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| Board Committee reports |
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| REMUNERATION COMMITTEE REPORT |
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The Remuneration Committee met on several occasions, two of them to conduct regular remuneration committee business in accordance with its mandate and the requirements of the board, and several other occasions to review the proposed “pay for performance scheme” and to consider the impacts of the Companies Act 2007 on director remuneration.
A watershed in the financial year was the introduction of a “pay for performance” scheme, which significantly augmented the variable pay mindset that the group had nurtured in 2005/2006. The scheme, which was introduced and has now been accepted by all concerned, was adopted at all grades, executives and above. The company had the benefit of arguably the best professional guidance in this regard and the consensual methods adopted helped introduce a very sensitive and radical change without any apparent opposition. The process which was customised to meet the specific requirements of John Keells group has shown that change is possible in Sri Lanka, as long as there is adequate dialogue and fairness in dealing with possible areas of dissent. There is no doubt that a culture of granting remuneration based on just the cost of living factors, without reference to the corporate and individual performance, is not sustainable in the medium to long term and that, if allowed to continue, will lead to an erosion of an organisation's financial capacity and operating capability. The Committee is proud to have been associated with management in this farsighted, timely and bold initiative.
The committee fulfilled its obligations in relation to remuneration of the executive directors, the Chairman and non executive directors, following best practice, keeping in mind the special requirements of the organisation whilst also recognising market trends. Every effort has been made in ensuring compliance with the requirements of the Companies Act as it applies to director remuneration based on advice received from legal experts.
The committee also had the task of reviewing the design of a new Employee Stock Option Plan, this being the fourth issue since the company decided on granting long term benefits to employees, at selected levels, in its quest for improved loyalty and commitment of key executives by inculcating a sense of belonging. The enjoyment by employees of a long term benefit through stock options, which is a universally popular method of recognising good performance, is an integral part of the group's reward strategy. Given a lack of firm definition regarding the future direction of the application of Sri Lankan accounting standards on share options and given the possibility of such a definition being available in 2008, the board recommended that the award be limited to a single year as opposed to it being spread over a period of three years as was the practice previously. This was duly approved at an Extraordinary General Meeting. It is likely that future ESOP schemes will follow the normal practice of being open for a period of three to five years with a view to creating a stability of employee expectations.
The committee interacted regularly with the Human Resource division and management in ensuring that compensation structures were in line with an overall group policy subject to the specificities of different trades and services. The key principles of the group’s remuneration policy are found in the Remuneration section of the Corporate governance report.
In conclusion, I wish to thank my colleagues, Deshamanya Deva Rodrigo and Mohamed Muhsin, for their valuable contributions to the work of the committee and also to our secretary, Linda Starling. |
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Franklyn Amerasinghe
Chairman, Remuneration Committee
22 May 2008
Members
M V Muhsin, P D Rodrigo |
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| AUDIT COMMITTEE REPORT |
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Composition of the Audit Committee |
| The Audit Committee consists of four independent nonexecutive directors. The committee draws on the expertise of members with leadership backgrounds in finance, audit, legal, human resource management and regulatory institutions. In keeping with the Guidelines for Best Practice on the “Role of Auditors” issued by the Securities and Exchange Commission of Sri Lanka, the Chairman of the committee is a Chartered Accountant and former Senior Partner of PricewaterhouseCoopers, Sri Lanka. The Head of Group Risk and Control Review serves as Secretary to the Audit Committee. |
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Meetings |
| There were five meetings of the committee held during the year. The Chief Executive Officer and the Chief Financial Officer, both executive directors, together with the Group Financial Controller attend most parts of these meetings by invitation. Other officials are invited to attend on a needs basis. The Internal Auditors and External Auditors attend meetings when matters pertaining to their functions come up for consideration. |
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Terms of reference |
The committee is governed by the specific terms of reference as set out in the Audit Committee Charter which is reviewed on a biannual basis. The terms of reference comply with and go beyond the requirements of the listing rules of the Colombo Stock Exchange.
The committee focuses on the following objectives in discharging its responsibilities |
a)Oversees the functions of risk management
(b)Oversees the policies and procedures in place to have a system of internal controls adequate in design and effective in operation
(c)Ensures and strengthens the independence and objectivity of the External (statutory) Auditors
(d)Reviews the appropriateness of the principal accounting policies used
(e)Reviews the financial statements
(f)Ensures the integrity of the financial statements a |
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Summary of activities |
| • The committee reviewed the consistency and appropriateness of the accounting policies adopted by the group and was assured that the policies used were appropriate and were in compliance with the Sri Lanka Accounting Standards. The committee reviewed and deliberated on policy updates on internal procedures to ascertain that the improvements are aligned to best business practices.
• During the course of the year, the committee reviewed the effectiveness of the internal financial controls to ensure they provide reasonable assurance to the directors that the financial reporting system adopted by the group can be relied on in the preparation and presentation of the quarterly and annual financial statements. These reviews included discussions on the effectiveness and security of information processing and technology platforms.
• The committee considered the Internal and External Audit reports of all group companies which were made available to them and discussed, where necessary, areas of concern with the audit committee attendees with a view to receiving assurance that the significant internal control and accounting issues highlighted by the Internal and External Auditors have been and/or are being addressed by the management and, where applicable, have been correctly recognised in the financial statements.
• The committee obtained quarterly declarations from the industry groups and sectors confirming compliance with established group policies and procedures and highlighting departures, if any, together with reasons, from financial reporting and statutory requirements.
• The committee held a special closed door meeting with the External Auditors without the presence of any executive directors or officers, to discuss in particular matters relating to the cooperation, quality of information, and representations received from the management. Such discussions also covered the internal rules and guidelines followed by the External Auditors in ensuring independence.
• The committee met with the Head of Group Tax to review the key group and sector specific tax issues impacting the group and the related status and action plans taken.
• Based on the submissions made by management, the committee recommended the early adoption of Sri Lankan Accounting Standard 16 (revised) on Employee Benefits.
• The committee deliberated on the many representations made by the group to the relevant statutory and regulatory authorities directly to obtain clarity and guideline on matters of Accounting Standards, tax and other related issues. As at date of this report, a ruling is awaited from the Urgent Issues Task Force (UITF) Committee of the Institute of Chartered Accountants of Sri Lanka on the accounting treatment and disclosure to be made in relation to the necessity of providing for deferred tax on BOI and Tax Holiday Companies as per Sri Lankan Accounting Standard 14 (revised) on Income Taxes
• During the course of the year, the committee established processes, via a review of movements, variances and ratios to vet the quarterly and annual financial statements of John Keells Holdings PLC prior to recommendation to be adopted by the board. |
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Risk and control review |
The Audit Committee is supported by an established group Risk and Control Review Department (R&CR), which manages the internal audit and risk management requirements of the group. The Head of Group R&CR reports functionally to the Chairman of the Audit Committee on activities and key control issues. Internal audits are outsourced to leading audit firms in line with an agreed annual audit plan. Regular follow up reviews are conducted by group R&CR to ascertain that audit recommendations have been acted upon. Group R&CR also conducts special reviews as requested either by the Audit Committee or by management.
The Internal Audit function, in addition to reviewing the efficacy of internal controls, reviews the actions taken to control and mitigate operational and business risks and monitors and reports on the compliance of group companies with statutory requirements and group accounting and operational policies. Internal audit reports provide an overview of the risk profile of the business being audited, and the internal audit frequency depends on the overall risk grading, with higher risk areas being on a shorter audit cycle.
During the period under review, the board was apprised of the enterprise risk management programme implemented across the group.
During the latter part of the year, with a view to synergise on the functions of internal control, the internal audit, risk management and risk transfer functions were brought under one risk umbrella with accountability lying with the group R&CR Department. |
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Subsidiary company Audit Committees |
| Quoted subsidiaries have appointed their own audit committees consisting of independent directors. Such audit committees are independent of the Audit Committee of John Keells Holdings PLC but maintain the standards agreed with John Keells Holdings PLC Audit Committee and report to the JKH Audit Committee on any issue of significance. The minutes of their meetings are made available to the Audit Committee of John Keells Holdings PLC. The group R&CR Department provides secretarial and logistical support to such audit committees. |
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External Audit |
The Audit Committee has discussed with the External Auditors before the audit commenced, the nature, approach and scope of the audit and has reviewed the audit plan for the financial year 2007/2008.
The External Auditors have direct communication channels with the Audit Committee and have kept the committee advised of matters of significance that arose during the course of the audit.
The Audit Committee met with the External Auditors on 16th and 22nd May 2008 to review and approve the financial statements before presentation to the board for adoption.
The Audit Committee has reviewed the other services provided by the External Auditors to the group to ensure that their independence as auditors has not been compromised.
The Audit Committee has recommended to the board that Ernst & Young, Chartered Accountants, be appointed external auditors of John Keells Holdings PLC for the financial year ending 31st March 2009, subject to approval by the Shareholders at the next Annual General Meeting. |
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Conclusion |
The Audit Committee is satisfied that the group's accounting policies, operational controls, and risk management process provides reasonable assurance that the affairs of the group are managed in accordance with group policies and that group assets are properly accounted for and adequately safeguarded.
During the course of the year, Mukhlis Ismail replaced Mike Anthonisz as the Head of Risk and Control Review and as the Secretary to the Audit Committee. Mike Anthonisz's contribution to the committee is acknowledged.
Finally, I would like to thank Franklyn Amerasinghe, Steven Enderby and Ms Sithie Thiruchelvam who served on the committee and contributed immensely with their professional expertise. |
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Chairman, Audit Committee
22 May 2008
Members
F Amerasinghe, S Enderby, S S Tiruchelvam |
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| NOMINATIONS COMMITTEE REPORT |
The Nominations Committee, as of 31st March 2008, consisted of four independent directors and the ChairmanCEO of John Keells Holdings PLC.
The mandate of the committee remains
• To recommend to the board the process of selecting the Chairman and the Deputy Chairman
• To identify suitable persons who could be considered for appointment to the board as non executive directors
• Make recommendation on matters referred to it by the board
During the period under review, the committee met once, with all members in attendance.
The committee continues to work closely with the board in reviewing, regularly, its skills needs. The committee opines that the skills representation in the board is appropriate for the group's current board level needs. |
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Tarun Das
Chairman
Nominations Committee
22 May 2008
Members
S Enderby, M V Muhsin, S S Tiruchelvam, S C Ratnayake |
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