JKH Ar
JKH Ar
JKH Ar
John Keells Holdings has been at the forefront of the local world of business for
several decades, managing a range of industry groups strategically selected to
represent several key growth areas of the economy. Over the years, we have
come to exemplify the principles of leadership, through progressive policies,
strong values and a commitment to achieving excellence in all that we choose
to do.
14 28 60 86
Group Highlights Management Discussion and Analysis
4 Introduction to the Report Group Consolidated Review
6 Our Business Model 57 External Environment
8 Organisational Structure 60 Capital Management Review
9 Performance Highlights 60 Financial and Manufactured Capital
10 Year at a Glance 66 Natural Capital
12 Sustainable Development Goals and Impacts 71 Human Capital
13 Economic Value-Added Statement 74 Social and Relationship Capital
14 Chairman’s Message 80 Intellectual Capital
83 Outlook
Governance 86 Strategy, Resource Allocation and Portfolio
Management
22 Board of Directors
93 Sustainability Integration and Stakeholder
24 Group Executive Committee
Engagement
25 Group Operating Committee
99 Risks, Opportunities and Internal Controls
28 Corporate Governance Commentary
103 Investor Relations
103 Share Information
110 Key Investment Considerations
148 Consumer Foods and Retail 162 Financial Services 172 Information Technology 180 Other including
Plantation Services
Supplementary Information JKH was incorporated as a public limited liability company in 1979
and obtained a listing on the Colombo Stock Exchange in 1986.
288 History of the John Keells Group
Having issued Global Depository Receipts (GDRs) which were listed
289 Decade at a Glance
on the Luxembourg Stock Exchange, JKH became the first Sri Lankan
290 Economic Value Statement
company to be listed overseas.
292 Indicative US Dollar Financial Statements
294 Group Real Estate Portfolio The Group’s investment philosophy is based on a positive outlook,
296 Sri Lankan Economy bold approach, commitment to delivery and flexibility to change.
298 Glossary JKH is also committed to maintaining integrity, ethical dealings,
299 Contribution to National and International sustainable development and greater social responsibility in a multi-
Governance and Advocacy Organisations stakeholder context. JKH is a full member of the World Economic
300 Independent Assurance Statement on Forum and a member of the UN Global Compact.
Non-Financial Reporting
303 Group Directory The Holding Company of the Group - John Keells Holdings PLC is
308 GRI Content Index based at 117, Sir Chittampalam A. Gardiner Mawatha, Colombo 2 and
316 Notice of Meeting has offices and businesses located across Sri Lanka and the Maldives.
3
GRI 102-46, 102-49
WE ARE PLEASED TO All Group subsidiary and equity accounted investees were considered in capturing its financial
performance. For the purpose of reporting its sustainability performance, all Group subsidiaries
PRESENT OUR THIRD and equity accounted investees have been considered, barring companies in which the Group
INTEGRATED REPORT does not exercise significant management control, non-operational companies, investment
IN ACCORDANCE WITH companies and companies owning only land, which have been clearly identified in the reporting
boundary specified in the Group Directory 2017/18. In expanding its sustainability scope,
THE INTEGRATED going forward, the Group will also seek to report on companies over which it does not exercise
REPORTING FRAMEWORK significant management control, where relevant.
OF THE INTERNATIONAL
INTEGRATED REPORTING STANDARDS AND PRINCIPLES
COUNCIL IIRC. Reporting
y Integrated Reporting Framework of the International Integrated Reporting Council
Governance, Risk Management and Operations
The Report strives to deliver a balanced and
relevant report that will bring clarity and detail y Laws and regulations of the Companies Act No. 7 of 2007
to the complex task of reporting a year of y Listing Rules of the Colombo Stock Exchange (CSE) and subsequent revisions to date
diverse business operations across multiple y Code of Best Practices on Corporate Governance jointly advocated by the Securities and
sectors. Exchange Commission of Sri Lanka (SEC) and the Institute of Chartered Accountants of Sri
Lanka (CA Sri Lanka)
y UK Corporate Governance Code (formerly known as the Combined Code of 2010)
This Report reflects on: Financial Reporting
y The value creation model of the Group y Sri Lanka Accounting Standards (SLFRS/LKAS) issued by the Institute of Chartered
combining the different forms of Accountants of Sri Lanka (CA Sri Lanka)
capitals in the short, medium and long
Sustainability Reporting
term
y This Report has been prepared in accordance with the GRI Standards: Core option
y Governance, risk management and
y United Nations Sustainable Development Goals
sustainability frameworks entrenched
y United Nations Global Compact Active Principles
within the John Keells Group
y Financial, operational, environmental
and social review and results of the
Group INTEGRATED REPORTING AND GUIDING PRINCIPLES
Given the complex task of reporting an year of operations of a conglomerate, the Group has strived
to deliver a comprehensive, balanced and relevant report, while adhering to the recommendations
of the IIRC. The seven guiding principles in integrated reporting, as depicted, have been given due
In keeping this Report concise and pertinent
consideration when preparing and presenting this Report.
to the year under review, we have ensured
that the commentaries in certain sections are
limited to a helicopter view of the events and
progress within the year, whilst the Group’s
standard policies, operating guidelines and
management approaches are available on the Strategic focus and Connectivity
future orientation of information
corporate website.
Conciseness
5
OUR BUSINESS MODEL
INPUTS
Sustainability
Risks and Framework
Business Outlook
Opportunities
Brand stewardship
INTELLECTUAL Research and
CAPITAL development
Technological expertise
VALUES :
CARING, EXCELLENCE, TRUST, INNOVATION, INTEGRITY
Effective and responsible investments of shareholder funds Shareholder returns and Financial stability
Business development activities dividends Financial growth
Cost reduction initiatives Payments to other Creation of wealth
stakeholders
Share price appreciation
Adoption of Global Goals Disposal of all effluent and Sustainable natural resource
Environmental impact assessment and mitigation of impact waste efficiently utilisation
Roll-out of carbon footprint and energy initiatives Reduction of carbon Bio-diversity preservation
Strengthening of water and waste management processes footprint
Reduced resource consumption
through better monitoring
Channelling of employee skills and expertise for business growth Staff motivation Alignment of workforce with
Training and development of employee cadre Talented and efficient Group vision
Performance management and appraisals workforce Profitable businesses through
Employee survey initiatives Job satisfaction improved productivity and
Structured career development programmes Career progression efficiency
Safe and equitable
environment
Investment in community and livelihood development Community skills Brand visibility and
Regular dialogue with investors, analysts and other stakeholders development reputation
Social impact assessments Well informed and sound Strengthened supply chain
Identification of key stakeholders and material aspects in relation to them investment decisions Adherence to UN SDGs
Awareness creation and engagement of suppliers through the Supplier Better supplier/distributor
Management Framework and stakeholder relations
Social needs assessment based on Sustainable Development Goals
(SDGs)/UN Global Compact/national agenda
Development of intangible infrastructure, processes and procedures Intellectual property products: Evolving businesses to suit
to improve efficiency Patents the ever changing, dynamic
New product development Copyrights consumer
Innovation An organisation better
prepared to face disruptive
business models
7
ORGANISATIONAL STRUCTURE
TRANSPORTATION
Ports and Shipping
Transportation
LEISURE
City Hotels
Resorts
Destination Management
Hotel Management
PROPERTY DEVELOPMENT
Property Development
Real Estate
FINANCIAL SERVICES
Insurance
Banking
Stock Broking
INFORMATION TECHNOLOGY
IT Services
Office Automation
IT Enabled Services
OTHER INCLUDING
PLANTATION SERVICES
Plantation Services
Other
CENTRE FUNCTIONS
PERFORMANCE HIGHLIGHTS
Financial Capital
Group revenue - consolidated Rs.million 121,215 106,273 93,710
Group profit before interest and tax (EBIT) Rs.million 28,155 23,324 20,192
Group profit before interest, tax, depreciation and
amortisation (EBITDA) Rs.million 32,206 27,222 24,707
Group profit before tax Rs.million 27,634 22,888 19,198
Group profit after tax Rs.million 23,120 18,117 15,792
Group profit attributable to shareholders Rs.million 21,021 16,275 14,070
Diluted earnings per share Rs. 15.15 11.84 10.52
Return on equity (ROE) % 11.1 9.8 9.6
Pre-tax return on capital employed (ROCE) % 11.9 11.5 11.1
Total assets Rs.million 322,448 277,272 240,975
Net debt (cash)* Rs.million (33,519) (55,309) (51,849)
Total shareholders' funds Rs.million 199,920 178,635 154,982
Economic value retained Rs.million 16,531 12,796 9,873
Dividend paid per share Rs. 6.0 5.5 7.0**
Dividend payout ratio % 40.8 45.9 46.7
Market capitalisation Rs.million 221,445 191,332 176,032
Natural Capital
Energy consumption - non renewable resources
per Rs.million of revenue GJ 3.02 3.19 2.26
Energy consumption - renewable resources
per Rs.million of revenue GJ 0.90 0.94 1.18
Purchased energy - national grid per Rs.million of revenue GJ 2.97 3.25 3.52
Direct greenhouse gas emissions - scope 1 MT 27,532 25,727 15,621
Indirect greenhouse gas emissions - scope 2 MT 68,534 66,384 63,041
Total carbon footprint per Rs.million of revenue MT 0.79 0.85 0.83
Water withdrawal per Rs.million of revenue m3 16.0 19.0 21.1
Water discharge m3 1,414,546 1,460,799 1,439,138
Volume of hazardous waste generated MT 439 329 285
Waste recycled/reused by Group companies and through
third party contractors % 41 42 43
Human Capital
Total workforce (employees and contractor's staff ) Persons 20,361 20,100 19,522
Employee benefit liability as of 31 March Rs.million 1,970 1,880 1,650
Total attrition % 26 24 21
Injury rate per 100 employees Injuries 1.03 1.06 1.11
Lost day rate per 100 employees Lost days 0.04 0.04 0.05
Average hours of training per employee Hours 47 41 35
Employee receiving performance reviews % 100 100 100
Social and Relationship Capital
Proportion of purchases from suppliers within Sri Lanka % 72 83 81
Community engagement Number of persons impacted 1,455,814 1,010,200 855,364
Proportion of labels carrying ingredients used % 80 81 81
Proportion of labels carrying information on disposal % 92 93 76
Proportion of labels carrying sourcing of components % 1 1 1
* Customer advances in the Property Development sector and cash and cash equivalents relating to UA life fund have been excluded
** Including a special dividend
9
YEAR AT A GLANCE
•
consideration of Rs.4.37 billion
Completion of construction of the Frozen
3.02 GJ
JOHN KEELLS PROPERTIES Confectionery manufacturing plant CICL Decrease of 5 per cent
1,000 Jobs
Campaign
Client Innovation Global Awards in India in
December 2017
Sri Lanka’s annual open-air art fair “Kala Pola” • JMSL launched a new store format for its
Hiring and training of 1,000 new employees which showcases and promotes visual art “Keells” supermarkets in November 2017
within the Retail sector celebrated its 25th year in January 2018
Rs.125 mn
INVESTMENT IN OUR WORKFORCE • Fostering and nurturing talent: John
629,770
Number of training hours
• Digitising the value chain: The entire
sourcing process managed by Group
sourcing was migrated to an electronic
Keells X; the second leg of the open
innovation challenge opened its new co-
working space at Crescat Boulevard
procurement platform last year
•
Mathematics fields
11
SUSTAINABLE DEVELOPMENT GOALS AND IMPACTS
Our vision: “Empowering the nation for tomorrow”
In executing operational decisions, the Group strives to align its strategies, initiatives, and targets with the Sustainable Development Goals
(SDGs) of the United Nations to address and action initiatives aimed at alleviating poverty, protecting the planet and ensuring that all
people enjoy peace and prosperity. Given the conglomerate nature of the Group, the ensuing section illustrates the key pillars of John Keells
Foundation and its focus on the SDGs through its various projects and initiatives. In addition to the below, the Group through its businesses
and other initiatives, impacts and contributes to all 17 SDGs.
To foster sustainable livelihoods through relevant To foster healthy communities towards To minimise the impact of our operations and
skills, capacity and infrastructure enhancement enhancing wellbeing and productivity of Sri promote conservation and sustainability towards
towards building empowered and sustainable Lanka and Sri Lankans. enhancing environmental and natural capital.
communities.
Our Projects Our Projects
Our Projects
• John Keells Vision Project • Nature Field Centre – Rumassala
• Village Adoption Project
• John Keells HIV & AIDS Awareness Campaign • Project Leopard
• Rural BPO Initiative
• Project WAVE (Working Against Violence • Elephant Research
• CKD Prevention Initiative
through Education) • Forestry Project
• UNGC Water Stewardship
Our Impact • Paper Conservation
Our Impact
• 972 surgeries, 12 eye camps, • Plasticcycle
• 4 villages in three provinces, 3,015 persons
• 3 BPO centres in Mahavilachchiya, Seenigama, 110 school screenings and 2,284 eye glasses Our Impact
and Jaffna, 48 associates donated • 1,579 school children
• 7,360 persons sensitised on HIV & AIDS • 7 cattle pens donated during the year
• 104,547 persons sensitised on gender based • 2 GPS collars tracking 2 elephant herds
violence and child abuse prevention • 35 tea smallholders in 15.3 acres of land, 3,000
trees with 92 per cent survival rate
Rs. 2,084 mn
(2016/17: Rs.1,765 mn)
Valuation gain on
investment property
OPERATING COSTS
Rs. 896 mn
(2016/17: Rs.484 mn)
Rs. 93,658 mn
(2016/17: Rs.81,548 mn) REVENUE
Employee wages
Direct economic value generated Rs. 121,215 mn
(2016/17: Rs.106,273 mn)
and benefits
Rs.139,059 mn
Rs. 12,264 mn FINANCE INCOME
(2016/17: Rs.12,746 mn)
Rs. 11,268 mn
(2016/17: Rs.10,033 mn)
Payments to providers
of funds Share of results of equity
accounted investees
Rs. 10,034 mn
(2016/17: Rs.8,339 mn)
Economic value distributed
COMMUNITY
INVESTMENTS
Economic value retained PROFIT AFTER
Rs. 124 mn
(2016/17: Rs.144 mn)
Rs.16,716 mn DIVIDENDS
Rs. 12,696 mn
(2016/17: Rs.8,995 mn)
PAYMENTS TO
GOVERNMENT
AMORTISATION
Rs. 6,263 mn
(2016/17: Rs.6,285 mn) Rs. 784 mn
(2016/17: Rs.926 mn)
DEPRECIATION
Rs. 3,236 mn
(2016/17: Rs.2,875 mn)
13
CHAIRMAN’S MESSAGE
I am pleased to present the Integrated Annual Report and the Financial Statements
for the financial year ended 31 March 2018.
This is the third Annual Report prepared in conformance with the Integrated
Reporting Framework of the International Integrated Reporting Council. I trust
our Report will provide you with an in-depth understanding of the Group’s value
creation process and the strategies in place to manage the diverse portfolio of
businesses towards driving sustainable growth.
The integrated nature of this Report Summarised below are the key financial highlights of our operating performance during the
exemplifies the stakeholder centric strategies year under review.
and actions which are founded on the
principles of compliance, conformance, y Group revenue increased by 14 per cent to Rs.121.22 billion
governance, ethical conduct and sustainable
development. These fundamental principles y Group profit before tax increased by 21 per cent to Rs.27.63 billion. Recurring profit before
are supported by our corporate characteristics tax increased by 7 per cent to Rs.24.27 billion
of leadership, teamwork, social responsibility, y Profit attributable to equity holders of the parent increased by 29 per cent to Rs.21.02 billion.
operational excellence and business expertise; Recurring profit attributable to equity holders of the parent increased by 14 per cent to
the strong points that make us who we are Rs.18.32 billion
today.
y Group earnings before interest, tax, depreciation and amortisation (EBITDA) increased by
The Group profit before tax (PBT) increased 18 per cent to Rs.32.21 billion. Recurring Group EBITDA increased by 7 per cent to Rs.28.84
by 21 per cent to Rs.27.63 billion for the billion
financial year ended 31 March 2018. The y Return on capital employed (ROCE) increased to 11.9 per cent from 11.5 per cent in the
profit attributable to equity holders of the previous year
parent was Rs.21.02 billion, representing an
increase of 29 per cent over the Rs.16.28 billion y Return on equity (ROE) increased to 11.1 per cent from 9.8 per cent in the previous year
recorded in the previous year. y The adjusted ROCE and the ROE are 13.5 per cent and 11.8 per cent respectively
I am pleased to state that your Group recorded y Debt to equity ratio increased to 13.2 per cent compared with 11.7 per cent in the previous
a satisfactory year of performance despite the financial year
challenging operating environment in the year y The Company PBT increased by 31 per cent to Rs.22.52 billion. The increase is mainly
under review, where economic growth was on account of a non-cash gain of Rs.8.18 billion arising from the exercise undertaken to
muted amidst pressures emanating from the rationalise and consolidate the ownership structure of the Group’s shareholding in its
external environment in addition to domestic subsidiaries. However, the non-cash gain is eliminated at the Group reporting level.
macro-economic pressures.
y Diluted earnings per share increased by 28 per cent to Rs.15.15. Recurring EPS increased by
During the year under review, the key 13 per cent to Rs.13.20
businesses of the Group underwent a y Cash earnings per share increased by 23 per cent to Rs.17.09
comprehensive five-year strategy formulation
and planning exercise. Consequent to this y The total shareholder return (TSR) in 2017/18 was 19.7 per cent
exercise, key investments were identified y The carbon footprint per one million rupees of revenue decreased by 8 per cent to 0.79
and earmarked for implementation over the metric tons
next few years across key growth businesses,
particularly in the Leisure, Consumer Foods
and Retail, Financial Services and Property cash to fund its investment pipeline, some of
industry groups. which are morefully described in the Industry
GROUP PROFIT BEFORE TAX
Rs.27.63 bn
Group Review section and, Strategy, Resource
Given our strong balance sheet and Allocation and Portfolio Management sections
anticipated cash generation, the Group will of this Report. Given the gestation period of (2016/17: Rs.22.89 bn)
continue to deploy a significant quantum of some of these investments, the realisation
15
CHAIRMAN’S MESSAGE
manufacturing facility in the Seethawaka should be noted that the life insurance surplus
AS A CONTINUING PART
BOI zone. The construction of this facility was of Rs.3.64 billion [2016/17: Rs.1.10 billion]
completed in the fourth quarter of 2017/18, as OF OUR BEVERAGE was the optimum value transfer for 2017 as
planned, with trial production underway and PORTFOLIO STRATEGY, indicated by the independent actuary. The
commercial operations commencing in the one-off surplus of Rs.3.38 billion is attributable
first quarter of 2018/19. This facility will allow
WE WILL CONTINUE TO to non-participating and non-unit fund of
the business to enhance its impulse offering AGGRESSIVELY EXPAND unit linked business transferred from the life
whilst expanding the production capacity of OUR SUGAR FREE AND LOW policyholder fund to the life shareholder fund.
the business and creating further economies of
scale and operational efficiencies.
SUGAR PRODUCT RANGE BY The Banking industry recorded healthy growth
ACCELERATING THE LAUNCH driven mainly by the strong credit demand
Whilst Keells Food Products PLC recorded OF SUCH NEW PRODUCTS stemming from both the private and public
a higher volume growth compared to the sectors. Despite the marginal contraction
previous year, profitability was impacted by
WHILST ALSO LAUNCHING in net interest margins, Nations Trust Bank
an increase in marketing and promotional MORE NONCARBONATED (NTB) recorded a double-digit growth in both
costs pertaining to the rebranding of “Keells” to BEVERAGES TO BROADEN deposits and advances, which trended above
“Krest”. the industry average. The growth in loans and
OUR OFFERING. advances was primarily driven by the Retail,
The Retail sector continued to outperform SME and Corporate segments. During the
market growth, driven by the rapid year under review, the Bank launched “FriMi”,
expansion of new stores underscoring the the country’s first digital bank, which enables
value created by the brand and the service The Nexus Mobile loyalty programme, which the opening of a bank account through a
offering. However, the rate of growth and the enables the business to identify key trends in smart device. “FriMi” is a next generation bank
margins of the Retail sector were impacted customers and shopping lifestyles using data account, payment system and e-wallet that
by the slowdown in consumer discretionary analytics, proved to be a key tool in retaining will offer convenience, speed and added value
spending as previously mentioned. The and attracting customers and in enhancing to users on one integrated digital platform.
tightening monetary conditions coupled with customer experience. During the year under
price ceilings imposed on some essential review, the loyalty programme membership During the year, your Group invested Rs.1.45
goods negatively impacted the average basket exceeded the 900,000 mark. billion in NTB, subscribing to its entitlement of
value and the gross margins of the business. rights and applying for additional rights, in a
Financial Services Industry Group Rights Issue of Ordinary Non-Voting Convertible
The penetration of modern Fast Moving The Financial Services industry group recorded Shares, that concluded in February 2018. The
Consumer Goods (FMCG) retail in the country revenues, including the share of revenues from Director of Bank Supervision of the Central Bank
remains low, compared to more developed associate companies, of Rs.17.22 billion and a of Sri Lanka (CBSL), by letter dated 12 October
regional countries, and presents a significant PAT of Rs.8.58 billion, contributing 13 per cent 2017, informed the Bank that the Monetary
opportunity for growth. The sector will and 37 per cent to Group revenue and PAT. The Board of the CBSL has permitted the Group to
continue to strategically expand its store 2017/18 PAT increased significantly over the retain its current voting shareholdings in the
network and distribution capabilities in previous year, mainly on account of the Life Bank till 31 December 2020, and to reduce it
gaining market share. The expansion of our Insurance business, Union Assurance PLC (UA). to 15 per cent, with effect from that date. The
outlet footprint will continue its momentum Monetary Board has also required the Bank
with the planned opening of 40 outlets in Whilst recording an encouraging growth of to limit the voting rights of the Group to 10
2018/19. The centralised distribution centre 22 per cent in Gross Written Premiums (GWP), per cent with effect from 31 March 2018. The
is expected to be operational by the second well above the industry growth of 13 per cent, Group’s effective economic interest in NTB now
half of 2019/20, further enhancing operational UA recorded an annual life insurance surplus stands at 32.16 per cent.
processes, and in particular, strengthening the of Rs.3.64 billion [2016/17: Rs.1.10 billion] and a
“fresh” supply chain of the business. one-off surplus of Rs.3.38 billion during the year Information Technology Industry
under review. The significant increase is due to
Group
During the year under review, 23 new outlets a policy change across the industry in keeping
The Information Technology industry group
were opened, bringing the total store count with international norms for computation of
recorded revenues of Rs.11.07 billion and
to 80 as at 31 March 2018. The stores opened insurance contract liabilities as per the directive
a PAT of Rs.360 million, contributing 8 per
during the quarter featured the new branding and guidelines issued by the Insurance
cent and 2 per cent to Group revenue and
which will be rolled out to the existing stores Regulatory Commission of Sri Lanka (IRCSL). It
PAT respectively. The 2017/18 PAT decreased
as well by end December 2018. The branding by 23 per cent over the previous year. In
initiative encompasses new elements to the September 2017, the Group divested its stake
store in line with evolving consumer needs FINANCIAL SERVICES in its subsidiary, John Keells BPO Solutions
which we are confident will drive footfall. The PROFIT AFTER TAX India (Private) Limited. The Office Automation
new format and offering has been very well
Rs.8.57 bn
business recorded volume declines across its
received. product categories on account of a general
(2016/17: Rs.2.04 bn) tapering of demand and a slowdown in
consumer discretionary spending.
17
CHAIRMAN’S MESSAGE
THE YEAR UNDER REVIEW MARKED A SIGNIFICANT Against the backdrop of a constantly changing
human resource landscape and diverse
MILESTONE AS JKR’S OWN RESEARCH LABORATORY workforce, this platform will further empower
COMMENCED OPERATIONS. THIS FACILITY WILL BE evolving employee-centric practices. It
INSTRUMENTAL IN ENHANCING JKR’S CAPABILITIES IN is expected to bring about a multitude
of benefits, including, but not limited to,
CONDUCTING INHOUSE PROJECTS, THUS ENSURING business efficiency, analytics and employee
SOLE OWNERSHIP OF INTELLECTUAL PROPERTY BY engagement.
JKH. EIGHT RESEARCH PROJECTS ARE CURRENTLY
Corporate Governance
BEING CONDUCTED INHOUSE. I am pleased to state that there were no
departures from any of the provisions of
the Code of Business Conduct and Ethics
Other including Plantation Services instrumental in enhancing JKR’s capabilities in of the Code of Best Practice of Corporate
The Plantation Services sector recorded conducting in-house projects, thus ensuring Governance, jointly advocated by the
revenues of Rs.3.28 billion and a PAT of sole ownership of Intellectual Property by JKH. Securities and Exchange Commission of
Rs.475 million, contributing 2 per cent each Eight research projects are currently being Sri Lanka and the Institute of Chartered
to Group revenue and PAT. The 2017/18 PAT conducted in-house. Accountants of Sri Lanka.
increased significantly over the previous year.
The Plantation Services sector recorded an During the year under review, the Group During the year under review, several
improvement in profitability as a result of continued its concerted effort to drive a initiatives were undertaken to strengthen
improved tea prices and other operational culture of disruptive innovation amongst the Group’s governance framework and
efficiencies. our employees and businesses. An award on controls. These include strengthening and
Disruptive Innovation was presented for the streamlining the Group’s cyber security
Others, comprising of the Holding Company second time at the JKH Chairman’s Awards resilience through device management, user
and other investments, and the Plantation 2017, to recognise businesses which have access and data protection. Further to the
Services sector, together, recorded revenues made disruptive innovation an integral part of migration of the Group procurement process
of Rs.3.44 billion and a PAT of Rs.3.82 billion for their operating culture and have formulated to an electronic sourcing platform in 2016/17,
2017/18, contributing 3 per cent and 17 per successful responses to address current, and a total of 120 suppliers were registered
cent to Group revenue and PAT respectively. emerging, business disruption. The second during the year under review. The platform
The 2017/18 PAT increased by 23 per cent over phase of “John Keells X: An Open Innovation is instrumental in achieving significant
the previous year. The increased PAT is mainly Challenge” was launched in May 2017, with financial and non-financial savings, as well as
attributable to the interest income generated six selected participants winning entry enabling greater transparency and efficiency
on the Group’s Rupee and US Dollar portfolios to the 6-month John Keells X Accelerator in the procurement process of the Group. In
and exchange gains recorded at the Company Programme, enabling a conducive ecosystem addition, the year under review marked the
on its foreign currency denominated cash for young entrepreneurs to thrive, and to first period during which all risk reviews of
holdings. encourage businesses at JKH to engage, in a the businesses were conducted through the
model of open sourced innovation. electronic Risk Management Platform.
of waste responsibly, provide training and The CSR initiatives of the Group are centrally
DURING THE YEAR UNDER
development, maintain a safe working planned and implemented by John Keells
environment and ensure the highest standards REVIEW, THE GROUP Foundation (Foundation), a company limited
of product stewardship. The Group has LAUNCHED “PLASTICCYCLE”, by guarantee which is also registered as
further extended this to its value chain over a “Voluntary Social Service Organisation”
AN INITIATIVE TO “REFUSE, with the Ministry of Social Welfare. JKH is
time through ongoing engagements and
awareness creation with key suppliers through REDUCE, REUSE AND a participant of the United Nations Global
regular fora, encouraging of sharing supplier RECYCLE” THE USE OF Compact and the Foundation ensures that its
best practices, the supplier code of conduct activities are aligned to the UNCG Principles,
PLASTIC IN THE COUNTRY. the Sustainable Development Goals and
and on-site assessments.
national priorities. Whilst further details are
As mentioned in my message in the Annual available under the Group Consolidated
Report 2016/17, the Group established energy operating and roof competencies in keeping Review and Industry Group Review sections
and water reduction goals, to achieve a 12 with the Group Learning and Development of this Report, some of the highlights of the
per cent reduction in its energy usage and policy guidelines. Foundation’s work during the year are listed
a 6 per cent reduction in its water usage by below.
the year 2020, against its 2015/16 baseline Plasticcycle
figures. During the year under review, the During the year under review, the Group English Language Scholarship Programme
Group reported a 4 per cent increase in launched “Plasticcycle”, an initiative to A total of 1,269 school children completed
energy usage, impacted by lower levels of “refuse, reduce, reuse and recycle” the use “English for Teens” courses under three
operational activity in the Consumer Foods of plastic in the country. The project aims levels. Two pilot initiatives were successfully
sector contributing to a higher per operating to combat plastic pollution in Sri Lanka completed at The School for the Blind,
factor energy usage, and achieved a 7 per cent through education and awareness within the Ratmalana, benefiting a total of 40 students.
reduction in water usage against the baseline. community, whilst also providing means by
The Group continues to strive to achieve the which plastic can be disposed of responsibly. Neighbourhood Schools Development
energy goal through initiatives, some of which The pilot phase of the project commenced Project
are implemented, and others in the process of within two identified municipal wards The Foundation organised the annual career
being rolled out, whilst also focussing on the in Colombo 2. The project has also been guidance programme benefiting 134 O’Level
use of more renewable energy during the year. expanded to other targeted high impact areas. students of 6 underserved Government
The project works with various stake holder schools in Colombo. A total of 45 students are
I am pleased to announce that this year, too, groups such as the Government authorities, undergoing IT training while 6 school leavers
we made significant progress on the agenda recyclers, environmental protection bodies, have completed a 6-month vocational training
items reported in last year’s Integrated Annual John Keells Group staff, and school children. programme at “Cinnamon Lakeside” and
Report. Although the Group’s carbon footprint More information on the initiative can be “Cinnamon red”.
increased by 4 per cent to 96,066 MT, in found on the “Plasticcycle” website launched in
absolute terms, as a result of higher levels August 2017.
Project WAVE (Working Against Violence
through Education)
of operational activity, key industry groups
Under this project, aimed at combating
such as Leisure and Consumer Foods and Corporate Social Responsibility
gender based violence and child abuse
Retail experienced a combined reduction The John Keells Group is fully committed
through awareness raising, a total of 3,964
of 8 per cent in carbon footprint per million to our responsibility to make a positive
Group staff were sensitised. A second
rupees of revenue, thus reflecting the positive difference in the communities that we operate
public awareness campaign targeting
results of the initiatives embarked upon in in, and its contribution towards People,
sexual harassment on public transport was
these areas. Similarly, during the year under Planet, Partnership, Prosperity and Peace
conducted targeting train commuters with
review, water withdrawal reduced by 6 per in terms of the Sustainability Development
the pasting of 2,000 stickers inside carriages
cent to 1,908,422 cubic meters, whilst Leisure Goals. Corporate Social Responsibility (CSR)
and the distribution of 30,000 information
and Consumer Foods and Retail reported a is an integral part of our business ethos
cards to commuters at Fort, Maradana and
combined reduction of 17 per cent in water that permeates naturally throughout the
Slave Island railway stations, which resulted
withdrawal per million rupees of revenue. organisation and is now a part of the DNA
in an estimated cumulative reach of 100,000
Waste generated increased by 6 per cent to of our employees. Staff volunteerism is a key
commuters.
9,260 MT due to the aforementioned increase component of our CSR and has enabled our
in operational activity across the Group. staff to enrich their personal experiences
The John Keells Vision Project
through community involvement and service.
A total of 12 eye camps were conducted
From an employee perspective, 209 incidents
resulting in the completion of 972 cataract
of occupational injuries and diseases were Our CSR activities continue to be on six key
surgeries. Under the School Screening
recorded this year, whilst Group employees areas, namely, Education, Health, Environment,
Programme in the Colombo District, a
received, on average, 47 hours of training Livelihood Development, Arts and Culture,
collaboration with the Ministry of Health,
per person. It should be noted that the and Disaster Relief. All projects undertaken
vision screening was conducted in 110
training hours for employees are determined are inspired and sustained by our CSR vision
schools, testing over 35,860 school children
on a needs basis, where business specific of “Empowering the Nation for Tomorrow”.
whilst 2,284 spectacles were donated.
training gaps are identified in respect of both
19
CHAIRMAN’S MESSAGE
AS ANNOUNCED IN THE GROUP’S SUCCESSION PLAN, and the Group Finance Director respectively,
effective from 1 January 2018. Further, Mr.
MR. KRISHAN BALENDRA AND MR. GIHAN COORAY Balendra will take over as Chairman and Mr.
ASSUMED OFFICE AS THE DEPUTY CHAIRMAN AND THE Cooray as Deputy Chairman/Group Finance
GROUP FINANCE DIRECTOR RESPECTIVELY, EFFECTIVE Director upon my retirement at the end of this
year.
FROM 1 JANUARY 2018. FURTHER, MR. BALENDRA WILL
TAKE OVER AS CHAIRMAN AND MR. COORAY AS DEPUTY Conclusion
CHAIRMAN/GROUP FINANCE DIRECTOR UPON MY In conclusion, on behalf of the Board of
Directors and all employees of the John Keells
RETIREMENT AT THE END OF THIS YEAR. Group, I thank all our stakeholders for the
support extended to the Group during the
year.
HIV & AIDS Awareness Campaign Kala Pola
A total of 7,360 persons were sensitised on HIV The 25th anniversary of Kala Pola, the popular Finally, I thank my colleagues on the Board
& AIDS. The Foundation’s e-learning platform annual open-air art fair, was successfully and the Group Executive Committee for their
on HIV & AIDS, which provides awareness held with the participation of 358 artists and guidance and support extended to me during
free of charge to the public via its website, sculptors from various parts of Sri Lanka, the year.
attracted over 400 visitors with 97 persons attracting over 28,500 visitors, A dedicated
completing the module. website and a commemorative stamp and first
day cover were launched and 30 senior artists
Village Adoption of Kala Pola felicitated in commemoration of
In Mullaitivu District, the Family Empowerment 25 years.
Programme targeting 30 low income families
of Iranaipalai and Puthumathalan and a youth Our Volunteers
career guidance workshop impacting 142 During the year in review, the Foundation Susantha Ratnayake
youth were completed successfully, while recorded a total of 5,411 hours of CSR Chairman
the construction of a community centre was volunteerism by 840 staff volunteers across
initiated in Puthumathalan. In Morawewa the John Keells Group in respect of activities 25 May 2018
North of Trincomalee District, a pilot farmer- conducted by the Group. This number
buyer forum was organised in collaboration excludes the substantial volunteer activities at
with the Directors of Agriculture and Irrigation the business or sector level.
towards encouraging crop diversification in
view of the water scarcity in the area with the Dividends
participation of 72 farmers from 11 farmer Your Board declared a third and final dividend
organisations and representatives from several of Rs.2.00 per share to be paid on 18 June
manufacturing and retail organisations. In 2018. The first and second interim dividends
Nithulemada of the Kandy District, music for the year of Rs.2.00 per share, each, were
instruments were donated to two schools paid in November 2017 and February 2018,
while steps were initiated to establish a respectively. The total dividend pay-out in
women’s society. the year under review was Rs.8.32 billion
compared to the Rs.7.28 billion in the previous
Project Gathering financial year.
The elephant conservation initiative, in
collaboration with Cinnamon Hotels & Resorts Retirements and Appointments
and the Centre for Conservation and Research, I would like to place on record our deep
made significant strides during the year when appreciation for the invaluable contribution
elephants from two herds were fitted with made by Mr. Ajit Gunewardene, Deputy
GPS satellite collars with the support of the Chairman, and Mr. Ronnie Peiris, Group
Department of Wildlife Conservation. The Finance Director, who retired with effect from
primary objective of collaring and continuous 31 December 2017. I wish them the very best
monitoring of the elephants is to map their in their future endeavours.
migration pattern and thereby formulate
scientific information towards improving As announced in the Group’s succession plan,
the management of elephant habitats in the Mr. Krishan Balendra and Mr. Gihan Cooray
Anuradhapura District. assumed office as the Deputy Chairman
Building a reputation
for integrity, transparency
and value
21
BOARD OF DIRECTORS
BOARD COMMITTEES
Audit Committee A
Human Resources and Compensation Committee H
D Refer Group Directory for directorships
Nominations Committee N held by Executive Directors in other
Related Party Transactions Review Committee R Group companies
23
GROUP EXECUTIVE COMMITTEE
25
GROUP OPERATING COMMITTEE
Sunimal Senanayake
Executive Vice President
Sunimal Senanayake is an Executive Vice President of the John Keells
Group and the Sector Head of the Resorts sector (Sri Lanka and
Maldives). He is also a member of the Group Operating Committee and
has over 35 years of experience in the Leisure Industry, both in Hotels
and Inbound Tourism. He served as the Managing Director of Walkers
Tours Limited from 1991 - 1997. He is a past President of the Sri Lanka
Association of Inbound Tour Operators (SLAITO) and has held many
positions in travel trade related associations and committees. He has
also been a member of the Tourist Hotels Classification Committee and
Chairman/Member of the Advisory Board of the Sri Lanka Institute of
Tourism and Hotel Management
27
CORPORATE GOVERNANCE
The corporate governance framework at John Keells Holdings PLC is built on the
core principles of accountability, participation and transparency which are essential
for the creation, enhancement and maintenance of a sustainable business model.
1. Executive Summary
The Group has in place a well-structured Compliance Summary
corporate governance framework which has Regulatory Benchmarks
been adopted across all business units and
Standard/Principle/Code Adherence
is integral in maintaining and enhancing
sustainable shareholder value. In addition to Laws and regulations of the Companies Act No.7 Mandatory provisions - fully compliant
the “triggers” which ensure compliance with of 2007
mandatory requirements, the Group has also
established its own set of internal benchmarks, Listing Rules of the Colombo Stock Exchange (CSE) Mandatory provisions - fully compliant*
processes and structures towards meeting and subsequent revisions to-date
accepted best practices in governance. These, Securities and Exchange Commission of Sri Lanka Mandatory provisions - fully compliant*
we believe, are the attributes which have lent Act No. 36 of 1987 and subsequent amendments
credence to JKH’s well established reputation to-date, including directives and circulars
amongst all its stakeholders.
Code of Best Practices on Corporate Governance Voluntary provisions - fully compliant
The report below demonstrates, in detail, how (2013) jointly advocated by the Securities and
JKH has embraced, and complied with, all the Exchange Commission of Sri Lanka (SEC) and the
mandatory provisions of the Companies Act, Institute of Chartered Accountants of Sri Lanka
Listing Rules of the Colombo Stock Exchange (CA Sri Lanka)
(CSE) and the Securities and Exchange
UK Corporate Governance Code (formerly known as Voluntary provisions - fully compliant, as
Commission of Sri Lanka (SEC) Act and all other
the Combined Code of 2010) applicable to JKH
legislation and rules relevant to the businesses
of the Group. Further, it highlights the efforts Code of Best Practices on Corporate Governance Under review for voluntary adoption
made by the Group in ensuring that its practices (2017) issued by CA Sri Lanka
are in line, where relevant and appropriate,
with the Code of Best Practices on Corporate * With reference to Rule 7.13.2 of the Listing Rules of the Colombo Stock Exchange governing the
Governance (2013) jointly advocated by the SEC minimum public holdings of listed entities, Union Assurance PLC (UA) has requested a transfer from
and the Institute of Chartered Accountants of the Main Board of the CSE to the Diri Savi Board of the CSE, with JKH having reduced its stake in UAL
Sri Lanka (CA Sri Lanka). The Group is currently to 90 per cent as at 9 May 2018.
in the process of evaluating the provisions
under the new Code issued by CA Sri Lanka Key Internal Benchmarks
in December 2017. Whilst remaining in • Company Articles of Association and • Anti-fraud policy
compliance with the 2013 Code, the Group will other constitutional documents • Policy on communications and advertising
analyse the provisions of the 2017 code and its
• Recruitment and selection policies • Ombudsperson policy
applicability to JKH given the nature of business
in a conglomerate setting, and thereby adopt, • Learning and development policies • Group accounting procedures and policies
where applicable, the provisions recommended. • Policy on career management and • Policies on enterprise risk management
promotions
The report below discusses JKH’s compliance • Policies on fund management and FX risk
• Rewards and recognition policy mitigation
with all mandatory requirements of legislation
and its voluntary adoption of recommended • Leave, flexi-hours and tele-working • IT policies and procedures, including data
codes in the governance field. The ensuing policies protection and security
sections also describe the following in greater • Code of conduct • Group environmental and economic
detail: • Policy against sexual harassment policies
y The components of the JKH Corporate • Policies on forced, compulsory and child • Policies on energy, emissions, water and
Governance System labour waste management
y The monitoring mechanism in place to • Disciplinary procedure • Policies on products and services
ensure strict compliance to the Group’s
• Policy on grievance handling
Governance policy
y The outlook and emerging challenges
for corporate governance
29
CORPORATE GOVERNANCE
Board
GROUP Committee
Human Resource Listing Rules of the
Governance Colombo Stock
Exchange (CSE)
Nominations Audit
Mandatory compliance
Committee Committee Employee
Participation
Integrated Risk
Management The Code of Best
Practice on Corporate
Internal Governance as
Control published by the
GROUP + Chairman-CEO Securities and Exchange
INDUSTRY / Commission and the
FUNCTION IT Governance Institute of Chartered
Group Executive Committee (GEC) Accountants, Sri Lanka
JKH Code
of Conduct Voluntary compliance
INDUSTRY / Group Operating Committee (GOC)
FUNCTION
Stakeholder
Group Management Committee (GMC) Management
and Effective Recommendations of
SECTOR / Communication Ombudsperson the UK Corporate
FUNCTION / Governance Code as
Sector Committee
SUBSECTOR practicable in the
context of the nature
Management Committee of businesses and risk
BUSINESS / Sustainability profiles
FUNCTION / Governance External
BU / DEPT Control Voluntary compliance
Employee Empowerment
• All 4 Board Sub-Committees are chaired by Independent Directors appointed by the Board
• The Chairman-CEO is present at all Human Resources and Compensation Committee meetings unless the Chairman-CEO’s performance assessment or
remuneration is under discussion. The Group Finance Director and the President, Human Resources and Legal are invited as necessitated
• Audit Committee meetings are attended by the Chairman-CEO of JKH and the Group Finance Director. The Head of Group Business Process Review, External
Auditors and the Group Financial Controller are regular attendees
• GOC acts as the binding agent to the various businesses within the Group towards identifying and extracting Group synergies
• Only the key components are depicted in the diagram due to space constraints
Chairman-CEO
Refer 3.3
Purpose as Chairman: Purpose as CEO:
y To provide leadership to the Board whilst inculcating good y Execute strategies and policies of the Board
governance and ensuring effectiveness of the Board y Ensure the efficient management of all businesses
y Ensure constructive working relations are maintained between y Guide and supervise Executive Directors towards striking a
the Executive and Non-Executive members of the Board balance between their Board and Executive responsibilities
y Ensure with the assistance of the Board Secretary that: y Ensure the operating model of the Group is aligned with short
Board procedures are followed and long-term strategies of the Group
Information is disseminated in a timely manner to the Board y Ensure planned succession at very senior levels
Audit Committee Human Resources and Nominations Committee Related Party Transactions
Compensation Committee Review Committee
Purpose: Purpose: Purpose: Purpose:
To assist the Board in meeting y To assist the Board in y To lead the process of To ensure that all related party
its oversight responsibilities the establishment of Board appointments and transactions of the Group are
pertaining to Group financial remuneration policies and recommendations to the consistent with the Code on
statements, risk management, practices Board Related Party Transactions
internal controls, legal and y To review and recommend y To define and establish a issued by SEC and with the
regulatory frameworks Listing Rules of the CSE
Delegated authority
appropriate remuneration nomination process for
packages for the CEO and Non-Executive Directors
other Executive Directors
Reporting obligations
Employee Empowerment
Purpose: Effective recruitment, development and retention of this vital stakeholder, by equipping employees with the necessary skill set and
competencies, to enable them to execute management decisions
Refer 3.6
The above components in the structure are strengthened and complemented by internal policies, processes and procedures such as strategy
formulation and decision making, human resource governance, sustainability governance, integrated risk management, IT governance and
stakeholder management and effective communication.
31
CORPORATE GOVERNANCE
3.1 The Board of Directors Some of the key decisions made by the Board during the year included:
3.1.1 Board Responsibilities
• Declaring a final dividend of Rs.2.00 per share in May 2017 for the financial year 2016/17.
In carrying out its responsibilities, the Board For the year under review, the Board declared a first interim dividend and a second interim
promotes a culture of openness, productive dividend of Rs.2.00 each in November 2017 and January 2018, respectively
dialogue and constructive dissent, ensuring
• Approval of the proposal from its subsidiary, JayKay Marketing Services (Private) Limited to roll
an environment which facilitates employee
out a new branding strategy across its new stores as well as to refit a majority of its existing
empowerment and engagement and creates
stores. The new branding will encompass new elements to the store in line with evolving
value to all stakeholders.
customer needs
The Board’s key responsibilities include: • Approved a joint venture with Indra Traders (Private) Limited in July 2017 to develop a
residential apartment project on Union Place in Colombo, with 891 units, branded as “Tri-Zen”
• Providing direction and guidance to the
Group in the formulation of sustainable, • In keeping with the enhanced capital requirements arising from the introduction of Basel
high-level, medium, and long-term III and the adoption of the accounting standard SLFRS 9, NTB announced a rights issue in
strategies which are aimed at promoting November 2017. The Board approved the subscription of the Group’s entitlement of rights as
the long-term success of the Group well as subscription to additional shares
• Reviewing and approving annual plans and • In line with the Group’s portfolio management strategy, the Board approved the divestment
long-term business plans of its subsidiary, John Keells BPO Solutions India (Private) Limited
• Tracking actual progress against plans • Reviewed and approved the 5-year strategic plans of the Group, including in-principle
• Reviewing HR processes with emphasis on approval for many of the investments envisaged under the said plans
top management succession planning
• Approved a proposal to consolidate and streamline the ownership structure of certain JKH
• Ensuring operations are carried within the
subsidiaries, particularly the companies in the Property industry group.
scope of the Enterprise Risk Management
framework Given the envisaged pipeline of investments in the Property industry group coupled with
• Appointing and reviewing the each property development project requiring a newly formed entity to qualify for applicable
performance of the Chairman-CEO exemptions, and in order to ensure a flexible structure, a property holding company was
• Monitoring systems of governance and established where most companies in the industry group were consolidated under this
compliance property holding company
• Overseeing systems of internal control, risk Additionally, select Group companies holding investments in other subsidiaries transferred its
management and establishing whistle- respective investments to JKH, at valuations independently verified by the Group’s auditors
blowing conduits • In line with the strategic direction of the Property industry group, the Board approved the
• Determining any changes to the following proposals:
discretions/authorities delegated from the
To increase JKH’s shareholding in TransWare Logistics Limited, the holding company of a
Board to the executive levels
~18 acre land in Ja-Ela, from 50 per cent to 100 per cent
• Reviewing and approving major
acquisitions, disposals and capital To acquire a 2-acre land in Dawson Street/Vauxhall Street under Vauxhall Land
expenditure Development (Private) Limited (VLDL)
• Approving any amendments to To enter into an agreement with Finlays Colombo Limited (FCL) to jointly develop the land
constitutional documents owned by FCL and the Group’s two land parcels in Vauxhall Street, Colombo
• Approving in principle the issue of JKH Under the agreement, VLDL would be used as the entity undertaking the development,
equity/debt securities and as such, the Group transferred the land owned by Whittall Boustead Limited in
• Ensuring all Related Party Transactions are Vauxhall Street to VLDL whilst FCL also transferred its land to VLDL.
compliant with statutory obligations
IN CARRYING OUT ITS 3.1.2 Board Composition The key changes to the Board composition
As at 25 May 2018, the Board comprised of 8 during the year under review are as follows:
RESPONSIBILITIES, THE
Directors, with 5 of them being Non-Executive • Mr. A Gunewardene, resigned from the
BOARD PROMOTES A and Independent Directors. The Group policy Board with effect from 31 December
CULTURE OF OPENNESS, is to maintain a healthy balance between the 2017. Mr. Gunewardene was the Deputy
Executive, Non-Executive and Independent Chairman of the Group and was an
PRODUCTIVE DIALOGUE AND Directors, in keeping with the applicable Executive Director of JKH. Mr. K Balendra
CONSTRUCTIVE DISSENT, rules and codes, with the Executive Directors succeeded Mr. A Gunewardene as Deputy
ENSURING AN ENVIRONMENT bringing in deep knowledge of the businesses Chairman, post his retirement.
and the Non-Executive Independent Directors • Mr. R Peiris, resigned from the Board with
WHICH FACILITATES bringing in experience, objectivity and effect from 31 December 2017. Mr. R Peiris
EMPLOYEE EMPOWERMENT independent oversight. was the Group Finance Director and was
AND ENGAGEMENT AND an Executive Director of JKH. Mr. G Cooray
succeeded Mr. R Peiris as Group Finance
CREATES VALUE TO ALL Director, post his retirement.
STAKEHOLDERS.
The current composition of the JKH Board is 3.1.5 Board Appointment the operational strategies of the Group.
illustrated as follows: Board appointments follow a structured and Additionally, the newly appointed Directors
formal process within the purview of the are granted access to relevant parts of the
Nominations Committee. business and are availed the opportunity to
8 meet with key management personnel and
>6 other key third-party service providers such as
7 The Terms of Reference for the members
External Auditors and Risk Consultants.
of the Nominations Committee and
the Committee report can be found in
6 NED 61-70 section 3.2.3 of this Commentary. The Board of Directors recognise the need for
5 continuous training and expansion of knowledge
3-6 Details of new Directors are disclosed to and undertakes such professional development,
Male
4 shareholders at the time of their appointment as they consider necessary, to assist them in
through a public announcement. Details of carrying out their duties as Directors.
SID 51-60
3 such appointments are also carried in the
respective Interim Release and the Annual 3.1.7 Re-Election
2 Report. Directors are required to report any
All Non-Executive Directors are appointed
substantial change in their professional
1 for a period of three years and are eligible for
responsibilities and business associations
ED Female 40-50 <3 re-election by the shareholders. Non-Executive
0 to the Nominations Committee, which will
Directors can serve up to a maximum of three
examine the facts and circumstances and make
Gender
Designation
(Years)
Age Group
27.07.2017
02.11.2017
30.01.2018
33
CORPORATE GOVERNANCE
3.1.8.2 Timely Supply of Information regulations during the year. All concerns In addition to attending Board meetings
The Directors were provided with necessary raised and wished to be recorded have been and Pre-Board meetings, the Directors have
information well in advance, by way of Board documented in sufficient detail. attended the respective Sub-Committee
papers and proposals, for all four Board meetings and have also contributed to
meetings held during the year in order to 3.1.9 Time Dedicated by Non-Executive decision making via Circular Resolutions and
ensure robust discussion, informed deliberation Directors one-on-one meetings with key management
and effective decision making. Board papers The Board has dedicated adequate time for personnel, when necessary.
were made available in electronic format, the fulfilment of their duties as Directors of
keeping in line with the Group’s sustainability the Group. It is estimated that Non-Executive 3.1.10 Board Evaluation
initiatives. Members of the corporate and Directors each devote a minimum of 30 full The Board conducted its annual Board
senior management team made presentations time equivalent days to the Group during the performance appraisal for 2017/18. This
to Directors on important issues relating year. The general time allocation is illustrated formalised process of individual appraisal
to strategy, risk management, investment below. enabled each member to self-appraise, on
proposals, restructuring and system procedures, an anonymous basis, the performance of the
where necessary. The Directors continue to Board under the areas of:
Time Commitment
have independent contact with the corporate • Role clarity and effective discharge of
and senior management of the Group. % responsibilities
• People mix and structures
3.1.8.3 Board Agenda 15
• Systems and procedures
The Chairman-CEO ensured that all Board • Quality of participation
proceedings were conducted smoothly and • Board image
efficiently, approving the agenda for each
The scoring and open comments are collated by
meeting prepared by the Board Secretary. The
the Senior Independent Director, and the results
typical Board agenda in 2017/2018 was;
are analysed to give the Board an indication
35 50 of its effectiveness as well as areas that require
• Confirmation of previous minutes
addressing and/or strengthening. Despite the
• Ratification of Circular Resolutions
original anonymity of the remarks, the open
• Matters arising from the previous minutes
and frank discussions that follow include some
• Board Sub-Committee reports and other Strategy and performance
Directors identifying themselves as the person
matters exclusive to the Board Assurance and risk management
Other Board matters making the remark reflecting the openness of the
• Status updates of major projects
Board. This process has led to an improvement in
• Review of performance - in summary, and in
the Board dynamics and its effectiveness.
detail, including high level commentary on
actual performance achieved and outlook
3.1.11 Managing Conflicts of Interests and Ensuring Independence
• Summation of strategic issues discussed at
Pre-Board meetings The Group takes necessary steps to ensure that Directors avoid situations in which they have, or
• Approval of quarterly and annual financial could have, a direct or indirect interest which conflicts with, or might possibly conflict with, the
statements interests of the Group.
• Ratification of capital expenditure and In order to avoid such potential conflicts or biases, the Directors make a general disclosure of
donations interests, as illustrated below, at appointment, at the beginning of every financial year and during
• Ratification of the use of the company seal the year as required. Such potential conflicts are reviewed by the Board from time to time to
and share certificates issued ensure the integrity of the Board’s independence. Details of companies in which Board members
• New resolutions hold Board or Board Committee membership are available with the Company Secretaries for
• Report on corporate social responsibility inspection by shareholders, on request.
• Review of group risks, sustainability, HR
practices/updates Prior to Appointment Once Appointed During Board Meetings
• Any other business
Nominees are requested Directors obtain Board clearance Directors who have an interest in a
to make known their prior to: matter under discussion:
3.1.8.4 Board Secretary
various interests y Accepting a new position y Excuse themselves from
The President responsible for the Legal and
y Engaging in any transaction deliberations on the subject
Secretarial function is the current Secretary
that could create or potentially matter
to the Board, who is an Attorney-at-Law
by profession. In addition to maintaining create a conflict of interest y Abstain from voting on the
Board minutes and Board records, the Board y All NEDs are required to notify subject matter (abstention from
Secretary provides support in ensuring the Chairman-CEO of any decisions are duly minuted)
that the Board receives timely and accurate changes to their current Board
information in addition to advice relating representations or interests
to corporate governance matters, Board and a new declaration is made
procedures and applicable rules and annually
The independence of all its Non-Executive Directors was reviewed on the basis of criteria summarised below.
1. Shareholding carrying not less than 10 per cent of voting rights None of the individual EDs or NED/IDs shareholding exceeds 1 per cent
2. Director of another company* None of the NED/IDs are Directors of another related party company as
defined
3. Income/non-cash benefit equivalent to 20 per cent of the Director’s NED/ID income/cash benefits are less than 20 per cent of individual
income Director’s income
4. Employment at JKH and/or material business relationship with JKH, None of the NED/IDs are employed or have been employed at JKH
currently or in the two years immediately preceding appointment as
Director
5. Close family member is a Director, CEO or a Key Management Personnel No family members of the EDs or NED/IDs is a Director or CEO of a related
party company
6. Has served on the Board continuously for a period exceeding nine years No NED has served on the Board for more than nine years
from the date of the first appointment
7. Is employed, has a material business relationship and/or significant None of the NED/IDs are employed, have a material business relationship
shareholding in other companies*. Also entails other companies that have or a significant shareholding of another related party company as
significant shareholding in JKH and/or JKH has a business connection with defined
* Other companies in which a majority of the other Directors of the listed company are employed, or are Directors or have a significant shareholding or have a
material business relationship.
Summary of Non-Executive Independent Directors’ Interests and Conformity 3.1.12 Director Remuneration
3.1.12.1 Executive Director Remuneration
than Nine Years (6)
Other Companies
Material Business
Material Business
Family Member a
Employed by the
Shareholding (1)
Director/CEO (5)
shareholding -
Companies (2)
Management
Continuously
Relationship/
Employee/
Significant
35
CORPORATE GOVERNANCE
The composition between fixed and variable The Board Sub-Committees comprise predominantly of Independent Non-Executive Directors. The
compensation paid to Executive Directors is membership of the four Board Sub-Committees is as follows;
depicted below. Board Sub-Committee Membership
Compensation
Resources and
Related Party
Nominations
Transactions
as at 31 March 2018
Committee
Committee
Committee
Committee
Human
Review
Composition of Executive Director
Audit
Remuneration
Executive
Report of the Audit Committee Controller and the External Auditors attended The GBPR division regularly reported to
Role of the Committee most parts of these meetings by invitation. the Committee on the adequacy and
The Internal Auditors carrying out outsourced effectiveness of internal controls in the Group
The role of the Audit Committee is to assist the
assignments and other officials of the and compliance with laws and regulations
Board in fulfilling its oversight responsibilities
Company and the Group also attended these and established policies and procedures of the
in relation to the integrity of the financial
meetings on a needs basis. The Committee Group. Reports from the outsourced Internal
statements of the Company and the Group,
engaged with management to review key Auditors on the operations of the Company
the internal control and risk management
risks faced by the Group as a whole, and and some of the unquoted subsidiaries of
systems of the Group and its compliance
the main sectors, with a view to obtaining the Company were also reviewed by the
with legal and regulatory requirements, the
assurances that appropriate and effective risk Committee. Follow-up action taken on the
External Auditors’ performance, qualifications
mitigation strategies were in place. recommendations of the outsourced Internal
and independence, and, the adequacy and
Auditors and any other significant follow-up
performance of the Internal Audit function,
The activities and views of the Committee matters were documented and presented to
undertaken by the Group Business Process
have been communicated to the Board of the Committee on a quarterly basis by the
Review division (GBPR). The scope of functions
Directors quarterly through verbal briefings, Head of GBPR.
and responsibilities are adequately set out
and by tabling the minutes of the Committee’s
in the terms of reference of the Committee
meetings. During the previous year, the GBPR division
which has been approved by the Board and is
successfully implemented a digital forensic
reviewed annually.
Financial Reporting project across the entire Group, for analysing
The Audit Committee has reviewed and transactional data, to report on outliers for
The Committee’s responsibilities pertain to
discussed the Group’s quarterly and annual management review and continuously
the Group as a whole and in discharging its
financial statements prior to publication, with improve controls to enhance assurances
responsibilities, the Committee places reliance
the management and External Auditors. The relating to the integrity of data used for
on the work of other Audit Committees in the
review included ascertaining compliance reporting purposes. Building on the learning
Group without prejudicing the independence
of same with the Sri Lanka Accounting outcomes and momentum of this initiative,
of those Committees. However, to the extent,
Standards, the appropriateness and changes in the Group extended the availability of the
and in a manner it considers appropriate,
accounting policies and material judgemental analytical information to the outsourced
the Committee provides feedback to
matters. The Committee also discussed with internal auditors, to review the data in order to
those entities for their consideration and
the External Auditors and management, any continuously improve and strengthen controls
necessary action. An interactive forum
matters communicated to the Committee by through an independent review mechanism.
with the participation of members of Audit
Committees of Group entities was also held the External Auditors in their reports to the
Committee on the audit for the year. The Sustainability and Enterprise Risk
to discuss ways and means of improving
Management division reported to the
coordination with GBPR and to exchange
The External Auditors were also engaged Committee on the process of identification,
information on best practices.
to conduct a limited review of the Group’s evaluation and management of all significant
interim financial statements for the six months risks faced by the Group. The report covered
The effectiveness of the Committee is
ended 30 September 2017. The results of the overall risk profile of the Group for the year
evaluated annually by each member of the
this review were discussed with the External under review in comparison with that for the
Committee and the results are communicated
Auditors and management. previous year, and the most significant risks
to the Board.
from a Group perspective together with the
The Committee obtained independent input remedial measures taken to manage them.
Composition of the Committee and
Meetings from the External Auditors on the effects of
several new Sri Lanka Accounting Standards Formal confirmations and assurances were
The Audit Committee is comprised by the obtained from the senior management
that will come into effect in the next few years
undersigned and the following Independent of Group companies on a quarterly basis
and satisfied themselves that the necessary
Non-Executive Directors: regarding the efficacy and status of the
preparatory work was being undertaken to
enable the Company and the Group to adopt internal control systems and risk management
A Cabraal systems and compliance with applicable laws
them.
P Perera and regulations.
Internal Audit, Risks and Controls
The Head of the GBPR division served as the The Committee reviewed the whistleblowing
Secretary to the Audit Committee. The Committee reviewed the adequacy of the
arrangements for the Group and had direct
Internal Audit coverage for the Group and the
access to the Ombudsperson for the Group.
The Audit Committee met five times Internal Audit Plans for the Group with the
The effectiveness and resource requirements
during the financial year. Information on Head of the GBPR division and management.
of the Group BPR division were reviewed and
the attendance at these meetings by the The Internal Audit function of most Group
discussed with management and changes
members of the Committee is given in the companies is outsourced to leading
were effected where considered necessary.
ensuing section. The Chairman-CEO, the professional firms under the overarching
Group Finance Director, Group Financial control of the GBPR division.
Contd.
37
CORPORATE GOVERNANCE
18.05.2017
25.05.2017
26.07.2017
01.11.2017
29.01.2018
The External Auditors’ Letter of Engagement,
Eligible to
Attended
including the scope of the audit, was reviewed
Attend
and discussed by the Committee with the
External Auditors and management prior to the
commencement of the audit.
A Cabraal 9 9 9 9 9 5 5
The External Auditors kept the Committee N Fonseka 9 9 9 9 9 5 5
advised on an on-going basis regarding P Perera 9 9 9 9 9 5 5
matters of significance that were pending By Invitation
resolution. Before the conclusion of the Audit,
S Ratnayake 9 9 9 9 9 5 5
the Committee met with the External Auditors
and management to discuss all audit issues and R Peiris* 9 9 9 9 N/A 4 4
to agree on their treatment. This included the G Cooray** 9 9 9 9 9 5 5
discussion of formal reports from the External K Balendra*** N/A N/A N/A N/A 9 1 1
Auditors to the Committee. The Committee
* Retired from the Board on 31 December 2017
also met the External Auditors, without
** Appointed as Group Finance Director from 1 January 2018
management being present, prior to the
*** Appointed as the Deputy Chairman from 1 January 2018
finalisation of the financial statements to obtain
their input on specific issues and to ascertain 3.2.2 Human Resources and Compensation Committee
whether they had any areas of concern relating
to their work. No matters other than those Composition y Committee to comprise exclusively of Non-Executive Directors, a majority of
already discussed with management were whom shall be independent
raised by the External Auditors. y The Chairman of the Committee must be Non-Executive Director
The External Auditors’ final management y The Chairman-CEO and Group Finance Director are present at all Committee
reports on the audit of the Company and meetings unless the Chairman-CEO or Executive Director remuneration is
Group financial statements for the year under discussion respectively
2017/2018 were discussed with management y The President - Human Resources and Legal, is the Secretary of the Committee
and the auditors. Scope y Review and recommend overall remuneration philosophy, strategy, policies
The Committee is satisfied that the and practice and, performance based pay plans for the Group
independence of the External Auditors has not y Determine and agree with the Board a framework for remuneration
been impaired by any event or service that gives of Chairman and Executive Directors based on performance targets,
rise to a conflict of interest. Due consideration benchmark principles, performance related pay schemes, industry trends
has been given to the nature of the services and past remuneration
provided by the Auditors and the level of audit y Succession planning of Key Management Personnel
and non-audit fees received by the Auditors
y Determining compensation of Non-Executive Directors will not be under the
from the Group. The Committee also reviewed
scope of this Committee
the arrangements made by the Auditors to
maintain their independence and confirmation
has been received from the Auditors of their Human Resources and Compensation Committee Meeting Attendance
compliance with the independence guidance
23.06.2017 Eligible to Attend Attended
given in the Code of Ethics of the Institute of
Chartered Accountants of Sri Lanka. A Cabraal 9 1 1
The performance of the External Auditors A Omar 9 1 1
has been evaluated and discussed with the H Wijayasuriya 9 1 1
senior management of the Company and the By Invitation
Committee has recommended to the Board S Ratnayake 9 1 1
that Ernst & Young, be re-appointed as the
G Cooray* 9 1 1
Lead/Consolidation Auditors of the Group
for the financial year ending 31 March 2019, * Appointed as Group Finance Director from 1 January 2018
subject to approval by the shareholders at the
Annual General Meeting.
N Fonseka
Chairman of the Audit Committee
25 May 2018
Report of the Human Resources and Compensation Committee Report of the Nominations Committee
The Committee determined the remuneration of the Chairman-CEO in terms of the The Nominations Committee, as of 31 March 2018,
methodology set out by the Board, upon an evaluation of his performance for the period consisted of the following:
by the Non-Executive Directors. The Chairman-CEO’s evaluation of the other Executive
Directors and the members of the Executive Committee was considered by the Committee Mr A Omar (Chairman)
and remuneration was determined based on performance, market comparators for similar Dr H Wijayasuriya
positions and in accordance with the Company’s Compensation and Benefits policy. Ms P Perera
Mr S Ratnayake
During the reporting period, the periodic group-wide Compensation and Benefits survey
was conducted for the executive cadre positions of the Group. This information will be The mandate of the Committee remains:
an input to the Compensation and Benefits cycle of the Group that operates from 1 July • To recommend to the Board the process of selecting
2017 to 30 June 2018. the Chairman and Deputy Chairman.
• To identify suitable persons who could be
The succession plans discussed and agreed previously were successfully set in motion.
considered for appointment to the Board of JKH
A report from the Chairman of the Human Resources and Compensation Committee PLC or other Listed Company in the Group as Non-
continues to be a standing agenda item at the quarterly Board meetings. The Chairman of Executive Directors.
the Committee reports on the developments which have taken place since the last Board • Make recommendation on matters referred to it by
meeting, if any, and updates the Board on various matters, as relevant and requested. the Board.
The Committee wishes to report that the Company has complied with the Companies During the reporting period the Board of Directors
Act in relation to remuneration of Directors. The annual Management performance resolved to appoint Mr. K. N. J. Balendra as Deputy
appraisal scheme, the calculation of short term incentives, and the award of ESOPs were Chairman and Mr. J. G. A. Cooray as Group Finance
executed in accordance with the approvals given by the Board, based on discussions Director with effect from 1 January 2018. Further, it was
conducted between the Committee and the Management. resolved that Mr. Balendra will take over as Chairman
and Mr. Cooray as Deputy Chairman/Group Finance
I wish to thank my colleagues for their valuable inputs in guiding the Committee in
Director with effect from 1 January 2019 upon the
its deliberations, and the President responsible for Human Resources of the Group for
retirement of Mr. S. C. Ratnayake, Chairman.
enabling fruitful interactions at the meetings of the Committee.
39
CORPORATE GOVERNANCE
26.07.2017
01.11.2017
29.01.2018
Eligible to
Attended
In addition, the former Group Finance Director Mr. R Peiris (retired on 31 December 2017), Group
Finance Director Mr. G Cooray, Deputy Chairman Mr. K Balendra, the former Group Financial
Controller Mr. M Rajakariar (retired on 31 December 2017) and Group Financial Controller Mr. S
Wijesinghe attended meetings by invitation. The Head of Group Business Process Review served P Perera
as the Secretary to the Committee.
Chairperson of the Related Party Transactions
The objective of the Committee is to exercise oversight on behalf of the Board of John Keells Review Committee
Holdings PLC and its listed Subsidiaries, to ensure compliance with the Code on Related Party 25 May 2018
3.3 Combined Chairman-CEO Role 3.3.2 Chairman-CEO Appraisal 3.5 Group Executive Committee and Other
The Group’s Chairman continued to play The Non-Executive Directors, appraised the Management Committees
the role of the CEO in addition to the role of performance of the Chairman-CEO on the The Group Executive Committee and the
Chairman. The appropriateness of combining basis of pre-agreed goals for the Group, set other Management Committees met regularly
the two roles is discussed in detail in the in consultation with the Board. These goals as per a time table communicated to the
ensuing section. cover the ensuing broad aspects and the participants 6 months in advance. In the
Group’s performance is assessed both against absence of a compelling reason, attendance at
3.3.1 Appropriateness of Combining the the goal and peers which involve other listed these Committee meetings is mandatory for
Roles of Chairman and CEO companies in the Colombo Stock Exchange: the Committee members. All the Committees
The appropriateness of combining the roles carried out specific tasks entrusted to each
of the Chairman-CEO was established after • Creating and adding shareholder value component, as expected.
rigorous evaluation and debate, internally • Success in identifying and implementing
and externally. Subsequent to these rigorous projects Whilst the Chairman-CEO and Presidents are
evaluations the Board deemed that combining • Sustaining a first-class image ultimately accountable for the Company/
the two roles is more appropriate for the • Developing human capital Group and the industry groups/sectors/
Group in meeting stakeholder objectives in a • Promoting collaboration and team spirit business functions respectively, all decisions
large conglomerate setting. This continues to • Building sustainable external relations are taken on a committee structure as
be the view to-date. • Leveraging Board members and other described below.
stakeholders
The appropriateness continues to be discussed • Ensuring good governance and integrity in 3.5.1 Group Executive Committee (GEC)
periodically, and in the minimum, at least once the Group As at 25 May 2018, the 7-member GEC
a year. These discussions are supported by consisted of the Chairman-CEO, the Deputy
international best practices accessed through 3.3.3 Direct Discussions with the Non- Chairman, the Group Finance Director and the
consultancy services and experts. Executive Directors Presidents of each business/function. The GEC
The Chairman-CEO conducts direct discussions is the overlay structure that implements, under
As the head of the Group Executive Committee, with Non-Executive Directors at meetings held the leadership and direction of the Chairman-
the Chairman-CEO provides the overall exclusively for Non-Executive Directors, which CEO, the strategies and policies determined by
direction and policy/execution framework for are convened by the Senior Independent the Board, manages through delegation and
the Board’s decisions via this structure. Director. Issues arising from these discussions empowerment, the business and affairs of the
are actioned in consultation with the relevant Group, makes portfolio decisions and prioritises
Experience has proved that the JKH Board persons. During the year under review, the the allocation of the capital, technical and
composition of majority independent Non-Executive Directors met twice without the human resources.
Directors coupled with the role of the Senior presence of the Executive Directors.
Independent Director, and other supporting A key responsibility of the members of the
Board dynamics have enabled him to 3.4 Senior Independent Director GEC is to act as the enablers of the operating
effectively balance his role as the Chairman of Given the combined role of the Chairman- model of the Group. The members of the GEC
the Board and the CEO of the Company/Group. CEO, the Senior Independent Director ensured are well equipped to execute these tasks and
the adherence to corporate governance bring in a wealth of experience and diversity
Given the need for a combined Chairman-CEO principles, and, acted as the independent to the Group in terms of their expertise and
role, the Chairman-CEO does not come up for party to whom concerns could be voiced exposure.
re-election as in the case with other Executive on a confidential basis. During the year, the
and Non-Executive Directors. It is noted that Senior Independent Director met with other Refer GEC Profiles section of the Annual
the Articles of Association of the Company Non-Executive Directors, without the presence Report for more details.
allow for this. of the Chairman-CEO, and evaluated the
effectiveness of the Chairman-CEO and the
The GEC meets twice a month, in addition
executive support of the Board.
to the meetings that are scheduled as
necessitated by the requirements of the
Refer section 5.2 for more details. Group.
41
CORPORATE GOVERNANCE
3.5.2 Group Operating Committee (GOC) In furtherance of this, the Group continued
As at 25 May 2018, the 23-member GOC consisted of the Chairman-CEO, the Deputy Chairman, its CSR Initiative Project WAVE (Working
the Group Finance Director, the Presidents and the Executive Vice Presidents. The GOC provided a Against Violence through Education) aimed at
forum to share learnings, and identify synergies, across industry groups, sectors, business units and combating gender based violence and child
functions. The GOC is scheduled once a month during the year and is instrumental in preserving a abuse through awareness creation. A total
common group identity across diverse business units. of 220,825 individuals, including Group staff,
participated in the project as at 31 March 2018.
The Group has also embarked on a project to
Refer GOC Profiles section of the create greater awareness among employees
Annual Report for more details. regarding gender identity and sexual
orientation, towards building a truly inclusive
3.5.3 Other Management Committees culture within the Group. Additionally, the
Group strives to incorporate these practices,
These include the Group Management Committee, Sector Committee and Management
where relevant, in the supply chain contracts
Committee which are responsible at the industry group level, sector level and business unit level
entered into by the Group.
respectively. The underlying intention of forming these Committees is to encourage the respective
business units to take responsibility and accountability at the grass-root level via suitably
structured Committees and teams by objective setting.
4. Integrated Governance Systems
and Procedures
The agendas of these Committees are carefully structured to avoid duplication of effort and to ensure Listed below are the main governance systems
that discussions and debate are complementary, both in terms of a bottom-up and top-down flow and procedures of the Group. These systems
of information and accountability. These Committees met regularly and carried out their tasks in and procedures strengthen the elements of
keeping with their scope. The Management Committees proved to be key in enhancing employee the JKH Internal Governance Structure and are
engagement and empowerment. Illustrated below is the structure of the three Committees. benchmarked against industry best practice.
• Decision rights were defined for each level of employment in order to instil a sense of • A holistic view is taken on the commercial
ownership, reduce bureaucracy and speed-up the decision making process viability and potential of any project,
including operational, financial,
• A bottom-up approach was taken in the preparation of annual and long-term plans and the
funding, legal, risk, sustainability and tax
Group also ensured employee involvement in strategy, and thereby empowerment
implications
• Organisational and Committee structures are designed to enable, and facilitate, high
• All investment decisions are consensual in
accessibility of all employees to every level of management
nature, made through the afore-discussed
• Open, honest, frank and constructive communication was encouraged at all levels. The Group management committee structure where
strongly believes that constructive disagreement is essential for optimal decision making no single individual has unfettered decision
making powers over investment decisions
Moreover, the Group provides a safe, secure and conducive environment for all its employees, allows
• The ultimate responsibility accountability
freedom of association and collective bargaining, prohibits child labour, forced or compulsory
of the investment decision rests with the
labour and any discrimination based on gender, race, religion, gender identity or sexual orientation,
Chairman-CEO
and promotes workplaces which are free from physical, verbal or sexual harassment.
The following section further elaborates on the Group’s project appraisal and execution process. THE GROUP HUMAN
RESOURCE GOVERNANCE
at BU/
sector/ FRAMEWORK IS
r ing
ito DESIGNED IN A MANNER
on els
m p lev THAT ENABLES HIGH
u
ry ce
o
ind man
ACCESSIBILITY BY ANY
gr
r
erfo
ust
1 EMPLOYEE TO EVERY
Continuous p
LEVEL OF MANAGEMENT.
Formulating business
strategy, objectives and THE GROUP FOLLOWS AN
risk management for each OPENDOOR POLICY FOR
BU for the financial year
and ensuing 5 years ITS EMPLOYEES AND THIS IS
PROMOTED AT ALL LEVELS
OF THE GROUP
5 2
Performance is a part of privatisation, the entire process
evaluation of the GEC review and
3 approval will be conducted in line with the directives
second half/full year
of the relevant administrative authority as
Business performance communicated though expressions of interests,
evaluation of the first six request for proposals, pre-bid meetings and
months against the target
Reforecasting the targets official approvals and correspondence.
4
for the second half of the
year and GEC approval Subsequent to the project satisfying the
above highlighted criteria, the final approval
to proceed will be granted by the Board.
When appropriate, the GEC is empowered
4.1.1 Project Approval Process to approve such proposals in terms of the
delegated decision rights with the Board
being kept informed.
Risk management
Based on the decision rights matrix, subsequent to review by the relevant leadership committee of The Group performance management
the feasibility report and post in principle approval, a multi-disciplined project team will proceed dynamics and compensation policy is
to the next phase of the project evaluation which will focus on detailed operational, commercial, explained in the ensuing sections.
financial and legal due diligence. Discussions will also commence with regulatory and licensing
authorities, financial institutions and possible partners, as relevant and deemed necessary.
Social and environmental impacts will also be considered. Where the transaction involves the
transfer or lease of land, title searches would be conducted for both private and state land. In
case of state land, every action would be taken to ensure compliance with the relevant rules and
regulations. As appropriate, written authority and approvals will be obtained. Where the project
43
CORPORATE GOVERNANCE
Whilst the employees are appraised for their performance, equal emphasis is placed on how well
they embody Group Values, namely; Caring, Trust, Integrity, Excellence and Innovation.
Identification of:
• Long term development plans
• Competency based training needs
• Business focussed training needs
fo
Per
Identification of
• High performers
• High potential
Identification of:
• Promotions
Identification of: • Inter-company transfers
• Jobs at risk • Inter department transfers
• Suitable successors
• Readiness level of successors
• Development plans
• External recruitments
automated risk management platform that The Board, GEC and Group Risk Management BCP (Business Continuity Planning), ITIL
was introduced in 2016/17. This platform Committees, oversee risk management across (Information Technology Infrastructure Library),
enables the maintenance of live, dynamic the Group to ensure that risks are brought in providing a best of breed framework. The
and virtual risk registers which are linked to within tolerance, managed and/or mitigated. Group periodically tests its business resilience
business goals and responsible personnel. against the centrally hosted/facilitated IT
Features such as the provision of timely alerts services which provides an opportunity
on action plans and escalation processes for Please refer the Risks, Opportunities and to identify limitations and areas for further
risks where action plans are over-due ensure Internal Control section and Notes to improvement in the IT infrastructure.
maintenance of live risk grids. the Financial Statements of the Annual
Report for a detailed discussion on the
Group’s Integrated Risk Management During the year under review, the Group
Continuous steps taken towards promoting process and the key risks identified in implemented a Managed Security
the Group’s integrated risk management achieving the Group’s strategic business Operations Centre (SOC) in liaison with
process are: objectives. a reputed international service provider,
• Integrating and aligning activities and to continuously monitor and strengthen
processes related to planning, policies/ the Group’s IT infrastructure against
4.4 Information Technology (IT)
procedures, culture, competency, internal vulnerabilities, thereby preventing,
Governance
audit, financial management, monitoring detecting, analysing, and responding to
IT governance stewardship roles are governed
cyber security incidents. This initiative,
and reporting with risk management through layered and nested committees, facilitated by technology as well as
• Supporting executives/managers in cascading from the GEC to the Group IT continually updated, well-defined
moving the organisation forward in a Management Committee to the Group IT processes and procedures within the
cohesive integrated and aligned manner Operation Committee with well-defined roles Group, is expected to strengthen the
to improve performance, while operating and responsibilities at a Group, sector and Group’s resilience towards cyber-attacks.
effectively, efficiently, ethically and legally business unit level. The cyber resilience programme was also
within the established limits for risk taking. revisited concurrently, with a revamped set
The risk management programmes The IT governance framework used within of policies, procedures and methods put in
have allowed greater visibility and the Group leverages best practices and place to cater to the evolving hybrid cloud
understanding of risk appetites. Enabled by industry leading models such as CoBIT environment and digitisation requirements
the automated risk management platform, (Control Objectives for Information and of the Group. Other initiatives also included
key management personnel have virtual Related Technology), ISO 35800, ISO27001, ISO the upgrading of the Identity and Access
visibility of the risks, as relevant, while the 9000:2008, COSO (Committee of Sponsoring Management Solution, and the Data
Board has visibility of all Group risks Organisations of the Treadway Commission)/ Classification Program.
45
CORPORATE GOVERNANCE
COMMENCING FROM 4.5.1.2 Release of Information to the Public • The Chairman-CEO ensures that the
and CSE relevant senior managers are also available
JANUARY 2018, INVESTOR at the AGM to answer specific queries
The Board of Directors, in conjunction with
PRESENTATIONS, WHICH the Audit Committee where applicable, is • Separate resolutions are proposed for each
INCLUDE AN UPDATE ON responsible in ensuring the accuracy and item
timeliness of published information and in
THE LATEST FINANCIAL presenting a true and fair view, and balanced
• Proxy votes, those for, against, and withheld
are counted
RESULTS, WERE MADE assessment of results in the quarterly and
AVAILABLE ON THE annual financial statements. Accordingly, JKH 4.5.1.4 Serious Loss of Capital
has reported a true and fair view of its financial
CORPORATE WEBSITE, TO position and performance for the year ended
In the unlikely event that the net assets of
a company fall below half of stated capital,
PROVIDE EASIER ACCESS 31 March 2018 and at the end of each quarter
shareholders will be notified and the requisite
AND INDEPTH DETAIL of the financial year 2017/18.
resolutions would be passed on the proposed
OF THE OPERATIONAL All other material and price sensitive
way forward.
N Fonseka
Group Values are found in the About Us Senior Independent Director
section of the Annual Report.
25 May 2018
47
CORPORATE GOVERNANCE
Additionally, the Group continued with its 5.5.2 System of Internal Control the traditional cyclical/sample based internal
whistle-blower policy and securities trading The Board has, through the involvement of auditing techniques are becoming less
policy. The Group has witnessed an increased the Group Business Process Review function, effective. As such, the Group continues to use
level of communication flow from employees. taken steps to obtain assurance that systems, “big data analysis” techniques on the total
Such communication and feedback received designed to safeguard the Company’s assets, data using Standard Deviations and Z-Scores
from the employees by the management maintain proper accounting records and in establishing real time, user-friendly “outlier
are recorded, irrespective of the level of provide management information, are in place identification” and “early warning triggers”.
anonymity, and subsequently discussed and and are functioning according to expectations.
followed up. The respective outcomes are duly 5.5.5 Internal Audit
recorded. The risk review programme covering The Group internal audit process is conducted
the internal audit of the whole Group is by outsourced parties at regular intervals,
5.5 Internal Controls outsourced. Reports arising out of such coordinated by the Group Business Process
The Board has taken necessary steps to ensure audits are, in the first instance, considered Review function (GBPR) of the Group. GBPR
the integrity of the Group’s accounting and and discussed at the business/functional unit ensures that the internal audit plan adequately
financial reporting systems and that internal levels and after review by the Sector Head covers the significant risks of the Group,
control systems remain robust and effective and the President of the industry group are reviews the important internal audit findings
via the review and monitoring of such systems forwarded to the relevant Audit Committee on and follow-up procedures.
on a periodic basis. a regular basis. Further, the Audit Committees
also assess the effectiveness of the risk review Whilst there are merits and demerits
process and systems of internal control on a associated with outsourcing an internal
The following initiatives were regular basis. audit, the Group is of the view that having an
implemented during the year under
external based auditor is more advantageous.
review.
5.5.3 Segregation of Duties (SoD) under However, there are certain industries where
y Forestpin “Watch List” project -
Sarbanes-Oxley (SOX) Guidelines the domain is very operationally specific and
Automated monitoring and workflow
The Group is very aware of the need to ensure requires an internal auditor in addition to the
based escalation in order to facilitate
that no individual has excessive system external auditor.
timely clearing of all transactional
entries including complete access to execute transactions across an
reconciliation. Unreconciled and open entire business process or business processes
entries to be flagged and periodically which have critical approval linkages. The
scrutinised, and formal disclosure increasing use of information technology
to be made to the relevant Audit and integrated financial controls creates
Committees. unintended exposures within the Group. SoD
dictates that problems such as fraud, material
y Forestpin “Deposits” project - Efficient
misstatements and manipulation of financial
management and tracking of cash
statements have the potential to arise when
and cheques deposits, in line with
the same individual is able to execute two
international best practice.
or more conflicting, sensitive transactions.
y Forestpin “Internal Audit Scoping” Separating discrete jobs into task-oriented
- Streamlining and optimisation roles can often result in inefficiencies and costs
of the Internal Audit function, which do not meet the cost versus benefit
via identification of focus areas, criteria. Whilst the attainment of a zero SoD
improvement opportunities and conflict state is utopian, the Group continued
feedback reporting in order to reinforce to take steps, to identify and evaluate existing
governance and assurance. conflicts and reduce residual risks to an
y Process for improving the external acceptable level under a cost versus benefit
auditor engagement based on rationale.
structured surveys, which focus on
feedback, sentiment analysis, and pre- 5.5.4 Data Analytics
defined performance criteria. Traditionally, internal auditing followed an
approach which was based on a cyclical
5.5.1 Internal Compliance process that involves manually identifying
control objectives, assessing and testing
A quarterly self-certification programme
controls, performing tests, and sampling only
requires the Presidents, Sector Heads and
a relatively small population of the dataset to
Chief Financial Officers of industry groups to
measure control effectiveness and operational
confirm compliance with statutory and other
performance. Today, the Group operates in a
regulatory procedures, and also to identify
complex and dynamic business environment
any significant deviations from the expected
where the number of transactions has
norms.
increased exponentially over the years and
On matters referred to him by the Ombudsperson, the Chairman-CEO or the Senior Independent The Board, through the Group Legal division,
Director, as the case may be, will place before the Board: the Group Finance division and its other
operating structures, strived to ensure that the
i. the decision and the recommendations; Company and all its subsidiaries and associates
ii. action taken based on the recommendations; complied with the laws and regulations of the
countries they operated in.
iii. where the Chairman-CEO or the Senior Independent Director disagrees with any or all of the
findings and or the recommendations thereon, the areas of disagreement and the reasons With reference to Rule 7.13.2 of the Listing Rules
thereof. of the Colombo Stock Exchange governing the
minimum public holdings of listed entities, , the
In situation (iii) the Board is required to consider the areas of disagreement and decide on the way John Keells Group divested 915,268 ordinary
forward. The Chairman-CEO or the Senior Independent Director is expected to take such steps as shares of Union Assurance PLC, during the year
are necessary to ensure that the complainant is not victimised, in any manner, for having invoked under review. As at 31 March 2018, the public
this process. holding of UA stood at 7.64 per cent. Post the
reporting period, JKH divested a further 2.36
Report of the Ombudsperson per cent stake of UA thereby reducing the
Group’s stake to 90 per cent. UA has requested
Mandate and Role a transfer from the Main Board to the Diri
For purposes of easy reference, I set out below the Ombudsperson’s mandate and role: Savi Board of the CSE. It is also noted that the
Director of Bank Supervision of the Central Bank
(a) legal and ethical violations of the Code of Conduct for employees, but in an appellate of Sri Lanka (CBSL), by letter dated 12 October
capacity, when a satisfactory outcome using existing procedures and processes has not 2017, informed Nations Trust Bank (NTB) that
resulted or when the matter has been inadequately dealt with; the Monetary Board of CBSL has permitted the
(b) violations referred to above by individuals at the Executive Vice President, President and Group to retain the current voting shareholding
Executive Director levels, including that of the Chairman/CEO, in which case the complainant in NTB till December 2020, and to reduce it to
has the option of either complaining to the Ombudsperson in the first instance, or first 15 per cent with effect from the said date. The
exhausting the internal remedies; Monetary Board has also required NTB to limit
the voting rights of the Group to 10 per cent
(c) sexual harassment, in which event the complainant has the option of either complaining to
with effect from 31 March 2018.
the Ombudsperson in the first instance, or first exhausting the internal remedies.
The Board of Directors also took all reasonable
The mandate excludes disciplinary issues from the Ombudsperson’s responsibilities. The right to take steps in ensuring that all financial statements
disciplinary action is vested exclusively in the Chairman/CEO and those to whom this authority has were prepared in accordance with the
been delegated. Sri Lanka Accounting Standards (SLFRS/
LKAS) issued by the Institute of Chartered
No issues were raised by any member of the Companies covered, during the year under review. Accountants of Sri Lanka (CA Sri Lanka) and the
requirements of the CSE and other applicable
Ombudsperson authorities. Information contained in the
25 May 2018 financial statements of the Annual Report is
supplemented by a detailed Management
Discussion and Analysis which explains to
shareholders, the strategic, operational,
5.7 External Audit
investment, sustainability and risk related
Ernst & Young are the external auditors of the
aspects of the Company, and the means by
Company as well as many of the Group companies.
which value is created and how it is translated
The individual Group companies also employed
into the reported financial performance and is
KPMG Ford, Rhodes, Thornton & Co, Price Waterhouse The audit fees paid by the
Company and Group to its auditors likely to influence future results.
Coopers, and Luthra and Luthra, India as external
auditors. The appointment/re-appointment of these are separately classified in the
Notes to the Financial Statements
auditors was recommended by the individual Audit
of the Annual Report.
Committees to their respective Boards of Directors.
49
CORPORATE GOVERNANCE
JKH and its subsidiaries are fully compliant 7.2 Activist Investors
with all the mandatory rules and regulations The past few years have seen a significant increase in shareholder activism. This would invariably
stipulated by the: mean that Directors will be held increasingly accountable for the company’s performance. The
• Corporate Governance Listing Rules Group will meet this challenge through more frequent communication with its shareholders and
published by the CSE; and through enhanced levels of public disclosure. The Group will continue to focus on maintaining
suitable channels of communication with investors, and analysts, as required, on a timely basis. To
• Companies Act No.7 of 2007
this end, during the year under review, the JKH Group investor presentation was made available on
the corporate website.
The Group has also given due consideration
to the Best Practice on Corporate Governance
7.3 Continual Strengthening of Internal Controls
Reporting guidelines jointly set out by CA Sri
Given ever-evolving business dynamics, the Group is aware of the need to augment
Lanka and the SEC and have in all instances,
transactional and financial internal controls with operational aspects, in line with international best
barring a few, embraced such practices,
practice. To this end, the Group will continually strive towards a secure, fully automated platform
voluntarily, particularly if such practices have
which augments operational aspects with existing processes, to optimise and facilitate process
been identified as relevant and value adding.
audit information, life cycle management and related processes thereby enabling a sustainable
In the very few instances where the Group has
and structured process which will contribute positively towards value creation. The benefits of this
not adopted such best practice, the rationale
envisaged framework, are illustrated below.
for such non-adoption is articulated.
Corporate disintegrations in the recent past, 7.4 Digital Oversight, Data Protection and Cyber Security
the pursuit of continuous improvement in The Group is increasingly reliant on technology in ways that were, perhaps, inconceivable several
governance and a call for increased transparency years ago. The possibilities of how technology will impact businesses remain infinite. The Board is
are exerting change pressure on selected well aware of the need to protect companies from threats which are novel and illusive. As such,
governance aspects. Summarised below are work continues to be proactive in avoiding, planning and being prepared for an inevitable breach.
the more significant challenges, amongst many Cyber security continues to be a regular item on the agenda of Risk Management and Audit
others, being continually addressed by JKH. Committees and is periodically discussed at the Board level. Whilst harnessing the potential of
the data available in the Group for better decision making and marketing through analytics, the
7.1 Board Diversity Group is also conscious of the need to protect and classify such data.
There will undoubtedly be a continual push to
increase diversity amongst the Board Directors, 7.5 Board Refreshment and Independence
particularly pertaining to Gender diversity. JKH Whilst there is one school of thought that routine turnover on Boards is necessary to introduce
acknowledges the need for diversity on the new ideas and experiences to keep up with the dynamic needs of the business, there is another
Board to represent expertise needed by the school of thought which is of the view that Boards and companies benefit from tenured and
Group and is also conscious of the need to have experienced Board members who know the business and industry since they have been engaged
a Board which is composed of Directors who in it for some time. The Group is in favour of a “middle of the road” approach in this respect. JKH
represent, and therefore reflect the needs and will strike a right balance between continuous Board refreshment, which, in general, is thought
desires of its customers, employees and other to facilitate independence, and tenured and experienced Board members, who are perceived as
stakeholders. The Group will attempt to attract having lesser independence because of their extended tenure on the Board.
appropriately skilled personnel to the Board
and continue to strike a balance in this regard, 7.6 Greater Employee Involvement in Governance
whilst ensuring that Board diversity does not JKH acknowledges, and recognises, the role played by all its employees in reinforcing an effective
come at the expense of Board effectiveness. governance system. Going forward, JKH will continue to encourage employee participation through;
• A further strengthened performance management process and enhanced engagement via
Given that women comprise a significant the employee information systems
proportion of the customer and employee
• Engagement and empowerment via greater authority
populations, the Group will make greater effort
to attract appropriately qualified women to its • Increased communication and collaboration
various Boards. • Adoption of differentiated means of communication based on the age dynamics of employee
segments
8. Compliance Summary
Detailed discussions pertaining to
Towards the continuous stride in achieving a more cohesive and efficient approach to corporate
JKH’s conformance with each Section/
reporting, and in order to keep the report relevant and concise, the ensuing sections reflect a high- Principle of the below discussed codes
level summary of JKH’s conformance with standards and governance codes. are found on the corporate website.
8.1 Statement of Compliance under Section 7.6 of the Listing Rules of the Colombo Stock Exchange (CSE) on Annual Report Disclosure
MANDATORY PROVISIONS - FULLY COMPLIANT
Rule Compliance Reference (within the Report)
Status
(i) Names of persons who were Directors of the Entity Yes Board of Directors
(ii) Principal activities of the entity and its subsidiaries during the Yes Management Discussion and Analysis
year, and any changes therein
(iii) The names and the number of shares held by the 20 largest Yes
holders of voting and non-voting shares and the percentage
of such shares held
(iv) The public holding percentage Yes Share Information
(v) A statement of each Director’s holding and Chief Executive Yes
Officer’s holding in shares of the Entity at the beginning and
end of each financial year
(vi) Information pertaining to material foreseeable risk factors of Yes Risk, Opportunities and Internal Controls
the Entity
(vii) Details of material issues pertaining to employees and Yes Sustainability Integration and Stakeholder Engagement
industrial relations of the Entity
(viii) Extents, locations, valuations and the number of buildings of Yes Group Real Estate Portfolio
the Entity’s land holdings and investment properties
(ix) Number of shares representing the Entity’s stated capital Yes
(x) A distribution schedule of the number of holders in each class Yes
Share Information
of equity securities, and the percentage of their total holdings
(xi) Financial ratios and market price information Yes
(xii) Significant changes in the Company’s or its subsidiaries’ Yes Notes to the Financial Statements
fixed assets, and the market value of land, if the value differs
substantially from the book value as at the end of the year
(xiii) Details of funds raised through a public issue, rights issue Yes
and a private placement during the year
Share Information
(xiv) Information in respect of Employee Share Ownership or Yes
Stock Option Schemes
(xv) Disclosures pertaining to Corporate Governance practices in Yes
terms of Rules 7.10.3, 7.10.5 c. and 7.10.6 c. of Section 7 of the
Listing Rules
Corporate Governance Commentary
(xvi) Related Party transactions exceeding 10 per cent of the Yes
equity or 5 per cent of the total assets of the Entity as per
audited financial statements, whichever is lower
8.2 Statement of Compliance under Section 7.10 of the Listing Rules of the CSE on Corporate Governance
MANDATORY PROVISIONS - FULLY COMPLIANT
CSE Rule Compliance JKH Action/Reference (within the Report)
Status
7.10 Compliance
a./b./c. Compliance with Corporate Governance Rules Yes The Group is in compliance with the Corporate Governance
Rules and any deviations are explained where applicable
7.10.1 Non-Executive Directors (NED)
a./b./c. At least 2 members or 1/3 of the Board, whichever is higher Yes 5 out of 8 Board members are NEDs. The JKH Group is
should be NEDs conscious of the need to maintain an appropriate mix
of skills and experience on the Board and to refresh
progressively its composition over time
51
CORPORATE GOVERNANCE
8.3 Statement of Compliance under Section 9.3.2 of the Listing Rules of the CSE on Related Party Transactions
MANDATORY PROVISIONS - FULLY COMPLIANT
Rule Compliance Reference (within the Report)
Status
(a) Details pertaining to Non-Recurrent Related Party Yes Notes to the Financial Statements
Transactions
(b) Details pertaining to Recurrent Related Party Transactions Yes Notes to the Financial Statements
(c) Report of the Related Party Transactions Review Committee Yes Refer Report of the Related Party Transactions Review
Committee
(d) Declaration by the Board of Directors as an affirmative Yes Annual Report of the Board of Directors
statement of compliance with the rules pertaining to Related
Party Transactions, or a negative statement otherwise
53
CORPORATE GOVERNANCE
8.5 Code of Best Practice of Corporate Governance 2013 Issued Jointly by the Securities and Exchange Commission of Sri Lanka (SEC) and
the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka)
VOLUNTARY PROVISIONS - FULLY COMPLIANT
y The Company is directed, controlled and led by an effective Board that possess the skills, experience and knowledge and
thus all Directors bring independent judgement on various subjects, particularly financial acumen
y Combining the roles of Chairman and CEO is justified given the nature of the Group, at this juncture. The Chairman-CEO is
Directors appraised annually. Board Balance is maintained as the Code stipulates
y Given the combined role of Chariman and CEO, the Group has a Senior Independent Director
y Whilst there is a transparent procedure for Board Appointments, election and re-election, subject to shareholder approval,
takes place at regular intervals
y The Human Resources and Compensation Committee, consisting of exclusively NEDs is responsible for determining the
remuneration of Chairman-CEO and EDs
Directors’
y ED compensation includes performance related elements in the pay structure. Compensation commitments in the event
Remuneration
of early termination, determination of NED remuneration, remuneration policy and aggregate remuneration paid is
disclosed under Section 3.1.12 and is in line with the Code
y There is constructive use of the AGM, as per Code. Notice of Meeting, with adequate details, is circulated to shareholders
as per statute
Relationship
with y The Group has in place multiple channels to reach shareholders as discussed under Section 4.5.1
Shareholders
y Interim and other price sensitive and statutorily mandated reports are disclosed to Regulators. As evident from the
Annual Report of the Board of Directors, the company carried out all business in accordance with regulations and
applicable laws, equitably and fairly
y The Company continues to be a going concern and remedial action for any material events is in place. All related party
Accountability
and Audit transactions are reported under the Notes to the Financial Statements
y There is an annual review of effectiveness of Internal Control which ensures the maintenance of a sound system of
internal control
y The Internal Audit function and the Audit Committee, functions as stipulated by the Code
y The Company conducts regular and structured dialogue with shareholders based on a mutual understanding of
objectives. This is done via the Investor Relations team and through the AGM
Institutional y The Internal Audit function and the Audit Committee, functions as stipulated by the Code
Investors
y Individual shareholders investing directly in shares of the Company are encouraged to carry out adequate analysis and
seek independent advice in all investing and/or divesting decisions. They are encouraged to participate at the AGM and
Other Investors exercise their voting rights and seek clarity, whenever required
y The Group places emphasis on sustainable development and value creation. The Group’s Sustainability Management
Framework includes strategies for entrenchment of sustainability through awareness creation, monitoring and
Sustainability sustainability assurance
Reporting
y This Report has been prepared in accordance with the GRI Standards: Core option
55
This Report is the third Integrated Report of John Keells Holdings PLC, prepared
in accordance with the Integrated Reporting Framework of the International
Integrated Reporting Council. The Report entails a holistic discussion of the Group’s
diverse strong points; covering the financial, environmental, human and social
aspects, which link to form the John Keells Group’s value creation process.
In order to provide our stakeholders an insightful view of the Group’s operations, the Management Discussion
and Analysis (MD&A) section of this Report consists of the following sections.
Whilst the Group Consolidated Review is a helicopter view of the Group’s performance, the Industry Group
Review section provides a detailed discussion on the value creation process of each industry group, including its
performance, during the year under review.
The Sri Lankan economy grew by 3.1 per cent for the calendar year 2017,
compared to the 4.5 per cent GDP growth recorded in 2016, primarily as a result
of prolonged adverse weather conditions and a contractionary monetary policy
stance. Inflation remained high during the calendar year, on account of the
aforementioned impacts, and minor disruptions to food supply on the back of
unfavourable weather conditions.
In June 2016, the International Monetary of Preferences Plus (GSP+) by the European Direct Investments, particularly channelled
Fund (IMF) approved a three-year USD Union, conditional on Sri Lanka advancing towards large-scale infrastructure projects.
1.50 billion Extended Fund Facility (EFF) to human and labour rights and working towards Driven by these favourable developments,
support the Government’s fiscal consolidation sustainable growth and development. the balance of payment (BOP) improved
efforts, external financing conditions and the Benefiting from this special incentive significantly, recording a surplus of USD 2.1
economic reform agenda of the Government. arrangement and the Generalised System of billion in 2017 [CY2016: Deficit of USD 500
During 2017, as per the recommendations of Preferences (GSP) by the United States, export million].
the IMF, the Central Bank of Sri Lanka (CBSL) earnings demonstrated a 10.2 per cent growth
laid down a roadmap aimed at adopting a in 2017, driven by tea, petroleum products,
A detailed discussion on the
flexible inflation targeting (FIT) regime, from textiles and garments, and spices.
performance of the Sri Lankan economy
the previous monetary targeting framework.
is found under the Supplementary
It is expected that the FIT framework for Standard and Poor’s raised the outlook of Sri
Information section of this Report. A
the conduct of monetary policy would Lanka’s ‘B+’ rating to ‘stable’ from ‘negative’,
more comprehensive discussion of
ensure price stability in the economy on a citing the Government’s commitment to the external environment relevant to
sustainable basis, thereby creating an enabling uphold its reform momentum through the businesses is found in the Industry
environment for businesses by boosting enactments, such as the value added tax Group Review section of this Report.
confidence, leading to higher economic (VAT) reform, the Inland Revenue Act and
growth prospects. CBSL maintained a tight the Liability Management Act, to proactively
monetary stance during the year, amidst high address the issue of rising sovereign debt The ensuing sections detail the movement
level of credit growth to the private sector and maturities in 2019. Sri Lanka’s gross official of the primary macro-economic variables
increasing inflation. reserves strengthened in 2017, rising to USD during the year under review and the resultant
8.0 billion from USD 6.0 billion recorded in the impacts on the performance of the Group’s
A notable development in May 2017, was previous year, aided by foreign inflows to the businesses.
the reinstatement of the Generalised System Government securities market and Foreign
GDP growth The economic growth in 2017 was mainly Whilst the overall performance of the
supported by growth in the Industrial Group demonstrated significant growth
Rs. bn and Services sectors, which recorded a over the previous year, the slow-down
5.0% growth of 3.9 per cent and 3.2 per cent in economic growth impacted business
4.5%
respectively. and consumer sentiment, leading to a
moderation of consumer spending and
The growth of construction activity that tapering of demand, which particularly
3.1% supported overall economic growth impacted the Consumer Foods and Retail
throughout the post conflict period, industry group.
4,883 5,124 5,289 with the exception of 2015, decelerated
notably during 2017. The Agricultural
2,265 2,399 2,492 sector contracted by 0.8 per cent against
a backdrop of adverse weather conditions
670 644 639 that continued from 2016.
2015 2016 2017
Agricuture Services
Industries GDP Growth
Sri Lanka’s GDP grew by 3.1 per cent in 2017, compared
to 4.5 per cent in 2016.
57
GROUP CONSOLIDATED REVIEW
External Environment
Inflation Inflationary pressures during the year The rising inflationary trend impacted
were compounded by the impact consumer discretionary spending which
%
10 of domestic supply side disruptions, led to a moderation in the growth of
particularly stemming from adverse the Consumer Foods and Retail industry
9
weather conditions, effects of various group and the Office Automation
8
taxation policies and increased rates business. Whilst margins of the Ice Cream
7
which materialised during the year, and Beverage businesses were marginally
6 and rising international commodity impacted by increases in the prices of
5 prices. Core inflation, which measures certain raw material, the Convenience
4 the underlying inflationary pressures of Foods business was favourably affected
3 the economy, stood at 4.3 per cent in by a reduction in the prices of related raw
2 December 2017, indicating some demand material.
pressures on the economy.
1
0 Headline inflation peaked in October
March
April
May
June
July
August
September
October
November
December
January
February
March
As anticipated, the Federal Reserve Open The steady rise of 3-month US Dollar
Global interest rates
Market Committee (FOMC) voted to raise LIBOR rates during the calendar year
% the federal funds rate by 25 basis points was in line with expectations. Given the
2.5
to between 1 per cent and 1.25 per cent likelihood of further rate increases in 2017
in June 2017, which was followed by a and beyond by the FOMC, and the pricing
2.0
further rate hike in December 2017, to based on the interest rate swap curve,
between 1.25 per cent and 1.5 per cent. the Group maintains a partial hedge of
1.5 The FOMC raised interest rates in March the USD 395 million syndicated loan
2018, for the 6th time since the financial facility as a prudent measure to mitigate
1.0 crisis, bringing the Fed Fund rate to the Group’s exposure to rate fluctuations.
between 1.5 per cent and 1.75 per cent; The Group also consciously invested its
0.5 which reflects its confidence in the US US Dollar cash holdings in floating rate
economy on the back of strengthening deposits which helped more than off-set
0.0 labour market conditions and inflation the negative impacts arising from the rise
March
April
May
June
July
August
September
October
November
December
January
February
March
The LKR/USD exchange rate remained The depreciation of the Rupee had a
Exchange rates
relatively stable in 2017 under a more positive financial impact on the Holding
Rs. market based exchange rate policy Company, given its significant USD cash
156 implemented by the CBSL. The pressure balance, and on businesses having Dollar
on the Rupee, which prevailed particularly denominated income streams, particularly
155 during the first two months of 2017, businesses in the Leisure industry group.
moderated with increased foreign Given the higher reliance on imported
154 investment and export proceeds. The inputs, the Consumer Foods and Office
depreciation pressure on the Rupee Automation sectors took proactive steps
153 further eased from mid-2017 with the to mitigate exchange rate risks.
receipt of foreign proceeds, particularly
152 disbursements of two tranches of the In addition to implementing foreign
IMF-EFF programme, which contributed exchange exposure management
151 towards improved investor confidence. strategies, the Group continued to
March
April
May
June
July
August
September
October
November
December
January
February
March
Note : AWPLR - Average Weighted Prime Lending Rate; CBSL - Central Bank of Sri Lanka; GDP - Gross Domestic Product; LIBOR - London Inter-Bank Offer Rate; NCPI -
National Consumer Price Index; SDFR rate - Standing Deposit Facility Rate; SLFR rate - Standing Lending Facility Rate; SRR - Statutory Reserve Ratio
59
GROUP CONSOLIDATED REVIEW
Capital Management Review
Long-term sustainable value creation remains at the core of all Group activities and is the THE GROUP’S CSR
fundamental essence of our business model and business framework. The key inputs of our value
creation model are; INITIATIVES ARE
INTRINSICALLY INTERTWINED
AND CONNECTED TO
SOCIAL, ECONOMIC AND
ENVIRONMENT CONCERNS
Key inputs of our FINANCIAL AND
Value Creation AND ALIGNED WITH THE
MANUFACTURED CAPITAL
Model 5PS OF THE SUSTAINABLE
DEVELOPMENT GOALS
SDGS PEOPLE, PLANET,
PARTNERSHIPS, PROSPERITY
AND PEACE.
NATURAL CAPITAL
INTELLECTUAL CAPITAL Development Goals (SDGs) - People, Planet,
Partnerships, Prosperity and Peace. All initiatives
carried out by the Foundation are medium to
HUMAN CAPITAL long term, strategic and sustainable projects
SOCIAL AND that fall into one of six focus areas: Education,
RELATIONSHIP CAPITAL Health, Environment, Livelihood Development,
Arts & Culture and Disaster Relief, inspired by
the Group’s CSR vision “Empowering the Nation
The ensuing sections outline the manner in which each Capital is utilised for the execution of the for Tomorrow”. Given the integrated nature
businesses’ near, medium and long-term strategies in creating value to all stakeholders concerned. of this Report, the Group’s CSR initiatives are
The sections also detail the performance of the Group, under each form of Capital. discussed under the relevant sections.
In addition to the core operations of each of the business units, the Group makes a conscious and Further business-specific initiatives of the
collective effort to cater to wider societal needs, meaningfully enriching and empowering the lives CSR arm are found in the Industry Group
of the surrounding communities, via its corporate social responsibility (CSR) entity, John Keells Review section of this Report and the
Foundation (“Foundation”). The Group’s CSR initiatives are intrinsically intertwined and connected John Keells Foundation website (www.
to social, economic and environment concerns and aligned with the 5Ps of the Sustainable johnkeellsfoundation.com)
Revenue emanating from domestic sources was Rs.92.13 billion [2016/17: Rs.81.78 billion].
FINANCIAL AND
MANUFACTURED CAPITAL Group revenue inclusive of equity accounted investees increased by 15 per cent to Rs.137.09
billion [2017/18: Rs.119.62 billion]. Revenue from equity accounted investees increased by 19 per
cent to Rs.15.87 billion, compared to the Rs.13.35 billion in 2016/17. The primary increases were
Financial Performance from Nations Trust Bank (NTB) and South Asia Gateway Terminal (SAGT).
Revenue Revenue
In the year under review, Group revenue
increased by 14 per cent to Rs.121.22 billion %
[2016/17: Rs.106.27 billion], with the Consumer 3 3
8 9
Foods and Retail (CF&R), Transportation and
19 15
Financial Services industry groups being the 12 12
primary contributors to revenue growth.
The top three businesses that contributed to
2017/18 2016/17
revenue growth were: 18 22
• Retail - driven by growth in same store
1 1
sales growth and incremental revenue 39 38
generated from newly opened outlets
• Bunkering - driven by a significant increase
in the base price of bunker fuels in addition Transportation Financial Services
to the double-digit volume growth Leisure Information Technology
• Life Insurance - driven by a 22 per cent Property Other including Plantation Services
increase in gross written premiums (GWP) Consumer Foods and Retail
61
GROUP CONSOLIDATED REVIEW
Capital Management Review
Finance Income
The largest contributor to finance expense
Finance income of the Group increased by 12 per cent to Rs.11.27 billion during the year under
was the Leisure industry group accounting for
review [2016/17: Rs.10.03 billion], the composition of which is given in the table below.
41 per cent of total finance expense, followed
Finance Income (Rs. ‘000s) 2017/18 2016/17 by Other including Plantation Services (28 per
cent) and Transportation (11 per cent). Finance
Interest income from life insurance policy holder funds at UA 3,655,295 3,110,973 expense incurred under the syndicated project
Interest income of Group excluding UA 6,623,094 5,905,843 development facility of “Cinnamon Life” is
Net realised gain on available-for-sale financial assets 10,602 9 capitalised as work-in-progress, in accordance
with the Group accounting policy, and in
Other finance income 979,150 1,016,456
keeping with accounting standards, under
Total 11,268,141 10,033,281
other non-current assets.
11 6 Finance expenses
and interest coverage
Rs.mn/times
28 35 52.8 53.4
51.5
2017/18 2016/17
6
2 27.7
6 41 47
4
6 6
13.6
63
GROUP CONSOLIDATED REVIEW
Capital Management Review
Non-Controlling Interests The Group return on capital employed (ROCE) increased marginally to 11.9 per cent in comparison
Non-controlling interest (NCI) increased by 14 to 11.5 per cent recorded in the previous year. The increase mainly stems from improved EBIT
per cent to Rs.2.10 billion. This is mainly due margins. The average asset base at Rs.299.86 billion is a 16 per cent growth against the last year’s
to the increase in profits of Union Assurance average asset base of Rs.259.12 billion. Total assets as at 31 March 2018 at Rs.322.45 billion is a 16
PLC, the Life Insurance business, and Rajawella per cent increase against the last year [2016/17: Rs.277.27 billion]. The increase in the asset base was
Holdings (Private) Limited (RHL), operators of primarily from the purchase of property, plant and equipment (PPE) amounting to Rs.18.92 billion,
an 18-hole golf course. The Group consolidates revaluation gains on PPE amounting to Rs.9.17 billion, additions to investment property amounting
92.36 per cent and 49.85 per cent of UA’s to Rs.4.40 billion and the inclusion of work-in-progress costs related to the “Cinnamon Life” project
and RHL’s profits under PAT attributable to amounting to Rs.11.55 billion, which was partially offset by reduction in cash and cash equivalents.
equity holders, respectively. The NCI share of
PAT at 9 per cent for 2017/18 is a decrease
For a detailed discussion on the ROCE of
in comparison to 10 per cent recorded in each industry group, refer the Industry
2016/17. Group Review section of this Report.
Considering its strong financial position, the Group is confident of its ability to comfortably meet
its short and medium-term funding and debt repayment obligations while pursuing organic and
acquisitive growth opportunities. In terms of the composition of the liquid assets of the Group,
Other including Plantation Services accounted for more than half of the cash and cash equivalents,
of which a majority of assets are in the Holding Company, followed by the Financial Services and
Leisure industry groups.
65
GROUP CONSOLIDATED REVIEW
Capital Management Review
2017/18 2016/17
The Group acknowledges that a sound Natural
Current ratio (times) 3.0 3.7 Capital management strategy is of paramount
Quick ratio (times) 2.8 3.5 importance for long term sustainable
Net working capital (Rs.million) 65,886 76,914 value creation. The Group has in place a
Asset turnover (times) 0.5 0.5 comprehensive environmental management
system through which policies and procedures
Capital employed (Rs.million) 254,587 217,096
enable sustainable and efficient operation of
Total debt (Rs.million) 29,722 22,766
businesses whilst improving the bottom line.
Net debt/(cash) (Rs.million) (33,519) (55,309)
The Group focusses on efficient management
Debt/equity ratio (%) 13.2 11.7 of inputs such as energy, water and
Net debt/(cash) to equity ratio (%) (14.9) (28.5) conservation of bio-diversity, while responsibly
Long term debt to total debt (%) 62.3 62.4 managing outputs such as emissions, waste
Debt/total assets (%) 9.2 8.2 and effluents. The initiatives undertaken by
Liabilities to tangible net worth (times) 0.4 0.4 Group companies’ as a part of its commitment
Debt/EBITDA (times) 0.9 0.8 to managing Natural Capital are discussed in
Net debt/EBITDA (times) (1.0) (2.0) detail in the ensuing sections.
Key indicators under this Capital are as follows: The Leisure, and CF&R industry groups were
the largest consumers of energy, accounting
Standard 2017/18 2016/17* 2015/16 for over 87 per cent of the energy consumed
and 80 per cent of the carbon footprint of the
302-1 Energy consumption: non-renewable sources (GJ) 368,333 343,917 213,747
Group.
Energy consumption: non-renewable sources (GJ)
3.02 3.19 2.26
per Rs.million of revenue
Energy consumption by
Energy consumption- renewable sources (GJ) 109,506 101,112 111,061 industry group/sector
Energy consumption- renewable sources (GJ) per GJ '000
0.90 0.94 1.18
Rs.million of revenue 350
Purchased energy- national grid 361,974 350,622 332,961 300
Purchased energy- national grid (GJ) per Rs.million
2.97 3.25 3.52 250
of revenue
305-1 Direct greenhouse gas emissions - Scope 1 (MT) 27,532 25,727 15,621 200
Greenhouse gas emissions from combustion of
12,187 11,181 12,284 150
biomass
305-2 Indirect greenhouse gas emissions – Scope 2 (MT) 68,534 66,384 63,041 100
Total carbon footprint (MT) 96,066 92,111 78,661
50
Total carbon footprint (MT) per Rs.million of revenue 0.79 0.85 0.83
303-1 Water withdrawal (m3) 1,908,422 2,021,739 1,995,008 0
Leisure
Other/Plantation Services
Transportation
Financial Services
Property
Information Technology
3
Water withdrawal (m ) per Rs.million of revenue 16.0 19.0 21.1
306-1 Water discharge (m3) 1,414,546 1,460,799 1,439,138
306-2 Volume of hazardous waste generated (MT) 439 329 285
Volume of non-hazardous waste generated (MT) 8,820 8,517 7,967
Waste recycled/reused by Group companies and
41 42 43
through 3rd party contractors (%)
307-1 Significant environmental fines Nil Nil Nil
2015/16 2016/17 2017/18
* 2016/17 has been restated to include Cinnamon Air
With the aim of further strengthening this commitment, and as discussed in the Annual Report 2019/20 ENERGY REDUCTION
2016/17, the Group has in place, sustainability goals that are to be achieved by 2019/20 which
focus on the areas of conserving energy and optimising water usage. These goals are tracked
GOAL STATUS
against a baseline year, 2015/16. The Group tracked its performance against the aforementioned
goals and the progress made during the year under review is presented in the ensuing sections, as
TARGET FOR 2019/20
relevant.
368,333
2016/17*
343,917
2015/16
213,747
4%
Vs. 2015/16 Baseline
Diesel 146,413 135,288 135,288
Petrol 24,096 16,978 15,009 Despite continuing efforts towards achieving
Furnace oil 34,034 40,405 37,057 it’s 2019/20 energy goal, the Group recorded
LPG 28,011 28,418 26,393 a relative increase in energy consumption
Jet fuel 135,779 122,828 - during its first year of target tracking. Lower
2. Energy consumption from renewable sources 109,506 101,112 111,061 levels of operational activity in the Consumer
Foods sector in addition to the introduction
3. Purchased energy - national grid 361,974 350,622 332,961
of enhanced capacity for future requirements
Total energy consumption 839,813 795,651 657,770
contributed towards a reduction in relative
* Cinnamon Air was included under the Group’s sustainability reporting scope during the year. For comparison energy efficiency, resulting in a higher per
purposes, the 2016/17 data has been restated. operating factor energy usage. It is noted
however, that benefits of some business
level initiatives implemented will be accrued
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GROUP CONSOLIDATED REVIEW
Capital Management Review
over time while some of the initiatives are Given that Sri Lanka’s national grid is hydro Water Management
also currently being rolled out. Regardless power based, the resultant carbon footprint is As part of its Natural Capital management
of the short-term challenges, the Group will lower in comparison to countries producing strategy, the Group monitors and measures
continuously strive to achieve its energy power exclusively through fossil fuels. water from all sources, which includes ground
reduction goal by 2019/20. water, inland surface water bodies, oceans, pipe-
Carbon footprint borne water from the National Water Supply
by energy type
Despite the increase in energy usage, the and Drainage Board, and rainwater harvesting.
Group made steady progress towards utilising %
more renewable energy during the year under Water withdrawal by source
2 2
review, thereby reducing the unsustainable %
strain on the national grid and reducing the 3
11 12.6
carbon footprint of the Group. The renewable
energy sources used by the Group primarily 42.8
consist of bio-mass and solar power usage. At 11
a business level, the ensuing is noted:
200
2017/18
0
Leisure
Other/Plantation Services
Transportation
Financial Services
Property
Information Technology
(7%)
Vs. 2015/16 Baseline
Of all water discharged to the environment, 42
per cent was treated through on-site sewage
6,000
5,000
treatment plants at various operational
locations, 36 per cent was discharged to 4,000
During the year under review, the Group municipal sewage treatment systems and 15
3,000
experienced a reduction in water usage per cent of water was completely recycled,
compared to the baseline year of 2015/16, which, as a percentage of water withdrawn 2,000
achieving the water reduction goal through was 11 per cent. Such water was utilised for
the commitment of Group companies. general cleaning, gardening and flushing 1,000
Other/Plantation Services
Transportation
Financial Services
Property
Information Technology
Business units also carry out a range of
Water usage per Rs. million of revenue, initiatives such as awareness campaigns
declined during the year signifying the and installation of water saving fixtures and
Group’s focus and commitment towards
its water reduction goal equipment.
m3
A detailed discussion of water withdrawal
and discharge by industry group, as well 2015/16 2016/17 2017/18
as water saving initiatives, can be found in
the Industry Group Review section of the
Report.
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RELIGION OR ETHNIC GROUP. Contractor's personnel by gender Male - 66% Female - 34%
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Talent Management
The Group continuously monitors its
employee retention, and in particular seeks to
address staff attrition in typically high attrition-
prone industry groups, by implementing
proactive initiatives that engage employees.
INITIATIVES TO INTERNALISE
A ‘COACHING CULTURE’
WERE FURTHER CEMENTED
THROUGH TRAINING AND
EMPOWERING “PEOPLE
COACHES” ACROSS THE
GROUP’S SECTORS AND
BUSINESS UNITS, AND THE
ROLLOUT OF COACHING
CENTRIC DEVELOPMENT
INITIATIVES WITHIN THEIR
Advanced leadership programme BUSINESSES.
while supervisors also can nominate employees for training, as required, taking advantage of the Group’s
extensive training calendar. On average, 47 hours of training were provided per employee per annum
amounting to an average of 49 hours for males and 44 hours for females.
In the year under review, the Group launched a partnership with “Coursera”- a global leader of Health and Safety
e-learning content providing online education from the world’s top universities. Courses were The Group places significant emphasis on
mapped against the Group’s Roof competencies and offered to all levels of employees from ensuring a safe working environment for all its
Executive to Vice President level. The multitude of learning approaches and evolving fields of employees, taking steps to ensure that health
study based on current requirements of the Group, reaffirms the Group’s intuition about the and safety concerns are prioritised and addressed
changing dynamics of its employees’ development needs. across the Group. All business units within the
Group have been empowered to undertake any
measure it may deem necessary to ensure that
Initiatives to internalise a ‘coaching culture’ were further cemented through training and empowering
it is a “Safe Place to Work.” As part of its Human
“People Coaches” across the Group’s sectors and business units, and the roll-out of coaching-centric
Capital management strategy, incidents are
development initiatives within their businesses. Additionally, an induction programme was introduced
logged, recorded and tracked on a continuous
and mandated for all first-time team leaders, aimed at enhancing their people management skills and
basis. There were no fatalities reported during
facilitating a smoother transition from individual performers to team leaders, in addition to creating
the year under review. All injuries reported are
awareness on the Group’s processes and systems that support team leaders.
injuries that resulted in over one lost day.
As a part of its career development strategy, the Group carried out Development Centres throughout
the year, and rolled out Leadership and Management development programmes in collaboration with
reputed international and local institutes such as the Postgraduate Institute of Management (PIM) and GENDERWISE OCCUPATIONAL
the National University of Singapore (NUS). In addition, “Young Fora” were continued with the intention INJURIES MALE:FEMALE
of developing management skills in executive and above levels through interactions with the business
leaders of the Group. The Group continues its career support initiatives to ensure that its employees
achieve their full potential. 154:55
2016/17: 158:55
Total Training Hours
AVP & above 1,948
REGIONWISE OCCUPATIONAL
Managers 4,255 INJURIES IN SL:OUTSIDE SL
Asst managers 11,915
Executives
Non executives
36,204
575,449
197:12
2016/17: 211:02
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Key indicators under this Capital are as follows: The “Group Initiatives” function also ensures
further integration of sustainability within the
Standard 2017/18 2016/17 2015/16 value chain. Tenders and bids received for high
203-1 Community services and infrastructure projects value items sourced by the Group are assessed
(Rs. million) 125 150 105 not only for quality and price but also for
204-1 Proportion of purchases from suppliers within social and environmental aspects and impacts.
Sri Lanka (%) 72 83 81 Suppliers are encouraged to actively track and
413-1 Community engagement (no. of persons impacted) 1,455,814 1,010,200 855,364 measure sustainability related aspects.
Sustainability integration awareness
During the previous year, the Group’s
(no. of business partners) 80 80 80
procurement process migrated to
Business partners screened for labour, environment
an electronic procurement platform
and human rights 90 90 100
to streamline the Group’s sourcing
417-1 Proportion of labels carrying ingredients used (%) 80 81 81 initiatives. The entire sourcing process
Proportion of labels carrying information on disposal (%) 92 93 76 from supplier identification to
Proportion of labels carrying sourcing of components (%) 1 1 1 contracting, and supplier management
417-3 Voluntary standards relating to advertising Group policy based on ICC Code for products and services was conducted
419-1 Significant monetary fines* Nil Nil Nil through the electronic platform,
during the year under review. Due to
205-1 Proportion of businesses analysed for risk of corruption (%) 100 100 100
the numerous benefits ranging from
* Significant fines are defined as fines over Rs.1 million shortening of contracting life cycles,
increased visibility of the sourcing
process, accurate analytics and saving of
paper, Group companies have also begun
sourcing requirements through this
procurement platform.
Social Responsibility
During the year, through various CSR
initiatives, 1,455,814 people were impacted,
while Rs.125 million was expended in carrying
out community service and infrastructure
projects. As discussed in the ensuing sections,
training and awareness on serious diseases
such as HIV & AIDS, dengue, thalassemia and
diabetes was also carried out, with a total of
Value creation in supply chain through mutually-beneficial relationships 560,748 persons educated during the year,
through a mass awareness campaign.
Product Responsibility
The Group strives to ensure and maintain the highest standards for its products and services by English Language Scholarship Programme
adhering to all statutory and regulatory requirements, local and international, as well as global (ELSP)
best practices. Group companies ensure the highest quality in processes, responsible marketing The objective of this initiative is to enhance
and communications, as well as consumer and employee health and safety through robust quality English language skills of school children
management processes and quality assurance. The ongoing ISO 9001, ISO 22000, ISO 14000 and youth from socially and economically
and OHSAS 18001 certifications by the relevant Group companies are testimony to the Group’s disadvantaged backgrounds to improve
commitment in this regard. opportunities for higher learning and
sustainable employment. Sri Lanka records a
Supply Chain Management “very low proficiency” under the EF English
The Group strongly believes that striving to entrench sustainability in its supply chain helps create Proficiency Index ranking 61 of 80 countries
value through building mutually beneficial, long-lasting relationships. The Group works closely in 2017.
with its key suppliers to create awareness and disseminate knowledge on sustainability best
practices, with supplier fora being carried out for over 80 Group sourced suppliers in Sri Lanka as ELSP which was initiated in 2004,
well as significant suppliers in the Maldives. complements state policy and initiatives
to improve English communicative skills of
Approximately 90 existing suppliers were assessed during the year, while all new suppliers school children in various parts of Sri Lanka.
are assessed, prior to being contracted as a pre-requisite to carrying out business. The Group’s The main focus is ‘English for Teens’ with
significant suppliers are assessed in terms of labour practices, upholding human rights and over 1,200 scholarships on offer each year to
environmental impacts and are additionally assessed for key sustainability impacts, based on the students aged 12-14 years, from less-privileged
Group’s supplier code of conduct, legal and other requirements. Government schools.
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GROUP CONSOLIDATED REVIEW
Capital Management Review
in the completion of 972 cataract surgeries • The Foundation was awarded the “SLT Zero
in collaboration with the Lions Gift of One Digital Excellence” award under the
Sight Hospital. The cumulative number of health and personal care services category The following initiatives were also conducted
cataract surgeries since project launch in for the Best Community Empowerment during the year:
2004 is 13,116 Programme for the HIV & AIDS e-learning • The second public awareness campaign
• Vision screening was conducted in 110 platform against sexual harassment was organised
schools, with over 35,860 school children in November 2017 targeting commuters
being tested and 2,284 eye glasses provided PROJECT WAVE (Working Against Violence of railways, in commemoration of the
free of charge, resulting in a cumulative through Education) International Day for the Elimination
project total of 10,372 eye glasses Project WAVE is a long-term CSR project aimed of Violence Against Women. 108 staff
at combating the pervasive issue of gender- volunteers from across the Group
John Keells HIV & AIDS Awareness based violence and child abuse through participated in the campaign centred around
Campaign education and awareness creation. three of Colombo’s busiest railway stations
Since 2005, HIV & AIDS awareness sessions and railway yards in Colombo. This initiative
have been conducted for varied populations. Since the launch of the project in 2014, involved pasting approximately 2,000 stickers
Sessions are conducted with the aim of general sensitisation under phase 1 has inside the compartments and handing out
effectively addressing aspects of stigma and been conducted across all sectors of the approximately 30,000 information cards
discrimination while enabling affected persons Group, covering more than 99 per cent of to commuters throughout the day. The
to develop economic independence. The staff as at 31 March 2018. The year in review campaign is estimated to have reached a
following initiatives were undertaken, during saw the introduction of phase 2 of internal cumulative total of 100,000 commuters
the year under review: awareness, focussing on sexual harassment
in the workplace targeting supervisory level
• A total of 7,360 persons were sensitised on
staff. Following the development of related
HIV & AIDS resulting in a cumulative total of
material and a test session for the Foundation This is a strong initiative taken to address
124,531 persons to date
Management Committee, interactive sessions the pressing issue of sexual harassment in our
• World AIDS Day 2017 was commemorated were conducted for the Group HR community public transport system. I am happy and proud to
with the issue of Chairman’s message, and senior management of the Group, be a part of this noble cause for change….”
pinning of the red ribbon, a poster comprising Assistant Vice President and above
campaign titled “Get Tested” and a quiz levels, impacting a total of 118 staff. Lasith Samayawardena
• Several businesses of the Group organised Management Trainee,
staff awareness sessions, while external John Keells Holdings
sessions were also organised
• The Foundation continued to host its
e-learning platform, an interactive learning
77
GROUP CONSOLIDATED REVIEW
Capital Management Review
Other Initiatives
The Foundation funded the cost of building
material for extensive renovation and repair
Buyer and seller interaction at Kala Pola 2018 of water and sanitation facilities of the
Welikada Prison for which unskilled labour
good quality water for drinking and cooking Disaster Relief was provided by the prison inmates under the
purposes in areas known to be at risk of In the wake of the severe tropical storm that supervision of Prison officials. The Foundation
Chronic Kidney Disease (CKD) caused floods and landslides in several parts of also contributed towards the building of an
• United Nations Global Compact (UNGC) the country, and the Meethotamulla garbage Emergency Treatment Unit at the Divisional
Water Stewardship Project - pilot initiative dumb disaster which destroyed homes and Hospital, Kirinda. Through the Sunera
to provide equitable access to safe drinking displaced thousands, over 104 John Keells Foundation, the Foundation also sponsored
water in Meegahakiula (Badulla District) was volunteers were mobilised throughout a a workshop in Katugasthota benefiting 34
completed during the reporting year, which 24-hour period to sort and pack relief items, differently abled children and youth.
is estimated to directly benefit approximately while Group staff in affected areas were
1,100 persons, including 4 schools involved in distribution of relief items. This As part of the Group’s commitment to develop
initiative is estimated to have benefited over workforce outside of the Group, the Group
Kala Pola 15,000 persons. Other initiatives in this regard, partnered with the Sri Lanka Institute of
include: Development Administration providing 5
Kala Pola, an open-air art fair, is a platform
cadets undergoing the induction programme
which enables artists and sculptors across the • Meethotamulla garbage landslide - The
at the institute, the opportunity of a one-
country to showcase and market their art. Foundation in collaboration with Asia
month placement in the Group. The aim of
Kala Pola 2018, which marked the event’s 25th Pacific Alliance for Disaster Management,
this programme was to give insight on how
anniversary, showcased 358 artists, attracting donated 5,000 oxypura face masks for relief
the private sector operates contributing to
over 28,500 visitors, both local and foreign and workers, and milk powder and biscuits for
capacity building and fostering mutually
generating over Rs.15.3 million in estimated victims
beneficial relationships, for those who
sales revenue. The Children’s Art Corner, • Flood Relief - Towards facilitating the undertake public sector employment in future.
attracted 170 child artists who revelled in resettlement of affected persons, the
painting and drawing while experimenting with Foundation in collaboration with SLRCS Concluding the Group’s Social and
clay work. Special activities to commemorate cleaned 780 wells benefiting 7,479 people Relationship Capital Review, the following
the Silver Anniversary included the launch of a and distributed 1,003 school stationary section discusses Intellectual Capital, the fifth
dedicated website (www.kalapola.lk), launch of kits to affected school children in Matara, aspect of Capital Management.
a commemorative stamp, a panel discussion as
well as a special recognition of Senior Artists.
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GROUP CONSOLIDATED REVIEW
Capital Management Review
available for technical collaboration, while contributing towards creating and nurturing an
ecosystem of innovation. In May 2017, JKR’s own research laboratory commenced operations. The
INTELLECTUAL CAPITAL in-house laboratory provides access to sophisticated equipment and analytical services to ensure
sole ownership of IP by JKH; eight research projects are currently being conducted in-house.
The research project undertaken in collaboration with the Sri Lanka Institute of Nanotechnology
Intellectual Capital Review to develop novel composite materials concluded during the year under review. Based on the
The Group strongly believes that Intellectual research finding from this exercise, the article titled “Oxidation protection of carbon fibre by
Capital is a vital source of competitive sol-gel derived boron doped yittria-stabilised zirconia coatings”, was published in the journal
advantage, which, in the long term, will result “Materials Science and Engineering: B”.
in a value premium for JKH through innovation
and disruption of business models and Brand Stewardship
ultimately serving the needs of an evolving The Group is home to many brands which have gained recognition in their respective spheres over
and emerging consumer. many years. The range of brands under each of the industry groups are depicted below.
Several brand development initiatives were THE LEISURE INDUSTRY GROUP CONTINUED TO
pioneered in the operational year to create
and enhance opportunities to our diverse PLACE SIGNIFICANT EMPHASIS ON SYSTEMATICALLY
stakeholders, in keeping with the changing EXECUTING THE “CINNAMON” BRAND STRATEGY, TO
dynamics and ever-evolving trends of the CREATE VALUE AND BRAND EQUITY THROUGH THE
industries. In addition to routine strategies
executed by each of the businesses to HOSTING OF SEVERAL SIGNATURE EVENTS.
strengthen their respective brands, the
ensuing section discusses the key brand • The “John Keells Land” brand in the an umbrella brand which encompasses
building initiatives, undertaken by the Group Property industry group was rebranded the software engineering and solutions
in the year under review. as “John Keells Properties” in February portfolios of JKCS and SGIT, which also
• The Leisure industry group continued 2018. The brand consolidates all property unifies the Group IT knowledge pool to
to place significant emphasis on developments under three product deliver state-of-the-art, cutting-edge
systematically executing the “Cinnamon” focusses: Luxe, Metropolitan and Suburban software solutions while leveraging
brand strategy, to create value and brand product categories. The rebranding is on multiple strategic partnerships. The
equity through the hosting of several expected to create a more holistic product operations under the brand are carried
signature events. To this end, “The Sound portfolio for the end consumer out under 5 main solution pillars namely;
of Music”, a production by Andrew Lloyd • The brand value of Union Assurance (UA) strategy, consultancy, digital, technology
Webber and David Ian, was brought to increased by 46 per cent to Rs.1.80 billion and operations
life by the Asia Broadway Group. Known during the calendar year 2017. This is as
as one of the most critically-acclaimed per the value derived from the valuation Digitisation, Disruption and Open
productions in history, this iconic musical, conducted by Brand Finance (UK) in
Innovation
that has made its mark on some of the During the year under review, the Group
association with Sting Consultants using
world’s most revered stages, including continued to identify emerging and current
the “relief of royalty approach”, which
West End and Broadway, was the first disruptive innovation trends, focussed on
assumes the company does not own
Broadway performance of this calibre developing the digital quotient (DQ) of
the brand and calculates how much it
to be staged in Sri Lanka and the South individuals and businesses. Such initiatives
would cost to license it from a third party.
Asian region, thereby marking a significant are believed to increase the productivity
Concurrently, UA was acknowledged with
milestone in the entertainment industry of and efficiency of businesses through the
the Global Master Brand Status at the
South Asia. Some other events organised use of digital technologies and disruptive
Master Brand Award ceremony organised
include “Cinnamon Life presents George business models, which in turn would create
by CMO Asia and hosted by the World
Calombaris”, “Cinnamon Life presents sustainable value to stakeholders.
Marketing Congress; the only insurance
Jonathan and Angela Scott” and the company in Sri Lanka to be presented this
“Cinnamon Future of Tourism Summit It is pertinent to note that while the digital
award, while also being recognised as the
2017”. infrastructure, tools and services are amply
Most Respected Insurance Company in the
available within the Group, user education
• The new “Keells” modern trade brand LMD magazine’s “Most Respected Entities
and awareness of potential implications
was developed after extensive study into in Sri Lanka” survey in 2017
from the use of digital services remains a
consumer preferences at a grass-root level, • John Keells Computer Services (JKCS) challenge for the Group, and the nation, as
expectations and convenience. The new and Strategic Group IT (SGIT) launched its a whole. In order to address this challenge,
brand aims to epitomise JMSL’s “fresh” unified brand “John Keells IT” (JKIT). JKIT is the Group continually attempts to build
promise, service excellence and quality
within 5 activity pillars; product, price,
place, people and, most importantly, the
customer, thereby improving the quality
of life for the nation. As a part of this
branding strategy, the business initiated a
rebranding exercise for its modern trade
outlets during the year under review. The
layout of the new stores focus on customer
convenience, with navigation across the
store enabled by colour coded sections
demarcating the fresh food, grocery items
and in-house bakery. The stores also offer
an extensive range of new services which
include freshly prepared juices and meals.
The brand revamp has been well received
with preliminary feedback from customers,
exceeding expectations
JKR’s own research laboratory commenced operations, at the Technology Incubation Centre -
Nanotechnology and Science Park in Pitipana, Homagama
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GROUP CONSOLIDATED REVIEW
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IN LINE WITH
INTERNATIONAL BEST
PRACTICE, TO FOSTER
COLLABORATION
AMONG LIKEMINDED
ENTREPRENEURS IN AN ‘IDEA
FRIENDLY’ ENVIRONMENT,
THE GROUP OPENED A CO
WORKING SPACE FOR JKX,
WHICH IS BASED ON AN
OPEN OFFICE CONCEPT.
The newly opened JKX office space
employee DQ through training and development, implementation of user-friendly systems and The winners of the aforementioned challenge
procedures and automation of process with minimal human interaction. To this end, during the advanced to a six-month accelerator
year under review, the Group implemented a Managed Security Operations Centre in liaison with programme, which linked them to a channel
a reputed international service provider, to continuously monitor and strengthen the Group’s IT of resources, including seed funding, office
infrastructure against vulnerabilities, thereby preventing, detecting, analysing, and responding to space, access to support services, mentoring
cyber security incidents. and coaching, among others. The teams were
also provided the opportunity of participating
In furtherance of the digitisation initiatives rolled out within the Group, John Keells X (JKX) creates in a ‘Growth Hacking’ workshop, conducted by
a unique platform for disruptive and innovative solutions and also provides initial investments an Amsterdam based company “Growth Tribe”,
required for start-up businesses and technologies. To this end, JKX launched its second open Europe’s first growth hacking academy.
innovation challenge, “John Keells X - Open Innovation Challenge 2017” in May 2017. The
response to the competition was overwhelming with over 300 applications, out of which 20 In line with international best practice,
applicants were shortlisted. The shortlisted applicants were provided with rigorous training and to foster collaboration among like-
development, including workshops on “Disciplined Entrepreneurship (DE24)”, legal aspects of minded entrepreneurs in an ‘idea-friendly’
entrepreneurship and valuing start-ups. The ensuing entities emerged winners of the challenge: environment, the Group opened a co-working
• “Direct Pay”, an electronic/mobile payment solution for onsite/online financial transactions space for JKX, which is based on an open
office concept. This was created with the aim
• “Greasemonkey.lk”, an e-commerce platform dedicated to automotive products and services
of creating a conducive ecosystem for young
• “Helios”, a peer-to-peer lending platform which leverages on blockchain technology entrepreneurs to thrive.
• “iLoan”, a borrower driven online loan aggregator and powering engine
• “MyTuition.lk”, a simple, efficient and interactive learning platform Training was also provided to selected Group
staff on identifying emerging technology and
• “Senzagro”, a sensor-based precision agriculture solution
disruptive trends. The STEM programme, as
discussed under Human Capital, is also an
initiative aimed at fostering and nurturing the
DQ of the Group.
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GROUP CONSOLIDATED REVIEW
Outlook
of tourists which Sri Lanka has hitherto been Consumer Foods and Retail benefits from improving the productivity of
unable to satisfy. To this end, “Cinnamon Life” The Consumer Foods sector will focus on the sales force through automation and digital
is uniquely positioned to cater towards the expanding its portfolio, remaining relevant initiatives. Nations Trust Bank will continue to
emerging requirements of the contemporary to its consumers and widening its footprint leverage on its renowned customer service,
tourist and the increasing MICE traffic, by staying ahead of the market through brand promise and delivery network, which
positioning Colombo as a hub for business better understanding of consumer trends will strategically focus on increasing market
and leisure travel. and needs. Whilst a moderation of consumer share across its portfolio, particularly in
spending was witnessed in 2017/18, volumes the SME sector. The Bank will also focus on
Property are expected to recover in the ensuing year, delivering novel digital banking solutions,
In line with Sri Lanka progressing towards an with the long-term growth potential for the such as its digital bank “FriMi” and migrating
upper middle-income country with growing business remaining strong on the back of customers to digital platforms. These measures
urbanisation rates, the Property industry low consumption penetration levels in the are expected to assist the Bank in sustaining
group will continue to identify unique country. Whilst the Group had planned to returns and earnings growth, despite more
product propositions within the residential undertake sizeable capacity enhancements in intense competition for low cost deposits,
and commercial property markets, leveraging the Beverage business, the decline in volumes which exerted pressure on net interest
on the Group’s sizeable land bank and its particularly after the implementation of a margins across the banking industry.
reputation as a leading developer. Driven by Sugar Tax has resulted in such investments
the prevalent development opportunities being deferred to the medium term. Given Sustainability and Risk Management
within the industry, the Property industry the promising prospects in the Frozen The Group’s 2020 sustainability targets,
group will consolidate future property Confectionery business, particularly in the based on systematic audits, assessments and
developments under three main product Impulse segment, the Group will continue to benchmarking carried out for industry groups
focusses; Luxe, Metropolitan and Suburban. place emphasis on expanding its portfolio, such as Leisure and CF&R which contribute
A more holistic approach for property leveraging on the newly commissioned plant significantly to the Group’s total energy and
development, under the aforementioned in Seethawaka which caters to the impulse water usage, will continue to be monitored,
product focusses, is expected to address the segment. Continued enhancements of the with initiatives undertaken, to ensure target
volatile trend of revenue recognition of the distributor and dealer management systems, achievement. The Group will also continue
industry group through the development are expected to increase productivity and its stride towards outperforming selected
of a more robust and sustainable pipeline of efficiency of operations. international benchmarks for carbon footprint,
projects. energy consumption and water usage, while
The Retail sector will capitalise on the low also seeking to improve its own performance
penetration of modern retail in the country, on the said aspects.
by strategically expanding its retail footprint.
The business will seek opportunities in Focus will continue to be placed on
strategically placed locations, particularly integrating the Group’s risk management
in the suburbs, targeting an outlet network process with its sustainability strategy through
of approximately 250 stores by 2022/23, consistent tracking and reporting of key risk
THE GROUP’S 2020 subject to market conditions and feasibility. indicators on areas such as green-house
SUSTAINABILITY TARGETS, To complement this aggressive roll out plan, gas emissions, talent attrition, third party
the sector, in liaison with John Keells Logistics claims, non-compliance and stakeholder
BASED ON SYSTEMATIC Limited, commenced the construction of a concerns with regards to the Group’s
AUDITS, ASSESSMENTS state-of-the-art centralised distribution centre operations. While maintaining the robust
AND BENCHMARKING to maximise operational efficiencies, to further sustainability performance management
improve productivity of the business and framework, the Group will also work to ensure
CARRIED OUT FOR enhance the offering to its customers. The that sustainability and risk management
INDUSTRY GROUPS SUCH AS centralised distribution centre is expected to practices are further entrenched across its
LEISURE AND CF&R WHICH be operational in the second half of 2019/20. significant value chain partners through the
implementation of responsible sourcing
CONTRIBUTE SIGNIFICANTLY Financial Services practices, where practical and relevant.
TO THE GROUP’S TOTAL Leveraging on the Insurance business’s
ENERGY AND WATER strong brand presence and cost-efficient
processes, UA will continue to capitalise
USAGE, WILL CONTINUE on the opportunities made available by
TO BE MONITORED, WITH the low life insurance penetration within
INITIATIVES UNDERTAKEN, the country, complemented by its digital
strategy. Bancassurance is also expected to
TO ENSURE TARGET be a key driver of premium growth at UA in
ACHIEVEMENT. the long-term in addition to the anticipated
85
GROUP CONSOLIDATED REVIEW
Strategy, Resource Allocation, and Portfolio Management
Medium-term Strategy
During the year under review, in liaison with international industry experts, where applicable, the Group underwent a comprehensive strategy
formulation and planning exercise for the medium term which focusses on the ensuing 5 years. Stemming from the vision of “Building businesses that
are leaders in the region”, and garnered by the governing principles, each business unit developed a five-year strategy and business plan, which was
approved by the Group Executive Committee and the Board.
The ensuing section illustrates the comprehensive process followed by each business in developing the business’s strategy for the medium term.
Values and Promises Brand and Business Review Brand Plan Long-term Business Plan Annual Business Plans
• Identification of • Review of global and • Identifying key • Setting of a long-term goal and • Articulation and
the core values the regional trends activities required to agreeing on the core pillars approval of detailed
business will operate • Identification of insights, be undertaken under that would deliver growth project plans
with and the internal risks, challenges, each theme and the • Target setting, scheduling for execution of
Promises that the opportunities and articulation of the activities and identifying workstreams
business will strive to implications, collated varied brand-led workstreams to execute long • Approval of Annual
deliver to stakeholders into key themes themes and activities term initiatives Business Plan
• Identification of KPIs • Identifying operating and
to measure delivery capital expenditure along
of Promises with capability resources
Performance Measurement
Measure of performance against:
• Promises
• Annual plans and projects
• Long-term initiatives
• Financial objectives
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GROUP CONSOLIDATED REVIEW
Strategy, Resource Allocation, and Portfolio Management
* Primarily encompasses interest income on the Holding Company’s cash and cash equivalents.
It is pertinent to note that the capital rollout in the country where land value appreciation is anticipated, is expected to exert a strain on
employed base of the Group, is deployed in ROCE in the short term, given the non-return generating nature of land, until such time that these
assets of various forms which generate returns assets are monetised. Considering the growing trend of urbanisation and the need for residential
based on the nature of the assets and risk and commercial spaces, the Property industry group will accelerate its pipeline of projects, catering
profile. To this end, the ensuing is noted: to multiple segments of the market. This will ensure that the cycle of monetisation of the lands
of the Property industry group is managed in the context of the timing and its related impact on
Cash and cash equivalents – The significant ROCE.
cash reserves of the Group are earmarked for
equity commitments of the “Cinnamon Life” Noteworthy Insights
project and other investments in the pipeline. y The Group expects to deploy a significant quantum of cash, over the next few years, to fund
The cash balance of the Group is currently its investment pipeline. The need for these investments will be assessed periodically based
generating sub-optimal returns, well below on the macro-environment and market conditions prevailing at the time such investment
the Group’s hurdle rate, exerting pressure on decisions are made. Given the gestation period of these investments, the realisation of
Group ROCE. Group cash and cash equivalents benefits from these are expected to accrue in the medium term. Whilst the Group is aware
stood at Rs.75.27 billion as at 31 March 2018, that these investments will impact performance in the short term, the Group is confident
whilst Company cash and cash equivalents that these will result in improved returns, in the medium to long term, while also achieving
stood at Rs.49.65 billion. It is pertinent to note a better portfolio balance.
that of this, equity investments of the UA
y Although the Group’s land banking strategy is expected to exert pressure on ROCE in the
life fund amount to Rs.3.82 billion, whilst the
short term, it will facilitate the development of a robust pipeline of projects when such
restricted regulatory fund at UA amounts to
assets will be monetised, thereby having a positive impact on the ROCE of the Group.
Rs.3.38 billion.
89
GROUP CONSOLIDATED REVIEW
Strategy, Resource Allocation, and Portfolio Management
Retail - 36.5
80
Destination Management - 34.6
Consumer Foods - 34.4
60
Information Technology - 20.6
Transportation - 18.4
Plantation Services - 15.2
40
City Hotels - 8.1
Sri Lankan Resorts - 6.3
Property (Excl. Cinnamon Life) - 5.8
20
Maldivian Resorts - 4.7 Hurdle rate - 15.0
Cinnamon Life - (0.1)
0
0 10 20 30 40 50 60 70 70 90 100 110 120 130 140 150
Average Effective Capital Employed (Rs. Bn)
Key highlights of the above illustration are discussed in the ensuing section.
Transportation Consumer Foods and Retail the ROCE of the industry group stood at 54.5
The adjusted ROCE of the Transportation The Consumer Foods sector recorded a per cent. ROCE was also positively impacted
industry group decreased marginally to 18.4 decrease in the adjusted ROCE to 34.4 per by the life insurance surplus of Rs.3.64 billion
per cent from 19.3 per cent in the previous cent from 61.7 per cent in the previous year. [2016/17: Rs.1.10 billion] which was the
year. This decrease stemmed from a higher Subdued performance of the sector stemming optimum value transfer recommended by the
proportionate growth in the capital base of from an overall dip in FMCG markets, coupled Actuary for 2017. This is expected to normalise
the industry group compared to the increase with an increase in the capital base arising in line with the usual course of operations
in EBIT, as discussed in the Transportation from the completion of the new frozen going forward.
Industry Group Review section of this Report. confectionery plant in Seethawaka, exerted Information Technology and Other
pressure on ROCE. including Plantation Services
Property
As defined under “modifier 1”, properties that The Retail sector also experienced a decline The adjusted ROCE of the Information
are not under the operational banner of non- in adjusted ROCE to 36.5 per cent from 64.2 Technology industry group decreased to 20.6
property related business units and are excess per cent the previous year on the back of per cent [2016/17: 26.9 per cent] stemming
to their current and foreseeable operational a sharp rise in the capital base stemming from a decline in EBIT as discussed in the
needs, have been included under the Property from the opening of 23 new outlets during Industry Group Review section of this Report.
industry group. On this basis, the Property the year. The cost pertaining to funding and The adjusted ROCE of the Plantations Services
industry group, excluding “Cinnamon Life”, operating the expected pipeline of new stores, sector increased to 15.2 per cent compared to
recorded a decline in adjusted ROCE to 5.8 is expected to exert pressure on ROCE in 13.7 per cent recorded in the previous financial
per cent [2016/17: 9.8 per cent]. The decrease the short term. However, the performance is year. This increase is attributed to an increase
is mainly attributable to a sharp rise in the expected to normalise in the medium term, in the sector’s capital base that outweighed
capital base arising from the land acquisitions as the performance of new stores ramp up to the effects of an increase in EBIT on account of
undertaken during the year as a part of the its potential. The Retail business’ investment higher prices of tea.
land banking strategy, as discussed under in the state-of-the-art 225,000 square foot
As such, the Financial Services, Consumer
the Property Industry Group Review. Given distribution centre (DC) to cater to the
Foods and Retail industry groups and the
the nature of land banking, the ROCE of the expansion of its store network and further
Hotel Management sector have exceeded
Property industry group is suppressed below enhance and improve operational processes,
the return thresholds of the Group. These
the Group’s hurdle rate until the monetisation will exert pressure on ROCE in the short term.
businesses, are poised to grow in the medium-
of such assets. Further, the Group is cognizant Financial Services term due to encouraging fundamentals and
that revenue recognition in the Property are expected to play a pivotal role in driving
The Financial Services industry group recorded
Development sector has demonstrated a profitability within the Group’s portfolio.
an adjusted ROCE of 76.4 per cent compared
cyclical trend based on the projects completed, However, given the investments undertaken
to 28.2 per cent recorded in the previous
and as discussed in the Property industry group by some of these businesses, the ROCE of such
financial year. The significant increase in
review, the business is taking proactive steps businesses may see some downward pressure,
ROCE is primarily due to the one-off surplus
to develop a more robust pipeline of projects. from its exceptionally high base, till such time
of Rs.3.38 billion at Union Assurance PLC, as
During the year under review, the Property the investments start yielding its full potential.
discussed in the Financial Services Industry
industry group’s revenue primarily comprised
Group Review. Excluding the one-off surplus,
of rental income from its shopping malls.
Cinnamon Life
Portfolio Movements
During the year, Rs.9.45 billion of cash equity Portfolio movements over the past five years are illustrated below.
and Rs.1.15 billion of debt was infused to
Capital Employed (Rs. bn)
“Cinnamon Life” to finance the development
300
costs of the project. As at 31 March 2018,
the cumulative figures stood at Rs.24.46
billion and Rs.13.52 billion for cash equity 250
and debt, respectively. The aforementioned
cash equity investment at “Cinnamon Life” 200
excludes the land transferred by JKH and its
subsidiaries. Note that all project related costs, 150
unless explicitly mentioned, are capitalised
in accordance with Sri Lanka Accounting
100
Standards (SLFRS/LKAS). Additionally, it is
highlighted that the revenue from the pre-
sales of the residential apartments of the 50
“Cinnamon Life” project will only be recognised
post the commencement of operations. 0
2013/14 2014/15 2015/16 2016/17 2017/18
Transportation Leisure Property Consumer Foods and Retail Financial Services
Information Technology Other including Plantation Services
91
GROUP CONSOLIDATED REVIEW
Strategy, Resource Allocation, and Portfolio Management
Invested Rs.585 million in Waterfront JKH, together with its subsidiaries, Invested Rs.43.17 Invested a total of Rs.6.18 billion
Properties (Private) Limited increased its shareholding in Rajawella million in Saffron in JK Land (Private) Limited. Of
Holdings Limited (RHL) from 16.9 Aviation (Private) this, Rs.4.37 billion was utilised to
per cent to 51.0 per cent. The total Limited, the purchase 334 perches of land from
investment in RHL of Rs.1.04 billion operating company a subsidiary of CT Holdings PLC.
comprised of a release of an existing of the domestic Rs.1.80 billion was infused for the
sublease of land held by the JKH Group aviation operation development of newly launched
in exchange for shares, a partial buyout Cinnamon Air development “Tri-Zen”
from existing shareholders and cash
infusions into RHL on a staggered basis
KHL invested Rs.199 million for the Increase in JKH’s shareholding from
acquisition of a 426 perch land in 50 per cent to 100 per cent through
Nuwaraeliya the acquisition of 11 million shares
of TransWare Logistics (Private)
Limited (TWL) for a consideration of
LKR 305 million
Entered into a lease agreement with MOT
to acquire Kekuraalhuveli Island next to
Hakuraa, in the Maldives
JKH disposed its 4.3 per cent stake in JKH divested 915,268 ordinary
Expolanka Holdings PLC which resulted in a shares of Union Assurance PLC
capital gain of Rs.389 million during the year under review,
JKH disposed its 4.0 per cent stake in Access towards meeting the minimum
public float requirement of the CSE
Divestments
reporting and the process y The Group strives to be an employer of choice by providing a safe, secure and non-
discriminatory working environment for its employees whose rights are fully safeguarded
of defining material and who can have equal opportunity to realise their full potential. All Group companies
sustainability topics, as will abide by national laws and wherever possible will strive to emulate global best
practice governing the respective industry groups, seeking continuous improvement of
well as its boundaries and health and safety in the workplace.
the relevant management y The Group will promote good relationships with all communities of which we are a part
and enhance their quality of life and opportunities while respecting people’s culture, ways
approach, from a of life and heritage.
sustainability context.
This comprehensive management framework is constantly updated and improved to take
into consideration the operational requirements of the various companies of the Group, and
includes Standard Operating Procedures, common IT platforms for tracking material sustainability
Sustainability Integration disclosures indicators and key risk indicators, internal sustainability assurance in addition to internal
Sustainable development has been a strategic audit and external assurance processes.
priority for the John Keells Group over the
years and has identified the importance of an The Group’s sustainability performance is tracked on a quarterly basis, compared against local and
integrated approach in remaining sustainable international benchmarks and then reported internally and externally. This has become a proactive
and relevant. The Group has ensured a steady process in assessing a group company’s sustainability performance, identification of areas of risk
linkage between its financial performance and and providing management with timely information for corrective action.
brand image, sound corporate governance,
product and service excellence, productive The Group’s Sustainability Management framework is also synchronised with the various
workforce, environmental stewardship and management systems including environmental management, human resources, health and safety
social responsibility. and product quality as well as business processes such as risk management, internal audit, legal
and statutory compliance and corporate social responsibility initiatives.
The following section provides an overview
of the Group’s strategy towards entrenching Sustainability Integration process
sustainability within its business operations,
the policies and methodologies in place for
sustainability reporting and the process of
defining material sustainability topics, as well as
its boundaries and the relevant management Identification of Risks,
Sustainability Opportunities and
approach, from a sustainability context. Integration Stakeholder Concerns
Sustainability Management
Framework
The Group’s Sustainability Management
framework includes strategies for
entrenchment of sustainability, facilitated Sustainability Policy
by a sustainability organisational structure, & Management
Sustainability Initiatives to Framework
management information processes for manage areas of concern
benchmarking, internal and external target & External Reporting
IT Platform for providing
setting, gap analysis and reporting as well Internal and External Management information
as awareness creation and sustainability Sustainability and Variance Control
assurance. Assurance
93
GRI 102-46
content, and in addition to aspects such as IN ADDITION TO THE being included in the reporting scope during
stakeholder inclusiveness and materiality the reporting period, no other significant
which are further explained in this Report, ABOVE MENTIONED changes were made to the reporting scope
the disclosures also ensure completeness STUDY, THE GROUP regarding the organisation’s size, structure,
and contextual information, not only with CONSTANTLY ENGAGES ownership, or its supply chain, during the year
regards to the Group’s performance, but also under review.
on sectorial performance of the material WITH ITS SIGNIFICANT
topics identified for each industry group STAKEHOLDERS THROUGH Engagement of Significant
as disclosed in the Industry Group Analysis
FORMAL AND INFORMAL Stakeholders
section of this Report. The Group’s material The Group conducts its commercial
topics and its boundaries are also covered CONSULTATIONS, operations in several industry sectors of
in the ‘Identification of Sustainability Topics’ PARTICIPATION, the economy across different geographical
section of the Report, while further details
on policies, commitments, goals and targets,
NEGOTIATIONS, markets. This diversity necessitates developing
and sustaining relationships with various
responsibilities, resources and grievance COMMUNICATION, stakeholder groups. Stakeholder expectations
mechanisms and specific too are included MANDATORY AND of the Group would be diverse and numerous
as relevant in the ‘Management Approach considering the large number of stakeholders
Disclosures’ section.
VOLUNTARY DISCLOSURES,
that the Group engages with. The Group has
CERTIFICATION, AND therefore considered only the stakeholders
The Report, which is published annually, has ACCREDITATION. who have a significant influence over
been externally verified and assured through the Group, or who would be significantly
an independent assurance process undertaken impacted by the Group’s operations. These
by DNV GL represented in Sri Lanka by DNV year comparison is possible subject to the groups are identified in the diagrams in the
GL Business Assurance Lanka (Private) Limited. explanations provided with respect to the ensuing sections.
The data measurement techniques, calculation divestments mentioned previously as well as
methodologies, assumptions and estimations changes in operational activity as mentioned During the year, the Group engaged a
applied in the compilation of the sustainability in the ‘Industry Group Review’ sections in third-party to carry out a comprehensive
disclosures contained in this Report are in this Report. In terms of restatements in stakeholder engagement study, covering
accordance with standard industry practices comparison to the previous year 2016/17, significant stakeholders such as customers,
and GRI Standards protocols. Such data the numbers and statements have been re- value chain partners, regulatory bodies,
measurement techniques, methodologies, arranged wherever necessary to conform to media and members of the community,
assumptions and estimations are detailed the present year’s presentation. cutting across Sectors such as Leisure,
in the relevant ‘Management Approach Financial Services, Consumer Foods, Retail,
Disclosures’ section and can be found online Scope and Boundary Transportation and Plantations as well as
at www.keells.com/resource/Management_ 85 legal entities of the John Keells Group the Group as a whole. The objective of the
Approach_Disclosures_2017_18.pdf create the financial reporting boundary of this study was to understand the relevance and
report of which, 77 companies are directly materiality of the current Sustainability Topics
The GRI content index has been utilised to controlled by the Group. The remaining 8 reported and tracked by the Group, to identify
refer to specific information and disclosures have not been included for sustainability any emerging new material Topics impacting
required by the GRI Standards. The John Keells reporting, as they do not fall within direct the Group or being impacted by the Group
Group has been a part of the United Nations control of the Group. Of the 77 companies, 26 and to gauge the current perceptions towards
Global Compact (UNGC) since 2002 and this have been excluded for reporting purposes the company or brand.
Report serves as the Group’s Communication as they do not carry out any operations that
on Progress. It also reinforces our commitment significantly interact with the environment or In addition to the above mentioned study, the
to implement the 10 principles of the UNGC society at large. Such companies are either Group constantly engages with its significant
initiative. Further enhancing its disclosures non-operational entities, investment entities, stakeholders through formal and informal
to stakeholders, the Group has mapped all land-only holding companies, managing consultations, participation, negotiations,
of its projects carried out by the John Keells companies or companies that rent out office communication, mandatory and voluntary
Foundation, Group Sustainability, Human spaces. The other 51 companies have been disclosures, certification, and accreditation. In
Resources division as well as individual listed in the Group Directory and any other addition, the various methods of engagement
businesses, to the Sustainable Development exclusions made have been clearly explained and frequency of engagement with significant
Goals, in turn aligning these with the six under the relevant sustainability topics. Apart suppliers have been shown below:
Capitals of Integrated Reporting. A year-on- from Cinnamon Air and 23 new “Keells” outlets
95
GRI 102-40, 102-43
Expectations – Meeting customer expectations on product and service features, ensuring high quality and safe products and services delivered in an
environmentally and socially responsible manner
Frequency Methods of engagement
Annually Road shows, trade fairs and field visits
Bi-annually One-on-one meetings, discussion forums, progress reviews
Quarterly Customer satisfaction surveys
On-going Information dissemination through printed reports, telephone, SMS, e-mail, corporate website, workshops and business
development activities
Expectations – Providing a safe and enabling environment, equal opportunity and a culture of meritocracy, enhancement of skills and knowledge,
continuous engagement, providing feedback and encouraging work-life balance
Frequency Methods of engagement
Annually Employee satisfaction surveys and dip stick surveys such as Great Place To Work (GPTW), Voice of Employee (VOE), Group-
wide year-end get-together
Bi-annually Performance reviews, skip level meetings
Regularly Intranet communications through JK Connect and My Portal
On-going Professional training, development activities and team building through internal and external programmes, joint
consultative committees, open door policy at all management levels, sports events, Corporate Social Responsibility
programmes
Expectations – Contribution to the country’s economy through strategic investments, creating direct and indirect employment, timely payment of
taxes and levies and stimulating local economies
Frequency Methods of engagement
Quarterly The senior management are members of chambers and industry associations who meet at least on a quarterly basis
On-going Engagement with the government is carried out on an on-going basis through meetings, business forums, newsletters,
circulars, presentations and briefings, advisory meetings of industry associates
Expectations – Carrying out operations in compliance to all relevant laws and regulations and operating as a responsible corporate citizen adhering
to sound corporate governance practices
Frequency Methods of engagement
Quarterly The senior management are members of chambers and industry associations who meet at least on a quarterly basis
On-going Engagement with the legal and regulatory bodies are carried out on an on-going basis through meetings, periodic
disclosures, correspondence with bodies such as local authorities, municipal councils and other institutions such as
Consumer Affairs Authority, Department of Inland Revenue, Customs Department, Securities & Exchange Commission,
Colombo Stock Exchange and Tourist Board of Sri Lanka
Expectations – Fostering long terms business relations and benefiting from the growth of the Group, adherence to contractual obligations,
knowledge sharing and active representation in business councils and committees in the relevant industry sectors
Frequency Methods of engagement
Annually Distributor conferences, contract renegotiations and reviews, road shows, supplier assessments, supplier fora
Quarterly Supplier review meetings, one-on-one meetings
Regularly Market reports
On-going Conference calls, e-mails, circulars, corporate website and sourcing, contracting & supplier management platform
Expectations – Carrying out operations in accordance to social norms, prevailing culture, with minimal impact on society and environment, whilst
adhering to all relevant laws and regulations and operating as a responsible corporate citizen adopting sound corporate governance practices
Frequency Methods of engagement
On-going Website, press releases, media briefings, correspondence, disclosures, media coverage, participation in NGO forums,
certification and accreditation
Expectations – Carrying out operations in a fair and ethical manner, active participation in business councils and committees and discouraging anti-
competitive behaviour
Frequency Methods of engagement
Quarterly The senior management are members of chambers and industry associations who meet at least on a quarterly basis
Regularly Communication through membership of trade associations, conferences, discussion forums
97
GRI 102-44
The John Keells Group enterprise risk management process entails each Group
company carrying out its respective enterprise risk identification and review
process quarterly, based on a pre-agreed structure. As such, company-specific
related risks as well as sector and industry group common risks are analysed and
reviewed at various fora such as the monthly Group Management Committees,
the quarterly Board Meetings, and finally at the annual comprehensive risk
identification and review carried out centrally by the Sustainability, Enterprise
Risk Management and Group Initiatives function and by the Group Executive
Committee.
Enterprise Risk Management Process identified for both the business unit and the to audit by the internal audit team which
Overview Group are proactively managed. Continuous reports to the respective Audit Committee
Risks covered at these various levels, include a horizon scanning helps the Group identify of the listed companies and to the Audit
plethora of operational risks, IT risks including both risks and opportunities with regard to Committee of John Keells Holdings PLC with
cyber risks, hazard risks, financial risks, fraud global and regional trends. respect to all Group companies.
and corruption, labour related risks, natural
disasters, environmental pollution and All business unit risks, once validated Group Risks
supply chain risks. Each Group company also and reviewed at the industry group level Risks pertaining to the Group, and the
identifies its core sustainability risks, which, Group Management Committees, are then identified critical operating risks at business
though having a relatively low probability of presented to the Audit Committees of all listed unit level, are reviewed bi-annually by
occurrence could have a significant impact on companies and to the Boards of the unlisted the Group Executive Committee. The risk
the sustainability of its operations. companies, together with risk mitigation management cycle is concluded with an
plans, at least once a quarter. Business units annual Group risk report containing a Group-
The Group’s robust corporate governance are the ultimate owners of the risks of that wide risk status, analysis and profile which is
structure which encompasses the self-linking business and are responsible for reviewing and presented to the Group Audit Committee and
of risk management, sustainability, corporate monitoring the agreed risk control measures any policy level decisions stemming from this
social responsibility and internal audit on an ongoing basis. Some components of the review are incorporated in the next risk review
processes, ensures that the impacts of all risks agreed risk control measures are often subject cycle.
Business
Headline Risks External Business Organisation Analysis Technology Sustainability
Strategies and
Environment Process and People and Reporting and Data and CSR
Policies
Risk
Validation BU Review and Sector Risk
Listed Company Audit Committee Report and Action
Integrated Risk
Management Group Management Committee (GMC)
BU Risk Report and Action
Risk Business Unit
Identification
OPERATIONAL UNITS REPORT CONTENT
99
GROUP CONSOLIDATED REVIEW
Risks, Opportunities and Internal Controls
During the reporting year, the Group also THE GROUP’S OPERATIONAL DECISIONS ARE ALSO
enhanced its risk management process
by introducing an IT solution to manage INFLUENCED BY THE “PRECAUTIONARY PRINCIPLE”,
its Enterprise Risk, Audit, and Incident PARTICULARLY, FROM AN ENVIRONMENTAL PERSPECTIVE.
Management processes. The IT solution makes
AS SUCH, THE GROUP CONSIDERS RESOURCE
the Group’s Risk Management functions live
and virtual, by enabling the maintenance of CONSUMPTION, ENVIRONMENTAL POLLUTION,
live, dynamic risk registers which are linked ENVIRONMENTAL DEGRADATION AND ITS IMPACTS ON
to business goals and responsible personnel
- along with the provision of timely alerts on
THE LOCAL COMMUNITY, AS AREAS OF HIGH PRIORITY.
action plans, and escalation processes for
risks where action plans are over-due. Key its impacts on the local community, as areas regulatory and tax structures. The prolonged
management personnel at all levels (CEOs, of high priority. As a part of this process, prevalence of this uncertainty and impact
Sector Heads, and Presidents) will have the Group tracks Key Risk Indicators such as of the same on our businesses result in the
virtual visibility of the risks relevant to them. natural disasters, emissions, climate change risk rating remaining at a High. The Group’s
The platform will also facilitate the sharing and impacts to bio-diversity, ensuring a operating model, together with its internal
of best practices across the Group. The Risk minimum impact on the environment within processes, aims to ensure flexibility with, and
Universe, which frames the categorisation of which it operates. adaptability to, any unexpected changes
risks, is constantly reviewed, and, as such, was in the legal framework. Participation of the
updated for relevance during the last financial Discussions on risks, at a Group Level, are Group’s senior executives in various industry
year to reflect topical and emerging risks. contained in the Capital Management associations and industry chambers helps to
section of the Group Consolidated Review bring clarity and consistency to Government
section, the Industry Group Review policies and regulations.
Key Impacts, Risks and Opportunities section and the Financial Statements of
Risk management is a firmly entrenched this Report. Details on risks, opportunities
component of the corporate governance Financial Exposure
and internal controls specific to business
process of the John Keells Group and has units, sectors and industry groups are 2017/18 2016/17 2015/16
been instrumental in successful corporate discussed in the Industry Group Review
section of this Report. Risk rating Low Low Low
craftsmanship and the long-term sustenance
of the Group. The structured process for risk
Headline Risks The Group Treasury Division, supported by
management further enhances the Group’s
Macro-economic and Political the Executive and Finance functions of the
value creation process for all its significant
Environment businesses, is responsible for the management
stakeholders by ensuring that Group
of financial risks through ongoing monitoring.
companies effectively identify and mitigate a 2017/18 2016/17 2015/16
Hedging mechanisms, liquidity management
range of operational, structural, financial and
Risk rating Low Low Low strategies, capital structuring and other Board
strategic risks. The Group’s risk management
approved strategies, where relevant, are
process also identifies aspects from a triple Similar to the last financial year, policy applied across the Group. Given the volatility
bottom line perspective, covering risks and uncertainty and the volatility of the economic and uncertainty in the global and local macro-
impacts to the Group arising from the socio- environment - both locally and globally - economic environment as witnessed in the
economic environment it operates in, as well continued during the reporting year. Despite previous financial year, the ensuing subsection
as the risks and impacts emanating from its the current lack of clarity, and pace of elaborates on the key elements of financial
own operations and from its value chain. Good implementation of key projects, the Group and exposure, the state of the Group’s readiness
risk management has enabled the Group to the business community remain positive about and the general outlook relating to such
undertake new projects where the reward to the future of Sri Lanka’s economy. Several senior elements.
risk factor is optimal. management staff actively participate in key
policy making bodies, committed to supporting Currency/Exchange Rate
As such, the Group focussed its attention on the Government in its efforts to create Risk rating - Medium
key areas such as attracting and retaining sustainable and equitable economic growth.
necessary skills, maintaining good labour Improving macro-economic conditions meant
The conditions in the Maldives improved, with
relations, enhancing its product responsibility, the Rupee remained relatively stable during
the Group working closely with the authorities
contribution to the community through the first nine months of the year depreciating
to support its economic growth. For the
infrastructure projects and the overall approximately 2 per cent per annum against
aforesaid reasons, this risk remains a Low.
creation of value for all internal and external the dollar. However, a strengthening Dollar
stakeholders, during the year. led to wide fluctuations in the Rupee during
Regulatory Environment
the last three months under review, with the
The Group’s operational decisions are also 2017/18 2016/17 2015/16 Rupee consistently depreciating. Despite
influenced by the ‘Precautionary Principle’, Risk rating High High High the relative stability of the rupee, partial
particularly, from an environmental hedges were made on days where import
perspective. As such, the Group considers A degree of uncertainty and volatility still exposure was high. The coverage was against
resource consumption, environmental prevails as a result of transitioning legal, unexpected currency outflows that put
pollution, environmental degradation and
downward pressure on the Rupee in a market IN THE FACE OF THE quarter of 2017/18, full implementation will
that lacks depth. Some of the initiatives take place in the second quarter.
for managing the currency risk included NUMEROUS FOREIGN
matching of Dollar revenue streams with INVESTMENTS TAKING Global Competition
Dollar denominated debt to architect “natural PLACE IN SRI LANKA, 2017/18 2016/17 2015/16
hedges”; accumulation of foreign currency
funds, where permitted and the deferral of ESPECIALLY BY Risk rating Low Low Low
conversions; premature settlement of forex INTERNATIONAL PLAYERS,
denominated trade liabilities; and the regular In the face of the numerous foreign investments
THE GROUP REMAINS ALERT taking place in Sri Lanka, especially by
review of rates and related contractual pricing
in the context of competitiveness. WITH REGARD TO ENSURING international players, the Group remains alert
with regard to ensuring its competitiveness. The
ITS COMPETITIVENESS. THE Group has sought to match global standards
Interest Rate
GROUP HAS SOUGHT TO through benchmarking its businesses to global
Risk rating - Low
MATCH GLOBAL STANDARDS best practices and maintaining the highest
Rupee interest rates witnessed a gradual quality levels in terms of both products and
declining trend in the period under review. THROUGH BENCHMARKING services. Further, in an effort to keep abreast of
The bank deposit rates fell steeper than the ITS BUSINESSES TO GLOBAL digital advancements, the Group is proactively
reduction in the prime lending rate. During
the period under review, the Group benefited
BEST PRACTICES AND relooking at disruptive and innovative business
models, customer engagement and business
from most of its Rupee denominated debt MAINTAINING THE HIGHEST processes and has put in place a Digitisation
being on a variable rate basis. Given the limited QUALITY LEVELS IN TERMS Steering Committee to further study emerging
drop in the prime lending rate, most Rupee practices. In recognition of the constant need for
debt was migrated from pricing linked to
OF BOTH PRODUCTS AND
innovation and disruptive thinking, the Group
AWPLR, to pricing linked to other interest rate SERVICES. introduced a Chairman’s Award for Disruptive
bases which better reflected the reduction in Innovation, for which one of the major criteria
general interest rates. The Group also benefited was the benchmarking of practices against the
from the majority of its excess funds being duration and profiles of assets and liabilities, best in class, both internationally and locally. The
invested in long tenure deposits before interest thereby ensuring a prudent balance between risk rating remains at a Low.
rates declined. In order to minimise the rate liquidity and earnings.
differential from the US Dollar denominated Human Resources and Talent
borrowing cost, the Group continues to move Management
excess Dollars to higher yielding short-term For further details and quantification of
2017/18 2016/17 2015/16
investments. the aforementioned risks, refer the Notes
to the Financial Statements. Risk rating Low Low Low
Credit and Counterparty
The Group, over the years, has placed a strong
Risk rating - Low Information Technology emphasis on retaining key talent through
The Group continued to liaise with only performance recognition and reward schemes,
2017/18 2016/17 2015/16
reputed creditworthy counterparties. All succession planning, leadership and career
clients are subject to credit verification Risk rating High High High
development programmes, ensuring that
procedures. They are required to submit bank high quality employees are retained, despite
guarantees/performance bonds/counter The majority of the Group’s IT systems
the highly competitive labour environment.
guarantees, where applicable. These clients are centralised to ensure uniformity and
Additionally, talent attrition is also tracked as
are regularly appraised and the subject standardisation across the Group. Whilst the
a Key Risk Indicator on a quarterly basis and
arrangements are frequently reviewed. move to consolidate most servers into the
reported to the Group Executive Committee.
Internally set up exposure limits mitigate the Group’s central data centre has increased
The Group conducts many surveys internally
concentration risk in any single counterparty utilisation and reduced unit costs, it has also
to better understand its employee needs and
due to internally set exposure limits. however increased the risk of concentration.
aspirations. Whilst the Group has a robust non-
Such risks are mitigated via strict IT protocols,
discrimination policy and an effective grievance
Liquidity firewalls, business continuity plans and disaster
handling mechanism, it maintains a culture
recovery sites and processes. While the Group
Risk rating - Low of continuous engagement and dialogue
is comfortable with the risk management of
The Group strived to ensure that a product with employees. In addition, the Group’s
the aforesaid area, the overall score of the risk
mix of short-term investments and undrawn engagement with unions is on a partner basis
remains at a High due to the implications of
committed facilities are sufficient to meet and this has resulted in better performance-
contextual and potential risks such as cyber
the short, medium and long term capital and oriented outcomes.
security. As a preliminary step, the Group has
funding requirements, unforeseen obligations engaged a reputed third-party service provider
as well as unanticipated opportunities. The to establish and manage an “Intelligence
daily cash management processes including Managed Security Operations Centre.” While
active cash flow forecasts, matches the the initial commissioning is due in the first
101
GROUP CONSOLIDATED REVIEW
Risks, Opportunities and Internal Controls
Environment and Health and Safety Reputation and Brand Image process must also extend to its value chain
partners, through regularly assessing risks
2017/18 2016/17 2015/16 2017/18 2016/17 2015/16
associated with its supply chain. As such,
Risk rating Low Low Low Risk rating Low Low Low supplier performance is reviewed on an annual
basis with regard to compliance with labour,
The Group has in place a robust Environmental The Group’s Code of Conduct is the foundation environmental and other relevant operating
Management System with emphasis on socio- of its uncompromising approach to ethical regulations of the country. Concurrently, the
environmental policies with respect to energy, and transparent business conduct with a “zero Group also provides training and knowledge
emissions, water, discharge, waste and bio- tolerance” attitude to any Code of Conduct transfer through supplier fora held annually
diversity. All companies are required to ensure violations. This is further supplemented and both in Sri Lanka and the Maldives, for its
zero violations of the country’s environmental strengthened, through the presence of an significant value chain partners, assisting to
laws and regulations and are encouraged to independent Ombudsperson, Whistleblower further entrench sustainability within their
go beyond compliance, where practicable, mechanisms and Chairman Direct conduits own business operations, resulting in cost
in keeping with global best practices such amongst other measures, supporting the benefits as well as enhancement of their
as ISO 14000 Environmental Management governance structure of the Group. own brand image. The Group’s Supplier Code
certification. The Group continuously strives of Conduct also educates suppliers on the
to reduce its energy consumption, carbon The Group also identifies and mitigates expectations of the Group with regards to
footprint and water consumption, and, as potential brand reputation risks through sustainable and ethical business practices. As
such, Group companies are encouraged to the tracking and monitoring of such under a result of these proactive steps taken by the
constantly seek out renewable sources of a sustainability development framework. Group, the risk rating remains at a Low.
energy and install energy and water efficient The numerous strategic infrastructure and
equipment. Responsible waste disposal is a community development projects carried out Risks - the interlinkages
key aspect under management focus, and is by the John Keells Foundation contributes Given the interrelationships between risk
carried out through training and awareness, to further strengthening its stakeholder management and sustainability, the Capital
converting of waste to energy and the engagement process. In addition, stringent Management Review of the Consolidated
continuous incremental evolvement of quality assurance and product standards are Review section of this Report details the
processes and systems in reducing/reusing/ maintained and product quality is continually Group’s performance with regard to all
recycling waste. monitored and tracked. In the few instances pillars of the triple bottom line. This is further
where public discontent has been identified, reinforced through the corporate governance
The Group makes every effort to ensure a the Group took immediate steps to explain framework, which in turn ensures a strong
safe working environment for its employees, the circumstances. All marketing, and public focus on compliance with regulatory and
consumers, customers and third parties, communications, are vetted in ensuring ethical guidelines, helping the Group operate
in keeping with its commitment to be a conformance with the Group Marketing and in line with the principles of sustainable
responsible corporate, contributing to the Communications Policy, based on the ICC development and continue to focus its
improvement of morale, productivity and Code of Advertising and similar. In this light, efforts in supporting local economies in
efficiency. The provision of safe and healthy the Group is confident that the rating of this the geographical areas of its operations.
products/services for its customers is a top risk remains a Low. Its sustainable sourcing initiatives ensure,
priority for the Group, and relevant, Group whenever possible and practical, that raw
companies have obtained OHSAS 8001 Supply Chain Risk
materials for the Group’s Consumer Foods
Occupational Health and Safety, HACCAP 2017/18 2016/17 2015/16 sector and goods for the Retail sector are
certification and ISO 22000 certification on procured locally. This has resulted in the Group
Risk rating Low Low Low
food safety management systems. Against contributing to uplifting livelihoods and
this background, the risk of Environment and promoting industry in its areas of operation.
With a strong focus on integrating best
Health and Safety remains a Low.
practices within its value chain, the Group
believes a comprehensive risk management
Global Review A resurgence of activity in the US and a record number of Chinese deals
The year under review was characterised by signs of recovery in resulted in a significant number of Initial Public Offerings (IPOs). Almost
developed economies, improvement in global growth and rising stock 1,700 companies were floated in 2017, the most IPOs since 2007, and an
prices. A majority of the anticipated challenges for 2017 ,that dominated increase of 44 per cent over 2016.
2016, such as the uncertainty emanating from the US Presidential
elections and Brexit-triggered recession in the United Kingdom did Frontier and emerging markets indices outperformed developed
not materialise. This contributed towards the improvement in market markets, in a period of strong gains across the board with South Korea
sentiment. Whilst political risk eased in Europe, a strong corporate and China experiencing commendable growth. Furthermore, regional
earnings season and generally positive economic data supported gains peer markets performed well with Mumbai’s Sensex and Jakarta’s JKSE
in all major markets. However, performance of global equity markets was both posting double digit growth during the period.
dampened, to an extent, from the continual tightening cycle followed
by the Federal Reserve, the Bank of England raising rates for the first time Local Market Review
in over a decade, and heightened geopolitical tensions, despite which During the period under review, the All Share Price Index (ASPI) of the
market volatility remained near all-time lows in 2017. Colombo Stock Exchange (CSE) grew by 6.8 per cent to 6,476.78 points
[2016/2017: 6,061.94]. The Standard and Poor’s Sri Lanka 20 Index (S&P SL
20), which is the weighted average index of selected counters of the CSE
Indices
based on market capitalisation, liquidity and financial thresholds, stood
Value % at 3,650.10 points as at 31 March 2018, recording an increase of 6.1 per
31 March 31 March Change cent against the previous financial year [2016/17: 3,438.88]. The overall
2018 2017 market capitalisation of the CSE was Rs.3,032.71 billion as at the end of
the financial year compared to Rs.2,662.86 billion in the previous year,
MSCI
recording an overall increase of 13.2 per cent.
All Country World Index 505.44 448.87 12.6
All Country World Index The growth in the two local indices marks a reversal in the negative
excluding USA 300.29 264.16 13.7 trend where the ASPI recorded a decline of 0.2 per cent in 2016/17 and
World (23 Developed markets) 2,066.85 1,853.69 11.5 far more significant decline of 11.0 per cent in 2015/16. The market was
USA 2,516.93 2,250.91 11.8 driven by foreign inflows during the period under review, particularly in
Europe 1,750.54 1,570.11 11.5 the first quarter of the year where foreign purchases outweighed sales
Europe, Australasia and Far East 2,005.67 1,792.98 11.9 by Rs.17.2 billion. Net foreign inflows for the year amounted to Rs.10.8
billion as opposed to Rs.9.5 billion in the previous year. The average daily
Emerging Markets 1,170.88 958.37 22.2
turnover levels increased by 42 per cent over the corresponding period
Frontier Markets 665.42 537.11 23.9
last year to Rs.1,036 million for the financial year under review driven by
Peer an improvement in foreign participation which accounted for 45.7 per
SENSEX 32,968.68 29,620.50 11.3 cent of total market turnover.
JKSE 6,188.99 5,568.11 11.2
STI 3,427.97 3,175.11 8.0 Adverse weather conditions, which impacted economic activity resulted
KLSE 1,863.46 1,740.09 7.1 in slower than expected economic growth of 3.1 per cent for 2017, with
the consequent decline in discretionary spending impacting earnings of
Local
listed entities, with the exception of the banking and insurance sectors.
ASPI 6,476.78 6,061.94 6.8
This resulted in a subdued performance of the market in comparison
S&PSL20 3,650.10 3,438.88 6.1 to most regional peers, while local participation in equities remained
modest, with local retail, institutional and HNI investors continuing to
opt for fixed income and property investments.
103
GROUP CONSOLIDATED REVIEW
Investor Relations - Share Information
The CSE recorded 5 corporate debenture issues during the financial year The beta of the JKH share as of 31 March 2018, stood at 1.03 (the beta
through which a total of Rs.19.5 billion was raised compared to Rs.78.1 is calculated on daily JKH share and the movements measured by ASPI
billion in the previous year. Furthermore, a total of Rs.25.5 billion was for the five-year period commencing 1 April 2013 to 31 March 2018).The
raised in the form of rights issues in the period under review a decrease compounded annual growth rate (CAGR) of the JKH share on a capital
of 68.3 per cent over the previous year. New listings at the CSE remained basis over the 5-year period stood at a negative 0.4 per cent, compared
few and far between with just 5 IPO’s during the period with Rs.19.8 to that of the market which stood at 2.5 per cent for the same period.
billion being raised, albeit a significant improvement in comparison to JKH share performance vs ASPI (Indexed)
the two previous years.
Index No. of Shares (Mn)
140 20
Key Market Indicators
120
2017/18 2016/17 % 16
Change 100
80 12
Overall CSE market capitalisation
(Rs.billion) 3,032.71 2662.86 13.9 60 8
Net foreign inflows (Rs.billion) 10.8 9.5 13.7 40
Average daily turnover (Rs.million) 1,036 728 42.3 4
20
Amount raised through debentures
(Rs.billion) 19.5 78.1 (75.0) 0 0
March
April
May
June
July
August
September
October
November
December
January
February
March
Number of IPOs 5 1 500
Amount raised through IPOs
(Rs. million) 19,843 75 26,358 JKH Shares Traded ASPI (Indexed) JKH (indexed)
Monthly JKH high and low share prices
Rs.
Refer the Group Consolidated Review 190
and Sri Lankan Economy sections of the
Report for a detailed discussion of the 180
local economy.
170
160
JKH Share
The JKH share appreciated by 15.7 per cent to Rs.159.60 as at 31 March 150
2018 from Rs.137.90 on 31 March 2017. The performance of the JKH share
exceeded the performance of the ASPI and remained largely correlated 140
May
June
July
August
September
October
November
December
January
February
March
Market Information of the Ordinary Shares of the Company Issued Share Capital
2017/18 Q4 Q3 Q2 Q1 2016/17 The number of shares in issue by the Company
increased to 1,387,528,658 as at 31 March 2018
High (Rs.) 180.00 167.00 166.10 179.00 180.00 165.00 from 1,387,467,137 as at 31 March 2017. The
Low (Rs.) 138.00 148.50 145.00 157.90 138.00 133.90 increase in the share capital was an outcome of
Close (Rs.) 159.60 159.60 148.50 162.50 178.80 137.90 the exercise of employee share options (ESOPs).
The Global Depository Receipts (GDRs) balance in
Dividends paid per share (Rs.) 6.00 2.00 2.00 - 2.00 5.50
ordinary share equivalent remained at 1,320,942.
Trading Statistics
Further details of the Company’s ESOP plans are
Number of transactions 25,302 4,832 5,464 4,754 10,252 30,106 found in the ensuing section of this discussion.
Number of shares traded '000 260,088 48,175 49,200 56,939 105,774 191,372
Value of all shares traded (Rs.million) 42,049 7,779 7,663 9,527 17,080 27,955
Dividend
The Company’s dividend policy seeks to
Average daily turnover (Rs.million) 177 134 128 154 300 115
ensure a dividend payout that corresponds
Percentage of total market with growth in profits, whilst ensuring that
turnover 17 11 14 17 26 16 the Company maintains adequate funds to
Market capitalisation (Rs. million) 221,450 221,450 206,044 225,468 248,079 191,332 support its investment pipeline and optimise
Percentage of total market its capital structure, thus ensuring the creation
capitalisation 7.3 7.3 7.1 7.7 8.2 7.2 of sustainable shareholder wealth in the short,
medium and long term.
Distributions to shareholders The items affecting the rise in profitability are 10,960 public shareholders. Thus, the Company
and payout ratio discussed, in depth, in the Group Consolidated is compliant under option 1 of the minimum
Rs.bn % Review and Industry Group Review sections of threshold requirements for the Main Board of
this Report. the CSE, as per the directive issued in terms of
47 46 section 13 (c) and 13 (cc) of the Securities and
43
Total Shareholder Return
Exchange Commission of Sri Lanka Act No.36
The total shareholder return (TSR) of the
41 of 1987, circulated on 16 November 2016.
JKH share stood at 19.7 per cent for the
33 period under review with JKH significantly Market capitalisation
outperforming the market where the total and enterprise value
return index of the S&P SL 20 recorded a return Rs. bn
of 10.2 per cent. On a cumulative basis, over
3.3 3.5 8.0 7.3 8.3 a five-year holding period, the share inclusive
of dividends and warrants issued, posted an
2013/14 2014/15 2015/16 2016/17 2017/18
annualised total return of 0.3 per cent.
Dividend pay-out
Total shareholder return
Dividend paid
(Rs. bn) (%) %
225
194
199
155
176
124
191
136
221
188
the funding of new projects, combined with
its ability to leverage, if required, even after (0.4)
1.3
taking into account the equity commitments
of the “Cinnamon Life” project and other 2013/14 2014/15 2015/16 2016/17 2017/18
investments in the pipeline. (12.4) Market Cap Enterprise Value
(12.0) (12.2)
The Company increased its dividend paid per
(15.3) Price to Earnings ratio
share of Rs.6.00 for the financial year 2017/18
from Rs.5.50 per share in the previous year. (23.0) Index 2017/18 2016/17
The total dividend paid for the financial year 2013/14 2014/15* 2015/16* 2016/17* 2017/18
increased by 14 per cent to Rs.8.32 billion JKH 10.5 11.6
Annual TSR Cumulative TSR
[2016/17: Rs.7.28 billion]. The payout ratio CSE 11.4 11.9
* Includes the proportionate impact arising
was at 41 per cent during the year which is a from the ownership of Warrants SENSEX 23.2 17.9
decline in comparison to the payout ratio of KLSE 16.9 16.6
46 per cent in 2016/17. Market Capitalisation and Enterprise JCI 22.1 16.2
Value STI 11.1 14.8
It should be noted that the Company profits
The market capitalisation of the Company
in 2017/18 included a one-off non-cash As seen in the table above, the PER multiple
increased by 15.7 per cent to Rs.221.45 billion
gain of Rs.8.18 billion pertaining to the of JKH at 10.5 times is the most attractive
as at 31 March 2018 [2016/17: Rs.191.33 billion].
exercise undertaken to rationalise the Group’s amongst the peer group listed.
At the financial year end, JKH represented 7.3
shareholding structure, which is discussed
per cent of the total market capitalisation of
in detail in the Other including Plantation Price to Book
the CSE [2016/17: 7.2 per cent]. The enterprise
Services Industry Group Review section of the The price to book value of the Group as at
value of the Group increased by 38.1 per cent
Report. Company profits in 2016/17 included the financial year end was 1.0 times [2016/17:
to Rs.187.93 billion [2016/17: Rs.136.02 billion]
a one-off gain amounting to Rs.2.58 billion 1.0 times]. The ratio remained flat due to the
as at 31 March 2018.
for a similar Group shareholding structure aforementioned rise in price being offset by
rationalisation exercise. Excluding these one- As at 31 March 2018, JKH had a float adjusted an increase in net asset per share to Rs.162.06
off gains, which are eliminated at the Group market capitalisation of Rs.218.19 billion and [2016/17: Rs.140.06].
reporting level, the dividend payout ratio for
2017/18 and 2016/17 stands at 68 per cent 2017/18 2016/17 2015/16
and 55 per cent, respectively. Market capitalisation (Rs. bn) 221.4 191.3 176.0
Enterprise value (Rs. bn) 187.7 136.0 124.2
Earnings Per Share
Market value added (Rs. bn) 21.5 12.7 21.1
The fully diluted earnings per share (EPS) for
EV/EBITDA (times) 5.8 5.0 5.0
the financial year, increased by 27.9 per cent
to Rs.15.15 per share [2016/17: Rs.11.84] due to Diluted EPS (Rs.) 15.2 11.8 10.5
an increase in total profit attributable to equity PER (diluted) 10.5 11.6 12.3
holders. On a recurring earnings basis, the Price to book (times) 1.0 1.0 1.1
diluted EPS increased to Rs.13.25 in the current Price/cash earnings (times) 9.3 9.9 10.6
financial year from Rs.10.31 recorded in the Dividend yield (%) 3.8 4.0 5.4
previous financial year, thus representing an Dividend payout ratio (%) 40.8 45.9 46.7
increase of 28.4 per cent. TSR (%) 19.7 10.0 (12.2)
105
GROUP CONSOLIDATED REVIEW
Investor Relations - Share Information
Composition of Shareholders
31 March 2018 31 March 2017
Institutions:
Distributions of Shareholders
31 March 2018 31 March 2017
Number of Number of Number of Number of
% % % %
shareholders shares held shareholders shares held
Options Available to Executive Directors Under the Employee Share Option Scheme
S Ratnayake K Balendra G Cooray
Granted Immediately Granted Immediately Granted Immediately
To be vested To be vested To be vested
Expiring Year Shares* vesting Shares* vesting Shares* vesting
107
Employee Share Option Plan as at 31 March 2018
Date of Employee Shares Expiry Option Grant Shares2 Exercised Cancelled2 Outstanding
Grant Category Granted Date Price (Rs.) Adjusted Due to Due to Total Vested Unvested End/Current**
Resignations Performance Price (Rs.)
Plan 8 01.07.2013 6,426,719 30.06.2018 265.18 9,959,017 - 1,057,331 261,221 8,640,465 8,640,465 - 191.65
Award 13 GEC1 2,712,919 4,196,068 - - 69,580 4,126,488 4,126,488 -
Other Executives 3,713,800 5,762,949 - 1,057,331 191,641 4,513,977 4,513,977 -
Plan 8 01.07.2014 7,428,128 30.06.2019 229.93 9,573,018 - 977,879 125,074 8,470,065 7,020,175 1,449,890 176.04
Award 24 GEC1 2,816,845 3,573,423 - - 3,573,423 3,096,948 476,475
Investor Relations - Share Information
Plan 8 25.06.2015 6,781,282 24.06.2020 195.71 8,819,207 35,862 690,293 94,131 7,998,921 4,970,386 3,028,535 149.84
Award 35 GEC1 2,244,342 2,931,378 2,931,378 2,079,880 851,498
Plan 9 15.08.2016 9,948,581 14.08.2021 142.83 9,948,581 28,883 350,401 44,995 9,524,302 3,410,010 6,114,292 142.83
6 1
Award 1 GEC 2,625,000 2,625,000 - 2,625,000 1,312,500 1,312,500
Other Executives 7,323,581 7,323,581 28,883 350,401 44,995 6,899,302 2,097,510 4,801,792
Plan 9 03.07.2017 10,402,204 02.07.2022 173.25 10,402,204 - 142,140 - 10,260,064 1,013,322 9,246,742 173.25
7 1
Award 2 GEC 2,865,000 2,865,000 - - 2,865,000 660,000 2,205,000
Other Executives 7,537,204 7,537,204 142,140 - 7,395,064 353,322 7,041,742
109
GROUP CONSOLIDATED REVIEW
Investor Relations - Key Investment Considerations
The following section details the key verticals the Group operates in, the industry potential, outlook and the initiatives that are undertaken to drive growth.
Whilst this summation of the key investment considerations of our industry groups is meant to provide a snapshot for ease of understanding, this section
should be read in conjunction with the Industry Group Review section of this Report to obtain a more comprehensive understanding of the drivers and strategy
of our businesses.
Market No controlling
JKH is the largest capitalisation shareholder Foreign Debt: Equity
listed company on shareholding ratio
the Colombo Stock
Exchange
USD 98.5 per cent 59% 13%
1.40 bn free float
2017/18 2016/17
SAGT volumes (TEU) 1,871,011 1,704,419
Port of Colombo volumes (TEU)* 6,446,223 5,803,819
Bunkering volume growth (%) 24 4
Warehouse space under management (CBM) 248,986 192,123
* Source: as per company estimates
City Hotels*
Occupancy (%) 64 69
ARR (USD) 127 133
EBITDA margin (%) 27 36
Sri Lankan Resorts
Occupancy (%) 81 80
ARR (USD) 91 93
EBITDA margin (%) 28 33
Maldivian Resorts
Occupancy** (%) 82 89
ARR (USD) 263 261
EBITDA margin (%) 24 33
* Excluding Cinnamon red
** The decline in occupancy is attributable to the partial closure of “Ellaidhoo Maldives by Cinnamon” and “Cinnamon Dhonveli Maldives” for
refurbishment
111
GROUP CONSOLIDATED REVIEW
Investor Relations - Key Investment Considerations
Crescat 98 99 (1)
No of units sold as at
Cinnamon Life Total Units 31 March 2018
The Residence at Cinnamon Life 231 124
The Suites at Cinnamon Life 196 104
Cinnamon Life – commercial complex* 10 floors 4 floors
* Out of a total of 24 floors, 10 will be sold whilst the remaining 14 floors will be a rental/lease model
Developments
• The concept design for the new joint venture residential development project, “Tri-Zen”, comprising of 891 apartments, located in
the heart of Colombo, has been finalised with construction expected to commence in the second half of 2018/19
• “Cinnamon Life” is slated for completion in the calendar year 2020 with the residential apartments and office complex ready for hand
over and occupation by early 2020
113
GROUP CONSOLIDATED REVIEW
Investor Relations - Key Investment Considerations
• Software solutions and consultation • Internet and smart phone penetration • Establish brand presence in the MENA and APAC
services based on Internet of Things, at 32 per cent and 28 per cent, regions as a leading digital solutions provider
Robotic Process Automation and respectively, lower than regional peers • Product innovation through design thinking,
INFORMATION TECHNOLOGY
other digital stack solutions • Increased digital adoption within data analytics and predictive analysis
• Brand presence in MENA and APAC the country driven by smart mobile • Leveraging on improved data connectivity
regions devices and network coverage, the Office automation
• Authorised distributor for some • Businesses and operations business to capitalise on the more tech-savvy
of the leading office automation increasingly adopting digital practices modern consumer
brands in the world
• Strategic partnerships with SAP and
Microsoft
For further details, refer the Industry Group
Review section of this Report: Page 172
• Leading tea and rubber broker • Sustained growth in global tea • Automation of manufacturing processes to yield
PLANTATION SERVICES
• Operates 8 tea factories consumption with growing demand higher production efficiency and improved
• Manufacturer of low grown teas for value added tea quality
Harnessing innovation,
dynamism and talent
116 Transportation . 126 Leisure . 140 Property . 148 Consumer Foods and Retail . 162 Financial Services
. 172 Information Technology . 180 Other including Plantation Services
115
INDUSTRY GROUP REVIEW
Transportation
The “MT LM Mahaweli”, Sri Lanka’s first double hulled, double bottomed bunker barge commissioned by LMS
19% Revenue
Rs.3.33 bn
8% Capital employed
1. For equity accounted investees, capital employed is representative of the Group’s equity investment
in these companies
2. Excludes SAGT, DHL, Maersk Lanka, MIF (formerly known as NDO) SRI LANKA’S POSITIONING
3. Turnover is inclusive of the Group’s share of equity accounted investees
4. As per the sustainability reporting bound
AS A PORTS AND SHIPPING
HUB IN THE SOUTH ASIAN
External Environment and Operational Review REGION WAS FURTHER
Global trade witnessed a recovery in the calendar year 2017, driven by a resurgence of Asian REINFORCED WHEN THE
trade flows arising from an increase in intra-regional shipments and demand from North
America. For the first time since 2014, during the calendar year 2017, world trade growth at 3.6
PORT OF COLOMBO WAS
per cent outpaced GDP growth of 3.1 per cent. The South Asian region, albeit from a lower base, PLACED 23RD AMONGST
demonstrated the fastest progress with a 7.0 per cent growth in trade. Sri Lanka and the Group THE “WORLD’S 30 BEST
continue to be uniquely positioned to capitalise on this opportunity as elaborated in the ensuing
discussion.
PORTS” AS PER 2017
ALPHALINER RANKINGS
Sri Lanka’s strategic position on the main East-West trade route, linking the Far East with Africa, AND PLACED 13TH
Europe, and the East Coast of the United States, coupled with its proximity to India and the Bay of
Bengal region, provides ideal trade connections and presents a unique geographical advantage. WITH REGARD TO “BEST
This has enabled Sri Lanka, to transform itself into a leading global shipping and transportation CONNECTIVITY IN THE
hub particularly by leveraging the Ports of Colombo and Hambantota. This strategic positioning,
WORLD” ACCORDING
coupled with aggressive public and private investments catered towards improving domestic
handling, transportation services and connectivity within the country, has resulted in Sri Lanka TO THE DREWRY PORT
being considered with greater interest as a transport and logistics hub in the region. CONNECTIVITY INDEX.
117
INDUSTRY GROUP REVIEW
Transportation
During the year under review, the Group’s LANKA MARINE SERVICES, THE BUNKERING BUSINESS
Ports and Shipping business, SAGT, recorded
an encouraging growth of 10 per cent, OF THE GROUP, STRENGTHENED ITS MARKET
handling 1.9 million twenty-foot equivalent LEADERSHIP POSITION DURING THE YEAR UNDER
units (TEUs) [2016/17: 1.70 million TEUs],
with transshipment volumes contributing to
REVIEW. LMS WITNESSED A SIGNIFICANT VOLUME
approximately 80 per cent of total volume. GROWTH OF 24 PER CENT IN THE YEAR ON THE BACK
The increased activity within the Port of OF INCREASED PORT ACTIVITY AND REGIONAL
Colombo, as discussed above, was a key factor
that contributed towards the higher volume
SHIPPING MOVEMENTS.
growth at SAGT.
SAGT continued to focus on efficiency and The Logistics business, John Keells Logistics supermarkets, is underway and is expected to
terminal productivity during the year under Limited (JKLL), recorded a double digit be operational in the second half of 2018/19.
review, through initiatives aimed at improving increase in throughput managed driven In view of creating better engagement with its
berth occupancies, increasing the efficacy of by a number of new client engagements client base and enhancing transparency into
yard and gate operations and enhancing vessel secured by the business. JKLL increased its the logistics operations, a business intelligence
productivity. Such efforts proved fruitful, with total footprint of managed warehousing (BI) platform was introduced in the year under
SAGT being recognised as the “Best Terminal space by 25 per cent during the year review.
in the Indian Sub-Continent Region” for the under review, onboarding a 57,000 sq. ft.
second consecutive year by the Singapore- new facility in Enderamulla. JKLL secured
More information on the digital initiatives
based Global Ports Forum. leasehold rights to a 9-acre plot of land in undertaken by the business is elaborated
Kerawalapitiya, Muthurajawela, to construct under the Intellectual Capital section of
Lanka Marine Services (LMS), the Bunkering and operate a large-scale logistics facility. this industry group review.
business of the Group, strengthened its market The land is particularly strategic to the
leadership position during the year under business given its proximity to the port and During the year, JKH purchased the remaining
review. LMS witnessed a significant volume airport. It is encouraging to note that facilities 40 per cent stake of NDO Lanka (Private)
growth of 24 per cent in the year on the back at Peliyagoda, Sedawatte and Seeduwa Limited, a freight forwarding business, which
of increased port activity, regional shipping continued to operate at full capacity. was previously a joint venture between XPO
movements and the 18 per cent goods and Logistics Inc. and JKH. Post-acquisition, NDO
services tax (GST) implemented in India in July During the year under review, JKLL’s was renamed Mack International Freight
2017, which was subsequently revised to 5 per focus on operational enhancements was (Private) Limited (MIF), a fully owned subsidiary
cent in November 2017. Despite this reduction complemented with investments towards of JKH. MIF recorded an improvement in
of GST in India, Sri Lanka continued to witness expanding its vehicle fleet and capabilities of performance during the year on the back of
increased demand for bunker fuel on the back handling temperature controlled transport increased business generated through the
of increased delivery efficiencies and overall solutions, which were identified as a part project cargo vertical and rationalisation of
growth in ship traffic. The increase in volumes of a larger supply chain solution offered to operating costs.
was supported by a sustained increase of the the Retail sector of the Group. The state-of-
base price of bunker fuel in the year under the-art retail distribution centre developed DHL Keells (Private) Limited achieved double-
review which assisted the company to achieve in collaboration with JayKay Marketing digit volume growth in the year under review,
significant topline growth. Services Limited - the operators of “Keells” driven by both inbound and outbound
Rs.25.62 bn
Growth of 39 per cent
FINANCIAL AND
MANUFACTURED CAPITAL
A Cinnamon Air plane soars over the cultural triangle
volumes. In line with expectations, the market share of the business recorded an increase on As at 1 April 2017, the Transportation industry
the back of several marketing initiatives undertaken in the year. Continuing its market leadership group had total assets of Rs.18.06 billion, debt
position, DHL placed more focus on e-commerce driven solutions to support the growing needs of Rs.1.75 billion and opening equity capital of
of its customer base in the country. Rs.14.84 billion.
Cinnamon Air continued to maintain its market leadership position in domestic aviation, offering Financial Performance
both scheduled and charter services. Cinnamon Air witnessed significant growth of over 20 per Revenue
cent in its scheduled passenger numbers during the calendar year 2017. The airline continued to • The revenue of the Transportation industry
be the only scheduled domestic flight operator and continued to offer codeshare flights with Sri group increased by 55 per cent to Rs.17.17
Lankan Airlines. During the year, Cinnamon Air surpassed an operational benchmark for the first billion [2016/17: Rs.11.11 billion], primarily
time, carrying in excess of 10,000 scheduled passengers in a single year. Cinnamon Air received due to the Bunkering business, Lanka
positive feedback from clients on account of enhanced offerings, through increased frequencies Marine Services (LMS)
and new destinations, and continuous monitoring of its service standards. • LMS recorded a revenue growth of 54 per
cent driven by a significant increase in the
The Airlines business witnessed double-digit growth in both air passenger and cargo segments base price of bunker fuels in addition to
in the year under review. Jet Airways, KLM and Gulf Air represented by Mack Air Limited (MAL), double-digit volume growth
displayed promising growth driven by increases in long-haul frequency. In keeping with the
• Revenue, including equity accounted
industry group’s focus on efficiency and productivity, MAL introduced several digital initiatives
investees, increased by 39 per cent to
to ensure operational excellence. The travel business, Mackinnons Travels Limited (MTL) entered
Rs.25.62 billion [2016/17: Rs.18.44 billion],
the online travel sphere with the launch of its online engine - macktrip.com. The business also
attributable to the growth in TEUs handled
launched a corporate booking tool in the year under review to drive traffic within the digital
by the Group’s Ports and Shipping business
platform.
and the aforementioned volume increase
in the Bunkering business
Capital Management Review
• The Logistics business, John Keells Logistics
Progressing from the discussion on the External Environment and Operational Review, the
Limited (JKLL), demonstrated a revenue
discussion that ensues captures the forms of Capital available, and how each of these Capital are
growth of 13 per cent in the year under
honed to create value for all stakeholders.
review, whilst the Airlines vertical of the
The discussion on the Capitals, where relevant is structured to emphasise goals, targets and industry group recorded a revenue growth
initiatives undertaken under each of the Capitals. of 31 per cent during the year
• It is noted that over 90 per cent of the
revenue composition within the industry
group, excluding equity accounted
Goals under relevant Capital Targets we set for ourselves Our initiatives investees, stems from the Bunkering and
Logistics businesses
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INDUSTRY GROUP REVIEW
Transportation
Borrowings and Finance Expense a new bunker barge “MT Athenia” by LMS decrease in the EBIT margin stems from
Total debt as at 31 March 2018 was recorded and further investments at SAGT impacted a higher contribution from the low
at Rs.3.27 billion, an increase of 86 per cent the capital base. The ROCE, adjusted for margin Bunkering business, and the
against the corresponding year [2016/17: the impact arising from the impairment lower contribution of SAGT due to the
Rs.1.75 billion]. The increase in debt is mainly provision for doubtful debt and deferred impairment provision for doubtful debt, as
on account of the increase in short-term debt tax at SAGT, is 22.7 per cent against the discussed above
facilities utilised by LMS to finance the higher 19.3 per cent reported in the previous year • The asset turnover increased to 1.30 times
working capital requirements in line with the • EBIT margin of the industry group was compared to the 1.05 times recorded in the
volume growth witnessed during the year. recorded at 13.0 per cent against 16.9 previous year as a result of the significant
The finance expense of the industry group per cent recorded in 2016/17. The increase in revenue
increased to Rs.57 million, an increase of 124
per cent against the previous year [2016/17: Return on Capital Employed
Rs.25 million].
ROCE
Return on Capital Employed (ROCE)
2017/18: 18.5%
• ROCE of the industry group was recorded [2016/17: 19.2%]
at 18.5 per cent against 19.2 per cent
recorded in 2016/17. The decline in the
ratio primarily stems from the increase
in the capital base arising from the Asset/(Debt +
Asset turnover Equity)
aforementioned increase in total debt. 1.30 1.09
Capital deployment pertaining to the
expansion of warehousing space within EBIT margin
the Logistics business, commissioning of 13.0%
operates under the Group’s Environment The ensuing section discusses key targets
policy, as a means of managing its under the aforementioned material topics and
NATURAL CAPITAL environmental footprint. In keeping with its corresponding impacts. The section also
international best practice, the Transportation entails the various initiatives undertaken with
industry group placed significant emphasis a view to achieving relevant targets.
Transportation, logistics operations and on reducing its emissions and plastic footprint
infrastructure, whilst being a requisite during the year under review.
for economic growth and value creation Carbon Footprint
in the country, has an impact on natural The material topics relevant to the industry
resources and the environment we operate group identified under Natural Capital are: • Ports and Shipping : 1,633 MT
in. Therefore, the industry group strives to • Transportation : 11,081 MT
ensure that all its operations are carried out Energy and emissions management
in an environmentally responsible manner,
and proactively seeks to minimise negative
impacts on the country’s Natural Capital.
Waste management
As such, the Transportation industry group
Waste Management
Relevance/Implication Targets Initiatives
Regulatory and • Strict compliance to all regulatory • In adherence to the regulatory requirements on polythene and plastic
environmental requirements usage, JKLL only used shrink wrap over 21 microns
responsibility • Adherence to regulations stipulated • Plastic sample cans used by LMS were collected and handed over for
by the Marine Environmental Pollution recycling
Authority (MEPA) and other best • Waste resulting from bunkering operations was disposed through a
practice MEPA certified third party contractor to ensure responsible disposal of
waste
Performance Indicators
The carbon footprint of the Transportation 2017/18 2016/17* %
industry group (excluding SAGT, DHL,
Carbon footprint (MT) 12,714 11,309 12
Maersk Lanka and MIF which are beyond the
sustainability reporting boundary) was 12,714
Waste disposed (kg) 152,851 124,371 23
MT, a 12 per cent increase from the previous
year. Although JKLL, MAET and Mack Air have * Figures have been restated to include Cinnamon Air, to provide an accurate comparison
shown improved efficiency in their carbon
footprint, the increase in carbon footprint was Carbon Footprint Scope 1 and 2 per Operational Intensity Factor
due to increased volumes at LMS resulting 2017/18 2016/17
from the purchase of an additional barge. It LMS CO2 (kg per MT of bunkers sold) 6.7 5.3
should be noted that increased activity at JKLL CO2 (kg per ft2 of warehouse managed) 1.7 2.4
Cinnamon Air has also been included in the Mack Air (kg per ft2 of office space) 12.3 13.6
sustainability scope for the year under review.
MAET (kg per ft2 of office space) 3.7 5.9
No significant spillages were reported during
Cinnamon Air (kg per flight hour) 12,869 14,063
the year.
Waste Generated per Operational Intensity Factor
2017/18 2016/17
LMS CO2(kg per MT of bunkers sold) 0.3 0.3
JKLL CO2 (kg per m2 of warehouse managed) 0.4 0.3
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INDUSTRY GROUP REVIEW
Transportation
Talent Management
Relevance/Implication Targets Initiatives
The need to retain • Continuous training and skills • The Transportation industry group provided 3,436 hours of training to its
and continuously development employees, in line with its strategy to increase focus on staff training and
upgrade skills of • Build a resource base of qualified development, to further the capacity and efficiency across operationally
existing staff, while transportation and logistics critical areas
developing a resource professionals
base of professionals CSR initiatives:
for the country’s • The Transportation industry group continued its long-term strategic CSR
transportation industry collaboration with the University of Moratuwa. The initiative involves
the funding and implementation of a scholarship scheme for the
students of the Department of Transport and Logistics Management of
the Engineering Faculty and is aimed at addressing the skills mismatch
within the industry. This is done by developing the knowledge, skills
and competencies of undergraduates in the fields of aviation, shipping,
logistics and supply chain management or public transport, thereby
improving their employability which in turn facilitates economic growth.
A summary of the initiatives undertaken in the year under review are as
follows;
An aggregate of 26 scholarships were awarded on both a need and
merit based scheme
“Immersion” English Language training via a custom-made
programme was offered to all the first-year students, benefiting 48
students
A mentoring programme was organised to groom second-year
undergraduates to develop their soft skills to become effective
managers
Crew members of Cinnamon Air
Performance Indicators
The industry group provided 7 hours of 2017/18 2016/17* %
training per employee. It is noted that no
injuries were recorded during the year under Injuries and diseases (number) 0 2 (100)
review.
Total hours of training 3,436 2,490 38
* Figures have been restated to include Cinnamon Air, to provide an accurate comparison
The Port of Colombo, within which the Group’s the Logistics business expanded its service
SOCIAL AND RELATIONSHIP Ports and Shipping business SAGT operates, offering during the year to a multitude of
is strategically positioned on the main global industries within the local market thereby
CAPITAL
East-West shipping route and the Belt and diversifying and strengthening its portfolio.
Road Initiative, enabling better connectivity
The Transportation industry group, through with Africa, Europe, and the East Coast of In order to ensure healthy relationships with
its diverse product and service offerings, the US, providing ideal connections for the stakeholders and to mitigate any negative
connects multiple entities across and within development of trading and infrastructure sustainability impacts, businesses continually
the borders of the country. Operations networks. assess, as necessary, all significant suppliers,
throughout the businesses, from ports and including suppliers providing janitorial and
shipping to warehousing and aviation, focus The Bunkering business continued to other outsourced services.
on delivering a seamless value-added service enhance its procurement contract with a
to customers and other stakeholders. leading petroleum company in India while
The significant suppliers within the industry group are illustrated below:
Significant Suppliers
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INDUSTRY GROUP REVIEW
Transportation
Service, product quality, and the productivity and efficiency with which each service is provided,
are closely monitored metrics within the industry group. In keeping with global transportation and
INTELLECTUAL CAPITAL logistics best practice, various productivity and digital enhancement measures were undertaken in
the year under review. A summary of the initiatives are as follows;
LEVERAGING ON THE OPPORTUNITIES EXPECTED TO The Airlines business of the Group will
leverage on the existing portfolio of airlines
MATERIALISE FROM THE HAMBANTOTA PORT OPERATIONS, represented by the company to improve
THE TRANSPORTATION SECTOR WILL CONTINUE TO EVALUATE overall market share in both passenger
POTENTIAL PROJECTS, BOTH INDIVIDUALLY AND JOINTLY, and cargo volumes. MAL will focus on
strengthening its network of airlines, expand
WITH STRATEGIC PARTNERS. THE GROUP IS CONFIDENT OF selling to long-haul sectors while Cinnamon
THE POTENTIAL WITHIN THE HAMBANTOTA PORT, GIVEN Air will focus on potential expansion
opportunities arising from the growth in
ITS STRATEGIC POSITIONING ALONG THE MAIN EASTWEST
tourist arrivals to the country. The significant
SHIPPING ROUTE AND ITS INTEGRAL ROLE WITHIN THE “BELT growth trajectory of tourist arrivals will provide
AND ROAD” TRADE AND INFRASTRUCTURE INITIATIVE. opportunity to place Sri Lanka as a leading
network destination for the Airline segment.
Based on the current trend in tourist arrivals,
SAGT will also look to consolidate its The Logistics business will continue to engage with greater emphasis on the South and
operations considering the envisaged trade with key clients and evaluate the potential for East Asian markets to Sri Lanka, both MAL
flow to the country to provide high value purpose built and anchored facilities. JKLL will and Cinnamon Air will focus on creating
added and integrated services, while focussing focus on expanding its warehousing footprint industry and customer awareness through
on a better mix of transshipment to domestic leveraging on the envisaged growth in the multiple channels. The convenience of faster
containers to optimise profitability. logistics space within the country to cater to connectivity between cities and Sri Lanka’s
both domestic and international demand. growing popularity as a destination for short
The overall bunkering market displayed The business will focus on aggressively on- stays are expected to contribute towards
promising growth in the year under review boarding new anchor clients for the facilities improved performance of the Airline segment.
and is expected to retain a similar momentum while also retaining and expanding the current
in light of increased activity within the Port. product portfolio managed within the existing
Regional demand, coupled with new demand facilities. As such, the Kerawalapitiya land
created by the PCC project and other large- allocated by the Government for warehousing
scale investments both in the Hambantota will be developed and operational in the
and Trincomalee Ports, are also expected to second half of 2018/19. The strategically
contribute towards growth. LMS will leverage located state-of-the-art warehousing facility
on its strong brand and existing relationships will provide customers with leading-edge
to strengthen its position as the supplier of technological solutions for all logistics and
choice in Sri Lanka, while also committing to warehousing needs. The Group is confident
improve customer experience through digital that the new facility will also generate further
initiatives and other related processes. efficiencies given its location in proximity
to the highway network connecting the
The bunker market in Sri Lanka is currently Southern and Northern corridors of the
curtailed due to the limited availability of country.
bonded tank space, which has significantly
impacted the regional competitiveness Leveraging on the opportunities expected
of the industry. This, together with the to materialise from the Hambantota Port
proposed “Global Sulphur Cap” (a regulatory operations, the Transportation sector will
requirement for a significant reduction in continue to evaluate potential projects, both
the sulphur content of the fuel oil used by individually and jointly, with strategic partners.
ships, initiated by the International Maritime The Group is confident of the potential within
Organisation (IMO)), which is expected to be the Hambantota Port, given its strategic
implemented in January 2020, exacerbates positioning along the main East-West shipping
the need for capacity enhancement in terms route and its integral role within the “Belt and
of fuel oil storage with low sulphur content. Road” trade and infrastructure initiative.
The bunkering industry is in constant dialogue
with relevant Government entities to resolve
matters arising in this regard.
125
INDUSTRY GROUP REVIEW
Leisure
18% Revenue
Rs.4.13 bn
25% Capital employed
Industry Group Structure The arrivals growth for the year 2017/18 stood
at 7 per cent [2016/17: 5 per cent]. The subdued
Leisure growth rate is mainly on account of the adverse
weather conditions which prevailed in the
country in the months of May and June, the
Destination Management subsequent travel advisories following the
City Hotels
Walkers Tours and outbreak of dengue fever. The overall arrivals
Cinnamon Grand - 501 rooms
Resorts Whittall Boustead impact that was anticipated following the
Cinnamon Lakeside - 346 rooms
Destination Management 12-day state-of-emergency declared by the
Cinnamon red - 240 rooms
operations in Sri Lanka
Government in March 2018, has been well
managed given the immediate action towards
Sri Lankan Maldivian curtailing the situation, which was limited to
8 resort hotels in Sri Lanka ~ 1,000 rooms 3 resort hotels in the Maldives - 340 rooms one locality in the country. The industry group
witnessed normalisation of arrivals to its Resort
In addition to the aforementioned sectors, Cinnamon Hotel Management Limited (CHML) properties faster than expected, albeit resulting
functions as the hotel management arm of the Leisure industry group in a few cancellations in the short term. Despite
the impact of the March 2018 adverse travel
advisories, arrivals in the first three months of
Key Indicators the calendar year 2018 was at 707,924 arrivals, a
Inputs (Rs.mn) 2017/18 2016/17 % Change 2015/16 growth of 17 per cent against the previous year.
127
INDUSTRY GROUP REVIEW
Leisure
AS MENTIONED IN THE JKH ANNUAL REPORT 2016/17, contributed towards slower growth in arrivals.
Although the Maldivian Resorts segment
62 STANDARD ROOMS AND BEACH BUNGALOWS witnessed a recovery of average room rates,
AT “ELLAIDHOO MALDIVES BY CINNAMON” AND increased room supply in the formal sector
exerted pressure on occupancies across the
24 OVER WATER SUITES AT “CINNAMON DHONVELI
industry. Despite this decline in occupancy, the
MALDIVES” WERE REFURBISHED IN THE FIRST HALF resorts maintained occupancy levels above the
OF 2017/18. THE REFURBISHMENT WAS COMPLETED industry average of the country.
IN OCTOBER 2017 AND BOTH PROPERTIES ARE As mentioned in the JKH Annual Report
CURRENTLY FULLY OPERATIONAL. 2016/17, 62 standard rooms and beach
bungalows at “Ellaidhoo Maldives by Cinnamon”
were reported at 65 per cent and 63 per cent per cent, USD 93]. The segment performed and 24 over water suites at “Cinnamon Dhonveli
respectively. Although CL’s occupancy was well despite the increased supply of rooms in Maldives” were refurbished in the first half of
in line with last year, occupancy at CG was the informal and graded sector, particularly 2017/18. The refurbishment was completed in
impacted by the decline in corporate arrivals stemming from additions in the coastal areas October 2017 and both properties are currently
to the city. The average room rates (ARR) at CG of the country. As stated in the JKH Annual fully operational.
and CL were maintained at USD 129 and USD Report 2016/17, “Bentota Beach by Cinnamon”
125 respectively, in line with overall arrivals was closed in May 2017 for the construction The operating environment of the Destination
to the city which recorded a marginal growth of a new hotel. Construction work is currently Management sector continued to be
in the year. During the year under review, CG underway, whilst architecturally conserving challenging on account of the evolving
completed the planned soft refurbishment of the original structure and heritage elements of clientele and preference towards direct
247 rooms. “Cinnamon red” (CR) maintained the main building, with expected completion bookings. Aggressive marketing strategies
an average occupancy rate of 85 per cent by end 2019. implemented during the year, coupled with
during the year under review, despite the attractive offering enabled the sector to
aforementioned increase in room inventory Maldives recorded 1,389,542 tourist arrivals exceed expectations during the year under
and the growth in the informal sector, during the calendar year 2017, a growth of 8 review.
highlighting the efficacy of this business per cent [CY2016: 1,286,135 arrivals] driven by
model. All three City hotels maintained their the European, and Asia Pacific markets. North The Leisure industry group continued
restaurant revenue in line with the previous East Asia; the largest segment of the Asia Pacific consolidating the “Cinnamon” brand through
year despite the significant increase in the source market contracted marginally, while its life style centric brand building exercises
food and beverage offerings within the city, Western Europe, the second largest segment of and signature events such as the Future
underscoring the unparalleled culinary service the market grew by 6 per cent. China remained of Tourism Summit, guest appearance by
experience at the “Cinnamon” hotels. the largest country-wise contributor to arrivals, world renowned chef George Calombaris
albeit seeing a 6 per cent contraction to and the theatrical performance of “The
During the year under review, the Sri Lankan 306,530 arrivals in the year under review. The Sound of Music”, a production by Andrew
Resorts segment recorded promising growth, unfavourable political climate of the country Lloyd Webber and David Ian. “The Sound of
operating at an average occupancy of 81 which resulted in travel advisories from key Music” was the first Broadway performance
per cent and an ARR of USD 91 [2016/17: 80 source market during the year under review, of this calibre to be staged in Sri Lanka
and the South Asian region marking a
significant milestone in the entertainment
industry. Sales for the performance were
very encouraging, underscoring the need for
diversified entertainment offerings in Colombo.
“Cinnamon” aims to spearhead the opportunity
to bring world-class entertainment to Sri Lanka,
especially against a backdrop where tourism is
set to be the prime foreign exchange earner for
the country. World-renowned classics such as
“The Sound of Music” showcases memorable
performances that can captivate audiences,
and in turn create hype for Colombo’s
entertainment scene, thereby promoting Sri
Lanka as an entertainment hub in South Asia.
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INDUSTRY GROUP REVIEW
Leisure
Borrowings and Finance Expense • The ROCE adjusted for the revaluation • The asset turnover decreased to 0.35 times
Total debt as at 31 March 2018 was Rs.5.15 gains arising from the preceding three compared to the 0.40 times recorded in
billion whilst the finance expense for the years is 7.9 per cent against 11.4 per cent in the previous financial year, as a result of the
industry group increased by 6 per cent to the previous year increase in the asset base due to revaluation
Rs.216 million [2016/17: Rs.204 million]. gains and additions to property, plant and
This is mainly attributable to the US Dollar equipment. The asset turnover adjusted for
Refer Strategy, Resource Allocation and
denominated debt obtained for the head Portfolio Management section of this revaluation gains is 0.42 compared to the
lease extension at “Cinnamon Dhonveli Report for further information 0.46 reported in 2016/17
Maldives”.
Return on Capital Employed
Return on Capital Employed (ROCE)
• ROCE of the industry group was recorded
at 6.3 per cent compared to the 10.0 per ROCE
cent recorded in the previous year. The 2017/18: 6.3%
ratio was impacted by the aforementioned [2016/17: 10.0%]
30 per cent decrease in EBIT
Asset/(Debt +
Asset turnover Equity)
0.35 1.12
EBIT margin
16.3%
The industry group strives to operate with The material aspects relevant to the Leisure
minimal impact to the environment in industry group, identified under Natural
NATURAL CAPITAL accordance with the John Keells Group’s Capital are:
sustainability policy and the “Cinnamon”
brand’s sustainability strategy which ensures
Energy and emissions management
As a sought after tourist destination in the the responsible management of inputs such as
region, Sri Lanka has leveraged heavily on energy and water, and outputs such as emissions,
the rich bio-diversity and immersive cultural effluents and waste by all operational units in Water and effluent management
experiences surrounding it. Therefore, order to assure sustainable value creation.
preserving Sri Lanka’s natural resources is a Waste management
vital aspect of sustainable tourism.
Bio-diversity
Carbon Footprint
• City Hotels : 18,404 MT
• Resorts : 19,711 MT
Sri Lankan : 12,264 MT
Maldivian : 7,447 MT
• Destination Management : 476 MT
• Hotel Management : 243 MT
• Ensure that the emissions are within • “Cinnamon Dhonveli Maldives” replaced standard air conditioners with
the tolerance levels stipulated by the energy efficient inverter type air conditioning units, saving over 9,700
Environmental Protection License (EPL) kWh of energy during the year
• “Cinnamon Lakeside” reused kitchen waste oil to operate the boiler resulting
in savings of over 7,000 litres of furnace oil annually, reducing its dependency
on fossil fuel and thereby contributing to a reduced carbon footprint
• Maintenance of ISO 14001 environmental management certifications
across all hotel properties, enabling a more environment friendly
experience
• Better management of utilities and reduction of possible wastage,
through centralised monitoring of electricity, water and gas across
“Cinnamon Lodge Habarana”, “Habarana Village by Cinnamon”, “Trinco Blu
by Cinnamon” and “Cinnamon Citadel Kandy”. Utilities are monitored using
a Utility Management System (UMS), which enables the resorts to have
access to accurate, real-time data
• Walkers Tours increased the number of hybrid vehicles in its fleet by 19
per cent during the year to reduce fuel consumption and emissions. The
company also invested in a local hydro power project to offset the carbon
footprint by 2,207 tonnes of carbon equivalent and thereby certified as
Solar photovoltaic system installed at “Ellaidhoo Maldives by Cinnamon” having a carbon neutral fleet by Carbon Neutral UK
131
INDUSTRY GROUP REVIEW
Leisure
Waste Management
Relevance/Implication Targets Initiatives
Regulatory and brand • Strive to achieve zero waste to landfill • All City Hotels and Resorts continued to segregate waste prior to disposal
reputation implications status as a long term goal through as a part of promoting the concept of “reduce, reuse and recycle”
comprehensive waste management • “Cinnamon Wild Yala”, “Cinnamon Citadel Kandy” and “Habarana Village by
strategies including monitoring, Cinnamon” produced bio-gas using 58,000kg of food waste generated
classification, segregation, recycling, during the year, thereby reducing the usage of non-renewable energy
composting and bio gas recovery and minimising the environmental impact
• “Cinnamon Dhonveli Maldives” and “Ellaidhoo Maldives by Cinnamon”
conducted beach clean ups and underwater clean ups, while “Cinnamon
Hakuraa Huraa Maldives” also conducted a reef clean up, engaging staff
and creating environmental awareness
• “Cinnamon Grand” in line with the Group’s “Plasticcycle” project replaced
the use of plastic cups with paper cups. Previously, approximately 14,000
plastic cups were used and disposed monthly
Bio-Diversity
Relevance/Implication Targets Initiatives
Regulatory and brand Minimal impact to bio-diversity hot spots • The “Cinnamon Elephant Project” based at “Cinnamon Lodge Habarana”
reputation implications • Ensure long term value creation, given is an on-going two year research project on elephant gathering,
the proximity of Resorts to biologically behavioural and dispersion patterns in the Anuradhapura District.
diverse areas The project which is conducted in collaboration with John Keells
Foundation and the Centre for Conservation and Research track
• Regular impact assessments to
elephant migration patterns towards improving the management of
ascertain any impacts on bio-diversity
elephant habitats and reducing human-elephant conflict for long term
and the environment, resulting from
conservation. The project also enhances tourist experience through
operations
greater exposure to elephant viewing and greater access to related
information. 72 adult male elephants have been individually identified
under the initiative and photo IDs prepared
During the reporting year, Tara and Biso, two matriarch elephants of
two different herds from Minneriya and Kaudulla were fitted with
GPS satellite collars in collaboration with the Department of Wildlife
Conservation (DWC) to study the annual movement of the two
respective herds. As a result of these tracking devices, the team was
able to obtain an image of Tara’s new elephant calf named ‘Tharaka’ on
26 January 2018, enabling the DWC to determine the exact birth date
and time of an elephant calf born in the wild, for the first time
• “Project Leopard”, initiated in 2008 by Cinnamon Nature Trails in
collaboration with John Keells Foundation, was launched with the aim
of minimising the human-leopard conflict with special focus on uplifting
farmer livelihood. Leopard-proof pens have been donated to farmers
around the periphery of Yala National Park as means of protecting
the leopard population from retaliation attacks by cattle farmers
Impact:
• 81 pens donated to 76 cattle farmers (since project inception)
• Increase in average monthly income of cattle farmers by 23 per
cent each year
• Average earning from the sale of excess cattle is approximately
Rs.62,000 per family per year
• Zero reported calf killings since the use of pens commenced
• Zero reported retaliatory killing of leopard by cattle farmers
Tara from Minneriya was fitted with a GPS satellite collar
Name of Resort hotel and Feature of biological Distance Subsurface Extent Protected through legislation Status
geographic location diversity in proximity to site from site land at site of site IUCN/UNESCO etc of EPL
(m2) (km2) obtained
Bentota Beach by Cinnamon Marine ecosystems Adjacent Nil 0.0446 Flora and Fauna Protection Yes
Cinnamon Bey Beruwala Marine ecosystems Adjacent Nil 0.045 Ordinance 1937 IUCN Yes
Trinco Blu by Cinnamon Marine ecosystems Adjacent Nil 0.1143 Category 2- National Park Yes
Hikka Tranz by Cinnamon Marine ecosystems Adjacent 3,600 0.0176 Yes
Habarana Village by Cinnamon Minneriya tank sanctuary 15 km Nil 0.0378 Yes
Cinnamon Wild Yala Yala national park Adjacent Nil 0.0405 Yes
Cinnamon Lodge Habarana Minneriya tank sanctuary 15 km Nil 0.1031 Yes
Cinnamon Citadel Kandy Mahaweli river and freshwater Adjacent Nil 0.0234 Flora and Fauna Protection Yes
ecosystems Ordinance 1937 IUCN
Category 4- Habitat/Species
Management Area
Cinnamon Dhonveli, Maldives Marine ecosystems Adjacent Nil 0.1496 The Environmental Protection Yes
Ellaidhoo Maldives by Cinnamon Marine ecosystems Adjacent Nil 0.0556 and Preservation Act Yes
Cinnamon Hakuraa Huraa Maldives Marine ecosystems Adjacent Nil 0.0543 Yes
Performance
The Leisure industry group’s carbon footprint during the reporting year was 38,835 MT.
Additionally, 1,026,289 cubic meters of water was withdrawn while 3,788,942 kg of waste was
HUMAN CAPITAL
generated by the industry group.
2017/18 2016/17 %
Sri Lankan Resorts segment in litres water withdrawn per guest Health and safety
night 859 937 (8)
Maldivian Resorts segment in litres water withdrawn per guest The section below contains the implications
night 702 603 16 of each material aspects, targets for the long
City Hotels sector in litres water withdrawn per guest night 985 1,226 (20) term and the initiatives undertaken during the
year to meet the targets.
Waste Generated per Operational Intensity Factor Number of Employees
2017/18 2016/17 % • City Hotels : 2,177
Sri Lankan Resorts segment in kg waste generated per guest • Resorts : 2,267
night 2.11 2.31 (8) Sri Lankan : 1,764
Maldivian Resorts segment in kg waste generated per guest night 4.88 4.44 10 Maldivian : 503
City Hotels sector in kg waste generated per guest night 3.96 4.57 (13) • Destination Management : 225
• Hotel Management : 154
133
INDUSTRY GROUP REVIEW
Leisure
Talent Management
Relevance/Implication Targets Initiatives
Retaining talent and • Maintenance of “Cinnamon” brand • The Sri Lankan and Maldivian Resorts continued the Talent Acceleration
upgrading skills of standards - Provision of a target number Programme (TAP) and Management Acceleration Programme (MAP)
existing staff towards of training hours and on-going training, enabling the Resorts to fill supervisory and executive category vacancies
delivering superior to develop the skills of the workforce internally while strengthening skills and career progression opportunities
customer service and • Talent retention for all its employees
quality • All Resorts continue to offer classroom and on-the-job training to all
employees in order to improve skills, productivity, service quality and
value. The Leisure industry group offers 56 hours of training per employee
• During the reporting year, Cinnamon Hotels & Resorts initiated the Youth
Empowerment programme as its overarching strategic CSR initiative
supported by John Keells Foundation in order to increase employability
of school leavers and youth of the respective areas, equipping them with
the skills and practical exposure required to obtain employment in the
hospitality or related industries
Impact:
• Structured internships
• Neighbourhood schools programmes inclusive of English and IT training
• Youth Empowerment initiative benefit a total of 429 youth in 5 districts
Indicators
2017/18 2016/17 %
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INDUSTRY GROUP REVIEW
Leisure
The significant suppliers within the industry group are illustrated below:
Amenities Food and beverage suppliers Travel agents and travel websites Casual employees
Hotel and other Freelance national Jeep and boat Foreign travel agents
Contracted retail stores Outsourced fleet
accommodation guides suppliers and tour operators
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
137
INDUSTRY GROUP REVIEW
Leisure
GIVEN THE ARRIVALS TARGET FOR 2020, THE Cognizant of the long-term growth prospects
of the industry, the Group is actively pursuing
GOVERNMENT TOGETHER WITH MULTIPLE PRIVATELY investment opportunities and partners to
OWNED HOSPITALITY PARTNERS CONTINUE TO expand the Cinnamon hotel portfolio. The
ENGAGE AND PARTICIPATE IN TRAVEL ROADSHOWS Group is conscious of the high asset base
of the industry group, given the regular
SUCH AS THE RECENTLY CONCLUDED JEDDAH AND revaluation of its land as per the requirements
AUSTRALIAN SHOWCASES. THE GOVERNMENT of the applicable accounting standards. In this
light, in line with the global trends, the Group’s
FUNDED DIGITAL MEDIA CAMPAIGN WHICH IS
future expansions will be executed through
EXPECTED TO KICKOFF IN MAY WILL CREATE asset-light models, reducing its exposure to
FURTHER TRACTION FOR SRI LANKA AS A PREFERRED bricks-and-mortar, with a view to expand the
number of rooms under management.
TRAVEL DESTINATION IN THE SOUTH ASIAN REGION.
The Leisure industry group will continue
to explore opportunities to expand its
to be enacted from May 2018 is commendable term is quite modest, and as such a significant investment pipeline in the ensuing years,
and is a positive step towards developing Sri increase in room inventory is required over benefits of which will be accrued from
Lanka as a regional shopping hub. the medium term to cater to the envisaged 2020/21, given the gestation period of the
growth in arrivals. The need to expand the projects. The growth within the industry
Given the arrivals target for 2020, the existing supply of rooms is further validated group for the ensuing years will therefore be
Government together with multiple privately- by the overall room inventory relative to led by better yield management, enhanced
owned hospitality partners continue to expected tourist inflows being well below that investment to create further brand value and
engage and participate in travel roadshows of other regional destinations such as Thailand, the development of digital channels. Further
such as the recently concluded Jeddah and Malaysia, Vietnam and Cambodia. Currently, information on segment specific strategies are
Australian showcases. The Government funded over 99 leisure related developments have elaborated in the discussion that follows.
digital media campaign which is expected to received approval for construction according
kick-off mid-2018 will create further traction to the SLTDA. However, the visibility on the
for Sri Lanka as a preferred travel destination in materialisation of such room inventory
the South Asian region. Continued investment and its entrance in to the market is low.
and public-private partnerships in this regard
bodes well for the future, to develop Sri Lanka
as a unique holiday destination for travellers.
THE SRI LANKA
Apart from the policy changes and initiatives RESORTS SEGMENT
discussed above, the spillover effects of
large scale investment projects such as Port
WILL CONTINUE ITS
City Colombo (PCC), continued investment UNIQUE OFFERING
in public infrastructure, road networks and WHILE EMBODYING Trinco Blu by
general connectivity within the country
coupled with measures to expand the capacity
STRONG POINTS OF Cinnamon
Bentota Beach
The infrastructure development together with by Cinnamon
Sri Lanka’s developing potential as a shopping Cinnamon Wild
Hikka Tranz by Yala
Cinnamon
and MICE hub will drive higher business and
leisure travel into the country. The anticipated
pipeline of new room inventory in the near
* Proposed
The City Hotels sector, is expected to witness the conclusion of the Presidential elections
THE PORTFOLIO OF THE
significant growth in the corporate and in August 2018. However, considering the
MICE tourist segments driven by the high SRI LANKAN RESORTS recent improvement in performance and the
infrastructure and connectivity spend in the SEGMENT WILL BE FURTHER significant traction “Cinnamon” has created
heart of the country as discussed above. within the market, the segment will continue
The City Hotels sector will pursue unique
STRENGTHENED POST THE to follow a tactical pricing strategy whilst
business and leisure tourist segment specific COMPLETION OF “BENTOTA driving volume through online sales. The
strategies aimed at catering to a diverse BEACH BY CINNAMON” segment will also focus on targeting new
clientele with special focus on attracting source markets.
increased clients from India and the other
WHICH IS EXPECTED TO
neighbouring regions. The significant BE OPERATIONAL IN THE Given the significant potential to market
growth in regional travel, is expected to LATTER HALF OF 2019. THE a unique product offering, “Cinnamon
create unique opportunities within the city, Hakuraa Huraa Maldives” will be closed for
centric to entertainment and lifestyle as
PROPOSED NEW HOTEL, twenty months for refurbishment of its
pursued by “Cinnamon”. All three city hotels, WHICH PRESERVES THE water bungalows and swimming pool. The
complemented by the “Cinnamon” brand, are ORIGINAL ARCHITECTURE refurbished hotel is expected to be operational
well positioned to cater to both the leisure in December 2019.
segment and the business and corporate AS DESIGNED BY GEOFFREY
travellers emanating from the regional BAWA, WITH ITS DESIGNS The Destination Management sector will
markets. leverage on its presence in the European
INSPIRED BY THE OLD
and Middle Eastern markets and continue to
The Sri Lanka Resorts segment will continue DUTCH FORT, WILL BE focus on China and India as the main drivers
its unique offering while embodying strong POSITIONED AS THE of growth. The sector will also continue to
points of the destination such as the heritage enhance the user experience of the website
and immersive cultural experience of Sri
FLAGSHIP BEACH PROPERTY to encourage higher direct bookings while
Lanka. The segment will continue to drive OF THE SEGMENT. also improving process efficiency, scalability of
occupancies through volume driven strategies operations and productivity of the business in
and other unique offerings to its customers. catering to evolving customer needs.
which is expected to be operational in the
Expanding the “Cinnamon” footprint in the latter half of 2019. The proposed new hotel, As such, the future prospects for the Leisure
Central province of the country, the Group which preserves the original architecture industry group continue to be promising and
will invest in a new hotel project, “Cinnamon as designed by Geoffrey Bawa, with its the Group will be vigilant in capitalising on
red Kandy”. Construction of the hotel is designs inspired by the old Dutch fort, will be opportunities to expand the portfolio reach
expected to commence in the second half of positioned as the flagship beach property of while focussing on its asset-light strategy.
2019/20. The capital deployed for the project the segment. The unique location, architecture
will be based on an asset-light investment and heritage of the 5-star property, coupled
model and the Group will maintain a minority with an unparalleled F&B offering is expected
stake in line with this strategy. To this end, to further strengthen and enhance the
the Group’s investment in the project will “Cinnamon” brand presence within the
be approximately USD 5 million, of the total industry. The property will be re-launched
estimated project cost of USD 31 million, for as “Cinnamon Beach Bentota”, in line with its
which the rooms under the management of iconic service offering.
“Cinnamon” will increase by 210 rooms.
The performance of the Maldivian Resorts
The portfolio of the Sri Lankan Resorts segment is expected to remain subdued as
segment will be further strengthened post the a result of the political instability witnessed
completion of “Bentota Beach by Cinnamon” within the country, which may continue until
139
INDUSTRY GROUP REVIEW
Property
1% Revenue
5% EBIT EBIT
Rs.1.30 bn
35% Capital employed
1% Carbon footprint
(2016/17: Rs.690 mn)
Industry Group Structure Over the recent years, a clear trend towards
denser urbanisation is visible towards the
Property suburbs of the city of Colombo. A robust
market for suburban multi-family housing is
emerging and is primarily supplied by a range
Property Development Real Estate of smaller scale developers. The demand
Development and sale of residential and Renting of commercial office spaces and the for such housing solutions is expected to
commercial properties management of the Group’s real estate within
continue its growth trajectory given the
the city. Owning and operating the “Crescat
Operating the 18 hole champion standard increasing land prices in Colombo and the
Boulevard” mall and “K-Zone” malls in Moratuwa
golf course and managing the land bank in cost of construction of single family homes.
and Ja-Ela.
Rajawella, Kandy
Despite the generally conducive growth
Key Indicators environment in the country, the lack of skilled
Inputs (Rs.mn) 2017/18 2016/17 % Change 2015/16 labour, rising construction costs and land
prices, coupled with the layered tax and tariff
Total assets 100,030 48,329 107 43,935
system for construction materials, continue to
Total equity 75,627 29,097 160 26,947 hamper profitability within the industry. High
Total debt 14,585 13,439 9 11,647 construction costs, mainly stemming from the
Capital employed 90,212 42,536 112 38,594 exposure to imported construction material, in
addition to the cost of sourcing foreign skilled
Employees (number) 258 244 6 102
labour, is a continuing concern in the property
development market. Given this exposure, the
Outputs (Rs.mn) 2017/18 2016/17 % Change 2015/16
exchange rate volatility is a primary variable
Turnover 1,231 1,121 10 4,342 of concern which affects construction costs
EBIT 1,303 690 89 1,675 in the industry. Additionally, the introduction
PBT 1,270 665 91 1,643 of other taxes such as the value added tax
(VAT) on the sale of residential condominium
PAT 1,051 623 69 1,585
units, which was later deferred to April 2019,
EBIT per employee 5.1 2.8 79 16.4 will have a negative effect on the cost base
Carbon footprint (MT) 804 924 (13) 525 of real estate developers, and, ultimately, the
cost of ownership of residential housing from
All numbers above are inclusive of Rajawella Holdings Limited a home owner’s point of view. Further, the
introduction on capital gains tax on property
External Environment and Operational Review
During the year under review, the overall property market continued to witness strong growth
with the development and construction of condominiums across all market segments in Colombo A CLEAR TREND TOWARDS
and its suburbs driven by growing urbanisation. The Central Business District (CBD) has witnessed DENSER URBANISATION
a rapid build-up of high-end developments, most notable of which are; “Cinnamon Life”, “Shangri-
La Residencies”, “ITC Colombo One”, “Altair”, “Colombo City Centre”, “Luna Tower”, “Capitol Twin Peaks”,
IS VISIBLE TOWARDS THE
“The Destiny” and “Tata One Colombo”, amongst others. The Port City Colombo (PCC) project; a SUBURBS OF THE CITY
267-hectare reclamation adjacent to the CBD, is also progressing rapidly with reclamation due to OF COLOMBO. A ROBUST
be completed in the following year. The PCC, which is expected to have an implementation phase
of around 20 years, will progressively uplift the overall pace of property development within the MARKET FOR SUBURBAN
city of Colombo, and will attract steady investments into the city over the next few years. MULTIFAMILY HOUSING IS
CLEARLY EMERGING AND IS
In tandem with this, investments in public infrastructure are expected to drive, and facilitate,
substantial urban transformation which will bode well for the Property industry group at large. A PRIMARILY SUPPLIED BY A
few of the projects which will have an impact on transforming the urban infrastructure, and are RANGE OF SMALLER SCALE
currently part of the Governments plans, are listed below:
DEVELOPERS. THE DEMAND
• Completion of the Outer Circular Highway which links the Colombo-Katunayake Expressway to
the Southern Expressway
FOR SUCH HOUSING
• Port Access Elevated Highway which links Airport Expressway to the PCC and essentially the SOLUTIONS IS EXPECTED TO
CBD CONTINUE IN ITS GROWTH
• The ongoing Colombo sewerage system improvement TRAJECTORY GIVEN
• The waste-to-energy project in the North of the city INCREASING LAND PRICES IN
• The proposed investments in railway modernisation and light rail transit link between Colombo
COLOMBO AND THE COST OF
and a suburb, Malabe
CONSTRUCTION OF SINGLE
FAMILY HOMES.
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INDUSTRY GROUP REVIEW
Property
CONSTRUCTION OF
“CINNAMON LIFE” IS
PROGRESSING WITH
ENCOURAGING MOMENTUM
WITH THE COMPLETION OF
THE SUPER STRUCTURE OF
BUILDINGS EXPECTED IN THE
SECOND HALF OF 2018/2019.
The 16th green at the Donald Steele designed golf course in Digana
In line with its overarching strategy, the Property industry group has aggressively pursued the PROPERTY INDUSTRY GROUP REVENUE
development of a robust pipeline of projects to enable growth in the recognition of revenue and
profits over the medium term on a sustained basis. In view of this strategy, the Group, through
Vauxhall Land Development (Private) Limited (VLDL), acquired a 2.09-acre plot of land on Vauxhall
Rs.1.23 bn
Street for a consideration of Rs.4.37 billion. This asset was consolidated with an existing land plot Growth of 10 per cent
of 3.56-acres, transferred from WBL, and 3.73 acres of land owned by Finlays Colombo Limited
through a joint venture agreement signed in March 2018. The joint venture entity (VLDL), which is
approximately 60 per cent owned by JKH, now has a contiguous 9.38-acre property in one of the of the Property industry group, with a view
prime areas of the Colombo CBD. Master planning for development of this land has already been to monetising such lands in the near term
initiated. through development and sales, the Group
is of the view that IP and revaluation gains/
The Property industry group is also in the process of finalising the acquisition of approximately (losses) is integral to the industry group’s core
100 perches of land located in the heart of Colombo, for a niche residential development which operations.
is expected to be launched in the last quarter of 2018/19. The Group, which owned a 50 per cent
stake in TransWare Logistics (Private) Limited, acquired the remaining shareholding of 50 per cent • EBIT of the industry group increased
for a consideration of Rs.305 million during the year. TransWare Logistics (Private) Limited owns an by 89 per cent to Rs.1.30 billion on the
18-acre site in Thudella, Ja-Ela, North of Colombo – in close proximity to the Airport Expressway. back of RHL and IP gains Vauxhall Land
Master planning of this 18-acre suburban site is underway. Development Limited (VLDL) amounting
to Rs.309 million. The recurring EBIT of the
industry group adjusted for the one-off at
Capital Management Review RHL is Rs.757 million
Progressing from the discussion on the External Environment and Operational Review, the
discussion that ensues captures the forms of Capital available, and how each of these forms of Profit Before Tax (PBT)
Capital are honed to create value for all stakeholders. • PBT of the industry group increased by 91
per cent to Rs.1.27 billion [2016/17: Rs.665
The discussion on the Capitals, where relevant is structured to emphasise goals, targets and million
initiatives undertaken under each of the Capitals.
Borrowings and Finance Expenses
Total debt as at 31 March 2018 was Rs.14.59
Goals under relevant Capital Targets we set for ourselves Our initiatives billion, which largely comprised of borrowings
pertaining to the “Cinnamon Life” project.
The finance expense of the industry group
increased by 31 per cent to Rs.34 million
recognition of deferred revenue arising
[2016/17: Rs.26 million], the largest contributor
FINANCIAL AND from the re-assessment of the revenue
to the finance expense was K- Zone Ja Ela
recognition policy at RHL on the sale of
MANUFACTURED CAPITAL in lieu of the facilities undertaken to fund
lease hold rights
working capital requirements. It should be
noted that interest during construction on
As at 1 April 2017, the Property industry group Earnings Before Interest and Tax (EBIT)
“Cinnamon Life” is capitalised in to the project
had total assets of Rs.48.33 billion, debt of The EBIT discussion that follows is inclusive cost in accordance with the accounting
Rs.13.44 billion and an opening equity capital of investment property (IP) and revaluation standards, and therefore, is not reflected under
of Rs.29.10 billion. gains/(losses). Given the land banking strategy finance expenses.
Financial Performance
Revenue Turnover
• Revenue of the Property industry group at %
Rs.1.23 billion, was a 10 per cent increase 2015/16 95 5
against 2016/17
2016/17 52 48
• It should be noted that the revenue from
the “Cinnamon Life” project will only be 2017/18 55 45
recognised post the commencement of
operations
EBIT
• The mall operations of the industry
%
group; Crescat, K-Zone Ja Ela and K-Zone 90 10
2015/16
Moratuwa, recorded a 4 per cent increase
in revenue driven by higher occupancies 2016/17 13 87
and rental rates while Rajawella Holdings
Limited (RHL) also recorded a 397 per 2017/18 57 43
cent increase in revenue as result of the
Property Development Real Estate
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INDUSTRY GROUP REVIEW
Property
Return on Capital Employed (ROCE) • The asset turnover remained flat at 0.02
times in the year under review, primarily Refer the Strategy, Resource Allocation and
• ROCE of the industry group was 2.0 per
as a result of the more than proportionate Portfolio Management section of this Report
cent, compared to 1.7 per cent recorded in for details pertaining to the aforementioned
the previous year. The marginal increase in growth of the average asset base in lieu
adjustments and calculations
ROCE is mainly attributable to the significant of the land banking strategy. The asset
increase in EBIT against a lower relative turnover, adjusted for the impacts from
increase in the asset base. Investments in lieu “Cinnamon Life”, is 0.03 times compared to
of the land banking strategy of the industry 0.05 times recorded in 2016/17
group, infusion of cash equity to Waterfront
Properties (Private) Limited in order to fund Return on Capital Employed
the ongoing project expenses associated
with the construction of the “Cinnamon
Life” project and the aforementioned gain ROCE
on investment property are the main 2017/18: 2.0%
contributors to the increase in the asset base [2016/17: 1.7%]
of the industry group
• In order to compute an adjusted ROCE
which reflects the return on the current Asset/(Debt +
portfolio of the Property industry group, the Asset turnover Equity)
debt and equity infusions to the “Cinnamon 0.02 1.12
Life” project were eliminated considering the
gestation period of the project, in addition EBIT margin
to adjusting the investment property and 105.9%
revaluation gains. The adjusted ROCE on this
basis is 2.3 per cent [2016/17: 4.3 per cent]
• The EBIT margin of the industry group Indicators Property Development Real Estate
was 106 per cent in the year under review Revenue and growth Rs.676 million, 15 per cent Rs.554 million, 4 per cent
against 61.6 per cent recorded in the increase increase
previous year. This substantial increase EBIT and growth Rs.737 million, 747 per cent Rs.566 million, 6 per cent
stems as a result of the aforementioned IP increase decrease
gains, as outlined above
Indicators
2017/18 2016/17 %
HUMAN CAPITAL
2017/18 2016/17 %
Number of Employees Injuries and diseases (number) 1 1 -
• Property : 256
Total hours of training 2,448 1,716 43
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INDUSTRY GROUP REVIEW
Property
Given the rapid expansion of the Sri Lankan property market, the Property industry group seeks to
SOCIAL AND RELATIONSHIP differentiate itself through enhanced emphasis on its Social and Relationship Capital. The industry
CAPITAL group maintains quality standards of its products, its reputation as a responsible corporate citizen
and positions itself as one of the foremost service providers within the industry.
The relevance, targets and initiatives under this material aspect is tabulated below.
Impact:
• Investment: Rs.673,692
• Users benefited: 714,100
The significant suppliers within the industry group are The significant suppliers specific to Rajawella Holdings Limited is depicted below:
illustrated below:
All significant suppliers have been assessed for significant negative impacts on environmental, labour and human rights aspects.
The Property industry group constantly strives to enhance product quality and scope, in order to
deliver value to its end consumer. In this light the following initiatives were undertaken within the
INTELLECTUAL CAPITAL industry group to maintain product and service quality while enhancing the scope of the business
and its products.
Brand capital • “John Keells Land” was rebranded “John Keells Properties” in February 2018
• Three sub-brands - Luxe, Metropolitan and Suburban are to be rolled out in line with the emerging product segments
in the pipeline
Strategy and Outlook “Tri-Zen” will be the first development under “Cinnamon Life” is expected to capitalise on the
Property and real estate development in the the Metropolitan Spaces category. Work on the envisaged tourism growth trajectory given its
country is expected to continue its growth project has moved forward rapidly, and pre-sales unique integrated product offering. To this end,
trajectory in the near term, driven by the have commenced as outlined in the External growth is expected from key tourist segments,
need for residential and commercial spaces, Environment and Operational Review of this including regional business, leisure and MICE
investment in infrastructure and an emerging industry group report. “Tri Zen” will be followed by tourists which will bode well for the project.
upper middle-class consumer base. a Metropolitan Space development on the newly The recent developments within the tourism
consolidated 9.37-acre property on Vauxhall Street. sector such as the ongoing promotional
The long term strategy of the Property industry An international design competition is currently activities to boost the country as a preferred
group will focus on positioning “John Keells underway for the masterplan of the said property. destination and Sri Lanka’s potential to become
Properties” as the premier developer in the a regional shopping and entertainment hub
country, through the differentiation of its In keeping with the overarching strategy and will continue to create further traction for the
product offering by driving innovation in the investment pipeline of the industry group, a land lifestyle-oriented branding and positioning of
sector. Cognizant of the envisaged growth, the banking strategy is being pursued to roll-out a “Cinnamon Life”.
industry group is in the process of evaluating sustained pipeline of developments under the
and consolidating a robust pipeline of projects Suburban Spaces category. Acquisitions are being
to enable enhanced and sustained earnings targeted, mirroring the planned infrastructure roll- Refer the Leisure industry group section
for further details.
over the medium and long term. out in the country where land value appreciation
is anticipated. In this light, the development of
While the Group will continue developments in an 18-acre site in close proximity to the Colombo Demand for both the golf course, as well as real
the premium segment, it will also diversify into Katunayake expressway is being master planned estate at the Rajawella property, is expected to
high density, upper middle-income housing for the first Suburban Spaces development which see a substantial uptick with the construction
in and around the CBD. Complemented by is expected to be launched by the end of 2019/20. of the Central expressway. The segment from
the increasing demand for suburban multi- Colombo to Kurunegala is expected to be
family housing, the Group believes that this While the core strategy of the Group will remain completed in calendar year 2020. In addition to
segment will offer a significant opportunity focussed on the residential space in the near a substantial refurbishment and repositioning
within the industry. Product categories within term, the commercial office market also presents of the championship golf course under Troon
this segment will be branded Luxe Spaces, an opportunity which is being examined. management, the Group will also commence
Metropolitan Spaces, and Suburban Spaces, Commercial office space occupancy in the city planning of the next phase of real estate
respectively. This shift to a broader customer is above 95 per cent, and demand is projected development, which would be launched in
base will target primary domestic demand for to be robust in the medium term. The Group will tandem with the achievement of substantial
high quality housing from an emerging upper explore opportunities to leverage on its expertise progress on the expressway.
middle-income category of the population. and synergies in developing competitive
commercial properties.
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INDUSTRY GROUP REVIEW
The Retail sector focusses on modern organised retailing through the “Keells” chain of
supermarkets and also operates “Nexus Mobile”, the most successful coalition loyalty programme
in the country. CARBON FOOTPRINT
39% Revenue
Rs.4.13 bn
6% Capital employed
During the year under review, the Beverage business witnessed a 16 per cent decline in volumes WHILST THE GOVERNMENT’S
stemming from the overall tapering of demand on discretionary food items, exacerbated by
the introduction of an excise duty on the sugar content of carbonated soft drinks (CSD) by the
EFFORTS TO REDUCE
Government of Sri Lanka (GoSL) with effect from 9 November 2017. The introduction of the tax SUGAR CONSUMPTION IS
resulted in an excise duty of 50 cents per gram of added sugar or Rs.12 for one litre of drinks, COMMENDABLE, THE GROUP
whichever is higher, to be levied on CSDs, with immediate effect, as per the Budget 2018.
Given the significant value of the tax, the selling prices across the CSD portfolio increased by
BELIEVES THAT A MORE
approximately 40 per cent. SYSTEMATIC APPROACH
TOWARDS ENGAGING THE
In anticipation of the trends for health conscious products and the need to reduce the sugar
content of products within the beverages space, the business had taken proactive steps INDUSTRY WOULD BE BETTER
towards the reduction and replacement of the calorific sugar content among selected flavour SUITED FOR THE COUNTRY.
149
INDUSTRY GROUP REVIEW
Consumer Foods and Retail
151
INDUSTRY GROUP REVIEW
Consumer Foods and Retail
153
INDUSTRY GROUP REVIEW
Consumer Foods and Retail
The ROCE adjusted for fair value gains and 17 per cent from the 24 per cent reported
It is pertinent to note that the modern
revaluation gains of the preceding three in the previous year due to the volume
trade industry, in general, operates at lower
years, is recorded at 34.5 per cent against decline and the increase in material costs,
profitability margins, relative to the rest
the 61.4 per cent reported in 2016/17. as discussed previously. The recurring EBIT
of the JKH Group given the nature of the
margins for the industry group adjusted for
Retail business. With the opening of new
investment property gains was recorded at
stores, margins are expected to further
Refer the Strategy, Resource Allocation 7.7 per cent against 11.8 per cent recorded
dilute on the back of new stores operating
and Portfolio Management section of this in 2016/17
at lower margins in the preliminary 12 Report for further details.
months of operations, where sales ramp up • The asset turnover of industry group was
significantly in the second and third years. recorded at 2.40 times in comparison to
The Group, while acknowledging this, is • The EBIT margin of the industry group the 2.68 times recorded in the previous
confident that this impact on margins is decreased to 7.8 per cent, in comparison to year. The movement of the ratio was
temporary, given this phase of expansion. 12.0 per cent in 2016/17. The contraction expected, given the significant increase
of the EBIT margin primarily stemmed from in the asset base as outlined previously. It
the higher operational cost base of the should be noted that the outlet roll-out
Borrowings and Finance Expense Retail sector coupled with the higher EBIT of the Retail sector will have a further
Total debt of the industry group increased contribution from the Retail sector, which bearing on the ratio in the short term, as
substantially to Rs.5.58 billion from Rs.1.12 is inherently a lower margin business. The it will significantly impact the asset base
billion reported in the previous year as a result EBIT margin of the Retail sector stood at 4 of the industry group while revenue will
of the overdraft facility maintained by the Retail per cent against the 6 per cent recorded accrue gradually over the first 1-2 years of
sector to fund daily liquidity requirements, in the previous year. The EBIT margin of operations
and the debt draw down by CCS for the the Consumer Foods sector decreased to
construction of a new frozen confectionery
plant. Accordingly, the finance expense for Return on Capital Employed
the industry group increased by 71 per cent
to Rs.33 million [2016/17: Rs.19 million]. The
Group expects a further increase in finance ROCE
2017/18: 33.3%
expenses in the near term, given the pipeline
[2016/17: 60.4%]
of investments envisaged for the Retail sector
with the store expansions and the construction
of the centralised distribution centre, a majority
of which will be funded with borrowings. Asset/(Debt +
Asset turnover Equity)
2.40 1.79
Return on Capital Employed (ROCE)
• The ROCE of the industry group declined EBIT margin
to 33.3 per cent in the year under review, in 7.8%
comparison to the 60.4 per cent recorded
in 2016/17. As anticipated, the decline in
the ratio is primarily on account of the Indicator Consumer Foods Retail
increase in the industry group’s capital Revenue and growth Rs.15.62 billion, 2 per cent Rs.37.59 billion, 26 per cent
base, given the higher capital deployment decrease increase
towards store expansion and the frozen EBIT and growth Rs.2.60 billion, 32 per cent Rs.1.53 billion, 9 per cent
confectionery manufacturing plant. decrease decrease
to, and going beyond, all required environmental The ensuing section discusses key targets
laws and regulations through continuous under the aforementioned material topics and
NATURAL CAPITAL monitoring and testing. its corresponding impacts. The section also
entails the various initiatives undertaken with
The material topics relevant to the Consumer a view to achieving relevant targets.
The Consumer Foods and Retail industry group Foods and Retail industry group, identified
continued to proactively carry out initiatives to under Natural Capital are as follows: Carbon Footprint
minimise the impact on the environment, given
its significant contribution to the Group’s carbon, Energy and emissions management • Consumer Foods : 15,504 MT
energy and water footprint. All operations of the • Retail : 22,877 MT
businesses, including supply chain management,
are carried out as per the Group’s Environmental
Waste and effluent management
and Energy Management policy, whilst adhering
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INDUSTRY GROUP REVIEW
Consumer Foods and Retail
KFP CO2 kg per kg of processed meat produced 0.9 0.9 • JMSL provided customers with an option
of an entirely organic degradable bag for
JMSL CO2 kg per sq. ft. of outlet area 29.9 32.4
fresh produce at a concessionary rate at 28
selected “Keells” stores, while all bakeries
Water Withdrawal per Operational Intensity Factor
switched to paper bags for packaging
2017/18 2016/17
• JMSL further conducted customer and
CCS water withdrawn - litres per litre produced 4.5 4.5
staff awareness campaigns on polythene
KFP water withdrawn - litres per kg of processed meat produced 17.9 14.2 reduction; an 18 per cent reduction on
JMSL water withdrawn - litres per sq. ft. of outlet area 200.5 271.4 packing material was realised as a result of
these efforts
Waste Generated per Operational Intensity Factor • KFP reduced its single use polythene bag
2017/18 2016/17 usage by 46 per cent by placing controls at
CCS waste generated - kg per litre produced 0.02 0.02 various points in their factory premises and
by promoting the reuse of such material
KFP waste generated - kg per kg of processed meat produced 0.18 0.17
wherever possible
JMSL waste generated - kg per sq. ft. of outlet area 2.41 2.41
The material aspects relevant to the Consumer Foods and Retail industry group identified under
Human Capital are Health and safety, and training and talent retention. The relevance of such
HUMAN CAPITAL material aspects, including initiatives undertaken to meet internal targets are as follows:
Number of Employees
• Consumer Foods : 1,322
• Retail : 4,105
1,000 new employees were recruited as a result of the “1,000 Jobs” campaign
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INDUSTRY GROUP REVIEW
Consumer Foods and Retail
• Community bays have been set up for local and medium scale
suppliers to display and market their products at 15 “Keells” stores
with an average sale of Rs.85,000 generated per month
• CCS continued its long-term ginger and vanilla “outgrower”
programmes through the provision of financial assistance and
facilitation of technical advice and material via local authorities;
Ginger farmers – substantial quantities of ginger were
purchased at a guaranteed price for our flagship product
“Elephant House Ginger Beer”. CCS also supported the farmers
to increase their yield and utilisation of land by introducing a
mechanism where ginger was grown in compost filled poly-
sack bags (provided by CCS)
Vanilla farmers – as a means of protecting the local vanilla
industry, CCS continued to purchase its vanilla beans from the
Kandy Vanilla Growers Association
Treacle farmers in Waralla and Deniyaya, and jaggery farmers
in Neluwa benefited from guaranteed purchasing schemes
introduced by CCS
Standard crates used to transport fresh produce to minimise damage and • KFP continued its sustainable sourcing of pork, chicken, spices
reduce wastage and vegetables from 5,060 farmers
The significant suppliers within the industry group are illustrated below:
Plastic packaging
Glass bottles Dairy suppliers Poultry and meat suppliers Sugar suppliers
containers
Third party
Dry food product Frozen and Fresh meat Vegetable and Household
tenants (within Janitors Security
suppliers chilled products suppliers fruit farmers items
premises)
Community Engagement
Key impacts from these initiatives are summarised below. Relevance/ Targets Initiatives
Number of Total Annual Total Annual Implication
Farmers Supply (Kg) Payment (Rs.) Community Build ongoing • In keeping with the Consumer Foods
focus and and sustainable sector’s strategic focus of promoting
KFP 5,060 2,871,839 742,535,462
brand relationships health and wellness, CCS continued to
CCS 2,957 128,724 168,691,942
reputation in order to support the John Keells Foundation’s
JMSL 1,917 18,421,913 2,318,223,466 promote social vision project comprising of an
responsibility island-wide cataract initiative and the
Product Total annual Number of and integration school vision screening programme
supply (Kg) farmers within the in the Colombo district implemented
community in collaboration with the Ministry of
Meat 2,528,640 2,530
Health
Spices 78,222 2,500 • Disaster relief efforts in Ratnapura
and Matara resulted in the collection
Cashew Nuts 36,525 1,300 of donations worth Rs.3.5 million at
“Keells” which was matched
Vanilla 95 1,025 one-for-one by the business. This
initiative benefited 580+ families in
Ginger 40,725 352 the affected areas
• JMSL continued the “We Donate”
Kithul Jaggery 21,529 60 project diverting unused vegetable
and fruit to volunteer groups and
Vegetables 264,977 30 charities in an effort to alleviate
hunger and minimise wastage. The
Treacle 29,850 15 programme donated an average
of 200 kg of produce quarterly to 5
active charities
fresh high quality produce and world class The material aspects identified under
services to consumers. The industry group’s Intellectual capital are as follows:
INTELLECTUAL CAPITAL businesses have obtained international quality
standards with assurance renewed annually Product and service quality
through third party verification. Both CCS and
The Consumer Foods and Retail industry KFP adhere to standards stipulated by the Sri
Responsible labelling and marketing
group constantly strives for excellence in its Lanka Standards Institute and are on par with
communications
service and product quality. The Consumer international best practice with respect to
Foods sector ensured the continuous safety in process excellence. Technological enhancements towards
its production process and supply chain while enhancing process excellence
the Retail sector ensured ethical sourcing,
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INDUSTRY GROUP REVIEW
Consumer Foods and Retail
Strategy and Outlook The Sri Lanka per capita beverage consumers. Against this backdrop, driven by
The subdued consumer confidence is likely consumption, at 10 litres, continues to be the evolving needs of the health-conscious
to continue in the first half of the ensuing well below its regional average, signifying a consumer, the business will also seek to
financial year given the Government’s unique opportunity within the industry. CCS expand its beverage offering to products
continued fiscal consolidation efforts, will capitalise on this opportunity through such as dairy, juices and water. The Group
depreciation of the Sri Lankan Rupee and a strong pipeline of products catered to the is confident that the return profiles of such
upward revision of fuel prices through ever-evolving life styles of consumers. CCS products, which are already well established
the introduction of a fuel pricing formula. will also invest in research, development and in the market, are lucrative and will generate
Notwithstanding these impacts, there were innovation to expand the sugar free range; “GO promising growth for the Beverage business
signs of a pick-up in consumer demand Sugar Free”, while also striving to reduce the in the long-term. CCS will leverage on the
in some product categories. Despite the sugar quantum in beverages up to a 50 per “Elephant House” brand presence and its
uncertainty surrounding the near term cent in a range of selected flagship products established distribution network in doing so.
performance of consumer markets, the growth through natural substitutes such as “Stevia”, To this end, CCS will also explore enhancement
in prosperity and the resultant changes in while keeping the flavour profile intact. in the flavour profiles, in both the flavoured
consumer consumption and life styles are milk and fruit juice segments, with a view
anticipated to drive growth in the medium Coupled with the implementation of excise to strike a more robust balance between
and long term. Although off a relatively lower duty on sugar which resulted in higher selling CSD and non-CSD beverages, in order to
base, the Group expects growth from the prices and the emergence of a health- strategically position itself to capitalise on the
outskirts of Colombo to be significantly higher conscious consumer, the long-term growth long-term prospects of the Beverage industry,
than growth stemming from urban markets. potential of the carbonated soft drinks as discussed in the External Environment and
Against this backdrop, the businesses within industry may be moderate and not reach the Operational Review section of this industry
the Consumer Foods sector will continue significantly higher per capita consumption group report.
to explore options to venture in to different levels seen in other countries. Despite this
verticals within the consumer foods industry expected moderation of growth, the overall The penetration of ice cream continues to be
thereby broadening its scope and portfolio. prospects for the beverage industry continue low in comparison to developed countries,
to be promising, given the uptake of alternate with per capita ice cream consumption
beverage options by the health-conscious currently standing at 2.0 litres. Additionally,
as indicated by the graphs below, the bulk-impulse mix of regional markets are highly skewed province. Investments of approximately
towards the impulse markets, demonstrating the significant potential for the impulse category in USD 90 million will be undertaken over the
the overall ice creams market. To this end, CCS projects a similar shift in the mix over a period of next 2 years to significantly grow the outlet
time and has taken a multitude of steps towards enhancing capacity and expanding the range, to network, in addition to the investment in
cater to such envisaged demand. the Distribution Centre. Whilst margins will
be negatively impacted as a result of this
Bulk : Impulse mix compared to regional peers
investment phase due to new stores taking
% time to ramp up sales, the funding costs
Sri Lanka Thailand Malaysia associated with the investments will reflect in
the PBT of the business. EBIT and EBIT margins
8 56 will be reflective of the underlying growth of
70
30 the business which will remain encouraging.
Overall, EBIT and PBT margins will reach a
steady state in the ensuing years once the
92 44 aggressive store roll out normalises, where the
base of existing stores in any case will be much
higher. The Retail sector anticipates to roll out
Bulk Impulse
250 stores by 2022/23.
Source: Company sources
161
INDUSTRY GROUP REVIEW
Financial Services
During the year under review, NTB launched “FriMi” Sri Lanka’s first digital bank
CARBON FOOTPRINT
13% Revenue
Rs.8.58 bn
6% Capital employed
1% Carbon footprint
(2016/17: Rs.2.10 bn)
Key Indicators
Inputs (Rs.mn) 2017/18 2016/17 % Change 2015/16 THE EXPANSION OF
Total assets 47,494 41,725 14 35,878 SRI LANKA’S FINANCIAL
Total equity 15,024 7,592 98 7,135 SERVICES INDUSTRY
Total debt 253 138 83 106
CONTINUED IN THE
Capital employed1 15,277 7,730 98 7,240
CALENDAR YEAR 2017,
Employees (number)2 827 814 2 803
WITH THE INDUSTRY
Outputs (Rs.mn) 2017/18 2016/17 % Change 2015/16 RECORDING A GROWTH
Turnover 3
17,221 14,056 23 11,896 OF 9.4 PER CENT AND
EBIT 8,580 2,097 309 2,301 ACCOUNTING FOR 13.4 PER
PBT 8,579 2,097 309 1,699 CENT OF SRI LANKA’S GDP.
PAT 8,569 2,042 320 1,718
EBIT per employee 10.4 2.6 303 2.9 The life insurance industry continued its
growth momentum, recording a 13 per cent
Carbon footprint (MT) 1,417 1,391 2 1,407
growth in gross written premiums (GWP)
1. For equity accounted investees the capital employed is representative of the Group’s equity generating Rs.72 billion in CY2017 [CY2016:
investment in these companies Rs.64 billion]. Life Insurance penetration in
2. As per the sustainability reporting boundary Sri Lanka witnessed a marginal increase from
3. Revenue is inclusive of the Group’s share of equity accounted investees
0.48 per cent to 0.49 per cent of GDP in the
External Environment and Operational Review calendar year 2016 but remains one of the
The expansion of Sri Lanka’s financial services industry continued in the calendar year 2017, with the lowest penetrated markets in the South Asian
industry recording a growth of 9.4 per cent and accounting for 13.4 per cent of Sri Lanka’s GDP. region, underscoring the significant potential
available for the business.
Insurance penetration
Union Assurance PLC (UA), the Life Insurance
%
business of the Group, performed well during
4.16
4.5
the calendar year, recording a GWP of Rs.10.12
3.59
3.7
4.0
3.3
3.5
2.72
1.5
particularly in the retirement and health
0.83
1.0
segments, reforms in agency structure and
0.49
Vietnam
Indonesia
Philippines
India
America Avg
Malysia
Asia Avg
Thailand
Europe Avg
North
163
INDUSTRY GROUP REVIEW
Financial Services
In furtherance of the Bank’s focus on expanding DESPITE SUBDUED LOCAL During the year under review, the Colombo
the SME portfolio, NTB secured a USD 50 Stock Exchange produced positive returns
million facility from the International Finance INVESTOR SENTIMENT THE against the negative trend displayed in 2016.
Corporation during the year under review. STOCK BROKING BUSINESS Increase in foreign inflows during the period
The Bank also raised Rs.3.20 billion of capital under review giving rise to a significant
by way of a rights issue of 40,105,614 ordinary OF THE GROUP, JOHN KEELLS increase in the average daily turnover and other
non-voting convertible shares in February favourable long term macro related factors
STOCK BROKERS JKSB
2018 which permits shareholders to convert such as passing of the new Inland Revenue Act,
shares on a quarterly basis to ordinary voting WITNESSED GROWTH IN THE the Foreign Exchange Act, the completion of
shares. JKH applied for an allotment of shares the Hambantota port deal and clarity on the
in addition to its entitlement in the NTB
YEAR UNDER REVIEW. monetary policy stance of the CBSL, supported
rights issue, amounting to an investment of the performance of the CSE. However,
Rs.1.45 billion resulting in an increase in the of banking in Sri Lanka. NTB also launched extreme weather conditions, higher inflation, a
effective economic interest of JKH in the Bank “Kaffeine Labs”; Sri Lanka’s first financial sector slowdown in consumption, and an increase in
to 32.16 per cent. Given the capital adequacy innovation lab to explore and deliver futuristic taxes for certain sectors had a negative bearing
requirements, the Bank issued a Basel III - solutions which will support the strategy of the on earnings of listed corporates except for
compliant debenture of Rs.3.5 billion in order bank to bring about a transformative customer Banking and Insurance sectors influencing the
to further strengthen the Tier 2 capital of the experience. The innovation lab also held the performance of the indices and thereby the
Bank. The issue which was opened on 11 April first ever hackathon in Sri Lanka’s financial performance of the Stock Broking industry.
2018 was oversubscribed. Dividends were paid services sector, which helped aspiring, future
in the form of scrip dividends in the proportion entrepreneurs to showcase their innovations
of 1:38.46, pursuant to which a further 5,991,740 Further details on the overall stock market
and compete for start-up funding. “Kaffeine and its performance can be found in the
ordinary shares and 1,042,499 ordinary Labs” is expected to provide the bank with a Share Information section of this Report.
non-voting convertible shares were listed on new dimension; a tech start-up culture being
the Colombo Stock Exchange (CSE). Capital developed alongside a prudent banking
adequacy remained well within regulatory culture to challenge the status quo and disrupt Despite subdued local investor sentiment the
requirements with Tier I and total capital ratios prevailing business models. Stock Broking business of the Group, John
at 10.8 per cent and 13.9 per cent respectively Keells Stock Brokers (JKSB) witnessed growth
at the end of CY2017. In furtherance of its digitally driven strategy NTB in the year under review. On the regulatory
launched open API (Application Programme front, all broking businesses were mandated
The Director of Bank Supervision of the Central Interface) banking in April 2018. The platform to maintain a minimum shareholder fund
Bank of Sri Lanka (CBSL), by letter dated 12 enables users to build applications and services requirement of Rs.100 million with effect from
October 2017, informed the Bank that the around the bank, thereby integrating NTB’s 1 January 2018 in order to further strengthen
Monetary Board of the CBSL has permitted services directly into the user/business’ own the stability of the industry.
the John Keells Group and Central Finance systems to create an efficient communication
Group to retain their respective current voting platform between the bank and own operations. JKSB also focussed on aligning its processes
shareholdings in the Bank till 31 December NTB is confident that the introduced platform and systems with client needs and introduced
2020, and to reduce it to 15 per cent, each, with will provide a myriad of opportunities within the efficiency enhancing and cost management
effect from that date. The Monetary Board has SME and start-up space while also propelling the initiatives in front office and back office
also required the Bank to limit the voting rights Sri Lankan banking industry into the future. operations of the company.
of the John Keells Group and Central Finance
Group to 10 per cent with effect from 31 March
2018.
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INDUSTRY GROUP REVIEW
Financial Services
EBIT margin
49.8%
Indicators
167
INDUSTRY GROUP REVIEW
Financial Services
To this end, incentive schemes of agents were The ensuing section discusses key targets
revised in line with best practice, operating under the aforementioned material topics and
HUMAN CAPITAL structure was de-layered to enable better flow its corresponding impacts. The section also
of information and multiple strategies were entails the various initiatives undertaken with
executed for attracting and retaining talent, a view to achieving relevant targets.
particularly pertaining to agents.
The Financial Services industry group
continued its initiatives to enhance its Human The material topics relevant to the Financial Number of Employees
Capital productivity through training and Services industry group identified under
development, especially the sales agents of Human Capital are as follows:
UA. • Insurance : 802
• Stockbroking : 25
As such UA implemented a number Talent management
of initiatives to augment operational
performance aimed at enhancing the value of
Human Capital during the year under review. Occupational health and safety
Talent Management
Relevance/Implication Targets Initiatives
The need to retain and Build a high performing employee cadre • Conducting manager development programmes for career progression
continuously upgrade and an agency force through training, through skills development. The programme was extended to include
the skills of existing development and education outdoor adventure based exercises with focus on providing experiential
staff, while developing learning opportunities to the participants
a resource base of • Workshops designed specifically to build leadership and competency
professionals development of employees to ensure employee satisfaction and retention
• Continuation of programmes such as the “Ladder Project” and “Executive
Development Programme”; aimed at empowering young entrants and
strengthening the career path of the executive cadre respectively
• Outsourced industry specific training programmes for the top tier of sales
management
• UA launched “Infinity Club” to recognise top achievers of the agency force
which accounts for a significant portion of the workforce
• Recognition of sales service advisors and team leaders for long-standing
service periods
• Launch of “eConsultant Insurance” in order to develop a digital and
professional advisor force to cater to evolving consumer needs
• Strengthening of the Bancassurance channel through better incentives
and encouraging high performers through recognition
Indicators
2017/18 2016/17 %
initiatives catered towards creating a more The ensuing section is a discussion on the
SOCIAL AND RELATIONSHIP empowered community, which in turn creates relevant targets identified under each of the
greater productivity and efficiency within the material topics and the related initiatives that
CAPITAL
economy to drive growth. were undertaken in view of achieving the
stated targets
The Financial Services industry group continued The material topics identified under the
industry group are: The significant suppliers within the industry
to conduct operations within statutory and
group are illustrated below:
regulatory requirements in line with global best
Customer satisfaction
practice, creating value to its stakeholders by
providing world class services and high-quality Significant Suppliers
products, while operating in accordance with Community engagement
the highest ethical standards and maintaining
customer confidentiality. Ethics, fraud and corruption
Janitors Security
The industry group constantly engages
with the community through a range of
Customer Satisfaction
Relevance/Implication Targets Initiatives
Negative impact on • Maintain high quality • Value addition through various digital initiatives and implementation of paperless
key customer accounts, standards within the operating operations, where possible
investor and client environment enabling the • Development and launch of several innovative digital solutions such as FriMi
confidence efficient and productive
delivery of services
Community Engagement
Relevance/Implication Targets Initiatives
Proactive community • Ensure sound living standards • UA launched its CSR brand, titled “Union Manushyathwaya – Danuwath,
engagement towards within the community that the Suwapath, Yahapath Hetak”, with the aim of promoting health and well-being
building trust and company operates in around the country through the dissemination of vital information on diseases
promoting brand • Awareness and prevention of such as Thalassemia, Dengue and Diabetes
image diseases such as Dengue and • Prevention of Epidemic Diseases - UA in collaboration with the Divisional Ministry
Diabetes in the country of Health (DMOH) and the Public Health Department (PHD) of the Colombo
Municipal Council (CMC) conducted island-wide dengue awareness programs
Dengue sticker campaign
Direct mailer campaign
Pilot Project : Kirulapone
Impact:
• 100,000 stickers contributed for public display
• 335,569 subscribers on the mailing campaign
• First phase of the dengue pilot project executed within Kirulapone -
commenced in January 2017 impacting 750 families
• Cleanup and inspection at Maliyadeva Girl’s College
• Total investments: Rs.2,272,184
Impact:
• Number of programmes conducted: 22
• Number of total screening conducted: 82
Thalassemia awareness and prevention programme organised by UA
• Total Investment: Rs.2,610,349
to help educate children and school teachers
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INDUSTRY GROUP REVIEW
Financial Services
Given the dynamic nature of the financial markets, the Financial Services industry group takes
proactive steps to innovate and strengthen processes and product offerings to its customers.
INTELLECTUAL CAPITAL Listed below are some of the initiatives undertaken during the year under review.
Strategy and Outlook beyond traditional insurance product designs, incurred loss provisioning approach to a forward
The Central Bank of Sri Lanka (CBSL) expects the to encompass and integrate customised looking provisioning approach. The impact
Sri Lankan economy to rebound to 5-5.5 per lifestyle solutions, similar to past initiatives such assessment for the implementation is currently
cent growth in the calendar year 2018, driven as “GOYO” and “Union Smart Health Plus+”. underway to ensure compliance in 2018/19.
by the global economic recovery and increased
The requirement for training and development To cater to the evolving needs of customers,
domestic and foreign investment, particularly
of its agency force continues to be identified whilst driving growth across all business verticals,
channelled towards large infrastructure
by the management as a priority investment the Bank will focus on optimising the existing
projects. Given these developments and the
for the long-term sustainability and growth branch network and strengthening the Bank’s
envisaged increase in per capita income, the
of the business. To this end, UA will continue offering to the mass affluent market through
future prospects for the Life Insurance industry
its investments into the transformation of a gradual rebalancing of its portfolio. The Bank
continue to be promising on the back of insurers
the agency cadre and bancassurance cadre. will continue to drive asset growth through
playing a more active role in providing long
Given the service centricity of the business risk reward metrics, execute strategies such as
term health and annuity solutions to an ageing
transformation, strategies will focus on the cross-selling to grow the existing customer base
population, particularly given the absence of a
continuous improvement of the agency and re-engineer the operating model whilst
government pension scheme for all citizens and
force through skills development and the enhancing the overall customer experience
severe under penetration within the country in
retention of this trained talent pool. Coupled through innovation. The Bank will also focus
comparison to other regional peers.
with experienced staff, UA will aim to grow on delivering digital banking solutions and
Leveraging on the Insurance business’s the life insurance business through enhanced migrating customers to digital platforms.
strong brand presence and cost-efficient operational excellence by leveraging on its Strategies will also focus on increasing the
processes, UA will continue to capitalise on strong brand presence, a differentiated product offerings to Corporate and SME clients.
the opportunities made available by the low portfolio, and IT enabled cost effective processes.
The Stock Broking business will continue to
life insurance penetration within the country,
The overall dynamics of the Banking industry pursue foreign tie-ups in order to strengthen
complemented by its digital strategy. UA
are expected to continuously evolve, its presence in the international markets whilst
will continue to capitalise on key customer
driven by disruptive business models and simultaneously working towards expanding its
segments and channels that demonstrate
technology with customers increasingly local client base through continued engagement
significant potential such as bancassurance
adopting convenient and credible platforms via customer forums and one-on-one meetings
through the development of differentiated,
and channels, both globally and locally. Such aimed at local corporates, fund managers and
customer-oriented lifestyle products.
evolving preferences, coupled with Sri Lanka’s high net worth individuals (HNWI).
Investments in this regard will continue to be
growth trajectory and the Government’s
a key focus area of the Life Insurance business The SEC Act, which is to be gazetted in 2018,
vision of positioning Colombo as a regional
in order to foster sustainable value creation. is a positive step towards fostering better
financial hub, is expected to create lucrative
Agency transformation is expected to deliver regulation and transparency. Initiatives such as
opportunities in the Banking industry. To this
end-to-end operational excellence from the the demutualising of the stock exchange in line
end, NTB will continue to focus on delivering
initial point of contact, to underwriting and with international best practice, the offering of a
smart banking solutions and creating
claim settlement. The business will also focus wider array of instruments, introduction of civil
innovative products for its customers.
on data analytics for better insight in evaluating sanctions enabling greater flexibility in terms
the market and devising product and growth The Bank will continue to establish its position, of enforcement actions, particularly relating
strategies in the near term. driving growth across all business verticals. to insider trading and market misconduct, will
Operations will continue within an enhanced augur well for the long-term success of equity
UA will continue to drive dynamic technological
and comprehensive framework of policies to markets. Additionally, the broking industry,
advancements through innovations and
include more robust monitoring and wider in liaison with the CSE and SEC, is expected
improvements aimed at driving efficiency and
measurement tools. It is also pertinent to note to make further headway in upgrading the
simplicity for better customer service. Higher
that SLFRS 9 will be implemented across the available infrastructure to include facilities that
emphasis will also be placed on creating
industry in 2018/19, principally changing the help better manage risk and enhance trading
innovative insurance solutions, which look
Bank’s loan loss provision method from an and settlement efficiency.
171
INDUSTRY GROUP REVIEW
Information Technology
8% Revenue
2% EBIT EBIT
Rs.463 mn
1% Capital employed
1% Carbon footprint
(2016/17: Rs.621 mn)
173
INDUSTRY GROUP REVIEW
Information Technology
THE GROUP’S BPO OPERATIONS IN SRI LANKA, INFOMATE, • Implementation of elements of IoT and
data analytics within the Leisure, Retail and
INCREASED ITS EXTERNAL CLIENT PORTFOLIO THUS the Property industry groups of JKH
CONCLUDING THE FINANCIAL YEAR SECURING OVER Development of customer analytics
40 PER CENT OF ITS REVENUE THROUGH ITS EXTERNAL tools for Cinnamon hotels
CLIENT BASE. THE BUSINESS CARRIED OUT SEVERAL Ongoing collaboration with the
Property industry group to enable smart
ROADSHOWS AND PITCHES, SECURING A SIGNIFICANT homes, living space and parking units
CLIENT BASE, INCLUDING CLIENTS FROM AUSTRALIA, THE Group-wide launch of John Keells
UNITED KINGDOM AND THE NORDIC REGION, CAPTURING Employee Self Service (JESS); an
interactive mobile application which
MORE KNOWLEDGE INTENSIVE BUSINESS SERVICES.
is a single user platform for employee
information access
marketed exclusively through digital channels, In light of expanding its market presence in
particularly through social media platforms, the MENA region, JKIT set up a branch office in The brand has allocated unified skilled
underscoring the customer reach and Business Bay, Dubai in August 2017, while also labour resources towards creating composite
potential of such channels. exploring the possibility of setting up a branch solutions for clients while also evaluating
in Malaysia. a business wide Customer Relationship
JKOA implemented a number of initiatives Management (CRM) system to enable better
During the year under review, JKIT secured 14
aimed at improving business efficiency and management and servicing of customers.
new clients in the software services vertical,
customer satisfaction. To this end, JKOA both external and internal, leveraging on cross
adopted a business-wide customer support The Group’s BPO operations in Sri Lanka,
functional synergies within the Group. The
module to enhance visibility and efficiency InfoMate, increased its external client portfolio
multiple client engagements, both internally
throughout the value chain, from sales agents thus concluding the financial year securing
and externally, have resulted in significant
to end consumers. The system enables the over 40 per cent of its revenue through its
knowledge enhancement and exposure in
platform to create a value adding experience external client base. The business carried out
developing solutions for the Group as well.
for end consumers, leading to higher several roadshows and pitches, securing a
This is showcased in some of the projects and
consumer satisfaction and reduced after-care significant client base, including clients from
initiatives which JKIT undertook during the
response time. Australia, the United Kingdom and the Nordic
year under review;
region, capturing more knowledge intensive
• The business developed robotic process business services. Clients secured include a
As discussed in the Annual Report 2016/17,
automation (RPA) tools for a leading globally acclaimed pharmaceutical company
John Keells Computer Services (JKCS), the
apparel manufacturer in Sri Lanka to and a leading American commercial real estate
software engineering and product vertical of
automate several backend processes of the services company, among others.
the IT Services sector, and Strategic Group IT
business
(SGIT), the Centre function which supports
the IT requirements of the Group, launched • Initiated work on developing a cabin crew During the year under review, the Group
its unified brand “John Keells IT” (JKIT) in management system for a leading Middle divested its stake in its subsidiary, John Keells
August 2017. JKIT is an umbrella brand which Eastern airline BPO Solutions India (Private) Limited, in
encompasses the solution portfolios of both • Implemented digital platforms within the September 2017 for a consideration of Rs.633
SGIT and JKCS, with a presence in the Asia Retail sector for warehouse management million, resulting in a capital gain of Rs.29
Pacific (APAC), Middle Eastern and North and the tax division of the Group to ensure million, which is recognised under “Other
African (MENA) markets. The operations robust operations and an efficient process Income” in the Group Consolidated income
under the brand are carried out under 5 main execution statement. The BPO business in India failed
solution pillars; strategy, consultancy, digital, to reach the scale and market opportunity
technology and operations. the Group had anticipated which led to the
JKCS, THE SOFTWARE decision to divest the business.
The brand, leveraging on strategic partnerships ENGINEERING AND
with SAP, Microsoft and its own intellectual Capital Management Review
property (IP) created under “JKIT”, has made
PRODUCT VERTICAL OF THE
Progressing from the discussion on the
headway in establishing itself in the aviation, IT SERVICES SECTOR, AND External Environment and Operational Review,
hospitality, retail, manufacturing, real estate STRATEGIC GROUP IT SGIT, the ensuing brief captures the forms of Capital
and public sectors in the year under review. available, and how each of these forms of
JKIT takes a design centric approach based
THE CENTRE FUNCTION
Capital are enhanced to create value for all
on design thinking on bimodal IT strategy WHICH SUPPORTS THE IT stakeholders.
powered by cutting edge solutions and REQUIREMENTS OF THE
techniques which include Internet of Things The discussion on Capitals, where relevant,
(IoT), Artificial Intelligence(AI), Robotic Process GROUP, LAUNCHED ITS is structured to emphasise goals, targets
Automation(RPA) and big data among others. UNIFIED BRAND “JKIT” IN and initiatives undertaken under each of the
AUGUST 2017. Capitals.
INFORMATION TECHNOLOGY
Goals under relevant Capital Targets we set for ourselves Our initiatives INDUSTRY GROUP REVENUE
Rs.11.07 bn
Decline of 0.3 per cent
FINANCIAL AND
MANUFACTURED CAPITAL Turnover
%
As at 1 April 2017, the Information Technology 2015/16 5 80 15
(IT) industry group had total assets of Rs.4.78
billion, debt of Rs.348 million and an opening 2016/17 4 86 10
equity capital of Rs.1.98 billion.
2017/18 5 89 6
Financial Performance
Revenue EBIT
• During the year under review, the IT %
industry group recorded a revenue of 2015/16 (6) 102 4
Rs.11.07 billion [2016/17: Rs.11.11 billion],
with JKOA being the largest contributor. 2016/17 3 76 21
• Excluding the BPO business in India (John
2017/18 7 90 3
Keells BPO Solutions India (Private) Limited)
which was divested in September 2017, IT Services IT Enabled Services Office Automation
revenue of the industry group increased
by 5 per cent to Rs.10.51 billion [2016/17:
Rs.10.04 billion]. Borrowings and Finance Expense
• JKOA recorded an increase in revenue of 3 Total debt of the industry group increased to Rs.816 million, a significant increase against the
per cent driven by price increases in some previous year [2016/17: Rs.348 million]. The increase in debt is primarily driven by bank facilities
product categories undertaken by JKOA. The finance expenses of the industry group increased by 231 per cent to
• John Keells Computer Services (JKCS) Rs.32 million as a result of the increase in total debt levels combined with the higher interest rates
recorded an increase in revenue of 22 per on short term financing.
cent as a result of higher volumes arising
from entering new foreign markets Return on Capital Employed (ROCE)
• Infomate, the Group’s BPO operations in • The ROCE of the industry group was recorded at 20.6 per cent in the year under review,
Sri Lanka, recorded a revenue growth of 69 compared to 26.9 per cent recorded in the previous year. The decrease in ROCE is largely
per cent as a result of an expansion in its attributable to the decrease in EBIT, as outlined above, combined with the growth in the capital
client base base as a result of the increased funding requirements
• The EBIT margins of the industry group decreased to 4.2 per cent from the 5.6 per cent
Earnings Before Interest and Tax (EBIT) reported in the previous year. Depressed margins were mainly on account of the decline in EBIT
• EBIT of the industry group decreased by 25
from the Office Automation business
per cent to Rs.463 million [2016/17: Rs.621
million]. The decrease is mainly on account • The asset turnover of the industry group was reported at 2.57 times compared to the 2.50 times
of the previous year including a full year’s reported in 2016/17 due to the aforementioned decline in revenue
EBIT from the Group’s BPO operations in
India. EBIT of the industry group excluding Return on Capital Employed
the BPO business was recorded at Rs.428
million against Rs.530 million recorded in
the previous year ROCE
2017/18: 20.6%
• The divestment of the BPO business which [2016/17: 26.9%]
resulted in the recognition of a capital gain
of Rs.29 million has been recognised under
“Other Income” in the Group Consolidated
Income Statements Asset/(Debt +
Asset turnover Equity)
• The decrease in the industry group EBIT 2.57 1.92
was marginally offset by the EBIT recorded
by JKCS, which represented an increase of EBIT margin
85 per cent for the financial year, driven by 4.2%
the aforementioned growth in revenue.
175
INDUSTRY GROUP REVIEW
Information Technology
Waste Management
Relevance/Implication Targets Initiatives
Environmental and • Responsible disposal and reduction in • As per the Group’s electronic waste policy the businesses responsibly
social responsibility, generation of e-waste and paper waste disposed of its electronic waste through an e-waste disposal partner
especially in terms of • All businesses consciously seek to minimise paper usage and all used
disposing e-waste and paper waste was recycled through a certified contracted partner
paper
Indicators
The JK BPO operation was divested as discussed in the External Environment and Operational
Review section of this industry group report, and thus was excluded from the sustainability
reporting scope after the first quarter of the year under review which has led to the significant
decrease in the carbon footprint for the industry group.
2017/18 2016/17 %
* Water usage is not shown as it is not material for the industry group
Talent Management
Relevance/Implication Targets Initiatives
The need to retain and • Continuous improvement of training, • InfoMate, in collaboration with John Keells Foundation (JKF) and
continuously upgrade focussed on improving skills and the Foundation for Advancing Rural Opportunity (FARO), continued
the skills of existing knowledge their long-term collaboration, where some of the Group’s invoicing
staff, to ensure a pool of • Engagement with local universities to functions are outsourced. This has enabled 48 rural and suburban
potential talent within build a pool of potential employees with youth in Mahavilachchiya, Seenigama and Jaffna to secure sustainable
the Group given the requisite soft skills employment opportunities in close proximity to their respective
dynamic nature of the residences
industry
Impact:
• Total earnings recorded from the initiative : Rs.10 mn
• Earnings have increased over 19 per cent from 2016/17
• Quality improvement of work completed has been measured in
collaboration with internal quality checks and root causes analysis
to ensure continuous improvement
177
INDUSTRY GROUP REVIEW
Information Technology
The significant suppliers within the industry group are illustrated below:
Significant Suppliers
Through continuous monitoring of the quality of solutions offered, innovation and technical know-
how, the IT industry group attempts to create value to all stakeholders. To this end, the following
INTELLECTUAL CAPITAL measures were undertaken to ensure continuous quality enhancement in product design, scope
and functionality.
Strategy and Outlook and efficiency within the sales and after care and development, to enhance the brand
Technological innovation, digital operations, to ensure high service quality competency matrix. Given the multitude of
enhancement and connectivity are expected to the end consumer. Additionally, the strategies in place to expand its offering, the
to be the key growth drivers of global business will implement the concept of sales Group expects a significant growth in the
businesses. Against this backdrop, improved gamification - the use of game mechanics and pipeline of business, for JKIT.
network coverage and data connectivity, leader boards to motivate sales operations,
conducive policies, rapid growth of the to create a competitively engaging, yet As discussed under the Group Consolidated
telecommunications industry coupled with collaborative, work environment that fosters Review section of this Report, it is pivotal to
a significant uptick in the dissemination of positive behaviour. Implementation of note that while the digital infrastructure, tools
digital know how and devices, particularly gamification is expected to increase product and services are available within the Group,
in the form of smart phones, is expected to know-how, better management of inventory user education and awareness of potential
augur well for Sri Lanka. The Group, cognizant and higher productivity among employees, implications from the use of digital services
of the prospects within this industry, will thereby creating a holistic experience for end- remains a challenge for the Group, and the
continue to evaluate opportunities in consumers and related stakeholders. nation, as a whole. SGIT will look into the
developing products and services across possibility of conducting workshops and other
the verticals which incorporate futuristic The company will additionally implement training programmes in areas such as cyber
digital solutions focussing on aspects such digital platforms to consolidate inventory security, among others, to bridge this gap.
as IoT, immersive technologies and Artificial management and improve distribution
Intelligence (AI), smart buildings and cloud productivity as a focus area of the business InfoMate, the Sri Lanka based BPO operation, is
services, among others. Cross-pollination of aimed at ensuring a seamless transfer of expected to continue its current momentum,
different technologies would be a near term information and transparency within the achieving market share through expansion
priority of the Group to ensure future ready different operational functions. to acquire clients. Focus will be placed on
product design and business models. acquiring high-end data entry jobs while
JKCS and SGIT will continue to invest in also enhancing its strategic client portfolio.
Given the overall advancement in IT establishing the “John Keells IT” brand while The business will continue to evaluate the
infrastructure, coupled with increasing capturing new business within the APAC possibility of automation of several processes
disposable incomes, the demand for smart and MENA regions. JKIT will continue to as an efficiency measure, including adopting
phones is expected to continue its current leverage on its strategic partnerships with robotic process automation.
growth trajectory. Capitalising on this SAP, Microsoft, and IBM, among others, to
opportunity, JKOA will continue to market expand its client and partner footprint, while The on-going digitisation initiatives rolled
and distribute smart phones by leveraging on placing significant emphasis on reviewing, out across the Group presents a significant
its expertise, partnerships and alliances, and transforming and rationalising product and opportunity for the businesses within this
product offering. The business will continue service portfolios. The implementation of industry group, particularly with focussed
to focus on tech savvy modern millennial Value Added Taxes across the MENA region attention on IT and digitisation solutions
consumers, capturing market share through is an encouraging opportunity for JKIT to sought within the Group. In order to capitalise
the launch of modern lifestyle oriented provide digital platforms and software systems on this opportunity, the Group will continue
products which offer convenience. Focus to integrate and automate the process of to evaluate cross sale opportunities in order
will also be placed on driving sales for both payment and calculation. to create synergies across industry groups.
notebooks and tabs in order to achieve market This will connect the skills, expertise and
leadership in these product segments. A The business will continue to cross-pollinate infrastructure required to roll out such
number of training initiatives and performance digital solutions within the operations of the initiatives which are already resident within
based reward programmes are also expected Group with a higher focus on incorporating the various verticals of the Group. Holistic
to be introduced in an effort to attract and digital stack extensions, elements of IoT and products and services with end-to-end
retain talent. data analytics to ensure the creation of a solutions, as envisioned, are expected to augur
more composite dashboard of information. well for the Information Technology industry
As discussed in the External Environment and JKIT will also analyse the establishment of group in the medium to long term.
Operational Review section of this industry co-innovation units together with universities
group report, JKOA will continue to focus on and other strategic customers and partners
measures aimed at improving productivity to crowd source ideas and invest in research
179
INDUSTRY GROUP REVIEW
A tea tasting at John Keells PLC; a leading tea and rubber broker
3% Revenue
Rs.6.23 bn
19% Capital employed
3% Carbon footprint
(2016/17: Rs.5.38 bn)
181
INDUSTRY GROUP REVIEW
Other Including Plantation Services
DURING THE YEAR, THE six month accelerator programme following research laboratory commenced operations in
a demonstration day in November 2017. A May 2017, marking a significant milestone. This
GROUP LAUNCHED co-working space was also developed for the facility will be instrumental in enhancing JKR’s
“PLASTICCYCLE”, AN participants under the programme with the capabilities in conducting in-house projects,
aim of creating a conducive ecosystem to thus ensuring sole ownership of Intellectual
INITIATIVE TO “REFUSE, foster growth, innovation and creativity. Property by JKH. Eight research projects are
REDUCE, REUSE AND currently being conducted in-house.
RECYCLE” THE USE OF
In addition to the above, JKR is conducting
PLASTIC IN THE COUNTRY. Please Refer the Intellectual Capital
section of this industry group Report for research to develop a reinforcing material
THE PROJECT AIMS TO further information. using agricultural waste in collaboration with
COMBAT PLASTIC POLLUTION a leading university in the USA. Research and
development is currently conducted at the JKR
WITHIN THE COUNTRY John Keells Research (JKR), the research and laboratory in consultation with the university.
THROUGH EDUCATION AND development arm of the Group, following the
AWARENESS WITHIN THE patenting of a novel energy storage material During the year, the Group launched
in 2016/17, actively evaluated opportunities “Plasticcycle”, an initiative to “refuse, reduce,
COMMUNITY. for building a prototype energy storage device reuse and recycle” the use of plastic in the
which would utilise the patented technology country. The project aims to combat plastic
share. The business’ conscious strategy to focus to enhance the Technology Readiness Level pollution within the country through education
on procuring tea which met predefined quality (TRL) of the said intellectual property. and awareness within the community, while
standards and refining the supplier network also providing means by which plastic can be
of the business proved lucrative among the Since relocating to the Technology Incubation disposed of responsibly with a view to promote
foreign and local buyers, with more entities Centre at the Nanotechnology and Science greater recycling. The bin initiative is supported
recognising the business for its superior quality. Park in Pitipana, Homagama, JKR continued by the Consumer Foods and Retail industry
Coupled with productivity improvement to leverage on its expertise by exploiting group and backed by the commitment of
initiatives, the business is confident of its greater opportunities for collaboration while Sri Lanka Recyclers Association to collect and
ability to enhance long-term value for multiple contributing towards creating and nurturing an recycle the waste through its members. The
stakeholders through this strategy. ecosystem of innovation. To this end, JKR’s own pilot phase of the project commenced within
two identified municipal wards in Colombo 2. added products that are sold in both the local OTHER INCLUDING PLANTATION
The project has currently expanded to other and international markets. SERVICES INDUSTRY GROUP REVENUE
areas in the vicinity as well and has engaged
various stake holder groups such as the
Government authorities, recyclers, collectors,
More information on the initiative can be
found on the “Plasticcycle” website launched
Rs.3.44 bn
environmental protection bodies, John Keells in August 2018; www.plasticcycle.lk.
Growth of 17 per cent
Group staff, and school children. With a view
to expanding the initiative beyond Colombo, The performance and developments under
Plasticcycle collaborated on a new project in Strategic Group Information Technology Rs.5.38 billion reported in the previous year.
partnership with Walkers Tours Limited (WTL), (SGIT), which supports the Group’s IT The growth in EBIT is mainly attributable
Beira Enviro Solutions (Private) Limited and the requirements, in addition to providing to the interest income generated on the
Road Development Authority (RDA) to collect consultancy services and SAP implementation Group’s Rupee and US dollar portfolios and
and recycle PET bottles carried by commuters services to external companies, is discussed exchange gains recorded at the Company
on the Southern Expressway. The project when under the Information Technology industry on its foreign currency denominated cash
completed will result in the placement of an group, given the amalgamation of SGIT holdings. Interest income increased due to
additional 40 bins adjacent to key exit points services with John Keells Computer Services, higher interest rates during the year
which will subsequently be recycled into value under the unified brand, “John Keells IT”.
• The EBIT of JKH PLC at Company level,
includes a capital gain of Rs.8.18 billion
pertaining to the exercise undertaken
Capital Management Review to rationalise and simplify the Group’s
Progressing from the discussion on the External Environment and Operational Review, the shareholding structure. The exercise, as
discussion that follows captures the forms of Capital available, and how each of these forms of discussed in the External Environment and
Capital are combined to create value for all stakeholders. Operational Review section of this industry
group report, was carried out to restructure
The discussion on the Capitals, where relevant, is structured to emphasise goals, targets and the shareholding of the Group companies
initiatives undertaken under each form of Capital. which had multiple layers of ownership. This
exercise was executed via a hybrid model
which consisted of both share and cash
transfers within JKH PLC and its quoted and
Goals under relevant Capital Targets we set for ourselves Our initiatives unquoted subsidiaries. It should also be
noted that the capital gain was eliminated
at a Group consolidated level.
previous year [2016/17: Rs.2.31 billion]. JK • The EBIT of the industry group includes
FINANCIAL AND PLC recorded a revenue growth of 23 per investment property gains of Rs.262 million
cent to Rs.517 million compared to Rs.421 [2016/17: Rs.101 million] emanating from
MANUFACTURED CAPITAL properties held by TSF PLC and JK PLC. The
million reported in 2016/17
recurring EBIT adjusted for the above is
Earnings Before Interest and tax Rs.5.96 billion, an increase of 13 per cent,
As at 1 April 2017, the Other including
against Rs.5.28 billion recorded in 2016/17
Plantation Services industry group had total • EBIT for the industry group, inclusive of the
assets of Rs.74.10 billion, debt of Rs.91 million Holding Company, recorded a 16 per cent • The PBT of the industry group was Rs.6.08
and an opening equity capital of Rs.71.71 billion. increase to Rs.6.23 billion compared to billion, an increase of 16 per cent against
the previous year [2016/17: Rs.5.23 billion]
Financial Performance
Turnover
Revenue
%
• Revenue of the Other including Plantation
2015/16 91 9
Services industry group consisted of the
Plantations sector, as there are no other 2016/17 95 5
significant operating businesses in this
cluster. Revenue from the Plantations 2017/18 95 5
sector increased by 17 per cent to Rs.3.28
billion, driven by higher average tea sales EBIT
price recorded during the year as discussed %
under the External Environment and 2015/16 1 99
Operational Review section of this industry
group report 2016/17 7 93
• TSF PLC was the primary revenue 11 89
2017/18
contributor with a revenue of Rs.2.68
billion, a 16 per cent increase against the Plantation Services Other
183
INDUSTRY GROUP REVIEW
Other Including Plantation Services
Borrowings and Finance Expense • ROCE of the Plantations sector was • The EBIT margin for the sector improved to
Total debt as at 31 March 2018 was recorded recorded at 19.4 per cent compared to 20.2 per cent from 13.9 per cent reported
at Rs.69 million, a 24 per cent decrease against the 14.3 per cent reported in the previous in the previous year
the comparative year [2016/17: Rs.91 million]. year. The increase in the ratio is primarily • Asset turnover for the sector was reported
The finance expense of the industry group attributable the increase in EBIT as outlined at 0.90 times against 0.83 times reported in
increased to Rs.148 million, a increase of 10 above 2016/17
per cent against the previous year [2016/17:
Rs.135 million]. It should also be noted that Return on Capital Employed
the Company does not have any long-term
borrowings subsequent to the repayment of
the IFC loan facility in 2016/17. ROCE
2017/18: 19.4%
Return on Capital Employed (ROCE) [2016/17: 14.3%]
• Given that a majority of JKH Company
earnings materialise at an EBIT level,
the ratio is artificially inflated and is not Asset/(Debt +
indicative of the true performance of the Asset turnover Equity)
Company, including the industry group. 0.90 1.02
As such, the ensuing ROCE discussion is
limited to a discussion of the Plantations EBIT margin
sector 20.2%
value creator. Ongoing collaboration and The material topics of the industry group are
partnerships with international conservation classified as follows:
NATURAL CAPITAL bodies help to disseminate international best
practice and standards within the operating
Energy and emissions management
model of the sector, while recognising
Given the vital inputs required from natural the growing demand for eco-friendly and
resources, the effective management of Natural sustainable products. Along with the Centre Waste and effluent management
Capital is essential for the Plantations Services Functions of the Group, the industry group
sector. Sustainable practices throughout the seeks to reduce its use of energy through
supply chain; from cultivation to distribution is process efficiencies and continuous monitoring, The ensuing section discusses key targets
of significant importance in being an impactful in meeting the Group’s environmental and under the aforementioned material topics and
energy management policy. its corresponding impacts. The section also
entails the various initiatives undertaken with
a view to achieving relevant targets.
Carbon Footprint
Waste Management
Relevance/Implication Targets Initiatives
Regulatory implications • Continuous and rigorous monitoring • Wood ash created through generation of energy is disposed by way of a
and environmental to ensure all waste water, from factory certified third party
responsibility cleaning and waste generated from • TSF PLC, in collaboration with JKF and the Carbon Consulting Company
biomass combustion, is disposed of (Private) Limited (CCC) continued its tree planting initiative for the 4th
responsibly, with no contamination consecutive year to increase the coverage of vegetation in the Galle
of the environment, in line with district. The initiative involved a total area of 15.3 acres of land
Environmental Protection License (EPL)
• Enrichment of 35 tea smallholders livelihoods, through the sale of
requirements
non-timber forest products such as medicines, fruits, shading materials,
livestock feed
Impact:
• Number of volunteers : 10
• Number of trees planted: 3,000
• Survival rate : 92 per cent
• Number replanted as a means to replace casualties: 336 plants
• Other impacts: livelihood of the smallholders were enhanced,
preservation of natural habitat and the bio-diversity of the site
Indicators
2017/18 2016/17 % ENRICHMENT OF 35
Carbon footprint (MT) 3,324 3,334 (0.3) TEA SMALLHOLDERS
LIVELIHOODS, THROUGH
Waste disposed (kg) 205,827 191,986 7
THE SALE OF NONTIMBER
FOREST PRODUCTS SUCH
Carbon Footprint Scope 1 and 2 per Operational Intensity Factor
2017/18 2016/17
AS MEDICINES, FRUITS,
TSF PLC CO2 (kg per kg of tea produced) 0.6 0.6 SHADING MATERIALS,
2
JK PLC and JKW CO2 (kg per ft of floor area) 1.4 1.2 LIVESTOCK FEED.
185
INDUSTRY GROUP REVIEW
Other Including Plantation Services
Performance
2017/18 2016/17* %
Impact:
• Total number of eye camps held : 4
• Total number of participants : 784
• Cataract surgeries - 18 smallholders
• Total investment : Rs.141,010
187
INDUSTRY GROUP REVIEW
Other Including Plantation Services
Financial Statements
Developing sustainable
financial strength
191 Annual Report of the Board of Directors . 196 The Statement of Directors’ Responsibility . 197 Independent Auditors’ Report .
200 Income Statement . 201 Statement of Comprehensive Income . 202 Statement of Financial Position .
203 Statement of Cash Flows . 204 Statement of Changes in Equity . 208 Notes to the Financial Statements
189
INDEX TO THE FINANCIAL INFORMATION
10 Financial risk management objectives and policies 222-229 37 Employee benefit liabilities 277-278
11 Fair value measurement and related fair 38 Other deferred liabilities 278-279
value disclosures 229-231 39 Other non current liabilities 279
12 Financial instruments and related policies 231-237 40 Trade and other payables 279
41 Short term borrowings 279
The Directors have pleasure in presenting the 39th Review of Business Segments Financial Results and Appropriations
Annual Report of your Company which covers A review of the financial and operational Revenue
the Audited Financial Statements, Chairman’s performance and future business Revenue generated by the Company
Message, Corporate Governance Commentary, developments of the Group, sectors, and amounted to LKR. 1,348 Mn (2017 – LKR.
Capital Management Review, Industry Group its business units are described in the 1,126 Mn), whilst Group revenue amounted
Review and all the other relevant information Management Discussion and Analysis to LKR. 121,215 Mn (2017 – LKR. 106,273 Mn).
for the year ended 31st March 2018. Disclosures section of the Annual Report. Significant Contribution to Group revenue, from the
which appear in the Share Information section changes to business combinations and different business segments is provided in
form a part of the Annual Report of the Board of acquisition of non-controlling interests Note 7 to the Financial Statements.
Directors as it is a requirement of the Companies are provided in Note 9 to the Financial
Act No. 07 of 2007. Statements. These reports, together with Profit and Appropriations
the audited financial statements, reflect The profit after tax of the Company was
Principal Activities the state of affairs of the Company and LKR. 21,222 Mn (2017 – LKR. 16,152 Mn) whilst
John Keells Holdings PLC (the Company), the Group. Segment wise contribution to the Group profit attributable to equity holders
the Group’s holding Company, manages a Group revenue, results, assets and liabilities of the parent for the year was LKR. 21,021 Mn
portfolio of holdings consisting of a range of are provided in Note 7 to the Financial (2017 - LKR. 16,275 Mn).
diverse business operations, which together Statements.
constitute the John Keells Group (the Group), The Company’s total comprehensive
and provides function based services to its Future Developments income net of tax was LKR. 21,152 Mn
subsidiaries, joint ventures and associates. Information on future developments are (2017 - LKR. 16,123 Mn), and the Group total
contained in the Chairman’s Message and comprehensive income attributable to parent
The companies within the Group and its Management Discussion and Analysis sections was LKR. 28,619 Mn (2017 - LKR. 25,694 Mn).
business activities are described in the of this Annual Report.
Group Directory under the Supplementary Dividend and Reserves
Information section of the Annual Report. Financial Statements As required by Section 56(2) of the Companies
There were no significant changes to the Financial Statements of the Company and Act No 7 of 2007, the Board of Directors have
principal activities of the Company or its Group for the year ended 31 March 2018, confirmed that the Company satisfies the
subsidiaries during the year. which have been prepared in accordance with solvency test in accordance with Section 57
Sri Lanka Accounting Standards (SLFRS/LKAS) of the Companies Act No 7 of 2007, and has
Corporate Vision and Values with the inclusion of the signatures of the obtained certificates from the auditors, prior to
A culture of innovation, integrity, excellence, Chairman, Group Finance Director and Group declaring all dividends. A final dividend will be
caring and trust has been developed among Financial Controller, are given from page paid on 18 June 2018 to those shareholders on
the Group and by being aligned with them, 200 to 286 and form a part of the Integrated the register as of 5 June 2018.
the Directors and employees conduct their Annual Report.
activities to achieve the vision, “Building Accounting Policies
businesses that are leaders in the region”. All the significant accounting policies adopted
by the Company and Group are mentioned in
John Keells Holdings PLC the Notes to the Financial Statements. There
have been no changes in the accounting
For the year ended 31 March
policies adopted by the Group during the
In LKR ‘000s 2018 2017
year under review. For all periods up to and
including the year ended 31 March 2018,
Profit after tax 21,222,229 16,152,442
the Group prepared its financial statements
Other adjustments (4,083) (5,310) in accordance with Sri Lanka Accounting
Balance brought forward from the previous year 47,213,561 39,337,754 Standards (SLFRS/LKAS) which have materially
Amount available for appropriation 68,431,707 55,484,886 converged with the International Financial
Reporting Standards (IFRS) as issued by the
1st interim dividend of LKR. 2.00 per share (2017-LKR. 2.00)
International Accounting Standards Board
paid out of dividend received. (2,775,002) (2,721,458)
(IASB).
2nd interim dividend of LKR. 2.00 per share (2017-LKR. 2.00)
paid out of dividend received. (2,775,047) (2,774,933) Capital Expenditure
Final dividend declared of LKR. 2.00 per share (2017-LKR. 2.00) The Company’s and Group’s capital
to be paid out of dividend received.* (2,775,057) (2,774,934) expenditure on property, plant and equipment
Balance to be carried forward to the next year 60,106,601 47,213,561 amounted to LKR. 86 Mn (2017 - LKR. 11 Mn)
and LKR. 18,922 Mn (2017 -LKR. 4,332 Mn)
respectively and all other related information
*In accordance with LKAS 10, Events after the reporting period, the final dividend has not been and movements have been disclosed in
recognised as a liability in the financial statements. Note 21 to the Financial Statements.
191
ANNUAL REPORT OF THE BOARD OF DIRECTORS
Additions of intangible assets of the Company Share Information Interests Register and Interests in
and Group during the year amounted to LKR. The distribution and composition of Contracts
33 Mn (2017 - LKR. 7 Mn) and LKR. 218 Mn shareholders and the information relating The Company has maintained an Interests
(2017 - LKR. 114 Mn) respectively and all other to earnings, dividends, net assets, market Register as contemplated by the Companies
related movements are disclosed in Note 24 to value per share and share trading is given Act No 7 of 2007.
the Financial Statements. in the Share Information section of the
Annual Report. As additional disclosures, the This Annual Report also contains particulars
Valuation of Land, Buildings and Company’s Board of Directors’ (including their of entries made in the Interests Registers of
Investment Properties close family members) shareholdings, options subsidiaries which are public companies or
All land and buildings owned by Group available under the employee share option private companies which have not dispensed
companies were revalued during the financial (ESOP) plans as at 31 March 2018, market with the requirement to maintain an Interests
year ended 31 March 2018 and the carrying capitalisation, public holding percentage and Register as permitted by Section 30 of the
value amounted to LKR. 70,741 Mn (2017 number of public shareholders are given in Companies Act No 7 of 2007.
- LKR. 52,615 Mn). All information related the Share Information section of the Annual
to revaluation is given in Note 21.3 to the Report. The Directors have all made a general
Financial Statements. disclosure relating to share dealings and
Major Shareholders indemnities and remuneration to the Board
Investment properties of business units, when Details of the twenty largest shareholders of Directors as permitted by Section 192 (2)
significantly occupied by Group companies, of the Company and the percentages held of the Companies Act No 7 of 2007 and no
are classified as property, plant and equipment by each of them are disclosed in the Share additional interests have been disclosed by
in the consolidated financial statements in Information section of the Annual Report. any Director. The Interest Register is available
compliance with LKAS 40. at the registered head office of the Company,
Equitable Treatment of Shareholders in keeping with the requirements of the
The Group revalued all its investment The Company has at all times ensured that all section 119 (1) (d) of the Companies Act No 7
properties as at 31 March 2018, and the shareholders are treated equitably. of 2007.
carrying value amounted to LKR. 12,427 Mn
(2017- LKR. 5,366 Mn). All information related The Board of Directors Share Dealings
to revaluation of the investment properties The Board of Directors of the Company as Particulars of the Company interest register are
are provided in Note 23 to the Financial at 31 March 2018 and their brief profiles are disclosed in the Share Information section of
Statements. given in the Board of Directors section of the the Annual Report.
Annual Report.
Details of Group Real Estate as at 31 March Given below are the particulars of subsidiaries’
2018 are disclosed in the Group Real Estate Retirement and Re-Election of Directors interest register;
Portfolio in the Supplementary Information In accordance with Article 84 of the Articles of
section of the Annual Report. Association of the Company, M A Omar and Ceylon Cold Stores PLC
M P Perera retire by rotation and being eligible, • A R Rasiah - Sale of 3,425 shares
Investments offer themselves for re-election.
Detailed description of the long term Indemnities and Remuneration
investments held as at the reporting date, is Review of The Performance of The Board The Board approved the payment of
given in Notes 25, 26 and 27 to the Financial The performance of the board has been remuneration of the following Executive
Statements. appraised through a formalized process, Directors for the period of 1 April 2017 to 31
where each individual Director anonymously March 2018 comprising of;
Stated Capital comments on the dynamics of the Board.
Stated Capital as at 31 March 2018 for the The process is described in the Corporate An increment from 1 July 2017 based on
Company amounted to LKR. 62,802 Mn Governance Commentary section of the the individual performance rating obtained
(2017 - LKR. 62,790 Mn). The movement Annual Report. by the Executive Directors in terms of the
and composition of the Stated Capital are performance management system of the John
disclosed in the Statement of Changes in Board Committees Keells Group;
Equity and in Note 33.1 to the Financial Information relating to members of the
Statements. Audit Committee, Human Resources and A short term variable incentive based on
Compensation Committee, Nominations the individual performance, organization
Revenue Reserves Committee and the Related Party Transactions performance and role responsibility based
Revenue reserves as at 31 March 2018 for the Review Committee, including reports of on the results of the financial year 2016/2017,
Company and Group amounted to LKR. 62,882 each of the committees and attendance of and Long Term Incentive Plan in the form
Mn (2017 - LKR. 49,988 Mn) and Directors for each of the committee meetings, of Employee Share Options in John Keells
LKR. 87,266 Mn (2017 - LKR. 77,193 Mn), are disclosed in the Corporate Governance Holdings PLC.
respectively. The movement of the revenue Commentary section of the Annual Report.
reserve is disclosed in the Statement of
Changes in Equity.
John Keells Holdings PLC Tea Smallholders Factories PLC specific selection, training, development and
• S C Ratnayake • A S Jayatilleke promotion policies, ensuring that all decisions
• A D Gunewardene*** • K N J Balendra* are based on merit. The Group practices
• J R F Peiris*** • J G A Cooray* equality of opportunity for all employees
• K N J Balendra • S K L Obeyesekera* irrespective of ethnic origin, religion, political
• J G A Cooray opinion, gender, marital status or physical
Trans Asia Hotels PLC disability. Employee ownership in the
Asian Hotels and Properties PLC • C J L Pinto Company is facilitated through the employee
• R J Karunarajah • J G A Cooray* share option plan.
• S Rajendra • J R Gunaratne*
* Appointed w.e.f. 1 January 2018 Details of the Group’s human resource
Ceylon Cold Stores PLC
** Appointed w.e.f. 1 November 2017 initiatives are detailed in the Human Capital
• J R Gunaratne
*** Retired w.e.f. 31 December 2017 section of the Capital Management Review
• D P Gamlath**
section of the Annual Report.
Union Assurance PLC Fees payable to Non-Executive Nominee
• A D Pereira Directors of John Keells Holdings PLC was The number of persons employed by the
paid to John Keells Holdings PLC and not to Company and Group as at 31 March 2018 was
Cinnamon Hotel Management Ltd individual Directors. 180 (2017 - 162) and 13,619 (2017 – 13,211),
• B J S M Senanayake respectively.
Directors’ Remuneration
Walkers Tours Ltd
Details of the remuneration and other benefits There have been no material issues pertaining
• V Leelananda
received by the Directors are set out in Note to employees and industrial relations of the
43.7 to the Financial Statements. Company and the Group.
All approvals relating to Indemnities and
Remuneration have been recommended by
Related Party Transactions Supplier Policy
the Human Resources and Compensation
The Company’s transactions with Related The Group applies an overall policy of
Committee, taking into consideration inputs
Parties, given in Note 43 to the Financial agreeing and clearly communicating terms
from market surveys, expert opinions and the
Statements have complied with Colombo of payment as part of the commercial
specific management complexities associated
Stock Exchange Listing Rule 9.3.2 and the agreements negotiated with suppliers, and
with the John Keells Group and in keeping
Code of Best Practices on Related Party endeavours to pay for all items properly
with the Group remuneration policy.
Transactions under the Securities and charged in accordance with these agreed
Exchange Commission Directive issued under terms. As at 31 March 2018 the trade and
The contracts of the following Non-Executive
Section 13(c) of the Securities and Exchange other payables of the Company and Group
Directors have been approved/renewed at the
Commission Act. amounted to LKR. 332 Mn (2017 - LKR. 330 Mn)
standard Non-Executive Director fees by the
and LKR. 16,077 Mn (2017 - LKR. 14,136 Mn),
Board, which fees are commensurate with the
Employee Share Option Plan (ESOP) respectively.
market complexities associated with the John
Keells Group. At the beginning of the year, the employee
share option plan consisted of the eighth and The Group strives to integrate principles
ninth plans approved by the shareholders on of sustainable practices and policies in its
Asian Hotels and Properties PLC
28 June 2014 and 24 June 2016 respectively. value chain through extensive stakeholder
• C J L Pinto
consultations, the findings of which are
• J G A Cooray*
The Directors confirm that the Company has integrated into work-plans. During the
• J R Gunaratne*
not granted any funding to employees to previous year, the Group’s procurement
Ceylon Cold Stores PLC exercise options. process migrated to an electronic
• K N J Balendra* procurement platform to streamline the
• J G A Cooray* Details of the options granted, options Group’s sourcing initiatives. The entire
exercised, the grant price and the options sourcing process from supplier identification
John Keells PLC cancelled or lapsed and outstanding as at to contracting, and supplier management for
• K N J Balendra* the date of the Directors’ report as required products and services was conducted through
• J G A Cooray* by the Listing Rules of the Colombo Stock the electronic platform, during the year under
Exchange are given under the Share review. Due to the numerous benefits ranging
John Keells Hotels PLC Information section of the Annual Report. from shortening of contracting life cycles,
• J G A Cooray* increased visibility of the sourcing process,
• J R Gunaratne* The highest, lowest and the closing prices of accurate analytics and saving of paper,
the Company shares were LKR. 180.00, LKR. Group companies have also begun sourcing
Keells Food Products PLC requirements through this procurement
138.00 and LKR. 159.60 respectively.
• D P Gamlath** platform.
• K N J Balendra*
Employment
• J G A Cooray*
The Group has an equal opportunity policy
and these principles are enshrined in
193
ANNUAL REPORT OF THE BOARD OF DIRECTORS
Ratios and Market price information the years and substantial efforts will continue Compliance with Laws and Regulations
The ratios relating to equity and debt as to be made to introduce intellectual property To the best of knowledge and belief of the
required by the listing requirements of the rights, new products and processes and Directors, the Group/Company has not
Colombo Stock Exchange are given under the develop existing products and processes to engaged in any activity, which contravenes
Performance Highlights section of this Report. improve operational efficiency. laws and regulations of the country.
195
THE STATEMENT OF DIRECTORS’ RESPONSIBILITY
The responsibility of the Directors in relation The Directors are also responsible for taking
to the financial statements is set out in the reasonable steps to safeguard the assets of
following statement. The responsibility of the the Company and of the Group and in this
auditors, in relation to the financial statements regard to give proper consideration to the
prepared in accordance with the provision of establishment of appropriate internal control
the Companies Act No. 7 of 2007, is set out in systems with a view to preventing and
the Report of the Auditors. detecting fraud and other irregularities.
The financial statements comprise of: The Directors are required to prepare the
financial statements and to provide the
• Income statement and statement of auditors with every opportunity to take
comprehensive income of the Company whatever steps and undertake whatever
and its subsidiaries, which present a true inspections that may be considered being
and fair view of the profit and loss of appropriate to enable them to give their audit
the Company and its subsidiaries for the opinion.
financial year.
Further, as required by Section 56 (2) of the
• A statement of financial position, which Companies Act No. 7 of 2007, the Board of
presents a true and fair view of the state of Directors have confirmed that the Company,
affairs of the Company and its subsidiaries based on the information available, satisfies
as at the end of the financial year: and the solvency test immediately after the
distribution, in accordance with Section 57 of
The Directors are required to confirm that the the Companies Act No. 7 of 2007, and have
financial statements have been prepared: obtained a certificate from the auditors, prior
to declaring a final dividend of LKR. 2.00 per
• Using appropriate accounting policies share for this year, to be paid on 18 June 2018.
which have been selected and applied in a
consistent manner, and material departures, The Directors are of the view that they have
if any, have been disclosed and explained; discharged their responsibilities as set out in
and this statement.
INDEPENDENT AUDITOR’S REPORT TO THE as at 31 March 2018, and of their financial statements of the current period. These
SHAREHOLDERS OF JOHN KEELLS HOLDINGS performance and cash flows for the year matters were addressed in the context of
PLC then ended in accordance with Sri Lanka our audit of the financial statements as a
Accounting Standards. whole, and in forming our opinion thereon,
Report on the audit of the Financial and we do not provide a separate opinion
Statements Basis for opinion on these matters. For each matter below, our
We conducted our audit in accordance description of how our audit addressed the
Opinion
with Sri Lanka Auditing Standards (SLAuSs). matter is provided in that context.
We have audited the financial statements of
Our responsibilities under those standards
John Keells Holdings PLC. (“the Company”),
are further described in the Auditor’s We have fulfilled the responsibilities
and the consolidated financial statements
responsibilities for the audit of the financial described in the Auditor’s responsibilities
of the Company and its subsidiaries (“the
statements section of our report. We are for the audit of the financial statements
Group”), which comprise the statement
independent of the Group in accordance section of our report, including in relation
of financial position as at 31 March 2018,
with the Code of Ethics issued by CA Sri Lanka to these matters. Accordingly, our audit
income statement and the statement of
(Code of Ethics) and we have fulfilled our other included the performance of procedures
comprehensive income, statement of changes
ethical responsibilities in accordance with designed to respond to our assessment
in equity and statement of cash flows for the
the Code of Ethics. We believe that the audit of the risks of material misstatement of
year then ended, and notes to the financial
evidence we have obtained is sufficient and the financial statements. The results of our
statements, including a summary of significant
appropriate to provide a basis for our opinion. audit procedures, including the procedures
accounting policies.
performed to address the matters below,
Key audit matters provide the basis for our audit opinion on the
In our opinion, the accompanying financial
Key audit matters are those matters that, in accompanying financial statements.
statements of the Company and the Group
our professional judgment, were of most
give a true and fair view of the financial
significance in our audit of the financial
position of the Company and the Group
Key Audit Matter How our audit addressed the key audit matter
Valuation of land and buildings Our audit procedures focused on the valuations performed by external valuers
As at reporting date 31 March 2018, land and buildings (including engaged by the Group, and included the following;
buildings on leasehold land) carried at fair value, classified as
Property, Plant & Equipment and Investment Property amounted • Assessed the competency, capability and objectivity of the external valuers
to LKR. 70.7 Bn and LKR. 12.4 Bn respectively. The fair value of engaged by the Group
such property was determined by external valuers engaged by
the Group. The valuation of land and buildings was significant • Read the external valuer’s report and understood the key estimates made
to our audit due to the use of significant estimates such as per and the approach taken by the valuers in determining the valuation of each
perch price and value per square foot disclosed in notes 21.3 and property
23 to the financial statements.
• Engaged our internal specialised resources to assess the reasonableness of
the valuation techniques, per perch price and value per square foot
We have also assessed the adequacy of the disclosures made in notes 21.3 and
23 to the financial statements relating to the valuation technique and estimates
used by the external valuers.
197
INDEPENDENT AUDITORS’ REPORT
Key Audit Matter How our audit addressed the key audit matter
Insurance contract liabilities Our audit procedures focused on the valuations performed by the external
The Group has significant insurance contract liabilities of actuary engaged by the subsidiary company of the Group and included the
LKR. 30 Bn which represents 31% of the Group’s total liabilities. following;
Further, the change in contract liabilities due to the transfer of
one off surplus amounting to LKR. 3,382 Mn has been recognised • Involved the component auditor of the subsidiary company to perform the
in the income statement during the current financial year. audit procedures to assess the reasonability of the assumptions and test the
key controls on a sample basis over the process of estimating the insurance
The valuation of the insurance contract liabilities and the contract liabilities.
measurement of the one off surplus in relation to the life business
required the application of significant assumptions such as • Engaged our internal expert to assess the reasonability of the assumptions
mortality, morbidity, lapses and surrenders, loss ratios, bonus and used in the valuations of the insurance contract liabilities
expenses and assessing the completeness and accuracy of the
information used in the underlying valuations. Changes in such • Reviewed the adequacy of the disclosures and the movement in the
significant assumptions used in the valuation of the insurance insurance contract liabilities.
contract liabilities directly impacts the income statement.
Other information included in the 2018 In preparing the financial statements, • Identify and assess the risks of material
Annual Report management is responsible for assessing the misstatement of the financial statements,
Other information consists of the information Group’s ability to continue as a going concern, whether due to fraud or error, design and
included in the Annual Report, other than the disclosing, as applicable, matters related to perform audit procedures responsive to
financial statements and our auditor’s report going concern and using the going concern those risks, and obtain audit evidence that is
thereon. Management is responsible for the basis of accounting unless management either sufficient and appropriate to provide a basis
other information. intends to liquidate the Group or to cease for our opinion. The risk of not detecting a
operations, or has no realistic alternative but material misstatement resulting from fraud
Our opinion on the financial statements does to do so. is higher than for one resulting from error,
not cover the other information and we do as fraud may involve collusion, forgery,
not express any form of assurance conclusion Those charged with governance are intentional omissions, misrepresentations,
thereon. responsible for overseeing the Company’s and or the override of internal control.
the Group’s financial reporting process.
In connection with our audit of the financial • Obtain an understanding of internal control
statements, our responsibility is to read the Auditor’s responsibilities for the audit of relevant to the audit in order to design
other information and, in doing so, consider the financial statements audit procedures that are appropriate in the
whether the other information is materially Our objectives are to obtain reasonable circumstances, but not for the purpose of
inconsistent with the financial statements assurance about whether the financial expressing an opinion on the effectiveness
or our knowledge obtained in the audit or statements as a whole are free from material of the internal controls of the Company and
otherwise appears to be materially misstated. misstatement, whether due to fraud or error, the Group.
If, based on the work we have performed, we and to issue an auditor’s report that includes
conclude that there is a material misstatement our opinion. Reasonable assurance is a high • Evaluate the appropriateness of accounting
of this other information, we are required to level of assurance, but is not a guarantee that policies used and the reasonableness
report that fact. We have nothing to report in an audit conducted in accordance with SLAuSs of accounting estimates and related
this regard will always detect a material misstatement disclosures made by management.
when it exists. Misstatements can arise from
Responsibilities of the management and fraud or error and are considered material if, • Conclude on the appropriateness of
those charged with governance individually or in the aggregate, they could management’s use of the going concern
Management is responsible for the reasonably be expected to influence the basis of accounting and, based on the
preparation of financial statements that give economic decisions of users taken on the basis audit evidence obtained, whether a
a true and fair view in accordance with Sri of these financial statements. material uncertainty exists related to events
Lanka Accounting Standards, and for such or conditions that may cast significant
internal control as management determines As part of an audit in accordance with SLAuSs, doubt on the Group’s ability to continue
is necessary to enable the preparation of we exercise professional judgment and as a going concern. If we conclude that
financial statements that are free from material maintain professional skepticism throughout a material uncertainty exists, we are
misstatement, whether due to fraud or error. the audit. We also: required to draw attention in our auditor’s
report to the related disclosures in the
financial statements or, if such disclosures
are inadequate, to modify our opinion.
Our conclusions are based on the audit From the matters communicated with those
evidence obtained up to the date of our charged with governance, we determine those
auditor’s report. However, future events or matters that were of most significance in the
conditions may cause the Group to cease to audit of the financial statements of the current
continue as a going concern. period and are therefore the key audit matters.
We describe these matters in our auditor’s
• Evaluate the overall presentation, structure report unless law or regulation precludes
and content of the financial statements, public disclosure about the matter or when, in
including the disclosures, and whether extremely rare circumstances, we determine
the financial statements represent the that a matter should not be communicated in
underlying transactions and events in a our report because the adverse consequences
manner that achieves fair presentation. of doing so would reasonably be expected to
outweigh the public interest benefits of such
• Obtain sufficient appropriate audit evidence communication.
regarding the financial information of
the entities or business activities within Report on other legal and regulatory
the Group to express an opinion on the requirements
consolidated financial statements. We are As required by section 163 (2) of the
responsible for the direction, supervision Companies Act No. 07 of 2007, we have
and performance of the group audit. We obtained all the information and explanations
remain solely responsible for our audit that were required for the audit and, as far
opinion. as appears from our examination, proper
accounting records have been kept by the
We communicate with those charged with Company.
governance regarding, among other matters,
the planned scope and timing of the audit CA Sri Lanka membership number of the
and significant audit findings, including any engagement partner responsible for signing
significant deficiencies in internal control that this independent auditor’s report is 2471.
we identify during our audit.
199
INCOME STATEMENT
GROUP COMPANY
For the year ended 31st March Note 2018 2017 2018 2017
In LKR ‘000s
Continuing operations
Sale of goods 81,974,902 68,238,202 - -
Rendering of services 39,240,170 38,034,899 1,347,707 1,126,353
Revenue 13 121,215,072 106,273,101 1,347,707 1,126,353
Attributable to:
Equity holders of the parent 21,021,031 16,275,158
Non-controlling interests 2,098,774 1,841,607
23,119,805 18,116,765
LKR. LKR.
GROUP COMPANY
For the year ended 31st March Note 2018 2017 2018 2017
In LKR ‘000s
Other comprehensive income for the period, net of tax 7,667,648 11,694,855 (70,593) (29,397)
Total comprehensive income for the period, net of tax 30,787,453 29,811,620 21,151,636 16,123,045
Attributable to :
Equity holders of the parent 28,618,650 25,694,454
Non-controlling interests 2,168,803 4,117,166
30,787,453 29,811,620
201
STATEMENT OF FINANCIAL POSITION
GROUP COMPANY
As at 31st March Note 2018 2017 2018 2017
In LKR ‘000s
ASSETS
Non-current assets
Property, plant and equipment 21 87,259,873 64,396,373 127,878 93,913
Lease rentals paid in advance 22 13,004,939 13,206,058 - -
Investment property 23 12,427,058 5,366,180 - -
Intangible assets 24 2,010,191 2,118,160 44,484 30,801
Investments in subsidiaries 25 - - 67,967,918 42,987,395
Investments in equity accounted investees 26 22,335,347 17,718,887 10,165,655 8,910,800
Non-current financial assets 27 32,878,254 27,666,621 267,111 2,789,980
Deferred tax assets 20.4 171,503 143,548 - -
Other non-current assets 28 53,599,347 41,692,316 20,724 16,254
223,686,512 172,308,143 78,593,770 54,829,143
Current assets
Inventories 29 6,689,541 5,605,712 - -
Trade and other receivables 30 12,273,372 11,687,429 70,730 118,076
Amounts due from related parties 43.1 139,640 111,639 404,364 286,735
Other current assets 31 4,390,258 3,265,327 198,977 99,442
Short term investments 32 64,386,093 79,174,327 49,157,472 60,243,280
Cash in hand and at bank 10,882,856 5,119,185 496,591 304,265
98,761,760 104,963,619 50,328,134 61,051,798
Total assets 322,448,272 277,271,762 128,921,904 115,880,941
Non-current liabilities
Insurance contract liabilities 35 30,230,539 31,700,278 - -
Interest-bearing loans and borrowings 36 18,521,034 14,202,636 - -
Deferred tax liabilities 20.4 7,089,179 2,336,241 - -
Employee benefit liabilities 37 1,971,420 1,880,287 208,788 217,910
Other deferred liabilities 38 191,403 838,891 - 103,218
Other non-current liabilities 39 6,704,368 3,933,882 - -
64,707,943 54,892,215 208,788 321,128
Current liabilities
Trade and other payables 40 16,077,499 14,136,040 332,191 330,078
Amounts due to related parties 43.2 5,168 10,434 5,377 210,029
Income tax liabilities 20.3 2,078,807 2,395,379 671,634 635,532
Short term borrowings 41 3,128,508 1,380,238 - -
Interest-bearing loans and borrowings 36 2,062,465 2,918,854 - -
Other current liabilities 42 3,513,214 2,944,118 5,327 16,441
Bank overdrafts 6,010,089 4,264,109 62,477 84,282
32,875,750 28,049,172 1,077,006 1,276,362
Total equity and liabilities 322,448,272 277,271,762 128,921,904 115,880,941
I certify that the financial statements comply with the requirements of the Companies Act No. 7 of 2007.
Suran Wijesinghe
Group Financial Controller
The Board of Directors is responsible for these financial statements.
S C Ratnayake J G A Cooray
Chairman Group Finance Director
The accounting policies and notes as set out in pages 208 to 286 form an integral part of these financial statements.
25 May 2018
Colombo
GROUP COMPANY
For the year ended 31st March Note 2018 2017 2018 2017
In LKR ‘000s
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS (5,215,732) (755,091) (8,866,239) 2,853,854
CASH AND CASH EQUIVALENTS AT THE BEGINNING 47,643,605 48,398,696 39,989,189 37,135,335
CASH AND CASH EQUIVALENTS AT THE END 42,427,873 47,643,605 31,122,950 39,989,189
Cash and cash equivalents 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.
Figures in brackets indicate deductions.
The accounting policies and notes as set out in pages 208 to 286 form an integral part of these financial statements
203
STATEMENT OF CASH FLOWS
GROUP COMPANY
For the year ended 31st March Note 2018 2017 2018 2017
In LKR ‘000s
As at 1 April 2016 58,701,977 - 20,846,190 7,080,979 - 958,310 (170,217) 67,564,513 154,981,752 13,498,570 168,480,322
205
GROUP PERFORMANCE SUMMARY
Revenue PBT
Group Group
LKR. 121.22 Bn 14% LKR. 27.63 Bn 21%
2018 2018
2017 2017
0 75 150 0 15 30
Transportation Transportation
LKR. 17.17 Bn 55% LKR. 3.27 Bn 6%
2018 Asia SL 2018 Group
2017 Asia SL 2017 Group
0 10 20 0 2 4
Leisure Leisure
LKR. 25.04 Bn 3% LKR. 3.91 Bn 32%
2018 SL Europe 2018 Group NCI
2017 SL Europe 2017 Group NCI
0 15 30 0 3 6
Property Property
LKR. 1.23 Bn 83% LKR. 1.27 Bn 91% Group
2018 SL
SSLL 2018 Group NCI
2017 SL 2017 Group NCI
0 1 2 0 1 2
Assets Liabilities
Group Group
LKR. 322.45 Bn 16% LKR. 97.58 Bn 18%
2018 2018
2017 2017
0 175 350 0 50 100
Transportation Transportation
LKR. 21.35 Bn 18% LKR. 5.20 Bn 61%
2018 EAI Cash 2018 STB TP
2017 EAI STI 2017 STB TP
0 11 22 0 3 6
Leisure Leisure
LKR. 73.61 Bn 2% LKR. 14.86 Bn 31%
2018 PPE LRPA 2018 DTL IBB
2017 PPE LRPA IBB TP
2017
0 40 80 0 8 16
Property Property
LKR. 100.03 Bn 107% LKR. 24.40 Bn 27%
2018 ONCA PPE 2018 IBB ONCL
2017 ONCA PPE 2017 IBB ONCL
0 60 120 0 15 30
Others Others
LKR. 50.07 Bn 32% LKR. 1.76 Bn 26%
2018 STI 2018 ITL DTL
2017 STI IP 2017 ITL TP
0 40 80 0 1.5 3.0
All values are in LKR billions
207
NOTES TO THE FINANCIAL STATEMENTS
CORPORATE AND GROUP INFORMATION BASIS OF PREPARATION AND OTHER SIGNIFICANT ACCOUNTING
1. Corporate information POLICIES
Reporting entity 3 Basis of preparation
John Keells Holdings PLC. is a public limited liability company The consolidated financial statements have been prepared on
incorporated and domiciled in Sri Lanka. The registered office and an accrual basis and under the historical cost convention except
principal place of business of the Company is located at No. 117, for investment properties, land and buildings, derivative financial
Sir Chittampalam A Gardiner Mawatha, Colombo 2. instruments, fair value through profit or loss financial assets and
available-for-sale financial assets that have been measured at fair
Ordinary shares of the Company are listed on the Colombo value.
Stock Exchange. Global depository receipts (GDRs) of John Keells
Holdings PLC. are listed on the Luxembourg Stock Exchange. Presentation of functional currency
The consolidated financial statements are presented in Sri Lankan
John Keells Holdings PLC. became the holding company of the Rupees (LKR.), which is the currency in the primary economic
Group during the financial year ended 31 March 1986. environment in which the holding Company operates.
Consolidated financial statements The following subsidiaries are using functional currencies other
The financial statements for the year ended 31 March 2018, than Sri Lankan Rupees (LKR.) as follows:
comprise “the Company” referring to John Keells Holdings PLC. as
the holding Company and “the Group” referring to the companies Country of Functional Name of the Subsidiary
that have been consolidated therein. incorporation Currency
Approval of financial statements India Indian Rupee Serene Holidays (Pvt) Ltd.
The financial statements for the year ended 31 March 2018 were (INR)
authorised for issue by the Board of Directors on 25 May 2018. Singapore Singapore John Keells Singapore (Pte) Ltd.
Dollar (SGD)
Principal activities and nature of operations of the holding Republic of United States Fantasea World Investments (Pte) Ltd.
Company Maldives Dollar (USD)
John Keells Holdings PLC., the Group’s holding company, manages John Keells Maldivian Resort (Pte)
a portfolio of investments consisting of a range of diverse Ltd.
business operations, which together constitute the John Keells Mack Air Services Maldives (Pte) Ltd.
Group, and provides function based services to its subsidiaries, Tranquility (Pte) Ltd.
jointly controlled entities and associates. Travel Club (Pte) Ltd.
Mauritius United States John Keells BPO Holdings (Pvt) Ltd.
Responsibility for financial statements
Dollar (USD)
The responsibility of the Board of Directors in relation to the
John Keells BPO International (Pvt)
financial statements is set out in the Statement of Directors’
Ltd.
Responsibility report in the Annual report.
Sri Lanka United States Waterfront Properties (Pvt) Ltd.
Statements of compliance Dollar (USD)
The financial statements which comprise the income statement,
Each material class of similar items is presented cumulatively in
statement of comprehensive income, statement of financial
the Financial Statements. Items of dissimilar nature or function
position, statement of changes in equity and the statement of
are presented separately unless they are immaterial as permitted
cash flows, together with the accounting policies and notes (the
by the Sri Lanka Accounting Standard-LKAS 1 on ‘Presentation of
“financial statements”) have been prepared in accordance with
Financial Statements’.
Sri Lanka Accounting Standards (SLFRS/ LKAS) as issued by the
Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and
All values are rounded to the nearest rupees thousand (LKR. ’000)
in compliance with the Companies Act No. 7 of 2007.
except when otherwise indicated.
2. Group information
The significant accounting policies are discussed with relevant
Subsidiaries , associates and joint ventures
individual notes.
The companies within the Group and its business activities are
described in the Group Directory under the Supplementary
The indicative US Dollar financial statements under
Information section of the Annual Report.
Supplementary Information section of the Annual Report do not
form a part of the financial statements prepared in accordance
There were no significant changes in the nature of the principal
with SLFRS/LKAS.
activities of the Company and the Group during the financial year
under review.
All other assets are classified as non-current. 5 Significant accounting judgements, estimates and
assumptions
A liability is current when it is: The preparation of the financial statements of the Group
require the management to make judgements, estimates
• It is expected to be settled in the normal operating cycle and assumptions, which may affect the amounts of income,
• It is held primarily for the purpose of trading expenditure, assets, liabilities and the disclosure of contingent
• It is due to be settled within twelve months after the reporting liabilities, at the end of the reporting period.
period, or
• There is no unconditional right to defer the settlement of the Uncertainty about these assumptions and estimates could result
liability for at least twelve months after the reporting period. in outcomes that require a material adjustment to the carrying
amount of assets or liabilities affected in future periods. In the
All other liabilities are classified as non-current. process of applying the Group’s accounting policies, management
has made various judgements. Those which management has
Deferred tax assets and liabilities are classified as non-current assessed to have the most significant effect on the amounts
assets and liabilities. recognised in the consolidated financial statements have been
discussed in the individual notes of the related financial statement
Foreign currency translation, foreign currency line items.
transactions and balances
The consolidated financial statements are presented in Sri The key assumptions concerning the future and other key sources
Lanka Rupees (LKR.), which is the Company’s functional and of estimating uncertainty at the reporting date, that have a
presentation currency. The functional currency is the currency of significant risk of causing a material adjustment to the carrying
the primary economic environment in which the entities of the amounts of assets and liabilities within the next financial year, are
Group operate. All foreign exchange transactions are converted also described in the individual notes to the financial statements.
to functional currency, at the rates of exchange prevailing at the The Group based its assumptions and estimates on parameters
time the transactions are effected. Monetary assets and liabilities available when the financial statements were prepared. Existing
209
NOTES TO THE FINANCIAL STATEMENTS
circumstances and assumptions about future developments, require entities to provide disclosure of changes in their liabilities
however, may change due to market changes or circumstances arising from financing activities, including both changes arising
arising that are beyond the control of the Group. Such changes from cash flows and non-cash changes. The Group has provided
are reflected in the assumptions when they occur. the information for both the current and the comparative period
along with relevant note.
The line items which have most significant effect on accounting
judgements, estimate and assumptions are as follows; The following SLFRSs have been issued by the Institute of
Chartered Accountants of Sri Lanka that have an effective date in
a) Valuation of land and buildings and investment property the future and have not been applied in preparing these financial
b) Impairment of non-financial assets statements. Those SLFRSs will have an effect on the accounting
c) Share based payments policies currently adopted by the Group and may have an impact
d) Taxes on the future financial statements.
e) Employee benefit liability
f) Valuation of insurance contract liabilities The Group intends to adopt these standards, if applicable, when
they become effective.
6. Changes in accounting standards and standards issued but
not yet effective
Amendments to Sri Lanka Accounting Standard - LKAS 7
Statement of Cash flows, effective on or after 1 January 2017,
Hedge accounting
The Group determined that all existing hedge relationships that are currently designated in
effective hedging relationships will continue to qualify for hedge accounting under
SLFRS 9. As SLFRS 9 does not change the general principles of how an entity accounts for
effective hedges, applying the hedging requirements of SLFRS 9 will not have a significant
impact on the Group’s financial statements.
Rendering of services
Currently, the Group recognises service revenue by reference to the stage of completion.
Under SLFRS 15, the Group shall determine at contract inception whether it satisfies the
performance obligation over time or at a point in time. For each performance obligation
satisfied overtime, the Group shall recognise the revenue over time by measuring the
progress towards complete satisfaction of that performance obligation.
SLFRS 16 - SLFRS 16 sets out the principles The Group completed the diagnostic phase of SLFRS 16 adaptation in the 2017/18 financial
Leases for the recognition, measurement, year with the assistance of external consultants. In 2018/19, the Group will continue to assess
presentation and disclosure of the potential effect of SLFRS 16 on its consolidated financial statements.
[Effective leases and requires lessees to
on or after 1 account for all leases under a
January 2019 single on-balance sheet model
(early adoption similar to the accounting for
permitted)] finance leases under LKAS 17.
The objective is to ensure that
lessees and lessors provide
relevant information in a manner
that faithfully represents those
transactions. This information gives
a basis for the users of financial
statements to assess the effect
that leases have on the financial
position.
IFRIC 15 - This interpretation clarifies Considering the latest developments in revenue recognition (the “five-step model”), the
Agreements whether LKAS 18, ‘Revenue’ or Institute of Chartered Accountants of Sri Lanka has decided to grant an option for entities to
for the LKAS 11 ‘Construction contracts’ defer application of IFRIC 15 until SLFRS 15 Revenue from Contracts with Customers comes
construction should be applied to particular into effect. The Group has not adopted IFRIC 15 which is related to recognition of revenue
on real state transactions. It also explains of construction of real estate. The Group has deferred application of this IFRIC based on the
[Deferred the point at which revenue and ruling issued by CA Sri Lanka.
application related expenses from a sale of real
until SLFRS 15 estate unit should be recognised,
Revenue from if an agreement between a
Contracts with developer and a buyer is reached
Customers before the construction of the real
comes into estate unit is completed.
effect]
211
NOTES TO THE FINANCIAL STATEMENTS
6. Changes in accounting standards and standards issued but not yet effective (Contd.)
The following amendments and improvements are not expected to have a significant impact on the Group’s financial statements
• Income Taxes (Amendments to LKAS 12)
• Long-term Interests in Associates (Amendments to LKAS 28)
• Prepayment Features with Negative Compensation (Amendments to SLFRS 9 )
• Insurance Contracts (Amendments to SLFRS 4 )
• Share Based Payment ( Amendments to SLFRS 2)
• Annual Improvements Cycle - 2014-2016
• Disclosure of Interests in Other Entities (Amendments to SLFRS 12)
Profit / (loss) before tax 3,269,122 3,098,210 3,909,324 5,720,870 1,269,601 664,556
Profit/ (loss) for the year 3,084,124 2,979,153 3,342,913 5,007,566 1,051,457 623,498
Purchase and construction of PPE* 475,296 95,716 3,111,043 1,275,820 9,108,123 36,369
Addition to IA* 558 9,176 - - - 2,240
Depreciation of PPE* 109,998 101,630 1,733,890 1,588,847 27,147 18,589
Amortisation of IA* 2,006 1,975 59,089 67,092 773 661
Amortisation of LRPA* - - 413,778 569,140 32,327 20,307
Gratuity provision and related costs 16,243 13,946 130,819 114,363 3,975 3,273
In addition to segment results, information such as finance costs / income, tax expenses has been allocated to segments for better presentation.
* PPE - Property, plant and equipment, IA - Intangible assets, LRPA - Lease rentals paid in advance
Leisure Others
The leisure operation segment encompasses two five star city This operating segment includes plantation services sector which
hotels in Colombo and seven resort hotels spread in prime tourist operates tea factories, tea and rubber broking and pre-auction
locations all over Sri Lanka and three resorts in Maldives offering produce warehousing. This segment also consists of John Keells
beaches, mountains, wildlife and cultural splendour under the Holdings PLC. including its divisions / centre functions such as
‘Cinnamon Hotels and Resorts’ brand. The leisure operating John Keells Capital and Strategic Group IT (SGIT), as well as other
segment also has destination management businesses in companies providing ancillary services.
Sri Lanka.
Segment information has been prepared in conformity with the
Property accounting policies adopted for preparing and presenting the
The property operating segment concentrates primarily on consolidated financial statements of the Group.
development and sale of residential apartments.
No operating segments have been aggregated to form the above
Consumer Foods and Retail reportable operating segments. An individual segment manager is
The consumer foods and retail operating segment competes in determined for each operating segment and the results are regularly
the two major categories namely manufacturing and retailing. reviewed by the Board of Directors. The Board of Directors monitors
the operating results of its business units separately for the purpose
Financial Services
of making decisions about resource allocation and performance
The financial services operating segment offers a complete range
assessment. Segment performance is evaluated based on operating
of financial solutions including commercial banking, insurance,
profit or loss which in certain respects, as explained in the operating
stock broking, debt trading, fund management and leasing.
segments’ information, is measured differently from operating profit
or loss in the consolidated financial statements. However, except the
Information Technology
Financial Services segment, other segments’ financing activities are
The information technology operating segment comprises
managed on a Group basis and are not allocated to operating segments.
from software services and information integration to office
Transfer pricing between operating segments are carried out in the
automation which offers end-to-end ICT services and solutions.
ordinary course of business.
Consumer Foods & Retail Financial Services Information Technology Others Group Total
2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
53,211,014 45,812,242 10,056,203 8,296,409 11,069,226 11,107,277 3,439,670 2,952,502 121,215,072 106,273,101
365,887 363,698 5,880 110 267,795 221,044 958,706 767,899 2,352,177 1,952,175
53,576,901 46,175,940 10,062,083 8,296,519 11,337,021 11,328,321 4,398,376 3,720,401 123,567,249 108,225,276
(2,352,177) (1,952,175)
121,215,072 106,273,101
3,970,048 5,146,899 7,100,609 935,269 653,569 (571,917) (282,219) (2,078,119) 16,889,217 12,338,971
(33,043) (19,318) (337) (194) (32,345) (9,770) (148,141) (135,060) (520,797) (419,232)
149,034 251,544 157,086 187,201 43,333 49,434 6,313,281 5,559,911 7,357,459 6,717,147
21,559 92,005 - - - - 261,788 101,208 896,380 483,554
- - 1,321,954 974,690 - - - - 3,596,430 3,302,955
(9,575) (4,720) - - (233,617) 1,143,772 (66,597) 1,781,362 (584,255) 464,438
4,098,023 5,466,410 8,579,312 2,096,966 430,940 611,519 6,078,112 5,229,302 27,634,434 22,887,833
(1,205,807) (1,570,344) (10,082) (55,140) (70,760) (143,373) (2,258,427) (2,128,792) (4,514,629) (4,771,068)
2,892,216 3,896,066 8,569,230 2,041,826 360,180 468,146 3,819,685 3,100,510 23,119, 805 18,116,765
5,721,849 2,682,990 39,992 67,965 281,226 139,532 184,419 33,190 18,921,948 4,331,582
27,600 18,471 148,495 62,807 8,565 14,957 32,344 6,747 217,562 114,398
1,015,206 830,197 71,066 80,210 145,539 122,090 133,380 132,508 3,236,226 2,874,071
14,345 11,789 221,923 220,609 8,734 11,153 18,661 19,767 325,531 333,046
11,180 2,361 - - - - 1,175 1,175 458,459 592,983
108,476 91,621 26,848 24,678 21,570 20,138 63,977 59,614 371,908 327,633
213
NOTES TO THE FINANCIAL STATEMENTS
Property, plant and equipment 876,075 500,463 43,858,172 43,251,774 4,071,495 2,318,107
Lease rentals paid in advance - - 11,356,004 11,495,184 230,543 245,301
Investment property 118,000 487,000 4,119,798 2,148,400 27,830,177 5,230,949
Intangible assets 12,624 14,072 315,102 374,191 2,191 2,963
Non-current financial assets 139,889 74,073 5,670,565 5,710,380 634,176 432,679
Other non-current assets 20,268 11,163 32,091 25,343 53,068,496 41,379,103
Segment non-current assets 1,166,856 1,086,771 65,351,732 63,005,272 85,837,078 49,609,102
Trade and other payables 1,289,228 847,988 2,114,734 2,074,128 1,919,764 1,382,676
Short term borrowings 3,088,538 1,389,643 1,017,946 3,487,404 - -
Interest-bearing loans and borrowings - - 1,300,868 2,662,075 222,014 181,645
Bank overdrafts 260,280 374,011 877,192 1,847,574 749,299 709,561
Segment current liabilities 4,638,046 2,611,642 5,310,740 10,071,181 2,891,077 2,273,882
Total liabilities
Consumer Foods & Retail Financial Services Information Technology Others Group Total
2018 2017 2018 2017 2018 2017 2018 2017 2018 2018
14,059,724 9,290,844 2,006,816 1,498,964 390,547 260,153 1,253,554 1,287,795 66,516,383 58,408,100
146,263 174,701 - - - - 39,505 40,679 11,772,315 11,955,865
228,601 207,042 - - - - 1,094,511 3,434,063 33,391,087 11,507,454
50,943 37,685 206,363 891,546 28,134 28,305 44,482 30,802 659,839 1,379,564
269,910 226,097 30,999,887 23,645,619 59,566 57,131 332,715 2,827,038 38,106,708 32,973,017
850,421 553,357 85,909 51,378 15,086 15,994 34,298 21,603 54,106,569 42,057,941
15,605,862 10,489,726 33,298,975 26,087,507 493,333 361,583 2,799,065 7,641,980 204,552,901 158,281,941
4,454,705 3,840,380 14,624 14,966 865,099 676,063 311,025 217,483 6,711,645 5,624,102
3,150,392 2,720,088 921,287 1,415,290 1,848,633 1,938,636 1,165,431 1,084,448 12,727,022 13,260,791
1,031,410 553,219 7,319,257 9,318,833 1,076,246 994,577 49,515,436 60,565,974 65,420,458 82,661,802
632,781 232,360 535,402 336,648 574,487 580,119 583,808 456,679 10,914,811 5,068,169
9,269,288 7,346,047 8,790,570 11,085,737 4,364,465 4,189,395 51,575,700 62,324,584 95,773,936 106,614,864
4,390,258 3,265,327
(1,402,434) (4,916,572)
98,761,760 104,963,619
322,448,272 277,271,762
7,089,179 2,336,241
(5,221,471) (5,298,859)
64,707,943 54,892,215
7,016,964 5,293,347 1,708,655 1,955,235 1,553,540 1,994,141 598,646 768,391 16,201,531 14,315,906
- - - - - - 12,074 12,074 4,118,558 4,889,121
533,495 65,000 - - 6,088 10,134 - - 2,062,465 2,918,854
3,085,078 766,477 252,566 137,849 782,730 338,122 74,945 90,515 6,082,090 4,264,109
10,635,537 6,124,824 1,961,221 2,093,084 2,342,358 2,342,397 685,665 870,980 28,464,644 26,387,990
2,078,807 2,395,379
3,513,214 2,944,118
(1,180,915) (3,678,315)
32,875,750 28,049,172
97,583,693 82,941,387
24,875,150 17,835,773 42,089,545 37,173,244 4,857,798 4,550,978 54,374,765 69,966,564 300,326,837 264,896,805
13,378,731 7,212,753 32,333,724 33,932,018 2,483,780 2,449,286 1,031,671 1,320,209 91,304,879 84,242,823
215
NOTES TO THE FINANCIAL STATEMENTS
8 Basis of consolidation and material partly owned The Group re-assesses whether or not it controls an investee,
subsidiaries if facts and circumstances indicate that there are changes to
Accounting policy one or more of the three elements of control. Consolidation
Basis of consolidation of a subsidiary begins when the Group obtains control over
The consolidated financial statements comprise the financial the subsidiary and ceases when the Group loses control of the
statements of the Group and its subsidiaries as at the end of subsidiary. Assets, liabilities, income and expenses of a subsidiary
reporting period. Control over an investee is achieved when acquired or disposed of during the year are included in the
the Group is exposed, or has rights, to variable returns from its consolidated financial statements from the date the Group gains
involvement with the investee and has the ability to affect those control until the date the Group ceases to control the subsidiary.
returns through its power over the investee.
Profit or loss and each component of other comprehensive
Control over an investee income (OCI) are attributed to the equity holders of the parent of
Specifically, the Group controls an investee if, and only if, the the Group and to the non-controlling interests, even if this results
Group has: in the non-controlling interests having a deficit balance. The
financial statements of the subsidiaries are prepared for the same
• Power over the investee (i.e., existing rights that give it the reporting period as the parent Company, which is 12 months
current ability to direct the relevant activities of the investee) ending 31 March, using consistent accounting policies.
• Exposure, or rights, to variable returns from its involvement Transactions eliminated on consolidation
with the investee All intra-group assets, liabilities, equity, income, expenses and cash
flows relating to transactions between members of the Group are
• The ability to use its power over the investee to affect its eliminated in full on consolidation. A change in the ownership
returns interest of a subsidiary, without a loss of control, is accounted for
as an equity transaction.
Consolidation of entities in which the Group holds less than
a majority of voting rights Loss of control
When the Group has less than a majority of the voting or similar If the Group loses control over a subsidiary, it derecognises the
rights of an investee, the Group considers all relevant facts and related assets (including goodwill), liabilities, non-controlling
circumstances in assessing whether it has power over an investee, interest and other components of equity while any resultant gain
including: or loss is recognised in the Income Statement. Any investment
retained is recognised at fair value.
• The contractual arrangement with the other vote holders of
the investee; The total profits and losses for the year of the Company and
of its subsidiaries included in consolidation are shown in the
• Rights arising from other contractual arrangements; and Consolidated Income Statement and Consolidated Statement
of Comprehensive Income and all assets and liabilities of the
• The Group’s voting rights and potential voting rights Company and of its subsidiaries included in consolidation are
shown in the Consolidated Statement of Financial Position.
Subsidiaries that are consolidated have been listed in the Group
directory under Supplementary section of the annual report. Non-controlling interest (NCI)
Non-controlling interest which represents the portion of profit
The following companies, with equity control equal to or less or loss and net assets not held by the Group, are shown as a
than 50%, have been consolidated as subsidiaries based on above component of profit for the year in the Consolidated Income
criteria. Statement and Statement of Comprehensive Income and as a
component of equity in the Consolidated Statement of Financial
% Holding Position, separately from equity attributable to the shareholders of
the parent .
Rajawella Holdings Ltd. 49.85
Mack Air Services Maldives (Pte) Ltd. 49.00 The Consolidated Statement of Cash Flow includes the cash flows
Tea Smallholder Factories PLC. 37.62 of the Company and its subsidiaries.
217
NOTES TO THE FINANCIAL STATEMENTS
Names of material partly-owned subsidiaries and effective holding % Considering the Group balances, none of the individual partly-
owned by non-controlling interest: owned subsidiaries have material non-controlling interest.
Effective holding % of However, the above information has been presented on the
Non-Controlling Interest aggregated interests in similar entities namely, the Leisure and
Consumer Foods and Retail (CFR) segment, based on the nature
Material partly-owned subsidiary 2017/18 2016/17
and risks of the products and services.
Leisure
9 Business combinations and acquisitions of non-controlling
Ahungalle Holiday Resorts (Pvt) Ltd. 19.68% 19.68%
interests
Asian Hotels and Properties PLC. 21.44% 21.44% Accounting policy
Beruwala Holiday Resorts (Pvt) Ltd. 20.22% 20.22% Business combinations & goodwill
Ceylon Holiday Resorts Ltd. 20.40% 20.76% Business combinations are accounted for using the acquisition
method of accounting. The Group measures goodwill at the
Cinnamon Holidays (Pvt) Ltd. 19.68% 19.68%
acquisition date as the fair value of the consideration transferred
Fantasea World Investments (Pte) Ltd. 19.68% 19.68%
including the recognised amount of any non-controlling interests
Habarana Lodge Ltd. 21.01% 21.01% in the acquiree, less the net recognised amount (generally fair
Habarana Walk Inn Ltd. 20.66% 20.66% value) of the identifiable assets acquired and liabilities assumed,
Hikkaduwa Holiday Resorts (Pvt) Ltd. 20.40% 20.76% all measured as of the acquisition date.
International Tourists and Hoteliers Ltd. 20.22% 20.22%
When the fair value of the consideration transferred including
John Keells Hotels PLC. 19.68% 19.68%
the recognised amount of any non-controlling interests in the
John Keells Maldivian Resorts (Pte) Ltd. 19.68% 19.68% acquiree is lower than the fair value of net assets acquired, a gain
Kandy Walk Inn Ltd. 20.97% 20.97% is recognised immediately in the income statement. The Group
Nuwara Eliya Holiday Resorts (Pvt) Ltd. 19.68% 19.68% elects on a transaction-by-transaction basis whether to measure
non-controlling interests at fair value, or at their proportionate
Rajawella Hotels Company Ltd. 19.68% 19.68%
share of the recognised amount of the identifiable net assets,
Resort Hotels Ltd. 20.75% 20.75%
at the acquisition date. Transaction costs, other than those
Serene Holidays (Pvt) Ltd. 1.26% 1.26% associated with the issue of debt or equity securities, that the
Tranquility (Pte) Ltd. 19.68% 19.68% Group incurs in connection with a business combination are
Trinco Walk Inn Ltd. 19.68% 19.68% expensed as incurred. When the Group acquires a business, it
assesses the financial assets and liabilities assumed for appropriate
Trans Asia Hotels PLC. 17.26% 17.26%
classification and designation in accordance with the contractual
Travel Club (Pte) Ltd. 19.68% 19.68%
terms, economic circumstances and pertinent conditions as at
Trinco Holiday Resorts (Pvt) Ltd. 19.68% 19.68% the acquisition date. If the business combination is achieved in
Walkers Tours Ltd. 1.49% 1.49% stages, the acquisition date fair value of the acquirer’s previously
Wirawila Walk Inn Ltd. 19.68% 19.68% held equity interest in the acquiree is remeasured to fair value
at the acquisition date through profit or loss. Any contingent
Yala Village (Pvt) Ltd. 24.67% 24.67%
consideration to be transferred by the acquirer will be recognised
Consumer Foods & Retail at fair value at the acquisition date. Contingent consideration
Ceylon Cold Stores PLC. 18.64% 18.64% 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
JayKay Marketing Services (Pvt) Ltd. 18.64% 18.64%
value with changes in fair value either in the Income Statement or
Keells Food Products PLC. 11.37% 11.47%
as a change to Other Comprehensive Income. If the contingent
The Colombo Ice Company (Pvt) Ltd. 18.64% 18.64% consideration is classified as equity, it will not be remeasured.
Subsequent settlement is accounted within equity. In instances
where the contingent consideration does not fall within
Accounting judgements,estimates and assumptions the scope of LKAS 39, it is measured in accordance with the
Consolidation of entities in which the Group holds less than a appropriate SLFRS/LKAS.
majority of voting rights (de facto control).
After initial recognition, goodwill is measured at cost less any
The Group considers that it controls some subsidiaries even accumulated impairment losses. Goodwill is reviewed for
though it owns less than 50% of the voting rights. This is because impairment, annually or more frequently if events or changes in
the Group is the single largest shareholder of those subsidiaries circumstances indicate that the carrying value may be impaired.
with equity interest. The remaining equity shares in those
subsidiaries are widely held by many other shareholders, and For the purpose of impairment testing, goodwill acquired in a
there is no history of the other shareholders collaborating to business combination is, from the acquisition date, allocated
exercise their votes collectively or to outvote the Group. to each of the Group’s cash generating units that are expected
219
NOTES TO THE FINANCIAL STATEMENTS
to benefit from the combination, irrespective of whether other circumstance is measured based on the relative values of the
assets or liabilities of the acquiree are assigned to those units. operation disposed of and the portion of the cash-generating
unit retained.
Impairment is determined by assessing the recoverable amount
of the cash-generating unit to which the goodwill relates. Where Impairment of goodwill
the recoverable amount of the cash generating unit is less than Goodwill is tested for impairment annually (as at 31 March) and
the carrying amount, an impairment loss is recognised. The when circumstances indicate that the carrying value may be
impairment loss is allocated first to reduce the carrying amount impaired. Impairment is determined for goodwill by assessing the
of any goodwill allocated to the unit and then to the other assets recoverable amount of each cash-generating unit (or group of
pro-rata to the carrying amount of each asset in the unit. cash-generating units) to which the goodwill relates. Where the
recoverable amount of the cash generating unit is less than their
Goodwill and fair value adjustments arising on the acquisition of a carrying amount, an impairment loss is recognised. Impairment
foreign operation are treated as assets and liabilities of the foreign losses relating to goodwill cannot be reversed in future periods.
operation and translated at the closing rate.
9.1 Obtaining control of subsidiaries
Mack International Freight (Pvt) Ltd.
Where goodwill forms part of a cash-generating unit and part
In June 2017, Mack International Freight (Pvt) Ltd. (formerly known
of the operation within that unit is disposed of, the goodwill
as NDO Lanka (Pvt) Ltd.), became a fully owned subsidiary of the
associated with the operation disposed of is included in the
Group, arising from the buyout of the 40% stake from the other
carrying amount of the operation when determining the gain
venture partner, for a nominal value by John Keells Holdings PLC.
or loss on disposal of the operation, goodwill disposed in this
The fair value of assets acquired and liabilities assumed were as follows:
ASSETS
Cash 3,211
Trade and other receivables 125,200
Other current assets 26,425
Non-current financial assets 23,335
Non-current assets 524
Property, plant and equipment 1,445
LIABILITIES
Bank overdrafts (153,795)
Income tax liabilities (12,040)
Other current liabilities (795)
Trade and other payables (64,588)
Employee benefit liabilities (7,535)
Total identifiable net assets at fair value (58,613)
Share of net assets acquired (23,445)
Goodwill 23,445
Purchase consideration -
Bank overdraft directly settled by other venture partner 72,000
Cash & cash equivalent acquired (150,584)
Net cash outflow on acquisition of the subsidiary (78,584)
ASSETS
Cash 277,276
Short term investments 65,789
Trade and other receivables 287,142
Other current assets 81,657
Property, plant and equipment 48,741
LIABILITIES
Bank overdrafts (3,828)
Income tax liabilities (27,756)
Other current liabilities (5,121)
Trade and other payables (109,937)
Employee benefit liabilities (8,763)
Total identifiable net assets at fair value 605,200
Gain on disposal 28,575
Sales consideration 633,775
Deferred sales consideration (75,213)
Cash & cash equivalent disposed (273,448)
Net cash inflow on disposal of non current investment 285,114
221
NOTES TO THE FINANCIAL STATEMENTS
10 Financial risk management objectives and policies policies and procedures and that financial risks are identified,
The Group has loans and other receivables, trade and other measured and managed in accordance with the Group’s policies
receivables and cash and short-term deposits that arise directly and risk objectives. The Group is exposed to market risk, credit risk
from its operations. The Group also holds other financial and liquidity risk.
instruments such as available for sale and fair value through
profit or loss financial instruments and may enter into derivative 10.1 Credit risk
transactions. The Group’s principal financial liabilities, comprise Credit risk is the risk that a counterparty will not meet its
of loans and borrowings, trade and other payables and financial obligations under a financial instrument or customer contract,
guarantee contracts. The main purpose of these financial liabilities leading to a financial loss. The Group is exposed to credit risk from
is to finance the Group’s operations and to provide guarantees to its operating activities (primarily trade receivables) and from its
support its operations. The financial risk governance framework financing activities, including deposits with banks and financial
provides assurance to the Group’s senior management that institutions, foreign exchange transactions and other financial
the Group’s financial risk activities are governed by appropriate instruments.
2018
As at 31 st March Notes Non current Cash in Trade Short term Amounts Total %
In LKR ‘000s financial hand and and other investments due from of allocation
assets at bank receivables related
parties
Group
Government securities 10.1.2 24,901,319 - - 3,440,812 - 28,342,231 24%
Corporate debt securities 10.1.3 4,828,338 - - 1,188,991 - 6,017,329 5%
Deposits with bank 10.1.4 172,748 - - 55,939,666 - 56,112,414 48%
Loans to executives 10.1.5 934,297 - 222,885 - - 1,157,182 1%
Loans to life policyholders 10.1.6 1,048,966 - - - - 1,048,966 1%
Preference Shares 10.1.7 275,114 - - - - 275,114 0%
Interest rate swap 10.1.8 598,097 - - - - 598,097 1%
Trade and other receivables 10.1.9 - - 11,448,660 - - 11,448,660 10%
Reinsurance receivables 10.1.10 - - 333,249 - - 333,249 0%
Premium receivable 10.1.11 - - 268,578 - - 268,578 0%
Amounts due from related parties 10.1.12 - - - - 139,640 139,640 0%
Cash in hand and at bank 10.1.13 - 10,882,856 - - - 10,882,856 10%
Total credit risk exposure 32,758,879 10,882,856 12,273,372 60,569,469 139,640 116,624,216 100%
Company
Government securities 10.1.2 - - - - - - -
Corporate debt securities 10.1.3 - - - - - - -
Deposits with bank 10.1.4 105,510 - - 49,157,472 - 49,262,982 98%
Loans to executives 10.1.5 86,140 - 23,549 - - 109,689 0%
Trade and other receivables 10.1.9 - - 47,181 - - 47,181 0%
Amounts due from related parties 10.1.12 - - - - 404,364 404,364 1%
Cash in hand and at bank 10.1.13 - 496,591 - - - 496,591 1%
Total credit risk exposure 191,650 496,591 70,730 49,157,472 404,364 50,320,807 100%
The Group trades only with recognised, creditworthy third parties. any excessive concentration of counterparty risk and the Group
It is the Group’s policy that all clients who wish to trade on credit takes all reasonable steps to ensure the counterparties fulfill their
terms are subject to credit verification procedures. In addition, obligations.
receivable balances are monitored on an ongoing basis with the
result that the Group’s exposure to bad debts is not significant. 10.1.1 Risk exposure
The maximum risk positions of financial assets which are generally
With respect to credit risk arising from the other financial assets subject to credit risk are equal to their carrying amounts (without
of the Group, such as cash and cash equivalents, available-for- consideration of collateral, if available).
sale financial investments, investments, and certain derivative Following table shows the maximum risk positions.
instruments, the Group’s exposure to credit risk arises from default
of the counterparty. The Group manages its operations to avoid
2017
Non current Cash in Trade Short term Amounts Total %
financial hand and and other investments due from of allocation
assets at bank receivables related
parties
- - - 3,433,852 -
160,695 - - - -
160,695 - - 3,433,852 -
27,666,621 5,119,185 11,687,429 79,174,327 111,639
141,972 - - - -
141,972 - - - -
2,789,980 304,265 118,076 60,243,280 286,735
223
NOTES TO THE FINANCIAL STATEMENTS
10 Financial risk management objectives and policies (Contd.) 10.1.3 Corporate debt securities
10.1.2 Government securities As at 31 March 2018, corporate debt securities comprise 5%
As at 31 March 2018 as shown in table above, 24% (2017-35%) of (2017-5%) of the total investments in debt securities, out of which
debt securities comprise investments in government securities 69% (2017 – 91%) were rated “A” or better, or guaranteed by a
consisting of treasury bonds, bills and reverse repo investments. banking institution with a rating of “A” or better.
Government securities are usually referred to as risk free due to
the sovereign nature of the instrument.
GROUP
2018 2017
As at 31st March In LKR ’000s Rating % In LKR ’000s Rating %
Fitch ratings of total of total
The Group has obtained customer deposits from major customers 10.1.13 Cash and cash equivalents
by reviewing their past performance and credit worthiness, as In order to mitigate the concentration, settlement and
collateral. operational risks related to cash and cash equivalents, the Group
consciously manages the exposure to a single counterparty
The requirement for impairment is analysed at each reporting taking into consideration, where relevant, the rating or financial
date on an individual basis for major customers. Additionally, standing of the counterparty, where the position is reviewed as
a large number of minor receivables are grouped into and when required, the duration of the exposure in managing
homogeneous groups and assessed for impairment collectively. such exposures and the nature of the transaction and agreement
The calculation is based on actual incurred historical data. governing the exposure.
Agreements have been signed with the intermediaries The Group monitors its risk to a shortage of funds using a daily
committing them to settle dues with a specified time period. cash management process. This process considers the maturity
of both the Group’s financial investments and financial assets (e.g.
10.1.12 Amounts due from related parties accounts receivable, other financial assets) and projected cash
The Group’s amounts due from related parties mainly consists of flows from operations.
associates and joint ventures.
The Group’s objective is to maintain a balance between continuity
The Company balance consists of the balances from affiliate of funding and flexibility through the use of multiple sources of
companies. funding including debentures, bank loans, loan notes, overdrafts
and finance leases over a broad spread of maturities.
225
NOTES TO THE FINANCIAL STATEMENTS
Maturity analysis
The table below summarises the maturity profile of the Group’s financial liabilities at 31 March 2018 based on contractual undiscounted
(principal plus interest) payments.
Group Within 1 year Between Between Between Between More than Total
In LKR ‘000s 1-2 years 2-3 years 3-4 years 4-5 years 5 years
Interest-bearing loans and borrowings 2,327,985 1,680,425 1,400,490 14,585,385 1,084,159 128,618 21,207,062
Trade and other payables 16,077,499 - - - - - 16,077,499
Amounts due to related parties 5,168 - - - - - 5,168
Short term borrowings 3,128,508 - - - - - 3,128,508
Bank overdrafts 6,010,090 - - - - - 6,010,090
27,549,250 1,680,425 1,400,490 14,585,385 1,084,159 128,618 46,428,327
The table below summarises the maturity profile of the Group’s financial liabilities at 31 March 2017 based on contractual undiscounted
(principal plus interest) payments.
Group Within 1 year Between Between Between Between More than Total
In LKR ‘000s 1-2 years 2-3 years 3-4 years 4-5 years 5 years
Interest-bearing loans and borrowings 2,969,995 1,040,496 1,149,113 1,141,074 501,146 10,355,654 17,157,478
Trade and other payables 14,136,040 - - - - - 14,136,040
Amounts due to related parties 10,434 - - - - - 10,434
Short term borrowings 1,380,238 - - - - - 1,380,238
Bank overdrafts 4,264,109 - - - - - 4,264,109
22,760,816 1,040,496 1,149,113 1,141,074 501,146 10,355,654 36,948,299
Maturity analysis
The table below summarises the maturity profile of the Company’s financial liabilities on contractual undiscounted (principal plus interest)
payments.
10.3 Market risk The following assumptions have been made in calculating the
Market risk is the risk that the fair value of future cash flows of a sensitivity analyses:
financial instrument will fluctuate because of changes in market
prices. * The Statement of Financial Position sensitivity relates to
derivatives and available-for-sale debt instruments.
Market risk comprises of the following types of risk:
* Interest rate risk * The sensitivity of the relevant Income Statement item is the
* Currency risk effect of the assumed changes in respective market risks.
* Equity price risk
* Commodity price risk * This is based on the financial assets and financial liabilities held at
31 March 2018 and 2017.
The objective of market risk management is to manage and
control market risk exposures within acceptable parameters, while 10.3.1 Interest rate risk
optimising the return. Interest rate risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
The sensitivity analyses in the following sections relate to the market interest rates. The Group’s exposure to the risk of changes
position as at 31 March in 2018 and 2017. in market interest rates relates primarily to the Group’s long-term
debt obligations with floating interest rates.
The analysis excludes the impact of movements in market
variables on the carrying values of other post-retirement Most lenders grant loans under floating interest rates. To manage
obligations, provisions, and the non-financial assets and liabilities. this, the Group enters into interest rate swaps, in which it agrees
to exchange, at specified intervals, the difference between fixed
and variable rate interest amounts calculated by reference to an
agreed-upon notional principal amount.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the
Group’s and Company’s profit before tax (through the impact on floating rate borrowings).
2017
+188 +53 115,552 -
-188 -53 (115,552) -
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.
227
NOTES TO THE FINANCIAL STATEMENTS
2017
+4% (44,617)
-4% 44,617
The assumed spread of the exchange rate is based on the current observable market environment.
10.3.2.2 Effects of currency translation Unlike exchange rate transaction risk, exchange rate translation risk
For purposes of JKH’s consolidated financial statements, the does not necessarily affect future cash flows. The Group’s equity
income and expenses and the assets and liabilities of subsidiaries position reflects changes in book values caused by exchange rates.
located outside Sri Lanka are converted into Sri Lankan Rupees
(LKR.). Therefore, period-to-period changes in average exchange The Group’s exposure to foreign currency changes for all other
rates may cause currency translation effects that have a significant currencies is not material.
impact on, for example, revenue, segment results (Earnings Before
Interest and Taxes –EBIT) and assets and liabilities of the Group.
GROUP
As at 31st March 2018 2017
LKR ’000s % LKR ’000s %
2018 7% 267,164 -
-7% (267,164) -
2017 0% - -
0% - -
The Group manages its capital structure, and makes adjustments to it, in the light of changes in economic conditions. To maintain or adjust the
capital structure, the Group may issue new shares, have a rights issue or buy back shares.
GROUP COMPANY
As at 31st March 2018 2017 2018 2017
11 Fair value measurement and related fair value disclosures • Financial Instruments (including those carried at amortised
Fair value measurement cost) - note 12
Fair value related disclosures for financial instruments and non-
financial assets that are measured at fair value or where fair values Accounting policy
are only, disclosed are reflected in this note. Aside from this note, Fair value is the price that would be received to sell an asset or
additional fair value related disclosures, including the valuation paid to transfer a liability in an orderly transaction between market
methods, significant estimates and assumptions are also provided in: participants at the measurement date. The fair value measurement
• Investment in unquoted equity shares - note 27.1 is based on the presumption that the transaction to sell the asset
• Property, plant and equipment under revaluation model - or transfer the liability takes place either:
note 21.3
• Investment properties - note 23
229
NOTES TO THE FINANCIAL STATEMENTS
11 Fair value measurement and related fair value disclosures · Level 2 — Valuation techniques for which the lowest level input
(Contd.) that is significant to the fair value measurement is directly or
· In the principal market for the asset or liability, or indirectly observable.
· In the absence of a principal market, in the most advantageous · Level 3 — Valuation techniques for which the lowest level
market for the asset or liability input that is significant to the fair value measurement is
unobservable.
The principal or the most advantageous market must be
accessible by the Group. For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Group determines whether
The fair value of an asset or a liability is measured using the transfers have occurred between levels in the hierarchy by re-
assumptions that market participants would use when pricing assessing categorisation (based on the lowest level input that is
the asset or liability, assuming that market participants act in their significant to the fair value measurement as a whole) at the end of
economic best interest. each reporting period.
A fair value measurement of a non-financial asset takes into The Group determines the policies and procedures for both
account a market participant’s ability to generate economic recurring fair value measurement, such as investment properties
benefits by using the asset in its highest and best use or by selling and unquoted AFS financial assets, and for non-recurring
it to another market participant that would use the asset in its measurement, such as assets held for sale in discontinued
highest and best use. operations.
The Group uses valuation techniques that are appropriate in External valuers are involved for valuation of significant assets,
the circumstances and for which sufficient data are available to such as land and building and investment properties. Selection
measure fair value, maximising the use of relevant observable criteria for external valuers include market knowledge, reputation,
inputs and minimising the use of unobservable inputs. independence and whether professional standards are maintained.
The Group decides, after discussions with the external valuers,
All assets and liabilities for which fair value is measured or which valuation techniques and inputs to use for individual assets.
disclosed in the financial statements are categorized within the
fair value hierarchy, described as follows, based on the lowest level For the purpose of fair value disclosures, the Group has determined
input that is significant to the fair value measurement as a whole: classes of assets on the basis of the nature, characteristics and risks
of the asset and the level of the fair value hierarchy as explained
· Level 1 — Quoted (unadjusted) market prices in active markets
above.
for identical assets or liabilities
In determining the fair value, highest and best use of the properties, with appropriate adjustments for size and location. The
property has been considered including the current condition appraised fair values are rounded within the range of values.
of the properties, future usability and associated redevelopment
requirements have been considered. Also, the valuers have made There has been no transfer between level 1 and level 2 in the current
reference to market evidence of transaction prices for similar year.
Fair valuation done as at 31 March 2018 for all unquoted equity shares are classified as Level 3 within the fair value hierarchy using discounted
cash flow valuation methodology. Fair value would not significantly vary if one or more of the inputs were changed.
12. Financial instruments and related policies Financial assets - Subsequent measurement
Accounting policy The subsequent measurement of financial assets depends on their
Financial instruments — Initial recognition and subsequent classification. For purposes of subsequent measurement financial
measurement assets are classified in four categories:
Financial assets - Initial recognition and measurement
· Financial assets at fair value through profit or loss
Financial assets within the scope of LKAS 39 are classified
· Loans and receivables
as financial assets at fair value through profit or loss, loans
· Held-to-maturity investments
and receivables, held-to-maturity investments, available-for-
· Available for sale financial assets
sale financial assets, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate. The Group
Financial assets at fair value through profit or loss
determines the classification of its financial assets at initial
Financial assets at fair value through profit or loss include financial
recognition.
assets held for trading and financial assets designated upon initial
recognition at fair value through profit or loss. Financial assets are
All financial assets are recognised initially at fair value plus, in
classified as held for trading if they are acquired for the purpose of
the case of assets not at fair value through profit or loss, directly
selling or repurchasing in the near term.
attributable transaction costs. Purchases or sales of financial assets
that require delivery of assets within a time frame established by
Financial assets at fair value through profit or loss are carried in the
regulation or convention in the market place (regular way trades)
Statement of Financial Position at fair value with changes in fair
are recognised on the trade date, i.e., the date that the Group
value recognised in finance income or finance costs in the Income
commits to purchase or sell the asset.
Statement.
231
NOTES TO THE FINANCIAL STATEMENTS
12. Financial instruments and related policies (Contd.) Interest income on available-for-sale debt securities is calculated
The Group evaluates its financial assets held for trading, other than using the effective interest method and is recognised in the
derivatives, to determine whether the intention to sell them in the Income Statement.
near term is still appropriate. When the Group is unable to trade
these financial assets due to inactive markets and management’s The Group evaluates its available-for-sale financial assets to
intention to sell them in the foreseeable future significantly determine whether the ability and intention to sell them in the
changes, the Group may elect to reclassify these financial assets near term is still appropriate. When the Group is unable to trade
in rare circumstances. The reclassification to loans and receivables, these financial assets due to inactive markets and management’s
available-for-sale or held to maturity depends on the nature of intention to do so significantly changes in the foreseeable
the asset. This evaluation does not affect any financial assets future, the Group may elect to reclassify these financial assets
designated at fair value through profit or loss using the fair value in rare circumstances. Reclassification to loans and receivables
option at designation. is permitted when the financial assets meet the definition of
loans and receivables and the Group has the intent and ability
Loans and receivables to hold these assets for the foreseeable future or until maturity.
Loans and receivables are non-derivative financial assets with Reclassification to the held-to-maturity category is permitted only
fixed or determinable payments that are not quoted in an active when the entity has the ability and intention to hold the financial
market. After initial measurement, such financial assets are asset accordingly.
subsequently measured at amortised cost using the effective
interest rate method (EIR), less impairment. Amortised cost is For a financial asset reclassified out of the available-for-sale
calculated by taking into account any discount or premium on category, any previous gain or loss on that asset that has been
acquisition and fees or costs that are an integral part of the EIR. recognized in equity is amortised to the Income Statement over
The EIR amortisation is included in finance income in the income the remaining life of the investment using the EIR. Any difference
statement. The losses arising from impairment are recognised in between the new amortised cost and the expected cash flows is
the income statement in finance costs. also amortised over the remaining life of the asset using the EIR.
If the asset is subsequently determined to be impaired, then the
Held-to-maturity investments amount recorded in equity is reclassified to the Income Statement.
Held-to-maturity investments are non-derivative financial assets
with fixed or determinable payments and fixed maturities are Financial assets - derecognition
classified as held-to-maturity when the Group has the positive A financial asset (or, where applicable a part of a financial asset or
intention and ability to hold them to maturity. After initial part of a group of similar financial assets) is derecognised when:
measurement, held-to-maturity investments are measured
at amortised cost using the effective interest method, less · The rights to receive cash flows from the asset have expired
impairment. Amortised cost is calculated by taking into account
any discount or premium on acquisition and fees or costs that · The Group has transferred its right to receive cash flows from the
are an integral part of the EIR. The EIR amortization is included in asset or has assumed an obligation to pay the received cash flows
finance income in the Income Statement. The losses arising from in full without material delay to a third party under a ‘pass-through’
impairment are recognised in the Income Statement in finance arrangement; and either (a) the Group has transferred substantially
costs. all the risks and rewards of the asset, or (b) the Group has neither
transferred nor retained substantially all the risks and rewards of
Available-for-sale financial investments the asset, but has transferred control of the asset.
Available-for-sale financial investments include equity and debt
securities. Equity investments classified as available-for-sale When the Group has transferred its rights to receive cash flows
are those, which are neither classified as held for trading nor from an asset or has entered into a pass-through arrangement,
designated at fair value through profit or loss. Debt securities and has neither transferred nor retained substantially all of the
in this category are those which are intended to be held for an risks and rewards of the asset nor transferred control of it, the
indefinite period of time and which may be sold in response asset is recognised to the extent of the Group’s continuing
to needs for liquidity or in response to changes in the market involvement in it.
conditions.
In that case, the Group also recognises an associated liability. The
After initial measurement, available-for-sale financial investments transferred asset and the associated liability are measured on a
are subsequently measured at fair value with unrealised gains basis that reflects the rights and obligations that the Group has
or losses recognised in other comprehensive income under the retained.
available-for-sale reserve until the investment is derecognised,
at which time the cumulative gain or loss is recognised in other Continuing involvement that takes the form of a guarantee over
operating income, or determined to be impaired, at which time the transferred asset is measured at the lower of the original
the cumulative loss is reclassified to the Income Statement in carrying amount of the asset and the maximum amount of
finance costs and removed from the available-for-sale reserve. consideration that the Group could be required to repay.
Impairment of financial assets recognised, the previously recognised impairment loss is increased
The Group assesses at each reporting date whether there is any or reduced by adjusting the allowance account. If a future write-off
objective evidence that a financial asset or a group of financial is later recovered, the recovery is credited to finance costs in the
assets is impaired. A financial asset or a group of financial assets is Income Statement.
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 AFS Financial assets
after the initial recognition of the asset (an incurred ‘loss event’) For available-for-sale financial investments, the group assesses at
and that loss event has an impact on the estimated future cash each reporting date whether there is objective evidence that an
flows of the financial asset or the group of financial assets that can investment or a Group of investments is impaired.
be reliably estimated.
In the case of equity investments classified as available-for-sale,
Evidence of impairment may include indications that the debtors objective evidence would include a significant or prolonged
or a group of debtors is experiencing significant financial difficulty, decline in the fair value of the investment below its cost.
default or delinquency in interest or principal payments, the ‘Significant’ is evaluated against the original cost of the investment
probability that they will enter bankruptcy or other financial and ‘prolonged’ against the period in which the fair value has been
reorganisation and where observable data indicate that there is below its original cost. Where there is evidence of impairment,
a measurable decrease in the estimated future cash flows, such the cumulative loss measured as the difference between the
as changes in arrears or economic conditions that correlate with acquisition cost and the current fair value (less any impairment
defaults. loss) is removed from other comprehensive income. Impairment
losses on equity investments are not reversed through the Income
Financial assets carried at amortised cost Statement; increases in their fair value after impairment are
For financial assets carried at amortised cost, the Group first recognised directly in other comprehensive income.
assesses whether objective evidence of impairment exists
individually for financial assets that are individually significant, or In the case of debt instruments classified as available-for-sale,
collectively for financial assets that are not individually significant. impairment is assessed based on the same criteria as financial
If the Group determines that no objective evidence of impairment assets carried at amortised cost. However, the amount recorded
exists for an individually assessed financial asset, whether for impairment is the cumulative loss measured as the difference
significant or not, it includes the asset in a Group of financial assets between the amortised cost and the current fair value, less any
with similar credit risk characteristics and collectively assesses impairment loss on that investment previously recognised in the
them for impairment. Assets that are individually assessed for Income Statement.
impairment and for which an impairment loss is, or continues
to be, recognised are not included in a collective assessment of Future interest income continues to be accrued based on the
impairment. reduced carrying amount of the asset, using the rate of interest
used to discount the future cash flows for the purpose of
If there is objective evidence that an impairment loss has been measuring the impairment loss. The interest income is recorded
incurred, the amount of the loss is measured as the difference as part of finance income. If, in a subsequent year, the fair value of
between the assets carrying amount and the present value of a debt instrument increases and the increase can be objectively
estimated future cash flows (excluding future expected credit related to an event occurring after the impairment loss was
losses that have not yet been incurred). The present value of the recognised in the Income Statement, the impairment loss is
estimated future cash flows is discounted at the financial asset’s reversed through the Income Statement.
original effective interest rate. If a loan has a variable interest rate,
the discount rate for measuring any impairment loss is the current Financial liabilities – Initial recognition and measurement
effective interest rate. Financial liabilities within the scope of LKAS 39 are classified as
financial liabilities at fair value through profit or loss, loans and
The carrying amount of the asset is reduced through the use of borrowings, or as derivatives designated as hedging instruments
an allowance account and the amount of the loss is recognised in in an effective hedge, as appropriate. The Group determines the
the Income Statement. Interest income continues to be accrued classification of its financial liabilities at initial recognition.
on the reduced carrying amount and is accrued using the rate of
interest used to discount the future cash flows for the purpose of All financial liabilities are recognised initially at fair value and, in
measuring the impairment loss. The interest income is recorded as the case of loans and borrowings, carried at amortised cost. This
part of finance income in the Income Statement. Loans together includes directly attributable transaction costs.
with the associated allowance are written off when there is no
realistic prospect of future recovery and all collateral has been The Group’s financial liabilities include trade and other payables,
realised or has been transferred to the Group. If, in a subsequent bank overdrafts, loans and borrowings, financial guarantee
year, the amount of the estimated impairment loss increases or contracts, and derivative financial instruments.
decreases because of an event occurring after the impairment was
233
NOTES TO THE FINANCIAL STATEMENTS
12. Financial instruments and related policies (Contd.) debt instrument. Financial guarantee contracts are recognised
Financial liabilities - Subsequent measurement initially as a liability at fair value, adjusted for transaction costs
The subsequent measurement of financial liabilities depends on that are directly attributable to the issuance of the guarantee.
their classification. For purposes of subsequent measurement Subsequently, the liability is measured at the higher of the
financial liabilities are classified in two categories: best estimate of the expenditure required to settle the present
· Loss Loans and borrowings obligation at the reporting date and the amount recognised less
· Financial guarantee contracts cumulative amortisation.
After initial recognition, interest bearing loans and borrowings Financial liabilities - Derecognition
are subsequently measured at amortised cost using the effective A financial liability is derecognised when the obligation under the
interest rate method. Gains and losses are recognised in the liability is discharged or cancelled or expired.
Income Statement when the liabilities are derecognised as well
as through the effective interest rate method (EIR) amortization When an existing financial liability is replaced by another from
process. the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
Amortised cost is calculated by taking into account any discount or modification is treated as a derecognition of the original
or premium on acquisition and fees or costs that are an integral liability and the recognition of a new liability, and the difference
part of the EIR. The EIR amortization is included in finance costs in in the respective carrying amounts is recognised in the Income
the Income Statement. Statement.
Financial guarantee contracts issued by the Group are those Offsetting of financial instruments
contracts that require a payment to be made to reimburse the Financial assets and financial liabilities are offset and the net
holder for a loss it incurs because the specified debtor fails to amount reported in the Consolidated Statement of Financial
make a payment when due in accordance with the terms of a Position if, and only if, there is a currently enforceable legal right
For financial assets both at fair value through profit and loss and available-for-sale financial assets the carrying amount and fair value are equal.
to offset the recognised amounts and there is an intention to Foreign exchange forward contracts
settle on a net basis, or to realise the assets and settle the liabilities Foreign exchange forward contracts are fair valued at each
simultaneously. reporting date. Gains and losses arising from changes in fair value
are included in the Income Statement in the period in which they
Derivative financial instruments - Initial recognition and arise.
subsequent measurement
The Group uses derivative financial instruments such as forward Cash Flow Hedges
currency contracts, interest rate swaps and forward commodity Interest rate swaps
contracts to hedge its foreign currency risks, interest rate risks The Group has entered into interest rate swap that is a cash
and commodity price risks, respectively. Such derivative financial flow hedge for the Group’s exposure to interest rate risk on its
instruments are initially recognised at fair value on the date on borrowings
which a derivative contract is entered into and are subsequently
remeasured at fair value. Derivatives are carried as financial assets These contracts entitle the Group to receive interest at floating
when the fair value is positive and as financial liabilities when the rates on notional principal amounts and oblige the Group to pay
fair value is negative. interest at fixed rates on the same notional principal amounts,
thus allowing the Group to raise borrowings at floating rates and
The fair value of commodity contracts that meet the definition of swap them into fixed rates.
a derivative as defined by LKAS 39 are recognised in the Income
Statement in cost of sales. The fair value changes on the effective portion of interest rate
swaps designated as cash flow hedges are recognised in other
Any gains or losses arising from changes in the fair value of comprehensive income, accumulated in the fair value reserve and
derivatives are taken directly to the Income Statement. reclassified to profit or loss when the hedged interest expense
on the borrowings is recognised in profit or loss. The fair value
changes on the ineffective portion of interest rate swaps are
recognised immediately in profit or loss.
235
NOTES TO THE FINANCIAL STATEMENTS
For financial assets both at fair value through profit and loss and The following methods and assumptions were used to
available-for-sale financial assets, the carrying amount and fair estimate the fair values:
value are equal. 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 loans and receivables is not significantly different
from the value based on amortised cost methodology. Fair value The fair value of unquoted instruments, loans from banks and
of held to maturity investments amounts to LKR. 19,006 Mn other financial liabilities, obligations under finance leases, as well
(2017 - LKR. 14,725 Mn) for the Group. as other non-current financial liabilities is estimated by discounting
future cash flows using rates currently available for debt on similar
The Group has designated financial assets amounting to terms, credit risk and remaining maturities.
LKR. 6,925 Mn (2017 - LKR. 3,999 Mn) upon initial recognition, as
fair value through profit or loss. Fair value of the unquoted ordinary shares has been estimated
using a Discounted Cash Flow (DCF) model. The valuation requires
The management assessed that, cash and short-term deposits, management to make certain assumptions about the model
trade receivables, trade payables, bank overdrafts and other inputs, including forecast cash flows, the discount rate, credit risk
current financial liabilities approximate their carrying amounts and volatility. The probabilities of the various estimates within the
largely due to the short-term maturities of these instruments. range can be reasonably assessed and are used in management’s
estimate of fair value for these unquoted equity investments.
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 following specific criteria are used for recognition Turnover based taxes
of revenue: Companies in the Group pay turnover based taxes including value
added tax in accordance with the respective statutes.
13.1 Revenue
GROUP COMPANY
For the year ended 31 March 2018 2017 2018 2017
In LKR ‘000s
14 Dividend income
Accounting policy
Dividend
Dividend income is recognised when the Group’s right to receive the payment is established.
COMPANY
For the year ended 31 March 2018 2017
In LKR ‘000s
Dividend income from investments in subsidiaries and equity accounted investees 8,574,886 10,469,023
237
NOTES TO THE FINANCIAL STATEMENTS
15 Other operating income and other operating expenses Gains and losses arising from activities incidental to the main
Accounting policy revenue generating activities and those arising from a group
Gains and losses of similar transactions, which are not material are aggregated,
Net gains and losses of a revenue nature arising from the disposal reported and presented on a net basis.
of property, plant and equipment and other non-current assets,
including investments in subsidiaries, joint ventures and associates, Any losses arising from guaranteed rentals are accounted for, in
are accounted in the income statement, after deducting the the year of incurring the same. A provision is recognised if the
proceeds on disposal, the carrying amount of such assets and the projection indicates a loss.
related selling expenses.
Other income and expenses
Other income and expenses are recognised on an accrual basis.
For the year ended 31 March Note 2018 2017 2018 2017
In LKR ‘000s
The gain on share restructure/repurchase of LKR 8,183 Mn at the layers of ownership. The exercise was executed via a model which
Company level relates to a capital gain pertaining to the exercise consisted of both share and cash transfers within the Company
undertaken to rationalise the Group’s shareholding structure. The and its unquoted subsidiaries. It should also be noted that the
exercise, as discussed in note 43.8, was carried out to restructure capital gain was eliminated at the Group consolidation level.
the shareholding of the Group companies which had multiple
16 Net finance income available-for-sale financial assets, fair value losses on financial
Accounting policy assets at fair value through profit or loss, impairment losses
Finance income recognised on financial assets (other than trade receivables) that
Finance income comprises interest income on funds invested are recognised in the income statement.
(including available-for-sale financial assets), dividend income,
gains on the disposal of available-for-sale financial assets, fair value Interest expense is recorded as it accrues using the effective
gains on financial assets at fair value through profit or loss, gains interest rate (EIR), which is the rate that exactly discounts the
on the remeasurement to fair value of any pre-existing interest in estimated future cash payments through the expected life of the
an acquiree that are recognised in the income statement. financial instrument or a shorter period, where appropriate, to the
net carrying amount of the financial liability.
Interest income is recorded as it accrues using the effective
interest rate (EIR), which is the rate that exactly discounts the Borrowing costs directly attributable to the acquisition,
estimated future cash receipts through the expected life of the construction or production of an asset that necessarily takes a
financial instrument or a shorter period, where appropriate, to substantial period of time to get ready for its intended use or sale
the net carrying amount of the financial asset. Interest income is are capitalised as part of the cost of the respective assets. All other
included in finance income in the income statement. borrowing costs are expensed in the period they occur. Borrowing
costs consist of interest and other costs that the Group incurs in
Finance costs connection with the borrowing of funds.
Finance costs comprise of interest expense on borrowings,
unwinding of the discount on provisions, losses on disposal of
GROUP COMPANY
For the year ended 31 March 2018 2017 2018 2017
In LKR ‘000s
Finance cost
Interest expense on borrowings (520,797) (436,278) (72,019) (89,397)
Total finance cost (520,797) (436,278) (72,019) (89,397)
Net finance income 10,747,344 9,597,003 6,219,901 5,451,371
17 Profit before tax For the purpose of presentation of the income statement, the
Accounting policy “function of expenses” method has been adopted, on the basis
Expenditure recognition that it presents fairly the elements of the Company’s and Group’s
Expenses are recognised in the income statement on the basis of performance.
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.
239
NOTES TO THE FINANCIAL STATEMENTS
GROUP COMPANY
For the year ended 31 March 2018 2017 2018 2017
In LKR ‘000s
Equity dividend on ordinary shares declared and paid during the year
Final dividend (Previous years’ final dividend paid in the current year) 2.00 2,774,934 1.50 1,784,105
Interim dividends 4.00 5,550,049 4.00 5,496,392
Total dividend 6.00 8,324,983 5.50 7,280,497
241
NOTES TO THE FINANCIAL STATEMENTS
20 Taxes (Contd) Deferred tax assets and deferred tax liabilities are offset, if a legally
• In respect of deducible temporary differences associated with enforceable right exists to set off current tax assets against current
investments in subsidiaries, associates and interests in joint tax liabilities and when the deferred taxes relate to the same
ventures, deferred tax assets are recognised only to the extent taxable entity and the same taxation authority.
that it is probable that the temporary differences will reverse
in the foreseeable future and taxable profit will be available No deferred tax asset or liability has been recognised in the
against which the temporary differences can be utilised. companies which are enjoying the Board of Investment (BOI) Tax
Holiday period, if there are no qualifying assets or liabilities beyond
The carrying amount of deferred tax assets is reviewed at each the tax holiday period.
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow Sales tax
all or part of the deferred tax asset to be utilised. Unrecognised Revenues, expenses and assets are recognised net of the amount
deferred tax assets are reassessed at each reporting date and are of sales tax except:
recognised to the extent that it has become probable that future
• Where the sales tax incurred on the purchase of an asset or
taxable profit will allow the deferred tax asset to be recovered.
service is not recoverable from the taxation authority, in which
Deferred tax assets and liabilities are measured at tax rates that are case the sales tax is recognised as part of the cost of acquisition
expected to apply to the year when the asset is realized or liability of the asset or as part of the expense item as applicable; and
is settled, based on the tax rates and tax laws that have been • Where receivables and payables are stated with the amount of
enacted or substantively enacted as at the reporting date. sales tax included.
Income statement
Deferred tax expense arising from;
Accelerated depreciation for tax purposes 276,204 149,894
Revaluation of investment property to fair value 209,417 26
Retirement benefit obligations (16,269) (38,970)
Benefit arising from tax losses 3,786 222,940
Others 182,638 10,314
Deferred tax charged directly to Income Statement 655,776 344,204
Other comprehensive income
Deferred tax expense arising from;
Actuarial losses on defined benefit obligations (4,849) (19,880)
Revaluation of land and building to fair value 4,111,613 28,237
Net gain/loss on available for sale financial assets - (57,801)
Total deferred tax charged/(credited) directly to OCI 4,106,764 (49,444)
Deferred tax has been computed at 28% for all standard rate companies (including listed companies) and at 14% for leisure sector companies and at
rates as disclosed in notes 20.10 and 20.11.
Temporary differences associated with the undistributed reserves in subsidiaries for which a deferred tax liability has not been recognised, amounts to
LKR. 2,197 Mn (2017 - LKR. 2,117 Mn). The deferred tax effect on undistributed reserves of subsidiaries has not been recognised since the parent can
control the timing of the reversal of these temporary differences.
243
NOTES TO THE FINANCIAL STATEMENTS
20 Taxes (Contd)
20.4 Deferred tax
GROUP
ASSETS LIABILITIES
As at 31st March 2018 2017 2018 2017
In LKR ‘000s
The closing deferred tax asset and liability balances relate to the following;
Revaluation of land and building to fair value - - 4,141,179 229,549
Revaluation of investment property to fair value (9,966) - 670,556 51,252
Accelerated depreciation for tax purposes 41,144 59,399 2,265,415 2,155,280
Employee benefit liability 78,183 62,620 (218,782) (240,655)
Losses available for offset against future taxable income 61,630 18,557 (162,405) (51,920)
Net gain/loss on Available for Sale Financial Assets - - - (35,959)
Others 512 2,972 393,216 228,694
171,503 143,548 7,089,179 2,336,241
The Group has tax losses amounting to LKR. 10,562 Mn of tax laws, at the time of the preparation of these financial
(2017 - LKR. 9,147 Mn) that are available to offset against future statements.
taxable profits of the companies in which the tax losses arose.
Uncertainties also exist with respect to the interpretation of
A deferred tax liability for the Group amounting to LKR. 350 Mn complex tax regulations and the amount and timing of future
(2017 – LKR. 230 Mn) has been recognised on the impact taxable income. Given the wide range of business relationships
pertaining to the current year’s on declared dividends of and the long-term nature and complexity of existing contractual
subsidiaries and the Group’s portion of distributable reserves of agreements, differences arising between the actual results and the
equity accounted investees. assumptions made, or future changes to such assumptions, could
necessitate future adjustments to tax income and expense already
The New Income Tax Act No.24 of 2017 was certified on 24th recorded. Where the final tax outcome of such matters is different
October 2017 and is effective from 01 April 2018. Accordingly, from the amounts that were initially recorded, such differences
Income tax provisions for the year ended 31 March 2018 were will impact the income and deferred tax amounts in the period in
made based on rates applicable for the Year of Assessment which the determination is made.
2017/18 with Deferred tax for the same period computed based
on rates applicable post 1 April 2018. The Group has contingent liabilities amounting to LKR. 1,371 Mn
(2017 – LKR. 1,168 Mn). These have been arrived at after discussing
Accounting judgements, estimates and assumptions with independent and legal tax experts and based on information
The Group is subject to income tax and other taxes including available. All assumptions are revisited as the reporting date.
VAT. Significant judgement was required to determine the total
provision for current, deferred and other taxes due to uncertainties Further details on contingent liabilities are disclosed in note 44 in
that exist with respect to the interpretation of the applicability the financial statements.
20.5 Reconciliation between current tax charge and the accounting profit
GROUP COMPANY
For the year ended 31st March 2018 2017 2018 2017
In LKR ‘000s
20.6 Reconciliation between tax expense and the product of accounting profit
Adjusted accounting profit chargeable to income taxes 24,049,092 15,778,014 4,738,341 3,251,972
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.
245
NOTES TO THE FINANCIAL STATEMENTS
20 Taxes (Contd)
20.7 Economic service charge (ESC)
GROUP
For the year ended 31st March 2018 2017
In LKR ‘000s
CCS was eligible for qualifying payment relief granted under Section 34(2)(s) of the Inland Revenue Act No. 10 of 2006 and amendments thereto,
and has now fully claimed the relief.
John Keells Holdings PLC. On-shore activities for payment in Exempt Ended on 31 March 2018
foreign currency
Lanka Marine Services (Pvt) Ltd. Export consignment sales of Petroleum - do - - do -
Products
John Keells Properties Ja-Ela (Pvt) Ltd. New undertaking engaged in - do - 9 years from 1st April 2015
construction of commercial buildings
South Asia Gateway Terminals (Pvt) Ltd. Operation of any port terminal in - do - 20 years from September 1999
Sri Lanka
Sancity Hotels & Properties Ltd. Construction and operation of a tourist - do - 12 years from 1st year of profit or 2 years
hotel from operations
John Keells Warehousing (Pvt) Ltd. Operation and maintenance of 10% Ended on 31 March 2018
facilities for storage
John Keells Logistics (Pvt) Ltd. (sites which are - do - - do - - do -
not covered by the BOI agreement)
Leisure sector Promotion of tourism 12% - do -
Mackinnons Travels (Pvt) Ltd. - do - - do - - do -
Consumer Foods and Retail sector Qualified export profits - do - - do -
Lanka Marine Services (Pvt) Ltd. - do - - do - - do -
Mackinnons Mackenzie Shipping (Pvt) Ltd. Provision of services to foreign ships - do - - do -
247
NOTES TO THE FINANCIAL STATEMENTS
20 Taxes (Contd)
20.11 Income tax rates of off-shore subsidiaries (Contd)
DETAILED INFORMATION TO THE STATEMENT OF Any revaluation surplus is recognised in other comprehensive
FINANCIAL POSITION income and accumulated in equity in the asset revaluation
21 Property , plant and equipment reserve, except to the extent that it reverses a revaluation
Accounting policy decrease of the same asset previously recognised in the income
Basis of recognition statement, in which case the increase is recognized in the income
Property, plant and equipment are recognized if it is probable that statement. A revaluation deficit is recognized in the income
future economic benefits associated with the asset will flow to the statement, except to the extent that it offsets an existing surplus
Group and the cost of the asset can be reliably measured. on the same asset recognised in the asset revaluation reserve.
The estimated useful life of assets is as follows: Impairment of property plant and equipment
The Group assesses at each reporting date whether there is an indication
Assets Years that an asset may be impaired. If any such indication exists, or when
annual impairment testing for an asset is required, the Group makes
Buildings (other than hotels) 50 an estimate of the asset’s recoverable amount. An asset’s recoverable
Hotel buildings upto 60 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
Plant and machinery 10 – 20
asset, unless the asset does not generate cash inflows that are largely
Equipment 2– 15
independent of those from other assets or groups of assets. Where the
Furniture and fittings 2– 15 carrying amount of an asset exceeds its recoverable amount, the asset
Motor vehicles 4 – 10 is considered impaired and is written down to its recoverable amount.
Returnable Containers 10 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
Vessels 10-25
market assessments of the time value of money and the risks specific to
the asset. Impairment losses are recognised in the income statement,
Borrowing costs
except that, impairment losses in respect of property, plant and
Borrowing costs directly attributable to the acquisition, construction or
equipment previously revalued are recognized against the revaluation
production of an asset that necessarily takes a substantial period of time
reserve through the statement of other comprehensive income to the
to get ready for its intended use or sale are capitalised as part of the cost
extent that it reverses a previous revaluation surplus.
of the asset. All other borrowing costs are expensed in the period in
which they occur. Borrowing costs consist of interest and other costs that
An assessment is made at each reporting date as to whether there
an entity incurs in connection with the borrowing of funds.
is any indication that previously recognised impairment losses may
no longer exist or may have decreased. If such indication exists, the
Group as a lessee
recoverable amount is estimated. A previously recognised impairment
Finance leases which transfer to the Group substantially all the risks and
loss is reversed only if there has been a change in the estimates used
benefits incidental to ownership of the leased item, are capitalised at
to determine the asset’s recoverable amount since the last impairment
the commencement of the lease at the fair value of the leased property
loss was recognised. If that is the case, the carrying amount of the asset
or, if lower, at the present value of the minimum lease payments. Lease
is increased to its recoverable amount. That increased amount cannot
payments are apportioned between finance charges and reduction
exceed the carrying amount that would have been determined, net of
of the lease liability so as to achieve a constant rate of interest on the
depreciation, had no impairment loss been recognised for the asset in
remaining balance of the liability. Finance charges are recognised in
prior years. Such reversal is recognised in the income statement unless
finance costs in the income statement.
the asset is carried at revalued amount, in which case the reversal is
A leased asset is depreciated over the useful life of the asset. However, treated as a revaluation increase. After such a reversal, the depreciation
if there is no reasonable certainty that the Group will obtain ownership charge is adjusted in future periods to allocate the asset’s revised carrying
by the end of the lease term, the asset is depreciated over the shorter amount, less any residual value, on a systematic basis over its remaining
of the estimated useful life of the asset and the lease term. Operating useful life.
lease payments are recognised as an operating expense in the income
statement on a straight-line basis over the lease term.
249
NOTES TO THE FINANCIAL STATEMENTS
Cost or valuation
At the beginning of the year 40,878,100 14,890,285 9,032,328 9,521,490
Additions 9,160,852 1,215,166 907,276 1,277,513
Acquisition/(disposal) of subsidiary - (117,041) - (382,609)
Disposals (134,444) (41,713) (171,036) (571,545)
Revaluations 8,873,564 295,560 - -
Transfers (From revaluation adjustment) (166,176) (200,306) - -
Impairment/Derecognition - - - -
Transfers (1,308,471) 807,489 110,237 782,317
Exchange translation difference - 92,875 13,240 (24,536)
At the end of the year 57,303,425 16,942,315 9,892,045 10,602,630
Carrying value
As at 31 March 2018 56,359,091 14,382,337 5,234,813 4,642,788
As at 31 March 2017 40,092,971 12,522,459 4,923,319 3,675,148
Cost
At the beginning of the year 3,704 251,336 77,512 332,552 413,816
Additions 64 35,959 49,650 85,673 11,110
Disposals - (1,949) (44,000) (45,949) (92,374)
At the end of the year 3,768 285,346 83,162 372,276 332,552
Carrying value
As at 31 March 2018 190 66,681 61,007 127,878
As at 31 March 2017 259 52,347 41,307 93,913
21.3 Revaluation of land and buildings which sufficient data is available to measure fair value, maximising
Accounting judgements, estimates and assumptions the use of relevant observable inputs and minimizing the use of
The Group uses the revaluation model of measurement of unobservable inputs. The date of the most recent revaluation was
land and buildings. The Group engaged independent expert carried out on 31 March 2018.
valuers, to determine the fair value of its land and buildings. Fair
value is determined by reference to market-based evidence of The changes in fair value is recognised in other comprehensive
transaction prices for similar properties. Valuations are based on income and in the statement of equity. The valuer has used
open market prices, adjusted for any difference in the nature, valuation techniques such as market values and discounted cash
location or condition of the specific property. These valuation flow methods where there was lack of comparable market data
techniques that are appropriate in the circumstances and for available based on the nature of the property.
251
NOTES TO THE FINANCIAL STATEMENTS
Effective date of valuation was 31 March 2018 except for Union Assurance PLC. which was valued at 31 December 2017.
21.4 The carrying amount of revalued land and buildings if they were carried at cost less depreciation and impairment, would be as follows;
GROUP
As at 31st March 2018 2017
In LKR ‘000s
Group land and buildings with a carrying value of LKR. 4,817 Mn (2017 - LKR. 7,331 Mn) have been pledged as security for term loans obtained,
details of which are disclosed in note 36.3.
Group property, plant and equipment with a cost of LKR. 5,560 Mn (2017 - LKR. 5,983 Mn) have been fully depreciated and continue to be in use
by the Group. The cost of fully depreciated assets of the Company amounts to LKR. 611 Mn (2017 – LKR. 148 Mn).
The amount of borrowing costs capitalised during the year ended 31 March 2018 was LKR. 126.6 Mn (2017 - LKR. 1.8 Mn).
22 Leases
Accounting Policy
Leases
The determination of whether an arrangement contains a lease is based on the substance of the arrangement at the inception date, whether
fulfilment 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 prior to 1 April 2011, the date of inception is deemed to be 1 April 2011 in accordance with SLFRS 1.
Prepaid lease rentals paid in advance to acquire land use rights have been classified as lease rentals paid in advance and are amortised over the
lease term in accordance with the pattern of benefits provided.
253
NOTES TO THE FINANCIAL STATEMENTS
22 Leases (Contd)
22.2 Details of lease rentals paid in advance
Amount
Property Land extent Lease period 2018 2017
(in acres) In LKR ‘000s In LKR ‘000s
Fantasea World Investment (Pte) Ltd. 18.90 33 years from 27-08-2014 323,726 326,141
Chaaya Lagoon Hakuraa Huraa, Republic of Maldives
John Keells Warehousing (Pvt) Ltd. 6.00 50 years from 19-09-2001 35,846 36,935
Muthurajawela
Rajawella Holdings Ltd. 517.09 99 years from 02-12-1996 1,464,257 1,496,584
Digana
Tea Smallholder Factories PLC. 4.98 50 years from 15-08-1997 2,569 2,655
Karawita Tea Factory
The Colombo Ice Company (Pvt) Ltd. 9.30 50 Years from 18-07-2016 146,263 174,701
Avissawella
Tranquility (Pte) Ltd. 17.16 38 Years from 26-08-2010 9,027,806 9,121,221
Chaaya Island Dhonveli, Republic of Maldives
Trans Asia Hotels PLC. 7.65 99 years from 07-08-1981 769,048 781,452
Colombo
Travel Club (Pte) Ltd. 13.75 24 years from 04-08-2006 1,179,786 1,207,738
Chaaya Reef Ellaidhoo, Republic of Maldives
Yala Village (Pvt) Ltd. 11.25 30 years from 27-11-1997 55,638 58,631
Kirinda
13,004,939 13,206,058
similar location and category. Investment property is appraised reference to market evidence of transaction prices for similar
in accordance with LKAS 40, SLFRS 13 and the 8th edition of properties, with appropriate adjustments for size and location. The
International Valuation Standards published by the International appraised fair values are rounded within the range of values.
Valuation Standards Committee (IVSC) by the independent
valuers. In determining the fair value, the current condition of The changes in fair value are recognised in the Income Statement.
the properties, future usability and associated re-development The determined fair values of investment properties, using
requirements have been considered. Also, the valuers have made investment method, are most sensitive to the estimated yield as
well as the long term occupancy rate.
Description of valuation techniques used and key inputs to valuation on investment properties:
Property Name of the Method of valuation* Significant unobservable inputs
Chartered
Estimated price Estimated Estimated Correlation
Valuation Surveyor
per perch price per discount to Fair
square foot rate Value
Freehold property
Ahungalla Holiday Resort (Pvt) S Fernando DCC LKR. 375,000 - - Positive
Ltd.
Asian Hotels and Properties PLC. P B Kalugalagedara IM - - 6.25% Negative
Crescat Boulevard,
Colombo 3
Ceylon Cold Stores PLC. P B Kalugalagedara DCC LKR. 1,100,000 LKR. 1,000 - - Positive
Inner Harbour Road, LKR. 2,250
Trincomalee
John Keells Properties Ja-Ela (Pvt) P B Kalugalagedara DCC LKR. 950,000 LKR. 5,500 - Positive
Ltd.
Keells Realtors Ltd. Ferguson Road, P B Kalugalagedara OMV LKR. 1,800,000 LKR. 1,000 - Positive
Colombo 15.
Resort Hotels Ltd. P B Kalugalagedara DCC LKR. 130,000 - - Positive
Trinco Walk Inn Ltd. P B Kalugalagedara DCC LKR. 150,000 - - Positive
Leasehold property
Stores Complex, Peliyagoda P B Kalugalagedara, DCC LKR. 2,000,000 LKR. 1,100 - Positive
* Summary description of valuation methodologies can be found in property plant and equipment note no 21.3.
255
NOTES TO THE FINANCIAL STATEMENTS
24 Intangible assets The amortization expense on intangible assets with finite lives is
Accounting policy recognised in the income statement.
Basis of recognition
An Intangible asset is recognised if it is probable that future Intangible assets with indefinite useful lives and Goodwill are not
economic benefits associated with the asset will flow to the Group amortised but tested for impairment annually, or more frequently
and the cost of the asset can be reliably measured. when an indication of impairment exists either individually or at
the cash-generating unit level. The useful life of an intangible asset
Basis of measurement with an indefinite life is reviewed annually to determine whether
Intangible assets acquired separately are measured on initial indefinite life assessment continues to be supportable. If not, the
recognition at cost. The cost of intangible assets acquired in a change in the useful life assessment from indefinite to finite is
business combination is the fair value as at the date of acquisition. made on a prospective basis.
Following initial recognition, intangible assets are carried at Present value of acquired in-force business (PVIB)
cost less any accumulated amortisation and any accumulated The present value of future profits on a portfolio of long term
impairment losses. life insurance contracts as at the acquisition date is recognised
as an intangible asset based on a valuation carried out by an
Internally generated intangible assets, excluding capitalized independent actuary. Subsequent to initial recognition, the
development costs, are not capitalised, and expenditure is charged to intangible asset is carried at cost less accumulated amortization
income statement in the year in which the expenditure is incurred. and accumulated impairment losses.
Useful economic lives, amortisation and impairment The PVIB is amortised over the average useful life of the related
The useful lives of intangible assets are assessed as either finite or contracts in the portfolio. The amortisation charge and any
indefinite lives. Intangible assets with finite lives are amortised over impairment losses would be recognised in the Consolidated
the useful economic life and assessed for impairment whenever Income Statement as an expense.
there is an indication that the intangible asset may be impaired.
Purchased software
The amortisation period and the amortization method for an Purchased software is recognised as an intangible asset and is
intangible asset with a finite useful life is reviewed at least at amortised on a straight line basis over its useful life.
each financial year-end and treated as accounting estimates.
Intangible assets
Software
As at 31 st March Developed Purchased Licenses WIP
In LKR ‘000s
Cost/carrying value
At the beginning of the year 563,956 255,645 626,623 6,448
Additions 1,018 149,053 60,889 6,602
Transfers 5,610 - - (5,610)
Impairment - - - -
At the end of the year 570,584 404,698 687,512 7,440
Carrying value
As at 31 March 2018 333,207 222,189 97,004 7,440
As at 31 March 2017 393,981 108,689 71,275 6,448
· The technical feasibility of completing the intangible asset so Amortisation of the asset begins when development is complete
that it will be available for use or sale, and the asset is available for use. It is amortised over the period
of expected future benefit from the use or expected future sales
· Its intention to complete and its ability to use or sell the assets,
from the related project. During the period of development, the
· how the assets will generate future economic benefits, asset is tested for impairment annually.
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.
Group Company
PVIB Goodwill Other Total Total Software licenses
2018 2017 2018 2017
257
NOTES TO THE FINANCIAL STATEMENTS
24 Intangible assets (Contd.) on UA’s portfolio of long term life insurance contracts, known
Present value of acquired in-force business (PVIB) as the present value of acquired in-force business (PVIB) at the
Upon acquiring a controlling stake in Union Assurance PLC. (UA), acquisition date. Further, PVIB recognised at the acquisition date
the Group has recognised in the consolidated financial statements will be amortised over the estimated life of the business acquired
an intangible asset representing the present value of future profits and reviewed annually for any impairment in value.
Goodwill
Goodwill acquired through business combinations have been allocated to 5 cash generating units (CGU's) for impairment
testing as follows;
The recoverable amounts of all CGUs have been determined based on the fair value, less cost to sell or the value in use (VIU) calculation.
25 Investment in subsidiaries
Accounting policy
Investment In subsidiaries are initially recognised at cost in the financial statements of the Company. Any transaction cost relating to acquisition
of investment in subsidiaries is immediately recognised in the income statement. Following initial recognition, Investments in subsidiaries are
carried at cost less any accumulated impairment losses.
Investment in subsidiaries
Quoted 25.2 20,066,449 19,216,229
Unquoted 25.3 47,901,469 23,771,166
67,967,918 42,987,395
Cost
Group quoted investments
Asian Hotels and Properties PLC. 347,824,190 78.56 347,824,190 78.56 5,324,044 5,301,660
Ceylon Cold Stores PLC. 77,321,208 81.36 67,155,812 70.61 1,563,192 1,450,473
John Keells Hotels PLC. 1,169,598,478 80.32 1,169,598,478 80.32 7,102,140 7,102,140
John Keells PLC. 52,834,784 86.90 52,834,784 86.90 468,923 458,036
Keells Food Products PLC. 22,937,250 88.63 20,364,054 79.86 1,223,691 1,052,311
Tea Smallholder Factories PLC. 11,286,000 37.62 11,286,000 37.62 64,452 63,466
Trans Asia Hotels PLC. 184,107,284 82.74 97,284,256 48.64 1,609,523 1,604,606
Union Assurance PLC. 54,429,042 92.36 54,429,042 92.36 2,710,484 2,183,537
20,066,449 19,216,229
GROUP COMPANY
As at 31 st March 2018 2017 2018 2017
In LKR ‘000s
Market Value
Group quoted investments
Asian Hotels and Properties PLC. 17,460,774 19,304,243 17,460,774 19,304,243
Ceylon Cold Stores PLC. 73,455,148 62,707,500 63,798,021 54,425,503
John Keells Hotels PLC. 10,877,266 11,695,985 10,877,266 11,695,985
John Keells PLC. 3,122,536 2,699,857 3,122,536 2,699,857
Keells Food Products PLC. 2,979,549 3,385,845 2,645,291 2,771,008
Tea Smallholder Factories PLC. 383,724 270,864 383,724 270,864
Trans Asia Hotels PLC. 17,490,192 13,826,457 9,242,004 7,306,048
Union Assurance PLC. 8,115,370 7,858,892 8,115,370 7,239,378
133,884,559 121,749,643 115,644,986 105,712,886
259
NOTES TO THE FINANCIAL STATEMENTS
GROUP COMPANY
As at 31st March 2018 2018 2017
Number of Effective Number of Effective Cost Cost
shares holding % shares holding % In LKR ‘000s In LKR ‘000s
Mack Air (Pvt) Ltd. 89,260 100.00 89,260 100.00 20,943 14,629
Mack Air Services Maldives (Pvt) Ltd. 4,900 49.00 4,700 47.00 2,021 2,021
Mack Freight Lanka (Pvt) Ltd. 13,000,000 100.00 13,000,000 100.00 - -
Mackinnon Keells Ltd. 31,966,951 100.00 31,966,951 100.00 670,166 364,476
Mackinnon Mackenzie and Company (Shipping) Ltd. 139,092 100.00 139,092 100.00 65,789 -
Mackinnon Mackenzie and Company of (Ceylon) Ltd. 1,244 100.00 1,244 100.00 29,122 -
Mackinnons Travels (Pvt) Ltd. 499,996 100.00 499,996 100.00 23,533 19,888
Mortlake (Pvt) Ltd. 43 100.00 43 100.00 20,000 20,000
Nuwara Eliya Holiday Resort (Pvt) Ltd. 31,606,252 80.32 - - - -
Rajawella Holdings Ltd. 13,063,936 49.85 11,573,339 45.18 801,707 801,707
Rajawella Hotels Company Ltd. 3,157,384 80.32 - - - -
Resort Hotels Ltd. 106,107 79.60 - - - -
Serene Holidays (Pvt) Ltd. 800,000 98.35 - - - -
The Colombo Ice Company (Pvt) Ltd. 100,000,000 81.36 - - - -
Tranquility (Pte) Ltd. 637,499 80.32 - - 4,459 3,187
Trans-ware Logistics (Pvt) Ltd. 5,539,929 100.00 5,539,929 100.00 105,583 114,577
Travel Club (Pte) Ltd. 29,059 80.32 - - 2,352 1,811
Trinco Holiday Resort (Pvt) Ltd. 8,120,005 80.32 - - 2,275 1,684
Trinco Walk Inn Ltd. 3,000,007 80.32 - - - -
Vauxhall Land Developments (Pvt) Ltd. 1,305,314,696 60.28 - - -
Walkers Tours Ltd. 3,737,634 98.05 3,737,634 98.05 156,848 169,351
Waterfront Properties (Pvt) Ltd. 3,291,588,159 96.18 2,560,663,733 77.79 25,094,567 15,002,663
Whittall Boustead (Pvt) Ltd. 5,341,105 100.00 5,341,105 100.00 1,604,485 2,904,582
Whittall Boustead (Travel) Ltd. 22,452,271 100.00 22,452,271 100.00 267,040 292,230
Wirawila Walk Inn Ltd. 1,646,750 80.32 - - - -
Yala Village (Pvt) Ltd. 28,268,000 75.33 - - 1,751 1,754
Yala Village (Pvt) Ltd.- Non voting preference shares 10,000,000 80.32 - - - -
47,901,469 23,771,166
26 Investment in equity accounted investees A joint venture is a type of joint arrangement whereby the parties
Accounting policy that have joint control of the arrangement have rights to the
An associate is an entity over which the Group has significant net assets of the joint venture. Joint control is the contractually
influence. Significant influence is the power to participate in the agreed sharing of control of an arrangement, which exists only
financial and operating policy decisions of the investee, but is not when decisions about the relevant activities require unanimous
control or joint control over those policies. consent of the parties sharing control.
Associate companies incorporated in Sri Lanka of the Group Joint ventures incorporated in Sri Lanka entered into by the
which have been accounted for under the equity method of Group, which have been accounted for using the equity method,
accounting are: are:
Capitol Hotel Holdings (Pvt) Ltd. Braybrooke Residential Properties (Pvt) Ltd.
Maersk Lanka (Pvt) Ltd. DHL Keells (Pvt) Ltd.
Nations Trust Bank PLC. Sentinel Reality (Pvt) Ltd.
Saffron Aviation (Pvt) Ltd.
South Asia Gateway Terminals (Pvt) Ltd. The considerations made in determining significant influence or
Fairfirst Insurance Ltd. joint control are similar to those necessary to determine control
over subsidiaries.
261
NOTES TO THE FINANCIAL STATEMENTS
26 Investment in equity accounted investees (Contd.) After application of the equity method, the Group determines
The Group’s investments in its associate and joint venture are whether it is necessary to recognise an impairment loss on its
accounted for using the equity method. Under the equity method, investment in its associate or joint venture. At each reporting date,
the investment in an associate or a joint venture is initially the Group determines whether there is objective evidence that
recognised at cost. The carrying amount of the investment is the investment in the associate or joint venture is impaired. If there
adjusted to recognise changes in the Group’s share of net assets of is such evidence, the Group calculates the amount of impairment
the associate or joint venture since the acquisition date. Goodwill as the difference between the recoverable amount of the associate
relating to the associate or joint venture is included in the carrying or joint venture and its carrying value, and then recognises the loss
amount of the investment and is not tested for impairment as ‘Share of results of equity accounted investees’ in the Income
individually. Statement.
The income statement reflects the Group’s share of the results of Upon loss of significant influence over the associate or joint
operations of the associate or joint venture. Any change in OCI of control over the joint venture, the Group measures and recognises
those investees is presented as part of the Group’s OCI. In addition, any retained investment at its fair value. Any difference between
when there has been a change recognised directly in the equity of the carrying amount of the associate or joint venture upon loss
the associate or joint venture, the Group recognises its share of any of significant influence or joint control and the fair value of the
changes, when applicable, in the statement of changes in equity. retained investment and proceeds from disposal is recognised in
income statement.
Unrealised gains and losses resulting from transactions between
The accounting policies of associate companies and joint ventures
the Group and the associate or joint venture are eliminated to the
conform to those used for similar transactions of the Group.
extent of the interest in the associate or joint venture.
Accounting policies that are specific to the business of associate
companies are discussed below.
The aggregate of the Group’s share of profit or loss of an associate
and a joint venture is shown on the face of the statement of Equity method of accounting has been applied for associates and
profit or loss outside operating profit and represents profit or loss joint ventures using their corresponding/matching 12 month
after tax and non-controlling interests in the subsidiaries of the financial period. In the case of associates, where the reporting
associate or joint venture. dates are different to Group reporting dates, adjustments are made
for any significant transactions or events up to 31 March.
GROUP COMPANY
As at 31 st March Number of Effective 2018 2017 Number of Effective 2018 2017
shares Holding % In LKR ‘000s In LKR ‘000s shares Holding % In LKR ‘000s In LKR ‘000s
GROUP COMPANY
As at 31 st March 2018 2017 2018 2017
In LKR ‘000s
Market Value
Quoted - Nations Trust Bank PLC.
Voting shares 5,709,065 5,102,425 3,818,773 3,412,993
Non voting shares 1,466,881 - 1,145,264 -
Other comprehensive income 159,448 227,569 370,622 48,909 (1,281) - 528,789 276,478
The share of results of equity accounted investees in Income Statement and Other Comprehensive Statement are shown net of all related taxes.
Contingent liabilities - - - - - - - -
Capital commitments - - 128,355 409,975 - - 128,355 409,975
Other commitments and Guarantees - - 55,678,928 42,201,702 - - 55,678,928 42,201,702
Dividend received 2,251,731 2,321,179 540,967 383,003 150,000 150,000 2,942,698 2,854,182
The Group and the Company have neither contingent liabilities nor capital and other commitments towards its associates and joint ventures.
263
NOTES TO THE FINANCIAL STATEMENTS
26 Investment in equity accounted investees (Contd.) accrued over that period. These fees include commission income
Significant accounting policies that are specific to the and asset management, custody and other management and
business of equity accounted investees advisory fees. Credit related fees are deferred and recognised as an
Nations Trust Bank PLC. adjustment to the EIR of the loan.
Revenue recognition
Revenue is recognised to the extent that it is probable that the Fee income from providing transaction services
economic benefits will flow to the bank and the revenue can be Fees arising from negotiating or participating in the negotiation
reliably measured. The following specific recognition criteria must of a transaction for a third party, such as the arrangement of the
also be met before revenue is recognised. acquisition of shares or other securities or the purchase or sale
of businesses, are recognised on completion of the underlying
Interest income and expense transaction.
For all financial instruments interest income or expense is recorded
using the EIR. EIR is the rate that exactly discounts estimated Fees or components of fees that are linked to a certain
future cash payments or receipts through the expected life of performance are recognised after fulfilling the corresponding
the financial instrument or a shorter period, where appropriate, criteria.
to the net carrying amount of the financial asset or financial
liability. The calculation takes into account all contractual terms of Net trading income
the financial instrument (for example, prepayment options) and Results arising from trading activities include all gains and losses
includes any fees or incremental costs that are directly attributable from changes in fair value.
to the instrument and are an integral part of the EIR, but not future
Impairment losses. South Asia Gateway Terminals (Pvt) Ltd.
Revenue recognition
The carrying amount of the financial asset or financial liability is Stevedoring revenue is recognised on the berthing time of the
adjusted if the Group revises its estimates of payments or receipts. vessel. Storage revenue is recognised on the issue of delivery
The adjusted carrying amount is calculated based on the original advice. South Asia Gateway Terminals (Pvt) Ltd. uses United States
EIR and the change in carrying amount is recorded as ‘Interest Dollar (USD) as their functional currency.
Income’ for financial assets and ‘Interest Expense’ for financial
liabilities. Fairfirst Insurance Ltd.
Revenue recognition
Once the recorded value of a financial asset or a group of similar General insurance business-gross written premium
financial assets has been reduced due to an impairment loss, Gross written premiums comprise the total premiums received/
interest income continues to be recognized using the rate of receivable for the whole period of cover provided by contracts
interest used to discount the future cash flows for the purpose of entered into during the accounting period. GWP is generally
measuring the impairment loss. written upon inception of the policy. Rebates that form part of the
premium rate, such as no-claim rebates, are deducted from the
Fee and commission income gross written premium
The Group earns fee and commission income from a diverse range
of services it provides to its customers. Fee income can be divided Insurance contract liabilities - general
into the following two categories: Non-life insurance contract liabilities include the outstanding
claims provision (Reserve for gross outstanding and incurred
Fee income earned from services that are provided over a but not reported, and incurred and not enough reported - IBNR/
certain period of time IBNER) and the provision for unearned premium and the provision
Fees earned for the provision of services over a period of time are for premium deficiency.
Asia Power (Pvt) Ltd. 388,527 75,461 141,972 388,527 75,461 141,972
Other equity instruments - 43,570 18,397 - - -
119,031 160,369 75,461 141,972
265
NOTES TO THE FINANCIAL STATEMENTS
* The freehold and leasehold property are located at the address, Glennie Street and Justice Akbar Mawatha, Colombo 2.
267
NOTES TO THE FINANCIAL STATEMENTS
The number of shares in issue as at 31-03-2018, include global depository receipts (GDRs) of 1,320,942 (2017 - 1,320,942). Further information on
the composition of shares in issue is given under the share information section of the annual report.
44,893,817 shares (2017 - 35,415,944) have been reserved to be issued under the employee share option plan as at 31 March 2018.
Revaluation reserve consists of the net surplus on the revaluation attributable to non - participating and non unit fund of unit linked
of property, plant and equipment and present value of acquired business from life policyholder fund to life shareholder fund
in-force business (PVIB). (SHF). The distribution of one - off surplus to shareholders, held as
part of the Restricted Regulatory Reserve, is subject to meeting
Foreign currency translation reserve comprises the net exchange governance requirements stipulated by the IRCSL and can only
movement arising on the currency translation of foreign be released upon receiving approval from the IRCSL. The one - off
operations and equity accounted investees into Sri Lankan rupees. surplus in the SHF is represented by government debt securities as
per the direction of the IRCSL.
The other capital reserve is used to recognise the value of equity-
settled share-based payments provided to employees, including Cash flow hedge reserve include the fair value changes on the
key management personnel, as part of their remuneration. effective portion of interest rate swaps designated as cash flow
hedges.
Restricted regulatory reserve
Based on the direction issued by the IRCSL dated 20 March Available for sale reserve includes changes of fair value of financial
2018 and subsequent approval, UA PLC. has transferred Rs. 3,382 instruments designated as available for sale financial assets.
Mn (attributable to equity holders of the parent LKR. 3,124 Mn)
269
NOTES TO THE FINANCIAL STATEMENTS
34 Share-based payment plans Where the terms of an equity-settled transaction award are
Accounting Policy modified, the minimum expense recognised is the expense
Employee share option plan - Equity-settled transactions as if the terms had not been modified, if the original terms of
Employees of the Group receive remuneration in the form of the award are met. An additional expense is recognized for any
share-based payment transactions, whereby employees render modification that increases the total fair value of the share-based
services as consideration for equity instruments (equity-settled payment transaction, or is otherwise beneficial to the employee as
transactions). measured at the date of modification.
The Group applies SLFRS 2 Share Based Payments in accounting The dilutive effect of outstanding options is reflected as additional
for employee remuneration in the form of shares from 1 April 2013 share dilution in the computation of diluted earnings per share
onwards. (further details are given in note 18.2).
The cost of equity-settled transactions is recognised, together Employee share option scheme
with a corresponding increase in other capital reserves in equity, Under the John Keells Group’s Employees share option scheme
over the period in which the performance and service conditions (ESOP), share options of the parent are granted to executives of the
are fulfilled. The cumulative expense recognised for equity- Group generally with more than 12 months of service. The exercise
settled transactions at each reporting date until the vesting date price of the share options is equal to the 30 day volume weighted
reflects the extent to which the vesting period has expired and average market price of the underlying shares on the date of
the Group’s best estimate of the number of equity instruments grant. The share options vest over a period of four years and is
that will ultimately vest. The income statement expense or credit dependent on a performance criteria and a service criteria. The
for a period represents the movement in cumulative expense performance criteria being a minimum performance achievement
recognized as at the beginning and end of that period and is of “Met Expectations” and service criteria being that the employee
recognized in employee benefits expense. has to be in employment at the time the share options vest. The
fair value of the share options is estimated at the grant date using
No expense is recognised for awards that do not ultimately vest, a binomial option pricing model, taking into account the terms
except for equity-settled transactions where vesting is conditional and conditions upon which the share options were granted.
upon a market or non-vesting condition, which are treated as
vesting irrespective of whether or not the market or non-vesting The contractual term for each option granted is five years. There
condition is satisfied, provided that all other performance and are no cash settlement alternatives. The Group does not have a
service conditions are satisfied. past practice of cash settlement for these share options.
Total expense arising from share-based payment transactions 517,374 444,346 170,759 119,822
GROUP COMPANY
As at 31 st March 2018 2017 2018 2017
No. WAEP No. WAEP No. WAEP No. WAEP
Outstanding at the beginning of the year 35,465,363 164.43 23,372,526 197.46 12,379,456 166.43 7,501,984 198.60
Granted during the year 10,402,204 173.25 9,998,000 142.83 3,100,564 173.25 2,692,274 142.83
Transfers - - - - 1,221,229 167.13 1,256,175 167.37
Adjustment due to sub division of shares - - 3,301,351 172.59 - - 1,062,440 173.68
Adjustment due to share warrants - - 136,944 190.96 - - 43,309 190.96
Exercised during the year (56,232) 146.24 (3,224) 149.84 (10,176) 146.48 - -
Expired during the year (917,518) 162.31 (1,340,234) 167.31 (370,902) 159.01 (176,726) 164.93
Outstanding at the end of the year 44,893,817 166.69 35,465,363 164.43 16,320,171 168.10 12,379,456 166.43
Exercisable at the end of the year 25,054,358 171.59 15,044,992 177.30 10,753,779 171.78 5,583,774 178.46
Accounting judgements, estimates and assumptions option, volatility and dividend yield and making assumptions about
The Group measures the cost of equity-settled transactions with them.
employees by reference to the fair value of the equity instruments at
the date at which they are granted. Estimating fair value for share-based The expected life of the share options is based on historical data and
payment transactions requires determination of the most appropriate current expectations and is not necessarily indicative of exercise patterns
valuation model, which is dependent on the terms and conditions of the that may occur. The expected volatility reflects the assumption that
grant. This estimate also requires determination of the most appropriate the historical volatility over a period similar to the life of the options
inputs to the valuation model including the expected life of the share is indicative of future trends, which may not necessarily be the actual
outcome either.
The following information were used and results were generated using binomial model for ESOP.
Life insurance contract liabilities policy liabilities is the higher of the value of the guaranteed
Life insurance contract liabilities are recognised when contracts benefits liability and the total benefits liability, derived at the
are entered into and premiums are charged. These liabilities are participating insurance fund level. In calculating the guaranteed
measured by using the gross premium valuation method as benefits liability, only the guaranteed benefits are considered and
prescribed by the Regulation of Insurance Industry Act, No. 43 of the cashflows are discounted using the risk free interest rate yield
2000. The liability is determined as the discounted value of the curve. Total benefits liability includes all the guaranteed and non
expected contractual cash outflows less the discounted value of guaranteed benefits, and discount the cash flows using the fund
the expected premiums. Valuation assumptions are derived based based yield of the participating insurance fund. At each reporting
on the best estimate experience with a prescribed risk margin date, an assessment is made of whether the recognised life
to allow for adverse deviations. Non participating liabilities are insurance liabilities are adequate, by using a liability adequacy test.
discounted using the risk free yields. The value of participating
271
NOTES TO THE FINANCIAL STATEMENTS
35 Insurance contract liabilities (Contd.) • are likely to be a significant portion of the total contractual
Liability adequacy test (LAT) benefits;
At each reporting date, an assessment is made of whether the • the amount or timing of which is contractually at the discretion
recognised life insurance liabilities are adequate by using an existing of the issuer; and contractually based on:
liability adequacy test as laid out under SLFRS 4. The liability value
• The performance of a specified pool of contracts or a specified
is adjusted to the extent that it is adequate to meet future benefits
type of contract,
and expenses. In performing the adequacy test, current best
estimates of future contractual cash flows, including related cash • Realised and or unrealised investment returns on a specified
flows such as claims handling and policy administration expenses, pool of assets held by the issuer, and
policyholder options and guarantees, as well as investment income • The profit or loss of the company, fund or other entity that
from assets backing such liabilities, are used. issues the contract.
Any deficiency is recognised in the income statement by setting Derivatives embedded in an insurance contract or an investment
up a provision for liability adequacy. contract with DPF are separated and fair valued through the
income statement unless the embedded derivative itself is an
Accounting judgements, estimates and assumptions insurance contract or investment contract with DPF. The derivative
Product classification is also not separated if the host insurance contract and / or
SLFRS 4 requires contracts written by insurers to be classified as investment contract with DPF is measured at fair value through
either insurance contracts or investment contracts depending on the profit and loss.
the level of insurance risk transferred.
IRCSL regulations and the terms and conditions of these contracts
Insurance contracts are contracts under which one party (the set out the bases for the determination of the amounts on
Insurer) accepts significant insurance risk from another party (the which the additional discretionary benefits are based (the DPF
policyholder) by agreeing to compensate the policyholder if a eligible surplus) and within which the company may exercise
specified uncertain future event (the insured event) adversely its discretion as to the quantum and timing of their payment
affects the policyholder. Significant insurance risk exists if an to contract holders. At least 90% of the eligible surplus must be
insured event could cause an insurer to pay significant additional attributed to contract holders as a group (which can include
benefits in any scenario, excluding scenarios that lack commercial future contract holders) and the amount and timing of the
substance (i.e. have no discernible effect on the economics of distribution to individual contract holders is at the discretion of the
the transaction). The classification of contracts identifies both the company, subject to the advice of the appointed actuary. All DPF
insurance contracts that the company issues and reinsurance liabilities including unallocated surpluses, both guaranteed and
contracts that the company holds. discretionary, at the end of the reporting period are held within
insurance contract liabilities, as appropriate.
Contracts where the company does not assume a significant
insurance risk is classified as investment contracts. Valuation of insurance contract liabilities
Mortality, morbidity, longevity, investment returns, expenses,
Investment contracts are those contracts that transfer significant lapses, surrender rates and discount rates were the assumptions
financial risks and no significant insurance risks. Financial risk is used for the valuation of insurance contract liabilities. For those
the risk of a possible future change in one or more of a specified contracts that insure risk related to longevity, prudent allowance is
interest rates, financial instrument prices, commodity prices, made for expected future mortality improvements, as well as wide
foreign exchange rates, index of price or rates, credit ratings or ranging changes to the life style, which could result in significant
credit index or other variables, provided in the case of a non changes to the expected future mortality exposure.
financial variable that the variable is not specific to a party to the
contract. Estimates are also made for future investment income arising from
the assets backing Life Insurance contracts. These estimates are
Once a contract has been classified as an insurance contract, it based on current market returns, as well as expectations about
remains an insurance contract for the remainder of its lifetime, future economic and financial developments.
even if the insurance risk reduces significantly during this period,
unless all rights and obligations are extinguished or expired. Assumptions on future expenses are based on current expense
Investment contracts can, however, be reclassified as insurance levels, adjusted for expected expense inflation, if appropriate.
contracts after inception if insurance risk becomes significant. Lapse and surrender rates are based on the company’s historical
experience of lapses and surrenders.
Insurance and investment contracts are further classified as being
either with or without discretionary participating features. Valuation of life insurance fund
Long duration contract liabilities included in the life insurance
Discretionary participating features (DPF) fund, result primarily from traditional participating and non
DPF is a contractual right to receive, as a supplement to participating life insurance products. Short duration contract
guaranteed benefits, additional benefits that; liabilities are primarily group term, accident and health insurance
products. The actuarial reserves have been established based on One - off surplus arising from change in policy
the following; liability valuation
• Non participating liabilities are discounted using risk free yield Based on the letter issued by the Insurance Regulatory Commission
curve provided by the IRCSL and the participating liabilities are of Sri Lanka (IRCSL) (previously known as IBSL) dated 30 December
based on the fund yield of the life fund. 2016, all insurance companies were instructed to maintain the one -
off surplus arising from change in policy liability valuation, separately
• Mortality rates based on published mortality tables adjusted for
within the long-term insurance fund / insurance contract liabilities.
actual experience as required by regulations issued by the IRCSL.
Accordingly, the one - off surplus was identified separately within
• Surrender rates based on actual experience. the insurance contract liabilities as “Surplus created due to changes
in valuation method from NPV to GPV”.
The amount of policyholder dividend to be paid is determined
annually by the Company. The dividend includes life policyholders The amount reported as the one-off surplus of LKR. 5,868 Mn in
share of net income that is required to be allocated by the the 2016 financial statements was based on the internal actuarial
insurance contract. valuation. Subsequently as directed by the IRCSL, the Company
obtained an independent actuarial valuation certification from
The valuation of the conventional life insurance fund as at 31
Willis Towers Watson India Private Limited who confirmed it as
December 2017 was carried out by Mr. Vivek Jalan FIA, FIAI of Willis
LKR. 4,636 Mn. The one off surplus has been further reduced
Towers Watson India Private Limited and a sum of LKR. 3,438 Mn
to LKR. 3,817 Mn in line with the “Minimum One - off Surplus”
was transferred from the conventional life insurance fund to the
calculation basis provided in the IRCSL guidelines. As the
shareholders fund for the year 2017. Subsequent to the transfer
adjustments of LKR. 2,050 Mn were due to estimate changes, the
the conventional life fund stood at LKR. 26,912 Mn.
difference has been adjusted in the current year to reflect the
above accordingly.
Similarly the non unit fund of linked long term business valuation
was carried out by Mr. Vivek Jalan FIA, FIAI of Willis Towers Watson
The one off surplus comprises of LKR. 432.5 Mn attributable to
India Private Limited and a sum of LKR. 204 Mn was transferred
participating business and LKR. 2.5 Mn attributable to unit linked
from the non unit fund to the shareholders fund for the year 2017.
fund and LKR. 3,382 Mn attributable to non participating and non
Subsequent to the transfer the non unit fund stood at LKR. 38 Mn.
unit fund of unit linked business.
273
NOTES TO THE FINANCIAL STATEMENTS
Group interest bearing borrowings include finance lease obligations amounting to LKR. 34 Mn (2017 - 10 Mn) details of which are disclosed in
the following note.
Beruwala Holiday HNB 1 month SLIBOR 74 monthly instalments LKR. 3,395 Mn Primary floating 309,683 439,683
Resorts (Pvt) Ltd. based plus margin commencing from April mortgage bond over hotel
2013 property
Sampath 6 month LIBOR 20 quarterly instalments Corporate guarantee from 15,590 75,950
Bank based plus margin commencing from July John Keells Hotels PLC., of
2013 USD 4 Mn
SCB 1 month LIBOR 16 quarterly instalments - - 243,040
based plus margin commencing from February
2014
HSBC 3 month LIBOR 20 quarterly instalments - 169,346 -
based plus margin commencing from March
2018
Ceylon Cold Stores DFCC 3 month AWDR 60 monthly instalments - - 15,000
PLC. based plus margin commencing from October
2012
Habarana Lodge Ltd. Sampath 6 month LIBOR 20 quarterly instalments Corporate guarantee of John 15,590 75,950
Bank based plus margin commencing from July 2013 Keells Hotel PLC. of USD 2 Mn
275
NOTES TO THE FINANCIAL STATEMENTS
Habarana Lodge Ltd. Habib Bank 1 month LIBOR 48 monthly instalments - - 6,076
based plus margin commencing from July 2013
HSBC 1 month LIBOR 8 equal quarterly instalments - 46,770 -
based plus margin of USD 30,000
Hikkaduwa Holiday DFCC 1 month AWPLR 66 monthly instalments Primary mortgage over lease 208,495 403,495
Resorts (Pvt) Ltd. based plus margin commencing from November rights of LKR. 940 Mn and LKR.
2013 60 Mn over movable plant,
machinery and equipment
Sampath 3 month LIBOR 20 quarterly instalments Corporate guarantee of John 62,360 167,280
Bank based plus margin commencing from October Keells Hotels PLC. for the LKR.
2013 equivalent of outstanding USD
loan value
John Keells Maldivian Sampath 6 month LIBOR The loan is payable within 90 - - 1,477,455
Resorts (Pte) Ltd. Bank based plus margin days
John Keells Properties HSBC 1 month COF 60 monthly instalments General terms and conditions 376,360 394,907
Ja-Ela (Pvt) Ltd. based plus margin commencing from December for LKR. 450 Mn signed relating
2016 to the term loan
Keells Food Products DFCC 3 month AWDR 60 monthly instalments Primary mortgage bond on 33,495 83,704
PLC. plus margin commencing from December the building and assets at
2013 with 1 year grace period Pannala
Kandy Walk Inn Ltd. HSBC 1 month LIBOR 60 monthly instalments - - 91,840
based plus margin commencing from October
2013 with 1 year grace period
The Colombo Ice HSBC COF based plus 60 monthly instalments Corporate guarantee of Ceylon 2,458,333 256,192
Company (Pvt) Ltd. margin commencing from February Cold Stores PLC. for LKR. 3.8 Bn
2016 with 1 year grace period
Trans Asia Hotels PLC. HNB Fixed rate 16 quarterly instalments - 292,313 370,256
(annually commencing from September
reviewed) 2016
Tranquility (Pte) Ltd. HSBC 3 month LIBOR Quarterly instalments Primary mortgage over the 2,572,350 -
plus margin after 1 year grace period resort situated at Kanuoiy
commencing from July Huraa, Kaafu Atoll, Republic,
2017 Maldives
Travel Club (Pte) Ltd. HSBC 1 month LIBOR 12 quarterly instalments - 233,850 303,800
based plus margin commencing from September
2017
Trinco Holiday Resorts Sampath 6 month LIBOR 20 quarterly instalments Corporate guarantee of John 36,306 70,360
(Pvt) Ltd. Bank based plus margin commencing from April Keells Hotels PLC. for the LKR.
2014 equivalent of USD 1.158 Mn
Sampath 3 month AWPLR 83 monthly instalments Letter of comfort from John 187,800 205,000
Bank based minus commencing from July Keells Hotels PLC.
margin 2014
HSBC 1 month LIBOR Capital repayment of - 54,097 -
based plus margin USD 34,700 per quarter
commencing from May 2018
and USD 104,100 per quarter
commencing from May 2019
GROUP COMPANY
As at 31 st March 2018 2017 2018 2017
In LKR ‘000s
The expenses are recognised in the income statement in the following line items;
Cost of sales 190,969 149,829 12,017 11,387
Selling and distribution expenses 31,863 30,862 - -
Administrative expenses 149,076 146,942 25,593 21,444
371,908 327,633 37,610 32,831
277
NOTES TO THE FINANCIAL STATEMENTS
The principal assumptions used in determining the cost of employee benefits were:
Discount rate:
1% Increase (73,010) (85,863) (6,682) (6,691)
1% Decrease 101,525 64,966 7,281 7,363
Salary Increment rate:
1% Increase 90,843 65,922 7,709 7,863
1% Decrease (77,137) (96,150) (7,219) (7,331)
Weighted average duration (years) of define benefit obligation 5.87 5.41 8.29 10.20
38 Other deferred liabilities Where the Group receives non-monetary grants, the asset and
Accounting policy the grant are recorded gross at nominal amounts and released to
Government grants the income statement over the expected useful life and pattern
Government grants are recognised where there is reasonable of consumption of the benefit of the underlying asset by equal
assurance that the grant will be received and all attached annual instalments.
conditions will be complied with. When the grant relates to an
expense item, it is recognised as income over the period necessary Deferred revenue
to match to the costs, that it is intended to compensate. Where Deferred revenue is the money received for goods or services
the grant relates to an asset, the fair value is credited to a deferred which have not yet been delivered. According to the revenue
income account and is released to the income statement over recognition principle, it is recorded as a liability until delivery is
the expected useful life of the relevant asset by equal annual made , at which time it is converted to revenue.
instalments.
GROUP COMPANY
As at 31st March 2018 2017 2018 2017
In LKR ‘000s
GROUP
As at 31st March 2018 2017
In LKR ‘000s
GROUP COMPANY
As at 31st March 2018 2017 2018 2017
In LKR ‘000s
Trade and other payables are non-interest bearing and settled within one year. Reinsurance payables are settled within one year. For further
explanation on the Group’s liquidity risk management process refer note 10.2.2.
279
NOTES TO THE FINANCIAL STATEMENTS
43 Related party transactions audited financial statements, which required additional disclosures
Terms and conditions of transactions with related parties in the 2017/18 Annual Report under Colombo Stock Exchange
The Group and Company carried out transactions in the ordinary listing Rule 9.3.2 and Code of Best Practices on Related Party
course of business with the following related entities. The list of Transactions under the Securities and Exchange Commission
Directors at each of the subsidiaries, joint venture and associate Directive issued under Section 13(c ) of the Securities and
companies have been disclosed in the Group Directory under the Exchange Commission Act.
Supplementary Information section of the Annual Report.
Recurrent related party transactions,
Transactions with related parties are carried out in the ordinary There were no recurrent related party transactions which in
course of business. Outstanding current account balances at year aggregate value exceeds 10% of the consolidated revenue of the
end are unsecured, interest free and settlement occurs in cash. Group as per 31 March 2017 audited financial Statements, which
required additional disclosures in the 2017/18 Annual Report
Non-recurrent related party transactions under Colombo Stock Exchange listing Rule 9.3.2 and Code of Best
There were no non-recurrent related party transactions which Practices on Related Party Transactions under the Securities and
in aggregate value exceeds 10% of the equity or 5% of the total Exchange Commission Directive issued under Section 13(c) of the
assets whichever is lower of the Company as per 31 March 2017 Securities and Exchange Commission Act.
Subsidiaries
Purchases of goods - - 8,948 5,004
Rendering of services 43.5 - - 878,686 701,748
Receiving of services 43.6 - - 59,314 48,918
Rent paid - - 38,537 38,729
Dividend received - - 5,632,188 7,614,841
The Group and Company held interest bearing deposits of LKR. 6,802 Mn (2017 - LKR. 2,491 Mn) and LKR. 6,002 Mn (2017 - LKR. 604 Mn)
respectively, at Nations Trust Bank PLC. as at 31 March 2018.
281
NOTES TO THE FINANCIAL STATEMENTS
Subsidiaries
Asian Hotels and Properties PLC. 50,411 34,493 5,809 3,109
Ceylon Cold Stores PLC. 69,791 54,234 35 58
Cinnamon Hotel Management Services Ltd. 100,272 92,943 12,896 16,170
InfoMate (Pvt) Ltd. 26,694 23,010 1,835 1,789
JayKay Marketing Services (Pvt) Ltd. 153,730 79,814 25,153 9,268
John Keells Logistics (Pvt) Ltd. 18,807 17,715 3,236 1,208
John Keells Office Automation (Pvt) Ltd. 28,211 28,291 7,994 1,517
John Keells PLC. 18,373 16,323 1,430 -
Keells Food Products PLC. 26,004 22,790 3,700 2,199
Lanka Marine Services Ltd. 12,525 10,129 1,228 1,040
Mack Air (Pvt) Ltd. 12,668 11,422 2,205 879
Mackinnons Keells Ltd. 2,754 2,476 103 124,589
Mackinnons Travels (Pvt) Ltd. 13,015 12,133 - -
Rajawella Holdings Ltd. 3,162 - 5 -
Trans Asia Hotels PLC. 29,721 24,298 - -
Union Assurance PLC. 52,023 51,396 19,904 32,929
Walkers Tours Ltd. 38,995 34,610 188,929 3,696
Waterfront Properties (Pvt) Ltd. 49,374 37,831 4,007 3,606
Whittall Boustead (Pvt) Ltd. 22,843 16,456 2,869 -
Other subsidiaries 149,313 131,384 18,847 13,058
878,686 701,748 300,185 215,115
Subsidiaries
Asian Hotels and Properties PLC. 6,101 5,334 - -
InfoMate (Pvt) Ltd. 6,372 8,157 - -
Mack Air (Pvt) Ltd. - 1,809 - -
Mackinnons Travels (Pvt) Ltd. 22,487 18,046 2,019 2,221
Rajawella Holdings Ltd - - - 203,104
Trans Asia Hotels PLC. 4,573 4,552 841 2,176
Whittall Boustead (Pvt) Ltd. 9,131 8,744 - 905
Other subsidiaries 10,650 2,276 2,032 776
59,314 48,918 4,892 209,182
No share options have been granted to the non-executive members of the Board of Directors under the employee share option plan.
283
NOTES TO THE FINANCIAL STATEMENTS
All contingent liabilities are disclosed as a note to the financial Income tax assessments relating to years of assessments
statements unless the outflow of resources is remote. A contingent 2012/13, 2013/2014 and 2014/2015
liability recognised in a business combination is initially measured Assessments were raised disallowing a part of the management
at its fair value. fee claimed by the company. The company has lodged valid
appeals against the assessments raised and is contesting these
Subsequently, it is measured at the higher of: The amount that under the appellate procedure.
would be recognised in accordance with the general guidance
for provisions above (LKAS 37) or the amount initially recognised Having discussed with independent legal and tax experts and
less, when appropriate, cumulative amortisation recognised in based on the information available, the contingent liability as at 31
accordance with the guidance for revenue recognition (LKAS 18). March 2018 is estimated at LKR. 11.1 Mn.
Contingent assets are disclosed, where inflow of economic benefit
is probable. Lanka Marine Services (Pvt) Ltd. (LMS)
The contingent liability of LMS as at 31 March 2018, relates to the
The contingent liabilities of the Group and the Company as at 31 following:
March 2018, relates to the following:
Post privatisation turnover tax levied by the Western Provincial
John Keells Holdings PLC. (JKH) Council
The contingent liability of the Company as at 31 March 2018, The company has disputed this on the basis that its business
relates to the following; activity is that of an export. An appeal has been made by the
company to the Western Provincial Council.
GST & VAT Assessments for the year of assessment 2002/03
The Company has lodged valid appeals against the asses sments Income tax assessment relating to year of assessment 2001/02
raised and is contesting these under the appellate procedure. The company has appealed against this assessment on the
grounds that the sale of bunker to foreign ships is an export, which
Income tax assessment relating to year of assessment 2006/07 is liable to concessionary rates of taxes, but this has been disputed
The Company has lodged valid appeals against the assessments by the Department of Inland Revenue. The company has lodged
raised and is contesting these under the appellate procedure. valid appeals against the assessments raised and is contesting
these under the appellate procedure.
Having discussed with independent legal and tax experts and
based on information available, the contingent liability as at 31
March 2018 is estimated at LKR. 123 Mn.
Income tax assessments relating to years of assessments for zero rating under item 7 of the Gazette Extraordinary No.1267/5
2002/03, 2003/04 and 2004/05 of 17.12.2002. The CGIR has appealed against the decision of TAC
It is the view of the company, based on opinions from and it is currently before the Court of Appeal.
independent legal counsel and tax consultants, that the subject
years were statutorily time barred as provided in the Inland Having discussed with independent legal and tax experts and
Revenue Act. The Commissioner General of Inland Revenue (CGIR) based on information available, the contingent liability as a 31
has appealed against the decision of TAC and it is currently before March 2018 is estimated at LKR. 26 Mn.
the Court of Appeal.
Trans Asia Hotels PLC. (TAH)
Income tax assessments relating to years of assessments The contingent liability of the TAH as at 31 March 2018, relates to
2005/06, 2006/07, 2007/08 and 2008/09 the following;
The company has lodged valid appeals against the assessments
raised on export status claimed by the company and is contesting Income tax assessments relating to years of assessments
these under the appellate procedure and the status of each of the 2012/13, 2013/2014 and 2014/2015
appeals are as follows: Assessments were raised disallowing a part of the management
fee claimed by the company. The company has lodged valid
2005/06 and 2006/07 The Tax Appeals Commission determined appeals against the assessments raised and is contesting these
that it has no jurisdiction in respect of appeals relating to these under the appellate procedure.
two years. An appeal made by the CGIR is currently before the
Court of Appeal. Having discussed with independent legal and tax experts and
based on the information available, the contingent liability as at 31
2007/08, 2008/09, 2009/10 and 2011/12 – The company has March 2018 is estimated at LKR. 59 Mn.
lodged valid appeals against the assessments raised and is
contesting these under the appellate procedure. Union Assurance PLC. (UA)
The contingent liability of UA PLC. as at 31 March 2018, relates to
Income tax Assessment relating to year of assessment the following;
2010/2011,2012/2013 and 2013/2014
The company has lodged valid appeals against the assessments Income Tax Assessments received for years of assessments
raised on export status claimed by the company and is contesting 2010/11, 2011/2012, 2012/13, 2013/14 and 2014/15
these under the appellate procedure. The assessments were raised for the above three years of
assessment by making life insurance income liable to pay income
Having discussed with independent legal and tax experts and taxes of LKR. 13 Mn, LKR. 132 Mn, LKR. 411 Mn, LKR. 175 Mn and
based on information available, the contingent liability as at 31 LKR. 862 Mn respectively. The company has lodged valid appeals
March 2018 is estimated at LKR. 1,117 Mn. against the assessments raised and is contesting these under the
appellate procedure.
Mackinnons Travels (Pvt) Ltd (MTL)
The contingent liability of MTL as at 31 March 2018, relates to the Having discussed with independent legal and tax experts and
following; based on information available, the Directors are of the view that
the Company has followed due process and acted in accordance
VAT Assessments received for years of assessments 2009/10 and with the prevailing laws in its tax submissions for years of
2010/2011 assessment 2010 /11, 2011/12, 2012/13, 2013/14 and 2014/15 and
The company has appealed against the assessments raised on the accordingly have concluded that the above assessments have no
grounds that the services provided by it as an Airline Agent qualify rationale or basis in law.
285
NOTES TO THE FINANCIAL STATEMENTS
GROUP COMPANY
As at 31st March 2018 2017 2018 2017
In LKR ‘000s
46 Lease commitments
GROUP
As at 31st March 2018 2017
In LKR ‘000s
Details of leases
Ceylon Cold Stores PLC. CISCO Speciality Packaging (Pvt) Ltd. Pet Bottle Plant
Ceylon Holiday Resorts Ltd. Sri Lanka Tourist Board Land occupied.
Hikkaduwa Holiday Resorts (Pvt) Ltd. Sri Lanka Tourist Board Land occupied.
Fantasea World Investment (Pte) Ltd. Government of Maldives Land occupied.
Habarana Lodge Ltd. Kekirawa Divisional Secretariat Land occupied.
Habarana Walk Inn Ltd. Kekirawa Divisional Secretariat Land occupied.
Jaykay Marketing Services (Pvt) Ltd. Land owners Land occupied.
Keells Food Products PLC. Pannala Divisional Secretariat Land occupied.
The Colombo Ice Company (Pvt) Ltd. Board of Investment of Sri Lanka Land occupied.
Travel Club (Pte) Ltd. Government of Maldives and a sub lease with Ellaidhoo Investments (Pte) Ltd. Land occupied.
Tranquility (Pte) Ltd. Government of Maldives Land occupied.
Yala Village (Pvt) Ltd. Sri Lanka Tourist Board Land occupied.
Waterfront Properties (Pvt) Ltd. Board of Investment of Sri Lanka Land occupied.
Extent of lease hold land is given in the Group real estate portfolio in the Supplementary Information section of the Annual Report.
47 Assets pledged
Assets pledged for facilities obtained is given in note 36.3 to the financial statements.
In accordance with LKAS 10, Events after the reporting period, the final dividend has not been recognised as a liability in the financial statements
as at 31 March 2018.
Supplementary Information
288 History of the John Keells Group . 289 Decade at a Glance . 290 Economic Value Statement .
292 Indicative US Dollar Financial Statements . 294 Group Real Estate Portfolio . 296 Sri Lankan Economy .
298 Glossary . 299 Contribution to National and International Governance and Advocacy Organisations .
300 Independent Assurance Statement on Non-Financial Reporting . 303 Group Directory . 308 GRI Content Index .
316 Notice of Meeting . 317 Proxy Form . 319 Corporate Information
287
HISTORY OF THE JOHN KEELLS GROUP
DECADE AT A GLANCE
31 March 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009
LKR Mn
OPERATING RESULTS
Group revenue 121,215 106,273 93,710 91,852 86,706 85,408 75,924 60,500 47,980 41,023
EBIT 28,155 23,324 20,192 19,226 16,537 16,677 14,192 11,425 7,908 7,986
Finance cost (521) (436) (994) (668) (1,217) (1,081) (1,416) (796) (1,370) (1,695)
Share of results of equity accounted 3,596 3,303 2,781 2,778 3,089 3,440 2,809 2,641 2,556 2,340
investees (net of tax)
Profit before tax 27,634 22,888 19,198 18,557 15,320 15,595 12,778 10,629 6,538 6,291
Tax expense (4,515) (4,771) (3,406) (2,812) (2,362) (2,162) (1,827) (1,566) (986) (1,326)
Profit after tax 23,120 18,117 15,792 15,745 12,958 13,433 10,951 9,063 5,552 4,965
Attributable to:
Equity holders of the parent 21,021 16,275 14,070 14,348 11,721 12,113 9,689 8,245 5,201 4,733
Non-controlling interests 2,099 1,842 1,722 1,397 1,237 1,320 1,262 818 351 232
23,120 18,117 15,792 15,745 12,958 13,433 10,951 9,063 5,552 4,965
CAPITAL EMPLOYED
Stated capital 62,802 62,790 58,702 50,703 49,749 26,480 25,111 24,612 23,322 22,525
Capital reserves and other components 49,852 38,652 28,715 24,501 21,845 20,635 13,226 9,560 7,574 7,437
of equity
Revenue reserves 87,266 77,193 67,565 62,594 51,304 42,704 33,001 25,415 18,936 15,545
199,920 178,635 154,982 137,798 122,898 89,819 71,338 59,587 49,832 45,507
Non-controlling interest 24,944 15,696 13,499 12,279 11,421 11,152 8,624 7,608 6,430 4,960
Total equity 224,864 194,331 168,481 150,077 134,319 100,971 79,962 67,195 56,262 50,467
Total debt 29,722 22,766 20,750 23,934 26,139 20,107 20,054 14,641 17,453 21,596
254,586 217,097 189,231 174,011 160,458 121,078 100,016 81,836 73,715 72,063
ASSETS EMPLOYED
Property, plant and equipment (PP&E) 87,260 64,396 52,737 49,563 47,406 49,200 34,246 28,628 29,989 29,965
Non-current assets other than PP&E 136,427 107,912 93,376 78,030 71,969 59,787 52,397 47,436 34,104 33,456
Current assets 98,762 104,964 94,863 90,493 82,206 49,934 47,412 34,228 34,566 28,718
Liabilities net of debt (67,862) (60,175) (51,745) (44,075) (41,123) (37,843) (34,039) (28,456) (24,944) (20,076)
254,587 217,097 189,231 174,011 160,458 121,078 100,016 81,836 73,715 72,063
CASH FLOW
Net cash flows from
operating activities 16,012 21,020 20,513 20,855 8,041 14,568 16,476 8,501 9,485 4,146
Net cash flows from / (used in)
investing activities (16,640) (17,670) (9,567) (1,255) (19,710) (16,199) (9,003) (4,469) (5,823) (3,972)
Net cash flows from / (used in)
financing activities (4,587) (4,105) (7,717) (4,838) 25,446 (1,320) 496 (6,791) (636) 2,332
Net increase / (decrease) in
cash and cash equivalents (5,215) (755) 3,229 14,762 13,777 (2,951) 7,969 (2,759) 3,026 2,506
KEY INDICATORS
Basic earnings per share (Rs.) 15.20 11.9 10.5 12.6 10.5 10.7 9.5 8.2 5.2 4.7
Interest cover (no. of times) 54 52.8 51.5 27.7 13.6 15.4 10.0 14.4 5.8 4.7
Net assets per share** (Rs.) 144.0 128.7 111.7 99.3 88.6 64.7 51.4 43.0 35.9 32.8
Enterprise value (EV) 187,926 136,022 124,182 155,675 124,182 203,615 166,143 175,672 109,548 42,815
EV / EBITDA 5.8 5.0 5.0 6.6 10.0 10.0 13.1 13.1 10.9 4.3
ROE (%) 11.1 9.8 9.6 11. 0 11.0 15.0 14.7 15.1 10.9 10.6
Debt / equity ratio (%) 13.2 11.7 12.3 15.9 19.5 19.9 25.0 21.8 31.0 42.8
TSR (%) 19.7 (10.0)*** (12.2)*** (12.0)*** (0.4)*** 21.7 58.2 204.3 (43.1) 15.7
Dividend payout (Rs. Mn) 8,325 7,280 8,038 3,476 3,267 2,982 2,314 1,844 1,883 3,176
Current ratio (no. of times) 3.0 3.7 4.0 2.6 2.4 2.0 2.0 1.8 2.1 1.8
Market price per share unadjusted (Rs.) 159.6 137.9 148.0 199.4 227.0 247.0 206.0 285.6 184.0 62.8
Market price per share diluted (Rs.) 159.6 137.9 129.5 192.7 173.8 238.2 152.6 34.6 66.0 62.0
Revenue growth rate (%) 14.1 13.4 1.6 5.9 4.1 9.7 25.5 26.1 17.0 -1.9
USD closing rate (Rs.) 155.9 151.9 147.7 133.5 130.7 126.8 128.1 110.4 114.0 115.5
USD average rate (Rs.) 153.6 148.0 139.2 131.2 130.1 129.9 112.6 112.1 115.0 109.8
* The figures are derived from financial statements prepared in accordance with SLFRS/LKAS. Figures for the remaining periods are derived from
financial statements prepared in accordance with previous SLASs.
** Net assets per share has been calculated, for all periods, based on the net assets of the Group and number of shares in issue as at 31 March 2018.
*** Includes the proportionate impact arising from the ownership of warrants.
*** Price earnings ratio (diuted ) derived using market price per share (diluted) and EPS (diluted)
289
ECONOMIC VALUE STATEMENT
Economic value
distributed
Operating costs 15,284 11,210 13,631 12,208 2,638 1,540 44,363 33,428 6,684 9,135
Employee wages and 932 451 4,826 4,569 220 390 3,738 4,078 142 851
benefits
Payments to providers 902 1,139 5,576 6,744 407 824 2,063 4,507 365 514
of funds
Payments to 162 168 1,161 1,352 53 69 3,190 3,155 6 63
government
Community 6 3 35 55 1 1 30 43 - 5
investments
17,286 12,971 25,229 24,928 3,319 2,824 53,384 45,211 7,197 10,568
Economic value
retained
Depreciation 110 102 1,734 1,589 37 19 1,015 830 71 80
Amortisation 2 2 473 636 33 21 26 14 222 221
Profit after dividends 2,726 2,968 2,113 4,165 (17) 508 2,404 3,165 8,047 1,978
Retained for 2,838 3,072 4,320 6,390 53 548 3,445 4,009 8,340 2,279
reinvestment /
growth
Above data has been derived from the audited Financial Statements that were prepared based on Sri Lanka Accounting Standards (SLFRS/LKAS).
This report has been prepared in accordance with the GRI Standards: Core option
11,348 11,337 4,448 3,757 126,310 111,337 (5,095) (5,064) 121,215 87.17 106,273 87.21
44 52 14,925 16,152 22,701 24,396 (11,433) (14,363) 11,268 8.10 10,033 8.23
- - - 3,596 3,303 - - 3,596 2.59 3,303 2.71
317 71 8,840 4,060 12,091 8,812 (10,007) (7,047) 2,084 1.50 1,765 1.45
9,175 8,710 7,989 10,622 99,764 86,853 (6,106) (5,305) 93,658 67.35 81,548 66.92
1,210 1,362 1,196 1,045 12,264 12,746 - - 12,264 8.82 12,746 10.46
568 513 8,924 7,987 18,805 22,228 (8,771) (13,889) 10,034 7.22 8,339 6.84
248 271 1,443 1,207 6,263 6,285 - - 6,263 4.50 6,285 5.16
11,207 10,859 19,598 20,895 137,220 128,256 (14,877) (19,194) 122,343 87.98 109,062 89.50
145 122 124 133 3,236 2,875 - - 3,236 2.33 2,875 2.36
9 11 19 21 784 926 - - 784 0.56 926 0.76
348 468 8,733 3,023 24,354 16,275 (11,658) (7,280) 12,696 9.13 8,995 7.38
502 601 8,876 3,177 28,374 20,076 (11,658) (7,280) 16,716 12.02 12,796 10.50
291
INDICATIVE US DOLLAR FINANCIAL STATEMENTS
Income Statement
for information purposes only
GROUP COMPANY
For the year ended 31 March 2018 2017 2018 2017
In USD 000
Continuing operations
Sale of goods 525,817 449,231 - -
Rendering of services 251,701 250,394 8,645 7,415
Revenue 777,518 699,625 8,645 7,415
Attributable to:
Equity holders of the parent 134,838 107,143
Non-controlling interests 13,462 12,124
148,300 119,267
This information does not constitute a full set of financial statements in compliance with SLFRS/LKAS. The above should be read together with the
Auditors’ opinion and the notes to the financial statements. Exchange rates prevailing at year end USD/LKR. 155.90 (2017 - 151.90) have been used to
convert the income statement and statement of financial position.
ASSETS
Non-current assets
Property, plant and equipment 559,717 423,939 820 618
Lease rentals paid in advance 83,418 86,939 - -
Investment property 79,712 35,327 - -
Intangible assets 12,894 13,944 285 203
Investments in subsidiaries - - 435,971 282,998
Investments in equity accounted investees 143,267 116,648 65,206 58,662
Non-current financial assets 210,893 182,137 1,713 18,367
Deferred tax assets 1,100 945 - -
Other non-current assets 343,806 274,472 133 107
1,434,807 1,134,351 504,128 360,955
Current assets
Inventories 42,909 36,904 - -
Trade and other receivables 78,726 76,942 454 777
Amounts due from related parties 896 735 2,594 1,888
Other current assets 28,161 21,497 1,276 655
Short term investments 412,996 521,227 315,314 396,598
Cash in hand and at bank 69,807 33,701 3,185 2,003
633,495 691,006 322,823 401,921
Total assets 2,068,302 1,825,357 826,951 762,876
Non-current liabilities
Insurance contract liabilities 193,910 208,692 - -
Interest-bearing loans and borrowings 118,801 93,500 - -
Deferred tax liabilities 45,473 15,380 - -
Employee benefit liabilities 12,645 12,378 1,339 1,435
Other deferred liabilities 1,228 5,523 - 680
Other non-current liabilities 43,004 25,898 - -
415,061 361,371 1,339 2,115
Current liabilities
Trade and other payables 103,127 93,061 2,131 2,173
Amounts due to related parties 33 69 34 1,383
Income tax liabilities 13,334 15,769 4,308 4,184
Short term borrowings 20,067 9,086 - -
Interest-bearing loans and borrowings 13,229 19,216 - -
Other current liabilities 22,535 19,382 34 108
Bank overdrafts 38,551 28,072 401 555
210,876 184,655 6,908 8,403
Total equity and liabilities 2,068,301 1,825,357 826,950 762,876
This information does not constitute a full set of financial statements in compliance with SLFRS/LKAS. The above should be read together with the
Auditors’ opinion and the notes to the financial statements. Exchange rates prevailing at year end USD/LKR. 155.90 (2017 - 151.90) have been used to
convert the income statement and statement of financial position.
293
GROUP REAL ESTATE PORTFOLIO
PROPERTIES IN COLOMBO
John Keells PLC.
56/1, 58, 58 1/1 Kirulapone Avenue, Colombo 5. - 0.08 - 1,249 1,249
Keells Realtors Ltd.
427 & 429, Ferguson Road, Mattakkuliya, Colombo 15. 27,750 1.22 - 348,870 311,599
Mackinnon Keells Ltd.
Leyden Bastian Road, York Street, Colombo 1. 31,656 0.45 - 606,608 506,083
Union Assurance PLC.
20, St. Michaels' Road, Colombo 3. 57,916 0.58 - 1,600,000 1,121,751
Vauxhall Developments (Pvt) Ltd
199 ,Union Place Colombo 2. and No.148, Vauxhall Street
Colombo 2. 111,142 3.56 - 8,400,876 -
188, 188/1,188 2/1,190,192 Vauxhall Street, Colombo 2 and
42, Dawson Street, Colombo 2. - 2.09 - 5,015,309 -
186,186/3 Vauxhall Street, Colombo 2 - 3.73 - 8,344,000 -
Whittall Boustead (Pvt) Ltd.
199 ,Union Place, Colombo 2. - - - - 446,800
148, Vauxhall Street, Colombo 2. - - - - 2,397,687
228,464 11.71 - 24,316,912 4,785,169
HOTEL PROPERTIES
Asian Hotels and Properties PLC.
Cinnamon Grand Premises, Colombo 2. 648,793 8.03 - 26,973,981 25,159,212
Crescat Boulevard, Colombo 2. 145,196 - - 2,621,000 2,416,250
Ahungalla Holiday Resort (Pvt) Ltd.
Ahungalla. - 6.51 - 279,600 152,790
Beruwala Holiday Resorts (Pvt) Ltd.
Cinnamon Bey, Beruwala. 425,684 11.39 - 3,650,025 3,406,000
Ceylon Holiday Resorts Ltd.
Bentota Beach Hotel, Bentota. 236,524 2.32 11.02 181,295 291,173
Fantasea World Investments (Pte) Ltd.
Chaaya Lagoon Hakuraa Huraa, Republic of Maldives. 150,412 - 18.90 1,166,697 1,183,395
Habarana Lodge Ltd.
Cinnamon Lodge, Habarana. 202,999 - 25.48 743,800 715,100
Habarana Walk Inn Ltd.
Chaaya Village, Habarana. 121,767 - 9.34 320,921 308,100
Hikkaduwa Holiday Resort (Pvt) Ltd.
Chaaya Tranz, Hikkaduwa. 233,965 0.29 4.36 1,211,391 1,175,799
Kandy Walk Inn Ltd.
Cinnamon Citadel, Kandy. 173,900 6.57 - 1,616,915 1,438,299
Nuwara Eliya Holiday Resort (Pvt) Ltd
Nuwara Eliya. - 3.35 - 313,900 290,911
Resort Hotels Ltd.
Medway Estate, Nilaveli. 4,485 41.73 - 867,900 834,500
Trans Asia Hotels PLC.
Cinnamon Lake Side, Colombo 2. 448,791 - 7.65 6,021,627 5,688,301
Tranquility (Pte) Ltd.
Cinnamon Island Alidhoo, Republic of Maldives. 246,358 - 17.16 9,978,261 9,690,056
Travel Club (Pte) Ltd.
Chaaya Reef Ellaidhoo, Republic of Maldives. 170,877 - 13.75 1,759,032 1,529,257
Trinco Holiday Resorts (Pvt) Ltd.
Chaaya Blu, Trincomalee. 120,910 13.24 - 1,129,389 1,015,396
Trinco Walk Inn Ltd.
Club Oceanic, Trincomalee. - 14.64 - 265,514 208,967
Wirawila Walk Inn Ltd.
Randunukelle Estate, Wirawila. - 25.15 - 86,880 86,883
Yala Village (Pvt) Ltd.
Cinnamon Wild, Tissamaharama. 113,509 - 11.25 496,638 474,431
3,444,170 133.22 118.91 59,684,766 56,064,820
295
SRI LANKAN ECONOMY
Summary Indicator Units 2009 2010 2011 2012 2013 2014 2015 2016 2017
GDP Growth (2010 base) % 8.4 9.1 3.4 5.0 5.0 4.5 3.1
GDP Growth (2002 base) % 3.5 8.0 8.2 6.3 7.2 7.4 5.7
GDP(current prices: 2010 base) Rs. billion 6,414 7,219 8,732 9,592 10,361 10,951 11,907 13,289
GDP(current prices: 2002 base) Rs. billion 4,835 5,604 6,543 7,579 8,674 9,785 10,660
GDP(current prices: 2010 base) USD billion 56.7 65.3 68.4 74.3 79.4 80.6 81.8 87.2
GDP(current prices: 2002 base) USD billion 42.1 49.6 59.2 59.4 67.2 74.9 78.4
GDP per Capita (USD) Growth : 2010 base % 14.0% 7.1% 7.7% 5.9% 0.5% 0.4% 5.4%
GDP per Capita (USD) Growth : 2002 base % 2.1% 16.7% 18.3% 3% 12% 11% 8%
GDP per capita (market prices: 2010 base) Rs.000 310 346 428 466 499 522 562 620
GDP per capita (market prices: 2002 base) Rs.000 236 271 314 371 422 471 508
GDP per capita (market prices: 2010 base) USD 2,744 3,129 3,351 3,609 3,821 3,842 3,857 4065
GDP per capita (market prices: 2002 base) USD 2,057 2,400 2836 2,908 3,265 3,608 3894
Inflation (CCPI 2013=100) annual average % 2.2 4 6.6
Inflation (CCPI 2006/07=100) annual
average % 3.5 6.2 6.7 7.6 6.9 3.3 0.9 3.7 -
Inflation (NCPI 2013=100) annual average % 3.8 4 7.7
Current Account Balance USD billion -0.2 -1.1 -4.6 -4.0 -2.5 -2.0 -1.9 -1.7 -2.3
Current Account % of GDP* % -0.5 -1.9 7.1 -5.8 -3.4 -2.5 -2.3 -2.1 -2.6
Population Million 20.5 20.7 20.9 20.4 20.6 20.8 21.0 21.2 21.4
Exchange Rate (Annual Average) LKR/USD 114.9 113.1 110.6 127.6 129.1 130.6 135.9 145.6 152.46
Exchange Rate Change (Annual Average) % 6.1 -1.6 -2.2 15.4 1.2 1.1 4.1 7.1 4.7
12m T-Bill yield (yr-end) % 9.3 7.6 9.3 11.7 8.3 6.0 7.3 10.2 8.9
Prime Lending Rate (yr-end) % 10.9 9.3 10.8 14.4 10.1 6.3 7.5 11.5 11.6
M2b Money supply growth % 18.6 15.8 19.1 17.6 16.7 13.4 17.8 18.4 16.7
Exports USD billion 7.1 8.6 10.6 9.8 10.4 11.1 10.5 10.3 11.4
Imports USD billion 10.2 13.5 20.3 19.2 18.0 19.4 18.9 19.2 21.0
Balance of Payments* % of GDP 6.5 1.6 -1.6 0.2 1.3 1.7 -1.8 -0.6 2.4
Budget Deficit* % of GDP -9.9 -7.0 -6.2 -5.6 -5.4 -5.7 -7.6 -5.4 -5.5
Unemployment Rate % 5.8 4.9 4.2 4.0 4.4 4.3 4.7 4.4 4.2
All Share Index (yr-end) Points 3386 6636 6074 5643 5913 7299 6895 6228 6369
Tourist Arrivals No.' 000 447.9 654.5 856.0 1,006 1275 1527 1,798 2,051 2,116
* Uses rebased GDP (2010 base) from 2010 onwards
Sri Lanka’s economic growth decelerated beginning of the year to 14.7 per cent YOY (Year- while credit to public corporations rose by 3.9 per
considerably in 2017, slowing down from 4.5 per on-Year) growth by end-2017. This tightening cent during the year.
cent in 2016 to 3.1 per cent - the slowest growth stance was also advocated by the International
Sri Lanka’s Balance of Payments (BOP) improved
since the start of the 2010 base. Prolonged severe Monetary Fund (IMF) under its Extended Fund
considerably in 2017, recording a surplus of US$
weather conditions continued to affect the Facility (EFF) which was put in place in mid-
2.1billion from the US$ 500Mn deficit seen in
Agricultural sector, while growth in the Industrial 2016 to support the country’s economic reform
the previous year. This was largely on the back
and the Services sectors remained modest as agenda amid worsening debt levels and external
of increased inflows to the Financial Account,
well, moderating from that of the previous year. financing conditions. Under the recommendation
despite an expansion in the deficit in the Current
Poor weather conditions also contributed to of the IMF, the CBSL has laid down the roadmap
Account to 2.6 per cent of GDP. Increased import
several food supply disruptions throughout the to move towards an inflation targeting monetary
demand over and above the improvement in
year which resulted in inflation edging up in framework from the previous monetary targeting
export performance contributed to a widening
2017, averaging higher at 6.6 per cent (CCPI - framework.
of the trade deficit to USD 9.6billion in 2017
2013 base) compared to the 4.0 per cent average
Key market rates saw a slight increase during the from a deficit of USD 8.9billion seen in the
in 2016. In addition to the unfavourable supply
year with the Average Weighted Prime Lending previous year. The prolonged inclement weather
side factors, revisions to taxation policies and
Rate (AWPLR) rising by a mere 3 basis points to conditions led to accelerated fuel imports by
rates implemented by the Government during
11.55 per cent by end-2017 from 11.52 per cent way of increased thermal power generation,
the previous year, such as the VAT revision,
at the end of 2016. Meanwhile, the Average while higher rice imports to meet the domestic
saw their effects realise fully during the year
Weighted Deposit Rate (AWDR) saw a more market shortages also contributed significantly to
and thereby, further contributed to the rise in
notable rise of 90 basis points to 9.07 per cent by the expansion of the trade deficit. On the other
inflation.
the end of 2017, in line with the CBSLs continued hand, improved global market conditions, such
Given the significantly high level of credit growth tightening stance. as the reinstatement of GSP plus concessions and
to the private sector seen over the past few years, higher average tea prices, helped in the growth
Amidst an easing in private sector credit growth,
coupled with an accelerating pace of inflation, of export earnings.
broad money supply decelerated considerably
the CBSL maintained a contractionary monetary
in 2017, reducing to 16.7 per cent compared to Meanwhile, poor performance in tourism
policy stance throughout 2017. Following
the 18.4 per cent growth in 2016. Overall, credit earnings and workers’ remittances during the
the rate hike in July 2016, the Bank raised key
to the private sector saw an absolute increase of year aggravated the overall fall in the Current
policy rates by 25 basis points in March 2017. In
Rs.617.4 billion, relatively less than the Rs.754.8 Account. The partial closure of the Bandaranaike
response, credit demand decelerated notably,
billion increase in the previous year. Net credit to International Airport for renovations in early
particularly towards the latter half of the year,
the Government saw an increase of 10.0 per cent, 2017, followed by the outbreak of Dengue fever
reducing from around 20 per cent levels at the
and poor weather conditions, all contributed to major sub sectors of GDP; Industry and Services 15.2 per cent YOY respectively. This was mainly
restricted growth in tourist arrivals during the recorded growth rates of 3.9 per cent and 3.2 due to an increase in Government dis-savings
year resulting in a mere 3.2 per cent increase in per cent YOY respectively, while the Agricultural due to fiscal slippages despite the improvement
tourism earnings in 2017 compared to the 18 sector recorded a decline of 0.8 per cent YOY. in revenue. Private savings, on the other hand,
per cent rise in the previous year. Concurrently, recorded a healthy growth amid a tightened
Growth in the Agricultural sector in 2017 was
workers’ remittance inflows recorded a monetary environment. However, owing to
significantly disturbed by inclement weather
contraction of 1.1 per cent over the year amidst the relatively higher investment spending, the
conditions experienced through most of the
geopolitical tensions in the Middle East alongside savings- investment gap increased to 2.6 per cent
year. However, the sector witnessed a strong
a reduction in labour migration, standing at USD of GDP in 2016 from 2.1 per cent in the prior year.
recovery in the last quarter of 2017, leading
7.2 billion by end-2017.
to a contraction of a mere 0.8 per cent YOY in Headline inflation, under the new base
Sri Lanka benefitted from easing global financial 2017 – as opposed to the decline of3.0 per cent (2013=100), reached an annual average of 6.6
conditions and favourable investor sentiments YOY recorded in the previous year. The overall per cent in 2017 – higher than the 4.0 per cent
towards emerging markets during the year, with contraction was mainly led by oleaginous fruits average recorded in 2016. Headline inflation
foreign inflows into the Sri Lankan government (coconut, king coconut, oil palm), vegetable and remained at elevated levels throughout the year,
securities market rising by Rs.61.8billion rice sub-categories which saw declines of 19.5 peaking at 7.8 per cent YOY in October. The last
during the year. This, along with reduced debt per cent, 16.2 per cent and 4.0 per cent YOY, quarter of 2017 saw an overall decline in prices,
repayments, saw limited depreciatory pressure respectively. ending the year at 7.1 per cent YOY in December.
on the currency during the year, which weakened The price movements were largely owing to a
On the other hand, the forestry and logging
by a mere 2.0 per cent against the USD in 2017. shortage in food supply during the year due
industry grew at a stellar 22.0 per cent YOY during
In the meantime, Foreign Direct Investments to severe weather conditions. Several tariff
the year. Additionally, the tea industry also saw
recorded an all-time high of USD 1.9 billion in revisions – which took place in the previous year
improved performance of 4.8 per cent YOY–
2017, with a notable 77.5 per cent increase from – also saw their effects fully realise during 2017,
partly due to base effects of continuous declines
USD 1.1 billion seen in the previous year. This was further contributing to the upward movement in
recorded in the last 3 years.
led by the proceeds from the Hambantota Port headline inflation.
lease to China and Colombo Port City Project The Industrial sector grew at 3.9 per cent YOY in
On the external front, Sri Lanka’s trade account
among several other positive developments. 2017, below the 5.8 per cent growth reported in
widened considerably during 2017 on account
the previous year. This growth was mainly driven
Aided by these inflows, along with a successful of increased import expenditure, induced by
by the mining and quarrying sub-category which
sovereign bond issuance in May 2017, the inclement weather, offsetting the improvement
grew at5.9 per cent YOY, followed by the textiles
proceeds of a foreign currency term financing in export performance. Export earnings recorded
manufacturing industry which showed 5.7 per
facility and the receipt of two tranches of the a growth of10.2 per cent YOY in 2017, recording
cent growth. Meanwhile, the construction sub-
International Monetary Fund Extended Fund an all-time high earnings value of USD 11.4
sector recorded a modest growth of 3.1 per cent
Facility (IMF EFF) during the year, Sri Lanka’s gross billion for the year. This was largely owing to
during the year, a slowdown from the 8.3 per cent
official reserves strengthened in 2017, rising improved international market conditions during
growth seen last year.
to USD 8.0 billion from USD 6.0 billion in the the year, such as the synchronised growth in
previous year. Under the guidance of the IMF, the The services sector, the most significant advanced countries, the regaining of the GSP plus
Central Bank aims to improve the reserve position component of GDP registered a growth of 3.2 concession, as well as higher average tea prices
to USD10.0 billion by the end of 2018. per cent YOY in 2017, below the 4.7 per cent in the global market. Exports of tea, petroleum
growth recorded in 2016, reflecting a slowdown products, textiles and garments, and spices were
According to the Central Bank Annual Report,
in a majority of the service activities. Financial the main contributors to the upturn, recording
Sri Lanka achieved a surplus in the Primary
service activities led the Service sector growth, increases of 20.5 per cent, 51.4 per cent, 3.0
balance of the Budget for the first time since
rising by9.4 per cent YOY, followed by real estate per cent and 28.1 per cent YOY, respectively.
1992. However, the overall budget deficit
and wholesale and retail trade activities. The real Overall import expenditure expanded by 9.4
expanded to 5.5 per cent of GDP in 2017 from
estate category recorded a YOY growth of 4.7 per cent in 2017, reporting the highest ever
5.4 per cent in the previous year. The deviation
per cent, while growth in wholesale and retail import bill of USD 21 billion for the year – largely
from the envisaged path was particularly due to
trade improved slightly to 3.8 per cent YOY in due to weather induced imports. A 15.9 per
higher interest payments, costs on disaster relief
2017, from a2.5 per cent increase recorded in the cent growth in expenditure on Intermediate
measures and a shortfall in Non-tax Revenue
previous year. goods led the overall increase in imports, mainly
during the year. Nevertheless, the Government
due to a substantial increase in Fuel imports.
continued its efforts on a revenue-based In spite of the moderation in overall economic Fuel import expenditure increased by 38.2 per
consolidation programme, which included growth, domestic consumption demand in real cent YOY, owing to higher import volumes for
upward revisions to tax rates, a broadening of the terms recovered to 0.6 per cent in 2017 from the increased thermal power generation in place
tax base and strengthening of tax administration. 3.3 per cent decline in the previous year (2010 of hydro power during the persistent periods
This saw tax revenue increase to 12.6 per cent base). This low growth is likely attributable to of drought, coupled with higher oil prices in
of GDP from 12.3 per cent in 2016. However, a the tightened monetary environment as well as the international market. Increased expenditure
decline in non-tax revenue, mainly due to poor tighter fiscal policies implemented within the on consumer goods also contributed to the
performance by State Owned Enterprise (SOBEs), last year. Meanwhile, real growth in investment expansion in imports, mainly owing to a 13.1 per
weighed down the total revenue to 13.8 per expenditure reduced to 17.2 per cent in 2017, cent YOY growth in food and beverage imports.
cent of GDP from 14.2 per cent seen in 2016. from the 27.1 per cent rise recorded in 2016. This was largely due to the measures taken by the
Reflecting efforts taken to rationalise recurrent However, total domestic demand in real terms Government to fulfil domestic market shortages
expenditure, Total expenditure also declined to improved to 6.8 per cent from 6.3 per cent a year of rice production. However, expenditure on
19.4 per cent of GDP in 2017, below the 19.6 per ago. investment goods recorded a contraction of 1.7
cent seen in the prior year.
Growth in aggregate domestic savings and per cent in 2017, caused by a 4.4 per cent YOY
The GDP growth for the full year of 2017 was national savings moderated from the pace seen decline in machinery and equipment imports.
recorded at 3.1 per cent YOY. Out of the three in the previous year, rising by 18.4 per cent and
297
GLOSSARY
• Member of the Advisory Committee for The Management during the year, contributed
Investment Promotion to industry-specific and national agenda and
policies, through the participation at various
• Member of the Steering Committee for
fora covering a plethora of aspects ranging
establishment of the National Science
from corporate governance, leadership,
Centre in Sri Lanka
risk management and digitization, to tax
• Board Director of Board of Investment legislation and strategy, accountancy and
finance, infrastructure finance, capital markets,
• Members of the Board and Committees
Sri Lankan investments in ports and logistics
of the Ceylon Chamber of Commerce
and prevention of harassment to promote
such as Main Committee, Co-Chair of the
increased participation of women in the
National Agenda Committee on Logistics
Hospitality Sector.
& Transport, Chairperson of the Legislation
Sub Committee, Economic Planning
Steering Committee
299
INDEPENDENT ASSURANCE STATEMENT ON NON-FINANCIAL REPORTING
Scope and Approach We planned and performed our work to interviewees and interviewed those
DNV GL represented by DNV GL Business obtain the evidence we considered necessary with overall responsibility to deliver the
Assurance Lanka (Private) Limited has been to provide a basis for our assurance opinion Company’s sustainability objectives;
commissioned by the management of John and the process did not involve engagement
Keells Holdings PLC (‘JKH’ or ‘the Company’) with external stakeholders. • Site visits to sample operations of the
to carry out an independent assurance Group: (i) Cinnamon Lakeside at Colombo
engagement for the non-financial - qualitative Responsibilities of the Management of (Cinnamon Hotels and Resorts), (ii) the
and quantitative information (sustainability office of JK Office Automation in Colombo
JKH and of the Assurance Providers
performance) reported in JKH’s Annual Report (John Keells Office Automation), and (iii)
The Management of JKH have the sole
2017/18 (‘the Report’) in its printed format for Keells Super retail outlet at Attidiya (JayKay
responsibility for the preparation of the
the financial year ending 31st March, 2018. Marketing Services) - to review processes
Report as well as the processes for collecting,
The sustainability disclosures in this Report and systems for preparing site level
analysing and reporting the information
are prepared by JKH considering the key sustainability data and implementation
presented in the Report. In performing this
requirements of the International Integrated of sustainability strategy. We were free to
assurance work, DNV GL’s responsibility is to
Reporting Council’s (IIRC’s) <IR> Framework choose sites for conducting Assessments;
the Management; however, this statement
and in accordance with the Core option of the represents our independent opinion and • Review of supporting evidence for key
Global Reporting Initiative (GRI) Sustainability is intended to inform the outcome of the claims and data in the Report;
Reporting Standards 2016 (‘GRI Standards’). assurance to the stakeholders of the Company.
DNV GL was not involved in the preparation of • Review of the processes for gathering and
We performed our verification (Type any statements or data included in the Report consolidating the specified performance
2, Moderate level) activities based on except for this Assurance Statement. data related to identified material topics
AccountAbility’s AA1000 Assurance Standard and, for a sample, checking the data
2008 (AA1000 AS) and DNV GL’s assurance DNV GL provides a range of other services to consolidation in context to the Principle of
methodology VeriSustainTM , which is based JKH, none of which in our opinion, constitute a Completeness as per VeriSustain.
on our professional experience, international conflict of interest with this assurance work.
• An independent assessment of JKH’s
assurance best practice including International
DNV GL’s assurance engagements are reporting against the GRI Standards and
Standard on Assurance Engagements 3000
based on the assumption that the data and the reporting requirements for the GRI
(ISAE 3000) Revised* and GRI Guidelines. Our
information provided by the client to us as Standards: Core option of reporting.
assurance engagement was planned and
carried out in February 2018 – May 2018. part of our review have been provided in good During the assurance process, we did not
faith. We were not involved in the preparation come across limitations to the scope of the
The intended user of this assurance statement of any statements or data included in the agreed assurance engagement. The reported
is the Management of JKH. We disclaim any Report except for this Assurance Statement. data on economic performance, and other
liability or responsibility to a third party for DNV GL expressly disclaims any liability or financial data are based on audited financial
decisions, whether investment or otherwise, co-responsibility for any decision a person or statements issued by the Company’s statutory
based on this Assurance Statement. an entity may make based on this Assurance auditors.
Statement.
The reporting Topic Boundaries of Opinion
sustainability performance are based on Basis of our Opinion On the basis of the verification undertaken,
internal and external materiality assessment • Review of JKH’s approach to stakeholder nothing has come to our attention to suggest
carried out by the Company and covers JKH’s engagement and materiality determination that the Report does not properly describe
operations in Sri Lanka and Maldives. The process and the outcome as reported in JKH’s adherence to the GRI Standards:
Report does not include performance data this Report. We did not have any direct Core option of reporting including the GRI
and information related to the activities of engagement with external stakeholders; 102: General Disclosures 2016, GRI 103:
non-operational entities, investment entities • Interviews with selected senior managers Management Approach 2016 and disclosures
and companies holding only land, over responsible for management of related to the following GRI Standards which
which JKH does not exercise operational and sustainability issues and review of selected have been chosen by JKH to bring out its
management control. This is as set out in the evidence to support issues disclosed performance against its identified material
Report in the section ‘Scope and Boundary’. within the Report. We were free to choose topics:
301
INDEPENDENT ASSURANCE STATEMENT ON NON-FINANCIAL REPORTING
boundary and its supply chain, including content and presentation along with key geolocations and its diverse business to
performance indicators, and disclosures on concerns and challenges faced during the build credence of the Report.
management approach covering the strategy, period.
• JKH may reinforce Due Diligence in its
management approach, monitoring systems
entire supply chain to assess, evaluate and
against the identified GRI Standards including Opportunities for Improvement
mitigate negative impacts, if any, in context
requirements related to Core option of The following is an excerpt from the
to Human Rights and Labour Practices.
reporting. observations and further opportunities for
improvement reported to the management • JKH may further strengthen the awareness
Neutrality of JKH and are not considered for drawing our levels of key personnel on material topics
The extent to which a report provides a conclusion on the Report; however, they are related to business, through regular and
balanced account of an organization’s generally consistent with the Management’s frequent awareness and engagement
performance, delivered in a neutral tone. objectives: sessions.
The disclosures within the Report, related • It would be worthwhile if the Group might
to sustainability issues and performances decide reporting disclosures of outcomes
are presented in a neutral tone, in terms of of supply chain risk assessment across all
DNV GL Business Assurance Lanka (Private) Limited is part of DNV GL – Business Assurance, a global provider of certification, verification, assessment and
training services, helping customers to build sustainable business performance. www.dnvgl.com
GROUP DIRECTORY
John Keells Holdings PLC. has business interests across seven industry groups, namely, Transportation, Leisure, Property, Consumer Foods & Retail, Financial
Services, Information Technology and Other including Plantation Services. The Group consists of subsidiaries and associates companies with significant business
operations in Sri Lanka, India and the Maldives. The holding company is located at No. 117, Sir Chittampalam A. Gardiner Mawatha, Colombo 02. The Group has
considered all its subsidiary and associate companies in capturing its financial performance. For the purpose of reporting on its sustainability performance, the
Group has considered the companies which are the legal entities and for which the Group is accountable and has direct control. The companies not included for
reporting on Sustainability Performance are companies in which the Group does not exercise significant management control, and companies which are non-
operational, are investment entities, land only holding companies, investment holding companies, managing companies and rental of office spaces, which do not
carry out any operations. Such companies have been clearly identified below.
While all core business activities are carried out in-house, the use of outsourced products and services by Group companies are limited to activities where in it as
industry practice to do so, it has been proven to be an efficient and effective business model or a non-core business activity.
The customer base serviced by the John Keells Group of companies can be classified primarily into three sections as illustrated below.
“*The company is a non-operational company/ investment company/ holding company or owner of real estate
**The company has not been considered for sustainability reporting as the Group does not exercise management control over the entity
TRANSPORTATION Directors: S C Ratnayake-Chairman, Trans-ware Logistics (Pvt) Ltd. (PV 3134) (100%)*
Ports and Shipping A Z Hashim, Y B A Khan, S P Wall Renting of storage space
Keells Shipping (Pvt) Ltd. (PV 1272) (100%) Stated capital: LKR.20,000,020 Incorporated in 1994
Shipping agency representation & logistics services No 11, York Street, Colombo 01. T. 2475545/539
Incorporated in 1996 John Keells Logistics (Pvt) Ltd. (PV 318) (100%) Directors: S C Ratnayake-Chairman,
No. 11, York Street, Colombo 1. T. 2475509 Integrated supply chain management A Z Hashim, R M David, D C Alagaratnam,
Directors: S C Ratnayake-Chairman, Incorporated in 2006 S Rajendra, N N Mawilmada
R M David, A Z Hashim No. 117, Sir Chittampalam A. Gardiner Mawatha, Stated capital: LKR.220,000,080
Stated capital: LKR.500,000 Colombo 2. T. 2475574
Directors: S C Ratnayake-Chairman, Air Lines
Mackinnon Mackenzie & Co (Shipping) Ltd. R M David, A Z Hashim
Mack Air (Pvt) Ltd. (PV 868) (100%)
(PB 359) (100%) Stated capital: LKR.200,000,000
General sales agents for airlines in Sri Lanka
Shipping agency representation & logistics services Incorporated in 1980
Incorporated in 1973 Mack International Freight (Pvt) Ltd. (PV 831)
No. 11 , York Street, Colombo 1.
4, Leyden Bastian Road, Colombo 1. T. 2475423 (100%) T. 2475375, 2475335
Directors: S C Ratnayake-Chairman, International freight forwarding and clearing & Directors: S C Ratnayake-Chairman,
R M David, A Z Hashim forwarding R M David, A Z Hashim
Stated capital: LKR.5,000,000 Incorporated in 1980 Stated capital: LKR.12,500,000
No. 11, York Street, Colombo 1. T. 7671671
Maersk Lanka (Pvt) Ltd. (PV 2550 ) (30%)** Directors: S C Ratnayake-Chairman,
Mackinnons Travels (Pvt) Ltd. (PV 1261) (100%)
Shipping agency representation & freight forwarding R M David, A Z Hashim
IATA accredited travel agent and travel related
services Stated capital: LKR.130,000,000
services
Incorporated in 1992 Incorporated in 1971
Level 16, ”Park Land”, 33, Park Street, Colombo 02. Saffron Aviation (Pvt) Ltd. (PV 84728) (40%) No. 186, Vauxhalll Street, Colombo 2.
T. 4794800 Domestic air line operations T. 2318600
Directors: W T Ellawala, R M David, Marc Eugene, Incorporated in 2012 Directors: S C Ratnayake Chairman,
Franck Dedenis, Sandun Bandara, Zeeshan Mukhi No.11,York Street , Colombo 01. T. 2475502 R M David, A Z Hashim
Stated capital: LKR.10,000,000 Directors: J G A Cooray-Chairman, Stated capital: LKR.5,000,000
R M David, B A B Goonetilleke, K Balasundaram,
South Asia Gateway Terminals (Pvt) Ltd. F Omar, A Z Hashim, Mack Air Services Maldives (Pte) Ltd.
(PV 326) (42.19%)** Stated capital: LKR.622,179,000
(C/I 35-2000) (49%)*
Ports & shipping services General sales agents for airlines in the Maldives
Incorporated in 1998 Lanka Marine Services (Pvt) Ltd. (PV 475)
Incorporated in 2000
Port of Colombo, P.O. Box 141, Colombo 1. (99.44%) 4th Floor, STO Aifaanu Building,
T. 24575509 Importer & supplier of heavy marine fuel oils Boduthakurufaanu Magu, Male 20-05
Directors: S C Ratnayake- Chairman, Incorporated in 1993 Republic of Maldives.
R M David, C.K. Cheng, A.Hassan, J.M. Bevis 4, Leyden Bastian Road, Colombo 1. T. +9603334708 - 09
K N J Balendra , P Sondergaard, J G A Cooray, T. 2475410-421 Directors: S C Ratnayake-Chairman,
S S Jakobsen, R M W B C Rajapaksa, A Z Hashim, D Directors: S C Ratnayake-Chairman, R M David, S Hameed, A Shihab, A Z Hashim
C Alagaratnam, M P Dissanayake, P G Dassanayake R M David , A Z Hashim Stated capital: LKR.677,892
Stated capital: LKR.3,788,485,900 Stated capital: LKR.350,000,000
303
GRI 102-45
GROUP DIRECTORY
Directors: S C Ratnayake-Chairman, Mumbai, Mumbai City, Maharashtra, 400062 (Alt. R S Captain), K N J Balendra, J.G.A.Cooray
J R Gunaratne, B J S M Senanayake T. 091-22 42105210 99 Stated Capital: 784,690,140
Stated capital: LKR.133,150,000 Directors: K N J Balendra-Chairman, V Leelananda,
C Somasunderam, John Keells Residential Properties (Pvt)
Yala Village (Pvt) Ltd. (PV 2868) (75.33%) Stated capital: INR. 2,000,000
Ltd.. (PV 75050) (100%)
Owner & operator of “Cinnamon Wild” in Yala Developer of “On320” Residential Towers
Incorporated in 1999 Walkers Tours Ltd. (PB 249) (98.05%) Incorporated in 2010
P.O Box 1, Kirinda, Tissamaharama. Inbound tour operators No.186, Vauxhall Street, Colombo 02. T. 2152100
T. 047 2239449-52 Incorporated in 1969 Directors: S C Ratnayake-Chairman, S Rajendra
Directors: M A Perera-Chairman No.117, Sir Chittampalam A, Gardiner Mawatha, Stated capital: LKR.925,200,000
S C Ratnayake-Deputy Chairman, J A Davis, Colombo 02. T. 2306306
J G A Cooray, B J S M Senanayake, J.R. Gunaratne Directors: S C Ratnayake-Chairman,
V Leelananda, K N J Balendra, J G A Cooray, John Keells Properties Ja-Ela (Pvt) Ltd.
Stated capital: LKR.369,427,600
J R Gunaratne (PV 76068) (100%)
Resort Hotels - Maldives Stated capital: LKR.51,374,200 Developer & Manager of ‘ K-Zone Ja-Ela’ Shopping Mall
Incorporated in 2010
Fantasea World Investments (Pte) Ltd. No.186, Vauxhall Street, Colombo 02. T. 2152100
(C 143/97) (80.32%) Whittall Boustead (Travel) Ltd. (PB 112)
Directors: S C Ratnayake-Chairman, S Rajendra,
Owner & operator of “Cinnamon Hakuraa Huraa” in (100%) N N Mawilmada
Maldives Inbound tour operators Stated capital: LKR.954,360,000
Incorporated in 1997 Incorporated in 1977
2nd Floor, H Maizan Building, No.117, Sir Chittampalam A, Gardiner Mawatha,
Colombo 02. T. 2306384 Vauxhall Land Developments (Pvt) Ltd.
Sosun Magu, Male, Republic of Maldives.
T. 00960 6720014, 00960 6720064, 00960 6720065 Directors: S C Ratnayake-Chairman, (PV125587) (60.28%)
Directors: S C Ratnayake-Chairman, V Leelananda, J.R. Gunaratne Owner of Real Estates
J E P Kehelpannala-Managing Director, Stated capital: LKR.250,410,000 Incorporated in 2017
B J S M Senanayake, J R Gunaratne No.186, Vauxhall Street, Colombo 02.
Stated capital: LKR.341,573,190 Cinnamon Holidays (Pvt) Ltd. (PV 101005) T. 2152100
Directors: S C Ratnayake-Chairman, J G A Cooray,
(80.32%) S Rajendra, G R Chambers, H A S Crawford
John Keells Maldivian Resorts (Pte) Ltd. Service providers of Inbound and outbound Tours Stated capital: LKR.21,655,209,200
(C 208/96) (80.32%) Incorporated in 2015
Hotel holding company in the Maldives No.117, Sir Chittampalam A, Gardiner Mawatha,
Incorporated in 1996 Colombo 02. T. 2306000 Braybrooke Residential Properties (Pvt)
2nd Floor, H. Maizan Building, Directors: S C Ratnayake-Chairman, J R Gunaratne Ltd (PV19165) (50%)
Sosun Magu, Male, Republic of Maldives. Stated capital: LKR.200,000 Investor of Braybrooke Residential Towers (Pvt) Ltd
T. 00960 3329083, 00960 3304601, 00960 3313738 Incorporated in 1998
Directors: S C Ratnayake-Chairman, PROPERTY No.186, Vauxhall Street, Colombo 02.
J E P Kehelpannala- Managing Director, Property Development T. 2152100
J R Gunaratne, K N J Balendra, B J S M Senanayake Directors: S C Ratnayake-Chairman, J G A Cooray,
Asian Hotels and Properties PLC. - Crescat. S Rajendra, N N Mawilmada, Y S H I K Silva,
Stated capital: LKR.3,978,671,681
Boulevard, The Monarch, The Emperor. Y S H R S Silva, A D B Talwatte, C P Palansuriya
(PQ 2) (78.56%) Stated capital: LKR.1,403,970,000
Tranquility (Pte) Ltd. (C 344/2004) (80.32%) Developer of ‘Crescat Residencies’, ‘The Monarch’ &
Owner and operator of “Cinnamon Dhoinveli” in Maldives ‘ The Emperor’ Residential Towers, Developer and
Incorporated in 2004 manager of ‘Crescat Boulevard ‘ shopping Mall
2nd Floor, H Maizan Building, J K Thudella Properties (Pvt) Ltd.
Incorporated in 1993
Sosun Magu, Male, Republic of Maldives. (PV 129825) (100%)
No.89, Galle Road, Colombo 3. T. 2152100
T. 00960 6640055, 00960 6640012 Owner of Real Estates
Directors: S C Ratnayake-Chairman,
Directors: S C Ratnayake-Chairman, Incorporated in 2018
K N J Balendra-Managing Director, J G A Cooray,
J E P Kehelpannala-Managing Director, No.186, Vauxhall Street, Colombo 02.
R J Karunarajah, S Rajendra, S K G Senanayake,
J R Gunaratne, B J S M Senanayake T. 2152100
S A Jayasekara , C J L Pinto, J R Gunaratne
Stated capital: LKR.552,519,608 Directors: S C Ratnayake-Chairman,
Stated capital: LKR.3,345,118,012
S Rajendra, N N Mawilmada,
Travel Club (Pte) Ltd. (C 121/92) (80.32%) Stated capital: LKR.453,467,600
Operator of “Cinnamon Ellaidhoo” in Maldives
British Overseas (Pvt) Ltd. (PV 80203) (61%)
Developer of “7th Sense” Residential Tower John Keells Properties (Pvt) Ltd. (PV 1034)
Incorporated in 1992
Incorporated in 2011
2nd Floor, H.Maizan Building, (100%)*
No.186, Vauxhall Street, Colombo 02.
Sosun Magu, Male, Republic of Maldives Renting of office space
T. 2152100
T. 00960 6660839, 00960 6660663, 00960 6660664 Incorporated in 2006
Directors : S C Ratnayake-Chairman,
Directors: S C Ratnayake-Chairman, No.186, Vauxhall Street, Colombo 02. T. 2152100
D C Alagaratnam, N N Mawilmada, S Rajendra,
J E P Kehelpannala-Managing Director, Directors: S C Ratnayake-Chairman,
S P G N Rajapakse
J R Gunaratne, B J S M Senanayake S Rajendra
Stated capital: LKR.1,000
Stated capital: LKR.143,172,000 Stated capital: LKR.240,000,030
Destination Management Rajawella Holdings Ltd. (PB27) (49.85%) Keells Realtors Ltd. (PB 90) (95.81%)*
Serene Holidays (Pvt) Ltd. Operates an 18 hole, Donald Street Designed Golf Owner of Real Estates
Course in Digana Incorporated in 1977
(U63040MH2006PTC164985) (98.35%)
Incorporated in 1991 No.186, Vauxhall Street, Colombo 02. T. 2152100
Tour operators
P O Box 7, Rajawella, Kandy. T. 2152100 Directors: S C Ratnayake-Chairman,
Incorporated in 2006
Directors: S C Ratnayake-Chairman, S Rajendra
110, Bldg 2, Rolex Shopping Centre Premises
S Rajendra, C B Thornton (Alt. C J Holloway), Stated capital: LKR.75,000,000
CHS Ltd, STN Road, NR Prashant Hotel,
G R Bostock Kirk (Alt. E C Oxlade), S E Captain
Goregoan (W).
305
GRI 102-45
GROUP DIRECTORY
Whittall Boustead (Pvt) Ltd - Real Estate John Keells Foods India (Pvt) Ltd. INFORMATION TECHNOLOGY
Division. (PV 31) (100%)* (U15122MH2008FTC180902) (88.63%)* IT Services
Renting of office space Marketing of Branded meat and convenience food John Keells Computer Services (Pvt) Ltd.
Incorporated in1958 products
(PV 652) (100%)
No. 148, Vauxhall Street,Colombo 2. T. 2152100 Incorporated in 2008
Software services
Directors: S C Ratnayake-Chairman, Luthra and Luthra Chartered Accountants
Incorporated in 1998
S Rajendra, N N Mawilmada A 16 / 9 , Vasant Vihar, New Delhi -110057, India.
No. 148, Vauxhall Street, Colombo 2.
Stated capital: LKR.99,188,800 T. 0091 1142591823, 0091 1126148048, 26151853,
T. 2300770-77
26147365 Fax: +91-11-2614 5222
Directors: S C Ratnayake-Chairman,
Waterfront Properties (Pvt) Ltd. (PV 82153) Directors: S C Ratnayak-Chairma,
D C Alagaratnam, S Rajendra
(96.18%) J R Gunaratne
Stated capital: LKR.96,500,000
Developer of Hotels,Apartments, offices & Shopping Stated capital:LKR.220,294,544 (INR 90,000,000)
Malls J K O A Mobiles (Pvt) Ltd. (PV 136) (100%)
Incorporated in 2011 Retail
Marketer of software packages
No.186, Vauxhall Street, Colombo 02. T. 2152100 JayKay Marketing Services (Pvt) Ltd.
Incorporated in 1992
Directors : S C Ratnayake-Chairman, S Rajendra, (PV 33) (81.36%) No. 148, Vauxhall Street, Colombo 2.
K N J Balendra, J G A Cooray, D C Alagaratnam Owns and Operates the “Keells Super” chain of T. 2300770-77
Stated capital: LKR.32,316,964,230 supermarkets and “Nexus Mobile” loyalty card Directors: S C Ratnayake-Chairman,
programme. D C Alagaratnam, S Rajendra
J K Land (Pvt) Ltd. (PV 84272) (100%) Incorporated in 1980 Stated capital: LKR.8,000,000
Investment Company for Property Sector No.117, Sir Chittampalam A,Gardiner
Incorporated in 2017 Mawatha,Colombo 02. T. 2316800 Office Automation
No.186, Vauxhall Street, Colombo 02. T. 2152100 Directors: S C Ratnayake- Chairman,
John Keells Office Automation (Pvt) Ltd.
Directors : S C Ratnayake-Chairman, K N J Balendra, J G A Cooray, K C Subasinghe
Stated capital: LKR.1,198,000,000 (PV 127) (100%)
S Rajendra, N N Mawilmada
Distributor/Reseller and Services Provider in Office
Stated capital: LKR.15,957,047,600
FINANCIAL SERVICES GROUP Automation(OA), Retail Automation (RA) and
Mobile Devices
CONSUMER FOODS AND RETAIL John Keells Stock Brokers (Pvt) Ltd. (PV 89)
Incorporated in 1992
Consumer Foods (90.04%) Corporate Office: 90 Union Place, Colombo 2.
Ceylon Cold Stores PLC. (PQ 4) (81.36%) Share broking services Technical Services:148 Vauxhall Street, Colombo 2.
Manufacture & Marketing of Beverages and frozen Incorporated in 1979 T. 2313000, 2431576, 2445760
confectionery. and the holding company of JayKay No. 186,Vauxhall street, Colombo 02. Directors: S C Ratnayake-Chairman,
Marketing Services (Pvt) Ltd. T. +94(0) 11 230 6250, +94(0) 11 234 2066-7 J G A Cooray, D C Alagaratnam
Incorporated in 1926 Directors: S C Ratnayake-Chairman, Stated capital: LKR.5,000,000
No.117, Sir Chittampalam A, Gardiner Mawatha, K N J Balendra, J R Gunaratne
Colombo 02. T. 2318798 Stated capital: LKR.57,750,000 IT Enabled Services
Directors: S C Ratnayake-Chairman, InfoMate (Pvt) Ltd. (PV 921) (100%)
J R Gunaratne, D P Gamlath, K N J Balendra, Nations Trust Bank PLC. (PQ 118) (32.16%)** IT enabled services
J G A Cooray, M Hamza, R S W Wijeratnam, Commercial banking and leasing operations Incorporated in 2005
S T Ratwatte Incorporated in 1999 No.4, Leyden Bastian Road, Colombo 1.
Stated capital: LKR.918,200,000 No. 242, Union Place, Colombo 2. T. 4313131 T. (94) 112149700
Directors:K N J Balendra-Chairmen, Directors: S C Ratnayake-Chairman,
The Colombo Ice Company (Pvt) Ltd. (PV M Jafferjee, Dr. K De Soysa, D P De Silva, D C Alagaratnam
N S Panditaratne, K O V. S M S Wijesinghe Stated capital: LKR.20,000,000
113758) (81.36%)* R N K Fernando, J G A Cooray, C L K P Jayasuriya
Manufacturing and Marketing of frozen confectionery
H Raghavan, C D’Souza, R D Rajapaksa,
Incorporated in 2016 John Keells BPO Holdings (Pvt) Ltd.
N I R De Mel
No.117, Sir Chittampalam A, Gardiner Mawatha, (C 60882) (100%)*
Stated capital: LKR.8,865,522,737
Colombo 02. T. 2306000 Holding company of AuxiCogent group companies
Directors: S C Ratnayake-Chairman, Incorporated in 2006
J R Gunaratne, D P Gamlath Union Assurance PLC. (PQ 12) (90.00%)
IFS Court, 28, Cybercity, Ebene, Mauritius.
Stated capital: LKR.1,250,000,000 Life insurance underwriters
T. (230) 467 3000
Incorporated in 1987
Directors: S C Ratnayake-Chairman,
No.20, St. Michaels’ Road, Colombo 3. T. 2990990
Keells Food Products PLC. (PQ 3) (88.63%) P Bissoonauth, Z H Niamut
Directors: S C Ratnayake-Chairman
Manufacturer and distributor of Processed meat, Stated capital: LKR.1,988,300,000
D C Alagaratnam, S Rajendra, A S De Zoysa,
breaded meat and convenience food products.
G F C De Saram, H A J De Silva Wijeyeratne,
Incorporated in 1982 John Keells BPO International (Pvt) Ltd.
A D Pereira
P.O Box 10, No.16, Minuwangoda Road, Ekala
Stated capital: LKR.1,000,000,000 (C 070137) (100%)*
Ja-Ela. T. 2236317, 2236364
Investment holding company
Directors: S C Ratnayake-Chairman,
Fairfirst Insurance Ltd. (PB 5180) Incorporated in 2007
J R Gunaratne, D P Gamlath
IFS Court, 28, Cybercity, Ebene, Mauritius.
S De Silva, A E H Sanderatne, I. Samarajiva, (20.32%)**
T. (230) 467 3000
P D Samarasinghe, K N J Balendra, J G A Cooray General insurance underwriters
Directors: S C Ratnayake-Chairman,
Stated capital: LKR.1,294,815,000 Incorporated in 2014
P Bissoonauth, Z H Niamut
33, St. Michaells Road, Colombo 03. T. 2428000
Stated capital: LKR.1,616,700,008
Directors: R Athappan-Chairman
A D Pereira, C Ratnaswami, A S Wijesinha
C D Wijegunawardene, S Malhotra, S Jha
Stated Capital: LKR.3,131,949,000
John Keells BPO Solutions Lanka (Pvt) Ltd. Centre & Others Keells Consultants (Pvt) Ltd. (PB 3) (100%)
(PV 3458) (100%)* Facets (Pvt) Ltd. (PV1048) (100%)* Company secretarial services to the group
BPO operations in Sri Lanka Owner of real estate Incorporated in 1974
Incorporated in 2006 Incorporated in 1974 No.117, Sir Chittampalam A, Gardiner Mawatha,
No.4, Leyden Bastian Road, Colombo 1. No.117, Sir Chittampalam A,Gardiner Colombo 02. T. 2421101-9
T. (94) 2300770-77 Mawatha,Colombo 02. T. 2306000 Directors: S C Ratnayake-Chairman,
Directors: S C Ratnayake-Chairman, Directors: S C Ratnayake-Chairman, D C Alagaratnam, N W Tambiah
D C Alagaratnam D C Alagaratnam Stated capital: LKR.160,000
Stated capital: LKR.335,797,260 Stated capital: LKR.150,000
Mackinnons Keells Ltd. (PB 8) (100%)*
OTHERS John Keells Holdings PLC. (PQ 14) Rental of office spaces
Plantation Services Group holding company & function based services Incorporated in 1952
Incorporated in 1979 No. 4, Layden Bastian Road, Colombo 1.
John Keells PLC. (PQ 11) (86.90 %) T. 2152100
No.117, Sir Chittampalam A, Gardiner Mawatha,
Produce Broking and Real Estate Ownership
Colombo 02. T. 2306000, 2421101-9 Directors: S C Ratnayake-Chairman,
Incorporated in 1960
Directors: S C Ratnayake-Chairman, S Rajendra
No 186, Vauxhall street, Colombo 02. T. 2306000
K N J Balendra-Deputy Chairman, J G A Cooray, Stated capital: LKR.327,800,000
Directors: S C Ratnayake-Chairman,
M A Omar, D A Cabraal, A N Fonseka, M P Perera,
K N J Balendra, J G A Cooray, V A A Perera,
S S H Wijesuriya Mortlake (Pvt) Ltd. (PV 756) (100%)*
A Gunawardhana, C N Wijewardene,
Stated capital: LKR. 62,802,327,511 Investment company
B A I Rajakarier
Stated capital: LKR.152,000,000 Incorporated in 1962
John Keells International (Pvt) Ltd. (PV 46) No. 148, Vauxhall Street, Colombo 2.
(100%)* T. 2475308
John Keells (Teas) Ltd. (PV 522) (100%) Directors: S C Ratnayake-Chairman,
Manager eight bought leaf tea factories Regional holding company providing administrative
& function based services R M David, D C Alagaratnam, S Rajendra
Incorporated in 1979
Incorporated in 2006 Stated capital: LKR.3,000
No.117, Sir Chittampalam A, Gardiner
Mawatha,Colombo 02. T. 2306518 No.117, Sir Chittampalam A, Gardiner Mawatha,
Directors: S C Ratnayake-Chairman, Colombo 02.
D C Alagaratnam, S Rajendra T. 2306000, 2421101-9
Stated capital: LKR.120,000 Directors: S C Ratnayake-Chairman,
D C Alagaratnam
Stated capital: LKR.1,991,600,000
John Keells Warehousing (Pvt) Ltd.
(PV 638) (86.90%)
Warehousing of Tea and Rubber
J K Packaging (Pvt) Ltd. (PV 1265) (100%)*
Printing and packaging services provider
Incorporated in 2001
for the export market
No.93,1st Avenue, Muturajawela, Hendala, Wattala
Incorporated in 1979
Muturajawala. T. 4819560
No 148, Vauxhall street,Colombo 02. T. 2475308
Directors: S C Ratnayake-Chairman,
Directors: S C Ratnayake-Chairman,
D C Alagaratnam, S Rajendra
R M David, D C Alagaratnam
Stated capital: LKR.120,000,000
Stated capital: LKR.14,500,000
Tea Smallholder Factories PLC. (PQ 32)
(37.62%) John Keells Singapore (Pte) Ltd.
Owner and operator of Bought Leaf factories (199200499C) (80%)*
Incorporated in 1991 International trading services
No.4, Leyden Bastian Road, Colombo 1. Incorporated in 1992
T. 2 335 880, 2149994 No.3, Raffles Place,#07-01,
Directors: S C Ratnayake-Chairman Bharat Building, Singapore-048617.
K N J Balendra, J G A Cooray, E H Wijenaike, T. 65 67329636
R E Rambukwella, A S Jayatilleke, M de Silva, Directors: S C Ratnayake- Chairman,
S K L Obeysekere R M David, R Ponnampalam, D C Alagaratnam,
Stated capital: LKR.150,000,000 J R Gunaratne
Stated capital: LKR.9,638,000
307
GRI CONTENT INDEX
GRI Standard Disclosure Page number(s) and/ or URL(s) Omission UNGC Code of Best
Principles Practice on
Explanation
Omitted
Reason
Corporate
Part
Governance
2013
GRI 101: Foundation 2016
GRI 102: General Disclosures 2016
Organizational Profile
102-1 Name of the organisation 3 22
102-2 Activities, brands, products, and services 8, 80 22
102-3 Location of headquarters 3 22
102-4 Location of operations 3 22
102-5 Ownership and legal form 3 22
102-6 Markets served 3, 8 22
102-7 Scale of the organisation 3, 9, 60 - 73 22
102-8 Information on employees and other 71 - 73 11, 12 3
workers
102-9 Supply chain 13 of https://www.keells.com/ 21
resource/Management_Approach_
Disclosures_2017_18.pdf
75, 123, 136, 147, 159, 169, 178
102-10 Significant changes to the 10, 11 22
organization and its supply chain
102-11 Precautionary Principle or approach 100 13 2
102-12 External initiatives 94 - 95 4 7
102-13 Membership of associations 299
Strategy
102-14 Statement from senior decision-maker 14 - 20 1 7
Ethics and integrity
102-16 Values, principles, standards, and 28 2
norms of behaviour
Governance
102-18 Governance structure 30 2 7
Stakeholder engagement
102-40 List of stakeholder groups 96 - 97 3 6
102-41 Collective bargaining agreements 73 11, 12 3
102-42 Identifying and selecting stakeholders 2 - 3 of https://www.keells.com/ 3 6
resource/Management_Approach_
Disclosures_2017_18.pdf
102-43 Approach to stakeholder engagement 96 - 97 3 6
102-44 Key topics and concerns raised 97 - 98
GRI Standard Disclosure Page number(s) and/ or URL(s) Omission UNGC Code of Best
Principles Practice on
Explanation
Omitted
Reason
Corporate
Part
Governance
2013
Reporting practice
102-45 Entities included in the consolidated 303 - 307
financial statements
102-46 Defining report content and topic 4, 94 22, 23 6, 7
Boundaries 2 - 3 of https://www.keells.com/
resource/Management_Approach_
Disclosures_2017_18.pdf
102-47 List of material topics 2 - 3 of https://www.keells.com/ 3 6
resource/Management_Approach_
Disclosures_2017_18.pdf
102-48 Restatements of information 95 22, 23
102-49 Changes in reporting 4, 95 22, 23
2 - 3 of https://www.keells.com/
resource/Management_Approach_
Disclosures_2017_18.pdf
102-50 Reporting period 4
102-51 Date of most recent report 95
102-52 Reporting cycle 4 22, 23 7
102-53 Contact point for questions regarding 319 22, 23
the report
102-54 Claims of reporting in accordance with 4, 94 22, 23 7
the GRI Standards
102-55 GRI content index 308 - 315
102-56 External assurance 19, 95, 300 - 302 24 7
Material Topics
GRI 200: Economic Standard Series
Economic Performance
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 201: 201-1 Direct economic value generated and 290 - 291 1
Economic distributed
Performance 201-3 Defined benefit plan obligations and 74 1
201 other retirement plans
Indirect Economic Impacts
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
309
GRI CONTENT INDEX
GRI Standard Disclosure Page number(s) and/ or URL(s) Omission UNGC Code of Best
Principles Practice on
Explanation
Omitted
Reason
Corporate
Part
Governance
2013
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 203: 203-1 Infrastructure investments and services 75 4
Indirect supported
Economic
Impacts 2016
Procurement Practices
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22,23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 204: 204-1 Proportion of spending on local 75 1
Procurement suppliers
Practices 2016
Anti-corruption
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 205: Anti- 205-1 Operations assessed for risks related to 75 19, 20
corruption 2016 corruption
GRI 300: Environment Standard Series
Energy
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 302: Energy 302-1 Energy consumption within the 66 - 68 3 2
2016 organisation
302-4 Reduction of energy consumption 68 3 2
GRI Standard Disclosure Page number(s) and/ or URL(s) Omission UNGC Code of Best
Principles Practice on
Explanation
Omitted
Reason
Corporate
Part
Governance
2013
Water
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 303: Water 303-1 Water withdrawal by source 68 4 2
2016
Bio Diversity
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 304: Bio 304-1 Operational sites owned, leased, 133 6 2
Diversity 2016 managed in, or adjacent to, protected areas
and areas of high biodiversity value outside
protected areas
Emissions
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 305: 305-1 Direct (Scope 1) GHG emissions 68 3 2
Emissions 2016 305-2 Energy indirect (Scope 2) GHG 68 3 2
emissions
311
GRI CONTENT INDEX
GRI Standard Disclosure Page number(s) and/ or URL(s) Omission UNGC Code of Best
Principles Practice on
Explanation
Omitted
Reason
Corporate
Part
Governance
2013
Effluents and Waste
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 306: 306-1 Water discharge by quality and 69 3 2
Effluents and destination
Waste 2016 306-2 Waste by type and disposal method 70 3 2
306-3 Significant spills 121 3 2
Environmental compliance
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 307: 307-1 Non-compliance with environmental 67 15, 16 2
Environmental laws and regulations
compliance 308-1 Supplier Environmental Assessment 75 15
2016
GRI 400: Social Standard Series
Employment
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 401: 401-1 New employee hires and employee 71 11, 12 3
Employment turnover
2016
GRI Standard Disclosure Page number(s) and/ or URL(s) Omission UNGC Code of Best
Principles Practice on
Explanation
Omitted
Reason
Corporate
Part
Governance
2013
Occupational Health and Safety
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 403: 403-2 Types of injury and rates of injury, 71, 73 11, 12 3, 7
Occupational occupational diseases, lost days, and
Health and absenteeism, and number of work-related
Safety 2016 fatalities
Training and Education
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 404: 404-1 Average hours of training per year per 72 - 73 11, 12 3
Training and employee
Education 2016 404-3 Percentage of employees receiving 71 11, 12 3
regular performance and career development
reviews
Diversity and equal opportunity
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 405: 405-1 Diversity of governance bodies and 71 11, 12 3
Diversity employees
and equal
opportunity
2016
313
GRI CONTENT INDEX
GRI Standard Disclosure Page number(s) and/ or URL(s) Omission UNGC Code of Best
Principles Practice on
Explanation
Omitted
Reason
Corporate
Part
Governance
2013
Freedom of association and collective bargaining
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 407: 407-1 Operations and suppliers in which the 73 11, 12 3
Freedom of right to freedom of association and collective
association bargaining may be at risk
and collective
bargaining 2016
Child Labour
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 408: Child 408-1 Operations and suppliers at significant 71 7, 8 3
Labour 2016 risk for incidents of child labour
Local communities
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 413: Local 413-1 Operations with local community 12, 74 - 79 4
communities engagement, impact assessments, and
2016 development programs
Forced or Compulsory Labor
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI Standard Disclosure Page number(s) and/ or URL(s) Omission UNGC Code of Best
Principles Practice on
Explanation
Omitted
Reason
Corporate
Part
Governance
2013
GRI 409: Forced 409-1 Operations and suppliers at significant 71 7, 8 3
or Compulsory risk for incidents of forced or compulsory
Labor 2016 labor
Supplier social assessment
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 414: 414-1 New suppliers that were screened using 75 7, 11
Supplier social social criteria
assessment
2016
Marketing and Labelling
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 417: 417-1 Requirements for product and service 75, 160 5
Marketing and information and labelling
Labelling 2016 417-3 Incidents of non-compliance 75 5
concerning marketing communications
Socioeconomic Compliance
GRI 103 103-1 Explanation of the material topic and its 2 - 5 of https://www.keells.com/ 22, 23 6
Management Boundary resource/Management_Approach_
Approach 2016 Disclosures_2017_18.pdf
103-2 The management approach and its 6 - 14 of https://www.keells.com/
components resource/Management_Approach_
Disclosures_2017_18.pdf
103-3 Evaluation of the management 6 - 15 of https://www.keells.com/
approach resource/Management_Approach_
Disclosures_2017_18.pdf
GRI 419: 419-1 Non-compliance with laws and 75 19, 20 5
Socioeconomic regulations in the social and economic area
Compliance
2016
315
NOTICE OF MEETING
Notice is hereby given that the Thirty Ninth Annual General Meeting of John Keells Holdings PLC will be held on 29 June 2018 at 10:00 a.m. at The
Forum Area (Sixth Floor), The Institute of Chartered Accountants of Sri Lanka, 30A, Malalasekera Mawatha (Longdon Place), Colombo 7.
2. to receive and consider the Annual Report and Financial Statements for the Financial Year ended 31st March 2018 with the Report of the
Auditors thereon.
3. to re-elect as Director, Mr. M A Omar, who retires in terms of Article 84 of the Articles of Association of the Company. A brief profile of Mr. M A
Omar is contained in the Board of Directors section of the Annual Report.
4. to re-elect as Director, Ms. M P Perera, who retires in terms of Article 84 of the Articles of Association of the Company. A brief profile of Ms. M P
Perera is contained in the Board of Directors section of the Annual Report.
6. to consider any other business of which due notice has been given in terms of the relevant laws and regulations.
Notes:
i. A member unable to attend is entitled to appoint a Proxy to attend and vote in his/her place.
iii. A member wishing to vote by Proxy at the Meeting may use the Proxy Form enclosed herein.
iv. In order to be valid, the completed Proxy Form must be lodged at the Registered Office of the Company not less than 48 hours before the
meeting.
v. If a poll is demanded, a vote can be taken on a show of hands or by a poll. Each share is entitled to one vote. Votes can be cast in person, by
proxy or corporate representatives. In the event an individual member and his/her proxy holder are both present at the meeting, only the
member’s vote is counted. If the proxy holder’s appointor has indicated the manner of voting, only the appointor’s indication of the manner to
vote will be used.
PROXY FORM
I/We ....................................................................................................................................................................................................................................................................................................................................... of
................................................................................................................................................................................................................................................................................................................................................... of
as my/our proxy to represent me/us and vote on my/our behalf at the Thirty Ninth Annual General Meeting of the Company to be held on 29 June
2018 at 10:00 a.m. and at any adjournment thereof, and at every poll which may be taken in consequence thereof.
I/We, the undersigned, hereby direct my/our proxy to vote for me/us and on my/our behalf on the specified Resolution as indicated by the letter “X” in
the appropriate cage:
FOR AGAINST
To re-elect as Director, Mr. M A Omar, who retires in terms of Article 84 of the Articles of Association of the Company.
To re-elect as Director, Ms. M P Perera, who retires in terms of Article 84 of the Articles of Association of the Company.
……………………………………
Signature/s of Shareholder/s
317
INSTRUCTIONS AS TO COMPLETION OF PROXY
1. Please perfect the Form of Proxy by filling in legibly your full name and address,
signing in the space provided and filling in the date of signature.
2. The completed Form of Proxy should be deposited at the Registered Office of the
Company at No. 117, Sir Chittampalam A Gardiner Mawatha, Colombo 2, not later
than 48 hours before the time appointed for the holding of the Meeting.
3. If the Form of Proxy is signed by an Attorney, the relevant Power of Attorney should
accompany the completed Form of Proxy for registration, if such Power of Attorney
has not already been registered with the Company.
5. If this Form of Proxy is returned without any indication of how the person
appointed as Proxy shall vote, then the Proxy shall exercise his/her discretion as to
how he/she votes or, whether or not he/she abstains from voting.
Name : ..........................................................................................................................................................................................
Address : ......................................................................................................................................................................................
............................................................................................................................................................................................................
............................................................................................................................................................................................................
CORPORATE INFORMATION
319
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