ANNUAL REPORT - CSE

Chairman’s StatementWe are pleased to present the AnnualReport of the company for the year ended31st March 2017. This report sets outdetails of the financial performance of CTHoldings PLC (the Company), the Companyand subsidiaries (the Group) as well asstatutory and other information anddisclosures.At the outset I must express mysatisfaction at the performance of theGroup during the year. We focused onsteady continuous growth / improvementwhile sustaining the growth andprofitability momentum of the past fewyears. Our overall performance confirmsthat the objectives for the year werelargely met.OperationsThe Group’s two largest sectors ofoperation namely Retail and FMCG areclosely linked with the rural agriculturaleconomy. From the time the Grouplaunched its first supermarket (way backin the year 1983), this sector has enjoyedsteady and continuous growth. Presently,the CFC operates 300 supermarketsspread across every district of the Island– Mannar being the most recent. Despitethe growth of our chain of stores as wellas others during the past 5 years, recentstudies reveal that the penetration ofmodern trade across the island is below20%. This confirms the growth enjoyedby the retail trade in general and theopportunities available in this sector. TheGroup looks forward to further prudentinvestments in this sector in the comingyears to take modern trade to the massesand keep this key avenue available for themarketing and distribution of local primaryproduce.08C T Holdings PLCAnnual Report 2016/17The FMCG sector covers Dairy, Meat,Agribusiness and confectionerysubsectors. These subsectors too showedcontinuous growth over the past fewyears. The growth is fuelled by increasingconsumption levels as well as the marketacceptance of the innovative and highquality products marketed by thesubsectors. We believe that we have builtand operate a base of food processingfacilities capable of some of the best foodproducts in the said categories. Thesefacilities, together with the marketingcapacity and our retail network could beused for further growth.Increasing food processing volumes alsonecessitated capacity enhancements. TheGroup’s dairy sector commissioned itsexpanded dairy facility in Banduragodain March 2017 under the patronageof His Excellency the President Mr.Maithripala Sirisena. The investment(which was implemented over two years)increased the receiving, storage and otherinfrastructure at the facility. Subsequentto the expansion, the facility can nowprocess an average of 100,000 litres offresh milk each day.PerformanceWe consider the performance of theGroup to be creditable in the overalleconomic backdrop. While top linerevenue continues to show steady growthconcerted efforts are made to improveefficiency and reduce costs.Group revenue increased over theprevious year by 17.4% to reach 85.03 Bnwhile profit before taxation increased by38.2% over 2016. Net profit was, however,impacted by increased finance costs andtax liabilities.Rs.1.75 BnProfit for the yearattributable toowners2,500Profit for the year attributableto owners (Rs. Bn)2,0001,5001,00050001314151617The investmentsmade by theGroup over thepast few yearshave also begunto show growthand profitability.

Banking InvestmentCargills Bank has now settled into anefficient mode of operations withimproved performances across all areas ofthe Bank. It is focused on technology as akey driver of efficiency, convenience andrapid growth to achieve this during thecurrent and next financial years.Real EstateThe Group also intends to benefit fromeconomic growth in the provinces bysetting up Mini Malls in key provincialcities and in the suburban areas of thewestern province. The Group’s retail,restaurant and cinema brands wouldfunction as anchor tenants at thesedevelopment projects. A new Mini mallwas opened in Gampaha town in March2017. Other such Mini Malls are plannedfor the upcoming years.Fixed Assets and Investmentsother Companies within the Group. Hecounts many years of senior managerialexperience with the Group as well as inoverseas companies. We look forward tohis valuable contribution to the Board ofCT Holdings PLC.Mr. Niles functioned in the capacity ofDirector – Group Corporate Affairs of C THoldings PLC prior to his appointment asExecutive Director of the Company.All other Directors of the Company wereDirectors for the entire year under review.Stated CapitalThe stated capital of the Company isrepresented by 183,097,253 ordinaryshares (same as in the previous year).There were no new issue of shares duringthe year.AppropriationsThe investment by the Group in property,plant and equipment during the yearamounted to Rs. 4.57 Bn compared toRs. 1.87 Bn in the previous financialyear. The investments have been fundedthrough internally generated funds andborrowings. At the Company level therewere no investments in property, plantand equipment either during the currentor previous year.The company declared a first interimdividend of Rs. 1.00 per share on 19thJanuary 2017 (2016 – Rs. 1.00) anda second interim dividend of Rs 3.50per share on 28th March 2017 (2016final dividend – Rs 2.80 per share). TheDirectors do not recommend a finaldividend out of the profits for the yearended 31st March 2017.DirectorateWe note with confidence the economicdevelopments taking place in our countryand anticipate future opportunities to theGroup through increased consumption.Such growth would also filter throughto primary producers through the manycollection centres and our businesslocations. The investments made by theI am pleased to welcome Mr. Imtiaz AbdulWahid and Mr. S C Niles to the Board of CT Holdings PLC.Mr. Wahid has been associated withthe Group for over twenty years andpresently functions and Managing Director/ Deputy CEO of Cargills (Ceylon) PLC.He also functions as a Director of manyGroup over the past few years have alsobegun to show growth and profitability.We, therefore, look forward withoptimism to the future.AcknowledgmentsOn behalf of the Board of Directors, Iwish to place on record my sincere thanksto our Customers, Bankers, Suppliersand Principals and appreciate thesupport extended to us during the year.I also thank our shareholders for theirencouragement and continued confidencein our Group.Finally, I wish to mention my sincerethanks to all my fellow Directors andstaff for the assistance and cooperationrendered during the year.(Signed)Louis PageChairman6th June 2017ConclusionC T Holdings PLCAnnual Report 2016/1709

Profile of DirectorsMr. Anthony A PageMr. Priya Edirisinghe(Chairman Emeritus)Mr. Anthony Page counts over 40 years of managementexperience in a diverse array of businesses. He is a Fellow Memberof the Institute of Chartered Accountants of Sri Lanka and a FellowMember of the Institute of Certified Management Accountants ofSri Lanka.Independent Non-Executive DirectorMr. A. T. Priya Edirisinghe is a Fellow Member of the Instituteof Chartered Accountants of Sri Lanka, Fellow Member of theChartered Institute of Management Accountants (UK), and holds aDiploma in Commercial Arbitration. He was the Senior Partner ofBaker Tilly Edirisinghe & Co., Chartered Accountants and currentlyserves as Consultant/Advisor. He is the Managing Director of PEManagement Consultants (Pvt) Ltd. He counts over 45 years’experience in both public practice and in the private sector. Heserves on the boards of a number of other listed and non-listedcompanies where in some companies he also serves as Chairman/ Member of the Audit Committee, Related party TransactionReview Committee and Member of the Remuneration Committee.Mr. Edirisinghe is the Chairman of the Company’s Audit andRelated Party Transactions Review Committees and a member ofthe Company’s Remuneration and Nominations Committees.He served on the Board of the Colombo Stock Exchange andseveral public listed and non-listed Companies. Mr. Page alsoserved as a Council Member of the Employers Federation ofCeylon.Board of DirectorsMr. Louis Page(Chairman)Non-Executive DirectorLouis R. Page is a Fellow Member of the Institute of CharteredAccountants of Sri Lanka and a Fellow Member of the CharteredInstitute of Management Accountants (UK). He is the Chairmanof Cargills (Ceylon) PLC and Cargills Bank Ltd. He has also held anumber of Board and Senior Management positions at the highestlevel in overseas public companies and public institutions.Mr. Ranjit Page(Deputy Chairman / Managing Director)Executive DirectorMr. V. Ranjit Page possesses over 30 years of managementexperience with expertise in food retailing, food service, andmanufacturing, having introduced the concept of super marketingto the Sri Lankan masses. He also serves on the boards of several CT Holdings Group companies.Mr. J B L De SilvaIndependent Non-Executive DirectorMr. J. B. L. De Silva, a Lawyer by profession, has substantialexperience in the rubber trade. He is a past Chairman of theColombo Rubber Traders’ Association and is a Director of otherlisted and non-listed companies.10C T Holdings PLCAnnual Report 2016/17Mr. Sunil MendisIndependent Non-Executive DirectorDesamanya Sunil Mendis was formerly the Chairman of HayleysGroup, and a former Governor of the Central Bank of Sri Lanka.He possesses around 50 years of wide and varied commercialexperience, most of which has been in very senior positions. Mr.Mendis serves as a member of the Company’s Audit, Related partyTransaction Review Committee and Remuneration Committees,and also serves on the Boards of several other Group companies.Mrs. Cecilia MuttukumaruNon-Executive DirectorMrs. Cecilia Muttukumaru is the Chairperson of C T CLSASecurities (Private) Limited, C T CLSA Capital (Private) Limited, andComtrust Asset Management (Private) Limited. She is a FellowMember of the Institute of Chartered Accountants of Sri Lankaand a Fellow Member of the Chartered Institute of ManagementAccountants (U.K.).Dr. A. Aravinda PageNon-Executive DirectorDr. A. Aravinda Page, MA (Cantab), M.B.B. Chir, MRCS (UK), isa specialty registrar in cardiothoracic surgery and is currentlyattached to Papworth Hospital NHS Foundation Trust, Cambridge,UK.

Mr. Joseph PageNon-Executive DirectorMr. Joseph C. Page is the Deputy Chairman / Managing Directorof C T Land Development PLC. He is also a Director of Cargills(Ceylon) PLC, Ceylon Theaters (Pvt) Ltd and C T Properties Limited.Prior to joining C T Land Development PLC, he was the ExecutiveDirector of Millers Limited. He has over 30 years of managementexperience in the private sector.Mr. R SelvaskandanIndependent Non-Executive DirectorMr. R. Selvaskandan is an Attorney-at-Law (SL) and Solicitor(England & Wales and Hong Kong) and was a senior partner ofa leading law firm in Hong Kong prior to joining the propertysector of the C T Holdings Group. He is the Chairman of C T LandDevelopment PLC, Deputy Chairman of C T Properties Limited anda Partner of Varners, a Law firm based in Sri Lanka. He has morethan thirty years’ experience in legal practice and management inSri Lanka, UK and Hong KongMr. A D B TalwatteIndependent Non-Executive DirectorMr. Asite Talwatte is a fellow member of the Institute ofChartered Accountants of Sri Lanka (ICASL) and the CharteredInstitute of Management Accountants of the U.K. He also holds aPost-Graduate Diploma in Business and Financial Administrationawarded by ICASL and the University of Wageningen, Hollandand has a MBA from the University of Sri Jayawardenapura, SriLanka. Mr. Talwatte has also participated In a Kellogg ExecutiveProgramme at the Kellogg Graduate School of Management,Northwestern University, Evanston, Illinois.Mr. Talwatte worked at Ernst & Young in Assurance, BusinessRisk and Advisory Services for 37 years, including 10 years asCountry Managing Partner. He has worked with Ernst & Young inCleveland, Ohio and also served on Ernst & Young’s Far-East AreaExecutive Committee, the Area Advisory Council and the ASEANLeadership Committee.Mr. Talwatte has been closely associated with the developmentof Corporate Governance in Sri Lanka being actively involved withthe Code of Audit Committees in 2002 and the Code of CorporateGovernance of 2003. He co-chaired the Committees to structurethe revised Code of Corporate Governance (of 2008) and theListing Rules and a Committee on Corporate Governance set Upby ICASL jointly with the SEC to review and revise the Code ofCorporate Governance. He currently chairs the Committee toreview the applicability of Integrated Reporting in Sri Lanka andthe Committee reviewing the Corporate Governance Code.Mr. Talwatte has served as a Non-Executive Director on boards oflisted companies, public companies and state owned enterprises.Imtiaz Abdul WahidNon-Executive DirectorMr. M. Imtiaz Abdul Wahid is an Associate Member of theInstitute of Chartered Accountants of Sri Lanka and a FellowMember of the Chartered Institute of Management Accountants(UK). He has been involved in the operations of the subsidiarycompany Cargills (Ceylon) PLC in an executive capacity at differentintervals progressively at higher levels (appointed Director 1997and Deputy Managing Director in 2001) spanning a period of over25 years, leaving the services of the company for employmentabroad on two occasions in between whereby he also gainedvaluable exposure holding a number of senior managementpositions in overseas companies. He was appointed ManagingDirector/ Deputy CEO of Cargills (Ceylon) PLC in May 2010.S C NilesExecutive DirectorMr. Sanjay Niles is an Associate Member of the Institute ofChartered Accountants of Sri Lanka and the Chartered Instituteof Management Accountants, UK. He is also a Director of CT LandDevelopment PLC, Managing Director of Ceylon Theatres (Pvt) Ltdand a Directors other Companies within the CT Holdings Group.Mr. Talwatte was President of the CA Sri Lanka for a 2 year periodin 2002/2003 and the CIMA in 1995/96. He also served as theChairman of the Statutory Accounting standards Committee andthe Auditing standards Committee, the Urgent Issues Task Forceand the Examinations Committee of ICASL. At CIMA he servedas Chairman of the Management and Professional Development(MPD) Committee.C T Holdings PLCAnnual Report 2016/1711

Management Discussion and AnalysisRetail and wholesale distributionThe retail sector consists of the FoodCity and Food City Express formatsand constitutes the largest sector ofoperations for the Group. The operationsare carried out under the subsidiaryCargills Foods Company (Pvt) Ltd (CFC), inwhich the Group has a 92% direct holding.During the year CFC upgraded stores inthree key urban centres. These storesoffer a better customer experience andwider selection to suit the need of themodern customer. The initial response ofcustomers has been very encouraging. Afew more stores are also planned with thesame concept in the ensuing years.The Group’s unique backward integrationmodel developed to connect the primaryproducers direct to the consumers hasmany benefits to the producers andcustomers. It allows for a reduction inhandling, maintenance of freshness andconsequently less damages and wastage.The savings made in this process benefitsboth the customer and the producers.Keeping costs and wastage at a low levelis a key part of the operations of the retailsector. We spare no efforts in this regard.Continuous improvement of the processeslinked to handling and managing ourmerchandise offers great benefits to theoperations of this sector. The Company isin the process of mechanising and upliftingits fresh food processing and distributionfacilities. This will enhance the qualityof fresh produce it offers to the endcustomer taking its competitive advantageto a distinctive level while further reducingthe wastage and handling costs.12C T Holdings PLCAnnual Report 2016/17Wholesale distribution sector distributessome of the most famous importedfood brand in the country. These includeKraft, Toblerone, Bonlac, Cadbury,Nabisco, Tang, Meadowlea, Belle, Alpelleetc. During the year this sector alsoadded Ballantyne and Mc Vitie’s. Theintroduction of more shelf safe productsalso boosted volumes of this sector.Adverse weather conditions andinconsistent government fiscal policieshad some impact on the performanceof this sector during the year. Despitethis, revenue of the retail sector grew by18.46% over the previous year to end atRs. 68.12 Bn. Profits of the sector for theyear amounted to Rs 1.23 Bn which was39.25 % above the previous year.Retail and Wholesale DistributionRevenue (Rs. Bn)807060504030201001314151617Retail and Wholesale DistributionSegmental Profit (Rs. Mn)2,0001,5001,00050001314151617Fast moving consumer goods (FMCG)Dairy constitutes the largest segment ofthe FMCG sector and operates underCargills Quality Dairies (Pvt) Ltd andKotmale Holdings Group. The companiesmanufacture products under both‘Kotmale’ and ‘Magic’ brands. TheCompanies produce a range of dairyproducts spanning liquid milk, flavouredmilk (ready to drink), curd, yoghurt, icecream and cheese. These categories arefurther subdivided into a wider range ofproducts. Yoghurt for instance has setyoghurt, stirred yoghurt and drinkingyoghurt. Stirred Yoghurt with fresh fruitwas introduced during the current yearand widely accepted. Dairy ice creamhas enjoyed significant growth yearon year over the past few years. TheCompany’s signature impulse range ofcones, cups and sticks are ever popularwith consumers. The Companies are thelargest producers of dairy Ice Cream in thecountry.

“Presentlythe Groupoperates 300 supermarketsspread acrossevery district ofthe Island.”Sourcing of raw material locally is animportant feature of this sector as well.The sector has set up chilling centresin key dairy producing areas in orderto collect fresh milk directly from theproducers – most of whom are smallholders with a limited herd. During theyear we set up four new chilling centresin the North Western and North Centralprovinces – a boon to dairy farmers inthose areas. The Company presentlycollects an average of 115,000 litresof fresh milk per day and is the secondlargest private collector in the country.The dairy sector operates two productionfacilities in the Western Province andone in Hatton in the Central Province.The facility in Hatton specialises in themanufacture of a range of cheeses underthe Kotmale brand. The product is wellaccepted in the market resulting in theproduction facility running at close to fullcapacity. The main production facility atBanduragoda has been upgraded in stagesover the past few years.The Meat sector (a subsector underFMCG) includes fresh and processedmeats. Processed meats are producedand marketed under three brands, namely‘Goldi’, ‘Sams’ kids range and ‘Finest’premium range. Fresh meats are primarilysupplied to the Group’s supermarkets.The products are distributed throughmass market channels, direct to Hotels,restaurants and catering establishmentsand through supermarkets. The threebrands are household names with wideacceptance. Despite periodic adversemarket perceptions on the health effectsof processed foods, this sector enjoys asteady growth and has a stable marketpresence.C T Holdings PLCAnnual Report 2016/1713

Management Discussionand Analysis (Contd.)We expect the steady performance tocontinue in the future as well.The Agribusiness sector integrateswell with the business model of theretail sector and the Group as a whole.This sector produces a range of jams,cordials, sauces and nectars underthe ‘Kist’ brand name. This sector alsoproduces condiments such as pickle,vinegar, chutney, sambol, chillie pasteetc. and packs spices for sale throughthe Supermarkets. This sector maintainsmarket leadership in the sauces andnectar categories and is on par withcompetition in the Jams category. Theproducts are manufactured at thefacility located at Katana and a primaryprocess

Annual Report 2016/17 Restaurants The restaurants’ sector includes the world renowned ‘KFC’ and ‘TGIFridays’ franchises with 30 KFC restaurants and one flagship TGIF Restaurant. Banking and Financial Services Capital Market operations of the Group are carried out under C T CLSA Holdings Ltd, which covers stockbroking, advisory services