kotagala plantations plc annual report 2017/18

KOTA

GA

LA PLA

NTATIO

NS PLC

| Annual Rep

ort 2017/18

KOTAGALA PLANTATIONS PLCAnnual Report 2017/18

VisionTo be the foremost producer of High Quality Tea & Rubber

MissionTo maximise land and labour productivity and achieve excellence in the protable management of the Company in an acceptable and socially responsible manner.

Core ValuesIntegrity Courage Commitment

ObjectivesTo lead the way in the technical and innovative development of the Tea & Rubber agri-industries.

To provide a satisfying work experience to our employees and ensure a rewarding investment to our shareholders.

To be a trail-blazer in the shift away from producing visually graded rubber as an agricultural commodity to the production of a fully technically specied industrial polymer

CONTENTFinancial Highlights 01Chairman’s Review 02CEO’s Review 04Board of Directors 07Risk Management 09Enterprise Governance 11Audit Committee Report 15Remuneration Committee Report 16Related Party Transactions Review Committee Report 17Our Plantations 18Our People 19Crop and Yield 20Management Discussion & Analysis 21Ten Year Summary 25Shareholder & Investor Information 26

Financial ReportingAnnual Report of the Board of Directors 28Statement of Directors’ Responsibilities 31Independent Auditors’ Report 32Statement of Profit or Loss and Other Comprehensive Income 36Statement of Financial Position 37Statement of Changes in Equity 38Cash Flow Statement 40Notes to the Financial Statements 41Glossary of Financial and Non Financial Terms 94Notice of Meeting 95Form of Proxy 99Corporate Information Inner Back Cover

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FINANCIAL HIGHLIGHTS

Revenue

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Rs.Mn.

13/14 14/15 15/16 16/17 17/18

Shareholders' Funds

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Rs.Mn.

13/14 14/15 15/16 16/17 17/18

Total Assets

0

2,000

4,000

6,000

8,000

10,000

12,000

Rs.Mn.

13/14 14/15 15/16 16/17 17/18

Net Asset Per Share

0

10

20

30

40

50

60

70

80

90

Rs./Share

13/14 14/15 15/16 16/17 17/18

Year ended 31st March

Group Company Change % In Company 2018 2017 2018 2017

(Restated)

Statement of Comprehensive Income Revenue Rs.000 3,875,473 3,167,263 3,816,830 3,086,410 0.24 Profit/(Loss) before tax Rs.000 271,767 (300,118) (102,204) (350,830) 0.71 Profit/(Loss) after tax from continued operation Rs.000 255,852 (258,581) (141,823) (311,274) 0.54 Profit/(Loss) after tax from discontinued operation Rs.000 (235,506) (60,824) - - - Other Comprehensive income/(Expense) from continued operation Rs.000 57,998 (64,044) 55,357 (62,836) 1.88 Other Comprehensive income/(Expense) from discontinued operation Rs.000 (39,238) 11,578 - - - Total Comprehensive income/(Expense) for the year Rs.000 39,106 (371,871) (86,466) (374,110) 0.77 Profit/(Loss) per share Rs. 0.47 (7.51) (3.28) (7.32) 0.55

Statement of Financial Position Total assets Rs.000 7,803,698 10,358,395 7,724,360 8,564,317 (0.10)Total Liabilities Rs.000 6,040,885 8,760,051 6,033,704 6,888,695 0.12 Total shareholders' funds Rs.000 1,762,813 1,598,344 1,690,656 1,675,622 0.01 Net assets per share Rs. 40.73 42.50 40.73 41.89 (0.03)

Market/shareholder information Debt/ Equity Ratio 3.43 5.48 3.57 4.11 0.13 Quick Asset Ratio 0.45 0.40 0.42 0.35 0.20 Interest Cover 1.72 0.38 0.78 0.31 1.50 Market Price (Year end) Rs. - - 7.90 10.10 (0.21)Market capitalisation Rs.000 - - 594,278 404,000 0.47

Kotagala Plantations PLC Annual Report 2017/182

CHAIRMAN’S REVIEW

A warm welcome to the 25th Annual General Meeting of Kotagala Plantations PLC. Your Company is one of the larger Tea cum Rubber plantation Companies in the island and with the completion of the proposed Oil Palm cultivation up to 1,100 hectares we will be a truly multi-crop Plantation Company. Multi-crop plantation companies have the advantage over mono-crop companies in their ability to be better able to spread risks. Especially in the case of Tea and Rubber in the wetter parts of the island the Rubber crop benefits from drier than average conditions permitting a higher number of tapping days and less late tapping and wash-outs, whereas under similar conditions the tea is less productive. Rubber, however, being an industrial raw material is more susceptible to changes in international economic conditions and stable political conditions and in recent years Rubber prices have adversely affected the performance of Rubber plantations.

The year under review also witnessed major upheavals in the local political front and the present government which was heralded in with great expectations and promise in 2015 faced serious changes and reversals and the present economic and political situation is unstable and the future uncertain.

TEAThe islands total tea crop saw a small increase of about 5% over the previous year and ended the year at 307.1 million kilos. Your Company’s tea plantations are mainly in the Dimbulla/Dickoya districts but has a relatively small extent of low grown teas on a few of the rubber plantations as well. Our own production of low country tea is insufficient to keep the three low grown factories in production and fair quantities of low country small holder leaf is purchased.

The total extent under tea is 2,689 hectares, of which 234 hectares is in the low country. Of this total Tea extent 92 hectares is immature.The entirety of the low grown tea is in VP whilst the high grown VP extent is about 92% of the total extent. This high grown VP is some of the highest yielding tea in the island but due to a series of droughts and unfavourable growing conditions in recent years the island’s tea crops as well as our own crops have suffered and the cumulative result of these set-backs are the depressed VP yields we experienced in the year under review.

The Plantation Ministry is likely to introduce, in the near future an Aid package for accelerated replanting and in-filling vacancies in VP and high yielding seedling fields. This package if introduced will be most welcome to the Industry and although Kotagala Plantations with its high VP content will not be undertaking any major replanting projects, the funding assistance for supplying vacancies will be taken advantage of to accelerate this work and maintain a full stand of productive bushes.

The climatic conditions during the year were about average for crop but was however marked by periods of extreme drought and very heavy rainfall accompanied by some extremely cold spells that reduced crop. The total crop harvested was 4 million kilos, which was 800,000 kilos less than the previous year.However, due to certain uneconomic fields being removed

from the hectarage in bearing and given minimum care and maintenance, the final yield per hectare shows a small increase to 1,660 kgs/ha from the previous year’s yield of 1,567 kgs/ha. With the strong market conditions that prevailed during the year, the profitability of manufacturing outside bought leaf improved and in an attempt to maximise profitability we improved the intake of bought leaf to 1,470,000 kilos, against an intake of 983,000 kilos in the previous year.

Strong market conditions prevailed throughout the year and the total auction average for all teas in the year 2017 was Rs.586.74 for high growns and Rs.637.40 for low growns against a corresponding average for the year 2016 at Rs.499.85 for high growns and Rs.600.93 for low growns. The Kotagala high grown average for the year under review was Rs.597.70 for high growns and Rs.628.96 for low growns. Kotagala high growns did well to be ahead of the overall high grown average in spite of the single largest high grown producer Mt. Vernon, being a CTC factory. CTCs sell a little below the Rotorvane teas.

Revenue from Tea was a satisfactory Rs 3.108 billion against the previous year’s tea revenue of Rs.2.368 billion.

RUBBERThe Rubber extent in bearing was 2,846 hectares with 471 hectares immature Rubber. At a total of 3,317 hectares under Rubber, Kotagala Plantations RPC has one of the larger Rubber extents. However, during the year under review Millewa estate (376.84 hectares) located in proximity to the Padukka town was acquired by the State, presumably for the purpose of setting up and Industrial Estate, and the current Rubber extent is now reduced. In any event, several of the Company’s Tea and Rubber properties are located close to the major towns of Kalutara and Horana and in the medium term are likely to be subject to major acquisitions for town planning and industrial purposes.

During the last few years due to a fall in international oil prices followed by economic down-turns in the major industrial countries, raw Rubber prices dropped sharply to uneconomic levels and although the year under review saw the beginning of a slight strengthening of the market, it is unlikely that Rubber prices will get back to the earlier attractive levels until about late 2019.

In spite of the below average Rubber performance in recent years we have not cut back on our regular replanting programs. The oldest of the clearings planted by us from the late 1,990’s are now coming to the end of their virgin bark. Most of the Rubber replanted by us is still being tapped on Virgin bark and as these younger, higher yielding clones mature we will see some very significant increases in Rubber crops.

The total Rubber crop harvested was 2 million kilos and the total Rubber revenue was Rs.668 million.

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OIL PALMA few years back we commenced the conversion of low yielding poor Rubber lands to Oil Palm. Our target is to have a total of 1,100 hectares under Oil Palm and at present we have planted a total of 525.88 hectares of which 326.56 hectares have recently been brought into bearing but not yet in peak bearing. 199.32 hectares are immature. Our planting program has been delayed due to delays in importing the necessary seed.

The crop harvested this year is 1,159,000 kilos (Fresh Fruit Bunches), equivalent to a FFB yield of 3,479 kgs/ha. Revenue from Oil Palm was Rs.40 million

We also have an extent of 1,033 hectares of Timber clearings, with a further 22 hectares of felled land for planting. We did fell a small area of timber during the year under review gaining a Sundry Income of Rs. 7.4 Million.

FINANCIALSTotal revenue from Tea, Rubber, and Palm Oil sales was Rs.3.816 billion against Rs.3.086 billion the previous year. Cost of sales was Rs.3.499 billion and gross profit from operations was Rs.316.8 million against a gross profit of Rs.10 million last year.

The gain on the valuation of Biological assets (Timber) was Rs.139.5 million whilst other income including the sale of uprooted rubber trees and refuse tea was Rs.202.8 million.

Administration expenses amounted to Rs.299.5 million and the profit before financial costs was Rs.359.7 million. Financial costs were Rs.461.9 million and the loss before tax was Rs.102.2 million. The loss before tax last year was Rs.350.8 million.

FUTURE PROSPECTSThe tea market is expected to continue at a satisfactory level although the market has recorded a dip from the strong position in the first quarter of 2018. As mentioned earlier it is unlikely that rubber prices will recover to previous levels.

Of major concern is the new collective wage agreement which is due to come up for discussion soon. It is very necessary that the Plantation Companies ensure that any wage increase agreed to is linked to productivity.

Another matter of concern is the continuing migration of Plantation workers out of the Plantations. Over a period of 10 years the registered workforce has reduced from 11,500 to 9,054. During the same period crops have shown a gradual decline and Estates are finding it difficult to harvest available crop.

I gratefully acknowledge the support of my colleagues on the Board and thank the Management, Staff and Workforce on the Plantations and at Colombo for their continued efforts under difficult conditions.

S D R ArudpragasamChairman

10th July 2018


CEO’S REVIEW

2017/2018 was a season in which Tea prices continued to be strong and remunerative while Rubber experienced, perhaps, it’s most disastrous period.

Accordingly, a review of the company’s operational aspects is presented below.

TEAWeather conditions did not favour the harvesting of the estimated Tea crop from our estates. Wet and gloomy weather that prevailed through much of the season, was not conducive to growth. We were only able to harvest 4,012,117 kgs of Made Tea from estate crop, which amounted to 75% of the budgeted figure of 5,357,600 kgs.

However, the Bought leaf intakes were mitigatory to a certain degree, as we were able to acquire 1,470,140 kgs of Made Tea from this category as against an estimate of 1,304,100 kgs, which worked out to a positive 113%.

Receipts of Bought Leaf to our Up-country factories were notable. On the other hand, our Low Grown factories continued to face the extremely difficult challenge of competition for Bought leaf, which was intense in the Low country areas and remains so to-date.

Overall, we harvested 82% of our budgeted crop targets. The Bought crop, thereby, made a significant contribution in the control of costs.

In regard to prices, our High grown Teas averaged Rs.597/70 at the auctions viz a vis Rs.509/87 in the previous season while our Low growns averaged Rs.628/96 as against Rs.547/42. These figures represent gains of Rs. 87/83 (17%) and Rs. 81/54 (15%) respectively.

However, these gains have got to be viewed in the light of the increased Cost of Production that came about along with the increase in wages in mid October, 2016. The impact on the company’s wage bill was computed to be an increase of 17% at the time. Average overall Cost of Production in 2016/2017, where the Wage increase became operative mid season, was Rs.480/91 while it was Rs.538/38 in 2017/2018, an increase of Rs. 57/47 (11%).

Factory DevelopmentDrayton Estate installed a new Radiator coupled to the Hot Water Generator in their factory. This will enhance the firing process by way of improved heat transfer.

RUBBERWeatherThe weather conditions went against us this season, 25 more Wet days being recorded than in the previous season (ie) 132 Wet days in 2016/2017 as against 157 Wet days in 2017/2018.

These 25 Wet days represent a loss of 25 Tapping or harvesting days which, in turn, is the equivalent of one month’s production.

CropAs such, we were able to harvest only 70% of our Budgeted annual Rubber crop. We produced 2,008,104 kgs of Rubber in 2017/2018 compared to 2,580,000 kgs in 2016/2017. The resulting loss in revenue, from this lower production, was immense.

PricesAlthough average prices moved up from Season 2016/2017 for all Rubber grades, these price gains did not offset the higher costs brought about by the weather affected lower crop harvest combined with increased wage rates.

Manufacture and ExportsOur manufacturing standards continue to be high, and direct exports to Germany on a Forward Contract basis proceeded uninterrupted. This helped to maintain our prices at levels above those being paid at the Colombo Rubber Auctions.

OIL PALM ExtentAn extent of 326 ha. was in bearing this season. This is an increase of 103 ha. in the mature extent over Season 2016/2017.

Crop1,158 MT of Fresh Fruit Bunches were harvested in Season 2017/2018 compared to 947 MT in the previous Season.

PricesAverage prices realized reduced from approx. Rs.37/- in Season 2016/2017 to Rs. 34/48 per kg this Season.

Capital Field DevelopmentRs. 26.8 mn were expended on the maintenance of the immature extent of 200 ha.

CERTIFICATIONSWe have made a concerted effort to identify key environmental aspects, pertinent to our business over the past few years, and planned in advance, to conserve and protect our precious Plantation atmosphere. We remain committed and comply with all the guidelines set out by the Authorized Government entities, and are associated with the code of principles of the Rainforest Alliance and the Ethical Tea Partnership. In order to protect our ecosystem constantly, we have been carrying out awareness programmes for the employees and people living in the vicinity.

The Company has in place prestigious product purity accreditations such as the ISO 22000:2005/HACCP Certification ISO 9001:2015/QMS Certification and ETP

The products from our tea factories are periodically tested and the process is also regularly evaluated by way of internal and external audits, to ensure conformity to safe and hygienic parameters. Ethical Tea Partnership (ETP)

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together with other players within the tea industry, both local and foreign, has helped the Company to position itself as a responsible manufacturer. Having such certifications in place has augured well for the Company in terms of it being a preferred supplier who provides due consideration for its people and the planet. ETP Certification has become highly sought after in international markets and ensures that one’s Company’s produce remains competitive as a trading commodity.

Rainforest Alliance Certification (RA)In respect of Kotagala Plantations – Up Country, we have already certified Craigie Lea, Derryclare, Drayton, Stonycliff & Yuillefield Estates. Mayfield and Mt. Vernon Estates will be certified during the current season. The Rainforest Alliance directs the Company’s focus to good agricultural and ethical trade practices.

Many of our leading buyers insist on the Rainforest Alliance Certification as a major requirement prior to purchase, and the Company has been able to comply effectively and retain our buyers in doing so.

As a responsible leading company in the industry, the worker community is frequently educated based on the requirements, to maintain the strategies of RA Certification.

Our efforts are to incorporate sustainable business practices in every aspect in Plantation operations, to uplift the social standards of every level of the workforce, providing adequate and relevant training, while protecting and conserving the environment.

We believe that this approach will provide success and continuity.

CORPORATE SOCIAL RESPONSIBILITYThe Kalutara and Hatton Regions of Kotagala Plantations PLC were able to contribute to Social Responsibility Initiatives this season by facilitating the investment of over Rs.101.9 mn granted by the Ministry of Hill Country, New Villages Infrastructure & Community Development. New Housing, Roads, Play grounds, Community Centres and other Infrastructure were provided to the workers, utilizing these funds.

Green Gold Housing Project

Under our Living Environment of the Estate Community, 29 Units were planned and constructed on Arapolakanda Estate in 2017. Land area of 7 perches + 10% for infrastructure is granted per beneficiary. This project was supported by the Ministry of Hill Country & New Villages, Infrastructure and Community Development. Total cost of this project is Rs. 29Mn approximately and the houses were handed over to the beneficiaries ceremonially by Hon. Minister, Ministry of Health.

Another 55 Units of Housing were constructed and occupied by beneficiaries on Mount Vernon Estate at a cost of Rs. 55 Mn.

Health & NutritionHealth & nutrition of our workers is a major priority of our management. KPPLC is committed to maintain the Health and nutritional status of its Estate Community. Social Mobilization, Dengue Awareness Programmes, Dental Clinics, Eye Clinics, TB awareness programmes, Oral Cancer Programme, Provision of Spectacles, Cataract removal surgeries, AIDS awareness Programmes, Promoting home gardening and educating parents to use fresh fruits and vegetables, House Hold Cash Management, Regularized feeding for children at Child Development Centers by educating child development Officers, Developed breast feeding corners at Child Development Centers enabling lactating mothers to feed their babies, Refresher Training programmes for Midwives in estates etc., were carried out in both Low Country & Up Country Regions in collaboration with Health Ministry/RDSH & PHDT. The improvement of health conditions has benefited many in the Estate Community ranging from infants to retirees.

Maternal CareThe provision of maternal care on KPPLC Estates is assessed by the level and time of antenatal registration, clinics, attendance, place of delivery and postnatal care by the qualified Midwives on our Estates and nutritional levels are monitored with the support of the Estate teams under the guidance of the Medical Officer of the Health (MOH).

In addition, Estate Midwives visit mothers at home to ensure early registration and to follow up during pregnancy, ensure safe delivery at hospitals and provide the best potential care. The many educational programmes conducted for mothers and young females in families by the midwives and our Estate health teams have contributed substantially towards early registration.


CEO’S REVIEW

Estate Worker Housing Co-operative Society (EWHCS)The EWHCS was first established in 1993, by the PHDT in collaboration with the Department of Cooperative Development, mainly with the intention of distributing funds to construct houses for the estate community.

These societies are models on our plantations which have been successfully developed and have made significant contribution by reducing poverty levels and uplifting the living conditions of the Plantation workers and their families.

The Resident Plantation Community has been considerably empowered by the EWHCS which are now available on all Estates managed by RPC’s by providing loans, creating jobs, access to many goods and services etc.

Inter Plantation Six A Side Soft Ball Cricket Tournament for Plantation Executives Southern Cup – 2017 – Runner Up

Our pool of Cricketers and Supporters with the Director/CEO - Mr. Mahen Madugalle

The tournament was held on 21st March 2018 at the BOI Grounds, Koggala, conducted by the PHDT – Galle Region.

Inter Plantations Cricket Tournament at Darawella grounds, Dickoya on 28/02/2018

Our Team with Director/Deputy CEO – Mr. Rohan Edwards

Congratulations!

Infant and Maternal Mortality RatesInfant Mortality Rate (IMR) and Maternal Mortality Rate (MMR) on our Plantations are registered at level zero. This is a great achievement. Giving

birth at home has been totally discouraged. In other words, no birth takes place outside a maternity ward or Government medical institution. We are pleased to have achieved these goals.

We congratulate our Estate Management and the Health Staff and PHDT Officials on this achievement and thank everyone involved in this achievement.

APPRECIATIONIt is imperative on our part to express gratitude to all those who stood by us during difficult times.

While our Tea and Rubber Brokers, in particular, stepped forward to assist us, financially, on several occasions, we cannot overlook the importance of the buying community in their support of our produce, which helped us to maintain healthy price levels.

Those Organizations which donated considerable funds for the improvement of the social and living conditions of our workforce deserve our sincere thanks for all they have done, as highlighted in this review.

Within the organization, our Plantation Executives deserve special thanks for putting their shoulders to the wheel and managing the estates, often under stressful circumstances. Our workforce, without whom the plantation industry cannot be sustained, is deserving of much gratitude for the patience with which they have borne with us. We also sincerely appreciate the services of the Executives and Staff of the Head Office and Regional Offices and the Field, Clerical and Factory staff on our Estates.

We extend our thanks to our Shareholders for their confidence in us.

In conclusion, our thanks are due to the Group Chairman, Chairman and Board of Directors for their guidance and support.

Mahen MadugalleDirector / Chief Executive Officer

10th July 2018

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BOARD OF DIRECTORS

S. D. R. Arudpragasam – ChairmanNon- Executive

Mr. S. D. R. Arudpragasam joined the Board in 1996 and was appointed Chairman in May, 2013. He serves as Chairman of several subsidiaries of The Colombo Fort Land and Building PLC (CFLB) including Chairman, Lankem Ceylon PLC and Chairman/Managing Director of E.B. Creasy & Company PLC. He holds the position of Deputy Chairman on the Board of The Colombo Fort Land and Building PLC, in addition to holding other Directorships within the CFLB Group.

Mr. S.D.R. Arudpragasam is a Fellow of the Chartered Institute of Management Accountants (U.K.).

C. P. R. Perera - Deputy ChairmanIndependent Non- Executive

Mr. C.P.R. Perera joined the Board in 1996 and was appointed Deputy Chairman in May, 2013. He serves on the Board of The Colombo Fort Land & Building PLC (CFLB) and also serves on the Boards of several subsidiary companies of the CFLB Group. He also holds directorships in other private and public companies. He is a past Chairman of the Sri Lanka Tea Board, Sri Lanka Insurance Corporation, PERC and Bank of Ceylon. He retired as Chairman of Forbes & Walker Ltd and its subsidiary companies in June 2005 after almost 44 years of service.

He presently functions as Chairman of Ceylon Tea Brokers PLC. Mr. Perera has served as a Committee Member of the Ceylon Chamber of Commerce, The Planters Association of Ceylon and on the Committee of Management of the Ceylon Planters Provident Society. He is presently an Appointed Member of the Monetary Board of the Central Bank of Sri Lanka.

A. Rajaratnam Non – Executive Director

Mr. Rajaratnam joined the Board of Kotagala Plantations PLC in 1996 and served as Chairman from the year 2003 to May, 2013. He currently serves as Chairman of The Colombo Fort Land & Building PLC (CFLB) and several listed and unlisted companies within the CFLB Group in addition to holding other Directorships within the Group.

Mr. A. Rajaratnam is a Fellow of the Institute of Chartered Accountants of Sri Lanka.

D. S. AbeyRatnaNon – Executive Director

Mr. D.S. AbeyRatna was appointed to the Board on 11th November, 2015.

He is a Fellow of the Institute of Chartered Accountants of Sri Lanka, Chartered Institute of Management Accountants (U.K.) Certified Management Accountants of Sri Lanka. He is also a Member of the Certified Management Accountants of Australia.

Mr. AbeyRatna holds a Ph. D. from the University of Honolulu (U.S.A.)

He is the Head of AbeyRatna & Co. Chartered Accountants which is an affiliate of AGN International Ltd. (U.K.) and is a Director of the said Company. He possesses well over 40 years of experience in Finance at a very Senior Level.

Mr. AbeyRatna is a Director of several listed and unlisted Companies.

M. S. Madugalle – Chief Executive OfficerExecutive Director

Mr. Mahen Madugalle commenced his planting career with Janatha Estates Development Board (JEDB). He has worked for other private sector Plantation Companies. He joined Kotagala Plantations PLC which was then managed by George Steuart Management Services as Manager Mount Vernon Estate and was promoted as Cluster General Manager of Mount Vernon under the management of Lankem Tea & Rubber Plantations (Private) Limited (LT&RP) and subsequently as Regional General Manager of the Kotagala Region. He has also held the position of General Manager of the Agras and Uva Regions of Agarapatana Plantations Ltd.

He was appointed to the Boards of LT&RP in 2012 and Kotagala Plantations PLC in January 2013 and functioned as Deputy Chief Executive Officer of KPPLC from 1st April, 2014. Mr. Madugalle was appointed as Chief Executive Officer of KPPLC with effect from 1st April, 2015. He has provided consultancy services to the FAO in Iran on tea projects. He holds a Diploma from the National Institute of Plantation Management.

R. C. Peries Non- Executive Director

Having started his career with Carsons Cumberbatch & Co., he then moved to George Steuarts, one of the premier Agency Houses. He has served as Manager of some of the most prestigious rubber properties in the Low Country and also held senior appointments in the industry and served on the Rubber Research Board Advisory Panel. In 1983, he was the Regional Director of the JEDB Hatton Board and in 1988 he was made Director General of the Kegalle – Avissawella Zone of the JEDB. In 1992 after the Privatisation of the management of plantations, he joined George Steuart Management Services as the General Manager of Low Country rubber and tea estates of Kotagala Plantations. He continued to serve in this position even after the takeover of the Management of Lankem Tea & Rubber Plantations (Pvt) Ltd (LT&RP), Managing Agents in 1995.

He was appointed to the Directorate of LT&RP in 2002 and to the Board of KPPLC in 2005. He also serves as a Director in other Companies of The Colombo Fort Land & Building Group.

He is a member of the Rubber Research Board and of the Rubber Wages Board.

Mr. R.C. Peries is a Member of the Ceylon Institute of Planting.


BOARD OF DIRECTORS

D. A. RatwatteNon- Executive Director

Having commenced his career with Messers. Whittall Boustead Ltd prior to nationalisation he has contributed many years of his life to planting. After the nationalisation of estates he managed two of the most prestigious plantations in up-country after which he was invited to serve on the Board of Directors of the Janatha Estates Development Board VI.

After the privatization of management of the Regional Plantation Companies in 1992, Mr. Ratwatte took charge of the operations of Maturata Plantations Ltd. in the capacity of General Manager-Plantations in charge of the plantations in both Udapussellawa/Maturata and the plantations coming within the purview of Maturata Plantations Ltd. in the Deniyaya district, low-country. In 1999 he joined Lankem Tea & Rubber Plantations (Private) Ltd. (LT&RP), Managing Agents, as a Regional Director in charge of the Western High Grown properties in the Kotagala and Agarapatana districts. He was appointed to the Board of LT&RP in 2002 and joined the Board of KPPLC in 2006. He serves as a Director in other Companies of the Colombo Fort Land and Building Group. He is also in the panel of Visiting Agents , appointed by the Ministry of Plantation Industries.

Mr. D. A. Ratwatte is a Fellow of the National Institute of Plantation Management.

G. D. V. PereraNon- Executive Director

He commenced his career in planting with Mackwoods Estates & Agencies Limited in 1971. With the nationalization of Estates, he worked as an Estate Manager and Visiting Agent and was subsequently promoted as a Director of JEDB in the Nuwara Eliya Region. He has provided his services to the prestigious Commonwealth Development Corporation (CDC) of UK on tea projects in Tanzania and was resident there. After the privatisation of the management of Regional Plantation Companies, he returned to Sri Lanka and joined Forbes Plantation Management Services Ltd., as a Plantation Director of Balangoda Plantations Limited in 1993. He joined Lankem Tea & Rubber Plantations (Pvt) Ltd (LT&RP), Managing Agents in 1996 and was appointed to the Directorates of LT&RP in 2002 and KPPLC in 2006. He also serves as a Director in other Companies of the Colombo Fort Land and Building Group.

He is a past Chairman of the Planters’ Association of Ceylon. He is a Director of the Plantation Human Development Trust. Mr. G.D.V. Perera is a Member of the Ceylon Institute of Planting and a Fellow of the National Institute of Plantation Management.

A. M. De S. JayaratneIndependent Non- Executive Director

Mr. A. M. de S. Jayaratne was appointed to the Board of Kotagala Plantations PLC in December 2012.

He is a former Chairman of Forbes & Walker Ltd, Colombo Stock Exchange, Ceylon Chamber of Commerce and The Finance Commission. He also served as Sri Lanka’s High Commissioner in Singapore. Mr. Jayaratne is a Director of several listed and unlisted companies. He holds a Bachelor of Science degree in Economics and is a Fellow of the Institute of Chartered Accountants of Sri Lanka and of England and Wales.

Dr. L.M.K. TillekeratneIndependent Non- Executive Director

Appointed to the Board in January, 2013. Dr. Tillekeratne is a globally renowned rubber scientist and technologist with nearly 40 years national and international experience in research and development. As the Director/CEO of the Rubber Research Institute of Sri Lanka which is the first rubber research institute in the world, he held enormous responsibilities in guiding the Sri Lankan rubber industry along a growth path that includes the small holder sector. He has extensive practical experience in policy development, industry problem solving and dissemination of technology to users. His knowledge of global rubber industry is extensive. He has launched many projects to upgrade the skills, technological capabilities and productivity of the rubber farms. He is an inventor having won the prestigious Presidential Award and international acclaim for commercialized inventions that led to him being appointed Chairman, Sri Lanka Inventors Commission. Having retired from Government service in August 2006, he serves the industry as a freelance consultant; while having served as a Professor in Polymer Chemistry, University of Sri Jayewardenepura until 2011. Further, he is serving as an expert in Rubber Processing and Testing to United Nations Industrial Development Organisation (UNIDO). Under the GROW Liberia program of Adam Smith International of UK, Dr. Tillekeratne is extending his assistance to Liberia to improve the quality of RSS and to certify the quality of the rubber produced.

He holds a Diploma in Research Management from the University of Los banos, Phillipine. He also has a Master of Science Degree, in Physical Methods of Analysis and a Doctorate in Polymer Chemistry and Technology from the University of Aston, Birmingham UK. Dr. Tillekeratne is a Fellow of the Plastic & Rubber Institute of UK, Institute of Chemistry Ceylon and the National Academy of Sciences, Sri Lanka.

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The Risk Management processAt Kotagala , we emphasise the importance of having a strong working culture within the organization that strengthens the internal processes. Risk Management is no longer an additional set of processes but embedded in the business process itself .The risks could influence the achievement of the strategy of business, operational and financial objectives therefore the Directors have taken the initiative to identify the organisations major risks and introduced several measures to mitigate the risks faced by the Company.

The following are some of the major risk factors that the company is exposed to while carrying out its business and the actions implemented to reduce or eliminate risk.

Operational riskThe company carries out continuous planning, quality control and disaster recovery management strategies in order to ensure the continuous operation of business.

Tangible assets are insured against identifiable risks and the associated insurance policies are reviewed and evaluated annually. Provision is also made for asset defects and malfunctions and for obsolescence due to advances in technology. We go to the best suppliers to ensure that defect free products are purchased. The factories in the estates and other infrastructure are continuously upgraded when required.

Exposure to reputation risk is minimized through product quality controls and a comprehensive quality management process which includes upgrading our factories to adhere to HACCP standards

WeatherThe Company’s product portfolio being Tea and Rubber, helps to minimize the impact as tea requires wet and rubber requires drier weather conditions. The location of our tea estates in the High grown and Low grown elevation categories also helps in this regard.

The Company has the option of increasing or decreasing quantities of bought crop according to weather patterns. Prudent agricultural practices such as rain guards for rubber trees and planting of TRI recommended clones and other agricultural practices to minimise drought effects and proactive planning has helped the company to minimise the risk of adverse weather conditions.

Business riskPrices are cyclical and have an impact on earnings. Tea Auctions in Colombo are influenced by global demand and supply, and foreign currency exchange rates. The company mitigates this impact by producing high quality tea and rubber. The direct export of rubber facilitates price stability and entering into forward contracts with rubber buyers helps reduce market risk. Kotagala Plantations process a full range of teas (low grown, high grown and CTC) and different types of rubber which helps reduce market

instability. Initiatives have been taken for diversification into other crops like cinnamon and oil palm which will reduce over dependence on tea and rubber.

The Company possesses synergistic benefits from being in a group which includes a chemical supplier and another company in the plantation business.

Healthy relationships are maintained with our suppliers. Fluctuations in the exchange rates are closely monitored and hedging techniques applied when required.

In order to minimize the dependence on a single distribution channel (brokers) the company has continued to establish its export operations. Further the company has leased out a portion of land to Mlesna (Ceylon) Ltd in Kotagala for the purpose of the sub lessee to carry out sales and operate a tea centre for their products. This facility also has provision to market KPPLC garden mark packs.

Legal and regulatoryThe Company addresses this area with great concern in order to protect its corporate image. Quality assurance standards in factories have been established over a period of time (ISO, HACCP) and continuous reviews are conducted to ensure they are maintained. The Company’s legal division ensures full compliance with all regulatory requirements including labour regulations, adherence to laws and instructions of governing authorities such as Provisions of the Companies Act, Securities & Exchange Commission and Colombo Stock Exchange requirements. The Company also obtains expert advice from its Auditors, Tax consultants, Actuaries, TRI, RRI as and when required. As a public listed company we also strive for a high standard of corporate governance in the conduct of our business.

Human resourcesKotagala Plantations has entered into Collective Agreements with trade unions as a member of the employers’ federation. This helps to ensure industrial peace and a well negotiated and affordable wage. Human Resource Management is given priority, where continuous training and development programmes and workshops are held in order to motivate and develop our human resources.

Governance riskThese risks are dealt with preventively through the actions of the company’s legal department and through frequent internal & external audits to monitor compliance. The company’s management culture stresses ethical performance in this area, following best practices at all times.

LiquidityWe strive to maintain sufficient liquidity is available to meet our debt commitments and provide for our operational capital requirements. Loans and overdraft facilities are arranged with banks to meet planned cash flow commitments.

RISK MANAGEMENT


Employee related risksRisks such as omissions, fraud, judgmental errors, negligence, are examples of employee related risks. The company has a set up a competent internal audit department which carries out exhaustive checks on a routine basis in order to eliminate the above mentioned risks. The Internal audit department functions independently and reports directly to the Executive Directors. They ensure all receipts have been banked, lodging of funds have been deployed for the intended activity. Suitable delegated authority levels have been set up and succession plans are formulated. We maintain a conducive working environment for all staff

InformationProper internal controls have been established in order to secure the information system. Routine and surprise audit checks are carried out to detect any deficiencies and improvements are suggested. The company has implemented sound backup systems and procedures, and has also entered into maintenance contracts with established agents and uses licensed software.

RISK MANAGEMENT

11

ENTERPRISE GOVERNANCE

Enterprise Governance is the combination of Business Governance and Corporate Governance, it is the set of responsibilities and practices exercised by the Board and executive management with the goal of providing strategic direction, ensuring that objectives are achieved, ascertaining that risks are managed appropriately and verifying that the organization’s resources are used responsibly.

Enterprise Governance is such an important framework. It encapsulates Corporate Governance, Performance Management, Internal Control and Risk Management, and it strives to achieve a balance between conformance and performance.

At Kotagala Plantations PLC we are firmly committed to the standards set for governance. The Company’s performances are managed to the best interest of its shareholders whilst maintaining high ethical standards. The Board is committed to adhere to various business practices in order

to further establish our Company as a good corporate citizen that values responsibility.

The strategic options, implementation and risk control strategies are closely monitored in order to deliver better results. The Company is in compliance with the majority of the good corporate governance practices recommended by The Institute of Chartered Accountants of Sri Lanka and the listing rules of the Colombo Stock Exchange. Given below is a demonstration as to how we adhere to good Corporate Governance practices.

Corporate Governance Principle Company’s adherence

Directors

Composition of the Board The Board consists of an Executive Director and nine Non-Executive Directors three of whom are Independent. The Directors possess a strong balanced blend of skills, experience to offer guidance in core areas important to KPPLC. These Directors are named below and profiled on pages 7 and 8

S. D. R. Arudpragasam - Non Executive(Chairman) C.P.R. Perera - Independent Non- Executive(Deputy Chairman) A. Rajaratnam - Non-ExecutiveD. S. AbeyRatna - Non ExecutiveM. S. Madugalle - Executive(Chief Executive Officer)R. C. Peries - Non ExecutiveD.A. Ratwatte - Non-ExecutiveG.D.V. Perera - Non-ExecutiveA. M. De S. Jayaratne - Independent Non-Executive L. M. K. Tillekeratne - Independent Non-Executive

The Non- Executive Directors have submitted declarations of their independence or non-independence to the Board of Directors.

Mr. C.P.R. Perera has served on the Board for more than nine years. He is a Director on the Boards of other Companies in which a majority of the Directors of the Company are Directors and also has significant shareholdings in another. He serves on the Board of the Ultimate Parent Company, The Colombo Fort Land and Building PLC (CFLB) and holds Directorships on certain subsidiaries of CFLB and has served on some of those subsidiaries for a period exceeding nine years. However the Board having taken into consideration all other circumstances listed in the Rules pertaining to the Criteria for Defining Independence is of the opinion that Mr. C.P.R. Perera is nevertheless Independent.

Mr. A. M. De S. Jayaratne is a Director of the Ultimate Parent Company, The Colombo Fort Land and Building PLC (CFLB) and serves on the Boards of several subsidiaries of CFLB. He has served on the Board of the Ultimate Parent and on several of its subsidiaries for over a period of nine years. He a Director of certain such subsidiary companies of which a majority of the Directors serve on another and also has significant shareholdings in another. However the Board having taken into consideration all other circumstances listed in the Rules pertaining to the Criteria for Defining Independence is of the opinion that Mr. A.M. De S. Jayaratne is nevertheless Independent.




Directors

Decision making of the Board In addition to Board Meetings, matters are referred to the Board and decided by Resolutions in writing. The Board has met on seven occasions during the year under review. The Board is responsible for:-• Ensuring the conduct of the Company’s affairs in the best interest of its stakeholders.• Identifying Strategic options implementation and monitoring their success. • Appointment of the Directors, ensuring staff succession and determining remuneration of

senior executives and staff in consultation with the respective Committees.• Ensuring an effective internal control system.• Ensuring a proactive risk management system.• Ensuring compliance with highest ethical standards and legal standards.• Approval of major capital investments acquisition expansions and Budgets • Approval of interim and annual financial statements for publication.

Company Secretaries The Company and all Directors may seek advice from Corporate Managers & Secretaries (Pvt) Ltd who are qualified to act as Secretaries as per the provisions of the Companies Act No. 7 of 2007.

Independent Judgement The Board of Directors at all times exhibit high standards of integrity, commitment & independence of judgement.

Obtaining independent professional advice Advice is sought from independent experts whenever board deems it necessary. The Directors are updated on the changes in the plantation industry as well as on the general aspects which may affect the Company’s operations.

Managing Agents The Board of Directors has delegated the management of Plantation and the task of achieving the strategic objectives set out by the Board to the managing agents Lankem Tea & Rubber Plantations (Pvt) Ltd (LT &RP). The Board of LT&RP meets every month and review the progress towards achieving the budgets and discuss the operational issues. The successful implementation of the Capital Expenditure programmes and focussing on the development strategies are also key priorities.

Finance Acumen The Board comprises of four finance professionals who together with Director Finance - LT&RP possess the knowledge and the competence to offer the Board the necessary guidance on matters relating to finance.

Supply of Information on a timely manner Prior to each meeting all Directors are given a file of Board Papers which includes Summarized Financial Statements, operational statistics, performance reviews, sales reports, Schedules of Capital Expenditure and a Progress Report, covering all significant issues with the comparatives of prior year and budget. This information is provided at least 7 days prior to the meeting which gives Directors adequate time for qualitative deliberation and analysis.

Nomination Committee/Appointments to the Board New Directors are proposed for Appointment by the Nomination Committee in consultation with the Chairman of the Company, in keeping with the provisions of the Articles of Association of the Company in relation to same and in compliance with the Rules of Corporate Governance.

The Company’s Nomination Committee comprises of Mr. A.M. de S. Jayaratne – Chairman, Mr. C.P.R. Perera , Independent Non- Executive Directors, Mr. S.D.R. Arudpragasam, Non-Executive Director (Appointed w.e.f. 1st April, 2017).

Disclosure of appointments of New Directors to the Shareholders.

The new appointments are made available to shareholders by making announcement to the Colombo Stock Exchange

13


Re-Election of Directors In terms of the Articles of Association of the company a Director appointed to the Board holds office until the next Annual General Meeting, at which he seeks re-election by the shareholders. The Articles require one-third of the Directors in office (excluding the Managing Director and the Appointed Directors) to retire by rotation at each Annual General Meeting. The Directors who retire are those who have been longest in office since their last election. Retiring Directors are eligible for re-election by the shareholders.

Relations with Shareholders

Annual General Meeting The Company always welcomes the active participation of the shareholders at the Annual General Meeting. Questions put up by the shareholders are answered thus promoting a healthy dialogue. The required number of days notice has been given to the shareholders in terms of the Companies Act No.7 of 2007 and the Articles of Association of the Company.

Communication with Stakeholders The Company publishes the Annual Report together with the interim reports in order to communicate information to the shareholders in a timely manner.

Major Transactions There have been no transactions during the year under review which fall within the definition of “Major Transactions” as set out in the Companies Act.

Price Sensitive Information Due care is exercised with respect to share price sensitive information.

Others The Company maintains a website under the name www.lankemplantations.lk which offers any individual or body, information on the Company and its affairs. The Company’s principal communicator with all its stakeholders are its Annual Report and Quarterly Financial Statements. The shareholders are free to communicate with the Company. Whenever possible, the Company implements their suggestions.

Accountability and Audit

Financial Reporting The Board attaches high priority to timely publication of quarterly and annual results with comprehensive details (both financial & non financial) going beyond statutory requirements. This enables both existing and prospective shareholders to make fair assessments on the company’s performance and future prospects. The financial statements are prepared in accordance with Sri Lanka Accounting Standards. The Company’s accounting formats and procedures are in compliance with the procedures laid down by the regulatory authorities.

Disclosures The Annual Report of the Board of Directors is on pages 28 to 30 of this report. The Statement of Directors responsibilities for the financial reporting is on page 31 and the auditors’ report on the financial statements is on pages 32 to 35 of this annual report.

Going Concern The Board of Directors after reviewing the financial position and the cash flow of the Company are of the opinion that the Company has adequate resources to continue operations well in the foreseeable future. Therefore the Board adopts the going concern basis in preparing Financial Statements.

Internal Control The Directors are responsible for maintaining an effective internal control system and proactive risk management strategy. Internal controls cover both financial and operational matters and risk management to safe guard the assets of the Company. The risk management strategy of the Company is on pages 9 and 10 of this report. The Company also ensures that effective internal and external audit procedures are followed and the Board reviews the reports in order to maintain the progress of the systems & results.




Internal & External Audits The Internal Audit division comprises of the Internal Audit Manager and Assistants who report directly to the Executive Directors. They are empowered to examine and review the financial reporting systems, internal control procedures, accounting policies and compliance with accounting standards. It also reviews the adequacy of systems for compliance with legal, regulatory and ethical requirement and company policies. The Company maintains a professional relationship with the external auditors, KPMG. This ensures their objectivity, independence and compliance with regulatory and ethical requirements.

Accountability and Audit

Audit Committee The Audit Committee Report is set out on page 15 of this Report.

Directors’ Remuneration

Remuneration Committee The Remuneration Committee Report is set out on page 16.

Disclosure of Remuneration Aggregate remuneration paid to Directors is disclosed in Note 7 to the Financial Statements.

Related Party Transactions

Related Party Transactions Review Committee The Related Party Transactions are disclosed in Note 33 to the Financial Statements.

The Report of the Related Party Transactions Review Committee appears on page 17.

Other

Management Committees The Management Committee comprises of Directors, Consultants, General Managers and Deputy General Mangers. Meetings are held once a month where a review in detail is carried out on the performance of each individual estate based on both financial and relevant non financial indicators.

Compliance with Legal Requirements The Board of Directors through the company’s Legal & Finance divisions makes every endeavour to ensure that the business complies with all laws and regulations.

Social & Environmental Matters The Company has for many years recognized the benefits that accrue from responsible employment, environmental and community policies which are dealt with in detail in the Chairman’s Review and CEO’s Review.

Rights of Employees /Other Stakeholders The Company identifies the rights of employees. Several employee performance enhancing mechanisms such as performance appraisals and training initiatives are in place for the career building of our employees. A series of best practices and techniques are now embedded in the business and applied intelligently within the organization. Constant responsiveness to all stakeholder interests and an effective risk management process are critical success factors to ensure that the governance process will continue to add value in the future. The Extent to which the good Corporate Governance practices are adopted in the Company is given as above in this report.

15

AUDIT COMMITTEE REPORT

The Committee assists the Board of Directors in fulfilling its oversight responsibility to the Shareholders and other Stakeholders relating to the Company’s financial statements and the financial reporting process to ensure that the financial reporting system is in adherence with the Sri Lanka Accounting Standards and other regulatory and statutory requirements. It also reviews the adequacy of internal controls and the business risks. The Committee peruses the operational reviews and assesses the future prospects of the business operations and the fact that the going concern assumption used in the preparation of the Financial Statements is appropriate.

CompositionThe Audit Committee for the financial year ended 31st March, 2018 comprised of two Independent Non-Executive Directors and a Non- Executive Director of Kotagala Plantations PLC.

The names of the members are set out below:

Mr. A.M. De S. Jayaratne - Chairman(Independent Non-Executive Director - KPPLC)

Mr. S. D.R. Arudpragasam(Non Executive Director-KPPLC)

Mr. C.P.R. Perera(Independent Non- Executive Director-KPPLC)

The members have varied experience and financial expertise with a high standing of integrity and business acumen to carry out their role effectively and efficiently. Two of the members are finance professionals including the Chairman.

The Company’s Secretaries, Corporate Managers & Secretaries (Private) Limited function as the Secretaries to the Audit Committee.

Meetings and AttendanceThe Audit Committee has met on four occasions during the financial year ended 31st March, 2018 and the attendance was as follows;

Mr. A.M. De S. Jayaratne 4/4Mr. S. D. R. Arudpragasam 4/4Mr. C. P. R. Perera 3/4

Other members of the Board and Senior Management Personnel of the Company as well as the External Auditors were present at discussions where appropriate. The Proceedings of the Audit Committee are reported to the Board of Directors.

Terms of ReferenceThe role of the Committee which has specific terms of reference is set out in the Audit Committee Charter and addresses the Purpose of the Committee, its duties and responsibilities including the scope and functions of the Committee.

ComplianceThe Committee has scrutinized the quarterly accounts and the accounts for the year ended 31st March, 2018 and has taken necessary measures to ensure that the Interim Financial Statements and the Annual Report are timely published and they are prepared and presented in accordance with Sri Lanka Accounting Standards..

External AuditThe Company has appointed KPMG as its External Auditors and the services provided by them are segregated between audit/ assurance services and other advisory services.

The Committee after evaluating the independence and performance of the External Auditors has recommended to the Board the reappointment of KPMG as Auditors for the financial year ending 31st March, 2019 subject to the approval of the Shareholders at the Annual General Meeting.

ConclusionThe Audit Committee is satisfied that the accounting policies and operational controls provide reasonable assurance that the company is managed in accordance with the Group policies and adequate controls are in place to safeguards the Company’s Assets.

A.M. De S. JayaratneChairman Audit Committee

10th July 2018


REMUNERATION COMMITTEE REPORT

The Remuneration Committee consists of the following members;

Mr. A.M. De S. Jayaratne - Chairman – Independent Non- Executive Director

Mr. C.P.R. Perera - Member – Independent Non-Executive Director

Mr. S.D.R. Arudpragasam - Member – Non-Executive Director (Appointed w.e.f. 1st April, 2017)

The Committee analyses and reviews the remuneration packages of the key management personnel prior to the determination of such packages and guidelines are set for the compensation structures of the Management Staff.

Some members of the Board participate in the deliberations where appropriate.

It is ensured that the remuneration of executives at each level of management is competitive and they are rewarded in a fair manner based on their performance.

A.M. De S. Jayaratne

ChairmanRemuneration Committee

10th July 2018

17

RELATED PARTY TRANSACTIONS REVIEW COMMITTEE REPORT

The Related Party Transactions Review Committee (RPTRC) is entrusted with the responsibility of ensuring compliance with the rules and regulations governing Related Party Transactions for Listed Entities. It focuses on ensuring that the Stakeholders’ interests are protected in all related party transactions

CompositionThe Related Party Transactions Review Committee of Kotagala Plantations PLC comprises of the following members:

Mr.A.M.De S.Jayaratne - Chairman - Independent / Non-Executive

Mr. C.P.R.Perera - Member - Independent / Non-Executive

Mr.D.S.AbeyRatna - Member - Non-Executive

Mr. S.D.R.Arudpragasam - Member - Non-Executive

The Company’s Secretaries, Corporate Managers & Secretaries (Private) Ltd. function as the Secretaries to the Related Party Transactions Review Committee.

Meetings and AttendanceThe Related Party Transactions Review Committee has met on four occasions during the financial year ended 31st March, 2018 and the attendance was as follows;

Mr. A.M. De S. Jayaratne- Chairman 4/4Mr. C. P.R. Perera 3/4Mr. S. D. R. Arudpragasam 4/4Mr.D.S.AbeyRatna 3/4

In addition to these meetings certain related party transactions were referred to the Members of the RPTRC and were reviewed and recommended by Resolutions in Writing.

Functions of the Committee:* Review all proposed Related Party Transactions (Except for exempted

transactions)

* Determining whether the relevant Related Party Transaction is fair to, and in the best interests of the Company and its stakeholders.

* Obtain updates on previously reviewed Related Party Transactions from Senior Management and approve any material changes.

* Establish guidelines for Senior Management to follow in ongoing dealings with related parties.

* Direct the transactions for Board approval / Shareholder approval as deemed appropriate.

* Ensuring that immediate market disclosures and disclosures in the Annual Report as required by the applicable rules and regulations are made in a timely and detailed manner

ConclusionThe Related Party Transactions Review Committee has reviewed the Related Party Transactions entered into during the financial year under review and has communicated its comments and observations to the Board of Directors.

The Committee is free to seek external professional advice on matters within their purview when necessary.

The Board of Directors have also declared in the Annual Report that there were no recurrent related party transactions which exceeded the respective thresholds mentioned in Section 9 of the Colombo Stock Exchange Listing Rules . However non- recurrent related party transactions which exceeded the respective thresholds are duly disclosed on page 82 of the Annual Report. The Company has complied with the requirements of the Listing Rules on Related Party Transactions.

A.M. De S. JayaratneChairman

Related Party Transactions Review Committee

10th July 2018


OUR PLANTATIONSEs

tate

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T - Tea, R - Rubber, OP - Oil Palm

19

OUR PEOPLE

Workers Clerical, Technical & Other Staff

Executives Total

2017/18 2017/18 2017/18 2017/18

Total Employees 9,054 526 67 9,647

Region Wise Kotagala 6,047 264 22 6,333

Horana 3,007 252 28 3,287

Head Office - 10 17 27

9,054 526 67 9,647

Gender Wise Male 3,567 393 61 4,021

Female 5,487 133 6 5,626

9,054 526 67 9,647

Age Distribution Below 30 Years 1,258 54 13 1,325

30 - 45 Years 4,464 254 32 4,750

Over 45 Years 3,332 218 22 3,572

9,054 526 67 9,647

- - - -

Service Distribution Below 5 Years 3,135 197 23 3,355

5 - 15 Years 2,698 197 26 2,921

Over 15 Years 3,221 132 18 3,371

9,054 526 67 9,647


CROP AND YIELD

Estate Crop (KG '000) Yield per Hectare (KG)

2017/18 2016/17 2015/16 2014/15 2013/14 2017/18 2016/17 2015/16 2014/15 2013/14

TEAWestern High GrownBogahawatte 223 243 292 298 267 1,724 1,874 2,255 2,304 2,100 Chrystlers' Farm 212 190 235 271 265 1,662 1,613 2,000 2,315 222 Craigie Lea 389 402 478 498 448 1,693 1,745 2,029 2,043 1,970 Derryclare 292 292 332 368 352 1,588 1,474 1,689 1,873 1,816 Drayton 566 433 595 709 459 1,778 1,719 2,111 2,215 1,942 Kelliewatte 228 335 340 465 354 1,647 1,685 1,835 2,165 1,841 Mayfield 606 468 626 662 619 1,577 1,396 2,231 2,357 2,245 Mount Vernon 926 789 963 991 875 1,807 1,796 2,528 2,622 2,360 Stonycliff 520 517 637 765 639 1,769 1,686 2,101 2,013 1,949 Yuillefield 611 551 649 690 486 1,371 1,125 1,559 1,620 1,441 Sub Total 4,573 4,220 5,146 5,717 4,764 1,665 1,581 2,058 2,145 1,985

Low GrownEduragala 39 34 40 35 40 2,189 1,922 1,981 1,458 1,350 Hedigalle 10 14 15 13 13 1,065 1,193 1,637 2,155 1,891 Gikiyanakanda 247 94 158 294 400 1,659 1,513 1,322 1,589 1,420 Rayigam 419 411 547 711 680 1,629 1,561 1,841 2,017 1,823 Vogan 194 125 182 244 410 2,189 1,154 1,540 1,618 1,403 Sub Total 909 678 942 1298 1533 1,606 1,423 1,666 1,771 1,521 Total-Tea 5,482 4,898 6,088 7,015 6,297 1,660 1,567 2,023 2,113 1945

RUBBERArappolakande 185 239 256 249 260 763 983 1024 979 1073Dalkeith 271 335 319 247 340 924 1,149 975 703 797Eduragala 122 123 121 150 161 612 663 562 649 656Gikiyanakande 134 177 154 174 215 416 587 545 632 695Hedigalla 57 118 94 98 123 381 785 465 493 603*Millewa 65 162 164 160 201 490 831 874 730 941Padukka 212 264 258 259 283 784 941 882 900 1014Paiyagala 249 289 282 312 360 797 918 944 998 1234Rayigam 172 205 185 181 200 770 914 760 809 977Sorana 206 251 242 253 289 717 988 861 836 941Uskvalley 174 221 211 212 259 724 932 872 847 933Vogan 161 196 175 206 230 557 641 559 685 768Total -Rubber 2,008 2,580 2,465 2,501 2,920 810 865 785 780 885

Estate Crop (KG '000) Yield per Hectare (KG)

2017/18 2016/17 2015/16 2014/15 2017/18 2016/17 2015/16 2014/15

OIL PALMArapolakande 184 152 81 29 6,251 5,831 7,529 2,702 Dalkieth 261 186 113 29 3,573 3,097 2,946 760 Uskvalley 252 251 110 46 2,021 2,770 1,613 669 Gikiyanakanda 186 116 64 8,460 5,256 Sorana 235 215 43 6 3,946 5,324 Rayigam 18 7 2 1,013 Hedigalla 17 17Vogan 5 3

1,158 947 413 110 3,479 3,739 2,910 995

Note: *Millewa - 376.84 Ha extent, out of 393.65 ha acquired by the Government by end of Oct 2017.

21

MANAGEMENT DISCUSSION & ANALYSIS

RUBBERGlobal Rubber production of natural rubber has been around the range of 13.3Mn Mts during the current year against 12.4Mn Mts the previous year showing a growth of 7.2%. However, the global consumption increased by only 1% to 12.9Mn Mts.

At present Sri Lanka is among the worlds’ top ten largest producers and the 7th largest exporter in Natural Rubber, but it is sad to report that the extent under tapping is in the declining trend over the years as a result of competition for land for more lucrative agricultural crops such as oil palm etc. The lower prices over a considerable period of time has led to the abandonment of tapping in marginal lands, as proceeds could not even cover the cost of production making rubber cultivation less attractive.

Sri lankan Rubber production at 83Mn Kgs during 2017 against that of 79Mn Kgs in 2016 records an increase of 5% ( 10% decline in 2015), depicting a continued declining trend recording the lowest production volume in the past 50 years mainly due to the reduction of both the extent under tapping and the number of tapping days, in response to lower prices mainly in the smallholder sector.

Prices of Sri Lankan RSS rubber improved during the year in the first quarter but showed a slight decline thereafter and ended below the starting level. The Colombo Auction average price of RSS1 at Rs.335.88 witnessed an increase of 25% over the previous year. Prices of Latex rubber also increase by 30%.

Sri Lankan Rubber Averages

100

200

300

400

500Rs./Kg

April

May

June

July

Augu

st

Sept

embe

r

Octo

ber

Nove

mbe

r

Dece

mbe

r

Janu

ary

Febr

uary

Mar

ch

2017/2018 2016/2017

COMPANY PERFORMANCECrop

During the year under review the Company produced a crop of 2Mn Kgs against that of 2.58Mn Kgs during the previous year showing a decrease of 22%, mainly due to adverse wet weather conditions and decrease in number of tapping days coupled with takeover of Millewa Estate by the Government, which is one of the high yielding rubber estate under Kotagala Plantations PLC.

Yield

During the year under review the yield obtained in the Low Country was 810 Kgs/ha against that of the previous year 865 Kgs/ha recording a decrease of 6%.

CROP- RUBBER

0

500

1,000

1,500

2,000

2,500

3,000

13/14 14/15 15/16 16/17 17/18

Kg '000

Net Sales Average

The Colombo Market prices of RSS increased by 40% against last year prices. Latex Crepe and Scrap Crepe too recorded an increase of 34% and 48% respectively against 2016 prices.

YEAR RSS1 RSS2 LTX-CRP 1X

LTX-CRP 1 SCRAP CREPE

2012 416.47 409.56 410.84 405.00 376.57

2013 376.90 369.21 397.28 389.69 309.23

2014 286.05 280.14 310.00 302.20 213.27

2015 248.16 242.92 301.64 296.39 174.97

2016 238.97 229.28 262.39 258.70 173.29

2017 335.88 329.85 351.17 347.50 256.49



Kotagala Plantations were able to achieve an average NSA of Rs. 322.95 during the current financial year against that of Rs. 261.39 during the previous year recording an increase of 23.5% mainly due to the drop in quantities at the local auction.

Cost of Production

The COP for rubber increased by 15.6% from Rs.321.20 (previous year) to Rs.371.20 (current year). This was mainly due to the increase in cost of production as a result of the decrease in crop, Which did not cover the fixed cost.

Revenue Vs Cost of Sale - Rubber

600

700

800

900

1,000

1,100

1,200

Rs.Mn.

13/14 14/15 15/16 16/17 17/18

Revenue

Cost of Sale

TEAThe year 2017 will go down in the history as one of the best years for the Tea Industry particularly in terms of prices. In the year 2016 and 2017 the global supply recorded a deficit comprising mainly of Orthodox Teas and CTC respectively. This global shortage in production was the key factor for the prices to continue at exceptionally high levels during 2017. Further strengthening of oil prices too contributed to sustain the price levels which had influence on some key importing countries of Sri Lankan Teas.

Auction averages for the year 2017 totalled 618.14 against the 2016 average of 468.61. It is noteworthy that High, Medium & Low grown elevations too recorded the highest ever averages for the year 2017.

Sri Lanka Tea exports totaled 288.9M/kgs in 2017 vis-à-vis 288.7M/kgs in 2016 showing a marginal increase. Nevertheless in terms of revenue achieved a substantial gain of Rs.48.6B recoding a total revenue of Rs.233.3B against the revenue of Rs.184.7B in 2016.

It is noteworthy to state that the Sri Lankan tea was fetching the highest World Auction Averages during the last 10 years except the year 2012. World production recorded an increase of 2.4% against last year and China, India, Kenya and Sri Lanka accounted for almost 89.6% of the global production.

The year 2017 witnessed a 4.9% growth in tea production in Sri Lanka. The 1st Quarter auction volumes showed a negative growth of 0.7M/kgs against the quantities of 2016 but the prices increased by Rs.198.82/kg.

The 2nd Quarter auction volumes increased by 3.8M/kgs and the prices too increased by Rs.183.57/kg against that of 2016. The 3rd Quarter auction volumes increased by 6.5M/kgs and the prices increased by Rs.132.67/kgs against that of 2016. The 4th Quarter auction volumes too increased by 9.7M/kgs but the prices increased by Rs.63.35/kg against that of 2016.

In total, the year 2017 witnessed an increase in auction volumes by 6.9% amounting to 19.3M/kgs as compared to 2016.

The year 2016 began with uncertain trading conditions, as a result of importing countries in the Middle East and to a lesser extent Russia/Ukraine continued to be burdened with economic/political issues. The decline in oil prices and global commodity markets further aggravated the position.

Auction averages for the year 2016 totalled 468.61 against the previous year’s average of 402.31. Both High & Mid Growns recorded the highest ever averages for the year 2016.

Tea exports dropped by 6% in terms of volume and increased by 1.5% in value as compared to the year 2015.

It is noteworthy to state that the Sri Lankan tea was fetching the highest World Auction Averages during the last 10 years except the year 2012. World production recorded an increase of 3.7% against last year and China, India, Kenya and Sri Lanka accounted for almost 89% of the global production.

Colombo Tea Auction Prices

200

300

400

500

600

Rs./Kg

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Crop

In the year under review the Company’s tea production reached 4 M.kgs against 4.8M.kgs during the previous year recording a negative growth of 13% from High grown and 50% from low grown with an overall decrease by 18% mainly due to erratic weather conditions prevailed in the country.

Yield

During the year under review the yield obtained in the High Grown was 1,665 Kgs/ha against 1,581 Kgs/ha in the previous year recording an increase of 5% and Low Country too recorded a yield of 1,606 Kgs/ha this year against that of the previous year 1,423 Kgs/ha resulting in an increase

23

of 12.6%. The overall Yield for the Company showed an increase of 6% from 1,567 Kgs/ha during the previous year to 1,660 Kgs/ha in the current year.

Crop- Tea

0

1,000

2,000

3,000

4,000

5,000

6,000

13/14 14/15 15/16 16/17 17/18

Kg '000

High Grown Low Grown

Net Sale Average (NSA)In the year under review the Company’s NSA increased substantially by 19% representing both High/Low growns against the previous year, but the High grown fetched an NSA of 2% more than the Low grown.

Cost of Production (COP)

The COP reached to a higher figure of Rs.497.00 during the current year against that of Rs.450.00 in the previous year reflecting a significant increase by 10.5% mainly due to reduction in crop by 18%.

Revenue Vs Cost of Sale - Tea

1,500

1,800

2,100

2,400

2,700

3,000

Rs.Mn.

13/14 14/15 15/16 16/17 17/18

Revenue

Cost of Sale

OIL PALMKotagala Plantations PLC has indentified an extent of 1,200 ha to be planted with this newly popular agricultural crop. The identified land is mainly confined to Kalutara District falling under shrub jungle of Godapara and some uneconomical rubber lands situated in the high rainfall areas.

Of the total programme an extent of 581 ha has already been planned. The delay in completion of the target was mainly due to the government restrictions enforced on import permits on the seeds. Out of the 581 Ha, approximately 326 Ha have come in to bearing yielding a crop of 1.1Mn kgs of Fresh Fruit Bunches against 950,000 Kgs the previous year showing a growth of 19.6% and generating a revenue of Rs.40Mn against Rs.34Mn last year.

Owing to the fact that Kotagala Plantations PLC is not having a factory to process Palm Oil, the facility available with AEN palm Oil Processing (Pvt) Ltd. at Baduraliya (Agalawatte) is being patronized.

Currently Palm Oil prices also have taken a downward trend in the international market similar to the rest of the commodity prices. During the current year Company achived an average price of Rs.34.68 per kg against Rs.37.16 in the previous year. However, the Oil Palm growers in Sri Lanka are comforted by the duty element of Rs.90/Kg on imports of either crude or refined Palm Oil, which will be a competitive edge over imported price.

At present planting of oil palm is suspended due to the political pressure from the planting districts.

CAPITAL EXPENDITUREThe Company invested an amount of Rs.159.4Mn against Rs.217.0Mn last year in respect of field and development expenditure. In the year under review 92.58ha of tea, 471.63ha of rubber and 199.32ha of oil palm was maintained under immature extent. The Company spent Rs.21.8Mn on plant & machinery , infra structure development , social work, IT developments and to meet HACCP standards

Capital Expenditure - Rs. Mn.

200

300

400

500

600

Rs.Mn.

14/15 15/16 16/17 17/1813/14

CHALLENGESThe volatility in Middle Eastern markets, as a result of the US embargo on shipments to Iran, the decline in Ceylon tea prices in the international markets as a result of the MRL factor found in tea exported to Japan and increasing costs as a result of the wage increase expected in 2018 have created a challenging environment for the Sri Lankan tea industry. Even


if global market conditions improve, rigidities in the domestic supply due to erratic weather conditions and rising cost of production could make it challenging for the domestic tea industry.

Unlike Tea, the rubber small holders account for 77% of the national rubber production and only 23% is attributable to corporate sector which is significant to the local rubber industry towards the production of the finished products. The current declining trend in the rubber prices may have cascading effect on the prices offered to small holders who may not be able to sustain losses for a longer period, which will eventually affect the rubber replanting undertaken by small holders and hence a greater impact on the country’s field latex production and there by Rubber exports.

WAY FORWARDIndustry needs to urgently improve productivity and generate new markets. Productivity appears to be the top priority as Sri Lanka’s Tea prices rank top in the world market price list. New markets such as other Middle East Countries apart from Iran and other untapped European &Asian countries must be explored. The growing black tea market in China is also a possible destination to export local tea.

The way forward for Rubber is value addition. Sri Lankan rubber industry needs to attract foreign investments in order to expand and diversify. Government’s intervention in the Rubber industry is imminent towards its growth and future sustainability, by way of increased re-planting subsidy to the small holders and also revisit of the Export Cess of Rs.15/kg. levied in 2011 but has still remained in force making export prices more unattractive.

FINANCIAL REVIEWThe Company has reported a Gross Profit (GP) of Rs.317 Mn during the current year against the previous year’s GP of Rs.10 Mn which accounts for a increase in GP of Rs.307 Mn, mainly due to the increase in gross profit from Tea by Rs.270 Mn, decrease in Gross Loss from Rubber by Rs.56 Mn and increase in gross loss from Oil Palm by Rs.20 Mn.

The Tea prices increased almost by 19.5% yielding a gross profit contribution of Rs.442 Mn against a gross profit of Rs.173 Mn last year, despite the increase in COS by 22% as a result of increase in quantity sold . Though the Rubber prices increased by 23.5%, the crop and thereby the quantity sold dropped by 22% , reporting in a gross loss of Rs.100 Mn against a gross loss of Rs.156 Mn last year, mainly due to the increase of COP as a result of the decrease in crop. The Oil Palm losses increased by Rs.20 Mn besides the increase in crop by 23% mainly due to the decrease in prices by 6.7%. The COP also increased by 62% due to the depreciation cost effect of a larger extent coming in to maturity during the current year whereas it will take almost 8 years to bring in sustainable yields.

The increase in GP by Rs.307 Mn together with the increase in gain on biological assets of Rs.85Mn, decrease in Other income by Rs.135 Mn, increase in Administrative expenses by Rs.55 Mn and decrease in financing cost by Rs.48 Mn resulted in a significant decrease in the loss before tax by Rs.248Mn compared to the previous year.


Kotagala Plantations PLC records a total comprehensive loss of Rs. 86 Mn for the current year against a loss of Rs.374 Mn last year showing a decrease of Rs.288 Mn.

Turnover

The consolidated turnover increased by 22% with a revenue of Rs.3.9 Bn this year compared to Rs.3.2 Bn last year. The increase of Rs.0.7 Bn is mainly from increase in Tea prices of the Company. The Company’s turnover of Rs.3,816 Mn for the current year against Rs.3,086 Mn last year indicates an increase of almost 23% mainly due to increase in Tea prices by 19% and the sold quantity by 10%.

Biological Assets -Timber

With the adoption of LKAS 41, the Company recognized its managed timber at fair value amounting to Rs.1,016 Mn in the statement of Financial Position as at the year end and the gain recognized in the Comprehensive Income amounted to Rs.139 Mn for the current year against Rs.54 Mn the previous year. The increase was mainly due to the increase in timber content coupled with the decrease in the discount rate as a result of the decrease in risk free interest rate.

Investments

All the quoted investments are stated at market value and unquoted investments are valued using estimates based on acceptable Bench Mark method adopting valuation factors of other comparable quoted Companies. Fair value reserve stands at Rs.79.4 Mn at the year end against that of Rs.5.6 Mn last year.

Cash flow

The net cash generated from operating activities declined from a positive net flow of Rs.750Mn last year to a deficit of Rs.576 Mn for the current financial year, resulting in a net increase in deficit of Rs.1.3 Bn, which is sustained to a greater extent out of funds generated from divestments and financing activities.

Despite the fact that the cash operating profit increased by Rs.243 Mn, the net decrease in changes in working capital amounted to Rs.0.6 Bn as a result of the increase in change in Related Party receivables by Rs.508 Mn, decrease in changes in payables by Rs.581 Mn, and the balance of Rs. 414 Mn from decrease in change in Related Party payables as compared to last year.

The decrease in the Net Cash from the operating activities of Rs.576 Mn is sustained by the proceeds from disposal of investments amounting to Rs.1 Bn together with the right issue proceeds amounting to Rs. 101 Mn and the balances utilized to settle net long term loans amounting to Rs. 536 Mn.

The Company closed the period with a negative Cash position of Rs. 401 Mn compared to a negative cash position of Rs.228 Mn the previous year.

25

TEN YEAR SUMMARY R

s. ‘0

00 2

017/

2018

201

6/20

17

201

5/20

16

201

4/20

15

201

3/20

14

201

2/20

13

201

1/20

12

201

0/20

11

200

9/20

10

200

8/20

09

STAT

EMEN

T OF

COM

PREH

ENSI

VE IN

COM

E R

even

ue

3,8

16,8

30

3,0

86,4

10

3,0

38,1

12

3,5

55,4

80

3,6

58,8

17

3,7

06,9

41

3,6

62,7

82

3,6

83,3

66

3,1

73,7

28

2,3

31,3

70

Gro

ss P

rofit

/(Los

s)

316

,830

1

0,06

7 (1

31,2

58)

47,

877

383

,169

8

11,0

52

670

,232

1

,042

,794

5

67,8

52

293

,163

Fa

ir Va

lue o

f Bio

logi

cal A

sset

s 1

39,4

86

54,

375

7,9

73

84,

259

139

,436

8

9,53

9 (6

0,14

9) -

-

-

O

ther

Ope

ratin

g In

com

e 2

02,2

68

338

,342

1

85,2

09

266

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2

41,8

79

184

,647

2

47,0

58

138

,318

9

3,84

1 1

34,8

27

Ope

ratin

g Pr

ofit/(

loss

) Bef

ore M

anag

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t Fee

&

Inte

rest

359

,723

1

58,3

72

(385

,387

) 6

5,58

9 5

98,4

41

846

,160

6

28,1

36

1,0

70,2

92

554

,734

3

14,8

53

Pro

fit/(l

oss)

Bef

ore I

ncom

e Tax

(1

02,2

04)

(350

,830

) (9

43,9

84)

(603

,576

) (1

51,8

80)

412

,729

4

16,6

76

775

,251

3

92,3

25

205

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To

tal C

ompr

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sive I

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e(Ex

pens

e)

(86,

465)

(374

,110

) (6

18,7

37)

(597

,442

) (2

76,5

84)

337

,123

2

47,1

24

667

,773

3

23,1

90

171

,015

STA

TEM

ENT

OF F

INAN

CIAL

POS

ITIO

N N

on-C

urre

nt A

sset

s 6

,141

,152

7

,156

,987

7

,578

,061

7

,488

,045

7

,144

,857

6

,776

,883

4

,881

,615

4

,528

,983

3

,497

,052

2

,805

,320

Cu

rrent

Ass

ets

1,5

83,2

10

1,4

07,3

30

1,6

14,1

07

1,7

67,6

33

2,3

82,1

95

2,5

31,3

51

2,0

51,0

88

1,8

06,2

56

1,0

70,9

91

853

,549

7,7

24,3

62

8,5

64,3

17

9,1

92,1

68

9,2

55,6

78

9,5

27,0

52

9,3

08,2

34

6,9

32,7

04

6,3

35,2

39

4,5

68,0

43

3,6

58,8

69

Stat

ed Ca

pita

l 7

81,5

00

680

,000

6

80,0

00

680

,000

6

80,0

00

320

,000

3

20,0

00

320

,000

3

20,0

00

320

,000

Sh

are A

pplic

atio

n M

oney

-

-

-

-

-

1

14,5

41

-

-

-

-

Fair

Valu

e Res

erve

7

9,44

7 5

,663

1

53,3

67

37,

960

170

,405

2

05,6

99

278

,145

3

17,7

13

-

-

Gen

eral

Res

erve

s 2

40,0

00

240

,000

2

40,0

00

240

,000

2

40,0

00

240

,000

2

40,0

00

240

,000

2

40,0

00

240

,000

R

etai

ned

Earn

ings

5

89,7

09

749

,959

9

76,3

65

1,7

10,5

10

2,0

24,0

77

2,3

65,3

66

2,0

29,0

95

2,0

37,5

70

1,2

20,8

60

929

,670

Sh

areh

olde

rs Fu

nds

1,6

90,6

56

1,6

75,6

22

2,0

49,7

32

2,5

17,0

40

3,1

14,4

82

3,2

45,6

06

2,8

67,2

40

2,9

15,2

83

1,7

80,8

60

1,4

89,6

70

Def

erre

d In

com

e 3

33,8

14

335

,031

3

31,4

88

318

,131

3

15,5

18

304

,868

3

09,4

96

311

,616

2

75,8

81

232

,639

In

tere

st B

earin

g Bo

rrow

ings

1

,582

,892

2

,165

,239

2

,361

,294

2

,195

,143

1

,501

,841

1

,839

,106

7

39,5

84

1,1

28,2

40

986

,431

4

57,1

26

Ret

irem

ent B

enefi

t Obl

igat

ions

7

22,1

19

661

,880

6

93,7

06

751

,460

6

85,1

09

593

,136

5

68,8

97

550

,226

4

93,8

36

381

,700

N

et Li

abili

ty To

Less

or

356

,072

3

63,6

95

371

,165

3

78,2

12

384

,989

3

91,5

04

397

,769

4

03,7

97

409

,590

4

15,1

60

Def

erre

d Tax

2

03,0

83

170

,927

1

89,0

81

268

,004

3

93,1

87

350

,426

3

09,9

39

177

,890

1

34,7

56

89,

332

Long

Term

Rel

ated

Party

Bal

ance

-

-

-

-

-

-

-

-

-

-

Cu

rrent

Lia

bilit

ies

2,8

35,7

17

3,1

91,9

23

3,1

95,7

02

2,6

76,2

58

3,1

31,9

26

2,5

83,5

90

1,7

39,7

78

848

,187

4

83,6

89

593

,242

7,7

24,3

53

8,5

64,3

17

9,1

92,1

68

9,2

55,6

78

9,5

27,0

52

9,3

08,2

34

6,9

32,7

04

6,3

35,2

39

4,5

68,0

43

3,6

58,8

69

Net

Cash

Flow

From

/(Use

d In

) Ope

ratin

g Ac

tiviti

es

(576

,740

) 7

49,8

12

282

,595

(2

93,9

97)

534

,891

(2

81,0

10)

811

,786

6

14,5

70

465

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SHAREHOLDER & INVESTOR INFORMATION

1 Stock Exchange Listing The Issued Ordinary Shares of the Company are Listed With the Colombo Stock Exchange

2 Distribution of Ordinary Shares

31st March 2018 31st March 2017

No. of shares held No. of Shareholders

Total Holding Percentage of Total Shares

No. of Shareholders

Total Holding Percentage of Total Shares

1 - 1000 11,986 2,236,414 2.97 12,102 1,628,048 4.07 1,001 - 10,000 491 1,673,532 2.22 345 1,261,640 3.16 10,001 - 100,000 160 4,346,976 5.78 86 2,017,603 5.04 100,001 - 1,000,000 19 7,075,807 9.41 14 4,164,528 10.41 Over 1,000,000 5 59,892,271 79.62 3 30,928,181 77.32

12,661 75,225,000 100.00 12,550 40,000,000 100.00

Categories of Shareholders

No. of Shareholders

Total Holdings Percentage of total

No. of Shareholders

Total Holdings Percentage of total

Individuals 12,542 8,132,467 10.81 12,435 4,671,389 11.68 Institutions 119 67,092,533 89.19 115 35,328,611 88.32

12,661 75,225,000 100.00 12,550 40,000,000 100.00

3 Public Holding/Public Shareholders The Percentage of shares held by the public as at 31st March 2018 was 25.77% (2016/2017 – 30.33%). The number of Public Shareholders as at 31st March 2018 was 12,641 (31st March 2017 – 12,533).The applicable option under CSE Rule 7.13.1 on minimum public holding is option 5 and the Float Adjusted Market Capitalisation as at 31.03.2018 was Rs.153,145,311.75.

4 Market Value The Market value of the Company’s Ordinary shares was

2018 (Rs.) 2017 (Rs.)

Highest 21.00 23.00 Lowest 7.50 8.80 Close 7.90 10.10

5 Major Shareholders

31st March 2018 31st March 2017

Name No of Shares Share Percentage No of Shares Share Percentage

CONSOLIDATED TEA PLANTATIONS LIMITED 31,650,000 42.07% 15,125,000 37.81%LANKEM TEA & RUBBER PLANTATIONS (PVT) LIMITED 11,103,150 14.76% 12,002,625 30.01%NATIONAL DEVELOPMENT BANK PLC/LANKEM TEA AND RUBBER PLANTATIONS (PVT) LTD 6,900,787 9.17% - -SECRETARY TO THE TREASURY 5,700,834 7.58% 3,800,556 9.50%NATIONAL DEVELOPMENT BANK PLC/CONSOLIDATED TEA PLANTATIONS LTD 4,537,500 6.03% - -PAN ASIA BANKING CORPORTION PLC/MRS.M.MATHEWS 897,937 1.19% 598,625 1.50%SEYLAN BANK PLC/DR.THIRUGNANASAMBANDAR SENTHILVERL 880,078 1.17% 586,719 1.47%BANK OF CEYLON NO. 1 ACCOUNT 729,997 0.97% 486,665 1.22%PEOPLE'S LEASING & FINANCE PLC/MR.A.RAJARATNAM 678,516 0.90% 372,297 0.93%PERSHING LLC S/A AVERBACH GRAUSON & CO. 586,500 0.78% 391,000 0.98%LANKEM CEYLON PLC 480,749 0.64% 324,229 0.81%PAN ASIA BANKING CORPORATION PLC/LANKEM CEYLON PLC 437,418 0.58% 291,612 0.73%SAMPATH BANK PLC/ DR.T.SENTHILVERL 343,096 0.46% 236,751 0.59%COMMERCIAL BANK OF CEYLON PLC A/C NO. 04 302,625 0.40% 201,750 0.50%SAMPATH BANK PLC/MR. PRABODHA LASANTHA ELANGASINGHA 279,000 0.37% 62,000 0.16%MR. LANSAKARA JAYASUNDARA MUDIYANSELAGE ABEYRATNE JAYASUNDARA 269,019 0.36% - -MR. HAMZAALLY ABDULHUSEIN 188,000 0.25% 151,500 0.38%E.W. BALASURIYA & CO. (PVT) LTD 177,015 0.24% 118,010 0.30%MR. HIRAN ANTHONY CABRAAL 158,014 0.21% 145,343 0.36%FINANCIAL TRUST LIMITED 157,468 0.21% 30,000 0.08%Total 66,457,703 88.35% 34,924,682 87.33%

27

Financial CalendarQuarterly Financial Statements

03 Months ended 30th June 2017 11th August 2017

06 Months ended 30th September 2017 10th November 2017

09 Months ended 31st December 2017 9th February 2018

12 Months ended 31st March 2018 23rd May 2018

Annual Report 2017/2018 10th July 2018

25th Annual General Meeting 31st August 2018

Annual Report of the Board of Directors 28

Statement of Directors’ Responsibilities 31

Report of the Auditors 32

Statement of Profit or Loss and Other Comprehensive Income 36

Statement of Financial Position 37

Statement of Changes in Equity 38

Cash Flow Statement 40

Notes to the Financial Statements 41

FINANCIAL REPORTING


ANNUAL REPORT OF THE BOARD OF DIRECTORS

The Board of Directors of Kotagala Plantations PLC present their Report together with the Audited Financial Statements for the year ended 31st March, 2018. The details set out herein provide the pertinent information required by the Companies Act No. 7 of 2007, the Colombo Stock Exchange Listing Rules and are guided by recommended best practices.

Principal Activities, Business Review/Future Developments The principal activities of the Company are production, processing and selling of Tea & Rubber and production and sale of Oil Palm. The Chairman’s Review, CEO’s Review, Management Discussion and Analysis, Financial Review describes the performance of the Company during the year with comments on financial results and future developments.

The Directors to the best of their knowledge and belief confirm that the Company has not engaged in any activities that contravene laws and regulations.

Financial StatementsThe Financial Statements of the Group are given on pages 36 to 93.

Auditors’ ReportThe Auditors’ Report on the Financial Statements is given on Pages 32 to 35.

Accounting PoliciesThe Accounting Policies adopted in the preparation of the Financial Statements are given on pages 41 to 49.

Interest RegisterDirectors’ Interest in Transactions The Directors have made general disclosures as provided for in Section 192 (2) of the Companies Act No. 7 of 2007. Arising from this, details of contracts in which they have an interest are disclosed in Note 33 to the Financial Statements on pages 80 and 81.

Directors’ Interest in SharesThe Directors of the Company who have an interest in the shares have disclosed their shareholdings and any acquisitions/disposals to the Board in compliance with Section 200 of the Companies Act No. 7 of 2007.

Details pertaining to Directors direct shareholdings are set out herein.

Name of Director No.of Shares No. of Shares as at as at 31.03.2018 31.03.2017

Mr. A Rajaratnam 14,400 3,200 Mr. S D R Arudpragasam 150,375 250Mr. C P R Perera 112,500 25,000Mr. R C Peries 562 375Mr. M S Madugalle 7,185* 185Mr. D S AbeyRatna 4,013** 800Mr. G.D.V. Perera 600 -

*4,582 shares are held in personal capacity and consequent to the subdivision of shares, fractional shares aggregating 2,603 shares are held in trust.

**3,600 shares are held in personal capacity and consequent to the subdivision of shares, fractional shares aggregating 413 shares are held in trust.

Directors’ RemunerationThe Directors’ remuneration in respect of the Group for the Financial Year 2017/ 2018 is disclosed in Note 7 to the Financial Statements.

Corporate DonationsNo donations were made during the year.

DirectorateThe names of the Directors who held office during the financial year and who are currently in office are given below. Brief profiles of the Directors currently in office appear on pages 7 and 8.

Mr. S D R Arudpragasam - ChairmanMr. C P R Perera - Deputy ChairmanMr. A Rajaratnam Mr. D S AbeyRatna Mr. M S Madugalle - Chief Executive Officer Mr. R C PeriesMr. D A RatwatteMr. G D V PereraMr. A M De S Jayaratne Dr. L M K Tillekeratne

In terms of Articles 92 and 93 of the Articles of Association Mr. S.D.R. Arudpragasam retires by rotation and being eligible offers himself for re-election.

Mr. A. Rajaratnam being over seventy years of age retires and offers himself for reappointment under and by virtue of the Special Notice received from a shareholder of the Company which is referred to in the Notice of Meeting.

Mr. R.C. Peries being over seventy years of age retires and offers himself for reappointment under and by virtue of the Special Notice received from a shareholder of the Company which is referred to in the Notice of Meeting.

Mr. A.M. De S. Jayaratne being over seventy years of age retires and offers himself for reappointment under and by virtue of the Special Notice received from a shareholder of the Company which is referred to in the Notice of Meeting.

Mr. C. P. R. Perera being over seventy years of age retires and offers himself for reappointment under and by virtue of the Special Notice received from a shareholder of the Company which is referred to in the Notice of Meeting.

Dr. L. M. K. Tillekeratne being over seventy years of age retires and offers himself for reappointment under and by virtue of the Special Notice received from a shareholder of the Company which is referred to in the Notice of Meeting.

Mr. D.A. Ratwatte who has attained the age of seventy years retires and offers himself for reappointment under and by virtue of the Special Notice received from a shareholder of the Company which is referred to in the Notice of Meeting.

29

Mr. D.S. AbeyRatna who as at the date of the Annual General Meeting would have attained the age of seventy years retires and offers himself for reappointment under and by virtue of the Special Notice received from a shareholder of the Company which is referred to in the Notice of Meeting.

Enterprise GovernanceAdoption of good governance practices has become an essential requirement in today’s corporate culture. The practices carried out by the Company are given in the Enterprise Governance Statement on pages 11 to 14.

Auditors The Financial Statements of the Company for the year have been audited by KPMG, Chartered Accountants, the retiring Auditors who have expressed their willingness to continue as Auditors of the Company and are recommended for reappointment. A resolution to reappoint them and to authorize the Directors to determine their remuneration will be proposed at the Annual General Meeting.

The Auditors, KPMG was paid Rs. 6Mn (2016/ 17 – Rs. 5.6Mn.) as audit fees and fees for audit related services by the Group. In addition they were paid Rs. 0.5Mn (2016/ 17 - 0.2Mn) by the Group as fees for non-audit related work. As far as the Directors are aware the Auditors do not have any relationship (other than that of an Auditor) with the Company. The Auditors do not have any interests in the Company.

RevenueThe revenue of the Group for the year was Rs. 3.9bn. (2016/17 - Rs. 3.2 bn) . The revenue of the Company for the year was Rs. 3.81 bn. (2016/17 – Rs. 3.1 bn.)

Results The Group made a profit before Tax of Rs. 271.8 Mn. ( 2016/17 - Loss of Rs. 300.1 Mn.).

The Company made a Net Loss before Tax of Rs. 102.2 Mn. against a loss of Rs. 350.8 Mn in the previous year. The detailed results are given in the Statement of Profit or Loss and Other Comprehensive Income on page 36.

DividendsThe Board of Directors have not recommended the payment of a dividend on the Ordinary Shares of the Company for the year ended 31st March, 2018.

Managing Agents & Management FeeLankem Tea & Rubber Plantations (Pvt) Limited, a subsidiary of Consolidated Tea Plantations Ltd. (formerly known as Lankem Plantation Holdings Limited,) continue to manage the affairs of the Company. The Company did not charge Managing Agent’s Fees in the year under review and in the year 2016/2017.

Investments Investments made by the Group and Company are given in Note 17 to the Financial Statements on pages 63 and 66.

Property, Plant & EquipmentDuring 2017/2018 the Group invested Rs.44.7Mn in Property, Plant & Equipment. (2016/17 Rs. 233.0 Mn.) Further your Directors are of the opinion that the net amounts at which land and other Property, Plant & Equipment appear in the Statement of Financial Position are not greater than their market value as at 31st March, 2018.

Capital Expenditure - CompanyThe capital expenditure of the Company during the year amounted to Rs. 204.1 Mn. (2016/17 – Rs.450.2 Mn.) which includes Rs.159.4Mn. in replanting expenditure (2016/17 - Rs. 217.0 Mn.) Information relating to movements in Property, Plant & Equipment are given in Notes 13 and 16 to the Financial Statements.

Stated Capital The Stated Capital of the Company of Rs. 781,500,010/- is represented by 75,225,000 Ordinary Shares and 01 Golden Share.

Rights IssueThe Company made a Rights Issue of 80,000,000 Ordinary Shares at a price of Rs. 10/- per share to the holders of the issued Ordinary Shares of the Company as at the end of trading on the 15th November 2017 in the proportion of Two (02) new Ordinary Shares for every One (1) Ordinary Share held by them in the Capital of the Company. The issue closed on 7th December 2017. The total number of Shares subscribed for on the Rights Issue was 10,150,000 and the total consideration received was Rs. 101,500,000/-. The purpose of the Rights Issue was to raise funds to settle Outstanding Statutory Liabilities and to meet Working Capital requirements.

The entirety of the Rights Issue proceeds was utilized to settle outstanding Statutory Liabilities.

Post Rights Subdivision of SharesAn ordinary resolution pertaining to the Subdivision of the post Rights Issue Shares of the Company was carried unanimously by the Shareholders present at the Extraordinary General Meeting held on 15th November 2017 and such Subdivision was effected on 9th January 2018.

Consequent to the Rights Issue which was concluded on 22nd December 2017, the Stated Capital of the Company was Rs. 781,500,010/- represented by 50,150,000 Ordinary Shares and One Golden Share. Accordingly without actuating any increase to the Stated Capital of the Company, such subdivision was effective from 9th January 2018 by subdividing every Two (2) existing issued Ordinary shares into Three (03) Issued Ordinary Shares consequent to which the Stated Capital of the Company is represented by 75,225,000 issued and fully paid Ordinary Shares and One Golden Share.

ReservesThe total reserves of the Group as at 31st March 2018 amount to Rs. 981.3Mn (31st March 2017 - Rs. 918.3 Mn.) comprising General Reserve of Rs. 240.0 and Retained Earnings of Rs. 660.4Mn. (31st March 2017 – General Reserve- Rs. 240Mn, retained earnings of Rs. 658.8 Mn.), fair value reserve of Rs. 79.4 Mn. (31st March 2017 – Rs. 20.7 Mn.) The movements are shown in the Statement of Changes in Equity in the financial Statements.

Related Party Transactions During the financial year there were no recurrent related party transactions which exceeded the respective thresholds mentioned in Section 9 of the Colombo Stock Exchange Listing Rules. However non recurrent related party transactions which exceeded the respective thresholds are disclosed on page 82. The Company has complied with the requirements of Listing Rules on Related Party Transactions.

The Related Party Transactions presented in the financial statements are disclosed in Note 33 from page 80 to 82.


ANNUAL REPORT OF THE BOARD OF DIRECTORS

TaxationThe Company, in term of section 16 (i) of the Inland Revenue Act No. 10 of 2006 (amendments) “Specified Profits” from cultivation would be exempt from income tax for a period of 5 years from 2006/ 07. The Corporate rate of tax applicable to other income would be at 28% and the business income is taxed at 10%. Further, for the year of assessment 2005/ 06 the Inland Revenue allows only 35% of the total statutory income to be set off against the carried forward tax losses. Tea which was previously “zero rated” in Value Added Tax (VAT) has been classified as “exempt” item with effect from 1st January 2005. As a result the Company is not entitled to claim any input tax on supplies relevant to tea and this will adversely effect the profitability of the Company.

Share InformationInformation relating to earnings, dividends, net assets and share trading is given on pages 1,36,37 and 55.

Events Occurring after the Reporting PeriodNo circumstances have arisen since the Reporting Period that would require adjustment other than those disclosed in Note 32 to the Financial Statements on page79.

Capital Commitment and Contingent LiabilitiesCapital Commitments and Contingent Liabilities as at the Reporting date are disclosed in Notes 30 and 31 to the Financial Statements on page 79 respectively.

Employment PolicyThe Company’s recruitment and employment policy is non-discriminatory. The occupational health and safety standards receive substantial attention. Appraisals of individual employees are carried out in order to evaluate their performance and realise their potential. This process benefits the company and the employees. The number of persons employed by the Company at the year end was 9,647.

ShareholdersIt is the Company’s policy to Endeavour to ensure equitable treatment of its shareholders.

Statutory PaymentsThe statutory payments due in relation to employees and the Government are being made or where relevant provided for.

Environmental ProtectionThe Company’s business activities can have direct and indirect effects on the environment. It is the Company’s policy to minimize any adverse effects its activities have on the environment and to promote co-operation and compliance with the relevant authorities and regulations. We confirm that the Company has not undertaken any activities which have caused or likely to cause detriment to the environment.

Internal ControlThe Directors acknowledge their responsibility for the Company’s system of internal control. The system is designed to give assurance regarding the safeguarding of assets, the maintenance of proper accounting records and the reliability of financial information generated. However, any system can ensure only reasonable, and not absolute, assurance that errors and irregularities are either prevented or detected within a reasonable period of time. The Board is satisfied with the effectiveness of the system of internal control for the period up to the date of signing the Financial Statements.

Going ConcernAs noted in the Statement of Directors’ Responsibilities on page 31 the Directors have adopted the going concern basis in preparing these Financial Statements.

For and on behalf of the Board

D. S. AbeyRatna M. S. MadugalleDirector Director

By Order of the Board

Corporate Managers & Secretaries (Private) Ltd. Secretaries

10th July 2018

31

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The responsibilities of the Directors in relation to the Financial Statements of the Company are detailed below. The responsibility of the Auditors’ in relation to the Financial statements is set out in the Independent Auditors’ Report appearing on page 32.

The Directors are responsible under the provisions of the Companies Act to ensure compliance with the requirements set out therein to prepare Financial Statements for each financial year giving a true and fair view of the state of affairs of the Company as at the end of the financial year and of the Profit & Loss of the Company for the financial year. The Directors confirm that in preparing the Financial Statements, appropriate accounting policies have been selected and applied consistently, reasonable and prudent judgements and estimates have been made and Sri Lanka Accounting Standards have been followed.

The Directors are responsible for ensuring that the Company keeps sufficient accounting records to disclose with reasonable accuracy the financial position of the Company and for ensuring that the Financial Statements have been prepared and presented in accordance with the Sri Lanka Accounting Standards and provide the information required by the Companies Act No. 07 of 2007 and the Rules of the Colombo Stock Exchange. They are also responsible for taking reasonable measures to safeguard the assets of the Company, and in that context to have proper regard to the establishment of appropriate systems of internal control with a view to the prevention and detection of fraud and other irregularities.

The Directors are required to prepare the Financial Statements and to provide the Auditors with every opportunity to undertake whatever inspections they consider appropriate to enable them to submit their audit report.

The Directors confirm that they have complied with these requirements. They have a reasonable expectation, after making enquiries and following a review of the Company’s budget for the ensuing year, including cash flows and borrowing facilities, that the Company has adequate resources to continue in operational existence for the foreseeable future, and therefore have continued to adopt the going concern basis in preparing the accounts.

Compliance ReportThe Directors confirm that to the best of their knowledge all statutory payments relating to employees and the Government that were due in respect of the Company as at the reporting date have been provided for but not fully paid.

On behalf of the Board

D. S. AbeyRatna M. S. MadugalleDirector Director

Colombo

10th July 2018


INDEPENDENT AUDITORS’ REPORT

TO THE SHAREHOLDERS OF KOTAGALA PLANTATIONS PLC

Report on the Financial Statements

Opinion

We have audited the financial statements of Kotagala Plantations PLC (“the Company”) and the consolidated financial statements of the Company and its subsidiaries (“the Group”), which comprise the statement of financial position as at March 31, 2018, and the statement of profit or loss and comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information set out on pages 41 to 93.

In our opinion, the accompanying financial statements of the Company and the Group give a true and fair view of the financial position of the Company and the Group as at March 31, 2018, and of their financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Basis for Opinion

We conducted our audit in accordance with Sri Lanka Auditing Standards (SLAuSs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the Code of Ethics issued by CA Sri Lanka (Code of Ethics), and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the Company financial statements and the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

1) Carrying value of immature and mature plantationRefer note 3.3.6 (significant accounting policy) & note 16.1 (notes to the financial statements)

Risk Description Our Response

As stated in Note 16.1 of the financial statements the carrying value of bearer plants stood at LKR 3,495 Mn (2017:LKR 3,534 Mn). Bearer plants mainly include mature and immature tea, rubber & oil palm trees in identified plantation fields. Refer page 47 for accounting policies.

We have focused in this area due to the significant management judgment involved in determining the point at which a plant is deemed ready for commercial harvesting. As per the industry practice, transfer of immature plantations to mature plantation fields happens at the point of commencement of commercial harvesting. The actual point of which commercial harvesting could start depend on the soil condition, weather patterns and plant breed.

Appropriate transfer from immature to mature plantations has a significant impact on the carrying value of the bearer plants and the reported profits as capitalisation of costs will cease from the point of transfer and the mature plantations are depreciated over the useful lives of the plants.

Our audit procedures included,

• Obtaining a schedules of costs incurred and capitalized under immature plantations as well as cost transferred to mature plantations by each estate and reconciled these balances to the general ledger on sample basis test reconciling items and obtained explanations from management for any significant variances identified.

• Assessing the accuracy of the budgeted cost by comparing actual costs transferred to mature plantations from immature plantations to budgeted costs included in annual board approved budgets to assess if the actual costs are consistent with management expectations at the beginning of the financial year.

• On a sample basis, testing immature to mature cost transfer worksheet for selected estate to check whether the amounts transferred during the year was consistent with the company accounting policy and industry norms.

• Assessing the adequacy of the financial statements disclosure.

33

2) Valuation of Consumable Biological AssetsRefer note 3.3.6 (significant accounting policy) & note 16.2.1 (notes to the financial statements)


The carrying value of consumable biological assets stood at Rs. 1,017 million as at 31st March 2018 (2017: LKR 877 million).

The timber trees on estates managed by the group are classify as consumable biological assets and are measured at each reporting date at fair value less estimated cost to sell at harvest. The trees younger than 5 years are carried at cost less impairment as the fair value cannot be reliably measured.

Timber trees include both immature and mature plantations. The market for timber trees are impacted by factors such as topographical characteristics of the land, age and condition of timber trees and the economic conditions that drives the supply and demand.

Management engaged a subject matter expert who is an incorporated valuer and a member of The Institute of Valuers of Sri Lanka to perform an independent valuation of the consumer biological assets of the company as at reporting date.

Key judgements and assumptions are used by the independent valuer in the following areas;

- Discount rates

- Estimation of height and girth of trees to arrive volume of timber

- Value per Cubic meter

We focused on this area because the valuation of consumables biological assets involved significant judgments exercised by the Company and external valuation expert and where subjected to estimated uncertainty.


• Evaluating the competence, capabilities and objectivity of the independent valuer.

• Obtaining estate wise census books of timber trees and compared the number of timber trees with the valuation report to ensure the completeness and accuracy of the data. We also evaluated the accuracy of valuation formulae contained in the valuation report.

• Physically verify sample of trees during estate visits to assess the girth and height of the respective trees.

• Evaluating the assumptions used in estimating girth and height were compared with the market projections and industry norms that are generally accepted in determining volume of timber.

• Evaluating the key assumptions used in the valuation, in particular the discount rate and market price.

• Assessing the adequacy of the disclosures made on the fair value of biological assets in the financial statements.

4) Recoverability of deferred tax assetsRefer note 3.4.2.1.2 (significant accounting policy) & note 27 (notes to the financial statements)


Group’s deferred tax amounts to Rs.203 million as at 31st March 2018 (2017: Rs.316 million).

The group and the company have recognized deferred tax assets in respect of the future benefit of deductible temporary differences and accumulated tax losses which management considered would probably be utilised or recovered through the generation of future taxable profits by the relevant group entities or by set-off against deferred tax liabilities.

The recognition of deferred tax assets relies on the exercise of significant judgment by management in respect of assessing the sufficiency of future taxable profits and the probability of such future taxable profit being generated and future reversals of existing taxable temporary differences.

We identified the recognition of deferred tax assets as a key audit matter because of its significance to the consolidated financial statements and the significant management judgment and estimation required in the forecasting future taxable profits which could be subject to error or potential management bias.


• Comparing the consistency of management profit forecasts with those included in the financial budget approved by the board of directors.

• Challenging the key assumptions underpinning the group’s financial projections against historical performance and estimates.

• Assessing whether the group’s disclosures in the consolidated financial statements of the application of judgment in estimating recognized and unrecognised deferred tax asset balances appropriately reflect the group’s deferred tax position with reference to requirements to the prevailing accounting standards.


INDEPENDENT AUDITORS’ REPORT

Other Information

Management is responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

When we read the annual report, if we conclude that there is a material misstatement therein, we are required to report that fact.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s and the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SLAuSs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with SLAuSs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

35

We also provide those charged with governance with a statement that we have complied with ethical requirements in accordance with the Code of Ethics regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

As required by section 163 (2) of the Companies Act No. 07 of 2007, we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company.

CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor’s report is 2618.

Chartered Accountants

Colombo

10th July 2018


Group CompanyFor the year ended 31st March Note 2018 2017 2018 2017

Rs`000 Rs`000 Rs`000 Rs`000

(Restated)

Revenue 5 3,875,473 3,167,263 3,816,830 3,086,410

Cost of Sales (3,550,184) (3,151,404) (3,499,960) (3,076,343)

Gross Profit 325,289 15,859 316,870 10,067

Fair Value Gain on Biological Assets 16.2.2 139,486 54,375 139,486 54,375

Other Operating Income 6 455,426 324,218 202,868 338,342

Administrative Expenses (270,185) (208,738) (299,503) (244,411)

Net Financing Costs 8 (378,249) (485,832) (461,925) (509,203)

Profit/(Loss) before Income Tax Expense 7 271,767 (300,118) (102,204) (350,830)

Share of Profit/(loss) of Associate Company 17.2.2 23,704 1,981 - -

Income Tax Expense 9 (39,619) 39,556 (39,619) 39,556

Profit / (Loss) from continued operation 255,852 (258,581) (141,823) (311,274)

Profit / (Loss) from discontinued operation

Profit/(Loss ) from discontinued operation, net of tax 37 (235,506) (60,824) - -

Profit / (Loss) for the year 20,346 (319,405) (141,823) (311,274)

Other Comprehensive Income /(Expense) from continued operation

Items that will not be reclassified to profit or loss

Actuarial Gain/ (Loss) on Retirement Benefit Obligation (21,427) 106,519 (21,427) 106,519

Tax effect of Actuarial Gain/ (Loss) on Retirement Benefit Obligation 9.1 3,000 (21,651) 3,000 (21,651)

Items that are or may be reclassified subsequently to profit or loss

Available for Sale Financial Assets - Net Fair Change in Fair Value 73,421 (7,463) 73,421 (7,463)

Available for Sale Financial Assets - Reclassified to Profit or Loss 363 (140,241) 363 (140,241)

Foreign Currency Translation gain/ (Loss) 2,641 (1,208) - -

Other Comprehensive Income/(Expense) for the year, net of tax from continued operation 57,998 (64,044) 55,357 (62,836)

Other Comprehensive Income /(Expense) from discontinued operation

Net changes in fair value of Available for Sale Investments 37 26,275 11,563 - -

Actuarial Gain on Retirement Benefit Obligation, net of tax 37 225 23 - -

Tax effect on actuarial gain/(loss) on defined benefit obligation 37 (48) (8) - -

Tax effect on land revaluation - Discontinued Operation 37 (65,690) - - -

Other Comprehensive Income/(Expense) for the year, net of tax from discontinued operation 38 (39,238) 11,578 - -

Other Comprehensive Income /(Expense) for the Year, net of tax 18,760 (52,466) - -

Total Comprehensive Income /(Expense) for the Year 39,106 (371,871) (86,466) (374,110)

Earnings/(Loss) Per Share (Rs.) 10 0.47 (7.51) (3.28) (7.32)

Figures in brackets indicate deductions.

The Accounting Policies and Notes on pages 41 to 93 form an integral part of these Financial Statements

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

37

Group CompanyAs at 31/03/2018 31/03/2017 31/03/2018 31/03/2017

Note Rs`000 Rs`000 Rs`000 Rs`000

ASSETSNon Current AssetsLeasehold Right to Bare Land of JEDB/SLSPC Estates 11 170,089 182,260 170,089 182,260 Immovable Leased Assets of JEDB/SLSPC Estates (Other than Bare Land) 12 47,857 56,699 47,857 56,699 Tangible Assets (Other than Mature/Immature Plantations) 13 775,048 2,100,059 774,297 851,103 Intangible asset 15 - 21,272 - - Investment Property 14 - 114,398 - - Biological Assets 16 4,512,744 4,411,541 4,512,744 4,411,541 Investment in Subsidiary 17.1 - - 405 1,272,287 Investment in Associates 17.2 271,890 66,086 276,853 94,753 Available for sale Financial Assets 17.3 358,908 333,658 358,908 288,344

6,136,536 7,285,973 6,141,153 7,156,987

Current AssetsInventories 18 392,746 1,091,435 390,820 285,922 Trade & Other Receivables 19 884,998 1,238,390 388,979 256,952 Fair value gain on growing produce of bearer Biological assets. 16.1.2 6,932 7,024 6,932 7,024 Amounts Due from Related Parties 20 252,167 219,680 686,510 620,048 Income tax receivable - 46,711 - - Cash and Cash Equivalents 21 130,319 469,182 109,966 237,384

1,667,162 3,072,422 1,583,207 1,407,330 Total Assets 7,803,698 10,358,395 7,724,360 8,564,317

EQUITY AND LIABILITIESCapital and ReservesStated Capital 22 781,500 680,000 781,500 680,000 General Reserve 240,000 240,000 240,000 240,000 Foreign currency Translation Reserve 1,433 (1,208) - - Available for Sale Reserve 79,447 20,757 79,447 5,663 Retained Earnings 660,433 658,795 589,709 749,959 Total Equity 1,762,813 1,598,344 1,690,656 1,675,622

Non Current Liabilities Interest Bearing Borrowings 24.1 1,582,892 2,165,239 1,582,892 2,165,239 Retirement Benefit Obligations 25 723,159 681,202 722,119 661,880 Grants and Subsidies 23 333,814 335,031 333,814 335,031 Net Obligation to Lessor of JEDB/SLSPC 26 356,072 363,695 356,072 363,695 Deferred Taxation 27 203,083 316,890 203,083 170,927

3,199,020 3,862,057 3,197,980 3,696,772

Current LiabilitiesInterest Bearing Borrowings 24.2 819,989 2,623,685 819,989 791,325 Income tax payable - 5,922 - - Trade & Other Payables 28 1,285,823 1,642,762 1,279,758 1,509,004 Amounts Due to Related Parties 29 225,113 150,331 225,037 426,432 Bank Overdraft 21 510,940 475,294 510,940 465,162

2,841,865 4,897,994 2,835,724 3,191,923 Total Liabilities 6,040,885 8,760,051 6,033,704 6,888,695Total Equity and Liabilities 7,803,698 10,358,395 7,724,360 8,564,317 Net Asset per Share (Rs) 40.73 42.50 40.73 41.89

I certify that the financial statements have been prepared in compliance with the requirements of the Companies Act No.7 of 2007

M. Kowdu General Manager Finance

The Board of Directors is responsible for the preparation and presentation of these Financial Statements.Approved and signed for and on behalf of the Board of Directors of Kotagala Plantations PLC.

D S AbeyRatna M S MadugalleDirector DirectorColombo10th July 2018

STATEMENT OF FINANCIAL POSITION


STATEMENT OF CHANGES IN EQUITY

Group Stated Capital

General Reserve

Available for Sale Reserve

Foreign currency

Translation Reserve

Retained Earnings

Total Equity

Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Balance as at 1st April 2016 680,000 240,000 156,898 - 893,317 1,970,215

Total comprehensive income for the Year

Loss for the Year - - - - (319,405) (319,405)

Other comprehensive income / (expense)

Net change in fair value of Available for Sale Investments transferred to the Income Statement - - (140,241) - - (140,241)

Net changes in fair value of Available for Sale Investments - Continuing Operation - - (7,463) - - (7,463)

Net changes in fair value of Available for Sale Investments - Discontinuing Operation - - 11,563 - - 11,563

Translation differences arising on Foreign operations - - - (1,208) - (1,208)

Actuarial Gain on Retirement Benefit Obligation, Continuing Operation - - - - 106,519 106,519

Actuarial Gain on Retirement Benefit Obligation, Discontinued Operation - - - - 23 23

Tax effect on actuarial gain/(loss) on defined benefit obligation - Continuing Operation - - - - (21,651) (21,651)

Tax effect on actuarial gain/(loss) on defined benefit obligation - Discontinuing Operation - - - - (8) (8)

Total comprehensive income/(expense) for the Year - - (136,141) (1,208) (234,522) (371,871)

Transactions with owners of the Company, recognized directly in equity -

Balance as at 31st March 2017 680,000 240,000 20,757 (1,208) 658,795 1,598,344

Total comprehensive income for the Year

Loss for the Year - - - - 20,346 20,346

Expenses reimbursement in Lanka Agro Plantation Limited (Note 34) - - - - 23,864 23,864


Net change in fair value of Available for Sale Investments transferred to the Income Statement - - 363 - - 363

Net changes in fair value of Available for Sale Investments - Continuing Operation - - 73,421 - - 73,421

Net changes in fair value of Available for Sale Investments - Discontinuing Operation - - 26,275 - - 26,275

Translation differences arising on Foreign operations - - - 2,641 - 2,641

Actuarial Gain on Retirement Benefit Obligation, Continuing Operation - - - - (21,427) (21,427)

Actuarial Gain on Retirement Benefit Obligation,Discontinued Operation - - - - 225 225

Tax effect on actuarial gain/(loss) on defined benefit obligation - Continuing Operation 3,000 3,000

Tax effect on actuarial gain/(loss) on defined benefit obligation - Discontinuing Operation (48) (48)

Tax effect on land revaluation - Discontinued Operation - - - - (65,690) (65,690)

Total comprehensive income/(expense) for the Year 680,000 240,000 120,816 1,433 619,065 1,661,313

Transactions with owners of the Company, recognized directly in equity

Rights Issue 101,500 - - - - 101,500

On disposal of Subsidiary - - (41,369) - 41,369 -

Balance as at 31st March, 2018 781,500 240,000 79,447 1,433 660,433 1,762,813



39

Company Stated Capital

General Reserve

Available for Sale Reserve

Retained Earnings

Total Equity

Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Balance as at 1st April 2016 680,000 240,000 153,367 976,365 2,049,732

Loss for the Year - - - (311,274) (311,274)


Net changes in fair value of Available for Sale Investments transferrred to the Income Statement - - (140,241) - (140,241)

Net changes in fair value of Available for Sale Investments - - (7,463) - (7,463)

Actuarial Gain on Retirement Benefit Obligation - - - 106,519 106,519

Tax effect on Actuarial Gain/Loss on defined Benefit Obligation - - - (21,651) (21,651)

Total comprehensive income/(expense) for the Year - (147,704) (226,406) (374,110)

Transactions with owners of the Company, recognized directly in equity - - - - -

Balance as at 31st March 2017 680,000 240,000 5,663 749,959 1,675,622

Total comprehensive income for the Year - - - - -

Loss for the Year - - - (141,823) (141,823)

Rights Issue 101,500 - - - 101,500

Other comprehensive income / (expense) - - - - -

Net change in fair value of Available for Sale Investments transferred to the Income Statement - - 363 - 363

Net changes in fair value of Available for Sale Investments - - 73,421 - 73,421

Actuarial Gain on Retirement Benefit Obligation, net of tax - - - (21,427) (21,427)

Tax effect on Actuarial Gain/Loss on defined Benefit Obligation - - - 3,000 3,000

Total comprehensive income/(expense) for the Year 101,500 - 73,784 (160,250) 15,034

Transactions with owners of the Company, recognized directly in equity - - - - -

Balance as at 31st March, 2018 781,500 240,000 79,447 589,709 1,690,656




CASH FLOW STATEMENT

Group CompanyFor the year ended 31st March 2018 2017 2018 2017

Rs`000 Rs`000 Rs`000 Rs`000 (Restated)

CASH FLOWS FROM OPERATING ACTIVITIESProfit/(Loss) before income tax expenses 271,767 (300,118) (102,204) (350,830)Loss before income tax from discontinued operations (288,812) (69,295) - - Loss before income tax from continued operations (17,045) (369,413) (102,204) (350,830)

Adjustments for :Depreciation/Amortisation 330,099 368,750 251,814 303,418 Fair Value gain of Biological Assets (139,486) (54,375) (139,486) (54,375)Profit on Disposal of Property, Plant and Equipment (1,611) (35,477) (1,611) (13,782)Loss/(Profit) on disposal of Available for sale investments 3,201 (172,617) 3,201 (172,617)Profit on disposal of subsidiary (246,126) - - - Interest Income (1,797) (1,644) (1,797) (1,175)Interest Expense 388,587 750,218 472,263 533,430 Exchange (Gain) / Loss (8,541) (28,817) (8,541) (23,052)Provision for doubtful debt - 15,069 - - Provision for Obsolete tea stock - (3,789) - - Provision/(Reversal) for impairment in Investment in Subsidiaries - - - 68,172 Provision for impairment in Investment in Associate - - 54,150 - Provision for Retirement Benefit Obligation 128,985 123,192 123,870 118,045 Amortization of Grants (11,031) (9,879) (11,031) (9,879)Operating Profit before working capital changes 425,235 581,218 640,628 397,354

(Increase)/Decrease in Inventories (138,894) (139,342) (104,898) (19,443)(Increase)/Decrease in Trade & Other Receivables (287,045) 19,680 (2,843) 21,937 (Increase)/Decrease in Amounts Due from Related Parties (1,057,500) 17,031 (54,094) 454,299 Increase/(Decrease) in Trade & Other Payables (225,829) 509,157 (315,380) 266,396 Increase/(Decrease) in Amounts Due to Related Parties 79,515 46,256 (201,395) 212,879 Cash Generated from Operations (1,204,518) 1,034,000 (37,982) 1,333,422

Income Tax/ESC paid (27,270) (23,136) - - Interest Received 1,797 1,644 1,797 1,175 Interest Paid (458,539) (832,175) (455,497) (541,434)Gratuity Paid (87,273) (54,828) (85,058) (43,346)Net Cash from/ (Used in) Operating Activities (1,775,803) 125,504 (576,740) 749,817

CASH FLOWS FROM INVESTING ACTIVITIESPurchase of Property, Plant and Equipment (43,176) (233,233) (21,869) (29,385)Purchase of Intangible Assets (1,520) - - - Investment in Immature Plantations (159,410) (216,992) (159,410) (216,992)Proceeds from financial investments 55,682 45,340 2,493 13,782 Investment In AFS (74,937) - - - Proceeds from Disposal of Property, Plant & Equipment 8,885 - - - Net investment in Fixed Deposit - 5,852 - 5,852 Net investment in sinking fund - - - (13,463)Proceeds from disposal of investment 1,037,736 457,214 1,035,651 457,214 Net cash used in Investing Activities 823,260 58,181 856,865 217,008

CASH FLOWS FROM FINANCING ACTIVITIESPayments of Finance Lease Rental (30,823) (26,173) (30,326) (26,173)Payments to Lessor on Leasehold Rights - (248,413) - - Proceeds from Long Term Borrowings 1,582,924 627,022 566,081 (248,413)Repayments of Long Term Borrowings (1,102,748) (741,354) (1,102,748) 174,816 Grants Received 9,814 13,422 9,814 (658,401)Proceeds from rights issue 101,500 - 101,500 13,422 Net Cash from/( used in) Financing Activities 560,667 (375,496) (455,679) (744,749)Net Increase/(Decrease) in Cash and Cash Equivalents (391,876) (191,810) (175,554) 222,071 Cash and Cash Equivalents at the beginning of the year (6,112) 189,428 (227,778) (448,726)Effect of Exchange Rate changes 17,367 (3,730) 2,358 (1,123)Cash and Cash Equivalents at the end of the year (380,621) (6,112) (400,974) (227,778)



41

NOTES TO THE FINANCIAL STATEMENTS

1 REPORTING ENTITY

Kotagala Plantations PLC is a limited liability Company incorporated and domiciled in Sri Lanka, under the Companies Act No. 17 of 1982 (reregistered under the Companies Act No. 7 of 2007) in terms of the provisions of the Conversion of Public Corporation and Government Owned Business Undertaking into Public Companies Act No. 23 of 1987. The registered office of the Company is located at No 53-1/1, Sir Baron Jayathilaka Mawatha, Colombo 01 and Plantations are situated in the planting districts of Nuwara Eliya and Kalutara.

The consolidated financial statements of the Group as at and for the year ended 31st March 2018 comprise the Company and its subsidiaries (together referred to as the“Group”and individually as“Group entities”).

1.1 Historical Background

The Company was formed on 22 June 1992 under the Companies Act No. 17 of 1982 (reregistered under the Companies Act No. 7 of 2007) in terms of the provisions of the conversion of Corporations and Government Owned Business Undertakings in to Public Companies Act No. 23 of 1987, to take over the plantations which were owned and Managed by Janatha Estate Development Board (JEDB) and the Sri Lanka Estate Plantation Corporation (SLSPC) both of which owned and managed a number of plantations and estates.

1.2 Parent and Ultimate Parent Group

The Group’s immediate parent undertaking is Consolidated Tea Plantations Limited (previously konown as Lankem Plantation Holdings Limited) which is incorporated in Sri Lanka as a limited liability group, and the ultimate parent group is The Colombo Fort Land and Building PLC.

1.3 Principal Activities and Nature of Operations

During the year, the principal activity of the Group was the cultivation, manufacture and sale of Tea, Rubber and cultivation and sale of Oil Palm.

2. BASIS OF PREPARATION

2.1 Statement of Compliance

The Financial Statements of the Group have been prepared in accordance with Sri Lanka Accounting Standards (SLFRSs and LKASs) as issued by the Institute of Chartered Accountants of Sri Lanka (ICASL) and in compliance with the requirements of Companies Act No. 7 of 2007.

Where appropriate, specific policies are explained in the succeeding notes. No adjustments have been made for inflationary factors in the Financial Statements. The said Financial Statements are prepared in Sri Lankan Rupees. (Rs.) The Directors are responsible for preparation and presentation of these financial statements.

2.2 Basis of Measurement

The Financial Statements have been prepared on historical cost basis except where appropriate disclosures are made with regard to fair value under relevant notes. Assets and liabilities are grouped by nature and in

an order that reflect their relative liquidity. The Financial Statements have been prepared on the assumption that the Company will continue as a going concern for the foreseeable future.

2.3 Functional and Presentation Currency

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.

2.4 Use of Estimates and Judgements

The preparation of the Financial Statements in conformity with Sri Lanka Accounting Standards requires management to make judgements, 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 these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognized in the Company’s Financial Statements is included in the respective notes.

2.5 Going Concern

The Directors have made an assessment of the Group’s ability to continue as a going concern and they do not intend either to liquidate or to cease trading.

3 SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

3.1 Basis of consolidation

3.1.1 Business combinations

The Group measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognised immediately in the statement of comprehensive income.

The Group elects on a transaction-by-transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognised amount of the identifiable net assets, at the acquisition date. Transaction 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.


3.1.2 Subsidiaries

Subsidiaries are entities controlled by the Group. The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of the subsidiaries have been changed when necessary to align them with the policies adopted by the Group.

3.1.3 Investments in Associates

An Associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but not have any control or joint control over those policies

At the date of acquisition, any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate is recognized as goodwill. The goodwill is included within the carrying amount of the investment.

The results and assets and liabilities of associates are incorporated in the Consolidated Financial Statements using the equity method of accounting. Under the equity method, investments in associates are carried in the Consolidated Statement of Financial Position at cost and adjusted for post- acquisition changes in the Group’s share of the net assets of the associate less any impairment in the value of the investment. The Group’s share of profit or losses after tax are recognized in the consolidated income statement. Loss of an associate in excess of the Group’s interest in that associate are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

3.2 Foreign Currency Translations

Transactions in foreign currencies are translated to Sri Lankan Rupees at the exchange rates prevailing at the date of transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Sri Lankan Rupees at the exchange rates at that date.

The foreign currency gain or loss on monetary items is the difference between the amortised cost in Sri Lankan Rupees at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period.

Non-monetary assets and liabilities which are stated at historical cost denominated in foreign currencies are translated to Sri Lankan Rupees at the exchange rate at the dates of the transactions. Non-monetary assets and liabilities that are stated at fair value, denominated in foreign currencies are translated to Sri Lankan Rupees at the exchange rate that the fair value was determined. Foreign exchange differences arising on translation are recognized in Comprehensive Income.

3.3 Assets and Basis of their Valuation

Assets classified as current assets on the Statement of Financial Position are cash and bank balances and those which are expected to be realized in cash during the normal operating cycle or within one year from the reporting date, whichever is shorter.

3.3.1 Financial Assets and Financial Liabilities

3.3.1.1 Initial Recognition and Measurement

The Group initially recognizes loans and advances, deposits, debt securities issued and subordinated liabilities on the date at which they are originated. All other financial assets and liabilities (including assets and liabilities designated at fair value through profit or loss) are initially recognized on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

A financial asset or financial liability is measured initially at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue.

3.3.1.1.1 Financial Assets

The Group determines the classification of its financial assets at initial recognition. All financial assets are recognized at fair value plus, in the case of assets not for fair value through profit or loss, directly attributable transaction cost.

At inception, financial assets are classified in one of the following categories.

• Financial assets at fair value through profit or loss

• Loans and receivables

• Held to maturity investments

• Available for sale financial assets

3.3.1.1.2 Financial Liabilities

The Group initially recognizes all financial liabilities on the date that they are originated and classifies its financial liabilities as measured at amortized cost or fair value through profit or loss.

3.3.1.2 Subsequent Measurement

The subsequent measurement of financial assets depends on their classification as follows:

3.3.1.2.1 Financial Assets at Fair Value Through Profit or Loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by LKAS 39. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit and loss are carried in the statement of financial position at fair value with changes in fair value recognized in finance income or finance costs in the Statement of Comprehensive Income.

The Group has not specified any financial asset at fair value through profit or loss.


43

3.3.1.2.2 Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method (EIR), less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the Statement of Comprehensive Income. The losses arising from impairment are recognized in the Statement of Comprehensive Income in finance costs.

The Loans and receivables financial assets of the Group comprise Trade & Other Receivables, cash and cash equivalents and Amounts Due from Related Parties.

3.3.1.2.3 Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Group has the positive intention and ability to hold them to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the Statement of Comprehensive Income. The losses arising from impairment are recognized in the Statement of Comprehensive Income in finance costs.

The held-to-maturity investments of the Group comprise Debenture and Fixed Deposit Investments.

3.3.1.2.4 Available-for-sale financial investments

Available-for-sale financial investments include equity and debt securities. Equity investments classified as available-for-sale are those, which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions.

After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealized gains or losses recognized as other comprehensive income in the available- for-sale reserve until the investment is derecognised, at which time the cumulative gain or loss is recognized in other operating income, or determined to be impaired, at which time the cumulative loss is reclassified to the Statement of Comprehensive Income in finance costs and removed from the available-for-sale reserve. Interest income on available-for-sale debt securities is calculated using the effective interest method and is recognized in profit or loss.

The available-for-sale investments of the Group comprise Equity Investments.

3.3.1.3 Derecognition of financial assets and financial liabilities

3.3.1.3.1 Financial Assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

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

• The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass- through’ arrangement; and either

a) The Group has transferred substantially all the risks and rewards of the asset, or

b) The Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

3.3.1.3.2 Financial Liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognized in profit or loss.

3.3.1.4 Offsetting

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to set off the recognized amounts and it intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted under SLFRSs, or for gains and losses arising from a group of similar transactions.

3.3.1.5 Amortized Cost Measurement

The amortized cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initial amount recognized and the maturity amount, minus any reduction for impairment.

3.3.1.6 Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in absence, the most advantageous market to which the Group has access at the date.

If a market for a financial instrument is not active, then the group establishes fair value using a valuation technique. Valuation techniques include using recent arm’s length transactions between knowledgeable,


willing parties (if available), reference to the current fair value of other instruments that are substantially the same and discounted cash flow analyses. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Group, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments. Inputs to valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument. The Group calibrates valuation techniques and tests them for validity using prices from observable current market transactions in the same instrument or based on other available observable market data.

Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group entity and the counterparty where appropriate.

3.3.1.7 Impairment of Financial Assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

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

3.3.1.8 Financial Assets Carried at Amortized Cost

For financial assets carried at amortized cost, the Group assesses individually whether objective evidence of impairment exists for financial assets. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the Statement of Comprehensive Income.

If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write–off is later recovered, the recovery is credited to the Comprehensive Income.

3.3.1.9 Available-For-Sale Financial Investments

For available–for–sale financial investments, the Group assesses at each Statement of Financial Position date whether there is objective evidence that an investment is impaired.

In the case of debt instruments classified as available–for–sale, the Group assesses individually whether there is objective evidence of impairment based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the Comprehensive Income. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to a credit event occurring after the impairment loss was recognized in the Comprehensive Income, the impairment loss is reversed through Comprehensive Income.

In the case of equity investments classified as available–for–sale, objective evidence would also include a ‘significant ‘or ‘prolonged ‘decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the Statement of Comprehensive Income – is removed from equity and recognized in the Statement of Comprehensive Income. Impairment losses on equity investments are not reversed through the Statement of Comprehensive Income; increases in the fair value after impairment are recognized in Other Comprehensive Income.

3.3.1.10 Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the Statement of Financial Position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.

3.3.2 Cash and Cash Equivalents

Cash and cash equivalents are defined as cash in hand, demand deposits and short term highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purpose of Cash Flow Statement, cash and cash equivalents consist of cash in hand and deposits in Groups net of outstanding Group overdrafts. Interests paid and received are classified as operating cash flows for the purpose of presentation of Cash Flow Statement. The cash flow Statement reported is based on indirect method.

3.3.3 Property, Plant and Equipment

3.3.3.1 Recognition and measurement

The Property, Plant and Equipment are recorded at cost less accumulated depreciation and impairment losses.

Items of property, plant and equipment are derecognised upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset is included in the Statement of Comprehensive Income in the year the asset is derecognised.


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The cost of Property, Plant and Equipment is the cost of purchase or construction together with any expenses incurred in bringing the assets to its working condition for its intended use. Expenditure incurred for the purpose of acquiring, extending or improving assets of permanent nature by means of which to carry on the businesses or to increase the earning capacity of the business has been treated as capital expenditure. The cost of property, plant and equipment is the cash price equivalent at the recognition date.

The carrying values of property plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

- Subsequent Costs/ Replacement of Parts.

The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefit embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of those parts that are replaced is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.

3.3.3.2 Depreciation/Amortisation

Provision for depreciation is calculated by using a straight-line method on the cost or valuation of all property, plant and equipment, in order to write off such amounts over the estimated useful economic life of such assets. The leased assets are depreciated over the shorter of the lease term and their useful lives.

Buildings & Land Improvement Over 40 years Plant & Machinery Over 13 1/3 years CTC Machinery Over 20 Years Furniture & Fittings Over 10 years Motor Vehicles Over 5 years Equipment Over 8 years Water Projects & Sanitation Over 20 years Leasehold Assets - Plant & Machinery Over 13 1/3 years - Motor Vehicles Over 05 years Mature Plantations - Tea Over 33 1/3 years - Rubber Over 20 years

The leasehold rights of assets taken over from JEDB / SLSPC are being amortized in equal amounts, over the following years. (Lower of lease period and economic useful life).

- Bare Land Over 53 years Mature Plantations - Tea & Rubber Over 30 years - Others Over 25 years Buildings Over 25 years Plant & Machinery Over 15 years Land Development Cost Over 30 years Water Supply Scheme Over 30 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. Leased assets are depreciated over the shorter of the leased term and their useful lives. The useful life, residual values and depreciation methods of assets are reviewed, and adjusted if required, at the end of each financial year.

3.3.3.3 Assets held for sale

Non-current assets, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. Immediately before classification as held for sale, the assets are measured at lower of their carrying amount and fair value less cost to sell. Impairment losses on initial classification as held for sale and subsequent gain or losses on re-measurement are recognized in profit and loss. Gains are not recognized in excess of any cumulative impairment loss.

3.3.3.4 Permanent Land Development Costs

Permanent land development costs are those costs incurred to make major changes to land contours to build new access roads and other major infrastructure development. Such expenditure on leasehold land has been capitalized and amortized over the remaining lease period. Permanent impairments to land development costs are charged to the Statement of Comprehensive Income in full or reduced to the net carrying amounts of such asset in the year of occurrence after ascertaining the loss.

3.3.3.5 Limited Life Land Development Costs

The cost of new planting, replanting, inter-planting and crop diversification incurred between the time of field development and being ready for commercial harvesting are classified as immature plantations. Further, the general charges incurred on the plantation are apportioned on the labour days spent on respective replanting and new planting, and capitalized on the immature areas. The remaining portion of the general charges is charged to the Statement of Comprehensive Income in the year in which it is incurred. No depreciation is provided for immature plantation. The total expenditure incurred on perennial crops (Tea and Rubber) which come into bearing during the year have been transferred to mature plantations and depreciated over its useful life time. No depreciation has been charged on mature plantations in the year of transfer. Permanent impairments to land development costs are charged to the Statement of Comprehensive Income in full or reduced to the net carrying amounts of such asset in the year of occurrence after ascertaining the loss.


3.3.3.6 Infilling Cost

Where Infilling results in an increase in the economic life of the relevant field beyond its previously assessed standard of performance, the costs are capitalized and depreciated over the useful life at rates applicable to mature plantations. Infilling costs that are not capitalized have been charged to the Statement of Comprehensive Income in the year in which they are incurred.

3.3.4 Investment Property

Investment properties are properties held either to earn rental income or for capital appreciation or both but not for sale in the ordinary course of business, used in the production or supply of goods or services for administrative purposes.

Investment property is recognized, if it is probable that future economic benefits that are associated with the investment property, will flow to the Group and cost of the investment property can be reliably measured.

An investment property is measured initially at its cost. The cost of a purchased investment property comprises of its purchase price and directly attributable expenditure, the cost of the self-constructed investment property is its cost at the date of when the construction or development is completed. The Group applies the cost model for investment properties in accordance with LKAS 40 –“Investment property.”

3.3.5 Intangible assets

Software acquired by the Group is stated at cost less accumulated amortisation and accumulated impairment losses.

3.3.5.1 Subsequent expenditure

Subsequent expenditure on software assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

3.3.5.2 Amortisation

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful life of the software, from the date that it is available-for- use since this most closely reflects the expected pattern of consumption of the future

3.3.6 Biological Assets

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

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

Consumable biological assets includes managed timber those that are to be harvested as agricultural produce or sold as biological assets

The Group recognizes 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 and Equipment as per the ruling issued by the Institute of Chartered Accountants of Sri Lanka.

The managed timber is measured on initial recognition and at the end of each reporting periods 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. Timber trees are measured at fair value at date of reporting by the management or by an independent professionally qualified valuer if the board of directors determines necessary. All details of the valuation and the assumptions are given in note 16.1.3 to the financial statements.

Nursery cost includes the cost of direct materials, direct labour and an appropriate proportion of directly attributable overheads.

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.

The company recognizes its agricultural produce prior to harvest separately from its bearer plants. Such agricultural produce prior to harvest continues to be in the scope of LKAS 41 and measured at fair value less costs to sell. Changes in the fair value of such agricultural produce is recognized in the profit or loss at the end of each reporting period.

When deriving the estimated quantity, the company limits it to one harvesting cycle and the quantity is ascertained based on last day of harvest in the immediately preceding cycle in order to ascertain the fair value of produce growing on trees. 50% of the estimated crop in the harvesting cycle is considered for the valuation of the produce, the company uses bought leaf rate (current month) less costs of harvesting and transport.

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.

The company recognizes its agricultural produce prior to harvest separately from its bearer plants. Such agricultural produce prior to harvest continues to be in the scope of LKAS 41 and measured at fair value less costs to sell. Changes in the fair value of such agricultural produce is recognized in the profit or loss at the end of each reporting period.

When deriving the estimated quantity, the company limits it to one harvesting cycle and the quantity is ascertained based on last day of harvest in the immediately preceding cycle in order to ascertain the fair value of produce growing on trees. 50% of the estimated crop in the harvesting cycle is considered for the valuation of the produce, the company uses bought leaf rate (current month) less costs of harvesting and transport.


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3.3.7 Leased Assets

Property, Plant and Equipment on finance leases, (which effectively transfer substantial risks and benefits incidental to ownership of the leased item) are capitalized at their cash price, and depreciated/amortized over the period the Company is expected to benefit from the use of the leased assets. The corresponding principal amount payable to the lessor is shown as a liability. The interest element of the rental obligation applicable to each financial year is charged to the Statement of Comprehensive Income over the period of the lease so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The cost of improvements to the leased property is capitalized and depreciated over the unexpired period of the lease or the estimated useful lives of the improvements whichever is shorter.

3.3.8 Inventories

Inventories other than produce stocks are valued at the lower of cost and estimated net realisable value, after making due allowance for obsolete and slow moving items. Net realisable value is the price at which stocks can be sold in the normal course of business after allowing for cost of realisation and/or cost of conversion from their existing state to saleable condition. Cost is arrived as follows, Input Material At actual cost on FIFO basis. Growing Crop Nurseries At the cost of direct materials, direct labour, and an appropriate proportion of directly attributable overheads less provision for overgrown plants. Spares and Consumables At actual cost on FIFO basis. Produce Stocks Valued on the basis of estimated realisable price or since realised price.

3.3.9 Impairment of Non–Financial Assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash generating units (CGU) fair value less costs to sell and its value in use. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre–tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

3.3.10 Discontinued operation

A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:

- represents a separate major line of business or geographic area of operations;

- is part of a single coordinated plan to dispose of a separate major line of business or geographic area of operations; or

- is a subsidiary acquired exclusively with a view to re-sale.

Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale.

When an operation is classified as a discontinued operation, the comparative statement of profit or loss and OCI is re-presented as if the operation had been discontinued from the start of the comparative year.

3.4 Revenue and Expenditure Recognition

3.4.1 Revenue Recognition

Revenue from rendering services or 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 recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is provable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods or services rendered.

The following specific criteria are used for recognition of revenue:

a) In keeping with the practice in the Plantation Industry, revenue on Perennial crops are recognized in the financial period of harvesting. Revenue is recorded at invoice value net of brokerage, sale expenses and other levies related to revenue.

b) Gains or losses of a revenue nature have been accounted for in the Statement of Comprehensive Income.

c) Interest income is recognised on accrual basis.

d) Other income is recognised on accrual basis.

3.4.2 Expenditure Recognition

a) All expenditure incurred in the running of the business and in maintaining the Property, Plant and Equipment in state of efficiency has been charged to the Statement of Comprehensive Income in arriving at the profit/(loss) for the year.

b) For the purpose of presentation of Statement of Comprehensive Income, the Directors are of the opinion that function of expenses method presents fairly the elements of the enterprise’s performance and, hence such presentation method is adopted.

3.4.2.1 Income Tax

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

3.4.2.1.1 Current Tax

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. The elements of income and expenditure as reported in the financial statements and computed in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and amendments thereto. Relevant details are disclosed in note 7 to the Financial Statements.


3.4.2.1.2 Deferred Tax

Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities, and their carrying amounts for financial reporting purposes.

Deferred tax assets and liabilities are recognised for all temporary differences. Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilized. The carrying amount of deferred tax assets is reviewed at each Reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the year when the asset is realised or liability is settled, based on the tax rates and tax laws that have been enacted or substantively enacted as at the Reporting date. Income tax relating to items recognized directly in equity is recognised in equity. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

3.4.2.2 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, which takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the specific asset. Borrowing Costs that are not capitalised are recognised as expenses in the period in which they are incurred and charged to the

Statement of Comprehensive Income. Borrowing costs incurred in respect of loans that are utilised for field development activities have been capitalized as a part of the cost of the relevant Immature Plantation. The capitalisation will cease when the crops are ready for commercial harvest. The amount so capitalised and the capitalisation rates are disclosed in the notes to the financial statements.

3.5 Liabilities and Provisions

3.5.1 Retirement Benefits to Employees

3.5.1.1 Defined Benefit Plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.

Retiring Gratuity

The Retirement Benefit Plan adopted is as required under the Payment of Gratuity Act No. 12 of 1983. This item is grouped under Retirement Benefit Obligation in the Statement of Financial Position.

Provision for Gratuity on the employees of the Company is on an actuarial basis using the Projected Unit Credit Method (PUC Method) as recommended by Sri Lanka Accounting Standard 16 (Revised 2006), “Employee Benefits”which became effective from the financial year commencing after 1st July 2007. The Company continues to use actuarial method under Sri Lanka Accounting Standard 19,“Employee Benefits” effective from the financial year commencing on 1st January 2012.

However, under the Payment of Gratuity Act No. 12 of 1983, the liability to an employee arises only on completion of 5 years of continued service. The liability is not externally funded.

A provision is recognized in the Statement of Financial Position when the Company has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation.

The Company adopted LKAS 19 “Employee Benefits”(Revised in 2013) with effect from 1st January 2013 in accordance with the transitional provisions in the standard and changed its basis for determining the income or expense related to defined benefit plans;

The Company recognizes all the re-measurements of the net defined benefit liability in other comprehensive income. Re measurements of the net defined benefit liability comprise an actuarial gain or loss.

The liability is not externally funded. However according to the Payment of Gratuity Act No. 12 of 1983, the liability for payment to an employee arises only after the completion of 5 years continued services.

3.5.1.2 Defined Contribution Plans - EPF, ESPS, CPPS and ETF

All employees who are eligible for defined Provident Fund Contributions (EPF, ESPS and CPPS) and Employees Trust Fund Contributions are covered by relevant contributory funds in line with respective statutes.

3.5.2 Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the Statement of Comprehensive Income net of any reimbursement.

3.5.3 Capital commitments and contingencies

Contingent liabilities are possible obligations whose existence will be confirmed only by occurrence or non-occurrence uncertain future events not wholly within the control of the Company or present obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent liabilities are not accounted in the Statement of Financial Position but are disclosed unless they are remote.

Capital commitments and contingent liabilities of the Company are disclosed in the respective Notes to the Financial Statements.


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3.5.4 Deferred Income

3.5.4.1 Grants and Subsidies

Grants and subsidies are credited to the Statement of Comprehensive Income over the periods necessary to match them with the related costs, which they are intended to be compensated on a systematic basis. Grants related to Property, Plant and Equipment, including non-monetary grants at fair value is deferred in the Statement of Financial Statement and credited to the Statement of Comprehensive Income over the useful life of the related assets. Grants related to income are recognised in the

Statement of Comprehensive Income in the period in which it is receivable.

3.6 Segmental Reporting

A Segment is a distinguishable component of the Group that is engaged in providing services, which is subject to different risks and rewards.

The Group’s core business is manufacturing and sale of Tea and this line of business accounts for the entire operation of the Group. The Group’s business is located in different geographical locations where the risks and rewards related to each segment could be identified. Revenue and expenses directly attributable to each segment are allocated intact to the respective segments. Revenue and expenses not directly attributable to a segment are allocated on the basis of their resource utilisation wherever possible. Assets and Liabilities directly attributable to each segment are allocated intact to the respective segments. Assets and Liabilities, which are not directly attributable to a segment, are allocated on a reasonable basis whenever possible.

3.7 Comparative Information

The Accounting Policies have been consistently applied by the Group with those used in the previous year. Previous year’s figures and phrases have been rearranged wherever necessary to conform to the current year’s presentation.

3.8 Events occurring after the Reporting Date

All material events after the reporting date have been considered and where appropriate adjustments or disclosures have been made in the respective Notes to the Financial Statements.

4 ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE

The Institute of Chartered Accountants of Sri Lanka has issued the following new Sri Lanka Accounting Standards which will become applicable for financial periods beginning on or after 1st April 2018 or at a later date. Accordingly these standards have not been applied in preparing these financial Statements.

a) SLFRS 9 - Financial Instruments: Classification and Measurement

SLFRS 9 as issued reflects the first place of work on replacement of LKAS 39 and applies the classification and measurement of financial assets and liabilities, depending on the entities business model for managing contractual cash flows characteristics of the financial asset.

SLFRS 9 will be effective for financial period beginning on or after 1st January 2018

b) SLFRS 15 - Revenue from Contracts with Customers

SLFRS 15 establishes a comprehensive framework for determining revenue recognition by a 5 step model and will replace the existing LKAS 18 and LKAS 11.

SLFRS 15 will be applicable for the financial periods beginning on or after 01st January 2018.

c) SLFRS 16 - Leases

SLFRS 16 requires lessees to recognized on their Statement of financial position as leases liabilities with the corresponding right to use the assets. The profit or loss recognized leases will be similar to existing finance lease accounting with interest and depreciation expense recognized separately in the profit or loss.

SLFRS 16 is effective for annual periods beginning on or after 1st January 2019.


Group Company

For the year ended 31st March 2018 2017 2018 2017Rs’000 Rs’000

RestatedRs’000 Rs’000

5 REVENUESale of ProduceTea 3,108,485 2,368,004 3,108,485 2,368,004 Rubber 726,867 765,086 668,224 684,233 Oil Palm 40,121 34,173 40,121 34,173

3,875,473 3,167,263 3,816,830 3,086,410

5.1 Operating Segments - Group

Segmental Analysis of Principal Crops

Tea Rubber Oil Palm Tea Exports

(Discontinued Operation)

Total

For the year ended 31st March 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Restated

Rs’000 Rs’000

Restated

a.) Segmental ResultRevenue 3,108,485 2,368,004 726,867 765,086 40,121 34,173 - - 3,875,473 3,167,263 Less: Cost of Sales (2,665,932) (2,194,973) (818,355) (915,859) (65,897) (40,572) - - (3,550,184) (3,151,404)Gross Profit 442,553 173,031 (91,488) (150,773) (25,776) (6,399) - - 325,289 15,859 Less: Unallocated Expenses (702,585) (694,570)Add: Other Income 649,062 378,593 Profit/(Loss) before Income Tax Expense 271,767 (300,118)Share of Profit of Associate Company 23,704 1,981 Income Tax Reversal/(charge) (39,619) 39,556 Profit/loss from discontinued operation, net of tax (235,506) (60,824)Other Comprehensive income (Expense) from continued operation 57,998 (64,044)Other Comprehensive income/(Expense) from discontinued operation (39,238) 11,578 Net Profit/(Loss) for the year 39,106 (371,871)

b.) Segmental AssetsNon current assets 1,572,445 1,310,085 2,167,499 2,621,575 480,489 473,893 - 1,429,439 4,220,433 5,834,992 Current assets 424,115 850,804 129,699 979,539 2,379 3,204 - 1,873,020 556,192 3,706,565

1,996,560 2,160,889 2,297,198 3,601,114 482,868 477,097 - 3,302,458 4,776,625 9,541,557 Unallocated 3,027,073 816,838Total Assets 7,803,698 10,358,395

c.) Segmental LiabilitiesNon current liabilities 754,064 681,725 547,933 347,312 - - - 164,251 1,301,997 1,193,288 Current liabilities 542,155 605,644 297,593 151,231 - - - 1,979,021 839,748 2,735,896

1,296,219 1,287,369 845,526 498,543 - - - 2,143,273 2,141,745 3,929,185 Unallocated 3,899,140 4,830,866 Total Liabilities 6,040,885 8,760,051

d.) Segmental Capital ExpenditureCapital Expenditure 34,102 92,764 90,560 253,746 28,526 43,723 - 203,703 153,188 593,936 Unallocated - - - - - - - - 50,918 28,059 Total Capital expenditure 34,102 92,764 90,560 253,746 28,526 43,723 - 203,703 204,106 621,995

e.) Segmental DepreciationDepreciation 80,081 111,442 216,410 158,414 21,920 19,472 - 65,332 318,411 354,661 Unallocated - - - - - - - 1 1,688 14,090 Total Depreciation 80,081 111,442 216,410 158,414 21,920 19,472 - 65,332 330,099 368,751


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5.1 Operating Segments - Company

Segmental Analysis of Principal Crops

Tea Rubber Oil Palm TotalFor the year ended 31st March 2018 2017 2018 2017 2018 2017 2018 2017

Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

a.) Segmental ResultRevenue 3,108,485 2,368,004 668,224 684,233 40,121 34,173 3,816,830 3,086,410 Less: Cost of Sales (2,665,932) (2,194,973) (768,131) (840,798) (65,897) (40,573) (3,499,960) (3,076,343)Gross Profit 442,553 173,031 (99,907) (156,565) (25,776) (6,400) 316,870 10,067 Less: Unallocated Expenses (761,428) (753,614)Add: Other Income 342,354 392,717 Loss before Income Tax Expenses (102,204) (350,830)Income Tax Expenses (39,619) 39,556 Other Comprehensive Income/ (Expense) from continued operation 55,357 (62,836)Loss for the year (86,466) (374,110)

b.) Segmental AssetsNon current assets 1,572,445 1,310,085 2,166,751 2,620,778 480,489 473,893 4,219,685 4,404,756 Current assets 424,115 1,819,602 116,322 158,666 2,379 3,204 542,815 1,981,472

1,996,560 3,129,687 2,283,073 2,779,445 482,868 477,097 4,762,500 6,386,228 Unallocated 2,961,860 2,178,089 Total Assets 7,724,360 8,564,317

c.) Segmental LiabilitiesNon current liabilities 754,064 681,725 546,893 346,556 - - 1,300,957 1,028,281Current liabilities 542,155 605,644 261,697 423,610 - - 803,852 1,029,254

1,296,219 1,287,369 808,590 770,166 - - 2,104,809 2,057,535Unallocated 3,928,894 4,831,160 Total Liabilities 6,033,704 6,888,695

d.) Segmental Capital ExpenditureCapital Expenditure 34,102 70,060 90,560 190,420 28,526 43,723 153,188 304,203 Unallocated - - - - - - 28,091 28,059 Total Capital Expenditure 34,102 70,060 90,560 190,420 28,526 43,723 181,279 332,262

f.) Segmental DepreciationDepreciation 80,081 111,442 138,192 158,414 21,920 19,472 240,193 289,328 Unallocated - - - - - - 11,618 14,091 Total Depreciation 80,081 111,442 138,192 158,414 21,920 19,472 251,811 303,419


Group Company

For the year ended 31st March 2018 2017Restated

2018 2017

Rs`000 Rs`000 Rs`000 Rs`000

6. NET OTHER OPERATING INCOME

Amortization of Capital Grants (Note 23) 11,031 9,879 11,031 9,879

Profit on Disposal of Property, Plant and Equipment 1,611 15,342 1,611 13,782

Profit/ (Loss) on Disposal of Available for sales investments (Note 6.1) (3,201) 172,617 (3,201) 172,617

Profit / (Loss) on partial disposal of subsidiary (Note 35) 246,126 - - -

Sale of Rubber and Other Trees 108,459 95,910 108,459 95,910

Rent Income 11,423 11,225 11,423 11,225

Sale of Refuse Tea 30,122 620 30,122 5,944

Dividend Income - 14,429 - 14,429

Sundry Income 49,855 4,195 43,423 14,556

455,426 324,218 202,868 338,342

6.1 The Company disposed the remaining investment in Beruwala Resorts PLC during the year ended 31st March 2018.

Group Company


2018 2017

Rs`000 Rs`000 Rs`000 Rs`000

7. LOSS BEFORE INCOME TAX

Is stated after charging all expenses including the following;

Directors’ Emoluments 33,488 35,182 8,880 8,400

Auditor’s Remuneration - Audit fees and expenses 5,764 5,298 4,730 4,400

- Audit related services 255 175 150 175

- Non Audit 504 200 504 200

Provision for/(Reversal) of impairment in investment in subsidiaries - - (303,119) 68,172

Provision for impairment on other receivables 34,019 20,093 - - Provision for doubtful debt - 15,069 - -

Provision for Obsolete tea stock - (3,789) - -

Depreciation/Amortization

- Leasehold rights to Bare Land 6,458 6,458 6,458 6,458

- Immovable Leased Assets 8,793 55,620 8,793 55,620

- Tangible Property, Plant and Equipment 161,044 165,854 87,639 105,118

- Mature Plantations 148,924 136,222 148,924 136,222

- Investment Property 2,443 2,443 - -

- Intangible Assets 2,437 2,153 - -

Personnel Cost Includes;

- Salaries and Wages 2,059,827 1,890,554 1,942,697 1,781,095

- Defined Benefit Plan Cost - Retiring Gratuity 128,985 123,192 123,870 118,045

- Defined Contribution Plans - EPF, ETF,CPPS and ESPS 206,121 304,119 189,923 290,274


53

Group Company


2018 2017

Rs`000 Rs`000 Rs`000 Rs`000

8. NET FINANCE COSTS

Finance Income

Interest Income 1,797 1,644 1,797 1,175

Exchange Gain 8,541 59,529 8,541 23,052

10,338 61,173 10,338 24,227

Finance Cost On;

Bank Overdraft (497) (45,134) (497) (50,097)

Finance Leases (7,168) (5,157) (7,168) (5,157)

Net Obligation to Lessor (79,550) (72,723) (79,550) (72,723)

Debentures (133,637) (135,846) (133,637) (135,846)

Bank Loans (74,053) (143,131) (74,053) (143,131)

Broker Advances (66,858) (68,081) (66,858) (68,081)

Related Company Loans - - (83,706) (23,456)

Exchange Loss - (36,948) - -

Other interest (26,824) (39,984) (26,794) (34,939)

(388,587) (547,005) (472,263) (533,430)

Net Finance Costs (378,249) (485,832) (461,925) (509,203)


9. INCOME TAX EXPENSE

9.1 Current Taxation

Profits from any agricultural undertakings falls within the section 16 of the Inland Revenue Act No. 10 of 2006 would be exempt from income tax for a period of 5 years from 2006/2007 (Expired on 31 March 2011). Such profits are liable for income Tax at 10% from the year of assessment 2011/2012. The corporate rate of tax applicable to other income including the income not covered under section 16 (Profit from manufacture of Tea) is 28%.

Group Company


2018 2017

Rs`000 Rs`000 Rs`000 Rs`000

Recognized in the Profit or Loss - Continued Operation

Income tax on Profits for the Year (Note 9.2) 2,420 237 2,420 237

Prior year under/(Over) Provision 2,043 13 2,043 13

Provision for Deferred Taxation (Note 27) 35,156 (39,806) 35,156 (39,806)

39,619 (39,556) 39,619 (39,556)

Recognized in the Profit or Loss - Discontinued Operation

Income tax on Profits for the Year (Note 9.2) 17,160 5,685 - -

Prior year under/(Over) Provision (41) 5,246 - -

Provision for Deferred Taxation (70,425) (19,402) - -

(53,306) (8,471) - -

Recognized in the Other Comprehensive Income - Continued Operation

Provision for Deferred Taxation (Note 27) (3,000) 21,651 (3,000) 21,651

(3,000) 21,651 (3,000) 21,651

Recognized in the Other Comprehensive Income - Discontinued Operation

Provision for Deferred Taxation (Note 37) - 8 - -

- 8 - -

9.2 Reconciliation between accounting profit and Income tax

Accounting Profit/(loss) before Income Tax Expense from continued operation 476,873 (230,820) (102,204) (350,830)

Accounting Profit/(loss) before Income Tax Expense from discontinued operation (205,106) (69,297) - -

Aggregate disallowable items 620,463 753,749 478,440 655,360

Aggregate allowable expenses (596,858) (759,028) (414,487) (648,272)

Statutory Loss from Business (302,019) (374,692) (38,251) (343,743)

Other Sources of Income 107,513 32,909 13,297 1,305

Total Statutory Income 107,513 32,909 13,297 1,305

Tax Losses set off during the Year (Note 9.3) (37,585) (11,759) (4,654) (457)

Assessable Income 69,928 21,150 8,643 848

Taxable Income 69,928 21,150 8,643 848

Income Tax at the rate of 10% - - - -

Income Tax at the rate of 28% 19,580 5,922 2,420 237

Current Income Tax Expense 19,580 5,922 2,420 237

9.3 Accumulated Tax Losses

Tax Loss Brought Forward 3,212,978 2,700,153 2,946,005 2,579,588

Adjustment in respect of prior years (185,229) 138,774 (154,414) 23,131

Business loss for the year 302,019 374,692 38,251 343,743

Tax Losses set off during the year (37,585) (11,759) (4,654) (457)

Tax Loss removed due to disposal of subsidiary (466,995) - - -

Tax Loss Carried Forward 2,825,188 3,201,860 2,825,188 2,946,005


55

10. EARNINGS/(LOSS) PER SHARE

Basic Earning/(Loss) per share has been calculated based on the Profit/(Loss) for the year attributable to equity Shareholders of the Company after Tax divided by the weighted average number of Ordinary Shares in issue during the year and is calculated as follows:

Group Company

For the year ended 31st March 2018 2017 (Restated) 2018 2017

Continued Operations

Discontinued Operations

Total Continued Operations

Discontinued Operations

Total (Restated)

Profit/(Loss) for the Year (Rs. 000) 255,852 (235,506) 20,346 (258,581) (60,824) (319,405) (141,823) (311,274)

Non-Controlling Interest (Rs. 000) - - - - - - - -

Profit/(Loss) attributable to Owners of the Company (Rs. 000) 255,852 (235,506) 20,346 (258,581) (60,824) (319,405) (141,823) (311,274)

Weighted Average Number of Ordinary Shares (No.) 43,301 43,301 43,301 42,528 42,528 42,528 43,301 42,528

Basic Earning/(Loss) Per Share (Rs.) 5.91 (5.44) 0.47 (6.08) (1.43) (7.51) (3.28) (7.32)

The Company made a Right Issue of 10,150,000 Ordinary Shares at a price of Rs.10.10 per share during the year ended 31st March 2018. The change in number of shares without a corresponding change in resources (Bonus element) has been considered when calculating the weighted average number of shares and EPS for the year ended 31st March 2017 has been restated accordingly.

11. LEASEHOLD RIGHT TO BARE LAND OF JEDB/SLSPC ESTATES

The leases of all the 22 estates have been executed and will be retroactive from 22nd June, 1992. The leasehold rights to land on all these estates have been taken into the books of the Company as at 22nd June, 1992 immediately after formation of the Company, in terms of the ruling obtained from the Urgent Issues Task Force (UITF) of the Institute of Chartered Accountants of Sri Lanka. For this purpose, the Board decided at its meeting held on 8th March,1995 that these bare lands would be revalued, at the value established for these lands, by the valuation Specialist Mr.D.R.Wickramasinghe, just prior to the formation of the Company. The value taken into the 22nd June, 1992, Statement of Financial Position and the amortisation of leasehold rights upto 31st March, 2018 are as follows.

Company / Group

Revaluation

Life ofthe Asset

As at 22.06.1992

Balance as at 31.03.2018


Rs`000 Rs`000 Rs`000

Leasehold Right to Bare Land of

JEDB/SLSPC Estates 53 years 358,928 342,287 342,287

Removal of Millewa Estate (Note 36) - (11,124) -

358,928 331,163 342,287

Amortisation Balance Charge Removal of Millewa

Estate

Balance

as at for as at

01.04.2017 the year 31.03.2018

Rs`000 Rs`000 Rs`000 Rs`000

160,026 6,458 (5,411) 161,074

Carrying Value As at As at

31.03.2018 31.03.2017

Rs`000 Rs`000

170,089 182,260


12. IMMOVABLE LEASED ASSETS OF JEDB/SLSPC ESTATES (OTHER THAN BARE LAND)

In terms of the ruling of the UITF of the Institute of Chartered Accounts of Sri Lanka, all immovable assets in the JEDB/SLSPC estates under finance leases have been taken into the books of the Company retroactive to 22nd June 1992. For this purpose, the Board decided at its meeting on 08th March 1995 that these assets be restated 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. The value taken into the 22nd June, 1992, statement of Financial Position and the amortisation of leasehold rights upto 31st March 2018 are as follows,

Company / Group

Revaluation

Life ofthe Asset

As at 22.06.1992

Balance as at31.03.2017

Removal of Millewa Estate


Rs`000 Rs`000 Rs`000 Rs`000

Land Development Cost 30 years 6,712 6,701 (341) 6,360 Buildings other than worker housing 25 years 26,519 25,902 (728) 25,174 Plant & Machinery 15 years 8,757 8,757 - 8,757 Water Projects and Sanitations 30 years 8,688 8,688 - 8,688 Mature Plantations - Tea 30 years 69,767 227,655 - 227,655 - Rubber 30 years 61,138 172,379 (8,831) 163,548 - Others 25 years - 8,140 - 8,140 Immature Plantations - Tea 158,960 - - - - Rubber 126,898 - - - - Others 8,140 - - -

475,579 458,222 (9,900) 448,322

Amortisation Balance Charge Removal of Millewa Estate

Balance Carrying Value as at for as at As at As at

01.04.2017 the year 31.03.2018 31.03.2018 31.03.2017 Rs`000 Rs`000 Rs`000 Rs`000 Rs`000 Rs`000

Land Development Cost 5,540 223 (293) 5,470 890 1,161 Buildings other than Worker Housing

25,537 365 (728) 25,174 - 365

Plant & Machinery 8,757 - - 8,757 - - Water Projects and Sanitations

7,176 290 - 7,466 1,222 1,512

Mature Plantations - Tea 176,927 7,589 - 184,516 43,139 50,728 - Rubber 172,379 - (8,831) 163,548 - - - Others 5,207 326 - 5,533 2,606 2,933 Immature Plantations - Tea - - - - - - - Rubber - - - - - - - Others - - - - - -

401,523 8,793 (9,852) 400,464 47,857 56,699

Investment in Immature Plantations at the time of handing over to the Company by way of estate leases are shown under Immature Plantations as at 22.06.1992. Further investment in such plantations to bring them to maturity are shown under Note 16.


57

13.

TANG

IBLE

ASS

ETS (

OTHE

R THA

N M

ATUR

E / IM

MAT

URE P

LANT

ATIO

NS)

13.1

Gr

oup

Build

ings

an

d Lan

dW

ater

Proj

ects

and

Plan

t and

Mac

hine

ryM

otor

Veh

icles

Equi

pmen

tFu

rnitu

re an

d Fit

tings

Wor

k-in

Prog

ress

2018

20

17

Impr

ovem

ents

Sani

tatio

nsFr

eeho

ldLe

aseh

old

Free

hold

Leas

ehol

d

Rs`0

00Rs

`000

Rs`0

00Rs

`000

Rs`0

00Rs

`000

Rs`0

00Rs

`000

Rs`0

00Rs

`000

Rs`0

00

Cost

As at

1st A

pril

1,64

8,934

62

,635

1,01

8,672

69

,177

320,2

10

33,50

0 12

5,885

22

,411

33,97

8 3,

335,

402

3,17

5,470

Addit

ions d

uring

the y

ear

12,40

3 -

14

,352

-

5,12

9 9,

330

2,81

9 52

5,

787

49,8

71

226,5

87

Disp

osals

durin

g the

year

(1,95

0) -

(1

3,734

) -

(9

,377)

(756

) (1

07)

-

-

(25,

923)

(62,6

37)

Trans

fers d

uring

the y

ear

-

-

-

-

21,40

0 (2

1,400

) -

-

(6

,695)

(6,6

95)

(4,02

0)Re

mov

al of

Mille

wa Es

tate (

Note

36)

(11,6

15)

(1,79

9) (4

,477)

-

(10,6

66)

-

(2,03

4) -

-

(3

0,59

1) -

Disp

osals

of Su

bsidi

ary (

Note

35)

(1,03

0,666

) -

(4

20,63

1) -

(2

7,530

) -

(5

9,154

) -

-

(1

,537

,981

) -

As at

31st

Mar

ch

617,1

06

60,83

6 59

4,182

69

,177

299,1

66

20,67

4 67

,409

22,46

3 33

,070

1,78

4,08

3 3,

335,4

02

Accu

mul

ated

Dep

recia

tion

As at

1st A

pril

247,3

24

37,72

5 51

8,124

22

,877

272,4

77

25,06

2 90

,207

21,54

2 -

1,23

5,33

8 1,

126,2

80

Char

ge fo

r the

year

36,25

4 2,

870

77,08

1 5,

188

22,86

4 6,

332

9,98

6 46

9 -

16

1,04

4 16

5,854

Di

spos

als du

ring t

he ye

ar (2

61)

-

(8,85

7) -

(8

,672)

(756

) (1

03)

-

-

(18,

649)

(54,7

16)

Trans

fers d

uring

the y

ear

-

-

-

-

20,69

5 (2

0,695

) -

-

-

-

(2

,078)

Rem

oval

of Mi

llewa

Estat

e (No

te 36

) (4

,060)

(606

) (2

,935)

-

(10,6

66)

-

(1,68

8) (3

02)

-

(20,

257)

- Di

spos

als of

Subs

idiar

y (No

te 35

) (1

07,12

3) -

(1

81,49

6) -

(1

7,817

) -

(3

6,180

) (5

,825)

-

(348

,441

) -

As at

31st

Mar

ch

172,1

34

39,98

9 40

1,916

28

,065

278,8

81

9,94

4 62

,222

15,88

4 -

1,00

9,03

5 1,

235,3

38

Carry

ing V

alue

as at

31.0

3.20

18 44

4,97

2 20

,847

19

2,26

5 41

,112

20

,285

10

,731

5,

187

6,57

8 33

,070

77

5,04

8 -

Carry

ing Va

lue as

at 31

.03.20

17 1,

401,6

10

24,90

9 50

0,548

46

,300

47,73

3 8,

438

35,67

8 86

9 33

,978

- 2,

100,0

59

Th

e cos

t of f

ully

depr

eciat

ed it

ems o

f Pro

perty

, Pla

nt an

d Eq

uipm

ent

which

are s

till i

n us

e as a

t 31s

t Mar

ch 20

18 ar

e as f

ollo

ws.

Asse

t Cat

egor

y

2018

Rs

.

Build

ings

and

Land

Impr

ovem

ents

-

W

ater

Pro

ject

s and

Sani

tatio

ns

9,

205,

971

Plan

t and

Mac

hine

ry -

Free

hold

150,

215,

429

Mot

or Ve

hicle

s - Fr

eeho

ld

20

3,32

2,93

5

Eq

uipm

ent

49

,986

,296

Fu

rnitu

re an

d Fit

tings

8,16

3,04

8

420,

893,

679


NOTES TO THE FINANCIAL STATEMENTS13

. TA

NGIB

LE A

SSET

S (OT

HER T

HAN

MAT

URE /

IMM

ATUR

E PLA

NTAT

IONS

)

13.1

Co

mpa

ny

Build

ings

an

d Lan

dW

ater

Proj

ects

and

Plan

t and

Mac

hine

ryM

otor

Veh

icles

Equi

pmen

tFu

rnitu

re an

d Fit

tings

Wor

k-in

Prog

ress

2018

20

17

Impr

ovem

ents

Sani

tatio

nsFr

eeho

ldLe

aseh

old

Free

hold

Leas

ehol

d

Rs`0

00Rs

`000

Rs`0

00Rs

`000

Rs`0

00Rs

`000

Rs`0

00Rs

`000

Rs`0

00Rs

`000

Rs`0

00

Cost

As at

1st A

pril

616,8

30

62,63

5 59

4,508

69

,177

301,2

54

33,50

0 79

,127

10,10

4 33

,978

1,80

1,11

1 1,

801,8

72

Addit

ions d

uring

the y

ear

11,89

1 -

3,

760

-

5,12

9 -

1,

997

-

5,78

7 28

,564

29

,385

Disp

osals

durin

g the

year

-

-

-

-

(9,37

7) -

-

-

-

(9

,377

) (3

0,145

)Tra

nsfer

s dur

ing th

e yea

r -

-

-

-

21

,400

(21,4

00)

-

-

(6,69

5) (6

,695

) -

Rem

oval

of Mi

llewa

Estat

e (No

te 36

) (1

1,615

) (1

,799)

(4,47

7) -

(1

0,666

) -

(1

,728)

(306

) -

(3

0,59

1) -

As at

31st

Mar

ch 61

7,106

60

,836

593,7

91

69,17

7 30

7,740

12

,100

79,39

6 9,

798

33,07

0 1,

783,

012

1,80

1,111

Accu

mul

ated

Dep

recia

tion

As at

1st A

pril

159,2

73

37,72

5 37

1,465

22

,877

257,8

56

25,06

2 66

,459

9,29

2 -

950,

008

875,0

36

Char

ge fo

r the

year

16,92

0 2,

870

33,28

6 5,

188

22,86

4 2,

380

3,91

8 21

1 -

87

,636

10

5,118

Di

spos

als du

ring t

he ye

ar -

-

-

-

(8

,672)

-

-

-

-

(8,6

72)

(30,1

45)

Trans

fers d

uring

the y

ear

-

-

-

-

20,69

5 (2

0,695

) -

-

-

-

- Re

mov

al of

Mille

wa Es

tate (

Note

36)

(4,06

0) (6

06)

(2,93

5) -

(1

0,666

) -

(1

,688)

(302

) -

(2

0,25

7) -

As at

31st

Mar

ch

172,1

33

39,98

9 40

1,816

28

,065

282,0

78

6,74

6 68

,688

9,20

1 -

1,00

8,71

5 95

0,008

Carry

ing V

alue

as at

31.0

3.20

18 44

4,97

3 20

,847

19

1,97

5 41

,112

25

,662

5,

353

10,7

08

597

33,0

70

774,

297

- Ca

rrying

Value

as at

31.03

.2017

457,5

57

24,90

9 22

3,043

46

,300

43,39

8 8,

438

12,66

9 81

2 33

,978

- 85

1,103

Th

e cos

t of f

ully d

epre

ciate

d ite

ms o

f Pro

perty

, Plan

t and

Equip

men

t whic

h are

still

in us

e as a

t 31s

t Mar

ch 20

18 ar

e as f

ollow

s.

Asse

t Cat

egor

y

2018

Rs

.

Build

ings

and

Land

Impr

ovem

ents

-

W

ater

Pro

ject

s and

Sani

tatio

ns

9,

205,

971

Plan

t and

Mac

hine

ry -

Free

hold

150,

215,

429

Mot

or Ve

hicle

s - Fr

eeho

ld

20

3,32

2,93

5

Eq

uipm

ent

49

,986

,296

Fu

rnitu

re an

d Fit

tings

8,16

3,04

8

420,

893,

679

59

Group Company

As at 31st March 2018 2017 2018 2017

Rs`000 Rs`000 Rs`000 Rs`000

14 INVESTMENT PROPERTY

CostBalance as at 1st April 125,797 125,797 - - Transferred from Property Plant & Equipment (125,797) - - -

Balance as at 31st March - 125,797 -

Accumulated DepreciationBalance as at 1st April 11,399 8,957 - - Charge for the year 2,443 2,442 - - Disposals of Subsidiary (Note 35) (13,842) -

Balance as at 31st March - 11,399 - -

Net Book ValueAs at 31st March - 114,398 - -

Rented Building

Address Land extent Building extent Value Valuer Detail

No.79, Biyagama Road 38,287 sq.feet 38,287 sq.feet Rs,136Mn. P B Kalugedara & Associates,

Talwatta, Kelaniya 12 Sriya Road, Wellawatta, Colombo 06

These investment properties represent the buildings rented out by Union Commodities Private Limited , a subsidiary of Kotagala Plantations PLC, to a third party. Union Commodities Private Limited has not incurred any expenses (including repairs and maintenance ) relating to the building classified as investment properties during the year ended 31st March 2018, The above investment property has been removed due to the disposal of Union Commodities (Pvt) Ltd.

Group Company

As at 31st March 2018 2017 2018 2017

Rs`000 Rs`000 Rs`000 Rs`000

15 INTANGIBLE ASSETSBoard Pac Software - 936 - - ERP Software - 20,336 - -

- 21,272 - -

16 BIOLOGICAL ASSETS16.1 Group/Company

31.03.2018 31.03.2017

Rs`000 Rs`000

Bearer Biological assets (Note 16.1.1) 3,495,902 3,534,277

Consumable Biological assets (Note 16.2.1) 1,016,842 877,264

Total Biological Assets - Non Current Assets 4,512,744 4,411,541

Fair value of growing produce bearer biological assets - Current Assets (Note 16.1.2) 6,932 7,024

Total Biological Assets 4,519,676 4,418,565


Mature Plantations Immature Plantations Total

Tea Rubber Oilpalm Tea Rubber Oil Palm Other

Rs`000 Rs`000 Rs`000 Rs`000 Rs`000 Rs`000 Rs`000 Rs`000

16.1.1 Bearer Biological assets

Cost

As at 31st March 2017 1,055,824 1,701,569 389,357 239,208 747,592 112,382 188,075 4,434,005

Additions/Transfer in 35,274 229,439 49,141 36,570 137,498 28,525 26,767 543,214

Transfer out - - - (35,274) (229,439) (49,141) - (313,854)

Removal of Millewa Estate (Note 36) - (111,507) - - (51,308) - (2,044) (164,859)

Reclassification - - - (1,323) - - 1,323 -

As at 31st March 2018 1,091,098 1,819,501 438,498 239,181 604,341 91,766 214,121 4,498,506

Depreciation

As at 31st March 2017 280,800 591,083 27,846 - - - - 899,729

Charge for the year 32,732 94,264 21,931 - - - 148,927

Removal of Millewa Estate (Note 36) - (46,052) - - - - - (46,052)

As at 31st March 2018 313,532 639,295 49,777 - - - - 1,002,604

Carrying Value as at 31.03.2018 777,566 1,180,206 388,721 239,181 604,341 91,766 214,121 3,495,902

Carrying Value as at 31.03.2017 775,023 1,110,485 361,511 239,208 747,592 112,382 188,075 3,534,277

a) These are investments in mature/immature plantations since the formation of the Company. The assets (including plantation assets) taken over by way of estate leases are set out in Notes 11 and 12. Further investment in Immature Plantations taken over by way of leases are shown in this note. When such plantations become mature, the additional investments since taken over to bring them to maturity are transferred from immature to mature under this note. A corresponding movement, from Immature to Mature, in respect of the investment undertaken by JEDB/SLSPC on the same plantation prior to the leases are shown under Note 12.

b) Borrowing costs amounting Rs. 19.4 million (2016/2017 - Rs. 22.7 million) on Tea, and Rs. 50.5million (2016/2017- Rs 63.1 million) on Rubber incurred on term loans and overdrafts utilised to finance replanting expenditure of tea and rubber have been capitalised. The average rate of interest for capitalisation was 13% (2016/17 -14.16%) The capitalisation will cease when crops are ready for harvest.

c) Other immature plantations includes other crops such as Cinnamon, Coconut etc. and are carried at cost less impairment.

16.1.2 Produce on bearer Biological assets

Group/Company

2018 2017

Rs ‘000 Rs ‘000

Balances as at 1st April 7,024 -

Change in fair value less cost to sell (92) 7,024

As at 31st March 6,932 7,024


61

Group/Company

As at 31st March 2018 2017

Rs`000 Rs`000

16.2.1 Consumable Biological assets

As at 1st April 877,264 829,913

Fair value gain for the year 139,578 47,351

As at 31st March 1,016,842 877,264

Managed trees include commercial timber plantations cultivated on estates. The cost of immature trees upto 5 years from planting are treated as approximate fair value

particularly on the grounds of little biological transformation has taken place and impact of the biological transformation on price is not material. When such plantations become mature, the additional investments since taken over to bring them to maturity are transferred from immature to mature.

The fair value of managed trees was valued by Mr.Fathihu A A M(FIV), Incorporated Valuer by using folloing assumptions.

Key assumptions used in valuation are as follows,

Timber Content Estimated based on the girth,height and considering the growth and present age of the trees of each species in different geographical regions, factoring all the prevailing statutory regulations enforced against harvesting of timber coupled with forestry plan of the Company approved by the Forestry Department.

Economic Useful Life Estimated based on normal life span of each species by factoring the forestry plan of the Company approved by the Forestry Department.

Selling Price Estimated based on prevailling Sri Lankan market prices factoring all the conditions to be fulfilled in bring-ing the trees in to saleable condition

Discount rate Future cash flows are discounted at the rates of 14% , 15% & 16% (2016/17- 16.3%)

The board of directors of the company are of the view that, as per the forestry management plan of the company, the maximum number of 220 trees per hectare is expected at the time of harvest. Thereby the maximum trees per hectare taken into the timber valuation is 220 trees or actual number of trees available, whichever is lower.

16.2.2 Measurement of Fair value

The future cash flows are determined by reference to current timber prices

a) The fair value measurement for the consumable biological assets has been categorized as level 3 fair value based on inputs to the valuations used. Breakdown of the total gains recognized in respect of level 3fair values of consumable biologicl assets namely, managed timber plantation, are given below.

Group/Company


Rs`000 Rs`000

Change in fair value of consumable biological assets (Note 16.2.1) 139,578 47,351

Change in fair value of growing produce of bearer biological asset (Note 16.1.2) (92) 7,024

Total Gain for the year 139,486 54,375


b) Valuation techniques and significant unobservable inputs

Following table shows the valuation techniques in measuring Level 3 fair value of consumable biological assets as well as the significant unobservable inputs used.

Type Valuation technique used Significant Unobservable Inputs Inter-relationship between key unobservable inputs and fair value measurement

Mature timber Discounted cash flows Determination of Timber Content

Mature timber older than 5 years The valuation model considerspresent value of futue net cashflowsexpected to be generated by theplantation from the timber contentof managed timber plantation on atree-pe tree basis

Species planted in separate blocks as at the reporting date have been identified by a qualified forestry officer of the company and the timber content has been estimated based on the age and current cubic content.

The estimated fair value at the time of harvesting each specific species is sensitive to the following variables,,

- The estimated timber content

- The estimated timber prices per cubic meter

- the estimated selling related costs

- The estimated maturity age

- the risk adjusted discount rate

Determination of Price of Timber

Expected cashflows are discountedusing a high risk adjusted rates of ; 14% - Trees age to harvest- 5 years or below 15% - Trees age to harvest- 6 -15 years 16% - Trees age to harvest- 15 years or abovecomprising a risk free rate of of 11%

Trees have been valued as per the current timber prices per cubic meter which is the recent selling price of a cubic meter of the specific species.

16.2.3 Sensitivity Analysis

Sensitivity Variation on Sales Price and Discount Rate

The future cashflows are determined by reference to current timber prices

Increase/(Decrease) in the Discount Rate

Increase/(Decrease) in the Selling Price of Specific Species

Sensitivity effect on the Loss for the Year

Rs.000

Sensitivity effect on the Carrying Value of Biological Assets

Rs.000

1% - (59,757) (59,757)-1% - 65,266 65,266

- 10% 101,848 101,848 - -10% (101,848) (101,848)


63

Group CompanyAs at 31st March 2018 2017 2018 2017

Rs`000 Rs`000 Rs`000 Rs`000

17 INVESTMENTS17.1 Investments in Subsidiaries Holding %

Union Commodities (Private) Limited 100% -2016/17 - - - 1,575,001 Consolidated Rubber Plantations (PTE) Ltd 100% - - 115 115 Cambodia Rubber Plantation Industries (PTE) Ltd 100% - - 115 115 Lanka Agro Plantations (PTE) Ltd 100% - - 115 115 Rubber & Allied Products (Colombo) Ltd 100% - - 60 60

- - 405 1,575,406 Less- Provision for impairment of Union Commodities ( Note 17.1.1) - (303,119)

- - 405 1,272,287

17.1.1 Provision for impairment of Union Commodities (Private ) LimitedBalance as at 1st April - - (303,119) (234,947)Charge for the year - - - (68,172)Write off from disposal - - 303,119 - Balance as at 31st March - - - (303,119)

Name of the Company Nature of Business Location Ownership Percentage

Carrying ValueRs’000

Rubber & Allied Products (Colombo) Ltd Manufacturing Centrifuged Latex Colombo/Horana 100% 60

Consolidated Rubber Plantations PTE Ltd Cultivation of Rubber Cambodia 100% 115

Cambodia Rubber Plantation Industries PTE Ltd Cultivation of Rubber Cambodia 100% 115

Lanka Agro Plantations PTE Ltd Cultivation of Rubber Cambodia 100% 115

Total 405

17.1.2 Summarised financial information for Subsidiary Companies of the Group

Rubber & Consolidated Cambodia Lanka Allied Rubber Rubber Agro

Rs`000 Rs`000 Rs`000 Rs`000

Summary of the Statement of Comprehensive Income of Subsidiary Companies Revenue 82,398 - - - Profit /(Loss) after tax (5,370) (323) (430) (9,176)

Other comprehensive Income - 51 378 2,212 Total Comprehensive Income /(Expense) (5,370) (272) (52) (6,964)

Total Comprehensive Income

Attributable to Non Controlling interests - - - - Attributable to Equity holders of the group (5,370) (272) (52) (6,964)


Rubber & Consolidated Cambodia Lanka Allied Rubber Rubber Agro

Rs`000 Rs`000 Rs`000 Rs`000

Summary of the Statement of financial position of Subsiadiary Companies Non-Current Assets 748 - - - Current Assets 13,377 488,034 99,603 167,880 Total Assets 14,125 488,034 99,603 167,880 Non-Current Liabilities 1,040 - - - Current Liabilities 35,896 482,245 83,400 167,725 Total Liabilities 36,936 482,245 83,400 167,725 Net Assets - Attributable to Non-Controlling Interests - - - - - Attributable to the Group (22,811) 5,789 16,203 155

Summary of the Statement of Cash Flows of Subsidiary Companies Net Cash inflow/(outflow) from Operating Activities 731 (670) 64 (64,708) Net Cash inflow/(outflow) from Investing Activities (64) - - - Net Cash inflow/(outflow) from Financing Activities - - - 64,853 Net increase/(decrease) of cash and cash equivalents 667 (670) 64 145

Group CompanyAs at 31st March Holding % 2018 2017 2018 2017

Rs`000 Rs`000 Rs`000 Rs`000

17.2 Investments in AssociatesUnion Commodities (Private) Limited (Note 17.2.1) 15% 182,100 - 182,100 - 4,500,000 Ordinary Shares in York Hotels (Kandy) Ltd (Note 17.2.2) 31.15% 89,790 66,086 94,753 94,753

271,890 66,086 276,853 94,753

17.2.1 Investment in Union commodities Pvt LtdBalance as at beginning of the year - - - - Transfer to Investment in associate during the year 182,100 - 236,250 Impairment - - (54,150) - Balance at the end of the year 182,100 - 182,100 -

17.2.2 Investments in York Hotels (Kandy) LimitedBalance as at beginning of the year 66,086 64,105 94,753 94,753 Share of Profit/ (loss) for the year 2,043 1,981 - - Share of NA due to change in holding percentage 21,661 Balance at the end of the year 89,790 66,086 94,753 94,753

Name of the Company Nature of Business Location Ownership Percentage

Carrying ValueRs’000

Union Commodities (Private) Limited Tea Exports Kelaniya 15% 182,100

York Hotels (Kandy) Limited Hospitality Kandy 31.15% 89,790


65

17.2.2 Summarizd financial information of Associate Company

Union Commodities

(Private) Limited

York Hotels (Kandy)

Limited

Summary of the statement of Profit or Loss and Comprehensive Income of the Associate CompanyPercentage Ownership interest 15% 31.15%Revenue (100%) 4,267,785 11,498 Profit After Tax (100%) (151,800) 4,900 Other Comprehensive Income (100%) (39,238) - Total Comprehensive Income (100%) (191,038) 4,900 Group's share of profit and total comprehensive income - 2,043

Non Current Assets 1,415,278 157,144 Current Assets 2,759,160 145,175 Non Current Liabilities (270,080) - Current Liabilities (2,935,324) (14,204)Net assets (100%) 969,034 288,115 Group’s share of Net Assets 145,355 89,790 Goodwill 36,745 - Carrying Amount of Interest in Associate 182,100 89,790


Rs`000 Rs`000 Rs`000 Rs`000

17.3 Investments classified as available for saleInvestments in quoted securities (Note 17.3.1) - 48,171 - 2,857 Investments in unquoted securities (Note 17.3.2) 196,200 133,316 196,200 133,316 Investments in Unit Trusts (Note 17.3.3) 162,708 152,171 162,708 152,171

358,908 333,658 358,908 288,344

Group CompanyAs at 31st March No. of Shares 2018 2017 2018 2017

Rs`000 Rs`000 Rs`000 Rs`000

17.3.1 Investments in Quoted SecuritiesBeruwala Resorts PLC Nil (2017 - 2,835,196) - 2,857 - 2,857 Renuka City Hotel PLC Nil (2017 - 75) - 22 - - Central Finance PLC Nil (2017 - 96,100) - 8,284 - - Singer Sri Lanka PLC Nil (2017 - 30) - 4 - - Chemanex PLC Nil (2017 - 35,017) - 1,926 - -

Access Engineering PLC Nil (2017 - 74,700) - 1,778 - - Tokyo Cement PLC Nil (2017 - 545,907) - 33,300 - -

- 48,171 - 2,857


Group CompanyAs at 31st March Number of

Shares 2018 2017 2018 2017

Rs`000 Rs`000 Rs`000 Rs`000

17.3.2 Investments in Unquoted SecuritiesAgarapatana Plantations Limited 20,000,000 196,200 133,316 196,200 133,316

196,200 133,316 196,200 133,316

17.3.3 Investment in Unit trustsNSB 0 /A Cey Bank Savings Plus Money Market Fund 152,171 138,708 152,171 138,708 Change in fair value of Invesment in Unit Trusts 10,537 13,463 10,537 13,463

162,708 152,171 162,708 152,171


Rs`000 Rs`000 Rs`000 Rs`000

18 INVENTORIESInput Materials 4,892 90,732 4,892 18,086 Growing Crop Nurseries 10,700 17,672 10,700 17,672 Produce Stock (Tea and Rubber) 318,995 949,307 317,479 238,974 Spares and Consumables 58,159 33,724 57,749 11,190

392,746 1,091,435 390,820 285,922


Rs`000 Rs`000 Rs`000 Rs`000

19 TRADE & OTHER RECEIVABLESTrade Receivables 74,408 599,916 65,375 65,921 Advances, Deposits, Prepayments & Other Receivables (Note 19.1) 760,539 624,473 273,553 157,066 Employee Advances (Note 19.2) 50,051 34,094 50,051 33,965

884,998 1,258,483 388,979 256,952 Less : Provision for Bad and doubtful Receivables - (20,093) - -

884,998 1,238,390 388,979 256,952

19.1 Advances, Deposits, Prepayments & Other Receivables consists of receivable from Urban Development Authority (UDA) related to Millewa Estate amounting to Rs. 134,902,000. (Refer note 36 for the detailed disclosure)

19.2 No Advance over Rs. 20,000/- have been granted to employees and workers of the Company.


67

Group CompanyAs at 31st March Relationship 2018 2017 2018 2017

Rs`000 Rs`000 Rs`000 Rs`000

20 AMOUNTS DUE FROM RELATED PARTIESLankem Tea & Rubber Plantations (Private) Limited Affiliate 96,062 79,506 95,621 79,506 Agarapatana Plantations Ltd Affiliate 146,559 29,260 146,559 - C W Mackie PLC Affiliate - 53,702 - - E B Creasy & Co. PLC Affiliate - 5 - - Sherwood Holidays Limited Affiliate 8,869 9,199 8,869 9,199 Galle Fort Hotel (Pvt) Ltd Affiliate - 49 - - Lankem Ceylon PLC Affiliate - 18,788 - - Horton Plains Resort & Spa Limited Affiliate 107 107 107 107 Consolidated Plantations Pte Ltd Affiliate 378 378 378 378 Beruwala Resorts PLC Affiliate - 21 - - Club Palm Bay Affiliate - 35 - - Thotalagala Holiday Bunglow Affiliate - 10 - - Rubber and Allied Products (Colombo) Ltd Subsidiary - - 30,733 23,383 Lankem Export Pvt Ltd Affiliate - 28,441 - - Consolidated Rubber Plantations Pte Limited Subsidiary - - 481,796 585,088 Far Eastern Extports ( Colombo ) Ltd Affiliate 192 179 192 179 Lanka Agro Plantations Pte Ltd Subsidiary - - 441 394 Less - Provision for impairment for Consolidated Rubber Plantations Pte Limited - - (78,186) (78,186)

252,167 219,680 686,510 620,048

As at 31st March 2018 2017 2018 2017 Rs`000 Rs`000 Rs`000 Rs`000

21 CASH AND CASH EQUIVALENTSCash at Bank and Cash in Hand 130,319 469,182 109,966 237,384Bank Overdraft (Note 21.1) (510,940) (475,294) (510,940) (465,162)Cash and cash equivalents for the purpose of the Cash Flow Statement (380,621) (6,112) (400,974) (227,778)

21.1 Bank Overdraft

Bank : Seylan Bank PLC

Purpose : To finance working capital requirements.

Facility : Rs. 130,000,000/-

Securities Pledged : Primary mortgage over leasehold rights of the estate lands and buildings, fixed and floating assets of Yuilliefield and Chrystlers Farm Estates.

Primary mortgage over leasehold rights of the estate lands and buildings on Sorana Estates.

Bank : Standard Chartered Bank

Purpose : To finance working capital requirements.

Facility : Rs. 250,000,000/-

Securities Pledged : Primary mortgage over leasehold rights of the estate lands and buildings, fixed and floating assets of Hedigalle and Eduragala Estates.


As at 31st March 2018 2017 Rs. Rs.

22 STATED CAPITALOrdinary Shares at the beginning of the year 680,000,000 680,000,000 Rights Issue of Shares during the year 101,500,000 - One Golden Share (Note 22.1) 10 10 As at the year end 781,500,010 680,000,010

As at 31st March No. of Shares No. of Shares 2018 2017

Ordinary Shares at the beginning of the year 40,000,000 40,000,000 Rights Issue of Shares during the year 10,150,000 -

50,150,000 40,000,000

Subdivision of 50,150,000 Ordinary Shares during the year on the basis of every two shares being subdivided into three shares 75,225,000 - Total no. of Ordinary Shares as at 31st March 75,225,000 40,000,000 Golden Share as at the end of the year 1 1

The Company made a Rights Issue of 80,000,000 Ordinary Shares at a price of Rs. 10/- per share to the holders of the issued Ordinary Shares of the Company as at the end of trading on the 15th November 2017 in the proportion of Two (02) new Ordinary Shares for every One (1) Ordinary Share held by them in the Capital of the Company. The issue closed on 7th December 2017. The total number of Shares subscribed for on the Rights Issue was 10,150,000 and the total consideration received was Rs. 101,500,000/-. The purpose of the Rights Issue was to raise funds to settle Outstanding Statutory Liabilities and to meet Working Capital requirements.

Consequent to the Rights Issue which was concluded on 22nd December 2017, the Stated Capital of the Company was Rs. 781,500,010/- represented by 50,150,000 Ordinary Shares and One Golden Share. Accordingly without actuating any increase to the Stated Capital of the Company, such subdivision was effective from 9th January 2018 by subdividing every Two (2) existing issued Ordinary shares into Three (03) Issued Ordinary Shares consequent to which the Stated Capital of the Company is represented by 75,225,000 issued and fully paid Ordinary Shares and One Golden Share.

22.1 GOLDEN SHAREHOLDER

The total amount received by the Company in respect of issue of shares are referred to as Stated Capital. The Golden share is currently held by Secretary to the Treasury and should be owned either directly by the Government of Sri Lanka or by a 100% Government owned public Company. In addition to the rights of the normal ordinary shareholders, in terms of the Articles of the Company, following special rights are vested with the Golden Shareholder.

a) The Company shall obtain the written consent of the Golden Shareholder prior to sub-leasing, ceding or assigning its rights in part or all of the lands leased to the Company by the JEDB/SLSPC.

b) The Golden Shareholder shall be entitled to call upon the Board of Directors once in three months to meet him or his nominee to discuss matters of the Company of interest to the estate.

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

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

e) The Company shall submit to the Golden Shareholder, within 90 days of the end of each fiscal year, information related to the company in a pre-specified format agreed to by the Golden Shareholder and the Company


69

Group/ Company

As at 31st March ADB-PRP PDSP PHDT Others 2018 2017

Rs`000 Rs`000 Rs`000 Rs`000 Rs`000 Rs`000

23 DEFERRED INCOME

As at 31st March 33,664 161,259 10,847 129,261 335,031 331,488

Received during the year - - 546 9,268 9,814 13,422

Amortisation for the year (986) (5,804) (1,032) (3,210) (11,031) (9,879)

As at 31st March 32,678 155,455 10,362 135,320 333,814 335,031

(i) Asian Development Bank - Plantation Reform Project (ADB - PRP) The funds received are utilised for construction of Staff Quarters, Water Projects, Latrines, Farm Roads and purchase of Forestry Equipment.

(ii) Plantation Development Support Programme (PDSP) The funds received are utilised for construction of Dispensaries, Staff Quarters, Water Projects and upgrading Creches.

(iii) Plantation Human Development Trust (PHDT) The funds received are utilised for construction of Worker Housing, Water Projects and purchase of Ambulance.

(iv) Others

a) Ministry of Livestock Development and Estate Infrastructure The funds received are utilised for construction of Community Centers, Agency Post Offices and Upgrading Farm Roads and Creches.

b) Sri Lanka Tea Board Funds received are utilised for the construction of the CTC Tea Factory at Mount Vernon Estate.

The amounts spent are capitalised under the relevant classification of Property Plant & Equipment and the corresponding grant component is reflected under deferred grants and subsidies and amortised over useful life span of the asset.


Group CompanyAs at 31st March Note 2018 2017 2018 2017

Rs`000 Rs`000 Rs`000 Rs`000

24 INTEREST BEARING BORROWINGS24.1 Payable after one year

Debentures 24.3 750,000 1,000,000 750,000 1,000,000 Term Loans 24.4 815,428 1,126,984 815,428 1,126,984 Finance Leases 24.5 17,464 38,255 17,464 38,255

1,582,892 2,165,239 1,582,892 2,165,239

24.2 Payable within one yearDebentures 24.3 250,000 - 250,000 - Term Loans 24.4 553,159 2,604,447 553,159 772,087 Finance Leases 24.5 16,830 19,238 16,830 19,238

819,989 2,623,685 819,989 791,325 Total 2,402,881 4,788,924 2,402,881 2,956,564

24.3 Rated Secured Redeemable Listed Debentures

Debentures

Debenture Type

Year of Issue Year of Redemption

Colombo Stock

Exchange Listing

Issued Value Interest Payable Frequency

Interest Rate %

Bond rate of comparable Government

security %

Outstanding Balance as at 31st March

2018 2017

Rs. 000’ Rs. 000’

A 2014 2018 Listed Rs.250Mn Bi- Annually 14.25 11.41 250,000 250,000

B 2014 2019 Listed Rs.250Mn Bi- Annually 14.50 12.02 250,000 250,000

C 2014 2020 Listed Rs.250Mn Bi- Annually 14.75 12.12 250,000 250,000

D 2014 2021 Listed Rs.250Mn Bi- Annually 15.00 12.57 250,000 250,000

1,000,000 1,000,000

24.3.1 Trading at Colombo Stock Exchange

Debenture Type Highest Value (Rs.) Lowest Value (Rs.) Last Traded Value (Rs.)

A Not Traded Not Traded Not Traded

B Not Traded Not Traded Not Traded

C Not Traded Not Traded Not Traded

D Not Traded Not Traded Not Traded


71

24.4

Gr

oup /

Com

pany

NDB

Samp

ath

Bank

Peop

les

Leas

ing PL

CPe

oples

Ba

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ndard

Ch

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Loan

HNB

State

Mortg

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bank

F & W

JKH

Colom

bo

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Cey B

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Comm

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Pa

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Total

31

.03.20

18

Total

31

.03.20

17

Rs`0

00

Rs`0

00

Rs`0

00

Rs`0

00

Rs`0

00

Rs`0

00 Rs

`000

Rs

`000

Rs

`000

Rs`0

00 Rs

`000

Rs

`000

Rs

`000

Rs

`000

Paya

ble w

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one y

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148,8

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2 1,

832

58,59

3 92

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68,65

8 10

5,000

13

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60,00

0 64

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2,04

2 15

0,035

77

2,08

7 80

9,181

Paya

ble af

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5,046

3,

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1,17

6 23

6,915

15

0,100

-

446,6

73

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53,94

7 1,

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6,98

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At th

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3,853

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8 29

5,508

24

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68

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551,6

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31,93

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8,547

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1,89

9,06

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-

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43,41

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566,

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-

-

-

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-

-

31

1,500

Exch

ange

loss

3,38

3 -

-

-

-

-

2,

802

-

-

-

-

-

6,18

5 38

,071

Less:

Repa

ymen

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uring

the y

ear

(151

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(6,11

6) (1

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(25,8

25)

(78,4

59)

(45,1

60)

(554

,475)

(9,37

8) (1

10,00

0) (1

18,54

7) (1

,978)

(1,1

02,7

48)

(741

,354)

At th

e end

of th

e yea

r 16

5,721

50

3,892

1,

713

269,6

83

164,1

41

66,91

4 -

22

,554

-

-

1,26

9 17

2,700

1,

368,

587

1,89

9,069

Less:

Paya

ble w

ithin

one y

ear

(54,7

32)

(24,7

42)

(1,71

3) (9

9,200

) (1

64,14

1) (2

9,281

) -

(5,38

0) (1

,269)

(172

,700)

(553

,159

) (7

72,08

7)

Paya

ble af

ter o

ne ye

ar 11

0,989

47

9,150

-

170,4

83

- 37

,633

- 17

,174

- -

- -

815,

428

1,12

6,984



24.4.1 Term Loans

Bank Amount Balance Balance Rate of Terms of Repayment Securities Pledged Obtained 31.03.2018 31.03.2017 Interest

Rs.’000 Rs.’000 Rs.’000 %

(a) NDBTerm Loan 198,000 - 26,400 AWPLR+3% Terms of repayment repayable

over 5 years from 31.12.2012 ,in equal monthly instalments of Rs.3,300,000/- and Rs.283,400 respectively. (After the re-finance is received interest rate would be 15.58%)

Secondary mortgage over lease hold rights of Stonycliff, Vogan, Gikiyanakanda and Dalkeith Estates and all immovable properties of these estates.

Term Loan 17,000 2,263 AWPLR+3%

Term Loan 500,000 92,843 123,016 AWPLR+4.75% Payable over 96 instalments Primary mortgage over lease hold rights of building and machinery of Millewa estate. Secondary mortgage on leased hold rights of Stonycliff, Vogan, Gikiyanakanda and Dalkeith Estates and all immovable properties of these estates.

Term Loan 204,470 72,878 156,387 LIBOR+8% Repayable over 89 instalments of (USD 41,110) and one instalment of USD 41,210 from 7th month after the disbusement.

Packing credit loan

150,000 - 5,787 5.5% Payable within 3 months and rolled over

Primary mortgage bond over stocks and books debt for Rs.200,000,000

Total 1,069,470 165,721 313,853

(b) Sampath BankTerm Loan 50,000 3,892 10,008 15.00 In 95 equal monthly instalments

of Rs. 521,000/- and a final instalment of Rs. 505,000/- (capital) together with interest after a grace period of 48 months commencing from the date of 1st disbursement. (the interest will be recovered on a monthly basis during the grace period also)

Loan Agreement for Rs. 50,000,000/-

Primary Mortgage Bond for Rs.50,000,000/- over leasehold rights of Arapolakande rubber estate at Kalutara together with factory buildings therein.

Term Loan 500,000 500,000 - AWPLR+3.5% Payable in 71 euqal monthly in-stalments of Rs.6,950,000 and final instalment of Rs.6,550,000 with a capital grace period of 12 months.

Tripartite agreement between Sampath Bank PLC , Forbes & Walker tea brokers (Pvt) Ltd for the remmittance of sales proceeds.

Total 50,000 503,892 10,008

73


Rs.’000 Rs.’000 Rs.’000 %

(c ) Peoples Leasing & Finance PLCTerm Loan 7,900 1,713 3,008 19.00 Interest and capital payable

monthly and repayment is first month installment of Rs.2,200,000 and the balance 59 monthly instalments at Rs.152,649/- each

Total 7,900 1,713 3,008

(d) Peoples BankTerm Loan 100,000 182,100 186,200 AWPLR+3% Repayable within 60

instalments of Rs.3,157,777/- each.

Immovable properties and lease hold right of Mount Vernon and Mayfield estate.

Term Loan 300,000 87,583 109,308 AWPLR+3% Repayable within 60 instalments of Rs.1,725,000/- each.

Securitized tea sales Mayfield estate

Total 400,000 269,683 295,508

(e) Hatton National BankTerm Loan 889,000 - 551,673 LIBOR+7.5% Payable in 32 equal quarterly

instalments of USD 0.175Mn. Each.

Mortgage of immovable property situated at talwatte village belonging to Union Commodities (Private) Limited

Total 889,000 - 551,673

(f) Standard Chartered BankTerm Loan 250,000 88,875 173,200 SLIBOR+3.5% Payable within 3 months and

rolled overLeasehold rights of Hedigalle and Eduragala estates

Packing credit 75,266 69,400 Total 250,000 164,141 242,600

(g) State mortgage BankTerm Loan 50,000 22,554 31,932 19% Repayment in 72 equal monthly

instalments of Rs.718,620commencing after the date ofdisbursement of the loanRepayment in 72 equal monthlyinstalments of Rs.444,960commencing after the date ofdisbursement of the loan

10 vehilces offered as security

Total 50,000 22,554 31,932

(h) Cey Bank Asset Management Limited - Commercial Paper

172,700 172,700 150,035 11.55% Repayable as per the com-mercial paper maturity date

Commercial papers

Total 172,700 172,700 150,035




Rs.’000 Rs.’000 Rs.’000 %

(i) Colombo Trust Finance PLCTerm Loan 9,156 1,269 3,247 19.00% Monthly instalments of

Rs.170,225 in first 3 months ,Rs.2,500,000/- in the fourth month & Rs.170,225/- in next 56 months.

KIA sorento Jeep bearing vehicle registration number KW-9649

Total 9,156 1,269 3,247

(j) Sri Lanka Tea BoardTerm Loan 29,572 33,164 23,658 Repayable within 10 instalments

of Rs.2,957,150/- each.

Term Loan 45,000 33,750 45,000 Repayable within 36 monthly instalments of Rs.1,250,000/- each ( six months grace period)

Total 74,572 66,914 68,658

(k) Forbes & Walker LtdTerm Loan 150,000 - 110,000 19.00% Repayable within 30 monthly


The realized and unrealized values of thestock of the teas catalogued and to becatalogued with broker.

Total 150,000 - 110,000

(l) John Keells PLCTerm Loan 161,500 - 118,547 19.00% Repayable within 30 monthly


A promissory note, continuing undertakingand guarantee executed by the borrower in favour of JKPLC whereby the borroweragrees to forward teas and sales proceeds on pre allocated marks some of which areshared with Broker to JKPLC until the payment of all monies due and owing to JKPLC.

Total 161,500 - 118,547 Grand Total 3,284,298 1,368,587 1,899,069

24.4.1 Term Loans (Contd.)

75

24.5 Finance Leases


Rs`000 Rs`000 Rs`000 Rs`000

Gross Lease Obligation 43,004 68,934 43,004 68,934 Less: Finance cost applicable for future periods (8,711) (11,441) (8,711) (11,441)Net Lease Obligation 34,293 57,493 34,293 57,493

Payable within one year (Transferred to Current Liabilities)Gross Lease Obligation 21,937 25,008 21,937 25,008 Less: Finance cost applicable for future periods (5,107) (5,770) (5,107) (5,770)Net Lease Obligation 16,830 19,238 16,830 19,238

Payable within two to five yearsGross Lease Obligation 21,067 43,926 21,067 43,926 Less: Finance cost applicable for future periods (3,603) (5,671) (3,603) (5,671)Net Lease Obligation 17,464 38,255 17,464 38,255

Total Net lease obligations 34,293 57,493 34,293 57,493

24.5.1 Finance Leases

Leasing Company and Asset Cost of the Asset

Gross Lease Obligation

Finance cost applicable for future periods

Net Lease Obligation

Amount payable within one year

Amount payable within two to

five years

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

Commercial Bank of Ceylon PLC

Colur Sorter 13,932 5,933 (925) 5,008 3,133 1,876

Hot Water Boiler 23,528 10,250 (962) 9,288 5,359 3,929

CTC Machine 26,069 16,936 (5,500) 11,436 4,186 7,250

Radiator 1,638 892 (102) 790 356 434

Drier 6,737 4,726 (853) 3,873 1,540 2,333

Prado 8,330 4,267 (368) 3,899 2,256 1,642

Total 80,234 43,004 (8,710) 34,294 16,830 17,464



Rs`000 Rs`000 Rs`000 Rs`000

25 RETIREMENT BENEFIT OBLIGATIONSBalance at the beginning of the year 681,202 719,380 661,880 693,706 Disposal of Subsidiary (Note 35) (20,957) - - - Provision made during the year (Note 25.1) 150,187 16,650 145,297 11,520

810,432 736,030 807,177 705,226 Payments made during the year (87,273) (54,828) (85,058) (43,346)Balance at the end of the year 723,159 681,202 722,119 661,880

25.1 Provision for the year consists of the followingRecognised in Profit & LossInterest cost 77,419 81,217 74,886 76,072 Current service cost 51,566 41,975 48,984 41,973 Recognised in other comprehensive incomeActuarial (Gain)/Loss 21,202 (106,542) 21,427 (106,519)Present value of obligation as at 31st March 150,187 16,650 145,297 11,520

The actuarial valuation had been carried out by M/S Actuarial & Management Consultants (Pvt) Ltd. According to the valuation the gratuity liability on employees of the Company as at 31st March 2018 is Rs.722,119,000/-

The Key assumptions used by the Actuary include the following,

1. Rate of Interest - 11%

2. Rate of Salary increase Workers - 16% in every two years For other categories of staff - 10%

3. Retirement Age Workers - 60 years For other categories of staff - 60 years

4. Daily Wage Rate - Rs.500/- for workers

5. The Company will continue in business as a going concern

The sensitivity analysis on the total comprehensive expense an financial position based on the assumed rates for salary increment and discount rate as at 31st March 2018 is given below,

Discount rate Salary escalation rate Present value of defined benefit obligation (Rs.)

Staff Workers

One percentage point increase As stated above 104,633,105 567,774,252

One percentage point decrease As stated above 122,322,782 656,802,921

As stated above One percentage point increase 121,523,900 633,868,782

As stated above One percentage point decrease 105,181,140 585,955,792


77


Rs`000 Rs`000 Rs`000 Rs`000

26 NET OBLIGATION TO LESSOR (JEDB/SLSPC ESTATES)

Gross Lease Obligation 603,582 625,752 603,582 625,752 Less: Finance cost applicable for future periods (239,887) (254,587) (239,887) (254,587)Net Lease Obligation 363,695 371,165 363,695 371,165

Payable within one year (Transferred to Current Liabilities)Gross Lease Obligation 22,170 22,170 22,170 22,170 Less: Finance cost applicable for future periods (14,547) (14,700) (14,547) (14,700)Net Lease Obligation - (Note 28) 7,623 7,470 7,623 7,470

Payable within two to five yearsGross Lease Obligation 88,680 88,680 88,680 88,680 Less: Finance cost applicable for future periods (53,670) (58,755) (53,670) (58,755)Net Lease Obligation 35,010 29,925 35,010 29,925

Payable after five yearsGross Lease Obligation 492,732 514,902 492,732 514,902 Less: Finance cost applicable for future periods (171,670) (181,132) (171,670) (181,132)Net Lease Obligation 321,062 333,770 321,062 333,770

Net lease obligations payable after one year 356,072 363,695 356,072 363,695

In terms of the amendment of leases, Rs.22.2 million is payable each year as lease rental, commencing from 22.06.1996 till the end of the lease on 21.06.2045. This amount is to be inflated annually by the Gross Domestic Product (GDP) deflater in the form of contingent rent.

The charge to the Income Statement for the current financial year on account of interest is Rs. 79.5 Mn. (2016/2017 - Rs. 72.7Mn)


Group Company

As at 31st March 2018 2017 2018 2017

Rs`000 Rs`000 Rs`000 Rs`000

27 DEFERRED TAXATION

Balance at the beginning of the year 316,887 354,436 170,927 189,082

Disposal of Subsidiary (Note 36) (145,960) - - -

Charged in the profit & loss under income tax 35,156 (59,208) 35,156 (39,806)

Charged in the other comprehensive income (3,000) 21,659 (3,000) 21,651

Balance at the end of the year 203,083 316,890 203,083 170,927

27.1 The average tax rate used to calculate deferred tax liability/asset as at March 2018 is 14% (2016/17 -20.2%)

27.2 The closing deferred tax liability arises as follows,

As at 31st march 2018 2017

Group Temporary Tax Temporary Tax

Difference Effect Difference Effect

Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Temporary differences on;

Property Plant & Equipment 485,151 67,921 1,362,393 310,733

Retirement Benefit Obligation (722,119) (101,097) (681,202) (138,894)

Tax loss carried forward (2,825,188) (395,526) (3,201,860) (656,796)

Consumable biological assets 1,016,842 142,358 877,264 87,726

Bearer Biological Assets 3,495,902 489,427 3,534,277 714,118

1,450,588 203,083 1,890,872 316,890

As at 31st march 2018 2017

Company Temporary Tax Temporary Tax

Difference Effect Difference Effect

Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Temporary differences on;

Property Plant & Equipment 485,151 67,921 485,380 98,073

Retirement Benefit Obligation (722,119) (101,097) (661,880) (133,736)

Tax loss carried forward (2,825,188) (395,526) (2,946,005) (595,255)

Consumable biological assets 1,016,842 142,358 877,264 87,726

Bearer Biological Assets 3,495,902 489,427 3,534,277 714,118

1,450,588 203,083 1,289,036 170,927


79

Group CompanyAs at 31st march 2018 2017 2018 2017

Rs`000 Rs`000 Rs`000 Rs`000

28 TRADE & OTHER PAYABLESTrade Payable 117,822 284,128 113,300 195,488 Other Payables 960,990 1,206,825 959,450 1,161,707 Payable to Employees 192,163 137,114 192,160 137,114 Payable to JEDB/SLSPC 7,623 7,470 7,623 7,470 Unclaimed Dividends 7,225 7,225 7,225 7,225

1,285,823 1,642,762 1,279,758 1,509,004

Group CompanyAs at 31st march Relationship 2018 2017 2018 2017

Rs`000 Rs`000 Rs`000 Rs`000

29 AMOUNTS DUE TO RELATED PARTIESLankem Plantation Services Limited Affiliate Co. 4,760 4,760 4,760 4,760 Sigiriya Village Hotels PLC Affiliate Co. 678 678 678 678 The Colombo Fort Land & Building PLC Ultimate Parent Co. - 13,005 - 12,914 Union Commodities (Pvt) Ltd Associate 24,732 - 24,732 278,886 Lankem Ceylon PLC Affiliate Co. 388 751 312 751 J F Packaging Pvt Ltd Affiliate Co. - 2,373 - - Darley Butler & Co. Ltd Affiliate Co. 15,670 17,063 15,670 17,063 Colombo Fort Group Services (Pvt) Ltd Affiliate Co. 4,253 3,879 4,253 3,879 Ceylon Tapes (Pvt) Ltd Affiliate Co. - 311 - - C W Mackie PLC Affiliate Co. - 10 - - Ceylon Tea Brokers PLC Affiliate Co. 174,632 107,501 174,632 107,501

225,113 150,331 225,037 426,432

30 COMMITMENTS

There were no material commitments as at the Reporting date.

31 CONTINGENT LIABILITIES

There were no material contingent liabilities outstanding as at the Reporting date which require adjustments or disclosure to the Financial Statements.

32 EVENTS OCCURRING AFTER THE REPORTING PERIOD

There were no material events which occurred after the Reporting date, which require adjustments to/or disclosures on the financial statements.



33 RELATED PARTY DISCLOSURES

The company carried out transactions in the ordinary course of business at commercial rates with the following related entities

Related Party Name of Director Details of Transaction Amount (paid)/ received

Balance as at 31 March

2018 2017 2018 2017Rs’000 Rs’000 Rs’000 Rs’000

(1) Transactions with Ultimate Parent CompanyThe Colombo Fort Land & Building PLC A Rajaratnam Office Rental (11,513) (6,977)

S D R Arudpragasam Office Expenses - (1,312)A M De S Jayaratne Settment of Office Rental and Expenses 23,705 4,248 C P R Perera Commission on renunciation of APL

rights 722 -

- (12,914)

(2) Transactions with Intermediate Parent CompanyLankem Ceylon PLC A Rajaratnam Interest Charged - (794)

S D R Arudpragasam Set off against inter company balance - 43 APL Rights Renunciation 440 -Sale of 5,870,000 shares of C W Mackie - 352,200 Settlement of NDB loans - (352,200) (312) (751)

(3) Transactions with other Related Companiesa. Lankem Tea & Rubber Plantations (Pvt) Ltd A Rajaratnam

S D R Arudpragasam Transfer from LPH 24,554 69,938 C P R Perera Advance given (3,000) (43,501)R C Peries Receipt on Advance given (21,945) -D A Ratwatte Setting-off the balance against CFLB 16,505 -D S AbeyRatnaG D V PereraM S Madugalle 95,621 79,506

b. Agarapatana Plantations Ltd A RajaratnamS D R Arudpragasam Settlement of advance 88,775 125,609 C P R Perera Advance Received (124,364) (121,983)R C Peries Sale of uni. Com share 182,148 -D S AbeyRatnaD A Ratwatte 146,559 - G D V Perera

c. Lankem Plantation Services Limited A RajaratnamS D R Arudpragasam Advances taken - 7 R C Peries (4,760) (4,760)

d. Sherwood Holidays Limited A RajaratnamS D R Arudpragasam Advances taken (330) - D A RatwatteG D V Perera 8,869 9,199

e. Ceylon Tea Brokers PLC C P R Perera Interest Charged (32,487) -Loan Granted (182,000) (100,000)Advance taken (896,795) -Settlemet of loan - 60,509 Sale of Tea 862,155 625,725 Tea Sales Proceeds (826,447) (625,487)

(174,632) (107,501)

81

Related Party Name of Director Details of Transaction Amount (paid)/ received

Balance as at 31 March

2018 2017 2018 2017Rs’000 Rs’000 Rs’000 Rs’000

f. Rubber & Allied Products(Colombo)Ltd R C Peries Sale of Rubber 29,387 67,126 S D R Arudpragasam Rubber Sale Proceed (23,123) (70,957)

Advance Given 1,086 1,027 30,733 23,383

g. Far Eastern Exports (Colombo) Ltd A Rajaratnam Advance given 13 37 S D R ArudpragasamR C PeriesG D V Perera

192 179

h. Horton Plains Resort & Spa Ltd Company Registration Fee - 7 107 107

i. Consolidated Plantations Pte Ltd S D R Arudpragasam No transactions during the year - - D S AbeyRatna

378 378

j. Darley Butler & Co Ltd A Rajaratnam APL Rights Renunciation 1,393 - S D R ArudpragasamA M De S Jayaratne

(15,670) (17,063)

k. Union Commodities(Pvt)Ltd S D R Arudpragasam Loans Obtained (576,019) (169,640)G D V Perera Settlement of loans 910,024 21,468

Interest charged on loans (83,707) (23,416)sale of tea 1,299 3,001 Commission on renunciation of APL rights

2,556 - (24,732) (278,886)

l. Colombo Fort Group Services (Pvt) Ltd S D R Arudpragasam IT Consultancy Fee (374) (3,879) (4,253) (3,879)

m. Sigiriya Village Hotels PLC A Rajaratnam No transactions during the year - - S D R ArudpragasamC P R Perera (678) (678)

n. Consolidated Rubber Plantations Pte Ltd R C Peries Advances received (103,292) (451,689)Exchange Gain - 55,395Advances given - 316 481,796 585,088

o. Lanka Agro Plantations Ltd R C Peries Advances given 47 67 441 394D S AbeyRatna

Mr. A. Rajaratnam resigned from the Boards of Sherwood Holidays Ltd and Far Eastern Exports (Colombo) Ltd with effect from 15th May, 2018 and Darley Butler & Co. Ltd with effect from 31st May 2018.



(4) Non recurrent Related Party Transactions

Name of the Related Party

Relationship Value of the related partytransaction entered intoduring the financial year (Rs.)

Value of the related partytransaction as a % of equityand as a % of Total Assets

Terms and conditions of the related party transaction

The rationale for entering into the transaction

Agarapatana Plantations Ltd

Related Party 160,000,000 2% of total assets10% of total equity

Short term interest bearing loan grantedas a bridging facility

Funding related party by way of a short term loan

Agarapatana Plantations Ltd

Related Party 182,148,000 2% of total assets10% of total equity

Disposal of 15% equity stake comprising of 1,200,000 Ordinary Shares in wholly owned Subsidiary Union Commodities (Pvt) Ltd to Related Party Agarapatana Plantations Ltd.

To facilitate the financialrestructuring process of the Company

Consolidated Tea Plantations Ltd

Parent 850,024,000 11% of total assets50% of total equity

Disposal of 70% equity stake comprising5,600,000 ordinary shares in wholly ownedsubsidiary Union Commodities (Pvt) Ltdto the Parent Company

To facilitate the financialrestructuring process of the Company

Union Commodities (Pvt) Ltd(UNICOM)

Subsidiary(at the time of transaction)

507,577,368 7% of total assets30% of total equity

Loan of USD 3,317,499 due to Hatton National Bank PLC settled by Union Commodities (Pvt) Ltd

The debt was transferred to UNICOM as the income isgenerated in USD terms and UNICOM is in a better position to repay the loan. KPPLC’s USD income is solely from the export of rubberand this was becoming insufficientto repay the loan due to the poor rubber prices.

(5) Transactions with Key Management Personnel

The Key management personnel includes members of the Board of Directors

GroupAs at 31st march 2018 2017

Rs`000 Rs`000

Short term employee benefits 8,800 8,400

There were no other related party transactions and balances other than those disclosed in notes 5,6,13,16,25 and 29 to the Financial Statements

83

34 REIMBURSEMENT OF EXPENSES

An agreement was made and entered into at Cambodia on the 9th day of May 2014 between Lanka Agro Plantations PTE LTD and BNA (CAM) CORP, which specifies that all expenses incurred by Lanka Agro Plantations PTE LTD should be reimbursed by BNA (CAM) CORP commencing from the 1st day March 2014, This reimbursement receivable has been recorded during the year ended 31st March 2018 and made to reflected in equity.

35 On 29th March 2018 Kotagala Plantations PLC disposed its subsidiary Union Commodities (Private) Limited, effectively selling 85% of its equity stake comprising 6,800,000 shares.

Assets Rs`000

Property, plant and equipment 1,189,541 Intangible assets 20,355 Investment property 111,954 Investment in subsidiaries - Available for sale investments 90,500 Deferred tax asset 2,928

1,415,278

Inventories 837,580 Trade and other receivables 800,050 Amounts due from related companies 1,025,013 Tax Receivable 63,646 Cash and cash equivalents 32,871

Total Assets 4,174,438

Liabilities Rs`000

Deferred tax liabilities 143,315 Retirement benefit obligation 20,957 Long term loan 105,808

270,080

Long term loan 656,632 Trade and other payables 130,747 Import Loans 2,086,763 Amounts due to related companies 4,733 Provision for taxation 17,124 Bank overdraft 39,325

Total Liabilities 3,205,404

Total Identifiable Net Assets 968,146

Profit/Loss on Disposal of SubsidiaryNet Assets of the Subsidiary 968,146 Non Controlling Interest 182,100 Value of the Investment 1,335,291 Profit/Loss on disposal of Subsidiary 246,126

36 Millewa estate was acquired by the Urban Development Authority of Sri Lanka on the 26th of October 2017 seizing the existing lease terms in the agreement with the company. All assets pertaining to Millewa estate were removed from the financial statements of the company at their carrying value as at 26th October 2017, since the company no longer has control of the said estate and assets. The company intends to lodge a compensation claim to the Urban Development Authority of Sri Lanka and the Board of Directors are confident that the claim will be not less than the value of the assets. Therefore those assets have been classified as an other receivable balance due from Urban Development Authority of Sri Lanka. The liabilities pertaining to Millewa estate as at 26th of October 2017 have been retained within the financial statements of the company, since the company has an obligation that may arise during the course of business operations.


36 Contd.

Following assets are classified as receivable from the Urban Development Authority of Sri Lanka

Description Rs`000

Property Plant and equipment 10,334 Leasehold Right to Bare Land 5,713 Immovable leased assets 48 Bearer Biological assets 118,807

Total 134,902

37 DISCONTINUED OPERATIONS

The comparative consolidated statement of profit or loss and Other Comprehensive Income has been restated to show the discontinued operation from continuing operation.

In March 2018, the Group partially sold its Export tea segment (see Note 5). Management committed to a plan to sell this segment early in 2018, following a strategic decision to place greater focus on the Group’s key competencies

The export segment was not previously classified as held-for-sale or as a discontinued operation. The comparative consolidated statement of profit or loss and OCI has been restated to show the discontinued operation separately from continuing operations.

To achieve this presentation, management has eliminated from the results of the discontinued operation the inter-segment sales (and costs thereof, less unrealized profits) made prior to its disposal. Because purchases from the discontinued operation will continue subsequent to the disposal, inter-segment purchases made by the continuing operations prior to the disposal are retained in continuing operations.

Union Commodities (Pvt) Ltd

For the year ended 31st March 2018 2017

Rs. 000 Rs. 000

37.1 Profit/(loss) after tax from discontinued operations

Revenue 4,267,785 4,151,844

Cost of sales (4,068,320) (3,902,517)

Gross profit/loss 199,465 249,326

Other income 12,480 39,515

Administrative expenses (309,334) (273,099)

Net Finance Cost (191,423) (85,037)

Loss before tax from discontinued operations (288,812) (69,295)

Taxation 53,306 8,471

Loss for the year from discontinued operations (235,506) (60,824)

Available for sale financial assets - Net change in fair value 26,275 11,563

Tax effect on land revaluation gain (65,690) -

Actuarial Gain/(Loss) on defined benefit obligation 225 23

Tax effect on actuarial gain/(loss) on defined benefit obligation (48) (8)

Other comprehensive income/(expense) for the year (39,238) 11,578

Total comprehensive expense for the year (191,039) (47,949)

Basic loss per share (18.98) (7.44)


85

Union Commodities (Pvt) Ltd

For the year ended 31st March 2018 2017

Rs. 000 Rs. 000

37.2 Cash flow from/(used in) discontinued operations

Net cash flows generated from/(used in) operating activities (1,008,225) (128,836)

Net cash from/(used in) investing activities (30,987) (175,629)

Net cash flows from/(used in) financing activities 971,876 339,276

Net increase/(decrease) in cash and cash equivalents (67,336) 34,810

38 FINANCIAL RISK MANAGEMENT

(i) Overview

The Company has exposure to the following risks from its use of financial instruments:

• Credit risk

• Liquidity risk

• Market risk

• Operational risk

This note presents information about the Group’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risks, and the Group’s management of capital.

(ii) Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. The groups audit committee oversees how management monitors compliance with the groups risk management policies and procedures , and reviews and adequacy of the risk management in framework in relation to the risks faced the Group. The Groups audit committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

(iii) Credit Risk

Credit risk is the risk of financial loss to the Group if a customer fails to meet its contractual obligations, and this principally arises from the Group’s receivables from customers.

Exposure to Credit Risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows;

Group Company

Carrying Amount Carrying Amount

As at 31st March, 2018 2017 2018 2017

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

Trade and other receivables 74,408 599,916 65,375 65,921

Advances ,deposits , prepayments and other receivbles 760,540 624,473 273,553 157,066

Employee advances 50,051 34,094 50,051 33,965

Amount due from related group 252,167 219,680 764,696 698,234

Balances with banks 130,319 469,182 109,966 237,384

1,267,485 1,947,345 1,263,641 1,192,570



(a) Trade and Other Receivables

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Groups main sales are done through done through the brokers and export transactions are done with the involvement of bank and therefore the default risk is insignificant

Impairment losses

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of Trade and Other Receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.

The aging of Loans and Receivables at the reporting date was as follows;

Group

As at 31st March, 2018 2017

Gross Balance Impairment Gross Balance Impairment

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

Past due 0-30 days 130,319 - 469,182 -

Past due 31-365 days 1,137,166 - 1,450,260 -

More than one year - - 27,903 (20,092)

1,267,485 - 1,947,345 (20,092)

Company

As at 31st March, 2018 2017

Gross Balance Impairment Gross Balance Impairment

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

Past due 0-30 days 109,966 - 237,384 -

Past due 31-365 days 671,879 - 370,098 -

More than one year 481,796 (78,186) 585,088 (78,186)

1,263,641 (78,186) 1,192,570 (78,186)

The maximum exposure to credit risk for Trade and Other Receivables as at the reporting date by geographic segments was as follow.

Group Company

As at 31st March, Carrying Amount as at Carrying Amount as at

2018 2017 2018 2017

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

Domestic 663,006 1,165,357 1,171,526 943,035

US $ 604,138 761,325 13,588 170,775

Euro 341 571 341 571

1,267,485 1,927,253 1,185,455 1,114,381

Cash and Cash Equivalents

The Group held cash and cash equivalents of Rs.130,318,000/- as at 31st March 2018.(Rs.462,182,000/- as at 31st March 2017)

87

(iv) Liquidity Risk

Liquidity risk is the risk that the Group and the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s and Company’s approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, without incurring unacceptable losses or risking damage to the Group’s reputation.

The following are the contractual maturities of financial liabilities.

Group Company

Carrying 0-12 More than Carrying 0-12 More than

As at 31st March 2018 Amount Months 1 year Amount Months 1 year

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

Financial Liabilities (Non- Derivative)

Debenture 1,000,000 250,000 750,000 1,000,000 250,000 750,000

Term Loans 1,368,587 553,159 815,428 1,368,587 553,159 815,428

Finance Leases 34,294 16,830 17,464 34,294 16,830 17,464

Trade and Other Payables 1,278,200 1,278,200 - 1,272,135 1,272,135 -

Net Obligation to Lessor of JEDB/SLSPC 363,695 7,623 356,072 363,695 7,623 356,072

Amounts due to related companies 225,113 225,113 - 225,037 225,037 -

Bank Overdraft 510,940 510,940 - 510,940 510,940 -

Total 4,780,829 2,841,865 1,938,964 4,774,688 2,835,724 1,938,964

The following are the contractual maturities of financial liabilities.

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.

Group Company

Carrying 0-12 More than Carrying 0-12 More than

As at 31st March 2017 Amount Months 1 year Amount Months 1 year

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

Financial Liabilities (Non- Derivative)

Debenture 1,000,000 - 1,000,000 1,000,000 - 1,000,000

Term Loans 3,731,431 2,604,447 1,126,984 1,899,071 772,087 1,126,984

Finance Leases 57,493 19,238 38,255 57,493 19,238 38,255

Trade and Other Payables 1,635,292 1,635,292 - 1,501,529 1,501,529 -

Net Obligation to Lessor of JEDB/SLSPC 371,165 7,470 363,695 371,165 7,470 363,695

Amounts due to related companies 150,331 150,331 - 426,432 426,432 -

Bank Overdraft 475,294 475,294 - 465,162 465,162 -

Total 7,421,006 4,892,072 2,528,934 5,720,852 3,191,918 2,528,934

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.



(v) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s and Company’s income or the value of its hold-ings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

(a) Currency risk

The group is exposed to currency risk mostly on purchases that are denominated in a currency other than Sri Lankan rupees (LKR). The foreign currencies in which these transactions primarily denominated are United States Dollars (USD)

Interest on borrowings is denominated in the currency of the borrowing. Generally, borrowings as explained in the above paragraph, are denominated in currencies that match the cash flows generated by the underlying operations of the Group and Company, primarily USD. This provides an economic hedge without the need of derivatives being entered into.

Exposure to currency risk

The Company’s exposure to foreign currency risk was as follows based on notional amounts:


Group USD Euro USD Euro

Trade & other receivables 3,129,145 - 7,385,720 -

Balances with Banks 205,788 - 2,277,975 -

Interest bearing loans & borrowings (462,748) - (16,713,901) -

Other Payables 5,769 - (141,203) -

Gross Statement of Financial Position exposure 2,877,954 - (7,191,409) -


Company USD Euro USD Euro

Balances with Banks 88,401 1,812 1,123,668 1,757

Interest bearing loans & borrowings (462,748) - (4,658,901) -

Gross Statement of Financial Position exposure (374,347) 1,812 (3,535,233) 1,757

As at 31st March Average Reporting Date Spot

2018 2017 2018 2017

Rate Rs. Rs. Rs. Rs.

USD 153.41 147.29 155.60 151.98

Euro 179.65 324.71 191.74 324.71

Sensitivity Analysis

A strengthening of the LKR, as indicated below, against the USD at 31st March 2018 would have increased/ (decreased) the equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Company considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant.

89

Group Strengthening Weakening

Profit/(Loss) Equity Profit/(Loss) Equity

As at 31st March 2018

USD (10% movement) 486,607 486,607 (486,607) (486,607)


USD (10% movement) (1,202,246) (1,202,246) 1,202,246 1,202,246

Company Strengthening Weakening

Profit/(Loss) Equity Profit/(Loss) Equity


USD (10% movement) (63,295) (63,295) 63,295 63,295


USD (10% movement) (591,013) (591,013) 591,013 591,013

(b) Interest rate risk

The Group has obtained a fixed interest rate loans and variable rate loans. The Group has opted not to mitigate its interest rate risk in the case that the market interest rate were to be lower than the fixed interest rate that the Group has already committed to.

At the reporting date, the Company’s interest-bearing financial instruments were as follow:

Group Company

Carrying Amount Carrying Amount

As at 31st March, 2018 2017 2018 2017

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

Fixed Rate Instruments

Financial Liabilities

Bank Overdrafts 510,940 475,294 510,940 465,162

Interest bearing loans and borrowings 2,402,881 4,788,924 2,402,881 2,956,564

Cash flow sensitivity analysis for variable rate instruments

The Group and Company is exposed to changes in market interest rates through Bank overdraft and other bank borrowings which were borrowed at a variable interest rate

Group

Profit or Loss Equity

100 bp increase Rs.000

100 bp decrease Rs.000

100 bp increase Rs.000

100 bp decrease Rs.000

31st March 2018

Variable rate instruments (30,141) 30,141 (30,141) 30,141

(30,141) 30,141 (30,141) 30,141

31st March 2016


Cash flow sensitivity (Net) (18,688) 18,688 (18,688) 18,688



Company

Profit or Loss Equity

100 bp increase Rs.’000

100 bp decrease Rs.’000

100 bp increase Rs.’000

100 bp decrease Rs.’000

31st March 2018


(30,141) 30,141 (30,141) 30,141

31st March 2017


Cash flow sensitivity (Net) (37,113) 37,113 (37,113) 37,113

(vi) Capital management

The Board’s policy is to maintain a strong capital base so as to maintain shareholder, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital and level of dividends to ordinary shareholders.

The Group’s and Company’s debt to adjusted capital ratio at the end of the reporting period was as follows:

Group Company

As at 31st March 2018 2017 2018 2017

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

Total Liabilities 6,040,885 8,760,051 6,033,704 6,888,695

Less: Cash and Cash Equivalents (130,319) (469,182) (109,966) (237,384)

Net Debt 5,910,566 8,290,869 5,923,738 6,651,311

Total Equity 1,762,813 1,598,344 1,616,856 1,675,622

Net Debt to Equity Ratio 335% 519% 366% 397%

There were no changes in the Group’s approach to capital management during the year and the Group is not subject to externally imposed capital requirements.

(vii) Fair values

Level : Quoted market price (unadjusted) in an active market for an identical instrument.

Level I: aluation techniques based on observable inputs, either directly – i.e. as prices or indirectly – i.e. derived from prices. This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level II: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Level III: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments..

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Company determines fair values using valuation techniques.

Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premia used in estimating discount rates. The objective of the valuation technique is to arrive at a fair value determination that reflect the price of the financial instrument at the reporting date, that would have determined by th market participants acting at the arms length.

91

The Company uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, forward rated contracts that use only observable market data and require little management judgement and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities and government securities. Availability of observable market prices and model inputs reduces the need for management judgement and estima-tion and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets.

Fair values versus the Carrying amounts

The fair values of financial assets and liabilities, together with the carrying amounts shown in the Statement of Financial Position, are as follow;

31st March 2018

Carrying AmountRs.’000

Fair ValueRs.’000

Assets carried at amortized cost

Trade & Other Receivables 388,980 388,980

Amounts Due from Related Parties 686,510 686,510

Cash and Cash Equivalents 109,966 109,966

1,185,456 1,185,456

Liabilities carried at amortized cost

Trade and Other Payables 1,272,135 1,272,135

Interest Bearing Borrowings 2,402,881 2,402,881

Net Obligation to lessor of JEDB/SLSP 363,695 363,695

Amounts Due to Related Company 225,037 225,037

Bank Overdraft 510,940 510,940

4,774,688 4,774,688

Financial Instruments Carried at Fair Value and Valuation Bases

The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categorised:

Group

As at 31st March 2018 Level I Level II Level III Total

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Available for sale Investments 162,708 196,200 - 358,908

162,708 196,200 - 358,908

Company

As at 31st March 2017 Level I Level II Level III Total

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Available for sale Investments 162,708 196,200 - 358,908

162,708 196,200 - 358,908

The Company has valued the investment in Agarapathana Plantations Limited, which has been coming under Level II of the fair value hierarchy, using revenue multiples of comparable listed Companies. The Company has discounted the fair value by 15% to reflect the non marketability between the unquoted equity held by the Company and the equity instruments of comparable peers. One percentage volatility of the sector performance will have an impact of LKR 7 million to the valuation.



Financial Instruments not carried at Fair Value and Valuation Bases

The fair values of financial assets and liabilities , together with the carrying amounts shown in the Statement of Financial Position , are as follows

Group Company

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Assets Carried at amortised Cost

Trade & Other Receivables - - 884,998 884,998 - - 388,979 388,979

Amounts due from Related Parties - - 252,167 252,167 - - 686,510 686,510

Cash and cash equivalents - 130,319 - 130,319 109,966 109,966

130,319 1,137,165 1,267,484 109,966 1,075,489 1,185,458

Liabilities carried at amortised Cost

Net obligation to Lessor of JEDB/SLSPC - - 356,072 356,072 - - 356,072 356,072

Interest bearing Borrowings - - 2,402,881 2,402,881 - - 2,402,881 2,402,881

Trade & Other Payables - - 1,285,823 1,285,823 - - 1,279,758 1,279,758

Amounts due to Related Parties - - 225,113 225,113 - - 225,037 225,037

Bank Overdraft - - 510,940 510,940 - - 510,940 510,940

4,780,829 4,780,829 - - 4,774,688 4,774,688

Cash and Cash Equivalents

The carrying amount of the cash and cash equivalents and balances with banks approximate the fair value as theses are short term in nature.t

Trade and Other Receivables and Income Tax Receivable

Trade and other receivables are expected to be settled within one year from the reporting date and hence the discounting impact would be immaterial. Therefore carrying amount approximate the fair value as at the reporting date.

Amounts Due to/Due From Related Parties

Amounts due from Related Parties are expected to be settled within one year from the reporting date and hence the discounting impact would be immaterial. Therefore carrying amount approximate the fair value as at the reporting date.

Trade and Other Payables and Income Tax Payable

Trade and other payables are expected to be settled within one year from the reporting date and hence the discounting impact would be immaterial. Therefore carrying amount approximate the fair value as at the reporting date.

Interest Bearing Borrowings

A majority of loans outstanding as at the reporting date are floating rate instruments which are repriced upon changes in economic conditions. Therefore the carrying amount of interest bearing borrowings are approximate to the fair value.

a) Valuation models

Valuation techniques include net present value and discounted cash flow models, comparison with similar instruments for which observable market prices exist. Assump-tionsc and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premia used in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations.

The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date.

Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties, to the extent that the Group believes that a third party market participant would take them into account in pricing a transaction. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group entity and the counterparty where appropriate.

93

b) Valuation models

The Company has an established control framework with respect to the measurement of fair values. This framework which is independent of front office management and reports to the Chief Financial Officer, and which has overall responsibility for independently verifying the results of trading and investment operations and all significant fair value measurements.

Group Financial Instrument

Loans and Receivables Available for Sale Investments

Fair Value Through Profit or Loss Investments

Held to Maturity Investments

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Investment classified as available for sale - 358,908 - -

Trade & other receivables 884,998 - - -

Amounts due from Related Parties 252,167 - - -

Cash & Cash equivalents 130,319 - - -

Group Financial Liabilities

Ammortised Cost Rs.’000

Interest Bearing Borrowings 2,402,881

Net Obligation to Lessor of JEDB/SLSPC 356,072

Trade & Other Payables 1,285,823

Amounts due to Related Parties 225,113

Bank Overdraft 510,940

Classification

Company Financial Instrument

Loans and Receivables Available for Sale Investments


Held to Maturity Investments

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Equity Investment - 358,908 - -

Long term deposits - - - -

Trade & other receivables 388,979 - - -

Amounts due from Related Parties 686,510 - - -

Cash & Cash equivalents 109,966 - - -

Classification

Company Financial Liabilities


Rs.’000

Ammortised Cost

Rs.’000

Interest Bearing Borrowings 2,402,881

Net Obligation to Lessor of JEDB/SLSPC 363,695

Trade & Other Payables 1,279,758

Amounts due to Related Parties 225,037

Bank Overdraft 510,940


GLOSSARY OF FINANCIAL AND NON FINANCIAL TERMS

Financial Terms

Accounting PoliciesThe specific principles, bases, conventions, rules and practices adopted by an enterprise in preparing and presenting financial statements.

Contingent LiabilitiesA possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise.

Current RatioCurrent Assets divided by Current Liabilities. A measure of liquidity.

Debt/Equity Ratio Total Interest Bearing Borrowings to Shareholders’ Fund.

Deferred Taxation The tax effect of timing differences deferred to / from other periods, which would only qualify for inclusion on a tax return at a future date.

DividendsDistribution of profits to holders of equity investments in proportion to their holdings of a particular class of capital.

Dividend CoverProfit attributable to Ordinary Shareholders divided by dividend. Measures the number of times dividend is covered by distributable profit.

Dividend YieldDividend per Share as a percentage of the market price. A measure of return on Investment.

Earnings per Share Profit attributable to shareholders divided by the weighted average number of ordinary shares in issue during the period

EBITDAEarnings before Interest, Tax, Depreciation and Amortisation.

ROCEProfit after Tax plus interest on loans and finance leases divided by the shareholders’ funds and interest bearing loans and borrowings.

Gearing Proportion of borrowings to capital employed.

Interest CoverProfit before tax plus net finance cost divided by net finance cost. Measure of an entity’s debt service ability.

Market CapitalisationNumber of shares in issue multiplied by the market value of a share at the reported date.

Net Assets per ShareShareholders’ Funds divided by the weighted average number of ordinary shares in issue. A basis of share valuation

Price Earnings RatioMarket price of a share divided by earnings per share as reported at that date.

Related partiesParties who could control or significantly influence the financial and operating policies of the business.

SegmentConstituent business units grouped in terms of similarity of operations and locations.

Value AdditionsThe quantum of wealth generated by the activities of the Company measured as the difference between turnover and the cost of materials and services bought in.

Working CapitalCapital required to finance the day-to-day operations computed as the excess of current assets over current liabilities.

Non Financial TermsCOPCost of producing a kilo of Tea/Rubber.

CTCCrush, Tear & Curl. A manufacturing method.

HACCPHazard Analysis Critical Control Point System. A standard for safety of foods.

Immature PlantationThe extent of plantation which is not taken in to the bearing and is in the process of development.

ISOInternational Standard Organisation.

Mature PlantationThe extent of plantation from which crop is being harvested.

NSA Net Sales Average. Measures the average value of net selling price of a kilo of Tea/Rubber.

RRIRubber Research Institute.

Seedling TeaTea grown from a seed.

TRITea Research Institute.

VP TeaVegetatively Propagated. Tea grown from a cutting of a branch of tea plant.

YPHYield per Hectare. The measure of average yearly output of produce from a hectare of mature plantation.

95

NOTICE OF MEETING

Notice is hereby given that the Twenty Fifth Annual General Meeting of Kotagala Plantations PLC will be held at the Grand Oriental Hotel, No. 2, York Street, Colombo 1, on 31st August 2018, at 11.00 a.m. for the following purposes:

1. To receive and consider the Annual Report of the Board of Directors and the Statements of Accounts for the year ended 31st March, 2018 with the Report of the Auditors thereon.

2. To re-elect as a Director Mr. S.D.R. Arudpragasam who retires in accordance with Articles 92 & 93 of the Articles of Association.

3. To reappoint Mr. A. Rajaratnam who is over seventy years of age as a Director. Special Notice has been received from a Shareholder of the intention to pass a

resolution which is set out below in relation to his reappointment. (see Note No. 4)

4. To reappoint Mr. R.C. Peries who is over seventy years of age as a Director Special Notice has been received from a Shareholder of the intention to pass a resolution which is set out below in relation to his reappointment. (see Note No. 5)

5. To reappoint Mr. A.M. De S. Jayaratne who is over seventy years of age as a Director. Special Notice has been received from a Shareholder of the intention to pass a resolution which is set out below in relation to his reappointment. (see Note No. 6)

6. To reappoint Mr. C.P.R. Perera who is over seventy years of age as a Director. Special Notice has been received from a Shareholder of the intention to pass a

resolution which is set out below in relation to his reappointment. (see Note No. 7)

7. To reappoint Dr. L.M.K. Tillekeratne who is over seventy years of age as a Director. Special Notice has been received from a Shareholder of the intention to pass a resolution which is set out below in relation to his reappointment. (see Note No. 8)

8. To reappoint Mr. D.A. Ratwatte who has attained the age of seventy years as a Director. Special Notice has been received from a Shareholder of the intention to pass a resolution which is set out below in relation to his reappointment. (see Note No. 9)

9. To reappoint Mr. D.S. AbeyRatna who as at the date of the Annual General Meeting would have attained the age of seventy years as a Director. Special Notice has been received from a Shareholder of the intention to pass a resolution which is set out below in relation to his reappointment. (see Note No. 10)

10. To re-appoint as Auditors, KPMG, Chartered Accountants and authorise the Directors to determine their remuneration.

By Order of the BoardCORPORATE MANAGERS & SECRETARIES (PRIVATE) LTD.Secretaries

Colombo10th July 2018

Notes:1. A member of the Company who is entitled to attend and vote may appoint a

proxy to attend and vote instead of him or her. A proxy need not be a member of the Company.

2. A Form of Proxy is enclosed for this purpose.3. The instrument appointing a proxy must be deposited at the Registered Office

of the Company’s Secretaries, Corporate Managers & Secretaries (Private) Limited, No.8-5/2, Leyden Bastian Road, York Arcade Building, Colombo 1, not less than forty eight hours before the time fixed for the meeting.

4. Special Notice has been received by the Company from a shareholder giving notice of the intention to move the following Resolution as an Ordinary Resolution at the Annual General Meeting: Resolved – “That Mr. A. Rajaratnam who as at the date of the Annual General Meeting of the Company, would have attained seventy seven years of age be and is hereby reappointed a Director of the Company and it is further specially declared that the age limit of seventy years referred to in Section 210 of the Companies Act No.7 of 2007 shall not apply to the said Director, Mr. A. Rajaratnam.”

5. Special Notice has been received by the Company from a shareholder giving notice of the intention to move the following Resolution as an Ordinary Resolution at the Annual General Meeting: Resolved – “That Mr. R.C. Peries who is seventy seven years of age be and is hereby reappointed a Director of the Company and it is further specially declared that the age limit of seventy years referred to in Section 210 of the Companies Act No.7 of 2007 shall not apply to the said Director, Mr. R. C. Peries.”

6. Special Notice has been received by the Company from a shareholder giving notice of the intention to move the following Resolution as an Ordinary Resolution at the Annual General Meeting: Resolved – “That Mr. A. M. De S. Jayaratne who is seventy eight years of age be and is hereby reappointed a Director of the Company and it is further specially declared that the age limit of seventy years referred to in Section 210 of the Companies Act No.7 of 2007 shall not apply to the said Director, Mr. A. M. De S. Jayaratne.”

7. Special Notice has been received by the Company from a shareholder giving notice of the intention to move the following Resolution as an Ordinary Resolution at the Annual General Meeting: Resolved – “That Mr. C.P.R. Perera who is seventy four years of age be and is hereby reappointed a Director of the Company and it is further specially declared that the age limit of seventy years referred to in Section 210 of the Companies Act No.7 of 2007 shall not apply to the said Director, Mr. C. P. R. Perera.”

8. Special Notice has been received by the Company from a shareholder giving notice of the intention to move the following Resolution as an Ordinary Resolution at the Annual General Meeting: Resolved – “That Dr. L. M. K. Tillekeratne who is seventy one years of age be and is hereby reappointed a Director of the Company and it is further specially declared that the age limit of seventy years referred to in Section 210 of the Companies Act No.7 of 2007 shall not apply to the said Director, Dr. L. M. K. Tillekeratne.”

9. Special Notice has been received by the Company from a shareholder giving notice of the intention to move the following Resolution as an Ordinary Resolution at the Annual General Meeting:

Resolved – “That Mr. D.A. Ratwatte who has attained seventy years of age be and is

hereby reappointed a Director of the Company and it is further specially declared that the age limit of seventy years referred to in Section 210 of the Companies Act No.7 of 2007 shall not apply to the said Director, Mr. D.A. Ratwatte.”

10. Special Notice has been received by the Company from a shareholder giving notice of the intention to move the following Resolution as an Ordinary Resolution at the Annual General Meeting:

Resolved – “That Mr. D.S. AbeyRatna who as at the date of the Annual General Meeting

would have attained the age of seventy years be and is hereby reappointed a Director of the Company and it is further specially declared that the age limit of seventy years referred to in Section 210 of the Companies Act No.7 of 2007 shall not apply to the said Director, Mr. D.S. AbeyRatna.”


NOTES

99

FORM OF PROXY

I/We* .................................................................................................................................................................................................................................................................. of

............................................................................................................................................................................... being a member/members* of Kotagala Plantations PLC, hereby

appoint,..........................................................................................................................................of..................................................................................................or failing him

1. Sri Dhaman Rajendram Arudpragasam of Colombo or failing him

2. Chrisantha Priyange Richard Perera of Colombo or failing him

3. Alagarajah Rajaratnam of Colombo or failing him

4. Damian Sunil AbeyRatna of Colombo or failing him

5. Mahen Susantha Madugalle of Colombo or failing him

6. Ranjit Crisantha Peries of Colombo or failing him

7. Devaka Ajit Ratwatte of Colombo or failing him

8. Ganegodage DhamithaVaamakaPerera of Colombo or failing him

9. Ajit Mahendra De Silva Jayaratne of Colombo or failing him

10. Liyanarachige Mahasen Keerthi Tillekeratne of Colombo

as my/our *proxy to represent me/us*,and to vote as indicated hereunder for me/us* and on my/our* behalf at the Twenty Fifth Annual General Meeting of the Company to be held on 31st August, 2018 at 11.00 a.m. and at any adjournment thereof and at every poll which may be taken in consequence thereof

For Against

1. To receive & consider the Annual Report of the Board of Directors and the Statement of Accounts for the year ended 31st March 2018 with the Report of the Auditors thereon.

2. To re-elect Mr. S.D.R. Arudpragasam as a Director.

3. To re-appoint Mr. A. Rajaratnam as a Director.

4. To re-appoint Mr. R.C. Peries as a Director.

5. To re-appoint Mr. A.M. De S. Jayaratne as a Director.

6. To re-appoint Mr. C.P.R. Perera as a Director.

7. To re-appoint Dr. L.M.K. Tillekeratne as a Director.

8. To re-appoint Mr. D.A. Ratwatte as a Director.

9. To re-appoint Mr. D.S. AbeyRatna as a Director.

10. To re-appoint as Auditors, KPMG Chartered Accountants and authorise the Directors to determine their remuneration.

* The proxy may vote as he/she thinks fit on any other resolution brought before the meeting

As witness, my/our* hands this ……................…. day of .............….. 2018.

.................................................

Signature Note: *Please delete the inappropriate words.1. A Proxy need not be a member of the Company.

2. If no words are struck out or there is in view of the Proxy doubt (by reason of the way in which the instructions contained in the form of Proxy have been completed) as to the way in which the Proxy should vote, the Proxy will vote as he thinks fit.

3. Instructions as to completion are noted on the reverse hereof.


Instructions as to completion

1. Please write legibly, your name, address and date, and sign in the space provided.

2. The completed Form of Proxy should be received at the Registered Office of the Company’s Secretaries, Corporate Managers & Secretaries (Pvt) Ltd at 8-5/2, Leyden Bastian Road, York Arcade Building, Colombo 01, not less than 48 hours before the time appointed for the holding of the meeting.

3. In the case of a Company/Corporation, this Form of Proxy shall be executed either under its Common Seal or by its Attorney or by an Officer on behalf of such Company/Corporation duly authorised in writing.

4. In the case of Proxy signed by an Attorney, the relevant Power of Attorney must be deposited at the Registered Office of the Company’s Secretaries for registration.

FORM OF PROXY

Name of the Company : Kotagala Plantations PLCLegal Form : A Quoted Public Company with Limited LiabilityDate of Incorporation : 22nd June 1992Company Registration No. : PQ 174Principle Activities : Cultivation, Manufacture and Sale of Tea, Rubber and Cultivation and Sale of Oil PalmRegistered Office : 53 1/1, Sir Baron Jayatilaka Mawatha, Colombo 1.E-mail : [email protected] : www.lankemplantations.lkDirectors : S.D.R. Arudpragasam - Chairman C.P.R. Perera - Deputy Chairman A Rajaratnam - (Alternate - R Edwards - Deputy Chief Executive Officer) D. S. AbeyRatna M.S. Madugalle - Chief Executive Officer R.C. Peries D.A. Ratwatte G.D.V. Perera A.M. De S. Jayaratne L.M.K. TillekeratneStock Exchange Listing : The Ordinary Shares of the Company are listed with the Colombo Stock Exchange of Sri LankaSenior Management(Lankem Tea & Rubber : D.S. AbeyRatnaPlantations (Pvt) Ltd) - Ph.D (UH-USA), F. C. M. A (UK), F.C.A (SL), F.C.M.A (SL), C.M.A (Aus)Managing Agents : R C Peries M.C.I.P : D A Ratwatte F.I.P.M : M S Madugalle Dip. (Plantation Mgt) (NIPM) : Ms K M Ramesh F.C.M.A (UK), MBA (USA)

Operational Directors Up Country : Mr. R. Edwards Low Country : Mr. N.B Seneviratne Dip. (Plantation Mgt) - (NIPM)

General Managers : J K Congreve Dip. (Plantation Mgt) - (NIPM) : Ms J Kariyawasam Attorney – at –Law , Notary Public & Commissioner for Oaths Diploma in Intellectual Property Law (USA) Diploma in Human Resource Management Training & Development (IPM) MBA ( Australia) : M Kowdu F. C. M. A / F.C.ASecretaries : Corporate Managers & Secretaries (Private) Limited 8-5/2, Leyden Bastian Road, York Arcade Building, Colombo 1.Auditors : KPMG Chartered Accountants, P.O.Box 186, Colombo 3.Bankers : Seylan Bank PLC Standard Chartered Bank People’s Bank National Development BankLegal Advisers : Messrs Julius & Creasy Attorneys-at-law P.O.Box 154, Colombo 1.

Designed & produced by

Printed by Printage (Pvt) Ltd

CORPORATE INFORMATION

Kotagala Plantations PLC53 1/1, Sir Baron Jayatilaka Mawatha, Colombo 1 E-mail: [email protected]: www.lankemplantations.lk

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| Annual Rep

ort 2017/18

kotagala plantations plc annual report 2017/18

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