Overcoming Obstacles

Transcription

1 Coping with Challenges, Overcoming Obstacles Ceylon Grain Elevators PLC ANNUAL REPORT 2013

2 Our corporate philosophy is centred upon the 3H principles of building a Healthy Organisation, being an Honourable Winner and making an Honest Fortune. This business philosophy is derived from our Parent Company, Prima Limited of Singapore. Healthy Organisation Developing a sound, effective and efficient organisation system. Promoting team spirit and reaching out to create a PRIMA FAMILY identity. Honest Fortune Establishing trust, fairness and mutual benefits with all within our business circle. Contributing to the well-being of society. Our Vision To achieve complete poultry integration synergies, ultimately gaining export market competitiveness Honourable Winner Achieving success through fair competition. Striving towards excellence. Our Mission To tap and harness business opportunities by expanding into various vertical integration projects. This will lead to increase in Agriculture, Aquaculture and Livestock production, thus encouraging national progress through nutritious protein-rich food to the people of this Nation. Our Corporate Goals In line with our Chairman s directives and Prima Group corporate philosophy, we will continue to grow steadily in our primary activities with the ultimate goal of reaching the status of an integrated feed milling business. Our future expansion plans shall be within our management capability and financial resources. To establish PRIMA and FARMERS CHOICE as a brand name synonymous with the very best in high quality products. To establish high standards of good corporate governance, improve transparency and the standards of accountability to shareholders. Brief History Life began for Ceylon Grain Elevators PLC (CGE) way back in December 1982, when the Government of Sri Lanka and Prima Limited of Singapore inked an agreement beginning a partnership that has endured three decades of yeoman service to the poultry industry in the country. Today, CGE is the largest operator in the poultry industry of Sri Lanka, establishing six subsidiary companies operating not only in the field of poultry, but also offering products and services in diverse fields. CGE and the companies under its umbrella manufacture and distribute a wide range of feeds under the "PRIMA" and "FARMERS' CHOICE" brands. They also operate poultry and hatchery breeder farms, commercial poultry and livestock farms. They also engage in the processing, packaging and retailing of poultry and other meat products, the import and sale of poultry equipment, veterinary products, produce aqua feed and provide a state-of-the-art laboratory and consultancy service to customers and farmers throughout the island. Ceylon Grain Elevators PLC subsidiaries are : Three Acre Farms PLC Ceylon Pioneer Poultry Breeders Limited Ceylon Livestock and Agrobusiness Services (Private) Limited Ceylon Warehouse Complex (Private) Limited Ceylon Aquatech (Private) Limited Millennium Multibreeder Farms (Private) Limited Ceylon Grain Elevators PLC associate company is: Prima Management services (Private) Limited

3 Over the years, from our inception, Ceylon Grain Elevators has proven it has the capacity to meet difficulties face on and counter them effectively. That is how we have learnt and stayed ahead. In a very competitive market we have proven that it is possible to be successful. We have even shown that we have the capacity to do better than our competitor. The reason being our preparedness and our potential to strive higher and do better. Contents Chairman and Chief Executive Officer's Review... 2 Management Discussion and Analysis... 5 Sustainability Report... 8 Corporate Governance Review Audit Committee Report Remuneration Committee Report Nomination Committee Report Board of Directors Risk Management Review Report of the Directors on the State of Affairs of the Company Statement of the Directors' Responsibility Independent Auditors' Report Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Five Year Financial Summary Group Structure Shareholder Information Statement of Value Added Notice of Meeting Form of Proxy... 83

4 CHAIRMAN AND CHIEF EXECUTIVE OFFICER S REVIEW Dear Shareholder, I am pleased to present you the Annual Report and the Audited Financial Statements of Ceylon Grain Elevators PLC and its subsidiaries for the financial year ended 31 December I also take pleasure to invite you to the Annual General Meeting on 8 May 2014 at the Sri Lanka Foundation Institute Auditorium, No. 100, Sri Lanka Padanama Mawatha, Independence Square, Colombo 7 at a.m. The year under review 2013 has been as before, a challenging one. We continue to deliver products of quality. We have been resilient and learnt to overcome the obstacles in the three decades of hard work. We are happy to say we continue to maintain our market leader position in the feed milling and poultry farming operations due to the trust and confidence our customers placed in us. Valiant in Overcoming Challenges In the year 2013, the Company managed to surmount many challenges that affected the entire industry and stood steady despite the demanding circumstances. Severe price competition for feed and processed chicken were the main challenges that we faced. Glut situation in the market for processed chicken led to a slowdown in feed intake by farmers. Raw materials for feed were at a prohibitive cost due to the unsteady supply, high prices and fluctuation in exchange rates. However, due to the timely measures adopted by the Company to enhance efficiency and increase productivity while maintaining low overhead costs we were able to overcome these challenges and record a net profit after tax of Rs. 193 Million. This was achieved despite a drop in revenue by 7 per cent compared to the previous year. Local Economy While observing the slowdown globally Government Policies were being pursued towards promoting exports of both goods and services while discouraging non-essential imports aimed at narrowing the trade deficit further. Moreover workers' remittances, foreign direct investments, disbursements in relation to foreign funded projects, proceeds of the sovereign bonds helped to strengthen and improve the gross official reserves of the country. Sri Lanka s economy was projected to grow by 7.5 per cent during the year. However, it grew by 7.3 per cent in The annual average inflation came down from 7.6 per cent in 2012 to 6.9 per cent in 2013, while the per capita income rose to US$ 3,282 during 2013 from US$ 2,923 in Still, the positive movement of the drop in inflation and the rise in per capita income did not contribute adequately to improve the per capita consumption of chicken meat as projected during the year. Actual per capita consumption of chicken meat was 5.9 Kg versus projection of 6.1 Kg for the year under review. This resulted in over production and caused a glut in the market. The Company noted that the introduction of progressive measures such as the gradual relaxation of exchange control regulations positively helped towards further development of the domestic foreign exchange market. During the year under review, exchange rates were stable for the first five months and then moved by 5 per cent in the months of June, July and August but stabilised at the end of the year reflecting an overall Rupee depreciation of 2.7 per cent approximately. This helped to reduce the exchange loss of the Group in the year 2013 to a certain extent in comparison with the year Pricing Problems for Poultry A feature we had to contend with was the pricing formula for whole chicken that was proposed in the year 2013 and year 2014 budgets. We welcome this as a positive move which will help to protect the growth of the industry as opposed to having a Maximum Retail Price on the product which has not been revised since October However the feed ingredient and the cost of products which were subject to international prices kept escalating. When raw material prices are high, due to the Maximum Retail Price of processed chicken the Company has no option than to absorb it. When the cost of production is greater than the sale price, it is not sustainable to the industry. The industry capacity is growing with an increase in the per capita consumption in mind. The target for 2016 is to be self-sufficient in the industry and produce 1,226 MT of chicken meat per month. In order to achieve this target the industry players will continue to engage the Authorities for the effective implementation of the budget proposals. Agricultural Advancements and Challenges The Company made the following observations in the agricultural sector. This was concerning Maize and Soya Bean and is important since these two products are vital Raw Materials for our feed manufacture as they account for more than 50 per cent of the required composition. 2 Ceylon Grain Elevators PLC Annual Report

5 CHAIRMAN AND CHIEF EXECUTIVE OFFICER S REVIEW (Contd.) We are still not self-sufficient in the production of Maize achieving only per cent of the required quantity. The quality of a high percentage of local maize was not up to industry standard. The price and quality of the local Maize was also not competitive in comparison to the imported Maize. We also urge the Authorities to take urgent steps in improving the cultivation of Soya Bean locally. This is still at its infancy stage. If the Industry is to benefit, the Authorities will have to look into this urgently as the cultivation of Maize and Soya Bean locally would be greatly beneficial to the country as it will help to save the foreign exchange outflow. It will also assist the industry as it would reduce the dependency on imports to a greater extent and thereby reduce our exposure to exchange rate fluctuations. Our Strengths and Achievements over the year During the year under review, despite the market conditions and other challenges faced, our revenue only dropped marginally. The Group was able to earn a profit despite the decrease in sales revenue and increase in the cost of production. In the year 2013, CGE has expanded its feed mill production capacity with the investment in state- of- the- art machinery and also improved the farming capacity by adding more Environmentally Controlled Broiler Houses. The upgrading and investing in modern machinery and equipment contributed very positively to the enhanced efficiencies of the farm operations. Financial Accomplishments With numerous challenges over the year under review, CGE recorded a revenue of Rs. 11,468 Million, which was 7 per cent less than Rs. 12,375 Million made in 2012 due to the decrease in prices caused by the intense competition for chicken meat that came about owing to a glut in the market. This in turn resulted in the drop in feed sales due to the lack of input by the farmers. However, despite these challenges, we achieved a profit after tax of Rs. 193 Million as against Rs. 149 Million in This was an increase of 30 per cent over the previous year. However, it is important to note that the profit for the year 2012 included a capital gain of Rs. 447 Million that came in from the sale of our investment in Ceylon Agro Industries Limited. The Group achieved Rs. 120 Million profit attributable to equity holders for the year The main contributory factor for the above achievement is the improvement in the efficiency and the productivity of the farms as mentioned above. Further, the exchange loss had decreased from Rs. 184 Million in year 2012 to Rs. 35 Million in year However, interest cost had increased from Rs. 90 Million in year 2012 to Rs. 118 Million in year Appointment of Nomination Committee In year 2013, the Company appointed a Nomination Committee by taking another step in recognising the transparency and compliance to Company regulations. To facilitate the formal procedure in the appointment of new Directors to the Board, a Nomination Committee made up of three (3) members was established during the year under review. This committee will make recommendations to the Board on all new appointments to the Board. The Nomination Committee annually assesses Board composition to ascertain whether the combined knowledge and experience of the Board matches the strategic demands facing the Company. The findings of their assessment are taken into account when new Board appointments are considered. Envisioning a Dynamic, Vibrant Future With the Government having undertaken to develop infrastructure in a great way, many targets have been set for the coming year. These include the development of transport, especially the development of highways which will save time and ease transportation costs. The improvement in the tourism industry which will lead to an increase in the number of tourist arrivals along with the increasing number of hotels will have a direct impact on the improvement of the livelihood of the general public. These factors will also help to expand the markets and demand for chicken. Going further, I am pleased to state that the Company has been investing and incorporating the very latest in modern technology, high tech equipment to upgrade our facilities. By doing so, we are confident this would result in a greater expansion of our production and at the same time ensure higher and better product quality with greater yield and an increase in our competitiveness. Our continued investment in the Environmentally Controlled Broiler House project is bound to lead to a greater output. Dividends With the Company gearing up for major capital investment in the year 2014, the Board of Directors believe it would be prudent to refrain from declaring a dividend for the financial year ended 31 December We sincerely trust that our Ceylon Grain Elevators PLC Annual Report

6 CHAIRMAN AND CHIEF EXECUTIVE OFFICER S REVIEW (Contd.) shareholders will understand and appreciate our decision which we believe would help the Company to better its performance in the coming years. Acknowledgements On behalf of our Board of Directors, I would take this opportunity to thank you for the unwavering trust you have placed in Ceylon Grain Elevators PLC as our valued Shareholders. I would also like to place on record my sincere appreciation to our dedicated employees, growers and of course our valued customers for their sincere trust and commitment over the year I would like to convey to all our Shareholders and Investors that the Company will remain faithful and true in its efforts in facing the oncoming challenges. We will, through unflinching perseverance and persistence, continue to prevail as a prosperous and profitable Company in the years ahead. Cheng Chih Kwong, Primus Chairman and Chief Executive Officer Colombo, Sri Lanka 8 April Ceylon Grain Elevators PLC Annual Report

7 Management Discussion and Analysis Industry Overview In the year under review the Company faced many challenges. Both locally and internationally there were many hurdles to overcome. Globally, the financial crisis continued to prevail in many countries bringing about a stagnation in the global economy. This had a direct effect on many industries. The global agriculture and livestock industries were further affected by the inclement weather conditions. Consequently, these adverse global factors also affected the Sri Lankan poultry industry. Depreciation of the Sri Lankan Rupee and the unsteady supply of raw material led to an increase in the price of raw material. During this period, in order to encourage exports and discourage the imports of non essential goods and bringing about financial stability, the Central Bank of Sri Lanka relaxed exchange control regulations. Going further, they also relaxed the Credit Policy while maintaining the interest rate at an affordable level in order to help industries to grow. Under these conditions the Annual Average Inflation Rate came down to 6.9% while the Per Capita Income rose to US$ 3,282. Consequently, the Sri Lankan economy was strengthened and stabilised and reported a growth of 7.3%. The Sri Lankan Agriculture Sector grew by nearly 4.7% and contributed as much as 10.8% to the Gross Domestic Production (GDP). The livestock industry however, continued to expand and grew by 6.3% during the year. Contributing almost 0.8% to the GDP, livestock sector is supported mainly by cattle, buffalo, poultry, goats, pigs and relatively a small number of sheep, ducks and other species. With the economy continuing to grow, an encouraging feature is that chicken meat and eggs are the most economical source of animal protein. These two sectors alone contribute almost 70% -72% of the livestock market. Income tax on Agriculture industry has been reduced to 10% in the current year from 12% in the previous year, enabling the industry to perform better. Segmental Review Segmental Sales Value Change (Rs'000) (Rs'000) % Feed Milling 9,942,378 11,142,915 (10.8) Broiler Farming and Processed Chicken 2,991,865 2,648, Poultry Breeder and Commercial Farming 1,643,149 1,461, Poultry Equipment 139, , Silo and Warehouse Complex 73,680 85,138 (13.5) Feed Milling Being the largest sector, Feed Milling comprises of the sale of poultry, shrimp and other types of animal feed. This sector by itself contributes as much as 67% to the total revenue of the Group. Sector revenue decreased in the year under review by 10.8% from Rs. 11,143 Million in 2012 to Rs. 9,942 Million in the year 2013 mainly due to the drop in input by farmers caused by a glut in the market for chicken meat. This sector earned an Earnings Before Interest and Taxes of Rs. 122 Million for the year 2013 whereas it was Rs. 220 Million for the year However in the year 2012 Earnings Before Interest and Taxes included a capital gain of Rs. 602 Million that was made from the sale of the Company's investment in Ceylon Agro Industries Limited. In the year 2013, inclement weather conditions adversely affected the availability of Raw Materials both globally and locally. Meanwhile the depreciation of the Sri Lankan Rupee led to an increase in the cost of imported Raw Materials. Although the local maize, which is a primary component of the feed is available for 80% to 90% of the local industry requirement, the quality is not up to the standard due to the harvesting practices and the lack of proper storage facilities. The Company contributes to the local Maize industry by purchasing a significant volume of the annual harvest. However, we were able to face these challenges by the efficient formulation of feed, altering the product mix and minimising the overhead cost. Meanwhile in the current year, the Feed Mill sector production capacity was enhanced by adding state-of-the-art machinery. Despite many challenges due to global as well as local economic and climatic conditions, the Group was able to earn an Earnings Before Interest and Taxes of Rs Million in the year 2013 compared to Rs Million in the year However, the Group revenue has dropped by 7% during the year under review. The Company was able to overcome these hurdles by making timely decisions to improve the productivity and efficiency while minimising overhead costs. Ceylon Grain Elevators PLC Annual Report

8 Management Discussion and Analysis (Contd.) Change (Rs'000) (Rs'000) % Sales Value 9,942,378 11,142,915 (10.8) Earnings Before Interest and Taxes 121, ,895 (44.7 ) Total Assets 3,512,019 3,913,118 (10.3) Return on Total Assets Employed (%) (37.5 ) Broiler Farming and Processed Chicken This is the second largest revenue generating sector and it contributes 20% of the Group's revenue. It consists of the sale of live broiler chicken as well as processed chicken meat. The revenue from processed chicken sales increased by 12.9% from Rs. 2,649 Million in 2012 to Rs. 2,992 Million in the year Earnings Before Interest and Taxes had decreased further in the year under review by 139.3% from a loss of Rs. 17 Million in the year 2012 to a loss of Rs. 40 Million in the year 2013 which resulted owing to the intense competition and excess supply in the market. In the year 2013 the actual per capita consumption of chicken meat was 5.9 Kg. which was below the projected per capita consumption of 6.1 Kg. even though the per capita income had increased to US $3,282 and the annual average inflation has come down to 6.9%. This created an excess supply of chicken meat in the market which brought about intense competition and affected the selling price. Even though the cost of chicken meat has gone up, there was no revision to the Maximum Retail Price of Rs. 380/- per Kg. that had been setup in October As a result the segment had to incur a loss continuously. The Company was able to face these challenges fairly and minimised the loss by changing the sales mix and by brand marketing strategies to retain the consumers over competitor activities. Poultry Breeder and Commercial Farming This sector consists of the sale of Day Old Chicks and Broiler Commercial Farming. The revenue of this segment has increased by 12.4% from Rs. 1,461 Million in 2012 to Rs. 1,643 Million in Also Earnings Before Interest and Taxes has increased by 148.9% from Rs. 78 Million in the year 2012 to Rs. 195 Million in the year In the year 2013, by better farm management, stringent bio security control, upgrading and improving of the performance of hatchery equipment and continued investment in Environmentally Controlled Broiler Houses, improved the efficiency and productivity of the farms which led to an increase in Earnings Before Interest and Taxes. Further, the stable prices for the table eggs resulted in a demand for the Layer Day Old Chicks. Prices for Broiler Day Old Chicks improved in the third quarter of the year which contributed positively towards the Earnings Before Interest and Taxes. During the year in review, the Company took timely measures and exported the excess Hatchable Eggs and the Parent Day Old Chicks to regional countries which contributed positively to the margins Change (Rs'000) (Rs'000) % Sales Value 2,991,865 2,648, Earnings Before Interest and Taxes (39,568) (16,535) Total Assets 595, , Return on Total Assets Employed (%) (6.6) (2.8) Change (Rs'000) (Rs'000) % Sales Value 1,643,149 1,461, Earnings Before Interest and Taxes 194,786 78, Total Assets 2,271,564 2,256, Return on Total Assets Employed (%) Ceylon Grain Elevators PLC Annual Report

9 Management Discussion and Analysis (Contd.) Poultry Equipment The poultry equipment sector is the one which supplies the industry with modern equipment, vaccines and drugs. This is in order to enhance and empower the poultry and hatchery industry across the island and to improve its productivity and performance. In order to do this, CGE makes available a range of branded products that are specialised for the Sri Lankan market. By this, the industry as a whole, has grown and has become better in quality and quantity and in depth. The Company was therefore able to capture the market and develop the segment as planned. Revenue from this sector rose by 10.9% from 126 Million in the year 2012 to 140 Million in the year Earnings Before Interest and Taxes for this segment increased by 32.1% from Rs. 21 Million in the year 2012 to Rs. 28 Million in the year However, the sector did not perform as anticipated which was due to the drop in feed sales during the year. Revenue for this sector decreased by 13.5% from Rs. 85 Million in the year 2012 to Rs. 74 Million in the year Further, the Earnings Before Interest and Taxes fell by 24.2% from Rs. 54 Million in 2012 to Rs. 41 Million in Change (Rs'000) (Rs'000) % Rental Income 73,680 85,138 (13.5) Earnings Before Interest and Taxes 40,829 53,874 (24.2) Total Assets 392, ,970 (1.1) Return on Total Assets Employed (%) (23.5) Change (Rs'000) (Rs'000) % Sales Value 139, , Earnings Before Interest and Taxes 28,084 21, Total Assets 76,150 58, Return on Total Assets Employed (%) Silo and Warehouse Complex By possessing modern art silos and warehouse complex which many others in the industry do not have, CGE is able to exert considerable flexibility in the purchase and storage of imported key raw materials in the manufacture of feed. By possessing its own warehouse complex this has proved to be a distinct advantage in the purchase of bulk material and thereby enjoys a better price advantage. Additionally by outsourcing its excess storage facilities to third party sources, has contributed much to the Group in bringing in additional revenue. Geared for growth and poised for position with the Sri Lankan Industry By incorporating state-of-the-art equipment and expanding its facilities, CGE intends to stay ahead of the competition. Challenging times demand choice solutions. Despite global economic upheavals and uncertainties, CGE intends to make prudent decisions and make a positive contribution to the industry and to Sri Lanka as a whole. By competently strategising our product mix and by envisioning and setting out a proper growth plan, CGE is confident of providing an outstanding and exceptional customer service. Ensuring quality products, innovative market strategies and exceptional distribution pipeline, CGE is confident of being a vital player in the industry and contributing comprehensively. Ceylon Grain Elevators PLC Annual Report

10 SUSTAINABILITY REPORT Over the past three decades, CGE has blazed a trail in the feed and poultry industry in Sri Lanka. In doing so it has nurtured and built up a sustainable business. By the constant improvisation and modernisation of all our products, processing and marketing we have risen to the position as a market leader. In every sense we have revolutionised the poultry industry in Sri Lanka. For this we have to thank our stakeholders who have consistently stood with us and encouraged us in our pursuit for perfection. We have also been privileged to have good business partners and consumers. They have directed us and helped us set our course and stay ahead. We firmly believe in the training and development of our staff. This has led to a workforce which is equipped and enabled to perform better. Resultantly the Company benefits with greater productivity. Over 200 man days were provided investing in Company time, expertise and funds to train and equip our staff in all sectors. Marrying the best of international expertise together with local know-how, we have been able to create a strong and resilient brand that has withstood all challenges. Not only that, it has set the pace as the market innovator in Sri Lanka. We are known by our brand which has stood for unsurpassable quality. Weathering all challenges we have continued to forge ahead. Our loyal customers have preferred our brand and consistently chosen us above cheaper alternatives. Our stringent corporate governance procedures, risk management, transparency and accountability have helped the Company stamp its superiority. We are consistently striving to improve ourselves and our services bearing in mind that our products reflect our values. There is a ceaseless quest to do better and in what we offer. In all these CGE has been able to create a responsive business while staying true to its core value. Human Resources - the cornerstone to our success The staff at Prima are considered our 'family', with the Company acting as the parent. Our staff carry out their duties diligently with the assurance the Company has their best interests at heart. This has enabled them perform better and reach higher in their personal lives as well as in their careers. We believe in our employees and do everything possible to create a collaborative and conducive work environment. By creating such a job satisfaction the Company has itself thrived and our consistent productivity is a clear indication of our work ethic. The Induction programme at CGE is the initiation of our training schedule for the benefit of new employees. There are two specialised programmes which have been put together for the Executives and the Non-Executives. This enables new recruits to familiarise themselves with Company procedures and protocols. It also helps 'break the ice' and enables members of the 'family' to get to know each other better. It also brings about a seamless integration of the older senior members of the staff with the new and helps them find their niche in the 'Prima family'. The training programme at CGE involves experts from Prima as well as those from relevant fields in the industry. While customised workshops are conducted regularly the Company also sends staff to important seminars conducted elsewhere. These training programmes include opportunities for promising employees to receive training at recognised poultry manufacturing companies overseas. Familiarisation programmes are conducted for employees in technical areas to be sent abroad to become better acquainted with the most recent trends in their fields. At CGE, we believe the Company grows as its employees do. We also believe that employees grow by recognition. This is a well - known and tried catalyst for employee satisfaction. At CGE we have in place a performance appraisal system which is followed by the Prima Group, Singapore. This system provides recognition and a clear pathway for employees to rise to the next level of their career. The programme as incorporated in the Company provides a well defined pathway for the development of a second tier for almost all significant positions. Such a system enables CGE to function seamlessly and creates job satisfaction for all its employees. CGE also operates an Employee Council made up of members from each department which provides an opportunity for dialogue between the management and the staff. This underlies 8 Ceylon Grain Elevators PLC Annual Report

11 SUSTAINABILITY REPORT (Contd.) the fact that employee participation and contribution in decision making is of vital importance in the running of a Company. CGE also takes great care in providing a safe and comfortable working environment for all its employees. Staff analysis by Age No. of Employees Age Group Company < > Total Staff Classification No. of Employees Category Group Company Senior Managers and above Managers and Assistant Managers Senior Executives and Executives Non-Executives Total Executive Staff analysis by years of service No. of Employees Service Years Group Company < 4 3 Total Gender Distribution No. of Employees Gender Group Company Male Female Total Ceylon Grain Elevators PLC Annual Report

12 SUSTAINABILITY REPORT (Contd.) In addition to helping our employees further their careers, CGE also sees to the well being and happiness of its employees. This helps to motivate the staff and build good team spirit among all members. Company staff work with dedication because they have a sense of ownership and want 'our Company' to do better. As in the past, a 'get-together' was organised in the year This again helped in boosting staff morale. At this event, the Annual Service Awards were presented to longstanding staff members for dedicated service and commitment. Corporate Social Responsibility The Company seriously considers it is their duty in providing for the communities they live and interact with. While the main beneficiaries are those that live in our close proximity, the Company conducts CSR initiatives at various locations in order to integrate and be of benefit to the society they live and work with. In this endeavor, the Company believes it is their duty to empower communities around its farming facilities which are located mainly in rural areas. In such places people face many hardship that city dwellers often take for granted. CGE continuous its initiative by providing the means to uplift and empower these communities by building better roadways and assisting them with other facilities. Another area in which CGE is closely working within the community is discovering, developing and encouraging talented sports men and women across the island. The Group sponsored the under-15 Prima Champions Trophy cricket encounter which was organised by Sri Lanka Cricket. Such championships help to identify and build talented young cricketers for the next generation. The Group also contributed towards building an Indoor Volleyball Stadium for the Davisamara Maha Vidyalaya at Seeduwa in order that this might encourage these lads. the largest buyer and annually purchases a substantial percentage of the total Maize harvest, thereby helping the farmers and the industry. This has in addition built the confidence and trust of Maize farmers across Sri Lanka. The Company regularly provides internships for young interns from the Veterinary Council of Sri Lanka and from leading universities across the island specially related to agriculture and livestock. Such training programmes provide opportunities to develop the skills of these young professionals and ensure their progress in the livestock industry. It builds their confidence and helps them meet the challenges in the industry. Recently a group of students from the Uva Wellassa University following the Animal Science Degree Programme were given an opportunity to participate in the industrial training programme at CGE. The training was well received by the interns. They confidently look forward to implementing these procedures when they embark on their professional careers. Manufacturing Products of Quality and Class CGE takes pride in the fact that it is one of the premier companies manufacturing products which are available for and consumed by customers at all levels of society. As such they consistently strive to keep to the highest industrial standards. CGE is ISO certified and also conforms to international safety and manufacturing standards such as the Animal Feed Act and has been awarded the HACCP certification. Since Maize is one of the key raw material components in our feed, CGE continued to help the Maize farmers and their families. CGE is CGE consistently upholds the quality of its products. In order to maintain and keep to the highest standards possible, CGE additionally has all its products regularly checked and certified by qualified professionals. By doing so we have the confidence that our products are well above the required industrial standards. 10 Ceylon Grain Elevators PLC Annual Report

13 SUSTAINABILITY REPORT (Contd.) The Making of a Healthy Nation In order to benefit the industry and the nation, CGE is constantly involved in uplifting the standards of the poultry and feed industries of Sri Lanka. Towards this endeavor it provides the industry with quality feed, chicks, processed chicken and poultry equipment. It has also invested in encouraging partners and employers to engage in seminars and symposia where they would gain much needed technical and up-to-date knowledge. As a result the industry has thrived and this has helped farmers improve their yield. CGE also regularly carries out research on disease prevention, thus helping both farmers and the industry to protect their livestock from epidemic diseases that are common across other parts of the world. Environment Conservation Conscious about protecting and preserving the environment, CGE has taken great measures to increase its environmental sensitivity and green friendly aspects. One of the key factors that helped the Company maintain its position as market leader is its aggressive marketing and advertising. On the premise 'Prima Chicken - for goodness sake' we have promoted our products island wide. Employing an interactive and unconventional consumer centric marketing thrust, Prima Chicken was kept at the forefront of the consumer's mind. Also, throughout the year there were specific, objective-driven brand awareness activities which served to bring the brand closer to our consumers. The Company also introduced more consumer - friendly packages and products to meet ever changing consumer needs and necessities. Farmers and manufacturers were assisted in various ways throughout the year. The Company intends to do more to assist in developing the industry throughout the island. It also plans to improve and diversify its product range in order to meet market trends and demands. We are committed to protecting our environment particularly in and around our poultry farms and other installations which operate under the Central Environmental Authority (CEA) Licence. This stipulates natural standards and enforces compliance by means of regular inspections. By conforming to stringent waste management protocols we ensure that our operations have a minimal effect on the surrounding environment. We have also set up farm waste management system which is in operation in all the farms employed by CGE. Farm waste is recycled into natural fertiliser and is distributed at a very concessionary rate thereby assisting them in their cultivation. This waste is a highly valuable organic fertiliser for their cultivation. Building a Better Brand Ceylon Grain Elevators PLC Annual Report

14 CORPORATE GOVERNANCE REVIEW Ceylon Grain Elevators PLC is a modern corporate enterprise that has kept with the times by incorporating modern ethical business and practices to stay ahead in the most demanding times. We have adopted a performance driven culture along with a governance structure that is geared to the times. Continuous professional development along with the Company and individual compliance with all rules and regulations Trust, professionalism and integrity in all partnerships and transactions Over the past three decades and more the Company has won and kept the trust of its shareholders, customers, employees and other stakeholders by keeping to a well set order of principles and practices. These entail integrity, fairness, transparency and responsibility at all times. Keeping to its proud history the governance structure embodies the Company's core values and corporate social responsibilities which are in keeping with the best practices of good corporate governance as laid out by the Institute of Chartered Accountants of Sri Lanka, the Companies Act No. 07 of 2007 and the Listing Rules of the Colombo Stock Exchange. Code of Conduct Ceylon Grain Elevators PLC function under a well structured Code of Conduct that maintains the standard for sustainability, accountability and transparency across its entire operations. This is set out as follows: Always act in the best interest of the Company, ensuring transparency in all matters Conduct business in an ethical manner and in keeping with international industry standards The Chairman and the Company emphasise and endorse that there have been no violations of CGE's Code of Conduct in the year under review. Internal Governance Structure The Internal Governance Structure of the Company is made up of the Board of Directors which consists of the Chairman and Chief Executive Officer (CEO), Executive Director and Group General Manager, two (2) Non-Executive Directors and two (2) Independent Non-Executive Directors who have a proper understanding of the business. The Internal Governance Structure is so designed that the executive authority is devolved and designated through the committee structure. This stipulates that the CEO and the Managers who function for each section are accountable and responsible for the day-to-day operations including the functioning of the business units of the Group. The responsibilities and accountabilities for each such sector are set in place and agreed in advance. This sees to it that there is a seamless continuous flow of operations. Code of Best Practice on Corporate Governance Articles of Association Management Committee Companies Act No. 07 of 2007 Risk Management Remuneration Committee Board of Directors Nomination Committee Internal Controls Listing Rules issued by the CSE Audit Committee Code of Business Ethics GRI Guidelines on Sustainability Internal Governance Structure 12 Ceylon Grain Elevators PLC Annual Report

15 CORPORATE GOVERNANCE REVIEW (Contd.) The Management Committee is a vital part of the Company's management structure and is headed by the CEO. It is empowered to act on behalf of the Company. The members of this Management Committee are: the Group General Manager, the General Manager, the Board of Directors, the Audit Committee and the Senior Management Committee. These positions and committees are complemented by strong internal governance procedures and systems. These are set into motion by the Group business plan. Such mechanisms set within the governance structure ensure proper implementation and execution of the Group's Corporate Governance framework. The Board of Directors and their Responsibilities The Board of Directors of CGE are responsible for the followings: Managing the Group efficiently and profitably on behalf of the shareholders Ensuring that the Group accomplishes its goals Meeting regularly to establish and maintain the Company's direction and position Providing guidance and direction to ensure that the Group is adequately resourced and effectively controlled Reviewing the Group's operating and financial performance Ensuring compliance with laws, regulations and ethical standards Ensuring all stakeholder interests are considered in corporate decisions The Board of Directors are also responsible for a number of other duties which include the supervision of corporate governance issues. In the current year the Board had sought professional advice on matters that needed specialised expertise such as litigation matters from the Company's lawyers. The provision for the Company's Director's to retire by rotation has also been recommended by the Board many times. The Board collectively and the Directors individually act in accordance with the laws of the Country. Meanwhile the Board takes collective responsibility for the management, direction and performance of the Group. The Board's principal roles and functions are listed below: Providing Strategic Direction The Board is collectively responsible for establishing the Group's general direction, corporate policies, overall strategic objectives and corporate plans, which are communicated to the Management Committee. The Group has set out a schedule of issues and decisions which may only be approved by the Board as monitoring controls. The Board's approval is required on all matters relevant to overall strategy, annual budget, business plans, management information, reported financial statements, dividends, investments and business acquisitions. The Board is also responsible for continually reviewing the re-appraisal and monitoring of the performance of the Group against the set objectives while directing the Management Committee on specific action points. Communication with Shareholders CGE communicates with its shareholders on a number of issues as it believes in transparency. The Board is responsible for reporting statutory and relevant information to shareholders regularly and in a timely and accurate manner. In order to ensure transparency at all times, the Board has laid down definite policies in relation to keeping accurate records of accounts together with the preparation of financial statements to present a fair and balanced presentation of the Group. The Board also takes measures to report statutory and all relevant information with disclosure of all major transactions to shareholders in a timely and accurate manner. Meanwhile the Group encourages shareholders to seek independent advice on matters of investment and divestment. Quarterly and Annually results are prepared and presented in accordance with the Sri Lanka Accounting Standards, Companies Act No. 07 of 2007, Colombo Stock Exchange Policies and the Securities and Exchange Commission regulations. Overseeing Risk Management The Board is also responsible to regularly evaluate the risk factors of the Group and current control systems and make policy recommendations on risk factors and improvement of controls. The formulation of the risk management process overseen by the Board sees to it that an effective system is implemented for identifying, evaluating and managing significant risks encountered by the Group in protecting its assets and processes. This risk management process is regularly reviewed by the Board on the basis of the guidelines set by relevant regulatory bodies. The Management Committee is responsible for the detail, design and operation of the system of internal controls with regard to risk management. However, the Board maintains overall responsibility for managing risks within the Group. CGE has also in place a well established control framework consisting of clear structures and accountabilities, well understood policies, procedures with budgeting and review processes. Each business segment of the Group has a formal management structure with clear responsibilities operating within clearly defined policies which cover the areas of product safety, financial matters, health and safety, the environment, human resources, operation matters, purchasing and engineering. Compliance The Board is further responsible to ensure that the Group is always operating within the law, regulations and standards as laid down by the various regulatory bodies in the country. The Board is also constantly updated with information with regard to compliance Ceylon Grain Elevators PLC Annual Report

16 CORPORATE GOVERNANCE REVIEW (Contd.) and directs the Management Committee with regard to action that need to be taken. Appointments to Board Committees The Board of Directors are responsible to appoint members to the various Board Committees and ensuring that these act in accordance with the Terms of Reference as provided by the Board. The Board of Directors in turn appoints Directors to the Audit, Remuneration and Nomination Committees along with Directors and Key Senior Management personnel to the management Committee. Each such Committee acts within its own set of Terms of Reference. An expanded review of each such Committee's function is described further in this report. Board Composition The Board of Directors comprises of six (6) members. The Group is committed to maintaining a structure that is balanced in order that a value addition is provided to all stakeholders with an appropriate mix of Executive, Non-Executive and Independent Non-Executive Directors. Industrial expertise and business acumen that is brought by in by these members enables the Company to make rational, sound decisions for a sustainable and profitable future for the Company. The Board comprises of two (2) Executive Directors, two (2) Non-Executive Directors and two (2) Independent Non-Executive Directors. This composition complies with the Listing Rules of the Colombo Stock Exchange, which requires a minimum of two or one third of the Board be Independent Non-Executive Directors. Usually Board appointments follow a formal and transparent procedure. The Board periodically appraises their own performance in order to ensure that their responsibilities are properly undertaken in fairness to the Company and to the stakeholders. For the year under consideration an assessment was made with regard to the Board composition and they reached the conclusion that the knowledge and expertise of the current Board matches the strategic demands and direction of the Group. A brief profile of individual members of the Board is carried on page 22 in this report. Changes to the Board Board Tenure, Retirement and Re-elections The Directors are appointed and recommended for re-election until their prescribed company retirement age At all Annual General Meetings one third of the Directors, retire by rotation on the basis prescribed in Articles of Association of the Company and are eligible for re-election. The Directors who retire are those who have been longest in office since their appointment or re-election. In addition, any new Director who has been appointed to the Board during the year is required to stand for re-election at the next Annual General Meeting The re-election of Directors ensures that the shareholders have an opportunity to re-assess the composition of the Board. The names of the Directors submitted for re-election are provided to the shareholders in advance to enable them to make an informed decision concerning their election Name of the Director Mr. Cheng Chih Kwong, Primus Mr. Tan Beng Chuan Mr. Cheng Koh Chuen, Bernard Mr. Cheng Eng Loong Dr. Wickrema Sena Weerasooria Mr. Sunil Karunanayake Capacity Chairman and Chief Executive Officer Executive Director and Group General Manager Non-Executive Director Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Board Other Board Committees - Position Share No of Audit Remuneration Nomination Holding Position Attendence Meetings held Committee Committee Committee 397 Chairman Member - Member Member Member Member 3 3 Member Chairman Chairman - Member 3 3 Chairman Member Member 14 Ceylon Grain Elevators PLC Annual Report

17 CORPORATE GOVERNANCE REVIEW (Contd.) Names of retiring Directors eligible for re-election this year are given in the Notice of the Annual General Meeting of the Company The Chairman of the Board The Executive Chairman of the Board Mr. Cheng Chih Kwong, Primus, is entrusted with a number of responsibilities including, providing leadership to the Board, ensuring Board effectiveness in its myriad roles, chairing Board meetings and steering it in the proper direction, taking responsibility for the Board's composition, facilitating the effective contribution of Non-Executive Directors and also seeing to it that there is positive relationship between the Executive and Non-Executive Directors. It is absolutely necessary to have a balance of power on the Board. And to ensure this, the roles of Chairman and the Executive Director have been very clearly defined without any overlap. The likelihood of combining the roles of Chairman and Chief Executive Officer (CEO) has been discussed regularly. On the basis of such discussions and reviews the Board has deemed that combining the two roles are more appropriate for the Group at present to meet stakeholder and Company objectives. Continuous Training and Development The Group is dedicated to empowering every member of its team with opportunities to better their individual skills, knowledge and expertise. This facility is extended to the Board of Directors as well. Such development programmes available to Board members begin with a comprehensive induction programme that ensures that new Board members garner the required knowledge to integrate well and perform efficiently. This programme which is conducted over a period of various months, includes presentations from key members of Senior Management and also visits to the various operating businesses of the Group. If a Director seek a deeper understanding on a particular area, further follow-up meetings are then arranged to make available the required knowledge to the Board member. Supply of Information All members of the Board are continually updated and supplied with timely, accurate and comprehensive information to enable them to perform their duties successfully. This therefore enables Board members to engage in healthy debate and a process of optimised decision making towards the betterment of the Company. The Directors are provided access to: Board minutes and reports which are circulated before Board meetings Clarification on any matter contained in the minutes The advice of experts and professionals if required Advice and services provided by the Company Secretary Information wherever necessary to carry out duties and responsibilities more effectively and efficiently Information updates from management on topical matters, formulation of new regulations and best practices as relevant to the Group's business Board Meetings In accordance with Company principles and practices, the Board met three (3) times over the past year to review the overall strategic development of the Group. The Chairman is responsible to provide leadership to the Board and the conducting of business at meetings and also to facilitate the effective contribution of all members. He is also responsible to facilitate the effective contribution of all members and to implement strategies and ensure that the Board operates effectively in keeping with the interests of the shareholders. The Company Secretaries, SSP Corporate Services, are in turn responsible on behalf of the Chairman to ensure that all Board meetings are conducted in a proper manner and that all Directors receive all necessary relevant information prior to meetings so that the Board could review the Key Performance Indicators (KPI's). In addition the Company Secretaries also guide the Board that good governance practices are considered and implemented. Meanwhile, the Board is brought up to date on the latest financial position of the Company by the Group General Manager. Board minutes are taken and kept in order that all matters are recorded in case the Directors have concerns about the matters of the Company which cannot be unanimously resolved. This need however did not arise in the year Board Committees Some functions of the Board have been delegated to Board Committees which are responsible to monitor, review and enhance the accountability in certain areas. By doing so they safeguard the good governance practices of the Group. These Board Committees are as follows: Management Committee Audit Committee Remuneration Committee Nomination Committee The above committees carry out their duties and responsibilities in accordance with the Terms of Reference as set out by the Board. The proceedings of their meetings are regularly communicated to the Board. The Management Committee Members are selected by the Board. The Management Committee is responsible for the followings: Implementing Group strategy Monitoring business performance Approve budgets and capital expenditure recommendations to the Board Ensure efficient management to the Group The Management Committee has also been vested with the authority to implement Board decisions. This authority is exercised within the policy framework as stipulated by the Board. Ceylon Grain Elevators PLC Annual Report

18 CORPORATE GOVERNANCE REVIEW (Contd.) The Management Committee meets once a month to discuss and evaluate various topics including segmental performance of the Group, business development plans, financial and operating budgets and forecasts, capital expenditure proposals, management issues and Key Performance Indicators (KPI's). The Board constantly reviews reports from the Management Committee and also from executives and sectional heads of key risk areas and makes decisions pertaining to the segmental performance. The Management Committee has the right to run the business of the Group as they deem fit to meet the demand of the customers of the Group and the strategic and financial targets that have been set by the Board in addition to the required corporate guidelines. Such a deregulated structure is necessary to ensure that fast decisions are made and implemented, speedy innovation at a rate as demanded by the customer while providing products and services to consumers catering to their specific needs. The Audit Committee The Audit Committee is responsible to assist the Board in accomplishing its oversight responsibilities in the financial reporting process. The Audit Committee consists of two (2) Independent Non-Executive Directors one of whom is appointed by the Board and is the Chairman of the Committee. The detailed report of this Committee appears on page 19 of this report. The Nomination Committee makes recommendations to the Board on all new Board appointments and annually assesses Board composition to ascertain whether the combined knowledge and experience of the Board matches the strategic demands facing the Company. The findings on such assessment are taken into account when new Board appointments are considered. The Committee consists of three (3) members combining two (2) Non-Executive Directors and the Chairman and Chief Executive Officer which is in compliance with the Corporate Governance Principles established by Securities and Exchange Commission of Sri Lanka (SEC) and Institute of Chartered Accountants of Sri Lanka (Code Reference A.7.1, A.7.2 and Schedule A). The detailed report of this Committee appears on page 21 of this report. Going Concern The Group always maintains sufficient financial resources along with a diversified business model and a range of allied businesses. The Board of Directors on the recommendations of the Audit Committee is satisfied that the Group has sufficient resources to continue in preparation for the foreseeable future. For this reason, they will continue to adopt the going concern basis in preparing accounts. The Remuneration Committee This Committee is responsible to the Board to determine the remuneration policy for the Executive Directors and Senior Managers. This Remuneration Committee comprises of two (2) Independent Non-Executive Directors, one of whom is the Chairman of the Committee who is appointed by the Board. The detailed report by the Remuneration Committee appears on page 20 of this report. The Nomination Committee In the year 2013, the Company had appointed a Nomination Committee to facilitate a formal and transparent procedure in appointment of new Directors to the Board. 16 Ceylon Grain Elevators PLC Annual Report

19 CORPORATE GOVERNANCE REVIEW (Contd.) CSE Rule Number and Subject (a) Non-Executive Directors (a) Independent Directors (b) Independent Directors (a) Disclosure relating to Directors (b) Disclosure relating to Directors (c) Disclosure relating to Directors (d) Disclosure relating to Directors (a-h) Determination of Independence Remuneration Committee (a) Composition of Remuneration Committee (b) Functions of Remuneration Committee Corporate Governance Principle Two or one third of the total number of Directors shall be Non-Executive Directors, whichever is higher. Two or one third of Non-Executive Directors whichever is higher shall be Independent. Each Non-Executive Director should submit a declaration of independence / non-independence in the prescribed format. Names of Independent Directors should be disclosed in the Annual Report. The basis for the Board to determine a Director is Independent, if criteria specified for Independent is not met. A brief resume of each Director should be included in the Annual Report including the area of expertise. Forthwith provide a brief resume of new Directors appointed to the Board with details specified in (a), (b) and (c) to the Exchange. Compliance Status Compliant Compliant Compliant Compliant Compliant Remarks Corporate Governance - Page 14 Corporate Governance - Page 14 Non-Executive Directors have submitted declaration during the year 2013 Board of Directors - Page 22 Specified criterias are met by Independent Non-Executive Directors Compliant Board of Directors - Page 22 Compliant No new appointments were made during the year 2013 Requirements for meeting criteria of Independent. Compliant The Board has determined the Independent of each Non-Executive Directors during the year 2013 A Listed Company shall have a Remuneration Committee. The Committee shall consist of Non-Executive Directors, a majority of whom shall be independent. The Remuneration Committee shall recommend the remuneration of the Chief Executive Officer and Executive Directors. Compliant Compliant Compliant Remuneration Committee Report - Page 20 Remuneration Committee Report - Page 20 Remuneration Committee Report - Page 20 Ceylon Grain Elevators PLC Annual Report

20 CORPORATE GOVERNANCE REVIEW (Contd.) CSE Rule Number and Subject (c) Disclosure in the Annual Report relating to Remuneration Committee Corporate Governance Principle The Annual Report should set out: a. Names of Directors comprising the Remuneration Committee. Compliance Status Compliant Remarks Remuneration Committee Report - Page 20 b. Statement of Remuneration Policy. Compliant Remuneration Committee Report - Page 20 c. Aggregated remuneration paid to Executive and Non-Executive Directors. Compliant Note Page Audit Committee A Listed Company shall have an Audit Committee. Compliant Audit Committee Report - Page (a) Composition of Audit Committee (b) Functions of Audit Committee (c) Disclosure in Annual Report relating to Audit Committee The Committee shall comprise of Non-Executive Directors, the majority of whom shall be independent. The Chairman of the Committee should be a Member of a recognised professional accounting body. a. Overseeing of the preparation, presentation and adequacy of disclosures in the financial statements of a Listed Entity, in accordance with Sri Lanka Accounting Standards. b. Overseeing of the Entity s compliance with financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements. c. Overseeing the processes to ensure that the Entity s internal controls and risk management are adequate, to meet the requirements of the Sri Lanka Auditing Standards. d. Assessment of the independence and performance of the Entity s external auditors. e. To make recommendations to the Board pertaining to appointment, re-appointment and removal of external auditors and to approve the remuneration and terms of engagement of the external auditors. a. Names of Directors comprising the Audit Committee. b. The Audit Committee shall make a determination of the independence of the Auditors and disclose the basis for such determination. Compliant Audit Committee Report - Page 19 Compliant Audit Committee Report - Page 19 Compliant Audit Committee Report - Page 19 Compliant Audit Committee Report - Page 19 Compliant Audit Committee Report - Page 19 Compliant Audit Committee Report - Page 19 Compliant Audit Committee Report - Page 19 Compliant Audit Committee Report - Page 19 c. The Annual Report shall contains a Report of the Audit Committee setting out of the manner of compliance with their functions. Compliant Audit Committee Report - Page Ceylon Grain Elevators PLC Annual Report

21 AUDIT COMMITTEE REPORT The Audit Committee Report is an overview of the myriad tasks and responsibilities of the Audit Committee whose authorities are approved and adopted by the Board. The Audit Committee of CGE is responsible for maintaining a healthy relationship with the Group's external auditors. The other tasks that the Audit Committee is responsible for overseeing the review of the Group's internal financial resources, controls and audit processes. The Committee also assists the Board in ensuring that the financial and non-financial information supplied to shareholders is a fair assessment of the Company's position. The Audit Committee consists of two (2) members as stipulated by the guidelines set out by the Colombo Stock Exchange. Both members are Independent Non-Executive Directors who are appointed by the Board amongst the Directors of the Company. Further, the Committee Chairman Mr. Sunil Karunanayake is a member of the Institute of Chartered Accountants of Sri Lanka, while the Company's Internal Auditor acts as the Secretary to the Audit Committee. The Committee conducts meetings whenever necessary and needed and has met a total of three (3) times in the year By doing so, it has also kept in line with the requirement that it meets at least once a year. Upon invitation, such meetings are also attended by the Executive Director and Group General Manager of the Company, the Acting General Manager and the Senior Finance Manager. During the year the Audit Committee had received many such reports and conducted discussion with the Group's management and auditors. Name Capacity No. of meetings held Mr. Sunil Karunanayake Dr. Wickrema Sena Weerasooria Mr. Darshana De Silva Chairman / Independent Non-Executive Director Member / Independent Non-Executive Director Secretary / Group Internal Auditor No. of meetings attended The Audit Committee has been engaged in many activities during the year including : Approving the auditors' Terms of Engagement including their remuneration, while in discussion with the auditors and assessed their independence and objectivity and recommended their re-appointment for the coming year at the Annual General Meeting The Committee also reviewed the following areas: Financial statements published in the name of the Board and the quality and accessibility of the related accounting policies, practices and financial reporting disclosures. Scope of the work of the Group's finance department and reports from it. Effectiveness of the system for internal control, risk management and compliance with financial services, legislation and regulation. Results of the external audit. Report from the internal and external auditors on audit planning and their findings on the accounting and internal control systems. Sunil Karunanayake Chairman, Audit Committee Ceylon Grain Elevators PLC Annual Report

22 REMUNERATION COMMITTEE REPORT The Remuneration Committee report is a review of the responsibilities and operations of the Remuneration Committee of CGE. This Committee is responsible for a number of important activities including the recommendations of the remuneration policy for Executive Directors and Key Management Personnel to the Board of Directors. Whilst the Committee fulfills the requirements as laid out by the Listing Rules of the Colombo Stock Exchange, the term remuneration in this context refers to cash and all non-cash benefits that are received in consideration of employment with CGE, excluding statutory entitlements such as the Employees Provident Fund and the Employees Trust Fund. Members of the Remuneration Committee are chosen and appointed from among the Company s Directors by the Board. While the Committee is responsible directly to the Board of Directors, it consists of two (2) members, both of whom are Independent Non-Executive Directors as required by the guidelines as set out by the Colombo Stock Exchange. Meetings of the Remuneration Committee were held when necessary and a total of three (3) meetings were conducted in the year This was in line with the stipulations laid out that the Remuneration Committee meets at least once a year to discuss matters in relation to the remuneration policies relevant to the Committee. During such meetings, the Committee has invited the Company s Executive Director and Group General Manager and the Acting General Manager with the aim of gathering more information on which Committee could act. The inclusive remuneration policies utilised by the Group intend to: Provide alignment between remuneration and the Company s business objectives in order that the Company could attract and retain Key Management Personnel of a high caliber. Motivate and reward Key Management Personnel to achieve challenging performance goals. Ensure that executive rewards are in line with Shareholder value. Recognise both individual and corporate achievements and thereby add value to the Company. In the year 2013 the Remuneration Committee had reviewed the incentive provisions for Key Management Personnel and were satisfied that the existing framework was satisfactory. The total sum that was paid as Directors Remunerations in the year under review is set out in Note 33.1 to the financial statements. Dr. Wickrema Sena Weerasooria Chairman, Remuneration Committee Name Capacity No. of meetings held Dr. Wickrema Sena Weerasooria Mr. Sunil Karunanayake Mr. M.C.M. De Costa Chairman / Independent Non-Executive Director Member / Independent Non-Executive Director Secretary / AGM (Personnel, Security and General Affairs) No. of meetings attended Ceylon Grain Elevators PLC Annual Report

23 Nomination Committee Report Nomination Committee keeps the Board composition under review and facilitates a formal and transparent procedures in all new appointments to the Board. In the year 2013, a Nomination Committee has been appointed by the Company to perform a range of responsibilities such as: Provide advice and recommendations to the Board or the Chairman on any new appointments to the Board. Evaluate the competencies including the skills, knowledge and experience of the Board in any recommendation to the Board. Review the structure, size and the composition of the Board. Evaluate the performance of members of the Board whether they are adequately carrying out their duties and responsibilities. The Nomination Committee consists of three (3) members including two (2) Non-Executive Directors and the Chairman and Chief Executive Officer of the Company. The Chairman of the Nomination Committee is a Non-Executive Director as required by the Code of Best Practice on Corporate Governance issued jointly by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka. In the year under review the Committee met one occasion in order to discharge their responsibilities in matching the combined knowledge and experience of the Board to strategic demands of the Company. Name Capacity No. of meetings held Dr. Wickrema Sena Weerasooria Mr. Cheng Chih Kwong, Primus Mr. Sunil Karunanayake Mr. M. C. M. De Costa Chairman / Independent Non-Executive Director Member / Chairman and Chief Executive Officer Member / Independent Non-Executive Director Secretary / AGM (Personnel, Security and General Affairs) No. of meetings attended Dr. Wickrema Sena Weerasooria Chairman, Nomination Committee Ceylon Grain Elevators PLC Annual Report

24 BOARD OF DIRECTORS Mr. Cheng Chih Kwong, Primus Chairman and Chief Executive Officer Mr. Cheng Chih Kwong, Primus is the Chairman and Chief Executive Officer of the Prima Group and its subsidiary companies. He is a Certified Practicing Accountant (CPA) - Australia and also holds a Diploma in Business Studies. Mr. Cheng Chih Kwong, Primus is the Patron of Yuhua Citizens Consultative Committee and has served as the former Patron of the Ulu Pandan Community Centre Building Fund Committee and as the Vice Chairman (General Affairs Committee), Singapore Chinese Chamber of Commerce and Industry ( ). Mr. Tan Beng Chuan Executive Director and Group General Manager Mr. Tan Beng Chuan has been a Director of the Company and its subsidiary companies since He also serves as Director of Three Acre Farms PLC and its subsidiaries, Ceylon Agro Industries Limited and Prima Ceylon Machinery (Pvt) Ltd. He is the Group General Manager of Prima Group of Companies, Sri Lanka since He holds a B.Sc. Hon in Chemical Engineering from University of Surrey, UK and a MBA in Management & Marketing from University of Warwick, UK. He is an Executive Committee Member of Sri Lanka Singapore Business Council and Sri Lanka Canada Business Council of Ceylon Chamber of Commerce. He is also the President Mentor and Past President of Singapore (Sri Lanka) Club. Mr. Cheng Koh Chuen, Bernard Non-Executive Director Mr. Sunil Karunanayake Independent Non-Executive Director Mr. Sunil Karunanayake has been a Director of the Company since He holds fellowship of the Institute of Chartered Accountants of Sri Lanka and Chartered Institute of Management Accountants (UK) and a MBA from the Post Graduate Institute of Management of the University of Sri Jayawardenapura. He has also obtained a Diploma in Commercial Arbitration from the Institute of Commercial Law and Practice. Mr. Sunil Karunanayake was formerly a Director / Secretary of Brooke Bond Ceylon Limited and Commercial Controller of Unilever Ceylon Limited - Tea Division. Currently he serves as the Chief Financial Consultant at Associated Newspapers of Ceylon Limited. In addition, he also serves two other listed companies in the capacity of Non - Executive Director. Dr. Wickrema Sena Weerasooria Independent Non-Executive Director Dr. Wickrema Sena Weerasooria has been a Director of the Company since He holds LLB (Hons.) and Ph.D (London). He is an Attorney-at-law Supreme Court of Sri Lanka, a Barrister and Solicitor - Supreme Court of Victoria. Dr. Wickrema Sena Weerasooria is a well known lawyer and legal academic. He was the formerly Secretary of the Ministry of Plan Implementation, Sri Lanka s High Commissioner to Australia, Consultant to the Central Bank and a former Associate Professor of Law Monash University, Australia. He is currently a Senior Consultant to the Post Graduate Institute of Management (PIM). Mr. Cheng Koh Chuen, Bernard has been a Director of the Company with effect from 1 August He also serves as an Executive Director of Prima Group. He holds a Bachelor of Science in Business Administration and also a MBA from the University of Southern California. Mr. Cheng Eng Loong Non-Executive Director Mr. Cheng Eng Loong has been a Director of the Company with effect from 1 August He holds a Bachelor of Science degree majoring in Biochemistry and Chemistry from the National University of Singapore. 22 Ceylon Grain Elevators PLC Annual Report

25 RISK MANAGEMENT REVIEW The Risk Management review intends to show an in-depth view of the risk management systems, procedures and protocols that operate throughout the Group. This review also provides assurance that all undertakings of the Group constantly work towards its betterment. It also ensures that there is better understanding and an efficient mitigation of the various risk factors that may affect the Group. CGE quotes the core area of Risk Management as the organised application of management policies, procedures and practices for the establishment of relevant context, identification, analysis, mitigation, monitoring and thereby the communication of all possible types of risks. The Group's Risk Management framework is efficiently incorporated in the planning process. The planning process meanwhile focuses on the efficient achievement of objectives by means of the mitigation of relevant and related risks. By means of a dynamic process risks are identified and evaluated at appropriate levels of the organisation. This on-going process is regularly reviewed by the Management Committee as part of the Group's Organisational and Operational approach to Risk Management. The Group's Risk Management schedule ensures there is a comprehensive identification and understanding of the type of risks CGE is exposed to. This facilitates the design of and carrying out of an effective plan to prevent losses and to minimise it in case such a loss does occur. Such timely recognition and appropriate handling of these operational threats is incorporated into the Group's Risk Management process. There is substantial strategic control of operational risks which require the efficient management and these are made possible through the policies and procedures which are covered by the Group's system of internal controls. This in turn is made up of the system of financial controls which operate throughout the Group as well as processes and systems which focuses on monitoring and reporting matters related to the continued effectiveness of the system of internal controls. The Risk Management process at CGE provides a close and structured approach to indentifying risks. Therefore having a proper understanding of all possible risks, permits the Group to measure, priorities and take appropriate action to minimise losses. Risk Management also provides the Group with other benefits such as saving the loss of valuable time, assets, income, property, people and protecting the reputation and public image of the Organisation and also preventing or reducing legal liabilities and increasing the stability of operations. CGE continues to place great emphasis on the importance of effective and positive Risk Management which is considered as an essential and integral part of good management practice. Therefore it becomes an intimate part of its business planning and continuity. Having this in mind, Risk Management has become a matter of concern for individuals across the Organisation. CGE maintains a Risk Management structure with efficient planning systems, reporting systems and review processes which provide a strong basis for the integration of Risk Management into the Group's entire management process. The principal risks associated with the Group's activities and their mitigation strategies are as follows: Risk Factor Risk Mitigating Strategies Exchange Rate Risk This type of risk arises from foreign currency transactions where negative changes in exchange rates may arise. The Group regularly imports a large percentage of raw materials and hence has a substantial amount of outstanding in foreign currency denominations. In the event of a decline of the Sri Lankan Rupee against such foreign currencies, there is an increase in raw material prices which in turn affect sales margins and increases the debt burden in rupee terms. The Group as a policy follows this procedure: changes on the international prices of raw materials are passed on to the selling prices of the Group's products in the local market. This in effect provides a natural hedge against changes in global prices and fluctuation in the value of the rupee. A substantial fall in the rupee against the US dollar could have a negative impact on the Group's operations and finances, although the Group has the facility of increasing the selling prices of its products such adjustments may require time depending on the severity of the fall of the currency and the Government price controls that are in effect at that time. The Group also makes use of effective treasury operation strategies such as forward bookings, swaps etc. to negate unfavorable effects of current fluctuations. Ceylon Grain Elevators PLC Annual Report

26 RISK MANAGEMENT REVIEW (Contd.) Risk Factor Risk Mitigating Strategies Credit Risk Credit Risk is the risk of financial losses that could arise owing to the unwillingness or the inability of counter parties to meet their financial obligations in time and in full. The Group encourages customers to purchase goods for cash by providing discounts for such purchases. This has paid great benefits and has been extremely successful. Additionally thorough credit checks are carried out on potential customers before granting them sales on credit. The Group's Financial and Sales Divisions closely monitor all credit sales to ensure that repayment is made on due dates and future sales are made on outstanding value. Another feature is that the Group regularly reviews the security for the Out Grower Scheme. The Group only accepts high quality collaterals as Security for the Out Grower Scheme. Further, the Group also ensures that the Out Grower Farmers receive a fair and sustainable Rearing Fee with good extension services to increase their productivity since a fair Out Grower Scheme is also important. Human Capital and Labour Risk The Group's Human Capital and Labour Risk pertains to the loss of talented employees and undergoing an unpleasant environment owing to strained labour relations. The Group incorporates a series of strategies to motivate, develop and retain human capital. CGE has progressive provision for a comprehensive career development programme for its staff. This focuses on helping employees discover and achieve their optimum potential and in this manner improve their job performance and gain job satisfaction. CGE strongly emphasises the training and development of staff with career development in mind. And as such providing them with the required know-how and appropriate skills to achieve their personal development. CGE has laid clear guidelines for career development providing performance based career advancement opportunities. At all times CGE aims to maintain a healthy relationship with all its employees through regular dialogue and discussion. The Group also ensures that there is compliance with all regulatory requirements concerning benefits applicable to employees. Finally, CGE provides attractive financial and performance based incentives that are in line with or above industry standards. Another feature is that the Group provides an attractive living facility and conducive environment at its farms. Information Technology Risk IT Risk is that associated with computer security hardware, software and the failing of other information technology systems and consequently causing a disruption to the business operations of the Group. Throughout the entire organisation a well thought out and completely secure Information Technology security infrastructure has been implemented. This security structure includes recovery strategies, data back-ups store at off-site locations, regular updating of virus scanners and firewalls, maintenance of spare servers and other critical ICT components, along with regular IT audits to ensure compliance relevant to security infrastructure. 24 Ceylon Grain Elevators PLC Annual Report

27 RISK MANAGEMENT REVIEW (Contd.) Risk Factor Risk Mitigating Strategies Risks of Outbreaks of Disease The outbreaks of communicable animal diseases could result in significant losses to the flock of poultry within a very short period of time. Over the past few years the chances of the Avian Influenza being passed on to human beings has caused some serious concerns among the public about consuming poultry products. The Management of CGE avails the services of the staff in providing training to the farmers and out growers with regard to identifying and controlling disease outbreaks. The Company also offers other necessary services such as veterinary aid to ensure the general health of the animals. Such series have proved to be invaluable to both farmer and the Group in monitoring the development of the birds and mitigating the risk of disease. CGE regularly reviews the Bio Security practices and policies to ensure that the Company policies are on par with industry standards. The Management is also careful to ensure that environmental safety standards and sustainability practices are adhered to when starting a new farm. The Company always strives to use the most updated vaccines and medicines that are most effective in disease control which helps in preventing disease outbreaks. CGE also continually reviews and improves farm management practices especially in areas such as administration of vaccines and medicaments etc. Yet another strategy which the Company adheres to in risk mitigating is ensuring proper housing. This takes into consideration animal welfare and minimised stress to the birds. The Company feed formulation strategies focus on building the health status of birds with the aim of better hygiene and providing wholesome poultry products to consumers. Regulatory and Compliance Risk Regulatory Risk is associated with the changes in Government policies, laws, regulations and statutes. Compliance Risk refers to a Company being able to comply with all the laws, regulations and statutes applicable to a country. Both Regulatory and Compliance Risk factors could affect the business activities of a Group. CGE always keeps itself updated on all the changes to the regulatory framework and ensures that the Company is always in compliance with all such requirements. The Group works in a collaborative manner with trade associations, the All Island Poultry Association as well as other trade chambers who are a part of advising and assisting regulatory bodies on developing and adjusting regulations. CGE also maintains cordial relationships with such regulatory bodies. Risk of Market Demand for DOCs This refers to the risk of destroy DOCs owing to a drop in demand in the market. As DOCs cannot be kept for more than a day, there is always a risk of destroying chicks when there is no demand for DOCs. The Company always strives to ensure that there is no unnecessary culling of DOCs owing to decreased demand by keeping abreast of market trends. By predicting market demand ahead, CGE is able to minimise the risk of destroying DOCs. In the event that an unforeseen drop in demand occurs, measures that are necessary will be taken by the Management to ensure continued quality and adherence to Company policies and product regulations. Risk in Quality of the Product Risk in the quality of the Product owing to the inferior condition of the machinery or equipment at the Poultry Processing Plant. CGE constantly upgrade the plant's underperforming equipment and machinery with modern versions while replacing poultry equipment and machinery with new technology. Ceylon Grain Elevators PLC Annual Report

28 RISK MANAGEMENT REVIEW (Contd.) Risk Factor Risk Mitigating Strategies Competitive Risk Competitive Risk is the kind of risk that comes about when customers purchase competitive or alternative products due to variants in the product offering. The Group recognises the importance of sustaining mutually beneficial relationships with its customers, poultry farmers, dealers and out-growers. Providing customers as and when they require it, is the cornerstone of customer of satisfaction. Should the Group fail to do so, they run the risk of losing market share and consequently incurring financial losses. The Group and its individual companies always take innovative measures to mitigate Competitive Risks. CGE is engaged in a continuous dialogue with its customers and prospects to keep abreast of changing trends, needs and purchasing behavior of the market. By closely monitoring customers, CGE is in a position to realign its product offering to match customer needs and wants, while being sensitive to current customer requirements. The Company makes sure that the right competitive strategies are practiced in order that CGE might keep ahead. To ensure this CGE captures customer feedback on future needs, follows social and cultural trends that influence customer demand and focuses on building customer loyalty to ensure the continuation of repeat purchasing trends. Indicators such as product return data, customer complain indices, the number of interactions between the Group and the customers, the churn rate among the top 20% of its customers and revenue growth factors among targeted customer groups are regularly measured in order to gauge the progress in managing these risks effectively. Customer satisfaction in terms of products and services is also monitored carefully through initiatives to establish customer satisfaction as the Group's No. 1 priority and to use customer feedback as a catalyst for improvement. The key management personnel of the Group to work closely with the farmers and the Out Growers. This is to ensure that the birds are of the highest quality possible. This entails activities such as providing technical knowledge, guiding them in setting farm infrastructure, in keeping with the latest rearing techniques. In addition CGE has placed the industry's best quality standard process and ensures through its quality assurance systems, that a consistent high quality level is maintained in all products and services marketed by the Group. Risk of Environmental Issues The Risk of Environment Issues relate to environmental matters that can be raised by housing and settlements in farm neighbourhoods. The Management of the Group provide for the equipment for the disposal of solid waste. CGE also provides information on good management practices on environment protection to the farm staff such as ensuring that poultry litter is not disposed off in an open environment. The Company advices that all waste matter should be packed and stored in a sheltered space in order that it is not wet by rain water until such time as the waste is appropriately removed from the farm premises. The Company also provides comprehensive information on steps that should be taken to keep such poultry litter dry at all times along with awareness of cleanliness of good housekeeping practices that should always be practiced. Risk of Major Breakdown This refers to the risk of a major breakdown of the Poultry Processing Plant. The Company continually maintains a buffer stock of a minimum of one week's market demand. 26 Ceylon Grain Elevators PLC Annual Report

29 RISK MANAGEMENT REVIEW (Contd.) Risk Factor Risk Mitigating Strategies Procurement and Supply Chain Risk This risk refers to the availability of quality raw material of sufficient quantity, at the required time and at the correct price. Any shortfall in supply could stall the Group's ability to fulfill customer demands which in turn would reflect negatively on the bottom line. These risks include but are not limited to the enforcement of a new CESS while the RM shipments are in transit, the local maize being of insufficient quantity and quality, along with restrictions on imported maize and substitutes, restrictions on the import of drugs and vaccines, receiving contaminated cargo, export restrictions on feed RM from India and key DOC importation countries being affected with Avian Influenza and other diseases. CGE's procurement strategies operate on the basis that careful and correct procurement policies will result in good quality end products. The Group always strives to address Procurement and Supply Chain Risk by having multiple sources (both locally and internationally) for all Raw materials. CGE also fosters the development of long term relationships with its suppliers to gain influence and thereby enters into contractual agreements with them. In case a new CESS is imposed, the Company will minimise the quantities of orders and raw material bulk vessels. The Company also maintains appropriate inventory levels sufficient for 2-3 months and will turn to the closest substitute in case of a shortage of drugs or vaccines. CGE takes very strict measures in keeping with its Quality Management Systems to handle contaminated cargo and will take adequate steps to permit the relevant authorities to take adequate steps to permit the import of Genetically Modified Foods or promote the cultivation of Soya in Sri Lanka in the case of a shortage of feed RM. The Group keeps track of multiple DOC sources it will also develop new suppliers in case the key suppliers are unable to deliver their products on time for any reason. Ceylon Grain Elevators PLC Annual Report

30 REPORT OF THE DIRECTORS ON THE STATE OF AFFAIRS OF THE The Board of Directors is pleased to present their Report and the Audited Financial Statements of the Company for the year ended 31 December The details set out herein provide pertinent information required by the Companies Act, No. 07 of 2007, the Colombo Stock Exchange Listing Rules and are guided by recommended best accounting practices. 1. Principal Activities The main business of the Group is feed milling, commercial broiler farming, poultry processing and distribution, breeder farming operations, buying and selling of poultry equipment and provision of silo and warehouse facilities and transshipment. 2. Review of Performance for the year ended 31 December 2013 and Future Developments A review of the Company's performance during the year, with comments on financial results for the year ended 31 December 2013 and future developments is contained in the Chairman and Chief Executive Officer's Review (page 2 to 4) and Management Discussion and Analysis (pages 5 to 7). These reports, together with the financial statements reflect the state of affairs of the Company. 3. Financial Statements The financial statements of the Company are given in pages 33 to Independent Auditors' Report The Independent Auditors' Report on the financial statements is given on page Accounting Policies The accounting policies adopted in preparation of financial statements are given on pages 37 to 46. There were no material changes in the Accounting Policies adopted, except for the changing accounting policy as explained in note Interest Register The Company maintains an Interest Register and the particulars of those Directors who were directly or indirectly interested in a contract of the Company are stated therein. 7. Directors' Interest None of the Directors had a direct or indirect interest in any contracts or proposed contracts with the Company other than as disclosed in the Note 33 to the financial statements. 8. Directors Remuneration and Other Benefits Directors' remuneration in respect of the Company for the financial year ended 31 December 2013 is given in Note 33 to the financial statements. 9. Corporate Donations Donations made by the Company amounted to Rs. Nil ( Rs. Nil). No donations were made for political purposes. 10. Directorate The names of the Directors who held office as at 31 December 2013 are given below. Mr. Cheng Chih Kwong, Primus Mr. Tan Beng Chuan Mr. Cheng Eng Loong Mr. Cheng Koh Chuen, Bernard - Chairman and Chief Executive Officer - Executive Director and Group General Manager - Non-Executive Director - Non-Executive Director Dr. Wickrema Sena Weerasooria - Independent Non-Executive Director Mr. Sunil Karunanayake - Independent Non - Executive Director In accordance with the provisions of Article 87 of the Articles of Association of the Company, Mr. Sunil Karunanayake retires by rotation and being eligible offers himself for reelection. A Resolution for the re-appointment of Dr. Wickrema Sena Weerasooria, who was 70 years of age on 17 July 2009 will be proposed at the Annual General Meeting in terms of Section 211 of the Companies Act No. 07 of A Special notice has been given of this intention. 11. Directors' Shareholdings As at As at Mr. Cheng Chih Kwong, Primus Mr. Tan Beng Chuan Nil Nil Mr. Cheng Eng Loong Nil Nil Mr. Cheng Koh Chuen, Bernard Nil Nil Dr. Wickrema Sena Weerasooria Nil Nil Mr. Sunil Karunanayake Nil Nil 12. Auditors The financial statements for the year ended 31 December 2013 have been audited by Messrs KPMG, Chartered Accountants, who express their willingness to continue in office. In accordance with the Companies Act No.07 of 2007, a resolution relating to their re-appointment and authorising the Directors to determine their remuneration will be proposed at the forthcoming Annual General Meeting. 28 Ceylon Grain Elevators PLC Annual Report

31 REPORT OF THE DIRECTORS ON THE STATE OF AFFAIRS OF THE (Contd.) The Auditors Messrs KPMG were paid Rs 2,930,000/- ( Rs. 2,765,000/-) as audit fees by the Company. As far as the Directors are aware, the Auditors do not have any relationship (other than that of an Auditor) with the Company other than those disclosed above. The Auditors also do not have any interest in the Company. 13. Group Turnover Group Turnover amounted to Rs. 11,468 Million ( Rs. 12,375 Million). 14. Dividends The Directors do not recommend the payment of a dividend for the financial year ended 31 December Investments Details of investments held by the Company are disclosed in Note 15 and 16 to the financial statements. 16. Intangible Assets An analysis of the intangible assets of the Company, additions and impairments during the year and amortisation charged during the year are set out in Note 14 to the financial statements. 17. Property, Plant and Equipment An analysis of the property, plant and equipment of the Company, additions and disposals made during the year and depreciation charged during the year are set out in Note 12 to the financial statements. 18. Capital Commitments Capital expenditure contracted for as at 31 December 2013 for which no provision has been made in the accounts are set out in Note 28 to the financial statements. 19. Stated Capital The issued and fully paid up stated capital of the Company is Rs. 1,017,996,000/- divided into 60,000,000 ordinary shares. There was no change in the stated capital of the Company during the year. 20. Reserves Total reserves as at 31 December 2013 amounted to Rs. 1,005 million ( Rs. 1,037 Million). The movement of reserves is shown in the statement of changes in equity on page Events after the Reporting Period No significant events have occurred after the reporting period other than those disclosed in Note 34 to the financial statements. 22. Employment Policies The Company identifies Human Resources as one of the most important factors bequeathing the survival and growth of the Company in the current competitive business environment. While appreciating and valuing the service of our employees, a greater effort is being made to hire the best talent from external sources, to bolster weak areas and continue to maintain the highest standards prevalent in the industry. Human Resource Head Count is considered as a key indicator and recruitment is based on annual manpower planning. The Company provides equal opportunities. Greater emphasis is given to the areas of training, professional development and ethical business practices. All rewards and career opportunities are based on merit and on performance. 23. Taxation The tax position of the Company is given in Note 10 to the financial statements. 24. Share Information Information relating to earnings, dividend, net assets and market price per share is given on page 77. Information on share trading is given on page Disclosure as per CSE Rule No.8.7 (i) (5) Rs. Cts. Rs. Cts. Market price per share as at 31 December Highest / lowest share price 60.90/ /36.00 (Loss) / earnings per share (0.39) 3.44 Dividend per share Net assets per share Shareholding The number of registered shareholders of the Company as at 31 December 2013 was 4,999. The distribution and analysis of shareholdings are given on page Major Shareholders The twenty largest shareholders of the Company as at 31 December 2013, together with an analysis are given on page Statutory Payments The Directors to the best of their knowledge and belief are satisfied that all statutory payments in relation to the Government and the employees have been made on time. Ceylon Grain Elevators PLC Annual Report

32 REPORT OF THE DIRECTORS ON THE STATE OF AFFAIRS OF THE (Contd.) 29. Environment, Health and Safety Company policy continues to ensure that all Environmental, Health and Safety regulations are strictly adhered to, minimising any adverse effects to the environment. Recycling of waste is carried out where ever possible. Employees are provided with all personal protective equipment as Health and well being which are our prime concerns. Fire fighting and safety systems are in place to safeguard the Company interest. Plans are in progress to introduce emission free machinery for in-house operations to eliminate air pollution. 30. Corporate Governance / Internal Control The Corporate Governance and Internal Control Policies of the Company are given on pages 12 to Contingent Liabilities Contingent Liabilities as at 31 December 2013 are set out in Note 27 to the financial statements. 32. Annual General Meeting The 31 st Annual General Meeting of the Company will be held on 8 May 2014 at the Sri Lanka Foundation Institute Auditorium, No. 100, Sri Lanka Padanama Mawatha, Independence Square, Colombo 7 at a.m. By Order of the Board of Ceylon Grain Elevators PLC (Sgd.) Cheng Chih Kwong, Primus Chairman and Chief Executive Officer (Sgd.) Tan Beng Chuan Executive Director and Group General Manager (Sgd.) S S P Corporate Services (Private) Limited Secretaries Colombo, Sri Lanka 8 April Ceylon Grain Elevators PLC Annual Report

33 STATEMENT OF THE DIRECTORS' RESPONSIBILITY The responsibility of the Directors in relation to the financial statements of the Company and the Group is set out in the following statement. The responsibility of the auditors, in relation to the financial statements, is set out in their report appearing on page 32. The Companies Act No. 07 of 2007 requires the Directors to prepare financial statements for each financial year which give a true and fair view of the status of affairs of the Company and the Group and of the profit or loss for that year. In preparing these financial statements the Directors are required to: Select suitable accounting policies and then apply them consistently; Make judgments and estimates that are reasonable and prudent; State whatever applicable accounting standards have been followed, subject to any material departures and explained in the financial statements; and Prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Group will continue in business. Compliance Statement The Directors are of the view that they have discharged their responsibilities as set out in this statement. They also confirm that to the best of their knowledge, all statutory payments payable by the Company and its subsidiaries as at the reporting date have been paid or where relevant, provided for. Ceylon Grain Elevators PLC (Sgd.) Cheng Chih Kwong, Primus Chairman and Chief Executive Officer (Sgd.) Tan Beng Chuan Executive Director and Group General Manager Colombo, Sri Lanka 8 April 2014 The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and the Group and to ensure that the financial statements comply with the Companies Act. The Directors are also responsible for taking such steps as they deem reasonable or required in order to safeguard the assets of the Company and the Group and in this regard to give proper consideration to the establishment of appropriate internal control systems with a view to prevent and detect fraud and other irregularities. The Directors are required to prepare the financial statements to provide the auditors with every opportunity to take whatever steps and undertake whatever inspections they may consider to be appropriate to enable them to express their audit opinion. Ceylon Grain Elevators PLC Annual Report

34 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF CEYLON GRAIN ELEVATORS PLC Report on the Financial Statements We have audited the accompanying financial statements of Ceylon Grain Elevators 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 31 December 2013, the statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information set out on pages 33 to 76 of this annual report. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Scope of Audit and Basis of Opinion Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion. Opinion Company In our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended 31 December 2013 and the financial statements give a true and fair view of the financial position of the Company as at 31 December 2013, and of its financial performance and its cash flows for the year then ended in accordance with Sri Lanka Accounting Standards. Group In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Company and its subsidiaries dealt with thereby as at 31 December 2013 and of its financial performance and its cash flows for the year then ended in accordance with Sri Lanka Accounting Standards. Report on Other Legal and Regulatory Requirements These financial statements also comply with the requirements of Section 153(2) to 153(7) of the Companies Act No. 07 of Chartered Accountants Colombo, Sri Lanka 8 April Ceylon Grain Elevators PLC Annual Report

35 STATEMENT OF COMPREHENSIVE INCOME All amounts in Sri Lankan Rupees thousands For the year ended 31 December NOTES Restated Restated Revenue 4 11,468,100 12,375,045 11,403,284 12,370,881 Cost of sales (10,708,544) (11,990,817) (10,958,494) (12,165,414) Gross profit 759, , , ,467 Other income 8 40, ,013 74, ,296 Selling and distribution expenses (138,378) (129,120) (134,896) (126,030) Administrative expenses (252,090) (359,128) (230,248) (343,562) Operating profit 5 409, , , ,171 Net finance expenses 9 (168,614) (303,332) (145,299) (270,556) Share of profit of associate 3,218 4, Profit before tax 244, ,769 8, ,615 Taxation 10 (51,558) 27,688 (32,085) 47,624 Profit / (loss) for the year 192, ,457 (23,240) 206,239 Other comprehensive income Actuarial (loss) / gain arising from defined benefit obligation (732) 3,704 (635) 2,744 Total comprehensive income / (expenses) for the year 191, ,161 (23,875) 208,983 Profit / (loss) attributable to : Equity holders of the parent 119, ,155 (23,240) 206,239 Non-controlling interest 72,559 15, , ,457 (23,240) 206,239 Total comprehensive income / (expenses) attributable to : Equity holders of the parent 119, ,461 (23,875) 208,983 Non-controlling interest 72,341 15, , ,161 (23,875) 208,983 Basic earnings / (loss) per share (Rs.) (0.39) 3.44 The notes on pages 37 to 76 form an integral part of these consolidated financial statements. Figures in brackets indicate deductions. Ceylon Grain Elevators PLC Annual Report

36 STATEMENT OF FINANCIAL POSITION All amounts in Sri Lankan Rupees thousands As at 31 December NOTES Restated Restated ASSETS Non-current assets Property, plant and equipment 12 2,229,101 2,065, , ,192 Leasehold right over land and buildings , , , ,262 Intangible assets 14 85,131 98,235 85,131 98,235 Investment in associate company 15 14,390 11, Investment in subsidiary companies , ,039 Livestock , , Deferred tax assets 25 53,423 67,802 53,423 67,802 Total non-current assets 3,269,696 3,101,237 1,040, ,563 Current assets Inventories 19 1,896,192 2,232,993 1,781,386 2,097,306 Trade and other receivables , , , ,648 Amount due from affiliated companies ,966 1,004,429 Current tax receivable 41,493 39,835 7,469 7,469 Cash and cash equivalents 21 44,023 81,190 35,833 46,010 Total current assets 2,457,887 2,809,679 3,067,000 3,580,862 Total assets 5,727,583 5,910,916 4,107,644 4,495,425 EQUITY Stated capital 29 1,017,996 1,017,996 1,017,996 1,017,996 Retained earnings 1,754,010 1,642,968 1,004,667 1,036,942 Total equity attributable to equity holders of the parent 2,772,006 2,660,964 2,022,663 2,054,938 Non-controlling interest , , Total equity 3,165,015 2,981,632 2,022,663 2,054,938 LIABILITIES Non-current liabilities Deferred tax liabilities , , Employee benefits 26 48,139 41,876 36,975 31,736 Amount due to affiliated companies , ,447 Interest bearing borrowings 24 46,500-46,500 - Total non-current liabilities 214, ,395 83, ,183 Current liabilities Trade and other payables , , , ,818 Amount due to affiliated companies ,416 1,158, ,830 1,174,746 Interest bearing borrowings , , , ,740 Total current liabilities 2,348,076 2,563,889 2,001,506 2,206,304 Total liabilities 2,562,568 2,929,284 2,084,981 2,440,487 Total equity and liabilities 5,727,583 5,910,916 4,107,644 4,495,425 The notes on pages 37 to 76 form an integral part of these consolidated financial statements. These financial statements have been prepared in compliance with the requirements of the Companies Act No. 07 of (Sgd.) K.A.R.S. Perera General Manager These financial statements were approved by the Board of Directors on 8 April (Sgd.) Cheng Chih Kwong, Primus Chairman and Chief Executive Officer (Sgd.) Tan Beng Chuan Executive Director and Group General Manager 34 Ceylon Grain Elevators PLC Annual Report

37 STATEMENT OF CHANGES IN EQUITY All amounts in Sri Lankan Rupees thousands For the year ended 31 December Attributable to equity holders of the parent Non- Total Stated Retained Total controlling equity capital earnings interest Balance as at 1 January ,017,996 1,514,049 2,532, ,507 2,837,552 LKAS 19 - Transitional effect - (8,542) (8,542) (539) (9,081) Restated balance as at 1 January ,017,996 1,505,507 2,523, ,968 2,828,471 Profit for the year - 134, ,155 15, ,457 Other comprehensive income Actuarial gain arising from defined benefit obligation - 3,306 3, ,704 Restated balance as at 31 December ,017,996 1,642,968 2,660, ,668 2,981,632 Balance as at 1 January ,017,996 1,642,968 2,660, ,668 2,981,632 Profit for the year - 119, ,956 72, ,515 Other comprehensive income Actuarial loss arising from defined benefit obligation - (514) (514) (218) (732) Transactions with owners Dividend paid - (8,400) (8,400) - (8,400) Balance as at 31 December ,017,996 1,754,010 2,772, ,009 3,165,015 Stated Retained Total capital earnings equity Balance as at 1 January ,017, ,069 1,854,065 LKAS 19 - Transitional effect - (8,110) (8,110) Restated balance as at 1 January ,017, ,959 1,845,955 Profit for the period - 206, ,239 Other comprehensive income for the period Actuarial gain arising from defined benefit obligation - 2,744 2,744 Restated balance as at 31 December ,017,996 1,036,942 2,054,938 Balance as at 1 January ,017,996 1,036,942 2,054,938 Loss for the year - (23,240) (23,240) Other comprehensive income Actuarial loss arising from defined benefit obligation - (635) (635) Transactions with owners Dividend paid - (8,400) (8,400) Balance as at 31 December ,017,996 1,004,667 2,022,663 The notes on pages 37 to 76 form an integral part of these consolidated financial statements. Figures in brackets indicate deductions. Ceylon Grain Elevators PLC Annual Report

38 STATEMENT OF CASH FLOWS All amounts in Sri Lankan Rupees thousands For the year ended 31 December NOTES Restated Restated Operating activities Cash generated from / (used in) operations ,123 (486,864) 353,517 (1,068,007) Exchange loss (35,178) (184,438) (34,739) (186,273) Interest received 2,879 5,520 2,520 4,709 Interest paid (118,351) (89,860) (95,475) (55,249) Employee benefits paid 26 (3,398) (4,958) (2,158) (3,225) Tax paid (23,611) (14,218) - (5,005) Net cash generated from / (used in) operating activities 717,464 (774,818) 223,665 (1,313,050) Investing activities Purchase of property, plant and equipment 12 (316,406) (163,676) (199,700) (40,413) Purchase of leasehold assets 13 - (1,228) - (1,228) Purchase of intangible assets 14 - (19,471) - (19,471) Proceeds from disposal of property, plant and equipment 2,704 20,654 2, Proceeds from disposal of leasehold right over land and buildings Proceeds from disposal of associate shares - 730, ,616 Proceeds from dividend income - 12,082 6,645 16,132 Purchase of livestock 17 (400,807) (419,105) - - Net cash (used in) / generated from investing activities (714,438) 159,872 (190,730) 685,674 Financing activities Dividend paid (8,400) - (8,400) - Net borrowings (40,500) 615,000 (40,500) 615,000 Net cash (used in) / generated from financing activities (48,900) 615,000 (48,900) 615,000 (Decrease) / increase in cash and cash equivalents (45,874) 54 (15,965) (12,376) Movements in cash and cash equivalents At the beginning of the year (10,280) (10,334) (34,730) (22,354) (Decrease) / increase in cash and cash equivalents (45,874) 54 (15,965) (12,376) Cash and cash equivalents as at 31 December 21 (a) (56,154) (10,280) (50,695) (34,730) The notes on pages 37 to 76 form an integral part of these consolidated financial statements. Figures in brackets indicate deductions. 36 Ceylon Grain Elevators PLC Annual Report

39 NOTES TO THE FINANCIAL STATEMENTS 1. Reporting entity 1.1. General Ceylon Grain Elevators PLC (the 'Company') is a "Quoted Public Company" with limited liability, incorporated and domiciled in Sri Lanka. The address of the Company's registered office is No.15, Rock House Lane, Colombo - 15, Sri Lanka. The consolidated financial statements of the Company as at and for the year ended 31 December 2013 comprise the Company and its subsidiaries and the Group's interest in associate, listed below. Subsidiaries Three Acre Farms PLC Ceylon Pioneer Poultry Breeders Limited Ceylon Livestock and Agrobusiness Services (Private) Limited Ceylon Warehouse Complex (Private) Limited Ceylon Aquatech (Private) Limited Millennium Multibreeder Farms (Private) Limited Associate Prima Management Services (Private) Limited Ceylon Grain Elevators PLC (CGE) was incorporated in 1982, when the government of Sri Lanka and Prima Limited of Singapore signed an agreement. The Company was listed in the Colombo Stock Exchange on 27 January 1992 in the Food and Beverage Sector. Prima Limited, Singapore, holds 45.45% of the issued share capital of the Company Principal activities and nature of the operation The main business of the Group is feed milling, commercial broiler farming, poultry processing and distribution, poultry breeder farming operations, manufacture and sale of aquatic feed, buying and selling of poultry equipment and provision of silo and warehouse facilities Number of employees The average numbers of employees of the Group and company for the year are as follows. Group Full time 494 ( ) Part time 772 ( ) Company Full time 314 ( ) Part time 132 ( ) 2. Basis of preparation 2.1. Statement of compliance The financial statements of the Company and those consolidated with such comprise the statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows together with the accounting policies and notes to the financial statements. The consolidated financial statements have been prepared in accordance with Sri Lanka Accounting Standards (SLFRS) as issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and the requirements of the Companies Act No. 07 of Approval of financial statements by Directors The consolidated financial statements were authorised for issue by the Board of Directors on 8 April Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except the valuation of retirement benefit obligation which is disclosed in Note 26 to the financial statements Functional and presentation currency The consolidated financial statements are presented in Sri Lankan Rupees, which is the Company s functional currency, rounded to the nearest thousand, unless otherwise stated Use of estimates and judgments The preparation of the consolidated financial statements in conformity with Sri Lanka Accounting Standards (SLFRS) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Information about assumptions and estimation uncertainties critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is included in the following notes: Ceylon Grain Elevators PLC Annual Report

40 NOTES TO THE FINANCIAL STATEMENTS (Contd.) Note Note 3.6 Note 3.9 Note 3.5 Note 3.14 Note lease hold right classification - classification of investment property - key assumptions used in discounted cash flow projections - intangible assets - deferred taxation - measurement of defined benefit obligations and Notes 3.11 and provisions and contingencies Materiality and aggregation Each material class of similar items is presented separately in the financial statements. Items of a dissimilar nature or function are presented separately unless they are immaterial. 3. Significant Accounting Policies The accounting policies set out below have been applied consistently to all periods presented in these financial statements except for the change in accounting policy as explained in Note Basis of consolidation Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date - i.e. when control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group also takes into consideration potential voting rights that are currently exercisable. The Group measures goodwill at the acquisition date as: the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The consideration transferred does not include amounts related to the settlement of pre-existing relationships such amounts are generally recognised in profit or loss. Transactions costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred Non-controlling interest The total profit and loss for the year of the Company and its subsidiaries included in consolidation are shown in the consolidated statement of comprehensive income with the proportion of profit and loss after taxation pertaining to minority shareholders of subsidiaries being deducted as 'Non-controlling interest'. All assets and liabilities of the Company and of its subsidiaries included in consolidation are shown in the consolidated statement of financial position. The interest of minority shareholders of subsidiaries in the fair value of net assets of the Group are indicated separately in the consolidated statement of financial position under the heading 'Non-controlling interest'. Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as transactions with owners in their capacity as owners. Adjustments to non-controlling interest is based on a proportionate amount of the net assets of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognised in profit or loss Subsidiaries Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date, that control commences, until the date that control ceases Loss of control On the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss Investments in associates Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. Investments in associates are accounted for under the equity method and are recognised initially at cost. The cost of the investment includes transaction costs. The consolidated financial statements include the Group's share of the profit or loss and other comprehensive income 38 Ceylon Grain Elevators PLC Annual Report

41 NOTES TO THE FINANCIAL STATEMENTS (Contd.) of equity-accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence or joint control ceases. When the Group's share of losses exceeds its interest in an equity-accounted investee, the carrying amount of the investment, including any long-term interests that form part thereof, is reduced to zero and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee Transactions eliminated on consolidation Intra-group balances and transactions and any unrealised income and expenses arising from intra group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment Foreign currency Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year adjusted for effective interest and payments during the year and the amortised cost in foreign currency translated at the exchange rate at the end of the year. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated using the exchange rate at the date of the transaction Financial instruments Non-derivative financial assets The Group initially recognises loans and receivables on the date that they originated. All other financial assets (including assets designated as at fair value through profit or loss) are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. 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 offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available for sale financial assets. Financial assets at fair value through profit or loss A financial asset is classified as at fair value through profit or loss if it is classified as held-for-trading or is designated as such on initial recognition. Financial assets are designated as at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group s documented risk management or investment strategy. Attributable transaction costs are recognised in profit or loss as incurred financial assets at fair value through profit or loss are measured at fair value and changes therein, which takes into account any dividend income, are recognised in profit or loss. Held-to-maturity financial assets If the Group has the positive intent and ability to hold debt securities to maturity, then such financial assets are classified as held-to-maturity. Held-to-maturity financial assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Ceylon Grain Elevators PLC Annual Report

42 NOTES TO THE FINANCIAL STATEMENTS (Contd.) Loans and receivables comprise cash and cash equivalents, current tax receivables, amount due from affiliated companies and trade and other receivables. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value and are used by the Group in the management of its short-term commitments. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available-for- sale or are not classified in any of the above categories of financial assets. Available-for-sale financial assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available- for-sale debt instruments, are recognised in other comprehensive income and presented in the fair value reserve in equity. When an investment is derecognised, the gain or loss accumulated in equity is reclassified to profit or loss Non-derivative financial liabilities The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method. Other financial liabilities comprise loans and borrowings, debt securities issued, bank overdrafts, amount due to affiliated companies and trade and other payables. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the statement of cash flows Stated capital Ordinary shares Ordinary shares are classified as equity. As per the Companies Act No. 07 of 2007, section 58 (1), stated capital in relation to a Company means the total of all amounts received by the Company or due and payable to the Company in respect of the issue of shares and in respect of call in arrears Property, plant and equipment Property, plant and equipment are tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and are expected to be used during more than one period Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets include the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use and the cost of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing cost. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment Recognition and measurement Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within 'other income / other expenses' in profit or loss Subsequent costs The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. 40 Ceylon Grain Elevators PLC Annual Report

43 NOTES TO THE FINANCIAL STATEMENTS (Contd.) Derecognition The carrying amount of an item of property, plant and equipment is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The gain or loss arising from derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. When replacement costs are recognised in the carrying amount of an item of property, plant and equipment, the remaining carrying amount of the replaced part is derecognised. Major inspection costs are capitalised. At each such capitalisation, the remaining carrying amount of the previous cost of inspections is derecognised Depreciation Depreciation is based on the cost or other amount substituted for cost, less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately. Depreciation is recognised in the statement of comprehensive income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. No depreciation is provided on assets under construction. The estimated useful lives for the current and comparative years are as follows: Freehold building years Plant and machinery 16 2/3 years Electrical and factory equipment years Farm equipment 5-20 years Furniture and fittings and office equipment 10 years Motor vehicles 5-10 years Land is not depreciated as it is deemed to have indefinite life. Depreciation of an asset begins when it is available for use and ceases at the earlier of the date that the asset is classified as held-for-sale and the date that the asset is derecognised. Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount Capital work-in-progress Capital expenses incurred during the year which are not completed as at the reporting date are shown as capital work-in-progress, while the capital assets which have been completed during the year and put to use are transferred to property, plant and equipment Leased assets Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased assets are measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and any prepayments are recognised in the consolidated statement of financial position as lease hold rights. The leasehold rights under operating leases are charged to the income statement on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. The cost of improvements to or on leased property is capitalised and depreciated over the unexpired period of the lease or the estimated useful lives of improvements, whichever is shorter Intangible assets Other intangible assets Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, are recognised in profit or loss as incurred Amortisation Amortisation is recognised in profit or loss on a straightline basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. Ceylon Grain Elevators PLC Annual Report

44 NOTES TO THE FINANCIAL STATEMENTS (Contd.) The estimated useful lives for the current and comparative years are as follows: Computer software 10 years Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate Investment property Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is initially measured at cost and subsequently carried at cost less any accumulated depreciation and any accumulated impairment loss. Cost includes expenditure that is directly attributable to the acquisition of the investment property. The cost of self-constructed investment property includes the cost of materials and direct labour, any other costs directly attributable to bringing the investment property to a working condition for their intended use and capitalised borrowing costs. Any gain or loss on disposal of an investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss Biological asset A biological asset is a living animal or plant. Biological assets consist of parent and grandparent livestock, used to breed day old commercial chicks, hatching eggs and broiler birds. Parent and grandparent birds include the growing birds and the laying birds. Consumable biological assets are those that are to be harvested as agricultural produce or sold as biological assets. Hatching eggs and broiler birds have been identified as consumable biological assets. Agricultural produce harvested from an entity's biological assets are measured at its fair value less costs to sell at the point of harvest. In management's opinion, the fair value of the consumable biological assets is substantially represented by formation cost, mainly due to the shorter life cycle of the birds and the fact that a significant share of the profits arise from the manufacturing process (i.e. as broiler whole chicken, broiler portions and further processing meat) and not from the live birds. Accordingly, the cost of consumable biological assets approximates its fair value. Bearer biological assets are those other than consumable biological assets. Bearer biological assets are not agricultural produce but, rather, are self-regenerating. As per the ruling issued by the Institute of Chartered Accountants of Sri Lanka on 2 March 2012, preparers can choose to measure bearer biological assets either at cost (using LKAS 16 - Property, Plant and Equipment) or at fair value under LKAS 41 - Agriculture. Company has identified parent and grandparent livestock as bearer biological assets. The growing birds are valued at directly attributable cost incurred up to the commencement of laying period. The laying birds are valued at cost less subsequent amortisations. The amortisation is made on straight line basis over the laying period after making due allowances for carcass value Inventories Inventories are measured at the lower of cost and net realisable value after making due allowances for obsolete and slow moving items. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale. The cost incurred in bringing inventories to its present location and conditions are accounted as follows. Compounded feed Cost is calculated using the weighted average cost formula and the cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads, but excludes interest expenses. Poultry equipment, drugs, vaccines and sundry inventories Poultry equipment, drugs, vaccines and sundry inventories are valued at actual cost on weighted average basis after making due allowance for obsolete and slow moving items. Out grower stock Out grower stock represents the Company s birds reared at outside farms and are valued at directly attributable cost Impairment Non-derivative financial assets A financial asset not classified as at fair value through profit or loss, including an interest in an equity- accounted investee, is assessed at each reporting date to determine 42 Ceylon Grain Elevators PLC Annual Report

45 NOTES TO THE FINANCIAL STATEMENTS (Contd.) whether there is objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset and that loss event(s) had an impact on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence; that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. Financial assets measured at amortised cost The Group considers evidence of impairment for financial assets measured at amortised cost (loans and receivables and held-to-maturity financial assets) at both a specific asset and collective level. All individually significant assets are assessed for specific impairment. Those found not to be specifically impaired are, then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are, collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment, the Group uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management's judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables or held-to-maturity investment securities. Interest on the impaired asset continues to be recognised. When an event occurring after the impairment is recognised and causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. Available-for-sale financial assets Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. The cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation and the current fair value, less any impairment loss recognised previously in profit or loss. Changes in cumulative impairment losses attributable to application of the effective interest method are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. An impairment loss in respect of an equity-accounted investee is measured by comparing the recoverable amount of the investment with its carrying amount. An impairment loss is recognised in profit or loss. An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount Non-financial assets The carrying amounts of the Group's non-financial assets, other than biological assets, investment property, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. Goodwill and indefinitelife intangible assets are tested annually for impairment. An impairment loss is recognised if the carrying amount of an asset or cash generating unit (CGU) exceeds its recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs) and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis. Ceylon Grain Elevators PLC Annual Report

46 NOTES TO THE FINANCIAL STATEMENTS (Contd.) An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised Employee benefits Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably Defined contribution plan A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an employee benefit expense in profit or loss in the periods during which related services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. (a) Employees' Provident Fund The Group and employees contribute 12% and 8% respectively on the salary of each employee to the Employees Provident Fund. (b) Employees' Trust Fund The Group contributes 3% of the salary of each employee to the Employees Trust Fund. The total amount recognised as an expense to the Group for contribution to ETF is disclosed in the notes to financial statements Defined benefit plan - gratuity A defined benefit plan is a post employment benefit plan other than a defined contribution plan. The Group's net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Any unrecognised past service costs and the fair value of any plan assets are deducted. The calculation is performed annually by a qualified actuary using the Projected Unit Credit (PUC) method as recommended by LKAS 19 - 'Employee Benefits'. When the calculation results in a benefit to the Group, the recognised asset is limited to the total of any unrecognised past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Group. An economic benefit is available to the Group if it is realisable during the life of the plan, or on settlement of the plan liabilities. When the benefits of a plan are improved, the portion of the increased benefit related to past service by employees is recognised in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss. The assumptions based on which the results of actuarial valuation was determined, are included in Note 26 to the financial statements. The Company recognises all actuarial gains and losses arising from defined benefit plan immediately in other comprehensive income and all expenses related to defined benefit plan in employee benefit expense in profit or loss. The Company recognises gains and losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment or settlement comprises any resulting change in the fair value of plan assets, any change in the present value of the defined benefit obligation, any related actuarial gains and losses and past service cost that had not previously been recognised. However, according to the Payment of Gratuity Act No.12 of 1983, the liability for the gratuity payment to an employee arises only on the completion of 5 years of continued service with the Company Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably; and it is probable that an outflow, of economic benefits will be required to settle the obligation Revenue recognition Sale of goods Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration 44 Ceylon Grain Elevators PLC Annual Report

47 NOTES TO THE FINANCIAL STATEMENTS (Contd.) received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised. Revenue excludes value added taxes or other sales taxes. Rental income Rental income received or receivable in the course of ordinary activities is recognised as revenue in the statement of comprehensive income on a straight-line basis over the terms of the lease. Lease incentives granted are recognised as an integral part of the total rental income. Rental income from investment property is recognised as other income in profit or loss on a straight-line basis over the terms of the lease. Dividend income Dividend income is recognised in profit or loss on the date that the Group s right to receive payment is established. Other income Gains / losses on the disposal of investments held by the Group have been accounted for as other income in the statement of comprehensive income. Gains / losses on the disposal of property, plant and equipment determined by reference to the carrying amount and related expenses, have been accounted for as other income in the statement of comprehensive income. Finance income Finance income comprises interest income on funds invested (including available-for-sale financial assets), gains on the disposal of available-for-sale financial assets and fair value gains on financial assets at fair value through profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method Expenses Operating lease payments Where the Company has the use of assets under operating leases, payments made under the leases are recognised in the statement of comprehensive income on a straight-line basis over the term of the lease. Lease incentives received are recognised in the statement of comprehensive income as an integral part of the total lease expense over the term of the lease. Contingent rentals are charged to the statement of comprehensive income in the accounting period in which they are incurred. Finance cost Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions and losses on disposal of available-for-sale financial assets, fair value losses on financial assets at fair value through profit or loss and impairment losses recognised on financial assets (other than trade receivables). Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method. Foreign currency gains and losses on financial assets and financial liabilities are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position Taxation Income tax expense comprises current and deferred tax. Income tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date and any adjustment to tax payable in respect of previous years. Deferred tax Deferred tax is recognised using the statement of financial position liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, nor differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the Ceylon Grain Elevators PLC Annual Report

48 NOTES TO THE FINANCIAL STATEMENTS (Contd.) carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. The principal temporary differences arise from depreciation on property, plant and equipment, tax losses carried forward, impairment of livestock trade and other receivables and provisions for defined benefit obligations. Deferred tax assets relating to the carry forward of unused tax losses are recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products and services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments Earnings / (loss) per share The Group presents basic earnings / (loss) per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period Events after the reporting period All material post reporting period events have been considered and where appropriate adjustments or disclosures have been made in respective notes to the financial statements Comparative figures Where necessary, the comparative figures have been reclassified to conform to the current year s presentation Commitments and contingencies Contingencies are possible assets or obligations that arise from a past event and would be confirmed only on the occurrence or non-occurrence of uncertain future events, which are beyond the Company s control. Contingent liabilities are disclosed in Note 27 to the financial statements. Commitments are disclosed in Note 28 to the financial statements New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2013 and have not been applied in preparing these financial statements. These include following standards which will be effective from 1 January 2014; SLFRS 10 - Consolidated Financial Statements SLFRS 11 - Joint Arrangements SLFRS 12 - Disclosure of Interests in other Entities SLFRS 13 - Fair Value Measurement; and SLFRS 09 - "Financial Instruments" which will be effective from 1 January The Company is currently in the process of evaluating the potential effect of these standards on its financial statements and the impacts of the adoption of these standards have not been quantified as at the reporting date. 46 Ceylon Grain Elevators PLC Annual Report

49 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands For the year ended 31 December SEGMENT INFORMATION (a) Business segments For the year ended 31 December 2013 Feed milling Broiler Poultry Shrimp Poultry Silo and Elimination / Consolidated farming and breeder and farming equipment warehouse adjustment processed commercial complex chicken farming Sales to outsiders 7,703,211 2,991, ,758-40,654 6,612-11,468,100 Inter segmental sales 2,239, ,391-98,992 67,068 (3,322,618) - Total revenue 9,942,378 2,991,865 1,643, ,646 73,680 (3,322,618) 11,468,100 Segment results 119,199 (39,553) 209,429 (2,384) 28,084 40,829 13, ,088 Net finance expenses (145,299) - (23,067) - (248) - - (168,614) Other income / (expenses) 74,512 (14) (14,028) (20,129) 40,381 Share of profit of associate ,218 3,218 Profit / (loss) before tax 48,412 (39,567) 172,334 (2,344) 27,836 40,829 (3,427) 244,073 Taxation (29,305) (2,780) (2,765) (295) (9,065) (7,348) - (51,558) Profit / (loss) for the year 19,107 (42,347) 169,569 (2,639) 18,771 33,481 (3,427) 192,515 Other comprehensive income Actuarial (loss) / gain arising from defined benefit obligation (635) - (509) (732) Total comprehensive income / (expenses) for the year 18,472 (42,347) 169,060 (2,639) 18,771 33,893 (3,427) 191,783 For the year ended 31 December 2012 Feed milling Broiler Poultry Shrimp Poultry Silo and Elimination / Consolidated farming and breeder and farming equipment warehouse adjustment processed commercial complex chicken farming Sales to outsiders 8,964,844 2,648, ,473-38,116 12,711-12,375,045 Inter segmental sales 2,178, ,003-87,749 72,427 (3,089,250) - Total revenue 11,142,915 2,648,901 1,461, ,865 85,138 (3,089,250) 12,375,045 Segment results (247,477) (16,648) 73,548 (2,364) 21,257 54,976 12,688 (104,020) Net finance (expenses) / income (270,556) - (32,850) (303,332) Other income / (expenses) 693, , (1,102) (171,799) 525,013 Share of profit of associate ,108 4,108 Profit / (loss) before tax 175,150 (16,535) 44,563 (1,611) 21,331 53,874 (155,003) 121,769 Taxation 47,624 - (8,802) 1,409 (7,145) (5,398) - 27,688 Profit / (loss) for the year 222,774 (16,535) 35,761 (202) 14,186 48,476 (155,003) 149,457 Other comprehensive income Actuarial gain arising from defined benefit obligation 2, ,704 Total comprehensive income / (expenses) for the year 225,518 (16,535) 36,690 (202) 14,186 48,507 (155,003) 153,161 Ceylon Grain Elevators PLC Annual Report

50 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands For the year ended 31 December SEGMENT INFORMATION (Contd.) (b) Business segments (Contd.) As at 31 December 2013 Feed milling Broiler Poultry Shrimp Poultry Silo and Elimination / Consolidated farming and breeder and farming equipment warehouse adjustment processed commercial complex chicken farming Segment assets 2,715, ,625 2,271,564 63,481 28, ,497 (353,730) 5,713,193 Associate ,357 14,390 Inter segment assets 796, ,414 - (844,380) - Total assets 3,512, ,625 2,271,564 63,481 76, ,497 (1,183,753) 5,727,583 Segment liabilities 2,037, , ,547 55,046-2,562,568 Inter segment liabilities 47, ,881 86,417-5,085 (1,030,797) - Total liabilities 2,084,981-1,353,106 86,600 8,547 60,131 (1,030,797) 2,562,568 Capital expenditure 199, , ,406 Depreciation / amortisation 46,790-93,019 1,431-13, ,709 Impairment of intangible assets 13, ,104 As at 31 December 2012 Feed milling Broiler Poultry Shrimp Poultry Silo and Elimination / Consolidated farming and breeder and farming equipment warehouse adjustment processed commercial complex chicken farming Segment assets 2,908, ,611 2,256,003 64,944 41, ,970 (351,039) 5,899,048 Associate ,139 11,172 Inter segment assets 1,004, ,197 - (1,020,626) - Total assets 3,913, ,611 2,256,003 64,944 58, ,970 (1,360,526) 5,910,220 Segment liabilities 2,424, ,888 1,698 7,724 41,684-2,929,284 Inter segment liabilities 16,197-1,052,717 83,726-51,712 (1,204,352) - Total liabilities 2,440,487-1,506,605 85,424 7,724 93,396 (1,204,352) 2,929,284 Capital expenditure 59, , ,147 Depreciation / amortisation 35,199-80,143 1,540-13, ,399 Impairment of intangible assets 12, , Ceylon Grain Elevators PLC Annual Report

51 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands For the year ended 31 December SEGMENT INFORMATION (Contd.) (c) Business segments (Contd.) The Group is organised into six main business segments: Feed milling - manufacture and sale of poultry feed, aqua feed and other animal feed. Broiler farming and processed chicken - operation of broiler farming, processing and distribution of chicken. Poultry breeder and commercial farming - operation of grandparent, parent poultry breeder farms and hatcheries. Shrimp farming - integrated shrimp operation. Poultry equipment - import and sale of poultry equipment, drugs and vaccine. Silo and warehouse complex - operation of ultra modern silo and warehouse complex. Segment assets consist primarily of property, plant and equipment, intangible assets, inventories, receivables and operating cash and exclude investments in subsidiaries. Segment liabilities comprise current and non-current liabilities. Capital expenditure comprises additions to property, plant and equipment. (d) Sales are made up as follows: Feed milling 11,032,304 12,603,808 11,032,304 12,603,808 Process chicken 3,412,249 3,000,068 3,412,249 3,000,068 Poultry breeder farming 1,415,961 1,329, Parent birds 34,050 29, Commercial broiler farming 427, , Poultry equipment 144, , Silo warehouse complex 84,206 97, ,551,392 17,439,755 14,444,553 15,603,876 Elimination / adjustment (3,322,618) (3,089,250) (1,485,035) (1,420,935) 13,228,774 14,350,505 12,959,518 14,182,941 Sales taxes [ Note 4. (e) ] (1,760,674) (1,975,460) (1,556,234) (1,812,060) 11,468,100 12,375,045 11,403,284 12,370,881 (e) Sales taxes Nation Building Tax 221, , , ,754 Value Added Tax 1,538,870 1,712,697 1,336,220 1,552,306 1,760,674 1,975,460 1,556,235 1,812,060 Ceylon Grain Elevators PLC Annual Report

52 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands For the year ended 31 December Operating profit The following items have been charged / (credited) in arriving at operating profit: Restated Restated Directors emoluments 2, , Auditors remuneration - Audit service 4,888 4,615 2,930 2,765 - Other service Legal fees 3,024 22,617 2,980 22,538 Depreciation on property, plant and equipment (Note 12) 138, ,115 43,045 31,403 Amortisation of leasehold right over land and buildings (Note 13) 16,254 16,284 3,745 3,796 Amortisation of intangible assets (Note 14) 13,104 12,454 13,104 12,454 Amortisation of livestock (Note 17) 355, , Provision / (reversal) for doubtful debts 6,953 (2,125) 6,974 (2,000) Settlement of custom case - 115, ,000 Operating lease rentals - property 33,000 31,139 21,000 17,983 Staff expenses (Note 7) 600, , , , Temporary cessation of operation On 1 November 2004 the Directors temporarily ceased the operation of breeding, hatching and growing of prawns and sea cucumber of Ceylon Aquatech (Private) Limited, a subsidiary of the Company. The Management of the Company is of the view that the commercial operations of the Chilaw Farm could be recommenced. The assets and liabilities as at the reporting date of the division were as follows: As at 31 December Property, plant and equipment 63,392 64,844 Total assets 63,481 64,944 Total liabilities 86,600 85,424 Net assets (23,119) (20,480) 50 Ceylon Grain Elevators PLC Annual Report

53 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands For the year ended 31 December Staff expenses Restated Restated Salaries and wages 565, , , ,098 Social security cost Defined contribution plan 25,600 24,834 21,776 19,329 Employee benefits (Note 26) 8,929 8,536 6,762 6, , , , ,369 Average monthly number of persons employed by the Company and Group during the year: - Full time Part time ,266 1, Part time employees include contracted labourers hired from third parties and those who work on shift basis. 8. Other income Sundry income 14,233 26,241 30,216 35,631 Interest income 2,879 5,520 2,520 4,709 Amortisation of amount due to affiliated companies - unearned income 34,829 34,829 34,829 34,829 Dividend income - 12,082 6,645 16,132 Gain on disposal of associate company shares - 447, ,165 (Loss) / profit on disposal of property, plant and equipment (11,341) (19,263) 507 (170) Loss on disposal of leasehold right over land and buildings (219) - (219) - Reversal of impairment provision on property, plant and equipment - 18, , ,013 74, , Net finance expenses Foreign exchange transaction losses 35, ,438 34, ,273 Interest expense on amount due to affiliated companies - non-current 15,085 29,034 15,085 29,034 Interest expense on bank borrowings 118,351 89,860 95,475 55, , , , ,556 Ceylon Grain Elevators PLC Annual Report

54 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands For the year ended 31 December Taxation Current tax 14,662 21, ,334 Under / (over) provision 6,531 (1,751) - - Deemed dividend tax - 6,193-5,006 Deferred tax charge / (release) (Note 25) 13,160 (53,955) 14,379 (52,774) ESC write off 17, ,205 (1,190) 51,558 (27,688) 32,085 (47,624) Company Under an agreement dated 12 February 2004, entered into by the Company and the Board of Investment of Sri Lanka (BOI), the Company was entitled to an additional tax holiday of 3 years and a further additional tax exemption period of 5 years commencing from 17 December 2005 on profit and income earned by the Company from transshipment and bulk cargo operations and the operations of the feed milling and the animal husbandry project. This exemption period was over by 17 December 2010 and the Company is liable to pay 10% as income tax on profits and income earned for the year ended 31 December The Company is liable to pay 28% as income tax on interest income earned by the Company. The tax losses carried forward as at 31 December 2013 amounted to Rs. 517,792,213/- ( Rs. 464,116,199/-). Group Three Acre Farms PLC is liable to pay income tax on profits and income earned at 10%. The tax losses available to carry forward as at 31 December 2013 amounted to Rs. 520,094,336/- (2012- Rs. 537,466,559/-). Ceylon Livestock and Agrobusiness Services (Private) Limited is liable to pay income tax at 28% on the profits and income earned by the company. Ceylon Pioneer Poultry Breeders Limited is liable to pay income tax at 28% on the profits and income earned by the company. The tax losses available to carry forward as at 31 December 2013 amounted to Rs. 227,646,905/- ( Rs. 227,688,736/-). Millennium Multibreeder Farms (Private) Limited is liable to pay income tax at 10% on the profits and income earned by the company. The tax losses available to carry forward as at 31 December 2013 amounted to Rs. 100,109,067/- ( Rs. 115,362,127/-). Ceylon Aquatech (Private) Limited is liable to pay income tax at 28% on the profits and income earned by the company. However, the tax losses available to carry forward as of 31 December 2013 amounted to Rs. 18,585,521/- ( Rs. 18,607,005/-). Ceylon Warehouse Complex (Private) Limited is exempt from income tax on trading profits for a period of seven years reckoned from the year in which the company commences to make profits in relation to its transactions or any year of assessment not later than five years from the date of its commercial operations, whichever is the earlier. The company commenced commercial operations on 1 October Hence the tax holiday commenced from 1 April The tax holiday had expired on 31 March 2011 and the company is liable for income tax on the profits and income earned by the company at the rate of 10%. 52 Ceylon Grain Elevators PLC Annual Report

55 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands For the year ended 31 December Taxation (Contd.) Reconciliation of effective tax rate The tax on the results of the Group s operations and the Company s profit before tax differs from the theoretical amount that would arise using the basic tax rate as follows: Profit before tax 244, ,769 8, ,615 Share of profit of associate (3,218) (4,108) , ,661 8, ,615 Add: disallowable expenses 658, , , ,803 Deduct: allowable expenses (823,360) (132,994) (189,280) (123,903) Deduct: income not subject to tax - (442,570) - (617,631) Profit / (loss) from trade and business 76, ,204 (54,639) (465,116) Add: interest income 2,773 4,771 2,751 4,764 Deduct: tax loss claimed (33,652) (42,138) (963) - Taxable income 45, ,837 1,788 4,764 Income tax using the domestic corporate tax rate at 10% 5,060 3, at 12% - 8, at 28% 9,602 8, ,334 Current tax 14,662 21, ,334 Under / (over) provision 6,531 (1,751) - - Deferred tax charge / (release) 13,160 (53,955) 14,379 (52,774) Deemed dividend tax - 6,193-5,006 ESC write off 17, ,205 (1,190) 51,558 (27,688) 32,085 (47,624) Further information about deferred tax is presented in Note Basic earnings / (loss) per share Basic earnings / (loss) per share is calculated by dividing the net profit / (loss) attributable to ordinary shareholders by the weighted average number of shares outstanding during the year Net profit / (loss) attributable to ordinary shareholders 119, ,155 (23,240) 206,239 Weighted average number of ordinary shares (thousands) 60,000 60,000 60,000 60,000 Basic earnings / (loss) per share (Rs.) (0.39) 3.44 Ceylon Grain Elevators PLC Annual Report

56 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Property, plant and equipment As at Additions / Disposals/ As at (a) Group WIP transfer write off Cost Land 346, ,659 Building 1,092,121 42,574 (12,300) 1,122,395 Plant and machinery, electrical and farm equipment 991, ,474 (1,372) 1,240,550 Furniture and fittings and office equipment 141,505 8,804 (9,491) 140,818 Motor vehicles 132,845 26,146 (2,773) 156,218 Capital work-in-progress 22,352 (11,592) - 10,760 2,726, ,406 (25,936) 3,017,400 As at Charge for Disposals/ As at the year write off Depreciation Building 48,767 26,728 (697) 74,798 Plant and machinery, electrical and farm equipment 501,880 85,373 (1,368) 585,885 Furniture and fittings and office equipment 90,444 9,061 (9,308) 90,197 Motor vehicles 20,644 17,293 (518) 37, , ,455 (11,891) 788,299 As at As at Carrying amount Land 346, ,659 Building 1,043,354 1,047,597 Plant and machinery, electrical and farm equipment 489, ,665 Furniture and fittings and office equipment 51,061 50,621 Motor vehicles 112, ,799 Capital work-in-progress 22,352 10,760 2,065,195 2,229,101 Property, plant and equipment includes fully depreciated assets, the cost of which as at 31 December 2013 amounted to Rs.415,573,118/- ( Rs. 407,472,042/-). 54 Ceylon Grain Elevators PLC Annual Report

57 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Property, plant and equipment (Contd.) As at Additions / Disposals/ As at (b) Company WIP transfer write off Cost Land 40, ,314 Building 29,820 1,334-31,154 Plant and machinery, electrical and farm equipment 258, ,316 (1,316) 442,130 Furniture and fittings and office equipment 132,479 8,743 (9,491) 131,731 Motor vehicles 74, (1,873) 72,526 Capital work-in-progress 2,501 4,286-6, , ,700 (12,680) 724,642 As at Charge for Disposals/ As at the year write off Depreciation Building 1, ,775 Plant and machinery, electrical and farm equipment 158,501 24,381 (1,312) 181,570 Furniture and fittings and office equipment 81,541 9,045 (9,308) 81,278 Motor vehicles 13,230 9,002 (313) 21, ,430 43,045 (10,933) 286,542 As at As at Carrying amount Land 40,314 40,314 Building 28,662 29,379 Plant and machinery, electrical and farm equipment 99, ,560 Furniture and fittings and office equipment 50,938 50,453 Motor vehicles 61,148 50,607 Capital work-in-progress 2,501 6, , ,100 Property, plant and equipment include fully depreciated assets, the cost of which as at 31 December 2013 amounted to Rs.156,652,047/- ( Rs. 154,265,637/-). Ceylon Grain Elevators PLC Annual Report

58 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Leasehold right over land and buildings Balance at the beginning of the year 489, , , ,830 Additions during the year - 1,228-1,228 Disposal during the year (290) - (290) - Amortisation for the year (16,254) (16,284) (3,745) (3,796) Balance at the end of the year 472, , , ,262 The Company has an agreement to mortgage for Rs. 495 million over leasehold land and building, plant, machinery and equipment at No.15, Rock House Lane, Colombo-15 as security for credit facilities. The leasehold land and building which was recognised previously as finance lease are accounted as operating lease based on substance of lease agreement. The management represents that the previous treatment was in accordance with Accounting Standards prevalent at that time and this amount will be treated similar to lease prepayment and amortised over the remaining period of the lease. The lease period of the leasehold land expired on 19 September 2012 and the Board of Directors have taken necessary action to renew the lease for a further period of 30 years. 14. Intangible assets ERP software Cost Balance at the beginning of the year 131, , , ,563 Additions during the year - 19,471-19,471 Balance at the end of the year 131, , , ,034 Amortisation Balance at the beginning of the year (32,799) (20,345) (32,799) (20,345) Amortisation for the year (13,104) (12,454) (13,104) (12,454) Balance at the end of the year (45,903) (32,799) (45,903) (32,799) Carrying amount 85,131 98,235 85,131 98, Investment in associate company Prima Management Services (Private) Limited 14,390 11, ,390 11, Ceylon Grain Elevators PLC Annual Report

59 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Investment in associate company (Contd.) (a) Prima Management Services (Private) Limited Balance at the beginning of the year 11,172 7,064 Share of profits after tax 3,218 4,108 Balance at the end of the year 14,390 11,172 (b) Summarised financial information of Prima Management Services (Private) Limited Statement of financial position Total assets 66,729 44,281 Total liabilities (23,557) (10,763) Net assets 43,172 33,518 Statement of comprehensive income Revenue 97, ,007 Profit 9,605 14,383 (c) Share of profit of associate company Prima Management Services (Private) Limited 3,218 4,108 3,218 4,108 (d) Investment in associate company - unquoted Group Company No. of Holding % No. of Holding % shares shares Prima Management Services (Private) Limited 3,334 33% 14,390 11,172 3,334 33% Net book value as at 31 December 14,390 11, Share of movement in equity value Equity value in investments 14,390 11, The Company has invested Rs. 33,334/- in Prima Management Services (Private) Limited acquiring 33% stake during Ceylon Grain Elevators PLC Annual Report

60 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Investment in subsidiary companies Investment in subsidiary companies - quoted [Note 16 (a)] 148, ,625 Investment in subsidiary companies - unquoted [Note 16 (b)] 213, ,000 Investment in subsidiary companies - cost 361, ,625 Provision for impairment (7,895) (10,586) 353, ,039 (a) Investment in subsidiary companies - quoted No. of Company Group shares holding % holding % Three Acre Farms PLC 13,469, % 57.21% Net book value as at 31 December 148, ,625 Market value as at 31 December 497, ,338 (b) Investments in subsidiary companies - unquoted No. of Company Group shares holding % holding % Ceylon Warehouse Complex (Private) Limited 1,500, % 100% 150, ,000 Ceylon Aquatech (Private) Limited 6,000, % 100% 60,000 60,000 Ceylon Livestock and Agrobusiness Services (Private) Limited 300, % 100% 3,000 3,000 Net book value as at 31 December 213, ,000 Provisions have been made for the investment in Ceylon Aquatech (Private) Limited. (c) Details of the companies incorporated in Sri Lanka, in which the Company held an interest of 50% or more are set out below: Name of Company Proportion of ordinary shares held 2013 Movement 2012 Business Ceylon Livestock and Agrobusiness Services (Private) Limited 100% - 100% Import and sale of poultry equipment, drugs and vaccines Ceylon Warehouse Complex (Private) Limited 100% - 100% Provide storage facilities Ceylon Aquatech (Private) Limited 100% - 100% Integrated shrimp business Three Acre Farms PLC 57.21% % Hatching and sale of day old chicks and commercial broiler farming Ceylon Pioneer Poultry Breeders Limited 57.21% % Renting of farm operation Millennium Multibreeder Farms (Private) Limited 57.21% % Operation of modern poultry breeding and hatcheries utilising advanced technologies All the above companies, the financial years of which end on 31 December are audited by KPMG. These Companies were incorporated in Sri Lanka. 58 Ceylon Grain Elevators PLC Annual Report

61 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Livestock Net book value at the beginning of the year 369, , Additions during the year 400, , Amortisation for the year (Note 5) (355,445) (396,741) - - Net book value at the end of the year 414, , Amount due from affiliated companies Three Acre Farms PLC , ,611 Ceylon Aquatech (Private) Limited ,417 83,726 Ceylon Pioneer Poultry Breeders Limited , ,106 Ceylon Warehouse Complex (Private) Limited - - 5,084 51, ,383 1,188,155 Less : provision for receivables - - (186,417) (183,726) ,966 1,004,429 Provisions have been made for receivables from Ceylon Aquatech (Private) Limited and Ceylon Pioneer Poultry Breeders Limited amounting to Rs. 86,417,000/- and Rs. 100,000,000/- respectively. 19. Inventories Raw materials and consumables 1,560,481 1,649,952 1,450,602 1,527,937 Work in progress - 2,847-2,847 Hatching eggs - 13, Goods in transit 64, ,035 64, ,035 Finished goods - Feed 85,716 75,365 85,716 75,365 - Chicken 82,974 28,930 82,974 28,930 - Broiler DOC 4, Out grower stock 125, , , ,684 1,924,910 2,257,485 1,810,104 2,121,798 Less : provision for slow moving and obsolete items (28,718) (24,492) (28,718) (24,492) 1,896,192 2,232,993 1,781,386 2,097,306 Inventories are on an 'agreed to mortgage' condition, against short term bank borrowings from the bank. Ceylon Grain Elevators PLC Annual Report

62 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Trade and other receivables Trade receivables 579, , , ,548 Less : provision for doubtful debts (258,499) (251,546) (248,310) (241,336) 320, , , ,212 Prepayments 9,428 6,676 8,458 5,430 Other receivables [Note 20 (a)] 145, , ,453 82, , , , ,648 Trade receivables have been pledged as securities for short term bank borrowings. (a) Trade and other receivables Deposits and advances 38,917 18,885 27,489 13,674 Staff loans Other receivables 106,865 87,974 92,859 68, , , ,453 82, Cash and cash equivalents Cash at bank 41,327 77,686 33,667 43,204 Cash in hand 2,696 3,504 2,166 2,806 44,023 81,190 35,833 46,010 The Group's weighted average effective interest rate on short term bank deposits was 7.81% ( %). For the purposes of the statement of cash flows, the year end cash and cash equivalents at the end of the year comprise the following: (a) Net cash and cash equivalents Cash and bank balances 44,023 81,190 35,833 46,010 Bank overdrafts (Note 24) (100,177) (91,470) (86,528) (80,740) (56,154) (10,280) (50,695) (34,730) 60 Ceylon Grain Elevators PLC Annual Report

63 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Trade and other payables Trade payables 151, , , ,538 Accrued expenses 184, , ,587 85,573 Dividend payable Other payables [ Note 22 (a) ] 160, ,589 97, , , , , ,818 (a) Other payables Deposits and advances 61,865 49,211 53,475 39,870 Government taxes 33,043 80,130 9,120 50,686 Other payables 65,221 48,248 35,118 19, , ,589 97, , Amount due to affiliated companies Non-current Hapiways Management Services Pte Limited - 167, ,618 Unearned interest income - 34,829-34, , ,447 Current Ceylon Agro Industries Limited 57,970 57,562 57,970 57,562 Prima Ceylon (Private) Limited 219, , , ,801 Prima Management Services (Private) Limited 8,392 9,937 8,392 9,937 Hapiways Management Services Pte Limited 661, , , ,609 Colombo Sea Foods Limited 2,640 2,640 2,640 2,640 Ceylon Livestock and Agrobusiness Services (Private) Limited ,414 16, ,416 1,158, ,830 1,174,746 Ceylon Grain Elevators PLC Annual Report

64 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Interest bearing borrowings Non-current Bank borrowings 46,500-46,500-46,500-46,500 - Current Bank overdraft 100,177 91,470 86,528 80,740 Bank borrowings 800, , , , , , , ,740 The interest rate exposure of the borrowings of the Group and the Company was as follows: Total borrowings: - at fixed rates at floating rates 946, , , , , , , ,740 / Weighted average effective interest rates: - bank overdraft AWPLR+0.50% AWPLR+0.50% - bank borrowings - fixed floating 10.25% 14.70% Bank borrowings were obtained to finance the import of raw materials relating to the production of poultry and animal feed. Security for these borrowings are inventories and receivables and agreement to mortgage for Rs. 495 million over leasehold land and buildings, plant machinery and equipment at No. 15, Rock House Lane, Colombo Deferred Taxation 25.1 Deferred tax assets The gross movement in the deferred tax account is as follows: Restated Restated At the beginning of the year 67,802 15,028 67,802 15,028 Deferred tax (charge) / release (Note 10) (14,379) 52,774 (14,379) 52,774 At the end of the year 53,423 67,802 53,423 67,802 Deferred tax has been computed by applying the effective income tax rate at 10% in the year 2013 ( effective income tax rate at 12%). 62 Ceylon Grain Elevators PLC Annual Report

65 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Deferred taxation (Contd.) Deferred tax assets (Contd.) The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: Temporary Tax effect on Temporary Tax effect on difference temporary difference temporary difference difference Property, plant and equipment (268,852) (26,885) (173,174) (20,781) Provision for doubtful debts 248,310 24, ,336 28,960 Defined benefit obligation 36,975 3,698 31,736 3,809 Tax losses 517,793 51, ,117 55, ,226 53, ,015 67, Deferred tax liabilities The gross movement on the deferred tax account is as follows: Restated At the beginning of the year 121, , Deferred tax release (Note 10) (1,219) (1,181) - - At the end of the year 119, , Group Ceylon Pioneer Poultry Breeders Limited has been computed deferred taxation by applying the effective income tax rate at 28%. Ceylon Warehouse Complex (Private) Limited has been computed deferred taxation by applying the effective income tax rate at 10%. The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: Temporary Tax effect on Temporary Tax effect on difference temporary difference temporary difference difference Property, plant and equipment 1,317, ,523 1,295, ,356 Livestock 414,660 41, ,298 44,316 Defined benefit obligation (11,164) (1,116) (10,140) (1,209) Tax losses (620,204) (62,020) (603,989) (81,391) 1,101, ,853 1,050, ,072 Ceylon Grain Elevators PLC Annual Report

66 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Deferred taxation (Contd.) Deferred tax liabilities (Contd.) Unrecognised deferred tax asset Deferred tax asset has not been recognised on tax losses carried forward for following companies, since it is not probable that future taxable profit will be available against which the Company can utilise the benefit there on Ceylon Pioneer Poultry Breeders Limited Tax losses carried forward 227, ,689 Tax effect there on at 28% 63,741 63,753 Ceylon Aquatech (Private) Limited Tax losses carried forward 18,586 18,607 Tax effect there on at 28% 5,204 5, Employee benefits Defined benefit obligation Restated Restated Defined benefit obligation as at 1 January 41,876 42,002 31,736 31,320 Provisions made during the year 9,661 4,832 7,397 3,641 Benefits paid by the plan (3,398) (4,958) (2,158) (3,225) Defined benefit obligation as at 31 December 48,139 41,876 36,975 31,736 The amounts recognised in the statement of financial position are as follows: Present value of unfunded obligations 48,139 41,876 36,975 31,736 Recognised liability for defined benefit obligations 48,139 41,876 36,975 31,736 Movement in the present value of the defined benefit obligation Defined benefits as at 1 January 41,876 42,002 31,736 31,320 Benefits paid by the plan (3,398) (4,958) (2,158) (3,225) Current service cost 4,741 4,337 3,588 3,254 Interest on obligation 4,188 4,199 3,174 3,131 Actuarial loss / (gain) during the year 732 (3,704) 635 (2,744) Defined benefit obligation at the end of the year 48,139 41,876 36,975 31,736 Expense recognised in the statement of comprehensive income Current service cost 4,741 4,337 3,588 3,254 Interest on obligation 4,188 4,199 3,174 3,131 8,929 8,536 6,762 6,385 Expense recognised in the statement of other comprehensive income Actuarial loss / (gain) during the year 732 (3,704) 635 (2,744) 732 (3,704) 635 (2,744) 64 Ceylon Grain Elevators PLC Annual Report

67 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Employee benefits (Contd.) The actuarial valuation was carried out by a professionally qualified actuary Mr. Piyal S Gunathilake of P & G Associates for retiring gratuity for employees as at 31 December The liability is not externally funded. Actuarial assumptions Principal actuarial assumptions at the reporting date (expressed as weighted averages): Discount rate 10% 10% Future salary increases 10% 10% Assumptions regarding future mortality are based on published statistics and mortality tables. The average life expectancy of an individual retiring at age 55 Staff turnover sliding scale by the age of employee retiring from 10% - 1% The provision for retiring gratuity for the year is based on the actuarial valuation made on 31 December Contingent liabilities (a) 284/2008 MR Green Valley Farm has sued CGE claiming Rs. 195,775,306/- as losses resulting from the business affairs, it had with CGE. The trial is over and matter is now called for correction of proceedings on 30 April 2014 before the final judgment. (b) A Dispute between Inter Company Employees Union for 275 terminated employees Vs CGE and Subsidiaries Employees of CGE and subsidiary companies went on strike on 20 March 2006 and those who went on strike were terminated. The dispute was referred to the Commissioner of Labour and the reference was gazetted by the Minister dated 26 May 2006 referring the case for hearing at the Industrial Court. At the Industrial Court CGE took up a preliminary objection that composite reference (referring to employees of six companies in one reference) is bad in law as they are separate legal entities and cannot be referred to in one dispute. The Industrial Court gave its verdict rejecting the preliminary objection and thereafter the Company made an appeal against the interim order in the Court of Appeal (C/A 796/2007). Court of Appeal delivered its judgement on 18 May 2010 rejecting the appeal filed by CGE. Accordingly the case was taken up for hearing before the Industrial Court. The evidence of the first witness of the CGE is pending and the matter has been fixed for hearing on 29 April (c) A 3174 and A Dispute between Inter Company Employees Union for contractors workers Vs Contractors and CGE Employees who worked under Labour Contractors were also involved in the strike. Labour Contractors were Global Engineering & Supplies, Global Marine Services and Avant Guard Security Services (Private) Limited. This case was also referred to Commissioner of Labour and two references were gazetted by the Minister dated 26 May 2006 referring the case for hearing at the Industrial Court. (I ) A Dispute between Inter Company Employees Union and CGE and Global Engineering & Supplies number of employees. (ii) A Dispute between Inter Company Employees Union and CGE and Avant Guard Security Services (Private) Limited - 57 number of employees. Ceylon Grain Elevators PLC Annual Report

68 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Contingent liabilities (Contd.) The dispute was referred as 'non offer of employment'. CGE lawyers took up an objection in the Industrial Court that there is no such dispute called 'non offer of employment' under the purview of law. But Industrial Court in its preliminary order rejected the said objection and thereafter CGE referred to the Court of Appeal (Case No 737/2007 and 746/2007 respectively). Court of appeal delivered its judgement by rejecting the appeal filed by CGE and referring the cases back to the industrial court for hearing. (1) A The matter came up on 17 January 2014 for the first time and the next hearing will be on 30 April (2) A The matter came up on 9 January 2014 for the first time and the next hearing will be on 9 May Commitments No capital commitments outstanding as at the reporting date except the followings: Within More than More than one year 1-5 years 5 years Total Company (a) Hapiways Management Services Pte Limited - for the management services rendered outside Sri Lanka. 31, , , ,020 (b) Operating Lease commitment - the Ministry of Finance and Planning for the use of land and buildings at No. 15, Rock House Lane, Colombo ,071 64, , ,995 (c) Sri Lanka Ports Authority - operating lease rentals for the use of Woodland Warehouse. 15,087 60, , ,511 Group (d) Ceylon Warehouse Complex (Private) Limited operating lease rentals to Sri Lanka Ports Authority for the use of land. 12,000 48, , ,917 74, ,151 1,772,837 2,153,443 (e) (f) With respect to (b), (c) and (d) above, the Company has exercised its option provided by the original Agreement and the related leases to be renewed for a further period of 30 years, before the Agreement and the related leases expired on 19 September In a letter dated 18 September 2012, the Government of Sri Lanka has expressed its willingness to consider an extension of the Agreement and the related leases subject to mutually acceptable terms and conditions and to permit the Company to continue to operate under the existing Agreement and the related leases pending negotiations to enter into a new Agreement and leases. The terms and conditions of the new leases have yet to be finalised at the date of this annual report. The operating lease commitments relating to these operating lease agreements have been stated based on the current lease rental rates. The Company is the parent company of Three Acre Farms PLC, Ceylon Aquatech (Private) Limited and Ceylon Pioneer Poultry Breeders Limited and confirms their commitment, in present circumstances to continue financial support in the business operations of and to meet financial obligations. As the ultimate Parent Company of the above Companies, CGE has no intention or inclination of withdrawing their support or reducing the scale of operations of the above companies in the forthcoming 12 months. (g) The Company has provided a corporate guarantee of Rs. 45,000,000/- to Sampath Bank PLC for a banking facility obtained by Ceylon Agro Industries Limited which expired on 27 January (h) The Company has provided a corporate guarantee of Rs. 250,000,000/- to Hatton National Bank PLC for a banking facility obtained by its subsidiary company, Three Acre Farms PLC. 66 Ceylon Grain Elevators PLC Annual Report

69 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Stated Capital ,000,000 ordinary shares 600, ,000 Share premium 417, ,996 1,017,996 1,017, Non - controlling interest Restated At the beginning of the year 320, ,968 Share of net profit of subsidiaries 72,559 15,302 Share of other comprehensive income of subsidiaries (218) 398 At the end of the year 393, , Cash generated from operations Restated Restated Profit before tax 244, ,769 8, ,615 Adjustments : Depreciation (Note 12) 138, ,115 43,045 31,403 Amortisation of leasehold right over land and buildings (Note 13) 16,254 16,284 3,745 3,796 Amortisation of intangible assets (Note 14) 13,104 12,454 13,104 12,454 Amortisation of livestock (Note 17) 355, , Loss on disposal of leasehold right over land and buildings Loss / (profit) on disposal of property, plant and equipment 11,341 19,263 (507) 170 Provision / (reversal) of impairment on amount due from affiliated companies - - 2,691 (10,586) (Reversal) / provision for impairment on investment in subsidiary companies - - (2,691) 10,586 Profit on disposal of associate company shares - (447,104) - (602,165) Dividend income - (12,082) (6,645) (16,132) Exchange loss 35, ,438 34, ,273 Interest income (37,707) (40,349) (37,348) (39,538) Interest expense 133, , ,560 84,283 Provision / (reversal) for doubtful debts (Note 5) 6,953 (2,125) 6,974 (2,000) Share of profit of associate (3,218) (4,108) - - Changes in working capital - trade and other receivables (44,676) 66 (43,877) (13,844) - inventories 336,801 (511,225) 315,920 (469,205) - trade and other payables 71,373 (30,222) 52,829 (26,176) - amount due from affiliated companies ,772 48,029 - amount due to affiliated companies (390,837) (432,209) (359,620) (430,355) Employee benefits (Note 26) 8,929 8,536 6,762 6,385 Cash generated from / (used in) operations 895,123 (486,864) 353,517 (1,068,007) Ceylon Grain Elevators PLC Annual Report

70 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Financial instruments The Group has an exposure to the following risks arising from financial instruments; Credit risk Liquidity risk Market risk The Group s Board of Directors have overall responsibility for the establishment and oversight of the Group s risk management framework, developing and monitoring the Group s risk management policies and report regularly to the Board of Directors on its activities. 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. Risk management policies and systems are reviewed regularly to reflect changes in the market conditions and the Group s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Board of Directors of Ceylon Grain Elevators PLC, oversee how management monitors compliance with the Company s risk management policies and procedures and review the adequacy of the risk management framework in relation to the risks faced by the Group Financial instruments - Statement of Financial Position Financial assets Loans and receivables Trade and other receivables , , , ,648 Amount due from affiliated companies ,966 1,004,429 Current tax receivables 41,493 39,835 7,469 7, , ,496 1,249,781 1,437,546 Cash and cash equivalents 21 44,023 81,190 35,833 46, , ,686 1,285,614 1,483,556 Financial liabilities Other financial liabilities Interest bearing borrowings - non-current 24 46,500-46,500 - Interest bearing borrowings - current , , , ,000 Amount due to affiliated companies - non-current , ,447 Amount due to affiliated companies - current ,416 1,158, ,830 1,174,746 Trade and other payables , , , ,818 2,294,399 2,674,866 1,961,478 2,328,011 Bank overdraft ,177 91,470 86,528 80,740 2,394,576 2,766,336 2,048,006 2,408, Ceylon Grain Elevators PLC Annual Report

71 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Financial instruments (Contd.) 32.2 Financial instruments - Statement of Comprehensive Income Gain / Losses / Gain / Losses / income expenses income expenses Loans and receivables Amount due to affiliated companies - unearned income 34,829 15,085 34,829 29,034 Interest bearing borrowings 2, ,351 5,520 89,860 37, ,436 40, ,894 Other financial liabilities Amount due to affiliated companies - non-current 34,829 15,085 34,829 29,034 Interest bearing borrowings 2,520 95,475 4,709 55,249 37, ,560 39,538 84, Credit risk Credit risk is the risk of financial loss to the Group, if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group s receivables from customers, placements with banking institutions and in government securities. 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: Amount due from affiliated companies ,383 1,188,155 Trade and other receivables , , , ,984 Current tax receivables 41,493 39,835 7,469 7,469 Cash and cash equivalents 21 44,023 81,190 35,833 46, , ,232 1,720,341 1,908,618 Ceylon Grain Elevators PLC Annual Report

72 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Financial Instruments (Contd.) 32.4 Impairment losses The aging of trade and other receivables at the reporting date was: Gross Impairment Gross Impairment Not past due 127, ,810 - Past due 0-30 days 135, ,536 - Past due days 63,532-37,797 - More than 365 days 408, , , , , , , , Gross Impairment Gross Impairment Not past due 97,650-90,132 - Past due 0-30 days 134, ,536 - Past due days 63,265-34,462 - More than 365 days 398, , , , , , , ,336 The movement in the allowance for impairment in respect of loans and receivables during the year was as follows. Balance as at 1 January 251, , , ,336 Impairment loss recognised / (reversed) 6,953 (2,125) 6,974 (2,000) Balance as at 31 December 258, , , ,336 Based on historic default rates, the Group believes that, apart from the above, no impairment allowance is necessary in respect of trade receivables not past dues or past dues more than 365 days, which includes the amount owed by the Group's most significant customers and customers that have a good payment record with the Group. The aging of amount due from affiliated companies at the reporting date was: Gross Impairment Gross Impairment Not past due Past due days 983, ,417 1,188, ,726 More than 365 days , ,417 1,188, ,726 The movement in the allowance for impairment in respect of amount due from affiliated companies during the year was as follows: Balance as at 1 January , ,312 Impairment loss recognised / (reversed) - - 2,691 (10,586) Balance as at 31 December , , Ceylon Grain Elevators PLC Annual Report

73 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Financial Instruments (Contd.) 32.5 Liquidity risk The followings are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements. Carrying Contractual 6 months More than As at 31 December 2013 amount cash flows or less months years Years 5 years Non-derivative financial liabilities Bank Loans 846,500 (846,500) (775,000) (25,000) (46,500) - - Trade and other payables 497,483 (497,483) (497,483) Amount due to affiliated companies - current 950,416 (950,416) (766,690) (183,726) Bank overdraft 100,177 (100,177) (100,177) ,394,576 (2,394,576) (2,139,350) (208,726) (46,500) - - Carrying Contractual 6 months More than As at 31 December 2013 amount cash flows or less months years Years 5 years Non-derivative financial liabilities Bank Loans 596,500 (596,500) (525,000) (25,000) (46,500) - - Trade and other payables 367,148 (367,148) (367,148) Amount due to affiliated companies - current 997,830 (997,830) (814,104) (183,726) Bank overdraft 86,528 (86,528) (86,528) ,048,006 (2,048,006) (1,792,780) (208,726) (46,500) - - Carrying Contractual 6 months More than As at 31 December 2012 amount cash flows or less months years Years 5 years Non-derivative financial liabilities Amount due to affiliated companies - non-current 202,447 (182,704) - - (182,704) - - Bank Loans 887,000 (887,000) (887,000) Trade and other payables 426,870 (426,870) (426,870) Amount due to affiliated companies - current 1,158,549 (1,158,549) (974,536) (184,013) Bank overdraft 91,470 (91,470) (91,470) ,766,336 (2,746,593) (2,379,876) (184,013) (182,704) - - Carrying Contractual 6 months More than As at 31 December 2012 amount cash flows or less months years Years 5 years Non-derivative financial liabilities Amount due to affiliated companies - non-current 202,447 (182,704) - - (182,704) - - Bank Loans 637,000 (637,000) (637,000) Trade and other payables 313,818 (313,818) (313,818) Amount due to affiliated companies - current 1,174,746 (1,174,746) (990,733) (184,013) Bank overdraft 80,740 (80,740) (80,740) ,408,751 (2,389,008) (2,022,291) (184,013) (182,704) - - It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amount. Ceylon Grain Elevators PLC Annual Report

74 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Financial Instruments (Contd.) 32.6 Currency risk Foreign currency risk is the risk that the fair value of future cash flow of a financial instrument of fluctuating due to changes in foreign exchange rate. Exposure to currency risk The Group's exposure to foreign currency risk was as follows based on notional amounts: USD SGD EUR USD SGD EUR Trade payables 405,815-91, ,986-84,595 Amount due to affiliated companies 5,058, ,424, ,464,539-91,791 9,023,908-84, USD SGD EUR USD SGD EUR Trade payables 286,291-46, ,967-41,804 Amount due to affiliated companies 5,058, ,424, ,345,015-46,994 8,786,889-41,804 The following significant exchange rates applied during the year: Average rate Reporting date spot rate 32.7 Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates affecting to the Company's income or the value of its holding of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return Interest rate risk USD EUR SGD At the reporting date the interest rate profile of the Group's interest bearing financial instruments were: Carrying amount Fixed rate instruments Financial assets Financial liabilities Variable rate instruments Financial assets Financial liabilities (846,500) (887,000) (596,500) (637,000) (846,500) (887,000) (596,500) (637,000) 72 Ceylon Grain Elevators PLC Annual Report

75 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Related party transactions 33.1 Key management personnel information Key management personnel include all the members of the Board of Directors of the Company having authority and responsibility for planning, directing and controlling the activities of the Company as well as the subsidiaries, directly or indirectly. Compensation paid to key management personnel on behalf of the companies are as follows: Short-term employee benefits 2, , Post employment benefits , , Mr. Cheng Chih Kwong, Primus, Mr. Tan Beng Chuan, Dr. Wickrema Sena Weerasooria, Mr. Cheng Koh Chuen, Bernard, and Mr. Sunil Karunanayake, the directors of the Company are also the directors of the following companies as set out below and with transactions in note 33.2 have been carried out. Name of the related party Name of the director Nature of transaction Three Acre Farms PLC Subsidiary Mr. Cheng Chih Kwong, Primus Mr. Tan Beng Chuan Mr. Cheng Koh Chuen, Bernard Dr. Wickrema Sena Weerasooria Mr. Sunil Karunanayake CGE sells feeds to TAF. Also company purchases broiler DOC and culled birds from TAF. Ceylon Pioneer Poultry Breeders Limited Subsidiary Ceylon Aquatech (Private) Limited Subsidiary Ceylon Livestock and Agrobusiness Services (Private) Limited Subsidiary Ceylon Warehouse Complex (Private) Limited Subsidiary Millennium Multibreeder Farms (Private) Limited Subsidiary Prima Management Services (Private) Limited Associate Company Prima Ceylon (Private) Limited Group Company Hapiways Management Services Pte Limited Group Company Ceylon Agro Industries Limited Group Company Mr. Cheng Chih Kwong, Primus Mr. Tan Beng Chuan Mr. Cheng Chih Kwong, Primus Mr. Tan Beng Chuan Mr. Cheng Chih Kwong, Primus Mr. Tan Beng Chuan Mr. Cheng Chih Kwong, Primus Mr. Tan Beng Chuan Mr. Cheng Chih Kwong, Primus Mr. Tan Beng Chuan Mr. Cheng Chih Kwong, Primus Mr. Cheng Chih Kwong, Primus Mr. Tan Beng Chuan Mr. Cheng Chih Kwong, Primus Mr. Cheng Chih Kwong, Primus Mr. Tan Beng Chuan No inter-company transactions have been recorded during the year. No inter-company transactions have been recorded during the year. CLAS supplies veterinary drugs, medicine and poultry equipment to the Company s outgrower farms. Also company sells drugs and vaccines to CLAS. CWCL provides storage facilities to the Company. CGE sells feeds to MMFL. Also company purchases broiler DOC and culled birds from MMFL. PMS provides ICT solutions and services to the Company. CGE purchases Brand Pallet and Wheat pollard from PCL CGE purchases of all kind of imported raw materials, feed additives, spare parts and other significant imports from HMS. The Company is purchasing local maize and hiring the poultry processing plant, rendering plant and storage facilitation from CAI. Also company sells processed chicken to CAI. Ceylon Grain Elevators PLC Annual Report

76 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Related party transactions (Contd.) 33.2 Related party transactions The Group has a related party relationship with its subsidiaries, associates and related group companies as disclosed in Note Companies within the Group engage in trading transactions. The following transactions were carried out with related parties during the year ended 31 December (a) Sale of goods and services Sale of goods: Three Acre Farms PLC , ,657 Millennium Multibreeder Farms (Private) Limited , ,553 Ceylon Livestock and Agrobusiness Services (Private) Limited ,559 41,926 Prima Ceylon (Private) Limited 3,908 3,350 3,908 3,350 Ceylon Agro Industries Limited 66,709 63,651 66,709 63,651 70,617 67, , ,137 Sale of services: Three Acre Farms PLC - - 4,966 4,814 Millennium Multibreeder Farms (Private) Limited Ceylon Livestock and Agrobusiness Services (Private) Limited - - 5,700 5,700 Prima Ceylon (Private) Limited Ceylon Agro Industries Limited Ceylon Warehouse Complex (Private) Limited - - 2,100 2, ,940 12,898 (b) Purchase of goods and services Purchase of goods: Three Acre Farms PLC , ,572 Millennium Multibreeder Farms (Private) Limited , ,181 Ceylon Livestock and Agrobusiness Services (Private) Limited ,825 32,904 Prima Ceylon (Private) Limited 433, , , ,144 Ceylon Agro Industries Limited 142,063 27, ,063 27,588 Hapiways Management Services Pte Limited 5,133,223 6,371,701 5,133,223 6,398,498 Prima Management Services (Private) Limited - 4,085-4,085 5,708,688 6,876,518 6,291,418 7,449,972 Purchase of services: Prima Ceylon (Private) Limited 12,714 8,460 12,714 8,460 Ceylon Agro Industries Limited 297, , , ,224 Hapiways Management Services Pte Limited 31,073 30,740 31,073 30,740 Prima Management Services (Private) Limited 34,505 31,009 34,505 31,009 Ceylon Warehouse Complex (Private) Limited ,068 72, , , , , Ceylon Grain Elevators PLC Annual Report

77 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Related party transactions (Contd.) 33.2 Related party transactions (Contd.) (c) The receivables from related companies and payables to related companies on sale / purchase of goods /services are set out in note 18 and 23 respectively. These receivables and payables are unsecured, interest free and have no fixed repayment terms. (d) The subsidiary companies use some facilities of the Company free of charge and part of the accounting and administrative functions of the subsidiary companies are also performed by the Company for which no charges are made. 34. Events after the reporting period There are no events after the reporting period which require adjustment to, or disclosure in the financial statements. 35. Comparative information There are no events which require adjustment to, or disclosure in the financial statements except for the following; The Group previously presented the net profit or loss arising from commercial broiler farm operations carried out by the Three Acre Farms PLC which is a subsidiary of the Company as other operating profit or loss in the Group Statement of Comprehensive Income by considering this operation as other operational activity. For the fair presentation of financial performance of the Group operations, revenue and expenses were classified and presented based on the nature of transactions in the current reporting period and comparative figures have been reclassified accordingly as follows : As previously reported Reclassification Reclassified Cost of sales (12,046,490) 56,221 (11,990,269) Other operating profit 75,487 (75,487) - Other income 505,132 19, ,013 Administrative expenses (358,513) (615) (359,128) 36. Directors' responsibility The Board of Directors are responsible for the preparation and fair presentation of these financial statements. Ceylon Grain Elevators PLC Annual Report

78 NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lankan Rupees thousands As at 31 December Prior year adjustments LKAS 19 - Employee Benefits (Bound Volume 2013) disallows the use of corridor method but allows immediate recognition of actuarial gain or loss derived from defined benefit obligations through Other Comprehensive Income. The Group adopted the corridor method in previous years. In compliance with LKAS 19 - Employee Benefits (Bound Volume 2013), with effect from 1 January 2013 the Group changed its accounting policy to recognise actuarial gain or loss immediately through Other Comprehensive Income. Accordingly comparative figures for the year ended 31 December 2012 have been restated by following amounts: (a) Statement of comprehensive income for the year ended 31 December 2012 As previously Adjustments Restated reported reclassified Cost of sales (11,990,269) (548) (11,990,817) Taxation 28,066 (378) 27,688 Other comprehensive income Actuarial gain arising from defined benefit obligation - 3,704 3,704 2,778 Cost of sales (12,166,090) 676 (12,165,414) Taxation 48,034 (410) 47,624 Other comprehensive income Actuarial gain arising from defined benefit obligation - 2,744 2,744 2,744 (b) Statement of financial position as at 31 December 2012 previously Prior year Restated previously Prior year Restated reported adjustment reported adjustment Non-current assets Deferred tax assets 67, ,802 67, ,802 67, ,802 67, ,802 Equity Stated capital 1,017,996-1,017,996 1,017,996-1,017,996 Retained earnings 1,648,635 (5,666) 1,642,969 1,042,042 (5,100) 1,036,942 Total equity attributable to equity holders of the parent 2,666,631 (5,666) 2,660,965 2,060,038 (5,100) 2,054,938 Non-controlling interest 321,304 (637) 320, Total equity 2,987,935 (6,303) 2,981,632 2,060,038 (5,100) 2,054,938 Non-current liabilities Defined benefit obligation 34,706 7,170 41,876 25,940 5,796 31,736 Deferred tax liabilities 121,243 (171) 121, ,949 6, ,948 25,940 5,796 31,736 The effect of this application has been accounted for retrospectively. Since the adjustment to statement of financial position as at 1 January 2012 is immaterial, three statements of financial position have not been presented. 76 Ceylon Grain Elevators PLC Annual Report

79 Five Year Financial Summary All amounts in Sri Lankan Rupees thousands As at 31 December OPERATING RESULTS FOR THE PERIOD Revenue 11,468,100 12,375,045 10,479,840 8,009,409 6,899,316 Operating profit 409, , , , ,430 Net finance expenses (168,614) (303,332) (129,458) (29,063) (120,735) Share of profit of associate 3,218 4,108 60,512 42,409 24,042 Profit before tax 244, , , ,424 55,737 Taxation (51,558) 27,688 (46,515) (32,525) (3,965) Profit from ordinary activities 192, , , ,899 51,772 Non-controlling interest (72,559) (15,302) (72,966) (98,027) 82,098 Profit attributable to the Company 119, , , , ,870 FINANCIAL POSITION Stated capital 1,017,996 1,017,996 1,017,996 1,017,996 1,017,996 Retained earnings 1,754,010 1,642,968 1,514,049 1,227, ,214 Non-controlling interest 393, , , ,541 80,035 Non-current liabilities 214, , , ,700 1,176,668 3,379,507 3,347,027 3,383,875 3,410,867 2,898,913 Intangible assets 85,131 98,235 91,218 87, Property, plant and equipment and investments 2,755,515 2,622,532 2,574,065 2,536,433 2,403,485 Investment in associate company 14,390 11, , , ,655 Livestock 414, , , , ,287 Non-current receivables Current assets 2,457,887 2,809,679 2,339,030 1,968,764 2,037,134 Current liabilities (2,348,076) (2,563,889) (2,257,948) (1,767,393) (1,954,498) 3,379,507 3,347,027 3,383,875 3,410,867 2,898,913 RATIOS AND OTHER INFORMATION Basic (loss) / earnings per share (Rs.) (0.39) Market price per share (Rs.) Price earnings ratio (No. of times) (94.62) Net dividend pay out (Rs. 000) 8, ,000 - Debt / equity ratio Interest cover (No. of times) Net assets per share (Rs.) Current ratio (No. of times) Shares traded 10,487,311 10,884,718 70,039, ,961,000 11,519,900 US $ Exchange rate (average) US $ Exchange rate (year end spot) Ceylon Grain Elevators PLC Annual Report

80 STRUCTURE 100% Ceylon Warehouse Complex (Private) Limited Activities Provide storage facilities. CGE Activities Integrated poultry activities including feed milling, broiler farming, processing and distribution of chicken % 100% 100% Three Acre Farms PLC Ceylon Aquatech (Private) Limited Ceylon Livestock and Agrobusiness Services (Private) Limited Activities Poultry breeder farms, hatcheries and commercial broiler farms. Ceylon Pioneer Poultry Breeders Limited Millennium Multibreeder Farms (Private) Limited Activities Renting of farm operation. Activities Poultry breeder farming and hatchery (Application of advance poultry technologies). Activities Integrated shrimp operation including feed milling, breeding, processing and culture of shrimp. Activities Import and sale of poultry equipment, drugs and vaccines. 33% Prima Management Services (Private) Limited Activities ICT solution and services. 78 Ceylon Grain Elevators PLC Annual Report