ANNUAL REPORT
2023/24
Content
Vision, Mission | 1 | |
Our Story | 2 | |
Group Structure | 3 | |
Financial Highlights | 4 | |
Chairman's Review | 5 | |
Management Discussion and Analysis | 6 | |
Board of Directors | 21 | |
Corporate Governance | 23 | |
Risk Management | 35 | |
Audit Committee Report | 40 | |
Nomination and Governance Committee Report | 44 | |
Remuneration Committee Report | 45 | |
Related Party Transactions Review Committee Report | 46 | |
Annual Report of the Board of Directors | 48 | |
Statement of Directors' Responsibility | 52 | |
Independent Auditor's Report | 54 | |
Income Statement | 58 | |
Statement of Comprehensive Income | 59 | |
Statement of Financial Position | 60 | |
Statement of Changes in Equity | 62 | |
Statement of Cash Flows | 64 | |
Notes to the Financial Statements | 66 | |
Investor Relations | 170 | |
Five Year Performance - Group | 174 | |
Five Year Performance - Company | 175 | |
Five Year Financial Position - Group | 176 | |
Five Year Financial Position - Company | 177 | |
Five Year Summary - Graphical Presentation | 178 | |
Notice of Meeting | 179 | |
Notes | 181 | |
Form of Proxy | 183 | |
Corporate Information | Inner Back Cover | |
» 3 | Annual Report 2023/24 |
Vision
To provide extraordinary investment gains to our stakeholders by innovating and delivering "best value" financial solutions to the customers in our sector.
Mission
- People: Create a great place to work where people are inspired to be the best they can be.
- Portfolio: Acquire and develop a unique range of financial services that anticipate and satisfy customers desires and needs.
- Profit: Maximize and deliver sustainable returns to our shareholders.
- Productivity: Be a highly effective, lean and fast-moving team.
SOFTLOGIC CAPITAL PLC | » 4 |
Our Story
Softlogic Capital PLC was incorporated as Capital Reach Holdings Limited in April 2005 as an Investment Holding Company. Subsequently, in August 2010, Softlogic Holdings PLC acquired the Company under its objective to form a fully-fledged finance arm to the greater Softlogic Group. The ordinary shares of the Company were listed on the Dirisavi Board of the Colombo Stock Exchange on September 2011.
Softlogic Capital PLC is the financial services sector holding company of the Softlogic Group. Softlogic Capital's portfolio of financial services comprises of Softlogic Finance PLC, a Licensed Finance Company under the purview of Central Bank of Sri Lanka; Softlogic Life Insurance PLC, an insurer licensed for Life Insurance by the Insurance Regulatory Commission of Sri Lanka. A fully owned subsidiary, SCAP ONE (Pvt) Ltd was formed under Softlogic Capital PLC as part of a group restructuring process. The new subsidiary is the immediate parent company of Softlogic Stockbrokers (Pvt) Ltd, a stock broking company licensed and operating on the Colombo Stock Exchange and Softlogic Invest, a Unit Trust Managing Company and an Investment Manager licensed by Securities and Exchange Commission of Sri Lanka.
Group Structure
SOFTLOGIC
HOLDINGS PLC
Investment Holding
Company
77.36 %
SOFTLOGIC CAPITAL PLC
Investment Holding
Company
» 5 | Annual Report 2023/24 |
Principal Business Activity
Investment Holding Company
Principal Business Activity
Investment Holding Company
Financial Sector
SOFTLOGIC LIFE
INSURANCE PLC
Life Insurance Company
licensed by
IRCSL
51.72%
SOFTLOGIC
FINANCE PLC
Registered Finance
Company licensed by
CBSL
95.44%
SCAP ONE (PVT) LTD) | S R ONE (PVT) LTD) | ||||
100% | 100% | ||||
Principal Business Activity Providing Life Insurance solutions for both individual and corporate customers.
Principal Business Activity
provide comprehensive range of financial services encompassing accepting deposit, providing finance lease, hire purchase.
SOFTLOGIC
STOCKBROKERS
(PVT) LTD
Stock Broking Company
licensed by SEC
80.10%
SOFTLOGIC ASSET
MANAGEMENT
(PVT) LTD
Unit Trust Managing
Company and Investment Manager licensed by SEC
100%
Principal Business Activity | Principal Business Activity | |||
Management of unit trusts | ||||
Stock-brokering | ||||
and Investments | ||||
SOFTLOGIC CAPITAL PLC | » 6 |
Financial Highlights
2023/24 | 2022/23 |
FINANCIAL PERFORMANCE AND RATIOS
%
Total revenue | Rs. Mn | 36,730 | 32,687 | 12 |
Operating Profit | Rs. Mn | 10,830 | 8,085 | 34 |
Profit before interest and tax | Rs. Mn | 1,864 | 5,639 | (67) |
Profit/(loss) before tax | Rs. Mn | (3,685) | (626) | 489 |
Income Tax Expense/(Income) | Rs. Mn | (498) | 1,765 | (128) |
Profit/(loss) after tax | Rs. Mn | (4,183) | (2,391) | 75 |
Profit/(loss) for the year attributable to equity holders | Rs. Mn | (5,565) | (3,443) | 62 |
Operating profit margin | % | 29 | 25 | 19 |
Net profit/(loss) margin | % | (11) | (7) | 56 |
Earnings per share | Rs. | (6) | (4) | 62 |
Return on equity (ROE) * | % | (111) | (32) | 249 |
Return on capital employed (ROCE)** | % | 6 | 14 | (55) |
FINANCIAL POSITION AND RATIOS AS AT THE YEAR END | ||||
Total assets | Rs. Mn | 65,782 | 74,074 | (11) |
Total equity | Rs. Mn | 3,777 | 7,539 | (50) |
Shareholders' funds | Rs. Mn | (2,644) | 2,380 | (211) |
Total interest bearing borrowings | Rs. Mn | 19,636 | 21,686 | (9) |
Public deposits | Rs. Mn | 7,482 | 12,431 | (40) |
Insurance contarct liability | Rs. Mn | 27,759 | 24,462 | 13 |
Net Asset Value Per Share ** | Rs. | (3) | 2 | (211) |
Debt : Equity | No of times | 7 | 5 | 59 |
SHARE INFORMATION | ||||
Market value per share | ||||
Highest value recorded during the year | Rs. | 9 | 18 | (53) |
Lowest value recorded during the year | Rs. | 6 | 3 | 71 |
Value as at end of the year | Rs. | 7 | 11 | (39) |
No. of Shares in Issue | Mn | 977 | 977 | - |
Market Capitalisation | Rs. Mn | 6,645 | 10,847 | (39) |
Price to book value | No of times | (3) | 5 | (155) |
- ROE calculated as a percentage of PAT to total equity
- ROCE calculated as a percentage of PBIT to total capital employed (total equity plus total interest bearing borrowings and public deposits)
» 7 | Annual Report 2023/24 |
Chairman's Review
For the Financial Year Ended 31st March 2024
Dear Stakeholders,
It is my pleasure to present the Chairman's Review for the financial year ended 31st March 2024. This financial year has been a testament to the resilience, grit and adaptability of Softlogic Capital PLC amidst ongoing challenges that we have faced on many fronts.
The broader economic environment in Sri Lanka continued to present significant challenges during the period under review. While the Central Bank of Sri Lanka's measures to stabilize inflation and manage the country's foreign exchange reserves began showing positive effects, systemic structural issues remained. Fiscal consolidation and IMF-supported economic programs that have now progressed seem to offer a positive outlook but also imposed fiscal pressures across industries. Despite these adversities, Softlogic Capital PLC strategically leveraged its diversified portfolio and operational strengths
to emerge and deliver commendable results.
Performance
The financial statements of the Company for the Financial Year ended 31st March 2024 have been prepared on a Fair Value basis and the numbers for the previous Financial Year ended 31st March 2023 have also been provided for comparison. This change in methodology has enabled us to bring up a market based valuation of the Company's Assets. Investment
in subsidiaries by the Company was therefore Rs 19.4Bn with the Insurance Company mainly driving the valuation uplift. The Equity position of the Company was Rs 5.6Bn and Interest Bearing Liabilities were Rs 13.8Bn. Total Group operating income was recorded at Rs 36.7Bn versus 32.7Bn and mainly due to increase in net earned premium from life insurance. Total Assets of the
Group were Rs 65.8Bn and reduced from Rs 74 Bn mainly on account of the Finance Company reducing its Customer Deposit portfolio.
Subsidiaries
Softlogic Life Insurance delivered yet another year of good results with Gross Written Premiums of Rs 25 Bn that showed an increase of 17% for the period ended 31st December 2023 which is the period covering this Annual Report. Profit after tax was Rs 2.8 Bn increasing by 6%. Total Assets were Rs 51.3Bn and the Equity position was at Rs 13.3 Bn. The Company paid out protection claims of Rs 10.2Bn whilst covering more than 1.2million lives and is the largest in the industry based on these metrics with 17% market share in the Life Industry and aprox 35% market share in the Health Insurance space. The Company has won numerous awards and accolades and was placed overall 2nd at the CA Annual Report awards, ranking amongst top notch corporates in the country.
Softlogic Finance weathered further turbulence and steadied operations to conclude the financial year 31st March 2024 with Total Assets of Rs 11.3 Bn. The Company has strategically toned down operations shrinking its Branch network and substantially scaling down on expenses whilst aggressively moving to recover its past due loans and advances portfolio. Customer Deposits as at the year end were at Rs 7.5 Bn with Loans and Advances at Rs 7.8 Bn. The Company posted a loss of Rs 1.7 Bn marking a significant improvement from the previous year loss of Rs 3.0 Bn as impairment continued to abate at Rs 644Mn from Rs 1.8Bn the previous year.
Our capital market operations, led by Softlogic Stockbrokers and Softlogic Invest, benefited from the gradual
recovery in investor sentiment. Softlogic Invest, is a Top 5 fund management entity in Sri Lanka, that manages assets exceeding Rs 40 Bn with the Company having one of the highest number of Investors amongst Unit Trusts. These results underscore our ability to create value through group synergies and innovative financial products.
The Future
We remain committed to innovation and leveraging technology across all our operations. During the year, we introduced enhanced digital platforms on a number of fronts to improve customer engagement and operational efficiency. Our strategic investments in technology and talent have strengthened our competitive position in a rapidly evolving market.
Looking ahead, we remain cautiously optimistic. While economic recovery in Sri Lanka is expected to be gradual, our strategic focus will be on consolidating business opportunities, optimizing operational efficiency, and exploring new avenues for growth. With a clear roadmap, robust governance framework, and the support of our dedicated team, we are confident in our ability to navigate the uncertainties ahead.
Acknowledgments
I extend my heartfelt gratitude to our stakeholders for their unwavering trust and support. I also thank the Board of Directors, management, and employees for their tireless efforts in delivering these remarkable results. Together, we will continue to build on our legacy and achieve greater milestones in the years to come.
(Sgd.)
Ashok Pathirage
Chairman
SOFTLOGIC CAPITAL PLC | » 8 |
Management Discussion and Analysis
Operating Context of the Group This section captures the economic, political, and legal environment in which the Group operated and the consequent effects throughout the year.
Global Economy
The global economy was projected to grow by 3.3% in 2023 , marking a continued deceleration from the 3.5% expansion in 2022. This further slowdown can be attributed to persistent inflationary pressures that have led to a cost-of-living crisis across various nations. The ongoing Russia- Ukraine conflict coupled with the challenges posed by Covid-19 variants has compounded the strain on the global economy.
Inflation remained elevated in numerous countries, driven by persistent increases in energy, food, and commodity prices, alongside labor market tightness and supply chain bottlenecks. The levels
of public and private debt soared to unprecedented peaks. With fiscal buffers being eroded, governments are confronted with increasingly complex policy dilemmas as they strive to manage soaring inflation, escalating macro-financial risks, and tapering economic growth.
As governments navigate the immediate challenges posed by geopolitical conflicts and health crises, they must also address the transformative long- term forces such as climate change and the digital transformation. The repercussions of these dynamics are expected to significantly influence the balance of payments for individual nations, underscoring the necessity for structural reforms and policy framework enhancements to foster resilience
and secure sustainable, inclusive development.
Sri Lankan Economy
In 2023, Sri Lanka continued to grapple with the aftermath of its most challenging economic crisis since
independence. The previous year, 2022, was marked by severe economic hardship that triggered public anxiety and political upheaval. Immediate and coordinated policy actions by the government and Central Bank were crucial in preventing further escalation of the crisis, despite the impact on the general population. These measures, though painful, were necessary to protect the economy from potentially devastating consequences of unchecked economic instability. By 2023, the country had achieved a workable equilibrium, focusing on restoring socioeconomic stability while continuing to seek support from international financial institutions.
The economy's vulnerabilities, including past policy lapses and unsustainable macroeconomic practices, had led to a multifaceted disaster with lasting consequences, such as high inflation, fiscal imbalances, and a severe shortage of foreign exchange liquidity. Social unrest in 2022 had also resulted in political instability, necessitating a reevaluation of policy priorities to steer the economy away from further turmoil.
In 2023, Sri Lanka transitioned to a more flexible exchange rate regime, significantly altering its approach to managing the national currency. The Central Bank of Sri Lanka (CBSL) implemented greater flexibility in exchange rate determination starting in March 2023, ceasing its daily market guidance that had been in place since May 2022. This shift was influenced by improved liquidity in the domestic foreign exchange market, which allowed the exchange rate to be driven by market forces, with limited Central Bank interventions aimed at curbing excessive volatility and accumulating gross official reserves (GOR). Previously, the Sri Lankan rupee experienced significant depreciation following a measured adjustment in early 2022, leading to CBSL's decision to stabilize
the exchange rate through daily market guidance. This stabilization strategy involved setting a daily middle spot exchange rate with a variation margin, which helped reduce intraday volatility.
As the market conditions improved, CBSL gradually relaxed the controls it had imposed during the economic crisis of 2021-2022, such as the mandatory foreign exchange sales by licensed banks and restrictions on foreign exchange outflows. By March 2023, these restrictions were lifted, and liquidity in the foreign exchange market improved notably, contributing to the appreciation of the Sri Lankan rupee by 12.1% in 2023 and an additional 7.6% by March 2024. This appreciation was supported by the Central Bank's net purchases of foreign exchange, totaling USD 1.7 billion in 2023 and USD 1.1 billion in the first quarter of 2024. The enactment of the Central Bank Act (CBA) emphasized the importance of a flexible exchange rate regime aligned with the flexible inflation targeting (FIT) framework, which aims to achieve domestic price stability and eliminate past anti-export biases caused by an overvalued currency.
The gradual relaxation of exchange controls in 2023 included the removal of the unremunerated cash margin deposit requirement on certain imports and the easing of capital flow management measures (CFMs) imposed during the crisis. These measures were part of a broader strategy to restore confidence in the market and encourage foreign exchange inflows. Additionally, restrictions on outward remittances through specific foreign currency accounts were relaxed, although some limitations remained in place. The Central Bank also introduced further policies to encourage foreign exchange inflows, such as allowing the opening of Special Foreign Currency Accounts (SFCA) for companies in Sri Lanka to receive equity proceeds.
» 9 | Annual Report 2023/24 |
These developments fostered a deeper and more liquid foreign exchange market in Sri Lanka, reflecting the effectiveness of the Central Bank's flexible exchange rate policy. By aligning the exchange rate with market fundamentals, the policy helped stabilize the external sector, improve market confidence, and mitigate the impacts of external shocks on the Sri Lankan economy.
In 2023, the Sri Lankan government, on the advice of the Central Bank, relaxed most import restrictions, except for those on vehicle imports. This decision was based on improvements in the
domestic foreign exchange market and the gradual buildup of gross official reserves (GOR). Import restrictions were eased in three phases-June, July, and October 2023-while some restrictions, such as those on payment terms imposed in May 2022, remained in place until February 2024. These policy changes led to an increase in imports, which helped revive economic activity and reduce the prices of imported goods. The easing of restrictions and market-driven measures also improved foreign exchange inflows, liquidity, and market sentiment, leading to a significant appreciation of the Sri Lankan
rupee and a substantial increase in international reserves.
Macroeconomic Outlook
Sri Lanka's macroeconomic outlook remains challenging, with the country grappling with high inflation, a weakened currency, and a significant debt burden. The government and the Central Bank are implementing fiscal reforms and seeking international assistance, including an IMF program, to stabilize the economy, improve public finances, and foster a more sustainable growth trajectory.
Macro-Economic Indicators and their impact on Softlogic Capital Group impact on Softlogic Capital Group
Indicator
2022/23 2023/2024 Cause
Impact on the Softlogic Capital Group
GDP Growth | (7.3%) | (2.30%) The contraction in the overall economy was | The impact of the | ||
Real GDP Growth (%) | driven by a contraction across all three sectors. | economic contraction was | |||
Agricultural sector recorded an expansion of | evident across the Group. | ||||
5 | |||||
2.6 per cent [CY2022: recession of 4.2 per | While there have been | ||||
2 | cent]. Industrial and Service sectors recorded | notable achievements, | |||
-1 | a contraction of 9.2 per cent and 0.2 per cent | in the insurance sector, | |||
-4 | [CY2022: recession of 16 per cent and CY2022: | NBFI and other sectors | |||
-7 | recession of 2.6 per cent]. | faced challenges which | |||
consequently drive the | |||||
-10 | |||||
group into a net loss. | |||||
2019 | 2020 | 2021 | 2022 | 2023 | |
The Sri Lankan economy, based on GDP at constant (2015) market prices, contracted by 2.3% in CY2023 compared to the 7.8 contraction in CY2022.
Inflation | 49.2% | 2.5% | In 2023, Sri Lanka experienced rapid disinflation, | Inflationary pressures | ||
Inflaon % | with headline inflation dropping to 1.3% in | adversely impact on Group | ||||
September and 4.0% by year-end, driven by | businesses due to decrease | |||||
60 | ||||||
subdued demand, tight monetary and fiscal | in real disposable income | |||||
50 | policies, normalization of supply conditions, and a | and exerting pressure on | ||||
40 | ||||||
stronger rupee. Core inflation also fell significantly | margins, mainly towards the | |||||
30 | ||||||
throughout the year. However, inflation saw a | early part of the year. | |||||
20 | ||||||
brief resurgence towards the end of 2023 due | ||||||
10 | ||||||
to energy price hikes and VAT adjustments, with | ||||||
0 | ||||||
core inflation reflecting these increases. Despite | ||||||
2020 | 2021 | 2022 | 2023 | 2024 | ||
these fluctuations, inflation expectations in both | ||||||
Year-on-year headline inflation, based on the | corporate and household sectors declined, largely | |||||
NCPI, was 2.5% in March 2024 compared to | driven by improved economic conditions and | |||||
49.2% in April 2023. | policy measures. |
SOFTLOGIC CAPITAL PLC | » 10 |
Management Discussion and Analysis
Indicator
2022/23 2023/2024 Cause
Impact on the Softlogic Capital Group
Interest Rates | 9.85% | 23.45% | The Central Bank of Sri Lanka (CBSL) adopted a | The Group's finance | ||
Average Weighted Prime | contractionary monetary policy to tackle rising | expense increased primarily | ||||
Lending Rate (AWPLR) (%) | inflation, external vulnerabilities, hyperinflation | on account of a significant | ||||
25 | fears, and economic activity losses. The interest | increase in overall debt to | ||||
20 | rates surged, especially in the first half of the | fund its investment pipeline, | ||||
15 | financial year, due to uncertainties surrounding | which is in line with the | ||||
domestic debt restructuring and liquidity | funding strategy of the | |||||
10 | ||||||
shortages. | Group. | |||||
5 | ||||||
In 2023, the Central Bank of Sri Lanka transitioned | ||||||
0 | ||||||
from a tight monetary policy stance in 2022 to a | ||||||
2020 | 2021 | 2022 | 2023 | 2024 | ||
more accommodative approach due to moderated | ||||||
inflation, subdued economic activity, and eased | ||||||
The Average Weighted Prime Lending Rate | external pressures. Despite raising the Standing | |||||
(AWPLR) decreased from 23.45% in April | Deposit Facility Rate (SDFR) and Standing Lending | |||||
2023 to 11.11% in March 2024. | Facility Rate (SLFR) by 100 basis points in March | |||||
2023 to meet IMF requirements, the Central | ||||||
Bank began easing monetary policy from June | ||||||
2023, reducing policy interest rates by a total | ||||||
of 650 basis points across the year. To further | ||||||
encourage lower market lending rates, the Central | ||||||
Bank imposed caps on certain lending products | ||||||
in August 2023 and issued broader guidelines for | ||||||
banks to reduce lending rates. In March 2024, | ||||||
policy interest rates were further reduced by 50 | ||||||
basis points to support economic recovery. |
Additionally, the Central Bank improved its monetary policy communication strategy to anchor inflation expectations, reduce market interest rates, and enhance the transmission of accommodative monetary policies. This included using various channels, including social media, to disseminate information and increase transparency. These efforts contributed to the disinflation process, reduced risk premiums, and supported economic stability.
Exchange Rate | 358.05 | 318.00 | The Rupee experienced a significant depreciation | Exchange rate movements | ||
Exchange Rate - Annual average - Rs/US$ | at the beginning of the financial year, with the | could adversely impact | ||||
exchange rate rising from Rs. 362.42 in January | payments of the Group in | |||||
400 | ||||||
2023 to Rs. 440.38 in March 2024. The pressure | foreign currency. | |||||
300 | on the Rupee continued, reaching a peak of | |||||
200 | approximately Rs. 360.00 during certain periods | |||||
with notable volatility throughout the year. The | ||||||
100 | foreign exchange market was inactive and illiquid | |||||
0 | in the first half due to foreign exchange shortages | |||||
and economic uncertainty. However, the Rupee | ||||||
2020 | 2021 | 2022 | 2023 | 2024 | ||
gradually strengthened in the fourth quarter, | ||||||
supported by a trade surplus increase from | ||||||
reduced imports due to contractionary fiscal and |
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