Softlogic Holdings PLC | Annual Report 2013-14 Creating Enterprise Value Softlogic Holdings PLC | Annual Report 2013-14 Contents Company Profile 2 Sustainability Report 84 Vision, Mission & Values 2 Report of the Remuneration Committee 96 Investment Strategy & Rationale 3 Audit Committee Report 97 Shareholder Value Map 4 Annual Report of the Board of Group Structure 5 Directors on the Affairs of the Company 98 Highlights of 2013/14 6 Financial Highlights 12 Financial Reports Chairman’s Review 14 Statement of Directors’ Responsibilities 102 Board of Directors 20 Independent Auditors’ Report 103 Our Value Based Management 24 Income Statement 104 Management Discussion & Analysis 30 Statement of Comprehensive Income 105 Business Overview Statement of Financial Position 106 Retail Sector 36 Statement of Changes in Equity 108 Healthcare Sector 44 Cash Flow Statement 110 ICT Sector 48 Notes to the Financial Statements 113 Financial Services 52 Investor Information 197 Automobile Sector 56 Corporate Directory 198 Leisure Sector 60 Notice of Meeting 202 Corporate Governance 66 Form of Proxy 203 Risk Management Review 77 Corporate Information IBC Creating Enterprise Value Creating enterprise value happens all the time. Every decision we make impacts shareholder value and the business in some way. The sectors we focus on are growing; we naturally gather more from what we do well. At Softlogic, we have a shared vision of the enterprise and the meaning of “value” is well understood. For us, “The whole is greater than the sum of its parts!” Company Profi le Generating revenues of nearly Rs.30 Bn (USD 221 Mn) in FY 2013/14, Softlogic Holdings PLC is one of the most diversifi ed and fastest developing companies in Sri Lanka, creating solid value in the medium-to-long term. From an IT developer led by strong entrepreneurial enterprise and a talent pool of just 12 employees in 1991, Softlogic Holdings PLC has grown into one of the country’s most progressive conglomerates, employing over 6,500 people across 32 subsidiaries delivering the highest quality products and services across six high growth sectors. Company Snapshot • Founded in 1991 in Sri Lanka; listed on the Colombo Stock Exchange in June 2011. • Prime geographical focus presently remains in Sri Lanka, with rapid expansion to a capture larger market share with its brands. • Has achieved notable market positions across six business sectors - ICT, Healthcare Services, Retail, Financial Services, Automobiles and Leisure. • Strategy focused on 5 pillars for sustained, profi table growth: • An island wide expansion of retail space and international brand acquisitions. • Continued innovation and investment in technology in healthcare, coupled with laboratory and hospital expansion. • Enhanced market positions to optimise performance. • Continued application of clear, disciplined operational and fi nancial management practices underlying growth initiatives. • Longstanding alliances with reputed international organisations and brand principals. • Softlogic Holdings is one of the fi rst corporates in Sri Lanka to access international funding agencies and equity partners such as IFC, DEG, FMO and Actis. Vision To be the most preferred and trusted product and service provider, delivering high quality solutions to corporates and retail customers so as to set new industry standards and enhance shareholder value. Mission Making the right decisions to increase returns on money invested. Employing and rewarding the best, to leverage market potential and become the most admired corporate in Sri Lanka. Values High Performance Culture Simplicity Accountability A “can do” attitude drives our performance. Simple processes transform small innovations Our guiding principle is accountability into big solutions. starts with “me”. Integrity Ethics and transparency guide all our dealings. Innovation Dynamism Creative thinking brings streamlined solutions. We embrace and manage change. Corporate Responsibility We respect the duties we owe our customers, Human Capital Success business partners and society. Enhanced talent management raises employees’ Our values are the key elements effectiveness. of our success. 2 Softlogic Holdings PLC Investment Strategy We seek to maximise the future value of our business, focusing on investments that also contribute to current fi nancial performance. Customers Assets Revenue Shareholders Reinvestment Cash fl ow ‘Our decisions are made with long-term value creation in mind, whilst respecting short term earnings expectations. We will make shareholders’ wealth move in the right direction with the right investments’ – Ashok Pathirage Investment Rationale • Growth platform Diversity, with quality engagement in growth sectors. Strong market positions in key sectors. A combination of assets which promise a solid ROI and growing enterprise value. • Balance sheet strength A growing asset base. Access to international funding and local fi nancial markets. Leveraging brand assets to maximise enterprise value. • Returns Investment decisions use appropriate fi nancial models, with consideration of future valuations of “going-concerns” acquired. • Management The strength of experience is combined with good corporate governance and effective risk control to achieve superior value creation. Annual Report 2013/14 3 Shareholder Value Map SHAREHOLDER VALUE Invest in the right Revenue Growth Operating Margin economic sectors Direct Volume Price Price Costs CREATE Strategic acquisitions VALUE & capital redeployment • Introduce • Improve • Improve product • Better new brands pricing development marketing and products through value and effi ciency and • Island wide creation • Improve promotional initiatives Creating & expanding expansion • Effi cient merchandising management • Sales growth brand portfolio • Improve • Improve service customer of supply and quality • Better after demand management • Improve service sales and • Leverage quality customer income service generating • Improve tax assets effi ciency • Investments • Introduction in innovative of Group products and wide ERP services system to reduce operational overheads Asset Effi ciency Optimisation Property & Receivables Company External Inventory Equipment & Payables Strengths Forces • Optimum • Improve • Better • Improve agility • Close utilisation of inventory management and fl exibility monitoring assets effi ciency of working through talent of the wider • Continuous • Effi cient capital cycle retention economy improvement of warehousing • Improve to mitigate infrastructure with tight partnerships adverse effi ciency controls over and effects and pilferage collaborations capitalise on opportunities • Enhance strategic assets • Adopt industry best practices 4 Softlogic Holdings PLC Group Structure Softlogic Holdings PLC Healthcare Finance Retail Leisure Automobile ICT & Other Asiri Hospital Softlogic Softlogic Retail Softlogic Properties Future Automobiles Softlogic Information Holdings PLC Capital PLC (Pvt) Ltd. (Pvt) Ltd. (Pvt) Ltd. Technologies (Pvt) Ltd. Asiri Surgical Softlogic Softlogic Brands Softlogic City Hotels Softlogic Softlogic Hospital PLC Finance PLC (Pvt) Ltd. (Pvt) Ltd. Automobiles (Pvt) Ltd. International (Pvt) Ltd. Softlogic Softlogic Central Dai-Nishi Securities Stockbrokers Ceysand Communications Hospital Ltd. (Pvt) Ltd. (Pvt) Ltd. Resorts Ltd. (Pvt) Ltd. Asiri Central Asian Alliance Softlogic Computers Softlogic Retail Softlogic Destination (Pvt) Ltd. Hospitals PLC Insurance PLC One (Pvt) Ltd. * Management (Pvt) Ltd. Asiri Capital Reach Softlogic Australia Softlogic Diagnostics Portfolio Management (Pty) Ltd. Restaurants Services (Pvt) Ltd. (Pvt) Ltd. (Pvt) Ltd. Softlogic Solar Asian Alliance Asiri Hospital (Pvt) Ltd. General Matara (Pvt) Ltd. Insurance Ltd. Softlogic Communication Asiri Hospital Kandy Services (Pvt) Ltd. (Pvt) Ltd. Abacus International Lanka (Pvt) Ltd. Nextage (Pvt) Ltd. Softlogic Corporate Services (Pvt) Ltd. Softlogic BPO Services (Pvt) Ltd. * Softlogic Retail One (Pvt) Ltd. was incorporated on 4 July 2014 Annual Report 2013/14 5 Highlights of 2013/14 It has been an eventful year. We introduced a number of leading global retail brands to Sri Lanka, entered the fast food industry with franchise rights for BURGER KING® and came near to completing Centara Ceysands Resorts & Spa. And that was not all... APRIL 2013 Facility for Keyhole Surgeries Asiri Hospital Group is continuously upgrading its medical technology in keeping with advancing global healthcare standards. Asiri Surgical Hospital PLC, the preferred hospital for surgeries in Sri Lanka, introduced precision - based keyhole surgeries which are minimally invasive and allow faster recovery. Catheterisation Lab Central Hospital Ltd. introduced Sri Lanka’s fi rst technologically advanced Neuro Bi-Plane Catheterisation Laboratory capable of performing all types of neuro-vascular interventional radiologic procedures for the treatment of acute strokes, cerebral aneurysms, brain tumours and a host of other conditions. MAY 2013 The Future of Insurance in Sri Lanka Asian Alliance Insurance PLC, with DEG & FMO of the Netherlands, successfully hosted a seminar themed ”The Future of Insurance in Sri Lanka” for participants in Sri Lanka’s Insurance Sector and other stakeholders of the industry. This event offered an insight into the challenges associated with segregating insurance operations, which is required by February 2015 and how these can be met. The seminar featured high- profi le local and overseas insurance professionals, who shared their experiences on segregation