Contents · purchased by Distilleries Company of Sri Lanka Limited (DCSL). The convertible...

Annual Report 2015 Balangoda Plantations PLC

1

Notice of Meeting 1

Our Vision/Our Mission 2

Historical Background 2

Corporate Information 3

Senior Management & Estate Managers 4

Chairman's Review 5 - 10

Sustainability Report 11 - 12

Report of the Board of Directors on the affairs of the Company 13 - 16

Board of Directors 17 - 18

Audit Committee Report 19

Remuneration Committee Report 20

Related Party Transactions Review Committe Report 21

Corporate Governance Statement 22 - 23

Statement of Directors' Responsibilities 24

Risk Management 25 - 28

Auditors' Report 29

Statement of Profit or Loss 30

Statement of Comprehensive Income 31

Statement of Financial Position 32

Statement of Changes in Equity 33

Statement of Cash Flows 34 - 35

Notes to the Financial Statements 36 - 70

Shareholder and Investor Information 71 - 72

Financial Information 73

Statement of Value Addition 74

Performance of Estates 2015 & 2014 75 - 76

Form of Proxy 77

Instructions for Completion of Form of Proxy 78

Contents

Balangoda Plantations PLC Annual Report 2015

2


1

Notice of Meeting

Notice is hereby given that the Twenty Third Annual General Meeting of Balangoda Plantations PLC will be held at the Auditorium, Sri Lanka Foundation Institute, 100 Independence Square, Colombo 07 on 29th June 2016 at 10.00 a.m. for the following purposes :- 1. To receive and consider the Report of the Directors and the Financial Statements of the Company for the year

ended 31st December 2015 together with the Auditors’ Report thereon.

2. To re-elect Mr. D H S Jayawardena who has reached the age of 73 years on 17th August, 2015 in terms of Sections 210 and 211 of the Companies Act No. 7 of 2007 as a Director of the Company.

3. To re-elect Mr. R K Obeyesekere who retires by rotation at the Annual General Meeting in terms of Article 92 of the Articles of Association, as a Director of the Company.

4. To re-elect Mr. S K L Obeyesekere , who retires by rotation at the Annual General Meeting in terms of Article 92 of the Articles of Association, as a Director of the Company.

5. To re-appoint Messrs. Ernst & Young as Auditors and to authorize the Directors to determine their remuneration.

By order of the Board Pradeep A. Jayatunga Secretary

Colombo25-04-2016

Note

a) A member entitled to attend and vote at the above Meeting is entitled to appoint a Proxy to attend and vote instead of him. A proxy need not be a member of the Company.

b) The Shareholders and the proxy holders are kindly requested to bring this report along with an acceptable form of Identity.

c) A Proxy may not speak at the Meeting unless expressly authorized by the instrument appointing him. The Proxy may vote on a poll (and join in demanding a poll) but not on a show of hands.

d) The completed form of proxy should be deposited at the Registered Office of the Company at 110, Norris Canal Road, Colombo 10, not less than 48 hours before the time for holding the meeting


2

Historical BackgroundThe Company was originally incorporated as Balangoda Plantations Ltd on 11th June 1992 by Certificate of Incorporation issued in terms of Section 15 (1) of the Company’s Act No. 17 of 1982 read with Section 2 (2) of the Conversion of Public Corporation or Government owned Business Undertakings into Public Company’s Act. No.23 of 1987 and the order published in the Gazette Extra Ordinary of the Democratic Socialist Republic of Sri Lanka dated 11th June 1992. The Company was thereafter reregistered under the Company’s Act No.07 of 2007 as Company No. PQ 165 and a fresh Certificate of Incorporation issued under the provision of Section 485 (6) of the Company’s Act No.7 of 2007 with the Corporate name changed by operation of law to Balangoda Plantations PLC.

The first tranche of 51% of the issued share capital of the Company was sold by the Secretary to the Treasury through the Colombo Stock Exchange on an “all or nothing” basis and was purchased by Distilleries Company of Sri Lanka Limited (DCSL). The convertible Debentures held by Milford Exports (Ceylon) Limited were converted into 3,636,363 shares.

As per decision of the Government 10% of the Shares of the Company belonging to the Secretary to the Treasury on behalf of the Government were distributed among the eligible employees of the Company.

20% of the Shares of the Company belonging to the Secretary to the Treasury on behalf of the Government were sold to the public through the Colombo Stock Exchange and the balance 19% of the shares belonging to the Secretary to the Treasury were also sold on an “all or nothing” basis through the Colombo Stock Exchange.

Our VisionTo achieve excellence in the production & marketing of tea and rubber both locally and internationally

Our Mission• To increase productivity.

•To encourage team work and motivation amongst the employees and provide for career development.

•To generate adequate return on capital.

•To achieve excellence in every sphere of activity towards becoming a model in the Private Sector corporate entity.


3

Company Balangoda Plantations PLC

Legal Form Quoted Public Company

Date of Incorporation 11th June 1992

Company Registration No. P Q 165

Registered Office 110, Norris Canal Road,Colombo 10

Board of Directors

Secretary Mr. P A Jayatunga,833, Sirimavo Bandaranaike Mawatha,Colombo 14.Telephone : 2524734/2522871

Registrars P W Corporate Secretarial (Pvt) Ltd,3/17 Kynsey Road,Colombo 8.Telephone : 4640360-3

Auditors Messrs. Ernst & Young,Chartered Accountants,201 De Saram Place.Colombo 10

Bankers Hatton National Bank PLCHead Office Branch481, Darley RoadColombo 10

Managing Agents Stassen Exports (Pvt) Limited833, Sirimavo Bandaranaike MawathaColombo 14

Corporate Information

Mr. D H S Jayawardena - Chairman/MDMr. R K Obeyesekere - Non Executive DirectorMr. S K L Obeyesekere - Director /CEO Mr. C R Jansz - Non Executive DirectorMr. A L Gooneratne - Non Executive DirectorDr. A Shakthevale - Ind. DirectorMr. D S K Amarasekera - Ind. Director


4

Senior Management Teamas at 31st December 2015

Mr. S K L Obeyesekere Director/Chief Executive Officer

Mr. T A G de Mel General Manager

Mr. D P A Perera Deputy General Manager

Mr. A E G Jayawardena Asst General Manager

Mr. M I A Ansar Chief Accountant

Mr. P A Jayatunge Legal Officer

Estate Managersas at 31st December 2015

Mr. S B Ranawaka (Overlooking) Agarsland Estate, Balangoda

Mr. R W N Liyanage Balangoda Estate, Balangoda

Mr. N M P C Nawaratne (Acting) Cecilton Estate, Balangodaa

Mr. P M A Pathirana Meddakande Estate, Balangoda

Mr. V P D P Kularatne Non Pareil Estate, Belihuloya

Mr. S S Kuruppu Pettiagalla Estate, Balangoda

Mr. S B Ranawaka Rasagalla Estate , Balangoda

Mr. D L D S Kandegama Rye/Wikiliya Estate, Balangoda

Mr. P A P R de Silva Walaboda Estate, Balangoda

Mr. I K A B Ellepola Galatura Estate, Kiriella

Mr. R M D T J Ratnayake Mahawela Estate, Ratnapura

Mr. S H M Gunawardena (Acting) Millawitiya Estate, Ratnapura

Mr. B L L Prematilake Mutwagalla Estate, Kiriella

Mr. A I B Rajasinghe Palmgarden Estate, Ratnapura

Mr. D K Wijeratne Rambukkande Estate, Ratnapura

Mr. K A R Gunaratne Cullen Estate, Badulla

Mr. H S C Nanayakkara Glen Alpin Estate, Badulla

Mr. S P Ariyaratne Gowerakelle Estate, Badulla

Mr. Christopher F Stork Spring Valley Estate, Badulla

Mr. P K Senanayake Telbedde Estate, Badulla

Mr. J U Hulangamuwa Ury Estate, Badulla

Mr. C P de Arthur Wewesse Estate, Badulla


5

Chairman's Review

On behalf of the Board of Directors I am pleased to present a detailed review of operations and the performance of Balangoda Plantations PLC as reflected in the Audited Financial Statements for the year ended 31st December 2015.

The year under review proved to be an extremely challenging year not only for the Company, but also for the Industry as a whole facing many adverse financial and non-financial variables. This led the Company to record unfavourable results in the year under review. Profitability indicators demonstrate a declining trend over previous year due to the prices falling well short of last year’s levels consequent to the negative impact caused by the micro and macro economic factors. Middle Eastern Region where the bulk of our teas is exported did not show any recovery from the socio economic unrest and also other destinations such as Russia, Ukraine and Turkey were faced with many challenges which led to currencies being constantly devalued thus impacting prices at the Colombo Auctions. This scenario was prevalent in the Rubber Industry too where the prices in the world market showed a dramatic fall reflecting this international declining trend in the Colombo rubber Auction prices as well.

YearProduction

Mn kg

Annual Increase Mn kg

Annual Increase

%

2011 328.37 (1.01) (0.31)

2012 326.3 (2.07) (0.63)

2013 340.23 13.93 4.27

2014 338.03 (2.20) (0.65)

2015 328.96 (9.07) (2.68)

Tea Industry

Sri Lanka’s Tea Production

National Tea production recorded 328.96 Mn kgs reflecting a decrease of 2.68% from the 338.03 Mn kgs in 2014. Low Grown production at 202 Mn kgs decreased by 3.69% on the all-time record established in 2014. Production of High & Medium Growns too fell by 3.22 % and 0.03% respectively due to the impact of weather in production.

Year High Medium LowAll

Elevations

2011 329.95 319.77 381.27 359.89

2012 375.53 351.08 407.14 391.64

2013 407.91 396.96 469.67 444.75

2014 430.59 414.41 488.61 465.06

2015 400.30 362.93 417.41 405.33

The Colombo Auction Averages of all elevations declined noticeably over 2014 levels recording a decrease of Rs.59.73. This disappointing performance covers all three elevations and is also lower when expressed in terms of US Dollar equivalents. A combination of factors has contributed to this disappointing performance. The global commodity crisis emanating from political issues between Russia/Ukraine, drop in oil prices, political turmoil in the Middle Eastern Markets including trade sanctions and drastic currency depreciation in key tea importing Countries, affected the Tea prices in 2015.

Tea - Colombo Auction Average Prices Rs/kg

Production - Low, Medium, High Elevation - Mn kgs

(7.75)Low

(6.92)Medium

(2.53)High

209.95202.2

49.2147.5

78.8776.34

+/- Jan-Dec 2014 Jan-Dec 2015

High

Pri

ces

(Rs/

kg)

Medium

Low

All Elevations

Average Prices Rs/kgs

2011 2012 2013 2014 2015

600

500

400

300

200

100

0


6

Performance of the Company's Tea Sector

2015 2014 2013 2012 2011

Production (‘ooo kg) 6,386 6,822 7,298 6,852 6,713

Yield kg/ha 867 940 936 921 904

Turnover (Rs.Mn) 2,236 2,816 2,880 2,396 2,080

NSA (Rs/kg) 350.12 412.77 394.64 349.66 309.91

COP (Rs./kg) 435.64 455.65 407.83 373.72 362.73

Profit/(Loss) (Rs./kg) (85.52) (42.88) (13.19) (24.06) (52.82)

Chairman's Review

Sri Lanka Rubber Production declined significantly for the fourth consecutive year with weak international demand and adverse weather conditions affecting the Industry. Rubber production for the year was 88.5 Mn kgs while in 2014 it was 98 Mn kgs. The Colombo auction prices reflected the lowest price levels since 2009 continuing the decreasing trend witnessed during the recent years. The surplus stocks of rubber in the global market, and weakening crude oil prices which prompted the demand for synthetic rubber contributed to the decline in natural rubber prices.

Rubber Industry

Sri Lanka Rubber Production (Mn kg)

Production 2011 2012 2013 2014 2015152.9 152 130.4 98 88.5

180160140120100806040200

National Average Prices - Rubber Rs kg

RSS

Scrap Crepes

Latex Crepes

Latex Crepes Scrap Crepes RSS

2014 270.08 199.73 272.16

2015 266.93 175.07 236.56

0 50 100 150 200 250 300

Tea - Production - '000 kgs

2015

2014

2013

2012

2011

5,500 6,000 6,500 7,000 7,500

Turnover - Rs. - Mn

2015

2014

2013

2012

2011

0 500 1,000 1,500 2,000 2,500 3,000

NSA/COP -Rs/kg500

400

300

200

100

0 2011 2012 2013 2014 2015

COP

Profit (Loss) - Rs/kg

2011 2012 2013 2014 20150-10-20-30-40-50-60-70-80-90

-100


7

The Tea segment recorded a turnover of Rs.2.2 Billion in 2015 compared with a turnover of Rs.2.8 Billon last year reflecting a drop of Rs.580 Mn (20.59%) due to the continued decline of auction prices during the year. The COP of Rs.435.64 per kg remained lower than the previous year by 4.39% as a result of the continuous efforts that the management has made in curtailing costs in order to be sustainable in the Industry, but however the expected results could not be derived consequent to the low Net Sale Average recorded during 2015.

Noteworthy Performance - Tea

Various grades of Tea manufactured by Balangoda, Meddakande, Non Pareil, Pettiagalla, Glen Alpin, Spring Valley, Telbedde, & Wewesse Estates obtained all island top prices on 152 occasions at the Colombo Auctions.

Chairman's Review

Performance of Company'sRubber Sector2015 2014 2013 2012 2011

Production ('ooo kg) 764 671 816 993 1,138

Yield kg/ha 647 577 643 766 825

Turnover (Rs.Mn) 177 186 292 384 579

NSA (Rs/kg) 231.90 277.32 357.20 386.60 508.52

COP (Rs./kg) 365.49 400.51 332.09 310.85 255.95

Profit/(Loss) (Rs./kg) (133.59) (123.19) 25.11 75.75 252.57

Rubber - Production - '000 kgs

2015

2014

2013

2012

2011

0 500 1,000 1,500

Turnover - Rs. - Mn

2015

2014

2013

2012

2011

0 200 400 600 800

Profit (Loss) - Rs/kg

2011 2012 2013 2014 2015

300

200

100

0

-100

-200

NSA/COP -Rs/kg600

500

400

300

200

100

0 2011 2012 2013 2014 2015

COP

NSA


8

Noteworthy Performance - Rubber

Various grades of Rubber obtained top prices on 51 occasions from Galatura, Mahawela, Rambukkande & Mutwagalla Estates.

Chairman's Review

The Company’s Rubber NSA declined to Rs. 231.90 from the previous year’s average of Rs.277.32 due to the continued decline in global demand and large stock piles accumulated in major consuming countries as a result of which the rubber turnover dropped by 4.83% year-on-year. Despite stringent cost control, the Company’s Rubber segment made a loss of Rs.133.59 per kg for the second consecutive year impacting negatively on the overall performance of the Company. However the production has increased by 93,000 kgs in 2015 when compared with last year with the favourable climatic conditions prevalent in the Rubber growing areas of our Company during the year.

Effect of the Weather on Performance

Agricultural production depends largely on environmental factors such as fluctuating seasons, sudden changes in weather and the impact of global warming and in this context the climatic conditions during 2015 was found to be a negative factor in the tea growing areas resulting in a drop in production. Rubber production however has reflected a marginal increase due to the better weather patterns experienced in the Ratnapura Region during the year under review.

Amount Mn Rs

%

Tea Replanting 12.18 2.76

Rubber Replanting 293.67 66.56

Diversification (Fuel wood & Timber)

8.46 1.92

Machinery 126.24 28.61

Equipment 0.67 0.15

Total 441.22 100.00

Jan-Dec 2014 Jan-Dec 2015 Jan-Dec Decinnial Avg

Capital InvestmentsThe total capital expenditure for the year under review was Rs.441.22 Mn the composition of which is shown in the statement. Notwithstanding the challenges faced in 2015 replanting Programmes both in Tea and Rubber Sectors have continued to receive high priority in keeping with long term requirements of the Company. Despite adverse external conditions and increased production costs within the Tea an Rubber Sectors the company has invested Rs. 126 Mn on Factory Development during the year under review in order to remain competitive at all times.

Rai

nfal

l (m

m)

Rainfall (mm)

Balangoda Region3,500

3,000

2,500

2,000

1,500

1,000

500

0

2,488

3,147 3,067

Badulla Region3,500

3,000

2,500

2,000

1,500

1,000

500

0

2,683

2,787 2,257

Ratnapura Region6,000

5,000

4,000

3,000

2,000

1,000

0

4,4043,996

3,481


9

Chairman's Review

Diversification undertaken in 2015The Company continued its forestry/crop diversification activities in the year 2015 as prescribed for the year in the Forestry Management Plan. The thinning out programme of the young timber plants was undertaken as required in the Management Plan resulting in the availability of a significant quantity of fuelwood to the Factories. An extent of 323.91 Hects. is currently being maintained under capital expenditure inclusive of 19.73 Hects. planted with Eucalyptus Torraliana during the year. Marginal unproductive Tea areas were diversified into Rubber and new planting was done in 23.58 Hects. in Balangoda & Badulla Regions.

Loans taken in 2015Institution Type Loan Amount (Rs.) Interest Rate Purpose

Hatton National Bank PLC Term Loan 167,970,000.00AWPLR +1.5% with a cap of 1.5% p.a.

For working capital requirements

Hatton National Bank PLC Lease 114,765,528.00 9%To purchase machinery

Melsta Regal Short Term Loan 35,000,000.00 11.25%For working capital requirements

Social Development Work - 2015Activity Estate Total Cost (Rs.)

New Life Housing Projects*(Ministry of Livestock & Rural Community Development)

Meddakande -10 Units 5,150,000.00

Upgrading of Child Development Centres (funded by the High Commission of India)

- Rasagalla- Glen Alpin

2,966,561.00

New Water Supply Projects(Ministry of Livestock & Rural Community Development)

- Mutwagalla 1,000,000.00

Re-roofing Programmes(Ministry of Livestock & Rural Community Development)

- Non Pareil – 10 Units- Galatura – 8 Units- Walaboda – 12 Units- Balangoda – 7 Units- Ury – 10 Units- Cullen - 10 Units

3,050,000.00

Latrines(Ministry of Livestock & Rural Community Development)

- Rasagalla - 10 Units- Rye/Wikiliya - 5 Units- Pettiagalla - 5 Units- Ury - 20 Units

1,908,000.00

Strikes and their effect - 2015A ‘go-slow’ was launched by Estate workers in the Balangoda & Badulla Regions during the month of July 2015 demanding a Rs.1,000/- daily wage. This resulted in a loss of 28,810 Man days and an estimated crop loss of Rs.30,288,911/-. Further, there were minor strikes/disputes on Walaboda and Galatura Estates in the months of February & April 2015 resulting in estimated crop loss of 215 kgs Made Tea, valued at Rs.84,132/- and 690 kgs of Rubber valued at Rs.153,863/- respectively.

Prospects for 2016The Plantation Industry is facing perhaps the most challenging period in recent history following the nationalization of the plantations in the 1970s. As a result of a worldwide decline in commodity prices and other external factors beyond our control, including volatility in a vast majority of our key export markets, prices of both Rubber and Tea have plummeted. From January 2014 to November 2015 price of Tea at the Colombo Tea Auction and the local price of Rubber have fallen sharply by Rs.66/- and Rs.11/- per kg respectively. Far-reaching changes to the operating model of Sri Lanka’s Plantation Sector, which goes beyond the worker remuneration mechanism, is essential for the Industry’s survival, growth and sustainability.

* Preliminary work commenced in 2014 and carried over to 2016


10

Chairman's Review

Labour productivity must improve substantially and it is imperative that the Industry strives towards a strategic approach in order to determine the wage structure of the Plantation Workers which should be mutually beneficial to both; the Industry and the worker. In this regard, it is absolutely essential for all related parties to make a concerted effort to define a productivity-linked wage regime, without which the industry’s downward spiral is irreversible.

The withdrawal of the fertilizer subsidy and the ban of chemicals such as Glyphosate has dealt a severe blow to the producers resulting in significantly increasing costs specially at a time when the Industry is going through a difficult period. Fertilizer has a direct positive correlation on crop production and in the absence of subsidy the economic crisis faced by the Industry well may force the stakeholders to restrict applications which could have a negative impact on field productivity. As an alternative to Chemical Weeding in the absence of other cost effective substitutes the available choice is to undertake manual weeding. This option whilst being cost prohibitive is also practically not possible due to the restricted number of workers available for work. These factors will plunge the Industry into further turmoil beyond the difficulties faced as a consequence to the depressed Tea and Rubber Prices.

Considering the significance of the Industry to the economy of this country and to the plantation related segment of the population socially, it is of paramount importance for the policy makers to intervene and resurrect the Industry as the Regional Plantation Companies cannot on their own find solutions to address the multitude of issues affecting the Plantation Sector.

Diverse climatic conditions, strong competition from other beverage producers, absenteeism, shortage of workers coupled with low levels of social recognition for plantation workers, scores of young men and women seeking employment outside the sector are some of the other pending issues.

The rising cost of production and the market dynamics will enhance the risk element of our dependence on the two main crops, Tea and Rubber which could affect the stability of the Company in the long term and accordingly, the Company is in the process of pursuing a diversification strategy to deliver sustainable returns to our shareholders and is currently studying the prospects of crop diversification, such as Oil Palm.

Tea The continued catastrophic situation in Russia, unrest in the Middle East, the fall of oil prices and the resulting negative impact of the buying power of the major consumers of Ceylon Tea will undoubtedly make the forthcoming year challenging. Overall the country would need exceptional growing conditions and a revival in the market

Rubber The decline in Rubber prices and other longstanding issues continue to pose fresh challenges to the industry. The surplus stocks of Rubber in the global market and increased demand for synthetic Rubber are amongst the key factors making an adverse impact on local rubber prices. Other challenges such as tapper shortages, inevitable increases in the cost of production serves to dim the outlook for this segment.

Dividends I regret very much to inform you that your Directors are not recommending a dividend for the year ended 31st December 2015.

Acknowledgements On behalf of the Board of Directors I wish to thank our Buyers, Brokers and Suppliers for their patronage. I would also like to place on record the dedication, commitment and loyalty of the Management team, Executives, Staff and Workers of the Company and take this opportunity to thank each and every one of them. I also express my deep gratitude to all our shareholders who have continued to place their trust and confidence.

Sgd. D. H. S. Jayawardena Chairman/Managing Director

25-04-2016


11

Sustainability Report

ENVIRONMENTAL• Energy Efficiency• Land Management• Water Management• Bio Diversity

SOCIAL • Engaging with community

& exemplifying Corporate Responsibility

ECONOMIC • Increase productivity and

innovation

ENVIRONMENT As a plantation company our commitment towards environmental responsibility is focused on land, water, energy and habitat impacts. As a part of its pledge to continually improve the environmental and social sustainability performance many initiatives were launched by the Company to protect and conserve the natural environment.

• Efficient utilization of resources • Effective waste management practices• Promotion of environmental awareness and sensitivity amongst the

plantation community • Sustainable agricultural practices

SOCIAL Our social commitments are focused on enhancing the dignity of lives of our employees and inspiring them to overcome challenges.

Welfare Activities In our efforts to provide proper living standards to our worker community the Company initiated several projects during the year 2015 as well with the assistance of the Plantation Human Development Trust and the Ministry of Livestock & Rural Community Development.

• New Life Housing Project on Meddakande Estate (10 units) • New Water Supply Project on Mutwagalla Estate • Re-roofing Programme – Non Pareil, Galatura, Walaboda, Balangoda,

Ury & Cullen Estates (57 units)

Health & Safety Occupational health and workplace safety is of high priority in our estates. During the year under review the Company conducted a series of Health related activities, awareness programmes and training sessions to provide a healthy and safe working environment for the Estate Community. ISO 22000 and the Rain Forest Alliance Certification obtained by the Company carry features which specifically protect workers from process related risks. Given below are some of the activities undertaken during the year 2015.

• Training Programmes on Social protection and Eradication of Child Labour

• Awareness Programmes on prevention and early detection of cancer • Awareness Programmes on improving nutritional status of women &

Children on Estates• Awareness Programmes for Estate Community on Disaster Management • Rural Level Rehearsal on Landslide situations • Special Mobile Clinics on screening of Oral Cancers• Health Camps, Clinics

Community Development The Company encourage a happy work culture and foster relationship with our employees to bring about improvements in the organization towards the achievement of the common goals described in our vision and mission statements. Believing that our employees are our most valuable asset we always make an effort to develop the ability and productivity of our worker community at all levels. Easy payment schemes for facilities such as obtaining

Moving towards

sustainability is a

social challenge and our

Company as a corporate

entity endeavoured

to maintain its

responsibility for the

sake of wellbeing of the

community and the

environment together

with our stakeholders.

The Company is

firmly of the view

that sustainability is

not only improving

the quality of human

life, but also living

within the carrying

capacity of supporting

eco-systems. Over

the years we have

invested in material

resources, time and

capacity to improve

the living standards

of our workforce and

the report reveals the

constructive measures

taken by Balangoda

Plantations PLC in its

endeavour to achieve a

sustainable business

model with all aspects

of sustainability in our

business practices


12

Sustainability Report

goods and equipment , distress loans, death benefit welfare scheme, medical insurance, sports and recreational activities, religious programmes, are some of the welfare measures the Company undertakes.

The Plantations are experiencing a severe shortage of workers and gathering of leaf on time is a major constraint and with the demand for increasing wages every two years adoption of a new strategy is inevitable. With a view to encouraging youth to remain on Estates and also discourage premature retirement and residents working outside the Estates, an outgrower model has been introduced which is presently working well on Tebedde, Glen Alpin, Balangoda, Cecilton, Pettiagalla and Meddakande Estates.

Employment Opportunities Whenever an employment opportunity arises on our Estates it is the policy of the Company to give priority to the children of the existing employees before outside recruitments are made.

Employee Skill Development on Estates During the period under review the Company conducted a series of training sessions for employees on quality manufacture & agricultural practices, teamwork, career growth and development, health and safety instructions etc.

ECONOMIC Our activities are planned in keeping with our commitment towards economic dimension of sustainability. Amidst threatening global challenges we continue to focus on re-figuring and integrating our threshold/unique resources in order to create a better demand for our produce.

Value Addition International Certifications and Accreditations

Certifications awarded confirm our commitment to preservation of the environment and our processes pertaining to the quality of the end product. These certifications benchmark our policies, agricultural practices, rejuvenation and protection of the environment with international best standards.

ESTATES CERTIFIED Agarsland EstateBalangoda Estate Cecilton Estate Meddakande Estate Non Pareil Estate Pettiagalla Estate Rasagalla Estate Walaboda Estate

ESTATES CERTIFIED Cecilton Estate Balangoda Estate Meddakande Estate Pettiagalla Estate Palmgarden EstateGlen Alpin EstateTelbedde Estate Ury EstateWewesse Estate

ESTATES CERTIFIED Rambukkande Estate Galatura Estate

RAIN FOREST ALLIANCE CERTIFICATION (RAC)

This certification works to conserve biodiversity and improve livelihoods by promoting and evaluating the implementation of the most globally respected sustainability standards which are designed to generate ecological,

social and economic benefits.

Quality Management

risks are addressed by

this certification

Quality Management

risks are addressed by

this certification

ISO 22000 ISO 8001-2008


13

Report of the Board of Directors on the affairs of the Company

The Directors of Balangoda Plantations PLC have pleasure in presenting their Annual Report together with the Audited Financial Statements of the Company for the year ended 31st December 2015.

Principal Activities The principal activity of the Company is the cultivation and processing of Tea and Rubber. The Company has 06 Tea Estates, 12 Tea cum Rubber Estates and 04 Rubber Estates in two Districts – Badulla and Ratnapura. The cultivated land consists of 4204.15 ha under Tea and 2737.89 ha under Rubber.

Managing Agents The Company is managed since 1st November 1996 by Stassen Exports (Pvt) Limited.

Management Fee Management Fee is paid on the following basis :

Rs.1.0 million per estate per year

From Profit

• Up to 50.0 million - 10%

• 50.0 million to 100.0 million - 20%

• 100.0 million to 200.0 million - 30%

• Over 200.0 million - 40%

Parent Company The Company’s parent undertaking and controlling party is Melstacorp Limited, which is incorporated in Sri Lanka as a limited liability company.

Review of Performance The review of the Company’s performance during the year is given in the Chairman’s Review in this Annual Report.

Development and Diversification Development and Diversification are covered in the Chairman’s Review in this Annual Report.

Financial Statements The Financial Statements of the Company are given on pages 30 to 70 of this Annual Report.

Auditors’ Report The Auditors’ Report on the financial statements is given on page 29 of this Annual Report.

Accounting Policies The Accounting Policies adopted in the preparation of the Financial Statements are given on pages 36 to 70 of this Annual Report.

Financial Results

2015Rs.'000

2014Rs.'000

Revenue 2,413,055 3,002,156

Profit/(Loss) before Tax (430,454) (106,445)

Income Tax (Expense)/Reversal 87,295 11,213

Profit after Tax (343,159) (95,232)

Net Comprehensive Income 8,252 (16,049)

Profit/(Loss) B.F. 795,473 1,023,318

Transferred to Timber Reserve (89,603) (92,376)

Available for Sale Reserves 182 (552)

Available for Appropriation 371,144 819,109

Dividends paid (2014 = Rs.- /-, 2013 = 1/-) - (23,636)

Proposed Dividend-Final (2015 = -, 2014 = Rs.-/-) - -

Retained Profit 371,144 795,473


14

Number of Buildings, Hectarage & Value

Estates Hect. Number of Building Value Rs.

Agarsland 3.70 151 4,836,915.38

Balangoda 45.13 667 15,920,335.09

Cecilton 11.43 352 10,463,317.58

Meddakande 14.01 409 12,436,376.19

Non Pareil 28.68 317 11,047,529.43

Pettiagalla 12.05 343 9,879,064.47

Rasagalla 39.41 488 9,193,984.98

Rye/Wikiliya 28.25 517 11,845,365.62

Walaboda 16.77 261 4,102,172.01

Galatura 28.31 375 18,038,900.18

Mahawale 16.78 487 17,200,443.93

Millawitiya 12.94 221 6,441,536.14

Mutwagalla 19.21 430 9,523,690.12

Palmgarden 36.67 667 22,275,264.16

Rambukkande 18.77 203 16,887,899.10

Cullen 3.03 308 4,816,025.99

Glen Alpin 41.05 1349 20,067,541.41

Gowerakelle 13.51 322 54,154,614.51

Spring Valley 42.49 928 15,803,972.00

Telbedde 69.79 906 19,561,456.00

Ury 36.12 703 12,634,912.72

Wewesse 9.89 561 12,865,652.18

Head Office 4.00 2 11,904,919.13

Total 552.00 10,967 331,901,888.00


Financial Ratio Analysis

2015 2014

Profitability RatiosGross Profit RatioNet Profit Ratio

(18.62%)(17.84%)

(5.55%)(3.55%)

Asset RatiosCurrent RatioAcid Ratio

0.440.23

0.910.53

Performance RatiosReturn on InvestmentReturn on Share Capital

(18.82%)(122.99%)

(4.06%)(30.41%)

Leverage RatiosDebt/Equity RatioInterest coverage

58.50%(7.82)

33.58%(2.52)

Investor RatiosPrice Earnings Ratio (1.21) (6.58)


15

Dividend The Directors are not recommending a dividend for the year ended 31st December 2015.

Remuneration and Other Benefits of the Directors The Directors did not receive any remuneration or other benefit during the accounting period.

Donations The Company did not make any donation during the year.

Taxation Deferred tax liability of Rs. 94.605 million has been reversed in the financial statements.

Capital Expenditure The Company incurred a capital expenditure of Rs. 441.23 million, of which Rs. 314.31 million has been spent on field development.

Commitments & Contingencies Capital commitments and Contingent liabilities are disclosed in the Notes to Accounts Nos 22 & 30.

Directorate The following Directors held office during the year under review :

Mr. D H S Jayawardena - Chairman/Managing Director Mr. R K Obeyesekere - Non Executive Director Mr. C R Jansz - Non Executive Director Mr. S K L Obeyesekere - Director/CEO Mr. A L Gooneratne - Non Executive Director Dr. A Shakthevale - Independent Director Mr. D S K Amarasekera - Independent Director

In terms of Article 92 of the Articles of Association Mr. R K Obeyesekere and Mr. S K L Obeyesekere retire by rotation and being eligible offer themselves for re-election.

Directors’ Interest in Shares None of the Directors of the Company, their spouses or dependants held any shares in the Company during the year ended 31st December 2015.

Directors’ Interest in Contracts with the Company Directors interests in contracts with the Company are disclosed in Note 32 to the Accounts and have been declared at a Meeting of the Directors. The Directors have no direct or indirect interest in any other contracts or proposed contracts of the Company.

Shareholder and Investor Information Distribution of Shareholdings as at 31st December 2015, Analysis Report of Shareholders, Market Statistics of Company’s shares and the list of 25 major shareholders are given on pages 71 and 72 of this Annual Report.

Matters pertaining to the Golden Share1. The Golden Share shall only be held by the Secretary to the Treasury in his official capacity and not in his own

name, for and on behalf of the State of the Democratic Socialist Republic of Sri Lanka, or by a company in which the State of the Democratic Socialist Republic of Sri Lanka owns 99% or more of the issued share capital.

2. The Company shall obtain the written consent of the golden Shareholder prior to sub-leasing, ceding or assigning its rights in part or all of the lands set out in Section 3A(1) of the Memorandum of Association.

3. The Articles of the Company as originally framed may from time to time be altered by special resolution, provided that the concurrence of the Golden Shareholder in writing shall be first obtained to amend the definition of the words Golden Share and Golden Shareholder and Articles 2A, 2B, 3(c), 3(c)(i), 3(c)(ii), 25A, 127A, 127B, 127C and 128.

4. The Golden Share may be converted into an ordinary share with the concurrence of the Golden Shareholder and the concurrence of a majority of the shareholders.



16


5. The Golden Shareholder shall be entitled to call upon the Board of Directors of the Company once in every three month period if desired to meet with the Golden Shareholder and or his nominees, and the Directors if so called upon shall meet with the Golden Shareholder and or his nominees to discuss matters of the Company of interest to the State of the Democratic Socialist Republic of Sri Lanka.

6. The Golden Shareholder and or his nominee shall be entitled to inspect the books of accounts of the Company after giving two weeks written notice to the Company.

7. The Company shall submit to the Golden Shareholder, within 60 days of the end of each quarter, a quarterly report relating to the performance of the Company during the said quarter in a pre-specified format agreed to by the Golden Shareholder and the Company.

8. The Company shall submit to the Golden Shareholder, within 90 days of the end of each fiscal year, information relating to the Company in a pre-specified format agreed to by the Golden Shareholder and the Company.

Post Balance Sheet Events. Details of post Balance Sheet events have been disclosed in Note 31 to the Accounts.

Auditors The accounts of the year have been audited by M/s Ernst & Young, Chartered Accountants who offer themselves for re-appointment.

Fees paid to the Auditors are disclosed on Page 53 in the Financial Statements.

As far as the Directors are aware, the Auditors do not have any relationship (other than as Auditors) with the Company other than those disclosed above. The Auditors do not have any interest in the Company.

Sgd. D.H.S. Jayawardena Sgd. S.K.L. ObeyesekereChairman/Managing Director Director/CEO

Sgd. Pradeep A. JayatungaSecretary

25-04-2016


17

MR. D H S JAYAWARDENA – CHAIRMAN/MANAGING DIRECTOR

Mr. D H S Jayawardena is one of the most successful and prominent business magnates in Sri Lanka. He heads many successful ventures in diversified fields of business.

ChairmanAitken Spence PLC, Browns Beach Hotels PLC, Aitken Spence Hotel Holdings PLC, Aitken Spence Hotel Managements Asia (Pvt) Ltd., Negombo Beach Resorts (Pvt) Ltd., Lanka Power Projects (Pvt) Ltd., Stassen Exports (Pvt) Ltd., Milford Holdings (Pvt) Ltd., C B D Exports (Pvt) Ltd., Stassen International (Pvt) Ltd., Stassen Natural Foods (Pvt) Ltd., Stassen Foods (Pvt) Ltd., Milford Exports (Ceylon) (Pvt) Ltd., Ceylon Garden Coir (Pvt) Ltd., Milford Developers (Pvt) Ltd., Lanka Milk Foods (CWE) PLC, Lanka Dairies (Pvt) Ltd., Ambewela Livestock Company Ltd., Ambewela Products (Pvt) Ltd., Pattipola Livestock Company Ltd., Timpex (Pvt) Ltd., Texpro Industries Ltd., Distilleries Company of Sri Lanka PLC, Periceyl (Pvt) Ltd., Melstacorp Limited, Bellvantage (Pvt) Ltd., Madulsima Plantations PLC, Balangoda Plantations PLC, Indo Lanka Exports (Pvt) Ltd., Bogo Power (Pvt) Ltd., Telecom Frontier (Pvt) Ltd., Lanka Bell Ltd., Bell Solutions (Pvt) Ltd.

Managing DirectorStassen Real Estate Developers (Pvt) Ltd.

DirectorStassen Plantation Management Services (Pvt) Ltd.

OthersConsul General for Denmark in Sri Lanka

MR. R K OBEYESEKERE – NON EXECUTIVE DIRECTOR

Chairman Sri Lanka Bureau of Foreign Employment.

DirectorBalangoda Plantations PLC, Lanka Dairies (Pvt) Limited, Ambewela Livestock Co. Limited, Ambewela Products (Pvt) Limited, Pattipola Livestock Co. Limited, Lanka Milk Foods (CWE) PLC and Stassen Plantation Management Services (Pvt) Ltd.

MR. C R JANSZ – NON-EXECUTIVE DIRECTOR

Mr. C.R. Jansz has many years of experience in Logistics and in Documentation, Insurance, Banking and Finance relating to international trade.

ChairmanDFCC Bank PLC.

DirectorAmbewela Livestock Company Limited, Ambewela Products (Pvt) Ltd., Melstacorp Ltd., Lanka Bell Ltd., Lanka Dairies (Pvt) Ltd., Lanka Power Projects (Pvt) Ltd., Milford Holdings (Pvt) Ltd., Pattipola Livestock Company Ltd., Periceyl (Pvt) Ltd., Indo Lanka Exports (Pvt) Ltd., Balangoda Plantations PLC, Distilleries Company of Sri Lanka PLC, Lanka Milk Foods (CWE) PLC.

MR. S K L OBEYESEKERE – DIRECTOR/CHIEF EXECUTIVE OFFICER Mr. Lalith Obeyesekere who counts over 41 years experience in the Industry having commenced his career as a Management Trainee and then rising to the position of CEO is a fellow of the National Institute of Plantation Management in Sri Lanka. Mr. Obeyesekere serves as an elected Committee Member of the Ceylon Tea Traders’ Association and the CRTA, the National Labour Advisory Council (NLAC) and the Consultative Committee on Research of the Tea Research Institute of Sri Lanka and a Council Member of the Employers’ Federation of Ceylon. He serves on the Board of the Plantation Human Development Trust. He is the Director/CEO of Madulsima & Balangoda Plantations PLC and a Director of Bogo Power (Pvt) Ltd.

Board of Directors


18

MR. A L GOONERATNE – FCA(SL), FCA(Eng. & Wales) – NON-EXECUTIVE DIRECTOR Mr. Amitha Gooneratne has held several senior positions at Commercial Bank of Ceylon PLC and served as the Managing Director from 1996 to April 2012. He is a Fellow member of The Institute of Chartered Accountants, United Kingdom and Wales and a Fellow Member of The Institute of Chartered Accountants, Sri Lanka. He was the Founder Chairman of the Financial Ombudsman Sri Lanka (Guarantee) Ltd. and former Chairman of the Sri Lanka Banks’ Association (Guarantee) Ltd. He was also the Managing Director of Commercial Development Company PLC, a Public Quoted Company listed in the CSE and was the Chairman of Commercial Insurance Brokers (Pvt) Limited. He was also nominated to the Board of Sri Lankan Air Lines during 2002-2004 by the Government of Sri Lanka.

On his retirement, Mr. Gooneratne, assumed duties as Managing Director of Melstacorp Limited, which is the strategic investment arm of the Distilleries Company of Sri Lanka PLC. He is the Chairman of Melsta Regal Finance Limited and Melsta Logistics (Pvt) Limited; Board Member of Periceyl (Pvt) Limited, Balangoda Plantations PLC, Lanka Bell Limited, Telecom Frontier (Pvt) Limited, Bell Solutions (Pvt) Limited, Bellvantage (Pvt) Limited, Timpex (Pvt) Limited, Texpro Industries Limited, Continental Insurance Limited and Browns Beach Hotel, Bogo Power (Pvt) Ltd. and Melsta Towers, which are subsidiary Companies of Melstacorp Limited.

He is an Independent Director of Textured Jersey and Lanka IOC and Commercial Development Company Limited.

He is also the Alternate Director to Mr. N. de S. Deva Aditiya on the Board of Distilleries Company of Sri Lanka and Aitken Spence PLC.

MR. D S K AMARASEKERA – INDEPENDENT NON – EXECUTIVE DIRECTORDirectorBalangoda Plantations PLC, Browns Investments PLC, Eden Hotel Lanka PLC, Free Lanka Capital Holdings PLC, Hydro Power Free Lanka PLC, Kelani Tyres PLC, Lanka Milk Foods (CWE) PLC, Madulsima Plantations PLC, Palm Garden Hotels PLC, Environmental Resource PLC, Central Services (Pvt) Ltd., Ceylon Cineman Holding (Pvt) Ltd., Excel Global Holding (Pvt) Ltd., Excel Restaurants (Pvt) Ltd., Finco Holdings Ltd., Foton Lanka (Pvt) Ltd., Free Lanka Capital Properties (Pvt) Ltd., Free Lanka Management Co. (Pvt) Ltd., Free Lanka Plantations Co. (Pvt) Ltd., Free Lanka Power 2 (Pvt) Ltd., Free Lanka Power 3 (Pvt) Ltd., Free Lanka Power Gikdubgs (Pvt) Ltd., Millennium Development (Pvt) Ltd., Samudra Beach Resorts (Pvt) Ltd., Sierra Holdings Ltd., Sierra Piling (Pvt) Ltd., Southern Cleaners (Pvt) Ltd., Sunsun Boutique Hotels Ltd., The Tea Leaf Resort Holdings (Pvt) Ltd., Tropical Villas (Pvt) Ltd., Business Process Outsourcing (Pvt) Ltd., The Colombo Land Exchange Ltd., Morningside Estate (Pvt) Ltd., Ceylon Hotel Holdings (Pvt) Ltd., Suisse Hotel Kandy (Pvt) Ltd., Ceylon Roots (Pvt) Ltd., Green Paradise (Pvt) Ltd., BG Air Services (Pvt) Ltd., Browns Tours (Pvt) Ltd., Sun & Fun Resorts Ltd.

Mr. D.S.K. Amarasekera is an eminent Tax Consultant and the Senior Tax and Legal Partner of Amerasekera & Company, a leading tax consultancy firm in the country. He is a Member of the Institute of Chartered Accountants of Sri Lanka, and is an Attorney-at-Law of the Supreme Court of Sri Lanka.

DR. A SHAKTHEVALE – INDEPENDENT NON-EXECUTIVE DIRECTOR

DirectorLanka Milk Foods (CWE) PLC, Madulsima Plantations PLC and Balangoda Plantations PLC.

Retired as Additional Secretary (Livestock), Ministry of Agriculture and Livestock in 2002, served as the Secretary, Ministry of Rehabilitation and Social Services in the Northeast Provincial Council. He works as a freelance Consultant in the field of livestock and presently working as a Consultant at Faculty of Agriculture, University of Jaffna. He has also worked for FAO, UNDP, GTZ, UNHABITAT, Land O’Lake, Oxfarm GB and several local livestock organizations. Forum Member and Member of the Executive Council of ‘The Organization of Professional Association of Sri Lanka’ representing the Veterinary Profession of Sri Lanka.

Board of Directors


19

CompositionThe Chairman of the Committee is Mr. D.S.K. Amarasekera, an Attorney-At-Law and Chartered Accountant. The other Member of the Audit Committee is the Independent Non Executive Director, Dr. A. Shakthevale. The Company Secretary functions as the Secretary to the Audit Committee.

MeetingsThe Committee had three meetings during the year. The Director/CEO and the Financial Officers attended the Meeting. The Executive Senior Management Team was present at discussions, as required.

Terms of ReferenceThe Audit Committee Charter approved and adopted by the Board clearly sets out the terms of reference governing the Audit Committee ensuring highest compliance with the Corporate Governance rules applicable to listed companies in accordance with the Rules of the CSE and the Code of Best practice on Corporate Governance.

Activities and ResponsibilitiesFinancial ReportingThe Committee reviewed and discussed the financial reporting system adopted by the Company in the preparation of its quarterly and annual Financial Statements with the Management and the External Auditors to ensure reliability of the process and the consistency of the Accounting Policies adopted and its compliance with the Sri Lanka Accounting Standards and the provisions of the Companies Act No. 7 of 2007.

Risks and ControlsThe Committee obtained and reviewed the major business risks and mitigatory action taken or contemplated for each business sector of the Company. In particular, the Committee deliberated on the financial implications to the Company arising from the world market prices for Tea and Rubber, labour issues, wage increases etc., and appraised the Board as appropriate.

Internal AuditThe internal audit function of the company was carried out by the Internal Audit Division. The Committee reviewed the effectiveness of the internal audit plan to ensure that it has been designed to provide reasonable assurance that the financial reporting system adopted by the Company can be relied on in the preparation and presentation of the financial statements. The Committee also reviewed the findings of the Internal Auditors and their recommendations together with the management responses and regularly followed up the progress of the implementation of such recommendations in order to enhance the overall control environment.

External AuditThe Audit Committee met with the External Auditors to discuss the scope and the audit strategy. The Committee also reviewed and discussed the Report of the Auditors and Management Letters issued by them to ensure that no limitations have been placed on their scope of work and conduct of the audit.

The Committee carried out an annual evaluation of the External Auditors to establish their independence and objectivity and also obtained a written declaration from the Auditors in this regard.

The Audit Committee has recommended to the Board of Directors that Messrs Ernst & Young be reappointed as the External Auditors for the financial year ending 31st December 2015.

Compliance with Laws and RegulationsThe Committee reviews the quarterly compliance reports submitted by the compliance officer to ensure that the Company has complied with all statutory requirements.

ConclusionThe Audit Committee is satisfied that the Group’s accounting policies, operational controls and risk management processes provide reasonable assurance that the affairs of the Company is managed in accordance with stated policies and that the Company’s assets are properly accounted for an adequately safeguarded.

Sgd D.S.K. AmarasekaraChairmanAudit Committee

18-04-2016

Audit Committee Report


20

Remuneration Committee Report

The Remuneration Committee BP PLC which consists of the two Independent Non-Executive Directors namely Dr. A. Shakthevale and Mr. D.S.K.Amarasekera as Chairman is responsible for determining the remuneration policy relating to the Key Management Personnel of BP PLC.

It is the firm belief of this committee that it should formulate policies to attract, motivate and retain Key Management Personnel. The Chairman/Managing Director assists this Committee in its deliberations.

Sgd. D.S.K. AmarasekeraChairmanRemuneration Committee

18-04-2016


21

Related Party Transactions Review Committee Report

As per the latest directive issued by the Securities Exchange Commission of Sri Lanka, which has been incorporated into the Listing Rules of the Colombo Stock Exchange,the Related Party Transactions Review Committee was established by the Board in March 2016.

CompositionThe Committee comprises of the following three membersand two of them including the Chairman are Independent Non-Executive Directors.

Mr. D S K Amarasekera - Independent Non-Executive Director/Chairman Dr. A Shakthevale - Independent Non-Executive Director Mr. A L Gooneratne - Non-Executive Director

Profiles of the members are given on pages 17 & 18.

Purpose of the CommitteeThe purpose of the Committee as set out in Appendix 9A of the CSE Listing Rules is to review all Related Party Transactions except for transactions set out in Rule 9.5, either prior to the transaction being entered into or, if the transaction is expressed to be conditional on such review, prior to completion of the transaction.

MeetingsAs the committee was formulated in March 2016 and the report is in respect of the financial year 2015, there were no meetings as required by the applicable rules/regulations during the period under review and a process has been set in place to facilitate compliance in future.

DisclosuresAs per the existing practice, related party transactions are disclosed to the stakeholders through the Company's financial statements and in order to comply with the rules set out in Appendix 9A of the CSE Listing Rules the Committee newly appointed will establish its functions with a view to further strengthening the internal procedures and policies with the requirements thereof and relevant disclosures will be made in a timely and detailed manner in future reports.

Details of related party transactions entered into by the Company during 2015 is disclosed in Notes 17, 18, 19, 21, 27 & 32 to the Financial Statements.

Sgd D S K AmarasekaraChairmanRelated Party Transactions Review committee

18-04-2016


22

Corporate Governance Statement

Corporate Governance is the system by which companies are managed and controlled. Balangoda Plantations PLC is committed to comply with the code of Best Practices of Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka (ICASL) & the Securities Exchange Commission of Sri Lanka (SEC) and the Listing Rules of the Colombo Stock Exchange. A comprehensive view of the Governance System in the Company is given below.

The Board of Directors and its FunctionsThe Company is governed by its Board of Directors who direct, lead and supervise the business and affairs of the Company on behalf of its shareholders. The Board consists of 02 Executive Directors including Chairman/Managing Director & Chief Executive Officer, 03 Non-Executive Directors and 02 Non-Executive Independent Directors. The composition of the Company’s Board has been structured in keeping with principles of good governance and long term strategy and the names of the members of the Board of Directors and their brief resumes are given on pages 17 & 18.

Although the two Independent Non-Executive Directors do not qualify under Rule 7.10.4 (g) of the Colombo Securities Exchange Listing Rules, the Board of Directors, taking account of all the circumstances, has determined that the two Directors are nevertheless independent as per the Rule 7.10.3 (b).

The Board meets as and when required to take all major decisions. Prior to each meeting the Directors are provided with all relevant management information and Board papers are submitted in advance on new investments, capital projects, company performance and other issues which require specific Board approval. The main functions of the Board :

• Conducting the business and facilitating executive responsibility for management of the Company’s affairs.

• Formulate short and long term strategies and monitor implementation.

• Identify the principle risks of the business and ensure adequate risk management policies in place.

• Institute effective internal control systems to safeguard the assets of the Company

• Ensure compliance with rules and regulations.

• Approve the financial statements of the Company Executive Committee The Executive Committee, which consists of the Chairman/Managing Director and the Chief Executive Officer is delegated with the responsibility of monitoring the progress and implementing the policies of the Company. The Chief Executive Officer reports monthly on the progress of every estate and that of the Company to the Executive Committee.

Audit Committee The Audit Committee consists of two Independent Non-Executive Directors and assists the Board by overseeing the entity’s compliance with financial reporting requirements, Company’s internal controls, risk management and assessment of the independence and performance of the external auditors. The Company has an Internal Audit Division, which submits its reports on a regular basis to the Audit Committee. The guidelines for the Internal Audit Policy ensure that the assets of the Company are protected against any unauthorized use or misappropriation, proper records are maintained and reliable information is received. Audit Committee Report on page 19 describes the activities carried out during the financial year.

Remuneration Committee The Remuneration Committee which consists of two Independent Non-executive Directors makes recommendations to the Board on the Company’s framework of remunerating Key Management Personnel. The Remuneration Committee Report appears on page 20.

Related Party Transactions Review Committee The composition of the Related Party Transactions Review Committee includes two Independent Non-Executive Directors and one Non-Executive Director. All related party transactions except for transactions set out in Rule 9.5 of the CSE Listing Rules are reviewed by the Related Party Transactions Review Committee. The Related Party Transactions Review Committee Report appears on page 21.


23

Corporate Governance Statement

Levels of compliance with the CSE Listing Rules on Corporate Governance are as follows.

Rule No. Applicable RequirementCompliance Status

Details

7.10.1 (a)Non-Executive Directors•At least one-third of the total number of Directors should be

Non-Executive DirectorsComplied

Five out of seven Directors are Non-Executive Directors

7.10.2.(a)

7.10.2. (b)

Independent Directors

•Two or one third of Non-Executive Directors whichever is higher should be independent

•Each Non-Executive Director should submit a declaration of independence/non-independence in the prescribed format

Complied

Complied

Two out of five Non-executive Directors are independent.

Non-executive Directors have submitted these declarations.

7.10.3 (a)

7.10.3 (b)

7.10.3 (c)

7.10.3 (d)

Disclosure Relating to Directors

•Names of Independent Directors should be disclosed in the Annual Report

•The basis for the Board to determine a Director is independent, if criteria specified for independence is not met.

•A brief resume of each Director should be included in the Annual Report and should include the Director's areas of expertise

•Forthwith provide a brief resume of new Directors appointed to the Board with details specified in 7.10.3 (a), (b) and (c) to the CSE.

Complied

Complied

Complied

Complied

Refer Page 17,18.

Refer Page 21.

Refer Page 17,18.

Not applicable

7.10.5

7.10.5 (a)

7.10.5 (b)

7.10.5 (c)

Remuneration Committee

•A listed Company shall have a Remuneration Committee

•Composition of Remuneration Committee

•Shall comprise Non-Executive Directors a majority of whom will be independent

•Functions of Remuneration Committee

•The Remuneration Committee shall recommend the remuneration of Chief Executive Officer and Executive Directors

•Disclosure in the Annual Report relating to Remuneration Committee

The Annual Report should set out :

(a) Names of Directors comprising the Remuneration Committee

(b) Statement of Remuneration Policy

Complied

Complied

Complied

Complied

Refer Page 20.

7.10.6

7.10.6 (a)

7.10.6 (b)7.10.6 (c )

Audit Committee

•The Company shall have an Audit Committee

•Composition of Audit Committee

•Shall comprise of Non-Executive Directors, a majority of who will be independent.

•Non-Executive Director shall be appointed as the Chairman of the Committee

•Chief Executive Officer and Chief Financial Officer should attend Audit Committee Meetings

•The Chairman of the Audit Committee of one member should be a member of a professional Accounting Body

•Audit Committee Functions

•Disclosure in the Annual Report relating to Audit Committee

Complied

Complied

Complied

Complied

Complied

Complied

Complied

Refer Page 19.


24

Statement of Directors' Responsibilities

The Directors in consultation with the External Auditors select the appropriate accounting policies and apply them consistently, subject to any material departures being disclosed and explained. Further, the Directors are responsible for ensuring that the Company keeps sufficient accounting records to present, with reasonable accuracy, the financial position of the Company, in a manner that is easily understood by the shareholders. They also ensure that the Financial Statements comply with the Company’s Act and the Sri Lanka Accounting Standards (SLFRS/LKAS). In addition, they are also responsible for taking reasonable steps to safeguard the assets of the Company by the establishment of appropriate systems of internal controls with a view to the prevention and detection of fraud and other irregularities.

The Directors prepare the Financial Statements and provide the External Auditors with every assistance to undertake whatever inspections; they consider being appropriate for the purpose of enabling them to give their Audit Report in accordance with the Sri Lanka Auditing Standards. The Report of the External Auditors sets out their responsibility in respect of the Financial Statements.

The Directors confirm that, to the best of their knowledge and belief, they have discharged their responsibilities as set out in this statement.

By order of the Board Sgd. Pradeep A. Jayatunga Secretary

25-04-2016


25

Risk Management

Risk is defined as the possibility that an event will occur, which will impact an organization's achievement of objectives. Having a risk management plan is an important part of maintaining a successful, stable and reputed organization. While a variety of different strategies can mitigate or eliminate risk, the process for identifying and managing the risk is fairly standard and consists of five basic steps as follows:

Risk Risk Assessment Mitigating Strategies Threat Probability

BUSINESS RISK

Our Principal line of business is cultivation and manufacture of Tea and Rubber. The Company is susceptible to all risks associated with agriculture such as ;

•erratic weather

•commodity cycle

•fluctuations in global supply & demand

•inability to recover the actual costs of sales in a regulated system at the auction.

•political and trade union influence on worker productivity

•Close monitoring

•Undertake sustainable agricultural practices,

•adopting prudent policies in infilling and replanting

•crop diversification

•value addition

•focus on producing quality tea.

Identify Risk

Analyze

PlanMonitor

Respond

RiskManagement

Our Company which is cultivating and manufacturing Tea and Rubber has been developing a range of informal and formal approaches to manage risks before they become a threat to companywide performance and processes. In our endeavour to mitigate the negative effect of risk or evade risk altogether a structural risk management approach is in place.

The Board of Directors sets goals and objectives annually after reviewing the overall risk profile and the Senior Management Team is responsible to implement the task with greater emphasis on managing risks with prudence. Our approach on risk management relies on individual responsibility and major risks are conveyed to the Board by comprehensive reporting and quarterly reports with key economic and performance indicators presented to the Board and the Audit Committee to alert on possible risks. In addition internal & external auditors assist the Company to evaluate risks and also to determine whether adequate controls are in place to effectively mitigate risks.

A prioritized process is followed by the Company in dealing with risks whereby identifying the nature and extent of the risk and assess the severity of same in order to reduce the negative effect of the risks judiciously.

The key risks Balangoda Plantations PLC is exposed to, their effects and mitigating strategies adopted are illustrated below.

HIGH


26

Risk Management


ENVIRONMENTAL RISK

An agricultural based business face enormous challenges due to the variations in atmospheric temperatures, duration of sunshine hours, wind pattern etc which have a direct impact on production and liquidity of the Company often resulting in loss of crop, quality of the harvest and in turn affecting the market share, earnings and profitability.

•Improve skill levels of workers, staff and executives to meet the challenging demand of agriculture.

•Adoption of sustainable agricultural practices.

•Constant examination and review of soil nutrient contents

•Undertake effective soil conservation measures.

•Reservation of forests and watersheds

HIGH

OPERATIONAL RISK

Inadequate or failed internal processes and systems, human error, frauds, accidents, natural disasters etc can interfere with achieving business objectives.

•Implement a sound internal control system

•Preparation and execution of check-lists, monthly & annual budgets reviewing actual results.

•A monthly re-evaluation process where performance of each plantation is reviewed by Senior Executives of the Head Office.

•Appropriate advices conveyed to enforce a high degree of situational awareness among the Planting Executives.

•Compliance audits and standardization procedures

•Obtain comprehensive insurance policies to cover operational risks.

HUMAN RESOURCE

Low productivity, reduction in resident manpower, disruption in work due to highly unionized large working community expose the Company to difficulties in achieving the targeted objectives.

•Increase productivity

•Train and encourage Plantation Executives to acquire communication skills in resolving labour disputes.

•Improve employee motivation, commitment, welfare, recognition and appreciation.

•Abide by the Collective Agreement entered into with the Trade Unions in the Company’s capacity

MODERATE

MODERATE


27

Risk Management


PRODUCT QUALITY RISK

Inability to maintain consistency of the quality production will result in lessening demand thereby eroding the market share and fall in prices.

•Conform to well-established ethical and safety standards in providing a consumable product in terms of purity and food safety.

•Upgrade manufacturing process and factories to cater to the fluctuating market demand.

•Monitor quality assurance measures

POLITICAL RISK

The impact of the political intervention, major industrial relations issues, regulatory changes, ad hoc acquisitions of land etc are constraints faced by the Industry.

•Negotiating Collective Agreements with major Plantation Trade Unions.

•Maintain a closer dialogue with the Trade Union Leaders

•Implement human development policies

INTEREST RATE RISK

Fiscal and monitory policy changes have a direct impact on liquidity and production costs with raising the working capital.

•Maintain cash flow and budgetary control systems

•Diversification

•Capital development

•Upgrading plant and machinery

•Maintenance of biological assets in optimum condition to enhance productivity and turnover

TECHNICAL & IT RISK

Lack of accurate and timely information due to ineffective IT systems can cause disruption in taking management decisions and even lead to financial losses.

•Strengthen software development with internal controls including IT security and confidentiality

•Implement a sound backup system in case of system failure

•Use Licensed Software

MODERATE

MODERATE

MODERATE

HIGH


28


INVESTMENT RISK

Adequate return on investment heavily depends on global economic trends. The advent of the competitors with high productivity and lower production costs has a considerable impact on future profitability and sustainability. The long gestation period of replanting makes high risks for the Company since the capital invested for same is unaffordable.

•Undertake proper evaluation and feasibility process

•Continue replanting and infilling with a prudent policy and environmentally viable clones

•Work closely with the TRI in developing an economic model to make replanting a viable investment.

INVENTORY

Liquidity is a major concern as the industry is cyclical with long gestation periods for returns.

•Produce stocks are monitored closely for speedy disposal.

•Input stock levels are controlled to avoid obsolescence and theft.

•Purchase high cost input stocks such as fertilizer, firewood and packing materials on a need basis.

RISK OF COMPETITION

Competition from other major low cost producers such as India, China, Kenya, Vietnam affects demand and prices

•Closely monitor market trends

•Examine tea samples regularly to maximize market gains,

•Take remedial measures to ensure quality marks keep up their market leadership.

•Rationalize manufacture during lean cropping months.

•Close executive supervision on harvesting leaf with the required quality.

•Educate the workforce on the importance of their services.

COMPANY REPUTATION RISK

Maintenance the loyalty, trustworthiness among stakeholders, compliance of legal and statutory requirements as a highly respected corporate body is considered a major objective of the Company.

•Compliance of statutory legal requirements

•Adoption of the code of corporate governance by all employees, senior management and Board of Directors.

•Undertake sustainability initiatives, health & food safety procedures and protection of environment.

Risk Management

MODERATE

LOW

MODERATE

MODERATE


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Independent Auditors' Report

INDEPENDENT AUDITORS' REPORTTO THE SHAREHOLDERS OF BALANGODA PLANTATIONS PLC

Report on the Financial StatementsWe have audited the accompanying Financial Statements of Balangoda Plantations PLC ("the Company") which comprise the Statement of Financial Position as at December 31, 2015 and the Statement of profit or loss and Comprehensive Income, Statement of Changes in Equity and Cash Flow Statement for the year then ended, and a summary of significant Accounting Policies and other explanatory information.

Board's Responsibility for the Financial StatementsThe Board of Directors ("Board") is responsible for the preparation of these financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards and for such internal control as Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements give a true and fair view of the financial position of the Company as at December 31, 2015, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Report on Other Legal and Regulatory RequirementsAs required by section 163 (2) of the Companies Act No. 07 of 2007, we state the following:

a) The basis of opinion and scope and limitations of the audit are as stated above.b) In our opinion:

• we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company,

• the financial statements of the Company give a true and fair view of its financial position as at December 31, 2015, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards, and

• the financial statements of the Company comply with the requirements of section 151 of the Companies Act No.07 of 2007.

Sgd. Ernst & Young(Chartered Accountants) 27 April 2016Colombo.

Partners: W R H Fernando FCA FCMA M P D Cooray FCA FCMA R N de Saram ACA FCMA Ms. N A De Silva FCA Ms. Y A De Silva FCA W K B S P Fernando FCA FCMA Ms. L K H L Fonseka FCA A P A Gunasekara FCA FCMA A Herath FCA D K Hulangamuwa FCA FCMA LLB (Lond) H M A Jayesinghe FCA FCMA Ms. A A Ludowyke FCA FCMA Ms. G G S Manatunga FCA N M Sulaiman ACA ACMA B E Wijesuriye FCA FCMA

A member firm of Ernst & Young Global Limited


30

Statement of Profit or LossYear ended 31 December 2015

Notes 2015 2014 Rs. Rs.

REVENUE 6 2,413,054,604 3,002,155,618

COST OF SALES (2,862,355,315) (3,168,740,574)

GROSS PROFIT / (LOSS) (449,300,711) (166,584,956)

GAIN/(LOSS) ON FAIR VALUE OF BIOLOGICAL ASSETS 14.2 89,603,395 92,376,691

OTHER INCOME AND GAINS 7 128,083,665 157,260,549

ADMINISTRATIVE EXPENSES (125,153,980) (134,164,525)

MANAGEMENT FEE (24,908,400) (25,132,800)

FINANCE COST 8 (48,778,282) (30,199,786)

PROFIT/ (LOSS) BEFORE TAX 9 (430,454,314) (106,444,827)

INCOME TAX EXPENSE 10 87,295,321 11,213,505

PROFIT/ (LOSS) FOR THE YEAR (343,158,993) (95,231,322)

BASIC EARNINGS/ (LOSS) PER SHARE 11 (14.52) (4.03)

The Accounting Policies and Notes on pages 36 to 70 form an integral part of the Financial Statements.


31

2015 2014 Rs. Rs.

Profit/ (Loss) for the year (343,158,993) (95,231,322)

Other Comprehensive Income

Other comprehensive income to be reclassified to profit or loss in subsequent periods (net of tax)

Net change in fair value of available-for-sale financial assets 15 (181,787) 552,027Income tax effect - -

Net other comprehensive income/ (loss) to be reclassified to profit or loss in subsequent periods (181,787) 552,027

Other comprehensive income not to be reclassified to profit or loss in subsequent periods (net of tax)

Actuarial gains/ (losses) on defined benefit plans 22 10,011,808 (19,706,762)Income tax effect (1,577,861) 3,105,785

Net other comprehensive income/ (loss) not to be reclassified to profit or loss in subsequent periods 8,433,947 (16,600,977)

Other comprehensive income/(loss) for the year, net of tax 8,252,160 (16,048,950)Total Other comprehensive income for the year, net of tax (334,906,833) (111,280,272)


Statement of Comprehensive IncomeYear ended 31 December 2015


32

ASSETS Notes 2015 2014Non Current Assets Rs. Rs.Lease hold Property ,Plant and Equipment 12 261,369,134 279,760,321Property, plant & equipment 13 688,275,976 595,349,159Bearer Biological Assets 14.1 2,088,809,788 1,810,631,291Consumable Biological Assets 14.2 1,755,818,586 1,662,375,598Available for Sale financial Assets 15 631,213 813,000 4,794,904,698 4,348,929,369Current AssetsInventories 16 265,303,655 333,546,297Trade and Other Receivables 17 142,643,583 143,168,087Amounts due from Related Companies 18 9,320,923 4,840,292ACT Recoverable 29,468,572 29,468,572VAT Receivable 11,333,424 10,453,452ESC Receivable 4,782,585 5,712,988Short Term Investments 19.1 62,911,618 234,324,596Cash and cash equivalents 19.2 24,328,912 33,833,607 550,093,272 795,347,892TOTAL ASSETS 5,344,997,970 5,144,277,261

EQUITY AND LIABILITIESEquityStated Capital 20 350,000,010 350,000,010Timber Reserves 1,565,099,933 1,475,496,538Available for Sale Reserves 481,213 663,000Retained Earnings 371,144,399 795,472,840Total Equity 2,286,725,555 2,621,632,388

Non Current Liabilities & Deferred IncomeInterest Bearing Loans & Borrowings 21 714,381,768 521,232,826Retiring Benefit Obligations 22 757,903,350 684,325,565Deferred Tax Liability 23 45,753,815 140,359,796Deferred Income 24 191,420,805 202,696,028Liability to make Lease Payment after one year 25 95,344,000 97,133,000 1,804,803,737 1,645,747,215Current LiabilitiesInterest Bearing Loans & Borrowings 21 129,127,143 15,750,292Liability to make Lease Payment within one year 25 1,789,000 1,719,000Trade and Other Payables 26 494,583,713 388,633,659Amounts due to Related Companies 27 111,208,222 104,471,439Income Tax Liabilities 15,958,510 16,288,580Dividends Payable 28 6,536,163 6,608,137Bank overdraft 19.3 494,265,925 343,426,551 1,253,468,676 876,897,658TOTAL LIABILITIES 3,058,272,413 2,522,644,873TOTAL EQUITY AND LIABILITIES 5,344,997,970 5,144,277,261

Net assets per share (Rs.) 96.75 110.92

These Financial Statements are in compliance with the requirements of the Companies Act No. 07 of 2007.

Sgd. M I A AnsarChief Accountant

The Board of Directors is responsible for the preparation and presentation of these Financial Statements.Signed for and on behalf of the Board by

Sgd. D H S Jayawardena Sgd. S K L ObeyesekereChairman/Managing DirectorDirector/CEO


27 April 2016Colombo.

Statement of Financial PositionAs at 31 December 2015


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Stated Capital Timber Available for Retained Total Reserve Sale Reserves Earnings Equity Rs. Rs. Rs. Rs. Rs. As at 01 January 2014 350,000,010 1,383,119,847 110,973 1,023,318,194 2,756,549,024

Profit/ (Loss) for the year - - - (95,231,322) (95,231,322)

Transferred to Timber Reserve - 92,376,691 - (92,376,691) -

Total other Comprehensive income for the year - - 552,027 (16,600,977) (16,048,950)net of tax

Dividend - - - (23,636,364) (23,636,364)

Balance as at 31 December 2014 350,000,010 1,475,496,538 663,000 795,472,840 2,621,632,388

Profit/ (Loss) for the year - - - (343,158,993) (343,158,993)

Transferred to Timber Reserve - 89,603,395 - (89,603,395) -

Total other Comprehensive income for the year - - (181,787) 8,433,947 8,252,160net of tax

Dividends - - - - -

Balance as at 31 December 2015 350,000,010 1,565,099,933 481,213 371,144,399 2,286,725,555


Statement of Changes in EquityYear ended 31 December 2015


34

Notes 2015 2014 Rs. Rs.CASH FLOWS FROM OPERATING ACTIVITIES Net Profit/ (Loss) before Taxation (430,454,314) (106,444,827)

ADJUSTMENTS FOR

Depreciation/Amortisation 99,488,683 100,159,031Profit on disposal of Property Plant & Equipment 7 (2,730,509) (3,571,500)Profit on sale of timber trees 7 (1,844,175) -Interest Income 7 (7,530,874) (19,198,601)Retirement Benefit Obligation -Provision 22 117,566,492 111,897,397Amortisation of Grants 24 (11,275,223) (11,443,168)Provision for Obsolete Stocks 16 640,808 (2,290)Provision for doubtful debts 17 429,279 (4,833)Interest Expenses 8 48,778,282 30,199,786(Gains) / Losses on Biological Assets 14.2 (89,603,395) (92,376,691)Operating Profit before Working Capital Changes (276,534,946) 9,214,304

(Increase)/Decrease in Inventories 16 67,604,834 99,568,541(Increase)/Decrease in Trade and Other Receivables 17 (784,747) (23,333,800)Increase/(Decrease) in Trade and Other Payables 26 105,950,054 (3,757,880)(Increase)/Decrease in amounts due from Related Companies 18 (4,480,631) 260,653Increase/(Decrease) in amounts due to Related Companies 27 6,736,783 2,122,400Cash Generated from Operations (101,511,653) 84,074,218

Payment of Economic Service Charges (6,906,303) (8,295,523)Retirement Benefit Obligations - Payments (33,976,899) (74,097,272)Interest Paid (39,823,991) (26,591,329)Net Cash from Operating Activities (182,218,846) (24,909,906)

CASH FLOWS FROM INVESTING ACTIVITIES

Interest Received 10,146,008 23,754,733Purchase of Property, Plant & Equipment 13 (143,893,644) (35,549,280)Investment in Immature Plantations - Note A (314,309,304) (322,702,311)Proceeds from Disposal of Property, Plant & Equipment 6,735,229 3,571,500

Net Cash used in Investing Activities (441,321,711) (330,925,358)

CASH FLOWS FROM FINANCING ACTIVITIES

Receipts of loans 344,136,028 517,736,700Repayment of Loan (37,610,231) (14,646,977)Payment to Lessor on Lease rights (14,742,287) (28,300,066)Dividend Paid - (23,636,364)

Net Cash from Financing Activities 291,783,510 451,153,293

Net Increase / (Decrease) in Cash & Cash Equivalents (331,757,047) 95,318,029

C. Cash & Cash Equivalents at the beginning of the year (75,268,348) (170,586,377)

D. Cash & Cash Equivalents at the end of the year (407,025,395) (75,268,348)


Statement of Cash FlowsYear ended 31 December 2015


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Tea Rubber Fuel Wood TotalNOTE A: Investment in Immature Plantations Rs. Rs. Rs. Rs.

Investment in Immature Plantations -2015 12,178,947 293,665,993 8,464,365 314,309,305

Investment in Immature Plantations -2014 15,834,860 295,843,584 11,023,867 322,702,311 ` 2015 2014NOTE C Rs. Rs.Cash & Cash Equivalents at the beginning of the year Cash & Bank Balances 33,833,607 15,283,548 Short term Investments 234,324,596 211,629,286 Bank Overdrafts (343,426,551) (397,499,211) (75,268,348) (170,586,377)NOTE DCash & Cash Equivalents at the end of the year Cash & Bank Balances 24,328,912 33,833,607 Short term Investments 62,911,618 234,324,596 Bank Overdrafts (494,265,925) (343,426,551) (407,025,395) (75,268,348)


Statement of Cash FlowsYear ended 31 December 2015


36

Notes to the Financial StatementsYear ended 31 December 2015

1. REPORTING ENTITY Balangoda Plantations PLC was incorporated and domiciled in Sri Lanka, under the Companies Act No.

17 of 1982 (The Company was re-registered under the Companies Act No. 07 of 2007) in terms of the provisions of the Conversion of Public Corporation and Government-Owned Business Undertakings into Public Companies under Public Companies Act No. 23 of 1987. The registered office of the Company is located at No 110 Norris Canal Road, Colombo 10, and Plantations are situated in the planting districts of Rathnapura, Balangoda & Badulla.

The Financial Statements of the company comprise with the profit or loss Statement, Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows together with Accounting Policies and Notes to Financial Statements.

1.1 Principal activities and the nature of the operations During the year, the principal activities of the company were cultivation and manufacture and sale of Tea

and Rubber.

1.2 Parent enterprise and ultimate parent enterprise The Company's parent undertaking and controlling party is Melstacrop Limited which is incorporated in Sri

lanka as a limited liability company.

1.3 Date of Authorization for issue. The financial statements of Balangoda Plantations PLC for the year ended 31 December 2015 were

authorized for issue in accordance with a resolution of the Board of Directors on 27th April 2016.

1.4 Responsibility for Financial Statements. The responsibility of the Directors in relation to the Financial Statements is set out in the Statement of

Directors' Responsibility Report in the Annual Report.

2 BASIS OF PREPERATION

2.1 Statement of Compliance The Financial Statements of Balangoda Plantations PLC have been prepared in accordance with Sri Lanka

Accounting and Auditing Standards Act No. 15 of 1995,which requires compliance with the Sri Lanka Accounting Standards (SLFRS/ LKAS) promulgated by the Institute of Chartered Accountants of Sri Lanka (CASL) and with the requirements of the Companies Act No. 07 of 2007.

2.2 Basis of Measurement These Financial Statements have been prepared in accordance with the historical cost convention other

than the following material items in the Financial Statements.

• Right to Use of Land and leased assets of JEDB/SLSPC have been revalued as described in Note 12.1 to the Financial Statements.

• Managed Consumable biological assets are measured at fair value.

• Financial instruments - Fair Value through Profit or Loss are measured at fair value.

• Financial instruments - Available-for-sale financial assets are measured at fair value.

Where appropriate, the specific policies are explained in the succeeding Notes

No adjustments have been made for inflationary factors in the Financial Statements.

2.3 Functional and Presentation Currency The Financial Statements are presented in Sri Lankan Rupees (Rs.) which is the Company's functional and

presentation currency.

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below are consistent with those used in the previous year.

3.1 Comparative information The financial statement provides comparative information in respect of the previous period.


37


3.2 Going Concern The financial statements have been prepared on the assumption that the company is a going concern. The

company has made a gross loss and net loss as evident of the financial statements. The Directors have made an assessment of the company ability to continue as a going concern in the foreseeable future, and they do not foresee a need for liquidation or cessation of trading, to justify adopting the going concern basis in preparing these financial statements.

3.3 Current versus non-current classification The Company presents assets and liabilities in the statement of financial position based on current/non-

current classification. An asset is current when it is:

Expected to be realised or intended to be sold or consumed in the normal operating cycle Held primarily for the purpose of trading Expected to be realised within twelve months after the reporting period OR Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least

twelve months after the reporting period

All other assets are classified as non-current.

A liability is current when:

It is expected to be settled in the normal operating cycle It is held primarily for the purpose of trading It is due to be settled within twelve months after the reporting period OR There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period

The company classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

3.4 Fair Value Measurement The company measures financial instruments and non-financial assets at fair value at each statement of

financial position date. Fair value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair values are disclosed, are summarised in the following notes:

• Consumable biological assets Note 14.2 Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

In the principal market for the asset or liability Or In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible by the Company.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:


38


• Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities

• Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable

• Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservble

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

External valuers are involved for valuation of significant assets, such as managed biological assets. Involvement of external valuers is decided upon annually by the Management Committee after discussion with and approval by the Company's Audit Committee. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. The Management Committee decides, after discussions with the Company's external valuers, which valuation techniques and inputs to use for each case

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

3.5 Property, Plant & Equipment The Company applies the requirements of LKAS 16 on 'Property Plant and Equipment' in accounting for

its owned assets which are held for and use in the provision of the services, for rental to other or for administration purpose and are expected to be used for more than one year.

3.5.1 Basis of Recognition. Property Plant and Equipment is recognised if it is probable that future economic benefit associated with

the assets will flow to the Company and cost of the asset can be reliably measured.

3.5.2 Measurement Items of Property, Plant & Equipment are measured at cost (or at fair value in the case of land) less

accumulated depreciation and accumulated impairment losses, if any.

3.5.3 Owned Assets The cost of Property, Plant & Equipment includes expenditures that are directly attributable to the acquisition

of the asset. Such costs includes the cost of replacing part of the property, plant and equipment and borrowing costs for long terms construction projects if the recognition criteria are met. The cost of self-constructed assets includes the cost of materials and direct labour, any other cost directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located.

Purchased software that is integral to the functionality of the related equipment is capitalized as a part of that equipment.

When significant parts of property, plant and equipment are required to be replaced at intervals, the entity recognises such parts as individual assets (major components) with specific useful lives and depreciation, respectively. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the Profit or Loss Statement as incurred. The present value of the expected cost for the decommissioning of the asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.

Capital work-in-progress is transferred to the respective asset accounts at the time of first utilisation or at the time the asset is commissioned.

3.5.4 Leased Assets The determination of whether an arrangement is (or contains) a lease is based on the substance of the

arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.


39


Company as a lessee A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers

substantially all the risks and rewards incidental to ownership to the Company is classified as a finance lease.

Finance leases are capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the statement of profit or loss.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Operating lease payments are recognised as an operating expense in the statement of profit or loss on a straight-line basis over the lease term.

3.5.5 Derecognition An item of property, plant and equipment and any significant part initially recognised is derecognised

upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the profit or loss statement when the asset is derecognized and gains are not classified as revenue.

3.5.6 Land Development Cost Permanent land development costs are those costs incurred in making major infrastructure development

and building new access roads on leasehold lands. These costs have been capitalised and amortised over the remaining lease period. Permanent impairments to land development costs are charged to the profit and loss Statement in full or

reduced to the net carrying amounts of such assets in the year of occurrence after ascertaining the loss.

3.5.7 Biological Asset Biological assets are classified in to mature biological assets and immature biological assets. Mature

biological assets are those that have attained harvestable specifications or are able to sustain regular harvests. Immature biological assets are those that have not yet attained harvestable specifications. Tea, rubber, other plantations and nurseries are classified as biological assets.

Biological assets are further classified as bearer biological assets and consumable biological assets. Bearer biological asset includes tea and rubber trees, those that are not intended to be sold or harvested, however used to grow for harvesting agricultural produce from such biological assets. Consumable biological assets includes managed timber trees those that are to be harvested as agricultural produce or sold as biological assets.

The entity recognize the biological assets when, and only when, the entity controls the assets as a result of past event, it is probable that future economic benefits associated with the assets will flow to the entity and the fair value or cost of the assets can be measured reliably.

3.5.7.1 Bearer Biological Asset The bearer biological assets are measured at cost less accumulated depreciation and accumulated

impairment losses, if any, in terms of LKAS 16 - Property Plant & Equipment.

The cost of land preparation, rehabilitation, new planting, replanting, crop diversification, inter planting and fertilising, etc., incurred between the time of planting and harvesting (when the planted area attains maturity), are classified as immature plantations. These immature plantations are shown at direct costs plus attributable overheads. The expenditure incurred on bearer biological assets (Tea, Rubber) which comes into bearing during the year, is transferred to mature plantations.

3.5.7.2 Infilling Cost on Bearer Biological Assets The land development costs incurred in the form of infilling have been capitalised to the relevant mature field,

if it increases the expected future benefits from that field, beyond its pre-infilling performance assessment.


40


Infilling costs so capitalised are depreciated over the newly assessed remaining useful economic life of the relevant mature plantation, or the unexpired lease period, whichever is lower.

Infilling costs that are not capitalised have been charged to the Income Statement in the year in which they are incurred.

3.5.7.3 Borrowing Cost Borrowing costs that are directly attributable to acquisition, construction or production of a qualifying

asset, which takes a substantial period of time to get ready for its intended use or sale are capitalised as a part of the asset.

Borrowing costs that are not capitalised are recognised as expenses in the period in which they are incurred and charged to the Profit or Loss Statement.

The amounts of the borrowing costs which are eligible for capitalisation are determined in accordance with the in LKAS 23 - Borrowing Costs'.

Borrowing costs incurred in respect of specific loans that are utilised for field development activities have been capitalised as a part of the cost of the relevant immature plantation. The capitalisation will cease when the crops are ready for commercial harvest.

The amount so capitalised and the capitalisation rates are disclosed in Notes to the Financial Statements.

3.5.7.4 Consumable Biological Asset Consumable biological assets includes managed timber trees those that are to be harvested as agricultural

produce or sold as biological assets. Expenditure incurred on consumable biological assets (managed timber trees) is measured on initial recognition and at the end of each reporting period at its fair value less cost to sell in terms of LKAS 41. The cost is treated as approximation to fair value of young plants as the impact on biological transformation of such plants to price during this period is immaterial. The fair value of timber trees are measured using DCF method taking in to consideration the current market prices of timber, applied to expected timber content of a tree at the maturity by an independent professional valuer. All other assumptions and sensitivity analysis are given in Note 14.2.

The main variables in DCF model concerns

Variable Comment

Currency valuation Rs.

Timber content Estimated based on physical verification of girth, height and considering the growth of the each spices in different geographical regions.Factor all the prevailing statutory regulations enforced for harvesting of timber coupled with forestry plan of the company.

Economic useful life Estimated based on the normal life span of each spices by factoring the forestry plan of the Company

Selling price Estimated based on prevailing Sri Lankan market price. Factor all the conditions to be fulfilled in bringing the trees in to saleable condition

Planting cost Estimated costs for the further development of immature areas are deducted.

Discount Rate Future cash flows are discounted at following discount rates:Timber trees 13%

The gain or loss arising on initial recognition of consumable biological assets at fair value less cost to sell

and from a change in fair value less cost to sell of consumable biological assets are included in profit or loss for the period in which it arises.

Permanent impairments to Biological Asset are charged to the Profit or Loss Statement in full and reduced to the net carrying amounts of such asset in the year of occurrence after ascertaining the loss.

3.5.7.5 Nursery Plants Nursery cost includes the cost of direct materials, direct labour and an appropriate proportion of directly

attributable overheads, less provision for overgrown plants.


41


3.5.8 Depreciation and Amortisation

(a) Depreciation Depreciation is recognised in Profit and Loss Statement on a straight-line basis over the estimated

useful economic lives of each part of an item of Property, Plant & Equipment since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Assets held under finance leases are depreciated over the shorter of the lease term and the useful lives of equivalent owned assets unless it is reasonably certain that the Company will have ownership by the end of the lease term. Lease period of land acquired from JEDB/ SLSPC will be expired in year 2045. The estimated useful lives and depreciation rates are as follows:

No. of Years Rate (%)

Buildings & Roads 40 2.50

Plant & Machinery 20/25 4.00/5.00

Motor Vehicles 15/20 6.67/5.00

Equipment 8/4 12.50/25

Furniture & Fittings 10 10.00

Mature Plantations (Replanting and New Planting)


Mature Plantations

Tea 33 1/3 3.00

Rubber 20 5.00 Depreciation of an asset begins when it is available for use and ceases at the earlier of the date on which

the asset is classified as held for sale or is derecognised. Depreciation methods, useful lives and residual values are reassessed at the reporting date and adjusted prospectively, if appropriate. Mature plantations are depreciated over their useful lives or unexpired lease period, whichever is less.

No depreciation is provided for immature plantations.

(b) Amortisation The leasehold rights of assets taken over from SLSPC are amortised in equal amounts over the shorter

of the remaining lease periods and the useful lives as follows:


Bare land 53 1.89

Improvements to land 30 3.33

Mature Plantations(Tea & Rubber)

30 3.33

Buildings 25 4.00

Machinery 15 6.67

3.6 Financial Instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability

or equity instrument of another entity.

3.6.1 Financial assets

3.6.1.1 Initial Recognition and Measurement Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss,

loans and receivables, held-to-maturity investments, AFS financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset.


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Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised i.e., the date that the Company commits to purchase or sell the asset.

The Company's financial assets include cash and short-term deposits, short term investments, trade and other receivables, loans and other receivables, quoted and unquoted financial instruments.

3.6.1.2 Subsequent Measurement The subsequent measurement of financial assets depends on their classification as described below:

(a) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial

assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.

Financial assets at fair value through profit and loss are carried in the Statement of Financial Position at fair value with changes in fair value recognised in finance income or finance costs in the Profit and Loss statement.

The Company has not designated any financial assets as at fair value through profit or loss.

(b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that

are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method (EIR), less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the Profit or Loss Statement. The losses arising from impairment are recognised in the Profit or Loss Statement in finance costs for loans and in cost of sales or other operating expenses for receivables.

Loans and receivables comprise of trade receivables, amounts due from related parties, deposits, advances and other receivables and cash and cash equivalents

(c) Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified

as held-to-maturity when the Company has the positive intention and ability to hold them to maturity. After initial measurement, held-to-maturity investments are measured at amortised cost using the effective interest method, less impairment.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the Profit or Loss Statement. The losses arising from impairment are recognised in the Profit or Loss Statement in finance costs.

(d) Available for sale financial Assets AFS financial assets include equity investments and debt securities. Equity investments classified as

AFS are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in the market conditions.

After initial measurement, AFS financial assets are subsequently measured at fair value with unrealised gains or losses recognised in OCI and credited in the AFS reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in other operating income, or the investment is determined to be impaired, when the cumulative loss is reclassified from the AFS reserve to the statement of profit or loss in finance costs. Interest earned whilst holding AFS financial assets is reported as interest income using the EIR method.

The Company evaluates whether the ability and intention to sell its AFS financial assets in the near term is still appropriate. When, in rare circumstances, the Company is unable to trade these financial assets due to inactive markets, the Company may elect to reclassify these financial assets if the management has the ability and intention to hold the assets for foreseeable future or until maturity.


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For a financial asset reclassified from the AFS category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on the asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the statement of profit or loss.

3.6.1.3 Derecognition A financial asset (or, where applicable, a part of a financial asset or part of a company of similar financial

assets) is derecognised when:

• The rights to receive cash flows from the asset have expired Or

• The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Company's continuing involvement in the asset. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

3.6.1.4 Impairment of financial assets The Company assesses at each reporting date whether there is any objective evidence that a financial asset

or a group of financial assets is impaired and if such has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and when observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults..

3.6.1.5 Financial assets carried at amortised cost For financial assets carried at amortised cost, the Company first assesses whether impairment exists

individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a company of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

The amount of any impairment loss identified is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset's original effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in the statement of profit or loss. Interest income (recorded as finance income in the statement of profit or loss) continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Company. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to finance costs in the statement of profit or loss.


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3.6.1.6 Available for sale financial Assets For AFS financial assets, the Company assesses at each reporting date whether there is objective evidence

that an investment or a company of investments is impaired.

In the case of equity investments classified as AFS, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. 'Significant' is evaluated against the original cost of the investment and 'prolonged' against the period in which the fair value has been below its original cost. When there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the statement of profit or loss - is removed from OCI and recognised in the statement of profit or loss. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment are recognised in OCI.

The determination of what is 'significant' or 'prolonged' requires judgement. In making this judgement, the company evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost.

In the case of debt instruments classified as AFS, the impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the statement of profit or loss.

Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the statement of profit or loss, the impairment loss is reversed through the statement of profit or loss.

3.6.2 Financial liabilities

3.6.2.1 Initial recognition and measurement Financial liabilities are classified as financial liabilities at fair value through profit or loss, loans and

borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

The Company's financial liabilities include trade and other payables, bank overdrafts, loans and borrowings, financial guarantee contracts.

3.6.2.2 Subsequent measurement The subsequent measurement of financial liabilities depends on their classification as described below:

(a) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and

financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by LKAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recognised in the statement of profit or loss.

Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in LKAS 39 are satisfied. The Company has not designated any financial liability as at fair value through profit or loss.

(b) Loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized

cost using the effective interest rate method. Gains and losses are recognised in the Profit or Loss


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Statement when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortization process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss.

3.6.3 Financial guarantee contracts Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs

that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognised less cumulative amortization.

3.6.4 Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or

expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the Profit or Loss Statement.

3.6.5 Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial

position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

3.6.6 Inventories Finish goods manufactured from agricultural produce of biological assets These are valued at the lower of cost and estimated net realisable value, after making due allowance for

obsolete and slow moving items. Net realisable value is the estimated selling price at which stocks can be sold in the ordinary course of business after allowing for cost of realisation and/or cost of conversion from their existing state to saleable condition.

Input Material, Spares and Consumables At actual cost on weighted average basis.

Agricultural Produce Harvested from Biological Assets Agricultural produce harvested from its biological assets are measured at their fair value less cost to sell

at the point of harvest. The finished and semi-finished inventories from agriculture produce are valued by adding the cost of conversion to the fair value of the agricultural produce.

3.6.7 Impairment of Non-Financial Assets The Company assesses, at each reporting date, whether there is an indication that an asset may be

impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's (CGU) fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.

The Company bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Company's CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year.


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Impairment losses of continuing operations, including impairment on inventories, are recognised in the statement of profit or loss in expense categories consistent with the function of the impaired asset, except for properties previously revalued with the revaluation taken to OCI. For such properties, the impairment is recognised in OCI up to the amount of any previous revaluation.

For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the asset's or CGU's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase.

3.7 Trade and Other Receivables Trade and other receivables are stated at their estimated realisable amounts inclusive of provisions for bad

and doubtful debts.

3.7.1 Provisions Provisions are recognised when the Company has a present obligation (legal or constructive) as a result

of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Company expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Profit or Loss Statement net of any reimbursement.

3.8 Employees Benefits(a) Defined Contribution Plans - Provident Funds and Trust Fund A defined contribution plan is a post-employment benefit plan under which an entity pays fixed

contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to Provident and Trust Funds covering all employees are recognised as an expense in profit and loss in the periods during which services are rendered by employees.

The Company contributes 12% on consolidated salary of the employees to Ceylon Planters' Provident Society (CPPS)/Estate Staff Provident Society (ESPS)/ Employees' Provident Fund (EPF).

All the employees of the Company are members of the Employees' Trust Fund, to which the Company contributes 3% on the consolidated salary of such employees.

(b) Defined Benefit Plan A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The

liability recognised in the Financial Statements in respect of defined benefit plan is the present value of the defined benefit obligation at the Reporting date. The defined benefit obligation is calculated annually using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using the interest rates that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged recognised as in retained earnings through other comprehensive income . Past service costs are recognised immediately in the profit or Loss statement.

The provision has been made for retirement gratuities from the first year of service for all employees, in conformity with LKAS 19, "Employee Benefits". However, under the Payment of Gratuity Act No. 12 of 1983, the liability to an employee arises only on completion of 5 years of continued service.

The Liability is not externally funded.

The key assumptions used in determining the retirement benefit obligations are given in Note 22.

3.9 Trade and Other PayablesTrade and other payables are stated at their costs.


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3.10 Capital Commitments and Contingencies Capital commitments and contingent liabilities of the Company have been disclosed in the respective Notes

to the Financial Statements.

3.11 Events occurring after the date of Financial Position. All material post events occurring after the date of financial position have been considered where

appropriate; either adjustments have been made or adequately disclosed in the Financial Statements.

3.12 Earnings per Share The Company presents basic and diluted earnings per share (EPS) for its ordinary shares. Basic EPS

is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.

3.13 Deferred Income

3.13.1 Grants and Subsidies Government grants are recognised where there is reasonable assurance that the grant will be received and

all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it is recognised as deferred income and released to income in equal amounts over the expected useful life of the related asset.

Where the Company receives non-monetary grants, the asset and the grant are recorded gross at nominal amounts and released to the Profit or Loss Statement over the expected useful life and pattern of consumption of the benefit of the underlying asset by equal annual instalments. Where loans or similar assistance are provided by governments or related institutions with an interest rate below the current applicable market rate, the effect of this favourable interest is regarded as additional government grant.

Grants related to Property, Plant & Equipment other than grants received for forestry are initially deferred and allocated to income on a systematic basis over the useful life of the related Property, Plant & Equipment as follows: Assets are amortised over their useful lives or unexpired lease period, whichever is less.

Buildings 40 years

Grants received for forestry are initially deferred and credited to income once when the related blocks of trees are harvested.

3.14 Profit or Loss Statement For the purpose of presentation of Profit or Loss Statement, the function of expenses method is adopted,

as it represents fairly the elements of the company's performance.

3.14.1 Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company

and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty.

(a) Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. Revenue is recorded at invoice value net of brokerage, sale expenses and other levies related to revenue.

(b) Gains and losses on disposal of an item of Property, Plant & Equipment are determined by comparing the net sales proceeds with the carrying amounts of Property, Plant & Equipment and are recognised within 'other operating income' in the Profit or Loss Statement.

(c) For all financial instruments measured at amortised cost and interest-bearing financial assets classified as AFS, interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in finance income in the statement of profit or loss.


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(d) Dividend is recognised when the company's right to receive the payment is established, which is generally when shareholders approve the dividend.

(e) Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease terms.

3.14.2 Expenses All expenditure incurred in the running of the business and in maintaining the Property, Plant & Equipment

in a state of efficiency is charged to revenue in arriving at the profit or loss for the period.

3.14.2.1 Financing Income and Finance cost Finance income comprises interest income on funds invested. Interest income is recognised as it accrues

in profit or loss.

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at fair value through profit or loss, and losses on hedging instruments that are recognised in profit or loss. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

The interest expense component of finance lease payments is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Foreign currency gains and losses are reported on a net basis.

3.14.3 Taxes

3.14.3.1 Current Income Tax Current income tax assets and liabilities are measured at the amount expected to be recovered from or

paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Company operates and generates taxable income.

Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

3.14.3.2 Deferred Tax Deferred tax is provided using the liability method on temporary differences between the tax bases of

assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss

• In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:

• When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

• In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.


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The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognised subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognised in profit or loss.

3.15 Cash and Cash Equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable

on demand form an integral part of the company’s cash management and are included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows.

3.16 Statement of Cash Flows The Statement of Cash Flow has been prepared using the 'indirect method'. Interest paid is classified as

operating cash flows, interest and dividends received are classified as investing cash flows while dividends paid and Government grants received are classified as financing cash flows, for the purpose of presenting the Cash Flow Statement.

3.17 Segment Reporting Segmental information is provided for the different business segments of the Company Business

segmentation has been determined based on the nature of goods provided by the Company after considering the risk and rewards of each type of product.

Since the individual segments are located close to each other and operate in the same industrial environment, the need for geographical segmentation has no material impact.

The segments information are disclosed in the Notes no 6 to the Financial Statements.

Revenue and expenses directly attributable to each segment are allocated to the respective segments. Revenue and expenses not directly attributable to a segment are allocated on the basis of their resource utilisation, wherever possible.

Assets and liabilities directly attributable to each segment are allocated to the respective segments. Assets and liabilities, which are not directly attributable to a segment, are allocated on a reasonable basis wherever possible. Unallocated items comprise mainly interest bearing loans, borrowings, and expenses.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one accounting period.

4. USE OF ESTIMATES AND JUDGMENTS The preparation of Financial Statements in conformity with SLFRS/LKAS requires management to make

judgments, estimates and assumptions that influence the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Judgments and estimates are based on historical experience and other factors, including expectations that are believed to be reasonable under the circumstances. Hence, actual experience and results may differ from these judgments and estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period and any future periods affected.


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Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the Financial Statements is included in the following notes:

• Note 23 - Deferred Taxation• Note 22 - Measurement of the Defined Benefit Obligations• Note 14 - Biological Assets• Note 25 - Liability to make Lease Payment

4.1 Income Taxes The Company is subject to income taxes and other taxes including VAT. Significant Judgement was

required to determine the total provision for current, deferred and other taxes pending the issue of tax guidelines on the treatment of the adoption of SLFRS in the financial statements and the taxable profit for the purpose of imposition of taxes. Uncertainties exist, with respect to the interpretation of the applicability of tax laws, at the time of the preparation of these financial Statements.

The Company recognized assets and liabilities for current deferred and other taxes based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income, deferred and tax amounts in the period in which the determination is made.

4.2 Retirement Benefit Obligations The present value of the retirement benefit obligations depends on a number of factors that are determined

on an actuarial basis using a number of assumptions. Key assumptions used in determining the retirement benefit obligations are given in Note 22. Any changes in these assumptions will impact the carrying amount of retirement benefit obligations.

4.3 Biological Assets The fair value of managed timber trees depends on a number of factors that are determined on a discounted

method using various financial and non-financial assumptions. The growth of the trees is determined by various biological factors that are highly unpredictable. Any change to the assumptions will impact to the fair value of biological assets. Key assumptions and sensitivity analysis of the biological assets are given in the Note 14.2.

5 STANDARDS ISSUED BUT NOT YET EFFECTIVE Standards issued but not yet effective up to the date of issuance of the company’s financial statements are

listed below. This listing of standards and interpretations issued are those that the company reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The company intends to adopt these standards when they become effective.

Impending Accountings standards / Standards issued not yet effective Certain new accounting standards and amendments / improvements to existing standards have been

published, that are not mandatory for 31 December 2015 reporting periods. None of those have been early adopted by the Company.

• SLFRS 9 -Financial Instruments SLFRS 9 replaces the existing guidance in LKAS 39 Financial Instruments: Recognition and

Measurement. SLFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from LKAS 39.

SLFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.

• SLFRS 15 -Revenue from Contracts with Customers SLFRS 15 establishes a comprehensive framework for determining whether, how much and SLFRS

15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including LKAS 18 Revenue, LKAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes.

SLFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.

Pending the completion of the detailed impact analysis, possible Impact from SLFRS 9 and SLFRS 15

is not reasonably estimable as of the reporting date.


51

6 REVENUE 2015 2014 Rs. Rs.6.1 Summary Sale of Goods Tea 2,235,883,478 2,816,064,602 Rubber 177,171,126 186,091,016 2,413,054,604 3,002,155,6186.2 Segment Information Segment Revenue Tea Revenue 2,235,883,478 2,816,064,602 Revenue Expenditure (2,458,470,117) (2,730,813,543) Depreciation (63,236,437) (63,740,531) Other Non Cash Expenditure (83,693,851) (104,656,297) Segment Results (369,516,927) (83,145,769 Rubber Revenue 177,171,126 186,091,016 Revenue Expenditure (213,231,177)) (223,007,402) Depreciation (27,101,330) (27,317,370) Other Non Cash Expenditure (16,622,403) (19,205,431) Segment Results (79,783,784) (83,439,187) Total Revenue 2,413,054,604 3,002,155,618 Revenue Expenditure (2,671,701,294) (2,953,820,945) Depreciation (90,337,767) (91,057,901) Other Non Cash Expenditure (100,316,254) (123,861,728) Segment Results (449,300,711) (166,584,956) Gains on fair value of biological assets 89,603,395 92,376,691 Other Income 128,083,665 157,260,549 Other Expenditure (161,872,591) (148,026,261) Depreciation (4,731,241) (8,595,617) Gratuity (7,328,430) (7,742,432) Management Fees (24,908,400) (25,132,800) Operating Profit of the Company (430,454,314) (106,444,827) Segment Assets 2015 2014 Rs. Rs. Tea Non Current Assets Cost 2,147,248,839 1,991,673,925 Amortization/ Depreciation (1,048,994,210) (987,501,950) 1,098,254,629 1,004,171,975 Rubber Non Current Assets Cost 2,184,513,591 1,890,847,598 Amortization/ Depreciation (395,507,058) (367,300,943) 1,789,006,533 1,523,546,655 Unallocated Non Current Assets Cost 2,021,212,412 1,928,632,525 Amortization/ Depreciation (113,568,877) (107,421,786) 1,907,643,535 1,821,210,739 4,794,904,698 4,348,929,369



52


6. REVENUE (Contd..)6.2 Segment Information (Contd..) 2015 2014 Rs. Rs. Tea Current Assets Cost 235,564,110 337,463,279 235,564,110 337,463,279 Rubber Current Assets Cost 64,770,210 44,791,903 64,770,210 44,791,903 Allocated 300,334,320 382,255,182 Unallocated 249,758,954 413,092,708 550,093,274 795,347,890 Total Assets 5,344,997,970 5,144,277,261 Segement Eqiuty and Liabilities Non Current Liabilities Tea Allocated 787,674,098 741,017,989 787,674,098 741,017,989 Rubber Allcoted 128,116,333 125,984,445 128,116,333 125,984,445 Allocated 915,790,431 867,002,434 Unallocated 889,013,306 778,744,781 1,804,803,737 1,645,747,215 Current Liabilities Tea 306,648,153 296,198,247 Rubber 65,298,735 73,425,406 Unallocated 881,521,790 507,274,005 1,253,468,678 876,897,658 Stated Capital and Reserve 2,286,725,555 2,621,632,388 Total Equity and Liabilities 5,344,997,970 5,144,277,261 Segment Capital Expenditure Cost Tea 155,574,914 49,514,839 Rubber 293,665,993 296,570,434 Unallocated 8,962,042 12,166,318 458,202,949 358,251,591


53


7 OTHER INCOME AND GAINS NOTES 2015 2014 Rs. Rs. Interest Income 7,530,874 19,198,601 Amortisation of Government Grants 11,275,223 11,443,168 Rent Income 41,260,637 2,443,129 Sale of Refuse Tea 25,609,786 33,084,452 Net Income from Travellers Paradise 2,660,586 2,935,478 Net Income from Dolomite Project (36,818) 23,316 Sales of Rubber Trees 17,313,060 19,941,433 Profit on Sale of Timber Trees 1,844,175 - Sundry Income 17,895,632 64,619,472 Profit on Disposal of Property Plant & Equipment 2,730,509 3,571,500 128,083,665 157,260,549 There are no unfulfilled conditions or contingencies attached to the grants.

8 FINANCE COST 2015 2014 Rs. Rs. Interest on Lease Rental (JEDB/SLSPC) 3,954,000 4,020,000 Contingent Lease Rental (JEDB/SLSPC) 23,893,036 22,276,019 Overdraft Interest 35,471,855 37,660,706 Loan Interest 60,392,479 24,474,260 123,711,370 88,430,985 Less: Amount Capitalised (74,933,088) (58,231,199) 48,778,282 30,199,786

9 PROFIT BEFORE TAX IS STATED AFTER CHARGING 2015 20 Rs. Rs. Auditor’s remuneration

Audit Service 3,760,000 3,428,000 Depreciation and Lease Amortisation

Right to Use of Land 12.1 6,249,060 6,249,060 Immovable leased Bearer Biological assets 12.2 9,040,819 9,040,819 Immovable Leased assets 12.3 3,101,308 3,101,308 Freehold Property ,Plant & Equipment 13 50,285,605 51,563,553 Bearer Biological Assets 14.1 30,555,669 30,204,291

Staff Cost

Defined Benefit Plan Costs (Retirement Benefit Obligation) 22 117,566,492 111,897,397 Defined Contributions Plan Costs - EPF & ETF 169,684,792 171,725,179 Others - Staff Costs 1,503,591,239 1,549,302,359

Management Fees 24,908,400 25,132,800 Provision /(reversal) for bad & doubtful debts 429,279 (295,322) Provision /(reversal) for bad & doubtful Inventories 640,808 7,302 Gain on change in fair value of biological assets 89,603,395 92,376,691


54


10. TAX EXPENSES The major component of tax expenses for the year ended 31st December 2015 are as follows NOTES

10.1 STATEMENT OF PROFIT OR LOSS 2015 2014 Rs. Rs.

(i) Current Income Tax Current Income Tax Charges 8,888,522 12,168,935

(ii) Deferred Tax Relating to Origination and (reversal) of temporary defferences 23.1 (96,183,843) (23,382,440) Income Tax charge/(reversal) reported in Statement of Profit or Loss (87,295,321) (11,213,505)

10.2 STATEMENT OF OTHER COMPREHENSIVE INCOME Deferred tax relating to items (charged)/ credited directly to OCI during the year Net gain on acturial gains and losses on Defined Benefit Plans 23.1 (1,577,861) 3,105,786 Deferred tax charged to Other Comprehensive Income (1,577,861) 3,105,786

10.3 RECONCILIATION OF TAX EXPENSES AND THE ACCOUNTING PROFIT MULTIPLIED BY THE STATUTORY EFFECTIVE TAX RATE FOR 2014 AND 2015 2015 2014 Rs. Rs. Profit/ (loss) before Tax (430,454,314) (106,444,827)

Effective Tax Rate 15.76% 15.76% Tax effect on Accounting Profit / (Loss) Before Tax (67,839,600) (16,775,705) Tax effect on Aggregate disallowed items 41,024,651 41,475,843 Tax effect on Aggregate allowable items (97,263,327) (107,890,872) (124,078,276) (83,190,734) Tax effect on Interest Income 2,121,923 5,375,608 Tax effect on Rent Income 11,552,727 13,345,830 Tax effect on Tax Loss B/F & Utilised (4,786,127) (6,552,503) Income Tax Charge/(Reversal) 8,888,522 12,168,935

11. EARNINGS PER SHARE The computation of the basic earnings per share is based on profit attributable to ordinary shareholders for the

period divided by weighted average number of ordinary shares outstanding during the period and calculated as follows.

2015 2014 Rs. Rs. Amounts used as the Numerator : (343,158,993) (95,231,322) Net profit applicable to ordinary shareholders for basic earnings per share (343,158,993) (95,231,322) Amounts used as the Denominator : Weighted average number of ordinary shares in issue applicable to 23,636,364 23,636,364 basic earnings per share 23,636,364 23,636,364 Earnings/ (Loss) Per Share (14.52) (4.03)


55


12 LEASEHOLD PROPERTY, PLANT & EQUIPMENT 2015 2014 As at 31st December, NOTES Rs. Rs. Right-to-use of land 12.1 183,983,233 190,232,293 Immovable leased bearer biological assets 12.2.1 69,822,644 78,863,463 Immovable Leased assets (other than right-to-use of land and bearer biological assets) 12.2.2 7,563,257 10,664,565 261,369,134 279,760,321

12.1 RIGHT-TO-USE OF LAND "Right-To-Use of Land on Lease" as above was previously titled "Leasehold Right to Bare land". The change

is in order to comply with Statement of Alternative Treatment (SoAT) issued by the Institute of Chartered Accountants of Sri Lanka dated 21st August 2013. Such leases have been executed for all estates for a period of 53 years.

This right-to-use land is amortized over the remaining lease term or useful life of the right whichever is shorter and is disclosed under non-current assets. The Statement of Alternative Treatment (SoAT) for right-to-use land does not permit further revaluation of right-to-use land. However an adjustment to the "Right-To-Use of Land" could be made to the extent that the change relate to the future period on the reassessment of liability to make the lease payment. The values taken into the Statement of Financial Position as at 18th June 1992 and amortisation of the right to use land up to 31 December 2015 are as follows.

2015 2014

Rs. Rs. Capitalised Value 331,200,716 331,200,716 Amortization As at 1st January 140,968,423 134,719,363 Amortization charge for the year 6,249,060 6,249,060 As at 31st December 147,217,483 140,968,423 Carrying amount 183,983,233 190,232,293


56


12.2 IMMOVABLE LEASED ASSETS In terms of the ruling of the UITF of the Institute of Chartered Accountants of Sri Lanka prevailed at the time of

privatisation of plantation estates, all immovable assets in these estates under finance leases have been taken into the books of the Company retroactive to 18th June 1992. For this purpose, the Board decided at its meeting on 8th March, 1995, that these assets be stated at their book values as they appear in the books of the JEDB/SLSPC, on the day immediately preceding the date of formation of the Company. These assets are taken into the Statement of Financial Position as at 18 June, 1992 and amortisation of immovable leased assets to 31 December 2015 are as follows.

12.2.1 Immovable Leased Bearer Biological Assets Mature Plantations Tea Rubber 2015 2014 Rs. Rs. Rs. Rs. Capitalised Value (18th June, 1992) 206,227,260 64,997,320 271,224,580 271,224,580 Amortisation As at 1st January 146,551,189 45,809,928 192,361,117 183,320,298 Amortisation for the year 6,874,242 2,166,577 9,040,819 9,040,819 As at 31st December 153,425,431 47,976,505 201,401,936 192,361,117 Carrying amount 52,801,829 17,020,815 69,822,644 78,863,463

Investment in Immature Plantations at the time of handing over to the Company as at 18 June, 1992 by way of estate leases were shown under Immature Plantations.

However, since then all such investments in Immature Plantations attributable to JEDB/SLSPC period have

been transferred to Mature Plantations. These mature tea and rubber were classified as bearer biological assets in terms of LKAS 41 - Agriculture. The carrying value of the bearer biological assets leased from JEDB/SLSPC is recognised at cost less amortisation. Further investments in such plantations to bring them to maturity are shown in Note 14

12.2.2 Immovable Leased assets (other than right-to-use of land and bearer biological assets)

Unimproved Improvement Other Vested Buildings Machinery 2015 2014 Lease Land to Land Assets Rs. Rs. Rs. Rs. Rs. Rs. Rs. Capitalised Value (18 June, 1992) 899,449 15,701,754 151,815 64,023,644 26,164,471 106,941,133 106,941,133 Amortisation As at 1 January 382,757 11,806,851 151,815 57,770,674 26,164,471 96,276,568 93,175,260 Amortisation for the year 16,970 523,392 - 2,560,946 - 3,101,308 3,101,308 As at 31 December 399,727 12,330,243 151,815 60,331,620 26,164,471 99,377,876 96,276,568 Carrying amount 499,722 3,371,511 - 3,692,024 - 7,563,257 10,664,565

These assets are being amortised in equal annual amounts over the following periods: Mature plantations/improvement to land 30 years Buildings 25 years Machinery 15 years Note : The assets shown above are those movable assets vested in the Company by Gazette Notification at the date

of formation of the Company (11th June 1992) and all investments in tangible assets by the Company since its formation.


57


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58


14 BIOLOGICAL ASSETS

14.1 BEARER BIOLOGICAL ASSETS Immature Mature Total Total Plantations Plantations 2015 2014 Rs. Rs. Rs. Rs. Cost As at 1st January 1,413,230,576 713,188,210 2,126,418,786 1,813,950,160 Additions during the year 308,734,166 - 308,734,166 312,468,626 Transfers (from)/to (6,820,720) 6,820,720 - - As at 31st December 1,715,144,022 720,008,930 2,435,152,952 2,126,418,786 Depreciation As at 1st January - 315,787,495 315,787,495 285,583,204 Charge for the year - 30,555,669 30,555,669 30,204,291 As at 31st December - 346,343,164 346,343,164 315,787,495 Carrying amount 1,715,144,022 373,665,766 2,088,809,788 1,810,631,291 These are investments in immature/ mature plantations since the formation of the Company. The assets

(including plantation assets) taken over by way of estate leases are set out in Notes 12 . Further investment in immature plantations taken over by way of these leases are shown in the above note. When such plantations become mature, the additional investments since take over to bring them to maturity, will be moved from immature to mature under this note.

The requirement for recognition of bearer biological assets at its fair value less cost to sell under LKAS

41 was superseded by the ruling issued on March, 2nd 2012 by the Institute of Chartered Accountants of Sri Lanka. Accordingly, the Company has elected to measure the bearer biological assets at cost using LKAS 16 - Property, Plant & Equipment.

Specific borrowings have been obtained to finance the planting expenditure. The above additions include Rs.

74,933,088/= (2014-Rs.58,231,199/= ) of borrowing costs capitalised during the year.

14.2 CONSUMABLE BIOLOGICAL ASSETS - TIMBER PLANTATIONS 2015 2014 Rs. Rs. As at 1st January 1,662,375,598 1,559,765,222 Gain/(loss) arising from changes in fair value less cost to sell 89,603,395 92,376,691 Increase due to development 5,575,138 10,233,685 Decrease due to harvest/ transfer (1,735,545) - As at 31st December 1,755,818,586 1,662,375,598 Managed trees include commercial timber plantations cultivated on estates. The cost of immature trees is

treated as approximate fair value particularly on the ground of little biological transformation has taken place and impact of the biological transformation on price is not material. When such Plantations become mature, the additional investments since taken over to bring them to maturity are transferred from Immature to Mature.

The fair value of managed trees was ascertained since the LKAS 41 is only applicable for managed agricultural

activity in terms of the ruling issued by The Institute of Chartered Accountants of Sri Lanka. The valuation was carried by Messers Mr.W.M Chandrasena , incorporated valuers, using Discounted Cash Flow methods. In ascertaining the fair value of timber a physical verification was carried covering all the estates.


59


14.2.2 INFORMATION ABOUT FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)

Non Range of Relationship of Financial Valuation Unobservable Unobservable Unobservable Assets Techniques Inputs Inputs inputs to Fair Value Consumable Biological DCF Method Discounting factor 13% The higher the discount rate, Assets - Timber the lower the fair value Optimum rotation 25-35 Years Lower the rotation period, (Maturity) the higher the fair value Volume at rotation 25-85 cu.ft The higher the volume,

the higher the fair value Price per cu.ft. Rs. 200/- Rs.650 /- per Cu. Ft The higher the price per cu. ft.,

the higher the fair value Key assumption used in the Valuation

1. The harvesting is approved by the PMMD and Forestry Department Based on the Forestry Development Plan.

2. The price adopted are net of expenditure.3. Though the replanting is a condition precedent for harvesting, yet the costs are not taken into consideration.

The valuations, as presented in the external valuation models based on net present values, take into account the long term exploitation of the timber plantations. Because of the inherent uncertainty associated with the valuation at fair value of the biological assets due to the volatility of the variables, their carrying value may differ from their realisable value. The Board of Directors retains their view that commodity markets are inherently volatile and that long term price projections are highly unpredictable. Hence, the sensitivity analysis regarding selling price and discount rate variations as included in this note allows every investor to reasonably challenge the financial impact of the assumptions used in the LKAS 41 against his own assumptions.

14.2.1 FAIR VALUE HIERARCHY All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised

within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole.

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement

is directly or indirectly observable.Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement

is unobservable. NON FINANCIAL ASSETS - Consumable Biological Assets

Level 1 Level 2 Level 3

As at 31st December Date of valuation 2015 2014 2015 2014 2015 2014

Rs. Rs. Rs. Rs. Rs. Rs.

Assets measured at fair value Consumable Biological 31st December 2015 1,755,818,586 1,662,375,598 Assets - Timber In determining the fair value, highest and best use of timber, current condition of the trees and expected timber

content at harvesting have been considered. Also, the valuers have made reference to market evidence of transaction prices of the company, and the market prices of timber corporation, with appropriate adjustments for size and location. The appraised fair values are rounded within the range of values.


60


14.2.3 SENSITIVITY ANALYSIS Sensitivity variation sales price Values as appearing in the Statement of Financial Position are very sensitive to price changes with regard to the

average sales prices applied. Simulations made for timber show that a rise or decrease by 10% of the estimated future selling price has the following effect on the net present value of biological assets:

-10% 0 +10% Managed Timber Rs Rs Rs As at 31st December, 2015 1,580,236,728 1,755,818,586 1,931,400,445 Sensitivity variation discount rate Values as appearing in the Statement of Financial Position are very sensitive to changes of the discount rate

applied. Simulations made for timber trees show that a rise or decrease by 1% of the discount rate has the following effect on the net present value of biological assets:

-1% 0 +1% Managed Timber Rs Rs Rs As at 31st December, 2015 1,830,972,556 1,755,818,586 1,694,854,599 As at 31st December, 2014 1,738,525,736 1,662,375,598 1,598,537,092

15. AVAILABLE FOR SALE FINANCIAL ASSETS NO OF SHARES 2015 2014 Rs. Rs. Quoted Investments National Development Bank Ordinary Shares 3,252 631,213 813,000 631,213 813,000 Market Value per Share as at 31st December 2015 Rs.194.10

16. INVENTORIES 2015 2014 Rs. Rs. Nurseries 11,257,315 18,162,532 Harvested Crop 218,419,722 273,323,466 Input Stocks, Consumables & spares 36,653,012 42,445,885 266,330,049 333,931,883 Provision for Obsolete Stocks (1,026,394) (385,586) 265,303,655 333,546,297

17. TRADE AND OTHER RECEIVABLES NOTES 2015 2014 Rs. Rs. Produce Debtors 17.3 5,850,978 57,966,700 Employee Related Debtors 38,038,559 35,753,156 Advances & Prepayments 64,091 16,568 Loans to Company Officers 17.1 293,525 396,645 Other debtors 17.2 101,535,299 51,744,608 145,782,452 145,877,677 Provision for doubtful debts (3,138,869) (2,709,590) 142,643,583 143,168,087

17.1 LOANS TO COMPANY OFFICERS 2015 2014 Rs. Rs. Balance at the beginning of the year 396,645 491,936 Loans granted during the year 253,755 164,415 650,400 656,351 Re payments (356,875) (259,706) Balance at the end of the year 293,525 396,645

17.2 OTHER DEBTORS 2015 2014 Rs. Rs. Interest receivables from Fixed Deposits 2,699,893 5,315,026 Other Debtors 98,835,406 46,429,582 101,535,299 51,744,608


61


17.3 TRADE AND OTHER RECEIVABLES -Continued

The age analysis of trade receivables is as follows:

Past due but not impaired Total 0-60 days 61-120 days 121-180 days 181-365 days > 365 days

Balance as at 31 December 2015 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000

Produce Debtors 5,850,978 5,850,978 - - - -

Produce debtors are realised within seven days from sales

18. AMOUNTS DUE FROM RELATED COMPANIES 2015 2014 Relationship Rs. Rs.

Madulsima Plantations PLC Other Related Party 9,320,923 4,821,992 Distilleries Company of Sri Lanka Group Company - 18,300 9,320,923 4,840,292

19. CASH AND CASH EQUIVALENTS 2015 2014 Rs. Rs.

19.1 SHORT TERM INVESTMENT Fixed Deposits with Hatton National Bank 62,911,618 234,324,596 62,911,618 234,324,596

19.2 FAVOURABLE BALANCES Cash in hand 489,786 220,132 Cash at bank 23,839,126 33,613,475 24,328,912 33,833,607

19.3 UNFAVOURABLE BALANCES Bank overdraft 494,265,925 343,426,551 494,265,925 343,426,551

20. STATED CAPITAL 2015 2014 Rs. Rs. Issued and Fully Paid Ordinary Shares Ordinary Shares including one golden Share held by the Treasury which has Special rights 23,636,364 23,636,364 Value of Issued and Fully Paid Ordinary Shares including one golden share held by the Treasury which has Special rights. 350,000,010 350,000,010 Stated Capital represents the amount paid to the company in respect of issuing 23,636,364 ordinary shares

including one Golden Share which has Special rights.


62


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63


22. RETIRING BENEFIT OBLIGATIONS 2015 2014 Rs. Rs. At the beginning of the year 684,325,565 626,818,678 Interest Cost 68,432,557 65,815,961 Current Service Cost 49,133,935 46,081,436 Gratuity Payments for the year (33,976,899) (74,097,272) Actuarial (Gain) / Loss (10,011,808) 19,706,762 At the end of the year 757,903,350 684,325,565 The actuarial valuations had been carried out by Messrs. Actuarial & Management Consultants (Pvt) Ltd,

for retiring gratuity for all the employees of the Company as at 31 December 2015, which amounts to Rs. 757,903,350/-. If the Company had provided for gratuity for workers on the basis of 14 days wages and for staff and executive a half month salary for each completed year of service as at 31 December 2015, in line with the Gratuity Act No.12 of 1983 the liability would have been Rs. 907,020,326./-. Hence, there is a contingent liability of Rs. 149,116,976/- which would crystalise only if the Company ceases to be a going concern, or the resignation or termination of employees which ever is earliest.

LKAS 19 requires the use of actuarial techniques to make a reliable estimate of the amount of retirement benefit that employees have earned in return for their service in the current and prior periods and discount that benefit using the Projected Unit Credit Method in order to determine the present value of the retirement benefit obligation and the current service cost. This requires an entity to determine how much benefit is attributable to the current and prior periods and to make estimates about demographic variables and financial variables that will influence the cost of the benefit. The following key assumptions were made in arriving at the above figure.

The Present Value of Retirement Benefit Obligation is carried on annual basis The following payment are expected from defined plan obligation on annual basis 2015 2014 Staff Workers Company Staff Workers Company Rs Rs Rs Rs Rs Rs Within the next 12 Months 40,115,774 38,771,315 78,887,089 39,156,775 21,887,777 61,044,552 Between 2 and 5 years 25,024,992 109,270,466 134,295,458 28,598,250 91,810,654 120,408,904 Beyond 5 years 33,816,541 510,904,262 544,720,803 32,945,411 469,926,698 502,872,109 98,957,307 658,946,043 757,903,350 100,700,436 583,625,129 684,325,565 The weighted average duration of the Defined Benefit plan obligation at the reporting period is 5.68 years and 9.12 years

for staff and workers respectively The Present Value of Retirement Benefit Obligation valuation is carried on annual basis. The key assumptions used by Messers. Actuarial & Management Consultants (Pvt) Ltd include the following. 2015 2014

(i) Rate of Interest (per annum) 10% 10%(ii) Rate of Salary Increase Workers (every two years) 15% 15% Estate Staff (per annum) 10% 10% Head Office Staff & Executives (per annum) 7.5% 7.5%(iii) Retirement Age Workers 60 years 60 years Staff 55 years 55 years(iv) Daily Wage Rate Rs.450/= Rs.450/=

The Plantation Workers wage collective Agreement 2013 effective from 01 April 2013 to 31 March 2015,has not been re-

newed as of 01st April 2015 .Although negotiations are ongoing between the plantation trade unions and the Employers 'Federation of Ceylon for of a revision of the current wage rate. No agreement has been reached due to the current decline in Tea & Rubber prices. due to the prevailing depressed global economic condition . Regional Plantation companies have expressed their inability to afford a further increase at the present juncture due to the prevailing net sale average being below cost of production.


64


SENSITIVITY OF ASSUMPTIONS USED A qualitative sensitivity analysis for significant assumptions as at 31st December 2015 is shown below.

2015 2014 Discount Rate Increase Decrease Increase Decrease Sensitivity level 1% 1% 1% 1% Impact on defined benefit obligation - Rs. (55,692,385) 64,273,185 (51,781,370) 60,041,860 2015 2014 Future salary increment rate Increase Decrease Increase Decrease Sensitivity level 1% 1% 1% 1% Impact on defined benefit obligation - Rs. 35,287,293 (32,957,471) 33,066,190 (30,835,971)

2015 201423. DEFERRED TAX Temporary Tax Temporary Tax Difference Effect Difference Effect Rs. Rs. Rs. Rs. As at 1 January 2,159,930,024 140,359,796 2,201,346,766 166,848,021 Amount originating during the year (464,470,577) (94,605,982) (41,416,742) (26,488,225) As at 31 December 1,695,459,447 45,753,815 2,159,930,024 140,359,796 Deferred Tax Liability Temporary difference of Property, Plant and Equipment 438,336,591 69,081,847 420,599,797 66,286,549 Temporary difference of mature and immature plantation 2,088,809,788 208,880,979 1,810,631,291 181,063,129 Temporary difference of biological asset 1,755,818,586 175,581,859 1,662,375,598 166,237,560 As at 31st December 4,282,964,965 453,544,684 3,893,606,686 413,587,238 Deferred Tax Assets Temporary difference of Leased asset (16,956,825) (2,672,396) (7,920,394) (1,248,254) Temporary difference of retirement benefit obligation (757,903,350) (119,445,568) (684,325,565) (107,849,709) Carried forward tax losses (1,812,645,343) (285,672,906) (1,041,430,703) (164,129,479) As at 31 December 2,587,505,518 (407,790,870) (1,733,676,662) (273,227,442) As at 31st December 1,695,459,447 45,753,815 2,159,930,024 140,359,796 The effective tax rate used to calculate deferred tax liability for all the Temporary Differences other than Biological Asset as at 31 December, 2015 is 15.76% (2014 - 15.76%) for the company. The effective tax rate used to calculate deferred tax liability for Biological Asset as at 31 December, 2015 is 10% (2014 - 10%) for the company.

23.1 Reconciliation of deferred tax charge / (reversal) 2015 2014 Rs. Rs. At the beginning of the year 140,359,796 166,848,021 Tax charge/(reversal) during the period recognised in Statement of profit or Loss (96,183,843) (23,382,439) Tax charge/(reversal) during the period recognised in other Comprehensive Income 1,577,861 (3,105,786) At the end of year 45,753,815 140,359,796


65


24. DEFERRED INCOME 2015 2014 Deferred Grants and Subsidies Rs. Rs. Balance at the beginning of the year 202,696,028 214,139,196 Add : Grants received / (refunded) during the year - - Less : Amortisation for the year (11,275,223) (11,443,168) Balance at the end of the year 191,420,805 202,696,028 The Company has received funding from the Plantation Housing and Social Welfare Trust and Plantation

Development Project (PDP) for the development of workers facilities such as re-roofing of line rooms, latrines, water supply, sanitation and roads etc. The amounts spent are included under the relevant classification of property, plant & equipment and the grant component is reflected under Deferred Grants and Subsidies. Grants are amortised over the life of the assets for which they are being deployed.

25. LIABILITY TO MAKE LEASE PAYMENT 2015 2014 Rs. Rs. Gross Liability As at 1st January 172,712,000 178,385,000 Repayment during the year (5,673,000) (5,673,000) 167,039,000 172,712,000 Finance cost allocated to future periods (69,906,000) (73,860,000) Net Liability 97,133,000 98,852,000 Payable within one year Gross liability 5,673,000 5,673,000 Finance cost allocated to future periods (3,884,000) (3,954,000) Net liability transferred to current liabilities 1,789,000 1,719,000 Payable within two to five years Gross liability 22,692,000 22,692,000 Finance cost allocated to future periods (14,795,792) (15,098,000) Net liability 7,896,208 7,594,000 Payable after five years Gross liability 138,674,000 144,347,000 Finance cost allocated to future periods (51,226,208) (54,808,000) Net liability 87,447,792 89,539,000 Net liability payable after one year 95,344,000 97,133,000 The lease of the estates have been amended, with effect from 11th June 1996 to an amount substantially higher

than the previous lease rental of Rs. 500/= per estate per annum. The first rental payable under the revised basis is Rs.5,673 million from 11th June 1997.This amount is to be inflated annually by the Gross Domestic product (GDP) deflator, and is in the from of Contingent rental. The contingent rental charged to the Income statement amounted to Rs.22,276,019/= Which is based on GDP deflator of 7.3% (2014)

The Statement of Recommended Practice (SoRP) for Right-to-use of Land on Lease was approved by the

Council of the Institute of Chartered Accountants of Sri Lanka on 19th December 2012. Subsequently, the amendments to the SoRP along with the modification to the title as Statement of Alternative Treatment (SoAT) were approved by the Council on 21st August 2013. The Company has not reassessed the Right-to-use of Land because this is not mandatory requirement. However, if the liability is reassessed according to the alternative treatment (SoAT) on the assumption that the lease rent is increased constantly by GDP deflator of 4% and discounted at a rate of 13% , liability would be as follows.

Gross Liability = 1,771,019,332 Finance Charges = (570,870,876) Net Liability = 1,200,148,456 The above reassessed liability is not reflected in these Financial Statements.


66


26. TRADE AND OTHER PAYABLES 2015 2014 Rs. Rs.

Trade Creditors 215,131,734 127,408,160 Employee Related Creditors 179,186,800 179,447,234 Accrued Expenses 20,504,440 21,612,271 Others 79,760,739 60,165,994 494,583,713 388,633,659

27. AMOUNTS DUE TO RELATED COMPANIES 2015 2014 Rs. Rs. Relationship Stassen Exports (Pvt) Ltd Managing Agent 110,380,639 104,471,439 Madulsima Plantations PLC Other Related Party 827,583 - 111,208,222 104,471,439

28. DIVIDENDS PAYABLE

28.1 Unclaimed Dividend 2015 2014 Rs. Rs. Payable to - Related Parties - - - Others 6,536,163 6,608,137 6,536,163 6,608,137

28.2 DIVIDENDS PAID AND PROPOSED Dividend on Ordinary Shares Dividend paid during the year Nil Nil Nil Nil Proposed for approval at AGM Final dividends for 2015 Rs. Nil/= per share (2014 - Rs.Nil/=) Nil Nil Nil Nil Dividends per share (Rs.) Nil Nil


67


29. ASSETS PLEDGED Following assets have been pledged as securities for liabilities.

Name of Bank Loan Security Nature of Liability Carrying Facility Amount of Rs. assets Pledged

2015 2014 Rs. Rs. CENTRAL FIANACE COMPANY PLC 34 Mn. Mortage on Colour Separator Long Term Loans 27,014,995 28,762,846 HATTON NATIONAL BANK PLC 190 Mn Primary mortgage over the Lease hold rights Permanent 11,110,418 11,387,872

of Balangoda Estates. Overdraft Facility

HATTON NATIONAL BANK PLC 150 Mn Primary mortgage over the Lease hold rights Permanent 5,415,710 5,550,954 of Walaboda Estates. Overdraft Facility

HATTON NATIONAL BANK PLC 500 Mn Primary mortgage over the Lease hold rights Long Term Loans 11,110,418 11,387,872 of Balangoda Estates.

HATTON NATIONAL BANK PLC 17.8 Mn Mortage on Colour Separator Long Term Loans 14,552,420 15,158,771

HATTON NATIONAL BANK PLC 0.7 Mn Absolute Ownership of the Leased Bikes Finance Lease 483,176 618,016

HATTON NATIONAL BANK PLC 114 Mn Mortage on Colour Separator & Mahinary Finance Lease 103,542,092 - HATTON NATIONAL BANK PLC 167 Mn Primary mortgage over the Lease hold rights Long Term Loans 11,110,418 11,387,872 of Balangoda Estates.

30. COMMITMENTS AND CONTINGENCIES No known contingent liabilities exist as at the date of financial position other than the matters disclosed in Note 22 to the

financial Statements.

31. EVENTS OCCURRING AFTER THE REPORTING PERIOD No circumstances have arisen since the reporting date which require adjustments to or disclosure in the Financial

Statements.

32. RELATED PARTY DISCLOSURES Details of Significant Related Party Disclosures are as follows.

32.1 Transactions with the parent and related entities Nature of the Company Name of the Director Nature of Transaction Terms and Conditions Amounts 2015 2014 Rs. Rs. Group Company Distilleries Co. of Sri Lanka PLC Mr. D. H. S. Jayawardena Reimbursement of expenses Market Terms 205,706 129,151 Mr. C.R. Jansz Other Related Parties Stassen Exports (Private) Ltd. Mr. D. H. S. Jayawardena Management Fee Contractual (24,908,400) (25,132,800) Mr. R. K. Obeyesekere Share of Head Office Expenses Market Terms (2,640,000) (2,640,000) Madulsima Plantations PLC Mr. D. H. S. Jayawardena Reimbursement of expenses Market Terms (893,881) (144,779) Mr. R. K. Obeyesekere Reimbursement of expenses Market Terms 1,828,875 290,233 Milford Exports (Ceylon) (Private) Ltd. Mr. D. H. S. Jayawardena Rent Received Contractual 2,619,415 2,443,128 Mr. R. K. Obeyesekere 53,143,134 - Hatton National Bank PLC Mr. D. H. S. Jayawardena Interest Income Market Terms 7,530,874 19,198,601 Mr. R. K. Obeyesekere Interest Expenses Market Terms (82,625,174) (58,442,512) Lanka Bell Limited Mr. D. H. S. Jayawardena Lease Rental Received Contractual 2,675,995 2,884,477 Mr. C.R. Jansz Communication Charges Market Terms (2,048,520) (2,129,985) Melsta Regal Finance Ltd Mr. A.L.Gooneratne Interest Expenses Market Terms (328,125) -

The related party transactions were made on terms equivalent to those that prevail in arm's length transactions.

32.2 Transactions with the key management personnel of the company and parent There were no material transactions with the key management personnel of the company and its parent for the year ended

31 December 2015 other than those disclosed in the Note 32.1.

33 RELATED PARTY TRANSACTIONS There are no related party transactions other than those disclosed in Notes 17, 18, 19, 21 ,27, and 32 above


68


34. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

34.1 FINANCIAL RISK MANAGEMENT FRAMEWORK The Board of Directors has the overall responsibility for the establishment and oversight of the company’s

financial risk management framework which includes developing and monitoring the company’s financial risk management policies.

The company’s principal financial liabilities comprise loans and borrowings and trade and other payables. The main purpose of these financial liabilities is to finance the company’s operations. The company has loan and other receivables, trade and other receivables, and cash and short-term deposits that arrive directly from its operations. Accordingly the company has exposure to namely Credit Risk, Liquidity Risk, Currency Risk and Interest Rate Risk from its use of financial instruments.

This note presents information about the company’s exposure to each of the above risks, the company’s objectives, policies and processes for measuring and managing risk.

34.2 CREDIT RISK This is the risk of financial loss to the company if a customer or counterparty to a financial instrument fails to

meet its contractual obligations, and arise principally from the company’s receivable from customers.

34.2.1Trade and Other Receivables The Company’s exposure to credit risk is influenced by the individual characteristics of each customer. The

Company’s credit policy is monitored at the Board level. The new customers are analysed individually for credit worthiness before Company’s standard payment and delivery terms and conditions are offered. Company review includes external ratings, when available and in some cases, bank references, purchases limit etc. which also subject to under review on quarterly basis. The past experience of the Management is considered when revisions are made to terms and conditions.

The company establishes an allowance for impairment that represents its estimate of incurred losses in respect

of trade and other receivables. The maximum exposure to credit risk for trade receivables of the company at the reporting date is Rs.6 Mn

(2014 – Rs. 58 Mn). The Company has a minimal credit risk of its trade receivables as the repayment is guaranteed within seven

working days by the Tea auction systems.

34.2.2Investments Credit risks from invested balance with the financial institutions are managed by the Board of Directors.

Investments of surplus funds are made only with approved counterparties and within credit limits assigned to them. The limits are set to minimize the concentration of risks and therefore mitigate financial loss through potential counterparty’s failure.

The Company held short term investments of Rs.63 Mn as at 31st December 2015 (2014 – Rs. 234 Mn) which represents the maximum credit exposure on these assets.


69


34.2.3Cash and Cash Equivalents The Company held cash and Cash Equivalents of Rs.24 Mn as at 31st December 2015 (2014 – Rs. 34 Mn) which

represents its maximum credit exposure on these assets. •HattonNationalBankPLC–AA–(lka)

34.3 LIQUIDITY RISK Liquidity risk is the risk that the company will encounter difficulty in meeting the obligations associated with

its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company does not concentrate on a single financial institution, thereby minimizing the exposure to liquidity risk through diversification of funding sources. The Company aims to fund investment activities by funding the long-term investment with long term financial sources and short term investment with short term financing.

The Table below summarizes the maturity profile of the company financial liabilities based on contractual undiscounted payments.

As at 31st March 2015 On Demand Less than 3 3 to 12 2 to 5 years >5 years Total Months Months Rs. Rs. Rs. Rs. Rs. Rs. Interest bearing loans & borrowing - 47,649,822 81,477,321 356,044,321 358,337,447 843,508,911 Trade & other payables 494,583,713 - - - - 494,583,713 494,583,713 47,649,822 81,477,321 356,044,321 358,337,447 1,338,092,624 As at 31st March 2014 Interest bearing loans & borrowing - 3,863,680 11,886,612 62,899,326 458,333,500 536,983,118 Trade & other payables 388,633,659 - - - - 388,633,659 388,633,659 3,863,680 11,886,612 62,899,326 458,333,500 925,616,777


70


34.4 MARKET RISK Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of

changes in market prices. Market prices comprise four types of risk: interest rate risk & other price risk such as equity price risk. Financial instrument affected by market risk include loans & borrowings, deposits & derivative financial instruments.

34.4.1 Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because

of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s long-term debt obligations with floating interest rates. The Company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings.

The Company held long term borrowings with floating interest rates of Rs. 714Mn (2014 – Rs.521 Mn) which represents its maximum credit exposure on these liabilities.

Interest rate sensitivity The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that

portion of loans and borrowings affected. With all other variables held constant, the Company’s Profit Before Tax is affected through the impact on floating rate borrowings as follows:

Increase/ Effect on profit decrease in before tax Interest rate Rs. Company 2015 +1% (5,316,451) -1% 5,316,451

34.4.2 Equity Price Risk The Company’s listed & unlisted equity securities are susceptible to market price risk arising from uncertainties

about future values of the investment securities. The Company manages the equity price risk through diversification and by placing limits on individual and total equity instruments. Management of the Comapny monitors the mix of debt & equity securities in its investment portfolio based on market indices. Material investment within the portfolio are Managed on an individual basis and all buy and sell decision are approved by the Board. Equity price risk is not material to the financial statements.

34.4.2 Capital Management The Company’s policy is to retain a strong capital base so as to maintain investor, creditor & market confidence

and to sustain future development of the business. Capital consists of share capital, reserves and retain earning. The Board of Directors monitors the return on capital, interest covering ratio, dividend to ordinary shareholders.

The gearing ratio at the reporting date is as follows. As at 31.12.2015 As at 31.12.2014 Rs. Rs. Interest bearing borrowing Current portion of long term interest bearing borrowings 129,127,143 15,750,292 Payable within 2 and 5 years 714,381,768 521,232,826 843,508,911 536,983,118 Equity 2,286,725,555 2,621,632,388 Equity & debts 3,130,234,466 3,158,615,506 Gearing ratio 27% 17%


71

Shareholders and Investors Information

The issued Ordinary shares of Balangoda Plantations PLC are listed with the Colombo Stock Exchange of Sri Lanka. The Audited Accounts of the Company for the year ended 31st December 2015 have been submitted to the Colombo Stock Exchange.

Distribution of Shareholdings as at 31 December 2015

No. of Shares held No. of ShareholdersNo. of Shareholders

%Total Holdings Total Holding %

1 - 1,000 18,006 97.54 2,368,894 10.02

1,001 - 10,000 359 1.94 1,203,870 5.09

10,001 - 100,000 80 0.43 1,891,549 8.00

100,001 - 1,000,000 12 0.07 2,967,289 12.56

1,000,001 & Over 3 0.01 15,204,761 64.33

Grand Total 18,460 100.00 23,636,363 100.00

Analysis Report of Shareholders

No. of Shares held No. of ShareholdersNo. of Shareholders

%Total Holdings Total Holding %

Individual 18,310 99.18 5,809,834 24.58

Institution 150 0.82 17,826,529 75.42

Grand Total 18,460 100.00 23,636,363 100.00

Residents 18,442 99.90 23,450,099 99.21

Non-Residents 18 0.10 186,264 0.79

Grand Total 18,460 100.00 23,636,363 100.00

Shares held by Public amounts to 41.39%

Market Statistics as at 31st December2015 2014

Number of shares 23,636,363 23,636,363

Earning/(Loss) per Share Rs (14.52) (4.03)

Net Asset per Share Rs 96.75 110.92

Dividend per Share Rs - -

Highest Share Price Rs 29.00 35.00

Lowest Share Price Rs 16.90 24.30

Closing Share Price Rs 17.60 26.50


72

Shareholders and Investors Information

Twenty Five Major Shareholders As at 31st December 2015

No Name of Shareholder No. of Shares %

1 Melstacorp Limited 10,217,300 43.23

2 Milford Exports (Ceylon) (Pvt) Limited 3,636,363 15.38

3 Employees Provident Fund 1,351,098 5.72

4 Macksons Holdings (Pvt) Ltd 662,459 2.80

5 Merchant Bank of Sri Lanka Ltd A/C No.1 497,486 2.10

6 Mr. M M M Milfer 376,894 1.59

7 Mr. M.M.M. Mizver 360,960 1.53

8 Associated Electrical Corporation Ltd 195,866 0.83

9 Cocoshell Activated Carbon Company Ltd 145,900 0.62

10 Mrs. M W Pathmalatha 142,281 0.60

11 First Capital Markets Limited / Ventura Crystal (Pvt) Limited 136,000 0.58

12 Mr. K N Karunaratne 117,045 0.50

13 Sandwave Limited 114,398 0.48

14 Mr. R. Maheswaran 110,000 0.47

15 Mr. A K P Guruge Don 108,000 0.46

16 Mr. A J M Jinadasa 100,000 0.42

17 Gnanam Imports (Pvt) Ltd 100,000 0.42

18 Seylan Bank PLC/ Mr. D N Daluwatte 74,911 0.32

19 Mrs. W W Somawathie 68,600 0.29

20 Tranz Dominion L.L.C. 56,891 0.24

21 Mr. D P Peiris 51,304 0.22

22 Mr. M H N Hussain 50,952 0.22

23 Mrs. B K V Wickramasinghe 50,100 0.21

24 Code-Gen International Pvt Ltd 50,000 0.21

25 Mr. M K Chandrasiri 45,000 0.19


73

2015Rs.'000

2014Rs.'000

2013Rs.'000

2012Rs.'000

2011Rs.'000

2010Rs.'000

Turnover 2,413,055 3,002,156 3,171,983 2,779,742 2,659,168 2,797,267

Profit(Loss)before Taxation (430,454) (106,445) 129,715 110,308 118,398 79,176

Taxation 87,295 - 2939 (18,103) (4,524) (56,066)

Profit(Loss) after Taxation (343,159) (95,231) 132,654 92,205 113,874 23,110

Other Comprehensive Income 8,252 (16,048) 21,147 - - -

Profit (Loss) brought forward 795,473 999,681 943,921 918,037 836,012 852,175

Dividend - - (23,636) - (47,273) (29,545)

Transfer from General Reserve - - - - - 8,000

Transfer to Timber Reserve (89,603) (92,377) (74,293) (42,684) (31,849) -

Available for Sales Reserve 182 (552) (111) - - -

Retained Profit (Loss) 371,145 795,473 999,681 943,92 918,037 836,012

Fixed Assets 4,794,905 4,348,929 3,997,908 3,642,643 3,421,754 3,213,789

Current Assets 550,093 795,348 835,147 745,843 733,906 880,582

Current Liabilities 1,253,468 876,898 970,769 653,391 507,801 561,687

Non Current Liabilities 1,804,804 1,645,747 1,129,373 1,132,347 1,113,680 1,112,380

Net Assets 2,286,726 2,621,632 2,732,912 2,602,748 2,534,179 2,420,304

Share Capital 350,000 350,000 350,000 350,000 350,000 350,000

General Reserves - - - - - -

Timber Reserves 1,565,100 1,475,496 1,383,120 1,308,826 1,266,142 1,234,293

Available for Sales Reserve 481 663 111 - - -

Profit & Loss Account 371,145 795,473 999,681 943,921 918,037 836,012

Capital Employed 2,286,726 2,621,632 2,732,912 2,602,748 2,534,179 2,420,305

Number of Shares (‘000) 23,636 23,636 23,636 23,636 23,636 23,636

Earning per Share (Rs.) (14.52) (4.03) 5.61 3.90 4.82 0.98

Dividend per Share (Rs.) (0.00) - 1.00 1.00 - 2.00

Net Asset per Share (Rs.) 96.75 110.92 115.62 110.12 107.22 102.40

Dividend Payout Ratio (%) 0 - 18 26 - 204

Financial Information


74

Year ended 31.12.2015Rs.'000 %

Year ended 31.12.2014Rs.'000 %

REVENUE 91.73 2,413,055 92.32 3,003,156

Other Income 8.27 217,687 7.68 249,637

Total Revenue 100.00 2,630,742 100.00 3,251,793

Cost of Material & Service bought 1,231,401 1,523,451

VALUE ADDED 53.19 1,399,341 53.15 1,728,342

% Share % Share

DISTRIBUTION OF VALUE ADDED

A to Employees as Remuneration 119.58 1,673,276 99.58 1,721,028

B to Government as Taxes (6.24) (87,295) (0.65) (11,213)

B1 to Government as Lease Interest 1.99 27,847 1.52 26,296

C to Lenders of Capital as Interest 1.50 20,931 0.23 3,904

D to Shareholders as Dividends - - -

E Retained in Business

E1 Provision of Depreciation 7.11 99,489 5.80 100,159

E2 Profit Retained (23.93) (334,907) 7.92 153,801

100.00 1,399,341 100.00 1,941,263

Statement of Value Addition


75

Tea Estates ElevationCategory

Year Tea Extentha

Total Crop(kg)

YieldKg/ha

C. O.PRs/kg

N.S.ARs/kg

Agarsland Low 2015 30.81 36,753 1,193 490.98 389.85

2014 30.81 41,370 1,343 471.57 422.47

Balangoda Uva Medium 2015 428.50 652,740 1,043 410.62 381.75

2014 443.54 636,806 1,084 415.17 402.87

Cecilton Uva Medium 2015 189.79 303,780 872 451.24 272.04

2014 201.29 370,852 917 444.18 408.32

Meddakande Uva Medium 2015 169.75 426,290 1,137 428.04 367.07

2014 169.75 443,823 1,325 421.66 417.45

Non Pareil Uva High 2015 240.00 160,349 515 557.75 351.68

2014 248.00 146,650 451 648.85 381.44

Pettiagalla Uva Medium 2015 185.00 350,125 1,065 426.16 367.23

2014 185.00 338,545 1,085 436.55 422.48

Rasagalla Low 2015 206.00 491,829 1,125 419.08 389.85

2014 206.00 593,348 1,395 417.50 419.26

Rye/Wikiliya Low 2015 165.80 105,028 633 462.20 299.12

2014 165.80 106,182 640 419.94 312.16

Walaboda Uva Medium 2015 127.00 86,655 682 534.98 364.07

2014 127.00 173,456 828 457.08 416.30

Mahawale Low 2015 1.75 1,727 987 413.11 373.83

2014 1.75 2,252 1,287 331.41 436.53

Mutwagalla Low 2015 0 8,043 0 594.54 373.83

2014 0 13,859 0 554.08 436.53

Palmgarden Low 2015 4.08 548,667 1,391 378.34 351.39

2014 4.08 468,319 1,600 445.81 429.53

Cullen Uva Medium 2015 171.90 116,240 676 497.75 360.66

2014 171.90 128,854 750 471.69 411.50

Glen Alpin Uva Medium 2015 346.80 726,717 618 415.38 324.51

2014 346.80 909,447 738 402.08 398.64

Gowerakelle Uva Medium 2015 208.01 150,999 726 420.32 254.22

2014 209.01 152,389 729 505.26 400.80

Spring Valley Uva High 2015 561.04 573,964 737 472.47 331.46

2014 582.15 649,489 819 467.81 390.24

Telbedde Uva Medium 2015 557.88 804,231 1,107 440.42 339.65

2014 557.88 710,226 1,141 450.39 370.68

Ury Uva Medium 2015 331.25 461,158 989 423.35 325.76

2014 336.13 452,413 1,033 435.47 387.79

Wewesse Uva Medium 2015 244.70 380,884 711 465.95 362.80

2014 244.70 484,085 926 418.61 404.09

Performance of Estates 2015 & 2014


76

Performance of Estates 2015 & 2014

Rubber Estates

ElevationCategory

Year Rubber Extent ha

Total Crop(kg)

YieldKg/ha

C. O.PRs/kg

N.S.ARs/kg

Galatura Low 2015 194.94 130,681 613 425.37 250.55

2014 203.74 121,229 546 424.63 261.03

Mahawale Low 2015 253.60 130,834 514 361.75 251.53

2014 240.88 117,158 485 394.71 259.55

Millawitiya Low 2015 49.25 30,974 629 319.89 245.79

2014 59.32 25,836 436 409.93 264.10

Mutwagalla Low 2015 157.84 120,204 758 384.03 243.81

2014 182.64 94,026 512 429.49 262.28

Palmgarden Low 2015 260.37 159,474 612 398.30 250.44

2014 246.95 151,432 613 380.95 259.27

Rambukkande Low 2015 212.74 178,870 834 304.31 263.20

2014 192.3 149,759 772 326.37 264.24

Rye/Wikiliya Low 2015 0 3,317 0 200.94 188.08

2014 0 3,043 0 337.55 203.46

Ury Uva Medium 2015 9.89 4,972 503 389.57 207.85

2014 6.53 5,430 832 263.83 251.89

Wewesse Uva Medium 2015 15.20 4,200 276 375.48 207.85

2014 5.00 3,127 625 325.12 251.89

Glen Alpin Uva Medium 2015 2.04 1,120 549 400.73 208.04

2014 2.04 0 0 0.00 0.00


77

I/We………………….…………………………………………………………………………………………………………………

of ………………………………………………………………………………………………………………………………………

being a member/members of BALANGODA PLANTATIONS PLC do hereby appoint.

Don Harold Stassen Jayawardena or failing him

Rajpal Kumar Obeyesekere or failing him.

Shanthi Kumar Lalith Obeyesekere or failing him

Cedric Royle Jansz or failing him

Amitha Lal Gooneratne or failing him

Arinesarajah Shakthevale or failing him

Don Soshan Kamantha Amarasekera

or……………………………………………………….of ……………………………………………………………………………,

as my/our proxy to represent me/us and * ………………….. to vote as indicated hereunder for me/us and on my/

our behalf at the Twenty Third Annual General Meeting of the Company to be held on 29th June 2016 and at any adjournment thereof, and at every poll which may be taken in consequent thereof.

1) To receive and consider the report of the Directors, and the Financial Statements of the Company for the Year ended 31st December 2015 together with the Auditors’ Report thereon.

2) To re-elect Mr. D H S Jayawardena who has reached the age of 73 years on 17th August, 2015 in terms of Sections 210 and 211 of the Companies Act No. 7 of 2007 as a Director of the Company.

3) To re-elect Mr. R K Obeyesekere, who retires by rotation at the Annual General Meeting in terms of Article 92 of the Articles of Association, as a Director of the Company.

4) To re-elect Mr. S K L Obeyesekere, who retires by rotation at the Annual General Meeting in terms of Article 92 of the Articles of Association, as a Director of the Company.

5) To re-appoint M/s Ernst & Young as Auditors and to authorize the Directors to determine their remuneration.

Signed this ………………………………….. day of ……………………………….. Two Thousand and Sixteen

Signature/s ………………………………………

Instructions regarding completion of Form of Proxy appear overleaf.

Form of Proxy

FOR AGAINST


78

Instructions for Completion of Form of Proxy

1. A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy to attend and vote instead of him.

2. A Proxy need not be a member of the Company.

3. Kindly complete the form of Proxy, after filling in legibly your full name and address, by signing in the space provided. Please fill in the date of signature.

4. A Proxy may not speak at the Meeting unless expressly authorized by the instrument appointing him. The Proxy may vote on a poll (and join in demanding a poll) but not on show of hands.

5. If you wish the Proxy to speak at the meeting you should interpolate the words “to speak and” in the space indicated with an asterisk (*) and initial such interpolation.

6. Please indicate a “X” in the space provided how your Proxy is to vote on each resolution. If there is in the view of the proxy holder doubt (by reason of the way in which the instructions contained in the Proxy have been completed) as to the way in which the Proxy holder should vote, the proxy holder will vote as he thinks fit.

7. In the case of corporate member the Proxy must be completed under its Common Seal which should be affixed and attested in the manner prescribed by its Articles of Association. If the form of proxy is signed by an Attorney, the relative Power of Attorney should also accompany the completed form of proxy if it has not already been registered with the Company.

8. To be valid, the completed form of Proxy should be deposited at the Registered office of the Company at No.110 Norris Canal Road, Colombo 10, not less than 48 hours before the time of the meeting.

9. The Shareholders and the Proxy holders are kindly requested to bring this Annual Report along with an acceptable form of identity.

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