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OUR POWERFUL

HERITAGE OUR CONTINUING

SUCCESS
Distilleries Company of Sri Lanka PLC l Annual Report 2013 / 14
OUR POWERFUL

HERITAGE OUR CONTINUING

SUCCESS

Being in business for over a century means we have got


it right - in the management of our Company, the process
of our operations and the vision of our leadership. Today
we are proud to be the nation’s leading distiller, a core
business strongly supported by our diversified portfolio
of vibrant industries - plantations, telecommunication,
insurance, finance, power generation, textiles, leisure,
logistics and media.

The influence of our long heritage is manifested in


our desire to excel in all we do. It is the reason for our
continuing success.

Distilleries Company of Sri Lanka PLC 1


CONTENTS

3 Highlights of the Year


4 Financial Highlights
6 A Diversified Portfolio of Business Operations
12 Our Businesses
13 Historical Perspectives
14 The Story of Arrack
16 What’s Behind Our Continuing Success?
20 Chairman’s Message
26 Board of Directors
30 Group Management
32 DCSL Management
35 Management Discussion & Analysis
44 Sustainability Report
56 Corporate Governance
68 Enterprise Risk Management
72 Audit Committee Report
74 Remuneration Committee Report
75 Annual Report of the Board of Directors
80 Statement of Directors Responsibility
81 Independent Auditors’ Report
82 Statements of Comprehensive Income
83 Statements of Financial Position
84 Statements of Changes in Equity
87 Statements of Cash Flows
88 Notes to the Financial Statements
160 Statement of Value Added
161 Details of Real Estate
162 Shareholder Information
164 Ten Year Summary
165 DCSL Management Team
166 Group Directory
172 Notice of Meeting
175 Form of Proxy
177 Attendance Slip

2 Annual Report 2013/14


HIGHLIGHTS
OF THE YEAR

August 2013 December 2013


Melsta Regal Finance Limited opened its first branch in Fitch Rating reaffirmed DCSL a national long term Rating
Kurunegala. of AAA (lka) / stable outlook - The best & highest entity
credit rating for a corporate in Sri Lanka.

November 2013 February 2014


DCSL was ranked No. 09 in the Business Today ‘Top Lanka Bell 4G was formally launched under the patronage
Twenty Five’. This was the 15th consecutive year DCSL of Director General of the Telecommunications Regulatory
was listed among corporate heavy weights in the rankings. Commission Mr. Anusha Palpita.

March 2014
Investment in Meslta Regal Finance
increased to Rs. 1,340 Mn.

May 2014
Melsta Regal Finance was reaffirmed A+ (lka)
/ Stable by Fitch. Thus signifying a very high
credit rating for a finance company.
November 2013
July 2014
DCSL tops the manufacturing, food & beverage sector in
National Business Excellence Awards - 2013. Investment in Continental Insurance
increased to Rs. 750 Mn.

Distilleries Company of Sri Lanka PLC 3


FINANCIAL
HIGHLIGHTS
Financial Highlights 2014 2013 2014 2013
Group Group Company Company

SUMMARY OF RESULTS
Gross Turnover Rs Mn 63,186 65,790 47,756 51,549
Excise Duty Rs Mn 34,203 37,024 31,058 34,088
Net Turnover Rs Mn 28,983 28,766 16,698 17,461
Profit After Tax Rs Mn 6,231 5,258 5,357 6,873
Shareholders’ Funds Rs Mn 53,636 47,978 43,839 39,155
Working Capital Rs Mn (1,905) (1,578) (4,449) (6,139)
Total Assets Rs Mn 83,742 78,547 61,190 55,942
Staff Cost Rs Mn 3,862 3,194 1,162 1,039
No. of Employees 12,897 14,681 1,250 1,343

PER SHARE
Basic Earnings Rs. 20.41 17.13 17.86 *10.68
Net Assets Rs. 178.79 159.93 146.13 130.52
Dividends Rs. 3.25 3.00 3.25 3.00
Market Price - High Rs. 218.00 190.00 218.00 190.00
Low Rs. 160.00 117.00 160.00 117.00
Year End Rs. 203.00 166.50 203.00 166.50

RATIOS
Price Earnings times 10 10 11 *16
Return on Shareholders’ Funds % 11.42 10.71 12.22 *8.18
Current Ratio times 0.92 0.93 0.74 0.63
Interest Cover times 7.3 4.9 10.3 *5.1
Stock Turnover (Finished Goods) days 15 14 13 12
Debt to Equity % 24.97 23.25 22.87 21.90
Debt to Total Assets % 16.00 14.20 16.39 15.32
Dividend Payout % 15.92 17.51 18.20 *28.08
Dividend Yield % 1.60 1.80 1.60 1.80

* Previous year Company’s profit has been adjusted for intra-group capital gain on share transfer

4 Annual Report 2013/14


Taxes Paid - Group
(Rs. Mn)

29,004
39,076 39,850
37,466
37,466Rs.Mn
21,072
2012/13: 39,850Rs.Mn
Taxes Paid - Group

2009/10 2010/11 2011/12 2012/13 2013/14

Total Assets - Group


(Rs. Mn)

59,616
73,355
78,547
83,742
83,742Rs.Mn
35,322 2012/13: 78,547Rs.Mn
Total Assets - Group

2009/10 2010/11 2011/12 2012/13 2013/14

Gross Turnover - Group


(Rs. Mn)

46,451
63,125 65,790 63,186 63,186Rs.Mn
39,810
2012/13: 65,790Rs.Mn
Gross Turnover - Group

2009/10 2010/11 2011/12 2012/13 2013/14

Profit after Tax - Group


(Rs. Mn)

8,337

6,052 6,231
6,231Rs.Mn
5,258

2012/13: 5,258Rs.Mn
2,152 Profit after Tax - Group

2009/10 2010/11 2011/12 2012/13 2013/14

Distilleries Company of Sri Lanka PLC 5


A DIVERSIFIED PORTFOLIO OF BUSINESS OPERATIONS

THE CHARACTERISTICS
WE VALUE

MATURITY BEVERAGES
Distillation, Manufacture
and Distribution of Liquor Products

GROWTH PLANTATIONS
Cultivation & Processing
of Tea & Rubber

6 Annual Report 2013/14


Led by Beverages, Plantations, Telecommunication
and Insurance.

CONNECTIVITY TELECOMMUNICATIONS
Voice, Data, Broadband, Hardware, Software and
Networking Solutions

RELIABILITY INSURANCE
General Insurance Services - Property,
Motor, Marine, General Accident

Distilleries Company of Sri Lanka PLC 7


A DIVERSIFIED PORTFOLIO OF BUSINESS OPERATIONS
Financial Services, Power Generation,
Logistics and Textiles.

CONVENIENCEFINANCIAL SERVICES
Variety of innovative Financial Solutions
under one roof.

POWER
POWER GENERATION
Hydro Power Generation

8 Annual Report 2013/14


EFFICIENCY LOGISTICS
Automobile Servicing and Logistics

ARTISTRY TEXTILES
Dyeing
and Printing Fabric

Distilleries Company of Sri Lanka PLC 9


A DIVERSIFIED PORTFOLIO OF BUSINESS OPERATIONS
BPO, Media Buying and Creative
Services and Leisure.

EXCELLENCE
BPO SERVICES
BPO, KPO & Call Centre Services

CREATIVITY MEDIA
Media Buying & Creative Services

10 Annual Report 2013/14


INSPIRATION
LEISURE
Hotels & Hospitality

QUALITY
BEVERAGES
Wines & Spirits

Distilleries Company of Sri Lanka PLC 11


OUR BUSINESSES

Sector Function Company

Beverages Distillation, Manufacture DCSL,


& Distribution of Liquor Periceyl
Products

Telecommunications Telecommunications LB, TCF, BSL


Services

Plantations Cultivation & Processing BPL


of Tea & Rubber

Diversified

Investment Investment Holding Melstacorp


Company

Financial Services Insurance Continental

Finance Melsta Regal

Logistics Automobile Servicing & Melsta


Logistics Logistics

Textiles Dyeing & Printing Fabrics Texpro

Information Technology BPO, KPO & Call Centre BellVantage


Services

Power Generation Hydro Power Generation Bogo Power

Leisure Beach Hotel BBH

Manufacturing Manufacturing & Selling Pelwatte


of Sugar & Molasses Sugar

Media Media Buying & Creative Splendor


Services

12 Annual Report 2013/14


HISTORICAL
PERSPECTIVE

Touching lives for over a century… have also been made in Research and Development (R&D)
Present in Sri Lanka for over a century, The Distilleries and in upgrading laboratories. The latest addition is the
Company of Sri Lanka PLC (DCSL), is one of the most state of the art blending and bottling plant currently under
profitable and well respected corporate entities in the country. commission at the Company’s Seeduwa Distillery.
Its proud tradition, rich heritage and proven credentials has
These improvements have equipped the Company with top
made the Company a beacon of inspiration for others. Over
of the line facilities enabling it to produce beverages of
the past 100 years, our corporate DNA has been strengthened
international standard. Furthermore, storage facilities and
with our values of experience, maturity, innovation, resilience
product distribution systems have been upgraded to modern
and the determination to succeed.
standards with fully computerised systems. A fleet of modern
DCSL’s roots can be traced back to 1913, when the Excise vehicles ensures that customers in even the remotest areas are
Department of Ceylon, which was initially created as the able to enjoy the best DCSL products delivered island wide.
enforcement authority to distribute and sell liquor products in These improvements contributed towards higher production
Sri Lanka, branched out into the distillation and manufacture efficiencies across the supply chain. Our people are regularly
of liquor products. In 1974, the State Distilleries Corporation trained in the best international practices in locations famed
was incorporated by statute, to take over this venture, for high quality alcohol, such as France, Scotland and Ireland.
while the Excise Department realigned its operations as a
Over the years, we have not only grown to become Sri Lanka’s
monitoring body. Thus, DCSL has the distinction of being the
largest distiller, but have been recognised as a leading
pioneer distiller in Sri Lanka.
corporate with the highest quality standards. Despite these
In 1989, under a government policy decision, the State achievements and our strong position of business leadership,
Distilleries Corporation was converted into a limited company. we continue to look for ways to improve and grow. Since
This transfer of ownership took place at the Colombo Stock 1992, the Company has not only expanded production, but
Exchange (CSE) in 1992, making it the largest transaction in has also diversified into other non-alcohol related activities.
the history of the CSE.
Today, we are present in all parts of the country, operating
Under its new private management, the Company entered an under the principle of providing the highest standard of
era of modernisation that witnessed upgrading of machinery products and services for the people of Sri Lanka, imbued
and equipment and the introduction of modern management with a vision of uplifting the quality of life of our people. We
systems and processes. Plant and machinery were upgraded to aim to expand our presence into international markets to
modern international standards and new technology developed render our brand an internationally recognised one.
by world renowned experts was introduced. Large investments

Distilleries Company of Sri Lanka PLC 13


THE STORY
OF ARRACK

“Sri Lankan coconut arrack, acknowledged


as one of the purest alcoholic beverages
in the world is extracted by an all-natural
fermentation process.”

The Sri Lankan flavour that lingers on…


The pristine ambrosia-like qualities of Sri Lanka’s unique
coconut arrack can be traced back thousands of centuries
earlier, finding mention in early literature - “…liquor drawn
from the coconut flower”. This delectable beverage is
steeped in legend and tradition, making it one of the most
prised offerings from Sri Lanka to the world.

The Sri Lankan coconut arrack is believed to be one of the


purest, naturally derived alcoholic beverages in the world
distilled through a natural fermentation process. Sri Lanka
has perfected the technique of making coconut arrack
through the years. Today, it has acquired the perfect balance
for the discerning palate and coconut arrack reigns as the
alcoholic beverage of choice in the country.

The initial step in the process of making coconut arrack is After a minute filtration process, this liquor is poured
toddy tapping, an age-old vocation which is lovingly passed into massive casks made of Halmilla wood and are gently
down from father to son. Toddy Tapping is as much an transported to our factories for distillation.
intricate art as it is a science. Toddy tappers manually extract
the toddy from coconut trees which are coupled and girdled The process of distillation comprises of two stages;
by deftly rappelling from tree to tree. Coconut sap or toddy continuous distillation (patent still distillation) and pot
is obtained by tapping the unopened coconut flower for its distillation. This distillation process is usually completed
nectar. Thereafter, the toddy is collected in earthenware within 24 hours. The purified spirit comes out with the
pots. This toddy when fresh contains much sugar, but yeasts, distinctive flavour of arrack, ready to be savoured.
microscopic vegetable organisms soon find their way into it,
act on the sugar present and produce alcohol. This process The contents of the wooden vats are mixed artfully every
of converting the sugar into alcohol is called fermentation. fortnight for better aeration and to increase contact with

14 Annual Report 2013/14


the wood. Herbs and spices from ancient recipes are also
added at particular stages, to enhance flavour and mellow
the liquor during the crucial maturation process. The
maturation process is completed after flavour enhancing
and smoothening while ageing in the wooden vats.

Finally, spirits of different ages and flavours are blended


to create the various DCSL brands, all under the careful
supervision of an experienced connoisseur and Master
Blenders. As the largest coconut arrack distillery in
Sri Lanka, possibly even in the world, this golden brew
remains our pride and flagship product.

Distilleries Company of Sri Lanka PLC 15


WHAT’S BEHIND
OUR CONTINUING
SUCCESS?
TRADITION SERVED WITH PRIDE

Superior blend of A blend of coconut


mellow 100% coconut and imported neutral
arrack full of character spirits bringing a
and a distinctive distinctively rich and
flavour stemming from smooth flavour
the traditional process
of maturing

Twice distilled
in pot stills and
matured slowly in
Halmilla vats giving
a remarkable taste
and aroma

A 100% coconut A blend of coconut


spirit, refined, aged spirits and imported
and matured in neutral spirits bringing
Halmilla vats - giving herbal flavours with a
a woody & natural distinctively rich taste
vanilla flavour and smooth aroma

16 Annual Report 2013/14


A 100% pure coconut A blend of 100% aged
spirit, which brings coconut spirits, well-
out the full-bodied matured in Halmilla
taste and aroma of vats to give a taste
desiccated coconut of oak
with a subtle
sweetness. Best served
as a cocktail mixer

Crystal clear and an


absolutely pure blend
of coconut arrack and
neutral spirits giving
a tint of fresh lime
with a slight burning
sensation on your
tongue

A 100% coconut Finest blend of


spirit, matured matured coconut
in Halmilla vats, arrack and neutral
producing a spirits giving a rich
woody character and smooth flavour
and exceptional
smoothness

Distilleries Company of Sri Lanka PLC 17


WHAT’S BEHIND
OUR CONTINUING
SUCCESS?
WORLD CLASS BLENDS, DISTINCTLY SRI LANKAN

A combination of Premium blend of


scotch and fine spirits malts and fine spirits
to produce a rich blend to produce this
of whisky classic whisky

Unique premium
blended arrack,
smooth on the palate
with pleasant aromas

Exceptional selection Unique variety of


of spirits blended imported spirits that
to create a great combines together
rum, matching to produce an
international international standard
standards vodka

18 Annual Report 2013/14


Aged fine French Fine spirits blended
brandy blended with with a rich recipe
fine spirits matured in flavoured with lemon
vats to enhance the
smooth characters of a
superior brandy

A blend of finest
French brandy
merged with fine
spirits to bring out a
unique flavour that is
incomparable

Flavour of apple with Flavour of Mango


fine imported spirits with fine imported
which provides a rich spirits that combines
apple aroma with a tempting aromas and
smooth apple flavour flavours of rich Mango
on the palate

Distilleries Company of Sri Lanka PLC 19


CHAIRMAN’S
MESSAGE
It gives me great pleasure to present to you, valued
shareholders, the annual report of your Company for the
“As an ethical business that
financial year 2013-14. DCSL has proved its resilience in the
face of many economic trials and tribulations over its 100
is responsible to the State and
years of operations and the financial year under review has people of this country, and
been no exception. The level playing field we have sought
for carrying out our business remains elusive on account of one that is accountable for its
inaction by the powers that be, effectively stifling the Group
from achieving its true financial potential. actions, we strictly adhere to the
Macroeconomic Performance NATA Act and stringently follow
The Sri Lankan economy posted a reasonable GDP growth
of 7.3 per cent in 2013, successfully restricting inflation
its guidelines.”
to single digit levels. This performance was due to positive
contributions from all sectors, further supported by favourable
weather conditions and improved global demand. The low As an ethical business that is responsible to the State and
inflation that prevailed throughout the year enabled the Central people of this country, and one that is accountable for its
Bank of Sri Lanka to ease monetary policy further to facilitate actions, we strictly adhere to the NATA Act and stringently
economic growth. Meanwhile, the financial sector remained follow its guidelines. We do not directly or indirectly lure young
resilient amidst uncertainties that increased volatility in the people into alcoholism, and never, under any circumstance,
global financial markets during 2013. The weak performance target children. Any form of promotional campaign undermines
of the agriculture sector during the first half of the year due the NATA Act. However, certain industry players circumvent
to extreme weather conditions dragged its annual growth rate the Act and resort to various subtle, tactical and innovative
down. The rebounding of global trade and the increase in campaigns. Yet, we note with concern that the authorities turn
demand from major export destinations from the second half of a deaf ear and a blind eye to such actions.
2013 had a favourable impact on export earnings.
Despite this disparity in treatment, the legal alcohol business
Forecasts for the Sri Lankan economy suggest a high growth continues to gain bad press. It is my firm conviction that the
momentum in the medium term supported by an increase in non-invoiced and tax unpaid alcohol sector should be the focus
investment and a favourable macroeconomic environment. of investigation and national scrutiny as it is a scourge and
The global economy is also expected to continue its recovery. promotes alcohol abuse and other social problems. Moreover,
even the national coffers are denied substantial excise revenue
Group Financial Performance which could be accrued if the non-invoiced and tax unpaid
During the current financial year the Gross Revenue of the alcohol sector was discouraged by better enforcement and
Group was recorded at Rs. 63.2 Bn, while the Company checks. Our tax payment to State coffers went down from
achieved Rs. 47.8 Bn. Group Profit after Tax for the year was Rs. 40 Bn in 2013 to Rs. 37 Bn in 2014, due to a drop in
Rs. 6.2 Bn, while Company Profit after Tax was Rs. 5.4 Bn. sales as a direct result of the rise in the non-invoiced and
tax unpaid alcohol segment and duplicate products in the
Challenges Abound market. If our Beverage sector had continued to grow at a
Every business needs a level playing field to function to its steady trajectory, on a level playing field, State coffers would
optimum potential, to expand, and to grow in volume and have benefitted from an approximate additional Rs. 15 to
value. However, such a just and level playing field continues 20 Bn in tax revenue from us, considering that 65% of the
to remain out of reach for us, year after year. The rampant labelled price of our product is in the form of taxes. We stand
increase in the non-invoiced and tax unpaid alcohol sector committed to extend any assistance to the authorities towards
is openly eating into the market share of legitimate alcoholic enforcing a level playing field in this sector.
beverage businesses such as ours, which pay taxes as per
the laws of the land while adhering to the strictest quality Moreover, the loss of excise revenue due to the rise of non-
guidelines. invoiced and tax unpaid alcohol business is fed by leakage

20 Annual Report 2013/14


D. H. S. Jayawardena
Chairman / Managing Director
“The rampant increase in the
non-invoiced and tax unpaid
alcohol sector is openly eating
into the market share of
legitimate alcoholic beverage
businesses such as ours, which
pay taxes as per the laws of
the land while adhering to the
strictest quality guidelines.”

Distilleries Company of Sri Lanka PLC 21


CHAIRMAN’S MESSAGE

“The entire toddy market is toddy manufacturers. Every day, large quantities of artificial
toddy are transported to manufacturers, while law-enforcing
transforming into an artificial one authorities turn a Nelsonian eye. We are the only Company
that produces 100% natural coconut arrack using 100%
and the Department of Excise is pure coconut toddy distilled in our own distilleries, providing
consumers a 100% natural product, vis-a-vis our competitors
not taking action. Vast quantities who purchase spirits produced using artificial toddy. It is

of sugar, ammonia, yeast, salt, unfortunate that artificial toddy is used to produce spirits,
and unscrupulous suppliers are exploiting the opportunity
rotten potatoes, sugar syrup and by selling such spirits to manufacturers who do not have
distilling facilities. In order to ensure the quality of toddy, we
remnants of toddy sludge are have invested in computerised modern equipment, which our
trained and experienced staff utilise to detect adulteration
being used in the manufacture by toddy suppliers. We have carefully selected our toddy
suppliers, and the toddy is subjected to constant checks for
of artificial toddy. The natural possible adulteration.

form of fermentation is thus It is regrettable that the entire toddy market is transforming
rendered extinct, substituted into an artificial one and the Department of Excise is not
taking action. Vast quantities of sugar, ammonia, yeast,
with poisonous ingredients which salt, rotten potatoes, sugar syrup and remnants of toddy
sludge are being used in the manufacture of artificial toddy.
are detrimental to the health of The natural form of fermentation is thus rendered extinct,

consumers.” substituted with poisonous ingredients which are detrimental


to the health of consumers. Currently, large-scale bottling of
artificial toddy takes place in the tapping belt of Marawila,
of ethanol from local sugar factories and the illegal import of Negombo, Wennappuwa, Madampe and adjacent areas.
ethanol. It is common knowledge that the paint and cologne Such manufacturers of bottled toddy are presently accruing
industries act as a front for the import of spirits in order huge profit by bottling artificial toddy and thereby exposing
to pass through customs, while also functioning as a front consumers, predominantly the labour force in the hill country,
for the illegal manufacture and sale of liquor, which is sold to serious diseases. This will result in a greater strain on
cheaper than those that are heavily taxed. The North and East the health system and will have a negative impact on the
are the best markets for such sales. Therefore, it is vital that plantation labour force. The Department of Excise should
the regulators enforce the law and contain the widespread be held responsible for the downfall of the toddy industry as
corruption that fuels such illicit business activities. The DCSL the Department has not taken any action to arrest the rapidly
Group has made representations to the authorities in this declining situation.
regard and we are hopeful that the government will reclaim
The advent of Excise Notification 926, whereby a transferor
its lost excise revenue by shrinking the non-invoiced and tax
could transfer a FL(4) license to a transferee for
unpaid alcohol business sooner rather than later.
Rs. 1,500,000/- and Rs. 200,000/- for other types of licenses,
It is heart rending to witness the collapse of the tradition of opened the flood gates for unscrupulous manufacturers,
toddy tapping, a proud legacy in our country. Increasingly, who gleefully welcomed this unfortunate regulation and
toddy suppliers are giving up their business by leasing or obtained licenses in the names of their kith and kin, thereby
selling their lands and trees, leading to a decrease in the dumping their non-invoiced, tax unpaid liquor with ease. It is
supply of toddy. This unique and traditional Sri Lankan regrettable that although the conditions of the manufacturing
industry, which has been passed down over many generations, license indicate that a manufacturer is prohibited from
is becoming an endangered industry. The main contributory having any interest in the retail sale of liquor, this condition
factor is the considerable rise in the number of illegal, artificial is blatantly violated. This has escalated to an extent where

22 Annual Report 2013/14


12 manufacturers have taken over 233 retail licenses out
of a total of 1000, approximately 23%. Further, we have
“It is regrettable that although the
made discreet inquiries and have ascertained that some
unscrupulous manufacturers are targeting to purchase the
conditions of the manufacturing
remaining retail licenses at exorbitant prices which will further license indicate that a
decrease the revenue accruing to State coffers.
manufacturer is prohibited from
In the recent past, the importation of ethanol at 96%
A/Vol. has been substituted with methanol, which is used for having any interest in the retail
industrial purposes, in order to qualify for a low band of tax.
Such unscrupulous importers have used fictitious names and sale of liquor, this condition
addresses in order to clear consignments. Eventually, such
spirit is utilised in the production of tax unpaid liquor, which is blatantly violated. This has
is then supplied non-invoiced to wine stores at approximately
a 30% to 40% lower value than the labelled price. With the
escalated to an extent where 12
excise duty and VAT component being over 65% of the labelled
price, it raises the question as to how these acts are being
manufacturers have taken over
committed under the very nose of the Regulator, defrauding 233 retail licenses out of a total
the Government of billions in revenue. The solution to this
problem is that the Government should discontinue the issue of 1000...”
of licenses to import methanol as a raw material for industrial
purposes. DCSL adheres to stringent quality controls throughout
production where quality is monitored by qualified and
It is regrettable to witness officers in uniform openly accountable professionals. R&D is carried out in modern fully
performing a sales act to unscrupulous licensees who are equipped laboratories to ensure the Company continues to be
operating in large numbers and forcing licensees to buy tax at the cutting edge of our industry.
unpaid products against their will. The licensees have no
option but to face TCR action if they do refuse to purchase DCSL continues to enjoy the Fitch Ratings assigned long term
same, falling prey to these corrupt officers who are depriving rating of AAA (lka) with a stable outlook, the highest possible
the Government of billions in revenue. This is very common in credit rating, which places your Company amongst the few
the North and East where such products are freely available in elite corporates in Sri Lanka who enjoy such exalted ratings.
the market, and prices are 30% to 40% less than a product on
which all taxes have been paid. We have brought these issues Diversified Sector Performance
to the notice of the regulator who maintains silence, and is yet With regard to other Group business interests, our
to take action to bring wrongdoers to book. telecommunication arm, Lanka Bell recorded a loss due to
challenges experienced in the sector. However, Lanka Bell has
Despite these serious violations taking place in the industry, we
a positive EBITDA despite many companies reporting negative
remain optimistic about the potential of our alcoholic beverage
growth. We are buoyed by future prospects for the business
business. This bullish view is reflected in our investment of
as we have acquired 4G LTE technology, which will propel the
Rs. 2.5 Bn in a state of the art blending and bottling plant
company to the forefront of the country’s data revolution. Fixed
which will enable enhanced capacity, better packaging,
telephony is reaching saturation point in Sri Lanka and by
presentation, and prevent adulteration of our products. The
opting for mobile technology, Lanka Bell has effectively taken
plant further mechanises several aspects of our operations,
control of its destiny by forging new growth avenues for itself.
yielding higher productivity and efficiency of operations. Our
I expect the company to make a positive contribution to Group
wholly owned subsidiary Periceyl, is focused on bringing in
revenue in the future by becoming a front runner in the data
bigger and better brands to Sri Lanka for the convenience of
sector.
customers.

Distilleries Company of Sri Lanka PLC 23


CHAIRMAN’S MESSAGE

Meanwhile, Balangoda Plantations showed an improved With regard to Sri Lanka Insurance Corporation Ltd. (SLIC),
performance with a turnover of Rs. 3.2 Bn and a pre-tax profit even after a lapse of 5 years, we still await the payment of
of Rs. 130 Mn. We are glad to state that our hydro power profit earned during DCSL Group’s tenure at the helm of SLIC.
project, Bogo Power, which was commissioned in December We are hopeful that the profit earned, which has to be paid to
2011 is now yielding encouraging results for the Group. DCSL us as per the Supreme Court directive, will be reimbursed to us
Group is encouraged by the progressive results achieved by as early as possible.
our key associate company, Aitken Spence during the financial
year. I wish to state that Company has complied with the Listing
Rules of the Colombo Stock Exchange and the Code of Best
In response to the Central Bank of Sri Lanka (CBSL) financial Practices on Corporate Governance issued by the Securities
sector consolidation plan, the Group enhanced the stated and Exchange Commission and the Institute of Chartered
capital of Melsta Regal Finance to Rs 1.34 Bn in March 2014, Accountants of Sri Lanka. We are committed towards the
through which Melsta Regal Finance is compliant with the furtherance of Corporate Governance principles of the
capital adequacy requirements of CBSL up to 2016. Melsta Company. The measures taken in this regard are set out in the
Regal Finance’s sharp focus on the SME sector is attracting Corporate Governance Report.
a base of loyal customers who appreciate its personalised
products and services. In a climate where uncertainty prevails Future
over the stability of finance companies, the fact that Melsta Sri Lanka is poised on the cusp of expansion and fast track
Regal Finance is backed by the AAA rated DCSL Group is a development but there are certain obstacles in its path
reassuring factor to the public. which must be cleared through political will. Supported by
infrastructure development, rapid economic growth and access
In July 2014, the Group increased its investment in to foreign markets, the only way to go is up, but what remains
Continental Insurance to Rs. 750 Mn. Established as one to be seen is how the hurdles in the way of progress are
of the most innovative and dynamic insurance companies, cleared. I am hopeful that the authorities will lend an ear to
Continental Insurance holds great potential for the future. the challenges facing the alcoholic beverages sector and act in
The insurance industry is a fiercely contested space, however accordance with the law of the land.
companies that can position themselves perfectly have much
potential for growth. I have confidence that Continental Appreciation
Insurance is on the right path and will move into high gear in
I would like to thank the Board of Directors, the management
the months ahead.
and every employee of the Company for their dedication and
passion to achieve our corporate goals. I wish to express my
The uncertainties surrounding the status of our subsidiary,
gratitude to the regulators and to our shareholders for placing
Pelwatte Sugar Industries continues to weigh upon the Group.
their trust in the Group. Our loyal customer base and other
Following the occupation of the factory by State Officials, the
stakeholders remain our strength and our prime motivation for
ownership of this property remains unresolved. The Group
aspiring to be quite simply the most sustainable Company in
has not changed its position, advocated since the occurrence
Sri Lanka.
of this unfortunate incident of being the legal owner of the
property, and as such we have communicated our views to the
Treasury. However, as a precautionary measure, the Group has
also lodged an official claim with the Compensation Tribunal
appointed by the State. Further, since our Group is deprived of
participating in controlling the financial & operating policies
and other relevant activities, the financial statements of PSIP
have been deconsolidated from the Group financial statements D. H. S. Jayawardena
of DCSL PLC during this year. We hope that some clarity Chairman / Managing Director
regarding this untoward situation would be forthcoming during
22 August 2014
the new financial year.

24 Annual Report 2013/14


OUR LEADERSHIP

Distilleries Company of Sri Lanka PLC 25


BOARD OF
DIRECTORS

1. 2.

3. 4.

1. Mr. D. H. S. Jayawardena
Chairman / Managing Director
2. Mr. R. K. Obeyesekere
Non-Independent Non-Executive Director
3. MR. C. R. Jansz
Executive Director
4. Mr. N. de S. Deva Aditiya 5.
DL, FRSA
Independent Non-Executive Director
5. Capt. K. J. Kahanda (Retd.)
Executive Director

26 Annual Report 2013/14


6. 7.

8. 9.

6. Mr. C. F. Fernando
FCA
Independent Non-Executive Director
7. Dr. Naomal Balasuriya
MBBS [Sri Lanka], MBA [Sri.J], CIM [UK],
MCGP [SL], MSLIM, MIMSL
Independent Non-Executive Director
8. Ms. V. J. Senaratne
Attorney-at-Law, Notary Public, Solicitor (Eng.& Wales)
Alternate Director to K. J.Kahanda / Company Secretary
and Chief Legal Officer
9. Mr. Amitha Gooneratne
FCA (SL), FCA (Eng.& Wales)
Alternate Director to N. de S. Deva Aditiya

Distilleries Company of Sri Lanka PLC 27


BOARD OF DIRECTORS

1. Mr. D. H. S. Jayawardena 3. Mr. C. R. Jansz


Chairman / Managing Director Executive Director

Mr. Harry Jayawardena is one the most successful and Mr. C. R. Jansz has many years of experience in logistics in
prominent business magnates in Sri Lanka. He was elected the Import / Export field and in Documentation, Insurance,
Banking and Finance relating to international trade.
Chairman of the DCSL Group in 2006 after serving as its
Managing Director for almost two decades. He heads many He is the Chairman of DFCC Bank and a Director of DFCC
successful ventures in diversified fields of business. He is the Vardhana Bank. He serves on the Board of Balangoda
founder Director and the present Chairman / Managing Director Plantations PLC., Lanka Bell Limited and several other
of the Stassen Group of Companies. companies of the Distilleries Group. He is also a Director of
Lanka Milk Foods (CWE) PLC. and its subsidiaries.
He is the Chairman of Aitken Spence PLC., Aitken Spence He was the former Chairman of Sri Lanka Shippers Council
Hotel Holding PLC., Lanka Milk Foods (CWE) PLC., and former member of the National Trade Facilitation
Madulsima Plantations PLC., Milford Exports (Ceylon) (Pvt) Committee of Sri Lanka. Mr. Jansz holds a Diploma in
Ltd., Ceylon Garden Coir (Pvt) Ltd., Ambewela Products (Pvt) Banking and Finance from the London Guildhall University – UK.
Ltd., Ambewela Livestock Co. Ltd., Danish Dairy Products He is also a Chevening Scholar and a UN-ESCAP Certified
Lanka (Pvt) Ltd., Lanka Dairies (Pvt) Ltd., Melstacorp Ltd. Training Manager on Maritime Transport for Shippers.
and its subsidiaries; Balangoda Plantations PLC., Browns
4. Mr. N. de S. Deva Aditya
Beach Hotels PLC., Lanka Bell Ltd., Periceyl (Pvt) Ltd.,
DL, FRSA
Bogo Power (Pvt) Ltd. and Texpro Industries Ltd. Independent Non-Executive Director

He is a former Director of Hatton National Bank PLC., the Mr. Niranjan Deva Aditya, is an aeronautical engineer,
scientist and economist, is a Conservative Member of the
largest listed bank in Sri Lanka and former Chairman of
European Parliament elected from the SE England. He is
Ceylon Petroleum Corporation and SriLankan Airlines. the Vice President of the Development Committee; ECR
Coordinator and Conservative Spokesman for Overseas’
Mr. Jayawardena is the Honorary Consul for Denmark and Development and Co-operation.
was the only Sri Lankan honoured with the prestigious
“Knight’s Cross of Dannebrog’ by Her Majesty, Queen He was the Co Leader of the Parliamentary Delegation to the
Margrethe II of Denmark, for his significant contribution to UN World Summit and General Assembly 2006, Chairman
the Danish arts, sciences and business life. Working Group A of Development Committee overseeing Asia,
Central Asia and Far East; - Co Co-ordinator Assembly of 79
He has also been awarded the title, “Deshamanya” in Parliaments of the EU-ACP 2004 and the President EU India
Chamber of Commerce from 2005. In 2012 he stood for and
recognition of his services to the Motherland, since
came runner up, beating the Liberal candidate into 3rd place
November 2005. to be the President (Speaker) to the European Parliament.
He was the first Asian to be elected as a Conservative
2. Mr. R. K. Obeyesekere Member of British Parliament, first Asian MP to serve in the
Non-Independent Non-Executive Director British Government as PPS in the Scottish Office and first
Asian born MP to be elected to the European Parliament.
A Director of the Group since 1992, he counts over 35
He was nominated as a candidate to succeed Kofi Annan as
years of experience in the export sector of the country. He Secretary General to the UN in 2006.
is a Founder Director of Stassen Group of Companies. He is
also a Director of Lanka Milk Foods (CWE) PLC., Balangoda He is a Hon. Ambassador without portfolio for Sri Lanka;
Plantations PLC., Madulsima Plantations PLC., Periceyl (Pvt) the first Asian to be appointed as Her Majesty’s Deputy Lord
Ltd., Melstacorp Ltd., Milford Holdings (Pvt) Ltd., Zahara Lieutenant for Greater London, representing The Queen
Exports (Pvt) Ltd., Lanka Power Projects (Pvt) Ltd., Milford on official occasions since 1985; awarded the honour
“ViswaKirthi Sri Lanka Abhimani“ by the Buddhist Clergy
Exports (Ceylon) (Pvt) Ltd., Lanka Dairies (Pvt) Ltd., Danish
for his Services to Sri Lanka and given the Knighthood
Dairy Products Lanka (Pvt) Ltd., Ceylon Garden Coir (Pvt)
with Merit of the Sacred Constantinian Military Order of
Ltd., Milford Developers (Pvt) Ltd., Ambewela Livestock Co. St. George for his global work on poverty eradication. He
Ltd., and Pattipola Livestock Co. Ltd. is a Fellow of the Royal Society for Arts, Manufacture and
Commerce (Est: 1765).

28 Annual Report 2013/14


5. Capt. K. J. Kahanda (Retd.) 8. Ms. V. J. Senaratne
Executive Director Attorney-at-Law, Notary Public, Solicitor (Eng.& Wales)
Alternate Director to K. J. Kahanda / Company Secretary and
Captain Kahanda joined the Company in 1993 as Regional
Chief Legal Officer
Manager (Central Region) and was appointed a Director in
December 2006. Being a former officer of the Sri Lanka Ms. Senaratne was appointed as the Company Secretary in
Army, he spearheaded the re-organisation of the operations 1993. She was admitted to the Bar in 1977 and was enrolled
of the Central Region since privatisation. He specialises in as a Solicitor (England & Wales) in June 1990. She also
logistics, distribution and security matters, and is also a holds the position as Company Secretary of Periceyl (Pvt) Ltd.
Director of G4S Security Services (Pvt) Ltd. and Pelwatte
Distilleries (Pvt) Ltd., a subsidiary of the Group. 9. Mr. Amitha Gooneratne
FCA (SL), FCA (Eng.& Wales)
6. Mr. C. F. Fernando Alternate Director to N. de S. Deva Aditya
FCA
Mr. Amitha Gooneratne has held several senior positions at
Independent Non-Executive Director
Commercial Bank of Ceylon PLC. and served as the Managing
Mr. Fernando, who previously served as the Managing Director and Director from 1996 to April 2012. He is a Fellow member
as Chief Executive Officer of Distilleries Company of Sri Lanka of The Institute of Chartered Accountants, United Kingdom
PLC., rejoined the company as an Independent Non-Executive and Wales and a Fellow member of The Institute of Chartered
Director in 2008. He is the Chairman of the Audit Committee Accountants, Sri Lanka. He was the Founder Chairman
of the Financial Ombudsman Sri Lanka (Guarantee) Ltd.,
and also serves on the Remuneration Committee. Qualified as a
and former Chairman of the Sri Lanka Banks’ Association
Chartered Accountant from the Institute of Chartered Accountants
(Guarantee) Ltd. He was the former Chairman of the Sri
of England and Wales, he is also a Fellow of the Institute of
Lanka Banks’ Association (Guarantee) Ltd. He was also the
Chartered Accountants in Sri Lanka. Mr. Fernando is a Director of Managing Director of Commercial Development Company
DCSL subsidiary Melstacorp Ltd. and Continental Insurance Lanka PLC., a Public Quoted Company listed in the CSE and was
Ltd., where he serves as the Chairman of the Audit Committee. the Chairman of Commercial Insurance Brokers (Pvt) Limited.
He counts over 18 years of experience in financial and general He was also nominated to the Board of SriLankan Air Lines
management of plantation companies and agency management during 2002–2004 by the Government of Sri Lanka.
as Senior Accountant at Carson Cumberbatch & Co. Ltd., followed
by 10 years experience as Director - Finance in Projects involving On his retirement, Mr. Gooneratne, assumed duties as
paddy cultivation, shipping agency, nontraditional exports, bottling Managing Director of Melstacorp Ltd., which is the strategic
investment arm of the Distilleries Company of Sri Lanka
of soft drinks, earth moving contracts. He is presently a Director of
PLC. He is the Chairman of Melsta Regal Finance Ltd. and
Selinsing PLC. and Equity Three (Pvt) Ltd. of the Carsons Group.
Melsta Logistics (Pvt) Ltd., Board member of Periceyl (Pvt)
He was once Finance Director of the National Lotteries Board, a
Ltd., Balangoda Plantation PLC., Lanka Bell Ltd., Telecom
Director of the Coconut Cultivation Board and a former Chairman of Frontier (Pvt) Ltd., Bell Solutions (Pvt) Ltd., Bellvantage
Low Country Products Association (LCPA). Until 30th June 2014 (Pvt) Ltd., Timpex (Pvt) Ltd., Texpro Industries Ltd., Bogo
he was a Senior Trustee of the Ceylonese Rugby and Football Club. Power Ltd., Continental Insurance Lanka Ltd., and Browns
Beach Hotels PLC., which are subsidiary companies of
7. Dr. Naomal Balasuriya Melstacorp Ltd.
MBBS [Sri Lanka], MBA [Sri.J], CIM [UK], MCGP [SL],
MSLIM, MIMSL He is the Alternate Director to Mr. N. de S. Deva Aditya on
Independent Non-Executive Director the Board of Aitken Spence PLC.

Dr. Naomal Balasuriya, a medical doctor turned- He is an Independent Director of Textured Jersey and Lanka
entrepreneur is internationally sought after as a life changing IOC. He is also a Director of Commercial Development
motivational speaker. His professional expertise ranges from Company PLC.
medicine, military, management, marketing, mentoring to
motivational speaking. He holds both the Master of Business
Administration (MBA) and CIM (UK) qualifications. Having
worked in the government sector, private sector and the
Sri Lanka Air Force as a medical doctor, he now leads his
entrepreneurial training company, Success Factory. He is
also a Director of Melstacorp Ltd., a subsidiary of the Group.
Distilleries Company of Sri Lanka PLC 29
GROUP
MANAGEMENT

1. 2.

3. 4.

5. 6.

1. Amitha Gooneratne:
Managing Director - Melstacorp Ltd. / Chairman - Melsta
Regal Finance Ltd., Melsta Logistics (Pvt) Ltd., Bellvantage
(Pvt) Ltd., Melsta Tower (Pvt) Ltd. / Director - Continental
Insurance Lanka Ltd., Periceyl (Pvt) Ltd., Lanka Bell Ltd., Texpro 7.
Industries Ltd., Bogo Power (Pvt) Ltd.

2. Capt. Jagath Kahanda (Retd.):


Managing Director - Pelwatte Sugar Distilleries (Pvt) Ltd. / 5. Asoka Abeyewardene:
Director - Distilleries Company of Sri Lanka PLC, Melstacorp Director - Continental Insurance Lanka Ltd.
Ltd., Pelwatte Sugar Industries PLC, Melsta Properties (Pvt) Ltd.,
Milford Holdings (Pvt) Ltd. 6. Capt. Ranjith Wettewa SLN (Retd.):
Director - Pelwatte Sugar Industries PLC.
3. Ms. Stasshani Jayawardena:
Chairperson - Splendor Media, Director - Aitken Spence PLC 7. Maximus R. Peries:
CEO - Distilleries Company of Sri Lanka PLC / Director - Pelwatte
4. Lalith Obeyesekere: Sugar Industries PLC, Lanka Bell Ltd., Melsta Logistics (Pvt) Ltd.,
Director / CEO - Balangoda Plantations PLC, Madulsima Melsta Tower (Pvt) Ltd.
Plantations PLC

30 Annual Report 2013/14


8. 9.

10. 11.

12. 13.

8. Senaka Amarathunga:
Director / General Manager - Periceyl (Pvt) Ltd.

9. Dinal Peiris:
Managing Director - Texpro Industries Ltd. 14.
10. Chaminda De Silva:
Managing Director - Continental Insurance Lanka Ltd.

11. Dr. Prasad Samarasinghe:


Managing Director - Lanka Bell Ltd.

12. Janaka Abeysinghe:


Director - Melsta Logistics (Pvt) Ltd.

13. Nishaman Karunapala:


Director / CEO - Melsta Regal Finance Ltd.

14. Ms. Farzana Sulaiman:


Chief Operating Officer - Bellvantage (Pvt) Ltd.

Distilleries Company of Sri Lanka PLC 31


DCSL
MANAGEMENT

1. 2.

3. 4.

5. 6.

1. Maximus R. Peries : Chief Executive Officer


2. Maj. Gen. Siri Peiris (Retd.) : Head of Southern Region
3. Capt. Ranjith Wettewa SLN (Retd.) : Head of Uva Region
4. Ms. V. J. Senaratne : Company Secretary & Chief Legal Officer
5. S. Rajanathan : Head of Procurement
6. Maj. Roshan Cabraal (Retd.) : Head of Northern Region

32 Annual Report 2013/14


7. 8.

9. 10.

11. 12.

7. Premasiri Liyanaarachchi : Chief Internal Auditor


8. Ms. Gayathri Chakravarthy : Head of Human Resources
9. Nimal Nagahawatte : Head of Finance
10. Roshanth Kumar Perera : Head of Transport & Logistics
11. Brig. Aruna Wijewickrama (Retd.) : Head of Central Region
12. Lalith Ratnayake : Head of Inventory Management

Distilleries Company of Sri Lanka PLC 33


34 Annual Report 2013/14
DCSL Group manages one conditions prevailing in the local alcoholic beverage sector,
in addition to the rising cost of living trends in the economy.

of the Sri Lanka’s most Since DCSL and the alcohol business accounts for the
majority of the Group revenue, the rapidly shrinking
successful diversified legal alcohol industry is adversely affecting the overall

portfolios spanning
performance of the Group; thus reducing revenues for the
tax authorities. However, our century-old reputation and

beverages, plantations, reliable operations as the market leader in the industry

telecommunication,
insurance, finance, power Group
generation, textiles, leisure,
logistics and media &
creative services, thus making
20.41 178.79
Earnings Net Assets
a substantial contribution to per Share (Rs.) per Share (Rs.)
the national exchequer...

MANAGEMENT
DISCUSSION & ANALYSIS
DCSL Group manages one of the Sri Lanka’s most successful have earned us a loyal customer base, which ensured our
diversified portfolios spanning beverages, plantations, products prevailed as the most preferred brand for discerning
telecommunication, insurance, finance, power generation, customers during the year.
textiles, leisure, logistics and media & creative services,
thus making a substantial contribution to the national The other diversified sectors of the Group succeeded in
exchequer and cementing its credentials as one of the most heightening brand awareness for Melstacorp Group of
dynamic and diversified group of companies in this century. companies. The period under review, witnessed greater effort
Commanding a presence of over 100 years, DCSL leverages across this sector to build the Melsta brand as a powerhouse.
on superior systems and processes coupled with visionary Profitability in the year under review was however weighed
leadership and a committed team of employees to deliver down by recent investments which are yet to yield returns.
maximum returns to its stakeholders. Melsta Regal Finance Limited, which commenced operations
in October 2012, is steadily carving a niche for itself while
Group Overview spreading its network around the country. Our insurance
Over the last 12 months the global economy has offered venture, Continental Insurance is slowly taking shape with a
little or no relief from numerous challenges that beset the new infusion of capital in July 2014. The Group has made
world of business. Our flagship Company which is engaged investments in the Beverage sector for enhancing efficiency
in the alcohol beverage was impacted by some unfavourable and quality by installing an ultra-modern blending &

Distilleries Company of Sri Lanka PLC 35


MANAGEMENT
DISCUSSION & ANALYSIS

“DCSL Group remain


committed to generate
prosperity in the
communities in which
it operates. As a market
leader in the beverage
sector and one of the most
profitable groups in the
county, we take it upon
ourselves to drive social and
environmental sustainability,
apart from fulfilling our
economic responsibility to
our stakeholders..”
Gross Turnover - Group
bottling plant. The Group firmly believes that these futuristic Rs. Mn
investments will pay off in the coming years.

The expropriation of Pelwatte Sugar Industries PLC (PSIP), 2014 2013


under the Revival of Under-performing Enterprises and 53,136 56,479 Beverage Sector
Underutilised Assets Act (Act) in November 2011 remained 3,634 2,780 Plantation Sector
unresolved during the current financial year. We have not 3,172 3,997 Telecommunication Sector
changed our stand that we are the legal owners of PSIP, 3,244 2,534 Diversified Sector
although the company was listed as an underutilised asset 64,186 65,790
in the Act. Since our Group is deprived of participating
in controlling the financial & operating policies and other
relevant activities, the financial statements of PSIP have
been de-consolidated from the Group financial statements paid as per the Supreme Court directive, will be reimbursed to
during this year. We hope some clarity regarding this untoward us at the earliest.
situation would be forthcoming within the new financial year.
The Group’s gross revenue recorded at Rs. 63.2 Bn in the
Further, with regard to Sri Lanka Insurance Corporation Ltd. current year. The Group’s profit before tax was Rs.9.5 Bn and
(SLIC), even after a lapse of Five years we still await the recorded a profit after tax of Rs. 6.2 Bn. The contribution
payment of profit earned during the DCSL Group’s tenure at to total revenue from the alcoholic beverage sector was Rs.
the helm of SLIC. We are hopeful that the profit earned be 53.1 Bn and continues to be the largest contribution to
the bottom line. The Group plantation interest, contributed

36 Annual Report 2013/14


Overall, the DCSL Group remain committed to generate
prosperity in the communities in which it operates. As a
market leader in the beverage sector and one of the most
profitable groups in the county, we take it upon ourselves
to drive social and environmental sustainability, apart from
fulfilling our economic responsibility to our stakeholders. We
continuously engage closely with our key stakeholders in order
to mitigate any adverse effects on the Group’s bottom line.

Beverage Sector
The year under review was most challenging for the Company
as well as for the entire industry. Excise figures for 2013
revealed a decline in the hard liquor sector by 11% in
comparison to 2012. One of the main causes for this has been
a leakage of tax unpaid liquor which is supplied, non-invoiced,
to wine stores at prices approximately 30 to 40 percent lower
than the labelled price. With the excise duty & VAT component
being over 65%, it is impossible for legal producers to be
competitive in such markets. A high tax regime and the rising
cost of living have been forcing consumers to opt for cheaper
products, despite poor quality. Our consistent performance,
in the face of growing challenges to the legal alcohol industry
is an indication of the high quality and consumer trust in our
brands. Despite low priced alcohol flooding the market, we
continue to see encouraging loyalty by discerning customers
Profit Before Tax - Group
who appreciate the quality standards we maintain and the
Rs. Mn
consistent bouquet of our products.

2014 2013 Further, high tax regime encourages illegal producers to


8,027 6,349 Beverage Sector earn bigger profit within a short period of time at a very high
130 110 Plantation Sector social cost. On the other hand, sale of tax unpaid liquor leaks
(639) (150) Telecommunication Sector revenue which would otherwise go into the State coffers. In
536 484 Diversified Sector
contrast, DCSL Group pays all taxes as per the laws of the
1,440 1,292 Share of Profit of Equity
Accounted Investees land, making the Group one of the largest contributors to
9,494 8,084 State revenue. We must also emphasise that, unlike most
businesses, we are unable to advertise to build market
awareness and brand value. Therefore, our ongoing success
a revenue of Rs. 3.6 Bn, telecommunication Rs. 3.2 Bn can be attributed to our management skills and consumer
and diversified businesses Rs. 3.2 Bn. Share of associate loyalty.
investees contributed Rs. 1.4 Bn to the Group’s profitability.
The Group’s total assets increased to Rs. 83.7 Bn from Rs. DCSL remains the flagship Company and the highest revenue
78.5 Bn and the net assets per share rose to Rs 178.8 from generator for the Group. During the current financial year,
Rs.159.9. The market price per share gained by 22% during both DCSL and Periceyl continued to maintain profitability
the year, stood at Rs. 203 at the end of March 2014. despite the challenges posed to the legal alcohol business in
the country as a result of a skewed playing field.

Distilleries Company of Sri Lanka PLC 37


MANAGEMENT
DISCUSSION & ANALYSIS

Gross Turnover - Beverage Sector Profit Before Tax - Beverage Sector such as treasury, finance, audit and control and human
(Rs.Mn) (Rs.Mn) resources, were put in place. We will continue our efforts to
strengthen shared services and build a common brand under
56,479
53,137 the “Melsta” umbrella. Melstacorp is trying to combine
8,027
the Group companies’ synergies in a manner that optimum
6,349 resource utilisation and financial benefits can be accrued.
In time to come Melstacorp is expected to emerge as a
diversified conglomerate to enhance the contribution from
the non-alcohol sector whilst reducing the Group’s over-
reliance on the alcohol sector.

2012/13 2013/14 2012/13 2013/14 Plantation Sector


The plantation sector recorded an improved performance over
Gross turnover of DCSL was recorded at Rs. 47.8 Bn. DCSL the previous year. Despite adverse climatic conditions and a
recorded profit after tax of Rs. 5.4 Bn as against profit after wage increase of estate labour that came into force during
tax of Rs. 6.9 Bn in previous year. Noteworthy to mention, the year. Balangoda Plantations PLC (BPL) recorded a pre-
the beverage sector contributed Rs. 37.3 Bn to the State by tax profit of Rs.129.72 Mn at the end of the financial year
way of taxes. attributed to attractive tea prices. As a result, the turnover of
the Company increased from Rs. 2.8 Bn in 2012 to Rs. 3.2
Periceyl, was successful in enhancing its leading brand Bn in 2013 marking a growth of 14.28%.
positions recording a revenue growth of 11%, while
sustaining its profitability. This was achieved despite the However, the Company rubber production recorded a drop of
downturn in the industry, due to the immense contributions 17.28% in 2013, as a result of adverse weather conditions,
of the brands, Black Opal Arrack, Franklin Brandy, Galerie an increase in cost of production mainly due to wage
Brandy and Tillsider Whisky. increase exacerbated with the decline in auction prices.
BPL continued to invest in the plantation sector through
Future Outlook development projects and crop diversification. A total of Rs.
393.3 Mn was injected into field development, plant and
DCSL expects to reap dividends from the installation of the
machinery, worker housing, community infrastructure and
ultra-modern blending and bottling factory which will soon be
other development projects. New planting was undertaken in
running to full capacity. Meanwhile, our R&D team perseveres
226.9 hectares in the Balangoda and Badulla regions.
in innovating new products to ensure that our products evolve
and change with the times. Periceyl will explore new ventures
to cater to the increasing demand of the tourist industry with
wide varieties of wines and spirits. Further, we are hopeful
that the authorities will exert greater control to curb the sale
of illegal liquor for the benefit of the consumers.

Melstacorp Limited
As part of our Group restructuring plan, DCSL shareholdings
of subsidiaries and associates were realigned to Melstacorp
Limited, enabling Melstacorp to provide greater focus and
attention to the diversified investments of the DCSL Group.
Thus Melstacorp has 14 subsidiaries (direct / indirect) and 2
associate companies under its wing.

In line with the Group’s philosophy, several steps were taken


to build Group culture and strengthen the shared services
structure. Some of the key areas of the shared services

38 Annual Report 2013/14


Gross Turnover-Plantation Sector Profit Before Tax -Plantation Sector Gross Turnover-Telecommunication Profit/(Loss) Before Tax-Telecommunication
(Rs.Mn) (Rs.Mn) (Rs.Mn) (Rs.Mn)
3,997
3,634 130
3,172
110 (639)
2,780

(150)

2012/13 2013/14 2012/13 2013/14 2012/13 2013/14 2012/13 2013/14

We are proud to note that various grades of tea, manufactured One of the highlights of the financial year was that Lanka
by Pettiagalla, Glen Alpin, Meddakande, Balangoda, Bell commenced rolling out its 4G LTE network in line
Cecilton, Nonpareil, Telbedde, Palmgarden, Ury, Wewesse with its planned schedule. The initial lot of eNodeBs (base
and Spring Valley Estates, obtained all island top prices on stations) was commissioned in December 2013 and the
201 occasions, at the Colombo Tea Auctions. Various grades Company immediately began test marketing its 4G services.
of rubber, from Mahawela, Millawitiya, Rambukkande and Following a successful test run, Lanka Bell formally launched
Galatura Estates, obtained top prices on 58 occasions. its 4G connectivity in February 2014 to coincide with the
celebration of Sri Lanka’s 66th Independence anniversary.
Future Outlook
The future for the plantations sector is encouraging although Lanka Bell operates its 4G LTE network on a bandwidth
the BPL’s performance hinges on favourable weather of 25 MHz in the 2.3 GHz spectrum called the LTE Band
conditions. Extension of the fertilizer subsidy and its number 40, which is the most sought after band in the Asian
availability will further play an important role in an industry region. LTE technology offers faster data rates to customers
beset by aging bushes and depleted soils. and is the current trend and future of the ICT (Information
and Communication Technology) industry. This is yet another
Telecommunication Sector quantum leap into the future of wireless telephony and
Despite the rise of operational costs during the year, the connectivity for Lanka Bell, the pioneers who introduced the
Group’s telecommunication arm was able to sustain a revolutionary CDMA technology to Sri Lanka in 2005.
reasonable EBITDA margin in line with the industry average.
Future Outlook
Further, revenue generated from the FLAG undersea cable
showed an encouraging growth compared to the previous In the year ahead new strategies are in place to reduce costs
year. The growth in data revenue had also strengthened and improve revenues. Lanka Bell presents a rich portfolio
during the year. of value-added high speed broadband and voice services
at unbeatable rates to its customers across the country;
ably supported by a dedicated team of professionals with
international expertise and local knowledge and strategic
investments in low-cost cutting edge technology. The
growth in data revenue has encouraged us to continue
to expand our presence in this segment, since growth in
voice related services is reaching saturation point. The
adoption of the new technology at an early stage, puts
Lanka Bell in a favourable position for future growth and

Distilleries Company of Sri Lanka PLC 39


MANAGEMENT
DISCUSSION & ANALYSIS

will help to build the business further. Data is the future of CILL has comprehensive reinsurance arrangements to ensure
the telecommunication industry and by equipping itself with the Company’s risks are effectively managed in collaboration
the right technology at the right time. Lanka Bell will focus on with world renowned re-insurers such as Swiss Re, Lloyds,
cornering greater market share of the data market as it is one of General Insurance Corporation of India, Malaysian Re, Best Re,
only two operators in the country to have a 4G-LTE Network. Hannover Re.

Diversified Sector CILL introduced an Android mobile application to all technical


Gross Turnover - Diversified Sector Profit before Tax - Diversified Sector assessors to facilitate efficiency in the processing of claims. In
(Rs.Mn) (Rs.Mn)
addition, payments of premiums online were also introduced
484 in order to cater to the growing market of online users and
3,244 461
thereby giving customers an enhanced service with greater
2,534
convenience and ease.

Based on the changing insurance landscape within Sri Lanka,


Continental Insurance aims at providing a unique experience
both in terms of products made available to target segments
as well as services rendered during the execution of sales/
2012/13 2013/14 2012/13 2013/14 support operations. The focal point of Continental Insurance
is on the high levels of service backed by a diversified local
Insurance conglomerate to ensure customer confidence in the brand’s
Continental Lanka Limited (CILL) recorded a Gross Written value proposition and thereby living up to its promise of
Premium (GWP) of Rs. 1.4 Bn during the year 2013. CILL providing a “Service, Redefined.”
secured a 2.7 % share of the General Insurance market.
Motor Insurance premiums contributed 65% to the GWP of Financial Services
the Company, while other non-motor insurance premiums The Group’s newest member, Melsta Regal Finance Limited
recorded the balance percentage. achieved several milestones in its first year of operation - with
the lending portfolio and the equity base of the Company
The network of CILL consisted of 30 branches as at 31 exceeding Rs 1.0 Bn. Since its inception, the Company
December 2013, strategically placed around the country, managed to achieve a continuous trajectory of growth, whilst
including in the North and East. CILL was very successful in maintaining consistent profitability levels in a business
securing business during 2013 including major power plants, environment of low credit growth. The Company did not
international cricket stadiums, local and international hotel compromise on credit quality in achieving portfolio growth
chains, aviation and major conglomerates in the country. and possesses one of the lowest NPA ratios in the non-bank
financial services sector.

In response to the Central Bank of Sri Lanka (CBSL) financial


sector consolidation plans, Melsta Regal Finance enhanced
the stated capital by Rs. 650 Mn to Rs 1.35 Bn, making the
company compliant with the capital adequacy requirements
of CBSL up to 2016. Melsta Regal Finance continues to
settle dues owed to customers of the erstwhile failed finance
company before its takeover by the Company.

In its first year of operations, Melsta Regal Finance strived


to create a niche in an intensely competitive and crowded
financial services market. It positions itself as a financial
40 Annual Report 2013/14
to expand its reach by widening its geographical presence to
five in key outstation locations, to cater mainly to the SME
sector. Melsta Regal Finance will concentrate on strengthening
and consolidating its position further, while complying with
the Central Bank’s recommendation for finance companies to
consider mergers and acquisitions to improve the health of the
finance sector as a whole.

Power Generation
As a policy of the Company to contribute towards the
improvement and the preservation of the environment for
posterity, Bogo Power (Pvt) Ltd was formed to set up a Mini
Hydro Plant. We are elated to state that Bogo Power exceeded
services specialist, offering the flexibility of a finance company performance forecasts during the period under review. During
coupled with the versatility of a bank. As a result, the the last two financial years, the project generated 16.2 GWH
Melsta Regal Finance has a diversified portfolio of lending, and 21.1 GWH respectively exceeding the projected average
encompassing short to medium term lending, thereby, annual energy value of 15.2 GWH. This project is set up at
successfully differentiating itself from other industry players, Kirkoswald Group, Bogowantalawa on land which has been
whose lending portfolios consist predominantly of leasing and leased out from Madulsima Plantations PLC, an associate of
hire purchase facilities. DCSL Group.

The key focus of the financial year 2013/14 was market Bogo Power is registered with the Board of Investment of Sri
expansion and product development. The geographical foot Lanka (BOI) and the necessary approvals have been obtained
print of Melsta Regal Finance expanded its presence to the from the Sustainable Energy Authority of Sri Lanka and the
key cities of Kurunegala, Matara, Kandy and Negombo. The Public Utilities Commission of Sri Lanka. A Power Purchase
first Premier Centre was set up in Kandy with the objective of Agreement has been entered into with the Ceylon Electricity
offering value added services such as a vehicle trading hub in Board for the sale of electricity generated for a period of 20
collaboration with Melsta Logistics Limited. years.

Melsta Regal Finance introduced several new financial The project was fully commissioned in December 2011 and the
products leveraging on the strengths of the Group. A novel power capacity of the project is 4 MW. The project is dependent
product to the market known as the “360° Trade Finance” primarily on the rainfall in the catchment area of the project
facility, which finances the entire working capital cycle of a and secondly on the efficient functioning of the machines. The
business, has gained momentum. This facility encompasses energy generated by the hydro power project can be transmitted
a gamut of financial services consisting of opening of letters to the CEB only if the transmission line is live, therefore
of credit, post shipment financing, factoring and other value breakdown in the transmission line of the CEB due to falling
adding services such as clearing, warehousing and debt of trees on the line, short circuiting of the line etc play an
collection services. important role in the overall performance of the project.

Future Outlook Collision Repair & Logistics


Differentiation and specialisation in key products, The Collision repair centre at Melsta Logistics sustained its
characterised by a wide product range, are lending the Melsta market position by focusing on business lines that are created
Regal Finance an edge over competition and enabling it to by the related companies for both internal and external clients.
capture a market share. Melsta Regal Finance has planned Collision repair centre’s unique selling proposition of cutting

Distilleries Company of Sri Lanka PLC 41


MANAGEMENT
DISCUSSION & ANALYSIS

edge technology, machinery, equipment and unparalleled Business Process Outsourcing


know-how on treating vehicles based on the manufacturer’s Bellvantage is a leading BPO which focuses on providing Technology,
specifications, has helped differentiate Melsta Logistics from its Consulting & Outsourcing Solutions. It was incorporated in 2008
competitors. The newly formed logistics operation contributed to enable domestic and offshore companies to leverage and add
greatly towards the profitability of Melsta Logistics during the value to their business operations. With the assistance of various
current financial year. Melsta Logistics is anticipating expanding front-end and back-end non-core functions, employers are able to
this facility beyond the Group, while investing in latest focus on core business activities. Relying on our strong collaborative
technology in order to increase the efficient usage of vehicles. partnerships with associates and employees to economise business
activities, enabled our clients to benefit through optimised
Textiles
information technology and skill enabled outsourced services; we
Texpro Industries Limited, the Group’s textiles arm, performed
posted a robust performance during the year under review.
better on the back of improved business confidence globally
and a pickup in the source markets of the West. Demand for Through the period under review, Bellvantage strengthened its
high-quality woven fabrics, which had fallen significantly since excellent track record of e-engineering processes and innovative
2008 is now starting to pick up especially for high end export thinking to increase productivity and efficiency. Bellvantage’s core
and local consumption. Well-known international/European strengths lie in its well-positioned Contact Centre and Information
brands such as Marks & Spencer, Next, George, C&A, Matalan, Technology Solutions services. The Contact Centre offers a host
etc., appear to be buying more garments manufactured from Sri of services, including Outsourced Call Centre, Messaging, Data
Lanka, which is an encouraging sign. Entry and Custom Solutions for our clients’ back office needs.
Beyond industry-based efficiencies, the Contact Centre as a whole
During the year under review, sales volumes increased by 30%
is optimised by our continuous expansion into existing and new
with significant improvements to gross profit margins arising
accounts. We are proud of our track record of having most of our
from better pricing, cost savings and the initial savings on
clients renew their service contracts. Furthermore, we delivered
energy due to the biomass thermic fluid heaters, which were
premier Customer Relationship Management (CRM) solutions,
commissioned in December 2013.
considerably improving Customer experience of our clients in
the most demanding of industries.
Future Outlook
In the coming year, the Company’s results should reflect the Future Outlook
full effect of the biomass conversion which we expect to reduce
Our retinue of best practices, process maturity, skilled workforce
the existing energy cost by 30%. Further, Texpro continues
and professional experience empowers us to provide efficient
to convert more of the fossil fuel consuming equipment to
and effective operations that empower our clients to grow
biomass, which will further reduce operating cost and enable
and optimise their business, while maintaining lower cost of
Texpro to be competitive in pricing, with regional players.
business operations. We aim to strengthen these competencies.

42 Annual Report 2013/14


Leisure continued its strong growth during the period under review,

Taking inspiration from the boom in infrastructure construction, garnered new business by way of external clients outside of the

the increased influx of tourists and the bright prospects for the group, in addition to the vast number of existing group clients.

local tourism industry, the erstwhile Browns Beach Hotels PLC The agency was initially established as a media buying body for

underwent a complete reconstruction and will be re-launched as the DCSL Group and has since evolved to meet the demands of

Heritance Negombo during the financial year 2014 -15, offering the ever-changing silhouette of modern day advertising outside

unparalleled luxury and a bespoke holiday experience. The of the Group. Splendor Media remains committed to introducing

increased economic activity in the country is making Sri Lanka advanced creative trends to the local advertising arena

the hub of the region, with Negombo’s attractiveness being its


Future Outlook
proximity to the international airport, its sun-kissed beaches and
While continuing its strategy of adopting a measured approach
rich culture offering both business travellers and tourists a slice
to achieving corporate objectives in the coming year, Splendor
of Sri Lanka. Heritance Negombo is located on the picturesque
Media covers the entire 360˚ aspect in advertising - with public
beachfront; the hotel boasts 143 rooms and suites, banqueting
relations, events and activation as well as digital marketing as
facilities, a spa, restaurants and bars.
it takes steps towards becoming one of Sri Lanka’s foremost full
Future Outlook service advertising agencies.

Browns Beach Hotels PLC expects the new property to accrue


dividends from the next tourist season from the time it opens
for business in the 2014 /15 financial year, judging by the
overwhelming response to the opening of the property by
overseas tour operators. The ‘Heritance’ brand of luxury is
legendary amongst the Company’s partners and guests and this
latest property will heighten the signature bespoke experience.

Media & Creative Services


Increased economic activity and favourable market conditions
combined to create a conducive atmosphere for the business
of advertising in the country. The Group’s creative and Media
agency, Splendor Media, marked another successful year amidst
the rigid competition in the advertising industry by providing the
most strategic solutions to customers which stood out for their
dynamism and innovative approach to creativity. The agency

Distilleries Company of Sri Lanka PLC 43


SUSTAINABILITY
REPORT
Touching Lives State Distilleries Corporation was incorporated by statute to
Our Sustainability Motto in Action take over this role. In 1989, the state agency was converted to
a limited company and DCSL took on the mantle of a pioneer
We understand that, globally, stakeholders at large are
in distillation and is now positioned as the largest distiller in
demanding that companies they associate with demonstrate
the country.
non-financial metrics to define sustainability and sustainable
operations. Financial profitability as the sole criteria of a
DCSL is quoted on the Colombo Bourse since 1992 and is a
company’s success is an outdated concept and outrightly
modernised entity, working on a sophisticated knowledge base
rejected by most right-thinking stakeholders and the
built on technology, experience, skill and acumen. Its large
organisations they support. More importantly, being
investments in R&D, infrastructure, plants and machinery and
an environmentally, economic and socially sustainable
the diversification into key economic sectors in the country,
organisation is helping companies earn corporate respect and
places DCSL today unequivocally as an industry captain and
drive customer loyalty, not to mention earning respect from
one of Sri Lanka’s blue chip conglomerates.
peers and industry. In an era of growing global competition,
climate change and diminishing resources, companies that DCSL’s business areas are diverse and penetrative, ranging
put sustainability as their foremost goal are winning the race. from hospitality to telecommunication, BPO to textiles,
plantations to hydropower and insurance to finance and its
As one of the oldest, diversified, blue chip conglomerates
largest and most influential business contributor – beverages,
in existence in Sri Lanka, we are living proof of continuous
encompassing alcohol.
improvement and sustainable business practices. While we
celebrate over-a-century of existence in the year 2014, we Significant Event during the Reporting Period
consider this an opportunity to strengthen our conceptions
The global rating agency, Fitch, reaffirmed DCSL’s National
of business practices that are environmentally and socially
Long-term Rating of AAA (lka) with a Stable outlook. This
sustainable, while also being financially sustainable, the key
is the best and highest entity credit rating for a corporate in
requirement of any commercial entity.
Sri Lanka. Today, DCSL remains one of the most preferred
corporate among bankers, overseas lenders, suppliers
In our journey over the decades within the corporate arena
and stock analysts. In fact, consequent to the rating
of Sri Lanka, an overarching tenet has always been to ensure
announcement, DCSL was able to significantly reduce its
that our decisions, actions and impacts are sustainable
interest costs.
and positive at all times. We are extremely cognisant that
as a corporate steward involved in numerous business and
Report Scope
industry areas, we must set an example to others, while
making our stakeholders a part of our journey of progress. We believe that we have a responsibility towards our
stakeholders to ensure that they are given a clear insight
In this Sustainability Report, we set out the measures into how we have managed their business and how we
we take to ensure that sustainability is infused along the intend to work in the future. This, therefore, is our honest
length and breadth of our value chain. Simultaneously, we effort in sustainability reporting. While we do know that
continue to invest time and resources in understanding how this report is work in progress and requires to be developed
we can enhance our proud track record as one of the most comprehensively, this attempt helps us to put our results,
sustainable organisations in the country. both positive and negative, down on paper and work on plans
that would ensure that our presence as a corporate leader will
The DCSL Story surely be advantageous to all our stakeholders. The report
History, Ownership and Legal Framework presents a balanced analysis of our sustainability performance
strategy in relation to issues that are relevant and material to
The roots of DCSL hark back to 1913, when the Excise
the Company and to our stakeholders, while complementing
Department of Ceylon, which was originally established as
our ongoing engagement with stakeholders.
an enforcement authority, was mandated to distribute and
sell liquor in Sri Lanka and also began the distillation and
This report focuses on key developments and includes only
manufacture of liquor products. Much later, in 1974, the
the most pertinent indicators in order to provide stakeholders

44 Annual Report 2013/14


with an integrated and succinct view of our sustainability in any matter being discussed, they will abstain from opining,
performance. Unless otherwise indicated, facts and figures discussing and voting, all of which could influence the outcome.
refer to the DCSL Group. Sustainability in our business is built This avoids conflict of interest and ensures independence of the
on natural capital, social capital and economic capital, all of Board.
which must be taken together rather than in isolation for a
true picture of sustainability. It is these capital segments that DCSL has established a governance structure that remains
run through as themes of this report. aligned to the laws of the land and ensures compliance to
various regulatory mandates. The governance structure therefore
Materiality includes committees responsible for specific tasks and setting
Having embarked on this sustainability reporting process, strategy and future direction for the Group. The Board structure
we must confess that in documenting the necessary areas, and committees are detailed on page 57 in this report.
we may not yet have a clear idea or focus on the extent of
DCSL’s Board comprises Seven Directors (3 Executive, 3
materiality involved. However, we have focused on earmarked
Independent Non-Executive, 1 Non-Independent
areas and platforms that have formed the foundation for our
Non-Executive), meeting regularly to map strategy and for
sustainability programme and hence, we have used those as
speedy decision making which require Board intervention. The
the guideline to report on the arising issues. We have also
Board sub committees are a vital conduit in identifying and
been able to identify shortcomings and gaps in data gathering,
managing economic, environmental and social performance,
which is now being documented and acted upon to ensure
including relevant risks and opportunities, as well as
that we bridge those gaps in future. We initially garnered
compliance.
the information from all our business sectors on a common
questionnaire and began mapping the categories that were
Ongoing Board education is an imperative at DCSL to ensure
most common. Once charted, the categories were placed in
that Directors remain abreast of all applicable legislation
perspective and we were able to consider the materiality of our
and regulations, changes to rules, standards and codes, as
findings, positioning them in priority order and only focusing
well as relevant sector developments, which could potentially
on those that our stakeholders felt were crucial or important.
impact the Group and its operations. During the year, all
Board Members and Committee Members were reviewed for
Reporting Period
compliance with the Colombo Stock Exchange requirements for
This report supports the DCSL Group’s Annual Report and
a listed company.
presents our sustainability performance for the year ended
31 March 2014. It covers company activities, including the The DCSL Sustainability Approach
subsidiaries’ reporting period (for example, fiscal/calendar
Vision
year) for information provided 01 April 2013 to 31 March
2014. Data measurement techniques and the bases of To be an industry leader who will practice the tenets of
calculations applied for compilation and other information in a ‘green company’ and be upheld as a true proponent of
the report is disclosed wherever applicable. We invite feedback sustainable development.
from our stakeholders on this report and the way we approach
Mission
our sustainability priorities in order to continue improving our
performance, transparency and accountability practices. To truly ‘walk the talk’ in becoming green and espouse upward
momentum for people, planet and profit
Governance, Commitments and Engagement
Board of Directors Philosophy
• Infusing innovation, value addition, quality and service
Collectively, the DCSL Board has significant corporate
excellence to give our customers the best
acumen, skill, knowledge and experience aided by astute
and knowledgeable support and information from senior
• Create a knowledge gaining culture where our team
management and external specialists when the need arises to
grows and develops as individuals, while honing the
be sufficiently informed and be independent. Board governance
entrepreneurial spark to contribute towards macro
ensures that the Group discloses related party transactions
development
periodically and if any director has a direct or leading interest

Distilleries Company of Sri Lanka PLC 45


SUSTAINABILITY
REPORT

• Continue giving our shareholders the confidence and The Framework


trust that we will always do what’s best, thus ensuring The DCSL Sustainability Framework, which incorporates our
consistent growth in shareholder value and returns Sustainability Philosophy, Policy and Principles, articulates
our strategic commitment to sustainable development and
• Make our planet healthy and green by contributing
remains integral to risk management. This framework assists
social dividends that will translate towards sustainable
our stakeholders in imbuing a similar sustainability approach,
development for society and the environment
promotes sound environmental and social practices, encourages
transparency and accountability, and contributes to positive
• Ensure that everything we do will always keep us ahead
development impacts. We ensure that this framework reflects
and at the helm, collating the facets of economic,
good practice for sustainability and risk mitigation, keeping
social and environmental features into our business
abreast with trends that bring up challenging issues, which
dimensions. We integrate this three-pronged approach to
remain at the core to managing a sustainable business. These
sustainability, so that the journey with our stakeholders
include supply chain management, resource efficiency, climate
will remain one in which we grow together, forging and
change and human rights.
strengthening long-term relationships.

Sustainability Policy Key Challenges and Opportunities


Risks and challenges go hand in hand in the business of
Our Sustainability Policy is based upon the following principles:
running an organisation, whether the risk may be from
• We will continue to comply with and exceed wherever
environmental problems, social discontent, political and social
practicable, all applicable and related legislation,
unrest and even natural disasters. These can be termed costly,
regulations and codes of practice
have negative publicity, threaten operating frameworks and
• We will integrate the principles and tenets of sustainability also prompt unforeseen expenditure. Reputational damage too
into all our business decisions can far exceed the immediate cost impacts. While we seek to
proactively reduce and manage these risks, challenges have
• We will strive to minimise any negative impacts that may never been a deterrent for us at DCSL; rather, they have been
ensue while engaging in our day to day activities a means of directing us towards opportunity and improving
business performance over time. These opportunities have
• We will integrate a sustainability mind-set among our team,
driven us to enhance business growth, while ensuring that we
making them fully aware of our sustainability policy and
remain within compliance benchmarks, while ensuring that our
empower them with a sense of ownership and commitment
stakeholders are empowered and remain inclusive to our end
to implement, practice and improve it
goal. Over the year, we identified some challenges and risks
• We will cascade our Sustainability Policy among our valued that eventually saw an opportunity emerge, and which, through
business partners, encouraging them and assisting them to the inherent pragmatic and astute business acumen possessed
adopt sound sustainable management practices within DCSL, was transformed and included into the strategic
way forward of the Group.
• We intend to review and annually report and to continually
strive towards improving our sustainable performance Stakeholder Engagement
We are extremely committed to engaging all of our
At DCSL, we are committed to promoting sustainability. We stakeholders, both internally and externally, to become the
remain extremely concerned for the environment and for most sustainable, responsible company we can possibly be. By
promoting a broader sustainability agenda, both of which are listening to, partnering with and considering the perspectives
integral to our professional activities and the management of our associates, customers, shareholders, academic leaders,
of the organisation. We aim to follow and to promote good government, value business partners and sometimes, even
sustainability practice to reduce the negative environmental our competitors, we can truly ensure that quantifiable and
impacts of all our activities and to help our stakeholders qualitative returns are assured. Stakeholder engagement is
to join in this journey that will surely benefit our future a crucial element to sustainable development as it is this
generations. engagement process that prompts the two-way dialogue and
communication process which eventually aligns the strong

46 Annual Report 2013/14


relationships among our stakeholders and forms the foundation negative impacts of our business activities. Our consumers
to our sustainability journey. Having identified our stakeholder are increasingly developing an ethical conscience, using
groups, as given below, we engage with them at various forums sustainability information to identify their chosen brands.
related to their interests and expectations, in an effort to adapt Customers want transparency, clarity and accessibility to
to changing needs and issues, which continue to evolve. As we information and disclosures on social, environmental and
pursue our corporate sustainability goals, we intend to further economic performance. Needless to say, this information needs
strengthen these relationships. Together, we are establishing to be consistent and presented in a standardised approach,
transparency and enhancing our relevancy with the customers therefore, it is imperative that disclosures are succinct,
and communities we serve. We have created more formal clear, and truthful and hold fast to the underlying ethos of a
channels for interacting with stakeholders both to learn from principled ethical well governed business entity, which is what
their expertise and to provide a forum for them to provide us DCSL espouses to be.
with feedback.
Economic Disclosures
Key Stakeholders The company ensures that both positive and negative
Shareholders information about itself is conveyed as fairly as possible
Quarterly and annual financial reporting, annual meeting of to all stakeholders, especially shareholders. DCSL ensures
shareholders, periodic individualised mailings and conference its shareholders and other interested parties are given
calls between senior management and investors and/or analysts accurate information to help them make an informed choice
when necessary, serve to deepen shareholder engagement in an when investing. Our investors have proof of our consistent
ongoing manner through the financial year. performance in our financials and share performance, as
well as our astute business strategies including restructuring
Customers and acquisitions. Given our status as an industry leader, we
Listening and engaging with customers on a one-to-one also remain a strong partner in ensuring that the country
basis and through other select channels such as customer meets its vision and objectives, generating direct and indirect
satisfaction surveys has helped us understand them better. employment and thus improving lifestyles, investing in
infrastructure, upping quality and standards within the industry
Employees and thus setting benchmarks to develop these industries and
We adopt numerous routes, such as regular communications imbuing best practices.
and engagement on one to one basis, monthly or quarterly
We practice an environment of zero tolerance on bribery and
forums, opinion surveys, internal newsletters and an open door
corruption and eschew ethically unsound or corrupt practices
policy.
among any stakeholder segment. In this context, we have had
Government/Regulators no incidences of bribery and corruption, unethical practices or
anti-competitive behaviour stemming from our Group brought
Regular meetings with relevant government authorities and
to our notice. Our business dealings remain transparent and
regulators to discuss impending legal mandates are held to
sincere in action, while accountability remains a top priority.
find solutions where necessary. This may involve discussions on
challenges, risks, strategy development, execution of such laws
We remain strictly compliant with all mandatory and regulatory
and regulations and best practice permeation.
mandates that are prevalent in our business even though the
regulatory environment in some of our businesses may be seen
Suppliers
as unfair and unjust, We do not make contributions to political
Regularly engage with suppliers to promote and institute
parties; no member of the Board of Directors is actively
sustainability solutions
involved or an office bearer of any political party in Sri Lanka.

Disclosures
Product Disclosure
The purpose of our sustainability reporting is to create greater
As a company engaged in the business of alcoholic beverages,
transparency and accountability and to allow for better
we ensure that our products, if used in a responsible manner,
informed and more robust decision-making as it is becoming
and by the target age groups it is meant to be used by, will not
more important than ever to manage both positive and
Distilleries Company of Sri Lanka PLC 47
SUSTAINABILITY
REPORT

have an ill-effect or increase risks to health. The processes Human Rights and HR Practice Disclosures
that cover our supply chain including the sourcing and use The DCSL Group espouses and commits itself as an equal
of ingredients, resources and raw materials are aligned to opportunity employer, stringently applying a slew of non-
stringent quality standards that are initially tested repeatedly discriminatory policies vis a vis gender, age, religion, ethnicity,
before product manufacture. social, cultural and economic backgrounds on the foundation
of meritocracy. We unwaveringly uphold and support the tenets
We work with experts and specialists in the field both locally
mandated by the International Labour Organisation and other
and internationally, who may also conduct their independent
prevalent regulatory bodies pertaining to human rights and
analysis and research, which assists us in manufacturing
child labour. We adhere to a strict policy of ‘zero tolerance
our final product. This would include the use of science,
to child labour’, a mandate that is permeated to our valued
technology, experience and skill to determine the acceptability
business partners including retailers and the supply chain.
of not only the ingredients but also permitted levels of these
ingredients. Using the available scientific evidence, these
Community Disclosure
expert opinions have repeatedly concluded that our products,
Our philosophy is to partner the community in its sustainable
used responsibly by adults in the case of alcohol and spirits,
development journey, which in turn gains us considerable
do not increase health risks. There’s also a cohesive group that
advantage. We are inextricably entwined with our communities
monitors legislation pertinent to the product and individual
and we intend to ensure that our presence within these
ingredients which helps us in our decision making.
communities will benefit them and us. This year, our social
In the beverages industry, we work in a ‘dark’ market where focus was based on ‘Education & Training and Health,
all advertising and promotions are prohibited by law. We Sanitation & Housing’ and by sustaining social initiatives in
remain very cognisant that our product in this industry is these key areas of interest, we believe that we can empower
to be sold and consumed by adults and our responsibility these communities.
is to always ensure that this is the overarching tenet of our
marketing initiatives. We communicate all product information
Environmental
comprehensively either through the labelling or through product • Better waste and energy management in our
information available on numerous channels. manufacturing processes

We do not condone or agree to sell any of our products that are • Reducing our carbon footprint by introducing more
meant to be consumed by an adult, to any underage consumer ‘green’ initiatives
under any circumstances. This is very strictly adhered to,
not only within the immediate Company and the team, but • Reducing dependency on fossil fuels
is a message that is cascaded very emphatically to our entire
• Enhancing forest cover and food security through
value chain and retailers. Any deviation from this, is dealt
planting of hard wood and fruit trees
with severely and may result in DCSL terminating its business
relationship with the offender.
Sustainability Focus
Environmental Disclosure Social
We have never knowingly harmed the environment through any • Enhancing entrepreneurial skills among estate youth
process that we have engaged in. We ensure that in all our
• Assisting educational initiatives from childcare to
processes and systems, we implement as many environmentally
university level students
friendly initiatives as possible as is seen in the waste water
treatment, energy management, recycling initiatives, decrease
• Creating awareness of preventable diseases among lesser
in emissions and increase in forest cover that we have
affluent communities
strategically embarked upon. We also constantly engage our
valued business partners, suppliers and wherever possible our Economic
customers, to permeate environmental best practices among
• Ensuring that shareholder wealth is optimised without
them.
compromising on standards or principles

48 Annual Report 2013/14


• Permeating best practices to valued business partners the point of diversion. The channel, weir and power house are
small structures, which have minimum impact on the natural
• Setting an example of ethical leadership through a well eco-system and the communities around the area.
governed accountable entity
The companies of the DCSL Group have all initiated in-house
• Creating benchmarks for industry.
modes of energy, waste and water management, as part of the
Sustainability Performance Group’s holistic vision of environmental impact mitigation.

Environmental Impact Continental Insurance has commenced emphatically working on


Our business interests are wide-ranging and diverse, ranging a better waste and energy management practices in its journey
from manufacturing, plantations, telecommunications, financial with a view to become a carbon neutral company. As a way
services, logistics, textile, hydro power, to Business Process forward, the company places the preservation of nature as a
Outsourcing (BPO) and media. These, in different dimensions top priority taking the initiative to give back to the environment
and levels, do impact the environment. The DCSL Group, to sustain our planet’s greenery and fertility. Continental
having conformed and remaining strictly compliant with the Insurance has tied up with Neptune Recyclers since 2011 for
Central Environmental Authority standards, is additionally the recycling of all waste papers.
subjected to regular audits to ensure full transparency. This
ensures that we remain conscious of the impacts our actions The Company experienced a saving of a 10 fully grown trees
would have on the environment and have through the years. and total of 18,655 litres of water, while electricity usage
We have worked on improving our processes and systems that decreased by 2,348 kWh and 1,030 litres of oil was also saved
would eventually help us to reduce the negative impact we have which meant lesser usage of fossil fuels during the year 2013.
on the environment, while minimising climate change. In addition, 2 cubic meters of landfill were conserved and
reduced the Green House Gas emission by 587 Kg of Carbon
Energy, Waste & Water Management Equivalent.
Energy and waste management are crucial features in
our environmental management focus, especially in our While creating economic value within the organisation, CILL
manufacturing processes. A sophisticated distilling system strives to develop social value as a responsible corporate
using French technology which is totally environmentally- citizen. Being a benefactor to the society and communities in
friendly embeds energy saving features into our plants, as low which it operates, CILL believes in giving something back to
evaporation during distillation aids the saving of energy. This different segments of the society especially to those who are
technology has also helped in decreasing emission levels. under privileged and isolated in the society. Hence, as a matter
Waste water treatment plants and an environmentally friendly of priority they have made a firm a consistent commitment
zero-harm effluent management system ensures that waste, every year as one family volunteering to spend quality time with
water and effluents are all managed well within the compliance differently able children thus providing them with their basic
norms. While the waste water is treated to neutralise acidity needs for their daily sustenance.
and released for further use once deemed 100% safe, the
methane which is discharged during the purification process is Going further, CILL was one of the sponsors for the mega
used for factory consumption. event of the world famous comedian “Russell Peters – Live in
Sri Lanka”, whose proceeds were in aids of the charity “Kids
In our bid to reduce the country’s dependence on fossil fuels on the Street”. CILL was the exclusive insurance partner for
and thereby reduce the expenditure of foreign exchange, CHOGM Exhibition held in Battaramulla in November 2013.
we embarked on a mini-hydro power project which was
commissioned in the previous financial year. The Kirkoswald The Collision Repair Centre, which comes under Melsta
Mini-Hydro Power Project, under the umbrella of Bogo Power Logistics Limited, remains very compliant with environmental
(Pvt) Limited and located within Madulsima Plantations land, regulations and in fact, has ensured that its entire facility
has gained approval from the Sustainable Energy Authority of is eco-friendly. Waste disposal is managed efficiently, with
Sri Lanka, generating an average of 21.1 GwH of power to the disposable waste being recycled and organic waste converted
national grid. The water required for the hydropower project is to compost, which is used to nurture vegetation within
diverted and returned to the river within a short distance from the premises. In addition, a waste water treatment plant

Distilleries Company of Sri Lanka PLC 49


SUSTAINABILITY
REPORT

maximised the usage of water. Melsta Logistics also took on Balangoda Plantations to protect and conserve the natural
the responsibility of managing the Group’s fleet of vehicles to environment through the prevention of pollution, efficient
ensure that took measures to monitor and control emission utilisation of resources, effective waste management practices,
levels and usage of fossil fuels and thus reduce its carbon promotion of environmental awareness and sensitivity amongst
footprint. the plantation community.

The fact that Texpro Industries is certified with a Global Organic Balangoda Plantations always espoused sustainable agricultural
Textile Standard ensures that the entire value chain must standards and good manufacturing practices. The company
conform to globally accepted waste management practices in ensured that nearly all its manufacturing facilities have gained
addition to its sourcing and manufacturing processes. Texpro ISO and HACCP certifications, which ensured that it remained
is subjected to continuous audits, which keeps compliance within the stringent guidelines required for conducting
levels above the required norm. At present, Texpro is using business, manufacturing processes and systems.
biomass thermic fluid heaters instead of fossil fuel consuming
equipment, as a result the Company managed to reduce the In order to retain these standard certifications, the facilities are
energy cost by 30%. also continuously subjected to audits. The larger result however
is that with the infusion of best practices in agriculture, we are
Recycling not only enhancing our end product, but also ensuring that our
Packaging gained emphasis to mitigate environmental impact practices are governed by a green ethos. Further augmenting
with over 50% of the bottles used for alcohol and spirits this green ethos, Balangoda Plantations embarked on a re-
being recycled and crates used for transport, being reused. forestation drive, which, while increasing our forest cover, also
Cellophane, glass, aluminium and plastic generated by the significantly impacted the challenges the country will face
factory was outsourced to an external party for reuse, while in the future of food security. In addition, the estates began
used labels were transformed into pulp. This also reduced the implementing a composting programme, which converted
number of trees being felled. non-usable materials into compost, deemed for use in the three
hectares that are being replanted with tea.
Continental Insurance imbued the 3R concept and engaged
in recycling of waste paper, which resulted in the saving of Organic Best Practices
ten trees for the year, which though may be considerably Texpro Industries, (a specialty dye and print business of woven
small, certainly lays the footprint for the Company to increase fabric) as a backward integration to the apparel industry,
its recycling initiatives and reduce the number of trees even stringently conforms to the Global Organic Textile Standard
further. (GOTS), which ensures that the end product remains true
to the tenets of an organic product. GOTS is the worldwide
Sustainable Agriculture leading textile processing standard for organic fibre and
We are proud to report that the Balangoda Plantation’s includes ecological and social criteria, backed by independent
accreditation process of the Rain Forest Alliance Certification certification pertaining to the entire textile supply chain. This
(RAC) was finalised during the period under review. This standard gives the product international recognition in organic
move will be a new milestone of Balangoda Plantations in its textile manufacture, from harvesting of raw materials, through
commitment towards adding value and a greater emphasis on environmentally and socially responsible manufacturing, until
environmental management and community development. This the labelling process, providing a credible assurance to the end
exercise is also a testament to our continued commitment in consumer.
stepping into the growing market of enlightened consumers
who make conscious choices about supporting sustainable Social: Diversity in Our Team
agricultural practices through their purchases and would be Our longevity and culture of achievement is rooted in the
a baseline to benchmark us with players in the Industry with motivation and mind-set of our people, who are committed and
clear goals and targets to be achieved. dedicated towards achieving greater heights of performance
and raising the benchmark. Given that the DCSL Group has
As a part of its pledge to continually improve environmental grown into a diversified conglomerate encompassing a number
and social sustainability, many initiatives were launched by of diverse industries and yet is unequivocally positioned with

50 Annual Report 2013/14


a leadership status, evidences that our team is a winning one. working hours on both full time and part time basis. This
The dynamism, motivation and ‘overzealous’ attitude they scheme concentrates on senior citizens and housewives. This
always espouse has enabled this Group to take on challenges, has enabled them to save expenses on travelling and time.
some deemed insurmountable and win against the odds Furthermore, special arrangements have been made for visually
handicapped citizens to carry on their responsibilities without
HR Philosophy any difficulty.
• To provide and promote an encouraging and professional
working environment for our team. Training & Development
Training and development forms the axis to the sustainability
• Believe that the prosperity of our business depends on of our business and into this we have instilled a knowledge
successfully developing an integrated group of motivated gaining culture, which enables individuals to attain their
and innovative employees. Hence we facilitate positive personal goals while working towards the company’s aspirations.
employee relations and inspire employees by offering Melstacorp is facilitating all the training programmes for the
opportunities for challenging work, personal development Group. The training programmes span on the job, off the job,
and growth. external, hands on and internal programmes, all designed to
enhance knowledge, update skill and create an empowered
• Committed to hire, develop and retain the most talented
workforce.
people in order to achieve a committed pool of talent.

Recruitment & Retention At Continental Insurance, the HR Department is responsible for


the recruitment of suitably qualified employees and retaining
A range of processes have been instilled within the Group to
talent. Training requirements would be identified for respective
ensure that recruitment is non-discriminatory, unbiased and
functional areas through a systematic performance appraisal
driven by meritocracy. In addition, in a bid to streamline our
system in order to develop the training plan, which ultimately
recruitment processes, a recruitment requisition form was
will increase individual performance up to the expected level.
introduced, which is the base upon which recruitment is
effected and a comprehensive interview evaluation form was At Balangoda Plantations, training programmes are
brought in, to streamline the interview process from initial conducted for senior managers, superintendents and assistant
screening to final interview stage. superintendents to enhance their managerial skills, to ensure
higher productivity and better management of the large
The Group companies follow HR best practices ensuring
plantation workforce.
consistency in HR Policy approach and fair playing field for
potential employees. For instance, Continental Insurance strives Recognition & Staff Well-Being
to follow best practices in human resource management as well
The DCSL HR policy is based on the belief that a satisfied
as the development of human resource. As a growing business,
employee is a motivated employee who will contribute towards
Continental Insurance is in need of regular fresh blood from the
achieving company goals voluntarily, while being more
outside, while growing talent from within. Hence, Continental
productive. We have continuously infused numerous rewards
Insurance ensures a healthy mix of both. As an organisation is
and remuneration schemes, while adding welfare initiatives
nothing more than the collective capacity of its people to create
that would add value to our employees to better their lifestyles.
value, organisational culture is an important element in any
Given below briefly are some of the more important initiatives
organisation’s make up and success. Therefore, at Continental
currently in place:
Insurance new recruitment is based on alignment with the
Company’s internal culture, in addition to knowledge, skills and DCSL
attitudes required for the role.
• Continuous remuneration reviews and increases
Bellvantage is offering more than 50% part-time job according to predetermined scales, which could also be
opportunities for undergraduates with flexible hours. This will tied to performance incentives and bonus scheme.
enable them to balance their studies and earn some extra
• A range of insurance policies are in effect including
cash to fund their expenses. As part of increasing employment
Workmen’s Compensation and Personal Accident
opportunities, Bellvantage has been providing home-based

Distilleries Company of Sri Lanka PLC 51


SUSTAINABILITY
REPORT

Insurance. DCSL PLC offers all employees this 24 hour Giving back to the Community
insurance cover which includes a natural death cover. Balangoda Plantation contributes towards community
development by providing financial support to workers
• The DCSL Quiz Competition 2013/14 was held with the
including short term loans, housing loans and distress
enthusiastic participation of the regions and divisions at
assistance, facilitating purchase of goods and equipment
the Colombo Office, Periceyl and Melstacorp. Over 100
on easy payment schemes and so on, through the Estate
employees participated in the quiz programme.
Worker Housing Cooperatives, which are actively functioning
on Balangoda Plantation. Community development efforts
• DCSL holds annual staff get-together, sports days and
of Balangoda Plantations have not been limited to its own
children’s parties to build team spirit and facilitate fun
estate populations. The Company has always affirmed its
and friendships
commitment to its surroundings outside the plantation,
Periceyl by actively participating in estate village integration
programmes and by extending certain facilities provided to
A continuous chain of performance related incentives
the plantation community, to the villagers as well.
including social activities, training initiatives and excursions/
trips are extended to high achievers.
We have maintained cordial and mutually supportive
community relations throughout the century of our existence
Continental Insurance
on the basis that our surrounding communities are also
The Continental Insurance HR policy aligns remuneration
stakeholders of the business. We continue to make an
with employee performance and the reward strategy not only
unwavering effort to closely identify with the communities in
focuses on monetary rewards, which will have a short term
which we operate our businesses to ensure positive impacts
impact on employee behaviour, but also timely appreciation
through our presence and to make these communities an
and recognition of employees. All employees and their
inherent part of our sustainable development process. We
immediate family members are covered under the staff
have thus identified two platforms as the focus for our
medical scheme which will ease the financial burden when
community social initiatives, namely health, housing and
hospitalisation is required.
sanitation and education and training.

Melsta Logistics Limited Health, Housing and Sanitation


The Melsta Logistics team is covered under a comprehensive
Balangoda Plantations has been actively involved in uplifting
medical scheme and other facilities include cafeteria, resting
the lifestyles of its estate community by facilitating new
areas and lockers.
housing and better working conditions. In addition, numerous
awareness programmes were undertaken towards improving
Occupational Health & Safety
the socio economic growth and health and nutritional status,
As a diversified conglomerate with interests in wide-ranging
and living environment, youth empowerment and community
economic activities including manufacturing, it is imperative
capacity building, of the resident plantation population.
that we make our workplaces safe. Occupational Health
and Safety remains a high priority for the DCSL Group and Housing Facilities
we have taken numerous steps to ensure, to the best of our
During the current year too, Balangoda Plantations continued
ability, that the workplace is safe, hygienic and not harmful
its efforts at upgrading living standards of plantation
to our team’s health. Our manufacturing processes conform
communities by building 63 housing units for estate families.
to accepted industry guidelines and practices in safety
These new, modern housing units are built to high construction
management and we have set for ourselves a target of ‘a
standards, enabling hygienic and healthy life styles for
zero accident workplace’. By being proactive, conscious and
plantation families with the benefits of essential amenities and
focused, we have inculcated a conscience and culture of
conducted a re-roofing programme for 40 housing units.
prevention, while team members have been trained to remain
alert to any gaps and hazards that may arise. Tree Planting Event
Environmental sustainability and good agricultural practices
are fundamental to plantation sector longevity. During the

52 Annual Report 2013/14


current financial year, Balangoda plantations conducted a corporate citizen with future potential to contribute toward the
tree planting event with the active involvement of the younger nation’s development agenda.
generation estate populations. During this event, children of
plantation employees joined the Company in planting native The diversification of the DCSL Group into various industries
plants, contributing towards reforesting the environment and has benefited the national economy through investments
inculcating concepts of sustainability into the next generation. in human capital and on infrastructure, employment
opportunities, uplifting industry standards and wider consumer
Child Care choices. Our infrastructure investments into plant and
The Balangoda Plantation manages a number of child care machinery conform to stringent standards that naturally add
centres and pre-schools within the plantations. The child value to the overall economy.
care centres are supported by full-time trained teachers and
nutritional feeding programmes. Regular child immunisation Similarly, all companies in the Group conform to numerous and
programmes are also conducted at the child care centres, relevant international standards and have gained certifications
ensuring access to proper child immunisation for estate of compliance, which means that the entire industry is being
children. Further, dental clinics, eye clinics, awareness improved through the setting of higher benchmarks.
programmes on infectious/contagious diseases such as dengue,
Currently, the DCSL Group provides employment to 12,897
T.B. programmes on oral cancer prevention, de-worming and
people while indirectly granting employment to many others.
so on, are some of the many activities carried out to create a
The benefits, remuneration, rewards and welfare gained by our
healthy community.
employees also ensures that their families gain an improvement
Economic Contribution in their lifestyles, while additional education and training adds
to elevating knowledge levels amongst our team.
Today, although our core business is beverages, our scope
of business is diverse transcending different spheres across Industry Leadership
the national economy. Over the year, we have made inroads
DCSL Group has contributed to industry development in
in telecommunications, plantations, apparel, BPO, logistics,
different spheres of operations through knowledge sharing,
hospitality, financial services, insurance, media and hydro-
innovative solutions and the latest technologies. Our companies
power, committing ourselves to add economic value to all these
embrace international best practices, standards and quality
industry sectors, while being responsible for our actions and the
certifications that have contributed towards setting new
decisions we make. Therefore, as a leading corporate, we will
standards within the industries we operate in. However, we
strive towards building continuous sustainable value, generating
have also shared our knowledge, skills and expertise with
returns for our shareholders, while ensuring that we consciously
other corporates and like-minded individuals, as we believe
do the right thing not only for our stakeholders, but for the
knowledge sharing among the industry is vital for sustained
environment as well. It is this holistic outlook that allows us to
growth and ultimately national development.
work proactively with all our stakeholders, creating shareholder
wealth and social value, inspiring our team and permeating Investor Relations
best practices among our suppliers.
DCSL continued to attract high level interest from foreign
Given our leadership status in the beverages industry, the investors during the current financial year. We have conducted
company has been subjected to numerous actions, diktats and many meetings with current and prospective shareholders
mandates that has continually stifled the legal alcohol and locally and overseas during the year. Such interest in the
spirits industry, which have only served to allow the illegal trade Company is symptomatic of positive external perceptions
to flourish. We believe that this situation will eventually take regarding the Company’s future potential towards growth in
a toll on the nation’s health, both economically and socially. shareholder value.
We are by far one of the largest contributors to the national
Supplier Engagement
treasury, having paid Rs. 37.2 Bn at Group level this year. It is
these funds that are eventually used by the state for meeting Forging strong supplier relationships offers a comprehensive
its development goals. Therefore, we are proud to be a major way for DCSL to assess and streamline the processes between
contributor to national development, as a legal, law abiding our organisation and our suppliers for an effective partnership.

Distilleries Company of Sri Lanka PLC 53


SUSTAINABILITY
REPORT

In reality, suppliers are people as well and we believe in • comply with laws and regulations pertaining to
emotionally engaging with our suppliers so that they work conducting business and environmental performance,
harder for us and help us cover potential risk areas. occupational health and safety, do not support or
condone child labour, slavery, harassment, corporal
Whatever the size or category of supplier, the DCSL’s Supplier punishment or discrimination of gender or any other
Policy ensures a level playing field and equal opportunities denominator
for all our suppliers. We have procedures in place to ensure
responsible behaviour towards all our suppliers, while • are cognisant of human rights and the rights of workers
committing our suppliers towards reciprocity in responsible
• do not engage in any fraudulent or corrupt practices
behaviour towards the Company. This ensures our stringent
quality and standards are understood and met by all our • provide their teams with a safe and healthy work
suppliers. environment

We believe strongly in positioning our supplier philosophy on • actively engage to empower the communities in which
good corporate conduct, sourcing and producing responsible they operate
quality products and influencing a win-win relationship worked
on a platform of mutual benefit. Just as we position ourselves Customer Interaction
as a responsible industry leader, we strongly believe that we We believe that nurturing our customers is an ongoing dialogue
must permeate the best practices we have within our business, and not a one-off event. Nurturing an ongoing and genuine
the standards and integrity and compliance initiatives to relationship with customers will have a major impact on the
our entire supply chain. This in effect cascades to quality, way they perceive our brand but also serve to strengthen our
productivity and standards overall being improved. operations through focused customer feedback. We engage
our customers in numerous ways, nurturing and strengthening
DCSL has a widespread and diverse supply chain spanning the relationships to ensure strong loyalty to brand and product.
full range of businesses from micro entrepreneurs, to SMEs From face to face ad hoc conversations, to conducting
to large corporates. We also emphasise among our supply customer surveys, to formal gatherings and informal events, we
chain and valued business partners the need to implement are constantly engaged with our consumer. It is this feedback
and promote business practices that not only encourage a and varied dialogue and communication channels we have
safe workplace, but also request them ‘to do right’ by the created that have assuredly enabled us to charter our future
environment, their employees and communities. In other plans.
words, we want them to, in turn, be responsible entities and
individuals. Suppliers and business partners, once among the Our beverage business is fundamentally about offering adult
DCSL Group, are provided with further support and guidance, consumers a range of high quality products and brands with
enabling improvement against these principles as the business the necessary knowledge to make informed choices. We do not
relationship develops. in any way coerce or inveigle our customers to stay with us and
our portfolio of products by any illegal or unscrupulous means.
Our suppliers are selected on pre-determined criteria that would
position them and align them to our standards and principles. Moreover, though engaged in a legal industry forced to work in
This conformance goes beyond compliance and would by no a dark market, prohibitive excise duties and constant taxation,
means involve us in engaging or aiding and abetting illegal or our products have remained at the helm, which has thus
hazardous and dangerous activities. We want our suppliers to driven us to continually exceed our customers’ demands. We
be partners with us, in joining us in our journey that will truly do believe it is our responsibility to ensure that consuming
be one of mutual respect, understanding and trust. alcohol must be done responsibly, knowing that the product
is manufactured to high standards and is a proven brand of
We Seek Suppliers into Our Value Chain who: quality. Therefore, we are vociferous in numerous forums to
• will proactively support our efforts to combat illegal and curb and annihilate the illicit and illegal liquor trade. We work
illicit trade practices on education and awareness initiatives among various forums
to take the message of the hazards and dangers posed to the

54 Annual Report 2013/14


eventual consumer in drinking illicit brew or illegal liquor, given Long term Sustainability Goals
that the latter too has no guarantee of quality. 1. Be known as the preferred employer having the ability to
attract and retain talented people, inducting them in a
Our subsidiary companies have continued to gain the trust
knowledge-based corporate culture, while assuring them
and loyalty of their customers through their customer centric
of career enhancement in a responsible company they
policies, innovative solutions and technology applications for
will be proud to be a part of.
increased cost savings and higher customer value creation.
2. Retain market leadership by ensuring that we work on
Lanka Bell, the Group’s telecommunications subsidiary,
high quality sustainable competitive advantages to infuse
commenced rolling out its 4G LTE network during the current
trust and loyalty among our customer base by evolving
financial year in line with its planned schedule. Following a
the business to be ahead of customer expectations,
successful test run, LB formally launched its 4G connectivity
which in turn will deliver qualitative and quantitative
in February 2014, becoming one of the three operators in
sustainable returns.
the country to have a 4G-LTE network. The introduction of
this latest technology is to offer world class data solutions 3. Never lose sight of the tenets of corporate stewardship;
to customers, while providing access to greater bandwidth instil governance and regulatory best practices, while
capacity at faster speeds. demonstrating our commitment to being an ethical,
transparent, accountable Group of companies.
Continental Insurance has been successful in capturing
and adding to its portfolio some of the country’s largest 4. Create economic and social value among the
infrastructural development projects, such as the installation communities we work with, supporting both the rural and
of double circuit transmission lines in the North and East and urban economies and key industries that are earmarked
large power plants, which supply electricity to the main grid to be drivers in national development.
and road development projects. The Company also provided
comprehensive policies to large hotel chains operating luxury 5. Be a Green Ideologue; an advocate who will address
properties in Sri Lanka and the Maldives. CILL introduced environmental issues and ‘change’ the direction of
an Android mobile application to all technical assessors to climate change, walking the talk to spread the need to
facilitate efficiency in the processing of claims. In addition, reduce our carbon footprint and ensure a better planet for
payments of premiums online were also introduced in order future generations.
to cater to the growing market of online users, thereby giving
customers an enhanced service with greater convenience and
ease.

During its short period of operations, Melsta Regal Finance


Ltd (MRF) introduced a wide spectrum of financial solutions
in leasing, hire purchase, factoring, trade finance, corporate
loans, personal loans and savings products for a client portfolio
ranging from corporates to SMEs to consumers. The key focus
of the current financial year was market expansion and product
development. The geographical footprint of MRF was expanded
to the key cities of Kurunegala, Matara and Kandy.

Awards & Recognitions


• DCSL was ranked No. 09 in Business Today’s ‘Top Twenty
Five’ edition. This was the 15th consecutive year DCSL
was listed among corporate heavy weights in the ranking.

• DCSL topped the Manufacturing, Food & Beverage Sector


in National Business Excellence Awards – 2013.

Distilleries Company of Sri Lanka PLC 55


CORPORATE
GOVERNANCE
ENTERPRISE GOVERNANCE DCSL has a strong and sound foundation of sustainability
Working on an integrated approach for applying governance principles that remain the overarching fundamentals in
throughout the organisation, DCSL practices the key principle instituting and maintaining uncompromising governance
of infusing the tenet that everyone is responsible for the practices and principles. The section of the report details the
performance of the Group, the management of risk and value governance structure and the practices and guidelines DCSL
creation. We strongly recommend and commit ourselves to has adopted in ensuring that we remain within the parameters
ensuring that Enterprise Governance operates through people, of the numerous regulatory and authorised bodies that govern
processes, policy, procedure, culture and ethics. the industry and the Company. We stringently adhere to and
comply with the mandates of the Colombo Stock Exchange and
The principles of governance are applied effectively by the Securities & Exchange Commission of Sri Lanka, NATA, Excise
Board of Directors and are seen in the consistent growth Department, Central Bank of Sri Lanka and the Government
performance of the Group, while also improving the long term Treasury, Institute of Chartered Accountants of Sri Lanka,
return to stakeholders. Beyond the Board, the application of Telecommunication Regulatory Commission of Sri Lanka,
governance methodologies and the integration of governance Insurance Board of Sri Lanka, Central Environmental Authority,
into other organisational functions, we strongly believe that it relevant Ministry and departmental authorisations and
has significantly benefited the long term performance of DCSL. regulations and numerous Codes introduced by Professional
To further augment our effective governance strategies we have Associations and the Chamber of Commerce from time to time.
implemented the following:
This corporate governance statement defines in detail the
• Strive to achieve corporate objectives of managing strategy, structures and processes that we use in our organisation to
risk and compliance to ensure long term returns to balance the interests of our stakeholders, reviewed at regular
shareholders and other stakeholders. intervals to ensure that Group’s expectations are met and are
aligned with evolving growth strategies.
• Oversee business objectives including management of IT,
sustainability, finance and project portfolio management to The Board of Directors
ensure sustainable consistent results. Role of the Board of Directors
The Board of Directors is responsible to the Company’s
• Board of Directors remain emphatic on due diligence to
shareholders to ensure at all times that the activities of the
ensure accountability, transparency and sincerity of action.
Company are conducted to the highest ethical standards and
in the best interest of all stakeholders.
• Implemented an environment of responsible and balanced
corporate governance that enhances integrity and respect
The key responsibilities of the Board are;
for the Company and ensures the Company’s stewardship
and stability in the industry and market. • To enhance shareholder value.

• Introduced a culture in which the entire organisation takes • Provide direction and guidance in formulating corporate
ownership for risk, compliance and performance. strategies.

We infuse governance tenets that continue to hold us in • Monitor systems and procedures especially with regard to
high esteem and as a spearhead among our shareholders, internal controls and risk management.
stakeholders and peers. This is further augmented with
our Board’s adherence to the highest standard of corporate • Approve major investments.
behaviour and ethics at all times. To remain at the helm of
Sri Lanka’s corporate landscape, we realise that we must
incorporate new dimensions into our core decision-making
processes and practice due diligence to protect the interests of
our shareholders, while maintaining an unrelenting focus on the
expectations of other stakeholder segments.

56 Annual Report 2013/14


Name of Director Status Attendance *
D.H.S. Jayawardena Chairman / Managing Director 100%
R.K. Obeyesekere Non-Independent Non-Executive 100%
C.R. Jansz Executive Director 100%
N. de S. Deva Aditya Independent Non-Executive Director 100%
K.J. Kahanda Executive Director 100%
C.F. Fernando Independent Non-Executive Director 100%
A.N. Balasuriya Independent Non-Executive Director 100%

*In person or by alternate

Composition of the Board and Independence Remuneration Committee


The Board of Directors of DCSL comprises the The Remuneration Committee has three independent Non-
Chairman /Managing Director, two Executive Directors, Executive Directors:
one Non-Independent Non-Executive Director and three
Independent Non-Executive Directors as given in the table A. N. Balasuriya – Chairman
above. Brief profiles of the Directors are given on pages 28 to 29. N. de S. Deva Aditya
C. F. Fernando
The Board considers that three of the four Non-Executive
Directors are independent in accordance with the criteria The report of the Remuneration Committee is given on the
detailed within the Listing Rules of the CSE and have page 74.
submitted signed confirmations in this regard. The Board
believes that the independence of N. de S. Deva Aditya is Investor Relations
not compromised by virtue of him being a Director of Aitken
One of the prime fundamentals that are prevalent and
Spence PLC, an associate of the Company.
identified with the Group’s sustained success and growth
has been the close rapport in investor relations. Given that
Meetings and Attendance
we are mandated to safeguard and create shareholder wealth
The attendance of the meetings of the Board during the year and are duty bound to share all Company information with
is given above: our shareholders at all times in order to nurture sustainable
relationships with our stakeholders, we foster effective
Board Committees dialogue and engagement with the relevant stakeholders
Certain responsibilities of the Board have been delegated to and the financial community. We strongly believe that it
the following sub-committees. is our strategic management responsibility to maintain an
open line of communication with shareholders and address
Audit Committee any concerns or issues that may require discussion or
The Audit Committee comprises three independent Non- resolution. The designated investor relations officers regularly
Executive Directors as follows; meet shareholders and fund managers to fuel these long
C. F. Fernando – Chairman term relationship, providing information and answering
N. de S. Deva Aditya any queries. Further, the Group possesses performance
measurement tools to ensure that these objectives are met.
A. N. Balasuriya
Apart from personal interaction with stakeholders, our
The detailed report of the Audit Committee is on pages 72 to 73.
quarterly financial statements and the Annual Report
offer a comprehensive canvas of the Group’s performance,
constituting the principal means of communication with the
shareholders.

Distilleries Company of Sri Lanka PLC 57


CORPORATE
GOVERNANCE

Internal Controls
The Board instills and maintains a strong set of internal
controls to safeguard shareholder wealth. The responsibility
of the Board has been clearly stated as one where it is in
charge of the Group’s internal control systems and will
regularly review if they are adequately safeguarding Company
and shareholder assets while supplying precise and timely
information for informed decision making. The responsibility
of the Board covers financial, operational and compliance
related activities and risk management.

The main companies in the Group have established internal


audit divisions that are controlled by the annual internal
audit plans approved by the respective Boards. The Audit
Committee reviews and monitors the activities and the
findings of the internal audit divisions at regular intervals.

Going Concern
After an extensive review of the Group’s corporate plan,
budgets, capital expenditure requirements and future
cash flows, the Board has taken a decision to apply the
Going Concern principle in the preparation of the Financial
Statements for 2013 / 14. Further, the Board is satisfied
that the Group possesses the necessary funds for adequate
liquidity and to sustain its operations for the foreseeable
future

The Company’s compliance with the CSE Listing Rules and


the best practices set out in the Code of Best Practice on
Corporate Governance issued jointly by ICASL and SEC is set
out in the following table:

58 Annual Report 2013/14


The Company’s compliance with the CSE Listing Rules

Section Applicable Rule Compliance Status Details


7.10.1 Non-Executive Directors Complied Four of the seven Directors
At least one third of the total number of Directors should be are Non-Executive
Non-Executive Directors. Directors
7.10.2(a) Independent Directors Complied Three of the four Non-
Two or one third of Non-Executive Directors, whichever is Executive Directors are
higher, should be Independent. Independent
7.10.2(b) Independent Director’s Declaration each Non-Executive Complied
Director should submit a declaration of independence/ non-
independence in the prescribed format
7.10.3(a) Disclosure relating to Directors Complied Please refer page 57
The Board shall annually make a determination as to the
independence or otherwise of the Non-Executive Directors and
names of Independent Directors should be disclosed in the
Annual Report.
7.10.3(b) Disclosure relating to Directors Complied Please refer page 57
The basis for the Board to determine a Director is
Independent, if criteria specified for Independence is not met.
7.10.3(c) Disclosure relating to Directors Complied Please refer pages 28 to 29
A brief resume of each Director should be included in the
Annual Report and should include the Director’s areas of
expertise.
7.10.3(d) Disclosure relating to Directors Not applicable No new Director was
Forthwith provide a brief resume of new Directors appointed appointed during the year
to the Board with details specified in 7.10.3(a), (b) and (c) to
the Exchange.
7.10.4 Criteria for Defining ‘Independence’ Complied
Selection criteria of Independent Directors of a listed company
7.10.5 Remuneration Committee Complied Please refer page 74
A listed Company shall have a Remuneration Committee.
7.10.5(a) Composition of Remuneration Committee Complied All three are independent
Shall comprise of Non-Executive Directors a majority of whom Non-Executive Directors
will be Independent.
7.10.5(b) Functions of Remuneration Committee Complied Please refer page 74
The Remuneration Committee shall recommend the
remuneration of the Chief Executive Officer and Executive
Directors.
7.10.5(c) Disclosure in the Annual Report
The Annual Report should set out;
i. Names of the Directors comprising the Remuneration
Committee. Complied Please refer page 57
ii. Statement of Remuneration Policy
Complied Please refer page 74
iii. Aggregated remuneration paid to Executive and Non-
Executive Directors. Complied Please refer Note 11

Distilleries Company of Sri Lanka PLC 59


CORPORATE
GOVERNANCE

Section Applicable Rule Compliance Status Details


7.10.6 Audit Committee Please refer Audit
The Company shall have an Audit Committee Committee
report on page 72 to 73
7.10.6(a) Composition
i. Shall comprise of Non-Executive Directors a majority of Complied Please refer page 72
whom will be Independent.
ii. One Non- Executive Director shall be appointed as Complied Please refer page 72
Chairman of the committee.
iii. Chief Executive Officer and Chief Financial Officer shall Complied Please refer page 72
attend Committee meetings.
iv. The Chairman or one member of the Committee should Complied Please refer page 72
be a Member of a professional accounting body.
7.10.6(b) Functions
i. Overseeing the preparation, presentation and adequacy Complied Please refer Audit
of disclosures in the Financial Statements in accordance Committee
with Sri Lanka Accounting Standards report on pages 72 to 73
ii. Overseeing the compliance with financial reporting Complied
requirements, information requirements of the
Companies Act and other relevant financial reporting
related regulations and requirements
iii. Overseeing the process to ensure that the Entity’s Complied
internal controls and risk management, are adequate
to meet the requirements of the Sri Lanka Accounting
Standards/ IFRS migration
iv. Assessment of the independence and performance of the Complied
entity’s external auditors
v. Make recommendations to the Board pertaining to Complied
appointment, re-appointment and removal of external
auditors and to approve the remuneration and terms of
engagement of the external auditors
7.10.6(c) Disclosure in Annual Report
i. The names of the Directors comprising the Audit Complied Please refer Corporate
Committee. Governance Report
on page 57 and Audit
ii. Basis of the determination of the Complied
Committee report on
Independence of the Auditors.
pages 72 to 73
iii. Report by the Audit Committee setting out the manner of Complied
compliance by the Company.

60 Annual Report 2013/14


Code of Best practice of Corporate Governance issued jointly by the Securities and Exchange Commission of Sri Lanka (SEC)
and the Institute of Chartered Accountants of Sri Lanka (CA-Sri Lanka)

Ruling Description of the Ruling Compliance Details


Index Status
A.1 The Board
A.1 Company to be headed by an effective board to direct P Board consists of members who are
and control the company qualified and experienced in various fields.
Please refer Corporate Governance Report
on page 56.
A.1.1 Regular Board meetings and supply of information. P Please refer Corporate Governance Report
on page 57.
A.1.2 Board should be responsible for matters including P Please refer Corporate Governance Report,
implementation of business strategy, skills and Report of the Board of Directors and
succession of the management team, integrity of Report of Audit Committee for the details.
information, internal controls and risk management,
compliance with laws and ethical standards,
stakeholder interests, adopting appropriate accounting
policies and fostering compliance with financial
regulations and fulfilling other board functions.
A.1.3 Act in accordance with the laws of the country and P Please refer Report of the Board of
obtain professional advice as and when required Directors
A.1.4 Access to advice and services of the Company Secretary P The company secretary position is
headed by a professionally qualified
company secretary.
A.1.5 Bring Independent judgment on various business issues P All the Board members actively participate
and standards of business conduct in the Board meetings by bringing up their
own Independent judgment.
A.1.6 Dedication of adequate time and effort P The Directors dedicate sufficient time
before a meeting to review Board Papers
and call for additional information and
clarification if necessary, and follow up
issues consequent to the meeting.
A.1.7 Board induction & training P The Directors are provided with training
as and when it is required.
A. 2 Chairman and Chief Executive officer
A.2.1 Justification for combining the roles of the Chairman and P The positions of Chairmen and CEO are
CEO. separated.

Distilleries Company of Sri Lanka PLC 61


CORPORATE
GOVERNANCE

Ruling Description of the Ruling Compliance Details


Index Status
A.3 Chairman’s role
A.3.1 The Chairman should ensure Board proceedings are P Please refer Corporate Governance Report
conducted in a proper manner on page 57 for the following details
- e ffective participation of both executive
and Non-Executive Directors
-b
 alance of power between executive and
Non-Executive Directors
A.4 Financial Acumen
A.4 The Board should ensure the availability within it of P Please refer the Audit committee report on
those with sufficient financial acumen and knowledge page 72.
to offer guidance on matters of finance.
A.5 Board Balance
A.5.1 In the event the Chairman and CEO is the same person, N/A N/A
Non-Executive Directors should comprise a majority of
the Board
A.5.2 Where the constitution of the Board of Directors P Please refer Corporate Governance Report
includes only two Non-Executive Directors, both such on page 57.
Non-Executive Directors should be ‘independent’
A.5.3 Definition of Independent Directors P Please refer Corporate Governance Report
on page 57.
A.5.4 Declaration of Independent Directors P Please refer Corporate Governance Report
on page 57.
A.5.5 Board determinations on independence or non- P Please refer Corporate Governance Report
independence of Non-Executive Directors. on page 57.
A.5.6 If an Alternate Director is appointed by a Non-Executive N/A N/A
Director such Alternate Director should not be an
executive of the company.
A.5.7 In the event the Chairman and CEO is the same person, N/A N/A
the Board should appoint one of the independent
Non-Executive Directors to be the “Senior Independent
Director” (SID)
A.5.8 The Senior Independent Director should make him N/A N/A
self available for confidential discussions with other
Directors who may have concerns
A.5.9 The Chairman should hold meetings with the Non- P
Executive Directors only, without the Executive
Directors being present

62 Annual Report 2013/14


Ruling Description of the Ruling Compliance Details
Index Status
A.5.10 Where Directors have concerns about the matters of the P
Company which cannot be unanimously resolved, they
should ensure their concerns are recorded in the Board
minutes
A.6 Supply of information
A.6.1 Board should be provided with timely information to P
enable it to discharge its duties
A.6.2 Timely submission of the minutes, agenda and papers P
required for the Board Meeting
A.7 Appointments to the Board
A.7 Formal and transparent procedure for Board P Activities of the Nomination Committee
appointments are currently handled by the Board of
Directors
A.7.1 Nomination Committee to make recommendations on P Activities of the Nomination Committee
new Board appointments are currently handled by the Board of
Directors
A.7.2 Assessment of the capability of Board to meet strategic P Activities of the Nomination Committee
demands of the company are currently handled by the Board of
Directors
A.7.3 Disclosure of new Board member profile and Interests N/A No new Director was appointed during
the year.
A.8 Re-election
A.8/ Re-election at regular intervals and should be subject P Please refer Annual Report of the
A.8.1/ to election and re-election by shareholders Directors on page 76
A.8.2
A.9 Appraisal of Board performance
A.9.1 The Board should annually appraise itself on its P
performance in the discharge of its key responsibilities
A.9.2 The Board should also undertake an annual self- P
evaluation of its own performance and that of its
committees
A.9.3 The Board should state how such performance P
evaluations have been conducted
A.10 Disclosure of information in respect of Directors
A.10.1 Profiles of the Board of Directors and Board meeting P Please refer page 28 to 29 and Corporate
attendance Governance Report on page 57.

Distilleries Company of Sri Lanka PLC 63


CORPORATE
GOVERNANCE

Ruling Description of the Ruling Compliance Details


Index Status
A. 11 Appraisal of the Chief Executive Officer
A.11.1/ Appraisal of the CEO against the set strategic targets P The CEO’s performance is reviewed
A.11.2 annually.
B. Directors Remuneration
B.1 Remuneration Procedure
B.1.1 the Board of Directors should set up a Remuneration P
Committee
B.1.2 Remuneration Committees should consist exclusively of P
Non-Executive Directors
B.1.3 The Chairman and members of the Remuneration P
Committee should be listed in the Annual Report each Please refer Remuneration Committee
year Report on 74
B.1.4 Determination of the remuneration of Non-Executive P
Directors
B.1.5 The Remuneration Committee should consult the P
Chairman and/or CEO about its proposals relating to the
remuneration of other Executive Directors
B.2 The Level and Makeup of Remuneration
B.2.1 to Performance related elements in pay structure and P
B. 2.4 alignment to industry practices
B.2.5 Executive share options should not be offered at a N/A N/A
discount
B.2.6 Designing schemes of performance-related remuneration P
B.2.7/ Compensation commitments in the event of early P
B.2.8 termination of the Directors
B.2.9 Level of remuneration of Non-Executive Directors P
B.3 Disclosure of Remuneration
B.3/B.3.1 Disclosure of remuneration policy and aggregate P Please refer Remuneration Committee
remuneration Report on 74
C. Relations with Shareholders
C.1 Constructive use of the Annual General Meeting (AGM) P The Company holds the AGM within the
and conduct of general meetings appropriate regulatory time intervals and
effectively uses it for communication
with shareholders.
C.1.1 Counting of proxy votes P

64 Annual Report 2013/14


Ruling Description of the Ruling Compliance Details
Index Status
C.1.2 Separate resolution to be proposed for each item P
C.1.3 Heads of Board sub-committees to be available to P
answer queries
C.1.4 Notice of Annual General Meeting to be sent to P Please refer the page 172 of the Annual
shareholders with other papers as per statute Report for the notice of the meeting.
C.1.5 Summary of procedures governing voting at General P
meetings to be informed
C.2 Communication with Shareholders
C.2.1 Channel to reach all shareholders to disseminate timely P
information
C.2.2 / Policy and methodology of communication with P
C.2.7 shareholders and implementation
C.3 Major and material transactions including major related P
party transactions
C.3.1 Disclosure of all material facts involving all material P Please refer note 35 to the Financial
transactions including related party transactions Statements.
D. Accountability and Audit
D.1 Financial Reporting
D.1.1 Disclosure of interim and other price-sensitive and P The Board presents a balanced and
statutorily mandated reports to Regulators. understandable assessment extends to
interim and other price-sensitive public
reports and reports to regulators, as
well as to information required to be
presented by statutory requirements
complying with regulatory deadlines.
D.1.2 Declaration by the Directors that the company has P Please refer Annual Report of the
not engaged in any activities, which contravene laws Directors on page 75.
and regulations, declaration of all material interests
in contracts, equitable treatment of shareholders
and going concern with supporting assumptions or
qualifications as necessary
D.1.3 Statement of Directors Responsibility P Please refer the Statement of Directors
Responsibility on Page 80.
D.1.4 Management Discussion and Analysis P Please refer Management Discussion
and Analysis from page 35 to 43.
D.1.5 The Directors should report that the business is a going P Please refer Annual Report of the
concern, with supporting assumptions or qualifications Director on page 77.
as necessary

Distilleries Company of Sri Lanka PLC 65


CORPORATE
GOVERNANCE

Ruling Description of the Ruling Compliance Details


Index Status
D.1.6 Remedial action at EGM if net assets fall below 50% of N/A N/A
value of shareholders’ funds
D.1.7 Disclosure of Related Party Transactions P Please refer Note 35 to the Financial
Statements from page143 to 147.
D.2 Internal Control
D.2.1 Annual review of effectiveness of system of Internal P Please refer Audit Committee Report on
Control and report to shareholders as required page 72 and Annual Report of the Board
of Directors on page 75.
D.2.2 Internal Audit Function P
D.2.3/ Maintaining a sound system of internal control P
D.2.4
D.3 Audit Committee
D.3.1 The Audit Committee should be comprised of a P Please refer Audit Committee Report on
minimum of two independent Non-Executive Directors pages 72 to 73.
or exclusively by Non-Executive Directors, a majority of
whom should be independent, whichever is higher. The
Chairman of the Committee should be a Non-Executive
Director, appointed by the Board
D.3.2 Terms of reference, duties and responsibilities P
D.3.3 The Audit Committee to have written Terms of reference P
coving the salient aspects as stipulated in the section
D.3.4 Disclosure of Audit Committee membership P
D. 4 Code of Business Conduct and Ethics
D.4.1 Availability of a Code of Business Conduct & Ethics and P Please refer Corporate Governance
an affirmative declaration that the Board of Directors Report from page 56 to 67
abide by such Code
D.4.2 The Chairman must certify that he/she is not aware of P
any violation of any of the provisions of this Code
D.5 Corporate Governance Disclosures
D.5.1 The Directors should include in the Company’s Annual P Please refer Corporate Governance
Report a Corporate Governance Report Report from pages 56 to 67

66 Annual Report 2013/14


Ruling Description of the Ruling Compliance Details
Index Status
E. Institutional Investors
E.1 Shareholder Voting
E.1.1 Conducting regular and structured dialogue with P Please refer Corporate Governance
shareholders based on a mutual understanding of Report from page 57.
objectives
E.2 Evaluation of Governance Disclosures
E.2. When evaluating Companies’ governance arrangements, P Please refer Corporate Governance
particularly those relating to Board structure and Report from page 57.
composition, institutional investors should be encouraged
to give due weight to all relevant factors drawn to their
attention
F. Other Investors
F. 1 Investing / Divesting Decision
F. 1 Individual shareholders, investing directly in shares of P
companies should be encouraged to carry out adequate
analysis or seek independent advice in investing or
divesting decisions
F. 2 Shareholder Voting
F. 2 Individual shareholders should be encouraged to P
participate in General Meetings of companies and
exercise their voting rights
G Sustainability Reporting
G.1/ Disclosure on adherence to sustainability principles P Please refer Sustainability Report from
G.1.7 page 44 to 55.

Distilleries Company of Sri Lanka PLC 67


ENTERPRISE RISK
MANAGEMENT
Undoubtedly, there is risk in today’s volatile and uncertain objectives. The Board is tasked with an overall responsibility
business environment, which demands increased transparency for monitoring risks and gaining assurance for managing
within an organisation’s risk profile. There are vulnerabilities, these risks at an acceptable level.
probabilities, threats and weaknesses that must be addressed
to ensure that risk in any enterprise is mitigated. This greater STRATEGIC ACTION PLAN
emphasis on risk and risk management also prompts greater Board oversight coupled with a strong organisational ethic is
penalties on entities that do not or fail to manage key risks, the cornerstone of DCSL risk framework.
which naturally permeates to organisations being more
cognisant of identifying and assessing risks. In this backdrop, The Board remains acutely aware that to generate business
it is also increasingly important that once these risks are value it must manage and oversee all possible risks that the
identified and assessed, they are managed with pre-defined business or external factors could impose on the profitability
tolerances. Any entity faces myriad risks, from well known of the Company, while in tandem, protecting and enhancing
risks that are inherent and characteristic of the business to shareholder wealth. The DCSL Board is committed to deploying
unknown risks that may emerge or are just emerging. Risk the highest standards of risk management to support a strong
resilient organisations must objectively assess their existing risk governance framework, ensuring that shareholder wealth is
management capabilities, evaluate their organisational culture safeguarded from all the possible risk elements.
with regard to risk, performance and reward and implement
sustainable risk management practices. A dedicated team has been established to assist the Board in
reviewing risk factors at regular intervals. Evaluation meetings
In the current market context, risk is defined as the probability are held to ensure that the focus from effective risk coverage
or threat of a liability, loss or other negative occurrence, caused remains strong and concentrated. The Board is kept updated
by external or internal vulnerabilities which would affect the on the progress and its opinion sought for mitigating any
desired objectives of the organisation. This also means that challenges that may emerge.
stakeholder expectations must be worked into the organisation’s
risk management strategy. Vulnerabilities could mean exposure Risk Management Framework
that could trigger an adverse outcome and therefore, prevent The Group remains committed to increasing shareholder value
the achievement of company objectives. within a carefully designed risk management framework. An
effective risk management framework enables us to prioritise and
The process of risk management at DCSL involves analysing
allocate resources against those risks that underscore the ongoing
exposure to risks, by identifying vulnerabilities and their
sustainability of the organisation. Our systematic policies help us
probability of occurrence, which determines the way we handle
to identify and uncover risks and help us to be cognisant of the
such exposure. This would therefore involve the implementation
same. This preparedness builds the resilience of the organisation
of numerous policies, procedures and practices that work in
and allows us to establish procedures for risk mitigation.
conjunction to identifying, analysing, evaluating, monitoring and
prioritising risks, which will follow the application of coordinated The principal risks in achieving the Group objectives of
and economical solutions that minimise the probability and enhancing shareholder value and safeguarding the Group’s
impact of identified vulnerabilities. Once identified, elimination, assets have been identified as set out overleaf. The nature
reduction, transfer and retention are the broad risk management and the scope of risks are subject to change and not all of the
strategies employed across DCSL.. factors listed, are within the control of your Company. It should
be noted that the other factors besides those listed may affect
Changes in Risk Profile the performance of the business, although we do reiterate, that
Given the range of industry, geographic locales and market we remain very vigilant to both internal and external factors
segments that our business spans, the diversification which that could prompt risk in any form and therefore, are able to,
we have embarked upon provides a prudent pathway that without delay, implement strategies to prevent, minimise or
would signal positive correlation between business and mitigate those ensuing risks.
environmental risks, while on the converse, exposing the
Group to a wider spread of risks, as well as opportunities. DCSL Group’s risk management framework takes into account
the range of risks to be managed, the systems and processes
This therefore prompts the DCSL Board to make risk in place to deal with these risks and the chain of responsibility
assessment and identification of mitigating activities a within the organisation to monitor the effectiveness of the
priority and pivotal in achieving the Group’s strategic mitigation measures.

68 Annual Report 2013/14


Risk & Implication
Credit Risk & Implication Mitigation Strategies:
This risk ensues when a Group customer is unable to meet his • Measure, monitor and manage credit risk for each
financial obligations. borrower through clear credit approval procedures

• Regularly review customer credit ratings and constantly


update records to ensure complete awareness of borrower
credit status

Please refer financial risk management note on pages 154 to 159

Legal and Regulatory Risk & Implication Mitigation Strategies


Risks arising from non conformance to statutory and regulatory • Established a dedicated unit to keep abreast of all policy
requirements remain a reality due to the possibilities of changes changes, to manage risk and ensure adherence to all
to regulations and policies being sudden or constant. It also regulations
increases costs and liabilities due to these periodic regulatory
• Recruitment of ex-regulators to senior positions within the
changes. The nature of our liquor, telecommunications,
Group.
insurance and finance businesses continue to be subjected
to a steady stream of changes in regulations and extensive
compliance requirements. The authorities have severely
restricted liquor advertising and limited other forms of
communication with consumers via promotional and distribution
activities, all of which affect profitability.

Investment Risk & Implication Mitigation Strategies


The Group handles significant market investments which require • The Chairman / Managing Director is tasked with tracking
smooth pre-study, monitoring and control. In this regard, there is returns on Group investments with the assistance of the
stringent conformance by the Board in practicing due diligence. Head of Finance and Group Financial Controller

• The Board develops policies and procedures to ensure that


new investments and initiatives are subjected to mandatory
compliance procedures.

• Regular reviews by Audit Committee and Internal Audit


Division

Human Risk & Implication Mitigation Strategies


This is the risk arising from the inability to attract and retain • Maintaining above industry remuneration schemes
skilled staff at middle to senior management levels. The
• Skills upgrading
migration of skilled workers, which is a phenomenon across
most industry sectors, has created a brain-drain and the • Professional growth avenues
Group remains at risk of losing key personnel to better job • Performance-based reward systems
prospects overseas.
• Best practices being introduced and upgraded
continually

• Measures taken to retain and minimise casual /


temporary labour turnover.

Distilleries Company of Sri Lanka PLC 69


ENTERPRISE RISK
MANAGEMENT

Risk & Implication


Operational Risk & Implication Mitigation Strategies
Operational risk is the risk of loss resulting from inadequate or • A structured internal control framework implemented
failed internal processes, people and systems or from external works through a state of the art MIS system, internal
events. The nature of our business renders us vulnerable to audit mechanism and insurance policies
several common operational risks including fraud, human
• A comprehensive system established to ensure that any
error, natural disasters, loss of data and unrequited disclosure
loss is communicated to all related parties and across
of sensitive information.
the company to prevent similar incidences

• Regular meetings are conducted to assess these risks

• Contingency plans are in place to minimise work-stop


situations

• Financial risk arising from operation is covered in


financial risk management on pages 154 to 159

Socio-Economic Risk & Implication Mitigation Strategies


Given the government diktat in stifling and repressing the • A committed Investigations Unit established to monitor
consumption of alcohol and tobacco, there is a very real and report illegal activities that challenge our business
threat being imposed on the Company’s profitability and the
perception of our business. In this milieu also exists a thriving
of spurious liquor manufacturers, which naturally erodes our
profitability base. A resurgent economy however should boost
licit alcohol consumption.

Socio-Political Risk & Implication Mitigation Strategies


Socio-Political risk is the possibility of instability in a country Our diversified portfolio of businesses encompasses
or the world which would cascade to negatively impacting investments that will not be minimally impacted. The
markets. Unrest of any kind could affect investor attitudes only exception being was the enactment of the Revival of
toward the markets in general, leading to disruption of Underperforming Enterprises and Underutilised Assets Act
business. Continuity of a cohesive policy towards local that re-acquired land of Pelwatte Sugar Industries PLC.
business is a key element here. Here again, the impact was managed and legal redress is
being sought.

Technology Risk & Implication Mitigation Strategies


Stemming from the failure of the Group’s ICT systems where • Implementation of stringent barriers including password
hardware, software and communications systems may have protection and restricted access, stringent user
breakdowns, halts and herald lack of recovery, as a business guidelines, contingency plans and physical security
that leverages strategically on ICT systems, we are very much measures closely monitored by the Central IT Unit.
aware of the potentiality of risk and the cascading negativities
• Comprehensive backup and recovery systems in place
that could result to both business and profitability due to
Technology Risk. The Group has identified system failures and • A robust ERP system is deployed in the Company.
theft of information as factors that can cause significant levels Phased implementation of same across Group
of operational, reputational and financial loss to the Group. companies.

70 Annual Report 2013/14


Risk & Implication
Product Risk & Implication Mitigation Strategies
Product risk implies any negative impact or perceived impact • Employing established operating procedures to review
of our products on stakeholders in general which could and approve all raw material prior to use, to ensure
decrease our market share. There were no reported incidents of maintenance of quality control
intoxication or health hazards arising from our range of liquor
• Remain emphatic on safety, health and environmental
products.
hazards that may ensue due to possible negative publicity

• Equipping our R&D Team with ample knowledge to field


any technical questions about our products

• Marketing and distribution procedures have complete


control of the supply chain

Foreign Exchange Risk & Implication Mitigation Strategies


A depreciated Sri Lankan Rupee could impact the importation of • Remaining acutely attuned to the frequent changes seen in
rectified spirits and foreign brands in our distilleries portfolio. foreign currency rates with our bankers

Please refer financial risk management note on pages 154 to 159.

Cheaper Product, Counterfeiting and Unethical Mitigation Strategies


Competition Risk & Implication
An increase in the import and in some cases smuggling • Ensuring our products are competitively priced and
and counterfeit of cheaper products that compete directly continue to retain the highest standards of quality in
with our product portfolio could create an impact on our order to drive a loyal consumer base who disregard
locally manufactured products, leading our products to be cheaper options
out priced in the market. This also endangers a reputational
• Our Investigations unit maintains close scrutiny on any
risk. The nature of the liquor business increases incidences
counterfeit DCSL products in the market
of counterfeiting and smuggling of low quality or sub-quality
liquor. The success of our brands also fuels a lucrative • Communicate and demonstrate to our consumers on
breeding ground for counterfeiters to indulge in illegal activity. measures and processes in identifying DCSL brands,
authorised dealers and retailers

• Continuing to improve manufacturing process which


includes tamper proof bottles

• Make every effort to sustain and enhance brand equity,


ensuring that consumers are not cheated in any manner
due to third party action

• Co-operate with law enforcement bodies to curb illegal


distillation

Distilleries Company of Sri Lanka PLC 71


AUDIT COMMITTEE
REPORT
Composition Activities and Responsibilities of Financial
The Audit Committee appointed by and responsible to the Reporting
Board of Directors comprises of three Independent Non- The Committee reviewed and discussed the financial
Executive Directors. The Chairman of the Committee is Mr. reporting system adopted by the Group in the preparation
C .F. Fernando, a Senior Chartered Accountant and a former of its quarterly and annual financial statements with the
Managing Director of the Company. The other members of the Management and the External Auditors. Purpose being to
Audit Committee comprise Mr. N. de S. Deva Aditya, Member ensure reliability of the processes and the consistency of the
of the European Parliament and Dr. Naomal Balasuriya, a Accounting Policies adopted and its compliance with the
renowned Motivational Speaker and Corporate Trainer. A brief Sri Lanka Accounting Standards and the provisions of the
profile of each member is given on pages 28 to 29. Companies Act No. 07 of 2007.

The Company Secretary functions as the Secretary to the Audit Internal Audit
Committee. The internal audit function of the Company was carried out
by the Internal Audit Division. The Committee reviewed the
Meetings effectiveness of the internal audit plan to ensure that it was
The Audit Committee met six times during the year. Mr. N. designed to provide reasonable assurance that the financial
de S. Deva Aditya could not attend any meetings during reporting system adopted by the Group can be relied
the year due to his engagements abroad. Nevertheless, Mr. upon in the preparation and presentation of the Financial
Deva Aditya was represented at all meeting by his alternate Statements. The Committee also reviewed the findings of the
and was kept informed of all the proceedings of the Audit Internal Auditors and their recommendations together with
Committee and his opinion was sought on important matters the management responses and regularly followed up the
through his alternate on the Board. The attendance of the progress of the implementation of such recommendations in
other members at these meetings are as follows: order to enhance the overall control environment.
Mr. C. F. Fernando 6/6
Dr. Naomal Balasuriya 6/6
External Audit
The Audit Committee met with the External Auditors to
The Group Financial Controller, Head of Finance and Chief discuss the scope and the audit strategy including the
Internal Auditor also attended these meetings by invitation coordination of the Group Audit. The Committee also
when needed. reviewed the Report of the Auditors & Management Letters
issued by them with and without the Management on
Terms of Reference separate occasions to ensure that no limitations were placed
The Audit Committee Charter approved and adopted by on their independence of work and conduct of the audit.
the Board clearly sets out the terms of reference governing
the Audit Committee ensuring highest compliance with the The Committee carried out an annual evaluation of the
Corporate Governance Rules applicable to Listed Companies External Auditors to establish their independence and
in accordance with the Rules of the CSE and the Code of objectivity and also obtained a written declaration from the
Best Practice on Corporate Governance. Auditors in this regard. The Committee stipulated that the
Lead Audit Partner is rotated every five years.
As allowed by the Listing Rules of the Colombo Stock
Exchange, the Audit Committee of the Company, functions The Audit Committee recommended to the Board of Directors
as the Audit Committee of each of the subsidiary companies that Messrs. KPMG be reappointed as Auditors for the
which have not appointed a separate Audit Committee. All financial year ending 31 March 2015.
matters are dealt with through the Agenda of the Parent
Company Audit Committee.

72 Annual Report 2013/14


Compliance with Laws and Regulations
The Committee reviewed the quarterly compliance reports
submitted by the relevant officers to ensure that the Group
complied with all statutory requirements.

Conclusion
The Audit Committee is satisfied that the Group’s accounting
policies, operational controls and risk management processes
provide reasonable assurance that the affairs of the Group
are managed in accordance with Group policies and that
Group assets are properly accounted for and adequately
safeguarded.

C. F. Fernando
Chairman
Audit Committee

22 August 2014.

Distilleries Company of Sri Lanka PLC 73


REMUNERATION
COMMITTEE REPORT
The Remuneration Committee of the Distilleries Company information and by participating in its
of Sri Lanka [DCSL] is appointed and responsible to the deliberations by invitation.
Board of Directors. It comprises of three Independent, Non
Executive Directors, namely Mr. C. F. Fernando, a Senior This Committee firmly believes that given
Chartered Accountant and former Managing Director of the competitive forces in today’s market,
DCSL, Mr. N. de S. Deva Aditya, Member of the European remuneration of the key drivers of the business
Parliament and Dr. Naomal Balasuriya, Motivational Speaker, becomes a crucial need gap filler towards
who chairs the Committee. motivating them to ensure growth of the
business.
Brief profiles of these Directors are given on pages 28 to
29. Ms. Vijayanthi Senaratne, Company Secretary functions
as the Secretary to this Committee. All members of this
Committee are free from all business and other relationships
that could hamper their duties as members of this body.
Dr Naomal Balasuriya
Chairman,
The Remuneration Committee is governed by the
Remuneration Committee
Remuneration Committee Charter, which has been approved
and adopted by the Board of Directors. It is responsible
22 August 2014
for determining the remuneration policy relating to the
Chairman, Directors and the Key Management Personnel of
the Company.

The Committee formally met once during the year with


all members being present. The Chairman / Managing
Director who is responsible for the overall management of
the Company assist the Committee by providing necessary

74 Annual Report 2013/14


ANNUAL REPORT OF THE
BOARD OF DIRECTORS
The Board of Directors of Distilleries Company of Sri Lanka Melstacorp Limited
PLC has pleasure in presenting the 24th Annual Report and In March 2014, Melstacorp Limited increased its investment
the Audited Financial Statements of the Company and the by Rs.650 Mn in Melsta Regal Finance Limited (MRFL) in
Group for the financial year ended 31 March 2014. response to the Central Bank of Sri Lanka (CBSL) financial
sector consolidation plan. This increased the stated capital
Principal Activities
to Rs. 1.34 Bn, through which MRFL is compliant with the
The principal activities of Distilleries Company of Sri Lanka capital adequacy requirements of CBSL till 2016.
PLC are distillation, manufacture and distribution of liquor
products. The Company has also invested in a portfolio of In July 2014, Melstacorp Limited increased its investment in
diverse business enterprises comprising the DCSL Group. Continental Insurance Lanka Limited by 250 Mn. As a result
stated capital of Continental Insurance has increased to Rs.
Business Review 750 Mn.
A review of the Group’s business, providing a comprehensive
analysis of the financial and operational performance along Melstacorp Share Trust (Trustee) was created effective from
with future trends and business development activities are 1 April 2011 for the holding of the company shares. Details
described in the ‘Chairman’s Message’ and ‘Management are given in note 25.1 to the financial statements.
Discussion and Analysis’ sections of the Annual Report.
Results and Appropriations
Amount Due from Secretary to the Treasury o/a of The gross turnover of the Group in the year under review
Sri Lanka Insurance Corporation Ltd (SLIC) amounted to Rs 63,186 Mn. The Group profit after tax was
We still await the payment of profit earned during DCSL Rs. 6,231 Mn. The segmental analysis of the turnover and
Group’s tenure at the helm of SLIC. We are hopeful that the profit is provided in Note 4 to the Financial Statements.
profit earned to be paid as per the Supreme Court directive
will be reimbursed to us early as possible. Detailed note is The Board of Directors has recommended a dividend of
given in note 37 to the Financial Statements. Rs. 3.25 per share (2012/13 - Rs.3.00 per share) for the
financial year ended 31 March 2014, amounting to Rs.975
Pelwatte Sugar Industries PLC (PSIP) Mn. The dividend payout for the year under review has been
Following the expropriation of the PSIP by the State, the formulated in accordance with the Company’s policy to pay
ownership of this property remains unresolved. The Company sustainable dividends linked to long term performance,
has not changed its position advocated since the occurrence keeping in view the Company’s need for capital for its growth
of this unfortunate incident of being the legal owner of the plans and the intent to finance such plans through internally
property and as such, we have communicated our views to the generated funds. An optimum debt / equity mix is warranted
Treasury. However, as a precautionary measure, the Company for DCSL given the volatility in money markets and fact that
has also lodged an official claim with the Compensation DCSL is taxed at high rate of 40%.
Tribunal, appointed by the State. Since our group is deprived of
The Board Directors confirm that the Company satisfies
participating in controlling the financial, operating policies and
the requirements of the Solvency Test in accordance with
other relevant activities, the financial statements of PSIP have
Section 56 (2) of the Companies Act No. 07 of 2007 on the
been deconsolidated from the group financial statements.
payment of the proposed dividend. A solvency certificate in
We hope some clarity regarding this untoward situation would this regard is received from the Auditors.
be forthcoming within the new financial year. Further details
Financial Statements
are given in note 38 to the Financial Statements.
The Financial Statements of the Company and the Group for
the year ended 31 March 2014 as approved by the Board of
Directors on 22 August 2014 are given on pages 82 to 159.

Distilleries Company of Sri Lanka PLC 75


ANNUAL REPORT OF THE
BOARD OF DIRECTORS

Audit Report Internal Controls and Risk Management


The Auditor’s Report on the Financial Statements of the The Directors acknowledge their responsibility for the
Company and the Group is given on page 81. Groups’ system of internal control. The systems are designed
to provide reasonable assurance that the assets of the
Accounting Policies Group are safeguarded and to ensure that proper accounting
The accounting policies adopted in the preparation and records are maintained.
presentation of the Financial Statements are given on
pages 88 to 105. There were no material changes in the The Board, having reviewed the system of internal control is
accounting policies adopted by the Group during the year satisfied with the systems and measures in effect at the date
under review. of signing this report. At present DCSL is rolling out an ERP
system across the Group. This is underway and will be fully
Investments functional by the next financial year ending 31 March 2015.
Total investments of the Company in subsidiaries, associates
Capital and Other Commitments
and other equity investments amounted to Rs.42,877 Mn
(2012/13 – Rs. 42,325 Mn). The details of the investments Contingent liabilities and capital commitments are disclosed
are given in Notes 18, 19 and 20 to the Financial in Note 39 and 40 to the Financial Statements of the
Statements. Company.

Property, Plant and Equipment Events after the Reporting Period


The net book value of property, plant and equipment of There were no material events or circumstances that
the Company and the Group as at 31 March 2014 was have arisen since the reporting date that would require
6,299 Mn (2012/13 – Rs.3,875 Mn) and Rs. 16,221 Mn adjustment, other than the information disclosed in Note 42
(2012/13 – Rs.15,341 Mn.) to the Financial Statements.

Total capital expenditure during the year for acquisition Employees


of property, plant and equipment by the Company and the The number of persons employed by the Company and Group
Group amounted to Rs. 59 Mn (2012/13 – Rs. 21 Mn) and as at 31 March 2014 was 1,250 (2012/13 1,343) and
Rs. 964 Mn (2012/13 – Rs. 787 Mn) respectively. 12,897 (2012/13 -14,681) respectively.

The details of property, plant and equipment are given in Board of Directors
Note 15 to the Financial Statements. The Board of Directors of the Company as at 31 March 2014
and their brief profiles are given on pages 28 and 29.
Stated Capital and Reserves
The Stated Capital of the Company as at 31 March 2014 Directors Standing for Re-election
was Rs.300 Mn consisting of an equal number of Ordinary In terms of Article 92 of the Articles of Association of the
Shares. There was no change in the stated capital during Company, Mr. C. R. Jansz and Mr. N. de S. Deva Aditya retire
the year. The total Group Reserves as at 31 March 2014 by rotation and being eligible are being recommended by the
amounted to Rs. 53,336 Mn comprising of Capital Reserves Board for re-election.
of Rs. 5,906 Mn and Revenue Reserves & Retained Earnings
of Rs. 47,430Mn, the movement of which is disclosed in the Further, in terms of section 210 of the Companies Act,
Statement of Changes in Equity. Mr. D. H. S. Jayawardena who is over the age of 70 years has
to be reappointed by the membership annually. Accordingly,
notice has been given of a resolution in terms of section

76 Annual Report 2013/14


211 of the Companies Act No. 07 of 2007 to propose the Directors’ Remuneration
reappointment of Mr. D. H. S. Jayawardena, notwithstanding Directors’ Remuneration in respect of the Company for the year
the age limit of 70 years. is given in Note 11 to the Financial Statements.

Also, in terms of section 210 of the Companies Act, Mr. Share Information
C. F. Fernando who is over the age of 70 years has to be
Information relating to Earnings, Dividends, Net Assets and
reappointed by the membership annually. Accordingly, notice
Market Value per Share is given on pages 4. There were
has been given of a resolution in terms of section 211 of
10,798 registered shareholders holding ordinary voting
the Companies Act No. 07 of 2007 to propose the re-
shares as at 31 March 2014. The distribution and the
appointment of Mr. C. F. Fernando, notwithstanding the age
composition of shareholdings are given on page 162 of this
limit of 70 years.
report. Major Shareholdings details of the Twenty Major
Interest Register Shareholders of the Company including the number of shares
held by them are given on page 163 of the Annual Report.
The Company maintains an Interest Register in compliance
with the Companies Act No. 07 of 2007. This Annual Report Corporate Governance
also contains particulars of entries made in the Interest
The Board has ensured that the Company has complied with
Register. Directors’ Interests in Contracts are disclosed in the
the Listing Rules of the Colombo Stock Exchange and the
Related Party Transactions under Note 35 to the Financial
Code of Best Practices on Corporate Governance issued by
Statements. A Code of Business Conduct and Ethics along
the Securities and Exchange Commission and the Institute of
with other controls are in place to ensure that related party
Chartered Accountants of Sri Lanka. The Board is committed
transactions involving directors, senior managers or their
towards the furtherance of Corporate Governance principles
connected parties are conducted on an arm’s length basis.
of the Company. The measures taken in this regard are set
The Directors to the best of their knowledge and belief
out in the Corporate Governance Report.
hereby confirm compliance with this code.

Board Committees
Directors’ Shareholdings
The Board has appointed two Sub-Committees i.e. the
The shareholdings of Directors of the Company as defined
Audit Committee and the Remuneration Committee. The
under the Colombo Stock Exchange Rules are as follows.
composition and responsibilities of the said Committees are
As at 31 As at 31 detailed in the respective reports.
March March
2014 2013 Environment
The Company has not engaged in any activity that was
D. H. S. Jayawardena Nil Nil
detrimental to the environment and has been in due
R. K. Obeyesekere Nil Nil
compliance with all applicable laws and regulations of
C. R. Jansz Nil Nil
N. de S. Deva Aditya Nil Nil the country to the best of its ability. The Group’s effort to
K. J. Kahanda Nil Nil conserve scarce and non-renewable resources are more fully
C. F. Fernando 2,062 2,062 described in the Sustainability Report.
A. N. Balasuriya Nil Nil
Statutory Payments
Messrs. D. H. S. Jayawardena and R. K. Obeyesekere are The Directors, to the best of their knowledge and belief are
shareholders of Milford Exports (Ceylon) Ltd. and Stassen satisfied that all statutory obligations due to the government
Exports Limited, who hold significant stakes in the Company and its employees have been duly paid or adequately
directly and indirectly. The shareholdings by these entities provided for in the Financial Statements as confirmed by the
are available on page 163 of the Annual Report. Statement of Directors’ Responsibility.

Distilleries Company of Sri Lanka PLC 77


ANNUAL REPORT OF THE
BOARD OF DIRECTORS

Going Concern Annual General Meeting


The Directors having reviewed the business plans, capital The 24th Annual General Meeting of the Company will be
expenditure commitments and expected cash flows are held at the Committee Room “B” of Bandaranaike Memorial
satisfied that the Company and the Group have adequate International Conference Hall (BMICH) on 29th September
resources to continue operations for the foreseeable future 2014 at 10.00 a.m. The Notice of Meeting appears on page
and therefore continue to adopt the going concern basis in 172 of the Annual Report.
preparing these Financial Statements.
For and on behalf of the Board of Directors,
Auditors
Messrs. KPMG, Chartered Accountants are deemed
reappointed, in terms of section 158 of the Companies
Act No. 07 of 2007, as Auditors of the Company. A
resolution to authorise the Directors to determine their D. H. S. Jayawardena C. R. Jansz
remuneration will be proposed at the Annual General Chairman / Managing Director Director
Meeting. Total audit fees paid to Messrs. KPMG and other
Auditors of Group companies are disclosed in Note 11 to
the Financial Statements. The Auditors of the Company
and its subsidiaries have confirmed that they do not have
any relationship with the Company or its subsidiaries (other V. J. Senaratne
than that of Auditor) that would have an impact on their Company Secretary
independence.
22 August 2014.
Colombo

78 Annual Report 2013/14


CREATING LONG TERM

VALUE
Financial Statements
81 Independent Auditors’ Report
82 Statements of Comprehensive Income
83 Statements of Financial Position
84 Statements of Changes in Equity
87 Statements of Cash Flows
88 Notes to the Financial Statements
160 Statement of Value Added
161 Details of Real Estate
162 Shareholder Information
164 Ten Year Summary
165 DCSL Management Team
166 Group Directory
172 Notice of Meeting
175 Form of Proxy
177 Attendance Slip

Distilleries Company of Sri Lanka PLC 79


STATEMENT OF DIRECTORS RESPONSIBILITY

The Directors are responsible under the Companies Act Compliance Report
No. 07 of 2007, to ensure compliance of the requirements The Directors confirm that to the best of their knowledge and
set out therein to prepare Financial Statements for each belief that all statutory payments in relation to regulatory and
financial year giving a true and fair view of the state of statutory authorities that were due in respect of the Company
the affairs of the Company and its Subsidiaries as at the and its Subsidiaries as at the Reporting date have been paid
Reporting date and the profit of the Company and its or where relevant, provided for. By Order of the Board,
Subsidiaries for the financial year. The Directors are also
responsible 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 the responsibility for the integrity and


V. J. Senaratne
objectivity of the Financial Statements presented. The
Company Secretary
Directors confirm that proper accounting records have been
maintained and appropriate accounting policies have been
22 August 2014.
selected and applied consistently in the preparation of
such Financial Statements which have been prepared and
presented in accordance with the Sri Lanka Accounting
Standards and provide information required by the
Companies Act and the Listing Rules of the Colombo Stock
Exchange.

Further, the Directors confirm that the Financial Statements


have been prepared on a going concern basis and are of the
view that sufficient funds and other resources are available
within the Group to continue its operations and to facilitate
planned future expansions and capital commitments.

The Directors have taken adequate measures to safeguard


the assets of the Group and in this regard have established
appropriate systems of internal control with a view to
preventing and detecting fraud and other irregularities.

The External Auditors were provided with all information and


explanations necessary to enable them to form their opinion
on the Financial Statements.

The Directors are confident that the Company would satisfy


the solvency test as mandated under Section 56 (2) of the
Companies Act No. 07 of 2007 regarding the payment of the
proposed dividend and have sought a Certificate of Solvency
from its Auditors.

80 Annual Report 2013/14


INDEPENDENT AUDITORS’ REPORT

TO THE SHAREHOLDERS OF DISTILLERIES Opinion- Company


COMPANY OF SRI LANKA PLC In our opinion, so far as appears from our examination, the
Company maintained proper accounting records for the year
Report on the Financial Statements
ended 31 March 2014 and the financial statements give a
We have audited the accompanying financial statements of true and fair view of the financial position of the Company
Distilleries Company of Sri Lanka PLC (“the Company”) and as at 31 March 2014, and of its financial performance and
the consolidated financial statements of the Company and its its cash flow for the year then ended in accordance with Sri
subsidiaries (“the Group”), which comprise the statements Lanka Accounting Standards.
of financial position as at 31 March 2014, the statements
of comprehensive income, changes in equity and cash flows Opinion- Group
for the year then ended, and notes, comprising a summary
As described in note 25.1 to the financial statements, Trade
of significant accounting policies and other explanatory
and Other receivable of the group includes Rs.1,446.83 Mn
information set out on pages 82 to 159 of the annual report.
receivable from Melstacorp Limited Share Trust. However
as at the reporting date share ownership has not been
Management’s Responsibility for the Financial
transferred under the name of the Trust and the terms of
Statements loan and recoverability not determined.
Management is responsible for the preparation and fair
presentation of these financial statements in accordance with In our opinion, except for the possible effect on the financial
Sri Lanka Accounting Standards. This responsibility includes: statements of the matter described in the preceding
designing, implementing and maintaining internal control paragraph, the consolidated financial statements give a true
relevant to the preparation and fair presentation of financial and fair view of the financial position of the Company and its
statements that are free from material misstatement, whether subsidiaries dealt with thereby as at 31 March 2014, and of
due to fraud or error; selecting and applying appropriate its financial performance and its cash flows for the year then
accounting policies; and making accounting estimates that are ended in accordance with Sri Lanka Accounting Standards.
reasonable in the circumstances.
Report on Other Legal and Regulatory
Scope of Audit and Basis of Opinion Requirements
Our responsibility is to express an opinion on these financial These financial statements also comply with the requirements
statements based on our audit. We conducted our audit of Sections 153(2) to 153(7) of the Companies Act No. 07 of
in accordance with Sri Lanka Auditing Standards. Those 2007.
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 CHARTERED ACCOUNTANTS
statements. An audit also includes assessing the Colombo,
accounting policies used and significant estimates made
by management, as well as evaluating the overall financial 22 August 2014.
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.

Distilleries Company of Sri Lanka PLC 81


STATEMENTS OF COMPREHENSIVE INCOME

Group Company
For the year ended 31 March, 2014 2013 2014 2013
Notes Rs. 000 Rs. 000 Rs. 000 Rs. 000

Gross Revenue 6 63,186,302 65,790,460 47,755,538 51,548,909

Net Revenue 6 28,982,884 28,766,493 16,698,158 17,461,451


Cost of Sales, Net Benefits Paid and Interest Expenses 7 (15,219,099) (15,897,683) (7,753,967) (9,103,172)
Gross Profit 13,763,785 12,868,810 8,944,191 8,358,279

Other Operating Income 8 898,392 1,208,921 1,374,595 4,291,436


Distribution Expenses (1,814,190) (1,842,069) (331,688) (297,129)
Administrative Expenses (3,591,995) (3,435,743) (1,109,827) (918,143)
Other Operating Expenses 9 (729,142) (776,566) - (926,473)
Results from Operating Activities 8,526,850 8,023,353 8,877,271 10,507,970

Finance Income 10.1.1 747,833 733,357 118,630 144,896


Finance Cost 10.1.2 (1,220,766) (1,964,142) (859,321) (1,376,919)
Net Finance Income 10 (472,933) (1,230,785) (740,691) (1,232,023)

Share of Profit of Equity-Accounted Investees (Net of Tax) 19.1 1,440,182 1,291,749 - -


Profit before Income Tax Expense 11 9,494,099 8,084,317 8,136,580 9,275,947

Taxation 12 (3,263,009) (2,826,147) (2,778,643) (2,403,225)


Profit for the Year 6,231,090 5,258,170 5,357,937 6,872,722

Other Comprehensive Income

Net Change in Fair Value of Available for Sale Financial Assets (136,568) 2,021,748 217,263 578,500
Actuarial Gain/(Losses) on Retirement Benefit Obligations
(Net of Tax) 22,571 10,047 3,351 6,667
Revaluation of Property, Plant and Equipment - 96,611 - -
Share of Other Comprehensive Income of
Equity-Accounted Investees (Net of Tax) 19.1 461,474 109,196 - -
Total Other Comprehensive Income for the Year 347,477 2,237,602 220,614 585,167
Total Comprehensive Income for the Year 6,578,567 7,495,772 5,578,551 7,457,889

Profit Attributable to:


Equity Holders of the Parent 6,121,813 5,139,807 5,357,937 6,872,722
Non Controlling Interest 109,277 118,363 - -
6,231,090 5,258,170 5,357,937 6,872,722

Total Comprehensive Income Attributable to:


Equity Holders of The Parent 6,457,079 7,321,046 5,578,551 7,457,889
Non Controlling Interest 121,488 174,726 - -
6,578,567 7,495,772 5,578,551 7,457,889

Basic Earnings per Share 13.1 20.41 17.13 17.86 10.68

The notes from pages 88 to 159 form an integral part of these Financial Statements.

Figures in brackets indicate deductions.

82 Annual Report 2013/14


STATEMENTS OF FINANCIAL POSITION

Group Company
As at 31 March, 2014 2013 2014 2013
Notes Rs. 000 Rs. 000 Rs. 000 Rs. 000
ASSETS
Non Current Assets
Property, Plant and Equipment 15 16,221,042 15,341,042 6,298,670 3,874,904
Intangible Assets 16 2,990,493 2,917,617 23,640 17,277
Biological Assets 17 3,176,036 2,804,360 - -
Investments in Subsidiaries 18 - - 35,714,117 35,714,117
Investments in Equity Accounted Investees 19 22,994,509 20,914,985 28,703 28,703
Other Non Current Financial Investments 20 15,754,657 14,512,561 6,349,895 5,897,294
Deferred Tax Asset 21.1 396,816 364,879 44,068 46,145
Finance Lease, Hire Purchases and Operating Lease Receivables 22 301,364 122,051 - -
Advances and Other Loans 23 151,984 100,118 - -
61,986,901 57,077,613 48,459,093 45,578,440
Current Assets
Inventories 24 4,435,796 6,139,705 2,246,156 2,503,798
Trade and Other Receivables 25 9,720,603 7,827,963 3,955,602 3,366,090
Finance Lease, Hire Purchases and Operating Lease Receivables 22 114,199 38,532 - -
Advances and Other Loans 23 673,015 101,594 - -
Amounts due from Related Companies 35.1.1 567,714 749,654 5,324,230 3,087,130
Other Current Financial Investments 20 2,319,814 1,768,476 784,402 684,758
Cash at Bank and in Hand 26 3,923,512 4,842,646 420,103 766,199
21,754,653 21,468,570 12,730,493 10,407,975
Non Current Assets Held for Sale 27 - 518 - -
Total Assets 83,741,554 78,546,701 61,189,586 55,986,415
Equity and Liabilities
Share Capital and Reserves
Stated Capital 28 300,000 300,000 300,000 300,000
Reserves 29 20,832,013 20,445,524 14,871,455 14,734,635
Retained Earnings/(Losses) 32,504,269 27,232,324 28,667,185 24,120,487
Equity Attributable to Owners of the Company 53,636,282 47,977,848 43,838,640 39,155,122
Non Controlling Interest 3,956,832 4,734,869 - -
Total Equity 57,593,114 52,712,717 43,838,640 39,155,122
Non Current Liabilities
Interest Bearing Loans and Borrowings 30 670,975 602,217 - 125,006
Deferred Tax Liabilities 21.1 733,350 779,055 60,958 44,230
Employee Benefits 31 831,769 1,147,982 110,170 115,365
Other Deferred Liabilities 32 252,571 257,882 - -
2,488,665 2,787,136 171,128 284,601
Current Liabilities
Trade and Other Payables 33 8,772,678 11,188,408 5,146,561 6,688,336
Deposit Liabilities 34 663,537 278,372 - -
Other Deferred Liabilities 32 56,730 58,128 - -
Amount due to Related Companies 35.1.2 263,905 242,479 1,035,020 971,425
Income Tax Payable 1,178,888 726,650 972,399 435,903
Interest Bearing Loans and Borrowings 30 7,603,794 4,856,908 6,215,006 3,714,998
Bank Overdrafts 26 5,120,243 5,695,903 3,810,832 4,736,030
23,659,775 23,046,848 17,179,818 16,546,692
Total Liabilities 26,148,440 25,833,984 17,350,946 16,831,293
Total Equity and Liabilities 83,741,554 78,546,701 61,189,586 55,986,415
Net Assets per Share (Rs.) 178.79 159.93 146.13 130.52
The notes from pages 88 to 159 form an integral part of these Financial Statements.
I certified that the Financial Statements are prepared and presented in compliance with the requirements of the Companies Act No.7 of 2007.

N.N. Nagahawatte
Head of Finance

The Board of Directors is responsible for the preparation and presentation of these Financial Statements.
Approved for and on behalf of the Board of Directors;

D.H.S Jayawardena C.F. Fernando


Chairman / Managing Director Director
Colombo, 22 August 2014
Distilleries Company of Sri Lanka PLC 83
Group Attributable to Equity Holders of Parent

84
Stated Revaluation Capital Reserve General Exchange Timber Available for Investment Retained Total Non Total
Capital Reserve Reserve Fund Reserve Fluctuation Reserve Sale Fund Earnings/ Controlling Equity
Reserve Reserve (Losses) Interest
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Balance as at 01 April 2012 300,000 5,200,583 110,930 1,131 8,210,000 349,306 546,340 3,833,552 1,990 23,021,924 41,575,756 4,570,349 46,146,105
Total Comprehensive Income for the Period
Profit for the Year - - - - - - - - - 5,139,807 5,139,807 118,363 5,258,170

Other Comprehensive Income


Net Change in Fair Value of Available for

Annual Report 2013/14


Sale Financial Assets - - - - - - - 2,021,748 - - 2,021,748 - 2,021,748
Actuarial Gain/(Losses) on Retirement
Benefit Obligations (Net of Tax) - - - - - - - - - 9,960 9,960 87 10,047
Revaluation of Property, Plant and Equipment - 40,335 - - - - - - - - 40,335 56,276 96,611
Share of Other Comprehensive Income of
Equity-Accounted Investees (Net of Tax) - 115,781 - - - (20,371) - 14,733 - (947) 109,196 - 109,196
Total Other Comprehensive Income for the Period - 156,116 - - - (20,371) - 2,036,481 - 9,013 2,181,239 56,363 2,237,602
Total Comprehensive Income for the Period - 156,116 - - - (20,371) - 2,036,481 - 5,148,820 7,321,046 174,726 7,495,772

Transactions with Owners Directly


Recorded in the Equity
Dividends Paid to Non Controlling - - - - - - - - - - - (236) (236)
Interest
STATEMENTS OF CHANGES IN EQUITY

Effect on Percentage Holding Change - - - - - - - - - 5,132 5,132 (33,875) (28,743)


Direct Cost on Issue of Share - - - - - - - - - (867) (867) - (867)
Transferred from Retained Earnings - - - - - - 19,466 - - (42,685) (23,219) 23,219 -
Share Capital Issued - - - - - - - - - - - 686 686
Dividend Paid (2011/12) - - - - - - - - - (900,000) (900,000) - (900,000)
Total Transactions with Owners - - - - - - 19,466 - - (938,420) (918,954) (10,206) (929,160)

Balance as at 31 March 2013 300,000 5,356,699 110,930 1,131 8,210,000 328,935 565,806 5,870,033 1,990 27,232,324 47,977,848 4,734,869 52,712,717

The notes from pages 88 to 159 form an integral part of these financial statements.

Figures in brackets indicate deductions.


Group Attributable to Equity Holders of Parent
Stated Revaluation Capital Reserve General Exchange Timber Available for Investment Retained Total Non Total
Capital Reserve Reserve Fund Reserve Fluctuation Reserve Sale Fund Earnings/ Controlling Equity
Reserve Reserve (Losses) Interest
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Balance as at 01 April 2013 300,000 5,356,699 110,930 1,131 8,210,000 328,935 565,806 5,870,033 1,990 27,232,324 47,977,848 4,734,869 52,712,717
Total Comprehensive Income for the Period
Profit for the Year - - - - - - - - - 6,121,813 6,121,813 109,277 6,231,090

Other Comprehensive Income


Net Change in Fair Value of Available for
Sale Financial Assets - - - - - - - (136,631) - - (136,631) 63 (136,568)
Actuarial Gains / (Losses) on Retirement
Benefit Obligation (Net of Tax) - - - - - - - 10,423 10,423 12,148 22,571
Share of Other Comprehensive Income of
Equity-Accounted Investees (Net of Tax) - 436,859 - - - 45,946 - (5,899) - (15,432) 461,474 - 461,474
Total Other Comprehensive Income for the - 436,859 - - - 45,946 - (142,530) - (5,009) 335,266 12,211 347,477
Period
Total Comprehensive Income For The - 436,859 - - - 45,946 - (142,530) - 6,116,804 6,457,079 121,488 6,578,567
Period
Transactions with Owners Directly
Recorded in the Equity
Dividends Paid to Non Controlling - - - - - - - - - - - (15,688) (15,688)
Interest
Share of Net Assets of Equity-Accounted
Investees (Net of Tax) - - - - 12,578 - - - - (5,826) 6,752 - 6,752
Dividends Paid During The Period - - - - - - - - - (900,000) (900,000) - (900,000)
Transferred from Retained Earnings - - - 667 - - 32,115 - 854 (33,636) - - -
Effect on Percentage Holding Change - - - - - - - - - 94,603 94,603 (94,714) (111)
Effect on Deemed Disposal of Subsidiaries
(Note 5.1) - - - - - - - - - - - (789,123) (789,123)
Total Transactions with Owners - - - 667 12,578 - 32,115 - 854 (844,859) (798,645) (899,525) (1,698,170)
Balance as at 31 March 2014 300,000 5,793,558 110,930 1,798 8,222,578 374,881 597,921 5,727,503 2,844 32,504,269 53,636,282 3,956,832 57,593,114

The notes from pages 88 to 159 form an integral part of these Financial Statements.
Figures in brackets indicate deductions.

Distilleries Company of Sri Lanka PLC


85
Company

86
Stated Revaluation Capital General Available for Retained Total
Capital Reserve Reserve Reserve Sale Reserve Earnings
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Balance as at 01 April 2012 300,000 2,399,091 107,882 8,210,000 3,786,011 17,794,249 32,597,233
Total Comprehensive Income For The Period
Profit for the Year - - - - - 6,872,722 6,872,722

Other Comprehensive Income


Net Change in Fair Value of Available for Sale Financial Assets - - - - 578,500 - 578,500

Annual Report 2013/14


Actuarial Gain/(Losses) on Retirement Benefit Obligations (Net of Tax) - - - - - 6,667 6,667
Total Other Comprehensive Income for the Period - - - - 578,500 6,667 585,167
Total Comprehensive Income for the Period - - - - 578,500 6,879,389 7,457,889

Transactions with Owners Directly Recorded in the Equity


Dividends Paid during the Period - - - - - (900,000) (900,000)
Transferred from/to Retained Earnings - (346,849) - - - 346,849 -
Total Transactions with the Owners of the Company - (346,849) - - - (553,151) (900,000)
Balance as at 31 March 2013 300,000 2,052,242 107,882 8,210,000 4,364,511 24,120,487 39,155,122

Balance as at 01 April 2013 300,000 2,052,242 107,882 8,210,000 4,364,511 24,120,487 39,155,122
Total Comprehensive Income for the Period
Profit for the Year - - - - - 5,357,937 5,357,937
STATEMENTS OF CHANGES IN EQUITY

Other Comprehensive Income


Net Change in Fair Value of Available for Sale Financial Assets - - - - 217,263 - 217,263
Actuarial Gain/(Losses) on Retirement Benefit Obligations (Net of Tax) - - - - - 3,351 3,351
Total Other Comprehensive Income for the Period - - - - 217,263 3,351 220,614
Total Comprehensive Income for the Period - - - - 217,263 5,361,288 5,578,551

Transactions with Owners Directly Recorded in the Equity


Dividends Paid During the Period - - - - - (900,000) (900,000)
Deferred Tax - 4,967 - - - - 4,967
Transferred from/to Retained Earnings - (85,410) - - - 85,410 -
Total Transactions with the Owners of the Company - (80,443) - - - (814,590) (895,033)

Balance as at 31 March 2013 300,000 1,971,799 107,882 8,210,000 4,581,774 28,667,185 43,838,640
Figures in brackets indicate deductions.

The notes from pages 88 to 159 form an integral part of these Financial Statements.
Figures in brackets indicate deductions.
STATEMENTS OF CASH FLOWS

Group Company
For the year ended 31March, Note 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000
CASH FLOW FROM OPERATING ACTIVITIES
Profit for the Year 9,494,099 8,084,317 8,136,580 9,275,947
Adjustment for:
(Gain) / Loss on Sale of Property, Plant and Equipment (30,331) (11,268) (50,767) (39,985)
Depreciation and Amortisation of PPE and Intangible Assets 1,502,987 1,663,148 148,392 158,678
Provision for Gratuity 151,125 152,584 21,445 18,494
Provision/(Reversal) of Inventories 226,679 150,760 - -
Provision /(Reversal) of Bad & Doubtful Debts and Impairment of Loans and Receivables. (135,241) 171,550 25,057 -
Interest Expenses 1,186,613 1,648,649 862,274 1,376,919
Share of Profit of Equity-Accounted Investees (Net of Tax) (1,440,182) (1,291,749) - -
Amortisation of Biological Assets 37,339 36,980 - -
(Gain)/Loss on Change in Fair Value of Financial Assets at Fair Value through Profit or Loss (53,338) (14,974) (66,877) 855,617
Impairment of Goodwill - 776,566 - -
Interest Income (429,894) (539,701) (51,443) (74,040)
Recognition of Share Warrants at Fair Value (225,081) - (310) -
(Profit)/Loss on Disposal of Other Financial Investments (29,973) (49,041) (16,828) (30,326)
Dividend Income (405,809) (542,561) (1,159,818) (460,947)
Deferred Income Recognised (85,660) (97,647) - -
Gains on Disposal of Group Investments - - - (3,644,589)
Loss on Deemed Disposal of Subsidiary and Associate 726,439 - - -
(Gain) / Loss on Fair Valuation of Biological Assets (74,294) (42,685) - -
Operating Profit before Working Capital Changes 10,415,478 10,094,928 7,847,705 7,435,768
(Increase)/Decrease in Receivables (4,324,074) (377,125) (2,824,720) (2,818,189)
(Increase)/Decrease in Inventories (324,392) (505,433) 257,642 (417,621)
Increase/(Decrease) in Payables 1,982,363 50,659 (1,481,625) 3,254,127
Cash Generated from Operations 7,749,375 9,263,029 3,799,002 7,454,085
Interest Paid (1,182,530) (1,648,649) (862,274) (1,376,919)
Income Tax Paid (2,723,126) (3,488,446) (2,244,381) (2,915,614)
Defined Benefit Plan Costs Paid (106,980) (97,640) (21,056) (12,566)
Net Cash from/(used in) Operating Activities 3,736,739 4,028,294 671,291 3,148,986

CASH FLOW FROM INVESTING ACTIVITIES


Investment in Subsidiary Companies - (2,853) - -
Investment in Equity Accounted Investees (507,636) (68,406) - -
Acquisition of Property, Plant and Equipment and Intangible Assets (4,812,025) (2,593,749) (2,700,384) (1,139,371)
Net Proceeds from Disposal / (Acquisition) of Other Financial Investments (1,635,723) (269,567) (250,964) (32,447)
Proceeds from sale of Subsidiaries, Associates and Shares - - - -
Proceeds from the sale of Property, Plant and Equipment 38,624 24,511 170,757 4,394
Interest Received 429,894 539,701 51,442 74,040
Dividend Received 656,045 485,687 1,159,818 404,073
Additions to Biological Assets (334,721) (243,636) - -
Net Cash Flow from Investing Activities (6,165,542) (2,128,312) (1,569,331) (689,311)

CASH FLOW FROM FINANCING ACTIVITIES


Principal Repayment under Lease Liabilities (8,439) (5,673) - -
Proceeds from Long-Term Interest Bearing Loans and Borrowings 1,477,684 1,396,517 - 500,000
Repayments of Long-Term Interest Bearing Loans and Borrowings (2,434,426) (2,076,854) (1,270,002) (1,144,998)
Stamp Duty Paid on Issuance of Shares - (867) -
Dividend Paid (897,859) (890,624) (897,859) (890,624)
Dividend Paid by Subsidiaries to Minority Share Holders (15,688) (236) - -
Receipt of Deferred Income 78,951 91,550 - -
Net Cash Generated from Financing Activities (1,799,777) (1,486,187) (2,167,861) (1,535,622)
Net Increase/(Decrease) in Cash and Cash Equivalents During the Year (4,228,580) 413,795 (3,065,902) 924,053
Net Cash and Cash Equivalents Derecognised Via Derecognition of Subsidiaries (13,182) - - -
Cash and Cash Equivalents at the Beginning of the Year (3,913,546) (4,327,341) (6,539,833) (7,463,886)
Cash and Cash Equivalents at the end of the Year (8,155,308) (3,913,546) (9,605,735) (6,539,833)

Analysis of Cash and Cash Equivalents at the end of the Year


Short Term Deposits 26.1 3,044,934 3,824,871 82,062 70,410
Cash at Bank 26 595,628 504,495 61,719 193,501
Cash in Hand 26 206,471 235,886 199,883 231,501
Cash in Transit 26 76,479 277,394 76,439 270,787
Other Short Term Borrowings 30 (6,958,577) (3,060,289) (6,215,006) (2,570,002)
Bank Overdrafts 26 (5,120,243) (5,695,903) (3,810,832) (4,736,030)
(8,155,308) (3,913,546) (9,605,735) (6,539,833)
The notes from pages 88 to 159 form an integral part of these Financial Statements.
Figures in brackets indicate deductions.

Distilleries Company of Sri Lanka PLC 87


NOTES TO THE FINANCIAL STATEMENTS

1. Reporting Entity Land and Building Fair value


1.1 Domicile & Legal Form Defined benefit obligation Actuarially valued
Distilleries Company of Sri Lanka PLC (Company) and recognised at
is a quoted Public Limited Company incorporated present value of
and domiciled in Sri Lanka. The registered office the defined benefit
and principal place of business of the Company is obligation
located at 110, Norris Canal Road, Colombo 10. Available for sale financial Fair Value
The consolidated Financial Statements of Distilleries assets
Company of Sri Lanka PLC, as at and for the year Fair value through profit or Fair Value
ended 31 March 2014 comprise the Company and its loss financial assets
subsidiaries (together referred to as the “Group”) and Consumable Biological Fair Value
the Group’s interests in associates. Assets

1.2 Principle Activities and Nature of Operation 2.4 Functional and Presentation Currency
The principal activity of the Company is distillation, The Financial Statements are presented in Sri Lankan
manufacture and distribution of liquor products. Rupees, which is the Group’s functional currency. All
Description of the nature of the operations and financial information presented in Sri Lankan Rupees
principal activities of the subsidiaries and associates has been given to the nearest thousand, unless stated
are given in Note 18.1 and Note 19.2. otherwise.

1.3 Parent Enterprise and Ultimate Parent 2.5 Use of Estimates and Judgments
Enterprise
The preparation of Financial Statements in conformity
The immediate and ultimate parent entity of with SLFRSs requires management to make
Distilleries Company of Sri Lanka PLC is Milford judgments, estimates and assumptions that affect the
Exports Ceylon (Pvt) Limited. The Financial application of accounting policies and the reported
Statements of all the companies in the Group other amounts of assets, liabilities, income and expenses.
than those mentioned in Note 18.1 to the Financial Actual results may differ from those estimates and
Statements are prepared for a common financial year, judgmental decisions.
which ends on 31 March.
Estimates and underlying assumptions are reviewed
2. Basis of Preparation on an ongoing basis. Revisions to accounting
2.1 Statement of Compliance estimates are recognised in the period in which the
The Financial Statements of the Company and the estimate is revised if the revision affects only that
Group have been prepared in accordance with new Sri period or in the period of the revision and future
Lanka Accounting Standards (SLFRS) as laid down by periods if the revision affects both current and future
the Institute of Chartered Accountants of Sri Lanka periods.
(ICASL) and the requirements of the Companies Act
No. 07 of 2007. Information about assumption and estimation
uncertainty that have significant effect on the
2.2 Approval of Financial statements amounts recognised in the consolidated financial
statements is included in notes;
The Financial Statements were authorised for issue
by the Board of Directors on 22 August 2014.
Note 17 – Biological Assets

2.3 Basis of Measurement Note 25 – Provisions for bad and doubtful debts

The Financial Statements have been prepared on the Note 31 – Measurement of defined benefit plan
historical cost basis except as indicated below. Note 39 – Provisions for contingencies

88 Annual Report 2013/14


3. Significant Accounting Policies (ii) Non-Controlling interests
Accounting policies set out below have been applied For each business combination, the Group elects to
consistently to all periods presented in these financial measure any non controlling interests in the acquire
statements. The accounting policies have been either:
applied consistently by the entities in the Group. • at fair value; or
Where applicable and deviations if any, have been
• at their proportionate share of the acquiree’s
disclosed accordingly.
identifiable net assets, which are generally at fair
3.1 Basis of Consolidation value.

(i) Business combinations Changes in the Group’s interest in a subsidiary that


Business combinations are accounted for using the do not result in a loss of control are accounted for as
acquisition method as at the acquisition date – i.e. transactions with owners in their capacity as owners.
when control is transferred to the Group. Control Adjustments to non controlling interests are based
is the power to govern the financial and operating on a proportionate amount of the net assets of the
policies of an entity so as to obtain benefits from its subsidiary. No adjustments are made to goodwill and
activities. In assessing control, the Group takes into no gain or loss is recognised in profit or loss.
consideration potential voting rights that are currently
exercisable. (iii) Subsidiaries
Subsidiaries are entities controlled by the Group. The
The Group measures goodwill at the acquisition date as: financial statements of subsidiaries are included in
• the fair value of the consideration transferred; plus the consolidated financial statements from the date
that control commences until the date that control
• the recognised amount of any non-controlling
interests in the acquiree; plus ceases.

• if the business combination is achieved in stages, (iv) Transactions Eliminated on Consolidation


the fair value of the pre-existing equity interest in
Intra-group balances and transactions and any
the acquiree; less
unrealised gains arising from intra-group transactions,
• the net recognised amount (generally fair value) are eliminated in preparing the consolidated
of the identifiable assets acquired and liabilities financial statements. Unrealised gains arising from
assumed. transactions with Associates are eliminated against
the investment in the associate, to the extent of the
When the excess is negative, a bargain purchase gain Group’s interest in the enterprise.
is recognised immediately in profit or loss.
(v) Loss of Control
The consideration transferred does not include
Upon the loss of control, the Group de-recognises
amounts related to the settlement of pre-existing
the assets and liabilities of the subsidiary, any non
relationships. Such amounts are generally recognised
in profit or loss. controlling interests and the other components of
equity related to the subsidiary. Any surplus or deficit
Transactions costs, other than those associated with arising on the loss of control is recognised in profit or
the issue of debt or equity securities, that the Group loss. If the Group retains any interest in the previous
incurs in connection with a business combination are subsidiary, then such interest is measured at carrying
expensed as incurred. amount at the date that control is lost. Subsequently
it is accounted for as an equity-accounted investee or
Any contingent consideration payable is measured at as an available-for-sale financial asset depending on
fair value at the acquisition date. If the contingent the level of influence retained.
consideration is classified as equity, then it is not
remeasured and settlement is accounted for within (vi) Foreign Currency Translation
equity. Otherwise, subsequent changes in the fair
Transactions in foreign currencies are translated
value of the contingent consideration are recognised
into Rupees at the rate of exchange prevailing
in profit or loss.

Distilleries Company of Sri Lanka PLC 89


NOTES TO THE FINANCIAL STATEMENTS

on the dates of the transactions. Monetary assets in circumstances indicate that the carrying amount
and liabilities denominated in foreign currencies may not be recoverable. An asset’s carrying amount is
are translated into Rupees at the rate of exchange written down immediately to its recoverable amount
prevailing at the Reporting date. Foreign exchange if the asset’s carrying amount is greater than its
differences arising on the settlement or reporting of estimated recoverable amount.
the Group’s monetary items at rates different from
those which were initially recorded are dealt with in e. De-recognition
the Statement of Comprehensive Income. An item of property, plant and equipment is
derecognised upon disposal or when no future
3.2 Property, Plant & Equipment economic benefits are expected from its use or
3.2.1 Freehold Assets disposal. Any gain or loss arising on derecognising of
a. Recognition the asset (calculated as the difference between the
net disposal proceeds and the carrying amount of the
Properties, Plant & Equipments are tangible items
asset) is included in the Statement of Comprehensive
that are held for servicing, or for administrative
Income in the year the asset is derecognised.
purposes and are expected to be used during more
than one period. Property, Plant & Equipment are
f. Revaluation
recognised if it is probable that future economic
benefits associated with the assets will flow to the The Group revalues its land and buildings at least
Group and cost of the asset can be reliably measured. once in every five years which is measured at its fair
value at the date of revaluation less any subsequent
b. Measurement impairment losses. On revaluation of land, any
Items of property, plant & equipment are measured at increase in the revaluation amount is credited
cost or at fair value in the case of land and buildings to the revaluation reserve in shareholder’s equity
less accumulated depreciation and accumulated unless it off sets a previous decrease in value of the
impairment losses. The cost of property, plant & same asset that was recognised in the Statement
equipment includes expenditures that are directly of Comprehensive Income. A decrease in value is
attributable to the acquisition of the asset. The recognised in the Statement of Comprehensive
cost of self-constructed assets includes the cost of Income where it exceeds the increase previously
materials and direct labour, any other costs directly recognised in the revaluation reserve. Upon disposal,
attributable to bringing the asset to a working
any related revaluation reserve is transferred from the
condition for its intended use, and the costs of
revaluation reserve to retained earnings and is not
dismantling and removing the items and restoring the
taken into account in arriving at the gain or loss on
site on which they are located. When parts of an item
disposal.
of property, plant and equipment have different useful
lives, they are accounted for as separate items (major
g. Depreciation
components) of property, plant and equipment.
Depreciation is recognised in the Statement of
c. Subsequent Cost Comprehensive Income on a straight-line basis over
Subsequent costs are included in the asset’s the estimated useful lives of each part of an item of
carrying amount or recognised as a separate asset, property, plant & equipment. Freehold land is not
as appropriate, only when it is probable that future depreciated. Assets held under finance lease are
economic benefit associated with the item will flow to depreciated over the shorter of the lease term or the
the Group and the cost of the item can be measured useful lives of equivalent owned assets. Depreciation
reliably. The cost of the day-to-day servicing of is based on the cost of an asset less its residual
property, plant and equipment are recognised in the value. Significant components of individual assets
Statement of Comprehensive Income. are assessed and if a component has a useful life
that is different from the remainder of that asset,
d. Impairment that component is depreciated separately. The
Carrying amount of property, plant & equipment are estimated useful lives used for this purpose, which
reviewed for impairment whenever events or changes are consistent with that of the preceding years, are:

90 Annual Report 2013/14


Freehold Buildings 20 years element is charged against profit, in proportion to the
reducing capital element outstanding.
Plant, Machinery & Equipment 10 years
Furniture, Fittings, Office Equipment & 10 years The cost of improvements to or on leased property is
Fire Fighting Equipment capitalised, disclosed as improvements to leasehold
Vats & Casks 10 years property and depreciated over the unexpired period
Oil Storage Tanks 10 years of the lease, or the estimated useful lives of the
Computers 03 years improvements, whichever is shorter.
Motor Vehicles 04 years
Empty Drums 02 years
3.3 Investment Property
Kitchen Equipment 10 years Investment property is property held either to earn
rental income or for capital appreciation or for both,
Soft Furnishing, Crockery, Cutlery and 05 years
but not for sale in the ordinary course of the business,
Glassware
use in the production or supply of goods or services
Depreciation of an asset begins when it is available or administrative purpose. Investment properties
for use and ceases at the earlier of the date that the are initially measured at its cost including related
asset is classified as held for sale and the date that transaction costs. The group opts the cost model and
the asset is derecognised. it is therefore carried at its cost less any accumulated
depreciation and any accumulated impairment losses.
Depreciation methods, useful lives and residual
values are reviewed at each reporting date. Investment properties are derecognised when
disposed or permanently withdrawn from use because
h. Capital Work-in-progress no future economic benefits are expected. Any
gains or losses retirement or disposal is recognised
Capital work-in-progress is stated at cost. These are
in the Statement of Comprehensive Income in the
expenses of a capital nature directly incurred in the
year of retirement or disposal. Transfers are made
construction of buildings, major plant and machinery,
to investment property, when there is a change in
awaiting capitalisation.
use. Where group companies a significant portion of
3.2.2 Leased Assets investment property of a subsidiary, such investment
properties are treated as property, plant & equipment
Assets obtained under the finance lease, which
the consolidated financial statements and accounted
effectively transfer to the Group substantially, all
for as per LKAS 16 Property, Plant & Equipment.
of the risks and benefits incidental to ownership of
the leased assets, are treated as if they have been 3.4 Operating Leases
purchased outright and are capitalised at their cash
When the lessor effectively retains substantially
price. Assets acquired by way of a finance lease
all the risks and rewards of an asset under the
are measured at an amount equal to the lower of
lease agreement, such leases are classified as
their fair value and the present value of minimum operating leases. Payments under operating leases
lease payments at the inception, less accumulated are recognised as expense in the Statement of
depreciation and accumulated impairment losses. Comprehensive Income over the period of lease on a
straight line basis.
Assets held under finance lease are amortised over
the shorter of the lease period or the useful lives 3.5 Intangible Asset
of equivalent-owned assets, unless ownership is An intangible asset is recognised if it is probable
not transferred at the end of the lease period. The that future economic benefits will flow to the
principal/ capital elements payable to the lessor are entity and the cost of the asset can be measured
shown as liability/ obligation. The lease rentals are reliably in accordance with LKAS 38 on Intangible
treated as consisting of capital and interest elements. Assets. Intangible assets with finite useful lives are
The capital element in the rental that is applied measured at cost less accumulated amortisation and
to reduce the outstanding obligation and interest accumulated impairment losses.

Distilleries Company of Sri Lanka PLC 91


NOTES TO THE FINANCIAL STATEMENTS

3.5.1 Goodwill The Group has following non derivative financial


Goodwill represents the excess of the cost of assets: Fair value through profit or loss, Loans and
acquisition over the fair value of Group’s share of receivables, Held to Maturity and Available for sale.
the net identifiable assets of the acquired Subsidiary
a. Fair Value through Profit or Loss
at the date of acquisition. Goodwill acquired in
a business combination is tested annually for A financial asset is classified as fair value through
impairment or more frequently if events or changes in profit or loss if it is classified as held for trading or is
circumstance indicate that it might be impaired and designated as such upon initial recognition. Financial
carried at cost less accumulated impairment losses. assets are designated as fair value through profit or
Impairment losses on goodwill are not reversed. loss if the Group manages such investments and
makes purchase and sales decisions based on their
Goodwill is allocated to cash generating units for fair value in accordance with the Group’s documented
the purpose of impairment testing. The allocation is risk management or investment strategy. Upon
made to those cash generating units or groups of loan initial recognition attributable transaction costs are
generating units that are expected to benefit from the recognised in profit or loss as incurred. Financial
business combination in which goodwill arose. assets at fair value through profit or loss are measured
at fair value, and changes therein are recognised in
3.6 Inventories profit or loss.
Inventories are measured at the lower of cost or net
realisable value. Net realisable value is the estimated Fair value through profit or loss comprise trading
selling price in the ordinary course of business less the portfolio of the Group which includes investment in
estimated cost of completion and selling expenses. quoted shares.
The general basis on which cost is determined is: all
b. Loans and Receivables
inventory items, except manufactured inventories and
work-in progress are measured at weighted average Loans and receivables are financial assets with fixed
directly attributable cost. or determinable payments that are not quoted in an
active market. Such assets are recognised initially at
Manufactured inventories and work-in-progress are fair value plus any directly attributable transaction
measured at weighted average factory cost which costs. Subsequent to initial recognition loans and
includes all direct expenditure and appropriate shares receivables are measured at amortised cost using the
of production overhead based on normal operating effective interest method less any impairment losses.
capacity. Loans and receivables comprise trade receivables,
amounts due for related parties, trust certificates,
3.7 Financial Instruments short term deposits and cash and cash equivalents.
3.7.1 Non-derivative Financial Assets
c. Held to Maturity
The Group recognises a financial asset or financial
liabilities in its Statement of Financial Position If the Group has the positive intent and ability to
when the Group becomes a party to the contractual hold debt securities to maturity, then such financial
provisions of the instrument. assets are classified as held-to-maturity. Held to
Maturity financial assets are recognised initially at fair
Financial assets are initially measured at fair value. value plus any direct attributable transaction costs.
Transaction costs that are directly attributable to the Subsequent to initial recognition, held-to-maturity
acquisition or issue of a financial asset (other than financial assets are measured at amortised cost using
financial assets at fair value through profit and loss) effective interest method, less any impairment losses.
are added or deducted from the fair value of the
financial asset, as appropriate, on initial recognition. Held to Maturity financial assets comprise debt
Transaction costs that are directly attributable to the securities.
acquisition of financial assets at fair value through
profit or loss are recognised immediately in profit or loss.

92 Annual Report 2013/14


d. Available-for-Sale Financial Assets Financial liabilities comprise of interest bearing
Available-for-sale financial assets are non-derivative loans, trade and other payables and bank overdrafts.
financial assets that are designated as available- Bank overdrafts that are repayable on demand and
forsale or are not classified in any of the above form an integral part of the Group’s cash management
categories of financial assets. Available-for-sale are included as a component of cash and cash
financial assets are recognised initially at fair value equivalents for the statement of cash flows.
plus any directly attributable transaction costs.
a. De-recognition
Subsequent to initial recognition, they are The Group derecognises a financial liability when its
measured at fair value and changes therein, other contractual obligations are discharged, cancelled or
than impairment losses, are recognised in other expired.
comprehensive income and presented in the fair
value reserve in equity. When an investment is 3.7.3 Share Capital
derecognised, the gain or loss accumulated in equity Ordinary Share Capital
is reclassified to profit or loss. Ordinary Shares are classified as equity. Incremental
costs directly attributable to the issue of ordinary
Available- for-sale financial assets comprise of
shares and share options are recognised as a
investment in unquoted shares and unit trust an
deduction from equity, net of any tax effects.
quoted shares purchased for long term investment
purpose. 3.8 Impairment
e. Cash and Cash Equivalents 3.8.1 Non Financial Assets

Cash and cash equivalents comprise cash balances The carrying amounts of the Group’s assets are
and call deposits. Bank overdrafts and other short reviewed at each reporting date to determine whether
terms facilities that are repayable on demand or there is any indication of impairment. If any such
repayble with in three months and form an integral indication exists then the asset’s recoverable amount
part of the Group’s cash management are included is estimated. For goodwill that has indefinite life,
as a component of cash and cash equivalents for the recoverable amount is estimated at each reporting
purpose of the Statement of Cash Flows. date or more frequently, if events or changes in
circumstances indicate that it might be impaired.
Investments with short maturities, i.e. three months
or less from the date of acquisition are also treated as An impairment loss is recognised if the carrying
cash equivalents. amount of an asset or its cash-generating unit
exceeds its recoverable amount. A cash-generating
f. De-recognition unit is the smallest identifiable asset group that
generates cash flows that are largely independent
The Group derecognises the financial asset when
from other assets and groups.
the rights to receive cash flows from the asset have
expired or when it transfer the financial asset in
The recoverable amount of an asset or cash-
a transaction in which substantially all the risks
generating unit is the greater of its value in use and
and rewards of ownership of the financial asset are
its fair value less costs to sell. In assessing value in
transferred or in which the Group neither transfers nor
use, the estimated future cash flows are discounted
substantially all risks and rewards of ownership and it
to their present value using a pre-tax discount rate
does not retain control of the financial asset.
that reflects current market assessments of the time
value of money and the risks specific to the asset. An
3.7.2 Non- derivative Financial Liabilities
impairment loss in respect of goodwill is not reversed.
Non-derivative financial liabilities are recognised
initially at fair value plus any directly attributable 3.8.2 Financial Assets
transaction costs. Subsequent to initial recognition,
A financial asset not carried at fair value through
these financial liabilities are measured at amortised
profit or loss is assessed at each reporting date to
cost using the effective interest method.

Distilleries Company of Sri Lanka PLC 93


NOTES TO THE FINANCIAL STATEMENTS

determine whether there is objective evidence that it profit or loss. The cumulative loss that is reclassified
is impaired. A financial asset is impaired if objective from equity to profit or loss is the difference between
evidence indicates that a loss event has occurred the acquisition cost, net of any principal repayment
after the initial recognition of the asset, and that the and amortisation, and the current fair value, less
loss event had a negative effect on the estimated any impairment loss recognised previously in profit
future cash flows of that can be estimated reliably. or loss. Changes in cumulative impairment losses
Objective evidence that financial assets are impaired attributable to application of the effective interest
can include default or delinquency by a debtor, method are reflected as a component of interest
restructuring of an amount due to the Group on income. If, in a subsequent period, the fair value
terms that the Group would not consider otherwise, of an impaired available-for-sale debt security
indications that a debtor or issuer will enter increases and the increase can be related objectively
bankruptcy, or the disappearance of an active market to an event occurring after the impairment loss was
for a security. recognised, then the impairment loss is reversed,
with the amount of the reversal recognised in profit
Financial Assets measured at Amortised Cost or loss. However, any subsequent recovery in the fair
The Group considers evidence of impairment for value of an impaired available-for-sale equity security
financial assets measured at amortised cost (loans is recognised in other comprehensive income. An
and receivables and held-to-maturity financial impairment loss in respect of an equity-accounted
assets) at both a specific asset and collective level. investee is measured by comparing the recoverable
All individually significant assets are assessed amount of the investment with its carrying amount.
for specific impairment. Those found not to be An impairment loss is recognised in profit or loss.
specifically impaired are then collectively assessed An impairment loss is reversed if there has been a
for any impairment that has been incurred but not yet favourable change in the estimates used to determine
identified. Assets that are not individually significant the recoverable amount.
are collectively assessed for impairment by grouping
together assets with similar risk characteristics. In 3.9 Employee Benefit
assessing collective impairment, the Group uses Defined Contribution Plans
historical trends of the probability of default, the Defined contribution plan is a post-employment
timing of recoveries and the amount of loss incurred, benefit plan under which contributions are made
adjusted for management’s judgment as to whether into a separate fund and the entity will have no legal
current economic and credit conditions are such that or constructive obligation to pay further amounts.
the actual losses are likely to be greater or lesser than Obligations for contributions to defined contribution
suggested by historical trends. An impairment loss plan are recognised as an employee benefit expense
in respect of a financial asset measured at amortised in profit or loss in the periods during services is
cost is calculated as the difference between its rendered by employees. Prepaid contributions are
carrying amount and the present value of the recognised as an asset to the extent that a cash
estimated future cash flows discounted at the asset’s refund or a reduction in future payments is available.
original effective interest rate. Losses are recognised
in profit or loss and reflected in an allowance account Defined Benefit Plans
against loans and receivables or held-to-maturity A defined benefit plan is a post-employment
investment securities. Interest on the impaired asset benefit plan other than a defined contribution plan.
continues to be recognised. When an event occurring The Group’s net obligation in respect of defined
after the impairment was recognised causes the benefit plans is calculated separately for each plan
amount of impairment loss to decrease, the decrease by estimating the amount of future benefit that
in impairment loss is reversed through profit or loss. employees have earned in return for their service
in the current and prior periods; that benefit is
Available-for-Sale Financial Assets
discounted to determine its present value. The
Impairment losses on available-for-sale financial valuation is performed annually by a qualified
assets are recognised by reclassifying the losses actuary using the projected unit credit method.
accumulated in the fair value reserve in equity to When the valuation results in a benefit to the Group,

94 Annual Report 2013/14


the recognised asset is limited to the total of any net of returns and allowances, trade discounts and
unrecognised past service costs and the present value volume rebates. Revenue is recognised when the
of economic benefits available in the form of any significant risks and rewards of ownership have been
future refunds from the plan or reductions in future transferred to the buyer, recovery of the consideration
contributions to the plan. An economic benefit is is probable, the associated costs and possible return
available to the Group if it is realisable during the life of goods can be estimated reliably, and there is no
of the plan, or on settlement of the plan liabilities. continuing management involvement with the goods.
When the benefits of a plan are improved, the portion
of the increased benefit relating to past service by Dividend Income from investment is recognised when
employees is recognised in profit or loss on a straight the shareholder’s right to receive payment has been
line basis over the average period until the benefits established.
become vested. To the extent that the benefits vest
immediately, the expense is recognised immediately Rental Income is recognised in profit and loss as it
in profit or loss. The Group recognises all actuarial accrues.
gains and losses arising from defined benefit plans
Gains and losses on the disposal of investments
directly in the other comprehensive income and all
held by the Group have been accounted for in the
expenses related to defined benefit plan in personnel
Statement of comprehensive income.
expense in profit or loss.

Gains and losses on the disposal of property, plant &


Short Term Benefits
equipment are determined by comparing the net sales
Short-term employee benefit obligations are measured
proceeds with carrying amount. These are included in
on an undiscounted basis and are expensed as the
profit and loss.
related service is provided.
3.11.2 Expenses
3.10 Provisions, Contingent Assets and
All expenditure incurred in the running of the
Contingent Liabilities
business has been charged to income in arriving
Provisions are recognised, if as a result of a past
at the profit for the year. Repairs and renewals are
event, the Group has a present legal or constructive
charged to the profit and loss in the year in which the
obligation that can be estimated reliably, and it is
expenditure is incurred. Expenditure incurred for the
probable that an outflow of economic benefits will be
purpose of acquiring, extending or improving assets of
required to settle the obligation. All the contingent
a permanent nature by means of which to carry on the
liabilities are disclosed, as Notes to the Financial
business or for the purpose of increasing the earning
Statements unless the outflow of resources is made
capacity of the business has been treated as capital
contingent assets if exits are disclosed when inflow of
expenditure.
economic benefit is probable.
3.11.2.1 Borrowing Costs
3.10.1 Commitments
Borrowing costs are recognised as an expense in the
All material commitments as at the reporting date
period in which they are incurred, except to the extent
have been identified and disclosed in the Notes to the
where borrowing costs that are directly attributable
Financial Statements.
to the acquisition, construction or production of
a qualifying asset that takes a substantial period
3.11 Income Statement
of time to get ready for its intended use or sale is
For the purpose of presentation of the Income capitalised as part of that asset.
Statement, the function of expenses method is
adopted, as it represents fairly the elements of Group Borrowing costs that are not capitalised are
performance. recognised as expenses in the period which they are
incurred and charged to the Income Statement.
3.11.1 Revenue
Revenue from the sale of goods is measured at the
fair value of the consideration received or receivable,

Distilleries Company of Sri Lanka PLC 95


NOTES TO THE FINANCIAL STATEMENTS

The amounts of the borrowing costs which are eligible the carrying amounts of assets and liabilities for
for capitalisation are determined in accordance with financial reporting purposes and the amounts used
the in LKAS 23 – ‘Borrowing Costs’. for taxation purposes. Deferred tax is not recognised
for the following temporary differences: the initial
3.11.2.2 Finance Income and Expenses recognition of goodwill, the initial recognition of
Finance income comprises interest income on funds assets or liabilities in a transaction that is not a
invested (including available for sale financial assets), business combination and that affects neither
gains on the disposal of available for sale financial accounting nor taxable profit, and differences relating
assets. Interest income is recognised as it accrues in to investments in subsidiaries to the extent that they
the Statement of Comprehensive Income, using the probably will not reverse in the foreseeable future.
effective interest method. Deferred tax is measured at the tax rates that are
expected to be applied to the temporary differences
Finance cost comprise interest expenses on when they reverse, based on the laws that have been
borrowings, unwinding of the discount on provisions enacted or substantively enacted by the reporting
and contingent consideration, losses on disposal of date.
available for sale financial assets, impairment losses
recognised on financial assets (other than trade A deferred tax asset is recognised only to the extent
receivables). that it is probable that future taxable profits will be
available against which the asset can be utilised.
Borrowing costs that are not directly attributable Deferred tax assets are reviewed at each reporting
to the acquisition, construction or production of a date and are reduced to the extent that it is no longer
qualifying asset are recognised in profit or loss using probable that the related tax benefit will be realised.
the effective interest rate method. Tax withheld on dividend income from subsidiaries
and associates is recognised as an expense in the
Foreign currency gains and losses are reported on a Consolidated Income Statement at the same time as
net basis as either finance income or finance cost the liability to pay the related dividend is recognised.
depending on whether foreign currency movements
are in a net gain or net loss position. 3.12 General
3.12.1 Events Occurring after the Reporting Date
3.11.2.3 Income Tax Expense
All material post reporting events have been
Income tax expense comprises current and deferred
considered and where appropriate adjustments or
tax. Income tax expense is recognised in profit or loss
disclosures have been made in the respective notes to
except to the extent that it relates to items recognised
the Financial Statements.
directly in equity, in which case it is recognised in
equity. 3.12.2 Earnings Per Share
The Group presents basic and diluted Earnings Per
a. Income Tax
Share (EPS) for its ordinary shares. Basic EPS is
Provision for taxation is based on the profit for the
calculated by dividing the profit or loss attributable
year adjusted for taxation purposes in accordance
to ordinary shareholders of the Group by the weighted
with the provisions of the Inland Revenue Act, No.10
average number of ordinary shares outstanding during
of 2006 and amendments made thereto.
the period. Diluted EPS is determined by adjusting
the profit or loss attributable to ordinary shareholders
Current tax is the expected tax payable on the taxable
and the weighted average number of ordinary shares
income for the year, using tax rates enacted at the
outstanding for the effects of all dilutive potential
reporting date and any adjustments to tax payable in
ordinary shares.
respect of previous years.

3.12.3 Segment Reporting


b. Deferred Tax
A segment is a distinguishable component of the
Deferred tax is recognised using the reporting
Group that is engaged either in providing related
method, providing for temporary differences between

96 Annual Report 2013/14


products or services (Business Segment) or in Biological assets are further classified as bearer
providing products or services within a particular biological assets and consumable biological assets.
economic environment (Geographical Segment), Bearer biological asset includes tea plants, those that
which is subject to risks and rewards that are are not intended to be sold or harvested, however
different from those of other segments. used to grow for harvesting agriculture produce.
Consumable biological assets includes managed
The activities of the segments are described in Note timber trees those that are to be harvested as
4 to the Financial Statements. agricultural produce from biological assets or sold as
biological assets.
3.12.4 Satemant of Cash Flows
The cash flow statement has been prepared using the The entity recognise the biological assets when, and
in-direct method. only when, the entity controls the assets as a result
of past event, it is probable that future economic
3.12.5 Comparative Figures benefits associated with the assets will flow to the
Where necessary comparative figures have been entity and the fair value or cost of the assets can be
reclassified to conform to the current year’s measured reliably.
presentation.
The bearer biological assets are measured at cost
3.12.6 Grants and Subsidies less accumulated depreciation and accumulated
impairment losses, if any, in terms of LKAS 16 –
Grants and subsidies are credited to the Statements
Property Plant & Equipment as per the ruling issued
of Comprehensive Income over the periods necessary
by CASL.
to match them with the related costs which they
are intended to compensate, on a systematic basis.
The cost of land preparation, rehabilitation, new
Grants related to assets, including non-monetary
planting, replanting, crop diversification, inter
grants at fair value, are deferred in the Reporting and
planting and fertilising, etc., incurred between the
credited to the Income Statement over the useful life
time of planting and harvesting (when the planted
of the related asset.
area attains maturity), are classified as immature
plantations. These immature plantations are shown
Grants related to income are recognised in the
at direct costs plus attributable overheads, including
Income Statement in the period in which it is
interest attributable to long-term loans used for
receivable.
financing immature plantations. The expenditure
3.12.7 Pricing incurred on bearer biological assets (Tea, Rubber,
Timber fields) which comes into bearing during the
The Group transfers products from one industry
year, is transferred to mature plantations. Expenditure
segment for use in another. These transfers are based
incurred on consumable biological assets is recorded
on cost/fair market prices.
at cost at initial recognition and thereafter at fair
value at the end of each reporting period.
3.13 Policies Specific to Plantation Sector
3.13.1 Biological Asset Permanent impairments to biological asset are
3.13.1.1 Immature and Mature Plantations charged to the Income Statement in full and reduced
Biological assets are classified in to mature biological to the net carrying amounts of such asset in the year
assets and immature biological assets. Mature of occurrence after ascertaining the loss.
biological assets are those that have attained
harvestable specifications or are able to sustain The managed timber trees are measured on initial
regular harvests. Immature biological assets are those recognition and at the end of each reporting period
that have not yet attained harvestable specification. at its fair value less cost to sell in terms of LKAS
Tea, rubber, other plantations and nurseries are 41. The cost is treated as approximation to fair
classified as biological assets. value of young plants as the impact on biological
transformation of such plants to price during this

Distilleries Company of Sri Lanka PLC 97


NOTES TO THE FINANCIAL STATEMENTS

period is immaterial. The fair value of timber 3.13.2 Infilling Cost on Bearer Biological Assets
trees are measured using DCF method taking in to The land development costs incurred in the form of
consideration the current market prices of timber, infilling have been capitalised to the relevant mature
applied to expected timber content of a tree at the field, if it increases the expected future benefits
maturity by an independent professional valuer. Key from that field, beyond its pre-infilling performance
assumptions and sensitivity analysis are given in assessment. Infilling costs so capitalised are
Note 17.2. depreciated over the newly assessed remaining useful
economic life of the relevant mature plantation, or the
The main variables in DCF model concerns unexpired lease period, whichever is lower.
Variable Comment
Infilling costs that are not capitalised have been
Currency valuation Sri Lankan Rupees charged to the Income Statement in the year in which
Timber content Estimate based on physical they are incurred.
verification of girth, height
3.13.3 Land Development Cost
and considering the growth of
the each spices in different Permanent land development costs are those costs
incurred in making major infrastructure development
geographical regions.
and building new access roads on leasehold lands.
Factor all the prevailing
statutory regulations enforced These costs have been capitalised and amortised over
for harvesting of timber coupled the remaining lease period.
with forestry plan of the
company. Permanent impairments to land development costs
are charged to the Income Statement in full or
Economic useful Estimated based on the normal
reduced to the net carrying amounts of such assets in
life life span of each spices by
the year of occurrence after ascertaining the loss.
factoring the forestry plan of the
Company 3.13.4 Depreciation and Amortisation
Selling price (a) Depreciation
Estimated based on prevailing Depreciation is recognised in Income Statement on a
Sri Lankan market price. Factor straight-line basis over the estimated useful economic
all the conditions to be fulfilled lives of each part of an item of Property, Plant &
in bringing the trees in to Equipment. Assets held under finance leases are
saleable condition depreciated over the shorter of the lease term and the
Planting cost Estimated costs for the further useful lives of equivalent owned assets unless it is
development of immature areas reasonably certain that the Group will have ownership
are deducted. by the end of the lease term. Lease period of land
acquired from JEDB/ SLSPC will be expired in year
Discount rate Future cash flows are discounted
2045. The estimated useful lives for the current and
at following discount rates:
comparative periods are as follows:
Timber trees 13%
No. of Years Rate (%)
Nursery cost includes the cost of direct materials,
Buildings & Roads 40 2.50
direct labor and an appropriate proportion of directly
Plant & Machinery 20/25 5.00/4.00
attributable overheads, less provision for overgrown Motor Vehicles 15/20 6.67/5.00
plants. Equipment 8/4 12.50/25
Furniture & Fittings 10 10.00
The gain or loss arising on initial recognition of Mature Plantations
biological assets at fair value less cost to sell and (Replanting and New Planting)
from a change in fair value less cost to sell of Tea 33 1/3 3.00
biological assets are included in profit or loss for the Rubber 20 5.00
period in which it arises.

98 Annual Report 2013/14


Depreciation of an asset begins when it is available 3.14 Policies Specific to Insurance Sector
for use and ceases at the earlier of the date on 3.14.1 Insurance Contracts
which the asset is classified as held for sale or is
As permitted by SLFRS 4 Insurance Contracts, the
derecognised. Depreciation methods, useful lives and
Group continues to apply the existing accounting
residual values are reassessed at the reporting date
policies for Insurance Contracts that were applied
and adjusted prospectively, if appropriate. Mature
prior to the adoption of SLFRS.
plantations are depreciated over their useful lives
or unexpired lease period, whichever is less. No
Product Classification
depreciation is provided for immature plantations.
SLFRS 4 requires contracts written by insurers to
(b) Amortisation be classified as either “insurance contracts” or
“investment contracts” depending on the level of
The leasehold rights of assets taken over from SLSPC
insurance risk transferred.
are amortised in equal amounts over the shorter of
the remaining lease periods and the useful lives as
Insurance contracts are those contracts when the
follows:
Group (the insurer) has accepted significant insurance
No. of Years Rate (%) risk from another party (the policyholders) by agreeing
Bare land 53 1.89 to compensate the policyholders if a specified
Improvements to land 30 3.33 uncertain future event (the insured event) adversely
Mature Plantations (Tea 30 3.33 affects the policyholders. As a general guideline, the
& Rubber) Group determines whether it has significant insurance
risk, by comparing benefits paid with benefits
Buildings 25 4.00
payable if the insured event did not occur. Insurance
Machinery 15 6.67
contracts can also transfer financial risk.

3.13.5 Deferred Income


Investment contracts are those contracts that transfer
3.13.5.1 Grants and Subsidies significant financial risk and no significant insurance risk.
Government grants are recognised where there is
reasonable assurance that the grant will be received Financial risk is the risk of a possible future change
and all attached conditions will be complied with. in one or more of a specified interest rate, financial
When the grant relates to an expense item, it is instrument price, commodity price, foreign exchange
recognised as income over the period necessary to rate, index of price or rates, credit rating or credit
match the grant on a systematic basis to the costs index or other variable, provided in the case of a non
that it is intended to compensate. Where the grant financial variable that the variable is not specific to a
relates to an asset, it is recognised as deferred party to the contract.
income and released to income in equal amounts over
the expected useful life of the related asset. Once a contract has been classified as an insurance
contract, it remains an insurance contract for the
Where the Group receives non-monetary grants, the remainder of its lifetime, even if the insurance risk
asset and the grant are recorded gross at nominal reduces significantly during this period, unless all
amounts and released to the income statement over rights and obligations are extinguished or expire.
the expected useful life and pattern of consumption Investment contracts can, however, be reclassified as
of the benefit of the underlying asset by equal annual insurance contracts after inception if insurance risk
installments. Where loans or similar assistance are becomes significant.
provided by governments or related institutions with
an interest rate below the current applicable market All the products sold by the Group are insurance
rate, the effect of this favorable interest is regarded contracts and therefore classified as Insurance
as additional government grant. Assets are amortised contracts under the SLFRS 4 – Insurance Contracts.
over their useful lives as follows; Thus, the Group does not have any investment
contracts within its product portfolio as at the
Buildings 40 years.
reporting date.

Distilleries Company of Sri Lanka PLC 99


NOTES TO THE FINANCIAL STATEMENTS

3.14.2 Deferred acquisition Costs (DAC) Ceded reinsurance arrangements do not relieve
Those direct and indirect costs incurred during the the Group from its obligations to policyholders.
financial period arising from the writing or renewing Reinsurance assets or liabilities are derecognised
of insurance contracts are deferred and amortised when the contractual rights are extinguished or expire
over the period in which the related revenues are or when the contract is transferred to another party.
earned. All other acquisition costs are recognised as
3.14.4 Premium Receivable
an expense when incurred.
Insurance receivables are recognised when due and
The DAC is applicable only to Non - Life Insurance measured on initial recognition at the fair value of the
Contracts. In line with the available regulatory consideration receivable. Collectability of premiums is
guidelines from the Insurance Board of Sri Lanka reviewed on an ongoing basis.
(IBSL), the DAC is calculated based on the 365 days
basis. According to the Premium Payment Warranty (PPW)
directive issued by the Insurance Board of Sri Lanka
An impairment review is performed at each reporting (IBSL), all Non-Life insurance policies are issued
date or more frequently when an indication of subject to PPW and are cancelled upon the expiry
impairment arises. When the recoverable amount of 60 days if not settled except some selected
is less than the carrying value, an impairment loss customers where Group has allowed extra period for
is recognised in the statement of comprehensive settlements.
income. No such indication of impairment was
experienced during the year. DAC is derecognised 3.14.5 Insurance Provision – Non - Life Insurance
when the related contracts are either settled or Non - Life Insurance contract liabilities include the
disposed-off. outstanding claims provision including IBNR /IBNER
and provision for unearned premiums.
3.14.3 Reinsurance
The Group cedes insurance risk in the normal The outstanding claims provision is based on the
course of business to recognised reinsurers through estimated ultimate cost of all claims incurred but
formal reinsurance arrangements. Reinsurance not settled at the reporting date, whether reported
assets include the balances due from reinsurance or not, together with related claims handling costs
companies for paid and unpaid losses and loss and reduction for the expected value of salvage and
adjustment expenses. Amounts recoverable from other recoveries. Delays can be experienced in the
reinsurers are estimated in a manner consistent with notification and settlement of certain types of claims,
the outstanding claims provision or settled claims therefore, the ultimate cost of these cannot be known
associated with the reinsurer’s policies and are in with certainty at the reporting date.
accordance with the related reinsurance contract.
The valuation of Unearned Premium Reserve is
Reinsurance is recorded gross in the statement of measured in accordance with guidelines of the
financial position unless a right to offset exists. Regulation of Insurance Industry Act, No. 43 of 2000
Reinsurance assets are reviewed for impairment at (i.e. based on the 365 days basis). The Incurred But
each reporting date, or more frequently, when an Not Reported (IBNR) and Incurred But Not Enough
indication of impairment arises during the reporting Reported (IBNER) claims reserve are actuarially
year. Impairment occurs when there is objective computed. The liability is not discounted for the
evidence as a result of an event that occurred after time value of money. No provision for equalisation
initial recognition of the reinsurance asset that the or catastrophe reserves is recognised. The liabilities
Group may not receive all outstanding amounts are derecognised when the obligation to pay a claim
due under the terms of the contract and the event expires, is discharged or is cancelled.
has a reliably measurable impact on the amounts
that the Group will receive from the reinsurer. The Liability Adequacy Test (LAT)
impairment loss, if any is recorded in the statement As required by the SLFRS 4- Insurance Contracts,
of comprehensive income. the Group performed a Liability Adequacy Test (LAT)

100 Annual Report 2013/14


in respect of Non - Life Insurance contract liabilities These fees are recognised as revenue upon receipt or
with the assistance of the external actuary. becoming due and is classified under other income.

3.14.6 Revenue Recognition 3.14.8 Benefits, Claims and Expenses


3.14.6.1 Insurance Premiums a) Gross Benefits and Claims
a) Non - Life Insurance Business Non - Life Insurance Business
Gross written premiums - Non - Life Insurance Non - Life insurance claims include all claims
comprise the total premiums received /receivable occurring during the year, whether reported or
for the whole period of cover provided by contracts not together with claims handling costs that are
entered into during the accounting period. Gross directly related to the processing and settlement
Written Premium is generally recognised is written of claims, a reduction for the value of salvage and
upon inception of the policy. Upon inception of the other recoveries, and any adjustments to claims
contract, premiums are recorded as written and are outstanding from previous years. Claims outstanding
earned primarily on a prorate basis over the term of are assessed by review of individual claim files and
the related policy coverage. estimating changes in the ultimate cost of settling
claims.
Rebates that form part of the premium rate, such
as no claim rebates, are deducted from the gross The provision in respect of Claims Incurred But
premium. Unearned premiums are those proportions Not Reported (IBNR) and Claims Incurred But Not
of premiums written in a year that relate to periods Enough Reported (IBNER) is actuarially valued to
of risk after the reporting date. Unearned premiums ensure a more realistic estimation of the future
are calculated on 365 days basis in accordance with liability based on the past experience and trends.
the Regulation of Insurance Industry Act, No. 43 of Actuarial valuations are performed on a semi-
2000. However, for those contracts for which the annual basis. Whilst the Directors consider that the
period of risk differs significantly from the contract provisions for claims are fairly stated on the basis of
period, premiums are earned over the period of risk information currently available, the ultimate liability
in proportion to the amount of insurance protection will vary as a result of subsequent information
provided. The proportion attributable to subsequent and events. This may result in adjustments to the
periods is deferred as a provision for unearned amounts provided. Such amounts are reflected in the
premiums which is included under liabilities. financial statements for that period.

b) Reinsurance Premiums The methods used to estimate claims and the


Gross reinsurance premiums on insurance contracts estimates made are reviewed regularly.
are recognised as an expense on the earlier of
the date when premiums are payable or when the b) Reinsurance Claims
policy becomes effective. Reinsurance premiums Reinsurance claims are recognised when the related
are decided based on rates agreed with reinsurers. gross insurance claim is recognised according to the
Unearned reinsurance premiums are those terms of the relevant contract.
proportions of premiums written in a year that relate
to periods of risk after the reporting date. Unearned 3.14.9 Net Deferred Acquisition Expenses
reinsurance premiums are deferred over the term Acquisition expenses, representing commissions,
of the underlying direct insurance policies for which vary with and are directly related to the
risks-attaching contracts (using 365 days basis in production of business, are deferred and amortised
accordance with the Regulation of Insurance Industry over the period in which the related written premiums
Act, No. 43 of 2000). are earned.

3.14.7 Policy Income Reinsurance commission is also treated in the same


Insurance contract policyholders are charged for manner within deferred acquisition costs.
policy administration services and other contract fees.

Distilleries Company of Sri Lanka PLC 101


NOTES TO THE FINANCIAL STATEMENTS

3.14.10 Premium income (GWP) and other sundry sales Computer software 3 – 5 years
related taxes FLAG access rights 15 years
Revenue, expenses and assets are recognised net of Licenses 10 years
the amount of sales taxes and premium taxes except
where the premium or sales tax incurred on the 3.15.3 Revenue
purchase of assets services is not recoverable from Revenue from services rendered in the course of
the taxation authority, in which case, the sale tax is ordinary activities is measured at fair value of the
recognised as a part of the cost of acquisition of the consideration received or receivable net of trade
asset or as a part of the expense item, as applicable. discounts and volume rebates.

3.15 Policies Specific to Telecommunication Revenue is recognised when persuasive evidence


Sector exist, usually in the form of an executed sales
3.15.1 Depreciation agreement, that the significant risks and rewards of
The estimated useful lives used are as follows; ownership have been transferred to the customer,
recovery of the consideration is probable and the
Buildings 8 years
amount of revenue can be measured reliably.
Shelters and other equipment 5 years
Vehicles 5 years If it is probable that discounts will be granted and the
Furniture and fittings 5 years amount can be measured reliably, then the discount
Computer software 3 years is recognised as a reduction of revenue as the sales
Leasehold improvements 5 years are recognised.

Leased equipment 3 – 10 years


The revenue is recognised as follows:
Office/Other equipment 1 – 5 years
Digital Electronic Switches 10 years 3.15.3.1 Domestic and International Call Revenue, Rental
Income
Network Equipment 10 years
Towers 10 years Revenue for call time usage by customers is
recognised as revenue as services are performed on
Customer premise equipment 1 – 10 years
accrual basis.
FLAG project assets 5 – 15 years
WiMAX 5 – 10 years Fixed rental is recognised as income on a monthly
basis in relation to the period of the rental.
3.15.2 Intangible Assets
3.15.2.1 License Fees and Access Rights 3.15.3.2 Revenue from other Network Operators and
Separately acquired licences and access rights are International Settlements
shown at historical cost. Expenditures on license The revenue received from other network operators,
fees and access rights that is deemed to benefit or local and international, for the use of the Group’s
relate to more than one financial year is classified telecommunication network are recognised, net of
as intangible assets and is being amortised over the taxes, based on usage taking the traffic minutes/per
agreement period on a straight line basis. second rates stipulated in the relevant agreements
and regulations and based on the terms of the lease
3.15.2.2 Amortisation agreements for fixed rentals. Revenue arising from
Amortisation is recognised in profit or loss on a the interconnection of voice and data traffic between
straight line basis over the estimated useful lives of other telecommunications operators is recognised at
intangible assets from the date that they are available the time of transit across the Group’s network and
for use. The estimated useful lives for the current and presented on gross basis.
comparative periods are as follows:
The relevant revenue accrued is recognised under
income in the statement of comprehensive income
and interconnection expenses recognised under

102 Annual Report 2013/14


operating costs in the statement of comprehensive EIR is the rate that exactly discounts the estimated
income. future cash payments and receipts through the
expected life of the financial asset or liability (or,
3.15.3.3 Revenue from Broadband where appropriate, a shorter period) to the carrying
Revenue from broadband service is recognised on amount of the financial asset or liability. When
usage and the fixed rental on a monthly basis when it calculating the EIR, the Group estimates future cash
is earned net of taxes, rebates and discounts. flows considering all contractual terms of the financial
instrument, but not future credit losses.
3.15.3.4 Revenue from other Telephony Services
The revenue from Data services and other telephony The calculation of the EIR takes into account all
services are recognised on an accrual basis based on contractual terms of the financial instrument (for
fixed rental contracts entered between the Group and example, prepayment options) and includes all
subscribers. material transaction costs and fees and points paid
or received that are an integral part of the EIR.
3.15.3.5 Installation Revenue Transaction costs include incremental costs that are
directly attributable to the acquisition or issue of a
The installation revenue relating to Code Divisional
financial asset or liability.
Multiple Access (CDMA) and non CDMA connections
are deferred over the expected life of the customer on
The carrying amount of the financial asset or financial
the network.
liability is adjusted if the Group revises its estimates
of payments or receipts. The adjusted carrying
3.15.3.6 Service Agreements Revenue
amount is calculated based on the original EIR and
Capacity contracts which convey the right to use a
the change in carrying amount is recorded in ‘Interest
specified capacity in an identified fiber cable are
Income’ for financial assets and in ’Interest and
accounted as service arrangements. Customers are
similar expense’ for financial liabilities.
charged on a monthly basis based on usage, and the
contracts are for a short term. However, for a reclassified financial asset for which
the Group subsequently increases its estimates
3.15.3.6.7 Prepaid Card Revenue of future cash receipts as a result of increased
Revenue from the sale of prepaid card on CDMA, recoverability of those cash receipts, the effect of that
Internet is recognised upon activation of the said increase is recognised as an adjustment to the EIR
card as the period of expiry of the card and the non from the date of the change in estimate.
refundable nature of the amounts are considered
immaterial to the revenue recognition process. Once the recorded value of a financial asset or a
group of similar financial assets has been reduced
3.16 Policies Specific to Finance Sector due to an impairment loss, interest income continues
3.16.1 Revenue Recognition to be recognised using the rate of interest used to
Revenue is recognised to the extent that it is probable discount the future cash flows for the purpose of
that the economic benefits will flow to the Group and measuring the impairment loss.
the revenue can be reliably measured. The following
b) Lease Income
specific recognition criteria must also be met before
revenue is recognised. In terms of the provisions of the Sri Lanka Accounting
Standard – LKAS 17 on ‘Leases’, the recognition of
a) Interest Income and Expense finance income on leasing is accounted, based on a
For all financial instruments measured at amortised pattern reflecting a constant periodic rate of return on
cost, interest bearing financial assets classified capital outstanding.
as available-for-sale and financial instruments
The excess of aggregate lease rentals receivable over
designated as fair value through profit or loss, interest
the cost of the leased assets constitutes the total
income and expense are recognised in profit or loss
unearned finance income at the commencement of
using the Effective Interest Rate (EIR) method. The

Distilleries Company of Sri Lanka PLC 103


NOTES TO THE FINANCIAL STATEMENTS

a lease. The unearned finance income included in Apartment revenue is recognised for the rooms
the lease rentals receivable is recognised in profit or occupied on a daily basis, whilst food beverages sales
loss over the term of the lease commencing from the are accounted for at the time of sales.
month in which the lease is executed using Effective
Interest Rate. 3.18 New Standards and Interpretation not yet
Adopted
Minimum lease payments made under finance leases The following SLFRSs have been issued by the
are apportioned between the finance expense and the Institute of Chartered Accountants of Sri Lanka that
reduction of the outstanding liability. have an effective date in the future and have not
been applied in preparing these financial statements.
c) Hiring Rental Income
Those SLFRSs will have an effect on the accounting
Payments made under operating leases are recognised policies currently adopted by the Group and may have
in profit or loss on a straight-line basis over the term an impact on the future financial statements.
of the lease. Lease incentives received are recognised
as an integral part of the total lease expense, over the SLFRS 09 – Financial Instrument Classification and
term of the lease. Measurement

3.16.2 Impairment Losses on Loans and Advances SLFRS 09, as issued reflects the first phase of
The Group reviews its individually significant loans work on replacement of LKAS 39 and applies to
and advances at each reporting date to assess classification and measurement of financial assets
whether an impairment loss should be provided and liabilities.
for in the Statement of Comprehensive Income. In
particular, management’s judgment is required in the This standard was originally effective for annual
estimation of the amount and timing of future cash periods commencing on or after 01 January 2015.
flows when determining the impairment loss. These However the effective date has been deferred
estimates are based on assumptions about a number subsequently and the revised effective date is yet to
of factors and actual results may differ, resulting in be announced.
future changes to the allowance made.
SLFRS 10 - Consolidated Financial Statements
Loans and advances that have been assessed
individually and found not to be impaired and all SLFRS 10 introduces a single control model
individually insignificant loans and advances are to determine whether an investee should be
then assessed collectively, by categorising them into consolidated. As a result, the Group may need to
groups of asset with similar risk characteristics, to change its consolidation conclusion in respect of its
determine whether a provision should be made due investees, which may lead to changes in the current
to incurred loss events for which there is objective accounting for these investees. This standards are
evidence, but the effects of which are not yet evident. effective in annual period beginning on or after 1
The collective assessment takes account of data from January 2014.
the loan portfolio (such as loan to collateral ratio,
level of restructured performing loans, etc.), and SLFRS 11 - Joint Arrangements
judgment on the effect of concentrations of risks and
SLFRS 11, the structure of the joint arrangement,
economic data.
although still an important consideration, is no
3.17 Policies Specific to Hotel Sector longer the main factor in determining the type of
joint arrangement and therefore the subsequent
3.17.1 Revenue
accounting. This standards are effective in annual
Revenue is measured at the fair value of the consideration period beginning on or after 1 January 2014.
received or receivable, net of trade discounts; value added
taxes and intra-group revenue. No revenue is recognised if
there are significant uncertainties regarding recovery of the
consideration due.

104 Annual Report 2013/14


SLFRS 12 - Disclosure of Interests in Other Entities

SLFRS 12 brings together into a single standard


all the disclosure requirements about an entity’s
interests in subsidiaries, joint arrangements,
associates and unconsolidated structured entities.
The Group is currently assessing the disclosure
requirements for interests in subsidiaries, interests in
joint arrangements and associates and unconsolidated
structured entities in comparison with the existing
disclosures. SLFRS 12 requires the disclosure of
information about the nature, risks and financial
effects of these interests. This standards are effective
in annual period beginning on or after 1 January
2014.

SLFRS 13 - Fair Value Measurement

SLFRS 13 provides a single source of guidance


on how fair value is measured, and replaces the
fair value measurement guidance that is currently
dispersed throughout SLFRS. Subject to limited
exceptions, SLFRS 13 is applied when fair value
measurements or disclosures are required or
permitted by other SLFRSs. The Group is currently
reviewing its methodologies in determining fair
values. SLFRS 13 is effective for annual periods
beginning on or after 1 January 2014 with early
adoption permitted.

Distilleries Company of Sri Lanka PLC 105


NOTES TO THE FINANCIAL STATEMENTS

4 Operating Segment Information


A segment is a distinguishable component of the Group that is engaged either in providing related products or services
(business segment), which is subject to risks and rewards that are different from those of other segments.

Segmental information is presented in respect of the Group’s business segments. The business segments are determined
based on the Group’s management and internal reporting structure. Inter-segment transfers are based on fair market
prices. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can
be allocated on a reasonable basis.

4.1 Segment Revenues


For the year ended 31March, 2014 2013
Rs.000 Rs.000

Beverages 53,136,535 56,478,892


Telecommunication 3,633,987 2,779,742
Plantation 3,171,983 3,997,328
Diversified 3,243,797 2,534,498
Total Gross Revenue 63,186,302 65,790,460
Direct Turnover Related Taxes (34,203,418) (37,023,967)
Total Net Revenue 28,982,884 28,766,493

4.2 Segment Profits


For the year ended 31March, 2014 2013
Rs.000 Rs.000

Beverages 8,027,247 6,348,704


Telecommunication (638,824) (150,185)
Plantation 129,715 110,308
Diversified 535,779 483,741
8,053,917 6,792,568
Share of Profit of Equity-Accounted Investees (Net of Tax) 1,440,182 1,291,749
Profit before Income Tax Expense 9,494,099 8,084,317
Taxation (3,263,009) (2,826,147)
Profit for the Year 6,231,090 5,258,170

106 Annual Report 2013/14


4 Operating Segment Information (Contd.)
4.3 Other Segmental Information
Reporting Segments
Beverages Telecommunication Plantation Diversified Eliminations/Other Group Total
Consolidated Adjustments
For the year ended 31March, 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Additions to PPE 2,702,375 1,138,154 1,848,340 352,733 139,033 56,339 677,090 1,807,264 (117,500) (386,500) 5,249,338 2,967,990
Additions to Intangible Assets 6,363 1,216 289,034 136,740 - - 13,872 18,103 - - 309,269 156,059
Depreciation of PPE 154,005 163,214 763,478 941,323 70,377 59,167 278,734 287,127 - 1,266,594 1,450,831
Amortisation and Impairment of
Intangible Assets - - 227,131 186,477 - - 9,262 4,299 - - 236,393 190,776
Amortisation of Bearer Biological
Assets at Finance Lease ((JEDB/SLPC) - - - - 9,040 9,040 - - - - 9,040 9,040
Interest Expense 859,321 1,376,919 223,089 224,565 70,159 36,525 48,069 32,790 (15,290) (18,118) 1,185,348 1,652,681

Reporting Segments
Beverages Telecommunication Plantation Diversified Eliminations/Other Group Total
Consolidated Adjustments
As at 31 March, 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Total Assets 63,635,487 57,961,666 8,307,821 8,281,673 5,015,269 4,522,945 56,988,042 59,496,715 (50,205,065) (51,716,298) 83,741,554 78,546,701
Total Liabilities 18,095,042 17,473,166 3,805,047 3,027,424 2,258,720 1,896,563 8,367,146 10,457,652 (6,377,515) (7,020,826) 26,148,440 25,833,979
Retirement Benefit Obligations 114,723 118,475 55,861 47,732 626,819 620,570 34,366 361,205 - - 831,769 1,147,982
Deferred Tax Assets 45,889 47,390 365 413 182,215 134,459 168,347 182,617 - - 396,816 364,879
Deferred Tax Liabilities 61,017 44,302 95 90 349,063 312,251 151,854 256,058 171,321 166,354 733,350 779,055
Income Tax Payable 1,112,935 598,933 3,540 1,633 18,385 15,481 44,028 110,603 - - 1,178,888 726,650

4.4 Segmental Cash Flows
For the year ended 31March, 2014 2013 2014 2013 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Operating Cash Flow 872,359 3,324,378 473,741 227,296 111,326 712,033 979,791 100,479
Investing Cash Flow (1,716,482) (663,517) (871,988) (262,423) (358,718) (483,232) (3,406,939) (1,460,075)
Financing Cash Flow (2,267,861) (1,635,622) 362,960 (54,910) (36,298) (10,399) 1,913,074 1,045,417
(3,111,984) 1,025,239 (35,287) (90,037) (283,690) 218,402 (514,074) (314,179)

Distilleries Company of Sri Lanka PLC


107
NOTES TO THE FINANCIAL STATEMENTS

5 Business Combinations and Loss of Control in Subsidiaries


5.1 De-Recognition of Pelwatte Sugar Industries PLC (PSIP) Group in the Year 2013/14
Since the Group is deprived of participating in controlling the financial, operating policies and other relevant activities,
the financial statements of PSIP Group have been deconsolidated from the Group financial statements of DCSL PLC
during the year 2013/14. The Investment made in Pelwatte Sugar Industries PLC is now classified as a fully impaired
long term investment of the Group. More information is included in Note 38 to the financial statements.

Total
Rs.000
ASSETS

Property, Plant and Equipment 2,378,930


Deferred Tax Asset 38,827
Inventories 1,801,622
Other Investments 14,000
Trade and Other Receivables 344,440
Amounts due from Related Companies 1,525,908
Cash and Cash Equivalents 25,834

Liabilities
Interest Bearing Loans and Borrowings (152,089)
Deferred Tax Liabilities (147,595)
Employee Benefits (330,812)
Trade and Other Payables (1,454,313)
Amount due to Related Companies (2,539,326)
Current Tax Payables (63,497)
Bank Overdrafts (12,652)
-
Total Net Assets at De-Recognition 1,429,278
Attributable to Parent Company 640,155
Attributable to Non Controlling Interest 789,123
-
Profit / (Loss) from De-Recognition
Fair Value of Investment made in PSIP -
Less:
Net Assets Attributable to Parent Company (640,155)
(640,155)

Net Prceeds from De-Recognition


Received in Cash -
Less:
Cash and Cash Equivalents of Subsidiaries De-Recognised (13,182)
Net Cash Inflow (13,182)

108 Annual Report 2013/14


6 Revenue
Group
For the year ended 31March, 2014 2013
Gross Revenue Direct Turnover Net Revenue Gross Revenue Direct Turnover Net Revenue
Related Taxes Related Taxes
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Sale of Goods 58,000,543 (34,203,418) 23,797,125 60,583,390 (37,023,967) 23,559,423


Rendering of Services 5,185,759 - 5,185,759 5,207,070 - 5,207,070
Total 63,186,302 (34,203,418) 28,982,884 65,790,460 (37,023,967) 28,766,493

Company
For the year ended 31March, 2014 2013
Gross Revenue Direct Turnover Net Revenue Gross Revenue Direct Turnover Net Revenue
Related Taxes Related Taxes
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.’000

Sale of Goods 47,755,538 (31,057,380) 16,698,158 51,548,909 (34,087,458) 17,461,451


Total 47,755,538 (31,057,380) 16,698,158 51,548,909 (34,087,458) 17,461,451

6.1 Business Segment Analysis


Group
For the year ended 31March, 2014 2013
Sale Of Goods Rendering Of Total Revenue Sale Of Goods Rendering Of Total Revenue
Services Services
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Beverages 18,933,117 - 18,933,117 19,454,925 - 19,454,925


Telecommunication - 3,633,987 3,633,987 - 3,997,328 3,997,328
Plantation 3,171,983 - 3,171,983 2,779,741 - 2,779,741
Diversified 1,692,025 1,551,772 3,243,797 1,324,757 1,209,741 2,534,498
23,797,125 5,185,759 28,982,884 23,559,423 5,207,070 28,766,493

7 Cost of Sales, Net Benefits Paid and Interest Expenses


This includes all the directly attributable costs of sale of goods and rendering of services. Further the interest expense
on customer deposits in financial services and net insurance benefits and claims paid, net change in insurance claims
outstanding and underwriting and net acquisition costs in insurance businesses are included.

Distilleries Company of Sri Lanka PLC 109


NOTES TO THE FINANCIAL STATEMENTS

8 Other Operating Income


Group Company
For the year ended 31March, 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000

Gain on Change in Fair Value of Biological Assets 74,294 42,685 - -


Government Grants 13,226 13,770 - -
Gain on Sale of Property, Plant and Equipment 30,331 11,268 50,767 39,985
Fees and Commission Income 62,761 76,223 - -
Rent Income 24,557 36,547 24,557 34,567
Refunds on Telecommunication Development
Charge (TDC) 8.1 - 234,229 - -
Sale of Timber 40,664 56,333 - -
Other Sundry Income 202,759 144,883 122,625 81,023
Dividend Income from Subsidiary Companies - - 920,000 -
Dividend Income from Equity Accounted Investees - - 279 66,232
Dividend Income from Available-For-Sale Financial Assets 332,815 475,003 200,619 355,726
Dividend Income from Fair Value Through Profit 72,994 67,558 38,920 38,988
and Loss Investments
Gain on Disposal of Fair Value Through Profit 29,973 49,041 16,828 30,326
and Loss Investments
Gain on Disposal of Group Investments - - - 3,644,589
Loan Loss Recoveries 14,018 1,381 - -
898,392 1,208,921 1,374,595 4,291,436

8.1 Lanka Bell Limited - Refunds on Telecommunication Development Charge (TDC)
In accordance with the Finance Act No. 11 of 2004, all telecommunication gateway operators are required to pay a levy
defined as the Telecommunication Development Charge (TDC) to the Government of Sri Lanka, based on international
call minutes terminated in the country. This levy was made effective from 03rd March, 2003 where initially the levy
was defined in such a way that operators were allowed to claim the 2/3rd of the TDC against the costs of network
development charges. First revision to this regulation was introduced with effect from 15th July, 2010 with a TDC rate
change from USD cents 3.80 to USD cents 1.50. Through the same revision the disbursement process was removed
from the regulation. The revised rates prevailed until such time the rate was again revised to USD cents 3.0 per
minute with effect from January, 2012 in accordance with the Budget Proposal for 2012. The total amount of the levy
payable by the Company for the period from 1 April 2013 to 31 March 2014 was estimated at Rs. 96,544,392 (2013-
Rs.145,997,125) and has been recognised as expenses in the current financial year. The corresponding liability, net of
payments, has been recognised in the statement of financial position.

9 Other Operating Expenses


Group Company
For the year ended 31March, 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000

Impairment on Loans and Other Advances 2,703 - - -


Impairment on Investment in Subsidiaries - - - 926,473
Loss on De-Recognition of Subsidiaries 5.1 640,155 - - -
Loss on De-Recognition of Equity Accounted Investee 19.1 86,284 - - -
Impairment of Goodwill 16.3 - 776,566 - -
729,142 776,566 - 926,473

110 Annual Report 2013/14


10 Finance Income and Finance Costs
10.1 Recognised in Profit and Loss
10.1.1 Finance Income
Group Company
For the year ended 31March, 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000
Interest Income on Loans and Receivables 402,592 500,069 48,550 74,040
Interest Income on Available-For-Sale Financial Assets 27,302 39,632 2,893 -
Interest Income on Unimpaired Held-To-Maturity - - - -
Investments
Foreign Exchange Gain 7,119 16,016 - -
Gain on Change in Fair Value of Financial Assets 85,739 177,640 66,877 70,856
at Fair Value Through Profit or Loss
Recognition of Share Warrants at Fair Value 225,081 - 310 -
747,833 733,357 118,630 144,896

10.1.2 Finance Cost


Interest Expense on Financial Liabilities
Measured at Amortised Cost
- Interest Expense on Long Term Borrowings (103,290) (529,447) (94,356) (275,626)
- Interest Expense on Bank Overdrafts and Other (1,055,035) (1,099,549) (764,965) (1,101,293)
Short Term Borrowings
- Interest Expense on Finance Leases (2,645) - - -
Government Lease Interest (JEDB/SLSPC) (24,378) (22,420) - -
Foreign Exchange Loss (44,888) (2,257) - -
Transaction Costs on Acquisition of Financial - (663) - -
Assets at Fair Value Through Profit or Loss
Impairment Losses on Financial Investments - (149,907) - -
Loss on Change in Fair Value of Financial Assets (32,401) (162,666) - -
at Fair Value Through Profit or Loss
Preference Share Dividends (1,265) (1,265) - -
(1,263,902) (1,968,174) (859,321) (1,376,919)
Less:Borrowing Cost Capitalised 10.1.2.1 43,136 4,032 - -
(1,220,766) (1,964,142) (859,321) (1,376,919)
Net Finance Costs Recognised in Profit or Loss (472,933) (1,230,785) (740,691) (1,232,023)

10.1.2.1 During the year Balangoda Plantations PLC, a subsidiary of the company, capitalised borrowing cost amounting to
Rs. 43,136,174/- (2013 - Rs. 4,031,638 /-) incurred on borrowings obtained to meet expenses relating to immature
plantations being part of the cost of the immature plantations. The amount of borrowing cost eligible for capitalisation is
determined in accordance with LKAS 23 (Borrowing Costs).

The above finance income and finance costs include the following interest income and expense in respect of assets
(liabilities) not at fair value through profit or loss:

Total interest income on financial assets 429,894 539,701 51,443 74,040


Total interest expense on financial liabilities (1,185,348) (1,651,416) (859,321) (1,376,919)

10.2 Recognised in Other Comprehensive Income


Net Change in Fair Value of Available-For-Sale Financial Assets (136,568) 2,021,748 217,263 578,500
(136,568) 2,021,748 217,263 578,500

Distilleries Company of Sri Lanka PLC 111


NOTES TO THE FINANCIAL STATEMENTS

11 Profit before Income Tax Expense


Profit before Income Tax Expense is stated after charging all expenses including the following;
Group Company
For the year ended 31March, 2014 2013 2014 2013
Notes Rs.000 Rs.000 Rs.000 Rs.000

Directors’ Emoluments 89,234 60,107 23,410 22,247


Auditor’s Remuneration
Audit - KPMG 9,379 9,142 4,950 4,604
- Other Auditors 4,853 4,420 - -
- -
Non-Audit - KPMG 4,641 4,404 3,327 1,553
- Other Auditors 693 606 693 606
Management Fees 44,887 59,606 - -
Personnel Costs 11.1 3,861,748 3,194,238 1,162,203 1,039,048
Depreciation and Amortisation -
Depreciation of Property Plant and Equipment 15 1,266,594 1,500,311 148,392 158,678
Amortisation of Intangible Assets 16 236,393 190,776 - -
Amortisation of Bearer Biological Assets 17.1 37,339 36,980 - -
Provision /(Reversal) for Bad & Doubtful Debts (137,944) 171,550 25,057 -
Provision /(Reversal) for Inventories 226,679 150,760 - -
Donations 13,415 7,058 12,524 6,952

11.1 Personnel Costs


Salaries, Wages and Other Benefits 3,356,525 2,715,083 1,050,753 932,085
Employee Benefits - - - -
Defined Contribution Plans - - -
- EPF and ETF 354,098 326,571 90,005 88,469
Defined Benefit Plans 31.1.1 151,125 152,584 21,445 18,494
Total 3,861,748 3,194,238 1,162,203 1,039,048

11.1.1 Number of Employees


As At 31 March, 2014 2013 2014 2013
12,897 14,681 1,250 1,343

12 Taxation
Group Company
For the year ended 31March, 2014 2013 2014 2013
Notes Rs.000 Rs.000 Rs.000 Rs.000
Current Tax Expense 12.1 3,238,859 2,819,781 2,757,104 2,394,917
Deferred Tax Charged/(Credited) 21.1.1 24,150 6,366 21,539 8,308
3,263,009 2,826,147 2,778,643 2,403,225

12.1 Current Tax Expense


Current Tax Charge 12.1.1 3,194,493 2,824,523 2,757,104 2,394,917
(Over)/Under Provision of Current Tax of
Previous Years 44,366 (4,742) - -
3,238,859 2,819,781 2,757,104 2,394,917

112 Annual Report 2013/14


12.1.1 Numerical Reconciliation of Accounting Profits to Income Tax Expense
Group Company
For the year ended 31March, 2014 2013 2014 2013
Notes Rs.000 Rs.000 Rs.000 Rs.000

Profit before Income Tax Expense 9,494,099 8,084,317 8,136,580 9,275,947


Share of Results of Equity Accounted Investees (1,440,182) (1,291,749) - -
Dividend Income from Group Companies 1,292,453 315,992 - -
Other Consolidation Adjustments 726,439 3,825,983 - -
10,072,809 10,934,543 8,136,580 9,275,947
Exempt (Profits)/Loss 411,685 31,380 - -
Accounting Profit / (Loss) Chargeable to Income Tax 10,484,494 10,965,923 8,136,580 9,275,947
(-) Income Not Subject to Tax (2,352,292) (4,057,561) (1,279,853) (3,318,869)
(+) Disallowable Expenses 846,495 872,279 208,814 188,952
(-) Allowable Expenses (1,065,422) (434,580) (108,769) (101,441)
(+) Tax Losses Incurred 12.1.4 304,188 - - -
(-) Tax Losses Utilised 12.1.4 (72,533) (29,455) - -
Taxable Income 8,144,930 7,316,606 6,956,772 6,044,589
 Income Tax At,
40% 2,979,452 2,613,437 2,697,359 2,341,440
28% 215,041 200,593 59,745 53,477
15.76% - 10,477 - -
10% - 16 - -
Total Current Tax Charge 3,194,493 2,824,523 2,757,104 2,394,917
Average Statutory Income Tax Rate (%) 39.22% 38.60% 39.63% 39.62%

Group Company
For the year ended 31March, 2014 2013 2014 2013
Notes % % % %

12.1.2 Effective Tax Rate 12.1.2.1 30.89% 25.71% 33.89% 25.82%

Group
For the year ended 31March, 2014 2013
Rs.000 % Rs.000 %
12.1.2.1 Reconciliation of Effective Tax Rate
Accounting Profit / (Loss) Chargeable to Income Tax 10,484,494 10,965,923

Income Tax Expense at the Average Statutory 4,112,086 39.22% 4,233,316 38.60%
Income Tax Rate
Income Not Subject to Tax (922,584) -8.80% (1,566,392) -14.28%
Disallowable Expenses 332,001 3.17% 336,736 3.07%
Allowable Expenses (417,865) -3.99% (167,766) -1.53%
Tax Losses Incurred 119,303 1.14% - 0.00%
Tax Losses Utilised (28,448) -0.27% (11,371) -0.10%
(Over)/Under Provision of Current Tax of Previous Years 44,366 0.42% (4,742) -0.04%
Deem Dividend Tax Paid - 0.00% - 0.00%
Current Tax Expense 3,238,859 30.89% 2,819,781 25.71%

Distilleries Company of Sri Lanka PLC 113


NOTES TO THE FINANCIAL STATEMENTS

12.1.2.1 Reconciliation of Effective Tax Rate (Contd.)


Company
2014 2013
Rs.000 % Rs.000 %

Accounting Profit / (Loss) Chargeable to Income Tax 8,136,580 9,275,947


Income Tax Expense at The Average Statutory 3,224,684 39.63% 3,675,208 39.62%
Income Tax Rate
Income Not Subject to Tax (507,231) -6.23% (1,314,963) -14.18%
Disallowable Expenses 82,758 1.02% 74,864 0.81%
Allowable Expenses (43,107) -0.53% (40,192) -0.43%
Tax Losses Incurred - 0.00% - 0.00%
Tax Losses Utilised - 0.00% - 0.00%
(Over)/Under Provision of Current Tax of Previous - 0.00% - 0.00%
Years
Deem Dividend Tax Paid - 0.00% - 0.00%
Current Tax Expense 2,757,104 33.89% 2,394,917 25.82%

12.1.3 Applicable rates and exemptions, concessions or holidays granted on income tax
The tax liabilities of the companies are computed at the standard rate of 28% on non liquor business and 40% on liquor
business except for the following companies which enjoy exemptions and concessions.

Company Sector Basis Exemption or Concessions Period


Lanka Bell Telecommuni In terms of an agreement entered The profits and income of the company Commencing
Limited cation in to with the Board of Investment is exempt for a period of 20 years. from year of
(BOI) of Sri Lanka under section Thereafter the company will be taxed at assessment
17 of Law No. 04 of 1978. a normal rate of 28%. 97/98

Bogo Generation and Pursuant to the agreement The company is exempt from income tax For a period
Power (Pvt) sale of Hydro dated 22 April 2010 entered arising from the income of generation of of 05 years
Limited ElectricEnergy with the Board of Investment hydropower, After the expiration of the commencing
under Section 17 of the BOI exemption period, the profit & income of from 01st April
Law. the enterprise shall be charged for each 2012
year of assessment at the rate of ten per
centum (10%) (“concessionary period)

Group Company
For the year ended 31March, 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000

12.1.4 Tax Losses


Losses Brought Forward 1,600,428 1,629,883 - -
Acquisition/(Disposal) of Subsidiaries (198,000) - - -
Losses Incurred 304,188 - - -
Losses Utilised (72,533) (29,455) - -
Loss Carried Forward 1,634,083 1,600,428 - -

114 Annual Report 2013/14


13 Earnings per Share

13.1 Basic Earnings per Share


The calculation of basic earnings per share is based on the profit attributable to Ordinary shareholders and the weighted
average number of shares outstanding during the year.
Group Company
For the year ended 31March, 2014 2013 2014 2013

Profit Attributable to Equity Holders of the 6,121,813 5,139,807 5,357,937 3,204,723


Company (Rs.’000)*
Weighted Average Numbers of Ordinary Shares (000) 300,000 300,000 300,000 300,000
Basic Earnings per Share (Rs.) 20.41 17.13 17.86 10.68

* For the purpose of calculation, Company’s profit for the year ended 31 March 2013 has been adjusted for intra-group
capital gain on share transfer.

13.2 Diluted Earnings per Share


There were no potential dilutive ordinary shares outstanding at any time during the year. Therefore, diluted Earnings per
Share is same as Basic Earnings per Share shown above.

14 Dividend per Share


Company
For the year ended 31March, 2014 2013
Per share Total Per share Total
Rs. Rs.000 Rs. Rs.000

Final Dividend Proposed / Paid 3.25 975,000 3.00 900,000


975,000 900,000

The Directors recommended a final dividend of Rs.3.25 per share for the year ended 31 March 2014, for approval by the
shareholders at the Annual General Meeting to be held on 29 September 2014. As stipulated by Sri Lanka Accounting
Standards - Events After the Reporting date (LKAS 10), this proposed dividend is not recognised as a liability as at 31
March 2014.

As required by Section 56 of the Companies Act No7 of 2007, the Board of Directors have satisfied the solvency test in
accordance with Section 57. A statement of solvency completed and duly signed by the Directors has been audited by
Messrs KPMG.

However, for the purpose of computing dividend per share, the final dividend to be approved has been taken into
consideration.

Distilleries Company of Sri Lanka PLC 115


15 Property, Plant and Equipment
Group Cost or Valuation Accumulated Depreciation and Impairment Carrying Value

116
At the Additions Acquisition/ Disposals/ At the At the Charge Acquisition/ Disposals At the As at As at
Beginning During the (Disposal) of Transfers end of Beginning for the (Disposal) of end of 31 March 31 March
of the Year Year Subsidiaries the Year of the Year Year Subsidiaries the Year 2014 2013
Freehold Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Land 15.2 4,517,339 177,955 (44,150) - 4,651,144 - - - - - 4,651,144 4,517,339


Land Improvements 413,002 - (307,009) - 105,993 78,535 5,300 (56,465) - 27,370 78,623 334,467
Buildings 15.2 2,227,496 29,286 (441,221) - 1,815,561 733,861 61,828 (361,078) - 434,611 1,380,950 1,493,635
Civil Constructions 641,471 18,032 - - 659,503 29,098 32,311 - - 61,409 598,094 612,373
Plant, Machinery & Other Equipment 4,698,190 31,736 (2,674,694) (344) 2,054,888 2,230,917 129,129 (847,045) (40) 1,512,961 541,927 2,467,273

Annual Report 2013/14


Motor Vehicles 1,483,288 100,906 (74,002) (114,267) 1,395,925 1,211,048 228,159 (67,007) (89,237) 1,282,963 112,962 272,240
Furniture, Fittings & Office Equipment 1,124,505 66,398 (105,186) (5,679) 1,080,038 944,281 60,479 (93,999) (504) 910,257 169,781 180,224
Computer Equipment & Software 199,970 19,933 - (1,455) 218,448 149,835 19,166 - (144) 168,857 49,591 50,135
Electro Mechanical Equipment 299,550 236 - - 299,786 14,974 14,979 - - 29,953 269,833 284,576
Digital Electronic Switches 1,140,193 51,953 - (66,256) 1,125,890 616,465 114,876 - (59,884) 671,457 454,433 523,728
Network Equipment 2,073,529 12,822 - (10,586) 2,075,765 1,268,128 169,305 - (4,800) 1,432,633 643,132 805,401
Towers 873,758 33,260 - (1,855) 905,163 447,433 80,730 - (878) 527,285 377,878 426,325
Customer Premise Equipment 2,920,027 159,231 - (7,232) 3,072,026 2,268,852 214,911 - (1,033) 2,482,730 589,296 651,175
Water Sanitation 60,732 - - - 60,732 35,437 3,020 - - 38,457 22,275 25,295
Shelters and Other Equipment 521,390 4,996 - (1,416) 524,970 462,194 37,573 - (1,146) 498,621 26,349 59,196
Flag Project 38,361 1,581 - - 39,942 31,562 4,363 - - 35,925 4,017 6,799
Lte Project - 196,579 - - 196,579 - 7,825 - - 7,825 188,754 -
Wi-Max 228,989 25,947 - (6,239) 248,697 158,858 42,256 - (3,222) 197,892 50,805 70,131
Fire Fighting Equipment 4,176 70 - - 4,246 3,223 170 - - 3,393 853 953
Oil Storage Tanks 63,713 - (63,398) - 315 7,510 - (7,195) - 315 - 56,203
NOTES TO THE FINANCIAL STATEMENTS

Vats & Casks 69,574 - - - 69,574 50,214 3,101 - - 53,315 16,259 19,360
Drums 80 - - - 80 80 - - - 80 - -
23,599,333 930,921 (3,709,660) (215,329) 20,605,265 10,742,505 1,229,481 (1,432,789) (160,888) 10,378,309 10,226,956 12,856,828

Leasehold
Motor Vehicles 4,076 - (4,076) - - 1,427 - (1,427) - - - 2,649
Plant & Machinery - 30,544 - - 30,544 - 559 - - 559 29,985 -
Furniture, Fittings & Equipment 14,028 - - - 14,028 14,028 - - - 14,028 - -
Immovable (JEDB/SLSPC) Assets On 15.1 438,142 - - - 438,142 218,544 9,350 - - 227,894 210,248 219,598
Finance Lease
Leasehold Improvements 330,963 3,236 - (65) 334,134 282,163 27,205 - (58) 309,310 24,824 48,800
787,209 33,780 (4,076) (65) 816,848 516,162 37,114 (1,427) (58) 551,791 265,057 271,047
Total Freehold and Leasehold Property, 24,386,542 964,701 (3,713,736) (215,394) 21,422,113 11,258,667 1,266,595 (1,434,216) (160,946) 10,930,100 10,492,013 13,127,875
Plant & Equipment
Capital Work in Progress 2,213,167 4,284,637 (99,407) (669,368) 5,729,029 - - - - - 5,729,029 2,213,167
Total Property, Plant & Equipment 26,599,709 5,249,338 (3,813,143) (884,762) 27,151,142 11,258,667 1,266,594 (1,434,216) (160,945) 10,930,100 16,221,042 15,341,042
15 Property, Plant and Equipment (Contd.)
Company Cost or Valuation Accumulated Depreciation and Impairment Carrying Value
At The Additions Disposals/ At the At the Charge Disposals At the As at As at
Beginning During the Transfers end of Beginning for the end of 31 March 31 March
of the Year Year the Year of the Year Year the Year 2014 2013
Freehold Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Land 15.2 2,163,749 - (82,548) 2,081,201 - - - - 2,081,201 2,102,674


Buildings 15.2 76,450 - (20,111) 56,339 61,075 858 (5,594) 56,339 - 76,450
Plant, Machinery & Other Equipment 644,591 4,069 - 648,660 366,134 49,288 - 415,422 233,238 277,568
Motor Vehicles 529,521 40,876 (95,869) 474,528 346,458 84,990 (74,059) 357,389 117,139 183,063
Furniture, Fittings & Office Equipment 66,788 5,876 - 72,664 46,833 3,934 - 50,767 21,897 20,845
Computer Equipment & Software 46,747 7,771 (603) 53,915 35,982 6,051 - 42,033 11,882 10,765
Fire Fighting Equipment 4,176 70 - 4,246 3,223 170 - 3,393 853 953
Oil Storage Tanks 315 - - 315 315 - 315 - -
Vats & Casks 69,575 - - 69,575 50,214 3,101 - 53,315 16,260 19,360
Drums 80 - - 80 80 - - 80 - -
Total Freehold Property, Plant & 3,601,992 58,662 (199,131) 3,461,523 910,314 148,392 (79,653) 979,053 2,482,470 2,691,678
Equipment

Capital Work in Progress 1,183,226 2,635,359 (2,385) 3,816,200 - - - - 3,816,200 1,183,226

Total Property, Plant & Equipment 4,785,218 2,694,021 (201,516) 7,277,723 910,314 148,392 (79,653) 979,053 6,298,670 3,874,904

Distilleries Company of Sri Lanka PLC


117
NOTES TO THE FINANCIAL STATEMENTS

15.1 Immovable (JEDB/SLSPC) Assets on Finance Lease


Group
For the year ended 31March, 2014 2013
Right to Use Unimproved Improvement Other Vested Buildings Machinery Total Total
of Land Lease Land to Land Assets
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
(Note 15.1.1)
Capitalised Value (18 June 1992)
Balance at The Beginning of the Year 331,201 899 15,702 152 64,024 26,164 438,142 438,142
Balance at the End of the Year 331,201 899 15,702 152 64,024 26,164 438,142 438,142

Amortisation
As at Beginning of the Year 128,470 349 10,760 152 52,649 26,164 218,544 209,194
Amortisation for the Year 6,249 17 523 - 2,561 - 9,350 9,350
At the End of the Year 134,719 366 11,283 152 55,210 26,164 227,894 218,544

Carrying Amount
As at Beginning of the Year 202,731 550 4,942 - 11,375 - 219,598 228,948
As at the End of the Year 196,482 533 4,419 - 8,814 - 210,248 219,598

15.1.1
Right to use of Land
Right-To-Use of Land on Lease” as above was previously titled “Leasehold Right to Bare Land”. The change is in order to
comply with Statement of Recommended Practice (SoRP) issued by the Institute of Chartered Accountants of Sri Lanka
dated 19 December 2012. Such leases have been executed for all estates for a period of 53 years.

This right-to-use land is amortised over the remaining lease term or useful life of the right whichever is shorter and is
disclosed under non-current assets. The Statement of Recommended Practice (SoRP) for right-to-use of land does not
permit further revaluation of right-to-use land.

15.2
Land and Buildings
15.2.1 Details of Land and Building stated at Valuation
Distilleries Company of Sri Lanka PLC
A valuation of freehold Land and Buildings of Distilleries Company of PLC was carried out by incorporated Valuers Mr.
A. R. M. M. Kaleel and Mr. S. Sivaskantha by using contracted test basis method and incorporated in the Financial
Statements of the Company as at 1 March 2011. The surplus on revaluation of Land and Building, Rs. 2,558,782,865
and Rs.428,307,050 have been credited to the revaluation reserve respectively.

Lanka Bell Limited


Free hold land and building of the company was valued by Mr. A.R.M.M. Kaleel, A.M.I.V (Sri Lanka) a professional valuer
on 25th March 2010 on “Contractor’s Basis” and the excess of Rs. 87,755,658 over the net book value as at 31 March
2010 has been credited to the revaluation reserve.

Texpro Industries Limited


The Company’s land and building were revalued on 01 April 2009. The land was subsequently revalued on 3rd April
2013 by a professionally qualified independent valuer K. Arthur Perera. The valuation was based on contractors method
of valuation.
Browns Beach Hotel PLC
The Book value of freehold land owned by the Company, which is situated at No. 175, Lewis Place, Negombo has been
revalued by Mr. J. Rajasooriya, (A.I.V. (Sri Lanka), M.P.V.A. (Sri Lanka) on 26 March 2003. The surplus on revaluation,
Rs. 74.3 million, has been credited to the revaluation reserve.

118 Annual Report 2013/14


Freehold land at No. 175, Lewis Place, Negombo was valued by Mr. J. Rajasooriya, A.I.V. (Sri Lanka), M.P.V.A. (Sri
Lanka) a professional valuer, on 28 March 2007 on “Market pricing basis” and the excess of Rs.290,000,000 over the
net book value has been placed to the credit of revaluation reserve.

Free hold land at No.175, Lewis Place, Negombo of Browns Beach Hotel PLC was revalued by Mr. K. C. B.
Condegama, (A.I.V. Sri Lanka) a professional valuer on 31 March 2012 on “Market Pricing Basis” and the excess of Rs.
476,500,000 over the net book value as at 31 March 2012 has been placed to the credit of revaluation reserve.

15.2.2 The carrying amount of revalued land and buildings if they were carried at cost less depreciation would be as
follows;
Group
As at 31March, 2014
Land Building
Rs.000 Rs.000

Cost 1,467,789 478,802


Accumulated Depreciation and Impairment - (280,310)
Carrying Value 1,467,789 198,492

Company
As at 31March, 2014
Land Building
Rs.000 Rs.000

Cost 109,402 56,339


Accumulated Depreciation and Impairment - (56,339)
Carrying Value 109,402 -

15.3 Gross Carrying Value of Fully Depreciated Assets


The cost of the fully depreciated assets of the Group amounts to Rs.5,284 Mn as at reporting dated. The Company’s
property, plant and equipment with a cost of Rs.513 Mn are fully depreciated as at reporting date.

15.4 Property Plant and Equipment that have been Pledged


The property plant and equipments that are pledged for Liabilites are disclosed in Note 41 to these financial statements.

Distilleries Company of Sri Lanka PLC 119


NOTES TO THE FINANCIAL STATEMENTS

16
Intangible Assets

Group
For the year ended 31March, 2014 2013
License Flag Software Software Goodwill on Total Total
Fees Cable Cost and Cost and Acquisition
Implementation Implementation
(WIP)
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Note 16.1 Note 16.2 Note 16.3


Cost/Carrying Value
Balance at the Beginning of the Year 369,675 2,797,761 28,653 17,277 1,568,863 4,782,229 4,638,475
Additions 289,034 - 13,872 6,363 - 309,269 156,059
Capitalisations/ Transfers - - - - - - (12,305)
Balance at the End of the Period 658,709 2,797,761 42,525 23,640 1,568,863 5,091,498 4,782,229

Accumulated Amortisation and


Impairment
Balance at the Beginning of the Year 16,450 870,494 10,117 - 967,551 1,864,612 897,270
Amortised During the Year 40,592 186,517 9,284 - - 236,393 190,776
Impaired During the Year - - - - - - 776,566
Balance at the End of the Period 57,042 1,057,011 19,401 - 967,551 2,101,005 1,864,612

Carrying Value
As at Beginning of the Year 353,225 1,927,267 18,536 17,277 601,312 2,917,617 3,741,205
As at End of The Year 601,667 1,740,750 23,124 23,640 601,312 2,990,493 2,917,617

Company
For the year ended 31March, 2014 2013
Software cost and Total Total
implementation
(WIP)
Rs.000 Rs.000 Rs.000
Cost / Carrying Value
Balance at the Beginning of the 17,277 17,277 16,061
Year
Additions 6,363 6,363 1,216
Transfers - - -
Balance at the End of the Period 23,640 23,640 17,277

Carrying Value
As at the Beginning of the Year 17,277 17,277 16,061
As at the End of the Year 23,640 23,640 17,277

16.1
License Fees
License fee represents the operator license fee of Rs. 300 million which was paid in 1996, and amortised over 226
months on straight line basis commencing from that year. The External Gateway License fee of Rs. 4.85 million which
was renewed in 2013 amounting to Rs. 102Mn is amortised over a period of 10 years, commencing from 28th February
2013. The Wi-Max 2365-2380 MHz License Fee of Rs.306.12Mn was paid in 2011/12 and 2012/13 and operations
commenced on 01 July 2013.

120 Annual Report 2013/14


16.2
FLAG Cable
FLAG expenditure represents the expenditure incurred on undersea fiber optic cable link and the landing station , which
enables Lanka Bell to offer direct global connectivity and a complete end-to-end data connectivity solution. The total
expenditure will be amortised over the license period of 15 years on a straight line basis from August 2008.

16.3 Goodwill on Acquisition


Group has recognised an impairment loss of Rs. 776.5 Mn on the Goodwill which was recognised at the acquisition of
Pelwatte Sugar Industries PLC Group in year 2012/13..

17. Biological Assets


Group
As at 31 March, 2014 2013
Note Rs.000 Rs.000
Bearer Biological Assets 17.1 1,616,271 1,329,124
Consumer Biological Assets 17.2 1,559,765 1,475,236
3,176,036 2,804,360

17.1 Bearer Biological Assets


On Finance Lease (JEDB/SLSPC) 17.1.1 87,904 96,946
Investments after Formation of the Plantation Company 17.1.2 1,528,367 1,232,178
1,616,271 1,329,124

17.1.1 On Finance Lease (JEDB/SLSPC)


In terms of the ruling of the UITF of the Institute of Chartered Accountants of Sri Lanka prevailed at the time of
privatisation of plantation estates, all immovable assets in these estates under finance leases have been taken into the
books of the Company retroactive to 18th June 1992. For this purpose, the Board decided at its meeting on 8th March,
1995, that these assets be stated at their book values as they appear in the books of the JEDB/SLSPC, on the day
immediately preceding the date of formation of the Company. These assets are taken into the Statement of Financial
Position as at 18 June, 1992 and amortisation of immovable leased assets to 31 December 2013 are as follows.

Mature Plantations
For the year ended 31March, 2014 2013
Tea Rubber Total Total
Rs.000 Rs.000 Rs.000 Rs.000
Cost
Balance as at the Beginning of the Year 206,227 64,997 271,224 271,225
Balance as at the End of the Year 206,227 64,997 271,224 271,225

Accumulated Amortisation
Balance as at the Beginning of the Year 132,803 41,477 174,280 165,238
Amortisation for the Year 6,874 2,166 9,040 9,041
Balance as at the End of the Year 139,677 43,643 183,320 174,279
Carrying Amount 66,550 21,354 87,904 96,946

Investment in Immature Plantations at the time of handing over to the Company as at 18 June, 1992 by way of estate
leases were shown under Immature Plantations.

However, since then all such investments in immature plantations attributable to JEDB/ SLSPC period have been
transferred to mature plantations. These mature tea and rubber were classified as bearer biological assets in terms of
LKAS 41 - Agriculture. The carrying value of the bearer biological assets leased from JEDB/SLSPC is recognised at cost
less amortisation. Further investments in such plantations to bring them to maturity are shown in Note 17.1.2.

Distilleries Company of Sri Lanka PLC 121


NOTES TO THE FINANCIAL STATEMENTS

17.1.2 Investments after Formation of the Plantation Company


For the year ended 31March, 2014 2013
Immature Mature Total Total
Plantations Plantations
Rs.000 Rs.000 Rs.000 Rs.000
Cost
Balance as at the Beginning of the Year 826,287 663,175 1,489,462 1,255,591
Additions During the Year 324,488 - 324,488 233,871
Transfers (from)/to (9,935) 9,935 - -
Balance as at the End of the Year 1,140,840 673,110 1,813,950 1,489,462

Accumulated Amortisation
Balance as at the Beginning of the Year - 257,284 257,284 229,345
Charge for the Year - 28,299 28,299 27,939
Balance as at the End of the Year - 285,583 285,583 257,284
Carrying Amount at the End of the Year 1,140,840 387,527 1,528,367 1,232,178

These are investments in immature/ mature plantations since the formation of the Company. The assets (including
plantation assets) taken over by way of estate leases are set out in Notes 17.1.1 Further investment in immature
plantations taken over by way of these leases are shown in the above note. When such plantations become mature, the
additional investments since take over to bring them to maturity, will be moved from immature to mature under this
note.

The requirement for recognition of bearer biological assets at its fair value less cost to sell under LKAS 41 was
superseded by the ruling issued on March, 2nd 2012 by the Institute of Chartered Accountants of Sri Lanka.
Accordingly, the Company has elected to measure the bearer biological assets at cost using LKAS 16 - Property, Plant &
Equipment.

Specific borrowings have been obtained to finance the planting expenditure. The above additions include
Rs.43,136,174/= (2013-Rs.4,031,638/= ) of borrowing costs capitalised during the year.

17.2 Consumer Biological Assets


Group
For the year ended 31March, 2014 2013
Rs.000 Rs.000

Balance as at the Beginning of the Year 1,475,236 1,422,786


Gain/(Loss) Arising from Changes in Fair Value Less Cost to Sell 74,293 42,685
Increase Due to Development 10,236 9,765
Balance as at the end of the year 1,559,765 1,475,236

Managed timber plantations include commercial timber plantations cultivated in estates. The timber plantations are
recorded at fair value other than young trees which are recorded at cost as the significant biological transformation has
not taken place.

Managed timber plantation was measured at fair value initially as at 31 December 2012 and subsequently. The
corresponding gain/loss was recognised in the income statement. However fair value surplus was recognised in the equity
as a separate component which will be available for distribution only on realisation of consumable biological assets.

122 Annual Report 2013/14


Group
For the year ended 31March, 2014
Rs.000

Timber Reserve
Balance at the Beginning of the Year 1,308,826
Gain Recognised During the Year 74,294
Balance at the End of the Year 1,383,120

The fair value of managed timber plantations was ascertained since the LKAS 41 is only applicable for managed
agricultural activity in terms of the ruling issued by The Institute of Chartered Accountants of Sri Lanka. The valuation
was carried by Messers Mr. K.D Tissera, accredited Chartered valuers, using Discounted Cash Flow (DCF) methods. In
ascertaining the fair value of timber a physical verification was carried out covering all the estates.

Key assumption used in the Valuation


1. The harvesting is approved by the PMMD and Forestry Department Based on the Forestry Department Plan.
2. The current market prices used are net of selling expenditure.
3. Discount rate is 13%, a Sensitivity analysis at (+) or (-) 1% is also disclosed
4. Though the replanting is a condition precedent for harvesting , yet the costs are not taken into consideration, as these
are not considered to be material.

The valuations, as presented in the external valuation models based on net present values, take into account the long
term exploitation of the timber plantations. Because of the inherent uncertainty associated with the valuation at fair
value of the biological assets due to the volatility of the variables, their carrying value may differ from their realisable
value. The Board of Directors retains their view that commodity markets are inherently volatile and that long term price
projections are highly unpredictable. Hence, the sensitivity analysis regarding discount rate variations as included in this
note allows every investor to reasonably challenge the financial impact of the assumptions used in the LKAS 41 against
his own assumptions.

17.2.1 Sensitivity Analysis


Sensitivity Variation Discount Rate
Values as appearing in the Statement of Financial Position are very sensitive to changes of the discount rate applied.
Simulations made for timber trees show that a rise or decrease by 1% of the discount rate has the following effect on the
net present value of biological assets:

12% 13% 14%


Managed Timber 1,631,636 1,559,765 1,498,116
Total 1,631,636 1,559,765 1,498,116

18
Investments in Subsidiaries
As at 31 March, 2014 2013
Number of Effective Cost Number of Effective Cost
shares holding Rs.000 shares holding Rs.000

Melstacorp Limited 200,000,000 100% 35,558,000 200,000,000 100% 35,558,000


Timpex Limited 15,611,661 51.03% 156,117 15,611,661 51.03% 156,117
AION SG Residencies (Pvt) Ltd 2,500,000 100% 25,000 2,500,000 100% 25,000
Less: Provision for Impairment (25,000) (25,000)
of Investment
35,714,117 35,714,117

Distilleries Company of Sri Lanka PLC 123


NOTES TO THE FINANCIAL STATEMENTS

18.1
Group Holdings in Subsidiaries
Subsidiary Principal Activity Reporting Reason for using a Indirectly No. of shares Effective
date different period holding held ownership
through interest
1 Balangoda Plantations BPL Cultivation and processing 31-Dec To comply with the MC 10,217,300 43.23%
PLC of Tea & Rubber rules and regulations
in the Plantation
sector

2 Bell Solutions (Pvt) Ltd BSL Information & 31-Mar - LB 98,090 98.09%
Communication
Technology

3 Bellvantage (Pvt) Ltd BV BPO, KPO & Software 31-Mar - MC 5,000,100 100%
Development

4 Bogo Power (Pvt) Ltd BP Generation and sale of 31-Mar - MC 993,000,000 99.30%
Hydro Electric Energy

5 Browns Beach Hotels PLC BBH Leisure 31-Mar - MC 54,273,234 41.88%

6 Continental Insurance CIL General Insurance Services 31-Dec To comply with the MC 50,000,000 100%
Lanka Limited rules and regulations
in the Insurance sector

7 Lanka Bell Ltd LB Telecommunication 31-Mar - MH 50,719,061 99.73%


Services

8 Melstacorp Limited MC Investment Holding 31-Mar - - 200,000,000 100%


Company

9 Melsta Logistics (Pvt) Ltd ML Automobile Servicing and 31-Mar - MC 41,000,002 100%
Logistics

10 Melsta Regal Finance Ltd MRF Finance, Leasing, Hire 31-Mar - MC 134,029,451 100%
Purchasing and Factoring

11 Milford Holdings (Pvt) Ltd MH Investment Holding 31-Mar - MC 333,067,925 98.36%


Company

12 Negombo Beach Resorts NBR Leisure 31-Mar - BBH 91,400,001 41.88%


(Pvt) Ltd

13 Periceyl (Pvt) Ltd PPL Distribution of locally 31-Dec To operate in line MC 40,000 100%
manufactured Foreign with foreign strategic
Liquor alliances

14 Splendor Media (Pvt) Ltd SM Media Buying & Creative 31-Mar - MC 50,000 50%
Services

15 Telecom Frontier (Pvt) Ltd TF Telecommunication 31-Mar - LB 98,090 98.09%


Services

16 Texpro Industries Ltd TEXP Dyeing and Printing Woven 31-Mar - TIM 46,836,524 41.75%
Fabrics

17 Timpex Ltd TIM Investment Holding 31-Mar - - 15,611,661 51.03%


Company

18 Melsta Properties (Pvt) Ltd MP Management of Real Estate 31-Mar - MC 40,194,901 100%

124 Annual Report 2013/14


18.2 Significant Judgements and Assumptions Made in Determining Whether the Group has Control
Although the Group owns less that half of the voting rights of Browns Beach Hotel PLC (BBH) and Balangoda Plantations
PLC (BPL), the Group assessed that it is able to govern the financial and operating policies of BBH and BPL by virtue of
de facto control on the basis that the remaining share holders are widely depressed and there is no indication to believe
that all of them will exercise their votes collectively.

18.3 Disclosure of the Interest that Non-Controlling Interests Have in The Group’s Activities and
Cash Flows
18.3.1 Nature of Interests in Subsidiaries with Material NCI
Name of the subsidiary : Balangoda Plantations PLC Browns Beach Hotels
(BPL) PLC (BBH)
Principal place of business : In the areas of Ratnapura, No. 175, Lewis Place,
Balangoda and Badulla Negombo
Proportion of ownership interest held by non controlling interest : 56.77% 58.12%
Profit / (loss) allocated to non controlling interest (Rs. ‘000) : 75,312 52,818
Accumulated non controlling interest at the end of the : 1,564,974 2,076,569
reporting period (Rs. ‘000)

18.3.2 Summarised Financial Information of Subsidiaries that have Material NCI


BPL BBH
As at/ for the year ended 31 March, 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000

Dividends Paid to Non Controlling Interests 13,419 - - -


Current Assets 835,147 745,843 1,048,716 1,869,577
Non Current Assets 3,997,908 3,642,643 2,536,628 1,638,450
Current Liabilities 947,133 629,755 12,127 26,295
Non Current Liabilities 1,129,373 1,132,347 471 695
Revenue 3,171,983 2,779,742 - -
Profit from Continuing Operations 132,654 92,205 93,249 187,744
Other Comprehensive Income 21,147 - 442 -
Total Comprehensive Income 153,801 92,205 93,691 187,744

Distilleries Company of Sri Lanka PLC 125


NOTES TO THE FINANCIAL STATEMENTS

19 Investment in Equity Accounted Investees


Group
As at 31 March, 2014 2013
No. of Shares Effective Equity Value Cost No. of Shares Effective Equity Value Cost
Holding Holding
Rs.000 Rs.000 Rs.000 Rs.000
(Note 19.1) (Note 19.1)
Aitken Spence PLC 167,030,743 41.14% 22,538,992 14,239,687 161,647,628 39.81% 20,303,398 13,732,051
Madulsima Plantations PLC 9,048,307 31.20% 455,517 90,000 9,048,307 31.20% 525,303 90,000
Pelwatte Dairies (Pvt) Ltd - - - - 286,847,001 24.38% 86,284 100,000
22,994,509 14,329,687 20,914,985 13,922,051

Company
As at 31 March, 2014 2013
No. of Shares Effective Holding Cost No. of Shares Effective Holding Cost
Rs.000 Rs.000
Aitken Spence PLC 186,500 0.001% 28,703 186,500 0.001% 28,703
28,703 28,703

19.1 Equity Value of Investment in Equity Accounted Investees to the Group


Equity Accounted Balance as at Acquisitions/ Share of Profit/ Dividend Share of Other Share of Balance As
Investee 1 April 2013 (Disposal) (Loss) Net Received Comprehensive Net Assets At 31 March
of Tax Income 2014
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Aitken Spence PLC 20,303,398 507,636 1,508,771 (250,236) 462,671 6,752 22,538,992
Madulsima Plantations PLC 525,303 - (68,590) - (1,197) 455,517
Pelwatte Dairies (Pvt) Ltd 86,284 (86,284) - - - -
20,914,985 421,352 1,440,182 (250,236) 461,474 6,752 22,994,509

19.2 Market Value Quoted Equity Accounted Investees and Other Information
Principal Activity Reporting Date Group Company
As at 31 March, 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000

Aitken Spence PLC Diversified holdings 31 March 16,352,310 19,333,056 18,258 22,305
Madulsima Plantations PLC Cultivation and 31 December 91,388 111,294 - -
processing of Tea
16,443,698 19,444,350 18,258 22,305

126 Annual Report 2013/14


19.3 Disclosure of Nature, Extent and Financial Effects of the Entity’s Interests in Associates
19.3.1 Associates that are individually material to the group
Name of the associate : Aitken Spence PLC Madulsima Plantations PLC

Principal place of business : No.315, Vauxhall Street, Colombo In the areas of Madulsima and
02. Bogawanthalawa.

Principal Activities : Investment Holding Company Cultivation and plantation of tea

Proportion of ownership interests : 41.14% 31.20%

Whether strategic to the Group : Yes Yes

Investment in associate is measured using : Equity method Equity method

Summarised financial information (entire amount reported in associate’s financial statements)

Aitken Spence PLC Madulsima Plantations PLC


As at / for the year ended 31March, 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000

Total current assets 25,865,144 22,408,357 452,701 417,643


Total non current assets 35,280,093 33,742,653 3,891,249 3,653,715
Total current liabilities 13,816,605 15,450,825 1,862,099 1,424,427
Total non current liabilities 8,550,368 7,197,484 911,134 852,755
Revenue 36,108,370 36,606,286 2,056,721 1,693,075
Profit / (loss) from continuing operations 4,508,635 4,275,511 (219,628) (66,686)
Other comprehensive income / (Expenses) 1,286,282 242,273 (3,831) 45,960
Total comprehensive income / (Expenses) 5,794,917 4,517,784 (223,459) (20,726)
Cash and cash equivalents 2,728,514 2,217,994 2,364 1,065
Depreciation and amortisation. 1,499,420 1,349,568 73,142 88,401
Interest income. 800,721 704,339 205 160
Interest expense. 1,145,540 1,327,591 111,840 86,681
Income tax expense 900,476 749,970 3,620 3,556

Distilleries Company of Sri Lanka PLC 127


NOTES TO THE FINANCIAL STATEMENTS

20
Other Financial Investments
Group Company
As at 31 March, 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000

Non Current Investments


Available For Sale Financial Investments - (AFS) 20.1 15,572,892 14,512,561 6,349,895 5,897,294
Loans and Receivables (L&R) Financial 20.4 181,765 - - -
Investments
Other Non Current Financial Investments 15,754,657 14,512,561 6,349,895 5,897,294

Current Investments
Available for Sale Financial Investments - (AFS) 20.1 114,777 - 475 -
Fair Value Through Profit or Loss (FVTPL) 20.2 1,950,144 1,668,328 783,927 684,758
Financial Investments
Held to Maturity (HTM) Financial 20.3 - 100,148 - -
Investments
Loans and Receivables (L&R) Financial 20.4 254,893 - - -
Investments
Other Current Financial Investments 2,319,814 1,768,476 784,402 684,758

20.1 Available for Sale Financial Investments - (AFS)
Non Current Investments
Quoted Equity Securities 20.1.1 15,333,884 14,468,554 6,126,218 5,894,287
Unquoted Equity Securities 20.1.2 338 30,007 7 7
Investments in Unit Trusts 20.1.3 3,000 3,000 3,000 3,000
Debt Securities 20.1.4 235,670 11,000 220,670 -
15,572,892 14,512,561 6,349,895 5,897,294

Current investments
Quoted equity securities 20.1.5 114,777 - 475 -
114,777 - 475 -

128 Annual Report 2013/14


20.1.1 Quoted Equity Securities - Non Current Investments - AFS
Group Company
As at 31 March, 2014 2013 2014 2013
No. of Shares / Cost Fair Value No. of Shares Cost Fair Value No. of Shares Cost Fair Value No. of Shares Cost Fair Value
Warrants Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Diversified investments
John Keells Holdings PLC 36,538,938 7,202,026 8,294,340 31,537,216 6,324,684 7,789,692 40,597 8,845 9,216 37,333 6,233 9,221
John Keells Holdings PLC - Warrants 2016 1,668,129 - 119,938 - - - 1,921 - 138 - - -
7,202,026 8,414,278 6,324,684 7,789,692 8,845 9,354 6,233 9,221

Bank finance & insurance


Commercial Bank of Ceylon PLC 18,845,020 567,958 2,317,938 18,697,963 552,191 2,112,870 17,498,457 432,332 2,152,311 17,373,575 418,948 1,963,214
Commercial Bank of Ceylon PLC-NV 50,980 3,639 4,945 49,981 3,549 4,843 50,980 3,639 4,945 49,981 3,549 4,843
DFCC Bank PLC 17,042,856 599,951 2,452,467 17,042,856 599,951 2,234,318 17,042,856 599,951 2,452,467 17,042,856 599,951 2,234,318
Hatton National Bank PLC 10,016,272 494,946 1,502,441 10,016,272 494,946 1,675,722 10,016,272 494,946 1,502,441 10,016,272 494,946 1,675,722
Hatton National Bank PLC - NV 39,169 4,593 4,700 52,874 6,150 6,969 39,169 4,593 4,700 52,874 6,150 6,969
National Development Bank PLC 1,626 150 261 1,626 150 150 - - - - - -
1,671,237 6,282,752 1,656,936 6,034,872 1,535,461 6,116,864 1,523,544 5,885,066

Beverage, Food & Tobacco


Lanka Milk Foods (CWE) PLC 5,946,351 606,108 636,854 5,946,351 606,108 643,990 - - -
606,108 636,854 606,108 643,990 - - - -
Manufacturing
Pelwatte Sugar Industries PLC 33,140,501 926,473 - - - - - - -
926,473 - - - - - - -
Total Quoted Equity Securities - AFS 10,405,845 15,333,884 8,587,728 14,468,554 1,544,306 6,126,218 1,529,777 5,894,287

20.1.2 Unquoted Equity Securities - AFS


International Distilleries Lanka Ltd 100 3 3 100 3 3 100 3 3 100 3 3
Northern Green Agro (Pvt) Ltd - - - - 15,000 15,000 - - - - -
Southern Green Agro (Pvt) Ltd - - - - 15,000 15,000 - - - - -
Credit Investment Bureau of Sri Lanka 3,310 331 331 - - - - - - - -
W.M.Mendis & Co., Ltd 200 4 4 200 4 4 200 4 4 200 4 4
Total Unquoted Equity Securities - AFS 338 338 30,007 30,007 7 7 7 7

20.1.3 Investments in Unit Trusts


Unit Trust Mgt Co., Ltd 300,000 3,000 3,000 300,000 3,000 3,000 300,000 3,000 3,000 300,000 3,000 3,000
Total Investments in Unit Trusts - AFS 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000

Distilleries Company of Sri Lanka PLC


129
NOTES TO THE FINANCIAL STATEMENTS

20.1.4 Debt Securities - AFS


As at 31 March, Group Company
Fair Value Fair Value
2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000
Corporate Debentures 235,670 11,000 220,670 -
235,670 11,000 220,670 -

20.1.5 Quoted Equity Securities - Current Investments - AFS


Group Company
As at 31 March, 2014 2013 2014 2013
No. Of Fair Value No. of Fair Value No. of Fair Value No. of Fair Value
Warrants Rs.000 Warrants Rs.000 Warrants Rs.000 Warrants Rs.000
John Keells Holdings PLC- 1,673,129 114,777 - - 6,921 475 - -
Warrents 2015
114,777 - - 475 - -

20.2 Fair Value through Profit or Loss (FVTPL) Financial Investments


Group Company
As at 31 March, Fair Value Fair Value
2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000
Quoted Equity Securities 20.2.1 1,567,065 1,526,614 783,927 684,758
Investments in Unit Trusts 20.2.2 258,772 141,714 - -
Quoted Debentures 20.2.3 124,307 - - -
1,950,144 1,668,328 783,927 684,758

20.2.1
Quoted Equity Securities - FVTPL
Group Company
As at 31 March, 2014 2013 2014 2013
No. of Shares Fair Value No. of Shares Fair Value No. of Shares Fair Value No. of Shares Fair Value
Rs.000 Rs.000 Rs.000 Rs.000
Bank, Finance & Insurance
People's Leasing Company PLC 26,478,500 378,367 28,439,700 372,787 24,517,300 350,597 24,517,300 321,177
Commercial Bank PLC - Voting 75,000 9,030 29,260 3,014 - - - -
Commercial Bank PLC - Non Voting 42,027 4,641 14,979 1,365 - - - -
Sampath Bank PLC 201,413 36,182 49,305 10,804 152,794 27,824 37,658 8,469
Central Finance PLC 131,750 23,723 131,750 23,275 106,950 19,358 106,950 19,250
Nations Trust Bank PLC 258,000 16,603 133,000 7,963 206,000 13,369 103,000 6,283
National Development Bank PLC 68,500 12,053 - - 58,500 10,448 -
Ceylinco Insurance PLC-Non Voting 14,861 6,193 16,861 5,532 10,990 4,649 12,490 4,087
Hatton National Bank PLC - Non Voting 9,463 1,126 23,775 2,675 - - - -
Union Bank PLC 6,000 112 306,800 3,113 6,000 112 6,000 102
488,030 430,528 426,357 359,368
Beverage, Food & Tobacco
Ceylon Tobacco PLC 11,600 12,635 20,600 16,428 8,600 9,082 13,600 10,618
Cargills (Ceylon) PLC 49,900 6,950 49,900 7,492 36,700 5,010 36,700 5,571
Bairaha Farms PLC 49,574 7,108 28,648 4,352 39,274 5,781 20,348 3,046
Keells Food Products PLC 110,669 6,272 87,302 6,230 84,221 4,632 64,854 4,546
Ceylon Cold Stores PLC 68,970 9,799 71,970 9,553 49,583 6,976 51,083 6,942
The Lion Brewery PLC - - 136,723 40,652 - - 59,322 19,754
Lanka Milk Foods (CWE) PLC 763,733 81,796 763,733 82,712 763,733 81,796 763,733 82,712
Renuka Agri Foods PLC 6,768,560 22,243 21,511,995 35,590 4,668,560 14,473 4,668,560 19,141
146,803 203,009 127,750 152,330

130 Annual Report 2013/14


20.2.1 Quoted Equity Securities - FVTPL (Contd.)
Group Company
As at 31 March, 2014 2013 2014 2013
No. of Shares Fair Value No. of Shares Fair Value No. of Shares Fair Value No. of Shares Fair Value
Rs.000 Rs.000 Rs.000 Rs.000
Hotel and Travels
The Kingsbury Hotel PLC 1,323,600 17,224 1,323,600 20,345 618,600 7,918 618,600 8,289
Aitken Spence Hotel Holdings PLC 84,400 5,906 84,400 6,225 61,300 4,291 61,300 4,536
Asian Hotels & Properties PLC - - - - - - -
Serendib Hotels PLC 220,000 6,244 220,000 5,202 160,000 4,480 160,000 3,792
John Keells Hotels PLC 528,850 6,611 528,850 7,065 388,850 4,861 388,850 5,133
35,985 38,836 21,550 21,750
Diversified Investment
CT Holdings PLC 1,475,500 199,193 1,480,500 186,828 - - - -
Vallibel One PLC 124,200 2,080 124,200 2,118 - - - -
Carsons Cumberbatch PLC 29,400 10,731 29,400 12,936 - - - -
Softlogic Capital PLC 40,000,000 156,000 40,000,000 224,000 - - - -
Softlogic Holding PLC 380,000 4,028 830,000 8,707 380,000 4,028 680,000 7,072
Free Lanka Capital Holdings PLC 2,850,850 5,987 2,850,850 7,127 2,850,850 5,987 2,850,850 7,127
Expo Lanka Holdings PLC 872,000 7,298 240,000 6,114 632,000 5,498 652,000 4,434
John Keells Holdings PLC 19,190 4,362 19,400 4,266 - - - -
John Keells Holdings PLC - Warrant 2015 3,163 253 - - - - - -
John Keells Holdings PLC - Warrant 2016 1,163 110 - - - - - -
Renuka Holdings PLC 67,358 2,061 134,858 4,868 - -
392,103 456,964 15,513 18,633
Manufacturing
Textured Jersey Lanka PLC 13,511,928 212,955 16,206,028 172,003 - - - -
Chevron Lanka Lubricants PLC 37,500 9,944 39,000 8,373 28,000 7,400 33,000 7,161
Bukit Darah PLC 72,200 42,663 72,200 50,937 - - - -
ACL Cables PLC 249,000 15,630 299,000 19,894 136,000 8,296 136,000 8,908
Royal Ceramics Lanka PLC 85,200 6,852 65,200 6,478 67,100 5,321 47,100 4,686
Tokyo Cement PLC -Voting 440,400 12,225 491,000 9,217 150,000 5,430 144,000 2,520
Tokyo Cement PLC -Non Voting 418,400 12,134 - - 418,400 12,134 - -
Lanka Tiles PLC 123,208 9,433 123,208 8,413 89,815 6,799 89,815 6,242
Lanka IOC 100,000 3,850 - - 100,000 3,850 -
325,686 275,315 49,230 29,517
Construction & Engineering
Access Engineering PLC 418,497 9,367 488,497 9,373 295,797 6,655 340,797 6,714
Colombo Dockyard PLC 21,083 3,818 30,662 6,652 12,053 2,106 21,812 4,670
13,185 16,025 8,761 11,384
Chemicals and Pharmaceuticals
Heycarb PLC 67,755 12,418 46,455 8,103 50,255 9,096 31,455 5,536
12,418 8,103 9,096 5,536
Plantations
Kegalle Plantation PLC - - 55,000 6,160 - - 55,000 6,160
- 6,160 - 6,160
Telecommunication
Dialog Axiata PLC 2,280,893 20,528 2,155,600 19,169 861,951 7,758 1,824,200 16,418
20,528 19,169 7,758 16,418
Power & Energy
Vallibel Power Erathna PLC 1,605,425 9,080 1,358,425 7,927 1,155,024 6,468 1,003,024 5,617
9,080 7,927 6,468 5,617
Hospitals
Asiri Hospitals Holdings PLC 5,222,890 112,538 4,782,370 54,379 4,672,890 103,738 4,432,370 50,529
Ceylon Hospitals PLC - Non Voting 140,120 10,709 140,120 10,199 100,080 7,706 100,080 7,516
123,247 64,578 111,444 58,045
Total Quoted Equity Securities - FVTPL 1,567,065 1,526,614 783,927 684,758

Distilleries Company of Sri Lanka PLC 131


NOTES TO THE FINANCIAL STATEMENTS

20.2.2 Investments in Unit trusts - FVTPL


Group
As at 31 March, 2014 2013
No. of Units Fair Value No. of Units Fair Value
Rs.000 Rs.000

Namal High Yield Fund 5,186,213 66,416 3,178,987 35,819


JB Vantage Money Market Fund 4,964,585 66,312 3,031,222 35,405
Eagle Income Fund 3,741,112 40,254 3,286,385 35,329
Eagle Money Fund 2,107,020 25,745 - -
Ceybank Savings Plus Money Market Fund 5,639,583 60,045 3,228,782 35,161
Total Unit Trust Investment -FVTPL 258,772 141,714

20.2.3 Quoted Debentures - FVTPL


Group
As at 31 March, 2014 2013
Carrying Value Fair Value Carrying Value Fair Value
Rs.000 Rs.000 Rs.000 Rs.000

People's Leasing Company PLC 50,000 52,427 - -


Hatton National Bank PLC 19,003 19,844 - -
Senkadagala Finance PLC 20,000 20,618 - -
Lion Brewery (Ceylon ) PLC 15,000 15,736 - -
Hayleys PLC 15,000 15,682 - -
Total Investments In Quoted Debentures - FVTPL 119,003 124,307 - -

20.3 Held to Maturity (HTM) Financial Investments


Group
As at 31 March, 2014 2013
Rs.000 Rs.000
Commercial Papers - 100,148
- 100,148

20.4 Loans and Receivables (L&R) Financial Investments


Non Current Investments
Corporate Debentures 181,765 -
181,765 -
Current Investments
Treasury Bills Matures After 3 Months 42,516
Trust Certificates 212,377 -
254,893 -

20.5 Investments that have been Pledged


The Investments that are pledged for Liabilites are disclosed in Note 41 to these financial statements if any.

132 Annual Report 2013/14


21 Deferred Tax Asset and Liabilities
21.1 Recognised Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are attributable to the following:
Group
As at 31 March, 2014 2013
Assets Liabilities Net Asset Liabilities Net
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Property, Plant and Equipment (11,382) 416,080 404,698 - 500,154 500,154
Biological Assets - 308,814 308,814 - 272,438 272,438
Employee Benefits (154,545) - (154,545) (192,796) - (192,796)
Accelerated Tax Depreciation on - 8,456 8,456 - 6,463 6,463
Leasing Assets
Unutilised Tax Loss Carry-Forwards (230,889) - (230,889) (172,083) - (172,083)
(396,816) 733,350 336,534 (364,879) 779,055 414,176

Company
As at 31 March, 2014 2013
Assets Liabilities Net Asset Liabilities Net
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Property, Plant and Equipment - 60,958 60,958 - 44,230 44,230


Employee Benefits (44,068) - (44,068) (46,145) - (46,145)
(44,068) 60,958 16,890 (46,145) 44,230 (1,915)

21.1.1 Movement in Recognised Deferred Tax Assets and Liabilities


Group
Charged/(Credited)
Balance as at De-Recognition in in Other Directly in Balance as at
1 April 2013 of Subsidiary Profit or Loss Comprehensive Equity 31 March 2014
Income
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Property, Plant and Equipment 500,154 (147,595) 52,139 - - 404,698
Biological Assets 272,438 - 36,376 - - 308,814
Employee Benefits (192,796) 38,827 (7,552) 6,976 - (154,545)
Accelerated Tax Depreciation on 6,463 - 1,993 - - 8,456
Leasing Assets
Unutilised Tax Loss Carry-Forwards (172,083) - (58,806) - - (230,889)
414,176 (108,768) 24,150 6,976 - 336,534

Company
Charged/(credited)
Balance as at in in other directly in Balance as at
1 April 2013 Profit or loss comprehensive equity 31 March 2014
income
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Property, Plant and Equipment 44,230 21,694 - (4,967) 60,957
Employee Benefits (46,145) (155) 2,233 - (44,067)
(1,915) 21,539 2,233 (4,967) 16,890

Distilleries Company of Sri Lanka PLC 133


NOTES TO THE FINANCIAL STATEMENTS

21.2 Unrecognised Deferred Tax Assets


Deferred tax assets have not been recognised in respect of the following items:
Group Company
For the year ended 31March, 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000

Tax Losses 161,792 179,338 - -


Other Deductible Temporary Differences 150,519 176,710 - -
312,311 356,048 - -
Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable
profits will be available against which the Group can utilise the benefits there from.

22 Finance Lease, Hire Purchases and Operating Lease Receivables


Group
2014 2013
As at 31 March, Finance Hire Operating Total Finance Hire Operating Total
Lease Purchase Lease Lease Purchase Lease
Receivables Receivables Receivables Receivables Receivables Receivables
Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Non Current Assets
Receivable from One to Five Years 22.1 199,562 101,802 - 301,364 101,402 20,649 - 122,051
199,562 101,802 - 301,364 101,402 20,649 - 122,051
Current Assets
Receivable Within One Year 22.2 77,633 36,566 - 114,199 31,478 7,054 - 38,532
77,633 36,566 - 114,199 31,478 7,054 - 38,532

22.1 Receivable from One to Five Years


Gross Rental Receivable 258,125 133,997 - 392,122 139,465 27,106 - 166,571
Unearned Interest Income (58,563) (32,195) - (90,758) (38,063) (6,457) - (44,520)
Allowance for Impairment - - - - - - - -
199,562 101,802 - 301,364 101,402 20,649 - 122,051

22.2 Receivable within One Year


Gross Rental Receivable 127,759 61,441 - 189,200 60971 12894 - 73,865
Unearned Interest Income (50,126) (24,875) - (75,001) (29,493) (5,840) - (35,333)
Allowance for Impairment - - - - - - - -
77,633 36,566 - 114,199 31,478 7,054 - 38,532

134 Annual Report 2013/14


23
Advances and Other Loans
Group
As at 31 March, 2014 2013
Loans and Factoring Total Loans and Factoring Total
advances receivables advances receivables
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Note 23.1 Note 23.1
Non Current Assets
Receivable from One to Five Years 151,984 - 151,984 100,118 - 100,118
151,984 - 151,984 100,118 - 100,118
Current Assets
Receivable within One Year 433,622 239,393 673,015 40,205 61,389 101,594
433,622 239,393 673,015 40,205 61,389 101,594
Total 585,606 239,393 824,999 140,323 61.389 201.712

23.1
Loans and Advances
Group
As at 31 March, 2014 2013
Loans and Factoring Total Loans and Factoring Total
advances receivables advances receivables
Notes Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Loans Secured by Fixed Deposits 687 - 687 1,367 - 1,367
Loans Secured by Other Assets 259,363 - 259,363 87,543 - 87,543
Trade Finance Receivables 328,259 - 328,259 51,413 51,413
Allowance for Impairment 23.2 (2,703) - (2,703) - - -
585,606 - 585,606 140,323 - 140,323

23.2
Allowance for Impairment
Collective Allowance for Impairment
Balance as at 1 April - - - - - -
Charge for the Year 2,703 - 2,703 - - -
Balance as at 31 March 2,703 - 2,703 - - -

24 Inventories
Group Company
As at 31 March, 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000

Raw Materials 1,361,500 2,779,129 1,107,897 1,385,421


Packing Materials 518,818 752,514 453,429 421,270
Work in Progress 269,330 284,130 136,877 145,193
Finished Goods 650,638 563,180 283,012 290,930
Harvested Crop 376,037 708,660 - -
Nurseries 21,519 15,747 - -
Input Materials, Consumables and Spares 2,124,555 1,675,851 270,384 266,427
Goods in Transit 25,035 45,451 - -
5,347,432 6,824,662 2,251,599 2,509,241
Provision for Slow Moving and Obsolete Inventories (911,636) (684,957) (5,443) (5,443)
4,435,796 6,139,705 2,246,156 2,503,798

24.1 Inventories that have been Pledged


The Inventories that are pledged for Liabilites are disclosed in Note 41 to these financial statements if any.

Distilleries Company of Sri Lanka PLC 135


NOTES TO THE FINANCIAL STATEMENTS

25 Trade and Other Receivables


Group Company
As at 31 March, 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000

Financial Assets
Trade Receivables 4,975,673 3,063,258 2,534,074 2,209,016
Other Financial Receivables 1,213,119 2,560,888 452,161 325,926
Receivable from Share Trust 25.1 1,446,830 1,471,493 - -
Insurance Contract Receivables 371,872 342,952 -
Loans Given to Employees 4,123 17,879 - -
Refundable Deposits 24,012 10,999 3,421 3,354
8,035,629 7,467,469 2,989,656 2,538,296
Provision for Impairment Loss on Financial Assets (958,913) (1,462,110) (154,766) (130,785)
7,076,716 6,005,359 2,834,890 2,407,511

Non Financial Assets


Prepayments and Advances 1,440,808 1,375,391 1,054,318 832,333
Accrued Income 66,394 131,018 66,394 126,246
Tax Recoverables 220,355 217,721 - -
Prepaid Staff Costs 31,829 27,723 - -
Other Non Financial Receivables 884,501 70,751 - -
2,643,887 1,822,604 1,120,712 958,579
Provision for Bad and Doubtful Debts - - - -
2,643,887 1,822,604 1,120,712 958,579
9,720,603 7,827,963 3,955,602 3,366,090

25.1 Receivable from Share Trust


Melstacorp Limited has acquired 8,650,732 shares of the Company for Rs.1,446.83 Mn in order to form a Share Trust
for the benefit of its employees. Melstacorp Limited Share Trust (Trustee) was created effective from 1 April 2011 for the
holding of shares. Melstacorp Limited and the trustees will initiate an inter transfer of said shares to be held in the name
of the trustees as per the provision in the trust deed ratified by the board on 9 August 2012.

26 Cash at Bank and Cash in Hand


Group Company
As at 31 March, 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000
Favorable Balances Classified Under Current Assets

Short Term Deposits 26.1 3,044,934 3,824,871 82,062 70,410


Cash At Bank 595,628 504,495 61,719 193,501
Cash in Hand 206,471 235,886 199,883 231,501
Cash in Transit 76,479 277,394 76,439 270,787
Total 3,923,512 4,842,646 420,103 766,199

Unfavorable Balances Classified Under Current Liabilities


Bank Overdrafts 5,120,243 5,695,903 3,810,832 4,736,030
Total 5,120,243 5,695,903 3,810,832 4,736,030

(1,196,731) (853,257) (3,390,729) (3,969,831)

136 Annual Report 2013/14


26.1 Short term deposits
Group Company
As at 31 March, 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000

Government Securities which Matures Within 3 Months 867,271 715,337 - -


Fixed Deposits which Matures Within 3 Months 2,177,663 3,109,534 82,062 70,410
3,044,934 3,824,871 82,062 70,410

26.1.1 Short Term Deposits that have been Pledged


The Short term deposits that are pledged for Liabilites are disclosed in Note 41 to these financial statements if any.

27 Non Current Assets held for Sale


Group Company
As at 31 March, 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000

Property, Plant and Equipment - 518 - -


- 518 - -

27.1 Consequent to the decision taken to demolish and reconstruct the new hotel the carrying amount of assets held by
Browns Beach Hotels PLC is recognised under assets held for sale.

28 Stated Capital
For the year ended 31March, 2014 2013
No. of Shares Value of Shares No. of Shares Value of Shares
Rs.000 Rs.000

Balance at the Beginning of the Year 300,000,000 300,000 300,000,000 300,000


Issue of Shares - - - -
Balance at the End of the Year 300,000,000 300,000 300,000,000 300,000

The Company’s stated capital consist of fully paid ordinary shares which provides entitlement to its holders to receive
dividends as declared from time to time and to vote per share at a meeting of the Company.

29 Reserves
Group Company
As at 31 March, 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000

Capital Reserves
Revaluation Reserve 29.1 5,793,558 5,356,699 1,971,799 2,052,242
Capital Reserve 29.2 110,930 110,930 107,882 107,882
Reserve Fund 29.3 1,798 1,131 - -
Total Capital Reserves 5,906,286 5,468,760 2,079,681 2,160,124

Revenue Reserves
General Reserve 29.4 8,222,578 8,210,000 8,210,000 8,210,000
Exchange Fluctuation Reserve 29.5 374,881 328,935 - -
Timber Reserve 29.6 597,921 565,806 - -
Afs Reserve 29.7 5,727,503 5,870,033 4,581,774 4,364,511
Investment Fund 29.8 2,844 1,990 - -
Total Revenue Reserves 14,925,727 14,976,764 12,791,774 12,574,511
Total Reserves 20,832,013 20,445,524 14,871,455 14,734,635

Distilleries Company of Sri Lanka PLC 137


NOTES TO THE FINANCIAL STATEMENTS

29.1 Revaluation reserve


The revaluation reserve comprises of the gain arisen from the revaluation of Property, Plant and Equipment. This reserve
is realised upon the derecognition of the revalued Property, Plant and Equipment.

29.2 Capital reserve


Capital reserve comprises profits retained in order to utilise for the capital commitments.

29.3 Reserve fund


Reserve fund was created to comply with the Direction No.1 of 2003 (Capital funds) issued by the Central Bank. The
Company is required to transfer 5% of annual profits to this reserve fund as long as the capital funds are not less 25% of
total deposit liabilities.

29.4 General reserve


General reserve reflects the amount the Group has reserved over the years from its earnings.

29.5 Exchange fluctuation reserve


Exchange fluctuation reserve comprises of all foreign exchange differences arising from the translation of foreign
subsidiaries of equity accounted investees in the Group and the portion of exchange gain or loss arising from the
translation of the hedge instrument in relation to cash flow hedges.

29.6 Timber reserve


This represents the unrealised gains arising from the fair value of consumable biological assets (Timber plantations) until
the assets are derecognised or impaired.

29.7 AFS reserve


This represents the cumulative net change in the fair value of available-for-sale financial assets until the investments are
derecognised or impaired.

29.8 Investment fund


The reserve is created in accordance with the Central Bank guidelines issued to create an Investment Fund reserve by
transferring

- 8% of the profits liable for VAT on financial services monthly when the payment of VAT on financial services for such
month becomes due

- 5% of the profits before tax calculated for payment of income tax purposes on dates specified in the Inland Revenue
Act for the self assessment payment of tax.

138 Annual Report 2013/14


30 Interest Bearing Loans and Borrowings
Group Company
As at 31 March, 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000

Non Current Liabilities


Term Loans Payable after One Year 30.1 549,408 501,713 - 125,006
Liability to Make Lease Payments Payable After One Year 30.2 98,852 100,504 - -
Finance Lease Liabilities Payable After One Year 30.3 22,715
670,975 602,217 - 125,006

Current Liabilities
Term Loans Payable Within One Year 30.1 625,856 1,782,383 - 1,144,996
Liability To Make Lease Payments Payable 30.2 1,653 1,590 - -
Within One Year
Finance Lease Liabilities Payable Within One Year 30.3 5,062 - - -
Other Short Term Borrowings 6,958,577 3,060,289 6,215,006 2,570,002
Redeemable Preference Shares 30.4 12,646 12,646 - -
7,603,794 4,856,908 6,215,006 3,714,998

30.1 Term Loans


Group Company
As at 31 March, 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000

Balance as at Beginning of the Year 2,284,095 2,970,106 1,270,002 1,915,000


Received During the Year 1,477,684 1,396,517 - 500,000
Acquisition / (De- Recognition) of Subsidiaries (152,089) - - -
Repaid During the Year (2,434,426) (2,082,527) (1,270,002) (1,144,998)
1,175,264 2,284,096 - 1,270,002

Repayable within one Year 625,856 1,782,383 - 1,144,996


Repayable after one Year 549,408 501,713 - 125,006
1,175,264 2,284,096 - 1,270,002

30.2 Liability to Make Lease Payments


Group Company
As at 31 March, 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000

Gross Liability as at the Beginning of the Year 184,058 189,731 - -


Repayments During the Year (5,673) (5,673) - -
178,385 184,058 - -
Finance Costs Allocated to Future Years (77,880) (81,964) - -
Net Liability as at the End of the Year 100,505 102,094 - -

Repayable within one Year


Gross Liability 5,673 5,673 - -
Finance Costs Allocated to Future Years (4,020) (4,083) - -
Net Liability 1,653 1,590 - -

Distilleries Company of Sri Lanka PLC 139


NOTES TO THE FINANCIAL STATEMENTS

30.2 Liability to Make Lease Payments (Contd.)


Group Company
As at 31 March, 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000

Repayable within Two to Five Years


Gross Liability 22,692 22,692 - -
Finance Costs Allocated to Future Years (15,385) (15,671) - -
Net Liability 7,307 7,021 - -

Repayable after Five Years


Gross Liability 155,693 155,693 - -
Finance Costs Allocated to Future Years (64,148) (62,210) - -
Net Liability 91,545 93,483 - -

Finance Lease Liabilities Payable after One Year 98,852 100,504 - -

The lease of the estates have been amended, with effect from 11th June 1996 to an amount substantially higher
than the previous lease rental of Rs. 500/= per estate per annum. The first rental payable under the revised basis is
Rs.5,673 million from 11th June 1997.This amount is to be inflated annually by the Gross Domestic Product (GDP)
deflator, and is in the from of Contingent rental. The contingent rental charged to the Income statement amounted to
Rs.20,294,271/= Which is based on GDP deflator of 8.9% (2012)

The Statement of Recommended Practice (SoRP) for Right-to-use of Land on Lease was approved by the Council
of the Institute of Chartered Accountants of Sri Lanka on 19th December 2012. Subsequently, the amendments to
the SoRP along with the modification to the title as Statement of Alternative Treatment (SoAT) were approved by the
Council on 21st August 2013. The Company has not reassessed the Right-to-use of Land because this is not mandatory
requirement. However, if the liability is reassessed according to the alternative treatment (SoAT) on the assumption that
the lease rent is increased constantly by GDP deflator of 4% and discounted at a rate of 13% , liability would be as
follows.

As at 31 March, 2014
Rs.000

Gross Liability 1,620,514


Finance Charges (1,105,970)
Net Liability 514,544

The above reassessed liability is not reflected in theses financial statements.

30.3 Finance Lease


Financial Institution Terms of Repayment Repayable Repayable Repayable Total as at
within One within 2-5 after 5 Year 31/03/2014
Year Year
Central Finance 60 equal monthly instalments @ 5,062 22,715 - 27,777
Company PLC Rs. 707,793/- commencing from
23.05.2013

30.4 Redeemable Preference Shares


As per LKAS/ SLFRS requirements, preference shares of 1,264,616 amounting to Rs. 12.646 Mn which is redeemable
as per the terms of an agreement has been classified as borrowings based on the features of the said shares. Therefore
the purpose of the financial reporting, the Company has classified the redeemable preference shares under borrowings.

140 Annual Report 2013/14


31 Employee Benefits
Group Company
As at 31 March, 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000

Present Value of Unfunded Obligations 31.1 831,769 1,147,982 110,170 115,365


Present Value of Funded Obligations - - - -
Total Present Value of Obligations 831,769 1,147,982 110,170 115,365
Fair Value of Planed Assets - - - -
Provision for Retirement Benefit Obligations 831,769 1,147,982 110,170 115,365

31.1 Movement in Present Value of Defined Benefit Obligations


Group Company
For the year ended 31 March, 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000

Balance as at Beginning of the Year 1,147,982 1,103,085 115,365 116,105


Acquisition/ (De-Recognition) of Subsidiaries (330,811) - - -
Benefits Paid by the Plan (106,980) (97,640) (21,056) (12,567)
Expense Recognised in the Profit or Loss 31.1.1 151,125 152,584 21,445 18,494
Actuarial (Gain) / Loss Recognised in Other (29,547) (10,047) (5,584) (6,667)
Comprehensive Income
Balance as at the End of the Year 831,769 1,147,982 110,170 115,365

31.1.1 Expense Recognised in the Profit or Loss


Group Company
For the year ended 31 March, 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000

Current Service Costs 67,034 76,512 8,755 8,045


Interest Costs 84,091 76,072 12,690 10,449
151,125 152,584 21,445 18,494

31.1.2 Actuarial Assumptions


Principal Actuarial Assumptions at the Reporting Date
Group Company
As at 31 March, 2014 2013 2014 2013

Discount Rate (%) 10 - 11.5% 10 - 12.15% 10% 10%


Future Salary Increases (%) 5-10% 5-10% 5% 5%
Retirement Age (Years) 55-65 years 55-65 years 55-65 years 55-65 years

31.1.3 Sensitivity of Assumptions Used


If one percentage increase in the assumptions, would have the following effects to the define benefit obligation liability,

Group Company
As at 31 March, 2014 2014
Discount Rate Salary Discount Rate Salary
Increment Rate Increment Rate

Increase by 1% (60,347) 43,341 (3,452) 4,044


Decrease by 1% 69,637 (39,514) 3,671 (3,857)

Distilleries Company of Sri Lanka PLC 141


NOTES TO THE FINANCIAL STATEMENTS

32 Other Deferred Liabilities


Group
As at 31 March, 2014 2013
Notes Rs.000 Rs.000

Non Current Liabilities


Deferred Grants and Subsidies 32.1 214,139 227,365
Deferred Revenue 32.2 38,432 30,517
252,571 257,882
Current Liabilities
Deferred Revenue 32.2 56,730 58,128
56,730 58,128

32.1 Deferred Grants and Subsidies


Group
For the year ended 31March, 2014 2013
Rs.000 Rs.000

Balance at the Beginning of the Year 227,365 241,135


Amortisation for the Year (13,226) (13,770)
Balance at the End of The Year 214,139 227,365

The Balangoda Plantation PLC has received funding from the Plantation Housing and Social Welfare Trust and Plantation
Development Project (PDP) for the development of workers facilities such as re-roofing of line rooms, latrines, water
supply, sanitation and roads etc. The amounts spent are included under the relevant classification of property, plant &
equipment and the grant component is reflected under Deferred Grants and Subsidies. Grants are amortised over the life
of the assets for which they are being deployed.

32.2 Deferred Revenue


Group
For the year ended 31March, 2014 2013
Rs.000 Rs.000

Balance at the Beginning of the Year 88,645 80,972


Revenue Received During the Year 78,951 91,550
Deferred Revenue Recognised During the Year (72,434) (83,877)
Balance at the End of the Year 95,162 88,645

Deferred Revenue to be Recognised within One Year 56,730 58,128


Deferred Revenue to be Recognised after One Year 38,432 30,517
95,162 88,645

142 Annual Report 2013/14


33 Trade and Other Payables

Group Company
As at 31 March, 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000

Financial Liabilities
Trade Payables 941,271 1,276,025 121,226 129,853
Insurance Contract Liabilities 801,254 777,138 -
Other Financial Liabilities 3,234,670 4,327,214 2,771,217 2,687,366
Refundable Advances and Deposits 2,293 170,603 - -
4,979,488 6,550,980 2,892,443 2,817,219
Non Financial Liabilities
Accrued Expenses 1,296,790 160,213 102,466 123,244
Direct & Indirect Tax Payables 33.1 2,257,698 4,333,674 2,015,708 3,614,070
Non Refundable Advances and Deposits 90,989 61 - -
Unclaimed Dividends 147,713 143,480 135,944 133,803
3,793,190 4,637,428 2,254,118 3,871,117

8,772,678 11,188,408 5,146,561 6,688,336

33.1 Direct & Indirect Tax Payables


Excise Duty Payable 1,595,715 3,418,414 1,454,449 3,217,859
Value Added Tax (VAT) Payable 553,519 817,781 469,810 308,683
Nation Building Tax (NBT) Payable 108,464 97,479 91,449 87,528
2,257,698 4,333,674 2,015,708 3,614,070

34 Deposit Liabilities
Group
As at 31 March, 2014 2013
Rs.000 Rs.000

Term Deposits 605,876 132,540


Savings Deposits 5,121 361
Liabilities to FBIL Customers 52,540 145,471
663,537 278,372

35 Related Party Disclosures


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 (LKAS 24) “Related Party Disclosures”, the details of which are reported
below. The Pricing applicable to such transactions is based on the assessment of risk and pricing model of the Company
and is comparable with what is applied to transactions between the Company and its unrelated Customers.

Outstanding current account balances at year end are unsecured, interest free and settlement occurs in cash except the
balances arisen from restructure.

Distilleries Company of Sri Lanka PLC 143


NOTES TO THE FINANCIAL STATEMENTS

35.1 Balances with Related Parties


35.1.1 Amounts due from Related Parties
Group Company
As at 31 March, 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000

Subsidiaries 35.1.3 - - 4,764,832 2,531,056


Associates 35.1.4 561,721 744,339 553,821 550,996
Other Related Companies 35.1.5 5,993 5,315 5,577 5,078
567,714 749,654 5,324,230 3,087,130

35.1.2 Amounts due to Related Parties


Subsidiaries 35.1.3 - - 1,035,020 971,383
Associates 35.1.4 1,358 1,083 - -
Other Related Companies 35.1.5 262,547 241,396 - 42
263,905 242,479 1,035,020 971,425

35.1.3 Subsidiaries
Group Company
Amounts due from Amounts due to Amounts due from Amounts due to
As at 31 March, 2014 2013 2014 2013 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

AION SG Residencies (Pvt) Ltd - - - - 10,862 9,782 - -


Bellvantage (Pvt) Ltd - - - - - 30,158 3,518
Continental Insurance Lanka - - - - 2,033 1,254 - -
Limited
Lanka Bell Ltd (Note 35.1.6) - - - - 100,299 94,299 - -
Melsta Logistics (Pvt) Ltd - - - - - - 400,831 248,213
Melsta Regal Finance Ltd - - - - 651 27 - -
Periceyl (Pvt) Ltd - - - - - 577,251 692,694
Splendor Media (Pvt) Ltd - - - - - 25,652 25,830
Texpro Industries Ltd - - - - - 1,128 1,128
Melstacorp Limited - - - - 4,661,849 2,435,476 - -
- - - - 4,775,694 2,540,838 1,035,020 971,383

Provision for Impairment of - - - - (10,862) (9,782) - -


Amounts due from Subsidiaries
- - - - 4,764,832 2,531,056 1,035,020 971,383

35.1.4 Associates
Group Company
Amounts due from Amounts due to Amounts due from Amounts due to
As at 31 March, 2014 2013 2014 2013 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Aitken Spence PLC 2,520 2,135 1,358 1,083 - - - -


Madulsima Plantations PLC (Note 35.1.7) 559,201 554,449 - - 553,821 550,996 - -
Pelwatte Dairies (Pvt) Ltd - 187,755 - - - - - -
561,721 744,339 1,358 1,083 553,821 550,996 - -

144 Annual Report 2013/14


35.1.5 Other Related Companies
Group Company
Amounts due from Amounts due to Amounts due from Amounts due to
As at 31 March, 2014 2013 2014 2013 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Ace International Express (Pvt) Ltd - 3 - - - - - -


Ace Power Generation Matara (Pvt) Ltd 2 - - - - - - -
Aitken Spence Hotel Holdings PLC 87 91 - - - - - -
Aitken Spence Hotel Management 11 6 173 727 - - - -
(Pvt) Ltd
Ambewela Livestock Co.Ltd 32 - - - - - - -
Ambewela Products (Pvt) Ltd - 16 - - - - - -
Comark Engineers (Pvt) Ltd - - 53 53 - - - -
Lanka Aluminium Industries PLC - - - 136 - - - -
Lanka Aluminium PLC - - 1,507 - - - - -
Lanka Milk Foods (CWE) PLC 4,490 5,140 20 11 4,429 5,078 - -
Lanka Stassens Distributors (Pvt) Ltd 1 2 - - - - - -
Sithma Development Private Limited - - - 177 - - - -
Stassen Exports Limited 1,367 50 260,794 240,292 1,148 - - 42
Stassen Natural Foods (Pvt) Ltd 3 7 - - - - - -
5,993 5,315 262,547 241,396 5,577 5,078 - 42

35.1.6 This represents the remaining balance of loan granted for Rs.200mn to Lanka Bell Limited at the rate of AWPLR Plus
1% adjusted on quarterly basis.

35.1.7 This amount represents the balance remaining on a short term loan granted to Madulsima Plantations PLC along with the
interest at 16% per annum.

Distilleries Company of Sri Lanka PLC 145


NOTES TO THE FINANCIAL STATEMENTS

35.2 Transactions with Related Parties

35.2.1 Transactions with Subsidiaries, Associates and Other Related Companies


Name of the Company Names of Directors Nature of Nature of Transaction Transaction Balance due
Interest Value (to) / from
Rs.000 Rs.000
1 Milford Exports (Ceylon) (Pvt) Mr. D.H.S.Jayawardena Parent Co. Dividend paid 373,412 -
Limited
Mr. R.K.Obeyesekere
2 Periceyl (Pvt) Limited Mr. D.H.S.Jayawardena Subsidiary Co. Debtor collections & transfers 6,167,914 (577,251)
Mr. R.K.Obeyesekere Supply of goods & services 580,843
Mr. C.R.Jansz Trading account profit 56,708
Goods received 50,781
3 Balangoda Plantations PLC Mr. D.H.S.Jayawardena Subsidiary Co. Rent paid 218 -
Mr. R.K.Obeyesekere Purchase of tea 107
Mr. C.R.Jansz
4 Splendor Media (Pvt) Ltd. Subsidiary Co. Loan interest 3,539 (25,652)
Supply of goods & services 1,432
Services received 1,127
5 Texpro Industries Limited Mr. D.H.S.Jayawardena Subsidiary Co. (1,128)
6 Continental Insurance Lanka Ltd Mr. C. F. Fernando Subsidiary Co. Insurance premium 29,900 2,032
Insurance claim received 2,175
Supply of goods & services 3,707
7 Melsta Logistics (Pvt) Ltd Subsidiary Co. Vehicle hiring charges 263,821 (400,831)
Repair charges & other services 14,538
Rent 5,143
Temporary loan repayment 11,037
Temporary loan 11,000
8 Melstacorp Limited Mr. D.H.S.Jayawardena Subsidiary Co. Dividend paid 25,952 4,661,849
Mr. R.K.Obeyesekere Rent & other services 171,271
Mr. C.R.Jansz Supply of goods & services 6,021
Mr. N.de S. Deva Aditya Rent income 12,938
Capt. K.J.Kahanda Transferred value of land & building 33,000
Mr. C. F. Fernando Funds transferred 2,683,779
Dr. N. Balasuriya Funds received 1,239,426
Dividend received 920,000
9 Lanka Bell Ltd Mr. D.H.S.Jayawardena Subsidiary Co. Loan interest received 12,582 100,299
Mr. C.R.Jansz Telephone bills paid & services 14,188
Supply of goods & services 1,423

10 Bellvantage (Pvt) Ltd Subsidiary Co. Maintenance charges 52,224 (30,158)


Supply of goods & services 2,359

11 Bell Solutions (Pvt) Ltd. Mr. D.H.S.Jayawardena Subsidiary Co. Maintenance charges 3,428
12 Melsta Regal Finance (Pvt) Ltd Subsidiary Co. Supply of goods & services 624 651
13 Melsta Properties (Pvt) Ltd. Capt. K.J.Kahanda Subsidiary Co. Land & Building Transfer 84,500 -
Mr. C. F. Fernando
14 Aitken Spence PLC Mr. D.H.S.Jayawardena Associate Co. Dividend received 279 -
Mr. N.de S. Deva Aditya
15 Madulsima Plantations PLC Mr. D.H.S.Jayawardena Associate Co. Loan interest 1,351 553,821
Mr. R.K.Obeyesekere Supply of goods & services 5
16 Stassen Exports (Pvt) Limited Mr. D.H.S.Jayawardena Affiliate co. Dividend paid 6,343 1,148

146 Annual Report 2013/14


Name of the Company Names of Directors Nature of Nature of Transaction Transaction Balance due
Interest Value (to) / from
Rs.000 Rs.000
Mr. R.K.Obeyesekere Purchases, repairs & maintenance 46,688
& transport charges
Supply of goods & services 639
17 Lanka Dairies (Pvt) Ltd. Mr. D.H.S.Jayawardena Affiliate co. Purchase of Milk Foods 725 -
Mr. R.K.Obeyesekere
Mr. C.R.Jansz
18 Lanka Milk Foods (CWE) PLC Mr. D.H.S.Jayawardena Affiliate co. Dividend paid 113,885 4,429
Mr. R.K.Obeyesekere Dividend received 1,146
Mr. C.R.Jansz Purchase of Milk Foods 6,953
Supply of goods & services 17,592
19 DFCC Bank PLC Mr. C.R.Jansz Affiliate co. Dividend received 84,060 -
20 Aitken Spence Hotel Holding PLC Mr. D.H.S.Jayawardena Affiliate co. Sales 918 -

35.2.2 Melstacorp Share Trust


Melstacorp has advanced Rs.1,446.83 Mn to form a share trust for the benefit of employees of the Group where the
Mr.C.F. Fernando and Dr.N. Balasuriya are the Trustees.

35.2.3 Transactions with Key Management Personnel


According to Sri Lanka Accounting Standard (LKAS 24) “Related Party Disclosures”, Key Management Personnel, are
those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly,
the Board of Directors (including executive and Non-Executive Directors) and their immediate family member have been
classified as Key Management Personnel of the Company.

The immediate family member is defined as spouse or dependent. Dependent is defined as anyone who depends on the
respective Director for more than 50% of his/her financial needs.

35.2.3.1 Compensations to Key Management Personnel


There were no compensation paid to Key Management Personnel during the year other than those disclosed below.

Group Company
For the year ended 31March, 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000

Short Term Employee Benefits 89,234 60,107 23,410 22,247


Post Employment Benefits 2,227 - - -
Other Long Term Benefits - - - -
Share Base Payments - - - -

35.2.3.2 Loans to Directors


There were no loans granted to Directors during the year.

35.2.4 There are no Related party transactions which exceed 10% of the equity or 5% of the total assets of the entity as per
audited financial statements, whichever is lower (CSE Ruling)

Distilleries Company of Sri Lanka PLC 147


36 Financial Instruments
36.1 Accounting Classification of Financial Instruments

148
36.1.1 Accounting Classification of Financial Assets
Group
Loans and Receivables Assets at Fair Value through Held to Maturity Available for Sale Financial Total
(L&R) Profit and Loss (FVTPL) Investments (HTM) Assets (AFS)
As at 31 March, 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Assets as per Balance Sheet
Non Current Assets

Annual Report 2013/14


Other Non Current Financial Investments 20 181,765 - - - - - 15,572,892 14,512,561 15,754,657 14,512,561
Finance Lease, Hire Purchases and Operating 22 301,364 122,051 - - - - - - 301,364 122,051
Lease Receivables
Advances and Other Loans 23 151,984 100,118 - - - - - - 151,984 100,118

Current Assets
Trade and Other Receivables 25 7,076,716 6,005,359 - - - - - - 7,076,716 6,005,359
Finance Lease, Hire Purchases and Operating 22 114,199 38,532 - - - - - - 114,199 38,532
Lease Receivables
Advances and Other Loans 23 673,015 101,594 - - - - - - 673,015 101,594
Amounts due from Related Companies 35.1.1 567,714 749,654 - - - - - - 567,714 749,654
Other Current Financial Investments 20 254,893 - 1,950,144 1,668,328 - 100,148 114,777 - 2,319,814 1,768,476
Cash and Cash Equivalents 26 3,923,512 4,842,646 - - - - - - 3,923,512 4,842,646
NOTES TO THE FINANCIAL STATEMENTS

Total 13,245,162 11,959,954 1,950,144 1,668,328 - 100,148 15,687,669 14,512,561 30,882,975 28,240,991

Company
Loans and Receivables Assets at Fair Value Through Held to Maturity Available for Sale Financial Total
(L&R) Profit and Loss (FVTPL) Investments (HTM) Assets (AFS)
As at 31 March, 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Assets as per Balance Sheet


Non Current Assets
Other Non Current Financial Investments 20 - - - - - - 6,349,895 5,897,294 6,349,895 5,897,294

Current Assets
Trade and Other Receivables 25 2,834,890 2,407,511 - - - - - 2,834,890 2,407,511
Amounts due from Related Companies 35.1.1 5,324,230 3,087,130 - - - - - - 5,324,230 3,087,130
Other Current Financial Investments 20 - - 783,927 684,758 - - 475 - 784,402 684,758
Cash and Cash Equivalents 26 420,103 766,199 - - - - - - 420,103 766,199
Total 8,579,223 6,260,840 783,927 684,758 - - 6,350,370 5,897,294 15,713,520 12,842,892
36.1.2 Accounting Classification of Financial Liabilities
Group
Financial Liabilities at Fair Financial Liabilities Measured Total
Value Through Profit or Loss at Amortised Cost
As at 31 March, 2014 2013 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Liabilities as per Balance Sheet


Non Current Liabilities
Interest Bearing Loans and Borrowings 30 - - 670,975 602,217 670,975 602,217

Current Liabilities
Trade and Other Payables 33 - 4,979,488 6,550,980 4,979,488 6,550,980
Deposit Liabilities 34 - 663,537 278,372 663,537 278,372
Amount due to Related Companies 35.1.2 - 263,905 242,479 263,905 242,479
Interest Bearing Loans and Borrowings 30 - 7,603,794 4,856,908 7,603,794 4,856,908
Bank Overdrafts 26 - 5,120,243 5,695,903 5,120,243 5,695,903
Total - - 19,301,942 18,226,859 19,301,942 18,226,859

Company
Financial Liabilities at Fair Financial Liabilities Measured Total
Value Through Profit or Loss at Amortised Cost
As at 31 March, 2014 2013 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Liabilities as per Balance Sheet


Non Current Liabilities
Interest Bearing Loans and Borrowings 30 - - - 125,006 - 125,006

Current Liabilities
Trade and Other Payables 33 - - 2,892,443 2,817,219 2,892,443 2,817,219
Amount due to Related Companies 35.1.2 - - 1,035,020 971,423 1,035,020 971,425
Interest Bearing Loans and Borrowings 30 - - 6,215,006 3,714,998 6,215,006 3,714,998
Bank Overdrafts 26 - - 3,810,832 4,736,030 3,810,832 4,736,030

Total - - 13,953,301 12,364,636 13,953,301 12,364,636

The above tables do not include fair value information for financial assets and financial liabilities not measured at fair value because
their carrying amounts are a reasonable approximation of fair value.

36.2 Fair Value Hierarchy of Financial Instruments


The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as
follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date.
A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry
group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on
an arm’s length basis. The quoted market price used for financial assets held by the group/company is the closing market price
in Colombo Stock Exchange. These instruments are included in Level 1. Instruments included in Level 1 comprise equity
investments classified as fair value through profit and loss securities or available for sale.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is
determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is
available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument
are observable, the instrument is included in Level 2.

Distilleries Company of Sri Lanka PLC 149


NOTES TO THE FINANCIAL STATEMENTS

Level 3: Inputs for the asset or liability that are not based on observable market data (Unobservable inputs).
If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.

Group
Level 1 Level 2 Level 3 Total
As at 31 March 2014 2013 2014 2013 2014 2013 2014 2013
Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Non Current Assets
Other Non Current Financial Investments 20
Available for Sale Financial Investments 20
- (AFS)
Quoted Equity Securities 20.1.1 15,333,884 14,468,554 - - - - 15,333,884 14,468,554
Unquoted Equity Securities 20.1.2 - - - - 338 30,007 338 30,007
Investments in Unit Trusts 20.1.3 - - - 3,000 3,000 3,000 3,000
Debt Securities 20.1.4 235,670 11,000 - - - - 235,670 11,000

Current Assets
Other Current Financial Investments 20
Available for Sale Financial Investments 20
- (AFS)
Quoted Equity Securities 20.1.5 114,777 - - - - - 114,777 -
Government Securities 20.1.6 - - - - - - - -
Fair Value Through Profit or Loss (FVTPL) 20 - -
Financial Investments
Quoted Equity Securities 20.2.1 1,567,065 1,526,614 - - - - 1,567,065 1,526,614
Quoted Debentures 20.2.3 124,307 - - - - - 124,307 -
Investments in Unit Trusts 20.2.2 258,772 141,714 - - - - 258,772 141,714
Total 17,634,475 16,147,882 - - 3,338 33,007 17,637,813 16,180,889

Company
Level 1 Level 2 Level 3 Total
As at 31 March 2014 2013 2014 2013 2014 2013 2014 2013
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Non Current Assets
Other non current financial investments 20
Available for sale financial investments 20
- (AFS)
Quoted equity securities 20.1.1 6,126,218 5,894,287 - - - - 6,126,218 5,894,287
Unquoted equity securities 20.1.2 - 0 - - 7 7 7 7
Investments in unit trusts 20.1.3 - 0 - - 3,000 3,000 3,000 3,000
Debt securities 20.1.4 220,670 - - - - - 220,670 -

Current Assets
Other Current Financial Investments 20
Available for Sale Financial Investments 20
- (AFS)
Quoted Equity Securities 20.1.5 475 - - - - - 475 -
Government Securities 20.1.6 - - - - - - - -
Fair Value Through Profit or Loss (FVTPL) 20
Financial Investments
Quoted Equity Securities 20.2.1 783,927 684,758 - - - - 783,927 684,758
Investments in Unit Trusts 20.2.2 - - - - - - -
Total 7,131,290 6,579,045 - - 3,007 3,007 7,134,297 6,582,052

150 Annual Report 2013/14


37 Amount due from the Secretary to the Treasury on Account of SLIC
a) In respect of Shares
As per the Judgment delivered by the Supreme Court of the Democratic Socialist Republic of Sri Lanka on 4 June 2009
it was declared and directed that the shares of SLIC purported to have been sold to Distilleries Consortium on 11 April
2003 along with any shares purchased from employees as per SSPA shall be deemed to have been held for and on
behalf of the Secretary to the Treasury.

As directed by the said judgment, the Secretary to the Treasury returned Rs.5,716 Mn in 2010/11 that was paid by
Group Subsidiary Milford Holdings (Pvt) Limited (MHL) to purchase shares from SLIC.

b) In respect of Profits Earned


Furthermore, MHL was entitled to retain the profits of SLIC derived by MHL from 11 April 2003 to 04 June 2009 in
lieu of the interest for the aforesaid investment. The Secretary to the Treasury was directed to cause profits of SLIC to
be computed and audited from the date of the last audited Reporting of SLIC to 04 June 2009 to enable MHL to obtain
such profits.

However, Secretary to the Treasury has not yet determined the value of profits to be retained by the MHL; hence no
adjustments were made to the financial statements in this regards.

38 Impact of Revival of Underperforming Enterprises and Underutilised Assets Bill – Pelwatte Sugar
Industries PLC Group (PSIP)
Consequent to the enactment and passage of the above Act of Parliament on 9 November 2011, the state officials are
occupying the land leased to PSIP. As the leasing of the land to PSIP was done in 1985, and the above mentioned Act
empowers the vesting of land leased during a period of 20 years before the enactment of the Act. The Company believes
that the land that was used by PSIP have not been vested in the state. At this moment the management is unable to
comment further on the implications on the ruling as the Company is awaiting instructions by the Secretary to the
Treasury.

Until financial year ended 31March 2013, the financial results of PSIP up to 30 September 2011 were consolidated
to the Group results and financial results. Thereafter up to 31 March 2013 was not incorporated to the Group results
due to non-accessibility of the information. Subsequently a Compensation Tribunal was formed as required by the Act.
Without assuming any liability or without any prejudice to, or impact on its rights, PSIP has submitted a claim to the
Compensation Tribunal.

Commercial High Court of Western Province (Colombo Civil) issued a winding-up order of Pelwatte Sugar Industries PLC
on 13 March 2013. The Court has appointed P.E.A. Jayewickreme and G.J. David, as the Liquidators.

39 Pending Litigations and Contingent Liabilities


Based on the available information, the Management is of the view that there are no material litigation or clams that
could have material impact on the financial position of the group. Accordingly, no provision has been made for following
legal claims in the Financial Statements.

39.1 Distilleries Company of Sri Lanka PLC


A plaint filled by Censtear (Pvt) Limited against the Company claiming a sum of Rs 18 Mn was decided in favor of the
plaintiff by the Commercial High Court of Colombo. The Company has filed an appeal against order and a claim has been
made in reconvention. The next court date is on 2 December 2014.

Distilleries Company of Sri Lanka PLC 151


NOTES TO THE FINANCIAL STATEMENTS

39.2 Lanka Bell Limited


Sri Lanka Customs carried out an investigation claiming that Lanka Bell Limited is required to pay duty on the FLAG
fiber optic submarine cable network which spans the globe connecting over 86 locations around the world. The Company
is confident that no such duties are payable since Lanka Bell does not own this global network and also has already
obtained BOI approval for the FLAG project.

The company filed a writ application in Court of Appeal citing irregularities in the procedure adopted by the Sri Lanka
Customs in issuing such a notice. The next court date is on 25 November 2014.

There are no material contingent liabilities as at 31 March 2014 other than disclose above.

40 Capital and Other Commitments


There were no material capital expenditure approved by the Board of Directors as at 31 March 2014 other than
followings;

40.1 Distilleries Company of Sri Lanka PLC


The Board of Directors has approved a capital expenditure of approximately Rs.1 Bn for new machinery and buildings.

40.2 Browns Beach Hotel PLC


The project for constructing a new resort hotel in the existing hotel compound is undertaken by Negombo Beach Resorts
(Pvt) Ltd. Which is a 100% owned subsidiary of Browns Beach Hotels PLC. The total project cost is estimated to be in
the region of Rs. 4.0 Billion.

40.3 Melsta Regal Finance Limited


The Company has opened a sum of Rs. 18,111,175/- ( 2013 - Rs.1,137,780/-) worth of Letter of Credit on behalf of
the customers.

41 Assets Pledged
Following assets have been pledged as securities for liabilities.

Company Nature of Liability Security Value of the assets


pledged (Rs.000)

Description Asset type 2014

Distilleries Company Permanent over draft Long term investments held in quoted shares of Other long term 4,816,300
of Sri Lanka PLC facilities and other short DFCC Bank PLC (17 Mn shares), Commercial investments
term borrowings Bank of Ceylon PLC (15Mn shares) and Hatton
National Bank PLC (3.5Mn shares) is pledged.

Melstacorp Limited Permanent over draft Long term investments held in Quoted shares Other long term 11,475,575
facilities and other short of John Keels Holdings PLC (25 mn shares) investments
term borrowings of DCSL and Aitken Spence PLC (59.25 Mn shares) and
are pledged on the other short term borrowings Investments
obtained by Distilleries Company of Sri Lanka in equity
PLC. accounted
investees.

152 Annual Report 2013/14


Company Nature of Liability Security Value of the assets
pledged (Rs.000)

Description Asset type 2014

Balangoda Long Term Loan Primary mortgage over the Lease hold rights Property, plant 6,116
Plantations PLC to the land Term and building of Palmgarden, and equipment
Loans Pettiagala and Balangoda Estates.

Further mortgage over the lease hold rights to Property, plant


the land and building of Palmgarden, Pettiagla and equipment
and Galatura Estates.

Primary mortgage over the lease hold rights Property, plant


to the land and buildings of Balangoda, and equipment
Meddekande and Rassagalla Estates.

Finance Lease Mortgage on Colour Separator Property, plant 27,777


and equipment

Texpro Industries Long term loan The Company has provided existing primary Property, plant 631,860
(Pvt) Ltd floating mortgage bond for USD 3.262 Mn over and equipment
land, building and immovable machinery at
Ranala as collateral against the bank facility and
borrowings.

Other short term Hypothecation of Stock Inventory 292,825


borrowings

Permanent over draft Lien over Call & Fixed Deposits Cash and cash 21,258
facilities equivalents

Primary Floating Mortgage over Land, Building & Property, plant 631,861
Immovable Machinery at Ranala. and equipment

Saving Certificate of Rs 10 Mn. Cash and cash 10,100


equivalents

Lanka Bell Limited Term Loans and other Tower portfolio has been pledged as a security Property, plant 425,000
borrowings against the financing facilities. and equipment

Movable and immovable property has been Property, plant 1,124,020


pledged as a security against the financing and equipment
facilities.

42 Events after the Reporting Period


There were no other material events occurring after the reporting period that requires adjustments to or disclosure in
the Financial Statements other than the items disclosed below and proposed dividend disclosed in Note 14 to these
financial statements.

42.1 Melstacorp Limited


Melstacorp Limited has infused a capital of Rs.250 Mn. to its fully owned subsidiary, Continental Insurance Lanka
Limited after the reporting period.

Distilleries Company of Sri Lanka PLC 153


NOTES TO THE FINANCIAL STATEMENTS

43 Financial Risk Management


The Group has adopted practices to mitigate risks arising from adverse market conditions (prices, rates and volatile
markets) by hedging (or not) using financial instruments.

Financial risk derives from economic uncertainty. The inability to forecast with certainty would either erode profitability
(e.g. adverse exchange rate) or could jeopardise the ability of the company to raise finance from markets (e.g. volatile
interest rates).

Group’s core business of beverage is essentially a cash business hence has a short cash cycle. This results in low
financial risk adding to greater degree of control of finance. Other sectors such as Telecommunication, Plantation,
Insurance, Finance and other diversified holdings exercise policies stemming from DCSL’s practices of effective financial
risk management as common members of the board ensures uniformity. Continental Insurance and Melsta Regal
Finance are exceptional and adhere to an even higher degree of management to comply with IBSL and CBSL regulatory
compliance/guidelines respectively.

Financial Instruments

Group’s financial instruments consist of ASSETS - its portfolio of equity investments, deposits in banks,accounts
receivable. LIABILITIES - Loan obligations, accounts payable and accrued liabilities such excise duty, taxes, payroll and
pension account.

43.1 Financial Risk Management Objectives and Policies


Whilst ‘risk management’ is ingrained in the business from the Board down to operational level, financial risk
management at Group is entrusted to a niche of in-house financial professionals ably supported by external economists,
financial consultants, legal counsel, tax experts, banks and auditors.

In the normal course of business, the Group is exposed to financial risks that have the potential to negatively impact its
financial performance. The Group does not use derivative financial instruments to manage these risks, as management
believes that the risks arising from the financial instruments are already at an acceptable level. This is further accredited
by the AAA/Stable rating assigned by Fitch this year.

The Group has exposure to the following risks from financial instruments

Credit Risk Liquidity Risk Market Risk

Equity Risk Interest Rate Risk Foreign Exchange Risk

43.1.1 Credit Risk


This is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading
to financial loss. Group’s credit risk arises primarily from credit exposure to customers, including outstanding receivable
from select retail chains.

The Group assesses the credit quality of its counter-parties, taking into account their financial position, past experience
and seasonal factors.

154 Annual Report 2013/14


The group trades only with recognised, credit worthy third parties. It is a group policy that all clients who wish to trade
on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an
ongoing basis with the result that the Group’s exposure to bad debts is not significant.

Maximum Credit Exposure


The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk
at the end of the reporting period was as follows,

Group Company
2014 2013 % from Total 2014 % from Total 2013 %from Total
Note Rs.000 % from Total Rs.000 Exposure Rs.000 Exposure Rs.000 Exposure
Exposure

Trade and Other Receivables 43.1.1.1 9,720,603 61% 7,827,963 59% 3,955,602 41% 3,366,090 50%
Receivables in Finance 43.1.1.2 1,240,562 8% 362,295 3% - 0% - 0%
Business
Amounts due from Related 43.1.1.3 567,714 4% 749,654 6% 5,324,230 55% 3,087,130 46%
Companies
Corporate Debt Securities 43.1.1.4 541,742 3% 11,000 0% 220,670 2% - 0%
Government Securities 43.1.1.5 909,787 6% 715,337 5% - 0% - 0%
Deposits with Bank 43.1.1.6 2,177,663 14% 3,109,534 23% 82,062 1% 70,410 1%
Cash at Bank 43.1.1.7 595,628 4% 504,495 4% 61,719 1% 193,501 3%
15,753,699 100% 13,280,278 100% 9,644,283 100% 6,717,131 100%

43.1.1.1 Trade and Other Receivables


As the large majority of Beverage accounts receivable balances are collectable from licensed retailers, management
believes that the sector’s credit risk relating to accounts receivable is at an acceptably low level.
The Group has observed higher credit risk in telecommunication sector due to large number of small customers.
However, risk is managed and mitigated by adopting timely disconnection policy and converting customer to prepaid
mode.

The requirement for an impairment is analysed at each reporting date on an individual basis for major customers.
Additionally, a large number of minor receivables are grouped into homogeneous groups and assessed for impairment
collectively.

The group’s maximum exposure to credit risk from Insurance contract receivables are mainly consist with Premium
Receivables.

Some of the actions specific to Premiums Receivables in Non-Life Insurance are shown below.

- Premium Payment Warranty (PPW) is strictly implemented and all Non - Life Insurance policies with payments
outstanding for more than 60 days are cancelled.

- Follow-up meetings on debt collection are conducted with the participation of finance, distribution and underwriting
officials on a monthly basis.

- Claim settlements are processed only after reviewing the position of outstanding receivables.

43.1.1.2 Receivables in Finance Business


The above stated financial assets are backed with the underlying securities and, are neither past due or impaired.

43.1.1.3 Amounts due from Related Companies


The amounts due from related parties mainly consist of receivables from associates and other related ventures and those
are closely monitored by the group.

The amounts receivable from related parties are mainly consist of its fully owned subsidiary, Melstacorp Limited and its
due to the group restructuring process.

Distilleries Company of Sri Lanka PLC 155


NOTES TO THE FINANCIAL STATEMENTS

43.1.1.4 Corporate Debt Securities


The Corporate debt securities are entirely consist of Corporate Debentures which are listed in Colombo Stock Exchange
which are guaranteed by local and foreign credit rating agencies as BBB+ or Better. Further 96% of corporate debt
securities are with A- or better credit ratings.

An Analysis of credit ratings of the issuers of debenture are as follows,

Group Company
2014 2013 2014 2013
Credit Rating Amount % from Total Amount % from Total Amount % from Total Amount % from Total
Exposure Exposure Exposure Exposure
Rs.000 Rs.000 Rs.000 Rs.000
AA - 0% 10,000 91% - 0% - 0%
AA– 103,689 19% 1,000 9% - 0% - 0%
A- 417,435 77% - 0% 220,670 100% - 0%
BBB+ 20,618 4% - 0% - 0% - 0%
541,742 100% 11,000 100% 220,670 100% - -

43.1.1.5 Government Securities


Government securities are referred to as risk free instruments in its nature.

43.1.1.6 Deposits with bank and cash at bank


The Deposits with banks are entirely consist of fixed deposits and call deposits placed in both Banks and other financial
institutions.

Further the cash at bank is mainly consist of favourable balances in Savings and current accounts of private and
government commercial banks.

The Group has selected its bankers by considering the credit ratings of the rating agencies, the reputation in the
economy, efficiency in transaction processing by minimising the transaction costs.

The financial institutions in which the deposits and cash at bank is existed are guaranteed by local and foreign credit
rating agencies as AA- or Better.

43.1.2 Liquidity Risk


Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligations on time.

Group’s sources of liquidity are its short term deposits in banks and its cash generated by operating activities. Group’s
total contractual maturities are represented by its accounts payable and accrued liabilities, and are mostly due to be
paid within one year. The Group believes that its deposits in cash management pools, ready bank lines (ODs, loans), debt
with rollover options, combined with its historically strong and consistent operational cash flows, are more than sufficient
to fund its operations, investing activities and commitments for the foreseeable future.

Group does not have any investments in asset-backed commercial papers and, therefore, has no exposure to this type of
liquidity risk.

156 Annual Report 2013/14


Maturity analysis
The table below summarises the maturity profile of the Group’s financial liabilities as at 31 March 2014.

Within Between Between Between Between More than Total


1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years
Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Interest bearing loans and borrowings 7,603,794 118,375 120,811 118,044 112,316 201,429 8,274,769
Trade and other payables 8,772,678 - - - - - 8,772,678
Deposit liabilities 663,537 - - - - - 663,537
Amount due to related companies 263,905 - - - - - 263,905
Bank overdrafts 5,120,243 - - - - - 5,120,243
22,424,157 118,375 120,811 118,044 112,316 201,429 22,542,532

The table below summarises the maturity profile of the Company’s financial liabilities as at 31 March 2014.

Within Between Between Between Between More than Total


1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years
Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Interest bearing loans and borrowings 6,215,006 - - - - - 6,215,006


Trade and other payables 5,146,561 - - - - - 5,146,561
Amount due to related companies 1,035,020 - - - - - 1,035,020
Bank overdrafts 3,810,832 - - - - - 3,810,832
16,207,419 - - - - - 16,207,419

43.1.3 Market Risk


Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes
in market prices. Market prices comprise four types of risk; equity price risk, interest rate risk, currency risk (or foreign
exchange risk), and other price risks such as commodity price risk. Financial instruments at Group level affected by
market risk include loans and borrowings, deposits, letters of credit and available for sale investments. The objective
of market risk management is to manage and to control market risk exposures within acceptable parameters while
optimising the return.

Equity Price Risk


Certain companies of the Group have their major equity investment portfolios held on a long term basis; hence immune
to daily fluctuations. Those are classified as AFS. Further, a small trading portfolio is managed by two reputed Unit
Trust companies licensed by the SEC and individual companies manage their own short term portfolios as well. These
investments are held by complying with group investment policies. Safe Custodian agreements with banks are in place
that adds a control dimension.

The Group manages the equity price risk through diversification of its investments to each sector. Further the
Management daily monitors the reports of the equity portfolios

Distilleries Company of Sri Lanka PLC 157


NOTES TO THE FINANCIAL STATEMENTS

The extend of diversification of short term equity investments (FVTPL) are analysed bellow.

Group Company
2014 2013 2014 2013
Rs’000 % Rs’000 % Rs’000 % Rs’000 %

Bank Finance and Insurance 488,030 31 430,529 28 426,357 55 359,368 53


Beverage Food and Tobacco 139,033 9 186,560 12 127,750 16 152,330 22
Chemicals and Pharmaceuticals 3,322 0 8,102 1 - 0 5,536 1
Construction and Engineering 13,185 1 16,025 1 8,761 1 11,384 2
Diversified Holdings 392,104 25 456,963 30 15,513 2 18,633 3
Hospitals 123,247 8 64,578 4 111,444 14 58,045 8
Hotel and Travels 35,984 2 38,837 3 21,550 3 21,750 3
Manufacturing 333,456 21 291,765 19 49,230 6 29,517 4
Plantations 9,096 1 6,160 0 9,096 1 6,160 1
Power and Energy 9,080 1 7,927 1 6,468 1 5,617 1
Telecommunications 20,528 1 19,168 1 7,758 1 16,418 2
1,567,065 100 1,526,614 100 783,927 100 684,758 100

43.1.3 Market Risk


Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market interest rates. The Group has short and long-term debt facilities. Interest rate risk exists as Group
earns market rates of interest on its deposits in cash management pools. An active risk management program does not
exist, as management believes that changes in interest rates would not have a material impact on Group’s financial
position over the long term.

Foreign Currency Risk


The Group has exposure to foreign currency risk as it conducts business in a select few foreign currencies; however, its
exposure is primarily limited to the US dollar. Group does not utilise derivative instruments to manage this risk. Subject
to competitive conditions, changes in foreign currency rates may be passed on to consumers through pricing over the
long term.

The beverage sector demand for USD has traditionally outpaced its supply, due to USD sourcing of production inputs
(imported spirits and machinery) exceeding that of the sector’s USD sales. Therefore, decreases in the value of the Sri
Lankan Rupee (LKR) relative to the USD will have an unfavourable impact on the sector earnings.

43.1.4 Financing Risk


The company has a very strong Financial Position and is among the most preferred among local providers of finance.
This was further cemented by the high credit rating assigned by Fitch negating any doubts of Group’s ability to secure
funding at cheaper rates. Often the company has access to bank lines sans security. However, the management as
a policy maintains a healthy gearing ratio and a Debt Service Coverage Ratio always in par with the industry without
overstretching the Financial Position. Since of late foreign funding lines too have been cautiously approached to benefit
from low interest rates globally.

43.2 Capital Management


The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in
order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure
to reduce the cost of capital.

158 Annual Report 2013/14


In order to maintain or adjust the capital structure, the Group’s may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. The ratio is calculated
as net debt/total capital. Net debt is calculated as total borrowings (including current and non-current interest bearing
borrowing as shown in the consolidated Statement of Financial Position plus bank overdrafts) less cash and cash
equivalents. Total capital is calculated as “equity” as shown in the consolidated Statement of Financial Position plus net
debt. Gearing ratios at 31 March 2014 and 2013 are as follows.

Group Company
2014 2013 2014 2013
Rs’000 Rs’000 Rs’000 Rs’000

Total Interest Bearing Loans and Borrowing 8,274,769 5,459,125 6,215,006 3,840,004
Bank Overdrafts 5,120,243 5,695,903 3,810,832 4,736,030
Less: Cash & Cash Equivalents (3,923,512) (4,842,646) (420,103) (766,199)
Net Debt 9,471,500 6,312,382 9,605,735 7,809,835
Total Equity 57,593,114 52,712,717 43,838,640 39,155,122
Total Capital 67,064,614 59,025,099 53,444,375 46,964,957
Gearing Ratio 14% 11% 18% 17%

Distilleries Company of Sri Lanka PLC 159


STATEMENT OF VALUE ADDED

VALUE ADDED
For the year ended 31March, 2014 2013
Rs. '000 Rs. '000
Group Company Group Company

Gross Turnover 63,186,302 47,755,538 65,790,460 51,548,909


Other Operating Income 898,392 1,374,595 680,119 3,830,490
Finance Income 747,833 118,630 1,082,262 534,987
Share from Profit of Equity Accounted Investees 1,440,182 - 1,291,749 -
66,272,709 49,248,763 68,844,590 55,914,386

VALUE DISTRIBUTED

For the year ended 31March, 2014


Group Company
Rs. '000 As a % of Total Rs. '000 As a % of Total

To the State as Taxes 37,442,277 56 33,814,484 69


Other Operating Expenses 16,012,148 24 7,884,887 16
To the Employees 3,861,748 6 1,162,203 2
To Providers of Debt Capital 1,160,970 2 859,321 2
To the Shareholders as Dividends 900,000 1 900,000 2
Retained within the Business
As Depreciation 1,540,326 2 148,392 0
As Retained Profits 5,355,240 9 4,479,476 9
66,272,709 100 49,248,763 100

For the year ended 31March, 2013


Group Company
Rs. '000 As a % of Total Rs. '000 As a % of Total

To the State as taxes 39,843,748 58 36,482,375 65


Other operating expenses 16,281,792 24 9,120,718 16
To the Employees 3,194,238 5 1,039,048 2
To Providers of debt capital 1,652,681 2 1,376,919 2
To the Shareholders as dividends 900,000 1 900,000 2
Retained within the business
As Depreciation 1,700,128 2 158,678 1
As Retained Profits 5,272,003 8 6,836,648 12
68,844,590 100 55,914,386 100

160 Annual Report 2013/14


DETAILS OF REAL ESTATE

Location Lands Buildings VALUE


Extent No of Floor Area Cost/Revaluation
A R P Units In (Sq. Ft.) Rs. 000
Distilleries Company of Sri Lanka PLC
Colombo 10 Head Office 1 1 15.20 6 30,000.00 647,765
Dankotuwa Carrington Group Estate 2 2 5.00 3 8,083.50 22,045
Kandy Mawilmada Land 2 0 0.00 - 22,200
Negombo Wholesale Outlet 0 1 27.50 3 8,576.00 75,280
Kalutara 1 0 23.00 - 14,000
Seeduwa No. 3 Warehouse & Housing Complex 15 2 17.09 11 103,710.50 886,686
Seeduwa New W/H, Old W/H & Distillery 5 2 15.10 22 93,276.00 319,562
Melsta Properties (Pvt.)Limited
Badulla Warehouse 0 2 8.64 3 9,390.00 13,519
Batticaloa Wholesale Outlet 3 0 11.04 2 5,545.75 51,999
Dickoya Wholesale Outlet 0 3 9.60 4 16,735.50 6,759
Gampola Wholesale Outlet 0 3 35.50 5 8,415.00 33,279
Jaffna 0 4 21.65 0 - 11,439
Kaithadi 2 0 11.71 0 - 13,000
Kalutara No. 1 Warehouse 4 0 33.38 5 56,580.00 145,599
Kalutara No. 2 Warehouse / Premises No. 14 & 16 1 3 8.41 4 - 60,950
Kalutara Teak Stores / Warehouse 1 0 32.82 3 14,870.00 20,799
Marawila Toddy Collection Centre 2 0 0.00 0 - 16,639
Mirishena Warehouse 0 3 28.32 4 10,280.00 20,799
Trincomalee Wholesale Outlet 0 1 38.68 2 4,762.00 36,399
Vauniya Wholesale Outlet 0 3 33.69 2 14,315.50 44,719
Melstacorp Limited
Ambalantota Wholesale Outlet - 1 24.16 5 7,657.00 28,710
Anuradhapura Proposed Wholesale Outlet - 3 21.46 3 8,401.00 89,514
Badulla Warehouse - 3 37.20 1 1,522.00 6,030
Beruwala Warehouse 2 1 19.08 12 15,279.50 125,548
Colombo 14 Warehouse 2 1 14.10 8 86,500.00 410,799
Galle Wholesale Outlet - 1 37.00 4 9,879.00 36,711
Katugastota Warehouse - 2 27.50 6 11,798.50 38,167
Katugastota Wholesale Outlet 5 - 3.84 11 28,385.00 123,135
Kurunegala Wholesale Outlet - 2 29.00 2 9,519.00 48,879
Ranala - Nawagamuwa Industrial Building 10 - - 7 83,094.50 231,815
Ratmalana Wholesale Outlet 1 - 28.20 4 30,871.00 178,567
Seeduwa Factory Complex - - 19.75 0 - 1,559
Seeduwa Factory Complex - 1 2.55 1 18,920.00 62,087
Seeduwa Factory Complex - 1 20.50 1 3,096.00 15,079
Seeduwa Factory Complex - 3 22.60 1 1,835.00 19,031
Seeduwa Factory Complex - - 36.25 0 - 7,539
Seeduwa Residential property - - 10.00 1 1,975.00 13,124
Seeduwa Residential property - - 24.05 1 980.00 26,249
Seeduwa Residential property - - 12.27 1 1,910.00 26,249
Seeduwa Residential property - - 31.46 0 - 61,359
Seeduwa Residential property - - 37.50 0 - 61,879
Lanka Bell Limited
Minuwangoda Warehouse & Switch 1 3 35.35 2 20,920.00 93,490
Texpro Industries Limited
Embulgama Factory - 2 - 4,000
Ranala Factory 6 - 6.05 5 92,537.00 173,889
Browns Beach Hotels PLC
Negombo Hotel Complex-Under Constructions 6 3 33.50 1 225,347.00 856,500

Distilleries Company of Sri Lanka PLC 161


SHAREHOLDER INFORMATION

1. Stock Exchange Listing


The Issued Ordinary Shares of the Company are listed with the Colombo Stock Exchange.
Ticker Symbol - DIST.N0000
Market Sector - Beverage, Food & Tobacco

2. Distribution of Shareholding
31 March 2014 31 March 2013
No. of Total % No. of Total %
Holding Shareholders Holding Holding Shareholders Holding Holding

1-1,000 8,788 2,937,971 0.98 9,136 3,136,683 1.05


1,001 - 10,000 1,682 5,481,178 1.83 1,879 6,342,024 2.11
10,001- 100,000 250 7,593,906 2.53 308 8,737,877 2.91
100,001- 1,000,000 53 14,441,900 4.81 55 16,413,148 5.47
Over 1,000,000 25 269,545,045 89.85 24 265,370,268 88.46
Grand Total 10,798 300,000,000 100.00 11,402 300,000,000 100.00

3. Analysis of Shareholding
No. of Holding % of Holding
Shareholders

Individuals 10,535 69,453,286 23


Institutions 263 230,546,714 77
10,798 300,000,000 100

Resident 10,647 226,092,603 75


Non-Resident 151 73,907,397 25
10,798 300,000,000 100

4. Market Price
31 March 2014 31 March 2013
(Rs.Per Share) (Rs.Per Share)

Last Traded 203.00 166.50


Highest 218.00 190.00
Lowest 160.00 117.00

Share Price Performance

0
250

200

150

100

50
0
2009 2010 2011 2012 2013 2014

162 Annual Report 2013/14


SHAREHOLDER INFORMATION

5. Twenty Largest Shareholders


As at 31 March 2014 2013
No of Shares % of issued No of Shares % of issued
capital capital
1 Milford Exports (Ceylon) Limited 124,470,500 41.49 124,470,500 41.49
2 Lanka Milk Food (C.W.E.) PLC 37,961,500 12.65 37,961,500 12.65
3 Mr. Muzaffar Ali Yaseen 33,238,000 11.08 33,238,000 11.08
4 Mrs. Lorraine Estelle Marlene Yaseen 14,350,600 4.78 14,650,500 4.88
5 Melstacorp Limited 8,650,732 2.88 8,650,732 2.88
6 HSBC International Nominees Ltd- MSCO-Route One Fund 1 L.P 5,280,944 1.76 5,056,661 1.69
7 HSBC Intl Nom Ltd-Msco-Route One Offshore Master 4,767,395 1.59 4,824,190 1.61
Offshore Master Fund, L.P
8 Commercial Bank of Ceylon PLC/L.E.M.Yaseen 4,750,000 1.58 4,750,000 1.58
9 HSBC Intl Nom Ltd – SSBT – Wasatch Frontier Emerging Small cou 4,230,100 1.41 - -
10 Lahugala Plantation (Pvt) Ltd 4,189,590 1.40 4,511,795 1.50
11 Caceis Bank Luxembourg S/A Barca Global Masrer Fund LP 3,713,286 1.24 3,713,286 1.24
12 Mrs. Shantha Marie Chrysostom 2,847,500 0.95 2,847,500 0.95
13 Northern Trust CO S/A National Westminster Bank PLC 2,800,000 0.93 2,800,000 0.93
as Trust c/o Standard Chartered Bank
14 Stassen Exports Limited 2,114,200 0.70 2,114,200 0.70
15 HSBC Intl Nom Ltd-SSBT-Russell Institutional Funds Public L 1,887,937 0.63 920,383 0.31
16 Mr. Don Hasitha Stassen Jayawardena 1,882,833 0.63 1,882,833 0.63
17 HSBC International Nominees Limited-MSNY-Bay Pond Partners L 1,840,283 0.61 1,840,283 0.61
18 BNYM SA/NV – Consilium Frontier Equity Fund L.P 1,434,404 0.48 - -
19 Deutsche Bank AG - London 1,421,557 0.47 - -
20 BNYM SA/NV - Blackrock Frontiers Investment Trust PLC 1,411,238 0.47 - -
TOTAL 263,242,599 87.73 254,232,363 84.73

Percentage of Shares held by the public : 42.97%

Distilleries Company of Sri Lanka PLC 163


TEN YEAR SUMMARY

In Rs Million - Company 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005

RESULTS
Gross Turnover 47,755.5 51,548.9 49,135.6 38,987.1 29,964.1 29,569.8 27,416.0 22,653.1 18,399.7 14,391.8
Excise Duty 31,057.4 34,087.5 33,859.7 25,464.4 18,979.0 18,339.2 16,458.0 14,020.3 11,263.9 9,235.4
Net Turnover 16,698.1 17,461.4 15,275.9 13,522.7 10,985.0 11,230.5 10,958.0 8,632.8 7,135.8 5,156.4
Profit/(Loss) before Tax 8,136.6 9,275.9 6,905.4 9,972.0 4,004.5 3,977.9 3,014.9 2,826.6 2,480.7 1,762.1
Profit/(Loss) after Tax 5,357.9 6,872.7 4,297.2 7,768.7 2,815.0 2,682.4 1,981.6 1,868.9 1,807.6 1,247.8

FUNDS EMPLOYED
Stated Capital 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0
Capital Reserves 2,079.7 2,160.1 2,506.9 2,923.6 107.9 107.9 107.9 107.9 107.9 107.9
Revenue Reserves & Retained Earnings 41,459.0 36,695.0 29,790.3 21,718.0 14,849.3 12,709.3 10,551.8 8,708.1 7,019.2 5,361.6
Shareholders Funds 43,838.7 39,155.1 32,597.2 24,941.7 15,257.2 13,117.2 10,959.7 9,116.0 7,427.1 5,769.5
Total Borrowings 10,025.8 8,576.0 9,741.5 254.6 76.2 920.1 2,648.1 1,634.0 2,221.2 1,500.6
Non Current Liabilities net of Borrowings 171.1 159.6 116.1 270.1 111.4 171.5 109.6 88.0 99.2 90.7
Current Liabilities net of Borrowings 7,154.0 8,095.6 20,107.8 6,860.7 5,159.9 4,785.2 4,662.9 4,279.9 3,390.6 2,135.3
61,189.6 55,986.3 62,562.6 32,327.1 20,604.7 18,994.0 18,380.1 15,118.0 13,138.1 9,495.1

ASSETS EMPLOYED
Non-current Assets 48,459.1 45,578.4 54,982.5 20,212.7 14,024.6 12,840.9 12,302.9 10,383.5 10,398.5 7,619.1
Current Assets 12,730.5 10,407.9 7,580.1 12,114.4 6,580.1 6,153.1 6,007.5 4,734.4 2,739.6 1,876.0
61,189.6 55,986.3 62,562.6 32,327.1 20,604.7 18,994.0 18,310.4 15,117.9 13,138.1 9,495.1
CASHFLOW
Net Cashflow from Operating Activities 671.2 3,148.9 1,954.9 4,275.1 2,692.7 1,881.7 2,509.3 1,118.2 1,974.1 1,774.3
Net Cashflow from Investing Activities (1,569.3) (689.3) (16,037.3) 1,247.0 (661.2) (35.6) (3,041.8) (48.4) (2,662.4) (12.2)
Net Cashflow from Financing Activities (2,167.9) (1,535.6) 1,147.0 (875.8) (675.0) (525.0) (465.0) (169.7) (149.7) (146.4)
Net Increase/(Decrease) in Cash &
Cash Equivalents (3,065.9) 924.0 (12,935.4) 4,646.3 1,356.5 1,321.1 (997.5) 900.1 (838.0) 1,615.7

KEY INDICATORS
Earnings per Share (Rs.) 17.86 10.68* 11.85* 15.08 9.38 8.90 6.60 6.20 6.00 4.20
Net Assets per Share (Rs.) 146.13 130.52 108.66 83.14 50.86 43.70 36.50 30.40 24.80 19.20
Market Value per Share (Rs) Year End 203.00 166.50 145.00 180.00 118.00 65.00 98.00 105.00 35.00 32.00
Return on Shareholders’ Funds 12% 8%* 11%* 31% 18% 21% 18% 21% 24% 22%
Dividends per Share (Rs.) 3.25 3.00 3.00 3.00 2.50 2.25 1.75 1.55 0.60 0.50
Dividend Payout 18% 28%* 25%* 20% 27% 25% 27% 25% 10% 12%
Dividend Yield 2% 2% 2% 2% 2% 3% 2% 1% 2% 2%

With effect from year ended 31 March 2012 the figures are derived from financial statements prepared in accordance with Sri Lanka Accounting
Standards (SLFRS/LKAS). Figures for the remaining periods are derived from financial statements prepared in accordance with previous version of
Sri Lanka Accounting Standards (SLAS).

* For the purpose of calculation of EPS for the years ended 31 March 2013 and 31 March 2012, the Company profit has been adjusted for
intragroup capital gain on share transfer.

164 Annual Report 2013/14


DCSL MANAGEMENT TEAM

Head Office Senior Chemist S. M. Sumanasekera B.Sc., MSc. (Food


Chief Executive Officer Maximus R. Peries Science and Technology) I Chem
B.Sc. (Eng), MBA (Merit), LLB (Hons) Accountant K. W. N. V. Fernando B.Com., MAAT,
London, C. Eng. MIEE (London) PGDED (Col), CBA

Finance Division Distillery Seeduwa


Head of Finance Nimal Nagahawatte B.Sc. Warehouses New Warehouse, No 3 Warehouse, Old
Asst. Finance Manager Suranjan Lakmanaratchi Warehouse
Asst. Finance Manager Justin Algama B.Sc., Dip. Acc.
Wholesale Outlets Peliyagoda (W), Peliyagoda
Asst. Manager (IT) Ms. P. Gamagedara Dip. (NIBM), AACS
(S), Rajakadaluwa, Negombo,
Supplies Division Anuradhapura, Kurunegala
Head of Procurement S. Rajanathan
Southern Region - Kalutara
Internal Audit Division
Chief Internal Auditor L. P. Liyanaarachchi FCA, FCMA, Dip.Acc. Head of Southern Region Maj. Gen. Siri Peiris (Retd.) RSP, VSV,
USP, IG
Investigation Division Deputy Regional Manager Col. D. J. R. Rupasinghe (Retd.) RSP, IG
Director - Investigations Alfred Wijewardene DIG (Retd.) Senior Production Manager A. D. Amaradeva
Dy. Director - Investigations A. X. Clarence Motha ASP (Retd.)
Chemist W. A. I. Wickramasinghe A.I. Chem C, Grad
Dy. Director - Investigations G. U. J. Vithanage SSP (Retd.)
Chem, Dip in POM
Company Secretarial & Legal Division Accountant Ms. Amali Bandara Dip. in Fin. Mgmt.
Company Secretary & Chief Ms. V. J. Senaratne Attorney-At-Law & Asst. Engineer H. P. D. P. Mangala Gunasekara
Legal Officer N.P., Solicitor (Eng. & Wales)
Manager (Beruwala Distillery) C. E. Nanayakkara
Human Resources Division Distillery Beruwala
Head of Human Resources Ms. G. Chakravarthy Warehouses Kalutara No 01 & Kalutara No 02,
LLB, Attorney-At-Law
Teak Store, Mirishena
Asst. Manager - Human Ms. U. R. Edirisinghe
Resources MBA (Sri J), B.Sc. (HRM) Sp Wholesale Outlets Kalutara, Ratmalana, Ambalantota, Galle,
Asst. Manager - Human T. S. Morawaka B.Sc. (Mgt) Sp Kuruwita
Resources
Central Region - Kandy
Transport Division Head of Central Region Brig. Aruna Wijewickrama USP (Retd.),
Head of Transport & Roshanth Kumar Perera
PQHRM (IPM)
Logistics
Senior Deputy Regional Capt. R. A. U. Chula Ranasinghe
Stock Control Division Manager USP - SLN (Retd.)
Head of Inventory Lalith Ratnayake MBA (WUSL), B.Sc. Senior Production Manager V. Jeiyachandiran B.Sc. (Hons)
Management (B.Ad) Sp
Production Manager N. Thiranagama B.Sc.
Consultant J. R. de Crusz Consultant W. W. M. S. U. Wijayarathna B.Sc. (Hons),
(Retd. Dy. Commissioner of Excise) M.Phil, Chartered Chemist
Civil Engineer A. M. A. J. B. Abeykoon
Regional Offices Asst. Accountant Mrs. W. M. P. Perera
Northern Region - Seeduwa Warehouse Nawayalatenna
Head of Northern Region Maj. R. M. Cabraal (Retd.) Wholesale Outlets Katugastota, Gampola, Vavuniya,
Deputy Regional Manager Col. A. M. B. Peiris (Retd.) RWP, MHRP, Batticaloa, Minneriya, Dickoya,
MBA (PIM / Sri J) Trincomalee, Jaffna
Deputy Regional Manager Cdr. C.M. Gunanayagam (Retd.)
Group Security Manager Deshabandu R. M. L. N. Bandara MBA Uva Region - Badulla
(USA), SSP (Retd.) Head of Uva Region Capt. Ranjith Wettewa SLN (Retd.) RSP,
Head of Analytical Division T. D. Ekmon B.Sc. (Hons), M.I.Chem C, P.S.N.
Chartered Chemist Warehouse Badulla
Chief Engineer M. N. Perera Wholesale Outlet Badulla
Consultant K. Sivarajah B.Sc. (Cey), MSc. (UK), F.I
Chem. C, Chartered Chemist, (Retd. Govt. Analyst)
Group Management Division
Senior Production Manager Capt. K.G.N.S. Senanayake SLN (Retd.), Group Financial Controller Cleetus Mallawaarachchi FCA, FCMA, MBA
MDS, B.Sc.
Production Manager S. G. Bandula Silva B.Sc.
Transport Manager Sqn. Ldr. T. S. S. S. Perera (Retd.) B.Sc.

Distilleries Company of Sri Lanka PLC 165


GROUP DIRECTORY

Beverage

Periceyl (Pvt) Limited Secretary Ms. V. J. Senaratne

Board of Directors Registered Office


D. H. S. Jayawardena – Chairman 110, Norris Canal Road, Colombo 10
R. K. Obeyesekere Tel: (94-11) 2808565 Fax: (94-11) 5551777
C. R. Jansz
S.K.S.D. Amarathunga Co. Reg. No. PV 5529
A. L. Gooneratne
Auditors Messrs Ernst & Young (Chartered Accountants)

Plantation

Balangoda Plantations PLC Secretary P. A. Jayatunga

Board of Directors Registered Office


D. H. S. Jayawardena – Chairman / Managing Director 110, Norris Canal Road, Colombo 10
R. K. Obeyesekere Tel: (94-11) 2522871-2 Fax: (94-11) 2522913
C. R. Jansz
S. K. L. Obeyesekere Co. Reg. No. PQ 165
Dr. A. Shakthevale
D. S. K. Amarasekera Auditors Messrs Ernst & Young (Chartered Accountants)
A. L. Gooneratne

Telecommunication

Lanka Bell Limited Secretary Ms. C. M. Chandrapala

Board of Directors Registered Office


D. H. S. Jayawardena – Chairman 344, Galle Road, Colombo 03.
Dr. T. K. D. A. P. Samarasinghe – Managing Director Tel: (94-11) 5335000 Fax: (94-11) 5545988
C. R. Jansz
M. R. Peries Co. Reg. No. PB 306
D. S. C. Mallawaarachchi
A. L. Gooneratne Auditors Messrs KPMG (Chartered Accountants)

Telecom Frontier (Pvt) Limited Secretary Ms. C. M. Chandrapala

Board of Directors Registered Office


D. H. S. Jayawardena – Chairman No: 344, Galle Road, Colombo 3
Dr. T. K. D. A. P. Samarasinghe – Managing Director Tel: (94-11) 5335000
M. R. Peries
D. S. C. Mallawaarachchi Co. Reg. No. PV 61396
A. L. Gooneratne
Auditors Messrs Amarasekara & Company (Chartered Accountants)

166 Annual Report 2013/14


Telecommunication (contd.)

Bell Solutions (Pvt) Limited Secretary Ms. C. M. Chandrapala

Board of Directors Registered Office


D. H. S. Jayawardena – Chairman No: 344, Galle Road, Colombo 3
Dr. T. K. D. A. P. Samarasinghe – Managing Director Tel: (94-11) 5335000
M. R. Peries
D. S. C. Mallawaarachchi Co. Reg. No. PV 61398
A. L. Gooneratne
Auditors Messrs Amarasekara & Company (Chartered Accountants)

Diversified Holdings

Melstacorp Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered Office


D. H. S. Jayawardena – Chairman 110, Norris Canal Road, Colombo 10
A. L. Gooneratne – Managing Director Tel: (94-11) 5696794
R. K. Obeyesekere Web : www.melsta.com
C. R. Jansz
C. F. Fernando
Dr. N. Balasuriya
N. de. S. Deva Aditya Co. Reg. No. PV 11755 PB
Capt. K. J. Kahanda (Retd.)
Ms. V. J. Senaratne Auditors Messrs KPMG (Chartered Accountants)
(Alternate to N. de. S. Deva Aditya)

Milford Holdings (Pvt) Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered Office


D. H. S. Jayawardena – Chairman 110, Norris Canal Road, Colombo 10
R. K. Obeyesekere Tel: (94-11) 2695295-7 Fax: (94-11) 2696360
C. R. Jansz
Capt. K. J. Kahanda (Retd.) Co. Reg. No. PV 5944

Auditors Messrs KPMG (Chartered Accountants)

Browns Beach Hotels PLC Secretaries Aitken Spence Corporate Finance (Private) Limited

Board of Directors Registered Office


D. H. S. Jayawardena – Chairman 315, Vauxhall Street, Colombo 02
M. V. Theagarajah Tel: (94-11) 2308308 Fax: (94-11) 2308099
J. M. S. Brito
S. M. Hapugoda Co. Reg. No. PQ 202
T. D. U. D. Peiris
A. L. Gooneratne Auditors Messrs KPMG (Chartered Accountants)

Distilleries Company of Sri Lanka PLC 167


GROUP DIRECTORY

Diversified Holdings (contd.)

Texpro Industries Limited Secretaries SSP Corporate Services (Pvt) Limited

Timpex (Pvt) Limited

Board of Directors Registered Office


D. H. S. Jayawardena – Chairman 1st Floor, Lakshman’s Building, 321,
J. D. Peries – Managing Director Galle Road, Colombo 3
H. I. Munasingha Tel: (94-11) 2565951
A. L. Gooneratne
D. S. C. Mallawaarachchi Co. Reg. No. PB 748

Auditors Messrs KPMG (Chartered Accountants)

Melsta Logistics (Pvt) Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered Office


A. L. Gooneratne – Chairman 160, Negombo Road, Seeduwa
A. M. J. Abeysinghe Tel: (94-11) 5223300 Fax: (94-11) 5223322
T. Q. Fernando Web: www.crc.lk
M. R. Peries (Appointed w.e.f. 01/05/2013)
D. S. C. Mallawarachchi (Appointed w.e.f. 01/05/2013) Co. Reg. No. PV 14051

Auditors Messrs Amarasekara & Company (Chartered Accountants)

Continental Insurance Lanka Ltd. Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered Office


G. D. C. de Silva - Managing Director 79, Dr. C. W. W. Kannangara Mawatha, Colombo 07
A. S. Abeyewardene Tel : (94-11) 5200300
C. F. Fernando
H. Wickramasinghe Co. Reg. No. PB 3784
A. L. Gooneratne
Auditors Messrs KPMG (Chartered Accountants)

Splendor Media (Pvt) Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered Office


Ms. D. S. T. Jayawardena – Chairperson 110, Norris Canal Road, Colombo 10
(Appointed w.e.f. 21/12/2013) Tel: (94- 11) 5 639 501 Fax: (94-11) 5 373 344
C. P. Abeywickrema
(Chairman - Resigned w.e.f. 21/12/2013)
Ms. G. Chakravarthy
N. N. Nagahawatte
O. A. R. P. Obeysinghe Co. Reg. No. PV1230
P. Hennayake
A. P. L. Fernando (Appointed w.e.f. 21/06/2013) Auditors Messrs KPMG (Chartered Accountants)
D. A. D. V. Gunasekera (Resigned w.e.f. 15/05/2013)

168 Annual Report 2013/14


Diversified Holdings (contd.)

Bogo Power (Pvt) Limited Secretary P. A. Jayatunga

Board of Directors Registered Office


D. H. S. Jayawardena – Chairman 833, Sirimavo Bandaranaike Mawatha, Colombo 14
Dr. N. M. Abdul Gaffar Tel: (94-11) 2522871-2 Fax: (94-11) 2522913
S. K. L. Obeyesekere
A. L. Gooneratne Co. Reg. No. PV 64901

Auditors Messrs Ernest & Young (Chartered accountants)

Bellvantage (Pvt) Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered Office


A. L. Gooneratne - Chairman 33, Park Street, Colombo 02
(Appointed w.e.f. 28/10/2013) Tel: (+94-11)-5753753 Fax: (+94-11)-5753754
D. H. S. Jayawardena E-mail : sales@bellvantage.com
(Chairman – Resigned w.e.f. 12/09/2013) Web : www.bellvantage.com
P. Karunanayke
D. S. C. Mallawaarachchi
(Appointed w.e.f. 12/09/2013) Co. Reg. No. PV 65022
D. A. C. Peiris (Resigned w.e.f. 01/04/2013)
P. S. Suriyaarachchi (Resigned w.e.f. 30/04/2013) Auditors Messrs Amarasekara & Company (Chartered Accountants)
Y. D. B. Guneratne (Resigned w.e.f. 30/06/2013)
O. A. R. P. Obeysinghe (Resigned w.e.f. 12/09/2013)
Ms. F. F. S. Sulaiman (Resigned w.e.f. 12/09/2013)
Ms. S. A. Atukorale (Appointed w.e.f. 12/09/2013
– resigned w.e.f. 30/05/2014)

Melsta Regal Finance Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered Office


A. L. Gooneratne – Chairman 110, Norris Canal Road, Colombo 10
D. M. N. P. Karunapala- CEO Tel: (94-11) 268 2742-3, 5288571 Fax: (94-11) 268 2741
L. P. Liyanarachchi Web : www.melstaregalfinance.lk
N. A. Rodrigo
K. D. Bernard Co. Reg. No. PB 878
M. S. J. D. Coorey
D. S. C. Mallawaarachchi Auditors Messrs KPMG (Chartered Accountants)
J. M. T. Galgamuwa
Ms. S. A. Atukorale

Melsta Properties (Private) Limited Secretaries Financial Services and Commercial Agencies (Pvt) Ltd.

Board of Directors Registered Office


C. F. Fernando 110, Norris Canal Road, Colombo 10
Capt. K. J. Kahanda (Retd.) Tel: (94-11) 5288625 Fax : (94-11) 2695794
S. Rajanathan
R. R. P. L. S. Ratnayake Co. Reg. No. PV 78422

Auditors Messrs KPMG (Chartered Accountants)

Distilleries Company of Sri Lanka PLC 169


GROUP DIRECTORY

Diversified Holdings (contd.)

Pelwatte Sugar Industries PLC Secretaries Managers & Secretaries (Pvt) Limited

Board of Directors Registered Office


D. H. S. Jayawardena 27, Melbourne Avenue, Colombo 04
Capt. K. J. Kahanda (Retd.) Tel: (94-11) 2589390 Fax: (94-11) 2500674
M. R. Peries Co. Reg. No. PV 14051
R. Wettewa
D. A. de S. Wickramanayake Auditors Messrs Ernst & Young (Chartered Accountants)
D. H. J. Gunawardena
C. S. Weeraratne
D. A. E. de S. Wickramanayake
K. K. U. Wijeyesekera

Pelwatte Sugar Distilleries (Pvt) Limited Secretaries Managers & Secretaries (Pvt) Limited

Board of Directors Registered Office


Capt. K. J. Kahanda (Retd.) - Managing Director 27, Melbourne Avenue, Colombo 04
M. R. Peries Tel: (94-11) 2589390 Fax: (94-11) 2500674
D. A. de S. Wickramanayake
Co. Reg. No. PV 10221

Auditors Messrs Ernst & Young (Chartered Accountants)

Pelwatte Agriculture & Engineering Services (Pvt) Limited

Board of Directors Secretaries Managers & Secretaries (Pvt) Limited


D. A. de S. Wickramanayake
C. S. Weeraratne Registered Office
27, Melbourne Avenue, Colombo 04
Tel: (94-11) 2589390 Fax: (94-11) 2500674

Co. Reg. No. PV 66850

Auditors Messrs Ernst & Young (Chartered Accountants)

Associates

Aitken Spence PLC Secretary R. E. V. Casie Chetty

Board of Directors Registered Office


D. H. S. Jayawardena – Chairman 315, Vauxhall Street, Colombo 02
J. M. S. Brito – Managing & Finance Director Tel: (94-11) 2308308 Fax : (94-11) 2445406
Dr. R. M. Fernando Web: www.aitkenspence.com
Dr. M. P. Dissanayake
Ms. D. S. T. Jayawardena
(Apointed w.e.f. 01.12.2013)
G. C. Wickremasinghe Co. Reg. No. PQ 120
C. H. Gomez
N. de S. Deva Aditya Auditors Messrs KPMG (Chartered Accountants)
V. M. Fernando
R. N. Asirwatham
C. R. De Silva (Deceased on 07.11.2013)

170 Annual Report 2013/14


Madulsima Plantations PLC Secretary P. A. Jayatunga

Board of Directors Registered Office


D. H. S. Jayawardena – Chairman / Managing Director 833, Sirimavo Bandaranaike Mawatha, Colombo 14
R. K. Obeyesekere Tel: (94-11) 2522871-2 Fax: (94-11) 2522913
Z. Alif
Dr. N. M. Abdul Gaffar Co. Reg. No. PQ 184
S. K. L. Obeyesekere
Dr. A. Shakthevale Auditors Messrs Ernst & Young (Chartered Accountants)
D. S. K. Amarasekera

Pelwatte Dairy Industries Limited Secretaries Maidas Secretarial Services (Pvt) Limited

Board of Directors Registered Office


D. A. de S. Wickramanayake A/4, Perahera Mawatha, Colombo 03
D. A. E. de S. Wickramanayake
D. H. J. Gunawardena Co. Reg. No. PV 16876
A. N. F. Perera
Auditors Messrs Ernst & Young (Chartered Accountants)

Distilleries Company of Sri Lanka PLC 171


NOTICE OF MEETING

NOTICE IS HEREBY GIVEN that the TWENTY FOURTH 7. To authorise the Directors to determine contributions to
ANNUAL GENERAL MEETING OF DISTILLERIES COMPANY charities.
OF SRI LANKA PLC will be held at the Committee Room
“B” of Bandaranaike Memorial International Conference 8. To authorise the Directors to determine the remuneration
Hall (BMICH) on 29th September 2014 at 10:00AM for the of the Auditors, Messrs. KPMG who are deemed to have
following purposes. been reappointed as Auditors in terms of Section 158 of
the Companies Act No. 07 of 2007.
1. To receive and consider the Annual Report of the
Directors and the Financial Statements of the Company By Order of the Board,
for the year ended 31st March 2014.

2. To approve a final dividend as recommended by the


Board of Directors. Ms. V. J. Senaratne
Company Secretary
3. To re elect Mr. C. R. Jansz who retires by rotation at the
Annual General Meeting in terms of Article 92 of the 22 August 2014
Articles of Association , as a Director of the Company. Colombo.

4. To re elect Mr. N. De. S. Deva Aditya who retires by Notes:


rotation at the Annual General Meeting in terms of Article
92 of the Articles of Association, as a Director of the 1. A member is entitled to attend and vote at the meeting or
Company. to appoint a proxy to attend and vote on behalf of him /
her by completing the Form of Proxy enclosed herewith.
5. To re elect as a Director, Mr. D. H. S. Jayawardena, who
is over the age of 70 years and who retires in terms of 2. A Proxy need not be a member of the Company.
Section 210 of the Companies Act No. 07 of 2007, by
passing the following resolution. 3. The completed Form of Proxy should be deposited at
the Registered Office of the Company at 110, Norris
“RESOLVED that Mr. D. H. S. Jayawardena , who Canal Road, Colombo 10, before 10:00 a.m. on 27th
attained the age of 70 on 17th August 2012, be and is September 2014.
hereby re-elected as a Director of the Company, and it is
hereby declared that the age limit of 70 years referred The Dividend warrants will be posted within seven market
to in Section 210 of the Companies Act No. 07 of 2007 days, if the dividend proposed is approved at the Annual
shall not apply to the said Director.” General Meeting. In accordance with the rules of the
Colombo Stock Exchange, the shares of the Company will
6. To re-elect as a Director, Mr. C. F. Fernando, who is over be quoted ex-dividend with effect from 30th September
the age of 70 years and who retires in terms of Section 2014.
210 of the Companies Act No. 07 of 2007 by passing
the following resolutions. THE SHAREHOLDERS AND THE PROXY HOLDERS
ATTENDING THE MEETING ARE KINDLY REQUESTED
“RESOLVED that Mr. C. F. Fernando, who attained the TO BE IN THEIR SEATS BY 9:45 A.M. THEY ARE ALSO
age of 70 on 1st March 2005, be and is hereby re- REQUESTED TO BRING THIS ANNUAL REPORT, ALONG
elected as a Director of the Company, and it is hereby WITH AN ACCEPTABLE FORM OF IDENTITY.
declared that the age limit of 70 years referred to in
Section 210 of the Companies Act No. 07 of 2007 shall
not apply to the said Director.”

172 Annual Report 2013/14


NOTES

Distilleries Company of Sri Lanka PLC 173


NOTES

174 Annual Report 2013/14


FORM OF PROXY

Folio No.

I/We ................................................................................................................................................................................

of ........................................................................................................................................................... being a member/

members of the Distilleries Company of Sri Lanka PLC hereby appoint Don Harold Stassen Jayawardena* or failing him Rajpal

Kumar Obeyesekere* or failing him Cedric Royle Jansz* or failing him Niranjan de Silva Deva Aditya* or failing him Kolitha Jagath

Kahanda* or failing him Chrisantha Francis Fernando* or failing him Adrian Naomal Balasuriya*

or ....................................................................................................................................................................................

of ...................................................................................................................................................................................
as my/our* Proxy to represent me/us* and vote for me/us* on my/our* behalf at the Twenty Fourth Annual General Meeting of
the Company to be held on the 29th September 2014 and at any adjournment thereof and at every poll which may be taken in
consequent thereof.

* Please delete the inappropriate words.


** Please write your Folio Number which is given on the top left of the address sticker

.................................................
Signature of Shareholder
Dated this ................... day of ................. 2014.

Notes:

1. Proxy need not be a member of the Company.

2. In terms of the Article 71 of the Articles of Association of the Company.

The instrument appointing a Proxy shall be in writing under the hand of the appointer or his attorney duly authorised in
writing, or where the appointer is a corporation, either under seal, or under the hand of an officer or attorney duly authorised.
A Proxy need not be a member of the Company.

3. In terms of Article 72 of the Articles of Association of the Company.

The instrument appointing a Proxy and the Power of Attorney or other authority, if any, under which it is signed or notarially
certified copy of that power of attorney shall be deposited at the registered office of the Company or at such other place
within Sri Lanka as is specified for the purpose in the notice convening the meeting not later than 48 hours before the time
of the holding of the meeting or adjourned meeting at which the person named in the instrument proposes to vote or in the
case of the poll, not later than 24 hours before the time appointed for the taking of the poll and in default the instrument of
Proxy shall not be treated as valid.

4. In terms of Article 66 of the Articles of Association of the Company.

In case of the Joint holders the votes of the senior who tenders a vote, whether in person or by Proxy, shall be accepted to
the exclusion of the votes of the other joint-holders; and for this purpose seniority shall be determined by the order in which
the names stand in the register of members.

The first joint-holder thereby has power to sign the Proxy without the consent of the other joint holder.

5. Instructions as to completion are noted overleaf.


Distilleries Company of Sri Lanka PLC 175
Instructions as to Completion.
1. Kindly perfect the Form of Proxy, after filling in legibly your full name and address, by signing on the space provided and
filling in the date of signature.

2. Kindly return the completed Form of Proxy to the Company after deleting one or other of the alternate words indicated by
an asterisk.

3. To be valid the completed Form of Proxy should be deposited at the Registered Office of the Company at No. 110, Norris
Canal Road, Colombo 10, not later than 48 hours before the time appointed for the holding of the meeting.

4. Every alteration or addition to the Form of Proxy must be duly authenticated by the full signature of the shareholder signing
the Form of Proxy. Such signature should as far as possible be placed in proximity to the alteration or addition intended to
be authenticated.

176 Annual Report 2013/14


ATTENDANCE SLIP

Distilleries Company of Sri Lanka PLC


PQ 112
110, Norris Canal Road, Colombo 10, Sri Lanka.

I / We hereby record my / our presence at the Twenty Fourth Annual General Meeting of the Distilleries Company of Sri Lanka
PLC at the Committee Room “B” of Bandaranaike Memorial International Conference Hall (BMICH) on 29th September 2014
at 10.00 a.m.

1. Full Name of Shareholder : ..........................................................................................................................


(In Capital Letters please)

2. Shareholder’s NIC No./Passport No. : ..........................................................................................................................

3. Number of Shares held and Folio No. : ..........................................................................................................................

4. Name of Proxy Holder : ..........................................................................................................................

5. Proxy Holder’s NIC No./Passport No. : ..........................................................................................................................

6. Signature of Attendee : ..........................................................................................................................

Notes

1. Shareholders / Proxy Holders are requested to bring this Attendance Slip with them when attending the meeting and hand it
over at the entrance to the meeting hall after signing it.

2. Shareholders are also kindly requested to indicate any changes in their addresses / names by completing the following and
forward same to the registered office 110, Norris Canal Road, Colombo 10, if not attending the meeting.

Name of the Shareholder : ..............................................................................................................................................

Certificate No. : ...............................................................................................................................................

Previous Address : ...............................................................................................................................................

Present Address : ...............................................................................................................................................

Any changes to the Name : ...............................................................................................................................................

Distilleries Company of Sri Lanka PLC 177


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This report is entirely in English. If you require a translated copy of The Chairman’s Message,
Annual Report of the Board of Directors and The Auditor’s Report in Sinhala or Tamil, please
make a request by letter addressed to the Secretary, Distilleries Company of Sri Lanka PLC,
No. 110, Norris Canal Road, Colombo 10 on or before 22nd day of September 2014.

Distilleries Company of Sri Lanka PLC 179


CORPORATE
INFORMATION
Company Name Auditors
Distilleries Company of Sri Lanka PLC KPMG (Chartered Accountants)
32A, Sir Mohamed Macan Marker Mawatha,
Domicile and Legal Form of the Holding Company Colombo 03, Sri Lanka
Public Limited Liability Company incorporated and domiciled
in Sri Lanka and listed on the Colombo Stock Exchange Registrars
P. W. Corporate Secretarial (Pvt) Ltd.
Registration No. 3 / 17, Kynsey Road,
PQ 112 Colombo 08, Sri Lanka

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Milford Exports (Ceylon) Ltd. Prasanna Goonawardene & Company
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Registered Office
Colombo 03, Sri Lanka
110, Norris Canal Road, Colombo 10,
Sri Lanka Bankers
Tel : +94 11 5507000 / 2695295 -7 Bank of Ceylon
Fax : +94 11 2696360 Commercial Bank of Ceylon
Web : www.dcslgroup.com Hatton National Bank
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Board of Directors
MCB Bank
Mr. D. H. S. Jayawardena (Chairman / Managing Director) Nations Trust Bank
Mr. R. K. Obeyesekere People’s Bank
Mr. C. R. Jansz Standard Chartered Bank
Mr. N. de S. Deva Aditya
Capt. K. J. Kahanda (Retd.) Credit Rating
Mr. C. F. Fernando The Company has been assigned ‘AAA (lka)’ National Long
Dr. A. N. Balasuriya Term Rating with a Stable Outlook by Fitch Ratings Lanka
Mr. A. L. Gooneratne (Alternate to Mr. N. de S. Deva Aditya) Limited.
Ms. V. J. Senaratne (Alternate to Mr. K. J. Kahanda)

Audit Committee
Mr. C. F. Fernando – Chairman
Mr. N. de S. Deva Aditya
Dr. A. N. Balasuriya

Remuneration Committee
Dr. A. N. Balasuriya – Chairman
Mr. N. de S. Deva Aditya
Mr. C. F. Fernando

Secretary
Ms. V. J. Senaratne

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