is not tested for impairment individually. 31 March.
Softlogic Holdings PLC | Annual Report 2019/20 128 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
In Rs. ‘000 Note Group Company As at 31 March 2020 2019 2020 2019
Investments in equity accounted investees 27.1 109,355 78,249 41,000 11,000 109,355 78,249 41,000 11,000
27.1 Group investments in equity accounted investees
In Rs. ‘000 Note Group Company As at 31 March 2020 2019 2020 2019
Investments in joint ventures Unquoted Asiri A O I Cancer Centre (Pvt) Ltd 29,480 29,368 - - 29,480 29,368 - - Investments in associates Unquoted Digital Health (Pvt) Ltd 5,753 10,080 - - Gerry's Softlogic (Pvt) Ltd - - 2,700 2,700 Nextage (Pvt) Ltd 5,541 6,885 1,250 1,250 Jendo Innovations (Pvt) Ltd 30,000 - 30,000 - Sabre Travel Network Lanka (Pvt) Ltd 37,475 65,552 9,750 9,750 78,769 82,517 43,700 13,700 Less: impairment of investment in Gerry's Softlogic (Pvt) Ltd - - (2,700) (2,700) 78,769 82,517 41,000 11,000
Share of profit accruing to the group 27.2 1,611 7,080 - - Share of associate companies dividend - (40,750) - - Share of OCI accruing to the group 27.2 (505) 34 - - 109,355 78,249 41,000 11,000
27.2 Summarised financial information of equity accounted investees
In Rs. ‘000 Associates Joint Group As at 31 March ventures 2020 2019
Group share of: Revenue 149,721 52,480 202,201 187,452 Operating expenses (148,307) (52,975) (201,282) (193,985) Other income 578 114 692 13,613 Profit/ (loss) for the year 1,992 (381) 1,611 7,080
Group share of: Share of other comprehensive income/ (loss) of equity accounted investees (473) (32) (505) 34 Net share of other comprehensive income/ (loss) for the year (473) (32) (505) 34
Group share of: Total assets 188,570 104,614 293,184 243,263 Total liability (140,168) (91,715) (231,883) (189,941) Net assets 48,402 12,899 61,301 53,322 Unrealised profits (52) - (52) (130) Deferred tax on undistributable profits (5,917) - (5,917) (5,917) Goodwill 37,856 16,167 54,023 30,974 80,289 29,066 109,355 78,249
Contingent liabilities Nil Nil Nil Nil Capital commitments Nil Nil Nil Nil
Softlogic Holdings PLC | Annual Report 2019/20 129
28 NON - CURRENT FINANCIAL ASSETS
In Rs. ‘000 Note Group Company As at 31 March 2020 2019 2020 2019
Other quoted equity investments 28.1 2,209,682 1,547,325 - - Other unquoted equity investments 28.2 373,660 469,217 - - Other non equity investments 28.3 13,970,817 10,990,674 1,549,170 1,465,042 16,554,159 13,007,216 1,549,170 1,465,042
28.1 Other quoted equity investments
In Rs. ‘000 Number of Group As at 31 March shares 2020 2019
Access Engineering PLC 2,028,927 37,129 - ACL Cables PLC 616 19 20 Ceylon Cold Stores PLC 52,095 40,113 - Commercial Bank of Ceylon PLC 1,305,000 111,578 - John Keells Holdings PLC 298,243 43,543 - Lanka IOC PLC 605,000 10,285 - Lanka Tiles PLC 400,000 29,440 - Melstacorp PLC 1,204,686 52,404 - National Development Bank PLC 17,216,038 1,721,604 1,546,201 People's Leasing & Finance PLC 1,000,000 14,700 - Sampath Bank PLC 574,978 91,709 - Seylan Bank PLC - Non Voting Shares 31,984 1,080 1,104 Teejay Lanka PLC 1,602,215 56,078 - 2,209,682 1,547,325
28.2 Other unquoted equity investments
In Rs. ‘000 Number of Group As at 31 March shares 2020 2019
Cargills Bank Ltd 34,000,000 373,660 469,000 Voyages Jean Mermoz Ltd - 10 Ceylon Lexcon Services Ltd - 207 373,660 469,217
28.3 Other non equity investments
In Rs. ‘000 Note Group Company As at 31 March 2020 2019 2020 2019
Debentures 4,183,297 2,683,462 - - Fixed deposits 29,061 25,388 - - Government securities 5,375,282 3,316,389 - - Hire purchase trade debtors 32.1 1,487,164 1,252,299 - - Investment in Unit Trust 249 - - - Loans and advances 33 2,889,626 3,712,555 - - Loans to executives 6,107 550 - - Loans to subsidiaries - - 1,549,170 1,465,042 Placement with banks and financial institutions 31 31 - - 13,970,817 10,990,674 1,549,170 1,465,042
Softlogic Holdings PLC | Annual Report 2019/20 130 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
28.4 Reclassification of financial assets at Fair Value Through Profit or Loss (FVTPL) to financial assets at Fair Value Through Other Comprehensive Income (FVOCI) Guidance Notes on Accounting Considerations of the COVID-19 Outbreak issued by Institute of Chartered Accountants of Sri Lanka on 11 May 2020 granted a one off option to reclassify equity instruments after initial recognition if the entity decides to change its business model as at 1 January 2020. Accordingly, Softlogic Life Insurance PLC has reclassified equity instruments from FVTPL to FVOCI with effect from 01 January 2020. Subsequent to the reclassification, the gain or loss on disposal of equity shares are recognised in the statement of profit or loss and other comprehensive income. Already recognised fair value loss of Rs. 178.60 Mn has been reversed in the Income Statement on reclassification for the period ended 31 March 2020.
Details of reclassified amounts from FVTPL to FVOCI are as follows.
In Rs. ‘000 Fair value Impact Impact on Other on Income Comprehensive Statement Income As at 31 March 2020 349,735 178,596 (178,596)
29 RENTAL RECEIVABLE ON LEASE ASSETS AND HIRE PURCHASE
ACCOUNTING POLICY
Initial recognition and measurement 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 for lease and a receivable equal to the net investment in the lease is impairment losses. recognised. Amounts receivable under finance leases are included
29.1 Receivable from one to five years
In Rs. ‘000 Group As at 31 March 2020 2019 Rental Rental Total Rental Rental Total receivable receivable receivable receivable on lease on hire on lease on hire assets purchase assets purchase
Rental receivables 1,594,598 - 1,594,598 1,467,071 25,010 1,492,081 Unearned income (359,129) - (359,129) (352,029) (4,535) (356,564) Impairment (79,446) - (79,446) - - - 1,156,023 - 1,156,023 1,115,042 20,475 1,135,517
29.2 Receivable within one year
In Rs. ‘000 Group As at 31 March 2020 2019 Rental Rental Total Rental Rental Total receivable receivable receivable receivable on lease on hire on lease on hire assets purchase assets purchase
Rental receivables 1,309,192 114,283 1,423,475 1,234,959 96,540 1,331,499 Unearned income (347,077) (1,256) (348,333) (391,453) (5) (391,458) Impairment (53,259) (17,621) (70,880) (84,444) (25,119) (109,563) 908,856 95,406 1,004,262 759,062 71,416 830,478 2,064,879 95,406 2,160,285 1,874,104 91,891 1,965,995
Softlogic Holdings PLC | Annual Report 2019/20 131
29.3 Accounting judgements, estimates and assumptions
Impairment of rental receivables For rental receivables on lease assets and hire purchases, the Group significant or not, it includes the asset in a group of financial assets first assesses whether objective evidence of impairment exists with similar credit risk characteristics and collectively assesses individually for financial assets that are individually significant, or them for impairment. Assets that are individually assessed for collectively for financial assets that are not individually significant. impairment and for which an impairment loss is, or continues If the Group determines that no objective evidence of impairment to be, recognised are not included in a collective assessment of exists for an individually assessed financial asset, whether impairment.
29.3.1 Analysis of rental receivable on lease assets and hire purchase on maximum exposure to credit risk In Rs. ‘000 Total As at 31 March Stage 1 Stage 2 Stage 3 2020
Gross rental receivables - subject to collective impairment 1,344,904 493,287 472,420 2,310,611 Allowance for expected credit losses (ECL) (12,397) (26,562) (111,367) (150,326) 1,332,507 466,725 361,053 2,160,285
In Rs. ‘000 Total As at 31 March Stage 1 Stage 2 Stage 3 2019 Gross rental receivables - subject to collective impairment 1,112,696 620,054 342,809 2,075,559 Allowance for expected credit losses (ECL) (9,156) (20,739) (79,669) (109,564) 1,103,540 599,315 263,140 1,965,995
29.3.2 Movement in allowance for expected credit losses (ECL) In Rs. ‘000 Total As at 31 March Stage 1 Stage 2 Stage 3 2020
Balance as at 01 April 2019 9,156 20,739 79,669 109,564 Charge to income statement 3,241 5,823 31,698 40,762 12,397 26,562 111,367 150,326
In Rs. ‘000 Total As at 31 March Stage 1 Stage 2 Stage 3 2019
Balance as at 01 April 2018 871 3,606 127,495 131,972 Impact of adopting SLFRS 9 22,013 3,326 (27,203) (1,864) Charge/ (reversal) to income statement (13,728) 13,807 (20,623) (20,544) 9,156 20,739 79,669 109,564
30 OTHER NON-CURRENT ASSETS
In Rs. ‘000 Note Group As at 31 March 2020 2019
Rent advances 542,913 538,817 Deferred expenditure - 35,900 Work-in-progress - Odel Mall project 30.1 4,396,971 2,641,070 4,939,884 3,215,787
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 cost incurred on the project and complex with an approximate area of 645,000 sq. ft., comprising of borrowing cost capitalised. retail and associate facilities, residential units, cinemas and a car park.
Softlogic Holdings PLC | Annual Report 2019/20 132 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
Reconciliation of work-in-progress - Odel Mall project
In Rs. ‘000 Note Group As at 31 March 2020 2019
At the beginning of the year 2,641,070 619,407 Additions during the period 1,755,901 2,021,663 At the end of the year 4,396,971 2,641,070
31 INVENTORIES
ACCOUNTING POLICY
Inventories are valued at the lower of cost and net realisable value. The cost of inventories is:
Net realisable value is the estimated selling price less estimated »» Finished goods - cost of direct materials and direct labour and costs of completion and the estimated costs necessary to make the an appropriate proportion of fixed overheads based on normal sale. operating capacity
»» Other stock - actual cost
In Rs. ‘000 Note Group As at 31 March 2020 2019
Finished goods 10,540,414 8,815,937 Other stocks 2,409,250 2,309,686 12,949,664 11,125,623 Less - provision for write-down of inventories 31.1 (514,900) (436,602) 12,434,764 10,689,021
31.1 Movement in provision for write-down of inventories
In Rs. ‘000 Group As at 31 March 2020 2019
At the beginning of the year 436,602 396,226 Acquisition of subsidiary - 6,691 Provision for write-down of inventories 139,950 75,137 Written off during the year (61,652) (41,452) At the end of the year 514,900 436,602
32 TRADE AND OTHER RECEIVABLES
ACCOUNTING POLICY
Trade and other receivables Reinsurance receivables Trade receivables are amounts due from customers for goods The Group cedes insurance risk in the normal course of business sold or services performed in the ordinary course of business. for all of its businesses. Reinsurance receivables represent Other financial receivables are recognised as other receivables. If balances due from reinsurance companies. Amounts recoverable collection is expected in one year or less (or in the normal operating from reinsurers are estimated in a manner consistent with the cycle of the business if longer), they are classified as current assets. outstanding claims provision or settled claims associated with If not, 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.
Softlogic Holdings PLC | Annual Report 2019/20 133
In Rs. ‘000 Note Group Company As at 31 March 2020 2019 2020 2019
Trade and other receivables 32.1 8,740,669 10,868,292 655,300 398,263 Reinsurance receivables 334,007 294,294 - - Loans to executives 14,868 43,272 4,198 4,218 Other receivables 3,301,682 2,836,536 20,862 509,612 12,391,226 14,042,394 680,360 912,093
32.1 Trade and other receivables
In Rs. ‘000 Note Gross Unearned Group Company income As at 31 March 2020 2019 2020 2019
Hire purchase debtors 3,942,855 (124,798) 3,818,057 3,841,478 - - Trade receivables 7,897,499 - 7,897,499 9,602,273 791,921 534,884 11,840,354 (124,798) 11,715,556 13,443,751 791,921 534,884 Less - provision for impairment of trade and other receivables 32.2.1 (1,500,876) (1,323,160) (136,621) (136,621) 11,840,354 (124,798) 10,214,680 12,120,591 655,300 398,263
Trade and other receivables Receivable within one year 8,740,669 10,868,292 655,300 398,263 Receivable after one year 1,487,164 1,252,299 - - 10,227,833 12,120,591 655,300 398,263
32.2 Accounting judgements, estimates and assumptions
Impairment of receivables The Group assesses the evidence of impairment of receivables at Collective assessment is carried out by grouping together 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 not current economic and credit conditions are such that the actual 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 2020 2019 2020 2019
At the beginning of the year 1,323,160 576,145 136,621 77,853 Impact of adopting SLFRS 9 - 406,489 - 55,353 Acquisition of subsidiary - (1,031) - - Provision for impairment of trade and other receivables 345,746 353,623 - 3,415 Written offs during the year (168,030) (12,066) - - At the end of the year 1,500,876 1,323,160 136,621 136,621
Softlogic Holdings PLC | Annual Report 2019/20 134 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
33 LOANS AND ADVANCES
ACCOUNTING POLICY
Initial recognition and measurement Subsequent measurement Loans and advances are financial assets with fixed or determinable Loans and advances are initially recognised at fair value, which is payments that are not quoted in an active market. Such assets the cash consideration to originate or purchase the loan including are recognised initially at fair value plus any directly attributable any transaction costs and measured subsequently at amortised transaction costs. cost using the EIR, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on Policyholders loans are granted up to 90% of the surrender value of acquisition and fees and costs that are an integral part of the EIR. a life insurance policy at a rate equivalent to the market rate. The amortisation is included in ‘interest income’ in the Statement of profit or loss. The losses arising from impairment are recognised in ‘impairment charge for loans and advances’ in the Statement of profit or loss.
In Rs. ‘000 Gross Unearned Group income As at 31 March 2020 2019
Consumer loan receivables 72,907 (7,019) 65,888 31,093 Factoring receivables 642,747 - 642,747 309,227 Gold loan receivables 2,953,867 - 2,953,867 2,014,921 Other loan receivables 8,338,611 (1,218,955) 7,119,656 6,369,013 Personal loan receivables 708,002 (25,537) 682,465 841,563 Revolving loan receivables 1,456,331 (5,494) 1,450,837 1,028,065 SME loan receivables 2,813,540 (148,206) 2,665,334 6,064,954 Gross loan receivable 16,986,005 (1,405,211) 15,580,794 16,658,836 Less - Allowance for impairment (1,401,445) (1,156,603) 16,986,005 (1,405,211) 14,179,349 15,502,233 Policyholders loans 236,700 173,312 16,986,005 (1,405,211) 14,416,049 15,675,545
Loans and advances Receivable within one year 11,526,423 11,962,990 Receivable after one year 2,889,626 3,712,555 14,416,049 15,675,545
33.1 Accounting judgements, estimates and assumptions Impairment of loans and advances Analysis of loan receivables on maximum exposure to credit risk In Rs. ‘000 Total As at 31 March Stage 1 Stage 2 Stage 3 2020
Gross loan receivables - subject to collective impairment (excluding policyholders loans) Consumer loan receivables 42,815 2,216 20,857 65,888 Factoring receivables 547,239 68,670 26,838 642,747 Gold loan receivables 1,633,127 742,953 577,787 2,953,867 Other loan receivables 1,982,508 1,060,903 4,076,245 7,119,656 Personal loan receivables 54,786 7,646 620,033 682,465 Revolving loan receivables 18,495 21,243 1,411,099 1,450,837 SME loan receivables 841,998 346,769 1,476,567 2,665,334 Gross loan receivable 5,120,968 2,250,400 8,209,426 15,580,794
Less - Allowance for expected credit losses (ECL) (72,453) (139,642) (1,189,350) (1,401,445) 5,048,515 2,110,758 7,020,076 14,179,349
Softlogic Holdings PLC | Annual Report 2019/20 135
In Rs. ‘000 Total As at 31 March Stage 1 Stage 2 Stage 3 2019
Gross loan receivables - subject to collective impairment (excluding policyholders loans) Consumer loan receivables 10,513 1,202 19,378 31,093 Factoring receivables 244,463 58,717 6,047 309,227 Gold loan receivables 1,272,996 597,382 144,543 2,014,921 Other loan receivables 2,943,191 2,434,091 991,731 6,369,013 Personal loan receivables 87,634 32,343 721,586 841,563 Revolving loan receivables 457,347 53,033 517,685 1,028,065 SME loan receivables 4,013,407 975,309 1,076,238 6,064,954 Gross loan receivable 9,029,551 4,152,077 3,477,208 16,658,836
Less - Allowance for expected credit losses (ECL) (121,625) (142,489) (892,489) (1,156,603) 8,907,926 4,009,588 2,584,719 15,502,233
Overview of the expected credit loss (ECL) principles Movement in allowance for expected credit losses (ECL) In Rs. ‘000 Total As at 31 March Stage 1 Stage 2 Stage 3 2020
Balance as at 01 April 2019 121,625 142,489 892,489 1,156,603 Charge/ (reversal) to income statement (49,172) (2,847) 296,861 244,842 72,453 139,642 1,189,350 1,401,445
In Rs. ‘000 Total As at 31 March Stage 1 Stage 2 Stage 3 2019 Balance as at 01 April 2018 283,807 115,234 1,104,847 1,503,888 Charge/ (reversal) to income statement (162,182) 27,255 (212,358) (347,285) 121,625 142,489 892,489 1,156,603
The Group established a policy to perform as assessment, at the facilities where the credit risk has improved and the loan end of each reporting period, of whether a financial instrument’s has been reclassified from Stage 2. credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the Stage 2 When a loan has shown a significant increase in credit remaining life of the financial instrument. risk since origination, the Group records an allowance for the LTECLs. Stage 2 loans also include facilities, where the The ECL allowance is based on the credit losses expected to arise credit risk has improved and the loan has been reclassified over the life of the asset (the lifetime expected credit loss or LTECL), from Stage 3. unless there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 12 months’ Stage 3 Loans considered credit-impaired. The Group records an expected credit loss (12mECL). allowance for the LTECLs.
The 12mECL is the portion of LTECLs that represent the ECLs POCI Purchased or originated credit impaired (POCI) assets that result from default events on a financial instrument that are are financial assets that are credit impaired on initial possible within the 12 months after the reporting date. recognition. POCI assets are recorded at fair value at original recognition and interest income is subsequently Both LTECLs and 12mECLs are calculated on either an individual recognised based on a credit-adjusted EIR. ECLs are basis or collective basis, depending on the nature of the underlying only recognised or released to the extent that there is a portfolio of financial instruments. subsequent change in the expected credit losses.
Based on the above process, the Company groups its loans into For financial assets for which the Company has no reasonable Stage 1, Stage 2, Stage 3 and POCI, as described below. expectations of recovering either the entire outstanding amount, or a proportion thereof, the gross carrying amount of the financial Stage 1 When loans are first recognised, the Group recognises an asset is reduced. This is considered a (partial) derecognition of the allowance based on 12mECLs. Stage 1 loans also include financial asset.
Softlogic Holdings PLC | Annual Report 2019/20 136 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
The Calculation of Expected Credit Loss (ECL) The Group calculates ECLs based on a four probability-weighted scenarios to measure the expected cash shortfalls, discounted at an approximation to the EIR. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive.
The mechanics of the ECL calculations are outlined below and the key elements are, as follows.
Probability of Default (PD) Stage2 When a loan has shown a significant increase in credit The probability of Default is an estimate of the likelihood of default risk since origination, the Group records an allowance for over a given time horizon. A default may only happen at a certain the LTECLs. The mechanics are similar to those explained time over the assessed period, if the facility has not been previously above, including the use of multiple scenarios, but PDs and derecognised and is still in the portfolio. LGDs are estimated over the lifetime of the instrument. The expected cash shortfalls are discounted by an Exposure at Default (EAD) approximation to the original EIR. The Exposure at Default is an estimate of the exposure at a future Stage 3 For loans considered credit-impaired, the Group default date, taking into account expected changes in the exposure recognises the lifetime expected credit losses for these after the reporting date, including repayments of principal and loans. The method is similar to that for Stage 2 assets, interest, whether scheduled by contract or otherwise, expected draw with the PD set at 100%. downs on committed facilities, and accrued interest from missed payments. Loan Commitments When estimating LTECLs for undrawn loan commitments, the Group Loss Given Default (LGD) estimates the expected portion of the loan commitment that will The Loss Given Default is an estimate of the loss arising in the case be drawn down over its expected life. The ECL is then based on the where a default occurs at a given time. It is based on the difference present value of the expected shortfalls in cash flows if the loan is between the contractual cash flows due and those that the lender drawn down, based on a probability weighting of the four scenarios. would expect to receive, including from the realisation of any The expected cash shortfalls are discounted at an approximation to collateral. It is usually expressed as a percentage of the EAD. the expected EIR on the loan.
The mechanism of the ECL method are summarised below. For factoring receivables and revolving loans that include both a loan and an undrawn commitment. ECLs are calculated and Stage 1 The 12mECL is calculated as the portion of LTECLs that presented with the loan. represent the ECLs that represent the ECLs that result from default events on a financial instrument that are Financial Guarantee contracts possible with in the 12 months after the reporting date. The Group calculates the 12mECL allowance based on The Group’s liability under each guarantee is measured at the higher the expectation of a default occurring in the 12 months of the initially recognised less cumulative amortisation recognised in following the reporting date. These expected 12-month the income statement, and the ECL provision. For this purpose, the default probabilities are applied to a forecast EAD and Group estimates ECLs based on the present value of the expected multiplied by the expected LGD and discounted by an payments to reimburse the holder for a credit loss that it incurs. approximation of the original EIR. The shortfalls are discounted by the risk-adjusted interest rate relevant to the exposure. The calculation is made using a probability - weighting of the four scenarios. The ECLs related to financial guarantee contracts are recognised within provisions.
Softlogic Holdings PLC | Annual Report 2019/20 137
33.2 Error correction on impairment - Softlogic Finance PLC Softlogic Finance PLC which is a subsidiary of Softlogic Holdings PLC adjusted errors mainly due to at the initial point of forecasting future cash flows for financial year ended 31 March 2018, the Company had not taken in to consideration certain information. In order to rectify this error, the company has re-forecasted the relevant future cash flows and made the necessary adjustments as follows.
In Rs. ‘000 Group Published Impact Impact Published for 2019 of error of for 2020 reclassification
Assets Non current assets Non-current financial assets 13,157,132 (148,901) (1,015) 13,007,216 Total non current assets 78,677,537 (148,901) (1,015) 78,527,621
Current assets Trade and other receivables 14,351,620 - (309,226) 14,042,394 Loans and advances 11,664,401 - 298,589 11,962,990 Rental receivable on lease assets and hire purchase 835,051 (1,552) (3,021) 830,478 Other current assets 5,343,713 - 14,673 5,358,386 Total current assets 52,143,244 (1,552) 1,015 52,142,707 Total assets 130,820,781 (150,453) - 130,670,328
Equity and liabilities Equity attributable to equity holders of the parent Revenue reserves (1,716,945) (80,529) - (1,797,474) Equity attributable to equity holders 14,423,148 (80,529) - 14,342,619 Non-controlling interests 10,566,762 (69,924) - 10,496,838 Total equity 24,989,910 (150,453) - 24,839,457 Total equity and liabilities 130,820,781 (150,453) - 130,670,328
34 OTHER CURRENT ASSETS
ACCOUNTING POLICY
The Group classifies all non-financial current assets under other current assets. Other current assets comprise mainly advances, deposits, prepayments and tax refunds and receivables.
Advances and deposits are carried at historical value less a provision for impairment. Prepayments are amortised over the period during 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 2020 2019 2020 2019
Prepayments, advances & non-cash receivables 2,113,443 2,958,382 5,824 6,134 Tax refunds & receivables 1,109,876 1,014,726 70,466 22,139 Other receivables 598,744 1,385,278 - - 3,822,063 5,358,386 76,290 28,273
Softlogic Holdings PLC | Annual Report 2019/20 138 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
35 SHORT TERM INVESTMENTS
In Rs. ‘000 Note Group Company As at 31 March 2020 2019 2020 2019
Quoted equities at market value 35.1 9,243 568,515 5,140 5,625 Unquoted equity investments 35.2 109,900 125,000 109,900 125,000 Other investments (more than 3 months and less than 1 year) 35.3 781,464 1,801,681 - - 900,607 2,495,196 115,040 130,625
Other investments (less than 3 months) Commercial papers 566,974 446,647 - - Fixed deposits 2,013,728 1,138,134 - - Government securities 2,348,352 1,969,419 - - Investment in Unit Trust 3,527,570 - - - 8,456,624 3,554,200 - - 9,357,231 6,049,396 115,040 130,625
35.1 Quoted equities at market value
In Rs. ‘000 Group Company As at 31 March Number of 2020 2019 Number of 2020 2019 shares shares
ACL Cables PLC 264 8 9 - - - B P P L Holdings PLC - - 332 - - - Ceylinco Insurance PLC 89 158 189 - - - Commercial Bank of Ceylon PLC 44,391 3,684 90,397 - - - DFCC Bank PLC 296 24 21 - - - Dialog Axita PLC - - 32,566 - - - Dunamis Capital PLC - - 9 - - - Hatton National Bank PLC - - 87,449 - - - John Keells Holdings PLC 334 49 147,870 - - - Lanka IOC PLC 63,200 1,074 1,100 63,200 1,074 1,100 Lanka Tiles PLC 997 62 70 - - - LVL Energy Fund PLC - - 12,337 - - - National Development Bank PLC 955 55 92 - - - Renuka City Hotel PLC 50 12 13 - - - Richard Pieris and Company PLC 210 2 2 - - - Richard Pieris Exports PLC 200 49 42 - - - Sampath Bank PLC 18,772 2,994 88,348 18,772 2,994 3,247 Seylan Bank PLC 143 7 9 143 7 9 Seylan Bank PLC - Non Voting Shares 36,730 1,065 12,853 36,730 1,065 1,269 Teejay Lanka PLC - - 16,720 - - - Union Bank of Colombo PLC - - 66,256 - - - Vallibel One PLC - - 11,831 - - - 9,243 568,515 5,140 5,625
35.2 Unquoted equity investments
In Rs. ‘000 Group Company As at 31 March Number of 2020 2019 Number of 2020 2019 shares shares
Cargills Bank Ltd 10,000,000 109,900 125,000 10,000,000 109,900 125,000 109,900 125,000 109,900 125,000
Softlogic Holdings PLC | Annual Report 2019/20 139
35.3 Other investments
In Rs. ‘000 Group As at 31 March 2020 2019
More than 3 months and less than 1 year Debentures maturing within a year 219,171 275,145 Fixed deposits 4,753 616,839 Government securities 249,955 - Investment in Unit Trust - 601,323 Investments in commercial papers 307,585 308,374 781,464 1,801,681
36 CASH AND CASH EQUIVALENTS
In Rs. ‘000 Group Company As at 31 March 2020 2019 2020 2019
Favourable balances Cash in hand and at bank 3,726,096 2,596,037 800,330 18,294 Restricted cash at bank - Cash margin receivables - 600,313 - - 3,726,096 3,196,350 800,330 18,294
Unfavourable balances Bank overdrafts 7,262,837 7,761,224 160,243 174,702 7,262,837 7,761,224 160,243 174,702
37 STATED CAPITAL
As at 31 March 2020 2019 Number of Value of Number of Value of shares shares shares shares Rs. ‘000 Rs. ‘000
Fully Paid Ordinary Shares At the beginning of the year 1,192,543,209 12,119,235 961,728,395 8,195,383 Shares issued during the period - - 230,814,814 3,923,852 1,192,543,209 12,119,235 1,192,543,209 12,119,235
38 OTHER COMPONENTS OF EQUITY
In Rs. ‘000 Note Group Company As at 31 March 2020 2019 2020 2019
Restricted regulatory reserve 38.1 309,613 309,613 - - Revaluation reserve 38.2 6,464,774 5,724,098 - - Foreign currency translation reserve 38.3 (43,653) (51,772) - - Fair value reserve of financial assets at FVOCI 38.4 (738,331) (783,273) (15,100) - Statutory reserve fund 38.5 263,436 263,436 - - Other reserves 38.6 (774,775) (780,990) - - Cash flow hedge reserve 38.7 (698,124) (660,254) - - 4,782,940 4,020,858 (15,100) -
Softlogic Holdings PLC | Annual Report 2019/20 140 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
38.1 Restricted regulatory reserve reserve reflects the equity holders share of one-off surplus attributable to policyholder non- participating fund to shareholder 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’.
38.2 Revaluation reserve consists of the net surplus on the revaluation of property.
38.3 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.).
38.4 Fair value reserve of financial assets at FVOCI includes changes on fair value of financial instruments designated as financial assets at FVOCI.
38.5 Statutory reserve fund reflects the profit transfer made by Softlogic Finance PLC in compliance with the Central Bank direction no. 01 of 2003.
38.6 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.
38.7 Cash flow hedge reserve reflects the effective portion of the gain or loss on the hedging instrument.
39 INSURANCE CONTRACT LIABILITIES
ACCOUNTING POLICY
The Directors agree to the long term insurance business provisions account all liabilities including contingent liabilities and is based on on the recommendation of the actuary following valuation of assumptions recommended by the Appointed Actuary. the life insurance business. The actuarial valuation takes into
In Rs. ‘000 Note Group As at 31 March 2020 2019
Provision - life 39.1 13,133,911 8,309,628 13,133,911 8,309,628
39.1 Movement in life insurance fund
In Rs. ‘000 Group As at 31 March 2020 2019
At the beginning of the year 8,309,628 7,192,591 Increase in life fund 6,720,336 2,546,037 Transfer to shareholders (1,850,275) (1,394,000) Increase in insurance contract liabilities 4,870,061 1,152,037
Tax on policyholder bonus (45,778) (35,000) At the end of the year 13,133,911 8,309,628
Softlogic Holdings PLC | Annual Report 2019/20 141
39.2 Change in life insurance contract liabilities The results of Softlogic Life Insurance PLC life business segment is consolidated line by line into the Group’s consolidated income statement.
The change in life insurance contract liabilities represents the transfer to the Life Fund, the difference between all income and expenditure attributable to life policyholders during the year.
Increase in insurance contract liabilities for the period ended 31 March 2020 included Rs 2.7 Bn commission income received from financial re-insurance arrangement.
In Rs. ‘000 Group For the year ended 31 March 2020 2019
Revenue 11,919,961 9,833,075 Cost of sales (6,117,150) (4,752,746) Gross profit 5,802,811 5,080,329 Operating expenses including distribution and administration expenses (3,094,458) (3,153,291) Net finance income 1,231,239 618,999 Profit attributable to shareholders (1,850,275) (1,394,000) Change in insurance contract liabilities 2,089,317 1,152,037
39.3 Recommendation of surplus transfer The valuation of the life insurance fund as at 31 March 2020 was made by Appointed Actuary Mr. Kunj Behari Maheshwari, FIA, FIAI, Messrs. Towers Watson India (Pvt) Limited, who recommended: »» no transfer to shareholders from the participating life fund »» transfer of a sum of Rs. 1,850.28 Mn to non-participating life insurance fund / insurance contract liabilities to the shareholders’ fund (2019 - Rs. 1,394.00 Mn) : (transfer of the amount of Rs. 498.80 Mn (2019 - Rs. 928.00 Mn) declared as surplus for the quarter ended 31 March 2020, as recommended by the Appointed Actuary was permitted by the Insurance Regulatory Commission of Sri Lanka (IRCSL)
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 26 the calculation include, in particular, assumptions relating to: (1) of the Regulation of Insurance Industry Act No. 43 of 2000, with »» Mortality rates effect from 01 January 2016. For periods up to 31 December 2015, »» Lapse ratios the Company used the Net Premium Valuation (NPV) methodology to calculated insurance liabilities in accordance with the Solvency »» Morbidity rates Margin (Long Term Insurance) Rules 2002. »» Dividend rates »» Expense assumptions The value of the life insurance liabilities are determined as follows: »» Participating fund yield Life insurance liabilities = Best Estimate Long term Liability (BEL) + »» Expense inflation Risk Margin for adverse deviation (RM) »» Bonus rates The best estimate liability is measured sum of the present value Assumptions are estimated on a realistic basis at the time the of all future best estimate cash flows calculated using the risk insurance contracts are concluded and they include adequate free interest rate yield curve issued by the Insurance Regulatory provision for adverse deviations to make allowance for the risks Commission of Sri Lanka (IRCSL). Further a discounted cash flow of change and random fluctuations. Further in valuing the policy approach equivalent to Gross Premium Valuation (GPV) methodology liability, provisions for reinsurance have been allowed in accordance has been used to calculate liabilities as at 31 March 2020. with applicable reinsurance terms as per current reinsurance arrangements.
Softlogic Holdings PLC | Annual Report 2019/20 142 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
Details of key assumptions used and basis of arriving for same 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 2020 Mortality rates Based on the Mortality investigation carried out as at 31 March 2020 »» Individual life - 65% of A67/70 »» Group term products - 30% of A67/70 »» Single premium mortgage protection plan products - 45% of A67/70 »» Per day insurance products - 20% of A67/70 Morbidity rates Based on the loss ratios (loss ration 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 2019 on expenses incurred during 2019/20. For the purpose of the expense study, a functional split of expenses between acquisition or maintenance costs have 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 base 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 previous valuation. The assumption is also inline with the long term inflation target of Central Bank of Sri Lanka which is in the range of 4 % to 6%. Persistency ratio Discontinuance assumption are based on the experience investigation. The discontinuance assumptions are set with reference to actual experience and vary by policy duration. Bonus rate Bonus rate scale assumed has been arrived based on bonus declared as at 31 December 2019, based on the Company management’s views on policyholder reasonable expectations. This assumes that company is expecting to maintain 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
De-recognition The liability is de-recognised when the contract is expired, discharged or cancelled.
39.4 Valuation of life insurance fund Long duration contract liabilities included in the life insurance fund result primarily consist of traditional participating and non-participating life insurance products. The actuarial reserves have been established by Appointed Actuary Mr. Kunj Behari Maheshwari, FIA, FIAI, Messrs. Towers Watson India (Pvt) Limited as at 31 March 2020.
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 determinants of Basis of calculating net cash flows policy liability Individual traditional non- Discounting “net cash Future premium income (-) death benefit outgo (+) rider benefit outgo participating products flows” at the risk free (+) surrender benefit outgo (+) maturity benefit outgo (+) commission interest rate curve expenses outgo (+) policy expenses outgo (+) reinsurance recoveries (-) reinsurance premium outgo (+) reinsurance commissions (-) Individual traditional participating Max (guaranteed benefit Same as above products liability, total benefit liability) Individual universal non- Discounting “net cash Future premium income (-) death benefit outgo inclusive of dividend participating products flows” at the risk free accumulations (+) rider benefit outgo (+) surrender benefit Outgo inclusive interest rate curve 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- Net cash flow Future premium income (-) death benefit outgo (+) rider benefit outgo participating products - Group (+) commission expenses outgo (+) policy expense outgo (+) reinsurance term (life) and per day insurance recoveries (-) reinsurance premium outgo (+) reinsurance commission (-) Group traditional non- Policy liability has been Not applicable participating products - Group set equal to Unearned Hospitalisation cover Premium Reserve (UPR)
Softlogic Holdings PLC | Annual Report 2019/20 143
39.5 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 203% and Total Available Capital requirement prescribed under section 26 (1) of the Regulation of (TAC) of Rs. 10,710.46 Mn as at 31 March 2020, which exceed the Insurance Industry Act No. 43 of 2000. minimum requirement of 120% and Rs. 500.00 Mn respectively
39.6 Liability Adequacy Test (LAT)
ACCOUNTING POLICY
Measurement Valuation At each reporting date, an assessment is made of whether the Liability Adequacy Test for life insurance contract liability was recognised life insurance liabilities are adequate by using an carried out by Appointed Actuary Mr. Kunj Behari Maheshwari, FIA, existing liability adequate test as laid out under SLFRS 4 – Insurance FIAI, Messrs. Towers Watson India (Pvt) Limited as at 31 December Contracts. The liability value is adjusted to the extent that it is 2019. When performing the LAT, the Company discounted all insufficient to meet future benefits and expenses. contractual cash flows and compared this amount with the carrying value of the liability. In performing the adequacy test, current best estimates of future contractual cash flows, including related cash flows such as claim Based on the actuarial assessment assets are adequate as handling and policy administration expenses, policyholder options compared to the discounted cash flows reserves and in contrast to and guarantees, as well as investment income from assets backing the reserves as at 31 March 2020. such liabilities, are used. A number of valuation methods are applied, including discounted cash flows to the extent that the test involves No additional provision was required against the LAT as at 31 March discounting of cash flows, the interest rate applied based on 2020. management’s prudent expectation of current market interest rates.
Any deficiency shall be recognised in the income statement by setting up a provision for liability adequacy.
39.7 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 Measurement basis in accordance with the Solvency Margin (Risk Based Capital) The surplus created due to change in Valuation Method of Policy Rules 2015 with effect from 01 January 2016. However period up to Liabilities from Net Premium Valuation (NPV) to Gross Premium 31 December 2015, the Company used the Net Premium Valuation Valuation (GPV) is measured based on the difference in the policy (NPV) methodology to calculate insurance liability in accordance liability valuation by the independent Actuary based on NPV and GPV with Solvency Margin (Long Term Insurance) Rules 2002. bases valuation as at 31 December 2015 according to the Direction 16 “Identification and Treatment of One-Off Surplus” issued by A one off unallocated surplus was created with the migration to the IRCSL. According to the Direction 16, the Company has determined new regime effective 01 January 2016. the One-off Surplus as the difference between NPV Solvency basis liability and GPV Distribution basis liability for both Participating business and other than Participating business.
Valuation Details of one off adjustment as at 01 January 2016 are as follows:
In Rs. ‘000 Participating Non-Participating Total Description fund 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
Softlogic Holdings PLC | Annual Report 2019/20 144 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
39.7.1 Transfer of one-off surplus from policy holder fund to shareholder fund The Insurance Regulatory Commission of Sri Lanka (IRCSL) Further distribution of one off surplus to shareholders, held as has issued a Direction No 16 on 20 March 2018 on “Guidelines/ part of the “Restricted Regulatory Reserve”, is subject to meeting directions for Identification and Treatment of One-off Surplus” and governance requirements stipulated by the IRCSL and can only has instructed all life insurance companies to comply with the new be released as dividends upon receiving approval from the IRCSL. direction. Based on the new guidelines life insurance companies The one off surplus in the shareholder fund will remain invested in are directed to transfer one off surplus attributable to policyholder government debt securities and deposits as disclosed in Note 34.8.3 non-participating fund to shareholder fund as at the reporting as per the directions of the IRCSL year ended 31 March 2018. The transfer has been presented as a separate line item in the Income Statement as “change in contract One-off surplus in respect of participating business is held within liability due to transfer of one off surplus” and as a separate reserve the participating fund as part of the unallocated valuation surplus in the Statement of Financial Position as “Restricted Regulatory and may only be transferred to the Shareholder fund by means of Reserve” under equity in accordance with above Direction. As bonuses to policyholders in line with Section 38 of the “Regulation of required by the said direction, the company received the approval for Insurance Industry, Act No. 43 of 2000”. Please refer Note 34.8.3 for this transfer on 29 March 2018. details of assets supporting the restricted regulatory reserve as at 31 March 2020.
In Rs. ‘000 Participating Non-Participating Total Description fund 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 GPVOne off Surplus as at 31 March 2020 1,056,535 - 1,056,535
Distribution of one off surplus The distribution of one off surplus to shareholders as dividends shall »» assets and liability management policy remain restricted until the company develops appropriate policies »» policy on internal target Capital Adequacy Ratio and procedures for effective management of its business, as listed »» Considerations for transfer of funds from policyholder fund to below. shareholder fund. »» expense allocation policy setting out basis of allocation of expenses between the shareholder fund and the policyholder These policies should be approved by the Board of Directors of the fund as well as between different lines of business within the Softlogic Life Insurance PLC and must also comply with any relevant policyholder fund, particularly participating and non-participating guidance issued by IRCSL from time to time. Further IRCSL will »» dividend declaration policy for universal life business reconsider the distribution of 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
Softlogic Holdings PLC | Annual Report 2019/20 145
39.7.2 Composition of investments supporting the Restricted Regulatory Reserve as at 31 March 2020 Face Market value as value at 31 March 2020 Rs. '000
Government Securities Treasury Bonds - LKB03044A010 100,000,000 135,709 - LKB01534I155 50,000,000 51,174 - LKB01534I155 50,000,000 51,174 - LKB01534I155 50,000,000 51,174 - LKB01534I155 50,000,000 51,174
Deposits Seylan Bank PLC 304,559 National Savings Bank 108,641 Regional Development Bank 54,318 Total market value of the assets 807,923
39.8 Direction 18 - Unclaimed benefits of Long Term Insurance Business There was no transfer of any unclaimed benefit to shareholders and recorded in the life fund as unclaimed benefits if any.
39.9 Taxation on surplus distributed to the life insurance policyholder who shares the profits With the introduction of the Inland Revenue Act no. 24 of 2017, which is effective from 01 April 2018, surplus distributed to the life insurance policyholders who shares the profits of a person engaged in the business of life insurance in a given year, as provided in the “Regulation of Insurance Industry Act no. 43 of 2000”, shall be deemed as gains and profits of that person from the business and subject to tax at a concessionary rate of 14% for three years of assessment after the commencement of the Act.
As recommended by the Appointed Actuary Mr. Kunj Behari Maheshwari, FIA, FIAI of Messrs. Towers Watson India (Pvt) Ltd, Softlogic Life Insurance PLC has declared a bonus of Rs. 322.00 Mn (2019 - Rs. 250.00 Mn) to life insurance policyholders who participating in the profit of life insurance business. Accordingly, there is Rs. 45.78 (2019 - Rs. 35.00 Mn) tax amount is arising from policyholder who shares the profits of a person engaged in the business of life insurance. As at the reporting date, Softlogic Life Insurance PLC has utilised the tax credits to setoff this tax liability hence no income tax liability has recorded as at 31 March 2020.
39.10 Sensitivity to assumptions used Change in key assumptions used in valuing the insurance contract liability would have the following effect to the Group financials:
In Rs. ‘000 As at 31 March 2020 2019
Effect on the change of the insurance contract liability: Increase by 10% in mortality rate 298,222 96,797 Decrease by 10% in mortality rate (299,878) (183,463)
Effect on the change of the insurance contract liability: Increase by 10% in morbidity rate 66,478 10,554 Decrease by 10% in morbidity rate (66,478) (9,520)
Effect on the change of the insurance contract liability: Increase by 50 basis point in discount rate (220,276) (46,952) Decrease by 50 basis point in discount rate 234,834 48,691
Effect on the change of the insurance contract liability: Increase by 10% in expense ratio 450,873 346,611 Decrease by 10% in expense ratio (450,873) (346,611)
Softlogic Holdings PLC | Annual Report 2019/20 146 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
40 INTEREST BEARING BORROWINGS
In Rs. ‘000 Group As at 31 March 2020 2019 Debentures Loans Total Finance Debentures Loans Total leases
At the beginning of the year 1,759,090 32,750,850 34,509,940 207,844 1,324,970 31,373,435 32,906,249 Additions 1,400,000 13,719,488 15,119,488 15,406 1,000,000 6,585,232 7,600,638 Acquisition of subsidiary - - - 693 - 239,471 240,164 Repayments (759,090) (8,263,344) (9,022,434) (107,515) (565,880) (6,201,039) (6,874,434) Transfers - (22,057) (22,057) - - - - Unamortised loan processing cost (15,076) (50,426) (65,502) - (5,456) (14,120) (19,576) Finance charges 56,536 366,828 423,364 (12,658) 21,795 281,632 290,769 Exchange translation difference - 615,845 615,845 436 - 753,751 754,187 At the end of the year 2,441,460 39,117,184 41,558,644 104,206 1,775,429 33,018,362 34,897,997
Repayable within one year 56,536 10,460,678 10,517,214 63,747 780,885 8,938,320 9,782,952 Repayable after one year 2,384,924 28,656,506 31,041,430 40,459 994,544 24,080,042 25,115,045 2,441,460 39,117,184 41,558,644 104,206 1,775,429 33,018,362 34,897,997
In Rs. ‘000 Company As at 31 March 2020 2019 Other Debentures Loans Total Finance Debentures Loans * Total Loans leases
At the beginning of the year 186,200 1,000,000 9,565,589 10,751,789 49,859 - 10,531,341 10,581,200 Additions - - 3,679,984 3,679,984 - 1,000,000 1,500,000 2,500,000 Repayments - - (3,527,327) (3,527,327) (28,096) - (2,279,552) (2,307,648) Processing fee - (3,583) (46,825) (50,408) - (5,456) (9,618) (15,074) Finance charges/ accrued interest - 14,646 366,820 381,466 (1,427) 14,226 191,140 203,939 At the end of the year 186,200 1,011,063 10,038,241 11,235,504 20,336 1,008,770 9,933,311 10,962,417
Repayable within one year - 14,646 5,193,260 5,207,906 17,087 14,226 3,927,185 3,958,498 Repayable after one year 186,200 996,417 4,844,981 6,027,598 3,249 994,544 6,006,126 7,003,919 186,200 1,011,063 10,038,241 11,235,504 20,336 1,008,770 9,933,311 10,962,417
* Loans - this includes Rs. 186.20 Mn balance which is payable to related party. Total bank borrowings as at 31 March 2019 amounted to Rs. 9,747.11 Mn.
Security pledged and interest rates pertaining to interest bearing borrowings are disclosed in note 54 to the financial statements.
Softlogic Holdings PLC | Annual Report 2019/20 147
40.1 Details regarding the debentures are as follows;
In Rs. ‘000 Annual Interest Allotment Maturity Face Amortised Amortised interest rate payment date date value cost as at cost as at frequency 31-03-2020 31-03-2019
Group Listed debentures Softlogic Capital PLC Listed, secured, Semi Type "A" debentures 14.75% Annually 19-12-2019 19-12-2023 250,060 258,481 - Listed, secured, Type "B" debentures 14.50% Monthly 19-12-2019 19-12-2024 459,880 458,954 - Listed, secured, Semi Type "C" debentures 15.00% Annually 19-12-2019 19-12-2024 690,050 712,952 - Listed, secured, Semi Type "D" debentures 13.50% Annually 19-12-2019 19-12-2024 10 10 -
Softlogic Finance PLC Listed, secured, Type “A” debentures Quarterly 29-08-2014 28-08-2019 - - 413,038 Listed, secured, Type “B” debentures Quarterly 29-08-2014 28-08-2019 - - 353,621 1,430,397 766,659
Unlisted debentures Softlogic Holdings PLC Unlisted, unsecured Semi debentures 16.75% Annually 08-02-2019 07-02-2022 1,000,000 1,011,063 1,008,770 1,011,063 1,008,770 2,441,460 1,775,429
In Rs. ‘000 Annual Interest Allotment Maturity Face Amortised Amortised interest rate payment date date value cost as at cost as at frequency 31-03-2020 31-03-2019
Company Softlogic Holdings PLC Unlisted, unsecured Semi debentures 16.75% Annually 08-02-2019 07-02-2022 1,000,000 1,011,063 1,008,770 1,011,063 1,008,770
40.2 Derivative financial instruments
In Rs. ‘000 Group 2020 2019 As at 31 March Asset Liability Asset Liability
Foreign currency cash flow hedges 698,124 - 660,992 -
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 change 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.
Softlogic Holdings PLC | Annual Report 2019/20 148 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
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 Mn Hedging instrument - Foreign currency borrowing of USD 36.40 Mn in February 2013, maturing in March 2024, in May 2015, maturing in June 2025 and foreign currency borrowing of USD 2.50 Mn in October 2013, maturing in March 2024 Hedged item - USD denominated sales expected to occur in each month of 2017, 2018, 2019, 2020, Hedged item - USD denominated sales expected to occur in 2021, 2022, 2023, 2024 and upto 2025 from March and September of 2016, 2017, 2018, April 2017 2019, 2020, 2021, 2022, 2023 and 2024 The cash flow hedge has a notional amount of USD 35.39 Mn and The cash flow hedge has a notional amount of USD 10.00 Mn cash flows are expected to occur as 101 monthly installments of and cash flows are expected to occur as 17 equal semi-annual 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024 and 2025 in total installments at 15 March and 15 September of 2016, 2017, 2018, of USD 35.39 Mn capital and interest repayments at 25 of each 2019, 2020, 2021, 2022, 2023, 2024 in USD 588,235 capital and month till May 2025. interest repayments at 15 March and 15 September of each year.
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 As at 31 March 2020 2019
Net change in fair value on derivative financial instruments (37,900) (481,700)
On the hedged instrument the following attributable to the hedged risk has been recognised in the Group Income Statement.
In Rs. ‘000 Group As at 31 March 2020 2019
Under finance expenses Realised exchange loss on foreign currency borrowings - 47,976 Unrealised exchange loss on foreign currency borrowings 577,945 239,050 577,945 287,026
Due to the impact of the Easter Sunday Attack and COVID-19, Ceysand Resorts Ltd and Softlogic City Hotels (Pvt) Ltd obtained a loan moratorium, which resulted in a change in the previously expected cash outflows of the loan and the forecasted sales. Accordingly, the Group has reclassified the ineffective portion of Rs. Rs. 237.96 Mn of the loan to Group Income Statement during the year.
40.3 Other borrowings
In Rs. ‘000 Annual Repayment term Outstanding balance Lending institution interest rate 31-03-2020 31-03-2019
Company Softlogic Information Technologies (Pvt) Ltd Fixed rate 84 monthly installments after 24 months of grace period 186,200 186,200 186,200 186,200
Softlogic Holdings PLC | Annual Report 2019/20 149
41 PUBLIC DEPOSITS
In Rs. ‘000 Group As at 31 March 2020 2019
Deposits maturing after one year 4,858,728 4,601,829 Deposits maturing within one year 12,157,713 12,385,059 17,016,441 16,986,888
42 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. The gratuity liability is not externally funded. Any actuarial gains or losses arising are recognised immediately in other comprehensive income.
In Rs. ‘000 Group Company As at 31 March 2020 2019 2020 2019
At the beginning of the year 1,081,320 1,012,888 81,109 68,252 Current service cost 158,889 118,976 8,433 7,174 Interest cost on benefit obligation 118,109 102,960 8,948 6,584 (Gain) / loss arising from changes in assumptions 149,814 (65,512) 7,743 3,474 Acquisition of subsidiary - 20,490 - - Transfers from/ (to) related companies - (393) (1,475) - Payments (138,546) (108,089) (1,042) (4,375) At the end of the year 1,369,586 1,081,320 103,716 81,109
The employee benefit liability of the Group is based on the actuarial valuations carried out by Messrs. Actuarial & Management Consultants (Pvt) Ltd, Messrs. Smiles Global (Pvt) Ltd and Mr. Piyal Goonatilleke, actuaries.
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 respective statutes actuarial valuations involve making assumptions about discount and regulations. The companies contribute the defined percentages rates and future salary increases. Given the complexity of the of gross emoluments of employees to an approved Employees’ valuation, the underlying assumptions and the long term nature Provident Fund and to the Employees’ Trust Fund respectively, which of the liability, the defined benefit obligation is highly sensitive to 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 2020 2019
Discount rate (%) 8.70 - 11.00 10.00 - 11.60 Future salary increases (%) 5.00 - 10.00 5.00 - 8.10
Softlogic Holdings PLC | Annual Report 2019/20 150 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
42.1 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 2020 2019 2020 2019
Effect on the defined benefit obligation liability: Increase by one percentage point in discount rate (45,398) (36,413) (1,875) (1,199) Decrease by one percentage point in discount rate 49,075 41,017 2,652 4,784
Effect on the defined benefit obligation liability: Increase by one percentage point in salary increment rate 54,697 46,191 2,951 5,129 Decrease by one percentage point in salary increment rate (51,501) (41,639) (2,201) (1,573)
42.2 Maturity analysis of the payments The following payments are expected on account of employees benefit liabilities in future years.
In Rs. ‘000 Group Company As at 31 March 2020 2019 2020 2019
- within the next 12 months 480,730 273,872 61,828 10,219 - between 1 and 2 years 358,634 297,940 16,067 13,288 - between 3 and 5 years 306,795 324,412 13,544 51,383 - between 6 and 10 years 161,247 143,886 10,572 5,387 - beyond 10 years 62,180 41,210 1,705 832 Total expected payments 1,369,586 1,081,320 103,716 81,109
42.3 Weighted average durations of service The Group’s and the company’s weighted average durations of service in is 4.08 years (2019 - 4.56 years) and 2.31 years (2019 - 3.95 years) respectively.
43 OTHER DEFERRED LIABILITIES
ACCOUNTING POLICY
Deferred revenue Warranty Deferred revenue is the money received for goods or services which Provisions for warranty related costs are recognised when have not yet been delivered. According to the revenue recognition the product is sold or service provided to the customer. Initial principle, it is recorded as a liability until delivery is made, at which recognition is based on historical experience and revised annually. time it is converted to revenue.
In Rs. ‘000 Group Company As at 31 March 2020 2019 2020 2019
Within one year Deferred revenue 88,992 100,984 36,036 36,036 Warranty provision 43,847 41,716 - - 132,839 142,700 36,036 36,036 After one year Deferred revenue 47,390 147,459 39,640 75,676 Warranty provision - 1,382 - - 47,390 148,841 39,640 75,676 Total other deferred liabilities 180,229 291,541 75,676 111,712
Softlogic Holdings PLC | Annual Report 2019/20 151
44 OTHER NON-CURRENT FINANCIAL LIABILITIES
In Rs. ‘000 Note Group As at 31 March 2020 2019
Advances received 373,874 110,779 Financial liabilities at fair value through profit or loss 44.1 168,345 - Retention payable 298,500 - Security deposits 7,373 4,426 848,092 115,205
44.1 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 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.
On 20 December 2018, FMO sold its ownership in ordinary shares (19%) in SLI to Dalvik Inclusion (Pvt) Ltd (Dalvik) and DEG sold its ownership in ordinary shares (19%) in SLI to Milford Ceylon (Pvt) Ltd (Milford) on 16 January 2020. “Put Option” attached to initial “Shareholders Agreement” and “Share Purchase Agreement” dated 20 December 2012 as amended 13 February 2013 granted by SC remained as valid till 7 March 2020 and became null and void thereafter.
On 16 January 2020, SH, SC and SLI entered into the Fourth amendment to “Shareholders Agreement” and “Share Purchase Agreement and SC granted a “Put Option” to Dalvik and Milford which will be valid for a three year period with effect from 31 July 2024 to repurchase 38% shares held by Dalvik and Milford.
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 and 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 SLFRS - 9 Financial Instruments.
As at 31 March, 2020, the Group had pledged 52,368,036 shares (2019 – 52,368,036 shares) of Asiri Hospital Holdings PLC owned by Softlogic Holdings PLC and 20,000 shares (2019 – 20,000 shares) of Softlogic Life Insurance PLC owned by Softlogic Capital PLC as collateral on the said transaction. In October 2020, shares pledged against above “Put Option” attached to “DEG” and “FMO” were released in fully.
44.1.1 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 2020 2019
Continuous compounded risk free rate (%) 8.32 10.40 Annualised volatility (%) 35.84 37.00 Put option price/ appraisal value (Rs.) 47.08 39.73 Probability to move up (Pu) of the option value (%) 80.00 90.00 Probability to move down (Pd) of the option value (%) 20.00 10.00 Upward movement of the appraisal value (%) 1.43 1.30 Downward movement of the appraisal value (%) 0.70 0.77
Risk free rate - Rate of return of an investment with no risk of financial loss Appraisal value - Appraisal value is based on a valuation performed by an independent valuer
Softlogic Holdings PLC | Annual Report 2019/20 152 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
44.1.2 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 2020 2019
Effect on the put option obligation liability: Increase by one percentage point in risk free rate (7,750) (53) Decrease by one percentage point in risk free rate 8,155 53
Effect on the put option obligation liability: Increase by one percentage point in appraisal value (3,249) (350) Decrease by one percentage point in appraisal value 3,249 350
Effect on the put option obligation liability: Increase by one percentage point in probability to move up of the option value (14,713) (1,913) Decrease by one percentage point in probability to move up of the option value 15,185 2,093
45 TRADE AND OTHER PAYABLES
ACCOUNTING POLICY
Trade payables are the aggregate amount of obligations to pay for goods or services, that have been acquired in the ordinary course of business. Trade payable are classified as current liabilities if payment is due within one year.
In Rs. ‘000 Group Company As at 31 March 2020 2019 2020 2019
Trade and other payables 5,826,063 5,281,526 236,343 108,894 Contract liabilities 2,518 - - - Dividend payable 41,320 634,417 - - Reinsurance payables 519,784 444,231 - - Sundry creditors including accrued expenses 2,256,122 2,068,081 - - 8,645,807 8,428,255 236,343 108,894
46 OTHER CURRENT FINANCIAL LIABILITIES
In Rs. ‘000 Note Group Company As at 31 March 2020 2019 2020 2019
Loans 19,774,503 20,732,979 7,884,041 7,759,444 Commercial papers 7,915,696 2,386,289 8,483,530 2,244,431 Financial liabilities at fair value through profit or loss 44.1 - 9,357 - - 27,690,199 23,128,625 16,367,571 10,003,875
Softlogic Holdings PLC | Annual Report 2019/20 153
47 OTHER CURRENT LIABILITIES
ACCOUNTING POLICY
The Group classifies all non-financial current liabilities under other current liabilities. These include non-refundable deposits and other tax payables. These liabilities are recorded at amounts expected to be set-off at the reporting date.
In Rs. ‘000 Note Group Company As at 31 March 2020 2019 2020 2019
Advances received 537,127 405,275 - - Taxes payables 138,678 298,243 15,289 26,482 Other liabilities 697,973 466,174 42,272 19,711 Other deferred liabilities 43 132,839 142,700 36,036 36,036 1,506,617 1,312,392 93,597 82,229
48 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 an interest free and settlement occurs in cash. Interest bearing borrowings are on pre-determined interest rates and terms.
48.1 Amounts due from related parties
In Rs. ‘000 Note Group Company As at 31 March 2020 2019 2020 2019
Subsidiaries 48.3 - - 18,504,708 14,174,694 Equity accounted investees 48.4 4,545 13,494 1,909 1,666 Key Management Personnel 125 198 - - 4,670 13,692 18,506,617 14,176,360
48.2 Amounts due to related parties
In Rs. ‘000 Note Group Company As at 31 March 2020 2019 2020 2019
Subsidiaries 48.3 - - 63,216 14,679 Equity accounted investees 48.5 30,413 - 30,000 - Key Management Personnel 1,992 2,731 1,992 1,992 32,405 2,731 95,208 16,671
Softlogic Holdings PLC | Annual Report 2019/20 154 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
48.3 Subsidiaries
In Rs. ‘000 Company Amount due to Amount due from As at 31 March 2020 2019 2020 2019
Ceysand Resorts Ltd - 114 - - Future Automobiles (Pvt) Ltd - - 62,806 62,630 Softlogic Australia (Pty) Ltd - - 10,945 10,483 Softlogic Automobiles (Pvt) Ltd - - 6,364 7,417 Softlogic B P O Services (Pvt) Ltd - - 186,319 133,774 Softlogic Brands (Pvt) Ltd - - 30 241 Softlogic City Hotels (Pvt) Ltd - - 973,452 973,442 Softlogic Communication Services (Pvt) Ltd - - 4,897 5,789 Softlogic Communications (Pvt) Ltd 5,149 - - 645 Softlogic Computers (Pvt) Ltd 2,307 - - - Softlogic Corporate Services (Pvt) Ltd 1,579 912 - - Softlogic Destination Management (Pvt) Ltd - - 6,649 6,696 Softlogic Healthcare Holdings Ltd - - 25,022 25,022 Softlogic Information Technologies (Pvt) Ltd 35,633 12,640 - - Softlogic International (Pvt) Ltd 10,646 13 - - Softlogic Mobile Distribution (Pvt) Ltd 6,902 - - 6,501 Softlogic Properties (Pvt) Ltd - - 628,421 342,311 Softlogic Restaurants (Pvt) Ltd - - 8,872 1,179 Softlogic Retail (Pvt) Ltd - - - 169 Susuki Motors Lanka Ltd 1,000 1,000 - - Softlogic Rewards (Pvt)Ltd - - 8,983 943 Softlogic Solar (Pvt) Ltd - - 34,613 34,613 Softlogic Supermarkets (Pvt) Ltd - - 169,554 135,554 63,216 14,679 2,126,927 1,747,409 Less - Provision for impairment - - (101,281) (101,281) 63,216 14,679 2,025,646 1,646,128
48.3 Subsidiaries
In Rs. ‘000 Company Loans received Loans given As at 31 March 2020 2019 2020 2019
Cotton Collection (Pvt) Ltd - - 5,755 4,917 Future Automobiles (Pvt) Ltd - - 1,079,704 1,059,646 Odel PLC - - 355,403 491,170 Softlogic Automobiles (Pvt) Ltd - - 150,808 134,489 Softlogic Brands (Pvt) Ltd - - 467,379 124,089 Softlogic City Hotels (Pvt) Ltd - - 298,090 174,936 Softlogic Communications (Pvt) Ltd - - - 4,730 Softlogic Destination Management (Pvt) Ltd - - 41,213 39,719 Softlogic Properties (Pvt) Ltd - - 68,639 68,639 Softlogic Restaurants (Pvt) Ltd - - 745,808 658,732 Softlogic Retail (Pvt) Ltd - - 5,372,685 3,265,632 Softlogic Retail Holdings (Pvt) Ltd - - 7,885,142 6,829,736 Softlogic Supermarkets (Pvt) Ltd - - 335,905 - Susuki Motors Lanka Ltd - - 400 - - - 16,806,931 12,856,435 Less - Provision for impairment - - (327,869) (327,869) - - 16,479,062 12,528,566 63,216 14,679 18,504,708 14,174,694
Softlogic Holdings PLC | Annual Report 2019/20 155
Interest rate for the lons given to subsidiaries - Company Average Borrowing Cost plus Margin . Repayment terms of loans given to subsidiries - On demand
48.4 Amounts due from related parties
In Rs. ‘000 Group Company As at 31 March 2020 2019 2020 2019
Equity accounted investees Joint ventures Asiri A O I Cancer Centre (Pvt) Ltd - 9,683 - -
Associates Jendo Innovations (Pvt) Ltd 1,909 1,666 1,909 1,666 Sabre Travel Network Lanka (Pvt) Ltd 2,636 2,145 - - 4,545 13,494 1,909 1,666
48.5 Amounts due to related parties
In Rs. ‘000 Group Company As at 31 March 2020 2019 2020 2019
Equity accounted investees Associates Jendo Innovations (Pvt) Ltd 30,000 - 30,000 - Nextage (Pvt) Ltd 413 - - - 30,413 - 30,000 -
Softlogic Holdings PLC | Annual Report 2019/20 156 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
48.6 Transactions with related parties
In Rs. ‘000 Group Company For the year ended 31 March 2020 2019 2020 2019
Subsidiaries (Purchases)/ sales of goods - - (9,638) (19,378) (Receiving) / rendering of services - - 640,849 559,546 (Purchases) / sale of property plant & equipment - - (2,166) (1,378) Loans given/ (obtained) - - 918,989 2,580,671 Interest received / (paid) - - 1,677,462 1,148,937 Rent received / (paid) - - 59,432 55,303 Dividend received - - - 479,712 Profit on disposal of shares - - - (10,575) Guarantee charges received - - 173,542 140,393 Guarantees given/ received - - 23,855,456 23,282,722
Equity Accounted Investees Associates (Purchases) / sale of property plant & equipment 4,790 3,394 - - (Receiving) / rendering of services (8,926) 1,963 12,565 12,153 Interest received / (paid) - 116 - 116 Dividend received - - - 35,045 Joint ventures (Purchases) / sale of property plant & equipment 974 13,257 - - (Receiving) / rendering of services (41,934) 20,402 - - Dividend received - - - 35,045
Key Management Personnel Loans given/ (received) (1,867) (2,533) (1,992) (1,992) Guarantees given/ (obtained) (150,000) (410,000) - - Loans given/ (customer deposits received) (15) (47,617) - - Advances given/ (received) (263,760) (251,720) - - Interest paid on customer deposits 6,127 7,868 - -
Close family Members of KMP (Receiving)/rendering of services - - - -
Softlogic Holdings PLC | Annual Report 2019/20 157
48.7 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 2020 2019 2020 2019
Short term employee benefits 405,904 402,470 54,603 54,010 Post-employment benefits 68,921 60,457 14,137 14,187 474,825 462,927 68,740 68,197
49 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 Automobiles The information Technology operating segment comprises the areas The Automobile operating segment deals in branded motor vehicles of software development, hardware and system software solutions, and ancillary services. market specific ICT solutions and office automation solutions. Financial Services Leisure and Property The Financial Services operating segment offers a complete range The leisure and Property operating segment comprises one five of financial solutions including some banking related services, star hotel, one four star hotel, destination management and insurance, stock broking, debt trading, fund management, development/ sale of residential apartments. management of Unit Trust and leasing.
Retail Healthcare Services The Retail operating segment comprises Consumer Electronics and The Healthcare Services operating segment comprises a leading Durables, Branded Apparels & Fashion, Telecommunication, and private hospital chain providing private healthcare and laboratory Quick Service Restaurants. services.
Others This sector consists of Softlogic Holdings PLC, which provides ancillary services to Group companies.
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.
Transactions between operating segments are carried out in the ordinary course of business on arm’s length basis.
Softlogic Holdings PLC | Annual Report 2019/20 158 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
49.1 Revenue and profit
In Rs. ‘000 Information Leisure & Retail Automobiles Financial Healthcare Others Total Eliminations/ Group Technology Property Services Services Consolidation adjustments For the year ended 31 March 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Continuing operations Revenue Total revenue 5,217,350 4,730,418 2,327,507 3,298,678 39,448,882 39,839,827 909,819 3,203,701 15,677,691 13,690,752 15,863,105 13,884,945 782,722 678,287 80,227,076 79,326,608 - - 80,227,076 79,326,608 Inter group (638,873) (690,909) (131,459) (170,380) (1,457,936) (2,117,274) (74,078) (67,525) (81,517) (62,033) (352,683) (410,263) (768,753) (665,620) (3,505,299) (4,184,004) - - (3,505,299) (4,184,004) Total external revenue 4,578,477 4,039,509 2,196,048 3,128,298 37,990,946 37,722,553 835,741 3,136,176 15,596,174 13,628,719 15,510,422 13,474,682 13,969 12,667 76,721,777 75,142,604 - - 76,721,777 75,142,604
Results from operating activities 222,112 281,892 (486,907) 73,830 1,468,583 3,055,648 5,084 169,680 2,083,358 1,874,176 2,990,756 3,148,706 62,867 4,584 6,345,853 8,608,516 (171,660) (248,246) 6,174,193 8,360,270
Finance income 71,736 41,216 30,403 4,197 285,066 279,962 163 164 1,837,647 1,194,783 190,440 95,303 2,180,329 2,017,384 4,595,784 3,633,009 (2,553,509) (2,234,035) 2,042,275 1,398,974 Finance expenses (130,943) (170,430) (1,243,477) (921,234) (4,779,595) (3,424,015) (200,521) (204,852) (428,968) (522,736) (1,790,383) (877,048) (3,439,990) (2,625,484) (12,013,877) (8,745,799) 2,653,625 1,629,512 (9,360,252) (7,116,287) Change in insurance contract liabilities ------(2,089,317) (1,152,037) - - - - (2,089,317) (1,152,037) - - (2,089,317) (1,152,037) Change in fair value of investment property (2,000) (266) - - 526,712 564,000 - - - - 19,212 - 50,500 40,000 594,424 603,734 (261,500) (358,734) 332,924 245,000 Share of profit of equity accounted investees ------(6,604) (4,213) 8,215 11,293 1,611 7,080 - - 1,611 7,080 Profit/ (loss) before taxation 160,905 152,412 (1,699,981) (843,207) (2,499,234) 475,595 (195,274) (35,008) 1,402,720 1,394,186 1,403,421 2,362,748 (1,138,079) (552,223) (2,565,522) 2,954,503 (333,044) (1,211,503) (2,898,566) 1,743,000 Taxation (58,402) (36,603) 5,208 (5,560) 352,985 (57,824) (15,089) 452 (112,650) 2,032,656 (491,423) (420,240) 21,280 (94,486) (298,091) 1,418,395 15,355 (171,111) (282,736) 1,247,284 Profit/ (loss) for the year 102,503 115,809 (1,694,773) (848,767) (2,146,249) 417,771 (210,363) (34,556) 1,290,070 3,426,842 911,998 1,942,508 (1,116,799) (646,709) (2,863,613) 4,372,898 (317,689) (1,382,614) (3,181,302) 2,990,284
Depreciation of property, plant & equipment (PPE) 52,269 62,085 587,247 606,076 1,003,153 718,793 29,530 35,940 201,155 189,755 1,210,624 876,413 23,810 36,290 3,107,788 2,525,352 (29,353) (5,234) 3,078,435 2,520,118 Amortisation of ROU assets/ LR paid in advance 4,883 - 4,543 - 1,062,076 119 14,754 - 275,369 - 151,779 16,387 17,779 - 1,531,183 16,506 - - 1,531,183 16,506 Amortisation/ impairment of intangible assets 31,542 16,748 8,095 8,361 58,402 77,231 - - 20,699 11,236 73 613 2,163 2,542 120,974 116,731 146,272 224,847 267,246 341,578 Retirement benefit obligations and related cost 22,659 18,868 10,280 8,827 61,850 41,563 2,055 1,660 51,730 43,244 110,561 93,706 17,863 14,068 276,998 221,936 - - 276,998 221,936 Purchase and construction of PPE 58,311 42,084 57,809 110,097 3,173,028 2,027,758 14,797 14,665 209,916 187,567 4,119,604 3,358,730 3,189 2,304 7,636,654 5,743,205 - - 7,636,654 5,743,205 Additions to intangible assets 60,425 100,427 427 2,962 102,103 35,209 - - 142,718 - 43 - 2,944 2,636 308,660 141,234 - - 308,660 141,234
Softlogic Holdings PLC | Annual Report 2019/20 159
49.1 Revenue and profit
In Rs. ‘000 Information Leisure & Retail Automobiles Financial Healthcare Others Total Eliminations/ Group Technology Property Services Services Consolidation adjustments For the year ended 31 March 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Continuing operations Revenue Total revenue 5,217,350 4,730,418 2,327,507 3,298,678 39,448,882 39,839,827 909,819 3,203,701 15,677,691 13,690,752 15,863,105 13,884,945 782,722 678,287 80,227,076 79,326,608 - - 80,227,076 79,326,608 Inter group (638,873) (690,909) (131,459) (170,380) (1,457,936) (2,117,274) (74,078) (67,525) (81,517) (62,033) (352,683) (410,263) (768,753) (665,620) (3,505,299) (4,184,004) - - (3,505,299) (4,184,004) Total external revenue 4,578,477 4,039,509 2,196,048 3,128,298 37,990,946 37,722,553 835,741 3,136,176 15,596,174 13,628,719 15,510,422 13,474,682 13,969 12,667 76,721,777 75,142,604 - - 76,721,777 75,142,604
Results from operating activities 222,112 281,892 (486,907) 73,830 1,468,583 3,055,648 5,084 169,680 2,083,358 1,874,176 2,990,756 3,148,706 62,867 4,584 6,345,853 8,608,516 (171,660) (248,246) 6,174,193 8,360,270
Finance income 71,736 41,216 30,403 4,197 285,066 279,962 163 164 1,837,647 1,194,783 190,440 95,303 2,180,329 2,017,384 4,595,784 3,633,009 (2,553,509) (2,234,035) 2,042,275 1,398,974 Finance expenses (130,943) (170,430) (1,243,477) (921,234) (4,779,595) (3,424,015) (200,521) (204,852) (428,968) (522,736) (1,790,383) (877,048) (3,439,990) (2,625,484) (12,013,877) (8,745,799) 2,653,625 1,629,512 (9,360,252) (7,116,287) Change in insurance contract liabilities ------(2,089,317) (1,152,037) - - - - (2,089,317) (1,152,037) - - (2,089,317) (1,152,037) Change in fair value of investment property (2,000) (266) - - 526,712 564,000 - - - - 19,212 - 50,500 40,000 594,424 603,734 (261,500) (358,734) 332,924 245,000 Share of profit of equity accounted investees ------(6,604) (4,213) 8,215 11,293 1,611 7,080 - - 1,611 7,080 Profit/ (loss) before taxation 160,905 152,412 (1,699,981) (843,207) (2,499,234) 475,595 (195,274) (35,008) 1,402,720 1,394,186 1,403,421 2,362,748 (1,138,079) (552,223) (2,565,522) 2,954,503 (333,044) (1,211,503) (2,898,566) 1,743,000 Taxation (58,402) (36,603) 5,208 (5,560) 352,985 (57,824) (15,089) 452 (112,650) 2,032,656 (491,423) (420,240) 21,280 (94,486) (298,091) 1,418,395 15,355 (171,111) (282,736) 1,247,284 Profit/ (loss) for the year 102,503 115,809 (1,694,773) (848,767) (2,146,249) 417,771 (210,363) (34,556) 1,290,070 3,426,842 911,998 1,942,508 (1,116,799) (646,709) (2,863,613) 4,372,898 (317,689) (1,382,614) (3,181,302) 2,990,284
Depreciation of property, plant & equipment (PPE) 52,269 62,085 587,247 606,076 1,003,153 718,793 29,530 35,940 201,155 189,755 1,210,624 876,413 23,810 36,290 3,107,788 2,525,352 (29,353) (5,234) 3,078,435 2,520,118 Amortisation of ROU assets/ LR paid in advance 4,883 - 4,543 - 1,062,076 119 14,754 - 275,369 - 151,779 16,387 17,779 - 1,531,183 16,506 - - 1,531,183 16,506 Amortisation/ impairment of intangible assets 31,542 16,748 8,095 8,361 58,402 77,231 - - 20,699 11,236 73 613 2,163 2,542 120,974 116,731 146,272 224,847 267,246 341,578 Retirement benefit obligations and related cost 22,659 18,868 10,280 8,827 61,850 41,563 2,055 1,660 51,730 43,244 110,561 93,706 17,863 14,068 276,998 221,936 - - 276,998 221,936 Purchase and construction of PPE 58,311 42,084 57,809 110,097 3,173,028 2,027,758 14,797 14,665 209,916 187,567 4,119,604 3,358,730 3,189 2,304 7,636,654 5,743,205 - - 7,636,654 5,743,205 Additions to intangible assets 60,425 100,427 427 2,962 102,103 35,209 - - 142,718 - 43 - 2,944 2,636 308,660 141,234 - - 308,660 141,234
Softlogic Holdings PLC | Annual Report 2019/20 160 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
49.2 Segment assets and liabilities
In Rs. ‘000 Information Leisure & Retail Automobiles Financial Healthcare Others Total Eliminations/ Group Technology Property Services Services Consolidation adjustments As at 31 March 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Property, plant and equipment 73,228 83,811 10,113,566 10,554,530 8,855,464 6,743,496 257,699 171,800 1,223,508 1,158,622 24,270,835 20,792,877 85,795 171,800 44,880,095 39,676,936 7,253,053 6,917,076 52,133,148 46,594,012 Right of use assets/ Lease rental paid in advance 16,523 - 52,796 - 4,062,457 3,686 97,085 - 1,044,972 - 1,262,939 785,409 63,364 - 6,600,136 789,095 - - 6,600,136 789,095 Investment property 202,000 204,000 1,945,780 1,791,640 6,204,380 5,640,537 - 744,000 - - 215,000 193,724 794,500 744,000 9,361,660 9,317,901 (7,331,280) (7,622,640) 2,030,380 1,695,261 Intangible assets 438,996 411,055 16,872 24,541 418,297 374,596 - 686 205,396 83,376 135 165 1,468 686 1,081,164 895,105 - - 1,081,164 895,105 Non-current financial assets 186,200 186,200 - - 1,523,994 1,279,699 - 1,465,042 14,999,358 11,866,315 360,695 323,946 1,549,170 1,465,042 18,619,417 16,586,244 (2,065,258) (3,579,028) 16,554,159 13,007,216 Rental receivable on lease assets and hire purchase ------1,156,023 1,135,517 - - - - 1,156,023 1,135,517 - - 1,156,023 1,135,517 Other non-current assets 1,241 3,925 4,405,427 2,649,526 492,104 547,115 9,300 9,387 3,500 3,500 28,312 2,334 - - 4,939,884 3,215,787 - - 4,939,884 3,215,787 Segment non-current assets 918,188 888,991 16,534,441 15,020,237 21,556,696 14,589,129 364,084 2,390,915 18,632,757 14,247,330 26,137,916 22,098,455 2,494,297 2,381,528 86,638,379 71,616,585 (2,143,485) (4,284,592) 84,494,894 67,331,993
Investments in equity accounted investees 109,355 78,249 - - 109,355 78,249 Goodwill 4,604,797 4,604,797 - - 4,604,797 4,604,797 Intangible assets through business combinations 3,119,045 3,264,632 - - 3,119,045 3,264,632 Deferred tax assets 3,449,138 3,247,950 - - 3,449,138 3,247,950 Total non-current assets 918,188 888,991 16,534,441 15,020,237 21,556,696 14,589,129 364,084 2,390,915 18,632,757 14,247,330 26,137,916 22,098,455 2,494,297 2,381,528 97,920,714 82,812,213 (2,143,485) (4,284,592) 95,777,229 78,527,621
Inventories 670,406 538,045 758,210 971,622 9,747,135 8,288,727 433,582 355,773 193,635 174,243 674,494 452,519 - - 12,477,462 10,780,929 (42,698) (91,908) 12,434,764 10,689,021 Trade and other receivables 1,435,140 1,231,604 240,280 326,086 7,579,776 9,148,371 28,931 1,297,881 2,625,544 1,857,953 947,354 697,632 708,214 928,964 13,565,239 15,488,491 (1,174,013) (1,446,097) 12,391,226 14,042,394 Loans and advances ------11,899,173 12,214,401 - - - - 11,899,173 12,214,401 (372,750) (251,411) 11,526,423 11,962,990 Rental receivable on lease assets and hire purchase ------1,004,262 833,499 - - - - 1,004,262 833,499 - (3,021) 1,004,262 830,478 Other current assets 90,044 52,258 209,012 354,508 1,593,765 2,532,753 305,023 305,572 964,739 1,165,697 637,151 1,120,891 52,335 28,286 3,852,069 5,559,965 (30,006) (201,579) 3,822,063 5,358,386 Short term investments 63 100 340 371 34,682 37,128 1,500 1,500 9,822,154 5,893,821 260,200 - 115,238 130,834 10,234,177 6,063,754 (876,946) (14,358) 9,357,231 6,049,396 Cash in hand and at bank 75,912 39,858 200,976 100,246 777,633 1,496,718 7,546 6,706 671,285 1,286,337 1,188,092 242,986 804,652 23,499 3,726,096 3,196,350 - - 3,726,096 3,196,350 2,271,565 1,861,865 1,408,818 1,752,833 19,732,991 21,503,697 776,582 1,967,432 27,180,792 23,425,951 3,707,291 2,514,028 1,680,439 1,111,583 56,758,478 54,137,389 (2,496,413) (2,008,374) 54,262,065 52,129,015 Amounts due from related parties 392,652 179,998 152,446 182,956 1,319,064 1,517,469 - 96,331 4,273 8,073 1,653,621 7,671,235 18,536,202 14,205,976 22,058,258 23,862,038 (22,053,588) (23,848,346) 4,670 13,692 Total current assets 2,664,217 2,041,863 1,561,264 1,935,789 21,052,055 23,021,166 776,582 2,063,763 27,185,065 23,434,024 5,360,912 10,185,263 20,216,641 15,317,559 78,816,736 77,999,427 (24,550,001) (25,856,720) 54,266,735 52,142,707 Total assets 176,737,450 160,811,640 (26,693,486) (30,141,312) 150,043,964 130,670,328
Insurance contract liabilities ------13,133,911 8,309,628 - - - - 13,133,911 8,309,628 - - 13,133,911 8,309,628 Interest bearing borrowings 71,500 47,588 9,789,805 7,476,587 5,125,861 3,357,663 - 13,693 3,054,879 1,507,385 7,157,986 5,894,411 6,027,599 6,817,718 31,227,630 25,115,045 (186,200) - 31,041,430 25,115,045 Lease liability 8,097 - 55,217 - 3,115,408 - 88,610 - 748,617 - 305,463 - 3,236 - 4,324,648 - (2,315) - 4,322,333 - Public deposits ------4,860,256 4,603,080 - - - - 4,860,256 4,603,080 (1,528) (1,251) 4,858,728 4,601,829 Employee benefit liabilities 144,852 109,866 33,329 26,950 297,544 216,982 11,179 6,369 219,859 154,017 557,037 484,451 105,786 82,685 1,369,586 1,081,320 - - 1,369,586 1,081,320 Other deferred liabilities - 19,641 - - 7,750 53,524 ------39,640 75,676 47,390 148,841 - - 47,390 148,841 Other non-current financial liabilities 31,687 39,687 2,226,668 1,575,821 560,103 562,279 1,079,704 843,673 168,345 - - - - 186,200 4,066,507 3,207,660 (3,218,415) (3,092,455) 848,092 115,205 Segment non-current liabilities 256,136 216,782 12,105,019 9,079,358 9,106,666 4,190,448 1,179,493 863,735 22,185,867 14,574,110 8,020,486 6,378,862 6,176,261 7,162,279 59,029,928 42,465,574 (3,408,458) (3,093,706) 55,621,470 39,371,868 Deferred tax liabilities 3,346,327 3,306,076 - - 3,346,327 3,306,076 Total non-current liabilities 256,136 216,782 12,105,019 9,079,358 9,106,666 4,190,448 1,179,493 863,735 22,185,867 14,574,110 8,020,486 6,378,862 6,176,261 7,162,279 62,376,255 45,771,650 (3,408,458) (3,093,706) 58,967,797 42,677,944
Trade and other payables 1,388,189 1,184,934 1,066,686 1,151,402 3,008,927 2,880,680 161,148 415,221 1,979,622 1,600,006 2,065,310 2,594,301 237,810 109,679 9,907,692 9,936,223 (1,261,885) (1,507,968) 8,645,807 8,428,255 Income tax liabilities 28,638 15,287 (414) (300) (185,189) (54,304) (4,137) (4,662) (5,755) (4,957) 379,697 384,329 (23,451) 16,296 189,389 351,689 - - 189,389 351,689 Other current financial liabilities 961,326 725,960 28,273 28,273 21,762,535 21,111,236 268,971 1,282,132 820,057 1,134,357 3,673,484 803,609 16,352,555 9,990,472 43,867,201 35,076,039 (16,177,002) (11,947,414) 27,690,199 23,128,625 Current portion of interest bearing borrowings 30,928 26,840 232,702 1,185,341 2,393,698 1,653,817 14,168 26,361 1,036,936 1,269,778 1,600,876 1,662,317 5,207,906 3,958,498 10,517,214 9,782,952 - - 10,517,214 9,782,952 Current portion of lease liability 7,039 - 238 - 886,635 - 15,428 - 257,315 - 171,350 - 10,621 - 1,348,626 - (405) - 1,348,221 - Other current liabilities 127,642 136,279 491,223 376,304 318,498 532,909 75,406 880 373,951 397,166 41,982 20,833 93,804 82,642 1,522,506 1,547,013 (15,889) (234,621) 1,506,617 1,312,392 Public deposits ------12,174,626 12,399,418 - - - - 12,174,626 12,399,418 (16,913) (14,359) 12,157,713 12,385,059 Bank overdrafts 82,802 98,280 666,945 615,122 1,968,917 1,654,093 17,832 40,062 833,510 1,287,746 3,617,713 3,891,219 75,118 174,702 7,262,837 7,761,224 - - 7,262,837 7,761,224 Segment current liabilities 2,626,564 2,187,580 2,485,653 3,356,142 30,154,021 27,778,431 548,816 1,759,994 17,470,262 18,083,514 11,550,412 9,356,608 21,954,363 14,332,289 86,790,091 76,854,558 (17,472,094) (13,704,362) 69,317,997 63,150,196 Amounts due to related parties 212,510 193,448 1,711,549 1,402,758 3,784,074 3,633,355 216,928 313,439 13,887 14,926 25,022 2,801,220 93,749 51,183 6,057,719 8,410,329 (6,025,314) (8,407,598) 32,405 2,731 Total current liabilities 2,839,074 2,381,028 4,197,202 4,758,900 33,938,095 31,411,786 765,744 2,073,433 17,484,149 18,098,440 11,575,434 12,157,828 22,048,112 14,383,472 92,847,810 85,264,887 (23,497,408) (22,111,960) 69,350,402 63,152,927 Total liabilities 155,224,065 131,036,537 (26,905,866) (25,205,666) 128,318,199 105,830,871
Total segment assets 3,582,405 2,930,854 18,095,705 16,956,026 42,608,751 37,610,295 1,140,666 4,454,678 45,817,822 37,681,354 31,498,828 32,283,718 22,710,938 17,699,087 176,737,450 160,811,640 150.043..964 130,670,328 Total segment liabilities 3,095,210 2,597,810 16,302,221 13,838,258 43,044,761 35,602,234 1,945,237 2,937,168 39,670,016 32,672,550 19,595,920 18,536,690 28,224,373 21,545,751 155,224,065 131,036,537 128,318,199 105,830,871
Softlogic Holdings PLC | Annual Report 2019/20 161
In Rs. ‘000 Information Leisure & Retail Automobiles Financial Healthcare Others Total Eliminations/ Group Technology Property Services Services Consolidation adjustments As at 31 March 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Property, plant and equipment 73,228 83,811 10,113,566 10,554,530 8,855,464 6,743,496 257,699 171,800 1,223,508 1,158,622 24,270,835 20,792,877 85,795 171,800 44,880,095 39,676,936 7,253,053 6,917,076 52,133,148 46,594,012 Right of use assets/ Lease rental paid in advance 16,523 - 52,796 - 4,062,457 3,686 97,085 - 1,044,972 - 1,262,939 785,409 63,364 - 6,600,136 789,095 - - 6,600,136 789,095 Investment property 202,000 204,000 1,945,780 1,791,640 6,204,380 5,640,537 - 744,000 - - 215,000 193,724 794,500 744,000 9,361,660 9,317,901 (7,331,280) (7,622,640) 2,030,380 1,695,261 Intangible assets 438,996 411,055 16,872 24,541 418,297 374,596 - 686 205,396 83,376 135 165 1,468 686 1,081,164 895,105 - - 1,081,164 895,105 Non-current financial assets 186,200 186,200 - - 1,523,994 1,279,699 - 1,465,042 14,999,358 11,866,315 360,695 323,946 1,549,170 1,465,042 18,619,417 16,586,244 (2,065,258) (3,579,028) 16,554,159 13,007,216 Rental receivable on lease assets and hire purchase ------1,156,023 1,135,517 - - - - 1,156,023 1,135,517 - - 1,156,023 1,135,517 Other non-current assets 1,241 3,925 4,405,427 2,649,526 492,104 547,115 9,300 9,387 3,500 3,500 28,312 2,334 - - 4,939,884 3,215,787 - - 4,939,884 3,215,787 Segment non-current assets 918,188 888,991 16,534,441 15,020,237 21,556,696 14,589,129 364,084 2,390,915 18,632,757 14,247,330 26,137,916 22,098,455 2,494,297 2,381,528 86,638,379 71,616,585 (2,143,485) (4,284,592) 84,494,894 67,331,993
Investments in equity accounted investees 109,355 78,249 - - 109,355 78,249 Goodwill 4,604,797 4,604,797 - - 4,604,797 4,604,797 Intangible assets through business combinations 3,119,045 3,264,632 - - 3,119,045 3,264,632 Deferred tax assets 3,449,138 3,247,950 - - 3,449,138 3,247,950 Total non-current assets 918,188 888,991 16,534,441 15,020,237 21,556,696 14,589,129 364,084 2,390,915 18,632,757 14,247,330 26,137,916 22,098,455 2,494,297 2,381,528 97,920,714 82,812,213 (2,143,485) (4,284,592) 95,777,229 78,527,621
Inventories 670,406 538,045 758,210 971,622 9,747,135 8,288,727 433,582 355,773 193,635 174,243 674,494 452,519 - - 12,477,462 10,780,929 (42,698) (91,908) 12,434,764 10,689,021 Trade and other receivables 1,435,140 1,231,604 240,280 326,086 7,579,776 9,148,371 28,931 1,297,881 2,625,544 1,857,953 947,354 697,632 708,214 928,964 13,565,239 15,488,491 (1,174,013) (1,446,097) 12,391,226 14,042,394 Loans and advances ------11,899,173 12,214,401 - - - - 11,899,173 12,214,401 (372,750) (251,411) 11,526,423 11,962,990 Rental receivable on lease assets and hire purchase ------1,004,262 833,499 - - - - 1,004,262 833,499 - (3,021) 1,004,262 830,478 Other current assets 90,044 52,258 209,012 354,508 1,593,765 2,532,753 305,023 305,572 964,739 1,165,697 637,151 1,120,891 52,335 28,286 3,852,069 5,559,965 (30,006) (201,579) 3,822,063 5,358,386 Short term investments 63 100 340 371 34,682 37,128 1,500 1,500 9,822,154 5,893,821 260,200 - 115,238 130,834 10,234,177 6,063,754 (876,946) (14,358) 9,357,231 6,049,396 Cash in hand and at bank 75,912 39,858 200,976 100,246 777,633 1,496,718 7,546 6,706 671,285 1,286,337 1,188,092 242,986 804,652 23,499 3,726,096 3,196,350 - - 3,726,096 3,196,350 2,271,565 1,861,865 1,408,818 1,752,833 19,732,991 21,503,697 776,582 1,967,432 27,180,792 23,425,951 3,707,291 2,514,028 1,680,439 1,111,583 56,758,478 54,137,389 (2,496,413) (2,008,374) 54,262,065 52,129,015 Amounts due from related parties 392,652 179,998 152,446 182,956 1,319,064 1,517,469 - 96,331 4,273 8,073 1,653,621 7,671,235 18,536,202 14,205,976 22,058,258 23,862,038 (22,053,588) (23,848,346) 4,670 13,692 Total current assets 2,664,217 2,041,863 1,561,264 1,935,789 21,052,055 23,021,166 776,582 2,063,763 27,185,065 23,434,024 5,360,912 10,185,263 20,216,641 15,317,559 78,816,736 77,999,427 (24,550,001) (25,856,720) 54,266,735 52,142,707 Total assets 176,737,450 160,811,640 (26,693,486) (30,141,312) 150,043,964 130,670,328
Insurance contract liabilities ------13,133,911 8,309,628 - - - - 13,133,911 8,309,628 - - 13,133,911 8,309,628 Interest bearing borrowings 71,500 47,588 9,789,805 7,476,587 5,125,861 3,357,663 - 13,693 3,054,879 1,507,385 7,157,986 5,894,411 6,027,599 6,817,718 31,227,630 25,115,045 (186,200) - 31,041,430 25,115,045 Lease liability 8,097 - 55,217 - 3,115,408 - 88,610 - 748,617 - 305,463 - 3,236 - 4,324,648 - (2,315) - 4,322,333 - Public deposits ------4,860,256 4,603,080 - - - - 4,860,256 4,603,080 (1,528) (1,251) 4,858,728 4,601,829 Employee benefit liabilities 144,852 109,866 33,329 26,950 297,544 216,982 11,179 6,369 219,859 154,017 557,037 484,451 105,786 82,685 1,369,586 1,081,320 - - 1,369,586 1,081,320 Other deferred liabilities - 19,641 - - 7,750 53,524 ------39,640 75,676 47,390 148,841 - - 47,390 148,841 Other non-current financial liabilities 31,687 39,687 2,226,668 1,575,821 560,103 562,279 1,079,704 843,673 168,345 - - - - 186,200 4,066,507 3,207,660 (3,218,415) (3,092,455) 848,092 115,205 Segment non-current liabilities 256,136 216,782 12,105,019 9,079,358 9,106,666 4,190,448 1,179,493 863,735 22,185,867 14,574,110 8,020,486 6,378,862 6,176,261 7,162,279 59,029,928 42,465,574 (3,408,458) (3,093,706) 55,621,470 39,371,868 Deferred tax liabilities 3,346,327 3,306,076 - - 3,346,327 3,306,076 Total non-current liabilities 256,136 216,782 12,105,019 9,079,358 9,106,666 4,190,448 1,179,493 863,735 22,185,867 14,574,110 8,020,486 6,378,862 6,176,261 7,162,279 62,376,255 45,771,650 (3,408,458) (3,093,706) 58,967,797 42,677,944
Trade and other payables 1,388,189 1,184,934 1,066,686 1,151,402 3,008,927 2,880,680 161,148 415,221 1,979,622 1,600,006 2,065,310 2,594,301 237,810 109,679 9,907,692 9,936,223 (1,261,885) (1,507,968) 8,645,807 8,428,255 Income tax liabilities 28,638 15,287 (414) (300) (185,189) (54,304) (4,137) (4,662) (5,755) (4,957) 379,697 384,329 (23,451) 16,296 189,389 351,689 - - 189,389 351,689 Other current financial liabilities 961,326 725,960 28,273 28,273 21,762,535 21,111,236 268,971 1,282,132 820,057 1,134,357 3,673,484 803,609 16,352,555 9,990,472 43,867,201 35,076,039 (16,177,002) (11,947,414) 27,690,199 23,128,625 Current portion of interest bearing borrowings 30,928 26,840 232,702 1,185,341 2,393,698 1,653,817 14,168 26,361 1,036,936 1,269,778 1,600,876 1,662,317 5,207,906 3,958,498 10,517,214 9,782,952 - - 10,517,214 9,782,952 Current portion of lease liability 7,039 - 238 - 886,635 - 15,428 - 257,315 - 171,350 - 10,621 - 1,348,626 - (405) - 1,348,221 - Other current liabilities 127,642 136,279 491,223 376,304 318,498 532,909 75,406 880 373,951 397,166 41,982 20,833 93,804 82,642 1,522,506 1,547,013 (15,889) (234,621) 1,506,617 1,312,392 Public deposits ------12,174,626 12,399,418 - - - - 12,174,626 12,399,418 (16,913) (14,359) 12,157,713 12,385,059 Bank overdrafts 82,802 98,280 666,945 615,122 1,968,917 1,654,093 17,832 40,062 833,510 1,287,746 3,617,713 3,891,219 75,118 174,702 7,262,837 7,761,224 - - 7,262,837 7,761,224 Segment current liabilities 2,626,564 2,187,580 2,485,653 3,356,142 30,154,021 27,778,431 548,816 1,759,994 17,470,262 18,083,514 11,550,412 9,356,608 21,954,363 14,332,289 86,790,091 76,854,558 (17,472,094) (13,704,362) 69,317,997 63,150,196 Amounts due to related parties 212,510 193,448 1,711,549 1,402,758 3,784,074 3,633,355 216,928 313,439 13,887 14,926 25,022 2,801,220 93,749 51,183 6,057,719 8,410,329 (6,025,314) (8,407,598) 32,405 2,731 Total current liabilities 2,839,074 2,381,028 4,197,202 4,758,900 33,938,095 31,411,786 765,744 2,073,433 17,484,149 18,098,440 11,575,434 12,157,828 22,048,112 14,383,472 92,847,810 85,264,887 (23,497,408) (22,111,960) 69,350,402 63,152,927 Total liabilities 155,224,065 131,036,537 (26,905,866) (25,205,666) 128,318,199 105,830,871
Total segment assets 3,582,405 2,930,854 18,095,705 16,956,026 42,608,751 37,610,295 1,140,666 4,454,678 45,817,822 37,681,354 31,498,828 32,283,718 22,710,938 17,699,087 176,737,450 160,811,640 150.043..964 130,670,328 Total segment liabilities 3,095,210 2,597,810 16,302,221 13,838,258 43,044,761 35,602,234 1,945,237 2,937,168 39,670,016 32,672,550 19,595,920 18,536,690 28,224,373 21,545,751 155,224,065 131,036,537 128,318,199 105,830,871
Softlogic Holdings PLC | Annual Report 2019/20 162 FINANCIAL STATEMENTS 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 Asiri Hospitals Ltd, Oraz International Property Developers and Surgical Hospital PLC and the Board of Investment (BOI) in 2000. Construction (Pvt) Ltd and H.G. Shalika Perera relating to a permanent injunction restraining the payment of any commission Since there is litigation in the Court of Appeal in CA (Writ) 386/2016 on the sale of the land and premises bearing assessment no. 37, with regard to this matter, in accordance with Paragraph 92 of Horton Place, Colombo 07 to P.P.M. Edwards. LKAS 37, the group is unable to provide further information on this and associated risks, in order not to impair the outcome and/ An enjoining order was issued restraining above at the first instance. or prejudice the subsidiary’s position in this matter. Due to the situation prevailing in the country with the outbreak of COVID-19, 50.4 Softlogic Finance PLC Court has postponed all cases and next date for argument at the Court of Appeal will be announced when the courts are re-open. District Court of Colombo DMR 3743/19 - Customer of Softlogic Finance PLC has filed a case against the Company claiming damages of Rs. 100.00 Mn for the reputational loss and mental 50.2 Asiri Hospital Holdings PLC, Asiri Surgical Hospital PLC agony suffered. and Central Hospitals Ltd Pending litigations against Asiri Hospital Holdings PLC , Asiri Surgical Hospital PLC and Central Hospitals Ltd with a maximum liability of Rs. 41.00 Mn, Rs. 13.20 Mn and Rs. 100.00 Mn respectively exist as at 31 March 2020 (2019 - Asiri Hospital Holdings PLC : Rs. 41.00 Mn, Asiri Surgical Hospital PLC : Rs. 105.00 Mn and Central Hospitals Ltd - Rs. 100.00 Mn).
Although there can be no assurance, the Directors believe, based on the information currently available, that the resolution of such legal processes are not likely to have a material adverse effect on the companies or the Group.
Softlogic Holdings PLC | Annual Report 2019/20 163
50.5 Softlogic Life Insurance PLC (SLI)
Value Added Tax (VAT) Nation Building Tax on Financial Services VAT Assessments were received by Softlogic Life Insurance PLC The Company has received a tax assessments on Nation Building in April 2013 and March 2016 for the taxable periods ended 31 Tax on Financial Services in August 2019 and December 2019 for December 2010 and 31 March 2014, amounting to Rs. 46.50 Mn and the taxable period ended 31 December 2016 and 31 December 2017 Rs. 57.40 Mn respectively. amounting to Rs. 4.30 Mn and Rs. 13.70 Mn respectively.
The Company has filed an appeal on the basis that the underlying The Company has filed an appeal in September 2019 and February computation includes items which are exempt/ out of scope of the 2020 respectively on the basis that the underlying computation Value Added Tax Act. The Commissioner General of Inland Revenue includes items which are out of scope of the Nation Building Tax has determined the assessment and the Company has appealed Act. The Company is awaiting the CGIR determination. to the Tax Appeals Commission and awaits the final decision. For the VAT assessment issued for the quarter ended 31 March 2014, Life Insurance Taxation the Company has filed an appeal in April 2016 on the basis that the The Commissioner General of Inland Revenue has issued it’s underlying computation includes items which are exempt/ out of determination notices on appeals filed for Life Insurance taxation for scope of the Value Added Tax Act. The Company is awaiting the CGIR the year of assessment 2010/11, 2011/12, 2012/13, 2014/15 and determination. 2015/16 amounting to Rs. 349.48 Mn with penalty. The Company has appealed to the Tax Appeals Commission and awaits the final Value Added Tax on Financial Services decision. The Company has received a tax assessments on Value Added Tax on Financial Services in July 2018, August 2019 and February 2020 Further, the Company has received tax assessment for Life for the taxable period ended 31 December 2014, 31 December 2016 Insurance taxation for the year of assessment 2013/14, 2016/17 and 31 December 2017 amounting to Rs. 68.70 Mn, Rs. 28.00 Mn and 2017/18 amounting to Rs. 691.30 Mn with penalty. The and Rs. 102.4 Mn respectively. Company has lodged a valid appeal against the said assessment.
The Company has filed an appeal in August 2018, September 2019 Based on the information available and the advice of the tax and February 2020 respectively on the basis that the underlying consultants, the Directors are confident that the resolution of this computation includes items which are out of scope of the Value contingency is unlikely to have a material adverse effect on the Added Tax Act. The Company is awaiting the CGIR determination. company or the Group.
51 CAPITAL AND OTHER COMMITMENTS
51.1 Capital commitments
In Rs. ‘000 Group As at 31 March 2020 2019
Capital commitments approved but not provided for 4,796,645 9,080,052 Capital commitments approved but not contracted 8,310,000 8,310,000
51.2 Guarantees issued and in-force, and commitments for unutilised facilities
In Rs. ‘000 Group Company As at 31 March 2020 2019 2020 2019
Guarantees issued and in-force 238,471 1,952,507 23,855,456 23,282,722 Commitment for unutilised facilities 549,808 161,016 - -
Softlogic Holdings PLC | Annual Report 2019/20 164 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
52 IMPACT OF COVID-19 Following the declaration of COVID-19 as a global pandemic by World Health Organisation (“WHO”) during March 2020, Softlogic Holdings PLC and its subsidiaries have been operating with strict adherence to the guidelines issued by the Government to curtail the spread of the virus.
In order to ensure the health and safety of employees’, Human Capital Department has introduced the COVID-19 preventative measures for the Group. Also, we have arranged remote working facilities for our employees to work from home. We have educated the staff to maintain at least one-meter (1M) gap between the customers and our team members who have direct customer relationships. Further, COVID Combat Teams have been appointed for all locations within the Group to monitor and run the preventative measures.
In terms of continuity of business in these challenging times, SHPLC Group has established and set out clear guide lines for cost rationalisation initiatives such as reducing cost of training employees by engaging employees with required skills and knowledge to train other employees by being “trainers“ rather than getting outside trainers to fulfill the in-house training requirement. Also, salary reduction at various salary slabs as a percentage was introduced considering the salary range and thus was applicable to all staff across the entire group on a fair and equitable basis. Further, the group has minimised recruitments and instead allocated the current work amongst the existing employees where ever possible. The Group has sought to enhance the marketing strategies using online platforms and other social media networks.
Impact of COVID-19 on our Key Business Sectors
Retail Healthcare Services The Groups Retail arm recorded similar sales levels compared to the Following the outbreak of COVID-19, extremely stringent hygiene previous year reflecting consumer confidence in our brands and our protocols were adopted across all our hospitals, providing assurance product offerings and this is happened between the curfews and to both patients and doctors on the safety levels offered at our lockdowns. Import restrictions that were imposed were subsequently hospitals. We were also the first private sector operator to obtain lifted, a fall in exchange rates and the perception that disposable the accreditation to carry out PCR testing. While patient volumes incomes and fallen did not damped customer sentiment. Mobile declined in the months immediately following the lockdown, the phone and other communication equipment sales were high due to segment has now seen definite signs of recovery and is confident the increase in online teaching and businesses. that the remaining quarters of 2020/21 would see continued growth. We have also partnered India’s leading IVF provider and hope to We are confident of a closer than longer return to normalcy however launch a dedicated IVF center in the short- to medium term. the recovery in the next 12 months will be of extreme importance. Leisure Financial Services Both our hotels experienced the full effect of the COVID-19 The Central Bank of Sri Lanka (“CBSL”) issued Circular No. 04 and 05 pandemic, with total to partial closures due to the lockdowns and of 2020 on “Debt Moratorium” which caused a direct impact to cash curfews. Occupancy rates were close to zero, while Restaurants sales inflows of Softlogic Finance PLC. To comply with the issued circular, and Banquet sales were non-existent with conferences and weddings the Company established effective procedures to ensure that all being postponed. Travel restrictions, boarder closures mean that the Moratorium requests are properly collected and attended with outlook for the sector looks bleak. However, we are hopeful that with top priority on individual basis to make sure impacted customers the reported opening of the Airport in early 2021 things will improve. received the required relief. However, the decision on “Debt Moratorium” and the decision of country lock down resulted negative Despite the moratorium of loan repayment which were granted consequences on the Company’s performance and its liquidity to this sector recently extended to September 2021, regular cash position. assistance from the holding company has become necessary, however this cannot continue indefinitely, and more governmental The Board of Directors of Softlogic Life Insurance PLC assessed assistance may be required to meet salaries and direct overheads potential operational impact and impairment loss of financial and such as electricity etc. This assistance required is to avert salary non-financial assets as at the reporting date. Based on the available reductions and staff layoffs. The loss of service charge has impacted information and the Management’s best judgements, the Board of on the earnings of our leisure sector employees significantly. Directors of the Company concluded that no additional impairment We have consolidated operations and have eliminated expensive provision is required to be made in the Financial Statements as at overheads and we have even started online food deliveries. The news the reporting date in respect of COVID-19 Pandemic. of the approval of the COVID-19 vaccine is in need very welcome.
Softlogic Holdings PLC | Annual Report 2019/20 165
Information Technology Automobiles Demand for the IT segment’s services remained resilient during This sector has also been impacted severely with a total ban on the the pandemic given our presence in essential industrial such as import of vehicles, the imports of spare parts was only recently lifted healthcare, banking, and the military. The outlook is promising partially. Extended credit on letters of credit was also agreed to by given the Government’s thrust towards leveraging technology to our suppliers with much persuasion but at additional cost. enhance several key areas of public service as well as increased digital adoption by private sector organisations. On the other hand, The Future for this sector is uncertain in the short to medium term key downside risks such as import restrictions and exchange rate and we look forward to an early lifting on the ban of vehicle imports. volatility is likely to temper the Segment’s earnings outlook in the Here to operations, have been rationalised, workshops consolidated. next financial year.
53 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.
53.1 Rights issue announcement - Softlogic Capital PLC 53.3 Business Combinations and Acquisitions - Softlogic Capital PLC The Directors of Softlogic Capital PLC, a subsidiary of Softlogic Holdings PLC, announced that the Company will issue 289,027,200 The Directors of Softlogic Capital PLC, a subsidiary of Softlogic ordinary shares by way of a Rights Issue at a price of Rs. 3.50 per Holdings PLC, announced that the Company has agreed to acquire share. The issue of shares by the way of a Rights Issue approved by 33,063,877 (49.67%) Ordinary Shares of Abans Finance PLC from shareholder at an Extraordinary General Meeting held on 29 October its major shareholder of Abans PLC at a price of Rs. 30.10 per share 2020. subject to the required Regulatory approvals. After the aforesaid acquisition, the company will make a mandatory offer to the The proceeds from the aforesaid Rights Issue will be used for minority shareholders of Abans Finance PLC in terms of the Take- the purpose of investing in Softlogic Finance PLC, a subsidiary of Overs and Merger Code 1995 as amended in 2003. Softlogic Capital PLC. Immediately after the mandatory offer is completed and in 53.2 Rights issue announcement - Softlogic Finance PLC accordance with Finance Sector Consolidation Plan initiated by the Central Bank of Sri Lanka in 2004, Softlogic Capital PLC intends to The Directors of Softlogic Finance PLC, a subsidiary of Softlogic initiate a process for the amalgamation of Abans Finance PLC into Holdings PLC, announced that the Company will issue 165,390,848 Softlogic Finance PLC with Softlogic Finance PLC being the surviving ordinary shares by way of a Rights Issue at a price of Rs. 11.50 per entity. This amalgamation is subject to receiving all required share. The issue of shares by the way of a Rights Issue approved regulatory approvals. by shareholder at an Extraordinary General Meeting held on 9 November 2020. 53.4 Tier II Subordinated Debt Transaction - Softlogic Life The proceeds from the aforesaid Rights Issue will be used for the Insurance PLC purpose of improving Core Capital (Tier 1) requirements of Softlogic The Directors of Softlogic Life Insurance PLC has entered Tier II Finance PLC. Subordinated Debt Transaction with “Finnish Fund for Industrial Corporation Ltd” and “Norfund (Norwegian Investment Fund for Developing Countries)” amounting USD 15.00 Mn to provide funding for further development of business objectives of the company.
Softlogic Holdings PLC | Annual Report 2019/20 166 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Secondary concurrent mortgage for Rs. 30.00 Mn Secondary for concurrent mortgage Place land and building at No. 14, De Fonseka over Colombo - 05 Rs. 50.00 Mn Secondary for concurrent mortgage Place land and building at No. 14, De Fonseka over Colombo - 05 Softlogic by owned 25,000,000 shares of Odel PLC Holdings (Pvt) Ltd Retail Insurance PLC 48,250,000 shares of Softlogic Life Softlogic Capital PLC by owned Primary concurrent mortgage for Rs. 70.00 Mn Primary for concurrent mortgage Place land and building at No. 14, De Fonseka over Colombo - 05 land and building Rs. 130.00 Mn over for Mortgage Place Colombo - 05 at No. 14, De Fonseka owned 151,166,182 shares of Softlogic Capital PLC Softlogic Holdings PLC by 90,440,000 shares of Asiri Hospital Holdings PLC, 90,440,000 shares of Asiri Hospital Holdings PLC, and 119,850,336 shares of Softlogic Capital PLC Softlogic by owned IOC PLC 63,200 shares of Lanka Holdings PLC Rs. 750.00 Mn over Primary for mortgage owned 100,000,000 shares of Softlogic Capital PLC Softlogic Holdings PLC by for from Softlogic Capital PLC guarantees Corporate Rs. 1,631.00 Mn a) b) c) a) b) c) d) shares of Asiri Hospital Holdings PLC 72,307,254 Softlogic Holdings PLC by owned shares of of 37,398,004 Rs. 1,000.00 Mn worth shares of and 5,297,790 Asiri Hospital Holdings PLC Softlogic Holdings PLC by owned Softlogic Capital PLC a) b) c) Security 642.00 value of value 2,081.70 1,055.00 1,200.30 3,683.16 Rs. Mn. Carrying collaterals collaterals 2019 97,409 97,409 227,249 227,249 657,313 657,313 409,868 306,267 948,330 194,285 451,709 442,879 529,639 878,570 142,492 Rs. ‘000 2020 66,380 29,230 157,374 157,374 182,679 203,269 606,875 124,569 103,570 106,647 280,066 456,478 694,883 Rs. ‘000 Outstanding balance Outstanding
October 2018 October 48 monthly installments 48 monthly installments commencing from May 2016 60 monthly installments 60 monthly installments commencing from February 2017 20 monthly installments commencing from 60 monthly installments 06 months of commencing after grace period from January 2018 Repayment term Repayment 60 equal monthly installments commencing from April 2017 60 monthly installments commencing from April 2017 48 monthly installments commencing from May 2016 48 monthly installments 2016 commencing from October 72 monthly installments 12 months ofcommencing after 2014grace period from November installments 20 quarterly 6 months commencing after grace period from March 2016 installments 20 equal quarterly 6 months of commencing after grace period from December 2016 20 equal quarterly installments installments 20 equal quarterly commencing from November 2015 AWPLR plus AWPLR margin AWPLR plus AWPLR margin plus AWPLR margin plus AWPLR margin Interest rate Interest plus AWPLR margin plus AWPLR margin plus AWPLR margin plus AWPLR margin AWPLR plus AWPLR margin plus AWPLR margin plus AWPLR margin AWPLR plus AWPLR margin
Term loan Term Term loan Term loan Term loan Term facility loan Term loan Term loan Term loan Term Nature of loan Term loan Term loan Term Term loan Term
Sampath Bank PLC institution Commercial Bank of Ceylon PLC National Hatton Bank PLC Nations Trust Bank PLC Lending Lending Seylan Bank PLC INTEREST BEARING BORROWINGS INTEREST Security and repayment terms Company Softlogic Holdings PLC 54 54.1
Softlogic Holdings PLC | Annual Report 2019/20 167 Corporate guarantee from Softlogic Retail (Pvt) Ltd (Pvt) Ltd from Softlogic Retail guarantee Corporate Rs. 2,000.00 Mn for Softlogic by owned 49,702,271 shares of Odel PLC Holdings (Pvt) Ltd Retail from Softlogic Holdings guarantees Cross corporate (Pvt) Ltd, Softlogic Infromation Technologies PLC, Lanka Motors and Suzuki (Pvt) Ltd Softlogic Retail Rs. 1,574.00 Mn for Ltd 16,495,301 shares of Asiri Hospital Holdings PLC 16,495,301 shares of Asiri Hospital Holdings PLC and 135,278,651 shares of Softlogic Capital PLC Softlogic Holdings PLC by owned 11,972,390 shares of Asiri Hospital Holdings PLC, Insurance PLC, 175,550 shares of Softlogic Life and shares of Softlogic Finance PLC 497,975 by owned 4,359,784 shares of Softlogic Capital PLC Softlogic Holdings PLC 5,026,667 shares of Asiri Hospital Holdings PLC Softlogic Holdings PLC by owned Corporate guarantee from Softlogic Retail (Pvt) Ltd (Pvt) Ltd from Softlogic Retail guarantee Corporate Rs. 2,000.00 Mn for a) b) a) b) c) a) b) Softlogic by owned 62,894,000 shares of Odel PLC Holdings (Pvt) Ltd Retail Softlogic by owned 29,700,000 shares of Odel PLC Holdings (Pvt) Ltd Retail Softlogic by owned 34,725,000 shares of Odel PLC Holdings (Pvt) Ltd Retail 70,000.000 shares of Asiri Hospital Holdings PLC Softlogic Holdings PLC by owned of Softlogic company receivables inter over Mortgage Holdings PLC of Softlogic company receivables inter over Mortgage Holdings PLC of Softlogic company receivables inter over Mortgage Holdings PLC Security
564.30 659.78 178.61 value of value 1,657.44 1,162.00 1,055.83 1,105.79 2,814.94 3,171.52 1,194.99 Rs. Mn. Carrying collaterals collaterals - - - - - 2019 839,637 810,538 501,441 Rs. ‘000 9,747,111 9,747,111 1,290,286 1,019,199 2020 877,270 877,270 581,559 776,192 545,637 429,338 463,778 178,607 Rs. ‘000 1,012,220 1,055,829 1,105,791 Outstanding balance Outstanding 10,038,241 60 equal monthly installments 60 equal monthly installments 6 month commencing after grace period from December 2018 60 monthly installments commencing from June 2019 66 equal monthly installments 6 month commencing after grace period from March 2020 14 monthly installments commencing from November 2020 12 monthly installments commencing from March 2021 48 monthly installments 48 monthly installments 12 months of commencing after grace period from July 2016 3 equal annual installments 12 month commencing after grace period from March 2018 54 equal monthly installments 6 month commencing after 2019 grace period from February 21 monthly installments commencing from June 2020 Repayment term Repayment 72 monthly installments 72 monthly installments 12 months of commencing after grace period from April 2015 AWPLR plus AWPLR margin plus AWPLR margin plus AWPLR margin rate Fixed rate Fixed AWPLR plus AWPLR margin 3 months AWPLR plus margin plus AWPLR margin rate Fixed Interest rate Interest AWPLR plus AWPLR margin
Term loan Term 2 HNB Trust 3 HNB Trust Term loan Term loan Term loan Term 1 HNB Trust facility Nature of Term loan Term
Bank of Ceylon Pan Asia Pan Banking Corporation PLC Bank PLC DFCC Securitised Borrowings institution Lending Lending People’s Bank People’s Company
Softlogic Holdings PLC | Annual Report 2019/20 168 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
Corporate guarantee from Softlogic Holdings PLC from Softlogic Holdings PLC guarantee Corporate Rs. 1,500.00 Mn for debit and credit Supplementaryover bond mortgage from Softlogic Holdings PLC guarantee Corporate USD 36.40 Mn for card sales including installment sales of all outlets card sales including installment of all outlets (Pvt) Ltd of the Softlogic Retail Rs. 100.00 Mn over bond for Floating mortgage credit and debit card sales including installment (Pvt) Ltd of the Softlogic Retail sales of all outlets through the acquiring and participating routed banks 122,815,361 shares of Asiri Hospital Holdings PLC 122,815,361 shares of Asiri Hospital Holdings PLC and Odel PLC Softlogic Holdings PLC by owned Holdings (Pvt) Ltd Softlogic Retail by shares owned credit and Rs. 1,540.00 mn over bond for Mortgage including installment debit card sales receivables (Pvt) Ltd of the Softlogic Retail sales of all outlets USD 36.40 Mn over Primary bond for mortgage Softlogic by - 85.98 P) owned the land (extent and building other project (Pvt) Ltd Properties being constructed of Hotel assets Floating mortgage bond for Rs. 300.00 Mn over Rs. 300.00 Mn over bond for Floating mortgage credit and debit card sales including installment (Pvt) Ltd of the Softlogic Retail sales of all outlets through the acquiring and participating routed banks Mortgage bond for Rs. 100.00 Mn over credit and Rs. 100.00 Mn over bond for Mortgage debit card sales including installment of routed (Pvt) Ltd of the Softlogic Retail all outlets through the acquiring and participating banks a) b) for from Softlogic Holdings PLC guarantee Corporate Rs. 1,350.00 Mn a) b) over for Rs. 300 Mn Primary bond floating mortgage Colombo - 03 at No. 402, Galle Road, property situated (Pvt) Ltd Softlogic Retail by owned a) b) c) d) e) Security 300.00 value of value 3,538.73 1,350.00 1,459.74 Rs. Mn. 14,010.36 Carrying collaterals collaterals - - - 2019 237,500 237,500 794,061 734,400 454,600 143,400 140,632 105,582 Rs. ‘000 5,267,123 5,267,123 6,942 2020 79,300 78,137 529,373 464,400 146,800 162,500 993,000 150,000 282,881 Rs. ‘000 5,626,070 Outstanding balance Outstanding
commencing from November commencing from November 2016 48 monthly installments 48 monthly installments commencing from June 2018 36 equal monthly installments 36 equal monthly installments commencing from May 2019 60 equal monthly installments 72 monthly installments commencing from September 2014 36 months including 24 grace period commencing from March 2020 60 monthly installments 60 monthly installments commencing from December 2015 48 monthly installments 48 monthly installments commencing from June 2017 60 equal monthly installments commencing from February 2020 Repayment term Repayment 36 equal monthly installments commencing from March 2017 120 months including 19 capital repayment grace period commencing from June 2015 60 equal monthly installments 60 equal monthly installments commencing from November 2016
margin AWPLR plus AWPLR margin AWPLR plus AWPLR margin plus AWPLR margin LIBOR plus margin AWPLR plus AWPLR margin AWPLR plus AWPLR margin PLR plus plus AWPLR margin Interest rate Interest plus AWPLR margin LIBOR plus margin AWPLR plus AWPLR margin Term loan Term Term loan Term loan Term loan Term Term loan Term Term loan Term loan Term loan Term Nature of facility loan Term Term Loan Term Term loan Term
Commercial Bank of Ceylon PLC institution Bank PLC DFCC Lending Lending Commercial Bank of Ceylon PLC Hatton National Hatton Bank PLC INTEREST BEARING BORROWINGS INTEREST Security and repayment terms Company Softlogic City (Pvt) Hotels Ltd Softlogic Retail Softlogic Retail (Pvt) Ltd 54 54.1
Softlogic Holdings PLC | Annual Report 2019/20 169 Corporate guarantee from Softlogic Holdings PLC from Softlogic Holdings PLC guarantee Corporate USD 9.20 Mn for (Pvt) Ltd from Softlogic Retail guarantee Corporate Mn Rs. 87.00 for equipment, fixtures of kitchen stock over Mortgage Panadura, at & fittings and appliances located Malabe, Kandy, Nugegoda, Ja Ela, Kelaniya, Burger King outlets Moratuwa and Kotahena Mortgage for USD 9.20 Mn over leasehold rights of leasehold rights USD 9.20 Mn over for Mortgage lands and building hotel land at Rs. 100.00 Mn over Primary for mortgage Peliyagoda No. 371, New Nuge Road, from Softlogic Holdings PLC guarantee Corporate Rs. 200.00 Mn for Assignment of AMEX receivables a) b) c) a) b) a) b) credit and debit Rs. 200.00 Mn over bond for Mortgage of the Softlogic of all outlets card sales receivables (Pvt) Ltd Restaurants for from Softlogic Holdings PLC guarantee Corporate Rs. 120.00 Mn for from Softlogic Holdings PLC guarantee Corporate Rs. 500.00 Mn for from Softlogic Holdings PLC guarantee Corporate Rs. 200.00 Mn Security 77.90 187.00 500.00 356.20 120.00 200.00 value of value 3,541.08 Rs. Mn. Carrying collaterals collaterals - 2,719 4,667 2019 22,681 15,593 60,015 21,968 72,000 35,413 297,997 297,997 307,396 307,396 118,600 Rs. ‘000 1,069,628 - - 1,594 2020 17,010 17,010 77,900 89,994 10,090 40,551 15,977 50,000 14,168 464,000 Rs. ‘000 1,163,513 Outstanding balance Outstanding 48 equal monthly installments 48 equal monthly installments commencing from September 2017 59 monthly installments 59 monthly installments commencing from April 2017 60 equal monthly installments commencing from April 2017 59 monthly installments 59 monthly installments commencing from December 2017 57 monthly installments commencing from March 2018 Repayment term Repayment 54 monthly installments a grace commencing after period of 6 months from December 2016 48 monthly installments a grace commencing after period of 12 months from 2018 February 58 monthly installments 58 monthly installments commencing from December 2016 48 equal monthly installments 48 equal monthly installments 2019 commencing from October 72 monthly installments a grace periodcommencing after of 6 months from July 2014 15 equal bi annual installments 15 equal bi annual installments commencing from March 2017 AWPLR plus AWPLR margin AWPLR plus AWPLR margin plus AWPLR margin AWPLR plus AWPLR margin plus AWPLR margin Interest rate Interest plus AWPLR margin plus AWPLR margin AWPLR plus AWPLR margin AWPLR plus AWPLR margin plus AWPLR margin 3 months LIBOR plus margin Term loan Term Term loan Term loan Term loan Term Term loan Term loan Term Nature of facility loan Term loan Term Term loan Term Term loan Term loan Term loan Term Term loan Term
Hatton National Hatton Bank PLC institution Commercial Bank of Ceylon PLC Bank of Ceylon Lending Lending Union Bank of Colombo PLC DFCC Bank PLC DFCC Sampath Bank PLC Union Bank of Colombo PLC Nations Trust Nations Trust Bank PLC Company Softlogic Restaurants (Pvt) Ltd Suzuki Motors Motors Suzuki Ltd Lanka Future Automobiles (Pvt) Ltd Softlogic Properties (Pvt) Ltd Ceysands Ceysands Ltd Resorts
Softlogic Holdings PLC | Annual Report 2019/20 170 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
Corporate guarantee from Softlogic Holdings PLC from Softlogic Holdings PLC guarantee Corporate Rs. 500.00 Mn for from Softlogic Holdings PLC guarantee Corporate Rs. 500.00 Mn for 10,420,000 shares of Odel PLC owned by Softlogic by owned 10,420,000 shares of Odel PLC Holdings (Pvt) Ltd Retail Softlogic by owned 6,250,000 shares of Odel PLC Holdings (Pvt) Ltd Retail Corporate guarantee from Softlogic Holdings PLC for for from Softlogic Holdings PLC guarantee Corporate Rs. 120.00 Mn a) b) a) b) Insurance PLC 158,611,920 shares of Softlogic Life and 13,244,981 shares of Softlogic Finance PLC Softlogic Capital PLC by owned Insurance PLC 35,188,840 shares of Softlogic Life Softlogic Capital PLC by owned of Softlogic Finance loans receivables over Mortgage PLC of loan receivables lease and vehicle over Mortgage Softlogic Finance PLC of Softlogic Finance lease receivables over Mortgage PLC of loan receivables lease and vehicle over Mortgage Softlogic Finance PLC Security 697.98 618.75 120.00 417.00 417.00 177.00 177.00 420.00 118.00 value of value 4,910.67 1,055.67 Rs. Mn. Carrying collaterals collaterals - - - - 2019 64,105 48,000 32,301 58,300 30,310 395,096 912,000 340,000 200,634 180,338 Rs. ‘000 - - - 2020 40,428 62,000 46,000 466,667 436,225 712,469 289,000 142,471 303,705 112,663 353,771 Rs. ‘000 Outstanding balance Outstanding 48 monthly installments 48 monthly installments commencing from November 2020 24 monthly installments a grace commencing after period of 6 months commencing from July 2019 60 equal monthly installments 60 equal monthly installments a grace period commencing after of 12 months commencing from 2018 October 36 monthly installments commencing from March 2020 4 annual installments 4 annual installments commencing from April 2018 Repayment term Repayment Bullet payment at the maturity a grace period of 60 after months commencing from March 2017 31 monthly installments commencing from November 2018 60 equal monthly installments 60 equal monthly installments a grace period commencing after of 12 months commencing from 2018 October 5 annual installments 5 annual installments a grace commencing after period of 12 months commencing from March 2017 48 monthly installments commencing from June 2018 60 equal monthly installments 60 equal monthly installments commencing from December 2016 AWPLR plus AWPLR margin rate Fixed AWPLR plus AWPLR margin plus AWPLR margin AWPLR plus AWPLR margin Interest rate Interest plus AWPLR margin rate Fixed AWPLR plus AWPLR margin AWPLR plus AWPLR margin plus AWPLR margin AWPLR plus AWPLR margin Term loan Term 2 HNB Trust Term loan Term loan Term loan Term Term loan Term Nature of facility loan Term loan Term loan Term NSB Term loan Term Term loan Term loan Term Term loan Term
Hatton National Hatton Bank PLC Commercial Bank of Ceylon PLC institution Nations Trust Bank PLC Seylan Bank PLC Bank People’s Securitised Borrowings Lending Lending Bank of Ceylon Sampath Bank PLC Union Bank of Colombo PLC Sampath Bank PLC Company Softlogic Supermarkets (Pvt) Ltd Softlogic Capital PLC Softlogic Finance PLC Softlogic B P O Services (Pvt) Ltd
Softlogic Holdings PLC | Annual Report 2019/20 171 Secondary mortgage for Rs. 275.00 Mn over Rs. 275.00 Mn over Secondary for mortgage Narahenpita owned property at No. 181, Kirula Road, Asiri Hospital Holdings PLC by 100.0% of ordinaryAdditional security over shares Asiri by owned of Asiri Hospital Galle (Pvt) Ltd Hospital Holdings PLC Primary concurrent mortgage bond for Rs. Primary bond for concurrent mortgage property at No. 181, Kirula Road, 100.00 Mn over Asiri Hospital Holdings PLC by Narahenpita owned Rs. 450.00 Third party primary bond for mortgage hospital property at No. 10, Wackwella Mn over Asiri Hospital Galle (Pvt) Ltd by Galle owned Road, Mortgage over lease and vehicle loan receivables of loan receivables lease and vehicle over Mortgage Softlogic Finance PLC of loan receivables lease and vehicle over Mortgage Softlogic Finance PLC held by 74,454,026 shares of Central Hospitals Ltd Asiri Hospital Holdings PLC Hospital PLC from Asiri Surgical guarantee Corporate Rs. 550.00 Mn for a) b) from Asiri Hospital Holdings PLC guarantee Corporate from Asiri Hospital Rs. 630.60 Mn (loan transferred for (Pvt) Ltd) Kandy from Asiri Hospital Holdings guarantee Corporate from Asiri Rs. 2,120.00 Mn (loan transferred for PLC (Pvt) Ltd) Hospital Kandy Hospital PLC from Asiri Surgical guarantee Corporate Rs. 363.00 Mn for Securitisation of all future credit/ debit card of Asiri Hospital Holdings PLC receivables a) b) Security 630.60 550.00 393.22 964.68 375.00 363.00 289.00 583.00 value of value 2,120.00 2,143.05 Rs. Mn. Carrying collaterals collaterals - - - - 2019 76,772 72,754 16,441 452,537 268,629 360,569 186,293 451,063 Rs. ‘000 1,203,730 - - 6,105 2020 20,593 237,164 237,164 557,189 464,175 933,521 208,319 393,220 454,384 189,236 Rs. ‘000 1,900,389 Outstanding balance Outstanding 24 monthly installments 24 monthly installments a grace commencing after period of 6 months commencing 2019 from November 96 monthly installments commencing from April 2015 72 monthly installments commencing from July 2014 a after 96 monthly installments grace period of 24 months from 2016 September 120 monthly installments commencing from December 2015 108 monthly installments 12 months of commencing after grace period from March 2019 48 equal monthly installments commencing from March 2017 90 monthly installments after a after 90 monthly installments grace period of 40 months from December 2015 60 equal monthly installments commencing from April 2015 Repayment term Repayment 96 monthly installments 96 monthly installments commencing from April 2015 24 monthly installments 24 monthly installments a grace commencing after period of 6 months commencing 2019 from September Fixed rate Fixed plus AWPLR margin plus AWPLR margin plus AWPLR margin plus AWPLR margin plus AWPLR margin plus AWPLR margin AWPLR plus AWPLR margin plus AWPLR margin Interest rate Interest AWPLR plus AWPLR margin Fixed rate Fixed HNB Trust 4 HNB Trust 1 BOC Trust loan Term loan Term loan Term loan Term loan Term loan Term Term loan Term loan Term HNB Trust 1 HNB Trust Nature of facility Term loan Term HNB Trust 3 HNB Trust
Hatton National Hatton Bank PLC Sampath Bank PLC institution Lending Lending Commercial Bank of Ceylon PLC Company Asiri Hospital Holdings PLC
Softlogic Holdings PLC | Annual Report 2019/20 172 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Corporate guarantee from Asiri Hospital Holdings guarantee Corporate Rs. 148.40 Mn for PLC Primary concurrent mortgage bond for Rs. 125.00 Primary bond for concurrent mortgage hospital property at No. 181, Kirula Road, Mn over Asiri Hospital Holdings PLC by Narahenpita owned a) b) from Asiri Hospital Holdings PLC guarantee Corporate Rs. 1,200.00 Mn for the premises at Primary over concurrent mortgage by Colombo - 10 owned No. 114, Norris Canal Road, Central Hospitals Ltd from Asiri Hospital Holdings PLC guarantee Corporate Rs. 326.00 Mn for Securitisation of all future credit/ debit card of Central Hospitals Ltd receivables the Rs. 1,250.00 Mn over Primary for mortgage (Asiri Kandy Road, Peradeniya premises at No. 907, Asiri Hospital Holdings PLC by Hospital) owned Kandy AMEX receivables Assignment over of Asiri On 14 December 2018, the Board of Directors (Pvt) and Asiri Hospital Kandy Hospital Holdings PLC Asiri Hospital Kandy amalgamate to resolved have Ltd The said with Asiri Hospital Holdings PLC. (Pvt) Ltd from 26 July 2019 and amalgamation was effective Asiri to transferred were outstanding facility these two Hospital Holdings PLC. Security 66.10 273.40 280.96 326.00 675.18 value of value 1,250.00 Rs. Mn. 1,200.00 Carrying collaterals collaterals - - - 2019 49,860 22,057 255,958 391,842 162,992 775,600 630,600 Rs. ‘000 2,120,000 - - - 2020 37,150 37,150 28,951 191,746 280,960 126,631 675,177 Rs. ‘000 1,212,445 1,033,495 Outstanding balance Outstanding 72 monthly installments 72 monthly installments 12 months of commencing after grace period from March 2020 120 monthly installments commencing from December 2015 24 monthly installments commencing from May 2019 96 monthly installments 96 monthly installments commencing from December 2015 54 monthly installments 4 months of commencing after grace period from April 2019 Repayment term Repayment 96 equal monthly installments 96 equal monthly installments 24 months of commencing after grace period from July 2014 60 monthly installments 60 monthly installments 2016 commencing from October 96 monthly installments 96 monthly installments commencing from April 2015 AWPLR plus AWPLR margin plus AWPLR margin plus AWPLR margin AWPLR plus AWPLR margin plus AWPLR margin Interest rate Interest AWPLR plus AWPLR margin AWPLR plus AWPLR margin AWPLR plus AWPLR margin Term loan Term Loan Term loan Term loan Term Lease Loan Term loan Term Nature of facility Term Loan Term loan Term Term loan Term Term loan Term
DFCC Bank PLC DFCC Board of Investment Sampath Bank PLC Commercial Bank of Ceylon PLC institution Lending Lending Bank of Ceylon Commercial Bank of Ceylon PLC Nations Trust Nations Trust Bank PLC Commercial Bank of Ceylon PLC Company Central Hospitals Ltd Asiri Hospital (Pvt) Ltd Kandy Asiri Hospital Matara (Pvt) Ltd Asiri Surgical Asiri Surgical Hospital PLC
Softlogic Holdings PLC | Annual Report 2019/20 173 Corporate guarantee from Softlogic Holdings PLC from Softlogic Holdings PLC guarantee Corporate Rs. 350.00 Mn for from Softlogic Holdings PLC guarantee Corporate Rs. 250.00 Mn for Additional mortgage for Rs. 86.35 Mn over the Rs. 86.35 Mn over for Additional mortgage by Galle owned Road, premises at No. 10, Wackwella Asiri Hospital Galle (Pvt) Ltd Asset Backed Trust Certificates secured by a secured Certificates Trust Asset Backed Income the Merchant Fee primary over mortgage by a secured Certificates Trust Asset Backed Income the Merchant Fee primary over mortgage Primary mortgage for Rs. 158.00 Mn over the Rs. 158.00 Mn over Primary for mortgage by Galle owned Road, premises at No. 10, Wackwella Asiri Hospital Galle (Pvt) Ltd Additional mortgage for Rs. 200.00 Mn over the Rs. 200.00 Mn over for Additional mortgage by Galle owned Road, premises at No. 10, Wackwella Asiri Hospital Galle (Pvt) Ltd a) b) from Asiri Hospital Holdings PLC guarantee Corporate Rs. 150.00 Mn for the premises over and additional legal mortgage First Odel by owned Rajagiriya Road, at No. 475/32, Kotte (Pvt) Ltd Properties for from Softlogic Holdings PLC guarantee Corporate Rs. 100.00 Mn credit card receivables Primary over mortgage Road, premises at Kaduwela Primary over mortgage (Pvt) Ltd Odel Lanka by Thalangama owned a] b] a] b] Security 687.30 714.68 244.35 450.00 862.01 490.93 150.00 100.00 value of value 1,000.00 Rs. Mn. Carrying collaterals collaterals ------2019 97,524 97,524 27,774 27,774 34,870 200,000 451,257 124,970 211,451 Rs. ‘000 - - - - 2020 65,000 52,576 337,303 337,303 200,000 244,350 390,167 862,012 240,930 Rs. ‘000 1,000,000 Outstanding balance Outstanding 108 monthly installments 108 monthly installments 24 months commencing after of grace period from September 2019 48 monthly installments 12 months ofcommencing after grace period from December 2019 24 equal monthly installments a grace periodcommencing after of 6 months from August 2018 60 monthly installments a grace periodcommencing after 2019 of 6 months from October 48 monthly installments a grace commencing after period of 6 months from 2020 February 48 monthly installments a grace commencing after period of 6 months from 2020 February Repayment term Repayment 48 monthly installments commencing from June 2019 60 monthly installments a grace periodcommencing after of 6 months from August 2018 108 monthly installments 108 monthly installments 12 months of commencing after grace period from March 2019 AWPLR plus AWPLR margin plus AWPLR margin plus AWPLR margin AWPLR plus AWPLR margin plus AWPLR margin plus AWPLR margin Interest rate Interest plus AWPLR margin AWPLR plus AWPLR margin AWPLR plus AWPLR margin Term Loan Term Loan Term loan Term Term Loan Term loan Term loan Term loan Term loan Term Term loan Term loan Term Nature of facility loan Term Term loan Term Term Loan Term
Seylan Bank PLC Hatton National Hatton Bank PLC National Hatton Union Bank of Colombo PLC Bank of State India Indian Bank Commercial Bank of Ceylon PLC institution Bank PLC Lending Lending Bank of Ceylon Sampath Bank PLC Company Odel PLC Asiri Hospital Galle (Pvt) Ltd
Softlogic Holdings PLC | Annual Report 2019/20 174 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Primary concurrent mortgage for Rs. 5,400.00 Mn Primary for concurrent mortgage C W Kannangara the project premises at Dr. over Odel PLC by Colombo - 07 owned Mw., Corporate guarantee from Softlogic Holdings PLC from Softlogic Holdings PLC guarantee Corporate Rs. 5,400.00 Mn for Further and additional security over 100.0% of and additional security over Further ordinary One (Pvt) Ltd shares of Odel Properties Odel PLC by owned First and additional legal mortgage over premises at over and additional legal mortgage First Odel by 966 owned Panadura Mw., No. 29 A, Jayatilake PLC for from Softlogic Holdings PLC guarantee Corporate Rs. 220.00 Mn a) b) c) Security 230.00 220.00 value of value Rs. Mn. 11,543.11 Carrying collaterals collaterals 2019 228,610 213,890 Rs. ‘000 2,016,149 33,018,362 2020 213,791 142,320 Rs. ‘000 2,950,045 Outstanding balance Outstanding 39,117,184 39,117,184 36 equal monthly installments 36 equal monthly installments a grace commencing after period of 6 months from August 2018 84 monthly installments 84 monthly installments a grace commencing after period of 36 months from June 2018 Repayment term Repayment 60 monthly installments 60 monthly installments a grace commencing after period of 6 months from August 2018 AWPLR plus AWPLR margin AWPLR plus AWPLR margin Interest rate Interest AWPLR plus AWPLR margin Term loan Term Syndicated loan Syndicated Nature of facility Term loan Term
institution Bank PLC Sampath Bank PLC Bank of Ceylon Lending Lending Hatton National Hatton Bank of Ceylon Company Odel Properties Odel Properties One (Pvt) Ltd Softlogic Brands (Pvt) Ltd
Softlogic Holdings PLC | Annual Report 2019/20 We continue to hold the people’s needs foremost in our agenda of transformation and adaptability in the years6 ahead.
SUPPLEMENTARY INFORMATION Shareholder Information 176 Corporate Directory 178 Notice of Meeting 182 Form of Proxy 183 176 SUPPLEMENTARY INFORMATION SHAREHOLDER INFORMATION
GENERAL Stated Capital as at 31 March 2020 was Rs. 12,119,234,553.00.
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.
PUBLIC SHAREHOLDING »» Public Holding Percentage was13.02% as at 31 March 2020. »» The number of public shareholders as at 31 March 2020 was 10,713 »» Float adjusted market capitalisation as at 31 March 2020 was Rs.1,910Mn »» Minimum public holding percentage - The Company is not in compliance with this under Option 4 of the Listing Rule 7.13.1(a)
DISTRIBUTION OF SHAREHOLDING There were 10,729 registered shareholders as at 31March 2020
No of Shares held No of Shareholders % of Shareholders Total holding % of Total Holding 1 - 1,000 6997 65.22 4,183,939 0.35 1,001 - 10,000 3199 29.82 10,675,906 0.89 10,001 - 100,000 439 4.09 12,585,515 1.06 100,001 - 1,000,000 64 0.60 17,175,657 1.44 Over 1,000,000 30 0.27 1,147,922,192 96.26 10729 100.00 1,192,543,209 100.00
ANALYSIS REPORT OF SHAREHOLDERS AS AT 31 MARCH, 2020
Category No of Shareholders % of Shareholders Total Holdings % of Total Holding Individual 10534 98.18 481,459,525 40.37 Institutions 195 1.82 711,083,684 59.63 Total 10729 100.00 1,192,543,209 100.00
Resident 10685 99.59 811,860,891 68.08 Non-Resident 44 0.41 380,682,318 31.92 Total 10729 100.00 1,192,543,209 100.00
Softlogic Holdings PLC | Annual Report 2019/20 177
TWENTY MAJOR SHAREHOLDERS The 20 major shareholders as at 31 March 2020
Name Shares % 1 Mr. Asoka Kariyawasam Pathirage 486,244,633 40.774 2 Samena Ceylon Holdings Limited 247432455 20.748 3 Mr. Haresh Kumar Kaimal 80,439,792 6.745 4 Mr. Ranjan Janaka Perera 75,437,508 6.326 5 Mr. Govinda Waduge Don Hemantha Udaya Gunawardena 71,333,852 5.982 6 Pemberton Asian Opportunities Fund 57,040,000 4.783 7 Samena Special Situations Fund III L.P. 53,653,654 4.499 8 Samena Special Situations Fund II L.P. 15,000,000 1.258 9 Employees Provident Fund 7,230,500 0.606 10 J.B. Cocoshell (Pvt) Ltd 6,220,017 0.522 11 Mrs. Arunthathi Selliah 5,252,640 0.440 12 Mr. Samir Jimmy Fancy 4,960,000 0.416 13 Arunodhaya Industries (Private) Limited 4,757,864 0.399 14 Miss. Sivamalar Subramaniam 4,712,000 0.395 15 Mrs. Abiramipillai Kailasapillai 4,512,000 0.378 16 Dr. Karunamuni Manjula Prasanna Karunaratne 4,470,000 0.375 17 Mr. Kailasapillai Aravinthan 3,801,018 0.319 18 Arunodhaya Investments (Private) Limited 3,147,668 0.264 19 Arunodhaya (Private) Limited 3,000,000 0.252 20 Dr. Sivakumar Selliah 2,480,000 0.208
SHARE TRADING INFORMATION
Market price (LKR) 2019/2020 2018/19 Highest (Rs.) 17.00 25.80 Lowest (Rs.) 11.00 15.90 Closing (Rs.) 12.30 16.00 Turnover (Rs.) 554,676,238.50 994,409,695 Number of shares traded 35,530,251 46,917,043 No. of Trades (Rs.) 7,448 6,803
EQUITY INFORMATION
2019/2020 2018/19 Earnings per share (Rs.) (3.96) 0.25 Dividend per share (Rs.) 0.50 0.65 Net Asset Value per share (Rs.) 8 14.05
Softlogic Holdings PLC | Annual Report 2019/20 178 SUPPLEMENTARY INFORMATION CORPORATE DIRECTORY
Name of the Company Date of Registered office Registration
Softlogic Holdings PLC 25/02/1998 No. 14, De Fonseka Place, Colombo 05 1 Asiri A O I Cancer Centre (Private) Limited 17/03/2017 No. 21, Kirimandala Mawatha, Colombo 05 2 Asiri Central Hospitals Ltd 07/09/1992 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 Galle (Private) Limited 29/05/2007 No. 181, Kirula Road, 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 Softlogic Asset Management (Pvt) Ltd 24/05/2006 Level 16, One Galle Face Tower, Colombo 02 11 Central Hospital Ltd 14/09/2006 No. 114, Norris Canal Road, Colombo 10 12 Ceysand Resorts Ltd 06/03/1973 No. 14, De Fonseka Place, Colombo 05 13 Cotton Collection (Pvt) Ltd 29/04/1993 No. 475/32, Kotte Road, Rajagiriya 14 Dai-Nishi Securities (Pvt) Ltd 26/07/1993 No. 14, De Fonseka Place, Colombo 05 15 Digital Health (Private) Limited 14/08/2015 No. 475, Union Place, Colombo 02 16 Future Automobiles (Pvt) Ltd 06/12/2010 No. 14, De Fonseka Place, Colombo 05 17 Jendo Innovations (Pvt) Ltd 22/06/2015 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 04/07/2006 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 (Private) Limited 19/02/2018 No. 475/32, Kotte Road, Rajagiriya 26 Sabre Travel Network Lanka (Pvt) Ltd 21/01/1999 No. 14, De Fonseka Place, Colombo 05 27 Silk Route Foods (Private) Limited 10/10/2014 No. 14, De Fonseka Place, Colombo 05 28 SML Holdings (Private) Limited 27/04/2000 No. 371, New Nuge Road, Peliyagoda 29 Softlogic Australia (Pty) Ltd 05/01/2000, Unit 2, Building B, 18-24 Ricketts Road, Mount Waverley, Vic 3149 30 Softlogic Automobiles (Pvt) Ltd 02/04/2012 No. 14, De Fonseka Place, Colombo 05 31 Softlogic B P O Services (Private) Limited 13/12/2013 No. 14, De Fonseka Place, Colombo 05 32 Softlogic Brands (Pvt) Ltd 08/11/1993 No. 14, De Fonseka Place, Colombo 05 33 Softlogic Capital PLC 21/04/2005 Level 16, One Galle Face Tower, Colombo 02 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
Softlogic Holdings PLC | Annual Report 2019/20 179
Name of the Company Date of Registered office Registration
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 Healthcare Holdings Ltd 28/08/2018 No. 181, Kirula Road, Colombo 05 42 Softlogic Information Technologies (Pvt) Ltd 02/09/1992 No. 14, De Fonseka Place, Colombo 05 43 Softlogic International (Pvt) 09/01/1997 No. 14, De Fonseka Place, Colombo 05 44 Softlogic Life Insurance PLC 21/04/1999 Level 16, One Galle Face Tower, Colombo 02 45 Softlogic Mobile Distribution (Private) Limited 30/09/2014 No. 14, De Fonseka Place, Colombo 05 46 Softlogic Properties (Pvt) Ltd 04/01/2005 No. 14, De Fonseka Place, Colombo 05 47 Softlogic Restaurants (Private) Limited 05/08/2013 No. 14, De Fonseka Place, Colombo 05 48 Softlogic Retail (Private) Limited 06/09/1969 No. 14, De Fonseka Place, Colombo 05 49 Softlogic Retail Holdings (Private) Limited 09/03/2018 No. 14, De Fonseka Place, Colombo 05 50 Softlogic Retail One (Private) Limited 04/07/2014 No. 14, De Fonseka Place, Colombo 05 51 Softlogic Rewards (Private) Limited 05/11/2018 No. 14, De Fonseka Place, Colombo 05 52 Softlogic Solar (Pvt) Ltd 14/11/2002 No. 14, De Fonseka Place, Colombo 05 53 Softlogic Stockbrokers (Pvt) Ltd 26/11/2010 Level 16, One Galle Face Tower, Colombo 02 54 Softlogic Supermarkets (Pvt) Ltd 27/08/2014 No. 14, De Fonseka Place, Colombo 05 55 Suzuki Motors Lanka Limited 12/09/1985 No. 371, New Nuge Road, Peliyagoda 56 Asiri Myanmar Limited 04/11/2019 Pan Hlaing Street, Unit 1#, Level 8, Uniteam Marine Office Building, No 84, Pan Hlaing Street, Sanchaung Township, Yangon, Myanmar. 57 Asiri Diagnostic Services (Asia) Pte. Limited 05/10/2019 8 Temasek Boulevard No. 35 -03, Suntec Tower three, Singapore (038988)
Softlogic Holdings PLC | Annual Report 2019/20 180 NOTES
Softlogic Holdings PLC | Annual Report 2019/20 181
Softlogic Holdings PLC | Annual Report 2019/20 182 SUPPLEMENTARY INFORMATION NOTICE OF MEETING
NOTICE IS HEREBY GIVEN that the Annual General Meeting of Softlogic Holdings PLC will be held as a Hybrid Meeting at the Auditorium of Central Hospital Limited (4th Floor), No 114, Norris Canal Road, Colombo 10, on Tuesday, the 19th day of January, 2021 at 10.00 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, 2020 together with the Report of the Auditors thereon.
2. To re-elect Mr. R.J. Perera 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. Aaron Russell- Davison who retires by rotation in terms of Article 87 of the Articles of Association of the Company, as a Director
4. To re-elect Mr. Shirish Saraf who retires by rotation in terms of Article 87 of the Articles of Association of the Company, as a Director
5. To pass the ordinary resolution set out below to re-appoint Mr. G.L.H.Premaratne who is 72 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. 07 of 2007 shall not apply to Mr. G.L.H Premaratne who is 72 years of age and that he be and is hereby appointed as a Director of the Company in terms of Section 211 of the Companies Act No. 07 of 2007”.
6. To re-appoint the retiring Auditors, Messrs. Ernst & Young of the Company for the ensuring year and to authorise the Directors to determine their remuneration
7. To authorise the Directors to determine and make donations for the year ending 31 March, 2021 and up to the date of the next Annual General Meeting.
8. To discuss the matter pertaining to the securities of the Company being transferred to the Second Board of the Colombo Stock Exchange with effect from 9th November, 2020 and the remedial action intended to be adopted by the Company in this regard to ensure compliance with Rule 7.13 of the Listing Rules of the Company.
By order of the Board
SOFTLOGIC CORPORATE SERVICES (PVT) LTD
SECRETARIES 15 December 2020 Colombo
Note: A 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, not less than 48 hours before the time for holding the Meeting.
Softlogic Holdings PLC | Annual Report 2019/20 SUPPLEMENTARY INFORMATION 183 FORM OF PROXY
*I/We ……………………………………………………………………………...... ………………………………………………………… of …………………………………………………………………………………………………………………………………………………………...... ……. being * member/members of SOFTLOGIC HOLDINGS PLC, do hereby appoint ……………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………...... ……. (holder of N.I.C No. ……………………………………………) of …………………………………………………………………………………………………………………………………… …………………………………………………...... ……… or ( whom falling)
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. Rassool 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 Prof. A.S. Dharmasiri of Colombo whom failing Mr. A. Russell Davison of Colombo whom failing Mr. J.D.N. Kekulawala of Colombo whom failing Mr. S. Saraf of India whom failing 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 as a Hybrid meeting at the Auditorium of Central Hospital Limited (4th Floor), No 114, Norris Canal Road, Colombo 10, at 10.00 a.m. on the 19th January, 2021 and at any adjournment 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, 2020 together with the Report of the Auditors thereon. 2. To re-elect Mr. R.J. Perera who retires by rotation in terms of Article 87 of the Articles of Association, as a Director of the Company, as a Director 3. To re-elect Mr. Aaron Russell- Davison who retires by rotation in terms of Article 87 of the Articles of Association of the Company, as a Director 4. To re-elect Mr. Shirish Saraf who retires by rotation in terms of Article 87 of the Articles of Association, as a Director of the Company 5. To pass the ordinary resolution set out below to re-appoint Mr. G.L.H. Premaratne who is 72 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. 07 of 2007 shall not apply to Mr. G.L.H. Premaratne who is 72 years of age and that he be and is hereby appointed as a Director of the Company in terms of Section 211 of the Companies Act No. 07 of 2007. 6. To re-appoint Messrs. Ernst & Young, as Auditors and to authorise the Directors to determine their remuneration 7. To authorise the Directors to determine and make Donations 8. To discuss matter pertaining to the securities of the Company being transferred to the Second Board of the Colombo Stock Exchange with effect from 9th November, 2020 and the remedial action intended to be adopted by the Company in that regard to ensure compliance with Rule 7.13 of the Listing Rules of the Company.
…………………………………………………….. ………………………………………. Signature Date Note: * Please delete the inappropriate words Instructions as to completion are noted on the reverse hereof.
Softlogic Holdings PLC | Annual Report 2019/20 184 SUPPLEMENTARY INFORMATION FORM OF PROXY
Instruction as to completion
1. Kindly perfect the Form of Proxy after filling in legibly your full name, address and National Identity Card Number and signing in the space provided and filling in the date of signature.
2. 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. Shareholders who are unable to participate at the meeting are encouraged to duly complete the Form of Proxy clearly setting out their preference of vote under each matter set out therein and appoint a director of the company to act on their behalf.
4. 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.
5. In the case of a Corporate Member, the Form of Proxy must be executed in the manner prescribed by the Articles of Association/ Statute.
6. The completed Form of Proxy should be deposited at the Registered Office of the Company, No. 14, De Fonseka Place, Colombo 05, not less than forty-eight (48) hours before the time appointed for the holding of the meeting.
7. As mentioned in the Circular to Shareholders, the AGM will be held as a Hybrid meeting. Instructions given in the Circular to Shareholder must be followed to join the meeting physically or virtually.
Softlogic Holdings PLC | Annual Report 2019/20 CORPORATE INFORMATION
NAME OF COMPANY COMPANY REGISTRATION NO Contact Details Softlogic Holdings PLC PV 1536 PB/PQ 14, De Fonseka Place, Colombo 05 REGISTERED OFFICE OF THE COMPANY LEGAL FORM Sri Lanka 14, De Fonseka Place, Company was incorporated on 25th Tel : +94 11 5575 000 Colombo 05 February 1998 under the name of Softlogic Fax : +94 11 2508 291 Sri Lanka Holdings (Private) Limited and re-registered E-mail : [email protected] on 17th December 2007 under the Web : www.softlogic.lk Companies Act No. 7 of 2007. Changed to a Public Limited Liability Company on 10th December 2008. The shares of the Company were listed on the Colombo Stock Exchange on 20th June 2011 and the name of the Company was changed to Softlogic Holdings PLC on 25th August 2011.
DIRECTORS AUDIT COMMITTEE SECRETARIES AND REGISTRARS A K Pathirage J D N Kekulawala - Chairman Softlogic Corporate Services (Pvt) Ltd - Chairman/ Managing Director Dr. S Selliah 14, De Fonseka Place, G W D H U Gunawardena Prof A S Dharmasiri Colombo 05 R J Perera W M P L De Alwis, PC Sri Lanka H K Kaimal Tel : +94 11 5575 000 M P R Rasool HR AND REMUNERATION COMMITTEE Fax : +94 11 2508 291 Dr. S Selliah Prof. A S Dharmasiri - Chairman W M P L De Alwis, PC W M P L De Alwis, PC G L H Premaratne G L H Premaratne Prof. A S Dharmasiri A Russell-Davison RELATED PARTY TRANSACTIONS REVIEW COMMITTEE S Saraf Dr. S Selliah - Chairman J D N Kekulawala W M P L De Alwis, PC C K Gupta (Alternate Director) H K Kaimal
INVESTOR RELATIONS BANKERS AUDITORS Softlogic Holdings PLC Bank of Ceylon Ernst & Young 14, De Fonseka Place, Commercial Bank of Ceylon PLC Chartered Accountants Colombo 05 DFCC Bank PLC No. 201, De Saram Place Sri Lanka Hatton National Bank PLC Colombo 10 Tel : +94 11 5575 000 Ext: 5305 Nations Trust Bank PLC Sri Lanka Fax : +94 11 2595 441 Pan Asia Banking Corporation PLC People’s Bank LAWYERS CONTACT FOR MEDIA Sampath Bank PLC Nithya Partners, Softlogic Holdings PLC Seylan Bank PLC Attorneys-at- Law 14, De Fonseka Place, Union Bank of Colombo PLC No. 97 A, Galle Road Colombo 05 Colombo 03 Sri Lanka Sri Lanka Tel : +94 11 5575 000 Ext: 5305 Fax : +94 11 2595 441
Designed & produced by
Softwave Printing and Publishing (Pvt) Ltd Photography by Danush De Costa www.softlogic.lk
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]