Annual ReportAnnual 2018-19

SOFTLOGIC HOLDINGS PLC | ANNUAL REPORT 2018-19

SOFTLOGIC HOLDINGS STARTED AS A RELATIVELY SMALL SOFTWARE COMPANY EMPLOYING JUST 12 PEOPLE. TODAY, THE COMPANY POSTS A CONSOLIDATED TURNOVER OF RS. 75 BN AND REMAINS ONE OF SRI LANKA’S FASTEST GROWING CONGLOMERATES, BENCHMARKED FOR ITS STEADY GROWTH TRAJECTORY AND FAST APPRECIATING CORPORATE VALUE. WE BELIEVE WE OWE OUR SUCCESS TO OUR FEARLESS BUSINESS SPIRIT AND OUR WILLINGNESS TO TAKE A CALCULATED APPROACH IN OUR RELENTLESS QUEST FOR SUSTAINABLE STAKEHOLDER VALUE.

WE HAVE NEVER BEEN SATISFIED WITH THE STATUS QUO. INSTEAD, WE HAVE CONSTANTLY SOUGHT NEW AND INNOVATIVE WAYS TO GROW YOUR COMPANY, BECAUSE WE KNOW THAT BY CONSTANTLY STRIVING TO BE BIGGER AND BETTER, BY ENCOURAGING CURIOSITY AND FORWARD THINKING IN OUR PEOPLE, WE CAN DELIVER EXTRAORDINARY EXPERIENCES TO THE THOUSANDS OF CUSTOMERS WE SERVE.

IN PARTICULAR, THIS REPORT SALUTES OUR FRONTLINE STAFF; THE HUNDREDS OF MEN AND WOMEN WHO ACT AS BRAND AMBASSADORS FOR YOUR COMPANY EVERY DAY. THEIR PASSION, CREATIVITY AND HARD WORK MAKE EVERY CUSTOMER INTERACTION MEMORABLE IN A MYRIAD INDEFINABLE WAYS, ATTRACTING PEOPLE BACK TO OUR STORES TIME AFTER TIME.

THIS REPORT DESCRIBES ANOTHER EXCITING YEAR WHERE YOUR COMPANY RETURNED A REMARKABLE BALANCE SHEET, WON SEVERAL INDUSTRY AWARDS, OPENED NEW OUTLETS AND EXPANDED OUR FOOTPRINT NATIONWIDE WITH NEW PRODUCTS AND SERVICES. FURTHER INVESTMENTS INTO OUR CORE VERTICALS AND INTO THE GROUP ARE ALSO PLANNED AND THESE ARE DETAILED IN THE PAGES THAT FOLLOW.

THESE CONSISTENTLY EXCELLENT RESULTS ARE A CONFIRMATION THAT OUR VISION IS CLEAR AND OUR STRATEGY PRECISE. THE YEARS AHEAD WILL SEE YOUR COMPANY KEEP ON GOING BEYOND THE USUAL LIMITS, CONFIDENTLY MOVING FORWARD AND CRAFTING OUR FUTURE SUCCESS BY BEING INTREPID, ADVENTUROUS AND BOLD. CONTENTS

OVERVIEW Bold is COMMITTEE REPORTS About this Report 3 Brisk Annual Report of the Board of Directors on Financial highlights 4 the Affairs of the Company 102 Non-financial highlights 5 Board Audit Committee Report 105 About the Group 6 Board Related Party Transactions Review Our Businesses 8 Committee Report 106 Year at a Glance 12 HR & Remuneration Committee Report 107

Bold is LEADERSHIP Bold is FINANCIAL STATEMENTS & GOVERNANCE Balanced Bullish Statement of Directors’ Chairman’s Message 16 Responsibilities 110 Board of Directors 20 Independent Auditor’s Report 111 Sector Heads 26 Income Statement 116 Functional Heads 28 Statement of Comprehensive Income 117 Corporate Governance 32 Statement of Financial Position 118 Statement of Changes in Equity 120 Cash Flow Statement 122 Notes to The Financial Statements 124

Bold is OPERATING CONTEXT Bold is SUPPLEMENTARY Boundless & STRATEGY Brilliant INFORMATION Leveraging Group Synergies 38 Investor Information 224 Value Creation Model 39 Corporate Directory 226 How We Create Value 40 Notice of Meeting 230 Operating Environment 44 Form of Proxy 231 Risk Management 46

Bold is MANAGEMENT DISCUSSION & Best ANALYSIS BUSINESS LINE REVIEWS Retail 52 Healthcare Services 58 Information Technology 62 Financial Services 67 Leisure and Property 72 Automobile 76

CAPITAL MANAGEMENT REPORTS Financial Capital 80 Manufactured Capital 84 Human Capital 86 Social and Relationship Capital 91 Intellectual Capital 96 Natural Capital 98

2 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 ABOUT THIS REPORT

This Annual Report covers the operations of Softlogic Holdings PLC and its 57 subsidiaries and associate WHAT’S IN OUR REPORT companies for the period from 01 April 2018 to 31 March 2019. The content included in this Report has been prioritised and structured to provide a concise and balanced review of the Group’s financial, social and CHAIRMAN’S REVIEW environmental performance during the year. The Report is targeted primarily towards the Group’s shareholders and investors but includes information that is also relevant to the Group’s other stakeholders. In gradually (page 16) transitioning towards an Integrated Annual Report, we have structured the narrative and disclosed information pertaining to the six capital inputs as defined by the Integrated Reporting Framework. HOW WE CREATE VALUE (page 40) 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 OPERATING ENVIRONMENT Colombo Stock Exchange and the revised Code of Best Practice on Corporate Governance (2017) issued by (page 44) the Institute of Chartered Accountants of Sri Lanka.

OUR TOP RISKS AND HOW MATERIALITY THEY ARE MANAGED The content included in this Report has been selected through a basic process of materiality. Material matters (page 46) are defined as the issues which could potentially impact the Group’s ability to create value over the short, medium and long-term. The process for determining material issues is detailed on page 42 of this Report. HOW WE PERFORMED (page 52)

NAVIGATING OUR REPORT HOW WE USED OUR CAPITALS We have used the following icons across the Report to demonstrate connectivity between information; (page 80)

FINANCIAL CAPITAL MANUFACTURED CAPITAL HUMAN CAPITAL

SOCIAL AND RELATIONSHIP CAPITAL INTELLECTUAL CAPITAL NATURAL CAPITAL

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ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 3 FINANCIAL HIGHLIGHTS

For the year ended 31 March 2019 2018 2017 2016 2015 2014 2013 2012

Earnings Highlights Group Revenue Rs.Mn 75,143 66,019 58,882 54,600 39,564 29,246 25,351 21,819 Gross Profi t Rs.Mn 27,636 23,673 19,579 18,559 14,117 11,012 8,983 7,330 Earnings Before Interest, Tax, Rs.Mn 11,721 11,695 8,451 7,897 6,398 5,025 4,227 4,486 Depreciation & Amortisation Group Earnings Before Interest & Taxation Rs. Mn 8,859 9,052 6,391 6,082 4,959 3,918 3,208 3,608 Group Earnings Before Taxation Rs. Mn 1,743 3,092 1,581 2,836 2,266 1,258 453 1,601 Group Earnings After Taxation Rs. Mn 2,990 2,278 920 1,870 1,819 1,009 153 1,016 Total Comprehensive Income Net of Taxation Rs. Mn 3,127 2,827 1,793 2,859 2,160 1,237 2,077 856 Group Earnings Attributable to Equity Holders Rs. Mn 105 204 120 565 556 156 (371) 448 Group Comprehensive Income Rs. Mn 353 450 783 1,829 761 220 557 340 Attributable to Equity Holders Gross Profi t Margin % 37 36 33 34 36 38 35 34 Net Profi t Margin % 3.98 3.45 1.56 3.43 5.00 3.50 1.00 4.70 Earnings Per Share Rs. 0.09 0.25 0.15 0.73 0.72 0.20 (0.44) 0.6 Dividends Rs. Mn 596 503 387 194 - 120 234 101 Return on Capital Employed * % 9.76 11.02 9.42 9.81 8.37 8.73 8.76 10.58

Balance Sheet Highlights Total Assets Rs. Mn 130,821 118,823 100,915 93,152 87,324 65,863 53,836 44,688 Current Ratio No. of times 0.83 0.93 0.94 0.84 1.04 0.90 0.80 0.70 Asset Turnover No. of times 0.57 0.56 0.61 0.61 0.45 0.40 0.50 0.50 Total Interest Bearing Borrowings Rs. Mn 65,788 61,227 52,255 46,480 43,906 31,518 23,037 22,782 Shareholders' Funds Rs. Mn 14,423 11,591 8,547 8,159 7,336 6,802 7,288 7,202 Net Asset Value Per Share ** Rs. 12.30 14.05 11.04 10.54 9.47 8.7 9.4 9.2 Total Equity Rs. Mn 24,990 20,917 15,623 15,531 15,356 13,351 13,568 11,312 Debt : Equity *** No. of times 2.63 2.93 3.34 2.99 2.86 2.40 1.70 2.50 Debt : Total Assets No. of times 0.50 0.52 0.52 0.50 0.50 0.50 0.40 0.50 Operating Cash Flow Rs. Mn 1,555 (106) 2,331 3,432 426 1,775 1,777 157 Capital Expenditure Rs. Mn 5,743 4,524 6,311 5,252 4,438 3,604 2,271 1,138 Cash Earnings Per Share Rs. 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. 16.00 24.60 11.90 13.30 13.20 10.60 10.40 11.20 Shares in Issue Mn 1,193 962 779 779 779 779 779 779 Market Capitalisation as at 31 March Rs. Mn 19,081 23,659 9,270 10,205 10,283 8,257 8,102 8,725 52-Week Market Share Price High Rs. 25.80 26.20 15.50 18.00 20.40 12.70 13.30 28.00 52-Week Market Share Price Low Rs. 15.90 11.70 11.70 12.30 10.30 8.10 9.40 11.10 Price to Book Value No. of times 1.30 1.75 1.01 1.10 1.40 1.50 1.40 1.40 Enterprise Value Rs. Mn 81,672 78,733 58,730 53,677 52,263 38,014 29,816 30,593 Enterprise Value : EBITDA No. of times 6.97 6.73 7.19 6.60 8.20 7.60 7.10 6.80 Dividend Per Share Rs. 0.50 0.65 0.50 0.25 - 0.16 0.30 0.13 * Return on Capital Employed calculated as a percentage of EBIT to Total Capital Employed (Equity plus Interest Bearing Borrowings) ** Net Asset Value Per Share calculated based on weighted number of shares as at 31.03.2019 *** Debt to Equity calculated based on Total Equity Capital

4 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 NON-FINANCIAL HIGHLIGHTS

AT SOFTLOGIC HOLDINGS, OUR PERFORMANCE IS MULTI-PRONGED, MEASURED THROUGH KEY PERFORMANCE INDICATORS ACROSS DIVERSE SECTORS, SPANNING OUR PEOPLE AND RELATIONSHIPS, AND OUR TANGIBLE AND INTANGIBLE ASSETS. DURING THE YEAR WE CONTINUED TO FOCUS ON GROWING AND ENHANCING THESE INDICATORS, AS EVIDENCED BY THE RESULTS BELOW.

HUMAN CAPITAL

11,042 10 65 59 EMPLOYEES PAYMENTS TO EMPLOYEES TRAINING RETENTION RATE (No.) (Rs. Bn) INVESTMENT (%) (Rs. Mn)

SOCIAL AND RELATIONSHIP CAPITAL

138 1,850+ PRINCIPAL DISTRIBUTORS & RELATIONSHIPS OUTLETS

INTELLECTUAL CAPITAL MANUFACTURED CAPITAL

140+ 12 47 6 INTERNATIONAL AWARDS PROPERTY, PLANT AND CAPEX BRANDS EQUIPMENT (Rs. Bn) (Rs. Bn)

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 5 ABOUT THE GROUP

Softlogic Holdings PLC is a LEADING MARKET POSITIONS dynamic, future-fit Sri Lankan conglomerate commanding strong market positions across Sri Lanka’s leading private healthcare provider operating 6 hospitals under the Asiri Hospitals brand and its three core verticals of Retail, the market leader in the diagnostics market Healthcare and Financial Services. The Group’s value Fully fledged financial services provider with interests in insurance (through Softlogic Life-Sri Lanka’s 4th proposition is characterised largest life insurance provider), financing (Softlogic Finance), asset management and stockbrokers. by the relentless pursuit of innovation and service A dominant player in mobile handsets and accessories, computers, software and hardware solutions excellence. The Group also has a presence in the IT, Automobile, A leading retailer of consumer electronics and branded apparel including Departmental stores Odel and Leisure and Property Sectors Cotton Collection under non-core verticals. Mövenpick, a five-star city hotel in Colombo and Centara, a four-star resort in Bentota Softlogic is a consumer-focused business and the scope and depth of its operations gives it access to one of the country’s largest consumer bases. Value is delivered through a multi- brand, multi-channel approach OUR VISION which has enabled the Group to represent over 140 international To be the most preferred and trusted product and service brands while operating one provider, enhancing enterprise value. of Sri Lanka’s most extensive distribution networks. The Group provides employment to 11,042 individuals across the island. 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 the right We encourage unrestrained constructive thing. feedback.

TRUST & LOYALTY LEADERSHIP

We build honest and rewarding relationships. Our visionary and inspirational leadership 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.

6 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 OUR BUSINESS PORTFOLIO - TURNOVER

LEISURE & RETAIL PROPERTY 50% 4%

HEALTHCARE AUTOMOBILES SERVICES 18% 4%

FINANCIAL INFORMATION SERVICES TECHNOLOGY & OTHERS 18% 6% *Revenue Contribution

SOFTLOGIC IN NUMBERS 131 3 75 11,042 10 ASSETS PROFIT REVENUE EMPLOYEES ROCE (Rs. Bn) AFTER TAX (Rs. Bn) (%) (Rs. Bn)

OUR BRANDS AND RELATIONSHIPS

138 350+ 140+ 1,850+ INTERNATIONAL SUPPLIERS INTERNATIONAL CUSTOMER CONTACT PRINCIPALS AND BUSINESS BRANDS POINTS PARTNERS

ECONOMIC IMPACT

4 11 LENDING TO PAYMENTS TO MICRO AND EMPLOYEES SME (Rs. Bn) (Rs. Bn)

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 7 OUR BUSINESSES

SOFTLOGIC HOLDINGS PLC

CORE VERTICALS

RETAIL HEALTHCARE SERVICES FINANCIAL SERVICES

100% 51% 75%

SOFTLOGIC RETAIL HOLDINGS ASIRI HOSPITAL HOLDINGS PLC SOFTLOGIC CAPITAL PLC (PVT) LTD.

Softlogic Retail (Pvt) Ltd. Asiri Surgical Hospital PLC Softlogic Life Insurance PLC  Suzuki Motors Lanka Ltd.  Asiri AOI Cancer Centre (Pvt) Ltd. Softlogic Finance PLC  SML Holdings (Pvt) Ltd. Central Hospital Ltd. Softlogic Stockbrokers (Pvt) Ltd.  Dai-Nishi Securities (Pvt) Ltd. Asiri Central Hospitals Ltd. Softlogic Asset Management (Pvt) Ltd.

Odel PLC Asiri Diagnostics Services (Pvt) Ltd.  Softlogic Brands (Pvt) Ltd. Asiri Hospital Matara (Pvt) Ltd.  Odel Lanka (Pvt) Ltd. Asiri Hospital Kandy (Pvt) Ltd.  Odel Apparels (Pvt) Ltd. Digital Health (Pvt) Ltd.  BSL International (Pvt) Ltd. Asiri Laboratories (Pvt) Ltd  Greenfield Trading (Pvt) Ltd. Asiri Hospital Galle (Pvt) Ltd  Odel Properties (Pvt) Ltd.  Odel Information Technology 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.

8 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 NON-CORE VERTICALS

LEISURE & PROPERTY AUTOMOBILES INFORMATION TECHNOLOGY & OTHERS

100% 100% 100%

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 Softlogic Computers (Pvt) Ltd. (Pvt) Ltd. Softlogic Australia (Pty) Ltd. Sabre Travel Network Lanka (Pvt) Ltd. Softlogic Solar (Pvt) Ltd. Nextage (Pvt) Ltd. Softlogic Corporate Services (Pvt) Ltd. Softlogic BPO Services (Pvt) Ltd. Jendo Innovations (Pvt) Ltd. Softlogic Healthcare Holdings (Pvt) Ltd.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 9 A WORLD CLASS EXPERIENCE AT ONE GALLE FACE MALL

Softlogic paves the way for a world class retail and dining experience at Shangri La’s One Galle Face Mall, representing over 30 recognised brands in 25 stores, some of which make their way for the first time to Sri Lanka’s shores.

10 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 SQ 91,000 FT

25 STORES 30+ BRANDS

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 11 YEAR AT A GLANCE

AS A VIBRANT, DYNAMIC CONGLOMERATE, SOFTLOGIC HOLDINGS CONTINUES TO MAKE STRIDES IN EVERY INDUSTRY SECTOR WE OPERATE, SERVING OUR CUSTOMERS WITH PRIDE, AND BOLDLY VENTURING INTO NEW AREAS OF GROWTH.

JULY 2018 AUGUST 2018 SEPTEMBER 2018 Softlogic partnered with Samsung Softlogic Life made its presence felt Mövenpick Hotel Colombo launched to officially open its first branded among the Asian Insurance giants, after its first ever ‘Mövenpick Weddings‘, Experience Store in Sri Lanka. The making it to the top three insurance introducing a brand-new intimate 2,800-sq. ft. Samsung Experience companies at the 22nd Asia Insurance concept to the city. Working alongside Store revolutionizes customers’ Industry Awards 2018. Furthermore, the theme of ‘Intimate. Precious. brand experience under one roof Softlogic Life became the only Sri Lankan Extraordinary’, the event took place at with immersive ‘retail destinations’ company to be shortlisted as the Best the hotel premises with over 350 walk in or ‘zones’, providing a multi-sensorial Life Insurer of Asia at the 22nd Asia guests. brand experience and holistic lifestyle Insurance Industry Awards 2018. consultation.

Odel acquired iconic fashion brand The opening of the Swarovski store at Cotton Collection, in a move to diversify the Colombo City Centre brought its its product portfolio and expand its retail The Retail Awards were held at Eagles heritage and craftsmanship in crystal to footprint. Lakeside, recognizing staff across our Sri Lanka’s first international shopping outlets for their contribution, including mall and offering a one-of-a-kind retail showroom managers and supervisors. journey in the ‘Crystal Forest’ store 150 awards were distributed at the event. concept. Among the 3,000 stores worldwide, the signature architecture designed by famous designer Tokujin Yoshioka creates the ultimate shopping experience for our customers.

12 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 With the opening of the first International OCTOBER 2018 NOVEMBER 2018 Shopping Mall in the country, Odel 2 Starred Michelin Chef Michel Roth Asiri Hospital Galle - Acquisition of a 32 launched a brand-new outlet and the celebrates a 5-year relationship with bed private hospital in Galle. The facility first ever standalone Odel Sports store Delifrance Paris. Hailed as a ‘boundless is being refurbished to increase capacity at the Colombo City Centre, spanning a source of inspiration for Delifrance’ Chef and enhance patient convenience, while collective 18,915 sq ft. Roth was brought down to Sri Lanka by the diagnostic capability of the hospital is Delifrance and Softlogic Restaurants being enhanced with modern technology. (Pvt.) Ltd, with the intention of ‘sharing the French way of life’ among local customers.

Launch of the Asiri AOI Cancer Centre, making Asiri Health the only Mövenpick Hotel Colombo was awarded institution in the private sector to offer a the titles “Sri Lanka’s Leading Hotel 2018” comprehensive range of services from and the “Best Presidential Suite” at the diagnostics to treatment and palliative recent World Travel Awards 2018, which care in cancer care. acknowledge, reward and celebrate excellence across the global travel and The Softlogic Group made its maiden tourism industry. foray into the world of Asian flavours Sri Lanka’s first inspirational global and spice with its own restaurant brand, market “Softlogic GLOMARK”, was ‘Wangediya’, giving Sri Lankan foodies a launched on 16 November 2018 with literal cornucopia of gastronomic variety, its first outlet at Delkanda, marking the offering a carefully selected range of Group’s entry into the rapidly growing signature “street food” dishes from eight FMCG Modern Trade Retail industry. Asian countries.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 13 YEAR AT A GLANCE

NOVEMBER 2018 CONTD. FEBRUARY 2019 MARCH 2019 A new Burger King outlet was launched The Thalawathugoda Odel store was Softlogic Restaurants (Pvt) Ltd was on 30 November at Maharagama to revamped and expanded to cover a recognised as one of “Sri Lanka’s 25 cater to rising demand, spanning 2,000 space of 14,670 sq. ft, offering the Best Work Places”, winning the Bronze sq ft, including dine-in, delivery, Baskin patrons a wider range of international Award for “Medium Enterprise Category”. Robbins, and a children’s play area. fashion brands. The newly revamped Furthermore, Softlogic Restaurants was store boasted collections from also recognised at BK ASIAPAC, winning international watches, branded two prestigious awards - “Gold Crown sunglasses and Luxe handbags as well Operator of the Year Asia Pacific” (under as a parfumerie. 30 restaurants) for 2018 & the Green Jacket.

14 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 BOLD IS BALANCED

LEADERSHIP & GOVERNANCE

Chairman’s Message 16 Board of Directors 20 Sector Heads 26 Functional Heads 28 Corporate Governance 32

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 15 CHAIRMAN’S MESSAGE

WE CONTINUE TO HELP TRANSFORM THE COUNTRY’S SOCIO- ECONOMIC WITH OUR INVESTMENTS, MAKING SOFTLOGIC ONE OF THE MOST VISIBLE ENTITIES THROUGH ITS ISLAND-WIDE FOOTPRINT AND ITS RELEVANCE TO THE CURRENT NEEDS AND ASPIRATIONS OF THE MARKET. WE KNOW THAT BY CONSTANTLY STRIVING TO BE BIGGER AND BETTER, BY ENCOURAGING CURIOSITY AND FORWARD THINKING IN OUR PEOPLE, WE CAN DELIVER EXTRAORDINARY EXPERIENCES TO THE THOUSANDS OF CUSTOMERS WE SERVE.

16 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Dear Shareholder, DRIVING GROWTH Softlogic Holdings PLC recorded strong consolidated top line growth  Acquisition of Hemas of 14% in a year of moderating economic growth with positive Southern Hospital for contributions from all Sectors of the Group reflecting the grit and Rs. 450 Mn in Nov 2018 determination that is a hallmark of the Softlogic Group. We have restructured the Group to extend our presence along the value chain  Launch of GLOMARK as to drive Group synergies, leverage expertise and strengthen the we ventured in to modern customer value propositions in the Healthcare, Financial Services, IT, trade Retail, Leisure and Automobile Sectors. We continue to play the role  Launch of our own of a catalyst for technology transformation of the country through restaurant brand investments in the Health sector, IT sector and by providing access Wangediya to technology for millions of Sri Lankans through our electronic retail arm. The vibrancy of the Softlogic brand makes it one of the fastest  Acquisition of fashion growing in the country with high levels of visibility across the country’s brand Cotton Collection landscape and an island-wide presence facilitating access to our  Adding the global icon services. Swarovski to our portfolio of high end retail brands A STRONG VALUE PROPOSITION with the opening of the We restructured the Group during the year to strengthen our customer Crystal Forest Store at value propositions while investing to drive growth in Sectors with high Colombo City Centre 3.0 growth potential.  Restructuring IT Sector PAT (Rs. Bn) encompassing: The Retail Sector now includes our telecommunication operations in addition to the fashion brands, restaurants and electronics. We - End-user computing expanded the scope of the Sector with the launch of GLOMARK which - Data centres and marks our foray in to modern trade which has significant growth solutions potential with low rates of penetration. We also acquired the high profile - Advanced fashion brand Cotton Collection to our portfolio while expanding the infrastructure portfolio of global fashion brands with the launch of Swarovski’s Crystal - Security Forest Store at the Colombo City Centre. Retail expanded its footprint - Imaging & Printing with a number of stores at the same venue and elsewhere during the year, enhancing the number of customer touch-points. As guardians of - Managed services several international brands and our own, we invest significant effort  Expansion of Retail and resources to ensure that customers have the same experience in Sector footprint our stores that they would enjoy in more advanced countries, providing Sri Lankan consumers an unparalleled retail shopping experience.  Expansion of Suzuki Motors operations We also enhanced the value chain of the IT Sector as we leveraged our expertise to provide a full suite of services ranging from end- user computing, data centres and solutions, advanced infrastructure, security, imaging and printing and managed services. This provides a one stop shop for all IT needs of our corporate clients as they look for outsourcing the high end expertise to compete effectively in a digital era.

Acquisition of the Hemas Southern Hospital in Galle expanded the footprint of the Healthcare Services Sector enhancing accessibility to high standards of healthcare synonymous with the Asiri Group of Hospitals.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 17 CHAIRMAN’S MESSAGE

DELIVERING PERFORMANCE attributable to the performance of Softlogic PLANNED / ONGOING Softlogic Group recorded 14% revenue Insurance as gross written premiums grew INVESTMENTS growth in a challenging year despite declining by 30% outpacing industry growth of 13%. This supported Sector revenue growth disposable incomes. Tightening fiscal policy  The Odel Mall combined with political and policy uncertainty of 23% as we expanded our distribution  Mall Space @ Shangri La necessitated bold strategies to deliver the channels to enhance market penetration  results set out in this Report. in Life Insurance with the pioneering micro Mall space at Colombo City Centre insurance product with Dialog enabling daily  Asiri Hospital Kandy payment of premiums which is a first in the RETAIL  Quick Service Restaurant Expansion country. Softlogic Finance PLC also made a The Retail Sector recorded 6% top line positive contribution to the Sector despite  Consumer Electronics store growth despite declining disposable incomes declining fee and commission income and expansions contributing Rs. 37.7 Bn to Group revenue increased provision for credit losses. Softlogic  GLOMARK Supermarkets which amounts to 50% of the same as we Stockbrokers maintains its position as the strengthened the customer value proposition market leader although financial performance of this Sector. Comprising fashion brands, deteriorated in line with the market as electronics, restaurants and more recently the benchmark ASPI and S&P indices fell the year although Financial Statements have modern trade, this Sector has unparalleled sharply during the year. Operating margins been adjusted to reflect the changes in the bandwidth and is poised for growth as eager in the Financial Sector declined as expenses prior year as well. customers seek to enhance their lifestyles. increased due to expansion. PBT declined This key Sector contributed Rs. 3.2 Bn (38%) as prior year numbers included Rs. 798 Mn AUTOMOBILES to Group Operating Profit and Rs. 151 Mn (5%) arising from changes in contract liability to Group PAT in the reporting year reflecting The operating environment became more due to the transfer of one off surplus of the pressure on margins and increased finance challenging as rupee depreciation, requirement sale of the general insurance business in costs as growth was funded through debt. for cash margins and enhanced emission 2017/18 financial year. The increase in PBT standards for all motor vehicles exacerbated excluding the impact of this one-off gain issues for an intensely competitive market. A HEALTHCARE is 15%. PAT grew by 119% due to a sharp large order for Ford ambulances supported Healthcare recorded 12% revenue growth to increase in origination of deferred tax assets performance of the automobiles business. Rs. 13.5 Bn despite increasing price regulation of Rs. 2.4 Bn which resulted in an Income Tax Accordingly, the Sector recorded 147% growth in the healthcare. Sector revenues were Reversal of Rs. 2 Bn, supporting PAT growth in revenue to Rs. 3.1 Bn. It is noteworthy increased due to increased operational efforts of 42% to Rs. 3.2 Bn. The Financial Services that the Sector delivered a positive operating and to a lesser extent by the acquisition Sector maintains its position as the highest profit of Rs. 170 Mn compared to an operating of Hemas Southern Hospital in November contributor to Group cushioning losses in loss of Rs. 64 Mn in the previous year. 2018. The Asiri Hospitals Group continues Leisure, Automobiles and Others Sectors as Finance costs remain a concern due to the to be the leading private sector healthcare the Financial Sector PAT exceeds Group PAT. requirement for cash margins on letters of brand synonymous with high quality of credit, exchange losses. The requirement for healthcare supported by state of the art INFORMATION TECHNOLOGY cash margins was subsequently removed. facilities, equipment and treatments. The The Group’s Information Technology Sector Losses after tax were reduced significantly to Group accounts for a 15% of the private sector broadened its value proposition during the Rs. 35 Mn in the reporting year from Rs. 178 healthcare capacity. Intense competition in the year as explained above which has positioned Mn in the previous year. sector and price sensitivity exerted pressure this Sector for strong growth. The Sector on margins resulting in a decrease of 7% in delivered 11% top line growth to Rs. 4.0 Bn LEISURE & PROPERTY operating profit which amounted to Rs. 3.2 Bn although margins were under pressure during contributing 38% to Group Operating profits. Revenue of the Leisure & Property Sector this period of transition to a new business The Sector contributed Rs. 1.8 Bn to Group recorded strong revenue growth of 21% model. Operating profit declined during the Profit After Tax which is the second highest as both Centara and Mövenpick increased year due to falling GP margins. Increased contribution equivalent to 61% of the same. occupancy supported by positive guest finance costs resulted in PBT decreasing by reviews and increased tourist arrivals. Both 43% and PAT by 47% to Rs. 172 Mn and 135 properties have excellent reviews on travel FINANCIAL SERVICES Mn respectively. This was the first year of sites such as TripAdvisor giving impetus to Softlogic Capital PLC, the holding company operations for this Sector without the mobile enhanced occupancy. It is commendable that of the Financial Services Sector in the Group, telecommunication retail business which has the Sector has turned in an operating profit of delivered a strong performance largely been transferred to the Retail Sector during Rs. 66 Mn compared to a loss of Rs. 142 Mn

18 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 in the previous year in a relatively short space and have maintained high standards of environment for them to achieve their career of time after the launch of Mövenpick. Finance customer service with international standards goals as we recognise their achievements. costs remain a burden on the performance of providing unparalleled retail experiences for We continue to grow, creating new career this Sector which recorded a pre-tax loss of our customers. This extends to after sales paths for people of talent and ability who are Rs. 851 Mn after finance costs of Rs. 916 Mn support on where the Softlogic brand is willing to work hard and work smart. This has in the reporting year as losses on revaluation synonymous with superior after sales service. been our mantra for success and we look of foreign currency loans increased sharply Our vision is to maintain our position as Sri to refine this further to deliver sustainable with the depreciation of the rupee exceeding Lanka’s premier retail brand, taking customer value to our employees, balancing interests of the natural hedge from foreign currency experiences to the next level. We will drive stakeholders. earnings in this Sector. Losses after tax Group synergies using Artificial Intelligence decreased from Rs. 865 Mn to Rs. 857 Mn for and the Group’s information assets to provide APPRECIATIONS the year. customers an unrivalled retail experience with customised offers leveraging our unparalleled Our achievements are the result of visionary entrepreneurship tempered by caution which DELIVERING RESULTS bandwidth across the retail space. is due to the strategic guidance and counsel Revenue growth of 14% reflects the Group’s Softlogic Group has delivered aggressive extended by an experienced Board of Directors resilience and indomitable spirit as we growth over the year, financing our who are diligent in discharging their duties. recorded Rs. 75 Bn in revenue in a year of flat acquisitions and expansion with debt, I am deeply appreciative of their collective per capita income and moderating economic consistent with our bold outlook and strong wisdom in guiding the affairs of the Group. growth using a combination of acquisitions belief in our ability to deliver on our vision. I commend the leadership of the Corporate and business expansion. Operating profit Higher levels of debt relative to peers has been Management Team at Softlogic who continue margins remained flat with only a marginal part and parcel of our risk profile which has to inspire their teams to make the impossible increase due to elevated price sensitivity been proactively managed with forethought possible. I thank the Softlogic Team who stemming from a challenging operating and foresight as evinced by managed exits to delivered the performance set out in this environment and intense competition. realise cash flow in the recent past. We are Report. Our principals and franchise partners Encouragingly, volume growth supported evaluating several options for reducing debt who entrust us to be their brand ambassadors a 17% increase in Gross Profit to Rs. 28 Bn and are likely to deploy several strategies to in Sri Lanka are a vital part of our journey and I affirming the growth strategy of the Group. achieve a satisfactory outcome to improve the am grateful for their trust and confidence and A decrease in other income coupled with financial gearing of the Group. look forward to sharing our journey. The Board increases in Distribution and Administration joins me in thanking our shareholders for their expenses resulted in a relatively flat operating Our vision has expanded beyond our shores confidence in our ability to deliver sustained profit of Rs. 8.4 Bn. Finance expenses and we are likely to commence operations of growth and value as we set our sight further increased by 19% during the year as a result our successful Sectors in Asian and African afield to new markets. of increased borrowings and the impact of markets to replicate our success in Sri Lanka. the sharp depreciation of the rupee resulting There is significant scope for expanding in Profit before tax declining by 44% to Rs. 1.7 our internationally certified healthcare Bn. Profit after tax increased by 31% to Rs. 3 services in to neighbouring countries with Bn due to a sharp increase in origination of positive outcomes while African markets deferred tax assets of Rs. 2.4 Bn as described demonstrate potential for insurance products. above in the Financial Services Sector. Understandably we are excited by our next Ashok Pathirage growth phase as we seek to position the Chairman/Managing Director POISED FOR GROWTH Softlogic Group as a leading player in the region in selected Sectors. Assets growth of 10% was mainly due to 04 July 2019 increased investments in the Retail and Heath Colombo Care Sectors due to our strategic acquisitions THE SOFTLOGIC SPIRIT and expansion of our footprint. An indomitable spirit, professionalism and agility characterises the Softlogic team who Our Retail Sector represents a strong value continue to defy the odds to deliver results proposition to our customers, our principals that outpace industry growth. On a daily and the Softlogic Group as we become more basis, they uphold our customer promise relevant to the Sri Lankan consumer. We are in accordance with international standards zealous guardians of the brands we represent as we provide an enabling and empowering

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 19 BOARD OF DIRECTORS

1 2

34

5 6

1. ASHOK PATHIRAGE - Chairman/Managing Director 2. HEMANTHA GUNAWARDENA - Executive Director 3. HARESH KAIMAL - Executive Director 4. RANJAN PERERA - Executive Director 5. ROSHAN RASSOOL - Executive Director 6. DR. SIVA SELLIAH - Non-Executive Independent Director

20 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 7 8

9 10

11 12

7. PRASANTHA LAL DE ALWIS, PC - Non-Executive Independent Director 8. HARRIS PREMARATNE - Non-Executive Director 9. NIHAL KEKULAWELA - Non-Executive – Independent Director 10. AARON RUSSELL - DAVISON - Non-Executive Director 11. PROF. AJANTHA DHARMASIRI - Non Executive Independent Director 12. SHIRISH SARAF - Non-Executive Director

CHETAN GUPTA (Alternate to Mr. Shirish Saraf - not pictured) RICHARD EBELL - Non-Executive Independent Director (Resigned December 2018 - not pictured)

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 21 BOARD OF DIRECTORS

ASHOK PATHIRAGE MR. HARESH KAIMAL ROSHAN RASSOOL Chairman/Managing Director Executive Director Executive Director Mr. Ashok Pathirage, recognised as a Mr. Haresh Kaimal is a co-founder of Softlogic Mr. Roshan Rassool joined Softlogic in 1995 visionary leader of Sri Lanka’s corporate Group and a Director since its inception. and was appointed to the Board in 2009. He is world, is the founding member and Chairman/ With over 3 decades of experience in IT and the Director/CEO of the Computing Systems Managing Director of Softlogic Group, one Operations, he currently heads the IT division & Systems Integration Solutions Division of of Sri Lanka’s leading conglomerates. He of the Group. The Group has rolled out Oracle Softlogic Information Technologies (Pvt) Ltd., manages over 50 companies with a pragmatic EBS and Oracle Retail along with Industry which has business partnerships with Dell vision providing employment to more than specific front end solutions to best suit the Corporation, Apple Computers, Lenovo, CISCO, 11,000 employees. Mr. Pathirage gives organisation. EMC storage systems, Microsoft, HP imaging strategic direction to the Group which has products and VMware. He was appointed as a leading market presence in six core and He is an Executive Director of Softlogic BPO a member of Dell South Asia Partner Advisory non-core vertical Sectors - Retail, Healthcare Services ( Pvt) Ltd and a Director of Odel PLC, Council in 2011. He served as Chairman Services, Financial Services and IT, Leisure & Softlogic Finance PLC, Softlogic Life PLC and of Infotel Lanka in 2006/2007 and was Automobiles. The Asiri Hospital chain is the many other Group Companies. President of the Sri Lanka Computer Vendors country’s leading private healthcare provider Association at the same time. He was also which has achieved technological milestones RANJAN PERERA Chairman of the Federation of Information in medical innovation in Sri Lanka’s private Executive Director Technology Industries, Sri Lanka in 2007. healthcare. Softlogic Capital PLC, Softlogic He holds an MBA from the University of Mr. Ranjan Perera is a co-founder of Softlogic Life Insurance PLC, Softlogic Finance PLC, East London and is a doctoral student at the Holdings, and a Director since inception. He Asiri Hospital Holdings PLC, Asiri Surgical University of Kelaniya. He is also an Associate is the Sector Head of the Group’s Mobile Hospital PLC and Odel PLC where he serves Member of the Association of Business Phone Operations and the Managing Director as Chairman/Managing Director are listed on Executives and a Member of the Cyprus of Softlogic International (Pvt) Ltd. With the Colombo Stock Exchange. He is also the Institute of Marketing. He has over 30 years extensive knowledge gained from working Deputy Chairman of National Development of experience behind him in the ICT industry in senior managerial positions and having Bank PLC and the Chairman of NDB Capital having worked at senior managerial positions over two decades of experience in the field of Holdings Ltd. in reputed companies. telecommunication, he is skilled in his current capacity of working with world-renowned HEMANTHA GUNAWARDENA brands in the mobile industry. Mr. Perera also Executive Director heads the Softlogic Retail Service Operation Mr. Hemantha Gunawardena is one of the and the Retail Dealer Division. co-founders of the Softlogic Group and has served as a Director since inception. He has extensive experience in the field of IT, both front and back-end, and counts over 30 years in this field. He was a senior software manager at a leading Sri Lankan blue chip prior to joining Softlogic. He presently overlooks the software operations in Softlogic Australia (Pty) Ltd. and Automobile Sector, while serving as an Executive Director of Softlogic BPO Services (Pvt) Ltd.

22 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 DR. SIVA SELLIAH PRASANTHA LAL DE ALWIS, PC HARRIS PREMARATNE Non-Executive Independent Director Non-Executive Independent Director Non-Executive Director Dr. Sivakumar Selliah holds an MBBS degree Mr. Prasantha Lal De Alwis joined the Softlogic Mr. Harris Premaratne joined the Softlogic and a Masters Degree (M.Phil). He joined Board as a Non-Executive Director in 2011. Board in 2014. He has extensive banking the Board of Softlogic Holdings PLC in 2010. He obtained his LL.B (Bachelor of Law) and experience, having held several top positions He has over two decades of experience in LL.M (Masters in Law) from the University of and gained many accolades in the banking multiple fields. He is the Deputy Chairman Colombo and was enrolled as an Attorney- industry. He is an Associate of the Chartered of Asiri Hospital Holdings PLC, Asiri Surgical at-Law in 1983. He started his career as Institute of Bankers, London. Mr. Premaratne Hospital PLC, and Central Hospital Ltd. He is a State Counsel at the Attorney General’s is a Past President of the Sri Lanka Banks’ a Director of Odel PLC, HNB Assurance PLC, Department of Sri Lanka in 1983 and served Association. He currently serves on the Boards Lanka Walltiles PLC, Lanka Tiles PLC, ACL in that capacity until 1990. He subsequently of Asiri Hospital Holdings PLC, Asiri Surgical Cables PLC, Lanka Ceramics PLC, Swisstek joined the private bar and since then has Hospital PLC, Softlogic Capital PLC, Asiri (Ceylon) PLC and Swisstek Aluminium (Pvt) practised in both Appellate and Trial courts. Central Hospitals Ltd., and Central Hospital Ltd. He also serves as Chairman of JAT He was appointed a President’s Counsel in Ltd., and is Chairman of the Remuneration Holdings (Pvt) Ltd., Cleanco Lanka (Pvt) Ltd., 2012. He is a visiting lecturer at Law faculty, Committee and member of the Audit and Vydexa Lanka Power Corporation (Pvt) University of Colombo, Kothalawala Defence Committee of the above-mentioned hospitals. Ltd. Dr. Selliah serves on the Human Resource University (KDU) and APIIT Law School. He He was an Executive Director and the Deputy & Remuneration, Audit, Investment, Related is a member of the Board of Management Chairman of Softlogic Finance PLC for the Party Transactions and Strategic Planning of the Centre for Studies of Human Rights, period 2015-2018. Committees of some of the companies on Faculty Board of Law of University of Colombo whose Boards he serves. and Incorporated Council of Legal Education. Mr. De Alwis was a Director of Sampath Bank PLC from 2002 to 2011 and Chairman of its Human Resources, Remuneration and Risk Management Committees. He presently serves as a Director of Siyapatha Finance PLC, SC Securities (Pvt) Ltd., Coral Sands Hotel Ltd., and Alethea International School. Honorary Legal Advisor of CIM Sri Lanka and the Ayurveda Doctors (Gampaha Wickremarachchi) Association of Sri Lanka. He was a founder member of the Consumer Affairs Authority of Sri Lanka in 2002. He was appointed as Honorary Consul for Seychelles in Sri Lanka by the President of the Republic of Seychelles in October 2013. He is the Commander of St. John’s Ambulance Bridge.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 23 BOARD OF DIRECTORS

NIHAL KEKULAWELA AARON RUSSELL-DAVISON PROF. AJANTHA DHARMASIRI Non-Executive – Independent Director Non-Executive Director Non Executive Independent Director. Mr. Kekulawala counts over thirty years in the Mr. Aaron Russell-Davison joined the Board Prof. Ajantha Dharmasiri was appointed to the banking profession and was appointed as a of Softlogic in 2016. With over twenty years Board in 2016 as a Non Executive Independent Director in January 2019. He has held senior of banking experience, he was most recently Director. positions at Hatton National Bank PLC and the Global Head of Debt Capital Markets for played a strategic role in the diversification of Standard Chartered Bank, Singapore. Mr. Prof. Dharmasiri currently serves as HNB from Commercial Banking to Investment Russell-Davison has held a series of other the Chairman / Director of the Board Banking, venture capital, stock brokering and senior investment banking positions in Hong of Management of the Postgraduate life/ general insurance. Mr. Kekulawala served Kong, Singapore and London during his career. Institute of Management, University of Sri as the lead consultant and was responsible for He graduated from the University of Western Jayewardenepura. He is the Immediate setting up a Commercial Banking Operation Australia in 1991 with a Bachelor of Arts in Past President of the Chartered Institute of in the Solomon Islands. He functioned as the Asian History and Politics. Mr. Russell-Davison Personnel Management (CIPM), Sri Lanka inaugural CEO of the bank. He presently serves serves as an Executive Director and Deputy and was a Vice President of the Asia Pacific on the Board of several public companies. Chairman at Softlogic Finance PLC. He also a Federation of Human Resource Management Mr. Kekulawala is a Fellow of the Institute of Non Executive Independent Director at Amana (APFHRM). He also serves as an Adjunct Chartered Accountants England and Wales, Bank PLC. Professor at the Price College of Business, and Sri Lanka, Fellow of the Chartered Institute University of Oklahoma, USA. of Bankers, England and has an MBA from the University of Manchester. He holds a Ph.D. and an MBA from the Postgraduate Institute of Management and a B.Sc. in Electrical Engineering from the University of Moratuwa. He is a Chartered Electrical Engineer and a Fellow of the Chartered Institute of Management, UK.

He has three decades of both private and public sector experience including stints at Unilever and Nestle, and is a sought after conference speaker, corporate trainer, strategy consultant, acclaimed author and an accomplished academic.

24 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 SHIRISH SARAF CHETAN GUPTA RICHARD EBELL Non-Executive Director Alternate to Mr. Shirish Saraf Non-Executive Independent Director Mr. Shirish Saraf joined the Board of Softlogic Mr. Chetan Gupta is the Managing Director (resigned December 2018) in April 2018 as the nominee Director of of Samena Capital Investments Ltd in Dubai, Mr. Richard Ebell was appointed to the Board Samena Ceylon Holdings Ltd. He is the focusing on investments within the Special of Softlogic Holdings PLC in 2014. A Fellow Founder and Executive Vice Chairman of Situations Funds. of the Institute of Chartered Accountants Samena Capital. of Sri Lanka and the Chartered Institute of Mr. Gupta is a member of the Board of Management Accountants (CIMA), UK, he He has been a Director of various companies Directors of U-Gro Capital Ltd (India), Imperial also holds a Diploma in Marketing from the in different jurisdictions across Samena’s Hotels (Pvt) Ltd (India), RAK Logistics Chartered Institute of Marketing (CIM), UK. Mr. portfolio, including RAK Ceramics PSC, RAK (Singapore). Ebell serves on the Board of Cargills Bank Ltd, Logistics LLC, Dynamatic Technologies Ltd and from 01 January 2019, on the Board of and Tejas Networks Ltd. Mr. Saraf previously He is also a member of the Investment Asiri Hospital Holdings PLC. held Directorships in Aramex Holdings, Committee of the Special Situations Funds. Commercial Bank of Oman SADG, Abraaj Prior to joining Samena Capital, Mr. Gupta Capital, EFG Hermes and Amwal Capital was an equity research analyst at Tricolour (Qatar). India Funds and previously was a part of the General Atlantic Financial Management In September 2013, Asian Investor listed him Leadership Program. as one of Asia’s 25 most influential people in Private Equity. Mr. Gupta is a Chartered Financial Analyst (AIMR), Chartered Alternative Investment Mr. Saraf has obtained a Bachelor of Science Analyst and holds a Masters in Management degree in Economics from the London School (Finance) from the University of Mumbai. of Economics and Political Science.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 25 SECTOR HEADS

DR. MANJULA KARUNARATNE IFTIKAR AHAMED Healthcare Services Financial Services

NASSER MAJEED DR. UDAYA INDRARATHNA Retail Leisure

DR. STEPHAN ANTHONISZ Real Estate

26 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 DR. MANJULA KARUNARATNE NASSER MAJEED DR. STEPHAN ANTHONISZ Healthcare Services Retail Real Estate MBBS, M.Sc (Trinity, Dublin), Mr. Nasser Majeed joined Softlogic to serve Dr. Stephan Anthonisz has functioned as the Dip. MS Med (Eng) MSOrth Med. (UK) as the CEO of the Retail Sector in 2013. He CEO/Director of Softlogic Properties (Pvt) Ltd., counts over 35 years of multidisciplinary since 2012. He oversaw the construction of Dr. Karunaratne was appointed to the Board of business experience, starting his career at the Group’s leisure projects Centara Ceysands Asiri Hospital Holdings PLC and Asiri Surgical KPMG Ford Rhodes Thornton & Company in Resort & Spa and Mövenpick Hotel Colombo, Hospital PLC in 2006, and currently serves as 1981 and moving to Singer Industries (Ceylon) which are now successfully in operation. Most the Chief Executive Officer of the Asiri Group. Ltd., in 1984. He served the Singer Group recently, he managed the construction and He also serves on the Boards of Central in many areas including Cost Accounting, setting up of the Management Corporation Hospital Ltd., Asiri Central Hospitals Ltd., Asiri Product Management, Exports, Marketing and Condominium Plan 13241 of Softlogic’s first Hospital Matara (Pvt) Ltd., Asiri Hospital Galle, General Management. He was also Director/ Apartment project “The Everest”, where 60% of Asiri Diagnostic Services (Pvt) Ltd. and Asiri General Manager of PT Singer Indonesia Tbk., the units have been sold to date. Hospital Kandy (Pvt) Ltd., He previously held from 2005 to 2006 and thereafter served as the positions of Medical Director, Asiri Hospital Marketing Director of Singer Sri Lanka PLC He holds an MBA and a Doctorate in Business Holdings PLC (1996-2000) and was Chief from 2009 to 2013. He also served on the Administration from the Australian Institute Operating Officer, Asiri Hospitals Group during Boards of Regnis Appliances Ltd., and Singer of Business Administration, Adelaide. Dr. the period 2006-2014 . Sri Lanka PLC as an Alternate Director. He Anthonisz is a justice of the peace and the served as Chairman of the judging panel of author of the book ‘Marketing high rise luxury He possesses over 30 years of experience SLIM Brand Excellence in 2015 and 2016 and condos in a middle income country in Asia’. in the field of healthcare, and is responsible continues to serve on the Advisory panel for In the sporting arena he has represented Sri for the overall medical policy of the Group. SLIM Brand Excellence. Lanka at Cricket at national level. Under his guidance the Group has introduced over twenty new medical procedures and Dr. Anthonisz has held managerial positions technologies to Sri Lanka amongst which are DR. UDAYA INDRARATHNA with leading conglomerates covering diverse the country’s first Bone Marrow Transplant Leisure roles in Sri Lanka and overseas. He previously Unit, first Minimally Invasive cardiac surgery Dr. Udaya Indrarathna joined Softlogic held the position of Head of Value Added Tea service, first fully fledged Stroke Unit with Holdings PLC in 2018 as the Chief Executive Exports at Unilever Ceylon Ltd., before taking facilities for ‘clot retrieval’ and a high end Officer of the Leisure Sector. He has 25 years on the role of CEO, John Keells Group Property Interventional Radiology service In addition a of work experience in senior management Development. ‘live donor’ Liver Transplant service is currently positions across government and the being set up. private sector in the United Arab Emirates. Dr. Indrarathna held office as an Executive IFTIKAR AHAMED Director of Policy, Strategy and Tourism Affairs Financial Services for the Government of Dubai at its Department of Tourism & Commerce Marketing (DTCM) Mr. Iftikar Ahamed is the Managing Director of during the period 2002-2012. He also served Softlogic Capital PLC, which is the Financial as a Senior Advisor to the Chairman’s office Services holding company of the Group that in the Abu Dhabi Tourism & Culture Authority has interests in Insurance, Leasing & Finance (Government of Abu Dhabi) during 2012-2017. and Stockbroking. He is also the Managing Director of Softlogic Life Insurance PLC and an Dr. Indrarathna is a Fellow and Chartered Executive Director of Softlogic Stockbrokers Marketer of the Chartered Institute of (Pvt) Ltd. Mr. Ahamed counts over 30 years Marketing (CIM), UK. He holds a PhD in of experience in a wide range of métiers Applied Management & Decision Sciences. within the financial services industry. He has He acquired his MBA (Finance) from AMBA extensive banking experience both in Sri Lanka accredited University of Leicester, UK and and overseas, having held senior management an MA in Marketing from the University of positions as Deputy Chief Executive Officer at Birmingham City, UK. He is also a Certified Nations Trust Bank PLC and Senior Associate Operations Analyst from Cornell University, Director at Deutsche Bank AG. He holds an New York, USA. MBA from the University of Wales, UK.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 27 FUNCTIONAL HEADS

HIRAN PERERA DAMITH VITHARANAGE AASHIQ LAFIR

INDRESH FERNANDO DESIREE KARUNARATNE

28 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 NATASHA FONSEKA LINTON NELSON

CHINTHAKA RANASINGHE NILOO JAYATILAKE

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 29 FUNCTIONAL HEADS

HIRAN PERERA DAMITH VITHARANAGE DESIREE KARUNARATNE Director Group Treasury Group Head of Risk and Internal Audit Group Director – Marketing Mr. Hiran Perera joined Softlogic in 2013 to Mr. Damith Vitharanage joined Softlogic Ms. Desiree Karunaratne joined Softlogic in head its treasury function. Prior to this, he was to head the Group Risk and Internal Audit 2003 and serves as Group Director Marketing. Head of Wholesale Risk/ Acting Chief Risk Divisions in 2013. He is responsible for She is responsible for Group marketing Officer at HSBC, Sri Lanka and Maldives, and Internal Audit, Risk and Compliance activities activities and crafting the long term marketing counts over 28 years of banking experience of the Group. Damith counts over 19 years strategy of the Group. She has over 16 years at HSBC which also includes cross-border of senior managerial experience in Audit, of senior management experience across a exposure. Investigations, Financial Management, Human diverse range of businesses in Retail, Fashion, Resource Management and Administration, Information Technology, Travel and Media. She INDRESH PUVIMANASINGHE Information Security, Risk Management and holds an MBA from the University of Wales, FERNANDO General Management in both the state and UK. She serves on the Boards of Softlogic Chief Process Officer private sectors in Sri Lanka and the Middle Restaurants (Pvt) Ltd., Softlogic Destinations East. Prior to joining Softlogic Holdings PLC, Management (Pvt) Ltd., Silk Route Foods (Pvt) Ms. Indresh Fernando joined Softlogic in He worked as Deputy General Manager -Head Ltd., Nextage (Pvt) Ltd., Softlogic Rewards 2014 and was seconded to Softlogic Finance of Audit and Investigations at Seylan Bank Pvt Ltd., Softlogic Supermarkets Pvt Ltd. and PLC as Chief Operating Officer. In 2018, she PLC. He is a Management Graduate from Sabre Travel Network Lanka (Pvt) Ltd. was appointed as Chief Process Officer the University of Colombo (BBA), holds a of Softlogic Holdings PLC. She is a Fellow Postgraduate Diploma in HR, Post Graduate of the Chartered Institute of Management AASHIQ LAFIR Diploma in Integrated Waste & Energy Accountants (CIMA), UK. She counts for over Group Finance Director Management and possesses a Management 25 years of experience in the Accountancy Mr. Aashiq Lafir joined Softlogic in 2018, and MBA specialised in Transformational profession in diverse sectors such as Financial counts over 30 years of senior managerial Leadership. He has Associate Memberships Services, Hospitality, Transportation, Inbound experience in companies with diverse interests from the Institute of Chartered Accountants Travel and Telecommunications. as a Finance and Operations specialist. of Sri Lanka (CA Sri Lanka), the Chartered Institute of Management Accountants (CIMA), She served in the capacity of Sector Finance Mr. Lafir is a Fellow of the Institute of UK, and the Chartered Institute of Marketing Director at both Hemas Transportation and Chartered Accountants of Sri Lanka (CA (CIM), UK, and is a Certified Information Serendib Group prior to joining Softlogic. Sri Lanka) and the Chartered Institute of System Auditor (CISA), USA and a Certified Management Accountants (CIMA), UK and is Project Manager (PMP) USA. a Chartered Global Management Accountant (CGMA), US. He also holds a Masters Degree in Business Administration from the University of Sri Jayewardenepura. Mr. Lafir is also the Chairman of Skills International (Pvt) Ltd., and is the former Executive Director - Finance of United Motors Lanka PLC. He is the immediate past President of Sri Lanka-Malaysia Business Council.

30 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 NATASHA FONSEKA LINTON NELSON Group Director – Human Capital & Taxation Director – Logistics Ms. Natasha Fonseka joined the Group in Mr. Linton Nelson joined Softlogic in 2013 2010 and is presently the Group Director, as Director – Logistics and is responsible Human Capital & Taxation. She is responsible for Group Shipping & Logistics (including for Corporate Taxation and Human Capital Softlogic Main Distribution Centre, Odel’s activities of the Softlogic Group. She counts & Cotton Collection Distribution Centres) over 25 years of experience in senior and Group Security. He has over 37 years of managerial positions in Human Resources experience in the Department of Customs of Management, Taxation, Financial Advisory Sri Lanka, with 15 years of senior managerial Services and Finance in reputed international experience as Head of Intelligence and professional firms and the private sector. She Director Sea Cargo Clearance. He holds is an Associate of the Chartered Institute of a Bachelor’s Degree in Law and a Higher Management Accountants (CIMA), UK and a National Certificate in Business Studies. He Chartered Global Management Accountant has had special offshore trainings on Border (CGMA), US. Controls, Supply Chain Security and Logistics Management in the US, UK, Japan, Australia CHINTHAKA RANASINGHE and China. Head of Strategy and Business Development Mr. Chinthaka Ranasinghe joined Softlogic in NILOO JAYATILAKE 2014 as the Head of Strategy and Business Head of Investments Development. He has over 17 years of senior Ms. Niloo Jayatilake joined Softlogic in 2015 managerial experience in equity research to head the Group Investments Division. and investment banking in one of Sri Lanka’s Counting over 20 years of experience in the leading conglomerates. He is a Management Investments and Portfolio Management field, Graduate from the University of Colombo she is responsible for the Group’s investment (BBA) and a Passed Finalist of the Chartered portfolio. Prior to joining Softlogic Holdings Institute of Management Accountants (CIMA), PLC, she worked as Head of Portfolio UK. Management/Director of Guardian Fund Management Ltd., for 10 years, handling client funds and Ceylon Guardian promoters’ funds with assets under management of over Rs. 25 Bn. She is a Fellow of the Chartered Institute of Management Accountants (CIMA), UK and an Associate Member of the Institute of Chartered Secretaries and Administrators, UK.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 31 CORPORATE GOVERNANCE

CORPORATE GOVERNANCE UNDERPINS PERFORMANCE OF OUR DIVERSE PORTFOLIO OF BUSINESSES AS WE LOOK TO DELIVER VALUE TO OUR KEY STAKEHOLDERS, FACILITATING LONG TERM SUSTAINABILITY AND GROWTH. THE GROUP HAS 07 LISTED ENTITIES WHICH PUBLISH THEIR OWN ANNUAL REPORTS AND HAVE THEIR OWN GOVERNANCE FRAMEWORKS WHICH COMPLY WITH THE REQUIREMENTS OF THE COLOMBO STOCK EXCHANGE. OUR GOVERNANCE MECHANISMS COMPRISE ORGANIZATION STRUCTURES, POLICIES AND PROCESSES WITH CLEARLY DEFINED ROLES AND REPORTING MECHANISMS, FACILITATING DIRECTION AND CONTROL OF THE BUSINESSES BY THE BOARD.

THE GROUP GOVERNANCE STRUCTURE

COMPOSITION OF THE BOARD SOFTLOGIC HOLDINGS PLC

Executive Chairman Shareholders

Independent Directors Group Group Board of Directors Managing Director Support Functions

Non Independent, Non-Executive Audit Committee Directors Sector

HR & Remuneration Subsidiary Companies Committee Sector Executive Directors Heads Related Party Board of Management Directors CEO Team Transactions Alternate Director Review Committee

SKILLS OF THE BOARD ADMINISTRATION OF THE BOARD GOVERNANCE FRAMEWORK

External Governance systems  Companies Act No. 07 of  Stake holder engagement Entrepreneurship 2007 and management  Listing Rules of the  Strategic planning Colombo Stock Exchange  Risk management Accounting Medical  Code of Best Practice on  Regulatory compliance & Finance Administration of the Board is Corporate Governance  People management issued by the SEC and ICASL Skills done by Softlogic Corporate  Internal controls Services (Pvt) Ltd., a subsidiary of Internal  Internal and external audit Banking Marketing Softlogic Holdings PLC.  Articles of Association  Code of Business Conduct  Terms of References for Legal & HR Board sub-committees  Comprehensive framework of policies, systems and procedures

32 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 We have structured this Report in line with the Code of Best Practice The role of the Board is to provide A. DIRECTORS on Corporate Governance to provide an overview of governance of the entrepreneurial leadership of the Softlogic Group. Company within a framework A.1 The Board of prudent and effective A.2 Chairman and CEO controls facilitating effective A.3 Chairman’s Role CODE OF BEST PRACTICES ON CORPORATE GOVERNANCE risk management. They are A.4 Financial Acumen The Company Shareholders collectively responsible for the A.5 Board Balance following: A.6 Supply of Information A. Directors E. Institutional Investors A.7 Appointments to the B. Directors’ Remuneration F. Other Investors  Providing strategic direction and establishing performance Board C. Relations with Shareholders G. Sustainability Reporting objectives to monitor the A.8 Re-election D. Accountability & Audit achievement of strategic goals A.9 Appraisal of Board  Establishing an effective Performance management team The Board is reviewing the Code of Best Practice on Corporate A.10 Disclosure of Governance issued in December 2017 by the Institute of Chartered  Establishing appropriate information in respect Accountants. systems of corporate of Directors governance in the Group; A.11 Appraisal of Chief  Ensuring the adequacy and Executive Officer (CEO) A. DIRECTORS effectiveness of internal The Board of Directors is responsible for setting the strategic direction controls, Code of Business of the Group, safeguarding assets, managing risks and setting the Conduct and other policies to tone at the top. They have set in place governance frameworks to facilitate regulatory compliance facilitate achievement of strategic goals and compliance with regulatory and risk management. frameworks while balancing stakeholder interests. Composition of the Board is set out graphically on the previous page while profiles of the Directors are given on pages 22 to 25. Directors provide annual declarations of independence in accordance with the stipulations of the Listing Rules of the CSE and the guidelines of the Code of Best Practice. Board balance is facilitated with seven Non-Executive Directors who are reputed leaders in their fields of whom four are Independent. A sufficiency of financial acumen within the Board is assured with the presence of four Directors who are experienced accounting and finance professionals. The skills, experience and standing of the individual Board members ensures sufficient deliberation on matters set before the Board and exercise of independent judgement. Directors can also seek independent professional advice when deemed necessary, for which the expenses are borne by the Group.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 33 CORPORATE GOVERNANCE

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 meeting ensuring awareness of the activities of the sub-committee by the other Board members.

CODE OF CORPORATE GOVERNANCE Sub-Committee Composition Mandate

Audit Committee 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 Prof A S Dharmasiri policies and effectiveness of internal control over financial W M P L De Alwis, PC reporting

Remuneration Committee Prof A S Dharmasiri - Chairman Responsible for determining remuneration policy and the terms W M P L De Alwis, PC of engagement and remuneration of the Chairman, the Board of G L H Premaratne Directors and the Executive Committees.

Related Party Transactions Dr S Selliah - Chairman To assist the Board in reviewing all related party transactions Committee W M P L De Alwis, PC carried out by the Company and its listed companies in the H K Kaimal Group by early adopting of the Code of Best Practices on Related Party Transactions as issued by the Securities and Exchange Commission of Sri Lanka and CA Sri Lanka.

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 are 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 Committee HR & Related Party Remuneration Transactions Committee Review Committee A K Pathirage 3/3 Dr S Selliah 3/3 7/8 4/4 G L H Premaratne 3/3 1/1 G W D H U Gunawardena 3/3 H K Kaimal 3/3 3/4 M P R Rassool 2/3 Prof A S Dharmasiri 2/3 6/8 1/1 R A Ebell 1/1 6/6 1/1 R J Perera 2/3 W M P L De Alwis, PC 3/3 5/6 1/1 4/4 A Russell-Davison 2/3 S Saraf 0/3 J D N Kekulawala 2/2 2/2 C K Gupta (Alternate to S Saraf) 2/3

34 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 COMPANY SECRETARY Board Composition & Appointment Softlogic Corporate Services (Pvt) Ltd provide Company Secretarial services and are responsible for advising the Board on all corporate Business Expansion governance matters and assists the Chairman in planning the agenda Funding Structure of Group of the meetings. All Directors have access to the advice and services of the Company Secretary and their appointment and removal is Performance Management determined by the Board as a whole. Risk Management

Financial Reporting APPOINTMENT & RE-ELECTION Appointments to the Board are based on recommendations of the Chairman and other Directors who ensure that the Board has sufficient B. DIRECTORS’ REMUNERATION skills and experience for effective discharge of their responsibilities. The Articles of Association requires three Directors to retire at each B1. Remuneration Procedures Annual General Meeting (AGM) who may offer themselves for re- B2. The Level & Makeup of Remuneration election. Directors appointed during the year are required to seek re- B3. Disclosure of Remuneration election at the next AGM. The following Directors thus retire and offer themselves for re-election; B. DIRECTORS’ REMUNERATION  M P R Rassool The Remuneration Committee makes recommendations to the Board  W M P L De Alwis, PC on remuneration policy and remuneration of Chairman & Managing  Prof A S Dharmasiri Director, Executive Directors, Non-Executive Directors and Key Management Personnel in line with the business goals of the Company.  J D N Kekulawala Terms of Reference of this key sub-committee complies with the guidelines prescribed by the Code of Best Practice and other investor BOARD INDUCTION AND TRAINING guidelines. All Directors are given an induction pack on appointment to the Board, The Group’s Remuneration policy is designed to attract and retain talent which includes details on duties and responsibilities, the Company’s and comprises fixed income and a variable income which is linked to Articles of Association and Sub-Committee Terms of Reference. performance. Non-Executive Directors’ remuneration comprises only Directors receive regular briefings from Key Management Personnel a fixed fee and does not have any variable component. No Director is and external resources on developments in the operating environment able to determine his own remuneration as Directors’ Remuneration is a which includes regulatory changes and market dynamics. Non- matter reserved for the Board as a whole with due consideration given Executive Directors also have access to the Chairman/Managing to the recommendations of the Remuneration Committee of the Board. Director and the Company Secretary to present matters of concern or seek clarifications that may arise. The Report of Board Remuneration Committee on page 107 provides further information. The aggregate remuneration paid to the Directors is CHAIRMAN & CEO disclosed in the Notes to the Financial Statements on page 159 of this The roles of the Chairman and the Managing Director are combined in Report. one person due to the diversity of the Group’s business operations in line with a number of large diversified holding companies. C. RELATIONS WITH SHAREHOLDERS

C1. Constructive use of AGM and General Meetings INVESTMENT APPRAISAL C2. Communication with shareholders The Group’s diverse business portfolio is reviewed periodically to C3. Major and material transactions determine their relevance to the Groups long term business goals, risks and opportunities for growth. Consequently, investment and divestment decisions, acquisitions are key areas of focus for the Board C. SHAREHOLDER RELATIONS with proposals reviewed for commercial viability, strategic alignment, Shareholder relations are managed through a structured process with operational, funding and risk implications. Systematic processes multiple platforms facilitating shareholder engagement and timely are in place to ensure the involved of relevant persons when capital dissemination of information. The Annual General Meeting is the investment decisions are taken and numerous views are sought to key platform for engagement and notice of the AGM and all relevant ensure high quality decision making. documents are circulated among shareholders at least 15 working days prior to the AGM. The Chairmen of the Board Committees and External Auditors attend the Annual General Meetings to respond to queries that

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 35 CORPORATE GOVERNANCE

may be raised by the shareholders. In addition to the AGM, shareholder A discussion on the Company’s key risk exposures and mitigation engagement is also facilitated by the Group’s investor relations mechanisms are given in the Risk Management Report on page 46 of department which maintains a continuous dialogue with shareholders this Report. The Audit Committee annually reviews the effectiveness of through dissemination of announcements on material developments the Group’s risk and internal control systems. and quarterly performance. They are also a point of clarification for shareholders. A formalized whistle-blowing policy is in place enabling employees to raise concerns anonymously on unethical behaviour, breach of regulations and/or violations of the Group’s Code of Conduct. Such D. ACCOUNTABILITY & AUDIT complaints are investigated and addressed through a formalised D1. Financial Reporting procedure and brought to the notice of the Board, serving as an D2. Internal Control overriding control mechanism. D3. Audit Committee D4. Code of Conduct & Ethics The Board Related Party Transactions Review Committee has been D5. Corporate Governance Disclosures set up in compliance with guidelines stipulated by the CSE. Directors individually declare their relevant transactions with the Company and its subsidiaries on a quarterly basis. A formalised process is in place for identifying related party transactions and avoiding conflicts of interest. D. ACCOUNTABILITY AND AUDIT All Related Party Transactions as defined by the applicable accounting Board responsibilities include presenting a balanced assessment of the standards are disclosed on Note 48 of the Financial Statements on Group’s financial performance, position and prospects on a quarterly page 204 of this Report. and annual basis. This Annual Report has been prepared in discharge of this responsibility and includes the following declarations/ further E&F. SHAREHOLDERS information required by regulatory requirements and voluntary codes: All shareholders are encouraged to attend the Annual General Meeting  Audited Financial Statements – pages 116 to 222 of the Company and vote on the resolutions which form part of  Statement of Director’s Responsibilities - page 110 the agenda in accordance with matters reserved for shareholders.  Annual Report of the Board of Directors on the Affairs of the Extraordinary General Meetings are also called to inform shareholders Company – pages 102 to 104 on material developments that impact their interests and their consent  Management Discussion & Analysis – pages 51 to 100 is obtained for the same in accordance with the provisions of the Companies Act. The Audit Committee has oversight responsibility for monitoring and supervising financial processes to ensure integrity, accurate and timely financial reporting. It is also responsible for ensuring adequacy and E&F. SHAREHOLDERS effectiveness of the Internal Control and Risk Management processes and receives reports from Group Internal Audit and Group Risk Institutional Investors Management in this regard. The Audit Committee comprises 4 Non- E.1 Shareholder voting Executive Directors all of whom are Independent. The Chairman of the E.2 Evaluation of Governance Disclosures Audit Committee is a Finance professional with extensive experience Other investors in the relevant areas whose profile is given on page 24. The Terms of F.1 Investing Divesting Decision Reference of the Audit Committee complies with the recommendations F.2 Shareholder voting of the Code of Best Practice on Board Audit Committees issued by ICASL and guidelines stipulated by the SEC. G. SUSTAINABILITY REPORTING The Audit Committee is responsible for approving the terms of The Group continues its efforts to embed Sustainability in to its engagement of the external auditors including audit fees. The principal operations and report on how the Group manages risks stemming auditor has not provided any services which are stipulated as restricted from economic, environmental and social factors. The Group’s Annual by the SEC and the audit fees and non-audit fees paid by the Company Report is used as a platform to provide comprehensive sustainability to its auditors are separately disclosed on page 159 of the Notes to the communication to all stakeholders and this year we have enhanced Financial Statements. the scope and coverage of our sustainability reporting by adopting a The Board holds overall responsibility for determining the Group’s stakeholder value creation approach. Holistic sustainability reporting is risk appetite and implementing sound risk management and internal a journey and we continue to improve the reports each year in discharge control systems to ensure that risk exposures are maintained within of our obligations. defined parameters. The Group’s internal control systems are aimed at safeguarding shareholders investments and effectively managing risks that may impact the achievement of its strategic objectives.

36 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 BOLD IS BOUND LESS

OPERATING CONTEXT & STRATEGY

Leveraging Group Synergies 38 Value Creation Model 39 How We Create Value 40 Operating Environment 44 Risk Management 46

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 37 LEVERAGING GROUP SYNERGIES

THE GROUP’S COMPLEMENTARY BUSINESSES PARTICULARLY IN THE CONSUMER SECTOR AND ITS ORGANISATIONAL STRUCTURE WHICH FACILITATES THE SHARING OF COMMON FUNCTIONS HAS PAVED WAY FOR CONSIDERABLE SYNERGIES, BOTH IN REVENUE GENERATION AND COST MANAGEMENT.

CROSS-SELL OPPORTUNITIES Through its diverse operations the Group has access to a large base of customer related information. Pursuing cross sell opportunities through targeted promotions, loyalty schemes and combined housing of brands has enabled the Group to enhance its customer value proposition while driving customer acquisition, retention and reinforcing loyalty.

CENTRALISED FUNCTIONS SHARING PHYSICAL Support functions such as HR, Finance INFRASTRUCTURE and Treasury Management are centralised, Access to a vast distribution network across allowing for economies of scale, broader Sectors has allowed the Group to realise funding avenues at more favourable rates significant economies of scale which have and cost efficiencies. contributed to the success of new business initiatives.

PEOPLE PROPOSITION INTELLECTUAL CAPITAL The Group’s human capital is represented by a Our established track record and deep diverse and committed team of young talent. industry insights have enabled the Group The employee value proposition is strengthened to nurture a unique base of cross-sectoral through knowledge sharing, job rotation and intellectual knowledge. This expertise has inter-company transfers which contributes contributed towards the success of new towards enhancing the quality of our people. initiatives and ventures into new industries.

38 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 VALUE CREATION MODEL

CAPITAL INPUTS OUR VALUE CREATING ACTIVITIES OUTPUTS/OUTCOMES

CORE VERTICALS LEADING MARKET POSITIONS

SHAREHOLDERS Retail IT SUSTAINABLE GROWTH IN FINANCIAL CAPITAL (page 52) (page 62) EARNINGS Shareholders’ funds: Rs. 14.4 Bn Profit: Rs. 3 Bn (page 80) Healthcare Automobiles ROCE: 9.8% (page 58) (page 76) Dividends paid: Rs. 596 Mn (page 191) Financial Services Leisure & Property (page 67) (page 72) MANUFACTURED CAPITAL Property, plant and equipment: EMPLOYEES Rs. 50.8 Mn REWARDING AND CHALLENGING (page 84) WORK ENVIRONMENT Payments to employees: VALUE DRIVERS Rs. 10.2 Bn Investment in training: Rs. 65 Mn HUMAN CAPITAL Career and skill development Skills and attitudes of 11,042 employees (page 86)

CUSTOMERS Financial Managing Business Revenue: Rs. 75 Bn Management Partner Relationships SOCIAL AND RELATIONSHIP (page 116) CAPITAL Customer relationship: Business partner relationship: Relationships with our communities COMMUNITY (page 91) Strategic People Investment in CSR Planning Management

INTELLECTUAL CAPITAL GOVERNMENT Tacit knowledge Brands Innovation Tax contribution (page 96) IMPACTS Solid waste Effluents Carbon footprint NATURAL CAPITAL Raw material: Energy consumption (page 98) RISK MANAGEMENT (PAGE 46) AND CORPORATE GOVERNANCE (PAGE 32)

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 39 HOW WE CREATE VALUE

STAKEHOLDER ENGAGEMENT The Group has nurtured relationships with a universe of diverse stakeholders and we engage with them through numerous formal and informal mechanisms which ensure that stakeholder concerns are identified in a timely manner. We engage with stakeholders who potentially have the most significant impact on our value creation process and those who are affected most by our activities. The following table lists the key methods of engagement, as well as the concerns raised by our stakeholders during the year under review; our response to the identified concerns is addressed throughout this Report.

IMPORTANCE OF METHOD AND FREQUENCY OF KEY TOPICS ARISING FROM ENGAGEMENT ENGAGEMENT ENGAGEMENT

Providers of risk capital expect a  Quarterly publication of Financial Statements  Financial returns together with a comprehensive Chairman’s commensurate reward. Consequently, our  Stability of earnings investors expect long term value creation narrative.  Reputation & Governance through business growth, profitability and  Timely announcements of price sensitive stability which will provide returns in the information form of dividends and increased market  Annual Report capitalisation. Shareholders  Annual General Meetings  Meetings with investors and analysts upon request.

Employees are key to driving our  Structured engagements with Chairman and  Commensurate remuneration/ performance and growth. Their roles Management of each Sector rewards are multi-faceted varying from being the  Open door policy at Sector level  Recognition Group’s ambassadors at the front line to  One-on-one sessions  Career progression an increasingly strategic role at the centre. Corporate values and a strong performance  Town-hall meetings with the HR Department  Training & Development Employees culture link all the employees across the  Continuous professional development  Income stability Group, inspiring them to reach higher goals.  Human capital helpline  Retention

As a customer focused Group, their  Personalised service with island wide  Affordability customer touch-points for individuals experiences determine our success.  Availability We seek to attract, retain and grow our  Structured engagement with corporate  Ease of access customer base, both corporate and customers to ensure satisfaction  Product responsibility individuals, by increasing the value created  Customer surveys and market research

Customers for them through new services and product  Customer service offerings. Our engagements are tailored to  After sales services suit specific requirement.

Relationships with principals of global  A structured Relationship Management  Business growth function is in place for our key principals repute enhance our ability to create value.  Brand compliance Our Group has been founded on our ability facilitating deepening relationships and addressing of any concerns that may arise.  Trust to bring global brands to the local market, fuelling multiple growth effect. Principals/Business

40 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 IMPORTANCE OF METHOD AND FREQUENCY OF KEY TOPICS ARISING FROM ENGAGEMENT ENGAGEMENT ENGAGEMENT

Suppliers play a key role in driving our  Centralised purchasing functions for Sectors  Business growth drive a holistic engagement with suppliers businesses as materials used by Sectors  Timely settlements such as the Healthcare Sector must be whose relationship is annually reviewed. A high level of interaction is available on a  Feedback and support for of the best quality. We believe in mutually needs basis. improvement rewarding relationships with suppliers and

Suppliers choose those with the ability to provide a reliable service with high levels of accountability.

The Ministry of Health, Central Bank of  Relationships with regulators are generally  Compliance high level relationships at Corporate Sri Lanka, Consumer Affairs Authority,  Revenue Department of Inland Revenue, Sri Lanka Management and Board levels with engagements happening on a needs basis at  Support for government Customs and Central Environment Authority fairly frequent intervals. initiatives are key regulators who recommend legislation and implement existing legislation, shaping the respective areas of economic activity. Government & Regulatory Bodies & Regulatory Government

As retailers, we seek to have high levels of  Identifying community needs and supporting  Employment creation the same through a structured programme engagement with the community, in line  Support for socio economic with the culture and needs. growth  Uphold cultural values Communities

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 41 HOW WE CREATE VALUE

MATERIAL MATTERS Material topics are defined as those that could potentially have the most significant impact on the Group’s ability to create value. These topics are determined based on emerging risks and opportunities in the external environment, feedback received from stakeholder engagement and the Group’s strategic priorities. Material topics for 2018/19 are listed below;

Material Topic Significance of Impact Impact on our Stakeholders Low Medium High Low Medium High 1 Brand acquisition 2 Innovation 99 3 Managing principal relationships 99 4 Product responsibility 99 5 Product & service accessibility 99 6 Service quality 99 7 Geographical and capacity expansion 99 8 Talent management 99 9 Training and development 99 10 Fluctuations in exchange and interest rates 99 11 Competition 99 12 Government policy 99 13 Managing natural inputs (paper and energy) 99 14 Managing natural outputs (waste, effluents and 99 carbon footprint) 15 Investment and funding 99 16 Employee retention 99

1 2 3 4 5 6 7 8 9 10 11 12

High 13 15 16

13 14 Medium Impact on our Stakeholders Low

Low Medium High

Significance of Impact

42 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 OPPORTUNITIES AND RISKS The Group’s strategy has been centred on strengthening its position in key growth sectors of the economy. While these sectors present substantial upside potential, the changing economic landscape, intensifying competition and dynamic industry conditions also expose the Group to numerous risks. Key trends which could materially impact the Group, either in a positive or negative manner are presented below. Further details on these trends are presented in the Sector Reviews on pages 51 to 79 of this Report.

INFORMATION TECHNOLOGY

 Growing digitisation aspirations of the corporate sector  Delays in Government projects  Government impetus towards IT enabled services  Exchange rate fluctuations  Increasing demand for fin-tech services  Shortage of skilled labour  Increasing connectivity  Intense competition from regional markets

LEISURE AND PROPERTY

 Positive growth prospects in the long-term  Fall in tourist arrivals in the aftermath of the Easter attacks  Concerted industry efforts towards promoting Sri Lanka as a  Difficulties in staff attraction and retention destination  Competition from the informal sector

RETAIL

 Increasing disposable incomes  Exchange rate fluctuations  Expansion of the middle class  Insufficient availability of retail space in Colombo  Increasing customer sophistication and preference for aspirational  Rapidly changing customer preferences goods

AUTOMOBILES

 Modernisation of the country’s public transport system  Policy instability on import duties  Increasing disposable incomes  Exchange rate fluctuations  Expected long-term growth in the tourism sector  Loan to value restrictions

FINANCIAL SERVICES

 Increasing disposable incomes  Government’s monetary policy direction and fiscal consolidation  Government’s financial inclusion agenda efforts  Relatively low life insurance penetration in the country  Over indebtedness among vulnerable groups  High mobile penetration and connectivity  Intensifying competitive pressures

HEALTHCARE

 Increasing disposable incomes  Increasing competitive pressures  Propensity to seek convenience and comfort in obtaining health  Shortage of skilled labour services  Impact of exchange rate fluctuations  Increasing prevalence of non-communicable diseases

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 43 OPERATING ENVIRONMENT

GLOBAL ECONOMY GLOBAL ECONOMIC GROWTH Global economic growth slowed to 3.6% in 2018 reflecting a notable (% /%) 4.0 deceleration during the 2nd half of the year. Subdued conditions 5 reflected escalating trade tensions between USA and its key trading 3.5 3.0 4 partners, disruptions to the auto sector in Germany and weak investor 2.5 3 and consumer sentiments in the European region. USA grew by 2.9% 2.0 supported by robust consumption growth and a tight labour market, 1.5 2 which in turn supported the growth of advanced economies by 2.2%. 1.0 1 The Euro region lost momentum, expanding by just 1.8% during the year 0.5 0.0 while the Emerging market and developing economies grew by 4.5%, 0 2017 2018 2019F 2020F as growth in China slowed reflecting regulatory tightening and focus on Global growth driving a more sustainable growth agenda. Advanced economies USA Euro region SRI LANKAN ECONOMIC GROWTH Emerging markets and developing economies Sri Lanka’s economic growth also slowed to 3.2% in 2018 compared Source: IMF (World Economic Outlook) to 3.4% the previous year, due to rising commodity prices, cascading effects of global dynamics, subdued consumer sentiments and political SRI LANKA GDP GROWTH instability towards the latter part of the year. Agriculture Sector posted (% /%) recovery after several years of contraction to expand by 4.8% following 8 favourable weather conditions and a particularly strong Yala season. 6 Services Sector grew by 4.7% reflecting broad-based expansion of key 4 sub sectors including Financial Services and Telecommunications. A 2 weaker Construction Sector impacted the performance of the Industrial 0 sector which grew by a mere 0.9% during the year. -2 -4 CONSUMPTION EXPENDITURE -6 Agriculture Industrial Services Overall During the year Sri Lanka’s household consumption expenditure growth was subdued, growing marginally by 2.3% due to weak consumer 2016 2017 2018 confidence, higher interest rates for most part of the year and Source: CBSL depreciation of the exchange rate. Expenditure on clothing and footwear and health grew at a moderate pace, while expenditure on restaurants and hotels increased by a relatively healthy 10% during the year under INTEREST RATES review. Sri Lanka continues to be a consumption driven economy and over the longer-term household consumption expenditure will be driven The tight monetary policy stance adopted by the regulator in previous by a growing urban middle class, increasing customer sophistication years was relaxed somewhat during 2018 with the upper bounds and preference for premium goods and rising disposable incomes. being reduced in April 2018. Continued deficits of rupee liquidity in the domestic money market compelled the Central Bank to reduce the Statutory Reserve Ratio (SRR) applicable on all rupee deposits of EXCHANGE RATE commercial banks in November 2018, while increasing policy rates The Sri Lankan rupee recorded sharp depreciation against the US Dollar, to neutralise the impact on interest rates. Amid the tight liquidity falling by 18% in 2018 to end the year at Rs. 180.1 as at end-December conditions that prevailed during the year, lending rates of commercial 2018. The depreciation reflects the broad-based strengthening of banks remained high during most part of 2018 with AWPR and AWLR the US Dollar against regional currencies, resulting from several rate gradually increasing during the year. hikes in the USA. The Central Bank largely allowed demand and supply forces to determine the level and direction of the exchange rate of the rupee in the foreign exchange market, intervening only to prevent disorderly adjustments. Meanwhile, the Government’s efforts to curtail import expenditure, including the imposition of increased cash margin requirements resulted in the strengthening of the Rupee during the first quarter of 2019, to end at Rs. 174.9 on 31 March 2019.

44 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 OUTLOOK The Easter Sunday attacks in April 2019 have dampened prospects in the short-term, although a recovery is anticipated in the medium term as consumer spending and investor sentiments improve. Upcoming elections are likely to lead to some fiscal slippage during the 2nd half of the year, thereby inserting pressure on government finances. While the government projects growth to reach 5% by 2023, this would largely depend on the country’s political landscape, higher participation of the private sector and commitment to structural reforms.

EXCHANGE RATE (Rs. /USD) 185 180 175 170 165 160 155 150 145 140 135 Jul-18 Oct-18 Apr-18 Feb-19 Feb-18 Jan-19 Jan-18 Jun-18 Sep-18 Dec-18 Aug-18 Mar-19 Mar-18 Nov-18 May-18 Source: CBSL

AWPR (%) 13.0 12.5 12.0 11.5 11.0 10.5 10.0 Jul-18 Oct-18 Apr-18 Feb-19 Feb-18 Jan-19 Jan-18 Jun-18 Sep-18 Dec-18 Aug-18 Mar-19 Mar-18 Nov-18 May-18 Source: CBSL

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 45 RISK MANAGEMENT

AS A GROUP WITH DIVERSE INTERESTS ACROSS SEVERAL ECONOMIC SECTORS, THE GROUP IS EXPOSED TO A RANGE OF INTERNAL AND EXTERNAL RISK FACTORS. THE PROACTIVE AND ROBUST MANAGEMENT OF THESE RISKS IS VITAL IN DELIVERING SUSTAINABLE STAKEHOLDER VALUE. THE GROUP’S RISK MANAGEMENT FRAMEWORK IS DIRECTED TOWARDS ACHIEVING AN OPTIMUM BALANCE BETWEEN RISK AND RETURN DYNAMICS. THE GROUP’S RISK MANAGEMENT FRAMEWORK COMPRISES COMPREHENSIVE RISK POLICIES, CLEARLY DEFINED GOVERNANCE STRUCTURES AND AN ORGANISATION-WIDE RISK CULTURE WHICH EMBEDS RISK CONSIDERATIONS TO STRATEGIC AND BUSINESS DECISIONS.

RISK GOVERNANCE RISK MANAGEMENT FRAMEWORK The Board of Directors hold ultimate responsibility for managing risks The Group adopts the globally accepted Three Lines of Defence relating to the Group. The Board is assisted by the Audit Committee model for risk management which clearly defines responsibilities in in this regard, who have oversight responsibility for the same. As a the identification, measurement and monitoring of risks. The primary diversified Group, significant risks relating to the Group’s operations responsibility for identification of risks lies at the business unit level, arise from its subsidiaries and business verticals. Several entities within which is the first line of defence. Risk Management Committees act as the Group, mainly the regulated subsidiaries such as Softlogic Life and the second line of defence, independently assessing the material risks. Softlogic Finance PLC have stringent risk management frameworks in Meanwhile, the third line of defence includes the internal and external place including their own internal audit functions, risk and compliance audit functions. functions and dedicated Risk Management Committees. Multiple reporting lines are in place for escalating risks to the Group Audit Committee and Board of Softlogic Holdings PLC.

1st Line of Defence BUSINESS LEVEL Sector Management OPERATIONAL MANAGEMENT  Operational  Front Line

PROACTIVE MONITORING 2nd Line of Defence  Risk Management Functional Management RISK MANAGEMENT AND COMPLIANCE  Compliance  Information Security & Risk  Financial Control Internal Control Framework Internal Control OVERSIGHT Board Audit 3rd Line of Defence Committees and INTERNAL AUDIT & EXTERNAL AUDIT  Internal Audit Board of Directors  External Audit

46 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 RISK MANAGEMENT PROCESS The Group Risk Management Framework has been 1 designed on the principles of the International Committee of Sponsoring Organisations of the Treadway Commission Budgeting, planning and reporting (COSO) framework as described below; 2 1 BUDGETING, PLANNING AND REPORTING A range of tools including annual budgeting, monthly Risk assessment and mitigation operational and variance analysis reviews are adopted in the strategic planning process, along with ongoing review of 3 markets and competition. The budgeting process delivers a detailed Group budget . The budget is reviewed and approved by the Board. Stress testing is also conducted in certain Fraud risk management subsidiaries which are materially exposed to market variables, particularly in the Financial Services Sector. 4

2 RISK ASSESSMENT AND MITIGATION Crisis and business continuity management The process we adopt for assessing and mitigating key risks is presented alongside. Risks are categorised into Strategic 5 risks, Operational risks and Tactical risks and assigned to specific risk owners who are responsible for developing Transfer of risks operational plans.

3 FRAUD RISK MANAGEMENT A comprehensive anti-fraud framework is in place to prevent, detect, deter, report and respond to fraudulent activities. This is overseen by respective Heads of Internal Audit, Risk and Compliance who are in turn governed by respective Board Audit Committees. Whistle-blowing arrangements allow staff 1 Map and anticipate main identifiable risks periodically to report any suspicion of fraud or irregularities induction, as well as regular staff training, highlights anti-fraud and anti- 2 bribery measures, and the importance of ethical behaviour. Prioritise them based on severity and probability

4 CRISIS AND BUSINESS CONTINUITY 3 MANAGEMENT Develop risk appetite and assign risk ownership The Group’s crisis management processes include escalation and communication and assignment of roles and 4 Communicate key risks to business level responsibilities.

5 5 TRANSFER OF RISKS Develop and implement policies and mitigative action plans Our insurance programmes cover property damage, business interruption, public, product and professional liability, and 6 employee health & safety. These aim to protect the Group Provide training, guidance and support against large or numerous claims, so any cost arising does not impair Group competitiveness.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 47 RISK MANAGEMENT

PRINCIPALS RISKS OF 2018/19

NET RISK ASSESSMENT RISK EXPOSURE RISK MITIGANTS 2018-19 2017-18

CONSUMER SPENDING  Diverse business profile with exposure to numerous High Moderate As a consumer-focused organisation, a segments Based on the weakening of consumer spending and  Strong market position in relatively defensive moderation curtailment of discretionary spending have industries such as healthcare in disposable incomes and a direct impact on the Group’s growth and  Ongoing monitoring of macro-economic trends slowdown profitability. in private consumption expenditure.

EXCHANGE RATE RISK  Close monitoring of foreign currency exposures High The Group is exposed to exchange rate risk  Risk limiting thresholds in place for exposures The sharp through Retail, IT and Automobile Sectors  Hedging through forward contracts by Group depreciation Treasury to limit exposures within specified of the Sri which rely on imports. Lankan Rupee thresholds during the year resulted in an escalation of our import costs.

GOVERNMENT POLICY  Proactive monitoring of market trends and policy Moderate Moderate All our verticals are directed impacted by implications the Government’s monetary and fiscal  Active participation in industry associations, policy measures as well as regulations, facilitating industry-wide responses to current issues. particularly in the Financial Services and Healthcare Sectors.

CUSTOMER EXPERIENCE AND  High levels of customer engagement facilitated Moderate Moderate SATISFACTION through numerous platforms Satisfying and retaining customers is key  Regular review of product portfolios and product to business growth, particularly given the launches to introduce new products to the market increasing competitive intensity in the  High levels of product responsibility maintained operating landscape throughout the entire Group  Monitoring customer rankings

INTEREST RATE RISK  A Centralised Treasury function monitors and High Moderate The Group is exposed to interest rate risk manages market conditions and the potential impact The prevalent due to its exposure to borrowings as well as of interest rate changes high interest  Cap and floor agreements, fixed and floating rates rates impacted repricing of the Financial Sector’s advances the Group’s and asset/liability maturity analyses are used to and deposit portfolios. profitability assess and mitigate risks due to the escalation in finance cost.

CREDIT RISK  Customer credit due diligence Moderate Moderate Credit risk exposure stems primarily from  Increased focus on secured lending products the Financial Services Sector engages in  Diversified credit portfolio (concentration and tail the provision of leasing, working capital and risks) other loans.  Credit approval is reviewed by respective authority levels depending on the value involved  Internal client ratings

48 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 NET RISK ASSESSMENT RISK EXPOSURE RISK MITIGANTS 2018-19 2017-18

PEOPLE RELATED RISKS  Strong employee engagement mechanisms Low Low Our people drive the Group’s strategic  Attractive remuneration schemes aspirations and facilitate the customer  Opportunities for training and skill development experience and are therefore a vital in the  Culture of mentoring creation of sustainable value.

TECHNOLOGICAL OBSOLESCENCE  Strong partnerships facilitate introduction of new Moderate Moderate As a Group with significant interests in technology to the market technology, the rapid obsolescence of  Proactive monitoring of consumer preferences and technology has an impact on the Group’s emerging technological trends inventory management and earnings.  A tech savvy culture within the Group ensures that we embrace technology as a competitive edge for business growth

RELATIONSHIPS WITH PRINCIPALS  High levels of engagement with principals at senior Low Low Our relationships with globally reputed levels principals is a key source of competitive  Compliance with varying franchise requirements of edge. principals for storage, marketing and distribution of their products and other administrative aspects  Consistent delivery of value to principals

PRODUCT RESPONSIBILITY  Compliance with regulatory and certification Low Low Offering high quality products which meet requirements the emerging requirements of customers is  Dedicated after-sales function for consumer durables vital in sustaining our competitive edge and and ICT maintaining our brand reputation.  Dedicated customer service functions at all retail outlets  Monitoring of customer complaints  Quality control processes  Regularly calling customers

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 49 50 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 BOLD IS BES MANAGEMENT DISCUSSION & ANALYSIS

BUSINESS LINE REVIEWS Retail 52 Healthcare Services 58 Information Technology 62 Financial Services 67 Leisure and Property 72 Automobile 76

CAPITAL MANAGEMENT REPORTS Financial Capital 80 Manufactured Capital 84 Human Capital 86 Social and Relationship Capital 91 Intellectual Capital 96 Natural Capital 98

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 51 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS RETAIL

AS A CONSUMER-FOCUSED GROUP, THE RETAIL SECTOR IS VITAL TO SOFTLOGIC’S GROWTH ASPIRATIONS. THE SECTOR’S SCOPE HAS EXPANDED TO INCLUDE DIVERSE INTERESTS AND INDUSTRY-LEADING BRANDS ACROSS TELECOMMUNICATION, CONSUMER ELECTRONICS, BRANDED APPARELS, QUICK SERVICE RESTAURANTS (QSR) AND MODERN TRADE.

52 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 OPERATING ENVIRONMENT STRATEGY AND PERFORMANCE OUTLOOK  Moderating economic conditions and slowdown in  Network expansion  Positive long-term outlook consumption spending  Sharpening brand focus given rising disposable  Prevalent high interest rate scenario  Leveraging on distribution incomes, increasing customer  Sharp depreciation of Sri Lankan Rupee against the USD capabilities to drive penetration sophistication and a growing  Positive long-term outlook supported by increasing  Sector revenue growth 6% middle class. disposable incomes, customer sophistication and changing lifestyles

SECTOR SNAPSHOT SOFTLOGIC HOLDINGS PLC In Telecommunications, the sector is Sri Lanka’s leading mobile phone SOFTLOGIC RETAIL HOLDINGS (PVT) LTD distributor, holding distributor SOFTLOGIC RETAIL (PVT) LTD rights for world-leading brands Retailer of consumer durables and furniture such as Samsung, Nokia. The SUZUKI MOTORS LANKA LTD sector is also a leading retailer Authorised Dealer for Suzuki motorcycles of consumer electronics and SML HOLDINGS (PVT) LTD durables in Sri Lanka, representing Non-operational subsidiary an array of leading global brands such as Panasonic, Samsung, DAI-NISHI SECURITIES (PVT) LTD Non-operating subsidiary Dell and Apple. Branded apparels and fashion retail comprise of SOFTLOGIC MOBILE DISTRIBUTION (PVT) LTD National Distributor for Samsung handsets Odel, Cotton Collection and the representation of over 105 leading SOFTLOGIC COMMUNICATIONS (PVT) LTD international fashion brands. In National Distributor for Nokia handsets Quick Service Restaurants (QSR) the Group owns the franchise SOFTLOGIC COMMUNICATION SERVICES (PVT) LTD Service arm for the Mobile Sector rights of Burger King, Baskin Robbins ice cream and Deli France. SOFTLOGIC INTERNATIONAL (PVT) LTD Business partner of Dialog Axiata PLC During the year, the Sector widened the scope of its operations ODEL PLC Chain of retail department stores through venturing into the modern trade industry with the launch of SOFTLOGIC BRANDS (PVT) LTD GLOMARK supermarkets. The Branded Apparel stores Group is also the authorised dealer ODEL PROPERTIES ONE (PVT) LTD for Suzuki motorcycles in Sri Developer of Odel Mall Lanka. OTHER ODEL SUBSIDIARIES Manufacturing products and providing support services to Odel Group COTTON COLLECTION (PVT) LTD Apparel stores

SOFTLOGIC RESTAURANTS (PVT) LTD QSR chain operating BURGER KING® restaurants, the ice cream business - Baskin-Robbins, the French bakery food franchise - Delifrance & the Group’s own branded Asian restaurant - Wangediya

SILK ROUTE FOODS (PVT) LTD Operates the BURGER KING® outlet at the Bandaranaike International Airport SOFTLOGIC SUPERMARKETS (PVT) LTD Operator of Softlogic’s supermarket chain

SOFTLOGIC REWARDS (PVT) LTD Management of Group reward points system

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 53 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS

RETAIL

RETAIL SECTOR- PERFORMANCE CUSTOMER CONTACT POINTS (Rs.Mn /Rs.Mn) 38,000 37,000 37,500 36,000 37,000 35,000 36,500 34,000 189 20 33 36,000 SOFTLOGIC SOFTLOGIC BRANDED 33,000 SHOWROOMS MAX APPAREL 35,500 32,000 35,000 31,000 34,500 30,000 34,000 29,000 2018 2019 Revenue Assets 27 20 07 ODEL BURGER KING BASKING STORES RESTAURANTS ROBBINS HUMAN CAPITAL (No. Employees) 4,000 3,500 3,000 2,500 04 02 01 2,000 COTTON DELIFRANCE GLOMARK 1,500 COLLECTION SUPERMARKET 1,000 500 0 20172018 2019 Headcount 01 WANGEDIYA OPERATING ENVIRONMENT The year under review was a challenging one for the country’s consumer sector, which was impacted by higher interest rates, sharp depreciation of the Sri Lankan Rupee, moderating economic conditions and weak consumer sentiments. Accordingly, the growth in household consumption expenditure slowed to 2.3% during the year, with expenditure on furnishing and household equipment remaining flat. The longer-term outlook, however, remains promising as economic growth stabilises, and disposable incomes rise particularly given that Sri Lanka continues to be a consumption-driven economy. There is also an increasing prevalence for premium products and increased customer sophistication.

54 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 KEY PERFORMANCE INDICATORS PRIVATE CONSUMPTION EXPENDITURE (Rs. Mn/Rs. Mn) Rs. Mn 2018-19 2017-18 % YoY 12,000 500 10,000 Revenue 37,723 35,437 6 400 Operating Profit 3,220 3,096 4 8,000 Pre-tax profit 215 946 (77) 6,000 300 Profit after tax 151 766 (80) 4,000 200 Assets 36,054 31,419 15 2,000 Liabilities 31,309 25,900 21 0 100 CAPEX 2,063 1,363 51 2014 2015 2016 2017 2018 Private consumption expenditure Clothing and footwear Health Sri Lanka’s modern grocery retail sector has also seen robust growth Restaurants and hotels supported by improving incomes, rising urbanisation and changing Source: CBSL lifestyles which has attracted more customers from traditional grocery channels. Modern trade penetration, however, remains low with only penetration, supported by the Group’s extensive distribution network of 6 12%-15% of FMCG sales generated by modern grocery retail, which Branded outlets, more than 200 Softlogic outlets and over 1,700 dealers. compares relatively lower than regional peers (Nielsen’s). Currently, We also provide the industry’s best after-care sales through four care supermarkets are concentrated in urban areas, with large untapped centres across major cities, thereby providing convenient and accessible potential in rural areas. after-sales service. Meanwhile Nokia’s new range of Android phones also performed well with the phone’s market share as a percentage among the STRATEGY AND INTEGRATED PERFORMANCE REVIEW highest in the world. During the year under review, we further widened our The Retail Sector recorded a revenue and operating profit growth of product portfolio with the introduction of the Micromax brand targeting 6% and 4% respectively, upheld by the broad based growth in the sub the value for money segment. sectors. The Sector maintained its position as the top contributor to operating earnings and continues to leverage on a widening portfolio CONSUMER ELECTRONICS AND FURNITURE of products and services, new partnerships and international brands The Group maintained it is market position as one of the top 3 retailers and an extensive distribution network. Overall profitability, however, of consumers electronics and durables in Sri Lanka, representing an continues to be affected by finance costs which increased by 40% array of leading global brands such as Panasonic, Samsung, Dell and during the year resulting in the Sector’s pre-tax profit declining by 77% to Apple. Despite subdued consumer sentiments, the segment achieved Rs. 215 Mn during the year. moderate top line growth as it leveraged on its extensive distribution network comprising more than 200 outlets. Profitability was however TELECOMMUNICATION affected by rising interest rates and the effect of the exchange rate The Group’s telecommunication arm consolidated its market position depreciation. Strategic focus was placed on consolidating our network as the leading distributor of mobile phones, recording commendable top and enhancing the ambience and overall customer experience at line growth during the year. Overall profitability was however impacted by showrooms. In furniture, the Group commenced manufacturing a range the sharp depreciation of the Sri Lankan Rupee which affected margins. of household furniture under its “Lifestyle” brand, which is expected to be The Samsung smart phone range continued to achieve deeper market a sizable contributor to Sector earnings over the medium to long-term.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 55 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS

RETAIL

CONSUMER ELECTRONICS

BRANDED APPAREL / FOOTWEAR / HANDBAGS

INTERNATIONAL WATCHES

EYEWEAR

DEPARTMENTAL STORES SUPERMARKETS ONLINE STORE / OTHERS

RESTAURANTS FURNITURE

56 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 BRANDED APPARELS AND FASHION RETAIL GROUP SYNERGIES Odel, Cotton Collection and the exclusive representation of a host of leading international fashion brands has enabled the Group to  Sharing physical infrastructure to drive increased footfall emerge as one of Sri Lanka’s largest retailers of branded apparels. The  Benefits accruing from sharing expertise and organisational segment recorded commendable revenue and profit growth during the intellectual capital year supported by network expansion, ongoing investment in brand  Use of data analytics across the Group to predict customer development and the introduction of several new international brands. behaviour In 2018/19, we added 17 new outlets in Colombo City Centre, and will establish a presence in Kurunegala through the launch of a Softlogic multi-brand department store, offering customers a unique shopping a non-conducive environment which directly impacted the leasing experience. Our product proposition centres on offering customers market. The sharp depreciation of the Sri Lankan Rupee, government an array of choices ranging from home-grown brands to international regulations on emission standards and the imposition of cash margins brands and during the year we sought to revamp and refine our on imports also had a significant impact on the segment’s performance. private label offerings by sharpening brand focus. We also widened our premium brand offering with the introduction of several luxury brands such as Michael Korrs, Jack and Jones and Longines watches MODERN TRADE targeting the upper income market segment. The Group’s unique ability The Group entered the modern grocery trade industry with the launch to maintain the brand ethos of the international brands it represents has of Softlogic GLOMARK supermarkets during the year. We hope to adopt allowed it to nurture long-term relationships with its principals. a niche strategy by offering a uniquely curated shopping experience to discerning customers thereby redefining the standards of modern trade QUICK SERVICE RESTAURANTS in Sri Lanka. The Group launched GLOMARK supermarkets with the first supermarket being opened this year. We expect to add 6 new supermarkets In this segment, the Group adopted a strategy of expanding its and 4 mini supermarkets branded GLOMARK Essentials in 2019/20. In proposition to drive penetration across market segments. The 2019/20 we have opened 1 supermarket and 3 GLOMARK Essentials performance of Burger King improved during the year, underpinned outlets to date. Softlogic’s strong presence in Sri Lanka’s consumer- by competitive pricing, ongoing product development and cost focused industries have afforded the Group a strong platform to drive rationalisation. During the year, we added 1 new BK outlets, bringing the synergies, and we hope to leverage on this to drive greater footfall to the total network to 20. We continue to invest in upskilling our young team supermarkets. Utilising data analytics to predict customer behaviour is with the objective of enhancing service quality and the overall customer also a key long-term priority, enabling us the opportunity to offer targeted experience. Ensuring compliance to stringent health, safety and food promotions and customised service. We see strong potential for long- hygiene is a key priority for the segment, with frequent audits conducted term growth in this segment, given Sri Lanka’s rising disposable incomes, to ensure the highest standards of product responsibility. Meanwhile, urbanisation and propensity towards premium goods. we also expanded the Baskin Robbins network by adding 1 new outlet during the year while focusing on improving the product proposition. The year under review, also saw the segment adding 2 Deli France outlets. WAY FORWARD Over the short-term the Sector’s performance is likely to be affected by SUZUKI the prevalent conditions in the country, although the medium to long-term Softlogic acquired the exclusive distributorship of Suzuki Motorcycles, outlook remains promising. The growth strategy for 2019/20 will include spare parts and accessories in 2016/17 and since has sought to leveraging Group synergies using data analytics and the launch of a Group- drive volume growth through expanding its dealer base and proactive wide loyalty scheme. Following the launch of supermarkets, the Group customer engagement. The segment recorded strong revenue and now has a presence across all key consumer value chains and is aptly profit growth (albeit a small base), gaining market share by 2% despite positioned to capitalise on emerging growth opportunities in this space.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 57 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS HEALTHCARE SERVICES

THE HEALTH CARE SERVICES SECTOR IS A KEY CONTRIBUTOR TO GROUP EARNINGS ACCOUNTING FOR 18% OF CONSOLIDATED REVENUE IN 2018/19. THE SECTOR IS REPRESENTED BY THE ASIRI GROUP OF HOSPITALS, THE LEADING PRIVATE HEALTHCARE PROVIDER IN SRI LANKA. INVESTMENTS IN EXPANDING ITS GEOGRAPHICAL REACH HAS POSITIONED THE SECTOR TO CAPTURE GROWTH OPPORTUNITIES AND THE SECTOR ACHIEVED A COMMENDABLE REVENUE GROWTH OF 12% DURING THE YEAR. PROFITABILITY, HOWEVER, WAS AFFECTED BY ESCALATING COSTS AS WELL AS NORMALISATION OF PROFITS FOLLOWING A ONE-OFF DISPOSAL GAIN LAST YEAR.

58 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 OPERATING ENVIRONMENT STRATEGY AND PERFORMANCE OUTLOOK  Growing demand for private  Expand geographical footprint and  Private healthcare is expected to play a greater medical services capacity role in Sri Lanka’s healthcare sector given  Rising medical costs due the  Continued investment in state-of-the-art the rapidly ageing population, increasing depreciation of the Rupee and medical and clinical technology prevalence of non-communicable diseases, impact on pharmaceutical and  Increased focus on process rising income levels and increasing insurance medical supplies prices improvements to gain cost efficiencies penetration.  Increased revenue 12%

SECTOR OVERVIEW SOFTLOGIC HOLDINGS PLC The Group’s Healthcare ASIRI HOSPITAL HOLDINGS PLC Sector is represented 113-bed hospital in Colombo by the Asiri Group of Hospitals- Sri ASIRI SURGICAL HOSPITAL PLC Lanka’s leading private 148-bed hospital offering specialised surgical care inclusive of a state-of-the- art heart centre, modern operating theatres and urology treatment facilities healthcare provider with ASIRI AOI CANCER CENTRE (PVT) LTD a total bed capacity of Joint Venture with Cancer Treatment Services 763 across 6 hospitals Hyderabad (Pvt) Ltd and a network of 16 ASIRI CENTRAL HOSPITALS LTD laboratories and 57 Non-operational collection centres CENTRAL HOSPITAL LTD across the country. The 245-bed state-of-the-art technologically advanced, modern one stop medical centre that offers diagnostic, therapeutic and intensive care facilities. Group in collaboration with several ASIRI HOSPITAL MATARA (PVT) LTD internationally accepted 63-bed hospital in Matara, offering a range of general and surgical care facilities medical partners offer some of the country’s ASIRI DIAGNOSTICS SERVICES (PVT) LTD Laboratory services in the Central Province most advanced clinical and medical services ASIRI HOSPITAL KANDY (PVT) LTD in key areas such as 162- bed multi-specialty hospital under construction in Kandy Cardiac, Brain & Spine, DIGITAL HEALTH (PVT) LTD Joint Venture with Digital Holdings Lanka (Pvt) Ltd Hernia, Oncology, Bone ASIRI LABORATORIES (PVT) LTD Marrow Transplant and Island-wide laboratories and collection centers Stroke Care. ASIRI HOSPITAL GALLE (PVT) LTD 32-bed hospital in Matara, offering a range of general and surgical care facilities

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 59 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS

HEALTHCARE SERVICES

HEALTHCARE SECTOR- PERFORMANCE EMPLOYEE PRODUCTIVITY BED CAPACITY (Rs. Mn) /(Rs. Mn) (No. of Employees/Rs Mn/ Employee) (No. of Beds) 14,000 25,000 5,000 0.5 800 24,000 700 13,500 4,000 600 13,000 23,000 0.4 3,000 500 12,500 22,000 400 2,000 300 12,000 21,000 0.3 200 11,500 20,000 1,000 100 11,000 19,000 0 0.2 0 2018 2019 20172018 2019 20172018 2019 Revenue Head count Assets Net profit per employee

OPERATING ENVIRONMENT KEY PERFORMANCE INDICATORS While the government sector still plays a dominant role in Sri Lanka’s healthcare sector, demand for private health services has been Rs. Mn 2018-19 2017-18 % YoY rising rapidly due to increasing urbanisation, rising income levels, the Revenue 13,475 12,025 12 prevalence of non-communicable diseases and an aging population. Operating Profit 3,195 3,426 (7) Amongst the impediments for the growth in the private healthcare Pre-tax profit 2,409 2,635 (9) sector is insufficient healthcare insurance penetration, which makes Profit after tax 1,831 1,938 (6) private healthcare services less affordable for the general public. As Assets 24,600 21,012 17 a result, much of the private sector healthcare facilities continue to Liabilities 14,709 11,851 24 be concentrated in the urban areas with little penetration outside the CAPEX 3,359 2,620 28 major cities of Colombo, Kandy and Galle. By end 2018, there were 200 Net profit per employee 0.37 0.47 (21) registered private hospitals with 5,120 beds that included 23 private Ayurvedic hospitals with 454 beds. The private sector plays a vital role in outpatient care, accounting for 65% of total outpatients treated; in its kind in the Central Province and is equipped to carry out high-end inpatient care, the share is relatively low at 15%. Consistent capacity cardiac surgeries in addition to offering the latest diagnostic and expansions by the private sector has enabled it to grow its bed capacity laboratory services. We also acquired a 32-bed private hospital in Galle by a compound annual growth rate of 21% over the last 4 years, at a total investment of Rs. 450 Mn. Refurbishments are currently being compared to 10% in the state sector. carried out to increase capacity and enhance the diagnostic technology of the hospital. The Sector continued to expand its laboratory network, STRATEGY AND INTEGRATED PERFORMANCE REVIEW opening 11 new collection centres during the year. Meanwhile we increased capacity at our Cardiac Centres at Asiri Central and Asiri The Healthcare Service Sector recorded revenue growth of 12% Surgical by adding second Catheterisation Laboratories in order to supported by steady growth in occupancy levels in all our hospitals accommodate the increasing demand for cardiac procedures. and the continued expansion of our laboratory network. Continued emphasis on cost management and process improvement initiatives We are at the forefront of Sri Lanka’s advances in medical technology, resulted in an 14% improvement in gross profits. Sector operating profit consistently introducing pioneering solutions and driving technology-led however, declined by 7% to Rs. 3,195 Mn reflecting a normalisation innovation throughout our operation. Our joint venture partnership with of earnings following a one-off disposal gain in 2017/18. Excluding the American Oncology Institute (AOI), the ‘Asiri-AOI Cancer Centre’ was this gain, the Sector’s operating profit has grown by 19%. During the launched in November this year. The Cancer Centre, which is located year the Sector was also impacted by a higher income tax rate of at Asiri Surgical Hospital offers precision driven personalised cancer 28% (compared to 12% in 2017). Consequently, Sector pre-tax profit treatment based on collaborative protocols with University of Pittsburg decreased by 9% to Rs. 2,409 Mn during the year. Medical Centre, one of the most eminent providers of oncology treatment in the United States. We also expanded the range of services We continued to consolidate our position as Sri Lanka’s leading offered during the year with a new Hernia Centre that offers same day healthcare provider by expanding our bed capacity, geographical reach surgery and a new post-surgical stress management clinic. Meanwhile and scope of services offered. A key achievement during the year was state-of-the-art MRI scanners were installed at both Asiri Hospital having Asiri Hospital Kandy poised for launch in April 2019; this 162-bed Galle (Pvt) Ltd and Asiri Hospital Kandy (Pvt) Ltd making them the only tertiary hospital built at a total investment of Rs. 6.5 Bn is the first of

60 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 two hospitals outside of Colombo to offer world-class interventional HIGHLIGHTS OF 2018/19 radiology procedures.  Launch of Asiri Breast Care Centre - Asiri Central Hospital Maintaining the highest quality standards in all areas of our operation  Asiri Health ranked the leading Healthcare brand in Sri Lanka by is a critical aspect of our competitive edge and value proposition. Brand Finance Our relentless focus on quality and excellence is evident from the  Asiri AOI Cancer Centre numerous local and international accreditations and certification we  have obtained. Several of our hospitals are currently in the process of Acquisition of 32-bed private hospital in Galle obtaining the Australian Council on Healthcare Standards International  Launch of Well Woman clinic in Asiri Medical (ACHSI) certification. Meanwhile, Asiri Central Hospital which first  Launch of Hernia Centre in Asiri Medical obtained the prestigious JCI accreditation in 2016 is expected to secure re-accreditation by JCI in November 2019. Other quality certifications include ISO9001, ISO14001 and OHSAS 18001. Two of our Quality Circle With cost management and efficiency gains becoming increasingly teams won gold awards at the International Quality Circles Convention important, several process improvements were implemented during in Singapore, a reflection of the quality mindset of our staff. Attesting the year to drive efficiency and enhance service quality. A Group-wide our international standards of care, Asiri Central’s Brain and Spine integrated approach was adopted for operational improvements Centre was chosen as the first overseas venue for the prestigious with a dedicated Chief Process Officer spearheading operational International FRCS examination in Neurosurgery during February 2018. improvements across the Group. Key initiatives implemented during Meanwhile our Bone Marrow Transplant Centre was recognized for the year include digitizing and forward planning the discharge process post-graduate studies for Hematologists by the College of Medicine in to fast-track the process, implementation of a more effective inventory Colombo. This is the first time a private hospital in Sri Lanka has been control system, introduction of digital tablets for patient feedback and bestowed such recognition. the implementation of quality dashboards to identify and track clinical and non-clinical indicators. Being in a service sector, staff development is a critical aspect of our overall strategy. Employee training programs are carried out at all WAY FORWARD levels to promote a culture of continuous improvement and service excellence. (Refer table alongside for details of training hours provided As margins continue to be impacted by rising medical costs and during the year.) Meanwhile our Nurse Training School continues to set increasing competition, achieving cost efficiencies through process the standards in nursing care in the country. improvements and efficiency gains will remain a focus through 2019/20. We also remain committed to pushing the boundaries of the healthcare industry in Sri Lanka by introducing the most advanced EMPLOYEE TRAINING medical technology throughout our operation. We are currently Number of trainings sessions held exploring several opportunities for cross border investments in the Healthcare Sector which we expect will come to fruition during the next Clinical training 370 year. We also see significant potential for preventive healthcare and are Non-clinical training 829 pro-actively exploring this space for future development. General training 1107 Quality Related training 92 Total 2398

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 61 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS INFORMATION TECHNOLOGY

THE GROUP’S IT SECTOR IS A LEADING PROVIDER OF INTEGRATED, END-TO-END IT SOLUTIONS TO THE CORPORATE, SME AND GOVERNMENT SECTORS. OUR COMPETITIVE EDGE IS UNDERPINNED ON OUR LONG-STANDING RELATIONSHIPS WITH WORLD LEADING PRINCIPALS, WHICH HAVE ENABLED US TO INTRODUCE THE LATEST IT SOLUTIONS TO THE COUNTRY. THE SECTOR HAS PLACED STRATEGIC EMPHASIS ON CONSOLIDATING ITS MARKET POSITION BY EXPANDING ITS’ PRODUCT AND SERVICE RANGE ACROSS THE VALUE CHAIN WHILE FURTHER STRENGTHENING OUR PRE AND AFTER SALES SUPPORT SERVICES.

62 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 OPERATING ENVIRONMENT STRATEGY AND PERFORMANCE OUTLOOK

 Increased demand for IT services from  Focus on value-added IT solutions which  Recommencement of Government both private and government sector due facilitate the digital transformation of projects to increased emphasis digitization organisations  Sluggish economic conditions may  Government’s IT agenda in the education,  Strengthen Regional Support Centres to impact IT budgets of companies during defence and administrative sectors build brand value FY 2019/20  Sharp depreciation of the Rupee  Increased revenue 11%  Increasing interest rates

SECTOR OVERVIEW SOFTLOGIC HOLDINGS PLC

The Group’s IT Sector is Information Technology represented by four entities SOFTLOGIC INFORMATION TECHNOLOGIES (PVT) LTD engaged in a range of services Provider of software, hardware, infrastructure and spanning the entire IT value chain security solutions to corporates, SMEs and the Government from end-user computing, data SOFTLOGIC COMPUTERS (PVT) LTD centres & solutions, advanced Specialised IT solutions provider to Financial Services, Retail and Hospitality Sectors infrastructure, IT security, imaging and printing to managed services. SOFTLOGIC BPO SERVICES (PVT) LTD IT support services provider to the Group and customised The Sector represents world- IT solutions provider to corporates leading brands such as Dell EMC, SOFTLOGIC AUSTRALIA PTY. LTD Microsoft, Cisco, McAfee, Epson, Software solutions provider based in Australia whose services NEC, Zebra, Honeywell, Riello, extend to the USA and the Middle East PartnerTech and Woosim among Others others. Following the restructure of the Group’s IT and Retail sectors SOFTLOGIC CORPORATE SERVICES (PVT) LTD Group Company Secretarial function last year, the telecommunications operations have been transferred JENDO INNOVATIONS (PVT) LTD An Associate Company involved in bio-medical research and product development to the Retail sector. SOFTLOGIC HEALTHCARE HOLDING (PVT) LTD Non-operational SOFTLOGIC SOLAR (PVT) LTD Non-operational

Nextage (PVT) LTD Non-operational

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 63 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS

INFORMATION TECHNOLOGY

OUR PRESENCE ALONG THE VALUE CHAIN

End User Computing Data Centres & Advanced Security Imaging and Printing Managed Services  Desktops Solutions Infrastructure  Cyber security  Multi-function  Power protection  Notebooks  Server  Disaster recovery software  Inkjet solutions  Touch computers infrastructure solutions  Next Gen Firewall  Colour-copiers  Retail solutions  Hand held  Software defined  Advanced  Multi-media  Hospitality and computers storage and persistence & projectors Utility Solutions networking vulnerability threat solutions assessment  Software defined  Security WAN and WAN operating centres optimisation  Privileged access management

OPERATING ENVIRONMENT Solutions” aimed at attracting more investment into the Sector and IT programming consultancy and related activities grew at a rate of positioning Sri Lanka as the “Digital Gateway to Asia”. 10.8% in 2018, compared to the 4.2% growth recorded in 2017. Growing demand for IT services together with the digitalisation initiatives STRATEGY AND INTEGRATED PERFORMANCE REVIEW introduced in several sectors contributed to the expansion in IT related The IT Sector recorded a commendable top line growth, with revenue services. Export earnings from ICT services too continued its steady increasing by 11% to Rs. 4.0 Bn during the period under review. Growth growth in 2018. Total earnings from the export of telecommunications, was driven mainly by the Enterprise Solutions and Managed Services computer and information services grew by 7.5% to USD 995 Mn in categories which continued to grow as the Sector expanded its scope 2018 with inflows from computer and information services growing beyond end-computing to include more value-added service offerings. from USD 786 Mn in 2017 to USD 848 Mn in 2018. The rapid expansion Despite the growth in revenue, margins were impacted (particularly in of Information Technology Enabled Services (ITES) together with a the products segment) by the sharp depreciation of the Rupee, which healthy growth in software development services contributed to this resulted in an escalation of our import costs. Accordingly, the sector's growth. operating profit margin narrowed to 7% from 11% the previous year. Meanwhile finance expenses during the year increased by almost The government continues to focus on the ICT Sector as a key thrust 55% due to increased short term borrowings to fund working capital and an enabler in developing other industries. During the year Sri requirements. As a result, Sector PAT decreased to Rs. 135 Mn Lanka unveiled the national brand for the Sri Lankan Information and compared to Rs. 254 Mn recorded in FY 2017/18. Communication Technology and Business Process Management (ICT/ BPM) Sector with a tagline, “Island of Ingenuity - Sri Lanka Knowledge

IT SECTOR- PERFORMANCE LENGTH OF PRINCIPAL RELATIONSHIPS (Rs. Mn) /(Rs. Mn) (No.) 4,100 2,320 12 2,300 4,000 10 2,280 3,900 2,260 8 3,800 2,240 6 3,700 2,220 2,200 4 3,600 2,180 2 3,500 2,160 3,400 2,140 0 2018 2019 1-5 5-15 More than Revenue years years 15 years Assets

64 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 INFORMATION TECHNOLOGY

We continued to develop our value proposition of being the most KEY PERFORMANCE INDICATORS trusted end to end IT solutions provider in the corporate sector by expanding our portfolio along the value chain through the provision Rs. Mn 2018-19 2017-18 % YoY of advanced solutions. During the year we introduced several state- of-the-art IT solutions such as smart signage display solutions, next Revenue 4,040 3,629 11 generation data centre infrastructure , mobile computing solutions Operating Profit 301 382 (21) to the Retail Sector, virtual reality solutions, interactive smart project Pre-tax profit 172 299 (42) solutions for schools and mobile printing solutions thereby assisting Profit after tax 135 254 (47) our clients in their digital transformation journey. We also partnered with Assets 2,301 2,194 5 the Government of Sri Lanka to provide technology solutions such as Liabilities 2,304 1,950 18 CAPEX 143 127 13 facial recognition and identification software for several defence related projects. Meanwhile on the computer devises category we continue to closely monitor changing consumer trends that reflect a growing number of awards we received at the Dell Partner Awards 2019. ( Refer emphasis on mobility, and continue to re-align our product portfolio table alongside for awards received during the year) accordingly.

Our ability to retain our position as Sri Lanka’s leading B2B IT solutions Our long-standing partnerships with some of the world’s leading partner is due to our unwavering commitment to innovation and technology vendors such as Microsoft, Lenovo, VMware, EMC, Molex, service delivery. We continuously upgrade our offering with the latest Cisco, Happy or Not, Glory continue to provide a significant competitive technology whilst engaging customers through knowledge sharing advantage. These strong partnerships enable us to consistently sessions aimed raising awareness on the latest technologies and trends introduce new technologically advanced solutions to Sri Lanka whilst and how best they can transform their businesses in an increasingly ensuring a high degree of knowledge sharing, pre and post-sale digitized business environment. During the year several such customer support. Our wide distribution network, service excellence and strong engagement programs were carried ( Refer table alongside for brand reputation in the Sri Lankan market continue to sustain these programs carried out during the year) Meanwhile we provide continuous relationships while generating mutual value. We are the only Titanium technical support through nine regional support centres across the Partner (highest partnership status) for Dell EMC in Sri Lanka and island. continue to be recognized as a key partner as indicated from the

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 65 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS

INFORMATION TECHNOLOGY

As a catalyst for technological change in the Sri Lankan Corporate sector, we continue to explore how Industry 4.0 technologies such CUSTOMER ENGAGEMENT INITIATIVES as cyber-physical systems, Internet of things, Cloud computing and  The Future Enterprise cognitive computing can be adopted in a local context. Our “triple helix” approach to innovation which involves partnering with academia,  Digital Business Transformation in collaboration with VMware industry and Government continues to drive digitization in the economy by commercializing innovation. During the year we collaborated on several software projects with the University of Kelaniya and University of Colombo. AWARDS AND ACCOLADES Our employee base of 339 staff is a key strength; driving our service  Server Business Partner for FY19- B2B Category quality. Technical staff receive ongoing training by vendors and are certified for specific technologies by respective principles. During  Client Solutions Group Business Partner FY19- B2B Category the year 9 of staff received training and were certified is various technologies.  Runner up for Sales Person of the year( Infrastructure Solutions- B2B Category)

WAY FORWARD  Sales Person of the year(Client Solutions- B2B Category) With the pace of digital transformation accelerating both in the private and public sector we see significant opportunities particularly in the Enterprise Solutions and managed services spaces . We will continue to focus on emerging technologies in order to transform the Sri Lankan IT landscape through state- of the art innovation and superior service quality. Meanwhile growing computer literacy in the country and increasing connectivity will continue to drive demand for personal computers.

66 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS FINANCIAL SERVICES

THE FINANCIAL SERVICES SECTOR CONSISTS OF SOFTLOGIC LIFE PLC (LIFE INSURER) SOFTLOGIC FINANCE PLC (LICENSED FINANCE COMPANY) AND SOFTLOGIC STOCKBROKERS. THE SECTOR RETAINED ITS POSITION AS THE LARGEST CONTRIBUTOR TO CONSOLIDATED EARNINGS, AND GROUP PROFIT AFTER TAX DURING THE YEAR. THROUGH THE SECTOR, SOFTLOGIC HAS ESTABLISHED A STRONG PRESENCE IN SRI LANKA’S GROWING FINANCIAL SERVICES SECTOR WHICH PRESENTS SIGNIFICANT UPSIDE POTENTIAL AS THE COUNTRY TRANSITIONS TOWARDS AN UPPER-MIDDLE INCOME EARNING ECONOMY

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 67 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS

FINANCIAL SERVICES

OPERATING STRATEGY AND OUTLOOK ENVIRONMENT PERFORMANCE

 Macro-prudential and  Insurance: Innovation,  Potential for growth in life fiscal policy measures to Multi-channel distribution, insurance curtail vehicle imports Digitalisation, Customer  Capitalisation of Softlogic  Industry-wide deterioration Services Finance in portfolio quality  Finance: Emphasis on  Preservation of portfolio  Consistent growth in the growing secured lending quality life insurance sector portfolio, Upgrading IT  Subdued stock market infrastructure, Optimising conditions risk-return dynamics  Sector revenue growth: 23%  Sector profit growth: 42%

SECTOR SNAPSHOT SOFTLOGIC HOLDINGS PLC The Group’s insurance arm, SOFTLOGIC CAPITAL PLC Softlogic Life has rapidly captured Holding Company of the Group’s Financial Services Sector companies market share to emerge as and Licensed Investment Manager regulated by the Securities & the 4th largest player in the Exchange Commission (SEC) competitive life insurance SOFTLOGIC LIFE INSURANCE PLC industry. Softlogic Finance is a Life Insurer regulated by the Insurance Regulatory Commission of Sri Lanka medium-sized finance company, SOFTLOGIC FINANCE PLC engaged in vehicle financing, Licensed Finance Company regulated by the Central Bank of business loans, personal loans Sri Lanka – Department of Supervision of NBFIs and deposit mobilisation. SOFTLOGIC STOCKBROKERS (PVT) LTD Softlogic Stockbrokers is one of Stockbroker regulated by the SEC Sri Lanka’s leading stockbroking SOFTLOGIC ASSET MANAGEMENT (PVT) LTD companies, consistently ranking Non-operational subsidiary among the top 3 stockbrokers based on volume.

SOFTLOGIC LIFE- MARKET SHARE EMPLOYEE PRODUCTIVITY FINANCAL SERVICES- PERFORMANCE (%) (No./Rs. Mn/employee) (Rs. Mn) /(Rs. Mn) 15 1500 3 15,000 40,000

1200 12,000 39,000 12 2 900 9,000 38,000

600 6,000 37,000 9 1 300 3,000 36,000

6 0 0 0 35,000 2014 2015 2016 2017 2018 2018 2019 2018 2019 Headcount Revenue Net profit per employee (Rs.Mn) Assets

68 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 OPERATING ENVIRONMENT LIFE INSURANCE INDUSTRY PERFORMANCE Life Insurance: The life insurance industry recorded a Gross Written (GWP (Rs. Mn)/%) Premium (GWP) growth of 12% during 2018, contributing 46% to the 100,000 overall industry premiums. By end-December 2018, 12 companies 25 offered exclusive life insurance solutions while three companies were 80,000 20 involved in the provision of both life and general insurance services. The 60,000 sector’s profitability however demonstrated a decline in comparison 15 40,000 to 2017, reflecting a 37.5% YoY in claims as well as normalisation of extraordinary profits recorded in the previous year arising from one-off 20,000 10 surplus transfers. Accordingly, the life insurance sector’s profits fell 0 5 sharply by 48.5% in 2018. Sri Lanka’s life insurance industry presents 2014 2015 2016 2017 2018 significant potential for growth, given its relatively low penetration of Life Insurance-GWP Growth (y-o-y) 0.54% as at end-December 2017. Source: CBSL

NBFI Sector: The NBFI sector’s asset growth slowed to 6% in the NBFI-SECTOR PERFORMANCE year ending March 2019 (from 11% the previous year) mainly due to (Rs.Bn /%) macro-prudential measures adopted by the Government to curtail 1,500,000 vehicle imports which impacted the leasing industry, the NBFI sector’s 4.5 4.0 1,200,000 core business. Credit growth slowed to 4% from 10% in 2017 and the 3.5 sector sought diversification from vehicle financing to pursue growth 900,000 3.0 in other lending products. While Net Interest Income increased by 2.5 600,000 2.0 22% supported by wider net interest margins, overall profitability was 1.5 impacted by an escalation of loan loss provisions given the industry- 300,000 1.0 0.5 wide deterioration of portfolio quality. The Sector’s impairment 0 0.0 charges increased by 37% while the gross NPL ratio clocked in at 7.7% 2014 2015 2016 2017 2018 compared to 5.8% the previous year. Resultantly, profit after tax declined NBFI-Assets Return on assets (%) by 10% to Rs. 21.7 Bn during the year. Source: CBSL

Stockbroking: The Colombo Stock Exchange recorded a subdued performance during the year, reflecting moderating economic KEY PERFORMANCE INDICATORS conditions and cascading effects of global headwinds. The All Share Rs. Mn 2018-19 2017-18 % YoY Price Index declined by 14% to close to the year at 5,557.2 points while the S&P SL20 Index fell by 25% during the FY2019. Meanwhile, average Revenue 13,630 11,061 23 daily turnover levels and market capitalisation also declined, reflecting Operating Profit 1,717 1,788 (4) lower market activity and subdued investor sentiments. Pre-tax profit 1,225 1,858 (34) Profit after tax 3,244 2,283 42 Assets 36,794 35,094 5 Liabilities 32,635 29,733 10 Net profit per employee 2.35 1.69 39

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 69 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS

FINANCIAL SERVICES

STRATEGY AND INTEGRATED PERFORMANCE REVIEW GROUP SYNERGIES The Sector delivered a year of strong performance with revenue and profit after tax growing by a respective 23% and 42% enabling the Sector  1-day claim settlement in partnership with Asiri Hospitals to retain its position as the largest contributor to consolidated earnings.  Leasing facilities for Suzuki motor bicycles through Softlogic Top line growth was driven by the insurance arm, whereas Softlogic Finance Finance recorded modest growth in view of the unfavourable operating conditions. The Sector’s operating profit was relatively unchanged at Rs. 1.7 Bn while the sharper increase in profit after tax to Rs. 3.2 Bn was due to a deferred tax gain of Rs. 2.0 Bn stemming from Softlogic AWARDS AND ACCOLADES-SOFTLOGIC LIFE Life. The gain reflects the materialisation of an unrecognised deferred tax asset arising from a change in the Company’s taxable position with  Best Service Provider of the year- Emerging Asia Insurance Awards effect from 01 April 2018.

 Shortlisted as one of Top 3 Life Insurers in the Asian region by SOFTLOGIC LIFE Asian Insurance Review The Group’s insurance arm has recorded consistent growth supported by an innovative product strategy, multi-channel sales model and excellence in customer service which has enabled it to rapidly gain on bancassurance/corporate life insurance) and the Micro and Mobile market share. The insurer marked a key milestone during the year, channel focusing on the micro insurance segment of the industry. crossing the Rs. 10 Bn mark in revenue, the fastest company to achieve Digitalisation of our distribution channels was also a key priority during this feat in the Sri Lankan insurance industry. The Company’s GWP has the year, with the digital proposal system introduced to the sales force expanded at a CAGR of around 35% over the 5 years to December 2018, achieving a 90% success rate in 2018. Meanwhile 64% of policies far surpassing the industry average of 16% attesting to the relevance were underwritten without manual intervention, allowing for increased of its customer value proposition and effectiveness of its distribution accuracy and faster turnaround times. strategy.

The Company has placed strategic emphasis on offering innovative and diverse product propositions catering to different segments of the SOFTLOGIC FINANCE- PORTFOLIO COMPOSITION market. In 2018, the Company launched 5 new products and 2 rider covers which included multiple features such as protection, health care, savings and retirement aimed to fulfil customer requirements 7% 11% throughout their lifecycle. During the year the Company launched the Softlogic Life Good Health series and Corporate Pension solutions 15% allowing it to penetrate new customer segments. The Company has also launched a unique micro-insurance product offering daily payment Leasing and HP options by partnering with a telecommunications provider. 67% Group personal loans and pawning SME, factoring and others The Company’s multi-channel distribution has been a key success Others factor facilitating above industry growth. In addition to the Agency channel, the Company operates the Alternate channel (focusing mainly

70 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Although recording an increase, the Company’s net claims ratio SOFTLOGIC STOCKBROKERS (without maturity and surrenders) remained relatively low at 14.6%. The fortunes of the Group’s stockbroking arm mirrored that of the The Company has redefined industry standards in claims settlement broader market and the subdued market conditions understandably through innovative offerings such as one-day death claims and had an adverse impact on the Company’s performance. Softlogic extended cashless claim settlement. During the year, the Company Stockbrokers’ is centred on its best-in-class research capabilities, settled over 85% of its claims within one day and is the only insurer to access to foreign clientele and excellent client servicing which has disclose real-time claim settlement statistics on its website. Meanwhile enabled it to develop sustainable relationships with a diverse pool astute investment decisions and proactive portfolio management of customers. The Company consistently ranks among the top 3 enabled the Company to increase its investment income by 28% during stockbrokers in Sri Lanka based on volumes traded. the year. Overall, the insurer recorded a 44% increase in profit after tax to Rs. 3.4 Bn during the year under review. WAY FORWARD

SOFTLOGIC FINANCE We see strong potential for growth in Sri Lanka’s life insurance industry and will focus on driving increased penetration through innovative While operating performance moderated in line with the challenging products while leveraging on our extensive distribution network. operating landscape, the Company’s overall profitability was upheld by The Company anticipates another year of strong GWP growth as an income tax reversal during the year, which led to a post-tax profit we continue to fortify our market position in untapped segments. of Rs. 204 Mn. Net Interest Income grew by 23%, supported by a loan In Finance, we will focus on growing our secured lending portfolio growth of 5.6% as the Company sought diversification of its loan in achieving better risk-return dynamics; the Group is also currently portfolio through expanding its business loans, pawning and factoring exploring capital infusion options given regulatory requirements to products. It is noteworthy that the Company achieved an expansion of enhance the Company’s total equity base to Rs. 2.0 Bn by 2020. its credit portfolio following 2 consecutive years of portfolio contraction. As a strategy, the Company sought to increase contributions from secured lending products thereby achieving better risk-return dynamics.

During the year, strategic emphasis was also placed on enhancing our IT infrastructure through investments in a new system which facilitated the effective integration of systems to one core platform. This has led to increased efficiencies, a reduction in staff costs, access to better information and stronger customer engagement. For instance, total personnel costs declined by 4% during the year under review. Meanwhile portfolio quality weakened in line with moderating economic conditions resulting in the Company’s impairment charges increasing by 75% during the year. In addressing this challenge, we took proactive efforts to rebalance our portfolio with increased focus on secured loans including mortgage, gold, vehicle and factoring facilities. Overall the Company’s pre-tax profit declined by 67% to Rs. 63.1 Mn while the drop in profit after tax was contained at 7% due to an income tax reversal of Rs. 115.2 Mn during the year.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 71 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS LEISURE AND PROPERTY

THE LEISURE SECTOR COMPRISES OF OUR TWO HOTEL PROPERTIES; CENTARA CEYSANDS RESORT AND SPA IN BENTOTA AND THE 5-STAR CITY HOTEL MÖVENPICK AS WELL AS SABRE, AN ONLINE TICKETING PLATFORM AND SOFTLOGIC DESTINATION MANAGEMENT FOR OUTBOUND TRAVEL. THE SECTOR POSTED RECOVERY AT OPERATING LEVEL, UPHELD BY THE STRONGER CORE PERFORMANCE OF THE HOTELS ALTHOUGH OVERALL PERFORMANCE WAS IMPACTED BY AN INCREASE IN INTEREST EXPENSES ON THE SECTOR'S DOLLAR- DENOMINATED BORROWINGS AS A RESULT OF THE STEEP DEPRECIATION OF THE RUPEE DURING THE YEAR.

72 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 OPERATING ENVIRONMENT STRATEGY AND OUTLOOK PERFORMANCE

 Growth in tourist arrivals due to a  Build brand value through  Although we expect occupancy recovery in key tourism markets innovative offerings and excellent levels and ARR to be impacted in such as UK, India and China customer service the short run we are optimistic  Increasing competition from  Continued focus on staff about our medium to long term formal and informal sectors as development and engagement prospects considering the a result of continued capacity  Revenue growth of 21% concerted effort by stakeholders expansions in the Sector. to restore the industry’s image.  Depreciation of the Rupee

SECTOR OVERVIEW SOFTLOGIC HOLDINGS PLC Our interests in the Leisure Sector include Centara Ceysands Resort and Spa in SOFTLOGIC PROPERTIES (PVT) LTD Holding Company of the Leisure Sector and developer of Everest Apartments Bentota, the five-star city hotel Mövenpick Hotel in Colombo 3 and Sabre, an online SOFTLOGIC CITY HOTELS (PVT) LTD Mövenpick - 5-star, 219-room city hotel in Colombo ticketing platform and Softlogic Destination Management for outbound travel. Strategic CEYSAND RESORTS LTD partnerships with globally renowned hotel Centare - 4-star plus, 165-room resort in Bentota chains such as Centara Hotels & Resorts Thailand and Mövenpick (recently acquired SOFTLOGIC DESTINATION MANAGEMENT (PVT) LTD Total outbound travel solutions provider by AccorHotels) have enabled us to offer international standards in service quality SABRE TRAVEL NETWORK LANKA (PVT) LTD and rapidly gain ground in the Sri Lankan Technology provider for travel and tourism - Global Distribution System Leisure Sector.

HUMAN CAPITAL LEISURE SECTOR- PERFORMANCE OCCUPANCY LEVELS (No. of Employees) (Rs. Mn) (%) 800 20,000 100 700 600 15,000 80 500 400 10,000 300 60 200 5,000 100 0 0 40 2017 2018 2019 2018 2019 2017 2018 2019 Head Count Assets (Rs. Mn) Centara Revenue (Rs. Mn) Movenpick

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 73 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS

LEISURE AND PROPERTY

OPERATING ENVIRONMENT TOURIST ARRIVALS AND ROOM INVENTORY Tourist arrivals increased by 10.3% in 2018, compared to a growth of (Arrivals/Room Inventory) only 3.2% in 2017. The general upswing in the global economy, targeted 2,500,000 40,000 tourist promotion campaigns as well as the low base for tourist arrivals 35,000 2,000,000 in the previous year contributed to the higher growth. Top source 30,000 markets for Sri Lanka in 2018 were India, China, the United Kingdom, 1,500,000 25,000 20,000 and Germany. 1,000,000 15,000 500,000 10,000 The industry continued to attract investments in 2018 and the rapid 5,000 0 increase in the country’s room inventory leading to intense competition 0 2015 2016 2017 2018 among operators. Traditional hotel sector operators have seen Tourist Arrivals increased competition from the informal sector which has increased Room Inventory its room capacity by around 35% over the last five years. In 2018 the Source: CBSL graded establishment’s occupancy rate amounted to 72.8%, compared to 73.3% in 2017

The industry has experienced a sharp downturn in the aftermath of the KEY PERFORMANCE INDICATORS Easter Sunday terrorist attacks given heightened security concerns and travel advisories issued by several source markets. However, as Rs. Mn 2018-19 2017-18 % YoY conditions gradually return to normalcy, we remain confident of the medium to long-term prospects for the Sector. Revenue 3,128 2,585 21 Operating Profit 66 (142) 146 Pre-tax profit (851) (672) (27) STRATEGY AND INTEGRATED PERFORMANCE REVIEW Profit after tax (857) (865) (1) The Leisure and Property Sector recorded a top line growth of 21% to Assets 16,556 15,606 6 achieve a revenue of Rs. 3,128 Mn during the year. Revenue growth was Liabilities 10,615 8,802 21 driven primarily by the Centara property which recorded a 18% growth in revenue supported by higher occupancy levels and an increase in average room rates (ARR) during the year. Consequently, despite rising cost pressures and price competition, the Sector recorded an operating profit of Rs. 66 Mn compared to the operating loss of Rs. 142 Mn during the previous financial year. Despite the commendable performance at operating level, performance of the Sector was impacted by a significant increase in interest expenses on Mövenpick’s dollar- denominated borrowings due to the steep depreciation of the Rupee. As a result, net loss during the year amounted to Rs. 857 Mn compared to last year’s loss of Rs. 865 Mn.

Centara Ceysands our 165 roomed beach-side resort located in Bentota continued to enjoy strong occupancy levels and above-average ARR

74 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 during due to a recovery in key tourism markets such as UK, India and China. Occupancy levels averaged around 83% during the year AWARDS AND ACCOLADES compared to 78% during the previous year. The high level of occupancy  Leading Meeting & Conference Hotel in Sri Lanka at the South countered the impacts of cost escalations during the year, enabling the Asian Travel Awarded Sector to preserve its operating profit margins. With ongoing focus on  “Sri Lanka’s Leading Hotel 2018” - World Travel Awards 2018 driving operational efficiencies, we continue to derive benefits from our strategic partnership with Centara Hotels & Resorts Thailand in terms  “Best Presidential Suite” -World Travel Awards 2018 of marketing support from the Centara regional offices and knowledge sharing on global standards in service quality.

Currently in its second year of operation, our five-star City hotel property EMPLOYEE AWARDS Mövenpick continued to build brand value through innovative product  Winner of the Classic Masters at the 26th National Bartenders offerings and excellent customer service. The 24 storied five-star Competition property includes 219 luxury rooms and suites, 2 restaurants, a rooftop bar and nightclub in addition to a range of facilities such as a rooftop  Sri Lanka Women Leadership Award- 2018 infinity pool, fitness centre and spa. Catering to the fast-growing corporate market, the property offers the largest executive lounge and  Les Clefs d’Or (Keys of Gold) membership for a key staff rooms in the city, as well as a dedicated business traveller reception member and banquet facilities which include meeting rooms and a boardroom. Occupancy levels improved supported by the increased activity in the MICE market although ARR remained lower than expected due to the WAY FORWARD intense price competition among city hotels. We continue to introduce Whilst we expect occupancy rates to be severely impacted in the innovative concepts in order to attract different market segments and short-run due to the tragic events of Easter Sunday, we are confident diversify our revenue streams. The first ever “Mövenpick Weddings” fair that the tourism industry will bounce back if the right measures was held during the year introducing a new intimate wedding concept are implemented to restore the industry’s image as a safe tourist to city hotels while a brand new meetings and events concept was destination. We are actively engaging our strategic partners Centara introduced with ‘Eiger’, our new inspiration hub that provides creative Hotels & Resorts Thailand and AccorHotels to promote our hotel space for business meetings. The Hotel continued to be recognized and enhance Sri Lanka’s image globally. Meanwhile we will continue both locally and international and was a recipient for several awards to develop multiple revenue channels such as food and beverage, during the year. (refer table alongside for full list of awards). During the weddings, Corporate and incentive travel ,MICE etc to further diversify year Mövenpick was acquired internationally by AccorHotels, a French our revenue channels. multinational operating more than 4,000 hotels across the world.

Staff development is not only a key element of our employee proposition, it is also a critical success factor in achieving the service excellence we strive for. Our Leisure Sector employees are offered ongoing training opportunities and are motivated to achieve personal and professional goals in a dynamic and supportive environment. We proudly note that several of our employees received local and international recognition during the year.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 75 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS AUTOMOBILE

THE SOFTLOGIC AUTOMOBILE SECTOR HOLDS EXCLUSIVE AUTHORIZED DEALERSHIPS FOR ALL FORD VEHICLES AND KING LONG BUSES IN SRI LANKA. DESPITE CHALLENGING MARKET CONDITIONS, THE SECTOR RECORDED AN IMPROVEMENT IN PERFORMANCE SUPPORTED BY PENETRATION INTO TARGETED MARKET SEGMENTS, PARTICULARLY IN THE GOVERNMENT SECTOR. ACCESS TO 2 GLOBAL BRANDS AND EXCELLENT AFTER SALES SERVICE HAS APTLY POSITIONED THE SECTOR TO BE A CATALYST IN TRANSFORMING SRI LANKA’S PUBLIC TRANSPORTATION INDUSTRY THROUGH THE SUPPLY OF SUPERIOR VEHICLES.

76 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 OPERATING STRATEGY AND OUTLOOK ENVIRONMENT PERFORMANCE

 Fiscal and macro-  Strengthened our market  Demand for low engine prudential measures position particularly in the capacity vehicles and implemented at curtailing Government tender market luxury vehicles is expected vehicle imports adversely  Leveraged Group synergies to be subdued as a impacted operations to expand distribution result of tariff increases  Increase in import duties channels and strengthen introduced by the 2019 and other fiscal levies brand name in targeted Budget Proposals.  Depreciation of the segments. However, several fleet Rupee and the resultant  Revenue growth of 147% modernization projects escalation in import costs  Trimmed losses after tax to in the health, public  Government emphasis on Rs. 35 Mn from Rs. 178 Mn transportation and tourism transforming the national the previous year sector are expected to public transport service provide opportunities to further consolidate our market position.

SECTOR OVERVIEW SOFTLOGIC HOLDINGS PLC Softlogic Automobile Sector is represented by Future Automobiles which is the FUTURE AUTOMOBILES (PVT) LTD authorised dealer for all Ford vehicles in Sri Authorised Dealer for Ford Lanka and Softlogic Automobiles which is the authorised dealer for King Long buses SOFTLOGIC AUTOMOBILES (PVT) LTD in Sri Lanka. The Sector also operates a Authorised Dealer for King Long Service Partner of Daihatsu state-of-the-art collision repair centre. Collision Repair Centre

HUMAN CAPITAL AUTOMOBILE SECTOR- PERFORMANCE (No. of Employees) (Rs. Mn) /(Rs. Mn) 200 2,500 2,500

2,000 150 2,000 1,500 100 1,000 1,500 50 500

0 0 1,000 20172018 2019 2018 2019 Employees Assets (Rs. Mn) Revenue (Rs. Mn)

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 77 MANAGEMENT DISCUSSION & ANALYSIS BUSINESS LINE REVIEWS

AUTOMOBILE

OPERATING ENVIRONMENT NEW REGISTRATIONS The year under review was a challenging for Sri Lanka’s motor vehicle (No. of Vehicles) industry, which was impacted by macro-prudential measures aimed 500,000 at curtailing imports, volatile interest rates and the depreciation of the 490,000 Rupee. Although vehicle imports increased during the first eight months 480,000 of 2018 in response to the favourable duty structure applicable to small 470,000 engine capacity vehicles in the 2018 Budget, subsequent measures 460,000 introduced by the Government to curtail vehicle imports including 450,000 the imposition of a 200% cash margin resulted in a sharp decrease in 440,000 vehicle imports during the last quarter of 2018 and first quarter of 2019. 430,000 2016 2017 2018

STRATEGY AND INTEGRATED PERFORMANCE REVIEW The Sectors’ strategy of targeting specific market segments continued KEY PERFORMANCE INDICATORS to pay dividends with revenue increasing by 147% to Rs. 3,136 Mn Rs. Mn 2018-19 2017-18 % YoY during the year. Key factors underpinning this growth included the successful bid to supply 250 Ford ambulances to the Ministry of Health Revenue 3,136 1,270 147 and strengthening market position of King Long buses. Consequently, Operating Profit 170 (64) 366 despite increasing pressure on margins due to the sharp depreciation Pre-tax profit (35) (190) 82 of the Rupee, the Sector recorded an operating profit of Rs. 170 Mn Profit after tax (35) (178) 80 compared to an operating loss of Rs. 64 Mn in FY 2017/18. Finance Assets 2,266 1,183 92 cost increased by 62% during the year due to increased exposure to Liabilities 1,438 722 99 borrowings to fund working capital requirements and rising interest CAPEX 15 24 (38) rates. Despite this the Sector reduced its losses to Rs. 35 Mn in FY 2018/19 compared to the loss of Rs. 178 Mn the year before.

During the year we continued to focus on strengthening our market position in the Government tender market. In addition to supplying the government healthcare sector with 250 luxury Ford ambulances customized to local requirements we were also able to secure a contract to supply approximately 400 double cabs for district hospitals. We also made in-roads into the public transportation sector, with a contract to supply 46 buses for Sri Lanka Transport Board ( SLTB). Additionally, we are working closely with the Air Force and Special Task Force (STF) to import customized special purpose vehicles. The Sector’s ability to successfully enter the government tender market attests to the superior quality of its vehicles as well as its reputation for excellent customer service.

78 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 We also continue to focus on strengthening our service infrastructure across brands. During the year we shifted our collision repair centre in Rajagiriya to a larger facility in Kaduwela in order to expand our services. Our aim is to develop this centre as a multi- brand service centre in close proximity to highway routes in order drive increased footfall and better customer service.

We remain committed to maintaining the highest environmental standards in the vehicles we procure and all our current vehicle imports comply with Euro 4 emission standards while our King Long range of passenger vehicles have a lower passenger energy intensity due to its relatively larger size. We ensure that all our service stations adhere to the highest environmental standards and carry our regular audits to ensure compliance.

WAY FORWARD We aspire to be a catalyst in modernising Sri Lanka’s public transport sector through offering a range of advanced vehicles which provide comfort, safety, value-added features and better emission standards. With a greater emphasis by the Government on environmentally friendly transportation solutions, a key area of focus for us is the electric vehicles such as electric buses. Meanwhile, we will continue to leverage the Softlogic franchise to expand our distribution network and drive brand Value.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 79 MANAGEMENT DISCUSSION & ANALYSIS CAPITAL MANAGEMENT REPORTS FINANCIAL CAPITAL AN AGGRESSIVE GROWTH PLAN THAT INCLUDED BUSINESS ACQUISITIONS, COMMENCEMENT OF OPERATIONS OF A STATE OF THE ART TERTIARY HEALTHCARE FACILITY, RETAIL OUTLET EXPANSION INCLUDING SUPERMARKETS, RESULTED IN GROUP REVENUE INCREASING BY 13.8% TO RS. 75.1 BN. ALTHOUGH OPERATING PROFITS INCREASED MARGINALLY TO RS. 8.4 BN. NET FINANCE COSTS OF RS. 5.7 BN GREW 17.7% RESULTED IN GROUP PROFIT BEFORE TAX DECREASING BY 43.6% TO RS. 1.7 BN. A DEFERRED TAX ASSET THAT AROSE IN THE FINANCIAL SERVICES SECTOR OF RS. 2.4 BN INCREASED GROUP PROFIT FOR THE YEAR BY 31.3% TO RS. 3.0 BN.

FINANCIAL PERFORMANCE REVENUE Rs. 3.0 Bn Group revenue grew by 13.8% to Rs. 75 Bn during the year supported PROFIT AFTER TAX (2018: Rs. 2.3 Bn) by a strong top line growth of 23% in the Financial Services Sector, with 31.3% GWPs on life insurance increasing by 33%. Healthcare Services Sector grew by 12% with the existing hospitals increasing revenue and with the acquisition of a healthcare facility in Galle while the Automobiles Sector recorded top line growth of 147%, due to the sale of 250 ambulances Rs.11.2 Bn to the government sector. Retail recorded a top line growth of 6% and EBITDA remained a significant contributor to consolidated revenue. The Retail (2018: Rs. 10.9 Bn) Sector contributed 50.2% to Group revenue with Financial Services and Healthcare Services Sectors contributing 18.1% and 17.9% respectively. Revenue growth was seen across all Sectors as the Group continued to drive market penetration across its business verticals through Rs.75.1 Bn introduction of new brands, geographical expansion and product/ REVENUE (2018: Rs. 66.0 Bn) service development. 13.8%

OPERATING COSTS Cost of sales increased at a slower pace than revenue growing by Rs. Bn 12.2%, with the result that Group gross profit margins improved to 25.0 36.8% (2017/18 - 35.9%). With the significant impact of a depreciating NET ASSETS (2018: Rs. 20.9 Bn) rupee on Group operations together with limited price increases on 19.5% products/services, this was indeed a commendable achievement.

Distribution and administrative expenses increased by 13.1% and 19.2% respectively due to business acquisitions in Healthcare Services and Rs. 0.09 Retail Sectors and organic growth. EARNINGS PER

SHARE 63.9% (2018: Rs. 0.25) EARNINGS BEFORE INTEREST AND TAX The Group results from operating activities was positive with a slight growth in operating profits of 0.6% to reach Rs. 8.4 Bn. EBIT margins narrowed to 11.1% from 12.6% the previous year. All Sectors posted 2.5 Times operating profits with the exception of the ‘Others’ sub-sector. The DEBT:EQUITY (2018: Rs. 2.6 Times) 4.9% 2.6% Leisure & Property and Automobiles Sectors posted recovery at operating level, to generate profits, compared to losses in the previous year. The Retail Sector operating profits also grew 4%. The 'Others' sub- sector operating profits were marginally lower than the previous year.

80 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 GROUP REVENUE AND GROWTH CONSOLIDATED EBIT TRENDS (Rs. Mn/%) (Rs. Mn/%) 80,000 40 10,000 14 70,000 35 12 60,000 8,000 30 10 50,000 25 6,000 8 40,000 20 30,000 15 4,000 6 20,000 4 10 2,000 10,000 5 2 0 0 0 0 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Revenue EBIT Revenue Growth EBIT margin (%)

NET FINANCE COST Increasing by 17.7% the net finance cost of the Group stood at CASHFLOWS Rs. 5.7 Bn. Finance income grew by 26.7% to Rs. 1.4 Bn while finance In Rs. Mn 2018/19 2017/18 % Change expenses increased by 19.4% to Rs. 7.1 Bn. An increase in interest Net cash flows from/(used in) rates during the year coupled with increased borrowings utilized to fund Operating Activities 1,555 (106) 1,565.7 acquisitions, working capital needs and cash margin requirements for specific imports affected businesses across the Group and contributed Profit before tax from to increase finance expenses. continuing operations 1,743 3,092 (43.6) Profit before working capital PROFIT FOR THE YEAR changes 10,819 10,715 1.0 With the impact of the net finance cost, all Sectors of the Group Cash generated from recorded a decline in PBT from the previous year. Group profit before tax operations 7,820 6,086 28.5 decreased by 43.6% to Rs. 1.7 Bn. A tax credit of Rs. 2.0 Bn arising from Net cash flows used in the Financial Services Sector due to a deferred tax asset on brought Investing Activities (10,617) (4,797) (121.3) forward tax losses as at 31 March 2018 helped the Group to end the Net cash flows from Financing year with a profit after tax of Rs. 3.0 Bn, a growth of 31.3%. activities 2,162 9,926 (78.2) Net increase/(decrease) in OTHER COMPREHENSIVE INCOME Cash & Cash Equivalents (6,848) 5,023 (236.3) Losses on changes in the value of derivative financial instruments used Cash & Cash Equivalents at in the Leisure & Property Sector to hedge USD denominated foreign the end of the Year (959) 5,889 (116.3) currency borrowings, losses on available for sale financial assets and a lower revaluation surplus compared to the previous year resulted in other comprehensive income declining by 75.1% to Rs. 137 Mn. Total Cash generated from operations increased 28.5% to Rs. 7.8 Bn during comprehensive income for the period, net of tax increased 10.6% to the year. A decrease in inventories, increases in trade & other payables, Rs. 3.1 Bn. public deposits and insurance contract liabilities negated by increases in trade & other receivables and other current assets were the reasons for the increase in positive cashflows from operations. The Group CONSOLIDATED PROFIT AFTER TAX generated net positive cashflows of Rs. 1.6 Bn from its operating (Rs. Mn) activities during the year. 3,000

2,500 Increases in the purchase & construction of PP&E, other non-current 2,000 assets, purchases of non-current financial assets and the acquisition 1,500 of Cotton Collection (Pvt) Ltd and Hemas Southern Hospitals (Pvt) Ltd 1,000 contributed to cashflows used in investing activities growing by more 500 than 100% to Rs. 11.1 Bn. 0 2015 2016 2017 2018 2019 The net cashflows from financing activities decreased substantially during the year. Proceeds from a Rs. 3.9 Bn rights issue was utilised to settle part of the long-term debt and a short-term loan. However, proceeds from long term borrowings increased by 101% to Rs. 7.6 Bn as the Group continued to pursue inorganic growth and expansion that resulted in significant capital outlay.

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FINANCIAL CAPITAL

ASSET GROWTH ASSET COMPOSITION (Rs. Mn/%) 140,000 2018/19 7,000 9% 2017/18 120,000 2% 6,000 36% 9% 100,000 5,000 PPE 11% 80,000 9% Other Non Current Assets 4,000 35% 5% Working Capital 60,000 3,000 10% Non Current Financial Assets 40,000 11% 2,000 18% 11% Loans and Advances 20,000 1,000 Cash Balances 0 Other Current Assets 0 19% 2015 2016 2017 2018 2019 14% Total assets CAPEX

Trade and other receivables grew by 21.2% mainly due to business growth in Softlogic Life, the Automobile Sector and Softlogic Brands. BORROWINGS Loans and advances decreased by 11% as Softlogic Finance reduced its

2018/19 SME portfolio during the year concentrating on lending for longer term. 2017/18 26% 22% Acquisitions, capital expansions and ongoing investments in key growth Information Technology sectors have resulted in the Group’s total asset base nearly doubling 18% 19% Leisure & Property Retail over the last six years, positioning it for sustainable earnings growth. 16% Automobiles 25% 10% Financial Services 16% Healthcare Services LIABILITIES Others 27% The current and non-current portion of interest-bearing borrowings 10% together with bank overdrafts accounted for 40.3% of total liabilities and increased 13.4% from the previous year. Interest bearing borrowings were utilised during the year to fund working capital needs, acquisitions Cash & cash equivalents at the end of the year decreased by 117% of Cotton Collection & a healthcare facility in Galle and for completion mainly as a result of cash used in the Group’s investing activities. of the fully-fledged tertiary healthcare facility, Asiri Kandy. Borrowings in the Healthcare Services, Leisure & Property, Retail and Others FINANCIAL POSITION Sectors which comprised 90% of total Group borrowings increased by 21.1%, 26.7%, 8.4% and 3.4% respectively. Public deposits are deposits ASSETS mobilized by the Financial Services Sector and represented 16.1% of Ongoing capital expenditure and acquisitions in the Retail and Group liabilities with a growth of 4.2%. Other current financial liabilities Healthcare Services Sectors, supported growth in assets with Group that represented 21.9% of Group liabilities mainly comprised of money total assets expanding 10.1% to reach Rs. 131 Bn. market loan payables and import loans. Total liabilities increased 8.1% to Rs. 105.8 Bn as at year end. PPE which comprises 35.6% of total assets grew by 12.7%. Expansion of retail outlets, opening of the supermarket chain GLOMARK and the acquisition of Cotton Collection were the main reasons for asset growth in the Retail Sector. Capital expenditure incurred for Asiri Kandy, Asiri AOI cancer centre, laboratory expansion and the acquisition of a healthcare facility in Galle were the significant contributors to asset growth in the Healthcare Services Sector. Non-current financial assets representing 10% of total assets increased by 24.6% due to increase in the long-term portion of lending by Softlogic Finance and growth in the investment portfolio of Softlogic Life.

82 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 EQUITY An equity infusion of Rs. 3.9 Bn by way of rights issue, to retire both short & long term debt, helped to increase Group equity to Rs. 25.0 Bn, an increase of 19.5%. Although the Group’s net debt increased by 13.6% to Rs. 62.6 Bn, the net debt to equity ratio improved to 2.5x compared to 2.6x the year before.

VALUE CREATED FOR SHAREHOLDERS Softlogic Holdings PLC maintains ongoing dialogue with its majority and minority shareholders, facilitated through numerous engagement platforms including the AGM, publication of the Annual Report, quarterly performance updates as well as announcements to the CSE. These engagement platforms are designed to provide timely, relevant and meaningful information to shareholders, ensuring transparency and informed decision making.

Dividend policy is formulated taking into consideration overall performance, growth aspirations and market dynamics. Key investor return ratios are given below.

MOVING FORWARD The rights issue during the year was a much needed boost to improve the Group gearing position. However, our aggressive growth plans have resulted in increased borrowings, although the Group debt to equity ratio had improved from 2.6x to 2.5x this year. To further pair down debt , we are aiming at reducing inventories and trade receivables by 25%. Tighter credit control and inventory management through process efficiencies and utilizing the Group inventory management system effectively are planned for the near term.

Financial year end 31 March 2019 2018 Closing share price (Rs.) 16.00 24.60 Earnings per share (Rs.) 0.09 0.25 Dividends per share (Rs.) 0.50 0.65 Net asset value per share (Rs.) 12.30 14.05 Market capitalisation (Rs. Mn) 19,081 23,659 Price to book value (times) 1.30 1.75

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MANUFACTURED CAPITAL

EXPANDING OUR EXISTING BUSINESSES AND ACQUIRING NEW ONES SUPPORTED GROWTH OF MANUFACTURED CAPITAL BY 16.5% TO REACH RS. 50.8 BN. OPENING OF NEW OUTLETS IN THE RETAIL SECTOR, THE START OF OPERATIONS OF A FULLY-FLEDGED TERTIARY CARE HOSPITAL IN KANDY AND THE ACQUISITION OF A HEALTHCARE FACILITY IN GALLE WERE THE MAIN INVESTMENTS DURING THE YEAR, FURTHER CEMENTING OUR PRESENCE TO OUR DISCERNING CUSTOMERS ISLAND WIDE. IN THE RETAIL SECTOR, NEW OUTLETS WERE OPENED, GLOMARK SUPERMARKETS MADE ITS DEBUT AND ASSETS WERE ADDED DUE TO THE ACQUISITION OF COTTON COLLECTION AND HEMAS SOUTHERN HOSPITALS. Rs.46.6 Bn PPE NBV (2018: Rs. 41 Bn) 12.7%

OVERVIEW Manufactured capital constitutes property, plant & equipment (PPE), investment property and WIP on the Odel Mall, together forming 37% of Rs.5.7 Bn the Group total assets. As at 31 March 2019 the Group’s investment in PPE ADDITIONS was Rs. 47 Bn, an increase of 12.7% from 2017/18. The most capital- (2018: Rs. 4.5 Bn) intensive sectors were the Healthcare Sector 44.5%, the Leisure & Property Sector 26.4% and the Retail Sector 23.3%.

Investment property was valued at Rs. 1.7 Bn, an increase of 37.0% Rs.2.5 Bn from 2017/18 due to a revaluation carried out during the year. DEPRECIATION (2018: Rs. 2.3 Bn) Group profitability was affected by a depreciation charge of 10.3% Rs. 2.5 Bn and a revaluation gain on land & buildings amounting to Rs. 1.5 Bn during the year. WIP relating to the ongoing construction of the Odel mall amounted to Rs. 2.6 Bn as at year end (2017/18 - Rs. 0.6 Bn). Rs.1.7 Bn INVESTMENT

PROPERTY 36.9% GROUP MANUFACTURED CAPITAL (2018: Rs. 1.2 Bn) Rs. Bn 2018-19 2017-18

Land & buildings 25.9 24.0 Buildings on leasehold land 6.3 5.6 Rs.1.5 Bn Plant & machinery 3.7 3.5 REVALUATION

Computer equipment, furniture & fittings 5.4 5.1 GAIN 40.3% Motor vehicles 0.5 0.5 (2018: Rs. 2.6 Bn) Capital WIP 4.7 2.7 Total PPE 46.6 41.3 Investment Property 1.7 1.2 Rs.9.1 Bn Odel Mall – WIP 2.6 0.6 CAPITAL

Total Manufactured Capital 50.8 43.6 3.1% 27% COMMITMENTS (2018: Rs. 9.4 Bn)

84 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 PURCHASE & CONSTRUCTION OF PPE PPE - COST (RS. MN) Purchase and construction of PPE increased by 27% to Rs. 5.7 Bn.

Significant investments were made during the year in the Healthcare 83 Services and Retail Sectors that together accounted for more than 90% 10,555 of additions. Information Technology Leisure & Property Automobile DEPRECIATION OF PPE Retail Financial Services The Group depreciation charge on its PPE was Rs. 2.5 Bn, a 10.3% Healthcare increase over the previous year. The highest contributors to depreciation 20,793 6,743 Others 295 was computer equipment & furniture and fittings of Rs. 1.2 Bn followed 1,158 by plant & machinery of Rs. 0.6 Bn and buildings on leasehold land of Rs. 0.4 Bn. Capital intensive sectors such as Healthcare Services Rs. 0.9 Bn, Retail Rs. 0.7 Bn and Leisure & Property Rs. 0.6 Bn had the highest CONSOLIDATED PPE GROWTH deprecation charges. Rs. Mn 50,000

MOVING FORWARD 40,000 Investment in manufactured capital underpins the Group’s growth 30,000 plans. Capital expenditure in the short to medium term is anticipated for the following projects. 20,000 10,000  The construction of the Odel Mall, a 640,000 sq.ft. mixed 0 development project, is expected to be completed in 2021. This 2014/15 2015/16 2016/17 2017/18 2018/19 will house the world’s leading retail brands while also offering 39 exclusive apartments and two floors of multiplex cinema screens

 Total retail space of 91,000 sq.ft. will be taken in the One Galle Face SIGNIFICANT PPE INVESTMENTS IN 2018/19 Mall by Shangri La, Colombo HEALTHCARE SERVICES SECTOR  Retail space of 52,387 sq.ft. to be taken up in Mount Lavinia  Asiri Kandy - a fully equipped tertiary care hospital  Softlogic supermarkets expects to open 10-12 outlets during the - Rs. 2 Bn next financial year  Asiri Galle - acquisition of a hospital in Galle - Rs. 791 Mn

 The Automobile Sector service centre in Rajagiriya will move to a  Medical equipment - Rs. 589 Mn much larger location in Kaduwela offering a full range of services  Asiri AOI cancer centre - Rs. 194 Mn catering to all brands RETAIL SECTOR  New retail outlets at Colombo City Centre - Rs. 523 Mn  GLOMARK supermarkets - Rs. 190 Mn  Burger King outlets and other restaurants - Rs. 107 Mn

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HUMAN CAPITAL

SOFTLOGIC’S DYNAMISM AND INNOVATIVENESS IS UNDERPINNED BY OUR YOUNG AND AGILE TEAM. WE ENABLE OUR EMPLOYEES TO GROW WITH US, OFFERING COMPETITIVE REMUNERATION, NUMEROUS BENEFITS, OPPORTUNITIES FOR LEARNING AND DEVELOPMENT AND A CONDUCIVE WORKING ENVIRONMENT.

THE SOFTLOGIC TEAM 11,042 Our dynamic team of 11,042 employees drive our businesses, surmounting challenging times and thriving EMPLOYEES 14% when the outlook is good. Females comprise 45% of our team, while almost all employees were based in (2018: 9,681) Sri Lanka. EMPLOYEES BY SECTOR 4,974 Male Female FEMALES (2018: 4,162) Information Technology 271 68 19.5% Leisure & Property 541 70 Retail & Telecommunication 2,435 938 Automobiles 131 15 Financial Services 877 504 65 Mn Healthcare Services 1,661 3,331 INVESTMENT IN LEARNING &

Others 152 48 16.7% DEVELOPMENT Group Total 6,068 4,974 (2018: 0.06 Bn)

EMPLOYEES BY AGE Below 20 years 20-30 years 30-40 years >40 years 10.2 Bn PAYMENTS TO 12% Information Technology 5 124 134 76 EMPLOYEES (2018: 9.1 Bn) Leisure & Property 1 217 224 169 Retail & Telecommunication 184 1,643 1,063 483 Automobiles 2 72 35 37 Financial Services 3 549 679 150 6.8 Mn Healthcare Services 106 2,160 1,394 1,332 REVENUE PER Others 1 80 58 61 EMPLOYEE Group Total 302 4,845 3,587 2,308 (2018: 6.8 Mn)

TRAINING EXPENDITURE

3.6% 0.6% 3.3% 12.5% 6.9% 1.5% Information Technology Leisure & Property Retail Automobiles Financial Services Healthcare Services Others

71.6%

86 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 NEW RECRUITS BY SECTOR NEW RECRUITS - AGE WISE (No. of Employees) Sector Recruitments 2018/19 5,000 Information Technology 43 4,000 Leisure & Property 165 Retail & Telecommunication 1,092 3,000 Automobiles 23 Financial Services 402 2,000 Healthcare Services 2,012 1,000 Others 40 Group Total 3,777 0 Below 20-30 30-40 >40 20 years years years years MANAGEMENT APPROACH AND GOVERNANCE

Most operating Sectors of the Group have independent HR functions With its emphasis on a performance driven culture with multiple in order to cater to the diversity of the sectors and the large number opportunities for career progression & development in diverse sectors, of employees. At a Group level, these departments are supported by Softlogic attracts the country’s top talent. We also conduct/participate centralised HR personnel, which ensures implementation of Board in job fairs in various parts of the country to gain visibility and attract approved policy frameworks. Streamlining HR policies and procedures talented individuals from those areas. across have been formulated to ensure compliance with all relevant legal requirements including the prohibition of child labour and providing equal opportunities. CAREER CONVERSATIONS TALENT ATTRACTION – A ONE ON ONE SESSION WITH HR As one of the most dynamic and reputed conglomerates in Sri Lanka, Regular open day sessions are held between the HR the Softlogic Group aims to attract potential employees that are drawn Department and employees. HR visits each Group to its energy, creativity, agility and innovativeness, underpinned by an Company and conducts a one to one discussion with organizational culture that embraces diversity. employees relating to their career & personal growth or any other concern they want addressed within the boundaries of employment. NEW RECRUITS - GENDER WISE (Rs. Mn) Employees discuss the development of their careers 8,000 and the challenges they need to overcome when moving 7,000 forward. They also bring out training and development 6,000 needs. 5,000 4,000 The key objective of these conversations is to bring out 3,000 our employees Voice and act on it. We implemented 2,000 the “Employee of the Month Programme“ at Softlogic 1,000 Ware House based on such a suggestion made by an 0 employees. Male Female

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HUMAN CAPITAL

All new recruits attend a mandatory induction program which includes from the Group, Paternity Leave, Half Day leave to celebrate one’s an introduction to the Softlogic Group, policies and procedures, birthday which is not only benefits to staff but also encourages work life information security and training on the human resources information balance and employee welfare as well. system. The program also focuses on brand awareness and creating new brand ambassadors for the Group. A guest speaker, a ‘success SUCCESSION PLANNING story’ of Softlogic is also invited to speak and motivate the new recruits Succession planning is used to build a strong pipeline of talent and and who in turn is considered a brand icon of Softlogic. A buddy is develop future leaders at all levels. The Group has used succession also allocated to the new recruit from the same department till the planning to address the inevitable changes that occur upon an exit of an completion of six months to ensure seamless integration into the employee to ensure a smooth flow of operations and also to encourage Group. novel ideas of new leaders.

During the year, 3,777 number of employees were recruited, including Our Group Management Trainee Program identifies and train high replacements, to the Softlogic team. New recruits were directed potential employees for advancement into key roles. We filter and primarily towards the Healthcare Services & Retail Sectors, to support select the best performers through a comprehensive selection process, the Group’s growth aspirations. The number of resignations were 4,494 with the attrition rate being 41%.

All Group employees receive a quarterly/semi-annual or annual performance appraisal. KPIs are set at the beginning of the year CAREER GUIDANCE & INTERNSHIP and are monitored throughout and graded quarterly/semi-annually/ PROGRAMS AT ASIRI HEALTH annually. Employees are able to discuss their grading and request for a Asiri Health facilitates Internship programs for University review where differences are unresolved. The emphasis is on a "quality conversation". students, a compulsory requirement to complete their degree program. During the FY 2018/19, more REWARDS AND RECOGNITION than 100 internships were granted in clinical and administrative functions. We have also facilitated medical The Group’s remuneration schemes are competitive and have been designed to attract and retain the country’s top talent. Remuneration is undergraduates participation in clinical procedures as determined on skills, qualifications and results of annual performance observers. appraisals which are carried out for all employees. Exceptional The Career Guidance Unit of University of Sri performers are also recognized and duly rewarded through Spotlight, Jayawardenapura works towards enhancing the the Corporate Employee recognition program and Quarterly/Annual Performance rewards. Total remuneration paid to employees increased employability of the undergraduates to equip them by 12% to Rs. 10.2 Bn during the year. with the necessary soft skills required in the current job market. These soft skills are not catered to during the EMPLOYEE BENEFITS academic lectures conducted by the University. Asiri Employees are entitled to a range of benefits including discounts for Health, encouraged and extended support in achieving products and services of Group companies, medical insurance, mobile the objectives of the Career Skills Development Society phone vouchers, Distress Loans to staff / Educational Loans to staff of the University of Sri Jayawardenapura, and was the and re-imbursements of professional subscriptions. Some of the Gold Partner for the Employability Skills Awards 2018, subsidiaries have introduced Pension Plans for the employees, lower organized by the Career Guidance Unit of the University. interest rates on Hire Purchase transactions on purchase of products

88 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 monitor their performance for one year and decide on their suitability  Retail management and role going forward.  Showroom administration  Life Insurance technical training LEARNING & DEVELOPMENT  Leadership development programme The Group’s performance management framework enables us to  Risk Management effectively identify training needs, ensuring alignment of employee goals with corporate goals. All Sectors have in place comprehensive training  Sales & customer care and development programmes which include on the job-training, cross  In the healthcare sector, clinical and non-clinical training functional and structured training programs. We support employees’  Foreign exposure as per clinical requirements. lifelong learning in many ways; reimbursement of examination fees for certifications of technical staff that enhances our partnership status WORK-LIFE BALANCE with principals such as CISCO and VM Ware, reimbursement of one professional subscription per year related to the field of work and We consider work-life balance as important in ensuring the mental and sponsorship for national conferences held by professional bodies of physical well being of our employees. Encouraging employees to take which an employee is a member. The Group is also an approved training annual leave, practice of flexible working hours where employees have partner for professional bodies such as CA Sri Lanka. Our investment in the option of reporting to work between a given timeframe, ensuring learning & development was Rs. 65 Mn. the well-being of the employee’s family by extending health benefits to family members and feeding hours for female employees returning Key Training Programs Conducted During the Year after maternity leave for a period of one year are some of the initiatives that we have implemented successfully.  Motivation and attitude development  Product training

SOFTLOGIC RESTAURANTS – EMPLOYEE ENGAGEMENT STRATEGY

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HUMAN CAPITAL

level, at a Group level the standard measures of revenue per employee and net profit per employee are used. The net profit per employee ratio improved to Rs. 271 Mn from 235 Mn the year before.

HEALTH AND SAFETY We are committed to providing a safe, hazard-free work environment for Several of our companies were awarded our employees, particularly in the Healthcare Sector where employees the ’Great Place to Work’ for 2018. are exposed to various safety hazards. Targeted prevention efforts, training programmes and drills are conducted regularly to reduce the  Softlogic Life number of work-related injuries and illnesses. During the year, the Asiri  Softlogic Restaurants Group conducted 186 such sessions covering 412 man-days. Fire drills, safety training and first aid are all carried out within the Group.

Further, initiatives have been taken to encourage and foster team MOVING FORWARD activities to bring about well-being of our employees in the nature of In the years ahead, our focus is on enhancing employee retention Bowling Tournaments, Cricket Matches, encouraging the employees through the introduction of targeted initiatives across the Group. to participate in sports activities, Employee outings organized by the companies of which some include the families as well, Staff Get- togethers, Foreign and local tours to name a few of the initiatives taken by Companies in the Group.

EMPLOYEE ENGAGEMENT Maintaining staff morale and motivation through ongoing employee engagement is a key area of focus and numerous formal and informal engagement mechanisms are in place across the Group. A year- round event calendar including religious and cultural celebrations and community engagement initiatives ensure work-life balance and nurture a conducive work environment and team spirit.

EMPLOYEE PRODUCTIVITY Employees’ contribution towards the Group’s growth and profitability objectives are measured through assessing their productivity. While industry-specific indicators are used to monitor productivity at Sector-

90 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 MANAGEMENT DISCUSSION & ANALYSIS CAPITAL MANAGEMENT REPORTS

SOCIAL AND RELATIONSHIP CAPITAL

OUR DIVERSE CUSTOMER BASE RANGING FROM END CONSUMERS, TO DEALERS AND RETAILERS ARE OUR LIFEBLOOD. THE PRINCIPALS WHOM WE REPRESENT ENABLES US TO OFFER A WIDE RANGE OF GLOBALLY REPUTED PRODUCTS OF INTERNATIONAL STANDARDS. THROUGH OUR LOCAL SUPPLIERS WE OFFER UNIQUELY HOME-GROWN PRODUCTS OF EXEMPLARY QUALITY THAT SUPPORTS LOCAL LIVELIHOODS. WE ALSO WORK WITH COMMUNITIES AROUND THE COUNTRY THROUGH NUMEROUS CSR AND ENGAGEMENT INITIATIVES.

Customers

Dealers Distributors

Our Stakeholder Relationships

Principals Suppliers

Community

CUSTOMERS CUSTOMER ENGAGEMENT Dealers, retailers and the end customer all form part of our customer We engage with our customers through many formal and informal base. The Group is represented island-wide through its diverse platforms. Most Sectors track customer satisfaction through feedback businesses. forms, suggestion boxes and formal grievance mechanisms. Feedback is an important component in formulating the Group’s product and Softlogic’s core business verticals cater primarily to the domestic marketing strategies. customers while the Leisure & Property Sector targets both local and international markets. The Group’s Australian venture provides software INNOVATION solutions to the US and Middle-Eastern markets. Softlogic’s strong market positions in the diverse business sectors We have continued to create value to our customers by being it operates owes much to innovation. Emerging customer needs are more accessible through geographical expansion & digitalisation, identified and met through innovative product and service solutions. development of new/existing products/services and introduction of new The Group ventured into several new markets during the year expanding brands to the market underpinned by unwavering service excellence. the product/service offerings to its customers. Highlights of new products/services launched during the year are as follows.

OUR CUSTOMER VALUE PROPOSITION

Engagement Innovation Service Quality Product Responsibility

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SOCIAL AND RELATIONSHIP CAPITAL

SECTOR COMPANY HIGHLIGHTS

Financial Softlogic Finance  Introduction of factoring to its product portfolio Services  Partnered with eZ cash and FriMi, offering customers the option of mobile payment solutions

Retail Softlogic Mobile  Introduced the Micromax brand for the lower end of the market

Odel  Launched brands such as Micheal Kors, Jack and Jones, Armani and Longines watches targeting the upper market segment  Expanding the product offering for home-grown brands with the acquisition of Cotton Collection

GLOMARK  Entry into the modern trade segment with the launch of ‘Softlogic GLOMARK’ in November 2018 offering uniquely curated global experience with a wide selection of items backed by the best of technology, delivering freshness and high quality for a superlative customer experience

Odel/GLOMARK  ‘Softlogic ONE’ Group loyalty rewards program – ability for customers to earn and redeem points across any Odel & Softlogic Brands stores and GLOMARK supermarkets.

Healthcare Asiri  Acquisition of a tertiary healthcare facility in Galle enhancing the Group’s footprint in private Services healthcare services outside the Western Province  Opening of a state of the art cancer centre with facilities that include a linear accelerator for radiotherapy – a first in Sri Lanka  Opening of Asiri Kandy, a fully equipped tertiary care facility in Kandy that expands quality private healthcare facilities to the Central Province  Only healthcare provider in the country to provide MRI scanning facilities outside Colombo at Asiri Kandy  Expansion of the laboratory network enabling patients to access accurate and dependable diagnostic services island-wide

SERVICE QUALITY As a Group with significant interests in the Retail, Hospitality and Healthcare Sectors, we are committed to maintaining the highest standards of service quality. Customer feedback including complaints/grievances are received through formal channels and tracked and analysed on an ongoing basis. Some of the Group companies measure customer satisfaction actively and this has enabled these companies to learn from and respond to both positive and negative and achieve high customer satisfaction rates. Customers are also able to provide feedback on products and services through social media such as

PATIENT SATISFACTION - ASIRI HEALTH CUSTOMER SATISFACTION

5.41% 0.60% 2% 1% 13%

54.01% 84% Excellent Excellent Good Good Average Average Poor Poor

39.98%

92 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 PRODUCT RESPONSIBILITY As a distributor to some of the world’s leading retail brands, the Group is expected to comply with international standards in product responsibility. Measures in place within each Sector that ensures product responsibility are given below.

Retail Information Healthcare Financial Services Leisure & Property Automobiles Technology  Consumer  Adherence  Central Hospital:  Regular statutory  Annual health and  Emissions electronics to principal's Joint Commission reporting to the safety checks conforming - conform to standards for after International Central Bank of by independent to regulatory CE European sales Accreditation Sri Lanka (CBSL) authority requirements Standards. All  Best practices  ISO 9001:2008 and Insurance  Environmental  After-sales skill refrigerators and through Quality Regulatory impacts training is provided air conditioners certifications and Management Commission of Sri assessment by the Principal to are certified with knowledge sharing System Lanka (IRCSL) ensure minimum 3-star and above with principals  ISO 22000:2005  Responsible standard levels  Service support Food Safety marketing through warranties Management communications  Food products System  Transparent are sourced from  Pre-survey for disclosure of all vendors with international product related USDA Organic, hospital information Fairtrade, ISO accreditation with 22000, JAS, LK- Australian Council BIO-149, HACCP, Health Standard SLAB, GMP International certification (ACHSI)*  Regular PHI * Excluding Asiri Central inspections and certified for food establishment  Child safety tests through brands such as ELC and Mother Care

PROMOTING FINANCIAL INCLUSION LENDING BY PROVINCE Softlogic Finance PLC, the Group’s registered finance company, is (Rs.Mn / No.) 1.99% engaged in the provision of loans and advances to individuals and 8.39% enterprises as well as the mobilisation of deposits. The Company’s 1.96% 45.44% Western island-wide reach allows it to provide access to affordable finance to 15.29% Central the country’s most under-served segments, thereby promoting financial North Western inclusion and contributing towards rural development. For instance, Nothern Southern 4.07% the Company’s ‘Atha Hitha’ small business loans are targeted at Uva encouraging small and regional entrepreneurs to develop their ventures. North Central 7.93% Sabaragamuwa 14.94% BUSINESS PARTNERS

The Group’s business partners consist primarily of its international SUPPORTING LOCAL ENTREPRENEURS THROUGH ODEL principals (particularly in the Retail, ICT and Automobile Sectors) and LUV SL’s supply partners comprise of local artisans whose craftsman suppliers through which it procures products. We have nurtured long- ship has been passed on through generations of heritage and term relationships with our international principals, with Nokia being community builders who operate small and medium scale enterprises. the longest - a 25 year partnership. We have also placed strategic By partnering with LUV SL, these local artisans have become local emphasis on widening our product portfolio through partnering with community leaders, supporting livelihoods of a broad community. new principals. During the year under review Softlogic Retail partnered These communities span across all regions in Sri Lanka, adding a with several world renowned brands such as Armani, Micheal Kors and unique flavour to the LUV SL brand through their authenticity and Longines watches. Softlogic Mobile was also appointed the agency for creativity. . With a supply base of over 200 products, LUV SL gives local Micromax.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 93 MANAGEMENT DISCUSSION & ANALYSIS CAPITAL MANAGEMENT REPORTS

SOCIAL AND RELATIONSHIP CAPITAL

small scale players in the market an opportunity to build and grow their FREE CLINICS businesses. Free clinics were held on a weekly basis by the Brain & Spine Centre and Asiri Breast Care Centre of Asiri Central Hospital. 50 neuro clinics and OUR CONTRIBUTION TO THE COMMUNITY 69 breast care clinics were conducted during the year. The depth and diversity of our operations enables us to create The Mother and Baby care unit of Asiri Health conducted 36 antenatal meaningful change in the communities we operate in. Softlogic’s programmes for expecting mothers. 27 Well-Woman Clinics have also community engagement initiatives are governed by its CSR policy been conducted by Asiri Surgical Hospital. which identifies four specific areas for community investments; Health and wellness, youth empowerment, education and other donations. Asiri AOI Cancer Centre organized similar sessions on palliative care All Sectors engage in year-round community engagement projects for cancer patients at the cancer treatment centres in the Western and which are broadly aligned to the said areas of community support. Eastern provinces. The initiatives are formulated, rolled out and monitored in a way that ensures optimum use and effective distribution of resources. Some of the more significant community programs conducted through the year FREE MEDICATIONS AND INVESTIGATIONS FOR UNDERPRIVILEGED PATIENTS are briefly enumerated below. Asiri Surgical Hospital being the only specialized hospital in the country for surgeries, offer medication and investigations free of charge for HEALTH AND WELLNESS selected underprivileged patients depending on their life-time illnesses. A WHOLE LOT OF HEART Softlogic’s Healthcare Sector leverages on its specialised expertise A KILO OF KINDNESS in cardiac care for social benefit by providing free heart surgeries for 1,435 kilos of kindness, dry rations, were distributed among underprivileged children. Asiri Surgical Hospital commenced performing underprivileged pregnant women’s families in the Galenbindunuweva free heart surgeries for under privileged children in 2011 and since then village on 29 September 2018 during the Manusath Derana medical has conducted 193 such surgeries up to 31 March 2019. The patients camp. Mövenpick Hotel was second highest contributor in terms of are either identified at the free health camps organized by Asiri Heart kilos out of 46 participating hotels. Centre in remote areas or are referred by Lady Ridgeway Hospital. Currently, the hospital conducts three free heart surgeries per month. BLOOD DONATION CAMPAIGN A Blood Donation Campaign was organized by the Softlogic Group HEART HEALTH CAMPS HR division which had nearly 70 employees donating blood to the Four Heart Health Camps were organized in Jaffna, Vavunia, Piliyandala and Narahenpita blood bank. Anuradhapura and Ratnapura with the Jaffna camp being conducted in collaboration with military forces. The objective of these camps was to perform basic investigations and to provide health education to the general community.

94 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 YOUTH EMPOWERMENT/EDUCATION OTHER DONATIONS WIN CSR ‘RAY OF HOPE TEA PARTY’ AT THE SALVATION ARMY WIN CSR is a youth education program initiated by Softlogic Life that ELDER’S HOME strives to increase the employability of rural students. This project was In commemoration of Mother’s Day, the CSR team of Mövenpick Hotel launched in 2014 to educate rural youth on the importance of education initiated a visit to the Salvation Army Elder’s Home where the team and for employment. Since then it has evolved to a highly structured a few colleagues spent an evening with the elders by arranging a tea program backed by the Ministry of Education. Softlogic Life employees party. It was an evening filled with joy and laughter for all those who actively participate in this program by conducting training sessions, took part including the elders. mock interviews and mentoring & coaching students. NEW YEAR CELEBRATION WITH ST. MARY’S GIRLS SCHOOL ASIRI SISU DIRIYA Staff of Mövenpick Hotel Colombo donated refreshments for the new An internal CSR initiative which aimed at financially supporting staff year celebration for the Students of St. Mary’s Girls School. members of the Asiri Group by providing a set of stationary for their children’s education. Over 1,100 packs were distributed and the initiative WORKSHOPS CONDUCTED FOR THE KOTELAWALA DEFENCE was well accepted by the beneficiaries. UNIVERSITY HOSPITAL STAFF A series of workshops were conducted by the Infection Control, EDUCATIONAL VISITS Environment, Health & Safety Department and Housekeeping Mövenpick Hotel facilitated educational visits for students from the Department of Asiri Health on good housekeeping practices, chemical University of Colombo - Faculty of Management & Finance, for research handling, laundry management, hand hygiene, infection control purposes, and students of the Anuradhapura Ceylon Hotel School to practices and emergency preparedness on fire and safety for the staff introduce students to its operations. of Kotelawala Defence University Hospital.

LENDING A HAND AND RECOGNISING THE IMPORTANCE OF OTHER INITIATIVES EDUCATION @ SOFTLOGIC As part of a leadership development program, Senior Management of "Charity begins at home" in order to create a culture for a better Softlogic Life was grouped and assigned a CSR project for completion. tomorrow for the children of our employees, at the commencement of The team was given the task of raising funds and completing a CSR the year all school going children of the minor and clerical staff were project with a long term impact. Funds were raised voluntarily from presented with vouchers from DSI and MD Gunasena to purchase their staff members and several projects were completed such as building a shoes, school bags, stationary and books. library and classrooms for a rural school and renovating an orphanage.

We also recognized and appreciated children of our staff who passed MOVING FORWARD the Year 5 Scholarship examination and 9 A’s in the O/L Examination ‘Softlogic One’ the Group loyalty rewards program is to be widened by inviting the children to Softlogic and presenting them with Savings to include Asiri hospitals, Softlogic Max and Softlogic Life Insurance. Account books and appreciating them personally in order to encourage This will undoubtedly create immense value for Softlogic customers them for their future education. as they are able to earn and redeem loyalty points at any of the Group companies participating in the loyalty program. Our business partners will also benefit from the synergies the Group anticipates from centralizing its customer database and the expansion of the Softlogic loyalty program Group-wide.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 95 MANAGEMENT DISCUSSION & ANALYSIS CAPITAL MANAGEMENT REPORTS

INTELLECTUAL CAPITAL

THE USE OF INFORMATION TECHNOLOGY IN TODAY’S WORLD IS INTEGRAL TO ANY BUSINESS AND SOFTLOGIC HAS BEEN A TECHNOLOGY-ORIENTED COMPANY FROM INCEPTION. WE ARE NOW EMBARKING ON OUR JOURNEY TO SAFEGUARD AND OPTIMISE USE OF THE GROUP’S INFORMATION ASSETS TO ENHANCE CUSTOMER EXPERIENCES WITH ENTITIES WITHIN THE GROUP. A CENTRALIZED CUSTOMER DATABASE AND A GROUP WIDE LOYALTY PROGRAM IS EXPECTED TO REVOLUTIONISE THE WAY WE DO BUSINESS BRINGING WITH IT UNTHOUGHT OF SYNERGIES. OUR CUSTOMERS WILL ALSO BENEFIT WITH INFORMATION AND RECOMMENDATIONS ON PRODUCTS AND SERVICES BASED ON THE CUSTOMER’S PROFILE.

Systems Standards Processes People Innovation Brands

ORGANISATIONAL CAPITAL sector during the year. This has enabled the Group to offer a loyalty card covering Odel and GLOMARK supermarkets. The Group vision is to offer SYSTEMS, STANDARDS & PROCESSES an individual customer a Group-wide loyalty card covering all sectors. Almost all our businesses represent renowned international brands. Our This will enable synergies across the Group enabling customer data to principals expect at a minimum, adherence to their own standards in be used to determine a customer’s wants and preferences. both product and service quality. Across the Group, we have met and mostly exceeded the quality requirements expected by our principals, Centralising the customer database of the Group is expected to substantiated through periodical audits. The systems and processes revolutionise the way we do business and drive Group synergy to realise that we have in place to meet high standards of product and service our aspirations of becoming the largest retail Group in the country. excellence, in some instances are certified by local and international Structured management of data available will be valuable not only to the bodies, which helps to provide third party assurance to our stakeholders individual businesses but also to the customer in terms of information (Please refer to pages 91 to 95 on Social and Relationship Capital for on products and services available based on the customer’s profile and the main certifications of the Group). enable us to deliver enhanced customer experiences.

TACIT KNOWLEDGE OF OUR EMPLOYEES The Group’s information technology sector works on the Triple Helix Our established track record in core business sectors is underpinned model to enhance their service offerings to their customers as new by the tacit knowledge base of our employees, which is a source technologies constantly emerge. By partnering with academics in of competitive edge, that allows the Group to maintain its market universities, the Group provides the commercial support required leadership position in several sectors. Our sectors are headed by for research, of which use will ultimately result in creating value for experienced and skilled professionals with drive and determination who customers through provision of innovative services. are able to execute strategy and deliver results while mentoring their teams, shaping the organisation culture. BRANDS The Group represents an unmatched portfolio of leading international INNOVATION brands. World renowned fashion labels, electronic items, consumer The Group uses the ORACLE Enterprise Unit for its back-end accounting durables, automobiles and hotel chains are a few examples (Please which is centralized. This has brought with it many efficiencies in terms refer to the Sector Reviews on page 52 to 79 for a full list of the brands of cost and time. IT systems used in the front end of businesses change we represent). Additionally, the Group’s own brands have built a strong according to a business’s needs but has been centralized for the retail reputation for innovation, quality and customer service and rank among Sri Lanka’s most valuable brands.

96 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Index Group name Rank Brand Value (Rs. Mn)

Brand Annual 2019 - Softlogic Holdings 6 23,223 Conglomerate PLC brands Brands Annual Odel 48 1,870 2019-Most valuable Asiri Health 45 1,989 brands of Sri Lanka Softlogic Finance 82 645 Softlogic Life 43 2,136

MOVING FORWARD Responsibly managing the information assets of the Group through centralizing our customer database across the Group is perhaps our most important project to differentiate ourselves from competition as it will enable us to leverage Group synergies within our wide portfolio of retail businesses. It will also enable us to enhance our customer experience with customized solutions and a centralised loyalty program that connects all our sectors which enables customers to earn and burn points throughout the Group. Management of intellectual capital has been a key strength of the Group enabling us to grow in the toughest times as we strengthen our market positioning across all sectors.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 97 MANAGEMENT DISCUSSION & ANALYSIS CAPITAL MANAGEMENT REPORTS

NATURAL CAPITAL

OUR COMMITMENT TO MINIMISE OUR ENVIRONMENTAL FOOTPRINT REMAINS A KEY PRIORITY AND IT IS EMBEDDED IN TO OUR OPERATIONS AS WE FIRMLY BELIEVE THAT REDUCING OUR ENVIRONMENTAL FOOTPRINT ALSO REDUCES OUR COSTS AND MAXIMISES VALUE DELIVERED TO STAKEHOLDER. ONE OF OUR MOST SIGNIFICANT CONTRIBUTIONS TO THE COUNTRY AND THE COMMUNITY IS MAKING AVAILABLE THE LATEST TECHNOLOGY TO SRI LANKANS THROUGH OUR RETAIL AND COMMUNICATIONS AND IT SECTORS WHICH ARE SUPPORTED BY GLOBAL GIANTS WHO ARE DEDICATED TO ENHANCING THE ENERGY EFFICIENCIES OF THE PRODUCTS WE RETAIL SUPPORTING DECREASED ENERGY USAGE INTENSITY RATIOS.

Minimising the environmental footprint from our operations

Our Commitment to the Environment

Consumer durable brands representing Preserving our environmentally friendly country’s natural products resources

OVERVIEW MINIMISING OUR ENVIRONMENTAL FOOTPRINT Group companies registered with the Central Environmental Authority We adhere to best practices in the industries we operate as we adheres to the standards imposed and quality inspections carried endeavour to minimize our environmental footprint. out by such regulatory authority. We are however cognizant of the responsibility we have towards the environment and have adopted Energy: Usage of LED lighting solutions with timers, inverter technology concerted efforts to minimize the waste and emissions of our and chiller management operations while initiatives are in place across the Group to reduce energy and water consumption. As a leading retailer of consumer Water: Usage of water treatment plants in the Healthcare Sector durables, we represent leading brands that are constantly innovating and supermarkets in the Retail Sector, usage of water regulators as its products to be more environmentally friendly and therefore are appropriate in the Leisure Sector able to drive consumer preferences towards such products. We have also carried out several projects during the year as well as continuing Waste: Recycling of paper and cardboard, wet garbage sent to ongoing projects that helps to preserve our country’s natural resources. piggeries, hazardous waste such as clinical waste in the Healthcare There were no fines or penalties imposed due to con-compliance with Sector disposed through incineration, e-waste disposed via approved any environmental laws or regulations during the year. CEA recyclers, customers’ e-waste also disposed via approved CEA recyclers on request, trade-in/trade-up promotions of consumer durables that result in customers bringing in their used electronic items which are then partly utilized or disposed for recycling.

98 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 PAPER RECYCLING Softlogic Holdings PLC engages in the responsible disposal of its paper waste by recycling used paper through an approved third-party recycler. During the year under review, this initiative is estimated to have resulted in the savings of;

Trees Oil Electricity Water Landfill Carbon Emissions

CLEAN ZONE INITIATIVE - SOFTLOGIC FINANCE to evolve in terms of technology resulting in products with increased The Clean Zone initiative is our response to the national garbage crisis energy efficiency and helps to reduce the carbon footprint. The and is a carefully-planned, large-scale effort aimed at improving the Automobiles Sector also offers products that meet with or exceed cleanliness of a 2km roadside extent around each branch by mobilizing emission standards set by local regulatory authorities and is fuel public support for waste segregation and recycling. The initiative efficient. Such products in our portfolio include: ensures safer environments and better control of diseases such as dengue. PRESERVING OUR NATURAL RESOURCES EARTH HOUR CELEBRATIONS- MÖVENPICK HOTEL DISTRIBUTION OF WASTE BINS - ASIRI HEALTH Earth Hour is fast becoming one of the world’s largest grassroots Parallel to the beach clean up carried out by Asiri Health in Preethipura, movements for the environment. Mövenpick Hotel Colombo teamed up waste bins were distributed to an elders’ home in the area. The waste with St Mary’s Girls School Kollupitiya, to not only celebrate this event, bins were colour coded and labelled so that the residents of the elders but to also carry out a long-term plan by planting trees. home are able to segregate waste to ensure correct disposal. The initial part of the programme was a lecture conducted by an WORKSHOP ON CLINICAL WASTE MANAGEMENT - ASIRI Environmental specialist to the students on 14 March in preparation CENTRAL HOSPITAL for Earth Hour. Over 75 students participated with the school principal. The tree planting programme was the second event conducted within Asiri Central Hospital conducted a workshop on Clinical Waste the school premises together with the colleagues of Mövenpick Hotel Management at the District Hospital – Maligawatta with the Colombo, on 21 March. The Mövenpick team assisted the school in collaboration of the Sri Lanka Association for the Advancement fixing a gate for the herbal garden, levelling the ground and together, of Sciences (SLASS) – Environment Committee. The consultant planted 15 herbal trees with the students. microbiologist, manager – environment, health & safety and infection control nursing officers were the resource personnel for this workshop. LUVSL- ODEL LUVSL aims bringing in to light animal conservation and environmental ENVIRONMENTALLY FRIENDLY PRODUCTS AND SERVICES protection each year, through thematic ensembles of products, made As a leading retailer of consumer durables, we are cognisant of being for World Animal Day and World Environment Day. able to drive the use of environmentally friendly products among our vast clientele. The Retail Sector carries many brands that continues

Product Energy efficient feature TV Low power system on-chip design  Samsung LED TV which is estimated to be around 35% more energy efficient compared to the LCD TV Bulbs Panasonic LED bulbs with unique Centre Mount Technology with energy efficiency estimated to be 84% higher than incandescent light-bulbs Air Conditioners Panasonic air conditioners with inverter technology Printer Power consumption saving for sleeping mode PC Software for PC power saving mode using a chip set motion mode control WAP Power saving automation technology for user and scheduled-based wireless RAN King Long buses Adheres to EURO 4 emission standards and is fuel efficient Suzuki 2 wheelers Adheres to government emission standards Ford Ford has the eco-boost engine which has got the capability of delivering more power with less fuel consumption. Its small size consumes less fuel and has the technology to deliver more power compared to the conventional engines which are bigger in size with more fuel consumption and provides less power.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 99 MANAGEMENT DISCUSSION & ANALYSIS CAPITAL MANAGEMENT REPORTS

NATURAL CAPITAL

MANNAR UNBOUND: A JOURNEY THROUGH HISTORY AND NATURE – SOFTLOGIC LIFE Softlogic Life has supported the publication of ‘Mannar Unbound’—a photographic documentation and presentation of the biodiversity and natural landscape of Mannar authored by four Sri Lankan professionals— Dr. Thilak Jayaratne, Dr. Janaka Gallangoda, Tamara Fernando and Nadika Hapuarachchi— whose passion is wildlife photography and conserving Lanka’s flora and fauna. As a Sri Lankan corporate dedicated towards conserving natural resources, Softlogic Life has further strengthened its sustainability efforts by not only inspiring these authors to launch ‘Mannar Unbound’ but also re- emphasize the commitment towards conserving what is rare and beautiful for future generations in our country.

MOVING FORWARD We plan to strengthen our environmental sustainability efforts going forward. A rain water harvesting system is in the offing in the Healthcare Sector while plans for moving into renewable energy is still being considered in the Leisure Sector once tourism sector picks up and stabilizes. We are also committed to supporting energy efficiencies in the homes and offices of our customer through our Retail Sector and the IT Sector by introducing the latest energy efficient products to Sri Lankans.

100 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 BOLD IS BRISK COMMITTEE REPORTS

Annual Report of the Board of Directors on the Affairs of the Company 102 Board Audit Committee Report 105 Board Related Party Transactions Review Committee Report 106 HR & Remuneration Committee Report 107

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 101 ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY

The Directors of Softlogic Holdings PLC have pleasure in presenting to SIGNIFICANT ACCOUNTING POLICIES the members their Annual Report together with the Audited Financial The significant accounting policies adopted in the preparation of the Statements of the Company and the Group for the year ended 31 March Financial Statements are given on pages 124 to 222 of the Annual 2019. Report. There was no change in the accounting policies adopted from the previous year except for the first time adoption of SLRFS 9; Financial GENERAL Instruments and SLRFS 15; Revenue from Contracts with Customers. Softlogic Holdings PLC is a Public Limited Company which was incorporated under the Companies Act No. 17 of 1982 as a Private PROPERTY, PLANT & EQUIPMENT Limited Company on 25 February 1998, re-registered under the The details and movement of property, plant and equipment during the Companies Act No. 7 of 2007 on 17 December 2007, converted to a year under review is set out in Note 22 to the Financial Statements on Public Limited Liability Company on 10 December 2008, and listed pages 166 to 172. on the Colombo Stock Exchange on 20 June 2011. The name of the Company was changed to Softlogic Holdings PLC on 25 August 2011. CAPITAL EXPENDITURE The total capital expenditure incurred on the acquisition of property, PRINCIPAL ACTIVITIES plant and equipment for the Company and the Group amounted to The principal activities of the Company are holding investments Rs. 2 Mn (2018 – Rs. 49 Mn) and Rs. 5,743 Mn (2018 – Rs. 4,524 Mn) and providing management services and financial assistance to its respectively. Details of capital expenditure and their movements are subsidiaries. The Principal activities of the subsidiary companies are given in Note 22 to the Financial Statements on pages 168 and 169 of providing Healthcare, Financial, Insurance services, Hospitality and, the Annual Report. Leisure services, Products & Services relating to Retail, Automobiles, Information Technology and the Communication. In addition to the above, a sum of Rs. 1,977 Mn (2018 - Rs. 619 Mn) has been incurred by the Group in respect of the Odel Mall project. FUTURE DEVELOPMENTS An indication of likely future developments is set out in the Chairman’s RESTRUCTURING OF THE RETAIL SECTOR OF THE GROUP Review on pages 16 to 19 In the ordinary course of business the Group Softlogic Retail Holdings (Pvt) Ltd (SRH) was incorporated to develops new products and services in each of its business segments. restructure the Retail Sector of the Softlogic Group in order to consolidate all retail operations under one arm. PERFORMANCE REVIEW The ownership of Odel PLC was transferred to SRH as part of the The Financial Statements reflect the state of affairs of the Company restructuring process during the year under review. and the Group. This Report forms an integral part of the Annual Report of the Board of Directors. RESERVES FINANCIAL STATEMENTS The reserves of the Company and the Group amounted to Rs. 3,871 Mn (2018 – Rs. 5,193 Mn) and Rs. 2,304 Mn (2018 – Rs. 3,396 Mn) Section 168 (b) of the Companies Act require that the Annual Report respectively. of the Directors include Financial Statements of the Company, in accordance with Section 151 of the Act and Group Financial Statements The movement and composition of the Capital and Revenue reserves is for the accounting period, in accordance with section 152 of the Act. disclosed in the Statement of Changes in Equity. The requisite Financial Statements of the Company are given on pages 116 to 222 of the Annual Report. DONATIONS

DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING During the year, donations made by the Company and the Group amounted to Rs. 30,000 (2018 - Rs. 570,000) and Rs. 8.2 Mn (2018– Rs. The Directors are responsible for the preparation of the Financial 16.9 Mn) respectively. Statements of the Company to reflect a true and fair view of the state of affairs. The Directors are of the view that these Financial Statements have been prepared in conformity with the requirements of the DIVIDENDS Companies Act No. 07 of 2007 and the Sri Lanka Accounting Standards. The Directors declared a final dividend of Rs. 0.50 (2017/18) per share (tax A statement in this regard is given on page 110. free) during the year under review which was paid on 17 September 2018.

AUDITOR’S REPORT STATED CAPITAL The Auditor’s Report on the Financial Statements is given on pages 111 The stated capital of the Company as at 31 March 2019 was Rs. to 115 of the Annual Report. 12,119,234,553 represented by 1,192,543,209 shares. The stated capital of the Company was increased from Rs. 8,195,382,715 representing

102 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 961,728,395 ordinary shares during the year under review, with the Prof. A S Dharmasiri rights issue of 230,814,814 shares at Rs. 17.0 per share in May 2018. Mr. A Russell-Davison Mr. S Saraf EVENTS AFTER THE DATE OF THE STATEMENT OF Mr. J D N Kekulawala (Appointed w.e.f. 09 January 2019) FINANCIAL POSITION Mr. C K Gupta (Alternate Director to Mr. S Saraf). No circumstances have arisen and no material events have occurred after the date of Statement of Financial Position, which would require Mr. R A Ebell (Resigned w.e.f. 31 December 2018) adjustments to, or disclosure in the accounts other than those disclosed in Note 53 to the Financial Statements. RETIREMENT AND RE-ELECTION OF DIRECTORS In terms of Article 87 of the Articles of Association of the Company, Mr. UNLISTED DEBENTURES M P R Rassool, Mr. W M P L De Alwis, PC and Prof. A S Dharmasiri retire Rs. 1 Bn was raised by issuing unlisted, unsecured debentures during by rotation and being eligible offer themselves for re-election. the year with a maturity date on 7 February 2022. Interest is payable bi-annually at the rate of 16.75% per annum (Note 40). In terms of Article 94 of the Articles of Association of the Company, Mr. J D N Kekulawala retires and being eligible offers himself for re-election. TAXATION The Directors have recommended the reappointment of Mr. G L H The information relating to Income Tax and Deferred Taxation is given in Premaratne who is 71 years of age, as a Director of the Company; and Note 19 to the Financial Statements. accordingly a resolution will be placed before the shareholders in terms of Section 211 of the Companies Act in regard to the re- appointment of STATUTORY PAYMENTS Mr. G L H Premaratne. The Directors, to the best of their knowledge and belief are satisfied that all taxes, duties and levies payable by the Company and the Group, DIRECTORS’ SHAREHOLDING all contributions, levies and taxes payable on behalf of, and in respect Directors’ interest in the shares of the Company as at 31 March 2019 of, the employees of the Company and the Group, and all other known were as follows. statutory dues as were due and payable by the Company and the Group as at the date of the Statement of Financial Position have been paid Name of Director As at 31 March As at 31 March or, where relevant provided for, except as specified in Note 50 to the 2018 2019 Financial Statements, covering contingent liabilities. No. of Shares No. of Shares Mr. A K Pathirage 384,181,775 477,843,941 RELATED PARTY TRANSACTIONS Mr. G W D H U Gunawardena 57,527,300 71,333,852 The Company’s transactions with Related Parties, given in Note 48 to Mr. R J Perera 60,836,700 75,437,508 the Financial Statements have complied with the Listing Rules of the Colombo Stock Exchange. Mr. H K Kaimal 64,870,800 80,439,792 Mr. M P R Rassool - -

DIRECTORATE Dr. S Selliah 2,000,000 2,480,000 Mr. W M P L De Alwis, PC - - The following Directors held office during the year under review. The biographical details of the Board members are set out on pages Mr. G L H Premaratne - - 22 to 25. Mr. R A Ebell - - Prof. A S Dharmasiri - - Mr. A K Pathirage Mr. A Russell-Davison - - (Chairman/Managing Director) Mr. S Saraf - - Mr. G W D H U Gunawardena Mr. C K Gupta -- Mr. R J Perera (Alternate Director to Mr. S Saraf) Mr. H K Kaimal Mr. J D N Kekulawala - - Mr. M P R Rassool Dr. S Selliah Mr. W M P L De Alwis, PC Mr. G L H Premaratne

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 103 ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY

DIRECTORS’ REMUNERATION ended 31 March 2019 (2018 – Rs. 2.5 Mn) by the Company. Details of Details of remuneration and other benefits received by the Directors are which are given in Note 18 to the Financial Statements. set out in Note 18 to the Financial Statements. As far as the Directors are aware, the Auditors do not have any relationship (other than that of an auditor) with the Company that would DIRECTORS’ INTERESTS IN CONTRACTS AND PROPOSED have an impact on their independence. The Auditors also do not have CONTRACTS WITH THE COMPANY any interest in the Company. Directors’ interests in contracts, both direct and indirect are referred to in Note 48 to the Financial Statements. The Directors have no direct Having reviewed the independence and effectiveness of the external or indirect interest in any other contract or proposed contract with the auditors, the Audit Committee has recommended to the Board that the Company. existing auditors, Messrs Ernst & Young, Chartered Accountants be reappointed. Ernst & Young have expressed their willingness to continue INTERESTS REGISTER in office and an ordinary resolution reappointing them as auditors and authorising the Directors to determine their remuneration will be The Interests Register is maintained by the Company as per the proposed at the forthcoming AGM. Companies Act No. 07 of 2007. All Directors have disclosed their interests pursuant to Section 192(2) of the said Act. GOING CONCERN

SHAREHOLDERS’ INFORMATION The Directors having assessed the environment within which it operates, the Board is satisfied that the Company and the Group have The distribution of shareholders is indicated on page 224 of the Annual adequate resources to continue its operations in the foreseeable future. Report. There were 10,676 registered shareholders as at 31 March 2019 Therefore, the Directors have adopted the going-concern basis in (31 March 2018 – 11,032). preparing the Financial Statements.

SHARE INFORMATION ANNUAL GENERAL MEETING Information on share trading is given on page of the Annual Report. The Annual General Meeting of the Company will be held at the Auditorium of Central Hospital Ltd (4th Floor), No. 114, Norris Canal INTERNAL CONTROL Road, Colombo 10 on Wednesday, the 31 July 2019 at 10.00 a.m. The The Directors are responsible for the governance of the Company Notice of the Annual General Meeting is on page 230 of the Annual including the establishment and maintenance of the Company’s system Report. of internal control. Internal control systems are designed to meet the particular needs of the organisation concerned and the risk to which it For and on behalf of the Board is exposed, and by their nature can provide reasonable but not absolute assurance against material misstatement or loss. The Directors are satisfied that a strong control environment is prevalent within the Company and that the internal control systems referred to above are effective. A K Pathirage H K Kaimal

RISK MANAGEMENT Chairman/Managing Director Director The Group’s risk management objectives and policies and the exposure to risks, are set out in pages 46 to 49 of the Annual Report.

CORPORATE GOVERNANCE Softlogic Corporate Services (Pvt) Ltd The Report on Corporate Governance is given on pages 32 to 36 of the Secretaries Annual Report.

04 July 2019 THE AUDITORS Colombo The Board Audit Committee reviews the appointment of the external auditors, as well as their relationship with the Group, including monitoring the Group’s use of the auditors for non-audit services and the balance of audit and non-audit fees paid to the auditors.

The Auditors of the Company, Messrs Ernst & Young, Chartered Accountants were paid Rs. 2.8 Mn as audit fees for the financial year

104 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 BOARD AUDIT COMMITTEE REPORT

SCOPE no members of Management present, to cover matters they wish to discuss The Board Audit Committee supports the Board of Directors in discharging in confidence. its oversight responsibilities of financial reporting, compliance with laws & regulations, internal audit function, risk management and internal controls ACTIVITY & FOCUS, AND REPORTING and reviews the performance and independence of external auditors. The Committee has continued to focus its attention mainly on the following during the year: The Committee does not engage directly with Group companies covered 1. The integrity of the Company’s and Group’s Financial Statements, by other audit committees, established under regulatory requirements; including the reasonableness of assertions made, the appropriateness instead, reviews the minutes of those committees’ meetings and receives of accounting policies used, the adequacy of presentation and appropriate briefings on matters arising from those. disclosures made, and the effectiveness of internal control over financial reporting. This has continued to be a major thrust of the COMPOSITION Committee; The Committee consisted of the following members, who are all a. Interactions with the External Auditors of the Holding Company, and the Independent Non-Executive Directors. Their profiles appear in the Board of Group companies not covered by separate Board Audit Committees, on Directors section elsewhere in this Annual Report. their audit plans, observations and key findings; Mr. J D N Kekulawala (Chairman)* b. Review and follow-up of observations in Management Letters Mr. R A Ebell ** presented by these auditors post-audit, with the relevant Group Dr. S Selliah companies and; Prof. A Dharmasiri c. Discussion with property valuers and actuaries entrusted with valuation of retirement gratuities. Mr. A Russell-Davison# 2. Procedures in place to examine the Company’s ability to continue as a Mr. W M P L De Alwis, PC## going concern. * Mr. J D N Kekulawala was appointed as a Director on 09 January 2019 and was appointed as the Chairman of the Audit committee on the same date. 3. The work and performance of the Internal Auditors. ** Mr. R A Ebell ceased to be a Director of Softlogic Holdings PLC from 31 4. The Group’s implementation of ERP software, so far as it impacted on December 2018 financial accounting and reporting. # Mr. Russell-Davison subsequently resigned from the Committee on 20 April 5. Review of procedures in place to monitor compliance with applicable 2018 on assuming executive responsibilities in Softlogic Finance PLC. Laws & Regulations. ## Mr. W M P L De Alwis, PC was appointed on 26 July 2018 6. Review of steps focused on IT Security. Mr. D Vitharanage, Chief Internal Auditor/Chief Risk Officer served as the Committee’s Secretary 7. Greater formalisation of processes enabling whistle-blowing.

The composition of the Committee enables a blend of finance & accounting The Committee makes written reports to the Group Chairman/Managing knowledge and wide business experience to guide its deliberations and Director, for dissemination to the Board, following each quarterly meeting at actions. which Financial Statements are reviewed. These draw attention to matters needing consideration and action. The Committee also briefs the Group MEETINGS Chairman/Managing Director from time to time on matters of importance, The Committee met quarterly to review and make recommendations on generally at meetings scheduled by him periodically with the Non-Executive the quarterly and annual financial statements before they were considered Directors. and approved by the Board. It met at several other times also, to consider matters referred to in the rest of this Report. REAPPOINTMENT OF EXTERNAL AUDITORS The Audit Committee has proposed to the Board of Directors, having The Committee met eight times during the year. Attendance at these considered their independence and performance, that the incumbent meetings was as follows: auditors Ernst & Young, Chartered Accountants be re-appointed for the Mr. J D N Kekulawala 2/2 year ending 31 March 2020 at the Annual General Meeting. Mr. R A Ebell 6/6 Dr. S Selliah 7/8 Prof. A Dharmasiri 6/8 Mr. A Russell-Davison Nil Mr. W M P L De Alwis 5/6 Mr. J D N Kekulawala Chairman The Group Finance Director attended the Committee’s meetings by Audit Committee invitation, and other members of the Senior Management attend meetings by invitation when necessary. The External Auditors attended meetings 04 July 2019 when their presence was necessary; they attended four of the meetings held during the year. The Committee meets with the External Auditors, with Colombo

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 105 BOARD RELATED PARTY TRANSACTIONS REVIEW COMMITTEE REPORT

PURPOSE REVIEW OF RELATED PARTY TRANSACTIONS The purpose of the Related Party Transactions Review Committee is FOR THE PERIOD to conduct an appropriate review of Softlogic Group’s related party The Committee reviewed all proposed Related Party Transactions of transactions and to ensure that interests of shareholders and other Softlogic Holdings PLC and scrutinised such transactions to ensure that stakeholders are considered when engaging in related party dealings, they are no less favourable to the Group than those generally available hence preventing Directors, Key Management Personnel or substantial to an unaffiliated third party in a similar circumstance. The activities shareholders taking advantage of their positions. The Committee of the Committee have been communicated to the Board quarterly ensures adherence to the rules set in the Code of Best Practices through tabling minutes of the meeting of the Committee at Board on related party transactions issued by the Securities & Exchange Meetings. Commission of Sri Lanka (SEC) and CA Sri Lanka. The Committee states opinions in accordance with the charter of the Related Party Relevant disclosures have been made to the Colombo Stock Exchange Transaction Review Committee. It reviews the charter and policies in compliance with regulations. Details of Related Party Transactions while making recommendations to the Board as and when deemed entered by the Group during the above period are disclosed in Note 48 necessary. to the Financial Statements.

COMPOSITION The Related Party Transactions Review Committee comprises two Non-Executive Independent Directors, including the Chairman, and one Executive Director. Dr. S Selliah Chairman Related Party Transactions Review Committee Dr. S Selliah Non-Executive Independent Chairman Director 04 July 2019 Mr. W M P L De Alwis, PC Non-Executive Independent Member Colombo Director Mr. H K Kaimal Executive Director Member

MEETINGS

Name Attendance Dr. S Selliah 4/4 Mr. W M P L De Alwis, PC 4/4 Mr. H K Kaimal 3/4

Softlogic Corporate Services (Pvt) Ltd., serves as secretary to the Committee. The Group Finance Director attends the meetings by invitation.

106 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 HR & REMUNERATION COMMITTEE REPORT

PURPOSE OUR REWARD FRAMEWORK The principal purpose of the Committee is to consider, agree and The Committee focused on delivering a reward framework that is recommend to the Board a remuneration policy that is aligned with its transparent, tailored to individual roles and provide a clear link to long term business strategy, objectives, risk appetite, values and the Softlogic’s strategic objectives. The objective is to drive performance long term interests of the Group whilst also recognising the interests of to the highest standards while rewarding both performance and value stakeholders. behaviours. It seeks to be sufficiently competitive in order to attract, retain and motivate employees of the highest calibre. The responsibilities of the Committee are laid out in its written Terms of Reference (TOR). The Committee spent time understanding the interaction of remuneration and culture of the organisation and how our remuneration COMMITTEE COMPOSITION AND MEETING structures influence our chosen strategic behaviours. We performed a comprehensive review of our executive remuneration offering in order to The Remuneration Committee comprises of three Non-Executive optimise the structure of our package to enhance competitiveness. Directors (two of whom, including the Chairman, are Independent Directors). Decisions of the Committee are taken at meetings or by circular resolutions. Softlogic Corporate Services (Pvt) Ltd., serves as SUMMARY secretaries to this Committee. Group Director Human Capital attends The Remuneration Committee will continue to monitor the remuneration the Committee Meetings by invitation. During the year under review, one policy to ensure that it is correctly aligned with the Group’s strategy. The Remuneration Committee meeting was held. The composition of the Committee’s policy aims to properly reward performance in line with the Remuneration Committee and the attendance at the meeting held is as Company’s business objectives and growth to enrich shareholder value. below:

Name Category Attendance Prof. Ajantha Dharmasiri Chairman 01/01

Mr. Prasantha Lal De Alwis, PC Member 01/01 Prof. Ajantha S. Dharmasiri Mr. Harris Premaratne Member 01/01 Chairman Mr. R A Ebell Member 01/01* Board Remuneration Committee * - Ceased to be a member w.e.f. 31 December 2018.

04 July 2019 The Chairman of the Group, who is also Managing Director, attends meetings by invitation. No Director of the Company is involved in Colombo determining his own remuneration. The Chairman of the Committee reports to the Board on its activities.

ACTIVITIES OF THE YEAR We continued to ensure that our remuneration policies were consistent with our strategic objectives, and were designed with the long term success of the Group in mind. This was particularly so when considering how our remuneration schemes can drive behaviour in line with our chosen objectives and in line with industry best practices.

Our investment in a renowned HR platform, will continue to strengthen the effectiveness and efficiency of the system and processes.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 107 108 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 BOLD IS

FINANCIAL STATEMENTS

Statement of Directors’ Responsibilities 110 Independent Auditor’s Report 111 Income Statement 116 Statement of Comprehensive Income 117 Statement of Financial Position 118 Statement of Changes In Equity 120 Cash Flow Statement 122 Notes to The Financial Statements 124

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 109 STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The responsibilities of the Directors, in relation to the Financial undertake whatever inspections they may consider to be appropriate to Statements of the Company differ from the responsibilities of the enable them to give their independent audit opinion. Auditors, which are set out in the Report of the Auditors on Pages 111 to 115. The Directors are of the view that they have discharged their responsibilities as set out in this statement. The Companies Act No. 07 of 2007 stipulates that the Directors are responsible for preparing the Annual Report and the Financial COMPLIANCE REPORT Statements. Company law requires the Directors to prepare Financial The Directors confirm that to the best of their knowledge, all taxes, Statements for each financial year, giving a true and fair view of the duties and levies payable by the Company, all contributions, levies state of affairs of the Company at the end of the financial year, and and taxes payable on behalf of and in respect of the employees of the of the Statement of Comprehensive Income of the Company and the Company and other known statutory dues as were due and payable Group for the financial year, which comply with the requirements of the by the Company as at the date of the Statement of Financial Position Companies Act. have been paid or, where relevant provided for, in arriving at the financial results for the year under review except as specified in Note 50 to the The Directors consider that, in preparing Financial Statements set out Financial Statements covering contingent liabilities. on Pages 116 to 222 of the Annual Report, appropriate accounting policies have been selected and applied in a consistent manner and For and on behalf of the Board of supported by reasonable and prudent judgments and estimates, and that all applicable accounting standards have been followed. The Directors confirm that they are justified in adopting the going concern SOFTLOGIC HOLDINGS PLC basis in preparing the Financial Statements since adequate resources are available to continue operations in the foreseeable future.

The Directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy, at any time, the financial SOFTLOGIC CORPORATE SERVICES (PVT) LTD position of the Company and enable them to ensure the Financial Secretaries Statements comply with the Companies Act No. 07 of 2007 and are prepared in accordance with Sri Lanka Accounting Standards (SLFRS/ LKAS). 04 July 2019 Colombo 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 auditors with every opportunity to take whatever steps and

110 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 INDEPENDENT AUDITOR’S REPORT

INDEPENDENT AUDITOR’S 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 professional Holdings PLC (“the Company”), and the consolidated Financial judgment, were of most signifi cance in our audit of the Statements of the Company and its subsidiaries (“the Group”), Financial Statements of the current period. These matters which comprise the statement of fi nancial position as at were addressed in the context of our audit of the Financial 31 March 2019, income statement and the statement of Statements as a whole, and in forming our opinion thereon, comprehensive income, statement of changes in equity and and we do not provide a separate opinion on these matters. For statement of cash fl ows for the year then ended, and notes to each matter below, our description of how our audit addressed the Financial Statements, including a summary of signifi cant the matter is provided in that context. accounting policies. We have fulfi lled the responsibilities described in the Auditor’s In our opinion, the accompanying Financial Statements of responsibilities for the audit of the Financial Statements the Company and the Group give a true and fair view of the section of our report, including in relation to these matters. fi nancial position of the Company and the Group as at 31 Accordingly, our audit included the performance of procedures March 2019, and of their fi nancial performance and cash designed to respond to our assessment of the risks of material fl ows for the year then ended in accordance with Sri Lanka misstatement of the Financial Statements. The results of Accounting Standards. our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit Basis for opinion opinion on the accompanying Financial Statements. We conducted our audit in accordance with Sri Lanka 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 fulfi lled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our opinion.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 111 INDEPENDENT AUDITOR’S REPORT

Key audit matter How our audit addressed the key audit matter

Valuation of land and buildings of the Group Our audit procedures focused on the valuations performed by external valuers engaged by the Group, and included the As at reporting date 31 March 2019, land and buildings (including following; buildings on leasehold land) carried at fair value, classified as Property, Plant & Equipment and Investment Property amounting • We assessed the competency, capability and to Rs. 32.2 Bn and Rs. 1.7 Bn respectively were carried at fair value. objectivity of the external valuers engaged by the The fair value of those assets such property was determined by Group. external valuers engaged by the Group. The valuation of them • Read the external valuer’s report and understood the land and buildings was significant to our audit due to the use of key estimates made and the approach taken by the significant estimates such as per perch price and value per square valuers in determining the valuation of each property. foot disclosed in notes 22.3 and 24.2 to the Financial Statements. • We engaged our internal specialised resources to assist us in assessing the appropriateness of the valuation technique/s and reasonableness of the per perch price used.

We have also assessed the adequacy of the disclosures made in notes 22.3 and 24.2 to the Financial Statements relating to the valuation technique and estimates used by the external valuers.

Impairment of Loans and Advances in a subsidiary from To assess the reasonableness of the allowance for Finance Activities. impairment, we performed the following key procedure, among others: As at 31 March 2019, Loans and advances in a subsidiary amounted to Rs. 17.3 Bn. This contributed 13.2% to the Group • We evaluated the design, effectiveness of key internal Company’s total assets. The impairment of loans and advances to controls over estimation of impairment for Loans, customers from finance activities is estimated by the management Advances and Lease receivables, which included through the application of judgment and use of subjective assessing the level of oversight, review and approval assumptions and estimations of the expected credit losses within of impairment policies by the Board Audit Committee the loan portfolios at the reporting date. Due to the significance of and management. loans and advances adoption of SLFRS 09 and related estimation • We test-checked the underlying calculations and data uncertainty, this is considered as a key audit matter. used in such calculations on a sample basis; The related estimates used for the provision of impairment of loans For those collectively assessed for impairment: and advances from finance activities is disclosed under note 33.1 and 29.3 to the Financial Statements. • 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 judgmental overlays, by comparing them with relevant publicly available data and information sources.

112 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Key audit matter How our audit addressed the key audit matter

Interest bearing loans and borrowings of the Group. Our audit procedures included the following;

As disclosed in note 40 and note 46 the Group’s total interest- • We obtained an understanding of the covenants bearing loans and borrowings amounted to Rs. 58.0 Bn. The attached to external borrowings, by reading the loan maturities of such interest-bearing loans and borrowings are agreements. disclosed in note 9.3.3 • We evaluated the statement prepared by the The management’s assessment of Group’s ability to continue management and tabled at a board meeting on to meet its financial covenants and liquidity risk aspects were the Group’s compliance with applicable financial largely based on expectations and informed estimates. Therefore, covenants as at 31 March 2019. we considered compliance with financial covenants and Group’s liquidity risk aspects as a key audit matter. • We obtained confirmations from external lending institutions about compliance by the Group with covenants.

We assessed the adequacy of the disclosures made in note 40, note 46 and note 9.3 to the Financial Statements relating to the interest-bearing loans and borrowings and liquidity risk aspects.

Insurance contract liabilities in a subsidiary Our audit procedures focused on the valuations performed by the external actuary engaged by the subsidiary The Group has significant insurance contract liabilities amounting company of the Group and included the following; to of Rs. 8.3 Bn which represents 7.8% of the Group’s total liabilities. • We involved the component auditor of the subsidiary The valuation of the insurance contract liabilities in relation to the company to perform the audit procedures to assess life business required the application of significant assumptions the responsibility of the assumptions and test the such as mortality, morbidity, lapses and surrenders, loss ratios, key controls on a sample basis over the process of bonus and expenses and assessing the completeness and estimating the insurance contract liabilities. accuracy of the information used in the underlying valuations. • We engaged our internal expert to assess the Changes in such significant assumptions used in the valuation reasonableness of the assumptions used in the of the insurance contract liabilities directly impacts the income valuations of the insurance contract liabilities. statement. We have also evaluated the adequacy of the disclosures and the movement in the insurance contract liabilities in note 39.

Revenue recognition Our audit procedures focused on the Group’s adoption of the New Revenue Standard and included, amongst others, The Group adopted SLFRS 15 Revenue from Contracts with the following: Customers (New Revenue Standard) with effect from 01 April 2018 and management was required to evaluate compliance of existing • We assessed the considerations made by the Group revenue recognition policies with the new Revenue Standard. in the implementation of SLFRS 15, especially in relation to whether all revenue streams have been The determination of the appropriate accounting policies and considered. disclosures required significant judgment especially considering the • We obtained management’s impact assessment diversified nature of business in the Group. and examined a sample of customer contracts to assess whether relevant contractual terms together Due to the Group’s involvement in diversified industries and wide with customary practices have been considered and spectrum of business such as Retail, Information Communication whether conclusions reached are in line with SLFRS Technology and Health Care Services, the Group was required to 15. consider relevant clarifications and guidance specially relating to point of revenue recognition i.e. at a point in time over the period, • We also assessed the adequacy of enhanced agent vs principal relationships in adoption of the new revenue disclosures made in note 13 to the Financial standard. Statements.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 113 INDEPENDENT AUDITOR’S REPORT

Other information included in the 2018/19 Annual Report expected to infl uence the economic decisions of users taken on Other information consists of the information included in the the basis of these Financial Statements. Annual Report, other than the Financial Statements and our As part of an audit in accordance with SLAuSs, we exercise auditor’s report thereon. Management is responsible for the professional judgment and maintain professional skepticism other information. throughout the audit. We also: Our opinion on the Financial Statements does not cover the • Identify and assess the risks of material misstatement other information and we do not express any form of assurance of the Financial Statements, whether due to fraud or conclusion thereon. error, design and perform audit procedures responsive In connection with our audit of the Financial Statements, our to those risks, and obtain audit evidence that is suffi cient responsibility is to read the other information and, in doing and appropriate to provide a basis for our opinion. The so, consider whether the other information is materially risk of not detecting a material misstatement resulting inconsistent with the Financial Statements or our knowledge from fraud is higher than for one resulting from error, as obtained in the audit or otherwise appears to be materially fraud may involve collusion, forgery, intentional omissions, misstated. If, based on the work we have performed, we misrepresentations, or the override of internal control. conclude that there is a material misstatement of this other • Obtain an understanding of internal control relevant to information, we are required to report that fact. We have the audit in order to design audit procedures that are nothing to report in this regard. appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Responsibilities of the management and those charged internal controls of the Company and the Group. with governance The Management is responsible for the preparation of Financial • Evaluate the appropriateness of accounting policies used Statements that give a true and fair view in accordance with and the reasonableness of accounting estimates and Sri Lanka Accounting Standards, and for such internal control related disclosures made by management. as management determines is necessary to enable the • Conclude on the appropriateness of management’s use preparation of Financial Statements that are free from material of the going concern basis of accounting and, based misstatement, whether due to fraud or error. on the audit evidence obtained, whether a material In preparing the Financial Statements, management is uncertainty exists related to events or conditions that may responsible for assessing the Group’s ability to continue as cast signifi cant doubt on the Group’s ability to continue a going concern, disclosing, as applicable, matters related to as a going concern. If we conclude that a material going concern and using the going concern basis of accounting uncertainty exists, we are required to draw attention in our unless management either intends to liquidate the Group or to auditor’s report to the related disclosures in the Financial cease operations, or has no realistic alternative but to do so. Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit Those charged with governance are responsible for overseeing evidence obtained up to the date of our auditor’s report. the Company’s and the Group’s fi nancial reporting process. However, future events or conditions may cause the Group to cease to continue as a going concern. Auditor’s responsibilities for the audit of the Financial Statements • Evaluate the overall presentation, structure and content of Our objectives are to obtain reasonable assurance about the Financial Statements, including the disclosures, and whether the Financial Statements as a whole are free from whether the Financial Statements represent the underlying material misstatement, whether due to fraud or error, and to transactions and events in a manner that achieves fair issue an auditor’s report that includes our opinion. Reasonable presentation. assurance is a high level of assurance, but is not a guarantee • Obtain suffi cient appropriate audit evidence regarding the that an audit conducted in accordance with SLAuSs will always fi nancial information of the entities or business activities detect a material misstatement when it exists. Misstatements within the Group to express an opinion on the consolidated can arise from fraud or error and are considered material Financial Statements. We are responsible for the direction, if, individually or in the aggregate, they could reasonably be supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

114 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 We communicate with those charged with governance Report on other legal and regulatory requirements regarding, among other matters, the planned scope and As required by section 163 (2) of the Companies Act No.7 of timing of the audit and signifi cant audit fi ndings, including any 2007, we have obtained all the information and explanations signifi cant defi ciencies in internal control that we identify during that were required for the audit and, as far as appears from our our audit. examination, proper accounting records have been kept by the Company. We also provide those charged with governance with a statement that we have complied with ethical requirements in CA Sri Lanka membership number of the engagement partner accordance with the Code of Ethics regarding independence, responsible for signing this independent auditor`s report is and to communicate with them all relationships and other 1697. matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most signifi cance in the audit of the Financial Statements of the current period and are therefore the key audit matters. We 4 July 2019 describe these matters in our auditor’s report unless law or Colombo regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefi ts of such communication.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 115 INCOME STATEMENT

In Rs. ‘000 Note Group Company For the year ended 31 March 2019 2018 2019 2018

Continuing operations Revenue from contract with customers 61,635,079 55,127,380 645,766 649,823 Revenue from insurance contracts 9,833,075 7,368,671 - - Interest income 3,674,450 3,522,864 - - Total revenue 13 75,142,604 66,018,915 645,766 649,823

Cost of sales (47,506,880) (42,346,048) (240,599) (216,633) Gross profi t 27,635,724 23,672,867 405,167 433,190

Dividend income 14 - - 514,513 893,013 Other operating income 15 954,483 1,761,747 28,618 4,634,942 Distribution expenses (3,521,670) (3,114,739) - - Administrative expenses (16,708,267) (14,013,166) (442,305) (523,053) Results from operating activities 8,360,270 8,306,709 505,993 5,438,092

Finance income 16 1,398,974 1,103,805 1,502,906 1,122,857 Finance costs 17 (7,116,287) (5,959,866) (2,626,433) (2,695,998) Net fi nance cost (5,717,313) (4,856,061) (1,123,527) (1,573,141)

Change in insurance contract liabilities 39.2 (1,152,037) (1,374,037) - - Change in contract liability due to transfer of one off surplus 39.7.1 - 798,004 - - Change in fair value of investment property 24 245,000 198,000 40,000 92,475 Share of profi t of equity accounted investees 27.2 7,080 19,787 - - Profi t before tax 18 1,743,000 3,092,402 (577,534) 3,957,426

Tax expense 19.1.1 1,247,284 (814,359) (90,593) (258,757) Profi t for the year 2,990,284 2,278,043 (668,127) 3,698,669

Attributable to: Equity holders of the parent 104,669 204,200 Non-controlling interests 2,885,615 2,073,843 2,990,284 2,278,043

Earnings per share Basic 20 0.09 0.25

Dividend per share 21 0.50 0.65

Figures in brackets indicate deductions.

The accounting policies and notes as set out in pages 124 to 222 form an integral part of these Financial Statements.

116 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 STATEMENT OF COMPREHENSIVE INCOME

In Rs. ‘000 Note Group Company For the year ended 31 March 2019 2018 2019 2018

Profi t for the year 2,990,284 2,278,043 (668,127) 3,698,669

Other comprehensive income Continuing operations Other comprehensive income to be reclassifi ed to income statement in subsequent periods Currency translation of foreign operations (5,447) (3,063) - - Net change in fair value on derivative fi nancial instruments 40.3 (481,700) (34,266) - - Net gain/(loss) on fi nancial instruments at fair value through other comprehensive income / available-for-sale (110,386) 553,351 - - Net other comprehensive income/ (loss) to be reclassifi ed to income statement in subsequent periods (597,533) 516,022 - -

Other comprehensive income not to be reclassifi ed to income statement in subsequent periods Revaluation of land and buildings 22.1 1,541,245 2,580,861 - - Re-measurement gain/ (loss) on employee benefi t liabilities 42 65,512 (74,103) (3,474) (10,219) Share of other comprehensive income of equity accounted investments (net of tax) 27.2 34 (80) - - Net loss on equity instruments at fair value through other comprehensive income / available-for-sale (519,221) (72,539) - - Tax on other comprehensive income not to be reclassifi ed to income statement in subsequent periods 19.2.1 (353,223) (2,401,415) 973 2,861 Net other comprehensive income/ (loss) not to be reclassifi ed to income statement in subsequent periods 734,347 32,724 (2,501) (7,358)

Other comprehensive income/ (loss) for the year, net of tax 136,814 548,746 (2,501) (7,358) Total comprehensive income/ (loss) for the year, net of tax 3,127,098 2,826,789 (670,628) 3,691,311

Attributable to: Equity holders of the parent 352,881 450,413 Non-controlling interests 2,774,217 2,376,376 3,127,098 2,826,789

Figures in brackets indicate deductions.

The accounting policies and notes as set out in pages 124 to 222 form an integral part of these Financial Statements.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 117 STATEMENT OF FINANCIAL POSITION

In Rs. ‘000 Note Group Company As at 31 March 2019 2018 2019 2018

Assets Non-current assets Property, plant and equipment 22 46,594,012 41,337,923 170,963 208,459 Lease rentals paid in advance 23 789,095 805,601 - - Investment property 24 1,695,261 1,238,300 744,000 704,000 Intangible assets 25 8,764,534 8,610,364 686 593 Investments in subsidiaries 26 - - 20,028,700 19,856,700 Investments in equity accounted investees 27 78,249 111,885 11,000 11,000 Non-current fi nancial assets 28 13,157,132 10,564,380 1,465,042 828,355 Rental receivable on lease assets and hire purchase 29.1 1,135,517 1,042,759 - - Other non-current assets 30 3,215,787 928,503 - - Deferred tax assets 19.2.2 3,247,950 749,406 - - 78,677,537 65,389,121 22,420,391 21,609,107

Current assets Inventories 31 10,689,021 11,250,539 - - Trade and other receivables 32 14,351,620 11,838,130 912,093 362,930 Loans and advances 33 11,664,401 13,098,641 - - Rental receivable on lease assets and hire purchase 29.2 835,051 523,777 - - Amounts due from related parties 48.1 13,692 807 14,176,360 8,588,380 Other current assets 34 5,343,713 3,449,051 28,273 16,709 Short term investments 35 6,049,396 7,120,608 130,625 1,719,676 Cash in hand and at bank 36 3,196,350 6,151,833 18,294 2,916,160 52,143,244 53,433,386 15,265,645 13,603,855 Total assets 130,820,781 118,822,507 37,686,036 35,212,962

Equity and Liabilities Equity attributable to equity holders of the parent Stated capital 37 12,119,235 8,195,383 12,119,235 8,195,383 Revenue reserves (1,716,945) (577,403) 3,870,883 5,193,136 Other components of equity 38 4,020,858 3,973,279 - - 14,423,148 11,591,259 15,990,118 13,388,519 Non-controlling interests 10,566,762 9,325,667 - - Total equity 24,989,910 20,916,926 15,990,118 13,388,519

118 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 In Rs. ‘000 Note Group Company As at 31 March 2019 2018 2019 2018

Non-current liabilities Insurance contract liabilities 39 8,309,628 7,192,591 - - Interest bearing borrowings 40 25,115,045 25,729,331 6,817,719 7,453,907 Public deposits 41 4,601,829 3,237,633 - - Deferred tax liabilities 19.2.2 3,306,076 2,829,959 173,435 157,916 Employee benefi t liabilities 42 1,081,320 1,012,888 81,109 68,252 Other deferred liabilities 43 148,841 127,635 75,676 111,712 Other non-current fi nancial liabilities 44 115,205 122,502 186,200 186,200 42,677,944 40,252,539 7,334,139 7,977,987

Current liabilities Trade and other payables 45 8,428,255 7,268,577 108,894 44,415 Amounts due to related parties 48.2 2,731 7,566 16,671 17,877 Income tax liabilities 19.1.4 351,689 348,372 16,910 33,309 Other current fi nancial liabilities 46 23,128,625 23,607,505 10,003,875 10,526,355 Current portion of interest bearing borrowings 40 9,782,952 7,244,641 3,958,498 2,984,531 Other current liabilities 47 1,312,392 1,467,326 82,229 86,221 Public deposits 41 12,385,059 13,063,838 - - Bank overdrafts 36 7,761,224 4,645,217 174,702 153,748 63,152,927 57,653,042 14,361,779 13,846,456 Total liabilities 105,830,871 97,905,581 21,695,918 21,824,443 Total equity and liabilities 130,820,781 118,822,507 37,686,036 35,212,962

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

4 July 2019 Colombo

Figures in brackets indicate deductions. The accounting policies and notes as set out in pages 124 to 222 form an integral part of these Financial Statements.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 119 STATEMENT OF CHANGES IN EQUITY

GROUP In Rs. ‘000 Attributable to equity holders of parent Stated capital Treasury Restricted Revaluation shares regulatory reserve reserve

As at 01 April 2017 5,089,000 (55,921) - 4,628,655 Profi t for the year - - - - Other comprehensive income - - - 146,010 Total comprehensive income - - - 146,010 Issue of shares 3,106,383 - - - Transfer to reserve fund - - - - Transfer of one-off surplus - - 309,613 - Acquisitions and disposals of treasury shares - 55,921 - - Acquisition of subsidiary - - - - Changes in ownership interest in subsidiaries - - - - Dividend paid - - - - Subsidiary dividend to non-controlling interest - - - - As at 31 March 2018 8,195,383 - 309,613 4,774,665 Impact of adopting SLFRS 9 (Note 11.3) - - - - Restated balance under SLFRS 9 as at 01 April 2018 8,195,383 - 309,613 4,774,665 Profi t for the year - - - - Other comprehensive income - - - 949,433 Total comprehensive income - - - 949,433 Issue of shares 3,923,852 - - - Transfer to reserve fund - - - - Acquisition of subsidiary - - - - Changes in ownership interest in subsidiaries - - - - Dividend paid - - - - Subsidiary dividend to non-controlling interest - - - - As at 31 March 2019 12,119,235 - 309,613 5,724,098

COMPANY

In Rs. ‘000 Stated capital Revenue Total reserve equity

As at 01 April 2017 5,089,000 2,008,175 7,097,175 Profi t for the year - 3,698,669 3,698,669 Other comprehensive loss - (7,358) (7,358) Total comprehensive income - 3,691,311 3,691,311 Issue of shares 3,106,383 - 3,106,383 Dividend paid - (506,350) (506,350) As at 31 March 2018 8,195,383 5,193,136 13,388,519 Impact of adopting SLFRS 9 (Note 11.3) - (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 income - (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

Figures in brackets indicate deductions. The accounting policies and notes as set out in pages 124 to 222 form an integral part of these Financial Statements.

120 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Attributable to equity holders of parent Total Non- Total controlling equity Foreign Fair value Statutory Other Cash fl ow Revenue interests currency reserve of reserve fund reserves hedge reserve translation fi nancial reserve reserves assets at FVOCI

(43,262) (718,502) 175,022 (491,235) (144,727) 108,357 8,547,387 7,075,208 15,622,595 - - - - - 204,200 204,200 2,073,843 2,278,043 (3,063) 187,615 - - (34,239) (50,110) 246,213 302,533 548,746 (3,063) 187,615 - - (34,239) 154,090 450,413 2,376,376 2,826,789 ------3,106,383 - 3,106,383 - - 40,041 - - (40,041) ------(309,613) ------13,169 69,090 20,773 89,863 ------11,211 11,211 - - - (78,649) - - (78,649) 457,747 379,098 - - - - - (503,365) (503,365) - (503,365) ------(615,648) (615,648) (46,325) (530,887) 215,063 (569,884) (178,966) (577,403) 11,591,259 9,325,667 20,916,926 - - - - - (637,466) (637,466) (273,427) (910,893) (46,325) (530,887) 215,063 (569,884) (178,966) (1,214,869) 10,953,793 9,052,240 20,006,033 - - - - - 104,669 104,669 2,885,615 2,990,284 (5,447) (252,386) - - (481,288) 37,900 248,212 (111,398) 136,814 (5,447) (252,386) - - (481,288) 142,569 352,881 2,774,217 3,127,098 ------3,923,852 - 3,923,852 - - 48,373 - - (48,373) ------(37,538) (37,538) - - - (211,106) - - (211,106) (393,724) (604,830) - - - - - (596,272) (596,272) - (596,272) ------(828,433) (828,433) (51,772) (783,273) 263,436 (780,990) (660,254) (1,716,945) 14,423,148 10,566,762 24,989,910

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 121 CASH FLOW STATEMENT

In Rs. ‘000 Note Group Company

For the year ended 31 March 2019 2018 2019 2018

Cash fl ows from/ (used in) operating activities Profi t/ (loss) before tax from continuing operations 1,743,000 3,092,402 (577,534) 3,957,426

Adjustments for: Finance income 16 (1,398,975) (1,103,805) (1,502,906) (1,122,857) Dividend income 14 - - (514,513) (893,013) Finance cost 17 7,116,286 5,959,866 2,626,434 2,695,998 Change in fair value of investment property 24 (245,000) (198,000) (40,000) (92,475) Share of results of equity accounted investees 27.2 (7,080) (19,787) - - Gratuity provision and related cost 42 221,936 218,953 13,759 13,222 Provisions for / write-off of impaired receivables 32.2.1 353,623 252,445 2,472 64,000 Provisions for / write-off of inventories 31.1 75,137 108,930 - - Provisions for / write-off of impaired investments - - - 24,900 Provisions for / write-off of loans and advances 9.1.8.2 110,757 102,829 - - Provisions for / write-off of investments in lease and hire purchase 9.1.14.2 61,500 (18,091) - - Depreciation of property, plant and equipment 22 2,520,118 2,284,583 36,051 36,039 Profi t on sale of property, plant and equipment 15 (7,589) (19,558) (2,140) (10,100) Profi t on sale of investments 15 377 (335,499) 10,575 (4,588,114) Unrealised (gain) / loss on foreign exchange 23,873 19,271 - - Amortisation / impairment of intangible assets 25 341,578 358,068 7,079 5,738 Amortisation of prepaid lease rentals 16,506 1,116 - - Increase in deferred income (63,360) (7,483) (36,036) (36,036) Impairment & derecognition of property, plant & equipment 21,318 18,705 - - Profi t before working capital changes 10,884,005 10,714,945 23,241 54,728

(Increase) / decrease in inventories 661,206 (2,255,849) - - (Increase) / decrease in trade and other receivables (3,573,802) (3,125,663) (144,382) 90,394 (Increase) / decrease in loans and advances (224,169) 1,092,599 - - (Increase) / decrease in investments in lease and hire purchase (465,530) (720,680) - - (Increase) / decrease in other current assets (2,036,868) (735,564) (21,074) 120 (Increase) / decrease in amounts due from related parties (12,885) (474) (5,587,037) (3,495,009) Increase / (decrease) in trade and other payables 861,518 295,561 64,481 20,282 Increase / (decrease) in amounts due to related parties (4,835) (10,000) (1,207) (50,186) Increase / (decrease) in other current liabilities (70,370) (11,009) (3,992) 12,872 Increase / (decrease) in public deposits 685,416 265,973 - - Increase / (decrease) in insurance contract liabilities 39.2 1,117,037 576,033 - - Cash generated from/ (used in) operations 7,820,723 6,085,872 (5,669,970) (3,366,799)

Finance income received 1,261,411 947,843 1,531,157 1,067,003 Finance expenses paid (6,500,079) (5,789,818) (2,499,773) (2,689,213) Dividend received 35,045 3,015 50,965 893,013 Tax paid (953,375) (1,265,120) (80,989) (136,584) Gratuity paid 42 (108,089) (87,901) (4,375) (4,319) Net cash fl ow from/ (used in) operating activities 1,555,636 (106,109) (6,672,985) (4,236,899)

122 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 In Rs. ‘000 Note Group Company

For the year ended 31 March 2019 2018 2019 2018

Cash fl ows from / (used in) investing activities Purchase and construction of property, plant and equipment (5,728,410) (4,510,011) (1,870) (49,384) Addition to investment property 24 (18,237) (3,300) - (2,140) Addition to intangible assets 25 (141,234) (256,485) (2,635) (2,377) (Increase)/ decrease in other non-current assets (2,245,759) (691,957) - - (Purchase) / disposal of short term investments (net) 115,631 (1,125,217) 1,550,225 1,208 Dividends received 124,551 68,279 - - (Purchase) / disposal of non-current fi nancial assets (1,825,340) 991,812 (636,686) (341,522) Proceeds from disposal of controlling interest - 794,836 - - Acqusition of business, net of cash acquired 8.1 (952,452) (214,050) - - Proceeds from sale of treasury shares (net) - 89,863 - - Proceeds from sale of property, plant and equipment 54,075 59,385 5,455 16,241 Net cash fl ow from / (used in) investing activities (10,617,175) (4,796,845) 914,489 (377,974)

Cash fl ows from / (used in) fi nancing activities Proceeds from issue of shares 37 3,923,852 3,106,383 3,923,852 3,106,383 Dividend paid to non-controlling interest (828,433) (615,648) - - Increase in interest in subsidiaries (561,897) (513,932) (172,000) (179,381) Proceeds from long term borrowings 40 7,585,232 3,768,754 2,500,000 1,866,930 Repayment of long term borrowings (6,874,434) (6,697,977) (2,307,649) (2,530,612) (Increase) / decrease in other non-current fi nancial liabilities (7,297) 84,339 - - Proceeds from / (repayment of) other current fi nancial liabilities (net) (478,880) 11,297,002 (508,255) 6,078,358 Dividend paid to equity holders of parent (596,272) (503,365) (596,272) (506,350) Net cash fl ow from / (used in) fi nancing activities 2,161,871 9,925,556 2,839,676 7,835,328

Net increase / (decrease) in cash and cash equivalents (6,899,668) 5,022,602 (2,918,820) 3,220,455 Cash and cash equivalents at the beginning 5,888,960 866,428 2,762,412 (458,043) Effect of exchange rate changes 34 (70) - - Cash and cash equivalents at the end (1,010,674) 5,888,960 (156,408) 2,762,412

Analysis of cash and cash equivalents Favourable balances Cash in hand and at Bank 2,596,037 6,151,833 18,294 2,916,160 Restricted cash at bank 600,313 - - - Short term investments 3,554,200 4,382,344 - - Unfavourable balances Bank overdrafts (7,761,224) (4,645,217) (174,702) (153,748) Cash and cash equivalents (1,010,674) 5,888,960 (156,408) 2,762,412

Figures in brackets indicate deductions.

The accounting policies and notes as set out in pages 124 to 222 form an integral part of these Financial Statements.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 123 NOTES TO THE FINANCIAL STATEMENTS

1 CORPORATE AND GROUP INFORMATION There were no signifi cant changes in the nature of the principal activities of the Company and the Group during the fi nancial year under Reporting entity review other than the acquisition of Cotton Collection (Pvt) Ltd and Softlogic Holdings PLC is a public limited liability company Asiri Hospital Galle (Pvt) Ltd (previously known as Hemas Southern incorporated and domiciled in Sri Lanka and listed on the Colombo Hospitals (Pvt) Ltd) as explained in note 08. Stock Exchange. The registered offi ce and principal place of business of the company is located at No. 14, De Fonseka Place, Colombo 5. 3 BASIS OF PREPARATION AND OTHER SIGNIFICANT Softlogic Holdings PLC became the holding company of the Group ACCOUNTING POLICIES during the fi nancial year ended 31 March 2003. Basis of preparation The consolidated Financial Statements have been prepared on an Consolidated Financial Statements accrual basis and under the historical cost convention except for The Financial Statements for the year ended 31 March 2019, comprise investment properties, land and buildings, fair valued through profi t or “the Company” referring to Softlogic Holdings PLC as the holding loss fi nancial assets, derivative fi nancial instruments and fair valued company and “the Group” referring to the companies that have been through other comprehensive income fi nancial assets, which have consolidated therein. been measured at fair value.

Approval of Financial Statements Each material class of similar items is presented cumulatively in the Financial Statements. Items of dissimilar nature or function are The Financial Statements for the year ended 31 March 2019 were presented separately unless they are immaterial as permitted by the authorised for issue by the Board of Directors on 04 July 2019. Sri Lanka Accounting Standard - LKAS 1 ‘Presentation of Financial Statements’. Responsibility for Financial Statements

The responsibility of the Board of Directors in relation to the Financial Presentation and functional currency Statements is set out in the “Statement of Directors’ Responsibilities” The consolidated Financial Statements are presented in Sri Lankan report in the Annual Report. Rupees (Rs.) the Group’s functional and presentation currency, which is the currency of the primary economic environment in which the Statement of compliance holding company operates. Each entity in the Group uses this currency The Financial Statements which comprise the income statement, of the primary economic environment in which they operate as their statement of comprehensive income, statement of fi nancial position, functional currency except for entities incorporated outside Sri Lanka. statement of changes in equity and the statement of cash fl ows, together with the accounting policies and notes (the “Financial The following subsidiary is uses a functional currency other than the Sri Statements”) have been prepared in accordance with Sri Lanka Lankan Rupee (Rs.). Accounting Standards (herein referred to as SLFRS/LKAS) issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and Name of the subsidiary Country of Functional currency in compliance with the requirements of the Companies Act No. 7 of incorporation 2007. Softlogic Australia (Pty) Ltd Australia Australian Dollar (AUD)

2 PRINCIPAL ACTIVITIES AND NATURE OF OPERATIONS Comparative information The presentation and classifi cation of the Financial Statements of Holding Company the previous years have been amended, where relevant for better Softlogic Holdings PLC, the Group’s holding company, provides presentation and to be comparable with the statements of the current management services and warehouse management facilities to Group year. companies, facilitates funding requirements of these companies and provides other value added services. The Group applied SLFRS 15 and SLFRS 9 with effect from 01 April 2018. Due to the transition method chosen in applying these standards, Subsidiaries and associates comparative information throughout these fi nancial statements have The business activities of other companies within the Group are not been restated to refl ect the requirements of the new standard. information & communication technology, automobile sales and after Therefore, the comparative information for 2018 is reported under sales, consumer electronic retailing, garment manufacturing & fashion LKAS 39 and LKAS 18 which is not comparable to the information retailing, hoteliering, quick service restaurant operations, development presented for 2019. Information on the adoption of SLFRS 9 and of apartments, provision of fi nancial services, life insurance SLFRS 15 are disclosed in Note 11.3. services, stock brokering services, healthcare services, management consultancy and fi nancial advisory services. All values are rounded to the nearest Sri Lankan Rupees thousand (LKR. ’000) except when otherwise indicated.

124 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES subsequently valued at fair value is in keeping with the recognition of A summary of signifi cant accounting policies has been disclosed along gains or losses on other fair valued items. with relevant individual notes in the subsequent pages. Foreign operations The accounting policies presented with each note, have been applied The statement of fi nancial position and income statement of overseas consistently by the Group. subsidiaries and associates are deemed to be foreign operations are translated to Sri Lanka Rupees (Rs.) at the rate of exchange prevailing Other significant accounting policies not covered with individual as at the reporting date and at the average annual rate of exchange for notes the period respectively. The following accounting policies, which have been applied consistently by the Group, are considered signifi cant and are not The exchange differences arising on the translation are taken directly to covered in any other sections. the statement of other comprehensive income. On disposal of a foreign entity, the deferred cumulative amount recognised in the statement Current versus non-current classification of other comprehensive income relating to that particular foreign operation is recognised in the income statement. The Group presents assets and liabilities in the statement of fi nancial position based on a current/ non-current classifi cation. The Group treated goodwill and any fair value adjustments to the carrying amounts of assets and liabilities arising on acquisition An asset is current when it is: as assets and liabilities of the parent. Therefore, those assets and • expected to be realised or intended to be sold or consumed in the liabilities are non-monetary items already expressed in the functional normal operating cycle, currency of the parent and no further translation differences occur. • held primarily for the purpose of trading, The exchange rates applicable during the period were as follows: • expected to be realised within twelve months from the reporting date, or Statement of fi nancial Income statement • a cash or cash equivalent unless restricted from exchange or use position 31-03-2019 31-03-2019 to settle a liability for at least twelve months after the reporting date. Australian Dollar 124.87 123.17 All other assets are classifi ed as non-current. 6 SUMMARY OF SIGNIFICANT ACCOUNTING A liability is current when it is: JUDGEMENTS, ESTIMATES AND ASSUMPTIONS • expected to be settled in the normal operating cycle, In preparing these Financial Statements of the Group/ Company, the • incurred primarily for the purpose of trading, management has made judgements, estimates and assumptions that • due to be settled within twelve months after the reporting date, and affect the application of Group’s accounting policies and the reported amounts of assets, liabilities, income, expenses and its disclosure • not affected by any unconditional right to defer settlement for at of contingent liabilities. Judgements and estimates are based on least twelve months after the reporting date. historical experience and other factors, including expectations that The Group classifi es all other liabilities as non-current. are believed to be reasonable under the circumstances. Hence, actual results may differ from these judgements and estimates. Estimates Deferred tax assets and liabilities are classifi ed as non-current assets and underlying assumptions are reviewed on an ongoing basis and and liabilities. revisions to accounting estimates are recognised prospectively.

The management considered the following items, where signifi cant 5 FOREIGN CURRENCY TRANSLATION, FOREIGN judgements, estimates and assumptions have been used in preparing CURRENCY TRANSACTIONS AND BALANCES these Financial Statements. The consolidated fi nancial statements are presented in Sri Lanka Rupees (Rs.), which is the holding company’s functional and Going concern presentation currency. This functional currency is the currency of the The Directors have assessed, and are confi dent that the Company will primary economic environment in which virtually all the entities of the be able to continue in operation for the foreseeable future. In addition, Group operate. All foreign exchange transactions are converted to the the Directors are not aware of any material uncertainties that may cast functional currency, at the rates of exchange prevailing at the time the signifi cant doubt upon the Group’s/ Company’s ability to continue as transactions are effected. Monetary assets and liabilities denominated a going concern. Accordingly, these Financial Statements have been in foreign currency are retranslated to functional currency equivalents prepared on a going concern basis. 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 dates of the initial transactions. The gain or loss arising on non- monetary items

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 125 NOTES TO THE FINANCIAL STATEMENTS

Signifi cant areas of critical judgements, assumptions and estimation uncertainties, in applying accounting policies that have signifi cant effects on the amounts recognised in the Financial Statements of the Group are detailed in the following notes.

• Valuation of property, plant & equipment • Provisions and contingent liabilities • Valuation of investment property • Valuation of fi nancial liabilities at fair value through profi t or loss • Valuation of intangible assets • Valuation of derivative fi nancial instruments • Deferred taxation and taxes • Provision for Expected Credit Loss of loans & advances and rental receivable on lease assets and hire purchases • Employee benefi t liability • Provision for Expected Credit Loss of trade receivables and • Valuation of insurance contract liabilities contract asset

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 fl ows relating to transactions between members of the Group are 2019. 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 exposed A change in the ownership interest of a subsidiary, without a loss of or has rights to variable returns from its involvement with the investee control, is accounted for as an equity transaction. 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 related Control over an investee assets (including goodwill), liabilities, non-controlling interest and other Specifi cally, the Group controls an investee if, and only if, the Group components of equity while any resultant gain or loss is recognised in has: 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 profi ts and losses for the year of the Company and of its • exposure, or rights, to variable returns from its involvement with the subsidiaries included in consolidation are shown in the consolidated 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 statement of fi nancial position. Subsidiaries that are consolidated have been listed in note 26.

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 Non-controlling interests, which represents the portion of profi t or loss subsidiary. Assets, liabilities, income and expenses of a subsidiary and net assets not held by the Group, are shown as a component of acquired or disposed during the year are included in the consolidated profi t for the year in the consolidated income statement and statement Financial Statements from the date the Group gains control until the of comprehensive income and as a component of equity in the date the Group ceases to control the subsidiary. consolidated statement of fi nancial position separately from equity attributable to the shareholders of the parent. Profi t or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a defi cit 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.

126 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 7.1 Names and financial information of material partly-owned subsidiaries Financial information of subsidiaries that have material non-controlling interests (NCI) are provided below:

In Rs. ‘000 Financial Services Softlogic Softlogic Life Finance PLC Insurance PLC 2019 2018 2019 2018

Summarised income statement for the year ended 31 March Revenue 3,674,450 3,523,556 9,833,075 7,368,671 Other income 344,443 520,504 3,370 220,192 Operating expenses (3,933,744) (3,825,851) (8,005,077) (5,839,732) Change in insurance contract liabilities - - (1,152,037) (1,374,037) Change in contract liability due to transfer of one off surplus - - - 798,004 Finance income - - 1,174,986 920,684 Finance expenses (22,033) (25,130) (301,293) (36,597) Profi t before tax 63,116 193,079 1,553,024 2,057,185 Tax expense 140,854 25,686 1,888,878 420,000 Profi t for the year 203,970 218,765 3,441,902 2,477,185 Other comprehensive income/ (loss) (30,749) 5,626 (611,481) 531,236 Total comprehensive income 173,221 224,391 2,830,421 3,008,421

Profi t attributable to material NCI 94,250 98,594 1,921,454 1,385,901

Dividend paid to NCI - 46,066 238,418 -

Summarised statement of fi nancial position as at 31 March Current assets 16,763,200 16,952,387 6,101,173 5,405,635 Non-current assets 5,791,853 4,727,829 11,115,576 7,673,327 Total assets 22,555,053 21,680,216 17,216,749 13,078,962

Current liabilities 15,921,888 14,737,286 1,559,680 950,498 Non-current liabilities 4,726,016 4,662,481 8,901,274 7,627,621 Total liabilities 20,647,904 19,399,767 10,460,954 8,578,119

Accumulated balance of material NCI 886,356 1,234,636 4,134,654 2,754,588

Summarised cash fl ow information for the year ended 31 March Cash fl ows from/ (used in) operating activities (623,408) 1,037,305 2,788,708 2,187,602 Cash fl ows used in investing activities (37,601) (41,901) (2,202,948) (1,437,767) Cash fl ows from/ (used in) fi nancing activities 49,720 (649,680) (546,398) (160,000) Net increase/ (decrease) in cash and cash equivalents (611,289) 345,724 39,362 589,835

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 127 NOTES TO THE FINANCIAL STATEMENTS

In Rs. ‘000 Healthcare Service

Asiri Hospital Asiri Surgical Central Holdings PLC Hospital PLC Hospitals Ltd 2019 2018 2019 2018 2019 2018

Summarised income statement for the year ended 31 March Revenue 4,194,654 3,731,903 3,475,047 3,275,349 5,026,990 4,494,980 Other income 1,115,086 1,397,120 68,524 238,151 33,806 33,021 Operating expenses (2,878,557) (2,691,510) (2,985,620) (2,809,477) (4,055,251) (3,647,239) Finance income 106,264 42,164 (54,952) 93,759 (219,846) 11,650 Finance expenses (1,090,977) (921,127) 107,223 (45,472) 99,993 (218,431) Profi t before tax 1,446,470 1,558,550 610,222 752,310 885,692 673,981 Tax expense (7,322) (300,414) (243,707) (205,707) (27,133) (1,605) Profi t for the year 1,439,148 1,258,136 366,515 546,603 858,559 672,376 Other comprehensive income/ (loss) 243,232 (26,387) (69,431) (167,921) 216,789 196,060 Total comprehensive income 1,682,380 1,231,749 297,084 378,682 1,075,348 868,436

Profi t attributable to material NCI 203,751 226,680 208,106 317,654 410,873 317,447

Dividend paid to NCI 441,519 333,783 157,597 268,910 366,369 158,283

Summarised statement of fi nancial position as at 31 March Current assets 4,654,034 1,638,754 888,635 803,837 1,690,483 691,093 Non-current assets 16,719,970 15,847,487 4,975,946 4,095,292 7,871,672 6,865,180 Total assets 21,374,004 17,486,241 5,864,581 4,899,129 9,562,155 7,556,273

Current liabilities 7,736,150 5,992,404 1,353,300 421,692 2,674,688 738,854 Non-current liabilities 5,336,552 3,964,887 914,845 909,685 1,326,494 1,581,727 Total liabilities 13,072,702 9,957,291 2,268,145 1,331,377 4,001,182 2,320,581

Accumulated balance of material NCI 4,027,555 3,675,293 2,145,057 2,136,293 2,705,854 2,563,156

Summarised cash fl ow information for the year ended 31 March Cash fl ows from/ (used in) operating activities (2,696,390) 59,709 917,206 884,135 1,213,277 1,211,135 Cash fl ows from/ (used in) investing activities 358,234 115,446 (1,252,845) (119,506) (295,034) (258,955) Cash fl ows from/ (used in) fi nancing activities 957,608 (1,003,319) (332,236) (517,197) (1,837,576) (602,875) Net increase/ (decrease) in cash and cash equivalents (1,380,548) (828,164) (667,875) 247,432 (919,333) 349,305

The above information is based on amounts before intercompany eliminations.

128 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 8 BUSINESS COMBINATIONS AND ACQUISITION OF NON-CONTROLLING INTEREST

ACCOUNTING POLICY Business combination & goodwill Business combinations are accounted for using the acquisition method Impairment is determined by assessing the recoverable amount of of accounting. The Group measures goodwill at the acquisition date as the cash-generating unit to which the goodwill relates. Where the the fair value of the consideration transferred including the recognised recoverable amount of the cash generating unit is less than the amount of any non-controlling interests in the acquiree, less the net carrying amount, an impairment loss is recognised. The impairment recognised amount (generally fair value) of the identifi able assets loss is allocated fi rst to reduce the carrying amount of any goodwill acquired and liabilities assumed, all measured as of the acquisition allocated to the unit and then to the other assets pro- rata to the date. carrying amount of each asset in the unit.

When the fair value of the consideration transferred including the Goodwill and fair value adjustments arising on the acquisition of a recognised amount of any non-controlling interests in the acquiree is foreign operation are treated as assets and liabilities of the foreign lower than the fair value of net assets acquired, a gain is recognised operation and translated at the closing rate. immediately in the income statement. Where goodwill forms part of a cash generating unit and part of the The Group elects on a transaction by transaction basis whether to operation within that unit is disposed of, the goodwill associated measure non-controlling interests at fair value, or at their proportionate with the operation disposed of is included in the carrying amount of share of the recognised amount of the identifi able net assets, at the the operation when determining the gain or loss on disposal of the acquisition date. Transaction costs, other than those associated operation. Goodwill disposed of in this circumstance is measured with the issue of debt or equity securities, that the Group incurs in based on the relative values of the operation disposed of and the connection with a business combination are expensed as incurred. portion of the cash-generating unit retained.

When the Group acquires a business, it assesses the fi nancial assets Impairment of goodwill and liabilities assumed for appropriate classifi cation and designation in Goodwill is tested for impairment annually (as at 31 March) and when accordance with the contractual terms, economic circumstances and circumstances indicate that the carrying value may be impaired. pertinent conditions as at the acquisition date. Impairment is determined for goodwill by assessing the recoverable If the business combination is achieved in stages, the acquisition date amount of each cash-generating unit (or group of cash-generating fair value of the acquirer’s previously held equity interest in the acquiree units) to which the goodwill relates. Where the recoverable amount is re measured to fair value at the acquisition date through the income of the cash generating unit is less than their carrying amount, an statement. impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent 8.1 Obtaining control of subsidiaries consideration classifi ed as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent FY 1819 consideration classifi ed as an asset or liability that is a fi nancial 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 it is measured at fair value with the changes in fair value recognised became a subsidiary of the Group. in the statement of profi t 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 value of Softlogic Holdings PLC acquired 100.00% ordinary shares of recognised in profi t 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 FY 1718 annually or more frequently if the events or changes in the In July 2017, Softlogic Retail (Pvt) Ltd, a subsidiary of Softlogic circumstances indicate that the carrying value may be impaired. Holdings PLC acquired 66.51% ordinary shares of Suzuki Motors Lanka For the purpose of impairment testing, goodwill acquired in a business Ltd and it became a subsidiary of the Group. combination is, from the acquisition date, allocated to each of the Group’s cash generating units that are expected to benefi t from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 129 NOTES TO THE FINANCIAL STATEMENTS

The acquisition had the following effect on the Group’s assets and liabilities.

In Rs. ‘000 Note Group As at 31 March 2019 2018

Property, plant & equipment 22.1 734,556 106,629 Lease rentals paid in advance - 3,884 Intangible assets 25 1,971 - Non-current fi nancial assets - 26,655 Other non current assets 41,525 - Inventories 180,992 123,655 Trade and other receivables 178,614 89,482 Other fi nancial assets - 30,552 Income tax refund 7,589 7,309 Cash in hand and at bank 38,524 19,514

Retirement benefi t liability 42 (20,490) (5,803) Deferred tax liabilities 19.2.2 (59,689) - Other non-current fi nancial liabilities - (9,313) Interest bearing borrowings 40 (240,164) (10,975) Trade and other payables (256,025) - Amounts Due to Related Parties (18,259) - Other current fi nancial liabilities - (254,265) Other current liabilities - (25,229) Bank overdrafts (240,532) (68,562) Net identifi able assets 348,612 33,533 Non controlling interest holding 226,421 353 Intangible recognised on acquisition 25 364,294 142,680 939,327 176,566 Investment by Non controlling interest (188,883) (11,564) 750,444 165,002

Total purchase price paid Cash consideration 750,444 165,002 Cash at bank and in hand acquired 202,008 49,048 952,452 214,050

8.2 Gain on share restructure transaction - Softlogic Holdings PLC In January 2019, 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.

In comparative period relating to restructure, Softlogic Holdings PLC transferred its ownership in Softlogic Communication Services (Pvt) Ltd, Softlogic Mobile Distribution (Pvt) Ltd, Softlogic International (Pvt) Ltd and Softlogic Retail (Pvt) Ltd to Softlogic Retail Holdings (Pvt) Ltd, which is a fully owned subsidiary of Softlogic Holdings PLC.

The gains/ (loss) resulting from these transactions have been accounted for as ‘Other Operating Income’ of the company.

For the year ended 31 March 2019 2018 In Rs. ‘000 Transaction Loss Transaction Gain value value

Shares disposed Odel PLC 1,550,225 10,575 - - Softlogic Communication Services (Pvt) Ltd - - 1 - Softlogic International (Pvt) Ltd - - 456,749 450,050 Softlogic Mobile Distribution (Pvt) Ltd - - 1,633,500 1,623,500 Softlogic Retail (Pvt) Ltd - - 4,181,143 2,514,564 10,575 4,588,114

130 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 9 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal fi nancial liabilities consist of public deposits, The Group trades only with recognised, creditworthy third parties. It is borrowings, trade & other payables, and fi nancial guarantee contracts. the Group’s policy that all clients who wish to trade on credit terms are The main purpose of these fi nancial liabilities is to fi nance Group’s subject to credit evaluation procedures. In addition, receivable balances operations. The Group fi nancial assets comprise of loans and are monitored on an ongoing basis with the result that the Group’s advances, rental receivable on lease assets & hire purchase, trade & exposure to bad debt is not signifi cant. other receivables, cash and short-term deposits that fl ow directly from its operations. The Group also holds other fi nancial instruments such The hire purchase and lease portfolio is broad based, accounting as investments in equity instruments. for 149,551 (2018 - 144,033 customers) contracts, and the risk of non- payment is mitigated by credit approval processes. There is The Group is exposed to market risk including currency risk, interest no concentration risk on any single region, customer or sector in rate risk & price risk, credit risk and liquidity risk. Risk management is particular; collection of dues from customers are robust with the carried out under policies approved by the Board of Directors of the delinquency rate being better than the fi nancial industry average. Group. The Group’s overall risk management programme seeks to minimise potential adverse effects on the Group’s fi nancial and non- With respect to credit risk arising from other fi nancial assets of the fi nancial performance. Group, such as cash and cash equivalents, available-for-sale fi nancial investments and short term investments, the Group’s exposure to credit risks arises from default of the counterparty. The Group Risk management framework manages its operations to avoid any excessive concentration of The Board of Directors of Softlogic Holdings PLC and its Group counterparty risk. companies have overall responsibility for the establishment and oversight of the Group’s risk management framework. 9.1.1 Credit Risk - Default risk The Group’s risk management policies are established to identify, Default risk is the risk that one party to a fi nancial instrument will fail assess and take action of the risks faced by the Group falling within to discharge an obligation and cause the other party to incur fi nancial their risk appetite. Risk management policies and systems are loss. It arises from lending, trade fi nance, treasury and other activities reviewed regularly along with the risk register to refl ect changes in undertaken by the Group. The Group has in place standards, policies market conditions and the Group’s activities. The Group through its and procedures for the control and monitoring of all such risks. training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all 9.1.2 Credit Risk - Concentration risk employees clearly understand their roles and obligations. The Group seeks to manage its credit concentration risk exposure through diversifi cation of its lending, investing and fi nancing activities The Group’s Integrated Risk Management Committee (IRMC) is being to avoid undue concentrations of risks with individuals or groups designated to oversee how management monitors compliance with the of customers in specifi c businesses. It also obtains security when Group’s risk management policies and procedures, and to review the appropriate. The types of collateral obtained include cash margins, adequacy of the risk management framework in relation to the risks mortgages over properties and pledges over equity instruments. faced by the Group. The committee will be assisted in its oversight by Group’s Risk Management Department and cluster risk units. Internal The prospect of an impairment is analysed at each reporting date on Audit undertakes regular reviews of risk management practices. The an individual basis for major clients. Less signifi cant receivables are results of this are reported to the Audit Committee, which supports grouped into homogeneous groups and assessed for impairment the Risk Management process through their fi ndings and other collectively. The calculation is based on actual historical data. deliberations.

9.1 Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a fi nancial instrument or customer contract, leading to a fi nancial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables and customer lending) and from its investing activities, including deposits with banks and fi nancial institutions, foreign exchange transactions and other fi nancial instruments.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 131 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 receivable fi nancial advances on leased assets & As at 31 March 2019 assets hire purchases

Government securities 9.1.4 3,316,389 - - Corporate debt securities 9.1.5 2,683,462 - - Deposits with banks and Unit Trusts 9.1.6 25,419 - - Loans to executives 9.1.7 550 - - Loans and advances 9.1.8 - 15,353,560 - Policyholders loans 9.1.9 - 173,312 - Trade receivables 9.1.10 1,252,299 - - Other receivables 9.1.11 - - - Reinsurance receivables 9.1.12 - - - Amounts due from related parties 9.1.13 - - - Rental receivable on leased assets & hire purchase 9.1.14 - - 1,970,568 Cash in hand and at bank 9.1.15 - - - Total credit risk exposure 7,278,119 15,526,872 1,970,568

Financial assets at fair value through profi t or loss 9.2.3.1 - - - Financial assets at fair value through OCI 9.2.3.1 2,016,542 - - Total equity risk exposure 2,016,542 - - Total 9,294,661 15,526,872 1,970,568

Risk Exposure - Group

In Rs. ‘000 Note Non-current Loans and Rental fi nancial advances receivable on As at 31 March 2018 assets leased assets & hire purchases

Government securities 9.1.4 3,171,984 - - Corporate debt securities 9.1.5 1,612,624 - - Deposits with banks and Unit Trusts 9.1.6 20,418 - - Loans to executives 9.1.7 3,790 - - Loans and advances 9.1.8 - 15,811,256 - Policyholders loans 9.1.9 - 148,722 - Trade receivables 9.1.10 773,040 - - Other receivables 9.1.11 - - - Reinsurance receivables 9.1.12 - - - Amounts due from related parties 9.1.13 - - - Rental receivable on leased assets & hire purchase 9.1.14 - - 1,566,536 Cash in hand and at bank 9.1.15 - - - Total credit risk exposure 5,581,856 15,959,978 1,566,536

Financial assets at fair value through profi t or loss 9.2.3.1 - - - Financial assets at fair value through OCI 9.2.3.1 2,121,187 - - Total equity risk exposure 2,121,187 - - Total 7,703,043 15,959,978 1,566,536

132 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Cash in hand and Trade and other Short term Amounts due from Total % of allocation at bank receivables investments related parties

- - 1,969,419 - 5,285,808 11.08 - - 1,030,166 - 3,713,628 7.79 - - 2,356,296 - 2,381,715 4.99 - 43,272 - - 43,822 0.09 - - - - 15,353,560 32.19 - - - - 173,312 0.36 - 10,868,292 - - 12,120,591 25.41 - 3,145,762 - - 3,145,762 6.60 - 294,294 - - 294,294 0.62 - - - 13,692 13,692 0.03 - - - - 1,970,568 4.13 3,196,350 - - - 3,196,350 6.71 3,196,350 14,351,620 5,355,881 13,692 47,693,102 100.00

- - 568,515 - 568,515 20.98 - - 125,000 - 2,141,542 79.02 - - 693,515 - 2,710,057 100.00 3,196,350 14,351,620 6,049,396 13,692 50,403,159

Cash in hand Trade and other Short term Amounts due Total % of allocation and at bank receivables investments from related parties

950,000 - 3,065,527 - 7,187,511 15.14 - - 493,048 - 2,105,672 4.44 - - 2,818,009 - 2,838,427 5.98 - 34,029 - - 37,819 0.08 - - - - 15,811,256 33.30 - - - - 148,722 0.31 - 9,238,284 - - 10,011,324 21.09 - 2,441,266 - - 2,441,266 5.14 - 124,551 - - 124,551 0.26 - - - 807 807 - - - - - 1,566,536 3.30 5,201,833 - - - 5,201,833 10.96 6,151,833 11,838,130 6,376,584 807 47,475,724 100.00

- - 619,024 - 619,024 21.60 - - 125,000 - 2,246,187 78.40 - - 744,024 - 2,865,211 100.00 6,151,833 11,838,130 7,120,608 807 50,340,935

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 133 NOTES TO THE FINANCIAL STATEMENTS

Risk Exposure - Company

Rs. ‘000 Note Non- Cash in Trade Short term Amounts Total % of current hand and and other investments due from allocation fi nancial at banks receivable related As at 31 March 2019 assets 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 profi t 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

Risk Exposure - Company

Rs. ‘000 Note Non- Cash in Trade Short term Amounts Total % of current hand and and other investments due from allocation fi nancial at banks receivable related As at 31 March 2018 assets parties

Government securities 9.1.5 - 950,000 - - - 950,000 7.48 Loans to executives 9.1.7 - - 2,624 - - 2,624 0.02 Trade receivables 9.1.10 - - 276,358 - - 276,358 2.18 Other receivables 9.1.11 - - 83,948 - - 83,948 0.66 Amounts due from related parties 9.1.13 828,355 - - - 8,588,380 9,416,735 74.17 Cash in hand and at bank 9.1.15 - 1,966,160 - - - 1,966,160 15.49 Total credit risk exposure 828,355 2,916,160 362,930 - 8,588,380 12,695,825 100.00

Financial assets at fair value through profi t or loss 9.2.3.1 - - - 1,594,676 - 1,594,676 92.73 Financial assets at fair value through OCI 9.2.3.1 - - - 125,000 - 125,000 7.27 Total equity risk exposure - - - 1,719,676 - 1,719,676 100.00 Total 828,355 2,916,160 362,930 1,719,676 8,588,380 14,415,501

9.1.4 Government securities As at 31 March 2019 as shown in the table above, 11.08% (2018 - 15.14%) 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.

134 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 9.1.5 Corporate debt securities As at 31 March 2019, corporate debt securities comprise 88.24% (2018 - 70.53%) of the total investments for the Group were rated “A-” or better.

Group As at 31 March 2019 2018 Fitch/ ICRA rating Rs. ‘000 % Rs.’000 %

AA+ 421,578 11.35 - - AA - - 63,196 3.00 AA- 819,801 22.08 588,424 27.94 A+ 378,732 10.20 333,499 15.84 A 1,087,842 29.29 125,429 5.96 A- 568,936 15.32 374,546 17.79 BBB+ 125,406 3.38 234,164 11.12 BBB 63,006 1.70 164,969 7.83 BBB- 102,985 2.77 - - CC 145,342 3.91 193,017 9.17 Not rated - - 28,428 1.35 Total 3,713,628 100.00 2,105,672 100.00

9.1.6 Deposits with banks and Unit Trusts Deposits with banks consist mainly of fi xed and call deposits.

As at 31 March 2019, 99.99% (2018 - 84.46%) of the fi xed and call deposits and investments in Unit Trusts were rated “BBB” or better for the Group.

Group As at 31 March 2019 2018 Fitch rating Rs. ‘000 % Rs.’000 %

AA+ 161,439 6.78 26 - AA 25,179 1.06 20,361 0.72 AA- 344,517 14.47 451,281 15.90 A+ 444,395 18.66 280,587 9.89 A 144,676 6.07 10,291 0.36 A- 659,973 27.71 15,578 0.55 BBB- - - 441,140 15.53 BB+ 182 0.01 182 0.01 Unit trust 601,323 25.24 1,618,950 57.04 Not rated 31 - 31 - Total 2,381,715 100.00 2,838,427 100.00

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.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 135 NOTES TO THE FINANCIAL STATEMENTS

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 Offi cer’ 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 effi cient 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 Personal Pawning Revolving Consumer SME & Total Total loans loans loans mortgage 2019 2018 As at 31 March loans

Assets at amortised cost Individually impaired - gross amount 3,462 - 523,121 - 1,448,288 1,974,871 3,089,038 - unearned income (579) - - - (234,946) (235,525) (76,527) Gross carrying amount 2,883 - 523,121 - 1,213,342 1,739,346 3,012,511 - allowance for impairment 9.1.8.2 (229) - (10,258) - (33,556) (44,043) (190,052) Net carrying amount 2,654 - 512,863 - 1,179,786 1,695,303 2,822,459

For the rest of portfolio where collective impairment is applicable - gross amount 1,625,952 2,014,921 1,322,801 33,493 11,363,269 16,360,436 15,221,608 - unearned income (51,802) - - (1,204) (1,697,166) (1,750,172) (1,671,233) Gross carrying amount 9.1.8.1 1,574,150 2,014,921 1,322,801 32,289 9,666,103 14,610,264 13,550,375 - allowance for impairment 9.1.8.2 (266,893) (5,204) (39,452) (7,605) (632,853) (952,007) (561,578) Net carrying amount 1,307,257 2,009,717 1,283,349 24,684 9,033,250 13,658,257 12,988,797 Total net carrying amount 1,309,911 2,009,717 1,796,212 24,684 10,213,036 15,353,560 15,811,256

9.1.8.1 Age analysis of facilities considered for collective impairment

In Rs. ‘000 Personal Pawning Revolving Consumer SME & Total Total loans loans loans mortgage 2019 2018 As at 31 March loans

Category - - Not due/ current 793,569 866,832 1,040,368 10,674 4,199,402 6,910,845 9,535,233 Less than 30 days 31,488 406,165 145,417 1,035 2,108,834 2,692,939 908,620 31 - 60 days 13,237 305,567 91,003 734 920,032 1,330,573 489,373 61 - 90 days 18,612 291,816 15,601 468 407,297 733,794 241,486 91 - 120 days 18,135 91,759 9,865 378 314,600 434,737 198,729 121 - 150 days 16,057 34,138 5,058 393 201,528 257,174 231,817 151 - 180 days 35,414 2,174 15,489 138 269,585 322,800 363,521 above 180 days 647,638 16,470 - 18,469 1,244,825 1,927,402 1,581,596 Total 1,574,150 2,014,921 1,322,801 32,289 9,666,103 14,610,264 13,550,375

136 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 9.1.8.2 Movement in impairment allowance for loans advances

In Rs. ‘000 Movement in specific Movement in collective Movement in impairment impairment allowance impairment allowance allowance As at 31 March 2019 2018 2019 2018 2019 2018

At the beginning of the year 190,052 212,187 561,578 463,189 751,630 675,376 Impact of adopting SLFRS 9 - - 594,064 - 594,064 - Net impairment charge for the year (95,009) (1,202) 205,766 134,031 110,757 132,829 Transfers during the year - 31,150 - (30,000) - 1,150 Set-offs during the year (1,605) - (70,000) - (71,605) - Write-offs during the year (49,395) (52,083) (339,401) (5,642) (388,796) (57,725) At the end of the year 44,043 190,052 952,007 561,578 996,050 751,630

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 2019 2018 In Rs. ‘000 Maximum Net Maximum Net exposure to exposure exposure to exposure credit risk credit risk

Loans and receivables 17,208,835 11,306,176 16,562,887 10,283,418

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. 173.31 Mn (2018 – Rs. 148.72 Mn) and their related surrender value is more than carrying value.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 137 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 defi ned in accordance with this assessment. Outstanding customer receivables are regularly monitored and outstandings of major customers are, where feasible, covered by bank guarantees or other forms of credit insurance.

In Rs. ‘000 Group Company As at 31 March 2019 2018 2019 2018 Non hire Hire Total Non hire Hire Total Total Total purchase purchase purchase purchase Restated debtors debtors debtors debtors Restated

Trade receivable settlement profi le Current/ 0 - 30 days 4,186,131 3,042,415 7,228,546 3,843,762 3,576,176 7,419,938 99,398 77,060 31 - 60 days 2,969,021 59,446 3,028,467 1,403,468 61,615 1,465,083 51,920 33,194 61 - 90 days 658,556 61,233 719,789 317,060 30,864 347,924 72,251 32,412 91 - 120 days 150,223 30,137 180,360 356,747 23,993 380,740 25,455 57,548 > 121 days 1,062,883 29,779 1,092,662 712,653 15,203 727,856 149,239 76,145 Impaired 590,983 758,666 1,349,649 202,055 374,088 576,143 136,621 77,853 Gross amount 9,617,797 3,981,676 13,599,473 6,835,745 4,081,939 10,917,684 534,884 354,212 Less : Unearned income - (155,722) (155,722) - (330,215) (330,215) - - Gross carrying value 9,617,797 3,825,954 13,443,751 6,835,745 3,751,724 10,587,469 534,884 354,212 Less : Impairment provision Individually assessed impairment provision (313,268) - (313,268) (22,760) - (22,760) (77,853) (77,853) Collectively assessed impairment provision (277,715) (732,177) (1,009,892) (179,297) (374,088) (553,385) (58,768) - Total 9,026,814 3,093,777 12,120,591 6,633,688 3,377,636 10,011,324 398,263 276,359

The requirement for impairment is analysed at each reporting date on an individual basis for major clients. Less signifi cant receivables are grouped into homogeneous groups and assessed for impairment collectively. The calculation is based on actual historical data.

138 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 9.1.11 Other receivables The Group’s other receivables consists mainly of dues receivables from foreign suppliers. At the each reporting period end management assess the recoverability of these receivable balances and make necessary provisioning for the dough full balances.

The Company’s other receivables consists mainly of dues receivable on intercompany dividend which company established right to receive the payment.

9.1.12 Reinsurance receivable As a part of overall risk management strategy, the Group cedes insurance risk through proportional, non-proportional and specifi c 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 confi rmation of reinsurance, except for non-reinsurance business.

As at the reporting date reinsurance receivables amounted to Rs. 294.29 Mn at 31 March 2019 (2018 - Rs. 124.55 Mn). This consists mainly of reinsurance receivables on paid claims amounting to Rs. 225.57 Mn (2018 - Rs. 89.63 Mn) and the reinsurance share of claim reserve (receivables on outstanding claims) of Rs. 68.72 Mn as at 31 March 2019 (2018 - Rs. 34.92 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 affi liate companies.

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

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 139 NOTES TO THE FINANCIAL STATEMENTS

The table below shows the maximum exposure to credit risk for the components of the statement of fi nancial 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 receivable receivable receivable on lease on hire on lease on hire assets purchase assets purchase As at 31 March 2019 2018

Assets at amortised cost Individually impaired - gross amount 49,620 25,490 75,110 182,684 41,402 224,086 - unearned income (4,488) (4,535) (9,023) (43,717) (9,161) (52,878) Gross carrying amount 45,132 20,955 66,087 138,967 32,241 171,208 - allowance for impairment 9.1.14.2 (3,582) (5,882) (9,464) (3,582) (1,936) (5,518) Net carrying amount 41,550 15,073 56,623 135,385 30,305 165,690

For the rest of portfolio, where collective impairment applies - gross amount 2,652,410 96,060 2,748,470 1,762,484 164,022 1,926,506 - unearned income (738,994) (5) (738,999) (401,597) (2,183) (403,780) Gross carrying amount 9.1.14.1 1,913,416 96,055 2,009,471 1,360,887 161,839 1,522,726 - allowance for impairment 9.1.14.2 (78,097) (17,429) (95,526) (55,906) (65,974) (121,880) Net carrying amount 1,835,319 78,626 1,913,945 1,304,981 95,865 1,400,846 Total Net carrying amount 1,876,869 93,699 1,970,568 1,440,366 126,170 1,566,536

9.1.14.1 Age analysis of facilities considered for collective impairment

In Rs. ‘000 Rental Rental Total Rental Rental Total receivable receivable receivable receivable on lease on hire on lease on hire assets purchase assets purchase As at 31 March 2019 2018

Category Not due/ current 752,598 239 752,837 714,306 4,498 718,804 Overdue: Less than 30 days 380,256 - 380,256 269,378 1,268 270,646 31 - 60 days 266,712 236 266,948 43,600 1,844 45,444 61 - 90 days 158,261 - 158,261 20,215 1,130 21,345 91 - 120 days 98,815 603 99,418 1,844 2,389 4,233 121 - 150 days 48,373 90 48,463 1,482 - 1,482 151 - 180 days 31,946 - 31,946 64 - 64 above 180 days 176,455 94,887 271,342 309,998 150,710 460,708 Total 1,913,416 96,055 2,009,471 1,360,887 161,839 1,522,726

9.1.14.2 Movement in impairment allowance

In Rs. ‘000 Movement in specifi c Movement in collective Movement in impairment impairment allowance impairment allowance allowance As at 31 March 2019 2018 2019 2018 2019 2018

At the beginning of the year 5,518 41,710 121,880 170,117 127,398 211,827 Impact of adopting SLFRS 9 - - (1,864) - (1,864) - Net impairment charge for the year 3,946 30,146 57,554 (48,237) 61,500 (18,091) Transfers during the year - (31,150) - - - (31,150) Write offs during the year - (35,188) (82,044) - (82,044) (35,188) At the end of the year 9,464 5,518 95,526 121,880 104,990 127,398

140 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 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 fi nancial position. The maximum exposure is shown gross, before the effect of mitigation through the use of collateral agreements.

As at 31 March 2019 2018 In Rs. ‘000 Maximum Net Maximum Net exposure to exposure exposure to exposure credit risk credit risk

Lease and hire purchase receivables 2,075,558 - 1,693,935 -

9.1.15 Cash in hand and at bank Deposits with banks consist mainly of fi xed and call deposits. Credit risk from balances with banks and fi nancial 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 fi nancial loss through the counterparty’s failure to make payments. The Group’s maximum exposure to credit risk for the components of the statement of fi nancial position are the carrying amounts as shown.

9.2 Market risk Market risk is the risk that the fair value of future cash fl ows of a fi nancial 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 fl ows of a fi nancial instrument will fl uctuate because of changes in market interest rates. The Group’s exposure to changes in market interest rates relates signifi cantly to the Group’s long-term debt obligations.

9.2.1.1 Exposure to interest rate risk The interest rate profi le of the Group’s interest bearing fi nancial instruments as reported to Group management is as follows:

In Rs. ‘000 Group Company Nominal amount Nominal amount As at 31 March 2019 2018 2019 2018

Fixed rate instrument Financial assets 31,280,131 29,437,496 - - Financial liabilities (42,368,861) (40,701,971) (3,273,536) (5,573,808) (11,088,730) (11,264,475) (3,273,536) (5,573,808)

Variable rate instruments Financial assets 2,596,037 6,112,772 14,013,567 7,896,628 Financial liabilities (40,396,514) (36,812,240) (17,867,456) (15,730,933) (37,800,477) (30,699,468) (3,853,889) (7,834,305)

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 141 NOTES TO THE FINANCIAL STATEMENTS

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 profi t before tax is affected through the impact on fl oating rate borrowings, as follows:

In Rs. ‘000 Increase in basis points Effect on profi t before tax

Rupee Other Group Company borrowings currencies

2019 + 100 b.p + 30 b.p (339,446) (248,492) - 100 b.p - 30 b.p 339,446 248,492 2018 + 100 b.p + 25 b.p (296,197) (114,007) - 100 b.p - 25 b.p 296,197 114,007

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 fl ows of a fi nancial instrument will fl uctuate because of adverse fl uctuations in foreign exchange rates. The Group’s exposure to the risk of fl uctuations 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 profi t Effect on equity exchange rate USD before tax

2019 + 10% (367,062) (444,325) - 10% 367,062 444,325 2018 + 4% (130,692) (196,504) - 4% 130,692 196,504

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 fl uctuation of foreign exchange rate may occur during a credit period of 3 - 6 months.

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 diversifi cation 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.

142 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Group In Rs. ‘000 Financial assets at fair value through profi t or loss Financial assets at fair value through OCI As at 31 March 2019 2018 2019 2018

Rs. ‘000 % Rs. '000 % Rs. ‘000 % Rs. '000 %

Bank, fi nance and insurance 357,445 62.88 294,524 47.58 1,547,305 100.00 1,651,953 100.00 Beverage, food and tobacco ------Diversifi ed holdings 147,882 26.01 169,549 27.39 - - - - Healthcare - - 3,780 0.61 - - - - Hotels and travels 13 - 13 - - - - - Manufacturing 17,172 3.02 125,453 20.27 20 - 17 - Power and energy 13,436 2.36 25,705 4.15 - - - - Telecommunications 32,567 5.73 ------568,515 100.00 619,024 100.00 1,547,325 100.00 1,651,970 100.00

Company In Rs. ‘000 Financial assets at fair value through profi t or loss As at 31 March 2019 2018 Rs. ‘000 % Rs. '000 %

Bank, fi nance and insurance 4,525 80.44 6,871 0.43 Footware and textile - - 1,585,903 99.45 Power and energy 1,100 19.56 1,902 0.12 5,625 100.00 1,594,676 100.00

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 classifi ed as short term and long term fi nancial assets.

In Rs. ‘000 Group Company

Change in Effect on Effect on Effect on Effect on equity price profi t equity profi t equity before tax before tax

2019 Quoted equity investments listed on the Colombo Stock Exchange + 15% 85,277 232,099 844 Nil - 15% (85,277) (232,099) (844) Nil 2018 Quoted equity investments listed on the Colombo Stock Exchange + 7% 43,332 115,638 111,627 Nil - 7% (43,332) (115,638) (111,627) Nil

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 143 NOTES TO THE FINANCIAL STATEMENTS

9.3 Liquidity risk Liquidity risk is the risk that the Group will encounter diffi culty in meeting the obligations associated with its fi nancial liabilities that are settled by delivering cash or another fi nancial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will have suffi cient 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 fl exibility through the use of bank overdrafts, bank loans, debentures, fi nance leases and hire purchase contracts that will always have suffi cient liquidity to meet its liabilities when due under normal and stressed conditions. The Group assessed the concentration of risk with respect to refi nancing its debt and concluded it to be low. Access to sources of funding is suffi cient 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 2019 2018 2019 2018

Short term investments 6,049,396 7,120,608 130,625 1,719,676 Cash in hand and at bank 3,196,350 6,151,833 18,294 2,916,160 Total liquid assets 9,245,746 13,272,441 148,919 4,635,836

Other current fi nancial liabilities 23,128,625 23,607,505 10,003,875 10,526,355 Current portion of interest bearing borrowings 9,782,952 7,244,641 3,958,498 2,984,531 Bank overdrafts 7,761,224 4,645,217 174,702 153,748 Total liabilities 40,672,801 35,497,363 14,137,075 13,664,634

Net debt 31,427,055 22,224,922 13,988,156 9,028,798 Adjustments for; Short term investments with maturity less than 3 months 3,554,200 4,382,344 - - Unutilised approved banking facilities 757,908 1,671,138 6,521 133,868 Unutilised funds raised through private placement and rights issue of shares - 5,307,289 - 5,307,289 27,114,947 10,864,151 13,981,635 3,587,641

Further the Group will utilise excess liquidity through operating cycle, restructuring of short term fi nancial commitments, funds available through commercial papers and revolving loan facilities as positive cash fl ows 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.

144 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 9.3.3 Maturity analysis 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 fi nancial 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 fi nancial 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 profi le of the Company’s fi nancial 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 5,055,253 3,749,841 1,952,454 721,485 387,357 86,424 11,952,814 Other non-current fi nancial liabilities 34,633 63,358 57,517 51,677 45,836 71,937 324,958 Trade and other payables 108,894 - - - - - 108,894 Amounts due to related parties 16,671 - - - - - 16,671 Other current fi nancial 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

The table below summarises the maturity profi le of the Group’s fi nancial liabilities at 31 March 2018 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 10,170,594 10,820,747 7,664,548 6,416,415 2,727,665 4,641,730 42,441,699 Other non-current fi nancial liabilities - 6,600 115,902 - - - 122,502 Trade and other payables 7,268,577 - - - - - 7,268,577 Amounts due to related parties 7,566 - - - - - 7,566 Other current fi nancial liabilities 23,607,505 - - - - - 23,607,505 Public deposits 14,142,178 1,607,026 1,768,634 242,387 368,243 - 18,128,468 Bank overdrafts 4,645,217 - - - - - 4,645,217 59,841,637 12,434,373 9,549,084 6,658,802 3,095,908 4,641,730 96,221,534 Contingent gross commitment on put option 1,812,828 - - - - - 1,812,828

The table below summarises the maturity profi le of the Company’s fi nancial liabilities at 31 March 2018 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 4,111,328 3,778,565 3,233,853 1,836,939 324,923 49,202 13,334,810 Other non-current fi nancial liabilities 23,617 53,378 49,360 45,344 41,328 68,394 281,421 Trade and other payables 44,415 - - - - - 44,415 Amounts due to related parties 17,877 - - - - - 17,877 Other current fi nancial liabilities 10,526,355 - - - - - 10,526,355 Bank overdrafts 153,748 - - - - - 153,748 14,877,340 3,831,943 3,283,213 1,882,283 366,251 117,596 24,358,626

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 145 NOTES TO THE FINANCIAL STATEMENTS

9.3.4 Capital management The primary objective of the Group’s capital management is to ensure No changes were made in the objectives, policies or processes for that it maintains a strong credit rating and healthy capital ratios in order managing capital during the year ended 31 March 2019. to support its business and maximise shareholder value. The Group monitors capital using a gearing ratio for the company The Group manages its capital structure and makes adjustments to and subsidiaries, net debt divided by total capital plus net debt, which it in light of changes in economic conditions. To maintain or adjust is monitored closely by senior management. Net debt of the Group the capital structure, the Group may adjust the dividend payment to includes, interest bearing loans and borrowings, trade and other shareholders, return capital to shareholders or issue new shares. payables less cash and cash equivalents (excluding discontinued operations).

In Rs. ‘000 Group Company As at 31 March 2019 2018 2019 2018

Net debt 62,591,496 55,074,861 21,122,700 18,388,581 Equity 24,989,910 20,916,926 15,990,118 13,388,519 Capital and total net debt 87,581,406 75,991,787 37,112,818 31,777,100 Gearing ratio (X) 0.71 0.72 0.57 0.58

10 FAIR VALUE MEASUREMENT AND RELATED FAIR VALUE DISCLOSURE

Fair value measurement Fair value related disclosures for fi nancial instruments and non- fi nancial The Group uses valuation techniques that are appropriate in the assets that are measured at fair value are disclosed in this note. Apart circumstances and for which suffi cient data are available to measure from this note, additional fair value related disclosures, including the fair value, maximising the use of relevant observable inputs and valuation methods, signifi cant estimates and assumptions are also minimising the use of unobservable inputs. provided in: All assets and liabilities for which fair value is measured or disclosed in Note the Financial Statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is signifi cant Property, plant and equipment under revaluation model 22.3 to the fair value measurement as a whole: Investment properties 24.2 Investment in unquoted equity shares 26.3 Level 1 - Quoted (unadjusted) market prices in active markets for Financial instruments 11 identical assets or liabilities Level 2 - Valuation techniques for which the lowest level input that ACCOUNTING POLICY is signifi cant to the fair value measurement is directly or Fair value is the price that would be received to sell an asset or paid to indirectly observable transfer a liability in an orderly transaction between market participants Level 3 - Valuation techniques for which the lowest level input that is at the measurement date. The fair value measurement is based on the signifi cant to the fair value measurement is unobservable presumption that the transaction to sell the asset or transfer the liability takes place either: For assets and liabilities that are recognised in the Financial Statements on a recurring basis, the Group determines whether • in the principal market for the asset or liability, or transfers have occurred between levels in the hierarchy by reassessing • in the absence of a principal market, in the most advantageous categorisation (based on the lowest level input that is signifi cant to the market for the asset or liability. fair value measurement as a whole) at the end of each reporting period.

The principal or the most advantageous market must be accessible by The Group determines the policies and procedures for both recurring the Group. fair value measurement, such as investment properties and unquoted AFS fi nancial assets, and for non-recurring measurement, such as The fair value of an asset or a liability is measured using the assets held-for-sale in discontinued operations. assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their External valuers are involved for valuation of signifi cant assets, such as economic best interest. land and building and investment properties, and signifi cant liabilities, such as insurance contracts. Selection criteria for external valuers A fair value measurement of a non-fi nancial asset takes into account include market knowledge, reputation, independence and whether a market participant’s ability to generate economic benefi ts by using professional standards are maintained. The Group decides, after the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

146 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 discussions with the external valuers, which valuation techniques and For the purpose of fair value disclosures, the Group has determined inputs to use for each case. classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

10.1 Financial assets and liabilities by fair value hierarchy - Group The Group held the following fi nancial instruments carried at fair value in the statement of fi nancial position: Financial assets

In Rs. ‘000 Level 1 Level 2 Level 3 As at 31 March 2019 2018 2019 2018 2019 2018

Financial assets Financial assets at fair value through OCI Quoted equity instruments 1,547,325 1,651,970 - - - - Unquoted equity instruments - - - - 469,217 - Quoted debt instruments 2,780,090 2,574,953 - - - - Financial assets at fair value through P&L Quoted equity instruments 568,515 619,024 - - - - Unquoted equity instruments - - - - 125,000 - Quoted debt instruments 293,477 360,663 - - - - Unit Trust - - 601,323 1,618,950 - - Total 5,189,407 5,206,610 601,323 1,618,950 594,217 -

Liabilities measured at fair value Financial liabilities at fair value through P&L Other current fi nancial liabilities - - 9,357 9,357 - - Total - - 9,357 9,357 - -

During the reporting period ended 31 March 2019, there were no transfers between Level 1 and Level 2 fair value measurements.

Non-financial assets

In Rs. ‘000 Level 1 Level 2 Level 3 As at 31 March 2019 2018 2019 2018 2019 2018

Non assets measured at fair value Land and buildings - - - - 25,954,359 24,008,256 Buildings on leasehold land - - - - 4,736,385 4,774,770 Investment property - - - - 1,695,261 1,238,300 Total - - - - 32,386,005 30,021,326

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 147 NOTES TO THE FINANCIAL STATEMENTS

10.2 Financial assets and liabilities by fair value hierarchy - Company The Company held the following fi nancial instruments carried at fair value in the statement of fi nancial position:

Financial assets

In Rs. ‘000 Level 1 Level 2 Level 3 As at 31 March 2019 2018 2019 2018 2019 2018

Financial assets Financial assets at fair value through OCI Quoted equity instruments 5,625 1,594,676 - - - - Unquoted equity instruments - - - - 125,000 - Total 5,625 1,594,676 - - 125,000 -

During the reporting period ended 31 March 2019, there were no transfers between Level 1 and Level 2 fair value measurements.

Non-financial assets

In Rs. ‘000 Level 1 Level 2 Level 3

As at 31 March 2019 2018 2019 2018 2019 2018

Assets measured at fair value Investment property - - - - 744,000 704,000 Total - - - - 744,000 704,000

In determining the fair value, highest and best use of the property including the current condition of the properties, future usability and associated redevelopment 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 the range of values.

Valuation of level 3 : unquoted equity instruments The fair valuation of level 3 : unquoted equity instruments is measured using price to book value methodology. Fair value would not signifi cantly vary if one or more of the inputs were changed.

This table consider only unquoted equity shares classifi ed level 3 fi nancial assets.

In Rs. ‘000 Change in Effect on equity equity price Group Company

2019 Unquoted equity investments classifi ed as level 3 within the fair value hierarchy + 10% 62,775 23,500 - 10% (62,775) (3,500)

148 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 11 FINANCIAL INSTRUMENTS

11.1 Financial assets

ACCOUNTING POLICY

Initial recognition and subsequent measurement • The contractual terms of the fi nancial asset give rise on specifi ed dates to cash fl ows that are solely payments of principal and Initial recognition and measurement interest on the principal amount outstanding. Financial assets within the scope of SLFRS 9 are classifi ed as amortised cost, fair value through other comprehensive income (OCI), The Group’s fi nancial assets at amortised cost includes trade and fair value through profi t or loss. receivables and short term investments.

The classifi cation of fi nancial assets at initial recognition depends Financial assets at fair value through OCI on the fi nancial asset’s contractual cash fl ow characteristics and Assets that are held for collection of contractual cash fl ows and for the Group’s business model for managing them. This assessment is selling the fi nancial assets, where the assets’ cash fl ows represent referred to as the SPPI test and is performed at an instrument level. solely payments of principal and interest, are measured at FVOCI. The The business model determines whether cash fl ows will result from Group measures debt instruments at fair value through OCI if both of collecting contractual cash fl ows, selling the fi nancial assets, or both. the following conditions are met: With the exception of trade receivables that do not contain a signifi cant fi nancing component or for which the Group has applied the practical • The fi nancial asset is held within a business model with the expedient are measured at the transaction price. objective of both holding to collect contractual cash fl ows and selling: and At initial recognition, the Group measures a fi nancial asset at its fair • The contractual terms of the fi nancial asset give rise on specifi ed value plus, in the case of a fi nancial asset not at fair value through dates to cash fl ows that are solely payments of principal and profi t or loss (FVPL), transaction costs that are directly attributable to interest on the principal amount outstanding. the acquisition of the fi nancial asset. Transaction costs of fi nancial assets carried at FVPL are expensed in profi t or loss. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and The Group’s fi nancial assets include cash and short-term deposits, foreign exchange gains and losses which are recognised in profi t or trade and other receivables, loans and other receivables, quoted and loss. When the fi nancial asset is derecognised, the cumulative gain or unquoted fi nancial instruments and derivative fi nancial instruments. loss previously recognised in OCI is reclassifi ed from equity to profi t or loss and recognised in other gains/ (losses). Interest income from Subsequent measurement these fi nancial assets is included in fi nance income using the effective The subsequent measurement of fi nancial assets depends on their interest rate method. Foreign exchange gains and losses are presented classifi cation. For the purpose of subsequent measurement fi nancial in other gains/(losses) and impairment expenses are presented as assets are classifi ed in four categories. separate line item in the income statement. • Financial assets at amortised cost Equity instruments • Financial assets at fair value through OCI with recycling of cumulative gains and losses Financial assets designated at fair value through OCI • Financial assets designated at fair value through OCI with no Upon initial recognition, the Group can elect to classify irrevocably recycling of cumulative gains and losses upon derecognition its equity investments as equity instruments designated at fair value • Financial assets at fair value through profi t or loss through OCI when they meet the defi nition of equity under LKAS 32 Financial Instruments: Presentation and are not held for trading. The Debt instruments classifi cation is determined on an instrument-by-instrument basis.

Financial assets at amortised cost Gains and losses on these fi nancial assets are never recycled to profi t or loss. Dividends are recognised as other income in the statement of Assets that are held for collection of contractual cash fl ows where profi t or loss when the right of payment has been established, except those cash fl ows represent solely payments of principal and interest when the Group benefi ts from such proceeds as a recovery of part of are measured at amortised cost. The Group measures fi nancial assets the cost of the fi nancial asset, in which case, such gains are recorded at amortised cost if both of the following conditions are met: in OCI. Equity instruments designated at fair value through OCI are not • The fi nancial asset is held within a business model with the subject to impairment assessment. objective to hold fi nancial assets in order to collect contractual cash fl ows: and

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 149 NOTES TO THE FINANCIAL STATEMENTS

Financial assets at fair value through profit or loss fair value through OCI. Dividends on listed equity investments are also Financial assets at fair value through profi t or loss include fi nancial recognised as other income in the statement of profi t or loss when the assets held for trading, fi nancial assets designated upon initial right of payment has been established recognition at fair value through profi t or loss, or fi nancial assets mandatorily required to be measured at fair value. Financial assets Derecognition are classifi ed as held for trading if they are acquired for the purpose Financial assets are derecognised when the rights to receive cash of selling or repurchasing in the near term. Derivatives, including fl ows from the fi nancial assets have expired or have been transferred separated embedded derivatives, are also classifi ed as held for trading and the Group has transferred substantially all the risks and rewards of unless they are designated as effective hedging instruments. Financial ownership. assets with cash fl ows that are not solely payments of principal and interest are classifi ed and measured at fair value through profi t or Impairment of financial assets loss, irrespective of the business model. Notwithstanding the criteria From 01 April 2018, the Group assesses on a forward looking basis for debt instruments to be classifi ed at amortised cost or at fair value the expected credit losses associated with its debt instruments carried through OCI, as described above, debt instruments may be designated at amortised cost and FVOCI. The impairment methodology applied at fair value through profi t or loss on initial recognition if doing so depends on whether there has been a signifi cant increase in credit risk. eliminates, or signifi cantly reduces, an accounting mismatch. For trade receivables, the Group applies the simplifi ed approach Financial assets at fair value through profi t or loss are carried in the permitted by SLFRS 9, which requires expected lifetime losses to be statement of fi nancial position at fair value with net changes in fair recognised from initial recognition of the receivables. The Group has value recognised in the statement of profi t or loss. established a provision matrix that is based on its historical credit loss This category includes derivative instruments and listed equity experience, adjusted for forward-looking factors specifi c to the debtors investments which the Group had not irrevocably elected to classify at and the economic environment.

11.2 Financial liabilities

ACCOUNTING POLICY

Initial recognition and measurement Gains or losses on liabilities held for trading are recognised in the Financial liabilities are classifi ed, at initial recognition, as fi nancial statement of profi t or loss. liabilities at fair value through profi t or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an Loans and borrowings effective hedge, as appropriate. This is the category most relevant to the Group. After initial recognition, interest-bearing loans and borrowings are subsequently measured at All fi nancial liabilities are recognised initially at fair value and, in the amortised cost using the EIR method. Gains and losses are recognised case of loans and borrowings and payables, net of directly attributable in profi t or loss when the liabilities are derecognised as well as through transaction costs. the EIR amortisation process. The Group’s fi nancial liabilities include trade and other payables, loans Amortised cost is calculated by taking into account any discount or and borrowings including bank overdrafts, and derivative fi nancial premium on acquisition and fees or costs that are an integral part instruments. of the EIR. The EIR amortisation is included as fi nance costs in the statement of profi t or loss. Subsequent measurement

The measurement of fi nancial liabilities depends on their classifi cation, Derecognition as described below: A fi nancial liability is derecognised when the obligation under the Financial liabilities at fair value through profi t or loss Financial liabilities liability is discharged or cancelled or expires. When an existing at fair value through profi t or loss include fi nancial liabilities held for fi nancial liability is replaced by another from the same lender on trading and fi nancial liabilities designated upon initial recognition as at substantially different terms, or the terms of an existing liability are fair value through profi t or loss. substantially modifi ed, such an exchange or modifi cation is treated as the derecognition of the original liability and the recognition of a new Financial liabilities are classifi ed as held for trading if they are incurred liability. The difference in the respective carrying amounts is recognised for the purpose of repurchasing in the near term. This category also in the statement of profi t or loss. includes derivative fi nancial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships Off-setting of financial instruments as defi ned by SLFRS 9. Separated embedded derivatives are also Financial assets and fi nancial liabilities are offset and the net amount is classifi ed as held for trading unless they are designated as effective reported in the consolidated statement of fi nancial position if there is a hedging instruments.

150 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 currently enforceable legal right to offset the recognised amounts and gains or losses arising from changes in the fair value of derivatives are there is an intention to settle on a net basis, to realise the assets and taken directly to the income statement. settle the liabilities simultaneously. Derivative financial instruments and hedging activities Derivative fi nancial instruments and hedge accounting - Initial Derivatives are initially recognised at fair value on the date a derivative recognition and subsequent measurement The Group uses derivative contract is entered into and are subsequently remeasured at their fair fi nancial instruments, such as forward currency contracts, interest rate value. The method of recognising the resulting gain or loss depends swaps and forward commodity contracts, to hedge its foreign currency on whether the derivative is designated as a hedging instrument, and if risks, interest rate risks and commodity price risks, respectively. so, the nature of the item being hedged. The Group designates certain Such derivative fi nancial instruments are initially recognised at fair derivatives either as, value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as • hedges of the fair value of recognised assets or liabilities or a fi rm fi nancial assets when the fair value is positive and as fi nancial liabilities commitment (fair value hedge) when the fair value is negative. • hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash fl ow Cash flow hedge hedge) The effective portion of changes in the fair value of derivatives that are • hedges of a net investment in a foreign operation (net investment designated and qualify as cash fl ow hedges is recognised in the other hedge). comprehensive income statement (OCI). The gain or loss in relation to ineffective portion is recognised immediately in the income statement. The Group documents at the inception of the transaction the relationship between hedging instruments and the hedged items, as Amounts accumulated in equity are reclassifi ed to profi t or loss in the well as its risk management objectives and strategies for undertaking periods when the hedged item affects profi t or loss. When a hedging various hedging transactions. The company also documents its instrument expires or is sold, or when a hedge no longer meets the assessment, both at hedge inception and on an ongoing basis, of criteria for hedge accounting, any cumulative gain or loss existing whether the derivatives that are used in hedging transactions are highly in equity at that time remains in equity and is recognised when the effective in offsetting changes in fair values or cash fl ows of hedged forecast transaction is ultimately recognised in the income statement. items. When the forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately The fair values of various derivative instruments used for hedging transferred to the income statement. purposes are disclosed in note 39.4. Movements on the hedging reserve on the other comprehensive income statement (OCI) are Fair value of financial instruments shown in the same note. The fair value of a hedging derivative is Where the fair value of fi nancial assets and fi nancial liabilities recorded classifi ed as a non-current asset or liability when the remaining hedged in the statement of fi nancial position cannot be derived from active item is more than 12 months and as a current asset or liability when markets, their fair value is determined using valuation techniques the remaining maturity of the hedged item is less than 12 months. including the discounted cash fl ow model. The inputs to these models Trading derivatives are classifi ed as a current asset or liability. are taken from observable markets where possible.

Where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors that could affect the reported fair value of fi nancial instruments, are further explained in note 11.

Derivative financial instruments

Initial recognition and subsequent measurement The Group uses derivative fi nancial instruments such as forward currency contracts, interest rate swaps and forward commodity contracts to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. Such derivative fi nancial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as fi nancial assets when the fair value is positive and as fi nancial liabilities when the fair value is negative. Any

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 151 NOTES TO THE FINANCIAL STATEMENTS Total Total Total Total nancial fi cost instruments Derivative Derivative Financial liabilities measured at amortised measured t or t t or t fi 2018 2019 2018 2019 2018 fi ts. loss - - - - 12,385,059 13,063,838 - 12,385,059 13,063,838 7,761,224 4,645,217 7,761,224 4,645,217 - - - - - 25,115,045 25,729,331 - 25,115,045 25,729,331 4,601,829 - - 3,237,633 115,205 - 4,601,829 3,237,633 122,502 - 115,205 8,428,255 - 7,268,577 122,502 8,428,255 2,731 7,268,577 7,566 2,731 7,566 2019 9,357 9,357 23,119,268 23,598,148 23,128,625 23,607,505 9,357 9,357 91,311,568 84,917,453 91,320,925 84,926,810 loss (FVPTPL) Financial assets fair value through pro through value value through pro through value Financial liabilities at fair Financial assets at fair value through OCI / AFS through value 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 amortised cost Financial assets at 44,213,754 42,685,040 4,726,242 4,821,141 1,463,163 2,598,387 - 236,367 50,403,159 50,340,935 nancial liabilities nancial fi nancial liabilities nancial fi nancial assets 8,262,413 5,271,209 4,601,242 4,696,141 293,477 360,663 - 236,367 13,157,132 10,564,380 fi Rental receivable on lease assets and hire purchase on lease assets and hire Rental receivable 1,135,517 1,042,759 assets Financial instruments in current and other receivablesTrade Loans and advances purchase on lease assets and hire Rental receivable - parties related Amounts due from 835,051 Short term investments 523,777 Cash in hand and at bank - Total 14,351,620 11,838,130 - - 13,692 11,664,401 - 13,098,641 - - 807 4,754,710 3,196,350 4,757,884 6,151,833 - - - - 125,000 - 125,000 1,169,686 - - - - 2,237,724 1,135,517 - 1,042,759 ------835,051 6,049,396 - - 7,120,608 523,777 - 14,351,620 - 11,838,130 - - - - - 11,664,401 13,692 13,098,641 - 3,196,350 6,151,833 807 Financial instruments in non-current assets Financial instruments in non-current Non-current As at 31 March In Rs. ‘000 In Rs. ‘000 Current portion Current bearing borrowings of interest Public deposits Bank overdrafts Total - - 9,782,952 7,244,641 9,782,952 7,244,641 As at 31 March liabilities Financial instruments in non-current bearing borrowings Interest Public deposits Other non-current liabilities Financial instruments in current and other payables Trade parties related Amounts due to Other current Financial instruments with SLFRS 9 - Financial Instrumen categories in accordance split into Financial assets and liabilities in the tables below are categoryFinancial assets by - Group categoryFinancial assets by - Group

152 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Total Total Total Total t or loss fi 2019 2018 2019 2018 16,671 17,877 16,671 17,877 186,200 186,200 108,894 186,200 186,200 44,415 108,894 174,702 153,748 44,415 174,702 153,748 Financial liabilities through pro through 6,817,719 7,453,907 6,817,719 7,453,907 3,958,498 2,984,531 3,958,498 2,984,531 10,003,875 10,526,355 10,003,875 10,526,355 21,266,559 21,367,033 21,266,559 21,367,033 Financial assets fair value Financial assets fair value measured at amortised cost measured ts. through OCI / AFS through Financial assets at fair value Financial assets at fair value 2019 2018 2019 2018 2019 2018 2019 2018 amortised cost Financial assets at 16,571,789 12,695,825 125,000 125,000 5,625 1,594,676 16,702,414 14,415,501 nancial liabilities nancial fi nancial liabilities nancial fi nancial assets 1,465,042 828,355 - - - - 1,465,042 828,355 fi Financial instruments in current assets Financial instruments in current and other receivablesTrade parties related Amounts due from Short term investmentsCash in hand and at bankTotal 14,176,360 8,588,380 912,093 362,930 - 18,294 2,916,160 ------125,000 - 125,000 - - - 5,625 14,176,360 1,594,676 8,588,380 - - 130,625 912,093 1,719,676 362,930 - 18,294 2,916,160 In Rs. ‘000 In Rs. ‘000 Financial instruments in current liabilities Financial instruments in current and other payables Trade parties related Amounts due to Total Other non-current Other non-current Other current portion Current bearing borrowings of interest Bank overdrafts As at 31 March liabilities Financial instruments in non-current bearing borrowings Interest As at 31 March assets Financial instruments in non-current Non-current Financial instruments with SLFRS 9 - Financial Instrumen categories in accordance split into Financial assets and liabilities in the tables below are categoryFinancial assets by - Company categoryFinancial liabilities by - Company

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 153 NOTES TO THE FINANCIAL STATEMENTS

The fair value of the fi nancial assets and liabilities is included at the cash fl ows using rates currently available for debt on similar terms, amount at which the instrument could be exchanged in a current credit risk and remaining maturities. transaction between willing parties, other than in a forced or liquidation • Fair value of unquoted ordinary shares has been estimated using sale. a Discounted Cash Flow (DCF) model. The valuation requires management to make certain assumptions about the model The following methods and assumptions were used to estimate the fair inputs, including forecast cash fl ows, the discount rate, credit risk values: and volatility. The probabilities of the various estimates within the • Fair value of quoted equities, debentures and bonds is based on range can be reasonably assessed and are used in management’s price quotations in an active market at the reporting date. estimate of fair value for these unquoted equity investments. • The fair value of unquoted instruments, loans from banks and other • Approximately 70% of loans and advances, rental receivable on fi nancial liabilities, obligations under fi nance leases, as well as other lease assets and hire purchase have a remaining maturity of non-current fi nancial liabilities is estimated by discounting future less than one year. Therefore, fair value of the lending portfolio approximates to the carrying value at the reporting date. All loans and advances are granted with fi xed interest rate terms.

11.3 Transition disclosures The following set out the impact of adopting SLFRS 9 on the Statement of Financial Position of Group/ Company including the effect of replacing LKAS 39’s incurred loss calculations with SLFRS 9’s expected credit losses.

A reconciliation between the carrying amounts under LKAS 39 to the balances reported under SLFRS 9 as of 01 April 2018 is,as follows.

In Rs. ‘000 Group Company As at 31 March 2018 2018 LKAS 39 Remeasurement SLFRS 9 LKAS 39 Remeasurement SLFRS 9 measurement measurement measurement measurement

Assets Non-current assets Deferred tax assets 749,406 73,833 823,239 - - - 65,389,121 73,833 65,462,954 - - -

Current assets Trade and other receivables 11,838,130 (406,489) 11,431,641 362,930 (55,353) 307,577 Loans and advances 13,098,641 (594,064) 12,504,577 - - - Rental receivable on lease assets and hire purchase 523,777 1,864 525,641 - - - Other current assets 3,449,051 46,131 3,495,182 - - - Short term investments 7,120,608 (32,168) 7,088,440 - - - 53,433,386 (984,726) 52,448,660 13,603,855 (55,353) 13,548,502 Total assets 118,822,507 (910,893) 117,911,614 35,212,962 (55,353) 35,157,609

Equity and Liabilities Equity attributable to equity holders of the parent Revenue reserves (577,403) (637,466) (1,214,869) 5,193,136 (55,353) 5,137,783 Equity attributable to equity holders 11,591,259 (637,466) 10,953,793 13,388,519 (55,353) 13,333,166 Non-controlling interests 9,325,667 (273,427) 9,052,240 - - - Total equity 20,916,926 (910,893) 20,006,033 13,388,519 (55,353) 13,333,166

Total liabilities 97,905,581 (910,893) 96,994,688 21,824,443 (55,353) 21,769,090 Total equity and liabilities 118,822,507 (910,893) 117,911,614 35,212,962 (55,353) 35,157,609

154 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 12 SRI LANKA ACCOUNTING STANDARDS (SLFRS) ISSUED BUT NOT YET EFFECTIVE

SLFRS - 16 Leases SLFRS 16 is effective for annual reporting periods beginning on or after The Group will apply the standard from its mandatory adoption date 01 January 2019, with early adoption permitted. which fi nancial reporting period starting from 01 April 2019.

SLFRS 16 provides a single lessee accounting model, requiring leases The Group intends to apply the simplifi ed transition approach and will to recognise assets and liabilities for all leases unless the lease term is not restate comparative amounts for the year prior to fi rst adoption. 12 months or less or the underlying asset has a low value even though The standard will affect primarily the accounting for the Group’s lessor accounting remains similar to current practice. operating leases and lease commitments. The Group will elect to apply the standard to contracts that were previously identifi ed as This supersedes: LKAS 17 leases, IFRIC 4 determining whether an leases applying LKAS 17. The Group will elect to use the exemptions arrangement contains a lease, SIC 15 operating leases - incentives; applicable to the standard on lease contracts for which the lease terms and SIC 27 evaluating the substance of transactions involving the legal end within 12 months as of the date of initial application, and lease form of a lease. Earlier application is permitted for entities that apply contracts for which the underlying asset is of low value. The Group has SLFRS 15 Revenue from Contracts with customers. rent agreements with several parties where the lease term ends within 12 months.

The following amendments and improvements are not expected to have a signifi cant impact on the Group’s Financial Statements • Income Taxes (Amendments to LKAS 12) • Long-term Interests in Associates (Amendments to LKAS 28) • Prepayment Features with Negative Compensation (Amendments to SLFRS 9 ) • Insurance Contracts (Amendments to SLFRS 4 ) • Disclosure of Interests in Other Entities (Amendments to SLFRS 12)

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 155 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 with effected from 01 April 2018, revenue from contracts with customers is recognised when control of the goods or services is transferred to the customer at an amount that refl ects 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 control from service performance obligation over time or at a point in time. For of the asset is transferred to the customer, generally on delivery of each performance obligation satisfi ed over time, the Group recognises goods. the revenue over time by measuring the progress towards complete satisfaction of that performance obligation because the customer simultaneously receives and consumes the benefi ts 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 specifi c criteria in recognising the revenue.

Financial Services

Life insurance business - Gross Written Premiums (GWP) When a fi nancial asset becomes credit-impaired and is, therefore, Gross written premiums comprise the total premiums received/ regarded as ‘Stage 3’, the Group calculates interest income by applying receivable for the whole period of cover provided by contracts entered the effective interest rate to the net amortised cost of the fi nancial into during the accounting period. Gross written premium is generally asset. If the fi nancial assets cures and is no longer credit-impaired, the recognised in full at the inception of the policy. Group reverts to calculating interest income on a gross basis.

Gross recurring premiums on life insurance contracts are recognised Interest Income on Overdue Rentals as revenue when payable by the policyholder (policies within the 30 day Overdue charges of leasing, loans and hire purchases have been grace period are considered as due). Premiums received in advance are accounted when the receipt in established. not recorded as revenue and recorded as a liability until the premium is due unless the relevant policy conditions require such premiums to Healthcare Services be recognised as income. Benefi ts and expenses are provided against Healthcare sector revenue is recognised to the extent that it is probable such revenue to recognise profi ts over the estimated life of the policies. that the economic benefi ts will fl ow to the Group and the revenue can For single premium business, revenue is recognised on the date on be measured, regardless of when the payment is being made after which the policy is effective. considering discounts, offers given to the customers, consultations, Income from leases, hire purchases, loans and advances and services provided under packages. Under both SLFRS 9 and LKAS 39, interest income and interest Retail sector expense is recorded using the effective interest rate (EIR) method for all fi nancial instruments measured at amortised cost. Interest income Retail sector revenue is recognised upon satisfaction of a performance on interest bearing fi nancial assets measured at FVOCI under SLFRS obligation. The revenue recognition occurs at a point in time when 9, similarly to interest bearing fi nancial assets classifi ed as available- control of the asset is transferred to the customer, which is generally for-sale or held to maturity under LKAS 39 is also recorded by using the upon delivery of the goods. The output method will provide a faithful EIR method. The EIR is the rate that exactly discounts estimated future depiction in recognising revenue. cash payments or receipts through the expected life of the fi nancial instrument or, when appropriate, a shorter period, to the net carrying amount of the fi nancial asset or fi nancial liability.

156 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Contract balances Contract assets Contract liabilities Contract assets are the Group’s right to consideration in exchange for Contract liabilities are the Group’s obligation to transfer goods or goods or services that the Group has transferred to a customer, with services to a customer for which the Group has received consideration rights that are conditional on some criteria other than the passage of (or the amount is due) from the customer. Contract liabilities include time. Upon satisfaction of the conditions, the amounts recognised as long-term advances received to deliver goods and services, short-term contract assets are reclassifi ed to trade receivables. advances received to render certain services.

In Rs. ‘000 Group Company For the year ended 31 March 2019 2018 2019 2018

Goods transferred at a point in time 44,547,507 39,629,431 - - Services transferred at a point in time 17,087,572 15,497,949 645,766 649,823 Total revenue from contracts with customers 61,635,079 55,127,380 645,766 649,823 Revenue from insurance contracts 9,833,075 7,368,671 - - Interest income 3,674,450 3,522,864 - - 75,142,604 66,018,915 645,766 649,823

13.1 Business segment analysis

In Rs. ‘000 Group For the year ended 31 March 2019 2018

Automobile 3,136,176 1,270,416 Financial Services 13,628,719 11,060,913 Healthcare Services 13,474,682 12,025,178 Information Technology 4,039,509 3,628,936 Leisure 3,128,298 2,585,423 Other 12,667 11,256 Retail 37,722,553 35,436,793 75,142,604 66,018,915

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 2019 2018

Dividend income from investments in subsidiaries and equity accounted investees 514,513 893,013 514,513 893,013

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 157 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 of Fee and commission income from services includes mainly property, plant and equipment and other non-current assets, including documentation and processing fees for the service provided in investments, are accounted for in the income statement, after processing loan facilities for customers. deducting from the proceeds on disposal, the carrying amount of such assets and the related selling expenses. Profit on disposal of investments On derecognition of an investment classifi ed as fi nancial assets at Gains and losses arising from activities incidental to the main revenue fair value through P&L and OCI, the cumulative gain or loss previously generating activities and those arising from a group of similar recognised in other comprehensive income statement is transferred to transactions which are not material are aggregated, reported and the income statement. presented on a net basis.

Other income Other income is recognised on an accrual basis.

In Rs. ‘000 Group Company For the year ended 31 March 2019 2018 2019 2018

Commission income 115,048 69,605 36,036 36,036 Fees received 306,541 475,344 - - Net exchange gain 55,520 51,977 - - Other laboratory income 79,003 89,716 - - Proceeds from investment disposal gain of Asiri share trust 49,049 558,894 - - Profi t/ (loss) on disposal of investments (377) 335,499 (10,575) - Profi t/ (loss) on disposal of investments in subsidiaries - - - 4,588,114 Profi t on sale of property, plant & equipment 7,589 19,558 2,140 10,100 Sundry income 342,110 161,154 1,017 692 954,483 1,761,747 28,618 4,634,942

16 FINANCE INCOME

ACCOUNTING POLICY Finance income comprises interest income on funds invested, dividend Interest income is recorded as it accrues using the effective interest income, fair value gains on fi nancial assets at fair value through profi t rate (EIR), which is the rate that exactly discounts the estimated future or loss and gains on the re-measurement to fair value of any pre- cash receipts through the expected life of the fi nancial instrument or existing interest in an acquiree recognised in the income statement. a shorter period where appropriate, to the net carrying amount of the fi nancial asset. Interest income is included in fi nance income on the income statement.

In Rs. ‘000 Group Company For the year ended 31 March 2019 2018 2019 2018

Interest income 1,011,079 887,733 1,364,767 882,835 Dividend income on - fi nancial assets at fair value through OCI 105,612 103,187 - - - fi nancial assets at fair value through P&L 18,939 23,537 - - Net change in fair value of fi nancial instruments at fair value through profi t or loss 13,013 29,238 (28,251) 55,854 Finance income on other fi nancial instruments 250,331 60,110 166,390 184,168 1,398,974 1,103,805 1,502,906 1,122,857

158 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 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 fi nancial assets at or production of an asset that necessarily takes a substantial period fair value through profi t or loss and impairment losses recognised on of time to get ready for its intended use or sale are capitalised as part fi nancial assets (other than trade receivables). of the cost of the respective assets. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of Interest expense is recorded as it accrues using the effective interest interest and other costs that the Group incurs in connection with the rate (EIR), which is the rate that exactly discounts the estimated future borrowing of funds. cash payments through the expected life of the fi nancial instrument or a shorter period where appropriate, to the net carrying amount of the fi nancial liability.

In Rs. ‘000 Group Company For the year ended 31 March 2019 2018 2019 2018

Interest expense on borrowings 5,857,772 4,662,922 1,902,029 1,516,380 Finance cost on other fi nancial instruments 568,178 1,104,072 649,862 1,145,858 Fair value loss on fi nancial assets at fair value through profi t or loss 140,075 - - - Other fi nance expenses 550,262 192,872 74,542 33,760 7,116,287 5,959,866 2,626,433 2,695,998

18 PROFIT BEFORE TAX

ACCOUNTING POLICY

Expenditure recognition and in maintaining the property, plant and equipment in a state of Expenses are recognised in the income statement on the basis of a effi ciency has been charged to the income statement. direct association between the cost incurred and the earning of specifi c For the purpose of presentation of the income statement, the “function items of income. All expenditure incurred in the running of the business of expenses” method has been adopted, on the basis that it presents fairly the elements of the Company and Group’s performance.

Profi t before tax is stated after charging all expenses including the following:

In Rs. ‘000 Group Company For the year ended 31 March 2019 2018 2019 2018

Remuneration to Executive and Non-Executive Directors 402,470 288,693 54,010 42,225 Auditors' remuneration - Audit 27,817 27,230 2,800 2,506 - Non audit 24,100 13,922 605 2,168 Cost of defi ned employee benefi t - Defi ned benefi t plan cost 221,936 218,953 13,852 13,222 - Defi ned contribution plan cost - EPF/ETF 878,022 764,930 42,046 38,387 Staff expenses 8,662,886 7,812,532 348,040 301,506 Depreciation of property, plant and equipment 2,520,118 2,284,557 36,051 36,039 Amortisation of intangible assets 262,143 279,494 2,542 2,824 Amortisation of lease rentals paid in advance 1,156 1,116 - - Donations 8,194 16,910 30 570 Provisions for/ write off of impaired receivables 353,623 252,445 2,472 64,000 Provision for impairment of inventories 75,137 108,930 - - Provisions for/ write off of impaired investments - - - 24,900 Profi t on sale of property, plant and equipment (7,589) (19,558) (2,140) (10,100) Impairment and derecognition of property, plant and equipment 21,318 18,705 - - Impairment/ derecognition of intangible assets 79,435 78,574 - -

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 159 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 statement. Management periodically evaluates positions taken measured at the amount expected to be recovered from or paid to the in the tax returns with respect to situations in which applicable tax taxation authorities. The tax rates and tax laws used to compute the regulations are subject to interpretation and establishes provisions amount are those that are enacted or substantively enacted at the where appropriate. 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 identifi cation of Current income tax relating to items recognised directly in equity is associated undertakings, estimation of the respective arm’s length recognised in equity and for items recognised in other comprehensive prices and selection of appropriate pricing mechanisms. income is recognised in other comprehensive income and not in the

19.1.1 Tax expense

In Rs. ‘000 Group Company For the year ended 31 March Note 2019 2018 2019 2018

Current income tax Current tax charge 788,440 882,320 37,614 42,315 Under provision of income tax of previous years (11,224) 39,150 36,487 79,361 Impairment/ written-off of tax receivables 151,923 - - - 14% withholding tax on intercompany dividends 185,181 163,878 - - Total income tax expense 19.1.3 1,114,320 1,085,348 74,101 121,676

Deferred income tax Relating to origination and reversal of temporary differences 19.2.1 (2,361,604) (270,989) 16,492 137,081 (1,247,284) 814,359 90,593 258,757

19.1.2 Reconciliation between accounting profit and taxable profit

In Rs. ‘000 Group Company For the year ended 31 March 2019 2018 2019 2018

Profi t before tax 1,743,000 3,092,402 (577,534) 3,957,426 Dividend income from Group companies 1,884,085 1,877,396 - - Share of results of equity accounted investees (7,080) (19,787) - - Other consolidation adjustments 227,792 5,606,421 - - Profi t after adjustment 3,847,797 10,556,432 (577,534) 3,957,426 Exempt profi ts (868,858) (652,129) - - Profi ts not liable for income tax (255,826) (7,597,128) - (4,656,789) Resident dividend (2,007,736) (2,004,119) (514,497) (893,198) Adjusted accounting profi t chargeable to income taxes 715,377 303,056 (1,092,031) (1,592,561) Deductible expenses (4,345,261) (3,447,181) (145,014) (54,612) Non deductible expenses 5,700,523 5,032,398 1,371,381 1,794,516 Other source of income 352,312 73,974 - 3,783 Set off against tax losses (2,301,203) (248,610) - - Other reductions - (14,997) - - Taxable income 121,748 1,698,640 134,336 151,126

160 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 19.1.3 Reconciliation between tax based on accounting profit and tax expense

In Rs. ‘000 Group Company For the year ended 31 March 2019 2018 2019 2018

Tax effect on chargeable profi ts 736,766 327,459 (305,769) (444,858) Tax effect on deductible expenses (469,874) (380,405) (40,604) (15,291) Tax effect on non deductible expenses 521,548 935,266 383,987 502,464 Under/ (over) provision for previous years (11,224) 39,150 36,487 79,361 Other income based taxes 14% withholding on intercompany dividends 185,181 163,878 - - Total income tax expense 962,397 1,085,348 74,101 121,676

Income tax charged at Standard rate - 28% 788,440 768,492 37,614 42,315 Other concessionary rates - 113,828 - - Under/ (over) provision for previous year (11,224) 39,150 36,487 79,361 Charge for the year 777,216 921,470 74,101 121,676

Other tax expenses Impairment/ written-off of tax receivables 151,923 - - -

Other income based taxes 14% withholding on intercompany dividends 185,181 163,878 - - Total income tax expense 1,114,320 1,085,348 74,101 121,676

Group tax expense is based on the taxable profi t 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 2019 2018 2019 2018

At the beginning of the year 348,372 535,788 33,309 56,555 Charge for the year 962,397 1,085,348 74,101 121,676 Acquisition of subsidiary - (7,309) - - Payments and set off against refunds (959,080) (1,265,455) (90,500) (144,922) At the end of the year 351,689 348,372 16,910 33,309

19.2 Deferred tax

ACCOUNTING POLICY

Deferred tax is provided, using the liability method, on temporary • in respect of taxable temporary differences associated with differences at the reporting date between the tax bases of assets and investments in subsidiaries and associates, except where the timing liabilities and their carrying amounts for fi nancial reporting purposes. of the reversal of the temporary differences can be controlled, and it is probable that the temporary differences will not reverse in the Deferred tax liabilities are recognised for all taxable temporary foreseeable future. differences except: • where the deferred tax liability arises from the initial recognition Deferred tax assets are recognised for all deductible temporary of goodwill or of an asset or liability in a transaction that is not a differences, carry-forward of unused tax credits and unused tax losses, business combination and, at the time of the transaction, affects to the extent that it is probable that taxable profi t will be available against neither the accounting profi t nor taxable profi t or loss; and which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised except:

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 161 NOTES TO THE FINANCIAL STATEMENTS

• where the deferred tax asset relating to the deductible temporary Deferred tax assets and liabilities are measured at the tax rates that are difference arises from the initial recognition of an asset or liability expected to apply to the year when the asset is realised or the liability in a transaction that is not a business combination and, at the time is settled, based on tax rates (and tax laws) that have been enacted or of the transaction, affects neither the accounting profi t nor the substantively enacted as at the reporting date. taxable profi t or loss; and Deferred tax relating to items recognised outside the income • in respect of deductible temporary differences associated with statement is recognised outside the income statement, either in other investments in subsidiaries and associates, deferred tax assets are comprehensive income or directly in equity. only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profi t Deferred tax assets and deferred tax liabilities are offset if a legally will be available against which the temporary differences can be enforceable right exists to set off current tax assets against current tax utilised. liabilities and when the deferred taxes relate to the same taxable entity The carrying amount of deferred income tax assets is reviewed at each and the same taxation authority. reporting date and reduced to the extent that it is no longer probable that suffi cient taxable profi t will be available to allow all or part of the No deferred tax asset or liability has been recognised in the companies deferred tax asset to be utilised. Unrecognised deferred tax assets are enjoying Board of Investment (BOI) Tax Holidays’ if no qualifying assets reassessed at each reporting date and are recognised to the extent or liabilities continue beyond the BOI period. that it has become probable that future taxable profi ts will allow the deferred tax assets to be recovered.

19.2.1 Deferred tax charge / (release)

In Rs. ‘000 Group Company For the year ended 31 March 2019 2018 2019 2018

Income statement Deferred tax expense arising from; Accelerated depreciation for tax purposes 105,624 302,197 733 (536) Revaluation of investment property to fair value 24,500 9,450 15,483 108,683 Employee benefi t liabilities (26,915) (126,730) (2,628) (2,493) Benefi t arising from tax losses (1,990,017) (284,699) - - Others (474,796) (171,207) 2,904 31,427 (2,361,604) (270,989) 16,492 137,081

Other comprehensive income Deferred tax expense arising from; Revaluation of land and building to fair value 338,027 2,420,819 - - Actuarial gains/ (loss) on employee benefi t liabilities 15,196 (19,404) (973) (2,861) 353,223 2,401,415 (973) (2,861)

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 Hospital Ltd.

19.2.2 Deferred tax - Group

In Rs. ‘000 Assets Liabilities As at 31 March 2019 2018 2019 2018

At the beginning of the year 749,406 508,968 2,829,959 459,096 Day 01 Impact of Deferred tax 73,833 - - - Charge and release 2,424,711 240,438 416,428 2,370,863 Acquisition of subsidiary - - 59,689 - At the end of the year 3,247,950 749,406 3,306,076 2,829,959

162 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 The closing deferred tax asset and liability balance relates to the following:

In Rs. ‘000 Asset Liability As at 31 March 2019 2018 2019 2018

Revaluation of land and building to fair value (78,349) (46,861) 2,920,028 2,613,489 Revaluation of investment property to fair value (1,550) (450) 32,400 9,000 Accelerated depreciation for tax purposes (259,045) (177,306) 935,706 822,668 Employee benefi t liabilities 56,456 98,125 (180,570) (175,661) Losses available for offset against future taxable income 2,833,704 615,698 (394,437) (473,616) Provision for bad debts 303,341 135,471 - - Lease capital balance (50,134) - - 61,190 Unclaimed impairment provisions 153,026 56,093 - - Others 290,501 68,636 (7,051) (27,111) 3,247,950 749,406 3,306,076 2,829,959

19.2.2 Deferred tax - Company

In Rs. ‘000 Liability As at 31 March 2019 2018

At the beginning of the year 157,916 23,696 Charge and release 15,519 134,220 At the end of the year 173,435 157,916

The closing deferred tax liability balance of the company relates to the following:

In Rs. ‘000 Liability As at 31 March 2019 2018

Revaluation of investment property to fair value 165,006 149,523 Accelerated depreciation for tax purposes 13,145 12,412 Employee benefi t liabilities (22,711) (19,110) Others 17,995 15,091 173,435 157,916

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 • where the sales tax incurred on a purchase of assets or services is of Value Added Tax on Financial Services is the accounting profi t not recoverable from the taxation authority, in which case the sales before tax adjusted for the economic depreciation and emolument of tax is recognised as part of the cost of acquisition of the asset or employees computed on prescribed rate. as part of the expense item as applicable; and 19.6 Debt Repayment Levy • where receivables and payables are stated with the amount of sales tax included. As per the Finance Act No. 35 of 2018, with effect from 01 October 2018, Debt Repayment Levy (DRL) of 7% was introduced on the The net amount of sales tax recoverable from, or payable to, the value addition attributable to the supply of fi nancial services by each taxation authority is included as part of receivables or payables in the institution. DRL is chargeable on the same base used for calculation of statement of fi nancial position. VAT on Financial Services as explained above.

19.4 Tax on dividend income Tax on dividend income from subsidiaries is recognised as an expense in the consolidated income statement.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 163 NOTES TO THE FINANCIAL STATEMENTS

Accounting judgements, estimates and assumptions The Group is subject to income tax and other taxes including VAT. to such assumptions may require future adjustments to tax income Significant judgment was required to determine the total provision for and expense already recorded. Where the final tax outcome of such current, deferred and other taxes due to the uncertainties that exist with matters is different from the amounts that were initially recorded, such respect to the interpretation of applicability of tax laws at the time of the differences will impact the income and deferred tax amounts in the preparation of these Financial Statements. period in which the determination is made.

Uncertainties also exist with respect to the interpretation of complex The Group has tax losses in subsidiaries that have a history of losses tax regulations and the amount and timing of future taxable income. that do not expire and may not be used to offset other tax liabilities, Given the wide range of business relationships and the long-term nature where the subsidiaries have no avenues available that could partly and complexity of existing contractual agreements, differences arising support the recognition of these losses as deferred tax assets. between the actual results and assumptions made or future changes

19.7 Applicable rates of income tax The tax liability of resident companies are computed at the standard rate of 28% except for the following companies which enjoy full or partial exemptions and concessions.

19.7.1 Exemptions/ concessions granted under the Board of Investment Law/ Inland Revenue Act

Company Basis Exemption or Period concessions concessions

Central Hospital Ltd Providing Exempt 8 years from 1st year of profi t or 2 years from commencement of operation healthcare services whichever is earlier (from FY 2012/13 onwards) Softlogic City Hotels Construction of Exempt 7 Years from 1st year of profi t or 2 years from commencement of operation (Pvt) Ltd tourist hotel whichever is earlier (from FY 2018/19 onwards) Ceysand Resorts Ltd Promotion of 14% Open ended tourism Softlogic Destination Promotion of 14% Open ended Management (Pvt) Ltd tourism Softlogic B P O Services BPO service Exempt 6 years commencing from year in which the company make profi ts or (Pvt) Ltd any year of assessment not less than 2 years reckoned from the date of commencement of commercial operations whichever is earlier (from FY 2015/16 onwards)

19.7.2 Income tax rates of off-shore subsidiaries

Company Country of incorporation Rate

Softlogic Australia (Pty) Ltd Australia 33.3%

164 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 19.8 Tax losses carried forward

In Rs. ‘000 Group As at 31 March 2019 2018

Tax losses brought forward 19,452,631 14,919,394 Adjustments on fi nalisation of liability 356,036 (255,809) Acquisition/ (disposal) of subsidiary 9,329 10,113 Tax losses arising during the year 2,718,741 5,027,543 Utilisation of tax losses (2,301,203) (248,610) 20,235,534 19,452,631

The Group has tax losses amounting to Rs. 8.706.00 Mn (2018 - Rs. 15,562.00 Mn) available to offset against future taxable profi ts 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 01 April 2018, signifi cant changes have been introduced to the income tax law of Sri Lanka. Further the Department of Inland Revenue has issued a Gazette notifi cation no. 2064/53 on the transitional provisions that would be applicable in implementing the above Act.

As per the gazette notifi cation 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.

20 EARNINGS PER SHARE

ACCOUNTING POLICY

Basic EPS is calculated by dividing the profi t 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

In Rs. ‘000 Group For the year ended 31 March Note 2019 2018

Profi t attributable to equity holders of the parent - continuing operations 104,669 204,200

Weighted average number of ordinary shares 20.2 1,172,482,493 824,983,503

Basic earnings per share - continuing operations 0.09 0.25

20.2 Amount used as denominator

Group For the year ended 31 March 2019 2018

Ordinary shares at the beginning of the year 961,728,395 779,000,000 Effect of purchase of treasury shares - (4,280,404) Effect of issue of private placement shares - 2,503,129 Effect of issue of rights issue shares 210,754,098 47,760,778 Adjusted weighted average number of ordinary shares 1,172,482,493 824,983,503

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 165 NOTES TO THE FINANCIAL STATEMENTS

21 DIVIDEND PER SHARE Equity dividend on ordinary shares declared and paid during the year

Group For the year ended 31 March 2019 2018 Rs. Rs.’000 Rs. Rs.’000

Interim dividend 0.50 596,272 0.65 503,365

22 PROPERTY, PLANT AND EQUIPMENT

ACCOUNTING POLICY

Basis of recognition fair value on the date of revaluation. The Group has adopted a policy Property, plant and equipment are recognised if it is probable that of revaluing land and buildings by professional valuers at least every future economic benefi ts associated with the asset will fl ow to the 3 years except for properties held for rental and occupied mainly by Group and the cost of the asset can be reliably measured. Group companies.

Basis of measurement Derecognition Plant and equipment are stated at cost less accumulated depreciation An item of property, plant and equipment is derecognised upon and any accumulated impairment loss. Such cost includes the cost of replacement, disposal or when no future economic benefi ts are replacing component parts of the plant and equipment and borrowing expected from its use. Any gain or loss arising on derecognition of costs for long-term construction projects if the recognition criteria the asset is included in the income statement in the year the asset is are met. When signifi cant parts of plant and equipment are required derecognised. to be replaced at intervals, the Group derecognises the replaced part, and recognises the new part with its own associated useful life and Depreciation depreciation. Likewise, when a major inspection is performed, its cost Depreciation is calculated by using a straight-line method on the cost is recognised in the carrying amount of the plant and equipment as or valuation of all property, plant and equipment, other than freehold a replacement if the recognition criteria are satisfi ed. All other repair land, in order to write off such amounts over the estimated useful and maintenance costs are recognised in the income statement as economic life of such assets. incurred. The estimated useful life of assets is as follows: Land and buildings are measured at fair value less accumulated depreciation on buildings and impairment charged subsequent to the Assets Years date of the revaluation. Buildings 40 - 75 The carrying values of property, plant and equipment are reviewed for Buildings on leasehold land 40 - 60 or over the impairment when events or changes in circumstances indicate that the period of lease carrying value may not be recoverable. Plant & machinery 4 - 10 Computer equipment, furniture & fi ttings 2 - 10 Any revaluation surplus is recognised in the statement of other Motor vehicles 4 - 8 comprehensive income and accumulated in equity in the asset revaluation reserve, except to the extent that it reverses a revaluation The useful life and residual values of assets are reviewed, and adjusted decrease of the same asset previously recognised in the income if required, at the end of each fi nancial year. statement, in which case the increase is recognised in the income statement. A revaluation defi cit is recognised in the income statement, Capital work-in-progress except to the extent that it offsets an existing surplus on the same Capital work in progress consists of the cost of assets, labour and asset recognised in the asset revaluation reserve. other direct costs associated with property, plant and equipment being constructed by the Group. Once the assets become operational, Accumulated depreciation as at the revaluation date is eliminated the related costs are transferred from construction in progress to against the gross carrying amount of the asset and the net amount the appropriate asset category and are depreciated together with the is restated to the revalued amount of the asset. Upon disposal, related asset. any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. Where land and buildings are subsequently revalued, the entire class of such assets is revalued at

166 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Group as a lessee amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future Finance leases which transfer to the Group substantially all the cash fl ows are discounted to their present value using a pre-tax risks and benefi ts incidental to ownership of the leased item, are discount rate that refl ects current market assessments of the time capitalised at the commencement of the lease at the fair value of the value of money and the risks specifi c to the asset. Impairment losses leased property or, if lower, at the present value of the minimum lease are recognised in the income statement, except that impairment losses payments. Lease payments are apportioned between fi nance charges in respect of property, plant and equipment previously revalued are and reduction of the lease liability so as to achieve a constant rate of recognised against the revaluation reserve through the statement of interest on the remaining balance of the liability. Finance charges are other comprehensive income to the extent that they reverse a previous recognised in fi nance costs in the income statement. revaluation surplus. A leased asset is depreciated over the useful life of the asset. However, An assessment is made at each reporting date as to whether there if there is no reasonable certainty that the Group will obtain ownership is any indication that previously recognised impairment losses may by the end of the lease term, the asset is depreciated over the shorter no longer exist or may have decreased. If such indication exists, the of the estimated useful life of the asset and the lease term. Operating recoverable amount is estimated. A previously recognised impairment lease payments are recognised as an operating expense in the income loss is reversed only if there has been a change in the estimates used statement on a straight-line basis over the lease term. to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the Impairment of property plant and equipment asset is increased to its recoverable amount. That increased amount The Group assesses at each reporting date whether there is an cannot exceed the carrying amount that would have been determined, indication that an asset may be impaired. If any such indication exists, net of depreciation, had no impairment loss been recognised for or when annual impairment testing for an asset is required, the Group the asset in prior years. Such reversal is recognised in the income makes an estimate of the asset’s recoverable amount. An asset’s statement unless the asset is carried at a revalued amount, in which recoverable amount is the higher of an asset’s or cash generating unit’s case the reversal is treated as a revaluation increase. After such fair value less costs to sell and its value in use and is determined for a reversal, the depreciation charge is adjusted in future periods to an individual asset, unless the asset does not generate cash infl ows allocate the asset’s revised carrying amount, less any residual value, on that are largely independent of those from other assets or groups of a systematic basis over its remaining useful life. assets. Where the carrying amount of an asset exceeds its recoverable

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 167 NOTES TO THE FINANCIAL STATEMENTS

22.1 Group

In Rs. ‘000 Land and Buildings on Plant and Computer, Motor Capital Total Total As at 31 March buildings leasehold machinery Equipment, vehicles work-in- 2019 2018 land furniture progress and fi ttings

Freehold assets Cost or Valuation At the beginning of the year 23,963,862 6,205,282 6,628,255 9,637,697 576,172 2,708,157 49,719,425 43,183,658 Additions 86,556 672,912 732,164 1,063,673 58,462 3,114,643 5,728,410 4,510,010 Acquisition of subsidiary 626,895 - 257,089 74,010 13,990 - 971,984 116,615 Disposals - - (265,464) (62,161) (32,422) - (360,047) (364,471) Transfers* (193,813) 259,094 20,155 470,702 25,697 (1,108,329) (526,494) (288,871) Impairment/ derecognition (8,525) (16,539) (8,999) (3,794) - - (37,857) (18,705) Revaluations 1,500,641 40,604----1,541,245 2,580,861 Effect of movements in exchange rates - 32 - 145 - - 177 328 At the end 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

Leasehold assets Cost At the beginning of the year - - 179,594 4,297 305,038 - 488,929 508,182 Additions ----14,795 - 14,795 13,850 Acquisition of subsidiary ----2,574 - 2,574 6,236 Disposals ------(15,870) Transfers ----(31,206) - (31,206) (23,469) Effect of movements in exchange rates ----464-464- At the end of the year - - 179,594 4,297 291,665 - 475,556 488,929 Total value of assets 25,975,616 7,161,385 7,542,794 11,184,569 933,564 4,714,471 57,512,399 50,208,354 Freehold assets Accumulated depreciation At the beginning of the year 2,614 638,613 3,247,585 4,552,122 256,090 - 8,697,024 7,195,391 Charge for the year 275,605 363,410 582,949 1,187,714 53,874 - 2,463,552 2,225,098 Acquisition of subsidiary 6,150 - 163,925 54,769 13,278 - 238,122 13,969 Disposals - - (246,767) (39,882) (28,171) - (314,820) (275,945) Transfers* (258,224) (116,797) 1,771 (1,864) 20,216 - (354,898) (461,465) Impairment/ derecognition - (16,539) ----(16,539) - Effect of movements in exchange rates - 19 - 45 - - 64 (24) At the end of the year 26,145 868,706 3,749,463 5,752,904 315,287 - 10,712,505 8,697,024

Leasehold assets Accumulated depreciation At the beginning of the year - - 66,110 4,297 103,000 - 173,407 145,592 Charge for the year - - 17,644 - 38,922 - 56,566 59,485 Acquisition of subsidiary ----1,880 - 1,880 2,253 Disposals ------(11,608) Transfers ----(26,076) - (26,076) (22,315) Effect of movements in exchange rates ----105-105- At the end of the year - - 83,754 4,297 117,831 - 205,882 173,407 Total accumulated depreciation 26,145 868,706 3,833,217 5,757,201 433,118 - 10,918,387 8,870,431 Carrying value 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 As at 31 March 2018 23,961,248 5,566,669 3,494,154 5,085,575 522,120 2,708,157 41,337,923

* Transfers include the accumulated depreciation amounting to Rs. 375.02 Mn (2018 - Rs. 467.22 Mn) as at revaluation date that was eliminated against the gross carrying amount of the revalued assets.

168 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 22.2 Company

In Rs. ‘000 Furniture Computer Motor Total Total As at 31 March and fi ttings and offi ce vehicles 2019 2018 Equipment

Freehold assets Cost At the beginning of the year 36,925 44,638 124,115 205,678 167,547 Additions 355 1,515 - 1,870 49,385 Disposals (48) (717) (9,046) (9,811) (11,169) Transfers - - 25,893 25,893 (85) At the end of the year 37,232 45,436 140,962 223,630 205,678

Leasehold assets At the beginning of the year - - 135,836 135,836 147,806 Disposals - - - - (11,970) Transfers - - (25,893) (25,893) - At the end of the year - - 109,943 109,943 135,836 Total value of assets 37,232 45,436 250,905 333,573 341,514

Freehold assets Accumulated depreciation At the beginning of the year 15,024 20,217 53,718 88,959 75,464 Charge for the year 4,561 5,904 14,558 25,023 20,970 Disposals (15) (465) (6,016) (6,496) (7,420) Transfers - - 20,714 20,714 (55) At the end of the year 19,570 25,656 82,974 128,200 88,959

Leasehold assets Accumulated depreciation At the beginning of the year - - 44,096 44,096 38,603 Charge for the year - - 11,028 11,028 15,069 Disposal - - - - (9,576) Transfers - - (20,714) (20,714) - At the end of the year - - 34,410 34,410 44,096 Total accumulated depreciation 19,570 25,656 117,384 162,610 133,055

Carrying value As at 31 March 2019 17,662 19,780 133,521 170,963 As at 31 March 2018 21,901 24,421 162,137 208,459

22.3 Revaluation of land and buildings

Accounting judgements, estimates and assumptions 31 March 2019 except revaluation of land and building of Softlogic Life The Group uses the revaluation model of measurement of land and Insurance PLC. buildings. The Group engaged independent expert valuers, to determine The changes in fair value are recognised in other comprehensive the fair value of its land and buildings. Fair value is determined by income and in the statement of equity. As a result of the valuations reference to market-based evidence of transaction prices for similar of land and buildings the surplus arising from the change in fair value properties. was Rs. 1,541.25 Mn (2018 - Rs. 2,580.86 Mn) which has been credited Valuations are based on open market prices, adjusted for any to the revaluation reserve. Further during the reporting period, defi cit difference in the nature, location or condition of the specifi c property. arising from the change in fair value of revalued land and buildings The valuation techniques used are appropriate in the circumstances, were Rs. Nil (2018 - 1.12 Mn). for which suffi cient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. The date of the most recent revaluation was on

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 169 NOTES TO THE FINANCIAL STATEMENTS

Details of Group’s land and buildings stated at valuations are indicated below:

Company Property Method of Extent Range of estimates for signifi cant Correlation valuation unobservable inputs to fair value Per perch Per square foot value - Rs. Mn. value - Rs. 2019 2018 2019 2018

Property valuations by Mr. G W G Abeygunawardene (Chartered Valuation Surveyor)

Land of Softlogic Holdings PLC 14, De Fonseka 15.50 - 14.50 - Place, Colombo 05 OMV 21.89 P 16.50 15.50 - - Positive Softlogic Properties (Pvt) 24, Dharmapala Mw., Ltd Kollupitiya, Colombo 03 OMV 2 R 11.68 P 19.00 18.00 - - Positive Suzuki Motors Lanka Ltd 371, New Nuge Road, Peliyagoda OMV 28.39 P 1.85 1.50 - - Positive

Building of Softlogic Information 14, De Fonseka 6,250 - 6,250 - Technologies (Pvt) Ltd Place, Colombo 05 DCC - - - 7,550 7,550 Positive Suzuki Motors Lanka Ltd 371, New Nuge Road, 4,400 - 4,500 - Peliyagoda DCC - - - 5,650 6,000 Positive Softlogic City Hotels 24, Dharmapala Mw., (Pvt) Ltd Kollupitiya, Colombo 03 DCC - - - 18,880 18,880 Positive Future Automobiles (Pvt) 1124/5, Parliament Rd., 3,000 - 4,000 - Ltd* Battaramulla DCC - - - 8,500 8,000 Positive

Land and building of Softlogic Holdings PLC 262, Gagarama Road, 1 A 2 R Piliyandala OMV/ DCC 21 P 0.75 00.65 600 - 6,000 700 - 6,000 Positive Softlogic Retail (Pvt) Ltd 402, Galle Road, Colombo 4,500 - 4,500 - 03 OMV/ DCC 17.3 P 18.00 16.50 6,250 6,250 Positive Odel PLC Dr. C W W. Kannangara 1 A 3 R 16.00 - 15.00 - 4,000 - 4,000 - Mw., Colombo 07 OMV/ DCC 27.58 P 17.00 15.50 4,250 4,250 Positive 29 A, Jayatilake Mw., 2,450 - 2,540 - Panadura OMV/ DCC 1 R 2.16 P 2.60 1.90 4,850 4,950 Positive 18 & 20, Sama Mw., 4,250 - 4,450 - Boralesgomuwa OMV/ DCC 20 P 1.80 1.40 4,750 4,950 Positive Odel Properties (Pvt) Ltd 475/32, Kotte Road, 4,800 - 5,000 - Rajagiriya OMV/ DCC 1 R 7.42 P 7.00 6.00 6,100 6,250 Positive Softlogic Finance PLC 13, De Fonseka Place, 6,500 - 6,500 - Colombo 04 OMV/ DCC 12.62 P 16.50 15.50 8,250 8,250 Positive

* Previous Property valuation carried out by Mr. P B Kalugalgedara (Chartered Valuation Surveyor)

170 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Company Property Method of Extent Range of estimates for signifi cant Correlation valuation unobservable inputs to fair value Per perch Per square foot value - Rs. Mn. value - Rs. 2019 2018 2019 2018

Property valuations by Mr. P B Kalugalgedara (Chartered Valuation Surveyor) Building of Asiri Surgical Hospital 21, Kirimandala 3,000 - 3,000 - PLC Mw., Colombo 05 DCC - - - 8,400 8,250 Positive Ceysand Resorts Ltd Centara Ceysand Resort & 3,000 - 3,000 - Spa, Bentota DCC - - - 12,500 12,500 Positive Land and building of Asiri Hospital Holdings 181,Kirula Road, Colombo 1 A 2 R 2,500 - 2,000 - PLC 05 OMV/ DCC 13.98 P 11.00 10.00 16,000 16,000 Positive Central Hospital Ltd 114, Norris Canal Road, 1 A 2,000 - 2,000 - Colombo 10 OMV/ DCC 21.03 P 15.50 11.00 10,000 10,000 Positive Asiri Hospital Matara 15 Dharmapala Mw., (Pvt) Ltd Uyanwatta, Matara 26, Esplande Road, 1 A 2 R 600 - 600 - Uyanwatta, Matara OMV/ DCC 1.5 P 0.77 - 1.10 0.70 - 1.00 8,000 8,000 Positive Asiri Hospital Galle (Pvt) 59, Wackwella Road, Galle Ltd (Previously known as Hemas Southern 2 R Hospitals (Pvt) Ltd) OMV/ DCC 24.83 P 3.00 - 8,000 - Positive Softlogic Life Insurance 283, R A De Mel Mw., PLC Kollupitiya, Colombo 03 OMV/ DCC 12 P 15.00 15.00 9,750 9,750 Positive

Summary description of valuation methodologies: The valuer has used valuation techniques such as market values and discounted cash fl ow methods where there was lack of comparable market data available based on the nature of the property.

Open market value method Direct capital comparison method Open market value method uses prices and other relevant information This method may be adopted when the rental value is not available generated by market transactions involving identical or comparable from the property concerned, but there are evidence of sale price assets, liabilities or a group of assets and liabilities, such as a business. of properties as a whole. In such cases, the capitalised value of the property is fi xed by direct comparison with the capitalised value of similar property in the locality.

22.4 Land and buildings

In Rs. ‘000 Group As at 31 March 2019 2018

At cost 1,551,406 774,891 At valuation 30,690,744 28,783,026 32,242,150 29,557,917

22.5 Carrying value

In Rs. ‘000 Group Company As at 31 March 2019 2018 2019 2018

At cost 15,633,594 12,239,375 95,430 116,719 At valuation 30,690,744 28,783,026 - - On fi nance lease 269,674 315,522 75,533 91,740 46,594,012 41,337,923 170,963 208,459

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 171 NOTES TO THE FINANCIAL STATEMENTS

22.6 The carrying amount of revalued land and buildings if they were carried at cost less depreciation, would be as follows:

In Rs. ‘000 Group As at 31 March Land and Buildings on 2019 2018 buildings leasehold Total Total land

Cost 16,040,963 3,440,052 19,481,015 18,856,280 Accumulated depreciation (1,260,809) (569,853) (1,830,662) (1,436,644) Carrying value 14,780,154 2,870,199 17,650,353 17,419,636

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. 12,853.56 Mn There is no permanent fall in the value of property, plant and equipment (2018 - Rs. 8,957.32 Mn) have been pledged as security for term loans which requires a provision for impairment other than the details obtained, details of which are disclosed in note 53. disclosed under note 18 and note 22.1 to the Financial Statements.

Further property plant & equipment with a carrying value of Rs. 269.67 22.10 Title restriction on property, plant and equipment Mn (2018 - Rs. 315.52 Mn) and Rs. 75.53 Mn (2018 - Rs. 91.74 Mn) for There were no restrictions that existed on the title to the property, plant the Group and Company respectively have been pledged as securities and equipment of the Group/ Company as at the reporting date. for the lease facilities obtained.

22.11 Capital work-in-progress - Group 22.8 Fully depreciated but still in use Group Capital work-in-progress mainly consists the cost of 180 beds Group property, plant and equipment with a cost of Rs. 3,791.65 Mn multi-disciplined hospital under construction in Kandy by Asiri Hospital (2018 - Rs. 3,241.68 Mn) have been fully depreciated and continue Kandy (Pvt) Ltd which is a fully own subsidiary of Asiri Hospital to be in use by the Group. The cost of fully depreciated assets in the Holdings PLC. Company amounts to Rs. 43.34 Mn (2018 - Rs. 47.54 Mn).

23 LEASE RENTALS PAID IN ADVANCE

ACCOUNTING POLICY

Prepaid lease rentals paid to acquire land use rights are amortised over the lease term in accordance with the pattern of benefi ts provided.

In Rs. ‘000 Group As at 31 March 2019 2018

At the beginning of the year 805,601 852,722 Acquisition through business combinations - 3,884 Amortisation for the year (16,506) (51,005) At the end of the year 789,095 805,601

Prepaid lease rentals paid to acquire land use rights have been classifi ed as lease rentals paid in advance and are amortised over the lease term in accordance with the pattern of benefi ts provided.

23.1 Details of prepaid lease rentals

In Rs. Group As at 31 March Extent Lease period 2019 2018

Asiri Surgical Hospital PLC, Colombo 05 2 A 1 R 11.6 P 99 years from 29 March 2000 83,128 84,164 Asiri Hospital Kandy (Pvt) Ltd, Mulgampala 2 A 1 R 13.84 P 50 years from 01 January 2015 702,281 717,632 Suzuki Motors Lanka Ltd, Peliyagoda 21.40 P 50 years from 02 December 1999 3,686 3,805 789,095 805,601

172 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 24 INVESTMENT PROPERTY

ACCOUNTING POLICY

Properties held to earn rental income and properties held for capital are expected. Any gains or losses on derecognition or disposal are appreciation have been classifi ed as investment property. recognised in the income statement in the year of derecognition or disposal. Investment properties are measured initially at cost, including transaction costs. The carrying value of an investment property Transfers are made to or from investment property only when there includes the cost of replacing part of an existing investment property is a change in use. For a transfer from investment property to owner at the time that cost is incurred if the recognition criteria are met, and occupied property or inventory (WIP), the deemed cost for subsequent excludes the costs of day-to-day servicing of the investment property. accounting is the fair value at the date of change in use. If owner Subsequent to initial recognition, the investment properties are stated occupied property becomes an investment property or inventory (WIP), at fair values, which refl ect market conditions at the reporting date. the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change Gains or losses arising from changes in fair value are included in in use. Where Group companies occupy a signifi cant portion of the the income statement in the year in which they arise. Fair values are investment property of a subsidiary, such investment properties are evaluated at frequent intervals by an accredited external, independent treated as property, plant and equipment in the consolidated Financial valuer. Statements, and accounted using the Group accounting policy for property, plant and equipment. Investment properties are derecognised when disposed, or permanently withdrawn from use because no future economic benefi ts

In Rs. ‘000 Group Company As at 31 March 2019 2018 2019 2018

At the beginning of the year 1,238,300 1,037,000 704,000 609,385 Additions during the year 18,237 3,300 - 2,140 Change in fair value during the year 245,000 198,000 40,000 92,475 Transfer from property, plant and equipment 193,724 - - - At the end of the year 1,695,261 1,238,300 744,000 704,000

24.1 Amounts recognised in income statement relating to investment property

In Rs. ‘000 Group Company As at 31 March 2019 2018 2019 2018

Amounts recognised in income statement Revenue - - 77,189 76,589 Direct operating expenses 15 940 23,741 20,714

24.2 Accounting judgements, estimates and assumptions The fair value of investment property is ascertained by independent Changes in fair value of lands and buildings which are recognised valuations carried out by Chartered Valuation Surveyors, who have as investment property are recognised in the income statement. The recent experience in valuing properties of a similar category in a valuer has used the open market approach in determining the fair value similar location. Investment property is appraised by the independent of the land. Further details on fair value of investment property are valuers in accordance with LKAS 40, SLFRS 13 and the 8th edition disclosed in the below note. 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.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 173 NOTES TO THE FINANCIAL STATEMENTS

Valuation details of investment property

Group

Company Property Method of Extent Range of estimates for Correlation valuation signifi cant unobservable inputs to fair value Per perch value - Rs. Mn. 2019 2018

Property valuations by Mr. G W G Abeygunawardene (Chartered Valuation Surveyor) Land of Softlogic Retail (Pvt) Ltd Dekatana, Gampaha OMV 20 A 2 R 27 P 0.03 0.03 Positive Odel Lanka (Pvt) Ltd 271 & 271F, Kaduwela Road, Thalangama & 197/C, Kalapaluwawa Road, Thalangama OMV 1 A 2 R 25.7 P 5.80 4.80 Positive Properties purchased during the FY 1819 Land of Softlogic Siyabalagahyaya, Hambanthota OMV 14.7 P 0.07 - Positive Communications (Pvt) Ltd Ranna, Hambanthota OMV 30 P 0.08 - Positive Jayabima Road, Godagama OMV 15.6 P 0.60 - Positive Udaya Mw., Kadawatha OMV 14 P 0.30 - Positive Bogamuwa, Agunakolapalassa OMV 2 R 2.2 P 0.03 - Positive

Company Property Method of Range of estimates for Correlation valuation signifi cant unobservable inputs to fair value Per square foot value - Rs. 2019 2018

Property valuations by Mr. P B Kalugalgedara (Chartered Valuation Surveyor) Building of Asiri Surgical Hospital PLC 21, Kirimandala - New Cancer Care Unit Mw., Colombo 05 DCC 41,171 - Positive

Company

Company Property Method of Extent Range of estimates for signifi cant unobservable inputs Correlation valuation to fair value Per perch value - Rs. Mn. Per square foot value - Rs. 2019 2018 2019 2018

Property valuations by Mr. G W G Abeygunawardene (Chartered Valuation Surveyor) Land of Softlogic Holdings PLC 14, De Fonseka Place, Colombo 05 OMV 21.89 P 15.50 - 16.50 14.50 - 15.50 - - Positive Land and building of Softlogic Holdings PLC 262, Gagarama Road, Piliyandala OMV/ DCC 1 A 2 R 21 P 0.75 00.65 600 - 6,000 700 - 6,000 Positive

Effective date of valuation of group’s / company’s investment properties was 31 March 2019 except lands purchased during the fi nancial year 2018/19.

Summary description of valuation methodologies are disclosed under property, plant & equipments and note no. 22.3 to the Financial Statements.

174 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 25 INTANGIBLE ASSETS

ACCOUNTING POLICY

Basis of recognition amount (generally fair value) of the identifi able assets acquired and An intangible asset is recognised if it is probable that future economic liabilities assumed, all measured as of the acquisition date. benefi ts associated with the asset will fl ow to the Group and the cost After initial recognition, goodwill is measured at cost less any of the asset can be reliably measured. accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances Basis of measurement indicate that the carrying value may be impaired. Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a Lease rights business combination is the fair value as at the date of acquisition. Lease rights acquired as part of a business combination, are Following initial recognition, intangible assets are carried at cost less capitalised if they meet the defi nition of an intangible asset and the any accumulated amortisation and any accumulated impairment recognition criteria are satisfi ed. Leased rights are amortised on a losses. straight-line basis over their estimated useful life.

Internally generated intangible assets, excluding capitalised Present Value of acquired In-force Business (PVIB) development costs, are not capitalised, and expenditure is charged The present value of future profi ts on a portfolio of long term life against income in the year in which the expenditure is incurred. insurance contracts as at the acquisition date is recognised as an intangible asset based on a valuation carried out by an independent Useful economic lives, amortisation and impairment actuary. Subsequent to initial recognition, the intangible asset is carried The useful lives of intangible assets are assessed as either fi nite or at cost less accumulated amortisation and accumulated impairment infi nite. Intangible assets with fi nite lives are amortised over their losses. useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The PVIB is amortised over the average useful life of the related contracts in the portfolio. The amortisation charge and any impairment The amortisation period and the amortisation method for an intangible losses would be recognised in the consolidated income statement as asset with a fi nite useful life is reviewed at least at each fi nancial an expense. year-end and such changes are treated as accounting estimates. The amortisation expense on intangible assets with fi nite lives is Purchased software recognised in the income statement. Purchased software is recognised as an intangible asset and is Intangible assets with infi nite useful lives are not amortised but amortised on a straight line basis over its useful life. tested for impairment annually, or more frequently when an indication of impairment exists either individually or at the cash- generating Software licenses unit level. The useful life of an intangible asset with an infi nite life Software license costs are recognised as an intangible asset and is reviewed annually to determine whether infi nite life assessment amortised over the period of the related license. continues to be supportable. If not, the change in the useful life assessment from infi nite to fi nite is made on a prospective basis. Brand name Brands acquired as part of a business combination, are capitalised as Goodwill Brands if they meet the defi nition of an intangible asset and are tested Goodwill is initially measured at the acquisition date as the fair value for impairment annually or more frequently if events or changes in the of the consideration transferred including the recognised amount of circumstances indicate that the carrying value may be impaired. any non-controlling interests in the acquiree, less the net recognised

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 175 NOTES TO THE FINANCIAL STATEMENTS

A summary of the policies applied to the Group’s intangible assets is as follows:

Intangible Useful life Acquired/ internally Impairment testing generated

Goodwill Infi nite 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 Infi nite 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 Computer Software Total Total As at 31 March 2019 2018 2019 2018

Cost / carrying value At the beginning of the year 4,240,503 892,406 1,980,620 1,587,660 1,431,620 10,132,809 9,812,180 14,326 11,949 Additions - - - - 141,234 141,234 256,485 2,635 2,377 Acquisition of subsidiary 364,294 - - - 26,908 391,202 142,680 - - Transfers (12,094) (12,094) - - - Impairment/ derecognition - - - (78,575) (19,403) (97,978) (78,574) (10,147) - Exchange translation difference - - - - 434 434 38 - - At the end 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

Accumulated amortisation and impairment At the beginning of the year - 155,578 814,943 - 551,924 1,522,445 1,242,943 13,733 10,909 Amortisation - 22,484 123,789 - 115,870 262,143 279,494 2,542 2,824 Acquisition of subsidiary - - - - 24,937 24,937 - - - Impairment/ derecognition - - - - (18,543) (18,543) - (10,147) - Exchange translation difference - - - - 91 91 8 - - At the end of the year - 178,062 938,732 - 674,279 1,791,073 1,522,445 6,128 13,733

Carrying value As at 31 March 2019 4,604,797 714,344 1,041,888 1,509,085 894,420 8,764,534 686 As at 31 March 2018 4,240,503 736,828 1,165,677 1,587,660 879,696 8,610,364 593

* Other intangible assets include purchased software and software licenses, other license fee, brand development cost and franchise fee paid on acquiring operational rights.

176 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 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 2019 2018 2019 2018

Information Technology 14,087 14,087 - - Retail 1,200,377 867,296 998,180 998,180 Travel and Leisure 182,207 182,207 4,169 4,169 Financial Services 817,742 817,742 - 78,575 Healthcare Services 2,358,921 2,327,710 506,736 506,736 Others 31,463 31,461 - - 4,604,797 4,240,503 1,509,085 1,587,660

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 profi ts on SLI’s portfolio of long term life insurance contracts at the acquisition date, known as the present value of acquired in-force business (PVIB). PVIB recognised at the acquisition date is being amortised over the life of the business acquired and reviewed annually for any impairment in value.

25.1 Impairment of goodwill

Accounting judgements, estimates and assumptions Impairment exists when the carrying value of an asset or cash entities determined based on share price existed as at reporting date. generating unit exceeds its recoverable amount, which is the higher of The key assumptions used are given below: its fair value less costs to sell and its value in use (VIU). The fair value less costs to sell calculation is based on available data from an active Business growth - volume growth has been budgeted on a market in an arm’s length transaction of similar assets, or observable reasonable and realistic basis by taking into market prices less incremental costs for disposing of the asset. The account the growth rates of one to fi ve years value in use calculation is based on a discounted cash fl ow model. The immediately subsequent to the budgeted year, cash fl ows are derived from the budget for the next fi ve years and do based on industry growth rates. not include restructuring activities that the Group is not yet committed Cash fl ows beyond a fi ve year period are to or signifi cant future investments that will enhance the performance extrapolated using zero growth rate." of the cash generating unit being tested. The recoverable amount is Infl ation - budgeted cost infl ation is the infl ation rate, based most sensitive to the discount rate used for the discounted cash fl ow on projected economic conditions. model as well as the expected future cash infl ows and the growth rate used for extrapolation purposes. Discount rate - the discounting rate used is the risk free rate increased by an appropriate risk premium. The recoverable amount of all CGUs have been determined based on the higher of fair value less costs to sell and its Value in Use (VIU) Margin - budgeted gross margins are the gross margins calculation. VIU is determined by discounting the future cash fl ows achieved in the year preceding, adjusted for generated from continuing use of the unit. The recoverability of quoted projected market conditions and business plans.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 177 NOTES TO THE FINANCIAL STATEMENTS

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 2019 2018

Quoted investments 26.1 8,260,396 8,260,396 Unquoted investments 26.2 11,768,304 11,596,304 20,028,700 19,856,700

26.1 Group quoted investments

In Rs. ‘000 Group Company As at 31 March No of shares Effective No of shares holding % 2019 2018 holding %

Cost Asiri Hospital Holdings PLC 594,858,799 51.48 579,434,088 50.94 5,563,998 5,563,998 Asiri Surgical Hospital PLC 414,243,632 40.36 - - - - 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 50,146,446 53.52 779,969 1.15 24,777 24,777 Softlogic Life Insurance PLC 193,996,310 38.80 175,550 0.05 1,560 1,560 8,260,396 8,260,396

Group quoted investments

In Rs. ‘000 Group Company As at 31 March 2019 2018 2019 2018

Market Value Asiri Hospital Holdings PLC 12,016,148 16,138,617 11,704,569 15,934,437 Asiri Surgical Hospital PLC 3,935,315 4,225,285 - - Odel PLC 6,940,535 6,886,301 - - Softlogic Capital PLC 2,837,740 2,837,740 2,837,740 2,837,740 Softlogic Finance PLC 1,083,163 1,445,117 16,847 27,299 Softlogic Life Insurance PLC 6,110,884 4,403,716 5,530 3,985 32,923,785 35,936,776 14,564,686 18,803,461

178 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 26.2 Group unquoted investments

In Rs. ‘000 Group Company As at 31 March Number of Effective Number of holding % 2019 2018 shares holding % shares

Asiri Central Hospitals Ltd 10,313,429 48.59 - - - - Asiri Diagnostics Services (Pvt) Ltd 273,221 34.26 - - - - Asiri Hospital Galle (Pvt) Ltd (previously known as Hemas Southern Hospitals (Pvt) Ltd) 44,000,002 51.48 - - - - Asiri Hospital Kandy (Pvt) Ltd 4,000,000 51.48 - - - - Asiri Hospital Matara (Pvt) Ltd 25,999,999 51.48 - - - - Asiri Laboratories (Pvt) Ltd 100,000 51.48 - - - - BSL International (Pvt) Ltd 298,400 97.72 - - - - Central Hospital Ltd 214,539,804 51.34 - - - - Ceysand Resorts Ltd - Voting 17,087,669 99.90 - - - - - Non Voting 134,250 96.58 - - - - Cotton Collections (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 Greenfi eld Trading (Pvt) Ltd 1 97.72 - - - - 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 39,925,383 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 (previously known as Capital Reach Portfolio Management (Pvt) Ltd) 750,002 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 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 - 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 - 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 1,000 Suzuki Motors Lanka Ltd 12,031,051 86.17 - - - - 11,988,880 11,816,880 Less - Impairment of investments (Note 26.3) (220,576) (220,576) 11,768,304 11,596,304

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 179 NOTES TO THE FINANCIAL STATEMENTS

26.3 Impairment of investments

Accounting judgements, estimates and assumptions An impairment assessment was carried out as at 31 March 2019 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 2019 2018

At the beginning of the year 220,576 195,676 Provision for impairment - 24,900 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 influence. cost. The carrying amount of the investment is adjusted to recognise Significant influence is the power to participate in the financial and changes in the Group’s share of net assets of the associate or joint operating policy decisions of the investee, but is not control or joint venture since the acquisition date. Goodwill relating to the associate or control over those policies. joint venture is included in the carrying amount of the investment and is not tested for impairment individually. Associate companies of the Group which have been accounted for under the equity method of accounting are: The income statement refl ects the Group’s share of the results of operations of associates or joint venture. OCI of those investees is presented as part of the Group’s OCI. In addition, when there has Name of the company Country of incorporation been a change recognised directly in the equity of the associate or Digital Health (Pvt) Ltd Sri Lanka joint venture, the Group recognises its share of any changes, when Gerry’s Softlogic (Pvt) Ltd Pakistan applicable, in the statement of changes in equity. Unrealised gains Nextage (Pvt) Ltd Sri Lanka and losses resulting from transactions between the Group and the Sabre Travel Network Lanka (Pvt) Ltd Sri Lanka associate or joint venture are eliminated to the extent of the interest in the associate or joint venture. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of The aggregate of the Group’s shares of profi t or loss of associates the joint venture. Joint control is the contractually agreed sharing of and joint venture is shown on the face of the income statement control of an arrangement, which exists only when decisions about the outside operating profi t and represents profi t or loss after tax and relevant activities require unanimous consent of the parties sharing non-controlling interests in the subsidiaries of the associate and joint control. venture.

Joint venture company of the Group which have been accounted for After application of the equity method, the Group determines whether under the equity method of accounting is: it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines Name of the company Country of incorporation whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group Asiri A O I Cancer Centre (Pvt) Ltd Sri Lanka calculates the amount of impairment as the difference between the The considerations assessed in determining signifi cant infl uence a recoverable amount of the associate or joint venture and its carrying similar to those in determining control over subsidiaries. value, and then recognises the loss as ‘Share of results of equity accounted investees’ in the income statement. The Group’s investments in its associates and joint venture are accounted for using the equity method. Under the equity method, the investment in an associate or a joint venture is initially recognised at

180 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Upon loss of signifi cant infl uence over the associate or joint control The equity method of accounting has been applied for associates and over the joint venture, the Group measures and recognises any retained joint venture using their Financial Statements for the corresponding investment at its fair value. Any difference between the carrying fi nancial period or a matching 12 month period. In the case of amount of the associate or joint venture upon loss of signifi cant associates whose reporting dates are different to the Group reporting infl uence and the fair value of the retained investment and proceeds dates, adjustments are made for signifi cant transactions or events up from disposal is recognised in the income statement. to 31 March.

The accounting policies of associate and joint venture companies conform to those of the Group.

In Rs. ‘000 Note Group Company As at 31 March 2019 2018 2019 2018

Investments in equity accounted investees 27.1 78,249 111,885 11,000 11,000 78,249 111,885 11,000 11,000

27.1 Group investments in equity accounted investees

In Rs. ‘000 Note Group Company As at 31 March 2019 2018 2019 2018

Investments in joint ventures Unquoted Asiri A O I Cancer Centre (Pvt) Ltd 29,368 27,000 - - 29,368 27,000 - - Investments in associates Unquoted Digital Health (Pvt) Ltd 10,080 18,944 - - Gerry's Softlogic (Pvt) Ltd - - 2,700 2,700 Nextage (Pvt) Ltd 6,885 6,056 1,250 1,250 Sabre Travel Network Lanka (Pvt) Ltd 65,552 43,528 9,750 9,750 82,517 68,528 13,700 13,700 Less: impairment of investment in Gerry's Softlogic (Pvt) Ltd - - (2,700) (2,700) 82,517 68,528 11,000 11,000

Share of profi t accruing to the Group 27.2 7,080 19,787 - - Share of associate companies dividend (40,750) (3,350) - - Share of OCI accruing to the Group 27.2 34 (80) - - 78,249 111,885 11,000 11,000

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 181 NOTES TO THE FINANCIAL STATEMENTS

27.2 Summarised financial information of equity accounted investees

In Rs. ‘000 Group As at 31 March Associates Joint venture 2019 2018 Total Total

Group share of: Revenue 157,062 30,390 187,452 152,846 Operating expenses (163,354) (30,631) (193,985) (133,439) Other income 13,258 355 13,613 380 Share of profi t for the year 6,966 114 7,080 19,787

Group share of: Share of other comprehensive income/ (loss) of equity accounted investees 37 (3) 34 (80) Net share of other comprehensive income/ (loss) for the year 37 (3) 34 (80)

Group share of: Total assets 157,827 85,436 243,263 159,034 Total liability (117,818) (72,123) (189,941) (72,004) Net assets 40,009 13,313 53,322 87,030 Unrealised profi ts (130) - (130) (202) Deferred tax on undistributable profi ts (5,917) - (5,917) (5,917) Goodwill 14,808 16,166 30,974 30,974 48,770 29,479 78,249 111,885

Contingent liabilities Nil Nil Nil Nil Capital commitments Nil Nil Nil Nil

28 NON - CURRENT FINANCIAL ASSETS

In Rs. ‘000 Note Group Company As at 31 March 2019 2018 2019 2018

Quoted equity investments 28.1 1,547,325 1,651,970 - - Unquoted equity investments 28.2 469,217 469,217 - - Non equity investments 28.3 11,140,590 8,443,193 1,465,042 828,355 13,157,132 10,564,380 1,465,042 828,355

28.1 Other quoted equity investments

In Rs. ‘000 Note Group As at 31 March Number of 2019 2018 shares

ACL Cables PLC 28.1.1 616 20 17 National Development Bank PLC 16,414,027 1,546,201 1,650,326 Seylan Bank PLC - Non voting 30,752 1,104 1,627 1,547,325 1,651,970

182 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 28.1.1 Reclassification of financial assets at fair value through profit or loss (FVTPL) to Available for Sale (AFS) Softlogic Life Insurance PLC and Softlogic Finance PLC reclassifi ed their investments in National Development Bank PLC (NDB) equity shares into Available for Sale (AFS) from fi nancial assets at Fair Value Through Profi t or Loss (FVTPL) category on 31 July 2015 as approved by the respective Boards of Directors, who had resolved to reclassify the investments as the Group would no longer hold the investments for the purpose of being sold in the near term. This decision was taken after considering the potential synergies that could be developed between the NDB and companies within the Softlogic Group, and taking in to account the strategic intent in the holding.

Details of amounts reclassifi ed from fi nancial assets at Fair Value Through Profi t or Loss (FVTPL) to Available for Sale (AFS) as at 31 July 2015 are as follows:

Rs. ‘000 Softlogic Finance PLC 131,175 Softlogic Life Insurance PLC 2,241,718 Total value of reclassifi cation 2,372,893

The fair value gains / (losses) recorded in the Group income statement and the Group other comprehensive income statement at the beginning of the fi nancial period, at the date of the reclassifi cation and at the end of each fi nancial period ended is given below:

In Rs. ‘000 Fair value/ Impact on Impact on carrying value Group income Group other statement comprehensive income As at 01 April 2015 2,139,918 - - As at 31 July 2015 2,372,893 232,975 - As at 31 March 2016 1,456,525 - (916,368) As at 31 March 2017 1,204,567 - (251,958) As at 31 March 2018 1,148,480 - (56,087)

With the adoption of SLFRS 9, investments in National Development Bank PLC (NDB) equity shares classifi ed as fair value through other comprehensive income (OCI).

28.2 Unquoted equity investments

In Rs. ‘000 Group As at 31 March Number of 2019 2018 shares

Voyages Jean Mermoz Ltd 10 10 Ceylon Lexcon Services Ltd 207 207 Cargills Bank Ltd 34,000,000 469,000 469,000 469,217 469,217

28.3 Non equity investments

In Rs. ‘000 Group Company As at 31 March Note 2019 2018 2019 2018

Placement with banks and fi nancial institutions 31 31 - - Debentures 2,683,462 1,612,624 - - Government securities 3,316,389 3,171,984 - - Fixed deposits 25,388 20,387 - - Loans to executives 550 3,790 - - Loans to subsidiaries - - 1,465,042 828,355 Hire purchase trade debtors 32.1 1,252,299 773,040 - - Loans and advances 33 3,862,471 2,861,337 - - 11,140,590 8,443,193 1,465,042 828,355

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 183 NOTES TO THE FINANCIAL STATEMENTS

29 RENTAL RECEIVABLE ON LEASE ASSETS AND HIRE PURCHASE

ACCOUNTING POLICY

Initial recognition and measurement Amounts receivable under fi nance leases are included under “Rentals When the Group is the lessor in a lease agreement that transfers receivable on leased assets”. Leasing balances are stated in the substantially all of the risks and rewards incidental to ownership of the statement of fi nancial position after deduction of initial rentals asset to the lessee, the arrangement is classifi ed as a fi nance lease received, unearned lease income and the provision for impairment and a receivable equal to the net investment in the lease is recognised. losses.

29.1 Receivable from one to five years

In Rs. ‘000 Group As at 31 March 2019 2018 Rental Rental Total Rental Rental Total receivable on receivable on receivable on receivable on lease assets hire purchase lease assets hire purchase

Rental receivables 1,467,071 25,010 1,492,081 1,516,697 - 1,516,697 Rentals received in advance - - - (873) - (873) Unearned income (352,029) (4,535) (356,564) (413,578) - (413,578) Impairment - - - (59,487) - (59,487) 1,115,042 20,475 1,135,517 1,042,759 - 1,042,759

29.2 Receivable within one year

In Rs. ‘000 Group As at 31 March 2019 2018 Rental Rental Total Rental Rental Total receivable on receivable on receivable on receivable on lease assets hire purchase lease assets hire purchase

Rental receivables 1,234,959 96,540 1,331,499 428,471 205,424 633,895 Rentals received in advance - - - (950) - (950) Unearned income (391,453) (5) (391,458) (29,914) (11,343) (41,257) Impairment (81,679) (23,311) (104,990) - (67,911) (67,911) 761,827 73,224 835,051 397,607 126,170 523,777 1,876,869 93,699 1,970,568 1,440,366 126,170 1,566,536

29.3 Impairment of rental receivables

Accounting judgements, estimates and assumptions for an individually assessed fi nancial asset, whether signifi cant or not, For rental receivables on lease assets and hire purchases, the Group it includes the asset in a Group of fi nancial assets with similar credit fi rst assesses whether objective evidence of impairment exists risk characteristics and collectively assesses them for impairment. individually for fi nancial assets that are individually signifi cant, or Assets that are individually assessed for impairment and for which an collectively for fi nancial assets that are not individually signifi cant. If impairment loss is, or continues to be, recognised are not included in a the Group determines that no objective evidence of impairment exists collective assessment of impairment.

30 OTHER NON-CURRENT ASSETS

In Rs. ‘000 Group As at 31 March Note 2019 2018

Rent advances 538,817 307,694 Deferred expenditure 35,900 1,402 Work-in-progress - Odel Mall project 30.1 2,641,070 619,407 3,215,787 928,503

184 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 30.1 Work-in-progress - Odel Mall project Odel Properties One (Pvt) Ltd, a fully own subsidiary of Odel PLC is Work-in-progress - Odel Mall project includes advances paid to engaged in the development and construction of an integrated complex contractors, directly attributable cost incurred on the project and with an approximate area of 645,000 sq. ft., comprising of retail and borrowing cost capitalised at the rate of AWPLR + 2%. associate facilities, residential units, cinemas and a car park.

31 INVENTORIES

ACCOUNTING POLICY

Inventories are valued at the lower of cost and net realisable value. The cost of inventories is: • Finished goods - cost of direct materials and direct labour and Net realisable value is the estimated selling price less estimated costs an appropriate proportion of fi xed overheads based on normal of completion and the estimated costs necessary to make the sale. operating capacity • Other stock - actual cost

In Rs. ‘000 Group As at 31 March Note 2019 2018

Finished goods 8,815,937 9,303,125 Other stocks 2,309,686 2,343,640 11,125,623 11,646,765 Less - provision for write-down of inventories 31.1 (436,602) (396,226) 10,689,021 11,250,539

31.1 Movement in provision for write-down of inventories In Rs. ‘000 Group As at 31 March 2019 2018

At the beginning of the year 396,226 357,517 Acquisition of subsidiary 6,691 - Provision for write-down of inventories 75,137 108,930 Written off during the year (41,452) (70,221) At the end of the year 436,602 396,226

32 TRADE AND OTHER RECEIVABLES

ACCOUNTING POLICY

Trade and other receivables Reinsurance receivables Trade receivables are amounts due from customers for goods sold The Group cedes insurance risk in the normal course of business for or services performed in the ordinary course of business. Other all of its businesses. Reinsurance receivables represent balances due fi nancial receivables are recognised as other receivables. If collection from reinsurance companies. Amounts recoverable from reinsurers is expected in one year or less (or in the normal operating cycle of the are estimated in a manner consistent with the outstanding claims business if longer), they are classifi ed as current assets. If not, they are provision or settled claims associated with the reinsurer’s policies and presented as non-current assets. 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.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 185 NOTES TO THE FINANCIAL STATEMENTS

In Rs. ‘000 Group Company As at 31 March Note 2019 2018 2019 2018

Trade and other receivables 32.1 10,868,292 9,238,284 398,263 276,358 Reinsurance receivables 294,294 124,551 - - Loans to executives 43,272 34,029 4,218 2,624 Other receivables 3,145,762 2,441,266 509,612 83,948 14,351,620 11,838,130 912,093 362,930

32.1 Trade and other receivables

In Rs. ‘000 Group Company As at 31 March Note Gross Unearned 2019 2018 2019 2018 income

Hire purchase debtors 3,997,200 (155,722) 3,841,478 3,751,724 - - Trade receivables 9,602,273 - 9,602,273 6,835,745 534,884 354,211 13,599,473 (155,722) 13,443,751 10,587,469 534,884 354,211 Less - provision for impairment of trade and other receivables 32.2.1 (1,323,160) (576,145) (136,621) (77,853) 13,599,473 (155,722) 12,120,591 10,011,324 398,263 276,358

Trade and other receivables Receivable within one year 10,868,292 9,238,284 398,263 276,358 Receivable after one year 1,252,299 773,040 - - 12,120,591 10,011,324 398,263 276,358

32.2 Impairment of receivables

Accounting judgements, estimates and assumptions The Group assesses the evidence of impairment of receivables at both assessment is carried out by grouping together receivables with similar an individual asset and at a collective level. All individually signifi cant risk characteristics. receivables are individually assessed for impairment by considering objective evidence i.e. signifi cant fi nancial diffi culties or default in In assessing collective impairment, the Group uses historical payments of a customer. Those found not to be impaired are then information on the probability of default, the timing of recoveries, collectively assessed for any impairment that has been incurred but and the amount of loss incurred, and makes an adjustment if current not yet individually identifi ed. Receivables that are not individually economic and credit conditions are such that the actual losses are signifi cant are collectively assessed for impairment. Collective 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 2019 2018 2019 2018

At the beginning of the year 576,145 363,847 77,853 77,853 Impact of adopting SLFRS 9 406,489 - 55,353 - Acquisition of subsidiary (1,031) 8,460 - - Provision for impairment of trade and other receivables 353,623 252,445 3,415 - Written off during the year (12,066) (48,607) - - At the end of the year 1,323,160 576,145 136,621 77,853

186 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 33 LOANS AND ADVANCES

ACCOUNTING POLICY

Initial recognition and measurement Subsequent measurement Loans and advances are fi nancial assets with fi xed or determinable (applicable with effect from 01 April 2018) payments that are not quoted in an active market. Such assets are Loans and advances are initially recognised at fair value, which is the recognised initially at fair value plus any directly attributable transaction cash consideration to originate or purchase the loan including any costs. transaction costs and measured subsequently at amortised cost using the EIR, less allowance for impairment. Amortised cost is calculated Policyholders loans are granted up to 90% of the surrender value of a by taking into account any discount or premium on acquisition and life insurance policy at a rate equivalent to the market rate. fees and costs that are an integral part of the EIR. The amortisation is included in ‘interest income’ in the Statement of profi t or loss. The losses arising from impairment are recognised in ‘impairment charge for loans and advances’ in the Statement of profi t or loss.

In Rs. ‘000 Group As at 31 March Gross Unearned 2019 2018 income

Personal loans 1,629,414 (52,381) 1,577,033 1,465,450 Pawning receivables 2,014,921 - 2,014,921 1,257,551 Policyholders loans 173,312 - 173,312 148,722 Revolving loans 1,845,922 - 1,845,922 1,053,913 Consumer loans 33,493 (1,204) 32,289 73,649 SME & other loans 12,811,557 (1,932,112) 10,879,445 12,712,323 Allowance for impairment (996,050) (751,630) 18,508,619 (1,985,697) 15,526,872 15,959,978

Loans and advances Receivable within one year 11,664,401 13,098,641 Receivable after one year 3,862,471 2,861,337 15,526,872 15,959,978

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 Stage 1 Stage 2 Stage 3 Total As at 31 March 2019

Gross loan receivables - subject to collective impairment (excluding policyholders loans) 8,785,089 4,093,362 3,471,159 16,349,610 Allowance for expected credit losses (ECL) (121,625) (142,489) (731,936) (996,050) 8,663,464 3,950,873 2,739,223 15,353,560

Overview of the expected credit loss (ECL) principles The Group established a policy to perform as assessment, at the end there has been no signifi cant increase in credit risk since origination, in of each reporting period, of whether a fi nancial instrument’s credit risk which case, the allowance is based on the 12 months’ expected credit has increased signifi cantly since initial recognition, by considering the loss (12mECL). change in the risk of default occurring over the remaining life of the fi nancial instrument. The 12mECL is the portion of LTECLs that represent the ECLs that result from default events on a fi nancial instrument that are possible The ECL allowance is based on the credit losses expected to arise over within the 12 months after the reporting date. the life of the asset (the lifetime expected credit loss or LTECL), unless

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 187 NOTES TO THE FINANCIAL STATEMENTS

Both LTECLs and 12mECLs are calculated on either an individual basis Loss Given Default (LGD) or collective basis, depending on the nature of the underlying portfolio The Loss Given Default is an estimate of the loss arising in the case of fi nancial instruments. where a default occurs at a given time. It is based on the difference Based on the above process, the Company groups its loans into Stage between the contractual cash fl ows due and those that the lender 1, Stage 2, Stage 3 and POCI, as described below. would expect to receive, including from the realisation of any collateral. It is usually expressed as a percentage of the EAD. Stage 1 When loans are fi rst recognised, the Group recognises an allowance based on 12mECLs. Stage 1 loans also include The mechanism of the ECL method are summarised below. facilities where the credit risk has improved and the loan has Stage 1 The 12mECL is calculated as the portion of LTECLs that been reclassifi ed from Stage 2. represent the ECLs that represent the ECLs that result from Stage 2 When a loan has shown a signifi cant increase in credit risk default events on a fi nancial instrument that are possible since origination, the Group records an allowance for the with in the 12 months after the reporting date. The Group LTECLs. Stage 2 loans also include facilities, where the credit calculates the 12mECL allowance based on the expectation risk has improved and the loan has been reclassifi ed from of a default occurring in the 12 months following the Stage 3. reporting date. These expected 12-month default probabilities are applied to a forecast EAD and multiplied by the expected Stage 3 Loans considered credit-impaired. The Group records an LGD and discounted by an approximation of the original EIR. allowance for the LTECLs. Stage 2 When a loan has shown a signifi cant increase in credit risk POCI Purchased or originated credit impaired (POCI) assets are since origination, the Group records an allowance for the fi nancial assets that are credit impaired on initial recognition. LTECLs. The mechanics are similar to those explained above, POCI assets are recorded at fair value at original recognition including the use of multiple scenarios, but PDs and LGDs are and interest income is subsequently recognised based on a estimated over the lifetime of the instrument. The expected credit-adjusted EIR. ECLs are only recognised or released to cash shortfalls are discounted by an approximation to the the extent that there is a subsequent change in the expected original EIR. credit losses. Stage 3 For loans considered credit-impaired, the Group recognises For fi nancial assets for which the Company has no reasonable the lifetime expected credit losses for these loans. The expectations of recovering either the entire outstanding amount, or a method is similar to that for Stage 2 assets, with the PD set proportion thereof, the gross carrying amount of the fi nancial asset is at 100%. reduced. This is considered a (partial) derecognition of the fi nancial asset. Loan Commitments When estimating LTECLs for undrawn loan commitments, the Group The Calculation of Expected Credit Loss (ECL) estimates the expected portion of the loan commitment that will The Group calculates ECLs based on a four probability-weighted be drawn down over its expected life. The ECL is then based on the scenarios to measure the expected cash shortfalls, discounted at an present value of the expected shortfalls in cash fl ows if the loan is approximation to the EIR. A cash shortfall is the difference between drawn down, based on a probability weighting of the four scenarios. the cash fl ows that are due to an entity in accordance with the contract The expected cash shortfalls are discounted at an approximation to the and the cash fl ows that the entity expects to receive. expected EIR on the loan.

The mechanics of the ECL calculations are outlined below and the key For factoring receivables and revolving loans that include both a loan elements are, as follows. and an undrawn commitment. ECLs are calculated and presented with the loan. Probability of Default (PD): The probability of Default is an estimate of the likelihood of default Financial Guarantee contracts over a given time horizon. A default may only happen at a certain The Group’s liability under each guarantee is measured at the higher time over the assessed period, if the facility has not been previously of the initially recognised less cumulative amortisation recognised in derecognised and is still in the portfolio. the income statement, and the ECL provision. For this purpose, the Group estimates ECLs based on the present value of the expected Exposure at Default (EAD) payments to reimburse the holder for a credit loss that it incurs. The The Exposure at Default is an estimate of the exposure at a future shortfalls are discounted by the risk-adjusted interest rate relevant to default date, taking into account expected changes in the exposure the exposure. The calculation is made using a probability - weighting of after the reporting date, including repayments of principal and interest, the four scenarios. The ECLs related to fi nancial guarantee contracts whether scheduled by contract or otherwise, expected draw downs on are recognised within provisions. committed facilities, and accrued interest from missed payments.

188 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 34 OTHER CURRENT ASSETS

ACCOUNTING POLICY

The Group classifi es all non-fi nancial 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 2019 2018 2019 2018

Prepayments, advances & non-cash receivables 2,958,382 2,174,453 6,134 5,876 Tax refunds & receivables 1,014,726 721,515 22,139 10,833 Other receivables 1,370,605 553,083 - - 5,343,713 3,449,051 28,273 16,709

35 SHORT TERM INVESTMENTS

In Rs. ‘000 Group Company As at 31 March Note 2019 2018 2019 2018

Quoted equities at market value 35.1 568,515 619,024 5,625 1,594,676 Unquoted equity investments 35.2 125,000 125,000 125,000 125,000 Other investments (more than 3 months and less than 1 year) 35.3 1,801,681 1,994,240 - - 2,495,196 2,738,264 130,625 1,719,676

Other investments (less than 3 months) Government securities 1,969,419 3,065,527 - - Commercial papers 446,647 204,938 - - Fixed deposits 1,138,134 1,111,879 - - 3,554,200 4,382,344 - - 6,049,396 7,120,608 130,625 1,719,676

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 189 NOTES TO THE FINANCIAL STATEMENTS

35.1 Quoted equities at market value

In Rs. ‘000 Group Company As at 31 March Number of 2019 2018 Number of 2019 2018 shares shares

ACL Cables PLC 264 9 11 - - - B P P L Holdings PLC 33,488 332 1,188 - - - Ceylinco Insurance PLC 89 189 160 - - - Chevron Lubricants Lanka PLC - - 14,630 - - - Commercial Bank of Ceylon PLC 915,872 90,397 95,982 - - - DFCC Bank 296 21 35 - - - Dialog Axiata PLC 3,578,630 32,566 - - - - Dunamis Capital PLC 305 9 7 - - - Hatton National Bank PLC 499,710 87,449 97,204 - - - Hemas Holdings PLC - - 18,654 - - - John Keells Holdings PLC 947,887 147,870 132,132 - - - Lanka IOC PLC 63,200 1,100 1,902 63,200 1,100 1,902 Lanka Tiles PLC 997 70 99 - - - LVL Energy Fund PLC 1,561,600 12,337 15,460 - - - National Development Bank PLC 911 92 92 - - - Odel PLC - - - - - 1,585,903 Panasian Power PLC - - 8,343 - - - Piramal Glass Ceylon PLC - - 5,776 - - - Renuka City Hotels PLC 50 13 13 - - - Richard Pieris & Co PLC 210 2 3 - - - Richard Pieris Exports PLC 200 42 34 - - - Royal Ceramics Lanka PLC - - 468 - - - Sampath Bank PLC 490,549 88,348 4,184 18,031 3,247 4,184 Sampath Bank PLC - Share Application Money - - 804 - - 804 Seylan Bank PLC 140 9 12 140 9 12 Seylan Bank PLC - Non voting 358,033 12,853 18,952 35,349 1,269 1,871 Teejay Lanka PLC 550,000 16,720 33,495 - - - The Lanka Hospitals Corporation PLC - - 3,780 - - - Tokyo Cement Company (Lanka) PLC - - 69,752 - - - Union Bank of Colombo PLC 6,023,317 66,256 77,098 - - - Vallibel One PLC 827,345 11,831 18,754 - - - 568,515 619,024 5,625 1,594,676

35.2 Unquoted equity investments

In Rs. ‘000 Group Company As at 31 March Number of 2019 2018 Number of 2019 2018 shares shares

Cargills Bank Ltd 10,000,000 125,000 125,000 10,000,000 125,000 125,000 125,000 125,000 125,000 125,000

35.3 Other investments In Rs. ‘000 Group As at 31 March 2019 2018

More than 3 months and less than 1 year Investments in commercial papers 308,374 - Fixed deposits 616,839 87,180 Debentures maturing within a year 275,145 288,110 Investment in Unit Trust 601,323 1,618,950 1,801,681 1,994,240

190 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 36 CASH AND CASH EQUIVALENTS

In Rs. ‘000 Group Company As at 31 March 2019 2018 2019 2018

Favourable balances Cash in hand and at bank 2,596,037 6,151,833 18,294 2,916,160 Restricted cash at bank Cash margin receivables 600,313 - - - 3,196,350 6,151,833 18,294 2,916,160

Unfavourable balances Bank overdrafts 7,761,224 4,645,217 174,702 153,748 7,761,224 4,645,217 174,702 153,748

37 STATED CAPITAL

As at 31 March 2019 2018 Note Number of Value of Number of Value of shares shares in shares shares in Rs. ‘000 Rs. ‘000

Fully Paid Ordinary Shares At the beginning of the year 961,728,395 8,195,383 779,000,000 5,089,000 Shares issued during the period 37.1 230,814,814 3,923,852 182,728,395 3,106,383 1,192,543,209 12,119,235 961,728,395 8,195,383

37.1 The Directors of Softlogic Holdings PLC resolved on 24 January 2018 to issue 230,814,814 ordinary shares of the company by way of a Rights Issue at a price of Rs. 17.00 per share amounting to a total consideration of Rs. 3,923.85 Mn. This was subsequently approved by shareholders at an EGM held on 26 March 2018. On 10 May 2018, Rights Issue shares were listed on the Main Board of Colombo Stock Exchange.

38 OTHER COMPONENTS OF EQUITY

In Rs. ‘000 Group As at 31 March Note 2019 2018

Restricted regulatory reserve 38.1 309,613 309,613 Revaluation reserve 38.2 5,724,098 4,774,665 Foreign currency translation reserve 38.3 (51,772) (46,325) Fair value reserve of fi nancial assets at FVOCI/ AFS 38.4 (783,273) (530,887) Statutory reserve fund 38.5 263,436 215,063 Other reserves 38.6 (780,990) (569,884) Cash fl ow hedge reserve 38.7 (660,254) (178,966) 4,020,858 3,973,279

38.1 Restricted regulatory reserve refl ects the equity holders’ share of the one-off surplus attributable to policyholder non-participating fund. This reserve has been made as per the direction no. 16 on 20 March 2018 issued by the ‘Insurance Regulatory Commission of Sri Lanka (IRCSL) on ‘Identifi cation and Treatment of one-off surplus’. 38.2 Revaluation reserve consists of the net surplus on the revaluation of properties. 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 fi nancial assets at FVOCI/ AFS includes changes on fair value of fi nancial instruments designated as fi nancial assets at FVOCI/ AFS. 38.5 Statutory reserve fund refl ects the profi t 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 fl ow hedge reserve refl ects the effective portion of the gain or loss on the hedging instrument.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 191 NOTES TO THE FINANCIAL STATEMENTS

39 INSURANCE CONTRACT LIABILITIES

ACCOUNTING POLICY

The Directors agree to the long term insurance business provisions on liabilities including contingent liabilities, and is based on assumptions the recommendation of the actuary following annual valuation of the recommended by the Appointed actuary. life insurance business. The actuarial valuation takes into account all

In Rs. ‘000 Note Group As at 31 March 2019 2018

Provision - life 39.1 8,309,628 7,192,591 8,309,628 7,192,591

39.1 Movement in life insurance fund

In Rs. ‘000 Note Group As at 31 March 2019 2018

At the beginning of the year 7,192,591 6,616,558 Increase in life fund 2,546,037 2,536,037 Transfer to shareholders 39.3 (1,394,000) (1,162,000) Increase in insurance contract liabilities 39.2 1,152,037 1,374,037 Change in contract liability due to transfer of one off surplus 39.7.1 - (798,004) Tax on policyholder bonus (35,000) - At the end of the year 8,309,628 7,192,591

39.2 Change in life insurance contract liabilities The results of Softlogic Life Insurance PLC is life business segment is consolidated line by line into the Group’s consolidated income statement.

The increase in insurance contract liabilities represents the transfer to the Life Fund of the difference between all income and expenditure attributable to life policyholders during the year.

In Rs. ‘000 Group For the year ended 31 March 2019 2018

Revenue 9,833,075 7,368,671 Cost of sales (4,752,746) (3,342,789) Gross profi t 5,080,329 4,025,882 Operating expenses including distribution and administration expenses (3,153,291) (2,167,502) Net fi nance income 618,999 677,657 Profi t attributable to shareholders (1,394,000) (1,162,000) Change in insurance contract liabilities 1,152,037 1,374,037

39.3 Recommendation of surplus transfer The valuation of the life insurance fund as at 31 March 2019 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. 1,394.00 Mn to non-participating life insurance fund / insurance contract liabilities to the shareholders’ fund (2018 - Rs. 1,162.00 Mn) : (transfer of the amount of Rs. 928.00 Mn (2018 - Rs. 585.00 Mn) declared as surplus for the quarter ended 31 March 2019, as recommended by the Appointed Actuary was permitted by the Insurance Regulatory Commission of Sri Lanka (IRCSL).

192 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 39.4 Valuation of life insurance fund Long duration contract liabilities included in the life insurance fund result primarily from traditional participating and non-participating life insurance products. The actuarial reserves have been established by Appointed Actuary Mr. Kunj Behari Maheshwari, FIA, FIAI, Messrs. Willis Towers Watson India (Pvt) Limited as at 31 March 2019.

Details of the calculation of policy liabilities and net cash fl ows are provided in the following table for each class of products.

Details of product category Basis of determining policy liability Basis of calculating net cash fl ows

Individual traditional non-participating Discounting “net cash fl ows” at the risk Future premium income (-) death benefi t outgo (+) rider products free interest rate curve benefi t outgo (+) surrender benefi t outgo (+) maturity benefi t outgo (+) commission expenses outgo (+) policy expenses outgo (+) reinsurance recoveries (-) reinsurance premium outgo (+) reinsurance commissions (-) Individual traditional participating Maximum (guaranteed benefi t liability, Same as above products total benefi t liability) Individual universal non- participating Discounting “net cash fl ows” at the risk Future premium income (-) death benefi t outgo inclusive of products free interest rate curve dividend accumulations (+) rider benefi t outgo (+) surrender benefi t outgo inclusive of dividend accumulations (+) maturity benefi t outgo inclusive of dividend accumulations (+) commission expense outgo (+) policy expense outgo (+) reinsurance recoveries (-) reinsurance premium outgo (+) reinsurance commission (-) Group traditional non-participating Net cash fl ow Death benefi t outgo (+) policy expense outgo (+) reinsurance products - Group term (life) recoveries (-) Group traditional non-participating Policy liability has been set equal to Not applicable products - Group hospitalisation cover Unearned Premium Reserve (UPR)

39.4.1 Measurement Life insurance liabilities are recognised when contracts are entered Measurement is usually based on the prospective method by into and premiums are charged. These liabilities are measured on a determining the difference between the present value of future market consistent basis in accordance with the Solvency Margin (Risk benefi ts and future premiums. The actuarial assumptions used for the Based Capital) Rules 2015 issued under Sections 105 and 26 (1) of the calculation include, in particular, assumptions relating to: Regulation of Insurance Industry Act No. 43 of 2000, with effect from • Mortality rates 01 January 2016. For periods up to 31 December 2015, the Company • Morbidity rates used the Net Premium Valuation (NPV) methodology to calculate insurance liabilities in accordance with the Solvency Margin (Long • Expense assumptions Term Insurance) Rules 2002. • Expense infl ation • Lapse ratios The value of the life insurance liabilities are determined as follows: • Dividend rates Life insurance liabilities = Best Estimate Long term Liability (BEL) + • Participating fund yield Risk Margin for adverse deviation (RM) • Bonus rates

The best estimate liability is the measured sum of the present Assumptions are estimated on a realistic basis at the time the value of all future best estimate cash fl ows calculated using the insurance contracts are concluded and they include adequate provision risk free interest rate yield curve issued by the Insurance Regulatory for adverse deviations to make allowance for the risks of change Commission of Sri Lanka (IRCSL). A discounted cash fl ow approach, and random fl uctuations. In valuing the policy liability, provisions using the Gross Premium Valuation (GPV) valuation methodology has for reinsurance have been allowed for according to the applicable been used to calculate liabilities as at 31 March 2019. reinsurance terms as per current reinsurance arrangements.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 193 NOTES TO THE FINANCIAL STATEMENTS

39.4.2 Details of key assumptions used and the bases of arriving at them are summarised 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 2019 Mortality rates Based on the Mortality investigation carried out as at 30 November 2018 • Individual life - 65% of A67/70 (ultimate) • Group term products - 50% of A67/70 (ultimate) • Single premium mortgage protection plan products - 45% of A67/70 (ultimate) • Per day insurance products - 20% of A67/70 (ultimate) 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 2018 on expenses incurred during 2018. For the purpose of the expense study, a functional split of expenses between acquisition or maintenance costs has been made on the basis of inputs from various departments/ heads of each cost centre to determine a reasonable activity based split of expenses. These have been further identifi ed 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 infl ation The best estimate expense infl ation has been assumed to be 5% p.a. The expense infl ation assumption has remained unchanged since the previous valuation. The assumption is also in line with the long term infl ation target of Central Bank of Sri Lanka which is in the range of 4 % to 6%. Persistency ratio Discontinuance assumptions 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 at based on bonus declared as at 31 December 2018, based on the Company management’s views on policyholders’ reasonable expectations. This assumes maintenance of the current bonus levels into the future and is unchanged from the previous valuation. Participating fund yield Based on the weighted average of projected asset mix on expected yields for various asset types

39.5 Solvency Margin In the opinion of the appointed actuary, the Company maintains a per the Solvency Margin (Risk Based Capital) Rules 2015 requirement Capital Adequacy Ratio (CAR) of 172% and Total Available Capital prescribed under section 26 (1) of the Regulation of Insurance Industry (TAC) of Rs. 7,436.00 Mn as at 31 March 2019, which exceed the Act No. 43 of 2000. minimum requirement of 120% and Rs. 500.00 Mn respectively as

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 carried recognised life insurance liabilities are adequate by using an existing out by Appointed Actuary Mr. Kunj Behari Maheshwari, FIA, FIAI, liability adequate test as laid out under SLFRS 4 – Insurance Contracts. Messrs. Towers Watson India (Pvt) Limited as at 31 December 2018. The liability value is adjusted to the extent that it is insuffi cient to meet When performing the LAT, the Company discounted all contractual future benefi ts and expenses. cash fl ows and compared this amount with the carrying value of the liability. In performing the adequacy test, current best estimates of future contractual cash fl ows, including related cash fl ows such as claim Based on the actuarial assessment assets are adequate as compared handling and policy administration expenses, policyholder options to the discounted cash fl ows reserves and in contrast to the reserves and guarantees, as well as investment income from assets backing as at 31 March 2019. such liabilities, are used. A number of valuation methods are applied, including discounted cash fl ows to the extent that the test involves No additional provision was required against the LAT as at 31 March 2019. discounting of cash fl ows, the interest rate applied being based on management’s prudent expectation of current market interest rates.

Any defi ciency shall be recognised in the income statement by setting up a provision for liability adequacy.

194 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 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 from change in the policy liability valuation within the long term basis in accordance with the Solvency Margin (Risk Based Capital) insurance fund/ insurance contract liabilities separately as “Surplus Rules 2015 with effect from 01 January 2016. In the period up to created due to change in valuation method from NPV to GPV” and not 31 December 2015, the Company used the Net Premium Valuation transfer/ distribute any part until specifi c instructions are issued in (NPV) methodology to calculate insurance liability in accordance with this regard. Therefore up to 31 March 2017, one off surplus has been Solvency Margin (Long Term Insurance) Rules 2002. presented in the Financial Statements as a separate item within the insurance contract liability. A one off unallocated surplus was created with the migration to the new regime effective 01 January 2016. The surplus created due to the change in the valuation method of policy liabilities from Net Premium Valuation (NPV) to Gross Premium Measurement Valuation (GPV) is measured based on the difference in the policy The Insurance Regulatory Commission of Sri Lanka (IRCSL) has liability valuation by the Independent Actuary based on NPV and GPV directed insurance companies to maintain this one off surplus arising based valuation as at 31 December 2015 as directed by IRCSL through a letter dated 02 February 2017.

Valuation Details of one off adjustment as at 01 January 2016 are as follows:

In Rs. ‘000 Participating Non- Total Description fund Participating fund

Value of Insurance contract liability based on Independent Actuary - NPV as at 31 December 2015 3,866,780 2,472,575 6,339,355 Value of Insurance contract liability based on Independent Actuary - GPV 31 December 2015 2,810,245 1,674,571 4,484,816 Surplus created due to Change in Valuation Method - One off Surplus as at 01 January 2016 1,056,535 798,004 1,854,539 Transfer of one off surplus from long term fund to Restricted Regulatory Reserve as at 31 December 2017 - (798,004) (798,004) Surplus created due to change in valuation method from NPV to GPV One off surplus as at 31 March 2019 1,056,535 - 1,056,535

39.7.1 Transfer of one-off surplus from policy holder fund to shareholder fund The Insurance Regulatory Commission of Sri Lanka (IRCSL) has issued requirements stipulated by the IRCSL and can only be released a Direction No 16 on 20 March 2018 on “Guidelines/ directions for as dividends upon receiving approval from the IRCSL. The one off Identifi cation and Treatment of One-off Surplus” and has instructed all surplus in the shareholder fund will remain invested in government life insurance companies to comply with the new direction. Based on debt securities and deposits as disclosed in Note 39.7.2 as per the the new guidelines life insurance companies are directed to transfer directions of the IRCSL one off surplus attributable to policyholder non-participating fund to shareholder fund in the reporting year ended 31 March 2019. The One-off surplus in respect of participating business is held within the transfer has been presented as a separate line item in the Income participating fund as part of the unallocated valuation surplus and may Statement as “change in contract liability due to transfer of one off only be transferred to the Shareholder fund by means of bonuses to surplus” and as a separate reserve in the Statement of Financial policyholders in line with Section 38 of the “Regulation of Insurance Position as “Restricted Regulatory Reserve” under equity in accordance Industry, Act No. 43 of 2000”. Please refer Note 34.8.3 for details of with the above Direction. As required by the said direction, the company assets supporting the restricted regulatory reserve as at 31 March received the approval for this transfer on 29 March 2018. 2019.

Further distribution of one off surplus to shareholders, held as part of the “Restricted Regulatory Reserve”, is subject to meeting governance

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 195 NOTES TO THE FINANCIAL STATEMENTS

In Rs. ‘000 Participating Non- Participating Total 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 GPV - One off Surplus as at 31 March 2019 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 and • policy on internal target Capital Adequacy Ratio procedures for effective management of its business, as listed below. • Considerations for transfer of funds from policyholder fund to • expense allocation policy setting out basis of allocation of expenses shareholder fund. between the shareholder fund and the policyholder fund as well as between different lines of business within the policyholder fund, These policies should be approved by the Board of Directors of the particularly participating and non-participating Softlogic Life Insurance PLC and must also comply with any relevant • dividend declaration policy for universal life business guidance issued by IRCSL from time to time. Further IRCSL will reconsider the distribution of one off surplus when the Risk Based • bonus policy for the participating business, which should include Capital rules are revised. treatment of one off surplus for the purpose of bonus declaration

39.7.2 Composition of investments supporting the Restricted Regulatory Reserve as at 31 March 2019

In Rs. ‘000 Face Value Market Value as at 31 March 2019

Government Securities Treasury Bonds 100,000,000 117,193 Deposits Seylan Bank PLC 175,000,000 186,380 Sampath Bank PLC 263,618,836 287,599 Sampath Bank PLC 125,000,000 133,129 Hatton National Bank PLC 110,658,219 120,522 Total market value of the assets 844,823

39.8 Direction 16 - Unclaimed benefits of Long Term Insurance Business There was no transfer of any unclaimed benefi t to shareholders and recorded in the life as unclaimed benefi ts 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, As recommended by the Appointed Actuary Mr. Kunj Behari which is effective from 01 April 2018, surplus distributed to the life Maheshwari, FIA, FIAI of Messrs. Towers Watson India (Pvt) Ltd, insurance policyholders who shares the profits of a person engaged Softlogic Life Insurance PLC has declared a bonus of Rs. 250.00 Mn in the business of life insurance in a given year, as provided in the to life insurance policyholders who participating in the profit of life “Regulation of Insurance Industry Act no. 43 of 2000”, shall be insurance business. Accordingly, there is Rs. 35.00 Mn tax amount is deemed as gains and profits of that person from the business and arising from policyholder who shares the profits of a person engaged subject to tax at a concessionary rate of 14% for three years of in the business of life insurance. As at the reporting date, Softlogic assessment after the commencement of the Act. Life Insurance PLC has utilised the tax credits to set off this tax liability hence no income tax liability has recorded as at 31 December 2018.

196 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 39.10 Sensitivity to assumptions used Change in key assumptions used in valuing change of the insurance contract liability would have the following effect to the Group fi nancials:

In Rs. ‘000 As at 31 March 2019

Effect on the change of the insurance contract liability Increase by 10% in mortality rate 96,797 Decrease by 10% in mortality rate (183,463)

Effect on the change of the insurance contract liability Increase by 10% in morbidity rate 10,554 Decrease by 10% in morbidity rate (9,520)

Effect on the change of the insurance contract liability Increase by 50 basis point in discount rate (46,952) Decrease by 50 basis point in discount rate 48,691

Effect on the change of the insurance contract liability Increase by 10% in expense ratio 346,611 Decrease by 10% in expense ratio (346,611)

40 INTEREST BEARING BORROWINGS

In Rs. ‘000 Group As at 31 March 2019 2018 Finance Debentures Loans Total Finance Debentures Loans Total leases leases

At the beginning of the year 207,844 1,324,970 31,373,435 32,906,249 301,069 1,483,628 34,261,503 36,046,200 Additions 15,406 1,000,000 6,585,232 7,600,638 17,387 - 3,768,754 3,786,141 Acquisition of subsidiary 693 - 239,471 240,164 2,419 - 8,556 10,975 Repayments (107,515) (565,880) (6,201,039) (6,874,434) (113,313) (158,658) (6,426,011) (6,697,982) Transfers/discontinuation ------(309,655) (309,655) Unamortised loan processing cost - (5,456) (14,120) (19,576) - - (16,207) (16,207) Finance charges (12,658) 21,795 281,632 290,769 (25,735) - 109,665 83,930 Exchange translation difference 436 - 753,751 754,187 282 - 70,288 70,570 At the end of the year 104,206 1,775,429 33,018,362 34,897,997 182,109 1,324,970 31,466,893 32,973,972

Repayable within one year 63,747 780,885 8,938,320 9,782,952 69,915 65,000 7,109,726 7,244,641 Repayable after one year 40,459 994,544 24,080,042 25,115,045 112,194 1,259,970 24,357,167 25,729,331 104,206 1,775,429 33,018,362 34,897,997 182,109 1,324,970 31,466,893 32,973,972

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 197 NOTES TO THE FINANCIAL STATEMENTS

In Rs. ‘000 Company As at 31 March 2019 2018 Finance Debentures Loans Total Finance Loans Total leases leases

At the beginning of the year 49,859 - 10,345,141 10,395,000 85,594 10,973,091 11,058,685 Additions - 1,000,000 1,500,000 2,500,000 - 1,866,930 1,866,930 Repayments (28,096) - (2,279,552) (2,307,648) (35,735) (2,494,880) (2,530,615) Processing fee - (5,456) (9,618) (15,074) - (10,805) (10,805) Finance charges/ accrued interest (1,427) 14,226 191,140 203,939 (5,159) 59,402 54,243 At the end of the year 20,336 1,008,770 9,747,111 10,776,217 44,700 10,393,738 10,438,438

Repayable within one year 17,087 14,226 3,927,185 3,958,498 23,973 2,960,558 2,984,531 Repayable after one year 3,249 994,544 5,819,926 6,817,719 20,727 7,433,180 7,453,907 20,336 1,008,770 9,747,111 10,776,217 44,700 10,393,738 10,438,438

Security pledged and interest rates pertaining to interest bearing borrowings are disclosed in note 53 to the Financial Statements.

40.1 Present value of minimum lease payments

In Rs. ‘000 Group Company Finance lease obligations Finance lease obligations Finance lease obligations Finance lease obligations repayable within repayable between repayable within repayable between one year one and fi ve years one year one and fi ve years As at 31 March 2019 2018 2019 2018 2019 2018 2019 2018

Minimum lease payments 71,583 82,944 45,281 124,899 18,445 27,705 3,318 22,154 Finance charges (7,836) (13,029) (4,822) (12,705) (1,358) (3,732) (69) (1,427) Present value of minimum lease payments 63,747 69,915 40,459 112,194 17,087 23,973 3,249 20,727

40.2 Details regarding the debentures are as follows;

In Rs. ‘000 Annual Interest Allotment Maturity Face value Amortised cost interest rate payment date date frequency As at 31 March 2019 2018

Group Listed debentures Softlogic Finance PLC Listed, secured, Type "A" debentures* 10.00% Quarterly 29-08-2014 28-08-2019 949,870 413,038 859,840 Listed, secured, 3 month TB Type "B" debentures* net + 1.50% Quarterly 29-08-2014 28-08-2019 450,130 353,621 400,130 766,659 1,259,970 Unlisted debentures Softlogic Holdings PLC Unlisted, unsecured debentures 16.75% Bi annually 08-02-2019 07-02-2022 1,000,000 1,008,770 - Softlogic Finance PLC Unlisted, unsecured, subordinated debentures 15.50% Quarterly 29-11-2013 28-11-2018 65,000 - 65,000 1,008,770 65,000 1,775,429 1,324,970

198 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 In Rs. ‘000 Annual Interest Allotment Maturity Face value Amortised cost interest rate payment date date frequency As at 31 March 2019 2018

Company Softlogic Holdings PLC Unlisted, unsecured debentures 16.75% Bi annually 08-02-2019 07-02-2022 1,000,000 1,008,770 - 1,008,770 -

* Secured by a 100% guarantee provided by “GuarantCo” amounting to Rs. 766.66 Mn.

40.3 Derivative financial instruments

Group In Rs. ‘000 2019 2018 As at 31 March Asset Liability Asset Liability

Foreign currency cash fl ow hedges 660,992 - 179,293 -

Cash flow hedge The risk management objective of the cash fl ow 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.

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 in Hedging instrument - Foreign currency borrowing of USD 36.40 Mn February 2013, maturing in March 2024, and in May 2015, maturing in June 2025 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 April 2017 to June 2025 Hedged item - USD denominated sales expected to occur in March and September of 2016 to 2024 The cash fl ow hedge has a notional amount of USD 35.39 Mn and cash fl ows are expected to occur as 101 monthly installments of 2017, 2018, The cash fl ow hedge has a notional amount of USD 10.00 Mn and cash 2019, 2020, 2021, 2022, 2023, 2024 and 2025 in USD 35.39 Mn capital fl ows are expected to occur as 17 equal semi-annual installments at and interest repayments on the 25 of each month till May 2025. 15 March and 15 September of 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024 in USD 588,235 capital and interest repayments at 15 March and 15 September of each year.

In respect of the cash fl ow hedge instrument, the following balance has been recognised in the Other Comprehensive Income Statement (OCI) as the fair value loss on the hedging instrument.

In Rs. ‘000 Group For the year ended 31 March 2019 2018

Net change in fair value on derivative fi nancial instruments (481,700) (34,266)

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 199 NOTES TO THE FINANCIAL STATEMENTS

On the hedged instrument the following attributable to the hedged risk has been recognised in the Group Income Statement.

In Rs. ‘000 Group For the year ended 31 March 2019 2018

Under Finance expenses Realised exchange loss on foreign currency borrowings 47,976 39,930 Unrealised exchange loss on foreign currency borrowings 239,050 2,511 287,026 42,441

41 PUBLIC DEPOSITS

In Rs. ‘000 Group As at 31 March 2019 2018

Deposits maturing after one year 4,601,829 3,237,633 Deposits maturing within one year 12,385,059 13,063,838 16,986,888 16,301,471

42 EMPLOYEE BENEFIT LIABILITIES

ACCOUNTING POLICY

Defined benefit plan - Gratuity The liability recognised in the statement of fi nancial position is the As per the payment of Gratuity Act No. 12 of 1983, this liability only present value of the defi ned benefi t obligation at the reporting date arises upon completion of 5 years of continued service. using the projected unit credit method. Any actuarial gains or losses arising are recognised immediately in other comprehensive income. The gratuity liability is not externally funded.

In Rs. ‘000 Group Company As at 31 March 2019 2018 2019 2018

At the beginning of the year 1,012,888 801,930 68,252 49,130 Current service cost 118,976 118,939 7,174 7,057 Interest cost on benefi t obligation 102,960 100,014 6,584 6,165 (Gain) / loss arising from changes in assumptions (65,512) 74,103 3,474 10,219 Acquisition of subsidiary 20,490 5,803 - - Transfers to related companies (393) - - - Payments (108,089) (87,901) (4,375) (4,319) At the end of the year 1,081,320 1,012,888 81,109 68,252

The employee benefi t 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 benefi t 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 benefi ts in line with respective statutes actuarial valuations involve making assumptions about discount rates and regulations. The companies contribute the defi ned percentages and future salary increases. Given the complexity of the valuation, of gross emoluments of employees to an approved Employees’ the underlying assumptions and the long term nature of the liability, Provident Fund and to the Employees’ Trust Fund respectively, which the defi ned benefi t obligation is highly sensitive to changes in these are externally funded. assumptions.

All assumptions are reviewed at each reporting date.

200 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 The principal assumptions used in determining the cost of employee benefi ts were as bellow:

2019 2018

Discount rate (%) 10.00 - 11.60 8.10 - 12.00 Future salary increases (%) 5.00 - 8.10 7.50 - 10.00

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 2019 2018 2019 2018

Effect on the defi ned benefi t obligation liability: Increase by one percentage point in discount rate (36,413) (36,271) (4,784) (2,801) Decrease by one percentage point in discount rate 41,017 39,389 1,199 2,993

Effect on the defi ned benefi t obligation liability: Increase by one percentage point in salary increment rate 46,191 43,577 1,573 3,226 Decrease by one percentage point in salary increment rate (41,639) (40,985) (5,129) (3,070)

42.2 Maturity analysis of the payments The following payments are expected on account of employees benefi t liabilities in future years.

In Rs. ‘000 Group Company As at 31 March 2019 2018 2019 2018

- within the next 12 months 273,872 250,575 10,219 9,070 - between 1 and 2 years 297,940 272,791 13,288 11,926 - between 3 and 5 years 324,412 316,217 51,383 39,321 - between 6 and 10 years 143,886 133,255 5,387 6,028 - beyond 10 years 41,210 40,050 832 1,907 Total expected payments 1,081,320 1,012,888 81,109 68,252

42.3 Weighted average durations of service The Group’s and the company’s weighted average durations of service in is 4.56 years (2018 - 6.37 years) and 3.95 years (2018 - 4.47 years) respectively.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 201 NOTES TO THE FINANCIAL STATEMENTS

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 the product have not yet been delivered. According to the revenue recognition is sold or service provided to the customer. Initial recognition is based principle, it is recorded as a liability until delivery is made, at which time on historical experience and revised annually. it is converted to revenue.

In Rs. ‘000 Group Company As at 31 March 2019 2018 2019 2018

Within one year Deferred revenue 100,984 189,671 36,036 36,036 Warranty provision 41,716 37,594 - - 142,700 227,265 36,036 36,036 After one year Deferred revenue 147,459 127,635 75,676 111,712 Warranty provision 1,382 - - - 148,841 127,635 75,676 111,712 Total other deferred liabilities 291,541 354,900 111,712 147,748

44 OTHER NON-CURRENT FINANCIAL LIABILITIES

In Rs. ‘000 Group Company As at 31 March 2019 2018 2019 2018

Security deposits 4,426 11,723 - - Advances received 110,779 110,779 - - Payable to related party - - 186,200 186,200 115,205 122,502 186,200 186,200

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 classifi ed as current liabilities if payment is due within one year.

In Rs. ‘000 Group Company As at 31 March 2019 2018 2019 2018

Trade and other payables 5,281,526 5,203,971 108,894 44,415 Reinsurance payables 444,231 181,006 - - Dividend payable 634,417 71,845 - - Sundry creditors including accrued expenses 2,068,081 1,811,755 - - 8,428,255 7,268,577 108,894 44,415

202 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 46 OTHER CURRENT FINANCIAL LIABILITIES

In Rs. ‘000 Group Company As at 31 March 2019 2018 2019 2018

Loans* 20,732,979 17,913,513 7,759,444 4,997,247 Commercial papers 2,386,289 5,684,635 2,244,431 5,529,108 Financial liabilities at fair value through profi t or loss 46.1 9,357 9,357 - - 23,128,625 23,607,505 10,003,875 10,526,355

* Group loan outstanding balance reflects money market loan payables and import loans.

46.1 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 specifi ed in the amended agreements.

On 20 December 2018, FMO sold its 19% ownership in ordinary shares in SLI to Dalvik Inclusion (Pvt) Ltd (LeapFrog) and Put Option attached to initial “Shareholders Agreement” and “Share Purchase Agreement” dated 20 December 2012 as amended 13 February 2013 granted by SC will remain as valid.

Subsequent to the evaluation of ownership interests on the shares transferred to non-controlling interests (NCI) based on pricing, voting rights, decision making and dividend rights, management determines that SH & SC have transferred full ownership interests to the NCI. Therefore, the investment in SLI shares were derecognised and any liability arising from the put option is recognised based on the option valuation methodology in line with SLFRS - 9 Financial Instruments.

As at 31 March, 2019, the Group had pledged 52,368,036 shares (2018 – 52,368,036 shares) of Asiri Hospital Holdings PLC owned by Softlogic Holdings PLC and 20,000 shares (2018 – 20,000 shares) of Softlogic Life Insurance PLC owned by Softlogic Capital PLC as collateral on the said transaction.

46.1.1 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 2019 2018

Continuous compounded risk free rate (%) 10.40 10.34 Annualised volatility (%) 37.00 42.63 Appraisal value (Rs.) 39.73 36.82 Probability to move up (Pu) of the option value (%) 90.00 90.00 Probability to move down (Pd) of the option value (%) 10.00 10.00 Upward movement of the appraisal value (%) 1.30 1.35 Downward movement of the appraisal value (%) 0.77 0.74

Risk free rate - Rate of return of an investment with no risk of fi nancial loss Appraisal value - Based on a valuation performed by an independent valuer

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 203 NOTES TO THE FINANCIAL STATEMENTS

46.1.2 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 2019 2018

Effect on the put option obligation liability: Increase by one percentage point in risk free rate (53) (119) Decrease by one percentage point in risk free rate 53 122

Effect on the put option obligation liability: Increase by one percentage point in appraisal value (350) (273) Decrease by one percentage point in appraisal value 350 273

Effect on the put option obligation liability: Increase by one percentage point in probability to move up of the option value (1,913) (1,840) Decrease by one percentage point in probability to move up of the option value 2,093 2,174

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 Group Company As at 31 March Note 2019 2018 2019 2018

Advances received 405,275 435,488 - - Taxes payables 298,243 184,939 26,482 32,015 Other liabilities 466,174 619,634 19,711 18,170 Other deferred liabilities 43 142,700 227,265 36,036 36,036 1,312,392 1,467,326 82,229 86,221

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 predetermined interest rates and terms.

48.1 Amounts due from related parties

In Rs. ‘000 Group Company As at 31 March Note 2019 2018 2019 2018

Subsidiaries 48.3 - - 14,174,694 8,588,380 Equity accounted investees 48.4 13,494 609 1,666 - Key Management Personnel 198 198 - - 13,692 807 14,176,360 8,588,380

204 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 48.2 Amounts due to related parties

In Rs. ‘000 Group Company As at 31 March Note 2019 2018 2019 2018

Subsidiaries 48.3 - - 14,679 15,885 Equity accounted investees 48.5 - 5,074 - - Key Management Personnel 2,731 2,492 1,992 1,992 2,731 7,566 16,671 17,877

48.3 Subsidiaries

Company In Rs. ‘000 Amount due to Amount due from As at 31 March 2019 2018 2019 2018

Ceysand Resorts Ltd 114 - - 2,833 Future Automobiles (Pvt) Ltd - - 62,630 62,302 Softlogic Australia (Pty) Ltd - - 10,483 3,974 Softlogic Automobiles (Pvt) Ltd - - 7,417 8,635 Softlogic B P O Services (Pvt) Ltd - - 133,774 119,501 Softlogic Brands (Pvt) Ltd - - 241 189 Softlogic City Hotels (Pvt) Ltd - - 973,442 973,444 Softlogic Communication Services (Pvt) Ltd - - 5,789 7,585 Softlogic Communications (Pvt) Ltd - - 645 - Softlogic Computers (Pvt) Ltd - 2 - - Softlogic Corporate Services (Pvt) Ltd 912 877 - - Softlogic Destination Management (Pvt) Ltd - - 6,696 6,702 Softlogic Healthcare Holdings Ltd - - 25,022 - Softlogic Information Technologies (Pvt) Ltd 12,640 13,146 - - Softlogic International (Pvt) Ltd 13 - - - Softlogic Mobile Distribution (Pvt) Ltd - - 6,501 - Softlogic Properties (Pvt) Ltd - - 342,311 357,297 Softlogic Restaurants (Pvt) Ltd - - 1,179 212 Softlogic Retail (Pvt) Ltd - - 169 39,734 Softlogic Retail Holdings (Pvt) Ltd 1,000 - - - Softlogic Retail One (Pvt) Ltd - 1,000 - - Softlogic Rewards (Pvt)Ltd - - 943 - Softlogic Solar (Pvt) Ltd - - 34,613 34,613 Softlogic Supermarkets (Pvt) Ltd - 860 135,554 - 14,679 15,885 1,747,409 1,617,021 Less - Provision for impairment - - (101,281) (96,914) 14,679 15,885 1,646,128 1,520,107

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 205 NOTES TO THE FINANCIAL STATEMENTS

48.3 Subsidiaries

Company In Rs. ‘000 Loans received Loans given As at 31 March 2019 2018 2019 2018

Ceysand Resorts Ltd - - - 144,246 Cotton Collections (Pvt) Ltd - - 4,917 - Future Automobiles (Pvt) Ltd - - 1,059,646 683,108 Odel PLC - - 491,170 76,443 Softlogic Automobiles (Pvt) Ltd - - 134,489 119,359 Softlogic Brands (Pvt) Ltd - - 124,089 98,828 Softlogic City Hotels (Pvt) Ltd - - 174,936 68,451 Softlogic Communications (Pvt) Ltd - - 4,730 - Softlogic Destination Management (Pvt) Ltd - - 39,719 31,657 Softlogic Properties (Pvt) Ltd - - 68,639 68,639 Softlogic Restaurants (Pvt) Ltd - - 658,732 476,812 Softlogic Retail (Pvt) Ltd - - 3,265,632 5,628,599 Softlogic Retail Holdings (Pvt) Ltd - - 6,829,736 - - - 12,856,435 7,396,142 Less - Provision for impairment - - (327,869) (327,869) - - 12,528,566 7,068,273 14,679 15,885 14,174,694 8,588,380

48.4 Amounts due from related parties

In Rs. ‘000 Group Company As at 31 March 2019 2018 2019 2018

Equity accounted investees Jendo Innovations (Pvt) Ltd 1,666 - 1,666 - Asiri A O I Cancer Centre (Pvt) Ltd 9,683 - - - Sabre Travel Network Lanka (Pvt) Ltd 2,145 609 - - 13,494 609 1,666 -

48.5 Amounts due to related parties

In Rs. ‘000 Group As at 31 March 2019 2018

Equity accounted investees Gerry's Softlogic Pakistan - 5,074 - 5,074

206 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 48.6 Transactions with related parties

In Rs. ‘000 Group Company For the year ended 31 March 2019 2018 2019 2018

Subsidiaries (Purchases)/ sales of goods - - (19,378) (14,301) (Receiving) / rendering of services - - 559,546 623,478 (Purchases) / sale of property plant & equipment - - (1,378) (37,733) Loans given/ (obtained) - - 2,580,671 3,024,616 Interest received / (paid) - - 1,148,937 829,547 Rent received / (paid) - - 55,303 56,900 Dividend received - - 479,712 889,998 Profi t on disposal of shares - - (10,575) 4,588,114 Guarantee charges received - - 140,393 181,887 Guarantees given/ received - - 23,282,722 22,611,617

Equity Accounted Investees (Purchases) / sale of property plant & equipment 16,651 11,296 - - (Receiving) / rendering of services 22,365 698 12,153 10,898 Interest received / (paid) 116 - 116 - Dividend received - - 35,045 3,015

Key Management Personnel Loans given/ (received) (2,533) (2,294) (1,992) (1,992) Guarantees given/ (obtained) (410,000) (510,000) - (100,000) Loans given/ (customer deposits received) (47,617) (44,853) - - Advances given/ (received) (251,720) (160,455) - - (Purchases)/ sales of goods 22,401 - - - (Receiving)/ rendering of services 4,756 1,257 - - Interest paid on customer deposits 7,868 3,579 - -

Close family Members of KMP (Receiving)/rendering of services - - - -

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 2019 2018 2019 2018

Short term employee benefi ts 402,470 288,693 54,010 42,225 Post-employment benefi ts 60,457 44,413 14,187 12,750 462,927 333,106 68,197 54,975

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 207 NOTES TO THE FINANCIAL STATEMENTS

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 Retail The information Technology operating segment comprises the areas The Retail operating segment comprises consumer electronics and of software development, hardware and system software solutions, durables, branded apparels & fashion, telecommunication and quick market specific ICT solutions and office automation solutions. service restaurants.

Leisure and Property The leisure and Property operating segment comprises one five star hotel, one four star hotel, destination management and development/ sale of residential apartments.

49.1 Revenue and profit In Rs. ‘000 Information Technology Leisure & Property Retail For the year ended 31 March 2019 2018 2019 2018 2019 2018

Continuing operations Revenue Total revenue 4,730,418 4,147,724 3,298,678 2,718,660 39,839,827 37,574,985 Inter Group (690,909) (518,788) (170,380) (133,237) (2,117,274) (2,138,192) Total external revenue 4,039,509 3,628,936 3,128,298 2,585,423 37,722,553 35,436,793

Results from operating activities 300,821 381,825 65,564 (141,980) 3,219,874 3,096,034

Finance income 318 567 (721) 18,499 135,898 76,927 Finance expenses (129,531) (83,675) (916,317) (548,155) (3,385,791) (2,425,020) Change in insurance contract liabilities ------Change in contract liability due to transfer of one off surplus ------Change in fair value of investment property - - - - 245,000 198,000 Share of profi t of equity accounted investees ------Profi t/ (loss) before taxation 171,608 298,717 (851,474) (671,636) 214,981 945,941 Taxation (36,603) (44,946) (5,560) (193,752) (63,524) (179,506) Profi t/ (loss) for the year 135,005 253,771 (857,034) (865,388) 151,457 766,435

Depreciation of property, plant & equipment (PPE) 60,578 72,905 606,076 589,423 716,504 498,172 Amortisation of lease rentals paid in advance - - - - 119 79 Amortisation / impairment of intangible assets 16,748 29,820 21,760 20,683 77,794 70,680 Retirement benefi t obligations and related cost 18,868 20,403 8,827 10,006 41,563 44,418 Purchase and construction of PPE 42,084 29,111 110,097 359,009 2,027,758 1,224,592 Additions to intangible assets 100,427 98,343 2,962 17,421 35,209 138,152

208 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Automobiles Healthcare Services The Automobile operating segment deals in branded motor vehicles and The Healthcare Services operating segment comprises a leading private ancillary services. hospital chain providing private healthcare and laboratory services.

Financial Services Others The Financial Services operating segment offers a complete range of This sector consists of Softlogic Holdings PLC, which provides ancillary financial solutions including some banking related services, insurance, services to Group companies. stock broking, debt trading, fund management and leasing.

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.

Automobiles Financial Services Healthcare Services Others Group 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018

3,203,701 1,336,977 13,690,752 11,068,797 13,884,945 12,412,747 678,287 677,335 79,326,608 69,937,225 (67,525) (66,561) (62,033) (7,884) (410,263) (387,569) (665,620) (666,079) (4,184,004) (3,918,310) 3,136,176 1,270,416 13,628,719 11,060,913 13,474,682 12,025,178 12,667 11,256 75,142,604 66,018,915

169,680 (64,256) 1,716,874 1,787,616 3,195,072 3,425,945 (307,615) (178,475) 8,360,270 8,306,709

164 176 1,182,443 912,225 43,655 85,020 37,217 10,391 1,398,974 1,103,805 (204,852) (126,187) (522,736) (265,351) (825,400) (869,483) (1,131,660) (1,641,995) (7,116,287) (5,959,866) - - (1,152,037) (1,374,037) - - - - (1,152,037) (1,374,037) - - - 798,004 - - - - - 798,004 ------245,000 198,000 - - - - (4,213) (6,496) 11,293 26,283 7,080 19,787 (35,008) (190,267) 1,224,544 1,858,457 2,409,114 2,634,986 (1,390,765) (1,783,796) 1,743,000 3,092,402 452 12,619 2,019,845 424,083 (578,326) (696,506) (89,000) (136,351) 1,247,284 (814,359) (34,556) (177,648) 3,244,389 2,282,540 1,830,788 1,938,480 (1,479,765) (1,920,147) 2,990,284 2,278,043

35,940 40,141 189,755 174,536 876,413 872,062 34,852 37,318 2,520,118 2,284,557 - - - - 16,387 1,037 - - 16,506 1,116 - - 213,599 225,538 9,135 8,522 2,542 2,825 341,578 358,068 1,660 2,349 43,244 30,726 93,706 97,692 14,068 13,359 221,936 218,953 14,665 23,644 187,567 231,150 3,358,730 2,619,809 2,304 36,545 5,743,205 4,523,860 - - - 191 - - 2,636 2,378 141,234 256,485

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 209 NOTES TO THE FINANCIAL STATEMENTS

49.2 Segment assets and liabilities

Information Technology Leisure & Property Retail As at 31 March 2019 2018 2019 2018 2019 2018

Property, plant and equipment 83,811 98,000 10,554,530 11,011,804 6,743,496 5,223,131 Lease rentals paid in advance - - - 212,621 3,686 3,804 Investment property 204,000 204,266 1,791,640 1,612,440 5,640,537 5,013,300 Intangible assets 411,055 327,033 24,541 29,940 374,596 415,426 Non-current fi nancial assets - - - - 1,278,448 797,426 Rental receivable on lease assets and hire purchase ------Other non-current assets 3,925 2,160 2,649,527 627,863 547,115 287,010 Segment non-current assets 702,791 631,459 15,020,238 13,494,668 14,587,878 11,740,097

Investments in equity accounted investees Goodwill Intangible assets through business combinations Deferred tax assets Eliminations/ adjustment Total non-current assets 702,791 631,459 15,020,238 13,494,668 14,587,878 11,740,097

Inventories 531,063 456,171 971,622 1,164,933 8,203,800 8,223,095 Trade and other receivables 974,822 991,428 316,809 297,216 9,210,141 8,921,436 Loans and advances ------Rental receivable on lease assets and hire purchase ------Other current assets 52,258 52,398 146,693 231,342 2,532,751 1,520,605 Short term investments 100 103 371 342 22,770 30,960 Cash in hand and at bank 39,858 62,553 100,246 417,660 1,496,718 983,373 Segment current assets 1,598,101 1,562,653 1,535,741 2,111,493 21,466,180 19,679,469 Amounts due from related parties Total current assets 1,598,101 1,562,653 1,535,741 2,111,493 21,466,180 19,679,469 Total assets

Insurance contract liabilities ------Interest bearing borrowings 47,588 70,342 7,476,587 5,873,172 3,357,662 3,095,615 Public deposits ------Employee benefi t liabilities 109,866 109,068 26,950 23,410 216,982 212,367 Other deferred liabilities 19,641 9,664 - - 53,524 6,260 Other non-current fi nancial liabilities - - 110,779 115,902 4,426 - Segment non-current liabilities 177,095 189,074 7,614,316 6,012,484 3,632,594 3,314,242 Deferred tax liabilities Total non-current liabilities 177,095 189,074 7,614,316 6,012,484 3,632,594 3,314,242

Trade and other payables 1,166,476 954,136 795,956 790,782 2,821,000 3,332,880 Other current fi nancial liabilities 725,960 602,661 28,273 231,832 21,222,784 15,751,436 Current portion of interest bearing borrowings 26,840 25,232 1,185,341 857,084 1,653,817 1,604,285 Other current liabilities 109,471 121,490 376,304 318,077 325,095 449,194 Public deposits ------Bank overdrafts 98,280 57,607 615,122 591,452 1,654,093 1,448,274 Segment current liabilities 2,127,027 1,761,126 3,000,996 2,789,227 27,676,789 22,586,069 Income tax liabilities Amounts due to related parties Eliminations/ adjustment Total current liabilities 2,127,027 1,761,126 3,000,996 2,789,227 27,676,789 22,586,069 Total liabilities

Total segment assets 2,300,892 2,194,112 16,555,979 15,606,161 36,054,058 31,419,566 Total segment liabilities 2,304,122 1,950,200 10,615,312 8,801,711 31,309,383 25,900,311

210 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Automobiles Financial Services Healthcare Services Others Group 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018

295,231 316,546 1,158,622 1,133,101 20,792,877 17,130,704 171,800 209,100 39,800,367 35,122,386 - - - - 785,409 801,796 - - 789,095 1,018,221 - - - - 193,724 - 744,000 704,000 8,573,901 7,534,006 - - 83,376 106,706 165 - 686 593 894,419 879,698 - - 11,554,738 9,421,192 323,946 345,762 - - 13,157,132 10,564,380 - - 1,135,517 1,042,759 - - - - 1,135,517 1,042,759 9,387 4,637 3,500 3,500 2,333 3,333 - - 3,215,787 928,503 304,618 321,183 13,935,753 11,707,258 22,098,454 18,281,595 916,486 913,693 67,566,216 57,089,953

78,249 111,885 4,604,797 4,240,503 3,265,318 3,490,163 3,247,950 749,406 (84,995) (292,789) 304,618 321,183 13,935,753 11,707,258 22,098,454 18,281,595 916,486 913,693 78,677,537 65,389,121

355,773 751,257 174,243 131,743 452,520 523,340 - - 10,689,021 11,250,539 1,292,189 60,709 1,846,788 1,011,716 684,894 539,401 25,977 16,224 14,351,620 11,838,130 - - 11,664,401 13,098,641 - - - - 11,664,401 13,098,641 - - 835,051 523,777 - - - - 835,051 523,777 305,572 41,808 1,157,262 1,217,730 1,120,891 368,135 28,286 17,033 5,343,713 3,449,051 1,500 1,500 5,893,821 6,234,216 - 719,470 130,834 134,017 6,049,396 7,120,608 6,706 6,799 1,286,337 1,169,241 242,986 580,189 23,499 2,932,018 3,196,350 6,151,833 1,961,740 862,073 22,857,903 23,387,064 2,501,291 2,730,535 208,596 3,099,292 52,129,552 53,432,579 13,692 807 1,961,740 862,073 22,857,903 23,387,064 2,501,291 2,730,535 208,596 3,099,292 52,143,244 53,433,386 130,820,781 118,822,507

- - 8,309,628 7,192,591 - - - - 8,309,628 7,192,591 13,693 38,710 1,507,385 2,647,702 5,894,411 6,549,883 6,817,719 7,453,907 25,115,045 25,729,331 - - 4,601,829 3,237,633 - - - - 4,601,829 3,237,633 6,369 7,694 154,017 125,400 484,451 465,672 82,685 69,277 1,081,320 1,012,888 ------75,676 111,711 148,841 127,635 - 6,600 ------115,205 122,502 20,062 53,004 14,572,859 13,203,326 6,378,862 7,015,555 6,976,080 7,634,895 39,371,868 37,422,580 3,306,076 2,829,959 20,062 53,004 14,572,859 13,203,326 6,378,862 7,015,555 6,976,080 7,634,895 42,677,944 40,252,539

68,482 34,192 1,588,348 1,259,578 1,952,559 854,982 35,434 42,027 8,428,255 7,268,577 1,282,132 569,580 1,134,357 559,357 803,609 1,054,533 10,003,875 10,526,355 35,200,990 29,295,754 26,361 28,408 1,269,778 519,991 1,662,317 1,225,111 3,958,498 2,984,530 9,782,952 7,244,641 880 709 397,166 491,039 20,833 18,404 82,643 68,413 1,312,392 1,467,326 - - 12,385,059 13,063,838 - - - - 12,385,059 13,063,838 40,062 36,144 1,287,746 675,885 3,891,219 1,682,107 174,702 153,748 7,761,224 4,645,217 1,417,917 669,033 18,062,454 16,569,688 8,330,537 4,835,137 14,255,152 13,775,073 74,870,872 62,985,353 351,689 348,372 2,731 7,566 (12,072,365) (5,688,249) 1,417,917 669,033 18,062,454 16,569,688 8,330,537 4,835,137 14,255,152 13,775,073 63,152,927 57,653,042 105,830,871 97,905,581

2,266,358 1,183,256 36,793,654 35,094,322 24,599,745 21,012,130 1,125,082 4,012,985 119,695,768 110,522,532 1,437,979 722,037 32,635,313 29,773,014 14,709,399 11,850,692 21,231,232 21,409,968 114,242,740 100,407,933

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 211 NOTES TO THE FINANCIAL STATEMENTS

50 CONTINGENT LIABILITIES

ACCOUNTING POLICY

Provisions are recognised when the Group has a present obligation 50.2 Asiri Hospital Holdings PLC, Asiri Surgical Hospital PLC (legal or constructive) as a result of a past event and it is probable that and Central Hospital Ltd an outfl ow of resources embodying economic benefi ts will be required Pending litigations against Asiri Hospital Holdings PLC , Asiri Surgical to settle the obligation and a reliable estimate can be made of the Hospital PLC and Central Hospital Ltd with a maximum liability of Rs. amount of the obligation. Where the Group expects some or all of a 41.20 Mn, Rs. 105.00 Mn and Rs. 100.00 Mn respectively exist as at 31 provision to be reimbursed, for example under an insurance contract, March 2019 (2018 - Asiri Hospital Holdings PLC : Rs. 41.20 Mn, Asiri the reimbursement is recognised as a separate asset but only if it is Surgical Hospital PLC : Rs. 100.00 Mn and Central Hospital Ltd - Rs. virtually certain. 100.00 Mn).

The expense relating to any provision is presented in the income Although there can be no assurance, the Directors believe, based on statement net of any reimbursement. the information currently available, that the resolution of such legal processes are not likely to have a material adverse effect on the If the effect of the time value of money is material, provisions are companies or the Group. discounted using a current pre-tax rate that refl ects, where appropriate, the risks specifi c to the liability. Where discounting is used, the increase 50.3 Asiri Central Hospitals Ltd in the provision due to the passage of time is recognised as a fi nance cost. H.C. (Civil) 417/2015/MR - Krishnan Thangaraj Vs. Asiri Central Hospitals Ltd, Oraz International Property Developers and Construction All contingent liabilities are disclosed as a note to the Financial (Pvt) Ltd and H.G. Shalika Perera relating to a permanent injunction Statements unless the outfl ow of resources is remote. A contingent restraining the payment of any commission on the sale of the land and liability recognised in a business combination is initially measured at its premises bearing assessment no. 37, Horton Place, Colombo 07 to fair value. P.P.M. Edwards.

Subsequently, it is measured at the higher of: An enjoining order was issued restraining above at the fi rst instance. • the amount that would be recognised in accordance with the general guidance for provisions above (LKAS 37) or 50.4 Softlogic Life Insurance PLC (SLI)

• the amount initially recognised less, when appropriate, cumulative Value Added Tax (VAT) amortisation recognised in accordance with the guidance for VAT Assessments were received by Softlogic Life Insurance PLC in revenue recognition April 2013 and March 2016 for the taxable periods ended 31 December Contingent assets are disclosed where infl ow of economic benefi t is 2010 and 31 March 2014, amounting to Rs. 45.90 Mn and Rs. 57.40 Mn probable. respectively.

As at reporting date, there were no signifi cant contingent liabilities The Company has fi led an appeal in July 2015 on the basis that the at the date of the statement of fi nancial position which require underlying computation includes items which are exempt/ out of adjustment to or disclosure in the Financial Statements, other than scope of the Value Added Tax Act. The Commissioner General of disclosed below. Inland Revenue has determined the assessment and the Company has appealed to the Tax Appeals Commission and awaits the fi nal decision. No provision has been made in respect of the contingent liabilities For the VAT assessment issued for the quarter ended 31 March 2014, stated below for the reasons given. the Company has fi led an appeal in April 2016 on the basis that the underlying computation includes items which are exempt/ out of 50.1 Asiri Surgical Hospital PLC scope of the Value Added Tax Act. The Company is awaiting the CGIR A dispute has arisen with the Department of Inland Revenue on the determination. tax exemption applicable as per the agreement between Asiri Surgical Hospital PLC and the Board of Investment (BOI) in 2000. Value Added Tax on Financial Services The Company has received a tax assessment on Value Added Tax Since there is litigation in the Court of Appeal in CA (Writ) 386/2016 on Financial Services in July 2018 for the taxable period ended 31 with regard to this matter, in accordance with Paragraph 92 of LKAS December 2014, amounting to Rs. 68.70 Mn. The Company has fi led an 37, the Group is unable to provide further information on this and appeal in August 2018 on the basis that the underlying computation associated risks, in order not to impair the outcome and/ or prejudice includes items which are out of scope of the Value Added Tax Act. The the subsidiary’s position in this matter. The aforesaid matter is coming Company is awaiting the CGIR determination. up for argument on 31 October 2019 at the Court of Appeal.

212 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Life Insurance Taxation Further the SLI has received tax assessment for Life Insurance taxation for the year of assessment 2013/14, 2014/15, 2015/16 and 2016/17 The Commissioner General of Inland Revenue has issued its amounting to Rs. 579.53 Mn with a penalty of Rs. 714.53 Mn. The determination notices on appeals fi led for Life Insurance taxation for Company has lodged a valid appeal against the said assessment. the year of assessment 2010/11, 2011/12 and 2012/13 amounting to Rs. 60.33 Mn. The Company has appealed to the Tax Appeals Based on the information available and the advice of the tax Commission and awaits the fi nal decision. consultants, the Directors are confi dent that the resolution of this contingency is unlikely to have a material adverse effect on the company or the Group.

51 CAPITAL AND OTHER COMMITMENTS

51.1 Capital commitments In Rs. ‘000 Group As at 31 March 2019 2018

Capital commitments approved but not provided for 9,080,052 9,370,995 Capital commitments approved but not contracted 8,310,000 8,310,000

51.2 Lease commitments

In Rs. ‘000 Group As at 31 March 2019 2018

Lease rentals due on non cancellable operating lease - within one year 1,651,123 758,056 - between one and fi ve years 5,713,964 2,318,961 - after fi ve year 1,928,541 1,555,201

51.3 Guarantees issued and in-force, and commitments for unutilised facilities In Rs. ‘000 Group Company As at 31 March 2019 2018 2019 2018

Guarantees issued and in-force 1,952,507 1,948,065 23,282,722 22,611,617 Commitment for unutilised facilities 161,016 13,637 - -

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 213 NOTES TO THE FINANCIAL STATEMENTS

52 UTILISATION OF FUNDS RAISED THROUGH PRIVATE PLACEMENT AND RIGHTS ISSUE OF SHARES Total Funds raised through private placement in FY 1718 and rights issue in FY 1819 amounting to Rs. 3,106.38 Mn and Rs. 3,924.85 Mn respectively was fully utilised for the objectives stated in the circular to shareholders issued on respect of the above.

Objective Objective as Amount Proposed Amount % of total Amount % of Clarifi cation if number per circular allocated as date of allocated from proceeds utilised in Rs. utilised not fully utilised per circular in utilisation as proceeds in (B) against including if not Rs. per circular Rs. (A) allocation utilised where are [(B)/(A)] the funds invested (e.g. whether lent to related parties)

Utilisation of funds raised through private placement of shares Settlement of commercial Within two paper 3,106,382,715 months 3,106,382,715 - 3,106,382,715 100.00 NA Utilisation of funds raised through rights issue of shares 1 Settlement of commercial "Maximum of Within three Maximum of paper 3,923,851,838" months 3,923,851,838 - 3,173,851,838 80.89 NA 2 Short term loan settlement - "Maximum of Within three Maximum of Seylan Bank 3,923,851,838" months 3,923,851,838 - 750,000,000 19.11 NA

53 POST BALANCE SHEET EVENTS There were no signifi cant events subsequent to the date of the statement of fi nancial position, which require disclosure in the Financial Statements.

214 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 over land and building at No. 14, De Fonseka Place land and building at No. 14, De Fonseka over Colombo - 05 Place land and building at No. 14, De Fonseka over Colombo - 05 of Softlogic Capital PLC 119,850,336 shares PLC, owned by of Lanka IOC PLC and 63,200 shares Softlogic Holdings PLC Place Colombo - 05 at No. 14, De Fonseka Place land and building at No. 14, De Fonseka over Colombo - 05 of Softlogic Capital PLC 100,000,000 shares Softlogic Holdings PLC owned by Retail Holdings (Pvt) Ltd Softlogic Holdings PLC owned by of and 5,297,790 shares Hospital Holdings PLC Softlogic Holdings owned by Softlogic Capital PLC PLC Security a) mortgage Primary concurrent for Rs. 70.00 Mn b) mortgage Secondary concurrent for Rs. 30.00 Mn c) of Asiri Hospital Holdings 90,440,000 shares a) Mortgage land and building for Rs. 130.00 Mn over b) mortgage Secondary concurrent for Rs. 50.00 Mn c) Primary mortgage for Rs. 750.00 Mn over d) Softlogic owned by of Odel PLC 25,000,000 shares of Asiri Hospital Holdings PLC 162,475,657 shares Rs. 1,000.00 Mn worth of Asiri of 37,398,004 shares Rs. Mn. collaterals of tangible 2018 Rs. '000 2019 97,409 120,106 409,868 552,718 306,267 2,587.16 385,895 227,249 280,227 948,330 1,206,189 1,582.50 142,492 231,056 194,285 244,355 451,709 3,282.01 617,990 529,639 708,445 442,879 620,938 657,313 849,720 1,000.00 Rs. '000 Outstanding Balance Carrying value Repayment Term Repayment 20 equal quarterly installments November commencing from 2015 60 monthly installments 2017 February commencing from 60 equal monthly installments April 2017 commencing from 60 monthly installments April 2017 commencing from 72 monthly installments commencing after 12 months of 2014 November period from grace 20 monthly installments 2018 October commencing from 20 quarterly installments commencing after 6 months grace 2016 March period from 48 monthly installments 2016 May commencing from 48 monthly installments 2016 October commencing from 48 monthly installments 2016 May commencing from 20 equal quarterly installments commencing after 6 months of December 2016 period from grace 1.25% 2.25% 2.50% 2.50% 1.50% 2.00% 2.50% 1.00% 2.00% 2.00% 2.00% Interest Interest Rate Term loanTerm + AWPLR loanTerm + AWPLR Term loanTerm + AWPLR Term loan Term + AWPLR loanTerm + AWPLR loanTerm + AWPLR Nature of Nature facility Term loan Term + AWPLR loanTerm loanTerm + AWPLR loanTerm + AWPLR - loanTerm + AWPLR 20,833 Term loanTerm + AWPLR Hatton National Hatton Bank PLC Nations Trust Bank PLC Institution Commercial Commercial Bank of PLC Ceylon Seylan Bank Seylan PLC Company Lending Softlogic Holdings PLC 54 54 BORROWINGS BEARING INTEREST 54.1 terms Security and repayment

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 215 NOTES TO THE FINANCIAL STATEMENTS owned by Softlogic Holdings PLC owned by Softlogic Capital PLC owned by for Rs. 1,631.00 Mn of Softlogic Capital PLC and 135,278,651 shares Softlogic Holdings PLC” owned by for Rs. 2,000.00 Mn PLC, Insurance of Softlogic Life 175,550 shares and of Softlogic Finance PLC 497,975 shares owned of Softlogic Capital PLC 4,359,784 shares Softlogic Holdings PLC by Retail Holdings (Pvt) Ltd for Rs. 2,000.00 Mn Softlogic Holdings PLC owned by Technologies Softlogic Information Holdings PLC, (Pvt) Ltd, Softlogic Retail (Pvt) Ltd and Suzuki Lanka Ltd for Rs. 800.00 Mn Motors Retail Holdings (Pvt) Ltd Softlogic Retail (Pvt)by Ltd Security a) of Softlogic Capital PLC 151,166,182 shares b) PLC Insurance of Softlogic Life 48,250,000 shares c) Softlogic Capital PLC from guarantees Corporate a) of Asiri Hospital Holdings PLC 16,495,301 shares b) Softlogic Retail (Pvt) Ltd from guarantee Corporate a) of Asiri Hospital Holdings PLC, 11,972,390 shares b) Softlogic owned by of Odel PLC 49,702,271 shares c) Softlogic Retail (Pvt) Ltd from guarantee Corporate a) of Asiri Hospital Holdings PLC 5,026,667 shares b) Softlogic from guarantees corporate Cross Softlogic owned by of Odel PLC 62,894,000 shares owned Rs. 937.50 Mn worth of Odel PLC of shares Rs. Mn. collaterals of tangible 2018 Rs. '000 2019 878,570 1,002,521 2,351.29 839,637 1,076,854 1,077.24 810,538 800,680 101.54 501,441 - 937.50 Rs. '000 Outstanding Balance Carrying value 1,290,286 1,675,211 1,579.34 1,019,199 - 9,747,111 1,641.53 10,393,738 Repayment Term Repayment 60 monthly installments commencing after 06 months of January 2018 period from grace 72 monthly installments commencing after 12 months of April 2015 period from grace 48 monthly installments commencing after 12 months of July 2016 period from grace 3 equal annual installments commencing after 12 month 2018 March period from grace 60 equal annual installments commencing after 6 month grace December 2018 period from 54 equal annual installments commencing after 6 month grace 2019 February period from 2.5% 1.00% 3.00% 2.50% 3.00% 3.00% AWPLR + AWPLR Interest Interest Rate Term loanTerm 3 months Term loanTerm + AWPLR Nature of Nature facility Term loanTerm + AWPLR Peoples BankPeoples loan Term + AWPLR Asia Pan Banking PLC Corporation Bank of Ceylon loan Term + AWPLR DFCC Bank PLC loan Term + AWPLR Institution Sampath Bank PLC Company Lending Softlogic Holdings PLC

216 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 oating mortgage bond for Rs. 300 Mn over fl tgage bond for Rs. 1,540.00 Mn over credit and credit tgage bond for Rs. 1,540.00 Mn over tgage bond for Rs. 100.00 Mn over credit and credit tgage bond for Rs. 100.00 Mn over tgage for USD 9.20 Mn over leasehold rights oftgage for USD 9.20 Mn over 175,000,000 shares of Asiri Hospital Holdings PLC of Asiri Hospital Holdings PLC 175,000,000 shares Softlogic Holdings PLC owned by debit card sales receivables including installment sales receivables debit card sales of all outlets the Softlogic Retail (Pvt) Ltd Supplementary mortgage and debit credit bond over sales including installment of all outletscard of the Softlogic Retail (Pvt) Ltd debit card sales including installment ofdebit card all outlets of the Softlogic Retail (Pvt) Ltd routed the acquiring and participatingthrough banks Floating mortgage bond for Rs. 100.00 Mn over sales including installment and debit card credit sales of all outlets the Softlogic Retail (Pvt) Ltd the acquiring and participating through routed banks sales including installment and debit card credit sales of all outlets the Softlogic Retail (Pvt) Ltd the acquiring and participating through routed banks Primary property situated at No. 402, Galle Road, Colombo - Softlogic Retail (Pvt)03 owned by Ltd Primary mortgage the bond for USD 36.40 Mn over Softlogic Propertiesland (extent - 85.98 P) owned by assets of(Pvt) Ltd and building other project Hotel being constructed for USD 36.40 Mn hotel lands and building for USD 9.20 Mn for Rs. 10.00 Mn Security e) Floating mortgage bond for Rs. 300.00 Mn over b) Softlogic Holdings PLC from guarantee Corporate b) Softlogic Holdings PLC from guarantee Corporate c) Softlogic Holdings PLC from guarantee Corporate d) Assignment of AMEX receivables collaterals of tangible 2018 Rs. '000 Rs. Mn. 2019 454,600 734,600 2,040.00 a) Mor 734,400 981,900 794,061 1,082,810 3,535.00 143,400 200,100 140,632 203,128 b) c) Mor 237,500 - 105,582 191,667 d) 300.00 Rs. '000 Outstanding Balance Outstanding Balance Carrying value 5,267,123 5,043,116 6,385.65 a) 1,069,628 1,138,999 1,613.96 a) Mor 72 monthly installments Septembercommencing from 2014 60 equal monthly installments November commencing from 2016 60 equal monthly installments November commencing from 2016 Repayment Term Repayment 60 monthly installments Decembercommencing from 2015 48 monthly installments June 2017 commencing from 48 monthly installments June 2018 commencing from 36 equal monthly installments Marchcommencing from 2017 120 months including 19 months capital repayment period commencinggrace June 2015 from 14 equal bi annual installments Marchcommencing from 2017 2.6% 0.50% 1.25% 1.25% 1.50% 2.50% 2.50% 4.00% 4.00% LIBOR + Interest Interest Rate Term loanTerm + AWPLR Term loanTerm + AWPLR Term loanTerm + AWPLR Nature of Nature facility Term loanTerm + AWPLR loanTerm + AWPLR Term loanTerm PLR + Term LoanTerm LIBOR + loanTerm 3 months Commercial Commercial Bank of Ceylon PLC Hatton National Hatton Bank PLC Institution DFCC Bank PLC loan Term + AWPLR Commercial Commercial Bank of Ceylon PLC Nations Trust Bank PLC Softlogic Retail (Pvt) Ltd Company Lending Softlogic City Hotels (Pvt) Ltd Ceysands Resorts Ltd 53 53 BORROWINGS BEARING INTEREST 53.1 terms Security and repayment

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 217 NOTES TO THE FINANCIAL STATEMENTS xtures fi tgage bond for Rs. 200.00 Mn over credit and credit tgage bond for Rs. 200.00 Mn over ttings and appliances located at Panadura, fi & Malabe, Kandy, Nugegoda, Ja Ela, Kelaniya, King" outlets "Burger and Kotahena Moratuwa Softlogic Holdings PLC from guarantee Corporate for Rs. 120.00 Mn Corporate guarantee from Softlogic Holdings PLC Softlogic Holdings PLC from guarantee Corporate for Rs. 200.00 Mn Primary mortgage land at No. for Rs. 15.00 Mn over 371, New Nuge Road, Peliyagoda Softlogic Holdings PLC from guarantee Corporate for Rs. 200.00 Mn of all outlets the sales receivables debit card (Pvt) Ltd Softlogic Restaurants Softlogic Holdings PLC from guarantee Corporate for Rs. 500.00 Mn Primary mortgage apartment over assets project Softlogic Propertiesconstructed by (Pvt) Ltd. for Rs. 600 Mn for Rs. 600.00 Mn Corporate guarantee from Softlogic Holdings PLC Softlogic Holdings PLC from guarantee Corporate for Rs. 120.00 Mn Security b) Mortgage of kitchen equipment, stock over b) Softlogic Holdings PLC from guarantee Corporate collaterals of tangible 2018 Rs. '000 Rs. Mn. 2019 2,719 3,844 - 4,667 6,999 15.00 15,593 20,639 21,968 27,959 22,681 28,351 72,000 96,000 - 60,015 78,907 202.96 a) 35,413 55,790 - 64,105 88,000 - 118,600 163,000 200.00 Mor 297,997 85,227 - 307,396 300,000 600.00 a) Rs. '000 Outstanding Balance Outstanding Balance Carrying value 58 monthly installments Decembercommencing from 2016 59 monthly installments Decembercommencing from 2017 57 monthly installments Marchcommencing from 2018 60 equal monthly installments April 2017 commencing from 48 equal monthly installments Septembercommencing from 2017 54 monthly installments commencing after a grace period of 6 months from December 2016 48 monthly installments commencing after a grace period of 12 months from 2018 February 72 equal monthly installments commencing after a grace period of 12 months from December 2014 59 monthly installments April 2017 commencing from 2 equal quarterly installments commencing after 31 months January period from of grace 2017 72 monthly installments commencing after a grace Julyperiod of 6 months from 2014 Repayment Term Repayment 60 equal monthly installments Decembercommencing from 2016 2.00% 2.00% 2.00% 1.75% 2.00% 2.00% 1.50% 2.50% 2.00% 3.00% 1.50% 2.50% Interest Interest Rate Term loanTerm + AWPLR loanTerm + AWPLR loanTerm + AWPLR loanTerm + AWPLR loanTerm + AWPLR loanTerm + AWPLR Term loanTerm + AWPLR loanTerm + AWPLR loanTerm - 243,534 Term loanTerm + AWPLR Nature of Nature facility loanTerm + AWPLR Hatton National Hatton Bank PLC Commercial Bank of Ceylon PLC Bank of Ceylon loan Term + AWPLR DFCC Bank PLC loan Term + AWPLR Union Bank of Colombo PLC Union Bank of Colombo PLC Sampath Bank PLC Institution Sampath Bank PLC Suzuki Motors Suzuki Motors Lanka Ltd Softlogic Restaurants (Pvt) Ltd Softlogic Properties (Pvt) Ltd Future Future Automobiles (Pvt) Ltd Company Lending Softlogic B P O Services (Pvt) Ltd

218 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 tgage bond for Rs. 300.00 Mn over performingtgage bond for Rs. 300.00 Mn over tgage over personal loans receivables of personal loans receivables tgage over tgage over lease receivables of Softlogic lease receivables tgage over of Softlogic lease receivables tgage over tgage over lease and hire purchase receivables purchase lease and hire tgage over of Softlogic loans receivables tgage over 110,361,920 shares of Softlogic Life Insurance PLC PLC Insurance of Softlogic Life 110,361,920 shares of Softlogic Finance PLC and 13,244,981 shares Softlogic Capital PLC owned by PLC Insurance of Softlogic Life 35,188,840 shares Softlogic Capital PLC owned by 10,420,000 shares of Odel PLC owned by Softlogic owned by of Odel PLC 10,420,000 shares Retail Holdings (Pvt) Ltd for Rs. 500.00 Mn lease and hire purchase receivables of Softlogic receivables purchase lease and hire Finance PLC Softlogic Finance PLC Finance PLC Finance PLC for Rs. 250.00 Mn of Softlogic Finance PLC Finance PLC Security b) Softlogic Holdings PLC from guarantee Corporate collaterals of tangible 2018 Rs. '000 Rs. Mn. 2019 48,000 - 32,301 93,700 58,300 119,788 - 300.00 Mor 16,441 214,843 21.50 Mor 30,310 132,000 250.00 Mor 340,000 340,000 1,108.45 912,000 932,000 3,762.49 395,096 - 271.96 a) 180,338 186,293 - - 220.00 Mor 261.30 Mor 200,634 - 248.00 Mor Rs. '000 Outstanding Balance Outstanding Balance Carrying value monthly installments monthly installments monthly installments 4 annual installments April 2018 commencing from at the maturityBullet payment period of 60after a grace months commencing from 2017 March 48 monthly installments Octobercommencing from 2015 48 monthly installments Marchcommencing from 2016 60 equal monthly installments commencing after a grace period of 12 months Octobercommencing from 2018 Repayment Term Repayment 5 annual installments commencing after a grace period of 12 months 2017 March commencing from commencing period of 6after a grace months commencing from June 2016 November commencing from 2018 commencing period of 6after a grace months commencing from 2019 March 48 monthly installments June 2018 commencing from 24 monthly installments Augustcommencing from 2017 2.75% 2.75% 2.50% 2.00% 2.75% 1.75% 3.50% 3.75% 13.75% 36 15.00% 31 16.54% 13 15.50%) - oor rate fl ( Interest Interest Rate Term loanTerm + AWPLR loanTerm + AWPLR loanTerm + AWPLR loanTerm + AWPLR Term loanTerm + AWPLR Securitisation Securitisation Securitisation Nature of Nature facility Commercial Commercial Bank of Ceylon PLC Nations Trust Nations Trust Bank PLC Bank Seylan PLC Sampath Bank PLC Bank of Ceylon loan Term + AWPLR Institution Peoples BankPeoples loan Term + AWPLR National Bank Savings Hatton National Hatton - Bank PLC Trust Union Bank PLC loan Term + AWPLR Bank of Ceylon 1 - Trust Softlogic Finance PLC Softlogic Capital PLC Softlogic Supermarkets (Pvt) Ltd Company Lending

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 219 NOTES TO THE FINANCIAL STATEMENTS Corporate guarantee from Asiri Hospital Holdings from guarantee Corporate for Rs. 326.00 Mn PLC Corporate guarantee from Asiri Surgical Hospital Asiri Surgical from guarantee Corporate for Rs. 363.00 Mn PLC debit card credit/ Securitisation of all future of Asiri Hospital Holdings PLC receivables partyThird primary mortgage bond for Rs. 450.00 hospital propertyMn over at No. 10, Wackwella Asiri Hospital Galle (Pvt)Road, Galle owned by Ltd known as Hemas Southern Hospitals(Previously (Pvt) Ltd) Asiri Hospital Galle (Pvt) Asiri Hospital Ltd owned by Holdings PLC mortgagePrimary concurrent bond for Rs. 125.00 hospital propertyMn over at No. 181, Kirula Road, Asiri Hospital Holdings PLC owned by Narahenpita for Rs. 148.40 Mn PLC mortgagePrimary at concurrent the premises over No. 114, Norris Canal Road, Colombo - 10 owned by Hospital Ltd Central 74,454,026 shares of Central Hospital Ltd held by of Central 74,454,026 shares Asiri Hospital Holdings PLC Hospital Asiri Surgical from guarantee Corporate for Rs. 550.00 Mn PLC mortgagePrimary concurrent bond for Rs. property100.00 Mn over at No. 181, Kirula Road, Asiri Hospital Holdings PLC owned by Narahenpita ownedproperty at No. 181, Kirula Road, Narahenpita Asiri Hospital Holdings PLC by Securitisation of all future credit/ debit card credit/ Securitisation of all future Hospital Ltd of Central receivables Security b) of shares 100.0% of ordinary Additional security over b) Asiri Hospital Holdings from guarantee Corporate b) Secondary mortgage for Rs. 275.00 Mn over collaterals of tangible 2018 Rs. '000 Rs. Mn. 2019 72,754 145,480 - 22,057 26,129 - 76,772 138,177 375.00 a) 162,992 203,744 - 452,537 519,778 451,063 452.54 - 884.54 a) 255,958 319,618 125.00 a) 391,842 513,602 391.84 360,569 548,526 - 268,629 335,729 - 775,600 890,800 775.60 Rs. '000 Outstanding Balance Outstanding Balance Carrying value 1,203,730 1,504,440 1,924.61 ears commencing from 96 monthly installments Decembercommencing from 2015 60 equal monthly installments Decembercommencing from 2015 120 monthly installments Decembercommencing from 2015 108 monthly installments commencing after 12 months March period from of grace 2019 96 monthly installments April 2015 commencing from FY 2000/01 96 equal monthly installments commencing after 24 months July 2014 period from of grace 48 equal monthly installments Marchcommencing from 2017 96 monthly installments April 2015 commencing from 72 monthly installments July 2014 commencing from 96 monthly installments April 2015 commencing from 120 monthly installments Decembercommencing from 2015 Repayment Term Repayment 0.50% 0.50% 0.25% 2.00% 0.50% 0.75% 1.25% 0.50% 0.50% 0.50% 0.25% Interest Interest Rate Term LoanTerm + AWPLR Lease LoanTerm + AWPLR y 25 Term loanTerm + AWPLR loanTerm + AWPLR loanTerm + AWPLR loanTerm + AWPLR Term loanTerm + AWPLR Term loanTerm + AWPLR loanTerm + AWPLR Term loanTerm + AWPLR Nature of Nature facility Board of Board Investment Sampath Bank PLC Commercial Commercial Bank of Ceylon PLC Bank of Ceylon Loan Term + AWPLR Sampath Bank PLC Hatton National Hatton Bank PLC Commercial Commercial Bank of Ceylon PLC Institution Asiri Surgical Asiri Surgical Hospital PLC Hospital Central Ltd Asiri Hospital Holdings PLC Company Lending

220 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Assignment over AMEX receivables Assignment over Asiri Hospital Holdings from guarantee Corporate for Rs. 630.60 Mn PLC Asiri Hospital Holdings from guarantee Corporate for Rs. 2,120.00 Mn PLC Additional mortgage the for Rs. 200.00 Mn over Road, Galle owned at No. 10, Wackwella premises known as Asiri Hospital Galle (Pvt)by Ltd (Previously Hemas Southern Hospitals (Pvt) Ltd) known asof Asiri Hospital Galle (Pvt) Ltd (Previously Hemas Southern Hospitals (Pvt) Asiri Ltd) owned by Hospital Holdings PLC Primary mortgage bond for Rs. 500.00 Mn over sales of all outlets the and debit card credit three through BIA) routed company (excluding acquiring banks Primary mortgage bond for Rs. 100.00 Mn over sales of all outlets the and debit card credit three through BIA) routed company (excluding acquiring banks First and additional legal mortgage the over Road, Rajagiriya at No. 475/32, Kotte premises Odel Propertiesowned by (Pvt) Ltd Softlogic Holdings PLC from guarantee Corporate for Rs. 100.00 Mn Security b) shares 100.0% of ordinary Additional security over collaterals of tangible 2018 Rs. '000 Rs. Mn. 2019 34,870 - - 27,774 194,442 - 97,524 - - 49,860 67,552 49.86 124,970 224,978 124.97 451,257 - 451.26 630,600 630,600 200,000 - - 200.00 a) 211,451 298,955 100.00 Rs. '000 Outstanding Balance Outstanding Balance Carrying value 2,120,000 1,887,704 - 60 monthly installments commencing after 24 months August period from of grace 2013 60 monthly installments July 2015 commencing from 60 monthly installments commencing after a grace period of 6 months from 2018 August 90 monthly installments after period of 40 monthsa grace December 2015 from 96 monthly installments after period of 24 monthsa grace September 2016 from 108 monthly installments commencing after 12 months March period from of grace 2019 36 monthly installments June 2016 commencing from 48 monthly installments Septembercommencing from 2017 24 equal monthly installments commencing after a grace period of 6 months from 2018 August 60 monthly installments Octobercommencing from 2016 Repayment Term Repayment 0.50% 0.50% 2.00% 0.50% 1.50% 2.00% 1.50% 2.00% 2.00% 1.75% Interest Interest Rate Term LoanTerm + AWPLR loanTerm PLR + Term loanTerm + AWPLR loan Term + AWPLR LoanTerm + AWPLR loanTerm PLR + loanTerm PLR + loanTerm + AWPLR Term loan Term + AWPLR Nature of Nature facility Bank of Ceylon Bank of Ceylon PLC Hatton National Hatton Bank PLC Bank of Ceylon loan Term + AWPLR DFCC Bank loan Term - 16,000 - Commercial Commercial Bank of Ceylon PLC Sampath Bank PLC Nations Trust Nations Trust Bank PLC Institution Odel PLC Commercial Asiri Hospital Kandy (Pvt) Ltd Asiri Hospital Galle (Pvt) Ltd (previously known as Hemas Southern Hospital (Pvt) Ltd) Asiri Hospital (Pvt) Matara Ltd Company Lending

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 221 NOTES TO THE FINANCIAL STATEMENTS Primary concurrent mortgagePrimary concurrent for Rs. 5,400.00 Mn C W Kannangara at Dr. premises the project over Odel PLC Colombo - 07 owned by Mw., of Odel Properties shares ordinary One (Pvt) Ltd Odel PLC owned by for Rs. 5,400.00 Mn First and additional legal mortgage at premises over 966 owned by Panadura Mw., No. 29 A, Jayatilake Odel PLC Softlogic Holdings PLC from guarantee Corporate for Rs. 220.00 Mn Security b) Further 100.0% of and additional security over c) Softlogic Holdings PLC from guarantee Corporate collaterals of tangible 2018 Rs. '000 Rs. Mn. 2019 213,890 - - 228,610 - 250.00 Rs. '000 Outstanding Balance Outstanding Balance Carrying value 2,016,149 - 2,396.45 a) 33,018,362 31,466,893 84 monthly installments commencing after a grace period of 36 months from June 2018 36 equal monthly installments commencing after a grace period of 6 months from 2018 August 60 monthly installments commencing after a grace period of 6 months from 2018 August Repayment Term Repayment 2.00% 2.00% 2.00% AWPLR + AWPLR Interest Interest Rate Term loanTerm + AWPLR Syndicated loan Nature of Nature facility Hatton National Hatton Bank PLC Sampath Bank PLC Bank of Ceylon Bank of Ceylon loan Term + AWPLR Institution Odel Properties One (Pvt) Ltd Softlogic (Pvt) Ltd Brands Company Lending

222 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 SUPPLEMENTARY INFORMATION

Investor Information 224 Corporate Directory 226 Notice of Meeting 230 Form of Proxy 231

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 223 INVESTOR INFORMATION

1 GENERAL Stated Capital as at 31 March 2019 was Rs. 12,119,234,553.00.

2 STOCK EXCHANGE LISTING The ordinary shares of Softlogic Holdings PLC were listed in the Colombo Stock Exchange of Sri Lanka on 20 June 2011 and the trading commenced on 12 July 2011.

3 PUBLIC SHAREHOLDING Shares held by the public was 13.72% as at 31 March 2019. The number of public shareholders as at 31 March 2019 was 10,660. Float adjusted market capitalisation as at 31 March 2019 was Rs. 2,618 Mn Minimum public holding percentage - The Company is in compliance with this under Option 4 of Listing Rule 7.13.1(a).

4 DISTRIBUTION OF SHAREHOLDING AS AT 31 MARCH 2019 There were 10,676 registered shareholders as at 31 March 2019.

No. of Shares held No. of % of Total % of Shareholders Shareholders Holding Total Holding 1 - 1,000 7,003 65.60 4,229,422 0.36 1,001 - 10,000 3,173 29.72 10,440,128 0.88 10,001 - 100,000 409 3.83 11,486,852 0.96 100,001 - 1,000,000 60 0.56 17,100,753 1.43 Over 1,000,000 31 0.29 1,149,286,054 96.37 Total 10,676 100.00 1,192,543,209 100.00

5 ANALYSIS REPORT OF SHAREHOLDERS AS AT 31 MARCH 2019

Category No. of % of Total % of Shareholders Shareholders Holding Total Holding Individual 10,478 98.15 533,262,864 44.72 Institutional 198 1.85 659,280,345 55.28 Total 10,676 100.00 1,192,543,209 100.00

Resident 10,632 99.59 809,262,173 67.86 Non-resident 44 0.41 383,281,036 32.14 Total 10,676 100.00 1,192,543,209 100.00

224 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 6 TWENTY MAJOR SHAREHOLDERS AS AT 31 MARCH 2019

Shareholder Number of shares % 31-03-2019 1 Mr. A K Pathirage 477,843,941 40.07 2 Samena Ceylon Holdings Ltd 247,432,455 20.75 3 Mr. H K Kaimal 80,439,792 6.75 4 Mr. R J Perera 75,437,508 6.33 5 Mr. G W D H U Gunawardena 71,333,852 5.98 6 Pemberton Asian Opportunities Fund 57,040,000 4.78 7 Samena Special Situations Fund III L.P. 53,653,654 4.50 8 Samena Special Situations Fund II L.P. 15,000,000 1.26 9 J. B. Cocoshell (Pvt) Ltd 8,068,054 0.68 10 Employees Provident Fund 7,230,500 0.61 11 Mrs. A Selliah 5,252,640 0.44 12 Mr. S J Fancy 4,960,000 0.42 13 Arunodhaya Industries (Private) Limited 4,757,864 0.40 14 Miss. S Subramaniam 4,712,000 0.40 15 Dr. K M P Karunaratne 4,649,968 0.39 16 Mrs. A Kailasapillai 4,512,000 0.38 17 Arunodhaya (Private) Limited 4,400,000 0.37 Arunodhaya Investments (Private) Limited 4,400,000 0.37 18 Mellon Bank N.A-Acadian Frontier Markets Equity Fund 3,837,906 0.32 19 Mr. K Aravinthan 3,801,018 0.32 20 Dr. S Selliah 2,480,000 0.21

7 SHARE TRADING INFORMATION

2018/2019 2017/2018

Highest (Rs.) 25.80 26.20 Lowest (Rs.) 15.90 11.70 Closing (Rs.) 16.00 24.60 Turnover (Rs.) 994,409,695 2,662,901,881 No. of shares Traded 46,917,043 151,984,230 No. of Trades 6,803 12,947

8 EQUITY INFORMATION

2018/2019 2017/2018

Earnings per share (Rs.) 0.09 0.25 Dividend per share (Rs.) 0.50 0.65 Net Asset Value per share (Rs.) 12.30 14.05

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 225 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 (Formerly known as Hemas Southern Hospitals (Pvt) Ltd)

6 Asiri Hospital Kandy (Pvt) Ltd 16/03/2007 No. 21, Kirimandala Mawatha, Colombo 05

7 Asiri Hospital Matara (Pvt) Ltd 17/04/2007 No. 26, Esplanade Road, Uyanwatta, Matara

8 Asiri Laboratories (Pvt) Ltd 08/03/2016 No. 181, Kirula Road, Colombo 05

9 Asiri Surgical Hospital PLC 30/03/2000 No. 21, Kirimandala Mawatha, Colombo 05

10 BSL International (Pvt) Ltd 22/07/2009 No. 475/32, Kotte Road, Rajagiriya

11 Softlogic Asset Management (Pvt) Ltd 24/05/2006 No. 14, De Fonseka Place, Colombo 05

12 Central Hospital Ltd 14/09/2006 No. 114, Norris Canal Road, Colombo 10

13 Ceysand Resorts Ltd 06/03/1973 No. 14, De Fonseka Place, Colombo 05

14 Cotton Collection (Pvt) Ltd 29/04/1993 No. 475/32, Kotte Road, Rajagiriya

15 Dai-Nishi Securities (Pvt) Ltd 26/07/1993 No. 14, De Fonseka Place, Colombo 05

16 Digital Health (Private) Limited 14/08/2015 No. 475, Union Place, Colombo 02

17 Future Automobiles (Pvt) Ltd 06/12/2010 No. 14, De Fonseka Place, Colombo 05

18 Greenfield Trading (Pvt) Ltd 23/03/2012 No. 475/32, Kotte Road, Rajagiriya

19 Jendo Innovations (Pvt) Ltd 22/06/2015 No. 14, De Fonseka Place, Colombo 05

20 Nextage (Pvt) Ltd 11/04/2012 No. 79, C W W Kannangara Mawatha, Colombo 07

21 Odel Apparels (Pvt) Ltd 10/10/1991 No. 475/32, Kotte Road, Rajagiriya

22 Odel Information Technology Services (Pvt) Ltd 30/11/2007 No. 475/32, Kotte Road, Rajagiriya

23 Odel Lanka (Pvt) Ltd 04/07/2006 No. 475/32, Kotte Road, Rajagiriya

24 Odel PLC 31/10/1990 No. 475/32, Kotte Road, Rajagiriya

25 Odel Properties (Pvt) Ltd 10/10/1991 No. 475/32, Kotte Road, Rajagiriya

26 Odel Properties One (Pvt) Ltd 10/06/2016 No. 475/32, Kotte Road, Rajagiriya

27 Odel Restaurants (Private) Limited 19/02/2018 No. 475/32, Kotte Road, Rajagiriya

28 Sabre Travel Network Lanka (Pvt) Ltd 21/01/1999 No. 14, De Fonseka Place, Colombo 05

29 Silk Route Foods (Private) Limited 10/10/2014 No. 14, De Fonseka Place, Colombo 05

30 SML Holdings (Private) Limited 27/04/2000 No. 371, New Nuge Road, Peliyagoda

226 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 Name of the Company Date of Registered office Registration

31 Softlogic Australia (Pty) Ltd 05/01/2000 Unit 2, Building B, 18-24 Ricketts Road, Mount Waverley, Vic 3149

32 Softlogic Automobiles (Pvt) Ltd 02/04/2012 No. 14, De Fonseka Place, Colombo 05

33 Softlogic B P O Services (Private) Limited 13/12/2013 No. 14, De Fonseka Place, Colombo 05

34 Softlogic Brands (Pvt) Ltd 08/11/1993 No. 14, De Fonseka Place, Colombo 05

35 Softlogic Capital PLC 21/04/2005 No. 14, De Fonseka Place, Colombo 05

36 Softlogic City Hotels (Pvt) Ltd 30/06/2011 No. 14, De Fonseka Place, Colombo 05

37 Softlogic Communication Services (Pvt) Ltd 16/09/2009 No. 14, De Fonseka Place, Colombo 05

38 Softlogic Communications (Pvt) Ltd 30/10/2000 No. 14, De Fonseka Place, Colombo 05

39 Softlogic Computers (Pvt) Ltd 13/09/1995 No. 14, De Fonseka Place, Colombo 05

40 Softlogic Corporate Services (Pvt) Ltd 24/06/2005 No. 14, De Fonseka Place, Colombo 05

41 Softlogic Destination Management (Pvt) Ltd 22/03/2012 No. 14, De Fonseka Place, Colombo 05

42 Softlogic Finance PLC 24/08/1999 No. 13, De Fonseka Place, Colombo 04

43 Softlogic Healthcare Holdings Ltd 28/08/2018 No. 181, Kirula Road, Colombo 05

44 Softlogic Information Technologies (Pvt) Ltd 02/09/1992 No. 14, De Fonseka Place, Colombo 05

45 Softlogic International (Pvt) Ltd 09/01/1997 No. 14, De Fonseka Place, Colombo 05

46 Softlogic Life Insurance PLC 21/04/1999 No. 283, R A De Mel Mawatha, Colombo 03

47 Softlogic Mobile Distribution (Private) Limited 30/09/2014 No. 14, De Fonseka Place, Colombo 05

48 Softlogic Properties (Pvt) Ltd 04/01/2005 No. 14, De Fonseka Place, Colombo 05

49 Softlogic Restaurants (Private) Limited 05/08/2013 No. 14, De Fonseka Place, Colombo 05

50 Softlogic Retail (Private) Limited 06/09/1969 No. 14, De Fonseka Place, Colombo 05

51 Softlogic Retail Holdings (Private) Limited 09/03/2018 No. 14, De Fonseka Place, Colombo 05

52 Softlogic Retail One (Private) Limited 04/07/2014 No. 14, De Fonseka Place, Colombo 05

53 Softlogic Rewards (Private) Limited 05/11/2018 No. 14, De Fonseka Place, Colombo 05

54 Softlogic Solar (Pvt) Ltd 14/11/2002 No. 14, De Fonseka Place, Colombo 05

55 Softlogic Stockbrokers (Pvt) Ltd 26/11/2010 No. 6, 37th Lane, Queens Road, Colombo 03

56 Softlogic Supermarkets (Pvt) Ltd 27/08/2014 No. 14, De Fonseka Place, Colombo 05

57 Suzuki Motors Lanka Limited 12/09/1985 No. 371, New Nuge Road, Peliyagoda

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 227 NOTES

228 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 229 NOTICE OF MEETING

NOTICE IS HEREBY GIVEN that the Annual General Meeting of Softlogic Holdings PLC will be held at the Auditorium of Central Hospital Limited (4th Floor), No. 114, Norris Canal Road, Colombo 10 on Wednesday the 31st day of July 2019 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 31 March 2019 together with the Report of the Auditors thereon.

2. To re-elect Mr. M P R Rassool 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. W M P L De Alwis, PC who retires by rotation in terms of Article 87 of the Articles of Association of the Company, as a Director.

4. To re-elect Prof. A S Dharmasiri who retires by rotation in terms of Article 87 of the Articles of Association of the Company, as a Director.

5. To re-elect Mr. J D N Kekulawala who retires in terms of Article 94 of the Articles of Association of the Company, as a Director.

6. To pass the ordinary resolution set out below to re- appoint Mr. G L H Premaratne who is 71 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 71 years of age and that he be and is hereby re-appointed as a Director of the Company in terms of Section 211 of the Companies Act No. 07 of 2007”.

7. To re-appoint the retiring Auditors, Messrs Ernst & Young as Auditors of the Company for the ensuing year and to authorise the Directors to determine their remuneration.

8. To authorise the Directors to determine and make donations for the year ending 31 March 2020 and up to the date of the next Annual General Meeting.

By Order of the Board SOFTLOGIC CORPORATE SERVICES (PVT) LTD

SECRETARIES 4 July 2019 Colombo

Note: A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy who need not be a member, to attend on behalf of him/her. The Form of Proxy is enclosed in this Report. The completed Form of Proxy should be deposited at the Registered Office of the Company, No. 14, De Fonseka Place, Colombo 05 by 10.00 a.m. on Monday the 29th day of July 2019 being forty eight (48) hours before the time appointed for the holding of the meeting.

230 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 FORM OF PROXY

*I/We ...... of ...... being *a member/ members of SOFTLOGIC HOLDINGS PLC, do hereby appoint ...... (holder of N.I.C. No...... ) of ...... or (whom failing)

Mr A K Pathirage of Colombo (whom failing) Mr G W D H U Gunawardena of Colombo (whom failing) Mr R J Perera of Colombo (whom failing) Mr H K Kaimal of Colombo (whom failing) Mr M P R 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) Mr J D N Kekulawala of Colombo (whom failing) Prof A S Dharmasiri of Colombo (whom failing) Mr A Russell-Davison of Colombo (whom failing) Mr S Saraf of India as *my/our Proxy to represent *me/us and to speak and vote for *me/us on *my/our behalf at the ANNUAL GENERAL MEETING OF THE COMPANY to be held at the Auditorium of Central Hospital Limited (4th Floor), No. 114, Norris Canal Road, Colombo 10 at 10.00 a.m. on the 31st day of July 2019 and at any adjournment thereof, and at every poll which may be taken in consequence thereof. FOR AGAINST 1. To receive and consider the Annual Report of the Board of Directors and the Financial Statements of the Company and of the Group for the year ended 31 March 2019 together with the Report of the Auditors thereon.

2. To re-elect Mr. M P R Rassool who retires by rotation in terms of Article 87 of the Articles of Association, as a Director of the Company.

3. To re-elect Mr. W M P L De Alwis, PC who retires by rotation in terms of Article 87 of the Articles of Association, as a Director of the Company.

4. To re-elect Prof. A S Dharmasiri who retires by rotation in terms of Article 87 of the Articles of Association, as a Director of the Company.

5. To re-elect Mr J D N Kekulawala who retires in terms of Article 94 of the Articles of Association, as a Director of the Company.

6. To pass the ordinary resolution set out below to re-appoint Mr. G L H Premaratne who is 71 years of age, as a Director 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 71 years of age and that he be and is hereby re-appointed as a Director of the Company in terms of Section 211 of the Companies Act No. 07 of 2007”.

7. To re-appoint Messrs Ernst & Young, as Auditors and to authorise the Directors to determine their remuneration.

8. To authorise the Directors to determine and make Donations

...... *Signature/s Date Note: * Please delete the inappropriate words. Instructions as to completion are noted on the reverse hereof.

ANNUAL REPORT 2018-19 / SOFTLOGIC HOLDINGS PLC 231 INSTRUCTIONS AS TO COMPLETION 1. Kindly perfect the Form of Proxy after filling in legibly your full name, address and the National Identity Card number and signing in the space provided and filling in the date of signature.

2. A Member entitled to attend and vote at the Meeting is entitled to appoint a Proxy who need not be a member, to attend and vote on behalf of him. Please indicate with an “X” in the boxes provided how your Proxy is to vote on each resolution. If no indication is given, the Proxy in his discretion will vote as he thinks fit.

3. If the Form of Proxy is signed by an Attorney, the relevant Power of Attorney should also accompany the completed Form of Proxy for registration, if such Power of Attorney has not already been registered with the Company.

4. In the case of a Corporate Member, the Form of Proxy must be executed in the manner prescribed by the Articles of Association/Statute.

5. The completed Form of Proxy should be deposited at the Registered Office of the Company, No. 14, De Fonseka Place, Colombo 05 by 10.00 a.m. on Monday the 29th day of July 2019 being forty eight (48) hours before the time appointed for the holding of the meeting.

Please provide the following details:

Shareholder’s N.I.C./ Passport/ Company Registration No......

......

......

Shareholder’s Folio No......

......

......

......

Number of shares held ......

......

......

......

Proxy Holder’s N.I.C. No. (if not a Director) ......

......

......

232 SOFTLOGIC HOLDINGS PLC / ANNUAL REPORT 2018-19 CORPORATE INFORMATION

Name of Company Company Registration No Contact Details Softlogic Holdings PLC PV 1536 PB/PQ 14, De Fonseka Place, Colombo 05 Legal Form Registered Office of the Company Sri Lanka Company was incorporated on 25th February 14, De Fonseka Place, Tel : +94 11 5575 000 1998 under the name of Softlogic Holdings Colombo 05 Fax : +94 11 2508 291 (Private) Limited and re-registered on 17th Sri Lanka E-mail : [email protected] December 2007 under the Companies Act Web : www.softlogic.lk 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 R A Ebell (Resigned December 2018)

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 Nations Trust Bank PLC Sri Lanka Tel : +94 11 5575 000 Ext: 5305 Pan Asia Banking Corporation PLC Fax : +94 11 2595 441 People’s Bank Lawyers Nithya Partners, Attorneys-at- Law Contact for Media Sampath Bank PLC Seylan Bank PLC No. 97 A, Galle Road Softlogic Holdings PLC Union Bank of Colombo PLC Colombo 03 14, De Fonseka Place, Sri Lanka Colombo 05 Sri Lanka

Tel : +94 11 5575 000 Ext: 5305 Fax : +94 11 2595 441

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Softwave Printing and Publishing (Pvt) Ltd Photography by Danush De Costa SOFTLOGIC HOLDINGS PLC | ANNUAL REPORT 2018-19

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]