Greatness AMBEON CAPITAL PLC ANNUAL REPORT 2017/18

Transcription

1 In line with Greatness

2 Contents Introduction to Group History 2 Ambeon Group Vision 2020 and Beyond 3 Ambeon Group of Companies 4 Financial Highlights 8 Chairman s Review 9 Group Managing Director/Chief Executive Officer s Review 12 Board of Directors 16 Introduction to Strategic Business Units 21 Corporate Governance 34 Audit Committee Report 40 Report of the Remuneration Committee 42 Report of the Related Party Transaction Review Committee 43 Annual Report of the Board of Directors on the Affairs of the Company 44 Statement of Directors Responsibilities 46 FINANCIAL INFORMATION Financial Calendar 47 Independent Auditors Report 48 Statement of Profit or Loss 52 Statement of Other Comprehensive Income 53 Statement of Financial Position 54 Statement of Changes in Equity 56 Statement of Cash Flow 59 Notes to the Financial Statements 61 SUPPLEMENTARY INFORMATION Five Year Summary of Profit or Loss 138 Five Year Summary of Financial Position 139 Investor Information 140 Notice of Meeting 142 Form of Proxy 143 Corporate Information IBC

3 1 With the meeting of stellar minds, comes the herculean task of turning plans into reality and we have done so by seeking new frontiers, grasping opportunities and positioning ourselves as a business that is committed to being customer-centric as well as providing our stakeholders with lucrative possibilities that come with a diverse and vibrant portfolio. Some are born into greatness, others earn it, and we are definitely in line with achieving the greatness that has been brought to life by the power of transformation. In line with Greatness OUR PURPOSE To take the leap that transforms latent opportunities into lucrative ventures that deliver sustained value. OUR CORPORATE VALUES Moving First We take the brave steps before anyone else to catalyse opportunities with our financial prowess, market instinct and utmost discipline. Channeling Teamwork The power of our people is what drives transformation, and we harness the collective strength of their diverse minds and competencies to do this. Actioning Results Mind, body and soul we are committed to our investments. We put all our energy into creating the necessary interventions for success. Seeing Beyond There s no room for complacency. We constantly challenge ourselves to look beyond today, in search of the next frontier.

4 2 Introduction to Group History Ambeon Capital PLC (originally established as Taprobane Holdings PLC) was built on the vision of founding a group of companies to create a large fund base that mobilises funds by providing a range of financial services, and in turn investing such funds in government securities, debt securities, equity and real estate markets. Taprobane Holdings PLC was incorporated on the 20th September 2006 as a public limited liability company and re-registered under the Companies Act No.7 of 2007 on the 3rd of August On 17th May 2012, the Company was successfully listed on the Diri Savi Board of the Colombo Stock Exchange. The Company was transformed as Ambeon Capital PLC in 2018 following the restructuring. Commencing operations as an inter-bank money broker, the Company s financial services spectrum broadened over the years to include equity broking, corporate finance and margin trading through its subsidiaries. Ambeon Capital PLC has a long history in bond trading, managed and run by experienced personnel with over 20 years of rich experience and is an active player in the money market. Ambeon Capital is one of the few equity brokerage houses with a track record of profitability supported by a lean structure and efficient operations. Despite the Company s short history in corporate finance, in 2013, it catalogued a landmark transaction as managers of the largest nonbank listed debenture issue in Sri Lanka. While Ambeon Capital s main focus was centred around financial services, its acquisition of Ambeon Holdings PLC (formerly known as Lanka Century Investments PLC) transformed the Company into a diversified conglomerate. While this was but one step in its diversification process, the tie-ups with the Galle Face Group, textile giant Hirdaramani group and Navitas Investments further strengthened the groups portfolio. To streamline work processes and frameworks the Group embarked on an extensive restructuring process across its subsidiaries, which has reaped significant benefits during the year under review. 2006: September: Incorporated Taprobane Holdings Limited 2009: September: Acquisition of Browns Investments Limited 2010: March: Commenced Corporate Finance Activities 2011: January: Commenced Margin Trading Activities 2012: May: Obtained Listing on the Colombo Stock Exchange 2012: November: Disposal of Browns Investments PLC 2012: November: A 29% investment in Lanka Century Investments PLC (Ambeon Holdings PLC) 2013: September: Managed Largest Non-Bank listed debenture issue 2014: March: 2014: August: Acquisition of Capital Trust Partners (Pvt) Ltd and Lanka Century Investments PLC becomes a subsidiary of the Group Further increased stake in Lanka Century Investments PLC from 46.19% to 80.79% 2015: October: Galle Face Group, Hirdaramani Group and Navitas Investments buy into Taprobane Holdings PLC 2017: December: Acquisition of MillenniumIT ESP via Ambeon Holdings PLC 2018: June: Taprobane Holdings PLC transformed into Ambeon Capital PLC

5 3 Ambeon Group Vision 2020 and Beyond In a strategic move to reposition the entity to represent the Group s business vision and take on the dynamic, technocentric business world of tomorrow, the Ambeon Group was propelled forward under the new vision of leadership, to transform the conglomerate into a medium sized future proof sustainable business powerhouse. This transformation which included restructuring of its diversified businesses to bring about collective focus, harnessing synergies, manage internal controls, improve processes, optimise investments and increase shareholder value, is now well poised to take the leap and transform latent opportunities into lucrative ventures that deliver sustained value. This was further built upon on a strong Governance, Risk and Compliance (GRC) framework, centralised Treasury Management, Human Resource Management model and an Information Communication Technology platform, to create, nurture and grow world class companies. The Group Vision 2020 and Group restructuring is based on five futuristic pillars Corporate Strategy Market Space and Placement Ambeon Group Vision 2020 Management Investor Appetite Company Capacities and Capabilities Corporate Strategy: Launching the all new legal structure, corporate positioning, values, goals and the business verticals of the Group. This results in creating a unique positioning for the individual subsidiaries and the Group resulting in facilitating greater value enhancement to all stakeholders. The core is to understand and nurture the purpose of its existence. Market Space and Placement: Identifying and building industries and businesses including the active and passive investments of the Group. This includes building business strategies for the individual subsidiaries and the Group s customer value proposition for the year 2020 and beyond. Management: To build agile and robust management structures supported by clearly defined policies, processes and procedures coupled with a strong GRC framework to ensure governance, risks and compliances are properly addressed. Company Capacities and Capabilities: Building capacities and capabilities encapsulating people, processes, systems and related resources while identifying and filling gaps through quality skilled acquisitions and upgrades. In addition to this the core ideologies of each business segment to be identified and nurtured as a part of this process. Investor Appetite: In addition to satisfying expectations and desires by creating sustainable value, Optimise the resource usage and returns, whilst ensuring stability based on prudent riskreward balancing.

6 4 Ambeon Group of Companies As at 31st March 2018 Ambeon Capital PLC 72% 100% Lexinton Holdings (Pvt) Ltd Lexinton Resorts (Pvt) Ltd 100% Lexinton Financial Services (Pvt) Ltd 99.93% 99.99% 100% 93.15% Ceylon Leather Products PLC Palla & Company (Pvt) Ltd Taprobane Capital Plus (Pvt) Ltd Olancom (Pvt) Ltd 28% 100% 100% 100% 100% Ceylon Leather Products Distributors (Pvt) Ltd Taprobane Securities (Pvt) Ltd Taprobane Wealth Plus (Pvt) Ltd Taprobane Investments (Pvt) Ltd Dankotuwa Porcelain PLC Ceylon Leather Products PLC

7 % 100% Ambeon Holdings PLC Heron Agro Products (Pvt) Ltd 97.67% 66.40% 77.51% 100% 100% South Asia Textiles Ltd Colombo City Holdings PLC Dankotuwa Porcelain PLC Eon Tec (Pvt) Ltd Millennium Information Technologies (Pvt) Ltd * 95.69% Royal Fernwood Porcelain Ltd 100% D. P. L. Trading (Pvt) Ltd * herein referred to as MillenniumIT ESP 100% 100% Fernwood Lanka (Pvt) Ltd Lanka Decals (Pvt) Ltd Royal Fernwood Porcelain Limited South Asia Textiles Limited

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9 7 Land in Kosgoda

10 8 Financial Highlights group 2017/ /17 Statement of Financial Position Cash 1,999,187, ,416,259 Other Financial Assets 2,409,055,751 1,746,969,988 Trade & Other Receivables 4,009,655,688 1,801,538,636 Total Current Assets 12,192,426,974 7,749,067,542 Total Long-Term Assets 8,356,869,490 6,187,757,783 Total Current Liabilities 11,445,133,207 6,937,187,032 Total Long-Term Liabilities 2,625,485,822 1,414,582,945 Total Shareholders' Equity 6,478,677,434 5,585,055,348 Statement of Profit or Loss Revenue 12,588,656,155 10,967,821,495 Gross Profit 2,500,905,084 1,855,050,630 EBITDA 1,468,567,982 1,155,010,355 Profit Before Income Tax from Continuing Operations 286,330, ,101,357 Profit/(Loss) for the Year from Continuing Operations 372,426,710 (23,067,820) Key Ratios Profitability Ratios Return on Equity 6% -0.41% Return on Assets 2% -0.17% Return on Sales 3% -0.21% Gross Profit Margin 20% 17% Asset Turnover Ratio 61% 79% EPS 0.15 (0.05) DPS - - Leverage and Liquidity Ratios Current Ratio Quick or Acid Test Ratio Long-Term Debt Ratio Debt to Equity Ratio NAV Market Price Per Share BN Total Assets 12.6BN Revenue 6.5BN Shareholder Equity

11 9 Chairman s Review Deposit interest rates of commercial banks continued to increase during 2017, although some moderation was observed towards the end of the year. Following the downward movements in short term interest rates, particularly yields on short term government securities, both AWDR and AWFDR gradually moved downwards since October 2017 and reached 9.07% and 11.48%, respectively, by end This was still higher than the interest rates recorded at the end of The lending rates also witnessed a similar trajectory with Average Weighted Lending Rates (AWLR) rising by 68 basis points from 13.2% in 2016 to 13.88% in 2017, contributing to a subdued domestic investment climate. The rupee recorded an overall depreciation of 2.0% against the US dollar during the year, from Rs at end-2016 to Rs at end In addition, the annual average exchange rate depreciated by 4.7% to Rs against the US dollar in Reflecting movements in cross-currency exchange rates against the US dollar in international markets, the rupee depreciated markedly against all other major currencies in 2017, in comparison to the previous year. It is with great pleasure that I present to you the annual report for the year 2017/2018. This has been a year of progress, with the Group aligning all business verticals and completing the restructuring process to enhance value generation to its stakeholders. Macroeconomic Environment The Sri Lankan economy expanded by 3.1% in 2017, dropping from 4.5% recorded in The growth in the Agriculture sector contracted for the second consecutive year by 0.8% as a result of adverse weather conditions that led to lower agricultural yields. The industrials sector also witnessed a slowdown driven by reduced economic activity in construction, mining and quarrying activities. Services sector growth declined from 4.7% recorded in 2016 to 3.2% in However, the Central Bank of Sri Lanka expects GDP growth to rebound in 2018 towards 4% led by a recovery in agriculture and industrial sectors. Export performance, which was adversely affected during the past two years, rebounded strongly in 2017, recording the historically highest value from export earnings. The strong growth in export earnings was underpinned by the restoration of the EU-GSP+ facility, recovery in external demand, expansion in investment in export related industries and increased commodity prices in the international market. Earnings from exports increased by 10.2% to US$ 11,360 Mn in 2017, from US$ 10,310 Mn in Earnings from industrial exports, which accounted for about three fourths of total exports, increased by 7.6% to US dollars

12 10 Chairman s Review Ambeon Capital s vision 2020 is now well underway across our diversified subsidiaries to effect deep rooted and extensive transformations across business models, business processes and organisation cultures. The ultimate objective is to create a nimbler, tighter and customer focused organisation and I am pleased to state that the Group is moving towards the right direction, making impressive progress to achieve sustained longterm wealth creation for the stakeholders. 8,542 Mn in Surpassing the US dollars 5 Bn mark for the first time in history, export earnings from textiles and garments, which account for about 44% of total exports, largely contributed to the increase in industrial exports. Export earnings from leather, travel goods and footwear declined by 4.4% to US dollars 158 Mn in 2017 due to low footwear exports. Also, export earnings from ceramic products declined due to decreases recorded in tiles, tableware, household items and sanitaryware. Restructuring and Business Environment During the year, the Group repositioned and rebranded itself as Ambeon to reflect the identity stemming from its core ideologies and values. This was an end to end transformation that goes beyond a name change reflecting our ambitions to build a sustainable business that would be a catalyst in the segments that it has chosen to be in. Ambeon Capital s vision 2020 is now well underway across our diversified subsidiaries to effect deep rooted and extensive transformations across business models, business processes and organisation cultures. The ultimate objective is to create a nimbler, tighter and customer focused organisation and I am pleased to state that the Group is moving towards the right direction, making impressive progress to achieve sustained long-term wealth creation for the stakeholders. The competitive environment as a conglomerate is multifaceted and the Group s aim is to diversify the risk by investing in several business sectors which invariably opens new vistas of growth for the entire Group. In a bid to build value to shareholders, the Group undertook a deep restructuring exercise during last year which continued at subsidiary level. This resulted in more focused and aligned business verticals along with agile and focused business structures. As part of this restructuring the Company divested its financial services business to the subsidiary Ambeon Holdings PLC and used the funds to retire its debts. Further, South Asia Textiles Limited, which was previously a subsidiary of Ceylon Leather Products, was acquired by Ambeon Holdings, thus making it a direct subsidiary. As a pioneer in Sri Lanka s textile industry, catering to the needs of global giants such as Victoria Secret, Next, Marks & Spencer, etc, South Asia Textiles, continued its positive momentum as it closed the year with 12% growth in turnover and a substantial 125% profit after tax year on year. During 2017/18, all our consumer brands were transformed to be relevant to the current consumer. Both the porcelain manufacturers comprising of Dankotuwa Porcelain and Royal Fernwood have made tremendous progress in both the international and local markets through a robust export and domestic expansions strategy. DI, the consumer brand of Ceylon Leather Products was revamped to add a sense of modernity to the brand and the entire product offering was augmented. DI Leather also expanded its landscape in Sri Lanka through the opening of showrooms both in Colombo and suburbs. A detailed analysis of the subsidiaries performance is covered by the Group Managing Director/Chief Executive Officer s Review on pages 12 to 15. Key Developments 2017 / 2018 It is significant to note the acquisition of one of Sri Lanka s leading information systems solutions provider Millennium Information Technologies (Pvt) Ltd. (MillenniumIT

13 11 ESP), through our main subsidiary Ambeon Holdings PLC, thus consolidating our diversification strategy further by gaining a firm foothold in the information technology industry. Financial Performance The total assets of Ambeon Capital PLC improved from Rs. 14 Bn to Rs Bn as a result of the acquisition of MillenniumIT ESP, the capital appreciation of group properties and fair value gains of investment properties. The group posted a profit after tax (PAT) of Rs Mn during the year under review as against a profit of Rs Mn during the corresponding period of prior year. This was a significant improvement in its results during a rising interest rates environment. The company performance too was significant in that it recorded a net profit of Rs Mn as against a loss of Rs Mn in the prior year. Into the Future The Ambeon Group is now poised to continue its new journey with the groundwork rapidly being in place to support enhanced value creation and financial returns for our valuable shareholders and stakeholders. With this in mind, our strategic growth strategy has been mapped out in detail with key strategic acquisitions and business reorientations, restructuring and rebranding to support the future vision of the Group. Ambeon Holdings PLC, the Holding company of our diversified subsidiaries, is focused on building a sustainable business cluster to ensure efficiencies are improved through revamped process re-engineering and realignment in keeping pace with today s trends. The financial arm of the businesses has been realigned under Ambeon Holding and allocated the role of the Groups financial hub to leverage on the wealth of experience and expertise to orient decision making in fund management, financing the needs of the Group and treasury management. In the long term, we aim to transform our financial services together with our technological arm into fin-tech companies to create innovative new financial solutions. We will also enhance revenue through strategic partnerships, seeking new markets and developing new businesses in the fintech industry. All growth strategies have been and will continue to be, constructed within a strong compliance and governance framework, which will always be reviewed and enhanced for protection of all shareholder assets in order to ensure reputational integrity of our businesses. We have attained great strides in strengthening our corporate governance framework, which has contributed towards a stronger business that is better equipped to manage the multiplicity of risks faced by our diversified businesses. Appreciations We wish to thank the shareholders for the trust and confidence placed in the organization, the respective Chief Executive Officers, management and all staff for their relentless efforts. I would also like to extend my thanks to our valued clients, partners and all other stakeholders for the continued support extended to us. Let me also place on record my appreciation to the Board of Directors for their support in directing and managing the affairs of the Company. Sgd. Sanjeev Gardiner Chairman 30 July 2018

14 12 Group Managing Director/Chief Executive Officer s Review It is with great pleasure that I review the performance of Ambeon Capital PLC and its subsidiaries for the year 2017/2018. As the parent of the Group, Ambeon Capital PLC takes on the strategic role of being the holding company of the business, setting the vision, direction and the business framework for all subsidiaries and respective businesses of the Group. The main objective of the Group for the said year was the continued deployment of the Vision 2020 and corporate transformation across the Group. This included the finalisation and implementation of Group, restructured legally and structurally based on a business focus point of view. The strategic restructuring of the Group was crucial to facilitate long term sustainability of all the Group s business operations through the inculcation of new governance and risk management frameworks to ensure effective internal controls, reporting structures, oversight mechanisms to drive internal culture changes that will support innovative thinking and progressive attitudes. Restructuring was Based on Five Main Pillars As articulated in the previous year, the Group Vision 2020 and Group restructuring was based on five pillars. This resulted in a streamlined entity-based realignment of subsidiary businesses grouped under the main subsidiary Ambeon Holdings PLC. The legal restructuring which was the first of the pillars also included the delisting of Ceylon Leather Products and the realignment of South Asia Textiles to better reflect the future requirement. The Group was repositioned as Ambeon which goes beyond a mere change of name into a fully-fledged repositioning where the core ideologies and values were revisited and repositioned. Ambeon today is ready to take the leap that transforms latent opportunities into lucrative ventures that delivers sustained value. It is the reason for the Group s existence. That s the purpose. Ambeon today believes in moving first, channeling teamwork, seeing beyond and actioning results, four values that is imbibed in all employees across the various businesses making it an entity that takes pride in its core competency of re-engineering success. The management structure was realigned under Ambeon Holdings PLC along with a complete overhaul thereby morphing Ambeon Capital to be the primary holding entity. Market Place and Placement along with capacity and capability building are two broad focused areas and key strategic pillars for Ambeon Holdings to work on, as the management entity in reshaping the consumer and financial markets in a bid to experience exponential growth. This has resulted in many rebranding, channel expansion and collaborative

15 13 The Group was repositioned as Ambeon which goes beyond a mere change of name into a fully-fledged repositioning where the core ideologies and values were revisited and repositioned. Ambeon today is ready to take the leap that transforms latent opportunities into lucrative ventures that delivers sustained value. It is the reason for the Group s existence. integrations across the Group to deliver superior value to tomorrow s techno centric consumers. Capacity and capability building goes in tandem and we have taken a focused and informed decision in building skill gaps, investing and building capacities for the future. Governance, Risk and Compliance is another key area the Group is seriously focusing on and therefore a dedicated software has been purchased/obtained to enable the monitoring and mapping of such parameters as improvements into the various sectors. The core area of focus in the new financial year would be to consolidate resources for greater efficiencies. In the area of governance, we must inform our valued shareholders as intimated by the Colombo Stock Exchange, Ambeon Capital PLC was brought under the watch list by the regulator along with many such organisations, due to a lower than required 10% public float in the market. The core reason for the restructure was to ensure that we facilitate greater liquidity by bringing forth enhanced value. We wish to assure you that this process is now set in full motion, which would result in increased stakeholder value, facilitating greater liquidity and be compliant on the minimum shareholding requirement over the next year and a half. Ambeon Capital PLC s contribution to the Group during the year The result of the restructuring is aimed at satisfying our stakeholders. We envision a future oriented, lean, robust and dynamic entity, geared towards a sustainable business model amongst other medium sized conglomerates. While the transformation is still underway, I am pleased to say that we have already witnessed an improvement in our results as the Group s performance returned to profitability in the previous financial year, compared to a significant loss in the 2015/16 financial year and this profit orientation has continued in the current financial year under review. The Group posted an impressive financial result during 2017/2018. The Group s Profit before Tax (PBT) from continuing operations of Rs Mn, which was almost thrice its 2016/2017 PBT of Rs.102 Mn. Even more noteworthy is the Group s Profit after Tax (PAT) was Rs Mn, compared to a loss of Rs Mn only a year prior. The total comprehensive income for the Group for 2017/2018 was Rs Mn, which was more than four times that of the year before, wherein earned income was Rs Mn. Group revenue grew by 14.7% over the prior year, while gross profit had a healthier growth of 34.8% contributed by the new acquisition of MillenniumIT ESP, together with the improved performance of South Asia Textiles Limited. The Company itself posted a growth of 67.4% on gross profit due to the capital gains in investments. The Company had a gain of Rs Mn owing to the disposal of financial services to Ambeon Holdings as part of the restructuring process, though at Group level, this got eliminated at consolidation. However, the entity still reports a Profit before Tax (PBT) from continuing operations of Rs Mn, compared to a loss last year. The financial services segment which was directly under Ambeon Capital PLC during the said reporting year posted a performance improvement from a loss of Rs Mn to a profit of Rs Mn. Money broking activity was sluggish in the early part, but recovered during the latter part of the year, aided by CBSL s more consistent policies and transparency which aided positive investor sentiment. Equity remained subdued with higher foreign

16 14 Group Managing Director/Chief Executive Officer s Review MillenniumIT ESP, as the Company is known, has been a reputed name and regarded as the best is the business of systems integration with a diverse and reputed portfolio of customers and business partners. The company has done very well since the acquisition with posting excellent results during the final quarter. The group intends expanding this business to be double over the next three years thereby not only adding shareholder value in the process but making the Group more future proof through understanding and deploying etch enabled business solutions across. participation although retail participation was sluggish in spite of attractive equity valuations. Nevertheless, the stock broking segment performance improved buoyed by other income. Most of the profitability ratios turned positive as against prior years both at Company level and Group level. Return on Equity (ROE) stood at 0.06 times against the negative in the prior year while the Gross Profit Margin was at 20% at Group level from 17% in the previous year. The current ratio stood at 1.07 times thereby being resilient to ensure the liquidity. The Quick Asset Ratio improved to 0.74 time. On the negative, the interest coverage ratio dropped to 0.74 times from 0.87 times at Group level mainly due to a subsidiary level acquisition while the same ratio at Company level stood at 0.58 times. At Company level, the leverage ratio was at 2.58 times, which was less than 3.02 times recorded in the previous year, while at Group level it increased from 2.5 to 3.17 times due to the acquisition. Net Asset Value improved at both Company and Group level and is Rs Bn and Rs Bn respectively. At Group level, Total Assets increased to Rs Bn from the prior year of Rs Bn, primarily due to acquisitions and revaluations of properties. The Company continued its improvements during the prior year and remains solvent and able to meet its commitments on an ongoing basis post balance sheet. What s new The Group through its subsidiary Ambeon Holdings PLC, acquired MillenniumIT ESP in December 2017 and entered the technology business. The changing dynamics of the consumers together with the emerging landscape of disruptive market places aided by technology centred changes, is completely revamping the speed with which change is taking place. The need for companies, is not only to be alive to these changes but to embrace it well in time and be a catalyst in transforming would be the order or the need of future. We at Ambeon through this acquisition, expect to build our existing businesses to be more resilient and future centric, while propelling the technology business itself to the next level with expansion in the region. MillenniumIT ESP, as the Company is known, has been a reputed name and is regarded as the best in the business of systems integration with a diverse and reputed portfolio of customers and business partners. The Company has done very well since the acquisition, posting excellent results during the final quarter. The Group intends expanding this business to double over the next three years, thereby not only adding shareholder value in the process but making the Group more future proof through understanding and deploying tech enabled business solutions. General Business Climate In the year under review the increasing interest rates affected financial services such as stock broking due to increased funding costs, and discouraged investments due to higher costs of funding. Higher forex rates had an impact on the raw material imports in the manufacturing sector. The changes to the tax regime also impacted profitability and overall business sentiments. While the manufacturing segment is also vulnerable to the economic vagaries, the sector is also faced with risks related to labour shortages. However, we believe that better risk management and the human resource activities deployed would help to mitigate these risks. Our transformation would position us ideally to leverage opportunities that the market presents. Fiscal reforms and improved foreign reserves are expected to have a positive impact on economic vagaries

17 15 supporting better performance for the financial services arm. The reinstatement of the GSP+ facility and the strengthening of the bilateral relations and possible entry opportunities, will have a positive impact on the textiles and porcelain segments. Additionally, we hope to achieve greater efficiencies at our manufacturing facilities by leveraging technological advancements to bring about greater cost efficiencies and shorter lead times. Enhanced liberalisation of forex investments opens a window of opportunities to develop trading hubs and other collaborations overseas and opportunities presented by the real estate and related sectors open avenues for future investments through our Groups subsidiaries. The Future The ongoing business restructuring and transformation re-enforces our business strategy to be more future centric, enabling a faster growth rate. We have an extremely optimistic outlook for the future of our Group. On the compliance and governance front, the Company will continue to be the catalyst in driving up to date requirements throughout the Group. Thus, to be fully compliant. continue to search for investments and expansions at the proper time, to further enhance overall standing, which includes restructuring or realigning structures and strategies as required. In conclusion, I would like to extend my gratitude to the Chairman and the Board of Directors of Ambeon Capital PLC for their guidance, support and continuous trust placed in me. A special note of thank you to the respective Boards of all subsidiaries, Chief Executive Officers, Management and Staff across all businesses for their cooperation and commitment in driving the Vision 2020 strategy, to our stakeholders and customers for their confidence, to banks and financial institutions, suppliers, business partners and other service providers and our shareholders for their continued trust in us, as we continue our mission of re-engineering success across all our businesses. Sgd. Murali Prakash Group Managing Director/ Chief Executive Officer 30 July 2018 Apart from these core focus areas, as a holding entity, Ambeon Capital will also drive its investments at Ambeon Holdings to accelerate growth both locally and the region. It is also in the process of evaluating and initiating action on its asset portfolio of land and buildings in a bid to bring about better returns. This process also relates to another focus area over the next couple of years, which is to reduce the borrowings and make the Company lighter and more profitable. Both utilisation of assets and improved performance expected from subsidiaries, is sure to bring about this change, transforming Ambeon Capital into a very lucrative Holdings Company. In addition to this, Ambeon Capital will

18 16 Board of Directors Mr. Sanjeev Gardiner Chairman/Non Independent Non-Executive Director Mr. Ajith Devasurendra Deputy Chairman/Non Independent Non-Executive Director Mr. Harsha Amarasekera P.C. Non-Independent Non-Executive Director Mr. Ranil Pathirana Non-Independent Non-Executive Director

19 17 Mr. Murali Prakash Group Managing Director/Chief Executive Officer Mr. Priyantha Fernando Independent Non-Executive Director Mr. Sarinda Unamboowe Independent Non-Executive Director Desamanya Deva Rodrigo Independent Non-Executive Director

20 18 Board of directors Mr. Sanjeev Gardiner Chairman/Non Independent Non-Executive Director Mr. Sanjeev Gardiner counts over 28 years of Management experience in a diverse array of businesses and is the Group Chairman and Chief Executive Officer of The Galle Face Hotel Group, which includes Ceylon Hotels Corporation PLC, of which he is the majority shareholder and principal owner and Kandy Hotels Co.(1938) PLC of which he is the Owner / Chairman. He is also a Director of many public quoted and unquoted companies including Cargills (Ceylon) PLC. Mr. Gardiner holds a Bachelor of Business Degree (Economics and Finance) from the Royal Melbourne Institute of Technology and a Bachelor of Business Degree (Banking & Finance) from Monash University, Australia. Mr. Sanjeev Gardiner has been a Council Member of the Governing Body of HelpAge Sri Lanka (HASL) for over a decade. He is the Trustee of Sir Chittampalam A Gardiner Trust which amongst other donations helps several schools around the country with endowments. He is a life member of many prestigious charitable organisations where millions have been donated in the name of the Sanjeev Gardiner Foundation. Mr. Gardiner was appointed as the Brand Ambassador for the prevention of Chronic Kidney Disease in Sri Lanka by His Excellency the President of Sri Lanka. Mr. Ajith Devasurendra Deputy Chairman/Non Independent Non- Executive Director Mr. Ajith Devasurendra is a veteran in the financial services industry in Sri Lanka and counts more than 34 years work experience both in Sri Lanka and overseas. As one of the pioneers in money markets, he was able to bring new dimensions to the local money market industry. He acted as a consultant to Price Water House Coopers, Bombay, India on an USAID project. He was appointed to the Board on 20 September 2006 as a Non Independent Non-Executive Director. Mr. Devasurendra is the Chairman of South Asia Textile Industries Lanka (Private) Limited, Deputy Chairman of Dankotuwa Porcelain PLC, and Director of Ceylon Hotels Corporation PLC. Mr. Murali Prakash Group Managing Director/Chief Executive Officer Mr. Murali Prakash is currently the Group Managing Director / Chief Executive Officer of Ambeon Capital PLC and Ambeon Holdings PLC. Ambeon Capital PLC is the Investment company and the parent of Ambeon Holdings PLC, the Investment Holding and Management Company of Ceylon Leather Products PLC., Colombo City Holdings PLC., Dankotuwa Porcelain PLC., Millennium Information Technologies (Pvt) Ltd., Royal Fernwood Porcelain Limited, South Asia Textiles Limited and Taprobane Capital Plus (Pvt) Ltd. Mr. Prakash serves as a Director on respective boards of all these private and public quoted subsidiaries within the Group. He also serves as a Non-Executive Director of LAUGFS Holdings Limited, LAUGFS Gas PLC., and several other subsidiaries of the LAUGFS Group. With over 35 years of experience holding key management positions in the areas of general management, strategic restructuring, investments/credit management, manufacturing, marketing / sales and business consultancy, some of his previous roles include serving as the Group Managing Director/Chief Executive Officer of Browns Group of Companies, a public quoted conglomerate involved in trading, manufacturing, finance, leisure, plantations, healthcare and strategic investments, the Chairman of Galoya Holdings (Private) Limited and the Sales Director of Singer (Sri Lanka) PLC. He has also served on the Boards of Singer (Sri Lanka) PLC., Singer Finance (Lanka) PLC., and Singer Industries (Ceylon) PLC. Mr. Prakash holds an MBA from University of Southern Queensland and is also a Certified Professional Marketer (Asia Pacific) and a Certified Management Accountant (Aus.). He also holds an Executive Diploma in Business Administration from the University of Colombo and is an Alumnus of the National University of Singapore and the Asian Institute of Management, Manila. He is also a Fellow Member of the Chartered Management Institute (London) and Certified Professional Managers, Sri Lanka. Mr. Priyantha Fernando Independent Non-Executive Director Mr. Priyantha Fernando holds a B.Sc degree from the University of Peradeniya and a M.Sc degree in Statistics from the University of Birmingham, England. He has over 40 years of experience in the banking and finance sectors, as a regulator and Independent Non-Executive Director. He was appointed to the Board on 27 December 2011 as an Independent Non- Executive Director. He was attached to the Central Bank of Sri Lanka serving in senior and diverse capacities. He was the Deputy Governor of the Central Bank of Sri Lanka, from January 2010 to September 2011 in charge of the Financial System Stability and the Corporate Services clusters. Mr. Fernando has extensive experience and expertise in the fields of Banking and Financial Sector regulation, Information Technology, National Accounting and Statistics, Fund Management, Risk Management, Restructuring, and stabilisation of financial distressed companies. At the Central Bank he was the Chairman of the Financial Stability Committee, Member of the

21 19 Monetary Policy Committee, Member of the Risk Management Committee and the Chairman of the National Payment Council. He was an Ex-Officio Board Member in several regulatory organisations namely Securities and Exchange Commission of Sri Lanka, the Insurance Board of Sri Lanka, the Chairman of the Credit Information Bureau of Sri Lanka, Chairman of Institute of Bankers Sri Lanka and Board Member at Employer s Trust Fund, LankaClear (Pvt) Ltd and Lanka Financial Services Bureau. During his career he has initiated and spearheaded several key projects of national importance, especially in the area of the advancement of the national payments and settlement system, infrastructure. Mr. Fernando has served in a number of committees at national level covering a range of subjects representing the Central Bank. Presently, Mr. Fernando holds the positions of Chairman Commercial Leasing and Finance PLC, Deputy Chairman of Union Bank PLC and a Non-Executive Independent Director at Ceylon Leather Products PLC, Taprobane Holdings PLC (now Ambeon Capital PLC), Thomas Cook Travels Sri Lanka (Private) Limited and Imperial Institute of Higher Education. Mr. Harsha Amarasekera P.C. Non-Independent Non-Executive Director Mr. Amarasekera, President Counsel is a leading Lawyer in Sri Lanka having a wide practice in the Original Courts as well as in the Appellate Courts, specialising in Commercial Law, Business Law, Securities Law, Banking Law and Intellectual Property Law. He also serves as an Independent Director in several leading listed companies in the Colombo Stock Exchange including CIC Holdings PLC (Chairman), Vallibel One PLC, Expo Lanka Holdings PLC, Royal Ceramics Lanka PLC, Chevron Lubricants Lanka PLC, Amana Bank PLC, Amaya Leisure PLC, and Vallibel Power Erathna PLC. He is also the Chairman of CIC Agri Business (Private) Limited. Mr. Ranil Pathirana Non-Independent Non-Executive Director Mr. Pathirana was appointed to the Board of Ambeon Capital PLC on 26 October He is a Director of Hirdaramani Apparel Holdings (Private) Limited, Hirdaramani Leisure Holdings (Private) Limited and Hirdaramani Investment Holdings (Private) Limited which are the holding companies of the Hirdaramani Group. He is also the Managing Director for Hirdaramani International Exports (Pvt) Limited, a Director of Star Packaging (Private) Limited and Windforce (Private) Limited. Mr. Pathirana is a Non-Executive Director of Sampath Bank PLC, Ceylon Hotels Corporation PLC, BPPL Holdings PLC, ODEL PLC & Alumex PLC. He is a Fellow Member of the Chartered Institute of Management Accountants, UK and holds a Bachelor of Commerce Degree from the University of Sri Jayewardenepura. Mr. Sarinda Unamboowe Independent Non-Executive Director A Director of MAS Apparel Board, Sarinda is currently the CEO & Managing Director of MAS Kreeda, the Nike division of MAS Holdings, and heads Environmental Sustainability for the Group. Having joined MAS in 2001 as the CEO of Linea Aqua, he is also a member of MAS Innovations Leadership Team and serves on the Board of Biodiversity Sri Lanka. An alumnus of Ithaca College, New York, Sarinda received his Executive education at the INSEAD School of Business, Cornell University and Tuck School of Business at Dartmouth. He is also a recipient of the Humanitarian Alumni Award 2016 conferred by his alma mater - Ithaca College for his humanitarian efforts and is a Trustee of two separate charities namely - The Colours of Courage Trust and The Wheels for Wheels Foundation. Desamanya Deva Rodrigo Independent Non-Executive Director Desamanya Deva Rodrigo, a Fellow Member of the Institute of Chartered Accountants of Sri Lanka, is the former Territory Senior Partner of Price Water House Coopers, Sri Lanka and Maldives, and a past Chairman of the Ceylon Chamber of Commerce. He was appointed to the Board on 26 October 2015 as an Independent Non-Executive Director. He is also an Independent Director of Chevron Lubricants Lanka PLC, Non Executive Director of Cargills Ceylon PLC and has held public sector appointments as a member of the Monetary Board of the Central Bank of Sri Lanka, the Administrative Reforms Committee, National Council for Administration, Presidential Commission on Trade and Tariffs, Telecom Regulatory Commission and several others.

22 20 Building on gothami Road, Colombo 8

23 21 Introduction to Strategic Business Units Ambeon Holdings PLC The strategic subsidiaries of Ambeon Capital PLC are aligned under the holding company - Ambeon Holdings PLC, which was formerly known as Lanka Century Investments PLC (LCI). As an Investment Holding and Management company, Ambeon Holdings PLC has evolved through its many acquisitions and has a presence in diverse segments catering to local and international markets. The strategic subsidiaries of Ambeon Capital PLC are aligned under the holding company - Ambeon Holdings PLC, which was formerly known as Lanka Century Investments PLC (LCI). As an Investment Holding and Management Company, Ambeon Holdings PLC has evolved through its many acquisitions and has a presence in diverse segments catering to local and international markets. The subsidiaries of Ambeon Holdings PLC includes Taprobane Capital Plus (Pvt) Ltd (a leading financial services provider with a wealth of experience in capital markets in Sri Lanka), South Asia Textiles Limited, (a leading manufacturer of exceptional quality weft knitted fabric. The Company also specialises in knitting, dyeing, finishing, printing, brushing, sueding and preshrunk fabric for leading global brands such as Victoria Secret, Next, Marks & Spencer, Tesco, Calvin Klein, Decathlon and Adidas), Dankotuwa Porcelain PLC and Royal Fernwood Porcelain Ltd., (manufacturers of porcelain tableware and gift items for global giants such as Oneida, Macy s, Country Road, Lenox, John Lewis, Crate & Barrel, Megros, Jashanmal, Ralph Lauren, the Walt Disney Company and Dilmah), Ceylon Leather Products Limited (manufacturer of leather footwear and accessories), Millennium Information Technologies (Pvt) Ltd (Sri Lanka s leading information systems solutions providers delivering IT solutions for many industries; including banks and finance, telecommunications, apparel and leading conglomerates) and Colombo City Holdings PLC (real estate).

24 22 Introduction to Strategic Business Units Financial services Sector Post restructuring in February 2018 subsidiaries and activities relating to financial services of the Group have been brought under a newly formed entity Taprobane Capital Plus (Pvt) Ltd (previously under Taprobane Holdings PLC). The financial services of the Group comprise investments, stock broking and money broking. The investment team has a wealth of experience and expertise to orient decision making in fund management, government securities, equity and corporate finance. The team of brokers with more than 20 years of experience gives the Company an in-depth understanding of the market and the ability to assess future trends, while providing a commendable and satisfactory services to clients. Textile Manufacturing Sector South Asia Textiles Ltd is a leading manufacturer of exceptional quality weft knitted fabric, catering to leading Sri Lankan apparel companies that manufacture clothing for high street brands in the US, UK and Europe. The company also specialises in knitting, dyeing, finishing, printing, brushing, sueding and preshrunk fabric for leading global brands such as Victoria Secret, Next, Marks & Spencer, Tesco, Calvin Klein, Decathlon and Adidas. South Asia Textiles Ltd has many buyer accreditations for quality and for its testing laboratory. The Company also adheres to a gamut of environmental, health and safety audits and testing standards to meet local and global compliance requirements. Porcelain Manufacturing Sector The porcelain subsidiaries together hold major share of the porcelain sector in Sri Lanka. Dominating the industry for over 3 decades the Group has a rich heritage of craftsmanship and a total combined production capacity of over 12.6 Mn pieces annually. The Dankotuwa brand is strongly associated with that of quality and innovative designs and is one with a premium offering known worldwide for its remarkable whiteness that radiates a sense of pristine beauty, while Royal Fernwood is a subsidiary of Dankotwa Porcelain that is renowned for quality color, decorated porcelain tableware and figurine ornaments and is positioned as a youthful, modern millennial brand catering to the new generation.

25 23 Footwear Manufacturing Sector The footwear and accessories company, Ceylon Leather Products, owns the ever popular DI brand which has a long tradition in rugged footwear for the armed forces in Sri Lanka. Following the re-launch of the brand, DI expanded its retail footprint across Colombo and the Suburbs. The remodeled outlets, while echoing the vibrant brand identity, opened doors to a refreshing range of products in the forms of ladies and gents footwear, children s shoes, a variety of accessories and gift items capturing the latest trends and styles in fashion. Amidst these new offerings, the brand would continue to enhance its core offering of leather-based products known for its quality and durability for decades, thus retaining its core segmental offering. Real-estate Sector The real-estate arm, Colombo City Holdings PLC, is in the process of exploring ways to maximise utilisation and optimise the returns on its assets. Options such as repositioning the Company into being a niche property developer, real estate opportunities in general and other related opportunities are being explored. Technology Sector MillenniumIT ESP is one of the leading system integrators in Sri Lanka offering a wide range of IT integrated products, services and solutions to many industries including banks and finance, telecommunications, apparel and leading conglomerates. This strategic acquisition is expected to contribute positively towards overall growth of the Group in the years to come.

26 24 Introduction to Strategic Business Units Financial Services Sector Taprobane Capital Plus (Pvt) Ltd Macroeconomic Views The Sri Lankan economy decelerated 3.1% in real GDP terms from a growth of 4.5% in 2016 as many key sectors came under pressure. Inflation rose slightly more than the usual mid-single digit level, ending the year above amid weather-related domestic supply disruptions, revisions to indirect taxes and increased prices of imported commodities. In line with tight monetary conditions and an outflow of funds from government securities, market interest rates and secondary market yields spiralled upwards in the first half of the year. Towards the latter part of the year, weak liquidity was mitigated by the sale of sovereign bonds, syndicated loans and purchases by the monetary authority in the foreign exchange. Overall foreign investments in Government Securities and SLDBs amounted to net inflow of USD 413 Mn in 2017 while foreign investments in the CSE (secondary market) recorded a net inflow of USD 279 Mn up to December The gross official reserve position improved, reaching a healthy level of US dollars 8.0 Bn by end On this backdrop, we witnessed an easing of secondary market yields reflecting increased investor confidence with improving overall macroeconomic stability. The All Share Price Index (ASPI) of the Colombo Stock Exchange closed the year 2017 on a positive note in comparison to its weakening standing the previous year. The average daily turnover also improved, averaging at Mn. Despite the positives and the encouraging foreign participation during the year, local investor interest in the stock market continued to remain bearish in Financial Performance The financial services sector comprises of strategic investments and financial services. While investments trickle down to a more diverse tier of bond investments and strategic investments, the financial services aspect comprise key revenue generating businesses which are money broking and stock broking, among others. During the year under review the revenue demonstrated a remarkable improvement from Rs Mn to Rs Mn in 2018 buoyed by capital gains from investments which had shown a favourable improvement with revenue doubling

27 25 to Rs. 320 Mn. The money and stock brokerage arms recorded a collective revenue of Rs Mn, this indicated a marginal increase from the previous year s Rs Mn for the brokerage businesses. While the markets seem to perform in bouts throughout the year, mainly due to external pressures the money broking activity picked up by the latter part of the year, aided by CBSL s more consistent policies and transparency. These directives taken by the CBSL was able to boost investor confidence which resulted in an inflow of revenue. Equity remained subdued with foreign participation higher, while retail participation was sluggish. Although equity valuations were attractive the sector remained subdued. High financing costs remains a challenge as the fall in market borrowing rates was not as steep as the decline in the secondary market yields during the year. While the Company was in fact on track to end the year on a positive footing, the sectoral performance was dragged down by the hefty finance costs incurred on making long term strategic investments to end the year on a negative note. Looking Ahead Remedial action taken by the governing authorities, would aid the strengthening of economic fundamentals, while improving governance and creating a positive playing field. The fiscal consolidation programme in relation to public finance and the new Active Liability Management Act (ALMA) is expected to provide greater flexibility in managing future bunching of both domestic and external debt. The CBSL is also working towards implementing a flexible inflation targeting framework by 2020 to keep inflation in check. These factors are viewed positively and would help improve investor sentiment. On the equity market front, the CSE continues to trade at a discount compared to regional peers and offers further opportunities for investors. However global factors will remain key to future policy decisions, particularly in the context of a rising global interest rate environment, which could lead to capital outflows from the domestic market. In line with Group realignment the financial services subsidiaries were divested to Ambeon Holdings PLC, however Ambeon Capital PLC would continue to have interests in financial services through Ambeon Holdings PLC. In its role as the Group s financial knowledge hub, the Group s financial services assists the subsidiaries in restructuring the balance sheets, better utilise their assets and aid in decision making with regards to investments. The FinTech revolution is rapidly transforming the financial industry, prospectively, this would be an area that we would explore in alliance with the new entrant to the Group, MillenniumIT ESP. The company s wealth of experience in domestic capital markets and highly trained and experienced human resource base provides a strong platform for the achievement of these goals. Overall growth strategies will be underpinned by an enhanced governance, risk and compliance framework that will establish a stable foundation for the Company to achieve its objective.

28 26 Introduction to Strategic Business Units Textile Manufacturing Sector South Asia Textiles Ltd A leading manufacturer of exceptional quality weft knitted fabric, South Asia Textiles specialises in knitting, dyeing, finishing, printing, brushing, sueding and preshrunk fabric. With a total monthly production capacity of 630 tons, the Company is located in a 76 acre land in Pugoda. The land is held under a 50 year lease agreement with the BOI, out of which, 36 years are outstanding. Currently, the Company produces 100% cotton and polycotton blends, catering to international brands such as Victoria Secret, Next, Marks & Spencer, Tesco, Calvin Klein, Decathlon, Levis, Hugo Boss and Adidas. The topline moved up to Rs. 2.0 Bn in , from Rs. 1.8 Bn in With production reverting to normal and buoyed by exchange gains in the current financial year. Consequently, we closed the year with profit after tax growing by 125% year-onyear to Rs Mn. South Asia Textiles will continue process improvements in the new financial year through production efficiencies and cost savings, while also aggressively pursuing new markets and business opportunities to increase the top and bottom lines. During the current financial year South Asia Textiles made a complete recovery from its downturn and sustained a 12% growth in turnover year-on-year.

29 27 Porcelain Manufacturing Sector Dankotuwa Porcelain PLC Established in 1984, the name Dankotuwa Porcelain is synonymous for its elegant tableware and is differentiated by the brilliant whiteness of its porcelain. Under its new Dankotuwa 2020 vision the Company is now poised to commence a new era of growth and modernisation by harnessing new technologies, process automation and strengthening the skill base. The company s strengths in delivering international quality coupled with exquisite designs, allows Dankotuwa Porcelain to maintain a broad global client base for brands such as Macy s Department Stores, Debenhams, Portmeirion, Oneida, House of Fraser, John Lewis, Jashanmal, Jumbo Retail, Joules, Crate & Barrel, Country Road, Laduree, Tchibo, Notneutral, XXX Lutz, Lenox, Porsgrund, Fischer, Ritzenhoff, Migross, Ripley, Thun, Narumi, El Corte Ingles, Berghoff, Yalco, Weissesstaland Galeria Kaufhof. In an indubitable demonstration of international quality, in the current financial year, Portmeirion tableware manufactured by Dankotuwa, was selected for display at the Victoria and Albert Museum, UK, demonstrating the exceptional quality and beauty of Dankotuwa products. Portmeirion is recognised as one of the best hotel tableware brands and is placed as the third best in the world. Despite a highly progressive year, Dankotuwa Porcelain recorded a year-end net loss of Rs Mn for the financial year , from the profit of Rs. 94 Mn in due to internal work disruptions. However, the Company demonstrated a strong recovery in revenues in the last quarter reaching Rs. 69 Mn, making it one of the best performing periods in its history. During the current financial year, Dankotuwa laid the groundwork for both domestic and export market growth and this strategy will be pursued aggressively in the new financial year. In Sri Lanka, the Company launched its first Signature Showroom at Guildford Crescent Colombo 7, which was followed up with two more showrooms in Negombo and the Crescat Boulevard. Dankotuwa will continue to maintain marketing momentum by expanding the number of showrooms and the dealer network. On the export front, Dankotuwa will be targeting emerging markets, Australasia, the EU, the US, and Scandinavian countries, where positive market indicators are experienced. Our social media presence will also be cranked up as an essential and growing component of the Group s digital strategy. The company will continue to leverage new technologies and automation solutions for cost and production efficiency gains such as the use of 3D printing, to develop product samples and has commenced automating previously manual processes.

30 28 Introduction to Strategic Business Units Porcelain Manufacturing Sector Royal Fernwood Porcelain Ltd Incorporated in 1994 and commenced commercial production in 1997, Royal Fernwood Porcelain is a large-scale manufacturer of high quality color, white, decorated porcelain tableware and figuring ornaments in Sri Lanka. The factory is situated on a 25-acre property at Kosgama, which is located approximately 35 kms from the Port of Colombo. Reputed for its exclusive shapes, designs and in-house decal plant, the Company continues to manufacture products for most of the prestigious ceramic dinnerware manufacturers in Europe, Japan, Australia, Scandinavia and the USA. Royal Fernwood Porcelain s international customer base includes brand names such as Debenhams, Portmeirion, Oneida, House of Fraser, John Lewis, Jashanmal, Jumbo Retail, Joules, Crate & Barrel, Country Road, Laduree, Tchibo, Notneutral, XXX Lutz, Lenox, Porsgrund, Fischer, Ritzenhoff, Migross, Ripley, Thun, Narumi, El Corte Ingles, Berghoff, Yalco, Weissesstal and Galeria Kaufhof. In addition, several up-market department stores in many countries in the world are customers of Royal Fernwood resulting in the Company covering over 40 countries around the world. Supported by capacity and output gains, Royal Fernwood achieved a sales growth of 11% in compared to the financial year with direct exports increasing by 17%. The company achieved a capacity increase to 80% from 75% in the previous year through process improvements channeled via quality assurance, process quality controls, upgrades to machinery and rearranging manufacturing processes. Royal Fernwood will accompany the expanding footprint of its parent Dankotuwa Porcelain through its showroom network, but will maintain its identity of a modern, youthful and vibrant brand renown in Sri Lanka for quality color, decorated porcelain tableware and figurine ornaments. Propelling forward, Royal Fernwood will focus more on coloured tableware, figurines, gift ware and new markets for these products. The company will continue introducing new designs and shapes. In process improvements, Royal Fernwood is looking into kiln automation to improve efficiency and reduce human involvement to get consistent products and quality improvements with minimum variation. The company is also developing pressure casting for complicated casting products. The company will continue to leverage new technologies and automation solutions for cost and production efficiency gains. In this regard, experimentation has commenced with new technologies such as 3D printing, for product samples and has commenced automating previously manual processes.

31 29 Technology Sector Millennium Information Technologies (Pvt) Ltd (MillenniumIT ESP) In a strategic move to diversify into and hospitality sectors and leading the future technocentric consumerism, conglomerates. Ambeon Holdings acquired the global IT enterprise solutions provider, MillenniumIT As MillenniumIT ESP joined the Ambeon ESP in December This acquisition Group in end 2017, the current review is included the Company entering into a limited to the three months of operations wider ownership plan with the employees within the Group between the period of MillenniumIT ESP giving them an January to end March Within these equity stake and enabling them to play a three months, the Company generated significant role in shaping the Company s Rs. 1.5 Bn in turnover which represented future. new sales and implementation income. working in conjunction with BigData, MillenniumIT ESP is well poised to accelerate business of its customers in hyper competitive markets. Incorporated in 1996, MillenniumIT ESP has evolved through an enriching journey of more than two decades and has emerged as one of Sri Lanka s leading information systems solutions providers delivering IT solutions for many industries; such as telecommunications, banking/ financial services and Insurance sector, apparel sector, manufacturing sector The financial year will be a year of transformation for MillenniumIT ESP, as the Company is in the process of enriching it's offering from a service led to solutions led technology provider. MillenniumIT ESP will be utilising a multitude of technologies, enabling enterprise customers to become digitally mature organisations. Combined with the advent of true cognitive capabilities

32 30 Introduction to Strategic Business Units Footwear Manufacturing Sector Ceylon Leather Products Ltd The pioneer in processing and manufacturing of leather, leather footwear (for gents, ladies and children) and leather products (such as bags, belts and accessories), Ceylon Leather Products Limited was incorporated in 1939 by the then British Government to manufacture boots, shoes and accessories for the British Armed Forces. The Company remained under state ownership until 1991 when the Government sold 90% of its stake through a privatisation programme. In 2009, Ambeon Holdings PLC acquired controlling interest of the Company. In 2017, in line with the evolving industry and the futuristic vision 2020 of Ceylon Leather Products the metamorphosis of a completely new brand outlook, which is set to cater to the emerging consumer aspirations, changing generational and retail dynamics was launched. Ceylon Leather s brand, DI thus opened doors to an all-new look replacing the previous logo with a modern, minimalist brand logo with the tagline DI-I love it. This was further supported by a refreshing range of products in the forms of ladies and gents footwear, children s shoes, a variety of accessories and gift items. Amidst these new offerings, the brand continues to enhance its core offering of leather-based products known for its quality and durability thus retaining its core segmental offering. Within the Vision 2020 Growth Strategy of the Ambeon Group, Ceylon Leather Products is being repositioned within the Sri Lankan market as a lifestyle, consumer brand for men, women and children. Marketing and sales will be revamped under a multi-brand, multi-channel strategy to reposition the DI brand as a mid-to-high-end fashion brand. In a landmark change to the business model, the product range and distribution network are being expanded with imported products for the entire family, in place of the traditional business model of leather footwear mainly for men. The designs will be continually upgraded with rapid introduction of new designs and offerings through imported leather and non-leather footwear and accessories. The consumer market footprint of DI is set to expand rapidly through the addition of new showrooms, in strategic locations across the country. In addition to this, E-commerce platforms would be incorporated as part of the retail strategy to target the youth and optimise customer convenience and accessibility.

33 31 Real-estate Sector Colombo City Holdings PLC Colombo City Holdings is a 100 year old company. Formerly known as the Colombo Pharmacy, the organisation ventured into real-estate management in July 2013 and was subsequently renamed Colombo City Holdings PLC. Originally, the Company was the manager of a perch land at Bambalapitiya Junction, a perch land at Union Place and a 3-acre land development project at Polgasowita. The land at Bambalapitiya Junction, Polgasowita and part of the property down Union Place were divested. Colombo City Holdings remains a highly cash rich company with reserves rising to Rs. 1.1 Bn in the current financial year. The total revenues of Colombo City Holdings PLC increased from Rs. 27 Mn in the current financial year, to Rs. 114 Mn. Other incomes increased from Rs. 7 Mn to Rs. 41 Mn. Profit after tax increased from Rs. 213 Mn to Rs. 262 Mn due to increased finance income and sale of Polgasowita Land. The Group s Vision 2020 Strategy blue print has envisioned a unique role for Colombo City Holdings over the medium to long term - one that will reposition the Company from it s current limited business scope as a rental property holder, into a modern, niche property developer. As part of the future strategy, the Company s evaluating options in the real-estate sector and other business domain to bring the best to it s shareholders.

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35 Textile Manufacturing

36 34 Corporate Governance Ambeon Capital s corporate governance structure has been designed to ensure conformity with regulatory compliance and industry best practices. The central objective is to adhere to principles of accountability, participation and transparency. We believe this is the bedrock for the creation, enhancement and maintenance of a sustainable business model. The principles of good governance has been instilled across all levels of the Group through a commonly held set corporate values and code of conduct and an internal control system that is constantly monitored and improved. During the year, all systems and procedures were reviewed for compliance, transparency and accountability in all business activities, and where necessary, have been replaced or realigned for greater internal control. Continually striving to improve the quality of our governance system, the Board confirms that Ambeon Capital PLC has been and is, fully compliant with all the mandatory provisions of the Companies Act No. 7 of 2007, Listing Rules of the Colombo Stock Exchange (CSE) and the Securities and Exchange Commission of Sri Lanka Act (SEC) except for the rules on minimum public float and all other legislation and rules applicable to the businesses of the Group. Further, the Group s practices are in line with the Code of Best Practices on Corporate Governance jointly advocated by the SEC and the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka). 1. The Board The Board is the highest governing body of the Group and during the year it continued its efforts to improve governance practices to safeguard the best interests of shareholders and other stakeholders. The role of the Board includes: Providing entrepreneurial leadership to the Group; Providing strategic guidance and evaluating, reviewing and approving corporate strategy and the performance objectives of the Group; Approving and monitoring financial and other reporting practices adopted by the Group; Reviewing management performance in meeting the agreed goals, monitoring the reporting of performance and ensuring that the necessary financial and human resources are in place for the Company to meet its objectives. Reviewing HR processes with emphasis on succession planning for the top management Appointing and reviewing the performance of the CEO Monitoring systems of governance and compliance Overseeing systems of internal control, risk management Determining discretions/authorities delegated from the Board to the executive levels Reviewing and approving major acquisitions, disposals and capital expenditure Composition and Balance of the Board The objective in formulating the board composition is primarily to ensure regulatory compliance and also to maintain a healthy balance between the Executive, Non-Executive and Independent Directors to facilitate access to in-depth business knowledge, while also ensuring access to experience, objectivity, and independent oversight. In line with the above objectives, the present Board comprises of Eight (08) Directors of whom Seven (07) are Non-Executive Directors and One Executive Director. The Non- Executive Directors provide considerable depth of knowledge collectively gained from experiences, whilst serving in a variety of public and private companies in various industries. The Board includes one qualified Chartered Accountant who provides the Board with the requisite financial acumen and knowledge on financial matters. Board Skills Collectively, the Board represents a wealth of diverse exposure in the fields of business, finance, economics and marketing which provides the Company expert knowledge to develop strategies and interpret market trends. Further details of their qualifications and experience are provided under the Board Profiles section of this Annual Report in pages 16 to 19. The Board considers that the composition and expertise of the Board is sufficient to meet the present needs of the Group but will continue to review the composition and the mix of skills and expertise on an ongoing basis to align it to the business needs and complexity of the Group s operations. The composition of Board of Directors during the financial year and as at date was as follows; Name of Director Position Mr. Sanjeev Gardiner Chairman/Non Independent Non-Executive Director Mr. Ajith Devasurendra Deputy Chairman/Non-Independent Non-Executive Director Mr. Murali Prakash Group Managing Director/CEO Mr. Priyantha Fernando Independent Non-Executive Director Mr. Harsha Amarasekera Non-Independent Non-Executive Director Mr. Ranil Pathirana Non-Independent Non-Executive Director Mr. Sarinda Unamboowe Independent Non-Executive Director Desamanya Deva Rodrigo Independent Non-Executive Director Table 1 Composition of the Board

37 35 Board Independence The Board accommodates independent Directors in line with regulatory stipulations. Based on the annual declarations made by each of the non-executive directors in accordance with the requirements of the Listing Rules of the CSE, Mr. Priyantha Fernando, Mr. Sarinda Unamboowe and Desamanya Deva Rodrigo are considered independent. The Board considers the other four nonexecutive directors, namely Mr. Sanjeev Gardiner, Mr Ajith Devasurendra, Mr. Harsha Amarasekera and Mr. Ranil Pathirana as non-independent, as they are nominees of CHC Investment (Private) Limited and ARRC Capital (Private) Limited, the major shareholders of the Company. Division of Responsibilities The roles of the Chairman and the CEO are separate with a clear distinction of responsibilities between them, which ensures the balance of accountability and authority between the running of the Board, and the executive responsibility for the running of the Group s business. The role of the Chairman, Mr. Sanjeev Gardiner, is to provide leadership to the Board, for the efficient organisation and conduct of the Board s function, and to ensure the integrity and effectiveness of the relationship between the non-executive and executive director. The role of the Group Managing Director/ CEO, Mr. Murali Prakash, is to implement policies and strategies approved by the Board and develop and recommend to the Board the business plans and budgets that support the Group s long-term strategy and vision that would lead to the maximisation of shareholder value. Board Meetings and Attendance The Board meetings for each calendar year are scheduled in advance to enable the directors and management to plan accordingly and fit the year s Board meetings into their respective calendars. The Board s annual meeting calendar is prepared with the consensus of all directors and is tabled at a Board meeting held in the final quarter of the financial calendar of each preceding year. To ensure that Board meetings are conducted effectively and efficiently, the time allocation for each agenda item is determined. Members of the management and external advisors are invited as and when required to attend Board meetings to present proposals and provide further clarity to the Board. The Board meets quarterly with a view to discharging its duties effectively. In addition, special Board meetings are also held whenever necessary to deal with specific matters. A total of 5 meetings were held during the financial year. The attendance of directors at these meetings is set out in the table below: Name of Director Attendance Mr. Sanjeev Gardiner Chairman 5/5 Mr. Ajith Devasurendra Deputy Chairman 5/5 Mr. Murali Prakash Group Managing Director/CEO 5/5 Mr. Priyantha Fernando Director 4/5 Mr. Harsha Amarasekera Director 4/5 Mr. Ranil Pathirana Director 4/5 Mr. Sarinda Unamboowe Director 2/5 Desamanya Deva Rodrigo Director 2/5 Table 2 Board Meeting Attendance Access to Information To enable the Board to make informed decisions, the Board is supplied with complete and adequate information in advance of each meeting, which includes an agenda, minutes, board papers with background or explanatory information, financial and operational performance reports. The Board also receives regular review reports and presentations on business development, risk profiles and regulatory updates. Any additional information may be requested by any director as and when required. The Board has separate and independent access to the Group s Senior Management. All Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that Board procedures and applicable rules and regulations are complied with. The directors, especially non-executive directors, have access to independent professional advice in the course of fulfilling their responsibilities, at the Company s expense. Professional Development and Performance Evaluation The directors are provided with the opportunity to update and enhance their skills and knowledge through training conducted by both external and in-house facilitators, and are periodically briefed on changes to relevant laws, regulations and accounting standards which impact the Group s business and the directors. The Remuneration Committee is responsible for evaluating the Board s performance and decides how the Board s performance may be evaluated and also proposes the objective criteria.

38 36 Corporate Governance Delegation of Authority and Board Committees Other than the matters reserved for the Board, the Board has adopted Policies and Limits of Authority framework applicable to the Group, by which the Board has delegated authority to its Board Committees and management. The Group Policies state the principles and sets out the tone by which business is to be conducted whereas the primary purpose of the Limits of Authority is to set out clear guidance to management as to the matters over which the Board reserves authority and those which it delegates to management. The Limits of Authority has established a sound framework of authority and accountability, which facilitates timely, effective and quality decision making at the appropriate level. The Board is supported by the following Board Committees which have been delegated with certain specific responsibilities: a. Audit Committee b. Remuneration Committee c. Related Party Transactions Review Committee All Board Committees have written Terms of Reference approved by the Board and the Board, receives reports of their proceedings and deliberations. In instances where committees have no authority to make decisions on matters reserved for the Board, recommendations are highlighted for approval by the Board. The Chairmans of each of the Board Committees report the outcome of the Committee meetings to the Board and the relevant decisions are incorporated in the minutes of the Board meetings. M/s Managers & Secretaries (Private) Limited acts as the secretary to all Board Committees. A brief description of each Board Committee is provided below: a. Audit Committee The Audit Committee ensures that the Company and the Group complies with applicable financial standards and laws. In addition, it ensures high standards of transparency and corporate disclosure and endeavours to maintain appropriate standards of corporate responsibility, integrity and accountability to the shareholders. The appointed members of the Audit Committee are required to exercise independent judgement in carrying out their functions. The activities conducts by the Audit Committee are set out in the Audit Committee Report on pages 40 and 41. b. Remuneration Committee The role of the remuneration committee is to formulate, review, approve and make recommendations to the Board with regard to the remuneration of the executive and non-executive directors and key positions within the senior management. The Remuneration Committee also ensures that it receives quarterly updates from the HR Division on staff related matters. c. Related Party Transactions Review Committee The primary function of the Related Party Transactions Review Committee is to review related party transactions as prescribed by Section 09 of the Listing Rules of the Colombo Stock Exchange. The above-board committees are supported by a comprehensive and effective internal governance structure, consisting of the Group Managing Director/CEO to oversee the overall operations of the Group. Reporting to the Group Managing Director/ CEO are the Chief Executive Officers of the subsidiaries that oversee the effective management of the subsidiaries. Re-appointment and Re-election In accordance with the Company s Articles of Association, directors who were appointed during the year must submit themselves to the shareholders for reelection at the first AGM following their appointment and 1/3 of the non-executive directors are subject to retirement and reappointment by rotation at every AGM. The directors who retire by rotation are those who have been longest in office since their appointment/reappointment. 2. Remuneration The Company s remuneration policy endeavours to attract, retain and motivate directors of the quality and experience commensurate with the stature and operational complexity of the Company. The remuneration policy for directors is proposed, evaluated and reviewed by the Remuneration Committee, in keeping with criteria of reasonability. The remuneration of non-executive directors comprises of fixed allowance paid during the year 2017/ Accountability and Audit Financial Reporting The Board believes that the independent verification is necessary to safeguard the integrity of the Group s accounting and financial reporting. The Board aims to provide and present a balanced and understandable assessment of the Group s position and prospects. Therefore, the Board has established a formal and transparent process to independently verify and safeguard the integrity of the Group s accounting and financial reporting and internal control systems which are periodically reviewed and monitored to ensure effectiveness. The Head of Finance declare in writing to the Board that the Company s financial reports present a true and fair view, in all material respects, of the Company s financial condition and that operational results are stated in accordance with relevant accounting standards. 4. Recognise and Manage Risk Internal Control The Board is committed to comply with all regulatory provisions and to follow best practices in ensuring adequate internal controls in the Group. In this regard, the Board acknowledges its overall

39 37 responsibility in ensuring that a sound system of internal control is maintained to safeguard shareholders investment and Group s assets. The Audit Committee conducts a review of the effectiveness of the Group s system of internal controls and reports its findings to the Board. The review covers all material controls, including financial, operational and compliance controls and risk management systems. Upon receiving confirmation from the CEO s of the subsidiaries Head of Finance provide the Audit Committee with a certificate of compliance confirming compliance with all applicable statutory and regulatory requirements on a quarterly basis. Enterprise Risk Management System The Group has established and implemented an Enterprise Risk Management system for identifying, assessing, monitoring and managing material risk throughout the organisation, which includes; a) Oversight of the risk management system; b) Examination of the Company s risk profile which contains a description of the material risks facing the Company including financial and non-financial matters; c) Assessment of compliance and control; d) Assessment of effectiveness mechanism to review, at least annually, the effectiveness of the Company s implementation of the risk management system Internal Audit Internal audits are conducted by the Group Internal Audit Division & Pricewaterhouse Coopers (Pvt) Ltd which are independent of management. The Internal Auditor has access to management and the authority to seek information, records, properties and personnel relevant to the subject of audit review. Once an audit review is completed, a report is submitted to the Audit Committee. The Audit Committee oversees the scope of the internal audit and has access to the internal audit without the presence of management. In order to ensure independence, objectivity and enhance performance of the internal audit function, a direct reporting line has been created from the internal audit function to the Audit Committee. The activities of the Group s internal audit are detailed in the Audit Committee Report on pages 40 and Responsible Decision Making The Board of Directors are fully aware of their responsibilities in the capacity of directors and adopt an attitude of prudent responsibility with regards to all decision making in relation to Group activities. The Group s Code of Business Ethics and Employee Code of Conduct actively promotes ethical and responsible decisionmaking and endeavours to influence and guide the directors, employees and other stakeholders of the practices necessary to maintain confidence in the Group s integrity and to demonstrate the commitment of the Group to ethical practices. 6. Respect for the Rights of Shareholders The Company is committed to having regular, proactive and effective communication with the investors and shareholders. The Company respects the rights of the shareholders and seeks to empower them by communicating effectively and providing ready access to balanced information about the Company. Communication with Shareholders The Company communicates with the shareholders through the following means of communication: - a) Annual General Meeting The AGM is the main event for the shareholders to meet with the Board which allows reasonable opportunity for informed shareholders to communicate their views on various matters affecting the Company and the forthcoming AGM will be used to effectively communicate with shareholders. The AGM is also attended by the Management & External Auditors. b) Announcements to the Colombo Stock Exchange (CSE) Announcements of quarterly interim financial results and announcements on corporate actions are disclosed to the CSE in a prompt and timely manner in compliance with the Listing Rules of the CSE. c) Media Releases The Company ensures that media releases are made to the media on all significant Group developments and business initiatives through its Group Companies. Investor Relations The Group Investor Relations (IR) Team proactively disseminates relevant information about the Group Companies to the investor community, specifically the institutional fund managers and analysts. The IR team maintains close contact with the investor community by means of oneon-one meetings, teleconferences, s etc. to ensure that the Group s strategies, operational activities and financial performance are well understood and that such information is made available to them in a timely manner. Major Transactions There were no transactions during the financial year deemed as a major transaction in terms of the definition stipulated in the Companies Act No. 7 of 2007.

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41 Porcelain Manufacturing