CHAIRMAN S REVIEW. DIVIDEND An Interim Dividend of Rs.1.00 per Ordinary Share was declared on 30 th March 2007 and was paid on 9 th May 2007.

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3 CHAIRMAN S REVIEW It gives me great pleasure to present the Annual Report and Audited Financial Statements for the year ended 31 st March 2007 and welcome the shareholders to the fourteenth Annual General Meeting of Horana Plantations Limited (HPL). During the period under review the Company recorded a pre tax profit of Rs Million, the highest recorded in its 14-year history. This was a 46% growth over the pre-tax profit of Rs Million of the previous year. The improved performance in yet another challenging environment is encouraging. The tea sector recorded a contribution of Rs Million, which was a decline of 32% from that of the previous year. The crippling go-slow and work stoppages during one of the more productive periods of the year was a major contributory factor. The rubber sector posted a strong performance, recording a contribution of Rs Million, a growth of nearly 100%, over that of the previous year. It is noteworthy that the contribution and the gross profit margin of the rubber sector was the highest recorded in the Company s history. A more detailed account of the performance for the year is given in the Managing Director/ CEO s Review on pages 2 to 6. The plantation industry like most of the other industries was severely affected by many extraneous factors such as increase in the energy cost and other inputs, workforce agitation, removal of subsidy on fertilizer etc. Despite all these factors your Company continued it s long term Capital expenditure programmes on upgrading of factories and replanting programmes. During the year two of our main properties namely Gouravilla and Alton estates obtained the ISO and HACCP Certification. We propose to extend this to our other up country tea factories as well in the coming year. The company has commenced a medium term program to install hot water generators in its tea factories. It has already installed three hot water generators and hope to complete installing hot water generators in most of its up country estates with a view to reducing dependence on fossil fuels. The company also plans to initiate work on the development of hydro power potential for the use of its own estates during the year. The Company is committed in developing and uplifting the quality of life of its nearly ten thousand strong work force by investing in infrastructure development, training and development and strengthening Estate Worker Corporative Societies. It has engaged in several Corporate Social Responsibility projects in association with government authorities and Plantation Human Development Trust. DIVIDEND An Interim Dividend of Rs.1.00 per Ordinary Share was declared on 30 th March 2007 and was paid on 9 th May I am pleased to announce a Final Dividend of Rs.0.50 per Ordinary Share and this will be paid after approval by the shareholders at the Annual General Meeting. ACKNOWLEDGEMENT I take this opportunity to thank those responsible at all levels for the success of HPL, the Board of Directors for their guidance, the Management team, Estate Managers and all employees for their commitment and hard work. I look forward to their support in the future. Anthony A. Page Chairman 7 th August

4 MANAGING DIRECTOR/CEO S REVIEW During the period under review Horana Plantations Limited (HPL) recorded a profit after tax of Rs Million. This is the highest profit after tax achieved by the company in its fourteen-year history. The Company experienced mixed fortunes during the period under review. Given below is a detailed review of performance for the financial year 2006/2007: - TEA The contribution from the tea sector was Rs Million in financial year 2006/2007. This was a 32% decline when compared against the previous year. The high grown tea estates and low grown tea estates recorded a contribution of Rs Million and Rs Million respectively. The go-slow and strike action by the entire workforce followed by the slow recovery of tea bushes due to work disruption and prolonged drought was a contributory factor for the decline in profit. The crop recorded in the Upcot region and Lindula region were Million kilograms and Million kilograms respectively. The crop recorded in the Ingiriya/Bulathsinhala region were Million kilograms. The total crop recorded was Million kilograms. The Company recorded an average yield of 1,480 kgs per hectare. The yields on Vegetative Propagated (VP) tea averaged 2,160 kgs per hectare on our Maskeliya estates and 2,089 kgs per hectare on the Lindula estates. The yields in the low grown estates averaged 1,368 kgs per hectare. The Company Net Sale Average (NSA) for high grown teas was Rs per kg against a Rs per kg, in previous year. HPL was ranked number two amongst both high grown teas and the low grown teas. Alton Estate awarded an all time record price for Western High BOPF grade, which realized Rs. 585/- per kg, and Fannings 1 grade recording a price of Rs. 305/- per kg. The Cost of Production (COP) increased from Rs per kg in financial year 2005/2006 to Rs per kg in financial year 2006/2007 largely due to the escalation of costs on increase of wages energy cost, fertilizer and packing materials. 2,250 Yield - Maskeliya (Tea) Gross Sales Average (GSA) Maskeliya (Tea) 2, Mean Yield (kg/ha) 1,750 1,500 1,250 1,000 GSA (Rs./kg) / / / / / / Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Main Grades Off Grades Total 2,020 Yield - Lindula (Tea) Gross Sales Average (GSA) Lindula (Tea) 1, Mean Yield (kg/ha) 1,780 1,660 1,540 GSA (Rs./kg) , Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 1, / / / / / /07 Main Grades Off Grades Total 2

5 MANAGING DIRECTOR/CEO S REVIEW Contd. 1,200 Yield - Low Grown (Tea) 400 Gross Sales Average (GSA) Low Grown (Tea) 1, Mean Yield (kg/ha) 1,120 1,080 1,040 1, / / / / / /07 GSA (Rs./kg) Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Main Grades Off Grades Total 1,900 Yield - Total (Tea) Gross Sales Average (GSA) Total (Tea) 340 1,800 Mean Yield (kg/ha) 1,700 1,600 1,500 GSA (Rs./kg) , / / / / / / Net Sales Average (NSA) - HPL Vs. High Grown Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Total NSA (Rs./kg) Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar HPL High Grown Net Sales Average (NSA) - HPL Vs. Low Grown 230 NSA (Rs./kg) Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar HPL Low Grown 3

6 MANAGING DIRECTOR/CEO S REVIEW Contd. RUBBER Rubber sector was able to make a healthy contribution to the Company recording a estate level contribution of Rs Million against previous year s contribution of Rs Million, which is the highest ever recorded in the Company s 14 year old history. Production during the year under review recorded an increase of 2% against previous year in spite of the strike action and go-slow by the workers agitating for a wage increase during the peak cropping period. The Rubber crop recorded during the year was Million kilograms as against million kilograms in the previous year,. Rubber production was 4% below budget. Yields in the rubber estates averaged 833 kgs per hectare in financial year 2006/07 against a yield of 800 kgs per hectare in financial year 2005/06. Rubber prices appreciated significantly during the year. The Company Net Sale Average was Rs per kg. Most of our factories continued to obtain top prices frequently at the auctions. As a result the sector was able to achieve a gross profit margin of Rs per kg which was the highest ever on record. Cost of Production (COP) increased from Rs per kg in financial year 2005/2006 to Rs per kg in financial year 2006/2007 due to the sharp escalation of costs on increase of wages, energy cost and fertilizer. Yield - (Rubber) 840 Gross Sales Average (GSA) (Rubber) Mean Yield (kg/ha) GSA (Rs./kg) / / / / / / Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Month Todate FIVE YEAR PERFORMANCE SUMMARY Five year performance summary covering Production, Cost of Production and Net Sale Average for both Tea and Rubber is shown below:- 5,000 Production - Tea & Rubber 4,500 4,000 (kg 000) 3,500 3,000 2, ,000 1,500 1,000 Tea - COP & NSA 2002/ / / / /07 Tea Rubber Rubber - COP & NSA (Rs./kg) 120 (Rs./kg) / / / / /07 COP NSA / / / / /07 COP NSA

7 MANAGING DIRECTOR/CEO S REVIEW Contd. FIELD DEVELOPMENT & DIVERSIFICATION The Company continued the Replanting Programme on Rubber and an extent of 94 hectares, was planted in financial year 2006/2007. During the year under review a total of 14 hectares were replanted in Tea bringing the total extent of tea replanted after privatization to 337 hectares. The Company proposes to continue with the accelerated replanting program taking advantage of the subsidy provided by the Government. The demand for Rubber both domestically and globally encouraged the Company to focus on increasing production by introducing Rain guards and RRIMFLOW Technology on some of our estates. The cultivated extent in Cinnamon is 14.2 hectares out of which 9.2 hectares was in production during the year. During the period 17 hectares was planted in fuel wood. FACTORY DEVELOPMENT During the year Factory development under the capital expenditure programme was given the highest priority in order to upgrade our tea factories towards achieving Hazard Analysis Critical Control Point (HACCP) Certification. We are happy to announce that Gouravilla Estate in the high grown region achieved ISO certification and Alton Estate in the high grown region was awarded ISO and TASL/SGS Product certification. We hope to achieve this certification for all our Tea factories in the high grown region in the near future. The Company invested heavily on Hot-water Generators in order to combat the ever-increasing energy costs. The Company expects to fund a part of this expenditure through E-Friends Loan scheme. Capital Expenditure for the year ended 31st March 2007 Rs Mn % Field Development Replanting of Tea % Replanting of Rubber % Diversification (Coconut, Cinnamon, Pepper, Vanilla & Pineapple) % Reforestation (Fuel-wood, Mahogani & Latex Timber) % Sub-Total % Factory Development % Transport Vehicles & Equipment % (Agriculture, Office & Workshop) Improvement of Worker Living Environment & Supporting Infrastructure % TOTAL % Improvement of Worker Living Environment & Supporting Infrastructure 17% Composition of Capital Expenditure Replanting of Tea 12% Transport Vehicles & Equipment 23% Field Development 48% Replanting of Rubber 22% Diversification & Reforestation 14% Factory Development 12% 5

8 MANAGING DIRECTOR/CEO S REVIEW Contd. HUMAN RESOURCE DEVELOPMENT & SOCIAL WELFARE HPL had 9, 883 employees on its payroll as at the end of financial year 2006/2007 as against 10,090 in financial year 2005/2006. Several training program were held for Plantation Executives both locally and overseas. Training programs of the Company designed to address the prevailing social issues and improve the well being of the workers in the plantations were carried out utilizing the services of National Institute of Plantation Management, Tea Research Institute, Rubber Research Institute and the Employers Federation of Ceylon. The Company continued its training programs on Social Development with emphasis on prevention of alcoholism under the auspices of the Alcohol and Drug Information Centre. Training programs were conducted for all categories of workers on developing technical knowledge and skills, leadership, team building and personality development. The Company contributed towards improving worker housing and their living conditions by constructing 19 Field and Factory Rest Rooms, Re-roofing 275 Housing Units, upgrading of 03 Staff Quarters and a Social Development Center. Plantation Development Project named the Company as the best Regional Plantation Company on maximum utilization of funds allocated in respect of Social and Environmental Programme funded by JBIC and Asian Development Bank. The Company continued to focus heavily on worker welfare activities with the assistance of the Plantation Human Development Trust. In this respect Estate Worker Housing Corporative Societies were strengthened to provide many facilities. The Plantation Human Development Trust Galle Region selected Halwatura Estate, Ingiriya once again as the Best Estate worker Housing Co-operative Society amongst 56 estates at a competition conducted for estates under Galle Region. ACKNOWLEDGEMENT I take this opportunity to thank our Bankers, Brokers, Trade Union officials, officials of the Plantation Human Development Trust, The Employers Federation of Ceylon, Planters Association of Ceylon and the Company Lawyers for their support. I also wish to place on record my gratitude to the Chairman, the members of the Board, and the members of the Management Team, and all employees for their support throughout the year. R. Casie Chitty Managing Director/Chief Executive Officer 7 th August 2007 Number of Employees Vs. Revenue & Net Profit per Employee Number of Employees 11,500 11,000 10,500 10,000 9,500 9, / / / / /07 140, , ,000 80,000 60,000 40,000 20,000 - (20,000) Revenue & Net Profit per Employee (Rs.) No of E yees Turnover per E yee Net Profit per E yee 6

9 REPORT OF THE DIRECTORS The Directors of Horana Plantations Limited have pleasure in presenting their Report together with the Audited Accounts for the year ended 31 st March 2007 and the Auditors Report thereon. The corresponding figures for the year ended 31 st March 2006, where applicable, have been re-arranged to conform to the current year s presentation. REVIEW OF THE YEAR The Chairman s Review on page 1 and the Managing Director/ CEO s Review on page 2 to 6 describes the Company s operational affairs and mentions important events that occurred during the year and up to the date of this Report. PRINCIPAL ACTIVITY OF THE COMPANY The principal activity of the Company, which is cultivation and processing of Tea and Rubber, remained unchanged. REVENUE The Gross Revenue of the Company was Rs.1, Million for the year ended 31 st March 2007 (Rs.1, Million for the year ended 31 st March 2006). FINANCIAL RESULTS AND APPROPRIATIONS: The Company had made a net profit of Rs Million after tax for the year under review (Rs Million for the year ended 31 st March 2006). The details are given in the Income Statement on page 12. Appropriations are as follows: For the year For the year ended ended 31 st March st March 2006 Rs. 000 Rs. 000 Retained Profits 119,686 26,948 Net Profit for the year 153, ,238 Profit available for Appropriation 273, ,186 Appropriations: Dividend declared/paid during the year (50,000) (12,500) Retained Profit Carried Forward 223, ,686 DIVIDENDS The Directors have declared/proposed the following dividends for the year ended 31 st March 2007:- -An Interim Dividend of Rs.1.00 per Ordinary Share was declared on 30 th March 2007 and was paid on 9 th May A Final Dividend of Rs.0.50 per Ordinary Share has been recommended for payment. TAXATION The details of taxation are given in Note 7 to the Financial Statements. INVESTMENTS All investments made by the Company have been disclosed in Note 13 to the Financial Statements. LEASED PROPERTY The details of the valuation of leased property are given in Note 9 and 10 to the Financial Statements. PROPERTY, PLANT & EQUIPMENT Information relating to movements of property, plant and equipment is given in Notes 9 to 12 to the Financial Statements. DIRECTORATE The Directorate of the Company during the year under review is as follows. Mr. Anthony A. Page Mr. R. Casie Chitty Mr. C. Kingsnorth - (Alternate Director Mr. D Panter) Mr. M. S. K. P. Wijesinghe Mr. L. J. Rubera Mr. W. Kulatunga Mr. L. J. A. Fernando In terms of Article 92 of the Articles of Association, Mr. L. J. Rubera and Mr. W. Kulatunga retire by rotation and being eligible have offered themselves for re-election. Accordingly the names of the present Directors are given on the inner back cover of the Annual Report. DIRECTORS INTERESTS IN CONTRACTS Directors Interests in Contracts of the Company are disclosed in Note 29 to the Financial Statements and have been declared at meetings of the Directors in terms of the Companies Act. DIRECTORS SHAREHOLDINGS IN THE COMPANY As at As at 31 st March 31 st March Mr Anthony A. Page 60,000 77,500 Mr R. Casie Chitty Nil Nil Mr. C. Kingsnorth Nil Nil Mr L. J. Rubera Nil Nil Mr. R. W. Kulatunga Nil Nil Mr. M. S. K. P. Wijesinghe Nil Nil Mr. L. J. A. Fernando Nil Nil REMUNERATION OF DIRECTORS There were no emoluments of the Directors incurred during the year under review. RESERVES The total Reserves of the Company as at 31 st March 2007 was Rs Million (Rs Million as at 31 st March 2006). 7

10 REPORT OF THE DIRECTORS Contd. SHARE CAPITAL The authorised share capital of the Company is Rs.1,000,000,010/- divided into One Golden Share of Rs.10/- each and 100,000,000 Ordinary Shares of Rs.10/- each. There was no change in the issued and paid-up capital of the Company during the year under review and the issued and paid up capital of the Company as at 31 st March 2007 was Rs.250,000,010/- divided into 25,000,001 shares of Rs.10/- each. EMPLOYMENT The number of persons employed by the Company at the year-end was 9,883 (10,090 as at 31 st March 2006). SHAREHOLDERS There were 9,624 Shareholders registered as at 31 st March 2007 (9,528 as at 31 st March 2006). The details of the distribution and details of substantial shareholders are given in page 40. PUBLIC HOLDING 19.83% (19.76% as at 31 st March 2006) of the Issued Shares of the Company is in the hands of the public. STOCK MARKET INFORMATION: As at As at 31 st March 31st March Rs.Cts. Rs.Cts. Earnings per Share Dividend per Share Net Assets per Share Market Value per Share: - Highest Lowest Closed POST BALANCE SHEET EVENTS: All material post Balance Sheet events have been disclosed in Note 28 to the Financial Statements. DONATIONS The Company has made donations amounting to Rs. 25,100/- during the year ended 31 st March 2007 (Rs.31, 600/- for the year ended 31 st March 2006). PRINCIPAL ACTIVITIES OF SUBSIDIARIES Horana Woodexxe Limited (under creditor s liquidation) Principal activity of Horana Woodexxe Ltd., was manufacture of boron treated rubber wood products for export. The Company is under liquidation following a winding up application filed by a creditor against the Company. AUDITORS Messrs. Macan Markar Puvimanasinghe & Company served as the Auditors during the year under review. The Auditors have confirmed that they are independent in accordance with the Code of Ethics of the Institute of Chartered Accounts of Sri Lanka. The fee payable to the Auditors for the year under review amounted to Rs. 605, In terms of section 160 of the Companies Act No. 7 of 2007, the following resolution will be placed before the shareholders for the appointment of Messrs. KPMG Ford, Rhodes, Thornton & Company as the Auditors of the Company in place of the retiring auditors Messrs. Macan Markar Puvimanasinghe & Company from the conclusion of this Annual General Meeting until the conclusion of the next Annual General Meeting and to authorize the Directors to determine their remuneration. THAT Messrs. KPMG Ford, Rhodes, Thornton & Company, Chartered Accountants be appointed the Auditors of the Company, in place of the retiring Auditors Messrs. Macan Markar Puvimanasinghe & Company, to hold office from the conclusion of this Annual General Meting until the conclusion of the next Annual General Meeting and that their remuneration be fixed by the Directors. Pursuant to section 160 of the Companies Act No. 7 of 2007, the required period of notice of the said Ordinary Resolution has been given to the retiring Auditors. By Order of the Board HORANA PLANTATIONS LIMITED Anthony A. Page Chairman Sgd. Miss M. A. A. D. Wijesinghe VANIK CORPORATE SERVICES LIMITED Secretaries Colombo 7 th August 2007 R. Casie Chitty Managing Director/ Chief Executive Officer Fairlawn Power Limited Principal activity of Fairlawn Power Ltd., is generating of hydropower. 8

11 STATEMENT OF DIRECTORS RESPONSIBILITIES The Companies Act requires the Directors to prepare financial statements for each financial year, which give a true and fair view. The responsibilities of the Directors in this context are:- 1. To select appropriate Accounting Policies and apply them consistently, subject to any material departure being disclosed and extended. 2. To make judgement and estimates that are reasonable and prudent. 3. To state whether Sri Lanka Accounting Standards(SLAS) have been followed and The Directors confirm that they have provided the Auditors of the Company with that opportunity to visit all the estates of the Company and to undertake all inspection and verification, as they considered appropriate to conduct their audit. The Directors are of the view that they have discharged their responsibilities as set out in this statement. Signed for and on behalf of the Board of Directors:- 4. To prepare the financial statements on a going concern basis. The Directors are responsible for ensuring that the Company keeps sufficient accounting records to disclose with reasonable accuracy the financial position of the Company to enable them to ensure that the financial statements comply with the Companies Act and Sri Lanka Accounting Standards. They are also responsible for taking reasonable steps to safeguard the assets of the Company and to have proper regard to the establishment of appropriate systems of internal control with a view to the prevention and detection of fraud and other irregularities. Anthony A. Page Chairman Colombo, 7 th August 2007 R. Casie Chitty Managing Director/ Chief Executive Officer 9

12 STATEMENT OF CORPORATE GOVERNANCE By Corporate Governance, we mean the system by which companies are managed and controlled. This is important both to the Directors of the Company and its Shareholders. The Board of Directors of Horana Plantations Limited values the guiding principles of good corporate governance to maintain the Company as a going concern as well as to comply with standards of sound business and accounting codes which conform to the best practices set by the Institute of Chartered Accountants of Sri Lanka and Securities Exchange Commission of Sri Lanka. This statement describes the way in which the principles of good governance are applied by the Company. The Company s Board consist of seven (7) Directors, of whom six (6) are Non-Executive Directors. The Board meets on a regular basis and has a formal schedule of matters reserved to it. The Board is supplied with full and timely information to enable it to discharge its responsibilities, effectively. The management of the business and assets of the Company have been contracted to the Managing Agent of the Company, Ceytea Plantation Management Limited, which is also the parent company. The Managing Director/Chief Executive Officer, who is appointed by the parent company is assisted by Deputy Chief Executive Officer, Deputy General Manager (Up-Country Properties), Assistant General Manager- Administration, Assistant General Manager-Finance and the Chief Internal Auditor. Management team meetings, which are held weekly, ensure that the Company s strategies and plans are carried out effectively to the satisfaction of the Board. All decisions taken at the meetings are made available to the Board. During the past year the Board held 10 scheduled meetings and reserved certain decisions to itself, while others were delegated to the management to carry out the operation of the Company smoothly. 10

13 REPORT OF THE AUDITORS TO THE MEMBERS OF HORANA PLANTATIONS LTD We have audited the Balance Sheet of Horana Plantations Limited as at 31 st March 2007, and the related Statements of Income, Cash Flow and Changes in Equity for the year then ended, together with the Accounting Policies and Notes as set out on pages 12 to 36. Respective Responsibilities of Directors and Auditors The Directors are responsible for preparing and presenting these Financial Statements in accordance with the Sri Lanka Accounting Standards. Our responsibility is to express an opinion on these Financial Statements, based on our audit. Basis of Opinion We conducted our audit in accordance with the Sri Lanka Auditing Standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the said Financial Statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the said Financial Statements, assessing the accounting principles used and significant estimates made by the Directors, evaluating the overall presentation of the Financial Statements, and determining whether the said Financial Statements are prepared and presented in accordance with the Sri Lanka Accounting Standards. 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 In our opinion, so far as appears from our examination, the Company maintained proper books of account for the year ended 31 st March 2007 and to the best of our information and according to the explanations given to us, the said Balance Sheet and related Statements of Income, Cash Flow and Changes in Equity and the Accounting Policies and Notes thereto, which are in agreement with the said books and have been prepared and presented in accordance with the Sri Lanka Accounting Standards, provide the information required by the Companies Act, No 17 of 1982 and give a true and fair view of the Company s state of affairs as at 31 st March 2007 and of its profit and cash flows for the year then ended. Directors Interests in Contracts with the Company According to the information made available to us, the Directors of the Company were not directly or indirectly interested in contracts with the Company during the year ended 31 st March 2007, except as stated in Note 29 to these Financial Statements. Macan Markar Puvimanasinghe & Co., CHARTERED ACCOUNTANTS AUDITORS Colombo. 7 th August

14 INCOME STATEMENT Note Rs 000 Rs 000 Revenue 1 1,314,654 1,184,290 Cost of Sales (1,064,378) (987,827) Gross Profit 2 250, ,463 Other Operating Income 3 6,639 3, , ,680 Administrative Expenses (38,126) (32,686) Management Fees 4 (34,312) (34,047) Profit from Operations 5 184, ,947 Interest and Finance Expenses 6 (30,529) (37,620) Amortisation of Negative Goodwill - 9,911 Profit before Taxation 153, ,238 Income Tax Expense Net Profit for the year 153, ,238 Earnings per Ordinary Share (Rs.) Dividend per Ordinary Share (Rs.) Statement of Significant Accounting Policies and Notes to the Financial Statements disclosed on page 16 to 36 are an integral part of these Financial Statements. 12

15 BALANCE SHEET As at 31st March 2007 Note Rs 000 Rs 000 ASSETS Non-Current Assets Property, Plant & Equipment:- Leasehold Right to Bare Land of JEDB/SLSPC Estates 9 147, ,655 Immovable JEDB/SLSPC Estate Assets on Finance Lease(Other than Bare Land) , ,345 Limited Life Land Development Costs after takeover , ,916 Other Tangibles , ,700 1,226,627 1,128,616 Investment in Subsidiaries Advance Company Tax (ACT) Recoverable 14 27,285 27,285 1,254,044 1,156,033 Current Assets Inventories , ,323 Trade and Other Receivables 16 70,358 52,772 Subsidiary Company Receivables Deposits, Advances and Prepayments 5,423 2,499 Cash and Cash Equivalents 17 2,930 5, , ,022 Total Assets 1,486,994 1,351,055 EQUITY & LIABILITIES Capital & Reserves Share Capital , ,000 Sinking Fund 35,000 35,000 Development Reserve 35,000 35,000 Retained Profits 223, , , ,686 Non-Current Liabilities and Deferred Income Interest bearing Borrowings payable after one year , ,348 Net Liabilities to Lessor of JEDB/SLSPC Estates 20 98, ,418 Other Finance Lease Creditors 21 18,093 5,410 Retiring Benefit Obligations , ,994 Deferred Income 23 85,580 79, , ,229 Current Liabilities Trade and Other Payables , ,037 Payable to Managing Agent (Holding Company) ,170 24,359 Payable to Other Related Companies Short Term Borrowings 25 91, ,112 Interest bearing Borrowings payable within one year 19 27,744 28,138 Interim Dividend Payable , , ,140 Total Equity and Liabilities 1,486,994 1,351,055 Net Assets per Ordinary Share (Rs.) The Board of Directors are responsible for the preparation and presentation of these Financial Statements. Signed for and on behalf of the Board by:- Anthony A. Page Chairman R. Casie Chitty Managing Director/Chief Executive Officer Colombo, 7 th August 2007 Statement of Significant Accounting Policies and Notes to the Financial Statements disclosed on page 16 to 36 are an integral part of these Financial Statements. 13

16 CASH FLOW STATEMENT Rs 000 Rs 000 Cash Flow from Operating Activities Profit before Taxation 153, ,238 Adjustments for non-cash items : Depreciation and Amortisation 54,752 46,476 Provision for Retiring Gratuity 52,579 29,730 Amortisation of Negative Goodwill - (9,911) Interest Expense 46,049 54,800 Finance Lease Interest (528) 5,732 Profit on Disposal of Property, Plant and Equipment and Redundant Materials (3,573) (715) Interest Income (10) (7) Amortisation of Capital Grants (2,841) (2,494) Operating Profit before Working Capital Changes 300, ,849 (Increase)/Decrease in Debtors, Deposits & Prepayments (16,764) 5,421 (Increase)/Decrease in Inventories (20,512) (31,216) Increase/(Decrease) in Managing Agent(Holding Company) (413) (1,104) Increase/(Decrease) in Creditors, Provisions & Accrued Charges (1,716) 120 Cash Generated from Operations 260, ,070 Interest paid (46,009) (55,396) Payment of Gratuity (23,453) (20,870) Payment of Income Tax (Economic Service Charge & Withholding Tax) (3,163) (5,214) Net Cash Inflow from Operating Activities 188, ,590 Cash Flow from Investing Activities Purchase/Construction of Property, Plant and Equipment (83,062) (37,894) Expenditure incurred on Immature Plantations (71,592) (55,258) Capital Grants and Subsidies received 9,362 11,761 Proceeds on Disposal of Property, Plant and Equipment and Redundant Materials 5, Interest Income 10 7 Net Cash Outflow from Investing Activities (139,817) (80,669) Cash Flow from Financing Activities Receipt of Project Loans 73,293 - Repayment of Project Loans (24,499) (24,029) Receipt of Other Term Loans - 18,055 Repayment of Other Term Loans (16,139) (4,730) Receipt of Related Company Advances (Holding Company) 6,750 5,738 Repayment of Related Company Advances (Holding Company) (8,525) - Receipt of Produce Crop Advances 65, ,000 Repayment of Produce Crop Advances (71,889) (745,468) Payment of Finance Lease Rentals 15,595 (7,847) Payment of Dividend (25,000) (12,500) Net Cash Inflow/(Outflow) from Financing Activities 14,586 (27,781) Net Cash Inflow for the Year 63,115 12,140 Change in Cash and Cash Equivalents At beginning of the Year (151,282) (163,422) Net Cash Inflow for the Year 63,115 12,140 At End of the Year (Note 17) (88,167) (151,282) Statement of Significant Accounting Policies and Notes to the Financial Statements disclosed on page 16 to 36 are an integral part of these Financial Statements. 14

17 STATEMENT OF CHANGES IN EQUITY Share Sinking Development Retained Total Capital Fund Reserve Profit Rs 000 Rs 000 Rs 000 Rs 000 Rs 000 Balance as at 1st April ,000 35,000 35,000 26, ,948 Net Profit for the year , ,238 First & Final Dividend of Rs per Ordinary Share, paid for the year ended 31st March (12,500) (12,500) Balance as at 31st March ,000 35,000 35, , ,686 Net Profit for the year , ,948 First & Final Dividend of Rs per Ordinary Share, paid for the year ended 31st March (25,000) (25,000) Interim Dividend of Rs per Ordinary Share, declared for the year ended 31st March (25,000) (25,000) Balance as at 31st March ,000 35,000 35, , ,634 Statement of Significant Accounting Policies and Notes to the Financial Statements disclosed on page 16 to 36 are an integral part of these Financial Statements. 15

18 SIGNIFICANT ACCOUNTING POLICIES 1.GENERAL ACCOUNTING POLICIES Statement of Compliance The Income Statement, Balance Sheet, Cash Flow Statement and Statement of Changes in Equity together with Accounting Policies and Notes of the Company have been prepared in accordance with the accounting standards laid down by the Institute of Chartered Accountants of Sri Lanka. Where appropriate the policies are explained in the succeeding notes. 1.2 Basis of Accounting These financial statements presented in Sri Lanka Rupees have been prepared on a historical cost convention except for revaluation of certain Property, Plant & Equipment, which are stated at revalued amounts. Previous year s figures have been rearranged where necessary to conform to the current presentation. 1.3 Consolidation The Financial Statements of the Subsidiaries, Horana Woodexxe Ltd., and Fairlawn Power Ltd., have not been consolidated for reasons stated in Note 13.2 and 13.3 to these Financial Statements. 1.4 Foreign Currency Transactions Each asset, liability, revenue and cost arising from the transactions denominated in foreign currency is translated into Sri Lanka Rupees at the exchange rate in operation on the date each transaction is occurred. As at Balance Sheet date monetary assets and liabilities denominated in foreign currency are translated by using the closing rate. The profit and losses arising from these transactions are accounted for in the Income Statement in the period in which the transactions are effected. 1.5 Events occurring after the Balance Sheet date All material events occurring after the balance sheet date have been considered and where necessary, adjustments have been made in the financial statements. 1.6 Income Tax Expense Current Taxation The liability for taxation or entitlement for losses carried forward has been computed according to the provisions of the Inland Revenue Act No.10 of The liability for current taxation is estimated as per Note 7 to the Financial Statements. Deferred Taxation Deferred taxation is provided on the liability method. The tax effect of all temporary differences, which occur where items are allowed for income tax purposes, in a period different from that when they are recognised in financial statements is included in the provision for deferred taxation at the applicable tax rates of 0% on Specified Profits from agriculture and 35% on manufacturing profits and other income. However, no provision is required for deferred taxation on the excess of net book value of assets on which depreciation allowances have been claimed over their tax written down value due to the existence of tax losses and as the temporary differences on immature/mature plantation have been excluded on the basis that these temporary differences are unlikely to reverse in the foreseeable future, as a continuous annual programme of field development is being undertaken by the Company. 1.7 Negative Goodwill Negative Goodwill arising out of the incorporation, in the financial Statements, of the Leasehold Rights to Bare Land and Immovable Estate Assets of JEDB/SLSPC, on finance lease, as per the Ruling No.23 dated 14th July 1997, given by the Urgent Issues Task Force (UITF) of The Institute of Chartered Accountants of Sri Lanka, amortised over a period of ten years 2.ASSETS AND BASES OF THEIR VALUATION 2.1 Property, Plant and Equipment The property, plant and equipment are stated at cost or valuation less accumulated depreciation or amortisation. The cost of property, plant and equipment includes their purchase cost/transferred price together with any incidental expenses of acquisition. Permanent Land Development Costs: Permanent land development cost and infrastructure development expenditure on leasehold land, the economic benefit of which accrues over a future period of time are capitalised and amortised over the lease period. Limited Life Land Development Costs: Immature Area (Tea/Rubber/Diversification) The costs of replanting/new planting incurred during the immature period are reflected as immature areas up to the time of the harvesting of crops. The borrowing costs incurred for financing immature plantations have been capitalised. Immature Area (Reforestation) The cost incurred on reforestation are reflected as immature areas up to the time of maturity and will be matched with the resulted revenue arising out of disposal subsequently. Infilling Costs The limited life land development cost incurred in the form of Infilling has been capitalised only where the number of plants per hectare has exceeded 3,000 plants thereby resulting in significant increase in fields of mature plantations. Leased Property, Plant and Equipment: Property, plant and equipment funded through finance leases are capitalised and the resulting lease obligations

19 SIGNIFICANT ACCOUNTING POLICIES Contd. are included in the creditors net of finance charges. Lease payments are treated as consisting of capital and interest elements and the interest is charged to Income Statement. Rentals on operating leases are charged to Income Statement in the year to which they relate. Depreciation/Amortisation: Depreciation is charged on property, plant and equipment on the straight-line basis to write off the cost/ valuation over the estimated useful lives. Property, plant and equipment, which are under finance lease arrangements, are being amortised over their estimated useful lives or unexpired lease period whichever is lower. The rates of depreciation/amortisation are calculated over the following periods: Bare Land Mature Plantations Permanent Land Development Costs Buildings Plant & Machinery 53 years 30 years 30 years 25 years 15 years Limited Life Land Development Costs and Leased Property, Plant and Equipment after take-over: - Mature Plantations (Tea) 3% Mature Plantations (Rubber) 5% Mature Plantations (Coconut) 5% Mature Plantations (Cinnamon) 6.67% Other Tangibles: - Buildings 2.5% Permanent Land Development Costs 5.0% Plant & Machinery 7.5% Equipment 10.0%,12.5%, 20.0% Furniture & Fittings 10.5% Motor Vehicles 20.0%, 25.0% Computer Hardware and Software 12.50%,25.0% The assets residual values, useful lives and methods of depreciation are reviewed and adjusted if appropriate at each financial year end. 2.2 Capitalisation of Borrowing Costs : Borrowing costs are recognised as an expense in the period in which they are incurred, except to the extent where borrowing costs that are directly attributable to the acquisition of Property, Plant and Equipment or to finance the Immature Plantations are Capitalised as part of the cost of that asset. The amount of borrowing costs eligible for capitalisation is determined in accordance with the Sri Lanka Accounting Standard No.20- Borrowing Costs. 2.3 Long Term Investments : The investments in Subsidiaries are reflected at cost. 2.4 Inventories: Inventories were consistently valued on the following bases: - Stocks of spares and consumables, growing crop nurseries are stated at the lower of cost and net realisable value. Cost is determined on a first-in first-out method and includes all expenses directly attributable to purchases. Stocks of harvested crops are valued at since realised/ estimated realisable prices net of packing, despatch and selling expenses. Provision is made for obsolete, slow moving and defective stocks where necessary. 2.5 Trade and Other Receivables: Receivables are stated at the amount they are estimated to realise. Provision has been made in the financial statements for bad and doubtful receivables. 2.6 Cash and Cash Equivalents: Cash and Cash Equivalents are defined as cash in hand, demand deposits in bank and short term highly liquid investments, readily convertible to known amounts of cash and subject to insignificant risk of change in value. For the purpose of Cash Flow Statement, cash and cash equivalents consist of cash in hand and deposits in banks net of outstanding bank overdrafts. 3.LIABILITIES & PROVISIONS All known liabilities have been accounted for in preparing the financial statements. Contingent liabilities not accounted for are disclosed in Notes to the Financial Statements. 3.1 Capital Expenditure Commitments: Capital expenditure commitments as at the date of the Balance Sheet have been disclosed in the Notes to the Financial Statements. 3.2 Retirement Benefit Plans 3.2.1Defined Benefit Plans (Retiring Gratuity) Defined benefit plan adopted is as required under the Payment of Gratuity Act No.12 of 1983 to eligible employees. Provision for gratuity has been made using actuarial valuation method. Projected Unit Credit (PUC) method has been applied for this purpose. A professionally qualified actuary from a firm of actuaries, M/s. Actuarial & Management Consultants (Pvt) Ltd., carried out the actuarial valuation, as at The company expects to carry out the actuarial valuation once in every two years. All employee categories have been covered by this plan and no separate fund is being 17

20 SIGNIFICANT ACCOUNTING POLICIES Contd. maintained for this purpose. The key assumptions used by the actuary include the following: - Rate of Interest (net of tax) -10% Salary Increment Rate: Staff (every two years) -12.5% Workers (every two years) - 11% In addition, annual increase in salaries of staff employees at the rate of 2% per annum. An increase rate of 7.50% per annum on Cost of living allowance has been assumed in respect of staff employees. Retiring Age: Workers (Males and Females) - 60 years Other categories of staff (Males and Females) - 60 years The company will continue in business as a going concern. Actuarial gain/(loss) is being amortised over the period of two years as the company obtains actuarial valuation once in every 2 years Defined Contribution Plans (Provident Funds & ETF) All employees who are eligible for Defined Provident Fund Contributions and Employees Trust Fund Contributions are covered by relevant contributory funds in line with respective statutes. 3.3 Grants and Subsidies: Grants that relate to specific capital expenditure are treated as deferred income, which is then credited to Income Statement over the related asset s useful life. Other grants are credited to the Income Statement in the period in which they are received. 4.INCOME STATEMENT 4.1 Revenue Recognition: Revenue includes the invoiced value of produce and unsold produce stock, which are valued at estimated realisable prices. Other income is recognised on an accrual basis. 4.2 Expenditure Recognition: All expenditure incurred in the running of the business and in maintaining capital assets in a state of efficiency has been charged to revenue in arriving at the profit for the year. Expenditure incurred for the purpose of acquiring, extending or improving assets of a permanent nature by means of which to carry on the business or for the purpose of increasing the earning capacity of the business has been treated as capital expenditure. For the presentation of Income Statement the Directors are of the opinion that the function of expense method present fairly the elements of the enterprise s performance, hence such presentation method is adopted. 5.CASH FLOW STATEMENT The Cash Flow Statement has been prepared using the indirect method as per Sri Lanka Accounting Standard No.9, Cash Flow Statements. 6.SEGMENTAL REPORTING Segmental Information is provided for the different business segments of the Company. Business segmentation has been determined based on the nature of goods provided by the Company after considering the risk and rewards of each type of product. Since the individual segments are located close to each other and operate in the same industry environment, the need for geographical segmentation does not arise. Revenue and expenses directly attributable to each segment are allocated to the respective segments. Revenue and expenses not directly attributable to a segment are allocated on the basis of their resource utilization wherever possible. Assets and liabilities directly attributable to each segment are allocated to the respective segments. Assets and liabilities, which are not directly attributable to a segment, are allocated on a reasonable basis whichever possible. In keeping with the practice in the Plantation Industry, profit or loss on perennial crops is recognised in the financial period of harvesting. Proceeds from sale of rubber trees and live timber trees are recognised at the time the contract is made. Interest income has been recognised on an accrual basis. Gains or losses on the disposal of property, plant and equipment have been accounted for in the Income Statement. 18

21 NOTES TO THE FINANCIAL STATEMENTS Rs 000 Rs Revenue Segmental Analysis of Revenue: Main Crops - Tea 873, ,264 - Rubber 390, ,165 1,264,405 1,134,429 Diversified Crops 1,236 1,185 Sale of Rubber Trees 27,089 18,468 Sale of Timber (Live Trees) ,709 Other Operating Revenue 21,360 18,499 1,314,654 1,184, Gross Profit Segmental Analysis of Gross Profit: Main Crops - Tea 49,045 71,685 - Rubber 154,688 78, , ,913 Diversified Crops Sale of Rubber Trees 27,089 18,468 Sale of Timber (Live Trees) ,709 Other Operating Revenue 18,186 15, , ,463 Information on Business Segments are given in Note 30 to the Financial Statements. 3. Other Operating Income Interest Income 11 7 Profit on Disposal of Property, Plant & Equipment 3, Proceeds on Disposal of Redundant Materials Revenue Grants Received Amortisation of Capital Grants (Refer Note No.23.2) 2,841 2,495 6,639 3, Management Fees Management Fee on EBIDTA 30,000 30,000 Value Added Tax on Management Fee (Unclaimed) 4,312 4,047 34,312 34,047 As per the Management Agreement signed between the Company and the Managing Agent, Ceytea Plantation Management Ltd., the basis of computing management fee is on Earnings Before Interest Received/Paid, Corporate Tax, Depreciation, Amortisation and Management Fees (EBIDTA). The rate applicable for the year under review is 20% of EBIDTA or Rs Million, whichever is lower (31st March % of EBIDTA or Rs Million, whichever is lower) 5. Profit from Operations is stated after charging all expenses including the following: Rs 000 Rs 000 Auditors Fees and Expenses Finance Lease Interest on JEDB/SLSPC Lease and Others 8,193 6,612 Operating Lease Rentals Amortisation of Leasehold Rights to Bare Land 3,867 3,867 Amortisation of Immovable Estate Assets on Finance Lease 9,635 9,635 Amortisation of Limited Life Land Development Costs after Takeover 19,288 14,082 Depreciation on Other Tangibles 21,962 18,892 Provision for Retiring Gratuity 52,579 29,730 Defined Contribution Plan Costs (Provident Funds & ETF) 61,973 58,955 Other Staff Costs 554, ,065 Staff Compensation - 1,100 Secretarial Fees and Expenses Legal Fees and Expenses 1,921 1,370 Donations

22 NOTES TO THE FINANCIAL STATEMENTS Contd Rs 000 Rs Interest and Finance Expenses Project Loan Interest 26,992 22,673 Term Loan Interest 1,325 1,588 Bank Overdraft Interest 14,133 24,376 Interest on Finance Lease Interest on Holding Company Advances Interest on Crop Advances 225 5,169 Debit Tax, Stamp Duty and Other Finance Charges 1,604 1,909 Total 46,050 55,763 Capitalisation of Borrowing Costs on Immature Plantations (15,521) (18,143) Net 30,529 37, Income Tax Expense 7.1Reconciliation between Profit before Taxation and Current Tax on Ordinary Activities: Profit before Taxation 153, ,238 Disallowable Items 116,018 70,402 Loss attributable to the Manufacture - 38,031 Allowable Items (111,698) (76,966) Trade receipt on Disposal of Capital Assets 5, Profit from Agriculture, Trade or Business 163, ,858 Exempt Profit from Agriculture (157,893) (136,858) Taxable Profit for the period 5,805 - Other Sources of Income (Interest Income) 10 7 Total Statutory Income 5,815 7 Loan Interest Paid (5,815) (7) Set-off Tax Losses Brought Forward (Refer Note No.7.3) - - Taxable Income for the period - - Current Income Tax Expense Income Tax Payable: Provision for the year - - Less: Set off against Economic Service Charge - - Set-off against ACT - - Balance Payable Tax Losses: Tax Loss Brought Forward (388,623) (317,991) Loss incurred during the year:- Loss attributable to the Manufacture - (38,031) Deemed Losses (Unclaimed Interest & Ground Rent) (17,178) (32,601) Tax Losses set off during the period (35% of Statutory Income) - - Tax Loss Carried Forward (405,801) (388,623) 20