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 Visit Us Online www.softlogic.lk Scan the QR Code with your Scan the QR Codes to connect smart device to view this Report online with us on social media http://www.softlogic.lk/financial_report-3-1.html 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.