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LANKEM CEYLON PLC

Annual Report 2011/2012

Increase

Express

Accelerate

Progress

Diverse

Expand

Boost

Broaden

Growth

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AGROCHEMICALS . PAINTS . CHEMICALS . BITUMEN . CONSUMER . LEISURE . PLANTATIONS . CONSTRUCTION . AGRICULTURE, CROPS & LIVESTOCK PRODUCTION An understated yet fast growing player in the diversified conglomerate sector, the Lankem Group has been building value and creating wealth for over forty five years. Today we own over twenty five subsidiary companies working in nine major industry sectors, all of which have performed beyond expectation, in the year under review. This year sees us broadening our horizons as we acquire several new industry portfolios to the group holding. Simultaneously, our network of factories will see massive refurbishment, in order to drive up capacities and bring each one to a state of the art level. Today we are pleased to see that we rank highly in several very profitable industries and services; strengthening our position as a company that will continue to explore new avenues, seek out new opportunities and broaden our horizons each year.

2 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Our Business Areas


OUR BUSINESS AREAS ARE AGROCHEMICALS, PAINTS, BITUMINOUS PRODUCTS, CHEMICALS, CONSUMER PRODUCTS, PLANTATIONS, LEISURE, CONSTRUCTION, AGRICULTURE CROPS & LIVESTOCK PRODUCTION.

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.

Favourable Rating Outlook

Long-and-Short term Corporate Credit Ratings of A- and P2 respectively reaffirmed by RAM ratings (Lanka) Limited in December 2011.

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Contents
Financial Highlights .................................................. 4 Chairmans Message................................................. 5 Board of Directors ..................................................... 8 Management Reports...............................................10 Financial Review ...................................................... 28 Corporate Social Responsibility ............................. 32 Annual Report of the Board of Directors............... 34 Corporate Governance ........................................... 37 Risk Management Review....................................... 40 Audit Committee Report ......................................... 42 Independent Auditors Report ................................ 46 Income Statement ................................................... 48 Balance Sheet .......................................................... 49 Statement of Changes in Equity ............................. 50 Cash Flow Statement ...............................................51 Notes to the Financial Statements ........................ 53 Statement of Value Added...................................... 116 Share Information ................................................... 117 Ten Year Summary ................................................. 119 Corporate Information - Inner Back Cover

Agri Inputs Paints Chemicals Bitumen Consumer Construction & Pest Management Plantations Leisure Agriculture, Crop and Livestock Production

Pages 10 - 11 Pages 12 - 13 Pages 14 - 15 Pages 16 - 17 Pages 18 - 19 Pages 20 - 21 Pages 22 - 23 Pages 24 - 25 Pages 26 - 27

4 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Financial Highlights
Rs. 24,118 Mn.
Revenue- Group
Rs. Mn

Revenue

Shareholders Funds

Rs. 3,902 Mn.

Profit Before Tax

Rs. 1,531 Mn.

Net Assets Per Share

Rs. 162.60

Revenue- Company
Rs. Mn

25,000 20,000

6,000 5,000 4,000

15,000 3,000 10,000 5,000 0


06/07 07/08 08/09 09/10 10/11
11/12

2,000 1,000 0
06/07 07/08 08/09 09/10 10/11
11/12

Profit Before Tax- Group


Rs. Mn

Profit Before Tax- Company


Rs. Mn

2,500 2,000 1,500 1,000 500

800 700 600 500 400 300 200 100

0
06/07 07/08 08/09 09/10 10/11
11/12

0
06/07 07/08 08/09 09/10 10/11
11/12

Net Assets Per Share- Group


Rs. Mn Rs.

Net Assets Per Share- Company


140 120 100 80 60 40 20 0

200 180 160 140 120 100 80 60 40 20 0


06/07 07/08 08/09 09/10 10/11
11/12

06/07 07/08 08/09 09/10 10/11

11/12

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Chairmans Review
It gives me great pleasure to present on behalf of the Board of Directors the Annual Report and the audited financial statements of Lankem Ceylon PLC and its subsidiaries for the year ended 31st March 2012. The recently concluded financial year has seen a high degree of volatility in the economic environment. A deteriorating balance of payments situation has precipitated a steep devaluation of the Sri Lankan Rupee. This decline in the value in the Rupee has in turn led to an increase in the annual rate of inflation. The Government has used a policy of rising interest rates to control credit growth in the local economy and to try and improve the balance of payments situation. The increase in interest rates have seen the borrowing costs of the Group increase by nearly 400 basis points. The nearly 15% devaluation of the Rupee has increased the costs of all inputs across the Company and has placed a great deal of pressure on the Companys margins. The Rupee is yet to settle at a stable trading range and this makes medium term costing and investment decisions difficult to make. The Government also seems to have moved away from its pro-growth stance of low taxation with the taxes associated with the importation of motor and other luxury goods also increasing. Under these challenging circumstances it will be difficult for the Sri Lankan economy to post a GDP growth rate above 8% as forecasted. In order to return to a path of rapid economic growth, the Government must pursue a policy of smaller budget deficits while encouraging foreign direct investment into the Sri Lankan economy. It must work to reduce the red tape involved for businesses setting up new operations in Sri Lanka and work to reduce interest rates so that local firms can borrow the necessary capital to further grow their businesses. I would like to thank our many foreign partners for the hard work in providing the necessary toxicological data to prove that their products, which Lankem distributes, are amongst the safest in the world. All crop protection solutions in Sri Lanka go through one of the most vigorous testing and registration exercise in the world before these products can be retailed to Sri Lankan farmers. We stand by the safety of all our products. Not withstanding the problems that the cluster has faced due to circumstances beyond its control, we continued to make great strides in the other areas that we are present in. The fledgling fertiliser division recorded its first profit after two years in operation. The market for fertiliser is huge but we tread carefully as the fertiliser business can have a large drain on the cash flows of the Company. Our other crop protection subsidiary SunAgro Life Sciences achieved a Revenue of Rs. 500 million for the first time. Another of our subsidiaries, SunAgro Foods has nearly completed its new cereal processing plant in Trincomalee. This plant that was built with the assistance of USAID will serve as a further link between the Company and our ultimate customers the farming community in Sri Lanka. The Governments emphasis on improved infrastructure has helped the Bitumen division record its best ever results. In the year under review the division has increased its fleet of bitumen bowsers to meet the increase in demand for its products. In line with the divisions focus on high quality products for the road construction sector, the division was able to obtain ISO 9001: 2008 certifications for Quality Management Systems. While the future for the division is bright, it must continue to manage its customers as these customers are susceptible to delays in payments from Government institutions which in turn impact their payments to Lankem. The construction chemicals business has had a very successful year. The industry as a whole grew by approximately 12% while we were successful in increasing volumes by nearly 15%. As a result of the price increases in many of the raw materials used for production of our construction chemicals, the division was forced to increase the prices of all our products. This prudent decision has helped the Company maintain its margins and improve profitability. Our products are manufactured using the very best raw materials provided by world-renowned suppliers. We thank our customers for the trust that they have retained in our products in spite of the premium pricing that many of our products have in comparison to our competitors products. We believe this trust is borne by the higher quality of Lankem products. We have also placed a heavy emphasis on improving our distribution network across the island. In the past financial year we were able to increase the number of dealers by nearly 500 with nearly 130 of these dealers exclusively handling only our products. Over the course of the year we also expanded our factory, increasing production capacity by nearly 21%.

Company Performance Review


In spite of the difficult trading conditions that were present over the course of the last financial year, Lankem Ceylon PLC at Group level recorded a turnover of Rs. 24.1 Billion and a profit after tax of Rs. 1,232.3 Million. At company level turnover improved to Rs. 5.8 Billion and profit after tax increased to Rs. 730.3 Million. The Companys Agriculture cluster has had a very challenging year. Unpredictable and adverse weather patterns have reduced the area under cultivation in both the Yala and Maha agricultural seasons. The crop protection business has been further hampered by the misleading information spread about the safety of crop protection solutions marketed by all players in the industry. As a result of this, we as well as our competitors were unable to bring in the necessary chemicals for several months. In addition the shortage of these compounds, cost the Company sales in the second and third quarters. I would like to re-iterate that Lankem has always been at the forefront of retailing safe crop protection solutions.

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Chairmans Review
Our operations at the current location will reach its maximum capacity over the next few years and the Company is actively looking for a new location in order to further expand its operations. The Group has also tied with WIP Coatings of the Alchea Group in Italy to bring to the market technologically advanced solutions for the wood coatings market. We in collaboration with Candice SRL of Italy, are about to launch a series of special effect coating solutions, which we believe will soon become the product of choice in this segment. The profitability of the industrial chemicals division has been hit by the volatility of international commodity prices and the steep decline in the value of the Sri Lankan Rupee. While overall turnover was higher, the turnover attributable to solvents was lower due to a drop in industrial activity. The division achieved a significant milestone when it opened its new production facility at Sapugaskanda. The state of the art blending and drumming plant was designed and constructed to the highest international safety standards with the drum yard having a capacity of nearly 6000 drums. The Company has further strengthened its relationship with Dupont of the United States for the distribution of its refrigerant gases under the brand name Suva. In the past year, the division also made its initial foray into food chemicals when Dupont appointed it as a distributor for its range of Isolated Soya Proteins. The only division within the Company that did not perform up to expectations was the consumer division. Higher distribution costs and the non-availability of some of our products from our foreign suppliers have lead to a widening of the operating loss of the division. The Company has also had to deal with a decline in demand for its most popular product -D size batteries caused by the emergence of L.E.D torches, which reduces the consumption of batteries. In order to return to profitability, the Company is investing in a new plant to expand the manufacture of its cleaning chemical solutions. This new facility will be launched during the course of the next financial year and help the division turn around its performance. it launches its own brand of tea for the local market in the first quarter of 2012. This exceptional performance reiterates the Groups decision to acquire the Company in January of 2010. The Group will continue to support C.W Mackie as it looks to expand its rubber export business in the future. The number of tourists arriving into the country continues to grow at a rapid pace. In the year 2011, Sri Lanka saw nearly 800,000 tourists arrive into the country, a growth of nearly 30% over the last year. The Group now has investments in five hotel properties across the country. The decision to upgrade the three existing established properties at Marawilla, Sigiriya and Beruwala has now paid dividends. Profits across all three properties have risen significantly. The profits at Sigiriya Village Hotels PLC rose to Rs. 40.5 Million and the profits at Beruwala Resorts Ltd rose to Rs. 31.2 Million, while the profits at Marawilla Resorts PLC were Rs. 15.0 Million during the course of the year. During the year the Group acquired control of the Galle Fort Hotel Ltd. This Company owns and manages a luxury hotel within the UNESCO world heritage site-Galle Fort. Our investment in this property is a sign of the confidence in the future of the tourism industry in Sri Lanka. During the course of the next financial year, the group will finalize its plans for the upgrading of its property in Weligama and the development of new properties in Kandy and the East coast. The Groups two plantation Companies Kotagala Plantations PLC and Agarapatana Plantations Ltd faced challenging times with a decrease in profits to Rs. 438.6 Million in the case of Kotagala Plantations PLC and a loss of Rs. 555.3 Million in the case of Agarapatana Plantations Ltd. The wage hike that was granted to workers in the early part of the financial year was a major strain on the profitability of both Companies. In order to secure the future viability of the Plantation sector in Sri Lanka, any future wage increases must be linked to increased levels of productivity. The Companies continue to rationalise our workforces in both Companies to ensure that profit levels can be maintained in the future. The profitability of both Companies was also impacted by the volatility of commodity prices seen during the year. The performance of Agarapatana Plantations Ltd was severely impacted by the low tea prices fetched at the auctions. In order to mitigate some of the risks involved in the Plantation sector, the management has made a conscious decision to diversify the crops planted on the estates of both Companies. With this strategy in mind Kotagala Plantations PLC is replanting nearly 1000 Ha of low yielding Rubber with Oil Palm and Agarapatana Plantations Ltd is replanting some low yielding Tea areas with Rubber and Cinnamon. During the course of the past financial year Kotagala Plantations PLC was also successful in obtaining the approval from relevant Government regulators to plant 20,000 Ha of Rubber in Cambodia. Once the entire extent of land is planted, this will represent a five-fold increase in the acreage of rubber under cultivation for the Company. With significantly lower wage costs, and higher yielding lands, the profit per acre from the Cambodian estates will be much higher than the equivalent estates in Sri Lanka.

Group Performance Review


Some of the subsidiaries of the Group have performed admirably in the year under review. Boosted by a weakening Sri Lankan Rupee that has assisted the growth of exports of natural rubber and value added rubber products, C.W Mackie PLC and its subsidiaries Ceymac Rubber Company Ltd and Ceytra Ltd recorded consolidated revenue of Rs. 9.7 Billion and a profit after tax of Rs. 385.3 Million Rupees. This represents a growth in revenue of 30% and a growth in profit after tax of 88%. The performance of the Companys domestic FMCG business that distributes household names such as Sunquick fruit concentrate and the SCAN brand of peanuts and water also continued to grow rapidly. The Company will look to further develop its domestic trading business when

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In spite of the challenging environment that Lankem Ceylon PLC and its subsidiaries have faced in the last financial year, we continue to make the necessary investments that will enhance stakeholder returns in the future years. The Group continues to make heavy investments in its products, production environments and support systems so that every Company in the Group remains as benchmarks to their peers in their respective industries. Our primary challenge remains to promote our products into new regional markets while maintaining and improving our market shares in which we are already present. With the difficult trading conditions that are likely to be seen in the next financial year, it is prudent that the Company only declare a final dividend of Rs. 2.50 per share for the Financial Year 2011/2012. This is in line with the dividend that was declared for the last financial year as well.

Conclusion
I would like to thank my colleagues on the board for their continued support and counsel over the course of the last financial year. My thanks also to the many employees of Lankem Ceylon PLC and its subsidiaries for all the hard work that allows our Company to remain a dominant player in the many industries that we represent.

A. Rajaratnam
Chairman 30th May 2012

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Board of Directors
A. Rajaratnam [FCA]
Chairman Mr. A. Rajaratnam joined the Board in 1990 and was appointed Chairman in the year 2003. He serves as Chairman of The Colombo Fort Land & Building Company PLC (CFLB) and several listed and unlisted companies within the CFLB Group in addition to holding other Directorships within the Group. Mosquito Spiral Manufacturers Association (IMSMA). 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 1999. 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, Lankem Developments 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.

S. D. R. Arudpragasam [FCMA (UK)]


Deputy Chairman Mr. S. D. R. Arudpragasam joined the Board in 1989, and was appointed Deputy Chairman in 1990. He holds the position of Deputy Chairman of The Colombo Fort Land & Building Company PLC and functions as the Managing Director of E. B. Creasy & Company PLC in addition to serving on the Boards of other Companies within the CFLB Group.

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 2009. 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.

K. P. David [FCMA (UK), FCMA, FIPFM, CGMA]


Director Mr. K. P. David was appointed to the Board in 2007. Having commenced his career in the Banking sector, he joined the Parent Company E. B. Creasy & Company PLC as Group Accountant in 1993. 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 2005. He joined Lankem Ceylon PLC in 1997 and has headed the Lankem Agro Cluster since 1999. He is currently the Chief Operating Officer of Lankem Ceylon PLC and also serves on the Boards of several subsidiaries of the Lankem Group.

A. R. Peiris [B.Sc. (Cey), FCMA (UK), CGMA]


Director Mr. A. R. Peiris was appointed to the Board in the year 2007. He has served the Petroleum Corporation for 10 years in Technical, Planning & Finance Divisions and at the time he left the Corporation in 1979, he was the Head of the Refinery Finance Division. Thereafter, he joined National Development Bank PLC 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. He is also a member of the Board of Tess Agro PLC and functions as the Chairman of its Audit Committee.

R. N. Bopearatchy [B.Sc. (Cey), Dip. BM., MBA (Univ. of Col)]


Director Mr. R. N. Bopearatchy was appointed to the Board in 1996. 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 Mathurata Plantations Ltd., CIC Fertilizers Ltd and Cisco Speciality Packaging (Pvt) Ltd. He has been a former Chairman of the Pesticide Association of Sri Lanka and the Toxicological Society of Sri Lanka and is now the Chairman of the International

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R. T. Weerasinghe [BBA - USA]


Director Mr. R. T. Weerasinghe was appointed to the Board in April 2009. 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 1998. He was promoted as General Manager of the Consumer Division in 2005 and was also appointed as General Manager of the Paints Division. In addition he was appointed as the Head of the Industrial Chemicals Division in 2009. Mr. Weerasinghe possess expertise in the fields of Marketing and Management. Mr. Weerasinghe also serves on the Boards of certain subsidiaries of Lankem Ceylon PLC.

Mr. Jayaranjan is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka, and a Fellow Member of the Chartered Institute of Management Accountants UK. He is an external examiner/lecturer at the Faculty of Graduate Studies, University of Colombo.

J. D. Gomes [FCMA (UK), FCCA (UK), FCPA (AUS), CGMA]


Director Mr. Dian Gomes was appointed to the Board as an Independent Non-Executive Director in June 2010. Mr. Gomes is a Group Director of MAS Holdings and the Managing Director of MAS Intimates (Private) Limited. In addition to his role as Managing Director for the Intimates Cluster, Mr. Gomes is also the head of Human Resources, Corporate Communications, Branding and CSR for the MAS Holdings Group. He is a Fellow member of the Chartered Institute of Management Accountants (UK), the Association of Chartered Certified Accountants (UK) and Certified Practicing Accountants (Australia). A Past President of the CIMA Sri Lanka Division (2001/2002) and the Sri Lanka Amateur Boxing Association (2004 to 2009), Mr. Gomes is presently the Vice President of the National Olympic Committee of Sri Lanka.

A. Hettiarachchy [C.Eng, MIEE, MIProdE]


Director Mr. A. Hettiarachchy was appointed to the Board as an Independent Non-Executive Director in April 2010. He is a Chartered Engineer and a Member of the Institution of Engineering and Technology and is the Head of Process and Engineering Systems-Sri Lanka Institute of Nanotechnology. He serves on the Boards of National Science Foundation and as Chairman on the Boards of ISB Services Limited, ISB Environmental Services Limited, and ISB Technical Services Limited. He has served on the Board of Hayleys PLC and functioned as Managing Director on the Boards of Haycarb PLC, Recogen Limited and Puritas Limited and also served on several other subsidiaries of Haycarb PLC and Hayleys PLC both in Sri Lanka and Overseas. He was also a Board Member of The Sri Lanka Institute of Nanotechnology. Member of the National Nano Committee and a member of several advisory Boards of the NSF. Mr. Hettiarachchy possess expertise in the fields of Process Design, Construction and Commissioning; Instrumentation and Control-Design, Installation and Commissioning; Mechanical Engineering, Thermal and Electrical Energy - Generation and Storage and Nano Technology.

A. C. S. Jayaranjan [FCA, FCMA (UK), CGMA]


Director Mr. A. C. S. Jayaranjan was appointed to the Board as an Independent Non-Executive Director in June 2010. He started his career as a professional at KPMG. Thereafter he has been working for thirty five years in the commercial and industrial sectors at senior managerial level. He was the Chief Accountant at James Finlay & Company PLC and Deputy Chief Executive Officer/ Executive Director Shaw Wallace & Hedges PLC. Mr. Jayaranjan then joined as the Group Finance Director of Pership Group and later joined John KeeIls Holdings PLC, as Senior Vice President, Head of Learning & Development. His experience covers diverse areas in commerce and industry.

10 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Agri-inputs

The lifeblood and substance of Lankem Ceylon PLC. With a market presence of over four decades, it is the undisputed market leader in this particular sector.

The lifeblood and substance of Lankem Ceylon PLC. With a market presence of over four decades, it is the undisputed market leader in this particular sector. Its commitment to diversification and dependability has gained it the trusted slogan Farmers Friend. Continuous partnerships with global agrochemical giants help foster development in crop protection solutions. The modernisation of the existing seeds facilities and the prospect of a new facility in Siripura further strengthen the companys presence in this domain. A range of eco-friendly products currently in the pipeline is an endorsement to the companys commitment to expansion.

Having broken new ground and ventured into the fertilizer sector during the last fiscal year the Company went through expansion in this area during the current year, with custom blends for plantation sector.

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Increase Express Accelerate Progress Diverse Expand Boost Broaden Growth

Increase
The modernisation of the existing seeds facilities and the prospect of a new facility in Siripura further strengthen the companys presence in this domain.

It has gained the trusted slogan Farmers Friend.

12 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Paints

Lankem Paints continuously strives to improve product and service quality in order to ensure that our products and services meet global standards.

Lankem Paints is one of the pioneer coatings manufacturers in Sri Lanka, with a culmination of two decade process of evolution and growth. Identified under the international brand name Robbialac, they are the first paint company in Sri Lanka to be awarded ISO 9001:2000 Quality Management Systems, ISO 14001:2004 Environment Management and SLS Product Quality. Making our presence felt in the Decorative Coatings, Auto Refinish, Wood Coatings, Epoxy Coatings, NC-based Coatings and Epoxy Adhesives segments. Today we have become the most sought after colour provider and operate nine Colour Studios and over 150 Pata Shops throughout the country. Operating in a very competitive market the division was able to increase its market share during the financial year and is further looking into the possibilities of expanding its operations into the South Asian region. Our partnership with ALCEA Italy to offer

water-based wood care solutions too was further strengthened during the year. Lankem Paints continuously strives to improve product and service quality in order to ensure that our products and services meet international standards. Plans are underway to increase its production capacity by way of investing in new machinery and infrastructure facilities during the next financial year which will enable them to meet customer demand and enhance its product quality.

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Increase Express Accelerate Progress Diverse Expand Boost Broaden Growth

Express
Operating in a very competitive market the division was able to increase its market share during the financial year.

Today we have become the most sought after colour provider.

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Chemicals

The successful completion of a semi-automated factory conforming to international standards during the current financial year will enable us to consistently provide high quality products to our clientele.

Lankems Chemicals Division comprises of three sections namely, Industrial Chemicals, Thinners, Food and Feed Ingredients. The Industrial section imports and trades in solvents, rubber chemicals, detergent raw materials and pigments while the Thinner section manufactures thinners and related products. The Food and Feed Ingredient section which is currently at its early stages imports and trades in food plus feed ingredients. The suppliers for the division span the Europe, India, China and USA to name a few. The successful completion of a semi-automated factory conforming to international standards during the current financial year will enable us to consistently provide high quality products to our clientele.

The division has embarked on product diversification strategies in order to supply a variety of products to its target customer segments, the introduction of Dupont Refrigerant gas has been key in these expansion efforts.

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Increase Express Accelerate Progress Diverse Expand Boost Broaden Growth

Accelerate
The division has embarked on product diversification strategies in order to supply a variety of products to its target customer segment.

The introduction of Dupont Refrigerant gas has been key in these expansion efforts.

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Bitumen

Lankem is the only public company actively involved in this sector and remains the preferred choice of many.

The Bitumen Division remains the most reputed 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. With the current emphasis on the rehabilitation and reconstruction this industry has shown significant development which is expected to continue in the future. Lankem is the only public company actively involved in this sector and remains the preferred choice of many. Research is currently been carried out to bring in new and innovative products into its portfolio. With a newly upgraded factory we foresee significant growth in the coming years.

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Increase Express Accelerate Progress Diverse Expand Boost Broaden Growth

Progress
We remain the most reputed supplier of emulsion and road surfacing bitumen in the country.

With a newly upgraded factory we foresee significant growth in the coming years.

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Consumer

This sector now includes the consumer and domestic trading operations of C. W. Mackie PLC, which has local and global flagship brands.

Lankems Consumer Division produces and distributes detergent powder and liquid, laundry soap, household cleansing products, dry cell batteries, pharmaceutical and personal care products, in both urban and rural areas. Investments were made for new machineries for the detergent powder manufacturing and teepol liquid bottling during the year under review. The division has recently invested in a laundry soap manufacturing plant, which will come into operation by the end of year 2012. This sector includes the consumer and domestic trading operations of C. W. Mackie PLC, which has local and global flagship brands such as Sunquick, Ovaltine, Star brand essences and colouring, Ocean Fresh Tuna and the Scan products range under its umbrella.

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Increase Express Accelerate Progress Diverse Expand Boost Broaden Growth

Diverse
The division has recently invested in a laundry soap manufacturing plant, which will come into operation by the end of year 2012.

This division has consumer segments from both urban and rural areas.

20 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Construction & Pest Control

Pest Management division continues to retain its position in the market with its highly effective pest control solution.

The Construction Division engages in Road Construction, Waterproofing, Industrial Flooring, Sport Court Flooring, Epoxy Flooring plus they undertake Painting. The Pest Management Division has been a formidable player in the industry for over two decades, engaging in termite and general pest control. Despite the challenges in the local construction industry, the Pest Management division continues to retain its position in the market with its highly effective pest control solution to corporate and institutional customers.

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Increase Express Accelerate Progress Diverse Expand Boost Broaden Growth

Expand
The Construction Division engages in Road Construction, Waterproofing, Industrial Flooring, Sport Court Flooring, Epoxy Flooring plus they undertake Painting.

Pest Management division continues to retain its position in the market.

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Plantations

Treading foreign soil, Kotagala Plantations has ventured into Cambodia, with operations to commence shortly.

Lankem Ceylon PLC owns and manages two regional plantation companies-Agarapatana Plantations Ltd. and Kotagala Plantations PLC. Kotagala Plantations PLC with its cultivation of high and low grown tea and rubber performed well in the current fiscal year with natural rubber yielding a high price in the market. Treading foreign soil, Kotagala Plantations has ventured into Cambodia, with operations to commence shortly. Agarapatana Plantations Ltd. with its cultivation of high grown tea in the Agarapatana and Uva tea growing districts had their operations challenged this year, due to high cost of production.

However, due to the currency devaluation the tea market has strengthned and improved prices are foreseen.

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Increase Express Accelerate Progress Diverse Expand Boost Broaden Growth

Boost
Kotagala Plantations PLC with its cultivation of high and low grown tea and rubber performed well in the current fiscal year.

We foresee this sector as been resilient in the next financial year.

24 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Leisure

Our newest acquisition Galle Fort Hotel was adjudged Sri Lankas Leading Boutique Hotel at the 2010 World Travel Awards.

This sector has been the turnaround division in the year under review. With a profile including Club Palm Bay operated by Marawila Resorts PLC, Sigiriya Village owned and operated by Sigiriya Village Hotels PLC, The Palms Beruwala operated by Beruwala Resorts Ltd, Bay Beach Hotel Weligama owned by B. O. T Hotel Services (Pvt) Ltd. and our newest acquisition Galle Fort Hotel. Club Palm Bay and Sigirya Village got a makeover during the current year and this enables it to cater better to the ever expanding tourist/local market. The Palms in Beruwela was refurbished and is operating at full potential while Bay Beach Hotel has plans for refurbishment to upgrade the service levels.

Galle Fort Hotel is the recent addition in the leisure sector. Situated in the fortified city of Galle, renowned as a UNESCO World Heritage Site, Galle Fort Hotel was adjudged Sri Lankas Leading Boutique Hotel at the 2010 World Travel Awards. The group is looking into further expansion in this niche market.

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Increase Express Accelerate Progress Diverse Expand Boost Broaden Growth

Broaden
This sector has been the turnaround division in the year under review.

Galle Fort Hotel is the recent addition in the leisure sector.

26 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Agriculture, Crop And Livestock Production

Other varieties of fruit and vegetation are been trialed as pilot projects which once deemed successful may expand into commercial scale

The company has diversified into the areas of agriculture, crops and livestock production through its subsidiaries SunAgro Farms Ltd. and Associated Farms (Pvt.) Ltd. SunAgro pioneered the cultivation of Asparagus in Sri Lanka which has now developed to commercial cultivation in Puttalam. Other varieties of fruit and vegetation are been trialed as pilot projects which once deemed successful may expand into commercial scale.

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Increase Express Accelerate Progress Diverse Expand Boost Broaden Growth

Growth
The company has diversified into the areas of agriculture, crops and livestock production.

SunAgro pioneered the cultivation of Asparagus in Sri Lanka.

28 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Financial Review
Overview
The year 2011/12 was a challenging year for Lankem Ceylon PLC Group due to the volatile economic environment. In spite of difficult trading conditions the Company managed to record a growth in both revenue and profitability during the financial year. The Group recorded a revenue growth while the profitability dipped during the year under review.
Rs. Bn.

Group Revenue
(Quarterly Wise)
10 8 6 4 2 0
Q1 Q2 Q3 Q4

Revenue Analysis
Lankem Ceylon PLC Group reported a Consolidated Revenue of Rs. 24.12 Billion. for the year under review compared to a Revenue of Rs. 23.03 Billion. during the previous year. This resulted in a growth of Group Revenue by 4.72% year-on-year and an average growth rate of 24.89% over the last five years.

Group Revenue
Rs. Bn.

07/08 10/11

08/09 11/12

09/10

30 25 20 15 10 5 0
07/08 08/09 09/10 10/11
11/12

The main contributors to the Group Revenue are the Hardware sector followed by Plantation, Consumer, and Chemical sectors.

Segmental Contribution to Group Revenue 2011/12

20%

25%

The Revenue attributable to the Company was Rs. 5.78 Billion. compared to Rs. 4.90 Billion. achieved during the previous year. The Company Revenue grew on a year-on-year basis by 17.83% and recorded an average growth rate of 13.80% over the last five years.

25% 27% 3% Consumer Hardware Hotel Plantations Chemicals

Company Revenue
Rs. Bn.

10.0

Following the consolidation of C. W. Mackie PLC and its subsidiaries, the Lankem Ceylon Group recorded a commendable performance in the Hardware and Consumer segments. Consequently the Hardware sector Revenue grew by 19.65% which accounts for 27% in the Group Revenue representing a Revenue of Rs. 7.19 Billion. as compared to Rs. 6.01 Billion. during the previous year. The Revenue performance of this sector was attributable to increased volumes, thus leading to an increase in market share. The depreciation of Sri Lankan Rupee against US Dollar also boosted the export business.
07/08 08/09 09/10 10/11
11/12

7.5

5.0

2.5

0.0

Due to the volatility in the commodity prices, the Plantation sector reported a Revenue of Rs. 6.76 Billion. for the year under review compared to Rs. 9.88 Billion. the previous year. This sector Revenue accounts for 25% to the Group Revenue this year as opposed to 39% for the previous financial year.

| 29

Consumer sector recorded a robust growth of 57.79% which accounts for 25% of the Group Revenue. Consumer sector Revenue grew to Rs. 6.56 Billion. which was mainly due to the excellent performance of C.W Mackie PLCs domestic FMCG business. The Chemical sector also witnessed a growth of 19.74%, recording a Turnover of Rs. 5.16 Billion. compared to previous year Revenue of Rs. 4.31 Billion. Some of the business activities falling under this segment showed impressive growth, whilst the agro cluster had a very challenging year. This was due to erratic weather conditions coupled with the misleading information spread among the farmer community and general public about the safety of crop protection solutions marketed by the industry players.

Finance Costs
The fall in operating profits along with the increase in interest rates nearly by 400 basis points during the year under review, the Group witnessed the interest cover plunging to 4.53 times from 5.66 times.

Finance Cost and Interest Cover Ratio


Rs. Mn Times

500 400 300

6 5 4 3

Segmental Revenue Performance


Rs. Mn

200 2 100 0 1 0
07/08 08/09 09/10 10/11

10 8 6 4 2 0
Plantation Hardware Chemicals Consumer Hotel

11/12

Finance Cost

Interest Cover

Financial and Liquidity Position


Non-Current Assets Position The total non-current assets increased by 21.67% from Rs. 9.68 Billion. to Rs. 11.77 Billion. during the year under review due to the capital expenditure incurred by the Group. Property Plant & Equipment for the Group which is the major component of the non-current assets amounted to Rs. 9.69 Billion. as at 31st March 2012.

2010/11

2011/12

Profitability
The Group achieved a post-tax profit of Rs. 1,232.26 Million for the financial year under review. The profitability of the Hotel sector and C. W. Mackie Group increased while the Plantation sector, showed a dip during the year under review. The post-tax profit of the Company increased to Rs. 730.26 Million during the year compared to Rs. 575.20 Million in the previous year. This represents a growth of 26.96% year-on-year.

Property Plant and Equipment


Rs. Mn

10,000 8,000 6,000

Group & Company Profit After Tax


Rs. Mn.

4,000 2,000 0
07/08 08/09 09/10 10/11
11/12

2,000 1,600 1,200 800 400 0


07/08 08/09 09/10 10/11
11/12

Group

Company

30 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Financial Review
Working Capital
The Groups working capital investment decreased during the financial year to Rs. 1,090.92 Million. from previous years Rs. 2,084.73 Million. Hence the current ratio declined from 1.37 to 1.13, whilst quick asset ratio dipped from 0.94 to 0.83.

Cash Flow & Profit After Tax


Rs. Mn

2,000

Capital Structure
The Groups Debt as a percentage of the total Capital is 52% whilst the Equity component accounted to 48% during the year under review as opposed to previous years debt and equity percentages of 46% and 54% respectively. During the financial year the Company raised additional funds by way of an issue of Rated Unsecured Unlisted Redeemable Debentures of Rs. 200 Million. at the rate of AWPLR+1%. The purpose of this issue was to meet the working capital requirements. During the financial year the Group obtained additional interest bearing long term and short term borrowings by way of term loans, finance leases and debentures amounting to Rs. 1.45 Billion, whilst settling amounts worth of Rs. 1.19 Billion. interest bearing term loans, finance leases and redemption of debentures.

1,500

1,000

500

0
07/08 08/09 09/10 10/11

11/12

Net Cash Flow- Operating Activities Profit after Tax

Share Performance
The All Share Price Index (ASPI) of the Colombo Stock Exchange (CSE) for the financial year ended 31st March 2012 had decreased by 27% to 5,420 points. The closing share price of Lankem Ceylon PLC (LCEY) was Rs. 180 at the end of the financial year ended 31st March 2012 representing a drop of 56% over the previous year. The total market capitalization of Lankem Ceylon PLC as at 31st March 2012 stood at Rs. 4.32 Billion.

Capital Structure 2011/12

Lankem Share Price & Volume Movement


52% 48%
Rs. In000

600 500 400

400 350 300 250 200 150 100

Equity

Debt

300 200 100 0

Cash Flow
The Groups net cashflows from operating activities increased to Rs. 1,127.31 Million from the previous years amount of Rs. 593.06 Million, representing an increase of 90.1% year-on-year. This was partly attributable to the decrease of inventory from the Plantation sector.

50 0

1-Apr-11 12-Apr-11 27-Apr-11 9-May-11 20-May-11 31-May-11 9-Jun-11 21-Jun-11 30-Jun-11 11-Jul-11 21-Jul-11 1-Aug-11 10-Aug-11 19-Aug-11 30-Aug-11 9-Sep-11 21-Sep-11 30-Sep-11 13-Oct-11 24-Oct-11 4-Nov-11 21-Nov-11 30-Nov-11 12-Dec-11 21-Dec-11 2-Jan-12 12-Jan-12 24-Jan-12 2-Feb-12 15-Feb-12 27-Feb-12 9-Mar-12 20-Mar-12 30-Mar-12

Share Price

Volume

| 31

Relative Performance of ASPI and LCEY


%

Dividends
Directors of Lankem Ceylon PLC have recommended a first and final dividend of Rs. 2.50 per share for the year ended 31st March 2012. This represents a dividend payout of 10.86% and a dividend yield of 1.39%.

160 140 120 100 80 60 40 20 0


1-Apr-11 22-Apr-11 13-May-11 3-Jun-11 24-Jun-11 15-Jul-11 5-Aug-11 26-Aug-11 16-Sep-11 7-Oct-11 28-Oct-11 18-Nov-11 9-Dec-11 30-Dec-11 20-Jan-12 10-Feb-12 2-Mar-12 23-Mar-12

Dividend Per Share & Dividend Yield


Rs. %

2.5 2.0 1.5 1.0 0.5

8 7 6 5 4 3 2 1

ASPI - Based on 1/4/2011 Index Value LCEY- Based on 1/4/2011 Prices

The Earnings Per Share (EPS) of Lankem Ceylon PLC Group decreased from Rs. 47.16 to Rs. 23.01 due to the drop in the Group profitability. The Net Asset Value Per Share of the Group improved to Rs. 162.60 from Rs. 135.84.

0.0
07/08 08/09 09/10 10/11

0
11/12

Dividend Per Share

Dividend Yield

Earnings Per Share & Net Assets Per Share


Rs.

200

150

100

50

0
07/08 08/09 09/10 10/11

11/12

EPS

NAV

32 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Corporate Social Responsibility


Lankem continued its endeavors in uplifting the community and the environment as a whole through its profound CSR vision. Being a mature corporate citizen we believe it is more than a corporate philanthropy. Improving the quality of life in our community, enhancing the living standards of our human resources and ensuring environmental safety, whilst incorporating the best social values and ethical practices in every aspect and at every level of business within the Group. In view of upgrading the health conditions of the local community we continued our social responsibility by providing disposable garbage barrels to schools, military camps and NGOs to encourage effective disposal of waste in urban and suburban areas in order to keep the environment safe and clean.

Environment
Since the Company is involved in working with hazardous chemicals, we continued to conduct regular awareness programmes for school children and farmers on the use of pesticides and other harmful chemicals to minimize environmental damage. Ascertaining our footprint as a corporate citizen with a sound environmental philosophy, we were successful in receiving ISO 9001:2008 for Quality Management Systems, ISO 14001:2004 for Environmental Management Systems, OHSAS 18001:2007 Certification for Occupational Health and Safety for our production facility and SLSI Product Quality Certification for our products. At Kotagala Plantations, most of its tea factories have implemented and met the requirements of the new national standards of ISO 22000:2005 which is obtained for food safety management system. The Drayton Estate was awarded with ISO 9001:2008 and ISO 22000:2005 certifications for the manufacture of black tea. Further Kotagala Plantations PLC was awarded the Forest Stewardship Council (FSC) certification for the period 1st July 2011- 30 June 2016, subject to annual surveillance audits. We are among the very few plantation companies to successfully establish, and manage our rubber properties and the forest areas in tea estates on par with the international standards specified by FSC.

Community
In our journey as a caring community partner, we associated with various stakeholders comprising of multi-ethnicities, demographies and social clusters. Our integrated sustainability policy is a proactive strategy which addresses the long term value of our shareholders. During the financial year we donated equipment to the Retinal Clinic of the National Eye Hospital in order to attend to their immediate and vital needs. These equipments included three slitlamps and an auto-refractor. In addition we also undertook the refurbishment of the clinic and the retinal ward by adding a fresh new coat of paint, replacement of new air conditioner units, fans and ceiling lights. We continued our patronage with Ability Foundation a not for profit organization, engaged in empowering and enabling people with intellectual disabilities. Special resource personnel were brought in to carry out various training and awareness building sessions along with follow up visits in the Ampara district. Individuals with Autism Spectrum Disorder (ASD), Attention Deficit Hyperactivity (ADHD), Cerebral Palsy, Down syndrome, and other mental health problems were assessed and recommendations were made to facilitate improvement. In addition to the work conducted at the locations, our team visited the homes of patients who could not attend the health programmes due to varied reasons, one of such been transportational hazards. Lankem Ceylon collaborated with Lend-A-Hand Fund Foundation in donating and distributing of school books, bags and other school supplies to more than 800 rural children islandwide. We were priviledged in participating in the maintenance and upkeep of our religious and traditional heritage, by continuing our commitment to paint 100 religious places of worship, those of which included the Sri Dalada Maligawa, Madu Church, Bellanvilla Temple and Vishnu Devalaya. We futher extended our support and commitment to colour wash and upgrade the recreational facilities for few schools, such as Samudradevi Vidyalaya Nugegoda and Kingswood College Kandy. Furthermore initiatives were taken in the painting of the Cancer Hospital, Lady Ridgeway Hospital and public places such as Railway and Police Stations.

Employees
The Company believes that its strength is in its people and their contribution is the key factor to its growth. The companys commitment towards the wider society is recognized and accepted by its employees at all levels. As an equal opportunity employer we ensure that employees are not discriminated based on gender, cast or creed. Due to the high level of involvement in hazardous chemicals, extensive training is provided to all employees at factory level on health and safety measures together with knowledge on the composition of the chemicals. Fully equipped medical centers are maintained at factories with full time professional nurses. Routine Cholinesterase tests are carried out to identify possible chemical contaminations of the production floor staff. We believe that long term investment in training will not only benefit the Company through the creation of a more competitive and skilled workforce, but will also enable our employees to pursue better careers and lifestyles in the future.

| 33

These programmes focus on soft skills, such as leadership and management training, as well as technical capabilities. Looking into the physical and social wellbeing of the employees the Company has further provided opportunities for the workforce to participate in workshops on leadership and sporting events, some of which are organised by the Sports and Social Activities Committee. At Kotagala Plantations, welfare activities pertaining to welfare such as health, child care, skill development, sports, recreational activities were conducted during the year. Workshops were also organized by the Department of Labour on Protection of Labour Rights and Protection of Child rights at their Endurugala Estate. A Dengue Prevention Programme was held to create awareness among the workers, and subsequently followed by a shramadana which was conducted to destroy the breeding grounds of the dengue mosquitoes. In addition Kotagala Plantations, with the assistance of the Ministry of Livestock & Rural Community Development and the Plantation Human Development Trust (PHDT) took initiatives towards the provision of better facilities on improving the living standards of the estate workers.

34 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

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 2012. 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. acquisitions/disposals to the Board in compliance with Section 200 of the Companies Act No. 07 of 2007. Details pertaining to Directors direct and indirect Shareholdings are given below: No. of Shares As at As at 31.03.2012 31.03.2011 Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam Mr. D. L. Vitharana Mr. R.N. Bopearatchy Mr. N. H. B. S. Perera Mr. K. P. David Mr. A. R. Peiris Mr. R. T. Weerasinghe Mr. A. Hettiarachchy Mr. A. C. S. Jayaranjan Mr. J. D. Gomes 12,298 5,132 39,204 12,150 2,935 7,000 12,198 5,132 5,403 8,150 5,435 3,500 -

General
The Company was re-registered on 18th March 2008 as required under the Companies Act No. 07 of 2007.

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 Companys business and its performance during the year with comments on financial results and future prospects is contained in the Chairmans Message, Business Review and 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.

Corporate Donations
Donations made by the Group amounted to Rs. 438,000/- during the year under review. (2010/11- Rs. 99,000/-)

Financial Statements
The Financial Statements of the Group are given on pages 48 to 115.

Auditors Report
The Auditors Report on the Financial Statements is given on pages 46 and 47.

Directorate
The names of the Directors who held office during the financial year are given below. Brief profiles of these Directors appear on pages 8 and 9. Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam Mr. D. L. Vitharana Mr. R. N. Bopearatchy Mr. N. H. B. S. Perera Mr. K. P. David Mr. A. R. Peiris Mr. R. T. Weerasinghe Mr. A. Hettiarachchy Mr. A. C. S. Jayaranjan Mr. J. D. Gomes Chairman Deputy Chairman Managing Director Director/Chief Operating Officer Director Director Director Director Director Director Director Director

Accounting Policies
The Accounting Policies adopted in the preparation of the Financial Statements are given on pages 53 to 59. 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 2007. Arising from this, details of contracts in which they have an interest are disclosed in Note 29 to the Financial Statements on pages 96 to 109.

Directors Remuneration
The Directors remuneration in respect of the Group for the financial year 2011/12 is Rs. 96.90 Million (2010/11 - Rs. 75.86 Million) and in respect of the Company for the financial year 2011/12 is Rs. 90.12 Million (2010/11 - Rs. 71.12 Million).

Mr. S. Rajaratnam was appointed Alternate Director to Mr. A. Rajaratnam with effect from 29th March 2012. In terms of Articles 85 and 86 of the Articles of Association, Mr. A. Hettiarachchy retires by rotation and being eligible offers himself for re-election. Mr. N. H. B. S. Perera, Director, being over seventy years of age retires and offers himself for reappointment under and by virtue

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

| 35

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

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 17 and 18 to the Financial Statements on pages 76 to 80.

Property, Plant & Equipment


During 2011/12 the Group invested Rs. 1,548.95 Million in Property, Plant & Equipment (2010/11 - Rs. 1,305.70 Million). 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 2012.

Auditors
The Financial Statements of the Company for the year have been audited by Messrs KPMG Chartered Accountants. The retiring auditors who have expressed their willingness to continue as Auditors of the Company and are recommended for reappointment. A resolution to reappoint them and to authorise the Directors to determine their remuneration will be proposed at the Annual Genaral Meeting. The Auditors, Messrs KPMG Chartered Accountants were paid Rs. 8.84 Million during the year under review (2010/11- Rs. 7.18 Million) as audit fees and fees for audit related services by the Group. In addition, they were paid Rs. 0.19 Million (2010/11- Rs. 0.47 Million) by the Group for non-audit related work, which consisted mainly of tax related work. In addition to the above, Group companies are engaged with other audit firms. Audit fees in respect of these firms amounted to Rs. 4.36 Million during the year under review (2010/11- Rs. 4.69 Million). Further, the fees for non-audit related services by these audit firms during the year 2011/12 was Rs. 2.33 Million.(2010/11-Rs. 0.04 Million) 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.

Stated Capital
The stated capital of the Company as at 31st March 2012 was Rs. 536,218,000/- and is represented by 24,000,000 issued and fully paid Ordinary Shares.

Reserves
The total Group Reserves as at 31st March 2012 comprised Revaluation Reserves of Rs. 439.82 Million, Capital Redemption Reserve Rs. 8.33 Million, Other Capital Reserves Rs. 22.50 Million, General Reserves of Rs. 305.95 Million and Retained Earnings Rs. 2,589.52 Million whereas the total Group Reserves as at 31st March 2011 comprised Revaluation Reserves of Rs. 462.09 Million, Capital Redemption Reserve Fund of Rs. 8.33 Million, Other Capital Reserves of Rs. 22.50 Million, General Reserves of Rs. 305.95 Million and Retained Earnings of Rs. 1,924.97 Million. The movements are shown in the Statement of Changes in Equity in the Financial Statements.

Taxation
The Groups 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 6 and 10 to the financial statements on pages 60 and 62 to 64.

Revenue
The revenue of the Group for the year was Rs. 24,118 Million (2010/11-Rs. 23,031 Million).

Results
The Group made a profit before tax of Rs. 1,531 Million against a profit of Rs. 2,109 Million in the previous year. The detailed results are given in the Income Statements on page 48.

Share Information
Information relating to earnings, dividend, net assets, market value per share and share trading is given on pages 65, 117 and 118.

Dividends
The Board of Directors have recommended the payment of a first & final Dividend of Rs. 2.50/- per share on the ordinary shares of the Company for the year ended 31st March 2012 for approval by the shareholders at the Annual General Meeting to be held on 28th June 2012. The Directors have confirmed that the Company satisfies the solvency test requirement under Section 56 of

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 34 on page 114.

36 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Annual Report of the Board of Directors


Capital Commitments and Contingent Liabilities
Capital commitments and contingent liabilities as at the Balance Sheet date are disclosed in Notes 30 and 31 on pages 110 to 111. 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 Companys 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

Employment Policy
The Companys 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 Companys 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 and are up to date. R. N. Bopearatchy Director By Order of the Board K. P. David Director

Environmental Protection
The Companys business activities can have direct and indirect effects on the environment. It is the Companys policy to minimize 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.

Corporate Managers & Secretaries (Private) Limited Secretaries Colombo 30th May 2012

Internal Control
The Directors acknowledged their responsibility for the Companys 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.

| 37

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 todays 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 compliance with a majority of the good corporate governance practices listed in 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. The number of meetings of the Board and the individual attendance by members is shown below : Total number of Meetings held 9 Name of Director Mr. A. Rajaratnam Directorship Status Chairman Non-Executive Board Meetings Attended 4/9 9/9 6/9 8/9 8/9 8/9 9/9 9/9 9/9 6/9 9/9 3/9

Mr. S. D. R. Arudpragasam Deputy Chairman Non-Executive Mr. Anushman Rajaratam Managing Director Executive Mr. D. L. Vitharana Mr. R. N. Bopearatchy Mr. N. H. B. S. Perera Mr. K. P. David Mr. A. R. Peiris Mr. R. T. Weerasinghe Mr. A. Hettiarachchy Mr. A. C. S. Jayaranjan Mr. J. D. Gomes Chief Operating Officer/Executive Executive Independent Non-Executive Executive Executive Executive Independent Non-Executive Independent Non-Executive Independent Non-Executive

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 the Chairman, Deputy Chairman, Managing Director, Chief Operating Officer and eight 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. K. P. David Mr. A. R. Peiris Mr. R. T. Weerasinghe Mr. A. Hettiarachchy Mr. A. C. S. Jayaranjan Mr. J. D. Gomes

Non-Executive Non-Executive Executive Executive Executive Independent Non-Executive Executive Executive Executive Independent Non-Executive Independent Non-Executive Independent Non-Executive

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. Overseeing the effectiveness of the internal control systems and proactive risk management system. Ensuring 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.

The Board meets regularly and has met nine times during the year under review. In addition to Board Meetings, matters are referred to the Board and decided by resolutions in writing.

38 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Corporate Governance
Approval and review of the succession planning of the Board 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. Company Secretary and Independent Professional Advice Lankem Ceylon PLC and all the Directors seek advice from Corporate Managers & Secretaries (Private) Ltd, who are qualified to act as Secretaries as per the provisions of the Companies Act No. 07 of 2007. In addition, the Board seeks professional advice as and when, and where necessary from independent external professionals. Independent Judgement The Board of Directors as a whole and individually 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 Chairmans Role The Chairman oversees good governance of the Companys 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 Companys affairs. 1.4 Financial Acumen The Board includes seven finance professionals who possess the knowledge to offer the Board the necessary guidance on matters relating to finance. 1.5 Board Balance The Board comprises of six Non-Executive Directors of whom four are Independent and six Executive Directors. The Non-Executive Directors have submitted their declarations of their Independence or Non- Independence to the Board. Mr. N. H. B. S Perera has served on the Board for more than nine years and is a Director on the Board of the Ultimate Parent Company and also serves on the Boards of certain subsidiary companies. However, the Board after taking into consideration all other circumstances listed in the Rules pertaining to the Criteria for Defining Independence is of the opinion that Mr. N. H. B. S Perera is nevertheless Independent. 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. Monthly Accounts and key financial parameters and performance of each division are discussed and necessary action is taken. 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 and in compliance with rules on Governance. 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 functions as the Companys Remuneration Committee. 2.2 Disclosure of Remuneration Aggregate remuneration paid to Directors is disclosed in Note 29 to the Financial Statements on page 109.

3.

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 an effective dialogue between the two parties. Opportunities are available to shareholders to raise questions

| 39

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 2007. 3.2 Major Transactions Lankem Ceylon PLC publishes its Annual Report together with 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.

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 34 to 36 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 Companys financial position and resources. Therefore, the going concern principle has been adopted in the preparation of these Financial Statements. The Auditors Report on Financial Statements is given on pages 46 and 47 containing the Auditors reporting responsibility. Non-financial information of business segments is given on pages 10 to 27. 4.2 Internal Controls The Board of Directors takes overall responsibility for the Companys internal control system. A separate Audit and Compliance Section has been established to review the effectiveness of the Companys internal controls in order to ensure reasonable assurance that assets are safeguarded and all transactions are properly authorised and recorded. 4.3 Audit Committee The Audit Committee was reconstituted on 23rd August 2011. The Audit Committee report is set out on pages 42 to 43 of this report.

40 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Risk Management Review


Risk management involves identifying potential risk exposure faced by the Company and implementing proper risk management techniques to mitigate such risks. A disciplined approach to risk management is important in order to ensure successful execution of strategic objectives and to express our acceptance towards risk management for which we have adequately compensated for. The Lankem Board of Directors has overall responsibility for risk oversight with a focus on the most significant risks facing the Company. We consider risk management as a vital component in our operations and build upon managements risk assessment and mitigation processes, which include standardised reviews of long-term strategic and operational planning; executive development and evaluation; regulatory and litigation compliance; health, safety and environmental compliance; financial reporting and controls; and information technology and security. The Company has established appropriate internal control systems and other risk mitigation techniques to ensure the delivery of shareholder wealth and to meet its obligations to other stakeholders. Company selects only reliable distributors who are able to honor their debts. 3.2. Market Risk Management Market risk refers to the risk arising from the volatilities in market forces. The Company faces market risk in the financial sphere in terms of the local rates of interest, inflation and exchange rate. In the current 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 has a hand in does not allow any increases to be passed on to the end consumer. 3.2.1. Foreign Exchange Risk The Company 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 fluctuations in foreign exchange rates. This results in the transaction risk for the Company. The Company 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 was able to minimise any adverse impact.

1.

Strategic Risk

Strategic risk relates to the Companys future business plans and strategies, including the risks associated with the markets and industries in which we operate, demand for our products and services, competitor threats, technology and product innovation, mergers and acquisitions and public policy.

2.

Operational Risk

Operational risk relates to the risk arising from execution of business operations. The Company 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. The Company is in the process of strengthening its controlling and monitoring processes while providing more prominence to the Compliance Department to ensure smooth functioning in all operations.

3.2.2. Interest Rate Risk The funding of a large proportion of the operations of Lankem Ceylon PLC is via debt. The Company continuously restructure its debt portfolio in a manner to minimize 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. 3.2.3. Inflation Rate Risk The Company serves both individuals and institutional clients. Upward movements in inflation will mainly deteriorate the purchasing power of both sets of customers. This will reduce the potential demand for Company products and increase the Companys cost base. The Company closely monitors fluctuations in price levels and focuses on the efficient management of its cost base so as to ensure minimal increase in price to customers. 3.2.4. Liquidity Risk Due to the nature of the businesses that the Company 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. The Company implements effective credit control policies to ensure collection from debtors and the obligations to its creditors are met on time.

3.

Financial Risk

Financial risk covers the broad area of risk and mainly incorporates credit risk and market risk stemming from business operations. 3.1. 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 economic conditions that prevailed in 2011/12, The Company has provided its customers with fair credit periods to facilitate a smooth flow in operations. The Company implements proper credit controls and debt collection policies to ensure that the

| 41

3.2.5. 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 ascertains 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. Moreover suitable feedback controls are implemented to rectify any issues that may arise as well as feed forward controls are established to deter the reoccurrences of adverse variances.

4.

Business Risk

New entrants into the markets that Lankem is already present and the intensification of competition from existing players in these 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 operate in is also considered to be a source of business risk.

5.

Counterparty Risk

The Group may be exposed to the risk of losses on cash and other financial instruments held or managed on its behalf by financial institutions, in the instance that its counterparties defaults on their obligations. The Group policy is to limit its exposure by dealing solely with leading counterparties and monitoring their credit ratings.

6.

Industrial and Environmental Risks

The Group may be exposed to capital costs and environmental liabilities as a result of its past, present or future operations. The main industrial and environmental risks result from the storage of chemicals at certain sites and the waste generated from production process. These risks are predominantly managed by obtaining certifications and new methods through research and development subject to specific legislation and close supervision by the relevant authorities.

7.

Legal and Compliance

The Company addresses this area with great concern in order to protect its corporate image. Legal and compliance risk relates to changes in the Government and regulatory environment, compliance requirements with policies and procedures, including those relating to financial reporting, environmental health and safety and intellectual property risks. Government and regulatory risk is the risk that the government or regulatory actions will cause us to have to change our business models or practices.

42 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Audit Committee Report


The Audit Committee has the responsibility of assisting the Board in fulfilling its overall responsibility to the shareholders in relation to the integrity of the Companys financial reporting process in accordance with the Companies Act and other legislative reporting requirements including the adequacy of disclosures in the financial statements in accordance with the Sri Lanka Accounting Standards. The Audit Committee also has responsibility to ensure that the internal controls of the Company are in accordance with legal and regulatory requirements. The Committee evaluates the performance and the independence of the Companys external audit functions. The Companys Secretaries, Corporate Managers & Secretaries (Private) Limited function as the Secretaries to the Audit Committee.

Meetings and Attendance


The Audit Committee has met on six occasions during the financial year ended 31st March 2012. The attendance of the former Audit Committee was as follows: Mr. R. Seevaratnam Chairman Mr. A. M. de S. Jayaratne Mr. R. Senathirajah Mr. A. C. S. Jayaranjan 2/2 2/2 1/2 2/2

Composition
The Audit Committee of Lankem Ceylon PLC (LCPLC) until August 2011, comprised of members of the Audit Committee of The Colombo Fort Land & Building Company PLC (CFLB) (Ultimate Parent Company) and an Independent Non Executive Director of Lankem Ceylon PLC (LCPLC). The names of the members are set out below: Mr. R . Seevaratnam - Chairman (Independent, Non - Executive Director CFLB) Mr. A. M. de S. Jayaratne - Member (Independent, Non - Executive Director CFLB) Mr. R. Senathirajah - Member (Non Executive Director CFLB) Mr. A. C. S. Jayaranjan - Member (Independent, Non - Executive Director (LCPLC) The Audit Committee was reconstituted on 23rd August 2011, and comprise of two Independent Non Executive Directors of Lankem Ceylon PLC (LCPLC) an Independent Non Executive Director of E.B. Creasy & Company PLC (EBC) (Parent Company) and an Independent Non Executive Director of The Colombo Fort Land & Building Company PLC (CFLB) (Ultimate Parent Company) . The Names of the members are given below : Mr. A. C. S. Jayaranjan - Chairman (Independent, Non Executive Director (LCPLC) Mr . A. Hettiarachchi (Independent, Non Executive Director (LCPLC) Mr. A. R. Rasiah (Independent, Non Executive Director (EBC) Mr. A. M. de S. Jayaratne (Independent, Non Executive Director CFLB) The Committee has a blend of experience in the commercial sector, financial expertise with high standing of integrity and business acumen in order to carry out their role effectively and efficiently.

Since being reconstituted in August 2011, the attendance of the present Audit Committee was as follows: Mr. A. C. S. Jayaranjan Chairman Mr. A. Hettiarachchy Mr. A. R. Rasiah Mr. A. M. de S. Jayaratne 4/4 4/4 4/4 4/4

Other members of the Board and the Management Committee, as well as the External Auditors were present at discussions where appropriate. The proceedings of the Audit Committee are regularly reported to the Board of Directors.

Terms of Reference
The Committee is governed by the specific terms of reference set out in the Audit Committee Charter. The Committee focuses on the following objectives in discharging its responsibilities taking into consideration the terms of reference together with the requirements of the Listing Rules of the Colombo Stock Exchange. (a) Risk Management (b) Efficiency of the system of internal controls (c) Independence and objectivity of the external (statutory) Auditors (d) Appropriateness of the principal accounting policies used (e) Financial Statement integrity

Compliance
During the year under review, the Committee has assisted the Board in ensuring compliance with the statutory provisions prior to publication of Interim Financial Statements and the Annual Report. The Committee has taken necessary measures to ensure that Interim Financial Statements and the Annual Report are timely published and they are prepared and presented in accordance

| 43

with the Sri Lanka Accounting Standards and also in compliance with the Companies Act and the regulatory requirements. The Committee has assessed the adequacy of existing control and risk management procedures and recommends to the Board, additional controls and risk mitigating strategies that could be implemented to strengthen the existing internal control system. Further, the Committee has reviewed the routine operations of the Company and assessed the future prospects of its business operations and accordingly makes sure that the going concern assumption used in the preparation of the financial statements, is appropriate.

External Audit
The Company has appointed KPMG, Chartered Accountants, as its External Auditors for the financial year ended 31st March, 2012 and the services provided by them are segregated between audit/ assurance services and other advisory services. The Committee has reviewed the progress and the conduct of the statutory audit function and discussed the audit-related issues with the Auditors. KPMG Chartered Accountants has also issued a declaration as required by the Companies Act No. 07 of 2007, that they do not have any relationship or interest in any of the companies in the Group, which may have a bearing on the independence of their role as Auditors. The Committee after evaluating the independence and performance of the External Auditors, has recommended to the Board the reappointment of KPMG, Chartered Accountants, for the financial year ending 31st March, 2013 subject to the approval of the Shareholders at the Annual General Meeting of the Company.

A. C. S. Jayaranjan Chairman Audit Committee 30th May 2012

44 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Audit Committee Report Independent Auditors Report Income Statement Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements Statement of Value Added Share Information Ten Year Summary

42 46 48 49 50 51 53 116 117 119

| 45

Strengthening our position


FINANCIAL INFORMATION

46 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

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 Company, the consolidated financial statements of the Company and its subsidiaries as at 31st March 2012 which comprise the balance sheet as at 31st March 2012, 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 48 to 115 of the Annual Report. Managements Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Scope of Audit and Basis of Opinion Our responsibility is to express an opinion on these Financial Statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion. Opinion Company (a) The Company has not provided for impairment of the carrying amount of the investments in Lankem Development PLC and SunAgro Farms Limited as at the reporting date as explained in Note 17.3 to these Financial Statements. (b) The Company has not provided for impairment of the amounts due from Colombo Fort Hotels Limited, Associated Farms Limited, SunAgro Farms Limited, Lankem Consumer Products Limited and Lankem Development PLC as at the reporting date as explained in Note 29.3 to these Financial Statements. In our opinion, so far as appears from our examination, except for the effects on the Financial Statements of the matters referred to the aforesaid paragraphs (a) and (b); the Company maintained proper accounting records for the year ended 31st March 2012 and the Financial Statements give a true and fair view of the Companys state of affairs as at 31st March 2012 and its profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

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Group In our opinion, the consolidated Financial Statements give a true and fair view of the state of affairs as at 31st March 2012 and the profit and cash flows for the year then ended, in accordance with Sri Lanka Accounting Standards, of the Company and its subsidiaries dealt with thereby, so far as concerns the shareholders of the Company. Emphasis of Matters Without qualifying our opinion we draw attention to Note 33 to these Financial Statements regarding matters that may cast significant 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 2007.

CHARTERED ACCOUNTANTS 30th May 2012 Colombo

48 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Income Statement
Group For the year ended 31st March Note Revenue Cost of Sales Gross Profit Other Income Distribution Cost Administrative Expenses Other Expenses Net Finance Cost Profit before Tax Income Tax Expense Profit for the Year Attributable to: Equity Holders of the Parent Minority Interest 7 6 2012 Rs. 000 24,117,751 (20,317,557) 3,800,194 788,385 (1,008,754) (1,554,432) (60,734) (433,589) 1,531,070 (298,810) 1,232,260 2011 Rs. 000 23,030,604 (18,806,358) 4,224,246 460,802 (826,738) (1,288,336) (8,479) (452,931) 2,108,564 (236,815) 1,871,749 2012 Rs. 000 5,778,255 (4,838,809) 939,446 534,264 (338,881) (174,549) (57,945) (191,978) 710,357 19,906 730,263 Company 2011 Rs. 000 4,903,869 (3,912,463) 991,406 101,072 (338,997) (109,226) (114,007) 530,248 44,952 575,200

8 9 10

552,210 680,050 1,232,260

1,131,106 740,643 1,871,749 47.16 2.50

730,263 730,263 30.43 2.50

575,200 575,200 23.98 2.50

Earnings per Share (Rs.) Dividend per Share (Rs.)

11 12

23.01 2.50

The Notes from pages 53 to 115 form an integral part of these Financial Statements. Figures in brackets indicate deductions.

| 49

Balance Sheet
Group
As at 31st March Note 2012 Rs. 000 2011 Rs. 000 2012 Rs. 000

Company
2011 Rs. 000

ASSETS Non-Current Assets Property,Plant & Equipment Leasehold Properties Investment Property Intangible Assets Investments in Subsidiaries Other Long Term Investments Loans Due from Related Parties Retirement Benefit Assets Total Non-Current Assets Current Assets Inventories Trade & Other Receivables Amounts due from Related Parties - Trade Receivables Amounts due from Related Parties Loans due from Related Parties Income Tax Recoverable Short Term Investments Bank & Cash Balances Total Current Assets Total Assets EQUITY AND LIABILITIES Equity Attributable to Equity Holders of the Parent Stated Capital Capital Reserves Revenue Reserves Minority Interest Total Equity Non-Current Liabilities Interest bearing Borrowings Loans Payable to Related Parties Deferred Income Deferred Tax Liabilities Retirement Benefit Obligations Total Non-Current Liabilities Current Liabilities Interest bearing Borrowings Loans Payable to Related Parties Trade and Other Payables Amounts due to Related Parties - Trade Payables Amounts due to Related Parties Income Tax Payable Bank Overdraft Total Current Liabilities Total Liabilities Total Equity and Liabilities Net Assets per Share (Rs.)

13 14 15 16 17 18 29.2 27

9,690,947 801,857 46,729 711,845 29,241 380,000 112,283 11,772,902 2,526,036 4,246,729 283,011 20,000 154,098 365,067 1,755,172 9,350,113 21,123,015

8,273,781 847,591 50,753 357,078 39,008 107,701 9,675,912 2,436,334 3,687,134 140,063 83,622 47,008 1,321,341 7,715,502 17,391,414

673,470 2,792,818 181,758 67,346 3,715,392 854,342 1,057,006 446,196 488,301 154,000 138,550 347,678 109,737 3,595,810 7,311,202

551,026 1,527,791 186,758 63,687 2,329,262 608,595 712,861 344,163 673,798 72,640 47,008 64,988 2,524,053 4,853,315

19 20 29.1 29.1 29.2 18 21

22 23

536,218 470,649 2,895,467 3,902,334 3,262,557 7,164,891

536,218 492,918 2,230,919 3,260,055 3,266,125 6,526,180 2,788,762 560,883 270,588 1,614,228 5,234,461 1,895,562 26,000 2,609,854 129,083 145,796 824,478 5,630,773 10,865,234 17,391,414

536,218 95,710 2,184,755 2,816,683 2,816,683 642,855 770,000 8,922 158,855 1,580,632 817,058 30,000 1,092,092 51,396 215,635 707,706 2,913,887 4,494,519 7,311,202

536,218 95,710 1,490,492 2,122,420 2,122,420 329,901 300,000 1,275 18,963 123,065 773,204 488,905 26,000 707,159 131,844 271,776 332,007 1,957,691 2,730,895 4,853,315

24 24 25 26 27

2,674,038 390,000 553,093 368,916 1,712,890 5,698,937 2,465,963 30,000 3,273,773 196,694 146,000 2,146,757 8,259,187 13,958,124 21,123,015

24 24 28 29.4 29.4 21

162.60

135.84

117.36

88.43

The Notes from pages 53 to 115 form an integral part of these Financial Statements. Figures in brackets indicate deductions. I certify that these Financial Statements have been prepared in compliance with the requirements of the Companies Act No. 07 of 2007. T. Hettiarachchi Finance Manager The Directors are responsible for the preparation and presentation of these Financial Statements. Approved and signed for and on behalf of the Board of Directors of Lankem Ceylon PLC. R. N. Bopearatchy Director Colombo 30th May 2012 K. P. David Director

50 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Statement of Changes in Equity


Attributable to Equity Holders of the Parent
Stated Revaluation Capital Capital Reserve Redemption Reserve Fund Rs. 000 Rs. 000 Rs. 000 Group Balance as at 1st April 2010 281,218 Revaluation Surplus Effect of Acquisitions, Disposals and changes in Percentage Holding in Subsidiaries Issue of Shares by the Company 255,000 Issue of Shares by Subsidiaries Profit for the year Dividend Paid Dividend Paid by Subsidiaries to Minority Interest Balance as at 31st March 2011 536,218 Effect of Acquisitions, Disposals and changes in Percentage Holding in Subsidiaries Net of Acquisition / (Disposal) of Subsidiaries Adjustment due to Debit balance in Minority Interest Direct Cost of Right Issue Repurchases of Ordinary Shares Loss on Redemption Shares Transfer from Revaluation Reserve to Retained Earnings Derecognition of Revaluation Reserve on Disposal Profit for the year Dividend Paid Dividend Paid by Subsidiaries to Minority Interest Balance as at 31st March 2012 536,218 Other Capital Reserve Rs. 000 General Retained Reserve Profit/(Loss) Total Minority Interest Total

Rs. 000

Rs. 000

Rs. 000

Rs. 000

Rs. 000

412,250 49,838 462,088 (7,124) (15,145) 439,819

8,333 8,333 8,333

22,497 22,497 22,497

305,952 305,952

782,672 -

1,812,922 49,838

1,898,619 60,913 373,394 298,073 740,643 (105,517) 3,266,125

3,711,541 110,751 455,833 255,000 298,073 1,871,749 (71,250) (105,517) 6,526,180

82,439 82,439 255,000 1,131,106 1,131,106 (71,250) (71,250) 1,924,967 3,260,055

115,132 115,132 (144,863) (29,731) (116,824) (116,824) 84,379 84,379 (84,379) (14,412) (14,412) (10,554) (24,966) (9,929) (9,929) (43,885) (43,885) (32,971) (76,856) 7,124 (15,145) (15,145) 552,210 552,210 680,050 1,232,260 (36,000) (36,000) (36,000) (284,098) (284,098) 305,952 2,589,515 3,902,334 3,262,557 7,164,891

Stated Revaluation Capital Capital Reserve Redemption Reserve Fund Rs. 000 Rs. 000 Rs. 000 Company Balance as at 1st April 2010 Issue of Shares Dividend Paid Profit for the year Balance as at 31st March 2011 Dividend Paid Profit for the year Balance as at 31st March 2012

General Retained Reserve Profit/(Loss)

Total

Rs. 000

Rs. 000

Rs. 000

281,218 255,000 536,218 536,218

87,377 87,377 87,377

8,333 8,333 8,333

300,000 686,542 1,363,470 255,000 (71,250) (71,250) 575,200 575,200 300,000 1,190,492 2,122,420 (36,000) (36,000) 730,263 730,263 300,000 1,884,755 2,816,683

The Notes from pages 53 to 115 form an integral part of these Financial Statements. Figures in brackets indicate deductions.

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Cash Flow Statement


Group For the year ended 31st March Note Cash Flows From Operating Activities Profit before Taxation Adjustment for; Depreciation/Amortisation on Property, Plant & Equipment Dividend Income Interest Expense (Gain)/Loss on Disposal of Property, Plant & Equipment (Gain)/Loss on Translation of Foreign Currency Interest Income Negative Goodwill Defined Benefit Plan Cost - Retiring Gratuity (Gain)/Loss on Disposal of Investments Provision for fall in Value of Investments-Short Term Provision/(Reversal of Provision) for Doubtful Debts Trade & Other Receivables Provision/(Reversal of Provision) for Doubtful Debts Related Parties Provision for Obsolete Inventories Provision/(Reversal of Provision) for Impairment of Capital work in progress Provision for Value Added Tax Recoverable Creditors no longer Payable Written Back Amortisation of Deferred Income Operating Profit before Working Capital Changes (Increase)/Decrease in Inventories (Increase)/Decrease in Trade & Other Receivables (Increase)/Decrease in Amounts due from Related Parties Increase/(Decrease) in Trade & Other Payables Increase/(Decrease) in Amounts due to Related Parties Cash Generated from Operations Income Tax Paid Interest Paid Retiring Gratuity Paid Payment made to Gratuity Fund Net Cash Flow Generated from/(Used in) Operating Activities Cash Flows from Investing Activities Purchase & Construction of Property, Plant & Equipment Investment in Subsidiaries Interest Received Dividend Received Investments in Long Term Investments Net Investments in Short Term Investments Proceeds on Disposal of Property, Plant & Equipment Net Proceeds on Disposal of Investments Net Cash Flow Generated from/(Used in) Investing Activities 2012 Rs. 000 2011 Rs. 000 2012 Rs. 000 Company 2011 Rs. 000

1,531,070 468,625 (116,656) 649,656 (34,783) (46,433) (86,716) (9,367) 341,151 (366,175) 42,004 28,899 (50,689) (586) (40,914) (19,001) 2,290,085 (89,116) (588,494) (92,259) 704,633 67,711 2,292,560 (283,358) (639,578) (235,410) (6,903) 1,127,311

2,108,564 429,427 (569) 513,089 (25,456) 13,393 (17,413) (68,038) 320,139 (73,074) (11,357) (32,487) (68,731) 8,388 (4,701) 5,266 (60,579) (16,171) 3,019,690 (762,724) (892,983) 66,660 (23,980) (79,655) 1,327,008 (216,259) (400,726) (113,113) (3,850) 593,060

710,357 74,653 (77,026) 270,368 (1,698) (78,390) 38,271 (399,840) 41,814 1,692 3,698 (13,577) (1,275) 569,047 (249,444) (345,837) (765,606) 398,510 (136,590) (529,920) (56,044) (268,555) (6,140) (860,659)

530,248 55,568 (44,929) 139,322 (1,821) (18,530) 15,370 (16,052) 6,355 4,067 (35,472) (2,183) 631,943 (120,997) (57,242) (386,087) (210,164) 154,516 11,969 (76,437) (132,770) (197,238)

(1,618,206) (779,060) 86,716 116,656 (3,308) (381,408) 245,635 387,595 (1,945,380)

(1,160,564) (37,324) 17,413 569 (8,000) (47,008) 180,190 106,664 (948,060)

(199,063) (108,214) 77,026 (341,005) 3,667 20,004 (547,585)

(125,600) (150,596) 18,530 44,929 (64,375) 1,821 39,584 (235,707)

52 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Cash Flow Statement


Group For the year ended 31st March Note Continued from previous Page Cash Flows from Financing Activities Proceeds from Rights Issue of Shares Capital Grants Received Long Term Loans obtained from Related Companies Long Term Loans granted to Related Companies Lease Rentals Paid Proceeds from Long Term Loans Repayment of Long Term Loans Settlement of Loans Payable to Related Companies Issue of Debentures Redemption of Debentures Payment to Lessor on Leasehold Rights Dividend Paid Net Transactions with Minority Net Movement in Short Term Borrowings Direct cost on Rights Issue Net Cash Flow Generated from /(Used in) Financing Activities Net Increase/(Decrease) in Cash & Cash Equivalents during the year Cash & Cash Equivalents at the beginning of the year Cash & Cash Equivalents at the end of the year Analysis of Cash & Cash Equivalents at the end of the year Cash in Hand & at Bank Bank Overdraft 2012 Rs. 000 2011 Rs. 000 2012 Rs. 000 Company 2011 Rs. 000

11,211 414,000 (400,000) (164,852) 625,763 (583,469) (20,000) 200,000 (22,170) (36,000) (284,098) 214,201 (24,965) (70,379)

255,000 69,144 (89,612) 1,746,079 (624,721) (58,000) 150,000 (112,500) (94,963) (71,250) 191,704 (360,224) 1,000,657

494,000 (10,929) 250,000 (40,645) (20,000) 200,000 (36,000) 240,868 1,077,294

255,000 300,000 (33,951) 100,000 (232,878) (59,000) 150,000 (71,250) (19,088) 388,833

21 21

(888,448) 496,863 (391,585)

645,657 (148,794) 496,863

(330,950) (267,019) (597,969)

(44,112) (222,907) (267,019)

1,755,172 (2,146,757) (391,585)

1,321,341 (824,478) 496,863

109,737 (707,706) (597,969)

64,988 (332,007) (267,019)

The Notes from pages 53 to 115 form an integral part of these Financial Statements. Figures in brackets indicate deductions.

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Notes to the Financial Statements


1. REPORTING ENTITY
Lankem Ceylon PLC is a public limited liability company incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange. The Consolidated financial statements of Lankem Ceylon PLC, as at the year ended 31st March 2012 comprises of the company and its subsidiaries (together referred to as the Group). The registered office of the Company and the principal line of business are given on the inner back cover of this 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. most significant effect on the amounts recognized in the financial statements is included in the following notes:

3.

SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been consistently applied to all periods presented in these Financial Statements and have been applied consistently by the Group. Comparative information where necessary has been reclassified to conform to the current years presentation. The Directors have made an assessment of the Groups ability to continue as a going concern in the foreseeable future, and they do not foresee a need for liquidation or cessation of trading. 3.1. Basis of Consolidation 3.1.1. 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 excisable 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. A list of the Groups subsidiaries is set out on the inner back cover of this report. 3.1.2. Acquisitions of entities under common control The purchase method of accounting is used to account for the acquisition of a subsidiary by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non controlling interest. The excess of the Groups share of the identifiable net assets acquired is recorded as Goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the Income Statement. 3.1.3. Transactions eliminated on consolidation Inter group balances and transactions and any unrealised income and expenses arising from inter group transactions are eliminated in preparing the consolidated Financial Statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Groups interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. 3.1.4. Transactions and Non-controlling Interest The Group applies a policy of treating transactions with noncontrolling interests as transactions with parties external to the

2.

BASIS OF PREPARATION

2.1. Statement of Compliance The Financial Statements of the Company and those consolidated with such comprise the Balance Sheet, Statements of Income, Statement of Changes in equity and Cash Flow statement together with the Accounting Policies and Notes to the Financial Statements. These Statements are prepared in accordance with the Sri Lanka Accounting Standards (SLAS) promulgated by the Institute of Chartered Accountants of Sri Lanka (ICASL) and with the requirement of Companies Act No 7 of 2007. The Financial Statements were authorised for issue by the Board of Directors on 30th May 2012. 2.2. Basis of Measurement The Financial Statements have been prepared on the historical cost basis except for certain items of Property, Plant & Equipment, Short-Term Investments which are measured at fair value and Retirement Benefit Obligations which are measured at the present value of the defined benefit plans as explained in the respective Notes to the Financial Statements. 2.3. Functional and Presentation Currency The Financial Statements are presented in Sri Lankan Rupees which is the functional currency of the Group. All financial information presented in Sri Lankan Rupees has been rounded to the nearest thousand, unless stated otherwise. 2.4. Use of Estimates and Judgments The preparation of Financial Statements in conformity with Sri Lanka Accounting Standards (SLAS) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. 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. Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the

54 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


Group. Disposals to non-controlling interest results in gains and losses for the Group that are recorded in the Income Statement. Purchases of non controlling interest results in Goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of subsidiary. 3.2. Foreign Currency 3.2.1. Foreign Currency Transactions In preparing the Financial Statements of the individual entities, transactions in currencies other than the entitys functional currency (foreign currencies) are recorded in the functional currencies using the exchange rates prevailing at the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are translated at the rates prevailing on the Balance Sheet date. Non-monetary items carried at fair value or historical cost is translated at the rates prevailing on, the date when the fair value was determined or the date of transaction. Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are included in profit or loss for the period. 3.3.1.3. Leased Assets Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of minimum lease payments. Subsequent to initial recognition, The asset is accounted for in accordance with the accounting policy applicable to that asset. The corresponding principal amount payable to the lessor is shown as a liability. The interest element of the rental obligation applicable to each financial year is charged to the Income Statement over the period of lease so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. 3.3.1.4. Subsequent Costs The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within that part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part is derecognized in accordance with the derecognition policy given below. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit and loss as incurred. 3.3.1.5. 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. Gains and losses on derecognition are recognized in the income statement and gains are not classified as revenue. 3.3.1.6. Depreciation Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost less its residual value. Depreciation is recognized in the income statement on a straight line basis over the estimated useful lives of each part of an item of Property, Plant & Equipment. Leased assets 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. Land is not depreciated. The estimated useful lives are as follows: Freehold Building Roads Plant, Machinery & Equipment Motor Vehicles Furniture, Fixtures & Fittings Electrical Equipment & Fittings Linen, Cutlery & Crockery 20-40 Years 25 Years 8-13 Years 5-10 Years 7-10 Years 10 Years On Replacement Basis

3.3. 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 of the Companys business, or within one year from balance sheet date, whichever is shorter. Assets other than current assets are those which the Company intends to hold beyond a period of one year from the Balance Sheet date. 3.3.1. Property, Plant & Equipment 3.3.1.1. 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. 3.3.1.2. Owned Assets The cost of an item of property, plant and equipment comprise its purchase price and any directly attributable costs of bringing the asset to working condition for its intended use. The cost of selfconstructed assets includes the cost of materials, direct labour, and any other costs directly attributable to bringing the asset to the working condition for its intended use. This also includes cost of dismantling and removing the items and restoring in 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 decrease is recognised in profit and loss.

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

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The appropriateness of useful lives of the asset and the depreciation rates are assessed annually. 3.3.2. Intangible Assets 3.3.2.1. 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 recognized immediately in the income statement. 3.3.3. Investments 3.3.3.1. Classification Investments in subsidiaries of the Company are treated as long term investments and stated at cost. Other investments which are held for yield or capital appreciation are also classified as long term investments that are intended to be held for trading purposes are classified as short-term investments. 3.3.3.2. Valuation Quoted and unquoted investments in shares held on long term basis are measured initially at cost. In the parent Companys Financial Statements, investments in subsidiaries are carried at cost less impairment losses. Provision for impairment is made when in the opinion of the Directors there has been a decline which is other than temporary in the value of the investment. Short term investments are measured at the lower of cost and market value on an aggregate portfolio basis, with any resultant gain or loss recognized in the income statement. 3.3.3.3. Cost Cost of investments is the cost of acquisition including brokerage, commission and other fees. 3.3.3.4. Diminution in Carrying Value Diminution in carrying value of investments are deemed to be permanent where the Investee Company and/or Auditors have qualified their opinion on the going concern status, and/or operations have resulted in net losses and these are expected to continue, and/or where the core business has become non-viable due to environmental and/or other concerns, and/or where the industry/sector has an uncertain outlook due to environmental and/or other concerns. 3.3.4. Investment Property Investment property is property held to either earn rental income or for capital appreciation or both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is initially measured at its cost including related transaction cost and

is therefore carried at its cost less any accumulated depreciation and any accumulated impairment losses. 3.3.5. Inventories Raw materials, finished goods and work in progress of Lankem Ceylon PLC and its subsidiaries are valued at the lower of cost, on 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. At the invoice value of the goods that has been dispatched to the Company. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and selling expenses. 3.3.6. Trade and Other Receivables Trade and other receivables are stated at the values estimated to be realised after providing for bad and doubtful debts. The Company identifies the specific receivables, which are not realizable, and make a specific provision for them. 3.3.7. 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 Groups Cash Management are included as a component of cash & cash equivalents for the purpose of the Statement of Cash Flows. 3.3.8. Impairment of Assets The carrying amounts of the Groups assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the assets recoverable amount is estimated. 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.

56 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


Reversal of impairment losses is recognised only to the extent that the assets 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. 3.4. Liabilities & Provisions Liabilities classified as current liabilities on the Balance Sheet are those obligation payable on demand or within one (1) year from the Balance Sheet date. Items classified as non-current liabilities are those obligations which expire beyond a period of one (1) year from the Balance Sheet date. All known liabilities have been accounted for in preparing the Financial Statements. Provisions and liabilities are recognized when the Group has a legal or constructive obligation as a result of past events and it is probable that an outflow of economic benefits will be required to settle the obligation and reliable estimate can be made of the amount of the obligation. 3.4.1. Retirement Benefit Obligation 3.4.1.1. 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 in the periods during which services are rendered by employees. 3.4.1.2. Defined Benefit Plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. Provision has been made in the Financial Statements for retiring gratuities payable under the Payment of Gratuity Act No. 12 of 1983 to all employees including those who have less than 5 years of continued service with the Company. Lankem Ceylon PLC has obtained an insurance policy as described in Note 27 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. 3.4.1.3. Defined Contribution Plans Employees Provident Fund and Employee Trust Fund All employees who are eligible for Employees Provident Fund contributions and Employees Trust Fund contributions are covered by relevant contributions funds in line with the relevant statutes. Employers contributions to the defined contribution plans are recognized as an expense in the Income Statement when incurred. 3.4.2. 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. 3.4.3. Trade and Other Payables Trade and other payables are stated at their cost. 3.4.4. Stated Capital As per the Companies Act No. 07 of 2007, section 58 (1), stated capital in relation to a Company means the total of all amounts received by the Company or due and payable to the Company in respect of the issue of shares and in respect of call in arrears. 3.4.5. Capital Commitment and Contingent Liabilities Capital commitments and contingencies which exist as at the Balance Sheet date are disclosed in the respective notes to the Financial Statements. 3.5. Income Statement 3.5.1. Revenue The Groups revenue represents sales to customers outside the Group and excludes Value Added Tax, Turnover Tax and IntraGroup Sales. 3.5.1.1. Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue and the associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, net of trade discounts and sales taxes, and after eliminating sales within the Group. The following specific criteria are used for the purpose of recognition of revenue. 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. 3.5.1.2. Interest Income Interest from bank deposits are recognized on a time proportion basis from the date of deposit to the Balance Sheet date. 3.5.1.3. Other Income Other income is recognized on an accrual basis. Net Gains and losses of revenue nature on the disposal of Property Plant and Equipment and other non current assets including investment have been accounted for in the income statement, having deducted from proceeds on disposal, the carrying amount of the assets and related expenses.

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Gains and losses arising from incidental activities to main revenue generating activities and those arising from a group of similar transactions which are not material, are aggregated, reported and presented on a net basis. 3.5.2. Expenditure Recognition 3.5.2.1. 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. 3.5.2.2. Operating Expenses All expenses incurred in day to day operations of the business and in maintaining the Property, Plant and Equipment in a state of efficiency has been charged to the Income Statement in arriving at the profit for the year. Provision has also been made for bad and doubtful debts, all known liabilities and depreciation on property, plant and equipment. 3.5.2.3. Borrowing costs Borrowing costs are recognized 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. 3.5.2.4. Finance Costs Interest expenses are recognized on an accrual basis. 3.5.3. Taxation 3.5.3.1. Current Taxes Current Income tax liabilities for the current and prior periods are measured at the amounts expected to be recovered from or paid to the Commissioner General of Inland Revenue. The tax rates and tax laws used to compute the amounts are those that are enacted or substantively enacted by the Balance Sheet date. The provision for income tax on Sri Lankan operation is based on the elements of income and expenditures reported in the Financial Statements and computed with in accordance with the provisions of the Inland Revenue Act. Income tax has been provided on overseas operations in accordance with the relevant statutes in force in the countries in which operations are carried out. The relevant details are disclosed in the respective notes to the Financial Statements. 3.5.3.2. Deferred Taxation Deferred taxation is provided, based on the liability method, on temporary differences at the balance sheet date between the carrying amounts of assets and liabilities for financial reporting

purposes and the amounts used for tax purposes. The balance in the deferred taxation account represents income tax applicable to the difference between the written down values for tax purposes of the assets on which tax depreciation has been claimed and the net book values of such assets, offset by the provision for retirement benefit which is deductible for income tax purposes only on payment. Deferred tax assets are recognized for all deductible temporary differences and carry forward of unused tax losses, to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences and carry forward of unused tax losses can be utilized. The carrying amount of deferred tax assets is reviewed at each Balance Sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax assets to be utilized. 3.6. Policies specific to Plantation Companies 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 by the plantation companies are in accordance with Sri Lanka Accounting Standards (SLAS) 32- Plantations. Those accounting policies of plantation companies that significantly vary from the rest of the Group are given below. 3.6.1. Immature & Mature Plantations The cost of replanting and new planting is classified as mature 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 lives. No depreciation has been charged in the year of transfer. 3.6.2. 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 capitalized 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 capitalized are charged to the Income Statement as an expense in the year in which they are incurred.

58 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


3.6.3 Depreciation Depreciation is recognized in the income statement on a straightline basis over the useful lives of each item of Property, Plant & Equipment other than freehold land as follows: Freehold Assets Buildings Plant & Machinery Furniture & Fittings Motor Vehicles Sanitation, Water & Electricity Supply Equipment Mature Plantations - Tea - Rubber Roads Useful life 40 years 13 1/3 years 10 years 5 years 20 years 8 years 13 33 years 20 -25 years 25 years 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. 3.6.6. 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 realization and/or cost of conversion from their existing state to saleable condition. Input Material At average cost. Growing Crop Nurseries At the cost of direct materials, direct labour and an appropriate proportion of directly attributable overheads less provision for overgrown plants. Harvested Crop Valued at estimated selling prices or realisable prices. Produce Stock Valued at estimated selling prices or realisable prices. Spares and Consumables At actual cost 3.6.7. Retirement Benefit Obligations The Retirement Benefit Plan adopted is as required under the Payment of Gratuity Act No. 12 of 1983 and the Indian Repatriate Act No 34 of 1978 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 Sri Lanka Accounting Standard No.16 (Revised 2006) Employee Benefits.The actuarial valuation was carried out by a professionally qualified actuary firm Messrs Actuarial & Management Consultants (Pvt) Ltd. The Company expects to carry out a comprehensive actuarial valuation once in every two years, unless theres a revision of wage rates.

Leased Assets Leasehold rights are amortised/depreciated in equal annual amounts over the following periods: Type of Assets Bare Land Improvement to Land Mature Plantations - Tea & Rubber - Others Roads & Bridges Buildings Fences & Securities Machinery Water Supply Power Augmentation Vested Tea Land Development Cost Water Supply Scheme No. of Years 53 Years 30 Years 30 Years 25 Years 40 Years 25 Years 20 Years 15 Years 20 Years 20 Years 30 Years 30 Years 30 Years

3.6.4. Permanent Land Development Costs Permanent land development costs are those costs incurred to make major changes to land contours to build new access roads and other major infrastructure development. Such expenditure on leasehold land has been capitalised and amortised over the remaining lease periods. Permanent impairments to land development costs are recognised in the profit and loss in full or reduced to the net carrying amounts of such asset in the year of occurrence after ascertaining the loss. 3.6.5. Limited Life Land Development Costs (Immature & 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

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3.6.8. Grants & Subsidies 3.6.8.1. Capital Nature Grants and Subsidies Grants and subsidies are credited to the income statement over the periods necessary to match them with related costs which they are intended to be compensated on a systematic basis. Grants related to assets, including non monetary grants at fair value is deferred in the balance sheet and credited to the income statement over useful life of the related assets. Grants related to income are recognized in the profit and loss in the period in which it is receivable. 3.6.8.2. Revenue Nature Grants and Subsidies Grants and subsidies that compensate the Group for expenses incurred are recognized as revenue in the income statement on a systematic basis in the period in which the expenses are recognized. Grants that compensate the Group for the cost of an asset are recognized in the income statement over the useful life of the related assets. 3.6.9. Revenue Recognition Profit or loss on perennial crops is recognized in the financial period of harvesting. Revenue from sale of produced stock is accounted on the basis of invoiced value less export duty, brokerage, cess, trade discounts and any other taxes on turnover. 3.6.10. Borrowing Cost Borrowing costs are recognized as expense in the period in which they are incurred expect to the extent where borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset that takes a substantial period of time to get ready for its intended use or sale is capitalized as part of the cost of that asset. 3.7. Related Party Transactions Disclosure has been made in respect of the transactions in which one party has the ability to control or exercise significant influence over the financial and operating policies/decisions of the other, irrespective of whether a price is being charged or not. 3.8. Segmental Reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (Business/ Industry segment) or in providing products or services within a particular economic environment (Geographical segment). segmental information is presented in respect of the groups business or Geographical segments. The primary format business segments are based on the Groups management and internal reporting structure. Segmental results assets and liabilities includes items directly attributable to segment as well as those that can be allocated on a reasonable basis. 3.9. Cash Flow Statement Interest received and dividends received are classified as investing cash flows, while dividend paid and interest paid, is classified as financing cash flows for the purpose of presentation of Cash Flow Statement which has been prepared using the Indirect Method.

3.10. General 3.10.1. Earnings Per Share Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of shares outstanding during the period. 3.10.2. Events Occurring After the Balance Sheet Date The materiality of the events occurring after the Balance Sheet date is considered and appropriate adjustments to or disclosures are made in the Financial Statements, where necessary.

4.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of financial statements in conformity with SLAS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results which form the basis of making the judgments about the carrying amount of assets and liabilities that are not readily apparent from other sources. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about assumptions and estimates uncertainties that have a significant risk of resulting in a material adjustment in the financial statements are included in the table below:
Critical accounting estimate/ judgement Property Plant and Equipment Intangible Assets Deferred Tax Assets / Liabilities Employee Benefits Disclosure reference
Note Page

13 16 26 27

66 75 92 93

5.

NEW ACCOUNTING STANDARDS ISSUED BUT NOT EFFECTIVE AS AT BALANCE SHEET DATE

The Institute of Chartered Accountants of Sri Lanka has issued a new volume of Sri Lankan Accounting Standards which will become applicable for the financial period beginning on or after 1st January 2012. Accordingly, these standards have not been applied in preparing these Financial Statements as they were not effective for the year ended 31st March 2012. These Sri Lankan Accounting Standards comprise accounting standards prefixed both SLFRS (corresponding to IFRS) and LKAS (corresponding to IAS). Application of Sri Lanka Accounting Standards prefixed SLFRS and LKAS for the first time shall be deemed to be an adoption of SLFRS. The Company is currently in the process of evaluations the potential effects of these Standards on its Financial Statements and the impact on the adoption of these Standards have not been quantified as at Balance Sheet date.

60 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


6. REVENUE
Group For the year ended 31st March 2012 Rs.000 2011 Rs.000 2012 Rs.000 Company 2011 Rs.000

6.1 Summary Gross Revenue Less: Turnover Tax/Nation Building Tax Net Revenue

24,135,736 (17,985) 24,117,751

23,052,207 (21,603) 23,030,604

5,778,255 5,778,255

4,907,625 (3,756) 4,903,869

6.2 Segments Segmentation has determined based on the activities of the companies or the sector, where multiple activities fall within one company or sector has been based on the core activities of that particular sector. Chemicals Consumer Hardware Construction Hotel Plantations Agriculture Power Plant IT - Services Manufacturing, Distribution and Service Activities Relating to Chemicals Manufacturing, Selling and Distribution of Consumer Products Manufacturing, Selling and Distribution of Hardware Products Road Construction, Waterproofing and Industrial Flooring Owning and Operation of Resort Hotels Cultivation and Processing of Tea and Rubber Farming and Dairying Generation of Electricity through Hydro Power Provision of Information Technology (IT) Services Group For the year ended 31st March 2012 Rs.000 2011 Rs.000 2012 Rs.000 Company 2011 Rs.000

6.3 Segmental Revenue Chemicals Consumer Hardware Construction Hotels Plantations Agriculture Turnover Tax/Nation Building Tax Less: Inter-Segment Revenue Net Revenue

5,161,758 6,561,054 7,186,078 22,977 835,110 6,763,257 2,594 26,532,828 (17,985) 26,514,843 (2,397,092) 24,117,751

4,310,970 4,158,189 6,005,802 96,922 608,000 9,882,876 29,330 25,092,089 (21,603) 25,070,486 (2,039,882) 23,030,604

3,995,569 161,490 1,599,686 21,510 5,778,255 5,778,255 5,778,255

3,380,967 194,947 1,331,711 4,907,625 (3,756) 4,903,869 4,903,869

| 61

6.

REVENUE (CONTD.)
Profit Before Tax Non Cash Expenses 2012 Rs.000 2011 Rs.000 2012 Rs.000 2011 Rs.000

For the year ended 31st March

6.4 Segmental Profit -Group Chemicals Consumer Hardware Construction Hotels Plantations Agriculture Power Plant IT - Services Un-Allocated

477,562 550,037 120,325 6,373 153,019 1,659,581 (3,915) (6,228) (12) 2,956,742 (1,425,672) 1,531,070

696,261 238,376 101,450 (27,092) 55,076 1,133,823 (4,276) 2,193,618 (85,054) 2,108,564

141,849 109,790 20,744 86,507 560,980 1,005 920,875 920,875

49,919 110,376 25,057 671 55,512 512,429 1,211 755,175 24,052 779,227

7.

OTHER INCOME
Group Company 2011 Rs.000 25,456 206 363 16,171 73,074 60,579 26,678 68,038 68,731 2,358 13,407 68,696 11,357 4,701 20,987 460,802 2012 Rs.000 1,701 33,825 43,201 1,275 399,840 13,577 40,845 534,264 2011 Rs.000 1,821 12,213 32,716 2,183 16,052 35,472 615 101,072 2012 Rs.000 34,783 62,912 53,744 19,001 366,175 40,914 28,285 9,367 49,484 3,215 10,836 44,444 1,715 337 63,173 788,385

For the year ended 31st March

Profit on Disposal of Property Plant and Equipment Dividend Income - Quoted - Unquoted Amortisation of Grants and Subsidies Profit on Disposal of Investments Creditors no longer payable written back Rent Income Negative Goodwill on Acquisition Reversal of Provision for Amounts due from Related Parties Sale of Timber Sale of Refuse Tea Sale of Rubber Trees Reversal of Provision for Impairment in Value of Investments Reversal of Impairment of Capital Work in Progress Sundry Income

8.

NET FINANCE COST


(86,716) (129,351) (216,067) (17,413) (43,345) (60,758) (16,200) (62,190) (78,390) (16,200) (2,330) (6,785) (25,315)

(A) Finance Income Interest Income Interest from Related Companies - Debenture Interest Income - Others Gain on Translation of Foreign Currency Total Finance Income

62 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


8. NET FINANCE COST CONTD.

Group For the year ended 31st March 2012 Rs.000 2011 Rs.000 2012 Rs.000

Company 2011 Rs.000

(B) Finance Cost Interest on Term Loans Interest on Overdraft and Trust Receipt Loans Interest on Finance Lease Obligations Debenture Interest Other Interest Loss on Translation of Foreign Currency Interest on JEDB/SLSPC Estate Lease Amount Capitalised Total Finance Cost Net Finance Cost

254,013 147,222 43,726 40,124 157,571 69,431 46,556 758,643 (108,987) 649,656 433,589

287,650 99,303 22,971 20,164 111,106 600 89,392 631,186 (117,497) 513,689 452,931

49,499 78,689 1,813 37,377 61,372 41,618 270,368 270,368 191,978

53,561 66,559 6,708 3,857 8,637 139,322 139,322 114,007

9.

PROFIT BEFORE TAX


418,868 45,734 4,024 376,542 47,855 5,030 74,653 55,567 -

Is stated after charging all expenses including the following: Depreciation/Amortisation Property ,Plant & Equipment Leasehold Properties Investment Property Auditors Remuneration KPMG Other Auditors Non Audit Services KPMG Other Auditors Salaries & Wages Defined Benefit Plan Cost - Retiring Gratuity Defined Contribution Plan Cost - EPF & ETF Managing Agent Fees Provision / (Reversal of Provision) for Bad & Doubtful Debts Provision for Obsolete Inventories Donations

8,835 4,361

7,183 4,693

1,580 -

1,375 -

186 2,328 4,629,470 341,151 288,050 31,520 28,899 (586) 438

469 45 3,637,771 320,139 528,312 17,492 (32,487) 8,388 99

250,645 38,271 22,005 1,692 3,698 422

205 176,140 15,370 13,102 6,355 4,067 70

10.

INCOME TAX EXPENSE


230,282 38 (27,454) 202,866 229,535 (50,382) 179,153 1,664 (11,529) (9,865) 28,545 (70,750) (42,205)

Current Income Tax Expense (Note 10.1) Taxation on Profit for the Year Deemed Dividend Tax Under / (Over) Provision on Taxation in respect of previous years

Deferred Tax Expense Origination/(Reversal) of Temporary Differences

95,944 95,944 298,810

57,662 57,662 236,815

(10,041) (10,041) (19,906)

(2,747) (2,747) (44,952)

| 63

Group For the year ended 31st March 2012 Rs.000 2011 Rs.000 2012 Rs.000

Company 2011 Rs.000

10.1 Current Income Tax Expense Reconciliation of Accounting Profit to Income Tax Expense Accounting Profit before Taxation Intra- Group Adjustments Aggregate Disallowable Expenses Aggregate Allowable Expenses Tax Exempt Income Income not part of Assessable Income Statutory Profit / (Loss) from Business Other Source of Income Tax Losses utilised during the year Taxable Income / (Loss) Income Tax @ 28% (@ 35% for year 2010/11) Income Tax @ 12% (@ 15% for year 2010/11) Income Tax @ 10% Income Tax @ 5% Social Responsibility Levy Liability Income Tax at other rates Taxation on Profit for the Year

1,531,070 1,179,964 2,711,034 1,075,814 (2,002,736) (253,551) (492,648) 1,037,913 142,093 (120,176) 1,059,830 189,746 20,416 18,863 1,257 230,282 230,282

2,108,564 98,994 2,207,558 928,472 (848,794) (1,114,198) 1,173,038 (41,849) (406,110) 725,079 194,381 32,469 226,850 2,660 25 229,535

710,357 710,357 104,805 (84,952) (253,551) (488,704) (12,045) 9,142 (3,200) 5,942 1,664 1,664 1,664

530,248 530,248 127,367 (76,822) (441,200) 139,593 (59,243) 80,350 28,123 28,123 422 28,545

10.2 Corporate income taxes of the companies in the Group are computed in accordance with the Inland Revenue Act No. 10 of 2006 and subsequent amendments thereto. Lankem Ceylon PLC and other companies within the Group,excluding those which are enjoying a tax holiday or concessionery rate of taxation as referred to below, are liable to income tax at 28%. 10.3 In accordance with the section 20 of the Inland Revenue Act No.10 of 2006, the profit & income from relocated activities (Lankem Ceylon PLC has relocated its Agro Chemicals & Agro Seeds operations to Pannala) is exempt from income tax for a period of five years commencing from the Year of Assessment 2009/2010 under GAMATA KARMANTHA PROJECT. 10.4 Lankem Exports (Private) Ltd., Lankem Technology Services Ltd, Associated Farms Ltd. and Lankem Agrochemicals Ltd. were nonoperating during the year. 10.5 Sigiriya Village Hotels PLC, Galle Fort Hotel (Pvt) Ltd and Beruwala Resorts Ltd. are liable for taxation at 10% on the profits and income from activities relating to operating of hotels and Sigiriya Village Hotels PLC is liable for taxation at 28% on other income in accordance with the provision of Inland Revenue Act.

64 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


10.6 In accordance with the agreement entered into with the Board of Investments 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 ten years from the year in which the Company commences to make profits or within five years from the year the Company commenced commercial operations, which ever 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 tax holiday. Other income is liable to income tax at 28%. However, Board of Investment 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 2002. 10.7 In accordance with the powers conferred on the Board of Investments of Sri Lanka under Section 17(2) of the BOI Law No. 04 of 1978 and in terms of the Agreement Registration No. 368-29-6-92 between BOI and Marawila Resorts PLC, the Company is not liable for tax on profits from business for a period of 10 years commencing from the Year of Assessment 2001/02. Accordingly, the Companys tax holiday has been over as of 31.03.2011 and currently the Company is liable for income tax at the rate of 10% on profits from business as per the section 59B of the Inland Revenue Act No. 22 of 2011 and 28% on other income. 10.8 In accordance with Section 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. The said tax exemption provision was expired and the Company is liable for income tax at 5% on its taxable income for the year of Assessment 2011/12, 10% for the year of Assessment 2012/13 and thereafter 12% as per the section 48 of Inland Revenue Act No. 10 of 2006. 10.9 Lankem Developments PLC being a construction company for the year of assessment 2011/12, it is liable for taxation at the rate of 12% on its taxable profits in accordance with the provisions of Inland Revenue Act No. 10 of 2006 and subsequent ammendments thereto. Other income is liable to income tax at 28%. 10.10 In accordance with the agreement entered into with the Board of Investments of Sri Lanka under Section 17 of the G.C.E.C. Law No 04 of 1978, profits of SunAgro Farms Ltd are exempted from income tax for a period of 10 years with effect from 31st May 2008. 10.11 C. W. Mackie PLC and its subsidiaries are liable for income tax at 12% on taxable profits on non traditional exports and 28% on other profits in accordance with the provisions of Inland Revenue Act No. 10 of 2006 and subsequent ammendments there to. 10.12 Profits from any agricultural undertakings falls within section 16 of the Inland Revenue Act No. 10 of 2006 would be exempt from income tax for a period of 5 years from 2006/2007 onwards. After the exemption period, applicable tax rate would be 10%. The corporate rate of tax applicable on other income of Kotagala Plantations PLC and Agarapatana Plantations Ltd including the income not covered under Section 16 (Profits from manufacture of tea) would be taxed at 28%. 10.13 Deferred Taxation i Deferred tax has been computed by using the tax rate of 28% for the Comapny and subsidiaries which are liable for income tax at the standard rate for the assessment year 2011/12. The subsidiaries which are liable for income tax at reduced rates (below the standard rate) for the assessment year 2011/12 have computed the defferred tax at the tax rate of 12%. ii No provision has been made for deferred tax in the financial statements of Lankem Consumer Products Ltd, Lankem Chemicals Ltd, Lankem Paints Ltd, Lankem Research Ltd. and York Hotel (Kandy) Ltd. as no material temporary differences have arisen during the year which are expected to reverse in the future. No deferred tax assets have been recognized in the financial statements of subsidiaries, namely Lankem Developments PLC, SunAgro Farms Ltd, Colombo Fort Hotels Ltd, and Agarapatana Plantations Ltd., in respect of tax losses carried forward because it is not probable that future taxable profit will be available against which these companies can utilise the benefit. 2012 Million 17.3 3.6 64 13.2 2011 Million 13.7 1.3 191.9 12.3

iii

As at 31st March

Colombo Fort Hotels Ltd. SunAgro Farms Ltd. Agarapatana Plantations Ltd. Lankem Developments PLC

| 65

11.

EARNINGS PER SHARE

Earnings per share is based on the profit for the year attributable to equity holders of the Company divided by weighted average number of ordinary shares in issue during the year. Group As at 31st March 2012 2011 2012 Company 2011

Profit attributable to Equity Holders of the Company (Rs.000) Weighted average number of Ordinary Shares (No. 000) Earnings per Share (Rs.) Weighted average number of Ordinary Shares Issued Ordinary Shares at the beginning of the year (No. 000) Effect of shares issued during the year (No. 000) Weighted average number of Ordinary Shares as at 31st March

552,210 24,000 23.01

1,131,106 23,984 47.16

730,263 24,000 30.43

575,200 23,984 23.98

24,000 24,000

21,000 2,984 23,984

24,000 24,000

21,000 2,984 23,984

12.

DIVIDEND PER SHARE


60,000 24,000 2.50 60,000 24,000 2.50 60,000 24,000 2.50 60,000 24,000 2.50

Dividends for Ordinary Shareholders (Rs. 000) No. of Ordinary Shares in issue (No. 000) Dividend per Ordinary Share (Rs.)

Directors of the Company have recommended the payment of a first and final dividend of Rs. 2.50/- per ordinary share for the year ended 31st March 2012, which will be declared at the Annual General Meeting to be held on 28th June 2012.

66 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


13. PROPERTY,PLANT & EQUIPMENT

As at 31st March 13.1 Group Cost/Valuation Freehold Land Buildings Land Development Cost Mature/Immature Plantations Plant & Machinery Motor Vehicles Furniture, Fittings & Office Equipment Linen & Soft Furnishings Leasehold Plant & Machinery Motor Vehicles Furniture, Fittings & Office Equipment Total Cost / Valuation

Balance Transfers/ Acquisition of As at Adjustments Subsidiaries 01.04.2011 Rs.000 Rs.000 Rs.000

Additions during the Year Rs.000

Disposals during the Year Rs.000

Balance As at 31.03.2012 Rs.000

1,839,634 2,391,923 10,002 3,455,388 1,176,885 382,549 682,515 43,707 9,982,603 204,372 450,561 2,202 657,135 10,639,738

(4,635) 107,102 66,141 (1,244) 167,364 (107,468) (66,141) (173,609) (6,245)

219,800 50,450 17,059 628 18,420 306,357 306,357

27,112 237,838 798,780 157,192 36,865 115,541 23,322 1,396,650 1,605 149,739 151,344 1,547,994

(28,950) (5,253) (598) (157,785) (22,520) (19,121) (46,781) (281,008) (54,554) (1) (54,555) (335,563)

2,057,596 2,670,323 9,404 4,096,383 1,435,718 467,062 768,451 67,029 11,571,966 98,509 479,605 2,201 580,315 12,152,281

As at 31st March Accumulated Depreciation Freehold Buildings Mature/Immature Plantations Plant & Machinery Motor Vehicles Furniture, Fittings & Office Equipment Linen & Soft Furnishings Leasehold Plant & Machinery Motor Vehicles Furniture, Fittings & Office Equipment Total Accumulated Depreciation Carrying Amount Capital Work in Progress Total Carrying Amount of Property, Plant & Equipment

Balance Transfers / Acquisition of As at Adjustments Subsidiaries 01.04.2011 Rs.000 Rs.000 Rs.000

Charge for the Year Rs.000

Disposals during the Year Rs.000

Balance As at 31.03.2012 Rs.000

440,307 410,090 605,412 322,577 442,019 31,449 2,251,854 79,045 216,585 465 296,095 2,547,949 8,091,789 181,995 8,273,784

(932) 51,256 58,148 (138) 108,334 (51,319) (58,148) (109,467) (1,133) (218,296)

561 15,050 334 16,938 32,883 32,883 8,969

76,986 69,209 97,090 28,802 63,510 1,541 337,138 7,472 73,968 290 81,730 418,868 439,854

(1,839) (22,124) (12,721) (46,678) (83,362) (41,349) (41,349) (124,711) -

515,083 479,299 746,684 397,140 475,651 32,990 2,646,847 35,198 191,056 755 227,009 2,873,856 9,278,425 412,522 9,690,947

| 67

13.

PROPERTY,PLANT & EQUIPMENT (CONTD.)


Balance As at 01.04.2011 Rs.000 Transfers / Adjustments Rs.000 Additions during the Year Rs.000 Disposals during the Year Rs.000 Balance As at 31.03.2012 Rs.000

As at 31st March

13.2 Company Cost Freehold Land Land Development Cost Buildings Plant & Machinery Motor Vehicles Furniture, Fittings & Office Equipment

111,148 9,404 208,889 113,539 16,755 207,401 667,136

107,468 66,141 173,609

30,129 57,629 23,567 39,598 150,923

(22,031) (4,623) (46,124) (72,778)

111,148 9,404 239,018 256,605 101,840 200,875 918,890

Leasehold Plant & Machinery Motor Vehicles Total Cost

111,783 78,778 190,561 857,697

(107,468) (66,141) (173,609) -

2,188 2,188 153,111

(187) (187) (72,965)

4,315 14,638 18,953 937,843

As at 31st March

Balance As at 01.04.2011 Rs.000

Transfers / Adjustments Rs.000

Charge for the Year Rs.000

Disposals during the Year Rs.000

Balance As at 31.03.2012 Rs.000

Accumulated Depreciation Freehold Buildings Plant & Machinery Motor Vehicles Furniture, Fittings & Office Equipment

40,456 50,469 7,341 118,781 217,047

51,319 58,148 109,467

10,892 21,579 9,461 30,312 72,244

(22,032) (2,656) (46,124) (70,812)

51,348 101,335 72,294 102,969 327,946

Leasehold Plant & Machinery Motor Vehicles

Carrying Amount Capital Work in Progress Total Carrying Amount of Property, Plant & Equipment

51,891 60,201 112,092 329,139 528,558 22,468 551,026

(51,319) (58,148) (109,467) -

431 1,978 2,409 74,653

(187) (187) (70,999)

1,003 3,844 4,847 332,793 605,050 68,420 673,470

13.3 GROUP As at 31st March, 2012 The Company and following subsidiaries have revalued their freehold lands as more fully disclosed below. Extent In Perches Rs.000 33,600 27,000 43,198 Number Name of the of Valuer Buildings Effective Method of Date Valuation of the Latest Valuation Carrying Value of Revalued Assets As at 31.03.2012 if Assets were carried at cost Rs.000 19,500 18,984 24,235 Carrying Value of Revalued Assets As at 31.03.2012

Company Name

Location

i 480 240 881 8 Mr. R. S. Wijesuriya Incorporated Valuer Mr. R. S. Wijesuriya Incorporated Valuer Mr. R. S. Wijesuriya Incorporated Valuer Mr. R. S. Wijesuriya Incorporated Valuer Mr. R. S. Wijesuriya Incorporated Valuer Mr. R. S. Wijesuriya Incorporated Valuer Mr. R. S. Wijesuriya Incorporated Valuer Mr. K.T.D. Tissera Incorporated Valuer Mr. K.T.D. Tissera Incorporated Valuer Mr. K.T.D. Tissera Incorporated Valuer 31.03.2010 02.04.2010 31.03.2011 31.03.2011 31.03.2011 Mr. G. D. Senevirathne 30.09.2011 Chartered Valuer 31.03.2010 31.03.2010 Cost Approach Cost Approach 31.03.2010 Cost Approach 31.03.2010 Cost Approach 6,179 156 21,440 9,964 31.03.2010 Cost Approach 4 31.03.2010 Cost Approach 11 31.03.2010 Cost Approach Mr. R. S. Wijesuriya Incorporated Valuer Mr. R. S. Wijesuriya Incorporated Valuer

Lankem Ceylon PLC Land

Land

St Anthoneys Rd, Ekala, Kuriduwatta Maithree Mawatha, Ekala

Land

Maguruwila Rd, Gonawala 4,055 89 3,259 1,362 36 2

68 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Land

Kandathoduwawa, Putlam

7,350 6,950 772,407 136,000

Lankem Developments PLC Land Maguruwila Road, Gonawala iii Marawila Resorts PLC Land Thalawila, Kuppayawela Naththandiya iv Sigiriya Village Hotels PLC Land Mankanai, Trincomalee 920 525 604 800 850 37 8 8 11 13 1 2 Open Market Cost Approach Open Market Open Market Open Market Open Market

ii

13,530 110,000

138,000 356,360

York Hotels Kandy (Pvt) Ltd. Land Hallolouwa, Katugastota vi BOT Hotels Services (Pvt) Ltd. Land Kapparatota Rd, Weligama vii C.W. Mackie PLC Land Scan Bottling Plant Munagama, Horana

Land

Industrial Estate Aramanagolla, Horana

49,479

280,000

Land

Thebuwana, Narthupana

viii Galle Fort Hotel (Pvt) Ltd. Land

Galle Fort, Galle

54,000 327,467

219,800 2,020,665

13.3 GROUP (Contd.)

Except to the above the Group freehold land portfolio consists of the following and they are carried at cost. Extent In Perches Number of Buildings Carrying Value As at 31.03.2012 Rs.000

Company Name

Location

i 293 -

Lankem Research Ltd. Land

Talawila, Marawila

11,959

ii 2 -

Beruwala Resorts Ltd. Land

Moragalla, Beruwala

267

iii 58 -

York Hotels Kandy (Pvt) Ltd. Land

Hallolouwa, Kandy

9,106

iv 560 -

Sigiriya Village Hotels PLC Land

Mankanai, Trincomalee

15,599 36,931 2,057,596

| 69

70 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


13. PROPERTY,PLANT & EQUIPMENT (CONTD.)
Mature Plantations Rs.000 Immature Plantations Rs.000 Total as at 31.03.2012 Rs.000 Total as at 31.03.2011 Rs.000

As at 31st March

13.4 Mature/Immature Plantations i) SunAgro Farms Ltd. Cost At the beginning of the year Additions/Transfers during the year At the end of the year Depreciation At the beginning of the year Charge for the year At the end of the year Carrying amount at the end of the year ii) Agarapatana Plantations Ltd. (APL) Cost At the beginning of the year Additions/Transfers during the year Disposals/Transfers At the end of the year Depreciation At the beginning of the year Charge for the year At the end of the year Carrying amount at the end of the year a)

3,021 3,021

14,804 7,876 22,680

17,825 7,876 25,701

7,675 10,150 17,825

1,510 503 2,013 1,008

22,680

1,510 503 2,013 23,688

1,007 503 1,510 16,315

391,846 167,074 558,920

694,582 249,876 (167,074) 777,384

1,086,428 249,876 1,336,304

885,608 200,820 1,086,428

56,656 11,755 68,411 490,509

777,384

56,656 11,755 68,411 1,267,893

46,052 10,604 56,656 1,029,772

These are investments in mature/immature plantations since the formation of the Company. The assets (including plantation assets) taken over by way of estate leases are set out in notes 13.4 and 14.1 (b). Further, investment in immature plantations taken over by way of these leases are shown in the above notes. When such plantations become mature, the additional investments since taken over to bring them to maturity are transferred from immature to mature under this note. A corresponding movement from immature to mature in respect of the investment undertaken by JEDB/SLSPC on the same plantation prior to the leases will be carried out under note 14.2 (b). Borrowing costs amounting to Rs. 31,786,509/- (2010/11 Rs. 51,096,720/-) 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. Capitalisation will cease when crops are ready to harvest.

b)

| 71

13.

PROPERTY,PLANT & EQUIPMENT (CONTD.)


Mature Plantations Tea Rubber Rs.000 Rs.000 Immature Plantations Tea Rubber Others Rs.000 Rs.000 Rs.000 Total 31.03.2012 Rs.000 Total 31.03.2011 Rs.000

As at 31st March

13.4 Mature/Immature Plantations (Contd.) iii) Kotagala Plantations PLC (KPPLC) Cost At the beginning of the year Additions/Transfer in Transfer out At the end of the year Depreciation At the beginning of the year Charge for the year At the end of the year Carrying amount as at 31.03.2012 a)

542,320 67,760 610,080

675,882 90,025 765,907

284,327 104,902 (67,760) 321,469

697,865 188,324 (90,025) 796,164

150,741 90,017 240,758

2,351,135 541,028 (157,785) 2,734,378

2,028,498 459,858 (137,221) 2,351,135

130,298 18,924 149,222 460,858

221,626 38,027 259,653 506,254

321,469

796,164

240,758

351,924 56,951 408,875 2,325,503

301,918 50,006 351,924 1,999,211

These are investments in mature/immature plantations since the formation of the Company. Further, investment in Immature Plantations taken over by way of leases are shown in this Note and Note 14.1 (a). When such plantations become mature, the additional investments since taken over to bring them to maturity are transferred from Immature to Mature under this Note. A corresponding movement, from Immature to Mature, in respect of the investment undertaken by JEDB/SLSPC on the same plantations prior to the leases are shown under Note 14.2 (a). Borrowing costs amounting to Rs. 22.9 Million (2010/2011 - Rs. 18.6 Million) on Tea, and Rs. 54.3 Million (2010/2011 Rs. 47.8 Million) on Rubber incurred on term loans and overdrafts utilised to finance replanting expenditure of tea and rubber have been capitalised. The average rate of interest for capitalisation was 11.4% (2010/2011 - 11.0%). The capitalisation will cease when crops are ready for harvest. Other immature plantations include Eucalyptus, other timber,etc. which have been cultivated and managed in separate fields and other crops such as Cinnamon, Coconut, etc. are carried at cost less impairment.

b)

c)

72 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


14. LEASEHOLD PROPERTIES
Balance as at 01.04.2011 Rs.000 Additions During the Year Rs.000 Balance as at 31.03.2012 Rs.000

As at 31st March

Cost / Valuation Leasehold Right to Bare Land of JEDB / SLSPC Estates - (14.1) Kotagala Plantations PLC Agarapatana Plantations Ltd. Leasehold Right to Bare Land SunAgro Farms Ltd. - (14.4)

342,287 341,588

342,287 341,588

2,555 686,430

2,555 686,430

Immovable Leased Assets of JEDB / SLSPC Estates (Other than Bare Land)- (14.2) Kotagala Plantations PLC Agarapatana Plantations Ltd. C.W.Mackie PLC - (14.3) Total Cost/Valuation

458,222 269,882 165,009 893,113 1,579,543

458,222 269,882 165,009 893,113 1,579,543

As at 31st March

Balance as at 01.04.2011 Rs.000

Charge for the Year Rs.000

Balance as at 31.03.2012 Rs.000

Accumulated Amortization / Depreciation Leasehold Right to Bare Land of JEDB / SLSPC Estates- (14.1) Kotagala Plantations PLC Agarapatana Plantations Ltd. Leasehold Right to Bare Land SunAgro Farms Ltd. - (14.4)

121,278 120,968

6,459 6,441

127,737 127,409

66 242,312

88 12,988

154 255,300

Immovable Leased Assets of JEDB / SLSPC Estates (Other than Bare Land)- (14.2) Kotagala Plantations PLC Agarapatana Plantations Ltd. C.W.Mackie PLC - (14.3) Total Amortisation / Depreciation Carrying amount

269,966 162,955 56,719 489,640 731,952 847,591

15,189 9,063 8,494 32,746 45,734

285,155 172,018 65,213 522,386 777,686 801,857

| 73

14.

LEASEHOLD PROPERTIES (CONTD.)

14.1 Leasehold Right to Bare Land of Janatha Estate Development Board (JEDB) / SriLanka State Plantation Corporation (SLSPC) Estates The leases of plantation estates in relation to the subsidiaries of the Group, Kotagala Plantations PLC and Agarapatana Plantations Ltd. have been executed and are retroactive from 22nd June,1992. The leasehold rights to these estates have been taken into the books as at 22nd June 1992 immediately after the formation of these two 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 Board of Directors of Kotagala Plantations PLC and Agarapatana Plantations Ltd. decided at the meeting held on 8th March, 1995 that these bare lands would be revalued, at the value established for these lands, by the valuation specialist Mr. D. R. Wickramasinghe, just prior to the formation. The value taken into the 22nd June, 1992 Balance Sheet and the amortisation of leasehold rights up to 31st March 2012 are as follows:

As at 31st March

Revaluation As at 22.06.1992 Rs. 000 358,928 341,588

Balance Accumulated Amortisation Accumulated As at Amortisation during the Amortisation 01.04.2011 01.04.2011 year 31.03.2012 Rs.000 Rs.000 Rs.000 Rs.000 342,287 341,588 121,278 120,968 6,459 6,441 127,737 127,409

Carrying Amount 31.03.2012 Rs.000 214,550 214,179

Carrying Amount 31.03.2011 Rs.000 221,009 220,620

a) b)

Kotagala Plantations PLC Agarapatana Plantations Ltd.

14.2 Immovable Leased Assets of JEDB / SLSPC Estates (Other than Bare Land) In terms of the ruling of the UITF of the Institute of Chartered Accountants of Sri Lanka, all immovable assets in the JEDB/SLSPC estates under finance leases have been taken into the books of the two plantation companies, Kotagala Plantations PLC and Agarapatana Plantations Ltd. retroactive to 22nd, June 1992. For this purpose, the Board of Directors of these two companies decided at the meeting held on 08th March , 1995 that these assets be restated at their book values as they appear in the books of the JEDB/SLSPC on the day immediately preceding the date of the Companies. These assets are taken into the Balance Sheet as at 22nd June 1992 and depreciation as follows:
Revaluation As at 22.06.1992 Transfer/ Immature to Mature (Adjustments) Rs. 000 Rs. 000 Balance Accumulated Depreciation Accumulated As at Depreciation for the Depreciation 01.04 2011 01.04.2011 year 31.03.2012 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Carrying Amount 31.03 2012 Rs. 000 Carrying Amount 31.03 2011 Rs. 000

As at 31st March

a)

Kotagala Plantations PLC


6,712 26,519 8,757 8,688 130,905 293,998 475,579 6,701 25,902 8,757 8,688 408,174 458,222 4,194 19,456 8,757 5,439 232,120 269,966 221 1,034 (2) 288 13,648 15,189 4,415 20,490 8,755 5,727 245,768 285,155 2,286 5,412 2 2,961 162,406 173,067 2,507 6,446 3,249 176,054 188,256

Land Development Cost Building other than worker housing Plant & Machinery Water Projects and Sanitations Mature Plantations Immature Plantations

74 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


14. LEASEHOLD PROPERTIES (CONTD.)
Revaluation As at 22.06.1992 Transfer/ Immature to Mature (Adjustments) Rs. 000 Rs. 000 Balance Accumulated Depreciation Accumulated As at Depreciation for the Depreciation 01.04 2011 01.04.2011 year 31.03.2012 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Carrying Amount 31.03 2012 Rs. 000 Carrying Amount 31.03 2011 Rs. 000

As at 31st March

14.2 Immovable Leased Assets of JEDB / SLSPC Estates (Other than Bare Land)Contd. b) Agarapatana Plantations Ltd. Improvement to Land 5,407 5,406 3,375 Unimproved Land 998 998 Roads and Bridges 677 677 318 Buildings 62,634 62,634 47,002 Fences & Securities 49 49 50 Machinery 8,823 (621) 8,201 8,201 Water Supply 6,158 6,158 5,774 Power Augmentation 972 972 911 Coffee, Pepper, Cardamom 305 305 Mature Plantations 37,457 141,636 179,093 96,537 Vested Tea 1,223 1,223 757 Immature Plantations 141,636 (141,636) Immature Timber 4,136 4,136 Other Vested Assets 30 30 30 270,505 (621) 269,882 162,955

181 17 2,501 (1) 308 48 5,968 40 9,063

3,556 335 49,503 49 8,201 6,082 959 102,506 798 30 172,018

1,851 998 342 13,131 1 76 13 305 76,587 425 4,136 97,864

2,032 998 360 15,632 (1) 384 61 305 82,555 465 4,136 106,928

14.3 C.W. Mackie PLC C. W. Mackie PLC has taken certain land & Buildings on leases. In terms of the grant to the Company dated 22nd September 1964 under Crown Lands Ordiance, premises No. 34 and 36, D. R. Wijewardana Mawatha, Colombo 10 has been leased for a period of 60 years, 8 months and 10 days (being the residue of the unexpired term under Indenture of Lease by the Crown dated 10th June 1925 granting the company 99 year lease of the premises from the said date). At the time of handing over the possession of the premises, the Company is not entitled to any compensation in respect of the land, buildings or improvements thereon. 14.4 SunAgro Farms Ltd. The agricultural land of SunAgro Farms Ltd. which was acquired on a 29 year lease from the Department of Buddhist Affairs and leasehold rights in relation to the above land is ammortised over the period of lease. As at 31st March 2012 Rs. 000

Acquisition Cost Balance at the beginning of the year Accumulated Amortisation Balance at the beginning of the year Amortisation charge for the year Balance at the end of the year Carrying amount

2,555 2,555 (66) (88) (154) 2,401

15.

INVESTMENT PROPERTY
Group 2012 Rs.000 2011 Rs.000

As at 31st March

Cost Balance at the beginning of the year Balance at the end of the year

68,408 68,408

68,408 68,408

| 75

15.

INVESTMENT PROPERTY (CONTD.)


2012 Rs.000 17,655 4,024 21,679 46,729

Group 2011 Rs.000 12,625 5,030 17,655 50,753

As at 31st March, Accumulated Depreciation Balance at the beginning of the year Charge for the year Balance at the end of the year Carrying Amount as at 31st March Group - C. W. Mackie PLC

The Company has rented out a part of C.W. Mackie building complex and value of land and buildings of that portion has been classified as investment property and accounted on Cost Model as required by SLAS 40 Investment Property. The above invesment property is situated at No. 36, D. R. Wijewardena Mawatha, Colombo 10 and the extent of the building is 52,923 squarefeet. The carrying amount of investment property as at 31st March 2012, amounted to Rs. 46.7 Million (As at 31st March 2011 - Rs. 50.7 Million). The fair value of the investment property on valuation carried out on 31st March 2011 is Rs. 61.5 Million. Rental Income earned from Investment Property by the Company amounted to Rs. 65 Million for the year ended 31st March 2012 (Rs. 60 Million for the period of 15 months ended 31st March 2011) and Direct Operating Expenses incurred for the same period amounted to Rs. 46.5 Million (Rs. 43.3 Million for the period of 15 months ended 31st March 2011).

16.

INTANGIBLE ASSETS
2012 Rs.000 357,078 354,767 711,845

Group 2011 Rs.000 357,078 357,078

As at 31st March Goodwill Balance at the beginning of the year Goodwill on Acquisition of Subsidiary Balance at the end of the year

This represents the excess of the cost of acquisition over the attributable net assets of the following companies. The aggregate carrying amount of Goodwill allocated to each company is as follows: Group As at 31st March Agarapatana Plantations Ltd. Lankem Tea & Rubber Plantations (Pvt) Ltd. Kotagala Plantations PLC Lankem Plantation Holdings Ltd. Lankem Developments PLC Marawila Resorts PLC C.W.Mackie PLC Galle Fort Hotel (Pvt) Ltd. 2012 Rs.000 150,120 10,329 6,369 30,820 4,361 14,839 165,935 329,072 711,845 2011 Rs.000 150,120 10,329 6,369 30,820 4,361 14,839 140,240 357,078

Carrying amount of the goodwill as at the reporting date was tested for impairment and no impairment losses were identified as at the balance sheet date. The recoverable value of Kotagala Plantations PLC, Lankem Developments PLC, Marawila Resorts PLC and C.W.Mackie PLC was based on fair value less cost to sell and the others were based on value in use. Value in use was determined by discounting the future cash flows generated from the investment. Key assumptions used are given below. Business growth Inflation Discount Rate Margin - Based on historical growth rate and business plan - Based on the current inflation and the total cost subjected to the inflation - Average market borrowing rate adjusted for risk premium - Based on current margin and business plan

76 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


17. INVESTMENTS IN SUBSIDIARIES
Group Holding 2012 % Company Holding 2012 % No.of Shares 2012 Cost 2012 Rs. 000 Market Value 2012 Rs. 000 No.of Shares 2011 Cost 2011 Rs. 000 Market Value 2011 Rs. 000

17.1

Company
45.92 35.47 61.25 40.70 32.60 39.44 5.45 53.71 13.05 0.18 14,193,453 3,270,597 4,833,760 15,991,271 57,100 549,494 1,060,251 37,192 34,014 225,245 357,698 94,542 111,939 5,301 3,997 911,774 1,567,899 13,537,453 3,459,241 4,831,560 38,043,668 5,000 483,589 1,179,112 39,337 250,103 225,031 483,639 209,126 418,480 122 840 957,205 2,332,174

Quoted Investments C.W.Mackie PLC Lankem Developments PLC Sigiriya Village Hotels PLC Marawila Resorts PLC Kotagala Plantations PLC Total Quoted Investments Unquoted Investments Colombo Fort Hotels Ltd. Lankem Plantation Holdings Ltd. Lankem Tea & Rubber Plantations (Pvt) Ltd. Lankem Plantation Services Ltd. Beruwala Resorts Ltd. Lankem Exports (Pvt) Ltd. Lankem Paints Ltd. Lankem Consumer Products Ltd. Lankem Chemicals Ltd. Lankem Research Ltd. SunAgro Life Science Ltd. SunAgro Farms Ltd. Associated Farms (Pvt) Ltd. Lankem Technology Services Ltd. Total Unquoted Investments Total Investments Less: Provision for Impairment in Value of Investments (Note 17.2)

72.40 47.56 48.07 60.00 57.10 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

69.68 2,329,326,024 47.56 19,500,001 1.00 8,342 60.00 179,993 0.01 30,000 100.00 10,000 100.00 2,000,000 100.00 2,000,000 100.00 2,000,000 100.00 250,007 100.00 200,000 100.00 1,200,000 100.00 55,398 100.00 4,999,995

1,595,116 220,500 1,998 1,800 30 100 20,000 20,000 20,000 2,500 2,000 12,000 554 5,000 1,901,598 2,813,372 (20,554)

65,753,012 19,500,001 8,342 179,993 118,381,000 10,000 2,000,000 2,000,000 2,000,000 250,007 200,000 1,200,000 55,398 -

170,753 220,500 1,998 1,800 118,381 100 20,000 20,000 20,000 2,500 2,000 12,000 554 590,586 1,547,791 (20,000)

2,792,818

1,527,791

Company As at 31st March 17.2 Provision for Impairment in Value of Investments


Lankem Consumer Products Ltd. Associated Farms (Pvt) Ltd. 20,000 554 20,554 20,000 20,000

2012 Rs.000

2011 Rs.000

17.3 Company (i) The Company has an investment in the shares of Lankem Developments PLC (LDPLC) and the carrying amount of the investment at cost amounted to Rs. 34 Million as at the reporting date. The net assets attributable to the said investment as at the reporting date amounted to Rs. 57 Million based on historical cost. However, LDPLC has incurred continuous losses in previous years and as at the reporting date the current liabilities exceeded the current assets by Rs. 86 Million. No provision has been made in the financial statements to the carrying amount of the investment in LDPLC due to the anticipated profits from its subsidiaries which will result in an improved performance of the Company in the near future. (ii) The Company has an investment in the shares of SunAgro Farms Ltd (SAFL) and the carrying amount of the investment at cost amounted to Rs. 12 Million as at the reporting date. The net assets attributable to the said investment as at the reporting date amounted to Rs. 0.2 Million based on historical cost. SAFL has incurred continuous losses in previous years and as at the reporting date the current liabilities exceeded the current assets by Rs. 28.7 Million. No provision has been made in the financial statements to the carrying amount of the investment in SAFL due to the anticipated profits from investments in Asparagus and Pineapple plantations.

| 77

18

OTHER LONG-TERM INVESTMENTS


Group Company 2011 Rs.000 254 13,325 21,918 3,011 500 39,008 Note 2012 Rs.000 49 180,000 1,709 181,758 2011 Rs.000 49 5,000 180,000 1,709 186,758 Note 2012 Rs.000 254 250 25,226 3,011 500 29,241

As at 31st March

Quoted Investments Unquoted Investments Debentures Unit Trusts Fixed Deposits

18.1.1 18.1.2 18.1.3 18.1.4 18.1.5

18.2.1 18.2.2 18.2.3 18.2.4

Group
As at 31st March

No of Shares 2012

Cost 2012 Rs.000

Market Value 2012 Rs.000

No of Shares 2011

Cost 2011 Rs.000

Market Value 2011 Rs.000

18.1 Group 18.1.1 Quoted Investments Bank, Finance & Insurance DFCC Bank PLC Total Construction & Engineering Colombo Dockyard PLC Total Hotels & Travel Hunas Falls Hotels PLC Hotel Sigiriya PLC Pegasus Resorts PLC Renuka City Hotels PLC Royal Palms Beach Hotels PLC Trans Asia Hotels PLC Total Manufacturing Pelawatte Sugar Industries PLC Total

10,906

102 102

1,228 1,228

4,260

102 102

731 731

257

2 2

59 59

257

2 2

66 66

400 14,000 960 525 375 200

7 65 9 30 11 1 123

24 1,002 36 115 21 13 1,211

400 14,000 960 525 375 200

7 65 9 30 11 1 123

34 1,065 68 175 26 39 1,407

1,000

9 9

23 23

1,000

9 9

32 32

78 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


18 OTHER LONG-TERM INVESTMENTS (CONTD.)
Group No of Shares 2012 Cost 2012 Rs.000 Market Value 2012 Rs.000 No of Shares 2011 Cost 2011 Rs.000 Market Value 2011 Rs.000

As at 31st March

18.1.1 Quoted Investments Contd. Plantations Balangoda Plantations PLC Hapugastenna Plantations PLC Horana Plantations PLC Kahawatte Plantations PLC Kegalle Plantations PLC Kelani Valley Plantations PLC Madulsima Plantations PLC Malwatte Valley Plantations PLC Maskeliya Plantations PLC Namunukula Plantations PLC Talawakelle Tea Estates PLC Udapussellawa Plantations PLC Watawala Plantations PLC Total Total Quoted Investments 18.1.2 Unquoted Investments Waverly Power (Pvt) Ltd. Ceylon Ocean Lines Container Services Ltd. Ceylon Ocean Lines Container Repairs Ltd. Lankem Technology Services Ltd. Total 18.1.3 Debentures Bank of Ceylon

100 100 100 100 100 100 100 100 100 100 100 100 100

2 1 1 1 1 1 2 1 3 1 2 1 1 18 254

2 4 3 3 10 10 1 1 2 6 2 3 1 48 2,569

100 100 100 100 100 100 100 100 100 100 100 100 100

2 1 1 1 1 1 2 1 3 1 2 1 1 18 254

6 7 7 4 21 18 3 11 3 11 5 5 3 104 2,340

250 250

800,000 4,999,995

8,000 250 75 5,000 13,325

200

25,226 25,226

200

21,918 21,918

18.1.4 Unit Trusts Comtrust Equity Fund National Equity Fund Pyramid Unit Trust

94,856 326,923 58,597

784 1,709 518 3,011

1,609 7,679 1,627 10,915

94,856 313,772 55,290

784 1,709 518 3,011

2,391 9,664 2,080 14,135

As at 31st March

2012 Rs.000 500 500

2011 Rs.000 500 500

18.1.5 Fixed Deposits Total

Sector classification and market value per shares of quoted investments are based on the official valuation list published by the Colombo Stock Exchange.

| 79

18

OTHER LONG-TERM INVESTMENTS (CONTD.)


No of Shares 2012 Cost 2012 Rs.000

As at 31st March

Company Market No of Value Shares 2012 2011 Rs.000

Cost 2011 Rs.000

Market Value 2011 Rs.000

18.2 Company 18.2.1 Quoted Investments Banks,Finance & Insurance DFCC Bank PLC Total 18.2.2 Unquoted Investments Lankem Technology Services Ltd. Total 18.2.3 Debentures Lankem Tea & Rubber Plantations (Pvt) Ltd. Total 18.2.4 Unit Trusts National Equity Fund Total

5,370

49 49 180,000 180,000 1,709 1,709

605 605 7,679 7,679

1,492

49 49 5,000 5,000 180,000 180,000 1,709 1,709

256 256 9,664 9,664

4,999,995

1,800,000

1,800,000

326,923

313,772

Group No of Shares 2012 Cost 2012 Rs.000 8 2,020 2,323 3,789 17,497 26 101,425 15,168 1 3 157,320 48,332 2,034 6,384 263 10,902 20,375 1,622 2,049 15,530 407,071 (42,004) 365,067 Market Value 2012 Rs.000 7 2,538 1,785 2,535 10,578 40 71,827 6,645 1 4 157,817 61,007 1,738 4,810 258 10,296 14,392 1,400 1,300 16,089 365,067 365,067 No of Shares 2011 Cost 2011 Rs.000 15,307 2,732 5,123 4,550 18,321 25 426 524 47,008 47,008 Market Value 2011 Rs.000 15,750 4,601 5,600 4,400 17,383 53 450 496 48,733 48,733

As at 31st March

18.3 Short-Term Investments Dialog Axiata PLC Nations Trust Bank PLC Janashakthi Insurance Company PLC Tokyo Cement Company PLC (Non Voting) Tokyo Cement Company PLC (Voting) Kotmale Holdings PLC Colonial Motors PLC PC House PLC Citizens Development Bank PLC (Voting) Citizens Development Bank PLC ( Non Voting) Capital Alliance Finance PLC Infrastructure Developers PLC Renuka Agri Foods PLC Renuka Holdings PLC Nanda Investment & Finance PLC Orient Garments PLC HVA Foods PLC J.L Morrison Sons & Jones (Ceylon) PLC Piramal Glass Ceylon PLC John Keells Holdings PLC Raigam Wayamba Saltens PLC Richard Pieris and Company PLC Less: Provision for Impairment in Value of Investments

1,000 44,600 153,900 93,900 285,900 1,000 224,600 810,400 16 71 4,175,048 421,900 289,600 124,937 30,000 550,575 959,500 6,603 250,000 78,100 -

1,500,000 60,300 339,400 100,000 285,900 1,000 100,000 36,500

80 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


18 OTHER LONG-TERM INVESTMENTS (CONTD.)
Company As at 31st March No of Shares 2012 Cost 2012 Rs.000 Market Value 2012 Rs.000 No of Shares 2011 Cost 2011 Rs.000 Market Value 2011 Rs.000

18.4 Short-Term Investments Dialog Axiata PLC Nations Trust Bank PLC Janashakthi Insurance Company PLC Tokyo Cement Company PLC (Non Voting) Tokyo Cement Company PLC (Voting) Kotmale Holdings PLC Colonial Motors PLC PC House PLC Citizens Development Bank PLC (Voting) Citizens Development Bank PLC (Non Voting) Capital Alliance Finance PLC Infrastructure Developers PLC Renuka Agri Foods PLC Renuka Holdings PLC Nanda Investment and Finance PLC Orient Garments PLC HVA Foods PLC J.L Morision Sons and Jones (Ceylon) PLC Raigam Wayamba Saltens PLC Richard Pieris and Company PLC Less: Provision for Impairment in Value of Investments

1,000 44,600 153,900 93,900 285,900 1,000 224,600 810,400 16 71 4,175,048 421,900 289,600 124,937 30,000 550,575 959,500 6,603 -

8 2,020 2,323 3,789 17,497 26 101,425 15,168 1 3 157,320 48,332 2,034 6,384 263 10,902 20,375 1,622 389,492 (41,814) 347,678

7 2,538 1,785 2,535 10,578 40 71,827 6,645 1 4 157,817 61,007 1,738 4,810 258 10,296 14,392 1,400 347,678 347,678

1,500,000 60,300 339,400 100,000 285,900 1,000 100,000 36,500

15,307 2,732 5,123 4,550 18,321 25 426 524 47,008 47,008

15,750 4,601 5,600 4,400 17,383 53 450 496 48,733 48,733

19.

INVENTORIES
Group Company 2011 Rs. 000 987,625 706,935 735,822 37,714 8,672 2,476,768 (40,434) 2,436,334 2012 Rs. 000 479,448 411,506 890,954 (36,612) 854,342 2011 Rs. 000 331,248 301,866 8,396 641,510 (32,915) 608,595 2012 Rs. 000 1,145,778 652,435 609,509 72,850 76,303 9,006 2,565,881 (39,845) 2,526,036

As at 31st March

Finished Goods Raw Materials Produce Stock-Tea & Rubber Growing Crop - Nurseries Packing & Other Materials Work-in-Progress Less: Provision for Obsolete Inventories

| 81

20.

TRADE & OTHER RECEIVABLES


Group Company 2011 Rs. 000 2,840,744 (82,002) 2,758,742 388,459 184,191 87,048 268,694 928,392 3,687,134 2012 Rs. 000 763,330 (14,628) 748,702 116,212 11,725 478 179,889 308,304 1,057,006 2011 Rs. 000 457,920 (12,936) 444,984 106,773 10,046 849 150,209 267,877 712,861 2012 Rs. 000 3,315,139 (110,901) 3,204,238 391,763 205,914 72,824 371,990 1,042,491 4,246,729

As at 31st March

Trade Receivables Provision for Bad and Doubtful Debts

Other Receivables Deposits, Advances and Prepayments Staff Loan Taxes Recoverable ( Note 20.1) Total Trade and Other Receivables 20.1 Taxes Recoverable Value Added Tax Withholding Tax Advanced Company Tax Economic Service Charge Nation Building Tax Social Responsibility Levy

280,789 8,067 457 78,554 4,123 371,990

191,555 13,808 457 61,943 931 268,694

175,766 4,123 179,889

142,124 1,060 6,094 931 150,209

21.

CASH & CASH EQUIVALENTS


1,578,088 141,826 35,258 1,755,172 1,104,353 211,721 5,267 1,321,341 38,192 48,363 23,182 109,737 64,988 64,988

Favourable Balance Cash at Bank Fixed Deposits Cash in Hand

Unfavourable Balance Bank Overdraft

(2,146,757) (391,585)

(824,478) 496,863

(707,706) (597,969)

(332,007) (267,019)

82 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


22. STATED CAPITAL
2012 Number of Shares Value of Shares Rs. 000 536,218 536,218 Number of Shares 2011 Value of Shares Rs. 000 281,218 255,000 536,218

As at 31st March

Fully paid Ordinary Shares at the beginning of the year Issued during the year At the end of the year

24,000,000 24,000,000

21,000,000 3,000,000 24,000,000

The holders of ordinary shares are entitled to receive dividend as declared from time to time and are entitled to one vote per individual present at meetings of the shareholders or one vote per share in the case of a poll.

23.

CAPITAL RESERVES
Revaluation Reserve Capital Redemption Reserve Fund Rs.000 Other Capital Reserve Rs.000 Total

Rs.000 Group Balance as at 01.04.2011 Derecognition of Revaluation Reserve on Disposal Transfer from Revaluation Reserve to Retained Earnings Balance as at 31.03.2012

Rs.000

462,088 (15,145) (7,124) 439,819

8,333 8,333

22,497 22,497

492,918 (15,145) (7,124) 470,649

Company Balance as at 01.04.2011 Balance as at 31.03.2012

87,377 87,377

8,333 8,333

95,710 95,710

23.1 Revaluation Reserve The revaluvation reserve relates to revaluation of freehold lands & buildings and represents the increase in the fair value of these lands and buildings. 23.2 Capital Redemption Reserve Fund The amount set aside out of retained earnings for redemption of preference shares.

| 83

24.

INTEREST BEARING BORROWINGS


Group Company 2011 Rs. 000 2012 Rs. 000 2011 Rs. 000 2012 Rs. 000

As at 31st March

Repayable after one year Finance Lease Obligations- JEDB/SLSPC Finance Lease Obligations- Others Long Term Loans - Others Debentures

24.1 24.2 24.4 24.6

397,923 221,030 1,541,585 513,500 2,674,038 390,000 3,064,038

403,951 184,528 1,886,783 313,500 2,788,762 2,788,762

7,542 285,313 350,000 642,855 770,000 1,412,855

9,968 169,933 150,000 329,901 300,000 629,901

Loans Payable to Related Parties Total Repayable within one year Finance Lease Obligations- JEDB/SLSPC Finance Lease Obligations- Others Long Term Loans - Others Short Term Loans Debentures

24.3

24.1 24.2 24.4 24.5 24.6

6,024 96,932 1,651,030 676,977 35,000 2,465,963 30,000 2,495,963 5,560,001

5,793 82,027 1,309,966 462,776 35,000 1,895,562 26,000 1,921,562 4,710,324

4,590 135,491 676,977 817,058 30,000 847,058 2,259,913

11,280 41,516 436,109 488,905 26,000 514,905 1,144,806

Loans Payable to Related Parties Total Total Interest bearing Borrowings 24.1 Finance Lease Obligations -JEDB/SLSPC Gross Lease Obligations Payments made during the year Less: Finance Charges allocated to future periods

24.3

759,205 (22,170) (333,088) 403,947

781,375 (22,170) (349,461) 409,744

Analysis of Lease Obligations - (JEDB/SLSPC) by year of Repayment Payable within one year Gross Lease Obligations Less: Finance Charges allocated to future periods Net Lease Obligations Payable within two to five years Gross Lease Obligations Less: Finance Charges allocated to future periods Net Lease Obligations

22,170 (16,146) 6,024

22,170 (16,377) 5,793

88,680 (62,075) 26,605

88,680 (63,098) 25,582

84 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


24. INTEREST BEARING BORROWINGS (CONTD.)
Group As at 31st March 2012 Rs. 000 2011 Rs. 000 2012 Rs. 000 Company 2011 Rs. 000

Payable after five years Gross Lease Obligations Less: Finance Charges allocated to future periods Net Lease obligations Repayable after one year

625,907 (254,589) 371,318 397,923

648,081 (269,712) 378,369 403,951

Kotagala Plantations PLC In terms of the leases, Rs. 22.2 Mn. is payable each year as lease rental,commencing from 22.06.1996 till the end of the lease on 21.06.2045. This amount is to be inflated annually by the Gross Domestic Product (GDP) deflated in 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. 59.6 Million as stated below. Million Gross Lease obligation per year Contingent Interest (Frozen for 6 Years) 22.2 37.4 59.6

The Charge to the Income Statement for the current financial year on account of interest is Rs. 46.5 Million (2010/2011 - Rs. 89.4 Million). 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 4% per annum and projected inflation of 4% per annum. Group As at 31st March 2012 Rs. 000 2011 Rs. 000 2012 Rs. 000 Company 2011 Rs. 000

24.2 Finance Lease Obligations - Others Balance at the beginning Leases acquired during the year Payments made during the year Less: Interest in suspense Balance at the end of the year Analysis of Finance Lease Obligations by year of Repayment Payable within one year Gross Lease Obligations Less: Finance Charges Unamortized Net Lease Obligations Payable within one to five years Gross Lease Obligations Less: Finance Charges Unamortized Net Lease Obligations

339,517 339,517 223,152 (164,940) (79,767) 317,962

241,448 241,448 187,681 (89,612) (72,962) 266,555

25,333 25,333 (10,929) (2,272) 12,132

59,284 59,284 (33,951) (4,085) 21,248

131,639 (34,707) 96,932

109,438 (27,411) 82,027

5,937 (1,347) 4,590

13,672 (2,392) 11,280

259,695 (38,665) 221,030

225,268 (40,740) 184,528

8,466 (924) 7,542

11,662 (1,694) 9,968

| 85

24.

INTEREST BEARING BORROWINGS (CONTD.)


Group Company 2011 Rs. 000 2012 Rs. 000 2011 Rs. 000 2012 Rs. 000

As at 31st March

24.3 Loans Payable to Related Parties Balance at the beginning Loans transferred/obtained during the year Payments made during the year Balance at the end Payable within one year Payable after one year Loans Payable to Related Parties are as follows The Colombo Fort Land & Building Co.PLC Kotagala Plantations PLC Sigiriya Village Hotels PLC

26,000 414,000 (20,000) 420,000 (30,000) 390,000

84,000 (58,000) 26,000 (26,000) -

326,000 494,000 (20,000) 800,000 (30,000) 770,000

85,000 300,000 (59,000) 326,000 (26,000) 300,000

420,000 420,000

26,000 26,000

420,000 300,000 80,000 800,000

26,000 300,000 326,000

The Company has obtained loans from related parties and interest on the outstanding balances is charged at the rates as specified below ; Amount Rs. 000 The Colombo Fort Land & Building Co. PLC Loan 1 Loan 2 Loan 3 300,000 90,000 30,000 420,000 300,000 80,000 Interest Rate

15% 9% 12.5%

Kotagala Plantations PLC Sigiriya Village Hotels PLC

9% 9%

Group As at 31st March 24.4 Long Term Loans - Others Balance at the beginning Acquisition of Subsidiary Loans obtained during the year Exchange Fluctuations Payments made during the year Balance at the end Payable within one year Payable after one year 24.5 Short Term Loans Term Loans Trust Receipt Loans 24.6 Debentures Unsecured Redeemable Debentures Guaranteed Redeemable Debentures Payable within one year Payable after one year 2012 Rs. 000 3,196,749 3,196,749 625,767 (46,432) (583,469) 3,192,615 (1,651,030) 1,541,585 91,006 585,971 676,977 448,500 100,000 548,500 (35,000) 513,500 2011 Rs. 000 2,084,149 4,635 2,088,784 1,746,079 (13,393) (624,721) 3,196,749 (1,309,966) 1,886,783 101,667 361,109 462,776 248,500 100,000 348,500 (35,000) 313,500 2012 Rs. 000 211,449 211,449 250,000 (40,645) 420,804 (135,491) 285,313 91,006 585,971 676,977 350,000 350,000 350,000

Company 2011 Rs. 000 344,327 344,327 100,000 (232,878) 211,449 (41,516) 169,933 75,000 361,109 436,109 150,000 150,000 150,000

86 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


24.
i)

INTEREST BEARING BORROWINGS (CONTD.)


Company The Company has issued Rs. 150 Million Rated Unsecured Unlisted Redeemable Debentures of the value of Rs. 1,000/- each on 30th December 2010 to DFCC Bank at the rate of Average Weighted Prime Lending Rate (AWPLR)+1%. These debentures are redeemable after 5 years from the date of issue. The purpose of the issue was to fund long term working capital requirement. The Company has issued Rs. 200 Million Rated Unsecured Unlisted Redeemable Debentures of the value of Rs. 1,000/- each on 5th April 2011 to Sri Lanka Insurance Corporation Limited at the rate of AWPLR + 1%. These debentures are redeemable after 5 years from the date of issue. The purpose of the issue was to fund long term working capital requirement. Group Kotagala Plantations PLC has issued Rs. 35 Million and Rs. 65 Million Guaranteed Redeemable Debentures (Unquoted) on 23rd April 2009 and 17 th July 2009 respectively to the Plantations Trust Fund at the Interest rate of 15.86%. These debentures are redeemable in 2012 (Rs. 35 Million) 2013 (Rs. 50 Million) and 2014 (Rs. 15 Million). Lankem Tea and Rubber Plantations (Pvt) Ltd. has issued Rs. 220 Million Unsecured Redeemable Debentures on 31.03.2005. The Debentures are redeemed at Rs. 45 Million 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 company shall commence the redemption of the debentures on the expiry of the second year from the date of allotment. Waverly Power (Pvt) Ltd. has pledged its own share certificates issued to its shareholders (Lankem Developments PLC and Agarapatana Plantations Ltd.) for the loans obtained from DFCC and HNB amounting to Rs. 54 Million each.

ii)

i)

ii)

iii)

24.7 Assets pledged as Security Against Interest bearing Borrowings


Balance as at 31.03.2012 (Rs.) Million Lankem Ceylon PLC PABC PLC 8.6 Balance as at 31.03.2011 (Rs.) Million 24.5 In 47 monthly installments of Rs.1,230,000/- each and a final installment of Rs.1,190,000/together with interest payable monthly on reducing balance of capital. In 4 Years in 16 equal quarterly installments of Rs.18,750,000/-. a) Primary Mortgage for Rs. 87 Mn. installments over land & agrochemical factory building at Ekala, Ja-ela. Overdraft Agreement. Primary Mortgage for Rs. 300 Mn. over land & Building situated in Fort owned by The Colombo Fort Land & Building Co.PLC. a) Mortgage over Primary bond of Rs. 5.7 Mn. which pledges some machinery of the Company. Primary Mortgage for Rs. 145 Mn. over land at Jaela & Gonawala.

Company

Lender

Terms of Repayment

Security Pledged

b)

Sampath Bank PLC

100.0

100.0

Lankaputhra Development Bank Loan 1 Loan 11 Commercial Bank of Ceylon PLC

1.3

60 equal monthly installments

62.2

0.2 85.3

60 equal monthly installments In 47 monthly installments of Rs.2,100,000/- each and a final installment of Rs.1,300,000/together with interest payable monthly on reducing balance of capital. In 3 Years in 12 equal quarterly installments of Rs.16,666,666/-. In 59 monthly installments of Rs.835,000/- each and a final installment of Rs.735,000/together with interest payable monthly on reducing balance of capital. a)

Indian Bank Hatton National Bank PLC

200.0 50.0

420.8

211.3

| 87

24.

INTEREST BEARING BORROWINGS (CONTD.)

24.7 Assets pledged as Security Against Interest Bearing Borrowings (Contd.)


Balance as at 31.03.2012 (Rs.) Million Beruwala Resorts Ltd. Sampath Bank PLC Term Loan 30.0 Balance as at 31.03.2011 (Rs.) Million 30.0 48 Equal monthly installments of Rs.778,480/-. Mortgage shares of B.O.T. Hotel Services (Pvt) Ltd for Rs.30 Mn for Sampath Bank PLC Term Loan

Company

Lender

Terms of Repayment

Security Pledged

30.0 Sigiriya Village Hotels PLC Commercial Bank of Ceylon PLC Kotagala Plantations PLC National Development Bank PLC - Term Loan Approved facility Rs.103Mn. 11.78% -

30.0 7.2 7.2 Equal monthly installments of Rs.166,666/Corporate Guarantee for Rs.10Mn by Lankem Ceylon PLC.

4.3

Repayable over 10 years from 30.11.2001 in equal monthly installments of Rs. 410,287/Rs. 148,433/- and Rs. 57,497/respectively. Repayable over 10 years from 30.05.2003, 30.06.2003 and 30.08.2003 in equal monthly installments of Rs. 618,745/-, Rs. 41,250/- and Rs. 248,333/respectively. Repayable over 5 years from 21.12.2012, in equal monthly installments of Rs. 3,300,000/and Rs. 283,400/- respectively. (After the re-finance is received interest rate would be 15.58%). Repayable over 45 months starting from 29.09.2010 in 32 installments ending in 29.07.2013. Repayable over 4 years in first monthly installments of Rs. 900,000/- and 47 monthly installments of Rs. 3,300,000/-.

Primary Mortgage over leasehold rights of Stonycliff, Vogan, Gikiyanakanda and Delkeith Estates and all immovable properties of these Estates. Secondary Mortgage over leasehold rights of Stonycliff, Vogan, Gikiyanakanda and Delkeith Estates and all immovable properties of these Estates. Secondary Mortgage over leasehold rights of Stonycliff, Vogan, Gikiyanakanda and Delkeith Estates and all immovable properties of these Estates. Securitisation of Kotagala Tea receivable over a period of 45 months. Primary Mortgage over 12 Mn. Ordinary Shares of C. W. Mackie PLC. Further mortgage over leasehold rights of Buildings, Plant & Machinery in Stonycliff, Vogan, Gikiyanakanda and Delkeith Estates and all immovable properties of these Estates. Securitisation of Kotagala Tea receivable.

Approved facility Rs.124Mn 11.51%

12.5

23.5

Approved facility Rs.215Mn. 15.58%

215.0

215.0

Approved facility Rs.150Mn. AWPLR+2.25% Approved facility Rs.250Mn. AWPLR+4.8%

88.0

133.0

180.2

243.8

Approved facility Rs.300Mn AWPLR+1.5% DFCC Bank PLC - Term Loan Approved facility Rs. 211Mn. 11.55% Approved facility Rs.50Mn. 12.75%

256.2

300.0

Repayable over 38 installments starting from 24.10.2011.

19.2

32.0

Repayable over 10 years from 15.09.2003 in equal monthly installments of Rs. 1,067,614/each. Repayable over 10 years from 23.06.2005 in equal monthly installments of Rs. 416,667/- each.

Primary Mortgage over leasehold rights of Drayton, Raigam and Padukka Estates. a) Primary Mortgage over leasehold rights to the land & buildings of Craigie Lea and Bogahawatte Estates. A Corporate Guarantee of Rs. 50Mn. from Lankem Tea & Rubber Plantations (Pvt) Ltd.

17.9

22.9

b)

88 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


24. INTEREST BEARING BORROWINGS (CONTD.)

24.7 Assets pledged as Security Against Interest Bearing Borrowings (Contd.)


Balance as at 31.03.2012 (Rs.) Million Kotagala Plantations PLC Approved facility Rs.7.5Mn. 12% 1.0 Balance as at 31.03.2011 (Rs.) Million 2.0 Repayable over 8 years from 25.06.2005 in equal monthly installments of Rs. 77,781/- each. a) Primary Mortgage over leasehold rights to the land & buildings of Craigie Lea and Bogahawatte Estates. A Corporate Guarantee of Rs. 7.46Mn from Lankem Tea & Rubber Plantations (Pvt) Ltd.

Company

Lender

Terms of Repayment

Security Pledged

b)

Approved facility Rs.50Mn. AWPLR or Average Treasury Bill Rate Lanka Orix Leasing Company PLC Approved facility Rs.40Mn. 18%

40.6

49.7

Repayable over 5 years in equal 60 monthly installments. Grace period is 18 Months.

Secured under the mortgage bond existing No. 1068 dated 8th September 1998 over the leasehold rights of Drayton, Padukka and Rayigam estates.

22.4

28.1

Repayable over 7 years from 30.03.2009 in 84 equal monthly installments of Rs. 476,191/- each.

On demand Promissory Note for Rs. 40 Mn. with interest at 18% p.a until the receipt of re-finance of the subsidiary loan from the DFCC bank, and thereafter at the rate of 10.56% p.a and the interest shall be paid together with any taxes which may be imposed by the Government from time to time.Primary Mortgage Bond over the unexpired leasehold rights created by the indenture of lease bearing No. 293 dated 2nd March,1995 and the amendments thereto bearing indenture No.1522 dated 4th July,1995. Corporate Guarantees of M/s. Lankem Plantation Holdings Ltd. and M/s. Lankem Tea & Rubber Plantations (Pvt) Ltd.

Sampath Bank PLC Approved Facility Rs. 50 Mn. 15% 40.6 46.9 In 95 equal monthly installments of Rs.521,000/- and a final installment of Rs. 505,000/(Capital) together with the interest after a grace period of 48 months commencing from the date of 1st disbursement. Loan Agreement for Rs.50Mn Primary Mortgage Bond for Rs.50Mn over leasehold rights of Arapolakande Rubber Estate at Kalutara together with factory buildings.

Peoples Leasing Company PLC Term Loan Rs.13 Mn. 13.32% 3.6 7.1 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. Primary Mortgage over two colour separators. Corporate Guarantee of Lankem Tea & Rubber Plantations (Pvt) Ltd. promissory notes.

| 89

24.

INTEREST BEARING BORROWINGS (CONTD.)

24.7 Assets pledged as Security Against Interest Bearing Borrowings (Contd.)


Balance as at 31.03.2012 (Rs.) Million Kotagala Plantations PLC Term Loan Rs.27.7 Mn. 25.0 Balance as at 31.03.2011 (Rs.) Million 27.7 Interest monthly at the rate of 21% from the time of disbursement of funds till the time the re-finance is received from DFCC. Thereafter payable within 60 months with a capital grace period of 12 months. 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. 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. 8,281/within the capital grace period of 12 months and Rs.35,573/(Capital +Interest) to be paid within 60 months. Interest monthly at the rate of 25% from the time of disbursement of funds till the time the re-finance is received from PMU.There is a capital grace period of 12 months and the loan period is 60 months. Interest monthly at the rate of 25% from the time of disbursement of funds till the time the re-finance is received from PMU.There is a capital grace period of 12 months and the loan period is 60 months. Interest monthly at the rate of 25% from the time of disbursement of funds till the time the re-finance is received from PMU.There is a capital grace period of 12 months and the loan period is 60 months. Interest monthly at the rate of 25% from the time of disbursement of funds till the time the re-finance is received from PMU.There is a capital grace period of 12 months and the loan period is 60 months. Interest monthly at the rate of 25% from the time of disbursement of funds till the time the re-finance is received from PMU.There is a capital grace period of 12 months and the loan period is 60 months. Primary Mortgage over two colour separators. Corporate Guarantee of Lankem Tea & Rubber Plantations (Pvt) Ltd. promissory notes.

Company

Lender

Terms of Repayment

Security Pledged

E-Friends Term Loan 1 Rs.1.8Mn.

1.1

1.5

Loan Agreement, acceptance and receipt. Corporate Guarantee of Lankem Tea & Rubber Plantations (Pvt) Ltd.

Term Loan 2 Rs.1.5 Mn.

1.0

1.3

Loan Agreement, acceptance and receipt. Corporate Guarantee of Lankem Tea & Rubber Plantations (Pvt) Ltd.

Term Loan 3 Rs.10.2Mn.

7.3

9.7

Loan Agreement, acceptance and receipt. Corporate Guarantee of Lankem Tea & Rubber Plantations (Pvt) Ltd.

Term Loan 4 Rs.9.6Mn.

6.9

9.0

Loan Agreement, acceptance and receipt. Corporate Guarantee of Lankem Tea & Rubber Plantations (Pvt) Ltd.

Term Loan 5 Rs.9.6 Mn.

6.9

9.0

Loan Agreement, acceptance and receipt. Corporate Guarantee of Lankem Tea & Rubber Plantations (Pvt) Ltd.

Term Loan 6 Rs. 3.8Mn.

3.8

Loan Agreement, acceptance and receipt. Corporate Guarantee of Lankem Tea & Rubber Plantations (Pvt) Ltd.

Term Loan 7 Rs.2.0 Mn

2.0

Loan Agreement, acceptance and receipt. Corporate Guarantee of Lankem Tea & Rubber Plantations (Pvt) Ltd.

90 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


24. INTEREST BEARING BORROWINGS (CONTD.)

24.7 Assets pledged as Security Against Interest Bearing Borrowings (Contd.)


Balance as at 31.03.2012 (Rs.) Million Kotagala Plantations PLC Peoples Bank Term Loan Rs.100 Mn 29.1 Balance as at 31.03.2011 (Rs.) Million 79.2 Repayable within 24 installments of Rs. 4,166,666/- each. Securitized tea sales of Mayfield Estate.

Company

Lender

Terms of Repayment

Security Pledged

974.5 Agarapatana Plantations Ltd DFCC Bank ADB Long Term Loan 13.7% Term Loan 11.75% 5.5

1,251.5 13.8 1st installment of Rs. 691,884/and 119 monthly installments of Rs. 691,429/- payable commencing from 01.11.2002. 1st installment of Rs. 390,917/and 119 monthly installments of Rs. 344,538/- payable commencing from 01.12.2003. 1st installment of Rs.217,545/and 119 monthly installments of Rs. 217,432/- payable commencing from 01.10.2005. 1st installment of Rs. 77,805/- and 95 monthly installments of Rs. 7 7,781/- payable commencing from 01.06.2005. 1st Installment of Rs. 86,373 and 119 monthly installments commencing from 01.12.2003 Primary Mortgage over leasehold rights to bare land and buildings of Balmoral, Hauteville and Nayabedde Estates. Further Mortgage over leasehold rights to land and buildings of Balmoral, Hauteville and Nayabedde Estates. Further Mortgage over leasehold rights to land and buildings of Balmoral, Hauteville and Nayabedde Estates. A Guarantee from Lankem Tea & Rubber Plantations (Pvt) Ltd.

2.3

7.0

Term Loan 13.27%

9.0

11.7

Term Loan 17.75%

1.0

1.8

Term Loan 11.75%

1.6

2.6

Further Mortgage over leasehold rights to land and buildings of Balmoral, Itanterdle and Noyebadde Estates.

Hatton National Bank PLC Term Loan (AWPLR + 1.5%) 1.0 48 monthly installments commencing from 01.07.2007. A Corporate Guarantee of Lankem Plantation Holdings Ltd for Rs.45Mn. Primary Mortgage over leasehold rights to bare land and buildings of Pitaratmale and Kahagalle Estates.

Lanka Orix Leasing Company PLC Term Loan 6.5% Peoples Leasing Company PLC Term Loan 6.5% Term Loan 6.5% Term Loan 6.5% Term Loan 6.5% Term Loan 6.6 8.9 60 monthly installments commencing from 12.11.2010. 60 monthly installments commencing from 12.11.2010. 60 monthly installments commencing from 12.11.2010. 60 monthly installments commencing from 13.03.2010. Loan agreement and Corporate Guarantee from Lankem Tea & Rubber Plantations (Pvt) Ltd. Loan agreement acceptance from Lankem Tea & Rubber Plantations (Pvt) Ltd. Loan agreement and Corporate Guarantee from Lankem Tea & Rubber Plantations (Pvt) Ltd. Loan agreement and receipts from Lankem Tea & Rubber Plantations (Pvt) Ltd. 1.1 1.9 60 monthly installments commencing from 30.10.2008. Loan agreement and Corporate Guarantee from Lankem Tea & Rubber Plantations (Pvt) Ltd.

6.0

8.1

6.6

8.9

6.5

9.6

14

| 91

24.

INTEREST BEARING BORROWINGS (CONTD.)

24.7 Assets pledged as Security Against Interest Bearing Borrowings (Contd.)


Balance as at 31.03.2012 (Rs.) Million Agarapatana Plantations Ltd Bank of Ceylon Term Loan 14% 25.6 24 monthly installments commencing from 17.07.2009 Mortgage over leasehold rights of Glenanore and Haputale Estates including machinery fixed each of these estates.Treasury Guarantee and Loan Agreement. Balance as at 31.03.2011 (Rs.) Million

Company

Lender

Terms of Repayment

Security Pledged

National Development Bank PLC Term Loan AWPLR + 2% Term Loan AWPLR + 1.15% Term Loan AWPLR + 2% Term Loan 60.0 12 monthly installments commencing 15.11.2011 14 monthly installments commencing 15.05.2012 14 monthly installments commencing from 15.07.2011 38 monthly installments commencing from 24.10.2011 Loan Agreement acceptance & Broker Certificate from Forbes & Walkers Tea Brokers (Pvt) Ltd. Loan Agreement acceptance & Broker Certificate from Forbes & Walkers Tea Brokers (Pvt) Ltd. Loan Agreement acceptance & Broker Certificate from Forbes & Walkers Tea Brokers (Pvt) Ltd. Loan Agreement acceptance & Broker Certificate from Forbes & Walkers Tea Brokers (Pvt) Ltd.

100.0

177.5

200.0

24.0

50.0

422.4 Marawila Resorts PLC Hatton National Bank PLC Loan I 62.0

350.9

68.2

Outstanding balance to be repaid in quarterly installments of US$ 15,000 in June & September and US$ 35,000 in December and March. Outstanding balance to be repaid in quarterly installments of US$ 15,000 in June & September and US$ 35,000 in December and March. Outstanding balance to be repaid in quarterly installments of US$ 15,000 in June & September and US$ 35,000 in December and March (interest free). Bulk payment of US$ 100,000 to be made at the year end in order to complete on aggregate repayment of US$ 400,000 per annum.

Existing secondary, Floating Mortgage Bond, totalling US$ 5.1 Mn over the hotel premises at Marawila

Loan II

182.0

172.8

Existing secondary, Floating Mortgage Bond, totalling US$ 5.1 Mn over the hotel premises at Marawila

Loan III-Interest Free

139.0

135.2

Existing secondary, Floating Mortgage Bond, totalling US$ 5.1 Mn over the hotel premises at Marawila

383.0

376.2

92 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


24. INTEREST BEARING LOANS & BORROWINGS (CONTD.)

24.8 Group 24.8.1 C.W. Mackie PLC C.W. Mackie PLC has obtained a restructured subordinated loan from the Industrialization Fund for Developing Countries Denmark which is outstanding and is denominated and payable in Danish Kroner and is converted into Sri Lankan Rupees at the exchange rate prevailing as at 31st March 2012 was Rs. 32.1 Million (as at 31st March 2011 Rs. 56.9 Mn.). A primary concurrent mortgage bond for the mortgage of the Companys leasehold interests in the premises at No. 34 and 36, D. R. Wijewardana Mawatha, Colombo 10 in favour of the lenders consortium composed of NDB Bank PLC (Rs. 64.0 million), Hatton National Bank PLC (Rs. 54.0 million) and Commercial Bank of Ceylon PLC ( Rs. 47.0 million) to provide security for the Companys borrowings from the said banks was duly executed in July 2003. As per the Companys request, the lenders consortium has released and discharged the primary concurrent mortgage of the Companys leasehold interest in the premises and increased their respective share of the primary concurrent mortgage over stock and book debts covering their exposure in their favour.

25.

DEFERRED INCOME
Group Company 2011 Rs. 000 614,028 69,144 683,172 106,118 16,171 122,289 560,883 2012 Rs. 000 5,641 5,641 4,366 1,275 5,641 2011 Rs. 000 5,641 5,641 2,183 2,183 4,366 1,275 2012 Rs. 000 683,172 11,211 694,383 122,289 19,001 141,290 553,093

As at 31st March

At the beginning of the year Grants received during the year At the end of the year Amortisation At the beginning of the year Amortisation for the year At the end of the year

The funds have been received by Kotagala Plantations PLC and Agarapatana Plantations Ltd. from the Plantation Housing and Social Welfare Trust, Asian Development Bank, Plantation Development Support Program, Plantation Human Development Trust, Plantation Reform Project and Ministry of Livestock Development and Estate Infrastructure for the development of worker 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 and Equipment and the grant component is reflected under Deferred Income and Capital Grants. Further, Kotagala Plantations PLC received funds from Sri Lanka Tea Board and they have been utilised for the construction of the CTC Tea Factory at Mount Vernon Estate.

26.

DEFERRED TAX LIABILITIES


Group Company 2011 Rs. 000 212,925 212,925 57,663 270,588 2012 Rs. 000 18,963 18,963 (10,041) 8,922 2011 Rs. 000 21,710 21,710 (2,747) 18,963 2012 Rs. 000 270,588 2,384 272,972 95,944 368,916

As at 31st March

Balance at the beginning of the year Acquisition of Subsidiaries Charged / (Reversal) to the Income Statement Balance at the end of the year 26.1 Deferred Tax Composition Deferred Tax Assets Defined Benefit Obligations Tax Losses carried forward Defered Tax Liabilities Property, Plant & Equipment Net Deferred Tax Assets / (Liabilities)

128,004 99,585 227,589 596,505 596,505 (368,916)

98,460 76,493 174,953 445,541 445,541 (270,588)

25,623 2,477 28,100 37,022 37,022 (8,922)

16,627 16,627 35,590 35,590 (18,963)

| 93

27.

RETIREMENT BENEFIT OBLIGATIONS


Group Company 2011 Rs. 000 107,701 178,967 1,435,261 1,614,228 2012 Rs. 000 67,346 158,855 158,855 2011 Rs. 000 63,687 123,065 123,065 2012 Rs. 000 112,283 215,192 1,497,698 1,712,890

As at 31st March

Fair Value of Retirement Benefit Assets Present Value of the Funded Obligations Present Value of the Unfunded Obligations

Company An Acturial valuation has been carried out as at 31st March 2012 by Messrs. Acturial and Management Consultants (Pvt) Ltd as required by the Sri Lanka Accounting Standard 16 Employee Benefits. Plan assets of the Company are held by an approved external gratuity fund where it invests in insurance scheme amounting to Rs. 67.3 Million as at the Balance Sheet date. The valuation method used by the actuary is the Project Unit Credit Method, the method recommended by Sri Lanka Accounting Standard 16 -Employee Benefits.

Group As at 31st March 2012 Rs. 000 2011 Rs. 000 2012 Rs. 000

Company 2011 Rs. 000

27.1 Fair Value of Retirement Benefit Assets Movements in Fair Value of Plan Assets Fair Value of Plan Assets at the beginning of the year Contribution paid to the Plan Assets Expected Return on Plan Assets Benefits paid by the Plan Assets/the Company Actuarial Gains/(Losses) Fair Value of Retirement Benefit Assets 27.2 Present Value of the Funded Obligations Movement in Present Value of Funded Obligations Balance at the beginning of the year Provision for the year Benefits paid by the Plan Assets/the Company Actuarial (Gains) / Losses Present value of Defined Benefit Obligations Expenses Recognised in the Income Statement Current Service Cost Interest on Obligation Provision for the year Expected Return on Plan Assets Net Actuarial (Gains) / Losses

107,701 6,903 5,187 (13,579) 6,071 112,283

104,101 7,029 7,559 (12,763) 1,775 107,701

63,687 1,237 (5,252) 7,674 67,346

66,083 (8,284) 5,888 63,687

199,351 42,706 242,057 (18,484) 15,384 238,957

155,444 35,618 191,062 (12,762) 21,051 199,351

123,065 29,283 152,348 (10,155) 16,662 158,855

110,091 23,558 133,649 (8,284) (2,300) 123,065

20,634 22,072 42,706 (5,187) 12,708 50,227

14,957 20,661 35,618 (7,559) 8,003 36,062

15,746 13,537 29,283 (1,237) 10,225 38,271

11,447 12,111 23,558 (8,188) 15,370

94 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


27. RETIREMENT BENEFIT OBLIGATIONS (CONTD.)
Group As at 31st March 2012 Rs. 000 2011 Rs. 000 2012 Rs. 000 Company 2011 Rs. 000

27.3 Present Value of Net Obligations Fair Value of Plan Assets Present Value of Funded Obligations Unrecognised Actuarial (Gains)/Losses Arrears Payable to Non Contributory Gratuity Fund Net Present Value of Funded Obligations Present Value of Net Obligations 112,283 (238,957) 27,380 (3,615) (215,192) (102,909) 107,701 (199,351) 29,536 (9,152) (178,967) (71,266) 67,346 (158,855) (158,855) (91,509) Group As at 31st March 2012 Rs. 000 2011 Rs. 000 63,687 (123,065) (123,065) (59,378)

27.4 Present Value of the Unfunded Obligations Movement in Present Value of Unfunded Obligations Balance at the beginning of the year Acquisition of Subsidiaries Provision for the year Gratuity Paid Actuarial (Gains) /Losses Present Value of Defined Benefit Obligations Expenses Recognised in the Income Statement Current Service Cost Interest on Obligations Provision for the year Net Actuarial (Gains) /Losses

1,435,261 953 272,749 1,708,963 (235,410) 24,145 1,497,698

1,246,191 2,100 215,046 1,463,337 (113,113) 85,037 1,435,261

108,538 164,211 272,749 24,145 296,894

88,835 126,211 215,046 85,037 300,083

Group i) Agarapatana Plantations Ltd. The gratuity liability of the Company as at 31st March 2012 is based on the acturial valuation carried out by a professionally qualified actuary firm Messrs Acturial and Management Consultants (Private) Ltd. As per the acturial valuation the liability as at 31st March 2012 is Rs. 898,759,075/-. If the Company had provided for gratuity for all employees on the basis of 14 days wages for workers and a half month salary for staff for each completed year of service for the year ended 31st March 2012, the liability would have been of Rs. 1,267,611,504/- (2011 - Rs. 1,107,793,138/-) .Hence there is a contingent liability of Rs. 368,852,429/(2011-Rs. 249,598,506/-) which would crystalise only if the Company ceases to be a going concern. ii) Kotagala Plantations PLC The retirement benefit obligation as at 31st March 2012 is based on the actuarial valuation carried out by Messrs Actuarial & Management Consultants (Private) Ltd. as per which liability as at 31st March, 2012 was Rs. 568,879,000/-. If the Company had provided for gratuity on the basis of payment of Gratuity Act No. 12 of 1983 the lialibilty would have been Rs. 753,639,101/-. Hence there is a contingent liability of Rs. 184,742,101/- which would crystalise only if the Compnay ceases to be a going concern. Marawila Resorts PLC The retirement benefit obligation as at 31st March 2012 is based on acturial valuation carried out by Messrs Piyal S. Goonethilleke and Associates as per which liability as at 31st March 2012 was Rs. 4,855,072/-.

iii)

| 95

27.
iv)

RETIREMENT BENEFIT OBLIGATIONS (CONTD.)


C. W. Mackie PLC The retirement benefit obligations as at 31st March 2012 is based on acturial valuation carried out by Messrs Piyal S. Goonethilleke and Associates as per which liability as at 31st March 2012 was Rs. 41.3 Million (2011 Rs. 43.4 Million) SLAS 16 (Revised 2006) requires the use of actuarial techniques to make a reliable estimate of the retirement benefit using the Projected Unit Credit method in order to determine the present value of the retirement benefit obligation. The key assumptions were made in arriving at the retirement benefit obligation as at 31st March 2012 in respect of the companies are stated below:

27.4 Present Value of the Unfunded Obligations - Group (Contd.)

v)

Company Name

Expected Salary Increment Rate

Discount Rate

Liability as at 31.03.2012 Rs. Million 158.85 0.15 4.86 53.32

Lankem Ceylon PLC Lankem Developments PLC Marawila Resorts PLC C.W.Mackie PLC Kotagala Plantations PLC

10% 10% 10% 12% Workers - 16% every two years and for other categories of staff - 10% p.a Workers 16% increase once in two years and staff - 10% p.a 11% 10% 10% 10%

11% 11% 11% 10%

11%

568.88

Agarapatana Plantations Ltd.

Beruwala Resorts Ltd. Lankem Consumer Products Ltd. SunAgro LifeScience Ltd. Lankem Paints Ltd.

11% 10% 11% 11% 11%

898.76 1.48 0.48 0.37 2.06

28

TRADE AND OTHER PAYABLES


Group Company 2011 Rs. 000 1,012,659 718,460 533,029 11,272 569 15,398 2,671 74,657 225,924 11,565 34 77 2,703 836 2,609,854 2012 Rs. 000 857,751 182,206 30,752 14,251 1,046 6,086 1,092,092 2011 Rs. 000 509,265 145,352 40,800 10,209 569 964 707,159 2012 Rs. 000 1,496,550 1,035,640 235,773 14,706 1,046 19,873 2,048 152,557 239,838 36,566 109 34,744 4,323 3,273,773

As at 31st March

Trade Payables Other Payables Accrued Expenses ESC Payable WHT Payable Unclaimed Dividend NBT Payable EPF/ETF Payable Payable to Employees VAT/GST Payable PAYE Tax Payable Penalties Payable Provision for Breakages Other Levies Payable

28.1 Accrued expenses & other payables for the Group include Rs. 13.3 Million on penalty and pradeshiya sabha tax payables of Marawila Resort PLC as more fully described in note No 31.2 to these financial statements.

96 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


29 RELATED PARTY TRANSACTIONS
Group As at 31st March 2012 Rs. 000 2011 Rs. 000 2012 Rs. 000 Company 2011 Rs. 000

29.1 Amounts due from Related Parties (a) Amounts due from Related Parties - Trade Receivables Subsidiaries Lankem Paints Ltd. Lankem Consumer Products Ltd. Lankem Chemicals Ltd. Agarapatana Plantations Ltd. Kotagala Plantations PLC C. W. Mackie PLC

383,192 22,857 36,843 333 2,967 4 446,196

262,397 40,676 41,090 344,163

(b) Amounts due from Related Parties Subsidiaries Agarapatana Plantations Ltd. Associated Farms (Pvt) Ltd. Beruwala Resorts Ltd. Lankem Consumer Products Ltd. Lankem Developments PLC Lankem Paints Ltd. SunAgro Farms Ltd. SunAgro Lifescience Ltd. Colombo Fort Hotels Ltd. BOT Hotel Services (Pvt) Ltd. Lankem Tea & Rubber Plantations (Pvt) Ltd. Lankem Chemicals Ltd. Marawila Resorts PLC Kotagala Plantations PLC Less : Provision for Bad & Doubtful Debts - Related Parties (29.1.1)

1,657 22,673 5,050 63,015 717 113,154 29,482 125,116 60,888 3,777 20,925 3,899 450,353 (26,754) 423,599

2,077 31,853 226,288 60,917 29,456 122,410 32,523 34,519 55,636 13,818 60,987 22,862 5,047 698,393 (26,754) 671,639

| 97

29

RELATED PARTY TRANSACTIONS (CONTD.)


Group Company 2011 Rs. 000 2012 Rs. 000 2011 Rs. 000 2012 Rs. 000

As at 31st March

29.1 Amounts due from Related Parties (Contd.) Affiliates E.B. Creasy & Company PLC Carplan Ltd. The Colombo Fort Land & Buildings Co.PLC Darley Butler & Co. Ltd. Dutch Dairy Foods Ltd. Sherwood Holidays Ltd. Tropical Beach Resorts Ltd. Voyages Ceylon (Pvt) Ltd. York Hotel Management Services Ltd. SunAgro Foods Ltd. Sunrise Resorts Ltd. Ceylon Tea Brokers PLC Creasey Plantation Management Ltd. Others Less: Provision for Bad & Doubtful Debts - Related Parties (Note 29.1.1) Key Management Personnel Total Amounts due from Related Parties 29.1.1 Provision for Bad & Doubtful Debts - Related Parties Subsidiaries Lankem Consumer Products Ltd.

1,382 145 181,940 221 31,945 15,824 30 3,155 4,735 77,068 1,045 684 35 318,209 (35,198) 283,011 283,011

2,420 145 164,907 4,425 31,945 5,308 25 3,155 12,897 250 473 225,950 (85,887) 140,063 140,063

994 63,708 64,702 64,702 488,301

2,159 2,159 2,159 673,798

26,754 26,754

26,754 26,754

Affiliates Carplan Ltd. Dutch Dairy Foods Ltd. The Colombo Fort Land & Building Co. PLC Voyages Ceylon (Pvt) Ltd.

98 31,945 3,155 35,198 35,198

98 31,945 50,689 3,155 85,887 85,887

26,754

26,754

29.2 Loans due from Related Parties The Colombo Fort Land & Building Co. PLC Colombo Fort Hotels Ltd. BOT Hotel Services (Pvt) Ltd. Lankem Developments PLC Lankem Tea & Rubber Plantations (Pvt) Ltd. Balance at the end of the year Receivable within one year Receivable after one year

400,000 400,000 (20,000) 380,000

55,000 14,000 25,000 60,000 154,000 (154,000) -

29.3 The Company has not made any provision in the financial statements in respect of amount due from Colombo Fort Hotels Ltd, Associated Farms Ltd, SunAgro Farms Ltd and Lankem Developments PLC as at the reporting date. Further the Company has not made a full provision in the financial statements in respect of amounts due from Lankem Consumer Products Ltd. other than for the provision of Rs. 26.75 Million reflected in Note 29.1.1 to the financial statements. The Company anticipates that these balances will be recovered in the ordinary course of business.

98 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


29 RELATED PARTY TRANSACTIONS (CONTD.)
Group As at 31st March 2012 Rs. 000 2011 Rs. 000 2012 Rs. 000 Company 2011 Rs. 000

29.4 Amounts due to Related Parties (a) Amounts due to Related Parties - Trade Payables Subsidiaries Lankem Research Ltd. Lankem Tea & Rubber Plantations (Pvt) Ltd. Sigiriya Village Hotels PLC Marawila Resorts PLC

46,785 14 3,876 721 51,396

131,844 131,844

(b) Amounts due to Related Parties Subsidiaries Lankem Research Ltd. Sigiriya Village Hotels PLC Lankem Exports (Pvt) Ltd. Kotagala Plantations PLC Lankem Technology Services Ltd. Lankem Chemicals Ltd.

105,105 25,123 22 6,732 4,925 141,907

14,782 137,007 22 9,342 161,153

Affiliates Island Consumer Supplies (Pvt) Ltd. Darley Butler & Co. Ltd. York Hotel Management services Ltd. E.B. Creasy & Company PLC Carplan Ltd. Colonial Motors PLC Creasy Plantation Management Ltd. Harrison Malayalam Ltd. Sherwood Holidays Ltd. The Colombo Fort Land & Building Co. PLC E.B. Creasy Logistic (Pvt) Ltd. Ceylon Trading Co. Ltd. Others

40,500 76,518 17,459 2,613 43 2,177 4,428 140 194 48,490 2,089 2,043 196,694 196,694

40,500 65,131 14,479 1,901 257 2,165 4,291 140 194 25 129,083 129,083

40,500 24 5,132 1,096 24,887 2,089 73,728 215,635

40,500 24 5,132 59,967 5,000 110,623 271,776

Key Management Personnel Total Amounts due to Related Parties

| 99

29

RELATED PARTY TRANSACTIONS CONTD

29.5 Transaction With Related Parties - Company The Company carries out transactions in the ordinary course of its business with parties who are defined as related parties in Sri Lanka Accounting Standard 30 - Related Party Disclosures (Revised 2005), the details of which are reported below.

Name of the Related Party

Name of the Director

Nature of the transaction

Amount

Rs000 E.B. Creasy & Co. PLC Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. R. N. Bopearatchy Fund Transfer Recovery of Expenses Sale of Goods Office Rent Current Account Current Account (2,793) 2,193 1,008 (1,573)

Receivable/ (Payable) balance as at 31.03.2012 Rs000

Receivable/ (Payable) balance as at 31.03.2011 Rs000

994 (24)

2,159 (24)

Darley Butler & Co. Ltd.

Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. R. N. Bopearatchy Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. N. H. B. S. Perera Mr. Anushman Rajaratnam (Appointed w.e.f. 28.11.2011)

The Colombo Fort Land & Building Co. PLC

Fund Transfers Settlement of Group Service fee Reimbursement of expenses Interest Expense Transferred to Loan Current Account Loans Obtained Sale of goods Interest Income Recovery of Expenses Fund Transfers Current Account- Trade Related Current Account- Others

(298,279) (5,492) 1,220 (26,369) 364,000 394,000 1,508,947 32,752 461,598 (1,891,758) 383,192 113,154 262,397 122,410 (24,887) 420,000 (59,967) (26,000)

Lankem Paints Ltd.

Mr. A. Rajaratnam (Retired on 29.07.2011) Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam Mr. R. N. Bopearatchy Mr. D. L.Vitharana Mr. K. P.David Mr. A. R. Peiris Mr. A. Rajaratnam (Retired on 29.07.2011) Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam Mr. R. N. Bopearatchy Mr. D. L. Vitharana Mr. K. P. David Mr. A. R. Peiris Mr. A. Rajaratnam (Retired on 29.07.2011) Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam Mr. R. N. Bopearatchy Mr. D. L.Vitharana Mr. K. P.David Mr. A. R. Peiris

Lankem Chemicals Ltd.

Sale of goods Recovery of Expenses Fund Transfer Current Account- Trade Related Current Account- Others

519,318 96,210 (606,534) 36,843 3,899 41,090 (9,342)

Lankem Consumer Products Ltd.

Sale of goods Salaries & Wages Recovered Recovery of Expenses Fund Transfer Current Account- Trade Related Current Account- Others

184,308 24,253 (175,905) (48,377) 22,857 63,015 40,676 60,917

100 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


29 RELATED PARTY TRANSACTIONS (CONTD.)
Name of the Director Nature of the transaction Amount Receivable/ (Payable) balance as at 31.03.2012 Rs000 Receivable/ (Payable) balance as at 31.03.2011 Rs000

29.5 Transaction With Related Parties - Company (Contd.)


Name of the Related Party

Rs000 Lankem Research Ltd. Mr. A. Rajaratnam (Retired on 29.07.2011) Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam Mr. R. N. Bopearatchy Mr. D. L.Vitharana Mr. K. P. David Mr. A. R. Peiris Mr. A. Rajaratnam (Retired on 29.07.2011) Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam (Resigned on 19.04.2012) Mr. A. R. Peiris Mr. K. P. David Mr. A. Rajaratnam (Retired on 29.07.2011) Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam Mr. R. N. Bopearatchy 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 Mr. K. P. David Mr. A. R. Peiris Mr. R. T. Weerasinghe Mr. N. H. B. S. Perera Mr. A. Rajaratnam (Retired on 29.07.2011) Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam Mr. R. N. Bopearatchy Mr. D. L. Vitharana Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. A. R. Peiris Research Expenses Fund Transfer Salaries & Wages Recovered Expenses Recovered (46,785) 19,623 10,559 11,339

(151,890)

(146,626)

Associated Farms (Pvt) Ltd.

Fund Transfer Salaries & Wages Recovered Expenses Recovered

(1,256) (8,434) 510 22,673 31,853

SunAgro Farms Ltd.

Fund Transfer Salaries & Wages Recovered Recovery of Expenses

(8,324) 1,983 3,300 29,482 32,523

Lankem Developments PLC

Sale of Goods Salaries & Wages Recovered Administrative Expenses Recovered Interest Income Inter Company Settlements Transferred to Loan Current Account Loan given

838 29 26 2,370 (7,002) (25,000) 25,000 717 25,000 29,456 -

SunAgro LifeScience Ltd.

Recovery of Expenses Overhead Expenses Recovered Fund Transfers

68,925 8,589 13,083 125,116 34,519

Beruwala Resorts Ltd.

Fund Transfer Purchase of Shares Loan Capital & Interest Current Account Purchases Debenture Interest Income Debenture Interest Received Dividend Loan Interest Received Transferred to Loan Current Account Loans given

(5,000) (226,288) 10,050 5,050 (14) 16,200 (2,112) 450 5,400 (60,000) 60,000 20,911 60,000 60,987 226,288

Lankem Tea & Rubber Plantations (Pvt) Ltd.

Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam Mr. N. H. B. S. Perera

| 101

29

RELATED PARTY TRANSACTIONS (CONTD.)


Name of the Director Nature of the transaction Amount Receivable/ (Payable) balance as at 31.03.2012 Rs000 Receivable/ (Payable) balance as at 31.03.2011 Rs000

29.5 Transaction With Related Parties - Company (Contd.)


Name of the Related Party

Rs000 Kotagala Plantations PLC Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Sale of Goods Interest Expense Fund Transfer Loan Obtained Sale of Goods Fund Transfer Purchase of Goods Fund Transfer Interest Paid Reimbursement of Expenses Dividend Income Transferred to Loans Current Account Loan Obtained Loan Settlement Purchases Interest Received Reimbursement of Expenses Purchase of Shares Current Account Purchase of Shares Recovery of Expenses Interest Income Fund Transfer Transferred to Loans Current Account Loan given Recovery of Expenses Fund Transfer Transferred to Loan Loan given Fund Transfer 2,967 (27,370) 15,591

(3,765) 300,000

5,047 300,000

Agarapatana Plantations Ltd.

Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. A. R. Peiris

333 (420) (89) 11,970 (6,820) 109 2,838 100,000

1,990

2,077

Sigiriya Village Hotels PLC

(28,999) 100,000 (20,000) (356) 1,850 10,536 (35,613) (721) (547,170) 4,389 4,950 598,083 (55,000) 55,000 3,859 100 (14,000) 14,000 50 60,888 55,000 80,000

(137,007) -

Marawila Resorts PLC

Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. A. R. Peiris

22,862

Colombo Fort Hotels Ltd.

Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam (Appointed w.e.f. 16.11.2011)

55,636 -

B.O.T Hotel Services (Pvt) Ltd.

Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam (Resigned w.e.f. 19.04.2012) Mr. K. P. David Mr. A . Rajaratnam (Retired on 31.07.2011) Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam (Resigned w.e.f. 19.04.2012) Mr. R. N. Bopearatchy Mr. K. P. David Mr. A . Rajaratnam (Retired on 31.07.2011) Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam Mr. R. N. Bopearatchy Mr. D. L. Vitharana (Appointed w.e.f. 16.05.2011) Mr. K. P. David (Appointed w.e.f. 16.05.2011)

3,777 14,000 (4,925)

13,818 (4,975)

Lankem Technology Services Ltd.

SunAgro Foods Ltd.

Recovery of Expenses Salaries & Wages Fund Transfer

(27,338) 3,237 87,809

63,708

102 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


29 RELATED PARTY TRANSACTIONS (CONTD.)
Name of the Director Nature of the transaction Amount Receivable/ (Payable) balance as at 31.03.2012 Rs000 Receivable/ (Payable) balance as at 31.03.2011 Rs000

29.5 Transaction With Related Parties - Company (Contd.)


Name of the Related Party

Rs000

C. W. Mackie PLC Laxapana Batteries PLC

Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam Mr. A. Rajaratnam (Retired on 27.09.2011) Mr. S. D. R. Arudpragasam Mr. R. N. Bopearatchy

Sale of Goods Fund Transfer

4 25

4 -

(25)

29.6 Transaction With Related Parties - Group Name of the Related Party Name of the Director

Nature of the transaction

Amount 2012 Rs. 000

Amount 2011 Rs.000

01. Lankem Paints Ltd. Lankem Consumer Products Ltd.

Mr. A. Rajaratnam
(Retired on 29.07.2011)

Fund Transfer

402

125

Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam Mr. R. N. Bopearatchy Mr. D. L. Vitharana Mr. K. P.David Mr. A. R. Peiris Lankem Chemicals Ltd. Mr. A. Rajaratnam
(Retired on 29.07.2011)

Fund Transfer

(31)

(590)

Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam Mr. R. N. Bopearatchy Mr. D. L. Vitharana Mr. K. P.David Mr. A. R. Peiris Marawila Resorts PLC Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. A. R. Peiris Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. A. R. Peiris Mr. A. Rajaratnam
(Retired on 31.07.2011)

Sale of Goods

1,398

Sigiriya Village Hotels PLC

Sale of Goods

114

SunAgro Foods Ltd.

Sale of Goods

360

Mr. S. D. R. Arudpragasam Mr. R. N. Bopearatchy Mr. Anushman Rajaratnam Mr. D. L. Vitharana Mr. K. P. David

| 103

29

RELATED PARTY TRANSACTIONS (CONTD.)


Nature of the transaction Amount 2012 Rs. 000 Amount 2011 Rs.000

29.6 Transaction With Related Parties - Group (Contd.) Name of the Related Party Name of the Director

02. Lankem Chemicals Ltd. Lankem Consumer Products Ltd.

Mr. A. Rajaratnam
(Retired on 29.07.2011)

Fund Transfer

100

(23)

Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam Mr. R. N. Bopearatchy Mr. D. L. Vitharana Mr. K. P. David Mr. A. R. Peiris 03. Lankem Consumer Products Ltd Creasy Foods Ltd. Marawila Resorts PLC E.B. Creasy & Co. PLC Darley Butler & Co. Ltd. 04. Lankem Research Ltd. SunAgro Farms Ltd. Mr. S. D. R. Arudpragasam Mr. R. N. Bopearatchy Mr. S. D. R. Arudpragasam Mr. A. R. Peiris Mr. S. D. R. Arudpragasam Mr. R. N. Bopearatchy Mr. S. D. R. Arudpragasam Mr. R. N. Bopearatchy Mr. A. Rajaratnam
(Retired on 29.07.2011)

Fund Transfer Fund Transfer Fund Transfer Fund Transfer

(42) (63) 7 29

42 63 71 -

Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam Mr. R. N. Bopearatchy Mr. K. P. David Mr. A. R. Peiris 05. Associated Farms (Pvt) Ltd. SunAgro Farms Ltd. Mr. A. Rajaratnam
(Retired on 29.07.2011)

Advances Received Reimbursement of Expenses Transfer the current account balance to Lankem Ceylon PLC

13,000 388 (13,388)

Mr. S. D. R. Arudpragasam Mr. K. P. David Mr. A. R. Peiris Sigiriya Village Hotels PLC Mr. S. D. R.Arudpragasam Mr. A. R. Peiris Mr. T. Theyagamurti Mr. S. D. R. Arudpragasam Mr. R. N. Bopearatchy Mr. Anushman Rajaratnam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. R. N. Bopearatchy Mr. S. Rajaratnam

Reimbursement of Expenses Fund Advance Transfer of Salary Expense

15 (1,886) 1,005

866 -

Reimbursement of Expenses Fund Advance

378 (2,016)

06. SunAgro Farms Ltd. SunAgro Life Science Ltd.

Fund Transfer

(263)

263

07. Lankem Developments PLC E.B. Creasy & Co. PLC

Rent Charges

(116)

(1,401)

104 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


29 RELATED PARTY TRANSACTIONS (CONTD.)
Nature of the transaction Amount 2012 Rs. 000 Amount 2011 Rs.000

29.6 Transaction With Related Parties - Group (Contd.) Name of the Related Party Name of the Director

07. Lankem Developments PLC (Contd.) Colombo Fort Hotels Ltd. Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. S. Rajaratnam Mr. Anushman Rajaratnam (Appointed w.e.f. 16.11.2011) Sigiriya Village Hotels PLC Mr. A. Rajaratnam Mr. S. D. R Arudpragasam Mr. A. R. Peiris Mr. S. Rajaratnam Mr. C. P. R. Perera Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam Mr. R. N. Bopearatchy Mr. D. L. Vitharana Mr. K. P. David Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. A. R. Peiris Mr. S. Rajaratnam Mr. T. Theyagamurti Mr. E. P. A. Cooray Mr. C. P. R.Perera Mr. Amrit Rajaratnam (Appointed w.e.f. 05.03.2012) Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. S. Rajaratnam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. S. Rajaratnam Mr. A. Rajaratnam Mr. T. Theyagamurti Mr. S. Rajaratnam Mr. Amrit Rajaratnam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. S. D. R. Arudpragasam Mr. T. Theyagamurti Mr. S. Rajaratnam Mr. Amrit Rajaratnam

Advance Given

80,000

Settlement of Trade Receivables

(996)

996

08. SunAgro Life Science Ltd. SunAgro Foods Ltd.

Fund Transfer

13,000

09. Beruwala Resorts Ltd. Marawila Resorts PLC

Reimbursement of Expenses

221

322

Colonial Motors PLC

Interest charged

(12)

(148)

The Colombo Fort Land & Building Co.PLC E.B. Creasy & Co. PLC

Settlement of Loan

(589)

(589)

Reimbursement of Expenses

(500)

(500)

York Hotel Management Services Ltd.

Reimbursement of Expenses Management Fees

4,911 (9,672)

4,512

Agarapatana Plantations Ltd. B.O.T. Hotel Services (Pvt) Ltd.

Tea Purchase Reimbursement of Expenses

462

(96) -

| 105

29

RELATED PARTY TRANSACTIONS (CONTD.)


Nature of the transaction Amount 2012 Rs. 000 Amount 2011 Rs.000

29.6 Transaction With Related Parties - Group (Contd.) Name of the Related Party Name of the Director

09. Beruwala Resorts Ltd. (Contd.) York Hotels (Kandy) Ltd.

Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. T. Theyagamurti Mr. A.R. Peiris Mr. S. Rajaratnam (Appointed w.e.f. 06.10.2011) Mr. Amrit Rajaratnam (Appointed w.e.f. 05.03.2012) Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. T. Theyagamurti Mr. S. Rajaratnam

Reimbursement of Expenses

Colombo Fort Hotels Ltd.

Settlement of Loans Temporary Deposit Interest Receivable

226,288 (82,500) (3,498)

10. Lankem Tea & Rubber Plantations (Pvt) Ltd. Kotagala Plantations PLC

Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. C. P. R. Perera Mr. R. C. Peiris Mr. D. A. Ratwatte Mr. G. D. V. Perera Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. C. P. R. Perera Mr. R. C. Peiris Mr. D. A. Ratwatte Mr. G. D. V. Perera Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Ms. K. M. Ramesh Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. N. H. B. S. Perera

Managing Agents Fee Dividend Receipt Expenses Receipt of Management Fee Dividend Income Fund Transfer Managing Agents Fee Receipt of Management Fee Expenses

87,490 (86,419) 91,755 (84,561) 86,419 (20,000) 62,393 (2,570) 57

138,388 (25,926) 114 (54,534) 25,926 74,487 (13,668) 126

Agarapatana Plantations Ltd.

Lankem Plantation Holdings Ltd.

Dividend Receipt Current Account Settlement Purchase of shares Expenses

(44,609) (293,000) 300

(35,687) (20,000) 60,000 194 85,000 (7,298) 6,138 (12,139) 21,069 9,972 (8,515) 1,149 110 (33,831) 18,011 (11,684) -

The Colombo Fort Land & Building Co.PLC

Advance against Current Account Administration Expenses (8,088) Settlement of Expenses 2,628 Loan to Related Companies 380,000 Loan Interest Income 15,200 Debenture Interest Payable Debenture Interest Paid Tea Sales Receipt for Tea Sales Management Salaries Rental Expenses Reimbursable Expenses Receipt on Short Term Advance Paid for Short Term Advance Reimbursable Expenses Right Issue (8,890) 9,503 7,473 (7,474) (12,000) 103 2 (441) 8,396 53,774 (200,000)

Darley Butler & Co. Ltd.

Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. S. Rajaratnam

11. Agarapatana Plantations Ltd Sigiriya Village Hotels PLC

Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. C. P. R. Perera Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. C. P. R. Perera Mr. R. C. Peiris Mr. D. A. Ratwatte Mr. G. D. V. Perera

Kotagala Plantations PLC

106 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


29 RELATED PARTY TRANSACTIONS (CONTD.)
Nature of the transaction Amount 2012 Rs. 000 13,650 (7,642) 480 1,196 Amount 2011 Rs.000 19,680 (4,310) 480 804

29.6 Transaction With Related Parties - Group (Contd.) Name of the Related Party Name of the Director

11. Agarapatana Plantations Ltd (Contd.) The Colombo Fort Land & Mr. A. Rajaratnam Building Co.PLC Mr. S. D. R. Arudpragasam Creasy Plantation Management Ltd. Sherwood Holidays Ltd. Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. D. A. Ratwatte Mr. G. D. V. Perera Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. C. P. R. Perera Mr. C. P. R. Perera

Rent on Building & Other Expenses Rent & Other Expenses Paid Interest Expenses Rent & Bungalow upkeep Expenses

Marawila Resorts PLC

Investment in Ordinary Shares

(25)

695

Ceylon Tea Brokers PLC

Broker Advance Received Broker Advance Paid Sale Proceeds Receivable Sale Proceeds Received Investment in Ordinary Shares Rental Expenses

(101,000) 90,523 (134,254) 131,833 26,000 (397)

(98,591) 98,591 (154,334) 155,249 -

Waverly Power (Pvt) Ltd.

Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. G. D. V. Perera Mr. A. Rajaratnam Mr. T. Theyagamurti Mr. S. Rajaratnam Mr. Amrit Rajaratnam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. T. Theyagamurti Mr. A. R. Peiris Mr. C. P. R. Perera Mr. S. Rajaratnam Mr. E. P. A. Cooray Mr. Amrit Rajaratnam (Appointed w.e.f. 05.03.2012) Mr. A. Rajaratnam Mr. T. Theyagamurti (Appointed w.e.f. 09.09.2011) Mr. A. Rajaratnam Mr. S. D. R Arudpragasam Mr. T. Theyagamurti Mr. A. R. Peiris Mr. S. Rajaratnam Mr. Amrit Rajaratnam Mr. A. Rajaratnam Mr. T. Theyagamurti Mr. S. Rajaratnam (Appointed w.e.f. 09.09.2011)

12. Sigiriya Village Hotels PLC York Hotel Management Services Ltd.

Reimbursement of Expenses Management Fees

2,970 (11,132)

4,735 -

Marawila Resorts PLC

Salaries & Wages Reimbursement of Expenses Cheques in Transit

480 (615) 3,194

Tropical Beach Resorts Ltd.

Reimbursement of Expenses

York Hotels (Kandy) Ltd.

Salaries & Wages Reimbursement of Expenses

333 21,331

8,237 -

Sigiriya Resorts Ltd

Reimbursement of Expenses

534

| 107

29

RELATED PARTY TRANSACTIONS (CONTD.)


Nature of the transaction Amount 2012 Rs. 000 414 1,500 Amount 2011 Rs.000 -

29.6 Transaction With Related Parties - Group (Contd.) Name of the Related Party Name of the Director

12. Sigiriya Village Hotels PLC (Contd.) Colombo Fort Hotels Ltd. Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. T. Theyagamurti Mr. S. Rajaratnam 13. Marawila Resorts PLC York Hotel Management Services Ltd. Mr. A. Rajaratnam Mr. T. Theyagamurti Mr. S. Rajaratnam Mr. Amrit Rajaratnam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. C. P. R. Perera Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. T. Theyagamurti Mr. S. Rajaratnam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam (Appointed w.e.f. 12.08.2011) Mr. S. Rajaratnam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam (Appointed w.e.f. 12.08.2011) Mr. S. Rajaratnam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. Anushman Rajaratnam (Appointed w.e.f. 28.11.2011) Mr. S. D. R. Arudpragasam Mr. T. Theyagamurti Mr. S. Rajaratnam Mr. W. T. Ellawala Mr. H. M. D. Kulatunga Mr. E. A. A. K. Edirisinghe

Reimbursement of Expenses Temporary Loan

Management Fee Reimbursement of Expenses

(12,838) 6,072

4,177

Kotagala Plantations PLC

Settlements

25

Colombo Fort Hotels Ltd.

Short Term Loan Given 9% Interest on Loan Recovery of Loan Given Recoverable of Loan Given Short Term Loan Given 9% Interest on Loan Recoverable of Loan Given Short Term Loan Given 9% Interest on Loan Recoverable of Loan Given Short Term Loan Given 9% Interest on Loan Sales

(15,000) 507 10,000 10,000 (10,000) 390 10,000 (10,000) 390 20,000 (20,000) 138 99

Colombo Investment Trust PLC

Colombo Fort Investments PLC

The Colombo Fort Land & Building Co.PLC Lankem Plantation Holdings Ltd. 14. Colombo Fort Hotels Ltd The Colombo Fort Land & Building Co.PLC

Funds Advanced Stamp Duty

35 15,547

(35) -

BOT Hotel Services (Pvt) Ltd.

Loan Granted Interest Income Interest on Current Account Balance Recovery of Overheads

100,000 1,721 35,401 8,422

18,096 3,457

15. C.W.Mackie PLC Ceymac Rubber Company Ltd.

108 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


29 RELATED PARTY TRANSACTIONS (CONTD.)
Nature of the transaction Amount 2012 Rs. 000 Amount 2011 Rs.000

29.6 Transaction With Related Parties - Group (Contd.) Name of the Related Party Name of the Director

15. C.W.Mackie PLC (Contd) Scan Tours & Travels (Pvt) Ltd.

Mr. W. T. Ellawala Mr. C. R. Ranasinghe Mr. E. A. A. K. Edirisinghe Mr. K. T. A. N. Perera Mr. W.T. Ellawala Mr. E. A. A. K. Edirisinghe Mr. H. M. D. Kulatunga Mr. A. I. Piyadigama Mr. W. T. Ellawala Ms. C. R. Ranasinghe Mr. G. C. B. Wijeysinghe Mr. W. T. Ellawala

Interest on Current Account Balance Vehicle Hire Charges Recovery of Overheads Interest on Current Account Balance Recovery of Overheads Inter Company Purchases Rent Income Secretarial & Legal Fees Management Fee Overheads Rent Income - Office Recovery of Overheads Interest Income Reimbursement of Expenses Interest Income

341 (28,159) 2,591 3,096 3,869 4,222 2,400 (3,030) (2,140) 13,674 7,239 480 357 200

1,246 (32,650) 2,160 939 3,734 10,366 2,730 (6,375) (6,308) 16,529 1,773 4,383 3,533

Ceytra (Pvt) Ltd.

Ceylon Trading Company Ltd.

Maersk Lanka (Pvt) Ltd. 16. Lankem Plantation Services Ltd. Kotagala Plantations PLC The Colombo Fort Land & Building Co. PLC 17. York Hotels (Kandy) Ltd. The Colombo Fort Land & Building Co. PLC 18. Lankem Plantation Holdings Ltd. Darley Butler & Co. Ltd

Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. A. Rajaratnam Mr.S. D. R. Arudpragasam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam

Loan Given Interest Income Debenture Interest Payable Debenture Interest Paid Tea Sales Receipt of Tea Sales Management Salaries Advance against Current Account Expenses Settlement of Expenses Loan Given Interest Receivable Rent & Other Expenses Payable Rent Paid Rent & Bungalow Upkeep Expenses Land Rent Interest Expenses

5,400 (8,889) 9,503 7,473 (7,474) (12,000) (8,088) 2,628 (380,000) 15,200 13,650 (7,643) 2,064 478

90,000 (12,139) 21,069 9,972 (8,515) 85,000 (7,298) 6,138 19,680 (4,310) 1,661 208 480

The Colombo Fort Land & Building Co. PLC

Mr. A. Rajaratnam Mr. S. D. R Arudpragasam

Sherwood Holidays Ltd. E.B. Creasy & Co. PLC Creasy Plantation Management Ltd.

Mr. A. Rajaratnam Mr. S. D.R. Arudpragasam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Ms. K. M. Ramesh

| 109

29

RELATED PARTY TRANSACTIONS (CONTD.)


Nature of the transaction Amount 2012 Rs. 000 Amount 2011 Rs.000

29.6 Transaction With Related Parties - Group (Contd.) Name of the Related Party Name of the Director

18. Lankem Plantation Holdings Ltd. (Contd.) Lankem Plantation Services Ltd. Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam Ms. K. M. Ramesh Ceylon Tea Brokers PLC Mr. C. P. R. Perera

Interest Expenses Interest Paid Broker Advances Received Broker Advances Paid Sale Proceeds Receivable Sale Proceeds Received Sale of Shares Dividend Receipts Expenses Dividend Income Expenses

(480) 329 (101) 90,523 (235,618) 234,237 (1) (24)

(480) 329 (99) 98,591 (253,702) 258,480 (60,000) (32,670) (9) 32,670 (24)

Darley Butler & Co. Ltd.

Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam

Agarapatana Plantations Ltd.

Mr. A. Rajaratnam Mr. S. D. R. Arudpragasam

29. 7 Terms and Conditions of Transactions with Related Parties Transactions with related parties are carried out in the ordinary course of the business at commercial rates. Outstanding balances at the end of the year are unsecured. Interest on outstanding balances has been charged at the prevailing market rate (unless otherwise stated) when the interest is charged. 29.8 Transactions with Key Management Personnel According to Sri Lanka Accounting Standard 30 - Related Party Disclosures, Key Management Personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly, Key Management Personnel include the members of the Board of Directors of Lankem Ceylon PLC and its subsidiary companies. (a) Loans to Key Management Personnel No loans have been given to Key Management Personnel during the year. Key Management Personnel Compensation Details of compensation for Executive and Non-Executive Directors are disclosed below. Group As at 31st March 2012 Rs. 000 164,745 2011 Rs. 000 147,983 2012 Rs. 000 65,459 Company 2011 Rs. 000 71,119

(b)

Short-term Employee Benefits (c)

Key Management Personnel Shareholding of the Company The shareholdings of the Directors are disclosed on page 34 of this Annual Report. Transactions with close family members There were no transactions with close family members during the year.

(d)

30

CAPITAL EXPENDITURE COMMITMENT

30.1 Company The Company had no material capital or financial commitments as at the balance sheet date. 30.2 Group The Group had no significant capital or financial commitments as at the balance sheet date other than those disclosed below. 30.2.1 Capital Commitments There are no material capital commitments other than the following as at the balance sheet date.

110 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


30 CAPITAL EXPENDITURE COMMITMENT (CONTD.)

30.2.1 Capital Commitments (Contd.) i Agarapatana Plantations Ltd. Followings are the capital commitments approved as at the balance sheet date 2012 Rs. Million a) Field Development b) Machinery & Factory Development ii 178 79 2011 Rs. Million 226 137

Sigiriya Village Hotels PLC The Company has contracted a capital expenditure of Rs. 15 Million as at the balance sheet date on Property Plant & Equipment. Beruwala Resorts Ltd. a) The Company is in the process of constructing new quarters for their executive staff and the budgeted cost for this projects is Rs. 34.8 Million. The Cost incurred for the construction of executive staff quarters project was Rs. 22.9 Million during the year. b) The Company is also in the process of constructing a new Sewage Treatment Plant with a budgeted cost of Rs. 15.4 Million. c) The Company had made an application for listing of the securities on the Diri Savi Board of the Colombo Stock Exchange. The Applicaion is pending approval. Lankem Research Ltd. The Company has made an advance payment of Rs. 2 Million in view of purchasing a land situated in Marawila. York Hotels (Kandy) Ltd. The capital expenditure commitment to Sierra Constructions (Pvt) Ltd amounting to Rs. 3.4 Million. Waverly Power (Pvt) Ltd. The Company intends to invest an amount of Rs. 15 Million to construct their site at Agarapatana and futher Rs. 15 Million is expected to be incurred for fixing the inter connection and metering equipment at the site. SunAgro Farms Ltd. The Company has entered into a lease agreement with the Department of Buddhist Afffairs for the lease of the agriculture land for cultivation for a period of 29 years, on 21st June 2010. Further, non cancellable operating lease rentals are payable in first five years of lease period amounting to Rs. 113,000/- per year. However lease payable after the first five years will be determined based on the market price of the land in the respective area. Kotagala Plantations PLC Budgeted capital development programme for the next financial year amounts to approximately Rs. 654.5 Million (2010/11 Rs. 510.3 Million).

iii

iv

vi

vii

viii

31.

CONTINGENT LIABILITIES

31.1 Company There are no material contingent liabilities outstanding as at the Balance Sheet date other than those disclosed below; Lankem Ceylon PLC has issued Corporate Guarantees for borrowings obtained by the related companies indicated below as at 31st March 2012. Name of the Company Amount Rs.000 50,000 105,000 125,000 7,200 55,000 70,000 412,200

Agarapatana Plantations Ltd. Darley Butler & Co. Ltd. Lankem Paints Ltd. Sigiriya Village Hotels PLC SunAgro LifeScience Ltd. Waverly Power (Pvt) Ltd.

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31.

CONTINGENT LIABILITIES (CONTD.)

31.2 Group (i) Lankem Tea & Rubber Plantations (Pvt) Ltd. Contingent liabilities exist in relation to the followings; a) Corporate Guarantee to DFCC Bank on behalf of Agarapatana Plantations Ltd to secure a loan of Rs. 7.47 Million under ADB credit line. b) Corporate Guarantee to DFCC Bank on behalf of Kotagala Plantations PLC to secure a loan of Rs. 50 Million & Rs. 7.47 Million under ADB credit line. A contingent liability of Rs. 50 Million exists as at the balance sheet in relation to the various regulatory and legal matters. In addition to which penalties may be imposed on certain statutory payments. However company is confident that these liabilities may not materialise in the future. Corporate Guarantee to Peoples Leasing Company PLC on behalf of Kotagala Plantations PLC, to secure term loans of Rs. 13 Million, Rs. 27.7 Million and E- Friends Loans of Rs. 1.8 Million, Rs. 1.5 Million, Rs. 10.2 Million, Rs. 9.6 Million, Rs. 9.6 Million, Rs. 3.7 Million and Rs. 2 Million. Corporate Guarantee to Lanka Orix Leasing Company PLC on behalf of Kotagala Plantations PLC to secure a term loan of Rs. 40 Million. Corporate Guarantee to Peoples Leasing Company PLC on behalf of Agarapatana Plantations Ltd to secure term loans of Rs. 9.7 Million, Rs. 8.9 Million, Rs. 9.7 Million, Rs. 9.7 Million and Rs. 12.8 Million.

c)

d)

e)

f)

(ii)

Lankem Plantation Holdings Ltd. Contingent liabilities exist in relation to the followings; a) Corporate Guarantee to Hatton National Bank on behalf of Agarapatana Plantations Ltd, to secure Term Loan of Rs. 15 Million. b) Corporate Guarantee of Rs. 40 Million to Indian Bank on behalf of Agarapatana Plantations Ltd, to secure Term Loan of Rs. 20 Million. Corporate Guarantee to Orix Leasing Company Ltd. on behalf of Kotagala Plantations PLC, to secure Term Loan of Rs. 40 Million. A Contingent liability of Rs. 50 Million exists as at the Balance Sheet in relation to the various regulatory and legal matters, in addition to which penalties may be imposed on certain statutory payments. However the Company is confident that these liabilities may not materialise in future.

c)

d)

(iii)

Marawila Resorts PLC The Company has contingent liabilities in respect of legal claims arising in the ordinary course of business. It is anticipated that any material liabilities that will arise from such legal cases and additional payment will have to be met accordingly, company has provided Rs. 13,299,965/- in the financial statement as at 31st March 2012 as penalty and pradesiya saba tax payable since company has undergone a legal case against pradeshiya saba. Lankem Developments PLC The contingent liablity as at 31.03.2012 on balance given by the Company to third parties amounted to Rs. 22.08 Million. C. W. Mackie PLC The company has issued Corporate Guarantees for the borrowings obtained by the related companies as at 31.03.2012 are indicated below. Amount Rs.000 75,000 8,000 83,000

(iv)

(v)

Name of the Company

Ceymac Rubber Company Ltd. Ceytra (Private) Ltd.

112 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


32. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to the current years classification and presentation. Group Company As per As per Audited Audited Reclassified Accounts Change Reclassified Accounts Change Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 32.1 Property, Plant and Equipment

Cost
Freehold Land Land Development Cost Buildings Mature /Immature Plantations Plant & Machinery Motor Vehicles Furniture,Fittings & Office Equipment Linen & Soft Furnishings Asset Under Construction 1,839,634 10,002 2,391,923 3,455,388 1,176,885 382,549 682,515 43,707 181,995 10,164,598 1,839,619 10,002 2,416,782 3,455,388 1,176,885 382,368 691,244 43,707 159,527 10,175,522 15 (24,859) 181 (8,729) 22,468 (10,924) 111,148 9,404 208,889 113,539 16,755 207,401 22,468 689,604 111,133 9,404 208,905 113,539 16,573 216,130 675,684 15 (16) 182 (8,729) 22,468 13,920

Leasehold Plant & Machinery Motor Vehicles Furniture,Fittings & Office Equipment Total Cost

204,372 450,561 2,202 657,135 10,821,733

204,372 449,640 16,910 670,922 10,846,444

921 (14,708) (13,787) (24,711)

111,783 78,778 190,561 880,165

111,783 77,857 14,708 204,348 880,032

921 (14,708) (13,787) 133

Accumulated Depreciation
Freehold Buildings Mature /Immature Plantations Plant & Machinery Motor Vehicles Furniture,Fittings & Office Equipment Linen & Soft Furnishings 440,307 410,090 605,412 322,577 442,019 31,449 2,251,854 465,152 410,090 605,297 325,392 433,025 31,449 2,270,405 (24,845) 115 (2,815) 8,994 (18,551) 40,456 50,469 7,341 118,781 217,047 40,456 50,354 10,156 109,787 210,753 115 (2,815) 8,994 6,294

Leasehold Plant & Machinery Motor Vehicles Furniture,Fittings & Office Equipment Total Accumulated Depreciation

79,045 216,585 465 296,095 2,547,949 8,273,784

79,159 212,667 10,432 302,258 2,572,663 8,273,781

(114) 3,918 (9,967) (6,163) (24,714) 3

51,891 60,201 112,092 329,139 551,026

52,005 56,281 9,967 118,253 329,006 551,026

(114) 3,920 (9,967) (6,161) 133 -

Carrying Value
32.2 Amounts due from related parties Marawila Resorts PLC Amounts due to related parties -Trade Payables Marawila Resorts PLC E.B. Creasy Logistics (Pvt) Ltd. Trade and Other Payables Trade Creditors

23,011 149 3,036 506,229

22,862 509,265

149 149 3,036 (3,036)

23,011 149 3,036 506,229

22,862 509,265

149 149 3,036 (3,036)

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33.

GOING CONCERN

33.1 Group The consolidated financial statements of Lankem Ceylon PLC do not include any adjustments in relation to the recoverability and the 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 going concern. (i) Lankem Consumer Products Ltd recorded a loss of Rs. 11,976,798/- during the year ended 31st March 2012 and as at that date accumulated loss was Rs. 77,917,404/-. Further the total liability exceeds the total assets by Rs. 57,917,404/-and current liabilities exceeds current assets by Rs. 57,439,154/-. These conditions indicate the existence of a material uncertainity which may cast significant doubt about the Companys ability to continue as a going concern. Hence Companys ability to continue as a going concern depends on the financial support of the parent Company, Lankem Ceylon PLC. However, the Financial Statements are prepared on a going concern assumption.

(ii) York Hotels (Kandy) Ltd., a subsidiary has not commenced its operations. Further, it has not continued the construction work since 1996. But the Board of Directors of the Company are confident that the construction work will be recommenced in the next financial year. (iii) SunAgro Farms Ltd., a subsidiary has incurred a loss of Rs. 3,099,332/- during the year ended 31 March 2012 and as at that date accumulated loss was Rs. 11,704,819/- and the Companys current liabilities exceeded its current assets by Rs. 28,733,675/-. Further, the Companys net assets are less than half of the stated capital and face a serious loss of capital situation as defined in section 220 (1) of Companies Act No 07 of 2007 and it is in the process of complying with the requirement of the same act. These factors have effects on companys ability to continue as going concern. However the Management has set an action plan which will be monitored by the Board to prevent further such losses or to recoup the losses incurred. Accordingly the Directors of the Company are in the view that the Company is able to continue as a going concern. (iv) Agarapatana Plantations Ltd., a subsidiary has recorded a net loss of Rs. 555,330,075/- during the year ended 31st March 2012 compared to the net profit of Rs.19,427,297/- made in year 2010/11, and as at 31st March 2012 the Current Liabilities of the Company exceeded its Current Assets by Rs.868,817,029/- (2011 - Rs. 386,344,413/-) and the Company is dependant on creditors and borrowings for the continuation of its operations. The Company s net assets is Rs. 10.15 Mn as at the balance sheet date and has a serious loss of capital as defined in section 220 (1) of the Companies Act N o 07 of 2007 and it is in the process of complying with the requirement of the Companies Act. The directors of the Company are confident that the financial position of the Company will significantly improve in the near future in view of the finance facilities available from the banks and related companies. The financial statements of the Company have been prepared on the assumption that the Company is a going concern. (v) Management of Associated Farms Ltd., has decided to transfer the net assets of Sigiriya Farm amounting to Rs. 9,985,683/- as per the Financial Statements as at 31 st March, 2011 to Sigirya Village Hotel PLC on 15th July, 2011. The Company has ceased its operations due to the environmental issues and will be looking for a suitable place to continue the business. (vi) Lankem Developments PLC, a subsidiary has incurred a loss of Rs. 266,980,889/- during the year ended 31st March 2012 (2010/11 Rs. 27,012,210/- ), as at that date accumulated loss was Rs.360,790,627/- (2010/11 - Rs. 86,123,513/-) and the Companys current liabilities exceeded its current assets by Rs. 86,072,866/- (2010/11 Rs. 17,408,259/-). These factors raise significant doubt of the Companys ability to continue as going concern. However the management is the view that investments in Plantation sector and Hydro Power Plants will generate profits in the future. Accordingly the Directors of the Company are of the view that the Company is able to continue as a going concern and financial statements of the Company have been prepared on the assumption that the Company is a going concern. (vii) Lankem Technology Services Ltd., a subsidiary has not commenced its operations from the date of incorporation and incurred a loss of Rs. 11,200/- during the year ended 31st March 2012 and as at that date accumulated loss was Rs. 32,400/-. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Companys ability to continue as a going concern.

114 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes to the Financial Statements


34. EVENTS AFTER THE BALANCE SHEET DATE

34.1 Company (i) The Company has transferred on 5th April 2012, 2,750,000 Ordinary Shares of its investment in Sigiriya Village Hotels PLC representing an equity stake of 30.56% to Colombo Fort Hotels Ltd. for a consideration of Rs. 184,250,000/-. (ii) The Directors of Lankem Ceylon PLC have recommended the payment of a first and final dividend of Rs. 2.50/- per Ordinary Share which will be declared at the Annual General Meeting to be held on 28th June, 2012. In accordance with Sri Lanka Accounting Standard 12 (Revised) - Events Occurring after the Balance Sheet Date, this proposed dividend has not been recognised as a liability as at 31 March 2012.

34.2 Group (i) The Directors of Lankem Tea & Rubber Plantations (Pvt) Ltd, have proposed a dividend amounting to Rs.20,865,000/- (Rs.25/- per Share). (ii) (iii) York Hotels (Kandy) Ltd. has subsequently completed the river bank revetment Protection Project. The Diretors of C. W. Mackie PLC have recommended the payment of a final dividend of Rs.1/- per Ordinary Share which will be declared at the Annual General Meeting to be held on 27th June 2012. The Board of Directors of Ceymac Rubber Company Ltd. has proposed a first and final dividend of Rs. 3/- per share, amounting to Rs. 9,568,125 /- for the year ended 31st March 2012, subject to the approval of the shareholders. The Board of Directors of Kotagala Plantations PLC have recommended a first and final dividend of Rs. 2/- per Ordinary Share for the year ended 31st March 2012 for approval by the shareholders at the Annual General Meeting. The Board of Directors of Sigiriya Village Hotels PLC have recommended a first and final dividend of Rs. 2/- per Ordinary Share for the year ended 31st March 2012 for approval by the shareholders at the Annual General Meeting. Subsequent to the balance sheet date, no circumstances have arisen that would require adjustments to/or disclosure in the financial statements other than those disclosed above.

(iv)

(v)

(vi)

35. ACQUISITION OF GALLE FORT HOTEL (PRIVATE) LIMITED


Colombo Fort Hotel Ltd., subsidiary of the Company acquired 100 % of the issued capital of Galle Fort Hotel (Pvt) Ltd. on 21st November 2011 for a total consideration of Rs. 781,559,000/-. The acquisition had the following effect on the Group Assets and Liabilities. Rs.000 Property, Plant & Equipment Inventories Trade and Other Receivables Bank & Cash Balances Deferred Tax Liability Retirement Benefit Obligations Trade and Other Payables Income tax Payables Net Identifiable Assets and Liabilities Net Assets Acquired Goodwill on Acquisition Investment made by Equity Holders of the Parent Investment allocated to Minority Interest Cash Consideration paid on Acquisition of Subsidiary Cash & Cash Equivalents Acquired Net Cash outflow on Acquisition of Subsidiary 282,443 8,096 50,292 2,499 (2,384) (953) (5,377) (2,249) 332,367 236,769 329,072 565,841 215,718 781,559 (2,499) 779,060

| 115

36.

SUBSIDIARY COMPANIES OF THE GROUP


Details of subsidiaries in which Lankem Ceylon PLC held an indirect interest are set out below:

Indirect Subsidiary Agarapatana Plantations Ltd. York Hotels (Kandy) Ltd. B.O.T Hotel Services (Pvt) Ltd. Ceymac Rubber Company Ltd. Scan Tours & Travels (Pvt) Ltd. Ceytra (Pvt) Ltd. Galle Fort Hotel (Pvt) Ltd. Waverly Power (Pvt) Ltd.

Effective Holding (%) 26 51 57 45 46 29 72 31

37.

SEGMENT INFORMATION
Information based on primary segments (Business Segments). Total Assets 31.03.2012 31.03.2011 Rs. 000 Rs. 000 Total Liabilities 31.03.2012 31.03.2011 Rs. 000 Rs. 000

37.1 Assets and Liabilities Chemicals Consumer Hardware Construction Hotels Plantations Agriculture Power Plant Technology Un-allocated Goodwill on Consolidation

2,652,765 2,311,443 3,239,700 148,442 4,027,159 9,660,630 33,499 164,451 4,998 22,243,087 (1,831,917) 711,845 21,123,015

1,831,242 1,491,675 1,689,315 41,476 3,005,844 8,525,338 69,050 16,653,940 380,396 357,078 17,391,414

3,107,886 1,181,041 1,864,021 16,732 1,544,718 7,705,688 52,772 110,678 30 15,583,566 (1,625,442) 13,958,124

840,715 899,591 1,351,873 13,093 884,554 6,477,427 1,975 10,469,228 396,006 10,865,234

Additions to Property, Plant and Equipment 2012 2011 Rs. 000 Rs. 000 37.2 Assets and Liabilities Chemicals Consumer Hardware Construction Hotels Plantations Agriculture Power Plant Technology Un-allocated

Depreciation and Amortisation 2012 2011 Rs. 000 Rs. 000

108,270 101,964 98,602 562 317,250 912,141 9,205 1,547,994 1,547,994

61,920 63,185 10,781 34 1,074,162 15,063 10,914 1,236,059 69,639 1,305,698

52,626 41,026 45,627 278 61,445 216,969 897 418,868 418,868

25,548 63,534 42,026 122 181,719 50,671 1,097 364,717 11,825 376,542

116 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Statement of Value Added


Group 2012 Rs. 000 Revenue Other Income Less: Cost of Material and Services Purchased Total Value Added Distributed as follows To Employees as Remuneration To Government as Tax Expenses/ (Release) To Providers of Capital as - Interest - Dividend Retained in the Business as - Depreciation - Reserves Distribution of Value Added To Employees as Remuneration To Government as Taxes To Providers of Capital Retained in the Business 24,117,751 788,385 24,906,136 (18,307,791) 6,598,345 2011 Rs. 000 23,030,604 460,802 23,491,406 (17,642,291) 5,849,115 2012 Rs. 000 5,778,255 534,264 6,312,519 (5,016,642) 1,295,877 Company 2011 Rs. 000 4,903,869 101,072 5,004,941 (4,114,792) 890,149

4,629,470 316,795 459,017 36,000 468,625 507,877 976,502 6,598,345 70.16% 4.80% 10.24% 14.80% 100.00%

3,637,771 258,418 400,726 71,250 429,427 1,051,523 1,480,950 5,849,115 62.19% 4.42% 8.07% 25.32% 100.00%

250,645 (19,906) 268,555 36,000 74,653 685,930 760,583 1,295,877 19.34% -1.54% 23.50% 58.70% 100.00%

176,140 (41,196) 132,770 71,250 55,568 495,617 551,185 890,149 19.79% -4.63% 22.92% 61.92% 100.00%

Distribution of Value Added - Group - 2011/12


14.80% 10.24% 4.80% 70.16% To Employees as Remuneration To Government as Taxes To Providers of Capital Retained in the Business

Distribution of Value Added - Group - 2010/11

25.32% To Employees as Remuneration To Government as Taxes To Providers of Capital Retained in the Business 62.19%

8.07% 4.42%

Distribution of Value Added-Company - 2011/12


19.34% To Employees as Remuneration To Providers of Capital Retained in the Business

Distribution of Value Added-Company - 2010/11


19.79% To Employees as Remuneration To Providers of Capital Retained in the Business

58.70% 23.50%

61.92% 22.92%

Note: The over provisions on Company taxes made for 2010/11 have been reversed due to the exepmtions for relocation of Agro Chemical and Agro Seeds operations.

| 117

Share Information
Twenty Major Shareholders
31st March 2012 No of Ordinary Shares % 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 E.B. Creasy & Company PLC The Colombo Fort Land & Building Company PLC Seylan Bank PLC/The Colombo Fort Land & Building Company PLC Pan Asia Banking Corporation PLC/E.B.Creasy & Company PLC Sri Lanka Insurance Corporation Ltd-General Fund Colombo Fort Investments PLC Associated Electrical Corporation Ltd Darley Butler & Company Ltd Colombo Investment Trust PLC Pan Asia Banking Corporation PLC/Darley Butler & Company Ltd Waldock Mackenzie Ltd/Hi-Line Trading (Pvt) Ltd Colonial Motors PLC Swiss Lloyd Limited Employees Trust Fund Board Mr. Mariapillai Radhakrishnan Mr.David Kotthoff Mr. Anthony Isidore De Silva & Mr. Francis Xavier Ranjith Pereira Mr. Duraisamy Ganeshamoorthy & Mr. Periyasami Pillai Anandarajah Bank of Ceylon No. 1 Account Pan Asia Banking Corporation PLC/Mr. H.N. De Silva 9,536,108 4,961,100 2,500,000 1,438,527 516,500 422,957 407,500 366,616 170,719 169,998 107,885 100,457 78,100 76,300 68,800 64,000 55,047 55,000 51,900 51,000 21,198,514 39.73 20.67 10.42 5.99 2.15 1.76 1.70 1.53 0.71 0.71 0.45 0.42 0.33 0.32 0.29 0.27 0.23 0.23 0.22 0.21 88.34 31st March 2011 No of Ordinary Shares % 10,974,635 4,941,900 2,500,000 419,857 186,700 366,616 170,219 169,998 87,485 100,457 10,000 68,800 2,000 55,047 50,000 51,000 20,154,714 45.73 20.59 10.42 1.75 0.78 1.53 0.71 0.71 0.36 0.42 0.04 0.29 0.01 0.23 0.21 0.21 83.99

Market Value
The market value of the Companys Ordinary Shares on 31st March 2012 was Rs. 180.00 (Highest during the year - Rs. 590.00 and lowest during the year - Rs.151.00)

Net Assets per Share


Consolidated The Net Assets per Share as at 31st March 2012 The Net Assets per Share as at 31st March 2011 Company The Net Assets per Share as at 31st March 2012 The Net Assets per Share as at 31st March 2011 Rs. 162.60 Rs. 135.84 Rs. 117.36 Rs. 88.43

Public Holding
The percentage of shares held by the public as at 31st March 2012 was 17.25% (31st March 2011 - 17.85%).

118 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Share Information
Distribution of Shares
As at 31st March 2012 No. of No. of Shares Held 1 1,001 10,001 100,001 1,000 10,000 100,000 1,000,000 Shareholders 1882 452 60 8 4 2406 Total Holdings 480,791 1,311,887 1,508,955 2,262,632 18,435,735 24,000,000 % of Total Holdings 2.00 5.47 6.28 9.43 76.82 100.00 As at 31st March 2011 No. of Shareholders 1,887 555 67 9 3 2,521 Total Holdings 526,009 1,660,144 1,601,860 1,795,452 18,416,535 24,000,000 % of Total Holdings 2.19 6.92 6.67 7.48 76.74 100.00

Over 1,000,000

Analysis of Ordinary Shareholders


As at 31st March 2012 No of Shareholders % Total Holdings Market Value (Rs.) % of Total Holding

Individuals Institutions

2,214 192 2,406

92.02 7.98 100.00

2,386,204 21,613,796 24,000,000

429,516,720 3,890,483,280 4,320,000,000

9.94 90.06 100.00

As at 31st March 2011

No of Shareholders

Total Holdings

Market Value (Rs.) 1,224,511,965 8,411,488,035 9,636,000,000

% of Total Holding 12.71 87.29 100.00

Individuals Institutions

2,331 190 2,521

92.46 7.54 100.00

3,049,843 20,950,157 24,000,000

| 119

Ten Year Summary


2002/03 Rs. 000 Trading Results Turnover Profit/(Loss) before Tax Taxation Profit/(Loss) after Tax 2003/04 Rs. 000 2004/05 Rs. 000 2005/06 Rs. 000 2006/07 Rs. 000 2007/08 Rs. 000 2008/09 Rs. 000 2009/10 Rs. 000 2010/11 Rs. 000 2011/12 Rs. 000

4,330,160 (293,067) (35,921) (328,988)

4,751,159 5,829,450 6,784,903 222,824 301,029 375,746 (57,454) (48,467) (60,564) 165,370 252,562 315,182

7,937,129 9,451,805 9,752,487 11,046,103 23,030,604 24,117,751 502,636 918,464 256,696 803,582 2,108,564 1,531,070 (98,745) (180,376) (194,293) (255,000) (236,815) (298,810) 403,891 738,088 62,403 548,582 1,871,749 1,232,260

Assets Employed Property, Plant & Equipment 3,529,593 3,610,641 3,961,363 4,244,554 4,934,249 5,262,758 Investments (Other Long Term Investment) 212,613 13,152 4,016 3,478 3,338 57,481 Working Capital (1,517,207) (1,254,495) (1,080,257) (1,039,775) (732,162) (262,984) Shareholders Funds Stated Capital 242,137 242,137 Reserves (670,693) (400,172) Goodwill on Consolidation 198,472 193,870 Non-Current Liabilities 2,561,502 2,449,706 Ratio Analysis Profitability Ratios Profit before Interest & Tax Margin (PBIT) (%) Pre Tax Return on Capital Employed After Tax Return on Capital Employed Liquidity Ratios Current Ratio Quick Ratio Gearing Ratios Debt Equity Ratio Interest Coverage

5,812,371 6,885,254 54,168 (459,127) 53,240 47,408

8,273,781 39,008 2,084,729

9,690,947 29,241 1,090,926

242,137 267,137 (248,260) (16,324) 135,589 163,276 2,599,217 2,605,856

222,885 492,673 160,067 2,819,691

289,552 281,218 782,471 895,544 84,366 147,254 2,795,150 3,359,950

281,218 1,531,704 357,078 4,684,213

536,218 2,723,837 357,078 5,234,461

536,218 3,366,116 711,845 5,698,937

1.65 -

11.10 1.93 1.43

10.44 0.71 0.60

10.19 0.49 0.41

9.81 0.33 0.26

12.27 0.39 0.31

5.55 0.11 0.03

9.94 0.22 0.15

11.12 0.32 0.29

8.15 0.21 0.17

0.45 0.26

0.55 0.37

0.64 0.37

0.67 0.40

0.78 0.45

0.93 0.53

0.87 0.56

1.01 0.67

1.37 0.94

1.13 0.83

1.06 (0.16)

0.96 1.73

0.85 1.97

0.75 2.19

0.61 2.82

0.47 4.81

0.54 1.90

0.55 3.73

0.46 5.66

0.52 4.53

Investor Ratios Market Price per Share (Rs.) 8.50 Earnings per Share (Rs.) (18.64) Net Assets per Share (Rs.) (35.71) Dividend Per Share (Rs) 1.00 Price Earnings Ratio (PE) 0.46 Earnings Yield (2.19) Dividends Yield 0.12 Dividend Payout Ratio (0.05) Market Capitalization 102,000

14.25 70.00 9.15 8.39 (8.78) (0.34) 1.50 1.50 1.56 8.34 0.64 0.12 0.11 0.02 0.16 0.18 171,000 1,260,000

54.00 11.51 13.93 1.50 4.69 0.21 0.03 0.13 972,000

36.75 9.95 39.75 1.50 3.69 0.27 0.04 0.15 661,500

46.50 15.07 51.05 1.80 3.09 0.32 0.04 0.12 976,500

28.75 8.30 56.04 2.00 3.45 0.29 0.07 0.24 603,750

65.00 15.72 86.33 2.25 4.14 0.24 0.03 0.14 1,365,000

401.50 180.00 47.16 23.01 135.84 162.60 2.50 2.50 8.51 7.82 0.12 0.13 0.01 0.01 0.05 0.11 9,636,000 4,320,000

120 | LANKEM CEYLON PLC | ANNUAL REPORT 2011/2012

Notes

Notice of Meeting
Notice is hereby given that the Forty Seventh Annual General Meeting of Lankem Ceylon PLC will be held at the Grand Oriental Hotel, No. 2, York Street, Colombo 01, on 28th June 2012 at 9.30 a.m. for the following purposes namely: To receive and consider the Annual Report of the Board of Directors and the Statement of Accounts for the year ended 31st March 2012, with the Report of the Auditors thereon. To declare a first and final dividend as recommended by the Directors. To re-elect as a Director, Mr. A. Hettiarachchy who retires in accordance with Articles 85 and 86 of the Articles of Association. 4. To reappoint Mr. N. H. B. S. Perera who is over seventy years of age as a Director. Special Notice has been received from a shareholder of the intention to pass a resolution which is set out below in relation to his reappointment (see Note No. 4). To reappoint Mr. R. N. Bopearatchy who is over seventy years of age as a Director. Special Notice has been received from a shareholder of the intention to pass a resolution which is set out below in relation to his reappointment (see Note No.5). To reappoint Mr. A. Rajaratnam who is seventy years of age as a Director. Special Notice has been received from a shareholder of the intention to pass a resolution which is set out below in relation to his reappointment ( see Note No. 6). To authorise the Directors to determine contributions to charities. To reappoint as Auditors, Messrs KPMG Chartered Accountants and to authorise the Directors to determine their remuneration. 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. 3. A Form of Proxy for the Meeting is enclosed with this report. The instrument appointing a proxy must reach the Registered Office of the Companys 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. Special Notice has been received by the Company from a shareholder giving notice of the intention to move the following Resolution as an Ordinary Resolution at the Annual General Meeting. ResolvedThat Mr. N. H. B. S. Perera who is eighty one years of age be and is hereby reappointed a Director of the Company and it is further specially declared that the age limit of seventy years referred to in Section 210 of the Companies Act No.7 of 2007 shall not apply to the said Director, Mr. N. H. B. S. Perera. 5. Special Notice has been received by the Company from a shareholder giving notice of the intention to move the following Resolution as an Ordinary Resolution at the Annual General Meeting: Resolved That Mr. R. N. Bopearatchy who is seventy one years of age be and is hereby reappointed a Director of the Company and it is further specially declared that the age limit of seventy years referred to in Section 210 of the Companies Act No.7 of 2007 shall not apply to the said Director, Mr. R. N. Bopearatchy. 6. Special Notice has been received by the Company from a shareholder giving notice of the intention to move the following Resolution as an Ordinary Resolution at the Annual General Meeting: Resolved That Mr. A. Rajaratnam who is seventy years of age be and is hereby reappointed a Director of the Company and it is further specially declared that the age limit of seventy years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to the said Director, Mr. A. Rajaratnam.

By Order of the Board Corporate Managers & Secretaries (Private) Limited Secretaries Colombo 30th May 2012

Form of Proxy
I/We ...........................................................................................................................................................................................................................................................of ....................................................................................................................................................................................................................................................................... being a member/members of Lankem Ceylon PLC, hereby appoint ...............................................................................................................................................of .............................................................................................................................................................................................................................................. whom failing. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Alagarajah Rajaratnam Sri Dhaman Rajendram Arudpragasam Anushman Rajaratnam Damitha Laksiri Vitharana Ranjit Noel Bopearatchy Nelakanni Hettiarachige Bernard Susantha Perera Kamalanesan Ponniah David Amaralal Rajasri Peiris Ruwan Tharka Weerasinghe Ariyawansa Hettiarachchy Anthony Crossette Selvanayagam Jayaranjan Jammagalage Dian Gomes of Colombo or failing him, of Colombo or failing him, of Colombo or failing him, of Colombo or failing him, of Colombo or failing him, of Colombo or failing him, of Colombo or failing him, of Colombo or failing him, of Colombo or failing him, of Colombo or failing him, of Colombo or failing him, of Colombo

as my/our proxy to represent me/us and to speak and vote on my/our behalf at the Annual General Meeting of the Company to be held on 28th June 2012 and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid meeting.

For
To receive the Annual Report of the Board of Directors and the Statement of Accounts for the year ended 31st March 2012 with the Report of the Auditors thereon. To declare a first and final dividend as recommended by the Directors. To re-elect Mr. A. Hettiarachchy as a Director. To re-appoint Mr. N. H. B. S. Perera as a Director. To re-appoint Mr. R. N. Bopearatchy as a Director. To re-appoint Mr. A. Rajaratnam as a Director. To authorise the Directors to determine contributions to charities. To reappoint as Auditors, Messrs KPMG, Chartered Accountants, and to authorise the Directors to determine their remuneration.

Against

The proxy may vote as he/she thinks fit on any resolution brought before the meeting. As witness my hand/our hands this ..day of.Two Thousand and Twelve.

...................................................................... Signature Note: 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 manner 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 as to completion are noted on the reverse hereof;

Instructions as to Completion 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 under the Common Seal of the Company or under the hand of an Authorized Officer or Attorney. Where the Form of Proxy is signed under a Power of Attorney (POA) which has not been registered with the Companys Secretaries, the original POA together with a photocopy of the same, or a copy certified by a Notary Public must be lodged with the Companys Secretaries, along with the Form of Proxy. The completed Form of Proxy should be deposited at the Registered Office of the Companys 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 meeting.

3.

4.

Corporate Information
Board of Directors Chairman A. Rajaratnam, FCA (Alternate, Mr. S. Rajaratnam) Deputy Chairman S.D.R. Arudpragasam, FCMA (UK) 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, FCMA (UK), FCMA, FIPFM, CGMA A.R. Peiris, B.Sc.(Cey.), FCMA (UK), CGMA R.T. Weerasinghe, BBA (USA) A. Hettiarachchy, C.Eng, MIEE, MIProdE A.C.S Jayaranjan FCA, FCMA (UK), CGMA J.D Gomes, FCMA (UK) FCCA (UK), FCPA (AUS), CGMA Secretaries Corporate Managers & Secretaries (Private) Limited Bankers Sampath Bank PLC National Development Bank PLC Commercial Bank of Ceylon PLC Hatton National Bank PLC Bank of Ceylon PABC Bank PLC Seylan Bank PLC Indian Bank Lawyers Messrs Julius & Creasy Attorneys-at-Law Auditors Messrs KPMG, 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 Lankem Developments PLC Investment Holding. (Formerly - Provision of Waterproofing and Construction of Roads and Industrial Flooring). C.W. Mackie PLC Manufacturer, Exporter, Importer and Distributor of Consumer, Hardware and Rubber Products 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 B.O.T. Hotel Services (Pvt.) Ltd. Owning and Operation of Resort Hotel Galle Fort Hotel (Private) Ltd. Owning and Operation of Boutique Hotel SunAgro Farms Ltd. Growers of Vegetables, Fruits and Foliage for Export and Sale Associated Farms (Pvt.) 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 Lankem Exports (Pvt) Ltd. Non-Operational SunAgro Foods Limited Growers, importers, exporters, processors and marketers of food items Waverly Power (Pvt) Ltd. Generation of power energy /electricity using hydro resources

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