Kahawatte Plantation PLC AR-14 - CSE

Annual Report 2014

KAHAWATTEPLANTATIONS PLC

Our VisionEnjoy leading the way in creating the best

value agribusiness enterprise

Our MissionEnhance stakeholder value, Surpass customer expectations,

Empower people in a learning organization, Be an employer of choice,Respect and nurture planet earth.

Our Core ValuesWe treat our People with respect as they are our most Valuable

asset in driving value creation processes We hold ourselves to the highest standards of honesty and integrity

Learning and continuous improvement demonstrate our passion for excellence in everything we do, Opportunities and rewards

will be on the merits of performance and achievement of results.

Cover Page StoryExcelling with desire to conquer challenges in the Industry and continue to be leading the way with a PPassionate touch of quality product.

Committed to reciprocate and embrace corporate responsibilities, to nurture our People, PPlant and PPlanet earth.

Kahawatte Plantations PLC

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Annual Report 2014

Year Ended 31 December 2014 2013 %

Rs.’000 Rs.’000 Increase/

(Decrease)

Revenue 3,078,878 3,511,912 (12.33%)

Profit from Operating Activities 221,764 263,151 (15.73%)

Net Profit for the year 116,960 116,748 (0.18%)

Total comprehensive income 12,355 33,542 (63.17%)

Non Current Assets 3,262,110 2,826,174 15.42%

Shareholder’s Funds 1,104,408 1,092,053 1.13%

Stated Capital 898,760 898,760 0.00%

Basic Earning per Share - (Rs.) 1.46 1.46 0.00%

Net Asset per Share - (Rs.) 13.82 13.67 1.10%

Financial Highlights

Financial Calander1st quarter interim Financial Report 16 May 2014

2nd quarter interim Financial Report 15 August 2014

3rd quarter interim Financial Report 15 November 2014

4th quarter interim Financial Report 26 February 2015

Annual Report - 2014 20 May 2015

22nd Annual General Meeting 25 June 2015

ContentsEstate Information 3

Management Review 4

Corporate Governance 6

Board of Directors 7

Annual Report of the Board of Directors on the Affairs of the Company 8

Risk Management & Statement of Directors Responsibilities 10

Report of the Audit Committee 11

Auditor’s Report 12

Income Statement 13

Statement of Comprehensive Income 14

Statement of Financial Position 15

Statement of Changes in Equity 16

Statement of Cash Flows 17

Notes to the Financial Statement 18

Investor Information 47

Ten Year Summary 48

Corporate Information 49

Notice of Meeting 50

Form of Proxy 51


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Annual Report 2014

Kahawatte Region - Low Grown No. of BuildingsEstate Manager In Charge Crop Extent Postal Address Factory * Other Buildings

Ekkerella Mr. Indrajith Rukmal Tea cum Rubber 221.3 Ekkerella Estate, Opanaike 1 263 Endane/Samawatte Mr. Chanaka Gunathilake Tea 409.1 Endane Estate, Kahawatte & 2 857 From 15/05/2014 Samawatte Tea Factory, Endane Houpe Mr. Lakkhana Perera Tea cum Rubber 500.1 Houpe Estate, Kahawatte 1 889 Hunuwella Mr. Madushanka Dunusinghe Tea cum Rubber 601.0 Hunuwella Estate, Opanayake 3 558 From 01/01/2014 To 15/05/2014 Mr. Pradeep Vithanage From 15/05/2014 Resigned on 15/11/2014 Mr. Damith Mohottige From 15/11/2014

Opata Mr. Gaya Weerasekara Tea cum Rubber 530.2 Opata Estate, Kahawatte 2 722 Pelmadulla Mr. Rolly Douglas Tea cum Rubber 541.8 Pelmadulla Estate, Kahawatte 2 936 Resigned 15/05/2014 Mr. Madushanka Dunusinghe From 15/05/2014

Poronuwa Mr. Sugath Galgamuwa Tea cum Rubber 515.8 Poronuwa Estate, Kahawatte 2 567 From 01/01/2014 To 15/12/2014 Mr. Viduranga Kularatne From 15/12/2014

Rilhena Mr. Jeewantha Senaratne Tea cum Rubber 413.8 Rilhena Estate, Pelmadulla 1 717 Wellandura Mr. Manuja Abeysekara Tea cum Rubber 394.7 Wellandura Estate, Kahawatte 2 589

Nawalapitiya Region - Medium / High Grown

Estate Name Manager In Charge Crop Extent Postal Address

Barcaple Mr. Lakshman Jayathilake Tea 221.1 Barcaple Estate, Kataboola - 369 Resigned 15/09/2014 Mr. S. Subash Narayan From 15/09/2014

Craighead Mr. G. I. Senerath Tea 345.5 Craighead Estate, Udahentenne 1 888 Resigned 15/09/2014 Mr. Chinthaka Senanayake From 15/09/2014 Galamuduna Mr. E John Tea 257.5 Galamuduna Estate, Dolosbage 1 474 Resigned 18/07/2014 Mr. Subashan Kuruppu From 15/08/2014 Imboolpittia Mr. Rangana Kuruppuarachchi Tea 192.5 Imboolpittia Estate, Nawalapitiya 1 747 Kataboola Mr. Subashan Kuruppu Tea 414.9 Kataboola Estate, Kataboola 1 1,315 Up to 15/08/2014 Mr. Lasantha Ediriweera From 15/08/2014

Queensberry Mr. Indika Premachandra Tea 260.3 Queensberry Estate, Kataboola 1 494 Resigned 30/04/2014 Mr. M F S Marzookdeen From 01/05/2014

Westhall Mr. Shaminda de Silva Tea 224.1 Westhall Estate, Kataboola 1 489 22 10,874

Estate Information

* Other building inclusive of office, bungalows, workers quarters, child development centers and other building etc.


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Annual Report 2014

Management Review

GLOBAL ECONOMYThe growth of the global economy at 3.3% in 2014 was similar to the same period in 2013.

The disturbances and the civil strife in the Middle East and the financial crisis in Russia, has begun to cause a steady decline in the tea prices. Kahawatte Plantations were the price leaders in the tea industry and any dent in the prices has naturally affected us adversely.

SRI LANKA ECONOMYThe country recorded a growth rate of 7.4% well above the global average. This is due to the Island being completely peaceful consequent to the end of civil conflicts and generating a conducive climate for investments.

PLANTATION INDUSTRYTeaOur plantations are mainly in the mid country (Nawalapitiya and Sabaragamuwa districts). These areas experienced abnormal weather patterns. The first three to four months were extremely dry, followed by incessant rain. Most of the plantations similarly recorded severe declines in crops and Kahawatte achieved a crop of 2.9 Mn Kgs which is a drop of 27% against the budgeted crop. However, it is pleasing to report that our plantations were able to maintain the GSA above 2013 average. This is a very commendable achievement and the Plantation Management must be congratulated on this feat.

RubberThe Rubber sales average for 2013 which was Rs.306.00 per kg. at the Rubber Auctions prices dropped sharply to Rs. 277/- to end 2014. The twin effects of the declined tea crop and rubber prices were completely beyond our control, which has no doubt contributed towards the lowering of our expectations.The decline in the rubber prices was mainly due to economic slowdown in the sales of automobile tyres and heavy inventories carried by the buyers coupled with the increase in production in the Asian Region.

We are monitoring this situation very closely and if there is a normalization of the rubber prices, Kahawatte will stand to gain enormously as the Company has 723.86 ha. of young budded rubber, maintained in excellent condition which will certainly make a positive contribution to the Company.

FINANCIAL REPORTINGThe financial statements and related notes are prepared in conformity with Sri Lanka Financial Reporting Standards.

COMPANY PERFORMANCEThe Company recorded a profit of 116.9 Mn in 2014. This is despite the drop in Rubber prices which is entirely determined by global market forces.

TeaThe Company has produced 5.4 Mn kgs. of tea comprising of Estate crop of 2.9 Kgs. and Bought crop 2.5 Kgs which is 16% less than the previous year.

The crop declines were due to the adverse weather conditions prevailed on our plantations. The Net Sales Average was Rs.496/- which is Rs. 35/- above the National Average of

Rs.461/-. This is a good indication of the care given to Tea Manufacture on all our Plantations.

RubberRubber crop too declined due to the reduced tapping days in the second half of the year due to heavy and abnormal weather and the comparative figures are 0.87 Mn kilos in 2014 compared to 1.0 Mn kilos in 2013. The prices however dropped by Rs.92/- due to the weakening Global Rubber Prices.

The Company has invested heavily in rubber new planting over 700 ha. coming into bearing in stages. Though the prices are currently depressed it is expected to improve gradually. It is with the resumption of normal prices, Kahawatte will demonstrate its true potential.

CinnamonKahawatte is the trail blazer in Cinnamon plantations. We recorded a harvest of 20,341 kilos in our own processing center. The Cinnamon crop is expected to be improved considerably this year. Value addition of cinnamon is now being undertaken and a properly designed cinnamon pack will soon get on to the shelves at all Dilmah sales outlets. This will add value to the current sale price of the product.

Pepper PlantationAn extent of 20.48 ha. of pepper plantation have been established on Ekkerella Estate. Pepper is considered as a future diversification crop. The plantations will start giving results in stages and will make a positive impact to the profitability of the Company.

Fuel woodThe Company continued with the planting of fuel wood and the total extent has reached 698 ha. The Company has carried out the first thinning-out programme during the period under review.

CAPITAL DEVELOPMENTKahawatte Plantations inherited a legacy of neglect where there was no replanting or expenditure on factory development or modernization. This situation however has been aggressively arrested and the plantations are primed to produce better crops and realize improved prices with the work undertaken by your Company.

Rubber new clearings and the new tea areas are coming in to bearing. It is hoped that the tea crops will show an improvement in the current year.

The Company has invested Rs.350.9 Mn on replanting and maintenance of immature plantations and Rs 9.3 Mn. on the improvement to manufacturing facilities of our factories.

The following capital work was undertaken during the period under review.

- Tea new replanting and upkeep of 147 hectares.

- Rubber new clearings 116.24 ha. Immature upkeep 607.62 ha.

- Cinnamon Immature upkeep 44.2 ha.

- Pepper planting - 20.48 ha.


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Annual Report 2014

Management Review Contd...

The cumulative effect of the work undertaken by the Company will inevitably result in the Company being able to absorb fluctuations in the tea and rubber markets with the diversified basket of crops.

Cumulative Capital Expenditure incurred by the Company since privatization is Rs.4 Bn, out of which Rs. 474.41 Mn was invested on improving Quality of Life and Welfare facilities of our workers.

CERTIFICATION AND ACHIEVEMENTSDuring the year the Company received the ETP participant certificates for 12 Estates.

The Company achieved 527 Top Prices for Tea and Rubber 240 Top Prices at the Colombo auctions in 2014.

The Company has secured twenty nine awards in different segments in the Annual Award Ceremony conducted by Forbes & Walker Tea Brokers including the Highest Sales Average amongst all the Regional Plantation Companies. Company was placed first in Western Medium and third place in the Low Grown category.

HUMAN RESOURCE DEVELOPMENT AND SOCIAL RESPONSIBILITYThe Board of Directors have been deeply conscious of the social responsibilities and a sum of Rs.474.41 Mn has been deployed since privatization for the improvement of the living facilities of the workforce and as a result they are extending their highest co-operation.

The MJF Charitable Foundation has made a significant contribution towards uplifting of Child Development Centers. All these measures together with the leadership shown by our Plantation Managers have resulted an year of complete industrial peace.

Our excellent relationship with the workforce is an acknowledgment of high value that we have placed on them, which in turn assist us to build a strong relationship with the Trade Unions, local communities and the Government Institutions.

FUTURE STRATEGIES AND PROSPECTSKahawatte Plantations under the guidance of the Board of Directors has always worked in the long-term interest of the plantations.

We have developed over 700 ha. of young rubber plantations. Our tea replanting programme has gone on at a sustained pace with over 331 ha. of tea coming into bearing in the next few years.

We have planted 20 ha. of pepper and consolidated the present 151ha. of cinnamon fields to improve yields.

These measures will positively contribute towards Kahawatte being a very strong Company when the market conditions resume normalcy.

We have been the price leaders at the Colombo Tea Auction. It is unfortunate that the decline in tea prices following the global conflicts and the down turn in the rubber prices has not yielded the results that were so eagerly expected.

We are pleased to inform that the Company is ranked No: 1 in GSA in the Tea Board Ranking for the 8th consecutive year. This is a unique achievement unmatched by any other company, which will be continued.

There is currently a negotiation going on to increase wages of the plantation workers. Unfortunately this is coming at a time when there is a price slump in tea and rubber prices. If and when the wage increase is determined, we will have to evaluate the effect on the plantations.

We are making representations to the Government to consider giving us finances on a long-term basis at a lower rate of interest to counterbalance the erosion of liquidity due to the increases.

It is also imperative that the Government consider in granting substantial subsidies for replanting.

APPRECIATIONOn behalf of the Management it is with deep regret that we record the demise of Mr. Edgar Gunatunge - Chairman of Kahawatte Plantations PLC. who expired on 20th November 2014.

Mr. Gunatunge joined the Board in 2003 and was appointed Chairman in 2007. He added considerable value to the Board and contributed immensely to the growth of Kahawatte Plantations PLC. He was a professional with high integrity. We do miss him on the Board.

We wish to place on record our appreciation to all stakeholders particularly, the Employees, Trade Unions, Buyers, Brokers, Suppliers and the Bankers for their continued support and understanding during the period under review.

We are grateful to our main shareholder and the Managing Agent - Forbes Plantations Private Limited for their guidance and financial assistance extended from time to time. We are thankful that they have waived-off the Management Fees this year too.

We also extend our sincere thanks to the Members of Board of Directors and the Chief Executive Officer for their tireless efforts, commitment and sense of ownership which enabled us to face this challenging period.

Herman GunaratneChairmanManagement committee

20 May 2015Colombo


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Annual Report 2014

Corporate Governance

The Company aspires to adhere to the best practices in Corporate Governance by ensuring greater transparency, business integrity, professionalism and ethical values in the best interests of all stakeholders.

This statement describes the application of the Corporate Governance practices within the Company.

Board of DirectorsThe Company’s business and operations are managed under the supervision of the Board which consists of members with experience and knowledge in the areas of business in which the Company is engaged, with specific acumen in terms of commercial, financial, industrial expertise.

The Board is responsible for formulation of overall business policy and strategy and for monitoring the effective implementation thereof.

Composition of the BoardDuring the year and up to November 20, 2014 the Board comprised of eight (8) members, seven (7) of whom including the late Chairman, were Non Executive Directors.

The Board has determined that one third (1/3) of such Non Executive Directors, namely three (3) Directors were ‘Independent’ as per the Listing Rules of the Colombo Stock Exchange.

The said Independent Directors were the late Mr. Edgar Gunartunge and Messrs Daya P Wickramatunga and Malinga Herman Gunaratne.

Chairman and Chief Executive OfficerThe roles of the Chairman and Chief Executive Officer are separate with a clear distinction of responsibilities, which ensures balance of power and authority.

Board MeetingsThe Board meets regularly to discharge their duties effectively. The Board’s functions include the assessment of the adequacy and effectiveness of internal controls, compliance with applicable laws and regulations, review of management and operational information, adoption of annual and interim accounts before they are published, review of exposure to key business risks, strategic direction of operational and management units, approval of annual budgets, monitoring progress towards achieving the budgets, approvals relating to key appointments, sanctioning major capital expenditure etc.

Appointments to the BoardThe Board collectively decides on the appointment of Directors. The Company’s Articles of Association requires any Director appointed during the year to hold office until the next Annual General Meeting, at which he retires and seeks re-election by the shareholders. One third of Directors retire by rotation and if appropriate seek re-election by the shareholders.

Board Sub CommitteesTo facilitate focussed attention on specific areas of review and in pursuance of the Listing Rules of the Colombo Stock Exchange on Corporate Governance, the Board of Kahawatte Plantations PLC has appointed two Sub Committees; the Audit Committee and Remuneration Committee.

Audit CommitteeThe Audit Committee consisted of three (3) Non Executive Directors up to 20th November 2014 and two (2) of the members were Independent Non-Executive Directors.

Ms Minette D A Perera, who is a member of three recognized professional accounting bodies, is the Chairperson of the Committee. The late Mr Edgar Gunatunge and Mr Daya P Wickramatunga were members of the Committee.

The Board has initiated action to appoint an Independent Director and to reconstitute the Audit Committee in view of non-compliance with Section 7.10.6 a of the Listing Rules consequent to the demise of Mr. Edgar Gunatunge on 20th November 2014.

The Report of the Audit Committee appears on page 11.

Remuneration CommitteeThe Remuneration Committee consisted of three (3) Non Executive Directors up to 20th November 2014 and two of those members were Independent Non-Executive Directors. The late Mr. Edgar Gunatunge was the Chairman of the Remuneration Committee and Mr. Daya P Wickramatunga and Mr. Malik J Fenando were the remaining members.

The Committee is responsible for determining the compensation payable to the Executive Director and Senior Management. In addition, it lays down the guidelines and parameters for the compensation structure of all the Management staff of the Company. The remuneration packages are aligned to individual performances and to the strategic priorities of the Company.

A main objective of the remuneration policy of the Company is to attract and retain a highly qualified and experienced workforce and to compensate employees who contribute to the success of the Company.

The Board has initiated action to appoint an Independent Director and to reconstitute the Remuneration Committee in view of non-compliance with Section 7.10.5 a of the Listing Rules consequent to the demise of Mr. Edgar Gunatunge on 20th November 2014.

Financial ReportingThe Board aims to provide and present a balanced assessment of the Company’s position and prospects in compliance with the Sri Lanka Accounting Standards(LKAS/SLFRS) and the relevant Statutes, and has established a formal and transparent process for conducting financial reporting and internal control principles.

The Statement of Directors’ Responsibilities for the Financial Statements is given on page 10 of this Report.

Internal ControlsThe Board is responsible for the Company’s internal controls. In this respect controls are established for safeguarding the Company’s assets, making available accurate and timely information and imposing greater discipline on decision making. This process is strengthened by regular internal audits. The internal audit specifically focussed on internal controls and procedures in the areas of finance, operations, human resources, payroll management, and relevant legal and regulatory compliance.

Corporate Disclosure and Shareholder RelationshipThe Company is committed to providing timely and accurate disclosure of all price sensitive information, financial results and significant developments to all shareholders, the Colombo Stock Exchange and where necessary, to the general public.

Shareholders are provided with the Annual Report and, the Company disseminates to the market, Quarterly Financial Statements in accordance with the Listing Rules of the Colombo Stock Exchange.

The Annual General Meeting provides a platform for shareholders to discuss and seek clarifications on the activities of the Company.

By Order of the Board


Viren RuberuDirector/Chief Executive Officer

20 May 2015Colombo


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Annual Report 2014

Board of Directors

Mr. Malik J. FernandoDirector

Mr. Malik Fernando was appointed to the Board of Kahawatte Plantations PLC in January 2001 as a Non-Executive Director.

He holds a Bachelor of Science Degree in Management from Babson College, USA.

He is the Director Operations of the MJF Group, which comprises several tea growing and tea packing/exporting companies, supplying the “Dilmah Tea” brand around the world. The Group also has interests in Packaging and in the Leisure sector.

Ms. Minette PereraDirector

Ms. Minette Perera was appointed to the Board of Kahawatte Plantations PLC in January 2001 as a Non-Executive Director.

Ms. Perera is a Fellow member of the Institute of Chartered Accountants of Sri Lanka, the Chartered Institute of Management Accountants of UK and the Association of Chartered Certified Accountants of UK.

She serves as a Director of the MJF Group which comprises several tea growing and tea packing/exporting companies, supplying the “Dilmah Tea” brand around the world. The Group also has interests in Packaging and in the Leisure sector.

Mr. Daya P. WickramatungaDirector

Mr. Daya P Wickramatunga was appointed to the Board of Kahawatte Plantations PLC in September 2008 as an Independent Non Executive Director.

He is a graduate of the University of Ceylon, Science Faculty. He won an FAO scholarship awarded to Science Graduates in the Food Industry, and successfully completed his postgraduate degree from the FAO run ‘Central Technological Research Institute, Mysore, India’.

He counts over 43 years working experience both in Sri Lanka and overseas with wide exposure to Research and Development in the Food Industry.

Mr. Dilhan C. FernandoDirector

Mr. Dilhan C Fernando was appointed to the Board of Kahawatte Plantations PLC in September 2008 as a Non-Executive Director.

He holds a B.Sc. Economics (Hon) Degree from the London School of Economics.

From 1989 he worked in Production and Operational departments of the MJF Group before assuming his present role as its Marketing Director.

Mr. Himendra S. RanaweeraDirector

Mr. Himendra S. Ranaweera was appointed to the Board of Kahawatte Plantations PLC in September 2008 as a Non - Executive Director.

Mr. Ranaweera is the Deputy Chairman of the MJF Group of Companies and has been with the group for over 26 years. Mr. Ranaweera also serves as Director in a number of Companies of the MJF Group since 1984. He counts over 46 years of experience and expertise in Operations Management both in Sri Lanka and overseas.

Mr Viren RuberuDirector/CEO

Mr Viren Ruberu was appointed the Director / CEO of Kahawatte Plantations PLC on 1st January 2013.

Mr Ruberu commenced his planting career in 1987 at Janatha Estates Development Board. He joined Kahawatte Plantations in 1993 as an Assistant Manager and served the Company for seven years in the capacity of Assistant Manager and Manager.

After a brief career with another plantation company from 2000 to 2002, he re-joined Kahawatte Plantations as Manager - Corporate Solutions in 2002.

He served the Company as Deputy General Manager - Low Country, General Manager - Low Country and Director - Plantations and was promoted to Deputy CEO in 2012.

Mr Ruberu holds National Diploma in Plantation Management, National Diploma in Human Resources Management (HRM), Postgraduate Diploma in HRM and MBA in Human Resources Development.

He is the past Chairman of Spices and Allied Products Producers’ & Traders’ Association (SAPPTA), member of the Consultative Committee on Estate and Advisory Services of the Tea Research Institute (TRI) and member of the Executive Committee of the Colombo Rubber Traders’ Association (CRTA), member of the Spices & Allied Products Advisory Committee of the Export Development Board (EDB), member of the Plantation Management Committee of the Planters’ Association of Ceylon, member of the Management Committee of the Estate Staffs’ Provident Society (ESPS) and also a member of the Standing Committee of Sri Lanka Business and Biodiversity Platform.

Mr Malinga Herman GunaratneDirector

Mr. Malinga Herman Gunaratne was appointed to the Board of Kahawatte Plantations PLC on 11th December 2012 as an Independent Non Executive Director.

Mr Gunaratne is a Proprietary Planter.

He was a Senior Plantation Manager for Sterling Companies managed by George Steuart and Company Limited having served the company for 25 years.

After nationalization of the estate sector, he was appointed Regional Manager / Chairman for the Nuwara Eliya Region by the Janatha Estates Development Board which managed 100,000 acres of the Island’s best tea lands.

Mr Gunaratne also served as the Additional General Manager of a Corporation falling under the purview of the Ministry of Mahaweli Development and as Chairman of the Lanka Fabrics Corporation of the Ministry of Textile Industries.


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Annual Report 2014

Annual Report of the Board of Directorson the Affairs of the CompanyThe Directors of Kahawatte Plantations PLC have pleasure in presenting their Annual Report together with the Audited Financial Statements of the Company for the year ended 31 December 2014.

This Annual Report of the Board on the affairs of the Company contains the information required in terms of the Companies Act, No. 07 of 2007, the Listing Rules of the Colombo Stock Exchange and is guided by recommended best practices.

This Report consists of two Parts; Part I which describes the information in compliance with section 168 of the Companies Act, No. 07 of 2007 and Part II provides the other information referred to.

Part IGeneralKahawatte Plantations PLC is a Public Limited Liability Company which was incorporated under the Companies Act No.17 of 1982 as a Limited Liability Company on 15th June 1992, listed on the Colombo Stock Exchange in the year 1998 and re-registered as per the Companies Act, No. 07 of 2007 on 26th December 2007 with PQ 109 as the new number assigned to the Company.

Principal activities of the Company and review of performance during the yearThe Company’s principal activities, which remained unchanged during the year, were the cultivation, manufacture and marketing of tea, rubber, forestry products and other crops, mainly cinnamon.

A review of the business of the Company and its performance during the year with comments on financial results, future strategies and prospects are contained in the Management Review (pages 4 to 5).

This Report together with the Financial Statements, reflect the state of affairs of the Company.

Financial StatementsThe Financial Statements of the Company are given on pages 13 to 46.

Summarized Financial Results 31st Dec 2014 31st Dec. 2013 Rs. 000 Rs. 000Revenue 3,078,878 3,511,912Net Profit/ (Loss) for the year 116,960 116,748Total Comprehensive Income 12,355 33,542Carried forward Profit /(Loss) 205,648 193,293

Auditors ReportThe Report of the Auditors on the Financial Statements of the Company is given on page 12.

Accounting PoliciesThe accounting policies adopted by the Company in the preparation of Financial Statements are given on pages 18 to 23 which are consistent with those of the previous period.

DirectorsThe names of the Directors who held office as at the end of the accounting period are given below and their brief profiles appear on page 7.

Executive DirectorMr G. T. O. Viren Ruberu - Director/CEO

Non Executive DirectorsMr. Malik J. Fernando - DirectorMs. M.D.A. Perera - DirectorMr. Daya P Wickramatunga - Director*Mr. Dilhan C Fernando - DirectorMr. Himendra S. Ranaweera - DirectorMr. Malinga Herman Gunaratne - Director*

* Independent Non Executive Directors

Mr. Edgar Gunatunge who served as the Chairman of the Board of Directors, expired on 20th November 2014

The Board recommends that Messrs Daya P Wickramatunga and Malinga Herman Gunaratne who are over 70 years of age be re-appointed Directors at the forthcoming Annual General Meeting. Accordingly, at the Annual General Meeting shareholders will be requested to consider and if thought fit to pass Ordinary Resolutions to give effect to the foregoing.

Mr. Malik J Fernando retires by rotation at the Annual General Meeting in terms of Article 25(1) of the Articles of Association and being eligible, offers himself for re-election.

Interests RegisterThe Company maintains an Interests Register in terms of the Companies Act, No. 7 of 2007. The names of Directors who were directly or indirectly interested in a contract or a related party transaction with the Company during the accounting period under review are given in Note 26 to the Financial Statements on pages 39 and 40.

Directors’ RemunerationThe aggregate remuneration paid to the Executive Director and Non-Executive Directors during the year under review was Rs. 8,847,193.

AuditorsMessrs KPMG, Chartered Accountants served as the Auditors during the year under review. The Auditors, do not have any interest in the Company other than as Auditors and consultants on tax compliance and other non audit services.

The audit fee payable to the Auditors for the year under review is Rs. 1,800,000/- (2013 - Rs.1,675,000/-)

The fee payable to the Auditors for non audit services provided during the year under review is Rs.253,014/-.

The Auditors have expressed their willingness to continue in office. A resolution to re-appoint the Auditors and to authorize the Directors to determine their remuneration will be proposed at the Annual General Meeting.


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Annual Report 2014

Annual Report of the Board of Directorson the Affairs of the Company Contd...

DonationsThe Company did not make any donations during the year under review.

Part IIStated CapitalThe Stated Capital of the Company is Rs.898,760,315/- represented by 79,889,806 Ordinary Shares and One (01) Golden Share.

Golden ShareThe Secretary to the Treasury has been issued with one Golden Share on behalf of the Government of Sri Lanka, carrying special rights as per the Articles of Association of the Company.

Directors’ ShareholdingThe shareholdings of the Directors of the Company are as follows. As at As at 31/12/2014 31/12/2013Mr. Malik J Fernando - Ms. M D A Perera 4,000 4,000Mr. Daya P Wickramatunga - -Mr. Dilhan C Fernando - - Mr. Himendra S Ranaweera - - Mr. Malinga H Gunaratne 500 -Mr. G T O Viren Ruberu 95 95

Mr. Malik J Fernando , Mr. Dilhan C Fernando and Mr. Himendra S Ranaweera are Directors of Forbes Plantations (Pvt) Ltd which held 50,955,581 shares equivalent to 63.78% of the shares constituting the Stated Capital of the Company.

Mr. Malik J Fernando , Ms. Minette D A Perera Mr. Dilhan C Fernando and Mr. Himendra S Ranaweera are Directors of Ceylon Tea Services PLC which held 12,571,800 shares equivalent to 15.74% of the shares constituting the Stated Capital of the Company.

Major Shareholders, Distribution Schedule and other informationInformation on the twenty largest shareholders of the Company, the distribution schedule of the number of shareholders, percentage of shares held by the public, market values per share as per the Listing Rules of the Colombo Stock Exchange are given on page 47 under Investor Information.

ReservesThe movements of reserves during the year are given under the Statement of Changes in Equity on page 16.

Property, Plant and EquipmentDetails of property plant and equipment and changes during the year are given in Note 13 to the Financial Statements

Land HoldingsThe Company does not own any freehold land.

Events occurring after the Reporting dateNo material circumstances have arisen since the reporting date, which would require adjustment to, or disclosure in the Financial Statements.

Corporate GovernanceThe Directors confirm that the Company has complied with the Corporate Governance Rules of the Colombo Stock Exchange except for Sections 7.10.2 a, 7.10.5 a and 7.10.6 a which have not been complied with since the demise of Mr. Edgar Gunatunge on 20th November 2014. Consequent thereto the Board has initiated action to appoint an Independent Non Executive Director and to reconstitute the Audit and Remuneration Committees in compliance with the Rules.

Special Business to be transacted at the Annual General MeetingThe Board recommends that Mr. Merrill J Fernando, Chairman of MJF Holdings Limited, the ultimate parent of the Company, who is 85 years of age be appointed as a Director of the Company in terms of Section 211 of the Companies Act No.07 of 2007.

Accordingly, the Resolution set out in Item 2 of the Notice of Meeting will be placed before the shareholders for the aforesaid purpose.

Annual General MeetingThe Annual General Meeting will be held at 3.30 p.m. on 25 June 2015 at the Auditorium of the Ceylon Chamber of Commerce, No.50, Nawam Mawatha, Colombo 02. The Notice of the Annual General Meeting appears on page 50.

By Order of the BoardKahawatte Plantations PLC

Malik J Fernando Viren RuberuDirector Director/CEO

P W Corporate Secretarial (Pvt) LtdSecretaries

20 May 2015Colombo


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Annual Report 2014

Risk Management Statement of Directors’ Responsibilities

By the nature of their business, the plantation sector is exposed to varying degree of risks associated with the cultivation and processing of tea & rubber and the economic environment in which it operates.

Creating an awareness of risks associated within the tea & rubber industry, a uniform interpretation of risks and identifying the types of risks are imperative to success of an overall risk management system.

The Board of Directors places special emphasis on the management of business risks and together with the Management Committee, ensures that a sound system of controls including financial, operational and compliances are in place, to safeguard the shareholders investment and the assets and reviews regularly the effectiveness of such controls.

Operational Risk

The Company practices adequate internal control systems to mitigate operational risk. Periodic reviews are carried out at Estates level to ensure the quality and cost effectiveness of the system of internal controls in place. Adequate insurance covers are in place to safeguard the Company’s assets and minimise any financial losses.

Interest Rate Risk

The Company in a position to take the advantage of relative low interest rate compared to previous years whilst obtaining low interest facilities to settle high interest borrowings. The Company regularly monitoring all receivables, checking invoices & adopting a periodic follow up through our ERP system.

Legal Risk

Being a listed Company, a taxpayer and an employer who has to fulfil various legal as well as statutory requirements, the Board of Directors of the Company has set in place an effective compliance system so that no legal, banking, company, stock market and other regulations are violated.

Trade Union

The Company manages a highly unionised work force within the Company. In order to mitigate industrial disputes and work stoppages, a collective agreement is signed between the Union and the Employer’s Federation of which your Company is a member.

Climatic Changes

The Company adopts best agricultural practices in order to mitigate loss of crop due to unfavourable climatic changes. The management is also very selective on planting improved clones of tea, rubber and other crops, which withstands adverse climatic conditions.

The following statement sets out the responsibilities of Directors in relation to the Financial Statements of the Company. The report is drawn with a view to distinguish the respective responsibilities of the Directors and of the auditors which set out in their report appearing on page 12. The Companies Act No. 07 of 2007 requires the Directors to prepare Financial Statements for each financial year giving a true and fair view of the state of affairs of the Company as at end of the financial year and of the Profit and Loss for the financial year in accordance with Sri Lanka Accounting Standards. In preparing the Financial Statements, appropriate accounting policies have been selected and applied consistently. Reasonable and prudent judgments and estimates have been made and Sri Lanka Accounting Standards have been followed.

Since the Directors are satisfied that the Company has the resources to continue in business for the foreseeable future, and have the “Going Concern” basis in preparing these Financial Statements. Directors are responsible to provide with sufficient accounting records to disclose with reasonable accuracy the financial position of the Company, and which enable them to ensure that the Financial Statements comply with the Companies Act No. 07 of 2007.

The Directors confirm that to the best of their knowledge all taxes, duties and levies payable by the Company and employees of the Company arising from emoluments paid to such employees by the Company as at the reporting date have been paid, or where relevant provided for.

By Order of the BoardKAHAWATTE PLANTATIONS PLC

Viren RuberuDirector/Chief Executive Officer

20 May 2015Colombo


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Annual Report 2014

Report of the Audit Committee

The Audit Committee appointed by the Board of Directors of Kahawatte Plantations PLC comprised, until the demise of Mr. Edgar Gunatunge, of three (03) Non-Executive Directors, two (2) of whom were ‘Independent’ as per the Listing Rules of the Colombo Stock Exchange. The late Mr. Gunatunge was a member of the Audit Committee and the remaining two (2) members were Ms. Minette D A Perera (Chairperson) and Mr. Daya P Wickramatunga. The Director/CEO and the General Manager - Finance attend the meetings of the Audit Committee by invitation.

The primary function of the Committee is to assist the Board in fulfilling its oversight responsibilities, primarily through overseeing the Management’s conduct of the Company’s financial reporting process and systems of internal accounting and financial controls, monitoring the independence and performance of the Company’s External Auditors and providing an avenue of communication among the External Auditors, Management and the Board.

The Audit Committee is empowered, amongst other functions, to examine any matters relating to the financial affairs of the Company and to review the adequacy of the internal control procedures, audit programmes, disclosure of accounting policies, compliance with statutory and Corporate Governance requirements, etc. The Audit Committee is also empowered to review and monitor the financial reporting process of the Company, so as to provide an additional assurance on the reliability of the financial statements through a process of independent and objective reviews. As such, the Audit Committee acts as an effective forum in assisting the Board of Directors in discharging its responsibilities of ensuring the quality of financial reporting and related communications to the shareholders and the public.

The Committee reviewed the Annual Financial Statements for the year ended 31st December 2014 and the Quarterly Financial Statements to ensure compliance with the mandatory and statutory requirements.

The Audit Committee is of the view that the internal controls prevalent within the Company are satisfactory and provide a reasonable assurance that the financial position of the Company is well monitored and the assets safeguarded. The Committee regularly reviews the scope of the internal audit function and the audit programmes proposed, together with any intermediate or long term audit plans.

The Committee reviewed the non-audit services provided by the External Auditors to ensure that their independence as Auditors has not been compromised. The Committee has recommended to the Board of Directors that KPMG, Chartered Accountants be reappointed the Auditors for the year ending 31st December 2015 subject to the approval of the shareholders at the Annual General Meeting. The Audit Committee has also made its recommendations to the Board of Directors on the fees payable to the Auditors for approval by the Board.

M D A PereraChairperson - Audit Committee

20 May 2015Colombo


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Annual Report 2014

Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORTTO THE SHAREHOLDERS OF KAHAWATTE PLANTATIONS PLC

Report on the Financial Statements

We have audited the accompanying financial statements of Kahawatte Plantations PLC.(“the Company”), which comprise the statement of financial position as at 31st December 2014, and the statements of income, profit or loss and other comprehensive income, changes in equity and, cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information as set out on pages 13 to 46.

Board’s Responsibility for the Financial StatementsThe Board of Directors (“Board”) is responsible for the preparation of these financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

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

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Board, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the Company as at 31st December 2014, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Emphasis of matter

Without qualifying our opinion, we draw attention to Note 11 to the financial statements which explains that the Company has not executed formal leases for six of the seventeen lease hold rights to the lands of JEDB/ SLSPC estates and has only entered into memorandum of records with JEDB/ SLSPC. However, the leasehold right to bare lands of all estates have been capitalized in the financial statements of the Company.

Report on Other Legal and Regulatory Requirements

As required by section 163 (2) of the Companies Act No. 07 of 2007, we state the following:

a) The basis of opinion and scope and limitations of the audit are as stated above.

b) In our opinion we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company and the financial statements of the Company, comply with the requirements of section 151 of the Companies Act.

Chartered Accountants

Colombo20 May 2015


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Annual Report 2014

Income Statement

For the year ended 31 December 2014 2013 Notes Rs.’000 Rs.’000

Revenue 5 3,078,878 3,511,912

Cost of Sales (2,972,469) (3,210,974)

Gross Profit 106,409 300,938

Other Income 6 35,573 24,277

Fair Value Gain on Biological Assets 14.1 184,193 38,694

Administrative Expenses (104,411) (100,758)

Profit from Operating Activities 7 221,764 263,151

Net Finance Costs 8 (77,375) (110,170)

Profit before Taxation 144,389 152,981

Income Tax Expense 9 (27,429) (36,233)

Profit for the year 116,960 116,748

Basic Earnings per share 10 1.46 1.46

The Figures in brackets indicate deductions.

The Accounting Policies and Notes on pages 18 to 46 form an integral part of these Financial Statements.


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Annual Report 2014

Statement of Profit or Loss and other Comprehensive Income

2014 2013 Notes Rs.’000 Rs.’000

Profit for the year 116,960 116,748

Other Comprehensive ExpenseActuarial Loss on Defined Benefit Plans 22.1 (122,383) (97,521)Deferred tax reversal on actuarial Loss on retirement benefit plans 9.3 17,778 14,315Other Comprehensive expense for the year, net of tax (104,605) (83,206)Total comprehensive income for the year 12,355 33,542

The Figures in brackets indicate deductions.



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Annual Report 2014

As at 31 December 2014 2013 Notes Rs.’000 Rs.’000ASSETSNon Current AssetsLeasehold Right to Bare Land of JEDB/SLSPC Estates 11 177,488 183,315Immovable Leased Assets of JEDB/SLSPC Estates (Other than Bare Land & Biological Assets) 12 110,174 124,061Property, Plant & Equipment 13 764,757 802,700Biological Assets 14 2,209,691 1,716,098 3,262,110 2,826,174Current AssetsInventories 15 442,990 472,680Trade and Other Receivables 16 150,408 126,539Amounts due from Related Parties - MJF Beverages (Pvt) Ltd 525 429Cash and Bank Balances 17 8,613 6,772 602,536 606,420Total Assets 3,864,646 3,432,594

EQUITY AND LIABILITIESEquityStated Capital 18 898,760 898,760Retained earnings 205,648 193,293 1,104,408 1,092,053Non Current LiabilitiesDeferred Income 19 301,058 307,095Deferred Tax Liability 20 45,746 36,095Interest Bearing Loans and Borrowings 21 528,961 355,798Retirement Benefit Obligations 22 717,580 545,664Net Liability to Lessor of JEDB/SLSPC Estates 23 79,256 80,658 1,672,601 1,325,310Current LiabilitiesInterest Bearing Loans and Borrowings 21 29,906 64,568Net Liability to Lessor of JEDB/SLSPC Estates 23 1,402 1,349Trade and Other Payables 24 459,332 539,860Amounts due to Related Parties 25 66,348 63,799Bank Overdraft 17 530,649 345,655 1,087,637 1,015,231Total liabilities 2,760,238 2,340,541Total Equity and Liabilities 3,864,646 3,432,594

Net Assets per share 13.82 13.67 It is certified that the Financial Statements have been prepared in compliance with the requirements of the Companies Act No.7 of 2007.

Vidura WeerabahuGenaral Manager-Finance

The Board of Directors is responsible for the preparation and presentation of these Financial Statements.Approved and signed for and on behalf of the Board of Directors of Kahawatte Plantations PLC

M. D. A. Perera Viren RuberuDirector Director/CEO

20 May 2015Colombo.


Statement of Financial Position


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Annual Report 2014

Statement of Changes in Equity

Stated Revaluation Retained Total Capital Reserve earnings Rs.’000 Rs.’000 Rs.’000 Rs.’000

Balance as at 1 January, 2013 898,760 26,753 128,302 1,053,815

Realisation of Revaluation Surplus - (31,449) 31,449 -

Adjustment for deferred tax on released revaluation surplus - 4,696 - 4,696

Total comprehensive Income for the year

Profit for the year - - 116,748 116,748

Other comprehensive income

Actuarial loss on defined benefit plan, net of tax - - (83,206) (83,206)

Balance as at 31 December 2013 898,760 - 193,293 1,092,053

Total comprehensive Income for the yearProfit for the year - - 116,960 116,960

Other comprehensive incomeActuarial loss on defined benefit plan net of tax - - (104,605) (104,605)

Balance as at 31 December 2014 898,760 - 205,648 1,104,408

The Accounting policies and notes on pages 18 to 46 form an integral part of these Financial Statements.


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Annual Report 2014

Statement of Cash Flows

For the year ended 31 December 2014 2013 Rs.’000 Rs.’000CASH FLOW FROM OPERATING ACTIVITIES

Net Profit before Taxation 144,389 152,981

Adjustments for:-Depreciation/Amortisation/Write-off 132,746 121,022Profit from disposal of property plant and equipment (1,817) (1,253)Interest espense 77,375 110,170Provision for Retirement Benefit Obligations 95,666 80,359Fair value gain on Biological Assets (184,193) (38,694)Amortisation of Grants (8,766) (9,809)Operating Profit before Working Capital Changes 255,400 414,776

Decrease/(Increase) in Inventories 29,690 (42,684)Decrease in Trade and Other Receivables (21,328) (45,378)Increase in Amounts due from Related Company (96) -(Decrease)/Increase in Trade and Other Payables (88,720) 36,747Increase/(Decrease) in Amounts due to Related Companies 515 (19,461) 175,461 344,000Interest Paid (58,471) (94,847)Payment of Retirement Benefit Obligations (46,132) (61,426)Grants Received 2,729 200Economic Service Charge paid (8,562) (8,335)Net Cash flow generated from Operating Activities 65,025 179,592

CASH FLOW FROM INVESTING ACTIVITIES

Investment in Immature Plantations (350,944) (269,682)Purchase of Property, Plant and Equipment (27,714) (42,552)Proceeds from disposal of property, plant and equipment 2,006 1,332

Net Cash used in Investing Activities (376,652) (310,902)

CASH FLOW FROM FINANCING ACTIVITIESLoans Received 200,495 300,000Loan Repayments (61,994) (177,497)Lease Rentals Paid to JEDB/SLSPC (10,027) (9,207)

Net Cash flow generated from Financing Activities 128,474 113,296

Net Decrease in Cash & Cash Equivalents (183,153) (18,014)Cash & Cash Equivalents at the beginning of the year (338,883) (320,869)Cash & Cash Equivalents at the end of the year (Note 17) (522,036) (338,883)

Figures in brackets indicate deductions.



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Annual Report 2014

Notes to the Financial Statements

1. REPORTING ENTITY

1.1 Domicile and Legal Form Kahawatte Plantations PLC is a Limited Liability

Company incorporated and domiciled in Sri Lanka, under the Companies Act No 17 of 1982 (The Company re-registered under the Companies Act No.7 of 2007) in terms of the provisions of the Conversion of Corporations and Government Owned Businesses Undertakings in to Public Companies Act No 23 of 1987. The registered office of the Company is located at No 52, Maligawatte Road, Colombo-10, and the plantations are situated in the planting regions of Kahawatte and Nawalapitiya.

1.2 Principal Activities and Nature of Operation The company is involved in the cultivation,

manufacture and sale of Tea and Rubber.

1.3 Parent and Ultimate Parent Company The Company’s parent undertaking is Forbes

Plantations (Private) Limited and the ultimate parent company is MJF Holdings Limited which are incorporated in Sri Lanka.

1.4 Management Contract The Company is presently managed by Forbes

Plantations (Private) Limited. The Management Agreement which came into effect from 17th August 1997 is initially for a period of five years and with a provision for extension by a further period by mutual consent of both parties.

Consequent to the agreement reached by the company with the Ministry of Plantation Industries JEDB and SLSPC on 4th August 2003, the basis of Management Fees was restructured to base on Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA).

1.5 Number of Employees The number of employees at the end of the year was

6,832 (2013-6,547).

2. BASIS OF PREPARATION

2.1 Statement of Compliance The Financial Statements have been prepared in

accordance with the Sri Lanka Accounting Standards (SLFRS/LKAS) promulgated by the Institute of Chartered Accountants of Sri Lanka and with the requirements of the Companies Act No.07 of 2007.

The financial statements were authorised for issue by the Board of Directors on 20 May 2015.

2.2 Basis of Measurement Financial Statements have been prepared on the

historical cost basis except for the following material items in the statement of financial position.

• Bare land and leased assets of JEDB / SLSPC, have been revalued as described in Note 11 and 12

• Biological assets are measured at fair value less costs to sell

• Retirement benefit obligation is recognized based on actuarial valuation.

2.3 Functional and Presentation Currency The Financial Statements are prepared and presented

in Sri Lankan Rupees. (Rs.) which is the company’s functional currency. All financial information presented in Sri Lankan Rupees has been given to the nearest thousand, unless stated otherwise.

2.4 Use of Estimates and Judgments The preparation of financial statements in conformity with

Sri Lanka Accounting Standards requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised, if the revision affects only that period or in the period of revision and future periods, if the revision affects both current and future periods and if any future periods affected.

2.5 Changes in Accounting Policies The Company has adopted SLFRS 13 - “Fair Value

measurement” with the initial application date of 1st January 2014. Fair value measurement bases are disclosed in Note 31 to the financial statements.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these Financial Statements, unless otherwise indicated.

3.1 Foreign Currency Translations Transactions in foreign currencies are translated to

Sri Lankan Rupees at the exchange rates prevailing at the date of transactions.

Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Sri Lankan Rupees at the exchange rates at that date.The foreign currency gain or loss on monetary items is the difference between the amortised cost in Sri Lankan Rupees at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period.

Non-monetary assets and liabilities which are stated at historical cost denominated in foreign currencies are translated to Sri Lankan Rupees at the exchange rate at the dates of the transactions. Non monetary assets and liabilities that are stated at fair value, denominated in foreign currencies are translated to Sri Lankan Rupees at the exchange rate that the fair value was determined. Foreign exchange differences arising on translation are recognized in profit for the year.

3.2 Assets and Bases of Their Valuation Assets classified as current assets in the Statement

of Financial Position are cash and those which are expected to realize in cash, during the normal operation cycle of the Company’s business, or within one year from the Reporting date, whichever is


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Annual Report 2014

Notes to the Financial Statements Contd...

shorter. Assets other than current assets are those, which the Company intends to hold beyond a period of one year from the date of Statement of financial Position.

3.2.1 Property, Plant and Equipment

3.2.1.1 Recognition and measurement The Property, Plant & Equipment are recorded at cost

or revaluation less accumulated depreciation and impairment losses.

When an asset is revalued, any increase in the carrying amount is credited directly to a revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognized in the income statement, in which case the increase is recognised in the income statement. Any revaluation deficit that offsets a previous surplus in the same asset is directly offset against the surplus in the revaluation reserve and any excess recognised as an expense.

Items of property, plant and equipment are derecognised upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset is included in the income statement in the year the asset is derecognised.

The cost of property, plant & equipment is the cost of purchase or construction together with any other expenses directly attributable to bringing the assets to its working condition for its intended use.

Expenditure incurred for the purpose of acquiring, extending or improving assets of permanent nature by means of which to carry on the businesses or to increase the earning capacity of the business has been treated as capital expenditure.

The carrying values of property, plant & equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within other income in profit or loss.

3.2.1.2 Leased Assets Finance leases, which transfer to the Company

substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged reflected in the income statement.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term.

3.2.1.3 Subsequent Costs The cost of replacing part of an item of property, plant

and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of those parts that are replaced is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.

3.2.1.4 Permanent Land Development Costs Permanent land development costs are those costs

incurred to make major changes to land contours to build new access roads and other major infrastructure development. Such expenditure on leasehold land has been capitalised and amortised over the remaining lease period.

Permanent impairments to land development costs are charged to the Income Statement in full or reduced to the net carrying amounts of such asset in the year of occurrence after ascertaining the loss.

3.2.1.5 Infilling Cost on bearer biological assets Where infilling results in an increase in the economic

life of the relevant field beyond its previously assessed standard of performance, the costs are capitalized and depreciated over the useful life or unexpired lease period whichever is lower applicable to mature plantations.

Infilling costs that are not capitalised have been charged to the Income Statement in the year in which they are incurred.

3.2.1.6 Borrowing Costs Borrowing costs are recognised as an expense in the

period in which they are incurred, except to the extent where borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset, which takes a substantial period of time to get ready for its intended use or sale, are capitalised as part of the specific asset.

The amount of borrowing costs which are eligible for capitalisation is determined in accordance with LKAS 23- “Borrowing Costs”.

Borrowing costs incurred in respect of specific loans that are utilised for field development activities have been capitalised as a part of the cost of the relevant Immature Plantation. The capitalisation will cease when the crops are ready for commercial harvest.

The amounts so capitalised and the capitalisation rates are disclosed in the notes to the Financial Statements.

3.2.1.7 Depreciation and Amortisation

a) Depreciation Provision for depreciation is calculated by using a

straight-line method on the cost or revalued amounts of all property, plant and equipment, in order to write off such amounts over the estimated useful economic life of such assets. The leased assets are depreciated over the shorter of the lease term and their useful lives.


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Annual Report 2014


Improvement to land Over 40 Years Water Links/ Roads Over 20 Years Plant & Machinery Over 13 1/3 Years Motor Vehicles Over 05 Years Equipment Over 05 Years Furniture & Fittings Over 10 Years Mature Plantations - Tea Over 33 1/3 Years - Rubber Over 20 Years - Minor Crop Over 25 Years

Depreciation of an asset begins when it is available for use and ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecongnised. Leased assets are depreciated over the shorter of the leased term and their useful lives.

The useful life, residual values and depreciation methods of assets are reviewed, and adjusted if required, at the end of each financial year.

b) Amortisation The leasehold rights of assets taken over from JEDB

/ SLSPC are being amortized in equal amounts, over the shorter of lease period and economic useful lives as follows

Bare Land Over 53 Years Land Development Cost Over 30 Years Buildings Over 25 Years Improvement to Land Over 30 Years Water Supply Scheme Over 33 Years Mature Plantations - Tea Over 30 Years - Rubber Over 20 Years - Minor Crop Over 25 Years

3.2.2 Biological Assets Biological Assets are classified as mature biological

asset and immature biological assets. Mature biological assets are those that have attained harvestable specifications or are able to sustain regular harvests. Immature biological assets are those that have not yet attained harvestable specifications. Tea, Rubber, other plantations and nurseries are treated as biological assets.

Biological assets are further classified as bearer biological assets and consumable biological assets. Bearer biological assets includes Tea and Rubber trees those that are not intended to be sold or harvested, however used to grow for harvesting agricultural produce from such biological assets. Consumable biological assets includes managed timber those that are to be harvested as agricultural produce or sold as biological assets.

The company recognizes the biological assets when, and only when, the entity controls the assets as a result of past event, it is probable that future economic benefits associated with the assets will flow to the entity and the fair value or cost of the asset can be measured reliably.

The cost of new planting, replanting, interplanting and crop diversification incurred between the time of field development and being ready for commercial harvesting are classified as immature plantations. Further the general charges incurred

on the plantation are apportioned on labour days spent on respective replanting and new planting, and capitalized on immature trees. The remaining portion of the general charges is charged to the statement of comprehensive income in the year in which it is incurred.

No depreciation is provided for immature plantation. The total expenditure incurred on bearer biological

assets (Tea/Rubber) which come into bearing during the year have been transferred to mature plantations and depreciated over its useful lifetime. Expenditure incurred on consumable biological asset is initially recorded at cost thereafter at fair value on each reporting period.

Permanent impairments to biological assets are charged to the statement of Comprehensive Income in full or reduced to the net carrying amounts of such asset in the year of occurrence after ascertaining the loss.

The bearer biological assets are recorded at cost less accumulated depreciation and accumulated impairment losses, if any in terms of LKAS 16 - Property Plant and Equipment as per ruling issued by The Institute of Chartered Accountants of Sri Lanka.

The managed timber are measured on initial recognition and at the end of each reporting period at its fair value less cost to sell in terms of LKAS 41.The cost is treated as an approximation to fair value of young plants as the impact on biological transformation of such plants to price during the period is immaterial. The fair value of timber trees are measured using DCF method taking in to consideration the current market prices of timber, applied to expected timber content of a tree at the maturity.

3.2.3 Financial Instruments

3.2.3.1 Non Derivative Financial Assets The Company initially recognises loans and

receivables and deposits on the date that they are originated.

The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Company has loans and receivables as non-derivative financial assets.

3.2.3.1.1 Loans and Receivables Loans and receivables are financial assets with fixed

or determinable payments that are not quoted in an


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Annual Report 2014


active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

Loans and Receivables comprise Trade and Other Receivables.

3.2.3.1.2 Cash and Cash Equivalents Cash and cash equivalents comprise cash balances

and call deposits with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

3.2.3.2 Non Derivative Financial Liabilities The Company initially recognises debt securities

issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument.

The Company derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Company has the following non-derivative financial liabilities: loans and borrowings, bank overdrafts, and trade and other payables.

Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest method.

3.2.4 Inventories

3.2.4.1 Finished Goods Manufactured From Agricultural Produce

These are valued at the lower of cost and estimated net realizable value, after making due allowance for obsolete and slow moving items. Net realizable value is the price at which stocks can be sold in the normal course of business after allowing for cost of realisation and/or cost of conversion from their existing state to saleable condition.

3.2.4.2 Input Materials, Spares and Consumables These are valued at actual cost on weighted average

basis.

3.2.4.3 Agricultural Produce Harvested from Biological Assets

Agricultural produce harvested from its biological assets are measured at their fair value less cost to sell at the point of harvest.

3.2.5 Impairment of Assets The company assesses at each reporting date whether

there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Impairment losses of continuing operations are recognized in the Income Statement in those expense categories consistent with the function of the impaired asset, except for property previously revalued where the revaluation was taken to equity. In this case, the impairment is also recognized in equity up to the amount of any previous revaluation.

For assets, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Company makes an estimate of recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the Income Statement unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase.

3.3 Liabilities and Provisions

3.3.1 Retirement Benefits to Employees

a) Defined Benefit Plans - Gratuity The Retirement Benefit Plan adopted is as required under

the Payment of Gratuity Act No 12 of 1983 and the Indian Repatriate Act No. 34 of 1978 to eligible employees. This item is grouped under Retirement Benefit Obligations in the Statement of Financial Position.

Provision for Gratuity on the employees of the Company is on an actuarial basis, using the Projected Unit Credit (PUC) method and in conformity of LKAS -19 “Employee Benefits”.

The Company expects to carry out actuarial valuation once in every year. The Actuarial Valuation was carried out by a professionally qualified firm of actuaries M/s Piyal S. Goonetilleke & Associates.

However according to the Payment of Gratuity Act No. 12 of 1983, the liability for payment to an employee


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Annual Report 2014


arises only after the completion of 5 years continued services. The liability is not externally funded.

The key assumptions used in determining the retirement benefit obligations are given in Note 22.4.

a) Defined Contribution Plans - EPF, ESPS, CPPS & ETF

All employees who are eligible for defined Provident Fund Contributions and Employees Trust Fund Contributions are covered by relevant contributory funds in line with respective statutes.

3.3.2 Provisions, Contingent Liabilities and Contingent Assets

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the company expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate assets but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.

All contingent liabilities are disclosed as a note to the financial statements unless the outflow of resources is remote. Contingent assets are disclosed, where inflow of economic benefit is probable.

3.3.3 Events Occurring After the Reporting Date All material events occurring after the reporting date

have been considered where appropriate; either adjustments have been made or adequately disclosed in the Financial Statements.

3.3.4 Deferred Income

3.3.4.1 Grants and Subsidies Grants are recognised where there is reasonable

assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it is set up as deferred income. Where the Company receives non-monetary grants, the asset and that grant are recorded at nominal amounts and are released to the income statement over the expected useful life of the relevant asset by equal annual installments.

3.4 Income Statement

3.4.1 Revenue Recognition Revenue is recognized to the extent that it is probable

that the economic benefits will flow to the company and the revenue can be reliably measured, regardless on the payment is being made. Revenue is measured

at the fair value of the consideration received or receivable, taking in to account contractually defined terms of payment and excluding taxes or duty.

a) Revenue from sale of goods is recognized when the significant risks and rewards of ownership have been transferred to the buyer, usually on delivery of goods. Revenue is recorded at invoice value net of brokerage, sale expenses and other levies related to revenue.

b) Gains and losses on disposal of Property Plant and Equipment are determined by comparing the net sales proceed with the carrying amount of Property Plant and Equipment and are recognized within other operating income in the income statement.

c) Other income is recognized on an accrual basis.

3.4.2 Expenditure Recognitiona) All expenditure incurred in the running of the

business and in maintaining the Property, Plant and Equipment in state of efficiency has been charged to income statement in arriving at the profit/(loss) for the year.

b) For the purpose of presentation of Income Statement, the Directors are of the opinion that function of expenses method presents fairly the elements of the enterprise’s performance and, hence such presentation method is adopted.

c) Interest expenditure on borrowings is rcognised on an accrual basis.

3.4.2.1 Income Tax Expense Income tax expense comprises current and deferred tax.

Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

a) Current Tax Current tax is the expected tax payable on the

taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. The elements of income and expenditure as reported in the financial statements and computed in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and amendments thereto. Relevant details are disclosed in note 9 to the Financial Statements.

b) Deferred Tax Deferred tax is provided, using the liability

method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities, and their carrying amounts for financial reporting purposes.

Deferred tax assets and liabilities are recognised for all temporary differences. Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilized.


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Annual Report 2014


The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the year when the asset is realised or liability is settled, based on the tax rates that have been enacted or substantively enacted as at the reporting date.

Deferred income tax relating to items recognised directly in equity is recognised in equity and not in the income statement.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against tax liabilities and the deferred taxes to the same taxable entity and the same taxation authority.

3.5 Segmental Reporting A Segment is a distinguishable component of the

Company that is engaged in providing services, which is subject to different risks and rewards.

The Company’s core business is manufacturing and sale of Tea and this line of business accounts for the entire operation of the company.

The Company’s business is located in different geographical locations where the risks and rewards related to each segment could be identified.

Revenue and expenses directly attributable to each segment are allocated intact to the respective segments. Revenue and expenses not directly attributable to a segment are allocated on the basis of their resource utilisation wherever possible.

Assets and Liabilities directly attributable to each segment are allocated intact to the respective segments. Assets and Liabilities, which are not directly attributable to a segment, are allocated on a reasonable basis whenever possible.

4 New Accounting Standard Issued But Not Effective as at the Reporting Date

The Institute of Chartered Accountants of Sri Lanka has issued the following new Sri Lanka Accounting Standards which will become applicable for financial periods beginning on or after 1 January 2015 or at a later date. Accordingly, these Standards have not been applied in preparing these financial statements.

a) Sri Lanka Accounting Standard - SLFRS 9 “Financial Instruments”

The objective of this SLFRS is to establish principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows. An entity shall apply this SLFRS to all items within the scope of LKAS 39 Financial Instruments: Recognition and Measurement. The application of this standard has been currently deferred by the Institute of Chartered Accountants of Sri Lanka, consequent to the International Accounting Standard Board’s (IASB) decision to defer the mandatory effective date of IFRS 9. However SLFRS 9 will be available for early adoption.

b) Sri Lanka Accounting Standard - SLFRS 15 “Revenue from Contracts with Customers”

SLFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including LKAS 18 Revenue, LKAS 11 Construction Contracts. SLFRS 15 is effective for annual reporting periods beginning on or after 1st January 2017, with early adoption permitted.

c) Sri Lanka Accounting Standard - SLFRS 14 “Regulatory Deferral Accounts”

SLFRS 14 establishes the financial reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to customers at a price or rate that is subject to rate regulation.

SLFRS 14 is effective for annual reporting periods beginning on or after 1st January 2016, with early adoption permitted.

d) Amendments to Sri Lanka Accounting Standard - LKAS 41 “Agriculture”

Amendments to LKAS 41 - “Agriculture” requires that the bearer plants should be accounted for in the same way as property, plant and equipment in LKAS 16 - “Property, Plant and Equipment”, because their operation is similar to that of manufacturing. Consequently, the amendments include them within the scope of LKAS 16, instead of LKAS 41. The produce growing on bearer plants will remain within the scope of LKAS 41.

Entities are required to apply the amendments for annual periods beginning on or after 1 January, 2016.


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Annual Report 2014


For the year ended 31 December

5. REVENUE 2014 2013 Rs.’000 Rs.’0005.1 Sale of Goods Tea 2,788,058 3,095,063 Rubber 259,099 385,483 Others 31,721 31,366 3,078,878 3,511,912

5.2 Segmental Information Principal Crops Tea Rubber Others Total 2014 2013 2014 2013 2014 2013 2014 2013 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

(a) Segment Revenue Revenue 2,788,058 3,095,063 259,099 385,483 31,721 31,366 3,078,878 3,511,912 Cost of Sales (2,660,140) (2,828,131) (291,579) (349,023) (20,750) (33,820) (2,972,469) (3,210,974) Segment Results 127,918 266,932 (32,480) 36,460 10,971 (2,454) 106,409 300,938 Unallocated Other Income 35,573 24,277 Administrative Expenses (104,411) (100,758) Gain on fair valuation of biological assets 184,193 38,694 Profit from Operating Activities 221,764 263,151 Financing Cost (77,375) (110,170) Profit from Ordinary Activities before Income Tax Expenses 144,389 152,981

(b) Segmental Assets Non Current Assets 1,047,972 944,554 831,178 678,235 614,563 395,380 2,493,713 2,018,169 Current Assets 472,833 469,005 25,690 49,208 12,645 11,338 511,168 529,551 1,520,805 1,413,559 856,868 727,443 627,208 406,718 3,004,881 2,547,720 Unallocated Non Current Assets 768,397 808,005 Current Assets 91,368 76,869 Total Assets 3,864,646 3,432,594 Capital Expenditure - Allocated 165,039 156,393 177,594 141,687 35,695 14,155 378,328 312,235 - Unallocated - - - - - - - - 378,328 312,235 Depreciation / Amortisation - Allocated 99,923 100,101 23,059 23,408 2,451 2,451 125,433 125,960 - Unallocated - - - - - - 1,293 1,293 126,726 127,253

(c) Segmental Liabilities Non Current Liabilities - Allocated 768,610 653,391 329,404 280,025 - - 1,098,014 933,416 - Unallocated - - - - - - 574,587 391,894 1,672,601 1,325,310 Current Liabilities - Allocated 323,491 390,088 120,734 141,779 - - 444,225 531,867 - Unallocated - - - - - - 643,412 483,364 1,087,637 1,015,231 Total Liabilities 1,092,101 1,043,479 450,138 421,804 - - 2,760,238 2,340,541


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Annual Report 2014



6. OTHER INCOME 2014 2013 Rs.’000 Rs.’000 Amortisation of Capital Grants 8,766 9,809 Sale of Redundant Items 1,817 1,279 Rent Income 3,813 3,420 Annual Income from Mini Hydro Power Project 5,632 6,959 Sale of Metal Quarry 829 765 Sundry Income 14,716 2,045 35,573 24,2777. PROFIT FROM OPERATING ACTIVITIES Is stated after charging all expenses including the followings, Directors’ Emoluments 8,847 7,938 Auditors’ Remuneration - Audit fees 1,800 1,675 - Non - Audit fees & expenses 253 661 Managing Agent’s Fees (Note 7.1) - - Depreciation/Amortisation - Leasehold rights to Bare Land 5,827 5,827 - Immovable leased assets 13,888 13,888 - Tangible Property, Plant & Equipment 65,467 67,233 - Mature Plantations 41,544 40,304 Personnel cost includes, - Defined benefit plan cost - Retiring Gratuity 95,666 80,359 - Defined contribution plan cost - EPF, ETF,CPPS & ESPS 133,138 130,062 - Workers Profit Share - 1,380 - Other Staff and Labour Cost 1,405,038 1,440,823

7.1 Managing Agent’s Fees The Company’s managing agent and parent company, Forbes Plantations (Private) Limited has waived off management fees,

for the year ended 31st December 2014. The Company had agreed to pay the management fees as per the agreement dated 17 October 1997 entered into between

the Company and Forbes Plantations (Private) Limited. As referred to in note 1.4, the rate applicable for the year 2007 was 17% of Earnings Before Interest, Tax, Depreciation and Amortisation.If the management fees had been computed on the assuming rate of 17% of Earnings Before Interest, Tax, Depreciation and Amortisation, the management fee to be charged would have been Rs 59.2Mn. for the year ended 31 December 2014.

8. FINANCE COSTS 2014 2013 Rs.’000 Rs.’000

Interest on Government Finance Lease 12,512 11,579 Interest on Bank Overdrafts 33,870 45,848 Interest on Term Loans 54,598 56,009 Interest on Re-invested Management Fees 3,013 3,247 103,993 116,683 Borrowing cost capitalised (26,618) (6,513) 77,375 110,170


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Annual Report 2014


9. TAXATION 2014 2013 Rs.’000 Rs.’000 Current tax expenses (Note 9.1) - - Deferred tax Expenses (Note 9.3) 9,651 21,918 9,651 21,918

9.1 Current tax expenses Profits from any agricultural undertaking falls within the section 16 of the Inland Revenue Act No. 10 of 2006 would be

exempt from income tax for a period of 5 years from 2006/2007 (Expired on 31 March 2011). Such profits are liable for income Tax at the rate of 10% from the year of assessment 2011/2012. The corporate rate of tax applicable to other income including the income not covered under section 16 (Profit from manufacture of Tea) is 28%.

2014 2013 Rs.’000 Rs.’000 Accounting Profit before Taxation 144,389 152,981 Aggregate disallowable expenses 245,770 235,013 Aggregate allowable expenses (703,439) (516,472) Statutory loss from Business (313,280) (128,478) Taxable Income - - Income tax @ 28% - - -

9.2 Accumulated Tax losses Tax losses brought forward (1,311,627) (1,183,149) Loss for the year (313,280) (128,478) Losses setoff during the year - - Tax losses carried forward (1,624,907) (1,311,627)

9.3 Deferred Tax expense 2014 2013 Rs.’000 Rs.’000 Deferred tax charge to income statement 27,429 36,233 Deferred tax reversal to Other Comprehensive Income (17,778) (14,315) 9,651 21,918



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Annual Report 2014



10 EARNINGS PER SHARE

10.1 Basic Earnings Per Share The computation of the Basic Earnings per share is based on Profit attributable to ordinary shareholders for the year divided

by the weighted average number of ordinary shares outstanding during the year and calculated as follows;

2014 2013 Amount used as the Numerator Profit after income tax expense attributable to Ordinary Shareholders (Rs.’ 000) 116,960 116,748 Amount used as the Denominator Weighted average number of Ordinary Shares outstanding during the year (000) 79,889 79,889 Basic Earnings per share (Rs) 1.46 1.46

10.2 Diluted Earnings Per Share The calculation of diluted earnings per share is based on profit attributable to ordinery shareholders and weighted average

number of ordinary shares outstanding after adjustments for the effect of all dilutive potential ordinary shares. There were no potentially dilutive shares outstanding at any time during the year/previous year.

11. LEASEHOLD RIGHT TO BARE LAND OF JEDB/SLSPC ESTATES

a) The leasehold right to the land on all seventeen estates have been taken in to the books of the Company as at 15 June 1992 immediately after formation of the Company, in terms of the ruling obtained from the Urgent Issues Task Force (UITF) of the Institute of Chartered Accountants of Sri Lanka. For this purpose, the Board decided at its meeting held on 8 March 1995 that these bare lands would be revalued, at the value established for these lands, by the valuation specialist Mr. D. R. Wickramasinghe, just prior to the formation of the Company. The value taken into 15 June 1992, Balance Sheet and the written down values are given in note 11.(c) below;

b) Out of the seventeen estates handed over to the company by JEDB/SLSPC, lease agreements in respect of eleven estates

(pelmadulla, Imboolpitiya, Poronuwa, Opata, Houpe, Kadienlena, Kataboola, Barcaple, Galamuduna, Queensberry and Craighead) have been executed as at 31st December 2014 and the lease agreements of balance six estates (Endana, Ekkerella, Hunuwella, Rilhena, Wellandura and Westhall) remain to be executed.(Kuttapitiya estate was handed over to the former owner on 1 September 1997).These leases will be retroctive to 15 June 1992, the date of formation of the company.

The company had entered in to a memorandum of record with JEDB/SLSPC with regard to six estates, for which lease

agreements have not been executed. This memorandum of record is considered as an agreement between JEDB/SLSPC and the Company.

c) At Valuation Life of 15/06/1992 2014 2013 the Asset Rs’000 Rs.’000 Rs.’000 Leasehold Right to Land of JEDB / SLSPC Estates 53 years 322,427 308,843 308,843 Accumulated Amortisation As at 1st January 125,528 119,701 Amortisation for the Year 5,827 5,827 As at 31st December 131,355 125,528 Carrying amount 177,488 183,315


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Annual Report 2014


As at 31 December

12. IMMOVABLE LEASED ASSETS (OTHER THAN BARE LAND ) Notes 2014 2013 Rs.’000 Rs.’000 Immovable leased bearer biological assets 12.1 104,291 116,890 Immovable leased assets (Other than Lease hold right to bare 12.2 5,883 7,171 Land & biological Assets) 110,174 124,061

12.1 IMMOVABLE LEASED BEARER BIOLOGICAL ASSETS As more fully explained in Note 11 to the finacial statements although all JEDB/SLSPC estate leases have not been executed

to date in terms of the ruling of the UITF all immovable assets in these estates under leases have been taken into the books of the Company retroactive to 15 June 1992. For this purpose the Board decided at its meeting on 08 March 1995 that these assets would be taken into the books at their book values as they appear in the books of the JEDB / SLSPC, as the case may be, on the day immediately preceding the date of formation of the Company. These assets have been taken into the 15 June 1992, Balance Sheet and the written down values are as follows;

Mature Plantations Tea Rubber Minor Crop 2014 2013 Rs’000 Rs’000 Rs’000 Rs.’000 Rs.’000 Capitalised Value 22 June 1992 254,049 79,305 4,094 337,448 337,448 Amortisation As at 1 January 149,762 67,456 3,340 220,558 207,963 Amortisation for the year 9,538 2,897 164 12,599 12,595 As at 31 December 159,300 70,353 3,504 233,157 220,558 Carrying amount 94,749 8,952 590 104,291 116,890 Investments in Immature Plantations at the time of handing over to the company as at 15 June 1992 by way of estate leases

were shown under Immature Plantations. However, since then all such investments in Immature Plantations have been transferred to Mature Plantations . The carrying value of the bearer biological assets leased from JEDB/SLSPC is recognised at cost less amortisation.

12.2 IMMOVABLE LEASED ASSETS (OTHER THAN LEASEHOLD RIGHT TO BARE LAND & BIOLOGICAL ASSETS) Improvements to land Buildings Water Supply 2014 2013 Rs.’000 Rs.’000 Capitalised Value 22 June 1992 6,448 24,459 5,364 36,271 36,271 Amortisation As at 1 January 4,583 21,008 3,509 29,100 27,807 Amortisation for the year 209 926 153 1,288 1,293 As at 31 December 4,792 21,934 3,662 30,388 29,100 Carrying amount 1,656 2,525 1,702 5,883 7,171


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Annual Report 2014


As at 31 December

13 PROPERTY, PLANT & EQUIPMENT Cost As at Additions/ Disposals/ As at As at Life of 01/01/2014 Transfers Transfers 31/12/2014 31/12/2013 the Asset Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Improvements to Land & Buildings 40 years 428,575 10,895 - 439,470 428,575 Plant & Machinery 13 1/3 years 515,362 9,310 (275) 524,397 515,362 Motor Vehicles 5 years 120,694 1,373 (1,875) 120,192 120,694 Equipment 8 years 121,476 9,908 (9) 131,375 121,476 Furniture & Fittings 10 years 8,959 2,490 (10) 11,439 8,959 Water / Link Roads 20 years 100,962 554 - 101,516 100,962 Capital Work-in-Progress 16,339 (6,816) - 9,523 16,339 1,312,367 27,714 (2,169) 1,337,912 1,312,367 Accumulated Depreciation Written Down Value As at Charge Disposals/ As at As at As at 01/01/2014 for the year Transfers 31/12/2014 31/12/2014 31/12/2013 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Improvements to Land & Buildings 69,371 12,229 - 81,600 357,870 359,204 Plant & Machinery 229,083 32,279 (99) 261,263 263,134 286,279 Motor Vehicles 99,327 7,958 (1,875) 105,410 14,782 21,367 Equipment 79,299 8,493 (3) 87,789 43,586 42,177 Furniture & Fittings 6,496 452 (2) 6,946 4,493 2,463 Water / Link Roads 26,091 4,056 - 30,147 71,369 74,871 Capital Work-in-Progress - - - - 9,523 16,339 509,667 65,467 (1,979) 573,155 764,757 802,700 a) The assets shown above are those movable assets vested in the company by way of Gazette notification on the date of

formation of the company (15 June 1992) and all investments in tangible assets of the Company since its formation. The assets taken over by way of estate leases are set out in Notes 11 and 12 to the Financial Statements.

b) No borrowing cost has been capitalised in respect of Property Plant & Equipment for the year ended 31 December 2014.

c) The initial cost of the fully depreciated items of Property, Plant and Equipment which are still in use as at 31st December 2014 are as follows.

Buildings 573,687 Plant & machinery 124,540,850 Furniture & fittings 5,581,416 Tools & Equipment 52,300,773 Motor vehicles 83,347,644 Sanitation/Water Supply Ect. 1,008,172


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Annual Report 2014


As at 31 December

14 BIOLOGICAL ASSETS Notes 2014 2013 Rs.’000 Rs.’000 Consumable Biological Assets 14.1 498,628 301,878 Bearer Biological Assets 14.2 1,711,063 1,414,220 2,209,691 1,716,098

14.1 Consumable Biological Assets 2014 2013 Rs.’000 Rs.’000

As at 1 January 301,878 254,895 Increase due to new plantations 12,557 8,289 Gain arising from changes in fair value 184,193 38,694 As at 31 December 498,628 301,878

As at 31st December 2014, mature timber plantations comprised approximately 2,020 hectares of timber plantations (2013-1,980 hectares) while Rs. 38,135,851 of immature timber plantations which were less than 5 years of age carried at cost.

a) Measurement of fair valuesi) Fair Value hierarchy The fair value measurement for Consumable Biological Assets is Rs 498.6 Mn and it has been categoried as level 3

valuation based on the inputs to the valuation techniques used.ii) Level 3 fair values The following table shows the valuation techniques used in measuring fair values, as well as significant unobsorvable

inputs used.

Type Valuation Technique used Significant unobservable inputs Inter relationship between key unobservable inputs and fair value measurement

Mature Timber (Age Over 5 years)

Discounted Cash flows technique; The valuation model considers the present value of net cashflows expected to be generated by the mature timber plantation. The cash flow projections include specific estimates for future years. The expected net cashflows are discounted using a risk adjusted discount rate.- Risk Adjusted discount rate -13%

- Estimated future timber market price per Cubic feet (Rs.150 - Rs.600)

Estimated fair value would increase (decrease) if;- Estimated timber prices per

cubic feet were higher/(lower)

- Risk adjusted discount factor were lower / (higher)

Immature Timber (Age less than 5 years)

Cost technique;The cost technique considers the cost of plantations, taking in to account the cost of infrustructure, cultivation and preparation, buying and planting immature trees. The cost is considered as the approximate fair value due to the insignificant biological transformation of immature timber plantations.- Estimated cost of buying and

planting young plants per hectare is Rs 247,417/-

- Estimated cost of cultivation and preparation per hectare is Rs.306,602/-

Estimated fair value would increase (decrease) if; - Estimated cost of infrustructure,

cultivation and preparation per hectare was higher / (lower)

- Estimated cost of buying and planting trees were higher/ (lower)


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Annual Report 2014


As at 31 December 2014

14 BIOLOGICAL ASSETS (CONTINUED)

b) Risk management strategy related to agricultural activities The company is exposed to the following risks relating to its timber plantations.

i) Regulatory and environmental risks The company is subject to laws and regulations in the country. The company has established environmental policies and procedures aimed at compliance with local environmental and other laws.

ii) Supply and demand risk The company is exposed to risk arising from fluctuations in price and sales volumes of timber. The company manages this

risk by aligning its harvest volume to market supply and demand.

iii) Climate and other risks The company’s timber plantations are exposed to the risk of damage from climate changes, diseases, forest fires and other

natural forces. The Company has extensive processes in place aimed at monitoring and mitigating those risks, including regular forest health inspections and industry pest and disease surveys.

c) Sensitivity Analysisi) Sensitivity variation on sales price Values as appearing in the statement of financial position are sensitive to the price changes with regard to average sales

prices applied.Simulations made for timber show that an increase or decrease by 10% of the estimated future selling price has the following effect on the net present value of biological assets measured as fair value.

-10% 0% +10% Rs’000 Rs’000 Rs’000 As at 31st December 2014 452,759 498,628 458,989 As at 31st December 2013 275,730 301,878 327,913

ii) Sensitivity variation on discount rate Values as appearing in the statement of financial position are sensitive to changes of the discount rate applied. Simulations

made for timber show that an increase or decrease by 1% of the estimated discount rate has the following effect on the net present value of biological assets.

-1% 0% +1% Rs’000 Rs’000 Rs’000 As at 31st December 2014 547,140 498,628 458,990 As at 31st December 2013 342,822 301,878 269,884

d) The valuation was carried out by Mr. W.M. Chandrasena, (FIV Sri Lanka, Bsc. Est Mgt & Valuation).


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Annual Report 2014


As at 31 December

14 BIOLOGICAL ASSETS (CONTINUED)

14.2 Bearer Biological Assets As at Additions Writeoffs/ As at As at Life of 01/01/2014 /Transfers Transfers 31/12/2014 31/12/2013 Cost the Asset Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Mature Plantations -Tea 33 1/3 years 628,133 68,770 - 696,903 628,133 - Rubber 20 years 372,863 13,117 - 385,980 372,863 - Minor Crop 25 years 60,527 - - 60,527 60,527

Immature Plantations - Tea 262,402 137,648 (68,770) 331,280 262,402 - Rubber 401,141 176,038 (13,117) 564,062 401,141 - Minor Crop 45,377 24,701 - 70,078 45,377 1,770,443 420,274 (81,887) 2,108,830 1,770,443 Accumulated Depreciation Written Down Value As at Charge As at As at As at 01/01/2014 for the year 31/12/2014 31/12/2014 31/12/2013 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Mature Plantations - Tea 180,054 20,802 200,856 496,047 448,079 - Rubber 162,609 18,453 181,062 204,918 210,254 - Minor Crop 13,560 2,289 15,849 44,678 46,967 Immature Plantations - Tea - - - 331,280 262,402 - Rubber - - - 564,062 401,141 - Minor Crop - - - 70,0787 45,377 - - - 1,711,063 1,414,220 These are investments in plantations since the formation of the Company. The assets (including plantation assets) taken

over by way of estate leases are set out in Notes 11 and 12 to the financial statements. Further, investment to immature plantations taken over by way of these leases are shown in the above note. When such plantations came in to bearing, the additional investments since taking over to bring them to bearing was transferred from immature to mature plantations under this note. A corresponding transfer was made from immature to mature plantations being the investment undertaken by JEDB/SLSPC on the particular plantation prior to the formation of the company as disclosed in Note 12 to the financial statements.

Minor crops include Cinnamon, Macadamia etc., carried at cost less accumulated depreciation and impairment. According to the option granted by the Institute of Chartered Accountants of Sri Lanka on valuation of the bearer biological

assets, the company has measured these assets in accordance with LKAS 16 “Property, Plant & Equipment”.

Borrowing costs amounting to Rs. 12.24 Mn (2013 - Rs. 2.9 Mn) on Tea, and Rs. 14.37 Mn (2013 - Rs. 3.6 Mn) on Rubber incurred on term loan utilised to finance replanting expenditure of tea and rubber have been capitalised. The average rate of interest for capitalisation is 7.8% for the year ended 31 December 2014. The capitalisation will cease when crops are ready for harvest.


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Annual Report 2014


As at 31 December

15 INVENTORIES 2014 2013 Rs.’000 Rs.’000 Input Materials and Consumables 36,997 33,498 Growing Crop Nurseries 44,010 36,390 Produce Crops (Tea, Rubber and Other) Note 15.1 361,983 402,792 442,990 472,68015.1 Produce Crops (Tea, Rubber and Others) Agirculture produce (Green Leaf) 3,810 6,005 Finished goods (Tea, Rubber & Other) 358,173 396,787 361,983 402,792

16 TRADE AND OTHER RECEIVABLES 2014 2013 Rs.’000 Rs.’000 Trade Receivables 60,570 44,961 Staff & Labour Receivables 28,949 27,829 Deposits and Prepayments 5,275 5,138 ESC Recoverable 38,615 36,074 Other Debtors 16,999 12,537 150,408 126,53917. CASH AND CASH EQUIVALENTS 2014 2013 Rs.’000 Rs.’000 Favourable cash and cash equivalents Balances Cash at Bank 8,613 6,772 8,613 6,772 Unfavourable cash and cash equivalent Balances Bank Overdraft Note 17.1 (530,649) (345,655) Cash & Cash equivalents for the purpose of Cash Flow Statement (522,036) (338,883)

17.1 Bank Overdraft Seylan Bank PLC.- No.1 Note 17.1 (a) (99,082) (97,382) Seylan Bank Ltd. - No.2 (290) (168) Seylan Bank Ltd. - No.3 (21,166) (18,434) Union Bank PLC (2) (2) Seylan Bank PLC. -Ratnapura (96) (96) Seylan Bank PLC-ATM (30,000) (30,000) Hongkong and Shanghai Banking Corporation Ltd. Note 17.1 (b) (79,758) (199,573) Nations Trust Bank PLC (300,255) - (530,649) (345,655)

17.1 (a) Bank - Seylan Bank PLC Facility - Rs. 110 Mn. Purpose - Finance the Working Capital requirements Rate of Interest - 10% - 14% p.a Security - Primary Mortgage Bond over leased hold rights of Estate Land, Buildings & Fixed Assets at Imboolpitiya Estate for Rs 100 Mn. Primary Mortgage Bond over leased hold rights of Estate Land, Buildings & Fixed Assets at Katoboola Estate for Rs 70 Mn. Primary Mortgage Bond over leased hold rights of Estate Land, Buildings & Fixed Assets at Kadeinlena Estate for Rs 15 Mn.

17.1 (b) Bank - Hongkong and Shanghai Banking Corporation Ltd Facility - Rs. 200 Mn. Purpose - Finance the Working Capital requirements Rate of Interest - 7.68% - 11.21% p.a Security - Corporate guarantee by MJF Holdings Ltd. for Rs. 100 Mn


34

Annual Report 2014

As at 31 December

18. STATED CAPITAL 2014 2013 Number of Value of Number of Value of Shares Shares Shares Shares Rs. Rs. Fully Paid Ordinary Shares At the beginning of the Year - Ordinary Shares 79,889,805 898,760,305 79,889,805 898,760,305 - Goldern Share (Note 18.1) 1 10 1 10 at the end of the year 79,889,806 898,760,315 79,889,806 898,760,315

18.1 Golden Share Golden Share has been allotted to the Secretary to the Treasury by capitalisation of revaluation reserve on 1 August 1995.

The Articles of Association of the Company embodies the specific rights assigned to the Golden Shareholder on behalf of the State of Democratic Socialist Republic of Sri Lanka. Following special right are vested with the Golden Shareholder;a) The Company shall obtain the written consent of the Golden Shareholder prior to sub-leasing, ceding or assigning its rights in part or

all of the lands leased / to be leased to the Company by the JEDB/SLSPC.b) The Golden Shareholder shall be entitled to call upon the Board of Directors meeting once in Three months to meet him or his

nominee to discuss matters of the Company of interest to the state of the Government.c) The Golden Shareholder and or his nominee shall entitled to inspect the books of accounts of the Company after giving two weeks

written notice to the Companyd) The Company shall submit to the Golden Shareholder within 60 days of the end of each quarter, a quarterly report relating to the

performance of the Company during the said quarter in a pre-specified format agree to by the Golden Shareholder and the company.e) The Company shall submit to the Golden Shareholder,within 90 days of the end of each fiscal year, information related to the Company

in a pre-specified format agreed to by Golden Shareholder and the Company.

19 DEFERRED INCOME 2014 2013 Rs.’000 Rs.’000 Grants and Subsidies As at 1 January 307,095 316,704 Grants received during the year 2,729 200 309,824 316,904 Amortisation for the year (8,766) (9,809) As at 31 December 301,058 307,095 The above represents the following : The funds received from the Plantation Human Development Trust (Plantation Housing and Social Welfare Trust) and Asian

Development Bank (ADB) are for the development of workers welfare facilities. The amounts spent are capitalised under the relevant classification of Property, Plant & Equipment and the corresponding

grant component is reflected under deferred grants and subsidies and amortised over useful life span of the related asset.

20 DEFERRED TAXATION 2014 2013 Rs.’000 Rs.’000 As at 1 January 36,095 18,873 Charge for the year 9,651 21,918 45,746 40,791 Release on deferred tax on revaluation surplus - (4,696) As at 31 December 45,746 36,095 2014 2013 Temporary Temporary Differences Tax Effect Differences Tax Effect Rs.’000 Rs.’000 Rs.’000 Rs.’000 On Property Plant and Equipment 2,244,935 326,121 1,928,398 283,954 On Retirement gratuity (803,778) (116,764) (641,632) (94,479) On Tax loss carried forward (1,624,907) (236,050) (1,311,627) (193,135) On Biological Assets 498,628 72,439 301,878 44,451 314,878 45,746 277,017 40,791

Weighted average tax rate used to calculate the deferred tax is 14.53%. (2013 - 14.72%)



35

Annual Report 2014


As at 31 December

21 INTEREST BEARING LOANS AND BORROWINGS 2014 2013 Rs.’000 Rs.’000 Amount payable after one year (Note 21.1) 528,961 355,798 Amount payable within one year (Note 21.2) 29,906 64,568 558,867 420,366 21.1 Payable after one year Purpose Rate of Loan Outstanding Lender Interests per Annum 2014 2013 % Rs.’000 Rs.’000 Sampath Bank PLC * Plantation 9.97%-11.40% - 3,280 Development Work Commercial Bank PLC Plantation 6.35%-11.65% - 7,770 Development Work Bank of Ceylon PLC* Plantation 9.35% -12.7% - 1,905 Development Work Seylan Bank PLC * Plantation 11.25% 31,704 43,976 Development Work Hatton National Bank PLC * Plantation 6.35% - 9.65% 497,257 298,867 Development Work Amount payable after one year 528,961 355,798

21.2 Payable within one year 2014 2013 Rs.’000 Rs.’000 Term Loan Payables Sampath Bank PLC * 3,280 5,164 Commercial Bank PLC * 840 21,080 Bank of Ceylon PLC* 5,197 18,269 Seylan Bank PLC * 12,273 12,273 Hatton National Bank PLC * 7,821 7,782 Total term loans payable 29,411 64,568 Advance received from brokers 495 - 29,906 64,568 * Security Sampath Bank PLC Mortgage over Leasehold right of Opata, Houpe & Queensburry Estate Corporate Guarantee by MJF Holdings Limited & Forbes Plantations (Pvt) Ltd Commercial Bank PLC Mortgage over Leasehold right of Craighead Estate for Rs. 85.3 Mn Bank of Ceylon PLC Mortgage over Leasehold right of Pelmadulla and Poronuwa estates Seylan Bank PLC Mortgage over Leasehold right of Imboolpitiya, Kataboola & Kadeinlena. Hatton National Bank PLC Corporate Guarantee by MJF Holdings Limited.


36

Annual Report 2014


As at 31 December

22 RETIREMENT BENEFIT OBLIGATIONS 2014 2013 Rs.’000 Rs.’000 Estate Employees (Note 22.1) 696,567 530,756 Head Office Staff (Note 22.2) 21,013 14,908 717,580 545,664

22.1 Estate Employees Gratuity Liability as at 31 December 2014 is based on the Actuarial Valuation carried out by Mr. Piyal S. Goonathileke & Associates as per which accrued liability as at December 2014 is Rs. 696.5Mn

As at 1 January 530,756 411,493 Current Service Cost 33,696 29,783 Interest Cost 58,383 47,322 Actuarial losses 118,661 97,247 741,496 585,845 Payments made during the year (29,518) (33,897) Transferred to arrears gratuity payable (Note 24) (15,411) (21,192) As at 31 December 696,567 530,756

22.2 Head Office Gratuity Liability as at 31 December 2014 is based on the Actuarial Valuation carried out by Mr. Piyal S. Goonathileke & Associates as per which accrued liability as at December 2014 is Rs. 21 Mn

As at 1 january 14,908 17,717 Provision for the year 3,587 3,254 Actuarial losses 3,721 274 22,216 21,245 Payments made during the year (1,203) (6,337) As at 31 December 21,013 14,908

22.3 Key Assumptions used by actuary include following: a) Rate of Interest 9.50% (2013 - 11%) b) Rate of Salary Increase Tea workers 18% (Every two years) Rubber Workers 18% (Every two years) Staff 30% (Every three years) c) Retirement Age Workers 60 Years Staff 55 Years d) Daily Wage Rate Rs 450 effective from 1st April 2013 e) The Company will continue as a going concern

Sensitivity Analysis - Discount RateValues appering in the financial statements are sensitive to the changes of financial and non financial assumptions used.The sensitivity was carried out as follows; As at 31 December 2014 Rs.’000 Rs.’000Change in Discount rate -1% +1%Present Value of Defined Benefit Obligation 804,426 645,515

Change in Salary Increment Rate -1% +1%Present Value of Defined Benefit Oatibligon 634,571 826,530


37

Annual Report 2014


As at 31 December 23. NET LIABILITY TO LESSOR OF JEDB / SLSPC ESTATES 2014 2013 Rs.’000 Rs.’000 Gross Liability to Lessor for future periods 140,950 145,579 Finance cost allocated to future periods (60,292) (63,572) Net Liability to Lessor for future periods 80,658 82,007 Payable within one year Gross Liability 4,629 4,629 Finance cost allocated to future periods (3,227) (3,280) Net Liability to Lessor 1,402 1,349 Payable within two to five years Gross Liability 18,514 18,514 Finance cost allocated to future periods (12,321) (12,560) Net Liability to Lessor 6,193 5,954 Payable after five years Gross Liability 117,807 122,436 Finance cost allocated to future periods (44,744) (47,732) Net Liability to Lessor 73,063 74,704 Net lease obligations payable after one year 79,256 80,658 In terms of the amendments of leases, Rs.4.232 Mn. is payable every year as lease rental, commencing from 15 June 1996, till

the end of lease on 14 June 2045. This amount is to be inflated annually by the Gross Domestic Product (GDP) deflator in the form of contingent rent.

Consequent to the agreement signed on 4 August 2002 by the Company, Ministry of Plantation Industries, JEDB and SLSPC,

the lease rental payable from 2002/2003 to 2008/2009 was frozen at Rs. 4.629 Mn. multiplied by GDP deflator of 1998, which is Rs.6 Mn. per annum. Thereafter it is inflated annually by GDP deflator as per the agreement. The charge to the Income Statement for the current financial year is Rs.12.51 Mn. (2013 - Rs.11.58Mn.).

Gross contingent rental in respect of leasehold right to bare land for the remaining 31 years of the lease term at the current contingent rental is estimated as Rs. 188,463,143/-.


38

Annual Report 2014


As at 31 December

24. TRADE AND OTHER PAYABLES 2014 2013 Rs.’000 Rs.’000 Trade Payables 41,778 59,272 Staff Salaries & Wage Payables 160,263 192,154 EPF & ETF Surcharge Payable 58,789 58,789 Arrears Gratuity Payable 86,197 95,968 Loan Interest Payable 3,001 2,476 Lease Rental Payable to JEDB/SLSPC 11,163 7,330 PHDT Payable 1,669 1,569 VAT / NBT Payable 514 453 Income Tax / ESC Payable 45 45 Other Creditors 95,913 121,804 459,332 539,860

25. AMOUNTS DUE TO RELATED PARTIES 2014 2013 Trading Non Balance Trading Non Balance Trading Trading Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Forbes & Walker Warehousing (Private) Limited. 1,088 - 1,088 1,074 - 1,074 Ceylon Tea Services PLC. - - - 15 - 15 Forbes Plantations (Private) Limited. 60,926 - 60,926 59,923 - 59,923 MJF Holdings Limited. - - - 6 - 6 MJF Exports (Private) Limited. 1,070 - 1,070 257 - 257 PCL Solutions (Private) Limited. 2,601 - 2,601 2,524 - 2,524 Forbes & Walker Tea Brokers (Private) Limited. 314 349 663 - - - 65,999 349 66,348 63,799 - 63,799


39

Annual Report 2014

Notes to the Financial Statements Contd...Fo

r the

yea

r end

ed 3

1 D

ecem

ber

26.

REL

ATE

D P

AR

TY T

RA

NSA

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26.1

Tra

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tion

s w

ith

Rel

ated

Par

ties

.

M

r. Vi

ren

Rube

ru, M

r. M

alik

J Fe

rnan

do, M

s. M

inne

tte

D.A

Per

era,

Mr.

E.G

unat

unge

, Mr.

Day

a W

ickr

emat

unga

, Mr.

Dilh

an C

Fer

nand

o, M

r. H

imen

dra

Rana

wee

ra a

nd M

r. M

.H.G

unar

athn

e w

ho a

re D

irect

ors

of th

e Co

mpa

ny a

s at

31

Dec

embe

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4, h

ave

dire

ct o

r ind

irect

inte

rest

in a

ll or

som

e of

the

tran

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ions

as

stat

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elow

. The

y ei

ther

indi

vidu

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or i

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ctly

hav

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d/or

, hol

d D

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suc

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late

d co

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.

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com

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N

ame

of t

he D

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N

atur

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the

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s 20

14

2013

A

mou

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Am

ount

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(C

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Gua

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(Cha

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)/

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’000

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s.’0

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Rs.’0

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1.

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sact

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wit

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com

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es P

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atio

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rivat

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Mr.

Mal

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on

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(10%

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p.a

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on

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0% p

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(3,0

13)

- (3

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) -

Mr.

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s re

paym

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- -

(17,

500)

-

M

r. H

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dra

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2.

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ith

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com

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MJF

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s Li

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of C

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to S

ampa

th B

ank

PLC

- 41

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-

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00

Mr.

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rant

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to H

SBC

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0,00

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40

Annual Report 2014

Notes to the Financial Statements Contd...Fo

r the

yea

r end

ed 3

1 D

ecem

ber

26.

REL

ATE

D P

AR

TY T

RA

NSA

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(Con

td.)

R

elat

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Nam

e of

the

Dir

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Nat

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of t

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20

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ount

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(229

) -

(614

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on T

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PLC

Mr.

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(284

) -

(340

) -

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ette

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Mr.D

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rivat

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d.

Mr.

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Fer

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Rent

Inco

me

1,50

0 -

1,50

0 -

Ms.

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D.A

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M

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M

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s. M

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a -

Rent

for o

ffice

pre

mis

es

(3,0

16)

- (3

,042

) -

Mr.

Dilh

an C

Fer

nand

o -

Elec

tric

ity C

harg

es

(1,1

07)

- -

-

Mr.

Him

endr

a S

Rana

wee

ra

- W

ater

Cha

rges

(9

1)

- (7

3)

-

PCL

Solu

tions

(Priv

ate)

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ited.

M

r. M

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erna

ndo

- Su

pply

of P

last

ic B

oxes

(8

,106

) -

(10,

863)

-

/ Pac

kage

Car

e (P

rivat

e) L

imite

d.

Ms.

Min

ette

D.A

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era

M

r. D

ilhan

C F

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ndo

M

r. H

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dra

S Ra

naw

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Am

ount

s du

e to

and

due

from

the

abov

e co

mpa

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are

dis

clos

ed in

Not

e 25

to

the

Fina

ncia

l sta

tem

ents

.

26.2

Tra

nsac

tion

s w

ith

key

man

agem

ent

pers

onne

l

K

ey m

anag

emen

t per

sonn

el in

clud

e m

embe

rs o

f the

Boa

rd o

f Dire

ctor

s of

the

Com

pany

.

Fo

r th

e ye

ar e

nded

31

Dec

embe

r

2014

2013

R

s.’0

00

Rs

.’000

Shor

t-Te

rm E

mpl

oyee

Ben

efits

8,84

7

7,93

8

To

tal C

ompe

nsat

ion

Paid

to K

ey M

anag

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t Per

sonn

el

8,

847

7,

938


41

Annual Report 2014


27. COMMITMENTS There were no material capital commitments as at the reporting date. However, the budgeted capital development programme

for the next year approximately Rs.350 Million.

28. CONTINGENT LIABILITIES

28.1 Hunuwella Estate An extent of 64.85 Ha. on Hunuwella Estate in the district of Ratnapura (Full extent 993.3 Ha.) owned by Sabaragamuwa

Maha Saman Devale, Ratnapura was leased to Hunuwella Tea & Rubber Company Limited., for a period of 30 years from 1 December 1968 to 1 December 1998.

By mistake, the above area taken over by Land Reform Commission in terms of the Land Reform Commission Act was subsequently vested in the Sri Lanka State Plantations Corporation (SLSPC) on 21 April 1994. This area is a part of Hunuwella Estate assigned to the Compnay on the date of incorporation.

It is expected that the temple authorities to take over the Land on the expiry of the lease period. As at the Reporting date no adjustment has been made in the financial statements in this regard.

There were no material contingent liabilities outstanding as at the reporting date other than the above.

29. EVENTS OCCURRING AFTER THE REPORTING DATE Subsequent to the reporting date, no materiel circumstances have arisen which require adjustments to or disclosure in these

Financial Statements.

30 FINANCIAL RISK MANAGEMENT (i) Overview The Company has exposure to the following risks from its use of financial instruments: • Credit risk • Liquidity risk • Market risk • Operational risk This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies

and processes for measuring and managing risks, and the Company’s management of capital. (ii) Risk management framework The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management

framework. The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits.The Company’s Audit Committee oversees how management monitors compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The Company’s Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

(iii) Credit Risk Credit risk is the risk of financial loss to the Company if a customer fails to meet its contractual obligations, and this principally

arises from the Company’s receivables from customers. Exposure to Credit Risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the

reporting date was as follows; Carrying Amount

2014 2013 Rs.’000 Rs.’000

Trade and Other Receivables 150,408 126,539Amount due from Related Company 525 429Balances with Banks 8,613 6,772

159,546 133,740



42

Annual Report 2014



30. FINANCIAL RISK MANAGEMENT (Continued) Trade and Other Receivables The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer.Company’s sales

are done through the brokers at the auction carried out by the Ceylon Tea Board and hence the default risk is insignificant.

(iv) Liquidity Risk Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial

liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company maintains the following lines of credit, Rs 110 Mn & Rs. 210 Mn Overdraft facilities that are secured by a letter of negative pledge over the Company’s

unencumbered assets. Interest would be payable at the rate of (10% - 14%) and (7.68% - 11.21%) respectively. Rs 190 Mn Term loan facilities as depicted in Note 21 to the financial statements.

The following are the contractual maturities of financial liabilities.

Carrying Less than More than Amount 1 year 1 year Rs.‘000 Rs.‘000 Rs.‘000 As at 31st December 2014 Financial Liabilities (Non- Derivative) Interest Bearing Loans and Borrowings 558,867 29,906 528,961 Net Liability to JEDB/SLSPC Estates 82,060 1,402 80,658 Other Amounts Due to Related Company 66,348 66,348 - Trade and Other Payables 459,332 459,332 - Bank overdraft 530,649 530,649 - Total 1,697,256 1,087,637 609,619

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.

Carrying Less than More than Amount 1 year 1 year Rs.‘000 Rs.‘000 Rs.‘000 As at 31st December 2013 Financial Liabilities (Non- Derivative) Interest Bearing Loans and Borrowing 420,366 64,568 355,798 Net Liability to JEDB/SLSPC Estates 82,007 1,349 80,658 Other Amounts Due to Related Company 63,799 63,799 - Trade and Other Payables 539,860 539,860 - Bank overdraft 345,655 345,655 - Total 1,451,687 1,015,231 436,456

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.


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Annual Report 2014



30. FINANCIAL RISK MANAGEMENT (Continued)

(v) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the

Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

(a) Currency risk The Company is exposed to currency risk only on purchases that are denominated in a currency other than Sri Lankan

Rupees (LKR). The foreign currencies in which these transactions primarily denominated are United Stated Dollars (USD). Since the frequency of the transaction done in foreign currency is very low, the company is not exposed to a higher

digree of currency risk. (b ) Interest rate risk The company’s exposure to the risk of changes in the market interest rate relates primarily to company’s long term debt

obligations with floating interest rates. The company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings.

At the reporting date, the companny’s interest bearing finacial instruments were as follows Carrying Carrying Amount Amount 2014 2013 Rs.’000 Rs.’000 Fixed Rate Instruments Financial Liabilities Term Loans 52,157 91,516

52,157 91,516 Variable Rate Instruments

Financial Liabilities Bank Overdrafts 530,649 345,655 Term Loans 506,215 328,850

1,036,859 674,505 Sensitivity analysis If interest rates had been higher by 100 basis points and all other variables were held constant, the profit before tax

for the period ended 31 December 2014 would decrease by Rs. 5,062,150. This is mainly attributable to the Company’s exposure to interest rates on variable rate of interest.

(vi) Capital management The Board’s policy is to maintain a strong capital base so as to maintain share holder, creditor and market confidence

and to sustain future development of the business. The Board of Directors monitors the return on capital and level of dividends to ordinary shareholders.

The Management seeks to maintain a lower level of gearing to go in line with the risk limits they have set for the Company based on the Company’s risk capacity. Accordingly, the borrowings are kept at a minimum level and major part of the borrowings comprise short term fixed interest rate loans from the Parent company and Bank Overdrafts with variable inteterst rates being used only to manange the working capital requirements of day to day operations and finance the acquisition or construct of capital assets of the company.

The Company’s debt to adjusted capital ratio at the end of the reporting period was as follows: 2014 2013 Rs.‘000 Rs.‘000

Non Current Liabilities 1,672,601 1,325,310Total Equity 1,104,408 1,092,053Gearing Ratio 151% 121%

There were no changes in the Company’s approach to capital management during the year and the Company is not subject to externally imposed capital requirements.


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30. FINANCIAL RISK MANAGEMENT (Continued)

(vii) Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company’s

processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Company’s operations.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management. This responsibility is supported by the development of overall Company standards for the management of operational risk in the following areas:

Requirements for the reconciliation and monitoring of transactions Compliance with regulatory and other legal requirements Documentation of controls and procedures Requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to

address the risks identified” Requirements for the reporting of operational losses and proposed remedial actions Development of contingency plans Training and professional development Ethical and business standards Risk mitigation, including insurance when this is effective

Compliance with Company standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the Management, summaries submitted to the senior Management of the Company.

31. FAIR VALUE MEASUREMENT

The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.

Level I: Quoted market price (unadjusted) in an active market for an identical instrument.

Level II: Valuation techniques based on observable inputs, either directly – i.e. as prices or indirectly – i.e. derived from prices. This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level III: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Company determines fair values using valuation techniques.

Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premia used in estimating discount rates. The objective of the valuation technique is to arrive at a fair value determination that reflect the price of the financial instrument at the reporting date, that would have determined by the market participants acting at the arms length.

The Company uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, forward rated contracts that use only observable market data and require little management judgement and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities and government securities. Availability of observable market prices and model inputs reduces the need for management judgement and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets.


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Annual Report 2014


31.1 Financial Instruments not Carried At Fair Values The fair values of financial assets and liabilities, together with the carrying amounts shown in the Statement of Financial

Position, are as follows; 2014 2013 Carrying Fair Carrying Fair

Amount Value Amount Value Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Assets carried at amortised cost Cash and Cash Equivalents 8,613 8,613 6,772 6,772 Trade and other receivables 150,408 150,408 126,539 126,539 Amounts Due from Related Party 525 525 429 429 159,546 159,546 133,740 133,740 2014 2013 Carrying Fair Carrying Fair

Amount Value Amount Value Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Liabilities carried at amortised cost Interest bearing Loans and Borrowings 558,867 558,867 420,366 420,366 Net Liability to JEDB/SLSPC Estates 80,658 80,658 82,007 82,007 Amounts Due to related Companies 66,348 66,348 63,799 63,799 Trade and Other Payables 459,332 459,332 539,860 539,860 Bank Overdraft 530,649 530,649 345,655 345,655 1,695,854 1,695,854 1,451,687 1,451,687

31.2 Fair value hierarchy of the Financial Instruments not carried at Fair Value The following table sets out the fair values of financial instruments not measured at fair value and analyses them by the

level in the fair value hierarchy into which each fair value measurement is categorized

As at 31st December 2014 Level I Level II Level III Total Rs.’000 Rs.’000 Rs.’000 Rs.’000 Assets carried at amortised cost Cash and Cash Equivalents - 8,613 - 8,613 Trade and Other Receivables - - 150,408 150,408 Amounts Due from Related Party - - 525 525 - 8,613 150,933 159,546 Liabilities carried at amortised cost Interest bearing Loans and Borrowings - - 558,867 558,867 Net liability to JEDB/SLSPC Estates - - 80,658 80,658 Amounts Due to related Companies - - 66,348 66,348 Trade and Other Payables - - 459,332 459,332 Bank Overdraft - - 530,649 530,649 - - 1,695,854 1,695,854

As at 31st December 2013 Level I Level II Level III Total` Rs.’000 Rs.’000 Rs.’000 Rs.’000 Assets carried at amortised cost Cash and Cash Equivalents - 6,772 - 6,772 Trade and Other Receivables - - 126,539 126,539 Amounts Due from Related Party - - 429 429 - 6,772 126,968 133,740 Liabilities carried at amortised cost Interest bearing Loans and Borrowings - - 420,366 420,366 Net liability to JEDB/SLSPC Estates - - 82,007 82,007 Amounts Due to related Companies - - 63,799 63,799 Trade and Other Payables - - 539,860 539,860 Bank Overdraft - - 345,655 345,655 - - 1,451,687 1,451,687



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Annual Report 2014



31.3 Assets Carried at Fair Value and Valuation Bases The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in

the fair value hierarchy into which the fair value measurement is categorised: As at 31 December 2014 Level I Level II Level III Total Rs’000 Rs’000. Rs’000 Rs’000 Consumable Biological Assets - - 498,628 498,628 - - 498,628 498,628

As at 31 December 2013 Level I Level II Level III Total Rs’000 Rs’000. Rs’000 Rs’000 Consumable Biological Assets - - 301,878 498,628 - - 301,878 498,628

Valuation bases and the significant inputs used in the valuation of consumable biological assets are disclosed in Note 14 to the financial statements.


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Annual Report 2014

Investor Information

1. Stock Exchange Listing The issued Ordinary Shares of Kahawatte Plantations PLC are listed on the Colombo Stock Exchange.

2. DISTRIBUTION OF SHAREHOLDINGS

Range 31 December 2014 31 December 2013

From To No.of Shareholders % No.of

Shares Held % No.of Shareholders % No.of S

hares Held %

Less than 1,000 19,005 99.22% 2,808,908 3.51% 19,120 99.15% 2,850,458 3.57%1,001 10,000 124 0.65% 325,573 0.41% 138 0.72% 387,859 0.49%

10,001 100,000 17 0.09% 446,527 0.56% 18 0.09% 481,718 0.60%100,001 1,000,000 4 0.02% 2,280,217 2.86% 3 0.02% 1,515,342 1.90%

1,000,001 and over 4 0.02% 74,028,581 92.66% 4 0.02% 74,654,429 93.45%Total 19,154 100.00% 79,889,806 100.00% 19,283 100.00% 79,889,806 100.00%

3. CATEGORIES OF SHAREHOLDERS

No. of Shares Held 31 December 2014 31 December 2013

No.of Shareholders % No.of

Shares Held % No.of Shareholders % No.of

Shares Held %

Local Individuals 19,079 99.61% 3,377,766 4.23% 19,204 99.59% 3,474,026 4.35%Local Institutions 67 0.35% 72,577,150 90.85% 71 0.37% 71,672,386 89.71%Foreign Individuals 6 0.03% 66,900 0.08% 7 0.04% 66,904 0.08%Foreign Institutions 2 0.01% 3,867,990 4.84% 1 0.01% 4,676,490 5.85%Total 19,154 100.00% 79,889,806 100.00% 19,283 100.00% 79,889,806 100.00%

4. MAJOR SHAREHOLDERSName of the Shareholder As at 31 December 2014 As at 31 December 2013

No.of Shares Held % No.of

Shares Held %

Forbes Plantations (Pvt) Ltd. 50,955,581 63.78% 50,955,581 63.78%

Ceylon Tea Services PLC 12,571,800 15.74% 12,571,800 15.74%Bank of Ceylon A/C Ceybank Unit Trust 6,638,710 8.31% 6,450,558 8.07%Phillip Securities PTE LTD 3,862,490 4.84% 4,676,490 5.85%Bank of Ceylon No. 1 Account 838,629 1.05% 931,500 1.17%Peoples Leasing Finance PLC/Carlines Holdings (Private) Limited 741,989 0.93% 475,742 0.60%Carlines Holdings (Pvt) Ltd 591,299 0.74% - 0.00%Mr. T.L.M. Nawash 108,300 0.14% 108,300 0.14%Mr. K. C. Vignarajah 72,300 0.09% 72,300 0.09%DFCC Vardhana Bank Ltd/Mr.B. A. D. H .C .Mahipala 50,000 0.06% 50,000 0.06%Freudenberg Shipping Agencies Ltd 50,000 0.06% 50,000 0.06%Miss. N. Harnam and Mrs.JKP Singh 35,000 0.04% 35,000 0.04%DPMC Assetline Holdings (Pvt) ltd Account No .02 30,400 0.04% 30,400 0.04%Seylan Bank PLC/ Mr. Duleep Nissanka Daluwatte 25,000 0.03% 25,000 0.03%Mr. H.S.M Singh and Mrs. J.K.P Singh 25,000 0.03% 25,000 0.03%Mrs. S.T. Fernando 23,617 0.03% - 0.00%Waldock Mackenzie Ltd/Mr. D.M.P Dissanayake 21,878 0.03% 39,608 0.05%Mrs. E.M. Perera 20,000 0.03% - 0.00%Pan Asia Banking Corporation PLC/ Mr.Ravindra Erle Rambukwelle 16,866 0.02% - 0.00%Mr. R.Elanko 15,000 0.02% 15,000 0.02%

76,693,859 96.00% 76,512,279 95.77%

7. Share Trading 2014 2013No.of Transactions 1,361 1,548No.of Shares traded 2,458,513 1,973,636Value of shares traded ( Rs.) 97,997,759 73,909,463

6. Market Value 2014 2013Highest 42.00 43.00 12-Dec-13Lowest 33.00 28.60 11-Sep-13Closing 35.50 38.80 31-Dec-13

5. Public Share Holding As at 31 December 2014 As at 31 December 2013

The percentage shares held by the PublicTotal no. of shareholders who hold the public holding %

20.48%19,149

20.47%

8. Golden Shareholder The Golden Share is currently held by the Secretary to the Treasury and should be owned either directly by the Government of Sri Lanka or by a 100% Government owned public Company.


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Annual Report 2014

Ten Year Summary

Year Ended 31 Decem-ber

2014 2013 2012 2011 2010 2009 2008 2007 2006 2005

Rs.’000 Rs.’000 Rs.’000 Rs.’ 000 Rs.’ 000 Rs.’ 000 Rs.’ 000 Rs.’ 000 Rs.’ 000 Rs.’ 000

TRADING RESULTS

Revenue 3,078,878 3,511,912 3,001,559 2,985,648 3,287,672 2,733,546 2,317,374 2,037,287 1,544,248 1,460,239

Other Income 35,573 24,277 26,792 21,719 28,499 29,799 27,957 43,913 28,952 44,222

Operating Profit / (Loss) 221,764 263,151 110,200 255,301 442,298 120,019 189,082 290,960 (3,740) 58,172

Finance cost (77,375) (110,170) (91,669) (66,897) (116,267) (163,966) (140,794) (144,264) (121,454) (94,940)

Taxation (9,651) (21,918) (1,019) (16,834) 2,615 (630) (4,914) (5,509) (3,993) (3,430)

Net profit / (Loss) 116,960 116,748 24,462 171,670 328,775 (44,577) 43,374 141,187 (129,187) (28,048)

Total Comprehensive Income 12,355 33,542 61,666 125,199 328,775 (44,577) 43,374 141,187 (129,187) (28,048)

BALANCE SHEETFunds Employed

Stated Capital 898,760 898,760 898,760 898,760 898,760 599,173 599,173 599,173 599,173 599,173

Revaluation Reserve - - 26,753 55,482 98,245 131,643 - - - -

Revenue Reserves 205,648 193,293 128,302 73,183 (85,414) (338,037) (293,460) (336,834) (478,021) (494,636)

Total Equity 1,104,408 1,092,053 1,053,815 1,027,425 911,591 392,779 305,713 262,339 121,152 104,537

Deffered Income 301,058 307,095 316,704 327,752 334,160 287,638 248,159 168,982 151,516 135,142

Deffered Taxation 45,746 36,095 18,873 22,568 - - - - - -

Debentures - - - - - - - - 100,000 -

Retirement Benefit Obligations 717,580 545,664 429,210 450,047 391,243 403,438 317,383 283,664 252,982 196,340

Net Liability to Lessor 79,256 80,658 82,006 83,303 84,549 85,748 86,901 88,008 89,074 90,099

Long Term Loans 528,961 355,798 120,404 168,562 241,638 334,059 384,418 412,865 343,286 410,317

Non Current Liabilities 1,672,601 1,325,310 967,197 1,052,232 1,051,590 1,110,883 1,036,861 953,519 936,858 831,898

2,777,009 2,417,363 2,021,012 2,079,657 1,963,181 1,503,662 1,342,574 1,215,858 1,058,010 936,436

Assets Employed

Non-Current Assets 3,262,110 2,826,174 2,596,303 2,510,174 2,354,156 2,324,475 2,078,274 1,908,243 1,837,123 1,814,135

Current Assets 602,536 606,420 512,012 511,728 527,596 536,183 383,238 419,771 254,746 300,697

Current Liabilities (1,087,637) (1,015,231) (1,087,303) (942,245) (918,271) (1,356,996) (1,118,938) (1,112,156) (1,133,859) (1,032,594)

2,777,009 2,417,363 2,021,012 2,079,657 1,963,481 1,503,662 1,342,574 1,215,858 958,010 1,082,238

Key Indicators

Operating Profit % 7.20% 7.49% 3.67% 8.55% 13.46% 4.39% 8.16% 14.28% (0.24%) 3.98%

Current Ratio 0.55 0.60 0.47 0.54 0.57 0.40 0.34 0.38 0.22 0.29

Return on Shareholder’s Fund 10.6% 10.7% 1.7% 16.7% 36.1% (11.3%) 14.2% 53.8% (106.6%) (11.2%)

Basic Earnings / (Loss) per Share

1.46 1.46 0.31 1.57 4.34 (0.63) 0.72 2.36 (2.16) (0.47)

Net Assets per Share 13.82 13.67 13.19 12.86 11.41 6.56 5.10 4.38 2.02 1.74


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Annual Report 2014

Corporate Information

Name of Company

Kahawatte Plantations PLC(Formerly known as Kahawatte Plantations Ltd)

Legal Form

A Quoted Public Company with limited liability.Incorporated in Sri Lanka on 15 June 1992

Company Registration Number

PQ 109

Accounting Year End

31 December

Stock Exchange Listing

The ordinary shares of the Company are listed on theColombo Stock Exchange of Sri Lanka

Principle Line of Business

Cultivation, manufacture and sale of Tea and Rubber

Directors

Mr. Viren Ruberu - Director/CEOMr. Malik J Fernando - DirectorMs. Minette D A Perera - DirectorMr. Dilhan C Fernando - DirectorMr. Himendra S. Ranaweera - DirectorMr. Daya P Wickramatunga - DirectorMr. Malinga Herman Gunaratne - Director

Management Committee

Mr. Malinga Herman GunaratneMr. Malik J FernandoMr. Daya P Wickramatunga Mr. Viren RuberuMr. Vidura Weerabahu

Senior Management Team

Mr. Viren Ruberu - Chief Executive OficerMr. V W Weerabahu - General Manager - FinanceMr. Upali Premalal - General Manager - Quality AssuranceMr. Chaminda Gunaratne - General Manager - Up CountryMr. Sujeewa Godage - Deputy General Manager - Low Country

Managing Agent

Forbes Plantations (Pvt) Limited,No. 111, Negombo Road,Peliyagoda,Sri Lanka.

Secretaries

P W Corporate Secretarial (Pvt) Ltd,No. 3/17, Kynsey Road,Colombo 08,Sri Lanka.Tel : 0114640360 - 3

Registered Ofice

No. 52, Maligawatte Road,Colombo 10,Sri Lanka.Tel: 011 4724960E-Mail : [email protected] : http//www.kwpl.lk

Bankers

Bank of Ceylon PLCCommercial Bank of Ceylon PLCDFCC BankHatton National Bank PLCHongkong and Shanghai Banking Corporation Ltd.Sampath Bank PLCSeylan Bank PLCStandard Chartered BankUnion Bank of Colombo PLCNations Trust Bank PLC

Auditors

Messrs KPMGChartered Accountants,No. 32 A Sir Mohamed Macan Markar Mawatha,Colombo 3,Sri Lanka.

Legal Advisors

Messrs Sudath Perera Associates,No. 5, 9th Lane,Nawala Road, Nawala,Sri Lanka.


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Annual Report 2014

Notice of Meeting

NOTICE IS HEREBY GIVEN that the Twenty Second (22nd) Annual General Meeting of Kahawatte Plantations PLC will be held on 25 June 2015 at 3.30 p.m. at the Auditorium of the Ceylon Chamber of Commerce, No. 50, Nawam Mawatha,, Colombo 02 for the following purposes:

1. Routine Business

1.1 To receive and consider the Annual Report of the Board of Directors on the Affairs of the Company and the Statement of Accounts for the year ended 31 December 2014 and the Report of the Auditors thereon.

1.2. To re-appoint as a Director, Mr Daya Prabath Wickramatunga who is 75 years of age and who retires in terms of Section 210 of the Companies Act No. 07 of 2007,by passing the following resolution:

“IT IS HEREBY RESOLVED THAT that Mr. Daya Prabath Wickramatunga who is 75 years of age be and is hereby re-appointed a Director of the Company and it is hereby declared as provided for in Section 211(1) of the Companies Act No. 07 of 2007 that the age limit of 70 years referred to in Section 210 of the Companies Act shall not apply to Mr. Daya Prabath Wickramatunga.”

1.3. To re-appoint as a Director, Mr Malinga Herman Gunaratne who is 71 years of age and who retires in terms of Section 210 of the Companies Act No. 07 of 2007, by passing the following resolution:

“IT IS HEREBY RESOLVED THAT that Mr Malinga Herman Gunaratne who is 71 years of age be and is hereby re-appointed a Director of the Company and it is hereby declared as provided for in Section 211(1) of the Companies Act No. 07 of 2007 that the age limit of 70 years referred to in Section 210 of the Companies Act shall not apply to Mr Malinga Herman Gunaratne.”

1.4. To re-elect Mr. Malik Joseph Fernando, who retires by rotation in terms of Article 25(1) of the Articles of Association, as a Director.

1.5 To re-appoint the retiring Auditors Messrs. KPMG, Chartered Accountants as the Company’s Auditors and to authorize the Directors to determine their remuneration.

1.6 To authorize the Directors to determine donations for the year ending 31 December 2015 and upto the date of the next Annual General Meeting.

2. Special Business To appoint as a Director, Mr. Merrill Joseph Fernando who is 85 years of age, in terms of Section 211 of the Companies Act

No. 7 of 2007 by passing the following resolution:

“IT IS HEREBY RESOLVED THAT that Mr. Merrill Joseph Fernando who is 85 years of age be and is hereby appointed a Director of the Company and it is hereby declared as provided for in Section 211(1) of the Companies Act No. 07 of 2007 that the age limit of 70 years referred to in Section 210 of the Companies Act shall not apply to Mr. Merrill Joseph Fernando.”

By Order of the BoardKAHAWATTE PLANTATIONS PLC

P W Corporate Secretarial (Pvt) LtdSecretaries

May 20, 2015Colombo

Notes: 1. A shareholder is entitled to appoint a Proxy to attend and vote at the meeting on his/her behalf.2. A Proxy need not be a shareholder of the Company.3. A Form of Proxy accompanies this Notice.4. The completed Form of Proxy should be deposited at the Registered Office of the Company No. 52, Maligawatte Road,

Colombo 10, by 3.30 p.m. on 23 June 2015


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Annual Report 2014

Form of Proxy

I/We* ……………………………………………………… NIC No. ………………………..............……. of …………………………………………………………...…………………

being a shareholder /shareholders of KAHAWATTE PLANTATIONS PLC hereby appoint ……….....................................................................…..

……………………………………………………………NIC No. ………………….............…….. of …………………….……………………………………………………………….

or failing him*

Mr Malik J Fernando of Colombo or failing him*Mr Gardiya Thanthrige Oscar Viren Ruberu of Colombo or failing him*Ms Minette Delicia Ann Perera of Colombo or failing her*Mr. Daya Prabath Wickramatunga of Colombo or failing him*Mr. Dilhan Chrishantha Fernando of Colombo or failing him*Mr. Himendra Somasiri Ranaweera of Colombo or failing him*Mr. Malinga Herman Gunaratne of Colombo

as my/our* proxy to represent me/us*, to speak and to vote as indicated hereunder for me/us* and on my/our* behalf at the Twenty Second Annual General Meeting of the Company to be held on 25 June 2015 and at every poll which may be taken in consequence of the aforesaid Meeting and at any adjournment thereof.

1 Routine Business

1.1 To receive and consider the Annual Report of the Board of Directors on the affairs of the Company and the Financial Statements for the year ended 31st December 2014 and the Report of the Auditors thereon.

1.2. To pass the ordinary resolution set out under item 1.2 of the Notice of Meeting for the re-appointment of Mr. Daya Prabath Wickramatunga.

1.3. To pass the ordinary resolution set out under item 1.3 of the Notice of Meeting for the re-appointment of Mr. Malinga Herman Gunaratne

.1.4. To re-elect Mr. Malik Joseph Fernando, as a Director in terms of Articles 25(1) of the Articles

of Association of the Company.

1.5. To re-appoint the retiring Auditors Messrs KPMG, Chartered Accountants as the Company’s Auditors and authorize the Directors to determine their remuneration.

1.6. To authorize the Directors to determine donations for the year ending 31st December 2015 and upto the date of the next Annual General Meeting

2 Special Business To pass the ordinary resolution set out under item 2 of the Notice of Meeting for the appointment of Mr. Merrill Joseph Fernando

Witness my/our* hand/s this ………………................................................ day of ……………........................................……. Two Thousand and Fifteen.

………………………………………… Signature of Shareholder/s

* Please delete what is inapplicable.

Note:1. Instructions as to completion appear on the reverse2. A Proxy need not be a shareholder of the company

For Against


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Annual Report 2014

Form of Proxy Contd...

Instructions for completion

1. The instrument appointing a Proxy shall be in writing under the hand of the appointer or of his/her Attorney duly authorised in wiring or if such appointer is a company/corporation, either under its Common Seal, or under the hand of an Officer/s or Attorney duly authorised in terms of the Articles of Association / Statute.

2. In the case of a proxy signed by an Attorney, the original Power of Attorney must be deposited at the Secretaries’ Office (i.e. P W Corporate Secretarial (Pvt) Ltd, No. 3/17, Kynsey Road, Colombo 08 - Telephone :011-4640360/3) for registration.

3. In perfecting the Form of Proxy please ensure that all details are legible.

4. If you wish to appoint a person other than the Chairman (or failing him, one of the Directors) as your Proxy please insert the relevant details in the space provided.

5. Please indicate with an X in the space provided how your proxy is to vote on the resolution. If no indication is given, the proxy in the discretion will vote as he thinks fit.

6. To be valid, this Form of Proxy must be deposited at the Registered Office, No. 52, Maligawatte Road, Colombo 10, by 3.30 p.m. on 23 June 2015.

Quality Policy

We, at Kahawatte Plantations are totally dedicated and committed to produce agribusiness products, that will surpass customer expectations.

We believe that our people, empowered in a learning organization, are our most valuable asset in the value creation process, who should be respected and appropriately rewarded for achieving excellence in everything they do to enhance quality.

We hold ourselves to the highest standards of honesty and integrity and require our suppliers to conform to enable us ensure the quality of our products. We enjoy leading the way in creating best practices with “Passion for Excellence”

Health, Safety & Environment Policy

We, at Kahawatte Plantations firmly believe that respecting our people and planet Earth is a core value in achieving our vision and pledge ourselves to continuously improve our health and safety of our people while setting standards and guidelines to protect and preserve the environment.

We believe that to achieve excellence in everything we do; the health and safety of our people is of paramount importance and it will enhance the productivity, personal growth and our socio economic standing.

We believe that all development should be sustainable while preventing planet Earth, which belongs to our future generations.

We commit ourselves to be proactive in ensuring a healthy and safe workplace by establishing necessary systems and processes to eliminate preventable accidents and set up an environment friendly business practices. We enjoy leading the way in “Respecting Our People and Planet Earth”

Human Resource Policy

We believe that our people are the most valuable asset in driving the Company towards creating the best value agribusiness enterprise and that our people should be given opportunities to thrive in a Learning Organization.

We hold ourselves to the highest standards of honesty and integrity and expect our leaders to be living examples.

We will be leading the way in setting Global best practices in Human Resource Management and Development for continuous improvement. We shall demonstrate our passion for excellence in empowering people in a Learning Organization in order to be “An Employer of Choice”

Viren RuberuDirector/CEO

Our Policies

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Kahawatte Plantation PLC AR-14 - CSE

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Transcript of Kahawatte Plantation PLC AR-14 - CSE