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Keells Food Products PLC Annual Report 2013/14
Scan this QR code with your smart device to visit our official website http://www.keellsfoods.com Keells

Scan this QR code with your smart device to visit our official website

http://www.keellsfoods.com

to visit our official website http://www.keellsfoods.com Keells Food Products PLC Keells is presently Sri Lanka’s

Keells Food Products PLC

Keells is presently Sri Lanka’s market leader in the processed meat industry. Keells started its operations in the year 1983, and takes pride in being solely responsible for developing the Sri Lankan processed meats industry to its current heights.

Keells has kept abreast of the industry through strategic investments in state of the art food processing technology, quality control systems and an aggressive Company-wide research and development orientation.

Keells’ world class sausages, meat balls, hams, bacons, cold meats and raw meats combine gourmet taste and nutrition while offering superior quality. The range offers convenience to meet today’s demanding lifestyles of consumers all over the world. We serve certain markets in India, United Arab Emirates and Maldives and are currently in the process of strengthening our presence in these regional markets.

Keells Food Products PLC (KFP) sustained its market leadership position in the processed foods category through a range of marketing strategies aimed at strengthening its market share, whilst connecting more closely with the consumer. The Company has been driving innovation and high brand recall in an effort to enhance the consumption of our products. Based on a combination of consumer feedback and research and development efforts, we are constantly formulating new products that fulfill the expectations of our consumers.

efforts, we are constantly formulating new products that fulfill the expectations of our consumers. 342 1218

342

efforts, we are constantly formulating new products that fulfill the expectations of our consumers. 342 1218

1218

efforts, we are constantly formulating new products that fulfill the expectations of our consumers. 342 1218

1146

efforts, we are constantly formulating new products that fulfill the expectations of our consumers. 342 1218
efforts, we are constantly formulating new products that fulfill the expectations of our consumers. 342 1218
efforts, we are constantly formulating new products that fulfill the expectations of our consumers. 342 1218

any day. any time.

Good food, guaranteed quality

Good food is a must in every celebration and wherever there’s good food, you’re sure to find Keells. Famed for our convenience, quality and taste, Keells Foods offer a range of classic and unforgettable flavours that are known and trusted by thousands of Sri Lankans islandwide because in true Sri Lankan style, we like to keep our products simple, tasty and good.

Today we’re an integral part of many people’s lives and we are proud to know that we shall continue to celebrate memorable moments with them for many years to come.

Keells Foods, Celebrate any day, any time.

Annual Report 2013/14 Contents Financial Highlights › 4 Income Statement › 86 Our Products ›

Annual Report 2013/14

Contents

Financial Highlights ›

4

Income Statement ›

86

Our Products ›

5

Statement of Comprehensive Income ›

87

Chairman’s Review ›

6

Statement of Financial Position ›

88

Management Discussion & Analysis ›

9

Statement of Cash Flows ›

89

Directors’ Profiles ›

16

Statement of Changes in Equity ›

91

Sustainability Report ›

19

Notes to the Financial Statements ›

92

Corporate Governance ›

27

Your Share in Detail ›

138

Audit Committee Report ›

67

Ten Year Information at a Glance ›

140

Enterprise Risk Management ›

70

Key Ratios and Information ›

141

Financial Calendar ›

77

Real Estate Portfolio ›

141

Financial Information ›

77

Glossary of Financial Terminology ›

142

Annual Report of the Board of Directors

Notice of Meeting ›

143

On The Affairs of the Company ›

78

Notes ›

144

Statement of Directors’ Responsibility ›

84

Form of Proxy (enclosed) ›

Independent Auditors’ Report ›

85

Annual Report 2013/14 Financial Highlights Group Year ended 31st March 2014 2013 Change % Revenue

Annual Report 2013/14

Financial Highlights

Group Year ended 31st March

2014

2013

Change

%

Revenue Operating Profit/(Loss) Profit/(Loss) Before Tax Profit After Tax (PAT) Shareholders’ Funds Total Assets Total Debt Earnings per Share- ( Re-stated ) Return on Capital Employed Return on Equity Market Price per Share as at 31st March Market Capitalisation Price Earning Ratio-(Re-stated) Quick Assets Ratio

Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. % % Rs. Rs. 000 No. of times No. of times

2,280,142

2,197,482

4

(33,593)

64,959

(152)

(11,954)

115,214

(110)

467

90,883

(99)

1,549,530

1,597,616

(3)

2,091,343

2,492,008

(16)

246,997

264,734

(7)

0.02

4.82

(100)

(1.84)

5.41

(134)

0.03

8.87

(100)

55.00

70.00

(21)

1,402,500

1,785,000

(21)

2,750

16

18,836

1.60

1.89

(16)

Note: Figures in brackets indicate an unfavorable fluctuates

Net Revenue and Operating Profit/(Loss) Rs. Mn 2,500 2,000 1,500 1,000 500 0
Net Revenue and
Operating Profit/(Loss)
Rs. Mn
2,500
2,000
1,500
1,000
500
0

2010 2011 2012 2013 2014

Employees and Revenue per Employee

Rs. Mn

200 6

Rs. Mn

150 5

100

50

0

-50

-100

-150

4

3

2

1

0

Rs. Mn 200 6 Rs. Mn 150 5 100 50 0 -50 -100 -150 4 3

2010 2011 2012 2013 2014

Shareholders Funds and Earnings per Share

No

Rs. Mn

480 2,000

470

460 1,500

450

440

430

420

410

400

390

1,000

500

0

2,000 470 460 1,500 450 440 430 420 410 400 390 1,000 500 0 2010 2011

2010 2011 2012 2013 2014

440 430 420 410 400 390 1,000 500 0 2010 2011 2012 2013 2014 Net Revenue

Net Revenue

Net Revenue Net Revenue Per Employee Shareholders Funds

Net Revenue Per Employee

Net Revenue Net Revenue Per Employee Shareholders Funds

Shareholders Funds

Operating Profit/(Loss)

Average No.of Employees

EPS

Rs.

15

10

5

0

-5

-10

-15

-20

Our Products The Keells Sausage Range The Keells Sausage Range is renowned as a superior

Our Products

Our Products The Keells Sausage Range The Keells Sausage Range is renowned as a superior brand.
Our Products The Keells Sausage Range The Keells Sausage Range is renowned as a superior brand.
Our Products The Keells Sausage Range The Keells Sausage Range is renowned as a superior brand.

The Keells Sausage Range

The Keells Sausage Range is renowned as a superior brand. A pioneer in the processed meats industry, Keells Sausages endorses our premium quality and adherence to strict hygienic manufacturing guidelines.

Chicken Sausages

The oldest sausage

in the Keells family,

its classic recipe has stood the test of time. Its wholesome chicken goodness remains a crowd pleaser to this day.

Chicken Garlic

Sausages

A mouth watering

favourite, this sausage

is packed with juicy

chicken and fresh garlic, offering many

creative possibilities

in kitchens across the

country.

many creative possibilities in kitchens across the country. Cheesy Blast Cheesy Blast is full of wholesome
many creative possibilities in kitchens across the country. Cheesy Blast Cheesy Blast is full of wholesome

Cheesy Blast

Cheesy Blast is full of wholesome chicken and generous dollops of creamy and nutritious cheese. No wonder that this sausage is a hit among kids.

Chicken Cheese and Onion Sausages

Everyone loves sausages, but nothing stirs the passion of fans like the Chicken, Cheese and Onion Sausage.

passion of fans like the Chicken, Cheese and Onion Sausage. Spicy Bites This sausage pays homage

Spicy Bites

This sausage pays homage to Sri Lankans’ love for all things spicy. A delicious mix of red hot chillies and chunky sausage, you can count on Spicy Bites to turn on the heat anytime, anywhere.

count on Spicy Bites to turn on the heat anytime, anywhere. The Krest Range The yummy
count on Spicy Bites to turn on the heat anytime, anywhere. The Krest Range The yummy
count on Spicy Bites to turn on the heat anytime, anywhere. The Krest Range The yummy

The Krest Range

The yummy Krest Range offers you a wide variety of snacks & bites. We offer delicious & ready to fry Formed Meats, Chinese Rolls and Crispy Potato Chips.

Formed Meat

The superior golden crispy crumb delivers the ultimate snacking experience where with each bite you are guaranteed the delicious Krest experience.

each bite you are guaranteed the delicious Krest experience. French Fries (Potato Chips) This superior quality
each bite you are guaranteed the delicious Krest experience. French Fries (Potato Chips) This superior quality

French Fries (Potato Chips)

This superior quality product is imported from Farm Friets, a world renowned potato based products manufacturer, located in Netherlands and distributed in Sri Lanka under the brand name of ‘Krest’.

in Sri Lanka under the brand name of ‘Krest’. Chinese Rolls Being a Sri Lankan staple
in Sri Lanka under the brand name of ‘Krest’. Chinese Rolls Being a Sri Lankan staple

Chinese Rolls

Being a Sri Lankan staple during snack time, the Chinese Roll has won the hearts of many. Synonymous with rolls is Krest, our ready-to–fry Chinese Roll range which is ideal for both snacks and meal times. Beautifully battered and crumbed, they turn into hot, crisp, appetizing feasts in minutes.

they turn into hot, crisp, appetizing feasts in minutes. The Elephant House Sausage Range The Elephant

The Elephant House Sausage Range

The Elephant House Sausage Range is a distinctively Sri Lankan brand launched in 1966. We offer a wide range of handmade products created from our traditional recipes using the finest, freshest ingredients made to international quality standards.

Chicken

Sausage

The most

popular

variant which

everybody

likes to

indulge in.

most popular variant which everybody likes to indulge in. Pork Lingus The favourite legendary Elephant House

Pork Lingus

The favourite legendary Elephant House Sausage taste is most famous for Lingus!

Elephant House Sausage taste is most famous for Lingus! Bacon Whopper Sausage The popular chunky pork

Bacon

Whopper

Sausage

The popular

chunky pork

sausage with

superior

bacon taste!

The popular chunky pork sausage with superior bacon taste! Beef Sausage The one and only beef

Beef

Sausage

The one and only beef variant in the range catering to beef lovers.

Annual Report 2013/14 Chairman’s Review The rebound in consumer sentiment and spending patterns, would allowthe

Annual Report 2013/14

Chairman’s Review

The rebound in consumer sentiment and spending patterns, would allowthe Company to penetrate into new markets and market segments with KFP’s versatile product offerings that cater to a variety of snack and meal choices. Moreover, with consumers increasingly opting for convenient choices, our offerings would look to secure a larger cross section of the island-wide consumer populace.

a larger cross section of the island-wide consumer populace. I am pleased to present to you

I am pleased to present to you the Annual Report and Financial Statements of Keells Food Products PLC (KFP) for the year ended 31st March 2014.

Brand Positioning During the year under review, lower discretionary spending patterns negatively impacted demand for some of our products although volumes of both sausages and meat balls our core products saw an increase. The proliferation of vendors offering sub-standard, low cost frozen foods in loose form, thereby compromising the integrity of the cold chain and food handling standards, continues to be of concern.

In the face of such testing conditions, the focus was to develop a compelling branding strategy coupled with consumer education to underpin all marketing efforts for the year. The brand proposition capitalised on our versatile portfolio. The Keells and Krest range of products were promoted as the brand of choice for the mass market to satisfy a diverse variety of taste profiles and consumption occasions, while the high-end Elephant House (EH) range leveraged on its unique taste properties to fulfil the needs of the more discerning palate.

Efficiency Enhancements The state of the art production facility in Pannala now produces the entire range of chicken sausages and the cold meats. The new automated line for our formed meats was installed during the year as well.

Performance for the Year During the year, KFP reported a revenue growth of 4 per cent and a growth in profit before tax and exceptional expense of 13 per cent. The revenue for the year was Rs. 2.3 billion and the profit before tax and exceptional expense was Rs. 131 million. The exceptional expense was Rs. 139 million, being the cost of a Voluntary Retirement Scheme accepted by 129 employees at the factory . After accounting for a tax reversal of Rs. 12.4 million the Company posted a Profit after Tax of Rs. 3.9 million compared to a Profit after Tax of Rs. 91.3 million in the previous year.

Share Performance and Dividends Your Board has approved the payment of first and final dividend of Rs. 2.00 per share for the year under review that would result in a total dividend payout of Rs. 51 million.

Nurturing a Sustainable Business Model Reiterating our commitment to our suppliers, as in the past, we employed a proactive strategy to purchase poultry and meat from identified local farmers benchmarked by KFP’s quality standards and ethical farming guidelines. Our continuous engagement in providing technical support to the network of supplier’s, mainly small and medium farmers of meat, spices and vegetables have helped them to improve their productivity and overall yields.

Moreover, while ensuring an uninterrupted supply of high quality spices and herbs, our farmer grower outreach program in the Kandy district has also nurtured new entrepreneurs with the desire to make a difference to their communities. I believe the mutual benefits that accrue from these partnerships have, not only enriched the lives and livelihoods of these communities, but also augmented the future progress of your Company.

Looking Ahead The rebound in consumer sentiment and spending patterns, as witnessed in the fourth quarter of the financial year 2013/14, is expected to have a positive impact on the Fast Moving Consumer Goods (FMCG) industry in the forthcoming year. Should this trend materialise as foreseen, the prospects for your Company too appear to be very encouraging.

Unlocking this potential would allow the Company to penetrate into new markets and market segments with KFP’s versatile product offerings that cater to a variety of snack and meal choices. Moreover, with consumers increasingly opting for convenient choices, our offerings would look to

secure a larger cross section of the island-wide consumer populace, by tapping into both the in-home and out-of-home markets for wholesome meals and snacks. Meanwhile, the

country’s growing tourism and leisure sector would certainly bolster our ability to harness the latent potential in the hotels, restaurants and cafés channel (HORECA) in the years ahead. While improving market share in these core areas is

a definite priority for your Company, the cost efficiencies

relayed through enhanced operational capabilities would certainly be the catalyst in conveying the desired returns for all stakeholders, in the longer term.

Acknowledgments On behalf of the Board, I wish to express my appreciation to our distributors for being with us during a challenging year. I take this opportunity to thank the team at Keells Foods Products PLC for their commitment and dedication and convey my appreciation to my colleagues on the Board for the support extended to me during the year.

I would also like to acknowledge all our shareholders for

continuing to have confidence in us and look forward to your continued support in the year ahead.

confidence in us and look forward to your continued support in the year ahead. Susantha Ratnayake

Susantha Ratnayake

Chairman

30th May 2014

confidence in us and look forward to your continued support in the year ahead. Susantha Ratnayake
Annual Report 2013/14 The Keells Sausage Range adds zest to any meal. These wholesome and

Annual Report 2013/14

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Management Discussion and Analysis

Annual Report 2013/14 Management Discussion and Analysis FMCG Industry Overview 2013/14 The year proved to

Annual Report 2013/14

Management Discussion and Analysis

FMCG Industry Overview 2013/14 The year proved to be quite a challenging one, with growth prospects in the FMCG industry remaining dull. Fuelled by the escalating cost of consumer goods, a slack in spending was observed in the first two quarters of 2013/14. With consumers expressing reluctance to spend in the immediate aftermath of tax increases on consumer goods and the electricity tariff increase, volume growth in the FMCG industry was restrained in the first half of the year. However, with consumer sentiments adjusting to the new cost bracket, the industry experienced some respite and a subsequent uptick in consumer spending materializing towards the latter part of the year. Consequently, industry volumes also edged up slightly to register satisfactory overall growth for the year.

The Pinnacle of Excellence All products under the Keells Food Products PLC (KFP) umbrella are manufactured using state-of-the-art technology and innovation, on par with internationally accepted norms. Uncompromising ethics and a deeply ingrained moral code, demonstrates the Company’s commitment to deliver a superior product at all times. Renowned for product quality and consistency, KFP's Keells, Krest and Elephant House brands fulfil the needs of diverse socio-economic consumer segments.

Affordably priced for the mass market, the Keells range consists of product variations that appeal to a wide variety of consumption occasions. Now a household name in Sri Lanka the product range includes breakfast sausages, meat balls and slices in chicken, pork and beef and value added products such as cheese and onion sausages, frankfurters, bockwurst and pork lingus, in addition to hams, bacon, hot dogs and burgers.

The Krest range offers a gamut of ready-to-fry crumbed products in a choice of chicken, fish and vegetable nuggets, drumsticks, kievs and chinese rolls, as a healthy snack on the go, for all ages and communities.

The Elephant House premium range is endowed with its own distinctive taste and flavour profile. Complementing this unique recipe and long standing performance in the market, the brand has earned an enviable heritage position in the market.

Marketing and Branding

In the face of growing competition at the lower end of the

sausage market, the year saw KFP competing at all levels with more focus on the value added range of products on offer

in the market. Leveraging on the Keells brand value, KFP’s

strategic marketing agenda for the year, featured a series of well-planned initiatives aimed at ensuring customers make an informed choice at all times. This was deemed to be a timely move, particularly as it was felt that industry hygiene standards were being severely compromised with the proliferation of vendors in the general trade breaking up bulk packs and selling sausages in loose form. Key efforts by KFP during the year were designed to educate consumers and encourage them to move away from purchasing frozen sausages in loose form in favour of hygienically packed in- store options.

Moreover, in sharp contrast to the mainstream offerings of competitors, KFP continued to differentiate the profile of its iconic product range to convey its unique selling proposition to both the mass and niche markets. Demonstrating the commitment to this effort, investments in both brand building and marketing activities were pursued to support all brands under the KFP umbrella.

Among the ensuing efforts introduced during the year, was the launch of a vacuum packed product with 4 sticks of sausages, priced at Rs. 57/- aimed at providing a more affordable offering for the mass market.

By effectively reconfiguring the product range and

enhancing the versatility of the offerings in this manner, in- home consumption levels for all KFP products continued to generate promising growth throughout the year. Moreover, a conscious effort was also deployed to capture a larger share of the HORECA (Hotels, Restaurants, and Cafés) channel, where little or no brand visibility is made available to the end-consumer. It is deemed that growing this medium would certainly help the Company capitalize on the growth in the tourism industry and reap the benefits of the exponential growth in the number of outdoor meals and snacking consumption. Although growing this revenue stream is

a key priority for KFP, it remains a formidable challenge,

given the stiff competition and highly price sensitive market environment. However the focus on product differentiation, specialty offerings and overall unparalleled high quality standards have been the cornerstone in KFP’s efforts to

break into this market, with encouraging early results that indicate compelling growth prospects in the years ahead.

In yet another effort to ensure that premium quality products reach the end consumer, KFP engaged its branded franchise outlet model to deliver KFP’s brand promise to the mass market. Serving a range of snack foods based on the Company’s core product range, 50 new outlets were commissioned in strategic locations across the island in the year 2013/14.

Operational Review

New Investments

An automated production line to manufacture formed meats and crumbed products was installed in the last quarter of 2013/14. The Pannala plant, manufactures the entire production of chicken sausages, meat balls and slices, with all pork products exclusively manufactured in Ja-ela. While further enhancing capacity, the Pannala factory is expected to relay substantial cost efficiencies for the Company, both in terms of manning and material yield.

Supply Chain and Procurement Practices

Amid an outbreak of foot-and-mouth disease spreading in five districts, Anuradhapura, Puttalam, Trincomalee, Ampara and Vavuniya, health authorities directed a ban on all forms of meat other than poultry, in an effort to contain the spread of the disease even further . Consequently, with the supply of beef and pork curtailed, for a two month period from February 2014 proved to be a grave challenge for KFP, with supplies being restored only after the end of the Financial Year 2013/14. However, it is hoped that such eventualities could be prevented in the future with adequate precautionary measures to improve the supplier quality standards through awareness, vaccinations etc.

On a more positive note, in this year too, KFP continued with the supply chain management and seamless backward integration initiatives practiced in the past few years. Driven by an unwavering commitment to excellence, the Company has always pursued relationships with local producers and suppliers to help secure the consistent quality of the produce used in the Company’s products. Technical guidance and knowledge transfer efforts initiated by KFP have assisted suppliers to enhance their service standards and outputs in conformity with internationally accepted benchmarks. While promoting cost effective procurement practices.

While promoting cost effective procurement practices. In addition to offering farmers a secure livelihood, KFP’s

In addition to offering farmers a secure livelihood, KFP’s seamless farmer out grower model for spices and vegetables facilitates a guaranteed standardised supply to fulfil the Company’s requirements. Not only eliminating the need for intermediaries, direct access to farmers and growers through this programme also seeks to benchmark the quality of produce sourced, thereby assuring all spices and vegetables used in the product range conforms to uniform quality specifications.

Distribution Networks

The final phase of the Distributor Management System (DMS) introduced in the previous year, was rolled out in the year under review. Using a collection of applications designed to monitor and control the entire distribution network efficiently and reliably, the DMS acts as a decision support system to assist the control of the field sales force. At present the DMS plays a critical role in streamlining, monitoring and controlling the entire distribution and sales force deployed across the island, on a daily basis. While improving the reliability and quality of service, the DMS has also instilled a much needed sense of route discipline among the distributor network. As a consequence of the resourceful use of time, duplication has been eliminated and wastage minimized. These key deliverables expected of the DMS have been instrumental in creating a more efficient and profitable distribution mechanism for the Company. Moreover, due in large part to real-time monitoring and service mapping that evaluates the performance at all service outlets, KFP has been able to ensure that service gaps are dealt with promptly. While promoting a greater degree of vigilance, this mechanism also triggers proactive action to ensure service fulfilment is not compromised at any time.

Awards and Accolades During the year under review the Company received the Merit and Top Ten awards at the CNCI awards for 2013 whilst the brand Elephant House Sausages for the campaign “Who would you share your secret with” and the “Keells karal hathare pack eka” won the prestigious Effi Awards for 2013 for the most successful advertising campaign of the year in the food industry of Sri Lanka. The Company also won the silver award in the manufacturing sector at the Annual Report Awards of the Institute of Chartered Accountants for 2013.

Annual Report 2013/14 Management Discussion and Analysis Looking Ahead As modern lifestyles continue to evolve,

Annual Report 2013/14

Management Discussion and Analysis

Looking Ahead As modern lifestyles continue to evolve, consumers are seen to be, increasingly seeking more wholesome, easy to prepare food choices. Consequently, the in-home consumption market is deemed to grow in the years ahead. While education would remain the key to cultivating this market in cognisance with changing consumer paradigms, it also underpins the importance of innovation in pursuing convenient preparation methods. Meanwhile, an enriched offering of product variations would be the catalyst in further penetrating the in-home consumption market. In tandem with these requirements, the Company hopes to augment its share of fish and vegetable offerings, to appeal to a wider consumer demographic. Also underscored by KFP’s irrefutable brand presence, the Company remains committed to make further inroads into capturing a broader share of this key market, in the years ahead.

Moreover, buoyed by the success of initial efforts, the Company expects to further strengthen its presence in the HORECA channel. By leveraging on business synergies that culminate with KFP’s enhanced manufacturing capacity and superior technological capabilities, the Company is well placed to explore new product variations to serve the HORECA market. Moreover, given the low market penetration levels, this market is expected to grow at a faster pace, as economic conditions in the country continue to stabilise in the years ahead, making it a highly lucrative revenue stream for the future.

Financial Review

Business Performance- Income Statement

Revenue

The Revenue at Company level increased by 4% to Rs. 2,280

million (Rs. 2,197 million in 2012/13) as a result of selective

price increases and change in the sales mix. The sausage

and meat ball categories grew by 13% and 8% in volume

respectively whilst other sub categories such as chinese rolls,

trading and raw pulled down the overall volume to a negative

growth of 1%. Our Company continues to be the market

leader of a range of processed meat products of very high

quality with a number of quality and process certifications in

the country. The Company was constrained in taking price

increases to mitigate the full impact of all cost increases due

to unfavourable market condition experienced during the

year under the review.

Cost of Sales

The availability of one of the key raw materials - pork, was

not consistent during the year, resulting in price volatility of

pork in the market, which adversely impacted the Company.

Chicken prices declined marginally during this year. The

Net Revenue and Gross Profit Rs. Mn 2500 2,000 1,500 1,000 500 0
Net Revenue and
Gross Profit
Rs. Mn
2500
2,000
1,500
1,000
500
0

Sausage Volume Trend

Tons

Rs. Mn

600 2,500

500 2,000

400

300

200

100

0

1,500

1,000

500

0

2010 2011 2012 2013 2014

400 300 200 100 0 1,500 1,000 500 0 2010 2011 2012 2013 2014 Net Revenue

Net Revenue

Gross Profit

2010 2011 2012 2013 2014 Sausage Volume Trend
2010 2011 2012 2013 2014
Sausage Volume Trend

Overhead Cost Analysis

Rs. Mn 400 350 300 250 200 150 100 50 0
Rs. Mn
400
350
300
250
200
150
100
50
0

2010 2011 2012 2013 2014

Distribution CostCost Analysis Rs. Mn 400 350 300 250 200 150 100 50 0 2010 2011 2012

Finance CostCost Analysis Rs. Mn 400 350 300 250 200 150 100 50 0 2010 2011 2012

Admin Cost

Rs. Mn 400 350 300 250 200 150 100 50 0 2010 2011 2012 2013 2014

depreciation of the rupee, the increase in customs duty and the escalation of world commodity prices caused the prices

of imported raw materials to increase as well.

During the year factory wages and related costs declined by 14% as 129 workers accepted the Voluntary Retirement Scheme (VRS) offered by the Company to the Ja-Ela manufacturing facility staff, in the month of November 2013. The VRS was offered due to the automated production capability at the new facility at Pannala.

Furthermore, cold storage charges declined by as much as 44%, as the new production facility at Pannala has its own cold storage facility which enabled the Company to cease the rental of outside cold room facilities.

However the increase in the power tariffs resulted in energy costs increasing by 24% whilst the deprecation charge also increased by as much as 132% due to the impact of a full year’s depreciation on the machinery acquired at the Pannala facility in 2012/13.

Gross Profit

Gross profit of the Company was Rs. 506 million representing

a 10% increase against Rs. 458 million recorded in the

previous year. Gross profit margin increased to 22% from the previous year of 21%.

Other Operating Income

Other operating income at Company level increased to Rs. 4.9 million from the previous year of Rs. 4.5 million.

Administration Expenses

Administration cost increased by 11% to Rs. 121 million from

Rs. 109 million in the previous year due to increase in staff and administration costs related to the Pannala facility. At

a Group level administration expenses increased to Rs. 122

million against Rs. 110 million in the previous financial year.

against Rs. 110 million in the previous financial year. Selling and Distribution Expenses Selling and Distribution

Selling and Distribution Expenses

Selling and Distribution expenses include the cost incurred in the distribution of products, advertising and promotional expenses as well as all other sales related expense.

Selling and Distribution expenses at the Company decreased to Rs. 223 million from Rs. 233 million in the previous year.

Finance Cost

During the year the availability of excess cash for use reduced the cost of short term borrowing to only Rs. 0.2 million as against Rs. 6.7 million in the previous year.

Finance cost increased to Rs. 35.5 million from Rs. 19.6 million in the previous year was, as a result of the term loan obtained from the Development Finance Corporation of Ceylon (DFCC) to fund the purchase of additional machinery to augment the new facility at Pannala in the latter part of the previous year.

Finance Income

The Company also earned interest income of Rs. 57 million during the year as a result of investing surplus funds.

Loss from Operating Activities

The Company posted a Loss of Rs. 8.5 million before taxes as compared to a Profit of Rs. 116 million in the previous year. The Loss was mainly due to the cost of Rs. 139 million incurred on the Voluntary retirement scheme (VRS).

At a consolidated level the Loss Before Tax was Rs. 11.9 million compared to a Profit of Rs. 115 million in the previous year.

Annual Report 2013/14 Management Discussion and Analysis Taxation The tax reversal for the Company was

Annual Report 2013/14

Management Discussion and Analysis

Taxation

The tax reversal for the Company was Rs. 12.4 million as against a tax charge in the previous year of Rs. 24.3 million due to a reversal in deferred tax.

Statement of Financial Position

Shareholders’ Funds

Shareholders’ funds reduced to Rs. 1,548 million from Rs. 1,595 million the previous year representing a decrease of 3% for the Company. This reduction was on account of the decline in profitability during the year and the payment of dividends amounting to Rs. 51 million. Shareholders’ fund at Group level was at Rs. 1,549 million as against Rs. 1,598 million in the previous year.

Asset Base

The asset base at the Company reduced to Rs. 2,090 million from the previous year of Rs. 2,488 million mainly due to the reduction of current assets (short term investments). The reduction in short term investments took place as the Company settled the balance amount of Rs. 350 million, due on the acquisition of the manufacturing facility to D&W Food Products (Pvt) Ltd. The Company also acquired Property, Plant and Equipment worth Rs. 345 million during the financial year whilst disposals were Rs. 3 million.

The Group’s total assets base as at 31st March 2014 was Rs. 2,091 million as against Rs. 2,492 million in 2012/13.

Cash Flow and Liquidity

The Company’s key sources of finance for the year under review were cash generated from operations and the surplus funds from the previous year. The Company ensured the adequacy of liquidity to service debt and meet future requirements of working capital and capital expenditure.

The Company operates its own treasury function assisted by the Treasury division of the Parent Company John Keells Holdings PLC based on the policies and plans approved by the Board. Our Treasury manages a variety of market risks,

including the effects of changes in foreign exchange rates, interest rates and liquidity. Further details of the management of these risks are given in Note 12 to the financial statements. The role of the Treasury is to ensure that appropriate financing is available for all value-creating investments. Additionally, the Treasury delivers financial services to allow the Company to manage its financial transactions and exposures in an efficient, timely and low-cost manner.

Cash flow from operating activities at Company level amounted to Rs. 51.7 million (Rs. 103.6 million in 2012/13). Cash generated from operations inclusive of working capital changes was a negative figure of Rs. 237.1 million in comparison to a positive figure of Rs. 121.3 million in the previous year. The reduction in operating profit, reduction in inventory, increase in trade debtors and decrease in trade and other payables at the Company resulted in this decrease.

The Gearing Ratio at Company level declined to 15.95% against 16.6% in the previous year.

The Company’s key sources of finance, for the foreseeable future is likely to be cash generated from operations, with an effective combination of long-term and short-term borrowings. Therefore it is expected that the said sources of finance will provide sufficient capacity of liquidity to service debt and meet future working capital and capital expenditure requirements.

Shareholder Value

The Company’s strategic priorities are primarily focused on delivering shareholder value through the achievement of sustainable, capital efficient and long term profitability growth.

The basic Earnings per Share (EPS) for the Group was at Rs. 0.02 (Rs. 4.82 - 2012/13).

The Group's net assets per share at book value stood at Rs. 60.77 (Rs. 62.65 - 2012/13) whilst at Company Level it stood at Rs. 60.72 (Rs. 62.54 - 2012/13).

The Company’s share price was Rs. 70 at the beginning of the financial year and saw a decrease to Rs. 55 as at 31st March 2014 moving within a range of Rs. 50.10 to Rs. 82.40 during the year. The market capitalisation of the Company was Rs. 1,403 million (Rs. 1,785 million in 2012/13) as at the end of the financial year.

Return on Equity (ROE) for the Group was 0.3% (8.9% - 2012/13) and for the Company 0.2% (8.9 % - 2012/13). Return on Capital Employed (ROCE) at Group level was a negative of 1.8% against a positive of 5.4% in the previous year while for the Company it was 1.6% (5.4% - 2012/13).

Management Team

R

F N Jayasooriya

– Chief Executive Officer (Resigned w.e.f. 19.06.2014)

S

R Jayaweera

Chief Financial Officer Consumer Foods & Retail

P

N Fernando

– Sector Financial Controller Consumer Foods

D

A N Samarasinghe -

Head of Sales & Marketing

W

S J Ihalagedara

-

Head of Marketing

S

Jayawardena

-

Head of Management Accounting Consumer Foods

N

Jayasinghe

-

Head of Industrial Relations Consumer Foods

H

M P Bandara

-

Manager Engineering

W

A V Boteju

-

Manager Factory

S

V R Boteju

- Assistant Manager Purchasing

K

A V Fernando

– Manager Production

T

G T P K Gamage

-

Manager Sales Administration

S

H Jayaratne

-

Quality Assurance Manager

J

D Kanagaraj

-

Finance Manager

A

A N Lalantha

-

Manager New Product Development

A

C Morris

-

Finance Manager Management Accounting

T

D Nishantha

-

Head of Human Resources

M

C R Perera

-

Manager Credit

C

N Soza

-

Manager Production

P

B T Weerasekera

-

Operational Manager

S

Nanayakkara

- Brand Activation Manager

M

Tissera

-

Channel Manager Mass

G

P I P Sampath

- Channel Manager Modern Trade

Manager M Tissera - Channel Manager Mass G P I P Sampath - Channel Manager Modern
Annual Report 2013/14 Directors’ Profiles Susantha Ratnayake Non-Independent – Non-Executive, Director, Chairman Mr.

Annual Report 2013/14

Directors’ Profiles

Susantha Ratnayake Non-Independent – Non-Executive, Director, Chairman

Mr. Ratnayake was appointed to the Board of Keells Food Products PLC from the 1st of April 1993.

Mr. Ratnayake was appointed as the Chairman and CEO of John Keells Holdings PLC (JKH) in January 2006 and has served on the JKH Board since 1992/93 and has 36 years of management experience, all of which is within the John Keells Group.

He is the Chairman of Ceylon Tobacco Company PLC, Vice Chairman of the Employers' Federation of Ceylon and serves as a member of several clusters of the National Council of Economic Development. A past Chairman of the Sri Lanka Tea Board, immediate past Chairman of the Ceylon Chamber of Commerce, he serves on the Board of the national carrier Sri Lankan Airlines.

Ajit Gunewardene Non-Independent – Non-Executive, Director

Mr. Gunewardene was appointed to the Board of Keells Food Products PLC from 1st October 2002.

Mr. Gunewardene is the Deputy Chairman of John Keells Holdings PLC and has been a member of the Board for over 20 years. He is a Director of many Companies in the John Keells Group and is the Chairman of Union Assurance PLC. He is a member of the Board of SLINTEC, a Company established for the development of nanotechnology in Sri Lanka under the auspices of the Ministry of Science and Technology. He is also an Advisory Committee Member of COSTI, the coordinating Secretariat for Science Technology and Innovation under the purview of the Minister (Senior) of Scientific Affairs. He has also served as the Chairman of the Colombo Stock Exchange. Ajit has a Degree in Economics and brings over 31 years of management experience.

Ronnie Peiris Non-Independent – Non-Executive, Director

Mr. Peiris was appointed to the Board of Keells Food Products PLC from 1st June 2003.

Appointed to the John Keells Holdings PLC Board during 2002/03 as Group Finance Director, he has overall responsibility for the Group’s Finance and Accounting,

Taxation, Corporate Finance, Treasury, Group Initiatives and the Information Technology functions. He is also Director of several Companies in the John Keells Group. He was previously the Managing Director of Anglo American Corporation (Central Africa) Limited in Zambia.

He has over 40 years finance and general management experience in Sri Lanka and abroad. He is a Fellow of the Chartered Institute of Management Accountants, UK, Association of Chartered Certified Accountants, UK, and the Society of Certified Management Accountants, Sri Lanka and holds an MBA from the University of Cape Town, South Africa. He is a member of the Committee of the Ceylon Chamber of Commerce, and serves on its Economic, Fiscal and Policy Planning Sub Committee.

Jitendra Gunaratne Non-Independent – Non-Executive, Director

Mr. Gunaratne was appointed to the Board of Keells Food Products PLC from 1st July 2005.

Mr. Gunaratne, is the President of the Consumer Foods sector of the John Keells Group and was appointed to the Board of Ceylon Cold Stores PLC in 2004/05. Prior to his appointment as President, he overlooked the Plantations and Retail sectors. His 33 years of management experience in the Group also covers Leisure and Property. He is the President of the Beverage Association of Sri Lanka and a member of the Food & Beverage Steering Committee of the Ceylon Chamber of Commerce.

Harsha Amarasekera PC Independent Non-Executive, Director

Mr. Amarasekera was appointed to the Board of Keells Food Products PLC from 1st July 2005 and is a member of the Audit Committee of the Board of Directors.

Mr. Harsha Amarasekera, President Counsel has a wide practice in the Original Courts as well as in the Appellate Courts. He has specialised 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 Vallibel One Ltd., CIC Holdings PLC, Expo Lanka Holdings PLC, Chevron Lubricants Lanka PLC, Amana Bank PLC, Amaya Leisure PLC, & Vallibel Power Erathna PLC. He is also a Director of CIC Agri Business Private Ltd.

Eardley Perera Independent Non-Executive, Director

Mr. Perera was appointed to the Board of Keells Food Products PLC from 1st October 2005 and is a member of the Audit Committee of the Board of Directors.

He is currently the Non- Executive Chairman of M&E (Private) Limited and serves on the Boards of other Public and Private Companies as a Non-Executive Director. He also serves as

a Member on the Board of Study, Postgraduate Institute of

Management (PIM), University of Sri Jayewardenepura. He is

a Chartered Marketer and senior member of the Chartered

Institute of Marketing, UK with many years of experience in general management and marketing in trade and industry. His focus has been on strategic marketing and business strategy, in which areas he is also actively engaged in consultancy assignments.

Ranil Pieris Independent Non-Executive, Director

Mr. Pieris was appointed to the Board of Keells Food Products PLC from 1st July 2005 and is a member of the Audit Committee of the Board of Directors.

He previously was Director and Chief Operating Officer at Richard Pieris and Company PLC (RPC), at the time he was on the Board of 13 Subsidiary Companies of RPC and was Chairman of some of these. He conceptualised and spearheaded the Arpico Super Centres and introduced the hyper market concept to the local market. For a period he was CEO at EDNA. More recently he was CEO/Managing Director of GTECH Lanka (Pvt) Ltd., a fully owned Subsidiary of GTECH Corporation (USA).

Today he is involved with developing a project in Real Estate. In addition he is on the Board of Rajawella Holdings, Arel Holdings and a Trustee of the Lionel Wendt. Mr. Pieris holds

a Bachelors degree from Florida International University in the USA.

degree from Florida International University in the USA. Preethiraj Jayawardena Independent Non-Executive Director

Preethiraj Jayawardena Independent Non-Executive Director

Mr. Jayawardena was appointed to the Board of Keells Food Products PLC from 10th May 2007 and is the Chairman of the Audit Committee of the Board of Directors.

A Fellow of the Institute of Chartered Accountants of

Sri Lanka and Certified Professional Managers. He is a Consultant to the Chemanex Group, Non-Executive Chairman of The Finance Company PLC and Lanka Rating Agency Limited, Non-Executive Director of CIC Holdings PLC, Commercial Bank PLC and a number of other unlisted Companies in the CIC Group. Served at Zambia Consolidated Copper Mines Limited for 13 years and held several senior positions including Head of Treasury. Member of the Monetary Policy Consultative Committee of the Central

Bank of Sri Lanka and Deputy Chairman of Sri Lanka Institute

of Directors.

Annual Report 2013/14 Legendary Elephant House sausages are Sri Lanka's top favourite. The best of

Annual Report 2013/14

Legendary Elephant House sausages are Sri Lanka's top favourite. The best of all time !

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Sustainability

Report

Annual Report 2013/14 Sustainability Report Strongly aligned to the corporate sustainability philosophy of the Parent

Annual Report 2013/14

Sustainability Report

Annual Report 2013/14 Sustainability Report Strongly aligned to the corporate sustainability philosophy of the Parent John

Strongly aligned to the corporate sustainability philosophy of the Parent John Keells Holdings PLC (JKH), the concept was deeply ingrained into the Keells Food Products PLC (KFP) operational fabric right from the inception. Combining in equal measure, the elements of corporate accountability and social responsibility, KFP’s sustainability ethos seeks to promote a distinctive brand identity that epitomises our commitment to engender sustainable progress for all stakeholders of the business. In setting out priorities, we have sought to articulate change in cognisance with specific areas within economic, environmental and social parameters that impact the Company’s bottom line. Not merely a proclamation, sustainability at KFP is an ongoing process that evolves to help us fulfil the day-to-day functions of our business in a sustainable manner.

Development of the talent pool

Product

Responsibility

Development of the talent pool Product Responsibility Social KFP’s Triple Bottom Line Approach to

Social

KFP’s Triple

Bottom Line

Approach to

Sustainability

KFP’s Triple Bottom Line Approach to Sustainability Economic Corporate Social Responsibility Resource

Economic

Corporate

Social

Responsibility

Resource Efficency Environmental
Resource
Efficency
Environmental

Ethical

Sourcing

Product Responsibility As a frontrunner in Sri Lanka’s processed food industry, our brands are found in millions of households across the country and consumers are therefore at the heart of our business. Understanding their needs and aspirations as well as their opinion of our brands will always remain the key to our success. We are thus governed by a set of fundamental guidelines to help us fulfil the promise of wholesome, convenient products with a guarantee of high quality at all times.

Recognising that consistent quality plays a pivotal role in retaining consumer loyalty towards our products, we remain committed to deliver this promise vis-à-vis strategic investments in technology. By augmenting capabilities at both our manufacturing plants in Ja-ela and Pannala, we aspire to become the pinnacle of manufacturing excellence.

Our state-of-the-art manufacturing technology has been instrumental in revolutionising the industry and transforming accepted norms and practices. As we strive to uphold the tenets of our customer promise, we remain fully compliant with all applicable regulatory standards for quality. Our overriding emphasis on quality and food safety has encouraged us to secure SLS quality systems certification along with ISO 9001 certification for quality management standards and ISO 22000 for Food Safety Standards. Moreover, we also subscribe to a voluntary code of principles for quality that dictates our actions, over and above that of the mandatory stipulations.

With customer health and safety being of paramount importance to us, we have structured all our systems and processes to optimise process efficiency at every level of the operation and ensure customer health and safety is not compromised at any stage of the product life cycle. The process is further supported by regular system audits that ensure all processes maintain optimum performance standards, with prompt remedial actions being initiated to rectify irregularities and system malfunctions.

initiated to rectify irregularities and system malfunctions. Our passion to deliver excellence stems the belief that

Our passion to deliver excellence stems the belief that the only sure way forward is to become a truly consumer-centric organisation that is sensitive to the needs of its customers. Resonating throughout the organisation and reflected in all aspects of the business, is KFP’s commitment to build a truly communicative, customer-centric culture. In place are a series of highly focused consumer initiatives that help us, not only to gain an insight into customer perceptions, but also to table the customer receptivity to our product range at varying stage of the product lifecycle. Supported by a number of outdoor promotional initiatives, we continued our close associations with customers across the country.

Research and development is another key area that is inexorably linked to the objective of providing customers with better and more user friendly products. Encompassing not only product research but also process improvements and technological developments as well, KFP focuses on a multi-dimensional research platform, that allows us a 360 degree view of our business and underpins our commitment to deliver sustainable products to the market.

Sustainable Sourcing Sustainable sourcing is yet another key tenet enshrined in our sustainability edict. We have always felt that the numerous benefits ensuing from such practices could be channelled towards creating aroader and a more meaningful impact at national level. At KFP we consider our suppliers not merely as raw material facilitators, but as active stakeholders responsible for the growth and future sustainability of our business. Spurred by the need for a reliable network of farmers and growers to fulfil our raw material requirements, we have made a conscious effort to nurture stable business relationships accentuated by mutual trust and respect. Having made considerable investments of our own towards achieving this goal, KFP has also leveraged on the collective group synergies to tap into an extended network of farmers and growers across the country to procure the requirements of chicken, pork, vegetables and spices needed for our range of raw materials.

Annual Report 2013/14 Sustainability Report Sustainable Sourcing Projects of Keells Food Products PLC 2013/14 Product

Annual Report 2013/14

Sustainability Report

Sustainable Sourcing Projects of Keells Food Products PLC 2013/14

Product

Location

Primary Suppliers/

No. of

Total Annual Supply (Kgs)

Total Payment

Project Partners

Farmers

(Rs.)

Pork

Kaluaggala, Divulapitiya

Kaypro Farms, Maxies Livestock, SN Brothers Farm, Pussalla Farm, Dilini Farms, CIC Farms Sanjeewa Farms, St. Anthonys Farm, DSD Perera, WG Fernando.

     

Bujjampola, Giriulla,

Weliweriya, Katana,

25

643,095

Kosgama, Pamunugama

Dambulla, Kandy.

667,931,277

Chicken

Wennappuwa Kosgama, Hanwella, Meethirigala.

Maxies & Company, Pussalla Farms, New Anthonys Farms, JP Poultry, Five Star, Weehena Farms, Neo Farm.

2200

1,634,205

 

Meegammana West,

       

Spices

Wattegama, Kandy.

Kandy Vanilla Growers Association

2500

35,622

37,352,242

 

Meegammana West,

Kandy Vanilla Growers Association

     

Vegetables

Wattegama, Kandy.

2500

138,923

13,247,324

Over the years our business demands have resulted in close interactions with a great many small-scale entrepreneurs across the country, which has helped us to promote the concept of fair purchasing practices. It has always been our goal to empower these communities and provide them with

the tools to re-engineer their livelihoods in a sustainable manner. Our initiatives not only create wealth and improve the quality of life, but also prove beneficial in a multitude of ways that form the basis for a more progressive society.

Case Study Entitled the “Farmer Out-Grower Programme”, in 2010, KFP launched a pioneering initiative to procure selected vegetables and the entire range of spices through a sustainable integrated farmer community, formed under the Kandy Vanilla Growers Association (KVGA).

Comprising of a registered farmer base of 2,306 farmers from seven districts, the KVGA also provides direct employment to twenty villagers from the Raththota area under a value addition initiative that encourages them to cultivate onions and sweet potatoes to earn an average income of anything between Rs. 15,000/- to Rs. 20,000/- per month, per villager. With this initiative, the number of females who were engaged in the value addition process also increased from twenty to thirty, during the same year.

KFP’s commitment to this initiative saw over 90% of the Company’s vegetable produce and spice requirements being serviced by the KVGA at a guaranteed price. Thus the Company was able to secure a guaranteed supply of high quality produce at very competitive prices. Furthermore, having effectively eliminated the middleman, the entire benefit was passed down to the grower. Encouraged by the success of the initiative, the KVGA too has invested a sum of Rs. 1.5 million towards a new spice mill, which would further enhance their production capacity.

The spices procured by KFP increased in volume as well as value from last year to this year and the total payout for the spices procured for the year was Rs. 38 million. The Company procured vegetable for a total value of Rs. 13 million during the year.

The streamlined supply management process that we adopt enables us to ensure the quality of the produce that we purchase. Placing much emphasis on the quality of the crops, we also offer our grower community the relevant technical input needed to improve their yield and conform to KFP’s quality assurance standards. In the case of animal farmers, we strive to educate them on the critical aspects of animal husbandry, including animal health, timely inoculations etc. The overriding emphasis placed on quality has prompted the KVGA to seek a Good Manufacturing Practices (GMP) accreditation from the Sri Lanka Standards Institute for its processing facility and grinding mill at Raththota.

Resource Efficiency Notwithstanding our pursuit of business excellence, protecting the environment has always been a predominant concern in all that we do. Our efforts to lessen the impact on the environment have encouraged us to adopt a holistic approach towards managing all our resources. Strongly aligned to the JKH Group energy policy, we have reshaped not only our corporate strategies, but the very fabric of our thought processes to emphasise the efficient consumption of resources at every stage of the operational structure.

Being an energy intensive operation, our manufacturing process commands the bulk of our energy resources, where our requirements are met through a combination of electrical energy , LP gas and furnace oil sources. As the predominant

energy source, electricity plays a critical role in determining the strength of our environmental footprint. Having outlined our priorities, we have envisioned a sustainable energy blueprint which we expect would deliver the desired level of change that we seek. Achieving the goals set therein would undoubtedly help create a greener footprint for the Company, while also conveying real benefits to key stakeholders who derive economic value from our operations. These plans have been put into action in the newly commissioned factory at the Makandura Industrial zone in Pannala, where ultra- modern technology is used to monitor energy usage. These efforts are deemed to relay sizable savings for the Company,

in the years ahead, more than validating the initial outlay.

Meanwhile, at the Ja-ela manufacturing facility, efforts are ongoing to improve the energy efficiency, with regular investments being made to introduce suitable technological modifications that would translate into real cost savings in the longer term.

Water management is another key area that demands our

attention. Efforts in this regard are ongoing, and encompass

a broad spectrum of initiatives at both factories to promote

a broad spectrum of initiatives at both factories to promote the prudent usage of water resources.

the prudent usage of water resources. Moreover, steps have also been taken to create a keen awareness and promote the importance of water conservation among employees. In compliance with the Central Environmental Authority (CEA) Guidelines, a fully-fledged water and effluent treatment system is also in place at both locations for the handling of both water and liquid waste prior to its release to the environment.

Meanwhile incinerators have been installed at both facilities to dispose of solid waste matter generated during the production process. Equipped with capacities of up to 100kgs per hour at Pannala and 150kgs per hour at Ja-ela, each incinerator unit has been commissioned in strict conformity with the mandatory stipulations of the CEA guidelines for waste disposal.

We have successfully contained noise levels within acceptable limits. All the noise measurements emanating from the peripheries of the factory are compliant with the Maximum Permissible Noise levels (MPNL) as per National Environmental (Noise Control) Regulations No.1 1996. In affirmation of our efforts to control noise emissions, we were awarded the certificate of compliance issued by the CEA in recognition of efforts towards the mitigation of sound emission generated during the manufacturing process.

Development of the Talent Pool At KFP we consider our employees an invaluable asset and the driving force behind our business. As a sustainable employer we look to encourage our people to align their developmental goals in line with corporate aspirations, while nurturing an environment which inspires them to discover their full potential. By pursuing a culture imbued with shared values, we hope to build a dynamic, motivated workforce that would be a national asset.

Given that talent acquisition is a key deliverable in our business agenda, we seek to recruit and retain the best talent at all times. While attracting quality recruits is primarily determined by the remuneration and benefits offered, our status as preferred employer gives us a considerable edge in drawing the crème-de-la-crème of the country’s employable workforce. Our benefit plan is market driven and strives to uphold market competitiveness.

As an equal opportunity employer, we do not endorse child labour or forced or compulsory labour. Moreover, on par with international standards, our procedures and practices conform to all International Labour Organization (ILO) guidelines.

Annual Report 2013/14 Sustainability Report Analysis on Executive Service years 41% 44% 15% 05 to

Annual Report 2013/14

Sustainability Report

Analysis on Executive Service years 41% 44% 15% 05 to 10 years 10 years &
Analysis on Executive
Service years
41%
44%
15%
05 to 10 years
10 years & above

Below 5 yearsyears 41% 44% 15% 05 to 10 years 10 years & above Employee Relations As key

Employee Relations As key stakeholders of our business, maintaining close relationships with our employees forms a key part of our endeavour to empower our human capital. In this regard, KFP’s association with the Ceylon Mercantile, Industrial and General Workers Union (CMU), has been a long and fruitful one, characterised by excellent relations throughout.

KFP Voluntary Retirement Scheme 2013 With the newly commissioned Pannala Manufacturing facility with enhanced capacity and a high degree of automation taking over a number of our key operations, certain aspects of the Ja-ela manufacturing plant fell redundant with effect from 2013. The Company offered the workers at the Ja-ela factory a Voluntary Retirement Scheme (VRS) and 129 workers voluntarily accepted the scheme.

Employee Recognition KFP’s open-door culture facilitates regular forums which provide an ideal platform not only for discussion and conflict resolution, but also sets the stage for employees to express their ideas for the betterment of the Company. In this regard, V sparc awards are presented, in recognition of the contribution made by employees towards improving the versatility of operations and upholding KFP’s promise of excellence at all times.

by employees towards improving the versatility of operations and upholding KFP’s promise of excellence at all
by employees towards improving the versatility of operations and upholding KFP’s promise of excellence at all
by employees towards improving the versatility of operations and upholding KFP’s promise of excellence at all
by employees towards improving the versatility of operations and upholding KFP’s promise of excellence at all
by employees towards improving the versatility of operations and upholding KFP’s promise of excellence at all
by employees towards improving the versatility of operations and upholding KFP’s promise of excellence at all
by employees towards improving the versatility of operations and upholding KFP’s promise of excellence at all
by employees towards improving the versatility of operations and upholding KFP’s promise of excellence at all
by employees towards improving the versatility of operations and upholding KFP’s promise of excellence at all
by employees towards improving the versatility of operations and upholding KFP’s promise of excellence at all

Training and Development We ensure our dynamic workforce remains well informed and geared to embrace the challenges of an ever changing business paradigm. With this clear goal in mind we continue to invest in providing our employees with the tools to be a step ahead, where integrated training is the key to helping employees develop and mature in tandem with their overall strategic direction. Hence our training agenda is a highly focused multidimensional discipline that seeks to foster the required skills in a timely and relevant manner.

Over the years, we have found that training and development has emerged as a critical success factor in creating the competitive edge to elicit sustainable corporate success. At KFP we continue to stress the importance of training employees to fine tune their capabilities and augment their own individual sustainability aggregate. Culminating in addressing both current and future needs, our training and awareness agenda is thus a comprehensive knowledge based tool designed to provide timely, relevant and accurate information at each level of the employee hierarchy.

Employee Grade

Total Number of Training Hours

AVP & Above

8

Manager

160

Assistant Manager

297

Executive Staff

411

Clerical Staff

378

Factory Staff

266

Total

1,520

Health and Safety at the Workplace Our work ethic has been conceptualized with a predominant focus on the principles of workplace safety. All safety procedures are detailed in a comprehensive safety manual which contain details from simple precautions to more complex measures to be adopted in specific situations. We have made sure that basic safety instructions are prominently displayed at all our premises along with clearly defined demarcation lines and evacuations paths to be used in an emergency. We provide personnel with the mandatory protective equipment as defined by their job description. Both the factories are certified for health and safety management systems (OHSAS) 18001.

for health and safety management systems (OHSAS) 18001. Corporate Social Responsibility Our commitment to develop
for health and safety management systems (OHSAS) 18001. Corporate Social Responsibility Our commitment to develop

Corporate Social Responsibility Our commitment to develop sustainable communities is deeply entrenched in our value code. It is our belief that communities should be empowered with the knowledge and tools to create meaningful change within the community and make a positive contribution to society at large. In confluence with this thinking we have engaged in a number of community development projects to enhance the livelihoods and living standards of many local communities across the country.

During the year 2013/14 the Company took on 43 undergraduates from universities across the country, being part of the undergraduate training programme.

Annual Report 2013/14 Our Krest range includes a variety of delicious, ready to fry meats,

Annual Report 2013/14

Our Krest range includes a variety of delicious, ready to fry meats, and especially crispy, scrumptious Chinese Rolls.

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Corporate

Governance

Annual Report 2013/14 Corporate Governance 1. Introduction Keells Food Products PLC (KFP) and its Subsidiary

Annual Report 2013/14

Corporate Governance

1.

Introduction

Keells Food Products PLC (KFP) and its Subsidiary John Keells Foods India (Pvt) Limited (JKFIL) referred to as the “Group” and its Holding Company John Keells Holdings PLC (JKH) has a Corporate Governance philosophy founded on a culture of performance within a framework of conformance and compliance to succeed in today’s competitive business environs

in a manner that is sustainable and equitable to all our

stakeholders.

This philosophy has been institutionalised at all levels in the Group through a strong set of corporate values and

a written code of conduct that all employees, Senior

Management and the Board of Directors are required

to follow in the performance of their official duties and

in other situations that could affect the Group’s image.

The Directors and employees at all levels are expected to display ethical and transparent behaviour through their communication and role modeling. All the Group’s recognition schemes insist, as a minimum, that all employees have lived the JKH values and the behaviour of the Senior Management of the Group, is monitored through an annual 360 degree feedback programme.

The Group is committed to the highest standards of business integrity, ethical values and professionalism in all its activities towards rewarding all its stakeholders with greater creation of value, year-on-year. Our governance framework which has been communicated to all levels of management and staff in individual businesses and functional units is based on the following –

The Board is responsible to the shareholders to fulfil its stewardship obligations, in the best interest of the Company and its stakeholders.

Maximising shareholder wealth-creation on a sustainable basis while safeguarding the rights of multiple stakeholders.

The methods we employ to achieve our goals are as important to us as the goals themselves.

No one person has unfettered powers of decision making.

Building and improving stakeholder relationships is an integral aspect of board effectiveness and is a responsible approach to business.

Opting, when practical, for early adoption of best practice governance regulations and accounting standards.

Our resolve to maintain strong governance practices which present strong commercial advantages especially through a lowering of our cost of capital as a result of the strengthened stakeholder confidence, particularly the confidence of our investors, both institutional and individual.

The making of business decisions, and resource allocations, in an efficient and timely manner, within a framework that ensures transparent and ethical dealings which are compliant with the laws of the country and the standards of governance our stakeholders expect of us.

2. Corporate Governance Framework

2. Corporate Governance Framework JKH Corporate Governance System within a Sustainability Development Framework Level

JKH Corporate Governance System within a Sustainability Development Framework

Level

Internal governance structure

Board of Directors and Senior Management Committees Human Resources Related Party and Compensation Transaction
Board of Directors and
Senior Management Committees
Human Resources
Related Party
and Compensation
Transaction
Committee
Review Committee
Chairman and
the Board of
Directors
Nominations
Audit
Committee
Committee
CEO
Management Committee (MC)
Employees Empowerment
Group Executive Committee (GEC
(MC) Employees Empowerment Group Executive Committee (GEC • All Board sub committees are chaired by Independent

All Board sub committees are chaired by Independent Directors

The Remuneration Committee and the Nomination Committee of the Parent Company John Keells Holdings PLC functions as the Remuneration Committee and the Nomination Committee of the Company and it’s Subsidiary.

The Related Party Transactions Review Committee of The Parent Company John Keells Holdings PLC functions as the The Related Party Transactions Review Committee for the Company and its Subsidiary.

Integrated

Governance Systems

and Procedures

Strategy

Formulation and

Decision Making

Process

Human Resource

Governance

Integrated Risk

Management

IT Governance

Stakeholder

Management

and Effective

Communication

Assurance

Mechanisms

Independent Director Audit Committee Employee Participation Internal Control JKH Code of Conduct
Independent
Director
Audit
Committee
Employee
Participation
Internal Control
JKH Code of
Conduct
Ombudsman External Control
Ombudsman
External
Control

Regulatory benchmarks

Key components

Companies Act No. 7 of 2007 Mandatory complianceExternal Control Regulatory benchmarks Key components Listing Rules of the Colombo Stock Exchange (CSE)

components Companies Act No. 7 of 2007 Mandatory compliance Listing Rules of the Colombo Stock Exchange

Listing Rules of the Colombo Stock Exchange (CSE) Mandatory compliancecomponents Companies Act No. 7 of 2007 Mandatory compliance The Code of Best Practice on Corporate

The Code of Best Practice on Corporate Governance as published by the Securities and Exchange Commission and the Institute of Chartered Accountants, Sri Lanka Voluntary compliance

The meetings of the Audit Committee are attended by the Chief Executive Officer, Chief Financial Officer, Head Of Finance, Head of Group Business Process Review, and External Auditors by invitation.

Annual Report 2013/14 Corporate Governance The Corporate Governance framework of the Group entails three key

Annual Report 2013/14

Corporate Governance

The Corporate Governance framework of the Group entails three key components as summarised below and the discussion within this report is sequenced to highlight the different elements that combine to ensure a robust and a sound governance framework.

1. Internal Governance Structure – This comprises of the committees of the Parent Company and the Group which formulate, execute and monitor Group related strategies and initiatives as well as processes and procedures which support these committees to perform their roles effectively.

2. Assurance Mechanisms – This comprises of the ‘bodies and mechanisms’ which are employed in enabling regular review of progress against objectives with a view to highlighting deviations and quick redress and in providing assurance that actual outcomes are in line with expectations.

3. Regulatory Framework – From an external perspective, adherence to laws and best practices plays a pivotal role in directing the Group towards conforming with established governance related laws, regulations and best practices. The Group’s governance philosophy is practiced in full compliance with the following Acts, rules & regulations;

Companies Act No. 7 of 2007 – Mandatory compliance

Listing Rules of the Colombo Stock Exchange (CSE) – Mandatory compliance (Including subsequent revisions up to 1 April 2014)

The Code of Best Practice on Corporate Governance as published by the Securities and Exchange Commission and the Institute of Chartered Accountants, Sri Lanka – Voluntary compliance

Where necessary, and applicable, any deviations as allowed by the relevant rules and regulations have been explained.

3.

Internal Governance Structure The Internal Governance Structure encompasses two main pillars as illustrated in the diagram and those are;

a.

Board of Directors and Senior Management Committees Executive authority is well devolved and delegated through a committee structure ensuring that the CEO, and functional managers are accountable for the Group and the business units/sub-functions respectively.

Clear definitions of authority limits, responsibilities and accountabilities are set and agreed upon in advance to achieve greater operating efficiency, expediency, healthy debate and freedom of decision making.

b.

Integrated Governance Systems and Procedures Promote good governance within the wider context of achieving sustainable success which is beyond mere conformance with regulations. The internal governance structure, ensure implementation and execution towards upholding the Group’s Corporate Governance framework by internal policies, processes and procedures – namely;

Strategy formulation and decision making

Employee performance governance

People and talent management

Stakeholder management

Effective & transparent communication

Integrated risk management

IT governance

3.1

Board of Directors

The Board of Directors, along with the Chairman, is the apex body responsible and accountable for the stewardship function. The Directors are collectively responsible for upholding and ensuring the highest standards of corporate governance and inculcating ethics and integrity.

Please refer the Directors’ Profiles section for details on expertise, experience and qualifications of the Board of Directors.

3.1.1 Board Responsibilities and Decision Rights

Notwithstanding the functioning of the Board Committees, the Board of Directors is collectively responsible for the decisions and actions taken by these Board sub-committees.

The Corporate Governance Framework of the Parent Company John Keells Holdings PLC and the Group expects the Board of Directors to:

Provide direction and guidance to the Company and its Subsidiary, in the formulation of its high-level strategies, with emphasis on the medium and long term, in the pursuance of its sustainable development goals.

Review and approve annual plans and longer term business plans.

Track actual progress against plans.

Review HR processes with emphasis on top management succession planning.

Review the performance of the Executive Director.

Monitor systems of governance and compliance.

Director. • Monitor systems of governance and compliance. • Oversee systems of internal control, risk management

Oversee systems of internal control, risk management and establish whistle blowing conduits.

Determine any changes to the discretions/authorities delegated from the Board to the executive levels.

Review and approve major acquisitions, disposals and capital expenditure.

Approve any amendments to constitutional documents.

Approve the issue of equity.

Adopt voluntarily, best practices where relevant and applicable.

3.1.2

Board Composition and Directors’ Independence

As at 31st March 2014, the Board consisted of eight (8) Directors, of which four (4) are Non-Executive, Independent Directors. As at the last Annual General Meeting held on the 25th June 2013, the Board consisted of the same number of Directors.

The Board members have a wide range of expertise as well as significant experience in corporate, marketing, legal and financial activities enabling them to discharge their governance duties in an effective manner.

Name of Director

Executive / Non Executive

Independent

Involvement/

Involvement/

Involvement/

Continuously served for 9 years

/ Non

Interest in

Interest in

Interest

 

Independent

Shareholding

Management

in Supply

Contracts

 

Mr. S C Ratnayake – Chairman

Non Executive

Non

Yes

No

No

N/A

Independent

Mr. A D Gunawardena

Non Executive

Non

No

No

No

N/A

Independent

Mr. J R F Peiris

Non Executive

Non

No

No

No

N/A

Independent

Mr. J R Gunaratne

Non Executive

Non

No

Yes

No

N/A

Independent

Mr. S H Amarasekara PC

Non Executive

Independent

No

No

No

No

Mr. R Pieris

Non Executive

Independent

No

No

No

No

Mr. A D E I Perera

Non Executive

Independent

No

No

No

No

Mr. M P Jayawardena

Non Executive

Independent

No

No

No

No

Annual Report 2013/14 Corporate Governance 3.1.3 Non-Executive/Independent Directors and the Board balance Collectively,

Annual Report 2013/14

Corporate Governance

3.1.3 Non-Executive/Independent Directors and the Board balance

Collectively, the Non-Executive Directors bring a wealth of value adding knowledge, ranging from domestic and international experience to specialized functional know-how, thus ensuring adequate Board diversity in accordance with principles of Corporate Governance.

The Company is conscious of the need to maintain an appropriate mix of skills and experience in the Board. Independence of the Directors has been determined in accordance with the criteria of the CSE Listing Rules (revised in April 2011), and the Board confirms that its present composition of Non-Executive Independent Directors is in line with the requirements of the CSE Listing Rules. The four (4) Independent Non-Executive Directors have submitted signed confirmations of their independence.

All Non-Executive Directors (NED) are encouraged to propose discussion items for the Board meetings.

3.1.4 Board Skills

Collectively, Non-Executive Directors (NEDs) bring a wealth of diverse experience, exposure and knowledge of domestic and international markets, specialised functional know-how and independence of thought.

The Group is ever conscious of the need to maintain an appropriate mix of skills and experience in the Board through a regular review of its composition, in ensuring that the skills representation is in sync with current and future needs.

The following skills and exposure are currently represented on the Board;

Group exposure, including intimate knowledge/ experience of its culture, over long periods of time

Large multinational and international organisational exposure and experience

Portfolio management including mergers and acquisitions skills

Export oriented companies, FMCGs and commercial bank exposure and experience

Chambers of Commerce and industry associations exposure and experience

HR Management and Industrial Relations skills

Accounting, Auditing and Risk Management skills

Sales and Marketing skills

Macro Finance, Economics and Treasury skills

Legal skills

Regulatory Bodies exposure and experience

The Board consists of two senior qualified Accountants with significant experience in the corporate sector. Both of them possess the necessary knowledge and expertise to offer the Board of Directors guidance on matters of finance. One Director serves as the Finance Director of the Parent Company whilst the other as the Chairman of the Audit Committee.

3.1.5

Conflicts of Interest and Independence

Each Director has a continuing responsibility to determine whether he or she has a potential or actual conflict of interest arising from external associations, interests in material matters and personal relationships which may influence his judgment. Such potential conflicts are reviewed by the Board from time to time.

Details of companies in which Board members hold Board or Board committee membership are available with the Company for inspection by shareholders on request. In order to avoid potential conflicts or biasn, Directors adhere to best practices as illustrated on the following page.

Prior to Appointment Nominees are requested to make known their various interests that could potentially
Prior to Appointment
Prior to Appointment

Nominees are requested to make known their various interests that could potentially conflict with the interests of the Company.

Once Appointed
Once Appointed

Directors obtain Board clearance prior to:

• Accepting a new position.

• Engaging in any transaction that could create a potential conflict of interest.

All NEDs notify the Chairman of any changes to their current board repre- sentations or interests.

During Board Meetings
During Board Meetings

Directors who have an interest in a matter under discussion:

• Excuse themselves from deliberations on the subject matter.

• Abstain from voting on the subject matter (abstentions, where applicable, from decisions, are duly minuted).

3.1.6

Board Tenure, Retirement and Re-election

The Directors are appointed and recommended for re-election subject to the age limit as per statutory provision at the time of the appointment.

At each Annual General Meeting one third of the Directors, retire by rotation on the basis prescribed in the Articles of Association of the Company and are eligible for re-election. The Directors who retire are those who have been longest in office since their appointment / re-appointment. In addition any new Director who was appointed to the Board during the year is required to stand for re-election at the next Annual General Meeting.

The re-election of Directors ensures that shareholders have an opportunity to reassess the composition of the Board. The names of the Directors submitted for re- election are provided to the shareholders in advance to enable them to make an informed decision on their election.

The names of the retiring Directors eligible for re- election this year are mentioned in the Notice of the Annual General Meeting of the Company.

3.1.7

Access to Independent Professional Advice

In order to preserve the independence of the Board, and to strengthen the decision making, the Board seeks independent professional advice when deemed necessary.

Accordingly, the Board obtains independent professional advice covering areas such as;

Impacts on business operations of the current and emerging economic and geo-political shifts.

Legal, tax and accounting aspects, particularly where independent external advice is deemed necessary in ensuring the integrity of the subject decision.

Market surveys, architectural and engineering advisory services as necessary for business operations.

Actuarial valuation of retirement benefits and valuation of property including that of investment property.

Information technology consultancy services pertaining to the enterprise resource planning system, the distributor management system or other major projects.

Specific technical know-how and domain knowledge for identified project feasibilities and evaluations.

Additionally, individual Directors are encouraged to seek expert opinion and/or professional advice on matters where they may not have full knowledge or expertise.

3.1.8

Role of the Chairman of the Board

The Chairman is a Non-Executive Non-Independent Director. The Chairman conducts Board Meetings ensuring effective participation of all Directors.

Annual Report 2013/14 Corporate Governance The Chairman is responsible for providing leadership to the Board

Annual Report 2013/14

Corporate Governance

The Chairman is responsible for providing leadership to the Board and ensuring that proper order and effective

discharge of Board functions are carried out at all times by the Board Members. The roles of the Chairman and the Chief Executive Officer (CEO) are separate, with

a clear distinction of responsibilities between them.

The executive responsibility for the functioning of the Company’s business including implementation of strategies approved by the Board, and developing and recommending to the Board the business plans and budgets that support the Company’s strategy has been entrusted to the CEO.

3.1.9 Board Meetings

3.1.9.1 Regularity of Meetings

The Board meets at the least, once every quarter. Any absences are excused in advance and duly recorded

in the minutes. The absent members are immediately

briefed on the discussions and actions taken during the

meeting.

Directors are provided with the necessary information well in advance (at least 2 weeks prior to the Board meeting) in order to facilitate more informed decision making. Board information packs supplied to the Directors include the Board Resolutions and other functional areas such as tax, human resources, treasury and corporate social responsibility.

The attendance of the Directors at the Board Meetings held for the period 1st April 2013-31st March 2014. As follows;

   

Date

 

Directors

29th

28th

22nd

24th

July

October

January

April

2013

2013

2014

2014

Mr. S C Ratnayake

-

Mr. A D Gunewardena

Mr. J F R Peiris

Mr. J R Gunaratne

Mr. R Peiris

Mr. S H Amarasekera PC

-

-

Mr. A D E I Perera

Mr. P S Jayawardena

3.1.9.2 Typical Board Agenda

Confirmation of previous minutes.

Circular resolutions.

Board subcommittee reports and other matters exclusive to the Board.

Matters arising from the previous minutes.

Status updates of major projects.

Review of performance – in summary and in detail, including high level commentary on actuals and outlook

Summation of strategic issues discussed at pre-board meetings.

Approval of Quarterly and Annual financial statements.

Ratification of capital expenditure and donations.

Ratification of the use of the Company seal and share certificates issued.

New resolutions.

Report on corporate social responsibility.

Review of risks, sustainability development, HR practices and updates, etc.

Any other business.

3.1.9.3 Supply of information

In order to ensure robust discussion, informed deliberation and effective decision making, the Directors are provided access to;

Information as is necessary to carry out their duties and responsibilities effectively and efficiently.

Information updates from management on topical matters, new regulations and best practices as relevant to the Group’s business.

External and internal auditors.

Experts and other external professional services.

The services of the Company secretaries whose appointment and/or removal is the responsibility of the Board.
Periodic performance reports.

Senior Management under a structured arrangement.

3.1.10 Board Directors Delegation of Authority

The Board has delegated some of its functions to Board committees while retaining final decision rights

pertaining to matters under the purview of these

committees.

The Board has, subject to pre-defined limits, delegated its executive authority to the CEO who exercises this

authority through the Management Committee (MC), which he heads and to which he provides leadership and direction.

3.1.11 Group Executive Committee of the Parent Company

The Group Executive Committee (GEC) of the Parent Company JKH is the overlay structure under the leadership and direction of the CEO of the Group, which implements the policies and strategies determined by the Board.

Policies that affect the JKH Group and strategic matters that can be synergised across the JKH Group are discussed at the GEC prior to it being recommended

to the KFP Board.

3.1.11.1

Composition As at 31 March 2014, the 9 member GEC consisted of the Chairman, the Deputy Chairman, the Group Finance Director of JKH and the Presidents of each business/function of JKH.

3.1.11.2

Key Responsibilities

Approving the Industry Groups short, medium and long term strategies and annual plans and monitoring the actual business performance against pre-set objectives and key performance indicators on a quarterly basis.

Regularly reviewing the portfolio of businesses, and the supporting functions, in terms of current performance, future prospects and synergy.

Recommending to the Board new business opportunities.

Assisting the Chairman in succession planning and appointment of Presidents, Sector Heads, Functional Heads and other Senior Managers.

Career management of Senior Executives (Assistant Vice President and above).

Regularly reviewing the HR practices, including the compensation philosophy of the Group through surveys and other internally generated indicators.

3.1.11.3

Enablers of the JKH Operating Model

A

key responsibility of the members of the GEC is

to

act as the enablers of the operating model of the

Group. Towards this end, GEC members, particularly the Presidents, not only play a mentoring role, but are totally accountable for the business units and functions under their purview. The members of the GEC are well

under their purview. The members of the GEC are well equipped to execute these tasks and

equipped to execute these tasks and bring in a wealth of experience and diversity to the Group in terms of their expertise and exposure.

3.1.12

Management Committee (MC)

The MC operates under the leadership of the CEO and is dedicated and focused towards implementing strategies and policies determined by the Board, and designing, implementing and monitoring the best practices in their respective functions, even at departmental level where appropriate and material.

3.1.12.1

Key Objective

The underlying intention of the MC is to encourage the respective business units to take responsibility and accountability to the lowest possible level, via suitably structured committees and teams in a management by objectives setting.

3.1.12.2

Scope

The agenda of the MC is carefully structured to avoid duplication of effort and ensure that discussions and debate are complementary both in terms of a bottom-up and top-down flow of accountabilities and information. Responsibility and accountability of the effective functioning of the MC is vested upon the CEO, the Functional Heads and managers as applicable.

The Good Manufacturing Practice (GMC) focus is aligned to headline financial and non-financial indicators, strategic priorities, and risk management, implement strategies and policies determined by the Board, the use of IT as a tool of competitive advantage, new business development, continuous process improvements , management of human resources and managing through delegation and empowerment, the business affairs of the respective sectors.

Responsibility for monitoring and achieving plans as well as ensuring compliance with Group policies and guidelines rests with the CEO and the Functional Heads where applicable.

3.1.13

Audit Committee

The Audit Committee comprises solely of Non- Executive, Independent Directors and conforms to the requirements of the Listing Rules of the Colombo

Annual Report 2013/14 Corporate Governance Stock Exchange. It is governed by a Charter, which inter

Annual Report 2013/14

Corporate Governance

Stock Exchange. It is governed by a Charter, which inter alia, covers the reviewing of policies and procedures of Internal Control, business risk management, compliance with laws and Company policies and the independent audit function.

The Committee is also responsible for the consideration and recommendation of the appointment of External Auditors, the maintenance of a professional relationship with them, reviewing the accounting principles, policies and practices adopted in the preparation of public financial information and examining all documents representing the final Financial Statements.

A quarterly self certification program requires that the Chief Executive Officer , Chief Financial Officer and the Head of Finance of the Group to confirm compliance, on a quarterly basis, with statutory requirements and key control procedures and to identify any deviations from the set requirements. In addition the President- CEO and the Functional Heads of the different Department are also required to confirm operational compliance with statutory and other regulations and key control procedures, coupled with the identification of any deviations from the expected norms. These have significantly aided the committee in its efforts in ensuring correct financial reporting, effective internal control and risk management.

The Audit Committee had 6 meetings during the year and attendance of the Audit Committee members are indicated in the Audit Committee Report on page 68.

The CEO, the CFO, the Head of Finance and other Functional Heads are invited to the meetings of the Audit Committee. The detailed Audit Committee report including areas reviewed during the financial year 2013/14 is given on pages 68 to 69 of the Annual Report.

3.1.14 Human Resources and Compensation Committee of the Parent and Policy

The Human Resources and Compensation Committee of the Parent Company John Keells Holdings PLC functions as the Human Resources and Compensation Committee of the Group and conforms to the requirements of the Listing Rules of the Colombo Stock Exchange.

The remuneration Committee of the Parent Company consists of following five Non-Executive Independent Directors:

Mr. E F G Amerasinghe – Chairman Dr. I Coomaraswamy Mr. A R Gunasekara Mrs. S S Tiruchelvam (Resigned w.e.f. 9/9/2013) Mr. M A Omar (Appointed w.e.f. 28/05/2013) Mr. N A Fonseka (Appointed w.e.f. 7/11/2013)

The key principles underlying the Remuneration Policy of the Group are as follows:

All Executive roles across the JKH Group have been banded by an independent third party on the basis of the relative worth of jobs.

Compensation be set at levels that are competitive to enable the recruitment and the retention of high calibre executives in the identified job classes/bands – as guided by the best comparator set of Companies (from Sri Lanka and the region, where relevant).

Compensation, comprising of fixed (base) payments, short term incentives and long term incentives be tied to performance, both individual and organisational.

Performance be measured annually on well-defined objectives and matrices at each level- individual, business and Group, thereby aligning shareholder interests through a well established performance management system.

The more senior the level of management, the higher the proportion of the incentive component, thereby lowering the proportion of the fixed (base) component of total compensation.

As the seniority, and therefore the decision influencing capability of the position on organisational results, increases, the individual performance to hold lesser weightage than the organisational performance when determining total compensation and incentives.

3.1.15 Nominations Committee of the Parent

The Nominations Committee of the Parent Company John Keells Holdings PLC functions as the Nominations Committee of the Company and its Subsidiary and conforms to the requirements of the Listing Rules of the Colombo Stock Exchange.

Composition The Chairperson must be a Non-Executive Director. The Chairman of the Board is a

Composition

The Chairperson must be a Non-Executive Director. The Chairman of the Board is a member of the Nomination Committee

Mandate

Define and establish nomination process for NEDs, lead the process of board appointments and make recommendations to the Board on the appointment of Non-Executive Directors.

Scope

i. Assess skills required on the Board given the need of the businesses.

ii. From time to time assess the extent to which required skills are represented on the Board.

iii. Prepare a clear description of the role and capabilities required for a particular appointment.

iv. Identify and recommend suitable candidates for appointments to the Board.

v.

Ensure, on appointment to board, NEDs receive a formal letter of appointment specifying clearly.

Expectation in terms of time commitment.

Involvement outside of the formal board meetings.

Participation in committees.

( The appointment of Chairperson is a collective decision of the Board.)

The Nominations Committee members of the Parent Company are as follows;

Mr. T Das - Chairman Mr. S C Ratnayake Mrs. S Tiruchelvam (Resigned w.e.f. 9/9/2013) Mr. M A Omar (Appointed w.e.f. 7/11/2013) Mr. E F G Amerasinghe (Appointed w.e.f. 7/11/2013) Mr. D A Cabraal (Appointed w.e.f. 7/11/2013)

3.1.16 Related Party Transaction Review Committee of the Parent (Effective from 01st April 2014)

With the goal of adding value, following global benchmarking of its governance framework, the Board

of the Parent Company established a Related Party Transaction Review Committee with effect from 1st

April 2014, to review all the related party transactions of the listed Companies within the Group. This move also complies with the early adoption of the Code of Best Practice on Related Party Transactions issued by the SEC. On the basis that the Parent Company is also

a listed Company, the SEC has permitted the Related

Party Transactions Review Committee of the Parent Company, to represent the listed Companies in the

John Keells Group of which, Keells Food Products PLC

is a member.

Composition

The Related Party Transaction Review Committee of the Parent Company, John Keells Holding PLC, functions as the Related Party Transaction Review Committee of the Company and its Subsidiary. It comprises of three Non-Executive Independent Directors and two Non-Executive Non-Independent Directors. The Chairperson is a Non-Executive Director.

Mandate

To ensure on behalf of the Board, that all Related Party Transactions of the Company and its Subsidiary are consistent with the Code of Best Practices on Related Party Transactions issued by the SEC.

Scope

Develop, and recommend for adoption by the Board of Directors of the Company and its Subsidiary, a Related Party Transaction Policy which is consistent with the Operating Model and the Delegated Decision Rights of the Group.

ii.

Update the Board of Directors the Related Party Transaction of each of the Companies of the Group

on a quarterly basis.

Integrated governance systems and procedures

Integrated governance systems and procedures Annual Report 2013/14 Corporate Governance The Related Party Transaction

Annual Report 2013/14

Corporate Governance

The Related Party Transaction Review Committee members of the Parent Company are as follows; Mr. N A Fonseka – Chairman Mr. E F G Amerasinghe Mr. D A Cabraal Mr. S C Ratnayake Mr. J F R Peiris

3.1.19 Going Concern

The Board of Directors upon the recommendation of the Audit Committee is satisfied that the Company and it’s Subsidiary has sufficient resources to continue in operation for the foreseeable future. In the event that the net assets of the Company and it’s Subsidiary fall below a half of shareholders' funds, shareholders would be notified and an extraordinary resolution passed on the proposed way forward.

The going concern principle has been adopted in preparing the Financial Statements. All statutory and material declarations are highlighted in the Annual Report of the Board of Directors in the Annual Report. Financial Statements are prepared in accordance with the Sri Lanka Financial Reporting Standards (SLFRS) and Lanka Accounting Standards (LKAS), including all the new standards introduced during the subject year, and International Accounting Standards (IAS), as applicable.

Information in the financial statements of the Annual Report are supplemented by a detailed ‘Management Discussion and Analysis’ which explains to shareholders the strategic, operational, investment and risk related aspects of the Company that have translated into the reported financial performance and are likely to influence future results.

Integrated Governance Systems and Procedures

Integrated governance systems and procedures

Strategy formulation and decision making process

Employee performance governance

People and talent management

Stakeholder management

Effective & transparent communication

IT governance

Integrated risk management

3.1.17

Director Remuneration

3.1.17.1

Non-Executive Director Remuneration

Compensation of NEDs is determined in reference to fees paid to other NEDs of comparable Companies and is adjusted where necessary in keeping with the Group complexity. The fees received by NEDs are determined by the Board and reviewed annually. NEDs do not receive any performance/incentive payments and are not eligible to participate in any of the Group’s share option plans. Non-Executive fees are not subject to time spent or defined by a maximum/minimum number of hours committed to the Group per annum, and hence are not subject to additional/lower fees for additional/lesser time devoted.

3.1.17.2

Compensation for Early Termination In the event of an early termination of the Directors there are no compensation commitments other than for Directors fee Payable if any, interims of contracts for the NEDs.

 

3.2

3.1.18

Directors’ Responsibilities The Statement of Directors’ Responsibilities in relation to financial reporting is given in the Financial Information section of the Annual Report. The Directors’ interests in contracts of the Company are addressed in the Annual Report of the Board of Directors.

The Board of Directors in consultation with the Audit Committee have taken all reasonable steps in ensuring the accuracy and timeliness of published information and in presenting an honest and balanced assessment of results in the quarterly and annual Financial Statements.

As discussed in the shareholder relations section of this note, all price sensitive information has been made known to the Colombo Stock Exchange, shareholders and the press in a timely manner and in keeping with the regulations.

3.2.1 Strategy Formulation and Decision Making Process

Strategy formulation and evaluation cycle

5. Performance evaluation of the second half/full year 4. Reforecasting the targets for the second
5. Performance
evaluation of the
second half/full
year
4. Reforecasting
the targets for
the second half
of the year
Continuous
1. Formulating
business strategy,
objectives and
risk management
for each BU for
the financial year
performance
monitoring at
BU level
3. Business
performance
evaluation of
first six months
against target
2. Board and
GEC approval

Step 1 Business Units and Functional Units of the Group carry out detailed analysis on the following aspects when formulating strategies for the forthcoming financial year;

Customer and stakeholder needs and the expectations of the society as a whole.

Organisation’s capabilities to generate the required products and services .

Opportunities and threats that arise from competitive environments.

Risks associated with the operating landscape.

Formulated strategies are presented to the Board of Directors of the Company and the Group Executive Committee of the Parent Company JKH by the respective business units for approval and the approved strategies are then translated into numbers where annual plans, key performance indicators (KPI) and targets for each business unit are set.

indicators (KPI) and targets for each business unit are set. Step 2 The Board and the

Step 2 The Board and the Group Executive Committee ensures that the key enablers of performance, together with organisational structures and processes are defined and are in place to ensure the delivery of its goals and objectives and approves annual plans.

Step 3 Upon the completion of the first half of the financial year the Board and the Group Executive Committee evaluates the performance of the businesses against the plan with deviations being noted along with the identification of corrective action.

Step 4 Reforecast Annual Plan for the second half of the financial year is presented to the Board and the Group Executive Committee for approval having taken into consideration changes taking place at both a macro and micro levels.

Step 5 Business performance during the second half of the financial year as well as the full financial year is evaluated against the reforecast plans and targets at the end of the financial year.

Notwithstanding the aforementioned periodic monitoring by the Group Executive Committee (GEC), frequent and detailed performance evaluations take place at regular intervals at the Company and its

industry group levels and if severe issues arise meetings

are called upon and immediate action is taken.

3.2.2 Employee Performance Governance

As stated at the outset, a proven Performance Management System and other supporting Human Resource Management Processes are essential

in entrenching a culture of performance within

a framework of compliance, conformance and

sustainable development.

3.2.2.1 Performance Management

The Performance Management System as illustrated below is at the heart of many supporting Human Resource Management processes such as Learning and Development, Career Development, Succession Planning, Talent Management, Rewards/Recognition and Compensation/Benefits.

Annual Report 2013/14 Corporate Governance Pay decisions are based on : Identification of : Performance

Annual Report 2013/14

Corporate Governance

Pay decisions are based on : Identification of : Performance rating. Competency rating. Ease of
Pay decisions are based on :
Identification of :
Performance rating.
Competency rating.
Ease of replacement rating.
Long term development plans.
Competency based training
needs.
Business focused training needs.
Learning &
development
Compensation
Career
& benefits
development
Nomination for awards :
Identification of :
Chairman’s award.
Employee of the year.
Champion of the year.
Performance
Management
System
Promotions.
Inter Company transfers.
Inter department transfers.
Rewards &
Succession
recognition
planning
Talent
management
Identification of :
Identification of :
High performers.
Group talents.
Jobs at risk.
Suitable successors.
Readiness level of successors.
Development plans.
External recuitment.

The Group’s Performance Management System has been very instrumental in empowering staff in achieving organisational goals through relevant training, recognition and reward.

3.2.2.2Performance Based Compensation

Manager and above – given the high level of decision making authority, the performance is measured annually on well-defined individual, as well as organisational objectives and matrices which reflect, and are positively correlated to the Company and its Subsidiary’s objectives, thereby aligning employee management and stakeholder interests.

Assistant Manager and Executive level – measured only by the individual performance rating as it is difficult for these individuals to directly influence the performance of their respective business units.

Clerical and Non-Executive – At these levels the short term incentive takes the form of a share of profits (Group-wide) calculated as a multiple of basic salary. No recognition is given to the individual performance rating.

Performance Management

“Pay for performance”

Greater prominence is given to the incentive component of the total target compensation of the management.

of the total target compensation of the management. Satisfaction “More than just a workplace” Continuously

Satisfaction

“More than just a workplace”

Continuously focuses on creating a sound work environment covering all aspects of employee satisfaction.

Compensation Policy

Compensation comprises of fixed (base) payments, short term incentives and long term incentives.

Higher the authority level within the Group, higher the incentive component.

Greater the decision influencing capability of a role, higher the weight given on organisational performance as opposed to the individual performance.

Long term incentives in the form of Employee Share Options (ESOP).

Internal Equity

Remuneration policy is built upon the premise of ensuring equal pay for equal roles.

Manager and above level roles are banded using the Mercer methodology for job evaluation on the basis of the relative worth of jobs.

External Equity

Fixed compensation is set at competitive levels using the median, 65th percentile and 75th percentile of the best comparator set of companies (from Sri Lanka and the region, where relevant) as a guide.

Regular surveys are done to ensure that employees are not under / over compensated.

Equity sharing The employee share option schemes (ESOPs) implemented by the Parent Company JKH, has been

The equity sharing scheme has primarily paved the way for;

offered to employees of the Group at defined career

Improved

employee

commitment

and

buy-in

to

levels based on pre-determined criteria which are

management goals

 

uniformly applied across the eligible levels. Such

Alignment

of

interest

between

employees

and

options are offered at market prices prevailing on the

shareholders

date of the offer.

of

Emergence