JKH Ar

Download as pdf or txt
Download as pdf or txt
You are on page 1of 324

John Keells Holdings PLC .

Annual Report 2017/18


UR
STR NG
P INTS
Financial strength
Good governance, transparency and accountability
Leadership and teamwork
Sustainability and social responsibility
Operational excellence and expertise

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.

We have driven success by uniting people to share one vision. We have


done this by closely engaging with our social, economic and environmental
responsibilities; staying in lockstep with our stakeholders’ interests, ensuring
good governance at every level and returning consistent value to the nation,
the people and communities we interact with every day.

Today, we have identified several significant investments with the potential to


drive future growth and we are confident that we can leverage on our strong
points to serve our stakeholders by delivering consistent value, as we work
towards the success we anticipate in the years that lie ahead.
CONTENTS

116 Transportation 126 Leisure 140 Property

Chairman’s Corporate Capital Strategy, Resource


Message Governance Management Allocation and Portfolio
Review Management

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

Industry Group Review


116 Transportation
126 Leisure
140 Property
148 Consumer Foods and Retail
162 Financial Services
172 Information Technology
180 Other including Plantation Services

Reference to other pages within the Report


Reference to further reading online
This Annual Report is also
Reference to a specific GRI Standard
available on our website
Details of the CSR projects are available on www.keells.com/annual-reports
http://www.johnkeellsfoundation.com/

2 John Keells Holdings PLC . Annual Report 2017/18


Group Highlights

148 Consumer Foods and Retail 162 Financial Services 172 Information Technology 180 Other including
Plantation Services

Risks, Opportunities Share Key Investment Notice of Proxy Form


and Internal Controls Information Considerations Meeting

99 103 110 316 317


Financial Statements
191 Annual Report of the Board of Directors
196 The Statement of Directors’ Responsibility
About Us
197 Independent Auditors’ Report
200 Income Statement John Keells Holdings PLC (JKH) is the largest listed company on
201 Statement of Comprehensive Income the Colombo Stock Exchange, with business interests primarily
202 Statement of Financial Position in Transportation, Leisure, Property, Consumer Foods and Retail
203 Statement of Cash Flows and Financial Services. Started in the early 1870s as a produce and
204 Statement of Changes in Equity exchange broking business by two Englishmen, Edwin and George
208 Notes to the Financial Statements John, the Group has been known to constantly re-align, re-position
and re-invent itself in pursuing growth sectors of the time.

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.

317 Proxy Form


319 Corporate Information

See more online


www.keells.com

3
GRI 102-46, 102-49

INTRODUCTION TO THE REPORT

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.

SCOPE AND BOUNDARY


The John Keells Annual Report 2017/18 is a
reflection of the Group’s integrated approach Consistency Stakeholder
Guiding Principles
of management during the period from 1 April and relationships
comparability of the 2017/18 JKH
2017 to 31 March 2018. Material events post
Annual Report
this reporting period, up to the sign off date
by the Board of Directors on 25 May 2018 have
been included in this Report ensuring a more
relevant and up to date Report. Reliability and Materiality
completeness

Conciseness

4 John Keells Holdings PLC . Annual Report 2017/18


Group Highlights

DETERMINING MATERIALITY THE GROUP CONDUCTED AN


Materiality analysis is a key process that enables the Group to define key triple bottom line issues
that are of greatest significance for businesses and stakeholders, both internal and external, in the
INDEPENDENT EXTERNAL
short, medium and long term. Our focus on materiality, through emphasis on 11 material topics STAKEHOLDER ENGAGEMENT
recognised by both internal and external stakeholders, is vital as we seek to drive performance, DURING THE YEAR UNDER
improve our sustainability framework and institutionalise the Group’s corporate governance
philosophy at all levels.
REVIEW IN ORDER TO
The Group conducted an independent external stakeholder engagement during the year under
ASCERTAIN MATERIAL
review in order to ascertain material topics to its significant stakeholders. In addition, materiality is TOPICS TO ITS SIGNIFICANT
also assessed internally in ascertaining the topics material to the Group and thereby fine-tuning STAKEHOLDERS. IN ADDITION,
and streamlining its strategy and processes to manage these material issues. The outcome of these
studies, were prioritised using a materiality matrix, representing their level of significance to the
MATERIALITY IS ALSO
Group and its external stakeholders, and then disclosed as per the clearly defined topics under the ASSESSED INTERNALLY IN
GRI Standards. ASCERTAINING THE TOPICS
While the matrix, as illustrated, indicates the prioritisation of these material aspects, the Group MATERIAL TO THE GROUP AND
continues to assess its internal and external materiality and disclose the performance of such
aspects. Its reporting scope will be expanded as and when an aspect becomes material to the
THEREBY FINETUNING AND
Group and its stakeholders. STREAMLINING ITS STRATEGY
AND PROCESSES TO MANAGE
HIGH THESE MATERIAL ISSUES.

INFORMATION VERIFICATION AND


QUALITY ASSURANCE
Importance to external stakeholders

The information contained in this Report


has been reviewed, as applicable, by:
Included in this Report and/or
y The Board of Directors
Company website
y The Group Executive Committee
y Audit Committee of the Company
y An independent auditor confirming
the accuracy of the annual financial
Minimal reporting/ statements
Not reported y An independent auditor confirming
the accuracy of the non-financial
information in accordance with the GRI
Standards: Core option
LOW

Importance to internal stakeholders Contact with Stakeholders


Preparation of this Report took place in
cooperation with stakeholders in order
to improve transparency, accountability
A detailed discussion on determining
materiality is available on the Corporate and the process in which materiality of
website. disclosed information is viewed. Feedback
is gathered through questionnaires, a
dedicated mail-box, one-on-one meetings
and stakeholder engagement fora.
DISCLAIMER FOR THE PUBLICATION OF FORECAST DATA
The Report contains information about the plans and strategies of the Group for the medium and
long term and represent the management’s view. The plans are forward-looking in nature and
their feasibility depends on a number of economic, political and legal factors which are outside
the influence of the Group and Company such as global and domestic financial, economic and
As you flip through the pages of this Report,
political situations, the state of key markets, changes in tax, customs and environmental legislation
you will find a relevant, transparent and
and so forth. Given this, the actual performance of indicators in future years may differ from
noteworthy value proposition entrenched
the forward-looking statements, published in this Report. The reader is advised to seek expert
within the John Keells Group that strives
professional advice in all such respects.
to achieve the highest form of stakeholder
satisfaction through sustainable value creation.

5
OUR BUSINESS MODEL

Fundamental Capitals deployed by JKH Value creation levers

STAKEHOLDER RETURNS AND ENGAGEMENT

INPUTS

FINANCIAL AND ƒ Shareholder funds and


debt
MANUFACTURED
ƒ Cash flow from
CAPITAL operations
ƒ Land bank
ƒ Machinery and
equipment

NATURAL CAPITAL ƒ Energy


ƒ Water
Enterprise Risk
ƒ Other natural resources Management System

Strategy, Resource Financial and


Allocation, Non-Financial
IT
and Portfolio Performance
Governance
Management during the year

HUMAN CAPITAL ƒ Employee diversity Our business activities: Human


ƒ Experience Transportation, Leisure, Property, Resource
ƒ Skills and competencies Corporate Consumer Foods and Retail, Financial Management
Governance
Services, Information Technology, and
Other including Plantation Services

Sustainability
Risks and Framework
Business Outlook
Opportunities

SOCIAL AND ƒ Dedicated CSR team


ƒ Community
RELATIONSHIP Corporate Social
development Responsibility
CAPITAL ƒ Investor relations and
stakeholder management
ƒ Health and safety
initiatives

ƒ Brand stewardship
INTELLECTUAL ƒ Research and
CAPITAL development
ƒ Technological expertise

VALUES :
CARING, EXCELLENCE, TRUST, INNOVATION, INTEGRITY

6 John Keells Holdings PLC . Annual Report 2017/18


Group Highlights

Transformed Capitals that produce stakeholder value

ACTIVITIES OUTPUTS OUTCOMES

ƒEffective and responsible investments of shareholder funds ƒShareholder returns and ƒFinancial stability
ƒBusiness development activities dividends ƒFinancial growth
ƒCost reduction initiatives ƒPayments to other ƒCreation of wealth
stakeholders
ƒShare price appreciation

ƒAdoption of Global Goals ƒDisposal of all effluent and ƒSustainable natural resource
ƒEnvironmental impact assessment and mitigation of impact waste efficiently utilisation
ƒRoll-out of carbon footprint and energy initiatives ƒReduction of carbon ƒBio-diversity preservation
ƒStrengthening of water and waste management processes footprint
ƒReduced resource consumption
through better monitoring

ƒChannelling of employee skills and expertise for business growth ƒStaff motivation ƒAlignment of workforce with
ƒTraining and development of employee cadre ƒTalented and efficient Group vision
ƒPerformance management and appraisals workforce ƒProfitable businesses through
ƒEmployee survey initiatives ƒJob satisfaction improved productivity and
ƒStructured career development programmes ƒCareer progression efficiency
ƒSafe and equitable
environment

ƒInvestment in community and livelihood development ƒCommunity skills ƒBrand visibility and
ƒRegular dialogue with investors, analysts and other stakeholders development reputation
ƒSocial impact assessments ƒWell informed and sound ƒStrengthened supply chain
ƒIdentification of key stakeholders and material aspects in relation to them investment decisions ƒAdherence to UN SDGs
ƒAwareness creation and engagement of suppliers through the Supplier ƒBetter supplier/distributor
Management Framework and stakeholder relations
ƒSocial needs assessment based on Sustainable Development Goals
(SDGs)/UN Global Compact/national agenda

ƒDevelopment of intangible infrastructure, processes and procedures Intellectual property products: ƒEvolving businesses to suit
to improve efficiency ƒPatents the ever changing, dynamic
ƒNew product development ƒCopyrights consumer
ƒInnovation ƒAn 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

CONSUMER FOODS AND RETAIL


Consumer Foods
Retail

FINANCIAL SERVICES
Insurance
Banking
Stock Broking

INFORMATION TECHNOLOGY
IT Services
Office Automation
IT Enabled Services

OTHER INCLUDING
PLANTATION SERVICES
Plantation Services
Other

CENTRE FUNCTIONS

Corporate Communications Group Human Resources Legal and Secretarial


Corporate Finance and Strategy Group Tax New Business Development
Group Business Process Review Group Treasury Strategic Group Information
Technology
Group Finance John Keells Research
Sustainability, Enterprise Risk
Management and Group Initiatives John Keells Foundation
8 John Keells Holdings PLC . Annual Report 2017/18
Group Highlights

PERFORMANCE HIGHLIGHTS

Indicator Unit 2017/18 2016/17 2015/16

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

THE INTEGRATED NATURE OF


FINANCIAL AND
THIS REPORT EXEMPLIFIES NATURAL CAPITAL
MANUFACTURED CAPITAL
THE STAKEHOLDER CENTRIC
STRATEGIES AND ACTIONS
WHICH ARE FOUNDED ON THE REVENUE
GROUP CARBON FOOTPRINT
PRINCIPLES OF COMPLIANCE,
CONFORMANCE,
Rs.121 bn 96,066 MT
Growth of 14 per cent Increase of 4 per cent
GOVERNANCE, ETHICAL
CONDUCT AND SUSTAINABLE PROFIT BEFORE TAX CARBON FOOTPRINT
DEVELOPMENT.
Susantha Ratnayake
Rs.28 bn
Growth of 21 per cent
Chairman

• Group ROCE 11.9 per cent


• Largest listed entity on the Colombo
Stock Exchange: Rs.221.44 billion market
capitalisation
• Dividend per share of Rs.6.00
Consumer Foods and Retail : 41%
Leisure : 40%
Property : 1%
Transportation : 13%
Financial Services : 1%
Information Technology : 1%
Other including Plantations Services : 3%

GROUP WATER USAGE


• LMS commissioned a new bunker barge
“MT LM Mahaweli”, the first doubled hulled, 1,908,422 m 3

Decrease of 6 per cent


doubled bottomed barge in Sri Lanka

MESSRS. K. BALENDRA PROFIT AFTER TAX UPHOLDING OUR SUSTAINABILITY


AND G. COORAY ASSUMED
Rs.23 bn
GOALS
DUTIES AS DEPUTY 10 stores within the Retail sector powered by
Growth of 28 per cent solar with 33 more expected to be converted
CHAIRMAN AND GROUP
FINANCE DIRECTOR, • “Bentota Beach by Cinnamon” was closed ENERGY CONSUMPTION  NON
RESPECTIVELY, IN JANUARY for reconstruction in May 2017
RENEWABLE RESOURCES
2018 • Vauxhall Land Developments Limited
PER RS. MILLION OF REVENUE
purchased 334 perches in Colombo 2 for a


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

ANNOUNCED THE LAUNCH


OF “TRIZEN” IN FEBRUARY
2018, A RESIDENTIAL
DEVELOPMENT IN UNION
PLACE, COLOMBO 2 WITH
EXPECTED COMPLETION IN
2022/23

10 John Keells Holdings PLC . Annual Report 2017/18


Group Highlights

SOCIAL AND RELATIONSHIP


HUMAN CAPITAL INTELLECTUAL CAPITAL
CAPITAL

• Driving innovation: During the year under


• A project was launched to implement a review, the Bank launched “FriMi”, the
state-of-the-art electronic human resource country’s first digital bank, which enables
information platform to replace the Group the opening of a bank account through a
HR enterprise resource planning system smart device
• “FriMi” won the award for Emerging
Technologies-Led Innovation at the Infosys

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

TOTAL WORKFORCE EMPOWERING THE NATION FOR A

20,361 BETTER TOMORROW


Community service and infrastructure project
Employees : 13,315 spend
Contractor’s staff : 7,046

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

• Delivering goodness and nutrition: KFP


launched its new range of ambient food
• Value created: Total impact through CSR products
initiatives: 1,455,814 individuals
• JKIT; “Disruptive Ideas, your future actioned”
• A stakeholder engagement survey was was launched in August 2017
conducted
• Nurturing the “Cinnamon” brand through
unique offerings: “The Sound of Music” was
the first-ever event of its calibre performed
• Launch of the #JKHSTEM Programme, PROPORTION OF PURCHASES FROM
in Sri Lanka, and set the stage for even more
aimed at attracting graduates from the SUPPLIERS WITHIN SRI LANKA
large-scale entertainment productions
Science, Technology, Engineering and


Mathematics fields

Partnered with “Coursera” to provide online


72%
education to Group employees

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.

Education Disaster Relief Arts & Culture


To provide better access to educational To come to the aid of Sri Lankans and global To nurture the livelihoods of artists and preserve
opportunities for those in need towards communities in times of adversity and disaster our cultural heritage towards safeguarding and
enhancing their employability and towards enabling them to rebuild their lives and promoting Sri Lankan arts and culture.
entrepreneurship. livelihoods. Our Projects
Our Projects Our Projects • Kala Pola (annual open air art fair)
• John Keells English Language Scholarship • Flood relief • John Keells Digital Art Gallery
Programme • Meethotamulla disaster support • Cinnamon Colomboscope
• Neighbourhood Schools Development Project Our Impact Our Impact
• Soft Skills and Industrial Training for University • Over 15,000 persons • 358 participating artists, over 28,000 visitors
Undergraduates and sales estimated over Rs.15 million at Kala
• Higher Education Scholarship Scheme Pola
Our Impact • 925 registered artists on Sri Lankan Art Gallery,
• 1,360 scholarships 250 artists on John Keells Art Gallery (curated
• 6 schools, over 2,160 school children site)
• 42 University undergraduates • 68 local and foreign participating artists of
• 33 scholarships supporting A/Level and whom the Foundation sponsored 28 local
University students from disadvantaged artists and 12 local speakers
communities

Livelihood Development Health Environment

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

12 John Keells Holdings PLC . Annual Report 2017/18


Group Highlights

ECONOMIC VALUEADDED STATEMENT

Profit on sale of assets and other


income

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

Rs.122,343 mn Rs. 3,596 mn


(2016/17: Rs.3,303 mn)

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

14 John Keells Holdings PLC . Annual Report 2017/18


Group Highlights

GIVEN THE GESTATION PERIOD OF SOME OF THESE Leisure Industry Group


The Leisure industry group reported revenues,
INVESTMENTS, THE REALISATION OF BENEFITS including share of revenues from equity
ARE EXPECTED TO ACCRUE IN THE MEDIUM TERM. accounted investees, of Rs.25.30 billion and
ALTHOUGH THESE INVESTMENTS WILL IMPACT a PAT of Rs.3.34 billion, contributing 18 per
cent and 14 per cent to Group revenue and
PERFORMANCE IN THE SHORT TERM, THE GROUP PAT respectively. The 2017/18 PAT decreased
IS CONFIDENT THAT IT CAN LEVERAGE ON SUCH by 33 per cent over the previous year. As
INVESTMENTS TO DRIVE THE NEXT PHASE OF stated in my message in the Annual Report
2016/17, “Bentota Beach by Cinnamon” was
GROWTH, WHILST ALSO ACHIEVING A BETTER closed for the reconstruction of a new hotel
PORTFOLIO BALANCE. whilst “Ellaidhoo Maldives by Cinnamon” and
“Cinnamon Dhonveli Maldives” were partially
closed for refurbishment during the first half
of benefits are expected to accrue in the TRANSPORTATION of 2017/18.
medium term. Although these investments PROFIT AFTER TAX
will impact performance in the short term, During the calendar year 2017, arrivals to
the Group is confident that it can leverage on
such investments to drive the next phase of
Rs.3.08 bn Sri Lanka reached 2,116,407, representing a
subdued year-on-year growth of 3 per cent,
growth, whilst also achieving a better portfolio (2016/17: Rs.2.98 bn)
primarily due to the partial closure of the
balance. The Group is acutely mindful of airport for resurfacing of the runway and
the need to manage the balance between impacts due to flooding and the outbreak
capital deployed and the resultant impact for doubtful debt and a cumulative deferred of dengue fever in the months of June and
to the overall returns of the Group portfolio. tax charge at South Asia Gateway Terminals July 2017. The Western European and East
The deployment of investments envisaged (SAGT). Excluding these impacts, the 2017/18 Asian regions were the two largest source
in the 5-year strategic plans will be assessed recurring PAT increased by 34 per cent over markets contributing towards overall arrivals
periodically based on the macro-environment the previous year. growth, each demonstrating growth of 6 per
and market conditions prevailing at the time cent and 5 per cent respectively. In keeping
such investment decisions are made. During the financial year, volumes at the with the present growth opportunities within
Port of Colombo witnessed a year-on-year the sector and the 4.5 million tourist arrival
As part of our growth strategy, the Group growth of 8 per cent whilst SAGT recorded target for 2020 set by the Sri Lanka Tourism
strengthened its land bank through the an encouraging throughput increase of 10 Development Authority, better physical
acquisition of a few strategic land assets as per cent. You will be pleased to note that infrastructure such as enhanced connectivity
described below. Although the Group’s land the Port of Colombo was ranked amongst through road networks and the expansion of
banking strategy is expected to exert pressure the “World’s 30 Best Ports”, as per Alphaliner the passenger handling capacity of the airport
on ROCE in the short term, it will facilitate the Rankings 2017 whilst SAGT was recognised by expediting the planned new terminal, is a
development and monetisation of a robust as the “Best Terminal in South Asia” by the priority.
pipeline of projects that will have a positive Global Ports Forum, in March 2018, for the
impact on revenue and profit recognition, and, second consecutive year. Since the expansion The increased room inventory arising out of
resultantly, on the ROCE of the industry group of capacity with the commissioning of the entrants into the 3-5-star segments of the
over the medium term. South Container Terminal, the overall capacity market, and the resultant competitive pricing,
utilisation of the Port of Colombo is now in exerted pressure on the city sector’s average
The Annual Report contains discussions on excess of 80 per cent, demonstrating the room rates during the period under review.
the macro-economic factors and its impact on strong potential for capacity led growth. However, it is heartening to note that the
our businesses as well as a detailed discussion In this context, timely development of the total number of room nights occupied in the
and analysis of each of the industry groups. As deep-draft East Container Terminal (ECT) is city increased by 14 per cent, underscoring
such, I will focus on a high-level summation critical to ensure that capacity continues to be the steady absorption of new room capacity
of the performance of each industry group enhanced towards attracting further volumes within the sector. With new capacity expected
during the financial year 2017/18. and sustain continued growth at the Port. to come on stream over the next few years,
especially into the city, it is important for the
Transportation Industry Group Revenue and profitability of the Group’s country to improve its overall tourism offering,
The Transportation industry group reported Bunkering business improved as a result of including its product and entertainment
revenue, including the share of revenue from the growth in volumes and an increase in offering to attract the higher spending tourists.
the equity accounted investees, of Rs.25.62 base fuel prices during the year. The Logistics Despite the increasingly competitive operating
billion and a PAT of Rs.3.08 billion, contributing business recorded a strong performance due environment, the City Hotels sector increased
19 per cent and 13 per cent to Group to an increase in throughput in its warehouse its fair share of available rooms in the 5-star
revenue and PAT respectively. The 2017/18 facilities while DHL Keells improved its market category in the year under review.
PAT increased by 4 per cent over the previous leadership position in the year under review.
year. During the year under review, profits
were impacted by an impairment provision

15
CHAIRMAN’S MESSAGE

contractors. This unique development will


DURING THE YEAR UNDER REVIEW, THE PROPERTY target a broader section of the market with
INDUSTRY GROUP ANNOUNCED THE LAUNCH OF apartments offered at attractive price points.
Pre-sales have commenced, and initial
ITS LATEST RESIDENTIAL DEVELOPMENT, “TRIZEN”,
bookings are encouraging.
AN 891 APARTMENT JOINT VENTURE RESIDENTIAL
DEVELOPMENT PROJECT. THE CONSTRUCTION OF THE The construction of the “Cinnamon Life”
project is progressing with encouraging
PROJECT WILL COMMENCE BY THE SECOND HALF OF momentum with the completion of the
2018/19 WITH EXPECTED COMPLETION IN 2022/23. super structure of the buildings expected in
the second half of 2018/19. The installation
of the façade of the hotel has commenced
The Sri Lankan Resorts segment recorded an Given the increase in demand for residential whilst the six-lane bridge; which is the main
overall improvement in occupancy, despite and commercial space arising from increasing access point of the hotel, will be completed
the increase in competition within the sector, urbanisation, the Group will seek to establish towards the latter half of the year. Pre-sales for
particularly in the coastal areas of the island. a continuum of projects. In this light, land residential spaces continue to be encouraging
parcels in the city and the suburbs have been with approximately 60 per cent of the floor
Tourist arrivals to the Maldives displayed identified and earmarked for development. area being sold as at 31 March 2018. The
signs of a recovery with an increase of 8 project is slated for completion in the calendar
per cent for the calendar year 2017. Despite During the year under review, the Group year 2020 with the residential apartments
increased activity in the informal sector, the acquired a parcel of prime land in Vauxhall and office complex ready for hand over and
Maldivian Resorts segment recorded an Street, Colombo. This, along with an existing occupation by early 2020.
improvement in its average room rates, whilst plot of land owned by the Group, and an
occupancies were well above the industry adjacent land held by Finlays Colombo Consumer Foods and Retail Industry
average. “Cinnamon Hakuraa Huraa Maldives” Limited, was amalgamated to form a Group
is currently closed for refurbishment, with joint venture, with the Group owning The Consumer Foods and Retail industry
expected completion in December 2019. approximately 60 per cent. This combined group recorded revenues of Rs.53.21 billion
parcel of 9.38 acres of prime land in proximity and a PAT of Rs.2.89 billion, contributing 39
Considering the long-term growth prospects to the Beira Lake, is one of the largest per cent and 13 per cent to Group revenue
for tourism in the country, the Leisure privately held land banks in central Colombo. and PAT respectively. The 2017/18 PAT
industry group is currently evaluating several Master planning for development of this decreased by 26 per cent over the previous
investments to expand its portfolio of hotels land has commenced. Further, the Property year. The decline in profits is on account of the
whilst being conscious of the impact on the industry group is in the process of finalising Consumer Foods sector and to a lesser extent
effective capital deployed in the context of the the acquisition of another 100 perches of the Retail sector.
JKH Group portfolio. The model for expansion land located in central Colombo, for a niche
will primarily be on an asset-light investment residential development which is expected The Beverage and Frozen Confectionery
model where the Group will seek partners to be launched in the second half of 2018/19. businesses recorded a decline in volumes
for select hotel investments to manage its Master planning of an 18-acre suburban site as a result of continued tapering of demand
effective capital deployed in the industry North of Colombo is also currently underway. arising from subdued consumer discretionary
group whilst increasing its rooms under spending. The volume decline in the Beverage
management. During the year under review, the Property business was further exacerbated by the
industry group announced the launch of implementation of a sugar tax from November
Property Industry Group its latest residential development, “Tri-Zen”, 2017, which resulted in substantial price
The Property industry group reported an 891 apartment joint venture residential increases across the industry. Whilst over the
revenues of Rs.1.23 billion and a PAT of Rs.1.05 development project. The construction of the years we have taken measures to reduce
billion, contributing 1 per cent and 5 per cent project will commence by the second half of and replace calorific sugar content in the
to Group revenue and PAT respectively. The 2018/19 with expected completion in 2022/23. carbonated soft drinks (CSD), the sudden
2017/18 PAT increased by 69 per cent over Whilst preliminary planning clearance for the introduction of regulatory action in this regard
the previous year. The improved performance project has been obtained and schematic in the absence of systematic engagement with
is mainly on account of the recognition designs have been completed, the tender the industry, negatively impacted CCS and other
of deferred revenue arising from the re- documents have been issued to pre-qualified industry participants. As a continuing part of our
assessment of the revenue recognition policy beverage portfolio strategy, we will continue
at Rajawella Holdings (Private) Limited on to aggressively expand our sugar free and low
the sale of lease hold rights, and fair value sugar product range by accelerating the launch
PROPERTY
gains on investment property. Excluding the of such new products whilst also launching
impact on RHL mentioned above, the 2017/18 PROFIT AFTER TAX
more non-carbonated beverages to broaden
recurring PAT decreased by 19 per cent over
the previous year. Rs.1.05 bn our offering. As mentioned in the Annual
Report 2016/17, CCS invested Rs.4.20 billion
(2016/17: Rs.623 mn) in a new state-of-the-art frozen confectionery

16 John Keells Holdings PLC . Annual Report 2017/18


Group Highlights

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 NONCARBONATED (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 INHOUSE 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 INHOUSE. 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.

OTHER INCLUDING PLANTATION Employees


SERVICES PROFIT AFTER TAX As we mark the conclusion of a satisfactory Further details on compliance can be
year, I wish to acknowledge with gratitude found in the Corporate Governance

Rs.3.82 bn the contribution and commitment of our


employees during a year which saw many
Commentary of this Report.

(2016/17: Rs.3.10 bn)


challenges and opportunities. Our employees
are an integral part of our success and a key Sustainability
pillar of our Corporate Governance System. This year the Integrated Annual Report has
Research and Innovation We will continue to implement processes been prepared in accordance with the GRI
John Keells Research (JKR), the research and by which we attract, and retain talent, Standards: Core option as early adopters of
development arm of the Group, following the as an employer of choice. The Corporate the new standards and has obtained the GRI
patenting of a novel energy storage material Governance Commentary and the Group Materiality Disclosures check. The Report
in 2016/17, is actively evaluating opportunities Consolidated Review sections of this Report contains the overall sustainability strategy,
for building a prototype energy storage device explain in further detail the best practices, framework and performance of the Group,
which would utilise the patented technology policies and procedures that are in place to and the Group has successfully completed the
to enhance the Technology Readiness Level ensure that John Keells is “More Than Just a GRI Materiality Disclosures Service.
(TRL) of the said intellectual property. Work Place”.
As an element of its sustainability strategy,
The year under review marked a significant During the year under review, the Group and alongside its comprehensive risk
milestone as JKR’s own research laboratory launched a project to implement a state-of- management process, the Group continuously
commenced operations. This facility will be the-art human resource information platform. seeks to conserve energy and water, dispose

18 John Keells Holdings PLC . Annual Report 2017/18


Group Highlights

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

20 John Keells Holdings PLC . Annual Report 2017/18


Governance

Building a reputation
for integrity, transparency
and value

22 Board of Directors . 24 Group Executive Committee .


25 Group Operating Committee . 28 Corporate Governance Commentary

21
BOARD OF DIRECTORS

Susantha Ratnayake Gihan Cooray


Chairman Group Finance Director
D N R D
Susantha Ratnayake was appointed as the Chairman and CEO of John Gihan Cooray is the Group Finance Director and has overall responsibility
Keells Holdings PLC (JKH) in January 2006 has served on the JKH Board for the Group’s Finance and Accounting, Taxation, Corporate Finance
since 1992/1993 and has 39 years of management experience, all of and Strategy, Treasury and Information Technology functions (including
which is within the John Keells Group. He is a past Chairman of the Sri John Keells IT) and John Keells Research. He is a Director of several
Lanka Tea Board, Ceylon Chamber of Commerce, and the Employers’ companies in the John Keells Group and a Non-Executive Director of
Federation of Ceylon. Nations Trust Bank PLC. Gihan holds an MBA from the Jesse H. Jones
Graduate School of Management at Rice University, Houston, Texas.
He is an Associate member of the Chartered Institute of Management
Accountants, UK, a certified management accountant of the Institute
of Certified Management Accountants, Australia and has a Diploma in
Marketing from the Chartered Institute of Marketing, UK. He serves as a
Committee Member of the Ceylon Chamber of Commerce.

Krishan Balendra Amal Cabraal


Deputy Chairman Non- Executive Director
D H R A
Krishan Balendra is the Deputy Chairman of John Keells Holdings PLC Amal Cabraal is presently the Chairman of Ceylon Beverage Holdings
and is responsible for the Leisure and Transportation industry groups, PLC, Lion Brewery (Ceylon) PLC and CIC Feeds Group of Companies. He
John Keells Stock Brokers and John Keells Office Automation. He is a is a former Chairman and Chief Executive Officer of Unilever Sri Lanka
Director of several companies in the John Keells Group and serves as and has over 3 decades of business experience in general management,
the Chairman of Nations Trust Bank PLC. He is also the Hon. Consul marketing and sales in Sri Lanka, the United Kingdom, India and
General of the Republic of Poland in Sri Lanka and a former Chairman Bangladesh. Amal Cabraal is an Independent Non-Executive Director
of the Colombo Stock Exchange. Krishan started his professional of Hatton National Bank PLC, Sunshine Holdings PLC and Silvermill
career at UBS Warburg, Hong Kong, in investment banking, focussing Investment Holdings (Pvt) Ltd. and a member of the Supervisory
primarily on equity capital markets. After a four year stint in Hong Kong, Board of Associated Motorways (Private) Ltd. He is also a member of
he continued his career in corporate finance at Aitken Spence PLC, Sri the Monetary Policy Consultative Committee of the Central Bank of Sri
Lanka, prior to joining JKH. Krishan holds a law degree (LLB) from the Lanka and a committee member of the Ceylon Chamber of Commerce
University of London and an MBA from INSEAD. and serves on the Management Committee of the Mercantile Services
Provident Society. A Chartered Marketer by profession and a Fellow
of the Chartered Institute of Marketing - UK, he holds a MBA from
the University of Colombo and is an executive education alumnus of
INSEAD-France.

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

22 John Keells Holdings PLC . Annual Report 2017/18


Governance

Nihal Fonseka Premila Perera


Non- Executive Director Non-Executive Director
R A A N R
Nihal Fonseka is a career banker and served as the Chief Executive Premila Perera was appointed to the Board of the Company with effect
Officer/Ex-Officio Director of DFCC Bank from 2000 until his retirement from 1 July 2014 as an Independent Non-Executive Director. Premila
in 2013. He is currently a Member of the Monetary Board of the Central Perera, formerly a Partner, KPMG in Sri Lanka, also served as the Global
Bank of Sri Lanka, Non-Executive Director of Phoenix Ventures Pvt Ltd, Firms Regional Tax Director for ASPAC in 2000/01, as a member of the
Chairman of the Group Audit Committee of Brandix Lanka Limited and Global Task force commissioned in 1998, to advise the International
President of the Sri Lanka National Advisory Council of the Chartered Board of KPMG on future directions in determining long term strategic
Institute of Securities and Investments, UK. Prior to joining the DFCC plans, and faculty of the KPMG International Tax Business School. She
Bank, he was the Deputy Chief Executive of HSBC Sri Lanka. He is a also served a period of secondment with the US Firm’s National Tax
past Chairman of the Colombo Stock Exchange and the Association of Office in Washington DC, and was a participant at the KPMG-INSEAD
Development Financing Institutions in Asia and the Pacific (ADFIAP). He International Banking School programme. She is a Fellow of the Institute
has also served as a Director of the Employees’ Trust Fund Board and as of Chartered Accountants of Sri Lanka. She served as an Independent
a member of the Presidential Commission on Taxation (2009), National Director and Chairperson of the Audit and Related Party Transaction
Procurement Commission and Strategic Enterprise Management Agency Committees of Ceylon Tobacco Company PLC until October 2017 and as
(SEMA). He holds a BSc from the University of Ceylon, Colombo, is a a Non-Executive Director of Holcim (Lanka) Limited until August 2016.
Fellow of the Institute of Financial Studies, (FIB) UK and a member of the
Chartered Institute of Securities and Investments, (MCSI) UK.

Ashroff Omar Dr. Hans Wijayasuriya


Non-Executive Director Non-Executive Director
H N H N
Group Chief Executive Officer of Sri Lanka’s largest Apparel exporter, In his capacity as the Regional CEO for South Asia, Dr. Hans Wijayasuriya
Brandix Lanka Limited, Ashroff Omar has been instrumental in heads the South Asian Operations of the Axiata Group Bhd., spanning
redefining the Sri Lankan Apparel industry for over four decades. Ashroff Bangladesh, Nepal, Sri Lanka, Pakistan and India. Axiata is Asia’s second
spearheads a company that comprises of manufacturing and product largest Telecommunications Group. Up to and including the year 2016,
development facilities offering end-to-end solutions from Tokyo to the he additionally functioned as the Group Chief Executive of Dialog Axiata
US, including UK, Cambodia, Haiti, Sri Lanka, India and Bangladesh for PLC. He is a past Chairman of GSM Asia Pacific - the regional interest
some of the world’s most renowned brands, with a commitment to group of the GSM Association, and also serves on the Board of the TM
offering ‘Inspired Solutions’ to its clientele. Forum (TMF), and was also honoured by the GSM Association as the first
recipient of the “Outstanding Contribution to the Asian Mobile Industry”
He is also credited with pioneering environmentally-friendly apparel Award in 2016.
manufacture in the world and establishing the world’s first LEED
platinum manufacturing facility for eco-friendly manufacture. His Dr. Wijayasuriya graduated from the University of Cambridge, UK in 1989.
extensive experience and ability to think beyond the norm has secured He subsequently obtained his PhD in Digital Mobile Communications
him positions in the Boards of some of Sri Lanka’s most respected from the University of Bristol UK in 1994. A Chartered Engineer and
corporates. He is also the Founder Chair of the Joint Apparel Association Fellow of the Institute of Engineering Technology UK, Dr. Wijayasuriya
Forum (JAAF), the apex body of the Sri Lankan Apparel industry. also holds an MBA from the University of Warwick, UK. Dr. Wijayasuriya
has published widely on the subject of digital mobile communications,
including research papers in publications of the Institute of Electrical
and Electronic Engineers (IEEE) USA, Royal Society and the Institute of
Engineering Technology (IET) UK.

23
GROUP EXECUTIVE COMMITTEE

Dilani Alagaratnam Jitendra Gunaratne


President President
Dilani Alagaratnam is a member of the Group Executive Committee of Jitendra Gunaratne is responsible for the Consumer Foods sector. Prior
John Keells Holdings PLC, the President with overall responsibility for the to his appointment as President, he overlooked the Plantations and
Human Resources, Legal and Secretarial, Corporate Communications, Retail sectors. His 38 years of management experience in the Group also
Sustainability and Enterprise Risk Management, and Group Initiatives covers Leisure and Property. He is a Director of Ceylon Cold Stores PLC
functions of the Group. She is also a Director of Union Assurance PLC and Keells Food Products PLC and is also the President of the Beverage
and several unlisted companies within the John Keells Group. A Lawyer Association of Sri Lanka. He is a member of the Council of the Employers’
by profession, she has been with John Keells Holdings PLC since 1992 Federation of Ceylon and a member of the Food Advisory Committee of
and is a law graduate and a holder of a Masters’ Degree in Law. Currently, the Ministry of Health.
she is the Chairperson of the Legislation Sub Committee of the Ceylon
Chamber of Commerce, member of the National Labour Advisory
Committee, and a Council member of the Sri Lanka Institute of Directors.

Romesh David Suresh Rajendra


President President
Romesh David is currently seconded to the Group’s ports business as Suresh Rajendra is responsible for the Property industry group of the
CEO of South Asia Gateway Terminals. He was the former President John Keells Group and also serves as a Director of Union Assurance PLC
of the Transportation Group of JKH and has been with the Group and Asian Hotels and Properties PLC. He has over 23 years of experience
for 38 years during which he has served in the Leisure, Domestic in the fields of finance, property and real estate, travel and tourism, and
and International Trade and IT sectors of the Group, in addition to business development acquired both in Sri Lanka and overseas. Prior
Transportation. He presently serves as a Vice President of the Indo-Lanka to joining the Group, he was the head of commercial and business
Chamber of Commerce and Co-Chair of the CCC National Agenda development for NRMA Motoring and Services in Sydney, Australia,
Committee on Logistics and Transport. He is a Chartered member of Director/General Manager of Aitken Spence Hotel Managements
the Chartered Institute of Logistics and Transport and serves on the (Private) Limited, and also served on the Boards of the hotel companies
International Management Committee of the Institute as International of the Aitken Spence Group. Suresh is a Fellow of the Chartered Institute
Vice President for South Asia. He is a past Chairman of the Chartered of Management Accountants, UK.
Institute of Logistics and Transport – Sri Lanka, the Sri Lanka Logistics
and Freight Forwarders Association and the Council for Business with
Britain.

24 John Keells Holdings PLC . Annual Report 2017/18


Governance

GROUP OPERATING COMMITTEE

Daminda Gamlath Sanjeewa Jayaweera


Executive Vice President Executive Vice President
Daminda Gamlath is the Sector Head for the Consumer Foods sector. Sanjeewa Jayaweera, Chief Financial Officer for the Consumer Foods
Daminda has been with the John Keells Group since 2002. He was the and Retail industry group, has been with the Group for 25 years, during
Sector Financial Controller for the IT sector and then the Consumer which he served in the Resort Hotels sector of the Leisure industry
Foods sector before he was appointed as the Head of Beverages in 2013. group and was the Sector Financial Controller for Resort Hotels from
Prior to joining the JKH Group, he worked at Hayleys Group. Daminda 1998 to 2005. Prior to joining the Group, Sanjeewa was based in the
holds a B.Sc(Eng) degree from University of Moratuwa, a MBA from the United Kingdom and worked for several years as an Audit Manager.
University of Colombo and is a passed finalist of the Chartered Institute
of Management Accountants of UK.

Isuru Gunasekera Rohan Karunarajah


Executive Vice President Executive Vice President
Isuru Gunasekera is the Head of Group HR, Sustainability, Enterprise Risk Rohan Karunarajah is Head of Brand Development for Cinnamon Hotels
Management and Group Initiatives. He joined the Group in 2001 into and Resorts, and Sector Head of Cinnamon’s City Hotels, overseeing
the New Business Development Division and thereafter headed Group “Cinnamon Grand”, “Cinnamon Lakeside” and “Cinnamon red”. A career
Initiatives and also projects for the Transportation sector. He was the hotelier counting over three decades, both in the local and international
CEO of John Keells Logistics for 10 years and CEO of Mackinnons Travels hospitality industry; he held the position of General Manager in several
for a short period. Prior to joining the Group, he was attached to J P hotels in the United Kingdom, lastly being the Marriott Marble Arch,
Morgan Chase. He holds a bachelor’s degree in business administration London. He is a Director of Asian Hotels and Properties PLC, Trans Asia
from Loyola Marymount University, USA. Hotels PLC and Sancity Hotels and Properties Limited. He read for his
Masters in Hospitality and Business Studies from the Thames Valley
University, London.

Changa Gunawardane Vasantha Leelananda


Executive Vice President Executive Vice President
Changa Gunawardane is the Chief Financial Officer of the Leisure Vasantha Leelananda is Head of the Destination Management sector
Group and has been with the John Keells Group for over 12 years. He and counts over 39 years in the Leisure industry group with the John
previously held the position of Chief Financial Officer of the Information Keells Group. He served as the Managing Director of Walkers Tours from
Technology Group. He also served as the Sector Financial Controller of 1997 to 2005 and heads inbound travel operations. Vasantha holds an
the Airlines and Logistics SBU of the Transportation sector. He has over MBA from the University of Leicester. He is a past President of the Sri
23 years of experience as a finance professional in different industries Lanka Association of Inbound Tour Operators (SLAITO), a Board member
including Pharmaceutical, Manufacturing, Management Services, of the Sri Lanka Convention Bureau from 2003 to 2007, Board member
Electrical Engineering and Construction. Changa is a Fellow member of of the Sri Lanka Institute of Tourism and Hotel Management from 2007
the Chartered Institute of Management Accountants UK, and holds a to 2010 and served as a Board member of the American Chamber
Masters’ in Business Administration, from the Postgraduate Institute of of Commerce (AMCHAM) from 2012 to 2014. He is currently a Board
Management, University of Sri Jayewardenepura. member of the Responsible Tourism Partnership which is affiliated to
the Travel Foundation UK, a Board member of the Sri Lanka Tourism
Promotion Bureau (SLTPB) and a Director of Sri Lanka Business and
Biodiversity Platform.
Zafir Hashim
Executive Vice President
Zafir Hashim is the Head of the Transportation sector and has been
with the Group for 15 years. He joined the Group in 2003, seconded to
Lanka Marine Services where he served as CEO from 2005-2015. He has
also served as a member of the Transportation Sector Committee from
2005. During the last 13 years he has held the position of CEO at John
Keells Logistics Lanka Ltd., for a short time, and Mackinnons Mackenzie
Shipping Co. Ltd. He has an MSc in Chemical Engineering from the
University of Birmingham (UK).

25
GROUP OPERATING COMMITTEE

Nayana Mawilmada Ramesh Shanmuganathan


Executive Vice President Executive Vice President
Nayana Mawilmada is the Sector Head of the Property Group at JKH. Ramesh Shanmuganathan is the Group’s Chief Information Officer, a
With extensive international experience in planning, facilitating, and member of the Group Management Committee for the Information
managing large scale urban development and infrastructure projects Technology industry group as well as Chief Executive Officer of John
across 15 countries, and working within both the private and public Keells IT (JKCS cum SGIT). He has over 25 years of experience in the
domains, Nayana brings a unique perspective to property sector ICT industry in Sri Lanka and the USA, with over 17 years in C-level
endeavours. He is widely seen as a key advocate and spokesperson for management. Ramesh is a Hayes-Fulbright Scholar and holds to
sound urban development policy and planning in the country. Among his credit a Doctor of Philosophy (Technology Management) from
his previous roles, Nayana has served as the Director General of the Keisei International University (Seoul, South Korea), Master of Science
Urban Development Authority of Sri Lanka, Managing Director of York (Information Technology and Computer Science) with Phi Kappa Phi
Street Partners (Pvt) Ltd a boutique investment bank in Colombo, and as Honours from Rochester Institute of Technology (New York, USA), Master
an Urban Development Specialist for Asian Development Bank based in of Business Administration from Postgraduate Institute of Management,
Manila, Philippines. His academic training includes an MBA from Harvard University of Sri Jayewardenepura, Bachelor of Science in Electronics
Business School, a Master of City Planning from Massachusetts Institute and Telecommunications Engineering with First Class Honours from
of Technology (MIT), and a Bachelor of Architecture from Hampton the University of Moratuwa. He is reading for his Doctor of Business
University in the USA. In recognition of his leadership in Sri Lanka’s urban Administration (DBA) at the International School of Management, Paris
development space, he was also awarded an Eisenhower Fellowship in at present. He is a Chartered Engineer, Chartered IT Professional and a
2017. Fellow of the British Computer Society and Institute of Engineers, UK. He
has active memberships in several other professional institutions and is
a visiting faculty member for several post-graduate programmes. He is
also the Chair of the Sri Lanka SAP User Group (SLSUG), member of the
SLASSCOM General Council and is actively involved with the ICTA as well
as other bodies in steering IT to greater heights within the country. He is
also a member of the Gartner Research Circle.

Waruna Rajapaksa Charitha Subasinghe


Executive Vice President Executive Vice President
Waruna Rajapaksa, Head of New Business Development for the John Charitha Subasinghe is the Sector Head of the Retail sector. He has been
Keells Group and Head of Operations for the “Cinnamon Life” integrated with the John Keells Group since 2003. He was the Sector Financial
project, has over 30 years of experience in Sri Lanka and in the UK, Controller of the Retail sector, before being appointed as the Chief
primarily in management consultancy, infrastructure finance, and audit. Executive Officer in 2005. He was also employed at Aitken Spence Hotel
Prior to joining the Group in 2002, he worked for the Government Management as the Sector Financial Controller before moving over
as an Executive Director at the Bureau of Infrastructure Investment, to John Keells. He is an Associate Member of the Chartered Institute
Informatics International Limited (UK) and at Ernst & Young. He is a of Management Accountants (UK) as well as a Diploma Holder of the
member of the Board of Directors of South Asia Gateway Terminals Chartered Institute of Marketing (UK). He also holds an MBA from the
(Private) Limited. Waruna is a Fellow member of the Chartered Institute University of Colombo.
of Management Accountants, UK, and an Associate member of the
Institute of Chartered Accountants of Sri Lanka. He also holds an MBA
from City University Cass Business School, London, UK.

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

26 John Keells Holdings PLC . Annual Report 2017/18


Governance

Nadija Tambiah Suran Wijesinghe


Executive Vice President Executive Vice President
Nadija Tambiah, Head of Legal and Secretarial is a law graduate from the Suran Wijesinghe, joined the Group in January 2004 as the Sector
University of Manchester, United Kingdom, a Barrister at Law (Middle Financial Controller of the Financial Services industry group and was
Temple), UK and is also qualified as an Attorney at Law in Sri Lanka. subsequently appointed the Chief Financial Officer of the same industry
She also heads the Corporate Social Responsibility arm of John Keells group in July 2010 and the JKH Group Financial Controller in January
Holdings PLC. She serves as a member of the Steering Committee on 2018.
Arbitration and Mediation at the Ceylon Chamber of Commerce.
He is a Director of Nations Trust Bank PLC and has over 30 years
of experience in the fields of auditing and financial and general
management which has been acquired while serving in organisations
both locally and overseas. Suran is a Fellow member of both the Institute
of Chartered Accountants of Sri Lanka (CA Sri Lanka) and the Chartered
Institute of Management Accountants, UK.

Devika Weerasinghe Ravi Wijewantha


Executive Vice President Executive Vice President
Devika Weerasinghe, Chief Financial Officer of the Transportation Ravi Wijewantha joined the Group in September 2003 and was
industry group previously held the position of Sector Financial Controller appointed as Sector Financial Controller of the Property industry group
of the Transportation sector. She also served as the Sector Financial in July 2006 and Chief Financial Officer of the same Industry Group in
Controller of the Airlines SBU of the Transportation sector during the July 2017. He has over 23 years of experience in the fields of Auditing
period 1998-2004. An Associate member of the Chartered Institute of and Accounting.
Management Accountants UK, Devika also holds a Bachelor’s Degree in
Business Administration, from the University of Sri Jayawardenepura. Ravi is an Associate Member of the Chartered Institute of Management
Accountants (UK) and holds an MBA from ICFAI University Dehradun
India.

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

28 John Keells Holdings PLC . Annual Report 2017/18


Governance

Highlights of the 38th Annual General


Key Corporate Governance Highlights for the Year 2017/18
Meeting Held on 30 June 2017
• In line with the succession plans announced in November 2016, Mr. K Balendra and Mr. G
• Mr. A Cabraal, who retired in terms of
Cooray assumed office as the Deputy Chairman and Group Finance Director, respectively,
Article 84 of the Articles of Association of
on 1 January 2018. Mr. Balendra will take over as Chairman-CEO and Mr. Cooray as Deputy
the Company, was re-elected as a Non-
Chairman/Group Finance Director upon the retirement of the current Chairman-CEO, Mr. S
Executive Independent Director of the
Ratnayake, at the end of December 2018.
Company.
• Several key management personnel were appointed to the Group Operating Committee in • Mr. N Fonseka, who retired in terms of
line with the Group’s succession plans. Article 84 of the Articles of Association of
• With reference to Rule 7.13.2 of the Listing Rules of the Colombo Stock Exchange governing the Company, was re-elected as a Non-
the minimum public holdings of listed entities, the John Keells Group divested 915,268 Executive Independent Director of the
ordinary shares of Union Assurance PLC (UA), during the year under review. As at 31 March Company.
2018, the public holding of UA stood at 7.64 per cent. Post the reporting period, JKH • Dr. H Wijayasuriya, who retired in terms of
divested a further 2.36 per cent stake of UA thereby reducing the Group’s stake to 90 per Article 91 of the Articles of Association of
cent. UA has requested a transfer from the Main Board to the Diri Savi Board of the CSE. the Company, was re-elected as a Non-
Executive Independent Director of the
• To strengthen the Group’s cyber security resilience posture, a multitude of initiatives were
Company.
implemented, including the establishment of a Managed Security Operations Centre with a
reputed international service provider. The initiatives include measures to further strengthen • Mr. K Balendra, who retired in terms of
and streamline device management, user access, data protection, prevention of data Article 91 of the Articles of Association
leakage and malicious activity. of the Company, was re-elected as an
Executive Director of the Company.
Refer Section 4.4 for further information
• Mr. G Cooray, who retired in terms of Article
• To further strengthen the Group’s Internal Controls pertaining to the integrity of financial 91 of the Articles of Association of the
and accounting information, the Group adopted initiatives aimed at further reinforcing the Company, was re-elected as an Executive
segregation of duties, timely intervention and clearing of transactional entries, increased Director of the Company.
transparency pertaining to cash and cheque deposits, process optimisation, among others, • Ernst & Young (E&Y) were re-appointed as
through the expansion of the scope of the risk analytics tool introduced last year. Further, the External Auditors of the Company and
structured surveys were introduced with a view to improving the quality and performance of the Directors were authorised to determine
external auditors through the provision of continuous feedback. the remuneration of E&Y.

Refer Section 5.5 for further information

• Further to the migration of the Group procurement process to an electronic sourcing


FURTHER TO THE
platform in 2016/17, a total of 120 suppliers were registered during the year under review. MIGRATION OF THE GROUP
The platform is instrumental in achieving significant financial and non-financial savings, PROCUREMENT PROCESS TO
as well as enabling greater transparency and efficiency in the procurement process of the
Group. AN ELECTRONIC SOURCING
• The year under review marked the first period during which all risk reviews of the businesses
PLATFORM IN 2016/17, A
were conducted through the electronic Risk Management Platform. TOTAL OF 120 SUPPLIERS
WERE REGISTERED DURING
Refer Section 4.3 for further information
THE YEAR UNDER REVIEW.
Key Governance Disclosures
Section under Corporate Governance Commentary

The Governance System 2


The Board of Directors 3.1
Audit Committee 3.2.1
Human Resources and Compensation Committee 3.2.2
Nominations Committee 3.2.3
Related Party Transactions Review Committee 3.2.4
Chairman-Chief Executive Officer 3.3
Group Executive Committee and Other Management Committees 3.5
Human Resource Governance 4.2
Stakeholder Management and Effective Communication 4.5
Assurance Mechanisms 5
Outlook and Emerging Challenges 7
Compliance Summary 8

29
CORPORATE GOVERNANCE

2. The Corporate Governance System


JKH Corporate Governance System within a Sustainability Development Framework

LEVEL INTERNAL GOVERNANCE INTEGRATED ASSURANCE REGULATORY


STRUCTURE GOVERNANCE MECHANISMS BENCHMARKS
Board of Directors and Senior Integrated Governance Key Components
Management Committees Systems and Procedures

Strategy Senior Companies Act No. 7


Human Related Party
Resources and Transaction Formulation and Independent of 2007
Compensation Review Decision Making Director
Committee Committee Mandatory compliance
Process

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

30 John Keells Holdings PLC . Annual Report 2017/18


Governance

3. Internal Governance Structure


The Internal Governance Structure comprises of the committees which formulate, execute and monitor Group strategies and initiatives and the
policies, processes and procedures employed for doing so. As such, these components have an impact on the execution and monitoring of all
governance related initiatives, systems and methods. This is illustrated as follows:

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
ƒ Board procedures are followed and long-term strategies of the Group
ƒ Information is disseminated in a timely manner to the Board y Ensure planned succession at very senior levels

Leadership and control Accountability through reporting obligations

Operations management / Performance feedback


Board of Directors Refer 3.1
Purpose: Assess the overall direction and implement strategy of the business; fiduciary duty towards protecting stakeholder interests;
monitor the performance of the senior management; ensure effectiveness of governance practices; implement a framework for risk
assessment and management, including internal controls, among others

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

Refer 3.2.1 Refer 3.2.2 Refer 3.2.3 Refer 3.2.4

Reporting obligations

Senior Management Committees


Purpose: Led by the Chairman-CEO, these committees execute strategies and policies determined by the Board, manages through delegation and
empowerment, the business and affairs of the Group, makes portfolio decisions and prioritises the allocation of the capital, technical and human
resources thereby ensuring that value is created/enhanced for all stakeholders throughout the value chain
Refer 3.5

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 ƒ 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 ƒ 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
ƒ 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 ƒ To acquire a 2-acre land in Dawson Street/Vauxhall Street under Vauxhall Land
expenditure Development (Private) Limited (VLDL)
• Approving any amendments to ƒ 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 ƒ 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.

32 John Keells Holdings PLC . Annual Report 2017/18


Governance

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

successive terms unless an extended Board


Board Tenure

recommendations to the Board accordingly.


tenure is necessitated by the requirements
of the Group. Annually, the Board discusses
3.1.6 Board Induction and Training
the possibility of any impairment of Director
When Directors are newly appointed to independence due to extended Board tenures,
the Board, they undergo a comprehensive and collectively evaluates the re-election of
3.1.3 Board Skills
induction where they are apprised, inter-alia, such Board members. The Executive Directors,
Collectively, the Board brings in a wealth of of the Group Values and culture, its operating other than the Chairman-CEO, are re-elected
diverse exposure in the fields of management, model, policies, governance framework in a manner that is similar to the re-election of
business administration, banking, finance, law, and processes, the Code of Conduct and Non-Executive Directors.
economics, marketing and human resources.
All Directors possess the skills, expertise and
knowledge complemented with a high sense
3.1.8 Board Meetings
of integrity and independent judgement. 3.1.8.1 Regularity of Meetings and Pre-Board Meetings
During the financial year under review, there were four pre-scheduled Board meetings. Each of the
pre-scheduled meetings are generally preceded by a Pre-Board meeting, which is usually held on
Further details of their qualifications and the day prior to the formal Board Meeting. In addition to these Pre-Board meetings, where issues
experience are provided under the Board of strategic importance requiring extensive discussions are considered, the Board of Directors
Profiles section of the Annual Report.
communicated regularly, as and when required. The attendance at the Board meetings held during
the financial year 2017/18 is given below.
The Group is conscious of the need to
maintain an appropriate mix of skills and Board Meeting Attendance
Appointment

experience in the Board through a regular


26.05.2017

27.07.2017

02.11.2017

30.01.2018

review of its composition in order to ensure


Attended
Eligibility

that the skills representation is in alignment


Year of

with current and future needs of the Group.


Individual Directors being encouraged to seek
expert opinion and/or professional advice Executive
on matters where they may not have full S Ratnayake - Chairman-CEO 1992/93 9 9 9 9 4 4
knowledge or expertise is also a factor that K Balendra - Deputy Chairman 2016/17 9 9 9 9 4 4
foster better decision making.
G Cooray - Group Finance Director 2016/17 9 9 9 9 4 4
A Gunewardene* 1992/93 9 9 9 N/A 3 3
3.1.4 Access to Independent Professional
R Peiris* 2003/04 9 9 9 N/A 3 3
Advice
Senior Independent Non-Executive
To preserve the independence of the Board
N Fonseka 2013/14 9 9 9 9 4 4
and to strengthen the decision making, the
Independent Non-Executive
Board seeks independent professional advice,
A Cabraal 2013/14 9 9 9 9 4 4
in furtherance of their duties, at the Group’s
A Omar 2012/13 2 2 9 9 4 2
expense. This is coordinated through the
Board Secretary as and when requested. P Perera 2014/15 9 9 9 9 4 4
H Wijayasuriya 2016/17 2 By Phone 9 9 4 3
* Retired from the Board on 31 December 2017

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

34 John Keells Holdings PLC . Annual Report 2017/18


Governance

The independence of all its Non-Executive Directors was reviewed on the basis of criteria summarised below.

Definition Status of Conformity of NEDs

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)

The Human Resources and Compensation


Director – Other

Served for More


Relationship (3)

shareholding -
Companies (2)
Management

Continuously

Relationship/

Committee is responsible for determining the


Company (4)

Employee/

Significant

compensation of the Chairman-CEO and the


Executive Directors of the Group.
(7)

Refer Section 3.2.2 of this Report for


N Fonseka y y y y y y y further details.
A Cabraal y y y y y y y
A significant proportion of Executive Director
A Omar y y y y y y y
remuneration is variable. The variability is
P Perera y y y y y y y linked to the peer adjusted consolidated
H Wijayasuriya y y y y y y y Group bottom line and expected returns
on shareholder funds. Further, the Human
y Indicates no interest, independence Resources and Compensation Committee
consults the Chairman-CEO about any
3.1.11.1 Details in Respect of Directors proposals relating to the Executive Director
In addition to the Director profiles given in the Report, the following table illustrates the total remuneration, other than that of the
number of Board seats (excluding Group Board seats) held in other listed companies (outside the Chairman-CEO.
Group) by each Director.
During the year, ESOPs, valued using a
Name of Director No. of Board Seats Held in Other Listed Sri Lankan Companies binomial pricing model, were granted to
Executive Capacity Non-Executive Capacity the Executive Directors as well as to all other
eligible employees.
S Ratnayake Nil Ceylon Tobacco Company PLC
K Balendra Nil Nil
Further details are found in the Notes to
G Cooray Nil Nil
the Financial Statements section and Share
N Fonseka Nil Nil Information section of this Annual Report.
A Cabraal Nil Ceylon Beverage Holdings PLC
Hatton National Bank PLC Excluding Employee Share Options (ESOP)
Lion Brewery (Ceylon) PLC granted, the total aggregate remuneration
Sunshine Holdings PLC paid to Executive Directors for the year under
review was Rs.193 million, of which Rs.62
A Omar Nil Teejay Lanka PLC
million was the variable portion linked to the
P Perera Nil Nil performance benchmark as described above.
H Wijayasuriya Nil Dialog Axiata PLC This is in comparison to the total remuneration
Colombo Trust Finance PLC

35
CORPORATE GOVERNANCE

paid in 2016/17 amounting to Rs.154 million, 3.2 Board Sub-Committees


of which Rs.41 million was the variable The Board has delegated some of its functions to Board Sub-Committees, while retaining
component. The increase in both the fixed final decision rights. Members of these Sub-Committees focus on their designated areas of
and variable components of remuneration responsibility and impart knowledge and oversight in areas where they have greater expertise.
is on account of the Board comprising
of five Executive Directors for a majority The four Board Sub-Committees are as follows:
of 2017/18 compared to three Executive i. Audit Committee
Directors for a majority of 2016/17. Similar to ii. Human Resources and Compensation Committee
the previous year, the higher proportion of
iii. Nominations Committee
fixed remuneration arises from the Group not
meeting certain performance benchmarks. iv. Related Party Transactions Review Committee

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

2015/16 53% 47%


S Ratnayake - Chairman-CEO y y
K Balendra - Deputy Chairman
G Cooray - Group Finance Director
2016/17 73% 27% Senior Independent Non-Executive
N Fonseka y y
Independent Non-Executive
2017/18 68% 32% A Cabraal y y y
A Omar y y
P Perera y y y
Fixed Variable
H Wijayasuriya y y

3.1.12.2 Non-Executive Director y Committee Member


Remuneration y Committee Chair

The compensation of Non-Executive Directors


3.2.1 Audit Committee
was determined in reference to fees paid to
other Non-Executive Directors of comparable Composition y All members to be Non-Executive, Independent Directors, with at least one
companies, and adjusted, where necessary, member having significant, recent and relevant financial management and
in keeping with the complexity of the Group. accounting experience and a professional accounting qualification
Non-Executive Directors were paid additional y The Chairman-CEO and the Group Finance Director are permanent invitees
fees for either chairing or being a member for all Committee meetings. The Group Financial Controller is also present at
of a Sub-Committee and did not receive any discussions relating to Group reporting
performance/incentive payments/share option
y The Head of the Group Business Process Review division is the Secretary of
plans. Total aggregate of Non-Executive Director
the Committee
remuneration for the year was Rs.17 million.
Scope y Review the quarterly and annual financial statements, including the quality,
transparency, integrity, accuracy and compliance with accounting standards,
3.1.12.3 Compensation for Early
laws and regulations
Termination
y Assess the adequacy and effectiveness of the internal control environment
In the event of an early termination of
in the Group and ensure appropriate action is taken on the recommendation
a Director, there are no compensation
of the internal auditors
commitments other than for:
y Evaluate the competence and effectiveness of the risk management systems
i. Executive Directors: as per their of the Group and ensure the robustness and effectiveness in monitoring and
employment contract similar to any other controlling risks
employee yReview the adequacy and effectiveness of the internal audit arrangements
ii. Non-Executive Directors: accrued fees y Recommend the appointment, re-appointment and removal of the External
payable, if any, as per the terms of their Auditors including their remuneration and terms of engagement by assessing
contract qualifications, expertise, resources and independence

36 John Keells Holdings PLC . Annual Report 2017/18


Governance

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

External Audit Audit Committee Meeting Attendance

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

38 John Keells Holdings PLC . Annual Report 2017/18


Governance

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.

The following appointments were also recommended,


and the recommendations accepted.
• Mr. S. C. Ratnayake as a Non-Independent Non-
A Cabraal Executive Director of Union Assurance PLC;
Chairman of the Human Resources and Compensation Committee • Mr. K. N. J. Balendra as a Non-Independent Non-
25 May 2018 Executive Director of Ceylon Cold Stores PLC,
Keells Food Products PLC, John Keells PLC and Tea
3.2.3 Nominations Committee Smallholder Factories PLC;
Composition y Majority of the members of the Committee shall be Non- • Mr. J. G. A. Cooray as a Non-Independent Non-
Executive Directors together with the Chairman-CEO Executive Director of Ceylon Cold Stores PLC, Keells
Food Products PLC, John Keells PLC, Tea Smallholder
y The Chairman of the Committee must be an Independent Non-
Factories PLC, Asian Hotels & Properties PLC, Trans
Executive Director
Asia Hotels PLC and John Keells Hotels PLC;
y The President - HR and Legal is the Secretary of the Committee
• Mr. J. R. Gunaratne as a Non-Independent Non-
Scope y Assess skills required on the Board given the needs of the businesses Executive Director of Asian Hotels & Properties PLC,
y From time to time assess the extent to which the required skills Trans Asia Hotels PLC and John Keells Hotels PLC;
are represented at the Board and
y Prepare a clear description of the role and capabilities required for • Mr. S. K. Lalith Obeyesekere as an Independent Non-
a particular appointment Executive Director of Tea Smallholder Factories PLC.
y Identify and recommend suitable candidates for appointments to The Committee continues to work with the Board on
the Board reviewing its skills mix based on the immediate and
y Ensure, on appointment to Board, Non-Executive Directors emerging needs and in particular during the Annual
receive a formal letter of appointment specifying clearly JKH Board Evaluation.
expectation in terms of time commitment, involvement outside
of the formal Board meetings, participation in Committees,
amongst others
A Omar
y Ensure that every appointee undergoes an induction to the Group
Chairman of the Nominations Committee
y The appointment of Chairperson and Executive Directors is a
25 May 2018
collective decision of the Board

39
CORPORATE GOVERNANCE

Nominations Committee Meeting Attendance


29.12.2017 Eligible to Attend Attended Transactions, as issued by the Securities
and Exchange Commission of Sri Lanka
S Ratnayake 9 1 1 (“The Code”) and with the Listing Rules of
A Omar 9 1 1 the Colombo Stock Exchange (CSE). The
P Perera 9 1 1 Committee has also adopted best practices as
H Wijayasuriya 9 1 1 recommended by the Institute of Chartered
Accountants of Sri Lanka and the CSE.
3.2.4 Related Party Transactions Review Committee
The Committee in discharging its functions
Composition y The Chairman must be a Non-Executive Director
primarily relied on processes that were
y Must include at least one Executive Director validated from time to time and periodic
Scope y The Group has broadened the scope of the Committee to include reporting by the relevant entities and Key
senior decision makers in the list of key management personnel, whose Management Personnel (KMP) with a view to
transactions with Group companies also get reviewed by the Committee, in ensuring that:
addition to the requisitions of the CSE y there is compliance with the Code;
y Develop, and recommend for adoption by the Board of Directors of JKH and y shareholder interests are protected; and
its listed subsidiaries, a Related Party Transaction Policy which is consistent y fairness and transparency are maintained.
with the operating model and the delegated decision rights of the Group
The Committee reviewed and pre-approved
y Update the Board on related party transactions of each of the listed
all proposed non-recurrent RPTs of the
companies of the Group on a quarterly basis
parent, John Keells Holdings PLC, and all
y Define and establish the threshold values for each of the subject listed its listed subsidiaries, namely: John Keells
companies in setting a benchmark for related party transactions, related PLC, Tea Smallholder Factories PLC, Asian
party transactions which have to be pre-approved by the Board, related Hotels and Properties PLC, Trans Asia Hotels
party transactions which require to be reviewed annually and similar issues PLC, John Keells Hotels PLC, Ceylon Cold
relating to listed companies Stores PLC, Keells Food Products PLC, and
Union Assurance PLC. Further, recurrent RPTs
Related Party Transactions Review Committee Meeting Attendance
were reviewed annually by the Committee.
Other significant transactions of non-
25.05.2017

26.07.2017

01.11.2017

29.01.2018

Eligible to

Attended

listed subsidiaries were presented to the


Attend

Committee for information.

In addition to the Directors, all Presidents,


A Cabraal 9 9 9 9 4 4 Executive Vice Presidents, Chief Executive
N Fonseka 9 9 9 9 4 4 Officers, Chief Financial Officers and Financial
P Perera 9 9 9 9 4 4 Controllers of respective companies/sectors
S Ratnayake 9 9 9 9 4 4 have been designated as KMPs in order
By Invitation to increase transparency and enhance
good governance. Annual disclosures from
R Peiris* 9 9 9 N/A 3 3
all KMPs setting out any RPTs they were
G Cooray 9 9 9 9 4 4 associated with, if any, were obtained and
K Balendra** N/A N/A N/A 9 1 1 reviewed by the Committee.
* Retired from the Board on 31 December 2017
The Committee held four meetings
** Appointed as the Deputy Chairman from 1 January 2018
during the financial year. Information on
Report of the Related Party Transactions Review Committee the attendance at these meetings by the
members of the Committee is given below.
The following Directors served as members of the Committee during the financial year:
The activities and views of the Committee
P Perera have been communicated to the Board
N Fonseka of Directors, quarterly, through verbal
A Cabraal briefings, and by tabling the minutes of the
S Ratnayake Committee’s meetings.

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

40 John Keells Holdings PLC . Annual Report 2017/18


Governance

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.

SUBSEQUENT TO RIGOROUS EVALUATIONS THE BOARD


DEEMED THAT COMBINING THE TWO ROLES IS MORE
APPROPRIATE FOR THE GROUP IN MEETING STAKEHOLDER
OBJECTIVES IN A LARGE CONGLOMERATE SETTING. THIS
CONTINUES TO BE THE VIEW TODATE.

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.

i. Strategy formulation and decision making


Group process
Industry y Strategy
Management President ii. Human resource governance
Group formulation
Committee iii. Integrated risk management
y Performance
monitoring iv. IT governance
y Career v. Stakeholder management and effective
Sector Executive Vice management communications
Sector
Committee President and succession vi. Sustainability governance
planning
y Risk management 4.1 Strategy Formulation and Decision
Vice President/ y Implementation Making Processes
Business Unit/ Management Assistant Vice of Group The Group’s investment appraisal
Function Committee President/ Initiatives
methodology and decision making
Manager
process ensures the involvement of all
key stakeholders that are relevant to the
3.6 Employee Empowerment
evaluation of the decision.
Policies, processes and systems are in place to ensure effective recruitment, development and
retention of this vital stakeholder, given the importance of employees for the growth of the
In this manner:
organisation. The bedrock of these policies is the Group’s competency framework. To support
these policies, the Group continued with, and further strengthened, the following practices. • Several views, opinions and advice are
• Top management and other senior staff are mandated to involve, as appropriate, all levels of obtained prior to making an investment
staff in formulating goals, strategies and plans decision

• 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.

42 John Keells Holdings PLC . Annual Report 2017/18


Governance

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 OPENDOOR 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

The aforementioned project appraisal


Project Review by the Board/GEC framework flow is illustrated alongside.
Feasibility study Due diligence
origination GEC approval
4.2 Human Resource Governance
The Group human resource governance
Sustainability management framework is designed in a manner that
enables high accessibility by any employee to
every level of management. Constant dialogue
Legal, regulatory and HR requirements and facilitation are also maintained ranging
from work related issues to matters pertaining
Projects undertaken at the Group follow a detailed feasibility report covering key business to general interest that could affect employees
considerations under multiple scenarios, within a framework of sustainability. The feasibility stage and their families. The Group follows an
is not restricted to a financial feasibility and encompasses a wider scope of work covering risk open-door policy for its employees and this is
management, sustainable development and HR considerations. promoted at all levels of the Group.

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

4.2.1 Performance Management


The Performance Management System, as illustrated below, is at the heart of many supporting
human resource management processes such as learning and development, career development,
succession planning, talent management, rewards/recognition and compensation/benefits.

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.

Pay decisions based on:


• Performance rating
Nomination for Awards:
• Competency rating
• Chairman’s Award
• Employee of the Year
• Champion of the Year
stem
t Sy
en
m
ge
na
rmance Ma

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

4.2.2 Performance Based Compensation Philosophy


The JKH Group Compensation Policy is as follows:
4.2.2.1 Equity Sharing
Performance Management Satisfaction
“Pay for performance” Employee Share Option Plans are offered at
“More than just a workplace”
Greater prominence is given to the Continuously focusses on creating a sound defined career levels based on pre-determined
incentive component of the total target work environment covering all aspects of criteria which are uniformly applied across
compensation. employee satisfaction. the eligible levels and performance levels.
These long-term incentives have been very
Compensation Policy instrumental in inculcating a deep sense of
y Compensation comprises of fixed (base) payments, short-term incentives and long-term ownership in the recipients. Share options
incentives are awarded to individuals on the basis of
y Higher the authority levels within the Group, higher the incentive component as a percentage their immediate performance and potential
of total pay importance of their contribution to the
y Greater the decision influencing capability of a role, higher the weight given to Group’s future plans.
organisational performance as opposed to individual performance
y Long-term incentives are in the form of Employee Share Options at JKH 4.3 Integrated Risk Management
JKH’s Group-wide risk management
programme focusses on wider sustainability
Internal Equity External Equity
development, to identify, evaluate and
• Remuneration policy is built upon the • Fixed compensation is set at competitive
manage significant Group risks and to stress
premise of ensuring equal pay for equal levels using the median, 65th percentile
test various risk scenarios. The programme
roles and 75th percentile of the best comparator
ensures that a multitude of risks, arising as
• Manager and above level roles are banded set of companies (from Sri Lanka and the
a result of the Group’s diverse operations,
using the Mercer methodology for job region, as relevant) as a guide.
are effectively managed in creating and
evaluation, on the basis of the relative • Regular surveys are done to ensure
preserving stakeholder wealth. The Group
worth of jobs that employees are not under/over
manages its enterprise risk, audit, and
compensated
incident management processes through an

44 John Keells Holdings PLC . Annual Report 2017/18


Governance

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.

4.5 Stakeholder Management and Effective Communication


Following are the key stakeholder management methodologies adopted by the Group.

Please refer the Materiality and


Stakeholder Relationship section of the
Annual Report for a detailed discussion.
Shareholders/Investors
• Presence of an investor relations team
• Social media presence
Employees
• Prompt release of information to public/CSE
• Accessibility to all levels of the
• Effective communication of AGM related matters
management
• Measures in place in case of serious loss of capital
• Various means for employee
involvement t
ƒ Corporate Communications en
ƒ JK Forum
em
ag
an

ƒ Young Forum Customers/Suppliers


S t a k e h ol d e r M

• Providing of quality and safe products


• Constant engagement with customers
• Procedures to ensure long term
business relationships with suppliers

Other key Stakeholders Government


• Provision of formal and • Transactions in compliance with all relevant laws and
sometimes informal, access regulations, transparently and ethically
to other key stakeholders • Zero tolerance policy in ensuring that all business units
meet their statutory obligations in time and in full

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 INDEPTH 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.

PERFORMANCE OF THE information about the Company is promptly


4.6 Sustainability Governance
GROUP. communicated to the CSE and such
The John Keells Group places great
information is also released to employees,
importance on sustainable development. The
the press and shareholders. Shareholders
Group believes that its financial performance
may, at any time, direct questions, request for
and brand image are closely aligned with
publicly available information and provide
sound corporate governance practices,
comments and suggestions to Directors or
4.5.1 Communication with Shareholders product and service excellence, a productive
Management of JKH. Such questions, requests
The primary modes of communication workforce, environmental stewardship and
and comments should be addressed to the
between the Company and the shareholders social responsibility. The Group’s approach
Company Secretary.
are through the announcements made to the to sustainability continues to be aligned to
CSE, Annual Reports, Quarterly Reports and support the Sustainable Development Goals
The Group focusses on open communication
the Annual General Meeting (AGM). adopted by the United Nations in 2015, which
and fair disclosure, with emphasis on the
expands on the Millennium Development
integrity, timeliness and relevance of the
4.5.1.1 Investor Relations Goals.
information provided. The Group ensures that
The Investor Relations team of the Group information is communicated accurately and
is responsible for maintaining an active in a manner that will avoid the creation or
Please refer the Sustainability Integration
dialogue with shareholders, potential continuation of a false market. and Stakeholder Relationships section
investors, investment banks, analysts and other of the Report for a detailed discussion
interested parties in ensuring effective investor 4.5.1.3 Annual General Meeting of the Group’s strategy of entrenching
communication. sustainability within its business
Information is provided to the shareholders
operations, and the scope and boundary
prior to the AGM to give them an opportunity of its sustainability content.
The Investor Relations team has regular to exercise the prerogative to raise any issues
discussions with shareholders, as and when relating to the businesses of the Group.
applicable, to share highlights of the Group’s Shareholders are provided with the Annual 5. Assurance Mechanisms
performance as well as to obtain constructive Report of JKH in CD form. Shareholders may The Assurance Mechanisms comprise of
feedback. Commencing from January 2018, at any time elect to receive an Annual Report the various supervisory, monitoring and
Investor Presentations, which include an from JKH in printed form, which is provided benchmarking elements of the Group
update on the latest financial results, were free of charge. Corporate Governance System which are used
made available on the corporate website, to
to measure “actuals” against “plan” with a view
provide easier access and in-depth detail of The Group makes use of the AGM to highlighting deviations, signalling the need
the operational performance of the Group. constructively towards enhancing relationships for quick corrective action, and quick redress
with the shareholders and towards this end when necessary. These mechanisms also
Shareholders may, at any time, direct the following procedures are followed: act as “safety nets” and internal checks in the
questions, request for publicly available
Governance system.
information and provide comments and • Notice of the AGM and related documents
suggestions to Directors or management of are sent to the shareholders along with the
the Group by contacting the Investor Relations Annual Report within the specified time
team, Secretaries, the Senior Independent
• Summary of procedures governing voting
Director or the Chairman, although individual
at the AGM are clearly communicated
shareholders are encouraged to carry out
adequate analysis or seek independent • All Executive and Non-Executive Directors
advice on their investing, holding or divesting are made available to answer queries
decisions at all times.

46 John Keells Holdings PLC . Annual Report 2017/18


Governance

5.1 The Code of Conduct Report of the Senior Independent Director


Independent Directors
JKH Code of Conduct A Cabraal
y Allegiance to the Company and the N Fonseka
Group A Omar
y Compliance with rules and regulations P Perera
applying in the territories that the H Wijayasuriya (appointed w.e.f. 4 October 2016)
Group operates in
y Conduct all businesses in an ethical All Independent Directors have been Directors for less than nine years from their date of first
manner at all times in keeping with appointment.
acceptable businesses practices
y Exercise of professionalism and integrity Apart from unstructured and informal contacts, the Independent Directors had two formal meetings
in all business and “public” personal to discuss matters relevant to their responsibilities as Non-Executive Directors. These meetings
transactions concluded with a wrap up session with the Chairman-CEO, who provided responses to matters
raised, or agreed to provide further information or clarification at Board meetings. A matter that
The objectives of the Code of Conduct received the special attention of the Non-Executive Directors was senior management succession. A
are strongly affirmed by a strong set of plan was approved by the Board during the year and implementation is in progress.
Values which are well institutionalised at all
The meeting minutes of the Group Executive Committee (GEC) are circulated to the Non-Executive
levels within the Group through structured
Directors and this ensures that there is a high degree of transparency and interaction between the
communication. The degree of employee
Executive and Non-Executive members of the Board. The Non-Executive Directors are also kept
conformance with Values and their degree of
advised on the progress of key ongoing projects and management responds to any clarifications
adherence to the JKH Code of Conduct are
sought.
key elements of the reward and recognition
schemes. The Ombudsperson has reported to me that no issues have been brought to his attention that
indicate mismanagement, unfair treatment or justified discontent on the part of any employee or
The Group Values continue to be consistently ex-employee during the financial year.
referred to by the Chairman-CEO, Presidents,
Sector and Business Unit Heads during The Independent Directors thank the Chairman-CEO, Executive Directors, the GEC, Sector Heads and
employee and other key stakeholder members of the management team for their openness and co-operation on all matters where their
engagements, in order to instil these Values in input was sought by the Non-Executive Directors.
the hearts and DNA of the employee.

N Fonseka
Group Values are found in the About Us Senior Independent Director
section of the Annual Report.
25 May 2018

5.2 Senior Independent Director 5.3 Board Sub-Committees


Considering the combined role of the The Board Sub-Committees play an important supervisory and monitoring role by focussing on
Chairman-CEO, the presence of the Senior the designated areas of responsibility passed to it by the Board.
Independent Director is important in ensuring
that no one person has unfettered decision
making powers, and that matters discussed at For more information on the Board Sub-
Committees section refer section 3.2 of
the Board level are done so in an environment this Report.
which facilitates independent thought by
individual Directors.
5.4 Employee Participation in Assurance
The Group is continuously working towards introducing innovative and effective ways of employee
The Senior Independent Director meets with
communication and employee awareness. The importance of communication – top-down, bottom-
other Non-Executive Directors, without the
up, and lateral-in gaining employee commitment to organisational goals has been conveyed
presence of the Chairman-CEO, at least twice
extensively through various communications issued by the Chairman-CEO and the management.
every year to evaluate the effectiveness of
Whilst employees have many opportunities to interact with senior management, the Group has
the Chairman-CEO and has regular meetings
created the ensuing formal channels for such communication through feedback.
with the other Non-Executive Directors on
matters relating to the effectiveness of the
Board or the Board as appropriate. The Senior • Skip level meetings • Ombudsperson
Independent Director is also kept informed by • Exit interviews • Access to Senior Independent
the Ombudsperson of any matters in respect • Young Forum meetings Director
of the JKH Code of Conduct which has come • 360 degree evaluation • Continuous reiteration of the
to his attention. • Employee surveys “Open-Door” policy
• Monthly staff meetings

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

48 John Keells Holdings PLC . Annual Report 2017/18


Governance

5.6 Ombudsperson 6. Regulatory and Accounting


An Ombudsperson is available to report any complaints from employees of alleged violations of Benchmarks
the published Code of Conduct if the complainant feels that the alleged violation has not been This section entails, among others, the
addressed satisfactorily by the internally available mechanisms. regulations which govern all JKH corporate
activities from the Companies Act to Listing
The findings and the recommendations of the Ombudsperson, subsequent to an independent Rules of the CSE, rules of the SEC and the
inquiry, is confidentially communicated to the Chairman-CEO or to the Senior Independent benchmarks set for the Group in working
Director upon which the involvement duty of the Ombudsperson ceases. towards local and global best practices.

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.

7. Outlook and Emerging Challenges Eliminate Provide Enable Identify


In an ever changing and dynamic world
Eliminate Provide a platform Enable Identify trends,
of corporate governance, JKH is acutely
inefficiencies based on process management action taken,
aware of the need to remain vigilant and
inherent with enforcement follow-up based on effectiveness and
geared through its level of preparedness
manual processes centrally held data opportunities
and its capability in meeting the emerging
in the compliance for process
governance needs of the Group, its
repository improvement
stakeholders and the environment in which
by analysing
the Group operates. The Group has continued
movement of the
to endeavour, in the year under review, to stay
compliance posture
abreast of governance best practices.

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

50 John Keells Holdings PLC . Annual Report 2017/18


Governance

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

CSE Rule Compliance JKH Action/Reference (within the Report)


Status
7.10.2 Independent Directors
a. 2 or 1/3 of NEDs, whichever is higher shall be “independent” Yes All NEDs are Independent
b. Each NED to submit a signed and dated declaration of his/ Yes Independence of the Directors has been determined in
her independence or non-independence accordance with CSE Listing Rules and the 5 Independent
NEDs have submitted signed confirmation of their
independence
7.10.3 Disclosures relating to Directors
a./b. Board shall annually determine the independence or Yes All Independent NEDs have submitted declarations as to
otherwise of NEDs their independence
c. A brief resume of each Director should be included in the Yes Refer Board of Directors section of the Annual Report
annual report including the directors’ experience
d. Provide a resume of new Directors appointed to the Board Yes Detailed resumes of the new Independent NEDs appointed
along with details during the financial year were submitted to the CSE. It is
noted that there were no appointments to the Board, during
the year under review
7.10.4 Criteria for defining independence
a. to h. Requirements for meeting the criteria to be an Independent Yes Refer Summary of NEDs interests section
Director
7.10.5 Remuneration Committee
a.1 Remuneration Committee shall comprise of NEDs, a majority Yes The Human Resources and Compensation Committee
of whom will be independent (equivalent of the Remuneration Committee with a wider
scope) only comprises of Independent NEDs
a.2 One NED shall be appointed as Chairman of the Committee Yes The Senior Independent NED is the Chairman of the
by the Board of Directors Committee
b. Remuneration Committee shall recommend the Yes The remuneration of the Chairman-CEO and the Executive
remuneration of the CEO and the Executive Directors Directors is determined as per the remuneration principles
of the Group and recommended by the Human Resources
and Compensation Committee
c.1 Names of Remuneration Committee members Yes Refer Board Committees section of the Annual Report
c.2 Statement of Remuneration policy Yes Refer Director Remuneration section
c.3 Aggregate remuneration paid to EDs and NEDs Yes Refer Director Remuneration section
7.10.6 Audit Committee
a.1 Audit Committee (AC) shall comprise of NEDs, a majority of Yes The Audit Committee comprises only of Independent NEDs
whom should be independent
a.2 A NED shall be the Chairman of the committee Yes Chairman of the Audit Committee is an Independent NED
a.3 CEO and CFO should attend AC meetings Yes The Chairman-CEO, Group Finance Director, Group Financial
Controller and the External Auditors attended most parts of
the AC meetings by invitation
a.4 The Chairman of the AC or one member should be a Yes The Chairman of the AC is a member of a recognised
member of a recognised professional accounting body professional accounting body
b. Functions of the AC Yes The AC carries out all the functions prescribed in this section
b.1 Overseeing of the preparation, presentation and adequacy Yes The AC assists the Board in fulfilling its oversight
of disclosures in the financial statements in accordance with responsibilities for the integrity of the financial statements of
SLFRS/LKAS the Company and the Group
b.2 Overseeing the compliance with financial reporting Yes The AC has the overall responsibility for overseeing the
requirements, information requirements as per laws and preparation of financial statements in accordance with the
regulations laws and regulations of the country and also recommending
to the Board, on the adoption of best accounting policies
b.3 Overseeing the process to ensure the internal and Yes The AC assesses the role and the effectiveness of the Group
risk management controls, are adequate, to meet the Business Process Review division which is largely responsible
requirements of the SLFRS/LKAS for internal control and risk management

52 John Keells Holdings PLC . Annual Report 2017/18


Governance

CSE Rule Compliance JKH Action/Reference (within the Report)


Status
b.4 Assessment of the independence and performance of the Yes The AC assesses the external auditor’s performance,
Entity’s External Auditors qualifications and independence
b.5 Make recommendations to the Board pertaining to External Yes The Committee is responsible for recommending the
Auditors appointment, re-appointment, removal of External Auditors
and also providing recommendations on the remuneration
and terms of Engagement
c.1 Names of the Audit Committee members shall be disclosed Yes Refer Board Committees section
c.2 Audit Committee shall make a determination of the Yes Refer Report of the Audit Committee
independence of the external auditors
c.3 Report on the manner in which Audit Committee carried out Yes Refer Report of the Audit Committee
its functions.

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

8.4 Statement of Compliance pertaining to Companies Act No. 7 of 2007


MANDATORY PROVISIONS - FULLY COMPLIANT
Rule Compliance Reference (within the Report)
Status
168 (1) Yes Group Directory
(a) The nature of the business together with any change thereof
168 (1) Yes Financial Statements
(b) Signed financial statements of the Group and the Company
168 (1) Yes Independent Auditors’ Report
(c) Auditors’ Report on financial statements
168 (1) Accounting policies and any changes therein Yes Notes to the Financial Statements
(d)
168 (1) Yes Annual Report of the Board of Directors
(e) Particulars of the entries made in the Interests Register
168 (1) Remuneration and other benefits paid to Directors of the Yes Notes to the Financial Statements
(f ) Company
168 (1) Corporate donations made by the Company Yes Notes to the Financial Statements
(g)
168 (1) Information on the Directorate of the Company and its Yes Group Directory
(h) subsidiaries during and at the end of the accounting period
168 (1) Amounts paid/payable to the External Auditor as audit fees Yes Notes to the Financial Statements
(i) and fees for other services rendered
168 (1) Auditors’ relationship or any interest with the Company and Yes Report of the Audit Committee/Financial Statements
(j) its Subsidiaries
168 (1) Acknowledgement of the contents of this Report and Yes Financial Statements/Annual Report of the Board of
(k) signatures on behalf of the Board Directors

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

54 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis
Group Consolidated Review

Leveraging the scale,


experience and resources

57 External Environment . 60 Capital Management Review . 83 Outlook


. 86 Strategy, Resource Allocation and Portfolio Management . 93 Sustainability Integration and Stakeholder Engagement
. 99 Risks, Opportunities and Internal Controls . 103 Investor Relations

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.

y Group Consolidated Review


y Industry Group Review

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 Group Consolidated Review consists of the ensuing sections:

y External Environment y Sustainability Integration and Stakeholder


A discussion of key macro-economic Relationships
fundamentals, which impacted favourably Provides insight into the nature and quality of
or unfavourably, the Group’s ability to create the Group’s relationships with its stakeholders,
value. including a discussion on the manner in which
the Group connects and responds to the
y Capital Management Review legitimate needs and interests of these varied
A discussion of the forms of Capital available stakeholders. This section also encompasses
for deployment and how such Capital created an overview of the Group’s strategy towards
value to stakeholders, at a Group level. It entrenching sustainability across all business
also reviews the performance of each form operations and functions.
of Capital and the value enhancement/
deterioration during the year under review. y Risks, Opportunities and Internal Controls
Details the specific risks and opportunities
y Outlook that affects the Group’s ability to create value,
Provides a discussion on the economic outlook including an assessment of the materiality of
for Sri Lanka in the short to medium term, the the risk to the Group’s performance.
high-level impacts to the businesses and the
overall business strategy of the Group. y Investor Relations
Entails a discussion on the performance of
y Strategy, Resource Allocation and Portfolio equities, both globally and regionally, which
Management is followed by a discussion of the JKH share
Discusses the performance of the overall performance including key disclosures
portfolio, the overall strategy and means by pertaining to shareholders of JKH, as required
which capital is allocated for investments. The by relevant regulators. This section also entails
performance of the Group is also measured a detailed summary of the Group’s businesses
against the long-term strategic financial and operational performance in order to
objectives of the Group. provide current and prospective investors a
brief overview of the Group.

56 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

GROUP CONSOLIDATED REVIEW


External Environment

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

Macro-Economic Variable Cause Impact to JKH

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

Macro-Economic Variable Cause Impact to JKH

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

2017, as evident in the trend graph.


Headline inflation remained high on
account of double digit food inflation.
FY2017/18 (CCPI) NCPI However, core inflation moderated
FY2016/17 (CCPI)
during the year, as tight monetary
Year-on-year headline inflation, based on the NCPI, policy measures took effect. With the
decreased to 2.8 per cent in March 2018, from 8.6 per moderation of food inflation, headline
cent in March 2017. Year-on-year core inflation, based inflation and core inflation decelerated
on the NCPI decreased to 1.90 per cent in March 2018, considerably in the first quarter of
from 7.0 per cent in March 2017. calendar year 2018.

CBSL continued its contractionary The Group witnessed an overall increase


Domestic interest rates
monetary policy stance during the in finance income despite the gradual
%
year, in view of rising inflationary decrease in interest rates. The Group took
12.5
pressures during most of the year, and initiatives to invest in more short-to-
12.0
accelerating demand side inflationary medium term investments, during the
pressures through continued monetary year under review. Towards the latter
11.5 and credit expansion. To address the end of the year, the Group locked in
lacklustre performance in economic investments at higher rates, based on
11.0 growth, coupled with the positive trends the Group’s rate outlook and liquidity
in inflation in the first quarter of the requirements for the year.
10.5 2018 calendar year, the Monetary Board
reduced the Standing Lending Facility The Group’s finance expense increased
10.0 Rate (SLFR), which is the upper bound of primarily on account of an increase in
March
April
May
June
July
August
September
October
November
December
January
February
March

the policy interest rate corridor of CBSL, overall debt.


by 25 basis points to 8.50 per cent in
April 2018. This indicated a shift in policy
Average Weighted Prime
Lending Rate (weekly) stance, signalling an end to the tightening
cycle of monetary policy.
AWPLR decreased marginally to 11.55 per cent in March
2018 from 11.79 per cent in the previous year. The
3-month treasury bill rate was 8.17 per cent in March
2018 compared to 9.63 per cent in March 2017.

58 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Macro-Economic Variable Cause Impact to JKH

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

edging up towards the policy makers’ 2 in LIBOR during the year.


per cent target.
3 month US Dollar LIBOR

3-month USD LIBOR increased to 2.31 per cent in March


2018, from 1.15 per cent in March 2017.

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

maintain, or where relevant, create a


“natural hedge” to manage the volatility
of the foreign exchange markets. It is
LKR/USD Exchange rate noted that the exchange rate exposure
arising from the “Cinnamon Life”
The Rupee depreciated to Rs.155.61 against the US project is mitigated to an extent since
Dollar as at 31 March 2018, compared to its closing rate the functional currency of the project
of Rs.151.99 per US Dollar as at 31 March 2017. company, Waterfront Properties (Private)
Limited, is in US Dollars.

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

60 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Earnings Before Interest and Tax


EBIT During the year under review, earnings before interest and tax (EBIT) increased by 21 per cent to
Rs.28.16 billion [2016/17: Rs.23.32 billion], driven by the Financial Services and Other including
Rs.28.16 bn Plantation Services industry groups.

(2016/17 - Rs.23.32 bn)


Fair value gains on investment property (IP) were recorded at Rs.896 million in 2017/18 [2016/17:
Rs.484 million], comprising of gains of Rs.613 million at Property, Rs.262 million in the Other
One-Off Surplus from Union Assurance including Plantation Services industry group, and Rs.22 million in the CF&R industry group.
Based on the directive issued by the
Insurance Regulatory Commission of In terms of the composition of EBIT, Financial Services was the primary contributor with a 30 per
Sri Lanka (IRCSL) to the entire insurance cent contribution, followed by Other including Plantation Services with a 22 per cent contribution
industry, dated 20 March 2018, the Insurance and, CF&R and Leisure with contributions of 15 per cent each.
business of the Group, Union Assurance (UA),
transferred Rs.3.38 billion attributable to EBIT
non-participating and non-unit fund of unit %
linked business, from the life policyholder
fund to the life shareholder fund. It is noted 12 13
22 23
that the distribution of the one-off surplus,
held as a part of the restricted regulatory 15
reserve, is subject to meeting governance 2
3 25
requirements stipulated by the IRCSL, and 2017/18 2016/17
upon approval by the IRCSL. 4 9
15 3
The impact of the one-off surplus on Group 30 24
performance is detailed below.

Group Performance Transportation Financial Services


(Reported) Leisure Information Technology
Property Other including Plantation Services
2017/18 Growth %
Consumer Foods and Retail
EBIT (Rs.bn) 28.16 21
PBT (Rs.bn) 27.63 21
PAT (Rs.bn) 23.12 28 As evident from the above discussion, the The graph that follows illustrates the Group
ROCE (%) 11.9 N/A EBIT growth outpaced the revenue growth EBIT, EBITDA and EBIT margins; indicating its
ROE (%) 11.1 N/A of the Group, which resulted in a marginal overall upward trend over the five-year period,
improvement of EBIT margins. As discussed in demonstrating the robust business performance
detail in the Outlook section of this Report, the of the Group.
Group Performance Group has earmarked investments across its
(Excluding UA’s One-Off Surplus) businesses which will result in the deployment
2017/18 Growth % of a significant quantum of cash. As such, these Group EBIT, EBITDA and
investments, aimed at increasing capacity and EBIT margins
EBIT (Rs.bn) 24.77 6 creating platforms for future growth, will result in Rs. mn/%
20.5
PBT (Rs.bn) 24.25 6 an increase in the depreciation and amortisation 19.3 19.5
18.7
PAT (Rs.bn) 19.74 9 charge of the Group, in the short to medium 17.0
4,050
term, impacting Group EBIT.
ROCE (%) 10.6 N/A 3,897
ROE (%) 9.5 N/A 3,780 4,515
During the year under review, earnings before
interest, tax, depreciation and amortisation 3,513
(EBITDA) increased by 18 per cent to Rs.32.21
billion [2016/17: Rs.27.22 billion]. The recurring
16,537 19,226 20,192 23,324 28,155
IN THE YEAR UNDER EBITDA stood at Rs.28.88 billion against the
Rs.27.03 billion reported in the previous year, a
REVIEW, GROUP REVENUE growth of 7 per cent. Recurring adjustments are
INCREASED BY 14 PER CENT discussed overleaf. 2013/14 2014/15 2015/16 2016/17 2017/18
TO RS.121.22 BILLION Depreciation and EBIT (Rs.mn)
The depreciation and amortisation charge of the
amortisation (Rs.mn) EBIT margin (%)
Group stood at Rs.4.05 billion for the year under
review [2016/17: Rs.3.90 billion].

61
GROUP CONSOLIDATED REVIEW
Capital Management Review

Recurring Adjustments THE LARGEST CONTRIBUTOR


The recurring performance analysis entails the following adjustments: TO FINANCE EXPENSES WAS
• Removal of impacts of fair value gains on investment property (excluding IP gains at the THE LEISURE INDUSTRY
Property industry group). As the Group’s land banking strategy is aimed at monetising such
assets in the medium term, IP gains are reflective of the core operations of the Property
GROUP ACCOUNTING
industry group. As such, only IP gains pertaining to industry groups other than Property, has FOR 41 PER CENT OF
been adjusted at a Group level TOTAL FINANCE EXPENSE,
• Impairment provision for doubtful debt at SAGT due to a recompiling of debtor balances as
FOLLOWED BY OTHER
discussed in the Industry Group Review section of this Report
• Reassessment of the revenue recognition policy of Rajawella Holdings (Private) Limited on
INCLUDING PLANTATION
sale of lease hold rights, resulted in the recognition of deferred revenue amounting to Rs.547 SERVICES 28 PER CENT
million in the current financial year, at an EBIT level AND TRANSPORTATION 11
• As per the new Inland Revenue Act No. 24 of 2017, which is effective from 1 April 2018, the PER CENT.
deferred tax for the period under review, was computed based on tax rates and tax bases,
where applicable, post 1 April 2018. As such, the cumulative tax rate differentials have been Interest income relating to Union Assurance
adjusted to reflect the deferred tax provision on a recurring basis* PLC (UA) of Rs.3.66 billion [2016/17: Rs.3.11
• Aforementioned distribution of the one-off surplus of Rs.3.38 billion at UA billion], net of related costs, is classified under
operating segment results on the basis that
* Note that the share of results of equity accounted investees in the Financial Statements are shown
the interest income from life insurance funds
net of all related taxes. Thus, in calculating recurring EBITDA, recurring EBIT and recurring PBT, the
is considered operational income. The interest
performance analysis adjusts for deferred tax provisions of equity accounted investees.
income of the Group, including UA, increased
Recurring EBIT to Rs.10.28 billion, mainly due to higher
Post the adjustments discussed above, the recurring EBIT for the year under review increased by interest rates during the year under review. The
7 per cent to Rs.24.79 billion, compared to Rs.23.13 billion in the previous year. The reported and decrease in other finance income to Rs.979
recurring EBIT margins for each of the industry groups are given below. million is mainly attributable to the decrease
in the exchange rate gain on the Company’s
EBIT Margins (%) Reported Recurring foreign currency denominated cash holdings
to Rs.508 million [2016/17: Rs.583 million].
2017/18 2016/17 2017/18 2016/17 Other finance income also includes a mark-
to-market gain of Rs.319 million on short-term
Transportation 13.0 16.9 16.3 16.9
financial instruments of the life insurance fund
Leisure 16.3 22.7 16.3 22.7
at UA [2016/17: Rs.267 million].
Property 105.9 61.6 61.5 61.6
Consumer Foods and Retail 7.8 12.0 7.7 11.8
Further details on finance income can
Financial Services 49.8 14.9 30.2 14.9 be found in the Notes to the Financial
Information Technology 4.2 5.6 4.2 5.6 Statements section of this Report.
Other including Plantation Services 181.0 182.3 173.4 178.8
Group 20.5 19.5 18.1 19.3 Finance Expense
The challenging macro-economic environment and changes in taxation such as the introduction The finance expense, which includes interest
of a tax on added sugar to beverages, was a primary contributor to increased cost pressures expense, of the Group increased by 19 per
across the Group. Against this backdrop, the recurring Group EBIT margin decreased to 18.1 per cent to Rs.521 million, compared to Rs.436
cent [2016/17: 19.3 per cent]. As evident from the above table, all industry groups, except for the million recorded in the previous year. The
Financial Services industry group, witnessed a deterioration of the recurring EBIT margins. For a increase in interest rates coupled with an
detailed discussion on industry group wise EBIT margins, refer the Industry Group Review section increase in total debt levels of the Group
of this Report. contributed to the increase in finance expense.

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.

62 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

The interest cover of the Group, excluding


mark-to-market investments, stood at 53.4
Finance Expense
times in comparison to 52.8 times in 2016/17,
% primarily on account of higher earnings.

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

Transportation Financial Services


1,217 668 994 436 521
Leisure Information Technology
Property Other including Plantation Services
2013/14 2014/15 2015/16 2016/17 2017/18
Consumer Foods and Retail
Finance expenses Interest cover
(Rs.mn) (times)

Taxation Profit After Tax


During the year under review, the Group tax The Group profit after taxation (PAT) stood at Rs.23.12 billion for the year under review, a growth of
expense decreased by 5 per cent to Rs.4.51 28 per cent [2016/17: Rs.18.12 billion]. As indicated in the graphs, the highest contributors to Group
billion [2016/17: Rs.4.77 billion]. The Group PAT were the Financial Services, Other including Plantation Services and Leisure industry groups,
tax expense comprised of Rs.3.66 billion from with contributions of Rs.8.57 billion [2016/17: Rs.2.04 billion], Rs.3.82 billion [2016/17: Rs.3.10 billion]
income tax on Group profits and Rs.852 million and Rs.3.34 billion [2016/17: Rs.5.01 billion], respectively. Excluding the gains on investment property
from withholding tax on inter-company and the one-off impacts discussed previously, the recurring Group PAT increased by 11 per cent to
dividends. The decline in the tax expense was Rs.19.96 billion [2016/17: Rs.17.92 billion].
mainly on account of a Rs.102 million decrease
in withholding tax, stemming from a decline in Profit After Tax
inter-company dividends in 2017/18. %

Income tax on Group profits decreased to 13


17 17 16
Rs.3.66 billion [2016/17: Rs.3.82 billion], whilst
the effective tax rate (ETR) on Group profits 2 14 3
decreased to 16.3 per cent, as against 20.8 per
cent recorded in 2016/17. Despite the increase 2017/18 2016/17
in overall Group profits, the above is attributed 11
5
to the following: 28
37
• UA does not report an income tax expense 13
22 3
as the business continues to report taxable
losses. As such, the one-off surplus of
Rs.3.38 billion was not liable for tax, thereby Transportation Financial Services
contributing to the significant reduction in Leisure Information Technology
the ETR of the Group. Property Other including Plantation Services
• Subdued financial performance of certain Consumer Foods and Retail
businesses taxed at a higher effective tax
rate resulted in lower profitability, and
lower taxation. As a result, the contribution
The breakdown of Group PAT, between PAT attributable to equity holders and non-controlling
of such business to Group PBT and Group
interest (NCI) are as follows:
tax expense has declined, impacting the
ETR of the Group. Rs.’000s 2017/18 2016/17 % Change
Other including Plantation Services, CF&R and
PAT attributable to equity holders 21,021,031 16,275,158 29
Leisure were the highest contributors to the
Group tax expense with Rs.2.26 billion, Rs.1.21 Non-controlling interest (NCI) 2,098,774 1,841,607 14
billion and Rs.566 million respectively. Group PAT 23,119,805 18,116,765 28

For further details on tax impacts, refer


the Notes to the Financial Statements
section of this Report.

63
GROUP CONSOLIDATED REVIEW
Capital Management Review

Return on Capital Employed


PAT Reported ROCE Capital structure
= EBIT margin (%) x Asset turnover x
(%) leverage
Rs.23.12 bn 2017/18 11.9 = 20.5 x 0.46 x 1.27
(2016/17 - Rs.18.12 bn) 2016/17 11.5 = 19.5 x 0.46 x 1.28

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.

PAT Attributable to Equity Holders of the


Parent Return on Equity
PAT attributable to equity holders of the Reported ROE Return on assets Common
= x x Equity multiplier
Parent increased by 29 per cent to Rs.21.02 (%) (%) earnings leverage
billion [2016/17: Rs.16.28 billion]. The net profit
2017/18 11.1 = 7.7 x 0.91 x 1.58
margin of the Group increased to 15.3 per
2016/17 9.8 = 7.0 x 0.90 x 1.55
cent from 13.6 per cent in the previous year.
The recurring net profit attributable to equity
The Group return on equity (ROE) increased to 11.1 per cent, compared to 9.8 per cent recorded in
holders increased by 14 per cent to Rs.18.32
the previous year, due to similar impacts as discussed under Group ROCE.
billion [2016/17: Rs.16.12 billion], whilst the
recurring net profit margin of the Group The ensuing graph analyses the industry-group ROCE performance, against the capital employed
decreased to 13.4 per cent, against the 15.2 by the industry group and its contribution to EBIT.
per cent recorded in the previous year.

Profit attributable to equity


holders and net profit ratio ROCE, Capital Employed and EBIT
Rs.mn/%
ROCE (%)
15.3
90
14.0 13.4 13.6
80 Financial Services
70 8,580
12.1
60
50
40 CF&R Other including
4,131 Plantation Services
30
11,722 14,348 14,070 16,275 21,021 6,226
20 Transportation
Information 3,326
Leisure Property
2013/14 2014/15 2015/16 2016/17 2017/18 10 Technology
4,125 1,303
463
0
Profit attributable Net profit 20 40 60 80 100 120
-10
to equity holders margin (%)
(Rs.mn) Capital employed (Rs. bn)
-20
Note: size of bubble represents the relative contribution to EBIT in Rs. mn

64 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Financial Position GROUP DEBT

Assets (Rs.mn) Equity and Liabilities (Rs.mn)


Rs.29.72 bn
(2016/17 - Rs.22.77 bn)
32,876
79,799 Cash Flow
64,708 28,049
87,670 Cash and cash equivalents in the Statement of
18,963 23,936
80,199 24,944 54,892 Cash Flows comprise of cash and short-term
15,696 48,559 investments with a maturity of three months
17,293
14,664 13,499
or less, and net of outstanding bank overdrafts.
82,488 94,706 123,422 On this basis, as at 31 March 2018, cash and
cash equivalents decreased by Rs.5.22 billion,
to Rs.42.43 billion.
63,625 77,602 100,265 199,920 178,635 154,982
• Net cash flow from operating activities
240,975 277,272 322,448 322,448 277,272 240,975
was Rs.16.01 billion for 2017/18, which
2015/16 2016/17 2017/18 2017/18 2016/17 2015/16
contributed positively to the cash position
Cash, short term investments and other investments Current liabilities
• Net cash flow from investment activities
Inventories and receivables Non current liabilities
reflected an outflow of Rs.16.64 billion,
Other non current assets Non controlling interests
Property, plant and equipment and Shareholders' funds reducing the cash holdings of the Group.
leasehold rentals paid in advance The significant outflow is primarily due to
the equity commitments of “Cinnamon
Life”, acquisition of land at Vauxhall Street
Group’s total assets as at 31 March 2018 stood at Rs.322.45 billion, an increase of Rs.45.18 billion and investments towards the new frozen
[2016/17: Rs.277.27 billion], mainly on account of additions to non-current assets, property, plant confectionery manufacturing plant, among
and equipment, investment property and other non-current financial assets. The cash and short- others
term investments decreased to Rs.75.27 billion [2016/17: Rs.84.29 billion], mainly on account of the • Net cash used in financing activities
investments made by the Group, particularly the Property industry group, including “Cinnamon was an outflow of Rs.4.59 billion, against
Life”. The increase in other non-current assets was primarily due to work-in-progress costs relating the Rs.4.11 billion outflow in 2016/17.
to “Cinnamon Life”. The outflow is mainly in lieu of dividend
payments at Rs.8.32 billion [2016/17: Rs.7.28
Group debt increased by 31 per cent to Rs.29.72 billion [2016/17: Rs.22.77 billion], on account of billion], which was partially offset by an
the reasons elaborated in the discussion that follows. The increases were primarily from the CF&R, increase in net borrowings
Transportation and Property industry groups with additions of Rs.4.46 billion, Rs.1.51 billion and
Rs.1.15 billion, respectively.
CONSIDERING ITS STRONG
The increase in debt, coupled with the reduction in cash holdings of the Group, resulted in net
cash of the Group decreasing from Rs.55.31 billion to Rs.33.52 billion. Net cash, excludes short term
FINANCIAL POSITION, THE
investments of the life fund of Union Assurance PLC and customer advances from “Cinnamon Life”. GROUP IS CONFIDENT
OF ITS ABILITY TO
Working Capital/Liquidity
COMFORTABLY MEET ITS
‘000s 2017/18 2016/17 % change SHORT AND MEDIUM
Current assets 98,761,760 104,963,619 (6) TERM FUNDING AND DEBT
Current liabilities 32,875,750 28,049,172 17 REPAYMENT OBLIGATIONS
Working capital 65,886,010 76,914,447 (14)
WHILE PURSUING ORGANIC
The decrease in current assets is mainly in lieu of a decrease in short term investments, whilst the AND ACQUISITIVE GROWTH
increase in current liabilities stems primarily from increases in trade and other payables, short-term OPPORTUNITIES.
borrowings and bank overdrafts.

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

Leverage and Capital Structure Cash and Cash Equivalents


Capital Structure Group cash and cash equivalents as at 31
The ensuing details the sources by which the total assets of the Group as at the period end, were March 2018 stood at Rs.75.27 billion against
funded. Rs.84.29 billion in 2016/17; the decrease is on
account of the reasons outlined previously. This
comprises of Rs.10.88 billion as cash in hand
Shareholder funds and at bank and Rs.64.39 under short-term
62% investments. It is pertinent to note that of this,
equity investments of the UA life fund amount
Non-controlling interest to Rs.3.82 billion, whilst the restricted regulatory
8% fund at UA amounts to Rs.3.38 billion.
Total assets of Funding
channels Favourable indicators such as the net cash
Rs.322.45 billion Long-term funding/creditors
position of the Group and a comparatively lower
as at 31 March 2018 20%
debt/equity ratio, indicates the Group’s ability
to increase its leverage to fund its investment
Short-term funding/creditors pipeline, as and when required. To this end,
10% the significant cash reserves of the Group, is
earmarked for equity commitments of the
Debt “Cinnamon Life” project and other investments.
Group debt increased by 30 per cent to Rs.29.72 billion during the year under review [2016/17: Notwithstanding this, the Group is confident
Rs.22.77 billion]. The increase is mainly attributable to debt in lieu of: of its ability to fund projects, if feasible and as
• Short term borrowings of Rs.3.09 billion in the Bunkering business to support working capital required, thereby optimising equity returns.
requirements
Statement of Changes in Equity
• A bank overdraft of Rs.2.87 billion in the Retail sector, utilised to support new store operations Total equity of the Group as at 31 March 2018
and expansions stood at Rs.224.86 billion, a Rs.30.53 billion
• Construction of the new frozen confectionery plant in Seethawaka resulting in an incremental increase from the previous year [2016/17:
debt of Rs.2.20 billion Rs.194.33 billion]. The main increases were on
• Construction of “Cinnamon Life” resulting in an incremental debt of Rs.1.12 billion account of profit after tax of Rs.23.12 billion,
other comprehensive income of Rs.7.67 billion,
Property, CF&R, Leisure and Transportation account for 96 per cent of Group debt with the industry which was partially offset by the dividend of
groups contributing Rs.14.59 billion, Rs.5.58 billion, Rs.5.15 billion and Rs.3.27 billion to Group debt, Rs.8.32 billion paid during the year.
respectively.
Concluding the Group’s Financial and
Where businesses have foreign currency denominated incomes, borrowings in foreign currency Manufactured Capital Review, the section
are effected to take advantage of the comparatively lower cost of foreign currency debt. This which follows discusses the second form of
strategy has been practiced in the Leisure industry group, in particular, where foreign currency Capital, Natural Capital.
receipts are regularly monitored to proactively evaluate the borrowing capacity of the business.
Currently, approximately Rs.17.39 billion of overall debt is denominated in foreign currency,
primarily due to the increased debt of “Cinnamon Life”. The exchange rate exposure arising from
the “Cinnamon Life” project is mitigated to an extent as the functional currency of Waterfront NATURAL CAPITAL
Properties (Private) Limited, its project company, is US Dollars.

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.

66 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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

Consumer Foods & Retail

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.

Energy and Carbon Footprint


(12%)
Vs. 2015/16 Baseline
During the year under review, the total energy consumption of the Group was 839,813 GJ
[2016/17: 795,651 GJ], which was derived from non-renewable and renewable energy sources, and
the national grid.
STATUS AS AT 2017/18
Total energy consumed in GJ

1. Energy consumption from non-renewable sources


2017/18

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

67
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:

• Significant investments were made by the


71
Retail sector and the Maldivian Resorts 44.5
segment in solar power 0.1
• Though Tea Smallholder Factories PLC (TSF LPG Diesel Surface water - wetlands, rivers,
PLC) was the highest consumer of energy Petrol Jet fuel lakes, oceans etc
in the Plantation Services sector, 67 per Furnace oil Electricity Ground water
cent of its energy requirement was met Rainwater harvested
through renewable energy sources such as The Group demonstrated continuous Municipality / authority water sources
bio-mass purchased from the surrounding improvement in carbon efficiency, recording
communities, thereby contributing to only a 4 per cent increase in its carbon footprint The Group withdrew a total of 1,908,422
3 per cent of the Group’s carbon footprint. to 96,066 MT [2016/17: 92,111 MT] despite cubic meters of water, resulting in a 6 per
Whilst such practices have enabled the increased operational activity within the cent reduction of consumption against the
Group to reduce its environmental impact Group; with the opening of 22 new Keells previous year. Where feasible, the Group seeks
and cost of operations, it has also provided outlets resulting in a significant increase in to fulfil part of its requirement from green
means of livelihood for the surrounding the square footage of the Retail sector and water sources through rainwater harvesting.
communities. The Group generated 7.3 the inclusion of Cinnamon Air to the Group’s Given the nature of its operations, the Leisure
million kWh of power from solar power and sustainability reporting scope. It is noted and CF&R industry groups account for the
firewood, constituting 6 per cent of the that initiatives such as the adoption of solar highest proportion of water consumed, with
Group’s energy requirement. Additionally, panels by retail outlets, assisted the Group in approximately 89 per cent of the Group’s water
Group companies saved approximately managing the carbon footprint. Scope 1, direct consumed by these industry groups.
7,590 GJ, through various energy energy carbon footprint, amounted to 27,532
conservation initiatives. MT, while scope 2, indirect energy carbon Water withdrawn by
footprint amounted to 68,534 MT.
industry group/sector
m3 '000
Further details on these initiatives are 1200
found in the Industry Group Review The carbon footprint per Rs. million of
revenue on a declining trend signifying
section of the Report. 1000
the Group’s commitment towards
reducing its carbon footprint.
800
MT CO2
CARBON FOOTPRINT REDUCTION
600
FROM RENEWABLE ENERGY AND
INITIATIVES 400

200
2017/18
0
Leisure

Consumer Foods & Retail

Other/Plantation Services

Transportation

Financial Services

Property

Information Technology

1,437 MT 0.90 0.87 0.83 0.86 0.79

2013/14 2014/15 2015/16 2016/17 2017/18


The main contributor to the Group’s carbon Note: The carbon footprint per Rs. million of revenue
footprint was electricity from the national grid, depicts an increase in 2016/17 due to the change in
followed by diesel, furnace oil and jet fuel. reporting scope through the inclusion of Cinnamon Air. 2015/16 2016/17 2017/18

68 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

DURING THE YEAR UNDER Waste Management


Water discharge by method
Due to increased operational activity across
REVIEW, THE GROUP % the Group, waste generated increased to 9,260
0.4
EXPERIENCED A REDUCTION MT from 8,747 MT in the previous year. Of this,
14.8 36.4
IN WATER USAGE COMPARED 439 MT was classified as hazardous waste and
6.0 disposed of through specialised third-party
TO THE BASELINE YEAR OF contractors. Of the total waste produced, 41
2015/16. per cent was recycled or reused by the Group’s
business units and/or through selected
third-party contractors. The Leisure and CF&R
2019/20 WATER REDUCTION 27.2 15.2 industry groups contributed to over 95 per
cent of the waste generated by the Group.
GOAL STATUS To municipality sewerage / NWSDB
drainage lines
TARGET FOR 2019/20 Treated and recycled/reused
Further details of how such waste was
Treated and discharged
generated, reused and recycled are
(6%)
Vs. 2015/16 Baseline
Direct discharge as per guidelines
Through soakage pits
Provided to another organisation
available in the Industry Group Review
section of the Report.

outside the Group

STATUS AS AT 2017/18 Waste generated by


During the reporting period, the Group industry group/sector
discharged 1,414,546 cubic meters of effluent. MT

(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

The Group will continue to work towards mechanisms.


0
maintaining the reduction achieved this year.
Leisure

Consumer Foods & Retail

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.

21.2 21.0 21.1 19.0 16.0

2013/14 2014/15 2015/16 2016/17 2017/18

Where feasible, the Group makes best efforts


to reduce its water requirement through the
recycling of treated effluent which is brought
to an acceptable quality. The Group ensures
compliance with regulatory standards, as per
relevant Environmental Protection Licenses
(EPL) when returning such water to the
Sewage treatment plant at “Trinco Blu by Cinnamon”
environment.

69
GROUP CONSOLIDATED REVIEW
Capital Management Review

Waste disposal by method “PLASTICCYCLE” SOCIAL ENTREPRENEURSHIP INITIATIVE


%
“Plasticcycle” is a social entrepreneurship initiative of the Group launched
in July 2017, with the objective of being the catalyst in significantly
25.4
39.6 reducing plastic pollution in Sri Lanka, by encouraging the reduction and
rationalisation of single-use plastics, supporting responsible disposal and
promoting recycling initiatives.
14.5
• Collection of over 5 MT of plastic waste to-date and sent for recycling
19.3 0.3
• Over 45 specially-designed plastic collection bins placed in the city of Colombo
0.9
and outskirts in partnership with Elephant House and “Keells”
• 40 additional bins planned for key exit points of the southern expressway in
Reuse Recovery
collaboration with Walkers Tours Limited, Beira Enviro Solutions (Private) Limited
Recycling Incineration
Composting Landfill and the Road Development Authority

Despite the continued efforts toward


waste reduction, the waste generated
per Rs. million of revenue declined only
marginally
MT

0.10 0.09 0.09 0.08 0.08

2013/14 2014/15 2015/16 2016/17 2017/18

Paper Conservation Fauna and Flora Conservation


CSR Initiatives
In addition to the core operations of the The impact of continued collection of waste The Foundation continued its long-term
businesses, the Group also makes a conscious paper from Group business locations for collaborations on the ensuing initiatives
and collective effort in environment shredding and recycling is summarised as during the year under review:
protection and bio-diversity conservation follows: • “Project Leopard” and “Elephant Research” -
through the Foundation. Key initiatives aligned with Cinnamon Hotels & Resorts
with creating value under Natural Capital are • “Forestry Project” - with Tea Smallholder
as follows: During the year:
Factories PLC and Carbon Company (Pvt) Ltd
25,972 kg of waste paper collected
Nature Field Centre, Rumassala
The Central Environmental Authority (CEA) in Indirect Saving: Further details are found in the Industry
• 441 trees Group Review section of the Report.
collaboration with the Foundation established
the Nature Field Centre in Rumassala, in • 825,390 litres of water
2008, as a platform to facilitate experiential • 103, 888 kWh of electricity Concluding the Group’s Natural Capital
learning on the environment and bio-diversity • 45,581 litres of oil Review, the following section discusses the
conservation particularly among school • 77 m3 of landfill third aspect of Capital Management, Human
children. As per the CEA’s report, a total of Capital.
1,743 visitors, of which 1,579 were school
children, participated in the awareness
programs conducted by the CEA, during the
year in review.

70 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Key indicators pertaining to Human Capital are as follows:

HUMAN CAPITAL Standard 2017/18 2016/17 2015/16

Total workforce (employees and contractors’ staff ) 20,361 20,100 19,522


201-3 Employee benefit liability as of 31 March (Rs. million) 1, 971 1,880 1,650
The Group’s Human Capital is a primary 401-1 Total attrition (%) 26 24 21
contributor to its earning potential, Total attrition (number) 5,904 5,349 4,545
productivity and long-term sustainability. New hires against total employees (%) 60 55 50
The Group places significant importance in New hires (number) 7,954 7,097 5,458
attracting fresh talent, retaining and motivating 403-2 Number of injuries and diseases 209 213 217
talent whilst fostering employee productivity Injury rate (number of injuries per 100 employees) 1.03 1.06 1.11
and satisfaction, thereby creating value for Lost day rate (lost days as % of scheduled work days) 0.04 0.04 0.05
both the employee and the Group. The Group’s Number of people educated on serious diseases** 724,586 199,802 21,384
holistic approach to the management of its Total absentee days per 100 workforce days 0.0011 0.0011 0.0022
Human Capital, is founded on the core building 404-1 Average hours of training per employee 47 41 35
blocks of “inspiring people”, “caring for people” 404-3 No. of employees receiving performance reviews (%) 100 100 100
408-1 Incidences of child labour (below age 16) 0 0 0
and “leadership”. This framework continually
strives towards ensuring diversity, encouraging Incidences of young workers (aged 16-18)* 0 0 0
409-1 Incidents of forced labour during the year 0 0 0
and facilitating innovation and excellence.
* Young workers are employed under the guidelines of the Employers’ Federation of Ceylon
** Significant increase due to island-wide awareness programs conducted by UA
During the year under review, the Group
embarked on a journey of human resource Employee Diversity
technology transformation by launching As an equal opportunity employer, the Group encourages workplace diversity in all its forms,
a project to implement a state-of-the-art and prides its self in continuously innovating, updating and upgrading to foster an enabling
human resource information platform and inclusive environment, which promotes a content and productive workforce. The Group’s
that enables proactive management of its non-discrimination policy commits to maintain a workplace that is free from physical and verbal
Human Capital to replace its HR enterprise harassment and discrimination based on race, religion, gender, age, nationality, social origin,
resource planning system which has been disability, sexual orientation, gender identity, political affiliation or opinion, among others. The
in place for the last 11 years. Against the Group believes in communal kinship and advocates that it is every citizen’s duty to protect and
backdrop of a constantly changing human foster cross-culture acceptability, regardless of race, religion or ethnic group.
resource landscape and diverse workforce,
this platform will further empower evolving The workforce as at 31 March 2018 was 20,361 of which 13,315 (65 per cent) were employees and
employee-centric practices. It is expected to 7,046 (35 per cent) were outsourced personnel (neither staff employees nor seasonal workers). Of the
bring about a multitude of benefits, including, Group’s total employees, 503 are placed in the Maldives, with the remainder domiciled in Sri Lanka.
but not limited to, business efficiency,
The Group monitors the diversity of its workforce based on age and gender, as illustrated by the
analytics and employee engagement.
following diagrams. In businesses such as the Leisure industry group, active steps have been taken
to enhance female participation to better meet business needs. The Group has seen a positive
demographic breakdown within the workforce with 53 per cent of its employees being less
THE GROUP BELIEVES IN
than 30 years [2016/17: 50 per cent]. The Group has also seen a positive increase in the female
COMMUNAL KINSHIP AND population with 36 per cent of employees under the age of 25 being female.
ADVOCATES THAT IT IS EVERY
Total employees by age Below 30 - 53% Between 30 and 50 - 40% >50 - 8%
CITIZEN’S DUTY TO PROTECT
Total employees by gender Male - 72% Female - 28%
AND FOSTER CROSS
Workforce by type of employment Employees Permanent - 37% Employees Contract - 28% Contractor's Personnel - 35%
CULTURE ACCEPTABILITY,
REGARDLESS OF RACE, Workforce by gender Male - 70% Female - 30%

RELIGION OR ETHNIC GROUP. Contractor's personnel by gender Male - 66% Female - 34%

Composition of Key Management Committees


8 member Board of Directors
• 3 members are between the ages of 30-50 whilst 5 members are over the age of 50
• 1 female director
7 Group Executive Committee (GEC) members
• 2 members are between the ages of 30-50 years whilst 5 members are over 50 years
• 1 female member
16 Group Operating Committee (GOC) members (excluding the GEC members)
• 9 members are between the ages of 30-50 whilst 7 members are over the age of 50
• 2 female members

71
GROUP CONSOLIDATED REVIEW
Capital Management Review

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.

The Group’s total attrition (for executives and


non-executives) excluding the IT Enabled and
Retail sectors, where staff turnover is expected
to be high and is an industry norm, was 26 per
cent. With the increased supply of hotel rooms,
some pressure on staff retention was faced
by the Sri Lankan Resorts segment and City
Hotels sector, which contributed to the higher
attrition rate. Participants engaging in a group activity at a corporate training

During the year under review, Group


companies adopted diverse approaches During the year under review, the Group Performance Appraisals
to attract and retain employees. The Group launched a programme to attract graduates The Group’s performance management cycle
continued to have its partnerships with from the Science, Technology, Engineering and ensures that all employees of the Group undergo
universities, higher education institutions Mathematics (STEM) fields to further support regular appraisals. Formal feedback is provided
and vocational training institutions. Its robust the Group’s digitisation agenda. To this end, a on a bi-annual basis to the executive cadre
Internal Job Posting Programme, which allows recruitment campaign was successfully launched and once a year to all others, whilst continuous
employee mobility across the Group, is a covering both local and private universities. feedback is encouraged. The process, which
unique selling proposition the Group leverages is underpinned by the need to firstly live the
on, to attract and retain high calibre motivated With respect to staff identified as “Talent”, Values of the Group, enables identification of
employees. The annual JKH Management the attrition has been negligible with senior high potentials and successors, and also helps
Trainee Programme entered its eleventh year management continuing to place extra identify and enhance required skills of individuals
and continues to yield the desired benefits to emphasis on developing and nurturing them. needing support to achieve business outcomes.
the Group. The executive level attrition continues to be It is also noteworthy that the appraisal process
relatively lower than attrition at non-executive encourages employees to contribute to the
levels. Further, recruitment based on profile Group at large, as opposed to the business unit
Detailed discussions of business-specific
mapping was continued in certain businesses, or functional unit they belong to.
initiatives aimed at attracting and retaining
employees is found in the Industry Group to ensure a better fit with the needs of the
Review section of the Report. organisation and thereby ensuring longer Recognition
retention. Recognition of employees is actively encouraged
and special budgetary allocations are made
Attrition
for this purpose. Several employee recognition
schemes are in place at a Group level and at
By gender Male - 62% Female - 38% business unit level, reflecting business specific
requirements. Awards that encourage, foster and
By region Local - 97% Foreign - 3%
recognise innovation, support the digitisation
By age Below 30 - 83% Between 30 and 50 - 16% >50 - 1% movement of the Group and volunteerism in
CSR activities have contributed to the strides the
Group has made in these areas.
New Hires
Learning and Development
By gender Male - 61% Female - 39% The Group’s learning and development
programmes are pivotal for talent retention and
By region Local - 96% Foreign - 4%
ensuring a sustainable competitive advantage.
By age Male - 87% Between 30 and 50 - 12% >50- 1% During the year under review, a total of 629,770
training hours [2016/17: 529,468 hours] were
provided to Group employees. Each year, training
for employees are determined on a needs basis,
WITH RESPECT TO STAFF IDENTIFIED AS “TALENT”, aligning the business specific requirements
THE ATTRITION HAS BEEN NEGLIGIBLE WITH SENIOR with gaps identified in employee skills and the
MANAGEMENT CONTINUING TO PLACE EXTRA EMPHASIS roof competencies. Through the performance
management system, employees can request
ON DEVELOPING AND NURTURING THEM. for training when conducting self-appraisals

72 John Keells Holdings PLC . Annual Report 2017/18


GRI 102-41 Management Discussion and Analysis

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
ROLLOUT 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 GENDERWISE 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
REGIONWISE 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

Note: There were no occupational diseases recorded


Collective Bargaining
during the year.
The Group engages with trade unions on an ongoing basis through joint consultative committees
and other mechanisms. Formal agreements are found in the CF&R industry group, covering over
799 employees amounting to 6 per cent of the Group’s total employee count. TSF PLC follows the
wage structures of the plantation industry of the country and the Resort hotels have entered into a
memorandum of understanding with staff representatives from one trade union.

73
GROUP CONSOLIDATED REVIEW
Capital Management Review

Employee Benefit Plans


In Sri Lanka, employees are eligible for the
Employees’ Provident Fund (EPF) and the
Employees’ Trust Fund (ETF) contributions.
Employees who are Maldivian nationals or
employed in the Maldives are eligible for
the Maldives Retirement Pension Scheme
(MRPS) contributions. The total contribution
made to the trust funds for the reporting
year was Rs.129 million (3 per cent of salary
contributed by employer) while the total
contribution made to the provident fund
was Rs.743 million (12- 20 per cent of salary
contributed by employer and 8-15 per cent of
salary contributed by employee). In Sri Lanka Volunteers engaged in vision screening of school children
employees are also entitled to retirement
gratuity. The employee benefit liability as at 31
March 2018 was Rs.1.97 billion. STAFF VOLUNTEERISM IS AT THE HEART OF THE GROUP’S
COMMUNITY ENGAGEMENT STRATEGY.
Staff Volunteerism
Staff volunteerism is at the heart of the During the year, over 840 staff volunteers The Foundation also collaborated with John
Group’s community engagement strategy. engaged in projects undertaken by the Keells Group subsidiaries on the following
Most projects carried out by the Foundation Foundation while over 1,398 volunteer initiatives during the reporting year:
functions with the support of volunteers. The instances, accounting for over 5,411 hours, • Rural BPO Initiative – with InfoMate (Pvt)
Group’s volunteer network enables employees were recorded for the year, excluding CSR Limited
to go beyond their day-to-day work and make initiatives organised at a sector/business
• Cinnamon Youth Empowerment Initiative –
a hands-on contribution to the community level. The Foundation also commissioned the
with Cinnamon Hotels & Resorts
and environment while the volunteer leave development of a customised application
policy enables staff to be released for CSR for streamlining administration and tracking
activities with minimum restraint. Volunteers of volunteer engagement which is currently Further details are found in the Industry
can vary from project champions, volunteer Group Review section of the Report.
under trial.
trainers and trained assistants to those who Concluding the Group’s Human Capital Review,
engage in skill-based volunteerism and the following section discusses Social and
administrative support. Relationship Capital, the fourth aspect of Capital
Management.

THE GROUP RECOGNISES THAT BUILDING SOCIAL


SOCIAL AND RELATIONSHIP
AND RELATIONSHIP CAPITAL IS VITAL FOR LONG TERM
CAPITAL
SUSTAINABLE VALUE CREATION AND THUS STRIVES TO
CREATE AND UPHOLD TRUST AND RECIPROCITY AMONG
The Group recognises that building Social
and Relationship Capital is vital for long term
ITS KEY STAKEHOLDERS.
sustainable value creation and thus strives
72 per cent of the Group’s economic value As a testament to its commitment to
to create and uphold trust and reciprocity
distributed was spent on goods, services and conducting operations in a responsible
among its key stakeholders. In order to further
utilities locally, with Sri Lanka being defined as manner, the Group had no environmental,
strengthen its engagement strategy, the
local. This definition is based on the number of product related or any other significant fines
Group conducted a stakeholder engagement
operations, location of revenue generation and during the reporting year and did not have
survey during the year under review, through
the significant location of operations. Mutually any non-compliance with regard to marketing
a third party to obtain feedback from
beneficial relationships are sought in relevant communications.
stakeholders on the perception and impact
industries through sustainable sourcing, with
of the Group’s operations. This facilitated
Rs.3.84 billion spent on purchases, mainly fresh
identification of emerging material topics
produce, by the CF&R industry group and the
and reinforcing social responsibility. Refer the
Sri Lankan Resorts segment. Such initiatives
Sustainability Integration and Stakeholder
stimulate local economies and encourage
Engagement section of this Report for a
small businesses to help fulfil the supply chain
detailed discussion on the results of the survey.
requirements of the Group.

74 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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.

75
GROUP CONSOLIDATED REVIEW
Capital Management Review

“In school, I used to follow


my friends thoughtlessly but after I
joined Cinnamon Grand, my friends look
up to me as a leader and ask for my advice. I
know I am an inspiration to them and I feel very
privileged.”
Subramaniam Norman
Trainee, Kitchen Department,
Cinnamon Grand Colombo
(Former Vocational Trainee)

Career guidance programme for youth in Mullaitivu

the University of Moratuwa following thee • Vocational training: 5 school leavers


Following a reassessment of the English
Transport and Logistics Management completed a 6-months vocational training
for Teens model, the Foundation in
degree programme in the hospitality industry
collaboration with an external service
provider, commenced the implementation • Formation of youth clubs: In the year
Neighbourhood Schools Development under review, the Foundation launched
of a new format during the year under
Programme a new initiative of facilitating the
review, introducing a two-tier programme
to replace the previous three-level The project, which is implemented in establishment of youth clubs within the six
structure. The format was expanded to collaboration with Cinnamon Grand, Cinnamon schools, in order to foster interpersonal skills
include a 22-hour ICT training module and Lakeside and Cinnamon red aims to uplift the
Soft Skills for University Undergraduates
a soft skills module in the form of a total quality of education. The year under review
saw the expansion of the project to include During the year in review, the Foundation
Immersion Camp. Post completion, the
two Government schools in Colombo 3. piloted a total immersion English camp
students will be eligible for Cambridge
at the University of Ruhuna benefiting 42
English and International Computer
• Skills development: 350 students undergraduates of the Faculty of Humanities
Driving License (ICDL) certifications.
benefited from various initiatives such as and Social Sciences.
English Language and IT scholarships and The Foundation had also planned to conduct
In the reporting year, English for Teens revision classes in preparation for public soft skills workshops at the Universities of
scholarships were offered in 22 locations examinations. Ruhuna, Eastern and Sri Palee. However,
across all 9 provinces. 1,376 students are
• Career guidance: 134 students benefited the events could not be conducted due to
registered in the various courses conducted.
from a career guidance workshop multiple union activities and student unrest
comprising sessions on personal that affected the smooth flow of university
John Keells English Day 2017 was held as a
effectiveness and leadership, personal activities. Discussions were conducted with
location-based event which provided a platform
grooming and social etiquette, CV several steering committees of the University
for the John Keells English scholars to showcase
preparation and an overview on career Grants Commission in the reporting year to
their talents through performance of various
prospects available within the John Keells explore alternative soft skills models including
items, build self-confidence and learn from one
Group potential for developing e-based learning.
another in a competitive environment.

In addition, the following customised


programmes were conducted during the year
in review:
• The School for the Blind, Ratmalana - A
total of 23, grade 1-4 students successfully
completed a speech and drama course
after sitting for and passing the Colombo
Academy of Language Skills and Dramatic
Art (CALSDA) examination. A 3-day
total immersion pilot programme was
conducted benefiting 17 students of
grades 9,10 and 11
• 26 customised English scholarships were
granted for first year undergraduates of
Students of the School for the Blind performing at the closing ceremony of the Total Immersion camp

76 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Popularising Science Education Amongst


School Children
The Foundation in collaboration with Sri Lanka
Association for the Advancement of Science
(SLAAS) completed the third and last phase of
the Science Day Programme (SDP) with a total
participation of 858 students and 66 teachers
from 62 schools of 6 districts. This programme
aimed at enhancing the interest of Ordinary
Level students in Science as a means of
increasing the numbers pursuing Science in
higher education and beyond, to better serve
the development needs of the country.

John Keells Vision Project


Students testing their knowledge of robotics at the Science Day Programme
The John Keells Vision Project is primarily an
island-wide cataract project, implemented
through the Vision 2020 Secretariat of the tool that covers critical information on HIV
Ministry of Health, aimed at addressing & AIDS, which is accessible free of charge PROJECT WAVE
Sri Lanka’s primary cause of preventable by any member of the public over the age IMPACT TODATE
blindness. The following initiatives were of 18 years. During the reporting year, 97
undertaken during the year under review:
• Funding and volunteer support for a total
of 12 eye camps in 5 provinces, resulting
persons completed the e-module while a
total of 404 persons visited the platform,
spending an average time of 10.25 minutes
220,825
Phase 1 and 2
individuals

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

Parallel to the public campaign, a 5-day


social media campaign against sexual
harassment was also undertaken by the
Foundation whilst an internal campaign
was initiated involving the distribution of
glass water bottles among Group staff with
the tagline “Zero Tolerance: I stand against
Violence”
• Community policing programme in
Mullaitivu – Under phase 2 of this pilot
collaboration with the Asia Foundation, a
two-day programme on gender sensitivity
and communication skills was conducted at
the Puthukudiyiruppu (PTK) Police Stations,
benefiting 49 police officers. Community
outreach programs were also conducted Leadership programme at Mahavilachchiya
benefiting 583 persons. Following the
in the two Mullaitivu villages as a means of • Gender Empowerment: Towards
success of this pilot program, a similar
identifying and implementing activities to supporting gender participation, capacity
programme was initiated centred on the
increase their income. A farmer buyer forum building and communal harmony in
Slave Island Police Station in Colombo 02
was held in Morawewa North towards Nithulemada, 2 workshops on motivation
encouraging paddy farmers to explore crop and empowerment for village women was
Towards enhancing the focus on child abuse
diversification given the water scarcity in organised
prevention under Project WAVE, the following
the area • Career Guidance and Youth
initiatives were implemented during the year
under review: • Education: Public examination revision Empowerment: A career guidance
classes were conducted in Mullaitivu, workshop was conducted in Mullaitivu
• A child protection sub-committee was set
Morawewa and Nithulemada, benefiting benefiting 142 school leavers and
up and an activity plan for the year was
a total of 490 students. The Foundation vocational trainees. A youth empowerment
developed
donated 43 musical instruments to Maha and career guidance programme is
• An interactive awareness session on cyber Maberiyathanna Tamil Maha Vidyalaya and being planned, in Morawewa North in
exploitation and violence prevention was Senarathwela Maha Vidyalaya collaboration with SLRCS
conducted for Head Office staff, particularly
• Infrastructure development: The
focussed on parents, educating 37 staff Safe Drinking Water Initiatives
Foundation initiated the development of a
members The ensuing projects, aimed at providing
community centre for the Puthumathalan
fisheries society and completed the access to safe drinking water facilities, were
Village Adoption completed in the reporting year:
refurbishment of the Nithulemada clinic.
This flagship initiative of the Foundation • Collaboration with the National Water
• Water security: The rehabilitated D8 tank
is aimed at uplifting the lives and living Supply and Drainage Board (NWSDB) to
in Morawewa was officially unveiled and
standards of disadvantaged communities by address Chronic Kidney Disease (CKD). The
handed over to the Farmer Organisation.
empowering them through relevant skills, Foundation commissioned another two
27 water filters were also distributed to
capacity building and providing essential reverse osmosis (RO) filtration systems in
low-income members of the Halmillewa
infrastructure towards fostering sustainable the Anuradhapura District. This is as part of a
Women’s Society to facilitate access to
livelihoods and self-reliance. Its scope covers master plan of NWSDB to provide access to
clean drinking water
a wide range of development activities over
5 – 10 years. Initiatives are decided upon
through constructive dialogue, translating
into a range of development activities that
foster the spirit of independence, self-reliance
and entrepreneurship. Currently, 4 villages are
in development under this project including
Iranaipalai and Puthumathalan in Mullaitivu
district, Morawewa in Trincomalee district and,
the new addition, Nithulemada in the Kandy
district. Below are some of the key activities
carried out during the reporting year:
• Livelihood development: A 6-month family
empowerment programme was completed
in collaboration with Sri Lanka Red Cross
Society (SLRCS) for 30 low income families
Well cleaning undertaken by John Keells Foundation together with Sri Lanka Red Cross Society

78 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Galle and Kalutara Districts. The Foundation


in collaboration with John Keells PLC also
funded paint equipment to Morawaka
Tea Estates. In addition to efforts by the
Foundation, Group businesses engaged in
relief activities in their respective business
areas. Collection points were set up at
all supermarket outlets for the public to
donate dry rations and sanitary items, to
which the Retail business matched the
contribution on a 1 to1 basis

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.

John Keells Digital Art Gallery


The Foundation continued to maintain and
enhance its digital art gallery which serves as
an online platform for local artists to showcase
their work all year-round free-of-charge while
sustaining and enhancing the interest of art
patrons. As at 31 March 2018, 925 artists were
registered with the Sri Lankan Art Gallery
(www.srilankanartgallery.com) while the work
of 250 artists selected by a team of curators
was on view at the curated site. During the
year in review, approximately 27,402 visitors
visited the site recording an increase of 114
per cent against the previous year. Paintings on display at Kala Pola 2018

79
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.

Research and Development


Whilst the Group undertakes research and
development at the business unit level,
TRANSPORTATION
John Keells Research (JKR), the research Ports and Shipping
and development arm of the Group, Transportation
was established in an attempt to create
sustainable value through innovation to
enhance the Intellectual Capital base of the LEISURE
Group. City Hotels
Resorts
Having successfully filed its first patent for Destination Management
a composite nano-material which enables Hotel Management
energy storage, which was developed in
collaboration with the National Metallurgical
Lab of the Council for Scientific and PROPERTY
Industrial Research (CSIR-NML), India in DEVELOPMENT
2016/17, JKR filled a patent application in Property Development
Taiwan and a Patent Corporation Treaty Real Estate
(PCT) application, which permits patent
protection internationally, during the year
under review. Biocompatibility and low cost CONSUMER FOODS
per unit of energy stored are the key benefits AND RETAIL
exhibited by this novel energy storage KRESST
Consumer Foods
material. JKR continued to work towards Retail
building prototype energy storage devices
that utilise the aforesaid patented technology
to enhance the Technology Readiness Level FINANCIAL SERVICES
(TRL) of the intellectual property (IP) and Insurance
to determine the commercial viability of a Banking
prototype product. Stock Broking

In addition to the aforementioned initiatives,


JKR fabricated several prototype devices INFORMATION
including an atmospheric water generator TECHNOLOGY
and an electrospinner, during the year under IT Services
review. JKR also commenced work on a Office Automation
IT Enabled Services
collaborative research project with a university
in the USA to develop novel technologies for
the conversion of waste to energy. OTHER INCLUDING
PLANTATION SERVICES
The relocation to the Technology Incubation
Centre at the Nanotechnology and Science Plantation Services
Other
Park in Pitipana, Homagama, has proved
fruitful thus far, with greater opportunities

80 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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

81
GROUP CONSOLIDATED REVIEW
Capital Management Review

IN LINE WITH
INTERNATIONAL BEST
PRACTICE, TO FOSTER
COLLABORATION
AMONG LIKEMINDED
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.

Business-specific details pertaining to


the value creation under Intellectual
Capital is found in the Industry Group
Review section of this Report.

Winners of “John Keells X - Open Innovation Challenge 2017”

82 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

GROUP CONSOLIDATED REVIEW


Outlook

agreements as well as planned development


activities such as the development of the
Concluding the Capital Management Review, the ensuing Hambantota Port, the “Western Region
is a discussion on the economic outlook for Sri Lanka in Megapolis Planning Project” and economic
corridor projects such as the Colombo-
the short to medium term, the high-level impacts to the Trincomalee Economic Corridor (CTEC)
businesses and the overall business strategy of the Group. and the North East Economic Corridor will
provide stimulus for private sector growth.
For a detailed discussion on the strategy and outlook for A prioritisation of these projects by the
each industry group, refer the Industry Group Review Government and clear articulation of how
the private sector can participate in these
section of this Report. ventures would further support increased
private investment and stronger growth in the
economy. Infrastructure initiatives such as the
expansion of capacity in the Port of Colombo,
expansion of the passenger terminal at the
Macro-Economic Outlook international airport, timely completion of the
The World Bank projects global growth to
THE RECOMMENCEMENT
Central Expressway project and enhancing
edge up to 3.1 per cent in 2018, aided by OF LARGE SCALE power generation capacity are of particular
a rebound in manufacturing, investment INFRASTRUCTURE PROJECTS importance.
and trade, against the backdrop of
benign financing conditions, generally
SUCH AS PCC AND
Despite continued expressed interest by
accommodative policies, improved CONTINUED INVESTMENT the Government to exit non-core public
confidence, and the dissipating impact of the IN INFRASTRUCTURE, owned interests to enable private sector
earlier commodity price collapse. Major trade investment, both directly and through
agreements involving the US and the UK that
INCLUDING THE EXPANSION public-private partnerships, clear measures
are being renegotiated, as well as the progress OF THE COUNTRY’S towards this end have not been forthcoming.
of the “Belt and Road Initiative”, will have a NETWORK OF EXPRESSWAYS The Group believes that such initiatives can
significant bearing on production, trade and aid the sustainable growth of the economy
investment across the globe in the medium IS EXPECTED TO AID and enable the Government to channel its
to long term. However, the outlook is subject ECONOMIC ACTIVITY WITHIN resources towards further enhancing the
to substantial downside risks, including social and development infrastructure of the
THE COUNTRY.
the likelihood of financial stress, increased country.
protectionism, geopolitical tension and most
major central banks inclined towards moving the private sector include concerns relating On the external front, the balance of payments
away from an accommodative monetary to the macro impact of sustained higher oil (BOP) is expected to strengthen on the back of
stance, partly given the rate outlook of the US prices, adverse weather conditions, delays and projected developments in the external sector.
Fed. Non-economic factors such as climate lack of decisive policy implementation, and a Further improvements in exports is projected
change, natural disasters and increased weaker recovery in consumer confidence and in the medium term aided by increased
political risks in certain regions would also discretionary spending. volume and enhanced value addition of the
pose considerable risks for global economic export basket, improved competitiveness
outcomes. The acceleration of global growth, The re-commencement of large scale in export markets due to a more flexible
and the resultant increase in global interest infrastructure projects such as PCC and exchange rate policy, and improved market
rates, could have diverse effects on the Sri continued investment in infrastructure, access through improved trade connections
Lankan economy. Increases in oil prices and including the expansion of the country’s through existing and new trade agreements,
increasing commodity prices coupled with a network of expressways, is expected to and in particular the reinstated GSP and
strengthening dollar, will weigh negatively on aid economic activity within the country. GSP+ concessions. A continuation of fiscal
the Balance of Payment (BOP). The execution of the proposed free trade

Despite the lacklustre performance of the Sri


Lankan economy in the calendar year 2017, GDP PER CAPITA GDP PER CAPITA
the Central Bank of Sri Lanka (CBSL) expects
the Sri Lankan economy to rebound to 5-5.5 ACTUAL ESTIMATE
per cent growth in the calendar year 2018,
driven by the global economic recovery and
increased domestic and foreign investment,
USD 4,065 USD 6,095
particularly channelled towards the industrial 2017 calendar year 2022 calendar year
zone in Hambantota and the Port City
Colombo (PCC). Potential headwinds faced by Source : Central Bank of Sri Lanka

83
GROUP CONSOLIDATED REVIEW
Outlook

consolidation efforts supported by the WHILST THE GOVERNMENT’S EFFORTS TO FORMULATE


Extended Fund Facility from International
Monetary Fund (IMF-EFF) would further POLICY FRAMEWORKS WITH THE SUPPORT OF THE IMF AND
strengthen macro-economic stability. OTHER GLOBAL REGULATORY BODIES TO ADDRESS THE
EMERGING CHALLENGES ARE NOTEWORTHY, IT IS ESSENTIAL
Despite the anticipation of foreign inflows,
particularly in lieu of large infrastructure THAT SUCH POLICIES ARE IMPLEMENTED SWIFTLY AND IN
projects within the country, the pressure on CONSULTATION WITH KEY STAKEHOLDERS. THE LACK OF
the exchange rate would continue should
higher oil prices sustain, along with stronger
CONSULTATION AND ENGAGEMENT WITH STAKEHOLDERS,
growth in the West resulting in a possible AS IN THE CASE OF THE IMPLEMENTATION OF THE SUGAR
moderation of foreign fund flows to emerging TAX, MAY RESULT IN VOLATILITY FOR BUSINESSES AND ALL
and frontier markets. Whilst the depreciation of
the Rupee negatively impacts businesses with
ITS STAKEHOLDERS ACROSS THE VALUE CHAIN.
higher reliance on imported inputs, the Group
also benefits through its individual subsidiaries
which have direct, and indirect, dollar effect on the performance of the Group in Leisure
denominated income streams. The Group’s the short term, the Group is confident that The Leisure industry group is well positioned
risk strategy of maintaining “natural hedges”, such investments, which focus on buildings to capitalise on the projected growth of
where relevant and feasible will mitigate, to a capacity and pursuing a sustainable business tourist arrivals to the country, under the
great extent, the volatility arising from possible model and portfolio, will result in improved umbrella of the “Cinnamon” brand. The growth
fluctuations in the exchange rate. returns on capital employed leading to a momentum of arrivals is expected to continue
better performance in the medium to long- given the favourable fundamentals of the
Whilst the Government’s efforts to formulate term. The need for these investments will be tourism offering in Sri Lanka, such as diverse
policy frameworks with the support of the assessed periodically based on the macro- experiences within close proximity, increasing
IMF and other global regulatory bodies environment and market conditions prevailing awareness of the destination, increasing
to address the emerging challenges are at the time such investment decisions are flight connectivity and gradually improving
noteworthy, it is essential that such policies made. tourism infrastructure. Given the long-term
are implemented swiftly and in consultation growth prospects of the industry, the Group
with key stakeholders. The lack of consultation Transportation is actively pursuing investment opportunities
and engagement with stakeholders, as in the Given the strategic location of the country and and partners to expand the Cinnamon hotel
case of the implementation of the Sugar tax, the inherent advantage Sri Lanka possesses portfolio. The Group is conscious of the high
may result in volatility for businesses and all its as a maritime hub, the Logistics, Ports and asset base of the industry group, given the
stakeholders across the value chain. Bunkering businesses are expected to benefit regular revaluation of its land and buildings
from the increase in ship/vessel traffic with as per the requirements of the applicable
The Group expects to deploy over USD further infrastructure expected to support accounting standards, and the resultant
600 million over the next few years to fund this growth trajectory. Opportunities in the impact to the overall returns of the Group
the Group’s investment pipeline, including Transportation industry group will continue portfolio. In this light, in line with the global
Cinnamon Life, expansion of its Retail store to be evaluated, particularly considering any trends, the Group’s future expansions will
network and distribution, route to market opportunities based on the Government’s be executed through asset-light investment
investments in the Consumer Foods sector interests in private-public partnerships, such as models, reducing its exposure to bricks-and-
and expansion of rooms under management with the East Container Terminal of the Port of mortar with a view to expanding the number
by investing in minority stakes in new hotel Colombo, and bunkering and related services of rooms under management with relatively
ventures, amongst others. Given the gestation at Hambantota. The Group is confident of the less effective capital deployed. It is noted that
period of most of these investments, the potential within the Hambantota port, given although the industry group has a robust
realisation of benefits from these investments its strategic positioning along the main East- pipeline of investment, the benefits of such
are expected to accrue from 2020/21 West shipping route and its integral role within investments will only accrue in the medium
onwards. Whilst the Group is aware that the “Belt and Road” trade and infrastructure term, given the long gestation periods. The
such investments will have a drag down initiative. industry group will continue to streamline all
processes, policies and standards, contributing
to a more effective management of room
inventory, yield management and enhanced
THE LEISURE INDUSTRY GROUP IS WELL POSITIONED TO guest experiences, while deriving synergies
CAPITALISE ON THE PROJECTED GROWTH OF TOURIST on common costs which lend itself to
centralisation. Further, in the medium to
ARRIVALS TO THE COUNTRY, UNDER THE UMBRELLA OF
long term, the opportunity of the Meetings,
THE “CINNAMON” BRAND. Incentives, Conferences and Exhibitions (MICE)
market, particularly from India, will enable the
Group to attract the high spending segment

84 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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

THE GROUP’S VISION OF


The Strategy, Resource Allocation and Portfolio “BUILDING BUSINESSES THAT
Management section is aimed at providing the ARE LEADERS IN THE REGION”
stakeholders of the Group an insightful view of the IS THE CORNERSTONE OF
manner in which investment decisions of the Group RESOURCE ALLOCATION,
PORTFOLIO EVALUATION
are made.
AND OPERATIONAL
DECISIONS OF THE BUSINESS
UNITS.
of business strategy. The Group’s governing Strategy Mapping
The ensuing pages will explain in detail,
principles are primarily, Strategy mapping exercises, concentrating on
the following aspects:
• A stakeholder focussed business model; the short, medium and long-term aspirations
y Strategy of the Group of each business, are conducted annually and
y Resource allocation and portfolio • A corporate governance philosophy which
reviewed, at a minimum, quarterly/half-yearly
management emphasises performance, in addition to
or as and when a situation so demands.
y Portfolio movements compliance and conformance;
• A risk identification process and This exercise entails the following key aspects,
management philosophy based on among others.
Strategy
a sound enterprise risk management
The Group’s vision of “Building businesses that • Progress and deviation report of the
framework which also places emphasis
are leaders in the region” is the cornerstone of strategies formed in the prior year, and
on re-engineering, process improvement
resource allocation, portfolio evaluation and current year
and quality management in ensuring that
operational decisions of the business units. • Competitor analysis and competitive
business processes across the Group are
In pursuing its vision, the Group is mindful positioning
efficient, agile and robust;
of the governing principles which form the
• A sustainability development framework; • Analysis of key risks and opportunities
foundation of all strategies and initiatives that
have been planned, are being implemented, and • Management of stakeholders such as
or have been implemented, towards achieving • A human resource management system suppliers and customers
the medium to long term objectives of the which entails recruiting, retaining, and • Value enhancement through initiatives
Group. developing the most talented employees, centred on the various forms of Capital
which are all in line with international best under an integrated reporting framework
As evident from the past, the Group strives practice.
to constantly align its portfolio of businesses The strategies of the various business units,
with the growth sectors of the economy, Focus is also placed on developing life operating in diverse industries and markets,
both current and futuristic, and continuously skills of communities and empowering will always revolve around the Group strategy,
endeavours to ensure that capital resources them in overcoming social, economic while considering their domain specific
are efficiently employed in a manner that and environmental challenges. The local factors. The prime focus always is to enhance
will expand the reach of the portfolio, communities are empowered, where possible. value for all stakeholders.
ensure relevance and give the ability to
compete at relevant levels, both globally and
internationally.
Long-term Aspirations
“Cinnamon Life” is one such initiative towards The Group continually endeavours to deliver unparalleled value to our stakeholders, particularly
this end. The Consumer Foods and Retail, shareholders. To this end, the Group has in place Financial Goals which are continually monitored
Leisure, Financial Services, Property and to ensure that the Group is moving steadily in the right direction.
Transportation industry groups are poised to
grow in the medium to long term in a local
Achievement
economic environment which is expected to Indicator (%) Goal
be progressive, and, in the region, where we 2017/18 2016/17 2015/16
have accumulated competence in the relevant EBIT growth >20 20.7 15.5 5.0
industry.
EPS growth (fully diluted) >20 27.9 12.6 (15.2)
Cash EPS growth (fully diluted) >20 23.0 (1.0) (6.2)
Governing Principles
Group-wide strategy is governed by principles Long-term return on capital employed (ROCE) 15 11.9 11.5 11.1
and frameworks that are pivotal to ensuring Long-term return on equity (ROE) 18 11.1 9.8 9.6
the successful implementation and execution Net debt (cash) to equity 50 (14.9) (28.5) (30.8)

86 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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

Given the current challenging macro-economic


conditions and operating environment,
DURING THE YEAR UNDER REVIEW, IN LIAISON WITH
businesses adopted stringent cost control INTERNATIONAL INDUSTRY EXPERTS, WHERE APPLICABLE,
and management processes without unduly THE GROUP UNDERWENT A COMPREHENSIVE STRATEGY
compromising the operating expenditures and
investments required, towards achieving the
SESSION FOR THE MEDIUM TERM WHICH FOCUSSES ON
targets set out by the five-year strategy process. THE ENSUING 5 YEARS. STEMMING FROM THE VISION
The Group continues to inculcate a culture of OF “BUILDING BUSINESSES THAT ARE LEADERS IN THE
disruptive innovation and digitisation to enable
it to drive growth. REGION”, AND GARNERED BY THE GOVERNING PRINCIPLES,
EACH BUSINESS UNIT DEVELOPED A FIVEYEAR STRATEGY
AND BUSINESS PLAN, WHICH WAS APPROVED BY THE
Detailed discussion on strategies of each
industry group is found in the Industry GROUP EXECUTIVE COMMITTEE AND THE BOARD.
Group Review section of this Report.
of information, implementation of strategic Resource Allocation and Portfolio
initiatives, minimisation of the duplication of Performance
Strategy Execution
effort and adherence to the Group’s Values. Resource allocation and portfolio
Group strategy is facilitated by an Operating
management is an imperative action in
Model, where each business unit is granted
creating value to all stakeholders through
operational autonomy within a framework of Refer the Corporate Governance
Commentary for a detailed discussion on evaluation of the Group’s fundamentals which
delegated decision rights and an authority
the execution process. are centred on the forms of Capital. Whilst
matrix as approved by the Group Executive
the Group is presented with opportunities
Committee and the Board of Directors, as
in diverse industries, it continues to follow
applicable, in ensuring speed of decision When allocating funds for various investments, its four-step, successful and structured
making, accountability and agility in the project evaluation model, discussed in detail methodology indicated in the ensuing section,
responding to the needs of the market. Given in the ensuing sections, strives to strike a balance in evaluating its portfolio and thereby guiding
the diversity of the Group and the multiple between optimising immediate portfolio returns investment and divestment decisions.
management layers within it, agendas, scope and preserving medium to long term growth
and role of these committees and positions are objectives, whilst ensuring investments will be
carefully structured to ensure the efficient flow EPS accretive in the long term.

87
GROUP CONSOLIDATED REVIEW
Strategy, Resource Allocation, and Portfolio Management

Financial filter Growth filter Strategic fit Complexity filter


Cornerstone of the decision Evaluates the industry Evaluates the long term Considers factors such
criteria based on the JKH attractiveness and growth competitive advantage of a as sustainability, senior
hurdle rate potential based on the business/industry by closely management time and the
industry lifecycle evaluating the competitive risk to brand image and
forces, specific industry/ reputation in conjunction
business risks, ability to with the anticipated returns
control value drivers and the
competencies and critical
success factors inherent to the
Group

Regular Assessment of Risk and Reward


All verticals and businesses within each industry
THE GROUP AIMS TO STRIKE A BALANCE BETWEEN
group are regularly assessed on key dimensions OPTIMISING IMMEDIATE PORTFOLIO RETURNS AGAINST
such as customer orientation and bargaining RETURNS IN THE FUTURE.
power, supplier concentration and power, JV
partner affiliations and dependence, cyclicality, investment costs and operational cashflows. The ensuing section discusses return on
regulatory structure, performance against the To this end, the modifier would use a project capital employed (ROCE) under two key
industry and Sri Lankan economy, procedural, specific cost of debt and foreign currency modifiers.
regulatory or technological factors that obstruct denominated equity return benchmark
or restrict operations and the current and commensurate with the investment, which in Modifier I – Adjustment for land
potential competitive landscape, among others. turn would be comparatively analysed against re-allocations
projects with similar risk profiles. Properties that are not under the operational
The capital structure for new ventures are
banner of non-property related business units
stress tested under varied scenarios, which Conceptualising Portfolio Performance and are excess to their current and foreseeable
often leads to taking proactive measures, The Group aims to strike a balance between operational requirements, have been allocated
particularly in managing potential foreign optimising immediate portfolio returns against to the Property industry group along with
exchange risks during both the development returns in the future. As such, emphasis is placed the corresponding income. However, it is
and operating phases. Further, ongoing on both the return generating capabilities noted that real estate belonging to the Sri
projects are regularly tested and evaluated in of the business against its capital employed Lankan Resorts segment is excluded as such
partnership with independent and recognised and the earnings potential of the business or properties constitute the land bank of the
parties to ensure clear, impartial judgment on project. The Group is conscious of the quantum segment for future hotel developments. The
matters relating to capital structure, economic of capital deployed to businesses, and to this properties re-allocated will be a part of a
implications and key risks. end, places a strong emphasis on evaluating “property play” and plans for development and
projects in such a manner which optimises operation are the responsibility of the Property
JKH’s Hurdle Rate capital efficiency, especially in capital intensive
The present hurdle rate of JKH is at 15 per cent industry group. “Cinnamon Life” is recognised
businesses such as Leisure. In order to manage as a stand-alone play.
of capital employed which is a function of the the effective quantum of capital deployed,
weighted average cost of capital (WACC). The the Group will continue to explore investment
WACC is derived from the Group’s cost of equity, Modifier II – Adjustment for investment
structuring options such as asset-light property and revaluations
cost of debt, target capital structure, tax rates investment models for future hotel projects.
and the value creation premium required over Excluding properties in the Property industry
and above the WACC. It is pertinent to note that group, properties which have been re-rated
Being a portfolio of businesses, the Group has
whilst there are fluctuations in the cost of debt in keeping with the principle of fair value
benefited from contributions from different
in the short term, the hurdle rate has not been accounting have been adjusted for the
businesses at varying points of time based on
revised on the basis that it is a long-term target, preceding three years in order to obtain a clear
their growth cycle and correlation with overall
and any revision would be warranted only if the and un-skewed view of the ROCE. Given the
economic growth in the country. Over the last
above factors are expected to sustain over the Group’s land banking strategy which is aimed
few years the Group has witnessed a shift in
long term. at monetising such assets in the medium
the composition of its earnings with a greater
term, it is pertinent to note that fair value
contribution from higher ROCE earning
Even though this hurdle rate is utilised as gains/(losses) on investment property (IP) and
industry groups such as Consumer Foods and
the initial benchmark rate to evaluate the revaluation gains/(losses) are reflective of core
Retail, and Financial Services. The conscious
feasibility and opportunity in all projects of operations of the Property industry group. As
and planned strategies of driving growth in
the Group, project specific modifiers are also such, IP and revaluation gains pertaining to
these industry groups will, all things being
used to get a holistic view of the project under the Property industry group have not been
equal, contribute towards an improvement in
consideration. As such, a country specific risk adjusted for at a Group level.
the ROCE for the Group, whilst concurrently
modifier would be applied for investments driving absolute earnings growth.
with a high proportion of foreign currency

88 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Industry Group/Sector 2017/18 2016/17


Capital Effective Unadjusted ROCE after ROCE after ROCE after
Employed Capital ROCE Modifier I Modifier I Modifier I
(Rs. million) Employed (%) (%) and II and II
(Rs. million) (%) (%)
Hotel Management 476 476 96.3 96.3 96.3 129.4
City Hotels 32,201 25,579 5.1 5.3 8.1 11.5
Sri Lankan Resorts 15,044 11,935 5.7 5.7 6.3 9.3
Destination Management 1,099 1,085 34.6 34.6 34.6 25.0
Maldivian Resorts 15,086 12,117 4.7 4.7 4.7 8.8
Transportation 19,421 19,379 18.5 18.3 18.4 19.3
Consumer Foods 9,637 8,667 32.0 32.9 34.4 61.7
Retail 5,605 4,560 36.0 36.0 36.5 64.2
Financial Services 15,277 14,480 74.6 74.6 76.4 28.2
Property (Excl. Cinnamon Life) 40,823 30,372 6.0 5.8 5.8 9.8
Cinnamon Life 49,389 46,048 (0.1) (0.1) (0.1) (0.1)
Information Technology 2,158 2,158 20.6 20.6 20.6 26.9
Plantation Services 3,583 2,484 19.4 20.8 15.2 13.7
Core-operational industry groups/sectors 209,800 179,340
Holding Company, including Centre Functions* 44,787 44,781 9.8 N/A N/A N/A

Group 254,587 224,121 11.9 N/A N/A N/A

* 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.

Extensive land bank – The Group has an


extensive land bank which are non-return BEING A PORTFOLIO OF BUSINESSES, THE GROUP
generating assets. In order to capitalise on
opportunities arising in the real estate and
HAS BENEFITED FROM CONTRIBUTIONS FROM
property development industry, the Group is DIFFERENT BUSINESSES AT VARYING POINTS OF
pursuing a land banking strategy with a view TIME BASED ON THEIR GROWTH CYCLE AND
to monetising such investments in the short to
near term. Such acquisitions which are being CORRELATION WITH OVERALL ECONOMIC GROWTH
targeted, mirroring the planned infrastructure IN THE COUNTRY.

89
GROUP CONSOLIDATED REVIEW
Strategy, Resource Allocation, and Portfolio Management

Performance of the Core-Operational Portfolio


The ensuing discussion is limited to the revenue generating entities of the Group, as this is more reflective of the Group’s performance,
given its conglomerate setting.

Adjusted ROCE (%)


120
Hotel Management - 96.3

100 Financial Services - 76.4

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.

Leisure THE STRONG LONGTERM GROWTH PROSPECTS FOR


The City Hotels sector underperformed mainly
TOURISM IN THE COUNTRY PRESENT THE LEISURE
on account of relatively flat average room
rates and a decline in occupancy due to the INDUSTRY GROUP WITH INVESTMENT OPPORTUNITIES,
increase in room inventory, coupled with WHICH THE GROUP INTENDS TO CAPITALISE ON
increased costs at “Cinnamon Grand”, and to a
lesser extent, at “Cinnamon Lakeside”. Against
THROUGH AN ASSETLIGHT EXPANSION MODEL.
this backdrop, the adjusted ROCE of the City The ROCE of the Maldivian Resorts segment which the Group intends to capitalise on
Hotels sector declined from 11.5 per cent decreased to 4.7 per cent [2016/17: 8.8 through an asset-light expansion model. It is
to 8.1 per cent. The adjusted ROCE of the Sri per cent], mainly on account of the partial envisaged that this would result in an optimal
Lankan Resort segment fell to 6.3 per cent closure of “Cinnamon Dhonveli Maldives” and deployment of capital that is accretive to
against 9.3 per cent in 2016/17, primarily due “Ellaidhoo by Cinnamon” for refurbishment Group portfolio returns.
the lack of profit generation as a result of the during the year, coupled with the decrease
closure of “Bentota Beach by Cinnamon” for the in occupancies across the Maldivian resorts. Given its service-oriented disposition, the
reconstruction of a new hotel. It is important to note that the Maldivian Destination Management sector and the
Resorts segment has been included in the Hotel Management sector continued to
It is pertinent to note that, the asset base of aforementioned graph and the ROCE analysis, record ROCEs well above the hurdle rate. The
the Sri Lankan Resorts segment includes a to ensure capturing of all sectors/industry Destination Management sector witnessed an
large land bank earmarked for development groups. However, for better insight, the increase in its adjusted ROCE to 34.6 per cent
of hotel properties. While monetisation of return generated from the Maldivian Resorts [2016/17: 25.0 per cent], due to an increase in
these properties in the future will be based on segment should be appraised against a return profits combined with a decline in the capital
development potential, their effects on the of a comparable dollar financed asset as base. The Hotel Management sector witnessed
capital base due to re-rating have been adjusted opposed to the Group Rupee hurdle rate of 15 a decline in its ROCE to 96.3 per cent [2016/17:
for, as mentioned above under “modifier II”. per cent which is based on the Rupee risk-free 129.4 per cent], which is attributable to a
rate. 22 per cent reduction in its EBIT stemming
from a decrease in management fee from the
For further details on the land bank refer The strong long-term growth prospects for “Cinnamon” hotels (given the reasons outlined
the Group Real Estate Portfolio section of
tourism in the country present the Leisure above) and an increase in brand marketing
this Report.
industry group with investment opportunities, costs.

90 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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

2014/15 2015/16 2016/17 2017/18


Invested Rs.113 million in Saffron Aviation Invested Rs.4.73 billion in Waterfront Invested Rs.4.34 Invested Rs.9.41 billion in Waterfront
(Private) Limited, the operating company of Properties (Private) Limited billion in Waterfront Properties (Private) Limited
the domestic aviation operation Cinnamon Properties (Private)
Air Limited
Invested Rs.100 million in John Keells Invested Rs.243 million in Saffron Invested Rs.12.06 JKH was allotted 18,109,079
Properties Ja-ela (Private) Limited Aviation (Private) Limited, the operating million in John Keells ordinary non-Voting convertible
company of the domestic aviation Stock Brokers (Private) shares in Nations Trust Bank PLC
operation Cinnamon Air Limited as part of the Rights Issue that
concluded in February 2018, having
subscribed to its entitlement of
rights and applying for additional
shares. The JKH investment
amounted to Rs.1.45 billion with the
JKH effective economic interest in
NTB rising to 32.16 per cent
Investments

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

Engineering PLC which resulted in a capital


gain of Rs.593 million Post the reporting period, JKH
Union Assurance PLC (UA) sold a 78 per cent divested a further 2.36 per cent
stake of Union Assurance General Limited stake of UA thereby reducing the
for a consideration of Rs.3.66 billion which Group’s stake to 90 per cent. UA
resulted in a capital gain of Rs.1.22 billion has requested a transfer from the
Main Board to the Diri Savi Board of
the CSE
JKH’s 100 per cent stake in Nexus Networks Share repurchase by Asia Power
(Private) Limited was divested to JayKay (Private) Limited resulted in a capital
Mergers and restructuring/other

Marketing Services (Private) Limited, gain of Rs.82 million


resulting In an amalgamation, with the
surviving entity being JayKay Marketing
Services (Private) Limited
90.44 million shares held by JKH were
repurchased by John Keells Residential
Properties (JKRP) at a value of Rs.1.60
billion
24.66 million shares held by JKH were
repurchased by UA at a value of Rs.4.14
billion

92 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

GROUP CONSOLIDATED REVIEW


Sustainability Integration and Stakeholder Engagement

Group Sustainability Policy


The following section y The Group will strive to conduct its activities in accordance with the highest standards
of corporate best practice and in compliance with all applicable local and international
provides an overview of the regulatory requirements and conventions.
Group’s strategy towards y The Group monitors and assesses the quality and environmental impact of its operations,
entrenching sustainability services and products whilst striving to include its supply chain partners and customers,
where relevant and to the extent possible.
within its business y The Group is committed to transparency and open communication about its
operations, the policies environmental and social practices in addition to its economic performance. It seeks
dialogue with its stakeholders in order to contribute to the development of global
and methodologies in best practice, while promoting the same commitment to transparency and open
place for sustainability communication from its partners and customers.

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

GROUP CONSOLIDATED REVIEW


Sustainability Integration and Stakeholder Engagement

Sustainability Organisational THE GROUP HAS COMMENCED A FOCUSSED


Structure
The Sustainability, Enterprise Risk Management
STRATEGY OF ENCOURAGING ITS SIGNIFICANT
and Group Initiatives Division, along with the SUPPLIERS TO EMBRACE SUSTAINABILITY AS PART
Group Executive Committee and the Group OF THEIR OPERATIONS. AS SUCH, THE GROUP
Sustainability Committee formulates the
Group sustainability strategy. The Division is
CURRENTLY HAS IN PLACE PROCESSES TO ASSESS
responsible for the operationalisation of the RISKS OF ENVIRONMENTAL, LABOUR AND SOCIAL
Group’s Sustainability Management Framework IMPACTS EMANATING FROM ITS VALUE CHAIN AND
under which business units carry out their
specific sustainability strategies and initiatives.
TO CARRY OUT INTERNAL ASSESSMENTS OF SUPPLY
CHAIN PARTNERS.
The Division is also responsible for the
process by which the Group identifies its
significant stakeholders, the identification of The Group has commenced a focussed This Report is the Group’s third Integrated
materiality issues, sharing of best practices, strategy of encouraging its significant Annual Report, and has been structured as
carrying out risk reviews and the overall suppliers to embrace sustainability as part per the Integrated Reporting framework
review and monitoring of the sustainability of their operations. As such, the Group of the International Integrated Reporting
drive. Awareness campaigns are carried out currently has in place processes to assess Council, and strives to discuss the inter-
on a regular basis, with one annual Group- risks of environmental, labour and social connections between the six capitals, the
wide awareness campaign being carried out impacts emanating from its value chain and Group’s business model and the creation
to broadbase knowledge and to inculcate a to carry out internal assessments of supply of value. Every year, this report provides a
culture of sustainability. chain partners. An annual drive to create holistic overview including the Group’s overall
awareness through supplier fora for the strategy, corporate governance framework,
The Group has in place a robust sustainability Group’s significant supply chain partners is risk management processes and financial
structure with oversight from the Group also carried out and a Code of Conduct for all and non-financial performance covering
Executive Committee and the Group significant suppliers bidding for the Group’s all aspects of the triple bottom line. During
Sustainability Committee. Additionally, each centrally sourced goods and services has been the last few years, the integrated report has
business unit has a dedicated Sustainability introduced. In addition, the Group’s recently evolved from a Group-centric approach
Champion responsible for sustainability introduced Supplier Information Management to an approach which provided a sectorial
initiatives and its overall sustainability Platform further enhances the centrally-driven analysis and presentation of relevant material
performance, under the supervision of their sourcing process, ensuring strengthened topics for each industry group. The report
respective Sector Heads and Heads of Business transparency during auctions, efficiency in which provided the highlights of the triple
Units. This structure is used in integrating negotiations and minimal paper usage. bottom line performance of each industry
sustainability within the business operations, group, also provided similar information from
as well as assessing and developing the value Report Content a Groupwide perspective. The report has
chain in sustainable practices. The annual report is one of the primary been prepared in accordance with the GRI
methods used by the Group to respond to Standards: Core option.
The strategic planning process and annual stakeholder concerns during the financial year.
plan cycle of Group companies are now The process of recognising key sustainability As in the previous year, this year too, each
based on a holistic approach and include related risks, significant stakeholders, ‘Industry Group section and the Group
an integrated strategy of considering all assessment of the material topics based on Financial and Sustainability Review’ also strives
aspects of the triple bottom line, whilst relative importance to both the Group and to capture the interrelationships between
striving for optimised financial performance. stakeholders, and to formulate policies and identified material topics and the significance
Business units identify their material impacts management approaches to manage and of these topics in areas such as financial
and commit to medium-term strategies to mitigate these topics have become an integral performance, human capital and relationships
minimise such impacts. This has enabled the part of defining this report. with community and the environment, with
Group to further integrate their sustainability a view to providing information with regard
strategies with their business strategies and The ‘Engagement of Significant Stakeholders’ to risks and opportunities and strategy going
has created the need for business units to section of this Report explains the process forward.
assess the hidden costs of operations and adopted by the Group in determining the
include sustainability initiatives and other information requirements of its stakeholders, This annual report strives to provide a
green projects into their annual objectives. prioritisation of issues and establishing clear, concise and balanced overview to all
With business unit strategies and goals materiality. The section titled ‘Key Sustainability significant stakeholders identified in the
aligned to triple bottom line results, this has Concerns’ explains the outcomes of the ‘Engagement of Significant Stakeholder’
in turn resulted in employee objectives being stakeholder engagement process and section of this Report, providing year-on-
aligned to such results, which has enabled the establishes the relevance of the material topics year comparisons for both financial and
Group to truly entrench sustainability into the and key sustainability disclosures that the non-financial information relevant to such
organisational culture of the Group. Group has reported on. identified stakeholders. In keeping with
the reporting principles for defining report

94 John Keells Holdings PLC . Annual Report 2017/18


GRI 102-42, 102-40, 102-43, 102-48, 102-49 Management Discussion and Analysis

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

Management Approach Disclosures’ section and can be found online at:


https://www.keells.com/resource/Management_Approach_Disclosures_2017_18.pdf

95
GRI 102-40, 102-43

GROUP CONSOLIDATED REVIEW


Sustainability Integration and Stakeholder Engagement

Customers – Individual, Corporate B2B

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

Employees – Directors, Executives, Non-Executives

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

Community – Neighbours, Community, Community Leaders, Society


Expectations – Stimulating local economy through procurement and providing direct and indirect employment whilst carrying out operations with
minimal impact on shared natural resources
Frequency Methods of engagement
One-off Engagement with the community is carried out prior to entry into the community area and on exit via one-on-one
meetings, workshops, forums
Monthly Engagement is then carried out on a monthly basis while operating via one-on-one meetings, workshops, forums
On-going Corporate Social Responsibility programmes, creating awareness and education

Institutional Investors, Fund Managers, Analysts, Leaders, Multilateral Lenders

Expectations – Consistent economic performance leading to greater economic value generation


Frequency Methods of engagement
Annually Annual reports, disclosures and reviews
Quarterly Quarterly reports
Regularly Investor road shows
On-going Phone calls, e-mail, written communication, websites, one-on-one meetings

Government, Government Institutions and Departments

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

96 John Keells Holdings PLC . Annual Report 2017/18


GRI 102-40, 102-43, 102-44 Management Discussion and Analysis

Legal and Regulatory Bodies

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

Business Partners, Principals, Suppliers

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

Society, Media, Pressure Groups, NGOs, Environmental Groups

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

Industry Peers and Competition

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

Key Sustainability Concerns


Based on the above mentioned third-party DURING THE YEAR, THE GROUP HAS RESPONDED
stakeholder engagement study, no gaps TO CUSTOMER FEEDBACK IN A STRUCTURED AND
were identified between the outcomes of
the views of the Group’s stakeholders and the
CONSISTENT MANNER, DRIVEN BY THE CENTRALLY
Sustainability Topics currently being reported DEVELOPED CORPORATE COMMUNICATIONS
by the Group. Stakeholders identified that the POLICIES, ESPECIALLY WITH REGARDS TO SOCIAL
Group as a sustainable organisation, is not
only environmentally and socially responsible, MEDIA PLATFORMS.
but also has a robust management process
in place, obtains relevant quality and chain partners as an important element of a their employees. As per the study, the Group
environmental certifications and strives to sustainable company, and it was appreciated was recognised by stakeholders as innovative,
delight the customer. In addition, diversity that the Group has undertaken Supplier structured and being ahead of the curve
and inclusiveness were identified by value Forums and AIDS Awareness Campaigns for at an overall level and on the sustainability

97
GRI 102-44

GROUP CONSOLIDATED REVIEW


Sustainability Integration and Stakeholder Engagement

front, while further consistency in adherence SIMILAR TO LAST YEAR,


to policies and standards at all levels, was
encouraged by the stakeholders. STRONG CONFIDENCE
AMONG STAKEHOLDERS ON
Similar to last year, strong confidence among
THE GROUP’S CORPORATE
stakeholders on the Group’s corporate and
sustainability strategies and performance AND SUSTAINABILITY
is seen, based on the fact that no adverse STRATEGIES AND
reports relating to environmental and social
concerns pertaining to the operations of the
PERFORMANCE IS SEEN,
Group or its companies have been highlighted BASED ON THE FACT
during the reporting year. This conclusion THAT NO ADVERSE
has been reached by the Group through
continuously monitoring print and electronic
REPORTS RELATING TO
media throughout the period, which also now ENVIRONMENTAL AND
forms part of the Group’s process of tracking SOCIAL CONCERNS
key risk indicators.
PERTAINING TO THE
The supplier assessments carried out OPERATIONS OF THE
during this year helped the Group identify GROUP OR ITS COMPANIES
material environmental and social concerns
emanating from our value chain partners, HAVE BEEN HIGHLIGHTED
effectively taking the Group’s sustainability DURING THE REPORTING
focus to our value chain partners as well. In
YEAR.
addition, supplier performance management
aspects such as quality checks in ensuring
that suppliers adhere to regulations and
Stakeholders such as society, pressure
best practices is carried out. In instances
groups and regulatory authorities constantly
where anomalies were found, stakeholder
assess the operations of corporates with
engagements were carried out to ensure the
regard to the responsible utilisation of
development of such supplier’s processes and
resources, conservation of bio-diversity and
minimising repetition.
environmental protection, and these will
continue to be high priority areas for the
During the year, the Group has responded
Group.
to customer feedback in a structured and
consistent manner, driven by the centrally
The John Keells Group has always placed great
developed Corporate Communications
importance in developing the communities
policies, especially with regards to social media
within which it operates. The Group’s
platforms.
corporate philosophy has always been to be
a responsible corporate citizen; and it will
The primary concern of shareholders is to
continue to do so as it has done for more
ensure not only return on their investment
than 140 years of its existence. The Group
but consistent returns for the long run.
also constantly engages with its employees,
However, in addition to the overall economic
identifying areas such as employee welfare,
performance of the company, such investors
training and retention of talent as focus areas.
would also consider the sustainability of the
organisation with regards to its environmental
performance, social performance and
corporate governance. Through its annual
reports the Group has responded to concerns
raised by stakeholders during the year.
During the reporting year, the Group has
strengthened its policy frameworks and
management approach, where it has become
vital to address its material topics and identify
potential frontier risks.

98 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

GROUP CONSOLIDATED REVIEW


Risks, Opportunities and Internal Controls

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.

Risk Management Process


The risk management process and information flow is depicted below:

Business
Headline Risks External Business Organisation Analysis Technology Sustainability
Strategies and
Environment Process and People and Reporting and Data and CSR
Policies

Risk JKH PLC Audit Committee John Keells Group Review


Presentation Risk Report and Action
Risk and Control Review Team

Group Executive Committee (GEC)


Sustainability Integration
Risk Management Team

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

100 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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

Improving competencies and skills is IMPROVING COMPETENCIES AND SKILLS IS RECOGNISED


recognised as a vital factor in maintaining
current standards and matching global best AS A VITAL FACTOR IN MAINTAINING CURRENT STANDARDS
practices. The Group achieves this through AND MATCHING GLOBAL BEST PRACTICES. THE GROUP
targeted, business focussed training and ACHIEVES THIS THROUGH TARGETED, BUSINESS FOCUSSED
development programmes available to all
employees across the Group on a needs TRAINING AND DEVELOPMENT PROGRAMMES AVAILABLE
basis, allowing the Group to retain its ability TO ALL EMPLOYEES ACROSS THE GROUP ON A NEEDS BASIS,
to position itself as a preferred employer. As
ALLOWING THE GROUP TO RETAIN ITS ABILITY TO POSITION
a result of these measures, and based on the
empirical evidence of past year, the rating for ITSELF AS A PREFERRED EMPLOYER.
this risk remains a Low.

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

102 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

GROUP CONSOLIDATED REVIEW


Investor Relations - Share Information

The following is an overview of Total number of shares in issue as at 31/03/2018 1,387,528,658


the market conditions which Public shareholding as 31/03/2018 98.53%
Stock symbol JKH.N0000
prevailed during the year under
Newswire codes of the JKH Share
review, both globally and locally. Bloomberg JKH.SL
The section concludes with a Dow Jones P.JKH
discussion on JKH share related Reuters JKH.CM
Global Depositary Receipts (GDR) balance 1,320,942
information.

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

with movements of the ASPI as exhibited in the graph adjacent. 130


April

May

June

July

August

September

October

November

December

January

February

March

High Low 30 day moving share average

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.

104 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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) (%) %

It is pertinent to note that the Group has a 19.7


sufficient cash balance available to deploy in 10.0

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

Shareholders No. of shares % Shareholders No. of shares %

Institutions:

Non-Resident 150 806,536,267 58 147 714,471,877 51


Resident 572 210,262,083 15 710 265,969,422 19
Individuals:
Non-Resident 229 8,506,192 1 259 9,246,781 1
Resident* 10,014 362,224,116 26 10,872 397,779,057 29
Total 10,965 1,387,528,658 11,988 1,387,467,137

* Includes Directors, spouses and connected parties

Distributions of Shareholders
31 March 2018 31 March 2017
Number of Number of Number of Number of
% % % %
shareholders shares held shareholders shares held

Less than or equal to 1,000 6,611 60 1,428,641 0 6,801 57 1,591,711 0


1,001 to 10,000 2,861 26 10,167,292 1 3,373 28 11,918,429 1
10,001 to 100,000 1,130 11 34,235,770 3 1,395 12 41,300,569 3
100,001 to 1,000,000 229 2 74,572,025 5 281 2 87,123,469 6
Over 1,000,001 134 1 1,267,124,930 91 138 1 1,245,532,959 90
Total 10,965 100 1,387,528,658 100 11,988 100 1,387,467,137 100

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

2018/19 685,167 685,167 - 385,405 385,405 - 111,844 111,844 -


2019/20 606,377 454,782 151,595 341,086 255,814 85,272 105,710 79,282 26,428
2020/21 446,686 222,343 224,343 251,261 125,630 125,631 251,261 125,630 125,631
2021/22 350,000 87,500 262,500 300,000 75000 225,000 300,000 75,000 225,000
2022/23 355,000 - 355,000 375,000 - 375,000 350,000 - 350,000
Total 2,443,230 1,449,792 993,438 1,652,752 841,849 810,903 1,118,815 391,756 727,059

* Adjusted for share subdivisions

106 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Director’s Shareholding Executive Director’s Shareholding in Group Companies


31 March 31 March Number of shares as at 31 March 2018
2018 2017 S Ratnayake K Balendra G Cooray
S Ratnayake 9,241,144 9,241,144 Ceylon Cold Stores PLC 3,344 80,232 -
K Balendra 10,914,400 10,914,400 Trans Asia Hotels PLC 400 - 1,200
G Cooray 207,105 207,105 John Keells Hotels PLC 142,877 - -
H Wijayasuriya - - Asian Hotels and Properties PLC 20,000 - 10,600
A Omar - -
N Fonseka - -
A Cabraal 137 137
P Perera - -

Top Twenty Shareholders of the Company


31 March 2018 31 March 2017

Shareholder Name Number of shares % Number of shares %

Broga Hill Investments Limited 141,854,717 10.22 141,854,717 10.22


Mr. S. E. Captain 140,676,895 10.14 149,425,524 10.77
Schroder International Selection Fund 85,596,116 6.17 53,706,223 3.87
Paints & General Industries Limited 83,598,751 6.03 96,064,501 6.92
Melstacorp (Private) Limited 48,519,886 3.50 52,023,842 3.75
HWIC Asia Fund 36,000,982 2.59 29,164,753 2.10
Lux-Aberdeen Global-Asian Smaller Companies Fund 28,413,338 2.05 26,913,338 1.94
Aberdeen Institutional Commingled Funds, LLC 26,583,813 1.92 29,706,813 2.14
Lux-Aberdeen Global-Asia Pacific Equity Fund 26,257,908 1.89 31,257,908 2.25
Edgbaston Asian Equity Trust 24,812,535 1.79 13,971,919 1.01
Lux-Aberdeen Global Emerging Markets Smaller Companies Fund 21,040,581 1.52 25,263,481 1.82
Employees Trust Fund Board 20,359,711 1.47 23,366,748 1.68
Mr. K. Balendra 19,606,476 1.41 19,606,476 1.41
Luxfidelity Funds Pacific F 18,911,322 1.36 8,190,992 0.59
Deutsche Bank AG London 15,512,571 1.12 15,837,770 1.14
Stewart Investors Asia Pacific Fund 15,486,461 1.12 8,769,742 0.63
London-Edinburgh Dragon Trust PLC 15,447,390 1.11 17,947,390 1.29
Mrs. S. A. J. De Fonseka 12,935,666 0.93 12,825,666 0.92
Mrs. C. S. De Fonseka 12,896,423 0.93 12,894,788 0.93
T Rowe New Asia Fund 12,831,617 0.92 -

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

Other Executives 4,611,283 5,999,595 - 977,879 125,074 4,896,642 3,923,227 973,415


GROUP CONSOLIDATED REVIEW

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

108 John Keells Holdings PLC . Annual Report 2017/18


Other Executives 4,536,940 5,887,829 35,862 690,293 94,131 5,067,543 2,890,506 2,177,037

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

Total 40,986,914 48,702,027 64,745 3,218,044 525,421 44,893,817 25,054,358 19,839,459

1 GEC comprises of the Executive Directors and Presidents


2 Adjusted for bonus issues/rights issues/subdivisions
3 Plan 8 (Award 1) - 100 per cent of the options had vested as at 31 March 2018
4 Plan 8 (Award 2) - 75 per cent of the options had vested as at 31 March 2018
5 Plan 8 (Award 3) - 50 per cent of the options had vested as at 31 March 2018
6 Plan 9 (Award 1) - 25 per cent of the options had vested as at 31 March 2018
7 Plan 9 (Award 2) - None of the options had vested as at 31 March 2018 with the exception of retirees
Management Discussion and Analysis

Share Capital GDR History (in terms of ordinary shares, million)


Year ended 31 March Number of shares in Year ended Opening Issued* Converted/ Closing
issue (million) 31 March balance repurchased balance

2005 331.63 2005 0.65 0.06 - 0.71


2006 400.00 2006 0.71 0.14 - 0.85
2007 552.94 2007 0.85 0.12 - 0.97
2008 635.99 2008 0.97 0.14 - 1.11
2009 611.35 2009 1.11 - 0.12 0.99
2010 619.47 2010 0.99 - 0.01 0.98
2011 629.69 2011 0.98 - 0.03 0.95
2012 844.12 2012 0.95 0.32 0.08 1.19
2013 857.24 2013 1.19 - 0.06 1.13
2014 990.29 2014 1.13 - 0.01 1.12
2015 997.49 2015 1.12 - - 1.12
2016 1,189.40 2016 1.12 - - 1.12
2017 1,387.47 2017 1.12 0.20 - 1.32
2018 1,387.53 2018 1.32 1.32
1 GDR is equivalent to 2 ordinary shares
* First issued in 1994/95 and subsequently increased along with bonus issues and
subdivision of shares

Dividends History of Scrip Issues, Rights and Repurchases


Year ended 31 March DPS (Rs.) Dividends Year ended Issue Basis Number Ex-date
(Rs. ’000) 31 March of shares
(million)
2005 3.00 1,027,497
2006 3.00 1,199,460 2005 Bonus 1:10 30 13 May 2004
2007 3.00 1,412,306 2006 Bonus 1:5 66 11 May 2005
2008 5.00 3,176,302 2007 Bonus 1:7 57 13 June 2006
2009 3.00 1,883,442 2007 Rights @ Rs.140* 1:5 92 23 January 2007
2010 3.00 1,843,642 2007 Bonus 1:7 79 13 March 2007
2011 3.00 1,868,707 2009 Repurchase 1:25 26 11 October 2008
2012 3.00 2,313,519 2012 Subdivision 4:3 210 30 June 2011
2013 3.50 2,982,421 2013 Rights @ Rs.175* 2:13 132 3 October 2013
2014 3.50 3,266,718 2016 Subdivision 7:8 143 3 July 2015
2015 3.50 3,475,947 2017 Subdivision 7:8 170 30 June 2016
2016 7.00 8,037,790 * Unadjusted prices
2017 5.50 7,280,497
2018 6.00 8,324,983
Note: Includes special dividends where applicable

2017/18 Financial Calendar 2018/19 Financial Calendar


Date Date
Three months ended 30 June 2017 27 July 2017
Three months ended 30 June 2018 On or before 26 July 2018
Six months ended 30 September 2017 2 November 2017
Nine months ended 31 December 2017 30 January 2018 Six months ended 30 September 2018 On or before 1 November 2018
Annual Report 2017/18 30 May 2018
Nine months ended 31 December 2018 On or before 31 January 2019
39th Annual General Meeting 29 June 2018
First interim dividend paid on 23 November 2017 Annual Report 2018/19 On or before 31 May 2019
Second interim dividend paid on 22 February 2018
Final dividend proposed to be paid on 18 June 2018 40th Annual General Meeting On or before 28 June 2019

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

Key Performance Indicators


2017/18 2016/17 % Change
Revenue including associates (Rs. bn) 137.08 119.62 15
EBITDA (Rs. bn) 32.21 27.22 18
PBT (Rs. bn) 27.63 22.89 21
PAT attributable to equity holders of the parent (Rs. bn) 21.02 16.28 29
EPS (Rs.) 15.15 11.84 28

Our Businesses Industry Potential Strategy and Outlook


• 42 per cent stake in SAGT - container • The Port of Colombo is strategically Ports and Shipping, and Bunkering
terminal (capacity of 2 million TEUs) positioned on the main East-West • The Group will explore overall opportunities
• Leading bunkering services provider shipping routes arising in the Port of Colombo and Port of
• Largest cargo and logistics service • Increased prospects for private sector Hambantota
provider in the country participation, particularly in the ports Logistics and Transportation
• JV with Deutsche post for DHL air and bunkering industries • Evaluate the potential for purpose built and
express and AP Moller for Maersk • Current capacity utilisation of the anchored facilities
Lanka Colombo Port is in excess of 80 per • Increase warehousing footprint
• GSA for Jet Airways, KLM Royal Dutch cent, demonstrating the strong • Airline business to strengthen its network of
Airlines and Gulf Air potential for capacity led growth airlines, expanding selling to long-haul sectors
• Warehousing and supply chain
management

Key Performance Indicators


TRANSPORTATION

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

• SAGT Domestic : Transshipment volume mix : 22:78

For further details, refer the Industry Group


Review section of this Report: Page 116

110 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

The Board comprises Group Recurring


Cash balance (Group) of three Executive EBITDA Diluted EPS
Directors and five Rs.15.15
Rs.28.88 bn
USD 406 mn Independent Non-
A growth of 7% 2016/17 : Rs.11.84
Executive Directors

Investor Presentations, which include an update on the latest financial


results, are available on the corporate website, to provide easier access and
in-depth detail of the operational performance of the Group.
https://www.keells.com/resource/investor-presentation.pdf

Our Businesses Industry Potential Strategy and Outlook


• “Cinnamon”, a well-established • Encouraging growth momentum • Greater focus on asset-light investment models
hospitality brand in Sri Lanka and of tourist arrivals to Sri Lanka (5-year as a part of the strategy to enhance the
Maldives CAGR of 16 per cent - CY2017) “Cinnamon” footprint
• Diverse product offering based on • Proximity to India and increased flight • Better yield management
“Inspired living” connectivity • Investments to enhance brand value and
• The leading hotel chain in Sri • Infrastructure-led growth driving develop digital channels further
Lanka with ~1,340 rooms under MICE and corporate tourists • Focus on corporate and MICE tourist segments
management (~1,000 in Sri Lanka • Sought after tourist destination in the • Continued investment in the “Cinnamon” brand
and 340 in Maldives) region – centred around its natural
• Land bank of 173 acres of freehold diversity and cultural heritage
and 127 acres of leasehold land in • Round trip offering covering key
key tourism locations tourist destinations
• Leading inbound tour operator

Key Performance Indicators


2017/18 2016/17
LEISURE

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

For further details, refer the Industry Group


Review section of this Report: Page 126

111
GROUP CONSOLIDATED REVIEW
Investor Relations - Key Investment Considerations

Our Businesses Industry Potential Strategy and Outlook


• Reputed property developer in the • An urban population of 17 per cent, • Land banking strategy pursued to roll-out a
country with multiple high-rise far below regional peers robust pipeline of developments
apartments completed and fully sold • Emerging suburban multi-family • Explore property development opportunities by
• Iconic integrated development housing market leveraging on brand equity
“Cinnamon Life” • Upcoming market for units within the • Focussed strategies for expansion via developer/
• Land bank city at affordable price points landowner tie-ups
ƒ Developable land bank of over 36 • Significant investments in public • Shift to a broader customer base, targeting
acres in central Colombo infrastructure enabling better domestic demand for high quality housing
ƒ Developable freehold lands of connectivity and mobility which • Introduction of product categories within the
approximately 25 acres in close contributes to significant land price segment, branded
proximity to Colombo city appreciation ƒ Luxe Spaces
ƒ Over 500-acres of scenic leased • Port City Colombo project, ƒ Metropolitan Spaces
land bank with an 18-hole golf positioning Sri Lanka as a regional ƒ Suburban Spaces
course with a developable land financial and trade hub
extent of approximately 80 acres • Increased demand for commercial
space
Key Performance Indicators
Occupancy (%)
2017/18 2016/17 Change
K-Zone Ja Ela 85 78 9
K- Zone Moratuwa 95 84 13
PROPERTY

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

For further details, refer the Industry Group


Review section of this Report: Page 140

112 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Our Businesses Industry Potential Strategy and Outlook


• Strong market presence in • Per capita consumption of beverages Consumer Foods
beverages, frozen confectionery and at 10 litres, is below peer markets • Expansions in the sugar free and low sugar
processed meats with high brand • Per capita consumption of ice creams beverage range
recognition at 2 litres, far below developed • Expanding the beverage offering to products such
• A portfolio of beverages catering to markets as flavoured milk, juices and water
a wide-array of customers • Emerging “health conscious” • The new frozen confectionery plant in Seethawaka
• Island-wide distribution network consumer and growing need for is expected to assist CCS in expanding its impulse
• 80 modern trade outlets uniquely “convenient” main meal options category and improve profit margins
branded to cater to evolving • Modern trade penetration at 16 per • Convenient and nutritious product extensions
consumer lifestyles cent, is one of the lowest in the region catering to “health conscious” consumers
Retail
• Aggressive expansion of the store footprint; 40
outlets expected in 2018/19, including a centralised
Distribution Centre
• Increased focus on the brand roll out
• Focus on the “Fresh” promise of the business

Key Performance Indicators


Consumer Foods Sector 2017/18 2016/17
CONSUMER FOODS AND RETAIL

Volume growth (%)


Beverages (16) 10
Frozen Confectionery (4) 11
Convenience Foods 3 (4)
• The volume decline was further exacerbated by a sugar tax on carbonated beverages, which was implemented from November
2017 onwards
• Beverage : Frozen Confectionery revenue mix is at 56:44 for 2017/18
• CCS reformulated its flagship flavours to replace approximately 40 per cent of sugar content with the natural sweetener Stevia while
also implementing the following initiatives;
ƒ Launch of sugar free CSD variants - branded “GO Sugar Free”
ƒ Acceleration of non-CSD product launches (flavoured milk and water branded under Elephant House, and additional flavours for
“Fit-O”)

Retail Sector 2017/18 2016/17


Same store sales growth (%) 5.7 9.8
Same store footfall growth (%) 3.8 7.1
EBIT margin (%)* 4.0 5.4
PBT margin (%)* 4.0 5.6
* Impacted by the imposition of control prices on essential items, cost of expanding and operating new stores coupled with the cost associated with
rebranding and refitting stores
• Total outlet count as at 31 March 2018 stood at 80 (23 new additions in 2017/18)

For further details, refer the Industry Group


Review section of this Report: Page 148

113
GROUP CONSOLIDATED REVIEW
Investor Relations - Key Investment Considerations

Our Businesses Industry Potential Strategy and Outlook


Life Insurance Life Insurance Industry Life insurance
• GWP growth well above the industry • Life Insurance penetration at 0.49 • Focus on bancassurance through the
average [CY2017: GWP growth of 22 per cent of GDP - one of the lowest development of differentiated, customer-
per cent versus an industry average penetrated markets in the South Asian oriented lifestyle products
GWP growth of 13 per cent] region • Agency transformation
• Operating footprint of over 97 • Ageing population • Focus on data analytics, innovation and digital
branches, excluding virtual locations • Under-utilised bancassurance and improvements for better insight
• Agency force of approximately 4,000 digital distribution channels Banking
personnel Banking Industry • Focus on delivering smart banking solutions and
• Third largest producer of new • Industry loans and advances growth innovative products
business of 19 per cent in calendar year 2017 • Driving asset growth through risk reward metrics,
• Market share of 14 per cent • Industry ROE of 17.5 per cent and cross-selling
Banking • Underdeveloped digital banking • Focus on increasing the offerings to the mass
• Economic interest of 32.16 per cent infrastructure affluent segment for Consumer banking and
in Nations Trust Bank Corporate and SME segments
• Branch network of over 93 outlets
and 136 ATMs
FINANCIAL SERVICES

• Strong online presence


• Sri Lanka’s first digital bank, “FriMi”

Key Performance Indicators


CY2017 CY2016
Banking
Growth in loans and advances (%) 25 24
Return on equity (%) 17.4 17.7
Net interest margin (%) 4.4 4.5
NPL ratio (%) 2.7 2.8
Capital adequacy ratio - total capital (%) 10.8 11.4
Life Insurance
Premium growth (%) 22 19
Market share (%) 14 13
Life fund* (Rs. billion) 29.1 30.3
Capital adequacy ratio (%) 352 411
* The decline in the life fund is attributable to the one-off surplus transfer from the life policyholder fund to the life shareholder fund, and the life
insurance surplus of Rs.3.64 billion [2016/17: Rs.1.10 billion]

For further details, refer the Industry Group


Review section of this Report: Page 162

• 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

For further details, refer the Industry Group


Review section of this Report: Page 180

114 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis
Industry Group Review

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

Vision and Scope Ports and Transportation


Shipping
The vision of the Transportation industry group is to be
recognised as a leading provider of Transportation solutions
and related services through a diversified portfolio of
businesses in selected markets. These operations comprise
of a container terminal in the Port of Colombo, a marine
bunkering business, joint venture/associations with leading
shipping, logistics and air transportation multinationals,
as well as travel and airline services in Sri Lanka and the
CARBON FOOTPRINT
Maldives.

Contribution to JKH Group


12,714 MT
(2016/17: 11,309 MT)

19% Revenue

12% EBIT EBIT

Rs.3.33 bn
8% Capital employed

13% Carbon footprint


(2016/17: Rs.3.12 bn)

116 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Industry Group Structure Transshipment traffic in the region recorded


an increase facilitated by global and regional
Transportation trade growth and the advent of major
shipping lines through acquisitions and
alliances with expansive vessel-sharing
Ports and Shipping Transportation agreements. The Port of Colombo handled 6.2
Operation of a container terminal Logistics services include the operation of : million twenty-foot equivalent units (TEUs)
in the Port of Colombo as a • DHL air express in Sri Lanka during the calendar year 2017, a growth of 8
public-private partnership on a • A joint venture with Deutsche Post per cent [CY2016: 5.7 million TEUs]. Sri Lanka’s
build, operate and transfer (BOT) • Third party logistics (3PL)
basis through South Asia Gateway positioning as a ports and shipping hub in
• Warehousing, trucking and freight forwarding solutions
Terminals (SAGT) the South Asian region was further reinforced
under John Keells Logistics Limited
when the Port of Colombo was placed 23rd
Associate stake in Maersk Lanka, • Freight forwarding business, Mack International Freight (MIF)
amongst the “World’s 30 Best Ports” as per
agents in Sri Lanka and the Marine bunkering and related services under Lanka Marine
2017 Alphaliner Rankings and placed 13th
Maldives for Maersk Line and Services (LMS) as well as airline, aviation, travel and related
with regard to “Best Connectivity in the World”
Safmarine services through Saffron Aviation (owners and operators of
Cinnamon Air), Mack Air and Mackinnons Travels Limited according to the Drewry Port Connectivity
Index.

Key Indicators Considering this strategic opportunity


Inputs (Rs.mn) 2017/18 2016/17 % Change 2015/16 and the overall requirement of enhancing
productivity and efficiency of the Colombo
Total assets 21,349 18,065 18 17,163
Port, the Sri Lanka Ports Authority (SLPA),
Total equity 16,154 14,841 9 15,028 South Asia Gateway Terminals (SAGT) and
Total debt 3,267 1,754 86 878 Colombo International Container Terminal
Capital employed1 19,421 16,595 17 15,905 (CICT) entered into a memorandum of
understanding (MoU) to collectively promote
Employees (number)2 486 385 26 349
the Port of Colombo. The MoU is expected to
encourage joint initiatives between the three
Outputs (Rs.mn) 2017/18 2016/17 % Change 2015/16
terminal operators and contribute towards
3
Turnover 25,619 18,438 39 16,829 the development of the Colombo Port as
EBIT 3,326 3,124 6 2,517 the main transshipment hub in the region.
PBT 3,269 3,098 6 2,495 Investments are underway to extend the
physical facilities within the Port of Colombo,
PAT 3,084 2,979 4 2,454
given the envisaged increase in volumes in the
EBIT per employee4 6.8 8.1 (16) 7.2 near term.
2
Carbon footprint (MT) 12,714 11,309 12 2,091

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

Volume growth of LMS was further enhanced


by the commissioning of the first double-
hulled double-bottomed bunker barge
to operate in Sri Lanka in 2017/18, “MT LM
Mahaweli” with a capacity of 2,400 MT,
enabling the business to better cater to
the demand. The overall import capacity of
LMS was further augmented through the
chartering of “MT Athenia” during the year
under review. The new tanker has a capacity
to import 8,500 MT and is more efficient in
terms of speed and fuel consumption. In
keeping with the industry group’s focus on
sustainable practices by driving efficiency
and productivity, the business also launched
several digitisation initiatives during the year
under review to streamline operations. SAGT was recognised as the “Best Terminal in the Indian Sub-Continent Region”
by the Singapore based Global Ports Forum

118 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

TRANSPORTATION INDUSTRY GROUP


REVENUE

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

119
INDUSTRY GROUP REVIEW
Transportation

THE PBT OF THE


Turnover
TRANSPORTATION INDUSTRY
%
2015/16 71 29
GROUP AMOUNTED TO
RS.3.27 BILLION COMPARED
2016/17 71 29
TO THE RS.3.10 BILLION
2017/18 75 25 RECORDED IN 2016/17.
EBIT
the current year, in addition to a deferred
% tax provision, as discussed in the Group
2015/16 27 73 Consolidated Review section of this Report.
Excluding this impact, the EBIT of the
2016/17 31 69
industry group at Rs.4.17 billion, is a 33 per
2017/18 40 60 cent increase against 2016/17
• The growth in volumes in the Bunkering
Transportation Ports and Shipping business, improved performance at
DHL Keells and full utilisation of the
Earnings Before Interest and Tax (EBIT) warehousing facilities contributed towards
• EBIT of the industry group at Rs.3.33 billion was a 6 per cent increase in comparison to Rs.3.12 the improved performance
billion in 2016/17, primarily driven by the performance of SAGT • The PBT of the Transportation industry
• Consequent to certain prior period errors in the trade receivables at SAGT, the related debtor group amounted to Rs.3.27 billion
balances as at July 2017 were recompiled, and agreed with the company auditors. The resulting compared to the Rs.3.10 billion recorded in
financial impacts including an impairment provision for doubtful debt was accounted for in 2016/17

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%

Indicators Ports and Shipping Transportation


Revenue and growth Rs.6.32 billion, 17 per cent increase Rs.19.30 billion, 48 per cent increase
EBIT and growth Rs.2.01 billion, 7 per cent decrease Rs.1.32 billion, 37 per cent increase

120 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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

Energy and Emissions Management


Relevance/Implication Targets Initiatives
Financial implications • Internal fuel efficiency targets for • Daily monitoring of fuel consumption
and environmental vehicle and aircraft fleet to reduce fuel • Ongoing analysis of sales routes for route optimisation thereby
responsibility consumption and emissions increasing efficiency
• Regular planned maintenance to ensure efficient engine performance

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

121
INDUSTRY GROUP REVIEW
Transportation

In keeping with the diverse demands of the


Talent management
key players and customers, the industry group
HUMAN CAPITAL encourages the growth of the overall industry
by investing in its people, thereby producing Health and safety
qualified professionals in the logistics
and transportation fields. This continuous
The Transportation industry group places investment has led to the industry group’s The ensuing section discusses key targets
significant emphasis on health and safety higher inclination towards service quality, under the material topics identified above and
on account of the nature of some of its dependability and efficiency. Investment its corresponding impacts. The section also
operations, particularly given the higher in Human Capital is thus considered vital, entails the various initiatives undertaken with
likelihood of accidents at warehouses, barges alongside the investment in infrastructure, a view to achieving relevant targets.
and other facilities. As such, the industry group processes and systems, in order to sustain and
follows the guidelines facilitated by local capitalise on the envisaged growth.
regulations, international standards and the Number of Employees
Group’s health and safety policy which strives The material topics identified under Human
to create awareness and provide training on • Ports and Shipping : 23
Capital for the industry group are as follows:
occupational safety to its employees. • Transportation : 463

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;
ƒ An aggregate of 26 scholarships were awarded on both a need and
merit based scheme
ƒ “Immersion” English Language training via a custom-made
programme was offered to all the first-year students, benefiting 48
students
ƒ A mentoring programme was organised to groom second-year
undergraduates to develop their soft skills to become effective
managers
Crew members of Cinnamon Air

122 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Health and Safety


Relevance/Implication Targets Initiatives
Labour and • Zero major accidents within logistic • LMS and JKLL renewed the OHSAS 18001-2007 certification for
productivity concerns centres and one hundred per cent bunkering and warehousing operations ensuring globally recognised
reporting and addressing of near misses health and safety standards are maintained. Additionally, quarterly fire
• Zero road accidents, traffic violations drills and MARPOL compliant oil spill drills were conducted to minimise
and customer complaints impact in case of an incident
• Fire drills were also carried out during the year at the Mackinnons
building which houses multiple business entities

Health and safety practices at JKLL

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

Maintenance, support services and


Outsourced vehicle fleets Warehouse operations Capital equipment
outsourced employees

123
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;

Operation Brief Description


Logistics and Warehousing (JKLL) • A BI platform was launched during the year to provide on-time information and enhanced transparency
into operations
• All paper based warehousing documentation and data capturing was replaced using tablets, which
increased efficiency in gathering relevant information
• Roller cage-based product transportation to increase vehicle utilisation and reduce turn-around efficiency
Bunkering (LMS) • Flow meters were installed onboard “MT LM Mahaweli” during the financial year aimed at improving service
and quality standards of the products offered to customers. LMS remains the only operator to implement
the above efficiency initiatives
• Digital enhancements such as e-signatures for customer nominations, e-invoicing, automatic delivery
updates and electronic portals to manage lubricant stocks were carried out in the year under review
Aviation and Transport (MAL and • Sales applications and digital dash boards were introduced to provide real time metrics for improved
Cinnamon Air) efficiency and target tracking
• Trained and produced the country’s first home-grown amphibious float plane Captains, providing greater
incentive and encouragement for domestic flying
Travel Agents (MTL) • Entered the online travel market space with the launch of macktrip.com
• A digital advertising campaign was launched to create brand awareness on macktrip.com, with the
objective of increasing online sales

Strategy and Outlook IN ADDITION TO ITS STRATEGIC LOCATION, THE COMPETITIVE


The positive regional and global trade
growth outlook, augmented by the revival of ADVANTAGE OF THE COLOMBO PORT LIES IN ITS ABILITY
domestic markets, the resurgence in exports TO CATER TO DEEP DRAFT VESSELS AND ITS TERMINAL
expected by the reinstatement of GSP and
GSP+ (Generalised System of Preferences) by
PRODUCTIVITY. ALTHOUGH CONSTANT PRODUCTIVITY
the US and EU respectively, augurs well for Sri MEASURES ARE UNDERTAKEN AT THE TERMINALS, CAPACITY
Lanka’s transportation, maritime and logistics CONSTRAINTS WOULD GRADUALLY BECOME A LIMITING
industries, particularly at the Port of Colombo
and the Hambantota Port. Against this
FACTOR FOR TERMINAL OPERATIONS  AFFECTING BOTH
backdrop, the increased flow of transshipment EXISTING VOLUMES AND FUTURE VOLUMES, PARTICULARLY
cargo through the island will create ample GIVEN THAT THE OVERALL CAPACITY UTILISATION AT THE PORT
opportunities for Sri Lanka to further position
itself as a logistics and maritime hub in the
OF COLOMBO IS CURRENTLY OVER 80 PER CENT.
region, by providing integrated and value-
added services. increased and envisaged growth in trade in view of the future growth prospects of the
flows through South Asia, regional peers, Port of Colombo through capacity led growth,
In addition to its strategic location, the such as in Singapore and Malaysia, have an expansion of the terminals within the
competitive advantage of the Colombo aggressively invested towards enhancing Colombo South Harbour is required.
Port lies in its ability to cater to deep capacity in its port operations. India has also
draft vessels and its terminal productivity. invested towards enhancing capacity with The Ports and Shipping business of the
Although constant productivity measures a view to increase capacity to 3,200 million Group will continue to explore its options in
are undertaken at the terminals, capacity metric tonnes (MMT) by 2020 from its current enhancing terminal efficiency and productivity
constraints would gradually become a installed capacity of 1,065 MMT emanating through investment in digital initiatives
limiting factor for terminal operations - from its 12 main ports. Given the envisaged and state-of-the-art technology, whilst
affecting both existing volumes and future growth in Sri Lanka’s primary source of adhering to global best practice. SAGT will
volumes, particularly given that the overall throughput and growth in trade across the evaluate investments aimed at increasing the
capacity utilisation at the Port of Colombo region, the development of the East Container throughput managed, thereby contributing to
is currently over 80 per cent. In view of the Terminal (ECT) is more pronounced. As such, an increase in capacity handled.

124 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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 EASTWEST
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

An aerial view of “Ellaidhoo Maldives by Cinnamon”

Vision and Scope City Hotels Resorts Destination Hotel


Management Management
Representing JKH’s largest asset exposure, the Leisure industry
group comprises of two city hotels that offer approximately 34
per cent of the current 5-star room capacity in Colombo, a lean
luxury hotel, in Colombo, eight resort hotels spread across prime
tourist locations in Sri Lanka and three resorts in the Maldives
with a product offering which leverages on the natural diversity
of the country under the brand “Cinnamon Hotels & Resorts”. The
Leisure industry group also operates a destination management
CARBON FOOTPRINT
business in Sri Lanka.

Contribution to JKH Group


38,835 MT
(2016/17: 40,670 MT)

18% Revenue

15% EBIT EBIT

Rs.4.13 bn
25% Capital employed

40% Carbon footprint


(2016/17: Rs.5.92 bn)

126 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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.

Total assets 73,612 71,996 2 57,653


Total equity 58,752 60,690 (3) 47,782
Total debt 5,154 5,874 (12) 4,664 SRI LANKA RECORDED
Capital employed1 63,906 66,564 (4) 52,446 2,116,407 TOURIST
Employees (number) 2
4,823 5,041 (4) 5,073 ARRIVALS DURING THE
2017 CALENDAR YEAR, A
Outputs (Rs.mn) 2017/18 2016/17 % Change 2015/16
3
GROWTH OF 3 PER CENT
Revenue 25,298 26,136 (3) 24,306
AGAINST THE PREVIOUS
EBIT 4,125 5,924 (30) 5,134
PBT 3,909 5,721 (32) 4,968
YEAR. THE INDUSTRY
PAT 3,343 5,008 (33) 4,367 RECORDED RECEIPTS
EBIT per employee 0.9 1.2 (27) 1.0 OF USD 3.92 BILLION, A
Carbon footprint (MT) 38,835 40,670 (5) 40,767 GROWTH OF 11 PER CENT
1. For equity accounted investees the capital employed is representative of the Group’s equity OVER THE PREVIOUS YEAR.
investment in these companies
2. As per the sustainability reporting boundary
3. Turnover is inclusive of the Group’s share of equity accounted investees

External Environment and Operational Review


Sri Lanka continues to gain traction as one of the most sought-after destinations in the region with As anticipated, occupancies of the city hotels
the rich bio-diversity of the island nation, its diverse landscape ranging from rain forests to pristine were impacted by the supply of new room
beaches and authentic cultural experience collectively creating a unique product offering for inventory during the calendar year 2017 from
leisure travel. It is against this backdrop, that Sri Lanka secured the titles “Asia’s Leading Destination” “Movenpick”, “Jetwing Colombo 7”, “Shangri-la”
and “Leading Adventure Tourism Destination” for the first time at the World Travel Awards 2017. The and “Mandarina”, among others. However, it is
tourism industry continues to be recognised as one of the key growth industries of the country, heartening to note that the total number of
considering its impact on the economy, employment generation and related multiplier effects. room nights occupied in the city increased by
14 per cent, particularly driven by the 3-star
Sri Lanka recorded 2,116,407 tourist arrivals during the 2017 calendar year, a growth of 3 per cent category, underscoring the steady absorption
against the previous year [CY2016: 2,050,832 arrivals]. The industry recorded receipts of USD 3.92 of new room capacity within the sector.
billion, a growth of 11 per cent over the previous year [CY2016: USD 3.52 billion]. The Western
European and East Asian regions were the largest contributors towards overall arrivals growth, each Despite the marginal decline in market share
demonstrating growth of 6 per cent and 5 per cent respectively. India was the largest country- on the back of an increasingly competitive
wise contributor to arrivals with 384,628 arrivals [CY2016: 356,729 arrivals], a growth of 8 per cent operating environment, “Cinnamon Grand”
during the year while China remained the second largest contributor towards overall growth in (CG) and “Cinnamon Lakeside” (CL) witnessed
arrivals, recording arrivals of 268,952, despite a marginal decline in the year under review. The United an increase in their fair share in the year
Kingdom recorded arrivals of 201,879 [CY2016: 188,159], a growth of 7 per cent during the year. under review. Occupancies of CG and CL

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.

Refer the Intellectual Capital section of


this industry group report for further
details.
“Cinnamon”, in furtherance of its focus on bringing world-class entertainment to Sri Lanka, hosted “The Sound
of Music” the first Broadway performance of its calibre in the country

128 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Capital Management Review LEISURE INDUSTRY GROUP REVENUE


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
Capital are honed to create value for all stakeholders.
Rs.25.30 bn
Decline of 3 per cent
The discussion on the Capitals, where relevant is structured to emphasise goals, targets and
initiatives undertaken within each of the Capitals.
• Lower room revenue from the City Hotels
sector contributed towards the decline
in EBIT to Rs.1.73 billion [2016/17: Rs.2.55
Goals under relevant Capital Targets we set for ourselves Our initiatives
billion] whilst the partial closure of two
Maldivian resorts coupled with increased
online travel agency (OTA) related costs
• Revenue of the Sri Lankan Resorts segment contributed towards the decline in EBIT of
the Maldivian Resorts segment to Rs.697
FINANCIAL AND remained flat at Rs.5.39 billion driven
by stable occupancies and ARR across million [2016/17: Rs.1.21 billion]
MANUFACTURED CAPITAL
its properties, despite the increased • EBIT of the Sri Lankan Resorts segment,
competition, particularly in the coastal Destination Management sector and the
As at 1 April 2017, the Leisure industry group areas, and the closure of “Bentota Beach by Hotel Management sector stood at Rs.742
had total assets of Rs.72.00 billion, debt of Cinnamon” million, Rs.404 million and Rs.550 million,
Rs.5.87 billion and an opening equity capital of • Revenue of the Destination Management respectively, against Rs.1.14 billion, Rs.313
Rs.60.69 billion. sector also remained flat at Rs.5.24 billion in million and Rs.704 million in the previous
the year under review year. The variance within the Sri Lankan
Financial Performance Resorts segment and the Destination
Revenue Earnings Before Interest and Tax (EBIT) Management sector is resultant from the
closure of “Bentota Beach by Cinnamon”
• Revenue of the Leisure industry group • The EBIT of the industry group declined
and prudent cost management within the
decreased by 3 per cent to Rs.25.30 billion by 30 per cent to Rs.4.13 billion in the year
Destination Management sector
[2016/17: Rs.26.14 billion] in the year under under review [2016/17: Rs.5.92 billion]
review mainly on account of the City Hotels sector • The PBT of the industry group decreased
and the Maldivian Resorts segment by 32 per cent to Rs.3.91 billion
• As noted in the Annual Report 2016/17, the
decline was anticipated as a result of the
closure of “Bentota Beach by Cinnamon”
for the construction of a new hotel, and Turnover
the partial closures of “Cinnamon Dhonveli %
Maldives” and “Ellaidhoo Maldives by 2015/16 32 20 25 23
Cinnamon” for refurbishments
2016/17 1 34 20 25 20
• The revenue of the City Hotels sector
recorded a decline of 5 per cent in the year 2017/18 33 21 24 22
under review, primarily driven by a decline
in occupancies as a result of the increase in
EBIT
room inventory within Colombo
• The Maldivian Resorts segment recorded %
2015/16 14 36 18 22 10
a 5 per cent decline in revenue, in
comparison to 2016/17, as a result of the 2016/17 12 43 19 21 5
aforementioned partial closures of the
two resort hotels. The performance of 2017/18 13 42 18 17 10
the segment was further exacerbated
Hotel Management Maldivian Resorts
by the increase in room supply in the City Hotels Destination Management
formal sector which exerted pressure on Sri Lankan Resorts
occupancies across the industry

City Hotels Resorts Destination Hotel Management


Sri Lankan Maldivian Management
Revenue and growth Rs.8.41 billion, 5 per Rs.5.39 billion, Rs.6.15 billion, 5 per Rs.5.24 billion, Rs.111 million, 29 per
cent decrease remained flat cent decrease remained flat cent decrease
EBIT and growth Rs.1.73 billion, 32 per Rs.742 million, 35 per Rs.697 million, 43 per Rs.404 million, 29 per Rs.550 million, 22 per
cent decrease cent decrease cent decrease cent increase cent decrease

129
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

The ensuing section discusses key targets


under the aforementioned material aspects
and its corresponding impacts. The section
also entails the various initiatives undertaken
with a view to achieving relevant targets.

Carbon Footprint
• City Hotels : 18,404 MT
• Resorts : 19,711 MT
ƒ Sri Lankan : 12,264 MT
ƒ Maldivian : 7,447 MT
• Destination Management : 476 MT
• Hotel Management : 243 MT

‘Aquaponics’ farming model introduced at “Habarana Village by Cinnamon”

130 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Energy and Emissions Management


Relevance/Implication Targets Initiatives
Financial implications, • Reduction of carbon footprint through • The City and Resort hotels continued to create value through lower
stakeholder continuous monitoring and energy environmental impact and cost savings. Existing lighting was replaced
expectations of efficient equipment and practices with LED lighting in guest and staff areas resulting in annualised energy
sustainable tourism • Utilisation of renewable energy savings of over 284,000 kWh
practices, regulatory sources to reduce the carbon footprint • Installation of magnetic bearing chiller compressors at “Cinnamon
requirements, brand where feasible Lakeside”, to minimise energy loss due to friction led to savings of
image and reputation approximately 1 million kWh annually
• Replace or upgrade equipment with
of the industry group’s
energy efficient alternatives where • “Ellaidhoo Maldives by Cinnamon” installed a solar photovoltaic (PV)
businesses
required system, generating annual savings of 77,031 kWh which has significantly
• Alignment with international reduced the resort’s dependence on fossil fuel, resulting in cost saving
benchmarks and carbon footprint reduction

• 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

Water and Effluent Management


Relevance/Implication Targets Initiatives
Financial, regulatory • Reduce the Leisure industry group’s • “Cinnamon red” installed water droppers in all its guest room showers
and brand reputation withdrawal of water to regulate flow rates to conserve water. This resulted in savings of
implications • Alignment with international 2,100 cubic meters annually. Only one cooling tower was used for air
benchmarks conditioning purposes which also contributed to an annual saving of
1,200 cubic meters
• Ensure all effluents meet the requisite
water quality standards

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

132 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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.

Indicators As a service driven industry, service delivery


and quality is of paramount importance to
2017/18 2016/17 % the Leisure industry group. As an industry
group that contributes significantly to the
Carbon footprint (MT) 38,835 40,670 (5)
Group’s cumulative training hours, consistent
investment in building a professionally trained
Water withdrawn (m3) 1,026,289 1,126,765 (9)
and experienced staff cadre will enable the
creation of a competitive advantage and
Waste disposed (kg) 3,788,942 3,952,477 (4)
unparalleled service quality to customers while
improving employee skills and productivity.
Carbon Footprint Scope 1 and 2 per Operational Intensity Factor
The Leisure industry group places significant
2017/18 2016/17 % importance on providing a safe working
Sri Lankan Resorts segment CO2 kg per guest night 22.18 22.77 (3) environment for its employees through
Maldivian Resorts segment CO2 kg per guest night 36.32 31.15 17 education and training on safe practices in
the workplace. The material aspects identified
City Hotels sector CO2 kg per guest night 45.78 56.89 (20)
under the Leisure industry group, under
Destination Management sector CO2 kg per client serviced 7.69 7.72 0 Human Capital are:

Water Withdrawal per Operational Intensity Factor Talent management

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) ƒ Sri Lankan : 1,764
Maldivian Resorts segment in kg waste generated per guest night 4.88 4.44 10 ƒ 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

• Walkers Tours provided chauffeur guide training for 123 chauffeurs,


organised field visits for 16 individuals interested in entering the tourism
industry as chauffeurs.
Regular trainings for hotel staff by local and foreign internal trainers

Health and Safety


Relevance/Implication Targets Initiatives
The businesses within • Minimal occupational health and safety • All Group hotels continue to maintain OHSAS 18001, an occupational
the sector to ensure safe incidents health and safety standards certification in addition to maintaining ISO
working conditions • Safe working conditions and practices 22000 certification for food safety. Such standards improve employee
productivity in addition to ensuring guest health and safety
• Food hygiene, first aid, fire awareness and emergency evacuation trainings
were carried out across all properties on a regular basis contributing to
maintaining safe working conditions and guest health and safety
• WTL conducted first aid training for safari jeep drivers in Habarana and
Wilpattu, which is expected to benefit both drivers and customers
• Resort Hotels and City Hotels collectively conducted 3,500 hours and
242 hours of HIV & AIDS awareness sessions and gender equality (WAVE)
training for its staff members, to create greater awareness in order to
combat the prevalent issues in the society
• City Hotels conducted 4,888 hours of staff training to improve their
English communication skills
• City Hotels conducted trainings for 5,895 individuals on health and
safety practices for associates

Indicators
2017/18 2016/17 %

Injuries and diseases (number) 81 88 (8)

Total hours of training 269,469 289,431 (7)

134 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

knowledge and best practices to strengthen


THE INDUSTRY GROUP
SOCIAL AND RELATIONSHIP the supply chain and thereby the service
CAPITAL quality of Leisure operations. Local CREATES VALUE
purchases made is also expected to foster THROUGH WORKING
entrepreneurship within the community while
supporting growth within the local economy.
COLLABORATIVELY WITH
The Group recognises the importance of
building stakeholder relationships and THE COMMUNITY TO
engages proactively with the communities The material aspects identified for the Leisure IMPROVE THE WELLBEING
and its value chain partners to ensure industry group under Social and Relationship
sustainable operations. The industry group Capital are as follows: OF THE COMMUNITY
creates value through working collaboratively WITHIN WHICH IT
with the community to improve the well- Supply chain sustainability OPERATES, IN ADDITION
being of the community within which it
operates, in addition to focussing on youth
TO FOCUSSING ON YOUTH
empowerment through CSR initiatives.
Community development EMPOWERMENT THROUGH
The industry group also supports such CSR INITIATIVES.
development through dissemination of

Relevance/Implication Targets Initiatives


• Supply chain and • Engagement with significant • Regular audits on food safety, supplier awareness programmes
sustainable sourcing - supply chain partners - encourage and supplier assessments were carried out both at hotel and
assessing and educating environmentally friendly and socially central purchasing office (CPO) level to ensure overall food
significant suppliers to responsible activities safety standards are met by food suppliers. This ensures the
ensure mitigation of • Stimulate local economies through maintenance of guest health and safety while enhancing the
negative impacts with sourcing of fresh produce and other knowledge of food suppliers on best practice
respect to environment, outsourced services • “Cinnamon Hakuraa Huraa Maldives” harvested 630kg of
labour and human rights vegetables using carbonic fertilizer from the organic farm
aspects operated by the hotel under the “Green Essentials Eco-Friendly
• Community development- Living” initiative
Community engagement
• “Habarana Village by Cinnamon” piloted ‘aquaponics’- a farming
and collaborative
model which combines farming fish and growing plants using
operations within the
soil-less processes. This project aims to build a climatically
community to maintain/
adaptable farming methodology in line with the growing demand
create good relations
for organic vegetables
• WTL continued to conduct bi-annual inspections of all ancillary
suppliers such as safari jeep suppliers and boat excursion
providers to ensure consistency in quality and signing of
agreements to ensure adherence to quality standards
• “Cinnamon Colomboscope” 2017, a contemporary and
multidisciplinary arts festival was held for the 5th consecutive
time in September 2017 at the former Colombo Terminus
Railway Station in Maradana. A total of 68 local and foreign artists
showcased their art with 3,050 visitors estimated to have attended
the event. The participation of 28 local artists and 12 local
speakers were sponsored by John Keells Foundation while a total
of 92 John Keells staff volunteers engaged in providing on-site
support
• “Cinnamon Wild Yala” in collaboration with John Keells Foundation
built an emergency treatment unit at the Kirinda Divisional
Hospital impacting approximately 6,000 permanent residents of
the surrounding community
• “Cinnamon Lodge Habarana” organised HIV & AIDS awareness on
behalf of John Keells Foundation for a total of 5,756 security forces
personnel. The sessions focussed on methods of prevention whilst
also highlighting the stigma and discrimination faced by persons
living with HIV

135
INDUSTRY GROUP REVIEW
Leisure

The significant suppliers within the industry group are illustrated below:

Significant Suppliers - Hotels and Resorts

Amenities Food and beverage suppliers Travel agents and travel websites Casual employees

Significant Suppliers - Destination Management

Hotel and other Freelance national Jeep and boat Foreign travel agents
Contracted retail stores Outsourced fleet
accommodation guides suppliers and tour operators

INTELLECTUAL CAPITAL THE GROUP STRIVES TO CREATE VALUE TO


EVOLVING AND DYNAMIC STAKEHOLDERS,
RANGING FROM DIRECT CUSTOMERS, TO
The value created through the “Cinnamon”
brand is an ongoing and continuously
SUPPLIERS AND THE GROUP’S OWN WORKFORCE.
evolving journey achieved through service “CINNAMON” HAS NOW BECOME A CULMINATION
quality and other lifestyle centric initiatives. OF ACCUMULATED KNOWLEDGE OF OUR STAFFERS,
The Group strives to create value to evolving
and dynamic stakeholders, ranging from direct
BEST PRACTICES WITHIN THE INDUSTRY AND AN
customers, to suppliers and the Group’s own ICONIC LIFESTYLE BRAND.
workforce. “Cinnamon” has now become a
culmination of accumulated knowledge of our
staffers, best practices within the industry and
an iconic lifestyle brand.

A summary of the initiatives undertaken by the Leisure industry group follows;

Initiative Brief Description


Cinnamon Future of Tourism Summit • A thought leadership initiative organised by Cinnamon Hotels & Resorts to educate and promote
the theme of technology, innovation and authenticity, in the context of using and promoting our
attractions sustainably
• The event which catered to 400 participants had 13 distinguished speakers including global
experts on Tourism and Responsible Travel, Heads of Innovation in Key Travel Organisations,
Technology and Innovation consultants and Travel Trend Analysts
Cinnamon Colomboscope • Conceptualised by the European Union National Institute for Culture (EUNIC) and supported by
John Keells Foundation, the event was conducted for the fifth consecutive time in September
2017
• Organised by an independent local team under the theme “Re/Evolution”, focussing on the
environment and its intersection with arts and culture
• The festival supported local and international artists to create engaging, daring work that
connects with the world based on the theme
• The 2017 festival consisted of film screenings, audio and visual performances, the main exhibition
and an online exhibition. Through a series of workshops, artists’ talks and thematic conversations,
the festival fostered valuable knowledge exchange between Sri Lankan and foreign artists, local
and international technology specialists and the audience
• A total of 68 local and foreign artists showcased their art while over 3,050 visitors are estimated to
have attended the 6-day festival

136 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Initiative Brief Description


Guest appearance by George Calombaris • Held in June 2017, the event series consisted of two Greek inspired dinners, high tea event and
a Masterclass that offered a select few of the audience an opportunity to cook, dine and interact
with George Calombaris
Cinnamon Sri Lanka Photo Contest 2017 • Held from January to April 2017, this international competition strengthened, national brand
equity both locally and internationally
• The event was instrumental in strengthening the global photo library on Sri Lankan destinations
while creating greater social engagement among travellers
• The grand winner was entitled to the status of “Cinnamon Travel Photographer of the Year” and a
grand prize of USD 5000 and a 3 week curated all expenses paid photography tour of Sri Lanka
The Sound of Music • Held in February 2018, at the Nelum Pokuna theatre Colombo
• Renowned as one of the most critically-acclaimed productions in history, the iconic musical was
brought to life by the Asia Broadway Group – one of the world’s best live touring bodies
• The first-ever event of its calibre to be performed in Sri Lanka to date

Strategy and Outlook Composition of tourist arrivals


Tourist arrivals to Sri Lanka are expected to %
continue its current growth trajectory towards Malaysia Vietnam Sri Lanka
achieving the 4.5 million arrivals target for 2020
set by the Sri Lanka Tourism Development 4 1 15 7 9 6
Authority (SLTDA), primarily driven by newly
emerging source markets such as China and
India. The value proposition offered by Sri
Lanka, where diverse attractions catering to
94 78 45 40
the demands of tourists, can be easily accessed
within a short period of time coupled with
increased flight connectivity, the proximity Asia Europe USA Others
to India and better services is expected to be Source: Government Tourism websites
instrumental in attracting arrivals.
Annual tourist arrivals to Sri Lanka
Whilst arrivals to Sri Lanka recorded a
Tourists (000’s)
moderate increase of 3 per cent to 2.1 million
during the calendar year 2017, arrivals fell 4,500 SLTDA target for 2020
short of its initial target of 2.2 million for the
year due to adverse weather conditions,
health advisories, and the partial closure of the 2,500
Airport as discussed previously. Despite these SLTDA target for 2017

challenges, the Group is confident that the 2,000


arrivals to the country can grow exponentially
1,500
in the long-term given the growth in
outbound travel in the region. 1,000

As indicated by the above diagram, the 500


proportion of tourist arrivals from the Asian
region to Sri Lanka is far below its regional 0
2020
1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

peers, indicating the significant potential for


growth in arrivals. To this end, expected direct
flight connectivity from several commercial Source: SLTDA
airlines focussed on regional travel, particularly
from India, is anticipated to be a key
A conducive and consistent policy maintain and monitor a minimum standard
contributor for arrivals growth. Furthermore,
environment enabled by the Government while creating a better structured revenue
India’s forecasted GDP growth of 7.3 per cent
will be instrumental in driving tourism and stream from the industry. The Budget 2018
in 2018/19, propelling it to become the world’s
attaining the aforesaid target for 2020. As per has also proposed the introduction of a Value
fastest growing economy, according to the
the Government’s proposal, the mandatory Added Tax (VAT) refund scheme for tourists at
World Bank’s Global Economic Prospects
registration of hotels under SLTDA will enable the point of departure on VAT paid on goods
report, is expected to augur well for Sri Lanka
better regulation of the industry and help purchased in Sri Lanka. The proposal which is
and its travel industry.

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 KICKOFF 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

at the Bandaranaike International Airport (BIA), THE DESTINATION


will be crucial in driving arrivals and catering to SUCH AS THE HERITAGE
the envisaged future demand and promoting
Colombo as a unique tourist destination in
AND IMMERSIVE Habarana Village by Cinnamon
Cinnamon Lodge Habarana
the South Asian region. The interim terminal CULTURAL EXPERIENCE
at the BIA which focusses on the departures OF SRI LANKA.
terminal, being the most congested area
in the past, is expected to accommodate
Cinnamon red Kandy*
an additional capacity of approximately 2 Cinnamon Citadel Kandy
million passengers. It is noted that the interim Cinnamon Grand Colombo
terminal is a short-term solution, till such time Cinnamon Lakeside Colombo
Cinnamon red Colombo
the second phase of the BIA expansion is
completed. Cinnamon Bey
Beruwala

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

138 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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

The construction of “Cinnamon Life” is progressing with encouraging momentum

Vision and Scope Property Real Estate


Development
The property arm of the Group consists of the Property Development and Real Estate
sectors. The Property Development sector is currently engaged in the development of
the “Cinnamon Life” integrated development project and the management of the 18-hole
championship standard golf course in Rajawella along with its land bank. The Real Estate
sector includes the property division of Asian Hotels and Properties PLC - the developers of
“The Crescat Residencies”, “The Monarch”, “The Emperor”, and the upmarket shopping mall
“Crescat Boulevard”. The sector operations also include “K-Zone” malls in Moratuwa and Ja-
Ela The sector has also successfully developed and sold properties such as the “OnThree20”
CARBON FOOTPRINT
and the recently completed “7th Sense” project on Gregory’s Road.

Contribution to JKH Group


804 MT
(2016/17: 924 MT)

1% Revenue

5% EBIT EBIT

Rs.1.30 bn
35% Capital employed

1% Carbon footprint
(2016/17: Rs.690 mn)

140 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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. MULTIFAMILY 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.

141
INDUSTRY GROUP REVIEW
Property

Colombo. The 145,000 square foot mall also


DURING THE YEAR UNDER REVIEW, THE PROPERTY maintained occupancy levels near full capacity
INDUSTRY GROUP ANNOUNCED THE LAUNCH OF ITS throughout the financial year. “K-Zone”
Moratuwa maintained an average occupancy
LATEST RESIDENTIAL DEVELOPMENT, “TRIZEN”; AN 891
of 79 per cent [2016/17: 85 per cent] while “K-
APARTMENT JOINT VENTURE RESIDENTIAL DEVELOPMENT Zone” Ja-Ela maintained an average occupancy
WITH INDRA TRADERS PRIVATE LIMITED. of 85 per cent [2016/17: 84 per cent] in the
year under review.
transactions will also hamper the return transformation and innovation in Colombo’s
profiles of developers and investors alike. real estate market. Pre-sales have commenced, Rajawella Holdings Limited, which owns a long-
and initial bookings are very encouraging. term lease over 500 acres of land in Digana,
However, it is heartening that the Government including an 18-hole Donald Steele designed
announced the removal of restrictions on The construction of “Cinnamon Life” is golf course, entered into a partnership for
the purchase of property by foreign parties/ progressing with encouraging momentum management of the golf course with Troon
companies. The formal enactment of this with the completion of the super structure International in 2018/19. Troon International is
amendment, combined with a newly of buildings expected in the second half of the largest golf course operator in the world
introduced long-term visa scheme, will help 2018/19. The installation of the façade of the with over 2.5 million members worldwide.
drive external demand within the industry hotel commenced in May 2018 while the six- The partnership is expected to enhance the
given the lucrative investment opportunities lane bridge, which is the main access point of visibility of the golf course to players across the
and prospects in the country. Furthermore, the the hotel, will be completed towards the latter globe, thereby driving membership growth. A
Central Bank of Sri Lanka’s efforts in moving half of the year. Currently, over 1,600 workers total of 8 golf tournaments were held during
towards a more systematic regulation, by are employed on site. Pre-sales for residential the financial year. A major refurbishment of
creating a property index in conjunction with spaces continue to be encouraging with over the golf course and relaying of the fairways are
the industry, encourages enhanced visibility 60 per cent of the floor area being sold as at 31 currently underway.
to the sector, thus providing an independent March 2018. The project is slated for completion
perspective on property prices. in the calendar year 2020 with the residential In order to capitalise on opportunities arising
apartments and office complex ready for in the real estate and property development
During the year under review, the Property hand over and occupation by early 2020. It is industry of the country, the industry group
industry group announced the launch of pertinent to note that revenues emanating is currently pursuing a land banking strategy
its latest residential development, “Tri-Zen”; from the sale of the residential and commercial with a view to monetising such investments in
a 53-storey, 891-residential apartment joint spaces will be recognised only upon the the short to near term. The steady execution
venture development with Indra Traders completion of the “Cinnamon Life” project. and development of projects in the near term
(Private) Limited. The construction of the is expected to generate a robust cashflow
complex will commence in the second The mall operations of the Group witnessed cycle for the industry group. In light of this, the
half of 2017/18, at Union Place, Colombo 2, steady growth in the year under review, with Group consolidated a large part of its property
with expected completion in 2022/23. This all properties recording increased occupancies assets into a property holding company;
unique development will target a broader and footfall growth on the back of various J K Land (Private) Limited, established in
section of the market with apartments offered events, promotional campaigns and other September 2017. Whittal Boustead Limited
at attractive price points. The project has complementary activities. The “Crescat (WBL); a wholly owned subsidiary of JKH
many unique state-of-the art features and Boulevard” mall maintained its position as a is being positioned as the operating/
is poised to continue JKH’s trend of driving leading retail destination within the City of development management company for the
Group’s development pipeline. Driven by the
prevalent development opportunities within
the industry group, the Group engaged in
re-evaluating its brand presence within the
market. To this end, “John Keells Land” was
rebranded “John Keells Properties”.

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

142 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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

143
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

The industry group has made a conscious


effort to reduce its energy and water
NATURAL CAPITAL Carbon Footprint
usage while monitoring the responsible
discharge of effluents in line with the Group’s
environmental policies, guidelines and • Property : 804 MT
In engaging in its core value creation activities industry best practice.
of development and sale of residential and The material topics relevant to the Property
commercial real estate, the Property industry industry group, identified under Natural The ensuing section discusses key targets
group identifies and recognises its impact on Capital are as follows: under the aforementioned material topics and
natural resources in its area of operation. As its corresponding impacts. The section also
such, the Group places increased emphasis Energy and emissions management entails the various initiatives undertaken with
on minimising material impacts to natural a view to achieving relevant targets.
resources.
Waste management and effluent
discharge

Energy and Emissions Management


Relevance/Implication Targets Initiatives
Financial implications • Reduce energy consumption • Continuous replacement of fluorescent and incandescent lamps with
and environmental LED lamps throughout the industry group premises, which resulted in an
responsibility accumulated annual savings of 45,140 kWh
• Improvements were made to operational processes such as chiller
management, isolation of lighting areas and scheduled preventative
maintenance which led to savings of 12,772 kWh

144 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Waste Management and Effluent Discharge


Relevance/Implication Targets Initiatives
• Compliance with • Maintain effluent discharge parameter • WBL installed a drip-irrigation system that uses condensed water from air
Government within Environmental Protection conditioners to water plants at the property
regulations, industry License (EPL) limits • Continued awareness programs and trainings were conducted on
regulations and • Re-use waste water where applicable minimising water usage for caretakers and residents at RHL
prerequisites of
• Waste is segregated across the property industry group and paper,
lending agencies
plastic and other applicable dry waste is recycled via contracted third
• Implications on party recyclers
brand image and
• K-Zone Ja-Ela disposed of its food waste by way of regular supplies to
the environment
local farmers as animal feed while the organic waste was composted
within the Mall premises
• Given “Cinnamon Life” project’s proximity to Beira lake, added filter
systems and extensions to existing filter systems were implemented to
ensure that all water discharged from sediment tanks meet the required
high standards

Indicators
2017/18 2016/17 %

Carbon footprint (MT) 804 924 (13)

Waste disposed (kg) 117,735 105,437 12

HUMAN CAPITAL

The overall real estate and property market


has been experiencing rapid growth in the
recent years creating a high demand for
outsourced personnel of both skilled and
unskilled labour categories. The shortage of
labour within the sector is a primary challenge
faced by the industry group as discussed in
the External Environment and Operational
Review of this industry group report. Given
the nature of the industry, the health
and safety of its outsourced contractors’
personnel is considered a material topic and
impacts the well-being and the productivity Training carried out for contractor’s personnel of the Property industry group
of the workforce. The relevance, targets
and initiatives under this material topic is
Indicators
tabulated overleaf.
The table below excludes the safety incidents reported by its construction contractors and as such
the industry group continues to engage with its contractors to minimise such instances

2017/18 2016/17 %
Number of Employees Injuries and diseases (number) 1 1 -
• Property : 256
Total hours of training 2,448 1,716 43

145
INDUSTRY GROUP REVIEW
Property

Occupational Health and Safety


Initiative Targets Brief Description
• Monitor occupational • Uphold health and safety standards • Food sample testing was carried out in all shopping malls at
health and safety within the value chain prescribed intervals to ensure the maintenance of food hygiene
incidents and practices • Maintain OHSAS 18001:2007 standards
in the supply chain while certification at all shopping malls • Employee training programmes on first aid, fire safety, food
continuously assessing hygiene and basic health and safety were carried out throughout
risks faced by the Property the industry group to uplift service quality
industry group due to its
• Continued the dengue prevention initiatives through the
business model of utilising
identification of stagnant water areas and installation of drain lines
third party construction
to maintain clean conditions on all sites
contractors
• All shopping malls continued to maintain OHSAS 18001:2007
certificate. Relevant surveillance audits and internal audits were
carried out for maintenance, housekeeping and security, in
addition to annual management reviews

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.

Supplier Development and Social Responsibility


Initiative Targets Brief Description
Engrain sustainability in its • Environmental and social • A total of 518 training sessions on safety while working on high
supply chain through supplier impact assessments prior to the rise floors were conducted for the contracted labour force and
engagement and assessment, commencement of new projects supervisory staff at “Cinnamon Life”
for both existing and new • Uphold health and safety standards • 6,947 training sessions were completed including on the spot
operations, thereby reducing within the value chain training, special training and refreshment trainings on areas such
operational and reputational as safe lifting, signal men and traffic management, for contacted
risks to the business staff at “Cinnamon Life”
• Other training carried out at “Cinnamon Life” includes monthly
emergency evacuation drills, first aid training, fire warden training
and advance fire-fighting training
• All companies within the industry group reviewed and tested
their business continuity plans on a regular basis to ensure risk
management and adaptability
• All suppliers are required to sign off on a sustainability check-list,
where the industry group maintains stringent criteria for pre-
qualification of suppliers/contractors
• The Property industry group, in collaboration with John Keells
Foundation, continued to refurbish and maintain the Slave Island
Railway Station, including its water and sanitation and garden
facilities, to enhance commuter experience

Impact:
• Investment: Rs.673,692
• Users benefited: 714,100

Health and safety training conducted at “Cinnamon Life”

146 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

The significant suppliers within the industry group are The significant suppliers specific to Rajawella Holdings Limited is depicted below:
illustrated below:

Significant Suppliers Significant Suppliers

Construction Architects and Food and beverage Travel agents and


Engineers Amenities Casual employees
contractors interior designers suppliers travel websites

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.

Initiative Brief Description


Product Development • The Property industry group launched “Tri-Zen” under is Metropolitan product category, in the second half of 2017/18.
The project is designed to include smart, efficient living spaces complemented by a variety of urban community facilities
• Tri-Zen will be optimised through the incorporation of cutting edge smart home features
Marketing initiatives • Promotional activities for “Cinnamon Life” have been carried out in Toronto, Canada and India

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.

147
INDUSTRY GROUP REVIEW

Consumer Foods and Retail

A re-branded “Keells” outlet

Vision and Scope Consumer Retail


Foods
The Consumer Foods sector is home to a portfolio of leading consumer brands including “Elephant
House” soft drinks and ice creams, as well as the “Krest” range of processed meats; all leaders in
their respective categories and supported by a well-established island-wide distribution channel.
The Consumer Foods sector competes in three major categories namely beverages, frozen
confectionery and convenience foods.

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

Contribution to JKH Group


38,381MT
(2016/17: 33,407 MT)

39% Revenue

15% EBIT EBIT

Rs.4.13 bn
6% Capital employed

40% Carbon footprint


(2016/17: Rs.5.49 bn)

148 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Industry Group Structure variants of the current CSD portfolio. Whilst


the Government’s efforts to reduce sugar
Consumer Foods and Retail consumption is commendable, the Group
believes that a more systematic approach
towards engaging the industry would
Consumer Foods Retail be better suited for the country. As such,
although anticipated in the medium term,
JayKay Marketing Services the sudden introduction of such policies,
Ceylon Cold Stores (CCS)
(JMSL) operates the “Keells” negatively impacted the medium-term
Produces and markets a portfolio of soft drinks under the
“Elephant House” brand, an energy drink under the “Wild chain of modern retail plans of CCS and other industry players,
Elephant” brand, an isotonic sports drink, “F5”, a fruit based outlets and the “Nexus where stability and consistency of policy and
tea drink, “Twistee”, a fruit flavoured drink “Fit-O”, flavoured Mobile” loyalty programme dialogue with all stakeholders could have
milk branded under “Elephant House” (EH) and “Imorich” resulted in a more beneficial outcome.
ice creams and related confectionery product
It should be noted that the installation of a
Keells Food Products (KFP) new bottling line at an investment of Rs.2.80
Produces and markets a range of processed meat products billion, as discussed in the JKH Annual Report
under the “Krest” and “Elephant House” brand names in
2016/17, has been deferred, on the back of
addition to a ready-to-eat range
lower CSD volumes post the introduction of
excise duty on added sugar content, which
Key Indicators has resulted in lower capacity utilisation
Inputs (Rs.mn) 2017/18 2016/17 % Change 2015/16 within the current facility. The project will be
Total assets 26,062 18,275 43 15,862 re-evaluated as and when the market demand
Total equity 9,665 8,414 15 7,803 conditions stabilise based on the introduction
of reformulated new products.
Total debt 5,577 1,121 397 812
Capital employed 15,242 9,535 60 8,616 Along with the industry, CCS will continue
Employees 5,427 4,446 22 3,692 to engage with relevant regulatory bodies
to collaboratively work towards meeting
the objective of sugar reduction through
Outputs (Rs.mn) 2017/18 2016/17 % Change 2015/16
reformulation of recipes and innovation in
Turnover3 53,211 45,812 16 36,458 a manner that is beneficial to the customer,
EBIT 4,131 5,486 (25) 4,497 Government, and sustainability of the business
PBT 4,098 5,466 (25) 4,472 and its value chain and related stakeholders,
which include small scale farmers, distributors
PAT 2,892 3,896 (26) 3,229
and retailers. As an immediate response to the
EBIT per employee 0.8 1.2 (38) 1.2 regulatory developments, CCS implemented
Carbon footprint 38,381 33,407 15 29,060 the following initiatives;
• Reformulation of the flagship flavours
External Environment and Operational Review of the CSD portfolio using the natural
Sri Lanka recorded a GDP growth of 3.1 per cent in the calendar year 2017, a notable slowdown sweetener - Stevia
in comparison to the growth of 4.5 per cent recorded in 2016. Against this backdrop, the impact
• Launch of a sugar free CSD variant for
of changes in other macro-economic indicators such as interest rates, inflation and the exchange
many of its flavours within the portfolio -
rate, consumer discretionary spend was subdued, resulting in a decline in volumes across several
branded “GO Sugar Free”
categories in the FMCG market. The uptick in inflation, particularly in essential commodities and
fresh produce, coupled with subdued consumer spending also impacted the retail industry, • Acceleration of non-CSD product launches
although to a lesser extent as spending is somewhat insulated by consumer necessity spend.

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

The export market for beverages witnessed


encouraging growth of 11 per cent primarily
driven by the UK and the EU markets in the
year under review, underscoring the demand
for the diverse flavour portfolio of “Elephant
House” which includes its flagship flavours;
Ginger beer, Necto and Orange Crush.

The performance of the Frozen Confectionery


(FC) business of the Group was subdued
during the period under review leading to
a volume reduction of 4 per cent as a result
of the aforementioned tapering of demand
and the slowdown in consumer discretionary
spending. The bulk segment of the industry
group recorded a decline of 12 per cent
while the impulse segment recorded a
“Imorich”, the premium segment of the Frozen Confectionery business marginal increase of 0.2 per cent in the year
under review. However, despite the general
“Fit-O”, which was launched in November 2016 contraction in the overall market, the premium
IN LINE WITH OTHER in keeping with evolving consumer trends segment of the Frozen Confectionery business,
COUNTRIES IN THE REGION, and life styles, has been above expectations “Imorich”, witnessed encouraging growth in
THE GROUP EXPECTS in the year under review. With the aim of the year under review, albeit off a lower base.
gradually rebalancing the beverage portfolio
A SHIFT IN THE BULK and creating value to our consumers through In line with other countries in the region, the
TOIMPULSE SEGMENT nutritious lifestyle beverage options, CCS Group expects a shift in the bulk to impulse
launched a ready-to-drink (RTD) flavoured segment demand dynamics, with a greater
DEMAND DYNAMICS, WITH
milk in April 2018. The product is available consumer inclination towards the impulse
A GREATER CONSUMER in chocolate, vanilla and strawberry flavours. market in the medium to long term. Against
INCLINATION TOWARDS THE CCS will continue to leverage on its “Elephant this backdrop, given the expectation of growth
House” brand strength and distribution in the impulse segment of the FC business, the
IMPULSE MARKET IN THE network with the launch of such products, Group invested Rs.4.2 billion in a new ice cream
MEDIUM TO LONG TERM. enabling the business to capture market share. production facility in Seethawaka in 2016/17.
The construction of this facility, which houses
state-of-the-art technology and infrastructure,
CCS undertook reformulations to replace Please refer the Intellectual Capital has reached completion and commenced
a further 15 per cent of the calorific sugar section of this Report for further commercial operations in the first quarter of
content, over and above the 30 per cent information. 2018/19. The factory will significantly enhance
reduction achieved in 2016/17, of its flagship the production capacity of the business and
CSD flavours with Stevia; a natural sweetener has provisions for further expansion of capacity.
with zero calories. The flagship flavours This facility is also expected to positively
included Necto, Orange Crush and Cream impact the margins of the business, creating
Soda, among others. In addition to the
reformulation of these products, CCS launched
the “GO Sugar Free” range in April 2018, a
beverage portfolio consisting of the same
flavour portfolio, although with no calorific
sugar content. The portfolio currently consists
of Necto, Orange Crush and Cream Soda
flavours in five pack sizes and will be expanded
to encompass a larger range in the near term.

In furtherance of the Beverage business’


strategy to diversify its portfolio to create
a more balanced mix of CSD and non-CSD
variants, the business launched its third fruit
drink flavour variant in “mixed fruit” under
the brand “Fit-O”. Preliminary volume sales of

The Beverage business has an extensive portfolio that consists of 18 sub-brands

150 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

KFP LAUNCHED ITS FIRST


READYTOEAT RTE
RANGE OF PRODUCTS
WITH SPECIAL FOCUS ON
CONVENIENCE MEALS
WHICH REPLICATES HOME
COOKING.
During the year under review, the Retail sector
of the Group continued to outperform market
growth, driven by the rapid expansion of new
stores, underscoring the value created by the
brand and the service offering. However, the
rate of growth and the margins of the Retail
State-of-the-art equipment at the new ice cream production facility in Seethawaka sector was impacted by the slowdown in
consumer discretionary spending as discussed
further economies of scale and operational previously. The tightening macro-economic
• Recognised among the top 20 most conditions coupled with price ceilings
efficiencies while allowing the business to
valuable Sri Lankan brands by leading imposed on some essential goods negatively
enhance its impulse offering.
international brand consultancy, impacted the average basket value (ABV)
“Interbrand” (the only consumer foods and the gross margins of the business, in the
The business continued to maintain its
brand to be highlighted within the top year under review. Overall growth within the
leadership position in the frozen confectionery
20) business was driven by same store footfall
market in the Maldives with a volume growth
of 13 per cent in the year under review. growth of 5.6 per cent, against 10.5 per cent
recorded in the previous year, reflective of
CCS’s wide network of beverage and FC retail the challenging environment witnessed
Please refer the Intellectual Capital
outlets of over 90,000 and 35,000 continued section of this Report for further during the year. The moderation of growth
to witness enhanced efficiencies stemming information. in same store sales was also impacted by the
from the Distribution Management System rapid store expansion plans of the sector and
(DMS) which enables the analysis of real the corresponding “cannibalisation” effect it
Keells Food Products (KFP) recorded a volume
time information and monitoring of sales entailed, particularly in instances where new
growth of 3 per cent during the year under
force productivity. Sales force automation via stores were opened in proximity to existing
review. The volume uptick was driven by the
hand held devices has also been completed stores.
growth in the sausage segment, particularly
across both the Beverage and FC businesses within the modern trade channel. The
contributing to higher efficiencies within the The year under review marked the largest store
crumbed range of the “Krest” product portfolio,
sector. expansion in the history of the business, during
particularly the chinese rolls range, witnessed
which the business opened 23 conforming
encouraging growth during the year.
CCS continued to place significant emphasis stores while discontinuing 7 existing stores
on brand and service quality development resulting in a total of 80 stores as at 31 March
Evolving consumer lifestyles, attitudes towards
of “Elephant House”, product pack sizes, 2018. Although the Retail business planned
cooking and consumption habits have led
packaging and various other cost management for an initial roll out of 40 new retail stores in
to increased emphasis on convenience and
measures and productivity enhancement 2017/18, this was subsequently pared down
nutrition. As such, demand for easy-to-prepare
initiatives to drive profitability. to accommodate the new brand roll out. The
and ready-to-eat single serve products which
pace of new store roll outs was also impacted
are nutritious, convenient and provide value-
due to longer than anticipated timelines to
for-money are expected to be on a growth
• In recognition of the high-quality obtain building approvals and legal clearances
trajectory. To capitalise on this opportunity,
standards and the unique taste pertaining to land.
KFP launched its first ready-to-eat (RTE) range
profile, CCS were recognised at the
of products with special focus on convenience
SLIM-Nielsen People’s Awards of 2017 The spread of the retail outlets has evolved
meals which replicates home cooking. The
following a consumer survey; from a high concentration in the Western
range included frozen meals such as spaghetti,
ƒ “Elephant House Cream Soda” won province to the suburban areas of the
pasta, chicken fried rice and biriyani, in
the People’s Beverage Brand of the country. Based on extensive research and
addition to the ambient curry range, where
Year in consultation with international retail
commercial test marketing has begun. The
consultants, as outlined in the ensuing
ƒ People’s Youth Choice Brand of the export market performance of KFP was in
section, JayKay Marketing Services (JMSL)
year for the 12th consecutive time in line with expectations. Exports to Maldives
initiated a review of its brand position to
March 2018 recorded a growth of 87 per cent in the year
identify ways to further differentiate itself
under review.

151
INDUSTRY GROUP REVIEW
Consumer Foods and Retail

from competition through better serving the


needs of its customers. This exercise included
an extensive study of consumer lifestyles and
preferences, both current and emerging, and
the delivery of the brand promise of the Retail
sector. As part of this exercise, a new brand
identity was developed and incorporated in all
new stores opened post December 2017. All
existing outlets are expected to be refitted and
rebranded by December 2018.

Out of the 80 outlets in operation, 12 are in


conformance with the new brand guidelines
as at 31 March 2018. The new “Keells” modern
trade brand and the core purpose of the
brand was developed and fine-tuned after
extensive study into consumer preferences
and expectations at a grass-root level. The The world foods section of a newly branded “Keells” outlet
new store format was developed to epitomise
JMSL’s “fresh” promise, service excellence and well received, with preliminary feedback from “Organic”, “Lite” and “Free From”. The range will
quality within 5 activity pillars; product, price, customers exceeding expectations, while it feature dry packaged food items such as sugar,
place, people and the customer. The layout is also reflected in the financial performance dhal, canned fish, rice and milk, amongst
of the new stores focusses on customer where new stores have performed well above others, while the household range will feature
convenience, with navigation across the feasibility. many other items.
store enabled by colour coded sections
demarcating the fresh food, grocery items Keeping in line with the overall brand revamp, As discussed under Human Capital, attrition
and in-house bakery. The stores also offer an the business will continue to launch products remained a key challenge throughout the
extensive range of new services for added under its private label, “Keells”, several of which retail industry. In order to cater to the staffing
convenience of its customers which include were launched in March 2018. The products requirements of the new outlet pipeline in
freshly prepared meals, including pastas and will be consolidated under the following the near-term, JMSL successfully conducted
pizzas, and juices. The brand revamp has been product tiers, namely; “Good”, “Better”, a “1,000 job” recruitment drive to employ and
train 1,000 non-executive cadre employees.

JMSL WILL INVEST IN A STATE OF THE ART 225,000


Please refer the Human Capital section of
SQUARE FOOT CENTRALISED DISTRIBUTION CENTRE this Report for further information.
DC TO CATER TO THE EXPANSION OF ITS STORE
NETWORK AND FURTHER ENHANCE AND IMPROVE THE
JMSL will invest in a state-of-the-art 225,000
OPERATIONAL PROCESSES AND THE “FRESH” SUPPLY square foot centralised distribution centre
CHAIN. (DC) to cater to the expansion of its store
network and further enhance and improve the
operational processes and the “fresh” supply
chain. The new DC will enable the business to
centralise all its dry goods, thereby maximising
efficiencies, while it will also handle fresh
and chilled products. Site preparation for
construction commenced in May 2018. The DC
is expected to be operational by March 2020.

The Nexus Mobile loyalty programme


continued to be a key tool in retaining and
attracting customers. The membership reached
a landmark of 900,000 customers, making it
one of the most successful loyalty programmes
in the country. The sector continued to
leverage on data analytics as a tool to better
understand consumption patterns and target
promotions and offers which specifically
The new store layout at the “Keells” in Attidiya benefited its customer base.

152 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Capital Management Review CONSUMER FOODS AND RETAIL


Progressing from the discussion on the External Environment and Operational Review, the INDUSTRY GROUP REVENUE
discussion that ensues captures the forms of Capital available, and how each of these forms of
Capital are honed to create value for all stakeholders.
Rs.53.21 bn
The discussion on the Capitals, where relevant is structured to emphasise goals, targets and Growth of 16 per cent
initiatives under each of the Capitals.

for the store roll out also resulted in higher


Goals under relevant Capital Targets we set for ourselves Our initiatives than anticipated costs, resulting in a
decrease in EBIT
• KFP recorded an EBIT of Rs.353 million
Earnings Before Interest and Tax (EBIT) [2016/17: Rs.401 million], a decrease of
. FINANCIAL AND • The industry group recorded an EBIT of 12 per cent against the previous year. The
MANUFACTURED CAPITAL Rs.4.13 billion [2016/17: Rs.5.49 billion], decline in EBIT was primarily driven by an
a decrease of 25 per cent against the increase in marketing and promotional
previous financial year costs pertaining to the rebranding of
As at 1 April 2017, the Consumer Foods and “Krest” during the year
• The decline in EBIT is mainly on account
Retail industry group had total assets of • The EBIT of the industry group included
of the Consumer Foods sector, and to
Rs.18.28 billion, debt of Rs.1.12 billion and an fair value gains on investment property
a lesser extent, the Retail sector. Whilst
opening equity capital of Rs.8.41 billion. amounting to Rs.22 million [2016/17: Rs.92
being impacted by lower volumes and the
resultant decline in scale efficiencies, the million] pertaining to CCS. The recurring
Financial Performance EBIT, excluding the fair value gains on
Consumer Foods sector was also impacted
Revenue investment property, was Rs.4.11 billion in
by an increase in cost of sales stemming
• Revenue of the industry group increased from increased material costs including comparison to the Rs.5.39 billion recorded
by 16 per cent to Rs.53.21 billion in the year excise duty paid on added sugar. It is noted in the previous year
under review [2016/17: Rs.45.81 billion] that the material cost per litre of beverage • The PBT of the industry group decreased
• The Retail sector recorded a revenue and ice cream produced increased by 17 by 25 per cent to Rs.4.10 billion [2016/17:
of Rs.37.59 billion [2016/17: Rs.29.81 per cent and 7 per cent, respectively Rs.5.47 billion] whilst the recurring PBT
billion], a 26 per cent increase against • EBIT of the Retail sector was Rs.1.53 billion, decreased by 24 per cent to Rs.4.08 billion
the comparative period, driven by same a decrease of 9 per cent against the [2016/17: Rs.5.37 billion]
store footfall growth and incremental previous year [2016/17: Rs.1.68 billion] • Going forward, given the investment
revenue generated from newly opened As stated, the Retail sector margins were pipeline of the industry group and the
outlets, which have performed beyond impacted by the imposition of controlled related financing costs such investments
expectations in the year under review prices on certain essential commodities. will entail, an analysis of EBIT will be
• The growth in revenue of the Retail sector The investment and marketing costs more reflective of the true operational
was marginally offset by a 2 per cent associated with the re-branding initiative performance of the industry group
decrease in revenue of the Consumer and the capacity building in preparation compared to PBT.
Foods sector to Rs.15.62 billion [2016/17:
Rs.16.00 billion]
• The revenue decrease in the Consumer Turnover
Foods sector was on account of both %
the Beverage and Frozen Confectionery 2015/16 39 61
businesses recording volume declines of
16 per cent and 4 per cent, respectively. 2016/17 35 65
The decline in volumes stemmed from
2017/18 29 71
the continued tapering of demand arising
from subdued consumer discretionary
EBIT
spending. The volume decline in the
Beverage business was further exacerbated %
by the implementation of a sugar tax from 2015/16 72 28
November 2017 onwards, which resulted
in substantial price increases across the 2016/17 69 31
industry
2017/18 63 37
• Revenue of the Convenience Foods
business was recorded at Rs.2.27 billion Consumer Foods Retail
during the year under review [2016/17:
Rs.2.30 billion]

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

154 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Energy and Emissions Management


Relevance/Implication Targets Initiatives
Financial, regulatory Reduction of energy consumption and • Installation of dissolved oxygen sensor and Variable Speed Drive to reduce
and brand reputation the resultant reduction in carbon footprint energy consumption in effluent treatment plants resulting in a 66,000
implications through various initiatives and better kWh annual energy saving at the CCS factory
management of infrastructure • Optimisation of blow mould pressure from 35-bar to 28-bar and the
removal of the compressed air blower from date coder resulting in 12,975
kWh annual energy savings at CCS
• Continuous replacement of fluorescent and metal halide lights with LED
lights within all premises of the industry group
• CCS continued to sustainably source its carbon dioxide requirement from
overseas, which is purified from a by-product of a fertilizer manufacturing
plant, thereby offsetting the need for combustion of fossil fuel
• JMSL adopted a building design that ensures energy savings by
incorporating skylights, LED lighting, operational guidelines and efficient
cooling systems. The design has been implemented in over 35 stores, with
plans to ensure all stores built in future adhere to this design guideline.
23 stores were built according to this specification in 2017/18

INSTALLATION OF SOLAR PANELS AT “KEELLS“ OUTLETS


JMSL initiated a project for the
installation of solar panel systems in
“Keells” outlets. Installations were
completed in 10 outlets in the year under
review, with plans to gradually roll out
the project in other outlets.

Total installed capacity in 10 outlets 1,367 kW

Estimated total electricity generation


per annum 1,996,010 kWh

Estimated annual reduction in carbon


footprint 1,360 MT

Water and Effluent Management


Relevance/Implication Targets Initiatives
Regulatory and brand • Water conservation- Reduce the • Improvements made to the effluent treatment plant, including
reputation implications industry group’s withdrawal of water introduction of new equalisation tank, increased de-watering of and
• Alignment with international settling characteristics of sludge holding tanks and auto dosing of
benchmarks chemicals at the Ranala CCS factory has resulted in 22,500 m3 water
savings per annum
• Ensure all effluents meet the requisite
water quality standards • CCS, KFP and selected JMSL outlets continued the reuse of waste water
for gardening and general cleaning purposes within its premises
• Reuse of the pasteurizer cooling water at the CCS frozen confectionery
factory, resulting in savings of 42,000 m3 annually

155
INDUSTRY GROUP REVIEW
Consumer Foods and Retail

Indicators Impacts Through Other Initiatives


The industry group made significant efforts to
2017/18 2016/17 %
reduce the use of plastic and polythene through
Carbon footprint (MT) 38,381 33,407 15 several initiatives, as summarised below;
• JMSL continued its “Red Bag” initiative,
Water withdrawn (m3) 681,366 740,255 (8) providing affordable eco-friendly re-usable
bags to customers and promoting reuse of
Waste disposed (kg) 4,981,207 4,352,611 14 the bags
• JMSL rewarded its customers with green
Carbon Footprint Scope 1 and 2 per Operational Intensity Factor discounts for bringing their own eco-
2017/18 2016/17 friendly reusable bags; approximately
CCS CO2 kg per litre produced 0.1 0.1 35,000 reuses were recorded in a quarter

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:

Human Capital plays a vital role in the


operating model of the Consumer Foods and
Retail industry group. As such, great emphasis
is placed on providing continuous training to
its staff and other suppliers, with the aim of
developing skills and productivity, creating a
safe and healthy work environment as well as
providing a higher standard of service to its
customers.

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

156 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Health and Safety, Training and Talent Retention


Initiative Targets Brief Description
Retaining talent and • Provide regular feedback, necessary • The industry group provided regular health and safety trainings to
upgrading skills of existing training and development throughout its employees, including fire safety and first aid training
staff towards delivering the year to develop employees • CCS and KFP continued to maintain OHSAS certification and
superior customer service • Maintain a healthy working streamlined its organisational processes through continuous
and quality relationship with employee unions monitoring and process improvements to ensure a safe working
through constant dialogue and joint environment
consultative committees • The Retail sector conducted training via interactive videos and
• Minimise occupational health and material to more than 3,000 of its outlet employees
safety incidents • “Keells Retail Academy” (KRA) established an online interactive
• Identify and meet the training needs of platform for training store employees. 2583 of employees have
the staff and reduce employee attrition been exposed to the platform as at 31 March 2018
• Encourage healthy labour relations • Safety gear were fixed to slicers and band saws in meat counters.
This was complemented by providing guidelines and instructions
for safe use of machinery
• Health and safety awareness campaigns were carried out using
novel methods of engagement for the outlet employees, where
trainings were conducted via in store radio channels and printed
material
• Extensive training was provided for outlet executives to develop
skills and capabilities to progress to the next tier of employment
• Successful implementation of the “1,000 Jobs” campaign - an
extensive island-wide recruitment campaign for the aggressive
expansion of the sector, resulted in the recruitment of 1,000 new
employees

Indicators 2017/18 2016/17 %


It is pertinent to note that a majority of the
Injuries and diseases (number) 90 89 1
injuries were minor in nature and no fatalities
were recorded pertaining to the job. Total hours of training 334,897 172,981 94

farming initiatives, among others. The farmers


SOCIAL AND RELATIONSHIP are required to adhere to agricultural practices
SOURCING HIGH QUALITY,
CAPITAL that are environmentally friendly and produce FRESH RAW MATERIAL
high yields while also benefiting from WHILE ALSO ENHANCING
guaranteed volume and price schemes offered
by the Frozen Confectionery and Beverage THE DEVELOPMENT OF THE
The industry group strives to build sustainable
relationships with its supply chain partners, businesses. Companies in the industry group LOCAL ECONOMY IS ONE
annually assess all significant suppliers,
consumers and all other stakeholders in order SUCH STRATEGY EMPLOYED
to continuously enhance the value created including suppliers providing janitorial and
across the industry group. Sourcing high outsourced services, to gauge and remedy any TO CREATE VALUE THROUGH
quality, fresh raw material while also enhancing negative sustainability impacts, as applicable. OPERATIONS. THE INDUSTRY
the development of the local economy is
The material topics relevant to Consumer
GROUP PURCHASES RAW
one such strategy employed to create value
through operations. The industry group Foods and Retail identified under Social and MATERIALS LOCALLY,
purchases raw materials locally, optimising the Relationship Capital are as follows: OPTIMISING THE COST
cost of purchase and ensuring that the Group OF PURCHASE AND
maintains its social license to operate. Supply chain and sustainable sourcing
ENSURING THAT THE GROUP
The Group proactively engages with its diverse MAINTAINS ITS SOCIAL
farmer communities, to create awareness on Community engagement
LICENSE TO OPERATE.
industry best practices to promote sustainable

157
INDUSTRY GROUP REVIEW
Consumer Foods and Retail

Supply Chain and Sustainability Sourcing


Relevance/Implication Targets Initiatives
Ensure a continuous supply • Boosting agricultural activity in • The Retail sector’s sustainable sourcing initiatives target
of raw material which villages, enhancing the quality and improvements in the fresh produce supply chain to ensure
reduces risk, enhances brand sustainability of agricultural practices, safe and fresh produce, benefiting farmers in Sooriyawewa,
reputation and benefits local raising income levels and standards Thambuttegama, Jaffna and Sigiriya. Related activities in this
businesses of living in diverse communities while regard are listed below:
improving stakeholder relationships
ƒ 50+ free soil tests were provided for farmers, upon request
and perceptions
ƒ Free technical assistance
• Source all ingredients and produce
required within Sri Lanka; with exceptions • The Retail sector continued its commitment to minimise fresh
only due to the shortage of raw materials produce wastage via several initiatives, as summarised below.
• Assess all significant suppliers for ƒ Adoption of best practice on raw material sourcing where
environmental, social and labour risks quality of produce is assured in terms of freshness, size, and
• Adhere to the Group’s policies on appearance. Consequently, the farmers too have adapted to
labour, child and forced labour with the the process to provide the best of the harvest to the collection
aim of ensuring no such instances centres
ƒ Use of standard crates to transport fresh produce from
collection centres to the distribution centres and finally to
“Keells” stores, standard crates are used to minimise damage
to produce during transport. Standard crates are provided to
farmers to transport their produce to Collection Centres

• 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;
ƒ 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)
ƒ Vanilla farmers – as a means of protecting the local vanilla
industry, CCS continued to purchase its vanilla beans from the
Kandy Vanilla Growers Association
ƒ 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

158 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

The significant suppliers within the industry group are illustrated below:

Significant Suppliers - Consumer Foods

Plastic packaging
Glass bottles Dairy suppliers Poultry and meat suppliers Sugar suppliers
containers

Significant Suppliers - Retail

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,

159
INDUSTRY GROUP REVIEW
Consumer Foods and Retail

Relevance/Implication Targets Initiatives


Financial, regulatory, • Responsible reformulation • The calorific sugar content in beverages was reduced through the use of Stevia;
brand reputation and of recipes to ensure a natural sweetener with zero calories. As such, the sugar content of major CSD
business continuity the highest standard of brands was further reduced by approximately 45 per cent
implications nutrition and adherence • Sugar free variants of several flavours of the CSD portfolio were developed
to health regulations and
• New flavour variants were introduced in the “Fit-O” fruit juice category; the non-CSD
guide lines
portfolio was also reformulated to include natural flavours
• Formulation of new
• Three types of flavoured milk formulations were developed using fresh milk. No
products and portfolio
added skimmed milk powders were used in the reformulation to ensure the highest
extensions to create value
standard of nutrition and flavour profile
for money products
• KFP launched RTE convenience frozen meals which included frozen white and red
• Ensuring effective
rice variants , spaghetti, pasta , chicken fried rice, biriyani among others
and responsible
communication of • The company also launched its ambient curry range which included the following
nutrition facts and raw flavours;
materials used - ƒ Polos curry
ƒ Ambarella curry
ƒ Dry fish curry
• JMSL obtained SLS certification for over 50 Keells stores and in-store bakeries
• CCS changed the packaging of its product “Twistee” from PET to tetra packaging in
an effort to better preserve the quality of the product. The change in packaging has
also enabled longer shelf life and efficiencies in the product’s supply chain
• Of the 537 stock keeping units which are either manufactured by the Consumer
Foods sector or obtained via private labelling arrangements at the Retail sector,
ƒ 80 per cent carried information on the ingredients use
ƒ 1 per cent carried information on raw material sourcing
ƒ 42 per cent and 92 per cent carried information on safe use, and responsible
disposal of products, respectively

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,

160 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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

In terms of the ability to expand the outlet


SRI LANKA’S MODERN TRADE PENETRATION AT 16 PER network, securing the required land for
CENT IS ONE OF THE LOWEST IN THE REGION, SIGNIFYING development within proximity to residential
neighbourhoods in the suburban areas has
THE OPPORTUNITY AND NEED FOR FURTHER EXPANSION proved to be challenging so far. However, it
IN THIS SECTOR. is encouraging that the business has been
able to secure a number of land plots for
The impulse production facility is expected “convenient” main meal options. As such, development as at 31 March 2018.
to be pivotal to the long-term growth KFP will launch its first instant rice range
prospects of the business, given its scalability and canned convenience food range in the The Group acknowledges that the key
and operational efficiencies as discussed in ensuing year, developed to deliver on nutrition challenges faced by the Retail sector will
the External Environment and Operational and convenience. The Group believes that primarily stem from managing labour and
Review section of this Report. In addition the RTE meals range, inclusive of the “Instant ensuring consistent quality and process
to production efficiencies, the facility will rice” range, will revolutionise the convenience excellence across its store footprint. To this
enhance the scope and the portfolio of the meals market in Sri Lanka, paving the way end, further investments will be made to
business, mitigating the need to import for the business to increase its market share improve and optimise the store layout and
impulse products under the “Elephant as a trusted and leading convenience meals offering under the new brand guidelines in the
House” brand at a higher cost. As such, the provider, over its other processed food ensuing years, thereby enhancing the brand
production of impulse products domestically competition. Added focus will also be placed value to epitomise the “fresh” promise of the
will further improve margins of the business in the ensuing year on KFP’s export strategy, retail operation. As mentioned previously, it
and availability of products. However, it is which is aimed at increasing volumes to the is noted that the new brand is expected to
noted that the significant investment in this Maldives. be rolled out across all existing operational
facility and associated depreciation of the stores by November 2018. The brand revamp
infrastructure coupled with the financing Sri Lanka’s modern trade penetration at 16 is expected to contribute towards positioning
expenditure, is likely to impact the financial per cent is one of the lowest in the region, the business amongst its customers, and also
performance of the business in the short signifying the opportunity and need for further places the business in good stead to withstand
term. To ensure successful distribution from expansion in this sector (Thailand: 40 per cent, impacts from international competition, which
factory to customer, particularly given the Malaysia: 49 per cent, Indonesia: 12 per cent). materialised for the first time in Sri Lanka in
significant capacity enhancement, the Frozen It should be noted that the population per 2017/18.
Confectionery business will place significant store in Sri Lanka is also significantly higher
emphasis on retail channel development than that of other comparable countries, The Retail business will continue to focus on
by way of investment in trade development although this statistic should also be looked differentiating the shopping experience to its
activities, freezers and coolers, among other at in the context of store format, population customers through the quality of its produce,
route to market initiatives to maximise the density and other country specific factors. particularly in the fresh products ranges, whilst
benefit from the installed capability. Leveraging on this unique opportunity, also driving service standards and customer
coupled with the growth in urbanisation and care. Nexus Mobile, the loyalty programme of
The expansion of the Convenience Foods connectivity within the country, the Retail the Retail business, will continue to add value,
portfolio is an ongoing priority, given the business of the Group will continue to invest enabling the business to identify key trends in
greater emphasis on the “health conscious” in expanding its store footprint with greater customers and shopping lifestyles using data
consumer and the growing need for emphasis on expanding outside the Western analytics.

161
INDUSTRY GROUP REVIEW

Financial Services

During the year under review, NTB launched “FriMi” Sri Lanka’s first digital bank

Vision and Scope Insurance Banking and Stock Broking


Leasing
The segment is engaged in a broad range of financial services
across insurance, commercial banking, debt trading, fund
management, leasing and stock broking, with a vision of
becoming leaders in the respective segments through
proactive customer centricity and digital adoption

CARBON FOOTPRINT

Contribution to JKH Group


1,417 MT
(2016/17: 1,391 MT)

13% Revenue

30% EBIT EBIT

Rs.8.58 bn
6% Capital employed

1% Carbon footprint
(2016/17: Rs.2.10 bn)

162 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Industry Group Structure On the policy front, several measures


were enacted by the Central Bank of Sri
Financial Services Lanka to promote a dynamic and resilient
financial services industry. These include the
introduction of a transparent market-based
Insurance Banking Stock Broking auction framework for Government securities
Union Assurance (UA) offers Nations Trust Bank (NTB) offers John Keells Stock Brokers issuances, the new Foreign Exchange Act
comprehensive insurance complete banking solutions (JKSB) is one of the leading
to augment the performance and efficacy
solutions in the life insurance through its network of stock broking companies in
of foreign exchange transactions, the
segment while general branches for corporate, retail Sri Lanka and has a number of
insurance solutions are offered and SME clients, and is the trade execution relationships
implementation of Basel III including the
through its equity accounted sole acquirer and the exclusive with leading foreign securities strengthening of the framework to regulate
investee Fairfirst Insurance issuer of the flagship centurion houses non-banking financial institutions, and
Limited product range of American measures to digitise and further streamline
Express cards in Sri Lanka the payment and settlement infrastructure,
among others.

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

billion, a growth of 22 per cent, which was well


3.08

3.5
2.72

above the average industry growth of 13 per


3.0
2.5
cent. The growth in GWP was predominately
2.0
driven by product development initiatives,
1.37
1.28

1.5
particularly in the retirement and health
0.83

1.0
segments, reforms in agency structure and
0.49

0.5 transformation initiatives in the distribution


0.0 channel.
Sir Lanka

Vietnam

Indonesia

Philippines

India

America Avg

Malysia

Asia Avg

Thailand

Europe Avg
North

The agency channel grew by 20 per cent


during the year while the bancassurance
channel, albeit from a lower base, recorded
Insurance penetration - life premiums as a % of GDP a growth of 53 per cent, where growth in
both channels were driven by restructuring

163
INDUSTRY GROUP REVIEW
Financial Services

of the leadership of the respective channels,


realigning incentive and recognition structures THE OVERALL
A detailed discussion of the financial
and a focus on talent acquisition. It is implications of the one-off surplus follows PERFORMANCE OF THE
encouraging to note that preliminary sign-ups in the Financial and Manufactured Capital BANKING INDUSTRY WAS
with banks to expand the bancassurance section of this discussion
channel has been promising and signifies the DRIVEN BY STRONG ASSET
prospects of this channel.
UA executed multiple digital initiatives to GROWTH OF 15 PER CENT
UA, which is now in its 30th year of operations
keep abreast with industry trends while VIA THE EXPANSION OF
providing cutting-edge products and
in the Life insurance market, was the third CREDIT AND INVESTMENT
services to its clients. To this end, the business
largest new business producer in the industry,
invested in “eBaoTech”; a system which PORTFOLIOS AGAINST A
recording a 25 per cent growth in new
business and regular premiums during the
enables automation and real-time analysis BACKDROP OF STRONG
of internal processes. The system migration
calendar year 2017. Against this backdrop, UA’s
will facilitate efficiencies in key aspects
CREDIT DEMAND.
market share surpassed 14 per cent as at 31
of the claim settlement process and the
December 2017 a growth of 1.2 percentage
simplification and acceleration of product Nations Trust bank (NTB) witnessed
points over the previous year.
creation and modification. This will also encouraging growth in the year under
pave way for seamless flow of information review driven by strong growth in loans and
On the regulatory front, as stipulated by the new
within the operational process to assure advances, and deposits. The growth of loans
Inland Revenue Act No. 24 of 2017, effective
end-to-end excellence in service delivery, and advances, and deposits at 25 per cent and
from 1 April 2018, life insurance companies
and in developing evolving products that will 28 per cent, exceeded the industry average
will be taxed on the surplus transferred to
enhance value to end consumers. In keeping of 19 per cent and 18 per cent, respectively. It
shareholders from the policy holders fund,
with creating value to the end consumer, UA should be noted that the growth in loans and
and the investment income generated on the
launched several new products such as; advances was primarily driven by the Retail,
shareholder fund net of expenses incurred in
• “Union Pension Advantage” - a universal life SME and Corporate loan book, and to a lesser
the production of such income, as opposed to
product that builds a fund for retirement, extent, by the growth in Leasing, resulting in
the previous tax basis; “I-E” (Investment income -
targeting the retirement needs of the the continuous rebalancing of the portfolio
Management Expenses).
ageing population in Sri Lanka as initiated in the calendar year 2016. On the
regulatory front, the removal of the interest
Union Assurance PLC is liable to income tax • “Union Smart Health Plus+” - a life
rate ceiling of 24 per cent on credit cards with
at 28 per cent in 2017 (2016 - 28 per cent) insurance product which serves beyond
effect from July 2017 augured well for NTB,
in terms of the Inland Revenue Act No. 10 of protection, interlinking and driving healthy
partially off-setting the impact of the marginal
2006 and amendments thereto. Currently, UA lifestyle choices to create value
contraction in net interest margins (NIMs)
does not have an income tax expense as the
during the calendar year 2017 [CY2017: 4.4 per
business continues to report taxable losses. Fairfirst Insurance Limited, the General
cent against CY2016: 4.5 per cent].
Insurance business in which the Group has a
As per the actuarial valuation carried out stake of 22 per cent, recorded encouraging
The launch of the product “Max Bonus” with a
during the calendar year, the Life Insurance premium growth of 34 per cent during the
focus on current account and savings account
business generated a surplus of Rs.3.64 billion. calendar year 2017, with a market share of
(CASA) sales at branches, the launch of digital
11 per cent.
solutions with cross sales initiatives within
As per the Insurance Regulatory Commission
the bank to capture the full wallet and the
of Sri Lanka (IRCSL) guidelines, UA transferred a The overall performance of the Banking
cash flow cycle of the customers, collectively
one - off surplus of Rs.3.38 billion attributable industry was driven by asset growth of 15
enabled NTB to improve the CASA to total
to non-participating and non-unit fund of unit per cent via the expansion of credit and
deposits to 28 per cent. NTB’s cost to income
linked business, from the life policyholder fund investment portfolios against a backdrop of
(CI) ratio improved to 52 per cent during
to the life shareholder fund. Distribution of strong credit demand. Total advances within
the year [CY2016: 56 per cent] as a result of
such reserve is restricted by IRCSL guidelines. the industry increased by 19 per cent on
increased volumes resulting in higher net
UA continued to work closely with the account of increased lending towards key
interest income (NII) while lean initiatives
IRCSL to optimise the implementation of growth sectors of the economy; tourism,
supported the improvement of productivity
regulations that enable industry growth while transport and trade.
and management of costs. NTB also
safeguarding policyholder interests.
implemented an Asset Liability Management
(ALM) System) to strengthen the analytical
UA, WHICH IS NOW IN ITS 30TH YEAR OF OPERATIONS IN capabilities and thereby increase the spread of
THE LIFE INSURANCE MARKET, WAS THE THIRD LARGEST the Bank. This system which encompasses gap
analyses, value-at-risk (VaR) methods, stress
NEW BUSINESS PRODUCER IN THE INDUSTRY, RECORDING testing tools and risk reporting capabilities
A 25 PER CENT GROWTH IN NEW BUSINESS AND REGULAR enables better visibility of risk limits and
PREMIUMS DURING THE CALENDAR YEAR 2017. triggers and aids robust monitoring of risk.

164 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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.

The year under review marked a significant


milestone for the Bank in terms of delivering
inspired innovative banking solutions with the
launch of “FriMi”; the country’s first digital bank,
which enables any Sri Lankan to open a bank
account using a smart phone. “FriMi” is a next-
generation bank account, payment system and
e-wallet that will offer convenience, speed and
added value to the diverse customers using one
integrated digital platform. “FriMi” also provides
easy and simple options to the merchants to
accept cashless payments through QR codes
or mobile to mobile transfers, seamlessly to
their bank accounts. The bank is confident this
is a game changer which will shape the future The NTB smart branch at the World Trade Centre, Colombo

165
INDUSTRY GROUP REVIEW
Financial Services

Capital Management Review FINANCIAL SERVICES INDUSTRY


Progressing from the discussion on the External Environment and Operational Review, the GROUP REVENUE
discussion that ensues captures the forms of Capital available, and how each of these forms of
Capital are honed to create value for all stakeholders.
Rs.17.22 bn
The discussion on the Capitals, where relevant is structured to emphasise goals, targets and Growth of 23 per cent
initiatives undertaken under each of the Capitals

of this Report is Rs.3.85 billion an increase


Goals under relevant Capital Targets we set for ourselves Our initiatives of 255 per cent against the previous
year. Similarly, PAT of the industry group,
excluding the one-off surplus, is recorded
at Rs.5.19 billion, an increase of 154 per
PLC (UA) which recorded a 566 per cent cent
FINANCIAL AND increase in PAT to Rs.7.23 billion in the year • Fairfirst Insurance Limited; the associate
. under review [2017/18: Rs.1.09 billion]. UA
MANUFACTURED CAPITAL company having interests in the general
recorded an annual life insurance surplus of insurance business, witnessed a PAT
Rs.3.64 billion [2016/17: Rs.1.10 billion] and increase of 86 per cent in the year under
a one-off surplus of Rs.3.38 billion. review driven by healthy topline growth as
As at 1 April 2017, the Financial Services
• It should be noted that the life insurance outlined in the External Environment and
industry group had total assets of Rs.41.72
surplus of Rs.3.64 billion [2016/17: Rs.1.10 Operational Review section of this industry
billion, debt of Rs.138 million and an opening
billion] was the optimum value transfer group report
equity capital of Rs.7.59 billion.
for 2017 as indicated by the independent • The Group’s share of PAT of equity
actuary. This is expected to normalise in accounted investee, NTB, increased by 31
Financial Performance
line with the usual course of operations per cent to Rs.1.17 billion on the back of
Profit After Tax
going forward the strong growth in loans and advances
• As the key businesses within the industry
• The earnings of the Insurance business • John Keells Stock Brokers (JKSB) recorded
group comprise of the Banking and
excluding the one-off surplus as discussed a PAT growth of 164 per cent in the year
Insurance sectors, the ensuing discussion
in the Group Consolidated Review section under review
will predominantly focus on PAT, in order to
capture the net earnings of the businesses
as reflected in the financial statements of PAT
the Group %
• PAT of the industry group increased by 2015/16 50 50 0
Rs.6.53 billion to Rs.8.57 billion in the year
under review [2016/17: Rs.2.04 billion] 2016/17 57 44 (1)

• The significant increase in profits in the 2017/18 86 14 0


industry group was on account of the
Life Insurance business; Union Assurance Insurance Stockbroking
Banking

Borrowings and Finance Expense Return on Capital Employed


Total debt pertaining to the industry group
as at 31 March 2018 was Rs.253 million, an
increase of 83 per cent [2016/17: Rs.138 ROCE
million] against the comparative year. The 2017/18: 74.6%
[2016/17: 28.0%]
finance expense of the industry group
increased to Rs.337 thousand, an increase of
74 per cent against the previous year [2016/17:
Rs.194 thousand] primarily as a result of a Asset/(Debt +
notional interest expense recorded at UA Asset turnover Equity)
0.39 3.88

EBIT margin
49.8%

166 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Return on Capital Employed (ROCE)


PAT OF THE INDUSTRY
• The ROCE of the industry group was recorded at 74.6 per cent as compared to the previous
year’s ROCE of 28 per cent. The increase is primarily attributable to the higher earnings reported GROUP INCREASED
by the Insurance business. The ROCE of the industry group excluding the one-off surplus of BY RS.6.53 BILLION TO
Rs.3.38 billion is 54.5 per cent
RS.8.57 BILLION IN THE
• The asset base of the industry group increased by 14 per cent to Rs.47.49 billion
YEAR UNDER REVIEW
• The asset turnover of the business was reported at 0.39 times compared to the 0.36 times in
2016/17 2016/17: RS.2.04 BILLION

Indicators Insurance Banking Stockbroking


Revenue and growth Rs.11.59 billion, 20 per cent increase Rs.5.45 billion, 27 per cent increase Rs.184 million, 61 per cent increase
EBIT and growth Rs.7.38 billion, 501 per cent increase Rs.1.17 billion, 31 per cent increase Rs.23 million, 192 per cent increase

Indicators

NATURAL CAPITAL 2017/18 2016/17 %

Carbon footprint (MT) 1,417 1,391 2

The Financial Services industry group has


a comparatively lower exposure to natural Carbon Footprint
resources than other industry groups given
the service-oriented nature of its businesses.
Regardless, the industry group continuously
strives to minimise negative environmental • Insurance : 1,393 MT
impacts from operations while creating value • Stockbroking : 23 MT
to its many stakeholders.

Initiative Brief Description


Minimising environmental impacts through sustainable energy • Installation of timer switches on split type air condition units at both
conservation initiatives and better management of infrastructure head office and branches resulting in savings of over 117,000 kWh of
across operations energy annually
• Installation of master key switches at head office enabling control of
electricity usage after office hours resulting in savings of over 12,000
kWh of energy annually
• Replacement of traditional lighting with LED lights at branches
conserving over 155,000 kWh of energy annually
Responsible disposal of electronic waste and other through certified • Responsible disposal of over 200 florescent bulbs annually
third party vendors • Recycling of 20,000 kg of paper
• Recycling of used toners and 1,330 kg of e-waste
• Segregation of waste generated at all branches within the industry
group leading to the disposal of 45 kg of food waste per day for use as
animal feed in farms and recycling of used plastic and polythene
• Operating of waste water treatment plants at selected branches
enabling responsible discharge of treated water

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

Occupational Health and Safety


Relevance/Implication Targets Initiatives
Providing a safe Strive to ensure a safe and healthy work • The annual fire evacuation drill was carried out at the UA head office in
working environment environment association with the Colombo Fire Brigade
to improve employee
productivity

Indicators
2017/18 2016/17 %

Injuries and diseases (number) 29 30 (3)

Total hours of training 10,462 13,553 (23)

168 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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
ƒ Dengue sticker campaign
ƒ Direct mailer campaign
ƒ 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

• The industry group conducted programmes to create awareness on


Thalassemia and the prevention of such diseases in collaboration with the
Ministry of Health. The programme had a special focus on educating children,
school teachers and parents on prevention and care

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

169
INDUSTRY GROUP REVIEW
Financial Services

Relevance/Implication Targets Initiatives


• The industry group also developed diabetes pre-screening programme
models with the PHD and the DMOH offices in commemoration of the World
Diabetes Day 2017 aimed at identifying individuals at a potential risk of
diabetes and directing them towards preventive medical attention
Impact:
• An island-wide Diabetes campaign with 38 screening programmes were
carried out together with the Ministry of Sports and the MBC Network in
August and September 2017
• A direct mailer campaign was also implemented targeting an audience of
over 90,000 persons, particularly women and young girls

Ethics, Fraud and Corruption


Relevance/Implication Targets Initiatives
Impact on brand • Zero breaches of the Code • A thorough coverage of corruption and unethical behaviour under the overall risk
reputation and possible of Conduct specified by the management process of the Group, particularly considering the relevance to the
regulatory non- Group, particularly pertaining to Financial Services industry group
compliance fraud and corruption • Intermittent/recurring internal reviews and audits as a continuous approach
towards mitigating fraud and corruption

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.

Initiative Brief Description


Product development • Launch of “Union Pension Advantage Plan” by UA which allows the insured to receive monthly pension payments,
commencing from a chosen retirement age
• Development of “Union Investment Plus”, a single premium investment policy developed and launched targeting
reinvestment of maturity payouts
• Introduction of “Lady Care Critical Illness Cover”, an additional cover attached to the life policy where a lump sum is paid
to the policyholder in the event of diagnosis of a listed critical illness
• Launch of “FriMi”; Sri Lanka’s first digital bank, next-generation bank account, payment system and e-wallet that will
offer convenience, speed and added value to the Bank’s diverse customer base
• Launch of “Kaffeine lab”, an innovation centre, core to the Bank’s strategy of institutionalising innovation, disruption and
change as the Bank invests in developing into a lifestyle partner
• Launch of open API (Application Programme Interface) banking in April 2018
Efficiency and • UA enhanced automated underwriting rules to facilitate speedy acceptance of new proposals thereby encouraging
productivity related advisors to submit proposals digitally to save paper. 94 per cent of all proposals are now submitted digitally.
improvements at UA • Improvements made to the Bancassurance channel through the introduction of “Activity Management Module”
for leads management. This enables monitoring and tracking activities related to the leads, particularly viewing
and monitoring the status of leads that respective banks have given, thereby fostering clear visibility and increasing
transparency
• Simplification of policy documents through video based explanatory guides and QR codes to communicate policy
conditions
• System development for “eConsultants”, a new platform that enables the sales channel to work from anywhere with any
customer across the world
Brand consolidation, • UA’s brand value increased by 46 per cent to Rs.1.80 billion, in 2017/18 while also being recognised as the Most
social media and Respected Insurance Company in the Insurance industry in the LMD Most Respected Entities 2017
communications • NTB launched a cloud-based HR system which automated all aspects of staff administration, enhancing the user
experience for staff and making HR processes simple
• Launch of “Ask Amanda” - a Facebook messenger based Chatbot, which is a chat-based product recommendation
engine which provides life insurance solutions for targeted audience through Facebook campaigns while facilitating
further features to view policy/benefit details and submit claims for existing customers

170 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Initiative Brief Description


Awards and accolades • UA was recognised as one of the 20 Great Places to Work in Sri Lanka for the 5th consecutive year by the Great Place to
Work Institute
• UA HR practices were recognised with two awards at Sri Lanka Best Employer brand awards organised by the World
HRD Congress. UA achieved the title ‘Best Employer Brand Award’ along with the ‘Dream Employer of the Year’ award
• UA won the platinum award for people development at the SLITAD people development awards 2017, organised by
Sri Lanka Institute of Training and Development [SLITAD] becoming the only company to win the above title for 2
consecutive years
• NTB won a category award for Corporate Governance at the Corporate Citizen Sustainability Awards 2017, conducted
by the Ceylon Chamber of Commerce attesting to the soundness and effectiveness of the corporate governance
practices and frameworks implemented by the Bank.
• NTB’s “FriMi” recognised as one of the top 30 best retail financial services by Asian Banker

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

A conference room at the new JKIT head office

Vision and Scope IT Services Office IT Enabled


Automation Services
The Information Technology industry group has a vision
of providing best in class quality end-to-end information
communication technology (ICT) services ranging from
business process outsourcing (BPO), software services
and information integration, to office automation. Having
established a strong customer base in Sri Lanka, South Asia,
as well as the United Kingdom, Middle East, North America,
Scandinavia and the Far East, the IT industry group is at the
CARBON FOOTPRINT
forefront of making Sri Lanka an ICT hub in South Asia

Contribution to JKH Group


592 MT
(2016/17: 1,076 MT)

8% Revenue

2% EBIT EBIT

Rs.463 mn
1% Capital employed

1% Carbon footprint
(2016/17: Rs.621 mn)

172 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Industry Group Structure 2017, the broadband penetration level in the


country increased exponentially driven by
Information Technology the growth in digital infrastructure, increased
affordability of smartphones and successive
reduction in broadband tariffs. The Sri Lanka
IT Services Office Automation IT Enabled Services Broadband Survey report for the calendar year
John Keells Computer John Keells Office Automation (JKOA) is the Provider of shared 2017 indicates that over 95 per cent of the
Services (JKCS) offer authorised distributor for the following office service solutions
population access the internet through smart
software products automation brands in the finance,
phones, while 16 per cent of the population
and services to a wide accounting, payroll
• Sole distributor for Toshiba B&W and colour are constantly connected to the internet.
range of clients in Sri verticals and data
digital multi-function printers (MFPs), offering
Lanka and overseas entry services to
managed print solutions and print now pay
• Core focus areas the JKH Group and
are in software
later (PNPL) digital copier rental solutions.
external clients under
DIGITAL DISRUPTION,
engineering • National distributor for Samsung Smart InfoMate (operates TECHNOLOGICAL
services and phones. Authorised distributor for Asus with approximately
products targeted commercial series notebooks 150 seats)
DYNAMISM AND PROCESS
at the aviation and • Samsung Laser printers, hotel TV’s, large INNOVATION HAS
leisure industries format displays (LFD), RISO digital duplicators,
RISO Comcolour printers, full colour inkjet
GARNERED SIGNIFICANT
printer Posiflex and FEC POS systems, Bixolon TRACTION ACROSS
receipt and label printers, tabs, accessories, GLOBAL INDUSTRIES IN
Lava mobiles and Hitachi projectors
THE PAST FEW YEARS, ON
Key Indicators THE BACK OF ENHANCED
Inputs (Rs.mn) 2017/18 2016/17 % Change 2015/16 CONNECTIVITY, GROWTH IN
Total assets 3,831 4,777 (20) 4,116 DIGITAL INFRASTRUCTURE
Total equity 1,342 1,983 (32) 1,951 AND SOCIAL MEDIA
Total debt 816 348 134 339 PLATFORMS.
Capital employed1 2,158 2,331 (7) 2,289
In light of the significant digital adoption
Employees (number)2 659 1,075 (39) 985 across the country, John Keells Office
Automation (JKOA) recorded encouraging
Outputs(Rs.mn) 2017/18 2016/17 % Change 2015/16 volume growth in its mobile phone category
Turnover 11,069 11,107 (0.3) 8,262 during the year under review. Although
EBIT 463 621 (25) 161 impacted by the general slowdown in
consumer discretionary spending, the
PBT 431 612 (30) 148
category recorded a volume growth of 15
PAT 360 468 (23) 96 per cent underscoring the significant growth
EBIT per employee 0.7 0.6 22 0.2 potential of the product category. In light
Carbon footprint 592 1,076 (45) 1,269 of the significant potential and leveraging
on its service quality and brand recognition,
1. For equity accounted investees the capital employed is representative of the Group’s equity JKOA secured exclusive agency rights for
investment in these companies
the full range of Samsung products in 14
2. As per the sustainability reporting bound
out of 25 districts of the country. Samsung
together with JKOA launched “Samsung S9”
External Environment and Operational Review and “Samsung S9+” in March 2018, while
Digital disruption, technological dynamism and process innovation has garnered significant
releasing “Samsung Note 8” in September
traction across global industries in the past few years, on the back of enhanced connectivity,
2017. Impacted by the general slowdown
growth in digital infrastructure and social media platforms. The IT sector of the Group which
in consumer discretionary spend during
provides digital solutions across a multitude of industries has witnessed a significant shift in the
the year under review, JKOA recorded
IT solutions required across its clientele. Client and consumer expectations regarding digital
volume declines across the other product
interaction is very dynamic, demanding the modern IT organisation to be more agile, innovative
categories; notebooks and copiers. Despite
and flexible in creating solutions. In keeping with evolving consumer trends, the sector has
recording a marginal contraction in volumes,
become adept in creating innovative solutions and efficient and practical product designs using
JKOA maintained its market share in the
approaches such as design thinking, data analytics, predictive analysis and internet of things (IoT),
notebook and copier product segments. The
among others.
business also launched a new product range
within its copier product line for Toshiba - e
Over the recent years, Sri Lanka has witnessed a significant growth in connectivity driven by higher
STUDIO in May 2017. In line with the Group’s
penetration of electronic devices and growth within the telecommunications infrastructure in
digitisation initiatives, these products were
the country. The country’s leading telecommunications provider noted that during the course of

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 ƒ Development of customer analytics
40 PER CENT OF ITS REVENUE THROUGH ITS EXTERNAL tools for Cinnamon hotels
CLIENT BASE. THE BUSINESS CARRIED OUT SEVERAL ƒ 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 ƒ 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.

174 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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

Indicator IT Services Office Automation IT Enabled Services


Revenue and growth Rs.558 million, 22 per cent increase Rs.9.85 billion, 3 per cent increase Rs.660 billion, 42 per cent decrease
EBIT and growth Rs.34 million, 83 per cent increase Rs.418 million, 11 per cent decrease Rs.11 million, 92 per cent decrease

solutions through the adoption of new


Energy and emissions management
technologies. Electronic waste generated
NATURAL CAPITAL by the industry group is disposed of in a
responsible manner, through third parties who Waste management
reuse and recycle electronic waste, thereby
The Information Technology industry group operating responsibly and minimising the
identifies that managing its carbon footprint environmental impact. Carbon Footprint
and energy usage are material aspects
of operating within the industry. In order The material topics relevant to the Information
to ensure operations are in line with the Technology industry group, identified under
• IT Services : 140 MT
Group’s Environmental policy, the industry Natural Capital are as follows:
• Office Automation : 235 MT
group proactively monitors energy usage • IT Enabled : 80 MT
and continues to invest in energy efficient

Energy and Emissions Management


Relevance/Implication Targets Initiatives
Financial implications • Minimising electricity use by adhering • JKCS conducted heat insulation at all office premises to improve air
and environmental to energy targets, efficient practices conditioning efficiency and thereby reduce energy consumption
responsibility and awareness campaigns • JKOA replaced existing lighting with LED lighting, and installed inverter
type air condition units., which resulted in an annualised energy saving of
45,522 kWh
• JKCS installed LED lighting at office premises as an initiative to reduce
energy consumption

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 %

Carbon footprint (MT) 592 1,076 (45)

* Water usage is not shown as it is not material for the industry group

176 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

programmes, enabling the Group to improve


Talent management
skills of potential recruits and also to increase
HUMAN CAPITAL the visibility of the businesses.
Health and safety
With the nature of the work in the Information
Technology industry group being largely office
The management of Human Capital in a based, businesses make it a priority to ensure The section below contains the implications of
competitive industry such as the Information such working conditions are of an acceptable each material topics, targets for the long term
Technology industry is of significant standard for employees. Aspects such as and the initiatives undertaken during the year
importance, particularly given the need to ergonomic concerns, lighting and air quality to meet the targets.
ensure sustained service quality to consumers. are all considered with respect to the working
Against this backdrop, the industry group environment. Given the 24 hour operations of
has invested in training and development some of the companies in the industry group,
of staff to ensure the maintenance of such Number of Employees
provisions are also made to ensure the safe
quality, whilst creating value to employees commute of employees.
through strengthening career development • IT Services : 273
and skill enhancement. The industry group The material topics for the industry group are • Office Automation : 213
continuously engages with universities and classified as follows: • IT Enabled Services : 173
institutions, through workshops and internship

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

• JKF continued to support the formed BPOs in Mahavilachchiya,


Seenigama and Jaffna through funding of infrastructure such as
computers and office equipment while facilitating general training and
sensitisation for the associates
• JKF successfully conducted a leadership development programme for all
three BPOs, which is being followed up by a mentoring programme for
the respective leadership teams
• JKCS and InfoMate continued to engage with local universities and
higher education institutes, by providing soft skills training as part of its
recruitment. A number of graduates from the aforementioned initiative
were provided internship opportunities and on-the-job training at JKCS

Indicators 2017/18 2016/17 %


JKBPO which provided a significant number
Injuries and diseases (number) 2 0 -
of training hours has been excluded from the
sustainability reporting scope after the first Total hours of training 4,554 43,556 (90)
quarter of 2017/18.

177
INDUSTRY GROUP REVIEW
Information Technology

Health and Safety


Relevance/Implication Targets Initiatives
Providing a safe and • Strive to ensure a safe and healthy • Group companies continuously reviewed their business continuity
conducive environment working environment in line with the plans (BCPs)
given the long hours Group’s Health and Safety Policy • Fire safety trainings were conducted for all companies
spent at work stations

• As part of an ongoing CSR initiative, JKOA donated a 1,000L-1,500L water purifier to


SOCIAL AND RELATIONSHIP Hatharaskotuwa Kanishta Vidyalaya to facilitate better access to clean drinking water. This will
benefit approximately 150 students and staff members, in addition to 100 families in the areas
CAPITAL
surrounding the school premises.

The increased reliance of companies on


information technology creates a need for
employment of IT literate individuals. The
Information Technology industry group
engages with rural communities to create
shared value through building IT literate youth,
by providing job opportunities at BPO’s which
translates into strengthening the recruitment
pipeline with fresh talent for the industry. This
also contributes to increased employability of
youth creating upliftment of livelihood within
the community. In line with Group practices,
all significant suppliers of the Information
Technology industry group have been
identified in the diagram below. The suppliers
have been assessed for any negative impacts
on the environment, labour and human rights Workspaces at the new JKIT office
topics.

The significant suppliers within the industry group are illustrated below:

Significant Suppliers

Outsourced operational Outsourced support staff


Janitors Security Transportation providers
functions seasonally

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.

Initiative Brief Description


Innovative product design and technology • Smart buildings and smart parking units designed for “Tri-Zen”; the metropolitan 891-unit
dissemination within the Group residential development project launched by the Property industry group
• Creation employee self-service and other IoT platforms
• “Evinta” and “Zhara” software products developed for aviation and hospitality industries respectively
• Automation of freezer processes in line with the food safety regulations in the City Hotel operations
• Software development and implementation for inventory and distributor management within the
“Keells” outlets of the Retail sector and JKOA

178 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Initiative Brief Description


Brand development • “JKIT” was formed through the amalgamation of the solution portfolios of both JKCS and SGIT in
April 2017
• Presence established within Dubai, Saudi Arabia and UAE in the MENA region
• JKOA brand operations consolidated through social media and other digital channels
Strategic partnerships • JKIT partners with SAP and Microsoft to deliver a higher quality service rendering within its
operational sphere
• JKOA is the authorised distributor of mobile devices for Samsung in the country

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

Other Including Plantation Services

A tea tasting at John Keells PLC; a leading tea and rubber broker

Vision and Scope Plantation Other


Services
The Plantation Services sector includes the operations of tea factories, tea and rubber broking
and pre-auction produce warehousing. Tea Smallholder Factories PLC (TSF PLC) is among the
top manufacturers of orthodox low grown teas and is also recognised as a top quality producer
of CTC teas in Sri Lanka. John Keells PLC is one of the leading tea brokers in the country and its
warehousing facility is the largest for pre-auction produce in the country.
The “Other” sector consists of John Keells Holdings PLC including Centre Functions such as John
Keells Research and Strategic Group Information Technology (SGIT), as well as several auxiliary
companies. SGIT supports the Group’s information technology requirements, consulting services CARBON FOOTPRINT
and SAP implementation services to external clients.

Contribution to JKH Group


3,324 MT
(2016/17: 3,334 MT)

3% Revenue

22% EBIT EBIT

Rs.6.23 bn
19% Capital employed

3% Carbon footprint
(2016/17: Rs.5.38 bn)

180 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Industry Group Structure high of Rs.618.14 per kg in comparison to


the elevational average of Rs.468.61 per kg
Other including Plantation Services recorded in calendar year 2016. The average
sales price for low grown teas in Sri Lanka
increased by approximately 30 per cent during
Plantation Services Other the 2017 calendar year, due to a shortage
in supply of green leaf on account of erratic
weather patterns that affected the country
John Keells PLC- leading tea and rubber towards the second half of the financial year.
broker JKH and Other businesses (Centre
Functions/divisions) Tea Smallholder Factories PLC (TSF PLC)
Tea Smallholder Factories PLC- operates witnessed a marginal growth in volumes
8 tea factories and is a leading during the year under review, although
manufacturer of low grown teas in the
Strategic Group Information Technology impacted by extreme weather conditions
country, including the CTC variety
(SGIT) supports the Group’s IT which was further exacerbated by the
requirements and provides consultancy limited availability of green leaf amongst
John Keells Warehousing- operates a
services and SAP implementation services manufacturers. Similar to prior years, TSF PLC
state-of-the-art warehouse for pre-
to external companies adopted a number of cost management
auction produce
initiatives and efficiency measures in order
to improve productivity and better manage
Key Indicators costs, particularly in view of the challenges
Inputs (Rs.mn) 2017/18 2016/17 % Change 2015/16 witnessed during the year under review.
Total assets 50,070 74,105 (32) 66,370
TSF PLC, in an effort to enhance the long-
Total equity 48,301 71,715 (33) 61,835
term viability of smallholder land, initiated the
Total debt 69 91 (24) 2,304 “Smallholder development project”; a project
Capital employed1 48,370 71,805 (33) 64,140 focussed on replanting on unproductive tea
Employees (number) 835 830 1 882 land. The initiative, which commenced in 2010,
has resulted in 204.75 acres of tea land being
Outputs (Rs.mn) 2017/18 2016/17 % Change 2015/16 re-planted to date. The company also leased
2
out one of the eight factories in operation for a
Turnover 3,440 2,953 17 2,663
period of 5 years.
EBIT 6,226 5,381 16 3,907
PBT 6,078 5,229 16 3,772 The performance of John Keells PLC (JK PLC)
PAT 3,820 3,101 23 2,343 was in line with expectations, mainly on
account of higher demand for tea globally.
EBIT per employee 7.5 6.5 15 4.4
However, affected by erratic weather patterns
Carbon footprint 3,324 3,334 (0.3) 3,543 and the resulting loss of crops, the business
1. For equity accounted investees the capital employed is representative of the Group’s equity witnessed a marginal decrease in its market
investment in these companies
2. Revenue is inclusive of the Group’s share of equity accounted investees

External Environment and Operational Review


Global tea prices witnessed a significant uptick in the year under review, with strong demand SRI LANKA, RECORDED A
driven by increasing oil prices, removal of trade sanctions on Iran by the USA and a strengthened
CROP GROWTH OF 5 PER
Russian currency, among others, which augured well for key tea importing countries. Global
tea production statistics indicate a marginal increase of 2 per cent in the production of tea, CENT IN THE YEAR UNDER
predominantly from China, Malawi and Tanzania. REVIEW, WITH A TOTAL
Sri Lanka, recorded a crop growth of 5 per cent in the year under review, with a total output of
OUTPUT OF 307 MILLION
307 million kilograms in CY2017 [CY2016:292 million kilograms]. Sri Lanka recorded annual tea KILOGRAMS IN CY2017
export revenue of Rs.233.34 billion during the calendar year 2017, an increase of 27 per cent CY2016:292 MILLION
against the previous year, despite the setbacks witnessed within the year, including temporary
export bans to Russia and Japan. It should be noted that the authorities worked expeditiously
KILOGRAMS. SRI LANKA
to resolve the sanctions imposed by Russia in December 2017. The sanctions imposed by Japan RECORDED ANNUAL TEA
which were enforced as a result of exceeding the maximum residue level of glyphosate; a EXPORT REVENUE OF
weedicide used in tea plantations, was also effectively resolved in the latter half of the year under
review by the Ministry of Plantations industries, following which, tea exports re-commenced.
RS.233.34 BILLION DURING
Barring such developments, the average price at the Colombo Tea Auction recorded an all-time CY2017.

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

John Keells Holdings PLC carried out a second


exercise to consolidate and streamline the
“PLASTICCYCLE” SOCIAL ENTREPRENEURSHIP INITIATIVE
ownership structure of some of its Group
• “Plasticcycle” has enabled the collection and recycling of over 5 MT of plastic waste.
investments, both privately owned and listed
on the Colombo Stock Exchange (CSE). The items facilitated by the Sri Lanka Recyclers Association.
restructuring exercise was carried out in order • Over 45 specially-designed collection bins have been placed in and around the city
to reduce the complexity of the shareholding of Colombo encouraging responsible disposal of single-use plastic waste
structure by limiting the tiers of ownership in its • The Project expanded to place an additional 40 plastic collection bins adjacent
subsidiary companies to two, where possible. to key exit points on the Southern Expressway to collect and recycle PET bottles
carried by commuters.
Accordingly, select Group companies holding
investments in other subsidiaries transferred
its respective investments to JKH, at valuations
independently verified by the Group’s auditors.
The exercise was completed via a combination
of share buybacks between the unquoted
entities within the Group and its subsidiaries for
a consideration of either cash or owners’ shares.
The total transaction value of this exercise was
Rs.9.95 billion, in cash and non-cash terms.

In furtherance of the Group-wide digitisation


initiative to cultivate the digital quotient
within the Group, JKH launched the second
phase of “John Keells X - Open Innovation
Challenge 2017” in May 2017. The programme
accommodated over 300 applicants out
of which 20 applicants were shortlisted for
training, mentoring and other workshops.
JKX selected six winners to participate in a

182 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

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%

Indicators Plantation Services Others


Revenue and growth Rs.3.28 billion, 17 per cent increase Rs.164 million, 6 per cent increase
EBIT and growth Rs.662 million, 71 per cent increase Rs.5.56 billion, 11 per cent increase

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

• Plantation Services : 2,816 MT


• Other : 508 MT

Tea harvesting at a small holder property of Hingalgoda tea factory

184 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Energy and Emissions Management


Relevance/Implication Targets Initiatives
• Financial and • Continuous assessment of existing • Introduction of variable frequency drives (VFDs) for tea rolling at
regulatory facilities, machinery and processes Halwitigala tea factory resulted in estimated annual energy savings of
implications for energy efficiency and the 10,000 kWh
• Environmental and implementation of improvements, as • Automation of the tea rolling process at Halwitigala tea factory resulted in
social responsibility required improvement in productivity
• Implementation of process • Designing and construction of fast drying firewood sheds covered with
improvements through innovation to UV treated polythene to create increased combustion efficiency of
reduce emissions whilst maintaining biomass within the Plantations sector
productivity

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 NONTIMBER
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.

that workplace health and safety is a priority. Health and safety


In light of this, the Group initiated human
HUMAN CAPITAL
resource technology transformation, to launch Training and Development
a state-of-the-art human resource information
platform. Number of Employees
Investment in Human Capital is carried out
through training and development activities Material topics relevant to the industry group, • Plantation Services : 637
conducted on a needs-basis, whilst ensuring identified under Human Capital, are as follows: • Other : 198

185
INDUSTRY GROUP REVIEW
Other Including Plantation Services

Training and Development


Relevance/Implication Targets Initiatives
Ensuring functionally • Ensure Group-wide synergies • Provided 4,504 hours of training to employees in the industry group, with
skilled and motivated are created through continuous 5.4 hours of training per employee, resulting in increased productivity
staff, particularly at the enhancement of knowledge and skills
Centre Functions, is
considered important in
facilitating Group-wide
synergies

Health and safety


Relevance/Implication Targets Initiatives
Businesses need to • Minimising health and safety incidents • OHSAS ISO 18001 Certification obtained for 7 out of the 8 smallholder
ensure safe working and providing a safe and healthy factories
conditions, with working environment for staff • Training and awareness on worker health and safety was conducted in
a special focus on line with the OHSAS 18001 standard in all factories
occupational health
• Training and awareness programmes on food safety were conducted in
and safety
line with ISO 22000:2005 standard for the employees; no product quality
violations were reported in the year under review

Performance
2017/18 2016/17* %

Injuries and diseases (number) 6 3 100

Total hours of training 4,504 5,742 (22)

* All reported incidents were in the Plantations sector

All significant suppliers are identified and BUILDING TRUST THROUGH


SOCIAL AND RELATIONSHIP assessed for any negative impacts on
ONGOING CORPORATE
environmental, labour and human rights
CAPITAL aspects and companies within the sector work SOCIAL RESPONSIBILITY
closely with their supply chain to improve the INITIATIVES, SUCH
sustainability practices throughout the value
Social and Relationship Capital is of
chain.
AS REPLANTING ON
significant importance to the Plantations
Services sector, particularly TSF PLC, given
UNPRODUCTIVE TEA
that the surrounding community is an The significant suppliers within the industry LANDS, COMMUNITY
integral part of its supply chain. Building group are illustrated below:
PROJECTS WHICH ASSIST IN
trust through ongoing corporate social
responsibility initiatives, such as replanting on Significant Suppliers
LIVELIHOOD DEVELOPMENT,
unproductive tea lands, community projects AND THE DISSEMINATION
which assist in livelihood development, and OF KNOWLEDGE AND BEST
the dissemination of knowledge and best
Tea smallholder PRACTICES THROUGH
practices through extension services, assists Tea plantations
farmers
the Plantation Services sector in consolidating EXTENSION SERVICES,
mutually beneficial relationships and
ASSISTS THE PLANTATION
producing socially desirable outcomes. Such
activities are carried out both at a business SERVICES SECTOR IN
level and through the John Keells Foundation. CONSOLIDATING MUTUALLY
BENEFICIAL RELATIONSHIPS
AND PRODUCING SOCIALLY
DESIRABLE OUTCOMES.

186 John Keells Holdings PLC . Annual Report 2017/18


Management Discussion and Analysis

Supplier Development and Social Responsibility


Relevance/Implication Targets Initiatives
Sharing of knowledge • Assist livelihood development of • TSF PLC continued its tea replanting project to replant unproductive
and best practice smallholders through improved tea lands, with 6 projects undertaken to-date, with an approximate
on cultivation, with yields, providing alternative sources coverage of 23.25 acres in 2017/18. 6,300 tea plants were planted in the
tea smallholders, to of income, while simultaneously year under review. The project aims to improve supplier livelihood whilst
ensure higher yields improving agricultural practices and simultaneously retaining the company’s supplier bases.
and quality green leaf. environmental conservation • Distribution of 44,000 tea plants to smallholders
This benefits both the • Ensuring business sustainability by • Distribution of 40 tons of compost fertiliser to smallholder tea lands to
tea factories and the building and maintaining relationships assist soil enrichment and sustainable agricultural practices
smallholder community with smallholder communities to
• Services to disseminate knowledge on good agricultural practices (GAP)
ensure a steady supply of green leaf
were provided to suppliers through seminars/workshops and field
advisory visits enhancing their technical skills
• TSF PLC collaborated with JKF in conducting eye camps and facilitating
surgeries under JKF’s “Vision Project” to its smallholders and residents in
the vicinity of their operations

Impact:
• Total number of eye camps held : 4
• Total number of participants : 784
• Cataract surgeries - 18 smallholders
• Total investment : Rs.141,010

Tea small holder beneficiary of Neluwa Medagama Tea Factory

DURING THE YEAR UNDER


INTELLECTUAL CAPITAL REVIEW JKR FABRICATED
SEVERAL PROTOTYPE
DEVICES, INCLUDING AN
The Other including Plantation Services industry group executed many projects and initiatives
during the year, aimed at ensuring value creation among the many stakeholders within
ATMOSPHERIC WATER
the industry group. The efficiency efforts, innovation, operational models and research and GENERATOR AND AN
development efforts undertaken by the Group are tabulated below. ELECTROSPINNER.

Initiative Brief Description


Operational Efficiency • Introduction of lean efficiency methods within the Plantation sector to ensure lower production
costs
• A project has been launched to implement an HRIS system within the Group. This enables
proactive management of Human Capital and will replace the HR ERP which has been in place for
the last 11 years. This platform will further empower employee-centric practices by making them
future ready. It is expected to bring about a multitude of benefits, including, but not limited to,
business efficiency, analytics and employee engagement
Research and Development • The research project undertaken in collaboration with the Sri Lanka Institute of Nanotechnology
to develop novel composite materials has concluded. Based on the findings of this study, an
article titled “Oxidation protection of carbon fibre by sol-gel derived Boron doped Yittria-stabilised
Zirconia coatings” was published in “Materials Science & Engineering B”
• During the year under review JKR fabricated several prototype devices, including an Atmospheric
Water Generator and an Electrospinner

187
INDUSTRY GROUP REVIEW
Other Including Plantation Services

Initiative Brief Description


Plasticcycle • A social entrepreneurship initiative titled “Plasticcycle” was launched in July 2017, with the
objective of facilitating the reduction of plastic pollution in Sri Lanka
• Enabled the collection and recycling of over 5 MT of plastic items facilitated by the Sri Lanka
Recyclers Association
• 50 specially-designed recyclable plastic collection bins have been placed at “Keells” outlets, the
Slave Island Railway Station, Crow Island beach park, Cinnamon Lakeside, John Keells Group
company office premises and the Marine Environment Protection Authority, encouraging
responsible disposal of single-use plastic items
JKX • JKH launched the second phase of “John Keells X - Open Innovation Challenge 2017” in May 2017
• Applications from over 300 applicants were evaluated to shortlist 20
• The 6 winners of the challenge were announced in November 2018, with advancement to the
JKX 6month Accelerator Programme. This programme allows them to tap into a wealth of JKH
resources including seed funding, office space, access to support services such as legal, secretarial
and finance among others

Strategy and Outlook


The global demand for tea is expected to
PLASTICCYCLE; THE GROUP’S SOCIAL
continue its current growth momentum ENTREPRENEURSHIP INITIATIVE TO REDUCE PLASTIC
driven by a stable to positive outlook for POLLUTION IN SI LANKA, IS CURRENTLY IN THE
oil and other commodities. The Sri Lankan
market witnessed significant growth in export
PROCESS OF FORMING NEW COLLABORATIVE
volumes and tea prices in the calendar year PARTNERSHIPS TO ENHANCE THE REACH OF THE
2017 and is expected to continue this growth INITIATIVE BEYOND COLOMBO. THE GROUP WILL
trajectory, particularly given the expected
regulatory standards to be imposed by the
CONTINUE TO SUPPORT THE INITIATIVE WHILE ALSO
Ministry of Plantations Industries governing STRIVING TO ENTRENCH THE SAME VALUES IN THE
the quality of the produce exported from OPERATING MODEL OF THE BUSINESS AND ITS MANY
Sri Lanka. Further, Sri Lanka will continue
to capture market share, leveraging on the STAKEHOLDERS.
promotional campaign initiated by the Sri
Lanka Tea Board in 2017/18. The country will
execute targeted strategies towards capturing by the smallholders will continue in 2018/19. Plasticcycle; the Group’s social
market share in India and China which This initiative will be complemented by entrepreneurship initiative to reduce plastic
represent approximately 50 per cent of global the introduction of sustainable plantation pollution in Sri Lanka, is currently in the process
tea consumption. In addition to these markets, methods which protect the sustainability of of forming new collaborative partnerships to
Sri Lanka will also capitalise on the growing the operational model. enhance the reach of the initiative beyond
market in the USA through product extensions Colombo. The Group will continue to support
such as green tea, fruit tea, herbal tea and JK PLC will focus on providing high quality the initiative while also striving to entrench
other specialty variations. produce in line with the global best practice, the same values in the operating model of the
thereby ensuring Ceylon tea is branded as a business and its many stakeholders.
In light of recent developments within the pure, un-adulterated product.
industry, TSF PLC will pursue its policy of
manufacturing high quality products whilst JKR will continue to focus on its core areas of
diversifying in to CTC from orthodox tea, research and identified projects. As previously
thereby extending its product range. A more discussed, the research arm of the Group will
diversified portfolio is expected to improve the continue to test the commercial viability and
overall prospects for the business, particularly marketability of the energy storage prototype
given the ability to cater to different market developed through rigorous testing. Alongside
trends within key markets. TSF PLC will these developments, JKR will also continue
continue to work alongside smallholders, its ongoing collaboration with a university in
building brand loyalty and helping guarantee the USA to develop reinforcing material using
a continuous supply to the company. The Sri Lankan agricultural waste. The vertical will
company will also continue implementing also work alongside local universities to foster
measures to reduce manufacture related costs research and development projects in several
while driving efficiency within operations. areas of interest.
Replantation of unproductive tea land owned

188 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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

Annual Report of the Board of Directors 191-195


The Statement of Directors’ Responsibility 196
Independent Auditors’ Report 197-199
Income Statement 200
Statement of Comprehensive Income 201
Statement of Financial Position 202
Statement of Cash Flows 203-204
Statement of Changes in Equity 204-205
Group Performance Summary 206-207
Notes to the Financial Statements 208-286

Corporate and Group information


1 Corporate information 208 20 Taxes 241-248
2 Group information 208 21 Property , plant and equipment 248-253
22 Leases 253-254
Basis of Preparation and Other Significant Accounting 23 Investment property 254-255
Policies 24 Intangible assets 256-258
3 Basis of preparation 208 25 Investment in subsidiaries 259-261
4 Summary of significant accounting policies 209 26 Investment in equity accounted investees 261-264
5 Significant accounting judgements, estimates and 27 Non current financial assets 264-265
assumptions 209-210 28 Other non current assets 265-266
6 Changes in accounting standards and standards 29 Inventories 266
issued but not yet effective 210-212
30 Trade and other receivables 266-267
31 Other current assets 267
Group Business, Operations and Management
32 Short term investments 267-268
7 Operating segment information 212-216
33 Stated capital and other components of equity 269
8 Basis of consolidation and material partly owned
34 Share-based payment plans 270-271
subsidiaries 217-219
35 Insurance contract liabilities 271-274
9 Business combinations and acquisitions of
non-controlling interests 219-221 36 Interest-bearing loans and borrowings 274-277

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

Notes to the Income Statement, Statement of 42 Other current liabilities 280


Comprehensive Income and Statement of Financial Position 43 Related party transactions 280-283
13 Revenue 237
14 Dividend income 237 Other Disclosures
15 Other operating income and other operating expenses 238 44 Contingent liabilities 284-285
16 Net finance income 239 45 Capital and other commitments 286
17 Profit before tax 240 46 Lease commitments 286
18 Earnings per share 240-241 47 Assets pledged 286
19 Dividend per share 241 48 Events after the reporting period 286

190 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

ANNUAL REPORT OF THE BOARD OF DIRECTORS

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.

192 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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.

Corporate Governance Environmental Protection Enterprise Risk Management and Internal


The Board of Directors is committed The Group complies with the relevant Controls
towards maintaining an effective Corporate environmental laws, regulations and The Board confirms that there is an ongoing
Governance Framework and implementing endeavours to comply with best practices process of identifying, evaluating and
systems & structures required to ensuring applicable in the country of operation. A managing any significant risks faced by the
best practices in Corporate Governance and summary of selected Group activities in the Group, where annual risk reviews are carried
their effective implementation. The table from above area is contained in the Sustainability out by the Enterprise Risk Management
page 51 to 54 shows the manner in which Report. Division and the risks are further reviewed
the Company has complied with Section 7.10 each quarter by each business unit. The
of the Rules of the Colombo Stock Exchange Corporate Social Responsibility headline risks of each listed Company
(CSE) on Corporate Governance. The Corporate The John Keells Foundation, which is funded is presented by the Business Unit to its
Governance Commentary is given from page by JKH and its subsidiaries, handles most of respective Board Audit Committee for review
28 to 54. the Group’s CSR initiatives and activities. The and in the case of John Keells Holdings PLC,
Foundation manages a range of programmes by the Enterprise Risk Management Division
Sustainability that underpin its key principle of acting to the John Keells Board Audit Committee. The
The Group pursues its business goals based responsibly towards its stakeholders and to Corporate Governance section to this Report
on a model of stakeholder governance. bring about sustainable development in all elaborates on these practices and the Group’s
Findings of the continuous internal areas of business efficiently and effectively. risk factors.
stakeholder engagements have enabled The CSR initiatives, including completed and
the Group to focus on material issues such on-going projects, are detailed in the Group Internal Controls and Assurance
as the conservation of natural resources Consolidated Review section in the Annual The Board, through the involvement of the
and the environment as well as material Report. Group Business Process Review Division, takes
issues highlighted by other stakeholders steps to gain assurance on the effectiveness
such as employees, customers, suppliers In quantifying the Group’s contribution to CSR over the financial, operational and risk
and the community. These steps have been initiatives and activities, no account has been management control systems in place. The
encapsulated in a Group-wide strategy taken of in-house costs or management time. Audit Committee receives regular reports on
focused on sustainable development which the adequacy and effectiveness of internal
is continuously evolving based on the above Donations controls in the Group, compliance with laws
mentioned stakeholder engagements. Total donations made by the Company and and regulations and established policies
the Group during the year amounted to and procedures of the Group. The head of
This is the Group’s third Integrated Annual LKR. 0.5 Mn (2017 - LKR. 14 Mn) and LKR. 8 the Group Business Process Review Division
Report, which presents a comprehensive Mn (2017 - LKR. 34 Mn), respectively. These has direct access to the Chairman of the
capital’s discussion on its financial and non- amounts do not include contributions on Audit Committee. Reports of the outsourced
financial performance, in a bid to provide its account of corporate social responsibility (CSR) internal auditors are also reviewed by the
stakeholders with holistic information relating initiatives. Committee on matters pertaining to the
to its value creation proposition. The Group Company.
has sought independent third-party assurance Statutory Payments
from DNV GL represented in Sri Lanka by DNV The Directors confirm that to the best of Events After the Reporting Period
Business Assurance Lanka (Private) Limited their knowledge, all taxes, duties and levies There have been no events subsequent to
in relation to the non-financial information payable by the Company and its subsidiaries, the reporting period, which would have any
contained in this Report. In addition, the all contributions, levies and taxes payable on material effect on the Company or on the
Report also adheres to the Global Reporting behalf of, and in respect of, the employees Group other than those disclosed in Note 48
Initiative (GRI) Standards: Core option and of the Company and its subsidiaries, and all to the Financial Statements.
has obtained the ‘GRI Materiality Disclosures other known statutory dues as were due and
Service’ check. payable by the Company and its subsidiaries Going Concern
as at the statement of financial position date The Directors are satisfied that the Company,
Research and Development have been paid or, where relevant provided its subsidiaries, associates and joint ventures
The Group has an active approach to research for, except as specified in Note 44 to the have adequate resources to continue in
and development and recognises the Financial Statements, covering contingent operational existence for the foreseeable
contribution that it can make to intellectual liabilities. future, to justify adopting the going concern
property and the Group’s operations. basis in preparing these financial statements.
Significant expenditure has taken place over

194 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

Appointment and Remuneration of Annual General Meeting


Independent Auditors The Annual General Meeting will be held
Messrs Ernst & Young, Chartered Accountants, at the Institute of Chartered Accountants
are willing to continue as Auditors of the of Sri Lanka, 30A, Malalasekera Mawatha,
Company, and a resolution proposing their Colombo 7, on Friday, 29 June 2018 at 10.00
reappointment will be tabled at the Annual a.m. The notice of meeting appears in the
General Meeting. Supplementary Information section of the
Integrated Annual Report.
The Auditors Report is found in the Financial
Information section of the Annual Report. This Annual Report is signed for and on behalf
of the Board of Directors.
The Audit Committee reviews the
appointment of the Auditor, its effectiveness, By Order of the Board
its independence and its relationship with the
Group, including the level of audit and non-
audit fees paid to the Auditor.

The Group works with 3 firms of Chartered Director


Accountants across the Group, namely, Ernst
& Young, KPMG and PricewaterhouseCoopers.
Details of audit fees are set out in Note 17
to the Financial Statements. The Auditors do
not have any relationship (other than that of Director
an Auditor) with the Company or any of its
subsidiaries. Keells Consultants (Pvt) Ltd.

Further details on the work of the Auditor and


the Audit Committee are set out in the Audit
Committee Report. Secretaries
25 May 2018
Annual Report
The Board of Directors approved the
consolidated financial statements on 25 May
2018. The appropriate number of copies of this
report will be submitted to the Colombo Stock
Exchange and to the Sri Lanka Accounting and
Auditing Standards Monitoring Board on 30
May 2018.

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.

• Presented in accordance with the Sri Lanka Compliance Report


Accounting Standards (SLFRS/LKAS); and The Directors confirm that to the best of
that reasonable and prudent judgments their knowledge, all taxes, duties and levies
and estimates have been made so that payable by the Company and its subsidiaries,
the form and substance of transactions are all contributions, levies and taxes payable on
properly reflected; and behalf of and in respect of the employees
of the Company and its subsidiaries, and
• Provides the information required by and all other known statutory dues as were
otherwise comply with the Companies Act due and payable by the Company and its
and the Listing Rules of the Colombo Stock subsidiaries as at the reporting date have
Exchange. been paid, or where relevant provided for,
except as specified in Note 44 to the Financial
The Directors are also required to ensure Statements covering contingent liabilities.
that the Company has adequate resources
to continue in operation to justify applying By order of the Board
the going concern basis in preparing these
financial statements.

Further, the Directors have a responsibility


to ensure that the Company maintains Keells Consultants (Pvt) Ltd.
sufficient accounting records to disclose, with Secretaries
reasonable accuracy the financial position of 25 May 2018
the Company and of the Group.

196 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

INDEPENDENT AUDITOR’S REPORT

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.

198 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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.

We also provide those charged with


governance with a statement that we have
complied with ethical requirements in
accordance with the Code of Ethics regarding 25 May 2018
independence, and to communicate with Colombo
them all relationships and other matters that
may reasonably be thought to bear on our
independence, and where applicable, related
safeguards.

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

Cost of sales (91,932,377) (75,158,110) (632,347) (564,049)

Gross profit 29,282,695 31,114,991 715,360 562,304


Dividend income 14 - - 8,574,886 10,469,023
Other operating income 15.1 2,084,111 1,765,187 8,213,099 2,607,861
Selling and distribution expenses (4,226,827) (3,900,667) - -
Administrative expenses (12,488,091) (11,435,797) (1,134,661) (903,969)
Other operating expenses 15.2 (3,190,163) (3,170,105) (72,925) (941,172)
Results from operating activities 11,461,725 14,373,609 16,295,759 11,794,047

Finance cost 16 (520,797) (436,278) (72,019) (89,397)


Finance income 16 11,268,141 10,033,281 6,291,920 5,540,768
Change in insurance contract liabilities 35.2 (2,449,379) (4,869,288) - -
Change in contract liability due to transfer of one off 35 3,381,934 - -
surplus
Change in fair value of investment property 23 896,380 483,554 - -
Share of results of equity accounted investees (net of tax) 26.3 3,596,430 3,302,955 - -

Profit before tax 17 27,634,434 22,887,833 22,515,660 17,245,418


Tax expense 20.1 (4,514,629) (4,771,068) (1,293,431) (1,092,976)
Profit for the year 23,119,805 18,116,765 21,222,229 16,152,442

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.

Earnings per share


Basic 18.1 15.15 11.85
Diluted 18.2 15.15 11.84

Dividend per share 19 6.00 5.50

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.

200 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

STATEMENT OF COMPREHENSIVE INCOME

GROUP COMPANY
For the year ended 31st March Note 2018 2017 2018 2017
In LKR ‘000s

Profit for the year 23,119,805 18,116,765 21,222,229 16,152,442

Other comprehensive income


Other comprehensive income to be reclassified to Income Statement in
subsequent periods
Currency translation of foreign operations 1,101,842 1,089,650 - -
Net gain on cash flow hedges 265,815 331,679 - -
Share of other comprehensive income of equity accounted investees 511,589 272,648 - -
Net gain / (loss) on available-for-sale financial assets 731,605 (302,773) (66,510) (24,087)
Net other comprehensive income to be reclassified to Income Statement 2,610,851 1,391,204 (66,510) (24,087)
in subsequent periods
Other comprehensive income not to be reclassified to Income
Statement in subsequent periods
Revaluation of land and buildings 9,169,124 10,361,135 - -
Share of other comprehensive income of equity accounted investees 17,199 3,830 - -
Re-measurement gain / (loss) on defined benefit plans 37 (22,762) (110,758) (4,083) (5,310)
Net other comprehensive income not to be reclassified to Income 9,163,561 10,254,207 (4,083) (5,310)
Statement in subsequent periods

Tax on other comprehensive income 20.2 (4,106,764) 49,444 - -

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

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.

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

EQUITY AND LIABILITIES


Equity attributable to equity holders of the parent
Stated capital 33 62,802,327 62,790,080 62,802,327 62,790,080
Revenue reserves 87,265,501 77,193,184 62,881,658 49,988,495
Other components of equity 33.2 49,852,263 38,651,568 1,952,125 1,504,876
199,920,091 178,634,832 127,636,110 114,283,451
Non-controlling interest 24,944,488 15,695,543 - -

Total equity 224,864,579 194,330,375 127,636,110 114,283,451

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

202 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

STATEMENT OF CASH FLOWS

GROUP COMPANY
For the year ended 31st March Note 2018 2017 2018 2017
In LKR ‘000s

CASH FLOWS FROM OPERATING ACTIVITIES


Profit before working capital changes A 17,230,043 14,249,210 (162,151) (143,117)

(Increase) / Decrease in inventories (1,083,829) (940,879) - -


(Increase) / Decrease in trade and other receivables 770,174 (585,975) 108,921 38,775
(Increase) / Decrease in other current assets (1,160,879) (320,693) (99,535) 37,903
(Increase) / Decrease in other non-current assets (11,906,507) (6,135,168) (4,470) (3,840)
Increase / (Decrease) in trade, other payables and other non-current liabilities 4,070,175 2,200,730 (307,588) (3,617)
Increase / (Decrease) in other current liabilities 578,591 820,376 (11,114) 153
Increase / (Decrease) in insurance contract liabilities (1,469,739) 4,494,996 - -
Cash generated from operations 7,028,029 13,782,597 (475,937) (73,743)

Finance income received 11,069,018 9,536,363 5,338,590 4,221,631


Finance cost paid (520,797) (302,583) (70,187) (63,216)
Dividend received 2,942,698 2,854,182 8,273,468 10,789,765
Tax paid (4,204,461) (4,630,808) (1,257,330) (803,000)
Gratuity paid (302,309) (219,443) (50,815) (9,412)
Net cash flow from operating activities 16,012,178 21,020,308 11,757,789 14,062,025

CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES


Purchase and construction of property, plant and equipment (10,319,886) (4,331,582) (85,673) (11,110)
Purchase of intangible assets 24 (217,562) (114,398) (32,544) (6,746)
Addition to investment property 23 (4,397,290) (4,220) - -
Purchase of lease rights 22 - (2,657,012) - -
Acquisition of business, net of cash acquired 9.1 (78,584) - - -
Investment in equity accounted investee 9.3 (1,804,500) - - -
Increase in interest in subsidiaries - - (17,366,523) (4,840,893)
Increase in interest in equity accounted investees (1,629,147) (44,172) (1,131,089) (43,178)
Proceeds from sale of property, plant and equipment and intangible assets 262,819 157,919 19,507 211
Proceeds from sale of non-current investments 285,114 - 874,690 36,357
Proceeds from sale of financial instruments - fair valued through profit or loss 944,936 1,242,075 - -
Purchase of financial instruments - fair valued through profit or loss (1,128,585) (1,285,594) - -
(Purchase) / disposal of short term investments (net) 5,871,794 (5,443,340) 5,421,442 (1,681,845)
(Purchase) / disposal of non-current financial assets (net) (4,462,133) (5,270,637) (7,871) 1,311
Grants received for investing activities 32,560 80,800 - -
Net cash flow from/(used in) investing activities (16,640,464) (17,670,161) (12,308,061) (6,545,893)

CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES


Proceeds from issue of shares 9,016 4,088,103 9,016 4,088,103
Changes in non-controlling interest (173,574) 65,660 - -
Payment of other deferred liabilities - (115,406) - -
Dividend paid to equity holders of parent (8,324,983) (7,280,497) (8,324,983) (7,280,497)
Dividend paid to shareholders with non-controlling interest (882,760) (1,279,179) - -
Proceeds from long term borrowings 36 5,832,308 3,300,907 - -
Repayment of long term borrowings (2,795,723) (3,443,821) - (1,469,884)
Proceeds from (repayment of ) other financial liabilities (net) 1,748,270 558,995 - -
Net cash flow from/(used in) financing activities (4,587,446) (4,105,238) (8,315,967) (4,662,278)

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

ANALYSIS OF CASH AND CASH EQUIVALENTS


Favourable balances
Short term investments 32 37,555,106 46,788,529 30,688,836 39,769,206
Cash in hand and at bank 10,882,856 5,119,185 496,591 304,265
Unfavourable balances
Bank overdrafts (6,010,089) (4,264,109) (62,477) (84,282)
Total cash and cash equivalents 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

A Profit before working capital changes


Profit before tax 27,634,434 22,887,833 22,515,660 17,245,418
Adjustments for:
Finance income (11,268,141) (10,033,281) (6,291,920) (5,540,768)
Dividend income - - (8,574,886) (10,469,023)
Finance costs 520,797 436,278 72,019 89,397
Share based payment expense 34 517,374 444,346 170,759 119,822
Change in fair value of investment property (896,380) (483,554) - -
Share of results of equity accounted investees (3,596,430) (3,302,955) - -
Profit on sale of non-current investments 15.1 (28,575) - (8,183,167) (2,574,003)
Depreciation of property, plant and equipment 21.1, 21.2 3,236,226 2,874,071 32,555 33,042
Provision for impairment losses 15.2 23,445 34,332 40,712 900,419
(Profit) / loss on sale of property, plant and equipment and 15.1, 15.2 (67,475) 41,183 (354) (17)
intangible assets
Amortisation of lease rental paid in advance 22.1 458,459 592,983 - -
Amortisation of intangible assets 24 325,531 333,046 18,861 19,765
Amortisation of other deferred liabilities (1,805) (19,669) - -
Gratuity provision and related costs 37 371,908 327,633 37,610 32,831
Accumulated unrecognised (gain)/loss (net) (31,392) - - -
Unrealised (gain) / loss on foreign exchange (net) 32,067 116,964 - -
17,230,043 14,249,210 (162,151) (143,117)

STATEMENT OF CHANGES IN EQUITY

COMPANY Stated capital Other Available Revenue reserve Total equity


In LKR ‘000s capital reserve for sale reserve

As at 1 April 2016 58,701,977 958,310 126,307 41,121,860 100,908,454

Profit for the year - - - 16,152,442 16,152,442


Other comprehensive income - - (24,087) (5,310) (29,397)
Total comprehensive income - - (24,087) 16,147,132 16,123,045
Exercise of share warrants 3,176,842 - - - 3,176,842
Exercise of share options 911,261 - - - 911,261
Share based payments - 444,346 - - 444,346
Final dividend paid - 2015/16 - - - (1,784,105) (1,784,105)
Interim dividends paid - 2016/17 - - - (5,496,392) (5,496,392)
As at 31 March 2017 62,790,080 1,402,656 102,220 49,988,495 114,283,451

Profit for the year - - - 21,222,229 21,222,229


Other comprehensive income - - (66,510) (4,083) (70,593)
Total comprehensive income - - (66,510) 21,218,146 21,151,636
Exercise of share options 9,016 - - - 9,016
Share based payments 3,231 513,759 - - 516,990
Final dividend paid - 2016/17 - - - (2,774,934) (2,774,934)
Interim dividends paid - 2017/18 - - - (5,550,049) (5,550,049)
As at 31 March 2018 62,802,327 1,916,415 35,710 62,881,658 127,636,110

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.

204 John Keells Holdings PLC . Annual Report 2017/18


Attributable to equity holders of the parent
GROUP Stated Restricted Revaluation Foreign Cash flow Other Available for Revenue Total Non Total
In LKR ‘000s capital regulatory reserve currency hedge capital sale reserve controlling equity
reserve translation reserve reserve reserve interests
reserve

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

Profit for the year - - - - - - - 16,275,158 16,275,158 1,841,607 18,116,765


Other comprehensive income - - 8,148,602 1,222,916 312,529 - (192,087) (72,664) 9,419,296 2,275,559 11,694,855
Total comprehensive income - - 8,148,602 1,222,916 312,529 - (192,087) 16,202,494 25,694,454 4,117,166 29,811,620
Exercise of share warrants 3,176,842 - - - - - - - 3,176,842 - 3,176,842
Exercise of share options 911,261 - - - - - - - 911,261 - 911,261
Share based payments - - - - - 444,346 - - 444,346 - 444,346
Final dividend paid - 2015/16 - - - - - - - (1,784,105) (1,784,105) - (1,784,105)
Interim dividends paid - 2016/17 - - - - - - - (5,496,392) (5,496,392) - (5,496,392)
Subsidiary dividend to non-controlling - - - - - - - 659,992 659,992 (1,939,171) (1,279,179)
interest
Acquisition, disposal and changes in non- - - - - - - - 46,682 46,682 18,978 65,660
controlling interest
As at 31 March 2017 62,790,080 - 28,994,792 8,303,895 312,529 1,402,656 (362,304) 77,193,184 178,634,832 15,695,543 194,330,375

Profit for the year - - - - - - - 21,021,031 21,021,031 2,098,774 23,119,805


Other comprehensive income - - 5,150,294 1,131,696 253,403 - 1,027,363 34,863 7,597,619 70,029 7,667,648
Total comprehensive income - - 5,150,294 1,131,696 253,403 - 1,027,363 21,055,894 28,618,650 2,168,803 30,787,453
Exercise of share options 9,016 - - - - - - - 9,016 - 9,016
Share based payments 3,231 - - - - 513,759 - - 516,990 - 516,990
Transfer of one - off surplus - 3,123,554 - - - - - (3,123,554) - - -
Final dividend paid - 2016/17 - - - - - - - (2,774,934) (2,774,934) - (2,774,934)
Interim dividends paid - 2017/18 - - - - - - - (5,550,049) (5,550,049) - (5,550,049)
Subsidiary dividend to non-controlling - - - - - - - 499,883 499,883 (1,382,643) (882,760)
interest
Acquisition, disposal and changes in - - 626 - - - - (34,923) (34,297) 8,462,785 8,428,488
non-controlling interest
As at 31 March 2018 62,802,327 3,123,554 34,145,712 9,435,591 565,932 1,916,415 665,059 87,265,501 199,920,091 24,944,488 224,864,579

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.
Financial Information

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

Consumer Foods & Retail Consumer Foods & Retail


LKR. 53.21 Bn 15% LKR. 4.10 Bn 25%
2018 SL 2018 Group NCI
2017 SL 2017 Group NCI
0 30 60 0 3 6

Financial Services Financial Services


LKR. 10.06 Bn 21% LKR. 8.57 Bn 309%
2018 SL 2018 Group NCI
2017 SL 2017 Group
0 6 12 0 5 10

Information Technology Information Technology


LKR. 11.07 Bn 0.3% LKR. 0.43 Bn 30%
2018 SL 2018 Group
2017 SL 2017 Group
0 6 12 0 0.5
1.0
Others Others
LKR. 3.44 Bn 17% LKR. 6.08 Bn 16%
2018 SL 2018 Group
2017 SL 2017 Group
0 2 4 0 4 8
All values are in LKR billions

206 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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

Consumer Foods & Retail Consumer Foods & Retail


LKR. 26.06 Bn 43% LKR. 16.40 Bn 66%
2018 PPE Inv 2018 TP OD
2017 PPE Inv 2017 TP DTL
0 15and equipment
Property, plant 30 0 10 20

Financial Services Financial Services


LKR. 47.49 Bn 14% LKR. 32.47 Bn 5%
2018 NCFA STI 2018 ICL TP
2017 NCFA STI 2017 ICL TP
0 25 50 0 20 40

Information Technology Information Technology


LKR. 3.83 Bn 20% LKR. 2.49 Bn 11%
2018 TR STI 2018 TP OD
2017 TR STI 2017 TP OD
0 3 6 0 2 4

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.

208 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

Comparative information denominated in foreign currency are retranslated to functional


The presentation and classification of the financial statements of currency equivalents at the spot exchange rate prevailing at the
the previous years have been amended, where relevant for better reporting date.
presentation and to be comparable with those of the current year.
Non-monetary items that are measured in terms of historical cost
4 Summary of significant accounting policies in a foreign currency are translated using the exchange rates as
Summary of significant accounting policies have been disclosed at the dates of the initial transactions. Non-monetary assets and
along with the relevant individual notes in the subsequent pages. liabilities are translated using exchange rates that existed when
the values were determined. The gain or loss arising on translation
Those accounting policies presented with each note, have been of non-monetary items is treated in line with the recognition of
applied consistently by the Group. gain or loss of the item.

Other significant accounting policies not covered with Foreign operations


individual notes. The statement of financial position and income statement of
Following accounting policies, which have been applied overseas subsidiaries, joint ventures and associates which are
consistently by the Group, are considered to be significant but not deemed to be foreign operations are translated to Sri Lanka
covered in any other sections rupees at the rate of exchange prevailing as at the reporting
date and at the average annual rate of exchange for the period
Current versus non-current classification respectively.
The Group presents assets and liabilities in statement of financial
position based on current/non-current classification. The exchange differences arising on the translation are taken
directly to other comprehensive income. On disposal of a
An asset is current when it is: foreign entity, the deferred cumulative amount recognised in
other comprehensive income relating to that particular foreign
• Expected to be realized or intended to be sold or consumed in operation is recognised in the income statement.
the normal operating cycle
• Held primarily for the purpose of trading The Group treated goodwill and any fair value adjustments
• Expected to be realised within twelve months after the to the carrying amounts of assets and liabilities arising on the
reporting period, or acquisition as assets and liabilities of the parent. Therefore, those
• Cash or cash equivalent unless restricted from being exchanged assets and liabilities are non-monetary items already expressed in
or used to settle a liability for at least twelve months after the the functional currency of the parent and no further translation
reporting period. differences occur.

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,

Accounting Summary of the Requirements Possible Impact on Consolidated Financial Statements


Standard
SLFRS 9 - SLFRS 9 replaces the existing The Group has adopted the new standard on the required effective date and will not restate
Financial guidance in LKAS 39 Financial comparative information. During 2017, the Group has performed a high-level impact
Instruments Instruments: Classification and assessment of all three aspects of SLFRS 9. This preliminary assessment is based on currently
Measurement, impairment and available information and may be subject to changes arising from further detailed analyses or
[Effective hedge accounting. SLFRS 9 additional reasonable and supportable information being made available to the Group in the
on or after 1 includes revised guidance on the future. Overall, the Group expects no significant impact on its financial position and equity.
January 2018 classification and measurement Group will implement changes in classification of certain financial instruments.
(early adoption of financial instruments, a new
permitted)] expected credit loss model Classification and measurement
for calculating impairment on The Group does not expect a significant impact on its balance sheet or equity on applying the
financial assets, and new general classification and measurement requirements of SLFRS 9. It expects to continue measuring at
hedge accounting requirements. It fair value all financial assets currently held at fair value.
also carries forward the guidance The equity shares in listed and non-listed companies are intended to be held for the
on recognition and derecognition foreseeable future. No impairment losses were recognised in profit or loss during prior periods
of financial instruments from for these investments. The Group will apply the option to present fair value changes in OCI.
LKAS 39. Therefore, the application of SLFRS 9 will not have a significant impact.
Debt securities are expected to be measured at fair value through OCI under SLFRS 9 as the
Group expects not only to hold the assets to collect contractual cash flows, but also to sell a
significant amount on a relatively frequent basis.
Loans as well as trade receivables are held to collect contractual cash flows and are expected
to give rise to cash flows representing solely payments of principal and interest.
The Group analysed the contractual cash flow characteristics of those instruments and
concluded that they meet the criteria for amortised cost measurement under SLFRS 9.
Therefore, reclassification for these instruments is not required.
Impairment
SLFRS 9 requires the Group to record expected credit losses on all of its debt securities,
loans and trade receivables, either on a 12-month or lifetime basis. The Group will apply the
simplified approach and record lifetime expected losses on all trade receivables.

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.

210 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

Accounting Summary of the Requirements Possible Impact on Consolidated Financial Statements


Standard
Other adjustments
In addition to the adjustments described above, on adoption of SLFRS 9, other items of
the primary financial statements such as deferred taxes, assets held for sale and liabilities
associated with them will be adjusted as necessary.
SLFRS 15 - SLFRS 15 establishes a The Group has adopted the new standard on the required effective date and is not expected
Revenue from comprehensive framework for to have material changes to the comparative information. SLFRS 15 establishes a five-step
Contracts with determining whether, how much, model to account for revenue arising from contracts with customers. Under SLFRS 15, revenue
Customers and when, revenue is recognised. is recognised at an amount that reflects the consideration to which an entity expects to be
It replaces existing revenue entitled in exchange for transferring goods or services to a customer. The Group completed
[Effective recognition guidance, including the diagnostic phase of SLFRS 15 adaptation in the 2016/17 financial year with the assistance
on or after 1 LKAS 18 Revenue, LKAS 11 of external consultants, which was continued with a more detailed analysis completed in the
January 2018 Construction Contracts and IFRIC 2017/18 financial year.
(early adoption 13 Customer Loyalty Programmes
Sale of goods
permitted)]
Under SLFRS 15, revenue will be recognised upon satisfaction of performance obligation. The
Group expects the revenue recognition to occur at a point in time when control of the asset is
transferred to the customer, generally on delivery of the goods

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)

GROUP BUSINESS, OPERATIONS AND MANAGEMENT


7 Operating segment information As such for management purposes, the Group is organised into
Accounting policy business units based on their products and services and has
The Group’s internal organisation and management is structured seven operating business segments as follows:
based on individual products and services which are similar in
Transportation
nature and process and where the risks and returns are similar. The
Business of the transportation operating segment offers an
operating segments represent this business structure.
array of transportation related services in Sri Lanka and the
In addition, segments are determined based on the Group’s region and these operations comprise of South Asia Gateway
geographical spread of operations as well. The geographical Terminals (Pvt) Ltd. in the port of Colombo, a marine bunkering
analysis of turnover and profits are based on location of business, joint ventures/associations with leading shipping and
customers and assets respectively. air transportation multinationals and logistics, travel and airline
services in Sri Lanka, India and the Maldives.
The activities of each of the operating business segments of the
Group are detailed in the Group directory in the Supplementary
section of the Annual report.

7.1 Business segments


Transportation Leisure Property
For the year ended 31st March 2018 2017 2018 2017 2018 2017
In LKR ‘000s

External revenue 17,168,713 11,109,677 25,039,582 25,873,790 1,230,664 1,121,204


Inter segment revenue 513,291 365,421 23,911 27,325 216,707 206,678
Total segment revenue 17,682,004 11,475,098 25,063,493 25,901,115 1,447,371 1,327,882
Elimination of inter segment revenue
Net revenue

Segment results 1,008,706 2,652,278 3,752,508 5,713,936 685,996 540,625

Finance cost (57,178) (25,488) (215,924) (203,544) (33,829) (25,858)


Finance income 133,797 117,449 460,814 458,531 100,114 93,077
Change in fair value of investment property - - - - 613,033 290,341
Share of results of associates 2,208,836 2,274,792 63,066 53,473 2,574 -
Eliminations / adjustments (25,039) (1,920,821) (151,140) (301,526) (98,287) (233,629)

Profit / (loss) before tax 3,269,122 3,098,210 3,909,324 5,720,870 1,269,601 664,556

Tax expense (184,998) (119,057) (566,411) (713,304) (218,144) (41,058)

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

212 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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

7 Operating segment information (Contd.)


7.2 Business segments
Transportation Leisure Property
As at 31st March 2018 2017 2018 2017 2018 2017
In LKR ‘000s

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

Investments in equity accounted investees 10,760,644 11,118,544 545,216 512,143 1,807,074 -


Deferred tax assets
Goodwill
Eliminations / adjustments
Total non-current assets

Inventories 717,600 522,461 333,244 337,494 15,348 15,255


Trade and other receivables 2,178,988 1,685,506 3,404,368 3,474,959 57,923 941,864
Short term investments 133,943 2,053,279 5,389,308 8,188,744 954,858 987,176
Cash in hand and at bank 2,880,564 290,699 1,737,255 2,198,542 3,970,514 973,122
Segment current assets 5,911,095 4,551,945 10,864,175 14,199,739 4,998,643 2,917,417

Other current assets


Eliminations / adjustments
Total current assets
Total assets

Insurance contract liabilities - - - - - -


Interest-bearing loans and borrowings - - 8,127,078 6,650,926 13,608,177 12,548,001
Employee benefit liabilities 75,411 84,859 694,772 638,131 45,603 29,435
Other deferred liabilities - 1,640 154,622 120,007 - 558,435
Other non-current liabilities 10,760 10,267 - - 6,520,687 3,730,151
Segment non-current liabilities 86,171 96,766 8,976,472 7,409,064 20,174,467 16,866,022

Deferred tax liabilities


Eliminations / adjustments
Total non-current liabilities

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

Income tax liabilities


Other current liabilities
Eliminations / adjustments
Total current liabilities

Total liabilities

Total segment assets 7,077,951 5,638,716 76,215,907 77,205,011 90,835,721 52,526,519


Total segment liabilities 4,724,217 2,708,408 14,287,212 17,480,245 23,065,544 19,139,904

214 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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

- - 9,222,413 6,088,200 - - - - 22,335,347 17,718,887


171,503 143,548
738,596 738,596
(4,111,835) (4,574,829)
223,686,512 172,308,143

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

- - 30,230,539 31,700,278 - - - - 30,230,539 31,700,278


1,958,333 289,896 - - 27,483 - 12,000 12,000 23,733,071 19,500,823
575,015 549,079 141,964 138,656 113,939 106,889 333,479 333,238 1,980,183 1,880,287
36,925 55,490 - - - - 527 103,991 192,074 839,563
172,921 193,464 - - - - - - 6,704,368 3,933,882
2,743,194 1,087,929 30,372,503 31,838,934 141,422 106,889 346,006 449,229 62,840,235 57,854,833

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

7 Operating segment information (Contd.)


7.3 Geographical segments, based on the location of assets
Sri Lanka Asia (excluding Sri Lanka) Others Group Total
2018 2017 2018 2017 2018 2017 2018 2017
In LKR ‘000s

Segment assets 275,789,003 235,720,710 24,537,834 27,414,975 - 1,761,120 300,326,837 264,896,805


Segment liabilities 81,047,795 71,369,556 10,257,084 12,855,813 - 17,454 91,304,879 84,242,823
Investments in equity accounted 22,335,347 17,718,887 - - - - 22,335,347 17,718,887
investees
Segment revenue 114,485,216 98,692,457 6,729,855 7,580,644 - - 121,215,071 106,273,101
Segment results 15,997,865 12,093,968 891,352 858,550 - (613,547) 16,889,217 12,338,971
Purchase and construction of property, 17,840,321 3,823,767 1,081,628 505,004 - 2,811 18,921,949 4,331,582
plant and equipment
Purchase and construction of intangible 217,562 114,398 - - - - 217,562 114,398
assets
Purchase of lease rights - 177,062 - 2,479,950 - - - 2,657,012
Depreciation of property, plant and 2,859,956 2,471,879 376,270 402,062 - 130 3,236,226 2,874,071
equipment
Amortisation of intangible assets 325,531 333,046 - - - - 325,531 333,046
Amortisation of lease rental paid in 60,079 39,241 398,380 553,742 - - 458,459 592,983
advance
Gratuity provision and related costs 371,434 326,106 474 1,527 - - 371,908 327,633

7.4 Business segment analysis


Group
2018 2017
For the year ended 31st March Sale of Rendering Total Sale of Rendering Total
In LKR ‘000s goods of services revenue goods of services revenue

Transportation 15,834,106 1,334,607 17,168,713 10,275,518 834,159 11,109,677


Leisure - 25,039,582 25,039,582 - 25,873,790 25,873,790
Property 676,320 554,345 1,230,665 587,363 533,841 1,121,204
Consumer Foods & Retail 53,211,013 - 53,211,013 45,812,242 - 45,812,242
Financial Services - 10,056,203 10,056,203 - 8,296,409 8,296,409
Information Technology 9,573,829 1,495,397 11,069,226 9,250,749 1,856,528 11,107,277
Others 2,679,634 760,036 3,439,670 2,312,330 640,172 2,952,502
Group external revenue 81,974,902 39,240,170 121,215,072 68,238,202 38,034,899 106,273,101

7.5 Geographical segment analysis (by location of customers)


Group
For the year ended 31st March 2018 2017
In LKR ‘000s

Sri Lanka 92,133,099 81,776,854


Asia (excluding Sri Lanka) 13,261,691 9,225,727
Europe 11,034,245 9,667,726
Others 4,786,037 5,602,794
Group external revenue 121,215,072 106,273,101

216 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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

8 Basis of consolidation and material partly owned subsidiaries (Contd.)


8.1 Material partly-owned subsidiaries
Financial information of subsidiaries that have material non-controlling interests (NCI) are provided below.

LEISURE CONSUMER FOODS & RETAIL


In LKR ‘000s 2018 2017 2018 2017

Summarised income statement for the year ended 31 March


Revenue 26,793,664 28,134,885 54,358,496 46,834,239
Operating cost (21,389,257) (20,438,667) (49,642,387) (40,941,279)
Finance cost (215,924) (367,870) (33,043) (19,318)
Finance income 460,814 622,856 149,034 251,544
Change in fair value of investment property 397,600 243,400 21,559 92,005
Profit before tax 6,046,897 8,194,604 4,853,659 6,217,191
Tax expense (538,572) (715,716) (1,205,807) (1,570,344)
Profit for the year 5,508,325 7,478,888 3,647,852 4,646,847
Other comprehensive income 1,029,264 9,968,550 31,251 209,357
Total comprehensive income 6,537,589 17,447,438 3,679,103 4,856,204

Profit/(loss) allocated to NCI 520,966 842,273 521,716 730,983

Dividend paid to NCI 580,460 1,016,875 437,843 717,319

Summarised statement of financial position as at 31 March


Current assets 10,864,175 14,199,739 9,269,288 8,033,574
Non-current assets 65,351,732 63,005,272 15,605,862 17,620,783
Total assets 76,215,907 77,205,011 24,875,150 25,654,357

Current liabilities 5,310,740 11,472,392 10,635,537 7,822,565


Non-current liabilities 8,976,472 8,055,181 2,743,194 2,275,496
Total liabilities 14,287,212 19,527,573 13,378,731 10,098,061

Accumulated balances of NCI 12,414,526 12,680,462 2,410,370 2,351,519

Summarised cash flow information for the year ended 31 March


Cash flows from operating activities 7,455,908 12,072,010 3,796,062 4,977,847
Cash flows from/(used in) investing activities (3,696,335) (2,900,274) (5,944,099) (3,066,146)
Cash flows from/(used in) financing activities (3,031,700) (5,534,896) 709,362 (3,891,090)
Net increase / (decrease) in cash and cash equivalents 727,873 3,636,840 (1,438,675) (1,979,389)

The above information is based on amounts before inter-company eliminations

218 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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

9 Business combinations and acquisitions of non-controlling interests (Contd.)

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:

Fair value recognised


on acquisition

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)

220 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

9.2 Investment in subsidiaries - 2017/18 9.3 Investment in equity accounted investees


Waterfront Properties (Pvt) Ltd. Braybrooke Residential Properties (Pvt) Ltd.
John Keells Holdings PLC. (JKH) invested a further LKR. 9,406 Mn In September 2017, the Group acquired a 50% stake with a total
(2017 - LKR. 4,341 Mn) in Waterfront Properties (Pvt) Ltd., a investment of LKR. 1,804 Mn in Braybrooke Residential Properties
subsidiary of JKH involved in developing, owning, managing, (Pvt) Ltd. (formerly known as Indra Holdings (Pvt) Ltd.). This
operating, selling, leasing and renting of a luxury multi/mixed use Company plans to develop a residential apartment project of 891
Integrated Resort. units branded as “Tri-Zen” at Union Place, Colombo 2.

Trans-Ware Logistics (Pvt) Ltd.


Nations Trust Bank PLC. (NTB)
In November 2017, Trans-Ware Logistics (Pvt) Ltd., became a
In January 2018, the shareholders of NTB approved to issue
fully owned subsidiary of the Group, arising from the buyout
ordinary non-voting convertible shares of the bank by way of a
of the 50% stake from the other venture partners, for a cash
rights issue to meet the enhanced capital requirements arising
consideration of LKR. 305 Mn by John Keells Holdings PLC.
from the introduction of Basel III, SLFRS 9 accounting standard
and also to meet the expected growth in the loan book. The JKH
Vauxhall Land Developments (Pvt) Ltd.
Group subscribed to its entitlement of rights and also applied
The Group, through Vauxhall Land Development (Pvt) Ltd
for additional rights. In total, the Group was allotted 18,109,079
(VLDL), acquired a 2.09-acre plot of land on Vauxhall Street for
shares at a price of LKR. 80 per share which amounted to a total
a consideration of LKR. 4,373 Mn. This asset was consolidated
investment by the Group of LKR. 1,449 Mn. The JKH Group has an
with an existing land plot of 3.56-acres, transferred from Whittall
economic interest of 32.16% in NTB.
Boustead (Pvt) Ltd, and 3.72 acres of land owned by Finlays
Colombo Ltd through a joint venture agreement signed in March
9.4 Disposal of a subsidiary
2018. Vauxhall Land Developments (Pvt) Ltd, which is 60.28%
John Keells BPO Solutions India (Pvt) Ltd.
owned by JKH, now has a contiguous 9.38-acre property in one of
In September 2017, the Group disposed of its 100% interest in
the prime areas of the Colombo Central Business District.
John Keells BPO Solutions India (Pvt) Ltd. for a sales consideration
of LKR. 634 Mn.

The fair value of assets and liabilities disposed were as follows:


Value recognised
on disposal

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%

Financial assets at fair value through P&L 10.3.3.1 - - - 3,816,624 -


Available-for-sale investments 10.3.3.2 119,375 - - - -
Total equity risk exposure 119,375 - - 3,816,624 -
Total 32,878,254 10,882,856 12,273,372 64,386,093 139,640

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%

Available-for-sale investments 10.3.3.2 75,461 - - - -


Total equity risk exposure 75,461 - - - -
Total 267,111 496,591 70,730 49,157,472 404,364

222 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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

17,750,289 - - 24,450,907 - 42,201,196 35%


4,244,764 - - 1,436,526 - 5,681,290 5%
3,276,582 - - 49,853,042 - 53,129,624 44%
733,037 - 184,626 - - 917,663 1%
902,300 - - - - 902,300 1%
267,275 - - - - 267,275 0%
331,679 - - - - 331,679 1%
- - 11,034,918 - - 11,034,918 9%
- - 214,342 - - 214,342 0%
- - 253,543 - - 253,543 0%
- - - - 111,639 111,639 0%
- 5,119,185 - - - 5,119,185 4%
27,505,926 5,119,185 11,687,429 75,740,475 111,639 120,164,654 100%

- - - 3,433,852 -
160,695 - - - -
160,695 - - 3,433,852 -
27,666,621 5,119,185 11,687,429 79,174,327 111,639

- - - 16,690,302 - 16,690,302 26%


- - - 268,306 - 268,306 0%
2,576,339 - - 43,284,672 - 45,861,011 72%
71,669 - 18,652 - - 90,321 0%
- - 99,424 - - 99,424 0%
- - - - 286,735 286,735 1%
- 304,265 - - - 304,265 1%
2,648,008 304,265 118,076 60,243,280 286,735 63,600,364 100%

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

AA+ - - 812,063 14%


AA 284,753 5% 25,572 0%
AA- 518,442 9% 1,887,448 34%
A+ 1,464,969 24% 1,699,653 30%
A 1,891,125 31% 751,104 13%
A- 1,126,015 19% 422,857 7%
BBB+ 732,025 12% 82,593 2%
Total 6,017,329 100% 5,681,290 100%

10.1.4 Deposits with bank


Deposits with bank mainly consist of fixed and call deposits .
As at 31 March 2018, fixed and call deposits comprise 87% (2017- 92%) and 87% (2017- 95%) for the Group and Company respectively were
rated “A+” or better.
GROUP COMPANY
2018 2017 2018 2017
As at 31st March In LKR Rating % In LKR Rating % In LKR Rating % In LKR Rating %
Fitch ratings ’000s of total ’000s of total ’000s of total ’000s of total

AAA 387,619 1% 98,936 0% - - - -


AA+ 23,575,985 42% 17,584,755 33% 19,866,538 41% 17,283,582 37%
AA 4,021,056 7% 5,204,255 10% 4,070,587 8% 4,833,086 11%
AA- 19,006,484 34% 23,048,321 43% 17,369,327 35% 20,234,776 44%
A+ 1,727,461 3% 2,967,207 6% 1,512,538 3% 1,291,148 3%
A 6,802,124 12% 2,612,559 5% 6,002,314 12% 604,828 1%
A- 591,685 1% 1,613,591 3% 441,678 1% 1,613,591 4%
Total 56,112,414 100% 53,129,624 100% 49,262,982 100% 45,861,011 100%

10.1.5 Loans to executives 10.1.7 Preference Shares


Loans to executive portfolio is largely made up of vehicle loans Cumulative preference share investment which has a lien over
which are given to staff at assistant manager level and above. The assets, redeemable at the option of share holder.
respective business units have obtained the necessary promissory
notes as collateral for the loans granted. 10.1.8 Interest rate swap
The Group has entered into an interest rate swap that is a
10.1.6 Loans to life policyholders cash flow hedge. The changes in counterparty credit risk had
The surrender value of insurance policies are considered as the no material effect on the hedge effectiveness assessment for
collateral for the loans given to life policy holders by Union Assurance derivatives designated in hedge relationships. Refer note 12.3
PLC. System controls are in place to automatically convert a policy to
lapse stage when the policy loan amount together with the interest
is reaching the surrender value of the policy.

224 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

10.1.9 Trade and other receivables


GROUP COMPANY
As at 31st March 2018 2017 2018 2017
In LKR ‘000s

Neither past due nor impaired 6,242,130 3,357,908 10,055 79,574

Past due but not impaired


0-30 days 2,688,856 4,411,225 4,166 9,738
31–60 days 987,250 1,199,016 17,748 8,914
61–90 days 307,675 263,358 4,331 -
> 91 days 1,222,749 1,803,411 10,881 1,198
Impaired 691,590 1,050,357 - -
Gross carrying value 12,140,250 12,085,275 47,181 99,424
Less: impairment provision
Individually assessed impairment provision (81,658) (418,296) - -
Collectively assessed impairment provision (609,932) (632,061) - -
Total 11,448,660 11,034,918 47,181 99,424

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.

10.1.10 Reinsurance receivables 10.2 Liquidity risk


The Union Assurance PLC. operates a policy to manage its The Group’s policy is to hold cash and undrawn committed
reinsurance counterparty exposures by limiting the reinsurers that facilities at a level sufficient to ensure that the Group has available
may be used and applying strict limits to each reinsurer. funds to meet its short and medium term capital and funding
obligations, including organic growth and acquisition activities,
10.1.11 Premium receivable and to meet any unforeseen obligations and opportunities. The
Only designated institution are employed as intermediary parties Group holds cash and undrawn committed facilities to enable the
by Union Assurance PLC. Group to manage its liquidity risk.

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

10 Financial risk management objectives and policies (Contd.)


10.2.1 Net debt/(cash)
GROUP COMPANY
As at 31st March 2018 2017 2018 2017
In LKR ‘000s

Short term investments 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
Adjustments to liquid assets (12,028,016) (6,218,187) - -
Total liquid assets 63,240,933 78,075,325 49,654,063 60,547,545
Interest-bearing loans and borrowings (Non-current) 18,521,034 14,202,636 - -
Short term borrowings 3,128,508 1,380,238 - -
Interest-bearing loans and borrowings (Current) 2,062,465 2,918,854 - -
Bank overdrafts 6,010,089 4,264,109 62,477 84,282
Total liabilities 29,722,096 22,765,837 62,477 84,282
Net debt / (cash) (33,518,837) (55,309,488) (49,591,586) (60,463,263)

10.2.2 Liquidity risk management


The mixed approach combines elements of the cash flow matching approach and the liquid assets approach. The business units attempt to
match cash outflows in each time bucket against a combination of contractual cash inflows plus other inflows that can be generated through
the sale of assets, repurchase agreement or other secured borrowing.

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

226 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

Maturity analysis
The table below summarises the maturity profile of the Company’s financial liabilities on contractual undiscounted (principal plus interest)
payments.

Company WITHIN 1 YEAR


As at 31st March 2018 2017
In LKR ‘000s

Trade and other payables 332,191 330,078


Amounts due to related parties 5,377 210,029
Bank overdrafts 62,477 84,282
400,045 624,389

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).

Increase/ (decrease) in basis Effect on profit before tax


points LKR ‘000s
For the Year ended 31 March Rupee Other currency Group Company
borrowings borrowings

2018 +116 +96 203,405 -


-116 -96 (203,405) -

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

10 Financial risk management objectives and policies (Contd.)


10.3.2 Foreign currency risk treasury, the GEC takes decisions on whether to hold, sell, or make
Foreign currency risk is the risk that the fair value or future cash forward bookings of foreign currency as per decision rights given
flows of a financial instrument will fluctuate because of changes by the Board of Directors.
in foreign exchange rates. The Group has exposure to foreign
currency risk where it has cash flows in overseas operations 10.3.2.1 Effects of currency transaction on forward contract
and foreign currency transactions which are affected by foreign The following table demonstrates the sensitivity to a reasonably
exchange movements. Group treasury analyses the market possible change in the USD/LKR exchange rate, with all other
condition of foreign exchange and provides market updates to variables held constant, of the Group’s profit before tax due
the Group Executive Committee (GEC), with the use of external to changes in the fair value of the Group’s forward exchange
consultants’ advice. Based on the suggestions made by Group contracts. Currently these financial instruments are categorised
under trade and other receivables.

Increase/(decrease) in basis Effect on profit before tax


points USD LKR ‘000s
For the Year ended 31 March Group

2018 +3% (49,614)


-3% 49,614

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.

For the Year ended 31 March Group Company


Increase/(decrease) Effect on profit before tax Effect on equity Effect on profit before tax
in exchange rate USD LKR ‘000s LKR ‘000s LKR ‘000s

2018 +3% 647,150 1,440,806 497,613


-3% (647,150) (1,440,806) (497,613)

2017 +4% 1,169,224 1,490,189 841,661


-4% (1,169,224) (1,490,189) (841,661)
Assumptions
The assumed spread of the exchange rate is based on the current observable market environment.

10.3.3 Equity price risk


The Group’s listed and unlisted equity securities are susceptible to market price risk arising from uncertainties about future values of the
investment securities.

10.3.3.1 Financial assets at fair value through Profit and loss


The Group manages the equity price risk through diversification and by placing limits on individual and total equity instruments. Reports on
the equity portfolio are submitted to the Group’s senior management on a regular basis. The Board of Directors reviews and approves all equity
investment decisions.

228 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

GROUP
As at 31st March 2018 2017
LKR ’000s % LKR ’000s %

Banks finance and insurance 2,160,179 57% 1,678,946 49%


Beverage food and tobacco 96,964 3% 12,353 0%
Construction and engineering 123,427 3% 116,745 3%
Diversified holdings 488,139 13% 591,424 18%
Manufacturing 717,644 19% 856,378 25%
Motors 10,255 0% - -
Other services 16,428 0% - -
Telecommunications 203,588 5% 178,006 5%
3,816,624 100% 3,433,852 100%

10.3.3.2 Available-for-sale investments


All unquoted equity investments are made after obtaining Board of Directors approval.

10.3.3.3 Sensitivity analysis


The following table demonstrates the sensitivity to a reasonably possible change in the market index, with all other variables held constant, of
the Group & Company’s profit before tax and equity due to changes in the fair value of the listed equity securities.

For the Year ended 31 March GROUP


Change in year-end Effect on profit Effect on equity
market price index before tax LKR ‘000s LKR ‘000s

2018 7% 267,164 -
-7% (267,164) -

2017 0% - -
0% - -

10.4 Capital management


The primary objective of the Group’s capital management is to ensure that it maintains a strong financial position and healthy capital ratios in
order to support its business and maximise shareholder value.

The Group manages its capital structure, and makes adjustments to it, in 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

Debt / Equity 13.2% 11.7% 0.0% 0.1%

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

11.1 Fair value measurement hierarchy - Group


The Group held the following financial instruments carried at fair value in the Statement of Financial Position:

FINANCIAL ASSETS Level 1 Level 2 Level 3 Total


As at 31st March 2018 2017 2018 2017 2018 2017 2018 2017
In LKR ‘000s

Financial assets held for trading 2,286,170 1,678,122 - - - - 2,286,170 1,678,122


Designated at fair value through 1,837,274 2,187,708 142,317 132,683 - - 1,979,591 2,320,391
profit or loss
Interest rate swap - - 598,097 331,679 - - 598,097 331,679
Available for sale 7,458,240 6,659,083 150 150 119,031 160,369 7,577,421 6,819,602
Total 11,581,684 10,524,913 740,564 464,512 119,031 160,369 12,441,279 11,149,794

NON FINANCIAL ASSETS Note


Assets measured at fair value
Land and buildings 21.1 56,359,091 40,092,971 56,359,091 40,092,971
Buildings on leasehold land 21.1 14,382,337 12,522,459 14,382,337 12,522,459
Investment property 23 12,427,058 5,366,180 12,427,058 5,366,180
Total 83,168,486 57,981,610 83,168,486 57,981,610

230 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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.

11.2 Fair value measurement hierarchy - Company


FINANCIAL ASSETS Level 3
As at 31st March 2018 2017
In LKR ‘000s

Available for sale 75,461 141,972

11.3 Reconciliation of fair value measurements of level 3 financial instruments


The Group and Company carries unquoted equity shares as available-for-sale financial instruments classified as Level 3 within the fair value
hierarchy. A reconciliation of the beginning and closing balances including movements is summarised below:

In LKR ‘000s Available-for-sale financial assets Available-for-sale financial assets


Group Company

As at 1 April 2017 160,369 141,972


Sales - -
Total gains and losses recognised in OCI (41,338) (66,511)
As at 31 March 2018 119,031 75,461

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.

The Group’s financial assets include cash and short-term deposits,


trade and other receivables, loans and other receivables, quoted
and unquoted financial instruments and derivative financial
instruments.

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.

232 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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

12.1 Financial assets and liabilities by categories in accordance with LKAS 39

GROUP Loans and receivables Financial assets at fair value


through profit or loss
As at 31st March 2018 2017 2018 2017
In LKR ‘000s

Financial instruments in non-current assets / non-current liabilities


Non-current financial assets 7,539,791 9,474,413 123,738 96,016
Interest-bearing loans and borrowings - - - -

Financial instruments in current assets / current liabilities


Trade and other receivables / Payables 12,273,372 11,687,429 - -
Amounts due from / Due to related parties 139,640 111,639 - -
Short term investments / Short term borrowings 59,448,699 70,970,351 4,142,023 3,902,497
Cash in hand and at bank / Bank overdrafts 10,882,856 5,119,185 - -
Interest-bearing loans and borrowings - - - -
Total 90,284,358 97,363,017 4,265,761 3,998,513

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.

234 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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.

Financial assets by categories Financial liabilities by categories


Available-for-sale financial Held - to - maturity Total Financial liabilities measured at
assets investments amortised cost
2018 2017 2018 2017 2018 2017 2018 2017

7,183,319 6,639,030 18,031,406 11,457,162 32,878,254 27,666,621 - -


- - - - - - 18,521,034 14,202,636

- - - - 12,273,372 11,687,429 16,077,499 14,136,040


- - - - 139,640 111,639 5,168 10,434
394,102 180,572 401,269 4,120,907 64,386,093 79,174,327 3,128,508 1,380,238
- - - - 10,882,856 5,119,185 6,010,089 4,264,109
- - - - - - 2,062,465 2,918,854
7,577,421 6,819,602 18,432,675 15,578,069 120,560,215 123,759,201 45,804,763 36,912,311

235
NOTES TO THE FINANCIAL STATEMENTS

12. Financial instruments and related policies (Contd.)


12.2 Financial assets and liabilities by categories in accordance with LKAS 39
Financial assets by categories Financial liabilities by
categories
COMPANY Loans and receivables Available-for-sale Total Financial liabilities
financial assets measured at amortised
cost
As at 31st March 2018 2017 2018 2017 2018 2017 2018 2017
In LKR ‘000s

Financial instruments in non-current


assets / non-current liabilities
Non-current financial assets 191,650 2,648,008 75,461 141,972 267,111 2,789,980 - -

Financial instruments in current assets /


current liabilities
Trade and other receivables / Payables 70,730 118,076 - - 70,730 118,076 332,191 330,078
Amounts due from / Due to related parties 404,364 286,735 - - 404,364 286,735 5,377 210,029
Short term investments 49,157,472 60,243,280 - - 49,157,472 60,243,280 - -
Cash in hand and at bank / Bank overdrafts 496,591 304,265 - - 496,591 304,265 62,477 84,282
Total 50,320,807 63,600,364 75,461 141,972 50,396,268 63,742,336 400,045 624,389

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.

12.3 Derivative financial instruments


GROUP
As at 31st March 2018 2017
Cash-flow hedges Contract notional amount Fair value Fair value
In USD ‘000s In LKR ‘000s In LKR ‘000s

Interest rate swaps 75,000 598,097 331,679

236 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

Accounting judgements, estimates and assumptions Sale of goods


Fair value of financial instruments Revenue from the sale of goods is recognized when the significant
Where the fair value of financial assets and financial liabilities risk and rewards of ownership of the goods have passed to the
recorded in the statement of financial position cannot be derived buyer with the Group retaining neither a continuing managerial
from active markets, their fair value is determined using valuation involvement to the degree usually associated with ownership, nor
techniques including the discounted cash flow model. The an effective control over the goods sold.
inputs to these models are taken from observable markets where
possible. Rendering of services
Revenue from rendering of services is recognised by reference to
Where this is not feasible, a degree of judgement is required in the stage of completion. Where the contract outcome cannot be
establishing fair values. The judgements include considerations of measured reliably, revenue is recognized only to the extent that
inputs such as liquidity risk, credit risk and volatility. the expenses incurred are eligible to be recovered.

NOTES TO THE INCOME STATEMENT, STATEMENT Rental income


OF COMPREHENSIVE INCOME AND STATEMENT OF Rental income arising from operating leases on investment
FINANCIAL POSITION properties is accounted for on a straight-line basis over the lease
13 Revenue term.
Accounting policy
Revenue recognition Life insurance business - gross written premium
Revenue is recognised to the extent that it is probable that Gross written premiums on life and investment contracts with
the economic benefits will flow to the Group, and the revenue discretionary participating features (DPF) are recognised as
and associated costs incurred or to be incurred can be reliably revenue when receivable from the policyholder (policies within
measured. Revenue is measured at the fair value of the the 30 day grace period are considered as due). For single
consideration received or receivable, net of trade discounts and premium business, revenue is recognised on the date on which
value added taxes, after eliminating sales within the Group. the policy is effective.

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

Gross revenue 121,417,678 106,483,869 1,347,707 1,126,353


Turnover tax (202,606) (210,768) - -
Net revenue 121,215,072 106,273,101 1,347,707 1,126,353

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.

15.1 Other operating income


GROUP COMPANY

For the year ended 31 March Note 2018 2017 2018 2017
In LKR ‘000s

Promotional income and commission fee 1,386,312 1,062,548 - -


Exchange gains 161,874 282,572 - -
Profit on sale of property, plant and equipment 67,475 - 354 17
Profit on sale of non current investments 9.4, 43.8 28,575 - 8,183,167 2,574,003
Write back of dealer deposits 9,216 8,789 - -
Sundry income 430,659 411,278 29,578 33,841
2,084,111 1,765,187 8,213,099 2,607,861

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

15.2 Other operating expenses


GROUP COMPANY
For the year ended 31 March 2018 2017 2018 2017
In LKR ‘000s

Nations building tax 1,182,224 1,105,567 27,407 22,909


Loss on sale of property, plant and equipment - 41,183 - -
Impairment losses on non financial assets 23,445 34,332 40,712 900,419
Heat, light and power 623,328 630,507 - -
Other overheads 1,361,166 1,358,516 4,806 17,844
3,190,163 3,170,105 72,925 941,172

238 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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

Net finance income


Finance income
Interest income 10,278,389 9,016,816 5,707,729 4,908,325
Dividend income on
Financial assets at fair value through profit or loss 134,965 164,269 - -
Available-for-sale financial assets 76,364 49,289 76,364 49,289
Investment related direct expenses (59,182) (47,432) - -
Net gain on
Financial assets at fair value through profit or loss 319,175 267,176 - -
Available-for-sale financial assets 10,602 9 -
Exchange gains 507,828 583,154 507,827 583,154
Total finance income 11,268,141 10,033,281 6,291,920 5,540,768

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

17 Profit before tax (Contd.)

GROUP COMPANY
For the year ended 31 March 2018 2017 2018 2017
In LKR ‘000s

Profit before tax


Profit before tax is stated after charging all expenses including the following;
Remuneration to executive directors 366,959 363,411 192,881 154,024
Remuneration to non executive directors 47,037 47,470 17,360 16,920
Costs of defined employee benefits
Defined benefit plan cost 371,908 327,633 37,610 32,831
Defined contribution plan cost - EPF and ETF 872,819 841,237 79,033 65,944
Staff expenses 11,458,870 11,166,845 609,705 567,671
Share based payments 517,374 444,346 170,759 119,822
Auditors’ remuneration
Audit 42,266 40,239 5,974 5,609
Non-audit 18,162 24,342 6,758 4,846
Depreciation of property, plant and equipment 3,236,226 2,874,071 32,555 33,042
Amortisation of intangible assets 325,531 333,046 18,861 19,765
Amortisation of lease rentals paid in advance 458,459 592,983 - -
Impairment losses 23,445 34,332 40,712 900,419
Operating lease payments 782,452 913,962 - -
(Profit)/loss on sale of property, plant and equipment and intangible assets (67,475) 41,183 (354) (17)
Donations 8,256 34,135 505 13,505

18 Earnings per share


Accounting policy
Basic EPS is calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the weighted average number
of ordinary shares outstanding during the year. Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the
parent (after adjusting for outstanding share options) by the weighted average number of ordinary shares outstanding during the year plus
the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary
shares.

18.1 Basic earnings per share


GROUP
For the year ended 31 March Note 2018 2017
In LKR ‘000s

Profit attributable to equity holders of the parent 21,021,031 16,275,158


Weighted average number of ordinary shares 18.3 1,387,497 1,373,936
Basic earnings per share 15.15 11.85

18.2 Diluted earnings per share


Profit attributable to equity holders of the parent 21,021,031 16,275,158
Adjusted weighted average number of ordinary shares 18.3 1,387,969 1,374,525
Diluted earnings per share 15.15 11.84

240 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

18.3 Amount used as denominator


GROUP
For the year ended 31 March 2018 2017
In LKR ‘000s

Ordinary shares at the beginning of the year 1,387,468 1,189,404


Bonus element on share split 2016/17 - 169,915
Effect of share options exercised / Warrants exercised 29 14,617
Weighted average number of ordinary shares in issue before dilution 1,387,497 1,373,936
Effects of dilution from:
Share option plans 472 589
Adjusted weighted average number of ordinary shares 1,387,969 1,374,525

19 Dividend per share


COMPANY
For the year ended 31 March 2018 2017
LKR In LKR ‘000s LKR 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

20 Taxes Deferred tax


Accounting policy Deferred tax is provided using the liability method on temporary
Current tax differences at the reporting date between the tax bases of assets
Current tax assets and liabilities for the current and prior periods and liabilities and their carrying amounts for financial reporting
are measured at the amount expected to be recovered from or purposes.
paid to the taxation authorities. The tax rates and tax laws used to
compute the amount are those that are enacted or substantively Deferred tax liabilities are recognised for all taxable temporary
enacted, at the reporting date in the countries where the Group differences, except:
operates and generates taxable income. •  Where the deferred tax liability arising from the initial
recognition of goodwill or of an asset or liability in a transaction
Current income tax relating to items recognised directly in that is not a business combination and, at the time of the
equity is recognised in equity and for items recognised in transaction, affects neither the accounting profit nor taxable
other comprehensive income shall be recognised in other profit or loss; and
comprehensive income and not in the income statement.
•  In respect of taxable temporary differences associated with
Management periodically evaluates positions taken in the
investments in subsidiaries, associates and interests in joint
tax returns with respect to situations in which applicable tax
ventures, where the timing of the reversal of the temporary
regulations are subject to interpretation and establishes provisions
differences can be controlled and it is probable that the
where appropriate.
temporary differences will not reverse in the foreseeable future.

Management has used its judgment on the application of tax laws


Deferred tax assets are recognised for all deductible temporary
including transfer pricing regulations involving identification of
differences, and unused tax credits and tax losses carried forward,
associated undertakings, estimation of the respective arm’s length
to the extent that it is probable that taxable profit will be available
prices and selection of appropriate pricing mechanism.
against which the deductible temporary differences and the unused
tax credits and tax losses carried forward can be utilised except:
The Group has complied with the arm’s length principles relating
to transfer pricing as prescribed in the Inland Revenue Act & has • Where the deferred income tax assets relating to the deductible
complied with the related Gazette Notifications issued by the temporary difference arises from the initial recognition of
Ministry of Finance . an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss; and

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.

Deferred tax relating to items recognised outside the income


The net amount of sales tax recoverable from, or payable to, the
statement is recognised outside the income statement. Deferred
taxation authority is included as part of receivables or payables in
tax items are recognised in correlation to the underlying
the statement of financial position.
transaction either in other comprehensive income or directly in
equity.

20.1 Tax expense


GROUP COMPANY
For the year ended 31 March 2018 2017 2018 2017
In LKR ‘000s

Current income tax


Current tax charge 20.5 3,240,376 3,461,444 1,293,431 1,092,976
(Over)/Under provision of current tax of previous years (63,223) 21,503 - -
Irrecoverable economic service charge 20.7 - 199 - -
10% Withholding tax on inter company dividends 681,700 943,718 - -
Deferred tax charge/(reversal)
Relating to origination and reversal of temporary differences 20.2 655,776 344,204 - -
20.6 4,514,629 4,771,068 1,293,431 1,092,976

242 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

20.2 Deferred tax expense


GROUP
For the year ended 31 March 2018 2017
In LKR ‘000s

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.

20.3 Income tax liabilities


GROUP COMPANY
As at 31st March 2018 2017 2018 2017
In LKR ‘000s

At the beginning of the year 2,395,379 1,873,472 635,532 345,555


Charge for the year 3,177,153 3,482,947 1,293,431 1,092,976
Payments and set off against refunds (3,505,765) (2,961,040) (1,257,329) (802,999)
Acquisitions / (disposal) of subsidiary 12,040 - - -
At the end of the year 2,078,807 2,395,379 671,634 635,532

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

At the beginning of the year 143,548 129,837 2,336,241 2,029,371


Charge and release 41,619 11,591 4,555,968 306,351
Acquisition/(disposal) of subsidiary - - (55,243) -
Transfers / exchange translation difference (13,664) 2,120 252,213 519
At the end of the year 171,503 143,548 7,089,179 2,336,241

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.

244 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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

Profit before tax 27,634,434 22,887,833 22,515,660 17,245,418


Dividend income from Group companies 11,269,163 14,165,500 - -
Share of results of equity accounted investees (net of tax) (3,596,430) (3,302,955) - -
Other consolidation adjustments 14,820,285 3,908,163 - -
Profit after adjustment 50,127,452 37,658,541 22,515,660 17,245,418
Exempt profits (1,460,681) (1,554,480) (929,053) (889,488)
Income not liable for income tax (15,163,860) (6,131,108) (8,197,016) (2,585,646)
Resident dividend (9,453,819) (14,194,939) (8,651,250) (10,518,312)
Adjusted accounting profit chargeable to income taxes 24,049,092 15,778,014 4,738,341 3,251,972

Disallowable expenses 9,237,723 9,571,337 589,297 1,338,095


Allowable expenses (6,041,067) (4,949,360) (703,149) (666,521)
Utilization of tax losses 162,058 (421,603) - -
Qualifying payment deductions (5,388) (54,692) (5,093) (20,059)
Taxable income 27,402,418 19,923,696 4,619,396 3,903,487

Income tax charged at


Standard rate of 28% 2,796,298 2,885,195 1,293,431 1,092,976
Other concessionary rates 444,078 576,249 - -
Current tax charge 3,240,376 3,461,444 1,293,431 1,092,976

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

Tax effect on chargeable profits 3,324,785 3,445,175 1,326,735 910,552


Tax effect on non deductible expenses 441,725 493,075 84,380 337,310
Tax effect on deductions claimed (385,504) (156,497) (123,697) (172,889)
Net tax effect of unrecognised deferred tax assets for the year 171,562 12,426 6,013 18,003
Net tax effect of unrecognised deferred tax assets for prior years 9,128 1,469 - -
Under/(over) provision for previous years (63,222) 21,503 - -
Deferred tax due to rate differentials 164,455 - - -
Other income based taxes
Irrecoverable economic service charge - 199 - -
10% Withholding tax on inter company dividends 681,700 943,718 - -
Deferred tax on withholding tax of affiliated companies dividends 170,000 10,000 - -
Tax expense 4,514,629 4,771,068 1,293,431 1,092,976

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

Irrecoverable economic service charge - 199


- 199

20.8 Tax losses carried forward


GROUP COMPANY
For the year ended 31st March 2018 2017 2018 2017
In LKR ‘000s

Tax losses brought forward 9,146,951 9,207,044 1,230,471 1,230,471


Adjustments on finalisation of liability 492,233 208,727 - -
Tax losses arising during the year 1,031,125 381,107 - -
Utilisation of tax losses (108,407) (649,927) - -
10,561,902 9,146,951 1,230,471 1,230,471

20.9 Details of investment relief


Year of Cost of approved Relief claimed/forgone Liability to additional tax on
investment investment on investment disposal of investment
In LKR ‘000s In LKR ‘000s

Ceylon Cold Stores PLC. (CCS) 2011/2012 256,702 256,702 -


2012/2013 167,091 167,091 -
2013/2014 72,801 72,801 -

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.

20.10 Applicable rates of income tax


The tax liability of resident companies are computed at the standard rate of 28% except for the following companies which enjoy full or partial
exemptions and concessions.

Company / Sector Basis Exemptions or Period


concessions

Exemptions / concessions granted under the Inland Revenue Act


Ceylon Cold Stores PLC. Off-shore activities for payment in Exempt Ended on 31 March 2018
foreign currency
John Keells Computer Services (Pvt) Ltd. - do - - do - - do -
John Keels Office Automation (Pvt) Ltd. - do - - do - - do -
Cinnamon Hotel Management Ltd. - do - - do - - do -
(formerly known as Keells Hotel Management
Services Ltd.)
John Keells Computer Services (Pvt) Ltd. On-shore activities for payment in - do - - do -
foreign currency
John Keells International (Pvt) Ltd. - do - - do - - do -
InfoMate (Pvt) Ltd. - do - - do - - do -

246 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

Company / Sector Basis Exemptions or Period


concessions

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 -

Exemptions / concessions granted under the Board of Investment Law


Beruwala Holiday Resorts (Pvt) Ltd. Construction and operation of a tourist Exempt 8 years from 1st year of profit or 2 years
hotel from operations
Saffron Aviation (Pvt) Ltd. Domestic airline - do - 8 years from 1st year of profit or 2 years
from operations
John Keells Residential Properties (Pvt) Ltd. Real estate developer - do - 8 years from April 2011
Trinco Holiday Resorts (Pvt) Ltd. For upgrading and refurbishment of a - do - 10 years from 1st year of profit or 2 years
hotel in the Eastern Province from operations
South Asia Gateway Terminals (Pvt) Ltd. “Port Services” at - do - 20 years from September 1999
Queen Elizabeth Quay
British Overseas (Pvt) Ltd. Infrastructure Development - do - 9 years from 1st April 2013
Waterfront Properties (Pvt) Ltd. Integrated super luxury tourist resort - do - 10 years from 1st year of profit or 3 years
from operations
Asian Hotels and Properties PLC. Construction and operation of office, 2% of turnover 15 years from 1st April 2014
apartment complex and a hotel

247
NOTES TO THE FINANCIAL STATEMENTS

20 Taxes (Contd)
20.11 Income tax rates of off-shore subsidiaries (Contd)

20.11 Income tax rates of off-shore subsidiaries


Country of incorporation Company Rate

India John Keells Foods India (Pvt)Ltd. 30.9%


Serene Holidays (Pvt) Ltd. 25%
Mauritius John Keells BPO Holdings (Pvt) Ltd. 3% (Effective)
John Keells BPO International (Pvt) Ltd. 3% (Effective)
Republic of Maldives Fantasea World Investments (Pte) Ltd. 15%
Tranquility (Pte) Ltd. 15%
Travel Club (Pte) Ltd. 15%
John Keells Maldivian Resorts (Pte) Ltd. 15%
Mack Air Services Maldives (Pte) Ltd. 15%
Singapore John Keells Singapore (Pte) Ltd. 17% (Max)

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.

Basis of measurement Accumulated depreciation as at the revaluation date is eliminated


Property, plant and equipment except for land and buildings against the gross carrying amount of the asset and the net
are stated at cost less accumulated depreciation and any amount is restated to the revalued amount of the asset. Upon
accumulated impairment loss. Such cost includes the cost of disposal, any revaluation reserve relating to the particular asset
replacing component parts of the plant and equipment and being sold is transferred to retained earnings. Where land and
borrowing costs for long-term construction projects if the buildings are subsequently revalued, the entire class of such
recognition criteria are met. When significant parts of plant and assets is revalued at fair value on the date of revaluation. The
equipment are required to be replaced at intervals, the Group Group has adopted a policy of revaluing assets by professional
derecognises the replaced part, and recognizes the new part with valuers at least every 5 years, except for properties held for rental
its own associated useful life and depreciation. Likewise, when and occupied mainly by group companies, which are revalued by
a major inspection is performed, its cost is recognized in the professional valuers at least every 3 years.
carrying amount of the plant and equipment as a replacement
if the recognition criteria are satisfied. All other repair and Derecognition
maintenance costs are recognised in the income statement as An item of property, plant and equipment is derecognised upon
incurred. replacement, disposal or when no future economic benefits are
expected from its use. Any gain or loss arising on derecognition of
Land and buildings are measured at fair value less accumulated the asset is included in the income statement in the year the asset
depreciation on buildings and impairment charged subsequent is derecognised.
to the date of the revaluation.
Depreciation
The carrying values of property, plant and equipment Depreciation is calculated by using a straight-line method on
are reviewed for impairment when events or changes in the cost or valuation of all property, plant and equipment, other
circumstances indicate that the carrying value may not be than freehold land, in order to write off such amounts over the
recoverable. estimated useful economic life of such assets.

248 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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

21 Property , plant and equipment (Contd)


21.1 Property , plant and equipment - Group
As at 31 st March Land and Buildings on Plant and Equipment,
In LKR ‘000s buildings leasehold machinery furniture
land and fittings

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

Accumulated depreciation and impairment


At the beginning of the year (785,129) (2,367,826) (4,109,009) (5,846,342)
Charge for the year (449,242) (420,695) (696,440) (1,050,180)
(Acquisition)/disposal of subsidiary - 80,160 - 371,670
Disposals 133,904 15,602 157,504 539,712
Transfers (From revaluation adjustment) 166,176 200,306 - -
Impairment / derecognition - - - -
Transfers (10,043) - 6,795 3,224
Exchange translation difference - (67,525) (16,082) 22,074
At the end of the year (944,334) (2,559,978) (4,657,232) (5,959,842)

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

21.2 Property , plant and equipment - Company

Plant and Equipment, Motor Total Total


In LKR ‘000s machinery furniture vehicles 2018 2017
and fittings

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

Accumulated depreciation and impairment


At the beginning of the year (3,445) (198,989) (36,205 ) (238,639) (297,777)
Charge for the year (133) (21,472) (10,950) (32,555) (33,042)
Disposals - 1,796 25,000 26,796 92,180
At the end of the year (3,578) (218,665) (22,155) (244,398) (238,639)

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

250 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

Motor vehicles Returnable Others Vessels Capital Total Total


Freehold Leasehold containers work in 2018 2017
progress

644,722 13,292 1,005,032 4,332,700 504,487 597,991 81,420,427 68,093,794


117,682 37,903 - 581,930 341,055 5,282,571 18,921,948 4,331,582
1,707 - - - - 142 (497,801) -
(83,154) - (32,802) (290,444) (68,442) (64,596) (1,458,176) (977,623)
- - - - - - 9,169,124 10,361,135
- - - - - - (366,482) (311,900)
- - - - - - - (183,524)
4,065 - 14,039 213,393 - (2,400,925) (1,777,856) (36,378)
1,797 - - 152 - (688) 82,840 143,341
686,819 51,195 986,269 4,837,731 777,100 3,414,495 105,494,024 81,420,427

(404,742) (6,857) (548,526) (2,808,385) (147,238) - (17,024,054) (15,357,419)


(63,676) (5,686) (75,475) (419,239) (55,593) - (3,236,226) (2,874,071)
(1,325) - - - - - 450,505 -
60,310 - 29,234 260,940 65,626 - 1,262,832 778,521
- - - - - - 366,482 311,900
- - - - - - - 150,243
- - - 10,672 - - 10,648 36,378
(1,867) - - (938) - - (64,338) (69,606)
(411,300) (12,543) (594,767) (2,956,950) (137,205) - (18,234,151) (17,024,054)

275,519 38,652 391,502 1,880,781 639,895 3,414,495 87,259,873


239,980 6,435 456,506 1,524,315 357,249 597,991 64,396,373

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

21 Property , plant and equipment (Contd)


21.3 Revaluation of land and buildings (Contd.)
Details of Group’s land, building and other properties stated at valuation are indicated below;
Property Name of the Method of Significant unobservable inputs
Chartered valuation* Estimated price per Estimated price per Estimated Correlation
Valuation Surveyor perch square foot discount to Fair
rate Value
Land
Nuwara Eliya Holiday Resort (Pvt) Ltd. S Fernando DCC LKR. 450,000 - - Positive
Land & Building
Asian Hotels and Properties PLC. P B Kalugalagedara OMV / LKR.15,000,000 - LKR. 2,000 - LKR.13,000 - Positive
DCC LKR.17,500,000
Beruwala Holiday Resorts (Pvt ) Ltd. - do - DCC LKR. 550,000 - LKR. 3,000 - LKR. 10,500 - Positive
LKR. 850,000
Ceylon Cold Stores PLC. - do - DCC LKR. 140,000 - LKR. 500 - LKR. 5,000 - Positive
LKR. 160,000
Kandy Walk Inn Ltd. S Fernando OMV LKR. 600,000 - LKR. 1,000 - LKR. 10,000 - Positive
LKR. 1,100,000
Keells Food Products PLC. P B Kalugalagedara OMV LKR. 400,000 LKR. 400 - LKR. 2,000 - Positive
Keells Realtors Ltd. - do - OMV LKR. 1,500,000 LKR. 500 - LKR. 1,500 - Positive
(Ferguson Road, Colombo 15.
Lot A IN, SP 2016)
Mackinnons Keells Ltd. - do - DCC LKR. 8,000,000 LKR. 1,500 - Positive
Tea Smallholder Factories PLC. - do - DCC LKR. 2,000,000 LKR. 1,100 - Positive
John Keells Thudella Properties P P T Mohideen DCC LKR. 225,000 LKR. 500 - LKR. 2,250 - Positive
(Pvt) Ltd.
Trinco Holiday Resort (Pvt) Ltd. P B Kalugalagedara DCC LKR.250,000 LKR.1,000 - LKR. 6,500 - Positive
Union Assurance PLC. - do - DCC LKR. 6,000,000 / LKR. 500 / LKR. 4,250 - Positive
LKR. 15,000,000
Vauxhall Land Developments (Pvt) - do - OMV LKR.14,000,000 - - Positive
Ltd.
Building on leasehold land
Ceylon Holiday Resorts Ltd. P B Kalugalagedara OMV - LKR. 1,000 - LKR. 3,500 - Positive
Keells Food Products PLC. - do - OMV - LKR. 150 - LKR. 1,500 - Positive
Habarana Lodge Ltd. S Fernando DCC - LKR. 500 - LKR. 10,250 - Positive
Habarana Walk Inn Ltd. - do - DCC - LKR. 2,500 - LKR. 8,000 - Positive
Hikkaduwa Holiday Resort (Pvt) Ltd. P B Kalugalagedara DCC - LKR. 2,500 - LKR. 5,400 - Positive
Jaykay Marketing Service(Pvt) Ltd. -do- IM - - 6% Negative
John Keells Warehousing (Pvt) Ltd. K T D Tissera DCC - LKR.1,500 - LKR. 2,500 - Positive
Rajawella Holdings Ltd. P B Kalugalagedara DCC - LKR. 6,250 - LKR. 50,000 - Positive
Trans Asia Hotels PLC. -do- DCC - LKR. 350 - LKR. 8,000 - Positive
Yala Village (Pvt ) Ltd. S Fernando OMV - LKR. 1,000 - LKR. 8,000 - Positive

Effective date of valuation was 31 March 2018 except for Union Assurance PLC. which was valued at 31 December 2017.

252 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

*Summary description of valuation methodologies; Contractors method (CM)


Open market value method (OMV) The replacement cost (contractor’s) method is used to value
Open market value method uses prices and other relevant properties which do not generally exchange on the open market
information generated by market transactions involving identical and for which comparable evidence therefore does not exist. The
or comparable assets, liabilities or a group of assets and liabilities, valuations are based on two components: the depreciated cost
such as a business. of the building element and the market value of the land. Current
building costs and often the land price will be established by
Direct capital comparison method (DCC) comparison.
This method may be adopted when the rental value is not
available from the property concerned, but there are evidences of Investment method (IM)
sale price of properties as a whole. In such cases, the capitalized The investment method is used to value properties which are let
value of the property is fixed by direct comparison with capitalized to produce an income for the investor. Conventionally, investment
value of similar property in the locality. value is a product of rent and yield. Each of these elements is
derived using comparison techniques.

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

Cost 31,903,882 18,226,653


Accumulated depreciation and impairment (2,877,180) (2,796,120)
Carrying value 29,026,702 15,430,533

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.

Lease rentals paid in advance


Prepaid lease rentals paid to acquire land use rights, are amortised over the lease term and assessed for impairment whenever there is an
indication that the asset may be impaired.

22.1 Lease rentals paid in advance


GROUP
As at 31st March 2018 2017
In LKR ‘000s

At the beginning of the year 13,206,058 10,888,158


Addition for the year - 2,657,012
Transfers (17,258) -
Amortisation for the year (458,459) (592,983)
Exchange gain / (loss) 274,598 253,871
At the end of the year 13,004,939 13,206,058

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

23 Investment property Group companies occupy a significant portion of the investment


Accounting policy property of a subsidiary, such investment properties are treated
Investment properties are measured initially at cost, including as property, plant and equipment in the consolidated financial
transaction costs. The carrying value of an investment property statements, and accounted using Group accounting policy for
includes the cost of replacing part of an existing investment property, plant and equipment.
property, at the time that cost is incurred if the recognition
criteria are met, and excludes the costs of day to- day servicing GROUP
of the investment property. Subsequent to initial recognition,
As at 31st March 2018 2017
the investment properties are stated at fair values, which reflect
In LKR ‘000s
market conditions at the reporting date.
Carrying value
Gains or losses arising from changes in fair value are included in
At the beginning of the year 5,366,180 4,878,406
the income statement in the year in which they arise. Fair values
are evaluated at least every 3 years by an accredited external, Additions 4,397,290 4,220
independent valuer. Transfers 1,767,208 -
Change in fair value during the year 896,380 483,554
Investment properties are derecognised when disposed, or
At the end of the year 12,427,058 5,366,180
permanently withdrawn from use because no future economic
benefits are expected. Any gains or losses on retirement or
disposal are recognised in the income statement in the year of Freehold property 12,019,147 5,189,917
retirement or disposal. Leasehold property 407,911 176,263
12,427,058 5,366,180
Transfers are made to or from investment property only when
there is a change in use for a transfer from investment property
Rental income earned 567,885 562,215
to owner occupied property or inventory (WIP), the deemed cost
for subsequent accounting is the fair value at the date of change Direct operating expenses incurred 191,467 187,545
in use. If owner occupied property becomes an investment
property or inventory (WIP), the Group accounts for such Accounting judgements, estimates and assumptions
property in accordance with the policy stated under property, Fair value of the investment property is ascertained by
plant and equipment up to the date of change in use. Where independent valuations carried out by Chartered valuation
surveyors, who have recent experience in valuing properties of

254 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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

Facets (Pvt) Ltd. S Fernando DCC LKR. 425,000 - - Positive

John Keells Properties Ja-Ela (Pvt) P B Kalugalagedara DCC LKR. 950,000 LKR. 5,500 - Positive
Ltd.

John Keells PLC. P B Kalugalagedara OMV LKR. 350,000 - - - Positive


LKR. 450,000

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

Vauxhall Land Developments P B Kalugalagedara OMV LKR. 14,000,000 - - Positive


(Pvt) Ltd.

Wirawila Walk Inn Ltd. S Fernando IM - - 8% Negative

Whittal Boustead (Pvt) Ltd. P B Kalugalagedara DCC LKR. 1,750,000 - - Positive

Leasehold property

Tea Smallholder Factories PLC.

Stores Complex, Peliyagoda P B Kalugalagedara, DCC LKR. 2,000,000 LKR. 1,100 - Positive

Bengamuwa Village, Pasgoda K D Tissera CM LKR. 1,500,000 LKR. 500 - - Positive


LKR. 1,000

* 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

Accumulated amortisation and impairment


At the beginning of the year (169,975) (146,956) (555,348) -
Amortisation (67,402) (35,553) (35,160) -
At the end of the year (237,377) (182,509) (590,508) -

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

256 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

Software license · the availability of resources to complete the assets,


Software license costs are recognised as an intangible asset and
· the ability to measure reliably the expenditure during
amortised over the period of the related license.
development.

Research and development costs


Following initial recognition of the development expenditure
Research costs are expensed as incurred. An intangible asset
of an asset, the cost model is applied requiring the asset to
arising from development expenditure on an individual project
be carried at cost less any accumulated amortisation and
is recognised as an intangible asset, when the Group can
accumulated impairment losses.
demonstrate:

· 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.

A summary of the policies applied to the Group’s intangible assets is as follows.

Intangible assets Useful life Type Impairment testing


PVIB 12 Acquired When indicators of impairment exists. The amortization method is reviewed at each financial year end
Purchased software 5
Software license 5
Developed software 5 Internally Annually for assets not yet in use and more frequently when indicators of impairment arise. Assets
generated in use, when indicators of impairment arise. The amortization method is reviewed at each financial
year end.

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

2,249,000 738,596 49,500 4,489,768 4,376,422 497,827 491,081


- - - 217,562 114,398 32,544 6,746
- - - - - - -
- - - - (1,052) - -
2,249,000 738,596 49,500 4,707,330 4,489,768 530,371 497,827

(1,499,329) - - (2,371,608) (2,038,562) (467,026) (447,261)


(187,416) - - (325,531) (333,046) (18,861) (19,765)
(1,686,745) - - (2,697,139) (2,371,608) (485,887) (467,026)

562,255 738,596 49,500 2,010,191 44,484


749,671 738,596 49,500 2,118,160 30,801

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.

Net carrying value of


goodwill
As at 31st March 2018
In LKR ‘000s

Goodwill
Goodwill acquired through business combinations have been allocated to 5 cash generating units (CGU's) for impairment
testing as follows;

Airlines Services 5,054


Cinnamon Hotels and Resorts 166,248
Consumer Foods and Retail 299,293
Financial Services 265,360
Logistics, Ports and Shipping 2,641
738,596

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.

Accounting judgements, estimates and assumptions Gross margins


Impairment of goodwill The basis used to determine the value assigned to the budgeted
Impairment exists when the carrying value of an asset or cash gross margins is the gross margins achieved in the year preceding
generating unit exceeds its recoverable amount, which is the the budgeted year adjusted for projected market conditions.
higher of its fair value less costs to sell and its value in use (VIU).
The fair value less costs to sell calculation is based on available Discount rates
data from an active market, in an arm’s length transaction, of The discount rate used is the risk free rate, adjusted by the addition
similar assets or observable market prices less incremental costs of an appropriate risk premium.
for disposing of the asset. The value in use calculation is based on
a discounted cash flow model. The cash flows are derived from Inflation
the budget for the next five years and do not include restructuring The basis used to determine the value assigned to the budgeted
activities that the Group is not yet committed to or significant cost inflation, is the inflation rate, based on projected economic
future investments that will enhance the asset’s performance of conditions.
the cash generating unit being tested. The recoverable amount is
most sensitive to the discount rate used for the discounted cash Volume growth
flow model as well as the expected future cash inflows and the Volume growth has been budgeted on a reasonable and realistic
growth rate used for extrapolation purposes. The key assumptions basis by taking into account the growth rates of one to four
used to determine the recoverable amount for the different cash years immediately subsequent to the budgeted year based on
generating units, are as follows; Industry growth rates. Cash flows beyond the five year period are
extrapolated using 0% growth rate.

258 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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.

25.1 Carrying value


COMPANY
For the year ended 31st March Note 2018 2017
In LKR ‘000s

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

25.2 Group quoted investment


GROUP COMPANY

As at 31 st March Number of Effective Number of Effective 2018 2017


shares holding % shares holding % In LKR ‘000s In LKR ‘000s

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

25 Investment in subsidiaries (Contd.)


25.3 Group unquoted investments
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

Ahungalla Holiday Resort (Pvt) Ltd. 13,275,000 80.32 - - - -


Beruwala Holiday Resorts (Pvt ) Ltd. 219,725,653 79.78 - - 2,553 1,352
British Overseas (Pvt) Ltd. 61 61.00 61 61.00 - -
Ceylon Holiday Resorts Ltd. 18,260,784 79.60 - - 3,285 2,742
Cinnamon Hotels Management Ltd. 1,000,000 100.00 1,000,000 100.00 227,578 161,507
Cinnamon Holiday (Pvt) Ltd. 20,000 80.32 - - - -
Facets (Pvt) Ltd. 15,000 100.00 15,000 100.00 - -
Fantasea World Investments (Pte) Ltd. 7,299 80.32 - - 2,444 1,736
Habarana Lodge Ltd. 12,981,548 78.99 - - 3,867 3,369
Habarana Walk Inn Ltd. 4,321,381 79.34 - - 2,123 1,643
Hikkaduwa Holiday Resorts (Pvt) Ltd. 107,596,700 79.60 - - 1,557 1,138
InfoMate (Pvt) Ltd. 2,000,000 100.00 2,000,000 100.00 32,374 29,488
International Tourists and Hoteliers Ltd. 38,490,901 79.78 - - - -
J K Packaging (Pvt) Ltd. 1,450,000 100.00 1,450,000 100.00 - -
J K Thudella Properties (Pvt) Ltd. 45,346,760 100.00      
JayKay Marketing Services (Pvt) Ltd. 282,239,025 81.36 - - 137,358 111,355
John Keells BPO Holdings (Pvt) Ltd. 19,000,000 100.00 - - - -
John Keells BPO International (Pvt) Ltd. 1,500,000,000 100.00 - - - -
John Keells BPO Solutions Lanka (Pvt) Ltd. 32,843,578 100.00 - - - -
John Keells Computer Services (Pvt) Ltd. 9,650,000 100.00 9,650,000 100.00 118,672 115,738
John Keells Computer Services UK (Pvt) Ltd. 100 100.00 100 100.00 9 9
John Keells Foods India (Pvt) Ltd. 8,999,990 88.63 - - - -
John Keells International (Pvt) Ltd. 199,160,000 100.00 199,160,000 100.00 662,788 659,292
John Keells Land (Pvt) Ltd. 1,595,704,758  100.00 1,595,704,758  100.00 15,957,048 -
John Keells Logistics (Pvt) Ltd. 19,999,998 100.00 19,999,998 100.00 215,284 209,049
John Keells Maldivian Resorts (Pte) Ltd. 49,044,238 80.32 - - 13,396 9,934
John Keells Office Automation (Pvt) Ltd. 500,000 100.00 500,000 100.00 50,541 40,291
John Keells Properties (Pvt) Ltd. 101,804 100.00 101,804 100.00 815 192,169
John Keells Properties Ja-ela (Pvt) Ltd. 95,436,000 100.00 - - - 954,360
John Keells Residential Properties (Pvt) Ltd. 2,081,698 100.00 2,081,698 100.00 20,817 20,817
John Keells Singapore (Pte) Ltd. 160,000 80.00 160,000 80.00 4,209 4,209
John Keells Software Technologies (Pvt) Ltd. 800,000 100.00 800,000 100.00 - -
John Keells Stock Brokers (Pvt) Ltd. 1,500,000 90.04 360,000 24.00 58,234 46,772
John Keells Teas Ltd. 12,000 100.00 12,000 100.00 14,561 11,903
John Keells Warehousing (Pvt) Ltd. 12,000,000 86.90 - - 3,662 2,680
Kandy Walk Inn Ltd. 6,165,484 79.03 - - 2,998 2,291
Keells Consultants (Pvt) Ltd. 928 100.00 928 100.00 1,196 1,094
Keells Realtors Ltd. 7,500,000 95.81 5,100,000 40.00 119,124 119,124
Keells Shipping (Pvt) Ltd. 50,000 100.00 50,000 100.00 502 502
Lanka Marine Services (Pvt) Ltd. 34,805,470 99.44 34,805,470 99.44 1,371,833 1,352,042

260 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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

26.1 Investments in joint ventures


Braybrooke Residential Properties (Pvt) Ltd. 102 50.00 1,804,500 - - - -
DHL Keells (Pvt) Ltd. 1,000,000 50.00 10,000 10,000 1,000,000 50.00 10,000 10,000
Mack International Freight (Pvt) Ltd. - - - 63,041 - - - -
Sentinel Reality (Pvt) Ltd. 6,037,500 40.16 60,924 59,313

26.2 Investments in associates


Quoted
Nations Trust Bank PLC. - Voting shares 70,744,303 29.90 1,561,355 1,561,355 47,320,605 20.00 1,105,779 1,011,052
Nations Trust Bank PLC. - Non voting shares 18,579,879 45.15 1,627,535 - 14,506,193 35.25 1,160,128 -
Unquoted
Capitol Hotel Holdings (Pvt) Ltd. 3,254,832 19.47 325,483 325,483 3,254,832 19.47 325,483 325,483
Fairfirst Insurance Ltd. 68,902,870 20.32 689,718 689,718
Maersk Lanka (Pvt) Ltd. 30,000 30.00 150 150 30,000 30.00 150 150
Saffron Aviation (Pvt) Ltd. 24,887,160 40.00 248,872 248,872 24,887,160 40.00 - -
Saffron Aviation (Pvt) Ltd. - Preference shares 21,774,750 217,748 217,748 21,774,750 217,748 217,748
South Asia Gateway Terminals (Pvt) Ltd. 159,826,750 42.19 7,346,367 7,346,367 159,826,750 42.19 7,346,367 7,346,367
Cumulative profit accruing to the Group net of 4,908,661 4,335,610
dividend
Share of net assets of equity accounted investees 3,534,034 2,861,230
22,335,347 17,718,887 10,165,655 8,910,800

262 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

Group’s shareholding in Nations Trust Bank PLC. (NTB)


The Director of Bank Supervision of the Central Bank of Sri Lanka (CBSL) has by letter dated 12 October 2017 informed NTB that the Monetary
Board of the CBSL has permitted the John Keells Group to retain its current shareholding in voting shares in the Bank till 31 December 2020
and to reduce it to 15 per cent with effect from that date. The Monetary Board has also required NTB to limit the voting rights of the John Keells
Group to 10 per cent with effect from 31 March 2018. NTB will continue to be an associate company of the JKH Group. As at 31st March 2018,
the JKH Group has an economic interest of 32.16% in NTB.

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 -

26.3 Summarised financial information of equity accounted investees


South Asia Gateway Other associates Joint ventures Total
Terminals (Pvt) Ltd.
As at 31 st March 2018 2017 2018 2017 2018 2017 2018 2017
In LKR ‘000s

Group share of;


Revenue 5,901,220 4,955,789 8,039,374 6,641,880 1,932,883 1,751,781 15,873,477 13,349,450
Operating expenses including cost of (3,826,709) (2,988,281) (5,709,288) (5,075,534) (1,667,191) (1,543,168) (11,203,188) (9,606,983)
sales
Net finance income 59,240 35,867 25,337 137,738 16,144 11,185 100,721 184,790
Tax expense (310,328) (6,746) (783,697) (555,997) (80,555) (61,559) (1,174,580) (624,302)
Share of results of equity accounted 1,823,423 1,996,629 1,571,726 1,148,087 201,281 158,239 3,596,430 3,302,955
investees

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.

Group share of;


Total assets 7,067,218 6,900,020 99,866,059 74,855,266 800,343 618,552 107,733,620 82,373,868
Total liabilities (1,694,649) (1,260,608) (88,039,687) (67,857,907) (407,187) (266,426) (90,141,523) (69,384,941)
Net assets 5,372,569 5,639,412 11,826,372 6,997,359 393,156 352,126 17,592,097 12,988,897
Goodwill 4,674,278 4,674,278 55,712 55,712 13,260 - 4,743,250 4,729,990
10,046,847 10,313,690 11,882,084 7,053,071 406,416 352,126 22,335,347 17,718,887

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.

27 Non current financial assets


GROUP COMPANY
As at 31 st March Note 2018 2017 2018 2017
In LKR ‘000s

Quoted equity investments 344 326 - -


Unquoted equity investments 27.1 119,031 160,369 75,461 141,972
Non equity investments 27.2 32,758,879 27,505,926 191,650 2,648,008
32,878,254 27,666,621 267,111 2,789,980

264 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

27.1 Unquoted equity investments


GROUP COMPANY
As at 31 st March Number of 2018 2017 Number of 2018 2017
In LKR ‘000s shares shares

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

27.2 Non equity investments


GROUP COMPANY
As at 31 st March Note 2018 2017 2018 2017
In LKR ‘000s

Bank deposits 105,510 3,154,685 105,510 2,576,339


Debentures 4,828,338 4,244,764 - -
Preference shares 275,114 267,275 - -
Government securities 24,901,319 17,750,289 - -
Loans to executives 27.3 934,297 733,037 86,140 71,669
Loans to life policyholders 1,048,966 902,300 - -
Cash flow hedge 598,097 331,679 - -
Deposits with non bank institutions 67,238 121,897 - -
32,758,879 27,505,926 191,650 2,648,008

27.3 Loans to executives


GROUP COMPANY
As at 31 st March 2018 2017 2018 2017
In LKR ‘000s

At the beginning of the year 917,663 786,790 90,321 92,803


Loans granted / transfers 761,627 635,300 50,851 66,469
Acquisition / (disposal) of subsidiaries 5,010 - - -
Recoveries (527,118) (504,427) (31,483) (68,951)
At the end of the year 1,157,182 917,663 109,689 90,321

Receivable within one year 222,885 184,626 23,549 18,652


Receivable after one year 934,297 733,037 86,140 71,669
1,157,182 917,663 109,689 90,321

28 Other non current assets


GROUP COMPANY
As at 31 st March Note 2018 2017 2018 2017
In LKR ‘000s

Pre paid staff cost 260,589 178,726 20,724 16,254


Work-in-progress - Waterfront project 28.1 52,554,047 41,007,979 - -
Non current advances 784,711 505,611 - -
53,599,347 41,692,316 20,724 16,254

265
NOTES TO THE FINANCIAL STATEMENTS

28 Other non current assets (Contd.)


28.1 Work-in-progress - Waterfront project
GROUP
As at 31 st March 2018 2017
In LKR ‘000s

Freehold property* 9,887,194 9,598,213


Leasehold property* 3,616,534 3,618,350
Other constructions in progress 33,051,125 21,538,694
Contractor advances 5,999,194 6,252,722
52,554,047 41,007,979

* The freehold and leasehold property are located at the address, Glennie Street and Justice Akbar Mawatha, Colombo 2.

Other Non-Current Assets, represents the construction work 29 Inventories


in progress, which mainly consists of Freehold Land, advance Accounting policy
paid on obtaining Lease Land and other project cost incurred. Inventories are valued at the lower of cost and net realizable
Freehold land included under other non-current asset is carried at value. Net realisable value is the estimated selling price less
cost. Lease prepaid in advance consist of the prepayment made estimated costs of completion and the estimated costs necessary
to obtain the lease land rights for 99 years. Other project cost to make the sale.
includes advances paid to contractors, directly attributable cost The costs incurred in bringing inventories to its present location
incurred on the project and borrowing cost capitalised. and condition, are accounted for as follows:
• Raw materials - On a weighted average basis
Details of the Waterfront Integrated Resort Project • Finished goods and work-in-progress - At the cost of direct
The company is engaged in the development and construction materials, direct labour and an appropriate proportion of fixed
of an integrated complex with an approximate area of 4,500,000 production overheads based on normal operating capacity
square feet, comprising of offices, residential units, a hotel and but excluding borrowing costs
conference centre, retail and associate facilities and a car park. • Other inventories – At actual cost

Details of property Leasehold Freehold GROUP


Extent: 3A- 0R -6.35P 7A- 0R -16.63P As at 31 st March 2018 2017
Lessor: Board of Investment of - In LKR ‘000s
Sri Lanka
Inventories
Period: 99 years from 12/02/2014 -
Raw materials 509,381 527,124
Lease commitment: Upfront Lease rental of -
LKR. 3.03Bn Finished goods 4,953,602 3,977,944
Produce stocks 309,974 216,443
Other stocks 916,584 884,201
Total Inventories at the lower of cost & 6,689,541 5,605,712
net realisable value

30 Trade and other receivables


GROUP COMPANY
As at 31 st March Note 2018 2017 2018 2017
In LKR ‘000s

Trade and other receivables 11,448,660 11,034,918 47,181 99,424


Reinsurance receivables 30.1 333,249 214,342 - -
Premiums receivable 268,578 253,543 - -
Loans to executives 27.3 222,885 184,626 23,549 18,652
12,273,372 11,687,429 70,730 118,076

266 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

30.1 Reinsurance receivables


GROUP
As at 31 st March 2018 2017
In LKR ‘000s

Reinsurance receivables on outstanding claims 140,065 90,342


Reinsurance receivables on settled claims 193,184 124,000
333,249 214,342

31 Other current assets


GROUP COMPANY
As at 31 st March 2018 2017 2018 2017
In LKR ‘000s

Prepayments and non cash receivables 2,710,819 1,803,924 136,394 60,301


Tax refunds 1,679,439 1,461,403 62,583 39,141
4,390,258 3,265,327 198,977 99,442

32 Short term investments


GROUP COMPANY
As at 31 st March Note 2018 2017 2018 2017
In LKR ‘000s

Quoted equities at market value 32.1 3,816,624 3,433,852 - -


Debentures 698,760 1,381,855 - 268,306
Bank deposits (more than 3 months and less than 1 year) 21,486,559 23,335,897 18,468,636 20,205,768
Government securities (more than 3 months and less than 1 year) 829,044 4,234,194 - -
26,830,987 32,385,798 18,468,636 20,474,074

Debentures (less than 3 months) 490,231 54,671 - -


Bank deposits (less than 3 months) 34,453,107 26,517,145 30,688,836 23,078,904
Government securities (less than 3 months) 2,611,768 20,216,713 - 16,690,302
Reported in statement of cash flow 37,555,106 46,788,529 30,688,836 39,769,206
64,386,093 79,174,327 49,157,472 60,243,280

267
NOTES TO THE FINANCIAL STATEMENTS

32 Short term investments (Contd.)


32.1 Quoted equities at market value
Number of Shares Cost Market value
As at 31 st March 2018 2017 2018 2017 2018 2017
In LKR ‘000s In LKR ‘000s In LKR ‘000s In LKR ‘000s

Access Engineering PLC. 6,020,811 4,005,642 154,813 105,508 123,427 95,334


Aitken Spence Hotel Holdings PLC. 490,393 364,900 34,934 25,931 16,428 12,844
Aitken Spence PLC. - 125,493 - 9,004 - 4,418
Alumex PLC. - 3,044,222 - 60,761 - 57,840
Central Finance Company PLC. 590,800 590,800 54,445 54,445 59,021 50,927
Chevron Lubricants Lanka PLC. 244,400 942,314 16,129 113,683 25,540 160,193
Colombo Dockyard PLC. - 281,715 - 60,500 - 21,410
Commercial Bank of Ceylon PLC. (Non voting) 742,932 664,896 53,777 47,645 77,265 68,551
Commercial Bank of Ceylon PLC. 448,081 402,280 45,728 41,100 60,849 52,457
DFCC Bank PLC. 462,480 482,072 78,099 81,550 54,018 54,956
Dialog Axiata PLC. 14,752,754 15,752,754 156,531 167,142 203,588 178,006
Diesel and Motor Engineering PLC. 22,062 22,062 33,340 33,340 10,257 12,353
Distilleries Company of Sri Lanka PLC. 1,223,767 - 9,068 - 29,016 -
Hatton National Bank PLC. 4,370,865 3,306,868 753,626 525,175 918,679 662,197
Hayleys Fabric PLC. 7,254,039 - 119,349 - 90,675 -
Hemas Holdings PLC. 2,053,563 1,479,150 169,330 94,808 256,490 160,784
HNB Assurance PLC. 336,266 336,266 23,645 23,645 28,246 19,537
John Keells Holdings PLC. - 1,230,182 - 188,208 - 169,642
Melstacorp PLC. 3,980,221 4,117,164 218,745 222,061 231,649 243,736
National Development Bank PLC. 1,082,026 1,087,945 195,141 198,072 144,018 151,877
Nestle Lanka PLC. 31,601 - 52,958 - 55,270 -
People's Insurance PLC. - 1,453,951 - 25,320 - 26,607
Peoples Leasing and Finance PLC. 4,516,116 4,516,116 79,105 79,105 71,355 70,451
Piramal Glass PLC. 22,777,934 14,118,350 137,670 84,110 132,112 79,063
Sampath Bank PLC. 2,302,134 2,013,070 528,853 413,261 690,640 521,385
Seylan Bank PLC. 819,383 - 60,816 - 56,088 -
Textured Jersey Lanka PLC. 8,894,237 6,176,049 312,283 203,891 283,726 228,514
The Lion Brewery Ceylon PLC. 129,327 - 70,737 - 67,948 -
Tokyo Cement Company (Lanka) PLC. 685,432 2,175,777 6,968 99,377 37,013 132,722
Tokyo Cement Company (Lanka) PLC. (Non voting) 2,028,407 3,736,714 42,564 137,786 93,306 198,048
3,408,654 3,095,428 3,816,624 3,433,852

Above list comprises of the investments made by Union Assurance PLC.

268 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

33 Stated capital and other components of equity


Accounting policy
The ordinary shares of John Keells Holdings PLC. are quoted in the Colombo Stock Exchange and the Global Depository Receipts are listed on
the Luxembourg Stock Exchange. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are eligible
for one vote per share at General Meetings of the Company. The Group has in place an Employee Share Option Plan. Please refer note 34 for
further details.

33.1 Stated capital


As at 31 st March 2018 2017
Number of Value of Number of Value of
shares shares shares shares
In ‘000s In LKR ‘000s In ‘000s In LKR ‘000s

Fully paid ordinary shares


At the beginning of the year 1,387,468 62,790,080 1,189,404 58,701,977
Share options exercised 61 12,247 6,869 911,261
Sub division of shares - - 169,915 -
Exercise of share warrants - - 21,280 3,176,842
At the end of the year 1,387,529 62,802,327 1,387,468 62,790,080

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.

33.2 Other components of equity


GROUP COMPANY
As at 31 st March 2018 2017 2018 2017
In LKR ‘000s

Revaluation reserve 34,145,712 28,994,792 - -


Foreign currency translation reserve 9,435,591 8,303,895 - -
Other capital reserve 1,916,415 1,402,656 1,916,415 1,402,656
Restricted regulatory reserve 3,123,554 - - -
Cash flow hedge reserve 565,932 312,529 - -
Available for sale reserve 665,059 (362,304) 35,710 102,220
49,852,263 38,651,568 1,952,125 1,504,876

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.

Share-based payment plans


GROUP COMPANY
For the year ended 31 st March 2018 2017 2018 2017
In LKR ‘000s

Total expense arising from share-based payment transactions 517,374 444,346 170,759 119,822

Movements in the year


The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in, share options during the year;

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

270 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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.

As at 31 st March 2018 2017 2016 2015 2014


Plan no 9 Plan no 9 Plan no 8 Plan no 8 Plan no 8
award 2 award 1 award 3 award 2 award 1

Dividend yield (%) 3.99 2.18 1.44 1.42 2.07


Expected volatility (%) 17.54 21.05 19.19 19.34 27.50
Risk free interest rate (%) 11.48 11.91 8.13 8.70 11.26
Expected life of share options (Years) 5.00 5.00 5.00 5.00 5.00
Weighted average share price at the grant date (LKR.) 173.25 142.83 171.25 229.93 253.16
Weighted average remaining contractual life for the share options outstanding (Years) 3.00 3.00 3.00 3.00 3.00
Weighted average fair value of options granted during the year (LKR.) 56.27 56.29 64.62 61.93 81.54
Exercise price for options outstanding at the end of the year (LKR.) 173.25 142.83 171.25 229.93 253.16
Exercise price for options outstanding at the end of the year (LKR.) [adjusted as at 31st 173.25 142.83 149.84 176.04 191.65
March 2018]

35 Insurance contract liabilities


Accounting policy
Insurance contract liabilities - life
The long term and unit link insurance business provisions are based on the recommendation of the independent external actuary following
annual valuation of the life insurance business. The actuarial valuation takes into account all liabilities including contingent liabilities and is
based on assumptions recommended by the actuary.

35.1 Insurance contract liabilities


GROUP
As at 31 st March 2018 2017
In LKR ‘000s

Insurance contract liabilities 29,595,566 31,161,611


Unclaimed benefits 634,973 538,667
30,230,539 31,700,278

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

272 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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.

In the opinion of the consultant actuary, the admissible assets


Based on the directions issued by the IRCSL dated 20 March
of the conventional life insurance fund and the non unit fund of
2018 and subsequent approval, UA PLC. has transferred LKR.
linked long term business as at 31 December 2017 is adequate to
3,382 Mn attributable to non - participating and non unit fund
cover the liabilities of the funds.
of unit linked business from life policyholder fund through the
Income Statement to life shareholder fund and held as part of the
Restricted Regulatory Reserve under equity in the Statement of
Financial Position.

As at 31 st December 2017 2016


In LKR ‘000s

Conventional life insurance


Balance as at 1 January 27,703,410 23,581,967
Increase in life insurance fund before surplus transfer to share holders 5,950,069 5,123,562
Transfer to shareholders (3,438,283) (1,100,000)
Transfer of one-off surplus from non participating fund (3,393,900) -
Net change in unclaimed benefits 90,761 97,881
Balance as at 31 December - Conventional life insurance 26,912,057 27,703,410

Non unit fund of linked life insurance contracts


Balance as at 1 January 186,272 149,271
Increase in non unit fund of linked life insurance before surplus transfer to share holders 39,259 35,396
Transfer to shareholders (203,717) -
Transfer of one-off surplus from non participating fund 11,966 -
Net change in unclaimed benefits 3,776 1,605
Balance as at 31 December - Non unit fund of linked life insurance 37,556 186,272
26,949,613 27,889,682

273
NOTES TO THE FINANCIAL STATEMENTS

35 Insurance contract liabilities (Contd.)


Liability adequacy test (LAT) - Life insurance contract liabilities
As at 31st December 2017, liability adequacy test was performed by the appointed actuary Mr. Vivek Jalan FIA, FIAI of Willis Towers Watson India
Private Limited who concluded that, the liability value is sufficient to meet future benefits and expenses. Hence, no provision was required to be
made for any premium deficiency.

35.2 Change in life insurance contract liabilities


The results of Union Assurance PLC.’s (UA) life business segment is consolidated into the Group’s Consolidated Income Statement. The change in
life insurance contract liabilities represents the transfer to the Life Fund, the difference between all income and expenditure attributable to life
policy holders during the year.

For the year ended 31st March 2018 2017


In LKR ‘000s

Revenue 9,871,833 8,181,868


Cost of sales (4,808,512) (3,262,922)
Gross profit 5,063,321 4,918,946
Operating expenses including distribution and administration expenses (2,634,554) (2,331,918)
Net finance income 4,060,855 3,556,360
Profit attributable to shareholders of UA (7,422,177) (1,274,100)
Change in contract liability due to transfer of one off surplus 3,381,934 -
Change in insurance contract liabilities 2,449,379 4,869,288

36 Interest-bearing loans and borrowings


36.1 Movement
GROUP COMPANY
As at 31 st March 2018 2017 2018 2017
In LKR ‘000s

At the beginning of the year 17,121,490 16,698,430 - 1,482,508


Cash movement
Loans obtained 5,832,308 3,300,907 - -
Repayments (2,817,099) (3,443,821) - (1,469,884)
Non cash movement
Accrued Interest 21,376 - - -
Amortization of transaction cost - 8,992 - 8,992
Exchange difference 425,424 556,982 - (21,616)
At the end of the year 20,583,499 17,121,490 - -

Repayable within one year 2,062,465 2,918,854 - -


Repayable after one year 18,521,034 14,202,636 - -
20,583,499 17,121,490 - -

274 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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.

36.2 Finance leases


GROUP
As at 31 st March 2018 2017
In LKR ‘000s

At the beginning of the year 10,134 44,865


Leases obtained 37,903 -
Repayments (18,860) (38,556)
Adjustments / transfers 4,394 3,825
At the end of the year 33,571 10,134

Finance lease obligations repayable within one year


Minimum lease payments 10,732 10,254
Finance charges (4,644) (120)
Present value of minimum lease payments 6,088 10,134

Finance lease obligations repayable after one year


Minimum lease payments 34,661 -
Finance charges (7,178) -
Present value of minimum lease payments 27,483 -

36.3 Security and repayment terms


Group companies
Lending Nominal Repayment Details of 2018 2017
Institution Interest rate terms collaterals In LKR ‘000s In LKR ‘000s

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

36 Interest-bearing loans and borrowings (Contd.)


36.3 Security and repayment terms (Contd.)
Lending Nominal Repayment Details of 2018 2017
Institution Interest rate terms collaterals In LKR ‘000s In LKR ‘000s

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

276 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

Lending Nominal Repayment Details of 2018 2017


Institution Interest rate terms collaterals In LKR ‘000s In LKR ‘000s
Waterfront Properties Syndicated 1 month LIBOR 13 quarterly instalments Freehold and leasehold land 13,453,831 12,334,739
(Pvt) Ltd. loan based plus margin commencing from September of LKR. 11.4 Bn. Additionally, as
through 2019 a part of the sponsor support,
SCB John Keells Holdings PLC. has
pledged 10.09 Bn of its shares
in Waterfront Properties (Pvt)
Ltd.
Yala Village (Pvt) Ltd. Habib Bank 1 month AWPLR 30 monthly instalments - 11,667 39,666
based minus commencing from July
margin 2014
Sampath 6 month LIBOR 20 quarterly instalments - 11,692 56,963
Bank based plus margin commencing from July 2013
20,549,928 17,111,356
John Keells BPO DLF Assets - Finance lease - - 10,134
Solutions India (Pvt) (Pvt) Ltd.
Ltd.
John Keells Office Central - Finance lease - 33,571 -
Automation Finance
20,583,499 17,121,490

37 Employee benefit liabilities


Accounting Policy
Employee contribution plans - EPF/ETF
Employees are eligible for Employees’ Provident Fund contributions and Employees’ Trust Fund contributions in line with respective statutes and
regulations. The companies contribute the defined percentages of gross emoluments of employees to an approved Employees’ Provident Fund
and to the Employees’ Trust Fund respectively, which are externally funded.

Employee defined benefit plan - gratuity


The liability recognised in the statement of financial position is the present value of the defined benefit obligation at the reporting date using
the projected unit credit method. Any actuarial gains or losses arising are recognized immediately in other comprehensive income.

GROUP COMPANY
As at 31 st March 2018 2017 2018 2017
In LKR ‘000s

Employee benefit liabilities


At the beginning of the year 1,880,287 1,660,880 217,910 189,181
Current service cost 173,128 144,936 13,640 12,967
Acquisitions 7,535 - - -
Transfers - - 24,272 10,528
Acquisition/(disposal) of subsidiary (8,763) - - -
Interest cost on benefit obligation 198,780 182,697 23,970 19,864
Payments (302,309) (219,443) (75,087) (19,940)
(Gain)/Loss arising from changes in assumptions 22,762 110,758 4,083 5,310
Exchange translation difference - 459 - -
At the end of the year 1,971,420 1,880,287 208,788 217,910

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

37 Employee benefit liabilities (Contd.)


Accounting judgements , estimates and assumptions
Employee benefit liability
The employee benefit liability of the Group is based on the actuarial valuation carried out by Independent actuarial specialists. The actuarial
valuations involve making assumptions about discount rates and future salary increases. The complexity of the valuation, the underlying
assumptions and its long term nature, the defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are
reviewed at each reporting date.

The principal assumptions used in determining the cost of employee benefits were:

As at 31 st March 2018 2017


In LKR ‘000s

Discount rate 9.00% - 10.5% 9.5% - 11.00%


Future salary increases 6.00% - 10.00% 6.00% - 10.00%

37.1 Sensitivity of assumptions used


A one percentage change in the assumptions would have the following effects:
GROUP COMPANY
As at 31 st March 2018 2017 2018 2017
In LKR ‘000s

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)

37.2 Maturity analysis of the payments


The following payments are expected on employee benefit liabilities in future years
GROUP COMPANY
2018 2017 2018 2017
In LKR ‘000s In LKR ‘000s In LKR ‘000s In LKR ‘000s

Within the next 12 months 273,562 286,965 74,985 60,239


Between 1 and 2 years 223,855 363,244 4,949 65,281
Between 2 and 5 years 650,931 522,475 51,316 21,792
Between 5 and 10 years 741,218 618,230 75,516 58,446
Beyond 10 years 81,854 89,373 2,022 12,152
Total expected payments 1,971,420 1,880,287 208,788 217,910

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.

278 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

GROUP COMPANY
As at 31st March 2018 2017 2018 2017
In LKR ‘000s

Other deferred liabilities


Government grants 527 772 - -
Deferred revenue 190,876 838,119 - -
Deferred purchase consideration - - - 103,218
191,403 838,891 - 103,218

39 Other non current liabilities


Accounting policy
Group classifies all non financial non current liabilities under other current liabilities which include non refundable advances and deposits.

GROUP
As at 31st March 2018 2017
In LKR ‘000s

Advances received 6,531,447 3,740,418


Deposits 172,921 193,464
6,704,368 3,933,882

40 Trade and other payables


Accounting policy
Trade payables are the aggregate amount of obligations to pay for goods or services, that have been acquired in the ordinary course of business.
Trade payables are classified as current liabilities if payment is due within one year.

GROUP COMPANY
As at 31st March 2018 2017 2018 2017
In LKR ‘000s

Trade and other payables


Trade and other payables 15,535,469 13,665,569 332,191 330,078
Reinsurance payables 375,410 277,284 - -
Advances and deposits 166,620 193,187 - -
16,077,499 14,136,040 332,191 330,078

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.

41 Short term borrowings


GROUP
As at 31st March 2018 2017
In LKR ‘000s

Bank borrowings 3,128,508 1,380,238


3,128,508 1,380,238

279
NOTES TO THE FINANCIAL STATEMENTS

42 Other current liabilities


Accounting policy
Group classifies all non financial current liabilities under other current liabilities.
GROUP COMPANY
As at 31st March 2018 2017 2018 2017
In LKR ‘000s

Other current liabilities


Non refundable deposits 1,905,811 1,481,641 2,566, 2,566
Other tax payables 1,607,403 1,462,477 2,761 13,875
3,513,214 2,944,118 5,327 16,441

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.

43.1 Amounts due from related parties


GROUP COMPANY
As at 31st March Note 2018 2017 2018 2017
In LKR ‘000s

Subsidiaries 43.5 - - 300,185 215,115


Equity accounted investees 43.5 139,640 111,639 104,179 71,620
Key management personnel - - - -
139,640 111,639 404,364 286,735

43.2 Amounts due to related parties


GROUP COMPANY
As at 31st March Note 2018 2017 2018 2017
In LKR ‘000s

Subsidiaries 43.6 - - 4,892 209,182


Equity accounted investees 43.6 5,168 10,434 485 847
Key management personnel - - - -
5,168 10,434 5,377 210,029

280 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

43.3 Transactions with related parties


GROUP COMPANY
For the year ended 31st March Note 2018 2017 2018 2017
In LKR ‘000s

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

Equity accounted investees


Sale of goods 8,475 12,460 - -
Rendering of services 43.5 642,105 468,353 348,635 281,929
Receiving of services 315,937 330,436 191 193
Interest received 43.4 246,709 200,565 124,336 87,567
Interest paid 43.4 1,724 7,844 2 -
Dividend received - - 2,942,698 2,854,182

Key management personnel (KMP)


Sale of goods - - - -

Close family members of KMP


Sale of goods - - - -

Companies controlled / jointly controlled / significantly


Influenced by KMP and their close family members
Sale of goods - - - -

Post employment benefit plan


Contributions to the provident fund 259,884 254,297 67,260 58,907

43.4 Transactions with related parties - Associates


GROUP COMPANY
For the year ended 31st March 2018 2017 2018 2017
In LKR ‘000s

Nations Trust Bank PLC.


Interest received 246,709 200,565 124,336 87,567
Interest paid 1,724 7,844 2 -

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

43 Related party transactions (Contd.)


43.5 Related parties transactions and balances
COMPANY
Rendering of services Amounts due from
For the year ended/As at 31st March 2018 2017 2018 2017
In LKR ‘000s

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

Joint ventures 296,663 270,305 100,514 70,923


Associates 51,972 11,624 3,665 697
348,635 281,929 104,179 71,620

43.6 Related parties transactions and balances


Receiving of services Amounts due to

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

Joint ventures 191 193 - -


Associates - - 485 847
191 193 485 847

282 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

43.7 Compensation of key management personnel


Key management personnel include members of the Board of Directors of John Keells Holdings PLC. and its subsidiary companies.
GROUP COMPANY
For the year ended 31st March 2018 2017 2018 2017
In LKR ‘000s

Short-term employee benefits 413,996 410,881 210,241 170,944


Post employment benefits - - - -
Other long-term benefits - - - -
Termination benefits - - - -
Retirement benefits 51,610 - 51,610 -
Share based payments 163,799 133,911 109,007 55,747
629,405 544,792 370,858 226,691

Directors’ interest in the employee share option plan of the Company


As at 31 March 2018, the executive members of the Board of Directors held options to purchase ordinary shares under the employee share option plan
as follows;
2018 2017
Expiry date Adjusted exercise Outstanding at Exercisable at the Outstanding at the Exercisable at the
price the end of period end of period end of period end of period
LKR

30.06.2018 191.65 2,295,814 2,295,814 2,295,814 1,721,859


30.06.2019 176.04 2,038,537 1,717,508 2,038,537 1,019,268
24.06.2020 149.84 1,675,073 1,115,408 1,675,073 418,766
14.08.2021 142.83 1,575,000 862,500 1,575,000 -
02.07.2022 173.25 1,740,000 660,000 - -

No share options have been granted to the non-executive members of the Board of Directors under the employee share option plan.

43.8 Gain on share restructure/repurchase transaction - John Keells Holdings PLC.


In the current year, the Company carried out the second phase of an exercise to restructure the shareholding of the Company’s investments in
a few of its unlisted subsidiaries to reduce the complexity of the shareholding structure. Accordingly, selected companies holding investments
in other subsidiaries, transferred its respective investments to the Company, at valuations independently verified with the assistance of external
consultants. The exercise was completed via a combination of share buybacks between the unquoted entities within the Group, and its
subsidiaries for a consideration of either cash or owners’ shares.

For the year ended 31st March 2018 2017


In LKR ‘000s Transaction Value Gain Transaction Value Gain

Shares brought back from


John Keells Properties (Pvt) Ltd. 685,161 493,807 - -
Keells Consultants (Pvt) Ltd. 56,161 55,686 380,145 378,140
Mack Air Ltd. 1,755 1,704 1,007,985 960,978
Mackinnon Keells Ltd. 46,666 35,356 900,664 897,647
Mackinnon Mackenzie and Company of (Ceylon) Ltd. 32,797 32,784 239,745 238,093
Mortlake Ltd. - - 378,410 98,074
Walkers Tours Ltd. 155,328 122,963 - -
Whittall Boustead (Pvt) Ltd. 8,495,166 7,304,149 1,093 1,071
Whittall Boustead Travel (Pvt) Ltd. 44,160 14,396 - -
Transware Logistics (Pvt) Ltd. 436,028 122,322 - -
9,953,222 8,183,167 2,908,042 2,574,003

283
NOTES TO THE FINANCIAL STATEMENTS

44 Contingent liabilities Ceylon Cold Stores PLC. (CCS)


Accounting policy The contingent liability of CCS as at 31 March 2018, relates to the
Provisions, contingent assets and contingent liabilities following;
Provisions are recognised when the Group has a present obligation
(legal or constructive) as a result of a past event, it is probable Income tax assessments relating to years of assessments
that an outflow of resources embodying economic benefits will 2011/12, 2012/2013 and 2013/2014
be required to settle the obligation and a reliable estimate can be Assessments were raised by the IRD in November 2014, November
made of the amount of the obligation. Where the Group expects 2015 and May 2016 assessing the income from write back of
some or all of a provision to be reimbursed, for example under an deposits on returnable containers and crates amounting to LKR.
insurance contract, the reimbursement is recognised as a separate 202 Mn, LKR. 43 Mn and LKR. 41 Mn respectively. The company
asset but only when the reimbursement is virtually certain. has lodged valid appeals against the assessments raised and is
contesting these under the appellate procedure.
The expense relating to any provision is presented in the income
statement net of any reimbursement. Having discussed with independent legal and tax experts and
based on the information available, the contingent liability as at 31
If the effect of the time value of money is material, provisions March 2018 is estimated at LKR. 35 Mn.
are discounted using a current pre-tax rate that reflects, where
appropriate, the risks specific to the liability. Where discounting is Ceylon Holiday Resorts Ltd (CHR)
used, the increase in the provision due to the passage of time is The contingent liability of CHR as at 31 March 2018, relates to the
recognised as a finance cost. following;

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.

284 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

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

45 Capital and other commitments

GROUP COMPANY
As at 31st March 2018 2017 2018 2017
In LKR ‘000s

Capital commitments approved but not provided for 64,624,866 66,186,343 - -


Guarantees 299,044 180,913 117,000 180,913
64,923,910 66,367,256 117,000 180,913

46 Lease commitments
GROUP
As at 31st March 2018 2017
In LKR ‘000s

Lease rentals due on non-cancellable operating leases;


Within one year 965,899 562,965
Between one and five years 2,472,142 1,084,140
After five years 8,252,530 5,391,496
11,690,571 7,038,601

Company Lessor Leased properties

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.

48 Events after the reporting period


Final dividend
The Board of Directors of the Company have declared a final dividend of LKR 2.00 per share for the financial year ended 31 March 2018. As
required by section 56 (2) of the Companies Act No. 07 of 2007, the Board of Directors have confirmed that the Company satisfied the solvency
test in accordance with section 57 of the Companies Act No. 07 of 2007, and obtained a certificate from the auditors, prior to declaring the
dividend, which is to be paid on 18 June 2018.

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.

286 John Keells Holdings PLC . Annual Report 2017/18


Financial Information

Supplementary Information

Creating value to every


stakeholder we serve

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

1870-1970 2001-2007 2011-2014


• 1870: Two English brothers, George and • 2003: JKH acquired Asian Hotels and • 2011/12: “The Emperor” apartment project at
Edwin John set up E. John & Co, a firm of Properties, thereby gaining control of 40 Crescat City, Colombo reached completion
produce and exchange brokers per cent of the five-star room capacity in
Colombo • 2012/13: Cinnamon Bey, a 200 room five-star
• 1948: The firm merged with two other resort was launched. “K-Zone”, a 140,000
London based tea brokers, and thereby • 2004: John Keells Hotels Limited (KHL) was sq. ft. mall was opened in Ja-Ela, Colombo.
evolved into a private liability company by created as a holding company for all Group Keells Food Products PLC.. and Union
the name of E. John, Thompson, White & resorts. The Group’s CSR arm, the John Assurance PLC. successfully raised LKR. 1.2
Company Ltd Keells Social Responsibility Foundation was billion and LKR. 720 Mn respectively, via
established as a non-profit rights issues
• 1960: Amalgamated with Keell and Waldock
Ltd., another long-established produce, • 2005: The Group launched its hotel brands
• 2013/14: The market capitalisation of JKH
share and freight broking company. The “Cinnamon Hotels and Resorts” and “Chaaya
exceeded USD 2 billion for the first time
company changed its name to John Keell Hotels and Resorts”. JKH entered into a MoU
in the Group’s history. The “Waterfront”
Thompson White Ltd to develop a third resort in the Maldives and
integrated resort project was announced
also acquired 80 per cent of the Yala Village
to the public. JKH was recognised as one of
1971-1990 Hotel. Keells Plantations was sold off, thus
the top 15 great places to work in Sri Lanka
• 1973: Walkers Tours and Travels (Ceylon) marking the Group’s exit from the ownership
through a survey conducted by the Great
Ltd, a leading inbound tour operator, was of plantations. A joint venture with Raman
Place to Work Institute
acquired Roy Associates was embarked upon, to enter
the BPO space • 2014/15: “Cinnamon red”, the first lean
• 1974: The firm became a Rupee quoted
public company. Changed its name to John • 2006: A lease was acquired on the Dhonveli luxury hotel in Sri Lanka, was launched.
Keells Ltd1986: A newly incorporated John Beach and Spa and the Ellaidhoo Tourist The “OnThree20” residential development
Keells Holdings (JKH) acquired a controlling Resort in the Maldives. The Group increased project was successfully completed.
stake in John Keells Limited and obtained a its stake in SAGT by 8 per cent to 34 per cent. Union Assurance was segregated as per
quotation on the Colombo Stock Exchange John Keells Holdings Ltd was renamed John a regulatory directive, and the General
(CSE) amidst a heavily over-subscribed Keells Holdings PLC. Insurance segment was divested. JayKay
public share issue Marketing Services (Private) Limited merged
• 2007: Cinnamon Island Alidhoo commenced with Nexus Networks (Private) Limited, with
operations. The Group signed a long-term JMSL being the surviving entity. Divested
1991-2000 funding arrangement amounting to USD 75
• 1991: Acquired the Whittalls Group of stakes in Expo Lanka Holdings PLC. and
Mn with IFC Access Engineering PLC.
Companies, and thus gained control of
Ceylon Cold Stores, Ceylon Holiday Resorts,
2008-2010 2015 – To Present
and Union Assurance. The acquisition was
• 2008: JKH acquired a further 8.4 per cent • 2015/16: Waterfront Properties (Private)
one of the largest deals of the time
in SAGT and also increased stakes in UA, Limited raised the necessary debt funding
• 1994: JKH became the first Sri Lankan CCS, JKL and KFPL. The stake in AMW was for the “Cinnamon Life” project, by way of the
company to obtain a listing abroad, by way divested largest syndicated debt facility obtained by
of issuing Global Depository Receipts (GDRs) a local firm. A controlling stake in Rajawella
on the Luxembourg Stock Exchange • 2009: JKH’s market capitalisation surpassed
Holdings Ltd (RHL) was acquired for LKR.
USD 1 billion. The Trans Asia Hotel was
• 1996: Velidhu Resort Hotel, an 80-roomed 1.04 billion. SAGT was ranked number one
re-branded and re-launched as Cinnamon
island resort in the Maldives, was acquired. in South Asia and number four in the world
Lakeside. The Group released its first
This marked the Group’s first major overseas for terminal productivity by the Journal of
standalone Sustainability Report, in full
investment Commerce, USA. The Group raised LKR. 8
compliance with the Global Reporting
billion by converting 50 Mn warrants
• 1999: Nations Trust Bank (NTB) was Initiative (GRI-G3) framework
established, in a joint venture with the • “7th Sense” on Gregory’s Road a high-
• 2010: The head lease of Alidhoo Island was end, niche, residential development was
International Finance Corporation (IFC)
divested while the head lease of Dhonveli completed
and Central Finance Co. Ltd. The South Asia
Island was acquired for a period of 18 years.
Gateway Terminal (SAGT) commenced • 2016/17: “John Keells X: Open Innovation
Construction of “OnThree20”, a 475-unit
operations to own, operate, and develop Challenge 2016” was launched, creating a
apartment complex in the heart of Colombo
the Queen Elizabeth Quay at the Port of unique platform for disruptive and innovative
commenced. Walkers Tours and Whittall
Colombo solutions. John Keells Research filed for its first
Boustead became the only destination
• 2000: JKH became the first Sri Lankan management companies to obtain both ISO patent for a novel energy source material that
company to obtain the SL-AAA credit 9001 and ISO 14001 certifications. Ceylon was developed through a research project
rating from Fitch Ratings. The firm was also Cold Stores added “KIK” as its cola brand in undertaken in collaboration with the National
admitted as a full member of the World its portfolio of soft drinks. JKH also acquired Metallurgical Lab of the Council for Scientific
Economic Forum and was also rated among 5.6 Mn shares of Union Assurance PLC., and and Industrial Research (CSIR-NML) in India
the best 300 small companies in the world increased its stake to 95.6 per cent • 2017: Please refer the “Year at a Glance”
by the Forbes Global magazine section of the JKH Annual Report

288 John Keells Holdings PLC . Annual Report 2017/18


Supplementary Information

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

Transportation Leisure Property Consumer Foods & Financial Services


Retail
For the year ended 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
31st March
LKR. Mn

Direct economic value


generated
Revenue 17,687 11,517 26,794 28,135 1,610 1,459 54,358 46,834 10,065 8,298
Finance income 136 242 2,253 2,849 364 591 895 998 4,084 3,512
Share of results of 2,209 2,275 63 53 2 - - 1,322 975
equity accounted
investees
Profit on sale of assets 92 2,009 439 281 783 1,032 1,554 1,296 66 62
and other income
Valuation gain on IP - - - - 613 290 22 92 - -
20,124 16,043 29,549 31,318 3,372 3,372 56,829 49,220 15,537 12,847

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

290 John Keells Holdings PLC . Annual Report 2017/18


Supplementary Information

Information Technology Others Total Eliminations/ Group Total


Adjustments
2018 2017 2018 2017 2018 2017 2018 2017 2018 % 2017 %

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

- - 261 101 896 484 - - 896 0.64 484 0.40


11,709 11,460 28,474 24,070 165,594 148,332 (26,535) (26,474) 139,059 100.00 121,858 100.00

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

6 3 46 34 124 144 - - 124 0.09 144 0.12

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

Cost of sales (589,688) (494,787) (4,056) (3,713)


Gross profit 187,830 204,838 4,589 3,702

Dividend income - - 55,002 68,920


Other operating income 13,368 11,621 52,682 17,168
Selling and distribution expenses (27,112) (25,679) - -
Administrative expenses (80,103) (75,285) (7,278) (5,951)
Other operating expenses (20,463) (20,870) (468) (6,196)
Results from operating activities 73,520 94,625 104,527 77,643

Finance cost (3,341) (2,872) (462) (589)


Finance income 72,278 66,052 40,359 36,476
Change in insurance contract liabilities (15,711) (32,056) - -
Change in fair value of investment property 5,750 3,183 - -
Change in contract liability due to transfer of one off surplus 21,693 - - -
Share of results of equity accounted investees (net of tax) 23,069 21,744 - -

Profit before tax 177,258 150,676 144,424 113,530


Tax expense (28,958) (31,409) (8,297) (7,195)
Profit for the year 148,300 119,267 136,127 106,335

Attributable to:
Equity holders of the parent 134,838 107,143
Non-controlling interests 13,462 12,124
148,300 119,267

Earnings per share


Basic 0.10 0.08
Diluted 0.10 0.08

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.

292 John Keells Holdings PLC . Annual Report 2017/18


Supplementary Information

Statement of Financial Position


for information purposes only
GROUP COMPANY
As at 31 March 2018 2017 2018 2017
In USD 000

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

EQUITY AND LIABILITIES


Equity attributable to equity holders of the parent
Stated capital 402,837 413,365 402,837 413,365
Revenue reserves 559,753 508,184 403,346 329,088
Other components of equity 319,771 254,454 12,520 9,905
1,282,361 1,176,003 818,703 752,358
Non-controlling interest 160,003 103,328 - -

Total equity 1,442,364 1,279,331 818,703 752,358

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

Land in acres Net book value


Owning company and location Buildings Freehold Leasehold 2018 2017
in (Sq. Ft) LKR ‘000s LKR ‘000s

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

PROPERTIES OUTSIDE COLOMBO


Ceylon Cold Stores PLC.
Kaduwela. 313,024 27.35 - 1,348,994 1,264,323
Trincomalee. 19,071 1.06 - 228,601 207,042
Facets (Pvt) Ltd.
Ahungalla. - 6.31 - 428,700 400,000
John Keells BPO Solutions India (Pvt) Ltd.
Gurgaon, Haryana. - - - - 39,822
John Keells PLC.
17/1, Temple Road, Ekala, Ja-Ela. - 3.77 - 286,850 226,500
JK Properties Ja-Ela (Pvt) Ltd
No 525, Negambo Road, Kapuwatta, Ja-Ela. 144,631 6.60 - 1,872,500 1,758,000
JK Tudella Properties (Pvt) Ltd.
Tudella, Ja-Ela. 64,670 17.77 - 557,611 -
John Keells Warehousing (Pvt) Ltd.
Muthurajawela. 126,743 - 6.00 345,846 315,057
Keells Food Products PLC.
41, Temple Road, Ekala, Ja-Ela. 51,768 3.00 1.00 278,036 240,411
Gonawala , Pannala 32,454 - 4.08 211,793 222,651
Rajawella Holdings Ltd.
Mahaberiatenna, Kandy. 59,032 - 517.09 2,003,013 1,915,363
Tea Smallholder Factories PLC.
Broadlands. 56,478 4.14 - 69,000 54,000
Halwitigala. 48,747 9.61 - 62,500 61,000
Hingalgoda. 63,676 17.00 - 86,000 83,000
Karawita. 80,364 - 4.98 116,069 97,655
Kurupanawa. 51,410 11.80 - 76,500 59,000
Neluwa. 48,888 5.27 - 70,000 67,000
New Panawenna. 44,568 10.59 - 51,000 48,000
Pasgoda. 40,091 - 7.24 58,911 48,000
Peliyagoda. 31,629 - 0.98 349,000 176,263

294 John Keells Holdings PLC . Annual Report 2017/18


Supplementary Information

Land in acres Net book value


Owning company and location Buildings Freehold Leasehold 2018 2017
in (Sq. Ft) LKR ‘000s LKR ‘000s

PROPERTIES OUTSIDE COLOMBO


The Colombo Ice Company (Pvt) Ltd.
Awissawella - - 9.30 146,263 174,701
Transware-Logistics (Pvt) Ltd.
Tudella, Ja-Ela. - - - - 476,256
Union Assurance PLC.
06, Rajapihilla Road, Kurunegala. 27,904 0.20 - 270,209 218,834
Whittall Boustead Ltd.
150, Badulla Road, Nuwara Eliya. 4,343 0.46 - 134,500 96,811
1,309,491 124.93 550.67 9,051,896 8,249,689

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

Improvements to Keells Super outlets of Jay Kay Marketing


Services (Pvt) Ltd on leased hold properties 3,119,855 2,087,993

Consolidated value of land & buildings, lease rentals paid in


advance and investment property 4,982,125 269.86 669.58 96,173,429 71,187,671

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

296 John Keells Holdings PLC . Annual Report 2017/18


Supplementary Information

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

ACCRUAL BASIS DIVIDEND PAYOUT RATIO PRICE TO CASH EARNINGS


Recording revenues and expenses in the Dividend paid as a percentage of Company Diluted market price per share divided by
period in which they are earned or incurred profits adjusted for non-cash gains items. diluted cash earnings per share.
regardless of whether cash is received or
disbursed in that period. DIVIDEND YIELD PUBLIC HOLDING
Dividends adjusted for changes in number of Percentage of shares held by the public
ADJUSTED ROCE AND ROE shares in issue as a percentage of the share calculated as per the Colombo Stock Exchange
Adjusted for the 2013 Rights Issue, 2015 and price (diluted) at the end of the period. Listing Rules as at the date of the Report.
2016 Warrant Issues, “Cinnamon Life” debt,
revaluation of property, plant and equipment EARNINGS PER SHARE (BASIC) QUICK RATIO
and equipment for 2015/16, 2016/17 Profit attributable to equity holders of the parent Cash plus short term investments plus
and 2017/18, in addition to the recurring divided by the weighted average number of receivables, divided by current liabilities.
adjustments. ordinary shares in issue during the period.
RECURRING EBIT/RECURRING PROFIT AFTER
ASSET TURNOVER EBIT TAX/RECURRING PROFIT ATTRIBUTABLE TO
Revenue including associate company Earnings before interest and tax (includes EQUITY HOLDERS OF THE PARENT
revenue divided by average total assets. other operating income). Profit, as applicable, adjusted for the
modifications discussed under the Group
BETA EBIT MARGIN Consolidated Review section of the Report:
Covariance between daily JKH share return EBIT divided by turnover inclusive of share of Page 62.
and market return divided by variance of daily associate company turnover.
market return, over a 5 year period. RETURN ON ASSETS
EBITDA Profit after tax divided by the average total
CAPITAL EMPLOYED Earnings before interest, tax, depreciation and assets.
Shareholders’ funds plus non-controlling amortisation.
interests and debt. RETURN ON CAPITAL EMPLOYED (ROCE)
EFFECTIVE RATE OF TAXATION Consolidated profit before interest and tax as a
CAPITAL STRUCTURE LEVERAGE (CSL) Tax expense divided by profit before tax. percentage of average capital employed.
Average total assets divided by average ENTERPRISE VALUE (EV)
shareholders’ equity. RETURN ON EQUITY (ROE)
Market capitalisation plus net debt/(net cash). Profit attributable to shareholders as a
CASH EARNINGS PER SHARE INTEREST COVER percentage of average shareholders’ funds.
Profit attributable to equity holders of the Consolidated profit before interest and tax
parent adjusted for non cash items minus SCOPE 1 AND SCOPE 2
over interest costs The GHG Protocol has established a
share of associate company profits plus
dividends from associate companies divided LIABILITIES TO TANGIBLE NET WORTH classification of GHG emissions called
by the weighted average number of ordinary Total non current and current liabilities ‘Scope’: Scope 1, Scope 2 and Scope 3. The
shares in issue during the period. including contingent liabilities divided by GHG emissions standard published by the
tangible net worth. International Organization for Standardization
COMMON EARNINGS LEVERAGE (CEL) (ISO), ‘ISO 14064’, represents these
Profit attributable to equity holders of the LONG TERM DEBT TO TOTAL DEBT classifications of Scope with the following
parent divided by profit after tax. Long term loans as a percentage of total debt. terms:
CONTINGENT LIABILITIES MARKET CAPITALISATION 1. Direct GHG emissions = Scope I
A condition or situation existing as at the date Number of shares in issue at the end of the
of the Report due to past events, where the period multiplied by the market price at the 2. Energy indirect GHG emissions = Scope 2
financial effect is not recognised because: end of the period.
SHARE TURN RATIO
1. The obligation is crystallised by the MARKET VALUE ADDED Total volume of shares traded during the year
occurrence or non occurrence of one or Market capitalisation minus shareholders’ divided by average number of shares in issue.
more future events or, funds.

2. A probable outflow of economic resources NET ASSETS SHAREHOLDERS’ FUNDS


is not expected or, Total assets minus current liabilities, long term Total of stated capital, other components of
liabilities, and non-controlling interests. equity and revenue reserves.
3. It is unable to be measured with sufficient
reliability NET ASSETS PER SHARE
Net assets as at a particular financial year end TANGIBLE NET WORTH
divided by the number of shares in issue as at Total equity less intangible assets and deferred
CURRENT RATIO tax assets.
Current assets divided by current liabilities. the current financial year end.

DEBT/EQUITY RATIO NET DEBT (CASH) TOTAL DEBT


Debt as a percentage of shareholders’ funds Total debt minus (cash plus short term Long term loans plus short term loans and
and non-controlling interests. deposits). overdrafts.

DILUTED EARNINGS PER SHARE (EPS) NET PROFIT MARGIN


Profit after tax attributable to equity holders of TOTAL EQUITY
Profit attributable to equity holders of the Shareholders’ funds plus non-controlling
parent divided by the weighted average the parent divided by total revenue including
share of associates. interest.
number of ordinary shares in issue during the
period adjusted for options granted but not PRICE EARNINGS RATIO WORKING CAPITAL
exercised and outstanding unexpired warrants. Market price per share (diluted) over diluted Current assets minus current liabilities.
DIVIDEND PAYABLE earnings per share.
Final dividend per share multiplied by the PRICE TO BOOK RATIO
latest available total number of shares as at the Market price per share (diluted) over net asset
date of the report. value per share.

298 John Keells Holdings PLC . Annual Report 2017/18


Supplementary Information

CONTRIBUTION TO NATIONAL AND INTERNATIONAL GOVERNANCE


AND ADVOCACY ORGANISATIONS
Senior management personnel of the Group, • Members of the Sri Lanka Institute of
hold positions of membership on numerous Directors
professional and governance bodies and
• Member of the National Labour Advisory
participate in various sub committees
Committee
and projects initiated by such bodies. The
management, in addition, contributes to • International Vice President for South Asia
industry-specific, national and international and International Management Council
governance policy and advocacy through Member of the Chartered Institute of
the participation and sharing of views at such Logistics & Transport
fora. The Group views these memberships and
• Vice President of the Indo-Lanka Chamber
dialogues as a vital part of business given the
of Commerce
ability of such bodies to recommend policy
changes, address industry concerns and carry • Member of the National Maritime Policy
out necessary lobbying for the betterment of Steering Committee and Chair on the
the industry and nation as a whole. Sub Committee on Logistics & Regulatory
Harmonisation
As such below is a list of the main
• Council Member of the International
memberships of industry or other associations,
Management Council and International
and national or international advocacy
Vice President of the Chartered Institute of
organizations held by members of the Group
Logistics & Transport
Executive Committee:
• Vice President of the Indo-Lanka Chamber
• Council and Nominated Members of the
of Commerce
Employers Federation
• President of the Beverage Association of Sri
• Member of the Board of Sri Lanka Institute
Lanka
of Nano Technology
• Member of the Food Advisory Committee of
• Member of the Tourism Advisory
the Ministry of Health
Committee

• 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:

1 The VeriSustain protocol is available on www.dnvgl.com


* Assurance Engagements other than Audits or Reviews of Historical Financial Information.

300 John Keells Holdings PLC . Annual Report 2017/18


Supplementary Information

Economic Materiality Reliability


• GRI 201: Economic Performance The process of determining the issues that The accuracy and comparability of information
2016 – 201-1, 201-3; is most relevant to an organization and its presented in the report, as well as the quality
• GRI 203: Indirect Economic Impacts stakeholders. of underlying data management systems.
2016 – 203-1, 203-2;
The key sustainability topics JKH focuses The majority of data and information
• GRI 204; Procurement Practices
through its disclosures have been identified verified at Corporate Office and at sampled
2016 – 204-1;
and prioritized by the company. These material operational sites were found to be fairly
• GRI 205: Anti-corruption 2016 – 205-1; topics are adequately brought out within the accurate and reliable. Some of the data
Report along with JKH’s management systems, inaccuracies identified during the verification
Environmental decision making processes and strategies and process were found to be attributable to
• GRI 302: Energy 2016 – 302-1, 302-2, 302-4; demonstrate value creation over the short, transcription, interpretation and aggregation
• GRI 303: Water 2016 – 303-1, 303-2; medium and long term. errors and the errors have been corrected. JKH
• GRI 305: Emissions 2016 – 305-1, 305-2; uses a software to capture and analyze data
Inclusivity related to its sustainability performance on its
• GRI 306: Effluents and Waste
The participation of stakeholders in material topics from all sites of operations on a
2016 – 306-1, 306-2, 306-3;
developing and achieving an accountable and quarterly basis.
• GRI 307: Environmental Compliance strategic response to Sustainability.
2016 – 307-1; Specific Evaluation of the Information on
• GRI 308: Supplier Environmental Assessment The Report describes JKH’s strategic approach Sustainability Performance
2016 – 308-1; to stakeholder engagement and methods We consider the methodology and the
used to address significant stakeholder process for gathering information developed
Social concerns and feedback on material issues, by JKH for its sustainability performance
• GRI 401: Employment 2016 – 401-1; across various industry sectors of the reporting to be appropriate, and the
• GRI 403: Occupational Health and Safety Company. The continuous improvements qualitative and quantitative data included in
2016 – 403-2; through systems introduced for better the Report was found to be identifiable and
management control, upgrading of services traceable; the personnel responsible were able
• GRI 404: Training and Education
for value creation and increased transparency to demonstrate the origin and interpretation
2016 – 404-1, 404-3;
towards strengthening relationships with key of the data and its reliability. Nothing has
• GRI 406: Non-discrimination 2016 – 406-1; stakeholders was evident during our assurance come to our attention that has proved to
• GRI 405: Diversity and Equal Opportunity process and are adequately brought out in the us that information provided to us was
2016 – 405-1; Report. inconsistent, inaccurate and unreliable. We
• GRI 407: Freedom of Association and observed that the Report presents a faithful
Collective Bargaining 2016 – 407-1; Responsiveness description of the reported sustainability
The extent to which an organization responds activities for the reporting period.
• GRI 408: Child Labor 2016 – 408-1;
to stakeholder issues.
• GRI 409: Forced or Compulsory Labor Additional principles as per DNV GL
2016 – 409-1; The Report brings out how JKH has VeriSustain
• GRI 414: Supplier Social Assessment demonstrated its commitment towards Completeness
2016 – 414-1; ensuring sustainable performance on its How much of all the information that has been
• GRI 417: Marketing and Labelling identified material topics to respond to identified as material to the organisation and
2016 – 417-1, 417-3; its stakeholder issues through its policies, its stakeholders is reported?
strategies, management systems and
• GRI 419: Socioeconomic Compliance
governance mechanisms, and these are fairly The Report has incorporated the key
2016 – 419-1.
reflected within the Report. The Company requirements of the <IR> framework in
has set and deployed targets, objectives and describing its business model and value
Observations
action plans for key material issues especially creation related to six capitals. Also, the
Without affecting our assurance opinion,
environmental aspects such as energy, water Report has fairly brought out economic,
we also provide the following observations
and compliance, and reviews feedback from environmental and social disclosures against
evaluating the Report’s adherence to the
key stakeholders on a frequent basis. topics identified as material across JKH’s
AA1000AS principles:

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

For DNV GL,

Rathika de Silva Kiran Radhakrishnan Prasun Kundu


Country Head Lead Verifier - Sustainability Services Assurance Reviewer
DNV GL Business Assurance Lanka (Private) DNV GL Business Assurance India Private Limited, Global Service Responsible - Social
Limited, Colombo, Sri Lanka India. Accountability
DNV GL Business Assurance India
Private Limited, India.
24th May 2018, Colombo, Sri Lanka

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

302 John Keells Holdings PLC . Annual Report 2017/18


GRI 102-45 Supplementary Information

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.

Individuals Businesses & Corporates Government


Consumer Foods & Retail, Property, Leisure, Financial Services IT, Transportation, Leisure, Other (Plantation Services), Financial Services IT

“*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

Logistics Mackinnon Mackenzie & Co of Ceylon Ltd.


DHL Keells (Pvt) Ltd. (PV 1307) (50%)** (PB 348) (100%)*
International express courier services Foreign recruitment agents & consultants
Incorporated in 1986 Incorporated in 1975
No. 148, Vauxhall Street, Colombo 2. No. 11, York Street, Colombo 1. T. 2475509
T. 2304304, 4798600 Directors: S C Ratnayake-Chairman, R M David
Stated capital: LKR.90,000

303
GRI 102-45

GROUP DIRECTORY

LEISURE M D R Gunatilleke, L C H Leow, A J Pathmarajah, No.117, Sir Chittampalam A, Gardiner Mawatha,


Hotel Management K N J Balendra, R J Karunarajah Colombo 02. T. 2306600, 2421101-8
Cinnamon Hotel Management Ltd. (PB 7) Stated capital: LKR.1,168,800,100 Directors: S C Ratnayake-Chairman,
(100%) J R Gunaratne, B J S M Senanayake
Operator & marketer of resort hotels Resort Hotels - Sri Lanka Stated capital: LKR.1,939,760,925
Incorporated in 1974 Beruwala Holiday Resorts (Pvt) Ltd.
No.117 Sir Chittampalam A. Gardiner Mawatha, (PV 69678) (79.78%) Kandy Walk Inn Ltd. (PB 395) (79.03%)
Colombo 02. T. 2306600, 2421101-8 Owner & operator of “Cinnamon Bey” in Beruwala Owner & operator of “Cinnamon Citadel” in Kandy
Directors: S C Ratnayake-Chairman, Incorporated in 2009 Incorporated in 1979
J E P Kehelpannala, B J S M Senanayake, Moragolla Beruwala. T. 2306600, 034 2297000 No.124, Srimath Kuda Ratwatte Mawatha, Kandy.
R J Karunarajah, K N J Balendra, J R Gunaratne Directors: S C Ratnayake-Chairman, T. 081 2234365-6, 081 2237273-4
Stated capital: LKR.19,520,000 J R Gunaratne, B J S M Senanayake Directors: S C Ratnayake-Chairman,
Stated Capital: LKR.2,338,150,000 J R Gunaratne, B J S M Senanayake
John Keells Hotels PLC. (PQ 8) (80.32%)* Stated capital: LKR.115,182,009
Holding company of group resort hotel companies Ceylon Holiday Resorts Ltd*-
in Sri Lanka & Maldives Bentota Beach Hotel. (PB 40) (79.60%) Rajawella Hotels Company Ltd. (PB 92)
Incorporated in 1979 Owner & operator of “Bentota Beach by Cinnamon” (80.32%)*
No.117, Sir Chittampalam A,Gardiner in Bentota Owner of real estate
Mawatha,Colombo 02. T. 2306600 Incorporated in 1966 Incorporated in 1992
Directors: S C Ratnayake-Chairman, Galle Road, Bentota. No.117, Sir Chittampalam A, Gardiner Mawatha,
J E P Kehelpannala, B J S M Senanyake, T. 034 2275176, 034 2275266 Colombo 02. T. 2306000
J G A Cooray, J R Gunaratne, N B Weerasekera, Directors: S C Ratnayake- Chairman, Directors: S C Ratnayake-Chairman,
T L F W Jayasekara, K N J Balendra, J R Gunaratne, B J S M Senanayake J R Gunaratne, D C Alagaratnam
A K Moonasinghe Stated capital: LKR.1,561,745,304 Stated capital: LKR.35,111,762
Stated capital: LKR.9,500,246,939
Nuwara Eliya Holiday Resorts (Pvt) Resort Hotels Ltd. (PB 193) (79.60%)*
Sentinel Realty (Pvt) Ltd. (PV 80706) Ltd*(PV98357) (80.32%) Owner of real estate
(41.91%)** owner of real estate Incorporated in 1978
Investment company for Hotel Development land Incorporated in 2014 No.117, Sir Chittampalam A, Gardiner Mawatha,
Incorporated in 2011 No.117, Sir Chittampalam A, Gardiner Mawatha, Colombo 02. T. 2306780, 2421101-8
No.117, Sir Chittampalam A, Gardiner Mawatha, Colombo 02. T. 2306000 Directors: S C Ratnayake-Chairman,
Colombo 02. T. 2306000 Directors: S C Ratnayake-Chairman, J R Gunaratne
Directors :B A B Goonettileke-Chairman, J R Gunaratne, B J S M Senanayake Stated capital: LKR.7,889,150
J G A Cooray, S Rajendra, K Balasundaram Stated Capital: LKR.320,344,820
Stated capital: LKR.132,288,080 Trinco Holiday Resorts (Pvt) Ltd.(PV 69908)
Hikkaduwa Holiday Resorts (Pvt) Ltd. (80.32%)
City Hotels Owner & Operator of “Trinco Blu by Cinnamon” in
(PV 71747) (79.60%)
Asian Hotels and Properties PLC. - Owner & operator of “Hikka Tranz by Cinnamon” in Trincomalee
Cinnamon Grand. (PQ 2) (78.56%) Hikkaduwa Incorporated in 2009
Owner & operator of the five star city hotel Incorporated in 2010 Alles Garden, Uppuvelli, Sampathiv Post
“Cinnamon Grand” P.O Box 1, Galle Road, Hikkaduwa. T. 091 2298000 T. 026 2222307, 026 2221611
Incorporated in 1993 Directors: S C Ratnayake-Chairman, Directors: S C Ratnayake-Chairman
77, Galle Road, Colombo 03. T. 2437437, 2497442 J R Gunaratne, B J S M Senanayake J R Gunaratne, B J S M Senanayake
Directors: S C Ratnayake-Chairman, Stated capital: LKR.1,062,635,460 Stated Capital: LKR.357,000,000
K N J Balendra - Managing Director, J G A Cooray,
R J Karunarajah, S Rajendra, S K G Senanayake,
Habarana Lodge Ltd. (PB 38) (78.99%) Trinco Walk Inn Ltd. (PB 168) (80.32%)*
S A Jayasekara, C J L Pinto, J R Gunaratne Owner of Real Estate
Owner & operator of “Cinnamon Lodge” in Habarana
Stated capital: LKR.3,345,118,012 Incorporated in 1984
Incorporated in 1978
P.O Box 2, Habarana. Alles Garden, Uppuveli, Sampathiv Post,
Trans Asia Hotels PLC. (PQ 5) (82.74%) T. 066 2270011-2, 066 2270072 Trincomalee. T. 026 2222307, 011 2306600
Owner & operator of the five star city hotel Directors: S C Ratnayake-Chairman, Directors: S C Ratnayake-Chairman,
“Cinnamon Lakeside”. J R Gunaratne, B J S M Senanayake J R Gunaratne, B J S M Senanayake
Incorporated in 1981 Stated capital: LKR.341,555,262 Stated capital: LKR.119,850,070
No. 115, Sir Chittampalam A. Gardiner
Mawatha, Colombo 2. T. 2491000 Wirawila Walk Inn Ltd. (PB 89) (80.32%)*
Directors: S C Ratnayake-Chairman, Habarana Walk Inn Ltd. (PB 33) (79.34%)
Owner & operator of “Habarana Village by Owner of real estate
K N J Balendra, J G A Cooray, J R Gunaratne Incorporated in 1994
N L Gooneratne, C J L Pinto, J C Ponniah Cinnamon” in Habarana
Incorporated in 1973 No.117, Sir Chittampalam A, Gardiner Mawatha,
E H Wijenaike, R.J.Karunaraj Colombo 02. T. 2306780, 2421101-8
Stated capital: LKR.1,112,879,750 P.O Box 1, Habarana.
T. 066 2270046-7, 066 2270077 Directors: S C Ratnayake-Chairman,
Directors: S C Ratnayake-Chairman, J R Gunaratne, B J S M Senanayake
Capitol Hotel Holdings Ltd. (PB 5013) J R Gunaratne, B J S M Senanayake Stated capital: LKR.19,274,150
(19.47%)** Stated capital: LKR.126,350,000
Developer of City Business Hotels Ahungalla Holiday Resorts (Pvt) Ltd. (PV
Incorporated in 2012 International Tourists and Hoteliers Ltd. 85046) (80.32%)*
No.117, Sir Chittampalam A,Gardiner Owner of real estate
(PB 17) (79.78%)*
Mawatha,Colombo 02. T. 2306000 Incorporated in 2012
Owner of real estate
Directors: M S Weerasekera-Chairman No.117, Sir Chittampalam A, Gardiner Mawatha,
Incorporated in 1973
W R K Wannigama , D A Kannangara, Colombo 02 T. 2306000

304 John Keells Holdings PLC . Annual Report 2017/18


GRI 102-45 Supplementary Information

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

306 John Keells Holdings PLC . Annual Report 2017/18


GRI 102-45 Supplementary Information

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          

308 John Keells Holdings PLC . Annual Report 2017/18


Supplementary Information

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

310 John Keells Holdings PLC . Annual Report 2017/18


Supplementary Information

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

312 John Keells Holdings PLC . Annual Report 2017/18


Supplementary Information

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

314 John Keells Holdings PLC . Annual Report 2017/18


Supplementary Information

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.

The business to be brought before the meeting will be:

1. to read the notice convening the meeting.

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.

5. to re-appoint Auditors and to authorise the Directors to determine their remuneration.

6. to consider any other business of which due notice has been given in terms of the relevant laws and regulations.

By Order of the Board


JOHN KEELLS HOLDINGS PLC

Keells Consultants (Private) Limited


Secretaries
30 May 2018

Notes:
i. A member unable to attend is entitled to appoint a Proxy to attend and vote in his/her place.

ii. A Proxy need not be a member of the Company.

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.

316 John Keells Holdings PLC . Annual Report 2017/18


Supplementary Information

PROXY FORM

I/We ....................................................................................................................................................................................................................................................................................................................................... of

....................................................................................................................................................................................................... being a member/s of John Keells Holdings PLC hereby appoint

................................................................................................................................................................................................................................................................................................................................................... of

................................................................................................................................................................................................................................................................................................................or failing him/her

MR. SUSANTHA CHAMINDA RATNAYAKE or failing him


MR. KRISHAN NIRAJ JAYASEKARA BALENDRA or failing him
MR. JOSEPH GIHAN ADISHA COORAY or failing him
MR. MOHAMED ASHROFF OMAR or failing him
MR. DAMIEN AMAL CABRAAL or failing him
MR. ANTHONY NIHAL FONSEKA or failing him
MS. MARIE PREMILA PERERA or failing her
DR. SHRIDHIR SARIPUTTA HANSA WIJAYASURIYA

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.

To re-appoint Auditors and to authorise the Directors to determine their remuneration.

Signed on this ………………… day of …………………… Two Thousand and Eighteen.

……………………………………
Signature/s of Shareholder/s

NOTE: INSTRUCTIONS AS TO COMPLETION OF PROXY FORM ARE NOTED ON THE REVERSE.

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.

4. If the appointer is a company or corporation, the Form of Proxy should be


executed under its Common Seal or by a duly authorised officer of the company or
corporation in accordance with its Articles of Association or Constitution.

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.

Please fill in the following details:

Name : ..........................................................................................................................................................................................

Address : ......................................................................................................................................................................................

............................................................................................................................................................................................................

............................................................................................................................................................................................................

Jointly with : ..............................................................................................................................................................................

Share Folio No. : .......................................................................................................................................................................

318 John Keells Holdings PLC . Annual Report 2017/18


Supplementary Information

CORPORATE INFORMATION

Name of Company Related Party Transactions Review Auditors


John Keells Holdings PLC Committee Ernst & Young
M P Perera - Chairperson Chartered Accountants
Legal Form D A Cabraal P.O. Box 101
Public Limited Liability Company A N Fonseka Colombo, Sri Lanka
Incorporated in Sri Lanka in 1979 S C Ratnayake
Ordinary Shares listed on the Colombo Stock Bankers for the Company
Exchange Registered Office of the Company Bank of Ceylon
GDRs listed on the Luxembourg Stock 117 Sir Chittampalam A. Gardiner Mawatha, Citibank N.A.
Exchange Colombo 2, Sri Lanka Commercial Bank of Ceylon
Telephone : +94 11 230 6000 Deutsche Bank A.G.
Company Registration No. Internet : www.keells.com DFCC Bank
PQ 14 Email : jkh@keells.com Habib Bank
Hatton National Bank
Directors Secretaries Hongkong and Shanghai Banking Corporation
S C Ratnayake - Chairman Keells Consultants (Pvt) Limited MCB Bank
K N J Balendra - Deputy Chairman 117 Sir Chittampalam A. Gardiner Mawatha, National Savings Bank
J G A Cooray - Group Finance Director Colombo 2, Sri Lanka Nations Trust Bank
D A Cabraal Telephone : +94 11 230 6245 NDB Bank
A N Fonseka Facsimile : +94 11 243 9037 Pan Asia Banking Corporation
M A Omar People’s Bank
M P Perera Sampath Bank
Investor Relations
S S H Wijayasuriya Seylan Bank
John Keells Holdings PLC
Standard Chartered Bank
117 Sir Chittampalam A. Gardiner Mawatha,
Senior Independent Director Colombo 2, Sri Lanka
A N Fonseka Telephone : +94 11 230 6161 Depository for GDRs
Facsimile : +94 11 230 6160 Citibank N.A. New York
Audit Committee Email : investor.relations@keells.com
A N Fonseka - Chairman
D A Cabraal Sustainability, Enterprise Risk
M P Perera Management and Group Initiatives
186 Vauxhall Street, Colombo 2, Sri Lanka
Human Resources and Compensation Telephone : +94 11 230 6189
Committee Facsimile : +94 11 230 6249
D A Cabraal - Chairman Email : sustainability@keells.com
M A Omar
S S H Wijayasuriya Contact for Media
Corporate Communications Division
Nominations Committee John Keells Holdings PLC
M A Omar - Chairman 117 Sir Chittampalam A. Gardiner Mawatha,
M P Perera Colombo 2, Sri Lanka
S C Ratnayake Telephone : +94 11 230 6191
S S H Wijayasuriya Email : jkh@keells.com

319
Designed & produced by

Digital Plates & Printing by Softwave Printing and Publishing (Pvt) Ltd
Photography by Danush De Costa
www.keells.com

You might also like