You are on page 1of 52

Hotel Services (Ceylon) PLC

Co. Reg. No. PQ 203

Seizing Opportunities, Embracing Change

Annual Report 2011 - 2012

Contents Information to Shareholders 2 | Financial Summary 3 | Chairman’s Statement 5 | Board of

Contents

Information to Shareholders 2 | Financial Summary 3 | Chairman’s Statement 5 | Board of Directors 7 Annual Report of the Directors on the Aff airs of the Company 9 | Corporate Governance 12 Risk Management 18 | Statement of Directors’ Responsibilities 20 | Audit Committee Report 21 Independent Auditor’s Report 23 | Income Statement 24 | Balance Sheet 25 | Statement of Changes in Equity 26 Cash Flow Statement 27 | Notes to the Financial Statements 28 | Notice of Meeting 46 | Form of Proxy 47 | Corporate Structure - Inner Back Cover

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

It is remarkable to reflect on our company’s past year

Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 It is remarkable to reflect on our

and the complete refurbishment and transformation

Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 It is remarkable to reflect on our

that is taking place in this relatively short time span.

Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 It is remarkable to reflect on our

Being a forerunner in the hotel sector we are uniquely

Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 It is remarkable to reflect on our

grounded in our purpose to open doors to a world of

Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 It is remarkable to reflect on our

opportunity and confident it will propel our success.

Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 It is remarkable to reflect on our

Thus, the Hoberman Sphere on the cover of this

Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 It is remarkable to reflect on our

report reflects our momentum to seize opportunity

Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 It is remarkable to reflect on our

and embrace change.

Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 It is remarkable to reflect on our

1

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Information to Shareholders

Ordinary Shareholders as at 31 st March 2012

 

Residents

Non Residents

 

Total

No. of

 

No. of

No. of

No. of

No. of

No. of

No. of

Shares Held

 

Shareholders

Shares

%

Shareholders

Shares

%

Shareholders

Shares

%

 

1

-

1,000

2,316

1,049,633

0.5964

6

2,540

0.0014

2,322

1,052,173

0.5978

 

1,001

-

5,000

1,183

3,194,063

1.8148

12

40,160

0.0228

1,195

3,234,223

1.8376

 

5,001

-

10,000

298

2,465,739

1.4010

3

28,700

0.0163

301

2,494,439

1.4173

 

10,001

-

50,000

265

6,323,408

3.5928

10

299,300

0.1701

275

6,622,708

3.7629

50,001

- 100,000

57

4,352,500

2.4730

2

175,000

0.0994

59

4,527,500

2.5724

100,001 - 500,000

48

11,156,300

6.3388

2

324,800

0.1845

50

11,481,100

6.5234

500,001

- 1,000,000

10

7,690,046

4.3693

-

-

-

10

7,690,046

4.3693

OVER

 

1,000,000

16

138,897,811

78.9192

-

-

-

16

138,897,811

78.9192

 

4,193

175,129,500

99.5054

35

870,500

0.4946

4,228

176,000,000

100.0000

Category

 

Individuals

 

3,987

22,514,467

15.5569

31

520,670

0.2958

4,018

23,035,137

13.0881

Institutions

 

206

152,964,779

83.9485

4

349,830

0.1988

210

152,964,863

86.9119

 

4,193

175,129,500

99.5054

35

870,500

0.4946

4,228

176,000,000

100.0000

First Twenty Shareholders as at 31 st March 2012

 

Name of Shareholder

 

No. of Shares as at 31.03.2012

%

No. of Shares as at 31.03.2011

%

 
  • 1 HAYLEYS PLC NO 3 SHARE INVESTMENT ACCOUNT

66,762,690

37.93

66,762,690

37.93

  • 2 CARBOTELS (PVT) LIMITED

 

23,000,000

13.07

23,000,000

13.07

  • 3 EMPLOYEES PROVIDENT FUND

 

18,374,122

10.44

12,917,700

7.34

  • 4 BANK OF CEYLON - A/C NO. 2

 

7,833,500

4.45

7,833,500

4.45

  • 5 NATIONAL SAVINGS BANK

 

2,707,100

1.54

1,748,900

0.99

  • 6 MERCHANT BANK OF SRI LANKA LTD - A/C NO. 1

2,672,370

1.52

2,792,870

1.59

  • 7 RENUKA HOTELS LIMITED

 

2,371,300

1.35

2,222,300

1.26

  • 8 RENUKA CITY HOTELS LIMITED

 

2,260,300

1.28

2,166,500

1.23

  • 9 DEUTSCHE BANK AG-NATIONAL EQUITY FUND

 

2,200,000

1.25

2,200,000

1.25

  • 10 SEYLAN BANK PLC. - A/C NO. 3

 

2,000,229

1.14

2,350,000

1.34

  • 11 PREMIUM BRANDS (PVT) LIMITED

 

1,928,700

1.10

1,928,700

1.10

  • 12 RENUKA CONSULTANTS & SERVICES LIMITED.

 

1,835,100

1.04

1,510,100

0.86

  • 13 DEUTSCHE BANK AG NAMAL ACUITY VALUE FUND

1,650,000

0.94

1,650,000

0.94

  • 14 WALDOCK MACKENZIE LIMITED/MR. L. P. HAPANGAMA

1,227,700

0.70

1,227,700

0.70

  • 15 EAST WEST PROPERTIES PLC

 

1,064,600

0.60

0

0.00

  • 16 CARGO BOAT DEVELOPMENT COMPANY LIMITED

1,010,100

0.57

1,010,100

0.57

  • 17 MISS. A. N. DE SILVA

 

1,000,000

0.57

1,250,000

0.71

  • 18 UNION BANK OF COLOMBO LTD

 

1,000,000

0.57

1,000,000

0.57

  • 19 MR. V. LINTOTAWELA

 

977,700

0.56

1,373,100

0.78

  • 20 ASSOCIATED ELECTRICAL CORPORATION LTD

 

948,400

0.54

500,000

0.28

TOTAL

 

142,823,911

81.15

135,444,160

76.96

2

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Financial

Summary

5 Year Financial Summary and Key Indicators

 

2011/12

2010/11

2009/10

2008/09

2007/08

Rs.’000

%

Rs.’000

Rs.’000

%

Rs.’000

%

Rs.’000

%

Revenue

Rooms

251,439

46

277,689

46

111,385

33

134,799

32

172,073

35

Food & Beverages

282,471

52

310,342

51

213,013

62

277,645

65

300,087

62

Other Operating Income

13,267

2

18,517

3

17,013

5

14,753

3

15,533

3

Total Revenue

547,177

100

606,548

100

341,411

100

427,197

100

487,693

100

Direct Cost

Food & Beverage Cost

111,156

20

123,313

20

75,613

22

98,492

23

91,120

19

Total Expenses

111,156

20

123,313

20

75,613

22

98,492

23

91,120

19

Gross Operating Profit

436,021

80

483,235

80

265,798

78

328,705

77

396,573

81

Expenses

Administration & General

249,222

46

206,129

34

136,289

40

151,508

35

180,473

37

Advertising & Sales

55,500

10

54,328

9

19,282

6

28,674

7

22,335

5

Heat, Light & Power

79,956

15

77,512

13

49,218

14

53,354

12

49,108

10

Repairs & Maintenance

25,716

5

21,624

4

10,703

3

12,687

3

19,864

4

Total Deductions

410,393

75

359,593

59

215,492

63

246,223

58

271,780

56

Operating Profit

25,628

5

123,642

20

50,306

15

82,482

19

124,793

26

Other Income and Expenses

(22,664)

(4)

1,042

0

1,540

0

7,380

2

1,921

0

De - recognition of Property, Plant and Equipment

(149,992)

(27)

-

-

-

-

-

-

-

-

 

(147,028)

1

124,684

21

51,846

15

89,862

21

126,714

26

Interest Expenses/(Income)

(1,461)

(0)

(4,727)

(1)

1,476

0

4,382

1

(3,220)

(1)

Depreciation

56,675

10

62,751

10

46,294

14

47,522

11

48,199

10

 

55,213

10

58,024

10

47,770

14

51,904

12

44,979

9

 

Net (Loss)/Profit Before Taxation

(202,241)

(10)

66,660

11

4,076

1

37,958

9

81,735

17

Tax

13,152

2

(13,961)

(2)

3,132

1

(9,745)

(2)

(15,201)

(3)

Net (Loss)/Profit After Taxation

(189,089)

(35)

52,699

9

7,208

2

28,213

7

66,534

14

Operating Results

Total Revenue

547,177

606,548

341,411

427,197

487,693

Sales Growth %

(9.79)

77.66

(20.08)

(12.40)

(4.78)

Operating Profit

25,628

123,642

50,306

82,473

124,793

Net (Loss)/Profit Before Taxation

(202,241)

66,660

4,076

37,949

81,735

Interest Expenditure

(1,461)

(4,727)

1,476

4,382

(3,220)

Depreciation

56,675

62,751

46,294

47,522

48,199

3

Financial

Summary

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

 

2011/12

2010/11

2009/10

2008/09

2007/08

Rs.’000

%

Rs.’000

Rs.’000

%

Rs.’000

%

Rs.’000

%

Capital Employed

Share Capital

176,000

176,000

176,000

176,000

176,000

Revaluation & Other Reserves

1,087,053

1,227,417

962,933

141,825

143,320

Retained Earnings

164,177

193,762

120,695

111,728

102,876

Shareholder’s Fund

1,427,230

1,597,179

1,259,628

429,552

422,196

Assets Employed

Non Current Assets

1,956,358

1,729,487

1,453,958

529,185

579,871

Net Current Assets

41,528

67,588

12,544

(16,980)

(56,822)

 

1,997,886

1,797,075

1,466,502

512,205

523,049

Long-term Liabilities

410,290

9,939

10,802

22,825

38,414

Deferred Liabilities

160,366

189,957

196,072

59,828

62,439

 

1,427,230

1,597,179

1,259,628

429,552

422,196

Key Indicators

Current Ratio

1.63

1.48

1.15

0.79

0.68

Net Assets per Share

8.11

9.07

7.16

24.41

23.99

Market Price per Share

17.40

23.10

23.50

152.25

145.00

Earnings per Share

(1.07)

0.30

0.04

1.59

3.78

4

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Chairman’s

Statement

The year marks major

initiatives undertaken by the Company to stand out from the competition to flagship Ceylon Continental Hotel through its major refurbishment program coupled with an ambitious

program to set new standards of quality and service to its existing

and potential clientele.

Dear Shareholders, On behalf of the board, I am pleased to present the Annual Report of Hotel Services (Ceylon) PLC for the financial year 2011/12.

Having faced a particularly challenging environment in 2011, especially with the full scale refurbishment of the Ceylon Continental Hotel, I am pleased to report that the Company remained operationally profitable until the closure at the end of January 2012. However, the Company registered a decline in earnings compared to the previous financial year. This was largely as a consequence of the significantly reduced performance of Ceylon Continental Hotel which closed its operations in the months of February and March 2012.

The year marks major initiatives undertaken by the Company to stand out from the competition to flagship Ceylon Continental Hotel through its major refurbishment program coupled with an ambitious program to set new standards of quality and service to its existing and potential clientele. Furthermore, we are offering a new standard of quality defined by its unique architecture and decor in addition to highly personalised service encompassed in our total value proposition to customers.

Performance Review

The total revenue declined to Rs. 547 million from Rs. 606 million in 2011, resulting in a 10% decline year on year. Additionally, gross profit showed a slight decline of 13% to Rs. 291 million from Rs. 335 million from the previous year. These results were in line with the Company business plan pending the major refurbishment program that commenced in early 2012, to make a total transformation of its quality and service standards to customers.

Initiative and Development

With the ongoing renovation programme taking place at the Ceylon Continental Hotel, Hotel Services (Ceylon) PLC is poised to set new standards to secure in its future growth and to maintain competitiveness.

During the year, we have strived to develop and sustain all our capital expenditure programs, whilst investing in new infrastructure, marketing and human resource capabilities simultaneous with the ongoing refurbishment.

5

Chairman’s

Statement

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

The Hotel Services (Ceylon) PLC is investing approximately Rs 1.8 billion for its refurbishment project which will transform the property into a fully refurbished 229 room hotel as compared to the 189 units it was previously operating , making it one of the finest hotels in Colombo. The architecture of the hotel has been inspired by a “neo-classical” theme. Upon the completion of this major refurbishment program, it is expected to provide our customers a whole new ambience coupled with a new level of quality and service standards to provide a new meaning and experience to Sri Lankan hospitality.

The hotel will consist of luxury suites and deluxe rooms, in addition to 6 restaurants, 3 banquet venues, 3 board rooms, a business centre, the lounge bar and unique sky bar, infinity pool, state-of-the-art gym and spa. An important part of the renovation project is the replacement of the old mechanical and electrical systems of the hotel in its entirety with increased focus on reducing energy consumption and carbon emissions, whilst also saving on operational costs.

Simultaneously, development of our human resources remains a key focus to the overall success of this hotel. Thus particular attention is paid to ensure that we support the development of all our team members by providing them not only with the necessary working environment that will keep them motivated but by training our employees with help from outside expertise from some of the leading hotel chains. Along with this we conduct recruitment programs to hire people that have been exposed to international standards consequently developing both management and leadership capabilities as well as guaranteeing consistent delivery of high standards of service to all our customers. We are strengthening our sales and marketing efforts to gain higher market share by increasing promotional activity and innovative marketing programmes in key target markets throughout 2012. Additionally, we have redefined our marketing strategy on our regional and domestic markets with a more distinct strategy. Our new infrastructure with leading edge technology in the hospitality industry, installed throughout the hotel will help us solidify our target industry leadership position in the use of technology to better serve our customers.

Outlook

Parallel to the strong economic growth potential of Sri Lanka, the tourist figures to the country indicates an exponential growth with a hundred percent increase in the last two years. In this back drop, the overall outlook for our leisure business remains largely optimistic. The novel positioning strategy coupled to the major refurbishment program and new service standards, the Ceylon Continental Hotel is poised strategically and timely to reap maximum benefits from the boom in the leisure sector.

Appreciation

It has been a year of significant challenges and noteworthy accomplishments for the Company. I am pleased to report that the changes set in motion in 2011 will help Hotel Services (Ceylon) PLC to be a benchmark in the leisure industry in years ahead.

The accomplishment of the challenges and the major initiatives set in motion are attributable to the hard work and dedication of all our employees and to the guidance and support provided by my colleagues on the Board. I convey my appreciation to them for giving me such support and guidance. My sincere appreciation is further extended to our shareholders and other key stakeholders for the confidence and support provided during the year.

Chairman’s Statement Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 The Hotel Services (Ceylon) PLC

Mohan Pandithage

Chairman

17 th May 2012

Directorate

I would like to acknowledge the service rendered by Mr Upul Gamage who resigned during the year under review and wish him success in his future endeavours.

6

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Board of Directors

Mr. A. M. Pandithage (Chairman)

Mr. Pandithage joined Hayleys Group in 1969. Appointed Chairman and Chief Executive of Hayleys since July 2009.

Honorary Consul of United Mexican States (Mexico) to Sri Lanka. Fellow of the Chartered Institute of Logistics & Transport. Member of the Presidential Committee on Maritime Matters. Committee Member of the Ceylon Chamber of Commerce. Council Member of the Employers’ Federation of Ceylon. Member of the Monetary Policy Consultative Committee of the Central Bank of Sri Lanka. Director, Sri Lanka Port Management & Consultancy Services Limited. Former Chairman of the Ceylon Association of Ships’ Agents. Former Director of both the Sri Lanka Ports Authority and Jaya Container Terminals Limited.

Mr. S. C. Ganegoda *

Mr Ganegoda is a fellow member of Institute of Chartered Accountants of Sri Lanka and member of the Institute of Certified Management Accountants of Australia. He holds an MBA from the Postgraduate Institute of Management, University of Sri Jayawardenepura. He has worked for Hayleys PLC and Diesel & Motor Engineering PLC between 1987 and 2002 and ultimately as an Executive Director of the latter. Subsequently he has held several senior management positions in private sector entities in Sri Lanka and Overseas. He rejoined Hayleys in March 2007 and functioned as Head, Strategic Business Development until July 2009. He was appointed to the Board of Hayleys PLC in September 2009 and to several other Boards of Hayleys Group Companies.

Mr. K. D. D. Perera *

Appointed to the Board in 2010. He is a quintessential strategist and business specialist with 24 years of business experience. His business interests include Hydropower generation, Manufacturing, Hospitality, Entertainment, Banking and Finance. Currently he holds the position of Secretary to the Ministry of Transport, Sri Lanka. He is the Chairman of Sampath Bank PLC, Vallibel One PLC, Vallibel Finance PLC, Vallibel Power Erathna PLC, The Fortress Resorts PLC, Lewis Brown & Company (Pvt) Ltd and Greener Water Ltd. He is the Deputy Chairman of Hayleys PLC, Royal Ceramics Lanka PLC & LB Finance PLC. He also serves on the Boards of Amaya Leisure PLC, Hayleys MGT Knitting Mills PLC, Haycarb PLC, Dipped Products PLC, Orit Apparels Lanka (Pvt) Ltd, Nirmalapura Wind Power (Pvt) Ltd, Alutec Anodising & Machine Tools (Pvt) Ltd and Sri Lanka Insurance Corporation Ltd. He is also a member of the Board of Directors of Strategic Enterprise Management Agency (SEMA).

Mr. S. P. Dissanayake *

Joined Hayleys in July 2007. Appointed to the Group Management Committee in the same month. Graduate in Hotel Management. Was awarded the Life Time Gold Award in 2011 and Honorary Membership in 2004 by the Institute of Personnel Management, in recognition of his contribution to Human Resources activities in Sri Lanka. Director of Hayleys Group Services (Pvt) Ltd and Director of Hayleys Foundation (Guarantee) Ltd. Is the Co-Patron of the Hayleys Group Toastmasters Club and Vice Patron of Hayleys Group Recreation Club. Prior to joining Hayleys, he held several senior management positions in large private sector entities in Sri Lanka and abroad in Human Resources Management and previously in Hotel Management. Has held significant honorary and advisory positions in Human Resources and the Hotel industry. Is a former President of the Hotel School Graduates Association and a former Member of the Hotel Classification Committee of Sri Lanka Tourism Development Authority. Is a member of the Ceylon Chamber of Commerce Steering Committee for HR and Education and is also a Steering Committee Member of the Lanka Business Coalition (LBCH) for prevention of AIDS. Is the Sector Head for Group Human Resources, Corporate Communications/Sustainability and Group Security at Hayleys.

Mr. S. J. Wijesinghe

Joined Hayleys in October 2008 as CEO of Civaro International and later moved on to take over his current position as Head of the Leisure and Aviation sector in 2009. He was appointed to the Group Management Committee in 2011. Johann holds a MBA from the University of Leicester (UK) and is a Member of the Chartered Institute of Marketing (UK). Johann has over 20 years experience in the

7

Board of

Directors

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Aviation industry with the National Carrier SriLankan Airlines. Prior to joining Hayleys, he was the Head of Worldwide Cargo at SriLankan Airlines responsible for the entire air freight business sector of the organisation. He also held several senior positions for the airline including management positions in Europe, Middle East, Far East and at the Head Office in Colombo. Johann also has over 5 years experience in the Hotel industry having served as the Director Marketing & Sales at The Lanka Oberoi.

Mr. N. J. De S. Deva-Aditya **

Mr. Deva-Aditya was the First Asian MP elected to Conservative Party in the House of Commons and Bachelor Technology (Honors) Upper Second, Aeronautical Engineering and Design , Research Fellow, University of Louhborough, Graduate of the Royal Aeronautical Society and Institute of Mechanical Engineers and he holds directorships in six companies.

Ms. R. N. Ponnambalam **

Mrs. Ponnambalam has held several senior management positions in large private sector entities. She has served as a Director of McLarens Holdings Limited & GAC Shipping Limited. She currently serves as Director of Amaya Leisure PLC, Alliance Finance Co. PLC and McBolon Polymer (Pvt) Ltd. She is presently the Managing Director / CEO of Macbertan (Pvt) Ltd. She has also been in roles of International & Local Business Development and negotiation.

Mr. L. N. De S. Wijeyeratne **

Mr. De Silva Wijeyeratne is a fellow member of the Institute of Chartered Accountants of Sri Lanka and counts over thirty years experience in finance and general management, both locally and overseas. He was the former Group Finance Director of Richard Pieris & Company PLC and is presently a Director of several listed and unlisted companies.

Mr. W. D. N. H. Perera *

Appointed to the Board in 2011. He counts for over 30 years experience in Finance, Capital Market Operations, Manufacturing, Marketing and Management Services. Managing Director of Royal Ceramics Lanka PLC, Executive Deputy Chairman of Vallibel One PLC, Chairman of Pan Asia Banking Corporation PLC, Don Wilbert Capital Ltd, N Sports (Pvt) Ltd, N Capital (Pvt) Ltd, Director of Hayleys PLC, Haycarb PLC, Amaya Leisure PLC, LB Finance PLC, Vallibel Finance PLC, Talawakele Tea Estates PLC and Vallibel Power Erathna PLC.

Mr. L. T. Samarawickrama *

Mr. Samarawickrama serves as the Managing Director of Amaya Leisure PLC. He is an internationally qualified Hotelier having gained most of his Management experience in UK, Working for large international hotel chains over a long period of time. First Sri Lankan Manager to be appointed by the Beaufort International chain of Hotels to run the first seaside boutique resort in the island. He is a Member of the Institute of Hospitality UK (formerly HCIMA) and of the Royal Society of Health, London. He counts over several years of experience in the trade. Having specialised in Hotel design, he has been responsible for the careful planning and execution of Amaya Resorts & Spa’s refurbishment and rehabilitation programs. He is also a Director of the Fortress Resorts PLC, Hunas Falls PLC, Royal Ceramics Lanka PLC and Kelani Valley Plantations PLC.

Executive * Non-Executive ** Non-Executive Independent

8

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Annual Report of the Directors on the Affairs of the Company

The Board of Directors is pleased to present their report and the Audited Financial Statements of the Company for the year ended 31 st March 2012. The details set out herein provide pertinent information required by the Companies Act, No.7 of 2007 and the Colombo Stock Exchange Listing rules and are guided by recommended best accounting practices.

Review of the year

The Chairman’s review describes the Company’s affairs and mentions important events of the year.

Principal Activity

The principal activity of the Company is Hoteliering and is the owner of Ceylon Continental Hotel Colombo.

Financial Statements

The financial statements of the Company are given in pages 24 to 43.

Auditor’s Report

The auditor’s report on the financial statements is given on page

23.

Accounting Policies

The accounting policies adopted in preparation of financial statements are given on pages 28 to 32 There were no material changes in the accounting policies adopted.

Interest Register

The Company in compliance with the Companies Act No. 7 of 2007, maintains an interest register. Particulars of the entries in the register are detailed below.

Directors’ Interests in Transactions

The Directors of the Company have made the general disclosure provided for in section 192(2) of the Companies Act No. 7 of 2007. Note - 25 to the financial statements dealing with related party disclosure includes details of their interests in transactions.

Directors’ Interests in Shares

Directors’ interests in shares are given later in this report. There were no changes to the relevant interests in shares during the year.

Directors Remuneration and Other Benefits

Directors remuneration in respect of the Company for the financial year ended 31 st March 2012 is given in Note - 5 to the financial statements.

Executive Directors’ remuneration is established within an established framework. The total remuneration of Executive Directors for the year ended 31 st March 2012 is Nil. The total remuneration of Non-Executive Directors for the year ended 31st March 2012 is Rs. 1,219,000 determined according to scales of payment decided upon by the Board. The Board is satisfied that the payment of this remuneration is fair to the company.

Corporate Donations

Donations made during the year was nil.

Directorate

Directors of the Company as at 31 st March 2012

Mr. A. M. Pandithage Mr. S. C. Ganegoda* Mr. S. P. Dissanayake* Mr. S. J. Wijesinghe Mr. N. J. De S. Deva Aditya** Mr. L. T. Samarawickrama* Mr. L. N. De S. Wijeyeratne** Mr. K. D. D. Perera* Ms. R. N. Ponnambalam** Mr. W. D. N. H. Perera*

* Non-Executive Directors ** Independent Non-Executive Directors

Mr. U. D. Gamage resigned from the Board on 20 th December

2011.

In terms of the Article 87 of the Articles of Association of the Company Messrs. N. J. De S. Deva Aditya, S. J. Wijesinghe and L. T. Samarawickrama retire by rotation and being eligible, offers themselves for re-election.

Directors’ Shareholdings

None of the Directors held shares directly in the Company as at 31 st March 2012.

9

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Annual Report of The Directors on The Affairs of The Company

Mr. K. D. D. Perera held directly and indirectly 48% of the total issued shares of Hayleys PLC.

Corporate Governance

The Company has complied with the corporate governance rules laid down under the listing rules of the Colombo Stock Exchange. The corporate governance section on page 12 to 17 discuss this further.

Employment

Number of persons employed by the Company was 393.

Internal Controls

The Directors acknowledge their responsibility for the Company’s system of internal control. The system is designed to give assurance, inter alia, regarding the safeguarding the assets, the maintenance of proper accounting records and the reliability of financial information generated. However, any system can only ensure reasonable and not absolute assurance that errors and irregularities either prevented or detected within a reasonable time period.

The Board, having reviewed the system of internal controls, is satisfied with its effectiveness for the period up to the date of signing the financial statements.

Going Concern

The Directors, after making necessary inquiries and reviews including the reviews of the Company’s budget for the ensuing year, Capital expenditure requirement, future prospects and risks, cash flows and borrowing facilities, have a reasonable expectation that the Company have 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.

Auditors

The Auditors, Messrs Ernst & Young, Chartered Accountants, were paid Rs. 350,000 (2011 – Messrs PricewaterhouseCoopers, Chartered Accountants were paid Rs.306,000) as audit fees by the Company. In addition, they were paid Rs. 100,000 (2011 – Messrs

PricewaterhouseCoopers, Chartered Accountants were paid Rs.250,000 ) by the Company for non- audit related work.

As far as the Directors are aware, the Auditors do not have any relationship (other than that of an Auditor) with the Company other than those disclosed above. The auditors also do not have any interest with the Company.

Messrs Ernst & Young, Chartered Accountants, are deemed re- appointed, in terms of section 158 of the Companies Act No.7 of 2007, as auditors of the Company.

Dividends

The Directors do not recommend the payment of dividends for the financial year ended 31 st March 2012.

Investments

Details of the investments held by the Company are disclosed in Note 12 to the financial statements.

Property, Plant and Equipment

An analysis of the property, plant and equipment of the Company additions and disposals made during the year and depreciation charged during the year are set out in Note 11 to the financial statements.

The Company closed down the hotel from 1 st February 2012 for a major refurbishment. As part of the refurbishment, property, plant and equipment with net book value amounting to Rs.150Mn were de-recognised by the Company. Total de-recognised amount was charged to the income statement.

Capital Commitments

Details of the capital commitments of the Company as at 31 st March 2012 are disclosed in Note 21 to the financial statements.

Stated Capital

The stated capital of the Company is Rs.176,000,000/- comprising 176,000,000 shares.

10

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Reserves

Total Company reserves as at 31 st March 2012 amounts to Rs. 233.68 Mn. (2011 – Rs. 263.26 Mn.) Movements are shown in the statement of changes in equity in the financial statements.

Statutory Payments

The Directors to the best of their knowledge and belief are satisfied that all statutory payments in relation to the government and the employees have been made and provided.

Taxation

The tax position of the Company is given in Note 9 and 15 to the financial statements.

Employees and Industrial Relations

There have been no material issues pertaining to employees and industrial relations of the Company during the financial year.

Disclosure as per Colombo Stock Exchange Rule

No.7.6.Xi

 

31.03.12

31.03.11

Market price per share as at 31 st March

  • 17.40 23.10

Highest share price during the year

 
  • 25.60 32.00

Lowest share price during the year

 
  • 12.60 22.30

Net Asset per share

8.11

9.07

Ordinary shares in issue

176,000,000

176,000,000

Shareholding

The number of registered shareholders of the Company as at 31 st March 2012 was 4228.

Major Shareholders

The twenty largest shareholders of the Company as at 31 st March 2012, together with an analysis are given on page 2 of the annual report.

Public Shareholding

As at 31 st March 2012, 49% of the issued capital of the Company was held by the public.

Contingent Liabilities

There were no material contingent liabilities outstanding as at 31 st March 2012 other than that described in Note 20 to the financial statements.

Post Balance Sheet Events

Subsequent to the date of the balance sheet no circumstances have arisen which would require adjustments to the accounts. Significant post balance sheet events which in the opinion of the Directors require disclosure are described in Note 26 to the financial statements.

Annual General Meeting

The Annual General Meeting will be held at the Ceylon Continental

Hotel Colombo, Sapphire Ballroom at 3.00 p.m. on Tuesday, 26 th June 2012. The Notice of the Annual General Meeting appears

on page 46.

For and on behalf of the Board

HOTEL SERVICES (CEYLON) PLC

Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 Reserves Total Company reserves as at 31

A. M. Pandithage

Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 Reserves Total Company reserves as at 31
Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 Reserves Total Company reserves as at 31

S. J. Wijesinghe

Hayleys Group Services (Pvt) Ltd

Secretaries

17 th May 2012

11

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Corporate

Governance

Hotel Services (Ceylon) PLC is committed to achieve the highest standards in Corporate Governance practices in conducting its business.

We set out below the corporate governance practices adopted by the Company in line with the Code of Best Practice on Corporate Governance issued by the Institute of Chartered Accountants of Sri Lanka and the Listing Rules of the Colombo Stock Exchange.

Board of Directors

The Board of Hotel Services (Ceylon) PLC comprise of 10 Directors; an Executive Chairman, one Executive Director and eight Non- Executive Directors of which three are independent. The names of the Directors and their profiles are available on page 7 of this report.

The Board meets quarterly as a practice and adhoc meetings are held whenever necessary. During the year under review the Board met on 9 occasions. The attendance of these meetings were:

Ensuring due compliance with applicable legal, ethical,

health, environment and safety standards and regulations. Ensuring that due attention is given to appropriate

accounting policies and practices and setting priorities and communicating values and ethical standards for management. Ensuring that appropriate systems of internal controls are in

place to safeguard the assets of the Company. Reviewing and approving Annual Budgets and periodic

monitoring of performance against the budgets. Approving of major investments on business proposals and

adopting annual and interim financial statements prior to publication. Evaluating and monitoring the performance of the

Company on a regular basis and initiating remedial action where necessary. Adopting annual and interim accounts and recommending dividend for approval by the shareholders.

Name of Director

Executive / Non-Executive

Attendance

Mr. A. M. Pandithage – Chairman

Executive

9/9

Mr. S. C. Ganegoda

Non-Executive

8/9

Mr. S. P. Dissanayake

Non-Executive

8/9

Mr. S. J. Wijesinghe

Executive

8/9

Mr. N. J. De S. Deva-Aditya

Independent Non-Executive

3/9*

Mr. L. T. Samarawickrama

Non-Executive

6/9

Mr. L. N. De S. Wijeyeratne

Independent Non-Executive

8/9

Mr. U. D. Gamage

Executive

4/5**

Mr. K. D. D.Perera

Non-Executive

1/9

Ms. R. N. Ponnambalam

Independent Non-Executive

9/9

Mr. W. D. N. H. Perera

Non-Executive

1/9

* Mr. N. J. De S. Deva-Aditya participated in 02 of these meetings via conference call. ** Mr. U. D. Gamage resigned from the board w.e.f. 20/12/2011.

Responsibilities

The directors of the Company are responsible for:

Enhancing shareholder value, formulating, communicating, implementing and monitoring of business policies and strategies.

The Board is ultimately responsible for the Company’s financial performance. It is in control of the Company’s affairs and conscious of its obligation to all stakeholders.

Company Secretary

The service and advice of the Company Secretary are made available to Directors as necessary. The Company Secretary keeps the Board informed of new laws, regulations and requirements coming in to effect which are relevant to them as individual Directors and collectively to the Board.

12

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Board Balance

The composition of the Executive and Non-Executive Directors (the latter are over one third of the total number of Directors) satisfies the requirements laid down in the Listing Rules of the Colombo Stock Exchange.

The balance of Executive and Non- Executive Directors on the Board ensures that decision making is transparent and not dominated by any individual or small group.

Appointments to the Board

The Board as a whole decides on the appointment of Directors in accordance with the Articles of association of the Company.

Re-election of Directors

The provisions of the Company’s Articles require a Director appointed by the Board to hold office until the next Annual General Meeting, and seek re-appointment by the shareholders at that meeting.

As

at

31

March

2012,

the

Board consisted of 10 Directors

comprising of:

 

The Articles call for one third of the Directors in office to retire at each Annual General Meeting. The Directors who retire are those

• •

  • 2 Executive Directors (ED)

  • 5 Non–Executive Non-Independent Directors (NED)

  • 3 Non-Executive Independent Directors (NED/ID)

Their profiles reflect their calibre and the weight their views carry in Board deliberations.

The Board has determined that the Directors: Mr. N. J. De S. Deva- Aditya, Ms. R. N. Ponnambalam and Mr. L. N. De S. Wijeyeratne satisfy the criteria for ‘independence’ set out in the Listing Rules.

The Independent Non-Executive Directors are free from any relationship that can interfere with the affairs of the Company.

The Chairman of the Company is also the Chairman of Hayleys PLC. Chief Executive Authority is vested in the General Manager (CEO) of the Company. The distinction between the Chairman and Officers wielding executive powers in the Company ensures the balance of power and authority.

Financial Acumen

The Board includes two senior Chartered Accountants who possess the necessary knowledge and competence to offer the Board guidance on matters of finance.

Supply of Information

Directors are provided with quarterly reports on performance and appropriate documentation in advance of each Board meeting for individual directors to study matters under discussion.

who have served for the longest period after their appointment/

re-appointment. Retiring Directors are generally eligible for re-

election.

The Chairman does not retire by rotation.

Remuneration Committee

The Remuneration Committee was formed on 21st May 2010. Mr. J. D. Bandaranayake, who was the Chairman of the remuneration Committee resigned with effect from 2nd February 2011 and Mr. L. T. Samarawickrama, a Non-Executive Director, was appointed the Chairman of the Committee with effect from 9th May 2011.

Members of the Remuneration Committee

Mr. L. T. Samarawickrama - Non-Executive Director (Chairman) Mr. L. N. De S. Wijeyeratne - Independent Non-Executive Director Ms. R. N. Ponnambalam - Independent Non-Executive Director

Remuneration Committee of Hayleys PLC, the parent Company of Hotel Services (Ceylon) PLC is responsible for laying down guidelines and parameters for the compensation structures of all management staff within the group.

The Remuneration Committee of Hotel Services (Ceylon) PLC is guided to work with the above given parameters and design compensation levels appropriate for the hotel within the group and commensurate with each employee level of expertise and contribution, bearing in mind the business’ performance and shareholder returns.

13

Corporate

Governance

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

The total of Directors’ remuneration is reported in Note 5 to the financial statements.

The Statement of Directors’ Responsibilities for the financial statement is given in page 20 of this report.

Relations with Shareholders

The Notice of Meeting is included in the Annual Report. The Notice contains the Agenda for the AGM as well as instructions on voting, including appointments of proxies. A Form of Proxy is enclosed with the Annual Report. The period of notice prescribed by the Companies Act No. 7 of 2007 has been met.

Constructive use of Annual General Meeting

The Board considers the Annual General Meeting as a means of continuing effective dialogue with shareholders and encourages their participation.

The Board offers clarifications and responds to concerns shareholders have over the content of the Annual Report as well as other matters which are important to them.

The Annual General Meeting also used to adopt the financial statement for the year.

Communication with Shareholders

Shareholders are provided with the Annual Report and also with Quarterly Financial Statements via Colombo Stock Exchange website, which the company considers as its principal communication with them and other stakeholders.

Shareholders may bring up concerns they have, either with the Chairman or the Company Secretary as appropriate. The Company maintains an appropriate dialogue with them.

Accountability and Audit

Financial Reporting

The Board places great emphasis on complete disclosure of financial and non financial information within the bounds of commercial reality, and on the adoption of sound reporting practices. Financial information is disclosed in accordance with the Sri Lanka accounting Standards. Revisions to existing accounting standards and adoption of new standards are carefully monitored.

Going Concern

The Directors, after making necessary inquiries and reviews including reviews of the company budget for the ensuing year, capital expenditure requirements, future prospects and risk, 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.

Internal Controls

The Board is responsible for the Company’s internal controls and its effectiveness. Internal control is established with emphasis placed on safeguarding assets, making available accurate and timely information and imposing greater discipline on decision making. It is important to state that any system can ensure only reasonable, and not absolute, assurance that errors and irregularities are prevented or detected within reasonable time.

Hayleys Group’s Management Audit & System Review Department plays a major role in assessing the effectiveness and successful implementation of the existing controls and strengthening these and establishing new controls where necessary.

The Board has reviewed the effectiveness of the System of financial controls for the period up to the date of signing the accounts.

Audit Committee

The Audit Committee is chaired by Mr. L. N. De S. Wijeyeratne, a Fellow member of the Institute of Chartered Accountants of Sri Lanka.

The General Manager and the Financial Controller attends the meetings of the Audit Committee by invitation.

The Audit Committee has written terms of reference and is empowered to examine any matters relating to the financial affairs of the Company and its internal and external audits. It helps the Company to strike the proper balance between conformance and performance.

14

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Members of the Audit Committee

Mr. L. N. De S. Wijeyeratne (Chairman) Mr. L. T. Samarawickrama (Resigned w.e.f 12.09.2011) Ms. R. N. Ponnambalam

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

The Audit Committee report appears in page 21 of this report.

Levels of compliance with the CSE’s New Listing Rules- Section 7.10, Rules on Corporate Governance as at 31st March, 2012 are given in the following table.

Rule No.

Subject

Applicable Requirement

Compliance

Details

Status

7.10. 1(a)

Non-Executive Directors

At least one third of the total number of Directors should be Non-Executive Directors

Compliant

Eight out of the ten Directors are Non-Executive Directors

7.10.2(a)

Independent Directors

Two or one third of Non-Executive Directors, whichever is higher should be Independent

Compliant

Three out of the Eight Non-Executive Directors are Independent Directors

7.10.2

(b)

Independent Directors

Each Non-Executive Director should submit a declaration of independence/non-independence in the prescribed format

Compliant

Non-Executive Directors have submitted the declaration

7.10.3(a)

Disclosure relating to Directors

The Board shall annually make a determination as to the independence or other wise of the Non-Executive Directors and names of Independent Directors should be disclosed in the Annual Report

Compliant

Please refer ‘Board of Directors’ on pages 7 and 8

7.10.3(b)

Disclosure relating to Directors

The basis for the Board to determine a Director is independent when the criteria specified for independence is not met

Compliant

Please refer page 13 under the heading of Board Balance

7.10.3(c)

Disclosure relating to Directors

A brief resume of each Director should be included in the Annual Report including the areas of Expertise

Compliant

Please refer ‘Board of Directors’ on pages 7 and 8

7.10.3(d)

Disclosure relating to Directors

Forthwith provide a brief resume of new Directors appointed to the Board with details specified in 7.10.3 (a),(b) and (c) to the Exchange

Compliant

A brief resume provided to the Exchange

7.10.5

Remuneration

A listed company shall have a

Compliant

Names of the members of the

Committee.

Remuneration Committee

Remuneration Committee are stated on page 13

15

Corporate

Governance

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Rule No.

Subject

Applicable Requirement

Compliance

Details

Status

7.10.5(a)

Composition of

Shall comprise of Non-Executive

Compliant

The Committee consists of

Remuneration

Directors a majority of whom will be

one Non-Executive Director

Committee

independent

and two Independent Non- Executive Directors

7.10.5(b)

Remuneration Committee Functions

Remuneration Committee shall recommend the remuneration of the Chief Executive Officer and Executive Directors

Compliant

Please refer remuneration procedure on page 13 of this Report

7.10.5(c)

Disclosure in the

Names of Directors comprising the

Compliant

Please refer page 13

Annual Report relating to Remuneration

Remuneration Committee Statement of remuneration policy

Please refer page 13

Committee

Aggregated remuneration paid to Executive and Non-Executive Directors

Please refer page 9

7.10.6

Audit Committee

The company shall have an Audit Committee

Compliant

Names of the members of the Audit Committee are stated on page 15

7.10.6(a)

Composition of Audit Committee

Shall comprise of Non-Executive Directors a majority of whom will be independent

Compliant

Audit Committee consists of two Independent Non- Executive Directors

7.10.6(b)

Audit Committee

A Non-Executive Director shall be

Compliant

Chairman of the Audit

Functions

appointed as the Chairman of the Committee

Committee is an Independent Non-Executive Director

Chief Executive Officer and Chief Financial Officer should attend Audit Committee meetings

Compliant

General Manager (CEO) and Financial Controller (CFO) has attended the Audit Committee meetings

The Chairman of the Audit Committee or one member should be a member of a professional accounting body

Compliant

Chairman of the Audit Committee is a Chartered Accountant

16

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Rule No.

Subject

Applicable Requirement

Compliance

Details

Status

7.10.6(b)

Audit Committee

Functions shall include:

Compliant

Functions

Overseeing of the preparation, presentation and adequacy of disclosures in the financial statements in accordance with Sri Lanka Accounting Standards Overseeing of the compliance with financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements. Overseeing the processes to ensure that the internal controls and risk management are adequate to meet the requirements of the Sri Lanka Auditing Standards Assessment of the independence and performance of the external auditors Make recommendations to the Board pertaining to appointment, re –appointment and removal of external auditors and approve the remuneration and terms of engagement of the external auditors.

 

The terms of reference of the Audit Committee have been agreed by the Board

7.10.6(c)

Disclosure in the Annual Report relating to Audit Committee

  • a) Names of Directors comprising the Audit Committee

Compliant

Please refer page 15

  • b) The Audit Committee shall make a determination of the independence of the Auditors and disclose the basis for such determination

Compliant

Please refer Audit Committee Report on page 21

  • c) The Annual Report shall contain a Report of the Audit Committee setting out of the manner of

Compliant

Please refer Audit Committee Report on page 21

compliance with their functions

17

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Risk

Management

Risk management is a central part of the Company’s strategic management. It assists in striking the correct balance between achieving Company’s objectives whilst safeguarding its assets and enhancing shareholder value.

In the course of its operations, the Company, being a leading city hotel in Sri Lanka, is exposed to various internal and external risks. A risk management process is in place to identify these risks, analyse them and assess the impact of the risk to the Company with the view of accepting the said risk, finding means of mitigating it or eliminating the risk completely. The Board of Directors with the support of the management takes necessary action to mitigate or minimise the impact of these risks with control plans implemented with the agreed time frames.

More importantly, the Company understands that risk is an intrinsic component of its business operations. The Company accepts the necessary risk only after going through the above process and carefully evaluating the risk and return of its ventures and ensuring adequate returns.

The responsibility of the risk management process of the Company is with the Board of Directors. The matters related to risk management are discussed and deliberated extensively at the Board meetings.

The major risks the Company is exposed to and the ways in which the Company deals with them are given below.

Major Risks

Risk Type: Competition

Recent improvement in the country’s outlook has attracted various new business opportunities and positively affected the hotel performance and tourism industry in general. However this could have an adverse effect on the hotel both from the existing competition and new competition entering the market.

The Company is undergoing an extensive refurbishment programme especially in view of managing this risk. This will enable the hotel to sustain its position in the market and make use of the growth opportunities.

The risk of price competition on lodging is minimized with the prevailing minimum room rates whereby city hotels have to adhere to the specified minimum rates for their clients. The Company through innovation whereby various food and

event promotions, through driving for service excellence and continuous improvements mitigates the effect of the said risks of competition.

Risk Rating

Likelihood Rating

Moderate

High

Risk Type: Government Policy Risk

While benefiting from various opportunities and growth in the country, government policy decision is a major factor that influences the hotel operations and financial performance.

Factors such as recent rate changes to electricity tariffs and

fuel rates have affected the performance of the hotel where it is difficult to transfer these costs to the customers in the short term. If the minimum rates are further increased, it could be difficult to attract new clients especially during the off season.

The Company maintains a strong relationship with the regulatory bodies through Hayleys PLC and other lobby groups. Through them the Company campaigns for clear and indisputable laws to facilitate the business.

Risk Rating

Likelihood Rating

Moderate

Moderate

Risk Type: Failure to Comply with Health and Safety Regulations

Failure to comply with health and safety regulations could affect the Company in adverse publicity and claims through legal action against the Company.

The health and safety standards are of primary importance to the Company and are subjected to continuous direct supervision where deviations are directly reported to the senior management and actions taken to rectify them at the highest levels. The Company has commenced the certification process for obtaining HACCP standards which is the international standard on food safety process control systems, through the same, policies and procedures are being implemented in line to ensure the health and safety regulations are effectively practiced.

Risk Rating

Likelihood Rating

High

Low

18

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Risk Type: Interest Rate Risk

Company’s major refurbishment project is funded through external borrowings. The recent adverse fluctuations in interest rates have impacted the company earnings, cash flow and economic value. This will continue to be a critical risk factor in the times ahead.

The Company works closely with the Treasury department of Hayleys PLC to negotiate favourable terms and conditions for loans. The Treasury Department continuously monitors interest rates and financial markets and are in a position to implement necessary hedging techniques if required.

Risk Rating

Likelihood Rating

High

High

Risk Type: IT Systems Risk

Failure of the various IT systems utilised by the hotel could have a temporary effect on the hotel operations depending on the extent of the damage. Current major IT systems of the hotel include Property Management Software, Stock System, Accounting Software, Online Booking Engines, email, internet etc.

The Company is in the process of investing in a new operating system which will be much efficient and effective in comparison to the one at present.

The risk of data loss and down time is mitigated by the IT department of the Company, which has implemented safety measures to taking timely backups and storing them on remote locations and reduces the down time and ensures continuity of operations through the implementation of the Hayleys Groups Disaster Recovery Policy.

Risk Rating

Likelihood Rating

High

Moderate

Risk Type: Exchange Rate Risk

Exchange rate risk represents a major risk for the hotel where revenue could be adversely affected through exchange rate fluctuations. However, the recent rupee devaluation will result in a favorable impact on Company’s revenue.

The Company continuously monitors the Exchange rate movements and country’s outlook of major currencies. Currently

the pricing policy of the hotel is to provide rates in USD terms or to give equivalent rupee rates. However, should the USD depreciate unexpectedly the hotel with the consent of respective authorities could provide rates in Sri Lanka rupees mitigating the effects from long term adverse currency fluctuations.

Risk Rating

Likelihood Rating

High

Moderate

Risk Type: Breakdown of Internal Controls and Procedures

Breakdown of internal process and procedures could result in frauds, errors effecting in loss of Share holder wealth and resulting

in material misstatements on its financial statements.

The Company through its Audit Committee carries out reviews and assessments of its internal control environment. Internal audits are carried out quarterly by the Group Management Audit and Systems Review Department of Hayleys PLC and its findings are reported to the Audit Committee meetings, which convenes quarterly. Findings are reviewed, corrective actions are taken and the implications of the same are monitored as a continuous improvement process on Audit Committee meetings.

Risk Rating

Likelihood Rating

High

Moderate

Risk Type: Timely Completion of Refurbishment Project and Cost Overruns

Non-completion of the refurbishment project within the stipulated time frame could result in an increase in closure cost. In addition, non-managing the refurbishment cost could result in spending over and above the budgeted amount.

The Board of Directors meets weekly and works closely with the

project team monitoring and reviewing the project completion

progress and takes necessary corrective action in a timely manner.

Project expenses are closely monitored in comparison with the budget and are reviewed at Board meetings on regular basis.

Risk Rating

Likelihood Rating

High

Moderate

19

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Statement of Directors’ Responsibilities

The Directors are responsible, under the Sections 150 (1), 151,

  • 152 (1) & 153 of the Companies Act No. 07 of 2007, to ensure

compliance with the requirements set out therein to prepare Financial Statements for each financial year giving a true and

fair view of the state of affairs of the Company as at the end of the financial year and of the profit & loss of the Company for the financial year. The Directors are also responsible, under Section

  • 148 for ensuring that proper accounting records are kept to

disclose, with reasonable accuracy, the financial position and

enable preparation of the Financial Statements.

The Board accepts responsibility for the integrity and objectivity of the Financial Statements presented. The Directors confirm that in preparing the Financial Statements, appropriate accounting policies have been selected and applied consistently while reasonable and prudent judgments have been made so that the form and substance of transactions are properly reflected.

They also confirm that the Financial Statements have been prepared and presented in accordance with the Sri Lanka Accounting Standards. The Financial Statements provide the information required by the Companies Act and the listing rules of the Colombo Stock Exchange.

The Directors have taken reasonable measures to safeguard the assets of the Company and, in that context, have instituted appropriate systems of internal control in order to prevent and detect fraud and other irregularities.

The External Auditors, Messrs. Ernst & Young, Chartered Accountants, were deemed re-appointed in terms of section

  • 158 of the Companies Act no.7 of 2007 and were provided with

every opportunity to undertake the inspections they considered appropriate to enable them to form their opinion on the Financial Statements. The report of the Auditors, shown on page 23 sets out their responsibilities in relation to the Financial Statements.

Compliance Report

The Directors confirm that to the best of their knowledge, all statutory payments relating to employees and the Government that were due in respect of the Company as at the Balance Sheet date have been paid or where relevant, provided for.

By Order of the Board,

HAYLEYS GROUP SERVICES (PVT) LTD.

Secretaries

17 th May 2012

20

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Audit Committee Report

Role

The primary role of the Audit Committee is to review and monitor the financial reporting process of the Company, so as to provide additional assurance on the reliability of the financial statements through a process of independent and objective review. As such, the Audit Committee acts as an effective forum in assisting the Board of Directors in discharging their responsibilities of ensuring the quality of financial reporting and related communications to the shareholders and the public.

The Audit Committee is empowered amongst other functions to examine any matters relating to the financial affairs of the Company and to review the adequacy of the internal control procedures, role and performance of the external auditors, disclosures of accounting policies, compliance with statutory and corporate governance requirements.

Composition

The Audit Committee comprises of two Independent Non- Executive Directors. The Chairman of the Audit Committee is Mr. L. N. De. S. Wijeyeratne, a fellow member of the Institute of Chartered Accountants of Sri Lanka. The names of the members are given below on this report and a brief profile of each member is given on page 8. The General Manager, The Financial Controller and the Head of Internal Audit of Group Management Audit and Systems Review Department of Hayleys PLC attend the meeting of the Audit Committee by invitation. The Chairman of the Company and other Directors attend the meetings as required.

Meetings

The Committee met formally five times during the financial year ended 31st March 2011. The attendance of the members at these meetings is as follows:

Mr. L. N. De. S. Wijeyeratne (Chairman)

-

5/5

Mr. L. T. Samarawickrama

-

1/2*

Ms. R. N. Ponnambalam

-

5/5

*Mr. L. T. Samarawickrama was appointed as an Executive Director of Hayleys PLC. on 12/09/2011, hence ceased to be a member of the Audit Committee of Hotel Services (Ceylon) PLC from that date onwards.

Tasks of the Audit Committee

Financial Reporting System The Committee reviewed the financial reporting system adopted by the Company in the preparation of its quarterly and annual

statements to ensure reliability of the processes and consistency of the accounting policies and methods adopted in their compliance with the Sri Lanka Accounting Standards and other statutory and regulatory requirements. The Committee recommended the financial statements to the Board for its publication.

Internal Controls and Internal Audit

The Committee reviewed the processes in place to assess the effectiveness of the Internal Financial Controls that are in place to provide reasonable assurance to the Directors that assets are safeguarded and that the financial reporting system can be relied upon in preparation and presentation of Financial Statements.

The Hayleys PLC’s Group Management Audit and Systems Review Department act as the Internal Auditors for the Company. Internal Audits are outsourced to audit firms in line with an agreed annual audit plan. At Audit Committee meetings detailed Internal Audit Reports were reviewed and audit concerns and recommendations for improvement of financial and operational control systems with the management responses were tabled, discussed and appropriate actions were initiated.

External Audit

The Committee had discussions with the external auditors Messrs. Ernst and Young, to review the nature, approach, scope of the audit and the Audit Management Letter of the Company. The Committee also reviewed the non audit services provided by the Auditors to ensure that the provision of such services does not impair their independence.

Conclusion

The audit committee is satisfied that the company’s accounting policies and operational controls provide a reasonable assurance that the affairs of the company are managed in accordance with the company’s policies and the company assets are properly accounted for and adequately safeguarded.

Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 Audit Committee Report Role The primary role

L. N. De. S. Wijeyeratne

Chairman - Audit Committee

17 th May 2012.

21

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Financial

Reports

Independent Auditor’s Report | 23 Income Statement | 24 Balance Sheet | 25 Statement of Changes in Equity | 26 Cash Flow Statement | 27 Notes to the Financial Statements | 28

22

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Independent Auditor’s Report

Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 Independent Auditor’s Report TO THE SHAREHOLDERS OF

TO THE SHAREHOLDERS OF HOTEL SERVICES (CEYLON) PLC

Report on the Financial Statements

We have audited the accompanying financial statements of Hotel Services (Ceylon) PLC (“Company”), which comprise the balance sheet as at 31 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. The Financial Statements of the Company as at 31 March 2011 were audited by another auditor, whose report dated 13 May 2011, expressed an unqualified opinion on those Financial Statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes:

designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Scope of Audit and Basis of Opinion

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

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

In our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended 31 March 2012 and the financial statements give a true and fair view of the Company’s state of affairs as at 31 March 2012 and its loss and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Report on Other Legal and Regulatory Requirements

In our opinion, these financial statements also comply with the

requirements of Section 151(2) of the Companies Act No. 07 of

2007.

Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 Independent Auditor’s Report TO THE SHAREHOLDERS OF

17 th May 2012 Colombo

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

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Income Statement

Year ended 31 March 2012

2012

2011

 

Notes

Rs ‘000

Rs ‘000

Turnover

3

547,177

606,548

Cost of Sales

(256,499)

(271,001)

Gross Profit

290,678

335,547

Other Income and Gains

4

(22,664)

1,042

Administrative Expenses

(259,251)

(219,898)

Marketing Expenses

(62,474)

(53,585)

Operating Profit /(Loss)

5

(53,711)

63,106

Loss from De-recognition of Property, Plant and Equipment

7

(149,992)

-

Net Finance Costs

8

1,462

3,554

Profit / (Loss) Before Tax

(202,241)

66,660

Income Tax Expenses / (Reversal)

9

13,152

(13,961)

Net profit / (Loss)

(189,089)

52,699

Basic Earnings / (Loss) Per Share (Rs)

10

(1.07)

0.30

The notes on pages 28 to 43 form an integral part of these financial statements

24

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Balance Sheet

As at 31 March 2012

2012

2011

 

Notes

Rs. ‘000

Rs. ‘000

ASSETS

Non-current assets

Property, plant and equipment

11.2

1,956,358

1,729,486

Investments

12

-

-

 

1,956,358

1,729,486

Current assets

Inventories

13

13,219

16,035

Receivables and prepayments

14

50,303

84,825

Tax recoverable

5,676

-

Cash and cash equivalents

16

38,061

106,404

 

107,259

207,264

Total assets

2,063,617

1,936,750

EQUITY AND LIABILITIES

Capital and reserves

Stated capital

22

176,000

176,000

Revaluation reserve

23

1,017,553

1,157,917

Revenue reserve

69,500

69,500

Retained earnings

164,177

193,762

 

1,427,230

1,597,179

Non-current liabilities

Borrowings

18

400,000

-

Employee Benefit Liabilities

19

10,290

9,939

Deferred tax liability

15

160,365

189,957

 

570,655

199,896

Current liabilities

Trade and other payables

17

37,296

105,040

Borrowings

18

28,436

26,024

Tax payable

-

8,611

 

65,732

139,675

Total liabilities

636,387

339,571

Total equity and liabilities

2,063,617

1,936,750

These Financial Statements are in compliance with the requirements of the Companies Act No :07 of 2007.

Hotel Services (Ceylon) PLC Annual Report 2011 - 2012 Balance Sheet As at 31 March 2012
R. K. Nanayakkara Financial Controller The Board of Directors is responsible for the preparation and presentation
R.
K. Nanayakkara
Financial Controller
The Board of Directors is responsible for the preparation and presentation of these Financial Statements. Signed for and on behalf of the
Board by:
A.
M. Pandithage
S. J. Wijesinghe
Chairman / Director
Director

The accounting policies and notes on pages 28 through 43 form an integral part of the Financial Statements.

17 th May 2012 Colombo

25

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Statement of Changes in Equity

Year ended 31 March 2012

Notes

Stated

Revaluation

Revenue

Retained

Total

 

capital

and other

reserve

earnings

 

reserves

 

Rs. ‘000

Rs. ‘000

Rs. ‘000

Rs. ‘000

Rs. ‘000

Balance at 1 April 2010

176,000

893,433

69,500

120,695

1,259,628

Net profit

-

-

-

52,699

52,699

Transfer from revaluation reserve

23

-

(1,759)

-

1,759

-

Revaluation during the year

11

-

285,708

-

-

285,708

Transfer from revaluation reserve

23

-

(18,609)

-

18,609

-

Deferred tax on revaluation

-

(34,285)

-

-

(34,285)

Effect on different tax rates

-

30,374

-

-

30,374

Deferred tax on transfer

15

-

3,055

-

-

3,055

Balance at 31 March 2011

176,000

1,157,917

69,500

193,762

1,597,179

Net Loss

-

-

-

(189,089)

(189,089)

Transfer from revaluation reserve

23

-

(1,759)

-

1,759

-

Transfer from revaluation reserve

23

-

(19,836)

-

19,836

-

Transfer from revaluation reserve

23

-

(24,162)

-

24,162

-

Transfer from revaluation reserve

23

-

(113,747)

-

113,747

-

Deferred tax on transfer

15

-

19,140

-

-

19,140

Balance at 31 March 2012

176,000

1,017,553

69,500

164,177

1,427,230

The notes on pages 28 to 43 form an integral part of these financial statements

26

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Cash Flow Statement

Year ended 31 March 2012

2012

2011

 

Notes

Rs. ‘000

Rs. ‘000

Operating activities

Cash generated from operations

24

(2,847)

117,247

Interest received

8

2,252

5,367

Interest paid

8

(738)

(1,838)

Tax paid

(11,586)

(13,886)

Retirement benefit paid

19

(911)

(1,127)

Net cash used in / generated from operating activities

(13,830)

105,763

Investing activities

Capital work in progress

11.1

(362,835)

(35,850)

Purchases of property, plant and equipment

11

(110,847)

(17,622)

Proceeds from disposal of property, plant and equipment

16,755

1,250

Net cash used in investing activities

(456,927)

(52,222)

Financing activities

Proceeds from long term borrowings

400,000

-

Payments on long term borrowings

(4,166)

(20,243)

Net cash generated / used in financing activities

395,834

(20,243)

Net increase in cash and cash equivalents

(74,923)

33,298

Movement in cash and cash equivalents

At start of year

84,547

7,628

Net increase

(74,923)

33,298

At end of year

16

9,625

84,547

The notes on pages 28 to 43 form an integral part of these financial statements

27

Hotel Services (Ceylon) PLC

Annual Report 2011 - 2012

Notes to the Financial Statements

Year ended 31st March 2012

  • 1. Corporate Information

  • 1.1 General

Hotel Services (Ceylon) PLC is engaged in the hotel business and is the owner of Ceylon Continental Hotel Colombo, the first Five Star Hotel established in Colombo.

The Company is a limited liability company incorporated in Sri Lanka and listed on the Colombo Stock Exchange. The address of its registered office is No. 48, Janadhipathi Mawatha, Colombo 1.

    <