Annual Report 2008/09

Transcription

1 Annual Report 2008/09

2 Vision To be the front runner in the Chemical Industry in Sri Lanka Mission Our Mission as a manufacturer and formulator of chemical products is to expand our business through value addition and quality assurance with a commitment to society to continuously improve management and performance in the areas of health, safety and the environment Contents 01 Financial Highlights 02 Chairman s Message 05 Board of Directors 06 Management Report 23 Corporate Governance 27 Corporate Social Responsibility 29 Annual Report of the Board of Directors 33 Financial Reports 34 Independent Auditors Report 36 Income Statements 37 Balance Sheets 38 Statements of Changes in Equity 39 Cash Flow Statements 40 Accounting Policies 48 Notes to the Financial Statements 79 Statement of Value Added 80 Share Information 82 Ten Year Summary 83 Notice of Meeting Form of Proxy (Enclosed) Corporate Information (Inner Back Cover)

3 financial highlights Turnover Rs. 9, Mn Profit Before Tax Rs Mn Shareholders Funds Rs. 1, Mn Net Assets per Share Rs

4 chairman s message I have pleasure in presenting you the Audited Accounts for the Financial Year 2008/09. The worst global economic crisis in sixty years has had a significant impact on the operations of Lankem Ceylon PLC. While the impact was more muted in the core operating areas of crop protection, industrial chemicals, construction chemicals and consumer products, the Group s plantation companies earnings were severely depressed. Local economic conditions were also depressed because of the intensification of the civil conflict. Under these difficult economic conditions, Group profit before tax fell to Rs Mn while the profit attributable to the Company rose to Rs Mn. It is widely expected that the current global recession should ease by the middle of the next year, coupled with the successful conclusion of the internal conflict; Sri Lanka should enter into a period of sustained economic growth. With the end of the conflict and Government policy encouraging investment, the country should see an increase in consumption. This increase should ensure that the prospects of the Company and the Group remain bright. Given the difficult operating environment, the Company s four core operating divisions - crop protection, construction chemicals, bituminous products and consumer products have shown remarkable resilience. The crop protection division has continued to lead the industry in providing effective and innovative solutions to the Sri Lankan agricultural community. This division plays an integral role in the day-to-day lives of the Sri Lankan farmer as the products they retail, are crucial in ensuring that the crops of farmers are not blighted by pests. With the end of the ethnic conflict, large areas of previously abandoned cultivatable land will come into cultivation in the next agricultural season. The Company has built up a distribution network in these areas to ensure that we can market our products as and when agriculture resumes. The Company having entered into the seed market in the previous financial year has seen steady growth in the sales of its products. The division is well on its way to achieving its stated goal of capturing of at least 20% of the market over the next few years. The Company hopes with the assistance of its foreign partners, to introduce new seed varieties currently unavailable to the local farmers. The Company s investments in food production and processing for the export market are still in their infancy. These companies during the course of this financial year achieved their first harvest and exported to the international market. We expect this area to be one of our key profit drivers in the coming years. The construction products division has shown a steady growth during the course of this year. The adverse economic conditions forced consumers to delay scheduled construction and renovation of residential units. However, the Company was able to provide some respite to consumers because the raw materials used for manufacture of these products fell in line with the global fall in the price of crude oil. The Company is the leading Sri Lankan owned paint company. We continue to grow in an industry dominated by multinational firms. While the prospects for the industry are good in the short-term due to the reconstruction and rehabilitation effort in the North and East of the country, in the long run the market is rapidly reaching saturation. Further growth over the long term will only be possible by the Company entering into new overseas markets. These plans are in their infancy but the Company places a great deal of importance to this strategic initiative in order to maintain the growth in profitability it has seen over the last few years. Lankem Ceylon PLC - Annual Report 2008/09

5 The implosion of the global economy in the latter part of 2008 has had a mild impact on the operations of the industrial chemicals division. While the reduction in the crude oil prices from an all time high of $ 150 a barrel to more manageable levels has seen a sharp decline in raw material prices and an improvement in margins, the impact of the global recession has seen a marked drop in the demand for these industrial chemicals. With the expected turn around in the global economy during the next financial year, I expect the industrial chemicals division to rebound strongly. The bituminous products division has shown good growth prospects in the year under review. The Government has placed infrastructure development as a priority across the country. The Government is focusing on the rehabilitation of the existing road network and the construction of a highway network connecting all the major cities, at the forefront of this infrastructure development. With the plethora of locally funded and foreign donor funded road work, the opportunities are available for the division to further grow and enhance its market leading position. In the future, the Company must enter into technical relationships with other multinational manufacturers to acquire the technology required to manufacture bitumen grades currently not sold in Sri Lanka. While the future for the industry is rosy, strict controls needs to be exercised when extending credit to local contractors as payments from the construction industry continue to be delayed. The performance of the consumer products division has improved in the financial year under review. During the course of the year, the Company signed an agreement with Paras Global FZE to distribute their line of cosmetic and ayurvedic products. This distribution agreement will further enhance the revenue of the division and help bring the division back into the black. One barrier to a rapid growth in turnovers from these products is the high Cess imposed by the regulatory authorities on imports of these products. We expect to start manufacturing these products locally soon in order to remain a competitive force in the local market place. With an improvement in the fortunes of the division, it is now the time to invest in raising the visibility of the brands that the division manufactures and markets so that the growth that has now begun can be sustained. The Company must equip itself with the necessary tools to be able to effectively compete in foreign markets. The coming years are likely to see vital investments in technology in order that the Company is able to manufacture and retail its products efficiently. As a first step the Company intends on upgrading its IT network to bring it in line with that of other global players in the same industry. Group Review The global economic crisis has led to a decline in the price of commodities in the international market. The financial performance of Kotagala Plantations PLC fell from a profit of Rs. 547 Mn before tax to a profit of Rs. 205 Mn. The financial performance of Agarapatana Plantations Ltd. fell from a profit before tax of Rs. 77 Mn to a loss of Rs. 266 Mn. In addition, the recently concluded wage negotiations have led to a massive increase in the cost of labour. If this increase is not matched by a substantial increase in the productivity per worker, the industry s long-term viability is likely to be called into question. It is unfathomable that productivity in Sri Lanka lags behind every single tea producing nation in the world whilst the cost of labour is the highest. In spite of every attempt by the Company to diversify the operations of the plantations to different crops, power generation and tourism, unless the issue of wages is addressed fairly, the future of the tea industry in general is bleak. Lankem Ceylon PLC - Annual Report 2008/09

6 Because of the depressed state of the local economy Lankem Developments PLC s operations were negatively impacted. Under these circumstances turnover for the year declined from Rs Mn to Rs Mn and the loss for the year increased from Rs. 0.8 Mn to Rs. 2.3 Mn. The Company s core operations revolve around road construction and waterproofing. With an upturn in the local economy expected this year and in line with the Government s priority of rehabilitating the road network the prospects for Lankem Developments PLC are good in the coming year. The Company has retained its investments in the leisure sector during the three decade long civil war. The financial year 2008/09 saw the leisure sector record one of its worst performances ever. Occupancy rates across all three hotels declined. There was also a marked decline in the rates charged per room. The loss at Sigiriya Village Hotels PLC rose to Rs Mn while those of Marawila Resorts PLC and Beruwala Resorts Ltd. rose to Rs. 46 Mn and Rs. 42 Mn respectively for the financial year under review. With the country entering a new era of peace, the prospects for the tourism industry have never been better. Many countries that issued travel warnings have now relaxed or removed them. The global recession also affected the industry with European travellers choosing to travel to short-haul destinations. The image of Sri Lanka as a budget destination did not help the industry during this period. With the condition ripe for growth, the industry and the Government should strive to change this image to attract higher paying tourists. Conclusion In spite of the extremely difficult trading conditions experienced by Lankem Ceylon PLC and its subsidiaries the Company s performance remains impressive. The improvement in the global economy will have a positive influence in the financial performance of the Company in the next financial year. In spite of the difficulties faced this year, the Company continues its programme of investing in its products and people. This investment will, I am sure bear fruit in the coming years. The Company continues to place a strong emphasis on the reduction of long-term liabilities within the Group. With the Central Bank s policy decision to reduce lending rates the Company expects to make significant savings on its financial cost. I would like to take this opportunity to thank our many stakeholders for their continued support and faith in our Company. It is this unwavering support that allows the Company to remain one of the premium brands in Sri Lanka. I thank my colleagues on the Board for their valuable support and counsel at all times. A. Rajaratnam Chairman 15th October 2009 Lankem Ceylon PLC - Annual Report 2008/09

7 board of directors A. Rajaratnam [FCA] - Chairman Mr. A. Rajaratnam joined the Board in 1990 and was appointed Chairman in the year He also serves as Chairman on the Boards of several subsidiaries of the Lankem Group and holds other Directorships within The Colombo Fort Land & Building Group. S.D.R. Arudpragasam [FCMA] - Deputy Chairman Mr. S.D.R. Arudpragasam was appointed to the Board in 1989 and as Deputy Chairman in Having served in many senior financial positions in the mercantile sector, joined The Colombo Fort Land & Building Group where he is responsible for the Manufacturing and Trading Sector of the Group. His contribution to the Group counts over 25 years and at present holds the position of Managing Director of E.B. Creasy & Company PLC in addition to serving on the Boards of other group companies. Anushman Rajaratnam [B.Sc. (Hons.), CPA, MBA] - Managing Director Mr. Anushman Rajaratnam was appointed to the Board as Deputy Managing Director in the year 2005 and was appointed Managing Director in April He has spent several years working overseas as a consultant for a leading Accountancy Firm. He also serves on the Boards of several subsidiaries of the Lankem Group. D.L. Vitharana [MNI (Lond.), MBA, M.Sc. (UK)] - Chief Operating Officer Mr. D.L. Vitharana was appointed to the Board in He joined Lankem Ceylon PLC in 1997 and has headed the Lankem Agrochemical and Pest Control business since He is currently the Chief Operating Officer of Lankem Ceylon PLC and also serves on the Boards of several subsidiaries of the Lankem Group. R.N. Bopearatchy [B.Sc. (Cey.), Dip. BM., MBA (Univ. of Col)] - Director Mr. R.N. Bopearatchy was appointed to the Board in He has considerable expertise in product development, manufacturing and marketing of pesticides, pharmaceuticals and consumer products. Soon after graduation he was employed in Research in the Plant Pathology Division of the Tea Research Institute and subsequently joined Chemical Industries (Colombo) Ltd. and was appointed to its Board. He also served on the Boards of Crop Management Services (Pvt) Ltd., the managing agents for Maturata Plantations Ltd., CIC Fertilizers Ltd. and Cisco Speciality Packaging (Pvt) Ltd. Mr. R.N. Bopearatchy currently holds several other Directorships within The Colombo Fort Land & Building Group. N.H.B.S. Perera [B.Sc. (Cey.)] - Director Mr. N.H.B.S. Perera joined the Board in He is a former Chairman of Harrisons (Colombo) Ltd. and the Pesticides Association of Sri Lanka. He has held office as Deputy Chairman of the Planters Association of Sri Lanka and has functioned as Group Director of The Maharaja Organization Ltd. Mr. Perera has also served as Director on the Board of Harrison Lister (Colombo) Ltd. and several plantation company Boards such as Aislaby Estates Ltd., Attampettia Estates Ltd., Newburgh Estates Ltd., Kinross Estates Ltd. and Lunuwa Plantations Ltd. prior to nationalisation. He presently serves on the Boards of The Colombo Fort Land & Building Company PLC and Lankem Tea & Rubber Plantations (Pvt) Ltd. Mr. Perera has considerable expertise in the field of developing and marketing Agri Chemicals, managing of plantation companies, manufacture and distribution, shipping and warehousing. K.P. David [ACMA, FSCMA, FIPFM] - Director Mr. K.P. David was appointed to the Board in Having commenced his career in the Banking sector, he joined the Parent Company E.B.Creasy & Company PLC as Group Accountant in He also serves on the Boards of several subsidiaries of the Lankem Group. A.R. Peiris [B.Sc. (Cey.), FCMA] - Director Mr. A.R. Peiris was appointed to the Board in the year He has served the Petroleum Corporation for 10 years in Technical, Planning & Finance Divisions and at the time he left the Corporation in 1979, was the head of the Refinery Finance Division. Thereafter, he joined National Development Bank where he held several senior positions for 24 years. He has held Directorships in several reputed public listed and unlisted companies. Mr. Peiris also holds Directorships in several companies within the Lankem Group. R.T. Weerasinghe [BBA - USA] - Director Mr. R.T. Weerasinghe was appointed to the Board in April He joined Darley Butler & Company Ltd. in the year 1994 as a Trainee Product Manager and was seconded to Lankem Ceylon PLC as the Marketing Manager of the Consumer Division in He was promoted as General Manager of the Consumer Division in 2005 and in addition was also appointed as the General Manager of the Paints Division. Most recently he was appointed as the Head of the Industrial Chemicals Division. Mr. Weerasinghe possess expertise in the fields of marketing and management. Lankem Ceylon PLC - Annual Report 2008/09

8 management report Business Review We are a diversified conglomerate with our core businesses being in the Agrochemical, Industrial Chemical, Construction Chemical sectors and our diversified operations being in Plantations, Leisure and Construction. We have embarked on a successful journey of tremendous growth. With the conclusion of the three decade long civil war, the future prospects for many of our businesses remains strong. Agrochemicals The Agrochemical business at Lankem Ceylon PLC has been in operation for more than three decades and today is the undisputed market leader. The division formulates and distributes crop protection solutions across the country. It remains the retailer of choice for a majority of the country s farmers. We have been awarded with the ISO 9001:2000 for Quality Management Systems, ISO for Environmental Management Systems and OSHAS Certification for Occupational Health and Safety at our production facility. We continue to work with many of the leading global agrochemical companies in developing new crop protection solutions. The Company recently entered into the seeds industry. We have shown a rapid growth in market share in both seed paddy and vegetable seeds. The division has so far introduced 14 new seeds varieties and has tied up with world giants Monsanto and Kaneko Seeds Japan to market their hybrid range of seeds. Despite the downturn in the construction industry, the Pest Control Division continues to successfully market its highly effective pest control solutions to corporate customers. Paints Lankem Paints is one of the pioneer coatings manufacturers in Sri Lanka. It commenced operations in The division provides their range of products under the international brand name Robbialac. They are the first, and only Paint Company in Sri Lanka to be awarded ISO 9001:2000 Quality Management Systems, ISO 14001:2004 Environment Management and SLS Product Quality. We are present in the areas of Decorative Coatings, Auto Refinish, Wood Coatings, Epoxy Coatings, NC-based Coatings and Epoxy Adhesives. Further, we operate nine Colour Studios and over 150 Pata Shops throughout the country. We have partnered with RAR Coatings Italy and Dubai to offer water-based Wood Care Solutions in Sri Lanka. Lankem Paints has also partnered with Akzo Nobel of the Netherlands, the largest auto refinish company in the world to distribute its products in Sri Lanka. Lankem Ceylon PLC - Annual Report 2008/09 Our Agrochemical business began in 1973 and today we have become the undisputed market leader.

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10 The division is in a very competitive market. In spite of the economic downturn that has affected the local economy; the division has shown remarkable resilience and has been able to maintain their market share in this challenging environment. The division is continuously improving and monitoring its pricing strategies, distribution channels and promotional mix in order to improve and expand its market share. Moreover, the division is continuing to improve its product quality in order to ensure that the Company s products maintain the industry standard. Bitumen The Bitumen Division remains the largest supplier of Emulsion and Road Surfacing Bitumen in the country. Sri Lanka has approximately 110,000 km. of paved road which is maintained by the Government of Sri Lanka. With the Government s current emphasis on the rehabilitation and reconstruction of the existing road network, it can be expected that the industry is likely to show robust growth in the future. The Bitumen Division strives to introduce innovative products into its portfolio and continues to maintain a very high quality of manufactured product. The Bitumen Division posted a satisfactory level of performance in the period under review. However, the fluctuations in crude oil prices have had a direct impact on the division s operations. The division will be able to benefit from road construction projects undertaken in the Northern and Eastern Provinces. Industrial Chemicals The Industrial Chemicals Division comprises of two sections namely, solvents and thinners. The Solvents Section produces Solvents, Rubber Chemicals, Detergent Raw Materials, Surfactants, Pigments and Binders while the Thinners Division manufactures Thinners, Retarders and Red Cement. The division imports all chemical and thinner raw materials from Singapore, Europe, India, China and Korea. Our key emphasis is to maintain and provide higher quality products to our clientele. Plans are underway to invest in a fully-automated manufacturing plant, in line with international standards, by the year The division has recorded satisfactory results in the period under review, despite intensified competition from within the industry. The division has embarked on product diversification strategies in order to supply a variety of products to its target customer segment. Consumer The consumer Division produces detergent powder, detergent liquid, laundry soap, household cleansing products, dry cell batteries, pharmaceutical products and personal care products. Our key target consumer segments are households from both urban and rural areas. In September 2008, Lankem Consumer decided to diversify its operations and ventured into the marketing of health and personal care products to the Sri Lankan market. To this end, Lankem Consumer has entered into a partnership with Paras Pharmaceuticals Ltd., one of India s premier FMCG, health and personal care companies. This move resulted in Lankem Consumer Division marketing speciality health care brands such as Moov for aches and pains and Krack for relief from cracked heels. Lankem Ceylon PLC - Annual Report 2008/09

11 Lankem Paints is the culmination of a two-decade process of evolution and growth that began in Today we have become the most sought after colour provider by understanding the specific colour needs of our nation. Lankem Ceylon PLC - Annual Report 2008/09

12 The division continues to perform well in a very competitive industry. The frequent increases in taxes and levies imposed on imported products continue to increase the price of these goods. Lankem in committed to continue to keep product prices low by entering in agreements to manufacture these products locally. With the help of our partners, the Company is confident that it will be able to overcome the challenges that it faces and continue to grow. Plantations Lankem Ceylon PLC own and manages two regional plantation companies - Agarapatana Plantations Ltd. and Kotagala Plantations PLC. The performance of these two companies was impacted by the crash in the price of commodities experienced in the second half of the financial year under review. Kotagala Plantations PLC cultivates a mixture of high grown tea, low grown tea and rubber. Agarapatana Plantations Ltd. cultivate high grown tea in the Agarapatana and Uva tea growing districts. The impact of the crash of commodity prices was less felt at Kotagala Plantations PLC because of the diversified nature of the crops that it cultivates. An even larger problem for the plantations has been the huge increase in wages that the companies are faced with as a result of the recently concluded wage negotiations. Any further wage increases are likely to result in the industry being uncompetitive in the global market. Both companies must strive to improve productivity so that they are able to remain profitable in the long run. Leisure The Company has made investments in three resort hotels on the west coast and cultural triangle areas. The three hotels - Club Palm Bay operated by Marawila Resorts PLC, Sigiriya Village owned and operated by Sigiriya Village Hotels PLC and the Palms Beruwala operated by Beruwala Resorts Ltd. all were faced with difficult operating conditions during the year under review. The end of the ethnic conflict is likely to see a renewal of the tourism industry in Sri Lanka. With the lifting of negative travel advisories by foreign nations, the number of tourist arrivals into Sri Lanka is likely to increase. With the increase in occupancy rates, all three hotels are likely to return to profitability. Construction Lankem Developments PLC s core operations are in Road Construction, Water Proofing and Industrial Flooring. With the general downturn in the economy, the construction industry has come to a virtual halt. The Company hopes to regain its growth once the expected improvement in the economy starts. 10 Lankem Ceylon PLC - Annual Report 2008/09

13 Lankem is the largest Private Sector Bitumen Supplier in Sri Lanka. Lankem Ceylon PLC - Annual Report 2008/09 11

14 Financial Review Overview The financial year 2008/09 has been one of the most challenging for Lankem Ceylon PLC. The global recession and difficult domestic economic conditions impacted operations negatively. The intensification of the conflict in the North & East, high rates of inflation and interest and a depreciating Sri Lankan rupee have impacted the profitability of the Group. This financial review will discuss the performance of Lankem Ceylon PLC and its subsidiaries. Turnover The Group reported a consolidated turnover of Rs Bn in the year under review compared to a turnover of Rs Bn in 2007/08. This resulted in a growth of 3.18% year-on-year and an average growth rate of 13.73% over the last five years. Turnover attributable to the Company was Rs Bn compared with Rs Bn in the previous year. Company turnover has grown by 21.11% year-on-year and the average growth rate over the last five years was 18.30%. 12 Lankem Ceylon PLC - Annual Report 2008/09

15 The Quarterly results for the Group are shown in the graph below. The Group s performance in the first half of the year was an improvement over the comparable period last year while performance in the second half lagged behind the performance of the Group in the last financial year. Lankem Consumer continues to expand the range of personal care and health products, it distributes. Lankem Ceylon PLC - Annual Report 2008/09 13

16 The biggest contributor to the Group revenue was the Plantation Sector followed by Chemicals & Hardware. The Chemicals sector includes Agrochemicals & Industrial Chemicals. The Plantation sector s contribution to Group turnover has decreased by 11.43% over the previous year due to the drastic decrease in commodity prices in the global market. The positive growth in contribution from Chemicals & Hardware sectors grew by 27.41% and 9.41% respectively. Profit Before Tax The Group reported a profit before tax of Rs Mn in the year under review compared to Rs Mn in 2007/08. This is a decrease of 72.05% year-on-year. This significant decline can be attributable to the unprecedented decline in commodity prices compared to the last financial year. The performance of the Company was much better than the overall performance of the Group. Profit before tax for the year rose to Rs Mn from Rs Mn in the previous year. The Company s profitability has grown by 58.47% and the average growth rate was 14.29% over the last five years. 14 Lankem Ceylon PLC - Annual Report 2008/09

17 The biggest contributors to the Group s profitability were the Chemicals and Hardware sectors. This is a significant change from last year where earnings from the plantations were at their highest ever. The crash in commodity prices has resulted in a 95.47% decline in profitability. The decline in commodity prices was experienced in the second half of the financial year. Many of the Group s other operations were negatively impacted by the intensification of the ethnic conflict and the resulting decline in domestic economic activity. Profit After Tax (PAT) The Group s profit after tax was Rs Mn in the year under review compared to Rs Mn in 2007/08. This was a decrease of 91.55% year-on-year. The Company reported a profit after tax of Rs Mn compared to a profit of Rs Mn in the previous year. Company profit after tax has grown by 60.67% over the previous financial year. Our Plantation Companies manufacture some of Sri Lanka s finest tea. Lankem Ceylon PLC - Annual Report 2008/09 15

18 Non-Current Assets & Reserves The value of Property, Plant & Equipment was Rs. 5,812 Mn for the Group and Rs. 329 Mn for the Company respectively. This is relatively large part of the Group s long-term assets. The Group s non-current assets have grown by 11.27% over the previous year and have averaged a growth rate of 10.04% over the last five years. Stated Capital has declined due to the redemption of preference shares in the year under review. Reserves have grown significantly over the last five years and now stands at Rs. 924 Mn. Working Capital The Company continues to face challenges in managing its working capital cycle. While the situation has improved drastically over the last five years, there needs to be additional working capital injected into the system in order to support the growth in the business. Our three hotels are in some of the most sought after locations on the island. 16 Lankem Ceylon PLC - Annual Report 2008/09

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20 Capital Structure The Group s Debt-Equity ratio was 53% during the last financial year. The extremely high figure resulted in higher borrowing costs in a economic environment characterised by high interest rates. The improvement of the capital structure is one of the key challenges that the Company must face. Cash Flow The Group s net cash flows from operating activities declined from Rs Mn in the previous year to Rs Mn in the year under review. This was a decrease of 64.23% over the previous year. At Company level net cash flow from operating activities for the year decreased by 36.55%. The decline in Group cash flow was in line with the decline in profitability of the Group. Core areas of focus for Lankem s Construction Subsidiary are road construction, waterproofing and industrial flooring. 18 Lankem Ceylon PLC - Annual Report 2008/09

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22 Lankem Share Price The share price of Lankem Ceylon PLC was Rs at the end of the financial year. This was a decline of 38% over the last year. By the end of the last financial year, the All Share Price Index at the Colombo Stock Exchange had declined by 35% from 2,550 to 1,638. The total market capitalisation of Lankem Ceylon as at 31st March 2009 was Rs Mn. The earnings per share (EPS) of Lankem Ceylon have reduced from Rs to Rs due to the decline of Group profitability. But the Company s EPS improved from Rs to Rs Net asset per share also increased by 12.38% for the Group and 11.60% for the Company. 20 Lankem Ceylon PLC - Annual Report 2008/09

23 Risk Management Review Risk management involves identifying potential risk exposure faced by the Company and implementing proper risk management techniques to mitigate the risk. Lankem Ceylon PLC considers risk management as a vital component in its operations and this process is monitored regularly to ensure achievement of these risk management objectives. The Company has established a proper internal control system and other risk mitigation techniques to ensure the delivery of shareholder wealth and to meet its obligations to other stakeholders. The risk management process comprises of identification, measurement, management, reporting, monitoring and controlling of the potential risk exposure faced by the Company. 1. Financial Risk Financial risk covers the broad area of risk and mainly incorporates credit risk and market risk stemming from business operations. 1.1 Credit Risk Management Credit risks arise due to the non-payment by debtors which can lead to working capital issues. Due to the nature of operations and adverse economic conditions that prevailed in 2008/09, Lankem has provided its customers with strict extended credit periods to facilitate a smooth flow in operations. Lankem implements proper credit controls and debt collection policies to ensure that the Company selects only reliable distributors who are able to honour their debts. 1.2 Market Risk Management Market risk refers to the risk arising from the volatilities in market forces. Lankem faces market risk in the financial sphere in terms of the local rates of interest, inflation and exchange rate. Given the business environment, the Company is able to manage its interest rate risk. The other market risk that the Company faces is the risk associated with raw material pricing. The Company does not actively hedge raw material purchases as many of the industries that the Company operates, allow increases in input prices to be passed on the end consumer Foreign Exchange Risk Lankem operates in a business model where most of the raw material items are imported. As a result the Company is highly exposed to foreign exchange risk due to the movements in foreign exchange rates. This results in transaction risk for the Company. Lankem uses forward exchange rates for accounting purposes on the assumption that future spot rates will fall below the forward rate. By this means, the Company effectively provides for its foreign exchange exposure and has able to minimise any adverse impact Interest Rate Risk The funding of a large proportion of the operations of Lankem Ceylon PLC is through debt. Due to the high interest regime that prevailed in 2008/09 the Company has faced increasing finance costs. The Company is restructuring its debt portfolio in a manner to minimise the downside risk of rising interest rates. Going forward, the Company is committed to reduce its level of debt in order to ensure that finance costs remain under control. Lankem Ceylon PLC - Annual Report 2008/09 21

24 1.2.3 Inflation Rate Risk Lankem serves both individuals and institutional clients. Upward movements in inflation will mainly deteriorate the purchasing power both sets of customers. This will deteriorate the potential demand for Company products and increase the Company s cost base. The Company closely monitors fluctuations in price levels and focuses on the efficient management of its cost base so as to ensure the minimal increase in price to customers Liquidity Risk Due to the nature of the businesses that Lankem operates in, we need to ensure that working capital cycles are properly maintained so as to ensure that operations are not compromised due to the lack of adequate working capital. Lankem implements effective credit control policies to ensure collection of from debtors and obligations to its creditors are met on time Investment Risk This risk incorporates threat of investments not yielding the expected results. Lankem has in the recent past focused on organic growth. The Company conducts detailed feasibility studies on new projects and only once the Company is certain that the rate of return is above a certain threshold will any investments take place. Further, regular controlling and monitoring of the performance of newly implemented projects are carried out in order to identify any. Moreover, suitable feedback controls are implemented to rectify any issues that may arise as well as feed forward controls are established to deter the reoccurances of adverse variances. Business Risk New entrants into markets that Lankem is already present in as well as intensification of competition from existing players in existing markets are the significant business risk that the Company faces. Variation in consumer spending patterns is also a potential business risk. The very nature of the industries that the Company and its subsidiaries operates in are also considered to be a source of business risk. Operational Risk Operational risk relates to the risk arising from execution of business operations. Lankem has established sound internal control systems in all its operations and continuously reviews and monitors those procedures to ensure accountability and transparency in all its operations. Lankem is in the process of strengthening controlling and monitoring processes while providing more prominence to the Compliance Department to ensure proper functioning in all operations. 22 Lankem Ceylon PLC - Annual Report 2008/09

25 corporate governance Corporate Governance is a way of structuring the organisation in order to safeguard the interests of a wide variety of stakeholders. It needs to balance the Corporate Governance with everyday business management in today s dynamic corporate world. We at Lankem firmly promise our stakeholders better business performance which is nurtured and backed through properly formulated governance practices and procedures. Lankem Ceylon PLC is in the process of complying with the Code of Best Practice on Corporate Governance issued by The Institute of Chartered Accountants in Sri Lanka and the rules on Corporate Governance set out in the Colombo Stock Exchange Listing Rules. We present below the Corporate Governance practices adopted and practiced by Lankem Ceylon PLC. 1. The Board of Directors 1.1 The Board, Composition and Meetings The Board of Directors of Lankem Ceylon PLC is responsible for the governance practices adopted in all the companies within the Group. The Board comprises of the Chairman, Deputy Chairman, Managing Director, Chief Operating Officer and five other Directors. All the Directors are professionals who have acquired a wealth of experience and knowledge in the fields of Management, Marketing and Finance. Name of Director Mr. A. Rajaratnam (Chairman) Mr. S.D.R. Arudpragasam (Deputy Chairman) Mr. Anushman Rajaratnam (Managing Director) Mr. D.L. Vitharana (Chief Operating Officer) Mr. R.N. Bopearatchy Mr. N.H.B.S. Perera Mr. M.A.A. Mendis (Resigned on ) Mr. K.P. David Mr. A.R. Peiris Mr. R.T. Weerasinghe (Appointed on ) Non-Executive Non-Executive Executive Executive Executive Non-Executive Executive Executive Executive Executive The Board meets regularly and has met four times during the year under review. In addition to Board Meetings, matters are referred to the Board and decided by resolutions in writing. Availability of Formal Schedule of Matters The Code of Best Practice on Corporate Governance of The Institute of Chartered Accountants of Sri Lanka suggests that the Board should have a formal schedule of matters specially reserved for its decision making. Sufficient time was dedicated at meetings in order to ensure the following: Offer guidance on overall direction and related strategies, financial and non-financial objectives of Lankem Ceylon PLC. Formulation, implementation and monitoring of business strategy of the Company. Oversee the effectiveness of the internal control systems and proactive risk management system. Ensure compliance with legal requirements and ethical standards. Approval of budgets, corporate plans, major investments and divestments. Approval of interim and annual Financial Statements for publication. Approval and review of the succession planning of the Boards and top management. Approval of any issue of equity and debt securities of the Company. Any other matter which is important to ensure that the Company conducts its business in the best interest of all stakeholders. Lankem Ceylon PLC - Annual Report 2008/09 23

26 Company Secretary and Independent Professional Advice Lankem Ceylon PLC and all the Directors seek advice from Corporate Managers and Secretaries (Private) Limited who are qualified to act as Secretaries as per the provisions of the Companies Act No. 07 of In addition, the Board seeks professional advice as and when, and where necessary from independent external professionals. Independent Judgement The Board as a whole and individually the Directors are committed to exhibit high standards of integrity and independence of judgement on various issues from strategy to performance. Training for Directors The Directors are provided with adequate and relevant training opportunities for their continuous development. 1.2 Segregation of the Role of Chairman and Chief Executive Officer The role of Chairman and Chief Executive Officer is clearly segregated. The Managing Director functions in the capacity of Chief Executive Officer who is responsible for the operational matters of the Company. Functional Directors are responsible for the respective division of strategic business units. 1.3 Chairman s Role The Chairman oversees good governance of the Company s affairs and monitors the satisfactory performance of duties and responsibilities allocated to the Board Members. The Chairman leads the Board Meetings ensuring effective participation of all Directors. The Chairman ensures that the Board is in complete control of the Company s affairs. 1.4 Financial Acumen The Board possesses relevant knowledge and competence in order to offer guidance on matters relating to finance. The Board comprises of a Senior Chartered Accountant, a Certified Public Accountant and three Chartered Management Accountants. 1.5 Board Balance The Board comprises of three Non-Executive Directors and six Executive Directors. Lankem Ceylon PLC is in the process of setting up the board balance. The Non-Executive Directors Mr. A. Rajaratnam & Mr. S.D.R. Arudpragasam, have submitted declarations of their non-independence to the Board. 1.6 Supply of Information Lankem Ceylon PLC has set up procedures to receive timely information including a clear Agenda prior to the meetings. Minutes of all the meetings are properly recorded and circulated among Directors. Apart from regular Board Meetings, Executive Directors and Senior Managers meet bi-weekly or more frequently in order to discuss specific matters. Decisions and important information from these meetings are conveyed to all Board Members at the Board Meetings for a final decision. Monthly accounts and key financial parameters and performance of each division are discussed and necessary action is taken. 24 Lankem Ceylon PLC - Annual Report 2008/09

27 1.7 Appointments to the Board The Board as a whole decides on the appointments of Directors in accordance with the Articles of Association of Lankem Ceylon PLC. All appointments are approved by the ultimate Parent Company, The Colombo Fort Land & Building Company PLC. The details of new appointments to the Board are made available to shareholders by making announcements to the Colombo Stock Exchange. 1.8 Re-election of Directors In terms of the Articles of Association of the Company, a Director appointed to the Board holds office until the next Annual General Meeting and seeks re-election by the shareholders at that meeting. The Articles require one-third or a number nearest to one-third of Directors in office (excluding Executive Directors) to retire at each Annual General Meeting. The Directors to retire are those who have been longest in office since their last election. Retiring Directors are eligible for re-election by the shareholders. 2. Directors Remuneration 2.1 Remuneration Committee The Remuneration Committee of the ultimate Parent Company, The Colombo Fort Land & Building Company PLC will function as the Company s Remuneration Committee. 2.2 Disclosure of Remuneration Aggregate remuneration paid to Directors is disclosed in Note 26 to the Financial Statements on page Relationship with Shareholders 3.1 Constructive Use of AGM/General Meetings Lankem Ceylon PLC always welcomes the active participation of shareholders at General Meetings in order to promote and continue effective dialogue between the two parties. Opportunities are available to shareholders to raise questions from the Chairman and other Directors at the AGM/ General Meetings. The required number of days notice has been given in accordance with the Articles of Association of the Company and the Companies Act No. 07 of Major Transactions Lankem Ceylon PLC in addition to its Annual Report publishes quarterly, half yearly, nine months and twelve months ended interim reports in order to communicate information to the shareholders in a timely manner. All material and price sensitive information are included in these reports together with major transactions if any during the particular period of reporting. Lankem Ceylon PLC - Annual Report 2008/09 25

28 4. Accountability and Audit 4.1 Financial Reporting Lankem Ceylon PLC and its Board of Directors consider timely publication of its annual and quarterly Financial Statements as a high priority. These publications include all material, financial and non-financial information in order to facilitate the requirements of existing and potential shareholders. Financial Statements were prepared based on the Sri Lanka Accounting Standards (SLAS). The Annual Report of the Board of Directors on the affairs of the Company is given on pages 29 to 32 of this Annual Report. The Directors are of the belief that the Company is capable of operating in the foreseeable future after the adequate assessment of the Company s financial position and resources. Therefore, the going concern principle has been adopted in the preparation of Financial Statements. The Auditors Report on Financial Statements is given on pages 34 and 35 containing the Auditors reporting responsibility. Non-financial information of business segments is given on pages 6 to Internal Controls The Board of Directors takes overall responsibility for the Company s internal control system. A separate Compliance Section was established to review the effectiveness of the Company s internal controls in order to ensure reasonable assurance that assets are safeguarded and all transactions are properly authorised and recorded. The Board reviews the recommendations of External Auditors and takes appropriate action in order to maintain an adequate internal control system. 4.3 Audit Committee The Audit Committee of the ultimate Parent Company, The Colombo Fort Land & Building Company PLC, will function as the Company s Audit Committee. 26 Lankem Ceylon PLC - Annual Report 2008/09

29 corporate social responsibility Lankem Ceylon PLC - Annual Report 2008/09 27

30 corporate social responsibility Lankem Ceylon PLC has continued to support the environment in which it operates through its many corporate social responsibility (CSR) initiatives. We strongly believe that our businesses add value in improving the quality of life while protecting the environment in which we operate. We have embedded good corporate social values and ethics in every aspect of our business. Lankem continues to function as a responsible corporate citizen to all its stakeholders while discharging our stewardship functions at the very highest levels. Preserving Our Environment Due to the nature of some of the businesses that we operate in, we have to deal with some hazardous chemicals. We have conformed to all stipulated international and local safety guidelines in handling chemicals to ensure protection of life and environment. We have obtained ISO 9001:2000 for Quality Management Systems, ISO 14001:2004 for Environmental Management Systems, OSHAS for Occupational Health and Safety Certification for our factories and SLS product quality certification for our products. We have set up proper effluent disposal systems in all our manufacturing plants with the aim to ensure no adverse impact to the environment. The quality of affluent water discharge from our factories exceeds the standards set by the Central Environment Authority. Also, the Company carries out frequent field level awareness programmes on the safe use of our chemical products. Such programmes include educating the masses on appropriate dosage of chemicals to ensure the protection of our environment. We have adopted many environment friendly agricultural practices in our plantations such as the use of leguminous cover crops, live and stone terraces, draining on an annual basis, planting shade and green manure belts. Our plantation companies have increased the use of biomass for driers wherever possible and minimised the usage of fuel oil, thus gaining cost reductions as well as foreign exchange savings. This has proved of immense success not only on saving on firing costs but also in the reduction of air pollution due to the reduced emissions of carbon and sulphur. We have also carried out a forestry programme with a view to being self-sufficient in our biomass requirements. Caring for Our Community Lankem highly values the community in which it operates in and is frequently involved in social and welfare activities to support this community. We have supported various projects in rural areas with the aim of improving the levels of education and awareness in agriculture among this community. We conduct the annual donation and application of paints to the Temple of Tooth Relic in Kandy. Further, we have donated paints to other religious institutions such as the Bellanwila Raja Maha Viharaya, the Naga Viharaya in Jaffna and the St. Lawrance s Church in Wellawatte. Through our paints divisions we continued to improve the conditions for local school children by providing them a vibrant school environment by painting their local schools. Lankem is firmly committed to the belief that by conducting these welfare events and by ensuring the participation of our staff members, that the Company is able to give back to the local community of whom they depend on. Our plantation companies continue to engage in improving healthcare and child welfare of its estate employees. At Kotagala Plantations, we conduct medical camps periodically for workers with regular health and nutrition checks. We maintain two ambulances and provide proper sanitary facilities for the estate community. Moreover, we are improving Child Development Centres (CDCs) which are facilitated with officers who are trained by the Plantation Human Development Trust (PHDT). The Company has implemented housing projects under the assistance of the PHDT as we want to enhance the living standards of our estate employees. Valuing Our Human Resource We value our human resource as a critical success factor for our businesses. We have taken greater consideration in ensuring the well-being and betterment of our staff. We prioritise the improvement of knowledge and competency of our employees to ensure that they are able to discharge their duties at the very highest levels. We believe having the right people in our organisation will provide us with an unique edge in bringing superior performances to our organaisation. Lankem s human resource strategies are evolved towards training and development, improving employee satisfaction and better compensation for staff through rewards and recognition. 28 Lankem Ceylon PLC - Annual Report 2008/09

31 annual report of the board of directors The Board of Directors of Lankem Ceylon PLC present their Report on the affairs of the Company together with the Audited Financial Statements for the year ended 31st March The details set out herein provide the pertinent information required by the Companies Act No. 07 of 2007, and the Colombo Stock Exchange Listing Rules and are guided by recommended best practices. General The Company was re-registered on 18th March 2008 as required under the Companies Act No. 07 of Principal Activities, Business and Future Prospects The principal activities of the Company together with those of its subsidiary companies have been described along with the Corporate Information in this Annual Report. A review of the Company s business and its performance during the year with comments on financial results and future prospects is contained in the Chairman s Message, Business Review & Financial Review sections of this Annual Report. These reports together with the Financial Statements reflect the state of affairs of the Company. The Directors to the best of their knowledge and belief confirm that the Company has not engaged in any activities that contravene laws and regulations. Financial Statements The Financial Statements of the Group are given on pages 36 to 78. Auditors Report The Auditors Report on the Financial Statements is given on pages 34 and 35. Accounting Policies The Accounting Policies adopted in the preparation of the Financial Statements are given on pages 40 to 47. There were no changes in the Accounting Policies adopted. Interest Register Directors Interest in Transactions The Directors have made general disclosures as provided for in Section 192 (2) of the Companies Act No. 07 of Arising from this, details of contracts in which they have an interest are disclosed in Note 26 to the Financial Statements on pages 74 to 76. Directors Remuneration The Directors remuneration in respect of the Group for the financial year 2008/09 is Rs Mn (2007/08 - Rs Mn) and in respect of the Company for the financial year 2008/09 is Rs Mn (2007/08 - Rs Mn). Directors Interest in Shares The Directors of the Company who have an interest in the shares of the Company have disclosed their shareholdings and any acquisitions/disposals to the Board in compliance with Section 200 of the Companies Act No. 07 of Lankem Ceylon PLC - Annual Report 2008/09 29

32 Details pertaining to Directors direct and indirect Shareholdings are given below: No. of Shares As at As at Mr. A. Rajaratnam 7,000 7,000 Mr. S.D.R. Arudpragasam 4,459 4,459 Mr. Anushman Rajaratnam 4,728 2,728 Mr. D.L. Vitharana Mr. R.N. Bopearatchy Mr. N.H.B.S. Perera Mr. M.A.A. Mendis (Resigned w.e.f. 26th March 2009) Mr. K.P. David 7,083 7,083 Mr. A.R. Peiris 4,723 4,723 Mr. R.T. Weerasinghe (Appointed w.e.f. 1st April 2009) Corporate Donations Donations made by the Group amounted to Rs. 188,000/- during the year under review (2007/08 - Rs. 68,000/-). Directorate The names of the Directors who held office during the financial year are given below. Brief profiles of the Directors currently in office appear on page 5. Mr. A. Rajaratnam - Chairman Mr. S.D.R. Arudpragasam - Deputy Chairman Mr. Anushman Rajaratnam - Managing Director Mr. D.L. Vitharana - Director/Chief Operating Officer Mr. R.N. Bopearatchy - Director Mr. N.H.B.S. Perera - Director Mr. M.A.A. Mendis (Resigned w.e.f. 26th March 2009) - Director Mr. K.P. David - Director Mr. A.R. Peiris - Director Mr. R.T. Weerasinghe (Appointed w.e.f. 1st April 2009) - Director Mr. Anushman Rajaratnam who held the Office of Deputy Managing Director was appointed Managing Director with effect from 1st April Mr. D.L. Vitharana was appointed Chief Operating Officer with effect from 1st April Mr. R.T. Weerasinghe was appointed to the Board with effect from 1st April Mr. M.A.A. Mendis resigned from the Directorate with effect from 26th March Auditors The Financial Statements of the Company for the year have been audited by Messrs KPMG Ford, Rhodes, Thornton & Co. who were reappointed as Auditors at the Annual General Meeting held on 16th March The Auditors, Messrs KPMG Ford, Rhodes, Thornton & Co. were paid Rs Mn during the year under review (2007/08 - Rs Mn) as audit fees and fees for audit related services by the Group. In addition, they were paid Rs Mn (2007/08 - Rs Mn) by the Group for non-audit related work, which consisted mainly of tax related work. In addition to the above, Group companies engaged with other audit firms. Audit fees in respect of these firms amounted to Rs Mn during the year under review (2007/08 - Rs Mn). Further, there were no non-audit related services by these audit firms during the year 2008/ Lankem Ceylon PLC - Annual Report 2008/09

33 As far as the Directors are aware, the Auditors do not have any relationship (other than that of an Auditor) with the Company. The Auditors do not have any interest in the Company. Revenue The revenue of the Group for the year was Rs. 9, Mn (2007/08 - Rs. 9, Mn). Results The Group made a profit before tax of Rs Mn against a profit of Rs Mn in the previous year. The detailed results are given in the Income Statements on page 36. Dividends The Directors are pleased to recommend the payment of a first and final Dividend of Rs per share on the ordinary shares of the Company for the year ended 31st March 2009 for approval by the shareholders at the Extraordinary General Meeting to be held on 27th November The Directors have confirmed that the Company satisfies the solvency test requirement under Section 56 of the Companies Act No. 07 of 2007 for the dividend proposed. A solvency certificate has been sought from the Auditors in respect of the aforementioned dividend. Investments Investments made by the Group are given in Notes 10 and 11 to the Financial Statements on pages 56 to 59. Property, Plant & Equipment During 2008/09 the Group invested Rs. 1, Mn in Property, Plant & Equipment (2007/08 - Rs Mn). Further, your Directors are of the opinion that the net amounts at which Land and other Property, Plant & Equipment appear in the Balance Sheets are not greater than their market value as at 31st March Stated Capital The stated capital of the Company as at 31st March 2009 was Rs. 281,218,000/- and is represented by 21,000,000 issued and fully paid Ordinary Shares. During the year the Company redeemed 833,383 14% (Unquoted) Cumulative Redeemable Preference Shares in accordance with the terms and conditions attached thereto. Reserves The total Group reserves as at 31st March 2009 comprised Revaluation Reserves of Rs Mn, Capital Redemption Reserve Rs Mn, Other Capital Reserves Rs Mn, General Reserves of Rs Mn and Retained Earnings Rs Mn whereas the total Group Reserves as at 31st March 2008 comprised Revaluation Reserves of Rs Mn, Capital Redemption Reserve Fund of Rs Mn, Other Capital Reserves of Rs Mn, General Reserves of Rs Mn and Retained Earnings of Rs Mn. The movements are shown in the Statements of Changes in Equity in the Financial Statements. Taxation The Group s liability to taxation has been computed in accordance with the provisions of the Inland Revenue Act No. 10 of 2006, and subsequent amendments thereto. Income tax and other taxes paid and liable by the Group are disclosed in Notes 1, 6 and 20 to the Financial Statements on pages 48, 51 to 53 and 68. Share Information Information relating to earnings, dividend, net assets, market value per share and share trading is given on pages 53 and 80 to 81. Events Occurring after the Balance Sheet Date Events occurring after the Balance Sheet date that would require adjustments to or disclosures are disclosed in Note 27 on page 77. Lankem Ceylon PLC - Annual Report 2008/09 31

34 Capital Commitments and Contingent Liabilities Capital commitments and contingent liabilities as at the Balance Sheet date are disclosed in Notes 24 and 25 on pages 72 to 73. Employment Policy The Company s recruitment and employment policy is non-discriminatory. The occupational health and safety standards receive substantial attention. Appraisals of individual employees are carried out in order to evaluate their performance and realise their potential. This process benefits the Company and the employees. Shareholders It is the Company s policy to endeavour to ensure equitable treatment to its shareholders. Statutory Payments The Directors, to the best of their knowledge and belief, are satisfied that all statutory payments of the Company due in relation to employees and the Government have been made promptly, up to date. Environmental Protection The Company s business activities can have direct and indirect effects on the environment. It is the Company s policy to minimise any adverse effect its activities have on the environment and to promote co-operation and compliance with the relevant authorities and regulations. The Directors confirm that the Company has not undertaken any activities which have caused or are likely to cause detriment to the environment. Internal Control The Directors acknowledged their responsibility for the Company s system of internal control. The system is designed to give assurance regarding the safeguarding of assets, the maintenance of proper accounting records and the reliability of financial information generated. However, any system can ensure only reasonable and not absolute assurance that errors and irregularities are either prevented or detected within a reasonable period of time. The Board is satisfied with the effectiveness of the system of internal control for the period up to the date of signing these Financial Statements. Going Concern The Directors, after making necessary inquiries and reviews including reviews of the Company s budget for the subsequent year, capital expenditure requirements, future prospects and risks, cash flows and borrowing facilities, have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Therefore, the going concern basis has been adopted in the preparation of the Financial Statements. For and on behalf of the Board S.D.R. Arudpragasam Director K.P. David Director By Order of the Board Corporate Managers & Secretaries (Private) Limited Secretaries Colombo 15th October Lankem Ceylon PLC - Annual Report 2008/09

35 34 Independent Auditors Report 36 Income Statements 37 Balance Sheets 38 Statements of Changes in Equity 39 Cash Flow Statements 40 Accounting Policies 48 Notes to the Financial Statements FINANCIAL REPORTS 2008/2009

36 independent auditors report TO THE SHAREHOLDERS OF LANKEM CEYLON PLC Report on the Financial Statements We have audited the accompanying financial statements of Lankem Ceylon PLC, the consolidated financial statements of the Company and its subsidiaries as at that date which comprise the balance sheet as at March 31, 2009, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes as set out on pages 36 to 78 of the 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 principles 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. Company Qualified Opinion 1. The Company has not provided for impairment of the carrying amount of investments in subsidiary companies, Sigiriya Village Hotels PLC, Marawila Resorts PLC, Beruwala Resorts Limited and Colombo Fort Hotels Limited as at the reporting date as indicated in Note 10.2 to these financial statements. 2. The Company has not provided for impairment of the amounts receivable from subsidiary companies, Lankem Consumer Products Limited, Sigiriya Village Hotels PLC, Marawila Resorts PLC and Beruwala Resorts Limited as at the reporting date as indicated in Note 22.1 to these financial statements. 3. The Company has not computed the defined benefit obligation and the related assets in accordance with Sri Lanka Accounting Standard 16 - Employee Benefits (Revised). Further, the disclosures provided in Note 18.2 to the financial statements on the defined benefit obligation and the related assets are not based on the provisions of SLAS 16. Since the Company has not actuarially valued the defined benefit obligation and valued the related assets as required by SLAS 16, the adjustments to Retirement Benefit Obligations, Income Taxes, Net Profit and Retained Earnings which would have resulted from complying with SLAS 16, have not been determined. 34 Lankem Ceylon PLC - Annual Report 2008/09

37 In our opinion, except for the effect on the financial statements of the matter referred to in the aforesaid paragraphs (1), (2) and (3) above; the financial statements give a true and fair view of the Company s state of affairs as at March 31, 2009 and its profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards. Consolidated Qualified Opinion 1. York Hotels (Kandy) Limited, a subsidiary company has not continued construction work on its building which is included at a carrying amount of Rs Mn in Capital Work-In-Progress. No provision has been made for impairment of the carrying amount as discussed in Note 8 (viii) to these financial statements. 2. Marawila Resorts PLC, Sigiriya Village Hotels PLC and Beruwala Resorts Ltd which are subsidiary companies have not made statutory payments and respective penalties arising thereon as more fully detailed in Note 21.1 to these financial statements. 3. Lankem Ceylon PLC has not computed the defined benefit obligation and the related assets in accordance with Sri Lanka Accounting Standard 16 - Employee Benefits (Revised). Further, the disclosures provided in Note 18.2 to the financial statements on the defined benefit obligation and the related assets are not based on the provisions of SLAS 16. Since the Lankem Ceylon PLC has not actuarially valued the defined benefit obligation and valued the related assets as required by SLAS 16, the adjustments to Retirement Benefit Obligations, Income Taxes, Net Profit and Retained Earnings which would have resulted from complying with SLAS 16, have not been determined. In our opinion, except for the effect on the financial statements of the matter referred to in the aforesaid paragraphs (1), (2) and (3) above, the consolidated financial statements give a true and fair view of the state of affairs as at 31st March, 2009 and the profit and cash flows for the year ended, in accordance with Sri Lanka Accounting Standards, of the Company and its subsidiaries dealt with thereby, so far as concerns the members of the Company. Emphasis of Matter - Consolidated Without further qualifying our opinion we draw attention to: (i) (ii) Note 25.1 to these financial statements, which if the various contingent liabilities of the Group Companies detailed thereon crystallizes individually and/or collectively would have material effects on the financial statements of the Group as described in the said Note to the financial statements. Note 28.1 to these financial statements regarding matters that raise doubt that the respective Group Companies will be able to continue as a going concern. Report on Other Legal and Regulatory Requirements These financial statements also comply with the requirements of Sections 153 (2) to 153 (7) of the Companies Act No. 07 of KPMG Ford, Rhodes, Thornton & Co. Chartered Accountants, Colombo 15th October 2009 Lankem Ceylon PLC - Annual Report 2008/09 35

38 income statements ConsoliDATED COMPANY For the year ended 31st March 2008/ / / /08 Note Rs. 000 Rs. 000 Rs. 000 Rs. 000 Revenue 1 9,752,487 9,451,805 3,937,902 3,251,568 Cost of Sales (7,995,046) (7,240,946) (3,296,767) (2,862,684) Gross Profit 1,757,441 2,210, , ,884 Other Income 2 291, ,702 15,154 4,609 Distribution Expenses (429,470) (370,718) (217,173) (119,991) Administrative Expenses (1,043,573) (837,158) (95,124) (53,420) Other Expenses 3 (33,944) (74,263) (1,154) (36,874) Net Finance Cost 4 (284,813) (240,958) (57,030) (2,731) Profit Before Tax 5 256, , , ,477 Income Tax Expense 6 (194,293) (180,376) (115,967) (74,766) Profit for the Year 62, , , ,711 Attributable to: Equity Holders of the Company 175, , , ,711 Minority Interest (112,831) 444,142 Profit for the Year 62, , , ,711 Earnings Per Ordinary Share (Rs.) Dividend Per Ordinary Share (Rs.) The Accounting Policies and Notes to the Financial Statements form an integral part of these Financial Statements. 36 Lankem Ceylon PLC - Annual Report 2008/09

39 balance sheets ConsoliDATED COMPANY As at 31st March Note Rs. 000 Rs. 000 Rs. 000 Rs. 000 Assets Non-Current Assets Property, Plant & Equipment 8 5,812,371 5,262, , ,252 Intangible Assets 9 147,254 84,366 Investments in Subsidiaries , ,040 Other Long-Term Investments 11 54,168 57, , ,549 Deferred Tax Asset Total Non-Current Assets 6,013,798 5,404,882 1,265,188 1,204,841 Current Assets Inventories 12 1,148,476 1,437, , ,448 Amounts due from Related Parties ,724 63, , ,976 Trade and Other Receivables 13 1,280,989 1,253, , ,695 Taxes Recoverable , , ,217 86,162 Short-Term Investments ,590 68,670 Cash & Cash Equivalents 215, ,459 29,568 61,460 Total Current Assets 3,136,939 3,332,428 1,626,884 1,564,741 Total Assets 9,150,737 8,737,310 2,892,072 2,769,582 Equity and Liabilities Equity Stated Capital , , , ,552 Capital Reserves 272, ,108 53,478 53,478 General Reserves 318, , , ,000 Retained Earnings 332, , , ,137 Total Equity Attributable to Equity Holders of the Company 1,204,782 1,072,023 1,181,999 1,059,167 Minority Interest 1,077,484 1,274,726 Total Equity 2,282,266 2,346,749 1,181,999 1,059,167 Non-Current Liabilities Interest Bearing Borrowings & Finance Leases 16 1,374,915 1,086,692 77,437 73,727 Retirement Benefit Obligations , , ,455 Deferred Income , ,509 Deferred Tax Liability ,977 71,484 17,150 1,385 Net Obligation to Lessor , ,671 Total Non-Current Liabilities 3,266,615 2,795,150 95,226 76,567 Current Liabilities Trade and Other Payables 21 2,182,167 2,370, ,172 1,075,673 Amounts due to Related Parties , , ,788 97,393 Income Tax Payable 82, ,019 52,543 66,388 Current Portion of Interest Bearing Borrowings & Finance Leases 16 1,147, , , ,394 Total Current Liabilities 3,601,856 3,595,411 1,614,847 1,633,848 Total Liabilities 6,868,471 6,390,561 1,710,073 1,710,415 Total Equity & Liabilities 9,150,737 8,737,310 2,892,072 2,769,582 It is certified that the Financial Statements have been prepared in compliance with the requirements of the Companies Act No. 07 of T. Balachandran Finance Manager The Directors are responsible for the preparation and presentation of these Financial Statements. Notes from pages 48 to 78 form an integral part of these Financial Statements. Approved and signed for and on behalf of the Board of Directors of Lankem Ceylon PLC. S.D.R. Arudpragasam Director K.P. David Director Colombo 15th October 2009 Lankem Ceylon PLC - Annual Report 2008/09 37

40 statements of changes in equity Consolidated Stated Capital Attributable to Equity Holders of the Company Ordinary Preference Revaluation Capital Other General Retained Total Minority Total Share Share Reserve Redemption Capital Reserve Earnings/ Interest Equity Capital Capital Reserve Reserve (Accumulated Fund Loss) Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Balance as at 1st April ,218 16, ,856 8,333 35, ,498 (90,933) 715, ,719 1,546,277 Preference Shares Redeemed (8,333) (8,333) (8,333) Issue of Ordinary Shares 75,000 75,000 23,540 98,540 Adjustments due to Debit Balances in Minority Interest 8,264 8,264 (8,264) Adjustments due to Disposal of Subsidiary 99,145 99,145 Write Back of Goodwill on Disposal of Investments 16,630 16,630 16,630 Adjustment due to Changes in Holding (59,296) (59,296) Dividends - Ordinary Shares (27,000) (27,000) (55,260) (82,260) - Preference Shares (2,042) (2,042) (2,042) Profit for the Year 293, , , ,088 Balance as at 31st March ,218 8, ,856 8,333 35, , ,865 1,072,023 1,274,726 2,346,749 Preference Shares Redeemed (8,334) (8,334) (8,334) Issue of Ordinary Shares 62,809 62,809 Adjustments due to Debit Balances in Minority Interest 3,652 3,652 (3,652) Negative Goodwill on Changes in Holding 14,988 14,988 14,988 Adjustment due to Changes in Holding 1,712 5,823 (22,266) (14,731) (95,783) (110,514) Effect of Change in SLAS ,516 Dividends - Ordinary Shares (37,800) (37,800) (48,676) (86,476) - Preference Shares (875) (875) (875) Profit for the Year 175, ,234 (112,831) 62,403 Balance as at 31st March , ,568 8,333 35, , ,423 1,204,782 1,077,484 2,282,266 Stated Capital Ordinary Preference Revaluation Capital General Retained Total Share Share Reserve Redemption Reserve Earnings/ Equity Capital Capital Reserve (Accumulated Fund Loss) Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Company Balance as at 1st April ,218 16,667 45,145 8, , , ,831 Issue of Ordinary Shares 75,000 75,000 Preference Shares Redeemed (8,333) (8,333) Dividends - Ordinary Shares (27,000) (27,000) - Preference Shares (2,042) (2,042) Profit for the Year 105, ,711 Balance as at 31st March ,218 8,334 45,145 8, , ,137 1,059,167 Preference Shares Redeemed (8,334) (8,334) Dividends - Ordinary Shares (37,800) (37,800) - Preference Shares (875) (875) Profit for the Year 169, ,841 Balance as at 31st March ,218 45,145 8, , ,303 1,181,999 Descriptions of specific reserves are given below: Revaluation Reserve relates to the revaluation of Property, Plant & Equipment. Capital Redemption Reserve Fund represents reserve transferred on behalf of the preference shares redeemed. Other Capital Reserve represents premium on the conversion of Agarapatana Plantations Ltd. s debentures into ordinary shares with a premium of Rs. 107 Mn in 2001/02. The Accounting Policies and Notes to the Financial Statements form an integral part of these Financial Statements. 38 Lankem Ceylon PLC - Annual Report 2008/09

41 cash flow statements ConsoliDATED COMPANY For the year ended 31st March Rs. 000 Rs. 000 Rs. 000 Rs. 000 Cash Flows from Operating Activities Profit before Tax 256, , , ,477 Adjustments for: (Gain)/Loss on Disposal of Property, Plant & Equipment (4,942) (6,285) (4,121) (806) Amortisation/Depreciation on Property, Plant & Equipment 261, ,846 41,361 37,103 Write-Off of Property, Plant & Equipment 192 (Gain)/Loss on Deemed Disposal (53,186) (27,875) Provision for Gratuity 142, ,332 (Reversal)/Provision for Doubtful Debts 27,267 (17,771) 1,587 (4,581) (Reversal)/Provision for Amounts Receivable from Related Companies (256) (69,474) 16,874 Over Provision of Deferred Interest (20,646) Over Provision of Bad & Doubtful Debts (1,379) Creditors no longer Payable Written Back During the Year (20,953) Provision for Fall in Value of Long-Term Investments 13, ,000 Change in Fair Value of Short-Term Investments 1,112 1,154 Provision for Obsolete Inventories 1,291 6,384 1,710 6,817 Impairment of Goodwill 16,950 56,019 Amortisation of Capital Grants (12,707) (9,936) Loss on Disposal of Investments 1,749 17,455 Dividend Income (3,898) (72) (3,844) (12) Interest Expense 309, , , ,179 Interest Income (39,568) (4,691) (44,798) (68,452) Gain/(Loss) on Translation of Foreign Currency Loan 27,721 (7,409) Operating Profit before Working Capital Changes 902,643 1,560, , ,599 (Increase)/Decrease in Inventories 287,748 (382,490) 64,722 (108,537) (Increase)/Decrease in Trade and Other Receivables (52,815) (191,126) (24,365) (108,121) (Increase)/Decrease in Related Party Receivables (75,341) (65,043) (Increase)/Decrease in Trade and Other Payables (182,879) 387,621 (105,502) 265,210 Increase/(Decrease) in Related Party Payables 69, ,395 Cash Generated from Operating Activities 949,065 1,374, , ,151 Interest Paid (296,647) (295,244) (88,721) (97,584) Income Taxes Paid (230,243) (73,493) (118,020) (18,602) Retiring Gratuity Paid (84,790) (61,985) (816) Net Cash Flows from Operating Activities 337, , , ,965 Cash Flows from Investing Activities Purchase and Construction of Property, Plant & Equipment (746,787) (438,165) (51,042) (27,637) Capital Grants Received 108,569 40,747 Proceeds from Disposal of Property, Plant & Equipment 11,363 12,786 7,866 7,071 Investments in Subsidiaries (30,741) Proceeds from Disposal of Investments 3,902 52,680 Investments in Long-Term Investments (27,936) (54,500) (46,637) (12,000) Investments in Short-Term Investments (69,702) (69,824) Dividend Received 3, , Interest Received 39,568 4,691 44,798 16,200 Net Payments to Minority Shareholders (73,406) 2,339 Net Cash Flows from Investing Activities (750,531) (379,350) (110,995) (47,095) Cash Flows from Financing Activities Proceeds from Ordinary Share Issue 75,000 75,000 Preference Shares Redeemed (8,334) (8,333) (8,334) (8,333) Proceeds from Long-Term Loans 510,755 38, ,500 Repayment of Long-Term Loans (202,382) (253,655) (38,760) (47,537) Lease Rentals Paid (111,502) (105,208) (60,388) (52,221) Redemption of Debentures (20,000) (30,000) Payments to Lessor on Leasehold Rights (29,232) (34,340) Dividends Paid (38,675) (29,042) (38,675) (29,042) Net Cash Flows from Financing Activities 100,630 (346,667) (41,657) (62,133) Net Increase/(Decrease) in Cash & Cash Equivalents (312,516) 217,299 (1,669) 128,737 Cash & Cash Equivalents at the beginning of the year (320,438) (537,737) (275,494) (404,231) Cash & Cash Equivalents at the end of the year (632,954) (320,438) (277,163) (275,494) Analysis of Cash & Cash Equivalents at the end of the Year Cash in Hand and at Bank 215, ,459 29,568 61,460 Short-Term Interest Bearing Borrowings (Note 16.6) (848,733) (643,897) (306,731) (336,954) (632,954) (320,438) (277,163) (275,494) The Accounting Policies and Notes to the Financial Statements form an integral part of these Financial Statements. Lankem Ceylon PLC - Annual Report 2008/09 39

42 accounting policies 1. Reporting Entity Lankem Ceylon PLC and its subsidiaries are limited liability companies incorporated and domiciled in Sri Lanka. The Consolidated Financial Statements of Lankem Ceylon PLC, as at and for the year ended 31st March 2009 comprise the Company and its subsidiaries (together referred to as the Group ) and the Group s interest in its associates. The registered office of the Company and the principal line of business are given on the inner back cover of this Annual Report. The immediate and ultimate holding companies of Lankem Ceylon PLC are E.B. Creasy & Company PLC and The Colombo Fort Land & Building Company PLC respectively. 2. Basis of Preparation Basis of Measurement The Financial Statements have been prepared on the historical cost basis except for certain items of Property, Plant & Equipment and Short- Term Investments which are measured at fair value as explained in the respective Notes to the Financial Statements. Functional and Presentation Currency The Financial Statements are presented in Sri Lanka Rupees which is the functional currency of the Company and its subsidiaries. Use of Estimates and Judgements The preparation of Financial Statements in conformity with SLAS requires Management to make judgements, estimates and assumptions that affect the application of Accounting Policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates and judgemental decisions. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if revision affects both current and future periods. 3. Significant Accounting Policies The Accounting Policies set out below have been consistently applied to all periods presented in these Financial Statements. Comparative information has where necessary been reclassified to conform to the current year s presentation. The Directors have made an assessment of the Group s ability to continue as a going concern in the foreseeable future, and they do not foresee a need for liquidation or cessation of trading. Basis of Consolidation Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable are also taken into account. The Financial Statements of subsidiaries are included in the Consolidated Financial Statements from the date that control commences until the date that control ceases. The interest of the outside shareholders of the Group is disclosed separately under the heading of Minority Interest. The gain/(loss) on dilution or a sale of a portion of an interest in subsidiary (where control does not cease) is recognised in profit and loss. A listing of the Group s subsidiaries is set out in Note 10 to the Financial Statements. 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. 40 Lankem Ceylon PLC - Annual Report 2008/09

43 Foreign Currency Transactions in foreign currencies are translated into Sri Lanka Rupees 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 exchange rate ruling at that date. Foreign currency differences arising on translation are recognised in profit or loss. 4. Assets and Bases of Their Valuation Assets classified as current assets in the Balance Sheet are cash and bank balances and those which are expected to be realised in cash during the normal operating cycle or within one year from the reporting date, whichever is shorter. Property, Plant & Equipment Recognition and Measurement Items of Property, Plant & Equipment are measured at cost (or at valuation in the case of certain items) less accumulated depreciation and accumulated impairment losses. Owned Assets The costs of Property, Plant & Equipment include expenditure that are directly attributable to the acquisition of the asset. The cost of selfconstructed assets includes the cost of materials and direct labour, and 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. Purchased software that is integral to the functionality of the related equipment is capitalised as part of the equipment. A revaluation of Property, Plant & Equipment is done when there is a substantial difference between the carrying amount and the fair value of the assets and is undertaken by professionally qualified valuers. Increases in the carrying amount on revaluation are credited to the revaluation surplus reserve in shareholders equity. Decreases that offset previous increases of the same asset are charged against revaluation surplus reserve directly in equity. All other decreases are recognised in profit and loss. Leased Assets Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Assets acquired by way of a finance lease are measured at an amount equal to the lower of the fair value and the present value of minimum lease payments at the inception less accumulated depreciation and accumulated impairment losses. Subsequent Expenditure The cost of replacing part of an item of Property, Plant & Equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within that part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised in accordance with the derecognition policy given below. The costs of the day-to-day servicing of Property, Plant & Equipment are recognised in profit and loss as incurred. Derecognition The carrying amount of an item of Property, Plant & Equipment is derecognised on disposal, or when no future economic benefits are expected from its use or disposal. Gains and losses on derecognition are recognised in profit or loss and gains are not classified as revenue. Depreciation Depreciation is recognised in profit and loss on a straight line basis over the estimated useful lives of each part of an item of Property, Plant & Equipment. Assets held under finance lease are depreciated over the shorter of the lease term and their useful lives unless that it is reasonably certain that the Group will obtain ownership by the end of the lease term. Freehold Land is not depreciated. The estimated useful lives for the current and comparative periods are as follows: Freehold Building Roads Plant, Machinery & Equipment Motor Vehicles Furniture, Fixtures & Fittings Kitchen & Other Equipment Linen & Soft Furnishing Cutlery & Crockery Electrical Equipment & Fittings Years 25 Years 8-13 Years 5-10 Years 7-10 Years 10 Years 4 Years 4 Years 10 Years Lankem Ceylon PLC - Annual Report 2008/09 41

44 Depreciation of an asset begins when it is available for use and ceases at the earlier of the date the asset is derecognised and classified as held for sale. Depreciation methods, useful lives and residual values are reassessed at the reporting dates. Intangible Assets Goodwill Goodwill arising on an acquisition represents the excess of the cost of acquisition over the fair value of net assets acquired. Goodwill is measured at cost less accumulated impairment losses. Negative goodwill arising on an acquisition represents the excess of the fair value of the net assets acquired over the cost of acquisition. Negative goodwill is recognised immediately in profit and loss. Other Intangible Assets Other intangible assets acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation Amortisation is recognised in profit or loss on a straight line basis over the estimated useful lives of intangible assets from the date the asset is available for use. The estimated useful lives are as follows: Trade Mark 5 years Investments Quoted and unquoted investments in shares held on long-term basis are measured at cost, as they are held for long-term capital appreciation. In the Parent Company s Financial Statements, investments in subsidiaries and associates are carried at cost. Provision for diminution in value is made when in the opinion of the Directors there has been a decline which is other than temporary in the carrying amount of the investment. Inventories Raw materials, finished goods and work-in-progress of Lankem Ceylon PLC and its subsidiaries are valued at the lower of cost, on a weighted average basis and Net Realisable Value. Provision is made for obsolete, slow moving and defective inventories where necessary. The cost includes expenditure incurred in acquiring the inventories and bringing them to their existing condition. In the case of manufactured inventories cost includes raw material cost and packing material cost. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and selling expenses. Trade and Other Receivables Trade and other receivables are stated at the values estimated to be realised after providing for bad and doubtful debts. Cash & Cash Equivalents Cash & cash equivalents comprise cash balances and call deposits. 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 purpose of the Statements of Cash Flows. Impairment The carrying amounts of the Group s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset s recoverable amount is estimated. 42 Lankem Ceylon PLC - Annual Report 2008/09

45 An impairment loss is recognised if the carrying amount of an asset or cash generating unit (CGU) exceeds its recoverable amount. A CGU is the smallest identifiable asset group that generates cash flows that are largely independent from other asset groups. Impairment losses are recognised in profit and loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amount of other assets in the unit on a pro rata basis. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less cost to sell. In assessing value in use, the estimated future cash flows are discounted to present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to that asset. Reversal of impairment losses is recognised 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. 5. Liabilities and Provisions Liabilities classified as current liabilities in the Balance Sheet are those which fall due for payment on demand or within one year from the reporting date. Items classified as long-term liabilities are those that fall due for payment one year after the reporting date. Employee Benefits Defined Contribution Plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to provident and trust funds covering all employees are recognised as an expense in profit and loss when incurred. Defined Benefit Plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The liability recognized in the Balance Sheet in respect of defined benefit plan is the present value of the defined benefit obligation at the Balance Sheet date. The defined benefit obligation is calculated annually using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates that apply to the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related liability. Provision has been made in the accounts for retiring gratuity from the first year of service for all employees in conformity with SLAS - 16 (Revised 2006) on Retirement Benefit Cost. However, under the Payment of Gratuity Act No. 12 of 1983, the liability to an employee arises only on completion of 5 years of continued service. Lankem Ceylon PLC has obtained an insurance policy as described in Note 18 to the Financial Statements to meet the retiring gratuity payments to its employees. However, the provision in relation to other companies in the Group is not funded externally. 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 measured reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Trade and Other Payables Trade and other payables are stated at their cost. 6. Income Statement For the purpose of the presentation of the Income Statement, the function of expenses method is adopted, as it represents fairly the elements of Company performance. Revenue The Group s revenue represents sales to customers outside the Group and excludes Value Added Tax, Turnover Tax and Intra-Group Sales. Lankem Ceylon PLC - Annual Report 2008/09 43

46 Revenue Recognition Revenue is generally accounted for on an accrual basis and is recognised as follows: On sale of goods, when all significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs of the transaction can be estimated reliably, and there is no continuing management involvement with the goods. On construction contracts, on the basis of the percentage completion method. However, for jobs substantially completed at the reporting date, revenue is accounted proportionately and accrued accordingly. The stage of completion is assessed by reference to surveys of work performed. For hotels, apartment revenue is recognised on rooms occupied on a daily basis whilst food and beverage sales are accounted for at the time of sale. Interest from bank deposits is recognised on a time proportionate basis from the date of deposit to the reporting date. Dividend income is recognised when the right to receive dividend is established. The Group s Profit/(Loss) is arrived after - (a) (b) Providing for bad and doubtful debts and depreciation of Property, Plant & Equipment. Charging all expenses incurred in running of the business and in maintaining the Property, Plant & Equipment in a state of efficiency. Operating Leases Leases where the Lessor effectively retains substantially all the risks and rewards of ownership over the lease term are classified as operating leases. Payments made under operating leases are recognised in profit and loss on a straight-line basis over the term of the lease. Borrowing Costs Borrowing costs are recognised as an expense in profit and loss in the period in which they are incurred, except to the extent that they are attributable to the acquisition, construction or production of a qualifying asset, in which case they are capitalised as part of the cost of that asset. The amount of borrowing costs to be capitalised is determined in accordance with the allowed alternative treatment in SLAS 20 - Borrowing Costs. Finance Income and Costs Finance income comprises interest income on funds invested and gains on translation of foreign currency. Interest income is recognised in profit and loss as it accrues. Finance costs comprise interest payable on borrowings and loss on translation of foreign currency. Income Tax Income tax expense consists of current and deferred tax. Income tax expense is recognised in profit and loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date and any adjustments to tax payable in respect of previous years. Deferred Tax Deferred tax is recognised using the Balance Sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws enacted at the reporting date. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 44 Lankem Ceylon PLC - Annual Report 2008/09

47 7. Plantations The plantation companies in the Group adopt certain Accounting Policies, which differ from that of the Group since the nature of operation of the plantation companies is significantly different from that of the rest of the Group. The Accounting Policies adopted are in accordance with SLAS 32 on Plantations. Those accounting policies of plantation companies that significantly vary from the rest of the Group are given below: Immature and Mature Plantations The cost of replanting and new planting is classified as immature plantations up to the point of harvesting the crop. Further, the general charges incurred on the plantations are apportioned based on the labour days spent on replanting and new planting and capitalised on the immature areas. The remaining proportion of general charges is expensed in the accounting period in which it is incurred. The cost of areas coming into bearing is transferred to mature plantations and depreciated over their estimated useful life. Infilling Cost Where infilling results in an increase in the economic life of relevant fields beyond its previously assessed standard of performance, the costs are capitalised in accordance with Sri Lanka Accounting Standard 32 - Plantations and are depreciated over its useful life at rates applicable to mature plantations. Infilling costs that are not capitalised are recognised in profit and loss as an expense as incurred. Depreciation Depreciation is recognised in profit and loss on a straight-line basis over the useful lives of each item of Property, Plant & Equipment other than freehold land as follows: Freehold Assets Useful life Buildings 40 Years Plant & Machinery 13 1/3 Years Furniture & Fittings 10 Years Motor Vehicles 5 Years Sanitation, Water & Electricity Supply 20 Years Equipment 8 Years Mature Plantations - Tea Years - Rubber Years Roads 25 Years Leased Assets Leasehold rights are amortised/depreciated in equal annual amounts over the following periods: Type of Assets No. of Years Bare Land 53 Years Improvement to Land 30 Years Mature Plantations - Tea & Rubber 30 Years - Others 25 Years Roads & Bridges 40 Years Buildings 25 Years Fences & Securities 20 Years Machinery 15 Years Water Supply 20 Years Power Augmentation 20 Years Vested Tea 30 Years Land Development Cost 30 Years Water Supply Scheme 30 Years Lankem Ceylon PLC - Annual Report 2008/09 45

48 Permanent Land Development Costs Permanent land development costs are those costs incurred to make major changes to land contours to build new access roads and other major infrastructure development. Such expenditure on leasehold land has been capitalised and amortised over the remaining lease period. Permanent impairments to land development costs are recognised in profit and loss in full or reduced to the net carrying amounts of such asset in the year of occurrence after ascertaining the loss. Limited Life Land Development Costs (Immature and Mature Plantations) The cost of new planting, replanting, inter-planting and crop diversification incurred between the time of field development and being ready for commercial harvesting is classified as immature plantations. Further, the general charges incurred on the plantation are apportioned on the labour days spent on respective replanting and new planting and capitalised on the immature areas. The remaining portion of the general charges is recognised in profit and loss in the year in which it is incurred. No depreciation is provided for immature plantation. The total expenditure incurred on perennial crops (Tea) which come into bearing during the year have been transferred to mature plantations and depreciated over its useful life time. No depreciation has been charged on mature plantations in the year of transfer. Permanent impairments to land development costs are recognised in profit and loss in full or reduced to the net carrying amounts of such asset in the year of occurrence after ascertaining the loss. Inventories Inventories other than produce stocks are valued at the lower of cost and estimated realisable value, after making due allowances for obsolete and slow moving items. Net realisable value is the price at which the stocks can be sold in the normal course of business after allowing for cost of realisation and/or cost of conversion from their existing state to saleable condition. Input Material Actual cost on FIFO basis. Crop - Nurseries Growing at the cost of direct materials, direct labour and an appropriate proportion of directly attributable overheads. Harvested Crop Valued at estimated selling prices or realisable prices. Produce Stock Valued at estimated selling prices or realisable prices. Other Stocks At actual cost. Retirement Benefit Obligations The Retirement Benefit Plan adopted is as required under the Payment of Gratuity Act No. 12 of 1983 to eligible employees. This item is grouped under Retirement Benefit Obligations in the Balance Sheet. All Workers and Staff Provision of gratuity for all workers and staff is on an actuarial basis, using the Projected Unit Credit (PUC) method as recommended by SLAS 16. The Company expects to carry out actuarial valuation once in every two years. 46 Lankem Ceylon PLC - Annual Report 2008/09

49 The key assumptions used by the actuary include the following: (a) (b) (c) (d) (e) Rate of Interest - 10% p.a. (net of tax) Salary Increment Rate - Workers 12% every two years - Staff 10% p.a. Retirement Age Workers Staff - Male 60 years 60 years - Female 60 years 60 years Daily wage rate Rs. 200/- for workers. The Company will continue in business as a going concern. The liability is not externally funded. Grants and Subsidies Grants and subsidies that compensate the Group for expenses incurred are recognised as revenue in profit and loss on a systematic basis in the periods in which the expense is recognised. Grants that compensate the Group for the cost of an asset are recognised in profit and loss over the useful life of the related asset. Revenue Recognition Profit and loss on perennial crops is recognised on the financial period of harvesting. Revenue from sale of produce stock is accounted on the basis of invoiced value less export duty, brokerage, cess, trade discount and any other taxes on turnover. 8. Related Party Transactions Transactions with related parties are disclosed in Notes to the Financial Statements. 9. Segmental Reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (Business/Industry segments) or in providing products or services within a particular economic environment (Geographical segment). Segmental information is presented in respect of the Group s Business or Geographical segments. The primary format Business segments are based on the Group s management and internal reporting structure. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. 10. Cash Flow Statement The Cash Flow Statement is prepared under the Indirect Method. Interest paid is classified as operating cash flows whereas interest received and dividends received are classified as investing cash flows. 11. Events after the Balance Sheet Date All material events after the Balance Sheet date have been considered and where appropriate adjustments or disclosures have been made in the respective Notes to the Financial Statements. Lankem Ceylon PLC - Annual Report 2008/09 47

50 notes to the financial statements 1. Revenue, Profit and Segment Analysis 1.1 Segments Segmentation has been determined based on the activities of the companies or the sector, where multiple activities fall within one company or sector has been classified based on the core activity of that particular sector. Chemicals - Manufacturing, Distribution and Service Activities Relating to Chemicals. Consumer - Manufacturing, Selling and Distribution of Consumer Products. Hardware - Manufacturing, Selling and Distribution of Hardware Products. Construction - Road Construction, Waterproofing and Industrial Flooring. Hotel - Owning and Operation of Resort Hotels. Plantations - Cultivation and Processing of Tea and Rubber. Agriculture - Farming and Dairying. 1.2 Segmental Revenue Revenue comprises invoiced value of goods dispatched and accepted by customers (after deduction of Trade Discounts and Sales Rebates) and Commissions, net of Value Added Tax and Turnover Tax. ConsoliDATED COMPANY 2008/ / / /08 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Chemicals 3,541,106 2,779,357 2,806,588 2,149,102 Consumer 285, , , ,990 Hardware 2,277,609 2,081,805 1,025, ,555 Construction 31,159 37,223 Hotel 328, ,679 Plantations 4,812,684 5,433,464 Agriculture 7,674 4,900 11,283,411 11,178,136 3,941,653 3,255,647 Turnover Taxes (10,921) (23,730) (3,751) (4,079) 11,272,490 11,154,406 3,937,902 3,251,568 Intra-Group Sales (1,520,003) (1,702,601) 9,752,487 9,451,805 3,937,902 3,251, Segmental Profit Industry Segment Profit before tax NON-cash expenses 2008/ / / /08 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Chemicals 347, ,786 99,127 77,670 Consumer 7,409 (70,119) 3,101 Hardware 4,819 29, (1,973) Construction (2,039) (467) 380 1,894 Hotel (134,679) (72,039) 34,020 79,404 Plantations 51, , , ,652 Agriculture (7,272) ,429 1,017, , ,748 Unallocated (9,733) (99,336) 6,120 4, , , , , Lankem Ceylon PLC - Annual Report 2008/09

51 2. Other Income ConsoliDATED COMPANY 2008/ / / /08 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Gain on Disposal of Property, Plant & Equipment 4,942 6,285 4, Dividend Income 3, , Commission Income 6,342 3,791 6,342 3,791 Sale of Rubber Trees 111,745 73,926 Amortisation of Capital Grants 12,707 9,936 Sale of Refuse Tea 6,376 6,193 Write-Back of Provision for Bad & Doubtful Debts from Related Companies 69,499 Over Provisions of Deferred Interest 20,646 Over Provision of Bad & Doubtful Debts 1,379 Creditors No Longer Payable Written Back 20,953 Sale of Timber 26,875 13,082 Gain on Deemed Disposal 53,186 27,875 Rent Income 8,589 11,676 Sundry Income 13,417 8, Other Expenses 291, ,702 15,154 4,609 Loss on Disposal of Investments 1,749 17,455 Change in Fair Value of Short-Term Investments 1,112 1,154 Provision for Fall in Value of Long-Term Investments 13, ,000 Write-Off of Property, Plant & Equipment 192 Provision for Bad and Doubtful Debts from Related Companies 25 16,874 Impairment of Goodwill 16,950 56,019 Other Expenses ,944 74,263 1,154 36,874 Lankem Ceylon PLC - Annual Report 2008/09 49

52 ConsoliDATED COMPANY 2008/ / / /08 Rs. 000 Rs. 000 Rs. 000 Rs Net Finance Cost (A) Finance Income Interest Income (39,568) (4,691) Interest from Related Companies - Debenture Interest Income (16,200) (16,200) - Others (28,598) (52,252) Gain on Translation of Foreign Currency (9,445) (55,041) (7,648) (46,996) Total Finance Income (49,013) (59,732) (52,446) (115,448) (B) Finance Cost Interest on Term Loans 121,501 87,722 15,257 9,418 Interest on Overdraft & TR Loans 113, ,393 52,182 74,280 Interest on Finance Lease 34,606 39,148 20,756 20,595 Interest on JEDB/SLSPC Estate Lease 24,081 24,279 Debenture Interest 19,997 24,300 Other Interest 41,414 27,278 21,281 13,886 Loss on Translation of Foreign Currency 24, , , , ,179 Amount Capitalised (45,803) (29,430) Total Finance Cost 333, , , ,179 Net Finance Cost 284, ,958 57,030 2, Profit Before Tax The profit before tax is stated after charging all expenses including the following: Depreciation on Property, Plant & Equipment 248, ,770 41,361 37,103 Amortisation of Bareland 12,899 22,075 Auditors Remuneration - KPMG Ford, Rhodes, Thornton & Co. 4,939 4,736 1,315 1,240 Other Auditors 2,922 2,801 Fee Paid to Auditors for Non-Audit Services - KPMG Ford, Rhodes, Thornton & Co (Reversal)/Provision for Bad and Doubtful Debts and Write-Off 27,267 (17,771) 1,587 (4,581) (Reversal)/Provision for Obsolete Inventories 1,291 6,384 1,710 6,817 Managing Agents Fee 7,620 9,722 Donations Staff Cost (Note 5.1) 2,535,699 2,545, , , Staff Cost Salaries and Wages 2,067,741 2,098, , ,850 Defined Contribution Plan Cost 325, ,081 13,360 10,160 Defined Benefit Plan Cost 142, ,332 2,535,699 2,545, , ,010 No. of Staff 29,764 28, Lankem Ceylon PLC - Annual Report 2008/09

53 6. Income Tax Expense ConsoliDATED COMPANY 2008/ / / /08 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Current Tax Expense Income Tax on Current Year Profit 150, ,199 98,683 74,436 Social Responsibility Levy 2,077 1,623 1, Deemed Dividend Tax 1,968 Under/Over Provision in Respect of Previous Year (398) (487) (15) (2,183) Tax on Dividend Income 4,341 5, , , ,202 72,999 Deferred Tax Expense Origination and Reversal of Temporary Differences 36,220 17,073 15,765 1,767 36,220 17,073 15,765 1,767 Income Tax Expense in Income Statements 194, , ,967 74,766 Corporate income taxes of the companies resident in Sri Lanka have been computed in accordance with the Inland Revenue Act No. 10 of 2006 and amendments thereto. Lankem Ceylon PLC and other companies within the Group, excluding those which are enjoying a tax holiday or concessionary rate of taxation as referred to below, are liable to income tax at 35%. In terms of Sections 46 and 51 of the Inland Revenue Act, profits from construction work and agricultural undertakings, enjoy a concessionary rate of tax of 15%. Lankem Exports (Pvt) Ltd. and Lankem Agrochemicals Ltd. were non-operative during the year. In accordance with the agreement entered into with the Board of Investment (BOI) of Sri Lanka, under Section 17 of the G.C.E.C. Law No. 4 of 1978, profits of York Hotels (Kandy) Ltd. are exempted from income tax for a period of 10 years from the year in which the Company commences to make profits or within 5 years from the year the Company commenced commercial operations whichever is earlier. The Company is also entitled to a concessionary rate of tax at 2% of its turnover for 15 years immediately after the expiry of the said 10 years. However, BOI has given a notice of cancellation and termination of all rights, privileges and benefits conferred on the enterprise under the conduct and operation of the project with effect from 23rd November No tax has been provided since the Company has not commenced its commercial operations and had not recorded taxable income. In accordance with the powers conferred on the Board of Investment (BOI) of Sri Lanka, under Section 17 (2) of the BOI Law No. 4 of 1978 and in terms of the Agreement Registration Number between BOI and Marawila Resorts PLC, the Company is not liable to tax on profits from business for a period of 10 years commencing from the Year of Assessment 2001/02. Accordingly, the Company is not liable to income tax on profits from business for the year. In accordance with the Sections 22 (1) and 22 (2) of the Inland Revenue Act No. 10 of 2006, the profits and income of Lankem Research Ltd. is exempt from income tax for a period of 5 years commencing from the Year of Assessment 2006/07. Accordingly, the Company is not liable to income tax on profits from business for the year. Sigiriya Village Hotels PLC and Beruwala Resorts Ltd. are liable to taxation at the rate of 15% on the profits and income from activities relating to operating of hotels and at 35% on other income. Profits from any agricultural undertakings which fall within Section 16 of the Inland Revenue Act No. 10 of 2006, would be exempt from income tax for a period of 5 years. The corporate rate of tax applicable to other income including the income not covered under Section 16 would be 35%. In accordance with the agreement entered into with the Board of Investment (BOI) of Sri Lanka under Section 17 of the G.C.E.C. Law No. 4 of 1978, profits of SunAgro Farms Ltd. are exempted from income tax for a period of 10 years from which the Company commences to make profit or any year of assessment not later than two years starts from the date of commencement of commercial operations which ever is earlier. Lankem Ceylon PLC - Annual Report 2008/09 51

54 6.1 Reconciliation of Accounting Profit to Tax Expense ConsoliDATED COMPANY 2008/ / / /08 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Profit before Tax 256, , , ,477 Consolidation Adjustment 39,073 16, , , , ,477 Disallowable Expenses 611, ,118 99, ,228 Tax Deductible Expenses (439,334) (427,230) (103,207) (78,050) Tax Loss Utilised (16,723) (66,408) Tax Exempt Income/(Loss) 34,315 (396,948) (10) Taxable Income 485, , , ,645 Tax Loss Brought Forward 1,460,514 1,526,922 Adjustments to Loss Brought Forward 1,301 Tax Loss Incurred during the Year 95,568 Tax Loss Utilised during the Year (16,723) (66,408) Tax Loss Carried Forward 1,540,660 1,460,514 Income 35% 135, ,119 98,683 74,411 Income 15% 14, Income Tax on Current Year Profit 150, ,199 98,683 74, Deferred Tax Liabilities Provision for deferred taxation is made on the Balance Sheet method for temporary differences between the carrying amounts of assets and liabilities of Lankem Ceylon PLC, Lankem Developments PLC, Beruwala Resorts Ltd., Sigiriya Village Hotels PLC, Lankem Tea & Rubber Plantations (Pvt) Ltd. and Kotagala Plantations PLC. There were no temporary differences for Lankem Plantation Services Ltd., Lankem Plantation Holdings Ltd., Lankem Exports Ltd., Lankem Chemicals Ltd., Lankem Paints Ltd., Lankem Consumer Products Ltd., Lankem Research Ltd., SunAgro LifeScience Ltd., SunAgro Farms Ltd., York Hotels (Kandy) Ltd. and Colombo Fort Hotels Ltd. and as such no provision has been made for deferred taxation. In accordance with the BOI agreement dated 27th July 1994, the profits and income of Marawila Resorts PLC (MRPLC) are exempted from taxation until 31st March After the expiration of the said tax exemption period the following options are available for the Company: Option A For a period of 10 years immediatetly after aforementioned tax exemption period, the income tax payable shall be computed at 2% of the turnover of the Company. or; Option B The provisions of the Inland Revenue Laws in force shall apply - The Company needs to make the election only 90 days prior to the expiration of the said tax exemption period after evaluating all implications prevailing at that time. 52 Lankem Ceylon PLC - Annual Report 2008/09

55 There is uncertainity regarding the timing at which the deferred tax liability arising after the tax exemption period should be recognised in the Financial Statements, and the categories of assets which should be considered for the purposes of the computation of the said deferred tax liability/assets, due to varied interpretations of SLAS 14. Based on the computations made by the management for each options described in the aforesaid paragraphs, the Company could have a deferred tax liability as at the reporting date. However, due to high level of uncertainity prevailing at present regarding the manner in which deferred tax is to be computed for Companies with tax exemptions under BOI agreements and the point at which the deferred liability should be recognised in the Financial Statements, no adjustments have been made in these Financial Statements. The potential impact of the deferred tax liability in the Financial Statements is as follows: Option A Option B 2008/ / / /08 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Balance at the beginning of the Year 26,622 28,264 34,175 31,401 Origination and Reversal of Temporary Differences (1,642) (1,642) 4,608 2,774 Balance at the end of the Year 24,980 26,622 38,783 34, Earnings Per Ordinary Share The calculation of the basic earnings per share as at 31st March 2009 is based on the profit attributable to Ordinary Shareholders, divided by the weighted average number of ordinary shares outstanding during the year calculated as follows: ConsoliDATED COMPANY 2008/ / / /08 Profit Attributable to Ordinary Shareholders Profit for the Year (Rs. 000) 175, , , ,711 Dividends on Redeemable Preference Shares (Rs. 000) (875) (2,042) (875) (2,042) Profit Attributable to Ordinary Shareholders (Rs. 000) 174, , , ,669 Weighted Average Number of Ordinary Shares Issued Ordinary Shares at the beginning of the Year (No. 000) 21,000 18,000 21,000 18,000 Effect of Shares Issued during the Year (No. 000) 1,369 1,369 Weighted Average Number of Ordinary Shares at the end of the Year (No. 000) 21,000 19,369 21,000 19,369 Earnings Per Share (Rs.) Dividend Per Ordinary Share Dividend Paid for Ordinary Shareholders (Rs. 000) 42,000 37,800 42,000 37,800 Dividend Per Ordinary Share (Rs.) Lankem Ceylon PLC - Annual Report 2008/09 53

56 8. Property, Plant & Equipment Freehold Leasehold Freehold Mature/ Immovable Leasehold Leasehold Leasehold Plant & Motor Furniture, Linen & Work-In- Total Total Land Right to Bare Buildings Immature Leased Plant & Motor Furniture, Machinery Vehicles Fittings, Soft Progress Land Plantations Assets Machinery Vehicles Fittings, Office Furnishings Office Equipment Equipment Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 consolidated Cost or Revaluation As at 1st April , ,022 1,341,760 2,124, , , ,128 13, , , ,740 45, ,142 7,282,287 6,735,785 Additions 13, , ,637 2,290 4, ,347 13,457 31,185 4, ,224 1,151, ,110 Disposals/Transfers (61,945) (10,614) (6,230) 4,500 (639) (5,109) 1,103 (101) (271,155) (350,190) (115,608) As at 31st March , ,022 1,579,023 2,497, , , ,343 18, , , ,028 49, ,211 8,083,401 7,282,287 Accumulated Depreciation As at 1st April , , , ,775 31,740 82,597 5, , , ,972 21,145 2,019,529 1,801,536 Charge for the year 12,899 40,366 46,965 24,276 16,452 27,776 2,527 41,357 14,879 30,743 3, , ,846 Disposals/Transfers (1,834) (4,367) (447) (3,970) (51) (10,669) (14,853) As at 31st March , , , ,051 46, ,006 8, , , ,715 25,024 2,271,030 2,019,529 Carrying Amount As at 31st March , ,577 1,250,049 2,200, , ,263 63,337 10, ,466 34, ,313 24, ,211 5,812,371 As at 31st March , ,476 1,053,152 1,875, , ,205 88,531 7, ,668 37, ,768 24, ,142 5,262,758 Freehold Freehold Plant & Leasehold Leasehold Leasehold Motor Furniture, Total Total Land Buildings Machinery Plant & Motor Furniture, Vehicles Fittings, Machinery Vehicles Fittings, Office Office Equipment Equipment Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 company Cost or Revaluation As at 1st April ,720 87,734 64, ,678 60,962 12,359 9, , , ,704 Additions 28,576 7,787 2,290 4, ,104 55,107 63,812 Disposals/Transfers (4,500) 4,500 (2,529) 1,103 (1,426) (16,130) As at 31st March , ,310 72, ,468 65,407 16,944 7, , , ,386 Accumulated Depreciation As at 1st April ,128 32,344 19,277 30,746 4,559 7,155 80, , ,896 Charge for the year 4,786 4,947 10,723 8,807 2, ,906 41,361 37,103 Disposals/Transfers (1,390) (1,390) (9,865) As at 31st March ,914 37,291 30,000 39,553 6,841 6,675 89, , ,134 Carrying Amount As at 31st March ,720 90,396 35,036 77,468 25,854 10,103 1,117 26, ,962 As at 31st March ,720 66,606 32,196 90,401 30,216 7,800 2,346 22, ,252 (i) (ii) The Company s Property, Plant & Equipment has been revalued by Chartered Valuers as at 31st March 1979, 31st March 1985, 31st March 1991 and 31st March 2004, as a result of which their book values have been written-up by Rs Mn. During 2003/04, the Company s Freehold Land has been revalued by a professional valuer and the resultant surplus of Rs Mn has been credited to Revaluation Reserve. The Land & Buildings of Lankem Developments PLC were revalued at Rs Mn and Rs. 4 Mn by a professional valuer during 1993/94 and 2004/05 on estimated market values. The net balance of Rs. 1.2 Mn and Rs Mn which resulted from excess of the revalued amount respectively over the net book value of the assets revalued, has been credited to revaluation reserve. Further, Lankem Developments PLC. has mortgaged the Land & Building situated at Gonawela to Seylan Bank in order to obtain working capital facilities. The carrying amount of Land & Buildings that has been included in the Financial Statements had the assets been carried at cost less depreciation amounts to Rs. 156,000/- ( Rs. 156,000/-) and Rs. 162,268/- ( Rs. 174,987/-) respectively. 54 Lankem Ceylon PLC - Annual Report 2008/09

57 (iii) Land of Marawila Resorts PLC costing Rs Mn was revalued at Rs. 450 Mn in March The Holding Company s share of Rs Mn which resulted from the excess of the revalued amount over the net book value of the assets revalued has been credited to Revaluation Reserve. (iv) Buildings of Sigiriya Village Hotels PLC are constructed on land which is on a 99-year lease. (v) Leasehold land includes of leasehold rights to bare land of JEDB/SLSPC estates in Agarapatana Plantations Ltd. and Kotagala Plantations PLC. The leasehold rights to the land on all of these estates have been taken into the books of companies as of 22nd June 1992 immediately after the formation of companies in terms of the ruling obtained from the Urgent Issues Task Force (UITF) of The Institute of Chartered Accountants of Sri Lanka. For this purpose the respective Boards of Directors decided at their meeting on 8th March 1995 that this bare land would be revalued at the value (Agarapatana Plantations Ltd. - Rs Mn, Kotagala Plantations PLC - Rs Mn) established for this land by Valuation Specialist D.R. Wickremasinghe, just prior to the date of formation of the respective companies. The leasehold rights to bare land are being amortised by equal amounts over the 53-year lease period. Immovable Leased Assets consist of immovable JEDB/SLSPC estate assets on finance leases in Agarapatana Plantations Ltd. and Kotagala Plantations PLC in terms of ruling in the UITF of The Institute of Chartered Accountants of Sri Lanka. All immovable assets under these finance leases have been taken into the books of companies retroactive 22nd June 1992 and are as follows: Rs. 000 Agarapatana Plantations Ltd. 270,504 Kotagala Plantations PLC 475,579 (vi) Borrowing costs of Kotagala Plantations PLC amounting to Rs Mn (2007/08 - Rs. 9.6 Mn) on Tea and Rs Mn (2007/08 - Rs Mn) on Rubber incurred on term loans and overdrafts utilised to finance replanting expenditure of Tea & Rubber have been capitalised. The average rate of interest for capitalistion was 13.7% (2007/08-11% ). The capitalisation will cease when crops are ready for harvest. (vii) Borrowing cost of Agarapatana Plantations Ltd., amounting to Rs Mn (2007/08 - Rs Mn) incurred on long-term loans obtained to meet expenses relating to immature plantations have been capitalised as part of the cost of the Immature Plantations. The capitalisation will cease when crops are ready for harvest. (viii) Land of York Hotels (Kandy) Ltd. costing Rs Mn has been revalued by an independent valuer. The surplus arising from such revaluation amounting to Rs Mn has been recognised as a Revaluation Reserve. The capital work-in-progress costing Rs Mn revalued in March 2004 and the loss arising out of such revaluation amounts to Rs Mn. Further, Rs Mn of interest which has been capitalised in capital work-in-progress been removed due to the waive off of such interest by the bank. These amounts have been included in the Balance Sheet as appropriate. The Company has not continued the construction work since As at 31st March 2009, the work-in-progress amounts to Rs Mn and there is no evidence to say that the project will progress further and the realisability of such value. However, the Directors are confident that the project would be commenced with the help of The Colombo Fort Land & Building Company PLC and the banks. (ix) Each company in the Group has evaluated both internal and external indications of impairment of long-lived assets and has not identified presence of any of such indications at the reporting date. (x) Property, Plant & Equipment pledged as securities in obtaining loans have been disclosed in Note 16.7 to these Financial Statements. 9. Intangible Assets ConsoliDATED COMPANY 2008/ / / /08 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Goodwill Balance as at 1st April 84, ,068 Goodwill on Acquisition 5,738 Increase due to Changes in Equity Holdings 74,100 1,997 Write-Off of Unamortised Goodwill on Disposal of Investments (21,680) Impairment of Goodwill (16,950) (56,019) Balance as at 31st March 147,254 84,366 Lankem Ceylon PLC - Annual Report 2008/09 55

58 This represents the excess of the cost of acquisition of the net assets of the following companies. The aggregate carrying amount of goodwill allocated to each company is as follows: Rs. Mn Agarapatana Plantations Ltd Lankem Tea & Rubber Plantations (Pvt) Ltd Kotagala Plantations PLC 6.37 Lankem Plantation Holdings Ltd The impairment loss was recognised in respect of goodwill allocated to following companies: Rs. Mn York Hotels (Kandy) Ltd Associated Farms Ltd Investments in Subsidiaries NO. of SHARES GROUP holding VALUE rs Movement Movement Quoted Investments Lankem Developments PLC (Market Value - Rs Mn) ( Rs Mn) 2,904,034 83,900 2,820,134 48% 47% 33, ,176 Sigiriya Village Hotels PLC (Market Value - Rs Mn) ( Rs Mn) (Note 10.2.i) 1,576,619 1,576,619 57% 58% 77,695 77,695 Marawila Resorts PLC (Market Value - Rs Mn) ( Rs Mn) (Note 10.2.iii) 19,649,956 19,649,956 41% 41% 98,790 98, , ,661 Unquoted Investments Colombo Fort Hotels Ltd. (Note 10.2.iv) 45,000,000 15,000,000 60% 61% 150, ,000 Lankem Plantation Holdings Ltd. 19,500,001 1,500,000 18,000,001 48% 44% 220,500 40, ,000 Lankem Tea & Rubber Plantations (Pvt) Ltd. 8,342 8,342 48% 44% 1,998 1,998 Lankem Plantation Services Ltd. 179, ,993 60% 60% 1,800 1,800 Beruwala Resorts Ltd. (Note 10.2.iii) 118,381,000 11,838,100 45% 46% 118, ,381 Lankem Exports (Pvt) Ltd. 9,997 9, % 100% Lankem Paints Ltd. 1,999,993 1,999, % 100% 20,000 20,000 Lankem Consumer Products Ltd. 1,999,993 1,999, % 100% 20,000 20,000 Lankem Chemicals Ltd. 1,999,993 1,999, % 100% 20,000 20,000 Agarapatana Plantations Ltd. 22% 20% York Hotels (Kandy) Ltd. 58% 61% Lankem Research Ltd. 250, , % 100% 2,500 2,500 SunAgro LifeScience Ltd % 100% SunAgro Farms Ltd. 1,200,000 1,200, % 100% 12,000 12,000 Associated Farms Ltd. 55,398 55, % 58% ,833 53, , ,077 53, ,440 Less - Provision for Fall in Value of Investments (Note 10.1) (28,400) (28,400) 749,677 53, ,040 Lankem Ceylon PLC also holds 100% in Lankem Agrochemicals Ltd., the investment being Rs. 70/-. 56 Lankem Ceylon PLC - Annual Report 2008/09

59 10.1 Provision for Fall in Value of Investments VALUE rs Movement Marawila Resorts PLC 8,400 8,400 Lankem Consumer Products Ltd. 20,000 20,000 28,400 28, Company (i) The Company has an investment in the shares of Sigiriya Village Hotels PLC (SVHPLC) and the carrying amount of the investment at cost amounts to Rs Mn as at the reporting date. The net assets attributable to the said investment amounts to Rs Mn based on historical cost resulting in a deficit amounting Rs Mn to the carrying amount of the investment in SVHPLC. Further, the market value of the investment amounted Rs Mn as at the reporting date. Further, SVHPLC had experienced difficulties in settling certain statutory obligations as described in Note 21.1 to the Financial Statements. Due to these reasons, the carrying amount of investment in SVHPLC may have been impaired. (ii) The Company has an investment in the shares of Marawila Resorts PLC (MRPLC) and the carrying amount of the investment at cost amounts to Rs Mn as at the reporting date. The net assets attributable to the said investment as at the reporting date amounts to Rs Mn based on historical cost. The Company has incurred continuous losses and its accumulated loss amounted to Rs Mn and the market value of the investment amounted Rs Mn as at the reporting date. Further, MRPLC had experienced difficulties in settling certain statutory liabilities as described in Note 21.1 to the Financial Statements. Due to these reasons the carrying amount of investment in MRPLC may have been impaired. (iii) The Company has an investment in the shares of Beruwala Resorts Ltd. (BRL) and the carrying amount of the investment at cost amounted to Rs Mn as at the reporting date. The net assets attributable to the said investment amounted to Rs Mn based on historical cost. The Company has incurred continuous losses in previous years and as at the reporting date accumulated losses amounted to Rs Mn. Further, BRL had experienced difficulties in settling certain statutory liabilities as described in Note 21.1 to the Financial Statements. Due to these reasons, the carrying amount of the investment in BRL may have been impaired. No provision was made in the Financial Statements for impairment in the carrying amount of investments in Sigiriya Village Hotels PLC (SVHPLC), Marawila Resorts PLC (MRPLC) and Beruwala Resorts Ltd. (BRL) referred to in aforesaid paragraphs (i), (ii) and (iii) due to the anticipated boom in the tourist industry which will result in an improved performance of all these companies in the near future. (iv) The Company has an investment in the shares of Colombo Fort Hotels Ltd. (CFHL) and the carrying amount of the investment at cost amounts to Rs. 150 Mn as at the reporting date. The net assets attributable to the said investment as at the reporting date amounted to Rs Mn based on historical cost. Further, the subsidiary companies of CFHL, Beruwala Resorts Ltd. and York Hotels (Kandy) Ltd. are facing dufficulties to continue as going concerns as detailed in Note 28.1 to these Financial Statements. Due to these reasons the carrying amount of the investment in CFHL may have been impaired. No provision for impairment to the carrying amount of investment in CFHL. Lankem Ceylon PLC - Annual Report 2008/09 57

60 11. Other Long-Term Investments CONSOLiDATED COMPANY Rs. 000 Rs. 000 Rs. 000 Rs. 000 Quoted Investments DFCC Bank - Group (3,163 shares) (Market Value - Rs. 289,680/-) ( Rs. 398,538/-) DFCC Bank - Company (1,492 shares) National Equity Fund (NAMAL) - 150,000 Units (Market Value - Rs. 1,605,000/-) ( Rs. 2,386,500/-) 1,500 1,500 1,500 1,500 Madulsima Plantations Ltd. (Market Value - Rs. 900/-) ( Rs. 1,725/-) 2 2 Malwatte Valley Plantations PLC (Market Value - Rs. 2,050/-) ( Rs. 6,000/-) 1 1 Horana Plantations PLC (Market Value - Rs. 1,050/-) ( Rs. 3,200/-) 1 1 Hunas Falls Hotels PLC (Market Value - Rs. 13,500/-) ( Rs. 35,250/-) 7 7 Pegasus Resorts Ltd. (Market Value - Rs. 13,200/-) ( Rs. 19,920/-) 9 9 Renuka City Hotels Ltd. (Market Value - Rs. 40,950/-) ( Rs. 51,450/-) Royal Palms Beach Hotels Ltd. (Market Value - Rs. 11,906/-) ( Rs. 15,000/-) Watawala Plantations PLC (Market Value - Rs. 5,850/-) ( Rs. 8,600/-) 1 1 Kegalle Plantations PLC (Market Value - Rs. 1,009/-) ( Rs. 6,000/-) 1 1 Talawakelle Plantations PLC (Market Value - Rs. 1,550/-) ( Rs. 3,700/-) 2 2 Namunukula Plantations PLC (Market Value - Rs. 1,550/-) ( Rs. 4,250/-) 1 1 Balangoda Plantations Ltd. (Market Value - Rs. 1,350/-) ( Rs. 3,500/--) 2 2 Maskeliya Plantations PLC (Market Value - Rs. 1,375/-) ( Rs. 2,600/-) 3 3 Hapugastenna Plantations PLC (Market Value - Rs. 1,950/-) ( Rs. 5,000/-) 1 1 Udapussellawa Plantations Ltd. (Market Value - Rs. 1,750/-) ( Rs. 4,050/-) 1 1 Kahawatte Plantations PLC (Market Value - Rs. 2,300/-) ( Rs. 3,300/-) 1 1 Kelani Valley Plantations PLC (Market Value - Rs. 4,750/-) ( Rs. 6,775/-) 1 Lankem Developments PLC Pyramid Unit Trust - 55,290 Units (Market Value - Rs. 498,163/-) ( Rs. 686,149/-) Lankem Developments PLC Comtrust Equity Fund - 89,571 Units (Market Value - Rs. 918,206/-) ( Rs. 1,073,770/-) Muller & Phipps (Ceylon) PLC (Market Value - Rs. 18,424,310/-) ( Rs. 42,499,000/-) 36,848 42,499 Less: Provision for Fall in Value of Investments (14,094) (496) 25,731 44,981 1,549 1,549 Fixed Deposits Unquoted Investments Lankem Tea & Rubber Plantations (Pvt) Ltd. (1,800,000 Debentures of Rs. 100/- each) - (Note 11.2) 180, ,000 Bank of Ceylon (200 Debentures of US$ 1000/- each 22,937 Lankem Technology Services Ltd. 5,000 5,000 SunAgro Farms Ltd. (Note 11.3) 12,000 12,000 54,168 57, , , The Directors are of the opinion that the Book Value of the unquoted investments as at 31st March 2009 is not less than their realisable value as at that date The Company has made an investment in the debentures of Lankem Tea & Rubber Plantations (Pvt) Ltd. (LTR), a subsidiary company, and the carrying amount at cost amounted to Rs. 180 Mn. LTR s accumulated losses amounted to Rs Mn as at 31st March 2009 due to losses incurred in previous years. As of that date LTR s total liabilities exceed its total assets by Rs Mn. These aspects have raised doubts about LTR s ability to continue as a going concern and the recoverability of this investment. However, the Directors of LTR are of the opinion that the reasons stated under Note 29.1 (iv) will mitigate this position and accordingly no provision has been made in the Company s Financial Statements for the carrying amount of the investments in debentures in LTR. 58 Lankem Ceylon PLC - Annual Report 2008/09

61 11.3 The investment in SunAgro Farms Ltd. is classified as a subsidiary as at 31st March Short-Term Investments Consolidated Company Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 No. of Shares Fair Value Cost Cost No. of Shares Fair Value Cost Cost National Development Bank PLC 515,900 45,915 47, ,900 45,915 47,088 Kotagala Plantations PLC 5, Commercial Bank of Ceylon PLC 66,100 5,238 5,743 66,100 5,238 5,743 Dialog Telekom PLC 25, , C.W. Mackie PLC 1,044,600 17,236 16,670 1,044,600 17,236 16,670 Nations Trust Bank PLC 3, , ,590 69,702 68,670 69,824 Provision for Fall in Value of Investments (1,112) (1,154) 68,590 68,590 68,670 68, Inventories CONSOLiDATED COMPANY Rs. 000 Rs. 000 Rs. 000 Rs. 000 Raw Materials & Consumables 485, , , ,994 Produce Stock - Tea & Rubber 287, ,785 Growing Crop - Nurseries 31,867 23,049 Finished Goods 227, , , ,367 1,033,204 1,132, , ,361 Provision for Obsolete Inventories/Slow Moving Items (15,959) (14,668) (15,503) (13,793) 1,017,245 1,117, , ,568 Goods-In-Transit 131, , , ,880 1,148,476 1,437, , , Trade & Other Receivables Trade Receivables 929, , , ,783 Provision for Bad and Doubtful Debts (119,015) (91,748) (12,422) (10,835) 810, , , ,948 Deposits & Pre-Payments 271, ,900 28,950 38,813 Employee Advances 78,421 56,556 3,753 1,444 Other Receivables 120,728 99,775 22,100 39,490 1,280,989 1,253, , ,695 Other Debtors includes Loans given to Employees Balance as at 1st April ,098 3,127 1,444 1,470 Loans Granted during the Year 4,840 2,000 4,840 1,675 7,938 5,127 6,284 3,145 Repaid during the Year (2,531) (2,029) (2,531) (1,701) Balance as at 31st March ,407 3,098 3,753 1, Taxes Recoverable Current Tax Recoverable 20,365 10,136 WHT Recoverable 9,869 7,921 ESC Recoverable 37,038 61,021 29,772 VAT Recoverable 184, , ,217 56,390 ACT Recoverable 33,475 38, , , ,217 86,162 Lankem Ceylon PLC - Annual Report 2008/09 59

62 15. Stated Capital CONSOLiDATED COMPANY Rs. 000 Rs. 000 Rs. 000 Rs. 000 Issued & Fully Paid At the beginning of the Year 21,000,000 ( ,000,000) Ordinary Shares 281, , , , ,383 14% Cumulative Redeemable Preference Shares 8,334 16,667 8,334 16,667 Issued during the Year (2007/08-3,000,000) Ordinary Shares 75,000 75,000 Redeemed during the Year 833,383 14% Cumulative Redeemable Preference Shares (8,334) (8,333) (8,334) (8,333) At the end of the Year 833,383 14% Cumulative Redeemable Preference Shares 8,334 8,334 21,000,000 Ordinary Shares 281, , , , , , , ,552 The holders of Ordinary Shares are entitled to receive dividends as declared from time to time and on a poll are entitled to one vote per share at all meetings of the Company. In accordance with the terms and conditions attached, 833,383 14% (Unquoted) Cumulative Redeemable Preference Shares of Rs. 10/- each, being one third of the issued and fully paid up Preference Share Capital (i.e., 3rd and final instalment) was redeemed on 8th January Interest Bearing Borrowings & Finance Leases 16.1 Payable within One Year CONSOLiDATED COMPANY Rs. 000 Rs. 000 Rs. 000 Rs. 000 Term Loans (Note 16.4) 237, ,788 55,857 19,857 Finance Lease Obligations (Note 16.3) 61,645 71,562 31,756 37,583 Short-Term Interest Bearing Borrowings (Note 16.6) 848, , , ,954 1,147, , , , Payable after One Year Term Loans (Note 16.4) 1,086, ,669 45,297 15,557 Finance Lease Obligations (Note 16.3) 68, ,023 32,140 58,170 Debentures (Note 16.5) 220, ,000 1,374,915 1,086,692 77,437 73, Finance Lease Obligations Finance Leases Balance as at the beginning of the Year 259, , , ,996 Leases obtained during the Year 8, ,759 7,776 57,317 Repaid during the Year (111,502) (105,208) (60,387) (52,221) Balance at the end of the Year 156, ,891 78, ,092 Finance Charge Unamortised (26,526) (62,306) (14,584) (35,339) 130, ,585 63,897 95, Lankem Ceylon PLC - Annual Report 2008/09

63 CONSOLiDATED COMPANY Rs. 000 Rs. 000 Rs. 000 Rs. 000 Analysis of Finance Lease Obligations by Year of Repayment Payable within One Year Gross Lease Obligation 78, ,878 40,988 54,831 Less: Finance Charges Unamortised (17,105) (31,316) (9,232) (17,248) Net Lease Obligation 61,645 71,562 31,756 37,583 Payable within One to Five Years Gross Lease Obligation 78, ,013 37,492 76,261 Less: Finance Charges Unamortised (9,421) (30,990) (5,352) (18,091) Net Lease Obligation 68, ,023 32,140 58, Term Loans Long-Term Loans Balance as at 1st April 987,457 1,209,610 35,414 82,951 Received during the Year 510,755 38, ,500 Gain/(Loss) on Translation of Foreign Currency 27,721 (7,409) Repaid during the Year (202,382) (253,655) (38,760) (47,537) Balance at the end of the Year 1,323, , ,154 35,414 Amount Repayable within one Year (237,306) (266,788) (55,857) (19,857) Amount Repayable after one Year 1,086, ,669 45,297 15, Debentures 2,400,000 (Par Value Rs. 100/-) 220, ,000 9% Unsecured Redeemable Debentures Name of Debenture Holders Date of Issue Principal Amount Rs. 000 Darley Butler & Company Ltd ,000 Debenture Redemption for the Year (20,000) 220,000 Debentures are redeemable at Rs. 45 Mn per year commencing on the expiry of the fifth year from the date of allotment and ending on the expiry of the fourteenth year from the date of allotment. However, on obtaining the approval of the debenture holders, the redemption shall commence on the expiry of the second year from the date of allotment Short-Term Interest Bearing Borrowings CONSOLiDATED COMPANY Rs. 000 Rs. 000 Rs. 000 Rs. 000 Loan from The Colombo Fort Land & Building Company PLC 57,000 9,777 57,000 9,777 Other Short-Term Loans 71,667 79,216 15,000 22,000 Overdrafts 720, , , , , , , ,954 Lankem Ceylon PLC - Annual Report 2008/09 61

64 16.7 Lankem Ceylon PLC and the Group has Obtained the following Term Loans: Company Lender/Rate of Interest 2009 (Rs.) Mn Repayment Security Lankem Ceylon PLC Commercial Bank of Ceylon PLC Expiry on 30th September 2009 Expiry on 30th April 2009 (a) Lien over US$ 154,000 Lying in the A/C No in the name of the Company. (b) Letter of Authority relating to the above deposit to be obtained. (c) Letter of Set-Off relating to the above deposit obtained. (d) General Terms & Conditions relating to Term Loans for Rs Mn to be obtained. (e) General Terms & Conditions relating to Term Loans for Rs Mn to be obtained. Seylan Bank PLC equal monthly instalments (a) Mortgage and Power of Attorney instalments over quoted company shares with a market value of Rs. 100 Mn. (b) Corporate Guarantee of Lankem Tea & Rubber Plantations (Pvt) Ltd. for Rs. 50 Mn. (c) Absolute ownership over computers for Rs. 1,709,000/-. (d) Absolute ownership over IBM Mini Computer Server for Rs. 10,682,000/-. (e) Demand Promissory Note, Facility Agreement form for Rs. 50 Mn. (f) Loan Agreement form for Rs. 2 Mn and Rs. 50 Mn. series of Loans. General Security Agreement. PABC Bank PLC In 47 monthly instalments of Rs. 1,230,000 /- each and a final instalment of Rs. 1,190,000/- together with interest payable monthly on reducing balance of capital (a) Primary Mortgage Bond for Rs Mn. over land including Factory Building at 113/10, Maithree Mawatha, Ekala, Ja-Ela. (b) Overdraft Agreement. Lanka Puthra Development Bank Loan 01 Loan equal monthly instalments 60 equal monthly instalments (a) Mortgage over Primary Bond of Rs. 5.7 Mn which pledges some machinery of the Company. (b) Corporate Guarantee of Rs. 19 Mn has been Pledged by E.B. Creasy & Company PLC. Sigiriya Village Hotels PLC Commercial Bank of Ceylon PLC Equal monthly instalments of Rs. 166,666/- Corporate Guarantee for Rs. 10 Mn by Lankem Ceylon PLC. Beruwala Resorts Ltd. Ministry of Tourism Merchant Credit of SL equal monthly instalments of Rs. 778,480/- Corporate Guarantee of Lankem Ceylon PLC for Rs. 20 Mn. York Hotels (Kandy) Ltd. Hatton National Bank PLC 10% (with effect from 2003) As per reschedulement agreement, Rs. 1.0 Mn per month ending September Primary floating Mortgage Bond for Rs. 68 Mn executed over property situated at Halloluwa, Kandy. 62 Lankem Ceylon PLC - Annual Report 2008/09

65 Company Lender/ Rate of Interest 2009 (Rs.) Mn Repayment Security Kotagala Plantations PLC National Development Bank PLC Approved facility - Rs. 103 Mn 11.78% Repayable over 10 years from 30th November 2001 in equal monthly instalments of Rs. 410,287/-, Rs. 148,433/- and Rs. 57,497/- respectively. Primary Mortgage over leasehold rights of Stonycliff, Vogan, Gikiyanakande and Dalkeith Estates and all immovable properties of these estates. Approved facility - Rs. 124 Mn 11.51% Repayable over 10 years from 30th May 2003, 30th June 2003 and 30th August 2003 in equal monthly instalments of Rs. 618,745/-, Rs. 41,250/- and Rs. 248,333/- respectively. Secondary Mortgage over leasehold rights of Stonycliff, Vogan, Gikiyanakande and Dalkeith Estates and all immovable properties of these estates. Approved facility - Rs. 215 Mn 23.74% Repayable over 5 years from 31st December 2012, in equal monthly instalments of Rs. 3,300,000/- and Rs. 283,400/- respectively. (After the re-finance is received interest rate would be 15.58%). Secondary Mortagage over leasehold rights Stonycliff, Vogan, Gikiyanakanda and Dalkeith Estates and all immovable properties of these estates. DFCC Bank Approved facility - Rs. 211 Mn 11.55% Repayable over 10 years from 15th September 2003 in equal monthly instalments of Rs. 1,067,614/- each. Primary Mortgage over leasehold rights of Drayton, Raigam and Padukka Estates. Approved facility - Rs. 50 Mn 12.75% Repayable over 10 years from 23rd June 2005 in equal monthly instalments of Rs. 416,667/- each. (a) Primary Mortgage over leasehold rights to the land and buildings of Craigie Lea and Bogahawatte Estates. (b) A Corporate guarantee of Rs. 50 Mn from Lankem Tea & Rubber Plantations (Pvt) Ltd. Approved facility - Rs. 7.5 Mn 12% 3.89 Repayable over 8 years from 25th June 2005 in equal monthly instalments of Rs. 77,781/- each. (a) Primary Mortgage over leasehold rights to the land and buildings of Craigie Lea and Bogahawatte Estates. (b) A Corporate Guarantee of Rs Mn from Lankem Tea & Rubber Plantations (Pvt) Ltd. Lanka Orix Leasing Company Ltd. Approved facility - Rs. 40 Mn 10.56% Repayable over 7 years from 30th March 2009 in 84 monthly instalments of Rs. 476,191/- each. An on demand Promissory Note for Rs. 40 Mn with interest at 18% p.a. until the receipt of refinance of the subsidiary loan from the DFCC Bank, and thereafter at the rate of 10.56% p.a. Primary Mortgage Bond over the unexpired leasehold rights created by the indenture of lease bearing No. 293 dated 2nd March 1995 attested by D.C. Peiris, Notary Public and the amendment thereto bearing indenture No. 1522, dated 4th July 1995 attested by M.H.D. Amaratunga, Notary Public. Corporate Guarantees of M/s. Lankem Plantation Holdings Ltd. and M/s. Lankem Tea & Rubber Plantations (Pvt). Ltd. Lankem Ceylon PLC - Annual Report 2008/09 63

66 Company Lender/ Rate of Interest 2009 (Rs.) Mn Repayment Security Sampath Bank PLC Approved Facility - Rs, 50 Mn 18.00% In 95 equal monthly instalments of Rs. 521,000/- and a final instalment of Rs. 505,000/- ending. Loan agreement for Rs. 50,000,000/- Primary Mortgage Bond for Rs. 50,000,000/- over lease hold rights of Arapolakande Rubber Estate at Kalutara together with factory buildings therein. People s Leasing Company Ltd. Approved facility - Rs. 13 Mn 24.00% Interest monthly at the rate of 24% from the time of disbursement of funds till the time the re-finance is received from DFCC. Thereafter Rs. 147,070/- within the capital grace period of 12 months and Rs. 350,826/- (Capital + Interest) to be paid within 48 months ending. Primary Mortgage over two colour separators, Corporate Guarantee of Lankem Tea & Rubber Planatations (Pvt) Ltd. and Promissory Notes. Approved facility - Rs Mn 25.00% 1.77 Interest monthly at the rate of 25% from the time of disbursement of funds till the time the re-finance is received from PMU. Thereafter Rs. 9,760/- within the capital grace period of 12 months and Rs 41,924/-. (Capital + Interest) to be paid within 60 months ending.) Loan agreement, acceptance and receipt and Corporate Guarantee from Lankem Tea & Rubber Plantations (Pvt) Ltd. Approved facility - Rs.1.5 Mn 25.00% Interest monthly at the rate of 25% from the time of disbursement of funds till the time the re-finance is received from PMU. Thereafter Rs. 9,760/- within the capital grace period of 12 months and Rs 41,924/- (Capital + Interest) to be paid within 60 months ending.) Loan agreement, acceptance and receipt and Corporate Guarantee from Lankem Tea & Rubber Plantations (Pvt) Ltd. Agarapatana Plantations Ltd. DFCC Bank - ADB Loan Disbursement 1-97/ % st instalment of Rs. 691,884/- and 119 monthly instalments of Rs. 691,429/- payable commencing from 1st November Primary Mortgage over leasehold rights to the land and buildings of Balmoral, Hauteville and Nayabedde Estates. Disbursement 1-97/98 (16251 B) 11.75% st instalment of Rs. 390,917/- and 119 monthly instalments of Rs. 344,538/- payable commencing from 1st December Further Mortgage over leasehold rights to the land and buildings of Balmoral, Hauteville and Nayabedde Estates. Disbursement 1-97/98 (16251 C) 11.75% st instalment of Rs. 86,373/- and 119 monthly instalments of Rs. 83,333/- payable commencing from 1st December Further Mortgage over leasehold rights to the land and buildings of Balmoral, Hauteville and Nayabedde Estates. Disbursement 1-00/01 (21566) 13.27% st instalment of Rs. 217,545/-and 119 monthly instalments of Rs. 217,432/- payable commencing from 1st October Further Mortgage over leasehold rights to the land and buildings of Balmoral, Hauteville, Nayabedde and Glasgow Estates. Disbursement 1-00/01 (238895) 17.75% st instalment of Rs. 77,805/- and 95 monthly instalments of Rs.77,781/- payable commencing from 1st June A Guarantee from Lankem Tea & Rubber Plantations (Pvt) Ltd. 64 Lankem Ceylon PLC - Annual Report 2008/09

67 Company Lender/ Rate of Interest 2009 (Rs.) Mn Repayment Security Hatton National Bank PLC Disbursement 1-07/08 Lanka Orix Leasing Company Ltd. (E-Friends Loan Scheme) Disbursement 1-07/ instalments of Rs. 312,502/- and commencing from July instalments of Rs. 62,917/- payable commencing from 31st October Corporate Guarantee of Lankem Plantation Holdings Ltd. Rs. 45 Mn Primary Mortgage over leasehold rights to the bare land and buildings of Pitaratmale and Kahagalle Estates. Corporate Guarantee of Lankem Tea & Rubber Plantations (Pvt) Ltd. An on demand Promissory Note for Rs. 3,775,000/- with 6.5% p.a. together with any taxes which may be imposed by the Government from time to time 25% p.a.) charged till the receipt of re-finance from Central Bank. Peoples Leasing Co. Ltd. (E-Friends Loan Scheme) Disbursement 1-08/ Corporate Guarantee from Lankem Tea & Rubber Plantations (Pvt) Ltd. National Development Bank (NDB-Securitised Loan) Disbursement 1-08/ instalments commencing from 29th April Corporate Guarantee, Forbes & Walkers Tea Brokers. Marawila Resorts PLC. Hatton National Bank PLC Loan 1 2% +3 months LIBOR Capital payment of US$ 293,839 for the period ending 30th November The balance to be paid in 5 equal annual instalments of US$ 176, plus interest. Land and other movable and immovable properties of Marawila Resorts PLC. Loan 02 2% +3 months LIBOR To be repaid in 5 equal annual instalments of US$ 386, on or before 30th November each year. Land and other movable and immovable properties of Marawila Resorts PLC. Loan 03 Interest Free To be repaid in 5 equal annual instalments of US$ 318,121 on or before 30th November each year (interest free). Land and other movable and immovable properties of Marawila Resorts PLC. Lankem Developments PLC Seylan Bank PLC To be repaid in 60 equal monthly instalments of Rs. 91,600/- at an interest rate of 13.5% p. a. Primary Mortgage of Rs. 3.0 Mn over property situated at Gonawela and Corporate Guarantee from Lankem Ceylon PLC. 1, Group (i) The portion of the long-term loans repayable within one year from the Balance Sheet date is shown as Current Liabilities. (ii) A loan of Rs. 50 Mn was obtained by York Hotels (Kandy) Ltd. (YHKL) at an interest rate of 10% p.a. to part finance the proposed hotel in Halloluwa, Kandy. This loan was secured by Primary Floating Mortgage Bond of Rs Mn executed over property situated at Halloluwa, Kandy. As per the reschedulement agreement entered into with the Hatton National Bank PLC, YHKL has agreed to continue the repayment of Rs. 1.0 Mn per month from July 2005 with a lump sum of Rs. 3.0 Mn on 31st December 2005 and Rs. 6.0 Mn on 31st March As per the reschedulement agreement entered into with the Hatton National Bank PLC, the Company has agreed to continue the repayment of Rs. 1.0 Mn per month from July Lankem Ceylon PLC - Annual Report 2008/09 65

68 (iii) Marawila Resorts PLC (MRPLC) has obtained loans denominated in foreign currency from Hatton National Bank PLC to fund the construction of the hotel at the rate of 3 months LIBOR + 2% (Floor of 5%). This loan is secured by the land and other movable and immovable properties of MRPLC. In terms of the rescheduling arrangement made with Hatton National Bank PLC in July 2008, the Company has to settle the outstanding facilities as follows: Reschedulement of Term Loan Facility Outstanding of US$ 753,834 Outstanding balance to be repaid in quarterly instalments of US$ 7,500 and interest to be payable on a monthly basis. Reschedulement of Term Loan Facility Outstanding of US$ 1,703,444 Outstanding balance to be repaid in quarterly instalments of US$ 7,500 and interest to be payable on a monthly basis. Reschedulement of Term Loan Facility Outstanding of US$ 1,371,407 US$ 312, on or before 30th November each year (interest free). 17. Net Obligation to Lessor consolidated Rs. 000 Rs. 000 Gross Lease Obligations 803, ,753 Less: Finance Charges Allocated to Future Periods (382,898) (399,933) Net Lease Obligations Payable after One Year 420, ,820 Payable within One Year (Transferred to Current Liabilities) Gross Lease Obligations 22,170 22,170 Less: Finance Charges Allocated to Future Periods (16,814) (17,020) Net Lease Obligations 5,356 5,150 Payable within Two to Five Years Gross Lease Obligations 89,133 89,146 Less: Finance Charges Allocated to Future Periods (65,333) (66,246) Net Lease Obligations 23,800 22,900 Payable after Five Years Gross Lease Obligations 692, ,437 Less: Finance Charges Allocated to Future Periods (300,751) (316,666) Net Lease Obligations 391, ,771 Repayable after One Year 415, , Net obligation to lessor represents amounts payable to JEDB/SLSPC in relation to the estates leased by Kotagala Plantations PLC and Agarapatana Plantations Ltd Kotagala Plantations PLC In terms of the leases, Rs Mn is payable each year as lease rental, commencing from 22nd June 1996 till the end of the lease on 21st June This amount is to be inflated annually by the Gross Domestic Product (GDP) deflated in the form of contingent rent. Consequent to the agreement signed on 4th August 2003 by the Company with the Ministry of Plantations Industries, JEDB and SLSPC, for the capping of management fees and freezing of lease rental in respect of the Privatised Regional Plantation Companies relating to the Plantation Development Project, the aforesaid lease rental will be frozen for a period of six years commencing from fiscal year 2002/03. Accordingly, the all inclusive lease rental payable by the Company for a fiscal year is Rs Mn (Refer Note ). 66 Lankem Ceylon PLC - Annual Report 2008/09

69 The charge to the Income Statement for the current financial year on account of interest is Rs Mn (2007/08 - Rs Mn). Rs. Mn Gross Lease Obligation per Year Contingent interest (Frozen for 6 Years) 7.00 All Inclusive Lease Rental per Year Agarapatana Plantations Ltd. Net liability to lessor is the Net Present Value of annual lease rental over the life of the leases at a nominal discount rate of 8.16% per annum, consisting of real discount rate of 4% per annum and projected inflation of 4% per annum. 18. Retirement Benefit Obligations CONSOLiDATED COMPANY Rs. 000 Rs. 000 Rs. 000 Rs. 000 As at Beginning of the Year 885, ,447 1,455 1,455 Effect of Changes in Accounting Policy (1,516) Interest Cost 86,418 Current Service Cost 56,165 Actuarial Gain/Loss (35) Provision for the Year 171,332 Paid during the Year (84,790) (61,985) (816) As at the end of the Year 942, , , Group A significant portion of the gratuity of the Group relates to Agarapatana Plantations Ltd. (APL) and Kotagala Plantations PLC (KPPLC) which have provisions amounting to Rs Mn and Rs Mn respectively. The gratuity liability of Agarapatana Plantations Ltd. amounting to Rs Mn as at 31st March 2009 is based on an actuarial valuation carried out by Actuarial & Management Consultants (Pvt) Ltd. If Agarapatana Plantations Ltd. had provided gratuity for employees on the basis of 14 days wages for workers and half a month s salary for staff each completed year of service, the liability would have been Rs Mn (2007/08 - Rs Mn). Hence, there is a contingent liability of Rs Mn (2007/08 - Rs Mn) which would crystallise only if APL ceases to be a going concern. The gratuity liability of Kotagala Plantations PLC (KPPLC) amounting to Rs Mn as at 31st March 2009 is the amount advised by Actuarial & Management Consultants (Pvt) Ltd. If Kotagala Plantations PLC had provided for gratuity for employees on the basis of 14 days wages and half a month s salary for each completed year of service, the liability would have been Rs Mn. (2007/08 - Rs Mn). Hence there is a contingent liability of Rs Mn (2007/08 - Rs Mn) which would crystallise only if KPPLC ceases to be a going concern Company The employees of the Company are covered by a defined benefit plan. The liability prior to 1st April 1992 amounting to Rs. 0.6 Mn is unfunded and is provided by way of an accounting provision in the books of the Company Rs. 000 Rs. 000 As at beginning of the Year 1,455 1,455 Payments for the Year (816) As at the end of the Year 639 1,455 The liability subsequent to this date is externally funded by way of an insurance policy purchased from Eagle Insurance Company PLC, which covers 480 staff attached to the Company. Eagle Insurance Company PLC has confirmed that the Insurance Fund meets the definition of a Qualified Insurance Policy, as set out in Sri Lanka Accounting Standard 16 - Employee Benefits (Revised 2006). Lankem Ceylon PLC - Annual Report 2008/09 67

70 The premium for the current year including the life cover is Rs Mn ( Rs Mn). According to the valuation done by Eagle Insurance Company PLC (EICPLC), fair value of defined benefit obligation, present value of fund assets and actuarial assumptions as computed by EICPLC are as follows: Rs. 000 Rs. 000 Fair Value of Defined Benefit Obligation 95,831,515 95,303,390 Present Value of Fund Assets 67,562,791 38,080,759 Assumptions: Discount Rate as at 31st March 12.00% 12.00% Expected Return on Fund Assets as at 1st April 8.70% 7.90% Future Salary Increases 10.00% 10.00% 19. Deferred Income CONSOLiDATED COMPANY Rs. 000 Rs. 000 Rs. 000 Rs. 000 Capital Grants At the beginning of the Year 404, ,503 Grants Received during the Year 108,569 40,747 At the end of the Year 512, ,250 Amortisation At the beginning of the Year 73,741 63,805 Amortisation for the Year 12,707 9,936 At the end of the Year 86,448 73, , ,509 The above represents the following: (a) The funds have been received by Kotagala Plantations PLC and Agarapatana Plantations Ltd. from the Plantation Development Support Programme (PDSP), Asian Development Bank-Plantation Reform Project (ADB-PRP) and Ministry of Livestock Development & Estate Infrastructure (MLSD & EI) for the development of workers welfare facilities such as re-roofing of line rooms, latrines, water supply and sanitation etc. The amounts spent are included under the relevant classification of Property, Plant & Equipment and the grant component is reflected under Deferred Grants and Subsidies. 20. Deferred Tax Assets (Liability) 20.1 Deferred Tax Liability CONSOLiDATED COMPANY Rs. 000 Rs. 000 Rs. 000 Rs. 000 As at beginning of the Year 71,484 54,609 1,385 Origination and Reversal of Temporary Differences 36,493 16,875 15,765 1,385 As at the end of the Year 107,977 71,484 17,150 1, Deferred Tax Asset As at beginning of the Year Origination and Reversal of Temporary Differences (272) (199) (382) (382) As at end of the Year As at the end of the year, deferred tax assets amounting to Rs Mn ( Rs Mn) of Agarapatana Plantations Ltd. have not been recognised in the Financial Statements. 68 Lankem Ceylon PLC - Annual Report 2008/09

71 21. Trade and Other Payables CONSOLiDATED COMPANY Rs. 000 Rs. 000 Rs. 000 Rs. 000 Trade Payables 1,039,190 1,207, , ,848 Accrued Expenses 380, ,023 50,429 45,067 Payable to Employees 117, ,038 Payable to JEDB/SLSPC 5,356 5,150 Arrears to JEDB/SLSPC 10,700 VAT/GST Payable 34,902 57,506 ESC Payable 8,648 9,021 7,223 7,922 EPF/ETF Payable 80, ,010 Penalties Payable 11,195 10,854 Provision for Breakages Unclaimed Dividends 4,959 2,494 4,959 2,494 Other Payables 498, , ,688 91,342 2,182,167 2,370, ,172 1,075, The Accounts Payable and Accrued Expenses for the Group included the following statutory payments and penalties payable by Marawila Resorts PLC, Sigiriya Village Hotels PLC and Beruwala Resorts Ltd. as at 31st March 2009 which have not been paid on the due dates: Rs. 000 Rs. 000 GST Payable 7,707 27,719 GST/VAT Penalty Payables 4,350 BTT Payable 836 ESC Payable 3,482 3,226 VAT Payable 57,707 55,500 PAYE Tax Payables 2,006 2,384 EPF Payable 33,891 20,688 ETF Payable 1,044 1,368 ETF Penalty Payables Turnover Tax Payable 1,863 4,894 Pradeshiya Saba Tax Payable 8,993 7,411 Tourist Development Levy 2,131 1,550 Payable to Board of Investment of Sri Lanka 4,126 3,741 VAT Penalty Payable 3,088 3,479 ESC Penalty Payable PAYE Penalty Payable EPF Penalty Payable 6,290 3,914 Pradeshiya Saba Penalty Payable TDL Penalty Payable BOI Penalty Payable Dividend Tax Payable Stamp Duty Payable , ,748 Lankem Ceylon PLC - Annual Report 2008/09 69

72 22. Balances with Related Parties CONSOLiDATED COMPANY Rs. 000 Rs. 000 Rs. 000 Rs. 000 Amounts due from Related Parties Lankem Developments PLC 1 Lankem Paints Ltd. 220, ,671 Lankem Consumer Products Ltd. (Note 22.1.(i)) 91, ,464 Marawila Resorts PLC (Note 22.1.(ii)) 43,744 1,250 Lankem Tea & Rubber Plantations (Pvt) Ltd. 19,115 29,815 Lankem Chemicals Ltd. 46,799 93,380 The Colombo Fort Land & Building Company PLC 116,091 31,863 5,988 11,960 Island Consumer Supplies (Pvt) Ltd. 1,900 Beruwala Resorts Ltd. (Note 22.1.(ii)) 41,407 18,331 Agarapatana Plantations Ltd. 1,656 1,388 E.B. Creasy & Company PLC 3,054 2, Sigiriya Village Hotels PLC (Note 22.1.(ii)) 46,790 17,854 Muller & Phipps (Ceylon) PLC 119, ,415 York Hotel Management Services Ltd. 7,072 2,826 Dutch Dairy Foods Ltd. 31,945 31,945 Voyages (Ceylan) Ltd. 3,155 3,155 Tropical Beach Resorts Ltd Sherwood Holidays Ltd. 8,103 6,301 Carplan Ltd Great Eastern Resorts Ltd Lankem Ware House Ltd York Convention (Pvt) Ltd. 255 SunAgro LifeScience Ltd. 24,397 2,149 Associate Farms Ltd. 1,071 SunAgro Farms Ltd. 26,287 Colonial Motors PLC 4,816 20,310 4,816 20, , , , ,850 (Less) Provision for Doubtful Debts (156,114) (156,370) (16,874) (16,874) 137,724 63, , , Lankem Ceylon PLC - Annual Report 2008/09

73 Amounts due to Related Parties Rs. 000 Rs. 000 Rs. 000 Rs. 000 Lankem Exports (Pvt) Ltd Lankem Developments PLC 10,566 Lankem Research Ltd. 136,821 91,794 Darley Butler & Co. Ltd. 26,897 6,900 E.B. Creasy & Company PLC 6, ,875 The Colombo Fort Land & Building Company PLC 86,525 73,036 Island Consumer Supplies (Pvt) Ltd. 40,500 40,500 Creasy Plantations Ltd. 4,000 4,000 Carplan Ltd Colombo Fort Investments Ltd. 3,075 6,644 5,562 Sherwood Holidays Ltd Harrison Malayalan Ltd York Hotel Management Services Ltd. 14,788 23,824 Colonial Motors PLC 1,683 4,128 Lankem Technology Services Ltd. 5,000 5, , , ,788 97, (i) The amount receivable from Lankem Consumer Products Ltd. (LCPL) for the Company amounted to Rs Mn against which a provision of Rs Mn was made in the Financial Statements. The total liabilities of LCPL exceed total assets by Rs Mn as at the reporting date. No further provision has been made in the Financial Statements for any part of the balance of Rs. 75 Mn, as there was an improvement in the performance of the Company during the year. Also, the new business activities undertaken during the year will further improve the performance and the net asset position of the Company in the coming years. (ii) The Company has transferred funds to Beruwala Resorts Ltd. (BRL), Sigiriya Village Hotels PLC (SVHPLC) and Marawila Resorts PLC (MRPLC) during the year under review and the balance due as at 31st March 2009 amounted to Rs Mn, Rs Mn and Rs Mn respectively. The Current Liabilities of BRL, SVHPLC and MRPLC, exceeds Current Assets by Rs Mn, Rs Mn and Rs Mn as at the Balance Sheet date. No provision has been made in the Financial Statements for the balance receivable from the respective companies due to the anticipated boom in the tourist industry which will result in an improved performance of all these Companies in near future. Lankem Ceylon PLC - Annual Report 2008/09 71

74 23. Segment Information 23.1 Assets and Liabilities Industry Segment TOTAL assets TOTAL liabilities Rs. 000 Rs. 000 Rs. 000 Rs. 000 Chemicals 404, , , ,119 Consumer 135, ,628 87,339 92,684 Hardware 562, , , ,549 Construction 17,114 23,323 17,556 10,620 Plantations 5,507,875 5,421,087 4,265,103 3,820,822 Hotels 1,448,268 1,534, , ,926 Agriculture 39,940 2,042 8,116,508 8,174,975 6,531,278 5,943,720 Unallocated 886, , , ,841 Goodwill on Consolidation 147,254 84,366 9,150,737 8,737,310 6,868,471 6,390, Property, Plant & Equipment Industry Segment additions to property, depreciation & plant & equipment amortisation Rs. 000 Rs. 000 Rs. 000 Rs. 000 Chemicals 35,235 15,171 18,612 18,242 Consumer 345 2,221 2,895 3,110 Hardware 6,673 40,753 14,794 12,649 Construction Plantations 1,058, , , ,232 Hotels 15,307 14,216 47,380 46,045 Agriculture 22, ,138, , , ,614 Unallocated 12,946 6,698 5,267 3,232 1,151, , , , Capital Expenditure Commitments 24.1 Group (i) Capital commitments approved by Agarapatana Plantations Ltd. are Rs Mn for Field Development and Rs Mn for Machinery and Factory Development. (ii) Budgeted capital development programmes of Kotagala Plantations PLC for the next financial year amount to approximately Rs Mn (2007/08 - Rs Mn) Company There were no material capital commitments by the Company as at the Balance Sheet date. 72 Lankem Ceylon PLC - Annual Report 2008/09

75 25. Contingent Liabilities 25.1 Group (i) Contingent liabilities exist in relation to the following for Lankem Tea & Rubber Plantations (Pvt) Ltd.: (a) A contingent liability of Rs. 50 Mn exists as at the reporting date in relation to the various regulatory and legal matters. In addition to which penalties may be imposed on certain statutory payments. (b) Lankem Tea & Rubber Plantations (Pvt) Ltd. have given guarantees to DFCC Bank for the borrowings by Agarapatana Plantations Ltd. amounting to Rs Mn and Rs Mn respectively on ADB credit line. (c) Guarantee to DFCC Bank on behalf of Kotagala Plantations PLC, to secure loans of Rs. 50 Mn and Rs. 7.5 Mn under ADB credit line. (d) Corporate guarantee to People s Leasing Company Ltd. on behalf of Kotagala Plantations PLC, to secure Term Loans of Rs. 13 Mn, Rs Mn and Rs. 1.5 Mn. (e) Corporate guarantee to Lanka Orix Leasing Company Ltd. on behalf of Kotagala Plantations PLC, to secure Term Loan of Rs. 40 Mn. (f) Corporate guarantee to People s Leasing Company Ltd. on behalf of Agarapatana Plantations Ltd. to secure Term Loans of Rs. 9.7 Mn, Rs Mn, Rs. 8.9 Mn and Rs. 9.7 Mn. (ii) Contingent liabilities exist in relation to the following for Lankem Plantation Holdings Ltd. (LPHL): Contingent liabilities exist that may result in a liability crystallising in the event of an unfavourable action amounting to approximately Rs Mn. However, the Group is of the view that this contingency will not arise. (iii) A contingency also exists in relation to the payment of retiring gratuities for Agarapatana Plantations Ltd. and Kotagala Plantations PLC as described in Note 18.1 to these Financial Statements. A contingent liability exists that may result in a liability crystallising in the event of an unfavourable action which amounts to approximately Rs Mn for Agarapatana Plantations Ltd. and Rs Mn for Kotagala Plantations PLC. However, the Company is of the view that this contingency will not arise. (iv) Contingent liabilities exist in relation to the following for Beruwala Resorts Ltd. (BRL), Marawila Resorts PLC (MRPLC), Sigiriya Village Hotels PLC (SVHPLC). Liabilities that could arise due to delay in payments of statutory dues (EPF, ETF, BTT, Income Tax and GST) have not been provided for Company (i) The Company has given guarantees to third parties for facilities obtained by its subsidiaries and the outstanding as at 31st March 2009 on account of Sigiriya Village Hotels PLC amounted to Rs. 7.6 Mn ( Rs. 9.6 Mn), Darley Butler & Company Ltd. Rs. 155 Mn ( Rs. 130 Mn), Beruwala Resorts Ltd. Rs Mn ( Rs. 20 Mn), Lankem Paints Ltd. Rs. 50 Mn ( Rs. 50 Mn) and Lankem Developments PLC Rs Mn. Lankem Ceylon PLC - Annual Report 2008/09 73

76 26. Related Party Transactions (a) Parent and Ultimate Controlling Party The Company has related party relationship with its Ultimate Parent Company, The Colombo Fort Land & Building Company PLC, Parent Company E.B. Creasy & Company PLC, subsidiary companies, affiliate companies and with Directors. (b) Transaction with Key Management Personnel (i) Loans to Directors. No loans have been granted to the Directors of the Company. (ii) Key Management Personnel Compensation. Lankem Ceylon PLC considers its Board of Directors as the Key Management Personnel of the Company. Compensation paid to on behalf of Key Management Personnel of the Company & Group is as follows: CONSOLiDATED COMPANY Rs. 000 Rs. 000 Rs. 000 Rs. 000 Short-Term Employee Benefits 66,736 59,763 54,556 38,874 (iii) Other Transactions with Key Management Personnel Details of Directors Shareholdings are given on page 30 of this Annual Report. There were no other transactions with Key Management Personnel other than those disclosed in Note 26 to these statements. (c) Transactions with Related Companies The Company has a related party relationship with its related Group companies. The following transactions were carried out with related parties during the year ended 31st March 2009: Company Name of Director Nature of Transaction Amount Rs. 000 Receivable/ (Payable) Balance as at Rs. 000 Receivable/ (Payable) Balance as at Rs. 000 Lankem Developments PLC Beruwala Resorts Ltd. Associated Farms Ltd. Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. Anushman Rajaratnam Mr. R.N. Bopearatchy Mr. M.A.A. Mendis (Resigned w.e.f. 26th March 2009) Mr. D.L. Vitharana Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. A.R. Peiris Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. A.R. Peiris Loan Obtained Loan Paid Interest on Loan Management Fees Sale of Goods Administrative Expenses Incurred Administrative Expenses Recovered (24,692) 12,142 12,550 (1,695) 623 3,055 (7,102) 7,102 (10,566) 1 Fund Transfers 23,076 41,407 18,331 Fund Transfers 1,071 1,071 Lankem Tea & Rubber Plantations (Pvt) Ltd. Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. N.H.B.S. Perera Debenture Interest Income Debenture Interest Received Advance Received Insurance 16,200 (23,000) (3,900) 19,115 29, Lankem Ceylon PLC - Annual Report 2008/09

77 Company Name of Director Nature of Transaction Amount Rs. 000 Receivable/ (Payable) Balance as at Rs. 000 Receivable/ (Payable) Balance as at Rs. 000 Lankem Chemicals Ltd. Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. Anushman Rajaratnam Mr. R.N. Bopearatchy Mr. M.A.A. Mendis (Resigned w.e.f. 26th March 2009) Mr. D.L. Vitharana Mr. K.P. David Mr. A.R. Peiris Sale of Goods Interest Income Recovery of Expenses Fund Transfers 377,712 5, ,520 (557,827) 46,799 93,380 Kotagala Plantations PLC Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Sale of Goods Received on Chemicals 2,310 (2,566) Agarapatana Plantations Ltd. Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Sale of Goods and Services 268 1,656 1,388 Lankem Paints Ltd. Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. Anushman Rajaratnam Mr. R.N. Bopearatchy Mr. M.A.A. Mendis (Resigned w.e.f. 26th March 2009) Mr. D.L. Vitharana Mr. K.P. David Mr. A.R. Peiris Sale of Goods Interest Income Recovery of Expenses Fund Transfers 958,262 24, ,110 (1,179,472) 221, ,671 Lankem Consumer Products Ltd. Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. Anushman Rajaratnam Mr. R.N. Bopearatchy Mr. M.A.A. Mendis (Resigned w.e.f. 26th March 2009) Mr. D.L. Vitharana Mr. K.P. David Mr. A.R. Peiris Sale of Goods Recovery of Expenses Fund Transfers 125,000 17,977 (151,619) 91, ,464 Marawila Resorts PLC Lankem Research Ltd. SunAgro LifeScience Ltd. Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. A.R. Peiris Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. Anushman Rajaratnam Mr. R.N. Bopearatchy Mr. M.A.A. Mendis (Resigned w.e.f. 26th March 2009) Mr. D.L. Vitharana Mr. K.P. David Mr. A.R. Peiris Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. Anushman Rajaratnam Mr. R.N. Bopearatchy Mr. D.L. Vitharana Fund Transfers 42,494 43,744 1,250 Research Expenses Recovery of Expenses (67,244) 22,197 (136,841) (91,794) Recovery of Expenses 22,248 24,397 2,149 Lankem Ceylon PLC - Annual Report 2008/09 75

78 Company Name of Director Nature of Transaction Amount Rs. 000 Receivable/ (Payable) Balance as at Rs. 000 Receivable/ (Payable) Balance as at Rs. 000 Sigiriya Village Hotels PLC Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. A.R. Peiris Fund Transfers 28,936 46,790 17,854 The Colombo Fort Land & Building Company PLC Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. N.H.B.S. Perera Dividends Payable Group Services Fee Settlement of Group Service Fee Dividends Paid Chairman s Office Expenses (10,547) (23,000) 18,500 10,547 (1,472) 5,988 11,960 Colonial Motors PLC E.B. Creasy & Company PLC (EBCPLC) Lankem Technology Services Ltd. Island Consumer Supplies (Pvt) Ltd. Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. R.N. Bopearatchy Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. Anushman Rajaratnam Mr. R.N. Bopearatchy Mr. K.P. David Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. R.N. Bopearatchy Received from Short-Term Loan - at 24% - at 22% Repayment of Short-Term Loan Interest Expenses 50,000 7,000 (9,777) (4,306) 57,000 9,777 Fund Transfers (15,494) 4,816 20,310 Office Rent Reimbursement of Expenses Fund Transfers Management Expenses (17,476) 1,332 11,000 (16,278) (4,875) 269 Purchase of Shares (5,000) (5,000) Purchase of Shares (40,500) (40,500) Colombo Fort Investments PLC Mr. A. Rajaratnam Loan Paid 5,562 (5,562) SunAgro Farms Ltd. Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. Anushman Rajaratnam Mr. R.N. Bopearatchy Mr. M.A.A. Mendis (Resigned w.e.f. 26th March 2009) Mr. K.P. David Mr. A.R. Peiris Fund Transfers 26,286 26, Lankem Ceylon PLC - Annual Report 2008/09

79 27. Events Occurring after the Balance Sheet Date 27.1 No circumstances have arisen since the Balance Sheet date which would require adjustments to or disclosure in the Financial Statements other than the following: 27.2 Company The Directors have recommended the payment of a first and final dividend of Rs per Ordinary Share which will be declared at the Extraordinary General Meeting to be held on 27th November In accordance with Sri Lanka Accounting Standard 12 (Revised) - Events after the Balance Sheet date, this proposed dividend has not been recognised as a liability as at 31st March Group Sigiriya Village Hotels PLC (SVHPLC), a subsidiary made a Rights Issue of 3,478,950 Ordinary Shares at a price of Rs. 20/- per share to the holders of the Issued Ordinary Shares of the Company as at end of trading on 23rd March 2009, in the proportion of one (01) new Ordinary Share for every one (01) Ordinary Share held as at that date. The issue closed on 23rd April 2009 and 3,421,050 shares were subscribed and allotted on 24th April The consideration received was Rs. 68,421,000/-. The purpose of the Issue was to utilise the proceeds to reduce the Working Capital deficit of the Company. Marawila Resorts PLC has announced a Rights Issue of 20,000,000 Ordinary Shares at a price of Rs. 5/- per share in the proportion of Two (2) New Ordinary Shares for every Seven (7) Ordinary Shares held. The purpose of the issue is to reduce the Working Capital deficit of the Company. The Rights Issue has been approved in principle by the Colombo Stock Exchange and is now subject to the approval of the Shareholders. Lankem Developments PLC has announced a Rights Issue of 3,000,000 Ordinary Shares at a price of Rs. 10/- per share in the proportion of One (1) New Ordinary Share for every Two (2) Ordinary Shares held. The purpose of the issue is to fund Working Capital requirements. The Rights Issue has been approved in principle by the Colombo Stock Exchange and is now subject to the approval of the Shareholders. The Directors of Kotagala Plantations PLC (KPPLC) a subsidiary, have resolved on 23rd March 2009 to enter into Debenture Investment Agreements and issue Guaranteed Redeemable Debentures (Debentures) to the value of Rs. 100 Mn in the names of the Trustees of the Plantation Trust Fund (PTF). In accordance with the terms of the Debenture Investment Agreement, the Company is required to convene an Extraordinary General Meeting to pass a Resolution to obtain approval of the shareholders for the convertibility of the Debentures upon occurrence of any event of default as per the terms set out in the Debenture Investment Agreements. Colombo Stock Exchange approval too will be sought in this regard. The Company has made an application to the Securities and Exchange Commission of Sri Lanka regarding the issue of the aforementioned Debentures. 28. Going Concern 28.1 Group The Financial Statements of the Group do not include any adjustments in relation to the recoverability and classification of recorded asset amounts or to amounts and classification of liabilities that may be necessary, if any of the following companies are unable to continue as a going concern: (i) The Financial Statements of Agarapatana Plantations Ltd. (APL) are prepared on the assumption that APL is a going concern, i.e., as continuing in operation for the foreseeable future. It is therefore, assumed that APL has neither the intention nor the necessity of liquidation or of curtailing materially the scale of its operations. However, a petition for winding up of APL has been filed on 9th April 1997 in the District Court of Colombo by a creditor on the alleged grounds of failure to pay an outstanding debt. Despite the fact that the alleged debt was a disputed debt, the lawyers of APL tendered in Open Court on 12th May 1997 a bank pay order in favour of the said creditor in full settlement of the alleged claim. The court having made note of the particulars of the bank pay order handed over the same to the lawyer for the petitioner who accepted such bank pay order without demur. As far as APL was concerned, it was believed that the debt has been discharged and the petitioner would withdraw the winding up petition. However, on 28th May 1997, the petitioner s lawyers - for reasons best known only to themselves - filed a motion in the District Court of Colombo seeking to return the bank pay order earlier accepted by them. On 6th June 1997, the District Court of Colombo refused to make an order for the petitioner to return the said bank pay order. At the same time, the District Court also rejected the request by APL for the dismissal of winding up application. Thereafter, APL filed an appeal in the Court of Appeal on 12th June 1997, seeking dismissal of the winding up petition. The Court of Appeal thereupon issued a stay order on the proceeding in the District Court until 14th July This matter is pending in the Court of Appeal and the stay order has been extended on several occasions. Lankem Ceylon PLC - Annual Report 2008/09 77

80 As at 31st March 2009 the Company s Current Liabilities exceeded its Current Assets by Rs Mn (2007/08 - Rs Mn) and the Company is dependent on creditors and borrowings for the continuation of its operations. (ii) York Hotels (Kandy) Ltd. (YHKL), a subsidiary, has defaulted the payments of loan instalments as agreed with Hatton National Bank PLC which is more fully described in Note 16.7 to the Financial Statements. If the Company could not service the bank loan according to the reschedulement terms, the Bank may execute the Mortgage Bond. (iii) Sigiriya Village Hotels PLC (SVHPLC), a subsidiary, has experienced severe cash flow problems during the year and has not been able to settle its statutory obligations on due dates. These factors, together with the loss of Rs. 35 Mn incurred during the year raise substantial doubt that the Company will be able to continue as a going concern. The Directors are confident that the Company would continue as a going concern with continued support from lending institutions and related companies. (iv) Beruwala Resorts Ltd. (BRL), a subsidiary, has experienced cash flow problems during the year and has not been able to settle its statutory obligations on due dates. These factors, together with the loss of Rs. 42 Mn incurred during the year raise substantial doubt that the Company will be able to continue as a going concern. The Directors are confident that the Company would continue as a going concern with continued support from lending institutions and related companies. (v) The Directors of Lankem Tea & Rubber Plantations (Pvt) Ltd. have made an assessment of the Company s ability to continue as a going concern and they do not intend either to liquidate or to cease trading. However, the Company recorded an accumulated loss of Rs Mn as at 31st March 2009 and, as of that date, the Company s total liabilities exceeded its total assets by Rs. 56 Mn. These facts have raised serious doubt about the ability of the Company to continue as a going concern. The Directors are of the opinion that the following will mitigate this position: (a) The Company has recorded a profit of Rs Mn during the year ended 31st March (b) (c) (d) (e) Increase in the revenue of the two plantation companies managed by the Company also ensured higher revenue being earned. With favourable rubber and tea prices forecasted for the current financial year, record revenue levels are expected. Lankem Plantation Holdings Ltd. has direct holding of 37.8% and 30% indirect holding of Kotagala Plantations PLC, the total value of the investment being Rs. 1,465 Mn (21,700,630 Shares at Rs. 16/- Current market price). The Company has improved its liquidity position during the year, where a net current asset position of Rs Mn at the beginning of the year has improved to Rs Mn at the end of the year. While the current asset deficit of Rs Mn as at the beginning of the year has reduced to Rs Mn at the end of 31st March 2009 in Lankem Plantation Holdings Ltd. The Company is expected to receive dividend income amounting to Rs Mn from Kotagala Plantations PLC, Lankem Plantation Holdings Ltd. (the Holding Company of Lankem Tea & Rubber Plantations (Pvt) Ltd.), is also expected to receive dividend income of Rs Mn from Kotagala Plantions PLC for the year ended 31st March (vi) Marawila Resorts PLC (MRPLC), a subsidiary incurred a net loss of Rs. 46 Mn during the year under review and as at the date the accumulated losses as at 31st March 2009 amount to Rs Mn due to continued losses incurred. Further, the Current Liabilities of MRL exceed its Current Assets by Rs Mn as at the reporting date. The Directors are confident that the Company would continue as a going concern with continued assistance from Financial Institutions and Lankem Ceylon PLC. Accordingly, the Company has adopted the going concern basis in the preparation of these Financial Statements. (vii) Lankem Plantation Holdings Ltd. (LPHL), a subsidiary recorded a profit of Rs Mn during the year under review. However, the Company incurred losses in previous years and as at 31st March 2009 had accumulated losses amounting to Rs Mn. As of that date, its Current Liabilities exceeds its Current Assets by Rs Mn. Therefore, the said unfavourable working capital position together with continuous financial difficulties have raised serious doubt as to the ability of the Company to continue as a going concern, even though there has been a slight improvement from the financial position reported in the previous year. (viii) Colombo Fort Hotels Ltd. (CFHL), a subsidiary has not been generating operating income since its incorporation. The accumulated losses amount to Rs Mn as at 31st March 2008 and its Current Liabilities exceed its Current Assets by Rs. 20 Mn as at that date. These factors raise doubt as to whether CFHL can continue as a going concern. However, the Financial Statements of CFHL have been prepared on a going concern basis without making any adjustment that may be required to the recorded assets and the classification of liabilities. The validity of the above going concern assumption depends on the continuous financial support from its ultimate Holding Company, The Colombo Fort Land & Building Company PLC. 78 Lankem Ceylon PLC - Annual Report 2008/09

81 statement of value added CONSOLiDATED COMPANY 2008/ / / /08 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Gross Sales 9,752,487 9,451,805 3,937,902 3,251,568 Other Income 291, ,702 15,154 4,609 10,043,542 9,682,507 3,953,056 3,256,177 Less: Cost of Material and Services Purchased (7,045,518) (6,566,586) (3,382,166) (2,819,417) Total Value Added 2,998,024 3,115, , ,760 Distributed as follows: To Employees as Remuneration 2,067,741 2,098, , ,850 To Government as Taxes 205, , ,718 78,845 To Providers of Capital as - Interest 296, ,244 88,721 97,584 - Dividends 38,675 29,042 38,675 29,042 Retained in the Business as - Depreciation 261, ,846 41,361 37,103 - Reserves 128, , ,832 68, , , , ,439 Distribution of Value Added 2,998,024 3,115, , ,760 To Employees as Remuneration 68.98% 67.34% 27.95% 28.81% To Government as Taxes 6.84% 6.55% 20.97% 18.05% To Providers of Capital 11.18% 10.41% 22.32% 28.99% Retained in the Business 13.00% 15.70% 28.76% 24.15% % % % % Lankem Ceylon PLC - Annual Report 2008/09 79

82 share information Twenty Major Shareholders 31st March st March 2008 No. of No. of Ordinary % Ordinary % Shares Shares 1. E.B. Creasy & Company PLC 9,536, ,536, The Colombo Fort Land & Building Company PLC 3,962, ,953, Seylan Bank PLC/The Colombo Fort Land & Building Company PLC 2,500, ,500, Mr. Muthar Taufiq Talib Al-Nakib 1,207, ,232, Darley Butler & Company Ltd. 466, , J.B. Cocoshell (Pvt) Ltd. 333, , Mr. Rajaratnam Senathirajah 242, , Colombo Fort Investments PLC 149, , HSBC - Rajaratnam Senathirajah 126, , Alliance Finance Company PLC 111, Colombo Investment Trust PLC 97, , Colonial Motors PLC 87, , Mr. Semasinghe Navaratne Chandrasekera Wanninayake Mudiyanselage Bandara Chandrasekera Kandegedara 73, Mr. Mariapillai Radhakrishnan 68, , Mr. Marimuthu Duraisingam 55, , Mr. Anthony Isidore De Silva & Mr. Francis Xavier Ranjith Pereira 55, , Mr. Hans Anton Van Starrex 46, , Trust Holdings & Investments Ltd. 37, , Mr. Huseinali Gulamabass Carimjee 30, , Ceylinco Shriram Asset Management Ltd. 30, Market Value 19,219, ,079, The market value of the Company s Ordinary Shares on 31st March 2009 was Rs (Highest during the year - Rs and lowest during the year - Rs ). Net Assets per Share Consolidated The Net Assets per Share as at 31st March Rs The Net Assets per Share as at 31st March Rs Company The Net Assets per Share as at 31st March Rs The Net Assets per Share as at 31st March Rs Public Holdings The percentage of shares held by the public as at 31st March 2009 was 19.73% (31st March %). 80 Lankem Ceylon PLC - Annual Report 2008/09

83 Distribution of Ordinary Shares 31st March st March 2008 No. of Shares Held No. of Total Holding % No. of Total Holding % Shareholders Holdings Shareholders Holdings 1-1,000 1, , , , ,001-5, , , ,001-10, , , ,001-50, , , , , , , , , ,429, ,485, ,001-1,000,000 Over 1,000, ,205, ,222, ,798 21,000, ,760 21,000, Analysis of Ordinary Shareholders As at 31st March 2009 No. of % Total Market Value % of Total Shareholders Holdings Holdings Individuals 1, ,301,347 94,913, Institutions ,698, ,836, , ,000, ,750, As at 31st March 2008 No. of % Total Market Value % of Total Shareholders Holdings Holdings Individuals 1, ,373, ,868, Institutions ,626, ,631, , ,000, ,500, Lankem Ceylon PLC - Annual Report 2008/09 81

84 ten year summary Trading Results 1999/ / / / / / / / / /09 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Turnover 3,333,933 3,730,336 3,760,177 4,330,160 4,751,159 5,829,450 6,784,903 7,937,129 9,451,805 9,752,487 Profit/(Loss) before Tax (39,637) 179,990 (322,694) (293,067) 222, , , , , ,696 Taxation (13,000) (12,516) (15,378) (35,921) (57,454) (48,467) (60,564) (98,745) (180,376) (194,293) Profit/(Loss) after Tax (52,637) 167,474 (338,072) (328,988) 165, , , , ,088 62,403 Assets Employed Property, Plant & Equipment 2,839,181 2,886,364 2,994,544 3,529,593 3,610,641 3,961,363 4,244,554 4,934,249 5,262,758 5,812,371 Investments 210, , , ,613 13,152 4,016 3,478 3,338 57,481 54,168 Working Capital (576,656) (459,226) (677,958) (1,517,207) (1,254,495) (1,080,257) (1,039,775) (732,162) (262,983) (464,917) Shareholders Funds Stated Capital* 206, , , , , , , , ,552** 281,218 Reserves (63,288) 16,046 (33,016) (670,693) (400,172) (248,260) (16,324) 492, , ,564 Goodwill on Consolidation 194, , , , , , , ,067 84, ,254 Non-Current Liabilities 2,077,224 2,064,550 2,088,187 2,561,502 2,449,706 2,599,217 2,605,856 2,819,691 2,795,150 3,266,615 Ratio Analysis Profitability Ratios Profit Before Interest & Tax Margin (PBIT) (%) Pre-Tax Return on Capital Employed (14.12) (3.07) After Tax Return on Capital Employed (13.56) (2.36) Liquidity Ratios Current Ratio Quick Ratio Gearing Ratios Debt Equity Ratio Interest Coverage (0.16) Investor Ratios Market Price per Share (Rs.) Earnings per Share (Rs.) (2.82) (12.39) (18.64) Net Assets per Share (Rs.) (0.90) (35.71) (8.78) (0.34) Dividend per Share (Rs.) Price Earnings Ratio (PE) (2.66) 0.70 (0.77) (0.46) Earnings Yield (0.38) 1.44 (1.30) (2.19) Dividends Yield Dividend Pay-Out Ratio (0.05) Market Capitalisation 90,000 84, , , ,000 1,260, , , , ,750 * Share Capital & Share Premium previously reported has been reclassified to reflect Stated Capital as defined in Companies Act No. 07 of ** Increased due to a rights issue. 82 Lankem Ceylon PLC - Annual Report 2008/09

85 notice of meeting Notice is hereby given that an Extraordinary General Meeting of Lankem Ceylon PLC will be held at the Grand Oriental Hotel, No. 2, York Street, Colombo 01, on 27th November 2009 at 9.30 a.m. and the business to be brought before the meeting will be - To receive and consider the Annual Report of the Board of Directors and the Statement of Accounts for the year ended 31st March 2009 with the Report of the Auditors thereon. To declare a first and final dividend as recommended by the Directors. To consider and if thought fit to pass the following as Special Resolutions to amend the Articles of Association of the Company in the manner following: Special Resolution 1 Resolved - That the existing Article 152 of the Articles of Association be deleted and the following Article be substituted therefor: 152. Where notice is given by an advertisement such advertisement shall be published in the Sinhala, Tamil and English national daily newspapers. Special Resolution 2 Resolved - That the existing Article 155 appearing under the heading INDEMNITY be deleted and the following new Article under the heading INDEMNITY & INSURANCE be substituted therefor: INDEMNITY & INSURANCE 155. (1) The Company may indemnify a Director, Secretary or Secretaries or employee of the Company or a related company, for any costs incurred by him in any proceeding - (a) that relates to liability for any act or omission in his capacity as a Director, Secretary or Secretaries or employee; and (b) in which judgement is given in his favour or in which he is acquitted or which is discontinued or in which he is granted relief under Section 526 of the Act. (2) The Company may also indemnify a Director, Secretary or Secretaries or employee of the Company or a related company in respect of - (a) liability to any person other than the Company or a related company for any act or omission in his capacity as a Director, Secretary or Secretaries or employee; or (b) costs incurred by that Director, Secretary or Secretaries or employee in defending or settling any claim or proceeding relating to any such liability, not being a criminal liability or in the case of a Director, liability in respect of a breach of the duty specified in Section 187 of the Act. (3) The Company may with the prior approval of the Directors effect insurance for any one or more of the Directors, Secretary or Secretaries or an employee or employees of the Company or related company in respect of - (a) liability not being criminal liability, for any act or omission in his capacity as a Director, Secretary or Secretaries or employee; (b) costs incurred by that Director, Secretary or Secretaries or employee in defending or settling any claim or proceeding relating to any such liability; or (c) costs incurred by that Director, Secretary or Secretaries or employee in defending any criminal proceedings in which he is acquitted. Lankem Ceylon PLC - Annual Report 2008/09 83

86 Special Resolution 3 Resolved - That the following new Article 156 be included immediately following Article 155 under the heading COMPLIANCE WITH THE RULES OF THE COLOMBO STOCK EXCHANGE AND THE CENTRAL DEPOSITORY SYSTEMS (PVT) LTD. to read as follows: COMPLIANCE WITH THE RULES OF THE COLOMBO STOCK EXCHANGE AND THE CENTRAL DEPOSITORY SYSTEMS (PVT) LTD Notwithstanding anything to the contrary contained in the Articles of Association of the Company, so long as the Company is listed on the Colombo Stock Exchange, the Company shall comply with the Rules of the Colombo Stock Exchange and the Central Depository Systems (Pvt) Ltd. which shall be in force from time to time. By Order of the Board Corporate Managers & Secretaries (Private) Limited Secretaries 19th October 2009 Colombo Note: 1. Any member of the Company who is entitled to attend and vote at this meeting may appoint a proxy to attend and vote instead of him or her. A proxy need not be a member of the Company. 2. A Form of Proxy is enclosed in this Report. 3. The instrument appointing a proxy must reach the Registered Office of the Company s Secretaries, Corporate Managers & Secretaries (Private) Limited, No. 8-5/2, Leyden Bastian Road, York Arcade Building, Colombo 01, not less than forty-eight (48) hours before the time appointed for the holding of the meeting. 84 Lankem Ceylon PLC - Annual Report 2008/09

87 form of proxy I/We... of... being a member/members of Lankem Ceylon PLC, hereby appoint of... whom failing 1. Alagarajah Rajaratnam of Colombo or failing him 2. Sri Dhaman Rajendram Arudpragasam of Colombo or failing him 3. Anushman Rajaratnam of Colombo or failing him 4. Dhamitha Laksiri Vitharana of Colombo or failing him 5. Ranjit Noel Bopearatchy of Colombo or failing him 6. Nelakanni Hettiarachige Bernard Susantha Perera of Colombo or failing him 7. Kamalanesan Ponniah David of Colombo or failing him 8. Amaralal Rajasri Peiris of Colombo or failing him 9. Ruwan Tharka Weerasinghe of Colombo as my/our proxy to represent me/us to speak and to vote on my/our behalf at the Extraordinary General Meeting of the Company to be held on 27th November 2009 and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid meeting. For Against To receive and consider the Annual Report of the Board of Directors and the Statement of Accounts for the year ended 31st March 2009 with the Report of the Auditors thereon. To declare a first and final dividend as recommended by the Directors. To amend the Articles of Association as set out in the Notice of Meeting. Special Resolution 1 Special Resolution 2 Special Resolution 3 As witness my/our hands this... day of Note:... Signature of Shareholder A proxy need not be a member of the Company. If no words are deleted or there is in the view of the proxy doubt (by reason of the way in which the instructions contained in the Form of Proxy have been completed) as to the way in which the proxy should vote, the proxy may vote as he/she thinks fit. Instructions for completion appear below: Instructions as to Completion of Form of Proxy 1. Perfect the Form of Proxy after filling in legibly your full name and address by signing in the space provided and filling in the date of signature. 2. In the case of Corporate Members the Form of Proxy must be signed under seal or under the hand of an authorised officer or Attorney. 3. Where the Form of Proxy is signed under a Power of Attorney (POA) which has not been registered with the Company, the original POA together with a photocopy of the same, or a copy certified by a Notary Public must be lodged with the Company s Secretaries, Corporate Managers and Secretaries (Private) Limited along with the Form of Proxy. 4. The completed Form of Proxy should be deposited at the Registered Office of the Company s Secretaries, Corporate Managers & Secretaries (Private) Limited, 8-5/2, Leyden Bastian Road, York Arcade Building, Colombo 01, not less than forty-eight (48) hours before the time appointed for the holding of the meeting. Lankem Ceylon PLC - Annual Report 2008/09 85

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89 corporate information Board of Directors Chairman A. Rajaratnam, FCA Deputy Chairman S.D.R. Arudpragasam, FCMA Managing Director Anushman Rajaratnam, B.Sc. (Hons.), CPA, MBA (Alternate, Mr. S. Rajaratnam) Chief Operating Officer D.L. Vitharana, MNI (Lond.), MBA, M.Sc. (UK) Directors R.N. Bopearatchy, B.Sc. (Cey.), Dip. BM., MBA (Univ. of Col.) N.H.B.S. Perera, B.Sc. (Cey.) K.P. David, ACMA, FSCMA, FIPFM A.R. Peiris, B.Sc. (Cey.), FCMA R.T. Weerasinghe, BBA (USA) Secretaries Corporate Managers & Secretaries (Private) Limited Bankers Commercial Bank of Ceylon PLC Bank of Ceylon PABC Bank PLC Seylan Bank PLC Union Bank of Colombo Ltd. People s Bank Indian Bank Lawyers Messrs Julius & Creasy Attorneys-at-Law Auditors Messrs KPMG Ford, Rhodes, Thornton & Company Chartered Accountants Name of the Company Lankem Ceylon PLC Legal Form A limited liability company incorporated and domiciled in Sri Lanka Date of Incorporation 15th September 1964 Company Number PQ 128 Stock Exchange Listing The ordinary shares of the Company are listed with the Colombo Stock Exchange of Sri Lanka Registered Office No. 98, Sri Sangaraja Mawatha, Colombo 10 Principal Activities of the Company Manufacturing of Chemicals, Paints and Consumer Products Subsidiary Companies and their Principal Activities Lankem Paints Ltd. Distribution of Paints Lankem Consumer Products Ltd. Distribution of Consumer Products Lankem Chemicals Ltd. Distribution of Industrial Chemicals Lankem Agrochemicals Ltd. Distribution of Agrochemicals SunAgro LifeScience Ltd. Import, Marketing and Distribution of Agrochemicals Lankem Research Ltd. Research and Development SunAgro Farms Ltd. Growers of Vegetables, Fruits and Foliage for Export and Sale Lankem Developments PLC Provision of Waterproofing and Construction of Roads and Industrial Flooring Lankem Plantation Holdings Ltd. Investment in Plantation Companies Lankem Tea & Rubber Plantations (Pvt) Ltd. Management of Plantations and Investment in Plantations Kotagala Plantations PLC Cultivation and Processing of Tea and Rubber Agarapatana Plantations Ltd. Cultivation and Processing of Tea Lankem Plantation Services Ltd. Non-Operational Sigiriya Village Hotels PLC Owning and Operation of Resort Hotel Marawila Resorts PLC Owning and Operation of Resort Hotel Colombo Fort Hotels Ltd. Investment in Hotel Companies Beruwala Resorts Ltd. Owning and Operation of Resort Hotel York Hotels (Kandy) Ltd. Owning of Resort Hotel Lankem Exports (Pvt) Ltd. Non-Operational Associated Farms Ltd. Farming and Dairying Lankem Technology Services Ltd. Provision of Information Technology and Allied Services Nature s Link Ltd. Manufacturing of herbal/natural based products (Incorporated on 17th September 2009)

90 Lankem Ceylon PLC 297A 1/1, Union Place Colombo 2 Sri Lanka