Aug 27, 2024 at 10:47 AM UTC

Aug 27

Aug 27, 2024 at 10:47 AM UTC

Galle Face Capital Partners: Annual Report 2023/24

GALLE FACE CAPITAL PARTNERS PLC

Annual Report 2024

Contents

Who We are, Vision	1
Company Highlights	2
Chairman's Review	3
Directors' Proﬁles	4
Management Discussion and Analysis	5-8
Report of the Board of Directors	9-14
Statement by Senior Independend Director	15
Report on Corporate Governance	16-27
Report on Sustainability of the Company	28-29
Report on Risk Management	30-33
Report of the Audit Committee	34-35
Report of the Related Party Transactions Review Committee	36-37
Report of the Nomination & Governance Committee	38
Report of the Remunerations Committee	39
Statment of Directors' Responsibility	40-41
Independent Auditor's Report	42-45
Statement of Financial Position	46
Statement of Proﬁt or Loss and Other Comprehensive Income	47
Statement of Changes in Equity	48
Statement of Cash Flows	49
Notes to the Financial Statements	50-72
Five Year summary	73
Shareholders' & Investors' Information	74-76
Notice of Meeting	77-79
Circular to the Shareholders	80-83
Note	84
Form of Proxy	85-86

Galle Face Capital Partners PLC is an investment trust listed on the Colombo Stock Exchange. The company actively manages a portfolio of listed equity, debt instruments, private equity and investments in alternate asset classes.

To be a leading investment trust focused on value investing and wealth creation with a medium to long term perspective.

Galle Face Capital Partners PLC 2024

INVESTMENT PORTFOLIO as at 31st March 2024

10%	20%	30%	40%	50%	60%	70%	80%	90%	100%

EQUITY - 98% DEBT INSTRUMENTS - 2%

EQUITY EXPOSURE as at 31st March 2024

HEALTH CARE, EQUIPMENTS

AND SERVICES

FOOD, BEVERAGES AND	4%
TOBACCO

10%

FOOD & STAPLES

RETAILING

15%

CONSUMER SERVICES

14%

TELECOMMUNICATION

SERVICES

BANKS

52%

CAPITAL GOODS

2	Galle Face Capital Partners PLC 2024

Chairman's Review

On behalf of the Board of Directors, I take pleasure in welcoming you to the 104th Annual General Meeting of the company and presenting to you the Annual Report and Audited Financial Statements of the Company for the year ended 31st March 2024.

The Sri Lankan economy displayed signs of stabilization, spurred by favorable conditions in the external sector. Higher earnings from tourism and increased domestic economic activity contributed to the overall improve- ment. After setbacks in the previous year, the external sector showed stability in 2023, with improved foreign exchange inﬂows and a stronger balance of payments position, which bolstered the Sri Lankan Rupee. Overall, macroeconomic conditions in 2023 were marked by optimism, with improvements seen in various economic indicators, such as inﬂation, currency stability, and external sector performance. According to the Census and Statistics Department, Sri Lanka's economy contracted by 2.3% in 2023, but it grew by 4.5% in the fourth quarter. The economy seems to be on a trajectory towards stabilization and recovery in 2024, supported by both domestic and external factors.

Galle Face Capital Partners PLC is a dedicated investment trust investing in equity listed on the Colombo Stock Exchange, treasury bills, treasury bonds and other equity and debt instruments. During the year the portfolio saw a strategic shift from debt to equity investments.

The company recorded a revenue of Rs. 32 Million. The proﬁt after tax was Rs. 428 Million compared to Rs. 147 Million in the previous year. The Net Asset Value of your Company was Rs. 48.38 per share as against Rs. 33 per share in the preceding year. The fair value of quoted investments as at 31st March, 2024 and 31st March 2023 were Rs. 1.286 Billion and Rs. 566 Million respectively.

Whereas the debt instruments of the company as of 31st March 2024 stands at 24 Million. Your board recommends a First and Final Dividend of Rs. 2.05 per share in the form of Scrip Dividend for the ﬁnancial year ended 31st March, 2024.

Taking into consideration a year with extraordinary challenges, I wish to express my sincere gratitude to my fellow Directors on the Board for their support and to my colleagues in the group who have worked tirelessly to add to shareholder value for their dedication and commit- ment. I also extend my gratitude to the shareholders and other stakeholders for the support and conﬁdence placed in us for the challenges that lie ahead as well.

Sgd

S.V Rajiyah

Chairman

21st August 2024

Galle Face Capital Partners PLC 2024

Directors' Proﬁles

Mr. S. V. Rajiyah

(Executive Chairman)

companies in the David Pieris Group, namely DPMC Assetline Holdings (Private) Limited, Assetline Leasing Company Limited, David Pieris Investment Properties (Private) Limited and David Pieris International Ventures

(Private) Limited.

Director of Companies of the Renuka Group. He is also the Executive Chairman of Ceylon Land & Equity PLC. He is a graduate in Management from the Warwick Business

over 20 years of experience in General Management.

Mr. M. S. Dominic

(Non-Executive/ Independent)

Mr. M.S. Dominic is an Independent Non-Executive Director and holds a BSc (Hons) degree in Computer Science from the University of South Bank, United Kingdom. He has over 38 years of experience in the Information Technology ﬁeld. He is also Director of Galle Face Properties Ltd, Renuka Foods PLC, Renuka Agri Foods PLC, Renuka Holdings PLC and Sithijaya Fund. He is a trustee of the George Keyt Foundation. He is also on the Council of the University of Visual and Performance Art Colombo.

Mr. K.G. Vairavanathan

(Non-Executive/ Independent)

K.G Vairavanathan is currently a non-executive independent director of Galle Face Capital Partners PLC.

He was the CEO of Asia Wealth Management (Private) Limited between February 2023 and May 2024. Prior to holding this post, he was the Managing Director of Asset- line Capital (Private) Limited and Assetline Securities (Private) Limited between November 2016 and February 2022. He also held directorship positions in four other

Before joining the DPMC Group, Mr. Vairavanathan held CEO/Director posts in the Capital Alliance Group for eight years. He was a Director of Janashakthi Limited and was also General Manager, Investments at Janashakthi Insurance and the head of NDB Stockbrokers.

Mr. Vairavanathan holds a Master in Business Administration (Finance and Investments) from the United States and a Bachelor of Science in Mathematics from the University of Sussex, United Kingdom.

Mr. K. Liyanagamage

(Non-Executive/ Independent)

Mr. K. Liyanagamage is an Independent Non-Executive Director and an Attorney-at-Law of the Supreme Court of Sri Lanka with more than 25 years of experience in the ﬁeld of Civil & Commercial Law. He holds a degree of Master of Laws in Law of International Trade from the University of Wales. He is presently serving as a Director of Galle Face Properties Ltd, Ceylon Land & Equity PLC and Alpha Fire Services PLC.

Fit and Proper

To ensure compliance with listing rule 9.7.1 each member of the board has declared conﬁrmity with the Fit and Proper assestment criteria outline in listing rule number

9.7.3 by providing signed decleration for the year under review. Individuals who failed to comply with the criteria as per the above rule will no longer be eligible to serve as director of the company.

4	Galle Face Capital Partners PLC 2024

Management Discussion and Analysis

Operating Environment

During the year under review, the Sri Lankan economy continued to face its most challenging period in its post-independence history, comprising severe economic hardship that led to both public and political upheaval and the resultant economic upheaval. Although the

vast majority in the short term, they were inevitable to safeguard the economy from unrestrained economic instability such as hyperinﬂation, collapse of economic activity etc. The Sri Lankan economy witnessed a gradual revival in 2023 from the deepest economic downturn in its post-independence history, helped in no small measure with the assistance from the international ﬁnancial institutions towards the foreign currency crisis and the stabilization of the domestic economy. This has brought about a relative stability in the economy for its participants to re-evaluate and re-engage in economic activity. However, the reduction in the purchasing power of the consumers due to the abovementioned upheavals seems to be plaguing the economy still further.

The economic adjustment program has already yielded promising outcomes in 2023. As per the national accounts estimates of the Department of Census and Statistics (DCS), the Sri Lankan economy recorded a decline of 2.3 percent during the year (-7.8 percent in 2022). Agriculture sector of the economy registered a growth of 2.6 percent whilst All other sectors of the economy registered declines during the year (industry by 9.2 percent and services by 0.2 percent). The persistent twin deﬁcit of the overall government budget and the external current account which was the root cause of the economic downturn, showed signs of correction during 2023.

In real terms, the Sri Lankan economy recorded a decline of 2.3 percent in 2023, compared to a decline of 7.8 percent observed in 2022. Accordingly, the overall size of the economy was US dollars 74 billion in 2023 compared to US dollars 76 billion in the previous year. Per capital GDP was US dollars 3,830 in 2023 compared to US dollars 3,464 in 2022.

The aforementioned turbulence in the economy also

shortages of products/services of every description. The subsequent early indications of stabilsation of the economy have contributed towards ironing out many such disruptions; the full recovery of which is still to be seen. While the decline of the economy initially led to the increase in the unemployment rate, the increase in both the labor force and inactive population led to a decline in labour force participation during the year. The unemployment rate continued to be at 4.7 percent in 2023.

Due to the unprecedented socio-political tensions which prevailed previously, the liquidity in the domestic/ foreign exchange markets had dried up. As a result, there was an adverse impact to the Economy of the Country as a whole. Subsequent improvements of the foreign exchange inﬂows from tourism and other services exports as well as workers' remittances, amidst subdued import demand, supported the country in alleviating the severe foreign exchange crunch that prevailed previously. In light of these developments, along with enhanced conﬁdence in the market, the Sri Lanka rupee witnessed a strengthening in late 2023. One signiﬁcant impact of the above- mentioned upheaval was the drastic rise in the interest rates in the domestic markets to approximately 30 percent at the beginning of the year. The subsequent corrective actions by the central Bank saw the rates being managed at a more realistic rate of near single digit towards the end of the ﬁnancial year. The ﬁnancial sector demonstrated its resilience stemming from the proactive and prudent policies of the Central Bank and the greater crisis preparedness of the ﬁnancial institutions

The following aspects were discussed pertaining to the primary macro - economic variables during the year under review and the resultant impacts on the performance of Galle Face Capital Partners PLC.

Galle Face Capital Partners PLC 2024

Management Discussion and Analysis Contd..

Movement	Cause	Impact to Galle Face
Capital Partners PLC


Economy	Agriculture sector of the economy	The	recorded decline	in
Sri Lankan economy recorded a decline of 2.3	registered a growth of 2.6 percent	GDP during the period of
percent in 2023, in real terms, compared to a	whilst All other sectors of the economy	the ﬁnancial year did not
negative 7.8 percent recorded in the preceding	registered declines during the year	have a signiﬁcant impact
year.	(industry by 9.2 percent and services by	to	the	Company,	as
	0.2 percent)	during this period funds
		were invested in short to
	The performance of the agriculture,	medium	term instru-
	forestry and ﬁshing sector was showed	ments.
	signes of recovery by the notable
	increases in the subcategories of grow-
	ing of cereals, rice, vegetables, and tea
	while the growth in Oleaginous fruits
	also weighed in positively on the secto-
	rial performance.
	The majority of subcategories within
	the industries sector registered
	declines.
	Most subcategories in the services
	sector also registered negative growths.

6	Galle Face Capital Partners PLC 2024

Management Discussion and Analysis Contd..

Movement		Cause		Impact to Galle Face
		Capital Partners PLC


Inﬂation	As reﬂected by the year-on-year change	No major Impact to the
Headline inﬂation initially accelerated in 2022	in both the	National Consumer Price	Company.
driven mainly by domestic supply side distur-	Index (NCPI, 2021=100) and the Colombo
bances, the surge in global commodity prices	Consumer Price Index (CCPI, 2021=100),
and upward revisions to administered prices,	the decrease in headline inﬂation was
while core inﬂation also accelerated reﬂecting	attributed to the decrease in both food
	and non-food inﬂation, though food
Accommodation. The subsequent corrective	inﬂation accounted for a larger share.
actions taken by the central Bank has driven	Several upward revisions made to
the inﬂation to a more manageable rate of a	energy prices and other administered
single digit towards the end of the ﬁnancial	Prices in the previous periods are now
year.	being slowly reversed, which has
	contributed to the decrease in the
	inﬂation	rates.	Accordingly,
	year-on-year	headline	inﬂation,
	measured by the CCPI which was record-
	ed at 50 percent at end 2022, has
	decreased to 0.9 percent by end 2023.

Domestic Interest Rates

Market lending interest rates during 2022 was very high at 27 percent in response to the tight monetary and liquidity conditions, while lending interest rates began to moderate towards end 2023 to approx 12 per centum.

The unprecedented increase in the Central Bank's policy interest rates, the substantial liquidity deﬁcit in the domestic money market drove up deposit interest rates, and the elevated yields on government securities, mainly caused the rise in market lending interest rates in 2022. This has new stabilised with Central Bank of Sri Lanka intervention.

Considering the build-up of excessive inﬂationary pressures and the imbalances that emerged in the external sector and ﬁnancial markets, the Central Bank, which deployed unprecedented monetary stimulus measures since 2020, commenced monetary tightening measures from the beginning of the ﬁnancial year.

The Central Bank eased on providing ﬁnancial support to the Government by way of purchasing Treasury bills from the primary market.

The company was well placed to take advantage of the short term disruptions in the Govt Securities and Share markets.

Galle Face Capital Partners PLC 2024

Management Discussion and Analysis Contd..

Movement	Cause	Impact to Galle Face
Capital Partners PLC


Exchange Rates	The pressures that was witnessed on	Less	impact	to	the
In 2023, the Sri Lanka rupee appreciated	the exchange rate amidst dried up	Company	due	to	less
signiﬁcantly against the US dollar by 11 percent	liquidity in the domestic foreign	exposure	to	foreign
from Rs. 363.11 as at end 2022 to Rs. 323.92 as	exchange market in 2022 had an	currency transactions.
at end 2023.	-
	ments of the foreign exchange inﬂows
The foreign exchange appreciation pressure	from tourism and other services exports
was largely due to the limited demand for forex	as well as workers' remittances, amidst
together with large renewed inﬂows from the	subdued import demand, supported the
tourism and worker remittance sectors. As a	country in alleviating the severe foreign
result, the exchange rate started to stabilize	exchange crunch that prevailed previ-
gradually at around Rs. 323 level during the last	ously.
quarter of 2023, and lower in subsequent
periods.

Share Market	When the interest rates were rising due	The	company		took
The Colombo Stock Exchange (CSE) recorded a	to central banks corrective actions, the	advantage	of investing
decline in 2022, mainly responding to the	market participation declined. However	in value	stocks which
general market sentiment and the interest	there was much interest from the	paid	dividends	by	the
rates prevailing in the market. The foreign	domestic investors when the interest	appreciation of the value
participation in the market too declined in line	rates were plummeting in the last	with the gradual stabili-
with the Sovereign rating assigned by interna-	quarter of the year.	zation in the economy.
tional rating agencies. The subsequent chang-
es in the economy changed the tide in the
Colombo Stock Exchange too and generated
gains in the overall market.

Capital Management Review

Being in the investment business, we seek creation of long term sustainable value to our shareholders while safeguarding the ﬁnancial stability of the Company.

Financial Capital Trading Investment portfolio:

The Company recorded a proﬁt of Rs. 396Mn. from its fair value investment measured at Fair Value through Proﬁt or Loss during the year, against a proﬁt of Rs. 54 Mn. during the previous year.

8	Galle Face Capital Partners PLC 2024

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