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Distilleries Company of Sri Lanka PLC l Annual Report 2013 / 14

OUR CONTINUING

SUCCESS

OUR POWERFUL

HERITAGEDistilleries Com

pany of Sri Lanka PLC | Annual Report 2013 / 14

1Distilleries Company of Sri Lanka PLC

Being in business for over a century means we have got it right - in the management of our Company, the process of our operations and the vision of our leadership. Today we are proud to be the nation’s leading distiller, a core business strongly supported by our diversified portfolio of vibrant industries - plantations, telecommunication, insurance, finance, power generation, textiles, leisure,

logistics and media.

The influence of our long heritage is manifested in our desire to excel in all we do. It is the reason for our

continuing success.

OUR CONTINUING

SUCCESS

OUR POWERFUL

HERITAGE

Annual Report 2013/142

CONTENTS

3 Highlights of the Year

4 Financial Highlights

6 A Diversified Portfolio of Business Operations

12 Our Businesses

13 Historical Perspectives

14 The Story of Arrack

16 What’s Behind Our Continuing Success?

20 Chairman’s Message

26 Board of Directors

30 Group Management

32 DCSL Management

35 Management Discussion & Analysis

44 Sustainability Report

56 Corporate Governance

68 Enterprise Risk Management

72 Audit Committee Report

74 Remuneration Committee Report

75 Annual Report of the Board of Directors

80 Statement of Directors Responsibility

81 Independent Auditors’ Report

82 Statements of Comprehensive Income

83 Statements of Financial Position

84 Statements of Changes in Equity

87 Statements of Cash Flows

88 Notes to the Financial Statements

160 Statement of Value Added

161 Details of Real Estate

162 Shareholder Information

164 Ten Year Summary

165 DCSL Management Team

166 Group Directory

172 Notice of Meeting

175 Form of Proxy

177 Attendance Slip


HIGHLIGHTS OF THE YEAR

November 2013DCSL tops the manufacturing, food & beverage sector in National Business Excellence Awards - 2013.

May 2014Melsta Regal Finance was reaffirmed A+ (lka) / Stable by Fitch. Thus signifying a very high credit rating for a finance company.

July 2014Investment in Continental Insurance increased to Rs. 750 Mn.

March 2014Investment in Meslta Regal Finance increased to Rs. 1,340 Mn.

August 2013Melsta Regal Finance Limited opened its first branch in Kurunegala.

February 2014 Lanka Bell 4G was formally launched under the patronage of Director General of the Telecommunications Regulatory Commission Mr. Anusha Palpita.

November 2013DCSL was ranked No. 09 in the Business Today ‘Top Twenty Five’. This was the 15th consecutive year DCSL was listed among corporate heavy weights in the rankings.

December 2013Fitch Rating reaffirmed DCSL a national long term Rating of AAA (lka) / stable outlook - The best & highest entity credit rating for a corporate in Sri Lanka.


FINANCIAL HIGHLIGHTSFinancial Highlights 2014 2013 2014 2013

Group Group Company Company

SUMMARY OF RESULTS

Gross Turnover Rs Mn 63,186 65,790 47,756 51,549

Excise Duty Rs Mn 34,203 37,024 31,058 34,088

Net Turnover Rs Mn 28,983 28,766 16,698 17,461

Profit After Tax Rs Mn 6,231 5,258 5,357 6,873

Shareholders’ Funds Rs Mn 53,636 47,978 43,839 39,155

Working Capital Rs Mn (1,905) (1,578) (4,449) (6,139)

Total Assets Rs Mn 83,742 78,547 61,190 55,942

Staff Cost Rs Mn 3,862 3,194 1,162 1,039

No. of Employees 12,897 14,681 1,250 1,343

PER SHARE

Basic Earnings Rs. 20.41 17.13 17.86 *10.68

Net Assets Rs. 178.79 159.93 146.13 130.52

Dividends Rs. 3.25 3.00 3.25 3.00

Market Price - High Rs. 218.00 190.00 218.00 190.00

Low Rs. 160.00 117.00 160.00 117.00

Year End Rs. 203.00 166.50 203.00 166.50

RATIOS

Price Earnings times 10 10 11 *16

Return on Shareholders’ Funds % 11.42 10.71 12.22 *8.18

Current Ratio times 0.92 0.93 0.74 0.63

Interest Cover times 7.3 4.9 10.3 *5.1

Stock Turnover (Finished Goods) days 15 14 13 12

Debt to Equity % 24.97 23.25 22.87 21.90

Debt to Total Assets % 16.00 14.20 16.39 15.32

Dividend Payout % 15.92 17.51 18.20 *28.08

Dividend Yield % 1.60 1.80 1.60 1.80

* Previous year Company’s profit has been adjusted for intra-group capital gain on share transfer


37,466Rs.Mn

2012/13: 39,850Rs.Mn

2012/13: 78,547Rs.Mn

2012/13: 65,790Rs.Mn

2012/13: 5,258Rs.Mn

83,742Rs.Mn

63,186Rs.Mn

6,231Rs.Mn

Taxes Paid - Group

Total Assets - Group

Gross Turnover - Group

Profit after Tax - Group

2009/10

21,072

2010/11

29,004

2011/12

39,076

2012/13

39,850

2013/14

37,466

Taxes Paid - Group(Rs. Mn)

35,322

59,616

73,35578,547

83,742

Total Assets - Group(Rs. Mn)

2009/10 2010/11 2011/12 2012/13 2013/14

39,81046,451

63,125 65,790 63,186

Gross Turnover - Group(Rs. Mn)

2009/10 2010/11 2011/12 2012/13 2013/14

2,152

8,337

6,0525,258

6,231

Pro�t after Tax - Group(Rs. Mn)

2009/10 2010/11 2011/12 2012/13 2013/14


THE CHARACTERISTICS WE VALUE

GROWTHPLANTATIONS

Cultivation & Processing of Tea & Rubber

A DIVERSIFIED PORTFOLIO OF BUSINESS OPERATIONS

MATURITYBEVERAGES

Distillation, Manufacture and Distribution of Liquor Products


CONNECTIVITYTELECOMMUNICATIONS

Voice, Data, Broadband, Hardware, Software andNetworking Solutions

Led by Beverages, Plantations, Telecommunication and Insurance.

RELIABILITYINSURANCE

General Insurance Services - Property, Motor, Marine, General Accident


Financial Services, Power Generation, Logistics and Textiles.

POWERPOWER GENERATION

Hydro Power Generation


CONVENIENCEFINANCIAL SERVICES

Variety of innovative Financial Solutions under one roof.


ARTISTRYTEXTILESDyeing

and Printing Fabric

EFFICIENCYLOGISTICS

Automobile Servicing and Logistics


EXCELLENCE

CREATIVITY

BPO SERVICESBPO, KPO & Call Centre Services

MEDIAMedia Buying & Creative Services

BPO, Media Buying and Creative Services and Leisure.



INSPIRATION

QUALITY

LEISUREHotels & Hospitality

BEVERAGESWines & Spirits


OUR BUSINESSES

Sector Function Company

Beverages Distillation, Manufacture & Distribution of Liquor Products

DCSL, Periceyl

Telecommunications Telecommunications Services

LB, TCF, BSL

Plantations Cultivation & Processing of Tea & Rubber

BPL

Diversified

Investment Investment Holding Company

Melstacorp

Financial Services Insurance

Finance

Continental

Melsta Regal

Logistics Automobile Servicing & Logistics

Melsta Logistics

Textiles Dyeing & Printing Fabrics Texpro

Information Technology BPO, KPO & Call Centre Services

BellVantage

Power Generation Hydro Power Generation Bogo Power

Leisure Beach Hotel BBH

Manufacturing Manufacturing & Selling of Sugar & Molasses

Pelwatte Sugar

Media Media Buying & Creative Services

Splendor


HISTORICAL PERSPECTIVE

Touching lives for over a century…Present in Sri Lanka for over a century, The Distilleries Company of Sri Lanka PLC (DCSL), is one of the most profitable and well respected corporate entities in the country. Its proud tradition, rich heritage and proven credentials has made the Company a beacon of inspiration for others. Over the past 100 years, our corporate DNA has been strengthened with our values of experience, maturity, innovation, resilience and the determination to succeed.

DCSL’s roots can be traced back to 1913, when the Excise Department of Ceylon, which was initially created as the enforcement authority to distribute and sell liquor products in Sri Lanka, branched out into the distillation and manufacture of liquor products. In 1974, the State Distilleries Corporation was incorporated by statute, to take over this venture, while the Excise Department realigned its operations as a monitoring body. Thus, DCSL has the distinction of being the pioneer distiller in Sri Lanka.

In 1989, under a government policy decision, the State Distilleries Corporation was converted into a limited company. This transfer of ownership took place at the Colombo Stock Exchange (CSE) in 1992, making it the largest transaction in the history of the CSE.

Under its new private management, the Company entered an era of modernisation that witnessed upgrading of machinery and equipment and the introduction of modern management systems and processes. Plant and machinery were upgraded to modern international standards and new technology developed by world renowned experts was introduced. Large investments

have also been made in Research and Development (R&D) and in upgrading laboratories. The latest addition is the state of the art blending and bottling plant currently under commission at the Company’s Seeduwa Distillery.

These improvements have equipped the Company with top of the line facilities enabling it to produce beverages of international standard. Furthermore, storage facilities and product distribution systems have been upgraded to modern standards with fully computerised systems. A fleet of modern vehicles ensures that customers in even the remotest areas are able to enjoy the best DCSL products delivered island wide. These improvements contributed towards higher production efficiencies across the supply chain. Our people are regularly trained in the best international practices in locations famed for high quality alcohol, such as France, Scotland and Ireland.

Over the years, we have not only grown to become Sri Lanka’s largest distiller, but have been recognised as a leading corporate with the highest quality standards. Despite these achievements and our strong position of business leadership, we continue to look for ways to improve and grow. Since 1992, the Company has not only expanded production, but has also diversified into other non-alcohol related activities.

Today, we are present in all parts of the country, operating under the principle of providing the highest standard of products and services for the people of Sri Lanka, imbued with a vision of uplifting the quality of life of our people. We aim to expand our presence into international markets to render our brand an internationally recognised one.


THE STORY OF ARRACK

“Sri Lankan coconut arrack, acknowledged as one of the purest alcoholic beverages in the world is extracted by an all-natural fermentation process.”

The Sri Lankan flavour that lingers on…The pristine ambrosia-like qualities of Sri Lanka’s unique coconut arrack can be traced back thousands of centuries earlier, finding mention in early literature - “…liquor drawn from the coconut flower”. This delectable beverage is steeped in legend and tradition, making it one of the most prised offerings from Sri Lanka to the world.

The Sri Lankan coconut arrack is believed to be one of the purest, naturally derived alcoholic beverages in the world distilled through a natural fermentation process. Sri Lanka has perfected the technique of making coconut arrack through the years. Today, it has acquired the perfect balance for the discerning palate and coconut arrack reigns as the alcoholic beverage of choice in the country.

The initial step in the process of making coconut arrack is toddy tapping, an age-old vocation which is lovingly passed down from father to son. Toddy Tapping is as much an intricate art as it is a science. Toddy tappers manually extract the toddy from coconut trees which are coupled and girdled by deftly rappelling from tree to tree. Coconut sap or toddy is obtained by tapping the unopened coconut flower for its nectar. Thereafter, the toddy is collected in earthenware pots. This toddy when fresh contains much sugar, but yeasts, microscopic vegetable organisms soon find their way into it, act on the sugar present and produce alcohol. This process of converting the sugar into alcohol is called fermentation.

After a minute filtration process, this liquor is poured into massive casks made of Halmilla wood and are gently transported to our factories for distillation.

The process of distillation comprises of two stages; continuous distillation (patent still distillation) and pot distillation. This distillation process is usually completed within 24 hours. The purified spirit comes out with the distinctive flavour of arrack, ready to be savoured.

The contents of the wooden vats are mixed artfully every fortnight for better aeration and to increase contact with


the wood. Herbs and spices from ancient recipes are also added at particular stages, to enhance flavour and mellow the liquor during the crucial maturation process. The maturation process is completed after flavour enhancing and smoothening while ageing in the wooden vats.

Finally, spirits of different ages and flavours are blended to create the various DCSL brands, all under the careful supervision of an experienced connoisseur and Master Blenders. As the largest coconut arrack distillery in Sri Lanka, possibly even in the world, this golden brew remains our pride and flagship product.


TRADITION SERVED WITH PRIDE

WHAT ’S BEHIND OUR CONTINUING SUCCESS?

Twice distilledin pot stills and

matured slowly inHalmilla vats givinga remarkable taste

and aroma

A blend of coconut and imported neutral spirits bringing a distinctively rich and smooth flavour

A blend of coconut spirits and imported

neutral spirits bringing herbal flavours with a distinctively rich taste

and smooth aroma

A 100% coconut spirit, refined, aged and matured in Halmilla vats - giving a woody & natural vanilla flavour

Superior blend of mellow 100% coconut arrack full of character

and a distinctive flavour stemming from the traditional process

of maturing


Crystal clear and an absolutely pure blend of coconut arrack and neutral spirits giving a tint of fresh lime

with a slight burning sensation on your

tongue

A blend of 100% aged coconut spirits, well-matured in Halmilla vats to give a taste of oak

Finest blend of matured coconut

arrack and neutral spirits giving a rich and smooth flavour

A 100% pure coconut spirit, which brings out the full-bodied taste and aroma of desiccated coconut

with a subtle sweetness. Best served

as a cocktail mixer

A 100% coconut spirit, matured in Halmilla vats, producing a woody character and exceptional smoothness


Unique premium blended arrack,

smooth on the palate with pleasant aromas

Premium blend of malts and fine spirits to produce this classic whisky

Unique variety of imported spirits that

combines together to produce an

international standard vodka

Exceptional selection of spirits blended to create a great rum, matching international standards

A combination of scotch and fine spirits

to produce a rich blend of whisky

WORLD CLASS BLENDS, DISTINCTLY SRI LANKAN

WHAT ’S BEHIND OUR CONTINUING SUCCESS?


A blend of finest French brandy

merged with fine spirits to bring out a unique flavour that is

incomparable

Fine spirits blended with a rich recipe flavoured with lemon

Flavour of Mango with fine imported

spirits that combines tempting aromas and

flavours of rich Mango

Aged fine French brandy blended with

fine spirits matured in vats to enhance the

smooth characters of a superior brandy

Flavour of apple with fine imported spirits which provides a rich apple aroma with a smooth apple flavour on the palate


CHAIRMAN’SMESSAGEIt gives me great pleasure to present to you, valued shareholders, the annual report of your Company for the financial year 2013-14. DCSL has proved its resilience in the face of many economic trials and tribulations over its 100 years of operations and the financial year under review has been no exception. The level playing field we have sought for carrying out our business remains elusive on account of inaction by the powers that be, effectively stifling the Group from achieving its true financial potential.

Macroeconomic PerformanceThe Sri Lankan economy posted a reasonable GDP growth of 7.3 per cent in 2013, successfully restricting inflation to single digit levels. This performance was due to positive contributions from all sectors, further supported by favourable weather conditions and improved global demand. The low inflation that prevailed throughout the year enabled the Central Bank of Sri Lanka to ease monetary policy further to facilitate economic growth. Meanwhile, the financial sector remained resilient amidst uncertainties that increased volatility in the global financial markets during 2013. The weak performance of the agriculture sector during the first half of the year due to extreme weather conditions dragged its annual growth rate down. The rebounding of global trade and the increase in demand from major export destinations from the second half of 2013 had a favourable impact on export earnings.

Forecasts for the Sri Lankan economy suggest a high growth momentum in the medium term supported by an increase in investment and a favourable macroeconomic environment. The global economy is also expected to continue its recovery.

Group Financial PerformanceDuring the current financial year the Gross Revenue of the Group was recorded at Rs. 63.2 Bn, while the Company achieved Rs. 47.8 Bn. Group Profit after Tax for the year was Rs. 6.2 Bn, while Company Profit after Tax was Rs. 5.4 Bn.

Challenges AboundEvery business needs a level playing field to function to its optimum potential, to expand, and to grow in volume and value. However, such a just and level playing field continues to remain out of reach for us, year after year. The rampant increase in the non-invoiced and tax unpaid alcohol sector is openly eating into the market share of legitimate alcoholic beverage businesses such as ours, which pay taxes as per the laws of the land while adhering to the strictest quality guidelines.

As an ethical business that is responsible to the State and people of this country, and one that is accountable for its actions, we strictly adhere to the NATA Act and stringently follow its guidelines. We do not directly or indirectly lure young people into alcoholism, and never, under any circumstance, target children. Any form of promotional campaign undermines the NATA Act. However, certain industry players circumvent the Act and resort to various subtle, tactical and innovative campaigns. Yet, we note with concern that the authorities turn a deaf ear and a blind eye to such actions.

Despite this disparity in treatment, the legal alcohol business continues to gain bad press. It is my firm conviction that the non-invoiced and tax unpaid alcohol sector should be the focus of investigation and national scrutiny as it is a scourge and promotes alcohol abuse and other social problems. Moreover, even the national coffers are denied substantial excise revenue which could be accrued if the non-invoiced and tax unpaid alcohol sector was discouraged by better enforcement and checks. Our tax payment to State coffers went down from Rs. 40 Bn in 2013 to Rs. 37 Bn in 2014, due to a drop in sales as a direct result of the rise in the non-invoiced and tax unpaid alcohol segment and duplicate products in the market. If our Beverage sector had continued to grow at a steady trajectory, on a level playing field, State coffers would have benefitted from an approximate additional Rs. 15 to 20 Bn in tax revenue from us, considering that 65% of the labelled price of our product is in the form of taxes. We stand committed to extend any assistance to the authorities towards enforcing a level playing field in this sector.

Moreover, the loss of excise revenue due to the rise of non-invoiced and tax unpaid alcohol business is fed by leakage

“As an ethical business that is responsible to the State and people of this country, and one that is accountable for its actions, we strictly adhere to the NATA Act and stringently follow its guidelines.”


“The rampant increase in the non-invoiced and tax unpaid alcohol sector is openly eating into the market share of legitimate alcoholic beverage businesses such as ours, which pay taxes as per the laws of the land while adhering to the strictest quality guidelines.”

D. H. S. JayawardenaChairman / Managing Director


of ethanol from local sugar factories and the illegal import of ethanol. It is common knowledge that the paint and cologne industries act as a front for the import of spirits in order to pass through customs, while also functioning as a front for the illegal manufacture and sale of liquor, which is sold cheaper than those that are heavily taxed. The North and East are the best markets for such sales. Therefore, it is vital that the regulators enforce the law and contain the widespread corruption that fuels such illicit business activities. The DCSL Group has made representations to the authorities in this regard and we are hopeful that the government will reclaim its lost excise revenue by shrinking the non-invoiced and tax unpaid alcohol business sooner rather than later.

It is heart rending to witness the collapse of the tradition of toddy tapping, a proud legacy in our country. Increasingly, toddy suppliers are giving up their business by leasing or selling their lands and trees, leading to a decrease in the supply of toddy. This unique and traditional Sri Lankan industry, which has been passed down over many generations, is becoming an endangered industry. The main contributory factor is the considerable rise in the number of illegal, artificial

toddy manufacturers. Every day, large quantities of artificial toddy are transported to manufacturers, while law-enforcing authorities turn a Nelsonian eye. We are the only Company that produces 100% natural coconut arrack using 100% pure coconut toddy distilled in our own distilleries, providing consumers a 100% natural product, vis-a-vis our competitors who purchase spirits produced using artificial toddy. It is unfortunate that artificial toddy is used to produce spirits, and unscrupulous suppliers are exploiting the opportunity by selling such spirits to manufacturers who do not have distilling facilities. In order to ensure the quality of toddy, we have invested in computerised modern equipment, which our trained and experienced staff utilise to detect adulteration by toddy suppliers. We have carefully selected our toddy suppliers, and the toddy is subjected to constant checks for possible adulteration.

It is regrettable that the entire toddy market is transforming into an artificial one and the Department of Excise is not taking action. Vast quantities of sugar, ammonia, yeast, salt, rotten potatoes, sugar syrup and remnants of toddy sludge are being used in the manufacture of artificial toddy. The natural form of fermentation is thus rendered extinct, substituted with poisonous ingredients which are detrimental to the health of consumers. Currently, large-scale bottling of artificial toddy takes place in the tapping belt of Marawila, Negombo, Wennappuwa, Madampe and adjacent areas. Such manufacturers of bottled toddy are presently accruing huge profit by bottling artificial toddy and thereby exposing consumers, predominantly the labour force in the hill country, to serious diseases. This will result in a greater strain on the health system and will have a negative impact on the plantation labour force. The Department of Excise should be held responsible for the downfall of the toddy industry as the Department has not taken any action to arrest the rapidly declining situation.

The advent of Excise Notification 926, whereby a transferor could transfer a FL(4) license to a transferee for Rs. 1,500,000/- and Rs. 200,000/- for other types of licenses, opened the flood gates for unscrupulous manufacturers, who gleefully welcomed this unfortunate regulation and obtained licenses in the names of their kith and kin, thereby dumping their non-invoiced, tax unpaid liquor with ease. It is regrettable that although the conditions of the manufacturing license indicate that a manufacturer is prohibited from having any interest in the retail sale of liquor, this condition is blatantly violated. This has escalated to an extent where

“The entire toddy market is transforming into an artificial one and the Department of Excise is not taking action. Vast quantities of sugar, ammonia, yeast, salt, rotten potatoes, sugar syrup and remnants of toddy sludge are being used in the manufacture of artificial toddy. The natural form of fermentation is thus rendered extinct, substituted with poisonous ingredients which are detrimental to the health of consumers.”

CHAIRMAN’S MESSAGE


12 manufacturers have taken over 233 retail licenses out of a total of 1000, approximately 23%. Further, we have made discreet inquiries and have ascertained that some unscrupulous manufacturers are targeting to purchase the remaining retail licenses at exorbitant prices which will further decrease the revenue accruing to State coffers.

In the recent past, the importation of ethanol at 96% A/Vol. has been substituted with methanol, which is used for industrial purposes, in order to qualify for a low band of tax. Such unscrupulous importers have used fictitious names and addresses in order to clear consignments. Eventually, such spirit is utilised in the production of tax unpaid liquor, which is then supplied non-invoiced to wine stores at approximately a 30% to 40% lower value than the labelled price. With the excise duty and VAT component being over 65% of the labelled price, it raises the question as to how these acts are being committed under the very nose of the Regulator, defrauding the Government of billions in revenue. The solution to this problem is that the Government should discontinue the issue of licenses to import methanol as a raw material for industrial purposes.

It is regrettable to witness officers in uniform openly performing a sales act to unscrupulous licensees who are operating in large numbers and forcing licensees to buy tax unpaid products against their will. The licensees have no option but to face TCR action if they do refuse to purchase same, falling prey to these corrupt officers who are depriving the Government of billions in revenue. This is very common in the North and East where such products are freely available in the market, and prices are 30% to 40% less than a product on which all taxes have been paid. We have brought these issues to the notice of the regulator who maintains silence, and is yet to take action to bring wrongdoers to book.

Despite these serious violations taking place in the industry, we remain optimistic about the potential of our alcoholic beverage business. This bullish view is reflected in our investment of Rs. 2.5 Bn in a state of the art blending and bottling plant which will enable enhanced capacity, better packaging, presentation, and prevent adulteration of our products. The plant further mechanises several aspects of our operations, yielding higher productivity and efficiency of operations. Our wholly owned subsidiary Periceyl, is focused on bringing in bigger and better brands to Sri Lanka for the convenience of customers.

DCSL adheres to stringent quality controls throughout production where quality is monitored by qualified and accountable professionals. R&D is carried out in modern fully equipped laboratories to ensure the Company continues to be at the cutting edge of our industry.

DCSL continues to enjoy the Fitch Ratings assigned long term rating of AAA (lka) with a stable outlook, the highest possible credit rating, which places your Company amongst the few elite corporates in Sri Lanka who enjoy such exalted ratings.

Diversified Sector PerformanceWith regard to other Group business interests, our telecommunication arm, Lanka Bell recorded a loss due to challenges experienced in the sector. However, Lanka Bell has a positive EBITDA despite many companies reporting negative growth. We are buoyed by future prospects for the business as we have acquired 4G LTE technology, which will propel the company to the forefront of the country’s data revolution. Fixed telephony is reaching saturation point in Sri Lanka and by opting for mobile technology, Lanka Bell has effectively taken control of its destiny by forging new growth avenues for itself. I expect the company to make a positive contribution to Group revenue in the future by becoming a front runner in the data sector.

“It is regrettable that although the conditions of the manufacturing license indicate that a manufacturer is prohibited from having any interest in the retail sale of liquor, this condition is blatantly violated. This has escalated to an extent where 12 manufacturers have taken over 233 retail licenses out of a total of 1000...”


Meanwhile, Balangoda Plantations showed an improved performance with a turnover of Rs. 3.2 Bn and a pre-tax profit of Rs. 130 Mn. We are glad to state that our hydro power project, Bogo Power, which was commissioned in December 2011 is now yielding encouraging results for the Group. DCSL Group is encouraged by the progressive results achieved by our key associate company, Aitken Spence during the financial year.

In response to the Central Bank of Sri Lanka (CBSL) financial sector consolidation plan, the Group enhanced the stated capital of Melsta Regal Finance to Rs 1.34 Bn in March 2014, through which Melsta Regal Finance is compliant with the capital adequacy requirements of CBSL up to 2016. Melsta Regal Finance’s sharp focus on the SME sector is attracting a base of loyal customers who appreciate its personalised products and services. In a climate where uncertainty prevails over the stability of finance companies, the fact that Melsta Regal Finance is backed by the AAA rated DCSL Group is a reassuring factor to the public.

In July 2014, the Group increased its investment in Continental Insurance to Rs. 750 Mn. Established as one of the most innovative and dynamic insurance companies, Continental Insurance holds great potential for the future. The insurance industry is a fiercely contested space, however companies that can position themselves perfectly have much potential for growth. I have confidence that Continental Insurance is on the right path and will move into high gear in the months ahead.

The uncertainties surrounding the status of our subsidiary, Pelwatte Sugar Industries continues to weigh upon the Group. Following the occupation of the factory by State Officials, the ownership of this property remains unresolved. The Group has not changed its position, advocated since the occurrence of this unfortunate incident of being the legal owner of the property, and as such we have communicated our views to the Treasury. However, as a precautionary measure, the Group has also lodged an official claim with the Compensation Tribunal appointed by the State. Further, since our Group is deprived of participating in controlling the financial & operating policies and other relevant activities, the financial statements of PSIP have been deconsolidated from the Group financial statements of DCSL PLC during this year. We hope that some clarity regarding this untoward situation would be forthcoming during the new financial year.

With regard to Sri Lanka Insurance Corporation Ltd. (SLIC), even after a lapse of 5 years, we still await the payment of profit earned during DCSL Group’s tenure at the helm of SLIC. We are hopeful that the profit earned, which has to be paid to us as per the Supreme Court directive, will be reimbursed to us as early as possible.

I wish to state that Company has complied with the Listing Rules of the Colombo Stock Exchange and the Code of Best Practices on Corporate Governance issued by the Securities and Exchange Commission and the Institute of Chartered Accountants of Sri Lanka. We are committed towards the furtherance of Corporate Governance principles of the Company. The measures taken in this regard are set out in the Corporate Governance Report.

FutureSri Lanka is poised on the cusp of expansion and fast track development but there are certain obstacles in its path which must be cleared through political will. Supported by infrastructure development, rapid economic growth and access to foreign markets, the only way to go is up, but what remains to be seen is how the hurdles in the way of progress are cleared. I am hopeful that the authorities will lend an ear to the challenges facing the alcoholic beverages sector and act in accordance with the law of the land.

AppreciationI would like to thank the Board of Directors, the management and every employee of the Company for their dedication and passion to achieve our corporate goals. I wish to express my gratitude to the regulators and to our shareholders for placing their trust in the Group. Our loyal customer base and other stakeholders remain our strength and our prime motivation for aspiring to be quite simply the most sustainable Company in Sri Lanka.

D. H. S. Jayawardena

Chairman / Managing Director

22 August 2014

CHAIRMAN’S MESSAGE


OUR LEADERSHIP


BOARD OF DIRECTORS

1. Mr. D. H. S. Jayawardena Chairman / Managing Director

2. Mr. R. K. Obeyesekere Non-Independent Non-Executive Director

3. MR. C. R. Jansz Executive Director

4. Mr. N. de S. Deva Aditiya DL, FRSA Independent Non-Executive Director

5. Capt. K. J. Kahanda (Retd.) Executive Director

1. 2.

3. 4.

5.


6. Mr. C. F. Fernando FCA Independent Non-Executive Director

7. Dr. Naomal Balasuriya MBBS [Sri Lanka], MBA [Sri.J], CIM [UK],

MCGP [SL], MSLIM, MIMSL Independent Non-Executive Director

8. Ms. V. J. Senaratne Attorney-at-Law, Notary Public, Solicitor (Eng.& Wales) Alternate Director to K. J.Kahanda / Company Secretary

and Chief Legal Officer

9. Mr. Amitha Gooneratne FCA (SL), FCA (Eng.& Wales) Alternate Director to N. de S. Deva Aditiya

6. 7.

8. 9.


1. Mr. D. H. S. JayawardenaChairman / Managing Director

Mr. Harry Jayawardena is one the most successful and prominent business magnates in Sri Lanka. He was elected Chairman of the DCSL Group in 2006 after serving as its Managing Director for almost two decades. He heads many successful ventures in diversified fields of business. He is the founder Director and the present Chairman / Managing Director of the Stassen Group of Companies.

He is the Chairman of Aitken Spence PLC., Aitken Spence Hotel Holding PLC., Lanka Milk Foods (CWE) PLC., Madulsima Plantations PLC., Milford Exports (Ceylon) (Pvt) Ltd., Ceylon Garden Coir (Pvt) Ltd., Ambewela Products (Pvt) Ltd., Ambewela Livestock Co. Ltd., Danish Dairy Products Lanka (Pvt) Ltd., Lanka Dairies (Pvt) Ltd., Melstacorp Ltd. and its subsidiaries; Balangoda Plantations PLC., Browns Beach Hotels PLC., Lanka Bell Ltd., Periceyl (Pvt) Ltd., Bogo Power (Pvt) Ltd. and Texpro Industries Ltd.

He is a former Director of Hatton National Bank PLC., the largest listed bank in Sri Lanka and former Chairman of Ceylon Petroleum Corporation and SriLankan Airlines.

Mr. Jayawardena is the Honorary Consul for Denmark and was the only Sri Lankan honoured with the prestigious “Knight’s Cross of Dannebrog’ by Her Majesty, Queen Margrethe II of Denmark, for his significant contribution to the Danish arts, sciences and business life.

He has also been awarded the title, “Deshamanya” in recognition of his services to the Motherland, since November 2005.

2. Mr. R. K. ObeyesekereNon-Independent Non-Executive Director

A Director of the Group since 1992, he counts over 35 years of experience in the export sector of the country. He is a Founder Director of Stassen Group of Companies. He is also a Director of Lanka Milk Foods (CWE) PLC., Balangoda Plantations PLC., Madulsima Plantations PLC., Periceyl (Pvt) Ltd., Melstacorp Ltd., Milford Holdings (Pvt) Ltd., Zahara Exports (Pvt) Ltd., Lanka Power Projects (Pvt) Ltd., Milford Exports (Ceylon) (Pvt) Ltd., Lanka Dairies (Pvt) Ltd., Danish Dairy Products Lanka (Pvt) Ltd., Ceylon Garden Coir (Pvt) Ltd., Milford Developers (Pvt) Ltd., Ambewela Livestock Co. Ltd., and Pattipola Livestock Co. Ltd.

3. Mr. C. R. JanszExecutive Director

Mr. C. R. Jansz has many years of experience in logistics in the Import / Export field and in Documentation, Insurance, Banking and Finance relating to international trade.

He is the Chairman of DFCC Bank and a Director of DFCC Vardhana Bank. He serves on the Board of Balangoda Plantations PLC., Lanka Bell Limited and several other companies of the Distilleries Group. He is also a Director of Lanka Milk Foods (CWE) PLC. and its subsidiaries.

He was the former Chairman of Sri Lanka Shippers Council and former member of the National Trade Facilitation Committee of Sri Lanka. Mr. Jansz holds a Diploma in Banking and Finance from the London Guildhall University – UK. He is also a Chevening Scholar and a UN-ESCAP Certified Training Manager on Maritime Transport for Shippers.

4. Mr. N. de S. Deva AdityaDL, FRSAIndependent Non-Executive Director

Mr. Niranjan Deva Aditya, is an aeronautical engineer, scientist and economist, is a Conservative Member of the European Parliament elected from the SE England. He is the Vice President of the Development Committee; ECR Coordinator and Conservative Spokesman for Overseas’ Development and Co-operation.

He was the Co Leader of the Parliamentary Delegation to the UN World Summit and General Assembly 2006, Chairman Working Group A of Development Committee overseeing Asia, Central Asia and Far East; - Co Co-ordinator Assembly of 79 Parliaments of the EU-ACP 2004 and the President EU India Chamber of Commerce from 2005. In 2012 he stood for and came runner up, beating the Liberal candidate into 3rd place to be the President (Speaker) to the European Parliament. He was the first Asian to be elected as a Conservative Member of British Parliament, first Asian MP to serve in the British Government as PPS in the Scottish Office and first Asian born MP to be elected to the European Parliament. He was nominated as a candidate to succeed Kofi Annan as Secretary General to the UN in 2006.

He is a Hon. Ambassador without portfolio for Sri Lanka; the first Asian to be appointed as Her Majesty’s Deputy Lord Lieutenant for Greater London, representing The Queen on official occasions since 1985; awarded the honour “ViswaKirthi Sri Lanka Abhimani“ by the Buddhist Clergy for his Services to Sri Lanka and given the Knighthood with Merit of the Sacred Constantinian Military Order of St. George for his global work on poverty eradication. He is a Fellow of the Royal Society for Arts, Manufacture and Commerce (Est: 1765).

BOARD OF DIRECTORS


5. Capt. K. J. Kahanda (Retd.)Executive Director

Captain Kahanda joined the Company in 1993 as Regional Manager (Central Region) and was appointed a Director in December 2006. Being a former officer of the Sri Lanka Army, he spearheaded the re-organisation of the operations of the Central Region since privatisation. He specialises in logistics, distribution and security matters, and is also a Director of G4S Security Services (Pvt) Ltd. and Pelwatte Distilleries (Pvt) Ltd., a subsidiary of the Group.

6. Mr. C. F. FernandoFCAIndependent Non-Executive Director

Mr. Fernando, who previously served as the Managing Director and as Chief Executive Officer of Distilleries Company of Sri Lanka PLC., rejoined the company as an Independent Non-Executive Director in 2008. He is the Chairman of the Audit Committee and also serves on the Remuneration Committee. Qualified as a Chartered Accountant from the Institute of Chartered Accountants of England and Wales, he is also a Fellow of the Institute of Chartered Accountants in Sri Lanka. Mr. Fernando is a Director of DCSL subsidiary Melstacorp Ltd. and Continental Insurance Lanka Ltd., where he serves as the Chairman of the Audit Committee. He counts over 18 years of experience in financial and general management of plantation companies and agency management as Senior Accountant at Carson Cumberbatch & Co. Ltd., followed by 10 years experience as Director - Finance in Projects involving paddy cultivation, shipping agency, nontraditional exports, bottling of soft drinks, earth moving contracts. He is presently a Director of Selinsing PLC. and Equity Three (Pvt) Ltd. of the Carsons Group. He was once Finance Director of the National Lotteries Board, a Director of the Coconut Cultivation Board and a former Chairman of Low Country Products Association (LCPA). Until 30th June 2014 he was a Senior Trustee of the Ceylonese Rugby and Football Club.

7. Dr. Naomal BalasuriyaMBBS [Sri Lanka], MBA [Sri.J], CIM [UK], MCGP [SL], MSLIM, MIMSL Independent Non-Executive Director

Dr. Naomal Balasuriya, a medical doctor turned-entrepreneur is internationally sought after as a life changing motivational speaker. His professional expertise ranges from medicine, military, management, marketing, mentoring to motivational speaking. He holds both the Master of Business Administration (MBA) and CIM (UK) qualifications. Having worked in the government sector, private sector and the Sri Lanka Air Force as a medical doctor, he now leads his entrepreneurial training company, Success Factory. He is also a Director of Melstacorp Ltd., a subsidiary of the Group.

8. Ms. V. J. SenaratneAttorney-at-Law, Notary Public, Solicitor (Eng.& Wales)Alternate Director to K. J. Kahanda / Company Secretary and Chief Legal Officer

Ms. Senaratne was appointed as the Company Secretary in 1993. She was admitted to the Bar in 1977 and was enrolled as a Solicitor (England & Wales) in June 1990. She also holds the position as Company Secretary of Periceyl (Pvt) Ltd.

9. Mr. Amitha GooneratneFCA (SL), FCA (Eng.& Wales)Alternate Director to N. de S. Deva Aditya

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 the 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 SriLankan Air Lines during 2002–2004 by the Government of Sri Lanka.

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

He is the Alternate Director to Mr. N. de S. Deva Aditya on the Board of Aitken Spence PLC.

He is an Independent Director of Textured Jersey and Lanka IOC. He is also a Director of Commercial Development Company PLC.


GROUP MANAGEMENT

1. Amitha Gooneratne: Managing Director - Melstacorp Ltd. / Chairman - Melsta Regal Finance Ltd., Melsta Logistics (Pvt) Ltd., Bellvantage (Pvt) Ltd., Melsta Tower (Pvt) Ltd. / Director - Continental Insurance Lanka Ltd., Periceyl (Pvt) Ltd., Lanka Bell Ltd., Texpro Industries Ltd., Bogo Power (Pvt) Ltd.

2. Capt. Jagath Kahanda (Retd.): Managing Director - Pelwatte Sugar Distilleries (Pvt) Ltd. / Director - Distilleries Company of Sri Lanka PLC, Melstacorp Ltd., Pelwatte Sugar Industries PLC, Melsta Properties (Pvt) Ltd., Milford Holdings (Pvt) Ltd.

3. Ms. Stasshani Jayawardena: Chairperson - Splendor Media, Director - Aitken Spence PLC

4. Lalith Obeyesekere: Director / CEO - Balangoda Plantations PLC, Madulsima Plantations PLC

1. 2.

3. 4.

5. 6.

7.

5. Asoka Abeyewardene: Director - Continental Insurance Lanka Ltd.

6. Capt. Ranjith Wettewa SLN (Retd.): Director - Pelwatte Sugar Industries PLC.

7. Maximus R. Peries: CEO - Distilleries Company of Sri Lanka PLC / Director - Pelwatte Sugar Industries PLC, Lanka Bell Ltd., Melsta Logistics (Pvt) Ltd., Melsta Tower (Pvt) Ltd.


8. Senaka Amarathunga: Director / General Manager - Periceyl (Pvt) Ltd.

9. Dinal Peiris: Managing Director - Texpro Industries Ltd.

10. Chaminda De Silva: Managing Director - Continental Insurance Lanka Ltd.

11. Dr. Prasad Samarasinghe: Managing Director - Lanka Bell Ltd.

12. Janaka Abeysinghe: Director - Melsta Logistics (Pvt) Ltd.

13. Nishaman Karunapala: Director / CEO - Melsta Regal Finance Ltd.

14. Ms. Farzana Sulaiman: Chief Operating Officer - Bellvantage (Pvt) Ltd.

8. 9.

10. 11.

12. 13.

14.


DCSL MANAGEMENT

1. Maximus R. Peries : Chief Executive Officer

2. Maj. Gen. Siri Peiris (Retd.) : Head of Southern Region

3. Capt. Ranjith Wettewa SLN (Retd.) : Head of Uva Region

4. Ms. V. J. Senaratne : Company Secretary & Chief Legal Officer

5. S. Rajanathan : Head of Procurement

6. Maj. Roshan Cabraal (Retd.) : Head of Northern Region

1.

3.

5.

2.

4.

6.


7. Premasiri Liyanaarachchi : Chief Internal Auditor

8. Ms. Gayathri Chakravarthy : Head of Human Resources

9. Nimal Nagahawatte : Head of Finance

10. Roshanth Kumar Perera : Head of Transport & Logistics

11. Brig. Aruna Wijewickrama (Retd.) : Head of Central Region

12. Lalith Ratnayake : Head of Inventory Management

7.

9.

11.

8.

10.

12.


MANAGEMENT DISCUSSION & ANALYSISDCSL Group manages one of the Sri Lanka’s most successful diversified portfolios spanning beverages, plantations, telecommunication, insurance, finance, power generation, textiles, leisure, logistics and media & creative services, thus making a substantial contribution to the national exchequer and cementing its credentials as one of the most dynamic and diversified group of companies in this century. Commanding a presence of over 100 years, DCSL leverages on superior systems and processes coupled with visionary leadership and a committed team of employees to deliver maximum returns to its stakeholders.

Group OverviewOver the last 12 months the global economy has offered little or no relief from numerous challenges that beset the world of business. Our flagship Company which is engaged in the alcohol beverage was impacted by some unfavourable

DCSL Group manages one of the Sri Lanka’s most successful diversified portfolios spanning beverages, plantations, telecommunication, insurance, finance, power generation, textiles, leisure, logistics and media & creative services, thus making a substantial contribution to the national exchequer...

20.41 178.79Earnings

per Share (Rs.)Net Assets

per Share (Rs.)

Group

conditions prevailing in the local alcoholic beverage sector, in addition to the rising cost of living trends in the economy. Since DCSL and the alcohol business accounts for the majority of the Group revenue, the rapidly shrinking legal alcohol industry is adversely affecting the overall performance of the Group; thus reducing revenues for the tax authorities. However, our century-old reputation and reliable operations as the market leader in the industry

have earned us a loyal customer base, which ensured our products prevailed as the most preferred brand for discerning customers during the year.

The other diversified sectors of the Group succeeded in heightening brand awareness for Melstacorp Group of companies. The period under review, witnessed greater effort across this sector to build the Melsta brand as a powerhouse. Profitability in the year under review was however weighed down by recent investments which are yet to yield returns. Melsta Regal Finance Limited, which commenced operations in October 2012, is steadily carving a niche for itself while spreading its network around the country. Our insurance venture, Continental Insurance is slowly taking shape with a new infusion of capital in July 2014. The Group has made investments in the Beverage sector for enhancing efficiency and quality by installing an ultra-modern blending &


bottling plant. The Group firmly believes that these futuristic investments will pay off in the coming years.

The expropriation of Pelwatte Sugar Industries PLC (PSIP), under the Revival of Under-performing Enterprises and Underutilised Assets Act (Act) in November 2011 remained unresolved during the current financial year. We have not changed our stand that we are the legal owners of PSIP, although the company was listed as an underutilised asset in the Act. Since our Group is deprived of participating in controlling the financial & operating policies and other relevant activities, the financial statements of PSIP have been de-consolidated from the Group financial statements during this year. We hope some clarity regarding this untoward situation would be forthcoming within the new financial year.

Further, with regard to Sri Lanka Insurance Corporation Ltd. (SLIC), even after a lapse of Five years we still await the payment of profit earned during the DCSL Group’s tenure at the helm of SLIC. We are hopeful that the profit earned be

paid as per the Supreme Court directive, will be reimbursed to us at the earliest.

The Group’s gross revenue recorded at Rs. 63.2 Bn in the current year. The Group’s profit before tax was Rs.9.5 Bn and recorded a profit after tax of Rs. 6.2 Bn. The contribution to total revenue from the alcoholic beverage sector was Rs. 53.1 Bn and continues to be the largest contribution to the bottom line. The Group plantation interest, contributed

“DCSL Group remain committed to generate prosperity in the communities in which it operates. As a market leader in the beverage sector and one of the most profitable groups in the county, we take it upon ourselves to drive social and environmental sustainability, apart from fulfilling our economic responsibility to our stakeholders..”

MANAGEMENT DISCUSSION & ANALYSIS

Rs. Mn

53,136

2014 2013 Beverage Sector

3,634 Plantation Sector

3,172 Telecommunication Sector

3,244

64,186

56,479

2,780

3,997

2,534

65,790

Diversi�ed Sector

Gross Turnover - Group


Pro�t Before Tax - GroupRs. Mn

8,027

2014 2013 Beverage Sector

130 Plantation Sector

1,440

9,494

Share of Pro�t of Equity

6,349

110

1,292

8,084

Accounted Investees

536 484 Diversi�ed Sector(639) Telecommunication Sector(150)

a revenue of Rs. 3.6 Bn, telecommunication Rs. 3.2 Bn and diversified businesses Rs. 3.2 Bn. Share of associate investees contributed Rs. 1.4 Bn to the Group’s profitability. The Group’s total assets increased to Rs. 83.7 Bn from Rs. 78.5 Bn and the net assets per share rose to Rs 178.8 from Rs.159.9. The market price per share gained by 22% during the year, stood at Rs. 203 at the end of March 2014.

Overall, the DCSL Group remain committed to generate prosperity in the communities in which it operates. As a market leader in the beverage sector and one of the most profitable groups in the county, we take it upon ourselves to drive social and environmental sustainability, apart from fulfilling our economic responsibility to our stakeholders. We continuously engage closely with our key stakeholders in order to mitigate any adverse effects on the Group’s bottom line.

Beverage Sector

The year under review was most challenging for the Company

as well as for the entire industry. Excise figures for 2013

revealed a decline in the hard liquor sector by 11% in

comparison to 2012. One of the main causes for this has been

a leakage of tax unpaid liquor which is supplied, non-invoiced,

to wine stores at prices approximately 30 to 40 percent lower

than the labelled price. With the excise duty & VAT component

being over 65%, it is impossible for legal producers to be

competitive in such markets. A high tax regime and the rising

cost of living have been forcing consumers to opt for cheaper

products, despite poor quality. Our consistent performance,

in the face of growing challenges to the legal alcohol industry

is an indication of the high quality and consumer trust in our

brands. Despite low priced alcohol flooding the market, we

continue to see encouraging loyalty by discerning customers

who appreciate the quality standards we maintain and the

consistent bouquet of our products.

Further, high tax regime encourages illegal producers to

earn bigger profit within a short period of time at a very high

social cost. On the other hand, sale of tax unpaid liquor leaks

revenue which would otherwise go into the State coffers. In

contrast, DCSL Group pays all taxes as per the laws of the

land, making the Group one of the largest contributors to

State revenue. We must also emphasise that, unlike most

businesses, we are unable to advertise to build market

awareness and brand value. Therefore, our ongoing success

can be attributed to our management skills and consumer

loyalty.

DCSL remains the flagship Company and the highest revenue

generator for the Group. During the current financial year,

both DCSL and Periceyl continued to maintain profitability

despite the challenges posed to the legal alcohol business in

the country as a result of a skewed playing field.



Gross turnover of DCSL was recorded at Rs. 47.8 Bn. DCSL

recorded profit after tax of Rs. 5.4 Bn as against profit after

tax of Rs. 6.9 Bn in previous year. Noteworthy to mention,

the beverage sector contributed Rs. 37.3 Bn to the State by

way of taxes.

Periceyl, was successful in enhancing its leading brand positions recording a revenue growth of 11%, while sustaining its profitability. This was achieved despite the downturn in the industry, due to the immense contributions of the brands, Black Opal Arrack, Franklin Brandy, Galerie Brandy and Tillsider Whisky.

Future OutlookDCSL expects to reap dividends from the installation of the ultra-modern blending and bottling factory which will soon be running to full capacity. Meanwhile, our R&D team perseveres in innovating new products to ensure that our products evolve and change with the times. Periceyl will explore new ventures to cater to the increasing demand of the tourist industry with wide varieties of wines and spirits. Further, we are hopeful that the authorities will exert greater control to curb the sale of illegal liquor for the benefit of the consumers.

Melstacorp LimitedAs part of our Group restructuring plan, DCSL shareholdings of subsidiaries and associates were realigned to Melstacorp Limited, enabling Melstacorp to provide greater focus and attention to the diversified investments of the DCSL Group. Thus Melstacorp has 14 subsidiaries (direct / indirect) and 2 associate companies under its wing.

In line with the Group’s philosophy, several steps were taken to build Group culture and strengthen the shared services structure. Some of the key areas of the shared services

such as treasury, finance, audit and control and human resources, were put in place. We will continue our efforts to strengthen shared services and build a common brand under the “Melsta” umbrella. Melstacorp is trying to combine the Group companies’ synergies in a manner that optimum resource utilisation and financial benefits can be accrued. In time to come Melstacorp is expected to emerge as a diversified conglomerate to enhance the contribution from the non-alcohol sector whilst reducing the Group’s over-reliance on the alcohol sector.

Plantation SectorThe plantation sector recorded an improved performance over the previous year. Despite adverse climatic conditions and a wage increase of estate labour that came into force during the year. Balangoda Plantations PLC (BPL) recorded a pre-tax profit of Rs.129.72 Mn at the end of the financial year attributed to attractive tea prices. As a result, the turnover of the Company increased from Rs. 2.8 Bn in 2012 to Rs. 3.2 Bn in 2013 marking a growth of 14.28%.

However, the Company rubber production recorded a drop of 17.28% in 2013, as a result of adverse weather conditions, an increase in cost of production mainly due to wage increase exacerbated with the decline in auction prices. BPL continued to invest in the plantation sector through development projects and crop diversification. A total of Rs. 393.3 Mn was injected into field development, plant and machinery, worker housing, community infrastructure and other development projects. New planting was undertaken in 226.9 hectares in the Balangoda and Badulla regions.

2012/13

56,47953,137

2013/14

Gross Turnover - Beverage Sector(Rs.Mn)

2012/13

6,349

8,027

2013/14

Pro�t Before Tax - Beverage Sector(Rs.Mn)


We are proud to note that various grades of tea, manufactured by Pettiagalla, Glen Alpin, Meddakande, Balangoda, Cecilton, Nonpareil, Telbedde, Palmgarden, Ury, Wewesse and Spring Valley Estates, obtained all island top prices on 201 occasions, at the Colombo Tea Auctions. Various grades of rubber, from Mahawela, Millawitiya, Rambukkande and Galatura Estates, obtained top prices on 58 occasions.

Future OutlookThe future for the plantations sector is encouraging although the BPL’s performance hinges on favourable weather conditions. Extension of the fertilizer subsidy and its availability will further play an important role in an industry beset by aging bushes and depleted soils.

Telecommunication SectorDespite the rise of operational costs during the year, the Group’s telecommunication arm was able to sustain a reasonable EBITDA margin in line with the industry average. Further, revenue generated from the FLAG undersea cable showed an encouraging growth compared to the previous year. The growth in data revenue had also strengthened during the year.

One of the highlights of the financial year was that Lanka Bell commenced rolling out its 4G LTE network in line with its planned schedule. The initial lot of eNodeBs (base stations) was commissioned in December 2013 and the Company immediately began test marketing its 4G services. Following a successful test run, Lanka Bell formally launched its 4G connectivity in February 2014 to coincide with the celebration of Sri Lanka’s 66th Independence anniversary.

Lanka Bell operates its 4G LTE network on a bandwidth of 25 MHz in the 2.3 GHz spectrum called the LTE Band number 40, which is the most sought after band in the Asian region. LTE technology offers faster data rates to customers and is the current trend and future of the ICT (Information and Communication Technology) industry. This is yet another quantum leap into the future of wireless telephony and connectivity for Lanka Bell, the pioneers who introduced the revolutionary CDMA technology to Sri Lanka in 2005.

Future OutlookIn the year ahead new strategies are in place to reduce costs and improve revenues. Lanka Bell presents a rich portfolio of value-added high speed broadband and voice services at unbeatable rates to its customers across the country; ably supported by a dedicated team of professionals with international expertise and local knowledge and strategic investments in low-cost cutting edge technology. The growth in data revenue has encouraged us to continue to expand our presence in this segment, since growth in voice related services is reaching saturation point. The adoption of the new technology at an early stage, puts Lanka Bell in a favourable position for future growth and

2012/13

2,780

3,634

2013/14

Gross Turnover-Plantation Sector(Rs.Mn)

Pro�t Before Tax -Plantation Sector(Rs.Mn)

2012/13

110

130

2013/14 2012/13

3,997

3,172

2013/14

Gross Turnover-Telecommunication(Rs.Mn)

Pro�t/(Loss) Before Tax-Telecommunication(Rs.Mn)

2012/13

(150)

(639)

2013/14


will help to build the business further. Data is the future of the telecommunication industry and by equipping itself with the right technology at the right time. Lanka Bell will focus on cornering greater market share of the data market as it is one of only two operators in the country to have a 4G-LTE Network.

Diversified Sector

CILL has comprehensive reinsurance arrangements to ensure

the Company’s risks are effectively managed in collaboration

with world renowned re-insurers such as Swiss Re, Lloyds,

General Insurance Corporation of India, Malaysian Re, Best Re,

Hannover Re.

CILL introduced an Android mobile application to all technical

assessors to facilitate efficiency in the processing of claims. In

addition, payments of premiums online were also introduced

in order to cater to the growing market of online users and

thereby giving customers an enhanced service with greater

convenience and ease.

Based on the changing insurance landscape within Sri Lanka,

Continental Insurance aims at providing a unique experience

both in terms of products made available to target segments

as well as services rendered during the execution of sales/

support operations. The focal point of Continental Insurance

is on the high levels of service backed by a diversified local

conglomerate to ensure customer confidence in the brand’s

value proposition and thereby living up to its promise of

providing a “Service, Redefined.”

Financial Services

The Group’s newest member, Melsta Regal Finance Limited

achieved several milestones in its first year of operation - with

the lending portfolio and the equity base of the Company

exceeding Rs 1.0 Bn. Since its inception, the Company

managed to achieve a continuous trajectory of growth, whilst

maintaining consistent profitability levels in a business

environment of low credit growth. The Company did not

compromise on credit quality in achieving portfolio growth

and possesses one of the lowest NPA ratios in the non-bank

financial services sector.

In response to the Central Bank of Sri Lanka (CBSL) financial

sector consolidation plans, Melsta Regal Finance enhanced

the stated capital by Rs. 650 Mn to Rs 1.35 Bn, making the

company compliant with the capital adequacy requirements

of CBSL up to 2016. Melsta Regal Finance continues to

settle dues owed to customers of the erstwhile failed finance

company before its takeover by the Company.

In its first year of operations, Melsta Regal Finance strived

to create a niche in an intensely competitive and crowded

financial services market. It positions itself as a financial


2012/13

2,534

3,244

2013/14

Gross Turnover - Diversi�ed Sector(Rs.Mn)

2012/13

484461

2013/14

Pro�t before Tax - Diversi�ed Sector(Rs.Mn)

Insurance

Continental Lanka Limited (CILL) recorded a Gross Written

Premium (GWP) of Rs. 1.4 Bn during the year 2013. CILL

secured a 2.7 % share of the General Insurance market.

Motor Insurance premiums contributed 65% to the GWP of

the Company, while other non-motor insurance premiums

recorded the balance percentage.

The network of CILL consisted of 30 branches as at 31

December 2013, strategically placed around the country,

including in the North and East. CILL was very successful in

securing business during 2013 including major power plants,

international cricket stadiums, local and international hotel

chains, aviation and major conglomerates in the country.


services specialist, offering the flexibility of a finance company

coupled with the versatility of a bank. As a result, the

Melsta Regal Finance has a diversified portfolio of lending,

encompassing short to medium term lending, thereby,

successfully differentiating itself from other industry players,

whose lending portfolios consist predominantly of leasing and

hire purchase facilities.

The key focus of the financial year 2013/14 was market

expansion and product development. The geographical foot

print of Melsta Regal Finance expanded its presence to the

key cities of Kurunegala, Matara, Kandy and Negombo. The

first Premier Centre was set up in Kandy with the objective of

offering value added services such as a vehicle trading hub in

collaboration with Melsta Logistics Limited.

Melsta Regal Finance introduced several new financial

products leveraging on the strengths of the Group. A novel

product to the market known as the “360° Trade Finance”

facility, which finances the entire working capital cycle of a

business, has gained momentum. This facility encompasses

a gamut of financial services consisting of opening of letters

of credit, post shipment financing, factoring and other value

adding services such as clearing, warehousing and debt

collection services.

Future Outlook

Differentiation and specialisation in key products,

characterised by a wide product range, are lending the Melsta

Regal Finance an edge over competition and enabling it to

capture a market share. Melsta Regal Finance has planned

to expand its reach by widening its geographical presence to

five in key outstation locations, to cater mainly to the SME

sector. Melsta Regal Finance will concentrate on strengthening

and consolidating its position further, while complying with

the Central Bank’s recommendation for finance companies to

consider mergers and acquisitions to improve the health of the

finance sector as a whole.

Power Generation

As a policy of the Company to contribute towards the

improvement and the preservation of the environment for

posterity, Bogo Power (Pvt) Ltd was formed to set up a Mini

Hydro Plant. We are elated to state that Bogo Power exceeded

performance forecasts during the period under review. During

the last two financial years, the project generated 16.2 GWH

and 21.1 GWH respectively exceeding the projected average

annual energy value of 15.2 GWH. This project is set up at

Kirkoswald Group, Bogowantalawa on land which has been

leased out from Madulsima Plantations PLC, an associate of

DCSL Group.

Bogo Power is registered with the Board of Investment of Sri

Lanka (BOI) and the necessary approvals have been obtained

from the Sustainable Energy Authority of Sri Lanka and the

Public Utilities Commission of Sri Lanka. A Power Purchase

Agreement has been entered into with the Ceylon Electricity

Board for the sale of electricity generated for a period of 20

years.

The project was fully commissioned in December 2011 and the

power capacity of the project is 4 MW. The project is dependent

primarily on the rainfall in the catchment area of the project

and secondly on the efficient functioning of the machines. The

energy generated by the hydro power project can be transmitted

to the CEB only if the transmission line is live, therefore

breakdown in the transmission line of the CEB due to falling

of trees on the line, short circuiting of the line etc play an

important role in the overall performance of the project.

Collision Repair & Logistics

The Collision repair centre at Melsta Logistics sustained its

market position by focusing on business lines that are created

by the related companies for both internal and external clients.

Collision repair centre’s unique selling proposition of cutting



Business Process Outsourcing

Bellvantage is a leading BPO which focuses on providing Technology,

Consulting & Outsourcing Solutions. It was incorporated in 2008

to enable domestic and offshore companies to leverage and add

value to their business operations. With the assistance of various

front-end and back-end non-core functions, employers are able to

focus on core business activities. Relying on our strong collaborative

partnerships with associates and employees to economise business

activities, enabled our clients to benefit through optimised

information technology and skill enabled outsourced services; we

posted a robust performance during the year under review.

Through the period under review, Bellvantage strengthened its

excellent track record of e-engineering processes and innovative

thinking to increase productivity and efficiency. Bellvantage’s core

strengths lie in its well-positioned Contact Centre and Information

Technology Solutions services. The Contact Centre offers a host

of services, including Outsourced Call Centre, Messaging, Data

Entry and Custom Solutions for our clients’ back office needs.

Beyond industry-based efficiencies, the Contact Centre as a whole

is optimised by our continuous expansion into existing and new

accounts. We are proud of our track record of having most of our

clients renew their service contracts. Furthermore, we delivered

premier Customer Relationship Management (CRM) solutions,

considerably improving Customer experience of our clients in

the most demanding of industries.

Future Outlook

Our retinue of best practices, process maturity, skilled workforce

and professional experience empowers us to provide efficient

and effective operations that empower our clients to grow

and optimise their business, while maintaining lower cost of

business operations. We aim to strengthen these competencies.

edge technology, machinery, equipment and unparalleled

know-how on treating vehicles based on the manufacturer’s

specifications, has helped differentiate Melsta Logistics from its

competitors. The newly formed logistics operation contributed

greatly towards the profitability of Melsta Logistics during the

current financial year. Melsta Logistics is anticipating expanding

this facility beyond the Group, while investing in latest

technology in order to increase the efficient usage of vehicles.

Textiles

Texpro Industries Limited, the Group’s textiles arm, performed

better on the back of improved business confidence globally

and a pickup in the source markets of the West. Demand for

high-quality woven fabrics, which had fallen significantly since

2008 is now starting to pick up especially for high end export

and local consumption. Well-known international/European

brands such as Marks & Spencer, Next, George, C&A, Matalan,

etc., appear to be buying more garments manufactured from Sri

Lanka, which is an encouraging sign.

During the year under review, sales volumes increased by 30%

with significant improvements to gross profit margins arising

from better pricing, cost savings and the initial savings on

energy due to the biomass thermic fluid heaters, which were

commissioned in December 2013.

Future Outlook

In the coming year, the Company’s results should reflect the

full effect of the biomass conversion which we expect to reduce

the existing energy cost by 30%. Further, Texpro continues

to convert more of the fossil fuel consuming equipment to

biomass, which will further reduce operating cost and enable

Texpro to be competitive in pricing, with regional players.


continued its strong growth during the period under review,

garnered new business by way of external clients outside of the

group, in addition to the vast number of existing group clients.

The agency was initially established as a media buying body for

the DCSL Group and has since evolved to meet the demands of

the ever-changing silhouette of modern day advertising outside

of the Group. Splendor Media remains committed to introducing

advanced creative trends to the local advertising arena

Future Outlook

While continuing its strategy of adopting a measured approach

to achieving corporate objectives in the coming year, Splendor

Media covers the entire 360˚ aspect in advertising - with public

relations, events and activation as well as digital marketing as

it takes steps towards becoming one of Sri Lanka’s foremost full

service advertising agencies.

Leisure

Taking inspiration from the boom in infrastructure construction,

the increased influx of tourists and the bright prospects for the

local tourism industry, the erstwhile Browns Beach Hotels PLC

underwent a complete reconstruction and will be re-launched as

Heritance Negombo during the financial year 2014 -15, offering

unparalleled luxury and a bespoke holiday experience. The

increased economic activity in the country is making Sri Lanka

the hub of the region, with Negombo’s attractiveness being its

proximity to the international airport, its sun-kissed beaches and

rich culture offering both business travellers and tourists a slice

of Sri Lanka. Heritance Negombo is located on the picturesque

beachfront; the hotel boasts 143 rooms and suites, banqueting

facilities, a spa, restaurants and bars.

Future Outlook

Browns Beach Hotels PLC expects the new property to accrue

dividends from the next tourist season from the time it opens

for business in the 2014 /15 financial year, judging by the

overwhelming response to the opening of the property by

overseas tour operators. The ‘Heritance’ brand of luxury is

legendary amongst the Company’s partners and guests and this

latest property will heighten the signature bespoke experience.

Media & Creative Services

Increased economic activity and favourable market conditions

combined to create a conducive atmosphere for the business

of advertising in the country. The Group’s creative and Media

agency, Splendor Media, marked another successful year amidst

the rigid competition in the advertising industry by providing the

most strategic solutions to customers which stood out for their

dynamism and innovative approach to creativity. The agency


SUSTAINABILITY REPORTTouching LivesOur Sustainability Motto in ActionWe understand that, globally, stakeholders at large are demanding that companies they associate with demonstrate non-financial metrics to define sustainability and sustainable operations. Financial profitability as the sole criteria of a company’s success is an outdated concept and outrightly rejected by most right-thinking stakeholders and the organisations they support. More importantly, being an environmentally, economic and socially sustainable organisation is helping companies earn corporate respect and drive customer loyalty, not to mention earning respect from peers and industry. In an era of growing global competition, climate change and diminishing resources, companies that put sustainability as their foremost goal are winning the race.

As one of the oldest, diversified, blue chip conglomerates in existence in Sri Lanka, we are living proof of continuous improvement and sustainable business practices. While we celebrate over-a-century of existence in the year 2014, we consider this an opportunity to strengthen our conceptions of business practices that are environmentally and socially sustainable, while also being financially sustainable, the key requirement of any commercial entity.

In our journey over the decades within the corporate arena of Sri Lanka, an overarching tenet has always been to ensure that our decisions, actions and impacts are sustainable and positive at all times. We are extremely cognisant that as a corporate steward involved in numerous business and industry areas, we must set an example to others, while making our stakeholders a part of our journey of progress.

In this Sustainability Report, we set out the measures we take to ensure that sustainability is infused along the length and breadth of our value chain. Simultaneously, we continue to invest time and resources in understanding how we can enhance our proud track record as one of the most sustainable organisations in the country.

The DCSL StoryHistory, Ownership and Legal FrameworkThe roots of DCSL hark back to 1913, when the Excise Department of Ceylon, which was originally established as an enforcement authority, was mandated to distribute and sell liquor in Sri Lanka and also began the distillation and manufacture of liquor products. Much later, in 1974, the

State Distilleries Corporation was incorporated by statute to take over this role. In 1989, the state agency was converted to a limited company and DCSL took on the mantle of a pioneer in distillation and is now positioned as the largest distiller in the country.

DCSL is quoted on the Colombo Bourse since 1992 and is a modernised entity, working on a sophisticated knowledge base built on technology, experience, skill and acumen. Its large investments in R&D, infrastructure, plants and machinery and the diversification into key economic sectors in the country, places DCSL today unequivocally as an industry captain and one of Sri Lanka’s blue chip conglomerates.

DCSL’s business areas are diverse and penetrative, ranging from hospitality to telecommunication, BPO to textiles, plantations to hydropower and insurance to finance and its largest and most influential business contributor – beverages, encompassing alcohol.

Significant Event during the Reporting PeriodThe global rating agency, Fitch, reaffirmed DCSL’s National Long-term Rating of AAA (lka) with a Stable outlook. This is the best and highest entity credit rating for a corporate in Sri Lanka. Today, DCSL remains one of the most preferred corporate among bankers, overseas lenders, suppliers and stock analysts. In fact, consequent to the rating announcement, DCSL was able to significantly reduce its interest costs.

Report Scope We believe that we have a responsibility towards our stakeholders to ensure that they are given a clear insight into how we have managed their business and how we intend to work in the future. This, therefore, is our honest effort in sustainability reporting. While we do know that this report is work in progress and requires to be developed comprehensively, this attempt helps us to put our results, both positive and negative, down on paper and work on plans that would ensure that our presence as a corporate leader will surely be advantageous to all our stakeholders. The report presents a balanced analysis of our sustainability performance strategy in relation to issues that are relevant and material to the Company and to our stakeholders, while complementing our ongoing engagement with stakeholders.

This report focuses on key developments and includes only the most pertinent indicators in order to provide stakeholders


with an integrated and succinct view of our sustainability performance. Unless otherwise indicated, facts and figures refer to the DCSL Group. Sustainability in our business is built on natural capital, social capital and economic capital, all of which must be taken together rather than in isolation for a true picture of sustainability. It is these capital segments that run through as themes of this report.

MaterialityHaving embarked on this sustainability reporting process, we must confess that in documenting the necessary areas, we may not yet have a clear idea or focus on the extent of materiality involved. However, we have focused on earmarked areas and platforms that have formed the foundation for our sustainability programme and hence, we have used those as the guideline to report on the arising issues. We have also been able to identify shortcomings and gaps in data gathering, which is now being documented and acted upon to ensure that we bridge those gaps in future. We initially garnered the information from all our business sectors on a common questionnaire and began mapping the categories that were most common. Once charted, the categories were placed in perspective and we were able to consider the materiality of our findings, positioning them in priority order and only focusing on those that our stakeholders felt were crucial or important.

Reporting PeriodThis report supports the DCSL Group’s Annual Report and presents our sustainability performance for the year ended 31 March 2014. It covers company activities, including the subsidiaries’ reporting period (for example, fiscal/calendar year) for information provided 01 April 2013 to 31 March 2014. Data measurement techniques and the bases of calculations applied for compilation and other information in the report is disclosed wherever applicable. We invite feedback from our stakeholders on this report and the way we approach our sustainability priorities in order to continue improving our performance, transparency and accountability practices.

Governance, Commitments and EngagementBoard of DirectorsCollectively, the DCSL Board has significant corporate acumen, skill, knowledge and experience aided by astute and knowledgeable support and information from senior management and external specialists when the need arises to be sufficiently informed and be independent. Board governance ensures that the Group discloses related party transactions periodically and if any director has a direct or leading interest

in any matter being discussed, they will abstain from opining, discussing and voting, all of which could influence the outcome. This avoids conflict of interest and ensures independence of the Board.

DCSL has established a governance structure that remains aligned to the laws of the land and ensures compliance to various regulatory mandates. The governance structure therefore includes committees responsible for specific tasks and setting strategy and future direction for the Group. The Board structure and committees are detailed on page 57 in this report.

DCSL’s Board comprises Seven Directors (3 Executive, 3 Independent Non-Executive, 1 Non-Independent Non-Executive), meeting regularly to map strategy and for speedy decision making which require Board intervention. The Board sub committees are a vital conduit in identifying and managing economic, environmental and social performance, including relevant risks and opportunities, as well as compliance.

Ongoing Board education is an imperative at DCSL to ensure that Directors remain abreast of all applicable legislation and regulations, changes to rules, standards and codes, as well as relevant sector developments, which could potentially impact the Group and its operations. During the year, all Board Members and Committee Members were reviewed for compliance with the Colombo Stock Exchange requirements for a listed company.

The DCSL Sustainability ApproachVisionTo be an industry leader who will practice the tenets of a ‘green company’ and be upheld as a true proponent of sustainable development.

MissionTo truly ‘walk the talk’ in becoming green and espouse upward momentum for people, planet and profit

Philosophy• Infusing innovation, value addition, quality and service

excellence to give our customers the best

• Create a knowledge gaining culture where our team grows and develops as individuals, while honing the entrepreneurial spark to contribute towards macro development


• Continue giving our shareholders the confidence and trust that we will always do what’s best, thus ensuring consistent growth in shareholder value and returns

• Make our planet healthy and green by contributing social dividends that will translate towards sustainable development for society and the environment

• Ensure that everything we do will always keep us ahead and at the helm, collating the facets of economic, social and environmental features into our business dimensions. We integrate this three-pronged approach to sustainability, so that the journey with our stakeholders will remain one in which we grow together, forging and strengthening long-term relationships.

Sustainability PolicyOur Sustainability Policy is based upon the following principles:

• We will continue to comply with and exceed wherever practicable, all applicable and related legislation, regulations and codes of practice

• We will integrate the principles and tenets of sustainability into all our business decisions

• We will strive to minimise any negative impacts that may ensue while engaging in our day to day activities

• We will integrate a sustainability mind-set among our team, making them fully aware of our sustainability policy and empower them with a sense of ownership and commitment to implement, practice and improve it

• We will cascade our Sustainability Policy among our valued business partners, encouraging them and assisting them to adopt sound sustainable management practices

• We intend to review and annually report and to continually strive towards improving our sustainable performance

At DCSL, we are committed to promoting sustainability. We remain extremely concerned for the environment and for promoting a broader sustainability agenda, both of which are integral to our professional activities and the management of the organisation. We aim to follow and to promote good sustainability practice to reduce the negative environmental impacts of all our activities and to help our stakeholders to join in this journey that will surely benefit our future generations.

The FrameworkThe DCSL Sustainability Framework, which incorporates our Sustainability Philosophy, Policy and Principles, articulates our strategic commitment to sustainable development and remains integral to risk management. This framework assists our stakeholders in imbuing a similar sustainability approach, promotes sound environmental and social practices, encourages transparency and accountability, and contributes to positive development impacts. We ensure that this framework reflects good practice for sustainability and risk mitigation, keeping abreast with trends that bring up challenging issues, which remain at the core to managing a sustainable business. These include supply chain management, resource efficiency, climate change and human rights.

Key Challenges and OpportunitiesRisks and challenges go hand in hand in the business of running an organisation, whether the risk may be from environmental problems, social discontent, political and social unrest and even natural disasters. These can be termed costly, have negative publicity, threaten operating frameworks and also prompt unforeseen expenditure. Reputational damage too can far exceed the immediate cost impacts. While we seek to proactively reduce and manage these risks, challenges have never been a deterrent for us at DCSL; rather, they have been a means of directing us towards opportunity and improving business performance over time. These opportunities have driven us to enhance business growth, while ensuring that we remain within compliance benchmarks, while ensuring that our stakeholders are empowered and remain inclusive to our end goal. Over the year, we identified some challenges and risks that eventually saw an opportunity emerge, and which, through the inherent pragmatic and astute business acumen possessed within DCSL, was transformed and included into the strategic way forward of the Group.

Stakeholder EngagementWe are extremely committed to engaging all of our stakeholders, both internally and externally, to become the most sustainable, responsible company we can possibly be. By listening to, partnering with and considering the perspectives of our associates, customers, shareholders, academic leaders, government, value business partners and sometimes, even our competitors, we can truly ensure that quantifiable and qualitative returns are assured. Stakeholder engagement is a crucial element to sustainable development as it is this engagement process that prompts the two-way dialogue and communication process which eventually aligns the strong

SUSTAINABILITY REPORT


relationships among our stakeholders and forms the foundation to our sustainability journey. Having identified our stakeholder groups, as given below, we engage with them at various forums related to their interests and expectations, in an effort to adapt to changing needs and issues, which continue to evolve. As we pursue our corporate sustainability goals, we intend to further strengthen these relationships. Together, we are establishing transparency and enhancing our relevancy with the customers and communities we serve. We have created more formal channels for interacting with stakeholders both to learn from their expertise and to provide a forum for them to provide us with feedback.

Key StakeholdersShareholdersQuarterly and annual financial reporting, annual meeting of shareholders, periodic individualised mailings and conference calls between senior management and investors and/or analysts when necessary, serve to deepen shareholder engagement in an ongoing manner through the financial year.

CustomersListening and engaging with customers on a one-to-one basis and through other select channels such as customer satisfaction surveys has helped us understand them better.

EmployeesWe adopt numerous routes, such as regular communications and engagement on one to one basis, monthly or quarterly forums, opinion surveys, internal newsletters and an open door policy.

Government/RegulatorsRegular meetings with relevant government authorities and regulators to discuss impending legal mandates are held to find solutions where necessary. This may involve discussions on challenges, risks, strategy development, execution of such laws and regulations and best practice permeation.

SuppliersRegularly engage with suppliers to promote and institute sustainability solutions

DisclosuresThe purpose of our sustainability reporting is to create greater transparency and accountability and to allow for better informed and more robust decision-making as it is becoming more important than ever to manage both positive and

negative impacts of our business activities. Our consumers are increasingly developing an ethical conscience, using sustainability information to identify their chosen brands. Customers want transparency, clarity and accessibility to information and disclosures on social, environmental and economic performance. Needless to say, this information needs to be consistent and presented in a standardised approach, therefore, it is imperative that disclosures are succinct, clear, and truthful and hold fast to the underlying ethos of a principled ethical well governed business entity, which is what DCSL espouses to be.

Economic DisclosuresThe company ensures that both positive and negative information about itself is conveyed as fairly as possible to all stakeholders, especially shareholders. DCSL ensures its shareholders and other interested parties are given accurate information to help them make an informed choice when investing. Our investors have proof of our consistent performance in our financials and share performance, as well as our astute business strategies including restructuring and acquisitions. Given our status as an industry leader, we also remain a strong partner in ensuring that the country meets its vision and objectives, generating direct and indirect employment and thus improving lifestyles, investing in infrastructure, upping quality and standards within the industry and thus setting benchmarks to develop these industries and imbuing best practices.

We practice an environment of zero tolerance on bribery and corruption and eschew ethically unsound or corrupt practices among any stakeholder segment. In this context, we have had no incidences of bribery and corruption, unethical practices or anti-competitive behaviour stemming from our Group brought to our notice. Our business dealings remain transparent and sincere in action, while accountability remains a top priority.

We remain strictly compliant with all mandatory and regulatory mandates that are prevalent in our business even though the regulatory environment in some of our businesses may be seen as unfair and unjust, We do not make contributions to political parties; no member of the Board of Directors is actively involved or an office bearer of any political party in Sri Lanka.

Product DisclosureAs a company engaged in the business of alcoholic beverages, we ensure that our products, if used in a responsible manner, and by the target age groups it is meant to be used by, will not


have an ill-effect or increase risks to health. The processes that cover our supply chain including the sourcing and use of ingredients, resources and raw materials are aligned to stringent quality standards that are initially tested repeatedly before product manufacture.

We work with experts and specialists in the field both locally and internationally, who may also conduct their independent analysis and research, which assists us in manufacturing our final product. This would include the use of science, technology, experience and skill to determine the acceptability of not only the ingredients but also permitted levels of these ingredients. Using the available scientific evidence, these expert opinions have repeatedly concluded that our products, used responsibly by adults in the case of alcohol and spirits, do not increase health risks. There’s also a cohesive group that monitors legislation pertinent to the product and individual ingredients which helps us in our decision making.

In the beverages industry, we work in a ‘dark’ market where all advertising and promotions are prohibited by law. We remain very cognisant that our product in this industry is to be sold and consumed by adults and our responsibility is to always ensure that this is the overarching tenet of our marketing initiatives. We communicate all product information comprehensively either through the labelling or through product information available on numerous channels.

We do not condone or agree to sell any of our products that are meant to be consumed by an adult, to any underage consumer under any circumstances. This is very strictly adhered to, not only within the immediate Company and the team, but is a message that is cascaded very emphatically to our entire value chain and retailers. Any deviation from this, is dealt with severely and may result in DCSL terminating its business relationship with the offender.

Environmental DisclosureWe have never knowingly harmed the environment through any process that we have engaged in. We ensure that in all our processes and systems, we implement as many environmentally friendly initiatives as possible as is seen in the waste water treatment, energy management, recycling initiatives, decrease in emissions and increase in forest cover that we have strategically embarked upon. We also constantly engage our valued business partners, suppliers and wherever possible our customers, to permeate environmental best practices among them.

Human Rights and HR Practice DisclosuresThe DCSL Group espouses and commits itself as an equal opportunity employer, stringently applying a slew of non-discriminatory policies vis a vis gender, age, religion, ethnicity, social, cultural and economic backgrounds on the foundation of meritocracy. We unwaveringly uphold and support the tenets mandated by the International Labour Organisation and other prevalent regulatory bodies pertaining to human rights and child labour. We adhere to a strict policy of ‘zero tolerance to child labour’, a mandate that is permeated to our valued business partners including retailers and the supply chain.

Community DisclosureOur philosophy is to partner the community in its sustainable development journey, which in turn gains us considerable advantage. We are inextricably entwined with our communities and we intend to ensure that our presence within these communities will benefit them and us. This year, our social focus was based on ‘Education & Training and Health, Sanitation & Housing’ and by sustaining social initiatives in these key areas of interest, we believe that we can empower these communities.

Environmental• Better waste and energy management in our

manufacturing processes

• Reducing our carbon footprint by introducing more ‘green’ initiatives

• Reducing dependency on fossil fuels

• Enhancing forest cover and food security through planting of hard wood and fruit trees

Sustainability FocusSocial• Enhancing entrepreneurial skills among estate youth

• Assisting educational initiatives from childcare to university level students

• Creating awareness of preventable diseases among lesser affluent communities

Economic• Ensuring that shareholder wealth is optimised without

compromising on standards or principles



• Permeating best practices to valued business partners

• Setting an example of ethical leadership through a well governed accountable entity

• Creating benchmarks for industry.

Sustainability PerformanceEnvironmental ImpactOur business interests are wide-ranging and diverse, ranging from manufacturing, plantations, telecommunications, financial services, logistics, textile, hydro power, to Business Process Outsourcing (BPO) and media. These, in different dimensions and levels, do impact the environment. The DCSL Group, having conformed and remaining strictly compliant with the Central Environmental Authority standards, is additionally subjected to regular audits to ensure full transparency. This ensures that we remain conscious of the impacts our actions would have on the environment and have through the years. We have worked on improving our processes and systems that would eventually help us to reduce the negative impact we have on the environment, while minimising climate change.

Energy, Waste & Water ManagementEnergy and waste management are crucial features in our environmental management focus, especially in our manufacturing processes. A sophisticated distilling system using French technology which is totally environmentally-friendly embeds energy saving features into our plants, as low evaporation during distillation aids the saving of energy. This technology has also helped in decreasing emission levels. Waste water treatment plants and an environmentally friendly zero-harm effluent management system ensures that waste, water and effluents are all managed well within the compliance norms. While the waste water is treated to neutralise acidity and released for further use once deemed 100% safe, the methane which is discharged during the purification process is used for factory consumption.

In our bid to reduce the country’s dependence on fossil fuels and thereby reduce the expenditure of foreign exchange, we embarked on a mini-hydro power project which was commissioned in the previous financial year. The Kirkoswald Mini-Hydro Power Project, under the umbrella of Bogo Power (Pvt) Limited and located within Madulsima Plantations land, has gained approval from the Sustainable Energy Authority of Sri Lanka, generating an average of 21.1 GwH of power to the national grid. The water required for the hydropower project is diverted and returned to the river within a short distance from

the point of diversion. The channel, weir and power house are small structures, which have minimum impact on the natural eco-system and the communities around the area.

The companies of the DCSL Group have all initiated in-house modes of energy, waste and water management, as part of the Group’s holistic vision of environmental impact mitigation.

Continental Insurance has commenced emphatically working on a better waste and energy management practices in its journey with a view to become a carbon neutral company. As a way forward, the company places the preservation of nature as a top priority taking the initiative to give back to the environment to sustain our planet’s greenery and fertility. Continental Insurance has tied up with Neptune Recyclers since 2011 for the recycling of all waste papers.

The Company experienced a saving of a 10 fully grown trees and total of 18,655 litres of water, while electricity usage decreased by 2,348 kWh and 1,030 litres of oil was also saved which meant lesser usage of fossil fuels during the year 2013. In addition, 2 cubic meters of landfill were conserved and reduced the Green House Gas emission by 587 Kg of Carbon Equivalent.

While creating economic value within the organisation, CILL strives to develop social value as a responsible corporate citizen. Being a benefactor to the society and communities in which it operates, CILL believes in giving something back to different segments of the society especially to those who are under privileged and isolated in the society. Hence, as a matter of priority they have made a firm a consistent commitment every year as one family volunteering to spend quality time with differently able children thus providing them with their basic needs for their daily sustenance.

Going further, CILL was one of the sponsors for the mega event of the world famous comedian “Russell Peters – Live in Sri Lanka”, whose proceeds were in aids of the charity “Kids on the Street”. CILL was the exclusive insurance partner for CHOGM Exhibition held in Battaramulla in November 2013.

The Collision Repair Centre, which comes under Melsta Logistics Limited, remains very compliant with environmental regulations and in fact, has ensured that its entire facility is eco-friendly. Waste disposal is managed efficiently, with disposable waste being recycled and organic waste converted to compost, which is used to nurture vegetation within the premises. In addition, a waste water treatment plant


maximised the usage of water. Melsta Logistics also took on the responsibility of managing the Group’s fleet of vehicles to ensure that took measures to monitor and control emission levels and usage of fossil fuels and thus reduce its carbon footprint.

The fact that Texpro Industries is certified with a Global Organic Textile Standard ensures that the entire value chain must conform to globally accepted waste management practices in addition to its sourcing and manufacturing processes. Texpro is subjected to continuous audits, which keeps compliance levels above the required norm. At present, Texpro is using biomass thermic fluid heaters instead of fossil fuel consuming equipment, as a result the Company managed to reduce the energy cost by 30%.

RecyclingPackaging gained emphasis to mitigate environmental impact with over 50% of the bottles used for alcohol and spirits being recycled and crates used for transport, being reused. Cellophane, glass, aluminium and plastic generated by the factory was outsourced to an external party for reuse, while used labels were transformed into pulp. This also reduced the number of trees being felled.

Continental Insurance imbued the 3R concept and engaged in recycling of waste paper, which resulted in the saving of ten trees for the year, which though may be considerably small, certainly lays the footprint for the Company to increase its recycling initiatives and reduce the number of trees even further.

Sustainable AgricultureWe are proud to report that the Balangoda Plantation’s accreditation process of the Rain Forest Alliance Certification (RAC) was finalised during the period under review. This move will be a new milestone of Balangoda Plantations in its commitment towards adding value and a greater emphasis on environmental management and community development. This exercise is also a testament to our continued commitment in stepping into the growing market of enlightened consumers who make conscious choices about supporting sustainable agricultural practices through their purchases and would be a baseline to benchmark us with players in the Industry with clear goals and targets to be achieved.

As a part of its pledge to continually improve environmental and social sustainability, many initiatives were launched by

Balangoda Plantations to protect and conserve the natural environment through the prevention of pollution, efficient utilisation of resources, effective waste management practices, promotion of environmental awareness and sensitivity amongst the plantation community.

Balangoda Plantations always espoused sustainable agricultural standards and good manufacturing practices. The company ensured that nearly all its manufacturing facilities have gained ISO and HACCP certifications, which ensured that it remained within the stringent guidelines required for conducting business, manufacturing processes and systems.

In order to retain these standard certifications, the facilities are also continuously subjected to audits. The larger result however is that with the infusion of best practices in agriculture, we are not only enhancing our end product, but also ensuring that our practices are governed by a green ethos. Further augmenting this green ethos, Balangoda Plantations embarked on a re-forestation drive, which, while increasing our forest cover, also significantly impacted the challenges the country will face in the future of food security. In addition, the estates began implementing a composting programme, which converted non-usable materials into compost, deemed for use in the three hectares that are being replanted with tea.

Organic Best PracticesTexpro Industries, (a specialty dye and print business of woven fabric) as a backward integration to the apparel industry, stringently conforms to the Global Organic Textile Standard (GOTS), which ensures that the end product remains true to the tenets of an organic product. GOTS is the worldwide leading textile processing standard for organic fibre and includes ecological and social criteria, backed by independent certification pertaining to the entire textile supply chain. This standard gives the product international recognition in organic textile manufacture, from harvesting of raw materials, through environmentally and socially responsible manufacturing, until the labelling process, providing a credible assurance to the end consumer.

Social: Diversity in Our TeamOur longevity and culture of achievement is rooted in the motivation and mind-set of our people, who are committed and dedicated towards achieving greater heights of performance and raising the benchmark. Given that the DCSL Group has grown into a diversified conglomerate encompassing a number of diverse industries and yet is unequivocally positioned with



a leadership status, evidences that our team is a winning one. The dynamism, motivation and ‘overzealous’ attitude they always espouse has enabled this Group to take on challenges, some deemed insurmountable and win against the odds

HR Philosophy• To provide and promote an encouraging and professional

working environment for our team.

• Believe that the prosperity of our business depends on successfully developing an integrated group of motivated and innovative employees. Hence we facilitate positive employee relations and inspire employees by offering opportunities for challenging work, personal development and growth.

• Committed to hire, develop and retain the most talented people in order to achieve a committed pool of talent.

Recruitment & RetentionA range of processes have been instilled within the Group to ensure that recruitment is non-discriminatory, unbiased and driven by meritocracy. In addition, in a bid to streamline our recruitment processes, a recruitment requisition form was introduced, which is the base upon which recruitment is effected and a comprehensive interview evaluation form was brought in, to streamline the interview process from initial screening to final interview stage.

The Group companies follow HR best practices ensuring consistency in HR Policy approach and fair playing field for potential employees. For instance, Continental Insurance strives to follow best practices in human resource management as well as the development of human resource. As a growing business, Continental Insurance is in need of regular fresh blood from the outside, while growing talent from within. Hence, Continental Insurance ensures a healthy mix of both. As an organisation is nothing more than the collective capacity of its people to create value, organisational culture is an important element in any organisation’s make up and success. Therefore, at Continental Insurance new recruitment is based on alignment with the Company’s internal culture, in addition to knowledge, skills and attitudes required for the role.

Bellvantage is offering more than 50% part-time job opportunities for undergraduates with flexible hours. This will enable them to balance their studies and earn some extra cash to fund their expenses. As part of increasing employment opportunities, Bellvantage has been providing home-based

working hours on both full time and part time basis. This scheme concentrates on senior citizens and housewives. This has enabled them to save expenses on travelling and time. Furthermore, special arrangements have been made for visually handicapped citizens to carry on their responsibilities without any difficulty.

Training & DevelopmentTraining and development forms the axis to the sustainability of our business and into this we have instilled a knowledge gaining culture, which enables individuals to attain their personal goals while working towards the company’s aspirations. Melstacorp is facilitating all the training programmes for the Group. The training programmes span on the job, off the job, external, hands on and internal programmes, all designed to enhance knowledge, update skill and create an empowered workforce.

At Continental Insurance, the HR Department is responsible for the recruitment of suitably qualified employees and retaining talent. Training requirements would be identified for respective functional areas through a systematic performance appraisal system in order to develop the training plan, which ultimately will increase individual performance up to the expected level.

At Balangoda Plantations, training programmes are conducted for senior managers, superintendents and assistant superintendents to enhance their managerial skills, to ensure higher productivity and better management of the large plantation workforce.

Recognition & Staff Well-BeingThe DCSL HR policy is based on the belief that a satisfied employee is a motivated employee who will contribute towards achieving company goals voluntarily, while being more productive. We have continuously infused numerous rewards and remuneration schemes, while adding welfare initiatives that would add value to our employees to better their lifestyles. Given below briefly are some of the more important initiatives currently in place:

DCSL• Continuous remuneration reviews and increases

according to predetermined scales, which could also be tied to performance incentives and bonus scheme.

• A range of insurance policies are in effect including Workmen’s Compensation and Personal Accident


Insurance. DCSL PLC offers all employees this 24 hour insurance cover which includes a natural death cover.

• The DCSL Quiz Competition 2013/14 was held with the enthusiastic participation of the regions and divisions at the Colombo Office, Periceyl and Melstacorp. Over 100 employees participated in the quiz programme.

• DCSL holds annual staff get-together, sports days and children’s parties to build team spirit and facilitate fun and friendships

PericeylA continuous chain of performance related incentives including social activities, training initiatives and excursions/trips are extended to high achievers.

Continental InsuranceThe Continental Insurance HR policy aligns remuneration with employee performance and the reward strategy not only focuses on monetary rewards, which will have a short term impact on employee behaviour, but also timely appreciation and recognition of employees. All employees and their immediate family members are covered under the staff medical scheme which will ease the financial burden when hospitalisation is required.

Melsta Logistics LimitedThe Melsta Logistics team is covered under a comprehensive medical scheme and other facilities include cafeteria, resting areas and lockers.

Occupational Health & SafetyAs a diversified conglomerate with interests in wide-ranging economic activities including manufacturing, it is imperative that we make our workplaces safe. Occupational Health and Safety remains a high priority for the DCSL Group and we have taken numerous steps to ensure, to the best of our ability, that the workplace is safe, hygienic and not harmful to our team’s health. Our manufacturing processes conform to accepted industry guidelines and practices in safety management and we have set for ourselves a target of ‘a zero accident workplace’. By being proactive, conscious and focused, we have inculcated a conscience and culture of prevention, while team members have been trained to remain alert to any gaps and hazards that may arise.

Giving back to the CommunityBalangoda Plantation contributes towards community development by providing financial support to workers including short term loans, housing loans and distress assistance, facilitating purchase of goods and equipment on easy payment schemes and so on, through the Estate Worker Housing Cooperatives, which are actively functioning on Balangoda Plantation. Community development efforts of Balangoda Plantations have not been limited to its own estate populations. The Company has always affirmed its commitment to its surroundings outside the plantation, by actively participating in estate village integration programmes and by extending certain facilities provided to the plantation community, to the villagers as well.

We have maintained cordial and mutually supportive community relations throughout the century of our existence on the basis that our surrounding communities are also stakeholders of the business. We continue to make an unwavering effort to closely identify with the communities in which we operate our businesses to ensure positive impacts through our presence and to make these communities an inherent part of our sustainable development process. We have thus identified two platforms as the focus for our community social initiatives, namely health, housing and sanitation and education and training.

Health, Housing and SanitationBalangoda Plantations has been actively involved in uplifting the lifestyles of its estate community by facilitating new housing and better working conditions. In addition, numerous awareness programmes were undertaken towards improving the socio economic growth and health and nutritional status, and living environment, youth empowerment and community capacity building, of the resident plantation population.

Housing FacilitiesDuring the current year too, Balangoda Plantations continued its efforts at upgrading living standards of plantation communities by building 63 housing units for estate families. These new, modern housing units are built to high construction standards, enabling hygienic and healthy life styles for plantation families with the benefits of essential amenities and conducted a re-roofing programme for 40 housing units.

Tree Planting EventEnvironmental sustainability and good agricultural practices are fundamental to plantation sector longevity. During the



current financial year, Balangoda plantations conducted a tree planting event with the active involvement of the younger generation estate populations. During this event, children of plantation employees joined the Company in planting native plants, contributing towards reforesting the environment and inculcating concepts of sustainability into the next generation.

Child CareThe Balangoda Plantation manages a number of child care centres and pre-schools within the plantations. The child care centres are supported by full-time trained teachers and nutritional feeding programmes. Regular child immunisation programmes are also conducted at the child care centres, ensuring access to proper child immunisation for estate children. Further, dental clinics, eye clinics, awareness programmes on infectious/contagious diseases such as dengue, T.B. programmes on oral cancer prevention, de-worming and so on, are some of the many activities carried out to create a healthy community.

Economic ContributionToday, although our core business is beverages, our scope of business is diverse transcending different spheres across the national economy. Over the year, we have made inroads in telecommunications, plantations, apparel, BPO, logistics, hospitality, financial services, insurance, media and hydro-power, committing ourselves to add economic value to all these industry sectors, while being responsible for our actions and the decisions we make. Therefore, as a leading corporate, we will strive towards building continuous sustainable value, generating returns for our shareholders, while ensuring that we consciously do the right thing not only for our stakeholders, but for the environment as well. It is this holistic outlook that allows us to work proactively with all our stakeholders, creating shareholder wealth and social value, inspiring our team and permeating best practices among our suppliers.

Given our leadership status in the beverages industry, the company has been subjected to numerous actions, diktats and mandates that has continually stifled the legal alcohol and spirits industry, which have only served to allow the illegal trade to flourish. We believe that this situation will eventually take a toll on the nation’s health, both economically and socially. We are by far one of the largest contributors to the national treasury, having paid Rs. 37.2 Bn at Group level this year. It is these funds that are eventually used by the state for meeting its development goals. Therefore, we are proud to be a major contributor to national development, as a legal, law abiding

corporate citizen with future potential to contribute toward the nation’s development agenda.

The diversification of the DCSL Group into various industries has benefited the national economy through investments in human capital and on infrastructure, employment opportunities, uplifting industry standards and wider consumer choices. Our infrastructure investments into plant and machinery conform to stringent standards that naturally add value to the overall economy.

Similarly, all companies in the Group conform to numerous and relevant international standards and have gained certifications of compliance, which means that the entire industry is being improved through the setting of higher benchmarks.

Currently, the DCSL Group provides employment to 12,897 people while indirectly granting employment to many others. The benefits, remuneration, rewards and welfare gained by our employees also ensures that their families gain an improvement in their lifestyles, while additional education and training adds to elevating knowledge levels amongst our team.

Industry LeadershipDCSL Group has contributed to industry development in different spheres of operations through knowledge sharing, innovative solutions and the latest technologies. Our companies embrace international best practices, standards and quality certifications that have contributed towards setting new standards within the industries we operate in. However, we have also shared our knowledge, skills and expertise with other corporates and like-minded individuals, as we believe knowledge sharing among the industry is vital for sustained growth and ultimately national development.

Investor RelationsDCSL continued to attract high level interest from foreign investors during the current financial year. We have conducted many meetings with current and prospective shareholders locally and overseas during the year. Such interest in the Company is symptomatic of positive external perceptions regarding the Company’s future potential towards growth in shareholder value.

Supplier EngagementForging strong supplier relationships offers a comprehensive way for DCSL to assess and streamline the processes between our organisation and our suppliers for an effective partnership.


In reality, suppliers are people as well and we believe in emotionally engaging with our suppliers so that they work harder for us and help us cover potential risk areas.

Whatever the size or category of supplier, the DCSL’s Supplier Policy ensures a level playing field and equal opportunities for all our suppliers. We have procedures in place to ensure responsible behaviour towards all our suppliers, while committing our suppliers towards reciprocity in responsible behaviour towards the Company. This ensures our stringent quality and standards are understood and met by all our suppliers.

We believe strongly in positioning our supplier philosophy on good corporate conduct, sourcing and producing responsible quality products and influencing a win-win relationship worked on a platform of mutual benefit. Just as we position ourselves as a responsible industry leader, we strongly believe that we must permeate the best practices we have within our business, the standards and integrity and compliance initiatives to our entire supply chain. This in effect cascades to quality, productivity and standards overall being improved.

DCSL has a widespread and diverse supply chain spanning the full range of businesses from micro entrepreneurs, to SMEs to large corporates. We also emphasise among our supply chain and valued business partners the need to implement and promote business practices that not only encourage a safe workplace, but also request them ‘to do right’ by the environment, their employees and communities. In other words, we want them to, in turn, be responsible entities and individuals. Suppliers and business partners, once among the DCSL Group, are provided with further support and guidance, enabling improvement against these principles as the business relationship develops.

Our suppliers are selected on pre-determined criteria that would position them and align them to our standards and principles. This conformance goes beyond compliance and would by no means involve us in engaging or aiding and abetting illegal or hazardous and dangerous activities. We want our suppliers to be partners with us, in joining us in our journey that will truly be one of mutual respect, understanding and trust.

We Seek Suppliers into Our Value Chain who:• will proactively support our efforts to combat illegal and

illicit trade practices

• comply with laws and regulations pertaining to conducting business and environmental performance, occupational health and safety, do not support or condone child labour, slavery, harassment, corporal punishment or discrimination of gender or any other denominator

• are cognisant of human rights and the rights of workers

• do not engage in any fraudulent or corrupt practices

• provide their teams with a safe and healthy work environment

• actively engage to empower the communities in which they operate

Customer InteractionWe believe that nurturing our customers is an ongoing dialogue and not a one-off event. Nurturing an ongoing and genuine relationship with customers will have a major impact on the way they perceive our brand but also serve to strengthen our operations through focused customer feedback. We engage our customers in numerous ways, nurturing and strengthening relationships to ensure strong loyalty to brand and product. From face to face ad hoc conversations, to conducting customer surveys, to formal gatherings and informal events, we are constantly engaged with our consumer. It is this feedback and varied dialogue and communication channels we have created that have assuredly enabled us to charter our future plans.

Our beverage business is fundamentally about offering adult consumers a range of high quality products and brands with the necessary knowledge to make informed choices. We do not in any way coerce or inveigle our customers to stay with us and our portfolio of products by any illegal or unscrupulous means.

Moreover, though engaged in a legal industry forced to work in a dark market, prohibitive excise duties and constant taxation, our products have remained at the helm, which has thus driven us to continually exceed our customers’ demands. We do believe it is our responsibility to ensure that consuming alcohol must be done responsibly, knowing that the product is manufactured to high standards and is a proven brand of quality. Therefore, we are vociferous in numerous forums to curb and annihilate the illicit and illegal liquor trade. We work on education and awareness initiatives among various forums to take the message of the hazards and dangers posed to the



eventual consumer in drinking illicit brew or illegal liquor, given that the latter too has no guarantee of quality.

Our subsidiary companies have continued to gain the trust and loyalty of their customers through their customer centric policies, innovative solutions and technology applications for increased cost savings and higher customer value creation.

Lanka Bell, the Group’s telecommunications subsidiary, commenced rolling out its 4G LTE network during the current financial year in line with its planned schedule. Following a successful test run, LB formally launched its 4G connectivity in February 2014, becoming one of the three operators in the country to have a 4G-LTE network. The introduction of this latest technology is to offer world class data solutions to customers, while providing access to greater bandwidth capacity at faster speeds.

Continental Insurance has been successful in capturing and adding to its portfolio some of the country’s largest infrastructural development projects, such as the installation of double circuit transmission lines in the North and East and large power plants, which supply electricity to the main grid and road development projects. The Company also provided comprehensive policies to large hotel chains operating luxury properties in Sri Lanka and the Maldives. CILL introduced an Android mobile application to all technical assessors to facilitate efficiency in the processing of claims. In addition, payments of premiums online were also introduced in order to cater to the growing market of online users, thereby giving customers an enhanced service with greater convenience and ease.

During its short period of operations, Melsta Regal Finance Ltd (MRF) introduced a wide spectrum of financial solutions in leasing, hire purchase, factoring, trade finance, corporate loans, personal loans and savings products for a client portfolio ranging from corporates to SMEs to consumers. The key focus of the current financial year was market expansion and product development. The geographical footprint of MRF was expanded to the key cities of Kurunegala, Matara and Kandy.

Awards & Recognitions• DCSL was ranked No. 09 in Business Today’s ‘Top Twenty

Five’ edition. This was the 15th consecutive year DCSL was listed among corporate heavy weights in the ranking.

• DCSL topped the Manufacturing, Food & Beverage Sector in National Business Excellence Awards – 2013.

Long term Sustainability Goals1. Be known as the preferred employer having the ability to

attract and retain talented people, inducting them in a knowledge-based corporate culture, while assuring them of career enhancement in a responsible company they will be proud to be a part of.

2. Retain market leadership by ensuring that we work on high quality sustainable competitive advantages to infuse trust and loyalty among our customer base by evolving the business to be ahead of customer expectations, which in turn will deliver qualitative and quantitative sustainable returns.

3. Never lose sight of the tenets of corporate stewardship; instil governance and regulatory best practices, while demonstrating our commitment to being an ethical, transparent, accountable Group of companies.

4. Create economic and social value among the communities we work with, supporting both the rural and urban economies and key industries that are earmarked to be drivers in national development.

5. Be a Green Ideologue; an advocate who will address environmental issues and ‘change’ the direction of climate change, walking the talk to spread the need to reduce our carbon footprint and ensure a better planet for future generations.


ENTERPRISE GOVERNANCEWorking on an integrated approach for applying governance throughout the organisation, DCSL practices the key principle of infusing the tenet that everyone is responsible for the performance of the Group, the management of risk and value creation. We strongly recommend and commit ourselves to ensuring that Enterprise Governance operates through people, processes, policy, procedure, culture and ethics.

The principles of governance are applied effectively by the Board of Directors and are seen in the consistent growth performance of the Group, while also improving the long term return to stakeholders. Beyond the Board, the application of governance methodologies and the integration of governance into other organisational functions, we strongly believe that it has significantly benefited the long term performance of DCSL. To further augment our effective governance strategies we have implemented the following:

• Strive to achieve corporate objectives of managing strategy, risk and compliance to ensure long term returns to shareholders and other stakeholders.

• Oversee business objectives including management of IT, sustainability, finance and project portfolio management to ensure sustainable consistent results.

• Board of Directors remain emphatic on due diligence to ensure accountability, transparency and sincerity of action.

• Implemented an environment of responsible and balanced corporate governance that enhances integrity and respect for the Company and ensures the Company’s stewardship and stability in the industry and market.

• Introduced a culture in which the entire organisation takes ownership for risk, compliance and performance.

We infuse governance tenets that continue to hold us in high esteem and as a spearhead among our shareholders, stakeholders and peers. This is further augmented with our Board’s adherence to the highest standard of corporate behaviour and ethics at all times. To remain at the helm of Sri Lanka’s corporate landscape, we realise that we must incorporate new dimensions into our core decision-making processes and practice due diligence to protect the interests of our shareholders, while maintaining an unrelenting focus on the expectations of other stakeholder segments.

DCSL has a strong and sound foundation of sustainability principles that remain the overarching fundamentals in instituting and maintaining uncompromising governance practices and principles. The section of the report details the governance structure and the practices and guidelines DCSL has adopted in ensuring that we remain within the parameters of the numerous regulatory and authorised bodies that govern the industry and the Company. We stringently adhere to and comply with the mandates of the Colombo Stock Exchange and Securities & Exchange Commission of Sri Lanka, NATA, Excise Department, Central Bank of Sri Lanka and the Government Treasury, Institute of Chartered Accountants of Sri Lanka, Telecommunication Regulatory Commission of Sri Lanka, Insurance Board of Sri Lanka, Central Environmental Authority, relevant Ministry and departmental authorisations and regulations and numerous Codes introduced by Professional Associations and the Chamber of Commerce from time to time.

This corporate governance statement defines in detail the structures and processes that we use in our organisation to balance the interests of our stakeholders, reviewed at regular intervals to ensure that Group’s expectations are met and are aligned with evolving growth strategies.

The Board of DirectorsRole of the Board of DirectorsThe Board of Directors is responsible to the Company’s shareholders to ensure at all times that the activities of the Company are conducted to the highest ethical standards and in the best interest of all stakeholders.

The key responsibilities of the Board are;

• To enhance shareholder value.

• Provide direction and guidance in formulating corporate strategies.

• Monitor systems and procedures especially with regard to internal controls and risk management.

• Approve major investments.

CORPORATE GOVERNANCE


Composition of the Board and IndependenceThe Board of Directors of DCSL comprises the Chairman /Managing Director, two Executive Directors, one Non-Independent Non-Executive Director and three Independent Non-Executive Directors as given in the table above. Brief profiles of the Directors are given on pages 28 to 29.

The Board considers that three of the four Non-Executive Directors are independent in accordance with the criteria detailed within the Listing Rules of the CSE and have submitted signed confirmations in this regard. The Board believes that the independence of N. de S. Deva Aditya is not compromised by virtue of him being a Director of Aitken Spence PLC, an associate of the Company.

Meetings and AttendanceThe attendance of the meetings of the Board during the year is given above:

Board CommitteesCertain responsibilities of the Board have been delegated to the following sub-committees.

Audit CommitteeThe Audit Committee comprises three independent Non-Executive Directors as follows;

C. F. Fernando – Chairman

N. de S. Deva Aditya

A. N. Balasuriya

The detailed report of the Audit Committee is on pages 72 to 73.

Remuneration CommitteeThe Remuneration Committee has three independent Non-Executive Directors:

A. N. Balasuriya – Chairman

N. de S. Deva Aditya

C. F. Fernando

The report of the Remuneration Committee is given on the page 74.

Investor RelationsOne of the prime fundamentals that are prevalent and identified with the Group’s sustained success and growth has been the close rapport in investor relations. Given that we are mandated to safeguard and create shareholder wealth and are duty bound to share all Company information with our shareholders at all times in order to nurture sustainable relationships with our stakeholders, we foster effective dialogue and engagement with the relevant stakeholders and the financial community. We strongly believe that it is our strategic management responsibility to maintain an open line of communication with shareholders and address any concerns or issues that may require discussion or resolution. The designated investor relations officers regularly meet shareholders and fund managers to fuel these long term relationship, providing information and answering any queries. Further, the Group possesses performance measurement tools to ensure that these objectives are met.

Apart from personal interaction with stakeholders, our quarterly financial statements and the Annual Report offer a comprehensive canvas of the Group’s performance, constituting the principal means of communication with the shareholders.

Name of Director Status Attendance *D.H.S. Jayawardena Chairman / Managing Director 100%

R.K. Obeyesekere Non-Independent Non-Executive 100%

C.R. Jansz Executive Director 100%

N. de S. Deva Aditya Independent Non-Executive Director 100%

K.J. Kahanda Executive Director 100%

C.F. Fernando Independent Non-Executive Director 100%

A.N. Balasuriya Independent Non-Executive Director 100%

*In person or by alternate


Internal ControlsThe Board instills and maintains a strong set of internal controls to safeguard shareholder wealth. The responsibility of the Board has been clearly stated as one where it is in charge of the Group’s internal control systems and will regularly review if they are adequately safeguarding Company and shareholder assets while supplying precise and timely information for informed decision making. The responsibility of the Board covers financial, operational and compliance related activities and risk management.

The main companies in the Group have established internal audit divisions that are controlled by the annual internal audit plans approved by the respective Boards. The Audit Committee reviews and monitors the activities and the findings of the internal audit divisions at regular intervals.

Going ConcernAfter an extensive review of the Group’s corporate plan, budgets, capital expenditure requirements and future cash flows, the Board has taken a decision to apply the Going Concern principle in the preparation of the Financial Statements for 2013 / 14. Further, the Board is satisfied that the Group possesses the necessary funds for adequate liquidity and to sustain its operations for the foreseeable future

The Company’s compliance with the CSE Listing Rules and the best practices set out in the Code of Best Practice on Corporate Governance issued jointly by ICASL and SEC is set out in the following table:



The Company’s compliance with the CSE Listing Rules

Section Applicable Rule Compliance Status Details7.10.1 Non-Executive Directors

At least one third of the total number of Directors should be Non-Executive Directors.

Complied Four of the seven Directors are Non-Executive Directors

7.10.2(a) Independent DirectorsTwo or one third of Non-Executive Directors, whichever is higher, should be Independent.

Complied Three of the four Non-Executive Directors are Independent

7.10.2(b) Independent Director’s Declaration each Non-Executive Director should submit a declaration of independence/ non-independence in the prescribed format

Complied

7.10.3(a) Disclosure relating to DirectorsThe Board shall annually make a determination as to the independence or otherwise of the Non-Executive Directors and names of Independent Directors should be disclosed in the Annual Report.

Complied Please refer page 57

7.10.3(b) Disclosure relating to DirectorsThe basis for the Board to determine a Director is Independent, if criteria specified for Independence is not met.


7.10.3(c) Disclosure relating to DirectorsA brief resume of each Director should be included in the Annual Report and should include the Director’s areas of expertise.

Complied Please refer pages 28 to 29

7.10.3(d) Disclosure relating to DirectorsForthwith provide a brief resume of new Directors appointed to the Board with details specified in 7.10.3(a), (b) and (c) to the Exchange.

Not applicable No new Director was appointed during the year

7.10.4 Criteria for Defining ‘Independence’Selection criteria of Independent Directors of a listed company

Complied

7.10.5 Remuneration CommitteeA listed Company shall have a Remuneration Committee.


7.10.5(a) Composition of Remuneration CommitteeShall comprise of Non-Executive Directors a majority of whom will be Independent.

Complied All three are independent Non-Executive Directors

7.10.5(b) Functions of Remuneration CommitteeThe Remuneration Committee shall recommend the remuneration of the Chief Executive Officer and Executive Directors.


7.10.5(c) Disclosure in the Annual ReportThe Annual Report should set out;

i. Names of the Directors comprising the Remuneration Committee.

ii. Statement of Remuneration Policy

iii. Aggregated remuneration paid to Executive and Non-Executive Directors.

Complied

Complied

Complied

Please refer page 57


Please refer Note 11



Section Applicable Rule Compliance Status Details7.10.6 Audit Committee

The Company shall have an Audit CommitteePlease refer Audit Committeereport on page 72 to 73

7.10.6(a) Compositioni. Shall comprise of Non-Executive Directors a majority of

whom will be Independent.

ii. One Non- Executive Director shall be appointed as Chairman of the committee.

iii. Chief Executive Officer and Chief Financial Officer shall attend Committee meetings.

iv. The Chairman or one member of the Committee should be a Member of a professional accounting body.

Complied

Complied

Complied

Complied





7.10.6(b) Functionsi. Overseeing the preparation, presentation and adequacy

of disclosures in the Financial Statements in accordance with Sri Lanka Accounting Standards

ii. Overseeing the compliance with financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements

iii. Overseeing the process to ensure that the Entity’s internal controls and risk management, are adequate to meet the requirements of the Sri Lanka Accounting Standards/ IFRS migration

iv. Assessment of the independence and performance of the entity’s external auditors

v. Make recommendations to the Board pertaining to appointment, re-appointment and removal of external auditors and to approve the remuneration and terms of engagement of the external auditors

Complied

Complied

Complied

Complied

Complied

Please refer Audit Committee report on pages 72 to 73

7.10.6(c) Disclosure in Annual Reporti. The names of the Directors comprising the Audit

Committee.

ii. Basis of the determination of the Independence of the Auditors.

iii. Report by the Audit Committee setting out the manner of compliance by the Company.

Complied

Complied

Complied

Please refer Corporate Governance Report on page 57 and Audit Committee report on pages 72 to 73


Code of Best practice of Corporate Governance issued jointly by the Securities and Exchange Commission of Sri Lanka (SEC) and the Institute of Chartered Accountants of Sri Lanka (CA-Sri Lanka)

Ruling Index

Description of the Ruling Compliance Status

Details

A.1 The Board

A.1 Company to be headed by an effective board to direct and control the company

P Board consists of members who are qualified and experienced in various fields. Please refer Corporate Governance Report on page 56.

A.1.1 Regular Board meetings and supply of information. P Please refer Corporate Governance Report on page 57.

A.1.2 Board should be responsible for matters including implementation of business strategy, skills and succession of the management team, integrity of information, internal controls and risk management, compliance with laws and ethical standards, stakeholder interests, adopting appropriate accounting policies and fostering compliance with financial regulations and fulfilling other board functions.

P Please refer Corporate Governance Report, Report of the Board of Directors and Report of Audit Committee for the details.

A.1.3 Act in accordance with the laws of the country and obtain professional advice as and when required

P Please refer Report of the Board of Directors

A.1.4 Access to advice and services of the Company Secretary P The company secretary position is headed by a professionally qualified company secretary.

A.1.5 Bring Independent judgment on various business issues and standards of business conduct

P All the Board members actively participate in the Board meetings by bringing up their own Independent judgment.

A.1.6 Dedication of adequate time and effort P The Directors dedicate sufficient time before a meeting to review Board Papers and call for additional information and clarification if necessary, and follow up issues consequent to the meeting.

A.1.7 Board induction & training P The Directors are provided with training as and when it is required.

A. 2 Chairman and Chief Executive officer

A.2.1 Justification for combining the roles of the Chairman and CEO.

P The positions of Chairmen and CEO are separated.



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Details

A.3 Chairman’s role

A.3.1 The Chairman should ensure Board proceedings are conducted in a proper manner

P Please refer Corporate Governance Report on page 57 for the following details

- effective participation of both executive and Non-Executive Directors

- balance of power between executive and Non-Executive Directors

A.4 Financial Acumen

A.4 The Board should ensure the availability within it of those with sufficient financial acumen and knowledge to offer guidance on matters of finance.

P Please refer the Audit committee report on page 72.

A.5 Board Balance

A.5.1 In the event the Chairman and CEO is the same person, Non-Executive Directors should comprise a majority of the Board

N/A N/A

A.5.2 Where the constitution of the Board of Directors includes only two Non-Executive Directors, both such Non-Executive Directors should be ‘independent’

P Please refer Corporate Governance Report on page 57.

A.5.3 Definition of Independent Directors P Please refer Corporate Governance Report on page 57.

A.5.4 Declaration of Independent Directors P Please refer Corporate Governance Report on page 57.

A.5.5 Board determinations on independence or non-independence of Non-Executive Directors.

P Please refer Corporate Governance Report on page 57.

A.5.6 If an Alternate Director is appointed by a Non-Executive Director such Alternate Director should not be an executive of the company.

N/A N/A

A.5.7 In the event the Chairman and CEO is the same person, the Board should appoint one of the independent Non-Executive Directors to be the “Senior Independent Director” (SID)

N/A N/A

A.5.8 The Senior Independent Director should make him self available for confidential discussions with other Directors who may have concerns

N/A N/A

A.5.9 The Chairman should hold meetings with the Non-Executive Directors only, without the Executive Directors being present

P


Ruling Index


Details

A.5.10 Where Directors have concerns about the matters of the Company which cannot be unanimously resolved, they should ensure their concerns are recorded in the Board minutes

P

A.6 Supply of information

A.6.1 Board should be provided with timely information to enable it to discharge its duties

P

A.6.2 Timely submission of the minutes, agenda and papers required for the Board Meeting

P

A.7 Appointments to the Board

A.7 Formal and transparent procedure for Board appointments

P Activities of the Nomination Committee are currently handled by the Board of Directors

A.7.1 Nomination Committee to make recommendations on new Board appointments


A.7.2 Assessment of the capability of Board to meet strategic demands of the company


A.7.3 Disclosure of new Board member profile and Interests N/A No new Director was appointed during the year.

A.8 Re-election

A.8/ A.8.1/ A.8.2

Re-election at regular intervals and should be subject to election and re-election by shareholders

P Please refer Annual Report of the Directors on page 76

A.9 Appraisal of Board performance

A.9.1 The Board should annually appraise itself on its performance in the discharge of its key responsibilities

P

A.9.2 The Board should also undertake an annual self-evaluation of its own performance and that of its committees

P

A.9.3 The Board should state how such performance evaluations have been conducted

P

A.10 Disclosure of information in respect of Directors

A.10.1 Profiles of the Board of Directors and Board meeting attendance

P Please refer page 28 to 29 and Corporate Governance Report on page 57.



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Details

A. 11 Appraisal of the Chief Executive Officer

A.11.1/ A.11.2

Appraisal of the CEO against the set strategic targets P The CEO’s performance is reviewed annually.

B. Directors Remuneration

B.1 Remuneration Procedure

B.1.1 the Board of Directors should set up a Remuneration Committee

P

Please refer Remuneration Committee Report on 74

B.1.2 Remuneration Committees should consist exclusively of Non-Executive Directors

P

B.1.3 The Chairman and members of the Remuneration Committee should be listed in the Annual Report each year

P

B.1.4 Determination of the remuneration of Non-Executive Directors

P

B.1.5 The Remuneration Committee should consult the Chairman and/or CEO about its proposals relating to the remuneration of other Executive Directors

P

B.2 The Level and Makeup of Remuneration

B.2.1 to B. 2.4

Performance related elements in pay structure and alignment to industry practices

P

B.2.5 Executive share options should not be offered at a discount

N/A N/A

B.2.6 Designing schemes of performance-related remuneration P

B.2.7/ B.2.8

Compensation commitments in the event of early termination of the Directors

P

B.2.9 Level of remuneration of Non-Executive Directors P

B.3 Disclosure of Remuneration

B.3/B.3.1 Disclosure of remuneration policy and aggregate remuneration

P Please refer Remuneration Committee Report on 74

C. Relations with Shareholders

C.1 Constructive use of the Annual General Meeting (AGM) and conduct of general meetings

P The Company holds the AGM within the appropriate regulatory time intervals and effectively uses it for communication with shareholders.

C.1.1 Counting of proxy votes P


Ruling Index


Details

C.1.2 Separate resolution to be proposed for each item P

C.1.3 Heads of Board sub-committees to be available to answer queries

P

C.1.4 Notice of Annual General Meeting to be sent to shareholders with other papers as per statute

P Please refer the page 172 of the Annual Report for the notice of the meeting.

C.1.5 Summary of procedures governing voting at General meetings to be informed

P

C.2 Communication with Shareholders

C.2.1 Channel to reach all shareholders to disseminate timely information

P

C.2.2 / C.2.7

Policy and methodology of communication with shareholders and implementation

P

C.3 Major and material transactions including major related party transactions

P

C.3.1 Disclosure of all material facts involving all material transactions including related party transactions

P Please refer note 35 to the Financial Statements.

D. Accountability and Audit

D.1 Financial Reporting

D.1.1 Disclosure of interim and other price-sensitive and statutorily mandated reports to Regulators.

P The Board presents a balanced and understandable assessment extends to interim and other price-sensitive public reports and reports to regulators, as well as to information required to be presented by statutory requirements complying with regulatory deadlines.

D.1.2 Declaration by the Directors that the company has not engaged in any activities, which contravene laws and regulations, declaration of all material interests in contracts, equitable treatment of shareholders and going concern with supporting assumptions or qualifications as necessary

P Please refer Annual Report of the Directors on page 75.

D.1.3 Statement of Directors Responsibility P Please refer the Statement of Directors Responsibility on Page 80.

D.1.4 Management Discussion and Analysis P Please refer Management Discussion and Analysis from page 35 to 43.

D.1.5 The Directors should report that the business is a going concern, with supporting assumptions or qualifications as necessary

P Please refer Annual Report of the Director on page 77.



Ruling Index


Details

D.1.6 Remedial action at EGM if net assets fall below 50% of value of shareholders’ funds

N/A N/A

D.1.7 Disclosure of Related Party Transactions P Please refer Note 35 to the Financial Statements from page143 to 147.

D.2 Internal Control

D.2.1 Annual review of effectiveness of system of Internal Control and report to shareholders as required

P Please refer Audit Committee Report on page 72 and Annual Report of the Board of Directors on page 75.D.2.2 Internal Audit Function P

D.2.3/ D.2.4

Maintaining a sound system of internal control P

D.3 Audit Committee

D.3.1 The Audit Committee should be comprised of a minimum of two independent Non-Executive Directors or exclusively by Non-Executive Directors, a majority of whom should be independent, whichever is higher. The Chairman of the Committee should be a Non-Executive Director, appointed by the Board

P Please refer Audit Committee Report on pages 72 to 73.

D.3.2 Terms of reference, duties and responsibilities P

D.3.3 The Audit Committee to have written Terms of reference coving the salient aspects as stipulated in the section

P

D.3.4 Disclosure of Audit Committee membership P

D. 4 Code of Business Conduct and Ethics

D.4.1 Availability of a Code of Business Conduct & Ethics and an affirmative declaration that the Board of Directors abide by such Code

P Please refer Corporate Governance Report from page 56 to 67

D.4.2 The Chairman must certify that he/she is not aware of any violation of any of the provisions of this Code

P

D.5 Corporate Governance Disclosures

D.5.1 The Directors should include in the Company’s Annual Report a Corporate Governance Report

P Please refer Corporate Governance Report from pages 56 to 67


Ruling Index


Details

E. Institutional Investors

E.1 Shareholder Voting

E.1.1 Conducting regular and structured dialogue with shareholders based on a mutual understanding of objectives

P Please refer Corporate Governance Report from page 57.

E.2 Evaluation of Governance Disclosures

E.2. When evaluating Companies’ governance arrangements, particularly those relating to Board structure and composition, institutional investors should be encouraged to give due weight to all relevant factors drawn to their attention

P Please refer Corporate Governance Report from page 57.

F. Other Investors

F. 1 Investing / Divesting Decision

F. 1 Individual shareholders, investing directly in shares of companies should be encouraged to carry out adequate analysis or seek independent advice in investing or divesting decisions

P

F. 2 Shareholder Voting

F. 2 Individual shareholders should be encouraged to participate in General Meetings of companies and exercise their voting rights

P

G Sustainability Reporting

G.1/ G.1.7

Disclosure on adherence to sustainability principles P Please refer Sustainability Report from page 44 to 55.


ENTERPRISE RISK MANAGEMENTUndoubtedly, there is risk in today’s volatile and uncertain business environment, which demands increased transparency within an organisation’s risk profile. There are vulnerabilities, probabilities, threats and weaknesses that must be addressed to ensure that risk in any enterprise is mitigated. This greater emphasis on risk and risk management also prompts greater penalties on entities that do not or fail to manage key risks, which naturally permeates to organisations being more cognisant of identifying and assessing risks. In this backdrop, it is also increasingly important that once these risks are identified and assessed, they are managed with pre-defined tolerances. Any entity faces myriad risks, from well known risks that are inherent and characteristic of the business to unknown risks that may emerge or are just emerging. Risk resilient organisations must objectively assess their existing risk management capabilities, evaluate their organisational culture with regard to risk, performance and reward and implement sustainable risk management practices.

In the current market context, risk is defined as the probability or threat of a liability, loss or other negative occurrence, caused by external or internal vulnerabilities which would affect the desired objectives of the organisation. This also means that stakeholder expectations must be worked into the organisation’s risk management strategy. Vulnerabilities could mean exposure that could trigger an adverse outcome and therefore, prevent the achievement of company objectives.

The process of risk management at DCSL involves analysing exposure to risks, by identifying vulnerabilities and their probability of occurrence, which determines the way we handle such exposure. This would therefore involve the implementation of numerous policies, procedures and practices that work in conjunction to identifying, analysing, evaluating, monitoring and prioritising risks, which will follow the application of coordinated and economical solutions that minimise the probability and impact of identified vulnerabilities. Once identified, elimination, reduction, transfer and retention are the broad risk management strategies employed across DCSL..

Changes in Risk ProfileGiven the range of industry, geographic locales and market segments that our business spans, the diversification which we have embarked upon provides a prudent pathway that would signal positive correlation between business and environmental risks, while on the converse, exposing the Group to a wider spread of risks, as well as opportunities.

This therefore prompts the DCSL Board to make risk assessment and identification of mitigating activities a priority and pivotal in achieving the Group’s strategic

objectives. The Board is tasked with an overall responsibility for monitoring risks and gaining assurance for managing these risks at an acceptable level.

STRATEGIC ACTION PLANBoard oversight coupled with a strong organisational ethic is the cornerstone of DCSL risk framework.

The Board remains acutely aware that to generate business value it must manage and oversee all possible risks that the business or external factors could impose on the profitability of the Company, while in tandem, protecting and enhancing shareholder wealth. The DCSL Board is committed to deploying the highest standards of risk management to support a strong governance framework, ensuring that shareholder wealth is safeguarded from all the possible risk elements.

A dedicated team has been established to assist the Board in reviewing risk factors at regular intervals. Evaluation meetings are held to ensure that the focus from effective risk coverage remains strong and concentrated. The Board is kept updated on the progress and its opinion sought for mitigating any challenges that may emerge.

Risk Management FrameworkThe Group remains committed to increasing shareholder value within a carefully designed risk management framework. An effective risk management framework enables us to prioritise and allocate resources against those risks that underscore the ongoing sustainability of the organisation. Our systematic policies help us to identify and uncover risks and help us to be cognisant of the same. This preparedness builds the resilience of the organisation and allows us to establish procedures for risk mitigation.

The principal risks in achieving the Group objectives of enhancing shareholder value and safeguarding the Group’s assets have been identified as set out overleaf. The nature and the scope of risks are subject to change and not all of the factors listed, are within the control of your Company. It should be noted that the other factors besides those listed may affect the performance of the business, although we do reiterate, that we remain very vigilant to both internal and external factors that could prompt risk in any form and therefore, are able to, without delay, implement strategies to prevent, minimise or mitigate those ensuing risks.

DCSL Group’s risk management framework takes into account the range of risks to be managed, the systems and processes in place to deal with these risks and the chain of responsibility within the organisation to monitor the effectiveness of the mitigation measures.


Risk & Implication

Credit Risk & Implication Mitigation Strategies:

This risk ensues when a Group customer is unable to meet his financial obligations.

• Measure, monitor and manage credit risk for each borrower through clear credit approval procedures

• Regularly review customer credit ratings and constantly update records to ensure complete awareness of borrower credit status

Please refer financial risk management note on pages 154 to 159

Legal and Regulatory Risk & Implication Mitigation Strategies

Risks arising from non conformance to statutory and regulatory requirements remain a reality due to the possibilities of changes to regulations and policies being sudden or constant. It also increases costs and liabilities due to these periodic regulatory changes. The nature of our liquor, telecommunications, insurance and finance businesses continue to be subjected to a steady stream of changes in regulations and extensive compliance requirements. The authorities have severely restricted liquor advertising and limited other forms of communication with consumers via promotional and distribution activities, all of which affect profitability.

• Established a dedicated unit to keep abreast of all policy changes, to manage risk and ensure adherence to all regulations

• Recruitment of ex-regulators to senior positions within the Group.

Investment Risk & Implication Mitigation Strategies

The Group handles significant market investments which require smooth pre-study, monitoring and control. In this regard, there is stringent conformance by the Board in practicing due diligence.

• The Chairman / Managing Director is tasked with tracking returns on Group investments with the assistance of the Head of Finance and Group Financial Controller

• The Board develops policies and procedures to ensure that new investments and initiatives are subjected to mandatory compliance procedures.

• Regular reviews by Audit Committee and Internal Audit Division

Human Risk & Implication Mitigation Strategies

This is the risk arising from the inability to attract and retain skilled staff at middle to senior management levels. The migration of skilled workers, which is a phenomenon across most industry sectors, has created a brain-drain and the Group remains at risk of losing key personnel to better job prospects overseas.

• Maintaining above industry remuneration schemes

• Skills upgrading

• Professional growth avenues

• Performance-based reward systems

• Best practices being introduced and upgraded continually

• Measures taken to retain and minimise casual / temporary labour turnover.


Risk & Implication

Operational Risk & Implication Mitigation Strategies

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The nature of our business renders us vulnerable to several common operational risks including fraud, human error, natural disasters, loss of data and unrequited disclosure of sensitive information.

• A structured internal control framework implemented works through a state of the art MIS system, internal audit mechanism and insurance policies

• A comprehensive system established to ensure that any loss is communicated to all related parties and across the company to prevent similar incidences

• Regular meetings are conducted to assess these risks

• Contingency plans are in place to minimise work-stop situations

• Financial risk arising from operation is covered in financial risk management on pages 154 to 159

Socio-Economic Risk & Implication Mitigation Strategies

Given the government diktat in stifling and repressing the consumption of alcohol and tobacco, there is a very real threat being imposed on the Company’s profitability and the perception of our business. In this milieu also exists a thriving of spurious liquor manufacturers, which naturally erodes our profitability base. A resurgent economy however should boost licit alcohol consumption.

• A committed Investigations Unit established to monitor and report illegal activities that challenge our business

Socio-Political Risk & Implication Mitigation Strategies

Socio-Political risk is the possibility of instability in a country or the world which would cascade to negatively impacting markets. Unrest of any kind could affect investor attitudes toward the markets in general, leading to disruption of business. Continuity of a cohesive policy towards local business is a key element here.

Our diversified portfolio of businesses encompasses investments that will not be minimally impacted. The only exception being was the enactment of the Revival of Underperforming Enterprises and Underutilised Assets Act that re-acquired land of Pelwatte Sugar Industries PLC. Here again, the impact was managed and legal redress is being sought.

Technology Risk & Implication Mitigation Strategies

Stemming from the failure of the Group’s ICT systems where hardware, software and communications systems may have breakdowns, halts and herald lack of recovery, as a business that leverages strategically on ICT systems, we are very much aware of the potentiality of risk and the cascading negativities that could result to both business and profitability due to Technology Risk. The Group has identified system failures and theft of information as factors that can cause significant levels of operational, reputational and financial loss to the Group.

• Implementation of stringent barriers including password protection and restricted access, stringent user guidelines, contingency plans and physical security measures closely monitored by the Central IT Unit.

• Comprehensive backup and recovery systems in place

• A robust ERP system is deployed in the Company. Phased implementation of same across Group companies.

ENTERPRISE RISK MANAGEMENT


Risk & Implication

Product Risk & Implication Mitigation Strategies

Product risk implies any negative impact or perceived impact of our products on stakeholders in general which could decrease our market share. There were no reported incidents of intoxication or health hazards arising from our range of liquor products.

• Employing established operating procedures to review and approve all raw material prior to use, to ensure maintenance of quality control

• Remain emphatic on safety, health and environmental hazards that may ensue due to possible negative publicity

• Equipping our R&D Team with ample knowledge to field any technical questions about our products

• Marketing and distribution procedures have complete control of the supply chain

Foreign Exchange Risk & Implication Mitigation Strategies

A depreciated Sri Lankan Rupee could impact the importation of rectified spirits and foreign brands in our distilleries portfolio.

• Remaining acutely attuned to the frequent changes seen in foreign currency rates with our bankers

Please refer financial risk management note on pages 154 to 159.

Cheaper Product, Counterfeiting and Unethical Competition Risk & Implication

Mitigation Strategies

An increase in the import and in some cases smuggling and counterfeit of cheaper products that compete directly with our product portfolio could create an impact on our locally manufactured products, leading our products to be out priced in the market. This also endangers a reputational risk. The nature of the liquor business increases incidences of counterfeiting and smuggling of low quality or sub-quality liquor. The success of our brands also fuels a lucrative breeding ground for counterfeiters to indulge in illegal activity.

• Ensuring our products are competitively priced and continue to retain the highest standards of quality in order to drive a loyal consumer base who disregard cheaper options

• Our Investigations unit maintains close scrutiny on any counterfeit DCSL products in the market

• Communicate and demonstrate to our consumers on measures and processes in identifying DCSL brands, authorised dealers and retailers

• Continuing to improve manufacturing process which includes tamper proof bottles

• Make every effort to sustain and enhance brand equity, ensuring that consumers are not cheated in any manner due to third party action

• Co-operate with law enforcement bodies to curb illegal distillation


AUDIT COMMITTEE REPORTCompositionThe Audit Committee appointed by and responsible to the Board of Directors comprises of three Independent Non- Executive Directors. The Chairman of the Committee is Mr. C .F. Fernando, a Senior Chartered Accountant and a former Managing Director of the Company. The other members of the Audit Committee comprise Mr. N. de S. Deva Aditya, Member of the European Parliament and Dr. Naomal Balasuriya, a renowned Motivational Speaker and Corporate Trainer. A brief profile of each member is given on pages 28 to 29.

The Company Secretary functions as the Secretary to the Audit Committee.

MeetingsThe Audit Committee met six times during the year. Mr. N. de S. Deva Aditya could not attend any meetings during the year due to his engagements abroad. Nevertheless, Mr. Deva Aditya was represented at all meeting by his alternate and was kept informed of all the proceedings of the Audit Committee and his opinion was sought on important matters through his alternate on the Board. The attendance of the other members at these meetings are as follows:

Mr. C. F. Fernando 6/6

Dr. Naomal Balasuriya 6/6

The Group Financial Controller, Head of Finance and Chief Internal Auditor also attended these meetings by invitation when needed.

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.

As allowed by the Listing Rules of the Colombo Stock Exchange, the Audit Committee of the Company, functions as the Audit Committee of each of the subsidiary companies which have not appointed a separate Audit Committee. All matters are dealt with through the Agenda of the Parent Company Audit Committee.

Activities and Responsibilities of Financial ReportingThe Committee reviewed and discussed the financial reporting system adopted by the Group in the preparation of its quarterly and annual financial statements with the Management and the External Auditors. Purpose being to ensure reliability of the processes 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. 07 of 2007.

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 was designed to provide reasonable assurance that the financial reporting system adopted by the Group can be relied upon 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 including the coordination of the Group Audit. The Committee also reviewed the Report of the Auditors & Management Letters issued by them with and without the Management on separate occasions to ensure that no limitations were placed on their independence 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 Committee stipulated that the Lead Audit Partner is rotated every five years.

The Audit Committee recommended to the Board of Directors that Messrs. KPMG be reappointed as Auditors for the financial year ending 31 March 2015.


Compliance with Laws and RegulationsThe Committee reviewed the quarterly compliance reports submitted by the relevant officers to ensure that the Group 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 Group are managed in accordance with Group policies and that Group assets are properly accounted for and adequately safeguarded.

C. F. FernandoChairmanAudit Committee

22 August 2014.


REMUNERATION COMMITTEE REPORTThe Remuneration Committee of the Distilleries Company of Sri Lanka [DCSL] is appointed and responsible to the Board of Directors. It comprises of three Independent, Non Executive Directors, namely Mr. C. F. Fernando, a Senior Chartered Accountant and former Managing Director of DCSL, Mr. N. de S. Deva Aditya, Member of the European Parliament and Dr. Naomal Balasuriya, Motivational Speaker, who chairs the Committee.

Brief profiles of these Directors are given on pages 28 to 29. Ms. Vijayanthi Senaratne, Company Secretary functions as the Secretary to this Committee. All members of this Committee are free from all business and other relationships that could hamper their duties as members of this body.

The Remuneration Committee is governed by the Remuneration Committee Charter, which has been approved and adopted by the Board of Directors. It is responsible for determining the remuneration policy relating to the Chairman, Directors and the Key Management Personnel of the Company.

The Committee formally met once during the year with all members being present. The Chairman / Managing Director who is responsible for the overall management of the Company assist the Committee by providing necessary

information and by participating in its deliberations by invitation.

This Committee firmly believes that given the competitive forces in today’s market, remuneration of the key drivers of the business becomes a crucial need gap filler towards motivating them to ensure growth of the business.

Dr Naomal BalasuriyaChairman,Remuneration Committee

22 August 2014


ANNUAL REPORT OF THE BOARD OF DIRECTORSThe Board of Directors of Distilleries Company of Sri Lanka

PLC has pleasure in presenting the 24th Annual Report and

the Audited Financial Statements of the Company and the

Group for the financial year ended 31 March 2014.

Principal ActivitiesThe principal activities of Distilleries Company of Sri Lanka

PLC are distillation, manufacture and distribution of liquor

products. The Company has also invested in a portfolio of

diverse business enterprises comprising the DCSL Group.

Business ReviewA review of the Group’s business, providing a comprehensive

analysis of the financial and operational performance along

with future trends and business development activities are

described in the ‘Chairman’s Message’ and ‘Management

Discussion and Analysis’ sections of the Annual Report.

Amount Due from Secretary to the Treasury o/a of Sri Lanka Insurance Corporation Ltd (SLIC)We still await the payment of profit earned during DCSL

Group’s tenure at the helm of SLIC. We are hopeful that the

profit earned to be paid as per the Supreme Court directive

will be reimbursed to us early as possible. Detailed note is

given in note 37 to the Financial Statements.

Pelwatte Sugar Industries PLC (PSIP)Following the expropriation of the PSIP by the State, the

ownership of this property remains unresolved. The Company

has not changed its position advocated since the occurrence

of this unfortunate incident of being the legal owner of the

property and as such, we have communicated our views to the

Treasury. However, as a precautionary measure, the Company

has also lodged an official claim with the Compensation

Tribunal, appointed by the State. Since our group is deprived of

participating in controlling the financial, operating policies and

other relevant activities, the financial statements of PSIP have

been deconsolidated from the group financial statements.

We hope some clarity regarding this untoward situation would

be forthcoming within the new financial year. Further details

are given in note 38 to the Financial Statements.

Melstacorp LimitedIn March 2014, Melstacorp Limited increased its investment

by Rs.650 Mn in Melsta Regal Finance Limited (MRFL) in

response to the Central Bank of Sri Lanka (CBSL) financial

sector consolidation plan. This increased the stated capital

to Rs. 1.34 Bn, through which MRFL is compliant with the

capital adequacy requirements of CBSL till 2016.

In July 2014, Melstacorp Limited increased its investment in

Continental Insurance Lanka Limited by 250 Mn. As a result

stated capital of Continental Insurance has increased to Rs.

750 Mn.

Melstacorp Share Trust (Trustee) was created effective from

1 April 2011 for the holding of the company shares. Details

are given in note 25.1 to the financial statements.

Results and AppropriationsThe gross turnover of the Group in the year under review

amounted to Rs 63,186 Mn. The Group profit after tax was

Rs. 6,231 Mn. The segmental analysis of the turnover and

profit is provided in Note 4 to the Financial Statements.

The Board of Directors has recommended a dividend of

Rs. 3.25 per share (2012/13 - Rs.3.00 per share) for the

financial year ended 31 March 2014, amounting to Rs.975

Mn. The dividend payout for the year under review has been

formulated in accordance with the Company’s policy to pay

sustainable dividends linked to long term performance,

keeping in view the Company’s need for capital for its growth

plans and the intent to finance such plans through internally

generated funds. An optimum debt / equity mix is warranted

for DCSL given the volatility in money markets and fact that

DCSL is taxed at high rate of 40%.

The Board Directors confirm that the Company satisfies

the requirements of the Solvency Test in accordance with

Section 56 (2) of the Companies Act No. 07 of 2007 on the

payment of the proposed dividend. A solvency certificate in

this regard is received from the Auditors.

Financial StatementsThe Financial Statements of the Company and the Group for

the year ended 31 March 2014 as approved by the Board of

Directors on 22 August 2014 are given on pages 82 to 159.


Audit ReportThe Auditor’s Report on the Financial Statements of the

Company and the Group is given on page 81.

Accounting PoliciesThe accounting policies adopted in the preparation and

presentation of the Financial Statements are given on

pages 88 to 105. There were no material changes in the

accounting policies adopted by the Group during the year

under review.

InvestmentsTotal investments of the Company in subsidiaries, associates

and other equity investments amounted to Rs.42,877 Mn

(2012/13 – Rs. 42,325 Mn). The details of the investments

are given in Notes 18, 19 and 20 to the Financial

Statements.

Property, Plant and EquipmentThe net book value of property, plant and equipment of

the Company and the Group as at 31 March 2014 was

6,299 Mn (2012/13 – Rs.3,875 Mn) and Rs. 16,221 Mn

(2012/13 – Rs.15,341 Mn.)

Total capital expenditure during the year for acquisition

of property, plant and equipment by the Company and the

Group amounted to Rs. 59 Mn (2012/13 – Rs. 21 Mn) and

Rs. 964 Mn (2012/13 – Rs. 787 Mn) respectively.

The details of property, plant and equipment are given in

Note 15 to the Financial Statements.

Stated Capital and ReservesThe Stated Capital of the Company as at 31 March 2014

was Rs.300 Mn consisting of an equal number of Ordinary

Shares. There was no change in the stated capital during

the year. The total Group Reserves as at 31 March 2014

amounted to Rs. 53,336 Mn comprising of Capital Reserves

of Rs. 5,906 Mn and Revenue Reserves & Retained Earnings

of Rs. 47,430Mn, the movement of which is disclosed in the

Statement of Changes in Equity.

Internal Controls and Risk ManagementThe Directors acknowledge their responsibility for the

Groups’ system of internal control. The systems are designed

to provide reasonable assurance that the assets of the

Group are safeguarded and to ensure that proper accounting

records are maintained.

The Board, having reviewed the system of internal control is

satisfied with the systems and measures in effect at the date

of signing this report. At present DCSL is rolling out an ERP

system across the Group. This is underway and will be fully

functional by the next financial year ending 31 March 2015.

Capital and Other CommitmentsContingent liabilities and capital commitments are disclosed

in Note 39 and 40 to the Financial Statements of the

Company.

Events after the Reporting PeriodThere were no material events or circumstances that

have arisen since the reporting date that would require

adjustment, other than the information disclosed in Note 42

to the Financial Statements.

EmployeesThe number of persons employed by the Company and Group

as at 31 March 2014 was 1,250 (2012/13 1,343) and

12,897 (2012/13 -14,681) respectively.

Board of DirectorsThe Board of Directors of the Company as at 31 March 2014

and their brief profiles are given on pages 28 and 29.

Directors Standing for Re-electionIn terms of Article 92 of the Articles of Association of the

Company, Mr. C. R. Jansz and Mr. N. de S. Deva Aditya retire

by rotation and being eligible are being recommended by the

Board for re-election.

Further, in terms of section 210 of the Companies Act,

Mr. D. H. S. Jayawardena who is over the age of 70 years has

to be reappointed by the membership annually. Accordingly,

notice has been given of a resolution in terms of section

ANNUAL REPORT OF THE BOARD OF DIRECTORS


211 of the Companies Act No. 07 of 2007 to propose the

reappointment of Mr. D. H. S. Jayawardena, notwithstanding

the age limit of 70 years.

Also, in terms of section 210 of the Companies Act, Mr.

C. F. Fernando who is over the age of 70 years has to be

reappointed by the membership annually. Accordingly, notice

has been given of a resolution in terms of section 211 of

the Companies Act No. 07 of 2007 to propose the re-

appointment of Mr. C. F. Fernando, notwithstanding the age

limit of 70 years.

Interest RegisterThe Company maintains an Interest Register in compliance

with the Companies Act No. 07 of 2007. This Annual Report

also contains particulars of entries made in the Interest

Register. Directors’ Interests in Contracts are disclosed in the

Related Party Transactions under Note 35 to the Financial

Statements. A Code of Business Conduct and Ethics along

with other controls are in place to ensure that related party

transactions involving directors, senior managers or their

connected parties are conducted on an arm’s length basis.

The Directors to the best of their knowledge and belief

hereby confirm compliance with this code.

Directors’ ShareholdingsThe shareholdings of Directors of the Company as defined

under the Colombo Stock Exchange Rules are as follows.

As at 31 As at 31March March2014 2013

D. H. S. Jayawardena Nil NilR. K. Obeyesekere Nil NilC. R. Jansz Nil NilN. de S. Deva Aditya Nil NilK. J. Kahanda Nil NilC. F. Fernando 2,062 2,062A. N. Balasuriya Nil Nil

Messrs. D. H. S. Jayawardena and R. K. Obeyesekere are

shareholders of Milford Exports (Ceylon) Ltd. and Stassen

Exports Limited, who hold significant stakes in the Company

directly and indirectly. The shareholdings by these entities

are available on page 163 of the Annual Report.

Directors’ RemunerationDirectors’ Remuneration in respect of the Company for the year

is given in Note 11 to the Financial Statements.

Share InformationInformation relating to Earnings, Dividends, Net Assets and

Market Value per Share is given on pages 4. There were

10,798 registered shareholders holding ordinary voting

shares as at 31 March 2014. The distribution and the

composition of shareholdings are given on page 162 of this

report. Major Shareholdings details of the Twenty Major

Shareholders of the Company including the number of shares

held by them are given on page 163 of the Annual Report.

Corporate GovernanceThe Board has ensured that the Company has complied with

the Listing Rules of the Colombo Stock Exchange and the

Code of Best Practices on Corporate Governance issued by

the Securities and Exchange Commission and the Institute of

Chartered Accountants of Sri Lanka. The Board is committed

towards the furtherance of Corporate Governance principles

of the Company. The measures taken in this regard are set

out in the Corporate Governance Report.

Board CommitteesThe Board has appointed two Sub-Committees i.e. the

Audit Committee and the Remuneration Committee. The

composition and responsibilities of the said Committees are

detailed in the respective reports.

EnvironmentThe Company has not engaged in any activity that was

detrimental to the environment and has been in due

compliance with all applicable laws and regulations of

the country to the best of its ability. The Group’s effort to

conserve scarce and non-renewable resources are more fully

described in the Sustainability Report.

Statutory PaymentsThe Directors, to the best of their knowledge and belief are

satisfied that all statutory obligations due to the government

and its employees have been duly paid or adequately

provided for in the Financial Statements as confirmed by the

Statement of Directors’ Responsibility.


Going ConcernThe Directors having reviewed the business plans, capital

expenditure commitments and expected cash flows are

satisfied that the Company and the Group have adequate

resources to continue operations for the foreseeable future

and therefore continue to adopt the going concern basis in

preparing these Financial Statements.

AuditorsMessrs. KPMG, Chartered Accountants are deemed

reappointed, in terms of section 158 of the Companies

Act No. 07 of 2007, as Auditors of the Company. A

resolution to authorise the Directors to determine their

remuneration will be proposed at the Annual General

Meeting. Total audit fees paid to Messrs. KPMG and other

Auditors of Group companies are disclosed in Note 11 to

the Financial Statements. The Auditors of the Company

and its subsidiaries have confirmed that they do not have

any relationship with the Company or its subsidiaries (other

than that of Auditor) that would have an impact on their

independence.

ANNUAL REPORT OF THE BOARD OF DIRECTORS

Annual General MeetingThe 24th Annual General Meeting of the Company will be

held at the Committee Room “B” of Bandaranaike Memorial

International Conference Hall (BMICH) on 29th September

2014 at 10.00 a.m. The Notice of Meeting appears on page

172 of the Annual Report.

For and on behalf of the Board of Directors,

D. H. S. Jayawardena C. R. JanszChairman / Managing Director Director

V. J. SenaratneCompany Secretary

22 August 2014.

Colombo


Financial Statements 81 Independent Auditors’ Report

82 Statements of Comprehensive Income

83 Statements of Financial Position

84 Statements of Changes in Equity

87 Statements of Cash Flows

88 Notes to the Financial Statements

160 Statement of Value Added

161 Details of Real Estate

162 Shareholder Information

164 Ten Year Summary

165 DCSL Management Team

166 Group Directory

172 Notice of Meeting

175 Form of Proxy

177 Attendance Slip

CREATING LONG TERM

VALUE


STATEMENT OF DIRECTORS RESPONSIBILITY

The Directors are responsible under the Companies Act No. 07 of 2007, to ensure compliance of the requirements set out therein to prepare Financial Statements for each financial year giving a true and fair view of the state of the affairs of the Company and its Subsidiaries as at the Reporting date and the profit of the Company and its Subsidiaries for the financial year. The Directors are also responsible for ensuring that proper accounting records are kept to disclose, with reasonable accuracy, the financial position and enable preparation of the Financial Statements.

The Board accepts the responsibility for the integrity and objectivity of the Financial Statements presented. The Directors confirm that proper accounting records have been maintained and appropriate accounting policies have been selected and applied consistently in the preparation of such Financial Statements which have been prepared and presented in accordance with the Sri Lanka Accounting Standards and provide information required by the Companies Act and the Listing Rules of the Colombo Stock Exchange.

Further, the Directors confirm that the Financial Statements have been prepared on a going concern basis and are of the view that sufficient funds and other resources are available within the Group to continue its operations and to facilitate planned future expansions and capital commitments.

The Directors have taken adequate measures to safeguard the assets of the Group and in this regard have established appropriate systems of internal control with a view to preventing and detecting fraud and other irregularities.

The External Auditors were provided with all information and explanations necessary to enable them to form their opinion on the Financial Statements.

The Directors are confident that the Company would satisfy the solvency test as mandated under Section 56 (2) of the Companies Act No. 07 of 2007 regarding the payment of the proposed dividend and have sought a Certificate of Solvency from its Auditors.

Compliance ReportThe Directors confirm that to the best of their knowledge and belief that all statutory payments in relation to regulatory and statutory authorities that were due in respect of the Company and its Subsidiaries as at the Reporting date have been paid or where relevant, provided for. By Order of the Board,

V. J. SenaratneCompany Secretary

22 August 2014.


INDEPENDENT AUDITORS’ REPORT

TO THE SHAREHOLDERS OF DISTILLERIES COMPANY OF SRI LANKA PLC

Report on the Financial StatementsWe have audited the accompanying financial statements of Distilleries Company of Sri Lanka PLC (“the Company”) and the consolidated financial statements of the Company and its subsidiaries (“the Group”), which comprise the statements of financial position as at 31 March 2014, the statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information set out on pages 82 to 159 of the annual report.

Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Scope of Audit and Basis of OpinionOur 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 plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.

Opinion- CompanyIn our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended 31 March 2014 and the financial statements give a true and fair view of the financial position of the Company as at 31 March 2014, and of its financial performance and its cash flow for the year then ended in accordance with Sri Lanka Accounting Standards.

Opinion- GroupAs described in note 25.1 to the financial statements, Trade and Other receivable of the group includes Rs.1,446.83 Mn receivable from Melstacorp Limited Share Trust. However as at the reporting date share ownership has not been transferred under the name of the Trust and the terms of loan and recoverability not determined.

In our opinion, except for the possible effect on the financial statements of the matter described in the preceding paragraph, the consolidated financial statements give a true and fair view of the financial position of the Company and its subsidiaries dealt with thereby as at 31 March 2014, and of its financial performance and its cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Report on Other Legal and Regulatory RequirementsThese financial statements also comply with the requirements of Sections 153(2) to 153(7) of the Companies Act No. 07 of 2007.

CHARTERED ACCOUNTANTSColombo,

22 August 2014.


STATEMENTS OF COMPREHENSIVE INCOME

Group Company

For the year ended 31 March, 2014 2013 2014 2013Notes Rs. 000 Rs. 000 Rs. 000 Rs. 000

Gross Revenue 6 63,186,302 65,790,460 47,755,538 51,548,909

Net Revenue 6 28,982,884 28,766,493 16,698,158 17,461,451 Cost of Sales, Net Benefits Paid and Interest Expenses 7 (15,219,099) (15,897,683) (7,753,967) (9,103,172)Gross Profit 13,763,785 12,868,810 8,944,191 8,358,279

Other Operating Income 8 898,392 1,208,921 1,374,595 4,291,436 Distribution Expenses (1,814,190) (1,842,069) (331,688) (297,129)Administrative Expenses (3,591,995) (3,435,743) (1,109,827) (918,143)Other Operating Expenses 9 (729,142) (776,566) - (926,473)Results from Operating Activities 8,526,850 8,023,353 8,877,271 10,507,970

Finance Income 10.1.1 747,833 733,357 118,630 144,896 Finance Cost 10.1.2 (1,220,766) (1,964,142) (859,321) (1,376,919)Net Finance Income 10 (472,933) (1,230,785) (740,691) (1,232,023)

Share of Profit of Equity-Accounted Investees (Net of Tax) 19.1 1,440,182 1,291,749 - - Profit before Income Tax Expense 11 9,494,099 8,084,317 8,136,580 9,275,947

Taxation 12 (3,263,009) (2,826,147) (2,778,643) (2,403,225)Profit for the Year 6,231,090 5,258,170 5,357,937 6,872,722

Other Comprehensive Income

Net Change in Fair Value of Available for Sale Financial Assets (136,568) 2,021,748 217,263 578,500 Actuarial Gain/(Losses) on Retirement Benefit Obligations (Net of Tax) 22,571 10,047 3,351 6,667 Revaluation of Property, Plant and Equipment - 96,611 - - Share of Other Comprehensive Income of Equity-Accounted Investees (Net of Tax) 19.1 461,474 109,196 - - Total Other Comprehensive Income for the Year 347,477 2,237,602 220,614 585,167 Total Comprehensive Income for the Year 6,578,567 7,495,772 5,578,551 7,457,889

Profit Attributable to:Equity Holders of the Parent 6,121,813 5,139,807 5,357,937 6,872,722 Non Controlling Interest 109,277 118,363 - -

6,231,090 5,258,170 5,357,937 6,872,722

Total Comprehensive Income Attributable to:Equity Holders of The Parent 6,457,079 7,321,046 5,578,551 7,457,889 Non Controlling Interest 121,488 174,726 - -

6,578,567 7,495,772 5,578,551 7,457,889

Basic Earnings per Share 13.1 20.41 17.13 17.86 10.68

The notes from pages 88 to 159 form an integral part of these Financial Statements.

Figures in brackets indicate deductions.


STATEMENTS OF FINANCIAL POSITION

Group Company

As at 31 March, 2014 2013 2014 2013Notes Rs. 000 Rs. 000 Rs. 000 Rs. 000

ASSETSNon Current AssetsProperty, Plant and Equipment 15 16,221,042 15,341,042 6,298,670 3,874,904 Intangible Assets 16 2,990,493 2,917,617 23,640 17,277 Biological Assets 17 3,176,036 2,804,360 - - Investments in Subsidiaries 18 - - 35,714,117 35,714,117 Investments in Equity Accounted Investees 19 22,994,509 20,914,985 28,703 28,703 Other Non Current Financial Investments 20 15,754,657 14,512,561 6,349,895 5,897,294 Deferred Tax Asset 21.1 396,816 364,879 44,068 46,145 Finance Lease, Hire Purchases and Operating Lease Receivables 22 301,364 122,051 - - Advances and Other Loans 23 151,984 100,118 - -

61,986,901 57,077,613 48,459,093 45,578,440

Current AssetsInventories 24 4,435,796 6,139,705 2,246,156 2,503,798 Trade and Other Receivables 25 9,720,603 7,827,963 3,955,602 3,366,090 Finance Lease, Hire Purchases and Operating Lease Receivables 22 114,199 38,532 - - Advances and Other Loans 23 673,015 101,594 - - Amounts due from Related Companies 35.1.1 567,714 749,654 5,324,230 3,087,130 Other Current Financial Investments 20 2,319,814 1,768,476 784,402 684,758 Cash at Bank and in Hand 26 3,923,512 4,842,646 420,103 766,199

21,754,653 21,468,570 12,730,493 10,407,975

Non Current Assets Held for Sale 27 - 518 - - Total Assets 83,741,554 78,546,701 61,189,586 55,986,415

Equity and LiabilitiesShare Capital and ReservesStated Capital 28 300,000 300,000 300,000 300,000 Reserves 29 20,832,013 20,445,524 14,871,455 14,734,635 Retained Earnings/(Losses) 32,504,269 27,232,324 28,667,185 24,120,487 Equity Attributable to Owners of the Company 53,636,282 47,977,848 43,838,640 39,155,122 Non Controlling Interest 3,956,832 4,734,869 - - Total Equity 57,593,114 52,712,717 43,838,640 39,155,122

Non Current LiabilitiesInterest Bearing Loans and Borrowings 30 670,975 602,217 - 125,006 Deferred Tax Liabilities 21.1 733,350 779,055 60,958 44,230 Employee Benefits 31 831,769 1,147,982 110,170 115,365 Other Deferred Liabilities 32 252,571 257,882 - -

2,488,665 2,787,136 171,128 284,601 Current LiabilitiesTrade and Other Payables 33 8,772,678 11,188,408 5,146,561 6,688,336 Deposit Liabilities 34 663,537 278,372 - - Other Deferred Liabilities 32 56,730 58,128 - - Amount due to Related Companies 35.1.2 263,905 242,479 1,035,020 971,425 Income Tax Payable 1,178,888 726,650 972,399 435,903 Interest Bearing Loans and Borrowings 30 7,603,794 4,856,908 6,215,006 3,714,998 Bank Overdrafts 26 5,120,243 5,695,903 3,810,832 4,736,030

23,659,775 23,046,848 17,179,818 16,546,692 Total Liabilities 26,148,440 25,833,984 17,350,946 16,831,293 Total Equity and Liabilities 83,741,554 78,546,701 61,189,586 55,986,415

Net Assets per Share (Rs.) 178.79 159.93 146.13 130.52

The notes from pages 88 to 159 form an integral part of these Financial Statements. I certified that the Financial Statements are prepared and presented in compliance with the requirements of the Companies Act No.7 of 2007.

N.N. NagahawatteHead of Finance

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

D.H.S Jayawardena C.F. FernandoChairman / Managing Director Director

Colombo, 22 August 2014


STATEMENTS OF CHANGES IN EQUITYG

roup

Attri

buta

ble

to E

quity

Hol

ders

of P

aren

t St

ated

Ca

pita

lRe

valu

atio

nRe

serv

eCa

pita

lRe

serv

e R

eser

veFu

ndGe

nera

lRe

serv

e E

xcha

nge

Fluc

tuat

ion

Rese

rve

Tim

ber

Rese

rve

Ava

ilabl

e fo

r Sa

leRe

serv

e

Inve

stm

ent

Fund

Ret

aine

dEa

rnin

gs/

(Los

ses)

Tot

al

Non

Cont

rolli

ng

Inte

rest

Tota

lEq

uity

Rs.

000

Rs.

000

Rs.

000

Rs.

000

Rs.

000

Rs.

000

Rs.

000

Rs.

000

Rs.

000

Rs.

000

Rs.

000

Rs.

000

Rs.

000

Bala

nce

as a

t 01

April

201

2 3

00,0

00

5,2

00,5

83

110

,930

1

,131

8

,210

,000

3

49,3

06

546

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3

,833

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1

,990

23

,021

,924

41,

575,

756

4,5

70,3

49

46,1

46,1

05

Tota

l Com

preh

ensiv

e In

com

e fo

r the

Per

iod

Profi

t for

the

Year

-

-

-

-

-

-

-

-

-

5,1

39,8

07

5,1

39,8

07

118

,363

5

,258

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Othe

r Com

preh

ensiv

e In

com

eN

et C

hang

e in

Fai

r Val

ue o

f Ava

ilabl

e fo

r

Sale

Fin

anci

al A

sset

s -

-

-

-

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2

,021

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-

-

2

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-

2

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ial G

ain/

(Los

ses)

on

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emen

t

Bene

fit O

blig

atio

ns (N

et o

f Tax

) -

-

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-

-

-

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9

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9

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8

7 1

0,04

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ation

of P

rope

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t -

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4

0,33

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6,27

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6,61

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are

of O

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preh

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ve In

com

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ty-A

ccou

nted

Inve

stee

s (N

et o

f Tax

) -

1

15,7

81

-

-

-

(20,

371)

-

14,

733

-

(947

) 1

09,1

96

-

109

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To

tal O

ther

Comp

rehen

sive I

ncom

e for

the P

eriod

-

1

56,1

16

-

-

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(20,

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2,0

36,4

81

-

9,0

13

2,1

81,2

39

56,

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2,2

37,6

02

Tota

l Com

preh

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r the

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iod

-

156

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-

-

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(2

0,37

1) -

2

,036

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-

5

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7

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1

74,7

26

7,4

95,7

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Tran

sact

ions

with

Own

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Dire

ctly

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cord

ed in

the

Equi

tyDi

vide

nds

Paid

to N

on C

ontro

lling

Inte

rest

-

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-

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(236

) (2

36)

Effe

ct o

n Pe

rcen

tage

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ing

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ge -

-

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5

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5

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(3

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8,74

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rect

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t on

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e of

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re -

-

-

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(8

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(867

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(8

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sfer

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from

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aine

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1

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(4

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3,21

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3,21

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Sh

are

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tal I

ssue

d -

-

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-

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6

86

686

Di

vide

nd P

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(201

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) -

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-

(9

00,0

00)

(900

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) -

(9

00,0

00)

Tota

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nsac

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with

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-

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19,

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(938

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) (9

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(10,

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(929

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Bala

nce

as a

t 31

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ch 2

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The

note

s fr

om p

ages

88

to

15

9 f

orm

an

inte

gral

par

t of

the

se fi

nanc

ial s

tate

men

ts.

Figu

res

in b

rack

ets

indi

cate

ded

ucti

ons.


Gro

upAt

tribu

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e to

Equ

ity H

olde

rs o

f Par

ent

Stat

ed

Capi

tal

Reva

luat

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tal

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Res

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ral

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serv

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ber

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serv

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stm

ent

Fund

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aine

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rnin

gs/

(Los

ses)

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al

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rolli

ng

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rest

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lEq

uity

Rs.

000

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000

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000

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000

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000

Rs.

000

Rs.

000

Rs.

000

Rs.

000

Rs.

000

Rs.

000

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000

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nce

as a

t 01

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3 3

00,0

00

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110

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1

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8

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3

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5

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1

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27

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848

4,7

34,8

69

52,7

12,7

17

Tota

l Com

preh

ensiv

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com

e fo

r the

Per

iod

Profi

t for

the

Year

-

-

-

-

-

-

-

-

-

6,1

21,8

13

6,1

21,8

13

109

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6

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Othe

r Com

preh

ensi

ve In

com

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et C

hang

e in

Fai

r Val

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f Ava

ilabl

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r

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Fin

anci

al A

sset

s -

-

-

-

-

-

-

(1

36,6

31)

-

- (1

36,6

31)

63

(136

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)Ac

tuar

ial G

ains

/ (L

osse

s) o

n Re

tirem

ent

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fit O

blig

atio

n (N

et o

f Tax

) -

-

-

-

-

-

-

1

0,42

3 1

0,42

3 1

2,14

8 2

2,57

1 Sh

are

of O

ther

Com

preh

ensi

ve In

com

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ty-A

ccou

nted

Inve

stee

s (N

et o

f Tax

) -

4

36,8

59

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-

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45,

946

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(5,8

99)

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(15,

432)

461

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4

61,4

74

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l Oth

er C

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sive

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me

for t

he

Perio

d -

4

36,8

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-

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45,

946

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(142

,530

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(5

,009

) 3

35,2

66

12,

211

347

,477

Tota

l Com

preh

ensiv

e In

com

e Fo

r The

Pe

riod

-

436

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-

-

-

4

5,94

6 -

(1

42,5

30)

-

6,1

16,8

04

6,4

57,0

79

121

,488

6

,578

,567

Tran

sact

ions

with

Own

ers

Dire

ctly

Reco

rded

in th

e Eq

uity

Divi

dend

s Pa

id to

Non

Con

trolli

ng

Inte

rest

-

-

-

-

-

-

- -

-

-

-

(15,

688)

(15,

688)

Shar

e of

Net

Ass

ets

of E

quity

-Acc

ount

ed

Inve

stee

s (N

et o

f Tax

) -

-

-

-

1

2,57

8 -

-

-

-

(5

,826

) 6

,752

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6

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Di

vide

nds

Paid

Dur

ing

The

Perio

d -

-

-

-

-

-

-

-

-

(9

00,0

00)

(900

,000

)-

(900

,000

)Tr

ansf

erre

d fro

m R

etai

ned

Earn

ings

-

-

-

667

-

-

3

2,11

5 -

8

54

(33,

636)

-

-

-

Effe

ct o

n Pe

rcen

tage

Hol

ding

Cha

nge

-

-

-

-

-

-

-

-

-

94,6

0394

,603

(94,

714)

(111

) Ef

fect

on

Deem

ed D

ispos

al o

f Sub

sidia

ries

(Not

e 5.

1) -

-

-

-

-

-

-

-

-

-

-

(7

89,1

23)

(789

,123

)To

tal T

rans

actio

ns w

ith O

wner

s -

-

-

6

67

12,

578

-

32,

115

- 8

54

(844

,859

) (7

98,6

45)

(899

,525

) (1

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,170

)Ba

lanc

e as

at 3

1 M

arch

201

4 3

00,0

00

5,7

93,5

58

110

,930

1

,798

8

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,578

3

74,8

81

597

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5

,727

,503

2

,844

32

,504

,269

53,

636,

282

3,9

56,8

32

57,5

93,1

14

The

note

s fro

m p

ages

88

to 1

59 fo

rm a

n in

tegr

al p

art o

f the

se F

inan

cial

Sta

tem

ents

.Fi

gure

s in

bra

cket

s in

dica

te d

educ

tions

.


Com

pany

S

tate

d C

apita

l R

eval

uatio

n R

eser

ve

Cap

ital

Res

erve

G

ener

al

Res

erve

A

vaila

ble

for

Sale

Res

erve

R

etai

ned

Earn

ings

T

otal

Rs.

000

Rs.

000

Rs.

000

Rs.

000

Rs.

000

Rs.

000

Rs.

000

Bal

ance

as

at 0

1 Ap

ril 2

012

300

,000

2

,399

,091

1

07,8

82

8,2

10,0

00

3,7

86,0

11

17,

794,

249

32,

597,

233

Tota

l Com

preh

ensi

ve In

com

e Fo

r The

Per

iod

Profi

t for

the

Year

-

-

-

-

-

6,8

72,7

22

6,8

72,7

22

Othe

r Com

preh

ensi

ve In

com

eN

et C

hang

e in

Fai

r Val

ue o

f Ava

ilabl

e fo

r Sal

e Fi

nanc

ial A

sset

s -

-

-

-

5

78,5

00

-

578

,500

Ac

tuar

ial G

ain/

(Los

ses)

on

Retir

emen

t Ben

efit O

blig

atio

ns (N

et o

f Tax

) -

-

-

-

-

6

,667

6

,667

To

tal O

ther

Com

preh

ensi

ve In

com

e fo

r the

Per

iod

-

-

-

-

578

,500

6

,667

5

85,1

67

Tota

l Com

preh

ensi

ve In

com

e fo

r the

Per

iod

-

-

-

-

578

,500

6

,879

,389

7

,457

,889

Tran

sact

ions

with

Own

ers

Dire

ctly

Rec

orde

d in

the

Equi

tyD

ivid

ends

Pai

d du

ring

the

Perio

d -

-

-

-

-

(9

00,0

00)

(900

,000

)Tr

ansf

erre

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STATEMENTS OF CHANGES IN EQUITY


STATEMENTS OF CASH FLOWS

Group Company For the year ended 31March, Note 2014 2013 2014 2013

Rs.000 Rs.000 Rs.000 Rs.000

CASH FLOW FROM OPERATING ACTIVITIESProfit for the Year 9,494,099 8,084,317 8,136,580 9,275,947 Adjustment for:(Gain) / Loss on Sale of Property, Plant and Equipment (30,331) (11,268) (50,767) (39,985)Depreciation and Amortisation of PPE and Intangible Assets 1,502,987 1,663,148 148,392 158,678 Provision for Gratuity 151,125 152,584 21,445 18,494 Provision/(Reversal) of Inventories 226,679 150,760 - - Provision /(Reversal) of Bad & Doubtful Debts and Impairment of Loans and Receivables. (135,241) 171,550 25,057 - Interest Expenses 1,186,613 1,648,649 862,274 1,376,919 Share of Profit of Equity-Accounted Investees (Net of Tax) (1,440,182) (1,291,749) - - Amortisation of Biological Assets 37,339 36,980 - - (Gain)/Loss on Change in Fair Value of Financial Assets at Fair Value through Profit or Loss (53,338) (14,974) (66,877) 855,617 Impairment of Goodwill - 776,566 - - Interest Income (429,894) (539,701) (51,443) (74,040)Recognition of Share Warrants at Fair Value (225,081) - (310) - (Profit)/Loss on Disposal of Other Financial Investments (29,973) (49,041) (16,828) (30,326)Dividend Income (405,809) (542,561) (1,159,818) (460,947)Deferred Income Recognised (85,660) (97,647) - - Gains on Disposal of Group Investments - - - (3,644,589) Loss on Deemed Disposal of Subsidiary and Associate 726,439 - - - (Gain) / Loss on Fair Valuation of Biological Assets (74,294) (42,685) - - Operating Profit before Working Capital Changes 10,415,478 10,094,928 7,847,705 7,435,768 (Increase)/Decrease in Receivables (4,324,074) (377,125) (2,824,720) (2,818,189)(Increase)/Decrease in Inventories (324,392) (505,433) 257,642 (417,621)Increase/(Decrease) in Payables 1,982,363 50,659 (1,481,625) 3,254,127 Cash Generated from Operations 7,749,375 9,263,029 3,799,002 7,454,085 Interest Paid (1,182,530) (1,648,649) (862,274) (1,376,919)Income Tax Paid (2,723,126) (3,488,446) (2,244,381) (2,915,614)Defined Benefit Plan Costs Paid (106,980) (97,640) (21,056) (12,566)Net Cash from/(used in) Operating Activities 3,736,739 4,028,294 671,291 3,148,986

CASH FLOW FROM INVESTING ACTIVITIESInvestment in Subsidiary Companies - (2,853) - - Investment in Equity Accounted Investees (507,636) (68,406) - - Acquisition of Property, Plant and Equipment and Intangible Assets (4,812,025) (2,593,749) (2,700,384) (1,139,371)Net Proceeds from Disposal / (Acquisition) of Other Financial Investments (1,635,723) (269,567) (250,964) (32,447)Proceeds from sale of Subsidiaries, Associates and Shares - - - - Proceeds from the sale of Property, Plant and Equipment 38,624 24,511 170,757 4,394 Interest Received 429,894 539,701 51,442 74,040 Dividend Received 656,045 485,687 1,159,818 404,073 Additions to Biological Assets (334,721) (243,636) - - Net Cash Flow from Investing Activities (6,165,542) (2,128,312) (1,569,331) (689,311)

CASH FLOW FROM FINANCING ACTIVITIESPrincipal Repayment under Lease Liabilities (8,439) (5,673) - - Proceeds from Long-Term Interest Bearing Loans and Borrowings 1,477,684 1,396,517 - 500,000 Repayments of Long-Term Interest Bearing Loans and Borrowings (2,434,426) (2,076,854) (1,270,002) (1,144,998)Stamp Duty Paid on Issuance of Shares - (867) - Dividend Paid (897,859) (890,624) (897,859) (890,624)Dividend Paid by Subsidiaries to Minority Share Holders (15,688) (236) - - Receipt of Deferred Income 78,951 91,550 - - Net Cash Generated from Financing Activities (1,799,777) (1,486,187) (2,167,861) (1,535,622)Net Increase/(Decrease) in Cash and Cash Equivalents During the Year (4,228,580) 413,795 (3,065,902) 924,053 Net Cash and Cash Equivalents Derecognised Via Derecognition of Subsidiaries (13,182) - - - Cash and Cash Equivalents at the Beginning of the Year (3,913,546) (4,327,341) (6,539,833) (7,463,886)Cash and Cash Equivalents at the end of the Year (8,155,308) (3,913,546) (9,605,735) (6,539,833)

Analysis of Cash and Cash Equivalents at the end of the YearShort Term Deposits 26.1 3,044,934 3,824,871 82,062 70,410 Cash at Bank 26 595,628 504,495 61,719 193,501 Cash in Hand 26 206,471 235,886 199,883 231,501 Cash in Transit 26 76,479 277,394 76,439 270,787 Other Short Term Borrowings 30 (6,958,577) (3,060,289) (6,215,006) (2,570,002)Bank Overdrafts 26 (5,120,243) (5,695,903) (3,810,832) (4,736,030)

(8,155,308) (3,913,546) (9,605,735) (6,539,833)

The notes from pages 88 to 159 form an integral part of these Financial Statements.

Figures in brackets indicate deductions.


NOTES TO THE FINANCIAL STATEMENTS

1. Reporting Entity1.1 Domicile & Legal Form Distilleries Company of Sri Lanka PLC (Company)

is a quoted Public Limited Company incorporated and domiciled in Sri Lanka. The registered office and principal place of business of the Company is located at 110, Norris Canal Road, Colombo 10. The consolidated Financial Statements of Distilleries Company of Sri Lanka PLC, as at and for the year ended 31 March 2014 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interests in associates.

1.2 Principle Activities and Nature of Operation The principal activity of the Company is distillation,

manufacture and distribution of liquor products. Description of the nature of the operations and principal activities of the subsidiaries and associates are given in Note 18.1 and Note 19.2.

1.3 Parent Enterprise and Ultimate Parent Enterprise

The immediate and ultimate parent entity of Distilleries Company of Sri Lanka PLC is Milford Exports Ceylon (Pvt) Limited. The Financial Statements of all the companies in the Group other than those mentioned in Note 18.1 to the Financial Statements are prepared for a common financial year, which ends on 31 March.

2. Basis of Preparation2.1 Statement of Compliance The Financial Statements of the Company and the

Group have been prepared in accordance with new Sri Lanka Accounting Standards (SLFRS) as laid down by the Institute of Chartered Accountants of Sri Lanka (ICASL) and the requirements of the Companies Act No. 07 of 2007.

2.2 Approval of Financial statements The Financial Statements were authorised for issue

by the Board of Directors on 22 August 2014.

2.3 Basis of Measurement The Financial Statements have been prepared on the

historical cost basis except as indicated below.

Land and Building Fair value

Defined benefit obligation Actuarially valued and recognised at present value of the defined benefit obligation

Available for sale financial assets

Fair Value

Fair value through profit or loss financial assets

Fair Value

Consumable Biological Assets

Fair Value

2.4 Functional and Presentation Currency The Financial Statements are presented in Sri Lankan

Rupees, which is the Group’s functional currency. All financial information presented in Sri Lankan Rupees has been given to the nearest thousand, unless stated otherwise.

2.5 Use of Estimates and Judgments The preparation of Financial Statements in conformity

with SLFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates and judgmental decisions.

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 or in the period of the revision and future periods if the revision affects both current and future periods.

Information about assumption and estimation uncertainty that have significant effect on the amounts recognised in the consolidated financial statements is included in notes;

Note 17 – Biological Assets

Note 25 – Provisions for bad and doubtful debts

Note 31 – Measurement of defined benefit plan

Note 39 – Provisions for contingencies


3. Significant Accounting Policies Accounting policies set out below have been applied

consistently to all periods presented in these financial statements. The accounting policies have been applied consistently by the entities in the Group. Where applicable and deviations if any, have been disclosed accordingly.

3.1 Basis of Consolidation(i) Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date – i.e. when control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable.

The Group measures goodwill at the acquisition date as:

• the fair value of the consideration transferred; plus

• the recognised amount of any non-controlling interests in the acquiree; plus

• if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less

• the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

Transactions costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

(ii) Non-Controlling interests

For each business combination, the Group elects to measure any non controlling interests in the acquire either:

• at fair value; or

• at their proportionate share of the acquiree’s identifiable net assets, which are generally at fair value.

Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as transactions with owners in their capacity as owners. Adjustments to non controlling interests are based on a proportionate amount of the net assets of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognised in profit or loss.

(iii) Subsidiaries

Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

(iv) Transactions Eliminated on Consolidation

Intra-group balances and transactions and any unrealised gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with Associates are eliminated against the investment in the associate, to the extent of the Group’s interest in the enterprise.

(v) Loss of Control

Upon the loss of control, the Group de-recognises the assets and liabilities of the subsidiary, any non controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at carrying amount at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained.

(vi) Foreign Currency Translation

Transactions in foreign currencies are translated into Rupees at the rate of exchange prevailing


on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into Rupees at the rate of exchange prevailing at the Reporting date. Foreign exchange differences arising on the settlement or reporting of the Group’s monetary items at rates different from those which were initially recorded are dealt with in the Statement of Comprehensive Income.

3.2 Property, Plant & Equipment3.2.1 Freehold Assets

a. Recognition

Properties, Plant & Equipments are tangible items that are held for servicing, or for administrative purposes and are expected to be used during more than one period. Property, Plant & Equipment are recognised if it is probable that future economic benefits associated with the assets will flow to the Group and cost of the asset can be reliably measured.

b. Measurement

Items of property, plant & equipment are measured at cost or at fair value in the case of land and buildings less accumulated depreciation and accumulated impairment losses. The cost of property, plant & equipment includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs 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. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

c. Subsequent Cost

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefit associated with the item will flow to the Group and the cost of the item can be measured reliably. The cost of the day-to-day servicing of property, plant and equipment are recognised in the Statement of Comprehensive Income.

d. Impairment

Carrying amount of property, plant & equipment are reviewed for impairment whenever events or changes

in circumstances indicate that the carrying amount may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

e. De-recognition

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognising of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Statement of Comprehensive Income in the year the asset is derecognised.

f. Revaluation

The Group revalues its land and buildings at least once in every five years which is measured at its fair value at the date of revaluation less any subsequent impairment losses. On revaluation of land, any increase in the revaluation amount is credited to the revaluation reserve in shareholder’s equity unless it off sets a previous decrease in value of the same asset that was recognised in the Statement of Comprehensive Income. A decrease in value is recognised in the Statement of Comprehensive Income where it exceeds the increase previously recognised in the revaluation reserve. Upon disposal, any related revaluation reserve is transferred from the revaluation reserve to retained earnings and is not taken into account in arriving at the gain or loss on disposal.

g. Depreciation

Depreciation is recognised in the Statement of Comprehensive Income on a straight-line basis over the estimated useful lives of each part of an item of property, plant & equipment. Freehold land is not depreciated. Assets held under finance lease are depreciated over the shorter of the lease term or the useful lives of equivalent owned assets. Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately. The estimated useful lives used for this purpose, which are consistent with that of the preceding years, are:



Freehold Buildings 20 years

Plant, Machinery & Equipment 10 years

Furniture, Fittings, Office Equipment & Fire Fighting Equipment

10 years

Vats & Casks 10 years

Oil Storage Tanks 10 years

Computers 03 years

Motor Vehicles 04 years

Empty Drums 02 years

Kitchen Equipment 10 years

Soft Furnishing, Crockery, Cutlery and Glassware

05 years

Depreciation of an asset begins when it is available for use and ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognised.

Depreciation methods, useful lives and residual values are reviewed at each reporting date.

h. Capital Work-in-progress

Capital work-in-progress is stated at cost. These are expenses of a capital nature directly incurred in the construction of buildings, major plant and machinery, awaiting capitalisation.

3.2.2 Leased Assets

Assets obtained under the finance lease, which

effectively transfer to the Group substantially, all

of the risks and benefits incidental to ownership of

the leased assets, are treated as if they have been

purchased outright and are capitalised at their cash

price. Assets acquired by way of a finance lease

are measured at an amount equal to the lower of

their fair value and the present value of minimum

lease payments at the inception, less accumulated

depreciation and accumulated impairment losses.

Assets held under finance lease are amortised over

the shorter of the lease period or the useful lives

of equivalent-owned assets, unless ownership is

not transferred at the end of the lease period. The

principal/ capital elements payable to the lessor are

shown as liability/ obligation. The lease rentals are

treated as consisting of capital and interest elements.

The capital element in the rental that is applied

to reduce the outstanding obligation and interest

element is charged against profit, in proportion to the reducing capital element outstanding.

The cost of improvements to or on leased property is capitalised, disclosed as improvements to leasehold property and depreciated over the unexpired period of the lease, or the estimated useful lives of the improvements, whichever is shorter.

3.3 Investment Property Investment property is property held either to earn

rental income or for capital appreciation or for both, but not for sale in the ordinary course of the business, use in the production or supply of goods or services or administrative purpose. Investment properties are initially measured at its cost including related transaction costs. The group opts the cost model and it is therefore carried at its cost less any accumulated depreciation and any accumulated impairment losses.

Investment properties are derecognised when disposed or permanently withdrawn from use because no future economic benefits are expected. Any gains or losses retirement or disposal is recognised in the Statement of Comprehensive Income in the year of retirement or disposal. Transfers are made to investment property, when there is a change in use. Where group companies a significant portion of investment property of a subsidiary, such investment properties are treated as property, plant & equipment the consolidated financial statements and accounted for as per LKAS 16 Property, Plant & Equipment.

3.4 Operating Leases When the lessor effectively retains substantially

all the risks and rewards of an asset under the lease agreement, such leases are classified as operating leases. Payments under operating leases are recognised as expense in the Statement of Comprehensive Income over the period of lease on a straight line basis.

3.5 Intangible Asset An intangible asset is recognised if it is probable

that future economic benefits will flow to the entity and the cost of the asset can be measured reliably in accordance with LKAS 38 on Intangible Assets. Intangible assets with finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses.


3.5.1 Goodwill

Goodwill represents the excess of the cost of acquisition over the fair value of Group’s share of the net identifiable assets of the acquired Subsidiary at the date of acquisition. Goodwill acquired in a business combination is tested annually for impairment or more frequently if events or changes in circumstance indicate that it might be impaired and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed.

Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those cash generating units or groups of loan generating units that are expected to benefit from the business combination in which goodwill arose.

3.6 Inventories Inventories are measured at the lower of cost or net

realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and selling expenses. The general basis on which cost is determined is: all inventory items, except manufactured inventories and work-in progress are measured at weighted average directly attributable cost.

Manufactured inventories and work-in-progress are measured at weighted average factory cost which includes all direct expenditure and appropriate shares of production overhead based on normal operating capacity.

3.7 Financial Instruments3.7.1 Non-derivative Financial Assets

The Group recognises a financial asset or financial liabilities in its Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.

Financial assets are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of a financial asset (other than financial assets at fair value through profit and loss) are added or deducted from the fair value of the financial asset, as appropriate, on initial recognition. Transaction costs that are directly attributable to the acquisition of financial assets at fair value through profit or loss are recognised immediately in profit or loss.

The Group has following non derivative financial assets: Fair value through profit or loss, Loans and receivables, Held to Maturity and Available for sale.

a. Fair Value through Profit or Loss

A financial asset is classified as fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated as fair value through profit or loss if the Group manages such investments and makes purchase and sales decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Upon initial recognition attributable transaction costs are recognised in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss.

Fair value through profit or loss comprise trading portfolio of the Group which includes investment in quoted shares.

b. Loans and Receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method less any impairment losses. Loans and receivables comprise trade receivables, amounts due for related parties, trust certificates, short term deposits and cash and cash equivalents.

c. Held to Maturity

If the Group has the positive intent and ability to hold debt securities to maturity, then such financial assets are classified as held-to-maturity. Held to Maturity financial assets are recognised initially at fair value plus any direct attributable transaction costs. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortised cost using effective interest method, less any impairment losses.

Held to Maturity financial assets comprise debt securities.



d. Available-for-Sale Financial Assets

Available-for-sale financial assets are non-derivative financial assets that are designated as available-forsale or are not classified in any of the above categories of financial assets. Available-for-sale financial assets are recognised initially at fair value plus any directly attributable transaction costs.

Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, are recognised in other comprehensive income and presented in the fair value reserve in equity. When an investment is derecognised, the gain or loss accumulated in equity is reclassified to profit or loss.

Available- for-sale financial assets comprise of investment in unquoted shares and unit trust an quoted shares purchased for long term investment purpose.

e. Cash and Cash Equivalents

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts and other short terms facilities that are repayable on demand or repayble with in three months and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows.

Investments with short maturities, i.e. three months or less from the date of acquisition are also treated as cash equivalents.

f. De-recognition

The Group derecognises the financial asset when the rights to receive cash flows from the asset have expired or when it transfer the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor substantially all risks and rewards of ownership and it does not retain control of the financial asset.

3.7.2 Non- derivative Financial Liabilities

Non-derivative financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method.

Financial liabilities comprise of interest bearing loans, trade and other payables and bank overdrafts. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the statement of cash flows.

a. De-recognition

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired.

3.7.3 Share Capital

Ordinary Share Capital

Ordinary Shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.

3.8 Impairment 3.8.1 Non Financial Assets

The carrying amounts of the Group’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. For goodwill that has indefinite life, recoverable amount is estimated at each reporting date or more frequently, if events or changes in circumstances indicate that it might be impaired.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. 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. An impairment loss in respect of goodwill is not reversed.

3.8.2 Financial Assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to


determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that can be estimated reliably. Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, or the disappearance of an active market for a security.

Financial Assets measured at Amortised Cost

The Group considers evidence of impairment for financial assets measured at amortised cost (loans and receivables and held-to-maturity financial assets) at both a specific asset and collective level. All individually significant assets are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment, the Group uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables or held-to-maturity investment securities. Interest on the impaired asset continues to be recognised. When an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

Available-for-Sale Financial Assets

Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve in equity to

profit or loss. The cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss recognised previously in profit or loss. Changes in cumulative impairment losses attributable to application of the effective interest method are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. An impairment loss in respect of an equity-accounted investee is measured by comparing the recoverable amount of the investment with its carrying amount. An impairment loss is recognised in profit or loss. An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

3.9 Employee Benefit Defined Contribution Plans

Defined contribution plan is a post-employment benefit plan under which contributions are made into a separate fund and the entity will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plan are recognised as an employee benefit expense in profit or loss in the periods during services is rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.

Defined Benefit Plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The valuation is performed annually by a qualified actuary using the projected unit credit method. When the valuation results in a benefit to the Group,



the recognised asset is limited to the total of any unrecognised past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to the Group if it is realisable during the life of the plan, or on settlement of the plan liabilities. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised in profit or loss on a straight line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss. The Group recognises all actuarial gains and losses arising from defined benefit plans directly in the other comprehensive income and all expenses related to defined benefit plan in personnel expense in profit or loss.

Short Term Benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

3.10 Provisions, Contingent Assets and Contingent Liabilities

Provisions are recognised, if as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. All the contingent liabilities are disclosed, as Notes to the Financial Statements unless the outflow of resources is made contingent assets if exits are disclosed when inflow of economic benefit is probable.

3.10.1 Commitments

All material commitments as at the reporting date have been identified and disclosed in the Notes to the Financial Statements.

3.11 Income Statement For the purpose of presentation of the Income

Statement, the function of expenses method is adopted, as it represents fairly the elements of Group performance.

3.11.1 Revenue

Revenue from the sale of goods is measured at the fair value of the consideration received or receivable,

net of returns and allowances, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods.

Dividend Income from investment is recognised when the shareholder’s right to receive payment has been established.

Rental Income is recognised in profit and loss as it accrues.

Gains and losses on the disposal of investments held by the Group have been accounted for in the Statement of comprehensive income.

Gains and losses on the disposal of property, plant & equipment are determined by comparing the net sales proceeds with carrying amount. These are included in profit and loss.

3.11.2 Expenses

All expenditure incurred in the running of the business has been charged to income in arriving at the profit for the year. Repairs and renewals are charged to the profit and loss in the year in which the expenditure is incurred. Expenditure incurred for the purpose of acquiring, extending or improving assets of a permanent nature by means of which to carry on the business or for the purpose of increasing the earning capacity of the business has been treated as capital expenditure.

3.11.2.1 Borrowing Costs

Borrowing costs are recognised as an expense in the period in which they are incurred, except to the extent where borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset that takes a substantial period of time to get ready for its intended use or sale is capitalised as part of that asset.

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


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

3.11.2.2 Finance Income and Expenses

Finance income comprises interest income on funds invested (including available for sale financial assets), gains on the disposal of available for sale financial assets. Interest income is recognised as it accrues in the Statement of Comprehensive Income, using the effective interest method.

Finance cost comprise interest expenses on borrowings, unwinding of the discount on provisions and contingent consideration, losses on disposal of available for sale financial assets, impairment losses recognised on financial assets (other than trade receivables).

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 rate method.

Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position.

3.11.2.3 Income Tax Expense

Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

a. Income Tax

Provision for taxation is based on the profit for the year adjusted for taxation purposes in accordance with the provisions of the Inland Revenue Act, No.10 of 2006 and amendments made thereto.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date and any adjustments to tax payable in respect of previous years.

b. Deferred Tax

Deferred tax is recognised using the reporting method, providing for temporary differences between

the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Tax withheld on dividend income from subsidiaries and associates is recognised as an expense in the Consolidated Income Statement at the same time as the liability to pay the related dividend is recognised.

3.12 General3.12.1 Events Occurring after the Reporting Date

All material post reporting events have been considered and where appropriate adjustments or disclosures have been made in the respective notes to the Financial Statements.

3.12.2 Earnings Per Share

The Group 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 Group 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.

3.12.3 Segment Reporting

A segment is a distinguishable component of the Group that is engaged either in providing related



products or services (Business Segment) or in providing products or services within a particular economic environment (Geographical Segment), which is subject to risks and rewards that are different from those of other segments.

The activities of the segments are described in Note 4 to the Financial Statements.

3.12.4 Satemant of Cash Flows

The cash flow statement has been prepared using the in-direct method.

3.12.5 Comparative Figures

Where necessary comparative figures have been reclassified to conform to the current year’s presentation.

3.12.6 Grants and Subsidies

Grants and subsidies are credited to the Statements of Comprehensive Income over the periods necessary to match them with the related costs which they are intended to compensate, on a systematic basis. Grants related to assets, including non-monetary grants at fair value, are deferred in the Reporting and credited to the Income Statement over the useful life of the related asset.

Grants related to income are recognised in the Income Statement in the period in which it is receivable.

3.12.7 Pricing

The Group transfers products from one industry segment for use in another. These transfers are based on cost/fair market prices.

3.13 Policies Specific to Plantation Sector3.13.1 Biological Asset

3.13.1.1 Immature and Mature Plantations

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 specification. 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 plants, those that are not intended to be sold or harvested, however used to grow for harvesting agriculture produce. Consumable biological assets includes managed timber trees those that are to be harvested as agricultural produce from biological assets or sold as biological assets.

The entity recognise 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.

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 as per the ruling issued by CASL.

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, including interest attributable to long-term loans used for financing immature plantations. The expenditure incurred on bearer biological assets (Tea, Rubber, Timber fields) which comes into bearing during the year, is transferred to mature plantations. Expenditure incurred on consumable biological assets is recorded at cost at initial recognition and thereafter at fair value at the end of each reporting period.

Permanent impairments to biological asset are charged to the Income Statement in full and reduced to the net carrying amounts of such asset in the year of occurrence after ascertaining the loss.

The managed timber trees are 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. Key assumptions and sensitivity analysis are given in Note 17.2.

The main variables in DCF model concerns

Variable Comment

Currency valuation Sri Lankan Rupees

Timber content Estimate 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%

Nursery cost includes the cost of direct materials, direct labor and an appropriate proportion of directly attributable overheads, less provision for overgrown plants.

The gain or loss arising on initial recognition of biological assets at fair value less cost to sell and from a change in fair value less cost to sell of biological assets are included in profit or loss for the period in which it arises.

3.13.2 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. 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.

3.13.3 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 Income Statement in full or reduced to the net carrying amounts of such assets in the year of occurrence after ascertaining the loss.

3.13.4 Depreciation and Amortisation

(a) Depreciation

Depreciation is recognised in Income Statement on a straight-line basis over the estimated useful economic lives of each part of an item of Property, Plant & Equipment. 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 Group 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 for the current and comparative periods are as follows:

No. of Years Rate (%)Buildings & Roads 40 2.50Plant & Machinery 20/25 5.00/4.00Motor Vehicles 15/20 6.67/5.00Equipment 8/4 12.50/25Furniture & Fittings 10 10.00Mature Plantations(Replanting and New Planting)Tea 33 1/3 3.00Rubber 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:

No. of Years Rate (%)

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

3.13.5 Deferred Income

3.13.5.1 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 Group receives non-monetary grants, the asset and the grant are recorded gross at nominal amounts and released to the income statement over the expected useful life and pattern of consumption of the benefit of the underlying asset by equal annual installments. 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 favorable interest is regarded as additional government grant. Assets are amortised over their useful lives as follows;

Buildings 40 years.

3.14 Policies Specific to Insurance Sector3.14.1 Insurance Contracts

As permitted by SLFRS 4 Insurance Contracts, the Group continues to apply the existing accounting policies for Insurance Contracts that were applied prior to the adoption of SLFRS.

Product Classification

SLFRS 4 requires contracts written by insurers to be classified as either “insurance contracts” or “investment contracts” depending on the level of insurance risk transferred.

Insurance contracts are those contracts when the Group (the insurer) has accepted significant insurance risk from another party (the policyholders) by agreeing to compensate the policyholders if a specified uncertain future event (the insured event) adversely affects the policyholders. As a general guideline, the Group determines whether it has significant insurance risk, by comparing benefits paid with benefits payable if the insured event did not occur. Insurance contracts can also transfer financial risk.

Investment contracts are those contracts that transfer significant financial risk and no significant insurance risk.

Financial risk is the risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of price or rates, credit rating or credit index or other variable, provided in the case of a non financial variable that the variable is not specific to a party to the contract.

Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. Investment contracts can, however, be reclassified as insurance contracts after inception if insurance risk becomes significant.

All the products sold by the Group are insurance contracts and therefore classified as Insurance contracts under the SLFRS 4 – Insurance Contracts. Thus, the Group does not have any investment contracts within its product portfolio as at the reporting date.


3.14.2 Deferred acquisition Costs (DAC)

Those direct and indirect costs incurred during the financial period arising from the writing or renewing of insurance contracts are deferred and amortised over the period in which the related revenues are earned. All other acquisition costs are recognised as an expense when incurred.

The DAC is applicable only to Non - Life Insurance Contracts. In line with the available regulatory guidelines from the Insurance Board of Sri Lanka (IBSL), the DAC is calculated based on the 365 days basis.

An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. When the recoverable amount is less than the carrying value, an impairment loss is recognised in the statement of comprehensive income. No such indication of impairment was experienced during the year. DAC is derecognised when the related contracts are either settled or disposed-off.

3.14.3 Reinsurance

The Group cedes insurance risk in the normal course of business to recognised reinsurers through formal reinsurance arrangements. Reinsurance assets include the balances due from reinsurance companies for paid and unpaid losses and loss adjustment expenses. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer’s policies and are in accordance with the related reinsurance contract.

Reinsurance is recorded gross in the statement of financial position unless a right to offset exists. Reinsurance assets are reviewed for impairment at each reporting date, or more frequently, when an indication of impairment arises during the reporting year. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the Group may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer. The impairment loss, if any is recorded in the statement of comprehensive income.

Ceded reinsurance arrangements do not relieve the Group from its obligations to policyholders. Reinsurance assets or liabilities are derecognised when the contractual rights are extinguished or expire or when the contract is transferred to another party.

3.14.4 Premium Receivable

Insurance receivables are recognised when due and measured on initial recognition at the fair value of the consideration receivable. Collectability of premiums is reviewed on an ongoing basis.

According to the Premium Payment Warranty (PPW) directive issued by the Insurance Board of Sri Lanka (IBSL), all Non-Life insurance policies are issued subject to PPW and are cancelled upon the expiry of 60 days if not settled except some selected customers where Group has allowed extra period for settlements.

3.14.5 Insurance Provision – Non - Life Insurance

Non - Life Insurance contract liabilities include the outstanding claims provision including IBNR /IBNER and provision for unearned premiums.

The outstanding claims provision is based on the estimated ultimate cost of all claims incurred but not settled at the reporting date, whether reported or not, together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of certain types of claims, therefore, the ultimate cost of these cannot be known with certainty at the reporting date.

The valuation of Unearned Premium Reserve is measured in accordance with guidelines of the Regulation of Insurance Industry Act, No. 43 of 2000 (i.e. based on the 365 days basis). The Incurred But Not Reported (IBNR) and Incurred But Not Enough Reported (IBNER) claims reserve are actuarially computed. The liability is not discounted for the time value of money. No provision for equalisation or catastrophe reserves is recognised. The liabilities are derecognised when the obligation to pay a claim expires, is discharged or is cancelled.

Liability Adequacy Test (LAT)

As required by the SLFRS 4- Insurance Contracts, the Group performed a Liability Adequacy Test (LAT)



in respect of Non - Life Insurance contract liabilities with the assistance of the external actuary.

3.14.6 Revenue Recognition

3.14.6.1 Insurance Premiums

a) Non - Life Insurance Business

Gross written premiums - Non - Life Insurance comprise the total premiums received /receivable for the whole period of cover provided by contracts entered into during the accounting period. Gross Written Premium is generally recognised is written upon inception of the policy. Upon inception of the contract, premiums are recorded as written and are earned primarily on a prorate basis over the term of the related policy coverage.

Rebates that form part of the premium rate, such as no claim rebates, are deducted from the gross premium. Unearned premiums are those proportions of premiums written in a year that relate to periods of risk after the reporting date. Unearned premiums are calculated on 365 days basis in accordance with the Regulation of Insurance Industry Act, No. 43 of 2000. However, for those contracts for which the period of risk differs significantly from the contract period, premiums are earned over the period of risk in proportion to the amount of insurance protection provided. The proportion attributable to subsequent periods is deferred as a provision for unearned premiums which is included under liabilities.

b) Reinsurance Premiums

Gross reinsurance premiums on insurance contracts are recognised as an expense on the earlier of the date when premiums are payable or when the policy becomes effective. Reinsurance premiums are decided based on rates agreed with reinsurers. Unearned reinsurance premiums are those proportions of premiums written in a year that relate to periods of risk after the reporting date. Unearned reinsurance premiums are deferred over the term of the underlying direct insurance policies for risks-attaching contracts (using 365 days basis in accordance with the Regulation of Insurance Industry Act, No. 43 of 2000).

3.14.7 Policy Income

Insurance contract policyholders are charged for policy administration services and other contract fees.

These fees are recognised as revenue upon receipt or becoming due and is classified under other income.

3.14.8 Benefits, Claims and Expenses

a) Gross Benefits and Claims

Non - Life Insurance Business

Non - Life insurance claims include all claims occurring during the year, whether reported or not together with claims handling costs that are directly related to the processing and settlement of claims, a reduction for the value of salvage and other recoveries, and any adjustments to claims outstanding from previous years. Claims outstanding are assessed by review of individual claim files and estimating changes in the ultimate cost of settling claims.

The provision in respect of Claims Incurred But Not Reported (IBNR) and Claims Incurred But Not Enough Reported (IBNER) is actuarially valued to ensure a more realistic estimation of the future liability based on the past experience and trends. Actuarial valuations are performed on a semi-annual basis. Whilst the Directors consider that the provisions for claims are fairly stated on the basis of information currently available, the ultimate liability will vary as a result of subsequent information and events. This may result in adjustments to the amounts provided. Such amounts are reflected in the financial statements for that period.

The methods used to estimate claims and the estimates made are reviewed regularly.

b) Reinsurance Claims

Reinsurance claims are recognised when the related gross insurance claim is recognised according to the terms of the relevant contract.

3.14.9 Net Deferred Acquisition Expenses

Acquisition expenses, representing commissions, which vary with and are directly related to the production of business, are deferred and amortised over the period in which the related written premiums are earned.

Reinsurance commission is also treated in the same manner within deferred acquisition costs.


3.14.10 Premium income (GWP) and other sundry sales related taxes

Revenue, expenses and assets are recognised net of the amount of sales taxes and premium taxes except where the premium or sales tax incurred on the purchase of assets services is not recoverable from the taxation authority, in which case, the sale tax is recognised as a part of the cost of acquisition of the asset or as a part of the expense item, as applicable.

3.15 Policies Specific to Telecommunication Sector

3.15.1 Depreciation

The estimated useful lives used are as follows;

Buildings 8 years

Shelters and other equipment 5 years

Vehicles 5 years

Furniture and fittings 5 years

Computer software 3 years

Leasehold improvements 5 years

Leased equipment 3 – 10 years

Office/Other equipment 1 – 5 years

Digital Electronic Switches 10 years

Network Equipment 10 years

Towers 10 years

Customer premise equipment 1 – 10 years

FLAG project assets 5 – 15 years

WiMAX 5 – 10 years

3.15.2 Intangible Assets

3.15.2.1 License Fees and Access Rights

Separately acquired licences and access rights are shown at historical cost. Expenditures on license fees and access rights that is deemed to benefit or relate to more than one financial year is classified as intangible assets and is being amortised over the agreement period on a straight line basis.

3.15.2.2 Amortisation

Amortisation is recognised in profit or loss on a straight line basis over the estimated useful lives of intangible assets from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows:

Computer software 3 – 5 years

FLAG access rights 15 years

Licenses 10 years

3.15.3 Revenue

Revenue from services rendered in the course of ordinary activities is measured at fair value of the consideration received or receivable net of trade discounts and volume rebates.

Revenue is recognised when persuasive evidence exist, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable and the amount of revenue can be measured reliably.

If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised.

The revenue is recognised as follows:

3.15.3.1 Domestic and International Call Revenue, Rental Income

Revenue for call time usage by customers is recognised as revenue as services are performed on accrual basis.

Fixed rental is recognised as income on a monthly basis in relation to the period of the rental.

3.15.3.2 Revenue from other Network Operators and International Settlements

The revenue received from other network operators, local and international, for the use of the Group’s telecommunication network are recognised, net of taxes, based on usage taking the traffic minutes/per second rates stipulated in the relevant agreements and regulations and based on the terms of the lease agreements for fixed rentals. Revenue arising from the interconnection of voice and data traffic between other telecommunications operators is recognised at the time of transit across the Group’s network and presented on gross basis.

The relevant revenue accrued is recognised under income in the statement of comprehensive income and interconnection expenses recognised under



operating costs in the statement of comprehensive income.

3.15.3.3 Revenue from Broadband

Revenue from broadband service is recognised on usage and the fixed rental on a monthly basis when it is earned net of taxes, rebates and discounts.

3.15.3.4 Revenue from other Telephony Services

The revenue from Data services and other telephony services are recognised on an accrual basis based on fixed rental contracts entered between the Group and subscribers.

3.15.3.5 Installation Revenue

The installation revenue relating to Code Divisional Multiple Access (CDMA) and non CDMA connections are deferred over the expected life of the customer on the network.

3.15.3.6 Service Agreements Revenue

Capacity contracts which convey the right to use a specified capacity in an identified fiber cable are accounted as service arrangements. Customers are charged on a monthly basis based on usage, and the contracts are for a short term.

3.15.3.6.7 Prepaid Card Revenue

Revenue from the sale of prepaid card on CDMA, Internet is recognised upon activation of the said card as the period of expiry of the card and the non refundable nature of the amounts are considered immaterial to the revenue recognition process.

3.16 Policies Specific to Finance Sector3.16.1 Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.

a) Interest Income and Expense

For all financial instruments measured at amortised cost, interest bearing financial assets classified as available-for-sale and financial instruments designated as fair value through profit or loss, interest income and expense are recognised in profit or loss using the Effective Interest Rate (EIR) method. The

EIR is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the EIR, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses.

The calculation of the EIR takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes all material transaction costs and fees and points paid or received that are an integral part of the EIR. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.

The carrying amount of the financial asset or financial liability is adjusted if the Group revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change in carrying amount is recorded in ‘Interest Income’ for financial assets and in ’Interest and similar expense’ for financial liabilities.

However, for a reclassified financial asset for which the Group subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognised as an adjustment to the EIR from the date of the change in estimate.

Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

b) Lease Income

In terms of the provisions of the Sri Lanka Accounting Standard – LKAS 17 on ‘Leases’, the recognition of finance income on leasing is accounted, based on a pattern reflecting a constant periodic rate of return on capital outstanding.

The excess of aggregate lease rentals receivable over the cost of the leased assets constitutes the total unearned finance income at the commencement of


a lease. The unearned finance income included in the lease rentals receivable is recognised in profit or loss over the term of the lease commencing from the month in which the lease is executed using Effective Interest Rate.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability.

c) Hiring Rental Income

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

3.16.2 Impairment Losses on Loans and Advances

The Group reviews its individually significant loans and advances at each reporting date to assess whether an impairment loss should be provided for in the Statement of Comprehensive Income. In particular, management’s judgment is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance made.

Loans and advances that have been assessed individually and found not to be impaired and all individually insignificant loans and advances are then assessed collectively, by categorising them into groups of asset with similar risk characteristics, to determine whether a provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident. The collective assessment takes account of data from the loan portfolio (such as loan to collateral ratio, level of restructured performing loans, etc.), and judgment on the effect of concentrations of risks and economic data.

3.17 Policies Specific to Hotel Sector3.17.1 Revenue

Revenue is measured at the fair value of the consideration received or receivable, net of trade discounts; value added taxes and intra-group revenue. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due.

Apartment revenue is recognised for the rooms occupied on a daily basis, whilst food beverages sales are accounted for at the time of sales.

3.18 New Standards and Interpretation not yet Adopted

The following SLFRSs have been issued by the Institute of Chartered Accountants of Sri Lanka that have an effective date in the future and have not been applied in preparing these financial statements. Those SLFRSs will have an effect on the accounting policies currently adopted by the Group and may have an impact on the future financial statements.

SLFRS 09 – Financial Instrument Classification and Measurement

SLFRS 09, as issued reflects the first phase of work on replacement of LKAS 39 and applies to classification and measurement of financial assets and liabilities.

This standard was originally effective for annual periods commencing on or after 01 January 2015. However the effective date has been deferred subsequently and the revised effective date is yet to be announced.

SLFRS 10 - Consolidated Financial Statements

SLFRS 10 introduces a single control model to determine whether an investee should be consolidated. As a result, the Group may need to change its consolidation conclusion in respect of its investees, which may lead to changes in the current accounting for these investees. This standards are effective in annual period beginning on or after 1 January 2014.

SLFRS 11 - Joint Arrangements

SLFRS 11, the structure of the joint arrangement, although still an important consideration, is no longer the main factor in determining the type of joint arrangement and therefore the subsequent accounting. This standards are effective in annual period beginning on or after 1 January 2014.



SLFRS 12 - Disclosure of Interests in Other Entities

SLFRS 12 brings together into a single standard all the disclosure requirements about an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The Group is currently assessing the disclosure requirements for interests in subsidiaries, interests in joint arrangements and associates and unconsolidated structured entities in comparison with the existing disclosures. SLFRS 12 requires the disclosure of information about the nature, risks and financial effects of these interests. This standards are effective in annual period beginning on or after 1 January 2014.

SLFRS 13 - Fair Value Measurement

SLFRS 13 provides a single source of guidance on how fair value is measured, and replaces the fair value measurement guidance that is currently dispersed throughout SLFRS. Subject to limited exceptions, SLFRS 13 is applied when fair value measurements or disclosures are required or permitted by other SLFRSs. The Group is currently reviewing its methodologies in determining fair values. SLFRS 13 is effective for annual periods beginning on or after 1 January 2014 with early adoption permitted.



4 Operating Segment Information A segment is a distinguishable component of the Group that is engaged either in providing related products or services

(business segment), which is subject to risks and rewards that are different from those of other segments.

Segmental information is presented in respect of the Group’s business segments. The business segments are determined based on the Group’s management and internal reporting structure. Inter-segment transfers are based on fair market prices. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

4.1 Segment Revenues

For the year ended 31March, 2014 2013

Rs.000 Rs.000

Beverages 53,136,535 56,478,892

Telecommunication 3,633,987 2,779,742

Plantation 3,171,983 3,997,328

Diversified 3,243,797 2,534,498

Total Gross Revenue 63,186,302 65,790,460

Direct Turnover Related Taxes (34,203,418) (37,023,967)

Total Net Revenue 28,982,884 28,766,493

4.2 Segment Profits

For the year ended 31March, 2014 2013

Rs.000 Rs.000

Beverages 8,027,247 6,348,704

Telecommunication (638,824) (150,185)

Plantation 129,715 110,308

Diversified 535,779 483,741

8,053,917 6,792,568

Share of Profit of Equity-Accounted Investees (Net of Tax) 1,440,182 1,291,749

Profit before Income Tax Expense 9,494,099 8,084,317

Taxation (3,263,009) (2,826,147)

Profit for the Year 6,231,090 5,258,170


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5 Business Combinations and Loss of Control in Subsidiaries5.1 De-Recognition of Pelwatte Sugar Industries PLC (PSIP) Group in the Year 2013/14 Since the Group is deprived of participating in controlling the financial, operating policies and other relevant activities,

the financial statements of PSIP Group have been deconsolidated from the Group financial statements of DCSL PLC during the year 2013/14. The Investment made in Pelwatte Sugar Industries PLC is now classified as a fully impaired long term investment of the Group. More information is included in Note 38 to the financial statements.

Total

Rs.000

ASSETS

Property, Plant and Equipment 2,378,930

Deferred Tax Asset 38,827

Inventories 1,801,622

Other Investments 14,000

Trade and Other Receivables 344,440

Amounts due from Related Companies 1,525,908

Cash and Cash Equivalents 25,834

LiabilitiesInterest Bearing Loans and Borrowings (152,089)

Deferred Tax Liabilities (147,595)

Employee Benefits (330,812)

Trade and Other Payables (1,454,313)

Amount due to Related Companies (2,539,326)

Current Tax Payables (63,497)

Bank Overdrafts (12,652)

-

Total Net Assets at De-Recognition 1,429,278

Attributable to Parent Company 640,155

Attributable to Non Controlling Interest 789,123

-

Profit / (Loss) from De-RecognitionFair Value of Investment made in PSIP -

Less:Net Assets Attributable to Parent Company

(640,155)

(640,155)

Net Prceeds from De-RecognitionReceived in Cash -

Less:Cash and Cash Equivalents of Subsidiaries De-Recognised (13,182)

Net Cash Inflow (13,182)


6 Revenue Group

For the year ended 31March, 2014 2013 Gross Revenue Direct Turnover

Related Taxes Net Revenue Gross Revenue Direct Turnover

Related Taxes Net Revenue

Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Sale of Goods 58,000,543 (34,203,418) 23,797,125 60,583,390 (37,023,967) 23,559,423 Rendering of Services 5,185,759 - 5,185,759 5,207,070 - 5,207,070 Total 63,186,302 (34,203,418) 28,982,884 65,790,460 (37,023,967) 28,766,493

CompanyFor the year ended 31March, 2014 2013

Gross Revenue Direct Turnover Related Taxes

Net Revenue Gross Revenue Direct Turnover Related Taxes

Net Revenue

Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.’000

Sale of Goods 47,755,538 (31,057,380) 16,698,158 51,548,909 (34,087,458) 17,461,451 Total 47,755,538 (31,057,380) 16,698,158 51,548,909 (34,087,458) 17,461,451

6.1 Business Segment AnalysisGroup

For the year ended 31March, 2014 2013 Sale Of Goods Rendering Of

Services Total Revenue Sale Of Goods Rendering Of

Services Total Revenue

Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Beverages 18,933,117 - 18,933,117 19,454,925 - 19,454,925 Telecommunication - 3,633,987 3,633,987 - 3,997,328 3,997,328 Plantation 3,171,983 - 3,171,983 2,779,741 - 2,779,741 Diversified 1,692,025 1,551,772 3,243,797 1,324,757 1,209,741 2,534,498

23,797,125 5,185,759 28,982,884 23,559,423 5,207,070 28,766,493

7 Cost of Sales, Net Benefits Paid and Interest Expenses This includes all the directly attributable costs of sale of goods and rendering of services. Further the interest expense

on customer deposits in financial services and net insurance benefits and claims paid, net change in insurance claims outstanding and underwriting and net acquisition costs in insurance businesses are included.


8 Other Operating IncomeGroup Company

For the year ended 31March, 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000

Gain on Change in Fair Value of Biological Assets 74,294 42,685 - - Government Grants 13,226 13,770 - - Gain on Sale of Property, Plant and Equipment 30,331 11,268 50,767 39,985 Fees and Commission Income 62,761 76,223 - - Rent Income 24,557 36,547 24,557 34,567 Refunds on Telecommunication Development Charge (TDC) 8.1 - 234,229 - - Sale of Timber 40,664 56,333 - - Other Sundry Income 202,759 144,883 122,625 81,023 Dividend Income from Subsidiary Companies - - 920,000 - Dividend Income from Equity Accounted Investees - - 279 66,232 Dividend Income from Available-For-Sale Financial Assets 332,815 475,003 200,619 355,726 Dividend Income from Fair Value Through Profit and Loss Investments

72,994 67,558 38,920 38,988

Gain on Disposal of Fair Value Through Profit and Loss Investments

29,973 49,041 16,828 30,326

Gain on Disposal of Group Investments - - - 3,644,589 Loan Loss Recoveries 14,018 1,381 - -

898,392 1,208,921 1,374,595 4,291,436

8.1 Lanka Bell Limited - Refunds on Telecommunication Development Charge (TDC) In accordance with the Finance Act No. 11 of 2004, all telecommunication gateway operators are required to pay a levy defined as the Telecommunication Development Charge (TDC) to the Government of Sri Lanka, based on international call minutes terminated in the country. This levy was made effective from 03rd March, 2003 where initially the levy was defined in such a way that operators were allowed to claim the 2/3rd of the TDC against the costs of network development charges. First revision to this regulation was introduced with effect from 15th July, 2010 with a TDC rate change from USD cents 3.80 to USD cents 1.50. Through the same revision the disbursement process was removed from the regulation. The revised rates prevailed until such time the rate was again revised to USD cents 3.0 per minute with effect from January, 2012 in accordance with the Budget Proposal for 2012. The total amount of the levy payable by the Company for the period from 1 April 2013 to 31 March 2014 was estimated at Rs. 96,544,392 (2013-Rs.145,997,125) and has been recognised as expenses in the current financial year. The corresponding liability, net of payments, has been recognised in the statement of financial position.

9 Other Operating ExpensesGroup Company

For the year ended 31March, 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000

Impairment on Loans and Other Advances 2,703 - - - Impairment on Investment in Subsidiaries - - - 926,473Loss on De-Recognition of Subsidiaries 5.1 640,155 - - - Loss on De-Recognition of Equity Accounted Investee 19.1 86,284 - - - Impairment of Goodwill 16.3 - 776,566 - -

729,142 776,566 - 926,473



10 Finance Income and Finance Costs10.1 Recognised in Profit and Loss

10.1.1 Finance IncomeGroup Company

For the year ended 31March, 2014 2013 2014 2013

Note Rs.000 Rs.000 Rs.000 Rs.000

Interest Income on Loans and Receivables 402,592 500,069 48,550 74,040

Interest Income on Available-For-Sale Financial Assets 27,302 39,632 2,893 -

Interest Income on Unimpaired Held-To-Maturity Investments

- - - -

Foreign Exchange Gain 7,119 16,016 - - Gain on Change in Fair Value of Financial Assets at Fair Value Through Profit or Loss

85,739 177,640 66,877 70,856

Recognition of Share Warrants at Fair Value 225,081 - 310 - 747,833 733,357 118,630 144,896

10.1.2 Finance CostInterest Expense on Financial Liabilities Measured at Amortised Cost - Interest Expense on Long Term Borrowings (103,290) (529,447) (94,356) (275,626) - Interest Expense on Bank Overdrafts and Other Short Term Borrowings

(1,055,035) (1,099,549) (764,965) (1,101,293)

- Interest Expense on Finance Leases (2,645) - - - Government Lease Interest (JEDB/SLSPC) (24,378) (22,420) - - Foreign Exchange Loss (44,888) (2,257) - - Transaction Costs on Acquisition of Financial Assets at Fair Value Through Profit or Loss

- (663) - -

Impairment Losses on Financial Investments - (149,907) - -Loss on Change in Fair Value of Financial Assets at Fair Value Through Profit or Loss

(32,401) (162,666) - -

Preference Share Dividends (1,265) (1,265) - - (1,263,902) (1,968,174) (859,321) (1,376,919)

Less:Borrowing Cost Capitalised 10.1.2.1 43,136 4,032 - - (1,220,766) (1,964,142) (859,321) (1,376,919)

Net Finance Costs Recognised in Profit or Loss (472,933) (1,230,785) (740,691) (1,232,023)

10.1.2.1 During the year Balangoda Plantations PLC, a subsidiary of the company, capitalised borrowing cost amounting to Rs. 43,136,174/- (2013 - Rs. 4,031,638 /-) incurred on borrowings obtained to meet expenses relating to immature plantations being part of the cost of the immature plantations. The amount of borrowing cost eligible for capitalisation is determined in accordance with LKAS 23 (Borrowing Costs).

The above finance income and finance costs include the following interest income and expense in respect of assets (liabilities) not at fair value through profit or loss:

Total interest income on financial assets 429,894 539,701 51,443 74,040 Total interest expense on financial liabilities (1,185,348) (1,651,416) (859,321) (1,376,919)

10.2 Recognised in Other Comprehensive Income

Net Change in Fair Value of Available-For-Sale Financial Assets (136,568) 2,021,748 217,263 578,500 (136,568) 2,021,748 217,263 578,500


11 Profit before Income Tax ExpenseProfit before Income Tax Expense is stated after charging all expenses including the following;

Group Company For the year ended 31March, 2014 2013 2014 2013

Notes Rs.000 Rs.000 Rs.000 Rs.000

Directors’ Emoluments 89,234 60,107 23,410 22,247 Auditor’s Remuneration Audit - KPMG 9,379 9,142 4,950 4,604 - Other Auditors 4,853 4,420 - -

- - Non-Audit - KPMG 4,641 4,404 3,327 1,553 - Other Auditors 693 606 693 606 Management Fees 44,887 59,606 - - Personnel Costs 11.1 3,861,748 3,194,238 1,162,203 1,039,048 Depreciation and Amortisation - Depreciation of Property Plant and Equipment 15 1,266,594 1,500,311 148,392 158,678 Amortisation of Intangible Assets 16 236,393 190,776 - - Amortisation of Bearer Biological Assets 17.1 37,339 36,980 - - Provision /(Reversal) for Bad & Doubtful Debts (137,944) 171,550 25,057 - Provision /(Reversal) for Inventories 226,679 150,760 - - Donations 13,415 7,058 12,524 6,952

11.1 Personnel CostsSalaries, Wages and Other Benefits 3,356,525 2,715,083 1,050,753 932,085 Employee Benefits - - - - Defined Contribution Plans - - - - EPF and ETF 354,098 326,571 90,005 88,469 Defined Benefit Plans 31.1.1 151,125 152,584 21,445 18,494 Total 3,861,748 3,194,238 1,162,203 1,039,048

11.1.1 Number of Employees

As At 31 March, 2014 2013 2014 2013 12,897 14,681 1,250 1,343

12 Taxation Group Company

For the year ended 31March, 2014 2013 2014 2013 Notes Rs.000 Rs.000 Rs.000 Rs.000

Current Tax Expense 12.1 3,238,859 2,819,781 2,757,104 2,394,917 Deferred Tax Charged/(Credited) 21.1.1 24,150 6,366 21,539 8,308

3,263,009 2,826,147 2,778,643 2,403,225

12.1 Current Tax ExpenseCurrent Tax Charge 12.1.1 3,194,493 2,824,523 2,757,104 2,394,917 (Over)/Under Provision of Current Tax of Previous Years 44,366

(4,742) - -

3,238,859 2,819,781 2,757,104 2,394,917



12.1.1 Numerical Reconciliation of Accounting Profits to Income Tax Expense Group Company

For the year ended 31March, 2014 2013 2014 2013 Notes Rs.000 Rs.000 Rs.000 Rs.000

Profit before Income Tax Expense 9,494,099 8,084,317 8,136,580 9,275,947 Share of Results of Equity Accounted Investees (1,440,182) (1,291,749) - - Dividend Income from Group Companies 1,292,453 315,992 - - Other Consolidation Adjustments 726,439 3,825,983 - -

10,072,809 10,934,543 8,136,580 9,275,947 Exempt (Profits)/Loss 411,685 31,380 - - Accounting Profit / (Loss) Chargeable to Income Tax 10,484,494 10,965,923 8,136,580 9,275,947 (-) Income Not Subject to Tax (2,352,292) (4,057,561) (1,279,853) (3,318,869)(+) Disallowable Expenses 846,495 872,279 208,814 188,952 (-) Allowable Expenses (1,065,422) (434,580) (108,769) (101,441)(+) Tax Losses Incurred 12.1.4 304,188 - - - (-) Tax Losses Utilised 12.1.4 (72,533) (29,455) - - Taxable Income 8,144,930 7,316,606 6,956,772 6,044,589

Income Tax At, 40% 2,979,452 2,613,437 2,697,359 2,341,440 28% 215,041 200,593 59,745 53,477 15.76% - 10,477 - - 10% - 16 - - Total Current Tax Charge 3,194,493 2,824,523 2,757,104 2,394,917 Average Statutory Income Tax Rate (%) 39.22% 38.60% 39.63% 39.62%

Group CompanyFor the year ended 31March, 2014 2013 2014 2013

Notes % % % %

12.1.2 Effective Tax Rate 12.1.2.1 30.89% 25.71% 33.89% 25.82%

GroupFor the year ended 31March, 2014 2013

Rs.000 % Rs.000 %

12.1.2.1 Reconciliation of Effective Tax RateAccounting Profit / (Loss) Chargeable to Income Tax 10,484,494 10,965,923

Income Tax Expense at the Average Statutory Income Tax Rate

4,112,086 39.22% 4,233,316 38.60%

Income Not Subject to Tax (922,584) -8.80% (1,566,392) -14.28%Disallowable Expenses 332,001 3.17% 336,736 3.07%Allowable Expenses (417,865) -3.99% (167,766) -1.53%Tax Losses Incurred 119,303 1.14% - 0.00%Tax Losses Utilised (28,448) -0.27% (11,371) -0.10%(Over)/Under Provision of Current Tax of Previous Years 44,366 0.42% (4,742) -0.04%Deem Dividend Tax Paid - 0.00% - 0.00%Current Tax Expense 3,238,859 30.89% 2,819,781 25.71%


12.1.2.1 Reconciliation of Effective Tax Rate (Contd.)Company

2014 2013Rs.000 % Rs.000 %

Accounting Profit / (Loss) Chargeable to Income Tax 8,136,580 9,275,947 Income Tax Expense at The Average Statutory Income Tax Rate

3,224,684 39.63% 3,675,208 39.62%

Income Not Subject to Tax (507,231) -6.23% (1,314,963) -14.18%Disallowable Expenses 82,758 1.02% 74,864 0.81%Allowable Expenses (43,107) -0.53% (40,192) -0.43%Tax Losses Incurred - 0.00% - 0.00%Tax Losses Utilised - 0.00% - 0.00%(Over)/Under Provision of Current Tax of Previous Years

- 0.00% - 0.00%

Deem Dividend Tax Paid - 0.00% - 0.00%Current Tax Expense 2,757,104 33.89% 2,394,917 25.82%

12.1.3 Applicable rates and exemptions, concessions or holidays granted on income tax

The tax liabilities of the companies are computed at the standard rate of 28% on non liquor business and 40% on liquor business except for the following companies which enjoy exemptions and concessions.

Company Sector Basis Exemption or Concessions Period

Lanka Bell Limited

Telecommuni cation

In terms of an agreement entered in to with the Board of Investment (BOI) of Sri Lanka under section 17 of Law No. 04 of 1978.

The profits and income of the company is exempt for a period of 20 years.Thereafter the company will be taxed at a normal rate of 28%.

Commencing from year of assessment 97/98

Bogo Power (Pvt) Limited

Generation and sale of Hydro ElectricEnergy

Pursuant to the agreement dated 22 April 2010 entered with the Board of Investment under Section 17 of the BOI Law.

The company is exempt from income tax arising from the income of generation of hydropower, After the expiration of the exemption period, the profit & income of the enterprise shall be charged for each year of assessment at the rate of ten per centum (10%) (“concessionary period)

For a period of 05 years commencing from 01st April 2012


Rs.000 Rs.000 Rs.000 Rs.000

12.1.4 Tax LossesLosses Brought Forward 1,600,428 1,629,883 - - Acquisition/(Disposal) of Subsidiaries (198,000) - - - Losses Incurred 304,188 - - - Losses Utilised (72,533) (29,455) - - Loss Carried Forward 1,634,083 1,600,428 - -



13 Earnings per Share

13.1 Basic Earnings per ShareThe calculation of basic earnings per share is based on the profit attributable to Ordinary shareholders and the weighted average number of shares outstanding during the year.


Profit Attributable to Equity Holders of the Company (Rs.’000)*

6,121,813 5,139,807 5,357,937 3,204,723

Weighted Average Numbers of Ordinary Shares (000) 300,000 300,000 300,000 300,000 Basic Earnings per Share (Rs.) 20.41 17.13 17.86 10.68

* For the purpose of calculation, Company’s profit for the year ended 31 March 2013 has been adjusted for intra-group capital gain on share transfer.

13.2 Diluted Earnings per ShareThere were no potential dilutive ordinary shares outstanding at any time during the year. Therefore, diluted Earnings per Share is same as Basic Earnings per Share shown above.

14 Dividend per ShareCompany

For the year ended 31March, 2014 2013Per share Total Per share Total

Rs. Rs.000 Rs. Rs.000

Final Dividend Proposed / Paid 3.25 975,000 3.00 900,000 975,000 900,000

The Directors recommended a final dividend of Rs.3.25 per share for the year ended 31 March 2014, for approval by the shareholders at the Annual General Meeting to be held on 29 September 2014. As stipulated by Sri Lanka Accounting Standards - Events After the Reporting date (LKAS 10), this proposed dividend is not recognised as a liability as at 31 March 2014.

As required by Section 56 of the Companies Act No7 of 2007, the Board of Directors have satisfied the solvency test in accordance with Section 57. A statement of solvency completed and duly signed by the Directors has been audited by Messrs KPMG.

However, for the purpose of computing dividend per share, the final dividend to be approved has been taken into consideration.


15

P

rope

rty,

Pla

nt a

nd E

quip

men

tGr

oup

Cost

or V

alua

tion

Accu

mul

ated

Dep

reci

atio

n an

d Im

pairm

ent

Carry

ing

Valu

eAt

the

Begi

nnin

g

of th

e Ye

ar

Addi

tions

Durin

g th

e

Year

Acqu

isitio

n/

(Disp

osal

) of

Subs

idia

ries

Disp

osal

s/

Tran

sfer

s

At th

e

end

of

the

Year

At th

e

Begi

nnin

g

of th

e Ye

ar

Char

ge

for t

he

Year

Acqu

isitio

n/

(Disp

osal

) of

Subs

idia

ries

Disp

osal

sAt

the

end

of

the

Year

As a

t

31 M

arch

2014

As a

t

31 M

arch

2013

Free

hold

Note

Rs.0

00Rs

.000

Rs.0

00Rs

.000

Rs.0

00Rs

.000

Rs.0

00Rs

.000

Rs.0

00Rs

.000

Rs.0

00Rs

.000

Land

15.2

4,51

7,33

917

7,95

5(4

4,15

0)-

4,65

1,14

4-

--

--

4,65

1,14

44,

517,

339

Land

Impr

ovem

ents

413,

002

-(3

07,0

09)

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5,99

378

,535

5,30

0(5

6,46

5)-

27,3

7078

,623

334,

467

Build

ings

15.2

2,22

7,49

629

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(441

,221

)-

1,81

5,56

173

3,86

161

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(361

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)-

434,

611

1,38

0,95

01,

493,

635

Civil

Con

stru

ctio

ns64

1,47

118

,032

--

659,

503

29,0

9832

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--

61,4

0959

8,09

461

2,37

3 Pl

ant,

Mach

inery

& Ot

her E

quipm

ent

4,69

8,19

031

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(2,6

74,6

94)

(344

)2,

054,

888

2,23

0,91

712

9,12

9(8

47,0

45)

(40)

1,51

2,96

154

1,92

72,

467,

273

Mot

or V

ehic

les

1,48

3,28

810

0,90

6(7

4,00

2)(1

14,2

67)

1,39

5,92

51,

211,

048

228,

159

(67,

007)

(89,

237)

1,28

2,96

311

2,96

227

2,24

0 Fu

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124,

505

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4,28

160

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(93,

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4 Co

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199,

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(1,4

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299,

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299,

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15

P

rope

rty,

Pla

nt a

nd E

quip

men

t (C

ontd

.)Co

mpa

nyCo

st o

r Val

uatio

nAc

cum

ulat

ed D

epre

ciat

ion

and

Impa

irmen

tCa

rryin

g Va

lue

At T

he

Begi

nnin

g

of t

he Y

ear

Addi

tions

Durin

g th

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Disp

osal

s/

Tran

sfer

s

At th

e

end

of

the

Year

At th

e

Begi

nnin

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of t

he Y

ear

Char

ge

for t

he

Year

Disp

osal

sAt

the

end

of

the

Year

As a

t

31 M

arch

2014

As a

t

31 M

arch

2013

Free

hold

Not

eRs

.000

Rs.0

00Rs

.000

Rs.0

00Rs

.000

Rs.0

00Rs

.000

Rs.0

00Rs

.000

Rs.0

00

Land

1

5.2

2,1

63,7

49

-

(82,

548)

2,0

81,2

01

-

-

-

-

2,0

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Build

ings

1

5.2

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(20,

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) 5

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t 6

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3

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2

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277

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2,66

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5 Co

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are

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(603

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1,88

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5 Fi

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0 -

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53

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315

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15

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69,

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69,

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50,

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16,

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19,

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148

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04



15.1 Immovable (JEDB/SLSPC) Assets on Finance LeaseGroup

For the year ended 31March, 2014 2013Right to Use

of Land

Unimproved

Lease Land

Improvement

to Land

Other Vested

Assets

Buildings Machinery Total Total

Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000(Note 15.1.1)

Capitalised Value (18 June 1992)Balance at The Beginning of the Year 331,201 899 15,702 152 64,024 26,164 438,142 438,142 Balance at the End of the Year 331,201 899 15,702 152 64,024 26,164 438,142 438,142

AmortisationAs at Beginning of the Year 128,470 349 10,760 152 52,649 26,164 218,544 209,194 Amortisation for the Year 6,249 17 523 - 2,561 - 9,350 9,350 At the End of the Year 134,719 366 11,283 152 55,210 26,164 227,894 218,544

Carrying AmountAs at Beginning of the Year 202,731 550 4,942 - 11,375 - 219,598 228,948 As at the End of the Year 196,482 533 4,419 - 8,814 - 210,248 219,598

15.1.1 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 Recommended Practice (SoRP) issued by the Institute of Chartered Accountants of Sri Lanka dated 19 December 2012. Such leases have been executed for all estates for a period of 53 years.

This right-to-use land is amortised over the remaining lease term or useful life of the right whichever is shorter and is disclosed under non-current assets. The Statement of Recommended Practice (SoRP) for right-to-use of land does not permit further revaluation of right-to-use land.

15.2 Land and Buildings 15.2.1 Details of Land and Building stated at Valuation

Distilleries Company of Sri Lanka PLC A valuation of freehold Land and Buildings of Distilleries Company of PLC was carried out by incorporated Valuers Mr.

A. R. M. M. Kaleel and Mr. S. Sivaskantha by using contracted test basis method and incorporated in the Financial Statements of the Company as at 1 March 2011. The surplus on revaluation of Land and Building, Rs. 2,558,782,865 and Rs.428,307,050 have been credited to the revaluation reserve respectively.

Lanka Bell Limited Free hold land and building of the company was valued by Mr. A.R.M.M. Kaleel, A.M.I.V (Sri Lanka) a professional valuer

on 25th March 2010 on “Contractor’s Basis” and the excess of Rs. 87,755,658 over the net book value as at 31 March 2010 has been credited to the revaluation reserve.

Texpro Industries Limited The Company’s land and building were revalued on 01 April 2009. The land was subsequently revalued on 3rd April

2013 by a professionally qualified independent valuer K. Arthur Perera. The valuation was based on contractors method of valuation.

Browns Beach Hotel PLC The Book value of freehold land owned by the Company, which is situated at No. 175, Lewis Place, Negombo has been

revalued by Mr. J. Rajasooriya, (A.I.V. (Sri Lanka), M.P.V.A. (Sri Lanka) on 26 March 2003. The surplus on revaluation, Rs. 74.3 million, has been credited to the revaluation reserve.


Freehold land at No. 175, Lewis Place, Negombo was valued by Mr. J. Rajasooriya, A.I.V. (Sri Lanka), M.P.V.A. (Sri Lanka) a professional valuer, on 28 March 2007 on “Market pricing basis” and the excess of Rs.290,000,000 over the net book value has been placed to the credit of revaluation reserve.

Free hold land at No.175, Lewis Place, Negombo of Browns Beach Hotel PLC was revalued by Mr. K. C. B. Condegama, (A.I.V. Sri Lanka) a professional valuer on 31 March 2012 on “Market Pricing Basis” and the excess of Rs. 476,500,000 over the net book value as at 31 March 2012 has been placed to the credit of revaluation reserve.

15.2.2 The carrying amount of revalued land and buildings if they were carried at cost less depreciation would be as follows;

GroupAs at 31March, 2014

Land BuildingRs.000 Rs.000

Cost 1,467,789 478,802Accumulated Depreciation and Impairment - (280,310)Carrying Value 1,467,789 198,492

CompanyAs at 31March, 2014

Land BuildingRs.000 Rs.000

Cost 109,402 56,339Accumulated Depreciation and Impairment - (56,339)Carrying Value 109,402 -

15.3 Gross Carrying Value of Fully Depreciated Assets The cost of the fully depreciated assets of the Group amounts to Rs.5,284 Mn as at reporting dated. The Company’s

property, plant and equipment with a cost of Rs.513 Mn are fully depreciated as at reporting date.

15.4 Property Plant and Equipment that have been Pledged The property plant and equipments that are pledged for Liabilites are disclosed in Note 41 to these financial statements.


16 Intangible Assets

GroupFor the year ended 31March, 2014 2013

LicenseFees

FlagCable

SoftwareCost and

Implementation

SoftwareCost and

Implementation (WIP)

Goodwill on Acquisition

Total Total

Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Note 16.1 Note 16.2 Note 16.3Cost/Carrying ValueBalance at the Beginning of the Year 369,675 2,797,761 28,653 17,277 1,568,863 4,782,229 4,638,475 Additions 289,034 - 13,872 6,363 - 309,269 156,059 Capitalisations/ Transfers - - - - - - (12,305)Balance at the End of the Period 658,709 2,797,761 42,525 23,640 1,568,863 5,091,498 4,782,229

Accumulated Amortisation and ImpairmentBalance at the Beginning of the Year 16,450 870,494 10,117 - 967,551 1,864,612 897,270 Amortised During the Year 40,592 186,517 9,284 - - 236,393 190,776 Impaired During the Year - - - - - - 776,566 Balance at the End of the Period 57,042 1,057,011 19,401 - 967,551 2,101,005 1,864,612

Carrying ValueAs at Beginning of the Year 353,225 1,927,267 18,536 17,277 601,312 2,917,617 3,741,205 As at End of The Year 601,667 1,740,750 23,124 23,640 601,312 2,990,493 2,917,617

Company

For the year ended 31March, 2014 2013Software cost and implementation

(WIP)

Total Total

Rs.000 Rs.000 Rs.000 Cost / Carrying ValueBalance at the Beginning of the Year

17,277 17,277 16,061

Additions 6,363 6,363 1,216 Transfers - - - Balance at the End of the Period 23,640 23,640 17,277

Carrying ValueAs at the Beginning of the Year 17,277 17,277 16,061 As at the End of the Year 23,640 23,640 17,277

16.1 License Fees License fee represents the operator license fee of Rs. 300 million which was paid in 1996, and amortised over 226

months on straight line basis commencing from that year. The External Gateway License fee of Rs. 4.85 million which was renewed in 2013 amounting to Rs. 102Mn is amortised over a period of 10 years, commencing from 28th February 2013. The Wi-Max 2365-2380 MHz License Fee of Rs.306.12Mn was paid in 2011/12 and 2012/13 and operations commenced on 01 July 2013.



16.2 FLAG Cable FLAG expenditure represents the expenditure incurred on undersea fiber optic cable link and the landing station , which

enables Lanka Bell to offer direct global connectivity and a complete end-to-end data connectivity solution. The total expenditure will be amortised over the license period of 15 years on a straight line basis from August 2008.

16.3 Goodwill on Acquisition Group has recognised an impairment loss of Rs. 776.5 Mn on the Goodwill which was recognised at the acquisition of

Pelwatte Sugar Industries PLC Group in year 2012/13..

17. Biological AssetsGroup

As at 31 March, 2014 2013Note Rs.000 Rs.000

Bearer Biological Assets 17.1 1,616,271 1,329,124 Consumer Biological Assets 17.2 1,559,765 1,475,236

3,176,036 2,804,360

17.1 Bearer Biological Assets

On Finance Lease (JEDB/SLSPC) 17.1.1 87,904 96,946

Investments after Formation of the Plantation Company 17.1.2 1,528,367 1,232,178

1,616,271 1,329,124

17.1.1 On Finance Lease (JEDB/SLSPC)

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 2013 are as follows.

Mature PlantationsFor the year ended 31March, 2014 2013

Tea Rubber Total TotalRs.000 Rs.000 Rs.000 Rs.000

CostBalance as at the Beginning of the Year 206,227 64,997 271,224 271,225 Balance as at the End of the Year 206,227 64,997 271,224 271,225

Accumulated AmortisationBalance as at the Beginning of the Year 132,803 41,477 174,280 165,238 Amortisation for the Year 6,874 2,166 9,040 9,041 Balance as at the End of the Year 139,677 43,643 183,320 174,279 Carrying Amount 66,550 21,354 87,904 96,946

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 17.1.2.


17.1.2 Investments after Formation of the Plantation Company

For the year ended 31March, 2014 2013Immature

PlantationsMature

PlantationsTotal Total

Rs.000 Rs.000 Rs.000 Rs.000CostBalance as at the Beginning of the Year 826,287 663,175 1,489,462 1,255,591 Additions During the Year 324,488 - 324,488 233,871 Transfers (from)/to (9,935) 9,935 - - Balance as at the End of the Year 1,140,840 673,110 1,813,950 1,489,462

Accumulated AmortisationBalance as at the Beginning of the Year - 257,284 257,284 229,345 Charge for the Year - 28,299 28,299 27,939 Balance as at the End of the Year - 285,583 285,583 257,284 Carrying Amount at the End of the Year 1,140,840 387,527 1,528,367 1,232,178

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 17.1.1 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.43,136,174/= (2013-Rs.4,031,638/= ) of borrowing costs capitalised during the year.

17.2 Consumer Biological Assets Group

For the year ended 31March, 2014 2013Rs.000 Rs.000

Balance as at the Beginning of the Year 1,475,236 1,422,786 Gain/(Loss) Arising from Changes in Fair Value Less Cost to Sell 74,293 42,685 Increase Due to Development 10,236 9,765 Balance as at the end of the year 1,559,765 1,475,236

Managed timber plantations include commercial timber plantations cultivated in estates. The timber plantations are recorded at fair value other than young trees which are recorded at cost as the significant biological transformation has not taken place.

Managed timber plantation was measured at fair value initially as at 31 December 2012 and subsequently. The corresponding gain/loss was recognised in the income statement. However fair value surplus was recognised in the equity as a separate component which will be available for distribution only on realisation of consumable biological assets.



GroupFor the year ended 31March, 2014

Rs.000

Timber ReserveBalance at the Beginning of the Year 1,308,826Gain Recognised During the Year 74,294Balance at the End of the Year 1,383,120

The fair value of managed timber plantations 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. K.D Tissera, accredited Chartered valuers, using Discounted Cash Flow (DCF) methods. In ascertaining the fair value of timber a physical verification was carried out covering all the estates.

Key assumption used in the Valuation 1. The harvesting is approved by the PMMD and Forestry Department Based on the Forestry Department Plan. 2. The current market prices used are net of selling expenditure. 3. Discount rate is 13%, a Sensitivity analysis at (+) or (-) 1% is also disclosed 4. Though the replanting is a condition precedent for harvesting , yet the costs are not taken into consideration, as these

are not considered to be material.

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 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.

17.2.1 Sensitivity Analysis 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:

12% 13% 14%Managed Timber 1,631,636 1,559,765 1,498,116 Total 1,631,636 1,559,765 1,498,116

18 Investments in Subsidiaries As at 31 March, 2014 2013

Number ofshares

Effectiveholding

CostRs.000

Number ofshares

Effectiveholding

CostRs.000

Melstacorp Limited 200,000,000 100% 35,558,000 200,000,000 100% 35,558,000 Timpex Limited 15,611,661 51.03% 156,117 15,611,661 51.03% 156,117 AION SG Residencies (Pvt) Ltd 2,500,000 100% 25,000 2,500,000 100% 25,000 Less: Provision for Impairment of Investment

(25,000) (25,000)

35,714,117 35,714,117


18.1 Group Holdings in Subsidiaries Subsidiary Principal Activity Reporting

date

Reason for using a

different period

Indirectly

holding

through

No. of shares

held

Effective

ownership

interest

1 Balangoda Plantations

PLC

BPL Cultivation and processing

of Tea & Rubber

31-Dec To comply with the

rules and regulations

in the Plantation

sector

MC 10,217,300 43.23%

2 Bell Solutions (Pvt) Ltd BSL Information &

Communication

Technology

31-Mar - LB 98,090 98.09%

3 Bellvantage (Pvt) Ltd BV BPO, KPO & Software

Development

31-Mar - MC 5,000,100 100%

4 Bogo Power (Pvt) Ltd BP Generation and sale of

Hydro Electric Energy

31-Mar - MC 993,000,000 99.30%

5 Browns Beach Hotels PLC BBH Leisure 31-Mar - MC 54,273,234 41.88%

6 Continental Insurance

Lanka Limited

CIL General Insurance Services 31-Dec To comply with the

rules and regulations

in the Insurance sector

MC 50,000,000 100%

7 Lanka Bell Ltd LB Telecommunication

Services

31-Mar - MH 50,719,061 99.73%

8 Melstacorp Limited MC Investment Holding

Company

31-Mar - - 200,000,000 100%

9 Melsta Logistics (Pvt) Ltd ML Automobile Servicing and

Logistics

31-Mar - MC 41,000,002 100%

10 Melsta Regal Finance Ltd MRF Finance, Leasing, Hire

Purchasing and Factoring

31-Mar - MC 134,029,451 100%

11 Milford Holdings (Pvt) Ltd MH Investment Holding

Company

31-Mar - MC 333,067,925 98.36%

12 Negombo Beach Resorts

(Pvt) Ltd

NBR Leisure 31-Mar - BBH 91,400,001 41.88%

13 Periceyl (Pvt) Ltd PPL Distribution of locally

manufactured Foreign

Liquor

31-Dec To operate in line

with foreign strategic

alliances

MC 40,000 100%

14 Splendor Media (Pvt) Ltd SM Media Buying & Creative

Services

31-Mar - MC 50,000 50%

15 Telecom Frontier (Pvt) Ltd TF Telecommunication

Services

31-Mar - LB 98,090 98.09%

16 Texpro Industries Ltd TEXP Dyeing and Printing Woven

Fabrics

31-Mar - TIM 46,836,524 41.75%

17 Timpex Ltd TIM Investment Holding

Company

31-Mar - - 15,611,661 51.03%

18 Melsta Properties (Pvt) Ltd MP Management of Real Estate 31-Mar - MC 40,194,901 100%



18.2 Significant Judgements and Assumptions Made in Determining Whether the Group has Control Although the Group owns less that half of the voting rights of Browns Beach Hotel PLC (BBH) and Balangoda Plantations

PLC (BPL), the Group assessed that it is able to govern the financial and operating policies of BBH and BPL by virtue of de facto control on the basis that the remaining share holders are widely depressed and there is no indication to believe that all of them will exercise their votes collectively.

18.3 Disclosure of the Interest that Non-Controlling Interests Have in The Group’s Activities and Cash Flows18.3.1 Nature of Interests in Subsidiaries with Material NCI

Name of the subsidiary : Balangoda Plantations PLC (BPL)

Browns Beach Hotels PLC (BBH)

Principal place of business : In the areas of Ratnapura, Balangoda and Badulla

No. 175, Lewis Place, Negombo

Proportion of ownership interest held by non controlling interest : 56.77% 58.12%Profit / (loss) allocated to non controlling interest (Rs. ‘000) : 75,312 52,818Accumulated non controlling interest at the end of the reporting period (Rs. ‘000)

: 1,564,974 2,076,569

18.3.2 Summarised Financial Information of Subsidiaries that have Material NCI

BPL BBHAs at/ for the year ended 31 March, 2014 2013 2014 2013

Rs.000 Rs.000 Rs.000 Rs.000

Dividends Paid to Non Controlling Interests 13,419 - - - Current Assets 835,147 745,843 1,048,716 1,869,577 Non Current Assets 3,997,908 3,642,643 2,536,628 1,638,450 Current Liabilities 947,133 629,755 12,127 26,295 Non Current Liabilities 1,129,373 1,132,347 471 695 Revenue 3,171,983 2,779,742 - - Profit from Continuing Operations 132,654 92,205 93,249 187,744 Other Comprehensive Income 21,147 - 442 - Total Comprehensive Income 153,801 92,205 93,691 187,744


19 Investment in Equity Accounted Investees

GroupAs at 31 March, 2014 2013

No. of Shares Effective

Holding

Equity Value Cost No. of Shares Effective

Holding

Equity Value Cost

Rs.000 Rs.000 Rs.000 Rs.000

(Note 19.1) (Note 19.1)Aitken Spence PLC 167,030,743 41.14% 22,538,992 14,239,687 161,647,628 39.81% 20,303,398 13,732,051Madulsima Plantations PLC 9,048,307 31.20% 455,517 90,000 9,048,307 31.20% 525,303 90,000Pelwatte Dairies (Pvt) Ltd - - - - 286,847,001 24.38% 86,284 100,000

22,994,509 14,329,687 20,914,985 13,922,051

CompanyAs at 31 March, 2014 2013

No. of Shares Effective Holding Cost No. of Shares Effective Holding CostRs.000 Rs.000

Aitken Spence PLC 186,500 0.001% 28,703 186,500 0.001% 28,703 28,703 28,703

19.1 Equity Value of Investment in Equity Accounted Investees to the Group

Equity Accounted

Investee

Balance as at

1 April 2013

Acquisitions/

(Disposal)

Share of Profit/

(Loss) Net

of Tax

Dividend

Received

Share of Other

Comprehensive

Income

Share of

Net Assets

Balance As

At 31 March

2014

Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000Aitken Spence PLC 20,303,398 507,636 1,508,771 (250,236) 462,671 6,752 22,538,992Madulsima Plantations PLC 525,303 - (68,590) - (1,197) 455,517 Pelwatte Dairies (Pvt) Ltd 86,284 (86,284) - - - -

20,914,985 421,352 1,440,182 (250,236) 461,474 6,752 22,994,509

19.2 Market Value Quoted Equity Accounted Investees and Other Information

Principal Activity Reporting Date Group CompanyAs at 31 March, 2014 2013 2014 2013

Rs.000 Rs.000 Rs.000 Rs.000

Aitken Spence PLC Diversified holdings 31 March 16,352,310 19,333,056 18,258 22,305Madulsima Plantations PLC Cultivation and

processing of Tea31 December 91,388 111,294 - -

16,443,698 19,444,350 18,258 22,305



19.3 Disclosure of Nature, Extent and Financial Effects of the Entity’s Interests in Associates19.3.1 Associates that are individually material to the group

Name of the associate : Aitken Spence PLC Madulsima Plantations PLC

Principal place of business : No.315, Vauxhall Street, Colombo 02.

In the areas of Madulsima and Bogawanthalawa.

Principal Activities : Investment Holding Company Cultivation and plantation of tea

Proportion of ownership interests : 41.14% 31.20%

Whether strategic to the Group : Yes Yes

Investment in associate is measured using : Equity method Equity method

Summarised financial information (entire amount reported in associate’s financial statements)

Aitken Spence PLC Madulsima Plantations PLCAs at / for the year ended 31March, 2014 2013 2014 2013

Rs.000 Rs.000 Rs.000 Rs.000

Total current assets 25,865,144 22,408,357 452,701 417,643 Total non current assets 35,280,093 33,742,653 3,891,249 3,653,715 Total current liabilities 13,816,605 15,450,825 1,862,099 1,424,427 Total non current liabilities 8,550,368 7,197,484 911,134 852,755 Revenue 36,108,370 36,606,286 2,056,721 1,693,075 Profit / (loss) from continuing operations 4,508,635 4,275,511 (219,628) (66,686)Other comprehensive income / (Expenses) 1,286,282 242,273 (3,831) 45,960 Total comprehensive income / (Expenses) 5,794,917 4,517,784 (223,459) (20,726)Cash and cash equivalents 2,728,514 2,217,994 2,364 1,065Depreciation and amortisation. 1,499,420 1,349,568 73,142 88,401 Interest income. 800,721 704,339 205 160 Interest expense. 1,145,540 1,327,591 111,840 86,681 Income tax expense 900,476 749,970 3,620 3,556


20 Other Financial Investments

Group CompanyAs at 31 March, 2014 2013 2014 2013

Note Rs.000 Rs.000 Rs.000 Rs.000

Non Current InvestmentsAvailable For Sale Financial Investments - (AFS) 20.1 15,572,892 14,512,561 6,349,895 5,897,294 Loans and Receivables (L&R) Financial Investments

20.4 181,765 - - -

Other Non Current Financial Investments 15,754,657 14,512,561 6,349,895 5,897,294

Current InvestmentsAvailable for Sale Financial Investments - (AFS) 20.1 114,777 - 475 - Fair Value Through Profit or Loss (FVTPL) Financial Investments

20.2 1,950,144 1,668,328 783,927 684,758

Held to Maturity (HTM) Financial Investments

20.3 - 100,148 - -

Loans and Receivables (L&R) Financial Investments

20.4 254,893 - - -

Other Current Financial Investments 2,319,814 1,768,476 784,402 684,758

20.1 Available for Sale Financial Investments - (AFS) Non Current InvestmentsQuoted Equity Securities 20.1.1 15,333,884 14,468,554 6,126,218 5,894,287 Unquoted Equity Securities 20.1.2 338 30,007 7 7 Investments in Unit Trusts 20.1.3 3,000 3,000 3,000 3,000 Debt Securities 20.1.4 235,670 11,000 220,670 -

15,572,892 14,512,561 6,349,895 5,897,294

Current investmentsQuoted equity securities 20.1.5 114,777 - 475 -

114,777 - 475 -



20.1

.1 Q

uote

d E

quit

y S

ecur

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s -

Non

Cur

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Inv

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- A

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mpa

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1320

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Cost

Rs.0

00

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Rs.0

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No. o

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Cost

Rs.0

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Rs.0

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Rs.0

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inve

stm

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John

Kee

lls H

oldi

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PLC

36,5

38,9

387,

202,

026

8,29

4,34

0 3

1,53

7,21

6 6,

324,

684

7,78

9,69

240

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8,84

59,

216

37,

333

6,2

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1 Jo

hn K

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Hold

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PLC

- Wa

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s 201

61,

668,

129

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9,93

8 -

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1,92

1-

138

-

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- 7,

202,

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8,41

4,27

86,

324,

684

7,78

9,69

28,

845

9,35

4

6,2

33

9,22

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Bank

fina

nce

& in

sura

nce

Com

mer

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ank

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eylon

PLC

18,8

45,0

2056

7,95

82,

317,

938

18,

697,

963

552

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2,

112,

870

17,4

98,4

5743

2,33

22,

152,

311

17,

373,

575

418

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1,

963,

214

Com

mer

cial

Ban

k of

Cey

lon

PLC-

NV50

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3,63

94,

945

49,

981

3,5

49

4,84

350

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3,63

94,

945

49,

981

3,5

49

4,84

3 DF

CC B

ank

PLC

17,0

42,8

5659

9,95

12,

452,

467

17,

042,

856

599

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2,

234,

318

17,0

42,8

5659

9,95

12,

452,

467

17,

042,

856

599

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2,

234,

318

Hatto

n Na

tiona

l Ban

k PL

C10

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494,

946

1,50

2,44

1 1

0,01

6,27

2 4

94,9

46

1,67

5,72

210

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494,

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1,50

2,44

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0,01

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2 4

94,9

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1,67

5,72

2 Ha

tton

Natio

nal B

ank

PLC

- NV

39,1

694,

593

4,70

0 5

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6,

969

39,1

694,

593

4,70

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6,

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Natio

nal D

evel

opm

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PLC

1,62

615

026

1 1

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--

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1,67

1,23

76,

282,

752

1,

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6,03

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20.1.4 Debt Securities - AFS

As at 31 March, GroupFair Value

CompanyFair Value

2014 2013 2014 2013Rs.000 Rs.000 Rs.000 Rs.000

Corporate Debentures 235,670 11,000 220,670 - 235,670 11,000 220,670 -

20.1.5 Quoted Equity Securities - Current Investments - AFS


No. Of Warrants

Fair ValueRs.000

No. of Warrants

Fair ValueRs.000

No. of Warrants

Fair ValueRs.000

No. of Warrants

Fair ValueRs.000

John Keells Holdings PLC-Warrents 2015

1,673,129 114,777 - - 6,921 475 - -

114,777 - - 475 - -

20.2 Fair Value through Profit or Loss (FVTPL) Financial Investments Group Company

As at 31 March, Fair Value Fair Value2014 2013 2014 2013

Note Rs.000 Rs.000 Rs.000 Rs.000Quoted Equity Securities 20.2.1 1,567,065 1,526,614 783,927 684,758 Investments in Unit Trusts 20.2.2 258,772 141,714 - - Quoted Debentures 20.2.3 124,307 - - -

1,950,144 1,668,328 783,927 684,758

20.2.1 Quoted Equity Securities - FVTPL


No. of Shares Fair Value No. of Shares Fair Value No. of Shares Fair Value No. of Shares Fair ValueRs.000 Rs.000 Rs.000 Rs.000

Bank, Finance & InsurancePeople's Leasing Company PLC 26,478,500 378,367 28,439,700 372,787 24,517,300 350,597 24,517,300 321,177 Commercial Bank PLC - Voting 75,000 9,030 29,260 3,014 - - - - Commercial Bank PLC - Non Voting 42,027 4,641 14,979 1,365 - - - - Sampath Bank PLC 201,413 36,182 49,305 10,804 152,794 27,824 37,658 8,469 Central Finance PLC 131,750 23,723 131,750 23,275 106,950 19,358 106,950 19,250 Nations Trust Bank PLC 258,000 16,603 133,000 7,963 206,000 13,369 103,000 6,283 National Development Bank PLC 68,500 12,053 - - 58,500 10,448 - Ceylinco Insurance PLC-Non Voting 14,861 6,193 16,861 5,532 10,990 4,649 12,490 4,087 Hatton National Bank PLC - Non Voting 9,463 1,126 23,775 2,675 - - - - Union Bank PLC 6,000 112 306,800 3,113 6,000 112 6,000 102

488,030 430,528 426,357 359,368

Beverage, Food & TobaccoCeylon Tobacco PLC 11,600 12,635 20,600 16,428 8,600 9,082 13,600 10,618 Cargills (Ceylon) PLC 49,900 6,950 49,900 7,492 36,700 5,010 36,700 5,571 Bairaha Farms PLC 49,574 7,108 28,648 4,352 39,274 5,781 20,348 3,046 Keells Food Products PLC 110,669 6,272 87,302 6,230 84,221 4,632 64,854 4,546 Ceylon Cold Stores PLC 68,970 9,799 71,970 9,553 49,583 6,976 51,083 6,942 The Lion Brewery PLC - - 136,723 40,652 - - 59,322 19,754 Lanka Milk Foods (CWE) PLC 763,733 81,796 763,733 82,712 763,733 81,796 763,733 82,712 Renuka Agri Foods PLC 6,768,560 22,243 21,511,995 35,590 4,668,560 14,473 4,668,560 19,141

146,803 203,009 127,750 152,330



20.2.1 Quoted Equity Securities - FVTPL (Contd.)


No. of Shares Fair Value No. of Shares Fair Value No. of Shares Fair Value No. of Shares Fair ValueRs.000 Rs.000 Rs.000 Rs.000

Hotel and Travels The Kingsbury Hotel PLC 1,323,600 17,224 1,323,600 20,345 618,600 7,918 618,600 8,289 Aitken Spence Hotel Holdings PLC 84,400 5,906 84,400 6,225 61,300 4,291 61,300 4,536 Asian Hotels & Properties PLC - - - - - - - Serendib Hotels PLC 220,000 6,244 220,000 5,202 160,000 4,480 160,000 3,792 John Keells Hotels PLC 528,850 6,611 528,850 7,065 388,850 4,861 388,850 5,133

35,985 38,836 21,550 21,750

Diversified InvestmentCT Holdings PLC 1,475,500 199,193 1,480,500 186,828 - - - - Vallibel One PLC 124,200 2,080 124,200 2,118 - - - - Carsons Cumberbatch PLC 29,400 10,731 29,400 12,936 - - - - Softlogic Capital PLC 40,000,000 156,000 40,000,000 224,000 - - - - Softlogic Holding PLC 380,000 4,028 830,000 8,707 380,000 4,028 680,000 7,072 Free Lanka Capital Holdings PLC 2,850,850 5,987 2,850,850 7,127 2,850,850 5,987 2,850,850 7,127 Expo Lanka Holdings PLC 872,000 7,298 240,000 6,114 632,000 5,498 652,000 4,434 John Keells Holdings PLC 19,190 4,362 19,400 4,266 - - - - John Keells Holdings PLC - Warrant 2015 3,163 253 - - - - - - John Keells Holdings PLC - Warrant 2016 1,163 110 - - - - - - Renuka Holdings PLC 67,358 2,061 134,858 4,868 - -

392,103 456,964 15,513 18,633

ManufacturingTextured Jersey Lanka PLC 13,511,928 212,955 16,206,028 172,003 - - - -Chevron Lanka Lubricants PLC 37,500 9,944 39,000 8,373 28,000 7,400 33,000 7,161 Bukit Darah PLC 72,200 42,663 72,200 50,937 - - - - ACL Cables PLC 249,000 15,630 299,000 19,894 136,000 8,296 136,000 8,908 Royal Ceramics Lanka PLC 85,200 6,852 65,200 6,478 67,100 5,321 47,100 4,686 Tokyo Cement PLC -Voting 440,400 12,225 491,000 9,217 150,000 5,430 144,000 2,520 Tokyo Cement PLC -Non Voting 418,400 12,134 - - 418,400 12,134 - - Lanka Tiles PLC 123,208 9,433 123,208 8,413 89,815 6,799 89,815 6,242 Lanka IOC 100,000 3,850 - - 100,000 3,850 -

325,686 275,315 49,230 29,517

Construction & EngineeringAccess Engineering PLC 418,497 9,367 488,497 9,373 295,797 6,655 340,797 6,714 Colombo Dockyard PLC 21,083 3,818 30,662 6,652 12,053 2,106 21,812 4,670

13,185 16,025 8,761 11,384 Chemicals and PharmaceuticalsHeycarb PLC 67,755 12,418 46,455 8,103 50,255 9,096 31,455 5,536

12,418 8,103 9,096 5,536 PlantationsKegalle Plantation PLC - - 55,000 6,160 - - 55,000 6,160

- 6,160 - 6,160 TelecommunicationDialog Axiata PLC 2,280,893 20,528 2,155,600 19,169 861,951 7,758 1,824,200 16,418

20,528 19,169 7,758 16,418 Power & EnergyVallibel Power Erathna PLC 1,605,425 9,080 1,358,425 7,927 1,155,024 6,468 1,003,024 5,617

9,080 7,927 6,468 5,617 HospitalsAsiri Hospitals Holdings PLC 5,222,890 112,538 4,782,370 54,379 4,672,890 103,738 4,432,370 50,529 Ceylon Hospitals PLC - Non Voting 140,120 10,709 140,120 10,199 100,080 7,706 100,080 7,516

123,247 64,578 111,444 58,045 Total Quoted Equity Securities - FVTPL 1,567,065 1,526,614 783,927 684,758



20.2.2 Investments in Unit trusts - FVTPLGroup

As at 31 March, 2014 2013 No. of Units Fair Value No. of Units Fair Value

Rs.000 Rs.000

Namal High Yield Fund 5,186,213 66,416 3,178,987 35,819

JB Vantage Money Market Fund 4,964,585 66,312 3,031,222 35,405 Eagle Income Fund 3,741,112 40,254 3,286,385 35,329 Eagle Money Fund 2,107,020 25,745 - - Ceybank Savings Plus Money Market Fund 5,639,583 60,045 3,228,782 35,161

Total Unit Trust Investment -FVTPL 258,772 141,714

20.2.3 Quoted Debentures - FVTPL


Carrying Value Fair Value Carrying Value Fair Value Rs.000 Rs.000 Rs.000 Rs.000

People's Leasing Company PLC 50,000 52,427 - - Hatton National Bank PLC 19,003 19,844 - - Senkadagala Finance PLC 20,000 20,618 - - Lion Brewery (Ceylon ) PLC 15,000 15,736 - - Hayleys PLC 15,000 15,682 - - Total Investments In Quoted Debentures - FVTPL 119,003 124,307 - -

20.3 Held to Maturity (HTM) Financial InvestmentsGroup

As at 31 March, 2014 2013Rs.000 Rs.000

Commercial Papers - 100,148- 100,148

20.4 Loans and Receivables (L&R) Financial Investments

Non Current Investments

Corporate Debentures 181,765 -

181,765 -

Current Investments

Treasury Bills Matures After 3 Months 42,516

Trust Certificates 212,377 -

254,893 -

20.5 Investments that have been Pledged The Investments that are pledged for Liabilites are disclosed in Note 41 to these financial statements if any.


21 Deferred Tax Asset and Liabilities 21.1 Recognised Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities are attributable to the following:


Assets Liabilities Net Asset Liabilities NetRs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Property, Plant and Equipment (11,382) 416,080 404,698 - 500,154 500,154 Biological Assets - 308,814 308,814 - 272,438 272,438 Employee Benefits (154,545) - (154,545) (192,796) - (192,796)Accelerated Tax Depreciation on Leasing Assets

- 8,456 8,456 - 6,463 6,463

Unutilised Tax Loss Carry-Forwards (230,889) - (230,889) (172,083) - (172,083) (396,816) 733,350 336,534 (364,879) 779,055 414,176

CompanyAs at 31 March, 2014 2013

Assets Liabilities Net Asset Liabilities NetRs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Property, Plant and Equipment - 60,958 60,958 - 44,230 44,230 Employee Benefits (44,068) - (44,068) (46,145) - (46,145)

(44,068) 60,958 16,890 (46,145) 44,230 (1,915)

21.1.1 Movement in Recognised Deferred Tax Assets and Liabilities

GroupCharged/(Credited)

Balance as at 1 April 2013

De-Recognition of Subsidiary

inProfit or Loss

in Other Comprehensive

Income

Directly in Equity

Balance as at 31 March 2014

Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000Property, Plant and Equipment 500,154 (147,595) 52,139 - - 404,698 Biological Assets 272,438 - 36,376 - - 308,814 Employee Benefits (192,796) 38,827 (7,552) 6,976 - (154,545)Accelerated Tax Depreciation on Leasing Assets

6,463 - 1,993 - - 8,456

Unutilised Tax Loss Carry-Forwards (172,083) - (58,806) - - (230,889) 414,176 (108,768) 24,150 6,976 - 336,534

CompanyCharged/(credited)

Balance as at1 April 2013

inProfit or loss

in othercomprehensive

income

directly in equity

Balance as at31 March 2014

Rs.000 Rs.000 Rs.000 Rs.000 Rs.000Property, Plant and Equipment 44,230 21,694 - (4,967) 60,957 Employee Benefits (46,145) (155) 2,233 - (44,067)

(1,915) 21,539 2,233 (4,967) 16,890


21.2 Unrecognised Deferred Tax Assets Deferred tax assets have not been recognised in respect of the following items:


Rs.000 Rs.000 Rs.000 Rs.000

Tax Losses 161,792 179,338 - - Other Deductible Temporary Differences 150,519 176,710 - -

312,311 356,048 - -

Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profits will be available against which the Group can utilise the benefits there from.

22 Finance Lease, Hire Purchases and Operating Lease Receivables Group

2014 2013As at 31 March, Finance

Lease Receivables

Hire Purchase

Receivables

Operating Lease

Receivables

Total Finance Lease

Receivables

Hire Purchase

Receivables

Operating Lease

Receivables

Total

Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Non Current AssetsReceivable from One to Five Years 22.1 199,562 101,802 - 301,364 101,402 20,649 - 122,051

199,562 101,802 - 301,364 101,402 20,649 - 122,051

Current AssetsReceivable Within One Year 22.2 77,633 36,566 - 114,199 31,478 7,054 - 38,532

77,633 36,566 - 114,199 31,478 7,054 - 38,532

22.1 Receivable from One to Five Years

Gross Rental Receivable 258,125 133,997 - 392,122 139,465 27,106 - 166,571 Unearned Interest Income (58,563) (32,195) - (90,758) (38,063) (6,457) - (44,520)Allowance for Impairment - - - - - - - -

199,562 101,802 - 301,364 101,402 20,649 - 122,051

22.2 Receivable within One Year

Gross Rental Receivable 127,759 61,441 - 189,200 60971 12894 - 73,865 Unearned Interest Income (50,126) (24,875) - (75,001) (29,493) (5,840) - (35,333)Allowance for Impairment - - - - - - - -

77,633 36,566 - 114,199 31,478 7,054 - 38,532



23 Advances and Other Loans Group

As at 31 March, 2014 2013Loans and advances

Factoring receivables

Total Loans and advances


Total

Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000Note 23.1 Note 23.1

Non Current AssetsReceivable from One to Five Years 151,984 - 151,984 100,118 - 100,118

151,984 - 151,984 100,118 - 100,118 Current AssetsReceivable within One Year 433,622 239,393 673,015 40,205 61,389 101,594

433,622 239,393 673,015 40,205 61,389 101,594 Total 585,606 239,393 824,999 140,323 61.389 201.712

23.1 Loans and Advances Group

As at 31 March, 2014 2013

Loans and advances


Total Loans and advances


Total

Notes Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Loans Secured by Fixed Deposits 687 - 687 1,367 - 1,367

Loans Secured by Other Assets 259,363 - 259,363 87,543 - 87,543 Trade Finance Receivables 328,259 - 328,259 51,413 51,413 Allowance for Impairment 23.2 (2,703) - (2,703) - - -

585,606 - 585,606 140,323 - 140,323

23.2 Allowance for Impairment

Collective Allowance for ImpairmentBalance as at 1 April - - - - - - Charge for the Year 2,703 - 2,703 - - - Balance as at 31 March 2,703 - 2,703 - - -

24 InventoriesGroup Company

As at 31 March, 2014 2013 2014 2013Rs.000 Rs.000 Rs.000 Rs.000

Raw Materials 1,361,500 2,779,129 1,107,897 1,385,421 Packing Materials 518,818 752,514 453,429 421,270 Work in Progress 269,330 284,130 136,877 145,193 Finished Goods 650,638 563,180 283,012 290,930 Harvested Crop 376,037 708,660 - - Nurseries 21,519 15,747 - - Input Materials, Consumables and Spares 2,124,555 1,675,851 270,384 266,427 Goods in Transit 25,035 45,451 - -

5,347,432 6,824,662 2,251,599 2,509,241 Provision for Slow Moving and Obsolete Inventories (911,636) (684,957) (5,443) (5,443)

4,435,796 6,139,705 2,246,156 2,503,798

24.1 Inventories that have been Pledged The Inventories that are pledged for Liabilites are disclosed in Note 41 to these financial statements if any.



25 Trade and Other ReceivablesGroup Company

As at 31 March, 2014 2013 2014 2013Note Rs.000 Rs.000 Rs.000 Rs.000

Financial AssetsTrade Receivables 4,975,673 3,063,258 2,534,074 2,209,016 Other Financial Receivables 1,213,119 2,560,888 452,161 325,926 Receivable from Share Trust 25.1 1,446,830 1,471,493 - - Insurance Contract Receivables 371,872 342,952 - Loans Given to Employees 4,123 17,879 - - Refundable Deposits 24,012 10,999 3,421 3,354

8,035,629 7,467,469 2,989,656 2,538,296 Provision for Impairment Loss on Financial Assets (958,913) (1,462,110) (154,766) (130,785)

7,076,716 6,005,359 2,834,890 2,407,511

Non Financial AssetsPrepayments and Advances 1,440,808 1,375,391 1,054,318 832,333 Accrued Income 66,394 131,018 66,394 126,246 Tax Recoverables 220,355 217,721 - - Prepaid Staff Costs 31,829 27,723 - - Other Non Financial Receivables 884,501 70,751 - -

2,643,887 1,822,604 1,120,712 958,579 Provision for Bad and Doubtful Debts - - - -

2,643,887 1,822,604 1,120,712 958,579 9,720,603 7,827,963 3,955,602 3,366,090

25.1 Receivable from Share Trust Melstacorp Limited has acquired 8,650,732 shares of the Company for Rs.1,446.83 Mn in order to form a Share Trust

for the benefit of its employees. Melstacorp Limited Share Trust (Trustee) was created effective from 1 April 2011 for the holding of shares. Melstacorp Limited and the trustees will initiate an inter transfer of said shares to be held in the name of the trustees as per the provision in the trust deed ratified by the board on 9 August 2012.

26 Cash at Bank and Cash in HandGroup Company


Favorable Balances Classified Under Current Assets

Short Term Deposits 26.1 3,044,934 3,824,871 82,062 70,410 Cash At Bank 595,628 504,495 61,719 193,501 Cash in Hand 206,471 235,886 199,883 231,501 Cash in Transit 76,479 277,394 76,439 270,787 Total 3,923,512 4,842,646 420,103 766,199

Unfavorable Balances Classified Under Current Liabilities

Bank Overdrafts 5,120,243 5,695,903 3,810,832 4,736,030 Total 5,120,243 5,695,903 3,810,832 4,736,030

(1,196,731) (853,257) (3,390,729) (3,969,831)


26.1 Short term depositsGroup Company


Government Securities which Matures Within 3 Months 867,271 715,337 - - Fixed Deposits which Matures Within 3 Months 2,177,663 3,109,534 82,062 70,410

3,044,934 3,824,871 82,062 70,410

26.1.1 Short Term Deposits that have been Pledged

The Short term deposits that are pledged for Liabilites are disclosed in Note 41 to these financial statements if any.

27 Non Current Assets held for SaleGroup Company


Property, Plant and Equipment - 518 - - - 518 - -

27.1 Consequent to the decision taken to demolish and reconstruct the new hotel the carrying amount of assets held by Browns Beach Hotels PLC is recognised under assets held for sale.

28 Stated CapitalFor the year ended 31March, 2014 2013

No. of Shares Value of Shares No. of Shares Value of SharesRs.000 Rs.000

Balance at the Beginning of the Year 300,000,000 300,000 300,000,000 300,000 Issue of Shares - - - - Balance at the End of the Year 300,000,000 300,000 300,000,000 300,000

The Company’s stated capital consist of fully paid ordinary shares which provides entitlement to its holders to receive dividends as declared from time to time and to vote per share at a meeting of the Company.

29 ReservesGroup Company


Capital ReservesRevaluation Reserve 29.1 5,793,558 5,356,699 1,971,799 2,052,242 Capital Reserve 29.2 110,930 110,930 107,882 107,882 Reserve Fund 29.3 1,798 1,131 - - Total Capital Reserves 5,906,286 5,468,760 2,079,681 2,160,124

Revenue ReservesGeneral Reserve 29.4 8,222,578 8,210,000 8,210,000 8,210,000 Exchange Fluctuation Reserve 29.5 374,881 328,935 - - Timber Reserve 29.6 597,921 565,806 - - Afs Reserve 29.7 5,727,503 5,870,033 4,581,774 4,364,511 Investment Fund 29.8 2,844 1,990 - - Total Revenue Reserves 14,925,727 14,976,764 12,791,774 12,574,511 Total Reserves 20,832,013 20,445,524 14,871,455 14,734,635



29.1 Revaluation reserve The revaluation reserve comprises of the gain arisen from the revaluation of Property, Plant and Equipment. This reserve

is realised upon the derecognition of the revalued Property, Plant and Equipment.

29.2 Capital reserve Capital reserve comprises profits retained in order to utilise for the capital commitments.

29.3 Reserve fund Reserve fund was created to comply with the Direction No.1 of 2003 (Capital funds) issued by the Central Bank. The

Company is required to transfer 5% of annual profits to this reserve fund as long as the capital funds are not less 25% of total deposit liabilities.

29.4 General reserve General reserve reflects the amount the Group has reserved over the years from its earnings.

29.5 Exchange fluctuation reserve Exchange fluctuation reserve comprises of all foreign exchange differences arising from the translation of foreign

subsidiaries of equity accounted investees in the Group and the portion of exchange gain or loss arising from the translation of the hedge instrument in relation to cash flow hedges.

29.6 Timber reserve This represents the unrealised gains arising from the fair value of consumable biological assets (Timber plantations) until

the assets are derecognised or impaired.

29.7 AFS reserve This represents the cumulative net change in the fair value of available-for-sale financial assets until the investments are

derecognised or impaired.

29.8 Investment fund The reserve is created in accordance with the Central Bank guidelines issued to create an Investment Fund reserve by

transferring

- 8% of the profits liable for VAT on financial services monthly when the payment of VAT on financial services for such month becomes due

- 5% of the profits before tax calculated for payment of income tax purposes on dates specified in the Inland Revenue Act for the self assessment payment of tax.


30 Interest Bearing Loans and Borrowings Group Company


Non Current LiabilitiesTerm Loans Payable after One Year 30.1 549,408 501,713 - 125,006 Liability to Make Lease Payments Payable After One Year 30.2 98,852 100,504 - - Finance Lease Liabilities Payable After One Year 30.3 22,715

670,975 602,217 - 125,006

Current LiabilitiesTerm Loans Payable Within One Year 30.1 625,856 1,782,383 - 1,144,996 Liability To Make Lease Payments Payable Within One Year

30.2 1,653 1,590 - -

Finance Lease Liabilities Payable Within One Year 30.3 5,062 - - - Other Short Term Borrowings 6,958,577 3,060,289 6,215,006 2,570,002 Redeemable Preference Shares 30.4 12,646 12,646 - -

7,603,794 4,856,908 6,215,006 3,714,998

30.1 Term LoansGroup Company


Balance as at Beginning of the Year 2,284,095 2,970,106 1,270,002 1,915,000 Received During the Year 1,477,684 1,396,517 - 500,000 Acquisition / (De- Recognition) of Subsidiaries (152,089) - - - Repaid During the Year (2,434,426) (2,082,527) (1,270,002) (1,144,998)

1,175,264 2,284,096 - 1,270,002

Repayable within one Year 625,856 1,782,383 - 1,144,996 Repayable after one Year 549,408 501,713 - 125,006

1,175,264 2,284,096 - 1,270,002

30.2 Liability to Make Lease PaymentsGroup Company


Gross Liability as at the Beginning of the Year 184,058 189,731 - - Repayments During the Year (5,673) (5,673) - -

178,385 184,058 - - Finance Costs Allocated to Future Years (77,880) (81,964) - - Net Liability as at the End of the Year 100,505 102,094 - -

Repayable within one YearGross Liability 5,673 5,673 - - Finance Costs Allocated to Future Years (4,020) (4,083) - - Net Liability 1,653 1,590 - -



30.2 Liability to Make Lease Payments (Contd.)Group Company


Repayable within Two to Five YearsGross Liability 22,692 22,692 - - Finance Costs Allocated to Future Years (15,385) (15,671) - - Net Liability 7,307 7,021 - -

Repayable after Five YearsGross Liability 155,693 155,693 - - Finance Costs Allocated to Future Years (64,148) (62,210) - - Net Liability 91,545 93,483 - -

Finance Lease Liabilities Payable after One Year 98,852 100,504 - -

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.20,294,271/= Which is based on GDP deflator of 8.9% (2012)

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.

As at 31 March, 2014Rs.000

Gross Liability 1,620,514Finance Charges (1,105,970)Net Liability 514,544

The above reassessed liability is not reflected in theses financial statements.

30.3 Finance LeaseFinancial Institution Terms of Repayment Repayable

within One Year

Repayable within 2-5

Year

Repayable after 5 Year

Total as at 31/03/2014

Central Finance Company PLC

60 equal monthly instalments @ Rs. 707,793/- commencing from 23.05.2013

5,062 22,715 - 27,777

30.4 Redeemable Preference Shares As per LKAS/ SLFRS requirements, preference shares of 1,264,616 amounting to Rs. 12.646 Mn which is redeemable

as per the terms of an agreement has been classified as borrowings based on the features of the said shares. Therefore the purpose of the financial reporting, the Company has classified the redeemable preference shares under borrowings.


31 Employee BenefitsGroup Company

As at 31 March, 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000

Present Value of Unfunded Obligations 31.1 831,769 1,147,982 110,170 115,365 Present Value of Funded Obligations - - - - Total Present Value of Obligations 831,769 1,147,982 110,170 115,365 Fair Value of Planed Assets - - - - Provision for Retirement Benefit Obligations 831,769 1,147,982 110,170 115,365

31.1 Movement in Present Value of Defined Benefit Obligations

Group Company

For the year ended 31 March, 2014 2013 2014 2013

Note Rs.000 Rs.000 Rs.000 Rs.000

Balance as at Beginning of the Year 1,147,982 1,103,085 115,365 116,105

Acquisition/ (De-Recognition) of Subsidiaries (330,811) - - -

Benefits Paid by the Plan (106,980) (97,640) (21,056) (12,567)

Expense Recognised in the Profit or Loss 31.1.1 151,125 152,584 21,445 18,494

Actuarial (Gain) / Loss Recognised in Other Comprehensive Income

(29,547) (10,047) (5,584) (6,667)

Balance as at the End of the Year 831,769 1,147,982 110,170 115,365

31.1.1 Expense Recognised in the Profit or Loss

Group CompanyFor the year ended 31 March, 2014 2013 2014 2013

Rs.000 Rs.000 Rs.000 Rs.000

Current Service Costs 67,034 76,512 8,755 8,045 Interest Costs 84,091 76,072 12,690 10,449

151,125 152,584 21,445 18,494

31.1.2 Actuarial Assumptions

Principal Actuarial Assumptions at the Reporting Date

Group Company As at 31 March, 2014 2013 2014 2013

Discount Rate (%) 10 - 11.5% 10 - 12.15% 10% 10%Future Salary Increases (%) 5-10% 5-10% 5% 5%Retirement Age (Years) 55-65 years 55-65 years 55-65 years 55-65 years

31.1.3 Sensitivity of Assumptions Used

If one percentage increase in the assumptions, would have the following effects to the define benefit obligation liability,

Group 2014

Company 2014 As at 31 March,

Discount Rate Salary Increment Rate

Discount Rate Salary Increment Rate

Increase by 1% (60,347) 43,341 (3,452) 4,044 Decrease by 1% 69,637 (39,514) 3,671 (3,857)



32 Other Deferred Liabilities Group

As at 31 March, 2014 2013 Notes Rs.000 Rs.000

Non Current LiabilitiesDeferred Grants and Subsidies 32.1 214,139 227,365 Deferred Revenue 32.2 38,432 30,517

252,571 257,882 Current LiabilitiesDeferred Revenue 32.2 56,730 58,128

56,730 58,128

32.1 Deferred Grants and Subsidies Group

For the year ended 31March, 2014 2013 Rs.000 Rs.000

Balance at the Beginning of the Year 227,365 241,135 Amortisation for the Year (13,226) (13,770)Balance at the End of The Year 214,139 227,365

The Balangoda Plantation PLC 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.

32.2 Deferred Revenue Group

For the year ended 31March, 2014 2013 Rs.000 Rs.000

Balance at the Beginning of the Year 88,645 80,972 Revenue Received During the Year 78,951 91,550 Deferred Revenue Recognised During the Year (72,434) (83,877)Balance at the End of the Year 95,162 88,645

Deferred Revenue to be Recognised within One Year 56,730 58,128 Deferred Revenue to be Recognised after One Year 38,432 30,517

95,162 88,645


33 Trade and Other Payables

Group Company As at 31 March, 2014 2013 2014 2013

Note Rs.000 Rs.000 Rs.000 Rs.000

Financial LiabilitiesTrade Payables 941,271 1,276,025 121,226 129,853 Insurance Contract Liabilities 801,254 777,138 - Other Financial Liabilities 3,234,670 4,327,214 2,771,217 2,687,366 Refundable Advances and Deposits 2,293 170,603 - -

4,979,488 6,550,980 2,892,443 2,817,219 Non Financial LiabilitiesAccrued Expenses 1,296,790 160,213 102,466 123,244 Direct & Indirect Tax Payables 33.1 2,257,698 4,333,674 2,015,708 3,614,070 Non Refundable Advances and Deposits 90,989 61 - - Unclaimed Dividends 147,713 143,480 135,944 133,803

3,793,190 4,637,428 2,254,118 3,871,117

8,772,678 11,188,408 5,146,561 6,688,336

33.1 Direct & Indirect Tax Payables

Excise Duty Payable 1,595,715 3,418,414 1,454,449 3,217,859 Value Added Tax (VAT) Payable 553,519 817,781 469,810 308,683 Nation Building Tax (NBT) Payable 108,464 97,479 91,449 87,528

2,257,698 4,333,674 2,015,708 3,614,070

34 Deposit LiabilitiesGroup

As at 31 March, 2014 2013 Rs.000 Rs.000

Term Deposits 605,876 132,540 Savings Deposits 5,121 361 Liabilities to FBIL Customers 52,540 145,471

663,537 278,372

35 Related Party Disclosures The Company carries out transactions in the ordinary course of its business with parties who are defined as related

parties in Sri Lanka Accounting Standard (LKAS 24) “Related Party Disclosures”, the details of which are reported below. The Pricing applicable to such transactions is based on the assessment of risk and pricing model of the Company and is comparable with what is applied to transactions between the Company and its unrelated Customers.

Outstanding current account balances at year end are unsecured, interest free and settlement occurs in cash except the balances arisen from restructure.



35.1 Balances with Related Parties35.1.1 Amounts due from Related Parties

Group Company

As at 31 March, 2014 2013 2014 2013

Note Rs.000 Rs.000 Rs.000 Rs.000

Subsidiaries 35.1.3 - - 4,764,832 2,531,056 Associates 35.1.4 561,721 744,339 553,821 550,996

Other Related Companies 35.1.5 5,993 5,315 5,577 5,078

567,714 749,654 5,324,230 3,087,130

35.1.2 Amounts due to Related Parties

Subsidiaries 35.1.3 - - 1,035,020 971,383

Associates 35.1.4 1,358 1,083 - -

Other Related Companies 35.1.5 262,547 241,396 - 42

263,905 242,479 1,035,020 971,425

35.1.3 Subsidiaries

Group Company Amounts due from Amounts due to Amounts due from Amounts due to

As at 31 March, 2014 2013 2014 2013 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

AION SG Residencies (Pvt) Ltd - - - - 10,862 9,782 - - Bellvantage (Pvt) Ltd - - - - - 30,158 3,518 Continental Insurance Lanka Limited

- - - - 2,033 1,254 - -

Lanka Bell Ltd (Note 35.1.6) - - - - 100,299 94,299 - - Melsta Logistics (Pvt) Ltd - - - - - - 400,831 248,213 Melsta Regal Finance Ltd - - - - 651 27 - - Periceyl (Pvt) Ltd - - - - - 577,251 692,694 Splendor Media (Pvt) Ltd - - - - - 25,652 25,830 Texpro Industries Ltd - - - - - 1,128 1,128 Melstacorp Limited - - - - 4,661,849 2,435,476 - -

- - - - 4,775,694 2,540,838 1,035,020 971,383

Provision for Impairment of Amounts due from Subsidiaries

- - - - (10,862) (9,782) - -

- - - - 4,764,832 2,531,056 1,035,020 971,383

35.1.4 Associates



Aitken Spence PLC 2,520 2,135 1,358 1,083 - - - - Madulsima Plantations PLC (Note 35.1.7) 559,201 554,449 - - 553,821 550,996 - - Pelwatte Dairies (Pvt) Ltd - 187,755 - - - - - -

561,721 744,339 1,358 1,083 553,821 550,996 - -


35.1.5 Other Related Companies



Ace International Express (Pvt) Ltd - 3 - - - - - - Ace Power Generation Matara (Pvt) Ltd 2 - - - - - - - Aitken Spence Hotel Holdings PLC 87 91 - - - - - - Aitken Spence Hotel Management

(Pvt) Ltd

11 6 173 727 - - - -

Ambewela Livestock Co.Ltd 32 - - - - - - - Ambewela Products (Pvt) Ltd - 16 - - - - - - Comark Engineers (Pvt) Ltd - - 53 53 - - - - Lanka Aluminium Industries PLC - - - 136 - - - - Lanka Aluminium PLC - - 1,507 - - - - - Lanka Milk Foods (CWE) PLC 4,490 5,140 20 11 4,429 5,078 - - Lanka Stassens Distributors (Pvt) Ltd 1 2 - - - - - - Sithma Development Private Limited - - - 177 - - - - Stassen Exports Limited 1,367 50 260,794 240,292 1,148 - - 42 Stassen Natural Foods (Pvt) Ltd 3 7 - - - - - -

5,993 5,315 262,547 241,396 5,577 5,078 - 42

35.1.6 This represents the remaining balance of loan granted for Rs.200mn to Lanka Bell Limited at the rate of AWPLR Plus 1% adjusted on quarterly basis.

35.1.7 This amount represents the balance remaining on a short term loan granted to Madulsima Plantations PLC along with the interest at 16% per annum.



35.2 Transactions with Related Parties

35.2.1 Transactions with Subsidiaries, Associates and Other Related Companies

Name of the Company Names of Directors Nature of Interest

Nature of Transaction TransactionValue

Balance due (to) / from

Rs.000 Rs.000 1 Milford Exports (Ceylon) (Pvt)

Limited Mr. D.H.S.Jayawardena Parent Co. Dividend paid 373,412 -

Mr. R.K.Obeyesekere 2 Periceyl (Pvt) Limited Mr. D.H.S.Jayawardena Subsidiary Co. Debtor collections & transfers 6,167,914 (577,251)

Mr. R.K.Obeyesekere Supply of goods & services 580,843 Mr. C.R.Jansz Trading account profit 56,708

Goods received 50,781 3 Balangoda Plantations PLC Mr. D.H.S.Jayawardena Subsidiary Co. Rent paid 218 -

Mr. R.K.Obeyesekere Purchase of tea 107 Mr. C.R.Jansz

4 Splendor Media (Pvt) Ltd. Subsidiary Co. Loan interest 3,539 (25,652) Supply of goods & services 1,432 Services received 1,127

5 Texpro Industries Limited Mr. D.H.S.Jayawardena Subsidiary Co. (1,128)6 Continental Insurance Lanka Ltd Mr. C. F. Fernando Subsidiary Co. Insurance premium 29,900 2,032

Insurance claim received 2,175 Supply of goods & services 3,707

7 Melsta Logistics (Pvt) Ltd Subsidiary Co. Vehicle hiring charges 263,821 (400,831) Repair charges & other services 14,538 Rent 5,143 Temporary loan repayment 11,037 Temporary loan 11,000

8 Melstacorp Limited Mr. D.H.S.Jayawardena Subsidiary Co. Dividend paid 25,952 4,661,849 Mr. R.K.Obeyesekere Rent & other services 171,271 Mr. C.R.Jansz Supply of goods & services 6,021 Mr. N.de S. Deva Aditya Rent income 12,938 Capt. K.J.Kahanda Transferred value of land & building 33,000 Mr. C. F. Fernando Funds transferred 2,683,779 Dr. N. Balasuriya Funds received 1,239,426

Dividend received 920,000 9 Lanka Bell Ltd Mr. D.H.S.Jayawardena Subsidiary Co. Loan interest received 12,582 100,299

Mr. C.R.Jansz Telephone bills paid & services 14,188 Supply of goods & services 1,423

10 Bellvantage (Pvt) Ltd Subsidiary Co. Maintenance charges 52,224 (30,158) Supply of goods & services 2,359

11 Bell Solutions (Pvt) Ltd. Mr. D.H.S.Jayawardena Subsidiary Co. Maintenance charges 3,428 12 Melsta Regal Finance (Pvt) Ltd Subsidiary Co. Supply of goods & services 624 651 13 Melsta Properties (Pvt) Ltd. Capt. K.J.Kahanda Subsidiary Co. Land & Building Transfer 84,500 -

Mr. C. F. Fernando14 Aitken Spence PLC Mr. D.H.S.Jayawardena Associate Co. Dividend received 279 -

Mr. N.de S. Deva Aditya15 Madulsima Plantations PLC Mr. D.H.S.Jayawardena Associate Co. Loan interest 1,351 553,821

Mr. R.K.Obeyesekere Supply of goods & services 5 16 Stassen Exports (Pvt) Limited Mr. D.H.S.Jayawardena Affiliate co. Dividend paid 6,343 1,148


Name of the Company Names of Directors Nature of Interest

Nature of Transaction TransactionValue

Balance due (to) / from

Rs.000 Rs.000 Mr. R.K.Obeyesekere Purchases, repairs & maintenance 46,688

& transport charges Supply of goods & services 639

17 Lanka Dairies (Pvt) Ltd. Mr. D.H.S.Jayawardena Affiliate co. Purchase of Milk Foods 725 - Mr. R.K.Obeyesekere Mr. C.R.Jansz

18 Lanka Milk Foods (CWE) PLC Mr. D.H.S.Jayawardena Affiliate co. Dividend paid 113,885 4,429 Mr. R.K.Obeyesekere Dividend received 1,146 Mr. C.R.Jansz Purchase of Milk Foods 6,953

Supply of goods & services 17,592 19 DFCC Bank PLC Mr. C.R.Jansz Affiliate co. Dividend received 84,060 -20 Aitken Spence Hotel Holding PLC Mr. D.H.S.Jayawardena Affiliate co. Sales 918 -

35.2.2 Melstacorp Share Trust

Melstacorp has advanced Rs.1,446.83 Mn to form a share trust for the benefit of employees of the Group where the Mr.C.F. Fernando and Dr.N. Balasuriya are the Trustees.

35.2.3 Transactions with Key Management Personnel

According to Sri Lanka Accounting Standard (LKAS 24) “Related Party Disclosures”, Key Management Personnel, are those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly, the Board of Directors (including executive and Non-Executive Directors) and their immediate family member have been classified as Key Management Personnel of the Company.

The immediate family member is defined as spouse or dependent. Dependent is defined as anyone who depends on the respective Director for more than 50% of his/her financial needs.

35.2.3.1 Compensations to Key Management Personnel

There were no compensation paid to Key Management Personnel during the year other than those disclosed below.

Group Company For the year ended 31March, 2014 2013 2014 2013

Rs.000 Rs.000 Rs.000 Rs.000

Short Term Employee Benefits 89,234 60,107 23,410 22,247 Post Employment Benefits 2,227 - - - Other Long Term Benefits - - - - Share Base Payments - - - -

35.2.3.2 Loans to Directors

There were no loans granted to Directors during the year.

35.2.4 There are no Related party transactions which exceed 10% of the equity or 5% of the total assets of the entity as per audited financial statements, whichever is lower (CSE Ruling)


NOTES TO THE FINANCIAL STATEMENTS3

6

Fina

ncia

l Ins

trum

ents

36

.1 A

ccou

ntin

g C

lass

ifica

tion

of

Fina

ncia

l Ins

trum

ents

36.1

.1 A

ccou

ntin

g C

lass

ifica

tion

of

Fina

ncia

l Ass

ets

Grou

pLo

ans

and

Rece

ivab

les

(L&R

)

Asse

ts a

t Fai

r Val

ue th

roug

h

Profi

t and

Los

s (F

VTPL

)

Hel

d to

Mat

urity

Inve

stm

ents

(HTM

)

Avai

labl

e fo

r Sal

e Fi

nanc

ial

Asse

ts (A

FS)

Tota

l

As a

t 31

Mar

ch,

2014

2013

2014

201

3 20

14 2

013

2014

201

3 20

14 2

013

Not

e R

s.00

0 R

s.00

0 R

s.00

0 R

s.00

0 R

s.00

0 R

s.00

0 R

s.00

0 R

s.00

0 R

s.00

0 R

s.00

0 As

sets

as

per B

alan

ce S

heet

Non

Cur

rent

Ass

ets

Othe

r Non

Cur

rent

Fin

anci

al In

vest

men

ts20

181

,765

-

-

-

-

-

15

,572

,892

14,

512,

561

15,

754,

657

14,

512,

561

Fina

nce

Leas

e, H

ire P

urch

ases

and

Ope

ratin

g

Leas

e Re

ceiv

able

s

22 3

01,3

64

122

,051

-

-

-

-

-

-

3

01,3

64

122

,051

Adva

nces

and

Oth

er L

oans

23 1

51,9

84

100

,118

-

-

-

-

-

-

1

51,9

84

100

,118

Curre

nt A

sset

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ade

and

Othe

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25 7

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,716

6

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-

-

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6

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Fi

nanc

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ase,

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Pur

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ting

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ceiv

able

s

22 1

14,1

99

38,

532

-

-

-

-

-

-

114

,199

3

8,53

2

Adva

nces

and

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oans

23 6

73,0

15

101

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-

-

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6

73,0

15

101

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Am

ount

s du

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m R

elat

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ompa

nies

35.1

.1 5

67,7

14

749

,654

-

-

-

-

-

-

5

67,7

14

749

,654

Ot

her C

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nt F

inan

cial

Inve

stm

ents

20 2

54,8

93

-

1,9

50,1

44

1,6

68,3

28

-

100

,148

1

14,7

77

-

2,3

19,8

14

1,7

68,4

76

Cash

and

Cas

h Eq

uiva

lent

s26

3,9

23,5

12

4,8

42,6

46

-

-

-

-

-

-

3,9

23,5

12

4,8

42,6

46

Tota

l 1

3,24

5,16

2 1

1,95

9,95

4 1

,950

,144

1

,668

,328

-

1

00,1

48

15,6

87,6

69 1

4,51

2,56

1 3

0,88

2,97

5 2

8,24

0,99

1

Com

pany

Loan

s an

d Re

ceiv

able

s

(L&R

)

Asse

ts a

t Fai

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hrou

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Profi

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)

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urity

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(HTM

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Avai

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nanc

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Asse

ts (A

FS)

Tota

l

As a

t 31

Mar

ch,

2014

2013

2014

201

3 20

14 2

013

2014

201

3 20

14 2

013

Not

e R

s.00

0 R

s.00

0 R

s.00

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0 R

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0 R

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0 R

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s.00

0

Asse

ts a

s pe

r Bal

ance

She

etN

on C

urre

nt A

sset

sOt

her N

on C

urre

nt F

inan

cial

Inve

stm

ents

20 -

-

-

-

-

-

6

,349

,895

5

,897

,294

6

,349

,895

5

,897

,294

Curre

nt A

sset

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ade

and

Othe

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25 2

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,890

2

,407

,511

-

-

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-

-

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,890

2

,407

,511

Am

ount

s du

e fro

m R

elat

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ompa

nies

35.1

.1 5

,324

,230

3

,087

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-

-

-

-

-

-

5

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,230

3

,087

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Ot

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inan

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Inve

stm

ents

20 -

-

7

83,9

27

684

,758

-

-

4

75

-

784

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6

84,7

58

Cash

and

Cas

h Eq

uiva

lent

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420

,103

7

66,1

99

-

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7

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Tota

l 8

,579

,223

6

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7

83,9

27

684

,758

-

-

6

,350

,370

5

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,294

15

,713

,520

12,

842,

892


36.1.2 Accounting Classification of Financial Liabilities

GroupFinancial Liabilities at Fair

Value Through Profit or Loss

Financial Liabilities Measured

at Amortised Cost

Total

As at 31 March, 2014 2013 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Liabilities as per Balance SheetNon Current LiabilitiesInterest Bearing Loans and Borrowings 30 - - 670,975 602,217 670,975 602,217

Current LiabilitiesTrade and Other Payables 33 - 4,979,488 6,550,980 4,979,488 6,550,980 Deposit Liabilities 34 - 663,537 278,372 663,537 278,372 Amount due to Related Companies 35.1.2 - 263,905 242,479 263,905 242,479 Interest Bearing Loans and Borrowings 30 - 7,603,794 4,856,908 7,603,794 4,856,908 Bank Overdrafts 26 - 5,120,243 5,695,903 5,120,243 5,695,903 Total - - 19,301,942 18,226,859 19,301,942 18,226,859

CompanyFinancial Liabilities at Fair

Value Through Profit or Loss

Financial Liabilities Measured

at Amortised Cost

Total

As at 31 March, 2014 2013 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Liabilities as per Balance SheetNon Current LiabilitiesInterest Bearing Loans and Borrowings 30 - - - 125,006 - 125,006

Current LiabilitiesTrade and Other Payables 33 - - 2,892,443 2,817,219 2,892,443 2,817,219 Amount due to Related Companies 35.1.2 - - 1,035,020 971,423 1,035,020 971,425 Interest Bearing Loans and Borrowings 30 - - 6,215,006 3,714,998 6,215,006 3,714,998 Bank Overdrafts 26 - - 3,810,832 4,736,030 3,810,832 4,736,030

Total - - 13,953,301 12,364,636 13,953,301 12,364,636

The above tables do not include fair value information for financial assets and financial liabilities not measured at fair value because their carrying amounts are a reasonable approximation of fair value.

36.2 Fair Value Hierarchy of Financial Instruments The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as

follows:Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the group/company is the closing market price in Colombo Stock Exchange. These instruments are included in Level 1. Instruments included in Level 1 comprise equity investments classified as fair value through profit and loss securities or available for sale.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.



Level 3: Inputs for the asset or liability that are not based on observable market data (Unobservable inputs). If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.

GroupLevel 1 Level 2 Level 3 Total

As at 31 March 2014 2013 2014 2013 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Non Current AssetsOther Non Current Financial Investments 20Available for Sale Financial Investments

- (AFS)

20

Quoted Equity Securities 20.1.1 15,333,884 14,468,554 - - - - 15,333,884 14,468,554 Unquoted Equity Securities 20.1.2 - - - - 338 30,007 338 30,007 Investments in Unit Trusts 20.1.3 - - - 3,000 3,000 3,000 3,000 Debt Securities 20.1.4 235,670 11,000 - - - - 235,670 11,000

Current AssetsOther Current Financial Investments 20Available for Sale Financial Investments

- (AFS)

20

Quoted Equity Securities 20.1.5 114,777 - - - - - 114,777 - Government Securities 20.1.6 - - - - - - - - Fair Value Through Profit or Loss (FVTPL)

Financial Investments

20 - -

Quoted Equity Securities 20.2.1 1,567,065 1,526,614 - - - - 1,567,065 1,526,614 Quoted Debentures 20.2.3 124,307 - - - - - 124,307 - Investments in Unit Trusts 20.2.2 258,772 141,714 - - - - 258,772 141,714 Total 17,634,475 16,147,882 - - 3,338 33,007 17,637,813 16,180,889

Company Level 1 Level 2 Level 3 Total

As at 31 March 2014 2013 2014 2013 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Non Current AssetsOther non current financial investments 20Available for sale financial investments

- (AFS)

20

Quoted equity securities 20.1.1 6,126,218 5,894,287 - - - - 6,126,218 5,894,287 Unquoted equity securities 20.1.2 - 0 - - 7 7 7 7 Investments in unit trusts 20.1.3 - 0 - - 3,000 3,000 3,000 3,000 Debt securities 20.1.4 220,670 - - - - - 220,670 -

Current AssetsOther Current Financial Investments 20Available for Sale Financial Investments

- (AFS)

20

Quoted Equity Securities 20.1.5 475 - - - - - 475 - Government Securities 20.1.6 - - - - - - - - Fair Value Through Profit or Loss (FVTPL)

Financial Investments

20

Quoted Equity Securities 20.2.1 783,927 684,758 - - - - 783,927 684,758 Investments in Unit Trusts 20.2.2 - - - - - - - Total 7,131,290 6,579,045 - - 3,007 3,007 7,134,297 6,582,052


37 Amount due from the Secretary to the Treasury on Account of SLICa) In respect of Shares

As per the Judgment delivered by the Supreme Court of the Democratic Socialist Republic of Sri Lanka on 4 June 2009 it was declared and directed that the shares of SLIC purported to have been sold to Distilleries Consortium on 11 April 2003 along with any shares purchased from employees as per SSPA shall be deemed to have been held for and on behalf of the Secretary to the Treasury.

As directed by the said judgment, the Secretary to the Treasury returned Rs.5,716 Mn in 2010/11 that was paid by Group Subsidiary Milford Holdings (Pvt) Limited (MHL) to purchase shares from SLIC.

b) In respect of Profits Earned

Furthermore, MHL was entitled to retain the profits of SLIC derived by MHL from 11 April 2003 to 04 June 2009 in lieu of the interest for the aforesaid investment. The Secretary to the Treasury was directed to cause profits of SLIC to be computed and audited from the date of the last audited Reporting of SLIC to 04 June 2009 to enable MHL to obtain such profits.

However, Secretary to the Treasury has not yet determined the value of profits to be retained by the MHL; hence no adjustments were made to the financial statements in this regards.

38 Impact of Revival of Underperforming Enterprises and Underutilised Assets Bill – Pelwatte Sugar Industries PLC Group (PSIP)

Consequent to the enactment and passage of the above Act of Parliament on 9 November 2011, the state officials are occupying the land leased to PSIP. As the leasing of the land to PSIP was done in 1985, and the above mentioned Act empowers the vesting of land leased during a period of 20 years before the enactment of the Act. The Company believes that the land that was used by PSIP have not been vested in the state. At this moment the management is unable to comment further on the implications on the ruling as the Company is awaiting instructions by the Secretary to the Treasury.

Until financial year ended 31March 2013, the financial results of PSIP up to 30 September 2011 were consolidated to the Group results and financial results. Thereafter up to 31 March 2013 was not incorporated to the Group results due to non-accessibility of the information. Subsequently a Compensation Tribunal was formed as required by the Act. Without assuming any liability or without any prejudice to, or impact on its rights, PSIP has submitted a claim to the Compensation Tribunal.

Commercial High Court of Western Province (Colombo Civil) issued a winding-up order of Pelwatte Sugar Industries PLC on 13 March 2013. The Court has appointed P.E.A. Jayewickreme and G.J. David, as the Liquidators.

39 Pending Litigations and Contingent Liabilities Based on the available information, the Management is of the view that there are no material litigation or clams that

could have material impact on the financial position of the group. Accordingly, no provision has been made for following legal claims in the Financial Statements.

39.1 Distilleries Company of Sri Lanka PLC A plaint filled by Censtear (Pvt) Limited against the Company claiming a sum of Rs 18 Mn was decided in favor of the

plaintiff by the Commercial High Court of Colombo. The Company has filed an appeal against order and a claim has been made in reconvention. The next court date is on 2 December 2014.



39.2 Lanka Bell Limited Sri Lanka Customs carried out an investigation claiming that Lanka Bell Limited is required to pay duty on the FLAG

fiber optic submarine cable network which spans the globe connecting over 86 locations around the world. The Company is confident that no such duties are payable since Lanka Bell does not own this global network and also has already obtained BOI approval for the FLAG project.

The company filed a writ application in Court of Appeal citing irregularities in the procedure adopted by the Sri Lanka Customs in issuing such a notice. The next court date is on 25 November 2014.

There are no material contingent liabilities as at 31 March 2014 other than disclose above.

40 Capital and Other Commitments There were no material capital expenditure approved by the Board of Directors as at 31 March 2014 other than

followings;

40.1 Distilleries Company of Sri Lanka PLC The Board of Directors has approved a capital expenditure of approximately Rs.1 Bn for new machinery and buildings.

40.2 Browns Beach Hotel PLC The project for constructing a new resort hotel in the existing hotel compound is undertaken by Negombo Beach Resorts

(Pvt) Ltd. Which is a 100% owned subsidiary of Browns Beach Hotels PLC. The total project cost is estimated to be in the region of Rs. 4.0 Billion.

40.3 Melsta Regal Finance Limited The Company has opened a sum of Rs. 18,111,175/- ( 2013 - Rs.1,137,780/-) worth of Letter of Credit on behalf of

the customers.

41 Assets Pledged Following assets have been pledged as securities for liabilities.

Company Nature of Liability Security Value of the assets pledged (Rs.000)

Description Asset type 2014

Distilleries Company of Sri Lanka PLC

Permanent over draft facilities and other short term borrowings

Long term investments held in quoted shares of DFCC Bank PLC (17 Mn shares), Commercial Bank of Ceylon PLC (15Mn shares) and Hatton National Bank PLC (3.5Mn shares) is pledged.

Other long term investments

4,816,300

Melstacorp Limited Permanent over draft facilities and other short term borrowings of DCSL

Long term investments held in Quoted shares of John Keels Holdings PLC (25 mn shares) and Aitken Spence PLC (59.25 Mn shares) are pledged on the other short term borrowings obtained by Distilleries Company of Sri Lanka PLC.

Other long term investments and Investments in equity accounted investees.

11,475,575


Company Nature of Liability Security Value of the assets pledged (Rs.000)

Description Asset type 2014

Balangoda Plantations PLC

Long Term Loan Primary mortgage over the Lease hold rights to the land Term and building of Palmgarden, Loans Pettiagala and Balangoda Estates.

Property, plant and equipment

6,116

Further mortgage over the lease hold rights to the land and building of Palmgarden, Pettiagla and Galatura Estates.


Primary mortgage over the lease hold rights to the land and buildings of Balangoda, Meddekande and Rassagalla Estates.


Finance Lease Mortgage on Colour Separator Property, plant and equipment

27,777

Texpro Industries (Pvt) Ltd

Long term loan The Company has provided existing primary floating mortgage bond for USD 3.262 Mn over land, building and immovable machinery at Ranala as collateral against the bank facility and borrowings.


631,860

Other short term borrowings

Hypothecation of Stock Inventory 292,825

Permanent over draft facilities

Lien over Call & Fixed Deposits Cash and cash equivalents

21,258

Primary Floating Mortgage over Land, Building & Immovable Machinery at Ranala.


631,861

Saving Certificate of Rs 10 Mn. Cash and cash equivalents

10,100

Lanka Bell Limited Term Loans and other borrowings

Tower portfolio has been pledged as a security against the financing facilities.


425,000

Movable and immovable property has been pledged as a security against the financing facilities.


1,124,020

42 Events after the Reporting Period There were no other material events occurring after the reporting period that requires adjustments to or disclosure in

the Financial Statements other than the items disclosed below and proposed dividend disclosed in Note 14 to these financial statements.

42.1 Melstacorp Limited Melstacorp Limited has infused a capital of Rs.250 Mn. to its fully owned subsidiary, Continental Insurance Lanka

Limited after the reporting period.



43 Financial Risk Management The Group has adopted practices to mitigate risks arising from adverse market conditions (prices, rates and volatile

markets) by hedging (or not) using financial instruments.

Financial risk derives from economic uncertainty. The inability to forecast with certainty would either erode profitability (e.g. adverse exchange rate) or could jeopardise the ability of the company to raise finance from markets (e.g. volatile interest rates).

Group’s core business of beverage is essentially a cash business hence has a short cash cycle. This results in low financial risk adding to greater degree of control of finance. Other sectors such as Telecommunication, Plantation, Insurance, Finance and other diversified holdings exercise policies stemming from DCSL’s practices of effective financial risk management as common members of the board ensures uniformity. Continental Insurance and Melsta Regal Finance are exceptional and adhere to an even higher degree of management to comply with IBSL and CBSL regulatory compliance/guidelines respectively.

Financial Instruments

Group’s financial instruments consist of ASSETS - its portfolio of equity investments, deposits in banks,accounts receivable. LIABILITIES - Loan obligations, accounts payable and accrued liabilities such excise duty, taxes, payroll and pension account.

43.1 Financial Risk Management Objectives and Policies Whilst ‘risk management’ is ingrained in the business from the Board down to operational level, financial risk

management at Group is entrusted to a niche of in-house financial professionals ably supported by external economists, financial consultants, legal counsel, tax experts, banks and auditors.

In the normal course of business, the Group is exposed to financial risks that have the potential to negatively impact its financial performance. The Group does not use derivative financial instruments to manage these risks, as management believes that the risks arising from the financial instruments are already at an acceptable level. This is further accredited by the AAA/Stable rating assigned by Fitch this year.

The Group has exposure to the following risks from financial instruments

43.1.1 Credit Risk

This is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to financial loss. Group’s credit risk arises primarily from credit exposure to customers, including outstanding receivable from select retail chains.

The Group assesses the credit quality of its counter-parties, taking into account their financial position, past experience and seasonal factors.

Credit Risk Liquidity Risk Market Risk

Interest Rate RiskEquity Risk Foreign Exchange Risk


The group trades only with recognised, credit worthy third parties. It is a group policy that all clients who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant.

Maximum Credit Exposure The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk

at the end of the reporting period was as follows,

Group Company2014 2013 % from Total

Exposure

2014 % from Total

Exposure

2013 %from Total

Exposure Note Rs.000 % from Total

Exposure

Rs.000 Rs.000 Rs.000

Trade and Other Receivables 43.1.1.1 9,720,603 61% 7,827,963 59% 3,955,602 41% 3,366,090 50%Receivables in Finance

Business

43.1.1.2 1,240,562 8% 362,295 3% - 0% - 0%

Amounts due from Related

Companies

43.1.1.3 567,714 4% 749,654 6% 5,324,230 55% 3,087,130 46%

Corporate Debt Securities 43.1.1.4 541,742 3% 11,000 0% 220,670 2% - 0%Government Securities 43.1.1.5 909,787 6% 715,337 5% - 0% - 0%Deposits with Bank 43.1.1.6 2,177,663 14% 3,109,534 23% 82,062 1% 70,410 1%Cash at Bank 43.1.1.7 595,628 4% 504,495 4% 61,719 1% 193,501 3%

15,753,699 100% 13,280,278 100% 9,644,283 100% 6,717,131 100%

43.1.1.1 Trade and Other Receivables

As the large majority of Beverage accounts receivable balances are collectable from licensed retailers, management believes that the sector’s credit risk relating to accounts receivable is at an acceptably low level.

The Group has observed higher credit risk in telecommunication sector due to large number of small customers. However, risk is managed and mitigated by adopting timely disconnection policy and converting customer to prepaid mode.

The requirement for an impairment is analysed at each reporting date on an individual basis for major customers. Additionally, a large number of minor receivables are grouped into homogeneous groups and assessed for impairment collectively.

The group’s maximum exposure to credit risk from Insurance contract receivables are mainly consist with Premium Receivables.

Some of the actions specific to Premiums Receivables in Non-Life Insurance are shown below.

- Premium Payment Warranty (PPW) is strictly implemented and all Non - Life Insurance policies with payments outstanding for more than 60 days are cancelled.

- Follow-up meetings on debt collection are conducted with the participation of finance, distribution and underwriting officials on a monthly basis.

- Claim settlements are processed only after reviewing the position of outstanding receivables.

43.1.1.2 Receivables in Finance Business

The above stated financial assets are backed with the underlying securities and, are neither past due or impaired.

43.1.1.3 Amounts due from Related Companies

The amounts due from related parties mainly consist of receivables from associates and other related ventures and those are closely monitored by the group.

The amounts receivable from related parties are mainly consist of its fully owned subsidiary, Melstacorp Limited and its due to the group restructuring process.



43.1.1.4 Corporate Debt Securities

The Corporate debt securities are entirely consist of Corporate Debentures which are listed in Colombo Stock Exchange which are guaranteed by local and foreign credit rating agencies as BBB+ or Better. Further 96% of corporate debt securities are with A- or better credit ratings.

An Analysis of credit ratings of the issuers of debenture are as follows,

Group Company2014 2013 2014 2013

Credit Rating Amount % from Total Exposure

Amount % from Total Exposure



Rs.000 Rs.000 Rs.000 Rs.000AA - 0% 10,000 91% - 0% - 0%AA– 103,689 19% 1,000 9% - 0% - 0%A- 417,435 77% - 0% 220,670 100% - 0%BBB+ 20,618 4% - 0% - 0% - 0%

541,742 100% 11,000 100% 220,670 100% - -

43.1.1.5 Government Securities

Government securities are referred to as risk free instruments in its nature.

43.1.1.6 Deposits with bank and cash at bank

The Deposits with banks are entirely consist of fixed deposits and call deposits placed in both Banks and other financial institutions.

Further the cash at bank is mainly consist of favourable balances in Savings and current accounts of private and government commercial banks.

The Group has selected its bankers by considering the credit ratings of the rating agencies, the reputation in the economy, efficiency in transaction processing by minimising the transaction costs.

The financial institutions in which the deposits and cash at bank is existed are guaranteed by local and foreign credit rating agencies as AA- or Better.

43.1.2 Liquidity Risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligations on time.

Group’s sources of liquidity are its short term deposits in banks and its cash generated by operating activities. Group’s total contractual maturities are represented by its accounts payable and accrued liabilities, and are mostly due to be paid within one year. The Group believes that its deposits in cash management pools, ready bank lines (ODs, loans), debt with rollover options, combined with its historically strong and consistent operational cash flows, are more than sufficient to fund its operations, investing activities and commitments for the foreseeable future.

Group does not have any investments in asset-backed commercial papers and, therefore, has no exposure to this type of liquidity risk.


Maturity analysis

The table below summarises the maturity profile of the Group’s financial liabilities as at 31 March 2014.

Within 1 year

Between 1-2 years

Between 2-3 years

Between 3-4 years

Between 4-5 years

More than 5 years

Total

Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Interest bearing loans and borrowings 7,603,794 118,375 120,811 118,044 112,316 201,429 8,274,769

Trade and other payables 8,772,678 - - - - - 8,772,678

Deposit liabilities 663,537 - - - - - 663,537

Amount due to related companies 263,905 - - - - - 263,905

Bank overdrafts 5,120,243 - - - - - 5,120,243

22,424,157 118,375 120,811 118,044 112,316 201,429 22,542,532

The table below summarises the maturity profile of the Company’s financial liabilities as at 31 March 2014.

Within 1 year

Between 1-2 years

Between 2-3 years

Between 3-4 years

Between 4-5 years

More than 5 years

Total

Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Interest bearing loans and borrowings 6,215,006 - - - - - 6,215,006 Trade and other payables 5,146,561 - - - - - 5,146,561 Amount due to related companies 1,035,020 - - - - - 1,035,020 Bank overdrafts 3,810,832 - - - - - 3,810,832

16,207,419 - - - - - 16,207,419

43.1.3 Market Risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise four types of risk; equity price risk, interest rate risk, currency risk (or foreign exchange risk), and other price risks such as commodity price risk. Financial instruments at Group level affected by market risk include loans and borrowings, deposits, letters of credit and available for sale investments. The objective of market risk management is to manage and to control market risk exposures within acceptable parameters while optimising the return.

Equity Price Risk

Certain companies of the Group have their major equity investment portfolios held on a long term basis; hence immune to daily fluctuations. Those are classified as AFS. Further, a small trading portfolio is managed by two reputed Unit Trust companies licensed by the SEC and individual companies manage their own short term portfolios as well. These investments are held by complying with group investment policies. Safe Custodian agreements with banks are in place that adds a control dimension.

The Group manages the equity price risk through diversification of its investments to each sector. Further the Management daily monitors the reports of the equity portfolios



The extend of diversification of short term equity investments (FVTPL) are analysed bellow.

Group Company2014 2013 2014 2013

Rs’000 % Rs’000 % Rs’000 % Rs’000 %

Bank Finance and Insurance 488,030 31 430,529 28 426,357 55 359,368 53Beverage Food and Tobacco 139,033 9 186,560 12 127,750 16 152,330 22Chemicals and Pharmaceuticals 3,322 0 8,102 1 - 0 5,536 1Construction and Engineering 13,185 1 16,025 1 8,761 1 11,384 2Diversified Holdings 392,104 25 456,963 30 15,513 2 18,633 3Hospitals 123,247 8 64,578 4 111,444 14 58,045 8Hotel and Travels 35,984 2 38,837 3 21,550 3 21,750 3Manufacturing 333,456 21 291,765 19 49,230 6 29,517 4Plantations 9,096 1 6,160 0 9,096 1 6,160 1Power and Energy 9,080 1 7,927 1 6,468 1 5,617 1Telecommunications 20,528 1 19,168 1 7,758 1 16,418 2

1,567,065 100 1,526,614 100 783,927 100 684,758 100

43.1.3 Market Risk

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 Group has short and long-term debt facilities. Interest rate risk exists as Group earns market rates of interest on its deposits in cash management pools. An active risk management program does not exist, as management believes that changes in interest rates would not have a material impact on Group’s financial position over the long term.

Foreign Currency Risk

The Group has exposure to foreign currency risk as it conducts business in a select few foreign currencies; however, its exposure is primarily limited to the US dollar. Group does not utilise derivative instruments to manage this risk. Subject to competitive conditions, changes in foreign currency rates may be passed on to consumers through pricing over the long term.

The beverage sector demand for USD has traditionally outpaced its supply, due to USD sourcing of production inputs (imported spirits and machinery) exceeding that of the sector’s USD sales. Therefore, decreases in the value of the Sri Lankan Rupee (LKR) relative to the USD will have an unfavourable impact on the sector earnings.

43.1.4 Financing Risk

The company has a very strong Financial Position and is among the most preferred among local providers of finance. This was further cemented by the high credit rating assigned by Fitch negating any doubts of Group’s ability to secure funding at cheaper rates. Often the company has access to bank lines sans security. However, the management as a policy maintains a healthy gearing ratio and a Debt Service Coverage Ratio always in par with the industry without overstretching the Financial Position. Since of late foreign funding lines too have been cautiously approached to benefit from low interest rates globally.

43.2 Capital Management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in

order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.


In order to maintain or adjust the capital structure, the Group’s may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. The ratio is calculated as net debt/total capital. Net debt is calculated as total borrowings (including current and non-current interest bearing borrowing as shown in the consolidated Statement of Financial Position plus bank overdrafts) less cash and cash equivalents. Total capital is calculated as “equity” as shown in the consolidated Statement of Financial Position plus net debt. Gearing ratios at 31 March 2014 and 2013 are as follows.

Group Company2014 2013 2014 2013

Rs’000 Rs’000 Rs’000 Rs’000

Total Interest Bearing Loans and Borrowing 8,274,769 5,459,125 6,215,006 3,840,004 Bank Overdrafts 5,120,243 5,695,903 3,810,832 4,736,030 Less: Cash & Cash Equivalents (3,923,512) (4,842,646) (420,103) (766,199)Net Debt 9,471,500 6,312,382 9,605,735 7,809,835 Total Equity 57,593,114 52,712,717 43,838,640 39,155,122 Total Capital 67,064,614 59,025,099 53,444,375 46,964,957 Gearing Ratio 14% 11% 18% 17%


STATEMENT OF VALUE ADDED

VALUE ADDEDFor the year ended 31March, 2014 2013

Rs. '000 Rs. '000Group Company Group Company

Gross Turnover 63,186,302 47,755,538 65,790,460 51,548,909 Other Operating Income 898,392 1,374,595 680,119 3,830,490 Finance Income 747,833 118,630 1,082,262 534,987 Share from Profit of Equity Accounted Investees 1,440,182 - 1,291,749 -

66,272,709 49,248,763 68,844,590 55,914,386

VALUE DISTRIBUTED

For the year ended 31March, 2014 Group Company

Rs. '000 As a % of Total Rs. '000 As a % of Total

To the State as Taxes 37,442,277 56 33,814,484 69 Other Operating Expenses 16,012,148 24 7,884,887 16 To the Employees 3,861,748 6 1,162,203 2 To Providers of Debt Capital 1,160,970 2 859,321 2 To the Shareholders as Dividends 900,000 1 900,000 2Retained within the Business As Depreciation 1,540,326 2 148,392 0 As Retained Profits 5,355,240 9 4,479,476 9

66,272,709 100 49,248,763 100

For the year ended 31March, 2013 Group Company

Rs. '000 As a % of Total Rs. '000 As a % of Total

To the State as taxes 39,843,748 58 36,482,375 65 Other operating expenses 16,281,792 24 9,120,718 16 To the Employees 3,194,238 5 1,039,048 2 To Providers of debt capital 1,652,681 2 1,376,919 2 To the Shareholders as dividends 900,000 1 900,000 2 Retained within the business As Depreciation 1,700,128 2 158,678 1 As Retained Profits 5,272,003 8 6,836,648 12

68,844,590 100 55,914,386 100


DETAILS OF REAL ESTATE

Location Lands Buildings VALUE Extent No of

UnitsFloor Area Cost/Revaluation

A R P In (Sq. Ft.) Rs. 000 Distilleries Company of Sri Lanka PLCColombo 10 Head Office 1 1 15.20 6 30,000.00 647,765 Dankotuwa Carrington Group Estate 2 2 5.00 3 8,083.50 22,045 Kandy Mawilmada Land 2 0 0.00 - 22,200 Negombo Wholesale Outlet 0 1 27.50 3 8,576.00 75,280 Kalutara 1 0 23.00 - 14,000 Seeduwa No. 3 Warehouse & Housing Complex 15 2 17.09 11 103,710.50 886,686 Seeduwa New W/H, Old W/H & Distillery 5 2 15.10 22 93,276.00 319,562

Melsta Properties (Pvt.)LimitedBadulla Warehouse 0 2 8.64 3 9,390.00 13,519 Batticaloa Wholesale Outlet 3 0 11.04 2 5,545.75 51,999 Dickoya Wholesale Outlet 0 3 9.60 4 16,735.50 6,759 Gampola Wholesale Outlet 0 3 35.50 5 8,415.00 33,279 Jaffna 0 4 21.65 0 - 11,439 Kaithadi 2 0 11.71 0 - 13,000 Kalutara No. 1 Warehouse 4 0 33.38 5 56,580.00 145,599 Kalutara No. 2 Warehouse / Premises No. 14 & 16 1 3 8.41 4 - 60,950 Kalutara Teak Stores / Warehouse 1 0 32.82 3 14,870.00 20,799 Marawila Toddy Collection Centre 2 0 0.00 0 - 16,639 Mirishena Warehouse 0 3 28.32 4 10,280.00 20,799 Trincomalee Wholesale Outlet 0 1 38.68 2 4,762.00 36,399 Vauniya Wholesale Outlet 0 3 33.69 2 14,315.50 44,719

Melstacorp LimitedAmbalantota Wholesale Outlet - 1 24.16 5 7,657.00 28,710 Anuradhapura Proposed Wholesale Outlet - 3 21.46 3 8,401.00 89,514 Badulla Warehouse - 3 37.20 1 1,522.00 6,030 Beruwala Warehouse 2 1 19.08 12 15,279.50 125,548 Colombo 14 Warehouse 2 1 14.10 8 86,500.00 410,799 Galle Wholesale Outlet - 1 37.00 4 9,879.00 36,711 Katugastota Warehouse - 2 27.50 6 11,798.50 38,167 Katugastota Wholesale Outlet 5 - 3.84 11 28,385.00 123,135 Kurunegala Wholesale Outlet - 2 29.00 2 9,519.00 48,879 Ranala - Nawagamuwa Industrial Building 10 - - 7 83,094.50 231,815 Ratmalana Wholesale Outlet 1 - 28.20 4 30,871.00 178,567 Seeduwa Factory Complex - - 19.75 0 - 1,559 Seeduwa Factory Complex - 1 2.55 1 18,920.00 62,087 Seeduwa Factory Complex - 1 20.50 1 3,096.00 15,079 Seeduwa Factory Complex - 3 22.60 1 1,835.00 19,031 Seeduwa Factory Complex - - 36.25 0 - 7,539 Seeduwa Residential property - - 10.00 1 1,975.00 13,124 Seeduwa Residential property - - 24.05 1 980.00 26,249 Seeduwa Residential property - - 12.27 1 1,910.00 26,249 Seeduwa Residential property - - 31.46 0 - 61,359 Seeduwa Residential property - - 37.50 0 - 61,879

Lanka Bell Limited Minuwangoda Warehouse & Switch 1 3 35.35 2 20,920.00 93,490

Texpro Industries Limited Embulgama Factory - 2 - 4,000 Ranala Factory 6 - 6.05 5 92,537.00 173,889

Browns Beach Hotels PLCNegombo Hotel Complex-Under Constructions 6 3 33.50 1 225,347.00 856,500


SHAREHOLDER INFORMATION

1. Stock Exchange ListingThe Issued Ordinary Shares of the Company are listed with the Colombo Stock Exchange.Ticker Symbol - DIST.N0000Market Sector - Beverage, Food & Tobacco

2. Distribution of Shareholding

31 March 2014 31 March 2013No. of Total % No. of Total %

Holding Shareholders Holding Holding Shareholders Holding Holding

1-1,000 8,788 2,937,971 0.98 9,136 3,136,683 1.051,001 - 10,000 1,682 5,481,178 1.83 1,879 6,342,024 2.1110,001- 100,000 250 7,593,906 2.53 308 8,737,877 2.91100,001- 1,000,000 53 14,441,900 4.81 55 16,413,148 5.47Over 1,000,000 25 269,545,045 89.85 24 265,370,268 88.46Grand Total 10,798 300,000,000 100.00 11,402 300,000,000 100.00

3. Analysis of Shareholding No. of

ShareholdersHolding % of Holding

Individuals 10,535 69,453,286 23Institutions 263 230,546,714 77

10,798 300,000,000 100

Resident 10,647 226,092,603 75Non-Resident 151 73,907,397 25

10,798 300,000,000 100

4. Market Price

31 March 2014 31 March 2013(Rs.Per Share) (Rs.Per Share)

Last Traded 203.00 166.50 Highest 218.00 190.00 Lowest 160.00 117.00

0

50

100

150

200

250

Share Price Performance

20142012 20132011201020090


5. Twenty Largest ShareholdersAs at 31 March 2014 2013

No of Shares % of issued capital

No of Shares % of issued capital

1 Milford Exports (Ceylon) Limited 124,470,500 41.49 124,470,500 41.49

2 Lanka Milk Food (C.W.E.) PLC 37,961,500 12.65 37,961,500 12.65

3 Mr. Muzaffar Ali Yaseen 33,238,000 11.08 33,238,000 11.08

4 Mrs. Lorraine Estelle Marlene Yaseen 14,350,600 4.78 14,650,500 4.88

5 Melstacorp Limited 8,650,732 2.88 8,650,732 2.88

6 HSBC International Nominees Ltd- MSCO-Route One Fund 1 L.P 5,280,944 1.76 5,056,661 1.69

7 HSBC Intl Nom Ltd-Msco-Route One Offshore Master Offshore Master Fund, L.P

4,767,395 1.59 4,824,190 1.61

8 Commercial Bank of Ceylon PLC/L.E.M.Yaseen 4,750,000 1.58 4,750,000 1.58

9 HSBC Intl Nom Ltd – SSBT – Wasatch Frontier Emerging Small cou 4,230,100 1.41 - -

10 Lahugala Plantation (Pvt) Ltd 4,189,590 1.40 4,511,795 1.50

11 Caceis Bank Luxembourg S/A Barca Global Masrer Fund LP 3,713,286 1.24 3,713,286 1.24

12 Mrs. Shantha Marie Chrysostom 2,847,500 0.95 2,847,500 0.95

13 Northern Trust CO S/A National Westminster Bank PLC as Trust c/o Standard Chartered Bank

2,800,000 0.93 2,800,000 0.93

14 Stassen Exports Limited 2,114,200 0.70 2,114,200 0.70

15 HSBC Intl Nom Ltd-SSBT-Russell Institutional Funds Public L 1,887,937 0.63 920,383 0.31

16 Mr. Don Hasitha Stassen Jayawardena 1,882,833 0.63 1,882,833 0.63

17 HSBC International Nominees Limited-MSNY-Bay Pond Partners L 1,840,283 0.61 1,840,283 0.61

18 BNYM SA/NV – Consilium Frontier Equity Fund L.P 1,434,404 0.48 - -

19 Deutsche Bank AG - London 1,421,557 0.47 - -

20 BNYM SA/NV - Blackrock Frontiers Investment Trust PLC 1,411,238 0.47 - -

TOTAL 263,242,599 87.73 254,232,363 84.73

Percentage of Shares held by the public : 42.97%

SHAREHOLDER INFORMATION


TEN YEAR SUMMARY

In Rs Million - Company 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005

RESULTSGross Turnover 47,755.5 51,548.9 49,135.6 38,987.1 29,964.1 29,569.8 27,416.0 22,653.1 18,399.7 14,391.8

Excise Duty 31,057.4 34,087.5 33,859.7 25,464.4 18,979.0 18,339.2 16,458.0 14,020.3 11,263.9 9,235.4

Net Turnover 16,698.1 17,461.4 15,275.9 13,522.7 10,985.0 11,230.5 10,958.0 8,632.8 7,135.8 5,156.4

Profit/(Loss) before Tax 8,136.6 9,275.9 6,905.4 9,972.0 4,004.5 3,977.9 3,014.9 2,826.6 2,480.7 1,762.1

Profit/(Loss) after Tax 5,357.9 6,872.7 4,297.2 7,768.7 2,815.0 2,682.4 1,981.6 1,868.9 1,807.6 1,247.8

FUNDS EMPLOYEDStated Capital 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0

Capital Reserves 2,079.7 2,160.1 2,506.9 2,923.6 107.9 107.9 107.9 107.9 107.9 107.9

Revenue Reserves & Retained Earnings 41,459.0 36,695.0 29,790.3 21,718.0 14,849.3 12,709.3 10,551.8 8,708.1 7,019.2 5,361.6

Shareholders Funds 43,838.7 39,155.1 32,597.2 24,941.7 15,257.2 13,117.2 10,959.7 9,116.0 7,427.1 5,769.5

Total Borrowings 10,025.8 8,576.0 9,741.5 254.6 76.2 920.1 2,648.1 1,634.0 2,221.2 1,500.6

Non Current Liabilities net of Borrowings 171.1 159.6 116.1 270.1 111.4 171.5 109.6 88.0 99.2 90.7

Current Liabilities net of Borrowings 7,154.0 8,095.6 20,107.8 6,860.7 5,159.9 4,785.2 4,662.9 4,279.9 3,390.6 2,135.3

61,189.6 55,986.3 62,562.6 32,327.1 20,604.7 18,994.0 18,380.1 15,118.0 13,138.1 9,495.1

ASSETS EMPLOYEDNon-current Assets 48,459.1 45,578.4 54,982.5 20,212.7 14,024.6 12,840.9 12,302.9 10,383.5 10,398.5 7,619.1

Current Assets 12,730.5 10,407.9 7,580.1 12,114.4 6,580.1 6,153.1 6,007.5 4,734.4 2,739.6 1,876.0

61,189.6 55,986.3 62,562.6 32,327.1 20,604.7 18,994.0 18,310.4 15,117.9 13,138.1 9,495.1

CASHFLOW

Net Cashflow from Operating Activities 671.2 3,148.9 1,954.9 4,275.1 2,692.7 1,881.7 2,509.3 1,118.2 1,974.1 1,774.3

Net Cashflow from Investing Activities (1,569.3) (689.3) (16,037.3) 1,247.0 (661.2) (35.6) (3,041.8) (48.4) (2,662.4) (12.2)

Net Cashflow from Financing Activities (2,167.9) (1,535.6) 1,147.0 (875.8) (675.0) (525.0) (465.0) (169.7) (149.7) (146.4)

Net Increase/(Decrease) in Cash & Cash Equivalents (3,065.9) 924.0 (12,935.4) 4,646.3 1,356.5 1,321.1 (997.5) 900.1 (838.0) 1,615.7

KEY INDICATORSEarnings per Share (Rs.) 17.86 10.68* 11.85* 15.08 9.38 8.90 6.60 6.20 6.00 4.20

Net Assets per Share (Rs.) 146.13 130.52 108.66 83.14 50.86 43.70 36.50 30.40 24.80 19.20

Market Value per Share (Rs) Year End 203.00 166.50 145.00 180.00 118.00 65.00 98.00 105.00 35.00 32.00

Return on Shareholders’ Funds 12% 8%* 11%* 31% 18% 21% 18% 21% 24% 22%

Dividends per Share (Rs.) 3.25 3.00 3.00 3.00 2.50 2.25 1.75 1.55 0.60 0.50

Dividend Payout 18% 28%* 25%* 20% 27% 25% 27% 25% 10% 12%

Dividend Yield 2% 2% 2% 2% 2% 3% 2% 1% 2% 2%

With effect from year ended 31 March 2012 the figures are derived from financial statements prepared in accordance with Sri Lanka Accounting

Standards (SLFRS/LKAS). Figures for the remaining periods are derived from financial statements prepared in accordance with previous version of

Sri Lanka Accounting Standards (SLAS).

* For the purpose of calculation of EPS for the years ended 31 March 2013 and 31 March 2012, the Company profit has been adjusted for

intragroup capital gain on share transfer.


DCSL MANAGEMENT TEAM

Head Office

Chief Executive Officer Maximus R. PeriesB.Sc. (Eng), MBA (Merit), LLB (Hons) London, C. Eng. MIEE (London)

Finance DivisionHead of Finance Nimal Nagahawatte B.Sc.Asst. Finance Manager Suranjan LakmanaratchiAsst. Finance Manager Justin Algama B.Sc., Dip. Acc.Asst. Manager (IT) Ms. P. Gamagedara Dip. (NIBM), AACS

Supplies DivisionHead of Procurement S. Rajanathan

Internal Audit DivisionChief Internal Auditor L. P. Liyanaarachchi FCA, FCMA, Dip.Acc.

Investigation DivisionDirector - Investigations Alfred Wijewardene DIG (Retd.)Dy. Director - Investigations A. X. Clarence Motha ASP (Retd.)Dy. Director - Investigations G. U. J. Vithanage SSP (Retd.)

Company Secretarial & Legal DivisionCompany Secretary & Chief Legal Officer

Ms. V. J. Senaratne Attorney-At-Law & N.P., Solicitor (Eng. & Wales)

Human Resources DivisionHead of Human Resources Ms. G. Chakravarthy

LLB, Attorney-At-LawAsst. Manager - Human Resources

Ms. U. R. EdirisingheMBA (Sri J), B.Sc. (HRM) Sp

Asst. Manager - Human Resources

T. S. Morawaka B.Sc. (Mgt) Sp

Transport DivisionHead of Transport & Logistics

Roshanth Kumar Perera

Stock Control DivisionHead of Inventory Management

Lalith Ratnayake MBA (WUSL), B.Sc. (B.Ad) Sp

Consultant J. R. de Crusz(Retd. Dy. Commissioner of Excise)

Regional Offices

Northern Region - SeeduwaHead of Northern Region Maj. R. M. Cabraal (Retd.)

Deputy Regional Manager Col. A. M. B. Peiris (Retd.) RWP, MHRP, MBA (PIM / Sri J)

Deputy Regional Manager Cdr. C.M. Gunanayagam (Retd.)

Group Security Manager Deshabandu R. M. L. N. Bandara MBA (USA), SSP (Retd.)

Head of Analytical Division T. D. Ekmon B.Sc. (Hons), M.I.Chem C, Chartered Chemist

Chief Engineer M. N. Perera

Consultant K. Sivarajah B.Sc. (Cey), MSc. (UK), F.I Chem. C, Chartered Chemist, (Retd. Govt. Analyst)

Senior Production Manager Capt. K.G.N.S. Senanayake SLN (Retd.), MDS, B.Sc.

Production Manager S. G. Bandula Silva B.Sc.

Transport Manager Sqn. Ldr. T. S. S. S. Perera (Retd.) B.Sc.

Senior Chemist S. M. Sumanasekera B.Sc., MSc. (Food

Science and Technology) I Chem

Accountant K. W. N. V. Fernando B.Com., MAAT, PGDED (Col), CBA

Distillery Seeduwa

Warehouses New Warehouse, No 3 Warehouse, Old Warehouse

Wholesale Outlets Peliyagoda (W), Peliyagoda (S), Rajakadaluwa, Negombo, Anuradhapura, Kurunegala

Southern Region - Kalutara

Head of Southern Region Maj. Gen. Siri Peiris (Retd.) RSP, VSV, USP, IG

Deputy Regional Manager Col. D. J. R. Rupasinghe (Retd.) RSP, IG

Senior Production Manager A. D. Amaradeva

Chemist W. A. I. Wickramasinghe A.I. Chem C, Grad

Chem, Dip in POM

Accountant Ms. Amali Bandara Dip. in Fin. Mgmt.

Asst. Engineer H. P. D. P. Mangala Gunasekara

Manager (Beruwala Distillery) C. E. Nanayakkara

Distillery Beruwala

Warehouses Kalutara No 01 & Kalutara No 02, Teak Store, Mirishena

Wholesale Outlets Kalutara, Ratmalana, Ambalantota, Galle, Kuruwita

Central Region - KandyHead of Central Region Brig. Aruna Wijewickrama USP (Retd.),

PQHRM (IPM)

Senior Deputy Regional Manager

Capt. R. A. U. Chula Ranasinghe USP - SLN (Retd.)

Senior Production Manager V. Jeiyachandiran B.Sc. (Hons)

Production Manager N. Thiranagama B.Sc.

Consultant W. W. M. S. U. Wijayarathna B.Sc. (Hons), M.Phil, Chartered Chemist

Civil Engineer A. M. A. J. B. Abeykoon

Asst. Accountant Mrs. W. M. P. Perera

Warehouse Nawayalatenna

Wholesale Outlets Katugastota, Gampola, Vavuniya, Batticaloa, Minneriya, Dickoya, Trincomalee, Jaffna

Uva Region - BadullaHead of Uva Region Capt. Ranjith Wettewa SLN (Retd.) RSP,

P.S.N.

Warehouse BadullaWholesale Outlet Badulla

Group Management DivisionGroup Financial Controller Cleetus Mallawaarachchi FCA, FCMA, MBA


GROUP DIRECTORY

Beverage

Periceyl (Pvt) Limited Secretary Ms. V. J. Senaratne

Board of Directors Registered OfficeD. H. S. Jayawardena – Chairman 110, Norris Canal Road, Colombo 10R. K. Obeyesekere Tel: (94-11) 2808565 Fax: (94-11) 5551777C. R. JanszS.K.S.D. Amarathunga Co. Reg. No. PV 5529A. L. Gooneratne Auditors Messrs Ernst & Young (Chartered Accountants)

Plantation

Balangoda Plantations PLC Secretary P. A. Jayatunga

Board of Directors Registered OfficeD. H. S. Jayawardena – Chairman / Managing Director 110, Norris Canal Road, Colombo 10R. K. Obeyesekere Tel: (94-11) 2522871-2 Fax: (94-11) 2522913C. R. Jansz S. K. L. Obeyesekere Co. Reg. No. PQ 165Dr. A. ShakthevaleD. S. K. Amarasekera Auditors Messrs Ernst & Young (Chartered Accountants)A. L. Gooneratne

Telecommunication

Lanka Bell Limited Secretary Ms. C. M. Chandrapala

Board of Directors Registered Office D. H. S. Jayawardena – Chairman 344, Galle Road, Colombo 03.Dr. T. K. D. A. P. Samarasinghe – Managing Director Tel: (94-11) 5335000 Fax: (94-11) 5545988C. R. Jansz M. R. Peries Co. Reg. No. PB 306D. S. C. Mallawaarachchi A. L. Gooneratne Auditors Messrs KPMG (Chartered Accountants)

Telecom Frontier (Pvt) Limited Secretary Ms. C. M. Chandrapala

Board of Directors Registered Office D. H. S. Jayawardena – Chairman No: 344, Galle Road, Colombo 3Dr. T. K. D. A. P. Samarasinghe – Managing Director Tel: (94-11) 5335000 M. R. Peries D. S. C. Mallawaarachchi Co. Reg. No. PV 61396A. L. Gooneratne Auditors Messrs Amarasekara & Company (Chartered Accountants)


Telecommunication (contd.)

Bell Solutions (Pvt) Limited Secretary Ms. C. M. Chandrapala

Board of Directors Registered OfficeD. H. S. Jayawardena – Chairman No: 344, Galle Road, Colombo 3Dr. T. K. D. A. P. Samarasinghe – Managing Director Tel: (94-11) 5335000M. R. Peries D. S. C. Mallawaarachchi Co. Reg. No. PV 61398A. L. Gooneratne Auditors Messrs Amarasekara & Company (Chartered Accountants)

Diversified Holdings

Melstacorp Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered OfficeD. H. S. Jayawardena – Chairman 110, Norris Canal Road, Colombo 10A. L. Gooneratne – Managing Director Tel: (94-11) 5696794R. K. Obeyesekere Web : www.melsta.comC. R. Jansz C. F. Fernando Dr. N. Balasuriya N. de. S. Deva Aditya Co. Reg. No. PV 11755 PBCapt. K. J. Kahanda (Retd.) Ms. V. J. Senaratne Auditors Messrs KPMG (Chartered Accountants) (Alternate to N. de. S. Deva Aditya)

Milford Holdings (Pvt) Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered OfficeD. H. S. Jayawardena – Chairman 110, Norris Canal Road, Colombo 10R. K. Obeyesekere Tel: (94-11) 2695295-7 Fax: (94-11) 2696360C. R. Jansz Capt. K. J. Kahanda (Retd.) Co. Reg. No. PV 5944

Auditors Messrs KPMG (Chartered Accountants)

Browns Beach Hotels PLC Secretaries Aitken Spence Corporate Finance (Private) Limited

Board of Directors Registered OfficeD. H. S. Jayawardena – Chairman 315, Vauxhall Street, Colombo 02M. V. Theagarajah Tel: (94-11) 2308308 Fax: (94-11) 2308099J. M. S. Brito S. M. Hapugoda Co. Reg. No. PQ 202T. D. U. D. Peiris A. L. Gooneratne Auditors Messrs KPMG (Chartered Accountants)


Diversified Holdings (contd.)

Texpro Industries Limited Secretaries SSP Corporate Services (Pvt) Limited

Timpex (Pvt) Limited

Board of Directors Registered OfficeD. H. S. Jayawardena – Chairman 1st Floor, Lakshman’s Building, 321, J. D. Peries – Managing Director Galle Road, Colombo 3H. I. Munasingha Tel: (94-11) 2565951 A. L. GooneratneD. S. C. Mallawaarachchi Co. Reg. No. PB 748


Melsta Logistics (Pvt) Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered OfficeA. L. Gooneratne – Chairman 160, Negombo Road, SeeduwaA. M. J. Abeysinghe Tel: (94-11) 5223300 Fax: (94-11) 5223322T. Q. Fernando Web: www.crc.lkM. R. Peries (Appointed w.e.f. 01/05/2013) D. S. C. Mallawarachchi (Appointed w.e.f. 01/05/2013) Co. Reg. No. PV 14051

Auditors Messrs Amarasekara & Company (Chartered Accountants)

Continental Insurance Lanka Ltd. Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered OfficeG. D. C. de Silva - Managing Director 79, Dr. C. W. W. Kannangara Mawatha, Colombo 07A. S. Abeyewardene Tel : (94-11) 5200300C. F. Fernando H. Wickramasinghe Co. Reg. No. PB 3784A. L. Gooneratne Auditors Messrs KPMG (Chartered Accountants)

Splendor Media (Pvt) Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered OfficeMs. D. S. T. Jayawardena – Chairperson 110, Norris Canal Road, Colombo 10 (Appointed w.e.f. 21/12/2013) Tel: (94- 11) 5 639 501 Fax: (94-11) 5 373 344C. P. Abeywickrema (Chairman - Resigned w.e.f. 21/12/2013) Ms. G. ChakravarthyN. N. Nagahawatte O. A. R. P. Obeysinghe Co. Reg. No. PV1230P. Hennayake A. P. L. Fernando (Appointed w.e.f. 21/06/2013) Auditors Messrs KPMG (Chartered Accountants)D. A. D. V. Gunasekera (Resigned w.e.f. 15/05/2013)

GROUP DIRECTORY



Bogo Power (Pvt) Limited Secretary P. A. Jayatunga

Board of Directors Registered OfficeD. H. S. Jayawardena – Chairman 833, Sirimavo Bandaranaike Mawatha, Colombo 14Dr. N. M. Abdul Gaffar Tel: (94-11) 2522871-2 Fax: (94-11) 2522913S. K. L. Obeyesekere A. L. Gooneratne Co. Reg. No. PV 64901

Auditors Messrs Ernest & Young (Chartered accountants)

Bellvantage (Pvt) Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered OfficeA. L. Gooneratne - Chairman 33, Park Street, Colombo 02 (Appointed w.e.f. 28/10/2013) Tel: (+94-11)-5753753 Fax: (+94-11)-5753754D. H. S. Jayawardena E-mail : [email protected] (Chairman – Resigned w.e.f. 12/09/2013) Web : www.bellvantage.comP. Karunanayke D. S. C. Mallawaarachchi (Appointed w.e.f. 12/09/2013) Co. Reg. No. PV 65022D. A. C. Peiris (Resigned w.e.f. 01/04/2013) P. S. Suriyaarachchi (Resigned w.e.f. 30/04/2013) Auditors Messrs Amarasekara & Company (Chartered Accountants)Y. D. B. Guneratne (Resigned w.e.f. 30/06/2013)O. A. R. P. Obeysinghe (Resigned w.e.f. 12/09/2013)Ms. F. F. S. Sulaiman (Resigned w.e.f. 12/09/2013)Ms. S. A. Atukorale (Appointed w.e.f. 12/09/2013 – resigned w.e.f. 30/05/2014)

Melsta Regal Finance Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered OfficeA. L. Gooneratne – Chairman 110, Norris Canal Road, Colombo 10D. M. N. P. Karunapala- CEO Tel: (94-11) 268 2742-3, 5288571 Fax: (94-11) 268 2741L. P. Liyanarachchi Web : www.melstaregalfinance.lkN. A. Rodrigo K. D. Bernard Co. Reg. No. PB 878M. S. J. D. Coorey D. S. C. Mallawaarachchi Auditors Messrs KPMG (Chartered Accountants)J. M. T. Galgamuwa Ms. S. A. Atukorale

Melsta Properties (Private) Limited Secretaries Financial Services and Commercial Agencies (Pvt) Ltd.

Board of Directors Registered OfficeC. F. Fernando 110, Norris Canal Road, Colombo 10Capt. K. J. Kahanda (Retd.) Tel: (94-11) 5288625 Fax : (94-11) 2695794S. Rajanathan R. R. P. L. S. Ratnayake Co. Reg. No. PV 78422



GROUP DIRECTORY


Pelwatte Sugar Industries PLC Secretaries Managers & Secretaries (Pvt) Limited

Board of Directors Registered OfficeD. H. S. Jayawardena 27, Melbourne Avenue, Colombo 04Capt. K. J. Kahanda (Retd.) Tel: (94-11) 2589390 Fax: (94-11) 2500674M. R. Peries Co. Reg. No. PV 14051R. Wettewa D. A. de S. Wickramanayake Auditors Messrs Ernst & Young (Chartered Accountants)D. H. J. Gunawardena C. S. WeeraratneD. A. E. de S. WickramanayakeK. K. U. Wijeyesekera

Pelwatte Sugar Distilleries (Pvt) Limited Secretaries Managers & Secretaries (Pvt) Limited

Board of Directors Registered OfficeCapt. K. J. Kahanda (Retd.) - Managing Director 27, Melbourne Avenue, Colombo 04M. R. Peries Tel: (94-11) 2589390 Fax: (94-11) 2500674D. A. de S. Wickramanayake Co. Reg. No. PV 10221

Auditors Messrs Ernst & Young (Chartered Accountants)

Pelwatte Agriculture & Engineering Services (Pvt) Limited

Board of Directors Secretaries Managers & Secretaries (Pvt) LimitedD. A. de S. WickramanayakeC. S. Weeraratne Registered Office 27, Melbourne Avenue, Colombo 04 Tel: (94-11) 2589390 Fax: (94-11) 2500674

Co. Reg. No. PV 66850

Auditors Messrs Ernst & Young (Chartered Accountants)

Associates

Aitken Spence PLC Secretary R. E. V. Casie Chetty

Board of Directors Registered OfficeD. H. S. Jayawardena – Chairman 315, Vauxhall Street, Colombo 02J. M. S. Brito – Managing & Finance Director Tel: (94-11) 2308308 Fax : (94-11) 2445406Dr. R. M. Fernando Web: www.aitkenspence.comDr. M. P. DissanayakeMs. D. S. T. Jayawardena (Apointed w.e.f. 01.12.2013)G. C. Wickremasinghe Co. Reg. No. PQ 120C. H. Gomez N. de S. Deva Aditya Auditors Messrs KPMG (Chartered Accountants)V. M. FernandoR. N. AsirwathamC. R. De Silva (Deceased on 07.11.2013)


Madulsima Plantations PLC Secretary P. A. Jayatunga

Board of Directors Registered OfficeD. H. S. Jayawardena – Chairman / Managing Director 833, Sirimavo Bandaranaike Mawatha, Colombo 14R. K. Obeyesekere Tel: (94-11) 2522871-2 Fax: (94-11) 2522913Z. Alif Dr. N. M. Abdul Gaffar Co. Reg. No. PQ 184S. K. L. Obeyesekere Dr. A. Shakthevale Auditors Messrs Ernst & Young (Chartered Accountants)D. S. K. Amarasekera

Pelwatte Dairy Industries Limited Secretaries Maidas Secretarial Services (Pvt) Limited

Board of Directors Registered OfficeD. A. de S. Wickramanayake A/4, Perahera Mawatha, Colombo 03D. A. E. de S. Wickramanayake D. H. J. Gunawardena Co. Reg. No. PV 16876A. N. F. Perera Auditors Messrs Ernst & Young (Chartered Accountants)


NOTICE OF MEETING

NOTICE IS HEREBY GIVEN that the TWENTY FOURTH ANNUAL GENERAL MEETING OF DISTILLERIES COMPANY OF SRI LANKA PLC will be held at the Committee Room “B” of Bandaranaike Memorial International Conference Hall (BMICH) on 29th September 2014 at 10:00AM for the following purposes.

1. To receive and consider the Annual Report of the Directors and the Financial Statements of the Company for the year ended 31st March 2014.

2. To approve a final dividend as recommended by the Board of Directors.

3. To re elect Mr. C. R. Jansz 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. N. De. S. Deva Aditya 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 elect as a Director, Mr. D. H. S. Jayawardena, who is over the age of 70 years and who retires in terms of Section 210 of the Companies Act No. 07 of 2007, by passing the following resolution.

“RESOLVED that Mr. D. H. S. Jayawardena , who attained the age of 70 on 17th August 2012, be and is hereby re-elected as a Director of the Company, and it is hereby declared that the age limit of 70 years referred to in Section 210 of the Companies Act No. 07 of 2007 shall not apply to the said Director.”

6. To re-elect as a Director, Mr. C. F. Fernando, who is over the age of 70 years and who retires in terms of Section 210 of the Companies Act No. 07 of 2007 by passing the following resolutions.

“RESOLVED that Mr. C. F. Fernando, who attained the age of 70 on 1st March 2005, be and is hereby re-elected as a Director of the Company, and it is hereby declared that the age limit of 70 years referred to in Section 210 of the Companies Act No. 07 of 2007 shall not apply to the said Director.”

7. To authorise the Directors to determine contributions to charities.

8. To authorise the Directors to determine the remuneration of the Auditors, Messrs. KPMG who are deemed to have been reappointed as Auditors in terms of Section 158 of the Companies Act No. 07 of 2007.

By Order of the Board,

Ms. V. J. SenaratneCompany Secretary

22 August 2014Colombo.

Notes:

1. A member is entitled to attend and vote at the meeting or to appoint a proxy to attend and vote on behalf of him / her by completing the Form of Proxy enclosed herewith.

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

3. The completed Form of Proxy should be deposited at the Registered Office of the Company at 110, Norris Canal Road, Colombo 10, before 10:00 a.m. on 27th September 2014.

The Dividend warrants will be posted within seven market days, if the dividend proposed is approved at the Annual General Meeting. In accordance with the rules of the Colombo Stock Exchange, the shares of the Company will be quoted ex-dividend with effect from 30th September 2014.

THE SHAREHOLDERS AND THE PROXY HOLDERS ATTENDING THE MEETING ARE KINDLY REQUESTED TO BE IN THEIR SEATS BY 9:45 A.M. THEY ARE ALSO REQUESTED TO BRING THIS ANNUAL REPORT, ALONG WITH AN ACCEPTABLE FORM OF IDENTITY.


NOTES


FORM OF PROXY

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

of ........................................................................................................................................................... being a member/

members of the Distilleries Company of Sri Lanka PLC hereby appoint Don Harold Stassen Jayawardena* or failing him Rajpal

Kumar Obeyesekere* or failing him Cedric Royle Jansz* or failing him Niranjan de Silva Deva Aditya* or failing him Kolitha Jagath

Kahanda* or failing him Chrisantha Francis Fernando* or failing him Adrian Naomal Balasuriya*

or ....................................................................................................................................................................................

of ...................................................................................................................................................................................as my/our* Proxy to represent me/us* and vote for me/us* on my/our* behalf at the Twenty Fourth Annual General Meeting of the Company to be held on the 29th September 2014 and at any adjournment thereof and at every poll which may be taken in consequent thereof.

* Please delete the inappropriate words.

** Please write your Folio Number which is given on the top left of the address sticker

................................................. Signature of ShareholderDated this ................... day of ................. 2014.

Notes:

1. Proxy need not be a member of the Company.

2. In terms of the Article 71 of the Articles of Association of the Company.

The instrument appointing a Proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing, or where the appointer is a corporation, either under seal, or under the hand of an officer or attorney duly authorised. A Proxy need not be a member of the Company.

3. In terms of Article 72 of the Articles of Association of the Company.

The instrument appointing a Proxy and the Power of Attorney or other authority, if any, under which it is signed or notarially certified copy of that power of attorney shall be deposited at the registered office of the Company or at such other place within Sri Lanka as is specified for the purpose in the notice convening the meeting not later than 48 hours before the time of the holding of the meeting or adjourned meeting at which the person named in the instrument proposes to vote or in the case of the poll, not later than 24 hours before the time appointed for the taking of the poll and in default the instrument of Proxy shall not be treated as valid.

4. In terms of Article 66 of the Articles of Association of the Company.

In case of the Joint holders the votes of the senior who tenders a vote, whether in person or by Proxy, shall be accepted to the exclusion of the votes of the other joint-holders; and for this purpose seniority shall be determined by the order in which the names stand in the register of members.

The first joint-holder thereby has power to sign the Proxy without the consent of the other joint holder.

5. Instructions as to completion are noted overleaf.

Folio No.


Instructions as to Completion.1. Kindly perfect the Form of Proxy, after filling in legibly your full name and address, by signing on the space provided and

filling in the date of signature.

2. Kindly return the completed Form of Proxy to the Company after deleting one or other of the alternate words indicated by an asterisk.

3. 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 later than 48 hours before the time appointed for the holding of the meeting.

4. Every alteration or addition to the Form of Proxy must be duly authenticated by the full signature of the shareholder signing the Form of Proxy. Such signature should as far as possible be placed in proximity to the alteration or addition intended to be authenticated.


ATTENDANCE SLIP

Distilleries Company of Sri Lanka PLCPQ 112110, Norris Canal Road, Colombo 10, Sri Lanka.

I / We hereby record my / our presence at the Twenty Fourth Annual General Meeting of the Distilleries Company of Sri Lanka PLC at the Committee Room “B” of Bandaranaike Memorial International Conference Hall (BMICH) on 29th September 2014 at 10.00 a.m.

1. Full Name of Shareholder : .......................................................................................................................... (In Capital Letters please)

2. Shareholder’s NIC No./Passport No. : ..........................................................................................................................

3. Number of Shares held and Folio No. : ..........................................................................................................................

4. Name of Proxy Holder : ..........................................................................................................................

5. Proxy Holder’s NIC No./Passport No. : ..........................................................................................................................

6. Signature of Attendee : ..........................................................................................................................

Notes

1. Shareholders / Proxy Holders are requested to bring this Attendance Slip with them when attending the meeting and hand it over at the entrance to the meeting hall after signing it.

2. Shareholders are also kindly requested to indicate any changes in their addresses / names by completing the following and forward same to the registered office 110, Norris Canal Road, Colombo 10, if not attending the meeting.

Name of the Shareholder : ..............................................................................................................................................

Certificate No. : ...............................................................................................................................................

Previous Address : ...............................................................................................................................................

Present Address : ...............................................................................................................................................

Any changes to the Name : ...............................................................................................................................................


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This report is entirely in English. If you require a translated copy of The Chairman’s Message, Annual Report of the Board of Directors and The Auditor’s Report in Sinhala or Tamil, please make a request by letter addressed to the Secretary, Distilleries Company of Sri Lanka PLC,

No. 110, Norris Canal Road, Colombo 10 on or before 22nd day of September 2014.

Company NameDistilleries Company of Sri Lanka PLC

Domicile and Legal Form of the Holding CompanyPublic Limited Liability Company incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange

Registration No.PQ 112

Ultimate Parent CompanyMilford Exports (Ceylon) Ltd.

Registered Office110, Norris Canal Road, Colombo 10,Sri LankaTel : +94 11 5507000 / 2695295 -7Fax : +94 11 2696360Web : www.dcslgroup.com

Board of DirectorsMr. D. H. S. Jayawardena (Chairman / Managing Director)Mr. R. K. ObeyesekereMr. C. R. JanszMr. N. de S. Deva AdityaCapt. K. J. Kahanda (Retd.)Mr. C. F. FernandoDr. A. N. BalasuriyaMr. A. L. Gooneratne (Alternate to Mr. N. de S. Deva Aditya)Ms. V. J. Senaratne (Alternate to Mr. K. J. Kahanda)

Audit CommitteeMr. C. F. Fernando – ChairmanMr. N. de S. Deva AdityaDr. A. N. Balasuriya

Remuneration CommitteeDr. A. N. Balasuriya – ChairmanMr. N. de S. Deva AdityaMr. C. F. Fernando

SecretaryMs. V. J. Senaratne

AuditorsKPMG (Chartered Accountants)32A, Sir Mohamed Macan Marker Mawatha,Colombo 03, Sri Lanka

RegistrarsP. W. Corporate Secretarial (Pvt) Ltd.3 / 17, Kynsey Road,Colombo 08, Sri Lanka

Lawyers Prasanna Goonawardene & Company26 / 1, Colonel T. G. Jayawardena Mawatha,Colombo 03, Sri Lanka

BankersBank of CeylonCommercial Bank of CeylonHatton National BankHong Kong & Shanghai Banking CorporationMCB BankNations Trust BankPeople’s BankStandard Chartered Bank

Credit RatingThe Company has been assigned ‘AAA (lka)’ National Long Term Rating with a Stable Outlook by Fitch Ratings Lanka Limited.

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Distilleries Company of Sri Lanka PLC | Annual Report 2013 / 14

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