BOUNDLESS OPPORTUNITIES MELSTACORP PLC | ANNUAL REPORT 2018/19 BOUNDLESS OPPORTUNITIES Melstacorp’s portfolio of businesses provides boundless opportunities to enhance the Group’s ability to compete efficiently and aggressively in the many industries within which it operates. Although the country has to face natural and political turbulence during the year under review, Melstacorp weathered the storm and remains poised to take advantage of these opportunities now and in the years ahead. CONTENTS Highlights of the Year 3 Financial Highlights 4 Our Businesses 6 Chairman’s Statement 10 Board of Directors 14 Group Management 18 Management Discussion and Analysis 20 Sustainability Report 29 Corporate Governance 41 Enterprise Risk Management 54 Board Audit Committee Report 58 Remuneration Committee Report 60 Board Related Party Transactions Review Committee 61 Annual Report of the Board of Directors 62 Statement of Directors Responsibility 66 Independent Auditors’ Report 67 Income Statement 68 Statement of Profit or Loss and Other Comprehensive Income 69 Statement of Financial Position 70 Statement of Changes in Equity 72 Statement of Cash Flows 76 Notes to the Financial Statements 78 Statement of Value Added 169 Shareholder Information 170 Summarised Financial Information 172 Details of Real Estate 173 Group Directory 175 Notice of Meeting 180 Form of Proxy 183 Attendance Slip 185 2 Melstacorp PLC | Annual Report 2018/19 HIGHLIGHTS OF THE YEAR April 2018 July 2018 DCSL PLC shares “DIST” re-commenced Fitch Rating has placed DCSL a National Long- trading in the Colombo Stock Exchange after Term Rating of AAA (lka) with Stable Outlook. the successful completion of the restructure of the Group October 2018 March 2019 First time, Fitch Rating assigned rating for Fitch Rating has reaffirmed National Insurer Melstacorp a National Long-Term Rating of Finance Rating & National Long-Term Rating AAA (lka) with Stable Outlook. of Continental Insurance Lanka Limited to ‘’A (lka) with stable outlook November 2018 Melstacorp was ranked No. 08 in the Business Today ‘Top Thirty ’. 3 FINANCIAL HIGHLIGHTS 2019 2018 2019 2018 Note Group Group Company Company SUMMARY OF RESULTS Gross Turnover Rs. Mn 155,931 109,957 209 228 Excise Duty Rs. Mn 64,571 65,227 - - Net Turnover Rs. Mn 98,663 44,730 209 228 Profit After Tax Rs. Mn 8,875 6,250 3,796 2,802 Shareholders' Funds Rs. Mn 79,883 75,676 91,337 90,540 Working Capital Rs. Mn 2,302 9,265 (2,245) 9,102 Total Assets Rs. Mn 243,610 210,543 112,179 91,605 Staff Cost Rs. Mn 15,025 4,839 81 62 No. of Employees 24,265 25,917 32 24 PER SHARE Basic Earnings Rs. 4.96 5.64 3.26 2.40 Net Assets Rs. 68.55 64.94 78.37 77.69 Dividends Rs. - 2.44 - 2.44 Market Price - High Rs. 36.00 71.50 36.00 71.50 - Low Rs. 50.30 56.50 50.30 56.50 - Year End Rs. 36.00 58.10 36.00 58.10 RATIOS Price Earnings times 7 10 11 24.2 Return on Shareholders' Funds % 11.1 8.3 4.2 3.1 Current Ratio times 1.0 1.2 0.9 15.3 Interest Cover times 2.2 4.2 3.9 36.3 Debt to Equity % 157.2 136.0 23.0 1.2 Debt to Total Assets % 48.9 82.7 18.6 1.2 Dividend Payout % 101.7 101.7 - 101.7 Dividend Yield % - 4.2 - 4.2 4 Melstacorp PLC | Annual Report 2018/19 NON-FINANCIAL HIGHLIGHTS Gross Turnover - Group Total Assets - Group Rs. Mn Rs.155,931Mn Rs. Mn GROSS TURNOVER - GROUP 180,000 300,000 160,000 250,000 140,000 120,000 200,000 100,000 150,000 80,000 60,000 Rs.243,610Mn 100,000 40,000 50,000 20,000 TOTAL ASSETS - GROUP 0 0 2016/17 2017/18 2018/19 2016/17 2017/18 2018/19 Taxes Paid - Group Profit after Tax - Group Rs. Mn Rs.64,671Mn Rs. Mn TAXES PAID - GROUP 74,000 10,000 9,000 72,000 8,000 70,000 7,000 68,000 6,000 5,000 66,000 Rs.8,875Mn 4,000 64,000 3,000 PROFIT AFTER TAX - GROUP 2,000 62,000 1,000 60,000 0 2016/17 2017/18 2018/19 2016/17 2017/18 2018/19 5 OUR BUSINESSES Beverages Distillation, Manufacture and Distribution of Liquor Products Plantations Cultivation and Processing of Tea & Rubber Telecommunication Voice, Data, Broadband, Hardware, Software and Networking Solutions 6 Melstacorp PLC | Annual Report 2018/19 Insurance General Insurance Services Diversified Tourism, Maritime & Logistics, Strategic Investments and Services Bogo Power Power Generation Hydropower Generation 7 OUR BUSINESSES Logistics Automobile Servicing and Logistics Media Media Buying and Creative Services Textiles Dyeing and Printing Fabric 8 Melstacorp PLC | Annual Report 2018/19 Leisure Hotels & Hospitality BPO Services & Business Solutions BPO, KPO, Call Centre and Software Solutions Information Technology Oracle Applications, Mobile Applications, Digitisation 9 CHAIRMAN’S STATEMENTS 10 Melstacorp PLC | Annual Report 2018/19 CHAIRMAN’S STATEMENTS I am pleased to share with you, the Company’s annual report and audited financial statements for the year ended 31st March 2019. Melstacorp PLC 15Mn INVESTMENT IN TRAINING functions as the holding company of the Group and has ventured into many industries such as beverages, tea and rubber plantations, telecommunications, insurance, power generation, logistics, textiles, hospitality and many other businesses. 86% IBUS DEIS RETENTION RATE Group’s Performance UTECTUS Group Turnover reached Rs. 157 billion, while the profit after tax for the year was MOLECES Rs. 8.9 billion. The Group contributed ULPA NONE Rs. 64 billion taxes during this financial year. 15Mn SECTIA NUS TO SUPPLIERS Macro Economy DOLES SUM Global growth in output for 2018 was HAR UM AUT. 3.6% and forecast for 2019 is 3.3%. The moderate growth in 2018 was VENECEATEM a confluence of several factors that affected major economies. Trade Rs.5Bn FACEARUM tensions between US and China, INVESTMENTS QUODICIENT. tightening of financial sector regulations in China, lower business confidence in digit level resulting from low money the Euro region and natural disasters are supply and slow-down in food inflation. some of the factors that affected the global economy. External sector performance was an impressive except improved earnings Sri Lanka economy grew by only 3.2% in from the tourism sector. The economy 2018. Government revenue increased, was expected to grow at around 4.5% but government expenditure too in 2019, but the Easter Sunday attacks increased at a similar rate with recurrent have adversely impacted the economy. expenditure growing at a higher rate and Sri Lanka is making efforts to restore capital expenditure seeing a decline. normalcy and get the economy back on a growth trajectory, but the mood of the Government debt has increased over country with elections looming would a 10-year period and continued to have to be closely watched. rise. Additional borrowing has been mainly used for debt servicing and Beverage Sector consumption, hence a lower asset The beverage sector is the highest growth in comparison to growth in contributor to both the top and the borrowings. This is not a healthy bottom lines of the Group. Our main position. Treasury bill rates increased subsidiary DCSL PLC recorded a profit in 2018 against 2017. Average prime after tax of Rs. 5.4 billion despite the lending rates by banks too increased challenges faced due to various unfair gradually, but bank deposit rates and unethical practices prevailing declined. Inflation was at a low single in the industry and continuous tax 11 CHAIRMAN’S MESSAGE increases, natural disasters and to remove the Glyphosate ban in the behavior with regard to voice related political turbulence. We have noted a second half of year was a welcome relief communication. However, revenue substantial decrease in alcohol volume to the Industry. However, the indefinite from the LTE technology that is used to during the year and as a result our tax strike launched by estate sector trade provide internet connectivity is showing contribution to the State was reduced. unions during the later part of the year a positive trend. On the other hand the At the same time we have observed requesting 100% increase in basic wage telecommunication industry is grappling that the legal alcohol industry has been for plantation workers had a crippling with declining bottom lines due to low shrinking during last few years due to effect on plantations with work at most pricing, high taxes and ever increasing the increase in illegal production of estates grinding to a complete halt operational & capital expenditure. liquor and unprecedented increase in during that period. prices which has lead to a reduction in Financial Services Sector consumption. Today the price of legally Sri Lanka Rubber production decreased Continental Insurance has established produced arrack is beyond the reach in 2018 when compared with the itself as one of the most innovative of the common man in the country and previous year due to adverse weather and dynamic insurance companies in naturally consumers turn to a local brew. which prevailed during most part of the Sri Lanka. Fitch Ratings has affirmed On the other hand, one could imagine year and smallholders not tapping due to the rating of Continental Insurance to the quantum of tax revenue that is poor prices. However, due to favourable ‘A (lka)’, which is a clear reflection of deprived to the State and we do not see weather conditions that prevailed in the the financial stability of the Company. any effective actions or systems in place rubber growing areas of our estates The top of the line quality management to rectify this matter.