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Softlogic Holdings PLC
Audit Committee Report
SCOPE
The responsibilities of the Committee
are set forth in the written Terms of
Reference (TOR), a revised version of
which was adopted by the Board on 8
July 2015.
The Committee will not engage directly
with Group companies covered by other
audit committees established under
mandatory regulatory requirements; it
receives briefings on the activities of
these committees as necessary.
COMPOSITION
The Committee was chaired by
Desamanya P D Rodrigo until his
resignation from the Board on 30 June
2014, and thereafter by R A Ebell, who
was appointed a Director on 20 March
2014 and a member of the Committee
on 19 June 2014. Other members of
the Committee are:
Dr. S Selliah
Mr. W M P L De Alwis, PC
Mr. G L H Premaratne (appointed w.e.f.
19 June 2014)
Softlogic Corporate Services (Pvt) Ltd.,
served as Secretary of the Committee up
to 30 June 2014. Mr D Vitharanage, Chief
Risk Officer Chief Internal Auditor (CRO/
CIA) served as Secretary thereafter.
ACTIVITY & FOCUS
The Audit Committee has primarily
focused during the year on its
responsibilities for monitoring:
• integrity of the Company’s and
Group’s financial statements,
including the reasonableness of
assertions made in their preparation,
the appropriateness of accounting
policies used and the adequacy of
presentation and disclosures made;
• effectiveness of internal control
over financial reporting;
• the work and performance of the
internal auditors;
• the Company’s relationship with
its External Auditors, auditor
independence and performance, and
the management’s responsiveness
to external audit; and
• procedures in place to examine,
regularly, the Company’s ability to
continue as a going concern in the
foreseeable future.
The Committee meets quarterly to
review and make recommendations
on the quarterly and annual financial
statements before they are considered
and approved by the Board for release
to shareholders and the public. It also
meets at other times to consider
matters arising from its review of the
financial statements and other subjects,
including internal audit findings and
reviews of specific businesses and
change initiatives.
The Committee has reviewed the plan for
reducing the number of External Auditors
deployed across the Group and reassigning
audits to improve audit cohesiveness. It has
also provided inputs in the determination of
KPIs and evaluation of performance of the
CRO / CIA.
MEETINGS & REPORTING
The Committee met fourteen [ 14 ]
times during the year.
Attendance at these meetings has been
as follows:
Name Meetings
attended
Desamanya P D Rodrigo 2 / 2
Mr. R A Ebell 13 / 13
Dr. S Selliah 14 / 14
Mr. W M P L de Alwis, PC 12 / 14
Mr. G L H Premaratne 12 / 14
The Chief Financial Officer attends
all meetings by invitation, and other
members of Senior Management attend
meetings by invitation as required.
The External Auditors attend meetings
by invitation when their presence is
necessary; discussion of their major audit
and review findings is a key component
of those meetings. The Committee
further meets with the External Auditors,
with no members of management
present, to cover contentious matters
and matters they wish to discuss in
confidence with the Committee.
The Committee makes written
reports to the Group Chairman /
Managing Director, for dissemination
to the Board, following each
quarterly meeting at which financial
statements are reviewed prior to
a recommendation being made on
them. These draw attention to matters
requiring consideration and action.
The Committee also briefs the Group
Chairman /Managing Director from time
to time on matters of concern, at ad
hoc meetings or at meetings scheduled
by him with the Non-Executive
Directors.
REAPPOINTMENT OF EXTERNAL
AUDITORS
The Audit Committee has proposed
to the Board of Directors that
the incumbent auditors, Ernst &
Young, Chartered Accountants be
recommended for re-appointment for
the year ending 31 March 2016 at the
upcoming Annual General Meeting.
R A Ebell
Chairman (w.e.f. 1 July 2014)
Audit Committee
31 July 2015](https://image.slidesharecdn.com/d0224a0d-65da-4440-bc53-708e4d79a916-160528111301/85/Softlogic-Holdings-PLC-102-320.jpg)
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Softlogic Holdings PLC
- 1. Progressive Entrepreneurship Softlogic Holdings| Annual Report 2014-15
- 2. Our Credo To makesound and responsible investment decisions in all our businesses and to employ and retain the best people; through this, to become the most admired corporate in Sri Lanka. Our Core Values Softlogic’s corporate values are in our DNA. They guide the way we think and act. Through integrity, accountability, humility, simplicity, passion and a focus on success, we have created a vibrant corporate culture in which ideas flourish, people thrive and success is assured. INTEGRITY We act with honesty and uphold ethical standards always. We genuinely value individuals for the diversity they bring, through their different backgrounds, experiences, approaches and ideas. ACCOUNTABILITY We emphasize accountability in our behaviors as individuals and collectively as a corporation. HUMILITY We seek the humility to place the organization and society before ourselves. SIMPLICITY We strive for simplicity by examining and improving processes, procedures and activities, and breaking down internal barriers. PASSION We are passionate about our businesses and brands, and jealously safeguard our reputation. FOCUS ON SUCCESS We foster a “can do” attitude and work tirelessly to reap great results, simultaneously seeking profit optimization and capital growth. Our Vision To be the most preferred and trusted product and service provider delivering high quality solutions to the corporate and retail sector with a view to enhancing shareholder value and revolutionising industry competencies.
- 3. Scan the QRCode with your smart device to view this report online. Entrepreneurship is about always being equipped with the right profit-making decisions involving several business activities impacting the organisation simultaneously or separately. Such decisions necessarily underpin strong financial discipline and speed of response to changing market forces. At Softlogic, we are forward-looking because we have always been forward- thinking, thereby aligning our business decisions with expanding market realities. In progressive entrepreneurship, we know that our thinking creates markets, stimulates demand and shapes our destiny when we smartly execute revenue and profit imperatives. This year we have synergized and consolidated operations and have focused on reinvesting profits to create more future value for our shareholders, business partners and all other stakeholders at large. We think big; therefore, we are!
- 4. 2 Softlogic Holdings PLC Contents AboutSoftlogic 3 Group Structure 4 Financial Highlights 5 Highlights of 2014/15 6 Our Value Creation Model – ‘Make good to GREAT’ 8 Chairman’s Review 12 Board of Directors 16 Sector Heads 20 Functional Heads 22 Management Discussion & Analysis 26 Business Overview Retail Sector 32 Healthcare Services Sector 42 ICT Sector 48 Financial Services Sector 54 Automobile Sector 60 Leisure Sector 64 Corporate Governance 70 Risk Management Review 79 Sustainability Report 85 Board Remuneration Committee Report 98 Audit Committee Report 100 Annual Report of the Board of Directors on the Affairs of the Company 101 Financial Calendar 2015 104 Financial Statements Statement of Directors’ Responsibilities 106 Independent Auditors’ Report 107 Income Statement 108 Statement of Comprehensive Income 109 Statement of Financial Position 110 Statement of Changes in Equity 112 Cash Flow Statement 114 Notes to the Financial Statements 117 Investor Information 215 Corporate Directory 218 Notice of Meeting 219 Form of Proxy 223 Corporate Information IBC The Odel Story > See page 38 A walk through Centara Ceysand Resort & Spa > See page 68 5pg> 13pg> 70pg> Financial Highlights Chairman’s Review Corporate Governance
- 5. 3 Annual Report 2014-15 AboutSoftlogic Softlogic Holdings PLC was founded in 1991, and was listed on the Colombo Stock Exchange in June 2011. Softlogic is a leading diversified group, with interests in six distinct business sectors -- ICT, Retail, Financial Services, Healthcare Services, Automobiles and Leisure, in which we employ over 8,000 people across 46 companies. Our aspirations are best expressed in our corporate dictum, “Best in the Business.” We strive for continuing revenue growth and the necessary cash flow to allow us invest in continuously developing our businesses and, as importantly, paying dividends to our shareholders. Our focus remains on the long-term success of our businesses; our strategy has significantly been to acquire businesses and help them grow faster, using the expertise that is ours. This “progressive entrepreneurship” has proven time and again to be an excellent basis for value creation. As we look forward, we continue to execute our simple, proven strategy to deliver more than acceptable returns to our shareholders. Our current businesses continue to provide many opportunities for further growth of individual businesses, and of the Group as a whole. Doing it the “Softlogic Way” Softlogic is a conglomerate operating with a universal set of values we call the “Softlogic Way”; we work with an array of globally recognised brands and partners to respond to and benefit from the growing Sri Lankan economy and provide a platform for our own growth. CUSTOMERS LEADERSHIP COMMUNITY SHAREHOLDERS BUSINESS PARTNERS TEAM WORK Delighted customers assure our future; we earn their loyalty by committing to high standards of customer care, delivery and after-sales service. Everyone at Softlogic is a potential leader. We encourage our people to “raise the bar” higher to assure their success, and ours. Softlogic cares about Sri Lanka and Sri Lankans, and we are proud of the ways in which we help them, not least by our concern for the natural environment. We are conscious of our shareholders’ expectations of us; we know we will be judged by our delivery of monetary returns to them and by our standard of corporate governance. We believe in an open relationship with our principals and partners, and know they will judge us by how well we deliver solutions to our customers, in keeping with their service standards and reputation. Softlogic is ultimately judged by how well its people work together. We encourage an open door policy and clear communication to help people deliver performance and share pride in their own achievements and those of the team. >> Softlogic is a leading diversified group, with interests in six distinct business sectors -- ICT, Retail, Financial Services, Healthcare Services, Automobiles and Leisure, in which we employ over 8,000 people across 46 companies.
- 6. Softlogic Holdings PLC 4 GroupStructure Healthcare Asiri Hospital Holdings PLC Softlogic Capital PLC Softlogic Retail (Pvt) Ltd. Softlogic Properties (Pvt) Ltd. SoftlogicInformation Technologies(Pvt)Ltd. Future Automobiles (Pvt) Ltd. Softlogic International (Pvt) Ltd. Softlogic Automobiles (Pvt) Ltd. Softlogic Communications (Pvt) Ltd. Softlogic Computers (Pvt) Ltd. Softlogic Australia (Pty) Ltd. Softlogic Solar (Pvt) Ltd. Softlogic Communication Services (Pvt) Ltd. Abacus International Lanka (Pvt) Ltd. Nextage (Pvt) Ltd. Softlogic Corporate Services (Pvt) Ltd. Softlogic BPO Services (Pvt) Ltd. Softlogic Mobile Distribution (Pvt) Ltd. Finance Retail Leisure ICT & OtherAutomobile Softlogic Holdings PLC Asiri Surgical Hospital PLC Softlogic Finance PLC Central Hospital Ltd. Softlogic Stockbrokers (Pvt) Ltd. Dai-Nishi Securities (Pvt) Ltd. Softlogic City Hotels (Pvt) Ltd SoftlogicDestination Management(Pvt)Ltd. Softlogic Real Estate (Pvt) Ltd. Odel PLC Ceysand Resorts Ltd Softlogic Brands (Pvt) Ltd. Odel Lanka (Pvt) Ltd. Odel Apparels (Pvt) Ltd. BSL International Lanka (Pvt) Ltd. Greenfield Trading (Pvt) Ltd. Odel Properties Pvt) Ltd. Odel Information Technologies Services (Pvt) Ltd. Silk Route Foods (Pvt) Ltd. Asiri Central Hospitals Ltd. Asian Alliance Insurance PLC Asiri Diagnostics Services (Pvt) Ltd. CapitalReach PortfolioManagement (Pvt)Ltd. Asiri Hospital Matara (Pvt) Ltd. Asian Alliance General Insurance Ltd. Asiri Hospital Kandy (Pvt) Ltd. Digital Health (Private) Limited * Softlogic Restaurants (Pvt) Ltd. Softlogic Retail One (Pvt) Ltd. * Digital Health (Private) Limited. was incorporated on 14 August 2015
- 7. 5 Annual Report 2014-15 FinancialHighlights For the Year ended 31 March 2015 2014 2013 2012 2011 Earnings Highlights Group Revenue (Rs. Mn) 39,563.9 29,246.4 25,351.3 21,818.8 10,788.0 Gross Profit (Rs. Mn) 14,116.6 11,011.6 8,983.3 7,329.8 2,880.4 Earnings Before Interest Tax, Depreciation & Amortisation (Rs. Mn) 6,400.6 5,024.9 4,227.3 4,486.2 2,198.9 Finance Cost (Rs. Mn) 2,692.8 2,660.0 2,754.6 2,007.4 857.0 Group Earnings Before Interest & Taxation (Rs. Mn) 4,961.5 3,918.0 3,207.5 3,608.0 1,903.9 Group Earnings Before Taxation (Rs. Mn) 2,268.7 1,258.0 453.0 1,600.5 1,047.0 Group Earnings After Taxation (Rs. Mn) 1,819.1 1,009.1 153.0 1,015.9 971.0 Total Comprehensive Income Net of Tax (Rs. Mn) 2,160.4 1,236.6 2,077.0 855.8 - Group Earnings Attributable to Equity holder (Rs. Mn) 555.8 155.8 (371.0) 448.3 829.0 Group Comprehensive Income Attributable to Equity holder (Rs. Mn) 760.7 220.1 557.0 340.0 - Gross Profit Margin (%) 36 38 35 34 27 Net Profit Margin (%) 5 3 1 5 9 Earnings Per Share (Rs.) 0.7 0.2 (0.5) 0.6 1.3 Dividends (Rs. Mn) - 120 234 101 - Interest Cover (X) 2.38 1.89 1.53 2.23 2.57 Return on Capital Employed* (%) 11 12 11 15 17 Balance Sheet Highlights Total Assets (Rs. Mn) 87,587 65,863 53,836 44,688 29,134 Current Ratio (X) 1.0 0.9 0.82 0.73 0.49 Asset Turnover (x) 0.5 0.4 0.5 0.5 0.4 Total Interest Bearing Borrowings (Rs. Mn) 43,906 31,518 23,037 22,782 17,938 Shareholders' Funds (Rs. Mn) 7,625 6,802 7,288 7,202 3,041 Net Asset per Share** (Rs.) 9.8 8.7 9.4 9.2 3.9 Total Equity (Rs. Mn) 15,782 13,351 13,568 11,312 7,045 Debt : Equity*** (X) 2.8 2.4 1.7 2.0 2.5 Debt : Total Assets (X) 0.5 0.5 0.4 0.5 0.6 Operating Cashflow (Rs. Mn) 426 1,775 1,777 157 (1,916) Capital Expenditure (Rs. Mn) 4,438 3,604 2,271 1,138 621 Cash Earnings per Share (Rs.) 0.5 2.3 2.3 0.2 (2.5) Investor Information Market close price as at 31 March (Rs.) 13.2 10.6 10.4 11.2 - Shares in Issue (Mn) 779 779 779 779 640 Market Capitalisation as at 31 March (Rs. Mn) 10,283 8,257 8,102 8,725 - 52 Week Market Share Price High (Rs.) 20.4 8.1 13.3 28.0 - 52 Week Market Share Price Low (Rs.) 10.3 12.5 9.4 11.1 - Price Earnings Ratio (X) 18.4 65.9 n/a 22.9 - Price to Book Value (X) 1.3 1.5 1.4 1.4 - Enterprise Value (Rs. Mn) 52,263 38,014 29,816 30,593 17,658 Enterprise Value : EBITDA (X) 8.17 7.56 7.05 6.82 8.03 Dividend Pay Out (%) - 77 n/a 23 - Dividend per Share (Rs.) - 0.155 0.3 0.13 - Dividend Yield (%) - 1 2 1 - Total Shareholder Return (%) 25 3 (4) - - Debenture Information 52-week Debenture Share Price High (Rs.) 110.5 n/a n/a n/a n/a 52-week Debenture Share Price Low (Rs.) 106.0 n/a n/a n/a n/a Last Traded Price as at 31 March (Rs.) 108.1 n/a n/a n/a n/a Last Traded Yield (%) 9.7 n/a n/a n/a n/a No. of Debentures Traded 1,005,000 n/a n/a n/a n/a Value Traded (Rs. Mn) 108.8 n/a n/a n/a n/a Group Employment**** 8,433 6,822 6,400 6,085 4,581 * Return on Capital Employed calculated as percentage of EBIT and Total Capital Employed (Equity plus interest bearing borrowings). ** Net Asset Value calculated based on weighted number of shares as at 31.03.2015. *** Debt to Equity calculated based on Total Equity Capital. **** Excluding employees of the associate companies of the Group.
- 8. 6 Softlogic Holdings PLC April2014 November2014 June2014 July2014 December2014 Softlogicpartnered with Metropolitan to promote Acer computers. Asiri introduced a modern platelet counter that measures young platelets in peripheral blood. BURGER KING® Sri Lanka won the award for Best New Market in Restaurant Excellence and the Employee of the Year at the BK AsiaPac PTE Ltd 2014 Asia Pacific Convention. Softlogic Information Technologies launched the new Latitude 14 Rugged Extreme notebook and the Latitude 12 Rugged Extreme convertible notebooks for customers who require powerful solutions that survive tough environments. Softlogic Holdings opened the doors of its first resort, Centara Ceysand Resort & Spa in Bentota. Softlogic launched its online retail store – www.mysoftlogic.lk The Bone Marrow Transplant and Clinical Hematology Unit at Central Hospital carried out the first allogeneic procedure in Sri Lanka. Softlogic Finance was recognised as the ‘Most Innovative Non-Banking Finance Company’ and the ‘Best Customer Service Company For Finance’ in Sri Lanka for 2014 at the Global Banking & Finance Review Awards. Asian Alliance Insurance celebrated 15 years in business. Softlogic Finance won an Effie Award as a finalist in the ‘Finance’ category at the 2014 Awards of the Sri Lanka Institute of Marketing, for their ‘The Bus’ campaign on the ‘Easy withdrawals’ facility offered to Fixed Deposit customers. Softlogic introduced Tommy Hilfiger to Sri Lanka with the opening of its first store at Arcade Independence Square. Splash, the Middle East’s largest high street fashion retailer, opened its first exclusive store in Colombo. Central Hospital launched a one-stop heart care centre, to enable patients access to nearly all Cardiologists, Cardiac Surgeons and a range of highly-advanced, potentially life-saving equipment in one place. Asian Alliance Insurance received a Silver Award in the ‘Insurance Category’ and a further Silver Award for Overall Excellence in the ‘Large Companies Category’ at the ‘National Business Excellence Awards 2014’. Softlogic Finance received a Merit Award in the ‘Non-Banking and Financial Services Category’ at the same event. Softlogic opened stores -- Galleria, Samsung, Charles & Keith & BURGER KING® -- at the Arcade Independence Square With leading Consultants in Cosmetology and Dermatology providing services to its discerning patients, Central Hospital opened the doors of its new unit dedicated to cosmetic procedures, ‘Beauty Central’. Highlights of 2014/15
- 9. 7 Annual Report 2014-15 October2014 August2014 September2014 January2015 February2015 March2015 SoftlogicRetail, the authorised distributor for Panasonic in Sri Lanka, added a new dimension in its quality assurance by acquiring SLS certification for its Compact Fluorescent Light (CFL) Bulb. BURGER KING® opened its outlet in Kandy. BURGER KING® introduced the world famous Chicken Whopper to its menu. Softlogic Retail concluded an agreement with Whirlpool to market and distribute Whirlpool products in Sri Lanka. BURGER KING® opened at the Departures Hall of the Bandaranaike International Airport. Future Automobiles was awarded the “FORD GOLDEN SHOVEL AWARD” by Ford Motor Company in recognition of leading-edge-facilities to support long-term customer satisfaction and owner loyalty. Asiri Laboratory Services received the esteemed 15189-2012 international accreditation in recognition of its competence and effectiveness in modernisation and development of pathology and laboratory services. A BURGER KING® was opened at Central Hospital. Softlogic concluded a major transaction on the Colombo Stock Exchange with the acquisition of a significant shareholding in Odel PLC, leading later to a 93.39% ownership of that Company. Asian Alliance Insurance opened its General Insurance Corporate Office at Ward Place, Colombo 07. Asian Alliance Insurance launched innovative solutions in General Insurance with new “DRIVE THRU” and “365 DAY INSURANCE” services, mainly targeting motor customers. Crocs™ was added to Softlogic Brand’s portfolio, with Crocs shoes being retailed at Odel and Mothercare. Asiri Laboratory Services opened two collection centres in Gampaha and Wattala. Asian Alliance Insurance launched another innovative insurance solution, Click2Claim, allowing motor insurance policyholders to accelerate claim procedures by providing a photograph of the damaged vehicle via this mobile phone app. The microbiology section of Asiri Laboratory Services was placed first in the National External Quality Assessment Scheme in bacteriology. Softlogic Holdings was ranked second most valuable conglomerate brand in 2015 based on independent market research conducted amongst 1,700 respondents in Colombo and Gampaha. Asiri Hospital Holdings, Odel, Asian Alliance Insurance and Softlogic Finance were other Group companies recognised in this prestigious annual ranking. Softlogic Retail opened its 200th showroom in Mahawilachchiya.
- 10. 8 Softlogic Holdings PLC OurValue Creation Model – ‘Make good to GREAT’ The catalyst driving many business acquisitions involves synergies. When companies are merged, the whole is often greater than the sum of its parts. 1991 Softlogic Information Technologies (Pvt) Ltd (Previously known as Softlogic Information Systems (Pvt) Ltd. after being merged with Softlogic Trading (Pvt) Ltd). Hardware and software solutions provider. AT ACQUISITION/ INITIATION COMPANY OPERATIONS NOW Turnover Turnover Asset base Asset base RS. 6 MN RS. 2.3 BN RS. 1 MN RS. 1.8 BN 1995 Softlogic Computers (Pvt) Ltd. Specialised in marketing and supporting networking and power protection products through a locally established dealer channel. AT ACQUISITION/ INITIATION COMPANY OPERATIONS NOW Turnover Turnover Asset base Asset base RS. 8 MN RS. 484 MN RS. 8 MN RS. 220 MN 1997 Softlogic International (Pvt) Ltd. Authorised partner of Dialog Axiata PLC providing mobile packages. Retailer of ‘Nokia’, ‘Microsoft Lumia’ and ‘Samsung’ handsets. AT ACQUISITION/ INITIATION COMPANY OPERATIONS NOW Turnover Turnover Asset base Asset base RS. 0.4 MN RS. 396 MN RS. 1.1 MN RS. 1.1 BN 1998 Abacus International (Pvt) Ltd An associate set up in partnership with Abacus International Ltd, Asia Pacific’s largest computer reservations system. AT ACQUISITION/ INITIATION COMPANY OPERATIONS NOW Turnover Turnover Asset base Asset base RS. 8 MN RS. 184 MN RS. 15 MN RS. 91 MN
- 11. 9 Annual Report 2014-15 2006 SoftlogicRetail (Pvt) Ltd (Previously known as Uni Walkers Ltd) Was agent for Daihatsu and Panasonic. This operation is now carried out through our Automotive, Consumer Durables and apparel sector. AT ACQUISITION/ INITIATION COMPANY OPERATIONS NOW Turnover Turnover Asset base Asset base RS. 150 MN RS. 9.1 BN RS. 658 MN RS. 13.2 BN 2010 Softlogic Capital PLC (Previously known as Capital Reach Holding (Pvt) Ltd.) Sector holding company of the financial services cluster. AT ACQUISITION/ INITIATION COMPANY OPERATIONS NOW Turnover Turnover Asset base Asset base RS. 960 MN RS. 10 BN RS. 5.4 BN RS. 32.9 BN 2011 Asiri Hospital Holdings PLC Acquired controlling stake of country’s leading private healthcare provider. AT ACQUISITION/ INITIATION COMPANY OPERATIONS NOW Turnover at initial consolidation Turnover Asset base Asset base RS. 4.9 BN RS. 8.6 BN RS. 12.4 BN RS. 18.2 BN Centara Ceysand - a 84-room resort in 2010. Property acquired to construct a five-star city hotel, Movenpick City Hotel in 2011. 2004 Softlogic Properties (Pvt) Ltd Holding company of the leisure sector. AT ACQUISITION/ INITIATION COMPANY OPERATIONS NOW Asset Base Asset Base RS. 227 MN RS. 3.6 BN Centara Ceysand Resorts & Spa - a 166-room 4-star plus Resort & Spa. Movenpick City Hotel has an asset base of Rs.3.2 Bn.
- 12. 10 Softlogic Holdings PLC We’rein the business of adding value - whatever we do... 10 Softlogic Holdings PLC
- 13. 11 Annual Report 2014-15 11 AnnualReport 2014-15 EXTENSIVE REACH Softlogic reaches out to thousands of customers across the island every day, through our wide branch network and strong presence in six sectors. While we focus on providing growing value to every stakeholder, we have significantly expanded our customer service capabilities through a broader presence across the island. At Softlogic we are confident that we can further strengthen our positions in the markets we serve, adding value to all stakeholders. HEALTHCARE SERVICES AUTOMOBILE LEISURE FINANCIAL SERVICES ICT RETAIL Restaurants – 07 Branded Apparel – 22 Odel - 20 Consumer Electronics – 208 Furniture – 01 Hospitals – 05 Laboratories – 09 Collection Centres – 12 Telco, Regional Distributors – 24 Telco, Dealers – <1,500 Telco, Retail points – <40 Mobile Service Centres – 05 Softlogic Computers and Service Center – 01 IT, Regional Technical Support points – 17 Softlogic Finance – 23 Softlogic Finance Gold Loan Centres – 09 Asian Alliance Insurance – 63 Asian Alliance General Insurance – 13 Asian Alliance Insurance operating via Softlogic Retail network – 36 Centara Ceysand Resorts & Spa – 01 Ford Centre – 01 Ford Service Dealers – 04 Daihatsu – 01
- 14.
- 15. Annual Report 2014-15 >>Theprogress we made in 2014, combined with the presence in six sectors which will benefit from growth in the economy, will consolidate Softlogic’s position in the market. 13 Annual Report 2014-15 Dear Shareholders, Progressive Entrepreneurship takes time to put in place. Patience, hard work, trust, agility and passion are important. But above all, creative vision is essential. We present this year’s Annual Report with satisfaction. The theme is ‘Progressive Entrepreneurship’, and we continue to pursue the optimal value for our mix of stakeholders - shareholders, employees, partners and the communities with whom we interact. We have achieved solid results this year and have created the groundwork for even better results in the future. A long term view is essential to sustainable growth. The year brought us investment opportunities we capitalised on. We aggressively pursued the acquisition of Odel while tightening our existing operations to consolidate activities and to ensure greater Shareholder Value. The external environment was challenging in many sectors, especially in the early part of the year when interest rates impacted and floods affected purchasing ability. Despite these challenges, our strategy and our engaged workforce enabled us reinforce our strong positions across our business sectors. We made progress with our cost leadership initiatives, consolidating and streamlining individual sectors while extending our reach and customer service capability. The progress we made in 2014, combined with the presence in six sectors which will benefit from growth in the economy, will consolidate Softlogic’s position in the market. BUSINESS PERFORMANCE The Sri Lankan economy grew 7.4% amidst many challenges in 2014. Consumer and investor confidence recovered during the year, due to low inflation and interest rates, and the exchange rate remaining stable. Your Group performed strongly during the year. Notable achievements were: • Asset growth: Total assets at end- March 2015 rose to Rs.87.6 Bn, from Rs.65.9 Bn last year. • Revenue & Profit Growth: We boosted Group Revenue to nearly Rs.40.0 Bn (a 35.3% growth). Profit before tax grew to Rs.2.3 Bn (up 80.3%) and profit after tax increased to Rs.1.8 Bn (up 80.3%). • Strategic Moves: Opening of Group’s first resort, Centara Ceysand Resorts & Spa, acquisition of Odel, commencement of ‘Samsung’ operations and the representation of new brands (Tommy Hilfiger, Pepe Jeans, Whirlpool and Crocs™). • Investments: Expansion of our retail business and BURGER KING® franchise, construction of Softlogic City Hotel and investment in high-tech medical facilities at Asiri. • Immediate Goal: Improving performance at Retail and ICT sectors. Your faith in Softlogic Holdings brought rewards, with the value of our share rising 25% during the year. INFORMATION & COMMUNICATIONS TECHNOLOGY Information Technology is dynamic, fast- changing and fiercely competitive. Despite challenges due to some projects being withheld for re-evaluation, the industry forged ahead with purchasing power improving, corporate interest re-emerging, public awareness rising and device prices declining. ‘Dell’ was recognised as the No. 1 PC brand in the country for the seventh consecutive year in the latest report from the International Data Corporation, capturing 38.5% of the PC market during 2Q2014. Our IT businesses have moved a step ahead, to focus on advanced end-user computing, data centre and recovery solutions, advanced infrastructure (including intelligent building management systems) and data security. These areas are considered key elements in Sri Lanka’s IT industry in the future. Routine technological upgrades were deferred by users due to uncertainty. With the conclusion of both the Presidential and General Elections, we expect to see resurgence this year. Impressive results in our telecommunications business was primarily driven by our recently commenced ‘Samsung’ operations – Softlogic Mobile Distribution. Despite being in business for only four months of the year, the company contributed notably to the sector’s achievements. Synergies helped this success. ‘Nokia’ and ‘Microsoft Lumia’ handset ranges continued to perform strongly. With consumer preference favouring authorised and reliable suppliers, the grey market
- 16. 14 Softlogic Holdings PLC Chairman’sReview no longer poses a serious threat. We continued to lead the mobile handset market in Sri Lanka in 2014. RETAIL The Odel acquisition was the year’s highlight, and we now own 93.39% of the company. We saw Odel as one of the strongest local fashion brands serving a broader spectrum of customers. The company’s asset base was also considered, when we decided on this strategic acquisition. Considerable synergies have been realised following the acquisition. These accrue from the sharing of retail space, back-end infrastructure, in- house management expertise, and a wider exposure for our brands. The geographical expansion of our Consumer Durables business continued. Our current 208 showrooms cover retail space of 263,714 sq. ft, and we expect to have 250 stores in place by end-March 2016. Expansion is planned taking an approach emphasising cost consciousness and synergy. Brand acquisitions continued at Softlogic Brands, as we added ‘Tommy Hilfiger’ in December 2014, and ‘Crocs™’ and ‘Pepe Jeans’ in April and June 2015 respectively. ‘Splash’ was relocated in Colombo in December 2014 to better position itself to capture its middle income target audience. We opened three stores at Liberty Plaza for ‘Pepe Jeans’, ‘Giordano’ and an international watch station in April 2015. Our Quick Service Restaurant chain extended to Kandy, a fast developing part of the hill region. Another was opened at Central Hospital. BURGER KING® also opened at the Colombo International Airport and at the Arcade, Independence Square during the financial year. These initiatives drove performance of the retail sector strongly during the year. HEALTHCARE SERVICES ‘Asiri’ is recognised for its world-class healthcare in Sri Lanka. Each Asiri hospital is a centre of excellence, offering the highest standard of medical care by dedicated medical personnel. We have continuously invested in state-of-the-art medical facilities to ensure we continue to provide the best of modern medical treatments. Central Hospital launched the first ever advanced cosmetology and dermatology centre, ‘Beauty Central’. The centre’s procedures include; laser hair removal, removal of vascular birthmarks, dermatological procedures, facial rejuvenation and face-lifts, keloid scar reductions and a host of aesthetic treatments not requiring incision, surgery or general anaesthesia. A state-of-the-art Cardiac Centre was also opened at Central Hospital in November 2014. Asiri Surgical Hospital introduced Digital Mammography, making Asiri the first private healthcare provider to offer advanced three dimensional imaging detection of breast cancer. Training and qualifying for the Joint Commission International Accreditation is near completion. We expect to obtain this accreditation next year. We pursue development of our hospital in Kandy, based on research that identifies Considerable synergies have been realised following the Odel acquisition. These accrue from the sharing of retail space, back-end infrastructure, in-house management expertise, and a wider exposure for our brands. 35.3% Revenue Rs. 39.6Bn
- 17. 15 Annual Report 2014-15 AUTOMOBILES TheAutomobile sector’s fortunes are closely linked to changes in the import duty structure. Notable improvements in sales were achieved during the year, following relaunch of our ‘King Long’ bus range. Sales of these buses are mainly to the leisure sector. Our Body, Paint and Repair Centre, which works closely with Asian Alliance General Insurance, progressed ahead of expectation, while the 3S Facility for Ford and Daihatsu showed modest returns. We are repositioning our products competitively to drive volumes in the future. We will widen our portfolio with new FORD models, and will focus on ‘green’ vehicles to benefit from tax concessions applicable there. LEISURE We opened the doors of our first resort, Centara Ceysand Resorts & Spa, in June 2014. Feedback and reviews have been positive, and the resort enjoyed full occupancy during the winter peak season. This four-star plus resort has become a preferred destination on the southern coast. It offers a wide range of amenities to complement its exquisitely furnished hotel rooms and suites. Its facilities and warm hospitality ensure success. We believe the success story of Centara Ceysand Resorts & Spa will also extend to our city hotel. Both hotels are managed by international operators- Centara Hotels & Resorts, Thailand and Movenpick Hotels & Resorts, Switzerland. The structure of the Movenpick City Hotel was completed in September 2014. We are now at an advanced stage of installations and interior fit-out works. We expect to open this five-star hotel late in 2016. POSITIONED FOR PROGRESS Softlogic is well positioned to grow its business and deliver strong results to its owners. We have a diversified platform that gives us wide exposure to Sri Lanka’s economic growth, which we expect will receive fresh impetus following Sri Lanka’s recent elections. An extraordinary team with an unrelenting commitment to excellence provides the expertise and maturity to guide our decisions and actions. We expect that Softlogic will, after a time of consolidation, enhance revenues from every sector in which it is active. APPRECIATION We are fortunate to have an excellent executive team and pool of human resources. I thank all of them for committing their talent and effort to building our success. I also record my personal appreciation to all our Directors, who have been unstinting in their support during the year. We thank our investors for their confidence in us. When I report to you on Softlogic’s progress next year, I am sure I will be reporting on a robust organisation ever more focused on delivering value to you. We look forward to continuing our journey together. Ashok Pathirage Chairman 31 July 2015 a need for private healthcare outside Colombo. Kandy is the commercial hub of the hill country. Asiri, a brand which has won the trust of people across the country, will be well accepted there. We intend to set up a 133-bed hospital expected to commence operations in 2018. Construction is to begin in October 2015. FINANCIAL SERVICES Our Financial Services sector moved steadily during the year, with good performances all round. Asian Alliance Insurance, which ranks 5th in Life Insurance, led the way. Overall Gross Written Premium for both Life and General insurance reached Rs.4.9 Bn, an increase by 16.1% over the previous year. Life business recorded a growth of 20.4%. General Insurance, which enjoys some synergy with our Healthcare and Automotive Sectors, saw premiums rise 8.9%. With changes in the duty structure and tax concessions for vehicles, vehicle values declined significantly affecting the Leasing/ HP business of the finance companies. This made us focus more on lending to the SME sector, where we see immense potential. Softlogic Finance, which ranked 10th in the Industry with Total Assets of Rs.20 Bn, saw Customer Deposits rise to Rs.12.0 Bn and the Lending Portfolio to Rs.15.3 Bn during the year. Softlogic Stockbrokers has a very experienced investment advisory team and a strong foreign and institutional client base. The company performed well and was ranked third in the industry at the end of the year. We raised capital in these businesses during the year, concluding rights issues of 10:28 (at Rs.30 per share) and 13:10 (at Rs.3.40 per share) at Softlogic Finance and Softlogic Capital respectively.
- 18. 16 Softlogic Holdings PLC Boardof Directors
- 19. 17 Annual Report 2014-15 Leftto right Harris Premaratne - Non-Executive Director, Ashok Pathirage - Chairman/ Managing Director, Roshan Rassool - Executive Director, Richard Ebell - Non-Executive Independent Director, Ranjan Perera - Executive Director, Dr. Sivakumar Selliah - Non-Executive Independent Director, Prashantha Lal De Alwis - Non-Executive Independent Director, Haresh Kaimal - Executive Director, Hemantha Gunawardena - Executive Director
- 20. 18 Softlogic Holdings PLC ‘Withtheir knowledge and experience gained in diverse businesses as Directors and Senior Managers, the Board of Directors has the capability needed to build on successes of the past and establish Softlogic as a pre-eminent Sri Lankan conglomerate.’ Ashok Pathirage Chairman/ Managing Director With a visionary outlook, Mr. Pathirage provides strategic leadership to a conglomerate whose turnover is nearly Rs.40 Bn. He was appointed Chairman of Softlogic in 2003. Six other entities under his Chairmanship are listed on the Colombo Stock Exchange. He is the Chairman/Managing Director of the country’s leading private healthcare provider, Asiri Group of Hospitals. He is also Chairman of Softlogic Capital PLC, Softlogic Finance PLC, Asian Alliance Insurance PLC, Asian Alliance General Insurance Ltd. and Odel PLC whilst also being Chairman of other Group companies that operate in Leisure, Retail, Automobile and ICT businesses. He also serves as Deputy Chairman of National Development Bank PLC and is Chairman of NDB Capital Holdings PLC. Hemantha Gunawardena Executive Director Mr. Gunawardena is one of the co- founders of the Softlogic Group and has served as a Director from its inception. He has extensive experience in the field of IT, both front- and back-end, and counts over 25 years in this field. He was a Senior Software Manager at a leading Sri Lankan Blue Chip before joining Softlogic. He is presently Director/CEO of the Software Division of Softlogic Information Technologies (Pvt) Ltd and Director Softlogic BPO Services (Pvt) Ltd. Haresh Kaimal Executive Director Mr. Haresh Kaimal is a co-founder of Softlogic and a Director since its inception. With over 25 years of experience in IT and operations, he currently heads the IT division of the Group to drive advancements in Information Technology and Enterprise Resource Management within Softlogic. He is also a Director of Odel PLC and Softlogic BPO Services (Pvt) Ltd. Ranjan Perera Executive Director Mr. Ranjan Perera is one of the co- founders of Softlogic. He is Sector Head – Mobile Business and the Managing Director of Softlogic International (Pvt) Ltd. He possesses extensive knowledge from his many years of experience in senior managerial positions handling world renowned brands in mobile telecommunication. Roshan Rassool Executive Director Mr. Roshan Rassool joined Softlogic in 1995 and was appointed to the Board in 2009. He is Director/CEO of the Computing Systems & Systems Integration Solutions Division of Softlogic Information Technologies (Pvt) Ltd., which has business partnerships with Dell Corporation, Apple Computers, Lenovo, CISCO, EMC storage systems, Microsoft, HP imaging products and VMware. He was appointed a member of Dell South Asia Partner Advisory Council in 2011. He served as Chairman of Infotel Lanka in 2006/2007 and was President of Sri Lanka Computer Vendors Association at the same time. He was also Chairman of the Federation of Information Technology Industries, Sri Lanka in 2007. He holds an MBA from the University of East London. He is also an Associate Member of the Association of Business Executives and a Member of the Cyprus Institute of Marketing. He has over 25 years of experience behind him in the ICT industry having worked at senior managerial positions in reputed companies. Board of Directors
- 21. 19 Annual Report 2014-15 Dr.Sivakumar Selliah Non-Executive Independent Director Dr. Selliah holds an MBBS degree and a Masters Degree (M.Phil). He joined the Board of Softlogic in 2010. He has over two decades of experience in varied fields. He is Deputy Chairman of Asiri Hospitals Holdings PLC, Asiri Surgical Hospital PLC and Central Hospital Ltd. He is a Director of Odel PLC, HNB Assurance PLC, Lanka Walltiles PLC, Lanka Tiles PLC, Horana Plantations PLC, ACL Cables PLC and Lanka Ceramics PLC. He is also the Chairman of Cleanco Lanka (Pvt) Ltd and JAT Holdings (Pvt) Ltd. Dr. Selliah serves on the Remuneration and Audit Committees of some of the companies on whose Board he serves. Prashantha Lal De Alwis, PC Non-Executive Independent Director Mr. Prasantha Lal De Alwis joined the Softlogic Board as a Non-Executive Director in 2011. He obtained his LL.B (Bachelor of Law) and LL.M (Masters in Law) from the University of Colombo and Sri Lanka Law College respectively and was enrolled as an Attorney-at-Law in 1983. He started his career as a State Counsel at the Attorney General’s Department of Sri Lanka in 1983 and served in that capacity until 1990. He subsequently joined the private bar and since then has practised in both Appellate and Trial courts, specialised in Criminal and Family Law. He was appointed a President’s Counsel in 2012. He is a visiting Lecturer at the Faculty of Law, University of Colombo, and a member of the Board of Management of the Centre for Studies of Human Rights, University of Colombo. 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, Orit Apparel Ltd. and Coral Sands Hotel Ltd. He is an Associate Member of the Chartered Institute of Marketing (CIM) UK and is presently 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. Harris Premaratne Non-Executive Director Mr. Harris Premaratne joined the Softlogic Board in February 2014. He has extensive banking experience, having held several top positions and gained many accolades in the banking industry. He is an Associate of the Chartered Institute of Bankers, London. Mr. Premaratne is a Past President of the Sri Lanka Banks’ Association. He is currently on the Boards of Asiri Hospital Holdings PLC, Asiri Surgical Hospital PLC, Softlogic Capital PLC, Asiri Central Hospitals Ltd. and Central Hospital Ltd. and is Chairman of Remuneration Committee and member of the Audit Committee of all those hospitals. He was appointed Executive Director and Deputy Chairman of Softlogic Finance PLC on 21 January 2015. Richard Ebell Non-Executive Independent Director Mr. Richard Ebell was appointed to the Board of Softlogic in March 2014. He is a Fellow of the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and the Chartered Institute of Management Accountants (CIMA), UK. He also holds a Diploma in Marketing from the Chartered Institute of Marketing (CIM), UK. Mr Ebell has experience of almost 40 years in finance and commercial activity after qualifying as a Chartered Accountant. He is a Past President of CIMA, Sri Lanka Division, and a member of CA Sri Lanka’s Quality Assurance Board. He participated in establishing an Audit Committee Forum in June 2014, and remains involved with that initiative. Mr. Ebell also serves on the Boards of Finlays Colombo PLC and Cargills Bank Ltd. Note : Desamanya Deva Rodrigo served as a Non-Executive Independent Director of Softlogic Holdings PLC until his resignation from the Board on 30 June 2014.
- 22. 20 Softlogic Holdings PLC IftikarAhamed - Financial Services Dr. Manjula Karunaratne - Healthcare Services Nasser Majeed - Retail Dr. Stephan Anthonisz - Leisure Sector Heads
- 23. 21 Annual Report 2014-15 ‘Itis our endeavour to remain focused on opportunities to reach operational excellence. We balance this freedom with a strong sense of cost-discipline in mind being fully aware of those market forces which require fast response to change. Our guidelines and processes, facilitate innovation and promote unrivalled customer service which is documented and well understood across the Group’ Iftikar Ahamed Sector Head – Financial Services Iftikar Ahamed heads the Financial Services sector of the Group. He is Managing Director of Softlogic Capital PLC, the holding Company of the Financial Service sector, and is also Managing Director of Asian Alliance Insurance PLC and an Executive Director of Softlogic Finance PLC and Softlogic Stockbrokers (Pvt) Ltd. Mr. Ahamed counts over 30 years of experience in a wide range of roles within the financial services industry and has extensive banking experience both in Sri Lanka and overseas. He has held senior management positions as Deputy Chief Executive Officer at Nations Trust Bank PLC and Senior Associate Director at Deutsche Bank AG. He holds an MBA from the University of Wales, UK. Dr. Manjula Karunaratne MBBS, M.Sc (Trinity, Dublin), Dip. MS Med (UK) MSOrth Med. (Eng) Sector Head – Healthcare Services Dr. Karunaratne was appointed to the Board of Asiri Hospital Holdings PLC and Asiri Surgical Hospital PLC in 2006, and is currently Chief Executive Officer of the Asiri Hospitals Group. He also serves on the Boards of Central Hospital Ltd, Asiri Central Hospital Ltd., Asiri Hospital Matara (Pvt) Ltd., Asiri Diagnostic Services (Pvt) Ltd. and Asiri Hospital Kandy (Pvt) Ltd. He previously held the positions of Medical Director, Asiri Hospital Holdings PLC and was Group Chief Operating Officer, Asiri Hospitals Group. Dr. Karunaratne is a Specialist in Sports/ Orthopedic Medicine. He possesses over 25 years of professional medical experience both in Sri Lanka and overseas, and is responsible for the overall medical policy of the Group. Nasser Majeed Sector Head – Retail Mr. Nasser Majeed assumed duties as CEO, Retail Sector in 2013. He counts over 25 years of multi- disciplined business experience, starting his career at KPMG Ford Rhodes Thornton & Company in 1981 and moving to Singer Industries (Ceylon) Ltd. in 1984. He served the Singer group in many areas including Cost Accounting, Product Management, Exports, Marketing and General Management. His experience includes a stint as Director / General Manager of PT Singer Indonesia Tbk., from 2005 to 2006 and thereafter as Marketing Director of Singer Sri Lanka PLC from 2007 to 2013. Nasser also served on the Boards of Regnis Appliances Ltd., and Singer Sri Lanka PLC as an Alternate Director. Dr. Stephan Anthonisz Sector Head – Leisure Dr. Anthonisz joined Softlogic in 2012 as CEO/ Director of Softlogic Properties (Pvt) Ltd. He is responsible for our two leisure projects of which one, Centara Ceysand Resorts & Spa, is now in operation. Stephan has held managerial positions covering diverse roles in Sri Lanka and overseas with leading conglomerates. He previously held the position of Head of Value Added Tea Exports at Unilever Ceylon Ltd., before taking on the role of CEO, Property Development with Asian Hotel & Properties PLC. He holds an MBA and a Doctorate in Business Administration from the Australian Institute of Business Administration, Adelaide. The entrepreneurial spirit of our team
- 24. 22 Softlogic Holdings PLC FunctionalHeads Desiree Karunaratne - Group Director Marketing Linton Nelson – Director, Logistics Vindya Solangarachchi - Head of IT Ruwanthi Fernando - Head of Business Consultancy and Resource Planning Damith Vitharanage - Group Head of Risk and Internal Audit Erandi Wickramaarchchi - Group Chief Financial Officer
- 25. 23 Annual Report 2014-15 HiranPerera - Head of Treasury and Corporate Finance Chinthaka Ranasinghe - Head of Strategy and Business Development Natasha Fonseka - Group Head of Human Capital & Taxation Meneka Galgamuwa - Head of Corporate Planning
- 26. 24 Softlogic Holdings PLC ChinthakaRanasinghe Head of Strategy and Business Development Joining Softlogic in 2014, Mr. Chinthaka Ranasinghe heads the Group Strategy and Business Development division. He has over 18 years of senior managerial experience in equity research and investment banking in one of Sri Lanka’s leading conglomerates. He is a Management Graduate from the University of Colombo (BBA) and a Passed Finalist of the Chartered Institute of Management Accountants – UK. Damith Vitharanage Group Head of Risk and Internal Audit He joined Softlogic in 2013 and has over 15 years of senior managerial experience in Audit, Investigation, Financial Management, Financial Analysis, Administration, Human Resource Management, Information Security, Risk Management and General Management in both the state and private sectors in Sri Lanka and the Middle East. He is a Management Graduate from the University of Colombo (BBA), holds a Post- graduate diploma in HR and possesses a Management MBA specialised in Transformational Leadership. He has Associate Memberships from the Institute of Chartered Accountants of Sri Lanka, the Chartered Institute of Management Accountants (CIMA), UK, and the Chartered Institute of Marketing (CIM), UK, and is a Certified Information System Auditor (CISA) USA and Certified Project Manager (PMP) USA. Desiree Karunaratne Group Director - Marketing She joined Softlogic in 2003 and is Group Director Marketing. She holds an MBA from the University of Wales. She has over 15 years of senior management experience across a diverse range of businesses in retail, fashion, information technology, travel and media. She serves on the Boards of Softlogic Restaurants (Pvt) Ltd., Softlogic Destinations Management (Pvt) Ltd., Silk Route Foods (Pvt) Ltd and Nextage (Pvt) Ltd. Erandi Wickramaarchchi Group Chief Financial Officer She joined Softlogic in 2004 and serves as Group Chief Financial Officer. She holds a Special Degree in Accountancy and Financial Management from the University of Sri Jayawardenepura. She is a Fellow of the Institute of Chartered Accountants of Sri Lanka and an Associate of the Institute of Certified Management Accountants, Sri Lanka. She holds an MBA in Finance from the Cardiff Metropolitan University. She is also an Associate of the Institute of Certified Public Accountants (CPA), Australia. She serves on the Boards of Softlogic Capital PLC, Softlogic Communications (Pvt) Ltd., Softlogic Corporate Services (Pvt) Ltd., Softlogic BPO Services (Pvt) Ltd. and Ceysand Resorts & Spa Ltd. Hiran Perera Head of Treasury and Corporate Finance He joined Softlogic in 2013 as the Head of Corporate Finance and Treasury. Prior to this appointment, he was Head of Wholesale Risk, Sri Lanka and Maldives, at HSBC. He counts 28 years of experience in banking, including three years of cross-border exposure. Linton Nelson Director - Logistics He joined Softlogic in 2013 as Director - Logistics and is responsible for Group Shipping & Logistics (including Odel’s distribution centre) and Group Security. He counts over 37 years of experience in the Department of Customs of Sri Lanka, with 15 years of senior managerial experience as Head of Intelligence and Director Sea Cargo Clearance. He is in the final stages of a Bachelor’s Degree in Law at the Open University of Sri Lanka and holds a Higher National Certificate in Business Studies. He has had special training in the UK, USA, Japan, Australia and China to strengthen his expertise in logistics. Meneka Galgamuwa Head of Corporate Planning She joined Softlogic in 2011 and serves as Head of Group Corporate Planning. She is an Associate of the Chartered Institute of Management Accountants (CIMA), UK, and an Associate of the Chartered Institute of Marketing (CIM), UK, and holds an MBA from the University of Sri Jayawardenapura. She has over 15 years of senior management experience in diverse industries in Sri Lanka and the UK. Functional Heads
- 27. 25 Annual Report 2014-15 NatashaFonseka Group Head of Human Capital & Taxation She joined the Group in 2010 and is currently Group Head, Human Capital & Taxation. She is an Associate of the Chartered Institute of Management Accountants (CIMA), UK and a Chartered Global Management Accountant (CGMA), USA. She counts over 20 years of experience in senior managerial positions in taxation, financial advisory services, finance and human resources in reputed professional firms and in the private sector. Ruwanthi Fernando Head of Business Consultancy and Resource Planning Ruwanthi joined Softlogic in 2014. She brings on board more than 17 years of experience as a senior manager in various MNCs based in Sri Lanka and the USA. Her career in finance and in ICT spans across corporate banking, venture capital, equity research, technology advisory and business process outsourcing (BPO)/ offshoring. She holds an MBA from the University of New Haven, Connecticut, USA and completed a Programme on Investment Appraisal, Project Finance and Risk Analysis, Harvard International Institute of Development (HIID), Harvard University, USA. She is also a finalist of the Chartered Institute of Management Accountants (CIMA), UK. Vindya Solangaarachchi Head of IT He joined Softlogic in 2013 as Head of IT. He holds a Master of Science Degree in Technology Management (from Staffordshire University), a Bachelor’s Degree in Information (from Charles Stuart University), a Higher National Diploma (from Edexcel) and a Diploma in Computer Studies (from NCC, UK) and is a Member of the British Computer Society. He counts over 15 years of senior management experience in ICT, retail and insurance.
- 28. Softlogic Holdings PLC >>We believe that with policy stability, a fast moving economy would ensure the multiplier effect of growth which then will naturally accompany the principle of intrinsic value creation inherent in our diversified business model; this will propel the Group to a new unparalleled height. 26 Management Discussion & Analysis LOCAL ECONOMY Economic Indicators 2014 2013 2012 2011 2010 2009 GDP (Market Prices) USD Bn 74.9 67.2 59.4 59.2 49.6 42.1 GDP per Capita USD 3,625 3,280 2,922 2,836 2,400 2,057 GDP Growth % 7.4 7.2 6.3 8.2 8.0 3.5 Unemployment Rate % 4.3 4.4 4.0 4.2 4.9 5.8 GDP Deflator 5.1 6.7 8.9 7.9 7.3 5.9 Export USD Mn 11,130 10,394 9,774 10,559 8,626 7,085 Imports USD Mn 19,417 18,003 19,190 20,269 13,451 10,207 Workers' Remittances USD Mn 7,017.8 6,407.0 5,985 5,145 4,116 3,330 Current Account Balance % of GDP (2.7) (3.8) (6.7) (7.8) (2.2) (0.5) Tourist Arrivals '000 1,527 1,275 1,006 856 654 448 Overall Balance USD Mn 1,369.0 985.0 151 (1,061) 921 2,725 Total External Debt USD Mn 43.0 39.9 37.1 42.2 43.3 44.4 Annual Average Exchange Rate Rs/ USD 130.6 129.1 127.6 110.6 113.1 114.9 Budget Deficit % of GDP 6.0 5.9 6.5 6.9 8.0 9.9 Government Debt % of GDP 75.5 78.3 79.2 78.5 81.9 86.2 Interest Rate (91-Day T-Bill), % p.a 5.7 7.5 10.0 8.7 7.2 7.7 Inflation Rate (Annual Avg CCPI Change) % 3.3 6.9 7.6 6.7 6.2 3.5 Year End All Share Price Index 7,298.95 5,912.8 5,643.0 6,074.4 6,635.9 3,385.6 Diversified Sector Index 2,105.5 1,759.5 1,822.0 1,909.1 2,2421 1,132.8 S&P SL20 Index 4,089.1 3,263.9 3,069.0 n/a n/a n/a Population '000 20,675 20,483 20,328 20,869 20,653 20,450 Doing Business Ranking 99 85 83 102 105 97 Sovereign Ratings: Fitch BB- Stable BB- Stable BB- Stable BB- Stable B+ Positive B+Negative Standard & Poor's B+ Stable B+ Stable B+ Stable B+ Positive B+ Stable B Negative Moody's B1 Positive B1 Positive B1 Positive B1 Positive B1 Stable -
- 29. 27 Annual Report 2014-15 SriLanka’s economy grew 7.4% in 2014, up marginally from 7.2% a year earlier yet lower than the projection of 7.8%. Accordingly, per capita GDP increased to USD3,625 in 2014 from USD3,280 in the previous year. Inflation was contained at single-digit levels for the sixth consecutive year, with reductions in fuel, gas, electricity and water prices late in the year. Unemployment declined marginally, to 4.3% in 2014 from 4.4% last year. The year witnessed a political transition with the Presidential Election in January 2015, bringing some uncertainty on economic policy. Growth was led by domestic consumption expenditure, while investments added to the economic expansion during the year. The Services sector, which accounted for 57.6% of GDP, grew 6.5% for 2014 led by wholesale and retail trade, transport and communication, banking, insurance and real estate. The Industrial sector recorded growth of 11.4% in 2014, increasing its share to 32.3% of GDP (31.1% in 2013), with the Construction sub-sector being the top contributor. Agriculture suffered due to adverse weather patterns, and grew marginally in 2014. Lower interest rates drove private consumption, whilst domestic savings grew slightly to 21.1% of the GDP (20.0% of the GDP in 2013). Sri Lanka’s external sector reflected an overall BOP balance. The current account deficit narrowed to 2.7% of GDP (3.8% in 2013) with help from workers’ remittances. The trade deficit declined to 11.1% of the GDP in 2014 (from 11.3% last year). Regular policy intervention maintained foreign exchange rates during the year. GLOBAL ECONOMY The global economy grew 3.4% in 2014. Advanced economies recovered, while growth in emerging market and developing economies slowed. OUTLOOK Global A global slowdown was witnessed during 1Q2015, mostly from North America. However, easy financial conditions, more helpful fiscal policies in the Euro region, lower oil prices and improving confidence and labour market conditions countered stalling growth. • Emerging Markets – Negative Growth for the last four years has not encouraged expectations of mid- term growth. However, a rebound is expected in 2016. Projections 2013 2014 2015E 2016E Global World Output (Annual Growth %) 3.4% 3.4% 3.3% 3.8% Advance Economies (Annual Growth %) 1.4% 1.8% 2.1% 2.1% Emerging Market and Developing Economies (Annual Growth %) 5.0% 4.6% 4.2% 4.7% World Trade Volume - Goods & Services (Annual Growth %) 3.3% 3.2% 4.1% 4.4% Commodity Prices Oil -0.9% -7.5% -38.8% 9.1% Non-Fuel (average based on world commodity export weights) -1.2% -4.0% -15.6% -1.7% Consumer Prices Advance Economies (Annual Growth %) 1.4% 1.4% 0.0% 1.2% Emerging Market and Developing Economies (Annual Growth %) 5.9% 5.1% 5.5% 4.8% London Interbank Offered Rate (%) On USD (six month) 0.40% 0.3% 0.40% 1.20% On Euro (three month) 0.2% 0.2% 0% 0% On JPY (six month) 0.2% 0.2% 0.10% 0.10% Source : World Economic Outlook – July 2015 Update ‘Slower Growth in Emerging Markets, a Gradual Pickup in Advanced Economies’ – World Economic Outlook, July 2015 Update
- 30. 28 Softlogic Holdings PLC •Advanced Economies –Temporary setbacks in North America will drag down growth of the advanced economies. Ageing population and declining investments are some weaknesses. Wage growth and relaxed financial conditions, lower oil prices and stronger housing markets, are strengths. The economic recovery in the Euro region resulted in a robust recovery in domestic demand there and reflects a strong economic comeback. Japan recorded a more-than-expected growth in the first quarter of 2015 supported by a pickup in capital investment. • Oil – Oil prices recovered in 2Q2015 reflecting higher demand. Global oil supply is running well above 2014 levels and inventories are still rising. The reduction in oil investments may, however, lead to weaker activity in North America than expected earlier. Local Growth in 2015 will be determined by political stability and the priorities of the Government. Modest growth will be reported in 2015, with the slowdown of public sector construction. Political uncertainty could impede private investments, but consumption will increase with the price reductions on food and fuel. State consumption will increase recurrent expenditure. Export industries will benefit from the economic climate in advanced economies. Performance of the agricultural sector is dependent on the weather, although increases in government-guaranteed prices for several agricultural products are likely to induce increases in production. Economic growth is likely to gain pace beyond 2015 following implementation of new policies by the Government. Productivity levels will increase with the adoption of technology and development of human resources. Monetary policy will assist in maintaining inflation at single-digit levels and fiscal policy will reduce budget deficits and improve the Government’s debt profile. CONSOLIDATED FINANCIAL REVIEW Reporting Compliance The financial performance and position for the year are based on Sri Lanka Accounting Standards. The statements are in line with the requirements of the Colombo Stock Exchange and the Companies Act No.07 of 2007. Revenue Consolidated revenue for the year ending 31 March 2015 approached Rs.40.0 Bn, an increase of 35.3%. Retail contributed most, making up 31.2% of the Group’s top line, followed by ICT with 23.5%, Healthcare and Financial Services with 21.7% and 20.1% respectively. The boost in the Retail segment followed the consolidation of Odel’s results for five months of the year. Expansions in Consumer Durables, apparel and restaurants added to the growth. ICT sector performance reflected the success of our recently Management Discussion & Analysis Projections Local 2015E 2016E 2017E 2018E GDP (Market Prices - Rs. Bn) 11,080 12,447 14,044 15,853 Annual Average Inflation (%) 3% 4% 4% 4% Per Capita GDP (USD) 4,009 4,469 4,997 5,624 Current Account Balance (% of GDP) -1% -1.4% -1% -1% Overall Budget Deficit (% of GDP) -4.4% -4.2% -4.0% -3.8% Growth in credit to private sector (%) 15.5% 15% 15% 15% Source : Central Bank of Sri Lanka ‘Going forward, the Sri Lankan economy is projected to reach upper middle income levels and sustain the favourable high growth and low inflation nexus in the medium term, supported by appropriate economic policies.’ - Central Bank of Sri Lanka Revenue (Rs. Mn) 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 2011 2012 2013 2014 2015
- 31. 29 Annual Report 2014-15 commissioned‘Samsung’ operations, while ‘Microsoft Lumia’ handsets and ‘Dell’ computers also contributed. Healthcare Services maintained steady growth, with continuous investment in state-of-the-art facilities during the year, including Cardiac Centre, Beauty Central, Bi-planer Catheterisation Lab, Digital Mammography and Bone Marrow transplant facilities. Financial Services reflected healthy performances of Asian Alliance Insurance, Asian Alliance General Insurance, Softlogic Finance and Softlogic Stockbrokers. Results from Operating Activities Gross Profit grew 28.2% to Rs.14.1 Bn for the year, despite slight erosions in margins as a result of product and channel mix in the Retail and Healthcare sectors. Other operating income reflected a significant Rs.1.2 Bn for the year (up 133.8%). The increase was led by the gain on disposal of investments by Asian Alliance Insurance, and fees on new loans at Softlogic Finance. Operational costs, at Rs 11.0 Bn, accounted for 27.9% of turnover, against 27.0% last year. Administrative expenses made up 81.7% of these costs, growing 41.4% to Rs.9.0 Bn for the year, while distribution expenses grew 33.4%, to Rs.2.0 Bn. Our operating model has proved effective throughout. Softlogic has a history of acquisitions and business formations which are analysed by our Strategy team, with strategies emphasising synergy implemented post-acquisition. Operating Profit for the year was Rs.4.3 Bn, reflecting a strong increase of 17.3%. Of the six sectors, the highest contribution to consolidated operating profit came from Healthcare Services, a contribution of 42.6% for the year, followed by Financial Services which contributed 24.0%. Compared to the previous year, the wholly owned sectors, Retail and ICT improved their contributions significantly, to 20.7% and 16.6% respectively. We expect the improvement to continue as synergies and cost discipline, and the growth impetus at retail strengthens. The performance of the Automotive sector faced challenges, but measures have been taken to turn the business around. The Leisure sector sees positive indications from its newly opened resort Centara Ceysand, and Movenpick City Hotel nearing completion. Net Finance Expenses Net debt, comprising short- and long-term interest bearing borrowings (overdrafts included) less cash and cash equivalents, increased 34.2% to Rs.36.6 Bn as at 31 March 2015, from Rs.27.3 Bn a year before. The increase was primarily driven by the Odel acquisition (cost Rs.5.6 Bn), while other investments, expansions and working capital needs absorbed the balance. Stabilisation of interest rates at a lower level supported our growth strategy. Finance expenses for the year rose only by 1.2%, to Rs.2.7 Bn. Finance income declined 3.0% to Rs.1.1 Bn. A marginal decline in mark-to-market gains on Asian Alliance Insurance’s investment portfolio contributed to the reduction. The life insurer’s fixed income also declined, with fluctuations of interest rates in the treasury/ bond market. EBITDA (Rs. Mn) 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 2011 2012 2013 2014 2015 Profit Before Tax (Rs. Mn) 0 500 1,000 1,500 2,000 2,500 2011 2012 2013 2014 2015
- 32. 30 Softlogic Holdings PLC Taxation Taxexpenses increased 80.5% to Rs.449.6 Mn, compared with Rs.249.2 Mn last year. The effective tax rate remained at 19.8%. Profit after Taxation Consolidated Profit after taxation for the year reached Rs.1.8 Bn, an improvement of 80.3%. Consequently, net profit margins improved to 4.6% for the year from 3.4% last year. Earnings per share for the year increased to Rs.0.7 from Rs.0.2 last year. The result was boosted by a Rs.513.4 Mn fair value gain on the property of Asiri Central Hospitals, which has since been realised on its sale. Non-Controlling Interest Non-Controlling Interest share of profit increased 48.1% to Rs.1.3 Bn, due to increased earnings in the Healthcare and Financial Services sectors. It is noteworthy though, that this share of profit reduced to 69.4%, from 84.6% last year, we expect the trend to continue as performances of our fully owned sectors - Retail, ICT and Leisure - improve. Comprehensive Income Statement Revaluations of the property of Central Hospital (Rs.369.6 Mn). Currency translations of Softlogic Australia’s operation resulted in a gain of Rs.48.5 Mn. Total comprehensive income amounted to Rs.2.2 Bn for the year, against Rs.1.2 Bn last year. Management Discussion & Analysis Five -year Cash allocation Y/E 31 March 2011 2012 2013 2014 2015 Purchase and construction of property, plant and equipment (244.55) (1,064.26) (2,258.47) (3,459.16) (4,023.08) Addition to prepaid lease rentals - (65.00) - - (702.52) (Purchase) / disposal of short term investments (Net) (181.2) 524.3 263.1 469.1 3,007.2 Addition to intangible assets (0.22) (155.03) (8.38) (305.01) (71.18) (Increase) / decrease in other non current assets (165.89) 0.15 (69.65) (63.14) (114.59) Dividends Received - 90.47 145.01 146.29 141.86 (Purchase) / disposal of other non current financial assets - (1,144.54) (1,603.70) (1,989.24) (858.86) Proceeds from disposal of controlling interest - - 28.90 - 347.86 Increase in interest in subsidiaries (12.96) - - - - Increase in interest in associate (807.72) - (1.25) - - Acquisition of business, net of cash acquired (3,272.82) (4,240.02) (183.98) - (5,817.19) Proceeds from sale of property, plant and equipment 65.31 58.69 129.30 91.40 124.17 Net outflow of investing activities (4,720.1) (5,995.3) (3,559.1) (5,109.8) (7,966.3) Profit After Tax (Rs. Mn) 0 500 1,000 1,500 2,000 2011 2012 2013 2014 2015 Total Assets (Rs. Mn) 0 20,000 40,000 60,000 80,000 100,000 2011 2012 2013 2014 2015
- 33. 31 Annual Report 2014-15 Cashflow Cashand cash equivalents increased by Rs.3.9 Bn to Rs.5.6 Bn at 31 March 2015. Net cash flow from operating activities decreased by Rs.1.4 Bn to Rs.425.9 Mn. The most significant contributor in this respect was the increase in loans and advances granted. Net cash outflow on investing activities increased by Rs.2.9 Bn to Rs.8.0 Bn during the year. Major contributors were the increased investment in Property, Plant and Equipment, and the acquisition of Odel. Net cash flow from financing activities increased by Rs.6.1 Bn to Rs.11.5 Bn due to increased long and short term borrowings. PROGRESSIVE OUTLOOK Interest and exchange rates stabilised during the year, which also saw continuing low inflation. Our six sectors generally performed to expectations, with the Retail cluster emerging stronger following Odel’s acquisition. With the conclusion of the Presidential and General Elections, political stability has been achieved. However, we are waiting for policy reforms of the new regime. Interest and exchange rates stabilised during last financial year coupled with low inflation. Other macro elements too supported our business story. Our six sectors performed within our expectations with the Retail cluster emerging stronger following the acquisition of Odel. Given our debt funded acquisition, we may consider replacing debt with equity should a change in the macroeconomic environment takes shape prompting a prudent rebalancing of the portfolio. We believe that with policy stability, a fast moving economy would ensure the multiplier effect of growth which then will naturally accompany the principle of intrinsic value creation inherent in our diversified business model; this will propel the Group to a new unparalleled height.
- 34. 32 Softlogic Holdings PLC RetailSector Apparel business offers authentic brands. Consumer durables offer quality, value for money and easy reach. We have developed a distinctive retail strategy in the consumer durables space, and in the premium clothing and accessories segment. Our apparel business offers authentic brands, while our consumer durables offer quality, value for money and easy reach. Our Furniture stores are the definitive provider of contemporary furniture and home accessories including bedding, cutlery and home décor. Our entry into fast foods has been a success, with BURGER KING® becoming one of the top choices of consumers. Our Quick Service Restaurant (QSR) operation extended its reach during the year, while
- 35. 33 Annual Report 2014-15 alsoexpanding its menu. Restaurants were opened in Kandy and at the Colombo Airport, Central Hospital and Arcade at Independence Square. BURGER KING® was recognised as Sri Lanka’s Best New Market in Restaurant Excellence at the 2014 Asia Pacific Convention. We added ‘Whirlpool’ to our range during the year, and also now retail ‘Samsung’ products from our telecommunication subsidiary. A restructuring took place after the Odel acquisition so we could capitalise on synergies. Odel is now the holding company of our fashion and apparel businesses with Softlogic Retail being the parent of all businesses covering consumer durables, furniture and apparels. Store Expansion Brand Authenticity Increasing Footfall SOFTLOGIC HOLDINGS PLC SOFTLOGIC RETAIL (PVT) LTD. Retailer of Consumer Durables and Furniture SOFTLOGIC RESTAURANTS (PVT) LTD. Quick Service Restaurant chain operating BURGER KING® restaurants’ DAI-NISHI SECURITIES (PVT) LTD. Non-operating subsidiary ODEL PLC Chain of retail departmental stores SILK ROUTE FOODS (PVT) LTD. Restaurant at the Colombo Airport SOFTLOGIC BRANDS (PVT) LTD. Branded apparel stores. OTHER ODEL SUBSIDIARIES Manufacturing products for Odel and supporting services -- premises, logistics, warehousing, IT and other business services Revenues reached Rs.12 Bn, up 64%, for the year
- 36.
- 37. 35 Annual Report 2014-15 INDUSTRYREVIEW Sri Lanka has a significant-sized population of some 21 Mn. Increases in Sri Lanka’s retail spend are closely correlated with growth in GDP. Private Consumption Expenditure (PCE) on clothing and footwear grew 15.4% in 2014, rising to 5.7% of PCE. A per capita GDP of USD5,624 is projected in 2018, up from USD3,625 in 2014. This portends a significantly higher retail spend in the future. Increasing and changing consumer needs have catalysed the development of retailing in the country. There are a small number of organised players in the sector. These established players continue to pursue market penetration strategies, focusing on hitherto untapped regions of the country. Today’s shoppers, Sri Lankans as well as tourists, are more conscious in their buying decisions, seeking value for their money and therefore the best deals available. They are also shifting their channel of purchase from physical visits to virtual stores. COMPANY REVIEWS Softlogic Retail (Pvt) Ltd. Demand for consumer durables and aspirational goods showed clear growth during the year. This was seen in rural areas as well as in metropolitan areas. The Consumer Durables market was stable, with favourable exchange rates and interest rates helping. Relaxed credit fueled consumer growth, as did increased cash in the hands of consumers. We used a number of sales strategies to hold our own against competitors. Competitive pricing, interest-free hire purchase facilities, tie- ups with banks for interest-free FY15 FY14 % YoY FY13 Profitability Revenue (Rs. Mn) 12,334.3 7,538.7 63.6% 5,647.1 EBITDA (Rs. Mn) 1,112.5 693.7 60.4% 750.7 EBT (Rs. Mn) 340.7 192.1 77.4% 364.5 PAT (Rs. Mn) 271.2 153.5 76.7% 282.6 No. of Employees 1,863 805 746 Financial Position Total Assets (Rs. Mn) 22,368.8 9,034.6 147.6% 6,511.4 Total Equity (Rs. Mn) 6,904.4 1,746.2 295.4% 1,088.5 Total Debt (Rs. Mn) 10,560.3 3,620.9 191.6% 3,359.4 Capital Employed (Rs. Mn) 17,464.7 5,367.1 225.4% 4,447.9
- 38. 36 Softlogic Holdings PLC instalmentschemes, and an effective sales team ensured growth during the year. Softlogic’s distribution network is a key strength which we are resolutely building on to achieve territorial expansion. A stronger contribution is expected from the furniture segment in the future, as we have recently begun representing ‘Natuzzi Italia’ - a large furniture house with a strong global reach, having 7 manufacturing plants and more than 1,200 points of sale worldwide. Softlogic Brands (Pvt) Ltd. We are Sri Lanka’s only fashion retailer, holding exclusive rights for leading international brands which are trend setting and enjoy widespread brand loyalty and quality acceptance. We added a number of franchise partnerships during the year – ‘Tommy Hilfiger’, ‘Crocs™’ and ‘Pepe Jeans’ were introduced most recently. This has assisted us in driving the market and establishing Softlogic Brands as a leading fashion retailer in Sri Lanka. The Odel acquisition confirmed our commitment to the local fashion market. Softlogic Restaurants (Pvt) Ltd. This company holds the master franchise for BURGER KING® in Sri Lanka. BURGER KING ® is the world’s second largest hamburger chain serving over 11 Mn guests per day across 91 nations. We opened seven restaurants – in Kollupitiya, Rajagiriya, Mount Retail Sector Market Penetration Strategy Fold 01 Metropolitan and Urban Reach Upscale ‘Softlogic Max’ stores, with industry-best visual merchandising and sales practices. These stores have an average retail space of 4,500 sq.ft. There are 12 ‘Softlogic Max’ stores in prime city locations. Fold 02 Rural Reach Softlogic and mini showrooms, easily and quickly set up, target rural markets. These have retail space ranging between 800-1,500 sq.ft. We also encourage the sales concept of ‘travelling bags’ taking our products to doorsteps across the island. We have 194 Softlogic and mini showrooms islandwide. Number of Consumer Electronics showrooms (includes 02 ‘Samsung’ flagship stores) 208 Total Retail Space (Sq. ft) 263,714 Targeted showroom count by 31 March 2016 250 Targeted Retail Space by 31 March 2016 (Sq. ft) 303,714
- 39. 37 Annual Report 2014-15 Lavinia,and Kandy, and at the Arcade Independence Square, the Central Hospital, and the Colombo Airport -- within a year of operation. PROGRESSIVE PERFORMANCE The Retail sector recorded a revenue growth of 63.6% during the year to Rs.12.3 Bn, five months of Odel’s revenue being consolidated in Group turnover. The year began with unfavourable weather conditions impacting the purchasing power of customers. The situation reversed with a good harvest, and Government actions putting more money in consumers’ hands. Favourable interest and exchange rates helped. The Sector’s operating profits grew 47.8% to Rs.878.3 Mn in FY2014/15. An increase of 20.0% in finance costs was primarily due to the acquisition of Odel and increases in working capital consequent to expanding activity. Profit before tax increased 77.4%, to Rs.340.7 Mn for the year, contributing 15.0% to the Group. The sector completed the year with a bottom line of Rs.271.2 Mn, reporting a strong increase of 76.7%. PROGRESSIVE OUTLOOK The retail industry is set for a steady run in the next years, with a growing consumer preference for authentic brands and a shift towards organised trade taking shape. Tourists have been a target audience for us. The average tourist stay in Sri Lanka in 2014 was 10 days, and the average spend USD161 per day. It is estimated that 55% of this spending is on food and lodging, while the balance is on shopping. Given the country’s ambitious tourist arrivals target of 2.5 Mn for 2018, we believe this market will contribute strongly to the retail industry in future years. Domestic purchases have by no means slowed down. Sri Lanka’s growing middle-class population and changing spending patterns favouring branded products and the organised retail sector is expected to help keep retail demand upbeat in the upcoming years. Colombo, as the commercial capital of the country, has enormous retail potential and is expected to witness significant retail development. Softlogic Retail will continue with its expansion strategy, while Softlogic Brands has successfully signed exclusive distributorship agreements with many other international brands. ‘Peter England’, ‘Van Heusen’, ‘Louis Philippe’, ‘Only’, ‘Jack & Jones’, ‘Vero Moda’, ‘Puma’ and ‘Allen Solly’ are new apparel brands with Softlogic. We will also introduce Luxottica’s eyewear portfolio inclusive of ‘Prada’, ‘Alain Mikli’, ‘Armani Exchange’, ‘Arnette’, ‘Burberry’, ‘Bvlgari’, ‘Chanel’, ‘Coach’, Dolce & Gabbana’, ‘Emporio Armani’, ‘Giorgio Armani’, ‘Michael Kors’, ‘Miu Miu’, ‘Oakley’, ‘Polo Ralph Lauren’, ‘Tiffany & Co.’, ‘Tory Burch’, ‘Versace’ and ‘Vogue Eyewear’.These brands will be retailed in exclusive showrooms as well as in our departmental stores – Odel and Galleria. Our QSR chain will continue to expand its presence in prime city locations. THE ODEL MALL Studies reveal that Sri Lanka’s per capita mall stock versus its per capita income of the country is relatively low within the region. Colombo has about 8 limited space malls with around 10 in the pipeline. Considering the Sri Lankan preference for organised retail space, the paucity of outlets in existing malls and the relatively few malls in the pipeline, the idea of an Odel mall concept came to life. Odel’s mall in the prime Colombo location it occupies, will add to retail dynamism in the country. This 400,000 sq.ft mall will be in operations by 2018. Number of Branded Apparel Stores 17 Total Retail Space of Branded Apparel Stores (Sq.ft) 38,358 Number of Odel Stores 20 Odel Retail Space (Sq.ft) 108,118
- 40. 38 THE STORY OFTHE ACQUISITION OF ODEL Odel is one of the largest retailers of apparel and fashion lines in Sri Lanka, with its brand ideals of satisfying “Mind, Body & Soul”. The company focuses on creating fashion trends and delivering value to its shoppers by offering compelling selections of local and imported apparel, fashion accessories and footwear, and a home store. Odel is the country’s strongest local fashion brand and serves a broad spectrum of customers. Softlogic was offered the 44.5% of the shareholding of the promoters of Odel, in September 2014. The cost of accepting the offer, at a price of Rs.22.0 per share was approximately Rs.2.7 Bn. As required by the Company Takeover’s and Mergers Code 1995 as amended in 2003, a joint offer was then made by Softlogic Holdings and Softlogic Retail to the other shareholders. Parkson Retail Asia Limited, who held 47.46% of the share capital accepted the offer. Taking note of other acceptances also, a total of Rs.5.6 Bn, shared between Softlogic Holdings and Softlogic Retail, was ultimately invested in acquiring a 93.39% stake in the company. Household name in Sri Lanka’s retail market, attracting c.3,500 footfalls on weekdays and over 5,000 on weekends
- 41. Odel has achieveda high level of visibility in Colombo and other urban areas, as shown below Rationale for the acquisition Odel is a household name in the Sri Lankan apparel market, attracting approximately 3,500 footfalls on weekdays and over 5,000 on weekends. Softlogic Holdings through its subsidiary, Softlogic Brands, possesses the largest international branded apparel and fashion accessory portfolio in Sri Lanka. These lines complement Odel’s range of products excellently • Colombo 07 • Majestic City • Katunayake Airport • Ja-Ela • Kohuwela • Crescat • Nugegoda • Mount Lavinia • Panadura • Moratuwa • Battaramulla • Kiribathgoda • Kandy • Wattala • Dutch Hospital • Queens • Negambo • Galle
- 42. 40 Softlogic Holdings PLC whenthey are combined, giving the shopper a unique experience. The addition of Odel to our business portfolio has already created significant synergies through: • Odel’s footfalls becoming available to Softlogic‘s branded apparel and accessories when those are sold by Odel. • Sharing of back-end infrastructure and optimal use of available retail store space. Softlogic Brands has over 35,000 sq. ft. of prime retail space in Colombo, in which 19 brands are retailed. The combination of this with Odel’s makes us a very powerful player. Odel owns a large land area in Ward Place, Colombo 07, whose underutilised area is planned to be converted to a high-end mall, in which rental space is priced at a premium. It also holds land in Battaramulla, which is planned to be disposed of. FUTURE – OUR PATHWAY TO FURTHER SYNERGIES Ownership Changes A change of ownership was in effect with Odel becoming the holding company of the apparel and fashion businesses of Softlogic. The transfer of Softlogic Brands from Softlogic Retail was based on an independent valuation of Softlogic Brands. The stake in Odel held by Softlogic Holdings has been transferred to Softlogic Retail, making Softlogic Retail the parent of Odel. Synergetic effects have been evident in Odel’s post acquisition (2HFY2014/15) period with the operational cost base improving significantly. We expect that these changes will further help realise the synergies of shared expertise, overhead rationalisation and retail space/ revenue optimisation. Wider brand choice under one roof Odel has been a favourite shopping centre for Sri Lankans, expatriates and foreign visitors. This retailer has been the one to attract customers from both middle and high income categories selling a good mix of exclusive as well affordable quality range of various related-products. Building on these strengths, we have gradually housed some of our own international apparel section at Odel. Odel was already selling Nike and Levis products, and our international watch range, before the acquisition. All our apparel brands other than Charles & Keith and French Connection have now been placed at Odel. We also plan to offer other leading local brands at Odel. Our aspiration The story of the acquisition of Odel PLC
- 43. 41 is to makeSoftlogic/Odel, the choice shopping destination for people across all strata of society. The Odel Mall Shopping malls are popular in Sri Lanka with the greater sophistication and international awareness of customers and the convenience malls offer. We will be constructing a premier shopping mall using German designers at Odel’s flagship store at Kannangara Mawatha, Colombo 07. The present Odel store would continue its operations with the mall being planned at the under-utilised land base. Top German designers and architects have already developed the blue print of this mall. This mall will feature an extensive retail space to house some of the best known brands both locally and abroad to better cater to local and international tourists and retail customers.
- 44. 42 Softlogic Holdings PLC Healthcare ServicesSector Core focus is on upgrading technology and assembling the best team of medical professionals we can, to contribute to the highest quality standards possible. ‘Asiri’ has established and is consolidating its presence as one of the foremost private healthcare provider in Sri Lanka. The hospitals have continuously invested to keep up with global trends. Asiri’s consultants and the medical expertise it offers are its core strengths.
- 45. 43 Annual Report 2014-15 Leadinghealthcare provider in Sri Lanka State-of-the-art medical facilities Well-trained Medical Professionals SOFTLOGIC HOLDINGS PLC ASIRI HOSPITAL HOLDINGS PLC 108-bed hospital at Kirula Road, Colombo 5. ASIRI SURGICAL HOSPITAL PLC 147-bed hospital at Kirimandala Mawatha, Colombo 5. ASIRI CENTRAL HOSIPTAL LTD. Not operational CENTRALHOSPITAL LTD. 228-bed hospital at Norris Canal Road, Colombo 10. ASIRI DIAGNOSTICS SERVICES (PVT) LTD. A joint venture to oversee laboratory services in the Central Province DIGITAL HEALTH (PVT) LTD. A joint Venture with Dialog Axiata PLC ASIRI HOSPITAL KANDY (PVT) LTD. Hospital under construction in Kandy. ASIRI HOSPITAL MATARA (PVT) LTD. 62-bed hospital in Matara. INDUSTRY REVIEW The private healthcare sector in Sri Lanka is growing rapidly. The large- scale private healthcare providers have invested in technological advancements, research and innovation. The State’s healthcare services are under-resourced and lack advanced medical treatment facilities. In 2014, 221 registered private hospitals with 5,776 beds operated. This included 10 Ayurvedic hospitals with 90 beds. Accessibility to leading medical consultants and advanced technologies without a wait, and the increasing popularity of health insurance, have supported the growth of private healthcare. Private healthcare players are now not limiting their presence to the big cities alone, but are moving into rural regions. Revenue increased 11% to Rs.9 Bn during the year
- 46. 44 Softlogic Holdings PLC Ashealthcare costs increase elsewhere, more people are now looking to Medical Tourism. With potential savings between 25% and 75% of what it might cost them otherwise, patients seek Sri Lanka’s private healthcare service for high quality and timely treatments. Sri Lanka’s healthcare sector has undergone enormous transition in terms of technology and expertise in recent years and the country stands on the threshold of becoming a global health destination. With this in mind, private healthcare providers are actively working on international accreditations. The need for professional medical staff is felt by the industry as a whole. Asiri has taken a step forward by providing rigorous 3-year training for its nursing staff, ensuring to generate a steady stream of qualified and trained staff to deliver service in keeping with our philosophy of excellent patient care. Excellence in nursing care remains a hallmark of the ‘Asiri’ brand. The rise of Non-Communicable Diseases particularly from the country’s rapidly ageing population has made private healthcare procedures conscious of the need to address this area. Greater awareness of “wellness” and the need for preventive health screening and prompt medical assistance when needed, generated greater demand across all our hospitals. Stiff competition has, however, led to the erosion of margins of private healthcare providers, as they compete on price to maintain patient volume. This has emphasised the need for continued investment in better technology even further. COMPANY REVIEWS Asiri Hospital Holdings PLC This 108-bed hospital which started as a laboratory service provider is now a specialist in Pediatrics and Maternity, whilst catering to other branches of medicine. Asiri Hospital Holdings operates one of the country’s most technologically advanced laboratory facilities, accounting for 13,000 daily lab tests and some 65% of the market. It is the market leader through its innovation and its network of over 400 collection centres (Including third party collection points). To strengthen its dominant position in laboratory services, a state-of-the-art laboratory building is to be built adjacent to the hospital. A facelift is also in progress. The completion of this Rs.200 Mn project in 2016 will give the hospital a modern façade, and a building to house the very profitable pathology and phlebotomy units. Asiri Surgical Hospital PLC With a capacity of 147 beds, this hospital offers specialised surgical care and an advanced heart centre, modern operating theatres and an urology operating theatre. The specialty of this hospital has been recognised worldwide; research papers at several medical conferences in the past came from this hospital. Its heart centre includes a dedicated coronary care unit with 49 beds, and a surgical ICU with advanced monitoring systems. The hospital introduced Sri Lanka’s first Digital Mammography facility during the year, making Asiri the first private healthcare provider to offer advanced three dimensional breast imaging for the earliest detection of breast cancer. The new technology, Tomosynthesis, is the gold standard in breast cancer screening and detection. The hospital also introduced a bariatric surgery programme for weight management during the year. More than fifty Sri Lankans travel overseas annually for liver transplant surgery, at great inconvenience and cost to themselves. Mindful of this, the Healthcare Services Sector FY15 FY14 % YoY FY13 Profitability Revenue (Rs. Mn) 8,592.0 7,745.8 10.9% 6,927.4 EBITDA (Rs. Mn) 2,480.4 2,557.3 -3.0% 2,389.5 EBT (Rs. Mn) 1,780.2 1,475.1 20.7% 1,165.2 PAT (Rs. Mn) 1,616.7 1,322.2 22.3% 996.5 No. of Employees 3,802 3,596 3,635 Financial Position Total Assets (Rs. Mn) 30,015.8 27,497.6 9.2% 24,505.0 Total Equity (Rs. Mn) 17,349.7 15,885.9 9.2% 15,020.8 Total Debt (Rs. Mn) 8,400.2 8,963.1 -6.3% 6,431.3 Capital Employed (Rs. Mn) 25,749.9 24,849.0 3.6% 21,452.1
- 47. 45 Annual Report 2014-15 Groupis setting up a dedicated liver transplant unit at Asiri Surgical Hospital, which will be operational by end-2015. Central Hospital Ltd. This 228-bed hospital is a one-stop, technologically advanced medical centre offering diagnostic, therapeutic and intensive care facilities. Started in 2010, this hospital has gained recognition as one of the best in Neuro Sciences in Sri Lanka. The hospital has 12 ultra-modern operating theatres for neurosurgery, maternity, orthopedics, ophthalmology and genitourinary surgery, and a sophisticated haemo-dialysis unit. The hospital has 310 qualified nurses, 182 skilled paramedical staff and more than 300 Consultants treating in- and out- patients. Central Hospital has continuously invested in technology. It conducted the first ever Bone Marrow Transplant in June 2014. Patients with hematological disorders such as Thalassemia can now be treated locally by Asiri at much lower cost than overseas. This unit handles Allogenic Transplants treating blood and bone marrow related disorders, a boon for children with Thalassemia especially, for whom a Bone Marrow Transplant will in most cases be a lifetime cure. During the year, the Interventional Cath-Lab was established here, the first Bi-planer Catheterisation Laboratory in Sri Lanka. It is the first in Sri Lanka to offer Interventional Radiology, where minimally invasive techniques are used to diagnose and treat various pathologies. The high standard of accuracy in imaging by Bi-planer DSA unit offers the most promising outcomes for stroke patients to date, due to speedy detection of the precise point of blockage. Bi-planer Digital Imaging also enables perfect delivery of chemotherapy to the location where it is needed in treating cancers, minimising collateral damage and potentially adverse side effects. An advanced Cardiac Centre, with a Cardio-Catheterization Laboratory focusing on diagnosis, prevention, treatment and surgery for heart diseases was opened in November 2014 with six successful surgeries being undertaken in its first month. Asiri also invested in a ‘Beauty Central’ at Central Hospital, opened in September 2014. This unit is equipped with the latest medical technology and the best specialist team for treatments including Abdominoplasty, Nasal Surgery, Breast Augmentation & Reduction, Liposuction, Acne
- 48. 46 Softlogic Holdings PLC Treatment,Eyelid Surgery and all Oculoplastic Surgery. The hospital is also now installing the world’s most advanced neuro- navigational and intra-operational monitoring system for its patients. Asiri Central Hospital Ltd. This hospital ceased operations in 2010 with operations being transferred to Central Hospital. The land and building of the hospital at Horton Place, Colombo 7, was leased to the Army Hospital until June 2014. The asset was recognised as held for sale in its books when an agreement to sell was signed in respect of the property. The sale was completed in July 2015. Asiri Hospital Matara (Pvt) Ltd. This is a 62-bed facility in the Southern Province, offering a range of general and surgical care facilities. It was Asiri’s first venture outside Colombo. Asiri Diagnostic Services (Pvt) Ltd. This is the Group’s laboratory services in the Central Province, carried out with a joint venture partner. Asiri Kandy (Pvt) Ltd. Our focus is not limited to Colombo. A 133-bed facility will commence operation in Kandy in 2018. Construction of the hospital is to begin in October 2015. Digital Health (Pvt) Ltd. This is a joint venture formed in August 2015 in partnership with Digital Holdings Lanka (Pvt) Ltd., a subsidiary of Dialog Axiata PLC, and Asiri Hospital Holdings to develop a state-of-the-art electronic commerce infrastructure for Sri Lanka’s healthcare sector. PROGRESSIVE PERFORMANCE The sector continued to perform well, and registered growth of 10.9% (to Rs.8.6 Bn) in revenue, contributing 21.7% to the Group’s top-line. Central Hospital was the largest contributor to Group earnings, supported by its strong market position in the diagnostics segment. Operating profit declined marginally to Rs.1.8 Bn, still 42.6% to the Group’s operating profit. The sector had finance income of Rs.91.3 Mn, up 85.1% during the year, helped by the receipt of an advance on the sale of Asiri Central Hospital’s property. Finance cost increased 14.8% to Rs.635.3 Mn, while a fair value gain of Rs 513.4 Mn was registered on the Asiri Central Hospital property. Profit before taxation increased 20.7% to Rs.1.8 Bn, contributing 78.5% to Group profit before tax. Profit after taxation improved 22.3% to Rs.1.6 Bn contributing 88.9% to the Group’s bottom line. Healthcare Services Sector
- 49. 47 Annual Report 2014-15 PROGRESSIVEOUTLOOK Ambitious plans reflect the sector’s long term view and its consequent investment strategy. Our core focus is on upgrading technology and assembling the best team of medical professionals we can, to contribute to the highest quality standards possible. The Group is working towards Joint Commission International Accreditation (JCIA) for Asiri Surgical and Central Hospital in 2016. It has already garnered a substantial share of Maldivian medical tourists visiting Sri Lanka. We expect to welcome medical tourists from other countries going forward, and are supported in our aspiration by the investments being made and the development efforts underway.
- 50. 48 Softlogic Holdings PLC ICTSector Emphasis on 4G adoption, migration from feature to smart phones and active usage of ICT in economic activities would drive demand Our ICT product lines include, but are not limited to, mobile handsets & accessories, computers, software and hardware solutions. INDUSTRY REVIEW IT is one of the largest components of the worldwide spend on technological products and related services. Global spending on IT in 2014 was some USD3.7 trillion, a 1.9% increase from 2013.
- 51. 49 Annual Report 2014-15 StrongDistribution Network Leading Brands Technical Expertise SOFTLOGIC HOLDINGS PLC SOFTLOGIC INFORMATION TECHNOLOGIES (PVT) LTD. Software and hardware solutions provider SOFTLOGIC COMPUTERS (PVT) LTD. Tailor-made IT solutions provider SOFTLOGIC BPO SERVICES (PVT) LTD. ICT service provider to the Group as well as third parties SOFTLOGIC AUSTRALIA (PTY) LTD. Software solutions provider in Australia SOFTLOGIC COMMUNICATIONS (PVT) LTD. Handles ‘Nokia’ and ‘Microsoft Lumia business SOFTLOGIC COMMUNICATION SERVICES (PVT) LTD. Service arm of Softlogic Communications (Pvt) Ltd SOFTLOGIC INTERNATIONAL (PVT) LTD. Authorised dealer for Dialog Axiata PLC and retailer for ‘Samsung and Nokia / Microsoft Lumia operations SOFTLOGIC MOBILE DISTRIBUTION (PVT) LTD. Handles the ‘Samsung’ operations Revenue of Rs.9 Bn, improvement of 55%
- 52. 50 Softlogic Holdings PLC WithGovernment acting to improve IT literacy in the country, Sri Lanka’s IT market has experienced double-digit growth over the last several years. IT has become essential to households and corporates, and non-availability of a proper IT infrastructure makes businesses dysfunctional and less competitive. The B2B IT business has therefore experienced significant growth for several years. The recent past has seen major improvements in the country’s internet services. Internet penetration in 2014 grew 67.3%, raising internet availability to 16.4 per 100 persons. This was driven by mobile internet connections, which grew by 85.8%. Sri Lanka is ranked 16th in the Global Services Location Index, which assesses off-shoring destinations for services such as IT support. The industry targets USD5 Bn in export revenue from the IT-BPO sector by 2022, and we believe our IT businesses will benefit from the trickle-down effects. The telecommunication industry in Sri Lanka has evolved significantly. There was exponential growth in smart phones especially, driven by aspirations and short product life-cycles. According to the International Data Corporation, the mobile phone market in Sri Lanka reached 1 Mn in the last quarter of 2014, smart phones accounting for approximately 22% of this volume. The data excludes “grey” imports coming into the country through irregular channels. COMPANY REVIEWS Softlogic Communications (Pvt) Ltd. Nokia, now a part of Microsoft, is a world leader in telecommunications, driving the growth and sustainability of the broader mobile industry. Softlogic Communications is the national exclusive distributor for its handsets in Sri Lanka since 2000. Our distribution network remains a core strength, with over 2,000 retail points island-wide. This network includes seven retail showrooms in Colombo and seven in other parts of the country. Following the acquisition of the Nokia Devices and Services business by Microsoft, the smart phone range was rebranded-‘Microsoft Lumia’ in November 2014. The company’s smart phone range, ‘Microsoft Lumia’, continued to perform strongly, while demand for ‘Nokia’ feature handsets stands undisturbed. Microsoft / Nokia stands third in the smart phone market, with close to a 9% market share. Softlogic Communication Services (Pvt) Ltd. This is the authorised service partner of Softlogic Communications. The company has six Care Centres, in Colombo, Kandy, Kurunegala, Galle, Anuradhapura and Ratnapura, delivering convenient and comprehensive after-sales service. This company’s performance is closely correlated with that of Softogic Communications. Softlogic Mobile Distribution (Pvt) Ltd. Our newest telco company holds distributor rights for one of the world’s best-known handset brands— SAMSUNG—in Sri Lanka. The company operates through 13 regional distributors. With an approximately 30% share, Samsung leads the market in smart phones. Samsung remains one of the most favoured smart phone brands in the country. This company has been very successful, and is expected to be a driver of the ICT sector’s future growth. FY15 FY14 % YoY FY13 Profitability Revenue (Rs. Mn) 9,252.0 5,982.3 54.7% 6,283.8 EBITDA (Rs. Mn) 766.2 543.2 41.1% 719.0 EBT (Rs. Mn) 408.1 29.8 1270.5% 183.0 PAT (Rs. Mn) 270.6 19.4 1296.0% 168.3 No. of Employees 887 805 727 Financial Position Total Assets (Rs. Mn) 7,596.3 5,838.8 30.1% 5,553.3 Total Equity (Rs. Mn) 1,400.2 1,266.5 10.6% 678.5 Total Debt (Rs. Mn) 3,217.5 2,764.4 16.4% 3,145.3 Capital Employed (Rs. Mn) 4,617.7 4,030.9 14.6% 3,823.8 ICT Sector
- 53. 51 Annual Report 2014-15 SoftlogicInternational (Pvt) Ltd. Softlogic International, which operates 27 franchise service centres, is the Authorised Business Partner for Dialog Axiata, offering corporate and individual GSM packages, DTV, CDMA & HSPA connections and provides customer service. This fits well in Softlogic’s repertoire. Softlogic International also retails ‘Nokia/ Microsoft Lumia’ and ‘Samsung’ handsets, operating a phone gallery in Colombo. Softlogic Information Technologies (Pvt) Ltd. The company is the leading importer of personal computers in Sri Lanka. It also markets and distributes notebook computers, servers, storage, network infrastructure and printers. It strives to provide the world’s best products and services to its customers, consolidating its market leadership. This B2B business has very competent IT consultants and engineers in its Enterprise Solutions team. We also provide outsourced IT services to a wide clientele. Our Engineering Services team provides engineering and consulting services to a host of clients, and includes experts in all the relevant areas. Softlogic Computers (Pvt) Ltd. This company provides a wide range of tailor-made solutions, and occupies a profitable niche serving the retail, hospitality, banking, and financial services markets. Softlogic BPO Services (Pvt) Ltd. Established in 2013, Softlogic BPO Services is creating a Centralised ICT Services Unit aimed at giving the highest quality ICT services to the Group, via a fully integrated software platform. In doing this, the company seeks to help all Group businesses leverage the potential of IT to achieve long-term competitive advantage. Additionally, Softlogic BPO Services provides ICT consultancy and bespoke MIS solutions to third party clients in Sri Lanka and overseas. Softlogic Australia (Pty) Ltd. This is Softlogic’s overseas subsidiary, a leading software solutions provider catering primarily to the needs of healthcare and age-care clients in Australia, and serving over 50 clients in these areas. Its flagship Chefmax food services suite is implemented in many reputed state and private hospitals and is well known amongst healthcare professionals.
- 54. 52 Softlogic Holdings PLC PROGRESSIVEPERFORMANCE ICT sector revenue grew 54.6% to Rs.9.3 Bn, increasing its contribution from 20.5% to 23.5% of the Group’s top-line. The growth was driven by its new ‘Samsung’ business at Softlogic Mobile Distribution, while the performance of ‘Nokia’ and ‘Microsoft Lumia’ continued to be good. The B2B IT business performed in line with expectations. Operating profit reached Rs.705.3 Mn, up 39.6%, and contributed 16.6% to Group operating profit. Finance cost, primarily from working capital borrowings, declined 37.3% to Rs.302.1 Mn on the back of low interest rates during the year. Profit before taxation was Rs.408.1 Mn (Rs.29.8 Mn last year), and the sector closed the year on a strong note with profit after taxation of Rs.270.6 Mn (Rs.19.4 Mn last year). PROGRESSIVE OUTLOOK Active usage of ICT services in economic activities such as e-banking, mobile banking, e-bus ticketing, and mobile points of sale (POS) has increased in recent years. Reduction in unemployment levels, stabilisation of exchange and interest rates and increasing per capita income augur well for the sector. The inclination towards technology, an emphasis on 4G adoption and an increasing migration from feature phones to smart phones will drive volumes in the next few years. Considering the low PC penetration and low device prices, the hardware market will grow while software will be driven by enterprise- based software. We expect our ICT companies to be a prime beneficiary of this growth. ICT Sector
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- 56. 54 Softlogic Holdings PLC Financial ServicesSector Financial Services cluster has achieved many milestones in the short time since Softlogic became involved in these businesses in 2010. Softlogic’s investment strategy has focused on the sectors that are most likely to benefit from Sri Lanka’s growth. We anticipate that per capita GDP will soon reach upper middle income levels, due to the sustained growth we expect will accrue from appropriate economic policies. Financial Services is one area in which we see huge potential.
- 57. 55 Annual Report 2014-15 5thLife Insurance player Innovative financial solutions Increasing presence island wide SOFTLOGIC HOLDINGS PLC SOFTLOGIC CAPITAL PLC Holding company of the Financial Services cluster. Licensed by the Securities & Exchange Commission as a market intermediary in the Investment Manager category SOFTLOGIC FINANCE PLC Licensed finance company regulated by the Central Bank of Sri Lanka. Core activities include acceptance of deposits, and grant of lease, hire purchase, loan and other credit facilities ASIAN ALLIANCE INSURANCE PLC Insurer licensed by the Insurance Board of Sri Lanka to undertake Life Insurance ASIAN ALLIANCE GENERAL INSURANCE LIMITED Insurer licensed by the Insurance Board of Sri Lanka to undertake General Insurance CAPITAL REACH PORTFOLIO MANAGEMENT (PVT) LTD. Not operational SOFTLOGIC STOCKBROKERS (PVT) LTD. Stockbroker licensed to operate on the Colombo Stock Exchange Revenues reached Rs.8 Bn mark for the year under review
- 58. 56 Softlogic Holdings PLC TheFinancial Services cluster has achieved many milestones in the short time since Softlogic became involved in these businesses in 2010. The year has been one of the most significant in performance, with many key indicators reaching ‘best ever’ levels. INDUSTRY REVIEWS Non-Bank Financial Institutions (NBFIs) The NBFI sector is a key part of Sri Lanka’s financial system. Licensed Finance Company (LFC) and Specialised Leasing Company (SLC) sector asset growth moderated in 2014 due to lower demand for credit, particularly in the early part of the year. Demand picked up in the second half, with lower interest rates helping. Mergers and acquisitions during the year were aimed at building resilience and improving the stability of the sector. The NBFI sector comprised 48 LFCs and 8 SLCs at end-2014. Its branch network increased by 72, to 1,132, during the year. 47 of the new branches were opened outside the Western Province. The sector’s assets and liabilities are being re-priced, given the currently lower interest rates. This re-pricing has had a positive effect on net interest income, due to the access to lower cost deposits. The interest margin (net interest income as a percentage of total assets) increased to 8.0% for 2014, compared to 6.6% in 2013. The low interest rates resulted in total assets of the sector growing 18.9% in 2014. ROA and ROE improved to 3.0% and 13.1% respectively. The NPL ratio increased marginally, from 6.7% in 2013, to 6.9%. FY15 FY14 % YoY FY13 Profitability Revenue (Rs. Mn) 8,001.8 7,457.5 7.3% 5,681.2 EBITDA (Rs. Mn) 1,282.2 969.7 32.2% 399.9 EBT (Rs. Mn) 844.8 400.8 110.8% (212.0) PAT (Rs. Mn) 784.5 337.6 132.4% (245.5) No. of Employees 1,295 1,134 1,041 Financial Position Total Assets (Rs. Mn) 35,258.1 30,509.8 15.6% 25,302.1 Total Equity (Rs. Mn) 8,126.2 4,939.5 64.5% 4,522.2 Total Debt (Rs. Mn) 7,016.4 8,806.3 -20.3% 6,077.1 Capital Employed (Rs. Mn) 15,142.6 13,745.8 10.2% 10,599.3 RETAIL Hire purchase solutions AUTOMOBILE Leasing/ motor insurance ICT Hire purchase LEISURE Travel insurance HEALTHCARE SERVICES Medical insurance Financial Services Sector The sector provides scope for mutually beneficial relationships with Softlogic’s other business sectors, as depicted below.
- 59. 57 Annual Report 2014-15 Insurance Theindustry, which accounts for 3.4% of financial sector assets, experienced moderate growth in 2014. There were 21 insurance companies registered with the Insurance Board of Sri Lanka (IBSL). Of these, 12 are composite insurance companies carrying on both long-term insurance and general insurance, 6 engage exclusively in general insurance and 3 conduct only long-term insurance. The separation of composite insurance companies, transition to a Risk Based Capital (RBC) Regime, increase in minimum capital requirements and preparation for public listings by 2016 were key policies introduced during the year. The RBC parallel test run commenced and is expected to continue till end-2015. Seven insurance companies are listed on the Colombo Stock Exchange (CSE) and the balance must be listed on the CSE by February 2016. The reach of the insurance sector in Sri Lanka is relatively low. Total premium as a percentage of GDP was 1.05% in 2014- 0.45% for long-term insurance and 0.6% for general insurance. The sector recorded 5.1% growth in Gross Written Premium (GWP), to Rs.99.9 Bn in 2014.The low market penetration is caused, significantly by a lack of awareness of insurance and its benefits. Life Insurance Long term insurance business generated a GWP of Rs.44.6 Bn in 2014 (2013: Rs.41.7 Bn). The market recorded slower growth of 7.0% in 2014, compared with 11.2% in 2013. The top five contributors accounted for 81.6% of total long term insurance GWP in 2014 (2013: 82.6%). The number of long term insurance policies 31st December 2013 2014 Market Size (Rs. Mn) 41,675.9 44,610.4 Market Growth (%) 11.2% 7.0% Asian Alliance Insurance PLC’s market share (Rs. Mn) 2,520.3 3,048.1 Asian Alliance Insurance PLC’s market share (%) 6.1% 6.8% 31st December 2013 2014 Market Size (Rs. Mn) 53,310.8 55,261.6 Market Growth (%) 7.3% 3.7% Asian Alliance General Insurance Ltd’s market share (Rs. Mn) 1,556.4 1,651.8 Asian Alliance General Insurance Ltd’s market share (%) 2.9% 3.0%
- 60. 58 Softlogic Holdings PLC inforce had risen by 5.4%, to 2,612,497 at end-2014. 545,721 long term insurance policies were issued during the year. General Insurance The total GWP generated from general insurance was Rs.55.2Mn in 2014 compared to Rs.53.3Mn in 2013, an increase of 3.7 %. This low growth was due to slow growth in marine, miscellaneous and motor insurance businesses and negative growth in fire insurance. Most classes of general insurance remained price competitive, with insurance companies competing fiercely for market share. Motor insurance dominated the general insurance market, generating a GWP of Rs.34.9 Bn in 2014 (2013: Rs.33.2 Bn). This represented 63.2% of the total GWP in general insurance. Motor insurance grew by 5.4% in 2014. Equity Market The equity market improved, recording growth of 13.6% in the year with the index reaching 6,820.34 at end- March 2015. Market Capitalisation stood at Rs.2.9 trillion then, with Price Earnings and Price to Book Value ratios of 18.4X and 2.0X, respectively. The improvement is attributed to low interest rates, improved growth prospects, relatively better corporate earnings and continued foreign purchasing. COMPANY REVIEWS Softlogic Finance PLC The focus of NBFIs is mainly on the SME sector. SME’s have benefited from a number of developments during the year, especially on Leasing and Hire Purchase products. Vehicle valuations reduced significantly due to changes in import taxes and the availability of tax concessions, and this has affected the existing Leasing / HP portfolios of NBFI’s. This, and new competition from Banks in this area, has encouraged a shift in product emphasis. Softlogic Finance has shifted its focus towards SME working capital financing, which offers considerable scope and where speed of execution and accessibility are key success factors. This change in product focus has resulted in a SME loan portfolio of Rs.4.9 Bn at year-end, or 31% of the total, compared with Leasing and Hire Purchase, where the portfolio was Rs.3.1 Bn. or 20% of the total. The Company continues to enjoy a successful deposit franchise, with Customer Deposits rising to Rs.12.1 Bn at end-March 2015, an increase of 30% from Rs.9.3 Bn in the previous year. With interest rates remaining low and stimulating demand for credit, Softlogic Finance, which is ranked 10th amongst Financial Services Sector
- 61. 59 Annual Report 2014-15 LFC’s,is poised to deliver excellent performance. Softlogic Finance boasts of an island- wide presence of 17 fully fledged branches and 13 Gold Loan Centres. Asian Alliance Insurance PLC Low penetration provides the opportunity for growth in Life Insurance. Asian Alliance Insurance focuses almost entirely on Life products. GWP grew 21% in 2014, with a further growth of 21% in the 1st Quarter 2015. We feel lower interest rates will enhance Life business, as customers diversify their investment options. Asian Alliance Insurance continued its strong performance, recording the highest growth rates in the market and the highest average premium, and emerging 5th in the industry during the year. It has a presence of 70 Branches island-wide. Complying with the regulator’s direction that Life and General businesses should be separated, Asian Alliance General Insurance Ltd was incorporated as a wholly owned subsidiary of Asian Alliance Insurance, to undertake General Insurance. We have revamped General Insurance operations with a focus on technology, to improve customer convenience and operational efficiency as we concentrate on the key Motor and Health sectors in the retail area, supported by the Softlogic Group’s presence in relevant sectors. The development of creative packages included ‘DRIVE THRU’ and ‘365 DAYS INSURANCE’. The company’s ‘CLICK2CLAIM’ motor product, offering a hassle-free claims process, is one of the most innovative introduced thus far, and has been recognised for its innovativeness globally as well. We are confident that our strategy will deliver superior results and the profitability that has been elusive for General Insurance in the country, and when combined with our high performing Life Insurance business that our continued progress in the industry is assured. Softlogic Stockbrokers (Pvt) Ltd Softlogic Stockbrokers has one of the most experienced teams in the industry. This research driven stockbroker focused on building its clientele during the year. One of the company’s core strengths is its competent independent research team, which provides comprehensive research and analysis of Sri Lankan equities, the economy and debt markets. The company has tie-ups with the global brokerage Auerbach Grayson and Company LLC. Amongst other foreign tie-ups are Exotix Partners LLP and Pictet & Cie. The firm ranked 3rd in the industry at 31st March 2015, with a market share of 8.9%. FINANCIAL REVIEW Revenues for the sector approached Rs.8.0 Bn, an increase of 7.3% for the year, to contribute 20.1% to the Group’s top line. Operating Profit rose by 36.7% to Rs.1.0 Bn making up 24% of the Group’s Consolidated Operating Profit for the year. Finance Income, which reflects performance of Asian Alliance Insurance’s fixed and equity investment portfolio, declined marginally to Rs.935.6 Mn. The decline was due to interest rate fluctuations, which affected the treasury bond investments of the Life business. Rs.944.3 Mn was transferred to life policy holders during the year. Finance Cost halved to Rs.168.1 Mn for the year, primarily due to the low interest rates. Profit before Taxation doubled to Rs.844.8 Mn (Rs.400.8 Mn last year) led by the decline in finance costs. Accordingly, the sector closed the year with a substantial 132.4% rise in Profit after Taxation, to Rs.784.5 Mn. PROGRESSIVE OUTLOOK We expect future growth in the Life Insurance sector with customers diversifying their investments, whilst the revamping of strategy in General Insurance will improve both customer convenience and operational efficiencies. Softlogic Finance continues to enjoy a successful deposit franchise, and with its new focus on working capital loans to the SME sector is confident of maintaining satisfactory growth and profitability in the coming year. The performance of the stockbroking unit depends on the buoyancy of the Colombo Stock Exchange, which in turn hinges on economic and business sentiment in the country. It is hoped that with a stable government and clear direction on economic and fiscal policies, the growth seen thus far will continue, and that with the quality of its research team the stockbroking unit’s progress will continue. Overall, the Financial Services businesses are primed and poised to benefit from Sri Lanka’s growth, and management is optimistic that results in future will reflect this.
- 62. 60 Softlogic Holdings PLC Automobile Sector Weare redrafting initiatives to significantly improve customer experiences and convenience, while driving quality and building relationships with customers Softlogic entered into the automotive sector with the acquisition of Uni-Walkers Limited, now Softlogic Retail, in 2006. INDUSTRY REVIEW New vehicle registrations for 2014 increased 31.5% to 429,556, against the decline seen in 2013. Car registrations increased 37%. The demand for new vehicles was driven chiefly by low interest rates and the stability of the Sri Lanka Rupee.
- 63. 61 Annual Report 2014-15 Expertafter sales service New range of Ford vehicles Prospect of introducing “green” vehicles The year saw several initiatives to simplify the tax structure on vehicle imports. While taxes applicable on hybrid vehicles were increased, taxes on motor cars with an engine capacity under 1,000 cc were reduced. Taxes on electric cars were also reduced. COMPANY REVIEWS Softlogic Automobiles (Pvt) Ltd. Softlogic Automobiles handles the Daihatsu business, which commenced with the acquisition of Uni Walkers in 2006. The turnaround post acquisition was noteworthy, but was slowed thereafter by changes in import duties. In 2012, Softlogic Automobiles commenced a strategic partnership with Xiamen King Long United Automotive Industry, the National Bus Manufacturer of China, for introduction of King Long buses and vans to the Sri Lankan market. The range of buses was relaunched in 2014, and King Long has now become one of the bestselling SOFTLOGIC HOLDINGS PLC SOFTLOGIC AUTOMOBILES (PVT) LTD. Authorised dealer for Daihatsu and King Long FUTURE AUTOMOBILES (PVT) LTD. Authorised dealer for Ford Revenues improved 76% to Rs.743 Mn during the Financial year 2014/15
- 64. 62 Softlogic Holdings PLC brandsof luxury coaches in Sri Lanka, sought after by both tour operators and public transport providers. A high-tech 3S (Sales, Service and Spare Parts) facility for Daihatsu is in place. Softlogic aggressively promoted its Body, Paint and Repair Centre to mitigate the effect of slowing sales of new vehicles. This facility serves all light vehicles including Ford and Daihatsu, as well as King Long buses. It works closely with Asian Alliance General Insurance. Future Automobiles (Pvt) Ltd. Future Automobiles handles the Ford business, which started in 2010. A state-of-the-art 3S facility conforming to global standards was unveiled at the Ford facility recently. This has driven sales, and has increased convenience and customer confidence, as all services are now available under one roof. PROGRESSIVE PERFORMANCE Revenues of the automobile sector grew by a healthy 75.5% during the year, to Rs.743.4 Mn. This was led primarily by sales of ‘King Long’ buses. The Daihatsu business continued its steady performance, while contributions from the Collision Repair Centre and Franchise Workshops (FORD, Daihatsu & King Long) progressed satisfactorily. The investment in the 3S Ford facility increased finance costs, which resulted in a loss for the year. FY15 FY14 % YoY FY13 Profitability Revenue (Rs. Mn) 743.4 423.6 75.5% 704.7 EBITDA (Rs. Mn) (14.7) (10.4) -41.6% 17.1 EBT (Rs. Mn) (97.4) (55.5) -75.6% (48.5) PAT (Rs. Mn) (106.3) (40.3) -164.1% (43.9) No. of Employees 94 73 76 Financial Position Total Assets (Rs. Mn) 1,321.0 627.8 110.4% 329.3 Total Equity (Rs. Mn) 67.3 34.8 93.6% 29.9 Total Debt (Rs. Mn) 477.6 112.7 323.7% 187.6 Capital Employed (Rs. Mn) 544.9 147.5 269.4% 217.5 Automobile Sector
- 65. 63 Annual Report 2014-15 PROGRESSIVEOUTLOOK The sector strives to raise its profile and performance in the years ahead. We are redrafting initiatives to significantly improve customer experiences and convenience, while driving quality and building relationships with customers. We are repositioning our products with competitive pricing, and will introduce the following new FORD Models in the current year. a. Mustang Sports Car. b. Everest SUV. c. Mondeo Hybrid Car. d. Ranger Double Cab. e. Transit passenger van. The sector is also focusing on introducing a line of “green” vehicles, to benefit from the tax structure applying to these.
- 66. 64 Softlogic Holdings PLC LeisureSector Softlogic opened its first resort in June 2014, and has received positive feedback from both local and foreign guests. Softlogic opened its first resort in June 2014, and has received positive feedback from both local and foreign guests. The resort achieved an average occupancy of 72% in the winter season. INDUSTRY REVIEW Sri Lanka’s tourism industry has experienced high growth since the civil conflict ended. Tourist arrivals have increased, reaching 1.5 Mn in 2014 (up 19.8%) and 1.0 Mn between January and July 2015. Chinese
- 67. 65 Annual Report 2014-15 Increasingoccupancy and yield Centara Resort - Best new hotel of the year Movenpick City Hotels to open in April 2016 tourists led the arrivals in 2014. The Sri Lanka Tourist Board targets 2.0 Mn arrivals in 2015. Industry income increased 41.7%, to USD2.4 Bn, in 2014 and tourism is now the third largest foreign exchange earner in the country. An increased duration of stay, to 9.9 days (up from 8.6 days), was seen in 2014. Improved road and rail connectivity, port and airport development, and the entry of global operators have boosted tourism. Sri Lanka climbed 11 notches to rank 63rd of 141 countries in the World Economic Forum’s Travel & Tourism Competitiveness Report 2015. SOFTLOGIC HOLDINGS PLC SOFTLOGIC PROPERTIES (PVT) LTD. Holding Company of the Leisure Sector SOFTLOGIC CITY HOTELS (PVT) LTD. 5-star hotel In Colombo, under construction SOFTLOGIC DESTINATION MANAGEMENT (PVT) LTD. Travel solutions provider CEYSAND RESORTS LTD. Four-star plus resort in the Southern part of the country Achieved Rs.628 Mn as revenues for the year as against Rs.92 Mn reported last year
- 68. 66 Softlogic Holdings PLC SriLanka is not only a holiday destination, and is fast gaining popularity for MICE tourism. This segment accounts for 11% of total arrivals, and 240,000 MICE visitors are targeted in 2016. This industry faces numerous challenges. Present room stock is insufficient to cater to the ambitious arrivals targets. The formal hotel sector needs to expand. There are 26,700 graded rooms island wide. Approximately 50,000 rooms are needed to serve 2.5 Mn tourists in 2016. Some 75 hotels are under construction and these would add 5,300 rooms. The informal sector could add another 4,000 rooms, and condominiums can service part of the market. This still leaves a gap. Local tourism has also been growing rapidly. We expect this to continue with increases projected in per capita income. COMPANY REVIEWS Ceysand Resorts Ltd. Ideally located oceanfront on the Indian Ocean and bordering the Bentota river, Centara Ceysand Resorts & Spa offers unparalleled luxury and service. This four-star plus resort offers a wide range of amenities and exclusive facilities to complement its exquisitely furnished rooms and suites. Its luxurious spa, freshwater swimming pool, water sports and entertainment facilities and warm hospitality make the resort one of the most sought after in the southern part of Sri Lanka. It provides an ideal escape from the hustle and bustle of a hectic lifestyle. The strategic location of the resort between the Indian Ocean and the Bentota river, makes it especially attractive. FY15 FY14 % YoY FY13 Profitability Revenue (Rs. Mn) 628.1 91.7 584.5% 54.9 EBITDA (Rs. Mn) 93.0 (50.2) 285.3% (44.4) EBT (Rs. Mn) (142.3) (91.0) -56.3% (97.3) PAT (Rs. Mn) (142.8) (76.3) -87.2% (79.5) No. of Employees 289 7 7 Financial Position Total Assets (Rs. Mn) 11,329.7 8,074.4 40.3% 6,267.2 Total Equity (Rs. Mn) 5,077.1 3,963.5 28.1% 3,840.1 Total Debt (Rs. Mn) 3,437.7 2,511.5 36.9% 1,646.2 Capital Employed (Rs. Mn) 8,514.8 6,475.0 31.5% 5,486.3 Leisure Sector
- 69. 67 Annual Report 2014-15 Theresort is operated by Centara Hotels & Resorts of Thailand and functions in line with Centara’s international standards. Its success is one we at Softlogic celebrate. Movenpick City Hotels (Pvt) Ltd. Softlogic has strategically partnered Movenpick Hotels and Resorts, who will manage this world class business hotel in the city of Colombo. This will be a five-star hotel built in Colombo after very many years. The upscale city hotel, located in the heart of the city, will occupy half an acre in its prime downtown location, surrounded by commercial activity and prestigious restaurants. The 24-storied hotel, designed with sustainability in mind, will feature contemporary architecture. It will boast 219 rooms ranging from standard rooms to fully-fledged luxury suites. Guests will enjoy a range of facilities including a fitness centre, spa and pool. The hotel will feature rooftop al fresco bar and restaurant facilities, providing guests with stunning views of downtown Colombo and the Indian Ocean. The hotel will have an all-day dining restaurant, French and Asian Fusion specialty restaurants and an exclusive nightclub. It will be equipped to handle any business need, and will have five meeting/ boardrooms and a fully functional business centre. The structure of the building has been completed, and the hotel is nearing completion. For Interior design an internationally renowned design firm Di Leonardo was commissioned. This group, which is based in Rhode Island, US, has worked with prestigious brands such as Marriott, Ritz Carlton and Sheraton. The “fit out” contract was awarded to S&T of Oman, who are now engaged in fitting-out guestrooms and public areas. We envisage the hotel will be operational by April 2016. Softlogic Destination Management (Pvt) Ltd Softlogic Destination Management (Pvt) Ltd. is one of Sri Lanka’s well-reputed travel companies engaged in both inbound and outbound travel, providing quality management services to tour operators as well as local corporate businesses. This is a total travel solution provider with a 24/7 service covering a unmatchable range of travel options, hotels, travel insurance and Visa assistance. Its wide range of services includes assistance upon arrival, transfers, tours and safaris, special interest activities, tailor- made arrangements and contracting accommodation. PROGRESSIVE REVIEW Revenue grew to Rs.628.1 Mn in the year (against Rs.91.7 Mn last year). This accrued mainly from Ceysand Resort, whilst destinations management operations made a nominal contribution. Finance cost increased to Rs.90.2 Mn during the year, from Rs.1.9 Mn in the previous year, due to funding of Ceysand Resorts. The sector closed the year with a loss of Rs.142.8 Mn (Rs.76.3 Mn last year). PROGRESSIVE OUTLOOK Centara Ceysand Resorts & Spa has proved an immediate success, and we believe this success will quickly extend to Movenpick City Hotel also, following its opening.
- 70. 6868 A pontoon takes youacross the tranquil Bentota River to the resort. Rooms and suites each with a furnished balcony or terrace looking out across the ocean or river. Café Bem offers authentic Sri Lankan, Asian and international cuisines. 360 Seafood restauran specialises in seafood. 165Total Rooms Superior - 106 Deluxe - 44 Family Residence - 8 Suites - 7
- 71. 6969 l nt 90m palm-fringed swimming poolis situated next to the beach, and boasts a Jacuzzi. Its luxurious spa, freshwater swimming pool, water sports and entertainment facilities and warm hospitality make the resort one of the most sought after in the southern part of Sri Lanka. Strategic location of the resort between the Indian Ocean and the Bentota river, makes it very attractive.
- 72. 70 Softlogic Holdings PLC CorporateGovernance OUR GOVERNANCE FRAMEWORK As a Group with global representations, the Corporate Governance practices followed by the Company and its subsidiaries are of best practices. Through the Governance mechanism in the Company, the Board along with its Committees undertakes its responsibilities to all its shareholders by ensuring transparency, fair play and independence in its decision making. Softlogic strives to expand its businesses and be competitive in all of them. It seeks to adopt the 'best practices' followed in Corporate Governance across all its sectors. The Company recognises the need for transparency and accountability in all its actions, to protect the interests of its stakeholders. The Board considers itself a ‘Trustee of its Shareholders’ and acknowledges its responsibilities for adding to and safeguarding their wealth. Hence, Softlogic’s shareholders participate at the Annual General Meeting in appointing its Board of Directors, and also its Auditors. The Board of Directors manage Softlogic’s affairs on behalf of its shareholders. The Auditors report to the shareholders on their scrutiny of Softlogic’s financial statements. The responsibility for good governance lies with the Board of Directors. The Board, which is entrusted with the direction of Softlogic and the supervision and control of management, has delegated responsibility for day- to-day management of Softlogic to its Executive Management. The Group’s management and organisational structure corresponds to its segmental reporting lines. Each business sector’s management team is responsible for the activity of the sector and reports to the Sector Head, who in turn reports, through Executive Management, to the Board. We seek high standards and efficient processes through: • an appropriate organisational structure; • effective internal control and risk management; and • sound internal and external reporting. Our model strives for a robust framework of responsibility and accountability throughout Softlogic, establishing guidelines and performance standards across all sectors. Each business is directed by more detailed guidelines establishing objectives, strategies, and control and reporting requirements. These are regularly reviewed to monitor compliance and encourage continuous improvement. Our Governance Aspirations • Adopt best governance practices, respecting principles established by relevant industry regulators. • Act in the best interests of stakeholders and satisfactorily address situations involving conflicts of interest. • Maintain effective internal control and risk management systems. • Preserve data integrity. • Implement appropriate accounting policies compliant with Sri Lanka Accounting Standards. • Provide accurate, complete, clear and timely information. • Pursue best corporate governance practices, respecting principles established by relevant industry regulators. The success of Softlogic depends on our ability to continually add value. Building trust with customers and investors is a priority in our pursuit of value. Responsible corporate governance is therefore very important to us.
- 73. 71 Annual Report 2014-15 BoardGovernance • Board Committees Audit Committee Remuneration Committee • Diverse Board • Assessment of Board effectiveness • Balance mix of Non-Executive Directors Shareholder Governance • Annual General Meeting • Quality and frequent communication with investors/ analysts • Active investor relations department • Instant web based query-response 1 2 Checks and Balances • Effective Risk Management • Prevention of insider trading • Independent assurance: Internal and external audit 3 Code of Conduct • Effective internal audit and risk management • Legal and compliance • Management governance and assurance • ‘The Code’ 4 Ombuds Process • Ombuds process for both employees and non-employees • Employee suggestion box to track complaints, suggestions and any unethical reporting. • External Regulators Companies Act No.07 of 2007 CA Sri Lanka Securities & Exchange Commission of Sri Lanka Colombo Stock Exchange Sri Lanka Accounting & Auditing Standards Monitoring Act 15 of 1995 Finance Business Act No. 42 of 2011 Insurance Board of Sri Lanka Private Health Service Regulatory Council of the Ministry of Health Sri Lanka Medical Ordinance and Council and other relevant governing bodies of the Healthcare sector 5 Corporate Governance
- 74. 72 Softlogic Holdings PLC ExternalControl: Softlogic Group has prepared its Corporate Governance Code (‘the Code’) in line with the Code of Best Practice on Corporate Governance issued by the Securities and Exchange Commission of Sri Lanka and The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) in 2013. Internal Control: Articles of Association, Code of Ethics and Business Conduct (the Code), policies such as the Financial Policy and Human Resource Policy, guidelines and manuals. HOW THE BOARD OPERATES The role of the Board The Board, along with its Committees, provides leadership and guidance to the Company’s management and directs, supervises and exercises control over its activity. The Board is responsible for the overall conduct of Softlogic’s businesses. The Board has a formal schedule of matters reserved for its attention. These include: • strategy and long-term plans; • major capital projects, acquisitions and divestments; • financial structure; • annual budgets and operating plans; and • annual and quarterly financial results. Specific responsibilities are delegated to Board Committees. BOARD COMPOSITION Our Board consists of nine Directors, who served through the year. One other Non-Executive Director, Desamanya P D Rodrigo relinquished his position on 30 June 2014. The Directors at 31 March 2015 were the Chairman & Managing Director, four Executive Directors and four Non-Executive Directors. The Directors have collective responsibility for the Group’s direction. Non-Executive Directors contribute to the Board’s workings by bringing to discussions their skills and experience, and independent judgement and constructive challenges on areas covered. They continuously; • scrutinise and challenge performance across the Group’s business; • review risk profile and the integrity of the financial information and controls; • determine the Company’s broad policy for executive remuneration; and the remuneration packages for the Executive Directors and the Chairman. Non-Executive Directors The table below shows the independence or otherwise of our Non- Executive Directors. Date first elected by shareholders Independence Dr. Sivakumar Selliah 11 February 2011 Yes Mr. Prasantha Lal De Alwis, PC. 23 September 2011 Yes Mr. Harris Premaratne 12 September 2011 Non-Executive Independent to 21 January 2015; Non-Executive from that date. Mr. Richard Ebell 12 September 2011 Yes Conflicts of Interest The Board is aware of the other engagements of its Directors and is satisfied that these are not in conflict with their engagement as Directors of the Company. Corporate Governance
- 75. 73 Annual Report 2014-15 Theprocess for avoiding conflicts is as follows: • Directors report their other engagements to the Board Secretary, identifying potential conflicts of interest on appointment, and actual conflicts of interest when the need arises. • Other engagements, potential conflicts and actual conflicts identified are advised to the Board. • Directors do not participate in any discussion or decision on matters in which actual conflicts of interest exist. Board Meetings Matters considered by the Board include: • Strategic and business developments; • Financial reports; • Operations updates; • Potential changes to the Group’s business and asset portfolio; and • Reports from the Audit and Remuneration Committees. Dates for Board Meetings in the current year have been decided and communicated in advance. Agendas, with relevant papers, will be sent in advance to the Directors. Additional meetings of the Board are held when deemed necessary by the Board. Board activities in the year under review Board activities are structured to assist the Group in achieving its objectives to support and advise the management on the delivery of the Group’s strategy within a transparent governance framework. Key areas of focus for the Board Business Performance • Sectoral Performance • Subsidiary performance • Brand performance Business Strategy • Acquisitions, technology, expansions and structural strategy Shareholder Focus • Returns to shareholders • Shareholders Engagement Financial • Chief Financial Officers’ report • Budgets • Management Accounts Governance • Board Performance • Board Committee reports Business Risk • Strategic and operational risks Diversity and talent • Succession planning • Talent capability and diversity
- 76. 74 Softlogic Holdings PLC TheDirectors, their attendance at the Board Meeting and the Annual General Meeting held during the year, are given below, as are the numbers of Directorships and Committee Memberships held by them in other companies and their shareholdings in the Company: Name of Director Category AttendanceatBoard Meetingduring FY2014/2015 Attendanceatthelast AGM No.ofDirectorships inotherquoted companies No.ofCommittee positionsheldinother quotedcompanies Shareholdingin SoftlogicHoldingsPLC asat31March2015 Chairman Director Chairman Member Ashok Pathirage (Chairman) Executive ✓ ✓ 06 01 01 04 46.59% Haresh Kaimal Executive ✓ ✓ - - - - 8.33% Hemantha Gunawardena Executive ✓ ✓ - - - - 7.38% Ranjan Perera Executive ✓ ✓ - 01 - - 7.81% Roshan Rassool Executive ✓ ✓ - - - - - Dr. Sivakumar Selliah Independent Non-Executive ✓ ✓ - 09 - 04 0.26% Prasantha Lal De Alwis, PC Independent Non-Executive ✓ ✓ - - - - - Harris Premaratne Independent Non-Executive up to 21 January 2015; Non-Executive from that date ✓ ✓ - 04 04 01 - Richard Ebell Independent Non-Executive ✓ ✓ - 01 01 01 - HOW THE BOARD IS KEPT UPDATED Directors take responsibility for identifying their training needs, for keeping abreast of their responsibilities as Directors and for ensuring they are adequately informed about the Company. Hence, the Directors must keep updated to maintain their effectiveness. This is achieved as follows: • The Board is kept briefed on matters of significance. • Non-Executive Directors are provided with briefings and information at their request. These briefings are often provided at Board Committee meetings, by Senior Executives. • Non-Executive Directors meet the Chairman & Managing Director on a monthly basis to receive briefings and information and address matters of concern to them. The Board believes Directors possess the knowledge, ability and experience to function effectively as Directors of a listed conglomerate. Re-election of Directors Messrs. R J Perera, H K Kaimal and Dr. S Selliah retire by rotation and offer themselves for re-election at the Annual Corporate Governance
- 77. 75 Annual Report 2014-15 GeneralMeeting to be held on the 30th day of September 2015. Independent Advice The Board recognises that there may be occasions when Directors feel it is necessary to seek independent professional advice in the discharge of their duties. They are permitted to do this, in consultation with the Company Secretary. Board Committees The Board has delegated defined responsibilities to an Audit Committee and the Remuneration Committee. Information on these Committees and their activities can be found in their reports on pages 98 to 100. These Committees are given the resources they require and the access to information they need to allow them to undertake their duties effectively. The Board is appropriately briefed by these Committees during the year. Directors who are unable to attend Board and Committee meetings may be briefed on discussions arising thereafter. Board Audit Committee The Board Audit Committee monitors the integrity of the Company’s financial reporting and reviews annual and interim financial statements before they are recommended to the Board for approval and release. The Committee monitors the Company’s relationship with its external auditors who attend Committee meetings when necessary, and their independence in the role they play. The Committee also monitors the work and performance of internal audit. The Committee relies on the competence of management, its internal auditors and its external auditor in discharging its oversight responsibilities. Management is responsible for the proper preparation and presentation of the financial statements, and for internal control over financial reporting. The Audit Committee is made up of four Non-Executive Directors of whom three are Independent Directors. The Board Audit Committee Report appears on page 100. Board Remuneration Committee The Board Remuneration Committee is empowered to review and make recommendations in respect of the remuneration of the Chairman & Managing Director, Executive Directors and Executive Management of the Company and the CEOs of certain subsidiary companies. The Committee comprises three Non- Executive Directors of whom two are Independent Directors. The Board Remuneration Committee Report appears on page 98. General Meetings The Annual General Meeting is the forum in which shareholders express their views on Softlogic’s affairs. This Meeting considers adoption of the financial statements and the re-election of Directors and auditors. Extraordinary General Meetings (EGMs) are held when a particular need arises. No EGMs were held during the year. External Auditors External Auditors are appointed at Softlogic’s Annual General Meeting each year. The auditors scrutinise and report on the annual financial statements, and perform interim audit reviews when these are required. It is Softlogic’s preference to appoint as auditor a leading international audit firm. Ernst & Young were appointed to audit the financial statements of the Company for the financial year ended 31 March 2015. Group Internal Audit Group Internal Audit (GIA) is a unit that assists Softlogic to accomplish its objectives by bringing an independent and systematic approach to evaluating and improving effectiveness of the Company’s internal control, risk management and governance processes. GIA is empowered by the Board to perform engagements in any Group company. The Head of GIA reports to the Board Audit Committee. Chairman/ Managing Director The combination of the roles of Chairman and Managing Director in one individual has proven effective for Softlogic. The Chairman & Managing Director is well acquainted with the importance of sound Corporate Governance across Softlogic. He encourages participation of Directors in
- 78. 76 Softlogic Holdings PLC discussions,to make sure their views are known. Softlogic strives to maintain a balance of power between Executive and Non-Executive Directors, ensuring the Board remains in control of its affairs and is alert to its obligations to stakeholders. The Managing Director is responsible for the daily management of the business as directed by the Board. He reports to the Board on Softlogic’s activities and expansions, and is the main point of contact with investors, the market, the media and relevant authorities. Details regarding the Chairman & Managing Director and other Directors are set out on pages 16 to 19 of the Annual Report. Company Secretary The Corporate Company Secretary acts as Secretary to the Board. In doing so it: • assists the Chairman in providing Directors with relevant information; • minutes the proceedings of each Board meeting and makes draft minutes available to Directors prior to the next meeting; • assists the Chairman in providing inductions; • is responsible for advising the Board on corporate governance procedures required to be followed; and • assisting Directors, where appropriate, to obtain the independent professional advice they require, at the Company’s expense. Risk Management Softlogic’s Risk Management System is focused on identifying, assessing, communicating and managing risks. A description of the Risk Management System appears on pages 79 to 84 of this Annual Report. An Effective Governance Culture Good governance stems from the culture and mindset of the organisation. It requires people to meet performance expectations while managing the organisation’s resources effectively and responsibly, and meeting high standards of ethical performance. At Softlogic we are committed to meeting the aspirations of our stakeholders, as demonstrated by the processes we aspire to put in place, the entrepreneurial performance-focused work environment we espouse, and the shareholder returns we seek. The demands of corporate governance require professionals to raise their competency and capability levels to meet the expectations in managing the enterprise and its resources effectively with the highest standards of ethics. It has thus become crucial to foster and sustain a culture that integrates all components of good governance by carefully balancing the complex inter-relationship among the Board of Directors, Audit Committee, Finance, Corporate Secretarial team, Auditors and Senior management. At Softlogic, our employee satisfaction is reflected in the stability of our senior management, low attrition across various levels and substantially higher productivity. (Corporate Sustainability Report on pages 85 to 97). Ethics, Code of Conduct and Insider Administration The Softlogic Code of Business Conduct and Ethics lays out relevant principles as a guide to employees, who are required to read, understand and follow ‘the Code’. We have communicated ‘the Code’ to all subsidiary companies and established it as a fundamental part of our corporate culture. For example, All new employment contracts include a reference to the Code and the obligation to comply with it. Softlogic considers the reputation it enjoys to be an invaluable asset. To safeguard this reputation, it verifies the integrity of its business partners. This allows us understand potential business partners before entering any relationship with them, reducing the risk of a relationship that can damage the Company/ Group or its business. Renowned international agencies such as IFC, DEG, FMO, Actis and a number of internationally recognised franchises form Softlogic’s stakeholder list. Softlogic’s legal division is in charge of the guidance and supervision of insider issues and also maintains the project- specific insider registers if necessary. The up-to-date shareholdings of the Directors can be obtained on the quarterly financial release to the Colombo Stock Exchange and the Annual Report. Every share dealings of the Directors is disclosed as and when the transaction takes place to the CSE. Corporate Governance
- 79. 77 Annual Report 2014-15 WhistleBlower Policy Softlogic’s whistle blower policy provides guidance to employees for approaching designated persons to convey information about unethical behaviour, breaches of laws and regulations, and violations of ‘the Code’. Means of Communication Financial results – The quarterly and annual results are published on the Colombo Stock Exchange (CSE) website in keeping with the relevant rules, and are shared with the media and posted on the Softlogic website after submission to the CSE. As a part of the Green initiative, the quarterly results are sent by email to Shareholders whose email IDs are registered with the Group Investor Relations. Annual Report – Softlogic’s comprehensive Annual Report is made available to shareholders and others entitled to it, and is available on the Company's website in a freely downloadable format. Intimations to CSE – Price sensitive information and matters which are material and relevant to shareholders are intimated to the CSE and posted on Soflogic’s website. Briefings – Group Investor Relations meets investors and analysts from time to time, to brief them on Group activities. Corporate Website – http://www. softlogic.lk/– Softlogic’s website provides comprehensive information on the Group and provides for investors and potential investors to submit inquiries and seek feedback. The section on News Room includes all major press reports and releases, awards and campaigns. COMPLIANCE DISCLOSURE The Company has complied with all requirements related to capital markets, with no penalties or strictures having been imposed by the relevant authorities. Compliances with the Corporate Governance Rules of the Colombo Stock Exchange are set out below CSE Listing Rule No. Subject Condition Compliance Status Details Board of Directors Disclosures 7.10.1 Non-Executive Directors (NEDs) Two, or at least one third of the total number of Directors, should be Non-Executive Directors. Compliant 44% of the Board comprises Non- Executive Directors. Refer page 72 of the Annual Report (on Corporate Governance) 7.10.2 (a) and (b) Independent Directors Two, or one third of NEDs (whichever is higher), should be independent. Each Non-Executive Director should submit a declaration of independence/ non-independence in the required format. Compliant Three Non-Executive Directors of Softlogic are independent. Refer page 72 of the Annual Report on Corporate Governance 7.10.3(a) and (b) Disclosure relating to Directors Names of Independent Directors should be disclosed in the Annual Report. Compliant Disclosed under Directors’ Profiles (pages 18 and 19) and Corporate Governance (page 72).
- 80. 78 Softlogic Holdings PLC CSEListing Rule No. Subject Condition Compliance Status Details 7.10.3(c) Directors’ Resumes A brief resume of each Director should be included in the Annual Report, including his areas of expertise, with a resume being submitted for new Directors on their appointment. Compliant Disclosed under Directors’ Profiles (pages 18 and 19). The profiles of new Directors are advised to the CSE on their appointment. 7.10.4 Definition of “Independence” Requirements for fulfilling criteria. Compliant Remuneration Committee 7.10.5(a) Requirement and composition of Remuneration Committee The Committee shall consist of Non–Executive Directors, a majority of whom shall be independent. Compliant Disclosed on page 98 of the Board Remuneration Committee Report. 7.10.5(b) Disclosure of the functions of the Remuneration Committee The Committee shall recommend the remuneration payable to the Executive Directors and Chief Executive Officer or equivalent role. Compliant Disclosed in the Board Remuneration Committee Report (pages 98 to 99). Audit Committee 7.10.6.(a) Composition of Audit Committee Shall comprise NEDs, a majority of whom shall be independent. The Chairman or a member should be a member of a recognised professional accounting body. Compliant Disclosed in the Corporate Governance Report (page 75) and Board Audit Committee Report (page 100). 7.10.6.(b) Functions of the Audit Committee Overseeing preparation, presentation and adequacy of disclosures in the financial statements. Monitoring the system of internal controls. Assessing the independence and quality of performance of the external auditors. Recommending to the Board the appointment, re- appointment and removal of the external auditors. Compliant Disclosed in the Corporate Governance Report (page 75) and the Committee Report (page 100). 7.10.6.(c) Annual Report disclosures on the Audit Committee The names of the members of the Audit Committee. A report of the Audit Committee setting out the manner of compliance with their functions. Compliant Disclosed in Board Audit Committee Report (page 100). Corporate Governance
- 81. 79 Annual Report 2014-15 RiskManagement Review Effective risk management is one of the fundamental factors of success of Softlogic. Our approach includes limiting the concentration of exposure and managing potential losses from systematic swings, and ensuring continued availability of resources to counter downturns. The development of risk management processes across the Group has continued over the year. Management in our six business sectors is directly involved in risk management initiatives, ‘We seek to achieve an appropriate balance between risks and rewards in our business spheres, and aspire to build and enhance a risk management framework that will facilitate delivering the required risk insights and inputs into our ambitious growth plans in a vibrantly entrepreneurial environment’ How we manage risk Oversight and governance structure Board Management Structure Strategic Risk Audit and Compliance Subsidiary Risk Management Group Risk Management Tactical Risk - Managing Executives and Group Executives Operational Risk - Executive Heads Process Risk - Line Management Project Risk - Project Manager Senior management Chief Executive Officers Business Heads
- 82. 80 Softlogic Holdings PLC withFinancial Services and Healthcare having advanced and presently striving to achieve best practices in risk management. DEVELOPMENT AND IMPLEMENTATION OF RISK GOVERNANCE STANDARDS To be on par with its increasing diversity, complexity and size, Softlogic’s risk management practices needed review. Consequently, Softlogic is developing risk governance standards for each major risk category to which it is exposed. The standards will establish consistency in the way in which major risk types are dealt with across the Group. Management in each business unit will be responsible for ensuring appropriate implementation. Compliance will be assessed through assessments conducted by Business Unit Risk Officers, supplemented by reviews by the Group Risk Department and by Internal Audit. OUR APPROACH Our approach to risk management is based on well-established practices and calls for individual responsibility, and oversight supported by exception reporting. We focus on management participation, with comprehensive risk management structures being developed within individually listed and large business units particularly. Business Unit Risk Officers and Business Heads will be responsible to ensure the management of risk within their businesses and for ensuring that appropriate, and adequately designed risk management frameworks are in place. These frameworks are compliant with the Group’s risk governance standards. To ensure independence, Business Unit Risk Officers report only administratively to their Business Unit Heads, and indirectly to the Group Head of Risk and directly to the Chairman of Risk Committee. OUR RISK MANAGEMENT MODEL The acceptance of risk is an integral part of Softlogic’s businesses. The definition of risk appetite and the control and management of risk is therefore critical. Strong management and prudential decision making has been key to Softlogic’s growth, stability and success. Our risk management model is based on ‘three lines of defence’. The primary responsibility for risk management lies at business level which is, the first line of defence; an essential role of all business managers The Process we follow: Our Process of defining, assessing, classifying and monitoring risks is set out below Defining risk Management defines risks as strategic, project, process, operational and tactical levels. 1 Assessing risk Risks are assessed based on their potential impact on business activity, financial position and reputation. A ‘level 1’ risk is insignificant while a ‘level 5’ risk is catastrophic. 2 Assessing likelihood Risks are assessed based on their likelihood of occurrence, considering controls in place to address them. A scale of 1 to 5 is used, where 1 indicates ‘Never’ and 5 is ‘Almost certain, despite the controls in place’. 3 Monitoring and reporting risks Operational, tactical and strategic risks are monitored, reported on and managed. Internal Audit reviews Risk Departments and reports on their findings. 5 Classifying risks Risks are classified as critical, high, medium and low, based on impact and likelihood. Where a risk has a high likelihood of occurrence and the impact is high, it would be considered critical. 4 Risk Management Review
- 83. 81 Annual Report 2014-15 isto ensure risks are managed. The risk management function is the second line of defence, which independently assesses material risks. The third line of defence is the Internal Audit. RISK APPETITE Risk appetite refers to the nature and extent of risk the Group is willing to accept. The Healthcare and Financial Service clusters are reaching an advanced state in this respect; other sectors will follow. Parameters influencing risk appetites are below: SOFTLOGIC’S RISK MANAGEMENT CULTURE Softlogic recognises that effective risk management is more than just management information systems and controls; embedding an effective risk management culture amongst staff is of paramount importance. Fostering an effective risk culture is a key theme that we anticipate to trickle down the organisation and is maintained broadly through five steps at Softlogic: 1. Setting of objectives – The Board of Directors sets out the expectations regarding appropriate financial and non-financial objectives. 2. Alignment of risk appetite – Group Head of Risk in consultation with Executive and Non- Executive Directors devise the risk management plan. 3. Leading and executing the strategies– Corporate and middle management operationally embark on implementing these expectations by their actions, communication, consequences, education and organisational governance. 4. Monitoring - Effectiveness is assessed and periodically reported to allow adjustment and refinement as necessary. 5. Learning and feed forward – The learning from risk that varied from set parameters are studied and fed into the next cycle of risk management plan. We communicate our risk management approach to employees via induction and training sessions, to help embed this culture throughout Softlogic. SOFTLOGIC’S ENTERPRISE RISK PROFILE The Enterprise risk profile seeks to identify and measure risk across six sectors and monitor emerging trends and exposures. Softlogic defines risks as occurrences which have a potentially negative impact on achievement of Group objectives. Strategic and business risk This is the risk that the profitability of the Group is adversely impacted by failure to identify and implement correct strategy, or react appropriately to changes in the environment. We are conscious of the need to understand all elements of new businesses/ expansions before they are undertaken. We are well aware of acquisition / expansion risks; failing to deliver on integrated objectives, on commercial, operational and cost-saving targets and on expectations of synergy with existing businesses. Mitigation Strategy: Our concentration risk is limited through the diversity of our business model. Decisions concerning new business are vetted by relevant Business Heads, the Group’s strategy team and the Risk Management Department, who support the Chairman’s and Board’s assessments. The new business approval process requires relevant risks (including market, financial and operational risks) to be examined to ensure these are understood and addressed prior to implementation. Internal Audit performs a post-audit, typically within six to twelve months of acquisition or launch. This is followed by continuous monitoring of progress against the integration plan. We ensure the ‘Softlogic Way’ is embedded throughout the acquired business. General economic risk Weak or deteriorating local or foreign (systematic or uncontrollable) economic 1 2 3 4 Continual Improvement PLAN Continual Improvement ADJUST Review and Revise DO Communicate & Implement CHECK Analyse & Monitor
- 84. 82 Softlogic Holdings PLC conditionscould adversely affect achievement of Group’s objectives. Mitigation Strategy: Our Risk Management Department monitors changes in local and foreign conditions. We stay in touch with our overseas stakeholders, including principals, suppliers and financing partners to monitor material changes happening in those countries. Market risk Market risk is the risk of adverse changes due to changes in foreign exchange rates, interest rates and prices. Softlogic is exposed to risks in these areas: – Foreign exchange – Volatility will affect profitability and can threaten the sustainability of business, Softlogic being a significantly import-reliant business. Mitigation Strategy: Exchange rate movements are monitored for currencies on which the Group has exposure; where appropriate, Group Treasury enters into forward exchange rate contracts to mitigate the risk. – Interest rates – Softlogic is sensitive to interest rate movements given its significant level of borrowings. Changes in interest rates also have implications for the Financial Services Cluster’s business. Mitigation Strategy: Our Treasury Management teams monitor market conditions to manage the impact from changing interest rates. Forward rate agreements, interest rate swaps, cap and floor agreements, fixed and floating rates and asset / liability maturity matching are used to mitigate risks. – Equities – changes in the price and volatility of individual equities. Six, including the Holding Company, are listed on the Colombo Stock Exchange– Commodities (product prices) – Changes in the cost of our products can have major impacts on our bottom line. Mitigation Strategy: Procurement teams monitor likely price movements and work with the Corporate Planning Division to establish pricing that will satisfactorily balance profitability and market share. Our healthy, long- term partnerships with overseas principals reduce the prospects of radical price increases. Credit risk Credit risk arises from failure by counterparties to meet their contractual obligations, causing losses to the Group. Mitigation Strategy: Robust credit assessment and management policies are established Group-wide. Credit outstanding is closely monitored, with guarantees and deposits / assets available as security helping to reduce losses on defaults. The Group mostly lends to rated or internally vetted counter parties with sound credit quality. Their credit ratings are routinely monitored. A continuous review of credit risk profiles consisting both external and internal factors analysis across the Group’s investment portfolios is in place. Liquidity risk Liquidity risk arises when the Group, despite being solvent, cannot generate sufficient cash to meet its payment obligations as they fall due, or can only do so on materially disadvantageous terms. This may arise where counterparties who provide Softlogic with funding, withdraw or do not accommodate a roll-over of that funding, or as a result of a disruption in asset markets resulting in normally liquid assets becoming illiquid. Mitigation Strategy: It is a Group-wide practice to prepare annual cash flow forecasts, building in provisions for contingencies, maintaining buffers for unutilised limits/ contingencies/ non-roll-overs, and identifying maturity mismatches, are used at company and Group levels. Group Treasury maintains good relationships with bankers and investors in Commercial Paper and other credit lines, to help ensure availability of funds. The CFO, Group Head of Risk and Head of Treasury Limits Tolerance Levels Risk Appetite Statements Specific risk constraints in individual business units are defined The capacity to endure risk is determined The level of risk considered acceptable in pursuing objectives is defined 1 2 3 Risk Management Review
- 85. 83 Annual Report 2014-15 meetregularly to monitor liquidity risks and needs, and gearing. Operational risks Risks in this category are broad in nature and inherent in most businesses and processes. These include the risk of failures in resourcing or planning, errors or fraud, and weaknesses in systems and processes. In essence, these relate to people, systems and processes in our operations. – People – We believe that our People form the basis of enduring advantage; without their engagement and alignment with the Group’s aspirations our performance can only be sub- optimal. it is essential that we develop and maintain management capability across our 46 subsidiaries. We identify, develop and retain an appropriate succession plan of able managers for the present and future needs of the Group. Mitigation Strategy: We believe in building leadership through our Group Talent Management initiative, and in inculcating a culture of accountability, empowerment and personal development among all employees. An effective induction programme is in place to orient new comers. The importance of succession planning for key management positions is recognised. Processes are in place to understand and respond to employee needs; bi-annual performance reviews are also conducted. – Systems & processes – Information, other systems, internal control failures, inadequate procedures and human errors, inadequate procedures and external events can cause loss of earnings and reputation. Mitigation Strategy: The implementation of a new ERP system is an important initiative in standardising systems and processes. We will also centralise back office activity within an in-house BPO, to optimise efficiency. – Information security – Cyber-attacks will result in disruption of information technology (IT) systems and a loss of important information, can cause significant business disruption. These can negatively impact cash flows and financial position, and have other adverse consequences. Mitigation Strategy: Executive Management approves and periodically reviews Group IT strategy to ensure investment in IT systems and innovations to safeguard and improve business efficiency. Group Head of IT, with the Cluster Heads of IT, monitor the integrity of IT infrastructure and data. To complement IT security teams, under risk departments review, areas related to IT security. Business Continuity and Disaster Recovery Plans A disaster or major disruption could have severe implications on the business. Mitigation Strategy: Business Continuity and Disaster Recovery Plans are in place for each cluster, and are tested periodically. Disaster Recovery Plans extend to key IT systems and data bases/ warehouses. Physical and electronic security systems are also in place. Processes that reflect best practices are also in place to review the risk of incidents across the Group on a periodic basis, BCP and DR plans are tested without business disruptions. Risk departments are mapping operational procedures and related controls to feedback internal audit departments. Political, environmental, technological and regulatory risk Our business sectors may be affected by various external changes, local and global. Mitigation Strategy: We engage with Governmental and non-Governmental organisations to ensure they understand Softlogic and to respond to questions they have. We seek to anticipate and respond to important changes in public policy wherever we operate. Legal and regulatory compliances of the Group are monitored continuously by compliance officers. Social and reputational risk Damage to Softlogic’s brands can arise from any association, action or inaction perceived by stakeholders to be inappropriate or unethical. This could lead to loss of trust and confidence and a decline in our customer base and affect our ability to recruit and retain talented people. Mitigation Strategy: Softlogic values have been embedded in all our business activities. Our Code of Business Conduct guides employees in dealing with customers, employees, suppliers and society at large. Social media publicity is monitored. A well-
- 86. 84 Softlogic Holdings PLC structuredstakeholder communication mechanism exists to understand diverse viewpoints. FUTURE PLANS As one of Sri Lanka’s fast-growing conglomerates, Softlogic aims to bring value, expertise and innovation in line with its Credo. Softlogic’s ambitious expansion and growth during the year has made it obligatory to review the risk management structure in the Group in a much detailed manner. Experienced and able risk teams will be set up as required at retail and healthcare service sectors. Financial Services sector will be taking the next step in terms of risk management following various levels of stress testing across credit risk components and portfolio levels (For instance, concentration risks with deeper analysis such as stress testing and scenario analysis of expected credit losses). Cluster Risk Officers will be appointed. We would strengthen focus on operational risk areas and concentrate on developing internal control systems of our Retail Sector. Softlogic will form a Board appointed Sub-Committee on Integrated Risk Management (IRMC), headed by a Non- Executive Board member. These strong risk management practices will allow us strengthen the Group so we can aspire to exceed the needs of our stakeholders. No No Grievance Handling Procedure The Company’s Grievance Procedure is set out below. All employees should bring their grievance to the notice of the Management as per the process laid down below. EMPLOYEE HAS A CONCERN Discus with Immediate Supervisor Does not like to discuss with the immediate Supervisor Does not like to discuss with the immediate Supervisor or HOD Concern / issue resolve Yes End Discus with the Head Department / Operations Concern / issue resolved Yes End Discuss with HR Department Case Review Conciliation No Written Complaint Lodged Initial Inquiry of the concern (Verbal / Written) Initial Assessment of the Complaint Respondent notified of complaint, reply and sought further information / evidence sought from complaint / witness Concern / issue resolved Yes End Concern / issue resolved Yes EndFurther Investigation Yes Risk Management Review
- 87. 85 Annual Report 2014-15 Thisreport explains our efforts to promote economic, social and environmental sustainability in the communities in which we live and work. In it, we give examples of how we are LIVING THE HIGHEST in terms of health and safety, environmental stewardship, openness and honesty strong community partnerships, and an engaged and solution-driven workforce in our businesses. The theme LIVE THE HIGHEST is built on our commitment to making a positive difference to the communities we serve. Our success is linked to the condition of communities in which we operate. If they are not thriving, it is likely that our businesses cannot, either. Our decisions therefore must consciously help build sustainable communities. We regard this approach as one to which every employee at Softlogic can contribute. Sustainability Report Sustainability is integral to Softlogic and all its actions. We believe a business must act responsibly and be sustainable to create long-term value for its stakeholders. LIVING THE HIGHEST ‘Maximizing Shareholder Returns’ +14,000 Shareholders ‘Maximizing returns to employees, customers, lenders and other business partners’ Other Stakeholders ‘Contribute to the greater good of all’ Societal contribution Softlogic CSR Strategy focus Our Environment Our Economic Contribution Community/ Philanthropy Quality Corporate Governance and internal control Our People
- 88. 86 Softlogic Holdings PLC moresustainable communities and earning our social acceptance as an environmental trustee— an intrinsic value of sustainability. We regard our social reputation as a responsibility of every employee at Softlogic, and it starts with ‘me’. In this report, you will read about our sustainability strategy and goals, the things we have done and the progress we have made. We are a company committed to LIVE THE HIGHEST, and we are working energetically to deliver on this aspiration. Softlogic’s approach to CSR and sustainability focuses on: • conducting business responsibly; • considering stakeholders’ perspectives in decision-making; • creating value for our shareholders and communities; and • contributing to sustainable development. We have always linked the success of our business to the strength of the environment and community in which we operate. Sustainability Report In the environmental space, we focus on saving energy, water, recycling paper and several other green projects. In the workplace, we focus on fostering human rights, inclusion and diversity, and on creating safe and healthy workplaces for our associates. And in contributing to building sustainable communities, we focus on promoting economic opportunity and empowerment. We have always linked the success of our business to the strength of the environment and community in which we operate. If they are not thriving, there is a strong likelihood that our businesses would suffer. The decisions we make are related to building
- 89. 87 Annual Report 2014-15 STAKEHOLDERENGAGEMENT MAP Invest or & Lenders Government & Regulations Communities Employees Customers Business Partners Ú Ú Ú Ú Ú Ú TopPriorities • Business Strategy and Continuity • Risk and reputation management • Financial performance • Regulatory Compliance • Taxes and Royalties • Economic Development • Job Creation • Local Employment • Building trust with local communities • Improving living standards of local communities • Health and Safety • Business Continuity and Success • Professional Development • Job Security • Other Benefits • Satisfaction • After Sales Service • Product Quality and Safety • New Products • Active involvement of partners and principals in relevant business areas. Ú Ú Ú Ú Ú Ú CorporateEngagement • Corporate Governance • Investor Presentations, conferences, web releases and general meetings • Active Investor Relations Desk/ Helpline • CSE/ SEC Filing and notifications • Social Projects • Policy development and advocacy • Industry trade association memberships • 1:1 Formal dialogues when necessary • Social Investment programmes • Media and social media • Royalty relations • Training & Development • Internal Communication • ‘The Code’ • Human Capital Helpline • Value for Money • New product introductions • Constant dialogue with partners/ principals, most whom are international agencies/ brands Ú Ú Ú Ú Ú Ú OperationsEngagement • Roadshows • Meetings with Research analysts/ investment advisors/ fund managers and other investors • Permit Review and other compliance activities • Collaboration on social investment projects • Participating in surveys and research • Community outreach • Philanthropy and volunteering • Media • Employee Volunteering • Management System • Investment in effective team, procedures, brands etc. • Customer questionnaires • Management organised store visits • Customer Help desk • Presentations and conference calls at regular intervals on financial and non-financial updates • International expertise on board from strategic/ operational execution
- 90. 88 Softlogic Holdings PLC Westrive to recruit the brightest talent and provide them with the resources to succeed. This commitment to, and focus on, people has been part of Softlogic’s core values from its origin. Our people are at the forefront of everything we do. Having the right people, properly resourced and motivated, enables us deliver excellent results and meet our strategic aspirations. We have these key people priorities: 1. Putting the right people in the right place at the right time, to support customer needs; 2. engaging them, to make sure they share our passion for better customer service; and 3. building leaders, and strengthening our leadership capability at all levels. “To win in the marketplace, our employees will be the differentiator. Softlogic needs the right people in the right roles, with the right skills and attitude and doing their best work, to excel,” Natasha Fonseka, Group Head of Human Capital ‘A priority is to ensure everyone who works with, or at, Softlogic is treated fairly.’ Softlogic’s CSR Decision-Making Process CSR Working Groups (representatives of functions related to sustainability strategies and CSR teams at individual sectors) Sectoral/ Group Senior Management 2014/152004/05 8,433560 Sustainability Report
- 91. 89 Annual Report 2014-15 Publishingthe training Calendar for the year Post training evaluation / Assessment of training effectiveness Iddenfication of Training sources and preparation of Training budget Training Plan Training need Analysis1 2 3 4 5 Development is prioritised, so all employees develop their skills and contribute as best they can. Accelerated leadership development prepares leaders for future roles and provides greater bench strength. Clear career paths ensure employees are in appropriate positions, allowing Softlogic to serve customers better. Diversity and inclusion are part of our talent decisions. By embracing diversity of thought, background, ethnicity and gender, Softlogic is more inclusive and reflects that diversity in its actions. GREAT RESULTS FROM A GREAT TEAM Softlogic is investing strategically in a talent-focused culture. Our training framework brings a consistent approach to development opportunities across the Group and provides job profiles and career paths, and technology and career development tools, for employees. A range of in-house and external training opportunities is provided for staff, based on the annual Training Need Analysis. Our approach has equipped staff with the skills to excel in their jobs. For instance, Asiri nursing staff are among the most valued in the industry, as they undergo a three-year comprehensive training course at the Asiri School of Nursing, focused primarily on improving patient care and service quality. During the year, Asiri gave special attention to obtaining the Joint Commission International Accreditation (JCIA), the highest accreditation a hospital can obtain. In addition to Asiri’s routine training, specialised training was conducted for the staff of Asiri Surgical Hospital and Central Hospital. Regional Product Training workshops are held monthly to enhance product knowledge and provide market updates to retail sales staff. These are conducted by representatives of our principals and by use of in-house resources. MaleFemale 56%44%
- 92. 90 Softlogic Holdings PLC Softlogic’scommitment to learning and development is directed at helping employees and leaders achieve outstanding results. This commitment is delivered in many ways, focused on: • New Employee Orientation • Job Skill Training • Sales and Product Training • Employee Development • Leadership Development • Mentoring • Job Rotation • Executive Coaching • Career Guidance During the year • Softlogic Retail organised a workshop and team building activity dealing with business objectives and areas of focus. Each employee was given their annual objectives at this workshop. • A six-month course in English was held for Centara Ceysand’ employees, for whom familiarity with English is very important. • A training session on cocktails was held for relevant employees, led by Mike Sweetman, National Vice President, United Kingdom Bartenders Guild and British Trainer of Food and Beverage for Sri Lanka. Experts from our supplier Grande Champagne also conducted a seminar for employees. RESPONSIBLE BEHAVIOUR Conducting business responsibly is essential to maintain Softlogic’s reputation. Compliance and risk management are integrated in our day to day activity. Responsibility and sustainability are ingrained in our culture and values, and enshrined in ‘the Code’. EMPLOYEE INVOLVEMENT We believe engaged employees understand Softlogic’s vision, feel a sense of ownership in the Company’s success and contribute to improved business performance across the board, not least in safety, customer satisfaction, financial performance and environmental leadership. We engage employees in establishing goals, initiatives and processes. They are kept informed of key happenings across the Group. Investor Relations emails employees on financial and share performance; promotional emails and updates from Group Human Capital keep staff informed of happenings across the Group. Employees at Softlogic have many opportunities to participate in social activities of the Group. Raise awareness of social issues Donations Participation in volunteer work Leverage job skills Sustainability Report
- 93. 91 Annual Report 2014-15 ABlood Donation Campaign was organised in July, at Asiri Surgical Hospital. Over 110 employees donated blood at this event. Employees of Centara Ceysand Resorts & Spa, have undertaken responsibility to ensure the river and beaches surrounding the resort are kept clean. SHARED VALUES The Group Sustainability Team, with individual subsidiaries, formulates Softlogic’s social responsibilities policies and implements these across the Group. Group Human Capital promotes CSR activities through the Group by ensuring policies and initiatives are appropriately communicated. Recognising the importance of employee awareness on effective CSR, Softlogic offers a variety of programs using a three-level approach, where employees are first encouraged to learn about CSR, second to participate in CSR activities, and third to incorporate CSR in their day-to-day work. Work People Operations Total Rewards Company Policies and Practices Societal contribution Engagement • Job Profile • Resources • Processes • Accomplishments • Senior Leadership • Colleagues • Valuing People • Customers • Training and development • Intercompany transfers and other career opportunities • Pay • Performance related incentives • Recognitions • Other benefits • Performance Appraisals • Diversity • Company Reputation • Physical work and environment • Work life balance
- 94. 92 Softlogic Holdings PLC Webelieve employee participation is essential for our community engagement to be meaningful. Softlogic encourages employees to become aware of social issues, deepen their understanding of these and participate in fundraising initiatives, community projects and other activities. We encourage employees to be instructors in workshops for children and students, and to contribute in other ways that benefit from their skills and aptitudes. Centara Ceysand opened their doors to University students for a day, so they could visit and learn about the hotel industry. EMPLOYEE RECOGNITION Acknowledging the contributions of our workforce is important in engaging and retaining employees. Channels through which we recognise employees for their exceptional work are: • Spotlight, our corporate employee recognition/ promotion program. • Quarterly/ Annual Performance Awards in subsidiary companies, which provide leadership teams with the opportunity to honour elite performance. A Showroom Staff Day is held for showroom employees, to show appreciation for the efforts they put in. Ten programmes were held across the island during the year. A staff motivational programme themed “Sales Magic” was held before the November/December retail sales season. This was directed at the Sales team, with over 300 participating. Clean Organisational Culture Softlogic has zero tolerance of unlawful activity. We strive for an unblemished organisational culture through education and strict monitoring. Induction programmes and communications on ethics guide employees on the courses of action they should take in given situations. Strict disciplinary action is taken where there are breaches, with countermeasures installed to prevent recurrence. Other Employee Benefits Softlogic takes a comprehensive approach to enhancing employee wellbeing, whether related to health, life or money. Softlogic offers tools and resources that support the various facets of wellness. Program offerings include special health assessment packages at Asiri, health coaching, wellness challenges and financial counselling. Free medical insurance packages are provided to employees across the Group; discounts are provided when employees purchase any Softlogic product /service. The year’s highlights include these: Centara Ceysand Resorts & Spa held an awareness programme for its employees on World AIDS Day. A video presentation on AIDS was followed by a quiz. Winners received prizes to encourage involvement in such awareness sessions. A campaign was organised by the Asiri Group in May 2014 to mark World Hand Hygiene Day, with over 300 employees participating. Participants were given practical knowledge in proper hand hygiene. Fire drills are organised regularly in Softlogic locations, to ensure employees are aware of emergency procedure in case of fire. Softlogic strives for a flexible work environment so employees can be more effective in their work and home lives. Arrangements include job sharing Sustainability Report
- 95. 93 Annual Report 2014-15 andflextime. These and other initiatives promote work-life balance and enable employees to realise their potential, while maintaining a healthy balance. Several of Softlogic’s initiatives are aimed at bringing together employees who work in different parts of the country. Softlogic supports employees on Academic and Continuous Professional Development, by sharing costs they incur on external training, professional memberships and examinations. THINKING GREEN At Softlogic, we believe responsible management of the materials we use and the waste we produce is important for operational efficiency and for the environment. We seek opportunities to reduce waste, and to recycle and reuse it to ensure the waste we do produce is handled responsibly. We monitor paper waste generation and recycling across the Group through an outsourced recycler. Our environmental initiatives focus on: • Energy use • Waste management Green Projects Energy use is important to our business from environmental and cost perspectives; we strive to consume less and reduce our environmental impact by monitoring power consumption. Some elements of our approach involve use of promotional emails / text messages rather than printed handbills, and use of energy efficient lighting systems and products. Waste management is an important focus as our operations generate paper, plastic and metal waste; we strive to consume less and recycle more, and to reduce our environmental impact by: • Encouraging individual responsibility for recycling, and providing recycling facilities for paper. • Setting printers/copiers to double- sided printing and photocopying as default. • Using proper disposal for IT and electronic equipment. • Using licensed organisations to remove/ recycle waste. 540 fully grown Trees 55,791 litres of Oil 95 cubic meter of Land fill 127,160 kwh of Electricity Reduced Green House Gas Emissions by 31,792 Kgs of Carbon equivalent 1,010,286 litres of Water During the year, the e-waste mechanism was extended across our key retail showrooms and branches. The Group’s waste paper disposal during the year was:
- 96. 94 Softlogic Holdings PLC ‘Green’projects for the year included: Future Automobiles, with its principal Ford Motor Company, awarded a USD20,000 (approximately Rs.2.6 Mn) grant to the Field Ornithology Group of Sri Lanka (FOGSL) under Ford’s Environmental Grants Program for 2014. The grant will promote the study of birds and through this, environmental conservation and social interaction in Sri Lanka. The FOGSL project is entitled “Exemplary Citizens through Conservation – Creating Ambassadors of Peace and Reconciliation”. The program will link communities and students from previously war-torn regions in the North and East with counterparts elsewhere in Sri Lanka, with nature studies and the study of birds as a focal point of their interaction. The first of a series of workshops was held in the Sinharaja World Heritage site recently. Softlogic Finance launched its first ‘Clean Zone’ in March. The programme aims to improve cleanliness across 100km of road, with waste segregation and recycling supported. The project was launched by Deputy Minister of Policy Planning and Economic Affairs, Hon. Dr. Harsha de Silva at the company’s Nawala branch. The ‘Clean Zone’ initially focuses on 500m of road on either side of the Nawala branch. The project is next looking at improving cleanliness of 2km of road on either side of all branches and pawning centres across the island. The benefit of this programme is potentially significant, contributing also to disease control. Asian Alliance Insurance continued its ‘Protect Your Beautiful World’ project, focused on supporting natural reserves and related establishments island-wide. The project provides eco- friendly paper bags to tourists visiting World’s End, without charge, and was launched in 2013 in co-operation with the Department of Wildlife Conservation. The unique design of the bags differentiates them from ordinary eco-friendly bags; their attractiveness even makes users preserve them as souvenirs of their journey to World’s End. Asian Alliance Insurance also continued placing awareness boards on the outskirts of the Yala National Park, and at Habarana and Minneriya, to create awareness on the preservation of wildlife. Besides this, Asian Alliance Insurance contributed to the ‘Manampitiya project’ in collaboration with the Department of Wildlife Conservation. This centres on the Floodplains Park, Manampitiya, an area of 17,500 hectares. The destruction of forests and pollution of the environment have made wild animals stray from their natural habitat and wander into densely populated areas, which results in them being harmed by vehicles and also becoming a threat to near-by villages. 19 signs were erected on the main road between Batticaloa and Polannaruwa. The signs, in all three languages, are on luminous surfaces and urge drivers to ‘Drive Slow’ and ‘Be Watchful’. The project also seeks to stop residents from dumping garbage and polluting the environment. Asian Alliance Insurance also worked with the Department of Forests to spread awareness about the importance of protecting natural resources. 13 signs were erected along the Habarana–Trincomalee road carrying messages such as ‘Keep Nature Clean’, ‘Drive Slowly’, ‘Love Animals’, ‘Love Nature’, ‘Be Watchful of Nature’, ‘Keep your eyes on the road’, ‘Slow Down – Elephant Crossing’, ‘Give Life to Sustainability Report
- 97. 95 Annual Report 2014-15 WildLife’ and ‘Slow Down – Peacock Crossing’. In conjunction with the Mayor and District Secretary of Nuwara Eliya, Asian Alliance Insurance designed a guide book for local and foreign visitors to Nuwara Eliya, providing valuable information for tourists on beautiful locations in the town. Asian Alliance Insurance’s numerous ‘green’ projects were reflected in their annual calendar, drawing stakeholder attention to these initiatives. Odel made responsible whale-watching its cause for World Animal Day 2014. Sri Lanka lies within the International Whaling Commission’s protected zone in the Indian Ocean. The most popular spots for whale-watching excursions are Kalpitiya, Mirissa, Dondra and Trincomalee. Because of our proximity to the deep waters of the continental shelf, whales come in very close to land. A campaign to protect the giant cetaceans was carried out by Odel as part of its commitment to promote animal conservation in support of World Animal Day. Nearly 500 children and their parents attended the educational programme at Odel’s Alexandra Place store to learn about these giant mammals of the ocean; their habitat, their lifestyle, from what they need to be protected, and why. As part of the campaign, Odel produced a whale- inspired range of products including T shirts, mugs, soft toys and stationery. Part of the profits from the sale of these products were contributed to Sri Lanka’s first Responsible Whale Watching Accreditation programme in Mirissa conducted by Friends of the Sea, a non-profit, non-governmental organisation whose mission is conservation of the marine habitat. Odel also conducted a campaign to save Sri Lanka’s beaches through an inspired Eco Art festival marking World Environment Day. The objective was to create awareness of the problem of beach pollution amongst the younger generation. The spectre of coastal pollution caused by unchecked littering was colourfully and poignantly addressed by a hundred little hands. Equipped with crayons, water colours, pencils, paper and other materials, they sketched and painted under the watchful eyes of a panel of judges, producing a kaleidoscope of visual interpretations of Odel’s theme of 'Save our beaches; Do your bit to combat pollution.' This was preceded by a clean-up of Mount Lavinia beach organised by the Human Resource Department of Odel to involve employees in this cause, along with the general public. Centara Ceysand Resorts & Spa took steps with its employees and guests to mark Earth Day. Earth Hour was marked with a shutdown of power and an outdoor barbecue for guests. The employees participated in a special training programme touching on energy saving and preserving the environment. The Human Resources Division of the resort organised a seminar on environment preservation at the junior section of Aluthgama Maha Vidyalaya. The senior students of this school visited the resort for a seminar delivered by Dr. Varuna Fernando, a consultant in environmental studies.
- 98. 96 Softlogic Holdings PLC COMMUNITYINVOLVEMENT AND PHILANTHROPY Making a positive difference in our community In the spirit of our corporate ideal – all people, regardless of race, religion or culture, living and working together harmoniously into the future– Softlogic takes an approach to business that is socially responsible and economically logical. For our customers, we offer the best products possible, simultaneously striving to improve our relationships with local communities and contributing to peoples’ happiness. This is even more marked as we expand our presence across the island, amongst diverse communities in cities and in rural areas facing difficult social and economic conditions. Our branch network in the Retail and Financial Services clusters looks at employing people and sourcing materials from the immediate community, helping raise local living standards. These are a few projects the Group handled or contributed to during the year: Softlogic Holdings contributed Rs.10 Mn to a project of the National Housing Development Authority aimed at assisting communities facing housing problems across the island. The Authority’s programmes benefit low income rural and urban families. Softlogic Holdings was lead sponsor for the event ‘Ridhi Pahan Rayak’ organised by the Kandy Sinhala Velada Peramuna women’s arm towards establishing a new kidney transplant unit at the Kandy National Hospital. Softlogic Holdings helped the Holy Rosary Church of Arukgoda to establish a ‘Daham Pasala’. Previously, catechism classes were conducted outdoor, under trees. Scorching heat and monsoon rains were hindrances. The Parish Council and the students organised a Fundraising Raffle to which Softlogic provided handsets. The proceeds were utilised to construct a ‘Daham Pasala’ building. Softlogic recognises, in its philanthropy, that our subsidiaries are closest to their customers and best positioned to determine how to serve them most effectively. Our approach to community engagement and charitable giving allows individual companies to determine how best to respond. Asiri Group continued its free health camp programmes, this time in collaboration with social organisations and the Military Forces in various locations. Each camp costs about Rs.150,000. The rural areas in which camps were held during the year were Hambantota, Galle, Kataragama, Udawalawe, Panama, Mullaitivu, Vavuniya and Padaviya. Asiri Hospital Matara organised a Health Camp (Lama Suwasahana) for school children at Mahindarama Temple, Thalaramba, at which approximately 500 children were treated through the concerted efforts of its staff. Another Medical Camp was organised for villagers at Kohuliadda School, Hakmana, at which nearly 250 people were treated. A free health camp (Guru Matha, Guru Piyawaru Upahara Dinaya) for retired school teachers was also organised in Hakmana, to celebrate the 7th Anniversary of Asiri in Matara; 110 retired school teachers were treated at the camp. Sustainability Report
- 99. 97 Annual Report 2014-15 AsiriSurgical Hospital has performed free heart surgeries for underprivileged children since 2011, successfully conducting 67 such surgeries to date. 22 of these were performed during the year, at an average cost of Rs.450,000 each. The patients are referred to Asiri Surgical Hospital by the Lady Ridgeway Hospital for Children; this initiative enables children from low-income households to obtain life-saving surgery at no cost. Group employees supported the Sirasa Shakthi Sahana Yathra unit by donating essential provisions to individuals who had been displaced owing to the landslide in Koslanda, which affected many in the area. Softlogic Finance assisted those displaced, some of whom were left with no families or homes, with employees of its Badulla Branch coordinating relief operations. A large consignment of clothes for adults and children, and much needed dry rations, were sent to the area and distributed among the victims. Millions of people across 14 districts of Sri Lanka were affected by prolonged drought. Polonnaruwa, where hundreds of families rely on agriculture for their livelihood, was one of the areas most severely affected. Softlogic Finance delivered a large consignment of much-needed water, dry rations and other necessities to those families. This was conducted with the help of its Polonnaruwa Branch, who coordinated the supplies. The employees of Softlogic Finance were prime contributors to this initiative. Softlogic Group continued its cattle rescue programme this year. Cattle intended for slaughter were released and given to low income families to help them in their daily lives. Copies of the 'Tripitaka', the collection of teachings of Lord Buddha, were presented to newly ordained Buddhist monks in the monastery situated at Samangala in Ampara. Our Economic Contribution Year Ending 31 March 2015 2014 Change (%) Direct Economic Value Generated Revenue 39,563.9 29,246.4 35% Interest Income 608.9 654.4 (7%) Dividend Income 141.9 146.3 (3%) Share of results of Associates 5.3 13.3 (60%) Value Gain in investment property 526.7 91.1 478% Other Income 1,534.0 853.6 72% Total Value Created 42,380.6 31,005.1 37% Economic Value Distributed Operating Cost 29,343.3 21,687.0 35% Employee Wages & Benefit 5,562.6 3,745.8 49% Payments to Government 2,962.8 1,903.4 56% Capital Providers 2,692.8 2,780.1 (3%) Total Value Distributed 40,561.5 30,116.2 35% Economic Value Created Depreciation 1,190.0 901.8 32% Amortisation 248.0 204.0 22% Defined Cost Benefit - Net 68.8 65.6 5% Retained Profit 1,819.1 888.8 105% Total Retained 3,325.9 2,060.2 61%
- 100. 98 Softlogic Holdings PLC BoardRemuneration Committee Report The Remuneration Committee recommends to the Board, the Group’s framework of executive remuneration and specific packages and conditions of employment for each of the Executive Directors and Senior Management. In discharging its responsibilities the Remuneration Committee is assisted by the Group Head of Human Capital, who acts on the instructions of the Committee and maintains an independent position in which conflicts of interest are avoided. The Remuneration Committee comprises three Non-Executive Directors (two of whom, including the Chairman, are Independent Directors). Decisions of the Committee are taken at meetings or by circular resolutions. During the year under review, one Remuneration Committee meeting was held in May 2014. The composition of the Remuneration Committee and the attendance at the meeting held is as below: Name Category Meetings attended Mr. W M P L de Alwis, PC Chairman 01/01 Desamanya P D Rodrigo* Member 01/01 Mr. G L H Premaratne** Member n/a Mr. R A Ebell *** Member n/a * Resigned with effect from 30 June 2014 ** Appointed with effect from 31 July 2014 *** Appointed with effect from 8 July 2015 The Chairman of the Group, who is also Managing Director, attends meetings by invitation. No Director of the Company is involved in determining his own remuneration. The Chairman of the Committee reports to the Board on its activities. The performance of the Committee is reviewed as part of the effectiveness review of the Board Committees. COMMITTEE OBJECTIVE The main purpose of the Board Remuneration Committee is to ensure adoption of remuneration policies which attract and retain top talent in alignment with the Company’s strategy, and to drive performance in the short and long term. The broad terms of reference of the Remuneration Committee are to: a. Recommend the remuneration policy to be adopted at Softlogic Holdings PLC. The remuneration strategy considers current industrial trends, employee experience, past performance and the need for retention and motivation. b. Review the performance of the Managing Director, Executive Directors and Senior Management in the context of the Company’s performance. c. Recommend the perquisites applicable to the Managing Director and Executive Directors. d. Board members’ remuneration on factors including their contribution to the activities of the Board, the number of Board and Committee meetings attended, and the performance and results of the Company. e. Ensure disclosure of Directors’ remuneration is accurate, complete and transparent. f. Recommend retirement benefits of the Managing Director and Executive Directors, in terms of guidelines adopted by the Board. g. Recommend short term incentive schemes, after reviewing their design, the targets set and the participation thresholds. h. Review and monitor progress in people management. COMMITTEE STRATEGY Softlogic Holdings’ remuneration policy is designed to attract, develop and retain passionate, committed and talented people to effectively implement Group strategy and create value for its shareholders. The remuneration strategy is based on retaining critical skills and driving performance through attractive pay and incentive packages. A significant portion of executives’ total potential remuneration is performance-related, to drive the right behaviours. Targets are set annually in the context of the Group’s plans and the economic environment in which it operates. INTERNAL & EXTERNAL INPUT The Group’s policy on senior executive remuneration is designed to encourage individuals who can bring their
- 101. 99 Annual Report 2014-15 experienceand independent views to discussions on the policy, strategic decisions and governance of the Group. In setting remuneration, the Committee takes into consideration the practices of other companies of similar size and scope. A key philosophy is that staff must be properly rewarded and motivated to perform in the Group’s best interests. Members of Senior Management and the Company Secretary have, as necessary, contributed to the Committee’s discussions. The Committee considers market data available when considering incentive and remuneration packages. The Remuneration Committee will seek relevant professional advice whenever necessary to increase its understanding and effectiveness. ACTIVITIES DURING THE YEAR The Committee: • formally considers succession plans for executives and regularly reviews identified successors for key positions in the Group; • recommended to the Board the remuneration of the Chairman/ Managing Director, Executive Directors and Senior Management; • recommended bonuses and salary adjustments for Group employees, following quarterly and bi-annual appraisals and a final performance evaluation; and • considered succession plans for executives and reviews successors identified for key positions in the Group. The Committee also focused on: • Developing a Succession and Talent Management Plan. • Monitoring equality of treatment, and the encouragement of diversity, across the Group. • Recognising long service through awards to long-serving employees. I thank Desamanya P D Rodrigo, who stepped down from the Board and the Committees of Softlogic Holdings during the year, for his valuable contribution in the past years as a member of the Committee. I welcome Mr. Harris Premaratne and Mr. Richard Ebell, who were appointed to the Committee on 31 July 2014 and 8 July 2015 respectively. I also extend my gratitude to the Head of Group Human Capital, Natasha Fonseka and her team, for their valuable contributions. Prasantha Lal De Alwis 31 July 2015
- 102. 100 Softlogic Holdings PLC AuditCommittee Report SCOPE The responsibilities of the Committee are set forth in the written Terms of Reference (TOR), a revised version of which was adopted by the Board on 8 July 2015. The Committee will not engage directly with Group companies covered by other audit committees established under mandatory regulatory requirements; it receives briefings on the activities of these committees as necessary. COMPOSITION The Committee was chaired by Desamanya P D Rodrigo until his resignation from the Board on 30 June 2014, and thereafter by R A Ebell, who was appointed a Director on 20 March 2014 and a member of the Committee on 19 June 2014. Other members of the Committee are: Dr. S Selliah Mr. W M P L De Alwis, PC Mr. G L H Premaratne (appointed w.e.f. 19 June 2014) Softlogic Corporate Services (Pvt) Ltd., served as Secretary of the Committee up to 30 June 2014. Mr D Vitharanage, Chief Risk Officer Chief Internal Auditor (CRO/ CIA) served as Secretary thereafter. ACTIVITY & FOCUS The Audit Committee has primarily focused during the year on its responsibilities for monitoring: • integrity of the Company’s and Group’s financial statements, including the reasonableness of assertions made in their preparation, the appropriateness of accounting policies used and the adequacy of presentation and disclosures made; • effectiveness of internal control over financial reporting; • the work and performance of the internal auditors; • the Company’s relationship with its External Auditors, auditor independence and performance, and the management’s responsiveness to external audit; and • procedures in place to examine, regularly, the Company’s ability to continue as a going concern in the foreseeable future. The Committee meets quarterly to review and make recommendations on the quarterly and annual financial statements before they are considered and approved by the Board for release to shareholders and the public. It also meets at other times to consider matters arising from its review of the financial statements and other subjects, including internal audit findings and reviews of specific businesses and change initiatives. The Committee has reviewed the plan for reducing the number of External Auditors deployed across the Group and reassigning audits to improve audit cohesiveness. It has also provided inputs in the determination of KPIs and evaluation of performance of the CRO / CIA. MEETINGS & REPORTING The Committee met fourteen [ 14 ] times during the year. Attendance at these meetings has been as follows: Name Meetings attended Desamanya P D Rodrigo 2 / 2 Mr. R A Ebell 13 / 13 Dr. S Selliah 14 / 14 Mr. W M P L de Alwis, PC 12 / 14 Mr. G L H Premaratne 12 / 14 The Chief Financial Officer attends all meetings by invitation, and other members of Senior Management attend meetings by invitation as required. The External Auditors attend meetings by invitation when their presence is necessary; discussion of their major audit and review findings is a key component of those meetings. The Committee further meets with the External Auditors, with no members of management present, to cover contentious matters and matters they wish to discuss in confidence with the Committee. The Committee makes written reports to the Group Chairman / Managing Director, for dissemination to the Board, following each quarterly meeting at which financial statements are reviewed prior to a recommendation being made on them. These draw attention to matters requiring consideration and action. The Committee also briefs the Group Chairman /Managing Director from time to time on matters of concern, at ad hoc meetings or at meetings scheduled by him with the Non-Executive Directors. REAPPOINTMENT OF EXTERNAL AUDITORS The Audit Committee has proposed to the Board of Directors that the incumbent auditors, Ernst & Young, Chartered Accountants be recommended for re-appointment for the year ending 31 March 2016 at the upcoming Annual General Meeting. R A Ebell Chairman (w.e.f. 1 July 2014) Audit Committee 31 July 2015
- 103. 101 Annual Report 2014-15 AnnualReport of the Board of Directors on the Affairs of the Company The Directors of Softlogic Holdings PLC have pleasure in presenting to the members their Annual Report together with the Audited Financial Statements of the Company and the Group for the year ended 31 March 2015. GENERAL Softlogic Holdings PLC is a public limited company which was incorporated under the Companies Act No. 17 of 1982 as a private limited company on 25 February 1998, re- registered under the Companies Act No. 07 of 2007 on 17 December 2007, converted to a public limited liability company on 10 December 2008, and listed on the Colombo Stock Exchange on 20 June 2011. The name of the Company was changed to Softlogic Holdings PLC on 25 August 2011. PRINCIPAL ACTIVITIES The principal activities of the Company are holding investments, providing management services and financial assistance to its subsidiaries. The principal activities of the subsidiary companies are Information and Communications technology, Automobiles, Retailing, Hoteliering and Leisure, providing Financial and Insurance services and Healthcare services. The Group operates through branches, offices and subsidiaries in Sri Lanka and overseas. FUTURE DEVELOPMENTS An indication of likely future developments is set out in the Chairman’s Review on pages 13 to 15. In the ordinary course of business the Group develops new products and services in each of its business segments. PERFORMANCE REVIEW The Financial Statements reflect the state of affairs of the Company and the Group. This report forms an integral part of the Annual Report of the Board of Directors. FINANCIAL STATEMENTS Section 168 (b) of the Companies Act requires that the Annual Report of the Directors include financial statements of the Company, in accordance with Section 151 of the Act and Group financial statements for the accounting period, in accordance with section 152 of the Act. The requisite financial statements of the Company are given on pages 108 to 214 of the Annual Report. DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING The Directors are responsible for the preparation of the Financial 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 Companies Act No. 07 of 2007 and the Sri Lanka Financial Reporting Standards. A statement in this regard is given on page 106. AUDITOR’S REPORT The Auditor’s Report on the financial statements is given on page 107 of the Annual Report. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies adopted in the preparation of the financial statements are given on pages 117 to 140 of the Annual Report. There was no change in the accounting policies adopted from the previous year except those mentioned in Note 1.7 to the Financial Statements. PROPERTY, PLANT & EQUIPMENT The details and movement of property, plant and equipment during the year under review is set out in Note 15 to the Financial Statements on pages 172 and 175. CAPITAL EXPENDITURE The total capital expenditure incurred on the acquisition of property, plant and equipment for the Company and the Group amounted to Rs.6 Mn (2014 – Rs.15 Mn) and Rs.4,284 Mn (2014 – Rs.3,505 Mn) respectively. Details of capital expenditure and their movements are given in Note 15 to the Financial Statements on pages 172 to 174 of the Annual Report. RESERVES The reserves for the Company and the Group amounted to Rs.541 Mn (2014 Rs.223 Mn) and Rs.2,536 Mn (2014 – Rs.1,713 Mn) respectively. The movement and composition of the Capital and Revenue reserves is disclosed in the Statement of Changes in Equity.
- 104. 102 Softlogic Holdings PLC DONATIONS Duringthe year, donations made by the Company and the Group amounted to Rs.10.1 Mn (2014 - Rs.0.1 Mn) and Rs.16.1 Mn (2014 – Rs.4.7 Mn) respectively. STATED CAPITAL The stated capital of the Company as at 31 March 2015 was Rs.5,089,000,000.00. There was no change in the stated capital of the Company during the year under review. TAXATION The information relating to income tax and deferred taxation is given in Note 10 to the Financial Statements. DIVIDENDS The Directors declared an interim dividend of Rs.0.25 per share for the year under review which was paid on 19 May 2015. STATUTORY PAYMENTS The Directors, to the best of their knowledge and belief are satisfied that all statutory payments in relation to the government and the employees have been either duly paid or appropriately provided for in the Financial Statements. EVENTS AFTER THE DATE OF THE STATEMENT OF FINANCIAL POSITION No circumstances have arisen and no material events have occurred after the date of Statement of Financial Position, which would require adjustments to, or disclosure in the financial statements other than those disclosed in Note 47 to the Financial Statements. DIRECTORATE The following Directors held Office during the year under review. The biographical details of the Board members are set out on pages 18 and 19. Mr. A K Pathirage (Chairman / Managing Director) Mr. G W D H U Gunawardena Mr. R J Perera Mr. H K Kaimal Mr. M P R Rassool Dr. S Selliah Desamanya P D Rodrigo (resigned w.e.f. 30th June 2014) Mr. W M P L De Alwis, PC Mr. G L H Premarathne Mr. R A Ebell RETIREMENT AND RE-ELECTION OF DIRECTORS In terms of Article 87 of the Articles of Association of the Company, Messrs R J Perera, H K Kaimal and Dr. S Selliah retire by rotation and being eligible offer themselves for re-election. DIRECTORS’ SHAREHOLDING Directors’ interest in the shares of the Company as at 31 March 2015 were as follows. Name of Director No. of Shares Mr. A K Pathirage 362,933,569 Mr. G W D H U Gunawardena 57,527,300 Mr. R J Perera 60,836,700 Mr. H K Kaimal 64,870,800 Mr. M P R Rassool - Dr. S Selliah 2,000,000 Mr. W M P L De Alwis, PC - Mr. G L H Premarathne - Mr. R A Ebell - DIRECTORS’ REMUNERATION Directors’ remuneration in respect of the Company for the financial year ended 31 March 2015 was Rs.19 Mn (2014 – 34 Mn). The remuneration of the Directors is determined by the Board. DIRECTORS’ INTERESTS IN CONTRACTS AND PROPOSED CONTRACTS WITH THE COMPANY Directors’ interests in contracts, both direct and indirect are referred to in Note 42 to the Financial Statements. The Directors have no direct or indirect interest in any other contract or proposed contract with the Company. INTERESTS REGISTER The Interests Register is maintained by the Company as per the Companies Act No. 07 of 2007. All Directors have disclosed their interests pursuant to Section 192(2) of the said Act. SHAREHOLDERS’ INFORMATION The distribution of shareholders is indicated on page 215 of the Annual Report. There were 14,169 registered shareholders as at 31 March 2015 (31 March 2014 – 15,557). Annual Report of the Board of Directors on the Affairs of the Company
- 105. 103 Annual Report 2014-15 SHAREINFORMATION Information on share trading is given on page 216 of the Annual Report. INTERNAL CONTROL The Directors are responsible for the governance of the Company including the establishment and maintenance of the Company’s system of internal control. Internal control systems are designed to meet the particular needs of the organisation concerned and the risk to which it 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. RISK MANAGEMENT The Group’s risk management objectives and policies and the exposure to risks, are set out in pages 79 to 84 of the Annual Report. CORPORATE GOVERNANCE The report on Corporate Governance is given on pages 70 to 78 of the Annual Report. THE AUDITORS 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.1.7 Mn as audit fees for the financial year ended 31 March 2015 (2014 – Rs.1.5 Mn) by the Company, details of which are given in Note 8 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 have an impact on their independence. The Auditors also do not have any interest in the Company. Having reviewed the independence and effectiveness of the external auditors, the Audit Committee has recommended to the Board that the existing auditors, Messrs Ernst & Young, Chartered Accountants be reappointed. Ernst & Young have expressed their willingness to continue in office and an ordinary resolution reappointing them as auditors and authorising the Directors to determine their remuneration will be proposed at the forthcoming AGM. GOING CONCERN The Directors having assessed the environment within which it operates are satisfied that the Company and the Group have adequate resources to continue its operations in the foreseeable future. Therefore, the Directors have adopted the going- concern basis in preparing the financial statements. ANNUAL GENERAL MEETING The Annual General Meeting of the Company will be held at the “Committee Room C” of Bandaranaike Memorial International Conference Hall (BMICH), Bauddhaloka Mawatha, Colombo 07 on Wednesday 30th day of September 2015 at 10.30 a.m. The Notice of the Annual General Meeting is on page 219 of the Annual Report. For and on behalf of the Board A K Pathirage Chairman/Managing Director H K Kaimal Director Softlogic Corporate Services (Pvt) Ltd Secretaries 31 July 2015 Colombo
- 106. 104 Softlogic Holdings PLC 15August 2014 1QFY15 Interim release Group revenue – Rs.8.0 bn, up 14.6% Gross profit – Rs.2.5 bn, up 14.4% Profit before tax– Rs.294.9 mn, up 36.0% Profit after tax– Rs.225.3 mn, up 21.9% 16 February 2015 3QFY15 Interim release Cumulative Group revenue – Rs.27.8 bn, up 27.7% Cumulative gross profit – Rs.10.0 bn, up 25.6% Cumulative profit before tax– Rs.1.4 bn, up 39.5% Cumulative profit after tax– Rs.1.1 bn, up 37.4% 14 November 2014 2QFY15 Interim release Cumulative Group revenue – Rs.16.7 bn, up 17.7% Cumulative gross profit – Rs.6.1 bn, up 19.3% Cumulative profit before tax– Rs.721.8 mn, up 110.5% Cumulative profit after tax– Rs.579.1 mn, up 90.1% 29 May 2015 4QFY15 Interim release Annual Group revenue – Rs.39.5 bn, up 35.0% Annual gross profit – Rs.14.1 bn, up 28.2% Annual operating profit – Rs.4.3 bn, up 22.0% Annual profit before tax– Rs.2.4 bn, up 87.7% Annual profit after tax– Rs.1.8 bn, up 83.5% Financial Calendar 2015
- 107. 105105 Financial Statements Statement of Directors’Responsibilities 106 Independent Auditors’ Report 107 Income Statement 108 Statement of Comprehensive Income 109 Statement of Financial Position 110 Statement of Changes in Equity 112 Cash Flow Statement 114 Notes to the Financial Statements 117
- 108. 106 Softlogic Holdings PLC Theresponsibilities of the Directors, in relation to the financial statements of the Company differ from the responsibilities of the Auditors, which are set out in the Report of the Auditors on page 107. The Companies Act No. 07 of 2007 stipulates that the Directors are responsible for preparing the Annual Report and the financial statements. Company law requires the Directors to prepare financial statements for each financial year, giving a true and fair view of the state of affairs of the Company at the end of the financial year, and of the Statement of Comprehensive Income of the Company and the Group for the financial year, which comply with the requirements of the Companies Act. The Directors consider that, in preparing financial statements set out on pages 108 to 214 of the Annual Report, appropriate accounting policies have been selected and applied in a consistent manner and supported by reasonable and prudent judgments and estimate, and that all applicable accounting standards have been followed. The Directors confirm that they are justified in adopting the going concern 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 position of the Company and to enable them to ensure the financial statements comply with the Companies Act No. 07 of 2007. 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 undertake whatever inspections they may consider to be appropriate to enable them to give their independent audit opinion. The Directors are of the view that they have discharged their responsibilities as set out in this statement. COMPLIANCE REPORT The Directors confirm that to the best of their knowledge, all taxes, duties and levies payable by the Company, all contributions, levies and taxes payable on behalf of and in respect of the employees of the Company and other known statutory dues as were due and payable by the Company as at the date of the Statement of Financial Position have been paid or, where relevant provided for, in arriving at the financial results for the year under review. For and on behalf of the Board of SOFTLOGIC HOLDINGS PLC Softlogic Corporate Services (Pvt) Ltd Secretaries 31 July 2015 Colombo Statement of Directors’ Responsibilities
- 109. 107 Annual Report 2014-15 IndependentAuditors’ Report TO THE SHAREHOLDERS OF SOFTLOGIC HOLDINGS PLC Report on the Financial Statements We have audited the accompanying financial statements of Softlogic Holdings PLC (“the Company”), and the consolidated financial statements of the Company and its subsidiaries (“Group”), which comprise the statement of financial position as at 31 March 2015, and the income statement and statement of comprehensive income, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information. Board’s Responsibility for the Financial Statements The Board of Directors (“Board”) is responsible for the preparation of these financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal controls as Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Board, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 March 2015, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards. Report on other legal and regulatory requirements As required by Section 163(2) of the Companies Act No. 07 of 2007, we state the following: a) The basis of opinion, scope and limitations of the audit are as stated above. b) In our opinion: - we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company, - the financial statements of the Company give a true and fair view of its financial position as at 31 March 2015, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards, and - the financial statements of the Company and the Group comply with the requirements of section 151 and 153 of the Companies Act No. 07 of 2007. 31 July 2015 Colombo
- 110. 108 Softlogic Holdings PLC IncomeStatement In Rs. Note Group Company For the year ended 31 March 2015 2014 2015 2014 Revenue 3 39,563,884,110 29,246,435,584 416,018,805 355,554,590 Cost of sales (25,447,258,306) (18,234,876,165) (80,991,653) (90,424,044) Gross profit 14,116,625,804 11,011,559,419 335,027,152 265,130,546 Dividend income 4 - - 961,271,765 403,985,123 Other operating income 5 1,162,561,036 497,258,384 108,111,472 94,532,167 Distribution expenses (2,016,859,252) (1,511,521,978) - - Administrative expenses (9,010,634,418) (6,374,080,924) (347,890,153) (221,702,118) Results from operating activities 4,251,693,170 3,623,214,901 1,056,520,236 541,945,718 Finance income 6 1,122,173,265 1,156,974,990 201,540,615 355,897,046 Finance expenses 7 (2,692,809,554) (2,660,026,602) (1,006,903,157) (980,482,527) Net finance cost (1,570,636,289) (1,503,051,612) (805,362,542) (624,585,481) Change in insurance contract liabilities 9 (944,348,980) (966,545,920) - - Change in fair value of investment property 17 526,702,000 91,100,500 40,736,886 60,300,500 Share of profit of equity accounted investees 19.5 5,290,016 13,280,969 - - Profit/ (loss) before tax 2,268,699,917 1,257,998,838 291,894,580 (22,339,263) Tax expense 10 (449,618,026) (249,163,813) 28,417,501 (1,195,889) Profit/ (loss) for the year 1,819,081,891 1,008,835,025 320,312,081 (23,535,152) Attributable to: Equity holders of the parent 555,779,746 155,863,630 Non controlling interest 1,263,302,145 852,971,395 Profit for the year 1,819,081,891 1,008,835,025 Earnings per share Basic 11 0.72 0.20 Dividend per share 12 - 0.15 Figures in brackets indicate deductions. The accounting policies and notes as set out in pages 117 to 214 form an integral part of these financial statements.
- 111. 109 Annual Report 2014-15 Statementof Comprehensive Income In Rs. Note Group Company For the year ended 31 March 2015 2014 2015 2014 Profit/ (loss) for the year 1,819,081,891 1,008,835,025 320,312,081 (23,535,152) Other comprehensive income Other comprehensive income to be reclassified to income statement in subsequent periods Currency translation of foreign operations 48,583,081 18,526,748 - - Net (loss) / gain on available for sale financial assets 16,245,855 (59,626,107) - 2,749,371 Net other comprehensive income to be reclassified to income statement in subsequent periods 64,828,936 (41,099,359) - 2,749,371 Other comprehensive income not to be reclassified to income statement in subsequent periods Revaluation of land and buildings 15.1 369,616,947 313,990,550 - - Net change in fair value on derivative financial instruments 32.5 30,540,342 (30,540,342) - - Actuarial gains/ (loss) on retirement benefits 35 (84,380,473) 931,713 (2,634,546) (3,531,852) Share of other comprehensive income of equity accounted investees 19.5 134,233 (85,252) - - Netothercomprehensiveincomenottobereclassifiedto incomestatementinsubsequentperiods 315,911,049 284,296,669 (2,634,546) (3,531,852) Tax on other comprehensive income (39,411,524) (15,421,880) 737,672 - Othercomprehensiveincome/(loss)fortheyear,netoftax 341,328,461 227,775,430 (1,896,874) (782,481) Totalcomprehensiveincome/(loss)fortheyear,netoftax 2,160,410,352 1,236,610,455 318,415,207 (24,317,633) Attributable to: Equity holders of the parent 760,741,038 220,149,620 Non controlling interest 1,399,669,314 1,016,460,835 2,160,410,352 1,236,610,455 Figures in brackets indicate deductions. The accounting policies and notes as set out in pages 117 to 214 form an integral part of these financial statements.
- 112. 110 Softlogic Holdings PLC Statementof Financial Position In Rs. Note Group Company As at 31 March 2015 2014 2015 2014 Assets Non current assets Property, plant and equipment 15 24,909,536,887 17,538,277,279 121,538,318 150,325,511 Lease rentals paid in advance 16 854,795,905 153,312,184 - - Investment property 17 94,848,000 2,266,146,000 442,641,386 394,000,000 Intangible assets 18 8,857,003,875 7,731,412,573 1,723,508 5,341,896 Investments in subsidiaries 19 - - 10,592,900,172 9,007,349,757 Investments in equity accounted investees 19.1 26,216,105 24,746,404 11,000,000 11,000,000 Other non current financial assets 20 9,087,649,679 6,166,907,714 1,277,947,548 57,797,564 Rental receivable on lease assets and hire purchase 21.1 3,669,327,302 3,762,890,106 - - Other non current assets 22 292,792,966 142,966,541 - - Deferred tax asset 23 318,527,576 307,629,785 68,817,557 - 48,110,698,295 38,094,288,586 12,516,568,489 9,625,814,728 Current assets Inventories 24 7,669,562,845 5,109,353,850 - - Trade and other receivables 25 6,622,803,106 5,070,927,688 241,724,591 167,169,840 Loans and advances 26 5,524,162,085 2,077,038,702 - - Rental receivable on lease assets and hire purchase 21.2 2,881,969,879 4,616,673,500 - - Amounts due from related parties 42.1 572,053 778,460 2,290,507,881 2,453,097,064 Other current assets 27 3,760,097,208 2,773,900,450 21,724,101 31,136,264 Short term investments 28 8,392,441,152 6,358,330,664 3,670,748,138 1,643,996,055 Cash in hand and at bank 1,926,725,822 1,762,101,994 42,695,145 279,766,916 36,778,334,150 27,769,105,308 6,267,399,856 4,575,166,139 Investment property held for sale 17 2,698,000,000 - - - 39,476,334,150 27,769,105,308 6,267,399,856 4,575,166,139 Total assets 87,587,032,445 65,863,393,894 18,783,968,345 14,200,980,867 Equity and Liabilities Equity attributable to equity holders of the parent Stated capital 29 5,089,000,000 5,089,000,000 5,089,000,000 5,089,000,000 Revenue reserves 1,167,195,634 628,907,045 541,413,224 222,998,017 Other components of equity 30 1,368,340,826 1,083,932,574 - - 7,624,536,460 6,801,839,619 5,630,413,224 5,311,998,017 Non controlling interest 8,157,436,153 6,548,905,153 - - Total equity 15,781,972,613 13,350,744,772 5,630,413,224 5,311,998,017
- 113. 111 Annual Report 2014-15 InRs. Note Group Company As at 31 March 2015 2014 2015 2014 Non current liabilities Insurance contract liabilities 31 5,129,272,339 4,184,923,357 - - Interest bearing borrowings 32 22,844,291,422 12,999,848,935 5,767,785,189 2,448,181,474 Public deposits 33 2,214,295,787 1,885,402,009 - - Deferred tax liabilities 34 314,257,283 332,324,498 - - Employee benefit liabilities 35 655,925,545 444,467,274 30,669,730 30,083,785 Other deferred liabilities 36 3,044,433 5,476,209 - - Other non current financial liabilities 37 31,710,620 6,260,352 509,915,332 - 31,192,797,429 19,858,702,634 6,308,370,251 2,478,265,259 Current liabilities Trade and other payables 38 7,041,840,113 5,751,656,616 29,531,350 14,569,828 Amounts due to related parties 42.2 15,970,784 19,508,602 148,005,634 946,657,314 Income tax liabilities 39 322,656,391 174,142,951 - - Short term borrowings 40 14,787,184,778 11,822,115,977 4,191,598,768 3,920,810,772 Current portion of interest bearing borrowings 32 4,616,956,512 4,144,437,836 2,368,998,067 1,455,262,816 Other current liabilities 41 2,330,891,786 771,866,598 24,009,337 18,028,769 Public deposits 33 9,838,760,403 7,418,343,338 - - Bank overdrafts 1,658,001,636 2,551,874,570 83,041,714 55,388,092 40,612,262,403 32,653,946,488 6,845,184,870 6,410,717,591 Total equity and liabilities 87,587,032,445 65,863,393,894 18,783,968,345 14,200,980,867 I certify that the financial statements comply with the requirements of the Companies Act No. 7 of 2007. Group Chief Financial Officer The Board of directors is responsible for the preparation and presentation of these financial statements. Director Director The Accounting Policies and Notes as set out in pages 117 to 214 form an integral part of these Financial Statements. 31 July 2015 Colombo
- 114. 112 Softlogic Holdings PLC Statementof Changes in Equity Group In Rs. Attributable to equity holders of parent Stated capital Treasury shares Revaluation reserve Exchange translation reserves As at 01 April 2013 5,089,000,000 (47,753,697) 1,337,323,893 (93,885,610) Profit for the year - - - - Other comprehensive income / (loss) - - 124,450,980 18,526,748 Total comprehensive income - - 124,450,980 18,526,748 Direct cost on issue of shares - - - - Transfer to reserve fund - - - - Treasury shares purchased during the year (8,167,488) - - Acquisition, disposal and changes in non controlling interest - - - - Dividend paid - - - - Subsidiary dividend to non controlling interest - - - - As at 31 March 2014 5,089,000,000 (55,921,185) 1,461,774,873 (75,358,862) Profit for the year - - - - Other comprehensive income / (loss) - - 171,272,900 48,583,081 Total comprehensive income - - 171,272,900 48,583,081 Direct cost on issue of shares - - - - Transfer to reserve fund - - - - Deferred tax reversal on depreciation impact of revaluation - - 3,327,624 - Acquisition, disposal and changes in non controlling interest - - - - Subsidiary dividend to non controlling interest - - - - As at 31 March 2015 5,089,000,000 (55,921,185) 1,636,375,397 (26,775,781) Company In Rs. Stated capital Available for sale reserve Revenue reserve Total As at 01 April 2013 5,089,000,000 (2,749,371) 370,810,021 5,457,060,650 Loss for the year - - (23,535,152) (23,535,152) Other comprehensive income/ (loss) - 2,749,371 (3,531,852) (782,481) Total comprehensive income - 2,749,371 (27,067,004) (24,317,633) Dividend paid - - (120,745,000) (120,745,000) As at 31 March 2014 5,089,000,000 - 222,998,017 5,311,998,017 Profit for the year - - 320,312,081 320,312,081 Other comprehensive loss - - (1,896,874) (1,896,874) Total comprehensive income - - 318,415,207 318,415,207 As at 31 March 2015 5,089,000,000 - 541,413,224 5,630,413,224 Figures in brackets indicate deductions. The accounting policies and notes as set out in pages 117 to 214 form an integral part of these financial statements.
- 115. 113 Annual Report 2014-15 Attributableto equity holders of parent Total Non controlling interest Total equity Available for sale reserve Statutory reserve fund Other reserves Revenue reserve 240,463,858 87,790,590 - 675,126,490 7,288,065,524 6,280,065,130 13,568,130,654 - - - 155,863,630 155,863,630 852,971,395 1,008,835,025 (63,890,355) - - (14,801,383) 64,285,990 163,489,440 227,775,430 (63,890,355) - - 141,062,247 220,149,620 1,016,460,835 1,236,610,455 - - - (5,871,054) (5,871,054) - (5,871,054) - 61,377,352 - (61,377,352) - - - - - - - (8,167,488) - (8,167,488) - - (572,303,697) - (572,303,697) (134,030,648) (706,334,345) - - - (120,033,286) (120,033,286) - (120,033,286) - - - - - (613,590,164) (613,590,164) 176,573,503 149,167,942 (572,303,697) 628,907,045 6,801,839,619 6,548,905,153 13,350,744,772 - - - 555,779,746 555,779,746 1,263,302,145 1,819,081,891 23,754,556 - - (38,649,245) 204,961,292 136,367,169 341,328,461 23,754,556 - - 517,130,501 760,741,038 1,399,669,314 2,160,410,352 - - - (11,477,810) (11,477,810) (2,847,938) (14,325,748) - (32,635,898) - 32,635,898 - - - - - - - 3,327,624 - 3,327,624 - - 70,105,989 - 70,105,989 726,589,317 796,695,306 - - - - - (514,879,693) (514,879,693) 200,328,059 116,532,044 (502,197,708) 1,167,195,634 7,624,536,460 8,157,436,153 15,781,972,613
- 116. 114 Softlogic Holdings PLC CashFlow Statement In Rs. Note Group Company For the year ended 31 March 2015 2014 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES Profit/ (loss) before tax 2,268,699,917 1,257,998,838 291,894,580 (22,339,263) Adjustments for: Finance income 6 (1,122,173,265) (1,156,974,990) (201,540,615) (355,897,046) Dividend income - - (961,271,765) (403,985,123) Finance cost 7 2,692,809,554 2,660,026,602 1,006,903,157 980,482,527 Change in fair value of investment property 17 (526,702,000) (91,100,500) (40,736,886) (60,300,500) Share of results of equity accounted investees 19.5 (5,290,016) (13,280,969) - - Gratuity provision and related costs 35 140,196,129 105,555,003 6,520,501 6,319,025 Provisions for/ write off of impaired receivables 8 96,689,666 34,210,138 61,416,769 4,577,366 Provision for impairment of inventories 8 190,001,431 49,765,780 - - Fair value adjustment on assets held for sale - - 8,250,980 - Depreciation of property, plant and equipment 15 1,189,997,919 901,836,851 24,239,655 25,452,041 Profit on sale of property, plant and equipment 5 (24,486,006) (34,808,911) (6,368,059) (16,622,339) Profit on sale of investments (644,439,532) (222,795,432) (80,981,615) (56,984,480) Unrealised (gain)/ loss on foreign exchange (65,919,502) 25,855,552 - - Amortisation/ impairment of intangible assets 8 248,049,626 204,045,351 2,624,845 2,221,133 Amortisation of prepaid lease rentals 8 1,036,939 1,036,927 - - Provision for put option liability - 6,260,352 - - Increase / (decrease) in deferred income 64,246,524 (61,646,822) - - Impairment / derecognition of property, plant & equipment and Intangible assets 29,141,735 29,691,599 995,249 - Profit before working capital changes 4,531,859,119 3,695,675,369 111,946,796 102,923,341 (Increase) / decrease in inventories (1,317,762,392) (1,453,796,534) - - (Increase) / decrease in trade and other receivables (1,974,792,070) (860,489,097) (74,554,750) (68,400,306) (Increase) / decrease in loans and advances (5,344,525,114) (818,798,373) - - (Increase) / decrease in investments in lease and hire purchase 1,828,266,427 (1,102,821,152) - - (Increase) / decrease in other current assets (1,083,438,824) (1,105,659,002) 1,999,042 (3,221,346) (Increase) / decrease in amounts due from related parties 206,407 93,603,954 (1,662,568,488) (1,951,918,164) Increase / (decrease) in trade and other payables 1,033,858,656 1,876,437,387 14,961,522 (502,247) Increase / (decrease) in amounts due to related parties (3,537,818) (2,512,237) (294,537,636) (348,808,956) Increase / (decrease) in other current liabilities 1,394,780,108 500,247,453 5,980,569 (6,312,073) Increase / (decrease) in public deposits 2,749,310,843 2,346,794,300 - - Increase / (decrease) in insurance provision 944,348,982 966,545,920 - - Cash generated from/ (used in) operations 2,758,574,324 4,135,227,988 (1,896,772,945) (2,276,239,751) Finance income received 653,876,070 732,654,329 199,719,324 354,408,194 Finance expenses paid (2,619,644,709) (2,650,623,018) (994,129,825) (965,397,880) Dividend received 1,000,000 27,000,000 961,271,765 403,985,123 Tax paid (296,639,907) (429,862,142) (32,249,264) (14,310,092) Gratuity paid 35 (71,288,846) (38,898,992) (2,767,813) (1,335,500) Net cash flow from/ (used in) operating activities 425,876,932 1,775,498,165 (1,764,928,758) (2,498,889,906)
- 117. 115 Annual Report 2014-15 InRs. Note Group Company For the year ended 31 March 2015 2014 2015 2014 CASH FLOWS FROM /(USED IN) INVESTING ACTIVITIES Purchase and construction of property, plant and equipment (4,023,075,585) (3,459,164,705) (5,539,092) (14,782,876) Addition to prepaid lease rentals 16 (702,520,660) - - - Addition to investment property - - (7,904,500) (7,563,029) Purchase of intangible assets (71,178,662) (305,007,400) (1,861,900) - (Increase)/ decrease in other non current assets (114,585,768) (63,138,432) - - (Purchase) / disposal of short term investments (net) 3,007,229,282 469,049,446 - 507,968,637 Dividends received 141,855,097 146,289,554 - - (Purchase) / disposal of other non current financial assets (net) (858,863,791) (1,989,235,451) - 36,324,001 Proceeds from disposal of controlling interest 347,856,250 - 1,787,901,615 - Increase in interest in subsidiaries - - (1,305,012,469) (326,688,191) Acquisition of business, net of cash acquired (A) (5,817,191,859) - (2,789,975,487) - Proceeds from sale of property, plant and equipment 124,167,193 91,402,881 17,405,813 24,095,340 Net cash flow from/ (used in) investing activities (7,966,308,503) (5,109,804,107) (2,304,986,020) 219,353,882 CASH FLOWS FROM FINANCING ACTIVITIES Dividend paid to non controlling interest (514,879,693) (613,590,164) - - Proceeds from shareholders with non-controlling interest on issue of rights in subsidiaries 311,113,243 - - - Proceeds from long term borrowings 18,538,930,076 7,546,880,910 5,738,547,536 2,000,000,000 (Increase) / decrease of controlling interest (179,401,247) (2,529,972,054) - - (Increase) / decrease in other non-current financial liabilities 25,450,268 - - - Repayment of long term borrowings (8,799,899,215) (3,554,156,028) (1,517,981,903) (492,003,416) Proceeds from / (repayment of) short term borrowings (net) 2,140,258,979 4,643,339,981 270,787,996 2,973,374,625 Direct cost on issue of shares (14,325,748) (5,871,054) - - Unamortisation of debenture issue expense/ loan processing fee (17,878,920) (20,136,995) - (11,094,231) Dividend paid to equity holders of parent - (120,033,286) - (120,745,000) Net cash flow from financing activities 11,489,367,743 5,346,461,310 4,491,353,629 4,349,531,978 NETINCREASEINCASHANDCASHEQUIVALENTS 3,948,936,172 2,012,155,368 421,438,851 2,069,995,954 CASH AND CASH EQUIVALENTS AT THE BEGINNING 1,700,038,527 (312,393,037) 1,737,755,263 (332,240,691) Effect of exchange rate changes (928,291) 276,196 - - CASH AND CASH EQUIVALENTS AT THE END 5,648,046,408 1,700,038,527 2,159,194,114 1,737,755,263 ANALYSIS OF CASH AND CASH EQUIVALENTS Favourable balances Cash in hand and at bank 1,926,725,822 1,762,101,994 42,695,145 279,766,916 Short term investments 5,379,322,222 2,489,811,103 2,199,540,683 1,513,376,439 Unfavourable balances Bank overdrafts (1,658,001,636) (2,551,874,570) (83,041,714) (55,388,092) Cash and cash equivalents 5,648,046,408 1,700,038,527 2,159,194,114 1,737,755,263 Figures in brackets indicate deductions. The accounting policies and notes as set out in pages 117 to 214 form an integral part of these financial statements.
- 118. 116 Softlogic Holdings PLC A.ACQUISITION OF SUBSIDIARIES Softlogic Holdings PLC and Softlogic Retail (Pvt) Ltd, a subsidiary of Softlogic Holdings PLC acquired 122,894,000 (45.16%) ordinary shares of Odel PLC respectively at a price of Rs.22.00 per share on 11 September 2014. This acquisition resulted in Softlogic Holdings PLC and Softlogic Retail (Pvt) Ltd having to make a mandatory offer to the shareholders of Odel PLC to acquire all remaining shares of Odel PLC at a price of Rs.22.00 per share which is the highest price paid by them within the previous twelve months. The Joint Mandatory Offer made by Softlogic Holdings PLC and Softlogic Retail (Pvt) Ltd to the shareholders of Odel PLC expired on 13 October 2014 and Softlogic Holdings PLC and Softlogic Retail (Pvt) Ltd, a subsidiary of Softlogic Holdings PLC acquired further 130,739,418 (48.04%) ordinary shares of Odel PLC. The acquisition had the following effect on the Groups’ assets and liabilities. In Rs. Group For the year ended 31 March 2015 Acquisition of Odel PLC and its subsidiaries Property, plant & equipment 3,867,168,723 Intangible assets 84,847,663 Deferred tax asset 2,328,157 Other non current assets 35,240,657 Inventories 1,242,446,603 Trade and other receivables 216,926,184 Other current assets 38,653,229 Short term investments 1,332,148,214 Cash in hand and at bank 97,324,121 Interest bearing borrowings (338,609,995) Deferred tax liabilities (31,848,115) Retirement benefit liabilities (58,279,692) Trade and other payables (322,244,333) Income tax liabilities (59,901,192) Short term borrowings (795,520,205) Other current liabilities (60,298,308) Bank overdrafts (334,567,106) Net identifiable assets and liabilities 4,915,814,605 Non controlling interest holding (360,023,384) Brand name recognised on acquisition 998,180,211 5,553,971,432 Investment by non controlling interest 25,977,443 5,579,948,875 Total purchase price paid Cash consideration 5,579,948,875 Cash at bank and in hand acquired (net) 237,242,985 5,817,191,860 The accounting policies and notes as set out in pages 117 to 214 form an integral part of these financial statements. Cash Flow Statement
- 119. 117 Annual Report 2014-15 1.1CORPORATE INFORMATION Reporting entity Softlogic Holdings PLC is a public limited liability company incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange. The registered office and principal place of business of the company is located at No. 14, De Fonseka Place, Colombo 5. Softlogic Holdings PLC became the holding company of the Group during the financial year ended 31 March 2003. Consolidated financial statements The financial statements for the year ended 31 March 2015, comprise “the Company” referring to Softlogic Holdings PLC as the holding Company and “the Group” referring to the companies that have been consolidated therein. Approval of financial statements The Financial statements for the year ended 31 March 2015 were authorised for issue by the Board of Directors on 31 July 2015. Principal activities and nature of operations Holding Company Softlogic Holdings PLC, the Group’s holding company, manages a portfolio of investments consisting of a range of diverse business operations, which together constitute the Softlogic Group, and provide function based services to its subsidiaries and associates. Subsidiaries and associates The business activities of the companies within the Group are information and communication technology, automobiles, retailing of consumer electronics , manufacturing garments & fashion retailing , hoteliering, providing financial services, providing healthcare services, providing insurance services, stock brokering and providing management consultancy and financial advisory services. There were no significant changes in the nature of the principal activities of the Company and the Group during the financial year under review. Responsibility for financial statements The responsibility of the Board of Directors in relation to the financial statements is set out in the “Statement of Directors’ Responsibilities” report in the Annual Report. 1.2 GENERAL POLICIES Statement of compliance The financial statements which comprise the Income Statement, Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity and the Statement of Cash Flow , together with the accounting policies and notes (the “financial statements”) have been prepared in accordance with Sri Lanka Accounting Standards (herein referred to as SLFRSs/LKASs) as issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and in compliance with the requirements of the Companies Act No. 7 of 2007. 1.3 SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The consolidated financial statements have been prepared on an accrual basis and under the historical cost convention except for investment properties, land and buildings, fair value through profit or loss financial assets, derivative financial instruments and available for sale financial assets that have been measured at fair value. Presentation and functional currency The consolidated financial statements are presented in Sri Lankan Rupees (Rs.) the Group’s functional and presentation currency, which is the primary economic environment in which the Holding Company operates. Each entity in the Group uses the currency of the primary economic environment in which they operate as their functional currency except the entities incorporated outside Sri Lanka. The following subsidiary is using a different functional currency other than Sri Lankan Rupees (Rs.); Subsidiary Countryof Incorporation Functional currency Softlogic Australia (Pty) Ltd Australia Australian Dollar (AUD) Notes to the Financial Statements
- 120. 118 Softlogic Holdings PLC Goingconcern The Directors have assessed, and are confident that the company will be able to continue in operation for the foreseeable future. In addition, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Accordingly, these financial statements have been prepared on a going concern basis. 1.4 CONSOLIDATION POLICY Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 March 2015. The financial statements of the subsidiaries are prepared in compliance with the Group’s accounting policies unless otherwise stated. Subsidiaries are those entities controlled by the Group. Control over an investee is achieved when the Group is exposed, or rights to variable returns from its involvement with the investee and when it has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has: • Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee) • Exposure, or rights, to variable returns from its involvement with the investee • The ability to use its power over the investee to affect its returns Subsidiaries consolidated have been listed in note 19. The following subsidiary has been incorporated outside Sri Lanka: Name of the Company Country of Incorporation Softlogic Australia (Pty) Ltd Australia The Group re-assesses whether or not it controls an investee, if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit 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 deficit balance. The financial statements of the subsidiaries are prepared for the same reporting period as the parent Company, which is 12 months ending 31 March, using consistent accounting policies. All intra-group assets, liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in the income statement. Any investment retained is recognised at fair value. The total profits and losses for the year of the Company and of its subsidiaries included in consolidation are shown in the consolidated income statement and consolidated statement of comprehensive income and all assets and liabilities of the Company and of its subsidiaries included in consolidation are shown in the consolidated statement of financial position. Non-controlling interest which represents the portion of profit or loss and net assets not held by the Group, are shown as a component of profit for the year in the consolidated income statement and statement of comprehensive income and as a component of equity in the consolidated statement of financial position, Notes to the Financial Statements
- 121. 119 Annual Report 2014-15 separatelyfrom equity attributable to the shareholders of the parent. The Consolidated Statement of Cash Flows includes the cash flows of the Company and its subsidiaries. 1.5 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These accounting policies have been applied consistently by Group entities. 1.5.1 INCOME STATEMENT Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group, and the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, net of trade discounts and value added taxes, after eliminating sales within the Group. The following specific criterias are used for the revenue recognition: Sale of goods Revenue from the sale of goods is recognised when the significant risk and rewards of ownership of the goods have passed to the buyer with the Group retaining neither a continuing managerial involvement to the degree usually associated with ownership, nor an effective control over the goods sold. Rendering of services Revenue from rendering of services is recognised by reference to the stage of completion. Where the contract outcome cannot be measured reliably, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered. Income from leases, hire purchases, loans and advance The accounting for income from leases, hire purchases, loans and advance is recognised using the Effective Interest Rate (EIR) which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. The calculation takes into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR. The unearned income is recognised over the facility commencing on the month on which the facility is executed in proportion to the declining receivable balance. However, accrual of income from lease ceases when the account is overdue for more than six months. Overdue charges Overdue charges of leasing/hire purchase have been accounted for on cash received basis. Life and General insurance business - gross written premiums Gross recurring premiums on life insurance are recognised as revenue when receivable from the policyholder. Gross general insurance written premiums comprise the total premiums receivable for the whole period of cover provided by contracts entered into during the accounting period and are recognised on the date on which the policy commences. Life insurance business - reinsurance premiums Gross reinsurance premiums on life insurance and investment contracts are recognised as an expense when the date on which the policy is effective. Gross general reinsurance premiums written comprise the total premiums payable for the whole cover provided by contracts entered into the period and are recognised on the date on which the policy incepts. Premiums include any adjustments arising in the accounting period in respect of reinsurance contracts incepting in prior accounting periods. Unearned reinsurance premiums are those proportions of premiums written in a year that relate to periods of risk after the Statement of Financial Position date. Unearned reinsurance premiums are deferred over the term of the underlying direct insurance policies for risks-
- 122. 120 Softlogic Holdings PLC attachingcontracts and over the term of the reinsurance contract for losses occurring contracts. Life insurance business - unearned premium reserve Unearned premium reserve represents the portion of the premium written in the year but relating to the unexpired term of coverage. Unearned premiums are calculated on the 365 basis except for marine policies which is computed on a 60-40 basis. Dividend Dividend income is recognised when the Group’s right to receive the payment is established. Consultancy and professional service income Recognise as income in the period in which entitlement to the consideration arises. Finance income Finance income comprises interest income on funds invested (including available for sale financial assets), dividend income, , fair value gains on financial assets at fair value through profit or loss, gains on the re- measurement to fair value of any pre-existing interest in an acquiree that are recognised in Income Statement. Interest income is recorded as it accrues using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. Interest income is included in finance income of the Income Statement. Rental income Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease terms. Gains and losses Net gains and losses of a revenue nature arising from the disposal of property, plant and equipment and other non current assets, including investments, are accounted for in the Income Statement, after deducting from the proceeds on disposal, the carrying amount of such assets and the related selling expenses. Gains and losses arising from activities incidental to the main revenue generating activities and those arising from a group of similar transactions, which are not material are aggregated, reported and presented on a net basis. Other income Other income is recognised on an accrual basis. Turnover based taxes Turnover based taxes include Value Added Tax, Economic Service Charge, Nation Building Tax, Turnover Tax and Tourism Development Levy. Companies in the Group pay such taxes in accordance with the respective statutes. Expenditure recognition Expenses are recognised in the Income Statement on the basis of a direct association between the cost incurred and the earning of specific items of income. All expenditure incurred in the running of the business and in maintaining the property, plant and equipment in a state of efficiency has been charged to the Income Statement. For the purpose of presentation of the Income Statement, the “function of expenses” method has been adopted, on the basis that it presents fairly the elements of the Company and Group’s performance. Finance costs Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, fair value losses on financial assets at fair value through profit or loss, impairment losses recognised on financial assets (other than trade receivables) that are recognised in the Income Statement. Interest expense is recorded as it accrues using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments through the expected life of the financial instrument or Notes to the Financial Statements
- 123. 121 Annual Report 2014-15 ashorter period, where appropriate, to the net carrying amount of the financial liability. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that the Group incurs in connection with the borrowing of funds. 1.5.2 TAXATION Current Tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income. Current income tax relating to items recognised directly in equity is recognised in equity and for items recognised in other comprehensive income shall be recognised in other comprehensive income and not in the income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred Tax Deferred tax is provided, using the liability method, on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences except; • Where the deferred tax liability arising from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of taxable temporary differences associated with investments in subsidiaries and associates, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised except: • where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss; and • in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax assets to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted as at the reporting date. Deferred tax relating to items recognised outside the Income Statement is recognised outside the Income Statement. Deferred tax relating to items recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity.
- 124. 122 Softlogic Holdings PLC Deferredtax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same taxable entity and the same taxation authority. Sales tax Revenues, expenses and assets are recognised net of the amount of sales tax except: • where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • where the receivable and payables that are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position. On dividend income Tax on dividend income from subsidiaries is recognised as an expense in the Consolidated Income Statement. 1.5.3 Current versus non current classification The Group presents assets and liabilities in the statement of financial position based on current/non- current classification. An asset as current when it is: • Expected to be realised or intended to be sold or consumed in normal operating cycle • Held primarily for the purpose of trading • Expected to be realised within twelve months after the reporting period, or • Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period All other assets are classified as non-current. A liability is current when: • It is expected to be settled in normal operating cycle • It is held primarily for the purpose of trading • It is due to be settled within twelve months after the reporting period, or • There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non- current assets and liabilities. Fair value measurement The Group measures financial instruments and certain non-financial assets at fair value at each reporting date. Fair value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair values are disclosed, are summarised in the following notes: Note Disclosures for valuation methods, significant estimates and assumptions 13.5.3.1.1 Quantitative disclosures of fair value measurement hierarchy 14.5 Investment in unquoted equity shares 20.2 Financial instruments (including those carried at amortised cost) 14 Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • In the principal market for the asset or liability, or • In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and Notes to the Financial Statements
- 125. 123 Annual Report 2014-15 bestuse or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: • Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities • Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable • Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. The Group determines the policies and procedures for both recurring fair value measurement, such as investment properties and unquoted AFS financial assets, and for non-recurring measurement, such as assets held for sale in discontinued operations. External valuers are involved for valuation of significant assets, such as land and building and investment properties, and significant liabilities, such as insurance contracts. Selection criteria for external valuers include market knowledge, reputation, independence and whether professional standards are maintained. The Group decides, after discussions with the external valuers, which valuation techniques and inputs to use for each case. For the purpose of fair value disclosures, the Group has determined 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. 1.5.4. Property, plant and equipment Basis of recognition Property, plant and equipment are recognised if it is probable that future economic benefits associated with the asset will flow to the Group and the cost of the asset can be reliably measured. Basis of measurement Plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment loss. Such cost includes the cost of replacing component parts of the plant and equipment and borrowing costs for long-term construction projects if the recognition criterias are met. When significant parts of plant and equipment are required to be replaced at intervals, the Group derecognises the replaced part, and recognises the new part with its own associated useful life and depreciation. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the Income Statement as incurred. Land and buildings are measured at fair value less accumulated depreciation on buildings and impairment charged subsequent to the date of the revaluation. Where land and buildings are subsequently revalued, the entire class of such assets is revalued at fair value on the date of revaluation. The Group has adopted a policy of revaluing land and buildings by professional valuers at least every 3 years. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Any revaluation surplus is recognised in the Statement of Other Comprehensive Income and accumulated in equity in the asset revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in the Income Statement, in which case the increase is recognised in the income statement. A revaluation deficit is
- 126. 124 Softlogic Holdings PLC recognisedin the Income Statement, except to the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve. Accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. Derecognition An item of property, plant and equipment are derecognised upon replacement, disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset is included in the income statement in the year the asset is derecognised. Depreciation Depreciation is calculated by using a straight-line method on the cost or valuation of all property, plant and equipment, other than freehold land, in order to write off such amounts over the estimated useful economic life of such assets. The estimated useful lives of assets is as follows: Assets Years Building 40-60 Buildings on leasehold land 40-60 or over the period of lease Plant & machinery 4-10 Computer equipment, furniture & fittings 2-10 Motor vehicle 4-8 The useful lives and residual values of assets are reviewed, and adjusted if required, at the end of each financial year end. Capital work in progress Capital work in progress consists of cost of assets, labour and other direct costs associated with property, plant and equipment being constructed by the group. Once the assets become operational, the related costs are transferred from construction in progress to the appropriate asset category and are depreciated together with the related asset. 1.5.5 Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date, whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. For arrangements entered into prior to 1 April 2011, the date of inception is deemed to be 1 April 2011 in accordance with the SLFRS 1. Group as a lessee Finance leases which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the Income Statement. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Operating lease payments are recognised as an operating expense in the Income Statement on a straight-line basis over the lease term. Group as a lessor Leases in which the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned. The cost of improvements to buildings on leasehold land is capitalised, disclosed as leasehold Notes to the Financial Statements
- 127. 125 Annual Report 2014-15 improvements,and depreciated over the unexpired period of the lease or the estimated useful life of the improvements, whichever is shorter. 1.5.6 Lease rentals paid in advance Prepaid lease rentals paid to acquire land use rights are amortised over the lease term in accordance with the pattern of benefits provided. Details of the pre-paid lease rentals are given in note 16 to the financial statements. 1.5.7 Investment properties Properties held to earn rental income and properties held for capital appreciation has been classified as investment property. Investment properties are measured initially at cost, including transaction costs. The carrying value of an investment property includes the cost of replacing part of an existing investment property, at the time that cost is incurred if the recognition criteria are met, and excludes the costs of day-to-day servicing of the investment property. Subsequent to initial recognition, the investment properties are stated at fair values, which reflect market conditions at the reporting date. Gains or losses arising from changes in fair value are included in the Income Statement in the year in which they arise. Fair values are evaluated at frequent intervals by an accredited external, independent valuer. Investment properties are derecognised when disposed, or permanently withdrawn from use because no future economic benefits are expected. Any gains or losses on de-recognition or disposal are recognised in the Income Statement in the year of de-recognition or disposal. Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property or inventory (WIP), the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupied property becomes an investment property or inventory (WIP), the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use. Where Group companies occupy a significant portion of the investment property of a subsidiary, such investment properties are treated as property, plant and equipment in the consolidated financial statements, and accounted using Group accounting policy for property, plant and equipment. 1.5.8 Intangible assets Basis of recognition An intangible asset is recognised if it is probable that future economic benefits associated with the asset will flow to the Group and the cost of the asset can be reliably measured. Basis of measurement Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised, and expenditure is charged against Income Statement in the year in which the expenditure is incurred. Useful economic lives, amortisation and impairment The useful lives of intangible assets are assessed as either finite or infinite lives. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end and such changes are treated as accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the Income Statement. Intangible assets with infinite useful lives are not amortised but tested for impairment annually, or more frequently when an indication of impairment exists either individually or at the cash-generating unit level. The useful life of an intangible asset with an infinite life is reviewed annually to determine whether infinite life
- 128. 126 Softlogic Holdings PLC assessmentcontinues to be supportable. If not, the change in the useful life assessment from infinite to finite is made on a prospective basis. Lease rights Lease rights acquired as part of a business combination, are capitalised if it meets the definition of an intangible asset and the recognition criteria are satisfied. Leased rights are amortised on a straight-line basis over their estimated useful life. Present value of acquired in-force business (PVIB) The present value of future profits on a portfolio of long term life insurance contracts as at the acquisition date is recognised as an intangible asset based on a valuation carried out by an independent actuary. Subsequent to initial recognition, the intangible asset is carried at cost less accumulated amortisation and accumulated impairment losses. The PVIB is amortised over the average useful life of the related contracts in the portfolio. The amortisation charge and any impairment losses would be recognised in the consolidated Income Statement as an expense. Software Purchased software Purchased software is recognised as an intangible asset and is amortised on a straight line basis over its useful life. Software license Software license costs are recognised as an intangible asset and amortised over the period of the related license. Brand Name Brands acquired as part of a business combination, are capitalised as Brand name, if the Brand meets the definition of an intangible assets and are tested for impairment, annually or more frequently if the events or changes in the circumstances indicate that the carrying value may be impaired. Customer list The present value of the income anticipated deriving from repeat customer list of the leasing and hire purchase portfolio and registered tour agent list as at the acquisition date are recognised as an intangible asset based on a valuation carried out by an independent valuer. Subsequent to initial recognition, the intangible asset is carried at cost less accumulated amortisation and accumulated impairment losses. Customer list recognised at the acquisition date will be amortised over the period interest income is anticipated to derive from repeat customers and reviewed annually for any impairment in value. A summary of the policies applied to the group’s intangible assets are as follows; Intangible Useful Life Acquired/ Internally generated Impairment testing Goodwill Infinite Acquired annually or when an indication of impairment exists Lease Rights 25-88 years Acquired when an indication of impairment exists Purchased Software 3-5 years Acquired when an indication of impairment arise Present value of acquired in-force business (PVIB) 16 years Acquired when an indication of impairment exists Brand Name Infinite Acquired annually or when an indication of impairment exists Customer List 5 years Acquired 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. Notes to the Financial Statements
- 129. 127 Annual Report 2014-15 1.5.9Business combinations & goodwill Business combinations are accounted for using the acquisition method of accounting. The Group measures goodwill at the acquisition date as the fair value of the consideration transferred including the recognised amount of any non-controlling interests in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the fair value of the consideration transferred including the recognised amount of any non-controlling interests in the acquiree is lower than the fair value of net assets acquired, a gain is recognised immediately in the Income Statement. The Group elects on a transaction by transaction basis whether to measure non-controlling interests at fair value, or at their proportionate share of the recognised amount of the identifiable net assets, at the acquisition date. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is re measured to fair value at the acquisition date through the Income Statement. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration which is deemed to be an asset or liability, which is a financial instrument and within the scope of LKAS 39, is measured at fair value with changes in fair value either in the Income Statement or as a change to the Statement of Other Comprehensive Income. If the contingent consideration is classified as equity, it will not be remeasured. Subsequent settlement is accounted for within equity. In instances where the contingent consideration does not fall within the scope of LKAS 39, it is measured in accordance with the appropriate SLFRS/LKAS. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if the events or changes in the circumstances indicate that the carrying value maybe impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash generating unit is less than the carrying amount, an impairment loss is recognised. The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets pro-rata to the carrying amount of each asset in the unit. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. Where goodwill forms part of a cash generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. 1.5.10 Associates An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.
- 130. 128 Softlogic Holdings PLC Associatecompanies of the Group which have been accounted for under the equity method of accounting are: Name of the Company Country of Incorporation Abacus International Lanka (Pvt) Ltd Sri Lanka Nextage (Pvt) Ltd Sri Lanka Gerry’s Softlogic (Pvt) Ltd Pakistan The consideration made in determining significant influence is similar to those necessary to determine control over subsidiaries. The Group’s investments in its associates are accounted for using the equity method. Under the equity method, the investment in an associate is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is not tested for impairment individually. The income statement reflects the Group’s share of the results of operations of the associates. Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate is eliminated to the extent of the interest in the associate. The aggregate of the Group’s share of profit or loss of an associate is shown on the face of the income statement outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, and then recognises the loss as ‘Share of results of equity accounted investees’ in the income statement. Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in income statement. The accounting policies of associate companies conform to those used for similar transactions of the Group. Equity method of accounting has been applied for associate financial statements using their corresponding / matching 12 month financial period. In the case of associates, where the reporting dates are different to Group reporting dates, adjustments are made for any significant transactions or events up to 31 March. 1.5.11 Foreign currency translation Foreign currency transactions and balances The consolidated financial statements are presented in Sri Lankan Rupees (Rs.), which is the holding company’s functional and presentation currency. The functional currency is the currency of the primary economic environment in which the entities of the Group operate. All foreign exchange transactions are converted to functional currency, at the rates of exchange prevailing at the time the transactions are effected. Monetary assets and liabilities denominated in foreign currency are retranslated to functional currency equivalents at the spot exchange rate prevailing at the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary assets and liabilities are translated using exchange rates that existed when the values were determined. The gain or loss arising on translation of non-monetary items is treated in line with the recognition of gain or loss on changing fair value of the item. Foreign exchange forward contracts are fair valued at each reporting date. Gains and losses arising from Notes to the Financial Statements
- 131. 129 Annual Report 2014-15 changesin fair value are included in the Income Statement in the period in which they arise. Foreign operations The Statement of Financial Position and Income Statement of overseas subsidiaries and associate which are deemed to be foreign operations are translated to Sri Lankan Rupees (Rs.) at the rate of exchange prevailing as at the reporting date and at the average annual rate of exchange for the period respectively. The exchange differences arising on the translation are taken directly to the Statement of Other Comprehensive Income. On disposal of a foreign entity, the deferred cumulative amount recognised in the Statement of Other Comprehensive Income relating to that particular foreign operation is recognised in the Income Statement. The Group treated goodwill and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition as assets and liabilities of the parent. Therefore, those assets and liabilities are non-monetary items already expressed in the functional currency of the parent and no further translation differences occur. The exchange rates applicable during the period were as follows: Statement of Financial Position Income Statement (Avg. Rate) 31-03-2015 Rs. 31-03-2014 Rs. 31-03-2015 Rs. 31-03-2014 Rs. US Dollar 133.10 130.73 131.03 128.79 Australian Dollar 101.55 120.90 114.63 121.51 Pakistan Rupees 1.31 1.33 1.30 1.31 1.5.12 Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognised in the Income Statement, except that, impairment losses in respect of property, plant and equipment previously revalued are recognised against the revaluation reserve through the Statement of Other Comprehensive Income to the extent that it reverses a previous revaluation surplus. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the Income Statement unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. The following criteria are also applied in assessing impairment of specific assets:
- 132. 130 Softlogic Holdings PLC 1.5.13Impairment of goodwill Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each cash-generating unit (or group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash generating unit is less than their carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. 1.5.14 Financial instruments - initial recognition and subsequent measurement Financial assets Initial recognition and measurement Financial assets within the scope of LKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition. All financial assets are recognised initially at fair value plus, in the case of assets not at fair value through profit or loss, directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e. the date that the Group commits to purchase or sell the asset. The Group’s financial assets include cash and short- term deposits, trade and other receivables, loans and advances, Rental receivable on lease assets and hire purchase, quoted and unquoted financial instruments and derivative financial instruments. Subsequent measurement The subsequent measurement of financial assets depends on their classification as follows: Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Financial assets at fair value through profit or loss are carried in the Statement of Financial Position at fair value with changes in fair value recognised in finance income or finance costs in the Income Statement. The Group evaluates its financial assets held for trading, other than derivatives, to determine whether the intention to sell them in the near term is still appropriate. When the Group is unable to trade these financial assets due to inactive markets and management’s intention to sell them in the foreseeable future significantly changes, the Group may elect to reclassify these financial assets in rare circumstances. The reclassification to loans and receivables, available- for-sale or held to maturity depends on the nature of the asset. This evaluation does not affect any financial assets designated at fair value through profit or loss using the fair value option at designation. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method (EIR), less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the Income Statement. The losses arising from impairment are recognised in the Income Statement in finance costs. Held to maturity investments Held to maturity investments non derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Group has the positive intention and ability to hold them to maturity. After initial measurement, held to maturity investments are measured at amortised cost using the effective interest method, less impairment. Amortised Notes to the Financial Statements
- 133. 131 Annual Report 2014-15 costis calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the Income Statement. The losses arising from impairment are recognised in the Income Statement in finance costs. Available for sale financial investments Available for sale financial investments include equity and debt securities. Equity investments classified as available for sale are those, which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial measurement, available for sale financial investments are subsequently measured at fair value with unrealised gains or losses recognised as Other Comprehensive Income in the available for sale reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in other operating income, or determined to be impaired, at which time the cumulative loss is reclassified to the Income Statement in finance costs and removed from the available for sale reserve. Interest income on available for sale debt securities is calculated using the effective interest method and is recognised in the Income Statement. The Group evaluates its available for sale financial assets to determine whether the ability and intention to sell them in the near term is still appropriate. When the Group is unable to trade these financial assets due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets in rare circumstances. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Group has the intent and ability to hold these assets for the foreseeable future or until maturity. Reclassification to the held to maturity category is permitted only when the entity has the ability and intention to hold the financial asset accordingly. For a financial asset reclassified out of the available for sale category, any previous gain or loss on that asset that has been recognised in equity is amortised to the Income Statement over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the Income Statement. 1.5.14.1 Derecognition A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: • the rights to receive cash flows from the asset have expired • the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass through arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of it, the asset is recognised to the extent of the Group’s continuing involvement in it. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on the basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
- 134. 132 Softlogic Holdings PLC 1.5.14.2Impairment of financial assets The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortised cost For financial assets carried at amortised cost, the Group first assesses whether the objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the Income Statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the Income Statement. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write off is later recovered, the recovery is credited to finance costs in the Income Statement. Available for sale financial investments For available for sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the Income Statement is removed from the Statement of Other Comprehensive Income and recognised in the Income Statement. Impairment losses on equity investments are not reversed through the Income Statement; increases in their fair value after impairments are recognised directly in the Statement of Other Comprehensive Income. Notes to the Financial Statements
- 135. 133 Annual Report 2014-15 Inthe case of debt instruments classified as available- for-sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the Income Statement. Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the Income Statement, the impairment loss is reversed through the Income Statement. 1.5.15.Financial liabilities Initial recognition and measurement Financial liabilities within the scope of LKAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, carried at amortised cost. This includes directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, bank overdrafts, loans and borrowings, financial guarantee contracts, and derivative financial instruments. Subsequent measurement The measurement of financial liabilities depends on their classification as follows: Loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the Income Statement when the liabilities are derecognised as well as through the Effective Interest Rate method (EIR) amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs of the Income Statement. Financial guarantee contracts Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognised less cumulative amortisation. 1.5.15.1 Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the Income Statement. Investment sold together with a deep in the money put option are not derecognised from the Statement of Financial Position as the Group retains substantially all of the risks and rewards of ownership. The corresponding cash received is recognised in the Consolidated Statement of Financial Position as an asset with a corresponding obligation to return it, including accrued interest as a financial liability, reflecting the transaction’s economic substance as a loan to the Group. The difference between the sale and
- 136. 134 Softlogic Holdings PLC putoption exercise price is treated as interest expense and is accrued over the life of agreement using the EIR. 1.5.16 Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount reported in the Consolidated Statement of Financial Position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. 1.5.17 Fair value of financial instruments The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices, without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models. An analysis of fair values of financial instruments and further details as to how they are measured are provided in note 14 1.5.18 Derivative financial instruments Initial recognition and subsequent measurement The Group uses derivative financial 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 financial 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 financial assets when the fair value is positive and as financial liabilities when the fair value is negative. The fair value of commodity contracts that meet the definition of a derivative as defined by LKAS 39 are recognised in the Income Statement in cost of sales. Any gains or losses arising from changes in the fair value of derivatives are taken directly to the Income Statement. Derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The group designates certain derivatives either, • hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge) • hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge) • hedges of a net investment in a foreign operation (net investment hedge) The Group documents at the inception of the transaction the relationship between hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking various hedging transactions. The company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of various derivative instruments used for hedging purposes are disclosed in note 32. Movements on the hedging reserve on Other Comprehensive Income Statement (OCI) are shown in the same note. The fair value of a hedging derivative is classified as a non current asset or liability when the remaining hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability. Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in Statement of Other Notes to the Financial Statements
- 137. 135 Annual Report 2014-15 ComprehensiveIncome (OCI). The gain or loss in relation to ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction ultimately recognised in the income statement. When the forecast transaction is no longer to expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the Income Statement. 1.5.19 Inventories Inventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price less estimated costs of completion and the estimated costs necessary to make the sale. The costs incurred in bringing inventories to its present location and condition, are accounted for as follows: • Finished goods - direct materials, direct labour and an appropriate proportion of fixed overheads based on normal operating capacity • Other inventories - at actual cost 1.5.20 Cash and cash equivalents Cash and short term deposits in the statement of financial position comprise cash at banks and in hand and short term deposits with a maturity of three months or less. For the purpose of the cash flow statement, cash and cash equivalents consist of cash and short term deposits as defined above, net of outstanding bank overdrafts. 1.5.21 Defined benefit plan - Gratuity The liability recognised in the Statement of Financial Position is the present value of the defined benefit obligation at the reporting date using the projected unit credit method. Any actuarial gains or losses arising are recognised immediately in the Other Comprehensive income. However, as per the payment of Gratuity Act No. 12 of 1983 this liability only arises upon completion of 5 years of continued service. The gratuity liability is not externally funded. 1.5.22 Defined contribution plan - Employees’ Provident Fund and Employees’ Trust Fund Employees are eligible for Employees’ Provident Fund contributions and Employees’ Trust Fund contributions in line with respective statutes and regulations. The companies contribute the defined percentages of gross emoluments of employees to an approved Employees’ Provident Fund and to the Employees’ Trust Fund respectively, which are externally funded. 1.5.23 Insurance contract liabilities - Life Life insurance liabilities are recognised when contracts are entered into and premiums are received. The liability is determined as the sum of the discounted value of the expected future benefits, claims handling and policy administration expenses, policyholder options and guarantees and investment income from assets backing such liabilities, which are directly related to the contract, less the discounted value of the expected gross premiums that would be required to meet the future cash outflows based on the valuation assumptions used. The liability is either based on current assumptions or calculated using the assumptions established at the time the contract was issued, in which case a margin for risk and adverse deviation is generally included. Furthermore, the liability for life insurance contracts comprises the provision for unearned premiums and unexpired risks, as well as for claims outstanding, which includes an estimate of the incurred claims that have not yet been reported to the company. Adjustments to the liabilities at each reporting date are recorded in the Statement of Comprehensive Income. Profits originated from margins of adverse deviations on run off contracts are recognised in the Statement of Comprehensive Income over the life of the contract, whereas losses are fully recognised in the Statement of Comprehensive Income during the first year of run off. The liability is derecognised when the contract expires, is discharged or is cancelled. At each reporting date, an assessment is made of whether the recognised life insurance liabilities are adequate, net of related PVIF (Present Value Interest
- 138. 136 Softlogic Holdings PLC Factor)and DAC (Deferred Acquisition Costs), by using an existing liability adequacy test. The liability value is adjusted to the extent that it is insufficient to meet future benefits and expenses. Any inadequacy is recorded in the Statement of Comprehensive Income, initially by impairing PVIF and DAC and, subsequently, by establishing a technical reserve for the remaining loss. In subsequent periods, the liability for a block of business that has failed the adequacy test is based on the assumptions that are established at the time of the loss recognition. The assumptions do not include a margin for adverse deviation. 1.5.24 Insurance contract liabilities – Non life Non life insurance contract liabilities are recognised when contracts are entered into and premiums are charged. These liabilities, known as the policy liability provisions include the premium and claim liabilities. The premium liabilities relate to policies for which the premium has been received but the exposure has not fully expired, while the claim liabilities relate to claims that have been incurred but not yet settled. The provision for unearned premiums represents premiums received for risks that have not yet expired. Generally the reserve is released over the term of the contract and is recognised as premium income. The claim liabilities are based on the estimated ultimate cost of all claims incurred but not settled at the Statement of Financial Position date, whether reported or not, with a reduction for the expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of claims, therefore, the ultimate cost of these cannot be known with certainty at the Statement of Financial Position date. The liability is calculated at the reporting date using a range of standard actuarial claim projection techniques, based on empirical data and current assumptions that may include a margin for adverse deviation. No provision for equalisation or catastrophe reserves is recognised. The liabilities are derecognised when the contract expires, is discharged or is cancelled. The calculation may use current estimates of future contractual cash flows to determine the investment return expected to arise on assets relating to the relevant non life insurance technical provisions. 1.5.25 Provisions, contingent assets and contingent liabilities Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Income Statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. All contingent liabilities are disclosed as a note to the financial statements unless the outflow of resources is remote. A contingent liability recognised in a business combination is initially measured at its fair value. Subsequently, it is measured at the higher of: • the amount that would be recognised in accordance with the general guidance for provisions above (LKAS 37) or • the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with the guidance for revenue recognition (LKAS 18) Contingent assets are disclosed, where inflow of economic benefit is probable. 1.5.26 SEGMENT INFORMATION Operating segments 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 risk and return are similar. The operating segments represent this business structure. Notes to the Financial Statements
- 139. 137 Annual Report 2014-15 Segmentinformation Segment information has been prepared in conformity with the accounting policies adopted for preparing and presenting the consolidated financial statements of the Group. 1.6 SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the financial statements of the Group requires the management to make judgments, estimates and assumptions, which may affect the amounts of income, expenditure, assets , liabilities and the disclosure of contingent liabilities, at the end of the reporting period. In the process of applying the Group’s accounting policies, the key assumptions made relating to the future and the sources of estimation at the reporting date together with the related judgments that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the financial year are discussed below. 1.6.1 Valuation of property, plant and equipment and investment property The Group measures land and buildings at revalued amounts with changes in fair value being recognised in other comprehensive income and in the statement of equity. In addition, it carries its investment properties at fair value, with changes in fair value being recognised in the income statement. The Group engaged independent valuation experts to determine fair value of investment properties and land and buildings as at 31 March 2015. The valuer has used valuation techniques such as market values and discounted cash flow methods where there was a lack of comparable market data available based on the nature of the property. The determined fair values of investment properties, using investment method, are most sensitive to the estimated yield as well as the long term occupancy rate. The methods used to determine the fair value of the investment properties, are further explained in note 14. 1.6.2 Impairment of non financial assets Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of 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 market, in an arm’s length transaction, of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset’s performance of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes. The key assumptions used to determine the recoverable amounts for the different cash generating units, are further explained in note 18.1. 1.6.3 Fair value of financial instruments Where the fair value of financial assets and financial liabilities recorded in the Statement of Financial Position cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models 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 could affect the reported fair value of financial instruments, are further explained in note 14 1.6.4 Taxes The Group is subject to income tax and other taxes including VAT. Significant judgment was required to determine the total provision for current, deferred and other taxes due to the uncertainties that exists with respect to the interpretation of the applicability of tax laws, at the time of the preparation of these financial statements.
- 140. 138 Softlogic Holdings PLC Uncertaintiesalso exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the wide range of business relationships and the long- term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. Where the final tax outcome of such matters is different from the amounts that were initially recorded, such differences will impact the income and deferred tax amounts in the period in which the determination is made. The Group has tax losses relate to subsidiaries that have a history of losses that do not expire and may not be used to offset other tax liabilities and where the subsidiaries have no taxable temporary differences nor any tax planning opportunities available that could partly support the recognition of these losses as deferred tax assets. Further details on taxes are disclosed in note 10.4 in the financial statements. 1.6.5 Employee benefit liability The employee benefit liability of the Group is based on the actuarial valuation carried out by independent actuarial specialist. The actuarial valuations involve making assumptions about discount rates and future salary increases. The complexity of the valuation, the underlying assumptions and its long term nature, the defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. Details of the key assumptions used in the estimates are contained in note 35. 1.6.6 Valuation of Insurance Contract Liabilities – Life Insurance Life Insurance liabilities are recognised when contracts are entered into and premiums are charged. These liabilities are measured by suing the Net Premium Valuation (NPV) method as specified by the Insurance Board of Sri Lanka (IBSL) based on the recommendation of the Independent Consultant Actuary. The liability is determined as the sum of the discounted value of expected future benefits, less the discounted value of the expected future premiums that would be required to meet the future cash outflows based on the valuation assumptions used. The liability is computed based on IBSL specified guidelines and current assumptions which vary based on the contract type. Furthermore, adjustments are performed to capture likely liability that may arise due to currently lapsed contracts reviving in the future. The minimum mandated amount, which are to be paid to policyholders plus and declared / undeclared additional benefits, are recorded in liabilities. The liability is derecognised when the contract expires, is discharged or cancelled. At each reporting date, an assessment is made of whether the recognised life insurance liability is adequate by using an existing liability adequacy test. 1.6.7 Valuation of Insurance Contract liabilities – General Insurance General insurance contract liabilities include the outstanding claims provision (Reserve for gross outstanding and incurred but not reported, and incurred but not reported enough – IBNR / IBNER) and the provision for unearned premium and the provision for premium deficiency. Gross claims payable including IBNR The outstanding claims provision is based on the estimated ultimate cost of all claims incurred but not settled at the reporting date, whether reported or not, together with related claims handling cost and reduction for expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of certain types of claims, therefore the ultimate cost of these cannot be known with certainty at reporting date. The liability is calculated at the reporting date using range of slandered actuarial claim projection techniques, based on empirical data and current assumptions that may include a margin for adverse deviation. The liability is not discounted for the time value of money. No provision for equalisation or catastrophe reserves is recognised. The liabilities are derecognised when the obligation to pay a claim expires, is discharged or is cancelled. IBNR reserve is determined by an independent external actuary. Notes to the Financial Statements
- 141. 139 Annual Report 2014-15 1.6.8Liability adequacy test (LAT) - Life insurance At each reporting date, an assessment is made of whether the recognised life insurance liabilities are adequate by using an existing liability adequacy test as laid out under SLFRS 4. The liability value is adjusted to the extent that it is insufficient to meet future benefits and expenses. In performing the adequacy test, current best estimates of future contractual cash flows, including related cash flows such as claims handling and policy administration expenses, policyholder options and guarantees, as well as investment income from assets backing such liabilities, are used. A number of valuation methods are applied, including discounted cash flows to the extent that the test involves discounting of cash flows, the interest rate applied based on management’s prudent expectation of current market interest rates. Any deficiencies shall be recognised in the Income Statement by setting up a provision for liability adequacy. 1.7 CHANGES IN ACCOUNTING POLICIES The accounting policies adopted by the Group are consistent with those used in the previous year except for the following SLFRSs with effect from current year. • SLFRS 10 Consolidated Financial Statements • SLFRS 11 Joint Arrangements • SLFRS 12 Disclosure of Interests in Other Entities • SLFRS 13 Fair Value Measurement • LKAS 1 Presentation of Financial Statements (amendments) SLFRS 10 - Consolidated Financial Statements With the adoption of SLFRS 10 in Sri Lanka with effect from 1st January 2014, the Group changed its accounting policy for determining whether an investee is a subsidiary based on the definition of control. The Group considers that control exists when the company has power over an investee; has exposure or rights to variable returns from its involvement with the investee and when it has ability to use its power over the investee to affect the amount of the Company’s returns. SLFRS 11 - Joint Arrangements SLFRS 11 Replaces LKAS 31 Interests in Joint Ventures and SIC-13 Jointly- controlled Entities Non-monetary Contributions by Venturers. SLFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture under SLFRS 11 must be accounted for using the equity method. No impact on application of this standard to the Group. SLFRS 12 - Disclosure of Interests in Other Entities SLFRS 12 sets out the requirements for disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. The requirements in SLFRS 12 are more comprehensive than the previously existing disclosure requirements for subsidiaries. For example, where a subsidiary is controlled with less than a majority of voting rights. While the Group has subsidiaries with material non- controlling interests, there are no unconsolidated structured entities. SLFRS 12 disclosures are provided in notes 44 to the Financial Statements. SLFRS 13 - Fair Value Measurement SLFRS 13 establishes a single source of guidance under SLFRS for all fair value measurements. SLFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under SLFRS. SLFRS 13 defines fair value as an exit price. As a result of the guidance in SLFRS 13, the Group reassessed its policies for measuring fair values. Application of SLFRS 13 has not materially impacted the fair value measurements of the Group. Additional disclosures where required, are provided in the individual notes relating to the assets and liabilities whose fair values were determined. LKAS 1 Presentation of Items of Other Comprehensive Income Amendments to LKAS 1 The amendments to LKAS 1 introduce a grouping of items presented in Other Comprehensive Income. Items that will be reclassified (‘recycled’) to Income Statement at a future point in time (e.g., net loss or gain on AFS financial assets) have to be presented separately from items that will not be reclassified (e.g., revaluation of land). The amendments
- 142. 140 Softlogic Holdings PLC affectpresentation only and have no impact on the Group’s financial position or performance. 1.8 COMPARATIVE INFORMATION The presentation and classification of the financial statements of the previous years have been amended, where relevant for better presentation and to be comparable with those of the current year. 2 SRI LANKA ACCOUNTING STANDARDS (SLFRS/LKAS) ISSUED BUT NOT YET EFFECTIVE The following SLFRS have been issued by the Institute of Chartered Accountants of Sri Lanka that have an effective date in the future and have not been applied in preparing these financial statements. Those SLFRS will have an effect on the accounting policies currently adopted by the Group and may have an impact on the future financial statements. SLFRS 9 –Financial Instruments: Classification and Measurement SLFRS 9, as issued reflects the first phase of work on replacement of LKAS 39 and applies to classification and measurement of financial assets and liabilities. This standard was originally effective for annual periods commencing on or after 01 January 2018. However the effective date has been deferred subsequently. SLFRS 15 Revenue from Contracts with Customers SLFRS 15 establishes a new five step model that will apply to revenue arising from contracts with customers. Under SLFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in SLFRS 15 provide a more structured approach to measuring and recognising revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under SLFRS 15. Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2018 with early adoption permitted. The Group is currently assessing the impact of SLFRS 15 and plans to adopt the new standard on the required effective date. Notes to the Financial Statements
- 143. 141 Annual Report 2014-15 3REVENUE In Rs. Group Company For the year ended 31 March 2015 2014 2015 2014 Sale of goods 22,312,130,430 13,404,473,971 - - Rendering of services 17,251,753,680 15,841,961,613 416,018,805 355,554,590 39,563,884,110 29,246,435,584 416,018,805 355,554,590 3.1 Business segment analysis In Rs. Group For the year ended 31 March 2015 2014 Information Technology 9,251,981,418 5,982,330,875 Leisure 628,053,779 91,747,256 Retail 12,334,289,525 7,538,707,859 Automobile 743,443,707 423,571,341 Financial Services 8,001,764,086 7,457,509,687 Healthcare Services 8,591,960,503 7,745,800,066 Other 12,391,092 6,768,500 39,563,884,110 29,246,435,584 4 DIVIDEND INCOME In Rs. Company For the year ended 31 March 2015 2014 Income from investment in related parties 961,271,765 403,985,123 961,271,765 403,985,123 5 OTHER OPERATING INCOME In Rs. Group Company For the year ended 31 March 2015 2014 2015 2014 Profit on sale of property, plant & equipment 24,486,006 34,808,911 6,368,059 16,622,339 Profit on disposal of investments 644,439,532 222,795,432 80,981,615 56,984,480 Exchange gain/ (loss) 80,712,189 (64,914,308) - - Fees received 108,101,975 101,809,356 - - Commission income 41,704,900 42,404,017 10,698,225 15,472,224 Sundry income 263,116,434 160,354,976 10,063,573 5,453,124 1,162,561,036 497,258,384 108,111,472 94,532,167 6 FINANCE INCOME In Rs. Group Company For the year ended 31 March 2015 2014 2015 2014 Interest income 608,924,563 654,420,002 121,757,916 353,712,620 Finance income on other financial instruments 513,248,702 502,554,988 79,782,699 2,184,426 1,122,173,265 1,156,974,990 201,540,615 355,897,046
- 144. 142 Softlogic Holdings PLC 7FINANCE EXPENSES In Rs. Group Company For the year ended 31 March 2015 2014 2015 2014 Interest expense on borrowings 1,982,452,160 2,347,217,455 378,824,446 885,700,435 Finance cost on other financial instruments 610,418,341 212,068,316 622,203,634 88,027,397 Other finance expenses 99,939,053 100,740,831 5,875,077 6,754,695 2,692,809,554 2,660,026,602 1,006,903,157 980,482,527 8 PROFIT/(LOSS) BEFORE TAX Profit/ (loss) before tax is stated after charging all expenses including the following; In Rs. Group Company For the year ended 31 March 2015 2014 2015 2014 Remuneration to executive and non executive Directors 203,187,470 174,197,317 19,020,680 37,260,000 Auditors' remuneration - Audit 16,933,012 15,114,223 1,684,320 1,452,000 - Non audit 5,693,497 6,150,404 670,900 176,901 Cost of defined employee benefit - Defined benefit plan cost 140,086,952 105,555,003 6,520,701 6,319,025 - Defined contribution plan cost - EPF/ETF 493,632,066 385,202,893 21,636,469 21,225,823 Staff expenses 4,723,500,928 3,065,956,858 169,320,283 141,837,978 Depreciation of property, plant and equipment 1,189,997,919 901,836,851 24,239,655 25,452,041 Amortisation of intangible assets 248,049,626 204,045,351 2,624,845 2,221,133 Amortisation of lease rentals paid in advance 1,036,939 1,036,927 - - Exchange losses/ (gains) (80,712,189) 64,914,308 - - Donations 16,079,974 4,717,296 10,058,750 107,500 Provisions for/ write off of impaired receivables 96,689,666 34,210,138 61,416,769 4,577,366 Provision for impairment of inventories 190,001,431 49,765,780 - - Impairment and derecognition of property, plant and equipment 1,526,928 29,691,599 995,249 - Impairment and derecognition of intangible assets 27,614,808 - - - 9 CHANGE IN LIFE INSURANCE CONTRACT LIABILITIES The results of Asian Alliance Insurance life business segment is consolidated line by line into the Group’s consolidated income statement. The change in life insurance contract liabilities represents the transfer to the Life Fund, the difference between all income and expenditure attributable to life policy holders during the year. In Rs. Group For the year ended 31 March 2015 2014 Revenue 2,853,600,448 2,375,811,906 Cost of sales (1,504,101,485) (1,182,119,230) Gross profit 1,349,498,963 1,193,692,676 Operating expenses including distribution and administration expenses (1,752,626,994) (1,400,622,644) Net finance income 781,263,011 704,975,888 Profit attributable to shareholders 566,214,000 468,500,000 Change in insurance contract liabilities 944,348,980 966,545,920 Notes to the Financial Statements
- 145. 143 Annual Report 2014-15 10TAX EXPENSE In Rs. Group Company For the year ended 31 March 2015 2014 2015 2014 Current income tax Current tax charge 359,033,601 336,526,604 11,065,070 1,195,889 Under provision of income tax of previous years 40,027,509 17,018,719 28,597,314 - 10% Withholding tax on inter company dividends 145,083,916 20,106,273 - - ESC written-off - 1,949,573 - - Deferred income tax Relating to origination and reversal of temporary differences (94,527,000) (126,437,356) (68,079,885) - 449,618,026 249,163,813 (28,417,501) 1,195,889 10.1 Reconciliation between current tax charge and the accounting profit In Rs. Group Company For the year ended 31 March 2015 2014 2015 2014 Profit/ (loss) before tax 2,268,699,917 1,257,998,838 291,894,580 (22,339,263) Dividend income from group companies 1,653,064,339 1,191,449,827 - - Share of results of equity accounted investees (5,290,016) (13,280,969) - - Other consolidation adjustments 138,208,837 384,653,543 - - Profit after adjustment 4,054,683,077 2,820,821,239 291,894,580 (22,339,263) Exempt profits (638,349,692) (698,473,529) - - Profits not charged to income tax (587,882,106) (358,210,653) (121,718,501) (141,222,563) Resident dividend (1,794,919,435) (1,337,739,381) (961,531,131) (403,985,123) Adjusted accounting profit chargeable to income taxes 1,033,531,844 426,397,676 (791,355,052) (567,546,949) Deductible expenses (2,541,925,794) (742,172,003) (119,612,903) (61,534,177) Non deductible expenses 3,323,906,278 1,009,841,911 966,243,610 92,911,146 Other source of income 25,834,322 358,210,653 5,521,435 6,570,818 Set off against tax losses (255,496,411) (305,695,503) (21,278,981) (2,299,786) Other reductions (103,501,877) (4,569,249) - - Taxable income 1,482,348,362 742,013,485 39,518,108 (531,898,948) 10.2 Reconciliation between tax expense and the product of accounting profit In Rs. Group Company For the year ended 31 March 2015 2014 2015 2014 Tax effect on chargeable profits 120,638,635 383,222,879 (220,033,413) 1,839,829 Tax effect on non deductible expenses 678,193,423 160,965,349 270,548,210 - Tax effect on deductible expenses (442,711,142) (212,199,054) (39,449,727) (643,940) Under/ (over) provision for previous years 40,027,509 17,018,719 28,597,314 - Other income based taxes ESC - 1,949,573 - - 10% WHT on inter company dividends 145,083,916 20,106,273 - - Current and deferred tax share of equity accounted investees 2,912,685 4,537,430 - - Total income tax expense 544,145,026 375,601,169 39,662,384 1,195,889
- 146. 144 Softlogic Holdings PLC 10.2Reconciliation between tax expense and the product of accounting profit In Rs. Group Company For the year ended 31 March 2015 2014 2015 2014 Income tax charged at Standard rate of 28% 268,002,289 250,461,453 11,065,070 1,195,889 Concessionary rate of 12% 88,118,629 81,527,721 - - Under/ (over) provision for previous years 40,027,509 17,018,719 28,597,314 - Charge for the year 396,148,427 349,007,893 39,662,384 1,195,889 Other income based taxes ESC - 1,949,573 - - 10% WHT on inter company dividends 145,083,916 20,106,273 - - Current and deferred tax share of equity accounted investees 2,912,685 4,537,430 - - Total income tax expense 544,145,028 375,601,169 39,662,384 1,195,889 Group tax expense is based on the taxable profit of individual companies within the Group. At present the tax laws of Sri Lanka do not provide for Group taxation. 10.3 Deferred tax charge / (release) In Rs. Group Company For the year ended 31 March 2015 2014 2015 2014 Income statement Deferred tax expense arising from Accelerated depreciation for tax purposes 151,515,976 49,858,092 6,511,796 - Revaluation of investment property to fair value (3,345,592) (5,433,565) 36,995,098 - Employee benefit liabilities (2,343,356) (14,177,521) (8,587,525) - Benefit arising from tax losses (194,432,183) (123,427,648) (86,540,231) - Others (45,921,845) (33,256,714) (17,196,695) - (94,527,000) (126,437,356) (68,817,557) - Other comprehensive income Deferredtaxexpensearisingfromrevaluationoflandand buildingtofairvalue 46,880,016 13,614,458 - - Deferred tax expense arising from actuarial gains/ (loss) on retirement benefits (7,510,356) 1,831,292 - - Share of associate company deferred tax 41,864 (23,870) - - 39,411,524 15,421,880 - - Deferred tax has been computed at 28% for all standard rate companies (including listed companies), and at 12% for Leisure sector companies & Healthcare sector companies and at rates as disclosed in notes 10.5. 10.4 Tax losses carried forward In Rs. Group Company For the year ended 31 March 2015 2014 2015 2014 Tax losses brought forward 7,849,400,321 6,921,859,196 1,463,202,788 929,751,347 Adjustments on finalisation of liability 945,895,734 (968,288) (16,436,697) (418,753) Acquisition through business combinations 63,492,085 - - - Tax losses arising during the year 2,065,672,968 1,234,204,916 - 536,169,980 Utilisation of tax losses (255,496,411) (305,695,503) (21,278,981) (2,299,786) 10,668,964,697 7,849,400,321 1,425,487,110 1,463,202,788 Notes to the Financial Statements
- 147. 145 Annual Report 2014-15 10.5Applicable 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. Exemptions/ concessions granted under the Board of Investment Law/ Inland Revenue Act Company Basis Exemption or concessions Period Healthcare sector (except companies enjoy full exemptions) Providing healthcare services 12% Open ended Asiri Surgical Hospital PLC -do- Exempt 10 years from 2004 (expired on 31 December 2014) Central Hospital Ltd -do- Exempt 8 years from 1st year of profit or 2 years from commencement of operation whichever is earlier (from FY 2012/13 onwards) Asiri Hospital Matara (Pvt) Ltd -do- Exempt 8 years from March 2008 Softlogic City Hotels (Pvt) Ltd Construction of tourist hotel Exempt 7 Years from 1st year of profit or 2 years from commencement of operation whichever is earlier Ceysand Resorts Ltd Promotion of tourism 12% Open ended Softlogic BPO Services (Pvt) Ltd Providing IT services Exempt 6 years from 1st year of profit or 2 years from commencement of operation whichever is earlier Income tax rates of off-shore subsidiaries Company Country of incorporation Rate Softlogic Australia (Pty) Ltd Australia 33.3% 11 EARNINGS PER SHARE 11.1 Basic earnings per share In Rs. Group For the year ended 31 March 2015 2014 Profit attributable to equity holders of the parent 555,779,746 155,863,630 Weighted average number of ordinary shares 774,408,298 774,408,298 Basic earnings per share 0.72 0.20 11.2 Amount used as denominator In Rs. Group For the year ended 31 March 2015 2014 Ordinary shares at the beginning of the year 779,000,000 779,000,000 Effect of purchase of treasury shares (4,591,702) (4,591,702) Ordinary shares at the end of the year 774,408,298 774,408,298 12 DIVIDEND PER SHARE Equity dividend on ordinary shares declared and paid during the year In Rs. Group For the year ended 31 March 2015 2014 Interim dividend - - 0.15 120,033,286
- 148. 146 Softlogic Holdings PLC 13FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial liabilities, comprise of public deposits, borrowings, trade and other payables, and financial guarantee contracts. The main purpose of these financial liabilities is to finance the Group’s operations and to provide guarantees to support its operations. The Group financial assets comprise loans and advances, rental receivable on lease assets and hire purchase, trade & other receivables and cash and short term deposits that flows directly from its operations. The Group also holds other financial instruments such as investments in equity instruments. The Group is exposed to market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. Risk management is carried out under 3 lines of defence in the order of senior management officials under policies approved by the Group’ s operating segments and units. The Group’s overall risk management program seeks to minimise potential adverse effect on the Group’s financial performance. The Board of Directors of the Group and Boards of directors of individual components manage each of these risks, which are summarised below. Risk management framework The Board of Directors of the Group and Boards of directors of individual components has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set the appropriate risk limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations. The Group Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risk faced by the Group. The Group Audit committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management control and procedures, the results of which are reported to the Audit Committee. 13.1 Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will adversely deviate because of changes in market movements. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments are affected by market risk includes: borrowings, trade payable, short term investment and available for sale investments. 13.1.1 Management of market risk Group separates its exposure to market risk between trading and non trading portfolios. Trading portfolio of the Group is mainly held by the finance services segment, include position arising from market making and proprietary position taking, together with financial assets and liabilities that are managed on a fair value basis. With the exception of translation risk arising on the Group’s net investments in its foreign operations, all foreign exchange positions within the Group are transferred by Group’s central treasury. Accordingly, the foreign exchange positions are treated as part of the Group’s trading portfolios for risk management purpose. The Group employs a range of tools to monitor and limit market risk exposures. These are discussed below, separately for trading and non trading portfolios. Notes to the Financial Statements
- 149. 147 Annual Report 2014-15 Thetable below sets out the allocation of assets and liabilities subject to market risk between trading and non trading portfolios. Group Market risk measure Market risk measure Carrying amount Trading portfolio Non trading portfolio Carrying amount Trading portfolio Non trading portfolio As at 31 March 2015 2015 2015 2014 2014 2014 Assets subject to market risk Other non current financial assets 5,640,315,376 611,778,969 5,028,536,407 4,616,975,141 600,882,720 4,016,092,421 Rental receivable on lease assets and hire purchase 6,551,297,181 - 6,551,297,181 8,379,563,606 - 8,379,563,606 Loans and advances 8,835,995,112 - 8,835,995,112 3,512,629,173 - 3,512,629,173 Policyholders loans 135,501,276 - 135,501,276 114,342,102 - 114,342,102 Reinsurance receivables 226,767,434 - 226,767,434 160,845,746 - 160,845,746 Trade and other receivables 6,396,035,672 - 6,396,035,672 4,910,081,942 - 4,910,081,942 Short term investments 8,392,441,152 2,545,608,628 5,846,832,524 6,358,330,664 1,651,035,281 4,707,295,383 Cash in hand and at bank 1,926,725,822 - 1,926,725,822 1,762,101,994 - 1,762,101,994 Liabilities subject to market risk Other non current financial liabilities 31,710,620 - 31,710,620 6,260,352 - 6,260,352 Interest bearing borrowings 27,461,247,934 - 27,461,247,934 17,144,286,771 - 17,144,286,771 Public deposits 12,053,056,190 - 12,053,056,190 9,303,745,347 - 9,303,745,347 Trade and other payables 7,041,840,113 - 7,041,840,113 5,751,656,617 - 5,751,656,617 Short term borrowings 14,787,184,778 - 14,787,184,778 11,822,115,977 - 11,822,115,977 Bank overdrafts 1,658,001,636 - 1,658,001,636 2,551,874,570 - 2,551,874,570 Company Market risk measure Market risk measure Carrying amount Trading portfolio Non trading portfolio Carrying amount Trading portfolio Non trading portfolio As at 31 March 2015 2015 2015 2014 2014 2014 Assets subject to market risk Other non current financial assets 1,277,947,548 - 1,277,947,548 57,797,564 - 57,797,564 Trade and other receivables 241,724,591 - 241,724,591 167,169,840 - 167,169,840 Short term investments 3,670,748,138 1,346,207,455 2,324,540,683 1,643,996,055 5,619,616 1,638,376,439 Cash in hand and at bank 42,695,145 - 42,695,145 279,766,916 - 279,766,916 Liabilities subject to market risk Interest bearing borrowings 8,136,783,256 - 8,136,783,256 3,903,444,290 - 3,903,444,290 Trade and other payables 29,531,350 - 29,531,350 14,569,828 - 14,569,828 Short term borrowings 4,191,598,768 - 4,191,598,768 3,920,810,772 - 3,920,810,772 Bank overdrafts 83,041,714 - 83,041,714 55,388,092 - 55,388,092
- 150. 148 Softlogic Holdings PLC 13.1.2Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long term debt obligations with floating interest rates. Exposure to interest rate risk The interest rate profile of the Group’s interest bearing financial instruments as reported to management of the Group is as follows. Group Nominal amount Company Nominal amount As at 31 March 2015 2014 2015 2014 Fixed rate instrument Financial assets 23,512,675,261 19,833,489,296 2,528,664 530,528,664 Financial liabilities (17,249,360,709) (22,076,183,607) (1,074,685,050) (1,118,687,507) 6,263,314,552 (2,242,694,311) (1,072,156,386) (588,158,843) Effect of interest rate swaps - (30,540,342) - - 6,263,314,552 (2,273,234,653) (1,072,156,386) (588,158,843) Variable rate instruments Financial liabilities 38,710,129,828 18,715,298,710 11,846,654,019 6,760,955,646 Effect of interest rate swaps - 30,540,342 - - 38,710,129,828 18,745,839,052 11,846,654,019 6,760,955,646 Interest rate sensitivity The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings. Provided all other variables held constant, the Group’s profit before tax is affected through the impact on floating rate borrowings, as follows: Increase in basis points Effect on profit before tax As at 31 March Rupee borrowings Other currencies Group Company 2015 +25b.p +15b.p (84,116,612) (29,616,635) -25b.p -15b.p 84,116,612 29,616,635 2014 +25b.p +15b.p (66,243,894) (16,902,389) -25b.p -15b.p 66,243,894 16,902,389 The assumed spread of basis points for the interest rate sensitivity analysis is based on the currently observable market environment changes to base floating interest rates. 13.1.3 Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of adverse fluctuations in foreign exchange rates. The Group’s exposure to the risk of fluctuations in foreign exchange rates relates primarily to the Group’s operating activities and foreign currency borrowings. Management has set up a policy that requires the company and its subsidiaries to manage their foreign exchange risk with strict limits on maximum exposure. Foreign currency sensitivity The following table demonstrates the sensitivity to a possible changes in the USD/LKR exchange rate, provided that all other variables are held constant such as, Group’s profit before tax following changes in the fair value of the Group’s forward exchange contracts on borrowings. Notes to the Financial Statements
- 151. 149 Annual Report 2014-15 TheGroup’s exposure to foreign currencies other than USD is not material. Effect on profit before tax As at 31 March Increase in exchange rate USD Group Company 2015 +3% 101,757,120 N/A -3% (101,757,120) N/A 2014 +3% 121,812,108 N/A -3% (121,812,108) N/A The Group manages its foreign currency risk using a balanced approach in respect of forward contracts that are expected to occur within a maximum 24 month period. Where the nature of the hedging is not an economic one, it is the Group’s policy to negotiate with counterparties or banks to obtain most advantage position for the Group. As at 31 March 2015, the Group entered into forward contracts in respect of 13.56% (2014 : 60%) of its foreign currency borrowings for which firm commitments existed at the reporting date, respectively. Foreign Exchange risk in operating activities The exposure is mainly from foreign creditors arising out of operating activities where fluctuation of foreign exchange rate may occur where the credit period is between 3-6 months. 13.1.4 Equity price risk The Group’s finance sector holds listed and unlisted equity securities and put option over quoted equity instruments which are susceptible to market price risk arising from uncertainties about future values of these securities. The Group manages the equity price risk through diversification and by placing limits on individual and total equity instruments. Periodic reports on equity investment portfolio are submitted to the senior management of individual business segment based on the relevance. The respective Board of Directors reviews and approves all equity investment decisions. To manage its price risk arising from investments in equity securities, the group diversifies its equity investment portfolio. Group Financial assets at fair value through profit or loss Available for sale investments As at 31 March 2015 2014 2015 2014 Rs. % Rs. % Rs. % Rs. % Bank, Finance and Insurance 2,446,925,110 96.12 1,573,569,944 95.31 610,234,121 99.75 530,757,732 88.33 Beverage, Food and Tobacco 2,587,074 0.10 - - - - - Construction and Engineering - - 1,912,500 0.12 - - 46,000,000 7.66 Diversified Holdings 12,000,875 0.47 11,456,482 0.69 1,521,440 0.25 24,106,200 4.01 Footware and Textile - - - - - - - Hotels and Travels 1,353,165 0.05 13,165 0.00 - - - Manufacturing 55,216,004 2.17 52,132,364 3.16 23,408 - 18,788 0.00 Power and Energy 18,492,960 0.73 4,133,426 0.25 - - - Telecommunications 9,033,440 0.35 7,817,400 0.47 - - - 2,545,608,628 100.00 1,651,035,281 100.00 611,778,969 100.00 600,882,720 100.00
- 152. 150 Softlogic Holdings PLC Company Financialassets at fair value through profit or loss Available for sale investments As at 31 March 2015 2014 2015 2014 Rs. % Rs. % Rs. % Rs. % Bank, Finance and Insurance 4,812,557 0.36 3,186,416 56.70 - - - - Footware and Textile 1,338,847,938 99.45 - - - - - - Power and Energy 2,546,960 0.19 2,433,200 43.30 - - - - 1,346,207,455 100.00 5,619,616 100.00 - - - - Investments in unquoted investments are made after obtaining the board approval. Sensitivity analysis The following table demonstrate the sensitivity of cumulative change 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 equity shares classified under short term and long term financial assets. Change in equity price Group Company As at 31 March Effect on profit before tax Effect on Equity Effect on profit before tax Effect on Equity 2015 Quoted equity investments listed in Colombo Stock Exchange and put option over quoted equity instruments +10% 258,642,381 61,177,563 135,445,845 Nil - 10% (252,165,220) (61,177,563) (135,445,845) Nil 2014 Quoted equity investments listed in Colombo Stock Exchange and put option over quoted equity instruments +10% 167,500,068 167,500,068 561,962 Nil - 10% (168,214,004) (168,214,004) (561,962) Nil 13.2 Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial 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 financial institutions, foreign exchange transactions and other financial instruments. The Group trades only with recognised, creditworthy third parties. It is the Group’s policy that all clients who wish to trade on credit terms are subject to credit evaluation procedures. In addition, receivable balances are monitored on an ongoing basis with that the Group’s exposure to bad debt is not significant. Hire purchase and lease portfolio is broad based accounting for over 95,622 (2014 - 75,950) contracts and risk of non payment is mitigated by stringent standard of credit approval process. There is no concentration risk on any single region, customer or sector in particular collection of dues from customers is robust with the delinquency rate being better than the financial industry average. With respect to credit risk arising from other financial assets of the Group, such as cash and cash equivalents, available for sale financial investments, short term investments, the Group’s exposure to credit risk arise from default of the counterparty. The Group manages its operations to avoid any excessive concentration of counterparty risk. Notes to the Financial Statements
- 153. 151 Annual Report 2014-15 13.2.1Credit Risk - Default risk Default risk is the risk that one party to financial instruments will fail to discharge an obligation and cause the other party to incur financial loss. It arises from lending, trade finance, treasury and other activities undertaken by the Group. The Group has in place standards, policies and procedures for the control and monitoring of all such risks. Credit Risk - Concentration risk The Group seeks to manage its credit concentration risk exposure through diversification of its lending, investing and financing activities to avoid undue concentrations of risks with individuals or group of customers in specific businesses. It also obtains security when appropriate. The types of collateral obtained include cash margins, mortgages over properties and pledge over equity instruments. The requirement for an impairment is analysed at each reporting date on an individual basis for major clients. Additionally, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The calculation is based on actual incurred historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 13.2.2. The tables below show the maximum exposure to credit risk for the components of financial position. The maximum exposure is shown gross before the effect of mitigation through the use of collateral agreements.
- 154. 152 Softlogic Holdings PLC 13.2.2Risk Exposure - Group As at 31 March 2015 Note Other non current investments Rental receivable on leased assets & hire purchases - long term Rental receivable on leased assets & hire purchases - short term Government securities 13.2.2.1 3,877,841,032 - - Corporate debt securities 13.2.2.2 953,348,819 - - Deposits with banks and Unit Trusts 13.2.2.3 42,442,694 - - Loans to executives 13.2.2.4 4,686,862 - - Loans and advances 13.2.2.5.1 3,447,334,303 - - Policyholders loans 13.2.2.5.2 - - - Trade and other receivables 13.2.2.6 - - - Reinsurance receivables 13.2.2.7 - - - Amounts due from related parties 13.2.2.8 - - - Rental receivable on leased assets & hire purchases 13.2.2.9 - 3,669,327,302 2,881,969,879 Cash in hand and at bank 13.2.2.10 - - - Total credit risk exposure 8,325,653,710 3,669,327,302 2,881,969,879 Financial assets at fair value through profit or loss - - - Available for sale investments 761,995,969 - - Total equity risk exposure 761,995,969 - - Total 9,087,649,679 3,669,327,302 2,881,969,879 13.2.2 Risk Exposure - Group As at 31 March 2014 Note Other non current investments Rental receivable on leased assets & hire purchases - long term Rental receivable on leased assets & hire purchases - short term Government securities 13.2.2.1 3,189,701,356 - - Corporate debt securities 13.2.2.2 627,299,943 - - Deposits with banks and Unit Trusts 13.2.2.3 48,874,122 - - Loans to executives 13.2.2.4 - - - Loans and advances 13.2.2.5.1 1,549,932,573 - - Policyholders loans 13.2.2.5.2 - - - Trade and other receivables 13.2.2.6 - - - Reinsurance receivables 13.2.2.7 - - - Amounts due from related parties 13.2.2.8 - - - Rental receivable on leased assets & hire purchases 13.2.2.9 - 3,762,890,106 4,616,673,500 Cash in hand and at bank 13.2.2.10 - - - Total credit risk exposure 5,415,807,994 3,762,890,106 4,616,673,500 Financial assets at fair value through profit or loss - - - Available for sale investments 751,099,720 - - Total equity risk exposure 751,099,720 - - Total 6,166,907,714 3,762,890,106 4,616,673,500 Notes to the Financial Statements
- 155. 153 Annual Report 2014-15 Cashin hand and at banks Trade and other receivable Short term investments Amounts due from related parties Total % of allocation - - 2,726,980,399 - 6,604,821,431 19.05 - - 92,576,655 - 1,045,925,474 3.02 - - 2,902,275,470 - 2,944,718,164 8.49 - 16,370,946 - - 21,057,808 0.06 - 5,388,660,809 - - 8,835,995,112 25.48 - 135,501,276 - - 135,501,276 0.39 - 6,379,664,726 - - 6,379,664,726 18.40 - 226,767,434 - - 226,767,434 0.65 - - - 572,053 572,053 - - - - - 6,551,297,181 18.89 1,926,725,822 - - - 1,926,725,822 5.56 1,926,725,822 12,146,965,191 5,721,832,524 572,053 34,673,046,481 100.00 - - 2,545,608,628 - 2,545,608,628 74.16 - - 125,000,000 - 886,995,969 25.84 - - 2,670,608,628 - 3,432,604,597 100.00 1,926,725,822 12,146,965,191 8,392,441,152 572,053 38,105,651,078 Cash in hand and at banks Trade and other receivable Short term investments Amounts due from related parties Total % of allocation - - 2,697,282,330 - 5,886,983,686 21.57 - - 31,924,215 - 659,224,158 2.42 - - 1,853,088,838 - 1,901,962,960 6.97 - 22,702,451 - - 22,702,451 0.08 - 1,962,696,600 - - 3,512,629,173 12.87 - 114,342,102 - - 114,342,102 0.42 - 4,887,379,491 - - 4,887,379,491 17.91 - 160,845,746 - - 160,845,746 0.59 - - - 778,460 778,460 - - - - - 8,379,563,606 30.71 1,762,101,994 - - - 1,762,101,994 6.46 1,762,101,994 7,147,966,390 4,582,295,383 778,460 27,288,513,827 100.00 - - 1,651,035,281 - 1,651,035,281 65.33 - - 125,000,000 - 876,099,720 34.67 - - 1,776,035,281 - 2,527,135,001 100.00 1,762,101,994 7,147,966,390 6,358,330,664 778,460 29,815,648,828
- 156. 154 Softlogic Holdings PLC 13.2.2Risk Exposure - Company As at 31 March 2015 Note Other non current investments Cash in hand and at banks Trade and other receivable Short term investments Amounts due from related parties Total % of allocation Corporate debt securities 13.2.2.2 2,528,664 - - - - 2,528,664 0.04 Deposits with bank 13.2.2.3 - - - 2,199,540,683 - 2,199,540,683 36.34 Loans to executives 13.2.2.4 - - 774,677 - - 774,677 0.01 Trade and other receivables 13.2.2.6 - - 240,949,914 - - 240,949,914 3.98 Amounts due from related parties 13.2.2.8 1,275,418,884 - - - 2,290,507,881 3,565,926,765 58.92 Cash in hand and at bank 13.2.2.10 - 42,695,145 - - - 42,695,145 0.71 Total credit risk exposure 1,277,947,548 42,695,145 241,724,591 2,199,540,683 2,290,507,881 6,052,415,848 100.00 Financial assets at fair value through profit or loss - - - 1,346,207,455 - 1,346,207,455 91.50 Available for sale investments - - - 125,000,000 - 125,000,000 8.50 Total equity risk exposure - - - 1,471,207,455 - 1,471,207,455 100.00 Total 1,277,947,548 42,695,145 241,724,591 3,670,748,138 2,290,507,881 7,523,623,303 13.2.2 Risk Exposure - Company As at 31 March 2014 Note Other non current investments Cash in hand and at banks Trade and other receivable Short term investments Amounts due from related parties Total % of allocation Corporate debt securities 13.2.2.2 2,528,664 - - - - 2,528,664 0.06 Deposits with bank 13.2.2.3 - - - 528,000,000 - 528,000,000 11.81 Loans to executives 13.2.2.4 - - 6,503,850 - - 6,503,850 0.15 Trade and other receivables 13.2.2.6 - - 59,936,203 - - 59,936,203 1.34 Amounts due from related parties 13.2.2.8 55,268,900 - 100,729,787 985,376,439 2,453,097,064 3,594,472,190 80.39 Cash in hand and at bank 13.2.2.10 - 279,766,916 - - - 279,766,916 6.26 Total credit risk exposure 57,797,564 279,766,916 167,169,840 1,513,376,439 2,453,097,064 4,471,207,823 100.00 Financial assets at fair value through profit or loss - - - 5,619,616 - 5,619,616 4.30 Available for sale investments - - - 125,000,000 - 125,000,000 95.70 Total equity risk exposure - - - 130,619,616 - 130,619,616 100.00 Total 57,797,564 279,766,916 167,169,840 1,643,996,055 2,453,097,064 4,601,827,439 Notes to the Financial Statements
- 157. 155 Annual Report 2014-15 13.2.2.1Government securities As at 31 March 2015 as shown in the table above, 19.05% (2014 - 21.57%) of Group debt securities comprise investments in government securities which consist of treasury bonds, bills and reverse repo investments. Government securities are usually referred to as risk free due to the sovereign nature of the instrument. 13.2.2.2 Corporate debt securities As at 31 March 2015, corporate debt securities comprise 45.49% (2014 - 44.13%) and 100.00% (2014 - 100.00%) of the total investments for the Group and Company respectively out of which were rated “A-” or better, or guaranteed by Treasury. Group Company As at 31 March 2015 2014 2015 2014 Fitch rating Rs. Rating % of total Rs. Rating % of total Rs. Rating % of total Rs. Rating % of total AA- 188,165,584 17.99 195,006,820 29.58 - - 2,528,664 100.00 A+ 181,281,273 17.33 - - - - - - A 10,028,664 0.96 - - 2,528,664 100.00 - - A- 96,338,351 9.21 95,938,900 14.55 - - - - BBB+ 236,674,432 22.63 43,253,172 6.56 - - - - BBB 94,988,304 9.08 141,290,116 21.43 - - - - BBB- 238,448,866 22.80 92,174,420 13.98 - - - - Guaranteed by Treasury - - 59,636,515 9.05 - - - - Not rated - - 31,924,215 4.84 - - - - Total 1,045,925,474 100.00 659,224,158 100.00 2,528,664 100.00 2,528,664 100.00 13.2.2.3 Deposits with banks and Unit Trusts Deposits with banks mainly consist of fixed and call deposits. As at 31 March 2015, 94.31% (2014 - 61.01%) and 100.00% (2014 - 100.00%) of the fixed and call deposits and investments in Unit Trusts were rated “A-” or better for the Group and Company respectively. Group Company As at 31 March 2015 2014 2015 2014 Fitch rating Rs. Rating % of total Rs. Rating % of total Rs. Rating % of total Rs. Rating % of total AA 177,560,635 6.03 - - - - - - AA- 2,580,928,895 87.65 597,210,292 31.40 2,199,540,683 100.00 457,000,000 86.55 A 6,773,430 0.23 71,100,000 3.74 - - 71,000,000 13.45 A- 11,803,809 0.40 492,110,139 25.87 - - - - BBB 125,000,402 4.24 142,971,142 7.52 - - - - BB- - - 30,958 0.00 - - - - Unit trust 42,620,393 1.45 549,666,306 28.90 - - - - Not rated 30,600 0.00 48,874,123 2.57 - - - - Total 2,944,718,164 100.00 1,901,962,960 100.00 2,199,540,683 100.00 528,000,000 100.00 13.2.2.4 Loans to executives Loans to executives portfolio is largely made with short term distress loans granted to executive staff. The respective business units have taken necessary power of attorney/ promissory notes as collateral for the loans granted.
- 158. 156 Softlogic Holdings PLC 13.2.2.5Loans and advances 13.2.2.5.1 Loans and advances As a part of overall risk management strategy, the board of directors of the respective components specially in the finance cluster has delegated responsibility for the oversight of credit risk to its ‘Credit Committee’ and ‘Credit Risk Committee’. Company ‘Credit Risk Monitoring Unit’ is reporting to ‘Risk Committee’ through the ‘Chief Risk Officer’ who is responsible for management of the company’s credit risk. Following are the few steps to manage credit risk; • introduction of a comprehensive credit policy as the guide line in lending has strengthened the credit evaluation process • concentration risk of credit is evaluated regularly and amends the credit policy accordingly in order to ensure credit granting process response to market requirements • implementation of delegated authority levels in line with the process of strengthening credit screening and evaluation process • implementation of a customer rating system as a way of building a data base within the company for efficient and effective credit evaluation process to service current evaluation as well as prospective evaluations • regular discussions are initiated in both ‘Credit Committee’ and ‘Integrated Risk Management Committee’ in relation to credit risk and identifying necessary actions to be implemented 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. Notes to the Financial Statements
- 159.
- 160. 158 Softlogic Holdings PLC Movementin impairment allowance for loans advances In Rs. Movement in specific impairment allowance Movement in collective impairment allowance Movement in impairment allowance (total) As at 31 March 2015 2014 2015 2014 2015 2014 At the beginning of the year 93,769,560 31,736,935 35,843,564 3,196,847 129,613,124 34,933,782 Net impairment charge for the year 45,918,614 62,032,625 89,282,752 32,646,717 135,201,366 94,679,342 Write offs during the year (3,264,732) - - - (3,264,732) - Setoffs during the year (54,910,520) - - - (54,910,520) - At the end of the year 81,512,922 93,769,560 125,126,316 35,843,564 206,639,238 129,613,124 13.2.2.5.2 Loans to life policyholders The Company issued loans to life policyholders considering the surrender value of the life policy as collateral. As at the reporting date, the value of policy loans granted amounted to Rs.135.50 mn (2014 – Rs.114.34 mn) and its related surrender value is more than its carrying value. 13.2.2.6 Trade receivables Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. Credit quality of the customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored and any consignments to major customers are generally covered by bank guarantees or other forms of credit insurance. In Rs. Group Company As at 31 March 2015 2014 2015 2014 Trade receivable settlement profile Current/ 0 - 30 days 2,585,966,771 1,693,953,959 8,197,258 7,652,521 31 - 60 days 949,978,060 846,041,373 - - 61 - 90 days 489,445,907 687,783,446 17,185,660 12,589,592 91 - 120 days 994,755,964 343,466,538 - - > 121 days 913,994,985 520,001,713 104,431,386 80,487,674 Impaired 188,210,125 141,105,814 - - Gross carrying value 6,122,351,812 4,232,352,843 129,814,304 100,729,787 Less : Impairment provision Individually assessed impairment provision (64,744,932) (60,145,332) - - Collectively assessed impairment provision (123,465,194) (80,960,484) - - Total 5,934,141,686 4,091,247,027 129,814,304 100,729,787 The requirement for an impairment is analysed at each reporting date on an individual basis for major clients. Additionally, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The calculation is based on actual incurred historical data. 13.2.2.7 Reinsurance receivable As a part of overall risk management strategy, the Group cedes insurance risk through proportional, non proportional and specific risk reinsurance treaties. While these mitigate insurance risk, the recoverable from reinsurers and receivables arising from ceded reinsurance exposes the company to credit risk. Following are the few steps to manage reinsurance risk in addition to explained above; • placed in line with policy guidelines approved by the Board of Directors on an annual basis in line with the guidelines issued by the Insurance Board of Sri Lanka • counterparties’ limits that are set each year and are subject to regular reviews on a regular basis management assesses the creditworthiness of reinsurers to update the reinsurance strategy and ascertain the suitable allowance for impairment of reinsurance assets Notes to the Financial Statements
- 161. 159 Annual Report 2014-15 •outstanding reinsurance receivables are reviewed on a monthly basis to ensure that all dues are collected or set off against payable • maintain close and professional relationship with reinsurers • no cover is issue without confirmation from reinsurance unless non reinsurance business As at reporting date reinsurance receivables amount to Rs.226.77 mn as at 31 March 2015 (2014 - Rs.160.85 mn). This mainly consists of reinsurance receivable on paid claims amounting to Rs.90.60 mn (2014 - Rs.64.00 mn) and reinsurance share of claim reserve (receivables on outstanding claims) of Rs.136.17 mn as at 31 March 2015 (2014 - Rs.97.00 mn). 13.2.2.8 Amounts due from related parties The Group’s amounts due from related parties mainly consist of associates and receivables from KMPs. The Company balance consists of the balance from affiliate companies. 13.2.2.9 Rental receivable on leased assets & hire purchases As a part of overall risk management strategy, the board of directors has delegated responsibility for the oversight of credit risk to its ‘Board of Credit Committee’. Company ‘Independent Credit Risk Monitoring Unit’ is reporting to ‘Risk Committee’ through the ‘Head of Credit Risk’ who is responsible for management of the company’s credit risk. Following are the few steps to manage credit risk; • introduction of a comprehensive credit policy as the guide line in lending , has strengthened the credit evaluation process • such credit policy is formulated in consideration with current market conditions and implemented policy is evaluated regularly (once in 3 months) in order to make sure, such policy is in line with the market conditions • determine the levels of service and quality of the valuers involving in the credit evaluation process • regular discussions are initiated in both Credit Committee and Integrated Risk Management Committee in relation to credit risk and identifying necessary actions to be implemented 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. Credit quality by class of financial assets Assets at amortised cost As at 31 March Rental receivable on lease assets Rental receivable on hire purchase Total 2015 Rental receivable on lease assets Rental receivable on hire purchase Total 2014 Individually impaired - gross amount 9,123,406 26,414,222 35,537,628 95,426,326 124,559,403 219,985,729 - allowance for impairment (4,214,008) (6,006,016) (10,220,024) (1,797,172) (23,639,131) (25,436,303) - write off during the year - - - (87,748,192) (70,552,038) (158,300,230) Gross carrying amount 4,909,398 20,408,206 25,317,604 5,880,962 30,368,234 36,249,196 For the rest of portfolio where collective impairment is applicable - gross amount 2,163,767,882 6,065,913,572 8,229,681,454 3,248,858,523 7,817,645,659 11,066,504,182 - allowance for impairment (33,938,983) (113,991,814) (147,930,797) (14,064,491) (53,609,871) (67,674,362) Gross carrying amount 2,129,828,899 5,951,921,758 8,081,750,657 3,234,794,032 7,764,035,788 10,998,829,820 Total carrying amount 2,134,738,297 5,972,329,964 8,107,068,261 3,240,674,994 7,794,404,022 11,035,079,016 Less : Unearned income (406,402,040) (1,149,369,040) (1,555,771,080) (837,884,960) (1,817,630,450) (2,655,515,410) Net carrying amount 1,728,336,257 4,822,960,924 6,551,297,181 2,402,790,034 5,976,773,572 8,379,563,606
- 162. 160 Softlogic Holdings PLC Ageanalysis of facilities considered for collective impairment Category As at 31 March Rental receivable on lease assets Rental receivable on hire purchase Total 2015 Rental receivable on lease assets Rental receivable on hire purchase Total 2014 Not due/ current 1,864,579,559 5,228,487,992 7,093,067,551 3,026,813,784 7,240,242,278 10,267,056,062 Overdue: Less than 30 days 63,242,060 148,423,009 211,665,069 75,984,453 197,270,468 273,254,921 31 - 60 days 46,764,505 99,209,509 145,974,014 52,244,971 124,337,928 176,582,899 61 - 90 days 31,577,307 87,980,213 119,557,520 31,359,210 77,230,060 108,589,270 91 - 120 days 20,926,672 71,730,748 92,657,420 13,461,486 33,122,085 46,583,571 121 - 150 days 19,547,658 67,154,286 86,701,944 11,966,159 30,838,499 42,804,658 151 - 180 days 13,055,786 45,634,818 58,690,604 9,191,653 24,174,645 33,366,298 181 - 365 days 52,257,142 174,667,820 226,924,962 22,594,837 57,580,359 80,175,196 above 365 days 51,817,193 142,625,177 194,442,370 5,241,970 32,849,337 38,091,307 Total 2,163,767,882 6,065,913,572 8,229,681,454 3,248,858,523 7,817,645,659 11,066,504,182 Movement in impairment allowance 2015 2014 At the beginning of the year 104,497,172 41,212,308 Net impairment charge for the year 273,582,089 216,321,662 Recoveries during the year 54,465,996 5,263,432 Write offs during the year (258,172,216) (158,300,230) At the end of the year 174,373,041 104,497,172 Reversal of notional interest for the year (16,222,220) (11,386,507) At the end of the year after notional interest for the year 158,150,821 93,110,665 13.2.2.10Cash in hand and at bank Deposits with banks mainly consist of fixed and call deposits. Credit risk from balances with banks and financial institutions is managed by the Group’s Treasury Department in accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed in an annual basis, and may be updated throughout the year subject to appropriate approval. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterparty’s failure to make payments. The Group’s maximum exposure to credit risk for the components of the Statement of Financial Position is the carrying amounts as illustrated. 13.3 Liquidity risk Liquidity risk is the risk that Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damages to the Group’s reputation. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, debentures, finance leases and hire purchase contracts that will always have sufficient liquidity to meet its liabilities when its due under normal and stressed conditions. The Group assessed the concentration of risk with respect to refinancing its debt and concluded it to be low. Access to sources of funding is sufficiently available and debt maturing within 12 months can be rolled over with existing lenders. Notes to the Financial Statements
- 163. 161 Annual Report 2014-15 Netdebt / (cash) Group Company 2015 2014 2015 2014 Short term investments 8,392,441,152 6,358,330,664 3,670,748,138 1,643,996,055 Cash in hand and at bank 1,926,725,822 1,762,101,994 42,695,145 279,766,916 Total liquid assets 10,319,166,974 8,120,432,658 3,713,443,283 1,923,762,971 Short term borrowings 14,787,184,778 11,822,115,977 4,191,598,768 3,920,810,772 Current portion of borrowings 4,616,956,512 4,144,437,836 2,368,998,067 1,455,262,816 Bank overdrafts 1,658,001,636 2,551,874,570 83,041,714 55,388,092 Total liabilities 21,062,142,926 18,518,428,383 6,643,638,549 5,431,461,680 Net debt / (cash) 10,742,975,952 10,397,995,725 2,930,195,266 3,507,698,709 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 ERP program. This would help further accelerate the review and identification of debt maturities relating to net liquidity position on daily basis and thus enable proactively mobile necessary funding mobilisation or reinvest of cash surplus if any. Closely monitoring and working to reschedule maturity profile is any to de-stress cash flows and re-align them with actual investment tenor. This would engender optimal liquidity positioning and this would reduce borrowing cost and enhance reinvestment income. Maturity analysis The table below summarises the maturity profile of the Group’s financial liabilities at 31 March 2015 based on contractual undiscounted payments. Within 1 year Between 1-2 years Between 2-3 years Between 3-4 years Between 4-5 years More than 5 years Total Interest bearing loans and borrowings 4,616,956,512 7,840,463,194 3,383,374,968 3,139,491,673 4,091,400,830 4,389,560,757 27,461,247,934 Other non current financial liabilities - 31,710,620 - - - - 31,710,620 Trade and other payables 7,041,840,113 - - - - - 7,041,840,113 Amounts due to related parties 15,970,784 - - - - - 15,970,784 Short term borrowings 14,787,184,778 - - - - - 14,787,184,778 Public deposits 9,838,760,403 1,037,598,357 976,766,009 199,931,421 - - 12,053,056,190 Bank overdrafts 1,658,001,636 - - - - - 1,658,001,636 37,958,714,226 8,909,772,171 4,360,140,977 3,339,423,094 4,091,400,830 4,389,560,757 63,049,012,055 Contingent gross commitment on put option - 1,812,828,000 - - - - 1,812,828,000
- 164. 162 Softlogic Holdings PLC Maturityanalysis The table below summarises the maturity profile of the Group’s financial liabilities at 31 March 2014 based on contractual undiscounted payments. Within 1 year Between 1-2 years Between 2-3 years Between 3-4 years Between 4-5 years More than 5 years Total Interest bearing loans and borrowings 4,144,437,836 3,777,682,210 3,517,675,155 1,573,134,513 1,617,996,492 2,513,360,565 17,144,286,771 Other financial liabilities - - 6,260,352 - - - 6,260,352 Trade and other payables 5,751,656,616 - - - - - 5,751,656,616 Amounts due to related parties 19,508,602 - - - - - 19,508,602 Short term borrowings 11,822,115,977 - - - - - 11,822,115,977 Public deposits 7,418,343,338 1,659,008,444 226,393,565 - - - 9,303,745,347 Bank overdrafts 2,551,874,570 - - - - - 2,551,874,570 31,707,936,939 5,436,690,654 3,750,329,072 1,573,134,513 1,617,996,492 2,513,360,565 46,599,448,235 Contingent gross commitment on put option - - 1,812,828,000 - - - 1,812,828,000 The table below summarises the maturity profile of the Company’s financial liabilities at 31 March 2015 based on contractual undiscounted payments. Within 1 year Between 1-2 years Between 2-3 years Between 3-4 years Between 4-5 years More than 5 years Total Interest bearing loans and borrowings 2,368,998,068 2,775,286,889 903,062,884 672,132,048 650,650,922 766,652,445 8,136,783,256 Other financial liabilities - 50,000,000 50,000,000 50,000,000 50,000,000 309,915,332 509,915,332 Trade and other payables 29,531,350 - - - - - 29,531,350 Amounts due to related parties 148,005,634 - - - - - 148,005,634 Short term borrowings 4,191,598,768 - - - - - 4,191,598,768 Bank overdrafts 83,041,714 - - - - - 83,041,714 6,821,175,534 2,825,286,889 953,062,884 722,132,048 700,650,922 1,076,567,777 13,098,876,054 Notes to the Financial Statements
- 165. 163 Annual Report 2014-15 Thetable below summarises the maturity profile of the Company’s financial liabilities at 31 March 2014 based on contractual undiscounted payments. Within 1 year Between 1-2 years Between 2-3 years Between 3-4 years Between 4-5 years More than 5 years Total Interest bearing loans and borrowings 1,455,262,816 743,675,727 1,449,097,231 254,760,724 647,792 - 3,903,444,290 Trade and other payables 14,569,828 - - - - - 14,569,828 Amounts due to related parties 946,657,314 - - - - - 946,657,314 Short term borrowings 3,920,810,772 - - - - - 3,920,810,772 Bank overdrafts 55,388,092 - - - - - 55,388,092 6,392,688,822 743,675,727 1,449,097,231 254,760,724 647,792 - 8,840,870,296 13.4 Capital management The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes for managing capital during the years ended 31 March 2015. The Group monitors capital using a gearing ratio for company and subsidiary level, which is net debt divided by total capital plus net debt which is monitored very closely by the senior management officials. Net debt of the Group includes, interest bearing loans and borrowings, short term borrowings and bank overdrafts (excluding discontinued operations). Group Company As at 31 March 2015 2014 2015 2014 Interest bearing loans and borrowings 43,906,434,348 31,518,277,317 12,921,339,070 7,879,643,152 Total debt 43,906,434,348 31,518,277,317 12,921,339,070 7,879,643,152 Equity 15,781,972,613 13,350,744,771 5,630,413,224 5,311,998,017 Total capital 15,781,972,613 13,350,744,771 5,630,413,224 5,311,998,017 Capital and total debt 59,688,406,961 44,869,022,088 18,551,752,294 13,191,641,169 Gearing ratio-(X) 0.74 0.70 0.70 0.60
- 166. 164 Softlogic Holdings PLC 14FINANCIAL INSTRUMENTS Financial assets and liabilities in the tables below are split into categories in accordance with LKAS 39. Financial assets by categories - Group In Rs Loans and receivables Financial assets fair value through profit or loss As at 31 March 2015 2014 2015 2014 Financial instruments in non current assets Other non current financial assets 3,460,146,640 1,598,806,695 - - Rental receivable on lease assets and hire purchase 3,669,327,302 3,762,890,106 - - Financial instruments in current assets Trade and other receivables 6,622,803,106 5,070,927,688 - - Loans and advances 5,524,162,085 2,077,038,702 - - Rental receivable on lease assets and hire purchase 2,881,969,879 4,616,673,500 - - Amounts due from related parties 572,053 778,460 - - Short term investments 5,600,345,437 3,038,042,580 2,656,395,983 3,320,288,084 Cash in hand and at bank 1,926,725,822 1,762,101,994 - - Total 29,686,052,324 21,927,259,725 2,656,395,983 3,320,288,084 Financial liabilities by categories - Group In Rs As at 31 March Financial instruments in non current liabilities Other non current financial liabilities Interest bearing borrowings Public deposits Financial instruments in current liabilities Trade and other payables Amounts due to related parties Short term borrowings Current portion of interest bearing borrowings Public deposits Bank overdrafts Total The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values: • Fair value of quoted equities, debentures and bonds is based on price quotations in an active market at the reporting date • The fair value of unquoted instruments, loans from banks and other financial liabilities, obligations under finance leases, as well as other non current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities Notes to the Financial Statements
- 167. 165 Annual Report 2014-15 Availablefor sale financial assets Held to maturity investments Total 2015 2014 2015 2014 2015 2014 5,397,343,129 4,342,420,083 230,159,910 225,680,936 9,087,649,679 6,166,907,714 - - - - 3,669,327,302 3,762,890,106 - - - - 6,622,803,106 5,070,927,688 - - - - 5,524,162,085 2,077,038,702 - - - - 2,881,969,879 4,616,673,500 - - - - 572,053 778,460 135,699,732 - - - 8,392,441,152 6,358,330,664 - - - - 1,926,725,822 1,762,101,994 5,533,042,861 4,342,420,083 230,159,910 225,680,936 38,105,651,078 29,815,648,828 Financial liabilities at fair value through profit or loss (FVPTPL) Financial liabilities measured at amortised cost Total 2015 2014 2015 2014 2015 2014 6,260,352 6,260,352 25,450,268 - 31,710,620 6,260,352 - - 22,844,291,422 12,999,848,935 22,844,291,422 12,999,848,935 - - 2,214,295,787 1,885,402,009 2,214,295,787 1,885,402,009 - - 7,041,840,113 5,751,656,616 7,041,840,113 5,751,656,616 - - 15,970,784 19,508,602 15,970,784 19,508,602 - - 14,787,184,778 11,822,115,977 14,787,184,778 11,822,115,977 - - 4,616,956,512 4,144,437,836 4,616,956,512 4,144,437,836 - - 9,838,760,403 7,418,343,338 9,838,760,403 7,418,343,338 - - 1,658,001,636 2,551,874,570 1,658,001,636 2,551,874,570 6,260,352 6,260,352 63,042,751,703 46,593,187,883 63,049,012,055 46,599,448,235 • Fair value of the unquoted ordinary shares has been estimated using a Discounted Cash Flow (DCF) model. The valuation requires management to make certain assumptions about the model inputs, including forecast cash flows, the discount rate, credit risk and volatility. The probabilities of the various estimates within the range can be reasonably assessed and are used in management’s estimate of fair value for these unquoted equity investments. • Fair value of loans and advances, rental receivable on lease assets and hire purchase approximately 70% of the portfolio has a remaining maturity of less than one year. Therefore fair value of lending portfolio approximates to the carrying value as at the reporting date. All loans and advances are granted with a fixed interest rate terms.
- 168. 166 Softlogic Holdings PLC 14FINANCIAL INSTRUMENTS Financial assets and liabilities in the tables below are split into categories in accordance with LKAS 39. Financial assets by categories - Company In Rs Loans and receivables Financial assets fair value through profit or loss As at 31 March 2015 2014 2015 2014 Financial instruments in non current assets Other non current financial assets 1,275,418,884 55,268,900 - - Financial instruments in current assets Trade and other receivables 241,724,591 167,169,840 - - Amounts due from related parties 2,290,507,881 2,453,097,064 - - Short term investments 2,199,540,683 1,513,376,439 1,346,207,455 5,619,616 Cash in hand and at bank 42,695,145 279,766,916 - - Total 6,049,887,184 4,468,679,159 1,346,207,455 5,619,616 Financial liabilities by categories - Company In Rs As at 31 March Financial instruments in non current liabilities Interest bearing borrowings Other non current financial liabilities Financial instruments in current liabilities Trade and other payables Amounts due to related parties Short term borrowings Current portion of interest bearing borrowings Bank overdrafts Total Notes to the Financial Statements
- 169. 167 Annual Report 2014-15 Availablefor sale financial assets Held to maturity investments Total 2015 2014 2015 2014 2015 2014 - - 2,528,664 2,528,664 1,277,947,548 57,797,564 - - - - 241,724,591 167,169,840 - - - - 2,290,507,881 2,453,097,064 125,000,000 125,000,000 - - 3,670,748,138 1,643,996,055 - - - - 42,695,145 279,766,916 125,000,000 125,000,000 2,528,664 2,528,664 7,523,623,303 4,601,827,439 Financial liabilities measured at amortised cost Total 2015 2014 2015 2014 5,767,785,189 2,448,181,474 5,767,785,189 2,448,181,474 509,915,332 - 509,915,332 - 29,531,350 14,569,828 29,531,350 14,569,828 148,005,634 946,657,314 148,005,634 946,657,314 4,191,598,768 3,920,810,772 4,191,598,768 3,920,810,772 2,368,998,067 1,455,262,816 2,368,998,067 1,455,262,816 83,041,714 55,388,092 83,041,714 55,388,092 13,098,876,054 8,840,870,296 13,098,876,054 8,840,870,296
- 170. 168 Softlogic Holdings PLC FAIRVALUE HIERARCHY 14.1 Financial assets and liabilities by fair value hierarchy - Group The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable The Group held the following financial instruments carried at fair value in the statement of financial position: In Rs. Level 1 Level 2 Level 3 As at 31 March 2015 2014 2015 2014 2015 2014 Assets measured at fair value Financial assets held for trading 2,656,395,983 3,320,288,084 - - Available for sale 5,258,012,261 4,067,389,483 275,000,000 275,000,000 30,600 30,600 Total 7,914,408,244 7,387,677,567 275,000,000 275,000,000 30,600 30,600 Liabilities measured at fair value Other non current financial liabilities - - 31,710,620 31,710,620 - - Total - - 31,710,620 31,710,620 - - During the reporting period ended 31 March 2015, there were no transfers between Level 1 and Level 2 fair value measurements. Financial assets and liabilities by fair value hierarchy - Company In Rs. Level 1 Level 2 Level 3 As at 31 March 2015 2014 2015 2014 2015 2014 Assets measured at fair value Financial assets held for trading 1,346,207,455 5,619,616 125,000,000 125,000,000 - - Total 1,346,207,455 5,619,616 125,000,000 125,000,000 - - During the reporting period ended 31 March 2015, there were no transfers between Level 1 and Level 2 fair value measurements. 14.2 Non financial assets - Group In Rs. Level 1 Level 2 Level 3 As at 31 March 2015 2014 2015 2014 2015 2014 Assets measured at fair value Land and buildings - - - - 11,264,632,760 7,745,483,022 Buildings on leasehold land - - - - 5,128,906,334 2,285,165,523 Investment property - - - - 94,848,000 2,266,146,000 Total - - - - 16,488,387,094 12,296,794,545 Non financial assets - Company In Rs. Level 1 Level 2 Level 3 As at 31 March 2015 2014 2015 2014 2015 2014 Assets measured at fair value Investment property - - - - 442,641,386 394,000,000 Total - - - - 442,641,386 394,000,000 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. Notes to the Financial Statements
- 171. 169 Annual Report 2014-15 14.2.1Details of Group’s land and buildings stated at valuations are indicated below; Group Company Property Method of valuation Effective date of valuation Property valuer Extent Significant unobservable inputs Sensitivity of fair value to unobservable inputs Land of Softlogic Holdings PLC 14, De Fonseka Place, Colombo 05 Open market value method 19-03-2015 R S Wijesuriya Incorporated Valuer 0 A 0 R 22.45 P Estimated price per perch Rs.6,500,000 Positively correlated sensitivity Softlogic Properties (Pvt) Ltd Dharmapala Mw., Colombo 03 Open market value method 30-09-2013 R S Wijesuriya Incorporated Valuer 0 A 2 R 28.51 P Estimated price per perch Rs.8,500,000 Positively correlated sensitivity Odel Lanka (Pvt) Ltd 271 & 271F, Kaduwela Road, Thalangama Open market value method 01-11-2014 P B Kalugalgedara Chartered Valuation Surveyor 1 A 1 R 7.39 P Estimated price per perch Rs.1,000,000 - Rs.2,250,000 Positively correlated sensitivity Building of Softlogic Information Technologies (Pvt) Ltd 14, De Fonseka Place, Colombo 05 Direct capital comparison method 19-03-2015 R S Wijesuriya Incorporated Valuer - Estimated value per square foot Rs.8,500 Positively correlated sensitivity Asiri Surgical Hospital PLC 21, Kirimmandala Mw., Colombo 05 Depreciated replacement cost method 31-05-2012 P B Kalugalgedara Chartered Valuation Surveyor - Estimated value per square foot Rs.3,500 - Rs.8,000 Positively correlated sensitivity Land and Building of Softlogic Holdings PLC 262, Gagarama Rd., Piliyandala Open market value method/ direct capital comparison method 26-03-2015 R S Wijesuriya Incorporated Valuer 1 A 2 R 30 P Estimated price per perch Rs.275,000 Estimated value per square foot Rs. 800 - Rs.5,500 Positively correlated sensitivity Positively correlated sensitivity Softlogic Retail (Pvt) Ltd Galle Road, Colombo 03 Open market value method/ direct capital comparison method 30-09-2012 R S Wijesuriya Incorporated Valuer 0 A 0 R 30 P Estimated price per perch Rs.7,000,000 Estimated value per square foot Rs.7,500 Positively correlated sensitivity Positively correlated sensitivity Asiri Hospital Holdings PLC 181, Kirula Road, Colombo 05 Open market value method/ direct capital comparison method 31-05-2012 P B Kalugalgedara Chartered Valuation Surveyor 1 A 0 R 17.23 P Estimated price per perch Rs.3,250,000 Estimated value per square foot Rs.1,500 - Rs.5,000 Positively correlated sensitivity Positively correlated sensitivity
- 172. 170 Softlogic Holdings PLC CompanyProperty Method of valuation Effective date of valuation Property valuer Extent Significant unobservable inputs Sensitivity of fair value to unobservable inputs Central Hospital Ltd 114, Norris Canal Road, Colombo 10 Open market value method/ direct capital comparison method 31-03-2015 P B Kalugalgedara Chartered Valuation Surveyor 1 A 0 R 21.03 P Estimated price per perch Rs.5,500,000 Estimated value per square foot Rs.2,000 - Rs.9,000 Positively correlated sensitivity Positively correlated sensitivity Asiri Hospital Matara (Pvt) Ltd 15, Dharmapala Mw., Uyanwatta Open market value method/ direct capital comparison method 31-03-2015 P B Kalugalgedara Chartered Valuation Surveyor 1 A 2 R 1.5 P Estimated price per perch Rs.500,000 - Rs.750,000 Estimated value per square foot Rs.2,000 - Rs.9,000 Positively correlated sensitivity Positively correlated sensitivity Odel PLC 10, Ward Place, Colombo 07 Open market value method direct capital comparison method 01-11-2014 P B Kalugalgedara Chartered Valuation Surveyor 1 A 2 R 32.07 P Estimated price per perch Rs.3,000,000 - Rs.10,000,000 Estimated value per square foot Rs.1,000 - Rs.3,750 Positively correlated sensitivity Positively correlated sensitivity 29 A, Jayatilake Mw., Panadura Open market value method direct capital comparison method 01-11-2014 P B Kalugalgedara Chartered Valuation Surveyor 0 A 1 R 2.16 P Estimated price per perch Rs.1,000,000 Estimated value per square foot Rs.2,000 - Rs.3,750 Positively correlated sensitivity Positively correlated sensitivity Odel Properties (Pvt) Ltd 475/32, Kotte Road, Rajagiriya Open market value method direct capital comparison method 01-11-2014 P B Kalugalgedara Chartered Valuation Surveyor 0 A 1 R 7.39 P Estimated price per perch Rs.3,000,000 Estimated value per square foot Rs.4,000 - Rs.5,000 Positively correlated sensitivity Positively correlated sensitivity Notes to the Financial Statements
- 173. 171 Annual Report 2014-15 14.2.2Valuation details of investment property 14.2.2.1Group Company Property Method of valuation Effective date of valuation Property valuer Extent Significant unobservable inputs Sensitivity of fair value to unobservable inputs Land of Softlogic Retail (Pvt) Ltd Dekatana, Gampaha Open market value method 31-03-2015 R S Wijesuriya Incorporated Valuer 18 A 2 R 4 P Estimated price per perch Rs.30,000 Positively correlated sensitivity Land and Building of Asiri Central Hospital Ltd 37, Horton Place, Colombo 07 Open market value method/ direct capital comparison method 31-03-2015 P B Kalugalgedara Chartered Valuation Surveyor 1 A 3 R 10 P Estimated price per perch Rs.9,000,000 Estimated value per square foot Rs.100 - Rs.1,500 Positively correlated sensitivity Positively correlated sensitivity 14.2.2.2Company Company Property Method of valuation Effective date of valuation Property valuer Extent Significant unobservable inputs Sensitivity of fair value to unobservable inputs Land of Softlogic Holdings PLC 14, De Fonseka Place, Colombo 05 Open market value method 19-03-2015 R S Wijesuriya Incorporated Valuer 0 A 0 R 22.45 P Estimated price per perch Rs.6,500,000 Positively correlated sensitivity Land and Building of Softlogic Holdings PLC 262, Gagarama Rd., Piliyandala Open market value method/ direct capital comparison method 26-03-2015 R S Wijesuriya Incorporated Valuer 1 A 2 R 30 P Estimated price per perch Rs.275,000 Estimated value per square foot Rs.800 - Rs.5,500 Positively correlated sensitivity Positively correlated sensitivity
- 174. 172 Softlogic Holdings PLC 15PROPERTY, PLANT AND EQUIPMENT 15.1 Group In Rs. As at 31 March Land and buildings Buildings on leasehold land Plant and machinery Computer, Equipment, furniture and fittings Motor vehicles Capital work in progress Total 2015 Total 2014 Freehold assets Cost or Valuation At the beginning of the year 7,933,933,817 2,423,404,289 3,796,287,148 3,633,774,340 264,252,113 3,278,312,756 21,329,964,463 17,669,281,400 Additions 41,564,500 665,816,693 670,791,686 1,050,638,042 60,844,833 1,794,025,417 4,283,681,171 3,505,412,862 Acquisition through business combinations 3,389,004,962 92,085,754 - 772,241,209 37,897,164 46,468,896 4,337,697,985 - Disposals - (24,250,626) (48,251,602) (37,530,922) (56,001,045) - (166,034,195) (139,184,278) Transfers* (376,398,034) 2,345,833,431 (31,875,534) (10,796,819) 4,657,480 (2,143,175,455) (211,754,931) 11,217,875 Impairment/ derecognition - - - (8,270,465) - (502,023) (8,772,488) (29,691,599) Revaluations 369,616,947 - - - - - 369,616,947 313,990,550 Effect of movements in exchange rates - (96,687) - (1,255,629) - - (1,352,316) (1,062,347) At the end of the year 11,357,722,192 5,502,792,854 4,386,951,698 5,398,799,756 311,650,545 2,975,129,591 29,933,046,636 21,329,964,463 Leasehold assets Cost At the beginning of the year - - 68,511,367 4,297,487 247,005,373 - 319,814,227 252,427,100 Additions - - 90,904,858 - 63,896,762 - 154,801,620 98,507,144 Acquisition through business combinations - - - - 4,718,750 - 4,718,750 - Disposals - - - - (28,531,601) - (28,531,601) (19,902,142) Transfers - - - - (4,718,750) - (4,718,750) (11,217,875) At the end of the year - - 159,416,225 4,297,487 282,370,534 - 446,084,246 319,814,227 Total value of assets 11,357,722,192 5,502,792,854 4,546,367,923 5,403,097,243 594,021,079 2,975,129,591 30,379,130,882 21,649,778,690 Notes to the Financial Statements
- 175. 173 Annual Report 2014-15 InRs. As at 31 March Land and buildings Buildings on leasehold land Plant and machinery Computer, Equipment, furniture and fittings Motor vehicles Capital work in progress Total 2015 Total 2014 Freehold assets Accumulated depreciation At the beginning of the year 188,450,795 138,238,766 1,903,666,918 1,632,509,672 131,894,674 - 3,994,760,825 3,210,440,908 Charge for the year 99,510,503 160,116,605 350,034,918 505,347,375 30,293,841 - 1,145,303,242 866,463,360 Acquisition through business combinations 9,004,962 60,442,635 - 380,933,023 20,384,579 - 470,765,199 - Disposals - (6,224,653) (27,552,317) (11,916,213) (35,439,579) - (81,132,762) (87,475,496) Transfers* (203,876,828) 21,358,993 (10,919,919) (10,439,075) 3,877,673 - (199,999,156) 6,230,971 Impairment/ derecognition - - - (7,245,560) - - (7,245,560) - Effect of movements in exchange rates - (45,826) - (1,100,522) - - (1,146,348) (898,918) At the end of the year 93,089,432 373,886,520 2,215,229,600 2,488,088,700 151,011,188 - 5,321,305,440 3,994,760,825 Leasehold assets Accumulated depreciation At the beginning of the year - - 2,010,408 4,297,486 110,432,692 - 116,740,586 102,615,018 Charge for the year - - 9,667,439 - 35,027,238 - 44,694,677 35,373,491 Acquisition through business combinations - - - - 4,482,813 - 4,482,813 - Disposals - - - - (13,751,848) - (13,751,848) (15,016,953) Transfers - - - - (3,877,673) - (3,877,673) (6,230,970) At the end of the year - - 11,677,847 4,297,486 132,313,222 - 148,288,555 116,740,586 Totalaccumulateddepreciation 93,089,432 373,886,520 2,226,907,447 2,492,386,186 283,324,410 - 5,469,593,995 4,111,501,411 Carrying value As at 31 March 2015 11,264,632,760 5,128,906,334 2,319,460,476 2,910,711,057 310,696,669 2,975,129,591 24,909,536,887 As at 31 March 2014 7,745,483,022 2,285,165,523 1,959,121,189 2,001,264,669 268,930,120 3,278,312,756 17,538,277,279 * Transfers include the accumulated depreciation as at revaluation date that was eliminated against the gross carrying amount of the revalued assets.
- 176. 174 Softlogic Holdings PLC 15PROPERTY, PLANT AND EQUIPMENT 15.2 Company In Rs. As at 31 March Furniture and fittings Computer and Office equipment Motor vehicles Total 2015 Total 2014 Freehold assets Cost At the beginning of the year 20,255,760 38,596,492 46,812,766 105,665,018 103,273,891 Additions 1,524,137 3,888,467 126,488 5,539,092 14,782,876 Disposals - (373,230) (5,076,797) (5,450,027) (16,296,875) Transfers - 1,721,423 - 1,721,423 3,905,126 Impairment/ derecognition (2,128,213) (6,085,004) - (8,213,217) - At the end of the year 19,651,684 37,748,148 41,862,457 99,262,289 105,665,018 Leasehold assets Cost At the beginning of the year - - 142,002,523 142,002,523 133,274,077 Additions - - - - 29,910,714 Disposals - - (21,930,535) (21,930,535) (17,277,142) Transfers - - - - (3,905,126) At the end of the year - - 120,071,988 120,071,988 142,002,523 Total value of assets 19,651,684 37,748,148 161,934,445 219,334,277 247,667,541 Freehold assets Accumulated depreciation At the beginning of the year 7,881,775 12,570,922 36,479,127 56,931,824 58,234,274 Charge for the year 1,972,593 3,951,572 2,546,870 8,471,035 8,238,987 Disposals - (128,760) (5,076,797) (5,205,557) (13,446,563) Transfers - (224,949) - (224,949) 3,905,126 Impairment/ derecognition (1,840,805) (5,377,164) - (7,217,969) - At the end of the year 8,013,563 10,791,621 33,949,200 52,754,384 56,931,824 Leasehold assets Accumulated depreciation At the beginning of the year - - 40,410,206 40,410,206 39,756,731 Charge for the year - - 15,768,620 15,768,620 17,213,054 Disposal - - (11,137,251) (11,137,251) (12,654,453) Transfers - - - - (3,905,126) At the end of the year - - 45,041,575 45,041,575 40,410,206 Total accumulated depreciation 8,013,563 10,791,621 78,990,775 97,795,959 97,342,030 Carrying value As at 31 March 2015 11,638,121 26,956,527 82,943,670 121,538,318 As at 31 March 2014 12,373,985 26,025,570 111,925,956 150,325,511 Notes to the Financial Statements
- 177. 175 Annual Report 2014-15 15.3Land and Buildings In Rs. Group Company As at 31 March 2015 2014 2015 2014 At cost 3,192,566,590 629,800,066 - - At valuation 13,200,972,504 9,400,848,479 - - 16,393,539,094 10,030,648,545 - - 15.4 Carrying value In Rs. Group Company As at 31 March 2015 2014 2015 2014 At cost 11,410,768,692 7,934,355,159 46,507,905 48,733,194 At valuation 13,200,972,504 9,400,848,479 - - On finance lease 297,795,691 203,073,641 75,030,413 101,592,317 24,909,536,887 17,538,277,279 121,538,318 150,325,511 15.5 Details of group’s land and buildings stated at valuations are indicated below; Revaluation of land and buildings The Group uses the revaluation model of measurement of land and buildings. The Group engaged independent expert values, to determine the fair value of its land and buildings. Fair value is determined by reference to market-based evidence. Valuations are based on active market prices, adjusted for any difference in the nature, location or condition of the specific property. The date of the most recent revaluation was 31 March 2015. Details of Group’s land and building stated at valuation are indicated in the note no 14.2.1 As a result of the valuations of the land and buildings the surplus arising from the change in fair value was Rs.369.62 mn (2014 - Rs.313.99 mn) has been credited to the revaluation reserve. 15.6 The carrying amount of revalued land and buildings if they were carried at cost less depreciation, would be as follows; In Rs. Group As at 31 March 2015 2014 Cost 8,423,755,965 6,511,552,386 Accumulated depreciation (737,964,528) (543,494,520) Carrying value 7,685,791,437 5,968,057,866 15.7 Group land and buildings with a carrying value of Rs.11,833 mn (2014 - Rs.7,344 mn) have been pledged as security for term loans obtained, details of which are disclosed in note 48. 15.8 Group property, plant and equipment with a cost of Rs.1,295.24 mn (2014 - Rs.676.32 mn) have been fully depreciated and continue to be still in use by the Group. The cost of fully depreciated assets of the company amounts to Rs.1.67 mn (2014 - Rs.13.56 mn). 15.9 Odel PLC, a subsidiary of Softlogic Holdings PLC is in the process of consolidating the premises no bearing 10, 15, 21/5, 25/2 , 3, 5, 6 & 6B and 17, 17/1, 17/1A,1 9 & 19A situated at Colombo 07. The consolidated survey plan has been already submitted to the relevant authorities to obtain necessary approvals.
- 178. 176 Softlogic Holdings PLC 16LEASE RENTALS PAID IN ADVANCE In Rs. Group As at 31 March 2015 2014 At the beginning of the year 153,312,184 154,349,111 Additions during the year 702,520,660 - Amortisation for the year (1,036,939) (1,036,927) At the end of the year 854,795,905 153,312,184 16.1 Prepaid lease rentals paid to acquire land use rights have been classified as lease rental paid in advance and are amortised over the lease term in accordance with the pattern of benefits provided. 16.2 Details of prepaid lease rentals In Rs. Group As at 31 March Extent Lease period 2015 2014 Asiri Surgical Hospital PLC - Colombo 05 2 A 1 R 11.6 P 50 years from 29 March 2000 87,275,245 88,312,184 Asiri Hospital Kandy (Pvt) Ltd - Mulgampala 2 A 1 R 13.84 P 50 years from 01 January 2015 767,520,660 65,000,000 854,795,905 153,312,184 17 INVESTMENT PROPERTY In Rs. Group Company As at 31 March Note 2015 2014 2015 2014 At the beginning of the year 2,266,146,000 2,175,045,500 394,000,000 333,699,500 Additions during the year - - 7,904,500 - Change in fair value during the year 526,702,000 91,100,500 40,736,886 60,300,500 Transfers to assets held for sale 17.1 (2,698,000,000) - - - At the end of the year 94,848,000 2,266,146,000 442,641,386 394,000,000 17.1 Assets held for sale During the financial year 2014-15, Asiri Central Hospitals Ltd, a subsidiary of Softlogic Holdings PLC approved and authorised, as a special resolution and as required by Section 185 of the Companies Act No. 07 of 2007, the sale of the land and premises located at No. 37, Horton Place, Colombo 07 at a total consideration of Rs.2,600,000,000/- or to such other purchaser approved by the Board of Directors of the Company at a minimum consideration reflecting the value of the said land and premises as arrived at by an independent valuer. The said transaction was completed on 09 July, 2015 for a total consideration of Rs.2,700,000,000/-. 17.2 Fair value of investment property Fair value of the investment property was appraised in accordance with SLFRS 13, LKAS 40 and 8th edition of International Valuation Standards published by the International Valuation Standards Committee (IVSC), by the independent valuer. The market value has been used as the fair value. In determining the fair value, the current condition of the properties, future usability and associated redevelopment requirements have been considered. Also valuer has made reference to market evidence of transaction prices for similar properties, with appropriate adjustments for size and location. The appraised fair values are approximated within appropriate range of values. 17.3 Valuation details of investment property Details of Group’s and Company’s investment property stated at fair value are indicated in the note no 14.2.2.1 and 14.2.2.2 17.4 Investment property generated rental income In Rs. Group Company For the year ended 2015 2014 2015 2014 Amounts recognised in income statement Revenue 15,494,196 60,870,540 25,917,469 18,780,000 Direct operating expenses 6,454,244 5,468,864 7,009,385 5,349,631 Notes to the Financial Statements
- 179. 177 Annual Report 2014-15 18INTANGIBLE ASSETS In Rs. Group Company As at 31 March 2015 2014 2015 2014 Goodwill Lease right PVIB Brand name Others Computer Software Cost / carrying value At the beginning of the year 4,115,823,525 874,405,830 1,980,619,826 735,402,648 614,102,277 8,320,354,106 8,017,307,696 7,563,029 - Additions - - - - 312,911,256 312,911,256 305,007,400 1,861,900 7,563,029 Acquisition through business combinations - - - 998,180,211 129,481,860 1,127,662,071 - - - Transfers - - - - 5,316,607 5,316,607 - (2,855,443) - Impairment/ Derecognition - - - - (27,614,808) (27,614,808) - - - Exchange translation difference - - - - (2,408,044) (2,408,044) (1,960,990) - - At the end of the year 4,115,823,525 874,405,830 1,980,619,826 1,733,582,859 1,031,789,147 9,736,221,188 8,320,354,106 6,569,486 7,563,029 Accumulated amortisation and impairment At the beginning of the year - 67,893,858 319,787,576 - 201,260,099 588,941,533 386,477,075 2,221,133 - Amortisation - 21,921,133 123,788,739 - 102,339,754 248,049,626 204,045,351 2,624,845 2,221,133 Acquisition through business combinations - - - - 44,634,198 44,634,198 - - - Exchange translation difference - - - - (2,408,044) (2,408,044) (1,580,893) - - At the end of the year - 89,814,991 443,576,315 - 345,826,007 879,217,313 588,941,533 4,845,978 2,221,133 Carrying value As at 31 March 2015 4,115,823,525 784,590,839 1,537,043,511 1,733,582,859 685,963,140 8,857,003,875 1,723,508 As at 31 March 2014 4,115,823,525 806,511,972 1,660,832,250 735,402,648 412,842,178 7,731,412,573 5,341,896 18.1 Goodwill Goodwill acquired through business combinations have been allocated to six cash generating units (CGU’s) for impairment testing as follows: In Rs. As at 31 March 2015 2014 Communication and Information Technologies 14,086,631 14,086,631 Retail 742,615,817 742,615,817 Travel and Leisure 182,206,628 182,206,628 Others 31,462,743 31,462,743 Financial Services 817,741,917 817,741,917 Healthcare 2,327,709,789 2,327,709,789 4,115,823,525 4,115,823,525
- 180. 178 Softlogic Holdings PLC Notesto the Financial Statements The recoverable amount of all CGUs have been determined based on the higher of its fair value less costs to sell and its Value in Use (VIU) calculation. VIU was determined by discounting the future cash flows generated from the continuing use of the unit. The key assumptions used are given below: Business growth Volume growth has been budgeted on a reasonable and realistic basis by taking into account the growth rates of one to five years immediately subsequent to the budgeted year based on industrial growth rates. Cash flows beyond five year period are extrapolated using 0% growth rate. Inflation The basis used to determine the value assigned to the budgeted cost inflation, is the inflation rate, based on projected economic condition. Discount rate The discounting rate used is the risk free rate adjusted by the additional appropriate risk premium. Margin The basis used to determine the value assigned to the budgeted gross margins is the gross margins achieved in the year preceding the budgeted year adjusted for projected market conditions and business plans. 18.2 Present Value of acquired-In -force Business (PVIB) Upon acquiring controlling stake in Asian Alliance Insurance PLC (AAI), the group has recognised in the consolidated financial statements an intangible assets representing the present value of future profits on AAI’s portfolio of long term life insurance contracts , known as the present value of acquired in-force business (PVIB) at the acquisition date, PVIB recognised at the acquisition date will be amortised over life of the business acquired and reviewed annually for any impairment in value. 19 INVESTMENTS IN SUBSIDIARIES In Rs. Group Company As at 31 March 2015 2014 2015 2014 Group quoted investments - - 6,416,364,048 5,385,313,619 Group unquoted investments - - 4,176,536,124 3,622,036,138 - - 10,592,900,172 9,007,349,757 19.1 Investment in equity accounted investee In Rs. Group Company As at 31 March 2015 2014 2015 2014 Investment in equity accounted investee 26,216,105 24,746,404 11,000,000 11,000,000 26,216,105 24,746,404 11,000,000 11,000,000 19.2 Group quoted investments In Rs. Group Company As at 31 March 2015 2015 2014 No of shares Effective holding% No of shares Effective holding% Cost Asian Alliance Insurance PLC 22,212,836 43.32% 17,555 0.05% 1,559,884 1,559,884 Asiri Hospital Holdings PLC 565,964,414 51.23% 505,914,144 46.03% 3,793,288,077 3,655,303,107 Asiri Surgical Hospital PLC 389,391,719 37.75% - - - - Odel PLC 254,172,871 93.39% - - - - Softlogic Capital PLC 503,151,380 73.12% 503,151,380 73.12% 2,596,738,846 1,709,831,037 Softlogic Finance PLC 32,968,978 47.84% 779,969 1.53% 24,777,241 18,619,591 6,416,364,048 5,385,313,619 19.3 Group quoted investments In Rs. Group Company As at 31 March 2015 2014 2015 2014 Market Value Asian Alliance Insurance PLC 2,932,094,352 1,801,461,000 2,317,260 1,423,711 Asiri Central Hospitals Ltd - 5,547,666,930 - - Asiri Hospital Holdings PLC 11,432,481,163 12,410,612,809 10,219,465,709 11,077,496,815 Asiri Surgical Hospital PLC 5,918,754,129 4,555,883,112 - - Odel PLC 5,591,803,162 - - - Softlogic Capital PLC 3,018,908,280 844,123,714 3,018,908,280 844,123,714 Softlogic Finance PLC 1,150,617,332 734,830,196 27,220,918 17,643,720 30,044,658,418 25,894,577,761 13,267,912,167 11,940,687,960
- 181. 179 Annual Report 2014-15 19.4Group unquoted investments In Rs. Group Company As at 31 March 2015 2015 2014 No of shares Effective holding % No of shares Effective holding % Asian Alliance Insurance General Ltd 10,000,000 43.32 - - - - Asiri Central Hospitals Ltd 22,265,721 51.08 - - - - Asiri Diagnostics Services (Pvt) Ltd 273,221 34.09 - - - - Asiri Hospital Kandy (Pvt) Ltd 4,000,000 51.23 - - - - Asiri Hospital Matara (Pvt) Ltd 25,999,999 51.23 - - - - BSL International (Pvt) Ltd 298,400 93.39 - - - - Central Hospital Ltd 194,121,930 46.18 - - - - Ceysand Resorts Ltd - Voting 8,587,669 99.79 - - - - - Non voting 134,250 96.16 - - - - Dai-Nishi Securities (Pvt) Ltd 49,999,998 99.99 - - - - Future Automobiles (Pvt) Ltd 19,300,000 100.00 19,300,000 100.00 195,675,000 52,675,000 Greenfield Trading (Pvt) Ltd 1 93.39 - - - Odel Apparels (Pvt) Ltd 2 93.39 - - - Odel Information Technology Services (Pvt) Ltd 1 93.39 - - - Odel Lanka (Pvt) Ltd 27,000,002 93.39 - - - Odel Properties (Pvt) Ltd 1,081,002 93.39 - - - Silk Route Foods (Pvt) Ltd 5,100 51.00 - - - Softlogic Australia (Pty) Ltd 400,002 100.00 400,002 100.00 4,604,600 4,604,600 Softlogic Automobiles (Pvt) Ltd 5,000,000 100.00 5,000,000 100.00 50,000,000 50,000,000 Softlogic B P O Services (Pvt) Ltd 100,000 100.00 100,000 100.00 1,000,000 1,000,000 Softlogic Brands (Pvt) Ltd 249,998 93.39 - - - - Softlogic City Hotels (Pvt) Ltd 116,344,836 99.83 - - - - Softlogic Communications (Pvt) Ltd 534,699 99.00 534,699 99.00 5,978,490 5,978,490 Softlogic Communication Services (Pvt) Ltd 99 99.00 99 99.00 990 990 Softlogic Computers (Pvt) Ltd 199,998 100.00 199,998 100.00 2,354,365 2,354,365 Softlogic Corporate Services (Pvt) Ltd 2,725,002 100.00 2,725,002 100.00 10,393,962 10,393,962 Softlogic Destination Management (Pvt) Ltd 100,000 100.00 100,000 100.00 1,000,000 1,000,000 Softlogic Information Technologies (Pvt) Ltd 1,464,997 99.99 1,464,997 99.99 16,465,336 16,465,336 Softlogic International (Pvt) Ltd 4,999,999 99.99 4,999,999 99.99 49,999,990 49,999,990 Softlogic Mobile Distribution (Pvt) Ltd 1,000,000 100.00 1,000,000 100.00 10,000,000 - Softlogic Properties (Pvt) Ltd 230,748,208 99.83 230,748,208 99.83 1,911,484,085 1,911,484,085 Softlogic Real Estate (Pvt) Ltd 100,000 100.00 100,000 100.00 - - Softlogic Restaurants (Pvt) Ltd 25,000,000 100.00 25,000,000 100.00 250,000,000 250,000,000 Softlogic Retail (Pvt) Ltd 169,345,616 99.99 169,345,616 99.99 1,666,579,306 1,266,079,320 Softlogic Retail One (Pvt) Ltd 100,000 100.00 100,000 100.00 1,000,000 - Softlogic Solar (Pvt) Ltd 99 99.00 99 99.00 - - Softlogic Stockbrokers (Pvt) Ltd 19,700,000 73.12 - - - - 4,176,536,124 3,622,036,138
- 182. 180 Softlogic Holdings PLC Notesto the Financial Statements 19.5 Group investment in equity accounted investees In Rs. Group Company As at 31 March 2015 2014 2015 2014 Unquoted Abacus International Lanka (Pvt) Ltd 21,168,381 41,863,087 9,750,000 9,750,000 Gerry's Softlogic (Pvt) Ltd - - 2,699,800 2,699,800 Nextage (Pvt) Ltd 3,578,024 1,201,160 1,250,000 1,250,000 Share of profit accruing to the group 5,290,016 13,280,969 - - Share of associate companies tax (2,912,685) (4,537,430) - - Share of associate companies dividend (1,000,000) (27,000,000) - - Share of OCI accruing to the group 134,233 (85,252) - - Share of associate OCI tax (41,864) 23,870 - - Less: impairment of investment in Gerry's Softlogic (Pvt) Ltd - - (2,699,800) (2,699,800) 26,216,105 24,746,404 11,000,000 11,000,000 The Directors’ valuation of unquoted equity accounted investees amounts to Rs.26,216,105/- (2014 - Rs.24,746,404/-) and Rs.11,000,000/- (2014 - Rs.11,000,000/-) for the group and company respectively. 19.6 Summarised financial information of equity accounted investees In Rs. Group As at 31 March 2015 2014 Group share of; Revenue 81,620,456 93,166,414 Operating expenses (74,462,600) (81,048,685) Other income 750,542 841,470 Profit for the year 7,908,398 12,959,199 Group share of; Actuarial gains/ (loss) on retirement benefits 134,233 (85,252) Share of associate OCI tax (41,864) 23,870 Net share of OCI for the year 92,369 (61,382) Group share of; Total assets 73,125,516 83,904,537 Total liability (40,098,293) (51,902,360) Net assets 33,027,223 32,002,177 Unrealised profits (893,645) (1,338,301) Deferred tax on undistributable profits (5,917,473) (5,917,472) 26,216,105 24,746,404 Contingent liabilities Nil Nil Capital commitments Nil Nil 20 OTHER NON CURRENT FINANCIAL ASSETS In Rs. Group Company As at 31 March Note 2015 2014 2015 2014 Other quoted equity investments 20.1 611,778,969 600,882,720 - - Other unquoted equity investments 20.2 150,217,000 150,217,000 - - Other non equity investments 20.3 8,325,653,710 5,415,807,994 1,277,947,548 57,797,564 9,087,649,679 6,166,907,714 1,277,947,548 57,797,564
- 183. 181 Annual Report 2014-15 20.1Other quoted equity investments In Rs. Group Company As at 31 March No of Shares 2015 2014 2015 2014 Access Engineering PLC - - 46,000,000 - - ACL Cables PLC - Bonus shares 308 23,408 18,788 - - Expo Lanka Holdings PLC - - 22,109,310 - - F L C Holdings PLC 950,900 1,521,440 1,996,890 - - Hatton National Bank PLC 21,841 4,848,702 3,276,150 - - National Development Bank PLC 2,414,835 598,882,418 516,191,328 - - Seylan Bank PLC - Non voting 102,571 6,503,001 11,290,254 - - 611,778,969 600,882,720 - - 20.2 Other unquoted equity investments In Rs. Group Company As at 31 March 2015 2014 2015 2014 Voyages Jean Mermoz Ltd 10,000 10,000 - - Ceylon Lexcon Services Ltd 207,000 207,000 - - Cargills Bank Ltd 150,000,000 150,000,000 - - 150,217,000 150,217,000 - - 20.3 Other non equity investments In Rs. Group Company As at 31 March Note 2015 2014 2015 2014 Placement with banks and financial institutions 30,600 30,600 - - Debentures 953,348,819 627,299,943 2,528,664 2,528,664 Government securities 3,877,841,032 3,189,701,356 - - Deposits - 9,217,655 - - Other investments and receivables 47,098,956 39,625,867 - - Receivable from related parties - - 1,275,418,884 55,268,900 Loans and advances 26 3,447,334,303 1,549,932,573 - - 8,325,653,710 5,415,807,994 1,277,947,548 57,797,564
- 184. 182 Softlogic Holdings PLC Notesto the Financial Statements 21. RENTAL RECEIVABLE ON LEASE ASSETS AND HIRE PURCHASE 21.1 Receivable from one to five years In Rs. Group As at 31 March 2015 2014 Rental receivable on lease assets Rental receivable on hire purchase Total Rental receivable on lease assets Rental receivable on hire purchase Total Rental receivables 1,240,601,550 2,762,934,665 4,003,536,215 1,640,137,792 3,355,608,059 4,995,745,851 Rentals received in advance - - - (2,907,286) - (2,907,286) Unearned income (174,045,323) (160,163,590) (334,208,913) (418,603,862) (811,344,597) (1,229,948,459) 1,066,556,227 2,602,771,075 3,669,327,302 1,218,626,644 2,544,263,462 3,762,890,106 21.2 Receivable within one year In Rs. Group As at 31 March 2015 2014 Rental receivable on lease assets Rental receivable on hire purchase Total Rental receivable on lease assets Rental receivable on hire purchase Total Rental receivables 1,061,084,992 3,202,694,206 4,263,779,198 1,620,311,137 4,516,044,966 6,136,356,103 Rentals received in advance (2,289,650) - (2,289,650) (1,004,987) - (1,004,987) Unearned income (232,356,717) (989,012,131) (1,221,368,848) (419,281,098) (1,006,285,853) (1,425,566,951) Impairment (38,152,991) (119,997,830) (158,150,821) (15,861,663) (77,249,002) (93,110,665) 788,285,634 2,093,684,245 2,881,969,879 1,184,163,389 3,432,510,111 4,616,673,500 1,854,841,861 4,696,455,320 6,551,297,181 2,402,790,033 5,976,773,573 8,379,563,606 22. OTHER NON CURRENT ASSETS In Rs. Group As at 31 March 2015 2014 Rent advances 192,728,934 50,548,070 Deferred expenditure 100,064,032 92,418,471 292,792,966 142,966,541 23. DEFERRED TAX ASSETS In Rs. Group Company As at 31 March 2015 2014 2015 2014 At the beginning of the year 307,629,785 230,672,828 - - Acquisition through business combinations 2,328,157 - - - Deferred tax reversal on depreciation impact of revaluation 382,651 - - - Charge and release 8,186,983 76,956,957 68,817,557 - At the end of the year 318,527,576 307,629,785 68,817,557 -
- 185. 183 Annual Report 2014-15 23.1The closing deferred tax asset balance relates to the following: In Rs. Group Company As at 31 March 2015 2014 2015 2014 Accelerated depreciation for tax purposes (228,318,844) (126,767,753) (43,506,894) - Employee benefit liabilities (17,885,081) 21,794,070 8,587,525 - Losses available for offset against future taxable income 536,006,351 430,560,572 86,540,231 - Others 28,725,150 (17,957,104) 17,196,695 - 318,527,576 307,629,785 68,817,557 - 23.2 The group has tax losses amounting to Rs.10,669 mn (2014 - Rs.7,849 mn) that are available indefinitely to offset against future taxable profits of the companies in which the tax losses arose. 24. INVENTORIES In Rs. Group As at 31 March 2015 2014 Finished goods 6,391,162,278 4,065,928,317 Other stocks 1,278,400,567 1,043,425,533 7,669,562,845 5,109,353,850 25. TRADE AND OTHER RECEIVABLES In Rs. Group Company As at 31 March 2015 2014 2015 2014 Trade and other receivables 5,934,141,688 4,091,247,027 129,814,305 100,729,787 Reinsurance receivables 226,767,434 160,845,746 - - Loans to executives 16,370,946 22,702,451 774,677 6,503,850 Other receivables 445,523,038 796,132,464 111,135,609 59,936,203 6,622,803,106 5,070,927,688 241,724,591 167,169,840 26. LOANS AND ADVANCES In Rs. Group As at 31 March 2015 2014 Note Gross Unearned income Total Total Short term lending 143,256 - 143,256 252,018 Personal loans 3,941,844,666 (1,112,938,655) 2,828,906,012 2,234,669,849 Pawning debtors 385,236,606 - 385,236,606 407,488,720 Policyholders loans 135,501,276 - 135,501,276 114,342,102 Revolving loans 524,830,914 - 524,830,914 429,130,543 Consumer loans 338,280,852 (48,338,426) 289,942,425 107,530,596 SME loans 5,389,527,897 (378,238,902) 5,011,288,995 463,170,570 Other loans 2,286,142 - 2,286,142 - Allowance for impairment (206,639,238) (129,613,123) 10,717,651,609 (1,539,515,983) 8,971,496,388 3,626,971,275 Loans and advances Receivable within one year 5,524,162,085 2,077,038,702 Receivable after one year 20.3 3,447,334,303 1,549,932,573 8,971,496,388 3,626,971,275
- 186. 184 Softlogic Holdings PLC Notesto the Financial Statements 27. OTHER CURRENT ASSETS In Rs. Group Company As at 31 March 2015 2014 2015 2014 Prepayments, advances & non cash receivables 1,665,955,848 1,000,564,401 2,589,114 4,588,156 Tax refunds & receivables 559,933,805 637,573,888 19,134,987 26,548,108 Other receivables 1,534,207,555 1,135,762,161 - - 3,760,097,208 2,773,900,450 21,724,101 31,136,264 28. SHORT TERM INVESTMENTS In Rs. Note Group Company As at 31 March 2015 2014 2015 2014 Quoted equities at market value 28.1 2,545,608,628 1,651,035,281 1,346,207,455 5,619,616 Unquoted equity investments 28.2 125,000,000 125,000,000 125,000,000 125,000,000 Other investments (more than 3 months and less than 1 year) 28.3 342,510,302 2,092,484,280 - - 3,013,118,930 3,868,519,561 1,471,207,455 130,619,616 Other investments (less than 3 months) Government securities 2,490,405,967 1,690,000,000 - - Commercial papers - - - 985,376,439 Short term deposits 2,852,658,229 528,000,000 2,199,540,683 528,000,000 Fixed deposits 36,258,026 271,811,103 - - 5,379,322,222 2,489,811,103 2,199,540,683 1,513,376,439 8,392,441,152 6,358,330,664 3,670,748,138 1,643,996,055
- 187. 185 Annual Report 2014-15 28.1Quoted equities at market value In Rs. Group Company As at 31 March No of Shares 2015 2014 No of Shares 2015 2014 Access Engineering PLC - - 1,912,500 - - - ACL Cables PLC 132 10,032 8,052 - - - Aitken Spence Hotel Holdings PLC 20,000 1,340,000 - - - - Aitken Spence PLC 114,269 11,369,766 11,186,935 - - - Alumex PLC 3,401,850 53,749,230 49,700,000 - - - Asia Capital PLC - - 9,235,556 - - - Bairaha Farms PLC 23,866 2,587,074 - - - - Ceylinco Insurance PLC 89 150,561 124,600 - - - Commercial Bank of Ceylon PLC - non voting 504,482 66,188,038 48,021,984 - - - DFCC Bank PLC 415 30,014 42,594 - - - Dialog Axiata PLC 868,600 9,033,440 7,817,400 - - - Dunamis Capital PLC 38 7,290 3,843 - - - Hatton National Bank PLC 22,443 4,982,346 3,366,450 - - - Hatton National Bank PLC - non voting 408,505 67,403,325 43,020,600 - - - Hemas Holdings PLC - - 188,500 - - - John Keells Holdings PLC 334 66,600 75,818 - - - Lanka IOC PLC 63,200 2,652,642 3,896,200 63,200 2,546,960 2,433,200 Lanka Tiles PLC 13,497 1,325,000 69,292 - - - Laugfs Gas PLC - 237,226 - - - National Development Bank PLC 8,629,342 2,140,074,762 1,456,008,281 - - - Odel PLC - - - 61,231,769 1,338,847,938 - Panasian Power PLC 4,690,000 15,946,000 - - - - People's Leasing & Finance PLC 100,000 2,210,000 - - - - Renuka City Hotel PLC 50 13,165 13,165 - - - Richard Pieris & Company PLC 75,210 557,220 1,386 - - - Richard Pieris Exports PLC 200 26,060 11,020 - - - Sampath Bank PLC 10,782 2,718,142 1,963,402 10,782 2,718,142 1,963,402 Seylan Bank PLC 135 13,500 8,600 135 13,500 8,600 Seylan Bank PLC - non voting 358,321 22,717,551 11,777,877 32,822 2,080,915 1,214,414 Textured Jersey Lanka PLC - - 2,054,000 - - - Tokyo Cement Company (Lanka) PLC - - 290,000 - - - Union Bank of Colombo PLC 5,827,256 140,436,870 - - - - 2,545,608,628 1,651,035,281 1,346,207,455 5,619,616 28.2 Unquoted equity investments In Rs. Group Company As at 31 March 2015 2014 2015 2014 Cargills Bank Ltd 125,000,000 125,000,000 125,000,000 125,000,000 125,000,000 125,000,000 125,000,000 125,000,000
- 188. 186 Softlogic Holdings PLC Notesto the Financial Statements 28.3 Other investments In Rs. Group Company As at 31 March 2015 2014 2015 2014 More than 3 months and less than 1 year Government securities 236,574,432 1,007,282,330 - - Fixed deposits 13,150,916 256,147,490 - - Debentures maturing within a year 92,576,655 - - - Placement with banks and financial institution - 247,463,938 - - Investment in commercial papers - 31,924,215 - - Others - Investment in Unit Trust 208,299 549,666,307 - - 342,510,302 2,092,484,280 - - 29. STATED CAPITAL In Rs. As at 31 March 2015 2014 Number of shares Value of shares Number of shares Value of shares Fully paid ordinary shares At the beginning of the year 779,000,000 5,089,000,000 779,000,000 5,089,000,000 779,000,000 5,089,000,000 779,000,000 5,089,000,000 30. OTHER COMPONENTS OF EQUITY In Rs. Group As at 31 March Note 2015 2014 Treasury shares 30.1 (55,921,185) (55,921,185) Revaluation reserve 30.2 1,636,375,397 1,461,774,873 Foreign currency translation reserve 30.3 (26,775,781) (75,358,862) Available for sale reserve 30.4 200,328,059 176,573,503 Statutory reserve fund 116,532,044 149,167,942 Other reserves 30.5 (502,197,708) (572,303,697) 1,368,340,826 1,083,932,574 30.1 Investment in treasury shares reserve reflects the cost of investment made by Asian Alliance Insurance PLC in Softlogic Holdings PLC. 30.2 Revaluation reserve consists of the net surplus on the revaluation of property. 30.3 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. 30.4 Available for sale reserve includes changes on fair value of financial instruments designated as available for sale financial assets. 30.5 Other reserve is used to recognise goodwill or gain from a bargain purchase on subsequent acquisitions of further equity interest in its subsidiaries and gains or losses arising from fully/ partial and deemed disposals in its subsidiaries. 31. INSURANCE CONTRACT LIABILITIES In Rs. Group As at 31 March 2015 2014 Provision - life 5,129,272,339 4,184,923,357 5,129,272,339 4,184,923,357
- 189. 187 Annual Report 2014-15 Valuationof Life Insurance Fund The valuation of the long term life insurance fund as at 31 December 2014 was conducted by Mr. M. Poopalanathan of Actuarial & Management Consultants (Pvt) Ltd, for an behalf of Asian Alliance Insurance PLC (AAI). Long duration contract liabilities included in the Life insurance fund, result primarily from traditional participating and non-participating life insurance products. Short duration contract liabilities are primarily group term, accident and health insurance products. The actuarial reserves have been established based upon the following. - Interest rates which vary by product and as required by Regulations issued by the Insurance Board of Sri Lanka (IBSL) - Mortality rates based on published mortality tables adjusted for actual experience as required by - Regulations issued by the IBSL Surrender rates based upon actual experience. Recommendation of Surplus Transfer In accordance with the Consultant’s Actuary Report as at 31 December 2014, the sum of provision Rs.4,999.00 mn (2013 - Rs.3,746.00 mn) includes the liability in respect of policy holders bonus as well. In the opinion of the consultant actuary, the provision is adequate to cover the liabilities pertaining to long term insurance. The actuary recommended to transfer a sum of Rs.368.45 mn (2014 - Rs.300.00 mn) to the share holders of AAI as at 31 December 2014 and transferred further Rs.197.76 mn (2014 - Rs.168.50 mn) for the three months period ending 31 March 2015. Solvency Margin In the opinion of the consultant actuary, the Admissible Assets of the Life Insurance fund as at 31 December 2014 is adequate to cover the liabilities of the fund and the solvency margin requirement prescribed under section 26 of the Regulation of Insurance Industry Act No 43 of 2000. Actuarial Assumptions as at 31 December 2014 2013 Interest Rate 7.5% 7.5% Mortality Table Used A67/70 A67/70 31.1 Movement in life insurance fund In Rs. Group As at 31 March 2015 2014 At the beginning of the year 4,184,923,357 3,218,377,437 Increase in life fund 1,510,562,982 1,435,045,920 Transfer to shareholders (566,214,000) (468,500,000) At the end of the year 5,129,272,339 4,184,923,357
- 190. 188 Softlogic Holdings PLC Notesto the Financial Statements 32. INTEREST BEARING BORROWINGS In Rs. Group As at 31 March 2015 2014 Finance leases Debentures Loans Total Finance leases Debentures Loans Total At the beginning of the year 196,989,817 1,290,000,000 15,697,835,748 17,184,825,565 178,256,750 - 12,252,681,765 12,430,938,515 Additions 128,786,077 1,465,000,000 17,073,930,076 18,667,716,153 99,822,625 1,290,000,000 6,256,880,910 7,646,703,535 Acquisition through business combinations 217,807 - 338,392,188 338,609,995 - - - - Transfers - - - - - - 531,800,000 531,800,000 Repayments (108,702,282) - (8,691,196,932) (8,799,899,214) (81,089,558) - (3,473,066,469) (3,554,156,027) Unamortised Loan Processing cost - - (26,921,683) (26,921,683) - - (9,042,764) (9,042,764) Unamortisation of debenture issue expense - (5,547,116) - (5,547,116) - (9,245,193) - (9,245,193) Finance charges 3,988,016 - - 3,988,016 (22,250,837) - - (22,250,837) Exchange translation difference - - 98,476,218 98,476,218 - - 129,539,542 129,539,542 At the end of the year 221,279,435 2,749,452,884 24,490,515,615 27,461,247,934 174,738,980 1,280,754,807 15,688,792,984 17,144,286,771 Repayable within one year 69,898,505 - 4,547,058,007 4,616,956,512 63,913,478 - 4,080,524,358 4,144,437,836 Repayable after one year 151,380,930 2,749,452,884 19,943,457,608 22,844,291,422 110,825,502 1,280,754,807 11,608,268,626 12,999,848,935 221,279,435 2,749,452,884 24,490,515,615 27,461,247,934 174,738,980 1,280,754,807 15,688,792,984 17,144,286,771 Security pledged and interest rates pertaining to interest bearing borrowings are disclosed in note 48 to the financial statements. 32.1 INTEREST BEARING BORROWINGS In Rs. Company As at 31 March 2015 2014 Finance leases Debentures Loans Total Finance leases Debentures Loans Total At the beginning of the year 96,024,466 1,000,000,000 2,833,429,597 3,929,454,063 90,234,752 - 2,286,592,789 2,376,827,541 Additions - - 5,738,547,537 5,738,547,537 44,122,626 1,000,000,000 1,000,000,000 2,044,122,626 Repayments (40,664,689) - (1,477,317,214) (1,517,981,903) (38,332,912) - (453,163,192) (491,496,104) Amortisation of debenture issue expense - (5,547,116) - (5,547,116) - (9,245,193) - (9,245,193) Finance charges (7,689,325) - - (7,689,325) (16,764,580) - - (16,764,580) At the end of the year 47,670,452 994,452,884 7,094,659,920 8,136,783,256 79,259,886 990,754,807 2,833,429,597 3,903,444,290 Repayable within one year 23,440,536 - 2,345,557,531 2,368,998,067 28,983,625 - 1,426,279,191 1,455,262,816 Repayable after one year 24,229,916 994,452,884 4,749,102,389 5,767,785,189 50,276,261 990,754,807 1,407,150,406 2,448,181,474 47,670,452 994,452,884 7,094,659,920 8,136,783,256 79,259,886 990,754,807 2,833,429,597 3,903,444,290 Security pledged and interest rates pertaining to interest bearing borrowings are disclosed in note 48 to the financial statements.
- 191. 189 Annual Report 2014-15 32.2Details regarding the listed debentures are as follows; Debenture category Annual interest rate Interest payment frequency Allotment date Maturity date Amortised cost as at 31-03-2015 Amortised cost as at 31-03-2014 Company Listed, unsecured debentures 16.70% Quarterly 09-09-2013 09-09-2016 994,452,884 990,754,807 994,452,884 990,754,807 Group Softlogic Holdings PLC Listed, unsecured debentures 16.70% Quarterly 09-09-2013 09-09-2016 864,452,884 860,754,807 Softlogic Finance PLC Listed, unsecured, Type "A" debentures 17.00% Annually 28-08-2013 27-08-2016 167,840,000 167,840,000 Listed, unsecured, Type "B" debentures 16.50% Semi-annually 28-08-2013 27-08-2016 100,160,000 100,160,000 Listed, unsecured, Type "C" debentures 16.00% Monthly 28-08-2013 27-08-2016 152,000,000 152,000,000 Listed, secured, Type "A" debentures* 10.00% Quarterly 29-08-2014 28-08-2019 949,870,000 - Listed, secured, Type "B" debentures* 3monthTBnet+1.50% Quarterly 29-08-2014 28-08-2019 450,130,000 - Unlisted, unsecured, subordinated debentures 15.50% Quarterly 29-11-2013 28-11-2018 65,000,000 - 2,749,452,884 1,280,754,807 * Secured by a 100% guarantee provided by “GuarantCo” upto an aggregate of Rs.1,400 mn (Rupee equivalent of USD 10 mn) 32.3 Interest rate of comparable government securities as at 31 March, 2015 8.26% (net of tax) (2014 - 7.85% (net of tax)) 32.4 Debenture trading information, For the year ending 31-03-2015 31-03-2014 No. of transactions 09 - No. of debentures traded 100,500 - Value of debentures traded 108,822,759 - Highest price 110.53 - Lowest price 106.00 - Last traded price 108.05 - Interest yield 14.60% - Yield to maturity 9.74% - 32.5 Derivative financial instruments In Rs. Group As at 31 March 2015 2014 Asset Liability Asset Liability Cross currency interest rate Swap - Cash flow hedges Nil Nil Nil 11,484,342 Interest rate SWAP - Cash flow The objective of the cash flow hedge is to reduce the variability of the cash flows of a foreign currency denominated borrowing. Cash flow hedge has effectively mitigated the interest rate risk and foreign currency risk arising from the variability in the cash flow of the borrowing attributable to change in LIBOR interest rates and the USD/LKR exchange rate. Hedging instrument - Non deliverable interest rate cross currency SWAP. Hedged item - The 4 Year USD Denominated floating rate borrowing amounting to USD 4.8 mn. Cash flow hedge has a notional amount of USD 4.8 mn and cash flows are expected to occur as at 15 April and 15 October of 2014, 2015, 2016 and 2017 in USD 1.2 mn capital repayments at every 15 of April in each year and interest repayments at 15 April and 15 October of each year.
- 192. 190 Softlogic Holdings PLC Inrespect of cash flow hedge instrument following balance has been recognised under Other Comprehensive Income Statement (OCI) as the fair value loss on hedging instrument. Group 2015 2014 Net change in fair value on derivative financial instruments 30,540,342 (30,540,342) On the hedged item (USD denominated borrowing), attributable to the hedged risk, following balance has been recognised in Group Income Statement. Group 2015 2014 Under cost of sales Interest expense 31,599,480 22,205,775 Early settlement fee * 21,489,510 Nil 53,088,990 22,205,775 Under administrative expenses Loss in fair value on derivative financial instruments 19,056,000 Nil 19,056,000 - * In December 2014, cash flow hedge instrument has been settled in fully and charged Rs.21,489,510/- as early settlement fee. 33. PUBLIC DEPOSITS In Rs. Group As at 31 March 2015 2014 Deposits maturing after one year 2,214,295,787 1,885,402,009 Deposits maturing within one year 9,838,760,403 7,418,343,338 12,053,056,190 9,303,745,347 34. DEFERRED TAX LIABILITIES In Rs. Group As at 31 March 2015 2014 At the beginning of the year 332,324,498 366,359,147 Acquisition through business combinations 31,848,115 - Deferred tax reversal on depreciation impact of revaluation (2,944,973) - Provision/(reversal) (46,970,357) (34,034,649) At the end of the year 314,257,283 332,324,498 34.1 The closing deferred tax liability balance relates to the following: In Rs. Group As at 31 March 2015 2014 Revaluation of land and building to fair value 282,412,981 238,477,938 Accelerated depreciation for tax purposes 207,639,248 157,674,363 Employee benefit liabilities (72,319,553) (45,993,219) Losses available for offset against future taxable income (119,443,821) (30,457,417) Others 15,968,428 12,622,833 At the end of the year 314,257,283 332,324,498 Notes to the Financial Statements
- 193. 191 Annual Report 2014-15 35.EMPLOYEE BENEFIT LIABILITIES In Rs. Group Company As at 31 March 2015 2014 2015 2014 At the beginning of the year 444,467,274 378,903,000 30,083,785 21,435,500 Current service cost 90,716,857 71,066,278 4,099,580 3,897,509 Interest cost on benefit obligation 49,370,095 34,488,725 2,420,921 2,421,516 (Gain) / loss arising from changes in assumptions 84,380,473 (931,713) 2,634,545 3,531,852 Acquisition through business combinations 58,279,692 - - - Transfers from/ (to) related companies - - (5,801,288) 132,908 Payments (71,288,846) (38,898,992) (2,767,813) (1,335,500) Exchange translation difference - (160,024) - - At the End of the year 655,925,545 444,467,274 30,669,730 30,083,785 The employee benefit liability of the Group is based on the actuarial valuations carried out by Messrs. Actuarial & Management Consultants (Pvt) Ltd, actuaries. The principal assumptions used in determining the cost of employee benefits were: 2015 2014 Discount rate 8% - 11% 9% - 11% Future salary increases 8% - 10% 8% - 10% 35.1 Sensitivity of assumptions used If one percentage point changes in the assumptions, would have the following effect: In Rs. Group Company 2015 2014 2015 2014 Effect on the defined benefit obligation liability; Increase by one percentage point in discount rate (42,271,289) (35,683,948) (1,929,997) (2,531,545) Decrease by one percentage point in discount rate 46,732,737 29,389,895 2,175,460 2,224,485 Effect on the defined benefit obligation liability; Increase by one percentage point in salary increment rate 49,061,768 34,632,599 2,284,654 2,669,107 Decrease by one percentage point in salary increment rate (44,115,972) (31,634,966) (2,057,925) 2,377,544 35.2 Maturity analysis of the payments The following payments are expected on employees benefit liabilities in future years. In Rs. Group Company 2015 2014 2015 2014 - within the next 12 months 102,812,944 64,840,554 1,102,112 695,852 - between 1 and 2 years 98,248,275 58,081,394 3,146,122 1,994,476 - between 3 and 5 years 141,817,585 85,795,810 14,574,994 11,145,608 - between 6 and 10 years 145,429,487 97,518,826 4,870,292 8,894,659 - beyond 10 years 167,617,254 138,230,690 6,976,210 7,353,190 Total expected payments 655,925,545 444,467,274 30,669,730 30,083,785 35.3 The Group and Company’s weighted average duration of defined benefit obligation is 6.95 years (2014 - 8.78 years) and 7.22 years (2014 - 8.52 years) respectively.
- 194. 192 Softlogic Holdings PLC 36.OTHER DEFERRED LIABILITIES Group In Rs. Within one year After one year As at 31 March 2015 2014 2015 2014 Deferred revenue 77,529,960 19,098,215 2,503,695 4,048,380 Warranty provision 48,230,093 39,983,537 540,738 1,427,829 125,760,053 59,081,752 3,044,433 5,476,209 37. OTHER NON CURRENT FINANCIAL LIABILITIES In Rs. Group Company As at 31 March Note 2015 2014 2015 2014 Other liabilities 37.1 6,260,352 6,260,352 - - Deposits 25,450,268 Payable to related party - - 509,915,332 - 31,710,620 6,260,352 509,915,332 - 37.1 Softlogic Holdings PLC (“SH”), Softlogic Capital PLC (“SC”) and Asian Alliance Insurance PLC (“AAI”) 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 AAI, held by SH to FMO and 19% of the AAI ordinary shares held by SC to DEG. As per the above agreements, SC has granted a ‘Put Option’ to FMO and DEG which will be valid for a three year period with effect from 7 March 2017 to repurchase 38% of the shares held by DEG and FMO based on a ‘Put Option’ price as specified in the amended agreements. As per the Sri Lankan Accounting Standards framework (SLFRS/LKAS) adopted by the group with effect from 1 April 2012 the Investment in AAI sold to FMO and DEG by SH and SC did not met the de-recognition criteria in LKAS 39, and continued to be recognised as an Investment and the proceeds received under this transaction with FMO and DEG was recognised as a financial liability in the group financial statements as of 31 March 2013. Subsequent to the further amendments made to the “Shareholders Agreement” on 31 March 2014, the group met the de-recognition criteria as per LKAS 39, and the said 38% stake held by SH and SC in AAI and the financial liability which initially recognised in the group financial statements were de recognised in the group financial statements as at 31 March 2014. As at 31 March, 2015, the group has pledged 52,368,036 shares (2014 – 52,368,036 shares) of Asiri Hospital Holdings PLC owned by Softlogic Holdings PLC and 2,000 shares (2014 – 2, 000 shares) of Asian Alliance Insurance PLC owned by Softlogic Capital PLC as collaterals to the said transaction. 38. TRADE AND OTHER PAYABLES In Rs. Group Company As at 31 March 2015 2014 2015 2014 Trade and other payables 4,538,968,017 3,385,866,377 29,531,350 14,569,828 Reinsurance payables 219,282,604 94,989,789 - - Insurance provision - general 1,134,071,314 944,664,510 - - Sundry creditors including accrued expenses 1,149,518,178 1,326,135,940 - - 7,041,840,113 5,751,656,616 29,531,350 14,569,828 Notes to the Financial Statements
- 195. 193 Annual Report 2014-15 39.INCOME TAX LIABILITIES In Rs. Group As at 31 March 2015 2014 At the beginning of the year 174,142,951 234,890,927 Charge for the year 343,408,401 332,759,233 Acquisition through business combinations 59,914,563 - Payments and set off against refunds (254,809,524) (393,507,209) At the end of the year 322,656,391 174,142,951 40. SHORT TERM BORROWINGS In Rs. Group Company As at 31 March 2015 2014 2015 2014 Loans 7,454,147,000 3,976,934,513 182,851,146 84,619,125 Commercial papers 7,333,037,778 7,830,931,792 4,008,747,622 3,821,941,975 Margin trading loans - 14,249,672 - 14,249,672 14,787,184,778 11,822,115,977 4,191,598,768 3,920,810,772 41. OTHER CURRENT LIABILITIES In Rs. Group Company As at 31 March Note 2015 2014 2015 2014 Advances received 1,347,640,363 142,536,919 - - Other taxes payables 160,074,088 120,373,841 10,514,607 18,028,769 Other liabilities 697,417,282 449,874,086 13,494,730 - Other deferred liabilities 36 125,760,053 59,081,752 - - 2,330,891,786 771,866,598 24,009,337 18,028,769 42 RELATED PARTY TRANSACTIONS The Group and Company carried out transactions in the ordinary course of business with the following related entities. 42.1 Amounts due from related parties In Rs. Group Company As at 31 March Note 2015 2014 2015 2014 Subsidiaries 42.3 - - 2,290,290,201 2,452,716,329 Associates 42.4 373,316 579,913 217,680 380,735 Key management personnel 198,737 198,547 - - 572,053 778,460 2,290,507,881 2,453,097,064 42.2 Amounts due to related parties In Rs. Group Company As at 31 March Note 2015 2014 2015 2014 Subsidiaries 42.3 - - 146,013,477 945,639,488 Associates 42.5 4,333,114 5,234,509 - - Key management personnel 11,637,670 14,274,093 1,992,157 1,017,826 15,970,784 19,508,602 148,005,634 946,657,314
- 196. 194 Softlogic Holdings PLC 42.3Subsidiaries Company In Rs. Amount due to Amounts due from As at 31 March 2015 2014 2015 2014 Asiri Hospital Holdings PLC 31,562,127 35,917,856 - - Asiri Surgical Hospital PLC 27,121,755 22,888,811 - - Ceysand Resorts Ltd - - 370,241,895 519,833,119 Future Automobiles (Pvt) Ltd - - 64,592,158 53,510,599 Softlogic Australia (Pty) Ltd - - 3,714,411 - Softlogic Automobiles (Pvt) Ltd 707,965 142,511 - - Softlogic B P O Services (Pvt) Ltd - - 77,733,865 7,866,170 Softlogic Brands (Pvt) Ltd - - 240,707 6,674,515 Softlogic Capital PLC - - - 3,219,480 Softlogic City Hotels (Pvt) Ltd - - 633,274 41,249,959 Softlogic Communications (Pvt) Ltd 503,631 372,890,263 - - Softlogic Communication Services (Pvt) Ltd - - 674,038 32,343 Softlogic Computers (Pvt) Ltd - - 17,511,505 19,606,300 Softlogic Corporate Services (Pvt) Ltd - - 1,259,507 180,615 Softlogic Destination Management (Pvt) Ltd - - 7,358,981 5,414,184 Softlogic Information Technologies (Pvt) Ltd - 204,694,175 3,799,681 - Softlogic International (Pvt) Ltd - 7,605,872 8,147,076 - Softlogic Mobile Distribution (Pvt) Ltd - - 538,211 - Softlogic Properties (Pvt) Ltd - - 192,459,790 164,794,165 Softlogic Real Estate (Pvt) Ltd - - 74,468 - Softlogic Restaurant (Pvt) Ltd - - 79,654,313 22,097,912 Softlogic Retail (Pvt) Ltd - - 79,486,932 392,668,763 Softlogic Retail One (Pvt) Ltd 1,117,999 - - - Softlogic Solar (Pvt) Ltd - - 34,391,891 22,975,122 61,013,477 644,139,488 942,512,703 1,260,123,246 Less - Provision for impairment - - (84,391,891) (22,975,122) 61,013,477 644,139,488 858,120,812 1,237,148,124 42.3.1 Subsidiaries Company In Rs. Loans received Loans given For the year ended 2015 2014 2015 2014 Loans - current Asiri Hospital Holdings PLC - 85,000,000 - - Asiri Surgical Hospital PLC 85,000,000 95,500,000 - - Future Automobiles (Pvt) Ltd - - 179,694,692 137,911,574 Softlogic Capital PLC - - - 350,664,035 Softlogic Communications (Pvt) Ltd - - 526,798,030 246,929,824 Softlogic Destination Management (Pvt) Ltd - - 29,766,350 1,584,606 Softlogic Brands (Pvt) Ltd - - 27,957,723 - Softlogic Information Technologies (Pvt) Ltd - - 27,995,900 4,376,012 Softlogic Automobiles (Pvt) Ltd - - 32,427,681 - Softlogic International (Pvt) Ltd - - 56,324 2,225,332 Softlogic Retail (Pvt) Ltd - 121,000,000 607,472,689 471,876,822 85,000,000 301,500,000 1,432,169,389 1,215,568,205 Total 146,013,477 945,639,488 2,290,290,201 2,452,716,329 Notes to the Financial Statements
- 197. 195 Annual Report 2014-15 42.4Amounts due from related parties In Rs. Group Company As at 31 March 2015 2014 2015 2014 Associates Abacus International Lanka (Pvt) Ltd 373,316 579,913 217,680 380,735 373,316 579,913 217,680 380,735 42.5 Amounts due to related parties In Rs. Group Company As at 31 March 2015 2014 2015 2014 Associates Gerry's Softlogic Pakistan 4,333,114 5,234,509 - - 4,333,114 5,234,509 - - 42.6 Transactions with related parties In Rs. Group Company For the year ended 31 March 2015 2014 2015 2014 Subsidiaries (Purchases) / sales of goods - - 19,841,281 (16,203,937) (Receiving) / rendering of services - - 378,449,744 330,606,590 (Purchases) / sale of property plant & equipment - - (3,512,615) (12,668,394) Loans given / (obtained) - - 132,223,001 862,622,047 Interest received / (paid) - - 76,146,109 301,540,484 Rent received / (paid) - - 22,477,477 17,230,000 Dividend received - - 960,371,765 379,542,198 Guarantee charges received - - 77,702,041 1,440,000 Guarantees given / (obtained) - - 9,525,800,000 8,274,478,000 Associates (Purchases) / sale of property plant & equipment 2,851,064 26,466,211 - - (Receiving) / rendering of services 6,308,272 6,462,771 12,251,592 11,568,000 Dividend received - - 900,000 24,300,000 Key management personnel (KMP) Loans given / (received) (11,438,933) (14,075,546) (1,992,157) (1,017,826) Guarantees given / (obtained) (1,361,000,000) (1,551,000,000) (130,000,000) (230,000,000) Loans given / (deposits received) (44,212,192) (6,139,846) - - Close family members of KMP (Receiving) / rendering of services - - - - 42.7 Terms and conditions of transactions with related parties Transactions with related parties are carried out in the ordinary course of the business. Outstanding current account balances at year end are unsecured, interest free and settlement occurs in cash. Interest bearing borrowings are at pre-determined interest rates and terms. 42.8 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. Group Company For the year ended 31 March 2015 2014 2015 2014 Short term employee benefits 203,187,470 174,197,317 13,580,000 37,260,000 203,187,470 174,197,317 13,580,000 37,260,000
- 198. 196 Softlogic Holdings PLC 43OPERATING SEGMENT INFORMATION REVENUE AND PROFIT Information Technology Leisure Retail For the year ended 31 March 2015 2014 2015 2014 2015 2014 Revenue Total revenue 9,912,024,862 6,403,570,630 704,941,030 132,423,798 12,925,183,030 8,658,972,526 Inter group (660,043,444) (421,239,755) (76,887,251) (40,676,542) (590,893,505) (1,120,264,669) Total external revenue 9,251,981,418 5,982,330,875 628,053,779 91,747,256 12,334,289,525 7,538,707,857 Operating profit/ (loss) 705,335,615 505,411,875 (58,680,236) (98,372,924) 878,265,229 594,282,485 Finance income 4,788,785 5,730,967 6,584,627 9,217,727 76,771,232 113,408,796 Finance cost (302,058,048) (481,368,010) (90,195,304) (1,882,058) (627,715,710) (523,027,200) Change in fair value of investment property - - - - 13,338,000 7,410,000 Share of results of associates - - - - - - Change in insurance contract liabilities - - - - - - Profit/ (loss) before taxation 408,066,352 29,774,832 (142,290,913) (91,037,255) 340,658,751 192,074,081 Taxation (137,462,759) (10,390,349) (486,175) 14,763,485 (69,453,877) (38,604,022) Profit/ (loss) after taxation 270,603,593 19,384,483 (142,777,088) (76,273,770) 271,204,874 153,470,059 Depreciation of property, plant & equipment (PPE) 47,744,677 34,027,729 104,096,529 564,045 200,924,164 94,785,419 Amortisation of lease rentals paid in advance - - - - - - Amortisation of intangible assets 13,146,053 3,764,778 47,629,767 47,588,114 33,283,406 4,641,721 Retirement benefit obligations and related cost 20,102,679 20,098,130 2,056,554 77,692 18,549,287 9,361,371 Purchase and construction of PPE 54,752,664 107,308,111 2,092,996,338 2,045,795,408 786,544,835 483,296,847 Additions to intangible assets 3,662,518 125,781,610 314,826 - 267,976,420 157,422,822 Additions to lease rentals paid in advance - - - - - - Notes to the Financial Statements
- 199. 197 Annual Report 2014-15 AutoMobiles Financial Services Healthcare Services Others Group 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 780,445,604 439,380,205 8,133,617,536 7,639,711,388 8,591,960,503 7,765,208,318 424,290,305 365,318,819 41,472,462,870 31,404,585,684 (37,001,897) (15,808,864) (131,853,450) (182,201,701) - (19,408,252) (411,899,213) (358,550,317) (1,908,578,760) (2,158,150,100) 743,443,707 423,571,341 8,001,764,086 7,457,509,687 8,591,960,503 7,745,800,066 12,391,092 6,768,502 39,563,884,110 29,246,435,584 (43,633,906) (15,598,806) 1,022,155,789 747,916,440 1,810,926,609 1,895,460,923 (62,675,930) (5,885,092) 4,251,693,170 3,623,214,901 99,955 7,767 935,095,599 971,900,078 91,275,550 49,302,047 7,557,517 7,407,608 1,122,173,265 1,156,974,990 (53,890,522) (39,901,477) (168,137,069) (352,467,432) (635,347,411) (553,342,061) (815,465,490) (708,038,364) (2,692,809,554) (2,660,026,602) - - - - 513,364,000 83,690,500 - - 526,702,000 91,100,500 - - - - - - 5,290,016 13,280,969 5,290,016 13,280,969 - - (944,348,980) (966,545,920) - - - - (944,348,980) (966,545,920) (97,424,473) (55,492,516) 844,765,339 400,803,166 1,780,218,748 1,475,111,409 (865,293,887) (693,234,879) 2,268,699,917 1,257,998,838 (8,889,061) 15,238,087 (60,292,650) (63,229,742) (163,562,844) (152,884,263) (9,470,660) (14,057,009) (449,618,026) (249,163,813) (106,313,534) (40,254,429) 784,472,689 337,573,424 1,616,655,904 1,322,227,146 (874,764,547) (707,291,888) 1,819,081,891 1,008,835,025 28,925,768 5,213,793 117,172,301 84,505,964 660,951,774 653,281,972 30,182,706 29,457,929 1,189,997,919 901,836,851 - - - - 1,036,939 1,036,927 - - 1,036,939 1,036,927 - - 142,843,678 137,307,727 8,521,877 8,521,877 2,624,845 2,221,134 248,049,626 204,045,351 1,885,619 2,038,930 20,582,591 15,827,191 70,250,850 51,580,366 6,659,372 6,571,323 140,086,952 105,555,003 283,818,892 128,922,594 275,807,176 433,644,779 930,849,409 361,963,301 13,713,477 42,988,966 4,438,482,791 3,603,920,006 - - 39,095,592 14,239,939 - - 1,861,900 7,563,029 312,911,256 305,007,400 - - - - 702,520,660 - - 702,520,660 -
- 200. 198 Softlogic Holdings PLC 43OPERATING SEGMENT INFORMATION Information Technology Leisure Retail As at 31 March 2015 2014 2015 2014 2015 2014 Property, plant and equipment 226,953,170 159,032,690 6,278,865,626 3,713,905,587 4,618,394,111 1,132,134,602 Lease rentals paid in advance - - - - - - Investment property 233,000,000 225,300,000 1,045,292,349 757,492,349 94,848,000 81,510,000 Intangible assets 172,487,509 125,328,306 356,760 - 387,674,115 152,781,100 Other non current financial assets 5,023,408 10,736,443 - - 7,403,862 42,342,867 Rental receivable on lease assets and hire purchase - - - - 126,505,603 24,197,630 Other non current assets 12,706,949 937,385 1,456,000 1,455,999 172,101,507 41,005,220 Segment non current assets 650,171,036 521,334,824 7,325,970,735 4,472,853,935 5,406,927,198 1,473,971,419 Investments in associates Goodwill Intangible assets through business combinations Deferred tax assets Eliminations/ adjustment Total non current assets 650,171,036 521,334,824 7,325,970,735 4,472,853,935 5,406,927,198 1,473,971,419 Inventories 1,357,795,215 772,240,418 18,730,434 271,532 4,831,209,253 3,059,829,268 Investment property held for sale - - - - - - Trade and other receivables 1,893,274,480 1,066,543,206 163,100,663 26,892,425 3,182,598,483 2,577,477,901 Loans and advances - - - - - - Rentalreceivableonleaseassetsandhirepurchase - - - - - - Other current assets 347,502,003 249,395,077 128,769,657 380,854,430 1,237,152,558 410,527,140 Short term investments 273,773,507 24,305,264 332,460 124,600 124,778,113 21,811,103 Cash in hand and at bank 299,506,237 95,216,569 131,561,486 101,276,817 326,103,928 398,005,784 Segment current assets 4,171,851,442 2,207,700,534 442,494,700 509,419,804 9,701,842,335 6,467,651,196 Amounts due from related parties Total current assets 4,171,851,442 2,207,700,534 442,494,700 509,419,804 9,701,842,335 6,467,651,196 Total assets Insurance contract liabilities - - - - - - Interest bearing borrowings 103,404,274 199,598,401 3,211,708,823 2,471,430,887 4,313,107,439 337,250,829 Public deposits - - - - - - Employee benefit liabilities 95,782,724 56,284,746 9,134,018 4,190,878 99,296,869 40,135,117 Other deferred liabilities 1,065,277 2,434,550 - - 1,979,156 3,041,659 Other non current financial liabilities 25,450,268 - - - - - Segment non current liabilities 225,702,543 258,317,697 3,220,842,841 2,475,621,765 4,414,383,464 380,427,605 Deferred tax liabilities Eliminations/ adjustment Total non current liabilities 225,702,543 258,317,697 3,220,842,841 2,475,621,765 4,414,383,464 380,427,605 Trade and other payables 1,507,752,162 754,007,370 201,077,037 159,724,034 2,035,910,916 1,942,204,873 Short term borrowings 2,947,855,009 2,364,068,501 - 8,812,033 5,516,758,202 2,518,062,113 Current portion of interest bearing borrowings 95,757,208 104,707,592 194,143,391 - 418,579,581 77,775,799 Other current liabilities 296,889,800 78,423,878 77,916,408 908,136 207,006,468 209,153,431 Public deposits - - - - - - Bank overdrafts 70,521,669 96,051,644 31,895,624 31,238,545 311,887,092 687,855,291 Segment current liabilities 4,918,775,848 3,397,258,985 505,032,460 200,682,748 8,490,142,259 5,435,051,507 Income tax liabilities Amounts due to related parties Eliminations/ adjustment Total current liabilities 4,918,775,848 3,397,258,985 505,032,460 200,682,748 8,490,142,259 5,435,051,507 Total liabilities Total segment assets 4,822,022,478 2,729,035,358 7,768,465,435 4,982,273,739 15,108,769,533 7,941,622,615 Total segment liabilities 5,144,478,391 3,655,576,682 3,725,875,301 2,676,304,513 12,904,525,723 5,815,479,112 Notes to the Financial Statements
- 201. 199 Annual Report 2014-15 AutoMobiles Financial Services Healthcare Services Others Group 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 377,645,319 126,715,473 780,512,241 639,084,976 10,823,681,819 10,287,141,045 122,259,126 150,728,002 23,228,311,412 16,208,742,375 - - - - 854,795,905 153,312,184 - - 854,795,905 153,312,184 - - - - - 2,184,636,000 442,641,387 394,000,000 1,815,781,736 3,642,938,349 - - 87,691,123 58,404,700 - - 1,723,508 5,341,896 649,933,015 341,856,002 - - 8,473,811,327 5,680,300,612 598,882,418 430,999,128 2,528,664 2,528,664 9,087,649,679 6,166,907,714 - - 3,542,821,699 3,738,692,476 - - - - 3,669,327,302 3,762,890,106 2,327,169 - 97,868,006 92,234,601 6,333,335 7,333,336 - - 292,792,966 142,966,541 379,972,488 126,715,473 12,982,704,396 10,208,717,365 12,283,693,477 13,063,421,693 569,152,685 552,598,562 39,598,592,015 30,419,613,271 26,216,105 24,746,404 4,115,823,525 4,115,823,525 4,091,247,335 3,273,733,046 318,527,576 307,629,785 (39,708,261) (47,257,445) 379,972,488 126,715,473 12,982,704,396 10,208,717,365 12,283,693,477 13,063,421,693 569,152,685 552,598,562 48,110,698,295 38,094,288,586 437,289,869 258,882,616 643,475,335 662,793,833 381,062,739 355,052,697 - 283,486 7,669,562,845 5,109,353,850 - - - - 2,698,000,000 - - - 2,698,000,000 - 135,578,478 53,447,666 835,695,086 899,003,312 300,561,558 371,391,759 111,994,358 76,171,419 6,622,803,106 5,070,927,688 - - 5,524,162,085 2,077,038,702 - - - - 5,524,162,085 2,077,038,702 - - 2,881,969,879 4,616,673,500 - - - - 2,881,969,879 4,616,673,500 215,829,612 123,695,495 1,438,401,554 1,348,527,338 375,083,931 228,555,867 17,357,893 32,345,103 3,760,097,208 2,773,900,450 1,500,000 - 4,628,754,611 5,653,252,963 1,031,151,896 - 2,332,150,565 658,836,734 8,392,441,152 6,358,330,664 17,335,786 27,486,059 887,298,353 667,360,092 218,238,185 192,422,009 46,681,847 280,334,664 1,926,725,822 1,762,101,994 807,533,745 463,511,836 16,839,756,903 15,924,649,740 5,004,098,309 1,147,422,332 2,508,184,663 1,047,971,406 39,475,762,097 27,768,326,848 572,053 778,460 807,533,745 463,511,836 16,839,756,903 15,924,649,740 5,004,098,309 1,147,422,332 2,508,184,663 1,047,971,406 39,476,334,150 27,769,105,308 87,587,032,445 65,863,393,894 - - 5,129,272,339 4,184,923,357 - - - - 5,129,272,339 4,184,923,357 143,009,930 - 2,448,174,951 2,169,747,391 7,067,100,816 5,889,307,057 5,767,785,191 2,453,597,715 23,054,291,424 13,520,932,280 - - 2,214,295,787 1,885,402,009 - - - - 2,214,295,787 1,885,402,009 4,142,559 3,132,559 71,639,427 71,993,574 344,721,139 238,394,313 31,208,809 30,336,087 655,925,545 444,467,274 - - - - - - - - 3,044,433 5,476,209 - - 6,260,352 6,260,352 - - - - 31,710,620 6,260,352 147,152,489 3,132,559 9,869,642,856 8,318,326,683 7,411,821,955 6,127,701,370 5,798,994,000 2,483,933,802 31,088,540,148 20,047,461,481 314,257,283 332,324,498 (210,000,002) (521,083,345) 147,152,489 3,132,559 9,869,642,856 8,318,326,683 7,411,821,955 6,127,701,370 5,798,994,000 2,483,933,802 31,192,797,429 19,858,702,634 273,945,919 19,880,500 2,360,310,618 2,434,433,358 632,777,866 431,876,287 30,065,595 9,530,194 7,041,840,113 5,751,656,616 277,919,687 79,164,603 3,199,590,318 4,938,910,384 - 591,957,381 4,191,598,768 3,920,810,771 16,133,721,984 14,421,785,786 28,977,351 - 492,471,999 1,182,022,442 1,076,324,813 1,350,530,887 2,368,998,068 1,457,670,016 4,675,252,411 4,172,706,736 5,609,903 56,477,520 378,186,433 272,648,703 1,341,102,283 134,331,686 24,180,491 19,923,244 2,330,891,786 771,866,598 - - 9,838,760,403 7,418,343,338 - - - - 9,838,760,403 7,418,343,338 27,658,863 33,554,932 876,193,386 515,644,064 256,724,918 1,131,293,129 83,120,084 56,236,965 1,658,001,636 2,551,874,570 614,111,723 189,077,555 17,145,513,157 16,762,002,289 3,306,929,880 3,639,989,370 6,697,963,006 5,464,171,190 41,678,468,333 35,088,233,644 322,656,391 174,142,951 15,970,784 19,508,602 (1,404,833,105) (2,627,938,709) 614,111,723 189,077,555 17,145,513,157 16,762,002,289 3,306,929,880 3,639,989,370 6,697,963,006 5,464,171,190 40,612,262,403 32,653,946,488 71,805,059,832 52,512,649,122 1,187,506,233 590,227,309 29,822,461,298 26,133,367,105 17,287,791,786 14,210,844,025 3,077,337,348 1,600,569,968 79,074,354,111 58,187,940,119 761,264,212 192,210,114 27,015,156,013 25,080,328,972 10,718,751,835 9,767,690,740 12,496,957,006 7,948,104,992 72,741,558,213 55,135,695,125
- 202. 200 Softlogic Holdings PLC 44MATERIAL PARTLY-OWNED SUBSIDIARIES Financial information of subsidiaries that have material non controlling interest (NCI) is given below. In Rs. Asiri Hospital Holdings PLC Healthcare Services Asiri Surgical Hospital PLC Central Hospital Ltd 2015 2014 2015 2014 2015 2014 Summarised income statement for the year ending 31 March Revenue 2,440,580,228 2,333,174,129 2,653,704,728 2,508,490,641 2,869,533,166 2,519,646,603 Other income 448,493,363 726,535,377 9,817,000 11,165,641 22,524,436 21,832,227 Operating cost (1,800,900,602) (1,631,005,263) (2,271,473,024) (2,073,140,572) (2,356,791,849) (1,966,495,689) Finance income 67,381,467 74,998,914 73,381,946 132,259,531 2,418,042 1,171,774 Finance cost (413,793,612) (386,985,466) (58,945,894) (73,270,368) (195,429,028) (313,685,437) Profit before tax 741,760,844 1,116,717,691 406,484,756 505,504,873 342,254,767 262,469,478 Taxation expense (76,592,406) (104,601,364) 1,692,734 (32,169,706) (48,058,113) (43,284,364) Profit for the year 665,168,438 1,012,116,327 408,177,490 473,335,167 294,196,654 219,185,114 Other comprehensive income 156,100,462 30,661,117 (14,314,030) (5,145,563) 281,937,807 234,855,500 Total comprehensive income 821,268,900 1,042,777,444 393,863,460 468,189,604 576,134,461 454,040,614 Profit attributable to material NCI 135,250,163 194,838,669 254,397,190 296,286,172 159,500,075 151,163,394 Dividend paid to NCI 91,117,008 298,626,341 131,582,501 517,026,498 125,051,081 - Summarised statement of financial position as at 31 March Current assets 1,796,255,276 1,323,149,687 626,880,855 1,598,814,918 387,767,727 441,782,941 Non current assets 11,491,750,349 11,258,102,665 3,834,849,555 2,878,157,192 6,088,553,626 5,659,342,066 Total assets 13,288,005,625 12,581,252,352 4,461,730,410 4,476,972,110 6,476,321,353 6,101,125,007 Current liabilities 1,372,669,403 2,266,713,636 412,635,571 978,227,003 692,235,977 544,800,940 Non current liabilities 4,860,402,150 3,531,327,390 845,572,399 479,531,270 2,136,757,184 2,252,993,097 Total liabilities 6,233,071,553 5,798,041,026 1,258,207,970 1,457,758,273 2,828,993,161 2,797,794,037 Accumulated balance of material NCI 3,440,401,993 3,350,907,145 1,994,140,433 1,893,518,405 1,963,095,844 1,799,001,238 Summarised cash flow information for the year ending 31 March Cash flows from operating activities 1,064,455,440 233,016,320 761,918,371 549,273,245 739,925,325 495,054,640 Cash flows from / (used in) investing activities 299,737,517 (1,772,971,556) (164,455,548) 47,486,546 (519,274,814) (153,401,106) Cash flows from / (used in) financing activities (69,242,522) 1,737,767,860 102,142,446 (1,011,961,713) (341,850,334) 2,279,872 Net increase / (decrease) in cash and cash equivalents 1,294,950,435 197,812,624 699,605,269 (415,201,922) (121,199,823) 343,933,406 Notes to the Financial Statements
- 203. 201 Annual Report 2014-15 FinancialServices In Rs. Softlogic Finance PLC Asian Alliance Insurance PLC Asian Alliance General Insurance Ltd 2015 2014 2015 2014 2015 2014 Summarised income statement for the year ending 31 March Revenue 3,673,994,558 3,338,542,921 3,849,478,287 4,258,872,792 385,464,589 - Other income 290,172,434 132,349,170 585,911,655 239,363,099 6,093,350 - Operating cost (3,704,400,200) (3,258,626,350) (3,670,387,777) (3,880,938,193) (440,482,470) - Change in insurance contract liabilities - - (944,348,981) (966,545,920) - - Finance income 8,735,408 20,001,414 967,687,589 976,749,580 5,898,925 - Finance cost (47,840,955) (40,841,902) (27,915,165) (14,311,997) (1,546,859) - Profit before tax 220,661,245 191,425,253 760,425,608 613,189,361 (44,572,465) - Taxation expense (4,171,605) (25,771,363) (7,887,006) (36,753,715) (2,724,147) - Profit for the year 216,489,640 165,653,890 752,538,602 576,435,646 (47,296,612) - Other comprehensive income 22,304,794 (4,520,823) (135,627,403) (81,627,037) (25,491,445) - Total comprehensive income 238,794,434 161,133,067 616,911,199 494,808,609 (72,788,057) - Profit / (loss) attributable to material NCI 90,722,921 87,750,869 412,019,478 143,483,124 (26,808,275) - Dividend paid to NCI - 30,466,226 213,259,131 103,520,951 - - Summarised statement of financial position as at 31 March Current assets 14,596,440,276 10,917,835,034 2,904,967,830 4,725,329,940 1,299,666,637 - Non current assets 5,417,393,545 7,341,904,270 5,593,512,741 3,364,671,317 1,036,693,876 - Total assets 20,013,833,821 18,259,739,304 8,498,480,571 8,090,001,257 2,336,360,513 - Current liabilities 13,542,569,559 13,083,292,160 1,072,182,055 1,845,609,116 1,599,287,105 - Non current liabilities 4,521,628,870 3,866,898,514 5,173,001,907 4,233,006,726 10,361,465 - Total liabilities 18,064,198,429 16,950,190,674 6,245,183,962 6,078,615,842 1,609,648,570 - Accumulated balance of material NCI 1,017,011,587 698,576,478 1,277,124,186 1,156,780,729 411,886,031 - Summarised cash flow information for the year ending 31 March Cash flows from/ (used in) operating activities (3,230,105,331) 2,680,678,188 375,663,645 1,242,721,094 862,709,088 - Cash flows from / (used in) investing activities 1,383,701,778 (1,558,731,054) (139,591,380) (1,171,950,390) (1,781,647,788) - Cash flows from / (used in) financing activities 401,292,330 (56,180,927) (223,978,515) (180,000,000) 799,500,000 - Net increase / (decrease) in cash and cash equivalents (1,445,111,223) 1,065,766,207 12,093,750 (109,229,296) (119,438,700) - 44.1 The above information is based on amounts before inter company eliminations.
- 204. 202 Softlogic Holdings PLC 45CONTINGENT LIABILITIES There were no significant contingent liabilities as at the date of the statement of financial position other than what is disclosed below, which require adjustments to or disclosures in the financial statements. 45.1 Softlogic Holdings PLC Softlogic Holdings PLC received an income tax assessments from The Department of Inland Revenue for the years of assessment 2009/10 and 2010/11. The company has lodged an appeal against the said assessment and The Department of Inland Revenue has issued their determination. The Management and the tax consultants has submitted an appeal to the Tax Appeal Commission on that determination. Based on the information available and the advice of the tax consultants, the directors are confident that the ultimate resolution of the above contingency is unlikely to have a material adverse effect on the company or on the group. 45.2 Asiri Hospital Holdings PLC, Asiri Surgical Hospital PLC and Asiri Hospital Matara (Pvt) Ltd Pending litigations against Asiri Hospital Holdings PLC, Asiri Surgical Hospital PLC and Asiri Hospital Matara (Pvt) Ltd with a maximum liability of Rs.43 mn, Rs.50 mn and Rs.51 mn respectively exist as at 31 March 2015 (2014 - Asiri Hospital Holdings PLC : Rs.43 mn, Asiri Surgical Hospital PLC : Rs.Nil and Asiri Hospital Matara (Pvt) Ltd - Rs.51 mn). Although there can be no assurance, the directors believe, based on the information currently available, that the ultimate resolution of such legal procedures would not likely to have a material adverse effect on the company or on the group. Accordingly, no provision for any liability has been made in these financial statements. 45.3 Asian Alliance Insurance PLC VAT Assessments were received by Asian Alliance Insurance PLC in October 2011 and April 2013 in relation to taxable periods ended 31 December 2009 and 31 December 2010. The Company has filed an appeal in November 2011 on the basis that the underlying computation includes items which are exempt /out of scope of the Value Added Tax Act. The Commissioner General of Inland Revenue has determined the assessment and the Company is in the process of appealing to the Tax Appeals Commission and awaiting the final decision. Based on the information available and the advice of the tax consultants, the directors are confident that the ultimate resolution of the above contingency is unlikely to have a material adverse effect on the company or on the group. 45.4 Odel PLC, Odel Information Technology Services (Pvt) Ltd, Odel Properties (Pvt) Ltd Odel PLC, Odel Information Technology Services (Pvt) Ltd, Odel Properties (Pvt) Ltd received an income tax assessments from The Department of Inland Revenue for the years of assessment 2009/10 & 2010/11,. 2007/08, 2008/09, 2009/10, 2010/11 & 2011/12 and 2011/12 & 2012/13 respectively. The group has lodged appeals against the said assessments and The Department of Inland Revenue has issued their determinations. The Management and the tax consultants have submitted appeals to the Tax Appeal Commission on that determinations. Based on the information available and the advice of the tax consultants, the directors are confident that the ultimate resolution of the above contingencies is unlikely to have a material adverse effect on the respective companies or on the group. Notes to the Financial Statements
- 205. 203 Annual Report 2014-15 46CAPITAL AND OTHER COMMITMENTS 46.1 Capital commitments Group Company As at 31 March 2015 2014 2015 2014 Capital commitments approved but not provided for 4,567,654,857 3,360,750,088 - - 46.2 Guarantees issued and in-force Group Company As at 31 March 2015 2014 2015 2014 Guarantees issued and in-force 12,250,000 14,650,000 9,525,800,000 8,274,478,000 46.3 As at 31 March 2015, outstanding currency forward agreement amount of Rs.507,960,000/- (USD 4,000,000) (2014 - Rs.1,455,676,658/, USD 11,041,177) exist for the group. 47 POST BALANCE SHEET EVENTS There were no significant events subsequent to the date of the statement of financial position, which require disclosure in the financial statements other than the following. 47.1 Dividend announcement – Softlogic Holdings PLC The directors of Softlogic Holdings PLC declared a final dividend of Rs.0.25 per share for the financial year ended 31 March 2015. As required by section 56 (2) of the companies Act No. 07 of 2007, the board of directors has confirmed that the company satisfies the solvency test in accordance with section 57 of the Companies Act No. 07 of 2007, and has obtained a certificate of solvency from the auditors to this effect. 47.2 Sub division of ordinary shares – Asian Alliance Insurance PLC The directors of Asian Alliance Insurance PLC, a subsidiary of Softlogic Holdings PLC resolved subject to the approval at a general meeting and any other regulatory approvals (if any) to sub divide its ordinary shares in the ratio of one (01) existing ordinary share in to ten (10) sub divided ordinary shares. So that the existing thirty seven million five hundred thousand (37,500,000) shares will be sub divided in to three hundred and seventy five million (375,000,000) new shares, there being no change to the Stated Capital of the company. 47.3 Sale of land – Asiri Central Hospitals Ltd On 09 July, 2015, the directors of Asiri Central Hospitals Ltd, a subsidiary of Softlogic Holdings PLC approved and authorised the completion of sale of the land and premises located at No. 37, Horton Place, Colombo 07 for a total consideration of Rs.2,700,000,000/-.
- 206. 204 Softlogic Holdings PLC Notesto the Financial Statements 48INTERESTBEARINGBORROWINGS 48.1SecurityandRepaymentTerms CompanyLending institution Natureof facility InterestrateRepaymenttermOutstandingbalanceCarryingvalue ofcollaterals Security 20152014 Rs.Rs. Softlogic Holdings PLC SeylanBank PLC TermloanAWPLR+2%59equalmonthly installmentsofRs.4,770,000 andfinalinstallmentof Rs.4,696,000commencing fromJanuary2011 42,856,000107,731,039 2,284,966,960 •PrimaryconcurrentmortgageforRs.200.00mn(Seylan Bank'sinterestRs.70.00mn)overlandandbuildingatNo. 14,DeFonsekaPlaceColombo-05 •SecondaryconcurrentmortgageforRs.80.00mn(Seylan Bank'sinterestRs.30.00mn)overlandandbuildingatNo. 14,DeFonsekaPlaceColombo-05 •PersonalguaranteeofMr.A.K.PathirageforRs.30.00mn •Mortgageof62,000,000AsiriHospitalHoldingsPLC sharesandadditionalRs.500.00mn(20,840,000shares) worthAsiriHospitalHoldingsPLCsharesownedby SoftlogicHoldingsPLCinSeylanBankslashaccount •MortgageofRs.500.00mn(66,670,000shares)worth SoftlogicCapitalPLCsharesownedbySoftlogicHoldings PLCinSeylanBankslashaccount •Mortgageof63,200sharesofLankaIOCPLCownedby SoftlogicHoldingsPLC TermloanAWPLR+2%47equalmonthly installmentsofRs.3,027,000 andfinalinstallment Rs.2,998,000commencing fromNovember2011 18,133,90058,393,897 Termloan8%67equalmonthly installmentsofRs.305,766 andfinalinstallment Rs.305,804commencing fromOctober2010 8,255,72012,539,373 TermloanAWPLR+2%47equalmonthlyinstallments ofRs.10,416,667andfinal installmentRs.10,416,667 commencingfromJune2014 395,082,659502,445,171 TermloanAWPLR+2%20equalmonthlyinstallments ofRs.50,000,000each commencingoncompletion ofgraceperiodofoneyear orupondrawingthefacilityin full,whicheveroccursfirst 968,865,498- Commercial BankofCeylon PLC TermloanAWPLR+1%71equalmonthlyinstallments ofRs.27,780,000andafinal installmentofRs.27,620,000 commencingafterone yearofgraceperiodfrom November2014 1,960,199,620-1,013,249,400•PrimaryconcurrentmortgageforRs.200.00mn (CommercialBank'sinterestRs.130.00mn)overlandand buildingatNo.14and14BDeFonsekaPlaceColombo-05 •SecondaryconcurrentmortgageforRs.80.00mn (CommercialBank'sinterestRs.50.00mn)overlandand buildingatNo.14,14BDeFonsekaPlace,Colombo-05 •MortgageofRs.100.00mnover11,547,000sharesof AsiriHospitalHoldingsPLCownedbySoftlogicHoldings PLC •PrimarymortgagebondforRs.750.00mnover 100,000,000sharesofSoftlogicCapitalPLCownedby SoftlogicHoldingsPLC TermloanAWPLR+1.5%48equalmonthly installmentsofRs.1,382,000 andfinalinstallmentof Rs.1,334,000commencing fromJanuary2010 -4,761,000
- 207.
- 208. 206 Softlogic Holdings PLC Notesto the Financial Statements CompanyLending institution Natureof facility InterestrateRepaymenttermOutstandingbalanceCarryingvalue ofcollaterals Security 20152014 Rs.Rs. SampathBank PLC TermloanAWPLR+1.25%13equalinstallments ofRs.4,000,000each fromDecember2013to December2014,abulk repaymentof Rs.750,000,000before 31December2014and balancetobepaidin33 equalmonthlyinstallments ofRs.6,200,000andfinal installmentofRs.5,400,000 commencingfromJanuary 2014 517,600,0001,366,530,1294,174,497,092•Mortgageof201,166,182sharesofSoftlogicCapitalPLC ownedbySoftlogicHoldingsPLC •Mortgageof10,125,000AsianAllianceInsurancePLC sharesownedbySoftlogicCapitalPLC •CorporateguaranteesfromSoftlogicCapitalPLCfor Rs.1,631.00mn BankofCeylonTermloanAWPLR+2.5% (floorof14.5%) 63equalmonthly installmentofRs.1,666,667 commencingfromFebruary 2013 -81,173,319 PeoplesBankTermloanAWPLR+1.0%48monthlyinstallmentof Rs.3,125,000commencing fromJune2012 50,000,00089,764,654306,641,386Primarymortgageoverwarehouselandandbuilding complexatPiliyandala(extentLot3R10P,LotB3R20p) ownedbySoftlogicHoldingsPLC 7,094,659,9202,833,429,597
- 209.
- 210. 208 Softlogic Holdings PLC Notesto the Financial Statements CompanyLending institution Natureof facility InterestrateRepaymenttermOutstandingbalanceCarryingvalue ofcollaterals Security 20152014 Rs.Rs. Commercial BankofCeylon PLC TermloanAWPLR+1.5%6equalmonthlyinstallmentsof Rs.1,380,000andfinalinstallmentof Rs.1,700,000togetherwithinterest (asperamendedfacilityoffereddated March2011) -1,700,000 TermloanAWPLR+0.5%72monthlyinstallmentsasdetailed andannexedtotheloanagreement 1,443,300,0001,500,000,000Primarymortgagebondovercreditanddebitcardsales receivablesincludinginstallmentsalesofalloutletsofSoftlogic Retail(Pvt)Ltd Softlogic International (Pvt)Ltd HattonNational BankPLC TermloanAWPLR+3%47monthlyinstallmentsof Rs.2,080,000andafinalinstallment ofRs.2,240,000withagraceperiod of1yearcommencingfromApril 2009 -4,320,000 BankofCeylonTermloanAWPLR+3.0%60monthlyinstallmentsof Rs.1,481,481.49witha6months graceperiodcommencingfromJuly 2009 -3,753,607 Commercial BankofCeylon PLC TermloanAWPLR+1.5%48monthlyinstallmentscommencing from13November2013asfollows 10equalmonths@Rs.2,000,000 eachfollowedby 12equalmonths@Rs.4,000,000 eachfollowedby 12equalmonths@Rs.5,000,000 eachfollowedby 11equalmonths@Rs.6,000,000 eachfollowedby afinalinstallmentofRs.2,000,000 156,000,000192,000,000201,817,533Mortgageof9,990,967shares(total)ofAsiriHospitalHoldings PLCownedby: •SoftlogicHoldingsPLC-8,485,638shares •SoftlogicInternational(Pvt)Ltd-272,206shares •SoftlogicCommunications(Pvt)Ltd-1,233,123shares SoftlogicSolar (Pvt)Ltd SeylanBank PLC Termloan8.00%83equalmonthlyinstallmentsof Rs.200,641.86commencingfrom September2010 -7,823,442 SoftlogicCity Hotels(Pvt) Ltd BankofCeylonTermloan7.00%112monthsincluding30months capitalrepaymentgraceperiod first06months@USD100,000pm eachfollowedby next12months@USD250,000pm eachfollowedby next64months@USD300,000 pmeach 2,058,360,6631,178,530,8884,615,703,035•Mortgageoverfreeholdpropertyof2Rand11.68Pownedby SoftlogicProperties(Pvt)LtdandotherprojectassetsofHotel beingconstructed •LodgmentofsharecertificatesofSoftlogicCityHotels(Pvt)Ltd whichisownedbySoftlogicProperties(Pvt)Ltd
- 211.
- 212. 210 Softlogic Holdings PLC Notesto the Financial Statements CompanyLending institution Natureof facility InterestrateRepaymenttermOutstandingbalanceCarryingvalue ofcollaterals Security 20152014 Rs.Rs. Securitisation13.17%Within36monthscommencingfrom October2011 -24,584,781 Securitisation16.59%Within48monthscommencingfrom November2011 -89,509,961 Securitisation16.59%Within24monthscommencingfrom November2012 -43,750,000 Securitisation16.88%Within24monthscommencingfrom May2013 -135,145,557 Securitisation14.64%Within18monthscommencingfrom May2013 -297,894,855 Securitisation13.18%Within24monthscommencingfrom November2013 -279,907,904 DeustcheBankSecuritisation15.23%Within48monthscommencingfrom May2011 5,824,222-8,736,333Hirepurchaseandfinanceleasereceivables Securitisation13.17%Within48monthscommencingfrom November2011 22,187,513-33,281,270Hirepurchaseandfinanceleasereceivables Securitisation17.04%Within24monthscommencingfrom May2013 16,415,638-24,623,457Hirepurchaseandfinanceleasereceivables Securitisation16.88%Within24monthscommencingfrom May2013 42,526,067-63,789,101Hirepurchaseandfinanceleasereceivables Securitisation14.64%Within24monthscommencingfrom October2013 77,150,844-115,726,266Hirepurchaseandfinanceleasereceivables FMOTermloan13.76%Twoyeargraceperiodfromthedate ofdisbursement,repayablewithin60 monthsofUSD1.2mncommencing fromApril2014 -774,460,487 Convertibleto equity LIBOR+7%Convertibleoptionwillbestarted fromAugust2013toAugust2016 withanoptionofconvertingUSD 1.00mnperyear 507,960,000507,960,000 AsiriHospital HoldingsPLC Commercial BankofCeylon PLC TermloanAWPLR+0.5%60equalmonthlyinstallmentsof Rs.333,000togetherwithinterest afteragraceperiodofoneyear -5,292,758
- 213.
- 214. 212 Softlogic Holdings PLC Notesto the Financial Statements CompanyLending institution Natureof facility InterestrateRepaymenttermOutstandingbalanceCarryingvalue ofcollaterals Security 20152014 Rs.Rs. SampathBank PLC TermloanAWPLR+0.5%60equalmonthlyinstallmentsof Rs.5,300,000commencingfrom May2012 -196,392,000 TermloanAWPLR60equalmonthlyinstallmentsof Rs.6,050,000commencingfrom April2015 363,321,727-363,000,000CorporateguaranteefromAsiriSurgicalHospitalPLCfor Rs.363.00mn International Financial Corporation Termloan6.24%17equalsemiannualinstallments commencingfromApril2013 693,618,130791,532,3798,809,654,792•Primarymortgageinrespectofleaseholdrightsoverthe propertyatKrimandalaMawatha,Narahenpitabelongingto AsirisurgicalHospitalPLC •Primaryadditionalsecuritymortgageinrespectoftheproperty atNorrisCanalRoad,Colombo-10belongingtoCentral HospitalLtdrankingconcurrentlyandparipassuwiththe existingmortgageinrespectofsuchpropertyasfurtherand additionalsecuritytothemortgagebondabove •PrimarymortgageinrespectofallsharesofCentralHospital Ltd,AsiriDiagnosticsServices(Pvt)Ltd,AsiriHospitalMatara (Pvt)LtdbelongingtoAsiriHospitalHoldingsPLCandallshares ofCentralHospitalLtdbelongingtoAsiriCentralHospitalsLtd •Primaryadditionalsecuritymortgageinrespectofmovable assetsbelongingtoAsiriSurgicalHospitalPLCandCentral HospitalLtd •134,915,107ordinarysharesofAsiriSurgicalHospitalPLCheld byAsiriHospitalHoldingsPLC (sharedsecuritygivenbyAsiriHospitalHoldingsPLC,Asiri SurgicalHospitalPLCandCentralHospitalLtd) AsiriSurgical HospitalPLC Commercial BankofCeylon PLC TermloanAWPLR+0.5%59equalmonthlyinstallmentsof Rs.1,670,000andfinalinstallment Rs.1,470,000commencingfrom December2009 -13,160,000 TermloanPLR+0.25%95equalmonthlyinstallmentsof Rs.5,328,000eachandafinal installmentofRs.5,266,000together withinterestcommencingfrom April2015 512,233,073-273,400,000•PrimaryconcurrentmortgagebondforRs.200.00mnover hospitalpropertyatNo.181,KirulaRoad,Narahenpitaowned byAsiriHospitalHoldingsPLC(CommercialBank’sinterest- Rs.125.00mn) •CorporateguaranteefromAsiriHospitalHoldingsPLCfor Rs.148.40mn DFCCBankTermloanAWPLR+1%59equalmonthlyinstallmentsof Rs.3,390,000commencingfrom August2009afteronemonth graceperiodfromthedateoffirst disbursement -17,121,867
- 215.
- 216. 214 Softlogic Holdings PLC Notesto the Financial Statements CompanyLending institution Natureof facility InterestrateRepaymenttermOutstandingbalanceCarryingvalue ofcollaterals Security 20152014 Rs.Rs. TermloanAWPLR95equalmonthlyinstallmentsofRs. 3,396,000eachandafinalinstallment ofRs.3,380,000commencingfrom April2015 326,000,000-326,000,000CorporateguaranteeofAsiriHospitalHoldingsPLCfor Rs.326.00mn International Financial Corporation Termloan6.24%17equalsemiannualinstallments commencingfromApril2013 1,165,114,5961,329,474,705IFCloansecuritiesgivenbyAsiriHospitalHoldingsPLC, AsiriSurgicalHospitalPLCandCentralHospitalLtd AsiriHospital Matara(Pvt) Ltd SampathBank PLC TermloanAWPLR+0.5%59equalmonthlyinstallmentsofRs. 3,330,000eachandafinalinstallment ofRs.3,530,000commencingfrom March2010 -80,120,000 Commercial BankofCeylon PLC TermloanPLR+0.25%71equalmonthlyinstallmentsof Rs.201,700andafinalinstallment ofRs.199,300commencingfrom July2014 12,704,70015,600,00030,000,000CorporateguaranteeofAsiriHospitalHoldingsPLCfor Rs.30.00mn TermloanPLR+0.25%71equalmonthlyinstallmentsof Rs.976,000andafinalinstallment ofRs.924,000commencingfrom July2014 61,436,000-73,460,000CorporateguaranteeofAsiriHospitalHoldingsPLCfor Rs.73.46mn AsiriHospital Kandy(Pvt) Ltd Commercial BankofCeylon PLC Termloan7.5%Bridgingloanfacilitythatisrepayable within6monthsfromthedateof grantedandwillbeconvertedtoterm borrowingtopartfinanceleasevalue ofthepropertyacquiredfromUDA fortheAsiriHospitalKandy(Pvt)Ltd project 630,600,000-630,600,000CorporateguaranteeofAsiriHospitalHoldingsPLCfor Rs.630.60mn OdelPLCDFCCBankTermloan7.0%84equalmonthlyinstallmentsaftera graceperiodof12monthsfromthe dateoffirstdisbursement 57,142,828-116,000,000•PrimarymortgagebondforRs.55.00mnoveranallotmentof landLotYdepictedinPlanNo.9150dated20September1991 situatedatPanaduracontaininganextentof1R2.16P •PrimarymortgagebondforRs.41.00mnoveranallotment oflandLotAinPlanNo.3418dated24July1995situatedat CinnamonGardenscontaininganextentof2R36.12P HattonNational BankPLC TermloanAWPLR+1.0% p.a. 47equalmonthlyinstallmentsof Rs.3.35mneachandafinal installmentofRs.2.35mn commencingfromDecember2011 66,000,000-531,000,000PrimaryfloatingmortgageoverpropertysituatedinKaduwela Road,Thalangama,BattaramullaownedbyOdelLanka(Pvt) Ltd BankofCeylonTermloan1to2yearAWPLR +1.5%p.a.3to 6yearAWPLR+ 2.5%p.a. 60equalmonthlyinstallmentsof Rs.4.58mneachcommencingfrom January2013 151,405,095-287,800,000PrimarymortgageoverimmovablepropertysituatedinWard 3,Welikada,SriJayawardenapura,kottewithanextentof1R 12.25PownedbyOdelProperties(Pvt)Ltd 24,490,515,61515,688,792,984
- 217. 215 Annual Report 2014-15 InvestorInformation 1 GENERAL Stated Capital 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 Shares held by the public was 28.50 % as at 31 March 2015. The number of public shareholders as at 31 March 2015 was 14,161. 4 DISTRIBUTION OF SHAREHOLDING AS AT 31 MARCH 2015 There were 14,169 registered shareholders as at 31 March 2015. No. of Shares held No. of % of Total % of Total Shareholders Shareholders Holding Holding 1 - 1,000 8,517 60.11 5,671,763 0.73 1,001 - 10,000 4,601 32.47 16,484,169 2.12 10,001 - 100,000 892 6.30 26,491,949 3.40 100,001 - 1,000,000 117 0.83 31,546,085 4.05 Over 1,000,000 42 0.30 698,806,034 89.71 Total 14,169 100.00 779,000,000 100.00 5 ANALYSIS REPORT OF SHAREHOLDERS AS AT 31 MARCH 2015 Category No. of % of Total % of Total Shareholders Shareholders Holding Holding Individual 13,796 97.37 604,929,934 77.65 Institutional 373 2.63 174,070,066 22.35 Total 14,169 100.00 779,000,000 100.00 Resident 14,115 99.62 720,525,030 92.49 Non-resident 54 0.38 58,474,970 7.51 Total 14,169 100.00 779,000,000 100.00
- 218. 216 Softlogic Holdings PLC 6TWENTY MAJOR SHAREHOLDERS AS AT 31 MARCH 2015 Shareholder No. of Shares % as at 31/03/2015 1 Mr. A K Pathirage 323,983,569 41.59 2 Mr. H K Kaimal 64,870,800 8.33 3 Mr. R J Perera 60,836,700 7.81 4 Mr. G W D H U Gunawardena 57,527,300 7.38 5 Pemberton Asian Opportunities Fund 46,000,000 5.91 6 Commercial Bank of Ceylon PLC/A K Pathirage 38,950,000 5.00 7 HSBC INTL NOM LTD - UBS AG ZURICH 9,427,494 1.21 8 Employees Provident Fund 7,230,500 0.93 9 Bank of Ceylon A/C Ceybank Unit Trust 5,632,425 0.72 10 Asian Alliance Insurance PLC - A/C 02 (Life Fund) 4,591,702 0.59 11 Mrs. A Selliah 4,236,000 0.54 12 Arunodhaya Investments (Private) Limited 3,950,000 0.51 13 Arunodhaya Industries (Private) Limited 3,950,000 0.51 14 Arunodhaya (Private) Limited 3,950,000 0.51 15 Seylan Bank PLC/W D N H Perera 3,933,327 0.50 16 Miss. S Subramaniam 3,800,000 0.49 17 Mr. V Kailasapillai 3,800,000 0.49 18 Mrs. A Kailasapillai 3,800,000 0.49 19 Sampath Bank PLC A/C No. 1 3,594,000 0.46 20 Mr. K Aravinthan 3,500,000 0.45 7 SHARE TRADING INFORMATION 8 EQUITY INFORMATION 2014/2015 2014/2015 Highest (Rs.) 20.40 Earnings per share (Rs.) 0.72 Lowest (Rs.) 10.30 Dividend per share (Rs.) 0.25 Closing (Rs.) 13.20 Dividend pay out - Turnover (Rs.) 2,338,338,680.00 Net Asset Value per share (Rs.) - No. of shares Traded 163,573,631.00 No. of Trades 20,431.00 Investor Information
- 219. 217 Annual Report 2014-15 9DEBT INFORMATION 10,000,000 rated, unsecured, redeemable debentures at the rate of 15.75% (annual effective rate of 16.70%) were issued on 9 September 2013. Highest (Rs.) 110.53 Lowest (Rs.) 106.00 Closing (Rs.) 108.05 Turnover (Rs.) 108,822,759.32 Last Traded Yield 9.74% Yield to Maturity 14.58% No. of Debentures Traded 1,005,000 No. of Trades 09 Lanka Rating Agency assigned the long- and short-term corporate credit ratings of A- and P2 to be assigned to Softlogic Holdings PLC on 2 October 2014. Concurrently, LRA assigned an initial issue rating of A- to the Company’s existing Rs.1 Bn Rated, Unsecured, Redeemable Debenture (2013/2016). All long-term ratings carry a stable outlook. Interest rate of comparable government security - One Year Treasury Bill rate 8.26% Debt/equity ratio (X) 2.80 Interest cover (X) 2.38 Quick asset ratio (X) 0.78
- 220. 218 Softlogic Holdings PLC CorporateDirectory Date of Registration Registered office Softlogic Holdings PLC 25-02-1998 No. 14, De Fonseka Place, Colombo 05 1 Abacus International Lanka (Pvt) Ltd 21-01-1999 Softlogic Building, Level 4, No. 14, De Fonseka Place, Colombo 05 2 Asian Alliance General Insurance Limited 28-03-2014 No. 65, Ward Place, Colombo 07 3 Asian Alliance Insurance PLC 21-04-1999 No. 283, R A De Mel Mawatha, Colombo 03 4 Asiri Central Hospitals Ltd 07-09-1992 No. 114, Norris Canal Road, Colombo 10 5 Asiri Diagnostics Services (Pvt) Ltd 19-09-1995 No. 181, Kirula Road, Colombo 05 6 Asiri Hospital Holdings PLC 29-09-1980 No. 181, Kirula Road, Colombo 05 7 Asiri Hospital Kandy (Pvt) Ltd 16-03-2007 No. 21, Kirimandala Mawatha, Colombo 05 8 Asiri Hospital Matara (Pvt) Ltd 17-04-2007 No. 26, Esplanade Road, Uyanwatta, Matara 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 Capital Reach Portfolio Management (Pvt) Ltd 24-05-2006 No. 13, De Fonseka Place, Colombo 04 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 Dai-Nishi Securities (Pvt) Ltd 26-07-1993 No. 14, De Fonseka Place, Colombo 05 15 Digital Health (Private) Limited 14-08-2015 No. 475, Union Place, Colombo 02 16 Future Automobiles (Pvt) Ltd 06-12-2010 No. 14, De Fonseka Place, Colombo 05 17 Greenfield Trading (Pvt) Ltd 23-03-2012 No. 475/32, Kotte Road, Rajagiriya 18 Nextage (Pvt) Ltd 11-04-2012 No. 79, C W W Kannangara Mawatha, Colombo 07 19 Odel Apparels (Pvt) Ltd 10-10-1991 No. 475/32, Kotte Road, Rajagiriya 20 Odel Information Technology Services (Pvt) Ltd 30-11-2007 No. 475/32, Kotte Road, Rajagiriya 21 Odel Lanka (Pvt) Ltd 04-07-2006 No. 475/32, Kotte Road, Rajagiriya 22 Odel PLC 31-10-1990 No. 475/32, Kotte Road, Rajagiriya 23 Odel Properties (Pvt) Ltd 10-10-1991 No. 475/32, Kotte Road, Rajagiriya 24 Silk Route Foods (Private) Limited 10-10-2014 No. 14, De Fonseka Place, Colombo 05 25 Softlogic Australia (Pty) Ltd 05-01-2000 Unit 2, Building B, 18-24 Ricketts Road, Mount Waverley, Vic 3149 26 Softlogic Automobiles (Pvt) Ltd 02-04-2012 No. 14, De Fonseka Place, Colombo 05 27 Softlogic B P O Services (Private) Limited 13-12-2013 No. 14, De Fonseka Place, Colombo 05 28 Softlogic Brands (Pvt) Ltd 08-11-1993 No. 14, De Fonseka Place, Colombo 05 29 Softlogic Capital PLC 21-04-2005 No. 14, De Fonseka Place, Colombo 05 30 Softlogic City Hotels (Pvt) Ltd 30-06-2011 No. 14, De Fonseka Place, Colombo 05 31 Softlogic Communication Services (Pvt) Ltd 16-09-2009 No. 14, De Fonseka Place, Colombo 05 32 Softlogic Communications (Pvt) Ltd 30-10-2000 No. 14, De Fonseka Place, Colombo 05 33 Softlogic Computers (Pvt) Ltd 13-09-1995 No. 14, De Fonseka Place, Colombo 05 34 Softlogic Corporate Services (Pvt) Ltd 24-06-2005 No. 14, De Fonseka Place, Colombo 05 35 Softlogic Destination Management (Pvt) Ltd 22-03-2012 No. 14, De Fonseka Place, Colombo 05 36 Softlogic Finance PLC 24-08-1999 No. 13, De Fonseka Place, Colombo 04 37 Softlogic Information Technologies (Pvt) Ltd 02-09-1992 No. 14, De Fonseka Place, Colombo 05 38 Softlogic International (Pvt) Ltd 09-06-1997 No. 14, De Fonseka Place, Colombo 05 39 Softlogic Mobile Distribution (Private) Limited 30-09-2014 No. 14, De Fonseka Place, Colombo 05 40 Softlogic Properties (Pvt) Ltd 04-01-2005 No. 14, De Fonseka Place, Colombo 05 41 Softlogic Real Estate (Private) Limited 27-08-2014 No. 14, De Fonseka Place, Colombo 05 42 Softlogic Restaurants (Private) Limited 05-08-2013 No. 14, De Fonseka Place, Colombo 05 43 Softlogic Retail (Pvt) Ltd 06-09-1969 No. 14, De Fonseka Place, Colombo 05 44 Softlogic Retail One (Private) Limited 04-07-2014 No. 14, De Fonseka Place, Colombo 05 45 Softlogic Solar (Pvt) Ltd 14-11-2002 No. 14, De Fonseka Place, Colombo 05 46 Softlogic Stockbrokers (Pvt) Ltd 26-11-2010 No. 6, 37th Lane, Queens Road, Colombo 03
- 221. 219 Annual Report 2014-15 NOTICEIS HEREBY GIVEN that the Annual General Meeting of Softlogic Holdings PLC will be held at the “Committee Room C” of Bandaranaike Memorial International Conference Hall (BMICH), Bauddhaloka Mawatha, Colombo 07 on Wednesday the 30th day of September 2015 at 10.30 a.m. for the following purposes: 1. To receive and consider the Annual Report of the Board of Directors and Financial Statements of the Company and of the Group for the year ended 31 March 2015 together with the Report of the Auditors thereon. 2. To re-elect Mr. R J Perera who retires by rotation in terms of Article 87 of the Articles of Association of the Company, as a Director. 3. To re-elect Mr. H K Kaimal who retires by rotation in terms of Article 87 of the Articles of Association of the Company, as a Director. 4. To re-elect Dr. S Selliah who retires by rotation in terms of Article 87 of the Articles of Association of the Company, as a Director. 5. To re-appoint the retiring Auditors, Messrs Ernst & Young, Chartered Accountants, as Auditors of the Company for the ensuing year and to authorise the Directors to determine their remuneration. 6. To authorise the Directors to determine and make donations for the year ending 31 March 2016 and up to the date of the next Annual General Meeting. By Order of the Board SOFTLOGIC CORPORATE SERVICES (PVT) LTD SECRETARIES 31 July 2015 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 10.30 a.m. on Monday the 28th day of September 2015 being forty eight (48) hours before the time appointed for the holding of the meeting. Notice of Meeting
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- 225. 223 Annual Report 2014-15 *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. R A Ebell of Colombo 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 “Committee Room C” of Bandaranaike Memorial International Conference Hall (BMICH), Bauddhaloka Mawatha, Colombo 07 at 10.30 a.m. on the 30th day of September 2015 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 31st March 2015 together with the Report of the Auditors thereon. ❏ ❏ 2) To re-elect Mr. R J Perera who retires by rotation in terms of Article 87 of the Articles of Association, as a Director of the Company. ❏ ❏ 3) To re-elect Mr. H K Kaimal who retires by rotation in terms of Article 87 of the Articles of Association, as a Director of the Company. ❏ ❏ 4) To re-elect Dr. S Selliah who retires by rotation in terms of Article 87 of the Articles of Association, as a Director of the Company. ❏ ❏ 5) To re-appoint Messrs Ernst & Young, as Auditors and to authorise the Directors to determine their remuneration. ❏ ❏ 6) To authorise the Directors to determine and make Donations ❏ ❏ ……....................……………… ……....................……………… *Signature/s Date Note: 1. *Please delete the inappropriate words. 2. Instructions as to completion are noted on the reverse hereof. Form of Proxy
- 226. 224 Softlogic Holdings PLC Instructionsas 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 10.30 a.m. on Monday the 28th day of September 2015 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) .............................................................................................................................................. .............................................................................................................................................. ..............................................................................................................................................
- 227. NAME OF COMPANY SoftlogicHoldings PLC LEGAL FORM Company was incorporated on 25th February 1998 under the name of Softlogic Holdings (Private) Limited and re-registered on 17th December 2007 under the Companies Act No. 07 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 w.e.f. 25th August 2011. COMPANY REGISTRATION NO PV 1536 PB/PQ REGISTERED OFFICE OF THE COMPANY 14, De Fonseka Place, Colombo 05 Sri Lanka CONTACT DETAILS 14, De Fonseka Place, Colombo 05 Sri Lanka Tel : +94 11 5575 000 Fax : +94 11 2595 441 E-mail : info@softlogic.lk Web : www.softlogic.lk DIRECTORS A K Pathirage - Chairman/ Managing Director G W D H U Gunawardena R J Perera H K Kaimal M P R Rassool Dr S Selliah W M P L De Alwis, PC G L H Premaratne R A Ebell AUDIT COMMITTEE R A Ebell - Chairman Dr S Selliah W M P L De Alwis, PC G L H Premaratne REMUNERATION COMMITTEE W M P L De Alwis, PC - Chairman G L H Premaratne R A Ebell SECRETARIES AND REGISTRARS Softlogic Corporate Services (Pvt) Ltd 14, De Fonseka Place, Colombo 05 Sri Lanka INVESTOR RELATIONS Softlogic Holdings PLC 14, De Fonseka Place, Colombo 05 Sri Lanka Tel : +94 11 5575 176 Fax : +94 11 2595 441 CONTACT FOR MEDIA Softlogic Holdings PLC 14, De Fonseka Place, Colombo 05 Sri Lanka Tel : +94 11 5575 000 Fax : +94 11 2595 441 BANKERS Sampath Bank PLC Commercial Bank of Ceylon PLC Hatton National Bank PLC Seylan Bank PLC National Development Bank PLC National Savings Bank Nations Trust Bank PLC DFCC Bank Limited Bank of Ceylon Union Bank of Colombo PLC Pan Asia Banking Corporation PLC Hongkong And Shanghai Banking Corporation Limited People’s Bank Cargills Bank Limited MCB Bank Ltd. AUDITORS Ernst & Young Chartered Accountants No. 201, De Saram Place Colombo 10 Sri Lanka LAWYERS Nithya Partners, Attorneys-at- Law No. 97 A, Galle Road Colombo 03 Sri Lanka Corporate Information Designed & produced by Digital Plates & Printing by Printel (Pvt) Ltd Photography by Danush De Costa & Dimitri Crusz
- 228. www.softlogic.lk Softlogic Holdings PLC 14,De Fonseka Place, Colombo 05, Sri Lanka Tel : +94 (11) 557 5000, Fax : +94 (11) 259 5441 E-mail : info@softlogic.lk